China’s fight to control its history

The Trump-Putin bromance

AT&T and the future of TV

Hands off the Bank of England OCTOBER 29TH–NOVEMBER 4TH 2016 Liberty moves north Canada’s example to the world Contents The Economist October 29th 2016 5

8 The world this week 33 The campaigns Heard on the trail 34 Third-party candidates Leaders Making a U-tahn 11 Canada’s example to the 35 Election brief: Education world Little changes Liberty moves north 36 Lexington 12 The Bank of England Meet Kamala Harris Hands off 12 The International Criminal Court The Americas Back it, join it 37 Venezuela Brexit and the City The financial-services industry 13 Business in America A lurch towards considers its future outside Vertical limit dictatorship the European Union, page 52. 14 Investment banks 38 Brazilian sport On the cover The rise of rugby Politicians who casually attack Canada is uniquely fortunate Too squid to fail the Bank of England’s 38 Nicaragua in many ways—but its integrity are playing with fire: Another term for Ortega liberalism and tolerance hold Letters leader, page 12. Economists lessons for other Western 40 Bello measure the fallout of Brexit, 16 On globalisation, countries: leader, page 11. Ciudad Juárez trembles page 53 Thailand, new drugs, Bill Why Canada is still at ease again Clinton, tourism with openness, pages 19-22. Europe’s new trade vetocracy: Middle East and Africa Charlemagne, page 51 Briefing 41 Off-grid solar power 19 Canada Africa unplugged The last liberals The Economist online 42 The International Criminal Court Daily analysis and opinion to Asia Exit South Africa supplement the print edition, plus 44 African economies audio and video, and a daily chart 23 India’s Muslims Economist.com An uncertain community The oil effect 44 Iraq E-mail: newsletters and 24 Bailing out Mongolia Tightening the noose mobile edition A wrong direction in the steppe Trump and Putin What explains Economist.com/email 45 Turkey’s intervention in the Republican nominee’s Print edition: available online by 25 Influence-peddling in Syria and Iraq fondness for Russia’s 7pm London time each Thursday South Korea Erdogan’s war game president? Page 31 Economist.com/print Gift horse 45 Medical marijuana in Audio edition: available online 25 Politics in the Maldives Israel to download each Friday Sibling rivalry The light-up nation Economist.com/audioedition 26 Pakistan’s business 46 Islamic State’s loss of climate Dabiq If you want it done right Apocalypse postponed 28 Banyan The isolation of South Europe Korea Volume 421Number 9013 47 The Calais “Jungle” End of an ugly affair Published since September 1843 China 48 Inequality and education to take part in "a severe contest between intelligence, which presses forward, and 29 Politics Germany’s Sandernistas an unworthy, timid ignorance obstructing The perils of history International Criminal Court our progress." 48 Regional inequality 30 Cars A tale of more than two South Africa and other Editorial offices in London and also: Parking rage cities countries are wrong to leave: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, leader, page 12. A terrible Lima, Mexico City, Moscow, Mumbai, Nairobi, 49 Spanish politics New Delhi, New York, Paris, San Francisco, blow for the court and for a São Paulo, Seoul, Shanghai, Singapore, Tokyo, United States Mariano Rajoy returns beleaguered country, page 42 Washington DC 31 Trump and Putin 49 Energy efficiency My brilliant friend Populism tastes best hot 32 From DC with love 50 The impact of Brexit Responding to Britain shoots Ireland, too cyber-attacks 51 Charlemagne 33 The Affordable Care Act The age of vetocracy Crunch time

1 Contents continues overleaf 6 Contents The Economist October 29th 2016

Britain Science and technology 52 Financial services 71 Bathymetry Brexit and the City In an octopus’s garden 53 Child refugees 72 The world’s weirdest Dental politics place? 53 The post-Brexit economy Topsy turvy Measuring the fallout 73 Cyber-security 54 Bagehot Crash testing How to be a good bastard 73 Schiaparelli’s end Flash, bang, wallop, what China The Communist Party is a picture Mapping the seabed International struggling to keep control 73 Dealing with autism Researchers have a plan to 55 Early childhood over its version of the past, First, treat the parents chart in detail the depths of page 29 development the ocean floor, page 71 Give me a child 74 Shark behaviour Waste not, want not

Business Subscription service Books and arts For our full range of subscription offers, 57 AT&T and Time Warner including digital only or print and digital Angling for the future of 75 Eleanor Roosevelt combined visit Ahead of her time Economist.com/offers television You can subscribe or renew your subscription 58 Big tobacco 76 Europe’s single currency by mail, telephone or fax at the details below: France v Germany Telephone: +65 6534 5166 All fired up Facsimile: +65 6534 5066 59 Tata Group 76 Man Booker prize Web: Economist.com/offers Mistry’s ousting American victory E-mail: [email protected] Post: The Economist 59 Companies’ dark pasts 77 Mexican Modernism Subscription Centre, Ghosts in the machine Heroic painting Tanjong Pagar Post Office AT&T and Time Warner 78 Johnson PO Box 671 60 Brazilian business Singapore 910817 Why the takeover should be Lexicography unbound Out of the gloom Subscription for 1 year (51 issues)Print only blocked: leader, page 13. Australia A$425 Changes in the television 61 The sharing economy China CNY 2,300 Deflating Airbnb 80 Economic and financial Hong Kong & Macau HK$2,300 industry explain AT&T’s bid for India INR 7,500 Time Warner, but that does not 62 Schumpeter indicators Japan Yen 41,000 Statistics on 42 economies, Korea KRW 344,000 mean the deal makes sense, White-collar crime Malaysia RM 780 page 57 plus a closer look at doing New Zealand NZ$460 business Singapore & Brunei S$425 Taiwan NT$8,625 Finance and economics Thailand US$288 63 Investment banking Other countries Contact us as above Obituary Goldman Sachs reboots 82 Andrzej Wajda 64 Buttonwood Conscience-keeper Principal commercial offices: The election and the 25 St James’s Street, London sw1a 1hg markets Tel: +44 20 7830 7000 65 Digital money Rue de l’Athénée 32 1206 Geneva, Switzerland Known unknown Tel: +4122 566 2470 66 Asian deflation 750 3rd Avenue, 5th Floor, New York, NY 10017 Steel trap Tel: +1212 5410500 66 China’s growth 1301Cityplaza Four, Oddly consistent 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Goldman Sachs It is a Tel: +852 2585 3888 company people love to 67 Clean energy v coal hate—but in one respect Other commercial offices: Fighting the carbs Chicago, Dubai, Frankfurt, Los Angeles, Goldman Sachs is a model for 68 Free exchange Paris, San Francisco and Singapore its industry: leader, page 14. Financial stability Both revered and reviled, the bank is fighting to stay relevant, page 63

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© 2016 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Publisher: The Economist. Printed by Times Printers (in Singapore). M.C.I. (P) No.030/09/2016 PPS 677/11/2012(022861) 8 The world this week The Economist October 29th 2016

collection ofsignatures at an The chiefwhip ofthe African A committee ofJapan’s ruling Politics earlier stage ofthe referendum National Congress, South Liberal Democratic Party process had been fraudulent. Africa’s ruling party, called on proposed to allow party lead- The national assembly, which its entire leadership, including ers to serve fora maximum of the opposition controls, ac- President Jacob Zuma, to re- nine years instead ofsix. If cused the government of sign. He says that fraud charges approved, the rule-change conducting a coup d’état. being brought against the might allow Shinzo Abe to finance minister, Pravin Gord- remain in power until 2021. Donald Trump launched an han, are politically motivated. attackon Obamacare after the About 350 ofthe Chinese government reported that the Ethiopia withdrew its troops Communist Party’s senior cost ofan average health- from Somalia, where they had members held a four-day insurance plan sold through been fighting Islamist mil- meeting at which they discuss- government-run exchanges itants, blaming a cut in funding ed ways oftightening dis- will rise by 22%. The three- forthe mission by the EU. cipline within the ranks. It is month window forbuying likely that the secretive gath- In France the migrant camp at insurance on exchanges opens Israeli prosecutors charged 13 ering also debated plans for Calais was dismantled, with on November1st, spurring a people with inciting violence sweeping leadership changes asylum-seekers sent to pro- hefty rise in health bills for after a wedding video showed next year. President Xi Jinping cessing centres or to Britain, some voters a weekbefore the scenes ofright-wing Jews is certain to keep his job. where many want to end up. presidential election. mocking the death, last year, of Meanwhile, European Union a Palestinian toddler in an China accused America of officials met the Nigerian America’s election and tallying arson attackin the West Bank. trying to “stir up trouble” after government to try to thrash ofthe votes takes place on a rapprochement between out an agreement on sending November 8th, but early Targeting the police China and the Philippines, an failed asylum-seekers backto voting in Florida, a key bat- Militants in Pakistan killed ally ofAmerica. People’s Daily, their countries oforigin. A deal tleground state, got under way more than 60 people at a a mouthpiece ofthe Chinese is sorely needed: the UN’s this week. Florida is one of 37 police-training academy near Communist Party, cited as refugee body said that 2016 has states that allow voters to cast the city ofQuetta. The cadets evidence the recent passage of been the deadliest formigrants their ballots before the official were asleep when the attack- an American destroyer near crossing the Mediterranean, date ofthe election. Turnout ers struck. IS claimed responsi- two islands in the Paracels. with more than 3,800 dead or was said to be brisk. bility, but Pakistani authorities missing. suggested a local Islamist Still facing headwinds Out-of-court disagreement group was to blame. Justin Trudeau, the prime The Gambia became the latest minister ofCanada, cancelled country to say that it is leaving A group of65 Burmese refu- a trip to Brussels to sign a trade the International Criminal gees who had been living in deal with the EU because the Court, claiming that it is unfair- camps along the border with Socialist-led regional parlia- ly targeting African leaders for Thailand returned home ment ofWallonia in Belgium prosecution. Burundi and voluntarily, the first repatria- was refusing to support it. The South Africa recently did tion to earn the approval of deal, which has been seven likewise. The court was set up both governments. Thailand years in the making, is op- in 2002 to bring justice to those has long sought to send home posed by many Europeans responsible for genocide, some ofthe 150,000 Burmese who worry that it will water crimes against humanity and refugees in the country. down rules on environmental other war crimes. standards and labour laws. At South Korea’s president, Park The British government at last the last minute Belgium cob- Geun-hye, apologised for made a decision on expanding bled together an agreement. sharing documents with a airport capacity, giving the friend who had no official go-ahead fora third runway at At a NATO meeting, Spain was government position. Opposi- Heathrow. The proposal, criticised foragreeing to refuel tion lawmakers have accused initially put forward in 2009 Russian warships at its en- the friend ofusing the presi- by the then governing Labour clave in Ceuta in north Africa. dent to secure donations for Party, is controversial. In 2010 a Others in the military alliance two foundations. Conservative-led government feared that the warships could cancelled the project and a help bomb Syria. Russia later Chaos again erupted at Hong final decision has been repeat- withdrew its request. Kong’s Legislative Council edly put off. Theresa May, the amid disputes over the swear- prime minister, whose constit- Scrapping the vote Kurdish forces involved in the ing-in oftwo legislators who uency will be affected by the Hundreds ofthousands of liberation ofMosul, Iraq’s support self-determination for expansion, had pledged to people in Venezuela protested second city, from Islamic State, the territory. Thousands of fight the plan; every mayor of against the country’s authori- besieged Bashiqa, a town just 8 people gathered outside the London has also opposed it; tarian regime. The electoral miles (12km) away. Meanwhile, building to demand that the and Zac Goldsmith, a London commission had earlier Iraqi special forces were two should not take up their Tory MP, resigned his seat in blocked a referendum to recall approaching Mosul’s southern posts because they used dero- protest. After years oftaxiing, the president, Nicolás Maduro, outskirts. Some 7,500 people gatory language about China campaigners hope a third following court rulings that the are said to have fled so far. when they tooktheir oaths. runway may yet fail to take off. 1 The Economist October 29th 2016 The world this week 9

bought cars that fail to meet reform that may unnerve There were signs this weekthat Business pollution standards because it markets ifit fails. antitrust regulators were rais- cheated in emissions tests. VW ing doubts about the wave of AT&T made an offerfor Time will offerto either buy back or Adding to its portfolio ofhotels merger proposals in Warner, in a deal valued at fix the vehicles, though that fix and airlines, HNA, a Chinese agribusiness, possibly delay- $109bn, underlining the push has yet to be approved. conglomerate, said it would ing their completion. Syngenta to establish giants in the media take a 25% stake in Hilton for reassured investors that its industry that combine dis- Tesla Motors made a surprise $6.5bn. It is buying the stake takeover by ChemChina tribution with content. If profit, its first since 2013. The from Blackstone, which pur- would be completed, but said competition authorities ap- maker ofelectric cars reported chased the hotel chain in 2007. it does not now expect this to prove, the acquisition will give net income of$22m forthe The private-equity firm has happen until early next year. AT&T possession ofHBO and third quarter; in the same enlarged the business to more And Bayer defended its other premier cable channels, period last year it had made a than 775,000 rooms world- planned acquisition of as well as a trove offilms pro- loss of$230m. Revenues wide, with Asia providing Monsanto as “entirely logical”; duced by WarnerBros. With its zoomed to $2.3bn. much ofthe expansion. it expects its deal to close by new assets, America’s second- the end of2017. biggest wireless-telecoms firm Ericsson named Borje Ekholm wants to set up a rival to Net- as its new CEO. Mr Ekholm has Apple’s net profit The botnet battalion flix and Amazon, which have been a board member at the $bn A massive “distributed denial- disrupted cable-TV with struggling Swedish telecoms- 60 of-service” attackcaused hun- cheaper services that stream equipment supplier forten dreds ofpopular websites, content over the internet. years, and will carry out his 40 including Netflix and Twitter, new duties from the United to go offline. The perpetrators In a deal that will create the States, where he lives. The 20 hacked devices, such as web- world’s biggest listed cigarette- company recently issued a dire cams and home routers, 0 maker, British American profit warning. 2007 09 11 13 15 16 amassing a botnet, or online Tobacco offered to pay $47bn Years ending September force, that then bombarded a Source: Company reports to take over Reynolds Ameri- The full Monte server in New Hampshire can. With sales ofcigarettes Monte dei Paschi di Siena, Apple reported net income of which is part ofthe internet- declining around the world, the most distressed bankin $45.7bn forthe 12 months address system. Shortly after tobacco companies are scram- Italy’s troubled industry, an- ending September 24th, which the attack, a Chinese electron- bling to develop vapour-based nounced it would shed a tenth was down by14% from its ics maker recalled some ofits products such as e-cigarettes. ofits staffand a quarter of its previous fiscal year. Sales of products, mostly webcams. branches as part ofrestructur- the iPhone have been slowing, The hackers’ code is thought to Mistry solved ing. It also confirmed that it and Apple’s growth in China have originated from an attack In a surprise move, Cyrus would launch a debt-for- has tapered off. Still, the com- on Sony and Microsoft that Mistry was replaced as chair- equity swap to kickstart its pany reckons it will rackup frustrated online-gamers on man ofTata Group, India’s recapitalisation plan. This will sales ofup to $78bn over the Christmas Day in 2014. biggest conglomerate, by Ratan happen in early December, Christmas season, which Tata, who had led the group for when Italians vote in a conten- would make this its best quar- Other economic data and news 20 years and now controls its tious referendum on political ter ever. can be found on pages 80-81 holding company. MrMistry’s defenestration followed in- vestor unease about Tata’s performance and a reported clash over the group’s culture with Mr Tata, who is returning on an interim basis. Mr Mistry didn’t go quietly, depicting his removal as “unparalleled in the annals ofcorporate history”.

Britain’s economy grew by 0.5% in the third quarter, which was much better than had been expected. The period covers the three months since Britain voted on June 23rd to leave the European Union. The manufacturing sector contract- ed in the quarter. Markets shrugged offthe news.

A federal judge approved the $15bn settlement through which Volkswagen will com- pensate customers who Leaders The Economist October 29th 2016 11 Liberty moves north

It is uniquely fortunate in many ways—but Canada still holds lessons forotherWestern countries HO will uphold the torch middle class. Canadians worry about Islamist terrorism, Wof openness in the West? though the country has so far been spared a big attack. Some Not America’s next president. right-of-centre politicians, playing on fears that one will hap- Donald Trump, the grievance- pen, indulge in Trumpian rhetoric. Yet Canada does not seem mongering Republican nomi- tempted to shut itselfofffrom the world. What can other West- nee, would build a wall on Mex- ern countries learn from its example? ico’s border and rip up trade First, Canada not only welcomes newcomers but works agreements. Hillary Clinton, the hard to integrate them. Its charter of rights and freedoms pro- probable winner on November 8th, would be much better on claims the country’s “multicultural heritage”. Not every coun- immigration, but she has renounced her former support for try will fuse diversity and national identity in the same way ambitious trade deals. Britain, worried about immigrants and that Canada does. Indeed, French-speaking Quebec has its globalisation, has voted to march out of the European Union. own way of interpreting multiculturalism, which gives priori- Angela Merkel flung open Germany’s doors to refugees, then ty to the province’s distinct culture. But other countries can suffered a series of political setbacks. Marine Le Pen, a right- learn from the spirit of experimentation that Canada brings to wing populist, is the favourite to win the first round ofFrance’s helping immigrants find employment and housing. Its system presidential election next year. of private sponsorship, in which groups of citizens take re- In this depressing company of wall-builders, door-slam- sponsibility for supporting refugees during their first year, not mers and drawbridge-raisers, Canada stands out as a hearten- only helps them adapt but encourages society at large to make ing exception. It happily admits more than 300,000 immi- them welcome. The UN High Commissioner for Refugees has grants a year, nearly 1% of its population—a higher proportion called on other countries to copy it. than any other big, rich country—and has done so for two de- cades. Its charismatic prime minister, Justin Trudeau, who has Follow the moose been in office a year, has welcomed some 33,000 Syrian refu- The second lesson is the value of knowing when fiscal auster- gees, far more than America has. Bucking the protectionist ity does more harm than good. Canada has been managing its mood, Canada remains an eager free-trader. It was dismayed public finances conservatively forthe past 20 years or so. Now bythe EU’sstruggle to overcome a veto byWalloonson signing in charge of a sluggish economy, Mr Trudeau can afford to give a “comprehensive” trade agreement that took seven years to growth a modest lift by spending extra money on infrastruc- negotiate (see page 51). Under Mr Trudeau, Canada is trying to ture. His government has given a tax cut to the middle class make amends for its shameful treatment of indigenous peo- and raised rates forthe highest earners to help pay forit. These ples, and is likely to become the first Western country to legal- economic policies deserve to “go viral”, the head of the IMF ise recreational cannabis on a national level. has said. Canada has a further economic lesson to impart in how it protects people hurt by globalisation. Compared with Go, Canada! America, its publicly financed health system lessens the terror Irredeemably dull by reputation, less brash and bellicose than of losing a job; it also provides more financial support and America, Canada has long seemed to outsiders to be a citadel training to people who do. And its policy of “equalisation” of decency, tolerance and good sense. Charles Dickens, bewil- gives provincial and local governments the means to maintain dered by a visit to America in 1842, found relief in Canada, public services at a uniform level across the country. where he saw “public feelingand private enterprise in a sound Perhapsmostimportant, thismixture ofpolicies—liberal on and wholesome state; nothing of flush or fever in its system.” trade and immigration, activist in shoring up growth and pro- Modern Canada’s social safety net is stronger than America’s; tecting globalisation’s losers—is a reminder that the centrist itsgun-control lawssaner. Today, in itslonelydefence ofliberal formula still works, ifpoliticians are willing to champion it. In- values, Canada seems downright heroic. In an age of seduc- stead of folding in the face of opposition to liberal policies, Mr tive extremes, it remains reassuringly level-headed. Trudeau and his ministers have instead made the case for Many of Canada’s virtues spring from its history and geo- them. Although free trade is not the hot-button issue in Cana- graphy and are not readily exportable (see page 19). It is easier da that it is in America, they have been tireless in listening to to be relaxed about immigration when your only land border critics and trying to take their concerns into account. is protected by a wall the size of the United States. Apprecia- Canada is far from perfect. It remains a poorer, less produc- tion for the benefits of trade comes more easily to countries tive and less innovative economy than America’s. While next door to big markets. British Brexiteers might justifiably championing freer international trade, Canada has yet to eli- claim that they voted for exactly what Canada already has: minate obstacles to trade among its provinces. For many liber- control of immigration and the freedom to negotiate trade als, Canada’s emphasis on “peace, order and good govern- deals with any country willing to reciprocate. ment”, enshrined in its constitution, is inadequate without an Despite such luck, Canada suffers from some ofthe stresses infusion of American individualism. But for now the world that feed populism in other rich countries. It has experienced a owes Canada gratitude for reminding it of what many people decline of manufacturing jobs, stagnant incomes for most of are in danger of forgetting: that tolerance and openness are its citizens and rising inequality. It, too, frets about a shrinking wellsprings ofsecurity and prosperity, notthreats to them. 7 12 Leaders The Economist October 29th 2016

The Bank of England Hands off

Politicians who casually attackthe central bank’s integrity are playing with fire OR nearly two decades Brit- prime minister, Theresa May, warned in a clumsily worded Britain’s inflation Fain’s monetary policy has speech that the bank’s regime of low interest rates and quanti- CPI, % change on a year earlier 25 been independently set by the tative easing (printing money to buy government bonds) had 20 BoE INDEPENDENCE Bank of England, according to penalised the poor, vowing: “A change has got to come. And 15 targets defined by the govern- we are going to deliver it.” 10 5 ment. Removing direct control Enough. This newspaper has been ready to criticise the 0 of interest rates from politicians, bank when it errs, as it did in its handling of the financial crisis 1970 80 90 2000 10 15 who were inclined to fiddle of 2007. There is, rightly, a lively public debate about the poli- with them for electoral gain, has made for a better-run, more cies of central banks, from America’s Federal Reserve to the stable economy in Britain, as it has in many other countries. European Central Bank. Yet the present onslaught on the Bank Yet one ofthe aftershocks ofthe Brexit earthquake in June is ofEngland is an attacknot just on its policies but on its political that the Bank of England’s independence has been called into neutrality and independence, which for 19 years have helped question. There has been a growing chorus of criticism of the underpin Britain’s status as a haven ofrelative stability. central bank, with increasingly senior pro-Brexit politicians This is a particularly dangerous time to launch such an at- calling for the government to boot out its governor and take tack. Sterling’slossofnearlya fifth ofitsvalue since the referen- backcontrol ofmonetarypolicy. Such a course remains unlike- dum shows how Britain has already been devalued in the eyes ly, for now. But the rhetoric is dangerous. The people chipping of the world. The City of London risks losing some, and per- away at one of the remaining pillars of Britain’s financial sta- haps a lot, of the financial-services business that has powered bility should lay off. Britain’s growth and provides a big chunkofits taxes (see page 52). And investors can hardly look to the opposition for reas- From the people who brought you Brexit surance: Labour has sent mixed signals, proposing a distinctly The feistiest criticism has come from overexcited Tory back- non-independent-sounding “people’s quantitative easing” benchers, giddy from their referendum victory over “experts”, and promising to review the BankofEngland’s role. among whom they include MarkCarney, the bank’s governor. None of this makes anyone keener to invest in Britain. It They were infuriated by his willingness during the campaign maywell make MrCarneymore likelyto jump ship (asa Cana- to spell out the economic risks of Brexit, which they said com- dian migrant he is, after all, a “citizen of nowhere”, to use Mrs promised the bank’s political neutrality. They are now echoed May’s ill-judged slur on high-flying globetrotters). A few sensi- by more influential figures. Michael Gove, a recently sacked ble types, including Philip Hammond, the chancellor, seem to cabinet minister, advised the “arrogant” MrCarney to “ponder realise that Britain does not need further shocks to its financial the fate ofthe Chinese emperors, overwhelmed by forces they stability, and are trying to play down the row. He and Mrs May could not control”. William Hague, a former Tory leader, must now speak out above the din, saying loud and clear that threatened that if central bankers in Britain and elsewhere did the BankofEngland’s independence is beyond question. Hav- not soon raise interest rates, “the era oftheir much-vaunted in- ing opted to leave the EU after a campaign that urged voters to dependence will come…to its end.” Most worryingly, the ignore “experts”, Britain needs all the expertise it can get. 7

The International Criminal Court Back it, join it

African countries are wrong to leave OUTH AFRICA’S decision to which is under “preliminary examination” by the ICC for its Sstomp out of the Internation- president’s bloody suppression ofdissent; the Gambia, anoth- al Criminal Court (ICC) is de- er nasty regime, followed suit this week (see page 42). It would plorable. It is inconceivable that be tragic if South Africa set in motion a domino effect that Nelson Mandela would have prompted ever more African countries to leave the court. A done such a thing. Virtually all wave of withdrawals would reverse the progress towards right-thinking liberals and law- greater rule oflaw across the continent and beyond. yers in his country have con- The charge of anti-African bias laid against the court, main- demned the move. In the name ofstanding up against the sup- ly by a clutch of governments whose leaders are vulnerable to posed anti-African bias of the court, South Africa has aligned its vigilance, is understandable—but wrong. True, eight of the itself with the autocrats of the continent and given succour to nine countries about which cases have been heard, or are un- those who have committed appallinghuman-rights abuses. Its der way, are African. And all those so far convicted have been announcement on October 21st followed that of Burundi, African. But that is because African governments, mindful of1 The Economist October 29th 2016 Leaders 13

2 the horrors of apartheid and the genocide in Rwanda, have the ascendant, has rallied to the ICC. All the same, the ICC and been keenest to sign up to the court and have actively initiated its admirable chief prosecutor, Fatou Bensouda (a Gambian cases. Indeed, most of the ICC’s cases were referred to it by Af- woman), do need to reassure African countries that it is impar- rican governments themselves, while two (Libya and Sudan) tial. Even governments that take human rights seriously jib at were brought by the UN Security Council. The only exceptions the way non-Africans seem to get away with murder. to this pattern involve Kenya. The ICC indicted the current Syria, a non-signatory along with most Arab countries, president and deputy president afterat least1,300 people were should obviously be in the ICC’s sights, but Russia would killed in post-election violence in early 2008. It was Kofi An- block its referral in the UN Security Council. Last year’s addi- nan, the UN’s former head, a Ghanaian, who recommended tion ofGeorgia to the list ofplaces where war crimes are being that the ICC bring charges. After the cases against President investigated was timely. Ofthe ten othercountries where “pre- Uhuru Kenyatta and his deputy were dropped a year ago, the liminary examinations” are under way but not yet close to a court issued a “finding ofnon-co-operation”, a polite term that trial, half are outside Africa, namely Afghanistan, Colombia, included accusations ofwitness-tampering. Iraq, Palestine and Ukraine. It would be better still if big coun- Jacob Zuma, South Africa’s dire president, has already tar- tries signed up to the court. But the United States has refused to nished his country’s reputation as a beacon of morality by his do so, as have Russia and China. own entanglements with the law at home. Now he has added to the damage by disdaining the ICC abroad. He thinks it The wheels of justice move slowly should, among other things, grant immunity to incumbent International justice is plainly imperfect, but is worth pursu- leaders. Leaving the international court may, MrZuma hopes, ing. Patience is in order. Tribunals for Yugoslavia, Rwanda and make iteasierforhim to fend offthe remonstrations ofhisown Sierra Leone, whose experience led to the creation of the ICC’s courts, which may yet punish him for inviting Sudan’s presi- permanent court, all took time to bear fruit. The ICC, though dent, Omar al-Bashir, to cosy meetings in South Africa, despite underfunded, has begun to speed up, and has established im- his indictment by the ICC for mass murder in Darfur. portant new principles, including convictions for rape and de- African leaders who seek to play the populist, anti-Western stroying historic monuments in conflict, both now deemed card to fend off the long arm of the law, whether domestic or potential war crimes. In any event, the ICC’s purpose is to international, are—so far, at least—the minority. They belong to bring justice to voiceless victims, not to let the powerful offthe the bad old Africa of the past. The good Africa, still happily in hook, be they from Africa or any other part ofthe world. 7

Business in America Vertical limit

AT&T’s takeoverofTime Warnershould be blocked NE of the biggest problems and Amazon (see page 57). They are watching their phones Domestic pre-tax profit Ofacing America’s economy more and TVs less. AT&T, which makes 80% of its sales from Trailing four quarters, $bn is waning competition. In the “pipes”—mobile and fixed broadband and voice lines—says it 010203040 HBO Berkshire Hathaway home of free enterprise two- wants to buy Time Warner, which owns and Warner Wells Fargo thirds of industries have be- Brothers, amongotherassets, to bulkup in the media business. AT&T/Time Warner come more concentrated since Antitrust authorities have recently blocked “horizontal” JPMorgan Chase the 1990s, partly owing to lots of telecoms mergers, in which a firm seeks to buy a rival. They Verizon mergers. Fat, cosy incumbents stopped AT&T from buying T-Mobile in 2011, and Comcast, a hoard cash, invest less, smother new firms that create jobs and broadband firm, from buying TWC in 2015. But they have been keep prices high. They are rotten forthe economy. easieron “vertical” mergers, in which a firm ties up with a sup- Boosting competition should be a priority for whoever oc- plier—such as when pipe companies buy content firms. Com- cupies the White House in 2017, and for Congress. Now a test cast was allowed to buy NBC Universal, a broadcaster, in 2011, case is waiting in the in-tray. AT&T, America’s fifth-biggest firm albeit with the condition that it made its content available to by profits, wants to buy Time Warner, the second-biggest me- all itsrivalsand keptitspipesopen to othercontent, so thatcus- dia firm. The $109bn megadeal isn’t a simple antitrust case, be- tomer choice was not hurt. cause it involves a firm buying a supplier, nota competitor. But There are two reasons why trustbusters should now take a there is a strong case that it will limit consumer choice in a part tougher line. First, the telecoms industry is already a rent-seek- ofthe economy that is rife with rent-seekingand extend a wor- ers’ paradise. Americans pay at least 50% more for mobile and rying concentration ofcorporate power. It should be stopped. broadband service than people in other rich countries. For each dollarinvested in infrastructure and spectrum, American Dial M formonopoly operators make 28 cents of operating profit a year, compared The businessofwhatAmericanswatch and howtheycommu- with 18 cents for European firms. That reflects the lack of com- nicate has seen waves of change. In 1984 AT&T’s national petition. AT&T and Verizon control 70% of the mobile market, phone monopoly was broken up. In 1990-2010 the rise of the and are the only firms that reach 90% or more of Americans web and mobile phones led to manic dealmaking. Today peo- with high-speed services. Halfofthe population has no choice ple are buying fewer bundles of shows from traditional TV of fixed-broadband supplier. The lack of downstream compe- firms and instead viewing online, including through Netflix tition in pipes could distort competition in upstream content. 1 14 Leaders The Economist October 29th 2016

2 A combined AT&T and Time Warner might seek to limit regulation is already intensely political, and AT&T today is no what any near-captive customers watch, for instance, thus de- shrinking violet, being a vocal opponent of net neutrality, the nying other content providers viewers. Safeguards of the sort rules that ensure that all online traffic is treated equally. attached to the Comcast-NBC deal are not much use in prac- Precedent suggests that the trustbusters in the Department tice. One way round them is “zero-rating” plans, in which pipe of Justice (under the auspices of the president), and not the firms exempt some TV services from people’s monthly data Federal Trade Commission (a creature of Congress), will have caps, making them more attractive. Another is altering the the biggest say on the tie-up. This means the deal is being placement of content in on-screen menus in order to bury ri- struck just as there is a change of leadership at the top. Those vals’ material. AT&T says this is not its aim, but why else would advising on the merger may be gambling that this makes the it pay a $20bn premium forTime Warner? authorities unlikely to initiate a strongline on vertical mergers. A second concern is that AT&T-Time Warner would have That is all the more reason to be bold. Politicians and regula- vast political and lobbying power, allowing it to bend rules tors may eventually resolve to open up the industry more, for over time, including any antitrust remedies that it agreed with example through “unbundling”, which lets upstart firms use regulators. It would capture 28% ofthe media-and-telecoms in- others’ pipes. Until then they should block the AT&T-Time dustry’s pre-tax profits and 2% of all corporate profits, making Warner deal and make clear that competition, not consolida- it America’s third-biggest domestic firm. Media and telecoms tion, is the way to get America’s economy working better. 7

Investment banks Too squid to fail

Goldman Sachs is a company people love to hate—but in one respect it is a model forits industry N ITS pomp, Goldman Sachs not going to ease. One is towards the “disintermediation” of Iwas in a class of its own. No banks, a decades-long process accelerated by a technological Wall Street investment bank revolution. This led Wall Street firms to seek profits as risk-tak- was as well-connected, as arro- ers rather than intermediaries. But that trend runs counter to gant, as influential—nor as the second: tighter regulation imposed in the wake of the crisis feared and derided: the “Great in 2008, to try to ensure it never happens again. This is elimi- Vampire Squid” of Rolling Stone nating whole lines ofbusiness, and, through the imposition of legend. It still has the best brand higher capital requirements, is making others less profitable. name in the business. But like the rest of its industry, ithas not fully recovered from the near-death experience of2008. Banks Goldman sacks are the untouchables of global stockmarkets. Even the boss of An obvious response to this squeeze is the most brutal and im- one, Credit Suisse, has described them as “not really invest- mediate form of cost-cutting: redundancies and the elimina- able”, and, sure enough, sharesin manyofthe mostprominent tion of any expense seen as discretionary. At Goldman the firms—Deutsche Bank, Citigroup, Bank of America—trade well number of people engaged in trading shares has fallen from a below book value, suggesting they would be better off liqui- peakof600 in 2000 to just two today. Buried within recent up- dated. Goldman’s shares trade virtually at book value. But beat earnings reports by the banks were announcements of even it is a shadow of its former self. more job losses, including at Goldman. A more profound re- Goldman, however, did not become a byword forfinancial sponse, however, is to go beyond retrenchment to recognise acumen without acquiring some acute self-diagnosis skills. It that banks are, at their core, technology companies, whose is turning into an industry leader in another way: as an exem- business is to push numbers down digital pipes. Money has plarofthe wrenchingtransformation banksneed to undertake long been primarily an electronic construct. in order to survive and prosper (see page 63). Goldman is ahead of the pack in embracing the changes This might seem an odd moment to be writing the obituary this recognition implies. A plethora of new initiatives seeks to of a business model that has delivered such prestige, power turn technology into its friend and take it into entirely new and privilege for the Wall Street elite. Banks’ aggregate profits lines of business. In-house, it is automating and streamlining have long since recovered to pre-crisis levels, and the quarter its traditional businesses, identifying 146 steps across 45 sys- for which results have just been published has been a particu- tems that can be simplified in an initial public share offering, larlygood one forthose institutionsstill standing: Goldman re- for instance. This month it launched a new internet operation, ported its first double-digit return on equity for six quarters, named Marcus, to lend to consumers. It has incubated a num- and it did so by makingmoney in its traditional trading and ad- ber oftech firms. One, Symphony, offers a messaging platform, visory businesses. The results seemed to vindicate those who and dreams of rivalling Bloomberg. Another, Kensho, offers a have argued that the ever-thinner elite of global investment kind of real-time cyber-encyclopedia to find correlations be- banks would eventually come good, as weaker rivals retrench tween world events and price-sensitive assets. and leave the field. Some of these Goldman initiatives may come to be seen as Far from it. The good quarter was a single swallow. Returns faddish indulgences and fail—and they are mirrored by a on equity and assets have not rescaled former peaks. Rather, scramble for new ideas at its peers. But the effort puts Gold- they have fallen to a new, significantly lower, plateau. The in- man on the right side of an embattled industry that, unable to dustry remains squeezed between two secular trends that are transform its operating environment, must transform itself. 7 16 Letters The Economist October 29th 2016

Why they’re right ignore or downplay the latter, through his compassion and “to flirt or trifle with someone” thus producing a backlash. actions that King Bhumibol and canoodling as “to kiss and A lot ofwhat you said in your Something is Kaldor-Hicks achieved his divine-like status cuddle amorously”. Really? leader on trade and global- efficient not only ifit actually among the Thai people. Bill Clinton had oral sex in isation made sense, but those maximises net wealth but also Finally, the claim that it was the Oval Office ofthe White who oppose trade deals are when losers are compensated in King Bhumibol’s self-in- House while serving as presi- not “wrong” (“Why they’re fortheir losses. Somewhere terest to urge Thai people to dent ofthe United States. Not wrong”, October1st). Free- along the line economists and favour moderation over once, but on several occasions. trade deals have changed politicians forgot this part of wealth is absurd. No mention His behaviour was not only remarkably since the repeal of the equation. was made ofthe several thou- lewd and offensive but also the Corn Laws in the 1840s. PROFESSOR DAVID SCHULTZ sand royal projects that dis- shocking. Yourrendition of the Accords such as the Trans- Editor tributed his wealth mainly to matter suggests that the adage Pacific Partnership, the Trans- Journal of Public Affairs assist rural people. that boys will be boys still atlantic Trade and Investment Education SEK WANNAMETHEE holds. I wonder ifyou would Partnership and the Compre- St Paul, Minnesota Spokesperson of the Ministry of have used the same innocent hensive Economic and Trade Foreign Affairs adjectives ifBill had been a Agreement are more about Thailand’s late king Bangkok Republican president? protecting the interests of large BECKY WSZOLEK multinational corporations Yourportrayal ofThailand’s Niche medicine Dorset, Vermont than they are about reducing late King Bhumibol Adulyadej costs for consumers and pro- as a tacit supporter ofcertain As a doctor I take issue with A gorgeous view moting competition. political groups couldn’t be your arguments against the These deals expand furtherfrom the truth (Obitu- early approval ofniche-treat- intellectual property rights, ary, October13th, online and ment medicines, such as increase patent protections digital editions). King Bhumi- eteplirsen (“Bad medicine”, and enable foreign companies bol performed his duties as a October15th). These used to be to sue governments foralleged constitutional monarch in a know as “orphan drugs” be- losses ofpotential profits in neutral manner and stood far cause they applied to a tiny supranational courts through above the turmoil ofThai proportion ofthe public with “investor state dispute settle- politics. When politics threat- rare conditions. Yourline of ments”. This is what the pro- ened to spill over into blood- thought suggests that any new testers are most opposed to: shed, King Bhumibol would drug not passing phases one to noxious provisions that boost step in and demand compro- three in clinical protocols is the economic power oflarge mises that saved lives. The idea ineffectual. I concede that corporations at the expense of that he encouraged political advances in pharmacology democratic governments, movements is ridiculous. such as eteplirsen do not offer Richard Wynne criticised smaller businesses and Moreover, Thailand’s lèse- cures per se, but in many cases space tourism forbeing the individual citizens. majesté law is an extension of they have prolonged life. plaything of“plutocrats” TOBY SANGER the country’s libel laws. Its The development ofdrugs (Letters, October15th). Yet all Economist purpose is to protect the mon- forconditions that affect the tourism started out aimed at Canadian Union of Public archy from defamatory state- masses, such as hypertension the elites. ThinkofLord Byron Employees ments. It does not exist to and diabetes, should be sub- and the Grand Tour, spending Ottawa suppress freedom ofspeech. ject to the rigours ofa rando- a few months visiting Greece King Bhumibol was willing to mised double-blind study and southern Italy, seeing the Globalisation is inevitable, but accept criticism but was not in before entering the market. But sights and picking up the odd the current configuration a position to change such laws, the poor unfortunates who bit ofstatuary forone’s coun- favouring neoliberal politics as legislative power lies abso- have been dealt a losing hand try estate. The first Western and economics is not. It is lutely with parliament. by the genetic lottery should explorers to reach the Grand entirely possible to integrate It was also wrong to claim not be condemned to prema- Canyon thought that theirs domestic economies in ways that King Bhumibol was made ture death because ofa rigid would almost certainly be the that do not favour capital over “semi-divine” through ceremo- bureaucratic monolith behold- only party ofEuropeans to labour or inequality over nial and ritualistic means. en to the status quo. visit such a remote location. equality. More social democra- Throughout his 70-year reign, J.A. MCERLEAN Today it is a huge tourist desti- cy would address that. the king worked tirelessly to Farmington Hills, Michigan nation. There are always peo- The case forfree trade has improve the livelihoods ofhis ple prepared to go one better rested on a confusion between subjects. They regarded him as Asexact than the neighbours when it two notions ofefficiency: a father figure, a man who comes to choosing where to go Kaldor-Hicks and Pareto. Free- cared about the suffering of I do not support nor do I on holiday. trade agreements are Kaldor- others. He lived in a humble admire Donald Trump. Having PETER DAVEY Hicks efficient because they wooden house, drove a simple said that, I also do not admire Bournemouth, Dorset 7 produce overall net gains to car, wore an inexpensive Bill Clinton, whom you welfare, but they are not Pareto watch and dressed in simple described as “dallying” with efficient in that they do not attire. He met the people in the Monica Lewinsky in one Letters are welcome and should be addressed to the Editor at make some better offwithout most far-flung places ofhis sentence and then The Economist, 25 St James’s Street, making some worse off. Econ- kingdom, taking photographs, “canoodling” with her in London sw1A 1hg omists and politicians have sharing rice and tea while another (“Hating Hillary”, E-mail: [email protected] been too quickto point to the sitting on the floor and hearing October 22nd). Webster’s More letters are available at: formertype ofefficiency but about their problems. It was dictionary defines dallying as Economist.com/letters

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Briefing Canada The Economist October 29th 2016 19

plans to legalise recreational cannabis. Mr The last liberals Harper was close to being a climate- change denier; Mr Trudeau announced in October that he would set a price on car- bon emissions. A month into the job he went to Toronto Pearson International Air- WINNIPEG port to welcome some of the 32,737 Syrian refugees admitted since he tookoffice. Why Canada is still at ease with openness Mr Trudeau’s domestic critics—so far a OST people “would give anything to and Cree. Its Central Mosque is a few minority—deride him as “Prime Minister Mtrade places with you,” Dwight Mac- blocksdown Ellice Avenue from the Hindu Selfie” forposingincessantly with fans and Auley, the province of Manitoba’s chief of Society of Manitoba. The Juliana Pizza & celebrities, sometimes (though not as pic- protocol, tells his audience. No one dis- Restaurant serves its “Greek/Jamaican tured, above) with his shirt off. To Euro- agrees. In a packed hall in Winnipeg’s cen- food” just a bit fartheron. pean and American liberalshe isa champi- tury-old train station, 86 immigrants from Canada’s openness is not new, but it is on of embattled values and his country a 31 countries are becoming citizens of what suddenly getting global attention. It is a haven with many charms (see chart 2 on Mr MacAuley characterises as one of the happy contrast to what is happening in subsequent page). “The world needs more “greatest, freest, richest nations that has other rich countries, where anger about Canada,” said Bono, the activist and lead ever existed”. Some crowned with tur- immigration helped bring about Britain’s singer of U2, in September. When in Ot- bans, others with hijabs, they sing “O Can- vote for Brexit, Donald Trump’s nomina- tawa recently the IMF’s chief, Christine La- ada” and take the oath of citizenship in tion and the rise of populist parties across garde said she hoped Canada’s pump- English and French. Alocal memberofpar- Europe. And it has an appealing new face: priming economic policies would “go vi- liament, Robert-Falcon Ouellette of the Justin Trudeau celebrates his first anniver- ral”. Mr Trump’s“Super Tuesday” victories Red Pheasant First Nation, drums an hon- sary as prime minister on November 4th. saw Google searches for “How to move to our song. A Mountie in red serge stands at Mr Trudeau comes from Canada’s estab- Canada” surge south ofthe border. attention; afterwards he poses for pictures lishment—he is the son of a former prime Canada is not exempt from stresses that with the new Canadians. minister—but is not despised for it. A for- are causing other rich countries to freak Some 2,000 such events take place mer high-school teacher and snowboard- out. “All the pressures and anxieties that across the country every year. Fresh re- ing instructor, his cheeriness played a large people are feeling around the world exist cruits keep coming (see chart 1 on next part in the Liberal Party’s victory over Ste- here,” Mr Trudeau said in a recent inter- page). Canada admitted 321,000 immi- phen Harper, a dour Conservative who view with The Economist. But Canada grants in the year to June 2016, nearly 1% of had governed Canada foralmost ten years. seems to be coping with them less hysteri- its population; typically 80% of them will cally. In part, this is thanks to history. After become citizens. It is contemplating an in- Dancing across the water Britain wrested control of Quebec from crease to 450,000 by 2021. A fifth of Cana- Where Mr Harper was liberal, for example France in 1763 its new French-speakingsub- da’s population is foreign-born, nearly on trade, Mr Trudeau carries on his poli- jects resisted assimilation. So did Canada’s twice the share in America. cies. Where the Conservative clenched, indigenous groupings: Inuit, First Nations The warmth of the welcome is as strik- the Liberal loosens. Mr Trudeau is seizing and mixed-race Métis. Such resistance was ing as the scale of the intake. Immigrants the opportunity offered by low interest sometimes met with oppression and cruel- are encouraged to keep their cultures. Win- rates to ramp up investment in infrastruc- ty, and Canada’s treatment of its indige- nipeg’s public schools have classes taught ture. He will end a visa requirement for nous peoples has been atrocious in some in Spanish and Ukrainian aswell asFrench Mexicans that Mr Harper imposed and times and places. But as Peter Russell, a Ca-1 20 Briefing Canada The Economist October 29th 2016

2 nadian historian, argues in a forthcoming Ontario and the Niagara peninsula are as believe me in this part of the world we book*, their “incomplete conquests” blighted by industrial decay as depressed need more ofthem,” he says. forced Canada’s overlords into habits of parts ofPennsylvania and Michigan. Two linked factors bolster this pro-im- accommodation that have shaped the Nor does the national creed of toler- migrant feeling. One is a matter of geogra- country ever since. “Diversity is our dis- ance carry all before it. Mr Harper flirted phy. Refugees do not arrive by the hundred tinctive national value,” he says. with Islamophobia: during the election thousand in overloaded dinghies; impov- Canada’s selective but eclectic taste in campaign he called for women at citizen- erished children do not sneak across the immigrants goes back a fair way, too. Clif- ship ceremonies to unveil. Kellie Leitch, an southern border. Illegal immigration, ford Sifton, the interior minister in the ear- MP who aspires to succeed him as head of which so enrages Mr Trump and his aco- ly 20th century, sought out farmers from the Conservative Party, wants to screen im- lytes, is “hardly noticeable” in Canada, Ukraine, Germany and central Europe in migrants for “anti-Canadian values”. Re- says Jack Jedwab of the Canadian Institute preference to British immigrants. His ideal sentment against Chinese buyers who are forIdentities and Migration in Montreal. was “a stalwart peasant in a sheepskin driving up house prices in Vancouver can The second is a matter of policy. Cana- coat” with “a stout wife and a half-dozen be tinged with racism. da’s points system gives the government a children”. This does not mean that the Questions of identity are particularly way to admit only the sort of people it country was always all-welcoming. Cana- complex in Quebec, where the Parti Qué- thinks the country needs. This ability to da “turned away boatloads of Punjabi and bécois has called for a ban on burqas for regulate the influx fosters public approval. Jewish refugees” in the 20th century, notes those seeking public services. The French- Immigrants are twice as likely to have uni- Mr Trudeau; 100 years ago Chinese immi- speaking province prefers “intercultural- versity degrees as people born in the coun- grants had to pay a head tax. But by the ism” to Anglophone talk of “multicultural- try, notes Mr Jedwab. Refugees jump middle of the century Canada was admit- ism”, regarding its language and culture as through hoops, too. The Syrians that Mr ting non-Europeans on a large scale and in the basis of its identity. Philippe Couillard, Trudeau embraced were first subjected by 1962 it scrapped all ethnic criteria for immi- the province’s Liberal premier, likens that Canadian officials to the sort of extreme grants. Five years later it introduced its core to the trunkofa tree, from which other vetting that Mr Trump might approve of. points system, which scores would-be im- identities can branch off. For Anglo-Cana- None of this guarantees success in their migrants on the basis of such criteria as da, dominant within Canada but over- new home. Immigrants struggle, especial- skills, education, work experience and shadowed by America, cultural diversity ly during their first years in the country, al- ability to speak English or French. itselfis the trunk. though theirchildren do much better. They As with people, so with goods. Cana- have lower incomes than natives, unless da’s vocation for trade began in the early When we were strangers they are from Europe or English-speaking 17th century, when French fur traders es- But though there are some misgivings, countries such as India. Employers are tablished bases in what are now Nova Sco- some 80% of Canadians think immigrants more likely to interview applicants with tia and Quebec. “We have always been de- are good forthe economy, accordingto a re- English-sounding names than foreign pendent on trade with the world,” says Mr cent survey by the Environics Institute, a ones, an experiment in Toronto showed. Trudeau. “So an anti-trade argument really polling firm. An ageing workforce means Foreign qualifications may not be recog- doesn’t get very far in Canada from the that belief is likely to strengthen: as Prime nised. But the points system gives politi- get-go.” Exports plus imports account for Minister John Diefenbaker put it in 1957, cians a way at least to appear to be doing 65% of Canada’s GDP, more than double “Canada must populate or perish”. This is something about such problems. Mr Har- their share of the American economy. particularly true in the Atlantic provinces, per introduced an “Express Entry” system Nearly three-quarters of Canada’s trade is where more Canadians die than are born which greatly increased the number of with the United States. and the median age exceeds that in the rest points forpeople with job offers. This habit of openness has not made of the country by nearly five years. Nova Another reason why Canadians are not Canada immune to its costs. Factory em- Scotia, which received 200 refugees last worried about immigration is that they ployment dropped from almost 2m in year, has taken in 1,100 Syrians. Brian Do- feel less insecure. Compared with the Un- 2000 to 1.5m in 2015, with some of those herty, himself an immigrant from North- ited States, Canada’s losers are less wretch- jobs moving to Mexico—Canada’s partner, ern Ireland, hired four to work in the pubs ed and its winners less obnoxious. As in along with America, in the North Ameri- he owns in Halifax, the province’s capital. other rich countries, income inequality can Free-Trade Agreement. South-western “They are a net asset to the economy, and has increased since the early 1980s, but it remains considerably lower than in the United States. Poverty has fallen sharply The long hello 1 Latin America & Caribbean since the mid-1990s. Low-income men—Mr Canada, foreign-born population, by place of birth, % Africa Oceania Trump’sbase in America—are less likely to 100 die prematurely in Canada, which sug- Asia & Middle East gests they are less beaten down. In 2007 United States those in the bottom income quintile died 75 4.7 years earlierthan those in the top. In the Europe United States the gap was12.1years. 50 America spends a larger share of its GDP on social programmes than Canada does, but Canada is more generous with British Isles 25 spending that acts as a safety net. Unem- ployment benefits replace a much bigger 0 share of lost income than in America. Uni- 1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 versal health care “makesa huge difference Total migrants arriving in preceding decade, m in creating a high level of public security”, says the trade minister, Chrystia Freeland. 1 0.3 0.9 0.3 1.6 1.7 1.2 0.5 1.6 1.4 1.4 1.3 2.2 2.5 0.2 0.2 ...... Source: Statistics Canada *“Canada’s Odyssey: A Country Based on Incomplete Conquests”, University of Toronto Press, 2017. 22 Briefing Canada The Economist October 29th 2016

gotiated by Mr Harper. Canada is part of No mean country 2 the Trans-Pacific Partnership negotiations with 11other countries, and though Mr Tru- GDPCanada per in person world in rankings 2015, $* Gini coefficient, 2014 or latest Average annual GDP change 0=perfect equality, 1=perfect inequality %, 2006-15 deau has not committed to ratifying it he is Best Country ranking thought to support it. In September he an- US News & World Report,0 20,000 et 40,000al 60,0002/60 0.2 0.3 0.4 1012– + G7 countries nounced that Canada would explore trade United States Germany Canada talks with China. Germany France United States Most Reputable Countries Mr Trudeau has sought to allay scepti- CanadaReputation Institute 2/55 Canada Germany Britain Italy Britain cism about trade with what has fast be- France Japan France come a hallmark of his government: inces- Good Country Index / JapanSimon Anholt 10 163 Britain Japan sant consultation. Ms Freeland boasts of Italy United States Italy holdingone ofthe firstformal dialogues by a trade minister with aboriginal communi- Life expectancy, years Life-satisfaction score, 2015 Paid maternity leave*, weeks ties. But there are issues ahead that consul- 2013 or latest 0=worst, 10=best of which: Men Women Full-rate equivalent tation alone cannot solve. These include 7075 7580 8580 9085 5678 0204060 lowproductivitygrowth and an unimpres- Japan Canada Germany sive record on innovation. Low interest Italy Germany Japan rates have pushed house prices and con- France United States Canada sumer debt to alarmingly high levels. Be- Canada Britain Italy yond saying he will build more roads and Britain France France tightening mortgage-insurance rules Mr Germany Germany Japan Britain Trudeau has so far given little clue about United States Italy United States nil how he will deal with such problems. Sources: OECD; IMF *At national level. Includes shared-leave option which can be taken by fathers Whatever he does he will upset people. The announcement of a national price for 2 Although the commodities boom, and budget. Instead, the government plans a carbon angered some in energy-rich prov- the strong currency it brought with it, deficit of1.5% of GDP this year and aims to inces; the approval of a liquefied-natural- made life hard for manufacturers, it short- spend C$60 billion ($45 billion) over ten gas pipeline has alarmed green voters. He ened the recession started by the global fi- years to give Canada a much-needed infra- faces hard bargaining with the indebted nancial crisis. It also created lots of fairly structure upgrade. The extra spending will provinces over federal transfers to cover high-paying jobs for low- and semi-skilled provide a stimulus to the sluggish econ- their rising health-care costs. Mr Trudeau, workers, mainly in western Canada. This omy worth 0.2% of GDP this fiscal year. As in other words, is about to suffer typical kept inequality in checkwhen it was rising Mr Trudeau admits, his room for manoeu- political wear and tear. elsewhere, notes France St-Hilaire of the vre was bought by the prudence of his pre- That will matter more to him, though, Institute for Research on Public Policy, a decessors, who left federal debt at just than to his country’s standing. With an ad- think-tank. Now prices have fallen and the 32.5% of GDP. But if wise spending in- mirably Canadian mix ofpersonal modes- economy has slowed, she wonders wheth- creases the economy’s long-term growth, ty and national pride, Mr Trudeau credits er inequality will creep backup. governments yet to come will have reason the country’s stability not to “any particu- to thankhim in their turn. lar government. It comes from Canadians Finding out it’s real Barack Obama had similar ambitions themselves.” Had Mr Harper won last year Even if it does, Canada’s fat cats are less re- forinvestmentin the future; unlike him, Mr Canada would have remained open to viled than those elsewhere. Its boringly Trudeau does not have to deal with a hos- trade (though probably less keen to strike a profitable and well-regulated banks did tile legislature. Nor does he need to shout deal with China) and welcoming to new- not crash the financial system in 2008 and down demagogues to promote trade deals. comers(though MrHarperwould nothave ask for bail-outs. Its conservatives have He foughthard to save the “comprehensive let in so many Syrian refugees). Rock-star mostly been less ferocious tax-cutters and economic and trade agreement” (CETA) encomia would have been scarcer, but the state-shrinkers than America’s Republi- with the European Union, which was ne- Canadian model would have endured. cans, though Mr Harper was an exception. Canadians do not take their openness “Ourone percent gets it,” says Ms Freeland, for granted. A serious terrorist attack on whose Rosedale-University riding(constit- Canadian soil, or a deep recession, could uency) in Toronto contains one of the yet damage the dream. The country has country’s richest neighbourhoods. seen “lone wolf” assaults, including an at- Mr Trudeau acknowledges the coun- tackon parliament in 2014, and larger plots try’s economic anxieties—“There hasn’t have been uncovered. But there have been been enough growth, and the growth that no mass killings like that at the Bataclan in there has been hasn’t benefited the major- Paris. “We shouldn’t have any smug sense ity of Canadians”—but campaigned on the of ‘We would never do this’,” says Jodi basis of solutions, rather than scapegoats. Giesbrecht, head ofresearch at the Canadi- In governmenthisanswerhasbeen, first of an Museum for Human Rights in Winni- all, to redistribute income on a modest peg. Nor do they see it as a model for all. scale. He raised taxes on the top 1% of in- “What works in Canada may not work comes to help pay for a middle-class tax elsewhere,” cautions Michael Ignatieff, an cut. This year’s budget subjected a univer- unsuccessful Liberal candidate to be prime sal child benefit to means testing, diverting minister who now runs the Central Euro- cash from the rich to the bottom 90%. pean University in Budapest. “Many coun- Mr Trudeau’s most eye-catching pro- tries in the world are just dealt tougher mise—and one which wrong-footed the hands to play.” But the sight ofa continuing New Democratic Party to his left—was to liberal success might make playing those abandon Mr Harper’s goal of a balanced Building bridges is not enough tough hands just a bit easier. 7 Asia The Economist October 29th 2016 23

Also in this section 24 Bailing out Mongolia 25 Influence-peddling in South Korea 25 President v president in the Maldives 26 The little Pakistani city that could 28 Banyan: The isolation of South Korea

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

India’s Muslims draped, like a hero’s, with the Indian flag. Earlier this month, too, newspapers re- An uncertain community ported a disturbing discrepancy between the fates of two men arrested for allegedly spreadingreligiously insultingmaterial via social media. One of the men, a member of a right-wing Hindu group in the BJP-run DELHI state of Madhya Pradesh, was quickly re- leased from custody after the customary India’s biggest minority grows anxious about its future beating. The arresting officers have been OR a community of172m, almost 15% of have improved. Indeed, since the landslide charged with assault; their superiors up to Fthe population, Muslims at first glance election win by the Hindu-nationalist Bha- the district level transferred. In the other appear oddly absent from the pages of In- ratiya Janata Party (BJP) in 2014, some gaps case, in the state of Jharkhand, a Muslim dia’s newspapers. In fact, they crop up a have widened. There are fewer Muslim villager was arrested for posting pictures lot, butnotbyname. Instead, reporters coy- ministers now in the national govern- implying he had slaughtered a cow. Police ly refer to “a certain community”. The ment—just two out of 75—than at any time claimed he died of encephalitis following clumsy circumlocution is a way of avoid- since independence, even though the Mus- his arrest. A court-ordered autopsy re- ing any hint of stoking sectarian unrest. lim share ofthe population has grown. vealed he had been beaten to death. To The aim is understandable in a country India remains a secular country, yet date, no police officers have been charged. that was born amid ferocious communal some laws proposed by the BJP bear a dis- The BJP’s handling of a popular upris- clashes and which has suffered all too turbingly sectarian tint. One bill would al- ing in India’s only Muslim-majority state, many reprises. But the dainty phrase also low immigrants from nearby countries Jammu and Kashmir, has also raised Mus- hints at something else. Since India’s inde- who happen to be Hindu, Sikh, Christian lim concern. Four months into the unrest, pendence in 1947, the estrangement of or Buddhist to apply for citizenship, while in which dozens of civilians have been Muslims has slowly grown. specifically barring Muslims. Another killed and hundreds injured, with continu- India’sMuslimshave not, itistrue, been would retroactively block any legal chal- ous curfews and strikes keeping schools officiallypersecuted, hounded into exile or lenge to past seizures ofproperty from peo- and shops closed, the government still re- systematically targeted by terrorists, as ple deemed Pakistani “enemies”, even if fuses to talk to any but the most supine lo- have minorities in other parts of the sub- their descendants have nothing to do with cal politicians. “You don’t understand,” continent, such as the Ahmadi sect in Paki- Pakistan and are Indian citizens. Courts snaps a cabinet minister, “It’s a violent stan. But although violence against them have repeatedly ruled in favour of such movement to build an Islamic theocracy. has been only sporadic, they have strug- claimants—all of them Muslim—but their No democracy can tolerate that.” gled in other ways. In 2006 a hefty report families could now be stripped of any Omair Ahmad, a writer on Muslim af- detailed Muslims’ growing disadvantages. rights in perpetuity. fairs, scoffs at this. The problem, he says, is It found that very few army officers were Far more than such legislative slights, that Indian governments insist on treating Muslim; their share in the higher ranks of what frightens ordinary Muslims is the Kashmir as a “Muslim issue” when the real the police was “minuscule”. Muslims were government’s silence in the face of starker question is one of democratic representa- in general poorer, more prone to sex dis- assaults. A year ago many were shocked tion. Yet most Indian Muslims tend to toe crimination and less literate than the gen- when a mob in a village near Delhi, the the official line, either from a desire to ap- eral population (see chart on next page). At capital, beat to death a Muslim father of pear loyal or because they genuinely feel postgraduate level in elite universities, three on mere suspicion that he had eaten only a faint bond with Kashmir. Muslims were a scant 2% ofstudents. beef. Earlier this month, after one of his al- The fact is that India’s Muslims are di- A decade later, with most of the com- leged killers died ofdisease while in police vided, not only between dominant Sunnis mittee’s recommendations quietly custody, a BJP minister attended the sus- and a large Shia minority but also between shelved, those numbers are unlikely to pect’s funeral, at which the casket was starkly different social classes and regions: 1 24 Asia The Economist October 29th 2016

almost 80% of GDP, much of it denomi- Minority report nated in dollars. The togrog’s slide has India prompted fears that the government will Muslims as % of total struggle to service its foreign debt. IMF 15 When the last came to Mongolia’s Population rescue, in 2009, it seemed to be providing 172m 12 justthe leg-up the countryneeded. Mongo- lian politicians and IMF officials took to a 9 35m hotel ballroom in Ulaanbaatar in 2010 to Muslim 6 celebrate the successful conclusion of a population Ministers in national government $242m bail-out. Champagne and opti- 3 mism flowed freely. Mongolia’s “deter- IMF 0 mined policy implementation”, the 1951 55 60 65 70 75 80 85 90 95 2000 05 10 14 said, had fostered “a remarkable economic turnaround”. Foreign reserveswere up; the Education level, 2011-12 Population living below poverty line, % budget deficit and inflation were down. % of population aged 15 and over Tertiary Muslim Arrears on foreign debts had been paid, 51.2 020406080100 Hindu and confidence in the currency restored. 45.6 For the next three years Mongolia en- Muslim Illiterate Primary Middle Secondary joyed double-digit growth. But the good 25.4 times did not last. Growth dipped below 21.9 8% in 2014 and was just 2.3% last year (see Hindu chart). To succour the togrog and sap infla- 1993-94 2004-05 2009-10 2011-12 tion, the central bank raised interest rates Sources: Trivedi Centre for Political Data, Ashoka University; Census of India; National Sample Survey in August by 4.5 percentage points, to 15%, Office; A. Panagariya and V. More, Deepak and Neera Raj Centre on Indian Economic Policies further slowing the economy. The budget deficit has swelled to around 20% ofGDP. 2 a Muslim in Bengal is likely to share no lan- own land. “They called it a secular state, In a parliamentary election in June, the guage and few traditions with a co-reli- which is why many who had a choice at Mongolian People’s Party (MPP) tri- gionist far to the south in steamy Kerala. partition wanted to stay here,” says Saeed umphed over the Democratic Party (DP), The divisions may soon get deeper. Both Naqvi, a journalist whose recent book, which Mr Elbegdorj leads. The change in India’ssupreme courtand the national law “Being the Other”, chronicles the growing government provided a convenient oppor- commission, a state body charged with le- alienation of India’s Muslims. “But what tunity for Mongolia to turn to the IMF gal reform, are deliberating whether laws really happened was that we seamlessly again, says Julian Dierkes ofthe University governing such things as divorce and in- glided from British Raj to Hindu Raj.” 7 ofBritish Columbia. It will be easier forthe heritance should remain different for dif- new government to accept conditions im- ferent religious groups, or should be har- posed by the IMF early in its term, he says, monised in a uniform national code, as the Bailing out Mongolia when itcan still blame the previousone for constitution urges. Spotting another “Mus- all the country’s problems. lim issue”, past governments have let con- A wrong direction It remains unclear just how severe the servative clerics control family law. As a re- IMF might be. If its proposed terms seem sult India, unlike most Muslim-majority in the steppe too onerous, Mongolia could always turn countries, still allows men to divorce sim- to China, which has extended it some cred- ply by pronouncing the word three times. BEIJING it in recent years and seems prepared to of- The BJP, however, is calling for sweep- fer more. Many Mongolians fret, however, The government turns to the IMF forthe ingreform, with Narendra Modi, the prime over the political and commercial leverage second time in seven years minister, painting the issue as a straightfor- this would give their giant neighbour. Ei- ward question ofwomen’s rights. Much as HINGS really get messy when politi- ther way, Mongolia will find itself behold- many Muslims heartily agree that change “Tcians see money,” mused Tsakhia- en to China. In spite ofall the upheaval, the is long overdue, suspicions linger that the giin Elbegdorj, Mongolia’s president, earli- share ofMongolia’s exports going to China BJP’s aim is less to generate reform than to er this month. He was discussing his has hovered steadily between 80% and spark inevitable protests by Muslim con- country’s request for an emergency loan 90% over the past six years. 7 servatives, so unitingHindus in opposition from the IMF to help ward offa balance-of- to Muslim “backwardness”. payments crisis. The messiness might be This question may play out in elections avoided, Mr Elbegdorj added, if the IMF Gobi-smacking this winter in Uttar Pradesh, India’s most forced Mongolia to observe a little more Mongoliato come populous state, nearly 40m of whose budgetary discipline than it is used to. Togrog against the GDP, % change dollar, Jan 2008=100 on a year earlier 200m people are Muslim. The state has Although sparsely populated and vast- witnessed repeated communal clashes ly endowed with mineral wealth, Mongo- 110 20 since the destruction by Hindu activists, in lia has yet to set its economy on a stable 100 16 1992, of a medieval mosque said to have footing. Squabbling and delays over big 90 12 been built over an ancient temple marking foreign investments in mining projects, the birthplace of Rama, a Hindu deity. along with low global commodity prices, 80 8 Many expect the BJP to play the “Muslim have stemmed inflows offoreign currency, 70 4 + card” in an effortto rally Hindu votes. prompting the local currency, the togrog, to 60 * 0 There is hope: a similar ploy flopped wilt. It has declined 17% against the dollar – last year in the neighbouring state of Bihar. since late June. The government’s lavish 50 4 2008 09 10 11 12 13 14 15 16 Whatever the outcome, India’s Muslims spending in expectation of big mining rev- Sources: Thomson Reuters; IMF *2016 forecast, 0.04 feel increasingly like spectators in their enues, meanwhile, has boosted its debt to The Economist October 29th 2016 Asia 25

Influence-peddling in South Korea Politics in the Maldives Gift horse Sibling rivalry

MALE The president falls out with his brother SEOUL HE president ofthe Maldives, Abd- sorts without competitive bidding. His Allegations about the conduct ofa ulla Yameen Abdul Gayoom, has son, an MP, voted against it, and was friend ofthe president prompt outrage T fallen out with all manner ofpeople in expelled from the PPM forhis pains. The ARK GEUN-HYE’s presidency, soon en- his three years in office: two successive same day Mr Gayoom’s daughter, Dunya Ptering its fifth and final year, may well vice-presidents, both turfed outof office; Maumoon, resigned as foreign minister. be remembered for its apologies. The first his first defence minister (ditto); the failed Mr Gayoom has refused to endorse was a tearful televised address in 2014 to assassins who bombed his yacht last Mr Yameen as the PPM’s candidate for the atone for her government’s botched re- year (he blamed one ofthe deposed next presidential election, in 2018. Mr sponse to a ferry accident in which over veeps); Mohamed Nasheed, his predeces- Yameen’ssupporters dragged the dispute 300 were killed. On October 25th Ms Park sor but one, who says the president is into the courts, where Mr Gayoom has apologised again, this time for sharing ad- turning the Maldives into a dictatorship; been dealt a series ofreversals. This week vance drafts of dozens of speeches with a and the Commonwealth, a club offor- an appeals court affirmed a ruling from a confidante, Choi Soon-sil, who has no gov- mer British colonies, which has ques- lower court stripping Mr Gayoom of ernment position. tioned his democratic credentials. But his leadership ofthe party and handing it A day earlier JTBC, a local cable-televi- newest adversary is by farthe most sur- instead to Mr Yameen. Mr Gayoom says sion network, said it had retrieved presi- prising: Maumoon Abdul Gayoom, his he will appeal to the supreme court. dential files and e-mails from a computer half-brother and another formerpresi- The rift between the brothers could discarded by Ms Choi. Ms Park said that dent, who was the country’s strongman perhaps be mended. Mr Gayoom has not she had sought her friend’s opinion only from 1978 to 2008. publicly criticised Mr Yameen; MrYa- early on in her presidency, before her staff The dispute between Mr Yameen, as meen, for his part, insists Mr Gayoom “is had hit their stride, but the media have the current president is called, and Mr my beloved brother. So I cannot talk ill of been portraying Ms Choi as the eminence Gayoom, the formerone, centres on the him.” The opposition has asked Mr grise of her administration, pulling strings Progressive Party ofthe Maldives (PPM), Gayoom to join them, but he has ignored behind the scenes. which Mr Gayoom founded in 2011(for their pleas so far. The revelation is the latest twist in a po- most ofhis presidency, political parties Mr Yameen has weathered plenty of litical drama that has embroiled Ms Park’s were banned). The party nominated Mr adversity, as the long list ofhis opponents conservative government and gripped the Yameen as its presidential candidate in attests. Media reports in August about nation. Daily press reports and social-me- 2013, but Mr Gayoom remained head of moves to oust him came to nothing. But dia chatter present new claims about Ms the party. The two seemed to get on well the only person with more experience Choi’sinfluence overMsPark, and how Ms enough until June, when Mr Gayoom navigating Maldivian politics is Mr Choi is alleged to have exploited it. If the opposed a bill to allow the government Gayoom. The elections in 2018 might latest footage put out by TV Chosun, a con- to lease islands for development as re- even pit brother against brother. servative outlet, is to be believed—of a dressmaking studio where Ms Choi ap- pears to be directing presidential staff—she has alleged that Ewha Women’s Universi- university’s president, who resigned on even exerted authority over Ms Park’s ty, among the country’s most prestigious, October 19th, had also been dogged by wardrobe. In an interview from Germany gave Ms Chung undeserved grades. Other months-long protests (one of which is pic- this weekwith Segye Ilbo, a newspaper, Ms critics say it changed its rules to help her tured) against a scheme to set up a college Choi confirmed that she had edited some gain admission in early 2015 (it suddenly of continuing education with government of Ms Park’s speeches. She apologised, but began offering extra points to applicants funding, which some believe Ewha won denied any other wrongdoing. with gold medals in equestrianism). The through ties to Ms Choi. 1 In early October prosecutors launched an investigation into claims that Ms Choi and Ahn Chong-bum, one of the presi- dent’s secretaries, had “arm-twisted” some of South Korea’s biggest conglomerates into paying 80bn won ($72m) to two new non-profit groups promoting Korean cul- ture overseas, the Mir and K-Sports Foun- dations. Executives at the Federation ofKo- rean Industries, a business lobby that helped set up the two outfits and raise money for them, are being questioned. Ms Choi, who is sought by prosecutors, is ac- cused of having siphoned off funds for her private use, including to cover training ex- penses for her daughter, Chung Yoo-ra, who hopes to compete in dressage at the Tokyo Olympics in 2020. Ms Chung’s education has also become a focus ofpopular anger, and the subject of a separate investigation: an opposition MP Ewha takes all sorts 26 Asia The Economist October 29th 2016

2 The allegations of the manipulation of to call for an independent probe into the stan ranksa lowly144th outofthe 190 econ- admissions have stoked particular ire in charges of abuse of power; one spoke of omies assessed in the World Bank’s latest South Korea, where the state-administered “contempt for the country’s democracy”. “Doing Business” report. university-entrance exam is “the only way After the president’s apology, “impeach- Mr Akhtar, however, dismisses these to climb the social ladder”, says Kwon ment” was the most-searched word on “lame excuses”: any half-decent entrepre- Jong-seong, a South Korean blogger. Many Naver, South Korea’s biggest web portal. neurs, he insists, should be able to find of the country’s unemployed youth see a Influence-peddling is “systemic and en- theirown solutions to such problems. That system in which the privileged get ahead demic” in South Korea, says David Kang of is what the businessmen of Sialkot have while more deserving but less connected the University of Southern California. Ev- done, at any rate: instead ofwaiting forpol- youngsters struggle. When the daughter of ery former South Korean president of the iticiansto stump up forlocal infrastructure, the chairman of Korean Air, a local airline, past three decades has been hounded by they have built it themselves. The Cham- threw a public tantrum over macadamia corruption scandals: Roh Tae-woo went to ber of Commerce set up the country’s first nuts in 2014, South Koreans seethed about jail for having accepted hundreds of mil- privately financed dry port, where goods the culture of impunity at its big family- lions of dollars in bribes; the sons of Kim can clear customs before being shipped to owned businesses. Now the feeling is that Young-sam and Kim Dae-jung went to pri- a conventional port. It later charged mem- political power at the highest level is pro- son for graft. Roh Moo-hyun, who made a bers a special fee to raise funds to contrib- tecting such privilege, says Mr Kwon; Ms counter-corruption drive a centrepiece of ute towards the resurfacing of the city’s Park’s supporters, many of them middle- his presidency, jumped to his death in once-appalling streets. Local businesses class, “feel betrayed”. 2009 as charges of wrongdoing mounted also funded the construction of the city’s Ms Park’s approval rating has slumped against him. Many suspect a recent crack- airport, the only private one in the country. to 26%, its lowest since she took office in down on gift-giving to officials will do It boasts both the longest and hardiest run- 2013. Disaffection with her handling of nothing to stop high-level graft. ways in the region, and handles 53 flights a South Korea’s stuttering economy is a big Ms Parksays her dealings with Ms Choi week. That helps bring in foreign buyers reason. But on social media discussion of have been conducted “with pure mo- who do not fancy the wearisome drive almost any subject now concludes with a tives”—to improve the workings of her of- from Lahore. Some of the investors in the hashtag that translates “And what about fice. It is ironic, then, that the scandal that airport are now on the verge of launching Choi Soon-sil?” Following the JTBC report, has ensued seems to have brought her ad- their own airline. MPs in Ms Park’s own Saenuri party began ministration almost to a standstill. 7 As well as determination, Sialkot’s businessmen have had their fair share of luck. The city happens to specialise in Pakistan’s business climate niche products, which are relatively insu- lated from competition from China. The If you want it done right nearby towns of Wazirabad and Gujrat, once known fortheir cutlery and electrical goods respectively, have struggled against a tide of cheap Chinese exports. But even Sialkot is not immune to competition. Lo- SIALKOT cal manufacturers lost their grip on the world market forbadminton rackets when How a small Pakistani city became a world-class manufacturing hub they failed to anticipate the switch from HOTOGRAPHY is fiercely restricted in- ports of$22bn. wood to aluminium and graphite. If any- Pside Khawaja Masood Akhtar’s factory Sialkot’s success is especially surprising thing, however, that has only made the Si- in Sialkot, a small cityin northern Pakistan. as it was cut off from its natural economic alkotis more vigilant. The local business His products—top-of-the-range footballs— hinterland, the Kashmir Valley, when the community is now trying to set up a tech- must be zealously guarded until the time subcontinent was split between India and nology university in the city. 7 comes for his customers, big international Pakistan in 1947. Yet it is doing much better sports brands, to unveil their offerings for these days than the rest of the country. Its the new season. Until then the latest ball exports have remained reasonably steady designs are subjected to a battery of tests in for the past two years, even as those of the windowless laboratories. They must en- country as a whole have fallen by 12%. dure everything from hard poundings How are firms from such a backwater from mechanised boot studs to repeated thriving, ask the exporters of Lahore and dusting with fungus spores. The quality of Karachi, while they struggle? the factory’s output is so high that Adidas Pakistani businesses tend to blame the chose it as one of only two in the world to governmentforthe country’sfeeble export manufacture the balls used in the World performance. Domestic and foreign inves- Cup in 2014. tors alike are put off by the breakdown of Pakistan has precious few globally law and order in Karachi, the commercial competitive exporters, but a good number capital, and the storm of Islamic militancy of them are clustered in Sialkot, an out-of- across the rest of the country (a suicide at- the-way city of fewer than 1m people in tack on a police training college on the out- north-eastern Punjab. It supplies the world skirts of the city of Quetta claimed over 60 with all sorts of sporting gear, from hockey lives this week). Manufacturers must en- sticks to judo suits, as well as leather goods dure crippling shortages of electricity in and surgical instruments. Sialkoti Lederho- the summer and gas in the winter. Anti- sen are all the rage in Bavaria. The city’s quated land administration and customs 8,000-member chamber of commerce systemsmake buyingpropertyand export- says Sialkot exported $2bn-worth ofgoods ing goods tiresome. It can take almost three last year, or 9% of the country’s total ex- years to settle a commercial dispute. Paki- Keeping her eye on the ball 28 Asia The Economist October 29th 2016 Banyan A shrimp among whales

As the threat from the North grows, South Korea finds itselfin a lonely place proper nuclear capability. But the spread of informal markets and, for some North Koreans, a measure of prosperity may have strengthened the regime’s chances of survival. A consensus in Seoul is forming that Mr Kim now aims to dictate events on the peninsula—including the ability to demand that the Americans leave. One senior foreign diplomat in Seoul says that for the first time he hears people wondering openly whether there will be a major conflict on the peninsula in their lifetime. Officials under President Park Geun-hye (daughter of Park Chung-hee) direct their frustration at China. For most of her near- ly four years in office, Ms Park has wooed China’s dictator, Xi Jin- ping, partly to promote economic ties, and partly in hopes of making China acknowledge South Korea’s concerns over the North. In particular, if China enforced existing UN sanctions on North Korea, the regime would be feeling the pain—nine-tenths ofall North Korea’s trade is with its giant neighbour. As she leaned to China, relations with Japan grew bitter over issues to do with colonial history. Recently, though, she has leaned the other way. China has not allayed South Korea’s con- cerns. Indeed it has loudly criticised Ms Park’s go-ahead for an American high-altitude missile-defence system in hercountry. As OR hundreds of years Korea was China’s vassal state. Then it for South Korea’s economic relationship with China, it too has Fcame under the heel of imperial Japan at the start of the 20th changed. Mutual opportunities are now overshadowed by com- century. After Japan’s defeat in 1945 the Soviet Union occupied petition as China develops the same industries that are central to northern Korea. That led to the creation ofthe implacably hostile South Korea’s economy, such as shipbuilding and steel. North Korea, an existential threat to the South ever since. Ameri- Meanwhile, South Korea’s relations with Japan seem to be im- ca has acted as the South’s guarantor, keeping tens of thousands proving fast. Late lastyear Ms Parkand Shinzo Abe, Japan’s prime of troops there since the Korean war ground to a bloody halt in minister, sought to settle once and for all the matter of the Korean 1953. The South swings between resenting the American pres- women, some ofthem still alive, who were forced to work in Jap- ence and worrying that it might come to an end. anese military brothels duringthe war. The two sides are even ex- South Korean officials, in short, have longhad plenty to worry changing intelligence about North Korea. about. But their angst these days is unusual in its intensity. Life in Ms Park’s government has also been tryingto persuade Amer- Seoul may be carrying on as normal, with pop-up food stalls do- ica to punish China forfailing to rein in the North. America could ing brisk business and rock bands performing lustily in open blacklist Chinese state enterprises and banks doing business spaces, but the nuclear-armed North, 60km (35 miles) up the with the North, for instance. (It has just announced sanctions on road, is looming especially large in policymakers’ minds. one Chinese firm, but only after the Chinese authorities them- The threat from the North has always been tangible. For years, selves had moved against it.) That would immediately exclude its commandos would slither across the demilitarised zone to the miscreants from global payments systems and trading net- launch unnerving attacks, such as the one in 1968 that targeted works. But America is reluctant. After all, tensions in the South Park Chung-hee, South Korea’s strongman, in the presidential China Sea are already headache enough, while it wants to co-op- Blue House in Seoul (it failed). More recently, in 2010, a North Ko- erate with China on other topics, such as climate change. rean submarine sank a South Korean naval vessel, the Cheonan, That leaves South Koreans worried about the commitment of killing46 seamen. Noristhe nuclearthreatnew. North Korea’snu- their American ally. Donald Trump’s threats to pull American clear programme has been decades in the making. Its first, shock- troops from South Korea have hardly helped. A President Hillary ing nuclear test was ten years ago—half a lifetime for the young Clinton would certainly reassure. But the naggingfearof an even- couples grazing at Seoul’s food stands. tual American withdrawal, perhaps as part of a power-sharing Yet in recent months something has changed. Kim Jong Il, agreement with China in Asia, still gnaws at South Korea. whose regime was responsible for the first test and who died in 2011, had only a rudimentary nuclear device, useful mainly for Thinking some unthinkables blackmail. Under his son, Kim Jong Un, the programme has rap- Meanwhile, the North Korean threat grows. There is talk ofurging idly gathered pace, with two nuclear tests this year alone. The the Americansto shootdown the missilesNorth Korea keeps test- North has also conducted 21 missile tests this year, including one ing in breach of UN sanctions, despite the risks to the South of re- from a submarine—a first. The abilityto miniaturise a tactical nuc- taliation from the North. There is even a revival of the debate learweapon on a workingmissile could be just two orthree years about South Korea developing its own nuclear weapons—a ma- away, with an intercontinental ballistic missile capable of hitting jority ofSouth Koreans polled are in favour. California possible in five years’ time. Chun Yung-woo, a South Scratch a South Korean, says the foreign diplomat, and he will Korean former national security adviser, talks of “growing out- be unsure of America’s commitment, ready to believe that Japan rage…after five tests, a change ofmood, a sense ofurgency.” might turn aggressive again, resentful that China ignores his Once, it was possible to hope that the North’s isolated regime country’s concerns and alarmed by a dangerous North Korea. would implode under its own contradictions before it gained a South Korea, he adds, “looks a fundamentally lonely place.” 7 China The Economist October 29th 2016 29

Also in this section 30 A parking nightmare

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

History 1958-1962 during which tens of millions died, and accounts of the horrors of the Nihil sine Xi Cultural Revolution in the 1960sand 1970s. Mr Xi sees such writings as a challenge to the legitimacy of party rule. Already in 2013 the party issued secret orders (subse- quently leaked) that its members must be BEIJING on guard against historical nihilism. The following year Mr Xi said an important China is struggling to keep control overits version ofthe past reason for the Soviet party’s collapse had HE Chinese Communist Party likes to vogue among party officials after the been historical nihilism, including attacks Tdescribe threats to its grip on power in crushing of the Tiananmen Square prot- on Lenin and Stalin. Mr Xi sees Mao’s lega- barely comprehensible terms. Over the ests in 1989. Jiang Zemin, who was then cy as being under similar assault. past three decades, it has struggled against party chief, declared that historical nihil- A journal specialising in historical cri- the menace of “bourgeois liberalisation” ism was one of several ideological vices tiques, Yanhuang Chunqiu, recently be- (leaving many wondering whether there is that had “seriously eroded” the party. Oth- came the most prominent victim so far of an acceptable proletarian kind) and fought er, more obvious ones, included yearnings Mr Xi’s campaign. To the horror of its liber- against “peaceful evolution” (exceedingly for freedom and democracy. By reviving al fans, the magazine wastaken overin July dangerous, for some reason, unlike “re- Mr Jiang’s rhetoric on nihilism, Mr Xi is sig- by hardliners; its feisty staff resigned. In form and opening up”). Now Xi Jinping, nalling that the party could again face re- 2014 Yanhuang Chunqiu had published ar- China’s president, is waging war against gime-threatening danger unless it tightens ticles that daringly disputed the party line “historical nihilism”, a peril as arcane- its grip on the way history is told. on historical nihilism. One of them said sounding as it is, to his mind, grave. As a the party should focus on fighting those state news agency recently warned, there Against the flow trying to reawaken the “old dreams of the is a “seething undercurrent” of it in China. So what are the nihilists doing that so trou- Cultural Revolution”—in other words, take Failure to stamp it out, officials say, could bles China’s leaders? Mr Jiang’s main con- on diehard Maoists instead. lead to Soviet-style collapse. cern was a television series broadcast in Mr Xi has enlisted the judiciary to help Days before the party’s 350 or so most 1988 called “River Elegy”, which had por- him. On October 19th the supreme court senior officials gathered in Beijing this trayed China as a country weighed down called a press conference to give its views week for a secretive conclave (as they nor- by a long history of backwardness and in- on recent legal cases that state media have mally do in the autumn), a party website ward-looking conservatism. The docu- linked with historical nihilism. In one case published a compendium ofMrXi’spublic mentary programmes had prompted ener- a historian, Hong Zhenkuai, was told by a remarks on the nihilist problem (intrigu- getic debate among intellectuals about court to apologise for challenging the ingly headlined: “Xi Jinping: There Can Be how to reform China that helped foment party’s story of how five Communist sol- No Nothingness in History”). People’s the following year’s unrest. diers had jumped off a cliff during the sec- Daily, the party’s main mouthpiece, No reflection on history has stirred the ond world warratherthan surrenderto the marked the start of the meeting with a public in recent years as much as “River El- Japanese. Mr Hong said two of them may commentary laced with references to the egy” did in the build-up to Tiananmen. But simply have slipped. Another case in- lessons ofhistory, includingthe collapse of there has been a steady stream of articles volved little more than black humour: JDB the Soviet Communist Party. chippingawayatthe party’saccountofhis- Group, a beverage-maker, and Sun Jie, a In party-speak, historical nihilism tory. Some have appeared in officially pub- blogger, were ordered bya courtin Septem- means denying the “inevitability” of Chi- lished journals; the more revelatory ones berto apologise fortheirtweetsreferring to na’s march towards socialism (the country have circulated in samizdat form in print a warhero who burned to death during the is currently deemed only to be in the early and online. They have included a Chinese Korean war. MrSun had called him “barbe- stages of it). It is a term that came into journalist’s investigation of the famine of cued meat”. JDB had jokingly offered to 1 30 China The Economist October 29th 2016

2 provide free drinks at Mr Sun’s barbecue later jailed for publishing these and other car owners must first show they have a restaurant, should he open one. At the online “rumours”); and a television an- space, an approach that Japanese cities press conference, a supreme-court official chor, Bi Fujian, who was fired for poking have used successfully. said those guilty had attempted to “unrav- fun at Mao at a private party. The morass illustrates how a govern- el core socialist values”. MrXi hasjustified hisvigilance byquot- ment that many perceive as all-powerful There have been other examples, too: a ing the words of a Chinese reformist in the can find itself constrained. Cars jostle for blogger who was detained forseveral days 19th century: “To annihilate a country, you cheaper roadside spots, leaving more ex- in 2013 for retweeting a claim that the cliff- must first eradicate its history”. Mr Xi takes pensive ones beneath office buildings leaping soldiers had bullied local civilians; that as a warningthat rewritinghistory can underused. The Institute for Transporta- four others who were hauled in that year cause catastrophe. When it comes to wip- tion and Development Policy (ITDP), a for questioning the frugality of Lei Feng, ing out history, however, the party itself think-tank in New York, found that the oc- another model soldier (two of them were has been trying dangerously hard. 7 cupancy of car parks in two major new commercial buildings in Guangzhou, a southern city, never exceeded 58%. Parking It would help to charge more for road- side parking, nudging drivers to use under- The other car problem ground car parks. But officials fear higher prices may cause public anger. It is easily aroused. After Beijing officials increased roadside parking fees in 2011, there were dozens of assaults on attendants. Resi- WENZHOU dents often protest when owners of their apartment blocks raise parking prices. Fast-growing cities face a difficulty they did not foresee: parking Anothergood idea would be stricter en- T IS barely eight in the morning and the survey conducted over the past two forcement of no-parking zones, which Itwo levels of a hospital’s car park are al- months, nearly two-thirds of respondents would curb superfluous parking demand ready full. A queue of backed-up vehicles said that parking had become “unbear- in busy areas and encourage people to use snakesaround the cornerand onto a major able”. By contrast, only about a third said public transport. However, policy co-ordi- street, causing a traffic jam in downtown they lived in places with frequent traffic nation is poor. The ITDP says there are six Wenzhou, a coastal city. “Reverse, reverse, jams, a problem for which China is much municipal agencies or departments in reverse,” barks an attendant, blowing on a more notorious. The two nuisances can be Guangzhou with responsibility for some whistle and pointing this way and that as related. The harder it is to find a place to aspect ofparking management. he guidesone caroutto letanotherin. Tem- park, the more cars circle around and Many cities are investing huge sums in pers flare amid a cacophony of horns. A around. Illegally parked cars spill onto the public transport, as well as making some young man, Yang Linfeng, seems untrou- pavement and crowd out pedestrians. effort to raise roadside parking fees and bled by the chaos as he walks back to his One solution might be to build more crack down harder on illegal parking. In car. In for his annual physical, he says he car parks, but this is not straightforward. Wenzhou, an officer walks methodically knew exactly what to expect: he came an Many apartment blocks were built before up a line ofcars parked under a no-parking hour early just to find a parking spot. car ownership became common, so neigh- sign next to a tall commercial building. He Similar scenes play out around China bourhoods have limited space to build writes out a fine for each one and takes every day. Whether at hospitals, near places to park. As one joke goes, bachelors photos foruse as evidence. But the car park schools and offices or outside popular res- used to need an apartment and a car be- inside the building is two-thirds empty. taurants and shopping malls—just about fore being able to find a wife; now, they An attendant there clearly doubts the anywhere people congregate—parking has need a flat, a car and a parking space. Some efficacy of fines. “People here have so become a major aggravation of urban life. cities have started to experiment with much money that they don’t know what to It is in some ways a good problem for Chi- making parking spaces a prerequisite—not do with it,” he quips. “So they donate it to na, a sign of growing prosperity. Car own- to get married, but to buy a car. Would-be the traffic department.” 7 ership is expanding by about 10% a year, even as the economy slows. But it also suggests a flaw in the coun- try’s approach to building cities. In their rush to construct roads and housing to ac- commodate the 400m people who have moved to cities from the countryside over the pasttwo decades, officialshave paid in- sufficient attention to many basics such as drainage and green spaces. As the coun- try’s parking headache shows, making up forthese oversights is not easy. In March parking was identified as a priority in the prime minster’s annual re- port to parliament. Little wonder: the gov- ernment reckons China has a shortage of roughly 50m parking spaces. Its target is 1.3 parking spaces per car, the norm in richer countries (including residential parking). In China’s biggest cities, the ratio is 0.8. Smaller cities have just 0.5 spaces per car. Frustration is spreading. In an official Looking out for willing donors United States The Economist October 29th 2016 31

Also in this section 32 From DC with love 33 Thanks, Obamacare 33 On the trail 34 Could Evan McMullin take Utah? 35 Election brief: Education 36 Lexington: Meet Kamala Harris

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

Trump and Putin tions. Mr Trump has countenanced the idea of easing the sanctions imposed after My brilliant friend Russia’s illegal seizure of Crimea, an an- nexation he has indicated he may recog- nise. He denies any role in the machina- tions at the Republican National Convention that blocked a pledge to pro- ATLANTA vide weapons to Ukraine from the party platform; but, says Rachel Hoff, a delegate What explains the Republican nominee’s fondness forRussia’s president? who wasatthe relevantmeeting, members N JANUARY1933, after months of rebuffs, Mr Obama’s, deflecting complaints about of his team were “absolutely” responsible. Ithe American poet Ezra Pound finally se- Russia’s human-rights record with the gibe According to Lieut-General Kellogg, Mr cured a meeting with Benito Mussolini, his that “our country does plenty of killing Trump “wants to leave his options open” idol, in Rome. Flicking through his admir- also.” Recently, he said that, should he win on Ukraine, considering it unwise “to start er’s poems—and possibly distracted by the the election, he might fix a meeting with from an adversarial position”: his much- presence of a pretty young English teach- Mr Putin before his inauguration. (That vaunted negotiating prowess is a catch-all er—Mussolini politely described them as would evidently be their first, despite his excuse for otherwise indefensible pro- divertente, or amusing. Pound chose to in- intimations that they have talked before. nouncements. The fanciful goal isto “make terpret this nicety as evidence of il Duce’s For example, after the Miss Universe pag- a greatdeal forourcountry”, in MrTrump’s genius and appreciation ofhis own; his ru- eant in Moscow in 2013, MrTrump claimed words, in which old enmities will be bu- inous devotion to him intensified. In per- Mr Putin “could not have been nicer.”) ried and Russia helps see off Islamic State. haps the weirdest subplot of America’s Lieutenant-General Keith Kellogg, one (Bilateral deals are Mr Putin’s favourite wild presidential election, an offhand ofhisnational-securityadvisers, optimisti- form of engagement; doing them with comment by Vladimir Putin seems to have callydescribesthisapproach to MrPutin as Western businessmen-politicians is one of had a similar effect on Donald Trump. “Reaganesque”: “You can’t talk down to his specialities.) If that is his purpose, Mr This is a season of conspiracy theories. him,” he says. Major-General Bert Mizu- Trump is being uncharacteristically self- In certain corners of the internet it is an sawa, another adviser, maintains that Mr less, because his chumminess has no obvi- item of faith that Hillary Clinton enabled Trump’s praise for the Russian president’s ous electoral benefit. Unlike some of his the attack on Benghazi, to cover up illicit strength “doesn’t mean he agrees with all other unorthodox views, such as his pro- arms sales to terrorists. Analysis of Mr of his policies”. If his warmth were con- tectionism, beyond a few extreme nation- Trump’s attitude to Mr Putin can veer into fined to generalities, that rationale might alists who misguidedly revere Mr Putin the thrilleresque too. Yet there is a pattern seem plausible. The trouble is that—even there are farmore votesto be lostthan won in his remarks that, as polling day nears, allowing for his ignorance and incoher- by cosying up to him. deserves scrutiny. Tracing it lays bare his ence, as when he seemed to imply that Indeed, the risks for Mr Trump have ris- slipshod policymaking, even ifhismotives Russia had not invaded Ukraine—his state- en as the campaign progressed, and even remain opaque. ments have touched on specific, vital is- as he has finessed other awkward commit- The “bromance”, to use Barack sues, often alarmingly. ments. After Mike Pence said that “provo- Obama’s term, was fuelled by Mr Putin’s Such as NATO, probably Mr Putin’s cations by Russia [in Syria] need to be met reference, in December, to Mr Trump as greatest bugbear. To remind, Mr Trump has with American strength,” Mr Trump dis- yarki, or colourful, which he mistranslates said the alliance is “obsolete”, upsetting agreed—preferring to slap down his run- as “brilliant”. But Mr Trump’s obeisances Europeans by casting doubt on its mutual- ning-mate rather than rebuke Mr Putin for began even before this imaginary compli- defence commitment. It might depend, he hisbarbaritiesin Aleppo. Astonishingly, he ment. In a stark example of his habit of dis- has said, on an embattled nation’s defence appeared to invite Russia to raid his oppo- paraging America, he compares Mr Putin’s expenditure. Or consider his record on Uk- nent’s e-mails (“dry humour”, says Major- strength and leadership favourably with raine, another of Mr Putin’s preoccupa- General Mizusawa). Yet he disputes the 1 32 United States The Economist October 29th 2016

2 judgment of American intelligence agen- with the US election process”. cies that Russian hackers, authorised by A well as the DNC attack, there have the country’s “senior-most officials”, were been a spate of others, all aimed at show- behind the intrusion into the Democratic ing Hillary Clinton in a poor light, all distri- National Committee’s servers. “Our coun- buted by either WikiLeaks or the lesser- try has no idea,” he insists. known DC Leaks. The hacker groups be- All this led a formeroverseer of the CIA hind the scams are fronts for Russia’s FSB to label Mr Trump an “unwitting agent” of and GRU spyingagencies and, according to the Kremlin. Madeleine Albright, a former Mr Clapper, could have been authorised secretary ofstate, chose Lenin’s phrase: she only by officials at the most senior level. called him a “useful idiot.” But what to do about it? Despite the seriousness of the charge Cui bono? (the hackby China’s PLA on US Steel, Iran’s What is going on? A popular view is that Islamic Revolutionary Guards on Ameri- Mr Putin, whose aversion to Mrs Clinton is can banks and by North Korea on Sony all plain, is trying to lever Mr Trump into the pale by comparison), the decision to point White House, just as he supports isolation- the finger ofblame unambiguously in Rus- ists in Europe. Witness the strategically sia’s direction was not straightforward for timed publication of hacked e-mails by the Obama administration. When itcomes WikiLeaks and others. That may overstate to responding to cyber-attacks, attribution the Kremlin’s ambition, assigning it greater is the first problem. First-rate cyberpowers, clout than it wields: “We’re making them such as America, have developed sophisti- ten feet tall”, worries Fiona Hill of the cated techniques for identifying perpetra- Brookings Institution. Rather than altering tors by analysing what are known in the the election’s outcome, reckons an Ameri- Time for active measures business as “sources and methods”. can administration official, the aim may be But government-backed hackers know to spread uncertainty about the process. market. And, for all their unfamiliarity they can retain at least a degree ofdeniabil- That would avenge American criticism of with geopolitics, they have grasped the ru- ity if their accuser is reluctant to come up Russian elections, discredit future admon- diments ofRussian capitalism. “It is a ques- with the evidence. As Adam Segal of the ishments and sully democracy itself. This tion of who knows who,” Donald junior Council on Foreign Relations argues, it is race, Dmitry Kiselev, Mr Putin’s chief pro- noted, adding that “what it is they want to difficult to assign responsibilitywithout re- pagandist, recently assured his TV audi- happen is ultimately what happens.” Mr vealing intelligence capabilities that will, ence, “can’t be called free and democratic”. Trump’s campaign did not respond to in turn, allow foes to improve their de- So much for Mr Putin; how about Mr questions about his business plans, so fences and make spying on them harder. Trump? He may feel a natural affinity for a whether that insight might inform his Rus- Although the American government had fellow authoritarian, who shares his indif- sian stance is unclear. So is where—on a attribution information about the North ference to truth and his tastes for earthy scale from seismic scandal to venality to Korean attack on Sony, it declined to put language and humiliation as a political naive narcissism—it belongs. Still, as Mr that information into the public domain tool. His conciliations have also been Trump said of someone else, his stubborn, for fear of exposing the National Security linked to the alleged leanings of his staff. illogical devotion to Mr Putin has made it Agency eavesdropping capabilities which Some of those connections turned out to seem as if “there is something going on had produced it. Yet last year America be flimsy, such as the Kremlin-friendly un- with him that we don’t know about.” 7 backed a UN reporton cyber-attackswhich known named as an adviser by Mr Trump stated that, “accusations of organising and but soon disavowed by his campaign. One implementing wrongful acts brought was substantial: Paul Manafort, the cam- From DC with love against states should be substantiated.” paign manager who quit in August amid Having declared on October 11th that controversy over his ties to Viktor Yanuko- Naming without the president “will consider a response vych, the disgraced ex-president of Uk- that is proportional” and unlikely to “be raine who has been given refuge in Russia. shaming announced in advance”, the administra- Mr Trump’s business interests have tion now finds itself in a tricky spot. Soon cropped up as well. In 2008 Donald junior after, Joe Biden, the vice-president, de- told eTurboNews that “Russians make up a clared on NBC’s “Meet the Press” that What is the right response to Russia’s pretty disproportionate cross-section of a America would be sending Mr Putin a attempt to interfere with the election? lot of our assets.” Possibly he was thinking message “at a time ofour choosing and un- of condominium sales (“I guess probably I ONALD TRUMP may pretend to think der circumstances that have the greatest sell condos to Russians, okay?”, his father Dthatthe hackingofthe Democratic Na- impact”. When asked whether the Ameri- has allowed); or of the Russian and ex-So- tional Committee’s (DNC) e-mail system in can publicwould knowwhen the message viet financiers involved in some Trump- July could have been carried out by a 400- had been sent, Mr Biden said: “Hope not.” branded properties. But the income from pound nerd sitting on his bed; but on Octo- That appears to rule out new sanctions. such projects is relatively small: most ofMr ber7th the directorofnational intelligence, Instead, it suggests that a covert, offensive Trump’s revenue comes from older devel- James Clapper, and the Department of cyber-operation may be in the works. That opments. He says he has no investments in Homeland Security made official what mightmean goingforMrPutin byexposing Russia, which such records as are publicly had long been suspected. Their statement compromisinginformation abouthisaccu- available seem to confirm, norany Russian expressed confidence that the Russian gov- mulation of wealth—or at least communi- loans. His most lucrative contact may have ernment had “directed the recent compro- cating to him the threat of possible expo- been the sale of a mansion in Palm Beach mises ofe-mails from US persons and insti- sure unless he calls his hackers off. But to a Russian tycoon. tutions, including from US political unlike Russia, America cannot hide its ac- In the past, however, the Trumps organisations”, and that the “thefts and tivities behind proxy groups, particularly longed to break into the Moscow property disclosures” were “intended to interfere now it has made a specific threat. Nor does1 The Economist October 29th 2016 United States 33

2 Mr Putin embarrass easily—he shrugged The campaigns offthe revelations in the Panama Papers as a Western plotto smear Russia. There is an even bigger problem. As Mr On the trail Segal points out, offensive cyber-opera- tions of the kind Mr Biden was hinting at run directly counterto the norms ofbehav- iour that America claims to be working Gettysburg redress Son of a gun with other states to establish. There is also “All ofthese liars will be sued after the “Boy you people, you do really like your the danger that such a well-trailed counter- election is over.” guns.” attack would elicit escalatory retaliation Donald Trump, at Gettysburg, on the wom- Mr Trump gets a standing ovation for from Russia, which might be more destruc- en who have accused him of sexual assault. defending the Second Amendment. tive than anythingFancy BearorCozy Bear could achieve, such as an attack on critical Weapons of mass destruction Candidate in the hat national infrastructure. A Kremlin spokes- “Peanut-buttering is better than fire- $3.2m man described Mr Biden’s threat “as bor- bombing.” The amount spent by the Trump campaign derline insolence” and vowed that Russia A woman in Wisconsin was arrested for on hats. Washington Post would strike back. The uncomfortable re- smearing peanut butter on the cars of ality is that the playbook for responding to people she believed were Trump suppor- Bully pulpit cyber-attacks is still a workin progress. 7 ters. Stevens Point City Times “I’ll get myselfin trouble and say some- thing like, ‘I’d like to take himselfbehind From Russia with love the gym ifI were in high school’.” The Affordable Care Act “We are unable to accommodate your Vice-President Joe Biden campaigns. request to visit a polling station.” Crunch time Texas and two other states have refused Fight club Russian requests to observe voting. Texas “Did you see where Biden wants to take Tribune me […]? He wants it. I’d love that.” Mr Trump responds. WASHINGTON, DC Don’t bake “She’s not coming over to your house! Mansplaining Big rises in premiums will cause most Youdon’t have to like her.” “Sometimes a lady needs to be told when pain away from the exchanges Oprah Winfrey found a novel way to sell she’s being nasty.” ANS of the Affordable Care Act, Barack Hillary Clinton to voters. Politico Congressman Brian Babin backs his candi- FObama’s health-care law, should spend date. Alan Colmes Show November biting their nails. The first rea- Let Donald be Donald son is the presidential election: Republi- “He delivers his own speeches…He’s the These boots are made forwalking cans want to repeal the law. The second is guy who’s running forthe White House, “On November 8th, we nasty women are that the three-month window when and he has the privilege to say what he gonna walkour nasty feet to cast our Americans can buy insurance, if they are wants.” nasty votes to get you out ofour lives.” not already covered through their employ- Kellyanne Conway, Mr Trump’s campaign Senator Elizabeth Warren, campaigning er, opens on November1st. Many will shop manager, gives up managing. CNN with Hillary Clinton, counters. on government-run marketplaces, or “ex- changes”. On October 24th the health de- partment confirmed that buyers will pay a price rises return them to profit—federal premiums will rise further next year. The lot more this year. How they react will de- cash will shore up this part ofthe market. onlythingstoppingthem from doingso isa termine the future of the law—and not just That is the good news, as far as the law fine for going without insurance, which is because it may swing their votes. is concerned. The bad news is that 9m peo- small compared with the cost ofcoverage. The average benchmark “silver”—ie, ple buy coverage directly from insurers, If healthy people stop buying, insur- middling—plan sold on the exchange will without goingthrough the exchanges or re- ance will become prohibitively expensive cost 22% more for 2017. This steep increase ceiving any subsidies (see chart). And for those who do not qualify for subsidies. partly reflects the fact that insurers have these folk, whose premiums help to fi- Obamacare has already raised prices for been charging far too little. Many were nance care for everyone, on or off the ex- many in this group. By banning insurers caught out by the sickliness of exchange changes, mustalso paymore. Ifthe healthi- from turning away customers with pre-ex- customers, and have made big losses as a est among them decide to forgo insurance, isting health conditions, for example, it result. Some, like Aetna, have left most ex- pushed up premiums. In 2015 households changes (in five states, only one insurer earning $70,000 or more spent 75% more now remains). But despite this turmoil, in- Who gets what and why on insurance, on average, than in 2010, de- surance for 2017 will cost roughly what the America’s individual health-insurance market spite the fact that coverage rose only slight- Congressional Budget Office predicted it Total number of people, 2016, m ly in this income bracket. That is before ris- would when the law passed. Of which: Subsidised May be eligible ing deductibles are accounted for. Federal subsidies, offered to those earn- for subsidies* This helps to explain the ferocity of op- ing less than 400% of the poverty line 0 5 10 15 20 25 30 position to Obamacare. In most states, in- Buying on (which works out as $47,520 for individ- exchange surers will now have to tell all their cus- uals), will shield many buyers from the full tomers about price rises or discontinued Buying directly effect of higher prices. Of the 12m people from insurer coverage by November1st, just days before who bought insurance for 2016 on the ex- voters go to the polls. Expect disciplined Uninsured changes, 10m received subsidies. Obama- Republicans in tight House and Senate care caps their costs. So long as some insur- Sources: CBO; Department of Health and *Includes races to talk about little else between now Human Services; Kaiser Family Foundation Medicaid ers stick around—which they should, as and November 8th. 7 34 United States The Economist October 29th 2016

points below the nationwide mark, and in- comes are more equal than in any other state. But it mostly reflects Mormon values, which include decency, kindness and hu- mility. The emergence earlierthis month of an 11-year-old tape, which showed Mr Trump bragging that he could grope wom- en and get away with it, caused several prominent Utah Republicans, including the state’s governor, Gary Herbert, to drop their support. Jon Huntsman, a former go- vernor who had surprised many by en- dorsing the Republican nominee, went a step further and urged him to drop out of the race. And the Deseret News, a newspa- per owned by the Mormon church, broke an 80-year tradition of neutrality to im- plore Mr Trump to quit. Even before October, though, this elec- tion was unusual for the role played by the usually apolitical Mormon church. It re- sponded to Mr Trump’s proposed ban on Muslim immigration by posting on its The presidential election website two quotes about religious liberty from Joseph Smith, the faith’s founder. Making a U-tahn “Many members of the Mormon church feel like refugees, having been chased from place to place,” says Jeff, a church employ- ee. “Many of us have done missions to for- eign places and fallen in love with the peo- SALT LAKE CITY ple there.” A walk around the campus of Brigham Young University, a place so Mor- No third-party candidate has won a state since 1968. Could that be about to change? mon that even the sodas in the campus ITH the Gothic spires ofthe Salt Lake Party’s support of abortion rights alienat- store are caffeine-free, revealed stickers WTemple looming behind her, Diane, ed Mormon voters, and they were strongly and luggage tags on students’ backpacks who works for the Mormon church, gri- influenced byconservative figureslike Ezra and cars that read “I <3 Okinawa”, “Eu amo maces as she considers her political TaftBenson, who served as secretary of ag- o Brasil” and “Guangdong Soccer League”. choices. “Well, Trump wants to be king, not riculture under Dwight Eisenhower before Do Mr Trump’s struggles in Utah signal president. And Hillary lacks integrity. I returningto Utah and leadingthe Mormon the end of its long run as a near-one-party would vote forMickey Mouse before I vot- church. In 1974 Benson declared that any state? Greg Hughes, the Republican Speak- ed for either of them.” The only candidate Mormon who “was living the gospel and er of the Utah House of Representatives, she can stomach is Evan McMullin, a 40- understood it” could not be a liberal who continues to support Mr Trump, says year-old Mormon who served in the CIA. Democrat. In devout Mormon circles, the the Republican Party will remain domi- Mr McMullin announced his candida- Democratic Party remains taboo. Crystal nant. It currently boasts 87 lawmakers in cy as an independent in August. He began Young-Otterstrom, the chair of LDS Demo- Utah’s legislature to the Democrats’ 17. “No with near-zero name recognition and crats, said that when she first switched matter what happens, I just don’t think made the ballot in just 11 states. Yet recent from being a Republican, she told her par- there’s going to be such a big impact down- polls put him in a dead heat with Hillary ents and friends she was a communist be- ticket,” he says. Richard Davis, a professor Clinton and Donald Trump in his native cause, “that was easier, somehow”. at Brigham Young University, isn’t so sure. Utah. An Emerson College surveyon Octo- Nonetheless, Mormons have devel- “Once people start disassociating from ber 19th gave him a four-point lead, and oped a unique brand ofconservatism. Last their usual party, itwill probably be easier betting markets put his chances there year the church helped pass a law that pro- forthem to do so in the future.” around 30%. No third-party candidate has hibited discrimination in housing and em- If Mr McMullin does triumph, the ef- won a state since the segregationist George ployment on the basis of sexuality. Utah fects will reverberate far beyond Utah. It is Wallace swept the Deep South in 1968. has accepted over 60,000 refugees since conceivable, though vanishingly unlikely, Before the campaign of 2016, Utah the end ofthe Vietnam war; in recent years that he could become president: if no can- seemed the least likely place in the country it has had one of America’s highest refu- didate secures 270 electoral votes, the to give a Republican headaches. Republi- gee-resettlement rates. Yet the Mormon as- House of Representatives would pick the cans have won it by at least 18 percentage piration to “secure to each individual the victor from the top three finishers, and he points in 12 straight general elections; both free exercise of conscience, the right and might emerge as a compromise candidate. George W. Bush in 2004 and Mitt Romney control of property, and the protection of Far more plausibly, he could pave the way tookover 70% ofthe vote. The main source life”, plus the emphasis on each individual for future challenges to America’s political ofthe party’s dominance is the state’s Mor- being responsible for their own fortune, duopoly. Although Ross Perot took 19% of mon population. They make up over 70% have kept them in the Republican fold. the vote in 1992, he did not come close to of the electorate, and lean more Republi- Mr Trump’srelatively weak showing in winning any states. Mr McMullin’s surge can than any other religious group. Utah is partly explained by the strength of suggests that third-party candidates Mormons were not always stalwart Re- the state’s economy. Utah’s unemploy- should focus on cultivatinga strongregion- publicans. Before the 1960s, Utah’s politics ment rate is only 3.4%, 1.6 points below the al base. In a close election, that could po- were more balanced. But the Democratic national average. The poverty rate is 2.3 tentially make one a kingmaker. 7 The Economist October 29th 2016 United States 35

Election brief: Education be deducted from income taxes and to in- troduce six weeks ofpaid maternity leave. Little changes Mrs Clinton can point to a longer com- mitment to early childhood development. As first lady ofArkansas in the 1980sshe set up one of the country’s first schemes to NEW YORK help poor parents educate their toddlers at home. Today she says she will introduce 12 George W. Bush and BarackObama made school reform a priority. The next weeks of guaranteed paid family leave, president will lookelsewhere and ensure that child care costs no more FOR a president, making the 23 outof43 statesthatpermitthem. Mrs than 10% ofa family’s income, in part by of- education policy can be like Clinton has been studiously ambiguous fering a tax credit. She also wants to use running a school with thou- on such limits, to the regret of reformist federal funds to provide pre-school for all sands of unruly pupils. He Democrats, who note that in most cities parents who want it fortheir children. can goad states and coax charter schools outperform ordinary pub- As most children know, nice things cost school districts, offering gold stars to those lic schools. Though she has sent Tim Kaine, money. Mrs Clinton has not given a de- who shape up. But if a class is defiant he her vice-presidential nominee, to mollify tailed plan for how to pay for her early can do little. Just12.7% of the $600bn spent funders of charters, they are braced for a childhood policies. Much will depend on on public education annually is spent by change of tone. Charters will still expand, whetherDemocratstake Congress. Butthis the federal government. The rest is split al- but they will receive less federal support. is increasingly a bipartisan cause. Of the 42 most equally between states and the “We reformers have had a big tailwind un- states that provide funding for pre-school 13,500 school districts. Many presidents der Obama, which we’re unlikely to have education, most have Republican gover- end up like forlorn head teachers. America underClinton”, saysWhitneyTilson, an in- nors. Georgia, Oklahoma and Florida have spends more per child than any big rich vestor and education philanthropist. led the way in offering near-universal cov- country but its pupils perform below their The Democratic candidate’s wish to erage (see map). peers on international tests. neutralise the toxic politics of school re- The results at the state level, however, Despite the constraints, George W. Bush form has another, less cynical cause. She suggest realism is required. According to a and Barack Obama both used the regula- wants to focus on what comes before and study led by Dale Farran ofVanderbilt Uni- tory power of the federal government to after school, the “bookends” of pre-school versity, Tennessee children who attended spur reform. Through the No Child Left Be- and higher education. America “has fallen that state’s scheme performed no better hind (NCLB) Act of 2001, the Republican (and in some cases worse) in school tests president launched a flurry of standar- than similar children who did not attend. Children enrolled in state pre-kindergarten*, 2014-15, % dised tests, sanctioning schools whose pu- Ms Farran argues that some “states are so <20 20-4040-60 60-80 >80 pils failed to progress. Through his “Race to busy ramping up pre-K that they are not No programme US average 29 the Top” initiative, announced in 2009, the AKAK MEME paying attention to what is actually going Democratic one offered cash to states in ex- on in classrooms”. She argues that grafting WIWI VTVTNH NH change for reforms such as higher stan- a year of pre-school onto poorly perform- dards and evaluating teachers based on WAWA IDID MT MT ND NDMNMN IL IL MIMI NYNYMA MA ing public school systems will not help pupils’ results. Similarpolicies were imple- OROR NVNVWY WY SD SDIA IA ININ OHOH PA PA NJNJ CTCT RI children, especially those whose parents mented by 43 states in exchange forfederal CACAUT UT COCO NENE MOMO KY KYWV WV VA VA MDMD DEDE actively help them learn outside ofclass. waivers from the testing mandates of Betterresults can be found in cities such AZ NM KSAR TN NC SC DC NCLB. Mr Obama has also championed AZ NM KSAR TN NC SC DC as Tulsa and Boston. Then there is New charter schools, the part-publicly funded OKOK LALA MS ALALGA GA York, which Mrs Clinton has cited as a and independently run schools hated by HI TXTX FLFL model. Since 2014 it has expanded the teachers’ unions. number of free all-day pre-school slots for But the era of regulation-driven school Source: National Institute for Early Education Research *4-year-olds four-year-olds from 19,000 to 71,000, one reform is now coming to an end, for two of the fastest roll-outs anywhere in the reasons. The Every Student Succeeds Act off the pace when it comes to early child- world. Richard Buery, the deputy mayor in (ESSA), passed in December as a replace- hood education”, says Steve Barnett of the charge of the scheme, argues that its suc- ment for NCLB, hands back power to states National Institute for Early Education Re- cess requires well-trained staff, a rigorous over standards and tests, making it hard for search, at Rutgers University. About half of curriculum—and money. The average a future president to seek to micromanage all three- to four-year-olds are enrolled in wage of a child-care worker in America is school reform. And in any case, neither pre-school, less than in many poor coun- less than that of a dog-walker. In New York Donald Trump nor Hillary Clinton are in- tries (see page 55) and one of the lowest the cost per child for a year of pre-school is clined to imitate the past two presidents. shares in the OECD. And yet the country is $12,000, more than twice as much as in Mr Trump is “totally against” and “may third-highest in the club of mostly rich Tennessee. “Doing it on the cheap will get cut” the Department of Education. Declar- countries forthe share ofnet income spent youuniversal child care butnothigh-quali- ingthat “it is time to have school choice”, in on child care. In 31 states a place at a child- ty pre-K’, says Mr Buery. September he pledged to give states $20bn care centre is more expensive than at a What of the other bookend? Mrs Clin- to fund school vouchers for parents of public university. America is the only ton wants to make tuition at public univer- poor children. country in the OECD without universally sities free for many more students. She is Mrs Clinton has also been keen to defer guaranteed maternity leave. also mulling whether to offer financial re- to states. This is partly because she knows Both Mr Trump and Mrs Clinton have wards to universities that increase the en- ESSA shrinks her room for manoeuvre. But pledged to do something about all this. trance and graduation rates of poorer stu- she has also made a political calculation. Asked last year about federal funding for dents. She may appoint a university Unlike Mr Obama, she is backed by teach- pre-school, the Republican said, “well, I president as education secretary. Even as ers’ unions. They oppose tying teacher don’t like it”. But in September, prodded by an era of activist schools policy ends, the evaluations to pupils’ results and want to his daughter, Ivanka, Mr Trump said he federal government still has bold plans to keep the caps on charterschools in place in wanted to allow the costs of child care to improve education. 7 36 United States The Economist October 29th 2016 Lexington Meet Kamala Harris

California’s tough, technocratic attorney-general will be a starofthe next Senate of young children who often miss days at kindergarten later fail California’s maths and reading tests in third grade. Pupils who fail those tests are in turn four times likelier to drop out of high school, and those who drop out are eight times likelier to end up in jail. Chronic truancy is much more common among black chil- dren, moreover. Yet as she explained her findings, the attorney- general did not thunder about racial injustice or inequality. In- stead she noted that high-school dropouts cost the state more than $46bn a year in public-safety and public-health spending. Letting children miss school offers taxpayers a poor “return on in- vestment” and deprives California of a skilled workforce, Ms Harris argued. It stops government being “efficient and effective”. That technocratic tone does not surprise a long-standing ally, Lateefah Simon. When the pair first met, Ms Harris was a young city lawyer, working on sex-trafficking cases. Ms Simon was just out of her teens, a radical activist working with troubled young women, and, she recalls proudly, “known for bringing hundreds of young girls into police commission meetings, shutting them down.” Ms Harris finally advised her that systems change under pressure from the outside and the inside: “Kamala said to me, you can’t always win with a bullhorn.” When Ms Harris became dis- F THE Democratic Party were a business, investors would mut- trict attorney she hired Ms Simon to run a programme for low- Iter that it has a succession crisis. Its presidential nominee is 69 level, non-violent drug offenders. Though strikingly cheap, it years old, and its leaders in Congress—Representative Nancy Pe- drew national attention for preventing 90% of its graduates from losi and Senator Harry Reid—are both 76. That pin-up of the cam- reoffending. MsSimon explainshowMsHarriswould tell young- pus left, Senator Bernie Sanders, is 75. The young thruster set to sters their chances of going to jail or dying if they did not change lead Senate Democrats after January, Charles Schumer of New course. Then she would offerhelp with everything from housing York, is 65. Nor is the galaxy of Democrats outside Washington to remedial education and apprenticeships—even dentistry thick with dazzling stars: after several bruising elections, the cadged from a local university, after she read research linking job party currently holds just18 out of50 governors’ mansions. prospects to bad teeth. Ms Simon calls her old boss both “data- Talkto thoughtful Democrats about the future and one name driven” and tough: “Ifyou hurt a woman, she wants you in jail.” inspires more hope than most: Kamala Harris, the attorney-gen- More than a decade later, Ms Harris still puts her faith in data, eral of California and, barring a meteor-strike between now and as she cites crises that Republicans and Democrats alike know November 8th, that state’s next member of the Senate. Insiders need to be addressed, in fields as diverse as criminal justice, im- noticed when Ms Harris, 52, was endorsed by President Barack migration, the costs of higher education or the drugs epidemic Obama, even though, under a run-off election system used in thatisascruel a scourge in conservative rural states asitisin inner California, her opponent is a long-serving Democratic congress- cities. Over a stop for iced coffees on the campaign trail, she says woman, Loretta Sanchez. transparency is the key to building trust among people, and then Ms Sanchez has ascribed this snub to race solidarity between between communities and government. To that end in 2015 her her opponent and the president, sniffing: “She is African-Ameri- department began releasing torrents of statistics about arrests can, he is too.” In fact, Ms Harris and Mr Obama share bonds and deaths in custody across California. Nor is keeping the trust more subtle than similarly complex life-stories (the attorney-gen- ofthe police forgotten: MsHarris’sdepartmentpublicisesdata on eral’s parents, an Indian-born cancer researcher and a Jamaican law-enforcement officers killed or assaulted on duty. economist, met at the University of California, Berkeley, and di- vorced when she was young). Both began political careers in The case for the prosecutor places where success required coalition-building across party Washington sceptics may dismiss Ms Harris as a typical Califor- lines: Mr Obama in the fusty, cronyish Illinois state Senate, and nian progressive. It is true that her campaign ads boast of suing Ms Harris in the lock-’em-up world ofelected public prosecutors, big banks for fraud. She also has a distinctly paternalist streak. starting as a district attorney for San Francisco, before becoming Greeting an eight year old in his classroom, the attorney-general head oflaw enforcement across California in 2010. solemnly coaches him: “We shake hands and look each other in A recent weekday found Ms Harris at John Muir Elementary the eyes.” Asked bya little girl aboutfavourite foods, Ms Harrisre- School in San Francisco. As happy playground shrieks drifted plies: “I like French fries, but I love spinach.” through the windows, she faced TV cameras to unveil her fourth But Ms Harris is a prosecutor to her core, who approaches vot- annual report on chronic school truancy. A populist firebrand ers as she would 12 jurors of different backgrounds: “Youhave to would not have lacked for material. Surrounded by Victorian point to the facts.” Contemplating a country where millions feel houses snapped up by tech millionaires, stoking local resent- displaced by change, she yearns to see another approach to poli- ments, John Muir serves mostly poor families from other, less tics tried: “to give people an image of what the future looks like, gentrified neighbourhoods. Ms Harris began studying truancy and to paint that image in a way that they can see themselves in afterlearningthat94% ofSan Francisco’smurdervictimsunder25 it.” Fierce, charming and eloquent, Ms Harris may be a big part of were high-school dropouts. Research showed that three-quarters the Democratic Party’s future too. 7 The Americas The Economist October 29th 2016 37

Also in this section 38 The rise of rugby in Brazil 38 Nicaragua’s flawed election 40 Bello: Ciudad Juárez trembles again

Venezuela founded by Mr Maduro’s charismatic pre- decessor, Hugo Chávez—are thought to Fighting their chains have argued for allowing a recall vote in 2017, past the date when it would have trig- gered a fresh presidential election. If Mr Maduro had lost next year, a near certainty given his 20% approval rating, the vice- CARACAS president, currently Aristóbulo Istúriz, would have taken over from him. A lurch towards dictatorship, massive protests and no sign ofregime change Hardliners privately argued for holding HIS time, the protests were nation- history and acute shortages of food and no referendum at all. The governors of the Twide. From Maracaibo in the west to medicine, has given up all pretence that it five states whose courts blocked it are Ciudad Guayana in the east, hundreds of will work with any institution that it does thought to be among their number. That thousands ofVenezuelans filled the streets not control. It has ignored the national as- decision seems to mean that they intend to to call for an end to the authoritarian left- sembly, which is dominated by the opposi- stickwith MrMaduro, atleastuntil the next wing regime led by Nicolás Maduro. More tion. The legislature still summons minis- presidential election in 2018. Some now than 100 people were arrested and one po- ters to explain plans or provide informa- wonderwhetherthat election will be held. liceman in the state of Miranda died. “This tion, but none ever appears. On October government is never going to leave 14th, the president passed next year’s gov- Talkis expensive through an election,” said María Gil, a mas- ernment budget without sending it to the Mr Maduro’s favourite word at the mo- seuse who joined the throng in Caracas, assembly, in violation of the constitution. ment is “dialogue”, robotically invoked in Venezuela’s capital. “All that is left is prot- A compliant supreme court, stuffed with his interminable speeches. He paid a sur- est.” David Mujica, a street trader, agreed pro-governmentcronies, waved itthrough. prise visit on October 24th to the pope, that voting “changes nothing”. The court has vetoed every law that parlia- who has been trying to arrange a meeting Both protesters branded Mr Maduro a ment has passed this year. between the government and the opposi- “dictator”, a term Venezuelans have been Now the assembly is in open revolt. On tion. The effort seems to be working in the using more freely after the events of the October 23rd, after the suspension of the government’s favour. A senior opposition past fortnight. On October 21st, days before referendum, it met in emergency session to official, Jesús Torrealba, appeared at an voters were to go to polling stations to reg- declare that a coup had taken place. A pro- awkward photo-call alongside a represen- ister their signatures in favour of holding a government mob entered the parliament tative of the ruling party and a papal en- referendum to recall the president from of- building during the meeting, in a clumsily voy. The government suggested that they fice, the process came to an abrupt halt. stage-managed attempt to demonstrate to had reached an agreement to begin formal Five criminal courts in five separate states television viewers that a popular “revolu- talks at the end ofOctober. declared that the conduct of an earlier tion” continues. Some of the intruders That was an exaggeration. Most opposi- stage in the process—the submission of sig- were armed. The assembly has since de- tion leaders have no intention of sitting natures from at least 1% of the electorate— clared that the president may have aban- down with a regime they regard as illegal. had been fraudulent. That is nonsense. The doned his duties and should therefore Henrique Capriles, who nearly defeated opposition submitted 2m signatures in stand trial. No one thinks this will happen. Mr Maduro in a presidential election in April, ten timesthe minimum number. The The constitution does not explicitly pro- 2013, has made clear his refusal to attend electoral council, which is supposedly in- vide for the possibility of such a trial, and any talks. “We are fighting against the dev- dependentbutkowtowsto the regime, had Mr Maduro would not show up ifit did. il,” he says. The episode has been a gift to said that 1.4m of those were valid. The five The squelching of the recall referen- Mr Maduro, who can now present himself courts did not explain their reasoning. dum is a signal that the regime has made a as open to dialogue, and the opposition as The government, which is presiding decision about how to deal with the crisis. divided and intransigent. over the deepest recession in Venezuela’s Some in the socialist chavista movement— The opposition has now responded by 1 38 The Americas The Economist October 29th 2016

2 issuing an ultimatum. IfMr Maduro fails to tive, Agustin Danza, holds an MBA and an- Nicaragua restart the recall process, it will call for a swers to a 12-member board. In November march on the presidential palace on No- last year a non-profit group gave the CBRu Fourth time vember 3rd. But there is little prospect that Brazil’s first sport-governance trophy. The protest alone can dislodge the regime. volleyball federation has sent five scouts to unlucky The stance of the army, long the arbiter learn its management tricks. of power, remains crucial. The opposition Sponsors have taken note. The Tupis MANAGUA is trying to sow dissension by calling on now have two dozen, including Unilever, a Daniel Ortega could win a fairelection. the armed forces to uphold the constitu- consumer-goods giant, and Bradesco, a But he is fighting dirty tion. But the tactic is unlikely to succeed. Brazilian bank. The CBRu’s budget has Underpaid junior officers might be recep- swelled from 1.3m reais in 2011to 18m reais ANAGUA, Nicaragua’s capital, is not tive, but the top brass, which controls most ($6m). Mr Danza has used the money to Mthrobbing with campaign fever. With sectors ofthe economy, will notbe. lure coaches from rugby powerhouses like days to go before presidential and parlia- On October 25th Vladimir Padrino Ló- New Zealand and Australia. His objective mentary elections on November 6th, polit- pez, the defence minister, delivered a rare is to qualify forthe World Cup in 2023. ical posters are nowhere to be seen. Cam- television speech, dressed in full combat It will take plenty of training. Brazilian paigning, when it happens, is low-key. uniform. The army, he said, hasno political women came a respectable ninth in the Yadira Ríos, the vice-presidential candi- allegiances. But then he showed just how Olympic seven-a-side tournament, but the date ofthe Independent Liberal Party (PLI), firmlyitbacksthe bankruptregime, ending men came last. They are ranked 36th in the hastaken to obstructingrush-hourtraffic at his address by paying homage to Chávez, world. Argentina, Brazil’s rival in all things a roundabout just to get noticed. “We have who devised the economic policies that sporting and otherwise, is ninth. Mr Danza a small budget,” she says from a garage have impoverished the country. “Long live (himself Argentine) is banking on support, forecourt as drivers honk at her 20-odd Chávez,” he cried, fist raised high. 7 and cash, from the sport’sglobal governing supporters on the road, “so we do this”. body. He is hoping that World Rugby will Theiranticswill be in vain. Daniel Orte- soon name Brazil as one ofits priority mar- ga, a formerguerrilla commanderwho first Brazilian sport kets. With more exposure and money, the won the presidency in 1985, is almost cer- amateur league could turn professional. tain to win a third consecutive term, and Something new to The CBRu is trying broaden the sport’s his fourth overall. According to one recent appeal—and talent pool—beyond the up- poll, he will win 65% of the vote. That en- cheer per class. “In my day the team was all pale dorsement owes something to the presi- posh guys,” recalls Jean-Marc Etlin, a finan- dent’s success in managing the economy cier and former Brazil forward. Thanks to and reducing poverty. But it also comes SÃO PAULO programmes that promote the sport in from an undemocratic suppression of the state schools, his son’s team-mates on the opposition to him and his Sandinista Na- Why rugby could be the next craze under-19s national side now include play- tional Liberation Front (FSLN). HEN Charles Miller, son of an Eng- ers from poor backgrounds. The election is, in effect, a one-party Wlish railway engineerposted to Brazil, The biggest obstacle to rugby’s popular- event. Mr Ortega’s main political foe, returned to São Paulo from a British board- ityremainsBrazilians’ obsession with foot- Eduardo Montealegre, was removed as the ing school in 1894, he brought back a foot- ball. “Every other sport is peripheral,” PLI’s leader by the Ortega-friendly su- ball—and popularised a game that would sighs Mr Etlin. Mr Danza thinks football’s preme court in June. A month later 16 PLI help define Brazilian identity. Miller’s oth- woes, including sleaze in the federation deputies were expelled from parliament er sporting import, rugby, had less appeal. and the national team’s underwhelming for refusing to accept the authority of the It was played at a few posh boarding performance (by Brazilian standards), give new leader, Pedro Reyes, who is thought to schools and almost nowhere else. But now rugby an opening: “When the footballers have close links to Mr Ortega. Mr Reyes rugby is beginningto find a mass audience. disappoint, Brazilians start looking for then decided not to run for president and Asked which sport would grow most, someone else to cheer.” 7 presented José del Carmen Alvarado, as more Brazilians picked rugby than any oth- the PLI’s new candidate. He and his run- erin a surveyconducted in 2011byDeloitte, ning mate, Ms Ríos, are leaders of a neu- a consultancy. Since then itspopularity has tered party. shot up as ifpropelled by a well-taken con- European Union observers criticised version kick. Some 60,000 Brazilians are the latest presidential election, in 2011, for a thought to play rugby, far fewer than the “lack of transparency and neutrality”. The 30m who play football or the 5m-10m who multiparty system, declared Mr Ortega on take part in volleyball—but up from 10,000 a visit to Cuba in 2009, “is nothing more five years ago. The national team, the Tu- than a way to disintegrate the nation.” pis, named after a family of indigenous He would have little trouble winning a peoples, draw audiences of10,000 to stadi- fair election. Nicaraguans are still grateful ums and 7m to television screens. (The to him forleadingthe overthrow ofthe dic- league is still amateur.) Highlights from tatorial Somoza family in 1979. Although European games pop up on the São Paulo Nicaragua is the second-poorest country in metro’s in-train television. the Americas, social programmes institut- Rugger’s return to the Olympics at the ed by the FSLN government (and financed Rio de Janeiro games last August, after a 92- with oil supplied on favourable terms by year hiatus, spurred interest. The sport’s Venezuela) have helped reduce the pover- good governance helps win fans in a coun- ty rate from 43% in 2009 to 30% in 2014. The try beset by corruption scandals. The Bra- murder rate is lower than in neighbouring zilian Rugby Confederation (CBRu), which Honduras and El Salvador. GDP growth ex- replaced an amateurish association in ceeded 4% for the fifth consecutive year in 2010, is run like a business. Its chief execu- 2015. Public finances are sound. 1 40 The Americas The Economist October 29th 2016

2 Why, then, does Mr Ortega fight dirty? Now 70 years old and thought to be ail- lapse. In the first six months of this year No one is sure. One analyst suggests that ing, MrOrtega istryingto entrench his fam- loans fell by 37%. A bill in the United States his seven years in a Somoza-regime prison ily’spower. Hisrunningmate ishis65-year- Congress would cut off another important made him mistrustful and inflexible. Since old wife, Rosario Murillo, the govern- source of cash by barring international fi- becoming president for the second time in ment’s chief spokesperson. That has nancial institutions from lending money 2007 he has become more like his former angered Nicaraguans who remember the to Nicaragua unless it holds fairelections. jailers. He hasincreased the army’srespon- 43-year rule of the Somoza dynasty, a sen- Mr Ortega is trying to placate foreign sibilities and allowed officers to hold gov- timent the opposition is trying to ex- critics. He has started a dialogue with the ernment posts. In 2014 he took direct com- ploit. Ms Murillo is “a witch,” shout Ms Organisation of American States about mand ofthe police. Local leaders are under Ríos’s roundabout-obstructing supporters. strengthening democracy and has sig- his thumb. “Municipal governments have Nicaragua may be heading into rockier nalled that he may talk to the opposition to consult with the central executive on all times. Venezuela’s PetroCaribe pro- after the election. That will matter only ifit important decisions,” says Elvira Cuadra gramme, under which Nicaragua buys oil leads to a real political thaw. But the omens of the Institute for Strategic Studies and on very easy repayment terms, is threat- forMrOrtega’sfourth term aspresident are Public Policy, a think-tankin Managua. ened by the benefactor’s economic col- not encouraging. 7 Bello Ciudad Juárez trembles again

A Mexican security success story faces a new test N PUERTO DE LA PAZ, a settlement of cause of organised crime, corruption and Ihardscrabble houses and shacks in the social conflicts. Such concerns prompted western suburbs of Ciudad Juárez, a new Mr Peña to replace the attorney-general three-storey community centre offers tae- this week. kwondo, five-a-side football and classes Afterfallingforthe firsttwo-and-a-half in baking and giving beauty treatments. It years of Mr Peña’s presidency, the nation- is one of49 such centres in poorer parts of al murder rate has risen sharply this year. this sprawling industrial city jammed Businesses complain of the mounting against Mexico’s border with Texas. In- cost of extortion and highway robbery. tended to offer young people alternatives Because of the weakness of government to organised crime, they are a sign of forces, armed vigilantes now operate in change in a place that became known as 20 states, according to Eduardo Guerrero, “the world’s most dangerous city”. a security consultant. “Everything is very There are other changes. Restaurants reactive, and there is a lack of foresight re- and bars are full. “There are parts of the garding the knock-on effects of interven- city that are heaving with nightlife where tions,” he says ofgovernment policy. a few years ago you wouldn’t have seen a There is nervousness in Juárez, too, be- soul,” saysNohemi Almada, a lawyerand paid, says a local official. The Chihuahua cause of a rise in murders this year. Some activist. The local economy is booming. state government has set up a task force of blame the uncertainty among the crimi- Factories lining Juárez’s urban highways, detectives and prosecutors. nal classes prompted by the election of a making everything from car parts to wind The second factor was community mo- new state governor and new mayor, and turbines, sport job-vacancy signs. bilisation. Representatives ofbusiness and the tensions between them. Others point Between 2008 and 2011 Juárez de- professional associations formed a securi- to the recapture in January of Joaquín “El scended into hell. It felt the knock-on ef- ty round-table in 2010, which still meets. Chapo” Guzmán, the head of the Sinaloa fects of the offensive against drug mobs They have drawn up security indicators mob, who has escaped twice from prison. launched by Mexico’s then-president, Fel- and hold the authorities accountable for Awaiting extradition to the United States, ipe Calderón. “Here the war on drugs was meeting targets, pressing them to co-ordi- he is being held in the turreted bulk of a a massacre,” says Ms Almada. “We all nate closely, says Arturo Valenzuela, a sur- federal prison in the Chihuahua desert, grew used to seeing bound corpses in the geon and member ofthe group. justoutside Juárez. The government istak- street.” A city of 1.4m people suffered The third factor has little to do with the ing no chances: a dozen army vehicles, more than 300 murders a month. Extor- government. The violence in Juárez surged some with guns mounted, guard the pri- tion, kidnapping and carjacking became when rivals battled the Sinaloa drug mob son entrance. endemic. The nadircame in January 2010, forcontrol ofthe city, an important drugex- Mr Guzmán’s arrest appears to have when gunmen slaughtered 15 students at port route. Each side made alliances with triggered a renewed battle for territory a birthday party. A chastened Mr Calde- youth gangs and elements in the security among rival drug gangs that may be be- rón went to Juárez and promised help. forces. Sinaloa appeared to win, ending hind the resurgence of violence. On aver- Nowadays the city is touted as a suc- the war. age, half of murders are linked to organ- cess story. Murders fell steeply, to 311in the Enrique Peña Nieto, who replaced Mr ised crime, reckons Mr Guerrero. That whole of 2015. Three things were behind Calderón in 2012, has continued the effort bodes ill for Mexico. Juárez shows that a the turnaround. First, the federal govern- in Juárez, buthastried onlyfitfully to repro- concerted political effort and community mentpoured moneyinto the city. Some of duce its success elsewhere. Having initially involvement can bring improvements, at it went into community centres, parks played down security issues, Mr Peña now least fora time. But across too much ofthe and sports centres. Another chunk trans- faces mounting alarm among Mexicans, country, the basics of the rule of law—an formed the local police, whose officers who worry that half a dozen of the coun- effective police force and a capacity to are now better educated, trained and try’s states have become ungovernable be- prosecute crimes—are still missing. Middle East and Africa The Economist October 29th 2016 41

Also in this section 42 Three African countries leave the ICC 44 Uneven growth in Africa 44 Edging closer to Mosul 45 Turkey pushed into Syria and Iraq 45 Medical marijuana in Israel 46 Islamic State’s loss of Dabiq

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

Off-grid solar power frogging power lines in much the same way that mobile phones bypassed fixed- Africa unplugged line telephone networks. This promises not just to improve millions of lives but to help deal with a chronic shortage ofpower that, the World Bank reckons, trims about two percentage points from Africa’s annu- GAKENKE al economic growth. Extending electricity grids across Africa Small-scale solarpoweris surging ahead might seem a better alternative. But, forthe FEWmiles down a rutted dirt road, and a few years ago is now thought to be pro- moment, it is unrealistic. Rwanda, one of Amany more from the nearest town, a viding power to perhaps 600,000 house- Africa’s most densely-populated coun- small farmhouse stands surrounded by holds in Africa. The pace ofgrowth is accel- tries, found that it costs an average of $880 dense green bush. On the inside of one erating in a continent that, more than any to link a house to the grid. Yet even that fig- wall gangly wires reach down to a switch other, is rich in sunshine (see map). Indus- ure is misleading since it changed its policy and light that are connected to a solar pan- try executives reckon that over the next to concentrate on connecting only those el. Readers in rich countries may well con- year the number of home-power systems homes that are already close to existing sider electric lighting mundane. But in on African roofs will grow by 60-100%. M- power lines. Before this change it cost an northern Rwanda, where fewer than one Kopa, the market leader, has installed average of about $2,000 per connection, in ten homes has access to electricity, sim- 400,000 systems and, at its current rate of about ten times the cost of an off-grid sys- ple solar systems that do not rely on the growth, may add another 200,000 to that tem. The Africa Progress Panel, a group of grid—and use a battery to store electricity number over the next year. Smaller rivals experts led by Kofi Annan, a former UN for use at night—are a leap into modernity. such as Off Grid Electric, Bboxx and Azuri secretary-general reckons that more than A service once available only to rich Afri- Technologies may well double their client 600m people are not connected to grids cans in big towns or cities is now available base over the same period. and that to wire them up, investment in for just a few dollars a week. People are This fastpace of growth suggests that, if electricity infrastructure would have to able to light their rooms, charge a smart- sustained, off-grid connections will within rise to about $55bn a year from the current phone and listen to the radio. In a few a few years outstrip the rate at which peo- $8bn. On current trends it would take until years they will probably also be watching ple are being connected to the grid, leap- 2080 to linkall Africans to the grid. 1 television, powering their irrigation pumps and cooling their homes with fans. In short, poor people in a continent in which two of every three people have no access to power may soon be able to do many of the things that their counterparts in rich countries can do, other, perhaps, than running energy-hogging appliances such as tumble dryers and dishwashers. And they will be able do so at a fraction of the cost of traditional sources of energy while also acting as a testing ground for technologies that may even make their way backfrom poor countries to rich ones. Average annual sum of Global Off-grid solar is spreading at an electri- Horizontal Irradiation (GHI), kWh/m2 fying pace. An industry that barely existed Source: Solargis <800 1,000 1,500 2,000 2,500 2,800 42 Middle East and Africa The Economist October 29th 2016

2 Just a few years ago the idea that “off- sort when it comes to big industries. ICC began investigating the wave of kill- grid” systemscould fill the gap seemed pre- For the moment many policymakers in ings that followed President Pierre Nku- posterous: the market was dominated by Africa see the two technologies as compet- runziza’s decision to cling to a third term. charities giving away solar-powered lan- ing and fret that off-grid power companies Other African countries may follow suit. terns that could produce a few hours of will eat into the customer base of state- The Gambia, another human-rights abus- light at night. But as technology and ven- owned electricity monopolies. Instead er, says it will do so. Kenya, Uganda and ture capital firms have entered the market, they should encourage the competition Namibia have made similar threats. the industry has quickly evolved, helped that is lifting the burden ofrural electrifica- South Africa’s explanation for leaving by three developments. tion from the state while allowing it to con- rings hollow. Its official notice complains The first has been an 80% fall in the cost centrate its investment in improving pow- that its obligations under the Rome statute of solar panels since 2010, according to the er supplies in those areas where it can be clash with conventions around diplomatic International Renewable Energy Agency used to power industrial growth. 7 immunity for heads of state and hinder its to as little as 52 American cents per watt of ability to broker “peaceful resolution of capacity. A more important innovation conflicts.” This was the case when Sudan’s has been the “pay-as-you-go” business president pitched up in Johannesburg for model, based on selling electricity as a ser- an African Union summit last year. Under vice rather than selling solar cells. A bevy the ICC rules, South Africa was obliged to of companies have sprung up offering to arrest Omar al-Bashir, who is wanted by install systems and then charge customers the ICC on genocide charges for the deaths a weekly or monthly fee. This allows poor of hundreds of thousands in Darfur. In- households to have part-use of solar sys- stead Mr Zuma (pictured, left) welcomed tems costing as much $250 that they would him. Mr Bashir bid a hasty retreat back to struggle to buy outright. Many firms have Khartoum when civil-society groups took connected their systems to mobile phone the South African government to court in networks so that they can bill customers an attempt to force his arrest. using mobile money and cut them off the Many South Africans, including the lib- moment a payment is missed (some are eral opposition and human-rights bodies, building in Wi-Fi routers to offer internet see the decision to leave the ICC notasa tri- connections, too). Default rates are any- umph for pan-Africanism but as another way low because many rural Africans al- moment in the country’s descent underMr ready spend some $100-$140 a year on ker- Zuma, who has repeatedly shown little re- osene lamps and candles, and another spect for the law. Even the leftist Economic 15-25c each time they charge their phones. Freedom Fighters(EFF), which roundlycrit- The third big change has been in the de- icises the ICC for bias against Africans, has velopment of devices that use less electric- condemned the move as irresponsible. ity. The most important of these are light- The timing is also questioned, with Mr emitting diode (LED) bulbs, which provide Zuma and his government facing a string illumination with about 20% ofthe energy of legal challenges. Two lower courts have of conventional bulbs. But energy savings The International Criminal Court ruled that the government broke the law are also spreading to phones, televisions, by failingto arrest Mr Bashir. The Constitu- fans and radios. Azuri Technologies is tak- Exit South Africa tional Court was due to hear an appeal ing this a step further by building intelli- next month, though the justice minister gent solar systems that learn how their us- now says it will be withdrawn. There are ers typically use energy. The system then also questions over the process of leaving ICC uses this information to ensure it never JOHANNESBURG the . The opposition Democratic Alli- leaves them in the dark. If a cloudy day re- ance has launched a court challenge argu- A terrible blow forthe court, and for a duces the amount of power it collected ing that the move is unconstitutional be- beleaguered country then it will imperceptibly dim the lights cause the government failed to seek and television to keep them running. NDER Nelson Mandela’s government, approval from Parliament. The biggest constraint to faster growth USouth Africa championed the cre- Meanwhile the president, beset by a is a shortage of finance, since most off-grid ation of a court to try the world’s worst battered economy, violent student protests firms are putting up the money for new in- criminals. Out of apartheid and the Rwan- and factional disputes within his party, has stallations, but are only getting paid back dan genocide came a boon forinternation- his own legal woes. Earlier this year Mr by their customers over time. A second al justice. “Our own continent has suffered Zuma was found to have violated the con- constraint is production. Mansoor Ha- enough horrors emanating from the inhu- stitution in a row over expensive improve- mayun, the CEO of Bboxx, laments that he manity of human beings towards human ments to his house. He now faces the po- can’t make systems quickly enough. “It’s beings,” Mr Mandela said ahead of the tential reinstatementofcorruption charges notabouta lackofdemand…we run outof Rome statute adopted in 1998, which estab- linked to an arms deal. At the same time stockfrequently,” he says. lished the International Criminal Court the country’s respected finance minister, a To be sure, home solar will not solve all (ICC). So strongly felt was this mission that rival of Mr Zuma, is due in court on spuri- of Africa’s power problems. Current sys- South Africa incorporated the ICC’s found- ous charges. George Kegoro of the Kenya tems can already light up small shops and ing treaty into its own domestic laws. Human Rights Commission reckons that service businesses such as hairdressers— But under President Jacob Zuma the South Africa’s move to withdraw from the Lumos Global reckons that about a quarter country has taken a radically different ICC is a response to Mr Zuma’s political of its systems are used in hospitals and turn. On October 21st South Africa’s gov- problems: “Impervious to the country’s businesses. Several firms are working on ernment filed notice of its intention to quit political history…the South African lead- scaling them up to to provide power to the ICC (the process will take a year). This ership is marching the country to a legal small factories and farms. But even so, off- puts South Africa in the company of Bu- wilderness, where South Africa will be ac- grid power will not displace the traditional rundi, which said it was leaving after the countable fornothing.” 7 44 Middle East and Africa The Economist October 29th 2016

African economies bique were unimpressed when the coun- they’re fighting through it.” try revealed hidden debts in April. Growth Less expected has been IS’s ability to at- The oil effect in South Africa has slowed to almost zero tack its enemies on other fronts. On Octo- amid political wrangles. Now is the time to ber 21st about 100 well-organised IS fight- get the policies right, urges the IMF. ers infiltrated the oil-rich city ofKirkuk and The numbers should be read warily: engaged security forces in running street GDP figures are only ever a best guess, and battles that lasted three days. Experts say the large informal economy in most Afri- the attack is a portent of what lies ahead. can states makes the calculation even They suspect IS will return to the shadows IMF numbers tell a tale oftwo Africas harder. Talk to traders in Uganda, for in- to wage a bloody guerrilla war against the OW are sub-Saharan African econo- stance, and you will hear a story very dif- Iraqi state once the city falls. Hmies doing? It depends on where you ferent from the IMF’s rosy forecast of 5% If the battle in the countryside around look, says the IMF in its latest survey of the growth. The overall lesson, though, is clear. Mosul has been fierce, then commanders continent, which was published this week. If you rely on commodities, diversify—or expect an even bloodier fight once their Regional growth will slow to just 1.4% this face the consequences. That is easier said troopsenterthe city. Intelligence reports in- year, the most sluggish pace for two de- than done. Look to east African countries, dicate that hundreds of IS fighters have cades. Thingslookgrim in Nigeria, which is hailed for their innovations in mobile moved to Mosul in recent weeks to rein- mired in recession. But the Ivory Coast, a banking, which are now touting a fresh force the 4,000 to 8,000 fighters estimated short flight away, is thundering along at a source ofriches: oil and gas. 7 to be inside already. growth rate of 8%. Similar contrasts are IS has had two years to prepare its de- found across the continent. Better to talkof fences. Its fighters have rigged the city with two Africas, says the IMF, moving at differ- Iraq explosives, mined and booby-trapped ent speeds. roads, filled trenches with oil they can set The big divider is resources. As com- Tightening the alight as the Iraqis advance and dug a net- modity prices have slumped, so too have work of tunnels deep underground. There the fortunes of big exporters. As a group, noose are also fears that the jihadists will use the resource-rich countries will grow on aver- 1m-1.5m civilians trapped in the city as hu- GDP IMF age by 0.3% of , says the . Take oil- NAWARAN man shields to slow the offensive. Officials rich Angola, once the fastest-growing say there is every indication IS will fight Iraqi and Kurdish troops fight theirway country on the continent: it will not grow rather than flee. If so, some think the battle towards the heart ofthe caliphate at all this year, and is wrestling with infla- could last until February. tion of 38%. Commodity-exporting coun- ARASSED by sniper fire and slowed Solid intelligence about the location of tries saw the value of their exports to Chi- Hdown by the suicide bombers of Is- IS positions inside the city will be key to na almost halve in 2015. Public debt is lamic State (IS), Kurdish and Iraqi forces limiting the damage. To encourage infor- rising sharply. Exchange rates are falling. have taken heavy casualties as they fight mants, troops have erected a number of Private consumption has collapsed. their way towards Mosul, Iraq’s second- mobile-phone masts near the front line Things look very different in countries largest city and the place where the jiha- and phone operators have given residents which are less resource-dependent. They dists first announced the creation of their 60 minutes of free credit. “It’s still danger- will grow at 5.6% this year, the IMF reckons. “caliphate” two years ago. ous to make calls,” said Mahmoud, a Mo- Theyhave been helped byfallingoil prices, Villages freshly captured by the Iraqi sul resident who was too scared to give his which makes their imports cheaper. They army and Shia militias on the roads lead- real name. “They’re searching people for are stronger in other ways. In east Africa, ing to Mosul show signs of the jihadists’ SIM cards because they’re worried about for example, a wave of public investment hasty retreat. Weapon caches are aban- spies.” The UN fears IS may have executed in infrastructure has boosted demand. doned, pots of uneaten food still sit on dozens of people as the militants retreat Governments cannot set commodity stoves and medical clinics have been pil- from surrounding villages. prices. Nor can they stop drought, which fered for supplies. But there are signs, too, While militarily the battle has largely hashitagriculture in countriessuch asEthi- of the defences dug by IS to evade air progressed according to plan, fissures have opia and Malawi. But their decisions do strikes: deep, wide subterranean tunnels begun to emerge among the region’s pow- make a difference. Nigeria’s disastrous at- with room enough to sleep and eat, their ers. The main source offriction stems from tempt to prop up its exchange rate hurt far entrances concealed inside one-storey Turkey’s role in the fight (see next article). more than it helped. Investors in Mozam- buildings. Limited forthe time being to occasional ar-1 The operation to retake Mosul began on October 17th. Since then an awkward co- NINEVEH The great divide alition of Iraqi and Kurdish forces has Sub-Saharan Africa Size = % of swept across the vast, sun-baked plains of Mosul dam GDP, % change on a year earlier Nawaran regional GDP Nineveh to seize a string of villages to the Tigris FadhiliyaIRAQ By country 30 east, north and south. As The Economist Resource-intensive 15 wentto press, some unitswere within 6km Mosul Bartella 1 Tal Afar Non-resource-intensive (4 miles) ofthe city. Direction Ivory Coast of attack 8 Tanzania Kurdish and Iraqi troops, supported by SPARSELY October 17th Senegal POPULATED Kenya RwandaEthiopia 6 Mali American-led air strikes, Western special Er Mozambique Sierra Leone 4 forces and American artillery guns, have SYRIASYRIA Ibrahim Khalil ERBIL Ghana Kirkuk 2+ Congo Zambia inflicted heavy casualties on IS. Residents DirectionIRAQ of attack 2016 IRAQ October 17th 0 in Mosul say the city’s hospitals are full of Baghdad Zimbabwe IS 2– South Africa Angola wounded fighters returning from the Qayyarah NigeriaDECELERATING airbaseQayyarah GROWTH front. “It’s pretty significant (resistance),” 4 Areas of control, October 24th, 2016 02345678910111 said Lieutenant-General Stephen Town- Iraqi Security Kurds Mixed ISF Islamic State 2010-14 average send, the commander of American-led Forces (ISF) and Kurds Source: IMF forces in Iraq. “The Iraqis expected this and Source: Institute for the Study of War 25 km The Economist October 29th 2016 Middle East and Africa 45

2 tilleryfire from a ridge to the east ofthe city, Medical marijuana in Israel Turkey’s involvement has infuriated the Shia-dominated government in Baghdad. Another emerging problem is the ab- Light-up nation sence of order in newly liberated areas. JERUSALEM Many blame a dysfunctional government The tech sectorprepares forbooming global demand for the ease with which IS captured Mosul and the surrounding countryside two SRAEL’S right-wing government is years ago. At a checkpoint on the outskirts Iadamantly opposed to the legalisation of Qayyarah, 60km (40 miles) south of ofcannabis for recreational use. But it is Mosul, a frustrated colonel in the Iraqi air also rather lax when it comes to medical force pointed to thick columns of smoke marijuana. The health ministry is cur- still billowing from an oil refinery that IS rently licensing a new list of100 or so fighters had set on fire as they retreated doctors who will be allowed to prescribe from the town in August. Mixed with nox- the drug fora growing list ofmedical ious fumes from a burning sulphur plant, conditions, and is allowing regular phar- the smog has put hundreds in hospital. macists to stockit. In August the agricul- “This is a disgrace,” said Colonel Khalid ture minister announced that local can- Jasim al-Jabardi, who had been sent from nabis growers will soon be allowed to Baghdad to report back on progress at the export medical marijuana. front. “The mayor is still in Erbil, millions Israel has a number ofadvantages. It ofdollarshave been sentbutthere’sstill no has booming agricultural and medical electricity, no food, no water. People are technology sectors, a strong record in starting to say that life under Daesh [IS] creating start-ups and a large venture- was better. If the same happens when Mo- capital industry to fund them. In addi- sul falls then we will have big problems. tion, marijuana research in Israel, which Perhaps not Daesh, but another terrorist has been going on since the 1960s, has a group will emerge.” 7 head-start over America, where both the iCAN, a venture fund and technology medical community and pharmaceutical incubator, says there are already 36 Israeli companies are heavily restricted by laws companies doing clinical research on Turkey’s intervention in Syria and Iraq which are only now being slowly re- cannabis. The big tobacco companies, viewed. Although a growing list ofAmer- which are hoping to profit from the ex- Erdogan’s war ican states are allowing legal marijuana pected boom in marijuana, are also use, both formedical and recreational interested in Israeli technology. Altria game purposes, there are very few clinical trials Group, owners ofPhilip Morris, bought ofthe suitability ofvarious strains and Green Smoke, which specialises in e- JARABLUS active ingredients fortreating illnesses. cigarette manufacture, for$110m in 2014. By contrast, in Israel extensive data are Earlier this year it invested $20m in Syqe The Turkish president is pushing into already being compiled, not only on the Medical, developer ofan inhaler for both his southern neighbours more traditional use ofcannabis for vaporised marijuana. WO months after Turkish tanks pain-relief but also fora wide variety of Local dope-smokers still run the risk Tflanked by Syrian insurgents wrested it other conditions and disorders, ranging ofarrest forpossessing even tiny quanti- from Islamic State (IS), the border town of from Alzheimer’s disease to Tourette’s ties. They hope that once hundreds of Jarablus, in Syria’s north, is slowly getting syndrome. acres are under cultivation forexport in back on its feet. Schools have reopened. Three private funds have already been the Negev Desert, and weed becomes a Aid has begun to trickle into the area, as formed to raise investment for cannabis- major crash-crop, the legal environment have thousandsofpeople from neighbour- related start-ups. Saul Kaye, the CEO of will also find itselfin an altered state. ing villages and some 7,700 Syrian refu- gees returning from Turkey. “Finally we have enough food,” says Aminah Hardan, rocket attacks against Turkish towns. And gime of Bashar al-Assad. “For us, the most a young mother of nine who arrived in Ja- he has stopped the People’s Protection Un- important thing is to break the siege of rablus from Aleppo in early 2013, only to its (YPG), a Kurdish militia backed by Aleppo,” says Fikret, a young fighter. They watch IS take over the city months later. America but regarded by the Turkish gov- may not get their wish. Having grudgingly The militants, she says, once asked her hus- ernment as a terrorist group, from linking accepted that Mr Assad is not going away, band to whip her for not wearing a niqab. its eastern and western cantons. Turkey is no longer in the business of re- Since the Turks rolled into town, she has Turkish and rebel forces intend to push gime change in Syria. Focused instead on swapped it fora yellow headscarf. further south. Earlier this month they easi- its backyard, it has struck a bargain with Foryears, Turkey’spresident, Recep Tay- ly overran the town ofDabiq (see next arti- Russia, analysts say. “Russia will let Turkey yip Erdogan, has urged his Western allies cle). They now plan to march on al-Bab, keep the Jarablus pocket, and in exchange to help him carve out a buffer zone in Syr- where the fighting is expected to be much Turkey will pull back the opposition from ia’s north to provide refugees with a haven more intense. Mr Erdogan says they may Aleppo,” says Behlul Ozkan, an assistant and anti-regime insurgents with a bridge- soon head towards Raqqa, the jihadists’ professor at Marmara University. “This head. He now has what he wished for. capital. All this may become a drain on re- makes Turkey dependent on Russia. If it With Turkish troops and their Syrian prox- sources. Turkey cannot make much more acts against Russian interests, Russia can ies in control of an area stretching from Ja- headway without additional troops, says make problems forit in Syria.” rablus to Azaz, some 90km (55 miles) west, Can Acun, a researcher at SETA, a pro-gov- Even if the increasingly unpredictable Mr Erdogan has killed two birds with one ernment think-tank. Mr Erdogan has reconciled himself to Mr stone. He has pushed IS militants far Some of the rebels in Jarablus would Assad’s rule in Syria, his ambitions extend enough from the borderto lowerthe risk of eventually like to take the fight to the re- rather further than Jarablus. Over the past 1 46 Middle East and Africa The Economist October 29th 2016

2 couple of weeks, he has repeatedly reaches Rome. detail,” says Robert Gleave of Exeter Uni- claimed a century-old right to intervene on IS’seschatology—the theologyofdeath, versity. AfterAmerica killed Abu Musab al- his southern periphery. “From now judgment and the end ofthe world—has al- Zarqawi, al-Qaeda’s leaderin Iraq, in 2006, on…we will not wait forterrorist organisa- ways been flexible. Experts see it more as a and put his jihadists to rout, a despondent tions to come and attack us,” Mr Erdogan recruitment tool than a tenet of faith. “Op- remnant unearthed references buried in said in a speech on October 19th. “They portunistic apocalypticism,” is what one canonical compilations of Muhammad’s will not have any place to find peace French scholar, Jean-Pierre Filiu, has called sayings. They turned up alamat al-saa, abroad.” Turkish jets struck YPG positions it. Mr Baghdadi seemed more interested in “signs of the hour”, including the race to in Syria just hours later, a new front in a state-building than doomsday. He called construct sky-high buildings, the rising of war with Kurdish insurgents, the PKK, who himselfcaliph, an earthlyruler, rather than the sun in the west and an army brandish- are linked to the YPG. The bombing killed a mythological mahdi, or messiah. But ing black banners in the east—all signs that up to 200 fighters, the army said. theological hype helped whip up impres- Zarqawi’s devotees claimed to discern. Ac- Over the objections of his Iraqi neigh- sionable Muslims abroad, like Moham- companying the mahdi, Jesus would re- bours and American allies, Mr Erdogan med Emwazi, a London dropout who exe- turn, they claimed, bearing a bloody lance. has also clamoured for a greater role in the cuted Mr Kassig and others. “Apocalyptic By contrast, as Iraq’s Shias grew accus- offensive against IS in Mosul, citing a duty motifs helped recruit people unfamiliar tomed to power, theirown apocalyptic im- to protect his fellow Sunnis from Shia mili- with the tradition. Europeans fit into that pulse waned. “When we suffered, we tias. His talk of an incursion is probably category,” says David Cook, an American prayed for the imam,” says a taxi driver in bluster, designed to sustain a wave of professor and author of “Contemporary Baghdad’s teeming Shia shantytown, Sadr nationalist frenzy that Mr Erdogan seeks to Muslim Apocalyptic Literature”. In the City. “Now that victory is here, we’ve for- ride to a new constitution and an executive words of Ibn Khaldoun, classical Islam’s gotten him.” In Iran, laymen and low-level presidency next year. “For that rhetoric to greatest and most cynical historian, “The clericshave still found the notion of apoca- have any weight, you need to have 50 Arabsobtain poweronlybyrelyingon a re- lypse useful in taking on establishment times as many troops and tanks on the ligious movement.” clerics. When challenged by ayatollahs, ground in Iraq,” says one analyst. But Mr Traditionally, Sunni Islam—the domi- Mahmoud Ahmadinejad, the Islamic Re- Erdogan may surprise. “We know this busi- nant sect—sought to prop up the world or- public’s ex-president and the only layman ness in this region,” the president warned der. The notion of upending it was a Shia to have held the job, would convene his the West in his speech. “Youare foreigners belief, offering Islam’s battered minority a cabinet in Jamkaran, one of the bling-em- here. Youdo not know.” 7 hope of redemption. At the appointed blazoned sites where the 12th imam is ex- hour, their12th imam, who disappeared in pected to return. But on the whole, Shias 941to avoid the persecution Sunni despots have tempered their talk of extra-worldly Islamic State’s loss of Dabiq had inflicted on his 11 predecessors (pic- deliverance. Even Muqtada al-Sadr, a low- tured below), would return as al-mahdi al- ly but firebrand Iraqi cleric, renamed his Apocalypse muntadhar, “the awaited saviour”, and Mahdi Army the Brigades ofPeace. vanquish the oppressors. Now that Dabiq has failed to deliver, postponed But during this century Sunnis have might jihadists ditch their more nihilistic come to see the world differently. Western ideas? Precedent suggests that, for some, armies upturned the old order of Islam’s failure will only redouble their flights of Iraqi heartland, replacing Sunni masters (a fancy. But from the pavements of Cairo to But the defeat ofthe jihadist group may minority) with non-Sunni ones (the Shia Karbala, MrCookdetects a decline in apoc- revive realism among Sunnis majority). Sunni confidence has turned to alyptic publications. Under tighter surveil- HE fate of a small rural town in north- despair. Jihadists like al-Qaeda had scant lance, the more hysterical might have gone Tern Syria might seem inconsequential time for the apocalyptic, but as successive underground orfound a home on the deep when faced with a multinational assault waves of jihad floundered and the Sunni web. ButmanySunni Iraqisare asappalled on the group’s main stronghold, Mosul. lot worsened, some Sunnis adopted some by IS’s brutality as anyone else. Preachers But few places were more central to the im- of Shia Islam’s more fantastical thinking. in Baghdad say a new realism is taking age of Islamic State (IS). The jihadists lau- “Millennial traits were always there in hold. Better, perhaps, that the appointed ded Dabiq as the locus, as cited in an ob- Sunni Islam but undeveloped in any great hour is postponed. 7 scure Hadith, or saying of the Prophet Muhammad, of the battle of the end of days; in their vision it would be the site of an apocalyptic showdown between the self-styled caliphate’s faithful and Western crusaders. It named its glossy English-lan- guage e-zine after the town, and beheaded its victims, including Peter Kassig, an American aid worker, in itsfoothills. Asthe day of reckoning approached, observers reported that IS had fortified Dabiq with 1,200 fighters. In the end, IS went with barely a whim- per. The jihadists folded before the ad- vance of Turkish-backed rivals after just a day’s battle. IS’s “caliph”, Abu Bakr al- Baghdadi, had foretold of the capitulation in a dream, explained apologists. IS’s pro- pagandists even pre-empted the fall with the launch of a new English title, Rumiya, deferring the end-of-days battle until IS Waiting for the end Europe The Economist October 29th 2016 47

Also in this section 48 Germany’s inequality puzzle 48 More unequal regions 49 Ahoy, Rajoy! 49 Toasters, kettles and Brexit 50 Ireland’s dismay over Brexit 51 Charlemagne: The age of vetocracy

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Migration in France voluntary departures come to an end. Calais has long taken on a broader The end of an ugly affair meaning. The shocking sight of a muddy, foul-smelling camp in the heart of rich Eu- rope has come to symbolise the conti- nent’s ambivalence to the refugee crisis. In theory, the EU was supposed to share re- CALAIS sponsibility for the asylum-seekers who arrived en masse from Syria, via Greece, France’s squalid migrant “Jungle” has been dismantled, but what ofits residents? last year. In practice, Germany has been by IXplacesleftforRouen!” callsthe offi- gees, whateverits legal rights to deny entry. farthe mostgenerous, with 477,000 people “S cial in a red jacket, approaching the Britain has taken in some 200 unaccompa- applying for asylum in 2015 alone—over queue of refugees hoping to board coach- nied children, out of the 1,400 or so found five times the number of refugees who ap- es. “Where’s that?” asks Dilo, a 24-year-old to be living in “the Jungle”, as the Calais plied for asylum last year in France, and Afghan, his belongings stuffed into a small camp is known. As a general rule, Britain next to just 39,000 in Britain. zip-up bag. The official pullsout a plastified will not take adults, who under EU rules map of French regions, and points to Nor- are supposed to apply for asylum in their Playing politics with people mandy. “Near Paris? OK,” Dilo agrees. His country of arrival. This week British offi- France, in reality, has found itself to be a name is recorded, a green wristband fitted, cials were in the camp to assess which chil- countryoftransitratherthan a destination, and he is shepherded with other volun- dren qualified. and as such a reluctant gatekeeper for the teers through the hangar which serves as a Yet, despite momentsoftension, the ini- British. Around Calais, exasperation about processing centre, and on to the waiting tial clearance was orderly. After three days, the camp has stirred support for the far- coach outside. As it pulls away, the adver- 5,596 migrants had left in coaches bound right National Front. It has also been ex- tising slogan on this tourist bus comes into for reception centres across France. Over ploited for broader political ends ahead of view: “Follow your dreams”. 1,200 children were in a provisional recep- France’s presidential election next spring. For the 8,000 or so refugees, most of tion centre in Calais, though aid workers Both Alain Juppé, the leading aspirant on them from Sudan, Afghanistan and Eritrea, said up to 200 others were still without the centre-right, and Nicolas Sarkozy, a for- who had made the camp in the Calais shelter. Many ofthose queuing forcoaches mer president hoping to run again, have dunes their home, there are few dreams seemed accepting, even eager. “I’ve decid- threatened to tear up the Le Touquet agree- left. Many had hoped to reach Britain, ed to stay,” says Hassan, wearing an NY ment which gives Britain the right to con- across the English Channel. But the con- baseball cap, who made it to Calais from duct border checks at Calais. “We cannot struction of ever-higher walls topped with Sudan via Libya and Italy, and had hoped accept making the selection on French ter- razorwire around the undersea tunnel and to reach Britain. What does he feel about ritory ofpeople that Britain does or doesn’t now the port (financed by the British gov- settling in France? “Merci beaucoup.” want,” Mr Juppé has declared. ernment), along with heavy French polic- As the tents emptied this week, small Even ifthe camp is cleared without mis- ing, has sealed the route. “I’ve tried so diggers moved in. Refuse workers pulled hap, bilateral tensions will remain. Some manytimes, butit’simpossible,” saysJan, a apart the wood-framed shacks, loading refugees will indeed make a life in France. 29-year-old Afghan, clutching a cricket bat. piles of blankets, flip-flops and charred fry- According to Pascal Brice, head of the He is now heading forNormandy too. ing pans on to a dump. Bulldozers were French Office forthe Protection ofRefugees The French effort to clear and close the kept at bay until migrants had left. Riot po- and the Stateless (OFPRA), 70% of those camp, announced a month ago by Presi- lice encircled the areas being cleared. Fires who applied recentlyfrom Calaiswere giv- dent François Hollande, was always going broke out, flattening whole sections of the en asylum. Last year, OFPRA chartered to be delicate. There is deep French frustra- camp, including the “high street”, where coaches to bring Syrian refugees from Ger- tion that the British government was not an “Afghan kitchen” offered chicken and many. Migrants housed in towns such as prepared to be more welcoming to refu- falafel. Things could yet get tense once the Cergy-Pontoise, near Paris, have learned 1 48 Europe The Economist October 29th 2016

2 French and begun to settle. Yet others will Regional inequality disappear, heading for Paris, or back to the northern coast. In 2002, a refugee camp in Calais, at Sangatte, was closed by Mr Sar- A tale of more than two cities kozy, then interior minister, only for the CATANIA Jungle to emerge. Today, camps near Ca- Regional inequalities within euro-zone countries have widened lais—in Dunkirk, or Saint-Omer—have al- ready sprung up along the coast. HE beautiful but rubbish-strewn Deindustrialisation is partly to blame. Back in the Jungle, the mood is one of Tstreets ofCatania, Sicily’s second- Most ofthe euro zone’s19 members have resignation. Silent and alone on the top of biggest city, are a world away from fewer manufacturing jobs than in 2008. a dune, Ibrahim watches the demolition swanky Trento, in the country’s richer Manufacturing employment is high in below. Behind him is his own condemned north. About a quarter ofSicilians are many ofEurope’s poorer countries, but shack, a structure of wood and tarpaulin, “severely materially deprived”—meaning they have lost international competitive- on which he has painted “London Hotel”. that they cannot afford things like a car, or ness in part because ofan overvalued With the diggers closing in, he has given up to heat their home sufficiently—com- euro. Tight public spending also plays a hope of reaching United Kingdom’s capi- pared with just 5% in Trento. Italy is not role. Since 2008 the number ofcivil tal, and cleared out his home. He carries its unique. In many places, the divide with- servants in the euro zone has fallen by contents in a small back-pack. Sudan, his in countries appears to be getting worse. about 6%. This has often hurt needy former home, is a long way away. What According to an analysis by The Econo- regions most. Cuts in welfare benefits does he feel? “Nothing.” 7 mist, the gap between richer and poorer also hit harder. A paper by Luca Agnello, regions ofeuro-zone countries has in- Giorgio Fazio and Ricardo Sousa, three creased since the financial crisis. Our economists, found that austerity led to Inequality and education measure ofregional inequality looks at higher regional inequality in 13 European the average income per head ofa coun- countries between 1980 and 2008. Germany’s try’s poorest region, expressed as a per- This suggests that the problem will centage ofthe income ofthat country’s continue: public funds will be tight for Sandernistas richest part. The weighted average for 12 years to come, while weakpublic spend- countries shows that regional inequality ing on education and infrastructure will BERLIN was declining in the years leading up to crimp future growth. Even ifthe euro the financial crisis of2007-08, but has zone starts to grow strongly again, the Anxieties about social justice may come increased since then (see chart). geographical scars will be plain to see. to dominate the election next year The poorest area in Slovakia, the euro HE refugee crisis is not the only issue zone’s most geographically unequal Tthat could decide next autumn’s elec- economy, now has an income per person For richer, for poorer tion of the Bundestag. If Germany’s three ofjust 28% ofthe richest, a slight fall from Euro zone, income per person of left-wing parties get their wish, social jus- before the crisis. In Calabria, Italy’s poor- poorest region as % of richest tice may become just as contentious. The est region, income per person as a share Weighted average* for 12 countries 50 Social Democrats(who currentlygovern as ofthe country’s best-offpart, the prov- Excluding Germany junior partners under the chancellor, An- ince ofBolzano, was 45% in 2007 but is 49 gela Merkel), along with the Greens and only 40% now. Elsewhere poor regions of 48 The Left, which descends from the Com- the euro zone have seen income falling in 47 munist Party in the former East Germany, both relative and absolute terms. 46 are hoping to form a leftist coalition on this An exception is Germany: in its once- 45 issue to unseat Mrs Merkel in 2017. Their communist east, excluding Berlin, GDP Including Germany dream is to spark a Bernie Sanders-like per person reached 67% ofthat in former 44 movement that—this being Germany, not West Germany last year. (Most ofthe 2000 05 10 14 America—could sweep them into power. catch-up tookplace in the early1990s, but Sources: Eurostat; The Economist *By population So they have begun reciting a menacing- continues more slowly.) sounding metaphor: the “scissors” (ie, the gap) between rich and poor will keep wid- ening unless they get to run the country. largely explained by Germans renting WSI has found that moving either up or Whether or not the divide between homes more than owning, and by relying down has become harder since the 1990s, haves and have-nots is increasing is debat- more on government pensions). and much trickier in eastern Germany. able. Compared with the 1990s, income in- Whether all of this amounts to a crisis Compared with other countries, intergen- equality is higher as measured by the Gini depends on one’s vantage point. The Insti- erational mobility (children ending up in a coefficient. But it peaked in 2005 and has tute of Economic and Social Research different class from their parents) is low. since remained broadly stable. Within the (WSI), which is affiliated to the trade un- Much of the problem lies in the educa- EU, Germany is a middling country in ions, concludes that Germany has a big tion system. In Germany success at school terms of income inequality, behind a few problem. The Cologne Institute for Eco- and university is more strongly correlated more egalitarian countries, such as Swe- nomic Research, which has ties to employ- with the education of parents than else- den, and well ahead ofmore unequal soci- ers’ organisations, argues the opposite. where in Europe. There has traditionally eties in southern and eastern Europe, as Nonetheless, the perception ofgrowing in- been little emphasis on pre-school educa- well as Britain. But when it comes to the equality is widespread. And according to a tion, even though it has long-term benefits, distribution of wealth, Germany is near study in 2013 by the Allensbach Institute, a especially for children from poor families. the top ofthe inequality scale, behind only polling outfit, 69% of Germans think that And Germany, like Austria, has an unusual Austria in the euro zone. The top 10% of income and wealth are unfairly distri- school system that sends pupils, usually German households own about 60% of buted. But they may in fact be confusing ac- after the age of ten, either on an academic the country’s wealth, whereas the bottom tual inequality with something else: de- trackor a blue-collar career path. 20% own nothing, or are in debt (this is clining social and economic mobility. The The Allensbach study found that what 1 The Economist October 29th 2016 Europe 49

2 Germans mean by “social justice” is a fair joy his majority in an election last Decem- dadanos, refuses even to talk about that. chance of success and fair (but not equal) ber. His People’s Party (PP) remained the Catalans could still be dissuaded if offered rewards for achievement. They are also largest party, but in a newly fragmented more autonomy, as the Socialists propose. concerned about young people not being parliament. But confrontation looks likely. overburdened by providing for the old. Since then, Spain and Mr Rajoy, re- Aminority government will test the op- Brute redistribution ranked lowest as a de- duced to an impotent caretaker, have position, too. The Socialists fear ceding to finition ofthe term. As such, just promising waited for more than 300 days. No party Podemos the mantle of opposition to Mr to soak the rich—by calling for new wealth has been able to assemble a parliamentary Rajoy. Having flirted with a post-modern taxes, say, as the leftists are doing—misses majority. A second election in June boost- politics of the centre, Mr Iglesias has re- the point. It makes more sense, for any po- ed the PP (from 123 seats in December to 137 treated towards the hard left. litical party, to invest in better schools and, out of350) but failed to breakthe deadlock. Many Spaniards dislike Mr Rajoy, but asthe centre-rightpartiesargue, to keep the Then after a wrenching internal struggle they want a government and the signs are employment motor humming. That may and faced with a third election at which that they want their politicians to co-oper- be why, even taken together, Social Demo- theywould probablylose more seatsto the ate. Last year the rise of Podemos and Ciu- crats, Greens and The Left would not be PP, the opposition Socialists at last agreed dadanos prompted many commentators able to win a majority of the Bundestag if to abstain. That should allow Mr Rajoy’s to write the obituary ofthe two traditional voting took place today. Like Mr Sanders, new government to be approved in a par- parties. In the new world of minority gov- they may be doomed to succeed by raising liamentary vote expected on October29th. ernment, Mr Rajoy and the Socialists will the issue but letting somebody else, most How much the prime minister can still be the key players. And patience may likely Mrs Merkel, find the solution. 7 achieve with his powers restored is un- continue to gain its reward. 7 clear. Mr Rajoy has the support of Ciuda- danos, a new liberal party with 32 seats. To Spanish politics approve a budget, and the further belt- Energy efficiency tightening required to meet the targets Back again agreed with the European Commission for Populism tastes the fiscal deficit (to 3.1% of GDP next year, from a target of 4.6% this year), the prime best hot minister will have to try and scrape up votes from Basque nationalists or rely on furtherSocialist abstentions. MADRID Toasters and kettles are no longer This is new territory for a Spanish gov- How much can Mariano Rajoy do? within the EU’s grasp ernment. The PP has the fewest seats of VEN Pablo Iglesias, the leader ofthe left- any ruling party since democracy was re- ARLIER this year David Coburn, who Eist Podemos party, this weekrecognised stored in the 1970s. Accustomed to steam- Esits in the European Parliament for the that one of the political qualities of Mari- rollering laws through, Mr Rajoy acknowl- UK Independence Party, a Eurosceptic ano Rajoy, Spain’s conservative prime edged that he will now have “to earn group, came up with an eccentric argu- minister, is patience. Having endured sev- governability…day by day”. He has some ment for leaving the European Union: the en years as opposition leader, Mr Rajoy cards: he can threaten to call a fresh elec- quality of his morning toast. He claimed won power in a landslide in 2011 and had tion, and can only be overthrown ifthe op- that EU regulation meant toasters had only to pick up the pieces of his country’s hous- position unites around an alternative. “the power of one candle or something”, ing bust. His fiscal curbs and a raft offinan- Apart from the economy, the most leaving his bread “all peely-wally” rather cial and labour-market reforms speeded pressing issue facing the new government than nicely roasted. Brexiteers cheered: yet up a vigorous economic recovery, but were is Catalonia. Its regional government plans another example of croissant-scoffing con- unpopular. Together with corruption scan- to hold a referendum on independence tinentals meddling with British traditions, dals in local government, that cost Mr Ra- next September. Mr Rajoy, backed by Ciu- such as burning bread to a crisp. In fact, the EU does not regulate the en- ergy consumption of toasters—and on Oc- tober 25th it appeared to abandon any plans of doing so. According to internal documents from the European Commis- sion, toasters, kettles and hairdryers are unlikelyto be included on a listofnew pro- ducts covered by the Ecodesign Directive, which sets rules on improving the energy efficiency ofappliances. Such rules are wildly unpopular, and not just with grumpy Brits. On its website, the right-wing Alternative for Germany party sells incandescent lightbulbs (which the EU has phased out) as a rather dimly lit protest gesture. Even in Denmark, some newspaper readers were urged to rush out and buy powerful vacuum cleaners “be- fore it’s too late” when the EU included them in the directive two years ago. But although the commission’s deci- sion will delight Eurosceptics, consumers may be less happy. The Ecodesign Direc- A shoe in, not a shoo-in tive makes products more energy-efficient. 1 50 Europe The Economist October 29th 2016

2 This means that their appliances—whether toasters and kettles, they also worry that dards diverged. fridges, vacuum-cleaners or televisions— the EU’s more cautious approach could de- Ireland’s government is particularly are cheaper to run over their lifetime, even lay the revision of existing standards that worried about the border between North- if the product is initially more expensive. have either been overtaken by advances in ern Ireland, part of the United Kingdom, According to the commission’s latest re- efficiency or were set too low to start with. and the southern Republic. For decades port, energy consumption for the average Jean-Claude Juncker, the president of Northern Ireland suffered civil conflict be- product covered by the directive will be the commission, is not known for backing tween Republicans, who fought for a un- around 18% lower by 2020 than it would down easily in the face of opposition. Yet ited Ireland, and Unionists committed to have been without it. The energy savings he appeared to be particularly concerned remaining in the United Kingdom. The are equivalentto around 165m tonnesofoil bythe backlash againstthe energy-efficien- Good Friday peace agreement of1998 com- per year—more than halfofGermany’s en- cypolicy. Thishintsathow sensitive the EU mitted the British and Irish governments, ergy consumption, and half of the Euro- has become to populist discontent, which and Northern Ireland’s devolved adminis- pean energy-savings target for2020. is now fairly mainstream: according to the tration, to removing controls on the north- Greener types argue that the commis- latest poll Brussels is trusted by barely a south border. sion’s decision not to include more appli- third of Europeans. From free trade to mi- This has facilitated business, political ances on the list could deprive consumers gration to household appliances, the EU’s and cultural links—ashasthe “common tra- and firms of up to €10bn ($11bn) of savings policies seem as appetising as a piece of vel area”—a long-standing agreement that by 2030. Apart from failing to regulate burnt toast. 7 citizens ofboth islands can move freely be- tween them. Brexit could “wake a lot of sleeping dogs”, says Noel Whelan, a politi- The impact of Brexit cal analyst in Dublin. Unless Britain stays in the EU’s single market and accepts free Britain shoots Ireland, too movement of people—which seems un- likely—the north’s stability is at risk. One mooted solution is to impose cus- toms and immigration controls not be- tween the two countries but between the DUBLIN two islands. British officials would set up in the Republic’s ports and airports; North- Where Britain’s departure from the EU will hurt most ern Irish residents would show passports N OCTOBER 25th John Bruton and to travel to the rest of the United Kingdom. OBertie Ahern, two former Irish prime That might be less unpalatable than re- ministers, appeared before a committee in inforcing the north-south border. But that Britain’s House of Lords to discuss the im- border will soon divide the EU from Brit- pact of Britain’s decision to leave the Euro- ain, pointsoutDara Murphy, Ireland’smin- pean Union on its western neighbour. ister for European affairs, and the EU will Both men were sombre. Brexit, said Mr have to agree to any deal the British and Bruton, might deal Ireland’s economy an Irish governments might make. Ireland’s even heavier blow than Britain’s—even main concern, he says, is to ensure that though, as he added wryly, “we had no say both Britain and the rest of Europe under- in that decision.” Since 1973, when both stand the risks Brexit poses to peace and countries joined the EU’s precursor, the prosperity in both parts ofIreland. European Economic Community, Irish The Irish government is seeking to sal- businesses have become intertwined with vage what it can. IDA Ireland, the national British ones, said Mr Ahern. Unpicking investment agency, is redoubling its efforts those ties would be “devastating”. to sell Ireland’s well-educated workforce The first blow has already fallen, says and low corporation tax to foreign inves- Fergal O’Brien of IBEC, a business lobby tors. Financial services offer the most pro- group. As sterling has weakened, exports mise, says Feargal O’Rourke of PwC’s Dub- to Britain have become less competitive, lin office. Irish consultants are touting the and imports from Britain cheaper. Britain notion that banks based in London could takes two-fifths of Irish-owned firms’ ex- keep the “passport” that entitles them to ports, and a similar share ofall agricultural do business across the EU by moving a exports. Beef and dairy farmers are strug- chunk of their activities to Ireland, which gling, and several of Ireland’s mushroom would be less disruptive than full-blown farms, which export four-fifths oftheir pro- relocation. Some talk of Ireland gaining as duce to Britain, have already closed. The many as 20,000 jobs from this. pain will worsen as sterling’s fall and Given the many ways in which Brexit Brexit-induced business uncertainty hit will damage Ireland, these jobs would be demand in Britain, says Mr O’Brien. merely a consolation prize. But there is no “When your partner shoots itself in the across the Irish Sea. Post-Brexit, Irish firms room for bitterness. The less Brexit harms foot, you’re bound to suffertoo.” will struggle to break out of their small do- Britain, the better for Ireland, points out Once Britain actually leaves the EU, mestic market and will recruit from a shal- Johnny Fallon, a political commentator— Irish firms will face further difficulties. lower talent pool. Distribution and supply and that means Ireland must try to per- Those thinking ofexporting generally start chains criss-cross both islands. If customs suade the rest of Europe to grant Britain with Britain, points out Alan Barrett of the checks and tariffswere reintroduced, those generous exit terms. “Some in Europe Economic and Social Research Institute, a links would have to be broken. Trade would be very happy to see post-Brexit think-tank in Dublin. And many Irish would fall further as rules on everything Britain collapse,” he says. “Not Ireland. workers gain experience and training from food labelling to environmental stan- We’re very eager to see Britain hold up.” 7 The Economist October 29th 2016 Europe 51 Charlemagne The age of vetocracy

Ifthe European Union can’t do trade, what can it do? able to do well. The Treaty of Rome, signed in 1957, granted Brus- sels the exclusive right to negotiate trade deals on behalf of gov- ernments. Since then the EU has concluded such accords with more than 50 countries; dozens more are in the pipeline. By the commission’sreckoning, one-seventh ofthe European workforce depends, directly or indirectly, on external trade (and all citizens benefit from cheaper goods). Last week Donald Tusk, who chairs summits ofEU leaders, warned that failure on CETA would mean the EU could never strike a trade deal again. Not only would that choke off an important source of growth; it would make it diffi- cult to see exactly what the point ofEuropean co-operation is. The mess over CETA is in part collateral damage from the row over the Transatlantic Trade and Investment Partnership (TTIP), a bigger and more vexatious EU-America agreement. Protesters transferred their outrage seamlessly from one to the other, dis- missing cuddly Canada as a Trojan horse for rapacious American multinationalsseekingto trample on European standards. The in- vestment-protection provisions ofthe two deals (supposedly the main Walloon grievance) proved another source oftrouble. Even after they were watered down, Europe’s governments forced the commission to declare CETA a “mixed” deal, meaning it required N HAPPIER days for the European Union the arcana of interna- ratification by each national parliament (and, in Belgium’s case, Itional trade policy were a matter forharmless eccentrics, while five regional assemblies) rather than the European Parliament the intricacies of Belgium’s constitutional arrangements were re- alone. If TTIP is ever signed—which now looks increasingly un- served strictly formasochists. Not in today’sEurope, where crises likely—it will surely face the same tortuous fate. strike in the most unexpected places. Behold the fiasco of the Dealsthatdo notcarrya transatlanticwhiffmayfare better. As Comprehensive Economic and Trade Agreement (CETA) with Jean-Claude Juncker, the commission president, noted in frustra- Canada. Last-minute stonewalling by the Socialist-led parlia- tion last week, the EU has recently concluded an agreement with ment ofWallonia, the French-speakingbit ofBelgium, meant that Vietnam, a country not noted for its dedication to human rights, Justin Trudeau, Canada’s prime minister, had to hold off visiting without a whisper of protest. Talks with Japan, too, are quietly Brussels for a summit on October 27th to sign the trade and in- approaching the finishing line. vestment deal which has been seven years in the making. As The Yet the EU’s credibility as a trade negotiator rests on its ability Economist went to press the federal government had succeeded to speak for its members. Without that, the world’s largest con- in winning the Walloons round. Thus did a regional parliament sumer market starts to lose its allure. The agonising course of representing 3.6m people nearly thwart the will of governments CETA will not quickly be forgotten by potential partners. If bon- representing 545m. ing up on the niceties ofBelgian regional politics, or the details of The debacle has many fathers. Wallonia’sSocialists, out of na- national referendum laws, becomes a prerequisite for negotiat- tional office for the first time in decades, are troubled by fringe ing with the EU, they will start to wonder ifit is worth the bother. leftists and keen forattention. The Flemish, theirricher (and more trade-friendly) partners in Belgium’s awkward federal construc- Worthwhile Canadian initiative tion, have long pushed for decentralisation that has now come More worrying is the damage to the EU’s self-esteem. The club is back to bite them. The European Commission, which negotiates trying to get over its funk about Britain’s vote to leave by pushing foreign trade on behalfofEU governments, should have foreseen something called the “Bratislava roadmap”, a policy blueprint of that a “next-generation” deal such as CETA, replete with special sorts for the months ahead. If its initiatives do not amount to courts forinvestors and complex provisions on the mutual recog- much, it is at least an attempt to demonstrate that Brexit will not nition ofstandards, would attract next-generation opposition. paralyse ordinary decision-making. Plainly, the Walloons did not But the contingencies of CETA slot into a broader pattern. get the memo. Striking a trade deal with a friendly partner like From regional parliaments to national referendums and restive Canada should have been about as easy as it gets for the EU. constitutional courts, numerous spoilers have been hindering Few can take heart from this embarrassment. Eurosceptic gov- what should be routine European business. The EU is supposed ernmentsthathave soughtto take backpowersfrom Brussels, like to provide a forum in which governments can mediate their dif- Hungary and Poland, certainly did not have trade in mind. Trade- ferences and forge compromises. But referendums are impervi- phobic leftists who cheered the plucky Walloonsshould remem- ous to negotiation; regional parliaments are answerable only to ber that the next referendum or parliamentary vote might be their voters. Instead obscure politicians, like Paul Magnette, the turned againstone oftheirown causes, such asgenerosity to refu- indomitable minister-president of Wallonia, can extract conces- gees. In fact, the only politicians with cause for celebration are sions as ransom for their political hostage-taking, or simply hog those who argue that the EU itself is past its sell-by date. True to the limelight. As regions or countries transfer their pathologies form, Marine Le Pen, leader of France’s National Front, de- upwards to Europe, the EU risks sliding towards what Americans nounced the “totalitarian” EU for attempting to squash Wallo- call a “vetocracy”. nian democracy. Though it has squeaked through, CETA will What’s worse, trade is the one thing the EU is supposed to be leave an unhappy legacy. 7 52 Britain The Economist October 29th 2016

Also in this section 53 Verifying the ages of refugees 53 The post-Brexit economy 54 Bagehot: How to be a good bastard

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

Brexit and the City a separately capitalised subsidiary in Dub- lin. But most are not. The EU accounts for a From Big Bang to Brexit fifth of their business; if they lose the pass- port, they must set up elsewhere (estate agents already report inquiries about space in Frankfurt). That could cost bil- lions, when profit margins are tiny. As for claims that nowhere else can compete, London will surely remain Eu- The financial-services industry considers its future outside the European Union rope’s biggest financial centre. But finance HE City of London is fretting about side London. Financial services contribute is not static. Young people in the fast-ex- TBrexit, especially about talk of a “hard some 12% of the national tax take. Banking panding “fintech” business could shift al- Brexit” that takes Britain out of the Euro- is the country’s biggest single export. Fi- most anywhere. There are many rival pean Union’s single market. That raises nancial and related services generate an places for financial services to go, from doubts about the future of passporting, annual trade surplus of £55bn ($67bn). Frankfurtto Amsterdam to outside Europe. which allows financial-services providers Yet many Brexiteers are unfazed by Morgan Stanley’s first overseas office was to trade acrossthe EU without separate reg- bankers’ threats to decamp. They say that in Paris, not London. JPMorgan Chase has ulatory or capital requirements. Another as finance goes global, passporting will no warned that Brexit might lead to 4,000 job concern is that the government’s plan to longer matter. Nowhere else in Europe losses; HSBC has talked of transferring start the formal process for Brexit by the could replicate London, whose competi- 1,000 staff to Paris. Oliver Wyman, a con- end of March will mean that Britain may tors are New York, Singapore and Hong sultancy, estimates in a report prepared for be out of the EU asearlyas2019, yetbanks Kong. The City expressed similar fears of TheCityUK that a hard Brexit could imme- must plan two or three years ahead. Hence job losses after Britain’s decision not to diately cost as many as 75,000 jobs in all, a the latest warning from Anthony Browne, join the euro, which proved empty. And significant hit. Mark Boleat of the Corpora- chief executive of the British Bankers’ As- they argue that London is a huge asset for tion of London reckons a third of lost jobs sociation, that banks may start shifting the EU, not just Britain; European compa- might go to the continent, a third to New jobs to Europe early next year. nies and banks need it, so their politicians York—and the rest could just disappear. It is a nice irony that such jumpiness will not damage it. Nor is there much sign of other coun- should coincide with this week’s 30th an- This seems complacent to those work- tries backing the City. The financial-ser- niversary of Big Bang, the deregulatory ing in the City. Take passporting. There are vices industry is hardly popular across Eu- step that largely created today’s City (huge- many kinds of passport, from asset man- rope, where it is widely blamed for the ly helped by the expansion of Canary agement to insurance to banking. Forsome financial crisis. Other governments itch to Wharf). Before Big Bang, says one finan- sectors, like hedge funds and general insur- pinch parts of London’s business. Clearing cier, the City was backward and parochial, ance, passporting may not matter much. and settlement is a prime example. Lon- and there were real fears that it might lose But as a report from Open Europe, a think- don handles the bulk of clearing of trades out not just to New York but to continental tank, notes, it is critical for investment in euros, but the European Central Bank Europe. It was Big Bang that underpinned banking. Some banks are established in has long wanted to repatriate this to Frank- London’s dominance ofEuropean finance. more than one place already: Citibank has furt. An earlierattempt was rebuffed by the And it is Brexit that may now challenge it. European Court of Justice, but Brexit may There is no disputing the importance of deprive London ofjudicial protection. Pro- Journalist wanted: The Britain section is looking for a financial services to the British economy. new political correspondent. A lively style and an eye for fits from clearingmattera lot to the London TheCityUK, a lobby group, says 1.1m peo- a good story are more important than an encyclopedic Stock Exchange. ple work directly in the business, rising to knowledge of British politics. Please send a 1,000-word Are there alternatives to passporting? article suitable for publication in the Bagehot column, 2.2m if jobs in supporting infrastructure along with a CV, to [email protected] by Some have suggested relyingon regulatory are included. Two-thirds of them are out- November 30th. equivalence or mutual recognition. The ar-1 The Economist October 29th 2016 Britain 53

2 gument is that post-Brexit Britain starts their age can make a big difference to their The post-Brexit economy with the same rulesasthe EU, so regulators fate. On arrival in Greece, some minors should give banks the same freedom. But claim to be over18 to avoid being put in de- Measuring the this would work only if Britain follows all tention centres. In Sweden, by contrast, be- future EU regulations despite having no ing under 18 means that an asylum-seeker fallout sayin them—and Brexiteersare keen to tear gets a place in a special home and, in some up red tape, starting with the EU’s foolish cases, better access to lawyers. cap on bankbonuses. In Britain some MPs suggested that the GDP grows by more than expected. But Migration is another worry. The indus- Jungle children should be subjected to problems lurkbeneath the headlines try needs to hire staff from the rest of Eu- dental checks to determine their age (“Tell rope at short notice, yet Brexiteers want to us the tooth,” roared the front page of the APPILY, it is now certain that the Brit- introduce work permits or visas. A report Sun). There was outrage at the uncharita- Hish economy will not fall into reces- by PwC, a consultancy, forthe Corporation ble tone of the demand. Yet Britain is rela- sion in 2016. On October 27th the Office for of London floats the idea of regional visas tively unusual among European Union National Statistics estimated that in the for London alone. Yet it is hard to see a countries in not using dental X-raysaspart third quarter ofthe year GDP grew by 0.5%. carve-out for the City from broader con- ofits age assessments (such tests are gener- This is a big improvement on the 0.1% trols, just as it is hard to imagine a deal that ally used as a last resort in those countries growth that the Bank of England had fore- gives it alone full access to the EU’s single that do practise them). Instead, in Britain cast in August, and far better than some market (and bankers snort at any notion child refugees are interviewed by social economists had predicted immediately that they might pay forthe privilege). workers, while the Home Office checks following the Brexit referendum in June. Grim noises from the City may be European records to see whether the chil- British growth is good by international partly designed just to shock pro-Brexit dren have been processed earlier in their standards, and is in line with the average ministers. But bankers are deadly serious journey across Europe and, if so, what age since 2010. overneedingclarityaboutpost-2019 transi- they gave at the time. Yet markets shrugged. The pound regis- tional arrangements if they are not to start Dental checks are in fact of limited use. tered little change against the dollar, shifting jobs abroad soon. Their big hope is By the time people are in their late teens against which it has lost nearly a fifth of its that Philip Hammond, the chancellor, there is a “huge range” of development, value since the referendum. The muted re- makes continuation of the banking pass- says Judith Husband of the British Dental action was due to the fact that, beneath the port in some form his priority forBrexit ne- Association. Such tests therefore have a impressive headline figure, there were gotiations. But they are not sanguine. 7 margin of error of about four years. The re- signs that the British economy has not sim- sult should also be compared with a refer- ply brushed off the Brexit vote. Of particu- ence group ofthe same ethnicity ornation- lar concern is the manufacturing sector, Child refugees ality, which European governments may which economists had hoped would ben- lack. And it will differ if the subject is mal- efit from the weak pound. In the event it Gnashing of teeth nourished or has had chronic diseases. shrank by 1% compared with the previous Though it takes a miserly numberof ref- quarter, its worst performance since 2012. ugees compared with many European Construction saw a bigger fall, of1.4%, sug- countries, Britain’s age-verification system gesting that firms and individuals are hold- ismore rigorousthan most, thinksTaimour ing back on investment spending. Most of Lay, an asylum lawyer. Of the 574 asylum- the economy’s growth was in services, A very British tabloid fuss highlights a seekers who underwent age checks in Brit- which grew by 0.8%. very European problem ain in the yearto September2015, 65% were This was a preliminary estimate, based HE “Jungle” camp in Calais—squalid, found to be over18, despite havingclaimed on sparse data; readings of GDP are some- Tramshackle and lawless—was no place to be children. With fewer asylum applica- times significantly revised years later. Oth- for children. In May the British govern- tions than many neighbouring countries, erdata give a fullerpicture ofBritain’s post- ment agreed, rather reluctantly, to take an Britain should atleasthave the resources to Brexit economy, and it is not encouraging. unspecified number of minors from the identify those who fib about their age. 7 Rising inflation will soon cause real wages camp to live in Britain. This week, as the to fall, pushing down living standards. The Jungle was demolished (see Europe sec- latest batch of public-finance figures (for tion), a fewhundred started to arrive under September) made for painful reading. Tax the scheme. But some British tabloids, not receipts grew far more slowly than was known for their excessive sympathy to- forecast at the budget in March. By the end wards asylum-seekers, queried whether of this financial year the budget deficit is the newarrivalswere under18. The debate, unlikely to be much lower than last year’s, conducted on the front pages of an excit- at around 4% ofGDP. able press, seems quintessentially British. With decent growth in 2016, the Bankof Yet it hints at a broaderEuropean dilemma. England and the chancellor, Philip Ham- Over the past two years tens of thou- mond, will probably adjust their immedi- sands of unaccompanied minors have ate plans. At its next interest-rate meeting turned up in European cities. Last year in November, the bankisunlikelyto cut the 35,000 lone children sought refuge in Swe- base rate from its level of 0.25%, as had den. As of September there were 51,000 in been widely predicted a few weeks ago. Germany. Britain receives many fewer, but And MrHammond mayfeel thathe can get the numbers are growing: in the year to away with a smaller fiscal stimulus in his September 2015, 2,564 unaccompanied autumn statement, a mini-budget due on children applied for asylum there, 50% November 23rd (a relief, given the poor more than the year before. public-finance figures). But expect further No standardised procedure exists to monetary and fiscal loosening in the fu- work out the age of these youngsters. And Minor on the move ture—after all, Brexit itselfis still to come. 7 54 Britain The Economist October 29th 2016 Bagehot How to be a good bastard

What ToryEurophiles can learn from theirEurosceptic colleagues smaller state than the others. Only Mr Clarke doubts that the Brexit referendum should be treated as binding. But there are many more affinities. All are socially liberal. All question Theresa May’s tough line on immigration and her plans to create more ac- ademically selective state schools. All campaigned heart-and- soul for Britain to stay in the EU, question the prime minister’s rush to Brexit and want a “softer” break from the union, preserv- ing the country’s membership of the single market. Sometimes they even sit together in the Commons: Mr Osborne has joined Ms Soubry on the bench farthest back from the prime minister, now dubbed the “naughty corner”. Expect this group to gain influence once Mrs May triggers Arti- cle 50 in 2017, beginning the two-year countdown to Brexit. Al- ready the prime minister is doing battle with Parliament. She wants to conduct the negotiations unscrutinised, but many MPs demur. A showdown will be the debate on the Great Repeal Bill, the legislation revoking the automatic transmission of European laws onto British statute books. This will create all sorts ofoppor- tunitiesforMPsto fiddle with the manyvolumesofEuropean leg- islation reverting to Westminster’s control. Mrs May has a work- ing majority of15, which gives the soft Brexiteers (who number at INSTON CHURCHILL’S dictum—“We shape our buildings; least 20) the ability to intervene where they do not like the gov- Wthereafterthey shape us”—may account forthe distinctively ernment’s line, just as their Eurosceptic predecessors so routinely cabalistic quality of British politics. The Palace of Westminster is and implacably did in the past. “They’ve certainly no reason not a maze ofsticky-carpeted little bars, poky wood-lined offices and to fight just as dirtyasthe ‘bastards’ once did,” saysTim Bale, a his- forgotten meeting rooms up twisting staircases. It urges those torian ofthe Conservative Party. who work in it to agglutinate and machinate. Thus tribes, gangs and factions drive politics in Britain to a greater extent than else- Listen to the naughty corner where. Recently three have produced national transformations: If they get it right, the soft Brexiteers could tilt Britain towards a the Thatcherite cabal of the late 1970s, the New Labourites more open, rational sort of Brexit. Yet they face all sorts of perils: around Tony Blair in the 1990s and the anti-Europeans who have irrelevance, disunity, submission. To avoid these, they could do marked Conservative politics forthe past three decades. worse than learn from the bastards. First, that means sticking to- The third of these groups stands out, for it achieved its revolu- gether. For decades the hardline Eurosceptics have worked in un- tion without taking power. Inspired by Thatcher’s late, Euroscep- ison, co-ordinating their campaigns and voting as a bloc to en- tic turn and appalled by the disloyalty of the Europhile “grey courage party leaders to seek their favour. Second, the soft men” who booted her out, they soared to prominence under Brexiteers must build up an institutional network. The Tory right John Major as he tried to secure support forthe Maastricht treaty. has had the Bruges Group, BetterOffOut and Business for Britain; “Bastards!” raged the then-prime minister of the rebels (later re- notto mention the editorial pages ofthe Daily Mail, Telegraph and flecting: “What I said was unforgivable. My only excuse is that it Express. The Toryleft has Open Britain, a pressure group patched was true”). Back then they were relatively isolated. But over the together from the ashes ofthe Remain campaign, but little else. longyears ofLabourgovernment, the Conservative membership Third, the soft Brexiteers need a limited list of incrementalist turned Eurosceptic; two “bastards”, Iain Duncan Smith and Mi- goals. The bastards rarely talked publicly about leaving the EU, chael Howard, served as leader; their successor, David Cameron, but little by little edged the country towards that outcome. Apply- pandered to the gang. Having won Mr Cameron’s EU referen- ing that lesson, the Tory moderates might seek to keep Britain in dum, the bastards are supreme. Some are in the cabinet, others the single market, curb the aggressive tone ofBritain’s negotiators are breathing down their necks and a hard Brexit seems likely. and rehabilitate Mr Osborne ahead ofany future leadership race. But if the old “awkward squad” is now the mainstream, what Fourth and finally: they should reach out. The right always nur- will take its place? Step forward, the Europhiles. The country’s tured both sympathetic frontbenchers and the party’s base. Am- nationalist direction since June 23rd has unified a new, younger bitious Tories, from Mr Cameron to prospective parliamentary band of continentally minded Tories. One is Anna Soubry, a for- candidates, have long had to convince the party of their Euro- mer business minister who does not mince her words. “He looks sceptic bona fides. So the Conservative left needs to create its like somebody has put their finger up his bottom and he really own litmus test: aligning itself with friendly ministers (like Da- rather likes it,” she memorably told a television interviewer mian Green, the welfare secretary) and makingits endorsement a when asked about Nigel Farage of the Eurosceptic UK Indepen- valuable asset for those who want to make their way in the party. dence Party. Nicky Morgan, a former education secretary, and Pro-market and socially liberal, the soft Brexiteers represent Nick Herbert, an ex-policing minister, are her allies. George Os- Britain’s truest instincts, as a mongrel nation created, whether it borne, a formerchancellor and keener European than Mr Camer- likesitornot, bygrafters, merchantsand immigrants. The Conser- on ever was, is their shop steward. Ken Clarke, the rumpled, jazz- vative Partyhas not always been a natural vessel forsuch people. loving Europhile par excellence, serves as the resident greybeard. But today it has a unique chance to represent them. It should do There are differences within the gang. Mr Osborne favours a so with confidence. 7 International The Economist October 29th 2016 55

Early childhood development low cognition”, partly as a result of being reared by grandparents who pay them lit- Give me a child tle attention while parents workin cities. The evidence from neuroscience is sometimes exaggerated. Researchers still have a patchy understanding of the time- BULAKABYA, JOHANNESBURG AND NAIROBI line forbrain development. Some early ad- versity can be overcome. But the longer Boosting the health oftoddlers’ bodies and brains brings multiple benefits. But too trauma orneglectgoeson, the harder itis to often the wrong methods are used counteract. And lots of studies now sug- HERE are no nurseries in Bulakabya, a tainable Development Goals, a well- gest that intelligent policy can help. One Thamlet hacked out of sugar-cane fields meaningset oftargets launched in January, landmark programme began in the 1980s, in eastern Uganda. That is not for a lack of call for universal access to good-quality when health workers started visiting Ja- children: most women will have at least ECD by 2030. maican mothers to tell them about nutri- eight and, since polygamy is widespread, As well as concern forchildren, the new tion and learning through play. Compared some fathers have more. Until recently zeal among development economists and with peerswhose mothershad no such ad- these children had few chances to learn. poor-world governments for ECD reflects a vice, these children had higher IQs, were Parents often left them to their own de- desire to make it easier for their mothers to less violent and earned 25% more at age 22. vices until they could hold a hoe. work. Globally just 55.3% of women of Supporters of ECD add that its benefits Thisischanging. On a tarpaulin mat in a working age are employed or looking for a go well beyond the children. Better-raised church built from wood and mud, toddlers job—less than in 1990. But the usefulness to toddlers mean less need to cope with dys- take turns at playing games that help them society of early development goes far be- functional adults at public expense. The count, spell and get on with peers. Lively yond giving parents a place to parka kid. World Banksays every dollar spent on pre- Minds, a charity, teaches the mothers how The youngsters themselves are the school education earnsbetween $6 and $17 to foster children’s cognitive and social main, though not the sole, beneficiaries. ofpublicbenefits, in the form ofa healthier skills. It also advises them on nutrition and Another recent study in the Lancet reckons and more productive workforce with few- hygiene. It says its intervention doubles that 43% of under-fives in poor countries, er wrongdoers. Many developing coun- the number of children scoring highly in other words about 250m kids, will fail to tries seem to have accepted this case. Chi- enough on cognitive tests to be thought of meet their “developmental potential” be- na has vowed to provide pre-school as “school-ready”. Cases of diarrhoea and cause ofavoidable deficiencies in ECD. facilities for all youngsters; India has the malaria have also fallen. Their young brains are sensitive. In the same goal. African countries are also in- This is just one example of the multiple first three or so years after birth, when up vesting in toddlers. Ethiopia says it will in- benefits that come from putting more em- to 1,000 synapses are formed per second, crease pre-school enrolment to 80% by phasis on early childhood development they are vulnerable to trauma which trig- 2020, from 4% in 2009; Ghana has added (ECD), a term that includes everything that gers stress hormones. Though some stress two years of pre-school education to its can be done to boostthe physical and intel- is fine, too much is thought to hinder devel- system. Uganda wants every state primary lectual health of youngsters before they opment. Neglect is also corrosive. Young school to have a nursery. reach the age ofeight. children benefit from lots of back-and- This burst of enthusiasm is welcome According to the Lancet, a medical jour- forth dealings with adults. Research by the and overdue. In the OECD club of mainly nal, in 2000 just seven developing coun- Rural Education Action Programme, based rich countries, spending on ECD amounts tries had a comprehensive approach to at Stanford University, suggests that rural to around 2.4% ofGNP; in poorercountries, ECD. Now almost half do. The UN’s Sus- children in China have “systematically where there is so much scope for improve-1 56 International The Economist October 29th 2016

2 ment, the share is less than 1%, says the state sector, forexample, pre-school classes World Bank. Poorcountries spend farmore Unequal from the start resemble a mini-secondary school, with on regular schools. In Latin America, for Children aged 3-4 years in early education tiny desks and chairs. Teaching is dull and every dollar spent on children under five, By wealth quintile, % based on rote learning; results are bad. $3 is spent on those between six and 11. Bottom quintile Top quintile About 40% ofKenyan seven-year-olds can- The case for boosting the share benefit- 0 20406080100 not read a word. Across the region, figures ingfrom ECD is strong, but expenditure has Ivory Coast are even worse. to be well-aimed. Subsidies for all children Congo Asresearchersfrom Cambridge Univer- to attend nursery are popular among par- Cameroon sity found, a good ECD curriculum is the ents and politicians; but unless kids get the Nigeria opposite of Kenya’s. It needs play-based right kind of attention, they are little better learning and lots of speaking, or just bab- Bangladesh offthan those who stay at home. bling, back and forth. But Betsy Chumo, A report in May by Harvard Universi- Malawi who runs a play-based centre in a Nairobi ty’s Centre forthe Developing Child found Ghana slum, finds parents sceptical. “They want that the average impact of ECD experi- Argentina strict teachers and children behind desks.” ments studied over the past 50 years has Vietnam As a third big pointer, experience sug- fallen. “There is huge potential in ECD in- gests that private efforts are often the most Jamaica tervention,” says Orazio Attanasio of Uni- innovative; governmentsshould avoid get- Source: UNICEF MICS versity College London. “The danger is to tingin theirway. Chile’sprogramme, forex- assume that any intervention no matter ample, is a healthy mix ofprivate and pub- how ill-conceived and ill-designed will African early-development foundation. lic. In many countries, private initiatives work.” Although getting the right answers Few parents see the need for all-round de- become franchises that spread fast with can improve tens of millions of young velopment ofmind and body, she laments. only a touch of state encouragement. One lives, there is a real risk that the current Colombia offers examples of good and case is Kidogo, co-founded by Sabrina Ha- wave of enthusiasm for ECD will crash if bad spending. In 2011, the government bib after she nearly stumbled over supine bad methods are adopted and results dis- launched De Cero a Siempre (From Zero to infants on the floor ofa badly-run day-care appoint. The latest research suggests at Forever). Children were moved from small centre in Nairobi. Kidogo trains “mama- least four things which governments local facilities to larger ones costing twice preneurs” such as Ms Chumo to run cen- should keep in mind. as much per child. The shift to an imper- tres that offerhealthy meals and an age-ap- First, ECD must focus as much on physi- sonal setting harmed children’s language propriate curriculum while also making a cal well-being as on training the mind. and motor development, according to a profit. Another voluntary effort is Smart- That element is now missing: most ECD study led by Raquel Bernal ofthe Universi- Start, in South Africa, which wants to bring policies put the stress simply on educating ty of Los Andes, in Bogotá. A cheaper ECD to the 1m kids between three and five kidsaged fourorfive. In fact, health and nu- home-visit programme for even younger who have none. The charity hires unem- trition are at least as important. A paper in children had better results. ployed people to set up franchises, trains 2008 by Cesar Victora of Federal Universi- One reason for its success was that its them in care methods based on good re- ty of Pelotas in Brazil tracked cohorts of curriculum suited the age of the children. search and monitors their quality. children in five countries (Brazil, Guatema- Few toddlers are like John Stuart Mill, the Where such franchises work, govern- la, India, the Philippines and South Africa) thinker who began ancient Greek at three; ments offer incentives, such as vouchers and found a strong correlation between and in some east African countries, the for poor parents. For all the differences, ex- height at the age of two, school results and teaching oftoddlers is utterly ill-adapted to pertise gained from private-public partner- wages in laterlife. So correctingthe bad nu- their age. In those places, expanding ECD ships in rich-world educational outfits (like trition (of expectant mothers as well as in- simply means putting kids in traditional American charter schools or England’s fants) that leads to stunting should be a pri- schools a year or two earlier. In Kenya’s semi-independent academies) can have a ority. Supplements like iodine and iron for bearing on ECD. Ark, a group of English pregnant mothers and vulnerable babies academies, will soon help test a new ECD can boost educational performance. model at nearly100 places around Nairobi. A second problem is that efforts to Fourth, technology can help in places boost development in the first years of life where finding and paying decent staff is can be shoddily run because they fall in hard. Most child-care workers get little the bureaucratic gaps between health and trainingand are paid a pittance. But newin- education policies. There are exceptions, ventions boost teachers’ skills cheaply and such as a good Chilean initiative: known fast. Take a project in Kenya called Tayari; as Chile Crece Contigo (Chile Grows with this involves issuing 1,700 pre-school You), the project has operated across the teachers with tablets on which they get a country since 2007, reaching 80% of the curriculum, updated daily. In South Africa, poorest mothers before they give birth and Innovation Edge funds dozens of similar continuing until the child is four. projects, from an app containing an ECD It offers a personalised service, from curriculum to a virtual-reality (VR) game home visits to screening (for inherited dis- showing good teachers at work. eases, for example) and there are cash in- Some claims for the benefits of all this centives for taking part. Another lesson excellent work may be overblown; ECD is from Chile: what matters is how, not not the only thing required to turn most where, adults and children interact. In oth- children into successful adults. But it is one er countries, ECD policy amounts to build- of the necessary conditions. Whether it is ing new subsidised child-care centres with done through VR headsetsorbyplaying on little regard to whathappensthere. “Too of- mats in a mud church, improving ECD can ten ECD is just child care,” says Sonja Giese, give millions of youngsters a better shot at directorofInnovation Edge, partofa South Bored by the board overcoming life’sother problems. 7 Business The Economist October 29th 2016 57

Also in this section 58 Big tobacco beefs up 59 Tata ousts Cyrus Mistry 59 Companies’ dark pasts 60 Brazilian business on the up 61 New York deflates Airbnb 62 Schumpeter: White-collar crime

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

AT&T and Time Warner pen it could trigger a bidding war with Ap- ple and Google weighing in as well. Angling for the future of TV Some analysts describe AT&T’s strategy as diversification or empire-building, not integration. AT&T is the second-largest wireless carrier in America, behind Veri- zon Communications. Last year AT&T New York completed the $48.5bn purchase of Di- recTV, a satellite provider, makingthe com- A huge takeoverbid reflects the change in the way people watch television pany the largest pay-TV distributor in MAGINE a television which, as in the old such merger. And the next buyers could be America with 25m subscribers. The new Idays, has only a handful of channels to content companies buying distribution deal adds the biggest available prize in film choose from instead of hundreds, as a typ- platforms. At 21st Century Fox, Rupert Mur- and television (as Disney is not for sale), ical cable set-up might offer today. In a de- doch might go after the rest ofSky, a British with a vast library of films and TV shows cade or so TVs will once again have only a pay-TV firm, that he does not already own including hits such as the “Dark Knight” few channels, but each will run miles (Sky is a cheaper target with the fall of the movies and “Game of Thrones”, besides deep, with content that can be viewed on pound). AtDisney, Bob Igermused recently multiple cable channels. demand. Netflix might be one such offer- aboutthe need to reach consumersdirectly The backdrop to this is that Americans ing; Amazon another. Both firms are in an increasingly uncertain media land- are watching 11% less television than six spending billions of dollars making and scape, leading many to speculate that he years ago, and those aged 12 to 24 see more buying TV shows and films to sell directly wants to buy Netflix, which has a market than 40% less (see chart). In recent weeks a to viewers to watch when they like, and on value of $54bn (almost one-third of Dis- vital bulwark of pay-TV, live sports, has devices other than the box in the corner of ney’s). At present such a mammoth deal shown unusual weakness; ratings for the room. And other rich tech firms may appears to be unlikely, but were it to hap- American football have declined com- join them. pared with a year ago. Last year traditional It is this vision that is now driving the pay-TV lost more than 1m subscribers, direction of television and media. Broad- Off the box about 1% of the total in America, as more casters are willingto pay more to show live Time spent watching traditional TV* viewers “cut the cord” to expensive cable United States, by age group sporting events, and to invest more in pro- Change in hours and switched to streaming video services. % change ducing TV shows, to make their networks per month, 2010-16 In the near term AT&T’s business logic 10 the must-see choice for viewers. This trend Over 65 16 for buying Time Warner is not obvious. + has spurred the largest-ever merger of a 50 to 64 2 Cord-cutting will continue to put pressure 0 telecommunications company with a me- – on profit margins at the combined com- AT T dia firm. & , America’s wireless and Total US 16 10 pany, which will also become highly in- TV AT T pay- giant, announced on October 22nd 35 to 49 18 debted. Norwill & be able to offerTime an offer for Time Warner, the owner of 20 Warner content exclusively to its custom- 2 to 11 23 HBO, CNN and Warner Brothers studio, ers. It will license it to as many distributors worth $109bn. In doing so AT&T is betting 25 to 34 39 30 as possible to boost revenue—just as Time that a few vertically integrated platforms 12 to 17 41 Warner does now. And AT&T will not be 40 will dominate the future of viewing. This 18 to 24 48 able to get that content at a lower price for huge deal follows the $30bn purchase in DirecTV because clauses in pay-TV con- 50 2011 by Comcast, a cable-TV company, of 2010 11 12 13 14 15 16 tracts prevent that and regulators would NBC Universal. *Cable and broadcast channels not permit it. Randall Stephenson, AT&T’s Sources: Nielsen; REDEF (including time-shifted) If approved, it would not be the last chief executive, and Jeff Bewkes, Time 1 58 Business The Economist October 29th 2016

2 Warner’sboss(who would leave under the tention, premium content could in future cial sense. HBO NOW, the network’s new deal), argue that benefits will come from be a valuable weapon in that fight. streaming service, could be one of the being able to target advertising better to Owning content might become more standalone channels on that TV set of the viewers ofTime Warnercontent, thanks to imperative as the multi-channel pay-TV future. Or perhaps there will be just a Time AT&T’s knowledge of what people are system falls apart. Smaller TV networks Warner service, combining everything watching. It is unclear how much that will and studios could be rolled into bigger that the group has to offer. But would that help the bottom line. ones. A recombination of CBS and Viacom be worth the price AT&T has agreed to pay Despite all that, regulators will be wary would become more likely. Another Sili- for it today? There is a reason Mr Bewkes about AT&T wieldinga competitive advan- con Valley firm, like Apple, might jump and the Time Warner board took the offer tage from owning a combination of con- into the production business as Netflix did, at $107.50 a share, two years after rejecting tent, delivery and wireless spectrum (as pouring billions more into programming. a bid from Fox worth $85 a share. The fu- well as broadband). In a display of the In that world AT&T’s purchase of Time ture ofTV may be blurry, but that is AT&T’s company’s muscle, on October 25th Mr Warner might then make more commer- problem now, nottheirs. 7 Stephenson announced that a new inter- net-streaming service in America, DirecTV Big tobacco NOW, will offer more than 100 TV chan- nels (including Time Warnernetworks) for $35 a month, far cheaper than existing All fired up packages. Speaking at a conference in Cali- fornia, Mr Stephenson said he would not A new deal points to broad changes forcigarette-makers have been able to strike such a deal if he did not have DirecTV: “we cannot get the IG Tobacco is about to get even bigger. media companies to participate in this un- B On October 21st British American til we have scale.” AT&T wireless custom- Tobacco (BAT) announced that it had bid erswill come offbestastheywill be able to $47bn forthe 58% ofReynolds American stream the service without data charges. that it does not already own. Though The Federal Communications Commis- Brexit has weighed on some British com- sion, a regulator, is already looking at AT&T panies, BAT is unencumbered, with most and Verizon’s practice of not charging mo- ofits revenue earned overseas. Many bile customers more to stream certain vid- investors expect the deal to go ahead, eo content—called zero-rating. Mr Stephen- although BAT might need to puffup its son has said that the ability to drive down offer. BAT would then become the prices shows AT&T’s big acquisitions are world’s largest tobacco company by sales good for consumers. Trustbusters might and profits. see things differently. As in other volume businesses, like beer, some ofthe merger logic is simply Power from the pipes to cut costs. With consolidation, BAT Regulators will be extra cautious because reckons its deal would generate $400m of their experience with Comcast, the tar- ofannual savings. However, it also un- get of multiple complaints that it failed to derscores two big, long-term changes for abide by restrictions agreed as part of its cigarette-makers. purchase of NBC Universal. In 2015 anti- The first is that America has become Innovator at work trust authorities blocked Comcast’s $45bn an attractive market fortobacco firms and takeoverofTime WarnerCable (which had buying Reynolds, whose brands include a stockbroker. Meanwhile other coun- previously been spun off from Time War- Camel and Newport, is the easiest way tries have become less hospitable. In ner). Craig Moffett of MoffettNathanson, a for BAT to grow there. This is a reversal Europe, forexample, governments are research firm, notes that a central concern from the recent past. Not long ago Ameri- demanding plain packaging devoid of in that case—how Comcast’s control of ca seemed stale and overrun by lawsuits, even company logos. broadband capacity could help the firm’s particularly compared with fast-growing The second change is potentially verticallyintegrated structure discriminate economies. Cigarette firms quarantined bigger. Tobacco firms are in fierce compe- against competitors like Netflix—would their American businesses. In 2004 BAT tition to come up with safer products, seem to apply to AT&T’s combined market sold Brown & Williamson, its American and buying Reynolds gives BAT more power in wireless, satellite and broad- subsidiary, to R. J. Reynolds. That gave R&D clout and a larger portfolio of what band. In addition politicians, sensitive to BAT its stake in the newly dubbed Reyn- the industry likes to call “reduced-risk” public perceptions that such mergers are olds American, but shielded the firm items, including e-cigarettes. These are a bad for consumers, have raised concerns from belligerent lawyers. In 2008 Altria, tiny but growing part ofthe market. about the Time Warnertransaction. another tobacco giant, split into two: The race is on to come up with safer, Mr Stephenson says his aim is to foster Altria, which sells cigarettes in America, more satisfying offerings. Philip Morris more competition—namely, to be a nation- and Philip Morris International, which International, which spends nearly twice al competitor to the cable providers, each peddles tobacco elsewhere. as much on research as BAT, reckons its of whom have regional near-monopolies Cigarette-makers remain subject to a new offering, iQOS, might add more than in broadband. The roll-out of 5G wireless vast settlement reached with American $1bn in profit by 2020. IQOS is a new type technology in the coming years will, he states in 1998, but fears ofhuge class ofe-cigarette, heating a tube oftobacco reckons, also give consumers a mobile actions have proved overblown. “The rather than a liquid. All this means more broadband option. In that sense AT&T is damages they’ve had to pay in the cases deals may be simmering: Bonnie Herzog waginga biggerbattle forthe “primary cus- they’ve lost—in the tobacco company ofWells Fargo, a bank, predicts that BAT’s tomer relationship” in distributing video, context—have been very small,” points move will prompt Philip Morris to bid for as one senior media executive puts it. In or- out James Bushnell ofExane BNP Paribas, its formerparent, Altria. derto command customers’ loyalty and at- The Economist October 29th 2016 Business 59

Tata Group Companies’ dark pasts Mistry exit Ghosts in the machine

MUMBAI India’s biggest conglomerate A Dutch case suggests firms should face unceremoniously sacks its boss up to horrible stains on theirhistory HERE have been only six chairmen of E THOUGHT we knew our story, Tthe Tata Group since it was founded in “Wand we knew it wasn’t great,” says 1868. There will soon be a seventh after Cy- Maurice Brenninkmeijer, chairman of CO- rus Mistry, the first boss of the conglomer- FRA Holding, which owns C&A, a 175-year- ate not connected to the founding family, old Dutch clothing retailer with over 2,000 was ousted after less than four years in stores globally. Yet the full account of how charge. Even though he undertook few of the German branch of his family behaved the reforms needed to bring vast swathes in the second world war “tore through of the Tata empire to profitability, he will yourheart when you heard it”, he adds. Mr prove a difficult act to follow—not least be- Brenninkmeijer’s ancestors—considered to cause he has embarked on an extraordi- be genial, virtuous, Catholic and re- nary rampage against his old employer. served—turned out to have been avid Nazi Mr Mistry might reasonably have ex- Shown the door collaborators. Old letters revealed cosy, pected to serve for a couple of decades at corrupt, ties to Hermann Goering. From the helm of India’s biggest group, with in- glomerates pay the notion little more than 1942 onwardsC&A and Siemens, a German terests from IT to cars, hotels, salt, steel and lip service. engineeringfirm, togetherexploited forced much else besides. For a company with a In a letter to the board of directors of Eastern European labourers in Germany, culture ofconsensus, the abruptness of his Tata’s main holding company, MrMistry is keeping them in such a wretched state that sacking on October 24th—the board did scathing about the firm’s culture and eth- malnutrition killed several women and not even give him the option of stepping ics. Its hotels arm bought property at inflat- children. C&A profited from “Aryanisa- down—is about as brutal as it comes. Many ed prices and parked it in off-balance-sheet tion”, grabbing business and property of the executives he hired have also been vehicles, he alleges, and faced hefty losses from terrified Jewish owners. Perhaps purged. Ratan Tata, his predecessor, will as Mr Mistry unwound the “flawed” strat- worst, it used Jewish tailors and leather- take over while a new boss is found. egy. The finance arm made loans, some of workers, corralled in Lodz, a dreadful ghet- The catalyst for the defenestration was which seem to have soured, under the to in Poland. Of some 200,000 people the lack of performance at some of the “strong advice” of higher-ups. Tata Motors trapped in inhumane conditions there, group’s big companies. Some felt Mr Mis- deferred losses using “aggressive account- only1,000 survived to liberation. try was doing too little to boost profits. Be- ing”. An airline joint venture created “ethi- Such grim details are now public yond Tata Consultancy Services, an IT cal concerns” over transactions worth mil- thanks to Mark Spoerer, a historian in Re- firm, and Jaguar Land Rover, a maker of lions of dollars. Spokespeople for Tata did gensburg who specialises in archival re- posh British cars Tata acquired in 2008, the not respond to calls for comment. The let- search to assess companies’ dark pasts, conglomerate’s100 or so operating compa- ter includes a claim that write-downs of putting “immoral business behaviour” nies make lousy returns. Others felt, on the 1.18trn rupees ($18bn) may be warranted. into historical context. Remarkably, his contrary, that the “tough love” Mr Mistry Amongthe biggest losers ofthe ruckus will new book “C&A: A family business in Ger- said was needed to whip the group into be Mr Mistry’s own family, who own near- many, the Netherlands and the United shape (though seldom applied) was unbe- ly a fifth ofthe parent company. Kingdom 1911-1961”, was commissioned by fitting of a company with Tata’s commit- His rearguard action will prove a dis- the notoriously reclusive family. Mr ment to putting ethics before profits. traction for Mr Tata, whom the ousted man Spoerer, over five years and with generous Overall Tata’s financials—profits of described as a “lame duck”. Mr Tata, the re- funds, was given unrestricted access to around $5bn on sales of $108bn in 2015-16, vered elder statesman of Indian business, private files, conducted interviews freely and debt roughly the size of its equity— is a steady interim hand on the tiller. But and had the right to publish all he found. look just about right. But that is to misun- his return will confirm suspicions Mr Mis- Being low-profile went from being derstand what is a complex investment try was never fully in charge. something worthy, to something strange, company that often owns minority stakes Finding a replacement for Mr Mistry and now suspect, says Mr Brenninkmeijer, in its operating companies rather than con- will be tricky. There are no obvious Tatas in a rare interview. Though some relatives trollingthem outright. Bitsofthe group, no- angling to take over. Few outsiders will were said to be reluctant to confront old tably its steel and telecoms arms, are la- agree to serve if they feel their decisions horrors, he says all now agree on the need bouring under hefty debts even as other will be second-guessed by the man whose fora sort ofcorporate therapy, “so we have Tata companies are flush with cash. name is on the door. The group’s decentral- an understanding of our history, not as a Awkwardly, though MrMistryhasbeen ised structure in anycase meansthe bosses burden but as a platform”. This, he says, sacked from Tata’s parent company, he re- of its operating companies have no experi- helps the family get a deepersense of itself. mains the non-executive chairman of the ence outside their particular silos. Tata’s re- A core of 30 family members are active largest operating entities. And he is not go- lentless expansion into everything from owners and managers of the firm; around ing down without a fight. Lawyers have watches to undersea cables, property, tea 1,300 Brenninkmeijersform an outercircle. been mobilised on all sides to contest or and finance, among many other business- It is rare for a company to confront an confirm his dismissal. At the very least, the es, makes the group very unwieldy, if not ugly past so openly, especially as C&A board’s manoeuvrings have dented Tata’s entirely unmanageable. The need for re- faced no looming pressure from victims’ reputation as a beacon of sound corporate form hasnotgone awaywith the man who relatives, journalists or other outsiders. governance in a country where other con- failed to make it happen. 7 Firms are most likely to do so ifthey have a 1 60 Business The Economist October 29th 2016

2 strong international presence and deal di- ry over the firm’s high consumer-credit The collective mood swing has less to rectly with consumers, says Mr Spoerer. charges in Brazil in the early1990s. do with the real economy, and more with Another corporate historian, Lutz Budrass, He argues, too, that managers must give realpolitik. In August the left-wing presi- assessed 100 companies that thrived in more thought to their supply chain, as in dent, Dilma Rousseff, was impeached, Germany in 1938 and still exist in some Bangladesh where 30% of the firm’s goods ending months of uncertainty. Her prag- form today. He suggests that only 30 have are made, and consider how best to assess matic deputy, Michel Temer, will serve out yet organised a serious scholarly assess- whether child labour or dangerous condi- the remaining 26 months ofher term. ment of their wartime activities, while 40 tions exist; in 2012 a fire in a Dhaka factory Brazil Inc wasn’t always anti-Rousseff. have done nothing at all, including five supplying Western firms, including C&A, When she came to office in 2011 and lav- companies which, he says, “were very killed 117 people. If Mr Brenninkmeijer is ished cheap credit and tax breaks on firms, heavily involved” in Nazi crimes. right, then instead of worrying about skel- bosses did not complain. They rebelled He points to Deutsche Post, a successor etons in the cupboard, a firm that squarely when her constant meddling first distort- of Reichspost, and much of the German faces up to its yesterdays should learn how ed, then crippled, the economy. steel industry as particularly hostile to the to behave better today. 7 The Temer government looks both idea of exploring their pasts. Siemens has more fiscally responsible than its predeces- made only partial efforts to assess its war- sor, and more responsive to businesses’ time role. In the car industry, Volkswagen, Brazilian business concerns. Bosses gush about easy access to BMW and Daimler have owned up to their ministers, even the presidenthimself. They intimately close associations with Nazis, Out of the gloom applaud the administration’scommitment but other firms have not. Mr Budrass is es- to narrow the confidence-sapping budget pecially dismissive of German aircraft deficit, which exploded to 10% of GDP on companies. He was commissioned in 2002 Ms Rousseff’s watch. Mr Diniz’s remarks by Lufthansa to write part of its 75th anni- came after Mr Temer’s proposed constitu- versary, especially in explaining its use of tional amendment to freeze government Confidence grows with a stand-in 8,000 forced labourers in 1944. But the firm expenditures in real terms for 20 years leaderat the helm refused to publish it, acceding only this handily cleared the first of fourcongressio- year once Mr Budrass brought out a sepa- RAZIL is back in business,” pro- nal votes. It passed the second on October rate book on the airline’s past. He also ar- “B claimed Abílio Diniz, chairman of 25th. A complementary reform to over- gues that Airbus, the European aircraft- BRF, a Brazilian porkand poultry giant, at a generous public pensions is in the works. manufacturing group which incorporated recent investor shindig. Really? The econ- A promise offiscal rectitude has helped old entities including Messerschmitt (one omy, mired in recession since mid-2014, is dampen inflation expectations, allowing of the largest users of concentration-camp not expected to stir before the end of the the central bank to cut interest rates for the labour), is “trapped by fear of its past” in year—and then only sluggishly. After re- first time in four years on October 19th, failingto commission a proper history. boundingin the first halfof2016, industrial from 14.25% to 14%. Further cuts to Brazil’s production plummeted again in August. high rates—the number-one bugbear of How cleansing is the sunshine? Retail sales fell by more than forecast. many a Brazilian boss—are expected. So Perhaps it is not irrational for firms to shy Firms expect to hire just 100,000 tempo- too are other market-friendly measures, away from difficult memories. And Ger- rary workers in the run-up to Christmas, such as easing onerous local-content re- man firms are more transparent than most. 3% fewer than last year’s already low tally. quirements for some industries and enlist- Some 6,000 companies and the German BRF’s own domestic operations are hardly ing the private sector to build and run state contributed to a €5.1bn ($4.5bn) fund a picture of health. Sales dropped by 5% in roads, ports and airports. created in 2000 to compensate victims of the second quarter, year on year (though Still, notes Carlos de Freitas of the Na- forced labour. By contrast, it tookuntil 2014 this was offset by rising global revenues). tional Confederation of Commerce, a lob- for foreign relatives of holocaust victims For all that, Mr Diniz is not alone in his by group, “The real economy does not live transported by SNCF, the French railway, optimism. Surveys point to rising confi- on expectations alone”. For business to to be allowed to seek compensation from dence among bosses and consumers alike thrive, bosses never tire ofrepeating, Brazil the state. Many Japanese firms can trace (see chart). Investors’ spirits are up—and must also tackle assorted structural defi- their histories back to wartime exploits, in- with them the São Paulo stockmarket, ciencies. Besides costly credit, perennial cluding the use of slave labour, but are far which has returned to levels last seen in grumbles include shoddy infrastructure, lesslikelyto assesswhatwenton than Ger- 2012. The real has strengthened by a third unskilled workers, convoluted taxes, rigid man ones. Similarly it is rare for American against the dollar since January. labour laws and Byzantine bureaucracy. financial firms to admit to profiting from Some take matters into their own businesses related to slavery in the hands. Daimler, a German carmaker, mid-19th century, as Aetna and JPMorgan Looking brighter teaches English to technicians so that they Chase have. Nor is there any serious dis- Brazil, future expectations indices can read technical manuals. Fed up with cussion to suggest firms which made mon- 2011-15 average=100 waiting for Rio de Janeiro’s municipal gov- ey in apartheid South Africa should today Consumer Industry Services ernment to build a promised access road to offercompensation. 120 its research centre, General Electric paid for Mr Brenninkmeijer and the historians 110 it to be paved. Singaporean shareholders say that understanding the past brings of Aegea, a water utility, could not under- deeper strengths—virtues that can help the 100 stand why a firm with revenues of 795m business today. Finding out the whole 90 reais needed a private jet—until Hamilton story can be liberating and “helps you un- Amadeo, its boss, showed them it was derstand who you are”, he says. The boss 80 cheaperthan relyingon commercial flights of C&A is preparing for members of the 70 and cars once the cost of executives’ lost sixth generation of his family to run the time was added in. private firm and wants them to learn how 60 Most companies cannot afford lan- 2008 09 10 11 12 13 14 15 16 to hold serious discussions of ethical di- guage classes, let alone jets. All abhor red Source: IBRE lemmas, citingas an example his own wor- tape. In the office of Guilherme Afif, chair-1 The Economist October 29th 2016 Business 61

2 man ofSEBRAE, a group forsmall business- the city in 2016. It projects that by 2018 that es, a printout ofall the rules even tiny firms One room or three? will rise to over $1bn a year. Professional must obey takes up fully five metres of Airbnb listings, ’000 Airbnb hosts, say industry groups, should shelf space. The average Brazilian corpora- Total be classed as hoteliers, pay taxes as such tion spends 2,600 man-hours annually Of which: hosts with multiple properties and comply with the relevant health and complying with the tax code, ten times the 0 10203040506070 safety regulations. global figure (see page 81). Paris Airbnb is challenging the state law on For decades, fixing these gripes has London the grounds that, as an online marketplace, eluded even popular presidents. Mr Temer itisnotresponsible forthe content thatoth- isn’t one, at least outside business circles. New York ers place on its site. (The state counters it is Some bosses urge him to undertake tough, Los Angeles going after the hosts, not the site.) The firm early action. Others reckon that an all-out Rome has a good case, reckons Mr Sundararajan. assault on workers’ rights orstates’ tax-rais- Berlin Firms such as YouTube and Facebook have ing powers do not behove a president who already invoked such a defence successful- lacks the legitimacy of an elected leader. Barcelona ly. But perhaps the greater danger is that Better to stick with emergency fiscal mea- Amsterdam other cities will feel emboldened to craft sures and leave deeper reforms to his suc- Montreal their own restrictions. Last year Airbnb cessor. Many would be content with stop- San Francisco agreed to require people in San Francisco gaps: a law to make outsourcing easier, say, who rent out their entire homes to register Sources: Company reports; Tom Slee rather than an overhaul of the sacrosanct with the city, and to cap the number who labour code dating backto 1943. can do so. But when few hosts signed up, In the meantime, euphoria over Ms ing there at the same time.) To encourage the city decided to apply more pressure, Rousseff’s exit is tempered with caution. A people to comply, Andrew Cuomo, the with fines of $1,000 a day foreach unregis- tractor-maker in the southern state of San- state governor, approved fines for those tered San Francisco host on the site. ta Catarina could use an extra 50 staff, its who flout the rules of $1,000 for a first of- Europe has acquired a similar taste for boss admits. But he is loth to hire, lest Mr fence, rising to $7,500 forrecidivists. regulation. Earlier this year, Berlin banned Temer stumbles and confidence evapo- The bill will severely limit Airbnb’s most short-term apartment lettings in re- rates. “We are hoping for the best,” echoes ability to operate in the city. At issue is the sponse to a dearth of residential housing the boss of a big education provider who way that its business model has evolved. and the unsociable behaviour of lessees. has also ordered a hiring freeze. “But we The firm was conceived as a marketplace Hosts flouting the rules face a €100,000 are planning forthe worst.” 7 to rent a spare room to tourists. Entrepre- ($109,000) fine. (As with New York, those neurs, however, quickly spied a more lu- renting out a portion of their own apart- crative opportunity: acquiring a portfolio ments are unaffected.) According to Mr The sharing economy ofempty properties and offering them as a Slee’s data, the proportion ofserial hosts in direct, often cheaper, competitor to hotels. Berlin listingon Airbnb hasfallen from 36% Deflating Airbnb According to data gathered by Tom Slee, in 2014 to 20% today. author of “What’s Yours Is Mine”, a book In Barcelona, meanwhile, authorities on the sharingeconomy, 27% ofAirbnb list- have threatened to fine the firm €600,000 ings in New York are offered by people for such illegal listings and required hosts who own multiple properties (see chart). to obtain a licence. Ada Colau, the city’s Locals complain that Airbnb guests, mayor, was elected after promising to rein New rules are a hitch forAirbnb in New filled with the holiday spirit, can be noisy in holiday rentals. Not all cities see Airbnb Yorkand beyond and inconsiderate neighbours. Worse, they as a curse. London, which has some 47,000 N 2007, Brian Chesky and Joe Gebbia say that as apartments are scooped up by Airbnb-listed properties, has talked up the Icame up with a wheeze to rent out two investors to be rented out on a short-term advantages of encouraging sharing-econ- air beds in their San Francisco apartment, basis, residents are forced out of town. omy accommodation, particularly for its because a conference had left the local ho- Arun Sundararajan, a professor at New unfashionable outer boroughs where few tels full-to-overflowing. Thus, Airbed & York University and author of “The Shar- hotel tourists ever venture. 7 Breakfast was born. Since then, the firm’s ing Economy”, thinks this idea is over- only contraction has been its name. Today, played. Pressure on housing stock in New Airbnb’s website lists over 2m properties York, he says, is affected more by popula- for short-term let in 191 countries. Piper Jaf- tion increase and rent controls than shar- fray, an investment bank, estimates that ing-economy rentals. But not everyone bookings through the firm will reach agrees. According to Mr Slee, while Airbnb $14.4bn in 2016, compared with $52m in may indeed have a limited impact on a city 2010. Analyststhinkthe upstartmight fetch in aggregate, for those who live in neigh- $30bn were it to be taken public. That bourhoods that become Airbnb hotspots would make Airbnb worth more than such effects are all too real. Marriott, the world’s largest hotel chain. Still, some worry that Mr Cuomo has But legislation signed in New York state bowed to pressure from powerful vested on October 21st has taken some of the puff interests, including hotel lobbyists and un- out of Airbnb’s mattress. New York City is ions. The occupancy rate in New York’s ho- the firm’s largest market in America, with tels is close to 90%, among the highest in around 35,000 properties available for the country. Limited supply means pre- rent. But many of the hosts offer their mium prices and such advantages are jeal- apartments illegally. In 2010, the state ously guarded. A study commissioned by passed a law banning rentals of whole un- the Hotel Association of New York found its in residential blocks for less than 30 that people switching to Airbnb will di- days. (It is legal to do so if the tenant is liv- rectly cost its members around $780m in No rules broken here 62 Business The Economist October 29th 2016 Schumpeter Jail bait

The lock-’em-up mentality forwhite-collarcrime is misguided ($1.1m) in taxes but was sentenced to three-and-a-half years in pri- son. The global war on white-collar crime is giving rise to a new global industry: advisers such as Wall Street Prison Consultants and Executive Prison Consultantsspecialise in helpingwhite-col- lar criminals adjust to life behind bars. Prosecutorial zeal does not always result in convictions, but that is because prosecutors face some difficult trade-offs—includ- ing respecting the rights of some of the world’s most unpopular people. Mr Buell points out that America’s Department of Justice could have bowed to popular pressure by prosecuting senior bankers for selling mortgage-backed securities and the like. But thiswould have been foolish: the productswere perfectly legal (if unwise) and the people doing the buying were just as well-in- formed as the people doing the selling. The DoJ could bring far more individual prosecutions. But most corporate crime is the re- sult ofcollective action rather than individual wrongdoing—long chains of command that send (often half-understood) instruc- tions, or corporate cultures that encourage individuals to take risky actions. The authorities have rightly adjusted to this reality by increasingly prosecuting companies rather than going after in- dividual miscreants. NE thing right-wing populists and left-wing progressives can Prosecuting firms may not have the smack of justice that pop- Oagree on isthatsocietyistoo softon white-collar crime. Con- ulists crave: you can’t imprison a company, let alone force it to do servatives abandon their admiration for business when it comes a humiliating “perp walk”—being paraded in handcuffsin public. to “crooked bankers”. Left-wingers forget their qualms if locking And the people who end up paying the fines are shareholders up “corporate evil-doers”. Hillary Clinton’s line that “there rather than the executives or employees who actually engaged in should be no bank too big to fail but no individual too big to jail” the misconduct. But it saves the taxpayer a great deal of money: would go down equally well at a Donald Trump rally. the DoJ routinely asks firms to investigate themselves on pain of But is society really soft on corporate wrongdoing? And more serious punishment ifthey fail to do so. It also advances the would locking up bankers and businessmen and throwing away cause of reform, if not retribution: companies are routinely re- the key really solve any problems? Two new books try to inject quired to fix their cultures and adjust their incentive systems. reason and evidence into a discussion more commonlydriven by emotion and hearsay: “Why They Do It: Inside the Mind of the ’Allo, ’allo White Collar Criminal” by Eugene Soltes, of Harvard Business Populists like to think that there is a bright line between right and School, and “Capital Offenses: Business Crime and Punishment wrong: overstep it and you should go directly to jail. But a great in America’s Corporate Age” by Samuel Buell, the lead prosecu- deal ofwealth-creation takesplace in the greyarea between what tor in the Enron case, who now teaches at Duke University. is legal and questionable. Some of the world’s greatest business Messrs Soltes and Buell both demonstrate that America is get- people have overstepped the mark. Bill Gates was hauled up be- ting tougher on business crime. Between 2002 and 2007 federal fore the authorities at Harvard University when he was a student prosecutors convicted more than 200 chiefexecutives, 50 chieffi- for using computers without permission. Steve Jobs participated nancial officers and 120 vice-presidents. Those at the heart oftwo in backdating stockoption-based compensation at Apple, includ- big corporate scandals in 2001 and 2002 received harsh treat- ing his own, in order to inflate the options’ value. Some of the ment: Bernard Ebbers, WorldCom’s chief executive was sen- world’s most admired firms specialise in applying new technol- tenced to more than 20 years without the possibility of parole— ogies to markets that are governed by outdated regulations: Uber the equivalent ofa sentence formurder in many states—and Ken- in transportation and Airbnb in accommodation are engaged in neth Lay, Enron’s former boss, died awaiting sentence. Between frequent legal battles with regulators. But both companies are 1996 and 2011 the mean fraud sentence in federal courts nearly clearly advancing the common good by offering services that doubled, from just over a year to almost two years, as the average people want and forcing judges to modify outdated rules. sentence forall federal crimes dropped from 50 months to 43. The strongest populist argument is about double standards: it America is constantly giving way to the temptation to punish is wrong to let the rich get away with a slap on the wrist while white-collar criminals more severely: the Sarbanes-Oxley act poor youths are put in prison forpossessing an ounce of cocaine. (2002) and the Dodd-Frank bill (2010) both include measures de- Messrs Soltes and Buell have clearly demonstrated that the rich signed to punish corporate types more severely. Other countries aren’t getting away with a slap. But even if they were, this would are moving in the same direction. In South Korea, Cho Hyun-ah, argue forreforming criminal law forthe poor rather than extend- the daughter ofthe chairman ofKorean Air, was imprisoned for a ing the lock-’em-up mentality to the rich. Society should by all year for delaying the departure of a plane because she didn’t like means punish white-collarcriminals ifthey have obviously com- the way a plate of nuts was served. In Oman, Adel al-Raisi, the mitted crimes and imposed harm. But it should resist the tempta- boss of a state-owned oil company, was sentenced to 23 years in tion to criminalise newbusinessestestingthe rules. And it should prison foraccepting bribes. In 2012 Carmelo Aured, a Spanish de- certainly resist the temptation to single people out for harsh pun- veloper, was fully prepared to pay a fine for evading about €1m ishment simply because they are rich and successful. 7 Finance and economics The Economist October 29th 2016 63

Also in this section 64 Buttonwood: No Trumps! 65 A new digital currency 66 China’s repetitive growth rate 66 The end of Asian deflation 67 Clean energy v coal 68 Free exchange: Financial stability

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

Investment banking technology developed internally as a new company, Symphony. Kensho was formed Rebooting with backing from Goldman in 2013. Early on, the investment bank had a contractual right to be the sole user of its products among brokers. Goldman continues to be the only outside investor with voting PALO ALTO, CALIFORNIA rights on the company’s board, but many other banks have taken stakes in it and are Both revered and reviled, Goldman Sachs struggles to stay relevant customers. UST outside Stanford University’s cam- Wall Street went from thoroughfare to met- It is possible that these two companies Jpus sits the headquarters of Symphony, aphor. Kensho screens vast amounts of in- will provide little benefit to Goldman. one of the myriad tech companies that formation—speeches, earnings, earth- Cynics are entitled to wonder whether sprout like weeds in Silicon Valley. After a quakes and on and on—to help investors these and similar efforts are merely a way lunch break exercising in a nearby park, a find correlations among all these data that of putting a modern veneer on an old dozen fit-looking employees, still in work- might move prices. structure. Tech companies are fashionable out clothes, help themselves from buckets Ifthe two companies succeed—a big if— and widely perceived as helpful; banks are offruit, energybarsand the food of the day their products could become pervasive. unfashionable and seen as parasitic. The (Indian), before plopping themselves in They are tiny entities with vast potential. non-cynical take is that Goldman under- frontofmonitorsin an airyroom bathed in And they are examples of technology stands that answers to the challenges it natural light. Forthe sought-afterengineers firms backed and used by Goldman Sachs, faces will have to come, at least in part, making up most of the company’s 200- a biginvestmentbank, in itsefforts to trans- from outside its mirrored-glass headquar- strong workforce, this sort of environment form itself, and indeed its industry, at a ters in downtown Manhattan. It may have is the norm. Work is supposed to be time when its core business is being pum- many flaws; a failure to grasp corporate healthy and relaxed—a farcry from the ter- melled by technology and regulation. vulnerability is not among them. rors of a New York bank with its incessant In 2014 Goldman spun out a messaging Goldman, with its enormous influence, pressure to sell and complex internal poli- lavish compensation and alumni network tics, not to mention often unappetising, in pivotal political roles looks anything but pricey food. Ficcle and falling embattled. But the firm—derisively Across the continent, in a newly Goldman Sachs, revenues, $bn dubbed a “great vampire squid” by Rolling opened towerwithin the World Trade Cen- Trading* Investment banking Stone magazine—is in the process of seeing tre, Kensho, a three-year-old company, has Investing and Investment lending management its tentacles severed. a similar feel. Like Symphony but a bit 15 smaller, it is stuffed with talented engi- Lost prop neers. In a New York approximation of the 10 Since 2009 revenues have dropped by a West Coast, it boasts “vertical gardens”— quarter; they remain below where they rectangular patches of vegetation like stood a decade ago (see chart). Even in a 5 framed paintings—and a pool table. good quarter, such as the one just complet- + Symphony is a messaging platform, ed, its return on equity barely exceeds sin- 0 owned by a consortium of investment gle digits. “Principal transactions”, ie, pro- firms. It offers a critical function at present – prietary trading and investments, 5 almost monopolised by Bloomberg: the 2010 11 12 13 14 15 16 produced $25bn in revenues in 2009 and seamless incorporation of data and com- *Includes equities and fixed- $18bn in 2010 but only $5bn in 2015. The de- munication that makes the terminal the Source: Rafferty income instruments, currencies, cline is a result ofnew rules that limit these most important conduit in finance since Capital Markets and commodities (FICC) activities—and regulators threaten more. 1 64 Finance and economics The Economist October 29th 2016

2 Fixed income, commodities and cur- in the year’s biggest proposed deal— global investment banks by the Boston rency (FICC), the once immensely lucra- AT&T’s attempt to take over Time Warner. Consulting Group implied a long-term, in- tive niche that nurtured the careers of Even its M&A business is in some difficul- dustry-wide contraction: over the past five Goldman’s chief executive, Lloyd Blank- ty—as exemplified by its big cutbacks in years, revenues have declined by 20%, re- fein, and its president, Gary Cohn, has also Asia, where governments in China and turn on equity has slipped from an inade- been hit hard. Revenues reached $22bn in elsewhere still favour local institutions. quate 9% to 6%, and almost every business 2009. In the first three quarters of this year Goldman also has a good business in area has shrunk, with the exception of the they totalled $5.6bn. wealth-management, which thrives on so- advisory work that represents only about Richard Bove, an analyst at Rafferty phisticated schmoozing and does not re- one-tenth ofthe overall pie. Capital Markets, concludes Goldman has quire much capital. Regulators want investment banks to just one superb business left among its dis- Its other businesses, which collectively reduce risk, and to do so by cutting out tinct parts: its traditional niche of provid- still account for about 60% of revenues, businesses that directly support their own ingadvice on importanttransactions, nota- face unrelenting pressure from regulatory returns as opposed to those of clients. That bly mergers. Goldman remains the global and technological change. None of this is means they cannot hold large inventories leader, despite having missed out on a role unique to Goldman. A recent survey of 35 of securities, must reduce proprietary trad-1 Buttonwood No Trumps!

Foronce, Wall Street does not favourthe Republican candidate RADITION suggests that Wall Street point of view, would be a win by Mrs Tshould favour the Republican Party. Clinton, with the Republicans still con- America’s conservatives usually back trolling the House. Kate Moore of Black- low taxes, free trade and a reduction in Rock, a fund-management group, says regulation. But the 2016 election seems to that a split government is seen as good for be an exception. A Bank of America Mer- business. Such an outcome might even re- rill Lynch poll of fund managers in Octo- sult in a modest fiscal stimulus, some- ber found that a Republican victory was thing that the markets would welcome. seen as one of the biggest risks facing fi- As Michael Zezas, an analyst at Mor- nancial markets, along with the disinte- gan Stanley, points out, the candidates gration ofthe EU. have some common ground on corporate A study* by Justin Wolfers of the Uni- taxation—favouring proposals designed versity of Michigan and Eric Zitzewitz of to make companies repatriate overseas Dartmouth College found that in the earnings and to limit the tax deductibility wake of the first debate, there was a six- of interest payments, for example. That percentage-point rise in the probability of suggests it might be possible for President a Hillary Clinton victory on betting mar- Clinton to do a deal with House Republi- kets. In reaction, stockmarkets rose, and with China risk economic disruption, as cans, trading lower tax rates for the elimi- gold and Treasury bonds (two assets that does his policy on the deportation of ille- nation of deductions. When she was a benefit when investors become risk- gal immigrants. Then there is his desire to senator, Mrs Clinton was seen as some- averse) fell. “Financial markets expect a walk away from (or at least renegotiate) one who was willing to co-operate with generally healthier domestic and interna- some of America’s defence alliances—an the opposing party. tional economy under a President Clin- approach that would heighten geopolitical Afinal oddityofthiselection is thatMr ton than under a President Trump,” the risk. Another worry is his attitude towards Trump is seen as a populist champion for authors concluded. Janet Yellen, the chairwoman of the Feder- the common man, even though he plans What makes this election different for al Reserve. Mr Trump has said that Ms Yel- to cut taxes forthe rich and raise prices for investors is the nature of the Republican len should be “ashamed” of her low-rate the poor (assuming he pushes through ta- candidate—Donald Trump is a long way policy, implying he would appoint a more riffs on goods from China, as he has from the party’s mainstream. A Trump hawkish candidate when her term expires threatened). In contrast, Mrs Clinton has victory would throw up all kinds of un- in January 2018, or perhaps even earlier. In- been painted as the Wall Street candidate certainty about the likely tone of eco- vestors would welcome neither aggressive even though she plans to raise the top rate nomic and foreign policy. It is not just that Fed tightening nor any sense that central- of income tax and tighten the tax treat- the candidate’s pronouncements have bank independence was under threat. All ment of capital gains. In many ways, in- been vague and inconsistent; he has not of these factors would affect global, not deed, her agenda resembles that of a tra- surrounded himself with the kind of just American, financial markets. ditional Democrat. That makes it all the mainstream policy advisers that backed The risks are not all on the Trump side. more telling that the financial markets past candidates such as Mitt Romney or A Democratic sweep in which the party have so little enthusiasm for a Trump vic- John McCain. “This will be totally un- controlled the White House, Senate and tory. This is a an electoral choice investors charted territory,” says Mitchell Harris, the House of Representatives would also would rather not have to make. chief executive of the investment-man- be seen as a negative for the markets. It agement arm ofBNY Mellon. would strengthen the hands of those on ...... *What do financial markets think of the 2016 election? A range of issues causes investors con- the left ofthe party, such as Bernie Sanders https://www.brookings.edu/research/what-do-- cern. On trade, Mr Trump’s threats to tear and Elizabeth Warren, who would pro- financial-markets-think-of-the-2016-election/ up the North American Free Trade Agree- mote higher taxes and greater regulation. ment and to take a more aggressive line The least worst result, from a market Economist.com/blogs/buttonwood The Economist October 29th 2016 Finance and economics 65

2 ing and must take on ever more capital (di- That is up from 5% not long ago (a number lutingreturns). They should, in short, be in- Almost all bad it believes is still common forother banks). termediaries. Investment-banking revenues from capital And the number of internal engineers un- But that intermediary role is also under markets*, worldwide, $bn derestimates the change since it does not attack. Big fixed-income investors say they Rates and credit Advisory include outside investments, such as Sym- can underwrite many debt offerings di- Equity and debt markets Securities phony and Kensho. Equities derivatives Commodities rectly. Fewer companies want to issue pub- Equities cash Other Perhaps the oddest aspect of this trans- lic shares. New competition has emerged 300 formation is how little evidence exists of a in the shape of more than 300 “fintech” payoff. Athena, the firm says, has been companies, a broad term for entities using 250 used in many share buy-backs. Another technology to do what existing banks do 200 tool named “Simon” is widely used by cus- with more people and at higher cost. tomers who want to create customised 150 “structured notes”, or debt instruments. Monetary stimulus 100 Kensho is profitable. Symphony has many So far-reaching are these changes that it is 50 adopters. But it is early days and in many surprising bank revenues have not fallen ways these are just experiments. further. The most common explanation is 0 Further transformation is still to come 2010 11 12 13 14 15 16† that repressed interest rates have stimulat- and if, as seems probable, it enhances effi- † ed many borrowers to refinance their debt Source: Boston Consulting Group *35 banks Forecast ciency, then the Goldman of the future more cheaply. If so the positive news will may do as much as it does now with far be transitory; the pressures will endure. Goldman to open branches. Nor, these fewer people and smaller costs. In the past, In deference to these trends, Goldman days, is it necessary. In April, it acquired Goldman’s rise to the pinnacle of the in- describes its strengths in terms of charac- GE’s internet bank with $16bn in savings vestment-banking stack was a conse- teristics—superior contacts and execu- accounts, on which it pays an average of1% quence of besting its rivals. The challenge tion—rather than specific franchises in annual interest. now is less from them than from a difficult (which maybe imperilled). Thatprovides a On October 13th, as expected, it external economic, technological and reg- frameworkforfourintertwined strategies. launched an online lending arm to match, ulatory environment. As for every other The first involves collaborative efforts named Marcus after the firm’s founding bank, change is not a matter ofchoice. 7 or strategic investments that gave rise to Goldman. Clientswill payfrom 6% to 23% a Symphony, Kensho and a number of simi- year for loans of up to $30,000, to be used lar ventures. “Orbit”, forexample, is a suite to repay more expensive credit-card debt. Digital money of smartphone apps Goldman developed The clients are those huddled masses pre- that enable e-mailing, browsing and file- viously not affluent enough to afford a hu- Known unknown saving within an environment controlled man Goldman account-manager, but now, by an employer (and thus accessible by a apparently, an attractive market fora Gold- regulator). It was spun off last October to man machine. another publicly traded company, Syn- And that leads to the fourth change—in chronoss, in exchange for a minority stake. how Goldman interacts with clients. Not Such ventures are more valuable if used long ago, it was almost entirely through Anothercrypto-currency is born more broadly than just by Goldman. If it phone-calls, e-mails, electronic orders and had retained control, potential customers presentations delivered in person. Now, a OMPETITION between currencies is might be unwilling to allow a competitor client portal named “Marquee” gives ac- C the stuff libertarian dreams are made access to sensitive information. cess to tools such as Goldman’s riskanalyt- on—and central bankers’ nightmares too. The second prongisautomation. Not all ics for trading shares or arranging hedges Already digital monies, in particular Bit- that long ago, 600 people worked on a vast (named “Studio”) orforcorporate clients to coin and Ethereum, are rivals. On October floor trading shares. Traders yelled and create strategies for executing large share 28th a new crypto-currency will join the phones were slammed (though perhaps buy-backs (“Athena”). fray: Zcash. Many such “altcoins” are du- with more decorum at blue-blooded Gold- bious affairs and don’t add much. But this man than elsewhere). Obscured by the din Behind the paywall one brings important innovations. were 66 distinct actions, many of them Among the largest challenges forthis effort Zcash is based on Bitcoin’s code, but its amenable to mechanisation. Now, Gold- at reinvention is how to charge. The old creators, a bunch of cryptography re- man has two people who trade equities methods—large fees on deals, commis- searchers, have tweaked it. The new digital and another 200 software engineers who sions on trades, extraction of spreads (of- cash is minted more quickly and the sys- work on systems that, in effect, do the job ten in opaque ways) between the price tem can handle more transactions. This on their own. Traditional investment- paid by buyers and that received by sellers, makes for more liquidity and shorter tran- banking is ripe for change as well. Gold- the use of information gained in transac- saction times, says Zooko Wilcox, who man has mapped each of the 146 steps of tionsforproprietarytrades—are somewhat leads the project. an initial public offering in 51 charts that compromised. Clientsknowtoo much and The newcomer also differs in the way it appear in proper sequence on a five-foot can do too much on their own. New meth- isgoverned. The incumbentstarted—and is long roll-out. Costly, redundant steps are ods are being considered, such as a fee still run—as an open-source project: a small being cut or, once again, automated. based on the number of employees at a group of volunteer developers decides The next big change is in the bank’s firm, or number of users, or some form of which changes are made. Zcash’s code is sources of funds and its lending. Goldman subscription-based remuneration. also open-source, but its inventors have pays just under 5% interest on its long-term The change in environment is accom- formed a company and accepted money debt, the most stable component of its panied by a change in the Goldman kind from investors. In addition, 10% of the 21m funding. Its competitors, JPMorgan Chase of person. One-quarter of its employees coins to be issued are earmarked for foun- and BankofAmerica, pay a fraction of one now have a background in some facet of ders, investors, employees and a putative per cent on trillions of dollars of govern- technology, be it a degree in mathematics, Zcash foundation. All this, says Mr Wilcox, ment-insured deposits. It is not feasible for engineering, computer science or the like. is to align incentives forall involved, allow 1 66 Finance and economics The Economist October 29th 2016

2 the firm to hire a great team and enable Asian deflation $10bn last year. And it is not just the steel- quickerdecisions—all problemsforBitcoin. makers who will be pleased. Asia’s central Yet the biggest step forward is confiden- Steel trap bankers can also take some comfort in the tiality. Bitcoin obscures the identity of cur- rising prices: they suggest that the threat of rency owners, but the “blockchain”, the deflation might be receding. ledger that keeps track of all the coins, is Once seen in Asia as a peculiarly Japa- open and can be analysed to see the flows nese phenomenon, deflation spread offunds. This is a serious barrier for banks: SHANGHAI throughout the region’s factories in the blockchains could reveal their trading past half-decade. The prices that consum- Producerprices perkup in Asia strategies and information about their cus- ers see in shops have on the whole contin- tomers. Zcash, by contrast, shields transac- ESIDES being dirty and dangerous, ued to increase, albeit more gently than be- tions from prying eyes with a scheme B making steel in China has been a good fore. But the prices that companies charge based on “zero-knowledge proofs” (hence way to burn through money over the past forgoods as they leave their factories’ gates the “Z” in itsname). These are cryptograph- few years. But in recent months, the fires have dipped lower and lower. Virtually all ic protocols proving that a statement (who from the country’s blast-furnaces have big Asian economies, including South Ko- owns coins, forinstance) is true without re- started to emit the warm glow of profits. rea, India, the Philippines, Taiwan and vealing any other information (how many Steel prices have risen by nearly 50% this Thailand, have experienced prolonged and where the moneycame from). And it is year. Production, which fell in 2015 for the bouts offalling producer prices. by selling this technology—called “zk- first time in decades, is also up. Smelters China, the biggest economy and the SNARK” (don’t ask)—to banks that Zcash, are set for a strong recovery after losing centre of the deflationary spiral, recorded 1 the company, wants to earn its keep. This sounds promising, but Zcash, the China’s growth currency, may not be able to give incum- bents much of a run for their money. After a governance crisis, the Bitcoin communi- The greatest moderation ty thinks it has found a way to increase the system’s capacity (which has reached its Has any country evergrown as repetitively as China? limit: many transactions are being de- layed). And Ethereum, whose claim to N OCTOBER19th China reported growth have been less pronounced. Since fame is to enable “smart contracts”, has re- Othat its economy grew by 6.7% in the 2012 only France and Jordan have en- covered after one of these self-executing third quarter. It would have been an joyed more stable growth (as measured business agreements, a venture fund unsurprising, reassuring headline, except by statistical variance, a common mea- called the DAO, went terribly wrong (al- that China had reported exactly the same sure ofvolatility) and only Indonesia has though other crises have erupted since). figure forthe previous quarter—and for recorded a smaller average gap between But crypto-currencies are not only com- the quarter before that. This freakish one quarter’s growth and the next. petitors. They represent different trade-offs consistency invited the scorn ofChina’s Either China’s policymakers are new- between security, complexity, perfor- many “data doubters”, who have long ly successful at stabilising growth or its mance, cost and other factors, so each is argued that it fudges its figures. China has statisticians are newly determined to likely to find its niche. They are also a case expanded at the same pace from one smooth the data. But ifthe number- of co-operation: since their software is quarter to the next on numerous occa- crunchers are to blame, one wonders open-source, developers can easily learn sions. But it has never before claimed to why they do not try harder to hide it. and copy from each other. If Zcash’s zero- grow at exactly the same rate forthree knowledge scheme works, it may one day quarters in a row. become part of Bitcoin. And some coders Has anywhere? This growth “three- One of many are working on ways to connect different peat” is not entirely without precedent. Quarterly GDP growth rates (year-on-year) 1993-2016, selected countries blockchains. One day, perhaps, the col- Seven other countries have reported the Average laboration will give rise to an ÜberCoin same growth rate forthree quarters in a Same rate in difference consecutive quarters* that floats across all blockchains—which row, according to a database spanning 83 between † would cheer up some central bankers. 7 countries since 1993, compiled by the Country Twice Thrice quarters Economist Intelligence Unit, our sister Spain 13 2 0.441 company. The list includes emerging France 8 0.476 economies like Brazil, Croatia, Indonesia, Britain 5 0.584 Malaysia and Vietnam, but also two United States 5 0.598 mature economies: Austria and Spain. Australia 5 0.635 Indeed, Spain has performed this miracle Belgium 3 0.644 ofconsistency twice. It grew by 3.1% Switzerland 4 0.646 (year-on-year) in the first three quarters Canada 4 0.654 of2003 and by 4.2% in the first three Netherlands 6 0.657 quarters of2006. Those were the days. Contrary to popular belief, China’s South Africa 6 0.684 GDP statistics have not always been Austria 9 1 0.713 unusually smooth. Since 1993, the aver- Italy 7 0.714 age gap between one quarter’s growth Czech Republic 2 0.757 and the next has been (plus or minus) 0.77 Portugal 4 0.760 percentage points (see table). Fourteen China 7 1 0.766 countries, including America, have re- Sources: Economist *Rounded to one decimal place ported a smaller average gap. But in Intelligence Unit; Haver †Absolute value, recent years, the zigzags in China’s Analytics; The Economist percentage points The Economist October 29th 2016 Finance and economics 67

Correflation Clean energy v coal Producer prices, % change on a year earlier China South Korea Fighting the carbs India Taiwan Japan ASEAN-5 (excl. Indonesia) 12 Wind and solaradvance in the powerwaragainst carbon

8 HE battle between clean energy and NGO, says the IEA may still be under- Tdirty coal has entered a new phase. estimating the “exponential growth 4 IEA + The International Energy Agency ( ), dynamics” ofrenewables. For instance, 0 an industry forecaster, this weekreported more grid-connected solar energy was – that in 2015 forthe first time renewable installed in China in the first half of2016 4 energy passed coal as the world’s biggest than in the whole oflast year, he says. 8 source ofpower-generating capacity. Yet coal is also showing surprising The IEA, whose projections forwind resilience. Earlier this year the betting 12 and solar energy have in the past been was that thermal-coal prices would sink 2011 12 13 14 15 16 criticised as too low, accepted that renew- because offalling investment in new Sources: Wind Info; Thomson Reuters; The Economist ables are transforming electricity mar- coal-fired power plants and a decline in kets. Last year 500,000 solar panels were long-term demand. Since mid-year, how- 2 54 consecutive months ofdeclines. It broke installed every day around the world. In ever, they have doubled to $100 a tonne. that gloomy run at last in September, when China alone, home to a whopping 40% of The reason, again, is China. Its authorities prices increased by 0.1% from a year earlier, the 153 gigawatts (GW) ofglobal growth imposed restrictions on its debt-strapped thanks to rebounds in the steel and coal in- in renewable-energy installations, two coal miners, limiting them to 276 working dustries. Elsewhere in Asia, producer wind turbines were erected every hour. days ofproduction a year, in order to prices are now also rising, or at least falling Based on existing policies, it forecasts push up prices. Partly because ofram- more gradually than before (see chart). that from 2015-21, 825GW ofnew renew- pant speculation in the Chinese futures This turnaround should be cause for re- able capacity will be added globally, 13% market, the measures worked better than lief. Deflation is often a symptom of eco- more than it projected just last year. expected. Faced with an unwanted surge nomic torpor. For companies, falling prices All those new wind and solar plants ofimports, the government has since set cut into revenues and make it harder to re- will not generate electricity all the time. out to loosen them. Yet ifthe rally contin- pay debts, which are fixed in nominal Unlike coal, which burns around the ues, it would give a furtherfillip to the terms. As companies sour on future pros- clock, renewables are intermittent. But green brigade: higher coal prices will pects, they also pare back their invest- the IEA expects the share ofrenewables squeeze the margins oftheir dirty rivals. ment—a potentially vicious circle. In its in total power generation to rise to al- outlook for 2016, the Asian Development most 28% from 21%. Government policies Bank(ADB) called producer-price deflation to curb global warming and reduce air Imbalances of power the “new spoiler” forthe region. This is one pollution are the driving force behind the Electricity-generation growth forecasts forecast it would be glad to get wrong. clean-energy revolution, as well as falling 2015-20, TWh Still, no one is about to declare victory prices ofsolar panels and wind turbines. Total electricity Renewable yet. A couple of years ago, producer prices The IEA expects America to eclipse the 0300 600 900 1,200 also appeared to be edging up, when they EU to become the second-biggest market China were battered by a renewed slowdown in forrenewables (after China) in the next China’s industrial sector. The ebbing of de- few years, thanks to an extension of India flation now is partly thanks to a much low- federal tax credits to wind and solar Africa er base ofcomparison. Oil at $50 a barrel is producers. Because electricity demand in still relatively cheap by the standards of rich countries is falling, renewables are the past decade, but it is two-thirds higher driving out other sources ofelectricity. EU-28 than the lows ofJanuary. But in developing countries, they are still United States More promisingly, the rise in producer not being built fast enough to keep up prices does point to vigour in the Chinese with demand (see chart). Japan economy. A big jump in property sales ig- Lauri Myllyvirta, a Chinese-energy Source: IEA nited demand for steel, with iron ore and expert at Greenpeace, an environmental coal rallying alongside it. Some of the ex- citement is clearly speculative, with inves- tors punting on commodities as they have at the Hong Kong Institute for Monetary least because of their impact on just about in the past. Official orders to curb excess ca- Research calculated thatthe correlation be- everyone’s pocketbook. But for consum- pacity in the coal industry also proved tween Chinese producer prices and those ers, deflation is not necessarily bad. If, for rather too effective (see box), and led to of most Asian economies is very high, at instance, technological innovation leads to supply shortages. The government has about 0.7-0.9 (with 1being a perfect correla- lower prices, this can create more, not less, now shifted gears, instructing miners to in- tion). A research paper for the Federal Re- prosperity. An ADB study examined nearly crease coal production ahead of the win- serve Bank of Dallas argued that the inte- 150 years of deflationary episodes and ter, when demand forheating spikes. gration of the supply chain in Asia might came to a sobering conclusion. Although Whatever the future course of prices, explain the tight relationship: inflation in many cases, consumer-price deflation Asia’s half-decade of deflation has already rates are more similar in countries that has not caused a growth slowdown, pro- yielded valuable lessons. It is clear that trade more with each other. ducer-price deflation does indeed tend to prices around the region are closely linked. Asia’s long battle with falling factory be a big drag on investment. The message Prices for commodities are, of course, glo- prices should also affect the way that for central bankers is simple: keep a close bal, explaining some ofthe similarity in in- policymakers think about inflation. It is eye on those Chinese steel mills, and hope flation trends but not all of it. Researchers common to dwell on consumer prices, not their good fortune lasts. 7 68 Finance and economics The Economist October 29th 2016 Free exchange Passing the buck

Too often, efforts to make financial systems safershiftriskratherthan eliminating it spite Mr Greenspan’s experience, some economists reckon inter- est rates ought to be used more aggressively to rein in credit-mar- ket exuberance; while a governor at the Federal Reserve Board, Jeremy Stein, now back at Harvard University, argued that the Fed should consider financial stability while setting monetary policy. Ifthe yields on risky bonds relative to safe ones reveal an imprudent disregard forrisk among investors, the Fed could then set rates higher than inflation alone might demand. Recent Fed minutes show some members thinking along similar lines. Yet even if financial excess can be calmed at an acceptable price to the economy, such preventive rate increasesimpose a cost on oth- ers. American rate rises often draw money away from emerging economies, placing stress on their financial systems. Elsewhere, higherrates reduce investment and increase saving, adding to the global glut of capital and depressing global interest rates. Economists have higher hopes for “macroprudential” poli- cies: regulations designed to reduce systemic risk. The Basel III guidelines agreed on in 2010 include measures like countercycli- cal capital buffers: bank-capital requirements which can be tweaked as lenders lookmore or less reckless. In 2015 economists at the IMF wrote that advanced economies could use such poli- N 2007 financial dangers, piled up like so much tinder, ignited at cies to lean against capital inflows, in lieu of the blunter instru- Ilast and caused a swathe of destruction across the global econ- ment of capital controls. Alas, life is not so simple. Effective mac- omy. The blaze also engulfed governments, which faced intense roprudential policy should work much like an interest-rate rise: public pressure to prevent such calamities from recurring. Much by reducing borrowing. In a global financial system, less borrow- has happened on the regulatory front since then. Few believe, ingin one countrymeansmore moneysloshingaround in others. however, that the problem of financial instability has been Is there nothing, then, to be done? Co-operation between gov- solved. To regulators’ frustration, in a world of global financial ernments could help; co-ordinated macroprudential measures flows, efforts to safeguard one country often endanger others. would reduce the riskthat some countries face an unmanageable This bothersome tendency has become harder to ignore as fire-hose of money. Yet the international goodwill this would re- cross-border capital flows have swollen. Annual gross financial quire is scarce. And co-ordination can do only so much in a world flows in rich countries soared from roughly 5% of GDP in 1980 to awash with capital, facing chronically low interest rates. If gov- around 25% of GDP on the eve of the financial crisis. This world- ernmentssomehowmanage to rein in private borrowing, the glo- wide torrent of money has its benefits. Investors can more easily bal glut will grow worse. Interest rates around the world would diversify their portfolios. Investors in slow-growing rich coun- stay lower for longer, raising the odds that dangers build up in tries gain access to higher-yielding investments in poorer, capital- darkcorners ofthe markets beyond regulators’ reach. starved economies, and those poorer economies gain access to desperately needed capital relatively cheaply. Asset hounds Yet there are costs as well. Emerging economies with less so- Sensible regulation would workbetterifcombined with the clev- phisticated financial markets and weaker regulatory institutions er provision of more of the safe assets markets crave. In a recent can mismanage the great tides of global capital; even mature paper Mr Stein and several co-authors note that when govern- economies sacrifice a degree of macroeconomic control when ments provide too few safe, short-term assets, private firms such they open themselves to global capital markets. Most aggravat- as banks step in to issue more, in the form of short-term debt. ingly, protective measures in some countries divert or increase Such short-term private bonds are prone to runs. So more govern- global financial risks rather than reduce them. ment issuance would reduce risk. Take foreign-exchange reserves. Emerging economies burnt Trusted governments could help in otherways as well. Ameri- by fickle foreign investors learned that a defensive hoard of re- ca mightrun largerbudgetdeficitsthan would normally seem ap- serves, made up of safe assets like American Treasury bonds, propriate to help sate market demand for the world’s favourite could protect them in times of trouble. But as they built their war safe asset, its Treasury bonds (just as financial-stability worries chests, the demand for such bonds pushed down interest rates might lead the Fed to choose a higher interest rate than would around the world. That encouraged greater risk-taking. As yields typically seem prudent). Europe could chip in. In September on Treasuries fell, for example, investors, including these same François Villeroy de Galhau, the governor of the French central emerging-market governments, turned instead to mortgage- bank, called for the creation of European safe bonds, backed by backed securities, which seemed nearlyassafe butoffered higher the bonds ofmember states. Such measures are admittedly unor- returns. The dynamic created a “conundrum” for Alan Green- thodox and politically fraught. But ifthe world cannot find better span who, as chairman ofthe Federal Reserve in the early 2000s, ways to prevent financial risks spilling across borders, govern- found that raising short-term interest rates had little effect on ments will eventually decide global capital markets are more long-term interest rates—including the rate on mortgages. trouble than they are worth. 7 Worryingly, the main strategies available to central bankers for curtailing systemic risk share these negative side-effects. De- Economist.com/blogs/freeexchange Science and technology The Economist October 29th 2016 71

Also in this section 72 The world’s weirdest place? 73 More attacks on cyber-security 73 Schiaparelli’s fate 73 Effective therapy for autism 74 Why sharks like ammonia

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

Bathymetry creases accuracy, because signals from neighbouring beams, which overlap to a In an octopus’s garden certain extent, can be compared with one another. That, plus the invention ofspecial housings fitted onto platforms under sounding-ships’ bows, which stop bubbles generated as the vessel rides the waves in- terfering with the signal, means mapping can be done to a farhigher standard than it Researchers have a plan to chart in detail the depths ofthe ocean floor was in the past. HREE billion dollars sounds a lot to that anywhere below 200 metres is in Such mapping has not, however, been Tspend on a map. But if it is a map of pitch darkness. Radio waves (and thus ra- well co-ordinated. Cable-laying compa- two-thirds of Earth’s surface, then the cost dar) are similarly absorbed. Sound waves nies, oil firms, academic oceanography per square kilometre, about $8.30, is not, do not suffer from this problem, which is laboratories, national hydrographic sur- perhaps, too bad. And making such a map why sonar works for things like hunting veys and the world’s navies all have oo- at such a cost is just what an organisation submarines. But you cannot make sonic dles of sounding data. One of GEBCO’s called the General Bathymetric Chart of maps from a satellite. For that, you have to jobs is to gather this existing information the Oceans (GEBCO) is proposing to do. use the old-fashioned method of pinging together and sew it into a new database, to GEBCO, based in Monaco, has been sonar from a ship. Which is just what create a coherent portrayal of the known around since 1903. Its remit, as its name GEBCO plans to do. ocean floor. suggests, is to chart the seabed completely. The organisation is also keen to include Until now, it has managed less than a fifth Ping me when you’re ready data collected by helpful volunteers. A ofthattaskin detail. Butmeansofmapping Sailors have taken soundings since time new digital platform overseen by Ameri- the depths have improved by leaps and immemorial, to avoid running aground. ca’s National Oceanic and Atmospheric bounds over recent decades. So, with the Theirequipmentwasa plumb line—a piece Administration encourages the crowd- aid of the Nippon Foundation, a large, Jap- of cord with a lead weight at the bottom. sourcing of bathymetric data, letting mari- anese philanthropic outfit, GEBCO now The term “sounding” has nothing to do ners upload their findings easily. Recent proposes to do the job properly. It plans to with noise, echoes or anything like that (it political initiatives, such as a deal made in complete its mission by 2030. comes from the old English sund, meaning Galway in 2013 between America, Canada The area of Earth’s ocean is two and a a sea or strait), but the coincidence is a neat and the European Union to support trans- half times the area of Mars—and it is often one, for the modern version of swinging atlantic floor-mapping, will also boost ef- claimed that Mars’s surface is the better re- the lead is “echo sounding”, usingsonarre- forts. National icebreakersare gathering in- corded of the two. It took mere hours to flected from the seabed. Marie Tharp and formation in parts of the ocean too frozen find the crash site of Schiaparelli, an ill-fat- Bruce Heezen of Columbia University, in for other vessels to reach. And GEBCO is ed Mars-bound space craft(see page 73). By New York, pioneered the technique in the trying to persuade governments and com- contrast, the resting place ofMH370, an air- 1950sand 1960sby usingtechnology devel- panies with proprietary data on the sea liner that disappeared over the Indian oped during the second world war. With it, floor to share them. One such firm, a cable- Ocean in 2014, remains unknown. they mapped part of the Mid Atlantic layingoutfit called Quintillion, has already In large part, this is because peering Ridge, an underwater mountain chain. agreed to do so. through Mars’s thin atmosphere from an Tharp and Heezen employed single- The other, largerjob that GEBCO faces is orbiting satellite is easier than peering beam sonar, which yielded a fairly fuzzy filling in the blanks. Larry Meyer of the through hundreds or thousands of metres image. These days, soundingsonars broad- University of New Hampshire, who is of water from an equivalent satellite in or- cast a fan-shaped series of beams. This helping co-ordinate this task forthe organi- bit around Earth. Despite water’s apparent means a wider strip of the seabed can be sation, estimates it would take a single re- transparency, the sea absorbs light so well mapped during a single pass. It also in- search vessel 200 years to do so. A simple 1 72 Science and technology The Economist October 29th 2016

2 calculation therefore suggests hitting the target of 2030 requires a few more than a dozen such vessels working simultaneous- ly, which does not sound unreasonable. GEBCO hopes to co-opt shipping compa- nies and other waterborne industrial con- cerns, together with various academic groups, into contributing to an ad hoc fleet to do this. These manned vessels will be joined by an array of robots that will in- clude sea gliders (underwater drones re- quiring minimal propulsion) which have been kitted out with multi-beam sonar, and also unmanned barges steered by sat- ellite. Such robots could prove particularly helpful in places with little shipping, like the South Pacific. And there is hope for im- provement. New deep-sea technologies for mapping are part of this year’s Shell Ocean Discovery XPRIZE. The winner of this will scoop $4m and the runners up will share another $3m. Mere curiosity aside, an accurate map of the seabed may help open this un- Afar horizon known two-thirds ofEarth’s surface to eco- nomic activity. How quickly Davy Jones’s canic eruptions formed barriers of lava As a consequence, underwater springs of locker yields anything valuable will de- that isolated it from the ocean. What water this sort team with life adapted both to the pend on the technological difficulty, and remained evaporated in the intense heat, chemistry and to the temperature. therefore the expense, of bringing useful leaving brine lakes and saline flats. These Ifthe speculators’ line ofthinkingis cor- discoveries backto dry land. But the sort of are mined, and the resulting slabs of salt rect, these “extremophile” organisms may data that will contribute to GEBCO’s map exported by camel, by nomadic Afars who once have dominated life on Earth, but should help spot petroleum and natural are the nearest thing the depression has to those of them that now live deep in the gas seeps, and may point to ore-bearing permanent inhabitants. ocean are hard to collect. In Danakil, col- geological formations. The world’s navies Dallol, appropriately, means disintegra- lecting them is easy—at least, it is once you (or, at least, those among them with sub- tion in Afar. Forthisisa place where Earth’s have made the journey there to do so. marine capability) will also take an inter- crust is, indeed, disintegrating. The triangle And some have. Earlier this year Felipe est—for an accurate seabed map will both sits at the convergence of three tectonic Gómez Gómez of the Astrobiology Centre show good places for their boats to hide plates, which are slowly separating. A in Madrid led an expedition to the Dallol, and suggest where their rivals’ vessels glance at the map shows that, were the and he plans to return in the winter. Just as, might be secreted. Whether they will wel- whole triangle to flood (not possible at the in the 19th century, biologists scoured the come GEBCO making this information moment, because not all of it is currently tropics for new species of animal and public is a different question. 7 below sea level), the African and Arabian plant, so Dr Gómez Gómez is scouring coasts would run parallel, as they do far- them for microbes. Whether he will find ther north along the Red Sea. That sea is an within his discoveries clues to life’s origins The world’s weirdest place? incipient ocean. The continents either side on Earth, and thus some indication of the of it are being pushed apart by basaltic likelihood it has emerged on other planets, Topsy turvy eruptions along a line that will, in millions too, remains to be seen. In the meantime, it ofyears’ time, form a mid-ocean ridge. can be said with reasonable confidence The Danakil is geologically a part ofthe that places like Danakil are about as other- ocean floor because it is underlain by this worldlyto human eyesasitgets.7 erupted basalt, rather than by granitic con- The Danakil depression, Ethiopia SAUDI ARABIA tinental rocks. It is also close enough to the A piece ofsea floor, stranded on dry infant ridge to be volcanically active. Ris- Red land, may hold clues to life’s origin ing magma heats the area’s groundwater, Sea TUDYING the seabed does not always which wells up—dissolving salt, potash Smean penetrating the sea itself, even if and other minerals from the rocks it travels ERITREA YEMEN that penetration is done using sound through—to emerge as hot springs. The wa- waves rather than submarines (see previ- ter then evaporates, leaving crusty forma- Dallol volcano ous article). There are a few places where tions (see picture) coloured both by miner- DANAKIL what a geologist would call the ocean floor als like iron and copper, and by such algae DEPRESSION is actually dry land. One such is the Dana- and bacteria as can survive the salinity. DJIBOUTI Gulf kil depression, which lies near the north- The result, to human eyes, is surreal. Lake Assal of Aden ern vertex of the Afar Triangle, a rift valley It is also scientifically interesting. Many ETHIOPIA stretchingfrom the Dallol volcano in Ethio- who speculate about life’s origin think hot pia past the salt plains of Lake Assal, in Dji- springs were involved. The dissolved min- SOMALIA bouti, to the north-west tip ofSomalia, and erals and gases these springs eject provide Afar Triangle then inland to Awash. Millions of years chemical possibilities for fuelling living Awash

ago, the Danakil was indeed covered by creatures that are independent of the pho- 200 km the sea—in its case, the Red Sea. But vol- tosynthesis which drives modern biology. The Economist October 29th 2016 Science and technology 73

Cyber-security ing—as if the attacker “were looking for the vices. Lawsuits against negligent device- exact point of failure,” Mr Schneier wrote makers would also help. Crash testing in his blog post. As for the goal of the attacks, it could be It is not clear who the attackers are, al- something other than to take down the in- though security analysts suspect they are ternet. Many fret that such virtual weap- either Chinese or Russian. At any rate, all ons could be turned to full blast just before the attacks used the same software, called or on November 8th, when America will Mirai, whose source code has been leaked elect a new president and House of Repre- Recent attacks on the internet could be a online. It mainly scours the internet for de- sentatives, and also many senators and prelude to farworse ones vices such as webcams, digital video re- state governors. ADDoS could notparalyse OMEONE is learning how to take corders and home routers in which easy- voting machines, for hardly any of them “S down the internet.” This was the to-guess factory-set passwords (“12345” or are connected to the internet. But striking headline of a blog post Bruce Schneier, a even “password”) have not been changed. all kinds of websites, from those of online noted cyber-security expert, wrote in mid- The program then turns those it can gain media to the government’s, could spread September. It looked prescient when, on access to into a huge army of digital slaves chaos—and the feeling that the elections October 21st, Dynamic Network Services that can be directed to inundate targets are somehow being “rigged”. 7 (Dyn), a firm that is part of the internet-ad- with requests. Shortly after the attack on dress system, was disrupted by what is Dyn, XiongMai Technologies, one of the called a “distributed denial of service” biggest makers of webcam components, Dealing with autism (DDoS) attack. (Essentially, a DDoS floods announced it would recall some products serverswith requestsuntil theycan no lon- and provide owners of others with soft- First, treat the gercope.) Forhours, hundredsofsites were ware updates to improve security. hard to reach, including those of Netflix, This may help, but not much can be parents PayPal and Twitter. done in the short run other than to appeal The attackon Dyn was only the latest in to owners ofinternet-connected devices to a string of similar ones. On September change their passwords. To fixthe problem Turning mothers and fathers into 20th, for instance, the victim was Brian properly, Mr Krebs argued in a blog post, therapists helps autistic children Krebs, an American journalist who often the makers of such devices, collectively reports on internet criminals. The server called the “internet of things” (IoT), would UTISM may bring a lifetime of disabili- where he hosts his blog became the target all have to recall vulnerable systems and Aty and difficulty to the most severely ofone ofthe largestDDoS attacks on record change their careless approach to security. afflicted. As children, they often struggle to (it was bombarded with data equivalent to Since this is unlikely to happen, regulators communicate, are anxious in situations almost half a percent of the internet’s en- may have to step in. Indeed, the European unproblematic for anyone else and may tire capacity). Most of the other recent digi- Commission is already working on legisla- behave in repetitive ways that disturb oth- tal assaults, however, were more discern- tion to require better security in IoT de- ers. As adults, they may be shunned—or even ostracised. Medical science has little to offer. Drugs Schiaparelli’s end have limited effects, and although there have been claims for many years that ther- Flash, bang, wallop, what a picture apies aimed at training a child directly to behave in desirable ways (known as be- havioural intervention) can work, the evi- A Mars probe’s impact crateris discovered dence they actually do so is poor. All this, HE darksplodge near the top ofthe observes Tony Charman, a clinical psy- Tenlarged part ofthis picture ofthe chologist at King’s College, London, leaves Martian surface, taken on October 20th parents of autistic children vulnerable to by Mars Reconnaissance Orbiter, an false promises. Only this month, for exam- American satellite circling the planet, is ple, a four-year-old boy had to be taken to thought to be the crash site ofSchiaparelli, hospital in Britain afterbeingsubjected to a a European and Russian probe that ar- bizarre array of treatments described as rived there on October19th, but with “holistic medicine”. which contact was lost during its descent Incidences of such quackery should be to the planet’s surface. The white speck reduced by a study published in this near the bottom is likewise believed to be week’s Lancet by Dr Charman and his col- the probe’s jettisoned parachute. leagues. The “Pre-school Autism Commu- What went wrong is not clear. Com- nication Trial” (PACT) attempted to an- munication with the craft ended 50 swer, once and for all, the question of seconds before its scheduled touch whether behavioural intervention in au- down. Data transmitted in advance of tism works—and, in particular, whether it this loss ofcontact suggest Schiaparelli does so in the most severe cases. It is the jettisoned both its parachute and its heat largest such trial yet attempted, and the shield early, and fired its retro-rockets for failure is not, as it were, a complete write- one with the longest period of follow up. only three to five seconds, rather than the off. It has at least shown that work needs Its answer was: yes, it does. The PACT team 30 seconds that had been planned. It to be done before a more expensive piece found notonly that, ifcarried out correctly, probably hit the ground at more than ofequipment is hazarded in this way. behavioural intervention has an immedi- 300kph (200mph). Meanwhile, its companion on its journey ate effect, but also that this effect persists. Since Schiaparelli’s main job was to to Mars, a satellite called the Trace Gas Even six years after therapy, autistic chil- test the landing gear fora future rover its Orbiter, seems to be working well. dren could communicate better and had a lower level of repetitive behaviour than 1 74 Science and technology The Economist October 29th 2016

2 did a control group oftheir peers. Shark behaviour swim away from the dangerous area and The crux of PACT was the nature of the avoid the problem altogether. The two re- intervention employed. This was designed Waste not, want searchers therefore wondered if what had to train not the children but their parents. been seen in these previous experiments The idea was to alter parental behaviour in not was really an accidental consequence of ways that would then go on to encourage something else. Given urea’s role in shark desirable changes in offspring. Specifically, salinity-stabilisation (a role which it does PACT’s intervention trained parents how not play in other groups of fish), they won- One fish’s excretions are another’s vital to communicate with an autistic child. dered if the animals’ eagerness to find wa- resource This is rarely a problem with “neurotypi- ter with lots of ammonia in it was as much cal” children, who provide plenty of op- MMONIA is as repulsive to most ma- to do with replenishing their urea supplies portunities for engagement. But autistic Arine animals as it is to land-lubbing as with locating prey. They therefore decid- children can be difficult to engage with, ones—and for good reason. It is extremely ed to run some experiments oftheir own. and their attempts at communication can toxic. Butthere isan exception. Far from be- To this end, they exposed ten Pacific be so subtle that parents need assistance in ing repelled by ammonia, sharks are actu- spiny dogfish (a type of small shark easily detecting them, and advice about how to ally attracted to it. The longtime assump- maintained in the laboratory) to ammonia respond appropriately. tion has been that this is because it is a concentrations ranging from 100 micro- The approach used by PACT involved waste product, voided into the water by moles per litre (μmol/l), a level commonly parents being videoed while playing with fish and other creatures, that signals the found in the wild, to 1,600 μmol/l, an un- their children. Those videos were then re- presence ofpotential prey. But Chris Wood naturally high level, while monitoring the played to the parents under the tutelage of and Marina Giacomin of the University of water’s chemistry closely. a speech therapist, who pointed out mo- British Columbia, in Vancouver, think Whatever the initial level of ammonia, ments, which might not otherwise have there may be more to it than this. As they they found, that substance’s concentration been obvious, when children were at- describe in the Journal of Experimental Bi- began declining almost as soon as the tempting to communicate. Even just turn- ology, they suspect that for sharks, ammo- sharks were put into the tank. The animals ing towards a parent may be such an at- nia is itselfa useful resource. were, indeed, absorbing it. They were not, tempt. Having seen when to respond, All animals make ammonia. It is a com- though, automatically excreting the result- parents then learned how to do so in the pound ofnitrogen and hydrogen produced ing urea. Levels of this in the water rose waya therapist would, in orderto draw the by the breakdown of amino acids, the only when the dogfish were exposed to child out. Parents are thus taught to be- building blocks of proteins. Marine crea- ammonia concentrations of 800 μmol/l or come therapists themselves. tures can flush it directly into the sea (fish more. And a closerlookatthe animals’ gills do so through their gills), since it is soluble and blood confirmed thattheywere retain- Family values in water. Land animals often add carbon ing urea. This therapy, encouragingly, is neither in- and oxygen to convert it into urea, which is All this makes perfect sense. The impor- vasive nor intensive nor costly. It involves far less toxic, and store the result in sol- tance of urea to shark physiology means sessions once a fortnight for six months, ution in a bladder, forperiodic evacuation. they have to make it from something. Ami- and then a further six sessions, once a Sea creatures can make urea too, though— no-acid breakdown, the alternative source month. The results, though not startling, and in sharks this molecule, which they of its central element, nitrogen, requires are encouraging. In families who were synthesise in their gills, plays a crucial role otherwise-valuable proteins. Calculations coached, the percentage of children with in stabilising the salinity oftheir tissues. performed by Dr Wood and Ms Giacomin severe symptoms (such as having difficul- Dr Wood and Ms Giacomin knew from suggest dogfish swimming in ammonia- ties speaking and learning things) fell from the work of others that sharks forced to rich waters would be able to scavenge 55% to 46%. In those who formed the con- swim in watercontainingunnaturallyhigh from those waters almost a third of the ni- trol group, and were not so coached, they concentrations of ammonia absorb the trogen they need to make urea. That adds actually rose—from 50% to 63%. chemical into theirgills, convertit into urea up to a tidy saving in protein. So, sharks The study adds to evidence that thera- and then expel that urea back into the wa- may well be driven by appetite to swim to- py delivered by parents is helpful for a ter. The presumption was that this was an wards places where their prey have been range of childhood mental-health condi- anti-poisoning mechanism. That, though, releasing large amounts of waste ammo- tions, including aggression and anxiety. is a slightly odd idea. In the wild, uncon- nia. But, contrary to past theories, the ap- Yet, in the case of autism, some crucial sci- fined by an experimenter’s tank, it would petite that takes them there may really be entific questions remain to be answered. surely be simpler and safer for a shark to for the waste itself. 7 One is whether the age of intervention matters. Asecond iswhetherthisapproach might help less severely afflicted children than those chosen for the study. And a third is whether a similar approach, taught to teachers rather than parents, might per- mit the method to be extended to schools. Perhaps the greatest unanswered ques- tion, though, is practical. It is how such a therapy might be adopted swiftly and widely. Those involved in the PACT study have already made a start on this. They are creating training materials to be posted on their website, so that therapists who work with autistic children can adapt their methods accordingly. With luck, those methods will spread, and the lives of such children will improve accordingly. 7 Is that ammonia I sniff? Books and arts The Economist October 29th 2016 75

Also in this section 76 Europe’s single currency 76 The Man Booker prize for fiction 77 Modernist art from Mexico 78 Johnson: Lexicography unbound

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Eleanor Roosevelt very human, but I don’t want him to write the peace…” Ahead of her time Through decades of exhaustive research, Ms Cook, a history professor at John Jay College in New York, has emerged as the voice ofauthority on Eleanor Roose- velt. Yet in isolation, this final volume offers only occasional glimpses into the complex bond between the first couple. Two biographers reassess a woman who towered overthe 20th century Both signed their letters with endearments T IS tempting to think that in a different like “much love” and depended on each Eleanor Roosevelt: The War Years and era, Eleanor Roosevelt could have be- other for counsel, yet romance seemed I After, 1939-1962. By Blanche Wiesen come president ofthe United States. Wide- long gone. “There is no fundamental love Cook. Viking; 670 pages; $40 ly loved, the longest-serving first lady was to draw on, just respect and affection,” on the right side of history on virtually Eleanor wrote in one letter to a friend. Eleanor and Hick: The Love Affair That every subject, including civil rights, accep- Forthright about herloneliness, she turned Shaped a First Lady. By Susan Quinn. tance ofEuropean refugees and the need to to other deep friendships for sustenance. Penguin; 404 pages; $30 end empires. She was fierce in support of In “Eleanor and Hick” Susan Quinn her causes. Impatient as well as impas- focuses on the first lady’s relationship with sioned, she tirelessly lobbied her husband, abroad while stifling minorities at home? Lorena Hickok (known as Hick), a journal- Franklin Delano Roosevelt (FDR), to As the Nazi horrors became clear, she ist with the Associated Press. Assigned to embrace her projects too. Theirs was “one worked in private on Franklin, and in pub- cover the first lady, Hickfell in love instead, of history’s most powerful and enduring lic through her near-daily newspaper col- and Eleanor seems to have reciprocated. partnerships”, her biographer Blanche umn, “My Day”, urging that refugees from They shared difficult childhoods. Eleanor’s Wiesen Cook explains. “She understood abroad be letin to America. “People are not emotionally distant mother had called her his needs, forgave his transgressions, throwing Americans out of work to em- “Granny” as a child because she was so se- buried her jealousies, and embarked on ploy refugees, though isolated cases of this rious; Hick had been beaten by her father her own independent career…FDR en- might be found,” she wrote in 1939, sound- and the family moved constantly to try to couraged her independence and when he ing a theme that resonates today. escape poverty. Both craved love. Eleanor silenced her did so for reasons ofstate.” Asthe warprogressed, FDR soughtElea- had been forced to turn outside her The third and final volume of Ms nor’s counsel less frequently; he didn’t marriage in 1918 after uncovering an affair Cook’s life of Eleanor Roosevelt is con- want to be accused of running a “petticoat between her husband and her secretary. cerned mainly with the second world war government”. More significantly, his ill Hard-chargingyetfragile, Hickdrew out years. Eleanor, like her husband, was early health, especially his worsening heart pro- the emotionally reserved Roosevelt. To- to see the clouds forming in Europe, and blems, reduced his tolerance forargument. gether they worked to help those needing together they tried to coax the American So as Eleanor pushed her causes—ending jobs and food as the Great Depression public to prepare for involvement. It was a discrimination against black troops, for ex- tightened its grip. Their letters, covered difficult task. Isolationism had taken hold, ample, or promoting low-cost housing for extensively as well in the earlier volumes and when the war in Europe began, some workers in defence industries—he tried to of Ms Cook’s biography, are extraordinari- Americans viewed it, as one union official dodge. Courting Winston Churchill, the ly expressive: “Oh! How I wanted to put said, as being “between two thieves”. president sought to contain Eleanor’s criti- my arms around you in reality instead ofin Eleanor campaigned for economic and cism of Churchill’s relentless imperialism. spirit,” Eleanor wrote to Hick in 1933, not social equality. How, she questioned, To her daughter Anna, Eleanor described long after FDR took office. “I went and could America promote democracy Churchill as “lovable and emotional and kissed your photograph instead and the 1 76 Books and arts The Economist October 29th 2016

2 tears were in my eyes.” Hick’s letters con- demics from Germany, Britain and France. union in the euro zone. tained equal passion. Once, after a long They describe thoroughly the watershed The trouble is that, as the book shows, time apart, she wrote, “I remember your moments of the crisis, how power shifted France and Germany still have huge differ- eyes, with a kind of teasing smile in them, to national governments (especially in Ber- ences over the direction of travel. The and the feeling of that soft spot just north- lin) and the roles played by the IMF and the French want debt mutualisation and more east of the corner of your mouth against European Central Bank (ECB). They blame fiscal flexibility first, and are only then my lips.” euro-zone governments for failing to sort ready to talk about more discipline and Ms Cook’s book essentially ends with out troubled banks more quickly, for not deeper integration. The Germans are the FDR’sdeath in April 1945, with just30 pages realising that current-account deficits mat- reverse, pushing for discipline and integra- of “epilogue” devoted to the final 17 years ter when public debts are in effect denom- tion before being ready even to think of Eleanor’s life—years in which she inated in a foreign currency, fornot making aboutdebtmutualisation. Afternextyear’s became unshackled, so to speak, from her the ECB into a lender of last resort and for elections in both countries, such deep dif- role as a politician’s wife. During that time, not pushing through structural reforms in ferences are likely to cause continuing pro- despite the low expectations of male dele- good times. blems forthe single currency. 7 gates at the foundingofthe United Nations Such complaints are often heard, not (UN), she was the driving force behind the least from Britain and America. But more Universal Declaration of Human Rights, a originally, the authors find the roots of UN document that endures to this day. these failings not in stupidity but in clash- Across 30 articles, it lays out fundamental ing economic ideas. Simplifying a bit, they principles, including that every human be- focus on Germany and France. The Ger- ing deserves freedom and must not be tor- mans like rules and discipline, and fret tured or arbitrarily arrested. about excessive debt and the moral hazard Eleanor’s increasingly busy life meant created by bail-outs. The French prefer flex- she had limited time. So Hick makes only ibility and discretion, and worry about brief appearances in Ms Cook’s final vol- large current-account surpluses and the ume, despite living in the White House lack of a mutualised debt instrument. The during much of the war. It is difficult to un- Germans favour budget austerity even in derstand the full scope of the relationship; hard times; the French favour fiscal stimu- Hick burned some of the letters from the lus on Keynesian lines. German policy- most intense period of their involvement, makers are often lawyers, French ones and as Ms Cooklikes to say, “I do not know more frequently economists. what two people do when they are alone Examples of such ideological clashes together.” What is clear is that Eleanor Roo- run throughout the book. They range from sevelt, a woman who could never find the the design of the Maastricht treaty and the lifelong loving relationship to salve her laterstabilityand growth pactto the consti- inner loneliness, instead shared her love tution ofthe ECB and the application of the with those closest to her—and with the fiscal compact. Throughout the crisis the world at large—as she strove unceasingly to French tended to see bankornational-debt make it better. 7 woes as cases of illiquidity whereas the Germans usually viewed them as signs of insolvency. Similar divides have emerged Europe’s single currency in rows over Eurobonds (backed by France, American fiction opposed by Germany) and over account- France v Germany ability and democratic control at supra- Dope and the national level (backed by federal Germany but not by centralised France). doppelganger As the authors note, such differences in ideasare notparty-political (theypersist re- gardless of whether the two countries The Euro and the Battle of Ideas. By Markus The Sellout. By Paul Beatty. Farrar, Straus & have centre-left or centre-right govern- Brunnermeier, Harold James and Jean-Pierre Giroux; 304 pages; $26. Oneworld; £12.99 ments). Nor, interestingly, are they fixed Landau. Princeton University Press; 440 forever in history: in the 19th century, and HE narratorofPaul Beatty’sfourth nov- pages; $35 and £24.95 even more in the 1930s, it was France, not Tel, “The Sellout”, is Bonbon, a black HE euro crisis that first blew up in late Germany, that favoured rigid rules, big sur- man who grows artisanal watermelons T2009 has revealed deep flaws in the sin- pluses and the discipline of the gold stan- and marijuana in southern California. gle currency’s design. Yet in part because it dard. Only after1945 did that change. One of the finer strains of weed that he began with the bail-out of Greece, many The authors end on an optimistic note, develops is called Anglophobia. The joke, politicians, especially German ones, think with proposals for a Europe-wide insur- however, is now on the author. Earlier this the main culprits were not these design ance mechanism built on a form of Euro- year “The Sellout” was shortlisted for the flaws but fiscal profligacy and excessive bonds designed to please both France and Bollinger Everyman Wodehouse prize, a public debt. That meant the only cure was Germany. But their analysis might equally British award that rewards humour in fic- fiscal austerity. In fact, that has often need- lead to pessimism. The euro crisis is far tion. On October 25th, Mr Beatty became lessly prolonged the pain. Later bail-outs from over, with Greece needing more debt the first American to win the Man Booker ofcountries like Ireland and Spain showed relief, Italy mired in banking problems and prize forfiction. that excessive private debt, property bub- chronic slow growth and high unemploy- Born in 1962, Mr Beatty won his initial bles and over-exuberant banks can cause ment almost everywhere. Britain’s Brexit literary award in 1990 while making his even biggerproblemsforfinancial stability. vote will not help the mood, even if it was name as a performance poet, both at festi- That is one early conclusion of “The greeted by some as one more reason to vals and on television. After publishing Euro and the Battle of Ideas”, by three aca- push towards deeper fiscal and political two volumes of poetry, his debut novel, 1 The Economist October 29th 2016 Books and arts 77

2 “The White Boy Shuffle”, was described by Modernist art from Mexico Put to workby a reformist government that the New York Times as “a blast of satirical was anxious to heal the wounds of the re- heatfrom the talented heartofblack Amer- Evolutionary tales cent past, these artists participated through ican life”. “Slumberland”, his third novel, vast mural cycles combining indigenous was about a blackAmerican DJ in Berlin. imagery with socialist agitprop in the great In 2006 Mr Beatty went on to bring out patriotic project ofrebuilding the nation. “Hokum”, an anthology of African-Ameri- PHILADELPHIA The “big three”—Rivera, José Clemente can humour. In the introduction he wrote Orozco and David Alfaro Siqueiros—are What it meant to be Mexican in the that he had read the canonical blackAmer- well-represented with paintings that re- mid-20th century ican writers. While he welcomed their veal powerful narrative styles that were at rhetoric, he said he came to miss “the black N 1927 John Dos Passos, an American once both passionate and didactic. Typical bon mot, the snap, the bag, the whimsy Iwriter and artist, returned from a long of the way in which the language of mod- upon which ‘fuck you’ and freedom sail. It stay in Mexico where he had been soaking ernism was harnessed for polemical ends was as if the black writers I’d read didn’t up the vibrant cultural scene south of the is Orozco’s “Barricade” (1931), a painting in have any friends.” The book included con- border. Reporting on what he found in an which the violence of revolutionary strug- tributions from Toni Cade Bambara and article for the New Masses, he proclaimed: gle is enhanced by bold simplification and Henry Dumas, but also pieces by writers “Everywhere the symbol of the hammer spatial compression borrowed from Cu- not known forbeing funny or even writers and sickle. Some of it’s pretty hasty, some bism and Expressionism. Of course the at all, including Mike Tyson and the Rever- of it’s garlanded tropical bombast, but by worksthatmade these men famousare the end Al Sharpton. Mr Beatty ended the in- God, it’s painting.” mural cycles in buildings across Mexico troduction thus: “I hope ‘Hokum’ beats “Paint the Revolution: Mexican Mod- and the United States. They cannot travel, you down like an outclassed club fighter ernism 1910-1950”, a fascinating exhibition so video installations in the museum gal- …each blow plastering that beaten boxer that has just opened at the Philadelphia leries provide an experience that is the smile on your face, that ear-to-ear grin you Museum of Art and will travel to the Mu- next best thing to being there. flash to the crowd to convince them that if seo del Palacio de Bellas Artes in Mexico “Paint the Revolution” enriches this you’re laughing, then you ain’t hurt.” City next year, takes its name from that es- familiar tale, showing how, for instance, The laughter and the hurt are both say and largely confirms the writer’s judg- the cause of nation-building spurred wholly there in “The Sellout”. Bonbon, the ment. The kind ofpaintingthatthe novelist experimentation in photography and hero, lives in Dickens, a fictional town on had in mind is epitomised by Diego Rive- printmaking, and even transformed arts the southern outskirts of Los Angeles that ra’s “Sugar Cane” (1931, pictured), a scene of education. Crucially, the show provides a is so run down it has been excised from the plantation life filled with tropical scenery more nuanced understanding of the age, map to save California from embarrass- and, yes, plenty of bombast. Much of the puncturing the myth that everyone was ment. In the novel’s opening pages, Bon- work in the show preaches and hectors, marching in lockstep towards a common bon’s hands are cuffed and crossed behind stokes nationalist fervour and promotes goal, and exposing the contradictions and his back as he awaits the start of his trial in Marxist ideology. But most of it has such cross-currents that characterised this most the Supreme Court. Bonbon has been in- gusto, such sense of purpose and a convic- innovative period. dicted for trying, with the help of an old tion that images well made and well inten- One group, known as the Estridentistas , man called Hominy, to reinstate slavery tioned can change the world for the better, rejected the impulse to fall back on tradi- and segregate the local high school as a that one can forgive the occasional heavy- tional imagery. Instead, they tried to hitch way ofbringing about civic order. handed messaging. Mexican modernism to the wider avant- What follows is a filling-in of Bonbon’s As is inevitable with any survey of garde by imitating the promotional tech- back story, starting with his upbringing by Mexican art from the first half of the 20th niques of Dada and Futurism. Also run- his single father, a fixated social scientist century, “Paint the Revolution” is domin- ning against the grain were the Contempo- who carries out experiments on the boy ated by the muralists who rose to inter- ráneos, a group associated with a literary and is eventually shot by the police. Bon- national fame in the years following the magazine of the same name. Whereas the bon pulls his father’s body up onto the decade-long turmoil that ended in 1920. muralists proclaimed, “[Our] aesthetic aim1 horse he keeps on his urban farm and plods home. The novel’s first100 pages are searing; no racial or cultural stereotype is safe from Mr Beatty’s satirical eye. Tiger Woods, Bill Cosby, Oreo cookies, cotton- picking and penis size are all taken out and given a shaking. AsforStevie Wonder, Bon- bon says his Latin motto should be, “Cogi- to, ergo Boogieum. I think, therefore I jam.” “The Sellout” tookMr Beatty more than five years to finish. “I hate writing,” he admitted as he accepted a cheque for £50,000 ($61,000) from the Duchess of Cornwall at a dinner in London where the Man Booker winner was announced. “This is a hard book,” he went on. “It was hard for me to write, I know it’s hard to read.” The five judges were not put off: “This is a book that nails the reader to the cross with cheerful abandon,” Amanda Foreman, the chair of the panel, told the dinner guests. “But while you are being nailed you are being tickled.” 7 Agrarian heroes 78 Books and arts The Economist October 29th 2016

2 is to socialise artistic expression, to destroy the wake of civil war and in the aspira- The gemlike “Self-Portrait on the Border bourgeois individualism,” the Contempo- tional decades that followed. Line Between Mexico and the United ráneos tried to carve out a private space Nowhere is the fraught question of States” is as topical on the subject of na- where individual sensibility could endure. identity more movingly explored than in tional identity as any of Rivera’s murals, Roberto Montenegro’s “Portrait of Xavier the work of Frida Kahlo. All her life she but Kahlo’s approach is meditative and Villaurrutia” portrays an elegant, dandi- toiled in the shadow of Rivera, her larger- confessional. Caughtbetween two worlds, fied figure who is the polar opposite of the than-life husband, and for decades after she appears frail, vulnerable and out of macho, chest-thumping strivers who pop- her death in 1954 she remained a forgotten place in her Sunday best. Her patriotism is ulate the workofthe muralists. figure. It was not only the prejudices of a heartfeltbuttinged with sadness, and even What all these artists share, and what patriarchal society that were responsible a bit of irony. The Mexican flag held tenta- gives the period its peculiar urgency, is for her obscurity, but the fact that her idio- tively in her left hand is mocked by the cig- their common search foridentity. Whether syncratic, even neurotic, paintings did not arette she holds in her right. This tiny work making works for public consideration or fit the heroic story the nation preferred to speaks as eloquently about an exciting but private consumption, each of them wres- tell about itself. Kahlo’s approach is inti- anxious age as the booming voices that tled with what it meant to be Mexican in mate and introverted. surround it. 7 Johnson Lexicography unbound

Dictionaries have found theirideal format HERE is something comforting in a that makes sense. Look up a single word. Tdictionary: right angles, a pleasing Or look up all the citations by a single au- heft, reassuringly rigid covers. A new one thor. Or those which share a root: only is tight, a bright sheaf of discoveries yet to such a tool can tell you that the OED be made; an old one is a musty but trusted knows of 1,011 words ending in –ology, cosy friend. A good dictionary is the clas- against 508 with –ography. sicschool-leavinggiftfrom ambitious par- When a new word like “grok” appears ents to their children. A great dictionary or the meaning of a word like “marriage” might even be passed on through several expands, as it has recently, readers need generations. not wait for years for a new print dictio- But maybe the most reassuring thing nary. Once the new word or meaning about a dictionary is its finite nature. A seems here to stay, it can be added in an small dictionary contains all the words instant. The OED is conservative: a rule of you need to know, and a really big one thumb is to wait until a word has hung on seems to contain all the words in exis- forat least ten years. But the principle is to tence. Having one nearby seems to say catch all of the language in use, and not that the language has boundaries, and merely to admit the good words, what- reasonable ones at that. ever those are. It might surprise dictionary-owners to Ten years is still a long time. Lexicogra- know that most lexicographers do not phers, aware that people still look to them thinkoftheirsubject in this way at all. The forguidance on what is a “real” word and decision to impose a page-count on a dic- what isn’t, whether or not they like this tionary is in fact a painful one. Definitions lexicography career began in the 1970s, role, can still be conservative. Those who can almost never cover the full complex- scouring books for example usages and long for a conservative dictionary should ity of a word, even in huge dictionaries. writing them down on notecards. (The seek one, but this is not the only way of And even more painful is leaving words original OED was published in alphabeti- doing things. “Green’s Dictionary of out simply forreasons ofspace. cally consecutive volumes between 1884 Slang” first appeared as a chunky three- Manyreadersthinkthatsomething isa and 1928; Mr Simpson worked on the sup- volume work of historical lexicography “real word” if it’s “in the dictionary” (rais- plement of new words and meanings.) In in 2010, with over100,000 entries. But Jo- ingthe question ofwhich ofthe hundreds 1982 a new boss shocked the then-editor nathon Green did not hang up his hat of English dictionaries they mean). But with a plan to computerise the dictio- when the books hit the shelves; he went lexicographers don’t like to regard them- nary’s ways: both the lexicographic work on to add an online edition that was to be selves as letting the trusty words in and itself, with digital research files, and its out- continually updated. keeping the bad guys out. Erin McKean, come, an OED on compact disc. But that At the free-for-all end are the online who lefttraditional lexicographyto found wasn’t the final shape either: by the end of and completely crowdsourced dictionar- an online dictionary, Wordnik, explained Mr Simpson’s tenure in 2013, the OED’s ies from Wiktionary to Urban Dictionary. why she chose a format that could allow flagship product was a website with en- Whatever one may think of the latter— virtually limitless entries: “I don’t want to tries richly linked to one another and up- which includes terms of rank racist and be a traffic cop!” dated at regular intervals. misogynist abuse as well as a broad fare Lexicographers preferto thinkthey are A dictionary is really a database; it has ofdrug- and sex-related terms—it is useful, a different kind ofcop: the kind in the title fields for headword, pronunciation, ety- allowing oldies to find out what their kids of John Simpson’s “The Word Detective”, mology, definition, and in the case of his- are talking about. That may be an inver- published in October, a memoir of his torical dictionaries like the OED, citations sion of the old dictionary, the graduation time as editor-in-chief of the Oxford of past usages. Its natural home is one that present—but discovery, in whatever for- English Dictionary (OED). Mr Simpson’s allows the reader to consult it in any way mat, is after all what dictionaries are for. 80 Economic and financial indicators The Economist October 29th 2016

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicGross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Oct 26th year ago United States +1.3 Q2 +1.4 +1.5 -1.0 Sep +1.5 Sep +1.3 5.0 Sep -488.2 Q2 -2.6 -3.2 1.75 -- China +6.7 Q3 +7.4 +6.6 +6.1 Sep +1.9 Sep +2.0 4.0 Q3§ +260.9 Q2 +2.6 -3.8 2.45§§ 6.77 6.35 Japan +0.8 Q2 +0.7 +0.6 +4.5 Aug -0.5 Aug -0.2 3.1 Aug +173.6 Aug +3.6 -5.1 -0.06 104 121 Britain +2.1 Q2 +2.7 +1.8 +0.8 Aug +1.0 Sep +0.7 4.9 Jul†† -161.2 Q2 -5.6 -3.9 1.12 0.82 0.65 Canada +0.9 Q2 -1.6 +1.3 -0.7 Jul +1.3 Sep +1.6 7.0 Sep -51.1 Q2 -3.3 -2.6 1.16 1.33 1.31 Euro area +1.6 Q2 +1.2 +1.5 +1.8 Aug +0.4 Sep +0.2 10.1 Aug +383.9 Aug +3.2 -1.7 0.09 0.92 0.91 Austria Statistics+1.2 Q2 on-0.9 42 economies,+1.3 +2.3 plus Aug +0.9 Sep +1.0 6.2 Aug +8.2 Q2 +2.4 -1.3 0.22 0.92 0.91 Belgium a closer+1.4 Q2 look+2.2 at doing+1.3 business +1.0 Aug +1.9 Sep +1.8 8.2 Aug +4.8 Jun +1.2 -2.8 0.36 0.92 0.91 France +1.3 Q2 -0.4 +1.3 +0.5 Aug +0.4 Sep +0.3 10.5 Aug -27.3 Aug‡ -0.4 -3.3 0.31 0.92 0.91 Germany +1.7 Q2 +1.7 +1.7 +2.0 Aug +0.7 Sep +0.4 6.1 Sep +305.6 Aug +8.4 +0.9 0.09 0.92 0.91 Greece -0.4 Q2 +0.7 -0.6 -0.3 Aug -1.0 Sep -0.1 23.2 Jul -0.3 Aug -1.0 -5.8 8.28 0.92 0.91 Italy +0.7 Q2 +0.1 +0.8 +4.1 Aug +0.1 Sep nil 11.4 Aug +46.3 Aug +2.5 -2.6 1.54 0.92 0.91 Netherlands +2.3 Q2 +2.6 +1.6 +2.2 Aug +0.1 Sep +0.3 7.0 Sep +59.7 Q2 +9.2 -1.2 0.12 0.92 0.91 Spain +3.2 Q2 +3.4 +3.0 +6.8 Aug +0.2 Sep -0.4 19.5 Aug +22.0 Jul +1.4 -4.3 1.08 0.92 0.91 Czech Republic +3.6 Q2 +3.7 +2.4 +13.1 Aug +0.5 Sep +0.6 5.2 Sep§ +3.7 Q2 +1.5 nil 0.48 24.8 24.5 Denmark +0.8 Q2 +1.5 +1.0 +2.1 Aug nil Sep +0.4 4.3 Aug +25.8 Aug +6.4 -1.0 0.23 6.81 6.75 Norway +2.5 Q2 +0.1 +1.0 -5.6 Aug +3.6 Sep +3.5 5.0 Jul‡‡ +23.6 Q2 +5.3 +3.0 1.31 8.26 8.34 Poland +3.0 Q2 +3.6 +3.1 +3.2 Sep -0.5 Sep -0.8 8.3 Sep§ -2.7 Aug -1.0 -2.9 3.07 3.97 3.86 Russia -0.6 Q2 na -0.7 -0.8 Sep +6.4 Sep +7.3 5.2 Sep§ +30.2 Q3 +3.1 -3.7 8.41 62.7 62.8 Sweden +3.4 Q2 +2.0 +3.1 -4.8 Aug +0.9 Sep +1.0 6.1 Sep§ +25.4 Q2 +5.1 -0.3 0.16 8.90 8.50 Switzerland +2.0 Q2 +2.5 +1.4 -1.2 Q2 -0.2 Sep -0.5 3.3 Sep +66.1 Q2 +9.3 +0.2 -0.42 0.99 0.98 Turkey +3.1 Q2 na +3.2 +2.8 Aug +7.3 Sep +7.8 10.7 Jul§ -31.0 Aug -4.7 -1.8 9.94 3.08 2.89 Australia +3.3 Q2 +2.1 +2.8 +3.7 Q2 +1.3 Q3 +1.2 5.6 Sep -52.8 Q2 -4.2 -2.1 2.23 1.30 1.38 Hong Kong +1.7 Q2 +6.5 +1.6 -0.4 Q2 +2.6 Sep +2.7 3.4 Sep‡‡ +13.6 Q2 +3.0 +0.1 1.04 7.76 7.75 India +7.1 Q2 +5.5 +7.6 -0.7 Aug +4.3 Sep +5.2 5.0 2015 -16.2 Q2 -1.0 -3.8 6.87 66.8 64.9 Indonesia +5.2 Q2 na +5.0 +4.8 Aug +3.1 Sep +3.6 5.5 Q1§ -18.7 Q2 -2.2 -2.6 7.03 13,008 13,645 Malaysia +4.0 Q2 na +4.3 +4.9 Aug +1.5 Sep +1.9 3.5 Aug§ +5.3 Q2 +1.0 -3.4 3.58 4.16 4.23 Pakistan +5.7 2016** na +5.7 +1.5 Aug +3.9 Sep +3.9 5.9 2015 -4.1 Q3 -0.8 -4.6 8.03††† 105 104 Philippines +7.0 Q2 +7.4 +6.4 +13.6 Aug +2.3 Sep +1.7 5.4 Q3§ +3.2 Jun +1.1 -1.0 3.80 48.4 46.5 Singapore +2.0 Q2 -4.1 +1.0 +6.7 Sep -0.2 Sep -0.7 2.1 Q3 +58.4 Q2 +19.4 +0.7 1.81 1.39 1.39 South Korea +2.7 Q3 +2.8 +2.6 +2.3 Aug +1.2 Sep +0.9 3.6 Sep§ +101.3 Aug +7.2 -1.4 1.63 1,134 1,134 Taiwan +0.7 Q2 +0.2 +0.7 +5.0 Sep +0.3 Sep +1.1 3.9 Sep +75.7 Q2 +13.3 -0.5 0.96 31.6 32.4 Thailand +3.5 Q2 +3.2 +3.1 +3.1 Aug +0.4 Sep +0.2 0.9 Aug§ +42.4 Q2 +5.3 -2.5 2.19 35.0 35.5 Argentina -3.4 Q2 -8.0 -1.5 -2.5 Oct — *** — 9.3 Q2§ -15.4 Q2 -2.4 -5.0 na 15.2 9.52 Brazil -3.8 Q2 -2.3 -3.2 -5.2 Aug +8.5 Sep +8.3 11.8 Aug§ -23.3 Sep -1.1 -6.4 11.24 3.12 3.88 Chile +1.5 Q2 -1.4 +1.7 +2.8 Aug +3.1 Sep +3.9 6.9 Aug§‡‡ -5.1 Q2 -1.9 -2.5 4.18 654 685 Colombia +2.0 Q2 +0.8 +2.0 +9.4 Aug +7.3 Sep +7.6 9.0 Aug§ -15.7 Q2 -5.1 -3.7 7.27 2,958 2,915 Mexico +2.5 Q2 -0.7 +2.1 +0.3 Aug +3.0 Sep +2.9 3.9 Sep -30.9 Q2 -2.9 -3.0 6.15 18.6 16.5 Venezuela -8.8 Q4~ -6.2 -14.2 na na +485 7.3 Apr§ -17.8 Q3~ -3.0 -24.3 10.57 9.99 6.31 Egypt +6.7 Q1 na +4.4 -13.1 Aug +14.1 Sep +12.8 12.5 Q2§ -18.7 Q2 -6.8 -11.5 na 8.88 8.03 Israel +2.8 Q2 +4.3 +3.0 +1.7 Jul -0.4 Sep -0.4 4.6 Aug +12.1 Q2 +3.3 -2.4 1.81 3.84 3.88 Saudi Arabia +3.5 2015 na +1.1 na +3.0 Sep +4.2 5.6 2015 -61.5 Q2 -5.6 -11.6 na 3.75 3.75 South Africa +0.6 Q2 +3.3 +0.4 +0.1 Aug +6.1 Sep +6.4 26.6 Q2§ -12.9 Q2 -4.1 -3.4 8.88 13.9 13.6 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Sept 35.92%; year ago 26.47% †††Dollar-denominated bonds. The Economist October 29th 2016 Economic and financial indicators 81

Markets % change on Doing business Time spent paying taxes*, 2016 Dec 31st 2015 A record number of economies have Hours per year, ’000 Index in local in $ one adopted reforms to make “doing busi- 0 0.5 1.0 1.5 2.0 Markets Oct 26th week currency terms ness” easier, according to the latest Brazil 123 United States (DJIA) 18,199.3 nil +4.4 +4.4 World Bank report. New Zealand, which China (SSEA) 3,262.7 +1.0 -11.9 -15.5 has the fewest number of procedures and Bolivia 149 Japan (Nikkei 225) 17,391.8 +2.3 -8.6 +5.3 Nigeria 169 Britain (FTSE 100) 6,958.1 -0.9 +11.5 -7.5 shortest time required to start a busi- Egypt 122 Canada (S&P TSX) 14,807.6 -0.2 +13.8 +18.6 ness, ranks highest this year, overtaking Euro area (FTSE Euro 100) 1,048.6 +0.6 -4.2 -3.7 Singapore. It also ranks first for dealing China 78 Euro area (EURO STOXX 50) 3,081.0 +0.8 -5.7 -5.2 with construction permits, registering United States 8 Austria (ATX) 2,508.4 +2.5 +4.6 +5.2 property and providing access to credit. Japan 34 Belgium (Bel 20) 3,570.6 -0.8 -3.5 -3.0 But for paying taxes it ranks 11th out of Russia 40 France (CAC 40) 4,534.6 +0.3 -2.2 -1.7 190 countries. Businesses there take on New Zealand 1 Germany (DAX)* 10,709.7 +0.6 -0.3 +0.2 average 152 hours a year preparing and Britain 7 Greece (Athex Comp) 589.5 -0.6 -6.6 -6.2 Italy (FTSE/MIB) 17,280.7 +1.4 -19.3 -18.9 paying taxes—the global average is 250 Singapore 2 Netherlands (AEX) 455.8 +0.3 +3.2 +3.7 hours. Brazil ranks 123rd overall, and red Switzerland 31 Spain (Madrid SE) 925.7 +2.6 -4.1 -3.6 tape makes it a taxpayers’ nightmare. 63 Bahrain Ease of Doing Business Czech Republic (PX) 919.2 -0.4 -3.9 -3.4 Firms in the United Arab Emirates spend a UAE ranking, out of 190 26 Denmark (OMXCB) 817.9 -1.0 -9.8 -9.0 mere 12 hours a year on their tax returns. Source: World Bank *By a local manufacturing company Hungary (BUX) 29,854.7 +2.4 +24.8 +28.1 Norway (OSEAX) 697.8 -0.6 +7.5 +15.2 Poland (WIG) 48,381.3 +1.1 +4.1 +3.6 Other markets The Economist commodity-price index Russia (RTS, $ terms) 989.5 -0.6 +12.2 +30.7 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,454.2 -0.1 +0.5 -4.8 Dec 31st 2015 The Economist commodity-priceone index one Switzerland (SMI) 7,892.8 -2.5 -10.5 -9.8 Index one in local in $ Oct 18th Oct 25th* month year Turkey (BIST) 79,397.9 +0.2 +10.7 +4.7 Oct 26th week currency terms Dollar Index Australia (All Ord.) 5,442.1 -1.4 +1.8 +7.0 United States (S&P 500) 2,139.4 -0.2 +4.7 +4.7 All Items 137.4 138.0 -0.4 +5.6 Hong Kong (Hang Seng) 23,325.4 +0.1 +6.4 +6.4 United States (NAScomp) 5,250.3 +0.1 +4.9 +4.9 Food 156.1 157.2 -0.7 +3.5 India (BSE) 27,836.5 -0.5 +6.6 +5.5 China (SSEB, $ terms) 346.9 +1.3 -15.2 -18.6 Indonesia (JSX) 5,399.7 -0.2 +17.6 +24.6 Japan (Topix) 1,382.7 +1.9 -10.6 +3.0 Industrials Malaysia (KLSE) 1,673.9 +0.3 -1.1 +2.0 Europe (FTSEurofirst 300) 1,349.8 -0.4 -6.1 -5.6 All 117.9 117.9 +0.1 +8.5 Pakistan (KSE) 40,526.8 -1.0 +23.5 +23.5 World, dev'd (MSCI) 1,699.9 -0.4 +2.2 +2.2 Nfa† 128.9 126.9 +0.5 +16.5 Singapore (STI) 2,828.6 -0.6 -1.9 +0.2 Emerging markets (MSCI) 910.6 -0.3 +14.7 +14.7 Metals 113.2 114.1 -0.1 +5.1 South Korea (KOSPI) 2,013.9 -1.3 +2.7 +6.2 World, all (MSCI) 413.2 -0.4 +3.5 +3.5 Sterling Index Taiwan (TWI) 9,362.3 +0.8 +12.3 +16.9 World bonds (Citigroup) 936.9 -0.7 +7.7 +7.7 All items 203.1 206.9 +6.6 +33.3 Thailand (SET) 1,492.1 +0.4 +15.8 +19.1 EMBI+ (JPMorgan) 806.7 +0.2 +14.5 +14.5 Argentina (MERV) 18,187.6 +0.3 +55.8 +32.5 Hedge funds (HFRX) 1,189.2§ +0.1 +1.3 +1.3 Euro Index Brazil (BVSP) 63,825.7 +0.5 +47.2 +86.8 Volatility, US (VIX) 14.2 +14.4 +18.2 (levels) All items 155.6 158.0 +2.7 +7.4 Chile (IGPA) 21,439.2 +0.9 +18.1 +28.1 CDSs, Eur (iTRAXX)† 71.4 +0.7 -7.4 -6.9 Gold Colombia (IGBC) 10,052.2 -0.5 +17.6 +26.2 CDSs, N Am (CDX)† 75.4 +2.3 -14.7 -14.7 $ per oz 1,261.7 1,272.6 -4.1 +9.0 Mexico (IPC) 47,805.4 -1.4 +11.2 +3.1 Carbon trading (EU ETS) € 5.9 +6.5 -28.3 -28.0 West Texas Intermediate Venezuela (IBC) 14,057.4 +3.2 -3.6 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 50.3 49.6 +10.9 +14.7 Egypt (Case 30) 8,257.2 +1.2 +17.9 +3.9 †Credit-default-swap spreads, basis points. §Oct 25th. Israel (TA-100) 1,254.5 +0.3 -4.6 -3.3 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) 5,885.0 +6.6 -14.9 -14.8 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 51,552.3 +0.1 +1.7 +13.4 series, go to: Economist.com/indicators †Non-food agriculturals. 82 Obituary Andrzej Wajda The Economist October 29th 2016

nism’s grip on Polish life; audiences could see that the system was based on lies, and could be outwitted. Only after martial law was declared in 1981 did the authorities crack down. Mr Wajda’s “Man of Iron”, about the Gdansk shipyard strike of 1980, had just won the Palme d’Or at Cannes, and he was increas- ingly caught up in the Solidarity move- ment; 22 years later he made a biopic of his close friend Lech Walesa, its founder. The prize saved him from prison, but the gov- ernment shut down his production com- pany. Or so it thought. In secret he then made “Interrogation”, a nightmarish ex- posé of Stalinist brutality, regarded as the most anti-communist film ever made in Poland, and not shown publicly until 1989. Pigeonholing him was hard. His films were realistic and romantic, classic and in- novative; his baroque leanings became starker as he matured. Little ofhimself was allowed to show. Only “The Birch Wood” (1970) was an indulgence, and he felt guilty to be out in nature, watching leaves unfurl, while Poland was dying; but lyricism could leaven the relentlessly political. Optimistic by nature, a man ofwinning Conscience-keeper smiles, he still firmly expected to die in the communist system, and was astonished when freedom came. Modest in manners, he was also utterly confident. It was not ar- rogance, but a statement of fact, when he said he was the only director who could make a film about the “unhealed wound” Andrzej Wajda, Poland’s greatest film-maker, died on October 9th, aged 90 ofKatyn, the secret Soviet massacre in 1940 HE life’s work of Andrzej Wajda was to The closing scene of his greatest early of20,000 Polish officers. Hisfather Jakub, a Ttell Poles forbidden truths about their work, “Ashes and Diamonds” (1958), cavalry officer, was one ofthose murdered; country and explain simpler ones to for- showed an anti-communist guerrilla dy- he never forgot his mother’s desperate eigners. Neither should have been neces- ing on a rubbish dump after botching an search for news of her missing husband. sary. Nazis and communists smothered Po- assassination—an image as powerful as Under communism the topic had been ta- land in fear and lies. The country of those of Goya or Delacroix. That grim end, boo, forthe butchery was followed by a lie: Chopin, Conrad and Copernicus was cut he knew, would make the censors glad, but that it had been the workofthe Nazis. off from the European cultural main- audiences would ask themselves: “What After 1989, when Poles began to gorge stream, to be patronised, misunderstood kind of system is this that forces such a on Western culture, Mr Wajda would not and forgotten. sympathetic lad to die on a garbage heap?’ hear a word against the American films he He would have loved to make films In an earlier film, “Kanal” (1956), young sol- so admired. But he worried that Polish cin- about something else, to have dumped the diers in the Warsaw Uprising of 1944 per- ema, “born only to speak about the disas- tragicnational themesand theirwell-worn ished hopelessly in the city’s sewers. He ters of our nation”, was now unfashion- symbols—sabres, white horses, red pop- did not say explicitly that the Soviet Red able and unnecessary. He fretted, too, that pies—forsomething more exotic, such as “a Army callously stood by while Nazis Western audiences found his subject mat- handful of sexual symbols from a Freud- crushed the flower of the resistance—but ter “as antediluvian as the battle for work- ian textbook”. But that was a luxury for no Pole needed reminding ofthat. ers’ rights in England in the time of Karl film-makers in happier countries. Marx”. Groundless fears: four of his films Since pictures were harder to censor Double vision were nominated forAcademy Awards. than words, he set himself to making films As a young man he went to art school in Amongthem was“Katyn”. The harrow- that would evade the official scissors, giv- Cracow, and film-making remained a sec- ing film was a great success, especially as it ing his compatriots a chance to see, think ond-choice career. Film, for him, had to be coincided with fresh worries about Rus- and breathe freely, at least in the darkness based on painting, especially the tortured sian mendacity and menace. History may ofthe cinema. At first, his workavoided di- victim-figures of his idol Andrzej Wro- sometimes seem optional in Poland; geo- rect confrontation. Instead he stuck to the blewski, who had recorded the Nazi occu- graphy shapes its destiny. As he received rules while quietly subverting them, with pation. Mr Wajda’s 40 films became his an honorary Oscar in 2000, Mr Wajda ad- bleak, anti-heroic films that could be seen own great mural of Polish misfortunes. mitted how distant and unknown Poland as stories about people, not dangerous And since the good Lord had given him was; but his work could not stray from it, ideas. A favourite image in the early work two eyes, one to look into the camera and nor would he happily make films any- was a lit match burning away a glass of al- the other to notice what was going on where else. “I thinkI have things to say,” he cohol: nothing to the censors but, to him, around him, he managed to make history, declared once. “But they are only impor- idealism evaporating in the war. too. His work subtly undermined commu- tant ifI say them from Poland.” 7