The Economist September 1St 2018 5

Not NAFTA, but dafter

Farewell to John McCain

Lessons from Singapore’s schools

Cryptocurrencies: a spent force SEPTEMBER 1ST–7TH 2018 Peak Valley Why startups are going elsewhere Contents The Economist September 1st 2018 5

7 The world this week United States 29 Socialism in America Leaders Shivering the chains 9 Innovation 30 Hurricane Maria Peak Valley Counting 10 NAFTA 32 Honey fraud Going south The bee’s needs 10 Education policy 32 Googling the news Copying allowed Fake views 11 International justice 33 Gender dysphoria Myanmar The world should Genocide in Myanmar Trans parenting hold Burmese generals to 12 Cryptocurrencies 34 Lexington After John McCain account for atrocities against Show me the money the Rohingyas, page11. The UN On the cover accuses the Burmese army of Silicon Valley’s primacy as a Letters The Americas genocide in a damning report, technology hub is on the page 44 14 On climate change, tax 35 Nicaragua wane. Don’t celebrate: Ortega holds on leader, page 9. The Valley has reform, Canada, Brexit 36 Natural disasters become a victim of its own Getting over Maria success, prompting Briefing entrepreneurs and investors 36 Condoms in Cuba 15 Silicon Valley Not just for birth control to look elsewhere for A victim of its own success opportunities, page15 38 Ecuador The power of the purge Britain The Economist online 19 Farming’s future Technology Quarterly A new furrow Daily analysis and opinion to Cryptocurrencies and supplement the print edition, plus 20 High-tech agriculture blockchains audio and video, and a daily chart Harwell, we have a problem After page 38 Economist.com Loneliness It is a growing 21 Labour and Brexit problem—and it is increasingly E-mail: newsletters and Corbyn’s conundrum Middle East and Africa being treated as a serious mobile edition 21 Northern Ireland public-health issue, page 49 Economist.com/email Total recall? 39 Lebanon’s economy When the music stops Print edition: available online by 22 Girls’ happiness 7pm London time each Thursday Sometimes it’s hard 40 Saudi Arabia Economist.com/printedition Loyalty trumps sect 22 Personal finances Audio edition: available online The Wonga paradox 40 A race against time to download each Friday Battling Ebola in a war zone Economist.com/audioedition 23 Theresa May in Africa Doing the Brexit shimmy 41 Ponte City Gentrifying Johannesburg 24 Bagehot Soldier-statesmen Asia Europe 43 Singapore’s schools Volume 428 Number 9107 Can do even better 25 Italy and the EU John McCain The navy pilot, Gearing up for a fight 44 Australian politics Published since September1843 Age of healing senator and presidential to take part in "a severe contest between 26 Sanctions against Russia candidate died on August intelligence, which presses forward, and 44 Human rights in Myanmar an unworthy, timid ignorance obstructing A thickening web 25th: Obituary, page 74. The our progress." Worse than imagined 26 Serbia and Kosovo departure of both of Arizona’s Editorial offices in London and also: Pandora’s box 45 Politics in Thailand Republican senators weakens Amsterdam, Beijing, Berlin, Brussels, Cairo, Election prep Chicago, Johannesburg, Madrid, Mexico City, 27 Naked Europe their party and country: Moscow, Mumbai, New Delhi, New York, Paris, All the young prudes 45 Foreign aid for India Lexington, page 34 San Francisco, São Paulo, Seoul, Shanghai, Help not wanted Singapore, Tokyo, Washington DC 28 Charlemagne The EU and the Austro- 46 Banyan Hungarian empire Crazy rich Asians

1 Contents continues overleaf 6 Contents The Economist September 1st 2018

China Science and technology 47 Falun Gong 64 Machine learning The party’s scourge Curious AI 48 Public opinion 65 Air pollution Furore over a flood A poisoned mind 65 Marine technology International Shiver me timbers 49 Loneliness and health 66 Scientific research Alone in the crowd Betting on the result After NAFTA Donald Trump’s Cryptocurrencies Bitcoin and Books and arts trade deal with Mexico makes Business other cryptocurrencies are little sense for anyone, America 52 Pharma in China 67 Karl Ove Knausgaard’s nigh on useless. As for included: leader, page10. Swallowing bitter pills “My Struggle” blockchains, the jury is still Sins of the fathers A new agreement with Mexico 53 Video streaming out: leader, page 12. Our clarifies what populist trade Missed punches 68 Personality tests Technology Quarterly offers a policy looks like in practice, Jung at heart realist’s guide, after page 38 page 59 53 Airlines in India Into the red 69 Yuval Noah Harari’s new book 54 Atlantia after Genoa In the kingdom of cyborgs Subscription service After the fall For our full range of subscription offers, 69 A history of Oklahoma City 55 Corporate governance including digital only or print and digital How the Thunder rolls combined visit Passive, aggressive Economist.com/offers 70 From Venice to the Oscars You can also subscribe by mail or telephone at 55 BMW in South Korea Do look now the details provided below: Repair job Telephone: +44 (0) 845 120 0983 56 Schumpeter Web: Economist.com/offers As good as it gets 72 Economic and financial Post: The Economist indicators Subscription Centre, Statistics on 42 economies, P.O. Box 471, Philosophy brief Haywards Heath, plus a closer look at RH16 3GY 57 Berlin, Rawls and Nozick corporate profits UK Chinese pharma China is Rawls rules Subscription for 1 year (51 issues) reforming its drugs market. Print only UK – £145 Big Pharma is the biggest Obituary beneficiary—for now, page 52 Finance and economics 74 John McCain 59 The new NAFTA Means of resistance Principal commercial offices: Wheeler dealer The Adelphi Building, 1-11John Adam Street, 60 KPMG’s troubles London WC2N 6HT Tel: +44 (0) 20 7830 7000 In the eye of the storm Rue de l’Athénée 32 61 America’s Community 1206 Geneva, Switzerland Reinvestment Act Tel: +4122 566 2470 Another equity debate 750 3rd Avenue, 5th Floor, New York, NY 10017 61 Emerging markets Tel: +1212 5410500 Crumbling currencies 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 62 African trade Tel: +852 2585 3888 The river between Other commercial offices: 63 Free exchange Chicago, Dubai, Frankfurt, Los Angeles, Education What other Made from concentrate Paris, San Francisco and Singapore countries can learn from Singapore’s world-leading schools: leader, page 10. How the world’s best education system is trying to improve itself, page 43

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euro-zone deficit limits in its A judicial commission started Chile’s supreme court ordered Politics next budget, due to be pub- hearing evidence ofcorrup- the family ofAugusto Pino- lished soon. tion in South Africa during chet, a dictator who ruled from the presidency ofJacob Zuma. 1973 to 1990, to return part of Far-right protesters battled Testimony at the commission the money he had stashed in with police in the German city into “state capture” has the Virgin Islands. The family ofChemnitz, in Saxony. They revealed details ofhow friends must give up $1.6m ofa fortune were demonstrating following ofMr Zuma allegedly offered worth $13m. the fatal stabbing ofa German positions in his cabinet, man, reportedly by Middle including that ofminister of The new power generation Eastern migrants. Some ofthe finance. In Florida the party primaries protesters beat migrants and forgovernor resulted in an gave illegal Nazi salutes. Iran’s parliament voted to interesting matchup for the censure President Hassan election. The Republicans Emmanuel Macron, the Rouhani after grilling him on chose Ron DeSantis, whose French president, suffered a television over the country’s campaign tookoffwhen he A report by the UN Human blow when his environment economic problems. Two days was endorsed by Mr Trump. Rights Council concluded that minister resigned during a live earlier parliament sacked the The Democrats selected An- six senior generals in Myan- broadcast, criticising his gov- finance minister. Iran is suf- drew Gillum, an unabashed mar should be prosecuted for ernment fornot doing enough fering from a collapsing cur- progressive who will become genocide forleading a pogrom to combat global warming. rency and surging inflation, in the state’s first blackgovernor against Rohingya Muslims. part the result ofAmerica ifhe wins in November. The army has tried to deflect Alex Salmond, a formerfirst reimposing sanctions after condemnation ofits actions, minister ofScotland and a pulling out ofan agreement to A federal court ruled, once but the UN said the crimes leading figure in the move- limit Iran’s nuclear programme again, that North Carolina’s were shocking forthe “level of ment forScottish indepen- earlier this year. congressional districts have denial, normalcy and impuni- dence, resigned from the Scot- been gerrymandered along ty attached to them”. It also tish National Party amid The UN released a report ac- partisan lines to favour Repub- criticised Aung San Suu Kyi, claims ofsexual misconduct. cusing the governments of licans. The Supreme Court had Myanmar’s de facto leader, for He said he hoped to rejoin Yemen, the United Arab sent the case backto the lower failing to prevent the atrocities. once he had cleared his name. Emirates and Saudi Arabia of courts for consideration. committing war crimes— Scott Morrison became In search of friends including rape and torture— Puerto Rico officially raised Australia’s new prime min- Theresa May visited three during Yemen’sfour-year civil the death toll from last Septem- ister, after Malcolm Turnbull African countries, in the first war. The report said the ber’s Hurricane Maria to 2,975. was ousted by MPs in his trip by a British prime minister Houthi rebels, who are fighting That is up from the previous Liberal Party. It is the fifth to the continent forfive years. the government and its back- tally of64, a figure that had change ofprime minister in a Mrs May is trying to strengthen ers, are to blame formany of always been disputed. The decade. There might be a sixth trade, security and diplomatic the same crimes. new toll is based on an ifa by-election forMr Turn- ties with the region and to independent study. bull’s parliamentary seat in avoid losing influence to pow- All for naught Sydney wipes out the govern- ers such as France and China, A referendum to control cor- ment’s one-seat majority. which have also been stepping ruption in Colombia failed to up their engagement. pass because turnout, at less A visit to North Korea by Mike than a third ofthe electorate, Pompeo, America’s secretary was too low. All seven mea- ofstate, was called off. Mr sures received the support of Pompeo was to meet negotia- over 99% ofvoters who partici- tors in Pyongyang, but Presi- pated in the referendum. They dent Donald Trump said the included a three-term limit for talks on nuclear disarmament legislators and a requirement were not advancing, forwhich that elected officials publish he blamed China. North Korea their tax returns. warned that ifthe talks col- Tributes were paid to John lapse it will resume tests of America said it would re- McCain, who died from brain missiles and nuclear devices. evaluate its relationship with cancer aged 81. Mr McCain had El Salvador after the Central represented Arizona in the The unwelcome mat Emmerson Mnangagwa was American country broke dip- Senate since 1987. He was Italy allowed almost140 res- sworn in as president of lomatic ties with Taiwan and probably the most outspoken cued migrants offa coastguard Zimbabwe after the Constitu- established them with China. Republican critic ofMr Trump. ship after refusing them entry tional Court rejected a call by The White House said that El The White House got into a for nearly a week. But the the opposition to throw out Salvador’s decision would flap when its flag was raised to interior minister warned that the results ofa flawed presi- affect “the economic health full-staffless than two days Italy will withhold EU budget dential election that had been and security ofthe entire after Mr McCain’s death. It was payments unless a system for held in July. The court ruled Americas region”. America lowered again to half-staff, sharing out arrivals among that the opposition had failed also recognises China and where it will stay until his other EU countries is found. He to prove its allegation that the does not have formal dip- funeral, which Mr Trump will also said Italy may breach vote was rigged. lomatic relations with Taiwan. not attend. 1 8 The world this week The Economist September 1st 2018

U-turn, Mr Musksaid that Wonga, the biggest provider of collective labour agreement. It Business going private would be more payday loans in Britain, said it has recently reached a deal “time-consuming” than he had was considering “all options” with the union representing The United States and Mexico originally envisaged. amid reports it is close to Irish pilots and has offered reached a deal on revising the collapse. The firm opened fresh negotiations to its British, North American Free Trade Toyota said it would invest shop in 2007, charging interest German and Spanish pilots. Agreement. Mexico made $500m in Uber to work on rates that some said were several concessions, notably developing autonomous cars. excessive. But a regulatory The Bond market on car manufacturing, which The Japanese carmaker has crackdown that began in 2014 America had demanded in been more cautious than its has crimped profits severely. order to boost its own automo- global rivals in committing to Wonga has also taken a hit tive industry. President Donald self-driving technology. Its from compensating borrowers Trump suggested that Canada, investment is a boost to Uber’s forits debt-collection practices. the other partner in NAFTA, self-driving project, which had little choice but to accept suffered a setbackafter a fatal Yum China, which was spun the revised accord and said collision involving a pedestri- offfrom Yum Brands in 2016 that he might impose new an and one ofits cars in March. and operates the KFC, Pizza tariffson its car industry ifit Hut and Taco Bell fast-food did not. Some Republicans China’s biggest ride-hailing chains in China, reportedly chafed at that; a trilateral firm, Didi Chuxing, came rejected a $17bn buy-out offer NAFTA would get a smoother under fire after a second mur- from a consortium ofprivate Aston Martin announced ride in Congress than a bilat- der ofa female passenger by investment firms. Yum China plans for an IPO on the London eral deal with Mexico. one ofits drivers within four is the country’s biggest restau- StockExchange. The British months. Didi suspended its rant company. maker ofsports cars has gone The S&P 500 and NASDAQ carpooling service, forwhich bankrupt several times, but stockmarket indices reached the driver in question worked, The Turkish lira came under business is now booming, record highs, with the latter but that did not stop the calls renewed pressure after particularly in Asia. Its associa- closing above the 8,000 mark on Chinese social media for a Moody’s downgraded 18 Turk- tion with the James Bond films forthe first time. They were boycott ofthe firm. ish banks, which are heavily partly explains Aston Martin’s buoyed in part by a measure of reliant on foreign-currency success in recent years; it is American consumer confi- A meaty issue funding. The central bankdid reproducing 25 versions ofthe dence that registered its stron- Missouri became the first state little to soothe jittery markets DB5 used in “Goldfinger”, gest reading since October in America to outlaw the when it reintroduced a cap on complete with revolving num- 2000. New data showed that description offood products as overnight lending forbanks, a ber plates “and more”. It is the American economy grew “meat” unless they are made source ofliquidity. unlikely that fans will catch at a slightly faster annualised from animal flesh. The law is much sight ofthem: the new rate in the second quarter than being challenged by producers After enduring its worst-ever DB5s are not allowed to be had been thought: 4.2%. oflab-grown and plant-based spell ofindustrial action, driven on public roads. meat alternatives, industries Ryanair said that pilots in Italy, President Mauricio Macri of that have grand plans to take its second-biggest market, had For other economic data and Argentina unexpectedly on conventional-meat firms. accepted the terms ofa new news see Indicators section asked the International Mone- tary Fund to speed up the disbursement ofa loan worth $50bn. He wants to ensure the country can meet its debt obligations in spite ofa growing economic crisis. The Argen- tine peso has lost more than 40% ofits value against the American dollar this year and inflation is rising.

Making your mind up Elon Muskreversed course and said that Tesla would remain a public company after all. The chiefexecutive ofthe electric- carmaker stunned investors when he announced in a tweet that he intended to take Tesla private and had “secured” funding. He has since scram- bled to explain his plans, amid reports that regulators were investigating whether he had followed the proper rules for disclosing them. Explaining his Leaders The Economist September 1st 2018 9 Peak Valley

The BayArea’s primacyas a technology hub is on the wane. Don’t celebrate IKE Florence in the Renais- neurship, now ranks the Miami-Fort Lauderdale area first for “Lsance.” That is a common startup activity in America, based on the density of startups description of what it is like to and new entrepreneurs. Mr Thiel is moving to Los Angeles, live in Silicon Valley. America’s which has a vibrant tech scene. Phoenix and Pittsburgh have technology capital has an out- become hubs for autonomous vehicles; New York for media size influence on the world’s startups; London for fintech; Shenzhen for hardware. None of economy, stockmarkets and cul- these places can match the Valley on its own; between them, ture. This small portion of land they point to a world in which innovation is more distributed. running from San Jose to San Francisco is home to three of the If great ideas can bubble up in more places, that has to be world’s five most valuable companies. Giants such as Apple, welcome. There are some reasons to thinkthe playing-field for Facebook, Google and Netflix all claim Silicon Valley as their innovation is indeed being levelled up. Capital is becoming birthplace and home, as do trailblazers such as Airbnb, Tesla more widelyavailable to brightsparkseverywhere: tech inves- and Uber. The Bay Area has the 19th-largest economy in the tors increasingly trawl the world, not just California, for hot world, ranking above Switzerland and Saudi Arabia. ideas. There is less reason than ever fora single region to be the The Valley is not just a place. It is also an idea. Ever since Bill epicentre of technology. Thanks to the tools that the Valley’s Hewlett and David Packard set up in a garage nearly 80 years own firms have produced, from smartphones to video calls to ago, it has been a byword for innovation and ingenuity. It has messaging apps, teams can work effectively from different of- been at the centre of several cycles of Schumpeterian destruc- fices and places. A more even distribution of wealth may be tion and regeneration, in silicon chips, personal computers, one result, greater diversity of thought another. The Valley software and internet services. Some of its inventions have does many things remarkably well, but it comes dangerously been ludicrous: internet-connected teapots, oran app thatsold close to being a monoculture ofwhite male nerds. Companies people coins to use at laundromats. But others are world-beat- founded by women received just 2% of the funding doled out ers: microprocessor chips, databases and smartphones all by venture capitalists last year. trace their lineage to the Valley. Its combination of engineering expertise, thriving business Shadows of the colossi networks, deep pools of capital, strong universities and a risk- The problem is that the wider playing-field for innovation is taking culture have made the Valley impossible to clone, de- also being levelled down. One issue is the dominance of the spite many attempts to do so. There is no credible rival for its tech giants. Startups, particularly those in the consumer-inter- position as the world’s pre-eminent innovation hub. But there net business, increasingly struggle to attract capital in the shad- are signs that the Valley’s influence is peaking (see Briefing). If ow of Alphabet, Apple, Facebook et al. In 2017 the number of that were simply a symptom of much greater innovation else- first financing rounds in America was down by around 22% where, it would be cause forcheer. The truth is unhappier. from 2012. Alphabetand Facebookpaytheiremployeesso gen- erously that startups can struggle to attract talent (the median Silicon Plateau salary at Facebook is $240,000). When the chances of startup First, the evidence that something is changing. Last year more success are even less certain and the payoffs not so very differ- Americans left the county of San Francisco than arrived. Ac- ent from a steady job at one of the giants, dynamism suffers— cording to a recent survey, 46% ofrespondents say they plan to and not just in the Valley. It is a similar story in China, where leave the Bay Area in the next few years, up from 34% in 2016. Alibaba, Baidu and Tencent are responsible for close to half of So many startups are branching out into new places that the all domestic venture-capital investment, givingthe giants a big trend has a name, “Off Silicon Valleying”. Peter Thiel, perhaps say in the future ofpotential rivals. the Valley’s most high-profile venture capitalist, is among The second way in which innovation is being levelled those upping sticks. Those who stay have broader horizons: in down is by increasingly unfriendly policies in the West. Rising 2013 Silicon Valley investors put halftheir money into startups anti-immigrant sentiment and tighter visa regimes of the sort outside the Bay Area; now it is closer to two-thirds. introduced by President Donald Trump have economy-wide The reasons for this shift are manifold, but chief among effects: foreign entrepreneurs create around 25% of new com- them is the sheer expense of the Valley. The cost of living is panies in America. Silicon Valley first bloomed, in large part, among the highest in the world. One founder reckons young because of government largesse. But state spending on public startups pay at least fourtimes more to operate in the Bay Area universities throughout America and Europe has fallen since than in most other American cities. New technologies, from the financial crisis of 2007-08. Funding for basic research is in- quantum computing to synthetic biology, offer lower margins adequate—America’s federal-government spending on R&D than internet services, making it more important for startups was 0.6% of GDP in 2015, a third of what it was in 1964—and in these emergingfields to husband theircash. All this is before heading in the wrong direction. takinginto accountthe nastierfeaturesofBayArea life: clogged If Silicon Valley’s relative decline heralded the rise of a glo- traffic, discarded syringes and shocking inequality. bal web of thriving, rival tech hubs, that would be worth cele- Other cities are rising in relative importance as a result. The brating. Unfortunately, the Valley’s peak looks more like a Kauffman Foundation, a non-profit group that tracks entrepre- warning that innovation everywhere is becoming harder. 7 10 Leaders The Economist September 1st 2018

NAFTA Going south

America’s trade deal with Mexico makes little sense foranyone, America included RADE disputes have scarred By elevating arbitrary rules above the free market, these Tthe presidency of Donald changes make a mockery of the White House’s supposed op- Trump. So markets rose in relief position to intrusive regulation. The result will be lower pro- when America and Mexico an- ductivity, higher prices for consumers and a less competitive nounced on August 27th that carmaking industry in North America, which competes as an they had agreed on changes to integrated whole with producers in Europe and Asia. Uncer- the North American Free Trade tainty will not disappear. The deal could be rewritten again Agreement (NAFTA). Mr Trump after six years, thanks to an unspecified review process. had earlierthreatened to walkawayfrom the deal, which elim- None of this bothers Mr Trump. In his view, the purpose of inated most tariffs between its signatories after coming into trade is to maximise exports and minimise imports. The inten- force in 1994. As The Economist went to press, it was not clear tion of his agreement is clear: to shove firms into abandoning whether Canada, the third party to NAFTA, would join the cross-border supply chains in favour of the safe-but-costly op- deal (see Finance section). But across one border, at least, the tion of producing in America. Economic might is a weapon to threat ofa trade crisis looks a bit less likely. be used in service ofthat goal. The relief may be short-lived. The concessions that Mexico Mexico has acceded to so many of Mr Trump’s demands has granted Mr Trump are for the most part economically da- partly for domestic political reasons. It suits both the outgoing maging. The deal looks good forAmerica only through the dis- president, Enrique Peña Nieto, and his successor, Andrés Ma- tortingprism ofthe president’smercantilism. And MrTrumpis nuel López Obrador, to have any deal signed before the transi- pursuing his trade agenda with a reckless bellicosity that tion on December1st. But the principal factor was Mr Trump’s makes a chaotic outcome more likely. threat to impose tariffs on all car imports, not just those above anyquota—a threatthatstill loomsoverCanada. The president Planning, redux may yet extend his hardball tactics to his dealings with Con- If Canada ends up being folded into the agreement, the foun- gress, cancelling the original NAFTA to force legislators to dations of NAFTA would remain intact. But there would be choose between the new agreement and chaos. several important changes, notably on cars. Today 62.5% of a America isused to presidentsthrowingtheirweight around car’s components must be made in North America for the vein Washington. Yet Mr Trump’s attitude to trade is uniquely hicle to avoid tariffs. That will rise to 75%. Nearly half of the reckless. He has bullied his way to what he sees—wrongly—as components will need to have been made by workers making a better deal with Mexico; he is intent on doing the same to at least $16 an hour. Because the average wage of Mexican Canada. He is using the ludicrous pretext of national security manufacturing workers is $2.30, the benefit to some firms of to justifyhisthreatsofcar-importtariffs, in order to circumvent moving south of the border will fall greatly. Worryingly, it the rules of the World Trade Organisation. North America’s appears that America may yet levy some tariffson automotive economies can withstand this folly. But the rules-based system imports from Mexico, ifthey exceed a given quota. That would of global trade, which relies on goodwill between countries, put Mexican carmaking into a straitjacket. may prove to be more fragile. 7

Education policy Copying allowed

What othercountries should learn from Singapore’s schools HEN the island of Singa- (PISA), a triennial test of15-year-olds in dozens of countries, in Wpore became an indepen- the main three categories ofmaths, readingand science. Singa- dent country in 1965, it had few porean pupils are roughly three years ahead oftheir American friends and even fewer natural peers in maths. Singapore does similarly well in exams of resources. How did it become younger children, and the graduates of its best schools can be one of the world’s great trading found scattered around the world’s finest universities. and financial centres? The strat- The island-state has much to teach the world. But other egy, explained Lee Kuan Yew, its countries are reluctant pupils. One reason is that Singapore fa- first prime minister, was “to develop Singapore’s only avail- vours traditional pedagogy, with teachers leading the class. able natural resource: its people”. That contrasts with many reformers’ preference for looser, Today Singapore’s education system is considered the best more “progressive” teaching intended to encourage children to in the world. The country consistently ranks at the top of the learn for themselves. Although international studies suggest OECD’s Programme for International Student Assessment that direct instruction is indeed a good way of conveying 1 The Economist September 1st 2018 Leaders 11

2 knowledge, critics contend that Singapore has a “drill and kill” compulsory extra sessions to help them keep up; even the less- model that produces uncreative, miserable maths whizzes. able do comparatively well. An analysis in 2016 in England Parents worry about the stress the system puts on their chil- found that the Singaporean approach boosted results, though dren (and on them, even as they ferrykids to extra classes). it was somewhat watered down in transition. Yet Singapore shows that academic brilliance need not The third and most important lesson is to focus on develop- come atthe expense ofpersonal skills. In 2015Singaporean stu- ing excellent teachers. In Singapore, they get100 hours oftrain- dents also came first in a new PISA ranking designed to look at ing a year to keep up to date with the latest techniques. The collaborative problem-solving, scoring even better than they government pays them well, too. It accepts the need for larger did in reading and science. They also reported themselves to classes (the average is 36 pupils, compared with 24 across the be happy—more so than children in Finland, for instance, a OECD). Better, so the thinking goes, to have big classes taught country that educationalists regard as an example of how to by excellent teachers than smaller ones taught by mediocre achieve exceptional resultswith cuddliermethodsofteaching. ones. Teachers who want more kudos but not the bureaucratic Not content with its achievements, Singapore is now introduc- burden of running schools can become “master teachers”, ing reforms to improve creativity and reduce stress (see Asia with responsibility for training their peers. The best teachers section). This is not a sign offailure, but rather of a gradual, evi- get postings to the ministry of education and hefty bonuses: dence-led approach to education reform—the first of three les- overall, teachers are paid about the same as their peers in priv- sons that Singapore offers the rest ofthe world. ate-sector professions. Teachers are also subject to rigorous an- Where other countries often enact piecemeal and unco- nual performance assessments. ordinated reforms, Singapore tries to look at the system as a whole. It invests heavily in education research. All reforms are Class dismissed tested, with the outcomes diligently monitored, before being The system is hardly faultless. Other countries might wish to rolled out. Close attention is paid to how new ideas and results avoid Singapore’s dividing of high- and low-achievers into should be applied in schools. Carefully developed textbooks, separate schools from the age of12. The benefits ofdoingso are worksheets and worked examples—practices often seen as unproven, and it contributes to stress about exams. Singa- outdated inthe West—are used to injectexpertise intothe class- pore’s size, moreover, allows for an unusual degree of central- room. The result is good alignment between assessments, ac- isation. The director-general of the ministry of education says countability and teaching styles. he knows more than 80% of head teachers by name, which The second lesson is to embrace Singapore’s distinctive ap- makes it easier to keep tabs on what is going on. Other trade- proach to teaching, notably of mathematics—as America and offswould be unpalatable elsewhere. In mostcountries, teach- England are already doing to some extent. It emphasises a nar- ers’ unions and parents are resistant to big classes, for instance. rowerbut deepercurriculum, and seeks to ensure that a whole That is a shame. Education would be much better if more class progresses through the syllabus. Struggling pupils get countries copied Singapore’s homework. 7

International justice Genocide in Myanmar

Burmese generals should be held to account foratrocities against the Rohingyas HEN Rohingya Muslims thusfar,gettingawaywith massmurder. Myanmar’srulers, the Wbegan fleeing from Myan- UN’s authors lament, have responded with “denial, normalcy mar to Bangladesh a year ago, and impunity”. Aung San Suu Kyi, Myanmar’s de facto leader, the cause wasobvious: the army has set up worthless committees to investigate. The only sol- had gone on the rampage. But diers to have been punished are seven infantrymen who were the Burmese government main- implicated in a massacre bya detailed Reutersreport. (The gov- tained that the mass exodus ernment also put the journalists in question on trial forobtain- from Rakhine state—723,000 ing secret documents.) China and Russia defend Myanmar; people, by the UN’s count—stemmed from a simple misunder- Western governments have been feeble in their response. standing. The army, it insisted, was just searching for Rohingya Apologists for the Burmese government insist that it is al- militantswho had attacked police posts. Itwasonlybecause of most impossible for anyone, foreign or local, to do much about false rumours of military abuses, officials blithely declared, this, since the Burmese army is a law unto itself. It made way that villagers had taken fright and headed forthe border. for a civilian government only two years ago, after imposing a On August 24th the UN’s Human Rights Council delivered constitution that gives it complete control over its own affairs its official response to this drivel. After a year’s research, in- and all matters of security. What is more, ordinary Burmese cluding 875 individual interviews, it published a report which tend to view Rohingyas, most ofwhom are Muslim, as a threat affirms that the army led a pogrom that claimed the lives of to Buddhism, the religion of the majority. And MsSuu Kyi, the more than 10,000 Rohingyas (see Asia section). Most damn- argument runs, does not have the authority to rein in the army, ingly, the report finds evidence that the violence was premed- and would only alienate voters and undermine her own itated and amounted to genocide. Senior generals, the report standing by attempting to do so. By the same token, should the concludes, should be put on trial forwar crimes. Westtake Myanmartoo stronglyto taskforthe army’sconduct, It is an indictment of the world that the Burmese army is, it would imperil the fragile democracy forwhich it and Ms Suu1 12 Leaders The Economist September 1st 2018

2 Kyi fought for so long. It would also, the theory goes, drive erals inserted into the constitution barring her from the presi- Myanmar into the arms ofChina. dency.She should stand up to the generals again, or risk seem- These arguments are not only an affront to justice—they are ing complicit in their crimes. Concerned foreigners, too, also wrong. Acquiescing to the abuses in Rakhine does not should defend their principles. If a democracy can be pre- help entrench democracy.Instead, it will give the generals the served only by turning a blind eye to genocide, then it is not impression that they can act with impunity in other parts of worthy ofthe name, much less the world’s protection. Myanmar where they are fighting ethnically-based insurgencies (the UN report says the army is also committing atrocities Time to squeeze the generals in the fight against the Shan and Kachin). And foreigners, far There is plenty that foreign governments can do. A good first from strengthening Ms Suu Kyi by tiptoeing around the atroc- step would be forthe Security Council to do as the report’s au- ities, simply reinforce the idea that the army is calling the shots thors suggest and refer Myanmar’s generals to either the Inter- and that her government is little more than a figleaf. national Criminal Court or an ad hoc tribunal. If China vetoes There is reason to believe that the generals will respond to that, so be it. At least it would be clear where everyone stands. pressure. International ostracism and sanctions played a part There are plenty of other ways to apply pressure, most obvi- in their decision to retreat from government in 2016. Ms Suu ously by squeezing the extensive business empire on which Kyi,moreover, has stood up to the army in the past, not least by the generals rely. The alternative is to encourage jackbooted insistingon leadingthe governmentdespite the clause the gen- butchers everywhere. 7

Cryptocurrencies Show me the money

Bitcoin and othercryptocurrencies are nigh on useless. Forblockchains, the jury is still out N OLD saying holds that stand there is little reason to think that cryptocurrencies will Bitcoin price, $’000 Amarkets are ruled by either remain more than an overcomplicated, untrustworthy casino. 20 greed or fear. Greed once gov- Can blockchains—the underlying technology that powers 15 erned cryptocurrencies. The cryptocurrencies—do better? These are best thought of as an 10 price ofBitcoin, the best-known, idiosyncratic form of database, in which records are copied 5 rose from about $900 in Decem- among all the system’s users rather than maintained by a cen- 0 ber 2016 to $19,000 a year later. tral authority, and where entries cannot be altered once writ- 2017 2018 Recently, fearhasbeen in charge. ten. Proponents believe these features can help solve all sorts Bitcoin’s price has fallen back to around $7,000; the prices of of problems, from streamlining bank payments and guaran- other cryptocurrencies, which followed it on the way up, have teeingthe provenance ofmedicinesto securingproperty rights collapsed, too. No one knows where prices will go from here. and providing unforgeable identity documents forrefugees. Calling the bottom in a speculative mania is as foolish as calling the top. It is particularly hard with cryptocurrencies be- Nothing to lose but your blockchains cause, as our Technology Quarterly this weekpoints out, there Those are big claims. Many are made by cryptocurrency spec- is no sensible way to reach any particular valuation. ulators, who hope thatstokingexcitementaround blockchains It was not supposed to be this way. Bitcoin, the first and still will boost the value of their related cryptocurrency holdings. the most popular cryptocurrency, began life as a techno-anar- Yet firms that deploy blockchains often end up throwing out chist project to create an online version of cash, a way for peo- many ofthe features that make them distinctive. And shuttling ple to transact without the possibility ofinterference from ma- data continuously between users makes them slower than licious governments orbanks. Adecade on, it is barely used for conventional databases. its intended purpose. Users must wrestle with complicated As these limitations become more widely known, the hype software and give up all the consumer protections they are is starting to cool. A few organisations, such as SWIFT, a bank- used to. Few vendors accept it. Security is poor. Other crypto- payment network, and Stripe, an online-payments firm, have currencies are used even less. abandoned blockchain projects, concluding that the costs out- With few uses to anchor their value, and little in the way of weigh the benefits. Most other projects are still experimental, regulation, cryptocurrencies have instead become a focus for though that does not stop wild claims. Sierra Leone, for in- speculation. Some people have made fortunes as cryptocur- stance, was widely reported to have conducted a “blockchain- rency prices have zoomed and dived; many early punters have powered” election earlier this year. It had not. cashed out. Others have lost money. It seems unlikely that this Just because blockchains have been overhyped does not latest boom-bust cycle will be the last. mean they are useless. Their ability to bind their users into an Economists define a currency as something that can be at agreed way of working may prove helpful in arenas where once a medium of exchange, a store of value and a unit of ac- there is no central authority, such as international trade. But count. Lackofadoption and loads ofvolatility mean that cryp- they are no panacea against the usual dangers oflarge technol- tocurrencies satisfy none ofthose criteria. That does not mean ogy projects: cost, complexity and overcooked expectations. they are going to go away (though scrutiny from regulators Cryptocurrencies have fallen far short of their ambitious concerned about the fraud and sharp practice that is rife in the goals. Blockchain advocateshave yetto prove thatthe underly- industry may dampen excitement in future). But as things ing technology can live up to the grand claims made for it. 7 Executive Focus 13

The World Health Organization (WHO) seeks a Director of Communications (Vacancy reference: 1803530)

In support of the Organization’s mandate and mission, the Director of Communications develops an effective communications strategy, and creates innovative new channels to increase visibility and get WHO’s message across to key stakeholders as well as the general public.

More speciﬁcally, the Director of Communications will:

• Innovate: Identify external challenges and emerging issues and design strategies to manage them, while anticipating and incorporating appropriate communications tools and channels into WHO’s work. • Partner: Provide strategic communication advice to the Director-General and senior WHO staff, drive internal communications, liaise with external partners and establish external networks to ensure support in driving WHO messaging and advocacy. • Lead: Direct the development, implementation and monitoring of a new WHO global communications strategy and promote WHO communications policies. • Manage: Direct the organization, management, operation and performance of the Department of Communications.

Salary: This position is classiﬁed at the “D2” level in the United Nations common system. WHO offers an attractive expatriate package including health insurance, ﬁnancial support for schooling of children and a relocation package. For more information and to apply online please go: https://goo.gl/e6JkWn

Deadline for applications: 30 September 2018.

http://www.who.int/careers/en/

“Promote health, keep the world safe, serve the vulnerable” Dr Tedros Adhanom Ghebreyesus, Director General

The Economist September 1st 2018 14 Letters The Economist September 1st 2018

Playing with fire Beginning an article on climate Ideally, taxes “should target as one ofthe best small towns change with the image ofa rents, preserve incentives and in the American South. The wildfire misrepresented the be hard to avoid”, you say. In Fairhope Single TaxCorpo- issue. You did not discuss the very next paragraph you ration still owns about 20% of forest and land management, recommend increasing inheri- the town, and most ofthe the wildland-urban interface tance taxes, which meet none charming downtown area. and the increase in the things ofthese criteria. Inheritances CHARLES DAVIS that ignite wildfires. I agree, are not “rents”. Inheritance Malvern, Pennsylvania wildfires in California are taxes have large negative being affected by rising global incentive effects (lookat the Feel-good intentions temperatures, but you over- estate-planning industry) and simplified this in an attempt to they are easy to avoid (bene- Canada’s prime minister, get people to pay attention. factors can just spend all their Justin Trudeau, likes to stroke The tendency to attribute wealth during their lifetimes). the national ego (yes, we have Yoursober leader concluding environmental challenges In short, inheritance taxes are a one) with taglines about Cana- that “the world is losing the solely to climate change dimin- very inefficient way to raise dians always standing up for war against climate change” ishes the ability to address revenue; they are a remnant values and positions ofvirtue. also suggested that averting issues through better manage- stuckin the past. The honest-broker role, climate change “will come at a ment and local decision-mak- WALTER NICHOLSON favoured by diplomatic real- short-term financial cost— ing. Winning the war on cli- Naples, Florida ists, used to be a mainstay of although the shift from carbon mate change will not stop the Canada’s international brand. may eventually enrich the devastating effects ofwildfires. Milton Friedman thought that But Mr Trudeau’s feel-good economy” (“In the line offire”, Better urban planning and the least bad taxes are those sermonising has undermined August 4th). In fact, the evi- updated land-management that are visible. He opposed his own potential as a dence has been clear since the policies might. VAT and regretted having diplomatic fixer. The shambles publication ofthe Stern EVAN WATSON devised the monthly with- created by failing to anticipate Review in 2006 that the bene- Redding, California holding mechanism for the Saudi perception and fits ofthe low-carbon transi- income tax. Invisible taxes are reaction to a Canadian tweet tion far outweigh its costs. Death and taxes the force behind the unstop- forthe immediate release of Climate scientists continue pable growth ofgovernment jailed activists is a good ex- to warn ofthe potentially I have never understood why spending in the 21st century, ample (“Meddlesome maple disastrous effects ofallowing taxing the wealth ofthe dead just as Friedman foresaw. leaves”, August11th). Not only greenhouse-gas concentra- through an inheritance tax Citizens might be willing to are the human-rights cam- tions in the atmosphere to would have any detrimental pay fora state only halfthe size paigners still in jail, they may grow over the coming decades. effect on the incentives of the it is today, iftaxes were more be in greater jeopardy since Unfortunately, economic living (“Stuckin the past”, salient. But you imply that tax Canada made itselfNGT: non models usually omit, or dis- August11th). Inheriting wealth, in total must keep increasing, grata by tweet. count, the biggest risks of ifanything, reduces the with the state collecting, and CAROL CLEMENHAGEN climate change, such as desta- incentives ofthe offspring of wasting, all the surpluses Ottawa bilisation ofthe land-based the wealthy and encourages created by the economy. RODOLFO DE LUCA polar ice sheets. As a result, indolence. However, your Honest Abe on Brexit many policymakers do not leader on tax reform also Buenos Aires understand the scale and argued against the deduction “No deal forBritain is better urgency ofaction required ofinterest in the accounts ofa Yourbriefing claims to support than a bad deal forBritain,” now to avoid dangerous cli- corporation because it a tax on the value ofland, but it Theresa May has said, regard- mate change in the future. subsidises debt. This requires is instead an endorsement of a ing Brexit (“No ordinary deal”, Much ofthe supposed careful consideration. tax on gains from increases in August 4th). Agree, disagree, or short-term financial costs of Interest is taxable in the the price ofland (“On firmer both. Just remember what tackling climate change could hands ofits recipient, just as ground”, August11th). A tax on Abraham Lincoln said more be met through economically wages or rents are. Ifit were the value ofland is a partial than 150 years ago: sensible policies, such as not deducted in the accounts but cumulative confiscation of “Elections belong to the people. eliminating the hundreds of ofthe payer, it would be taxed property. By contrast, a tax on It’s their decision. Ifthey billions ofdollars spent each twice: once in the inflated the increase in the price of land decide to turn their backon the year on subsidies for fossil profit ofthe corporate payer is not cumulative. And it deals fire and burn their behinds, fuels and increasing the extent and again in the hands ofthe with the main problem at then they will just have to sit and strength ofcarbon pricing recipient (probably a bank). hand: nobody should be on their blisters.” across the world. This money Eliminating the deduction of allowed to profit from the BERNABÉ GUITÉRREZ could be invested in helping interest would therefore result passive ownership ofland. Jaén, Spain 7 poor people in every country in double taxation and in- PEDRO LEÃO gain access to clean and crease the aggregate taxation Lisbon efficient sources ofenergy. ofcorporations. Double tax- BOB WARD ation is not something often The most successful experi- Letters are welcome and should be Policy and communications promoted by economists. ment in Henry George’s addressed to the Editor at JOHN GILLIGAN The Economist, The Adelphi Building, director “single-tax” idea is Fairhope, 1-11John Adam Street, Grantham Research Institute on Director Alabama. It was founded in London WC2N 6HT Climate Change and the Finance Lab 1894 as a single-tax colony, and E-mail: [email protected] Environment Said Business School today is a thriving bay-front More letters are available at: London School of Economics University of Oxford community consistently rated Economist.com/letters Briefing The geography of technology The Economist September 1st 2018 15

and executives in other cities, where the A victim of its own success cost of talent and the risk of them being poached are both lower. Silicon Valley is still a place where new ideas can flourish, fortunes can be made and products that change millions of lives SAN FRANCISCO will get dreamed up and brought to mar- Silicon Valleywill remain numberone forsome time. But its pre-eminence ket. But thanks to its past success it is no is on the wane longer the ferment it once was, and it is un- HE garage in which Hewlett-Packard people in is beginning to cast them out. likely it will ever again dominate the tech- Twas started in 1939 is now a private mu- More Americans are leaving the Valley nology world in quite the way it has over seum—a modest monument to the cut- than moving to it. In 2017 several counties the past decades. The cost of living and op- price creativity and bare-knuckle entrepre- in the area saw their largest combined do- erating a firm will drive more people away. neurship that made Silicon Valley famous. mestic outward migrations in around a de- The dominance of the companies that Drive south from Palo Alto through 20 cade (see chart 1 on next page). In a recent have generated its current wealth will minutes of inevitable traffic to Sunnyvale survey by the Bay Area Council, a think- change the paths to success for those who and you will find a landmark of a different tank, 46% of Bay Area residents said they stay. And unfavourable governmental kind. Nothing of technological note has planned to leave in “the next few years”, policies will further harm the Valley’s dy- taken place there. But in February this up from 34% in 2016. namism. small two-bedroom house, which boasts This is not just a case of people of more just the sort ofgarage a startup would once modest means beingpushed out by carpet- A whole generation have felt at home in, sold for $2m, 40% baggingtechies. At this year’s “FOO camp”, On top ofall that, Silicon Valley’s own pro- more than its askingprice, within two days a freewheeling annual gathering of hack- ducts and services make it ever easier to of listing—a new record for the area. That ers and others, a session called “Should I/ start out elsewhere, or everywhere, and be translates into a price of$25,386 per square you leave the Bay Area?” saw a strongturn- connected to Silicon Valley’s culture metre ($2,358 per square foot). out. Participants shared their gripes about through messaging, video-conferencing When Ajay Royan ofMithril Capital, an the high cost of living, bad traffic and a and collaborating online. By changing the investment fund, asks rhetorically “How “toxic” culture obsessed with money. way companies work, this technology is are you supposed to have a startup in a ga- “We’re seeing a lot of the talent moving making it ever more feasible to have a pres- rage ifthe garage costs millionsofdollars?”, or saying they won’t come here,” says Dan ence in the Valleywhile keepingmost oral- he is barely exaggerating the problem. The Rosensweig, who runs Chegg, an educa- most all of your employees elsewhere. No immense success of its tech industry tion-tech company in Santa Clara. “It’s other tech hub in this more spread-out means that the San Francisco Bay Area in hard to imagine doing another startup in world will grow as powerful as Silicon Val- which Silicon Valley sits has the highest Silicon Valley. I don’t think I would,” says ley has been. But its lead over a growing cost of living in America. A median-priced Jeremy Stoppelman, the boss of Yelp, a re- packofcompetitors will narrow. home costs $940,000, four-and-a-half view site. “I will probably never scale an- With itsstrongnetworksofexperts, stel- times the American average. The Depart- other company in the Bay Area,” says one lar universities, culture of risk-taking, ment of Housing and Urban Development of the founders of a public internet com- deep-pocketed investors and history of considers a family earning less than pany. He says that for his next venture he helping startups grow into giants, Silicon $120,000 in San Francisco “low income”. will keep a small team in the Bay Area but Valley—now taken, forthe purposes of dis- As a result, a region that has long drawn will hire most of the software developers cussions like this, to include San Francisco 1 16 Briefing The geography of technology The Economist September 1st 2018

2 proper—has over decades become the tech port or spin offyounger ones. positions are paid handsomely; the medi- hub that all others measure themselves “Regional Advantage” has become a an compensation is $240,000 at Facebook against. The centre ofsemiconductor inno- classic study of what works and goes and around $200,000 at Alphabet. vation from the 1960s on—hence the wrong for innovation ecosystems, but it Where Ms Saxenian sees the ghost of name—in the 1990s it made big bets on the may need a new afterword. Ms Saxenian Route 128, Tim O’Reilly, a publisher and internet, which by the 2000s it dominated. says that the tech titans have developed an Valley-watcheroflongstandingseesa flick- Since then itsfirmshave created the operat- increasingly “autarkic” culture that goes ering echo of Hollywood, with successful ingsystemson which more than 95% ofthe against the way that the Valley used to entrepreneurs acting the part of high- world’s smartphones run. work, “shuttingoffthe flowoftalent.” “The maintenance movie stars. Those with From 2010 to this year venture capital- problems of Boston,” she says, “are reap- graduate degrees in artificial intelligence ists invested $168bn in firms in the Bay pearing here”. can fetch $5m-10m a year. People complain Area, a third of the total they invested in There have always been big companies that such pampering has eroded tech’s America. No other area comes close (see in the Valley. Today’s are bigger—but they work ethic, with employees focusing on chart 2 on next page). In the second quarter are also able to use their size differently. A free lunches and other perks. In the Finan- of2018 the Valley was home to three of the giant internet company can move into cial Times earlier this year Michael Moritz, world’s five most valuable companies: Ap- new areas a lot faster than a big incumbent chairman of the venture-capital firm Se- ple, Alphabet (Google’s parent) and Face- semiconductor company could in the days quoia, suggested that American techies book, valued between them at almost $2.5 when the Valley’s original cultural norms could learn from the hard-driving culture trillion. Apple and Alphabet, true natives, were set. The bigfirms can seize on novelty ofChinese entrepreneurs. were born in garages in Los Altos and Men- almost as quickly as startups do—and with Others draw a comparison with Wall lo Park, respectively. Facebook moved into a lot more oomph. Street, seeing greed taking on ever greater somewhat plusher digs while still an in- That has made it harder foryoung start- importance. This has been amplified not fant. It hosts 57 unicorns—private startups ups to prosper and grow into big compa- just by the Bay Area’s high costs but also by valued at more than $1bn—including nies themselves. They are imitated, the amount of capital flooding in. For ex- household names like Airbnb and Uber. stamped out or acquired while they are ample, SoftBank, a Japanese conglomer- At a number of points in the past it has still young. Some talk of a “kill zone” ate, has raised a $100bn technology fund, looked as though the Valley’s ascent was around the big companies, where it is im- which is more than the entire American over. In the early 1980s its semiconductor- possible forstartupsto operate. Innovation venture-capital industry invested last year. memory-makers lost out to Japanese com- continues, but without the near-nutty And like both Hollywood and Wall Street, petitors; in 2000 the dotcom bubble burst. breadth of approaches that used to be one the Valley has its share oftoxic masculinity But the Valley has always kept climbing, ofthe area’s strengths. and entrenched sexism. A mere 2% of ven- and there are plenty who believe that, un- ture-capital funding went to female foun- equalled in its wealth and its claim on the A new explanation ders’ startups last year. world’s attention, it can go on doing so. The giants have other chilling effects. It Companies like Airbnb and Uber, Things may currently be unhelpfully over- used to be that working for an incumbent which have raised lots of cash, can com- heated; some think a recession might clear firm was safe but not lucrative, unless you pete in this monied-up world. Young start- out some badly run companies and lower were a top executive. Those who made real ups increasingly cannot. Launching a start- costs for the fitter survivors. But the long- money had sweated it out as early employ- up rarely makes actuarial sense, since the term outlook is cheery. “Florence was in its ees at startups that made it big. Now profit- odds ofsuccess are so slim. But when office position for more than 200 years,” says able business models, piles of cash and space, homes and top talent were within Mike Volpi of Index Ventures, which in- soaringshare pricesmean giantscan afford the reach of young, unproven companies vests in startups. “Silicon Valley still has to pay employees handsomely. “The there was a constant spate of dreamers many years to go.” payoff of a higher-risk startup is not so dif- willing to try it. At today’s prices, the spate Others, though, thinkthings have really ferent from what you would get over the has slowed. Claire Haidar of WNDYR, a changed. AnnaLee Saxenian, dean of the same number of years at Google or Face- productivity startup that relocated to School of Information at the University of book earning top dollar,” explains Yelp’s America from Ireland in 2017, reckons it California, Berkeley, says she has spent her Mr Stoppelman. costs at least four times as much to base a whole career“defendingthe Valley’s vitali- In 2017 Alphabet, Apple and Facebook startup in the Bay Area as it would in most ty whenever people have said it’s over”. issued $16.2bn in stock-based compensa- other cities in America. Now, she thinks there has been an impor- tion. Even those in middle-management Many Silicon Valley startups are cur-1 tant cultural shift. In “Regional Advantage”, a seminal study published in 1994, Ms Saxenian com- Too dear, so departed 1 pared Silicon Valley’s culture to that of the Net domestic migration, by county, ’000 Uber Slack UC Berkeley rival tech cluster around Boston, Massa- San chusetts, known as Route 128. The Valley 10 Francisco Airbnb Contra Costa started to outstrip its competitor in the late Contra Costa + San Fran. 1980s, she argued, because Route 128 was Bay 0 San dominated by large, hierarchical compa- Mateo Alameda nies that were inward-looking and secre- – Facebook tive. They valued corporate loyalty and 10 Stanford Palo Alto Alphabet stronglydiscouraged employeesfrom leav- Alameda University ing for a competitor or starting their own San San Francisco Apple Jose venture. In the Valley, in contrast, informa- 20 tion was shared much more freely both San Mateo within companies and between them. Santa Cruz Santa Clara Santa Santa Clara Cruz Leaving to start something of your own 30 PACIFIC was not frowned upon. Indeed it was en- 2007 09 11 13 15 17 OCEAN couraged; established firms helped sup- Source: Census Bureau The Economist September 1st 2018 Briefing The geography of technology 17

from which the market was turning away. der to force techies to eat lunch out. Big Positive returns 2 With smartphones ubiquitous and social new infrastructure projects to ease conges- United States, venture-capital investment networking more than a decade old, peo- tion and make it easier to get to work from Selected metropolitan areas, $bn ple in tech are increasingly worried about further away are nowhere to be seen. In- 35 what is next. Even if the Silicon Valley stead there are private luxury buses to the giants can spot it, they may not be best tech campuses—which became, a few Bay Area placed to capitalise on it; flexible as the years ago, the centre ofthe first big popular 30 giants are, they cannot do everything. If protests against the new elite. the new new thing takes off elsewhere, Sil- icon Valley’s advantages will be lessened. People in motion 25 Take the continued spread of cloud Faced with high costs and the chilling ef- computing, an increasingly lucrative busi- fect ofthe neighbourhood giants, entrepre- ness for both Amazon and Microsoft. If ei- neurs who would once have planned to 20 ther could make its cloud-computing plat- build theirbusinesses entirely in the Valley form as dominant as Windows was in the are increasingly pursuing three other PC era, it could cause yet more activity to courses: launching their startups some- 15 move closerto Seattle, where both firms re- where else; moving their headquarters New York side and which is already a buzzing tech somewhere else once they reach a certain hub much cheaperto live and workin than size; or keeping their headquarters in the 10 the Valley. Othertechnologies which could Valley but scaling their operations else- San Diego conceivably pull power away from the Val- where—“Off Silicon Valleying”, as some Boston Miami-Fort ley might include blockchains (see Tech- call it. MarkPincus, the founderofZynga, a Lauderdale 5 Los Angeles nology Quarterly) or quantum computing. games developer, predicts companies Seattle Blockchains are by their nature decentral- “will have to think about multiple loca- ised; quantum computing could reorient tions much earlier in their trajectory.” 0 the tech world toward China. Take Indinero, which sells accounting 2010 11 12 13 14 15 16 17 18* It is entirely possible that the next dis- software. Jessica Mah, the startup’s 28- Source: Pitchbook *To August 23rd ruptor will be none ofthese things. But it is year-old boss, was born and raised in New all but certain that something will super- York City. She started her first company in 2 rently as much as 15% behind their hiring sede devices with the Valley’s namesake middle school and moved to the Universi- goals forthe year, says Mr Volpi. This hurts semiconductor at their heart as the key to ty ofCalifornia, Berkeley, to study comput- their prospects of survival. Things don’t success in tech, and that that will matter. er science. After graduating she went to Y necessarily get easier as growth kicks in. Having giants around can provide Combinator, the prominent boot camp for According to CBRE, a real-estate firm, it benefits as well as kill zones; in looking startups in Mountain View. In 2009 she costs $62.4m a year to run a 500-person after their own interests through political started Indinero in San Francisco. What startup with 7,000 square metres of office lobbying and the like they often look after could be more Silicon Valley? in San Francisco, more than anywhere else their neighbours’, too. But the biggest polit- But by 2014 Ms Mah had realised that in America or Canada (see chart 3). That is ical problem for American tech firms, in “there was no way for me to build a profit- 47% and 49% more than it costs to run a the Bay Area and elsewhere, is one that has able business in the Bay Area. I had to ex- startup in Portland and Atlanta, respective- proved beyond even the best-paid lobby- pand elsewhere.” She asked her employ- ly, and more than double what it costs in ists. A lot of Americans are worried about ees to relocate, both to other American Vancouver and Toronto. immigration, and President Donald Trump citiesand to the Philippines. Todaythe firm It is still possible for a Valley startup to is determined to act on their behalf. employs 200 people, but only around 30 grow large. Slack, which launched its More than half of the top American of them are in the Bay Area. Portland is its workplace-messaging app in 2013, claims a tech companies were founded by immi- official headquarters. Ms Mah’s life is a private-market valuation of $7.1bn. How- grants or the children of immigrants. De- ceaseless round of virtual meetings and ever, its boss, Stewart Butterfield, is an ex- spite lobbying from the tech giants, the real travel, but she reckons that building perienced entrepreneur who had already Trump administration has brought in rules herstartup in more affordable cities hasen- had a well-known hit (Flickr, which was that severely restrict the number of for- abled her to save millions ofdollars. sold to Yahoo in 2005). Fewer first-time en- eigners who can receive work visas. Some Such a decision does not just cut costs. trepreneurs are breaking through. tech firms have experienced delays of up Hiring in other cities reduces the odds of The corralling of talent in big compa- to 18 months for foreign hires whom they talented employees being poached by the 1 nies is not just bad for startups. It is bad for might otherwise have been able to bring future technological diversity. Talented over swiftly. Students who come to Ameri- 3 people can still launch wild new projects ca for degrees increasingly end up going Peninsula v island from inside the giants—but probably not as home afterwards, willingly or not. “If you Office rents*, $ per sq ft new, oras wild, as they would in a startup ask me ten years from now why Silicon culture where the pool ofother innovators Valleyfailed, itwill be because we screwed 80 Manhattan with whom to team up would be larger up immigration,” predicts Randy Komisar San Francisco and more diverse. The problem which ofKleiner Perkins, a venture-capital firm. 60 dogged Route 128 has come to the Valley in Nor have the tech giants as yet man- a bigway. “People join the bigfirms, and es- aged to improve things by using their mus- 40 pecially Apple, and they fall offthe face of cle with local officials to ease some of Sili- the earth. It’s a genuine problem for the con Valley’s specific problems. Instead of 20 ecosystem,” says John Lilly, a venture capi- building more affordable housing in a US average talist with Greylock. timely manner, which the Bay Area des- Route 128 did not just lose out because perately needs, San Franciscan politicians 0 of culture. It also lost out because it was are in the midst of discussing legislating 1990 95 2000 05 10 15 18 pursuing a technology, the minicomputer, the abolition of corporate cafeterias in or- Source: CBRE *Asking price 18 Briefing The geography of technology The Economist September 1st 2018

there; theycan then leave to starttheir own “Silicon Valley will continue to be the Smaller shares 4 companies or work elsewhere. This is one strongest innovation ecosystem in the reason that Seattle, home to the two of the world, but on a relative basis it will be- Location of privately held startup companies valued at over $1bn, % world’s biggest five companies not based come less important,” predicts Steve Case, 100 in the Valley, is doing so well. the former boss of America Online. He Other India now runs Revolution, a venture-capital Britain 80 A strange vibration firm based in Washington, DC, which is Being a place where people want to live looking hard for investments outside the China 60 helps a lot, too. Putting together such a Bay Area. According to CB Insights, a re- package does not in itself create a Silicon search firm, in 2013 Silicon Valley-based in- 40 Rest of Valley simulacrum: history, culture and a vestors put about half their money into United States startups outside the Bay Area; in the yearto Silicon 20 lot of established venture capitalists are Valley not easily replicated. But it does well date, that share has risen to 62%. This has 0 enough. “There are probably a dozen cities mirrored the geography of “unicorns”: in 2013 14 15 16 17 18* that are just as promising [as San Francisco 2013 some 41% were based in Silicon Valley; in which] to start a tech company today,” today only 16% are, with 35% headquar- Silicon Valley-based venture-capital investment, % says Peter Thiel, a feisty venture capitalist tered in China (see chart 4). 70 who will soon move from San Francisco to Even Silicon Valley’s most conven- outside Silicon Valley 60 Los Angeles, a city which has welcomed tional venture capitalists are preparing for many Valley refugees before him. It has its geographical diversification. One storied 50 own growing tech scene—one that gained firm with headquarters on Sand Hill Road 40 in Silicon Valley more attention when the online-media in Palo Alto was recently considering sign- 30 company Snap chose to set up shop there. ing a new ten-year lease for a larger office Portland, Oregon; Austin, Texas; Van- space in nearby San Francisco. It decided 2013 14 15 16 17 18* couver (close to the United States, but easi- not to. “A decade from now we’re going to Source: CB Insights *To August 23rd er for foreign immigrants to come and be spending less time, not more time, in workin); London; Berlin: they all fit the bill, this area,” explains one ofthe partners. 2 tech giants and other startups—especially and then some. After considering 23 fac- Coming to Silicon Valley to network engineers, who are in high demand. In- tors, such as employee compensation, re- and fundraise will continue to provide ad- deed a startup in a place with cheaper tention, taxes, available funding, ease of vantages; nowhere else will match it for housing and less crowded freeways (even access to other cities and the weather, the apprenticeship or pilgrimage. “There’s no on a comfortable corporate bus with Wi-Fi, cities that Ms Haidar saw as runners up to place that’s replacing Silicon Valley,” says a two-hour commute is a pain) can be- first-choice Dallas were Phoenix, Arizona Mr Thiel. But it will be less critical to stay come the poacher. San Francisco has many and Boulder, Colorado. The Kauffman and set up shop here. “The Valley is going charms, but it is not particularly salubri- Foundation, a think-tank, now ranks the to become an idea instead of a place,” pre- ous. People regularly encountering used Miami-Fort Lauderdale area as number dicts Glenn Kelman, the boss of Redfin, a drug needles, human excrement and side- one in America forstartup activity. Aseach property company. “Wall Street went walks full of homeless people when they grows, each offers more opportunities for through a similar transformation,” he says, arrive home late at night at their $4,000-a- people who decide to move on from their its name becoming shorthand for a whole month one-bedroom flat in San Francisco current job. Internationally, Beijing and industry. As tech firms set their sights on sometimes think they might just prefer it Shenzhen are hugelyimportant. Admitted- disrupting old-fashioned industries, like elsewhere. ly, they mainly appeal to Chinese entrepre- health care and logistics, they may find This dispersion of startups embodies a neurs who can speak the language and that it helps to be based in cities that claim deep irony. The technology industry, navigate the local business environment; deep expertise in these areas—and where which has disrupted nearly all other sec- but that is a big pool. And some foreigners garages housing startups are not just the tors, is disrupting itself. The communica- are giving it a go, too. stuffofmuseums and memory. 7 tions tools and virtual workplaces that Val- ley firms have pioneered let teams work productively across cities and time zones without ever meeting one another in person. The headquarters in Dallas to which Ms Haidar relocated WNDYR, the productivity startup, contains only four of its 33 employees. The far-flung crew communi- catesthrough Telegram, an instant-messaging app, talks with clients through Slack, uses Zoom for meetings and collaborates on goal-setting with software from Lucid and Google. This does not mean that all places have become equal. Startups thrive on “network effects”: entrepreneurs, like internet users, tend to cluster where their peers are. Having a world-class university or two nearby can be very important for such hubs, especially if they actively encourage commercial activity, as Stanford has. It also helps to have an “anchor tenant” that vali- dates the place and draws employees Britain The Economist September 1st 2018 19

Also in this section 20 Space-age farming 21 Labour and Brexit 21 Ian Paisley’s suspension 22 Unhappy girls 22 Wonga’s woes 23 Theresa May in Africa 24 Bagehot: Soldier-statesmen

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

The future of the countryside forhis apparent devotion to their cause; he calls himself a “romantic” about the coun- A new furrow tryside. He has promised to flesh out his ideas in an agriculture bill later this year. Although the CAP is unpopular, fid- dling with the system provokes nervous- ness. The subsidiesmake up 61% offarm income in England; in Wales and Northern USK VALLEY Ireland the figure is over 80%. Small, up- Brexit will force a change in farming that could change the face ofrural Britain land livestockfarms tend to be particularly T HAS been a testing year for Britain’s face ofthe countryside. reliant on the subsidies. Mr Trumper says I150,000 or so farmers. A summer heat- Agriculture makes up only about 0.5% that his 500-acre farm receives about wave scorched the broccoli and cauli- ofBritain’seconomy. Butitemploysalmost £36,000 a year in CAP payments: “We are flower crops. Before that, freezing condi- half a million people, or 1.5% of the work- totally dependent on that to survive.” tions held up sowing, and scythed through ing population, a figure which rises to 4.1% The government has modelled the con- the lambing season. On Pant-y-Beiliau in Wales and 5.7% in Northern Ireland. It sequences of removing direct payments farm, in Wales’s Usk Valley, the Trumper supports other industries, contributing from lowland sheep and cattle farms. The family was anticipating a bumper year most of the raw materials for the food and results are bracing. In 2015-17 19% of such from their flock of a thousand ewes. In the drink business, for instance. And perhaps farms made a loss even with the subsidy; end they lost about 5% of their newborns no industry has a greater physical impact without it, the figure would have risen to to the knackermen. But the extremes of on the country. Nearly three-quarters of 53%. Across all farms, 16% made a loss; weatherare somethingthatMaurice Trum- British land is used forfarming. without direct payments the figure would per, born on his farm in the 1920s, has Under the CAP, most subsidies are giv- have been 42%. Ministers have yet to reveal learned to live with. Brexit is different. en out accordingto the acreage ofa farm, in the details of the system that will replace In most sectors ofthe economy, the gov- what are known as direct payments. The direct payments. But it seems that farmers ernment is doing its best to maintain con- rest are allocated for the work that farmers will face a choice: either seek government tinuity after Britain leaves the European do to look after the environment. British payments for creating public goods, or fo- Union next March. But in agriculture, it farmershave longargued thatthe system is cus on efficiency in order to survive with- promises big changes. Michael Gove, the unjust and inefficient, rewarding rich land- out subsidies. One government adviser secretary for the environment, food and owners for the size of their holdings and says farmers will have five years or so to rural affairs, has pledged a shake-up re- failing properly to recognise farmers’ stew- shape up. Those that don’t “will come a gardless of whatever deal the government ardship of the landscape. In 2016 the top cropper and go bankrupt.” eventually reaches with Brussels. 10% of recipients in England received 47% Some farmers are excited by the pros- Under the EU’s Common Agricultural of CAP payments, while the bottom 20% pect ofbeing paid fortheir maintenance of Policy (CAP), British farmers receive subsi- got just 2%. the countryside. Yet small farms may not diesworth about£3.1bn ($4bn) a year. After So the government is seizing the oppor- have the wherewithal to compete for the Brexit those payments will end. The Trea- tunitythatBrexitpresentsto flip the formu- payments that MrGove has in mind. Many sury has promised to pay farmers the la. In future, subsidies will be awarded for voted for Brexit as a protest against the bu- equivalent of the CAP subsidies until the delivering “public goods”. The most im- reaucracy involved in applying for EU sub- end of the parliament, due in 2022. After portant ofthese, MrGove says, is “environ- sidies. The replacement system may be no that, the payments will be phased out and mental protection and enhancement”, less cumbersome. Nor is it clear that there replaced by a new system that the govern- such as planting woods, restoring peat is much more scope for diversification. ment is drawing up. Its design will deter- bogs or maintaining hedgerows. Mr Gove Two-thirds of farmers have already gone mine the future of British farming, and the has won plaudits from environmentalists into other lines of business, such as solar1 20 Britain The Economist September 1st 2018

High-tech farming Coming a cropper Agriculture, total factor productivity 1964=100 Harwell, we have a problem 260 Netherlands France 220 Space technology finds an earthy,earthlypurpose Germany United States 180 REEDING chickens on a large scale outside Harwell, an Oxfordshire village. Britain B isn’t rocket science. It is much harder. Twenty such centres have been set up 140 The birds are bad at regulating their body across Europe since 2000 to nurture temperature, and the big sheds they are young tech firms devising down-to-earth 100 kept in can get stuffy.Flickering lights and uses forspace technology. In Britain each loud noises make them anxious. And company receives technical support from 60 ammonia from the faeces ofbirds ESA scientists for a year, as well as help 1964 70 80 90 2000 10 14 crammed tightly together often produces with networking and cheap office space Source: AHDB unedifying “hockburns”. All ofwhich in Harwell, which is now home to means they require constant monitoring around 80 space-related companies. The 2 energy and bed-and-breakfast; a quarter to ensure they are gaining weight. But centre, which was set up in 2011, saw its make more money from this than farming. babysitting chickens is time-consuming. 60th company graduate in August. What of improving efficiency? The A single worker can hope to weigh only a A surprising number ofthe firms are country has some highly efficient, large small sample by hand each week. Re- applying space technology to farming. farms, such as the cereal farms in East An- motely monitored scales can help but, Agritech startups comprise more than glia. Seven per cent of England’s farms pro- even when wheeled backand forth on halfthe current cohort in Harwell. These duce 55% of its agricultural output. But pulleys, they sufferfrom blind spots. include HayBSee, which is making auton- there is a long tail of smaller, less produc- Now an answer to these problems has omous drones that can detect unhealthy tive ones. Almost half the country’s farms come from a surprising place: Mars. patches in crop fields and kill weeds. are less than 20 hectares. Sheep and cattle Thrive Multi Visual, an agritech startup Another, GroundData, makes solar- farms, which make up nearly a third of the from Shropshire, is devising a chicken- powered sensors that gather data about total, are the least profitable. Proponents of weighing robot based on the rover devel- potato plants. Beyond agriculture, techies change argue that in places like Wales, oped by NASA to explore the red planet. are using space gear to make snazzy bike farms will have to merge, or at least co-op- The company plans to kit out the vehicle bells, spot doctored photographs and erate more closely to lower their costs. with cameras that can weigh chickens by find bed bugs in hotel rooms. Mr Gove has also talked up the poten- sight alone. Thermal-imaging gear and There are several reasons why so tial oftechnology.On small farms, like that other gadgets will monitor indicators many farming startups are repurposing of Gary Ryan in Monmouthshire, gizmos such as body-heat and humidity.An space hardware. One is that farmers are like Moocall, a sensor stuck on a cow’s tail indoor GPS system, also adapted from slow to adopt new technology, leaving to alerta farmerbefore calving, improve ef- space technology,will allow the robot to gaps for enterprising geeks to exploit. The ficiency. Government aides point to the drive itselfaround and self-charge, while sector suffers especially from paltry data Netherlands, a country of only 17m people sensors will prevent it from running over collection. Another is that space tech- that is nevertheless the world’s second- laggards that are slow to strut out ofits nology is very robust and designed to largest agricultural exporter, thanks to way.Ifit works, the chicken rover will withstand toxic substances, making it heavy investment in technology such as greatly reduce the workinvolved in ideal forlife on farms, says Claire Lewis, drones and high-tech greenhouses. In Brit- looking after the birds—handy forfarm- chiefexecutive ofThrive MV. She be- ain, there is plenty of potential for im- ers fearing labour shortages after Brexit. lieves that agriculture is nowhere near as provement: the top quarter of farms are Thrive MV is one ofseven companies “tech-enabled” as it should be. Could her twice as productive as the bottom quarter. supported by the European Space Agen- company and its fellow “incubatees” The country lags behind others countries cy’s Business Incubation Centre UK, just tame this final, farming frontier? in agricultural productivity (see chart). Yet British farmers have little time to get up to speed. Tom Hind of the Agriculture and Horticulture Development Board, an industry body, says that productivity growth has been so sluggish that “this is like turning around a supertanker.” He argues that Britain is good at agri-science, but not at applying it to farming—though there are growingattemptsto do this, sometimes with European help (see box). Back in the Usk Valley, farmers wait to learn their fate. Agricultural policy has been devolved to the governments ofScot- land, Wales and Northern Ireland, which might choose to continue directly prop- ping up farms ifthey do not like the lookof Mr Gove’s new system. As one Welsh official says, the local coal and steel industries were virtually wiped out in the 1980s. In some areas farming, “a social anchor to Double-cluck communities”, is all they have left. 7 The Economist September 1st 2018 Britain 21

the shadow Brexit secretary, have been Northern Ireland careful not to rule out a referendum in any circumstances. A parliamentary rejection Total recall? of a deal may not trigger an election, and an election mightnotchange the dynamics of Brexit. Hence the case for another vote, which is now endorsed by many of La- BALLYMENA bour’s leading trade-union backers. Sever- Voters hope to force a by-election on al unions support moves to persuade the theirmisbehaving MP Labour conference in late September to call fora new referendum. ET him out! Get him out!” calls a One reason for this is the perception “Gmiddle-aged woman hurrying that public opinion is shifting. Recent sur- along a damp Ballymena street in North veys by YouGov, a pollster, seem to sup- Antrim. “He’s a muppet!” Ian Paisley, the port this. Peter Kellner, a former president local Democratic Unionist MP, may be of YouGov, concludes from the latest evi- used to this sort of criticism from dence that what was a 52-48% Leave major- nationalist opponents. But he now finds ityin June 2016hasswitched to a 53-47% Re- himself under fire from both sides of main one. He says the shift against Brexit is Northern Ireland’s political divide. “I almost marked in Labour seats, especially in ways vote DUP,” says the woman, “but I the north, which voted strongly for Leave. thinkhe has done wrong—absolutely.” This has led some campaigners to argue Her judgment is in line with the House that Mr Corbyn’s fuzzy position on Brexit of Commons, which voted in July to im- could deprive him of as many as 4m new pose an unusually severe penalty on Mr Labour and Brexit votes. Labour insiders dismiss such claims. Paisley for failing to declare two family Brexit is widely identified with the Tories holidays to Sri Lanka, paid for by the Sri Corbyn’s in any event. And they think any shift in Lankan government. The trips, which took public opinion is too small to justify a place in 2013, featured business-class air conundrum stronger pro-Remain position. travel, swanky hotels and helicopter A report due out next week from Nat- flights, in a package worth at least £50,000 Cen Social Research, based on continuing ($65,000). Later, Mr Paisley pressed the surveys of the same panel of voters, sug- British government to oppose a move by Pressure grows on the Labourleaderto gests that the public mood is indeed chang- the United Nations to investigate human- backareferendumonaBrexitdeal ing. Concerns about immigration, a huge rights violations in Sri Lanka. VEN as Brexit negotiations are being issue in June 2016, have receded. Fully 60% The Commons standards committee, Espeeded up, talk of missed deadlines of respondents would accept free move- finding him guilty of misconduct in break- and a possible no-deal outcome seems to mentofEU citizensin exchange forkeeping ing rules on lobbying, recommended his grow. That strengthens the groups such as trade as free as now. At the same time the suspension from the House for 30 sitting People’s Vote and Best for Britain that are panel has become markedly more pessi- days, the stiffest penalty imposed since re- campaigning for a referendum on any mistic about the economic consequences cords began in1949. It will begin when Par- Brexit deal, with an option to remain in the of Brexit, with 51% expecting to be worse liament returns on September 4th. Mr Pais- European Union instead. Polls on whether offas a result. The researchers find that this ley has also been suspended by his party, people want another vote are inconclusive new pessimism has been decisive in shift- pending its own investigation. and often heavily dependent on the ques- ing both some previous Leave voters, and His punishment opens the possibility 1 tion’s wording. But if Parliament cannot most of those who abstained in June 2016, agree to a deal and the alternative becomes towards Remain. to leave without one, most voters seem to Mrs May’s Chequers proposal, which prefera new referendum. emerged after most ofthe NatCen research Campaigners are focusing their efforts was conducted, may have accelerated this on Labour and its leader, Jeremy Corbyn. shift. As Sir John Curtice of Strathclyde He is a long-standing Eurosceptic. Labour’s University, who supervised the study, position is to respect the result of the 2016 notes, Chequers is hugely unpopular with referendum but demand a Brexit that Leave voters, who see it as too soft. Yet at passes six tests, notably to protect jobs and the same time Mrs May gets little credit for the economy.On this basis it seems sure to it from Remainers. And voters from both oppose any deal that Theresa May brings sides fault her forincompetent handling of back from Brussels. If Parliament defeats the Brexit negotiations. Demographic this, Mr Corbyn wants a general election, change also counts, as young people are not another referendum. The party wor- overwhelmingly anti-Brexit. ries that supporting another referendum All this should create openings for the might cost it Leave voters, by seeming to opposition. Yet no matter how much the align too closely with a Remain-backing party tries to shift the debate to other is- establishment. Complicating its position sues, Mr Corbyn’s perceived ambiguity are fears that the real ambition of anti- over the EU and a possible fresh referen- Brexit (and anti-Corbyn) Labour MPsnow dum continues to be a problem forLabour. is to start a new centrist party. And that is why the party’s conference in Yet some senior Labour figures are September, the last before Brexit is due to more equivocal. Both John McDonnell, the happen, is likely to see fierce fighting over shadow chancellor, and Sir Keir Starmer, the issue. 7 Paisley’s for the high jump 22 Britain The Economist September 1st 2018

2 that Mr Paisley may face an electoral con- The younger Mr Paisley took it over with a surance. None ofthishasbeen held against test. Under a recall procedure established large majority. He would be the favourite him in North Antrim, where his majority in 2015, following a scandal over MPs’ ex- to win a by-election, should his opponents last year increased to more than 20,000. penses, if an MP is suspended then a by- muster the signatures needed. He has “It was just a bit of bad luck for him— election can be triggered if10% of voters in vowed to run as an independent in the un- nothing too bad, I don’t think. Why the constituency call for one. Mr Paisley’s likely event that the DUP deselects him. wouldn’t you take a bit ofcomfortif you’re suspension presents the first time that vot- It is not Mr Paisley’s first time in hot wa- offered it?” says one voter in Ballymena. ers have had such an opportunity since the ter. In 2008 he resigned as a minister in the Others have had enough. “What was he power was introduced. Three offices have Belfast Assembly, saying that months of thinking of, sitting on a first-class flight been opened in North Antrim where vot- “unfounded allegations” that he had lob- with hischildren behind him? Did he think ers can register their support for a recall. bied for a local property developer had Sri Lanka was paying for it because of his Sinn Fein, the main nationalistparty,isurg- proved “a distraction”. In Westminster he good looks?” asks a unionist. Still, Mr Pais- ing its followers to call for a contest. has distinguished himself as one of the ley will survive any attempt to dislodge North Antrim has long been a strong- highest expenses claimants among MPs. him, reckons one Catholic man. “I think hold forthe DUP, and forthe Paisley family He has said he is “repulsed” by gay people he’s too strong in Ballymena,” he shrugs. “I in particular. The incumbent’s father, also and used the word “chinky” as a synonym think people will stand by him no matter called Ian Paisley,held the seat for 40 years for Chinese. He has been fined for con- what. His loyal voters will still vote for before bequeathing it to his son in 2010. tempt of court, and for driving without in- him—the Paisley name.” 7

Girls’ happiness Personal finances Sometimes it’s hard The Wonga paradox Worries about looks, fedbysocial media, are making girls glummer N MANYmeasures, from exam countries teenage boys are a bit cheerier results to interest in science jobs, than girls, according to the World Health O The payday-loan industry is shrinking, boys and girls in Britain are becoming Organisation. But the growing despon- but Britain’s debt problem is growing more similar. But on one they are drifting dency ofBritish girls may have worsened apart. According to a report published on the country’s already poor standing in HE death of Kane Sparham-Price came August 29th by the Children’s Society, a international comparisons ofchildhood Tto symbolise all that was wrong with charity, girls have become increasingly happiness. In one such survey in 2010, Britain’s “payday lenders”. The 18-year-old, unhappy in recent years. Measured on a England ranked 30th out of39 countries who suffered from mental illness, hanged ten-point scale ofself-reported happi- in Europe and North America. himself. A coroner’s report in 2014 noted ness, the average score forgirls aged 11-15 Alarmingly, the Children’s Society that on the day he died, Wonga, a provider fell from 8.2 in 2010 to 7.8 in 2016. Boys found that one in five 14-year-old British of short-term, high-cost credit, had taken remained chirpy, theirscore hardly mov- girls had self-harmed in the past year, as from him part-payment for a debt, empty- ing from 8.3 to 8.2. had one in ten boys. This was the first ing his bank account and leaving him in Girls have always been a bit sadder time children had been asked the ques- “absolute destitution”. Small wonder that than boys. But in the late 1990sthey tion, so it is unclear whether the problem many Britons welcomed the news this began to cheer up, almost catching up is on the rise. The researchers found, week that Wonga was apparently nearing with boys in 2010. The reversal in this however, that a tendency to self-harm collapse, seeing it as a sign that the country trend has various causes, including the was linked more closely to children’s had kicked its reliance on such lenders. Yet fact that boys are feeling better about self-reported unhappiness than it was to focusing on Wonga’s woes misses the big- their school work, an area where girls a 20-item measure ofemotional and ger picture. Britain’s household finances have long been more confident. But the behavioural difficulties that is currently lookincreasingly shaky. most dramatic change is that girls are used to spot mental-health troubles. That Regulatory changes introduced by the worrying a lot more than they used to suggests a way to begin to tackle the Financial Conduct Authority (FCA), which about their appearance. Here, the gap problem: to find out how children are came into force from 2014, have under- between boys and girls is the widest in 20 feeling, askthem. mined Wonga and other lenders’ business years (see chart). models. The new rules include limiting the What is to blame? The rise ofsocial daily interest rate, including fees, to 0.8% of media is one suspect. What is shared Selfie-harm the amount borrowed, where daily rates online amplifies gender stereotypes, Britain, happiness about appearance* (0-10) of over 10% were once common. The FCA reckons Richard Crellin ofthe Children’s 11- to 15-year-olds also limited the total amount that borrow- Society. The effect may have been to ers could pay in interest and fees. All this 8.0 bring them backto where they stood in has made much payday lending unprofit- Boys the 1990s. Girls in schools where images 7.5 able. Although it is perhaps the most noto- or videos ofother people’s bodies are rious lender, Wonga is not the only one shared a lot are unhappier with their 7.0 struggling. Our analysis suggests that the appearance than those in schools where Girls FCA’s reforms have reduced the number of this is rare. For boys, the opposite seems 6.5 firms operating in the payday-loan market to be the case: a greater circulation of by more than 90%. such images actually increases their 6.0 Britons who enjoyed the speed with happiness with their looks. which they could get credit may bemoan 1995 2000 05 10 16 Britain’s gender gap in child happi- the demise of the payday-loan business. ness is not unique. In most European Source: Children’s Society *Three-year moving average Many took out short-term loans with no problem. Yet, overall, households are prob-1 The Economist September 1st 2018 Britain 23

2 ably better off for the industry’s demise. Theresa May in Africa Mrs May promised a further £4bn ($5.2bn) Many lenders’ business models relied on in support for the continent. Most of this “sweatbox lending”, in which debtors Doing the Brexit will be channelled through CDC, the gov- were encouraged to take out new loans ernment’s overseas investment arm, re- again and again when they entered or shimmy flecting a shift in priorities away from neared default, says Joseph Spooner of the spending on poverty reduction and to- London School ofEconomics. wards creating more businesses. The CAPE TOWN AND LONDON What ofthe most common objection to prime ministeralso promised more help in Britain scrambles to catch up on a toughening rules on payday lenders—that areas where Britain has acknowledged continent where it has slipped it would force borrowers to turn to loan strengths. In both Kenya and Nigeria, Brit- sharks, who charged even more? Research USTasactorsshould neverworkwith an- ish armed forces have been involved in from the FCA “found no evidence that con- Jimals, so politicians should probably combating Islamist insurgencies. sumers who have been turned down for never dance, at least in public. Nelson As Lord Boateng, a former high com- [high-cost credit] are more likely to have Mandela could carry it off. But Theresa missioner to South Africa, pointed out, subsequently used illegal moneylenders.” May’s attempt at a boogie with some pu- Britain is “late to the party”. In the past de- Meanwhile, over 60% of those rejected for pils at a school in Cape Town at the start of cade, other countries have been more high-costloansafterthe reformsultimately a three-day tour of the continent merely proactive in extending their influence in say that they are better offas a result. looked awkward—much like Britain’s wid- Africa. This is partly reflected in the num- A smaller payday-loan market is likely er relationship with Africa these days. ber of diplomatic missions that countries to lead to fewer cases where minor debt The prime minister’s visit this week to maintain on the continent. Britain has 31, problems morph into crises, and thus to South Africa, Nigeria and Kenya, with 29 and is due to open two new ones in Niger fewer tragic stories like that of Kane Spar- business people in tow, was another at- and Chad. But Germany has 39, China 46 ham-Price. But the reforms do little to ad- tempt to shore up Britain’s position in the and America 49. France says it has 42 in dress the root causes of indebtedness. And post-Brexit world. With long-standing Sub-Saharan Africa alone. In July, India an- here things are looking worse. links to many sub-Saharan countries—a nounced that it would open 18 new embas- In the past two years, both the labour legacy, often, of colonial rule—if “Global sies. Turkey had just 12 in 2009; now it market and the welfare state have Britain” can’t prosper in Africa then the boasts 39. squeezed many Britons. Real wages have outlook more generally will be pretty “We have been visibly absent, and the not grown. Since April 2016 the govern- bleak. Thus one of Mrs May’s first an- Africans notice this,” argues Nicholas ment has frozen most working-age welfare nouncements was that Britain had suc- Westcott, head of the Royal African Soci- benefits in cash terms, as higher inflation ceeded in rolling over the current trade ety, a British organisation which promotes has eroded their purchasing power. deal that the European Union has with the continent. More than in most places, Britons have thus dipped into their savings Mozambique and the South African Cus- personal connections matter. Whereas in order to keep spending. toms Union (comprising South Africa, Bo- Mrs May’s trip was the first by a British Though there is no perfect measure, it tswana, Lesotho, Namibia and eSwatini, prime minister to Africa since 2011(except- appears that financial distress has risen. A formerly known as Swaziland) to Britain ing David Cameron’s dash to Nelson Man- survey from the Bank of England points to when it leaves the EU. dela’s funeral in 2013), Emmanuel Macron a rising share ofBritons who are “very con- To strengthen Britain’s hand in Africa, has already visited eight African countries cerned about debt”. The number ofpeople in his year and a bit as France’s president. turning to StepChange, a debt charity, for China’s top leaders have made 79 trips to help fell after the financial crisis of Africa since 2007. Britain has churned 2008-09 but has since increased again. Last through six Africa ministers since 2012, to year 620,000 people contacted the charity, the exasperation ofAfrican diplomats. more than everbefore. The rate ofpersonal All this adds up. Mrs May’s arrival insolvenciesstarted goingup in 2016. In the made little impression in South Africa, second quarter of 2018 the pace of increase where politicians are busy preparing for a quickened. Those in financial distress are China-Africa jamboree in Beijing. Africa’s likely to cut back sharply on spending, trade with Britain is worth $36bn, a fifth which is bad for the economy. They are the value of its trade with China and a also more likely to fall into physical or tenth that of its trade with the EU. Britain mental ill-health. still carries heft only in terms of aid, where The government has promised to help it is more generous than almost anyone, “just-about-managing” families. Yet its and direct investment, where it lies just be- measures to aid people in debt are limited. hind America (and aims to overtake it by Ministers have proposed a statutory 2022, Mrs May said). “breathing space”, whereby a person with Furthermore, the prime minister de- debt troubles could get legal protection clined to fix Africans’ particular bugbear from creditors for six weeks. That would with Britain: the cost and difficulty of get- increase demand for debt-advice services, ting a visa to work, study or just go on holi- points out John Fairhurst of PayPlan, a day there. In South Africa Mrs May talked debt-management firm. Yet so far the gov- about “the partnerships and ideas that will ernment has said little about the extra bring benefits for generations to come”. funding for such services that would That may ring hollow to the young Afri- surely be necessary. Meanwhile, it seems cans who have been turned away by the unwilling to unfreeze welfare benefits. Home Office. The number of African stu- Wonga’s passing would mark the end of a dents in Britain has fallen from 17,815 in grim chapter in British economic history, 2012-13 to 13,990 in 2016-17. As one observer but it is far from the end of the country’s puts it, Britain puts on a smiling face but personal-debt troubles. 7 See that girl, watch that scene slams the door. 7 24 Britain The Economist September 1st 2018 Bagehot Steeled in war

Britain has produced a new generation ofsoldier-statesmen has a couple of veterans. Clive Lewis served briefly as a reservist in Afghanistan. Dan Jarvis had a distinguished career as a para- trooper, forging an elite unit ofAfghans to take on the Taliban. Military service has helped to turbo-charge the political careers of the rising Torystars. Mr Tugendhat was selected to represent the safe seat of Tonbridge and Malling, despite never having fought an election. Two years after being elected he defeated a well-entrenched incumbent for the chairmanship of the Foreign Affairs Select Committee. Mr Mercer won Plymouth Moor View, which the partyhierarchyhad dismissed asunwinnable. The picture on the left is more complicated, given Mr Corbyn’s hostility to the armed forces. But Mr Jarvis has nevertheless shone and would make a first-rate future leader. There are encouraging signs that these soldier-statesmen can offer a solution to the country’s crisis of faith in leadership. They can tackle the problem of cynicism by advocating values such as service, duty and country. Language that rings hollow in the mouths of career politicians can sound noble and inspiring in those of men like Mr Mercer who have seen their best friends shotin frontofthem. Theycan deal with the problem of partisan- ship by instinctively reaching across party lines. Mr Tugendhat HENEVER it has been confronted with crisis in the past, points out that he has a personal bond with Mr Jarvis, with WBritain has summoned up leaders worthy of the challenge. whom he served in Afghanistan, that transcends political divi- Yet today it faces the crisis of Brexit without any leaders who de- sions (“We did something that is unusual in modern life and that serve the name. Theresa May has dithered where she should is very bonding”). He also points out that fighting in a real war have been decisive and been decisive where she should have puts political wars in their proper perspective. dithered. Jeremy Corbyn has been on the wrong side of most of There are objections to the idea that soldier-statesmen can fix the serious arguments in post-war history. As for Boris Johnson, Britain’s leadership problem. Does the political system need an- the man most likely to try to unseat the prime minister before the other excuse to promote men over women? And does Brexit Brit- next election, he is regarded by his friends and enemies alike as ain really need a dose ofmilitarism? These objections are weaker shallow, showboating and self-serving. than they sound. The Tory party can martial two rising female Britain suffers from more than just a shortage ofleaders. It suf- stars with military backgrounds: Penny Mordaunt, the develop- fers from a growing problem oftrust in leadership in general. The ment secretary, isa Royal Navy reservist, and Ruth Davidson, the country long ago turned against professional politicians such as leader of the Scottish Conservatives, was in the Territorial Army. Tony Blair and David Cameron, who slithered from Oxbridge to Moreover, soldiers are less likely to resort to war than civilians, the cabinet while barely making contact with the public. But its precisely because they know its cost. The politician who is keen- brief flirtation with conviction politicians is beginning to sour, est on roaring like a lion is Gavin Williamson, the defence secre- thanks to anti-Semitism on the farleft and swivel-eyed incompe- tary, who spent his early career selling fireplaces. By contrast a tence on the Brexit right. real hero like Mr Mercer has devoted himselfto fighting forbetter The death ofJohn McCain, America’s great soldier-statesman, treatment for veterans, particularly those suffering from post- is a reminder that Britain has another model ofleadership to turn traumatic stress disorder, a common affliction among his friends. to: politicians who experienced the real world in the sharpest way possible before going into politics, but who are tempera- The battle ahead mentally sceptical ofpolitical dogma. Politics was defined by sol- The most powerful argument in favour of soldier-politicians is dier-statesmen for much of the post-war era. Clement Attlee and thattheyare in a unique position to solve the biggest problem fac- Harold Macmillan both served in the firstworld war, and Edward ing the country: the growing social divisions between the elite Heath and James Callaghan in the second. This tradition faded in and the masses, the provinces and the capital, and, indeed, be- peacetime but is now being renewed, after a succession of wars tween Brexiteers and Remainers. This is not just because they in the Balkans, Iraq and Afghanistan. have access to a language of patriotism that is denied to people Soldier-statesmen are easiest to find on the Conservative side. who haven’t risked their lives in combat. It is because they are Tom Tugendhat served in the Territorial Army in Iraq and Af- probably the only members of the leadership class who have ghanistan, and ended up as military assistant to the chief of the lived cheek by jowl, day in day out, with people from every class defence staff. Adam Holloway, a captain in the Grenadier Guards, of society. The one-nation politics that dominated during the claims that he liberated one of Saddam Hussein’s lavatory post-war boom was forged in battle. In his maiden speech in the brushes from his palace in Baghdad. James Heappey was a major House of Lords, at the height of the miners’ strike, Macmillan de- in the Rifles. Johnny Mercer was the captain ofa commando regi- scribed the miners as “the best men in the world, who beat the ment. Rory Stewart served briefly in the BlackWatch and eventu- Kaiser and Hitler’s armies and never gave in.” Perhaps the battle- ally pursued a Lawrence of Arabia career which involved work- fields of Afghanistan and Iraq will help to produce a new type of ingin Iraq and Afghanistan. (He denies rumours that he followed one-nation politics that can bring Britain back together after the his father into the intelligence services.) The Labour Party also shocks ofthe financial crisis and Brexit. 7 Europe The Economist September 1st 2018 25

Also in this section 26 Ever more sanctions against Russia 26 Serbia and Kosovo mull a land swap 27 Naked Europe becomes body-shy 28 Charlemagne: Life in the centrifuge

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

Populism in Italy tends to introduce immediately three expensive measures that had previously Gearing up for a fight been expected to be phased in gradually: income support for the poor and unem- ployed; lower rates of income tax; and the rollbackofa pension reform. A big deficit would add to Italy’s already sky-high public debt-to-GDP ratio of ROME around 130%, eroding investors’ confi- Italy and the EU prepare fora testing time overmigrants and budgets dence in its ability to meet its obligations. S ITALIANS trickled back to the cities they were at a “historic turning point” in Unsurprisingly, the riskpremium on Italy’s Afrom holidays on the coast and in the Europe. With traditional conservatives in- benchmark bonds has more than doubled sun-baked countryside, the scene was set creasingly clashing with hardline popu- since before the formation of the govern- this week for what promises to be a diffi- lists, he may well be right. ment, raising the cost of state borrowing cult autumn. Over both the enduring pro- Still, Mr Salvini is in a more complicat- and weakening the balance-sheets of Ital- blem of what to do about migrants arrived situation than mightatfirstappear. He is ian banks. Mr Di Maio is playing a risky ing from north Africa and the even older allied to another populist party, the Five game. But what is the prize? problem of Italy’s dangerously anaemic StarMovement (M5S), that spans the politi- economy, clashes with the EU are looming. cal spectrum. How longwill the M5S allow Unleashing demons In the latest flexing of his muscles, Ita- itself to be dragged along in his wake? Ro- The most banal, and likely, answer is that ly’s interior minister and leader of the berto Fico, its lower-house Speaker, criti- he is ramping up tension with Brussels to Northern League, the pugnacious Matteo cised Mr Salvini’s handling of the Ubaldo help secure the greatest possible freedom Salvini, kept more than a hundred asylum- Diciotti affair, but was slapped down by to pump cash into the economy and stimu- seekers cooped up on one of Italy’s coast- the M5S’s leader, Luigi Di Maio, who, like late growth. But his bluster inevitably kin- guard vessels, the Ubaldo Diciotti, for al- Mr Salvini, is a deputy prime minister. The dles suspicions that the League and the most a week as he demanded EU agree- incident highlighted the possibility of a M5S, neitherofwhich is committed to euro ment on a policy for the redistribution of split in the ideologically heterogeneous membership, may be plotting to extricate migrants. After a meeting in Brussels end- M5S which, as one of its lawmakers specu- Italy from the shared currency, if not the ed without progress, the Italian Catholic lated, MrSalvini may be tryingto promote. EU. A third possible explanation is that Mr church helped to broker a deal. Most of the Such a split would give him an opportuni- Di Maio, whose party is nominally the se- asylum-seekers entered Italy under its aus- ty to bring the right wing of the M5S into niorpartnerin the coalition government, is pices; 20 each went to Ireland and, some- his already fast-growing League. tryingto regain the initiative by outbidding what improbably, to Albania. The dispute over immigration forms Mr Salvini in the extravagance of his But this is only a temporary and partial part of the Italian government’s broader threats and demands. climb-down. Mr Salvini and his political challenge to the established EU order. On The danger is that, in so doing, he will soulmate, Viktor Orban, the prime minis- August 27th, Mr Di Maio threatened to create unrealistic expectations in a country ter of Hungary, made clear during a meet- withhold Italy’s contribution to the EU’s where a large share of the population feels ingin Italy this weekthat they plan to build next seven-year budget if its demands over it has been left to deal with immigration an EU-wide, anti-immigration front for the migration were not met. The next day he alone and where almost everyone has ac- European elections next year (though they hinted that Italy’s own budget for2019, due cepted the alibi long put forward by gov- are at odds over the sharing of migrants). to be unveiled in September, could involve ernments of left and right alike: that Italy’s They plan to challenge the centrist alliance running a deficit of more than 3%, the limit distressingly low growth is not because of that France’s president, Emmanuel Mac- imposed by euro-zone rules. their own failure to introduce structural re- ron, is trying to forge, and which they de- That rattled capital markets, not least forms, but entirely because of the Euro- pict as pro-immigration. Mr Salvini said because Mr Di Maio also said that he in- pean Commission’s stinginess. 7 26 Europe The Economist September 1st 2018

Russia and sanctions omist of Alfa-Bank, Russia’s largest private raine, can lift the sanctions-created uncer- lender. This would be painful, but stop tainty that dampens investment and A thickening web short ofthe abyss: America cannot impose messes up budget planning. Compared Iranian-style sanctions—such as banning with a year earlier, foreign direct invest- the purchase of Russian oil and gas—with- ment fell by more than 50% in the first half out harmful effects on the global economy. of 2018. “When the risk is debt, you can The Russian authorities, meanwhile, build scenarios,” says Ms Orlova. “But MOSCOW have been taking prudent steps to prepare. when the risk is sanctions, it’s impossible Despite Donald Trump, Russia is being “Theyhave both insulated and isolated the to know.” Many see the peril increasing as hit harderand harder economy,” says Chris Weafer of Macro-Ad- America’s midterm elections approach. ARELY a week seems to pass without visory, a consultancy. The Russian central The irony is that the risk of new sanc- Bnews of fresh Western sanctions bank has dumped or disguised ownership tions now emanates not only from Mr Pu- against Russia. Sergei Elkin, one of Russia’s of four-fifths of its holdings of American tin, but from Mr Trump aswell. His subser- most popular cartoonists, recently cap- government debt, following sanctions im- vience to Mr Putin at a July summit in tured the mood with a caricature of a hap- posed in April. The government has been Helsinki spurred senators to draft the less-looking Vladimir Putin holding a cell funnelling extra revenues from rising oil DASKA bill, says Andrew Weiss of the Car- phone to his ear. “To hear more informa- prices into refilling its National Welfare negie Endowment for International Peace. tion about new sanctions, press one,” read Fund and building up reserves. And a “[The bills] are born out of a deep distrust the caption. weaker rouble actually helps exporters, ofthe presidentwhen itcomesto Russia,” a In August alone, America has slapped though at the cost ofhigher inflation. senior senate aide concurs. Even if Russia penalties on Russian shipping firms ac- Yet no policy moves, short of with- behaves this autumn, tweets from Mr cused of trading oil with North Korea; im- drawing Russian forces from eastern Uk- Trump could well spur their passage. 7 posed restrictionson the armstrade in connection with the poisoning of ex-Russian spy Sergei Skripal in Salisbury; and begun Serbia and Kosovo congressional hearings on two new pieces oflegislation designed to punish Russia for Pandora’s box its interference in elections. Further Skri- PRESEVO AND MITROVICA pal-linked measures may follow in three Leaders ofKosovo and Serbia talkabout swapping land months’ time. Markets have been scrambling to digest HE end ofthe Yugoslav wars 20 years their impact. The greatest threat to Russia’s ago left hundreds ofthousands of Majority ethnic SERBIA T Serbian economy comes from the two proposed people in states they did not regard as bills, the Defending Elections from Threats their own. Tough, said the peacemakers: Mitrovica MONTENEGRO Pristina by Establishing Redlines Act of 2018 (DE- redrawing borders would only lead to B U TER) and the Defending American Securi- more conflict. As a result, some 120,000 L KOSOVO Presevo G DASKA A ty from Kremlin Aggression Act ( ). Serbs remain in ethnic Albanian-domin- R Presevo I Senator Lindsey Graham, one of DASKA’s ated Kosovo; some 60,000 ethnic Albani- valley A six bipartisan co-sponsors, called it the ans live in the Presevo valley in Serbia. “sanctions bill from Hell”. When details of Some local leaders have long been MACEDONIA Adriatic Tirana its contents made their way into the Rus- keen on a swap, but until recently the EU Sea sian press in early August, the rouble slid to and America have discouraged the idea. two-year lows (see chart) and the share That has changed. Federica Mogherini is GREECE prices ofRussian state banks began falling. said to want an agreement on Serbian ALBANIA Majority ethnic Investors see several reasons to worry. recognition ofKosovo by the end of her Albanian Chief among them are proposed bans on term as the EU’s high representative for 75 km trading new Russian government debt and foreign affairs next year, and a land swap limits on the operations of state banks. could be one way ofgetting one. America and Mr Vucicactually have no intention With state-owned lenders accounting for no longer opposes the idea, according to ofchanging borders, but are preparing for over 60% of the sector, bans on just a few a remarkby John Bolton, the national a deal on a form ofSerbian autonomy could force a “restructuring ofthe financial security adviser, on August 24th. Perhaps within Kosovo in exchange forrecogni- system,” argues Natalia Orlova, chiefecon- that is thanks to Trumpian enthuiasm for tion. Though both sides will hate the doing deals, and fornationalism. Serb deal, at least their leaders will be able to and Kosovar officials are also keen to say that they preserved precious territory. The chill from the west Skripal- hurry things along before European But ifthe borders are indeed redrawn Russian roubles per $ related parliamentary elections next May, be- here, what about those ofMacedonia, a enacted Inverted scale cause they may herald a more populist, few miles away, where a quarter ofthe DASKA introduced 50 US presidential anti-enlargement Commission. population is Albanian? And what about election passedCAATSA* applied For more than a month, Hashim Bosnia, where Milorad Dodik, the local Thaci, Kosovo’s president, and Aleksan- Serb leader who wants independence 60 dar Vucic, his Serbian opposite number, from Bosnia, says—using deliberately US sanctions DETER bills introduced have been making ambiguous state- ambiguous language—that the region’s 70 ments about a possible deal. The obvious Serbs should markout what is theirs and “Oligarch list” released swap is ofKosovo’s Serbian-inhabited what is their neighbours’? Asked about north forSerbia’s Presevo valley, but the riskofconflict, Shaip Kamberi, the 80 locals are divided about whether it Albanian mayor ofBujanovac in the 2016 17 18 should, or will, happen. Presevo valley says: “It is not us opening Source: *Countering America’s Adversaries Many analysts believe that Mr Thaci Pandora’s Box. We are the box!” Thomson Reuters Through Sanctions Act The Economist September 1st 2018 Europe 27

Naked Europe judgmentally. The one thing that will earn a disapproving stare is wearing clothing, All the young prudes because such modesty implies an inappropriate level ofsexual consciousness. The latest German innovation is the aufguss (“infusion”) sauna, in which nude audiences enjoy Las Vegas-style performances by muscular, towel-swirling em- TORNIO AND AMSTERDAM cees who infuse the steam with herbal aro- The home continent ofpublic nakedness is growing more body-shy mas. The paradigmatic Dutch sauna might AKED, we are equal,” proclaims Ida the increasing ubiquity of online pornog- be Zuiver (“Pure”), a spa complex outside “NKarkiainen. The Swedish MP is ad- raphy is making it difficult to de-sexualise Amsterdam whose name subliminally dressing a packed hall at the 17th Interna- the naked body, a prerequisite for nudist links nakedness with the country’s noth- tional Sauna Congress in Tornio, Finland. beaches and unisex saunas. ing-to-hide Calvinist morality. She draws a round of applause from the Today,nudists complain, it is more diffi- crowd, a mix of sauna entrepreneurs and cult to separate nakedness from sex. Sweating, the details enthusiasts from Europe and Japan, along French nudists say their movement’s Yet in 2011 Zuiver introduced swimwear with a few North Americans. It is impor- younger members are overwhelmingly days, currently three per week. Most Dutch tant, Ms Karkiainen continues, that both men; women are leery of being leered at. saunas now have clothing-optional hours. sexes sit nude in the sauna together. After “Parts of Cap d’Agde have been complete- Fear of unwanted photos is not a problem: all, political and business deals are often ly sexualised,” says Wim Fisscher, owner mobile phones must be handed in at the made in the swirling steam, and one of Adam and Eve, the last nude beach res- door. But sauna owners say that with mo- would not want such an important venue taurant in the Dutch town of Zandvoort. res changing, they need to appeal to poten- ofpower to exclude men. He has had to turn away Dutch sadomas- tial clients who are more bashful, whether Itishard to imagine such a speech being ochists who turned up with leash and col- because they are young or from conserva- made by a politician anywhere outside Eu- lar. Toplessness on European beaches is tive immigrant backgrounds. rope. Beginning in the late 19th century, dwindling. In1984 a survey found that 43% There are pockets of Europe where so- ideas about freedom, equality, health, sex- of French women under 50 sunbathed cial nudity is getting a second wind. Jesce uality and public space came together to bare-breasted. By 2017 that had fallen to Walz, an architecture student researching create a distinctly European enthusiasm 22%, and arguments over beachwear cen- saunas, notes a wave of hip new public forgoing unclothed. In Scandinavia the fo- tred not on whether bottoms-only suits ones in Finland, where they were once cus was the sauna. In Mediterranean coun- covered too little but on whether the long- mainly found in private homes. In Swe- tries it was the beach. In Germany it was sleeved “burkinis” worn by some Muslim den, more mixed-sex saunas are opening. everywhere: the country’s Freikörperkul- women covered too much.“On the one French nudists say urban get-togethers tur (“free body culture”, or FKK) encour- hand young people nowadays watch the such as nude bowling nights are packed, ages stripping off while gardening, playing craziestsortsofporn, and on the other they though overwhelmingly with men. sports or taking lunch breaks in the park. find it harder to take their own clothes off,” But the vision of nakedness as a de- Yet Europe’s taste for bare skin is in re- observes Mr Fisscher. In the late 1980s monstration of freedom and equality treat. Nudist beaches and resorts, topless there were seven nude restaurantsin Zand- seems to be faring less well. Nudity has sunbathing and nude unisex saunas are voort. He estimates that the average age of been central to European culture since the declining. Football teams report that play- his patrons has risen to about 50. Greeks first sculpted Hermes. That will not ers are unwilling to remove their under- If any space is more embarrassing for change. What may be vanishing, though, is wear to shower after matches. In recent non-European tourists than a French nude a particular20th-century European dream, years, commentators across the continent beach, it is a German or Dutch sauna. They for which all one needs is a patch of Medi- have remarked on a new prudishness. are unisex and naked by default. All bo- terranean coast or a Scandinavian forest The retreat of nudity has unpredictable dies, thin, fat, youngorold, are treated non- and the willingness to strip off. 7 political overtones. During Germany’s election campaign in 2017, Gregor Gysi, the leader of the Left party, lamented the conservative turn represented by the decline of FKK, which had been strongest in the former East Germany. In the Netherlands, the issue is more often invoked on the right. In 2016 Mark Rutte, the centre-right prime minister, worried about a future in which nude beaches have vanished because the country has “surrendered to the wishes of a cultural minority”—by which he meant Muslims. But while immigration plays a role in Europe’s increasing modesty, other factors are more important. The rise of social media has made young people more body- conscious, reluctant to display anything less than perfect abs. Smartphones with cameras make risqué undress riskier. The #MeToo movement has forced a reassess- ment of even fully clothed interactions between the sexes, let alone naked ones. And Where have all the young men (and women) gone? 28 Europe The Economist September 1st 2018 Charlemagne Life in the centrifuge

What Europe can learn from the collapse ofthe Habsburg empire a century ago ment. Followingitsannexation ofBosnia, the empire was the first western European state to recognise Islam. Like the EU, the Habsburg empire seemed to suspend history. Germans, Hungarians, Slavs and sizeable Muslim and Jewish populations mingled in cosmopolitan cities like Vienna and Prague, Trieste and Lviv. Paul Lendvai, a Hungarian-Austrian writ- er born in Budapest in 1929 recalls: “My father always said peace was not having to show your passport.” The old order’s full value became clear only after it collapsed, when the dark energy of them-and-us took hold and the region succumbed to petty ha- treds, economic disintegration and the whims ofoutside powers. One lesson above all lives on: do not take the loyalty ofa multinational block for granted. The Habsburgs charmed their subjects by giving them relative freedom, material benefits and protection under the law from the whims of local barons. “They created a situation where ordinarypeople could see their own interests in institutions ofempire,” explains PieterJudson, a leading historian of the empire. But when tough times came with the start of the war, he explains, it turned out that these loyalties had been contingent: “The state didn’t provide what it promised to provide. There was no food and no fuel. Men went to the front, GOLDEN late-summer light filters through the windows of women to the factoriesand children were lefton the streets. Loyal Athe Café Landtmann. Bow-tied waiters move among tower- nations—the Ukrainians, the Serbs, the Czechs—were persecuted ing hot-house plants. Officials huddle around a table. They are without foundation.” When the empire was dissolved after its frettingaboutfragmentation: Europe’snorth ispeelingawayfrom defeat, it was not greatly mourned. its south; easterners feel like second-class citizens; outside pow- Today’s EU is even weaker, fears Mr Judson: built on good liv- ers are trying to divide and rule. This might be a scene from the fi- ing but without deeper roots. His home country, America, is a nal days ofthe Austro-Hungarian empire in 1918. In fact it is today, multinational, federal state that survives on common feeling. 100 years later. For once more the spectre ofEuropean fragmenta- “But as an American living in Europe I feel that the stakes of be- tion haunts Vienna. longing to the EU are not understood at all.” It haunts other capitals, too. In Berlin, Angela Merkel urges her ministers to read “The Sleepwalkers”, an account of the political Hearts and minds failures that led to the first world war. Political Brussels is redis- European leaders can learn from the weaknesses ofAustria-Hun- coveringStefan Zweig’s tales ofpost-HabsburgAustria. In Rome a gary. Europe’s citizens today may have no affection for the bu- populist government is preparing to battle the EU institutions reaucracy, but like the subjects ofthe old empire they will tolerate over budget rules and to seed a new nationalist blockin the Euro- it for as long as it generates wealth and preserves their freedoms. pean Parliament. Emmanuel Macron, France’s liberal hope, is los- Yet complex institutions, second-rate European commissioners, inghis sheen; his proposals foreuro-zone reform have been dilut- wasteful policies like the common agricultural one and incompe- ed. Autocracy is gaining ground in Warsaw and Budapest. tent national governments across much of the continent all un- Meanwhile China, Russia, Turkey and America are interfering dermine that goal. To survive, the liberal European order, of ever more in European affairs. The geopolitical centrifuge is spin- which the EU is a pillar, must become leaner and more capable. ning European states away from each other, like dancers at a ball. Margrethe Vestager and Cecilia Malmström, the European com- Vienna is the pivot. Austria is two months into its six-month missioners taking on the digital giants and forging massive new presidencyofthe EU Council underSebastian Kurz, the darling of trade deals forthe union, are two ofthe better examples. the continent’sconservatives. To hiscriticshe hascosied up to the But the fate of Austria-Hungary also showed that multina- farright by bringingthem into his government, and indulged Isla- tional units cannot survive times of hardship without a sense of mophobia. To his fans, he is the smooth diplomat staking out a common purpose. Thanks to the rise of English, budget airlines, middle ground between liberalism and nationalism and build- the internet and university exchanges, today’s young Europeans ing bridges between east and west. He will host Europe’s leaders live much more “European” lives than previous generations. But in Salzburg on September 20th and get them talking about the politics is not keepingup. Nurturinga clearerEuropean identity is things pulling Europe apart: Brexit, the next EU budget, trade and not just a romantic goal; it is the only way to make the project sus- immigration. “We need to get everyone on board again,” says tainable in the long term, hard though history shows this to be. AlexanderSchallenberg, the co-ordinatorofAustria’s presidency. So Europe’s leaders must face the balancing act that defeated Itisalso in Vienna thatthe memoriesofthe old Habsburg mul- their Viennese predecessors. They must show the pragmatism tinational order reside. “Our history shows how quickly things needed to keep theirunion afloatin the shortterm, while cultivat- can change for the worse,” cautions one Austrian intellectual. ing the vision needed to build common feeling in the long term. The empire once run from here had a larger budget and more Mr Lendvai sums up the landscape: “Social democracy is a sham- power than today’s EU, not least its own army and tax-raising bles; liberals are arguing with each other; Christian Democrats powers, but both stand as triumphs of liberalism over national- are losing their Christian feeling.” They’d better get their act to- ism. Ten languages were once spoken in the Habsburg parlia- gether, he reckons: “For the ghosts ofthe past are coming back.” 7 United States The Economist September 1st 2018 29

Also in this section 30 The death toll in Puerto Rico 32 Honey fraud 32 Googling the news 33 Teenage gender dysphoria 34 Lexington: After John McCain

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

Socialism in America chart). DSA members have lost nearly all of the primaries they have contested, but two Shivering the chains will almost certainly be elected to the next Congress: Ms Ocasio-Cortez and Rashida Tlaib, from Detroit. A recent Gallup poll showed that 57% of Democrats have positive views about socialism. BOZEMAN, MONTANA But the poll never defined “socialism”, The increasing popularityofsocialism in America is more about stiffening so precisely what people were expressing Democrats’ spines than revolution support for remains unclear. For decades, OZEMAN, MONTANA is the birthplace and their rise poses more of a challenge to the cold war defined it, at least for most B of Ryan Zinke, the federal secretary of the Democratic Party than to capitalism. Americans. They were capitalist and free, the interior, and the home of Steve Daines, Still, socialism is having a moment in while socialism was a step removed, at Montana’s Republican junior senator, and America unlike any since, perhaps, 1912, best, from Soviet communism. Americans Greg Gianforte, the state’s reporter-thump- when Eugene Debs, the socialist candi- under 30 have no memory of the cold war. ing Republican congressman. But the pub- date, won 6% ofthe popular vote. Between To them, socialism may be little more than lic-comments part of Bozeman’s city com- the DSA’s founding in 1982 and the election a slur they have heard Republicans hurl at mission meeting on August 20th was of 2016, its membership hovered at a rela- Democrats—particularly Barack Obama. dominated entirely by socialists. They did tively constant 6,000—the same people, They may well have reckoned that if sup- not sing the Internationale, or demand says Maurice Isserman, a professor at porting universal health care, more money public ownership of the means of produc- Hamilton College and charter DSA mem- for public education and policies to com- tion. Instead, the ten members of the Boze- ber, “just getting greyer”. Since President bat climate change are all socialist, then man Democratic Socialists of America Donald Trump’s election, however, its they are happy to be socialist too. (DSA) thanked the commission for raising membership has risen more than eight- During Mr Obama’s presidency, politi- city workers’ minimum wage to $13 an fold, and may soon exceed 50,000 (see cal energy came from the Republican hour, and urged them to raise it to $15 over Party’s right flank; under Mr Trump’s it the next two years. comes from the Democrats’ left. The centre Republicans are using such people to Arise ye prisoners of want of American politics is having trouble stoke outrage. Newt Gingrich, eternally ea- Democratic Socialists of America, holding. Jessie Kline, the 24-year-old vice- ger to pitch any disagreement as an escha- number of members chairman of Bozeman’s socialists, worked tological conflict, warns that socialists are 50,000 for mainstream Democrats, but joined the “demons” whom the Democrats are “un- DSA because “nobody wanted to talk leashing to win elections”. Alexandria 40,000 about the underlying cause of why people Ocasio-Cortez, a DSA member likely to are poor…The establishment treats poli- win election to Congress in November, has 30,000 tics as a career. Morality and ethics never joined Nancy Pelosi in the right’s bogey- came into it.” 20,000 man pantheon (a Republican mailing Still, America is not about to undergo a called her “mini-Maduro”, referring to Ni- 10,000 socialist revolution. It is too ideologically colás Maduro, the tyranical president of diverse and fractious; individualism is Venezuela). Looking past the label, how- 0 wired too deeply into the country’s politi- ever, American socialists are more progres- 2016 17 18 cal culture. Maria Svart, the DSA’s national sive Democrats than Castros in waiting— Source: Democratic Socialists of America director, says that her group “doesn’t see 1 30 United States The Economist September 1st 2018

2 capitalism as compatible with freedom or Democraticdistrictofsouth-western Penn- more redistributive social safety-net. His justice or democracy”, but good luck win- sylvania in the state legislature, says that supporters seem enamoured of Nordic- ning elections with that slogan (indeed, “capitalism isn’t working…but I don’t style social-welfare policies. But those candidates endorsed by Democratic Party think that capitalism and socialism are countries are not socialist; they are free- organs have won far more primaries than necessarily opposites. There are good les- market economies with high rates of tax- those endorsed by Our Revolution, which sons to be gained from both.” ation that finance generous public ser- grew out ofBernie Sanders’s campaign). In Even the platform of Bernie Sanders, vices. Indeed, the “socialist” part of those any event, democratic socialism is not rev- the socialist who gave Hillary Clinton a countriesthatMrSanders’sfanslike would olutionary communism. Sara Innamorato, run for her money in the 2016 Democratic be unaffordable without the dynamic cap- a DSA member who won her primary in primaries, left capitalism fundamentally italist part they dislike. May and will probably represent a heavily intact, calling instead for a broader and Perhaps the surest sign that American socialists are not revolutionaries is their willingness to work within the two-party Hurricane deaths system. Ms Innamorato and Summer Lee, another DSA-endorsed candidate for the Counting Pennsylvania legislature, as well as Ms Ocasio-Cortez and Ms Tlaib, are all Demo- crats, as is Mr Sanders, for practical pur- Hurricane Maria was the most deadlyhurricane since 1900 poses (he is an independent but caucuses ITH vicious winds gusting at might be expected in normal weather. In with Senate Democrats). Mr Sanders and W120mph, the hurricane that made total they rest on a final death count of Ms Ocasio-Cortez have campaigned for landfall in Puerto Rico on September between 2,658 and 3,290. That would other Democrats. Mr Isserman contends 20th 2017 was expected to be deadly. make Maria the worst hurricane to affect that DSA members “are not utopian, and Hurricane Maria wrought destruction America for118 years (see chart). we certainly don’t believe in Bolshevik- across the island, cutting power, commu- It is absurd that the death toll of 64 style revolution”. He approvingly cites Mi- nications and drinking water to nearly remained official forso long. Although chael Harrington, the DSA’s founder, who every home. Yet most ofthe 3.3m island- ascertaining good data on deaths after a said that the group should represent “the ers appeared to escape the worst fate: natural disaster is difficult—the official left wing ofthe possible”. two weeks later, the official death toll death count from hurricane Katrina in reported by the island’s government was 2005 is still disputed—the governor’s Leftward, ho! just16 people. office could have done a lot more to In that role, they are succeeding wildly. On President Donald Trump made much communicate the inherent uncertainty in August 28th Andrew Gillum, wielding an ofthe low death count when he visited the official count. After New Orleans was endorsement from Mr Sanders, pulled off San Juan on October 3rd. “We’ve saved a hit by Katrina, its mayor simply said the a surprise victory in the Democratic prim- lot oflives…Ifyou lookat a real catastro- death toll would “shockthe nation”. ary race for governor in Florida—a state phe like Katrina and the hundreds that By contrast, the low number in Puerto that has long preferred bland, centrist died…16 versus literally thousands of Rico may well have lessened the urgency Democrats. MrGillum wants to see univer- people…you can be very proud.” Al- ofreliefefforts. A third ofAmericans said sal health care, a $15 minimum wage, a though the death toll rose slowly over the they donated money in the immediate more compassionate immigration policy, weeks that followed, from 16 to 64 deaths, aftermath, which is low by the country’s corporate-tax hikes to fund public educa- it remained surprisingly low given the generous standards. Meanwhile Puerto tion, stricter gun-control laws and the le- severity ofthe storm. Rico is bankrupt, the economy will galisation of marijuana. Most of these po- Suspicious that the true figure was shrink8% this year and the young and sitions were lefty pipe-dreams a decade higher, several others attempted a better talented are leaving in droves. The num- ago. Today they are de rigueur for Demo- guess. In December the New York Times ber oftourists has halved. And the island crats with presidential ambitions. analysed mortality reports and reckoned is still waiting foraround $80bn offeder- Some have gone further: MrSanders, as that the hurricane had killed as many as al funds to help its recovery. well as Cory Booker and Kirsten Gille- 1,052 people in the period to October 31st. brand, senators from New Jersey and New A paper published in the New England York, respectively, have made favourable Journal of Medicine in May surveyed Blown away noises about a federal jobs guarantee. Mr hurricane survivors and calculated that United States, deaths from selected hurricanes Gillum thinks Mr Trump should be im- anywhere between 793 and 8,498 people ’000 Range Mid-point peached. Such proposals are dead in the had perished. 024681012 water, for now: Republicans control Con- The island’s governor, Ricardo Ros- gress and the White House. But that is not selló, was suspicious ofthe official toll, Galveston Texas, 1900 the point. These are political statements too. It mostly counted direct deaths from Maria Puerto Rico, 2017 designed to signal support fora bold, activ- flying debris and the like, overlooking istgovernmentand an unwillingnessto tri- deaths from power cuts and lackofwater Okeechobee Florida & Puerto Rico, 1928 angulate, or compromise with the voters that led to medical complications. In who put Mr Trump in the White House. Katrina Louisiana, 2005 February Mr Rosselló commissioned an Still, the DSA’s apparent influence on independent report by epidemiologists Audrey Louisiana & Texas, 1957 the party makes some nervous. One long- at George Washington University to time strategist frets that the distinction be- arrive at a more accurate count. Rita Louisiana & Texas, 2005 tween democratic and Soviet-style social- That report was released on August Harvey Texas, 2017 ism is “fairly fine for most voters, and it 28th, fully 342 days after the hurricane comes with a lot ofbaggage”. Overthe next made landfall. The academics calculated Andrew Florida & Louisiana, 1992 couple of years, through debates that a final figure based on the observed Sources: FEMA; George Washington Democrats must hope will prove robust excess mortality over and above what University; NOAA; The Economist but not fracturing, the party will work out whether and how to carry that baggage. 7 Buy a share in a NetJets aircraft and enjoy access to 700 jets worldwide. Only NetJets gives you the scale, safety and support RIDPDMRUFRPPHUFLDODLUOLQHZLWKWKHʇH[LELOLW\RIDSULYDWHMHW netjets.com +44 (0)203 811 7234 All aircraft offered by NetJets® Europe are operated by NetJets Transportes Aéreos S.A., an EU air carrier. 32 United States The Economist September 1st 2018

Honey fraud Googling the news The bee’s needs Fake views

Are Google searches biased in favourofleft-leaning news outlets? ESPITE making heavy use oftheir NEW YORK platforms, the 45th president is no Who’s right? Ataste forhoneyis nectarforcon men D fan ofAmerica’s big tech firms. Nor is he Selected news outlets, January-August 2018 CCORDING to the National Honey a fan ofthe press. On August 28th, Presi- Board, per person consumption of the dent Donald Trump tooka swipe at both Conservative-leaning A * 750 regurgitated nectar has doubled in Ameri- by accusing Google ofrigging its search Washington Post ca since the 1990s. As demand has in- results in favour of“Fake News”. As New York Times creased, prices have followed. Domestic evidence, the president claimed that 96% 500 production has not. In 2016 American bees ofsearch results for“Trump News” were CNN produced 73,000 tonnes of honey, or 35% articles from the “National Left-Wing The Economist 250 less than they did 20 years ago. This has Media”. Larry Kudlow, the president’s National Fox News given honey-sellers an incentive to dilute it economic adviser, said that the Trump Review reitbart with cheaper things like corn, rice and beet administration is considering regulating 0 syrup. According to the US Pharmacopeia’s how Google presents its results. Google News, results for “Trump” 10,000th 1,000th 100th 10th Food Fraud Database, honey is now the That the White House might retaliate Website traffic ranking in US, log scale third-favourite food target foradulteration, against a company that, it thinks, is not Sources: Google; Alexa; *On first page of The Economist Google News, daily behind milkand olive oil. serving the public enough flattering The mismatch between domestic pro- stories, is the kind ofnorm-flouting that duction and demand means America im- has become normal in 2018. That aside, is sites are, fewer articles from right-leaning ports a lot ofhoney (203,000 tonnes ofit in Mr Trump right to thinkthe California- outlets show up on Google (see chart). To 2017). Mostonce came from Argentina, Bra- based search giant is somehow suppress- get around the problem that more of zil, Canada, Mexico and Uruguay, but now ing conservative thought? The 96% statis- America’s reality-based news outlets are nearly half comes from Asia. High tariffs tic he cited appears to have come from PJ left-of-centre, just as conspiracy theorists are imposed on Chinese honey, disguised Media, a blog. Paula Bolyard, the post’s currently lean right, we then built a mod- versions of which drizzle into America via author, conducted her analysis by search- el which incorporates data from the China’s neighbours. ing for“Trump” on Google’s news tool. Knight Foundation on how trustworthy Although there are tests to screen hon- Out ofthe first100 ofher results, only five Americans thinkeach publication is. ey for things that do not belong in it, Ele- articles came from what she deemed After controlling fortrustworthiness and mental Analysis Isotope Ratio Mass Spec- conservative publications. volume ofTrump articles published, we trometry, the most common method, is In an attempt to answer the question, found there was no evidence that ideolo- over 25 years old. As honey fraudsters have The Economist wrote a program that gy influences Google News results. become more sophisticated, the technol- searched for“Trump” on Google News Google’s search algorithm takes ac- ogyto catch them hastoo. Anewertest that every day so farin 2018. We used a brows- count ofthe popularity ofarticles and uses nuclear magnetic resonance is more er in Dallas that was cleared ofclues how user-friendly websites are, among effective, according to Norberto Garcia, about previous searches. We then many other variables. It may be that chairman of the United States Pharmaco- matched the results with web-traffic conservative publications write fewer peia Expert Panel on Honey Quality and statistics from Alexa, an analytics com- eye-catching articles about the president. Authenticity. In addition to screening for pany owned by Amazon, to see how As the chart shows, the results are over 40 unnatural substances, it can spot popular each site is (more popular sites skewed by the popularity ofthree outlets the geographical origin and botanical show up more often in Google News). that have done some ofthe best reporting source (clover, heather, hawthorn, etc). Next, we marked a number ofnews on this presidency. A final possibility is “Honey fraud”, cautions Mr Garcia, “is a publications as right-leaning or not. that liberals, despite their horror, are threat to national food security.” Our analysis finds that, even after simply more compelled to read about Mr The Food and Drug Administration accounting forhow popular their web- Trump than conservatives are. (FDA) is alert to the scourge ofhoney fraud, and has published guidelines which require any additives to honey to be listed as be free ofadditives. This apian fiesta involves up to 90% of ingredients. But they are not legally en- In addition to producing honey, bees the commercial bee population in Ameri- forceable. One problem is that the FDA’s have found more lucrative work, pollinat- ca, leaving few bees to pollinate every- definition of honey is rudimentary. It de- ing one-third of the crops grown in Ameri- thing else that requires their attention, a scribes honey as “a thick, sweet, syrupy ca. “Most of the fruits and vegetables we source of controversy in agricultural cir- substance that bees make as food from the eat wouldn’t be here ifit weren’t forthem,” cles. Still, Mr Brandi can earn $180-200 per nectarofplants orsecretions ofliving parts said Gene Brandi, a beekeeper in northern bee colony, or quadruple what he did just of plants and store in honeycombs.” This California. A 40-year veteran of the bee over a decade ago. Other crops like rasp- somewhat insults bees, who take great business, Mr Brandi now makes more berries, blackberries, cherries, canta- care to deposit, dehydrate and allow their money from renting his bees out as polli- loupesand applesaren’taslucrative to pol- honey to ripen in the honeycomb, a pro- nators than he does from selling the honey linate, but they beat the $2 per lb he gets for cess which is important to its taste. Fraud- they produce. In February and March, honey. Longer winters, drier summers and stersoften harvestprematurely, leaving the when California’s almond trees are diseases like varroosis have made it harder liquid with a high water content. Nor does blooming, his bees, along with about 30bn for bees to survive. But man can only imi- this definition take a clear position on others, are drafted to pollinate California’s tate what these most industrious creatures whether something sold as honey should 1.3m acres ofalmond trees. do; they can’t bee bettered. 7 The Economist September 1st 2018 United States 33

Gender dysphoria views with parents, not children. Ms Litt- man posted links to her survey on three Trans parenting websites where parents and clinicians had described the abrupt appearance of adolescent gender dysphoria: 4thWaveNow, Transgender Trend and youthtranscritical- professionals. Referring to these sites as “anti-trans”, Diane Ehrensaft, the director A papersuggests that the increase in the numberoftrans teenage girls is partly a of mental health at a gender clinic in San social phenomenon Francisco, has written that “this would be ANETTE MILLER wasn’t exactly sur- play a role. According to the parents sur- like recruiting from Klan or alt-right sites to Jprised when her daughter came out as veyed, 87% of children came out as trans- demonstrate that blacks really are an infe- transgender five years ago. A feminist gender after spending more time online, rior race”. Ms Littman replies that 88% of who rarely wears make-up or dresses, she after “cluster outbreaks” ofgender dyspho- the parents in her study said transgender brought Rachel up to disregard gender ste- ria in friend groups, or both. (In a third of people deserve the same rights as others, reotypes (these are not their real names). the friendship groups, half or more of the which is in line with national opinion. As a child Rachel enjoyed rough-and-tum- individuals came out as transgender; by Similar methodology is frequently used in ble play; as a teenager, she dated a girl. contrast, just 0.7% of Americans aged be- social research, particularly into children. What shocked Ms Miller was her daugh- tween 18 and 24 are transgender.) Most The reaction to publication ofthe study ter’s declaration that she wished to make children who came out became more pop- has gone beyond what might be expected her body more masculine by taking testos- ular as a result. Rachel, Ms Miller’s daugh- in a regular academic dispute. Brown re- terone and having a mastectomy. “She had ter, says that when she told her friends, all moved from its website a press release ad- never once said, ‘I feel like a boy’,” says Ms ofwhom she had met online, they congrat- vertising her research, noting that PLOS Miller. “She loved being a girl.” ulated her: “It was, like, welcome home.” ONE, the journal in which the study was After Ms Miller started to research what Ms Littman thinks that some adoles- published, was seeking “further expert as- a medical transition entailed, she told Ra- cents may embrace the idea that they are sessment”. In a later statement, the univer- chel that “it was fine for her to identify transgender as a way ofcoping with symp- sity said: “There is an added obligation for however she wanted”, but she would not toms of a different, underlying issue. Al- vigilance in research design and analysis permitherto take testosterone, some ofthe most two-thirds of the children had one or any time there are implications for the effects of which are irreversible, or have more diagnoses of a psychiatric or devel- health of the communities at the centre of “top surgery” until she was18. They fought opmental disorder preceding the onset of research and study.” Parents and academ- formonths. Rachel says it felt “almost like a gender dysphoria; nearly half had self- ics have in turn attacked Brown for caving life-or-death situation.” harmed or experienced some trauma. This to pressure from trans activists. Typically, adolescents first show symp- is consistent with other studies of gender Squashing research risks injuring the toms ofgenderdysphoria, the clinical term dysphoria when it sets in during puberty. health ofan unknown numberoftroubled for the distress caused by the feeling that Some people distract themselves from adolescent girls. Rachel, now 21, believes one’s body does not match one’s gender, in emotional pain by drinking, taking drugs, she latched on to a trans identity as a way childhood. But in the past decade clinics in cutting or starving themselves. Ms Littman of coping with on-off depression and be- Western countries have reported that a suggests that, for some, gender dysphoria ing sexually abused as a child. After receiv- growing number of teenagers have started may also be in this category. ing therapy, her gender dysphoria disap- experiencing gender dysphoria during or The study has attracted heavy criticism. peared. Had her mother affirmed her after puberty. And whereas these young Some is reasonable. Though itisa solid first gender identity as a 16-year-old, as several adults used to be predominantly male, attempt to describe a recently observed gender therapists urged, Rachel would now they are more likely to be female. In phenomenon, it is qualitative rather than have embarked on a medical transition 2009, 41% of the adolescents referred to quantitative, and relies solely on inter- that she turned out not to want after all. 7 Britain’s Gender Identity Development Service were female; in 2017, 69% were. Lisa Littman, an assistant professor of behavioural and social sciences at Brown University, was curious about what was causing these changes. She had come across reports from parents on online fo- rums describing a new pattern of behaviour: adolescents without a history of childhood gender dysphoria were announcing they were transgender after a period of immersing themselves in niche websites or after similar announcements from friends. Her study suggests that these children may be grappling with what she calls “rapid-onset gender dysphoria”. For the study, Ms Littman recruited 256 parents of children whose symptoms of gender dysphoria suddenly appeared for the first time in adolescence. These parents—Ms Miller among them—took part anonymously in an online, 90-question survey. MsLittman’s findings suggest that a processof“social and peercontagion” may 34 United States The Economist September 1st 2018 Lexington Shadows across the sunbelt

The departure ofboth Arizona’s Republican senators will weaken theirparty and country growing suburbs and non-white population look a lot like Cali- fornia 20 years ago, they may even be shifting to the left. They certainly dislike Mr Trump. The president won Arizona by only three points, much less than his recent Republican predecessors (including Mr McCain, during his presidential run in 2008). And his ratings in the state have since plummeted, especially among college-educated whites, an important swing group. This leaves Ms McSally in a tough fight for a Senate seat that her party last lost in 1988. Opinion polls put her Democratic opponent, Kyrsten Sinema, comfortablyahead. Theyalso suggest the Democrats could win five ofthe state’s nine House districts. This does not mean the Republicans face a California-style collapse in Arizona. ItsHispanicpopulation, around a third ofthe total, maybe similarto California’stwo decadesago, butitswhite population is larger and more conservative than California’s was. It is also being topped up by pensioners from the Midwest, drawn by cheap housing and constant sunshine. In Ms Sinema, an able moderate, the Democrats also have an exceptional candidate. And they have a helpful House-district map. These are one- off advantages that could produce a few Democratic wins, then reversion to Republican control. Arizonans may be as worried S REPUBLICAN voters turned out in Phoenix on August 28th about health care as immigration; they are not lefties yet. Ato nominate a successor to Senator Jeff Flake, Arizona’s capi- The Republicans are in trouble nonetheless. Theirvulnerabili- tal was festooned with memorials to his colleague John McCain. ty in Arizona and other formerly reliable western states, such as On the rocky knolls that scatter the sprawling, low-rise city, Nevada, is the inescapable flipside of the course Mr Trump has American flags drooped at half-staff. Billboards gave thanks for launched them on. The racially divisive immigration-aversion MrMcCain’sservice. The state capitol buildingwasbeing readied that has won them support in the rustbelt is costing them in the to receive his body, ahead of its journey to Washington, DC. The sunbelt. Thatwould be even more obvioushad MsWard won the leading contenders to replace Mr Flake, Martha McSally and Kelli Arizona primary. And if she had not faced competition on the Ward, issued pre-primary statements on his dead confrere. The populist right from Joe Arpaio, a former sheriff and convict par- departures ofthe two senators melded together. doned by Mr Trump, she could have done. Though vastly out- This was appropriate. Almost alone among their more spine- spent by Ms McSally, the two populists won almost halfthe vote. less colleagues, Mr Flake and Mr McCain were outspoken de- This was also despite antics that many non-partisans would fenders of free trade, workable immigration reform, balanced consider repugnant. A few days before Mr McCain’s death, Ms budgets and the rule of law against the ravages of President Do- Ward suggested that the release of a statement announcing the nald Trump. It made them representative of the pre-Trump Re- cessation ofhis medical treatment was intended to distract atten- publican Party. And if the primary contest that played out this tion from her campaign. She suspected it was aimed in particular weekis a guide, their exit is another marker in its demise. at a bus trip she had planned with a group of right-wing nuts, in- The victor, Ms McSally, a former fighter pilot and member of cluding Mike Cernovich, who is best-known for claiming Hillary the House of Representatives, holds similar views to the depart- Clinton was involved in a non-existent child sex cult operating ing senators. Yet to fend off Ms Ward, an immigration obsessive, from a Washington pizzeria. It is safe to assume any distraction conspiracy theorist and Trump acolyte, she veered to the right on caused by Mr McCain was inadvertent. Yet Ms Ward and her immigration and swallowed her erstwhile differences with the whacko palsillustrate anotherreason to fearforhisparty’sfuture. president entirely. Ms McSally likes to portray herself as a plain- speaking military type. Yet at a ceremony in mid-August to mark Mad as hell the signing of a military-spending bill named in Mr McCain’s The historian Richard Hofstadter famously diagnosed a “para- honour, she carefully followed the president’s petulant lead and noid style” ofAmerican politics liable to arise wherever “the nor- omitted to mention the dying senator. It was a “disgraceful” dis- mal political processes ofbargain and compromise” breakdown. play, said his daughter Meghan. He had in mind the rise of another uncompromising Arizonan To be sure, even before MrTrump’stakeoveroftheirparty, few Republican, Barry Goldwater, whose Senate seat Mr McCain oc- Republicans dared speak sensibly about immigration in a prim- cupied. Yet the psychosis and breakdown he described are even ary contest. In 2010 Mr McCain helped fend off a challenger by truer of Mr Trump’s politics and the proliferation of hucksters, wearily vowing to “complete the danged fence!” And the issue is conspiracy theorists and strange ideologues it has ushered into at least pertinent to Arizona, which has 370 miles of border with American public life. Non-aligned voters may find the character Mexico and a history of illegal immigration. Yet the extent to ofthe president’s party as off-putting as any ofits policies. which MsMcSallywasdrawn into mud-wrestlingwith herweak- Principled Republicans do, too. “We weaken our greatness er Republican opponents on the issue was unexpected and when we confuse our patriotism with tribal rivalries,” wrote Mr dispiriting. And it was damaging to her prospects given how the McCain in a farewell letter. “We weaken it when we hide behind state is changing. The many independent voters she now needs walls, ratherthan tearthem down.” So much forthe danged fence do not share the Republicans’ border fixation. In a state whose he claimed to want. He will be missed. 7 The Americas The Economist September 1st 2018 35

Also in this section 36 Getting over Hurricane Maria 36 Condoms as slingshots 38 Ecuador’s second-most powerful man Bello is away

Nicaragua destine prisons where they are tortured. The government has sacked 135 medical Ortega holds on staff who treated wounded dissidents. Only the most committed protesters attend the sporadic demonstrations that still take place. “I used to go to all ofthem,” says one dissident. “But now I just feel numb.” Despair could become anger again as MANAGUA the economic situation worsens. The re- But an economicslump could eventuallyweaken the president gime’s blighted image will discourage in- WO months ago Monimbó, a neigh- left the country, weakening the banks. vestors. Many talented Nicaraguans have Tbourhood ofMasaya, south-east of Ma- Despite the slump, the challenge to Mr left. Venezuela, which has given $4bn in nagua, was in turmoil. Opponents ofNica- Ortega’s rule has ebbed. It began in April as aid over ten years, has stopped providing ragua’s authoritarian president, Daniel a protest against cuts to pensions, which the money because its own economy is Ortega, had taken overthe city. Roadblocks the government soon reversed. It quickly collapsing. In July Nicaragua’s government guarded by masked men defended it from became an expression of anger at his sub- passed a budget that reduces spending by governmentforces. The opposition’sshort- version of democracy since 2007, when he nearly 10%, double the cut that took place lived rule was the peak of a widespread returned to power after a 17-year absence. after the global financial crisis. It will can- uprising against Mr Ortega, in which per- He rigged elections, disbanded opposition cel projects like building roads, which will haps 320 people died. Monimbó was the parties and scrapped presidential term lead to job losses in construction. It will firstplace to rise up againstthe Somoza dic- limits. Last year Mr Ortega named his wife, have to reinstate unpopular cuts to pen- tatorship, which Mr Ortega overthrew in Rosario Murillo, who runsthe government sions, but that will not be enough to close a 1979. In July this year it was the last to fall as day to day, as his vice-president. Many of huge deficit in the pension system. his paramilitary forces retookMasaya. Nicaragua’s leading businessmen, a pillar It is desperate for cash. It has raised Now the neighbourhood seems calm. ofsupport forthe ostensibly left-wing pres- short-term loans to provide liquidity to Street sweepers, who have been back at ident, backed the protesters’ call to hold an banks and plans to issue new bonds, workfora fortnight, clearup rubbish while election next year rather than in 2021. Mo- though it is unclearwhetherforeign invest- the police lookon. Youngmen, who led the mentum seemed to be with the protesters. ors will buy them. Mr Ortega may try to re- fight, “have all left”, says a shopkeeper. place Venezuelan support with financial Most have joined the 23,000 Nicaraguans The turning point aid from Russia or China, whose commu- who have sought asylum in Costa Rica. That changed after paramilitary troops nist government Nicaragua does not recog- The four-month rebellion and the gov- killed 16 peaceful protesters in a massacre nise. Without outside help, he will have ernment’s suppression of it have wrecked on May 30th, Nicaragua’s Mothers’ Day. difficulty continuing to supply his poor Nicaragua’s economy but left the autocrat The private sector lost its nerve; Mr Ortega supporters with benefits such as micro- firmly in power, at least for now. The econ- did not. Armed groups loyal to the regime loans in return fortheir votes. omy had been one of the strongest in Cen- wrested control of university campuses The middle class has turned definitive- tral America, with annual growth of 5%. and towns back from dissidents. Gangs in- ly against him. One resident of Managua This year GDP is expected to shrink by vaded properties owned by the regime’s says that Mr Ortega’s younger children are nearly 6%. In the three months to June the critics. The army looked on. no longer spotted in the capital’s bars and formal workforce shrank by a tenth. Tou- The government is hunting down its supermarkets. He may take comfort from rism, which accounts for 5% of GDP, has opponents. They face “exile, jail or death”, Venezuela’s president, Nicolás Maduro, plummeted. On a recent Friday stray dogs say its spokesmen. During the unrest “Citi- who haskeptpowereven though the econ- outnumbered tourists on the promenades zens’ Power Councils”, Cuban-style local omy has shrunk by 40% since 2013. Like in Granada, a lakeside resort. Some $1bn in spy networks, took notes on troublemak- him, MrOrtega isunloved, and forthe time capital, the equivalent of 8% of GDP, has ers. Now police are sending some to clan- being unbudgeable. 7 36 The Americas The Economist September 1st 2018

Natural disasters This time, Dominica intends to become ain in the 1950s and then returned to Do- the world’s “first climate-resilient nation”. minica, have now gone backto Britain. Getting over A “climate-resilient execution agency” is Dominica has lost the Ross University leading the rebuilding. Overseas donors School of Medicine, an American-owned Maria have pledged $400m to it. But hurricanes medical school, which brought 1,650 stu- are not the only disasters the island faces. It dents to Portsmouth. This is a bigblow. Ross has nine potentially active volcanoes, in- was the main institution in a private-uni- cluding Morne Canot, which overlooks Ro- versity sector that accounted foraround 8% Ayearaftera big hurricane, Dominica is seau. Like the rest of the Caribbean, Do- of GDP, perhaps double that counting the trying to persuade pessimists to stay minica is vulnerable to earthquakes. services the students used. After Maria, AST September two category-five hurri- Homeowners have secured houses against Ross’s students moved to a cruise ship Lcanes battered the Caribbean. First hurricanes by putting up concrete roofs, moored offSt Kitts and to Tennessee. In Au- came Irma, which hit a cluster of islands in but these can be deadly in earthquakes. gust the university announced that its new the region’s north-east and then Florida. Some people have given up on the di- home would be Barbados, which has bet- Maria arrived two weeks later, hammering saster-prone island. Several thousand peo- ter air links and plusher facilities. Dominica, an island state with a popula- ple have moved away. Pensioners from the This leaves Dominica with a narrowly tion of 74,000, on September 18th, and Windrush generation, who moved to Brit- based economy. Banana exports, which 1 Puerto Rico two days later. Between them, the hurricanes caused colossal damage. In Puerto Rico alone, more than 3,000 people Cuba may have died in the six months since Maria struck. Where the rubber hits the road In Dominica, Maria killed 65 people HAVANA during the storm and its immediate after- Condoms have many uses on the inventive communist island math. It damaged nearly every building, and destroyed a quarter of them. The HILDREN in Havana use them as house occupied by the prime minister, Roo- C slingshots. At birthday parties and sevelt Skerrit, lost its roof. Maria felled the concerts they are makeshift balloons. rainforest and knocked out the electricity, Womenuse them to secure their pony- telecoms and water supplies. Landslides tails. Drivers use lubricated ones to shine and fallentrees blocked roads. the dashboards oftheir vintage Chevys. There are now signs of recovery. Roads Revellers sneakthem into nightclubs, are clear, the mountainsides are green filled with rum. Fishermen use inflated again and Roseau, the capital, is bustling. ones as floats. Winemakers stretch them MostDominicansreplaced the blue tarpau- over the necks oflarge glass bottles, lins that covered their houses after the which they use instead ofoakcasks. An storm with permanent roofs. Reconstruc- erect one means fermentation is still tion should help the economy.The IMF ex- producing carbon dioxide; a deflated one pects GDP to shrink by 16% this year but to means that the process is complete. growby12%in2019. Condoms have lots ofuses in commu- But normality has not returned. Much nist Cuba, where many essential goods of the island has no electricity. Telephone are in short supply.Islanders claim, im- land lines work only in Roseau and Ports- plausibly,that during the “special period” Practising safe winemaking mouth, the second-largest city. Although ofhardship that followed the collapse of the hills are green again, the new growth is the Soviet Union in1991, people used That does not mean they are popular. mainly vines around the skeletons of trees. them as pizza toppings. Moments and Vigor, mostly made in After Hurricane David struckin 1979, it took Cubans are ingenious in their use of India, Malaysia and Indonesia, are the woods two decades to recover. condoms in part because they are cheap. most readily available brands. “Their Subsidised by the government, a pack of scent is unforgettable, and not in a good three costs ten pesos (fourcents). The way,” says a young woman in Havana. subsidy is one manifestation ofthe gov- When friends or relatives go abroad she ernment’s keenness on family planning asks them to bring backDurex, an Ameri- and sexual health. Cartoons shown can make, specifically “the ones in the before some film screenings emphasise purple box”. the importance ofsafe sex (there is no But even Moments can be hard to find. commercial advertising). Nightclubs that In 2012 a shipment ofseveral million attract mainly gay men show videos arrived bearing labels with expiry dates promoting safe sex, a way ofavoiding in the same year. After testing some, the trouble from officialdom. HIV infection supplier realised they had been mis- rates in Cuba are among the lowest in the labelled and would be good until 2014. Americas, though they nearly doubled Because Cuba could not afford to waste between 2010 and 2016 forreasons that so much stock, the government rela- are unclear. Cuba’s birth rate of1.6 per belled the boxes by hand. That took woman is well below that needed to nearly two years, at which point the keep the population from shrinking. sell-by date had come and gone. The data Other forms ofbirth control, such as do not show that Cubans had more the pill and injectable contraceptives, are children as a result ofthis supply glitch. hard to find, so people rely on condoms. So they probably caught fewer fish. A good roof for an earthquake

38 The Americas The Economist September 1st 2018

2 brought in a third offoreign earnings a gen- political links to a richer country. It has so and constitutional court blocked the vote. eration ago, dwindled to nothing since far paid for the work mainly from the sale Without Mr Trujillo, the new CPCCS 2008, when the EU ended privileged access of passports to foreigners. A Dominican would have “lacked the moral capacity to to its market. Dominica’s main manufac- passport offers visa-free travel to 136 coun- cut Gordian knots”, says León Roldós, a turing plant, which made soap and tooth- tries, including Britain and Europe’s Schen- former Ecuadorean vice-president. Con- paste, closed after Tropical Storm Erika gen area. The government charges gress confirmed the choice. struck three years ago. With few white- $100,000 or more to people from countries MrTrujillo’s taskhas been to reverse the sand beaches, Dominica does not attract whose passports are less widely wel- work of Mr Correa’s CPCCS. In its new in- many tourists apart from nature lovers and comed. Proceeds from the “citizenship by carnation, the CPCCS has replaced the five cruise-ship passengers. Mr Skerritt, the investment” scheme account for half the members of the judicial council with sup- world’s youngest head of government government’s revenue. They have paid for porters of judicial independence. Marcelo when he took office in 2004 at the age of 31, job-creation schemes and the construction Merlo, a respected former government au- wants to build an international airport. of three hotels in Portsmouth. But Schen- ditor, has succeeded Gustavo Jalkh, Mr The money pledged by foreign govern- gen-area countries could crack down on Correa’s man, as the council’s chief. Carlos ments for reconstruction has been slow to countries that try to game their visa sys- Ochoa, who as the “communications su- arrive. Unlike most other victims of Irma tems by selling passports. Not all the disas- perintendent” sought to muzzle the media, and Maria, Dominica does not have formal tersthatDominica facesare natural ones. 7 has been removed from that job. Congress is discussing a law that would abolish it. The CPCCS has sacked the five mem- Ecuador bers of the electoral council; four were cor- reistas. Its new chief, Gustavo Vega, is a The power of the purge non-partisan academic, though some ob- servers grumble that he and his colleagues lack expertise in elections. The CPCCS showed its independence from Mr More- no byrejectinghisfirstbatch ofthree candidates to head the competition authority, QUITO saying they had conflicts ofinterest. Julio CésarTrujillo is the country’s second-most powerfulman On August 23rd Mr Trujillo’s council N 1984 Julio César Trujillo ran for presi- struction firm. Mr Moreno held a referen- made its boldest decision yet, voting to re- Ident in Ecuador. He did not do well, win- dum in February this year in which voters move the nine constitutional-court judges, ning less than 5% of the vote. Now,as head reinstated presidential term limits and au- three of whom are being investigated for of the Citizens’ Participation and Social thorised congress to appoint a new CPCCS. money-laundering. This is contentious, Control Council (CPCCS), MrTrujillo holds In nominating Mr Trujillo to be its chief, even among people who support his a job that makes him almost as powerful as Mr Moreno sought to give the revamped house-cleaning. The referendum did not the country’s current president, Lenín Mo- council credibility that the old one lacked. include the constitutional court among the reno. “I don’t know whether to thank God Mr Trujillo began his political career as a bodies that fall under the purview of the for not having won the presidency be- conservative, but became a gadfly of the CPCCS, points out Mauricio Alarcón, a hu- cause I would have ended up just being establishment through his workwith envi- man-rights lawyer. Mr Trujillo retorts that one of those many presidents Ecuador has ronmental and social movements. He ad- the referendum gave the council “extraor- had,” says the 87-year-old lawyer. From an vised Yasunidos, a grassroots movement dinary” powers to remove officials who office in Quito decorated with an Amazon- which in 2014 collected 750,000 signatures obeyed Mr Correa rather than the law. ian spear, two machetes and a rope whip to hold a referendum to stop oil develop- MrTrujillo will be vindicated if the new with opossum-shaped handle, he has led a ment in a rainforest. The electoral council officials act with the independence that Ec- purge of officials appointed by Ecuador’s uadoreans expect. Early signs are promis- leftist former president, Rafael Correa, ing. The new ombudswoman, Gina Bena- who governed for ten years until 2017 and vides, challenged successfully in court the now lives in Belgium. Mr Trujillo sees the government’s decision to require Venezue- work as restoring democratic institutions lans fleeing their crisis-ridden country to that MrCorrea had weakened. “Where I’ve carry passports, a measure designed to re- seen rights and liberties under threat, I’ve strict their entry to Ecuador. Courts and offered to help,” he says. prosecutors are pursuing alleged wrong- Mr Correa created the CPCCS in 2008 to doing by members of the former govern- consolidate his influence over those insti- ment, including Mr Correa, who is being tutions. Formally, its members were ap- investigated in connection with the kid- pointed by the electoral council, which he napping ofan opposition politician. controlled. Among the bodies whose lead- The real test will come when today’s of- ers the CPCCS had the power to choose fice-holders commit crimes that require were the electoral council itself, the bank- prosecution. The CPCCS will remain pow- ing supervisor, the attorney-general, the erful, perhaps too powerful. Starting next ombudsman and the judicial council, year its members will be elected, which is which in turn sacked independent-mind- better than the former way of choosing ed judges and appointed ones who would them. But candidates may not campaign, do the president’s bidding. Mr Moreno and so voters will know little about them. Mr Mr Correa were allies, but the two fell out Trujillo thinks the CPCCS should dissolve last year after Mr Moreno’s vice-president, once Ecuador has consolidated its democ- Jorge Glas, a protégé of Mr Correa, was ac- racy. He hopes to retire at the end of his cused and then convicted of accepting term next year. But he’ll be back, he says, if bribes from Odebrecht, a Brazilian con- Trujillo giving pink slips to power “I have to confront abuses ofpower”. 7 TECHNOLOGY QUARTERLY September 1st 2018 CRYPTOCURRENCIES AND BLOCKCHAINS

Chasing the rainbow

TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

A cryptic message

Cryptocurrencies and their underlying technology, blockchains, have been hyped to the skies. Tim Cross offers a realist’s guide OSEPH KENNEDY,John F. Kennedy’s father, some as ifhe had sold at the peaklast December. supposedly said that when he started get- In keeping with their do-it-yourself image, crypto- ALSO IN THIS TQ ting share tips from his shoeshine boy, he currencies have given rise to initial coin offerings knew it was time to sell. That was in the late (ICOs), a way forcryptocurrency companies to crowd- BITCOIN 1920s. One investor in cryptocurrencies re- fund themselves. Cash is pouring in. According to one Riding the rollercoaster called that remark when he saw advertise- estimate, from Coinschedule, a firm that tracks such Jments on the London Underground that seemed to things, by early August 706 ICOs had raised almost BRAIN SCAN suggest pensioners invest in bitcoin. “Be More Bren- $18bn from a mix of institutional investors and indi- Satoshi Nakamoto da,” said the poster, featuring a white-haired lady viduals this year. That compares with just 221 ICOsin claiming to have bought bitcoin in under ten minutes. the whole of2017, raising $3.7bn. ALTCOIN Cryptocurrencies are everywhere. According to Chips off the block one survey,5% ofAmericans hold some cryptocurren- Chain reaction cies—not bad for a financial product that is only a de- Many of those startups hope to capture the benefits of MINING CRYPTOCURRENCIES cade old. Bitcoin isthe best-known, and in 2017the dra- blockchains, the technology that underlies cryptocur- A voracious appetite matic rise in its price—from $3,000 in September to rencies. In essence, a blockchain is a database de- almost $19,000 by December—made headlines. signed to be distributed among many users, to be im- INITIAL COIN It was invented in 2008 by a reclusive cryptogra- mutable, to work without oversight from any central OFFERINGS pher going by the name of Satoshi Nakamoto. He was authority and to dispense with the need forits users to Token effort dissatisfied with the conventional financial system, so trust each other. These qualities, it is argued, make it he wanted to create an electronic version of cash that suitable for a huge variety of new and exciting busi- BLOCKCHAINS did not rely on a central operator and was free from di- ness applications, which many companies are now Nailing it rect control by a government or central bank. The idea trying to explore. took off. These days anyone who wants to get into For example, a blockchain’s immutability and dis- PROSPECTS cryptocurrencies can weigh the relative merits of bit- tributed nature would seem perfect for streamlining Beyond the hype coin, ether, Monero, Dash, Litecoin and thousands of supply chains. A widget manufacturer in one country, others. Many of those who bought in early have, on its shipping agent, its customerin anothercountry and paper at least, made astonishing gains. Bitcoin’s price customs authorities on both the sending and the rein 2010 was around 6 American cents. Even at its cur- ceiving end could all use the same database to track ...... rent price of $6,470, it would provide an early investor the widget. Another promising idea might be to pro- Cryptocurrency prices with a handsome profit—though not nearly as hand- vide an incorruptible record of transactions covering 1 correct as of August 21st The Economist September 1st 2018 3 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

2 anything from property deeds to the provenance ofdiamonds. According to Crunchbase, an industry consultancy, in the first five months ofthis yeara total ofmore than $1.3bn ofventure capital wasinvested in blockchain startups. KPMG, a large consultancy firm, reckons that the amount of money venture capitalists want to invest in such things outstrips the opportunities to do so. Estab- lished companies are rushing to catch up. Technology firms such as IBM, Oracle and Amazon are giving their customers the chance to experiment with blockchains. KPMG offers a service to advise clients on blockchains, as do most of its rivals. Diar, a consultancy specialising in cryptocurrencies, lists dozens of blockchain-related patent applications, filed by companies as diverse as Bank of America, Intel, a chipmaker, RWE, an electricity firm, and British Telecom.

A bit of a let-down This Technology Quarterly will take a more sceptical view. It will point out that, despite a decade ofdevelopment, bitcoin has failed in its stated objective: to become a usable currency. Security is poor (according to one estimate, around 14% of the supply of big cryptocurrencies has been compromised); its decentralised nature inevitablymakesitslow; there isno consumerprotection; and the price is so volatile that not many people would want to use it as a means of exchange for goods and services. Other cryptocurrencies sufferfrom similar problems. Few merchants accept them. At the same time the technology’s built-in antipathy to regulation has attracted plenty of people who feel the same way for the Bitcoin wrong reasons. Some cryptocurrencies amount to Ponzi schemes, and unscrupulousICO operatorshave swindled investors. Ameri- ca’s authorities are investigating allegations of widespread price Riding the manipulation. Social-media firms have banned advertisements for ICOs amid concerns about fraud. Anyone thinkingofinvesting in such instruments will need to do a lot ofhomeworkfirst. rollercoaster Other drawbacks of bitcoin and such like are becoming increasingly apparent, too. The “mining” process required to verify The best-known cryptocurrency has been a failure as a all transactions is hugely power-hungry. Data centres have sprung up from Mongolia to Quebec, collectively consuming as much means of payment, but thrilling for speculators electricity as entire countries to run a system that cannot manage HE PRICE chart at CoinDesk, a cryptocurrency news site, more than a handful oftransactions per second. begins on July18th 2010, when a bitcoin could be had for The potential applications for the underlying blockchain tech- $0.09. By November 2013 it had reached $1,124. In the nology look rather more attractive, but progress in developing summer of 2017 it started to take off, reaching over them has been slower than hoped, and some apparent successes $19,000 in December. By end-March 2018 it was back turn out to have been exaggerated. Because they are power-hun- down below $7,000 and in late August it was hovering gry and slow, the blockchains that drive cryptocurrencies have to Tbetween $6,400 and $6,500 (see chart, nextpage). That has made a be remodelled for use in business, which can make them less dis- few people very rich (just100 accounts own 19% ofall existing bit- tinctive and more like other databases. Though the excitement coin), encouraged othersto playforquickgainsand left some nurs- surrounding the technology has provided a useful push to get in- ing substantial losses. terested parties around the table and start talking, most block- Bitcoin was never meant to be an object of speculation. When chain projects are still at the exploratory stage. the pseudonymous Satoshi Nakamoto published a short paper Putting a business on a blockchain is as complicated as any outlining his plan for bitcoin a decade ago, it was as a political pro- other big IT project. Those involved in the planning stage still have ject. Bitcoin’s roots lie in the “cypherpunk” movement, a philoso- to ask the usual questions. What exactly is it meant to do? Why phy that combines an anarchic dislike of governments and large would an individual company want to sign up to such a shared companies with the techno-Utopian belief that computers and venture? Who will design the system? Who will be in charge if cryptography can liberate and protect people. Much of the early things go wrong? And once a decision is made to build such a sys- development ofthe internet was informed by similar ideas. tem, there will still be a lot of grunt work to be done. All this sug- Bitcoin was intended as a computerised version of cash or gests that, whatever the benefits of blockchains, they will not ar- gold, a “censorship-resistant” alternative to online payment sys- rive overnight. tems run by companies such as Visa and PayPal. Iftrust in a central One problem, says Gary Barnett, an analyst at GlobalData, a authority could be replaced with trust in computer code and consultancy, is mutual incomprehension between insiders and mathematics, userscould cutoutthe middleman and deal directly outsiders. “There’s a ‘two tribes’ vibe about a lot of this,” he says. with each other, rugged individualist to rugged individualist. Because blockchains and cryptocurrencies are notoriously com- Electronic cash is not a new idea. In a paper published in 1982 plicated, non-experts from other industries can end up confused David Chaum, a computer scientist, had suggested using crypto- by techno-speak, whereas advocates ofthe technologies are so ex- graphy to create electronic cash, and the cypherpunks had been cited bythe potential thattheygive insufficientattention to impor- kicking such ideas around since the late 1990s. What made Mr Na- tant details ofthe industries they are aiming to revolutionise. kamoto’s invention stand out was that he had found a solution to To understand the pros and cons of cryptocurrencies and one of the biggest problems with computerised money—how to blockchains, the best way is to start with bitcoin itself. 7 keep users from spending the same digital coin repeatedly with-1 4 The Economist September 1st 2018 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

has failed to become an established currency, let alone—as its more ideological supporters had hoped—to flourish as an alternative to the traditional financial system. One reason is that it is still not user-friendly. All participants have to download specialist software, and getting traditional money into and out of bitcoin’s ecosystem is fiddly. Moreover, although the lackofa central authority makes the system resilient to attempts at coercion, it also means that if something goes wrong, there is no one who can fix it. The original idea was that bitcoin users would “be their own banks”, responsible forthe securityoftheirown funds, says David Gerard, a cryptocurrency-watcher and systems administrator. But that is harder than it sounds. Ifyou lose access to your stash ofbitcoin—say, by mislaying a USB stick or accidentally overwriting a hard drive—it can be impossible to recover. Many users therefore store their bitcoin on exchanges (companies that let users trade ordinary currency for the cryptographic sort). But many exchanges are amateurish operations and have an unenviable record of being hacked. And when bitcoins are stolen, there is no insurance scheme to make the owners whole. Nor are there any other protections of the sort that modern consumers take for granted. Mr Nakamoto’s original paper proudly points out that with bitcoin, chargebacks (used when a credit-card holder disputes a transaction) are impossible. There are structural problems, too. The size of an individual blockoftransactions is fixed, and the networkenforces an average 2 out relying on a trusted authority to checkevery transaction. block-generation rate of one every ten minutes. In practice, that With a physical currency, this problem mostly takes care of it- limits bitcoin’s throughput to around seven transactions per sec- self. Once a coin or note has been handed over, its original owner ond. (Visa’s payment network can manage tens of thousands.) So can no longer spend it. But digital currencies are just wisps of in- when demand forbitcoin transactionsishigh, the system clogsup. formation on a computer, and computers are designed to move Users have to accept that their transactions may be delayed or not and copy information easily. MrNakamoto solved the problem by go through at all, or offer miners extra fees as an incentive to prio- handing the job of policing the system to its users. Bitcoin is de- ritise their payments. Mr Nakamoto had hoped that bitcoin’s signed to generate a permanent, constantly growing list of every transaction feeswould settle at fractions ofa cent, but at the height transaction ever performed with the currency—the “blockchain”. of the boom in late 2017 they briefly reached $55. They have since Since all users have a copy of the system’s records, they would come down to about $0.65. spot attempts to spend the same bitcoin twice. Acentralised institution like a bankcan simply update its inter- Faster, faster nal records every time its customers perform a transaction. Since Bitcoin’s developers have tried various tweaks and workarounds bitcoin is decentralised, though, all transactions must be broad- to ease the jam. Ascheme called SegWit, first introduced in August cast to everyone on the networkso that they can update theirlocal 2017, has provided a little extra wiggle room. A more ambitious copies of the blockchain. When two parties want to make a tran- proposal, called the Lightning Network, hopes to take the bulk of saction, they alert everyone else of their intention. Those pro- transactions off the ponderous blockchain system and getting us- posed transactions are bundled into blocks by a subset of users ers to trade directly with each other, but after a couple of years in called “miners”, whose job is to maintain the records and ensure development it remains plagued by reliability problems. One re- their integrity. Every block is connected to its predecessor by a cent evaluation by Diar, the cryptocurrency-research firm, found chain ofcryptographic links, which makes it next to impossible to that Lightning transactions became increasingly less likely to be alter records once finalised. completed successfully as they got bigger. In order to prevent malicious miners from subverting that pro- Volatility, insecurity and occasional congestion make for a cess, bitcoin requires something called “proof of work”, in which poor currency, so bitcoin has done best on the economic fringes.1 miners demonstrate their commitment by competing to crack mathematical problems that are hard to solve but whose sol- utions are easy to check. Only the winner of each competition is What goes up must come down allowed to add a blockto the chain. The networkaims for an aver- Cryptocurrency prices, $’000 age block-generation rate ofone every ten minutes. Ifblocks come in fasterthan this, mining is made harder to slow things down. 20 All thatcomputation takesa lotofelectricity, and hence money Bitcoin Ether (see box in next article), so each new block earns its miner a re- 15 ward, starting off at 50 bitcoin in 2009 and programmed to halve Litecoin Monero every four years. It is currently 12.5 bitcoin, or around $80,000. These block rewards are the only source of new bitcoin in the sys- 10 tem. Mr Nakamoto argued that central banks cannot be trusted not to debase their currencies by printing money, so he set a hard 5 limit of21m for the number ofbitcoin that could ever be mined. All this may sound complicated, but the system generally 0 works. Bitcoin can be used to make payments between any two JFMAMJJASONDJFMAMJ JA users ofthe software, and though the experience is not exactly like 2017 2018 using cash, it is a reasonable electronic analogue. Even so, bitcoin Source: CoinMarketCap

The Economist September 1st 2018 5 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

2 One use is for buying drugs and other dodgy items from online currency’s allure. Warren Buffett, a wealthy American investor, black markets, where buyers and sellers are prepared to put up has called bitcoin “rat poison”. Jamie Dimon, the boss of JPMor- with the downsides because they want to cover their tracks. It can gan—the sort of financial institution that bitcoin fans dislike—has help citizens ofcountries with currency controls get around them, described it as “a fraud”. A research note from Goldman Sachs, a says Alistair Milne, a financial economist at the University of bank, published in July, describes cryptocurrencies as “a mania” Loughborough. And some cyber-criminals have turned to it for and concludes that they “garner far more…attention than is war- ransom demands. ranted”. Still, back in May the same bank announced its intention Legitimate businesses, with a few exceptions, have proved to open a cryptocurrency tradingdesk, citingdemand from its cus- more cautious. A report from JPMorgan published in 2017 found tomers. Autonomous Next, a financial-research firm, reckons that that, of the top 500 online retailers, only three accepted bitcoin, 175 cryptocurrency funds were set up in 2017, up from just 20 the down from five the year before. Among those that have stopped year before. supporting it are Expedia, a travel agency, and Valve, which runs Would-be punters will need a strong stomach. Bitcoin is thinly Steam, an online video-games shop (which cited “high fees and traded and barely regulated, and rumours of large-scale price ma- volatility” as the reasons). Chainalysis, a research firm based in nipulation have been supported by unusual trading patterns on New York that tracks data from 17 different bitcoin merchant-pay- exchanges. A paper published by two researchers at the Universi- ment processors, found that monthly transactions peaked in Sep- ty ofTexas at Austin asks whether Tether, anothercryptocurrency, tember 2017 at $411m, and had declined to $60m by May this year. is being used to prop up the price ofbitcoin. Governments are beginning to take notice. In May South Kore- The South Sea bubble redux an regulators raided Upbit, that country’s largest cryptocurrency The volatility that makes bitcoin unattractive as a currency also exchange. In the same month America’s justice department began makes it an exciting target forspeculation. “Ifwe’re being honest,” a criminal investigation into manipulation ofbitcoin’s price. says Tim Swanson, the founder of Post Oak Labs, a firm that pro- Official scrutiny, and the recent drop in prices, have spooked vides technology advice, “the majority of people are buying many investors. Goldman Sachs argues that bitcoin remains over- [cryptocurrencies] because they hope the price will go up, rather valued. But for every bear there is a bull. Tim Draper, a venture than forany great philosophical reason.” capitalist who made his fortune backing technology companies, Condemnation from prominent figures has only added to the has forecast that by 2022 a bitcoin will be worth $250,000. 7 Brain scan Satoshi Nakamoto

Bitcoin’s enigmatic creator may never be identified ON PAPER—or at least on the blockchain— pherpunk. He was the recipient in the Satoshi Nakamoto is one ofthe richest first-ever transaction conducted in bitcoin, people on the planet. Bitcoin is a semi- with Mr Nakamoto as the sender. He died anonymous currency and Mr Nakamoto in 2014. Andy Greenberg, a journalist, is a pseudonymous person, so it is hard to who studied private e-mails between Mr be sure; but he is generally reckoned to Finney and Mr Nakamoto, concluded that own around 1.1m bitcoin, or around 5% of he was probably not bitcoin’s creator. And the total number that will ever exist. Mr Finney himselfalways denied that he When bitcoin hit its peakofover $19,000, was Mr Nakamoto. that made him worth around $20bn. Conversely, in 2016 Craig Wright, an But Mr Nakamoto, though actively Australian computer scientist, explicitly involved with his brainchild in its early claimed that he was the man everyone history, has been silent since 2011. An was looking for. He invited several news army ofamateur detectives has been organisations, including The Economist, to trying to workout who he really is, but witness him prove his claim by using there is frustratingly little to go on. While cryptographic keys that supposedly be- developing bitcoin he claimed to be male, longed to Mr Nakamoto. He did not con- in his late 30s and living in Japan, but Still, the legions ofsleuths have turned vince his audience, so he said he would even that information is suspect. There up various candidates, ranging from settle the matter by moving a bitcoin from are indications that he may have lived in Japanese mathematicians to Irish gradu- Mr Nakamoto’s stash. He later decided an American time zone, but his English ate students. In 2014 Newsweek, a busi- against it when an online story suggested occasionally contains British idioms. ness magazine, fingered Dorian Prentice he could face arrest ifhe confirmed he Some ofhis goldbug-like comments Satoshi Nakamoto, an American engi- was bitcoin’s creator, on the ground of about central banks that “debase the neer. He emphatically denied the story, “enabling terrorism”. But the story turned currency” and the evils offractional- and the next day a forum account previ- out to be a fake. reserve banking led early cyber-libertar- ously used by Mr Nakamoto posted, for According to another theory, MrNaka- ian bitcoin enthusiasts to claim him as the first time in five years, to say, “I am not moto is actually a group ofpeople. But for one oftheir own. One thing is certain: he Dorian Nakamoto”—though there are now his, or their, identity remains a mys- values his privacy. To register Bitcoin.org doubts about that account, too. tery. Some thinkhis withdrawal was a he used Tor, an online track-covering tool Attention also focused on Hal Finney, matter ofprinciple, to underline the point used by black-marketeers, journalists and an expert in cryptography, an experi- ofa decentralised currency. Perhaps he political dissidents. enced programmer and a dedicated cy- simply wants a quiet life.

6 The Economist September 1st 2018 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

Altcoins Venezuela, a country in deep economic trouble, announced that it had created the petro, a cryptocurrency supposedly backed by the country’s large oil reserves. It was designed in part to circumvent Chips off the block American sanctions. Nicolas Maduro, the country’s president, claimed thatpresalesofthe petro had raised $735m in preciousfor- eign currency on the day it launched. Many cryptocurrencies, though, go nowhere. Deadcoins.com, a site that keeps track of moribund ones, lists about 900 coins that have been abandoned by their creators or their users. The best-known and most interesting twist on bitcoin’s origi- Bitcoin has spawned a horde of imitators nal idea is Ethereum. The brainchild ofa bitcoin enthusiast, Vitalik ITCOIN FANS like to point out that, like gold, the cryp- Buterin, it was launched in 2015. Its main innovation is to allow tocurrency is in limited supply. Its protocol specifies computer code—dubbed “smart contracts”—to reside on its block- that only 21m bitcoin will ever be mined, with the last chain. Thatcode will be run in predefined circumstances, against a batch due in the middle of the 22nd century. A fixed small payment in ether—the Ethereum network’s native crypto- supply, say bitcoiners, ensures that, unlike ordinary currency—to compensate the owner ofwhichever computer ends currencies, it will not be eroded by inflation. up running the program. These programs can interact with each BBut whereas the supply of bitcoin may be limited, that of other, which makes it possible to construct complex distributed cryptocurrencies is not. Bitcoin’s protocol is open-source, so there blockchain-powered “dapps” (distributed apps). is nothing to stop others copying the idea. And they have done, with gusto. So far thousands of different cryptocurrencies have Into the ether been launched. Like bitcoin, they have proved attractive to specu- That, in theory, makes Ethereum a more generalised system than lators. For example, XRP, issued by Ripple, a payments firm, rose bitcoin. The bitcoin blockchain is designed to do just one job: to from less than one cent to touch $3.46 in January this year (it has serve as a ledger for electronic cash. An Ethereum dapp could be since dropped backto around $0.35). The magnitudes vary, but the written to do the same thing, but other uses are possible, too. Go- price movements ofcryptocurrencies tend to be correlated. When lem, for instance, an Ethereum-powered project launched this bitcoin is rising, the so-called “altcoins” tend to rise as well, and year, is designed to create a “decentralised supercomputer”, offer- vice versa. ing users rewards for putting their computers’ spare capacity to Some ofthese altcoins are shady. Several projects have actually work for other people. That has led to excited talk of Ethereum it- been called PonziCoin, and one, in 2014, seemsto have done exact- self becoming a sort of “world computer you can’t shut down”, or ly what it promised, advertising a 120% annual return before fold- even “Web 3.0”, on top ofwhich could be builtdecentralised, user- ing soon after enough suckers had bought in. Some are meant as controlled versions ofeverything from Facebookto Skype. jokes: Dogecoin is based on an internet meme involving a Shibu For a world worried about the power ofbig internet firms, that Ina dog that went viral in 2013. Even so, in could be an attractive prospect. Ethereum’ssmartcontractsstarted 2017 its price surged along with that of all on a modest scale, involving things like automated casinos and the other cryptocurrencies, from $0.0002 Many lotteries. Then they became grander: the Decentralised Auto- to $0.017, an 85-fold increase. Dogecoins nomous Organisation (DAO), for instance, founded in 2016, was currently in circulation are worth a nomi- crypto- designed as an automated investment fund. nal $267m. It ended up as a cautionary tale about the difficulty of writing Some altcoins, though, are sincere at- currencies bug-free code. Its smart contract took money from contributors tempts to fix some of bitcoin’s perceived go nowhere and allocated it to projects that its 11,000 members had voted on. problems. One ofthese is that bitcoin is not But after $150m ofether was invested in the DAO, a hacker found a truly anonymous. If a pile of it can be tied bug in the code that allowed him to make off with $50m of that to a user’s real identity, the blockchain will stash of cash. 1 reveal every transaction in which he received those coins. (This was a big help to the FBI agents who in 2013 arrested Ross Ul- bricht, the founder of the Silk Road, an early online black market that did much of its business in bitcoin.) Zcash, Dash and Monero are all cryptocurrencies that aim to give users more privacy. Monero, in particular, quickly became a popular alternative to bitcoin in some of the less salubrious corners of the internet. “Stablecoins” such as Basis, Car- bon and Tether, meanwhile, attempt to tame the volatility that makes cryptocurrencies attractive to speculators. Tether claims that each of its coins is backed by a US dollar. About 2.5bn Tether coins are currently in circulation. In 2017 the firm promised to hire external auditorsto prove thatit does, in fact, have a pile ofreal cash backing those coins. In March thisyear, still without an audit, it announced that it had parted ways with the firm it had hired. In December 2017 the government of The Economist September 1st 2018 7 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

2 These days shady dapps are flourishing. At the time of writing protected virtual cats which can be traded between users. Traffic the second-most-popular dapp using Ethereum’s networks is a on Ethereum’s network rose at least sixfold and many transac- kind of lottery whose rules are hosted on a site called Exit- tions failed. scam.me. This may be nothing more than growing pains. Yet Despite such fiascos, the flexibility of its smart contracts has Ethereum also suffers from many of the same built-in limitations made Ethereum the platform of choice for all sorts of blockchain- as bitcoin. Its transaction rate is capped at about 14 per second. As powered experiments. It has also provided a means to pay for with bitcoin, there are long-running plans to ease the jam, though them, by issuing new cryptocoins which, instead of running on it is unclear whether they will succeed. their own blockchains, piggyback on the Ethereum one. That has For now, populardapps can still clog the network. In late 2017 a turbocharged an idea called initial coin offerings (ICOs), a form of game called “CryptoKitties” went viral on Ethereum’s blockchain. crowdsourced fundraising that is becoming popular in the crypto- It involves smart contracts that create unique, cryptographically currency world. 7 A voracious appetite

Mining cryptocurrencies is using up eye-watering amounts of power BITFARMS IS a mining company based numbers are hard to come by, but accord- near Montreal in Canada’s Quebec prov- Tomorrow, the world ing to one estimate from Bernstein, a Wall ince. Mining has a long history in this Estimated bitcoin energy consumption Street research firm, Bitmain may have area. Quebec is the world’s second-big- TWh per year made a profit of$3bn-4bn last year. It is gest producer ofniobium, an important 80 planning to float on the stockmarket AUSTRIA, ENERGY CONSUMPTION, 2015 ingredient in steel alloys, and the third- 70 before the end ofthis year. largest oftitanium dioxide, used in pro- 60 The dominance ofa few big firms in ducts from spacecraft to toothpaste. mining worries many crypto fans. They SINGAPORE 50 Bitfarms, though, is a post-industrial NEW ZEALAND are aware that anyone who controls more sort ofmining firm. Its racks ofhumming 40 than halfthe total mining capacity in a computers, crunching through zillions of NIGERIA 30 cryptocurrency is able to manipulate its cryptographic calculations every second, NORTH 20 blockchain, a so-called “51% attack”. Sev- KOREA are designed to mine bitcoin and other 10 eral smaller cryptocurrencies have al- cryptocurrencies. The location ofBit- 0 ready fallen victim to such attacks. farms is no accident. In 2016 Hydro-Que- 2017 2018 For most outsiders, the bigger worry is bec, the local electricity company, found Sources: Digiconomist; International Energy Agency the current system’s voracious power itselfflush with relatively cheap hydro- consumption. After its initial enthusiasm, electricity and said it wanted to attract system, miners demonstrate their com- Hydro-Quebec was so overwhelmed that data centres like those run by Facebook or mitment by using computer power (and it has had to call a moratorium on new Google. That sparked a cryptocurrency therefore electricity) to supply the answer applications forcryptocurrency mining. It gold rush. to a mathematical puzzle. Whoever is unclear where most mining operations Alex de Vries, an analyst at Pricewater- solves it first is rewarded with some new- obtain their electricity. But the biggest houseCoopers, a consultancy, helps to ly minted bitcoin. cryptocurrency farms are in China, where run a site called Digiconomist which The result is a Red Queen’s race, where most ofthe electricity is generated by keeps trackofthis business. He reckons miners must run just to stand still. The dirty coal-fired power stations. that its total global revenues from such best way ofwinning is to buy ever more Mindful ofsuch concerns, some cryp- mining, even after bitcoin’s fall from its and ever faster computers to solve the tocurrency developers are looking for peakin 2017, are around $4.5bn a year, puzzles. But the system is designed to be alternative ways to secure their products, mostly shared among a handful ofChi- self-adjusting, to keep the average rate at but there is little agreement on how to do nese firms that now dominate the crypto- which new blocks are generated at one it. The most popular idea is a “proofof currency mining business. every ten minutes. The more computer stake” system, in which a miner’s chance The most striking statistic is the sheer power miners throw at the problem, the ofbeing able to add a blockdepends on amount ofelectricity needed to run the harder the taskbecomes. In the long run, how much ofthe cryptocurrency he system. Mr de Vries estimates that bitcoin says Mr de Vries, the cost ofmining a already owns, removing the need for mining consumes at least 22 terawatt blockshould tend towards the real-world elaborate power-hungry calculations. But hours ofelectricity a year, and probably value ofthe 12.5 bitcoin reward. At current giving yet more currency to those that as much as 73TWh, roughly the same prices that is about $80,000, which buys a have the most has a whiffofplutocracy amount as Austria does. Ethereum, the lot ofelectricity. about it, and many users object. second-most-popular cryptocurrency, The reward money has created an Even the miners themselves are mak- eats up a further21TWh. entire industry. In the early days most ing contingency plans. Bitmain, for in- This phenomenal energy hunger is mining was done by individuals on home stance, is planning to diversify by launch- implicit in the nature ofcryptocurrency computers, but it soon moved to more ing a new series ofchips designed for mining. Miners are responsible for main- efficient computer-graphics chips. Now it machine learning. Bitfarms says that taining the blockchain, but anybody can is done in vast data centres full of chips so bitcoin mining is merely a transient pro- set themselves up as one, so there needs specialised they can do nothing else. ject to fund its longer-term goal: enabling to be a way to deter frivolous or malicious The biggest mining company, Bitmain, business applications forthe blockchains operators. In bitcoin’s “proofofwork” founded in 2013, is privately held, so that underlie cryptocurrencies.

8 The Economist September 1st 2018 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

Initial coin offerings tocol that anyone can use without paying, and made no money for its creators. ICOs can create a financial reward for the builders ofsuch systems instead ofrelying on kindly coders. Token efforts Another attraction ofICOs is less noble: they avoid the bother- some paperwork and regulatory oversight that comes with more traditional methods of fundraising. This side of the business is now beginning to attract attention from the authorities. In Viet- nam, for instance, police are investigating two ICOs, Pincoin and Fundraising with cryptocurrencies is booming, but is that a Ifan, run by a firm called Modern Tech, which is accused ofduping buyers out of $660m. BitConnect, based in Britain, which de- good thing? scribed itself as a bitcoin lending platform, promised its investors T LOOKED like just another cryptocurrency scam. On returns of more than 1% a day, which would turn an initial invest- April 18th the website of Savedroid, a German company, ment of $1,000 into $37,800 within a year. Its website features pic- wentoffline, to be replaced byan image from “South Park”, tures of happy investors frolicking amid money trees and piles of a scatological cartoon, bearing the legend “Aannnd it’s gold. Authorities in Texas and North Carolina obtained cease-and- gone”. Yassin Hankir, Savedroid’s boss, published a Twit- desist orders against the company in January this year. A few days ter post that showed him first in an airport and later on a later BitConnect said it was shutting down, blaming those orders Ibeach, with the caption “Thanks guys! Overand out…” The impli- and the subsequent “bad press”. cation was that the company was gone and its founder had made offwith $50m raised from sales ofits cryptocurrency, SVD. Careful now Savedroid had been running an initial coin offering (ICO), a Pump-and-dump schemes are rife. An ICO’s creators talk up the form of fundraising popular among cryptocurrency firms. An is- value of their tokens before selling them and making off with the suer will create a pile of crypto-tokens, often running on top of an money. The Securities and Exchange Commission, one of Ameri- existingblockchain such asEthereum, then sell some to raise mon- ca’s financial regulators, has created a spoof ICO website which ey fordeveloping its product. The hope is that once that product is appears to plug a product called HoweyCoin but is in fact de- launched, the associated tokens will rise in value, leaving those signed to warn potential buyers ofthe pitfalls. (The name refers to who bought them early with a tidy profit. Matt Levine, a journalist the “Howey test”, which determines whether something counts at Bloomberg News, has possibly the snappiest definition: as a security in American law and therefore falls under the SEC’s “They’re like ifthe Wright brothers sold airmiles to finance invent- regulatory umbrella.) A paper by Hugo Benedetti and Leonard ing the aeroplane.” Kostovetsky, both at Boston College, found that ICOs can be very The idea is not new. Ethereum itselfgot started in this way, rais- profitable, with average returnsof179% between the ICO price and ing$18m in 2014. But ICOs have become big business. According to the price the token fetches on its first day of trading. But they also Coinschedule, an average of18 ICOs per month took place in 2017. found thatlessthan halfsuch projectsremain active for more than As of July, the number for 2018 was 99 a month. So far those ICOs 120 days after they have finished issuing tokens to the public. have raised $17bn, up from $3.7bn forthe whole of2017. It is an open question whether ICO tokens count as securities, Some have been enormous. Block.one, a firm based in the Cay- and whether their issuers must therefore comply with the rules man Islands, raised more than $4bn with an ICO for EOS, an Ethe- that regulate stock offerings. Regulatory responses vary from reum-like blockchain on top of which firms can write software. country to country, says Preston Byrne, a financial lawyer and Earlier this year Telegram, which runs an instant-messaging ser- cryptocurrency watcher. South Korea banned ICOs last year, as vice popular with cryptocurrency fans, raised more than $1.7bn did China, though many carry on regardless. American regulators when it sold its cryptocurrency to a group ofprivate investors. have taken a cautious approach. In June Jay Clayton, the SEC’s ICOs have attracted institutional investors as well as individ- boss, advised would-be ICO-issuers to talk to the agency before uals. Protocol Labs, a firm based in San Francisco, is working on proceeding. But William Hinman, the SEC’s director of corporate several blockchain-powered applications, including the Inter- finance, said later that month that he was not minded to treat planetary File System, which would pay users in cryptocurrency ether, Ethereum’s cryptocurrency, as a security, because of its “de- to let others use their spare computer capacity, in a sort of user- centralised” nature. Regulators in jurisdictions such as Switzer- powered version of cloud-storage firms such as Dropbox. It has land and the Isle of Man have been offering detailed guidance on presold $52m in cryptocurrency to Silicon Valley venture-capital how to conduct a legitimate ICO. firms such as Sequoia, Union Square and Andreessen Horowitz. For now, says Mr Byrne, even honest ICOs are living in an un- Though the names sound similar, ICOs are not like IPOs (initial comfortable legal limbo, with “some vexing questions about the public offerings), in which buyers acquire shares liability ofthe people starting the scheme”. Prob- and voting rights in a company. Instead, most just ably the only way to get clarity, he says, is to wait offer a token, theoretically tradable at a later date They bought it for a court case. Technology companies, for their forwhateverservice the ICO’s issuer plans to pro- Initial coin offerings part, have moved faster than regulators: Face- vide. Depending on how well the project does, Amount raised, $bn book, Google, Microsoft and Twitter have all those tokens may or may not be worth anything. 6 banned ads for ICOs, citing the financial risks to ICOs offer a way to raise cash to build decen- their users and worries about fraud. tralised versions of everything from social net- 5 As for Savedroid, furious punters eventually works to cloud computing that would allow us- tracked down its boss to a resort on the Egyptian ers to deal with each other directly without any 4 Red Sea coast. But the next day the firm’s website central control. The modern internet, say suppor- 3 was back up, with an announcement that the ters, is in effect controlled by a small number of shutdown had been a stunt. The point, claimed vast firms that run the platforms on which most 2 Dr Hankir, had been to warn investors just how online activity takes place. By building decentral- easily the company could have disappeared. 1 “There’s so much scam happening, from the be- ised alternatives, the power ofthose monopolies * could be broken. Much of the early internet was 0 ginning to the end ofICOs,” he said. “Even we, as developed this way. For example, SMTP, which 2016 17 18 a regulated German stock corporation, could specifieshowe-mail should work, isan open pro- Source: Coinschedule *To August 20th have just run away…with all the funds.” 7 The Economist September 1st 2018 9 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

Blockchains record-keeping or trade finance to ensuring that diamonds and other minerals are ethically sourced. Santander, a bank, has said thatadoptingblockchainscould save the finance industry $20bn a Nailing it year in back-office costs. Creative minds are already turning to exotic applications. LegalThings, a Dutch firm, announced in April that it wanted to put sexual consent on a blockchain; lovers would sign an unalterable electronic contract before takingthings further and send copies to thousands ofstrangers forsafekeeping. What blockchains may be able to do for your business, and The obvious way to think about blockchains is as a kind of database, though a more exact definition that commands general what they can’t agreement is hard to come by. The original blockchain, invented to EPOWER IS a Lithuanian startup that aims to power bitcoin, was designed to solve a specific problem, says change the way renewable-electricity projects are Richard Brown, chief technology officer at r3, a blockchain firm: paid for. The government-guaranteed prices that “How can I build a system ofelectronic cash that is resistant to offi- have propelled growth in wind and solar energy cial censorship and confiscation?” Bitcoin does the job passably around the world are being cut back, says Nick well but extremely inefficiently. Martyniuk, WePower’s founder. So his firm wants The feature that most business blockchains share with the bit- Wto help developers ofrenewables raise money by selling the rights coin original is that the information stored in a blockchain is kept to the electricity their plants will produce once built. Customers by the system’s users, not by a central authority, and that each en- will buy a smart contract now, running on Ethereum’s blockchain, try is cryptographically linked to the ones before and after it. But that will provide them with power later. businesses do not share the ideological motivations of bitcoin’s Using a blockchain offers several advantages, says Mr Marty- creators, so they can throw out parts of bitcoin’s technology they niuk, who used to work as an energy trader. Big energy users such do not need. For example, both the bitcoin and the Ethereum as foundries and aluminium smelters already negotiate such con- blockchains are public and open for anyone to inspect, so they tracts with power stations, but they are often complex and time- need a formal verification process for all transactions. But few consuming. Contracts on a blockchain could be offered off the businesses are keen to lay their back-office functions bare to the shelf, allowing smaller companies—and perhaps, one day, indi- world, so most enterprise blockchains are both private and “per- viduals—to use them too. Such contracts would be as easily trad- missioned”, meaning that access is restricted to trusted users. Cor- able as any other crypto-asset, creating a secondary market in da, a finance-focused blockchain developed byr3, a consortium of power agreements. banks, and HyperledgerFabric, originallydeveloped byIBM and a The blockchains that run cryptocurrencies (see diagram be- firm called Digital Asset, workthis way. Allowingonly trusted par- low) could have far wider applications than tracking the transac- ticipantsremovesthe need forthe wasteful proof-of-work systems tion history of electronic cash. Investors have taken note. Crunch- that many cryptocurrencies use to update their records. base, a business-information firm, reckons that in the first five Other vendors weaken the cryptography that makes bitcoin months of 2018 blockchain startups raised more than $1.3bn from transactions immutable. One reason is that European data-protec- venture-capital firms, compared with around $950m in the whole tion law gives individuals the right to ask for their data to be re- of 2017. Cloud-computing platforms from Amazon, IBM, Micro- moved from a company’s servers and imposes big penalties for soft, Oracle and others let users experiment with using block- non-compliance. Similar rules apply to medical data in America. chains in their businesses. Professional-services firms such as Ac- But entries in a standard blockchain, once created, cannot be al- centure and PricewaterhouseCoopers are lining up to advise tered. Accenture has developed a mutable blockchain in which clients on the new technology. the content of individual blocks can be modified, leaving a digital The idea is that, because blockchains use distributed rather “scar” to indicate that they have been changed. than centralised records and are more tamper-proof than other Some business users prefer not to use the term “blockchain” at databases, they can be applied to tasks from streamlining medical all, perhaps because they want to dissociate themselves from cryptocurrencies and their sometimes shady reputation. Corda, Digital Asset and a number of other firms like to call it “distri- For sure buted-ledger technology”. But whatever the name of the game, Bitcoin’s blockchain, simplified there is no shortage ofproposed uses.

1 Alice wants to send Bob 2 The proposed transaction is broadcast some bitcoin to everyone in the network All togethernow A common one is to smooth business transactions by allowing the different entities involved to draw on the same records. Simon Whitehouse, managing director offinancial services at Accenture, reckons that blockchains could help streamline supply chains by allowing records to be shared by suppliers, shipping companies, 3 “Miners” verify proposed transactions 4 They race to work out the answer import agents, customs officials and so on. This would also make and bundle them into blocks to a cryptographic puzzle dispute resolution easier where supply chains cross international borders, he says. At present all those involved in a supply chain ? own proprietary systems to track consignments, so the ?? same data are being used in different formats and different places and have to shuttle from one database to another. Replacing all that with a single distributed database foreveryone’s use could of- 5 The winner adds his block to the 6 Everyone in the network receives a chain, which now cannot be altered. copy of the updated chain, and the fer big savings. Accenture is already piloting such a scheme with a He collects a reward in bitcoin transaction is complete big technology company. The finance industry is experimenting with the technology, too. Fusion LenderComm, developed by a firm called Finastra, is running on r3’s blockchain. It aims to streamline the syndicated- Source: The Economist lending business, in which groups of banks jointly provide large1 10 The Economist September 1st 2018 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

blem that gets worse as the number of users rises. When the Bank of Canada tried using blockchains to process domestic payments, which are already quite efficient, it found they offered no benefit. Stripe, a big digital-payments firm, has abandoned its blockchain experiments after three years of trying, describing the technology as “slow and overhyped”. Talkabout blockchains as “truth machines” is particularly un- helpful, saysKai Stinchcombe, who runsTrue Link, a financial-services firm for retired people. Many products, such as diamonds or luxury handbags, already come with certificates ofauthenticity. A blockchain could reassure buyers that those certificates have not been tampered with. But that is not the same as proving they are true. “If you put garbage onto a blockchain, all you get is distributed, encrypted garbage,” he points out. Verisart, a firm that hopes to reduce art fraud by providing blockchain-powered certificates of an artwork’s provenance, is a case in point. Armed with a picture from Wikipedia and an imp- ish sense of humour, Terence Eden, a developer at Britain’s Gov- ernment Digital Service, convinced the firm that he had painted a work called “La Gioconda”. That information was added to Veris- art’s blockchain, where it was widely distributed and cryptographically secured. But that did not make it right. The painting is 2 loans for infrastructure projects and the better known as the “Mona Lisa”, created by Leonardo da Vinci in like, by replacing an individual bank’s sys- Most 1503. In the same vein, says Mr Stinchcombe, a blockchain may tems with a piece of common infrastruc- attempts to make it easier to verify the paperwork that claims to show that a ture that any lender can use. diamond is ethically sourced, but it cannot stop mine operators The Bank of Canada and the Monetary use falsely claiming that their products are legitimate. AuthorityofSingapore are collaborating to Enthusiasts are also beginning to realise that even when a investigate blockchains as a way of im- blockchains blockchain might be a suitable tool for the job at hand, they will proving international payments. Banks in still need to resolve the same sorts ofproblems as for any otherbig different countries often run computer sys- remain IT project. Proposing a new standard is the easy part. The point is tems that cannot easily talk to each other, to geteveryone, includingcompetitorswith little love foreach oth- which makes payments slow and expen- tentative er, to agree on important details such as who will be in charge, sive. A single shared ledger could relieve how the system will be built, how data formats will work and much of the administrative burden. San- what happens if someone wants to leave. As David Gerard, a tander has launched a smartphone app blockchain sceptic who works at the British Medical Journal, puts called One Pay FX that lets customers send international pay- it: “Blockchains don’t solve the underlyingproblem ofagreeing on ments in a matter ofseconds and tells them when they will arrive. what you want to do and how.” Applying blockchains to highly Instead ofthe standard international financial plumbing, One Pay regulated industries such as finance, says Mr Brown at r3, means FX uses a closed, permissioned, quasi-blockchain system operat- reassuringregulators that the systems can operate as planned, and ed by Ripple, an American firm. that systemic risks can be minimised. The cryptography that protects entries in a blockchain from Computer scientists point out that the ideas underlying block- tampering could also be used to build robust registers of every- chains are hardly new. For example, the cryptographic linkages thing from property deeds to company accounts. Several coun- that secure entries in a block, known as Merkle trees, were first tries, most famously Honduras, have flirted with the idea of put- proposed in 1979. Still, the impression of novelty may serve a use- ting their land registries on blockchains to guard against fraud. ful purpose. Sam Chadwick of the Thomson Reuters Foundation DHL, a big logistics firm, is testing whether the technology could notes that the word “blockchain” can help spark interest among be applied to shipments of medicines. Everledger, which raised senior managers in the kind of back-office improvements that $10.4m of funding in March, aims, among other things, to use they would normally consider dull. And once competitors are sit- blockchains to track the provenance of diamonds, from the mine ting round a table, they find it easier to put aside their differences to the wearer’s finger. and work out more efficient ways of doing business. Mike Pisa of the Centre for Global Development, a charity, has been studying Not so fast possible uses ofblockchains in poorcountries and finds that “it’s a For all the technology’s potential, though, most attempts to use it word that can attract attention to things we could have done be- remain tentative. Honduras’s property blockchain, originally an- fore. That’s a positive.” nounced in 2015, was eventually abandoned in the face of official Tim Swanson, at Post Oak Labs, thinks blockchains are enter- indifference. And some supposed successes turn out to be wildly ing the “trough of disappointment” in the “hype cycle” proposed exaggerated. A rash of reports earlier this year that Sierra Leone by Gartner, a technology consultancy. At this point, after an initial had run the world’s first blockchain-powered election, using soft- surge of excitement, reality reasserts itself as the limits of a tech- ware from a Swiss startup called Agora, had to be corrected on nology become apparent. The key to making blockchains useful Twitter by the country’s National Electoral Commission. It point- will be to manage expectations. And sometimes it is best to con- ed out that the election had been tallied on to its own database, cede defeat. When Ujo Music tried to blockchainifythe notorious- which “does not use Blockchain in any way”. Agora, it appeared, ly messy business ofarranging payments to artists in the music in- had merely been observing the election, and its blockchain tallies dustry, it did not succeed. The musicians were fazed by the did not match the official ones. technobabble; the technologists who had been called in did not The advantages of blockchains are often oversold. Because of understand the industry they were promising to revolutionise. the overheads involved in shuffling data between all participants, They concluded: “We are but a few bright-eyed technologists with blockchains are less efficient than centralised databases, a pro- a special hammer, looking forthe right nail.” 7 The Economist September 1st 2018 11 TECHNOLOGY QUARTERLY Cryptocurrencies and blockchains

roots, is more attention from regulators, to combat the epidemic of fraud and sharp practice in the field. Some cryptocurrency firms are focused on exactly that. Chainalysis, for instance, hopes to help firms analyse their clients’ cryptocurrency trading to comply with anti-money-laundering rules. Some think a more radical approach is needed. Despite the absence of a centralised operator, says Angela Walch, a lawyer and member of the Centre for Blockchain Technologies at University College London, the coders whose efforts establish the system in the first place and the miners who maintain a cryptocurrency’s ledgers do hold power. So she thinks there is a case to be made for treating both coders and miners as fiduciaries, imposing a legal requirement on them to act in the interests ofthe system’s users.

Going round in circles Even a well-regulated cryptocurrency, though, would be subject to the “networkeffects” that have led to an oligopoly in social media. New users tend to choose the biggest firms because everyone else is already subscribing to them. In the same way, a currency’s utility depends on otherpeople usingit. “In orderformerchants to start accepting cryptocurrencies, there needs to be demand [from customers],” says Kim Baeur at Chainalysis. “But in order for customers to want to use it, they have to expect to be able to spend it.” Cryptocurrencies would have to offer a compelling advantage Prospects over other payment mechanisms to break that logjam. But since speculators love them, they are not likely to disappear either. Blockchains could be a different matter. Like cryptocurrencies, Beyond the hype they have been oversold. Because of its decentralised nature, a blockchain will always be slower and more cumbersome than a standard database. But blockchain developers are trying to minimise those problems by doing away with features such as proof ofwork, which is necessary in a public system open to anyone but Cryptocurrencies look like a solution in search of a superfluous in a system designed for private use. As with cryptocurrencies, a sensible attitude to regulation helps. The most cred- problem. Blockchains could be more interesting ible actors cite their compliance with regulations around finance, FAVOURITE comparison drawn by cryptocurrency personal data and the like as a selling-point. and blockchain enthusiasts is with the early world For now, however, almost all blockchain projects remain ex- wide web. These technologies are only a decade old, perimental. Most will fizzle out. The less world-changing a pro- they say. Trying to predict how they might change the posed use, the better its chance of success. For example, the cryp- world in the future is next to impossible. Who could tographicstructuresthatmake data in a blockchain hard to change have known in 1998 that there would be such a thing are fairlyeasyto introduce. When theyadd an extra layer ofsecuri- Aas Facebook? ty to things like financial ac- The comparison is carefully chosen. The web has been remark- counts or official documents, able forthe speed with which it has conquered the world. The first they could be useful. OFFER TO READERS web page appeared on the internet in 1991. A decade later Amazon A bigger prize awaits in the Reprints of Technology was booking revenues of $3.1bn a year; America Online, an early back office, reducing the time- Quarterly are available from the Rights and Syndication internet-service provider, had more than 20m customers; and half consuming administration re- Department. A minimum order ofAmericans had internet access. quired for firms to talk to each of five copies is required. By that yardstick, cryptocurrencies have made very modest other by providing a shared data- progress. But then it is highly unusual for a technology to fare as base which everyone can use. CORPORATE OFFER well as the web has done. Arule ofthumb for venture capitalists is This may be easiest where exist- Customisation options on that nine out of ten projects they back will fail. Not every new ing systems are minimal and corporate orders of 100 or more thing is the next big thing. there is no incumbent centralised are available. Please contact us Better, then, to evaluate cryptocurrencies and blockchains on regulator. Two examples com- to discuss your requirements. their own merits. Start with cryptocurrencies. It is clear that, a de- monly cited are trade finance and For more information on how to order special reports, reprints or cade after they were invented, their use for their ostensible pur- international money flows. any queries you may have please pose—as a means of exchange—is negligible. A lot of work is being Other compelling uses may contact: done to fit them better for this task, so that could change. But if yet emerge. But it is worth bear- their use is to become widespread, they will have to offer some- ing in mind that big IT projects— The Rights and Syndication thing that existing currencies do not. Bitcoin’s original selling- which is what blockchains Department point—freedom from any kind of central control—holds little ap- amount to—tend to be cumber- The Economist peal forordinarypeople, saysGaryBarnettofGlobalData. Mostof some and slow even if they are 20 Cabot Square them just want a payment system that is safe and easy to use. And undertaken by a single company. London E14 4QW given cryptocurrencies’ shortcomings—the lack of consumer pro- Ifthey require several companies Tel +44 (0)20 7576 8148 tection, dizzying price fluctuations, fiddly software, slow through- to work together, they will take Fax +44 (0)20 7576 8492 put and a voracious appetite for electricity—at the moment they even longer. So whatever hap- e-mail: [email protected] fail that test. pens, blockchain’s backers will www.economist.com/rights One thing that might help, despite bitcoin’s anti-establishment need patience. 7 12 The Economist September 1st 2018 Middle East and Africa The Economist September 1st 2018 39

Also in this section 40 The lot of Shias in Saudi Arabia 40 A race against Ebola 41 Gentrifying Johannesburg

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

Lebanon’s economy shops have cut salaries or fired staff to get by. “This is the worst it’s been in 40 years. When the music stops Everything is coming to a halt,” says Rafi Sabounjian, a small-business owner. On paper, at least, the banking sector looks solid. Commercial banks hold $200bn in deposits, four times as much as Jordan, which has more people. The cen- BEIRUT tral bank (the Banque du Liban or BdL) sits The economyhas been sluggish foryears. Now a crisis looms on $44bn in assets, excluding gold, enough HE main feature of Beirut’s skyline is projects last year, a 6% drop from 2016. An- to cover more than two years of imports. Tnot minarets or church steeples, but nualised figures from the first half of 2018 Its governor, Riad Salamé, says everything construction cranes. From the roof of a show a further18% decline. is fine. He points to the months after Mr posh downtown hotel you can see 17 of More worrying is the construction in- Hariri’s detention, when the central bank them, throwing up luxury apartments that dustry, which accounts for nearly one in spent $1bn to prop up the Lebanese pound, cost up to $1m each. Wealthy Lebanese sip ten jobs. Despite the cranes dotting Beirut, which is pegged at 1,500 to the dollar. Re- wine on their terraces and discuss invest- construction is slowing. The number of serves recovered almost immediately. ment opportunities. They rub shoulders permits issued in the first half of 2018 was But those numbers are misleading. In with Gulf tourists drawn by Beirut’s liber- 9% lower than in the same period last year. 2016 the BdL pioneered something called tine nightlife. Lebanon’seconomyrelieson Property transactions dropped by 17% year “the swap”, a complicated scheme in tourism, construction and finance for on year in the first quarter. which it borrows foreign-currency hold- growth. All three seem to be thriving. Developers fear a deeper slump is com- ings from commercial banks. It uses the That, however, is an illusion. The coun- ing. For years the central bank subsidised dollars to maintain the currency peg. The try is tipping into a property slump—and mortgages, offering 30-year loans with in- banks get eye-popping returns, raking in perhaps a banking crisis that threatens its terest rates as low as 3%. In March it abrupt- 40% fora one-yearloan. With no economic currency. An economic crash could desta- ly halted the scheme. Bankers say it was growth, the swap works only if it can at- bilise a country already swamped with ref- abused. Instead of buying houses, some tract ever-larger sums. “It’s a pure pyramid ugees and plagued by sectarian divides. borrowers put the principal into higher-in- scheme,” says Jean Tawile, a banker and Trouble in the bankingsector, which draws terest savings accounts to turn a profit. adviser to Kataeb, a political party. investors from around the region, might be Many young couples cannot afford unsub- The BdL does not publish its net re- felt beyond Lebanon’s borders. sidised loans, which carry rates of 8-9% serves. Toufic Gaspard, its former head of Start with tourism, which was bounc- and shorter repayment periods. Some research, wagers that “swapped” deposits ing back from a period of regional unrest. have cancelled their weddings as a result. are worth $65bn—meaning net assets are Arrivals hit a five-yearhigh in 2017. But they already negative. Fearing a devaluation, are still belowtheirpeakof2010 and the in- From bad to worse banks are increasingly desperate to attract dustry is fickle. In November Saudi Arabia Lebanon’s economy was already strug- foreign currency. Interest rates even for briefly detained the prime minister, Saad gling. Annual GDP growth was 8% in 2010, short-term deposits are at their highest lev- Hariri, and forced him to resign (a move he before neighbouring Syria plunged into el in nearly a decade. High rates mean later reversed). Hotel occupancy plunged civil war. Since then it has averaged less small firms cannot obtain credit. A decade by 14 percentage points within a month. than 2%. The slowdown in the housing ago commercial lending in Lebanon grew Saudi visitors, who account for the biggest marketwill dragitdown further. In Hamra, by15-20% annually. Thisyearitisshrinking. share of tourist spending, are down by 19% the commercial hub of west Beirut, elec- The currency peg has been a pillar of this year. Investment is sluggish. Kafalat, a tronics stores are almost empty despite the economy since 1997. Receipts are firm that guarantees loans for small and deep discounts. Fewer new homeowners printed in dollars and pounds; shoppers medium enterprises, handled 117 tourism means less demand forrefrigerators. Many use the two interchangeably. This is start-1 40 Middle East and Africa The Economist September 1st 2018

2 ing to look unsustainable. Devaluation Nimr al-Nimr, was executed in 2016. would be painful for a country that im- But Awamiyah’s redevelopment also ports so heavily. It would be good for ex- has critics. Bulldozers have carved thor- porters—but Lebanon hardly has any. Last oughfares through a honeycomb of an- year it exported $2.8bn worth of goods, cient alleyways, used as hiding places by about halfas much as Iceland. The current- the Shirazis. The old souk has been demol- account deficit is more than 20% ofGDP. ished, replaced by shops in an open plaza. Lebanese politicians made a fortune Palm groves have been levelled. Entering from the banking boom. Of its 20 biggest Awamiyah now feels like entering Pales- commercial banks, 18 are wholly or partly tinian towns in the Israeli-occupied West owned by politicians or well-connected Bank. Residents and visitors must pass families. Now they seem oblivious to the through multiple checkpoints cut into the looming crash. Instead they float fanciful siege walls. Armoured cars patrol the schemes for growth. Some hope Lebanon town. “The price of integration is a loss of will become a hub for rebuilding post-war identity,”says a man living nearby. Syria. That plan faces many obstacles, not Others don’t thinkthe position of Saudi least that nobody knows who will foot the Shias has improved much under Prince estimated $200bn bill for reconstruction. Muhammad. There are still no Shia mem- Foreign donorspledged $12bn in aid at a bers of the top religious authority.No Shia conference in Paris in April. But most of judges sit on national courts. Nor are there thisisloans,notgrants,andLebanon can ill Shia police officers or ambassadors. Mean- afford more debt. The IMF expects its debt- That was so last year while, Saudi Arabia’s war on Yemen’s to-GDP ratio, currently about 150%, to hit Houthis, a group ofShia rebels, stirs sectar- 180% in five years. By then debt service will to treat his 2m-3m Shia subjects much like ian tensions. burn through three-fifths of government his18m Sunnis. He has curbed the religious The previous Saudi king, Abdullah, revenue, leaving almost nothing forcapital police, who enforced Sunni supremacy launched a dialogue with Shia leaders in expenditures (already quite low). and derided Shias as kuffar (infidels). He the kingdom. ButPrince Muhammad isun- In May voters went to the polls for a has also appointed Saudi Arabia’s first compromising. All of his changes have long-delayed parliamentary election. Mr Shia cabinet minister (albeit without a come by decree. He refuses to talk to Awa- Hariri tooka beating, losing13 seats, 40% of portfolio). The board of Neom, a planned miyah’s rebels, insisting they turn them- his total. Still, he will probably remain $500bn high-tech city, has a Shia member, selves in. In August the royal prosecutor prime minister—if he ever forms a govern- as does the national football team. Anti- called for the first time for a Saudi woman ment. Instead of discussing reforms, law- Shia vitriol has been removed from school to be sentenced to death for the crime of makers are haggling over cabinet posts, textbooks and television networks. “We’re protesting. She is Shia. That disloyalty will which they use to disperse spoils. With the going to be an integral part of the kingdom be harshly punished is another message economy heading for a crash, there may as full citizens for the first time,” says a the crown prince hopes to send, to Sunnis not be much to hand out. 7 well-connected Shia businessman. He pre- and Shias alike. 7 dicts that Riyadh, the capital, will have its first Shia mosque within three years. Saudi Arabia Awamiyah’s reconstruction is also A race against time meant to entice Shia Arabs in the region. Loyalty trumps “We can rebuild impoverished southern Battling Ebola in a Iraq too,” says a Saudi official, referring to sect the Shia portion of the country. Previous war zone Saudi rulers backed Iraq’s Sunni minority, but Prince Muhammad has courted its AWAMIYAH MANGINA Shia hoping to lure them away from Iran’s The lot ofloyal Shias has improved in Armed militias still terrorise villages ayatollahs. He has hosted Shia clerics from the kingdom close to the outbreak’s centre Iraq, plans to send planes full of Shia pil- ASTyearSaudi Arabia’s youngand pow- grims to the country’s holy cities, and dan- ROW of health workers in blue gowns Lerful crown prince, Muhammad bin gle billions in investment to revive indus- Aand face masks sit at tables outside the Salman, pulverised Awamiyah, a rebel- try in the south. While Iran pulls at the tin-roofed bungalow that was home to lious Shia town near the eastern coast. Shias’ religious sinews, Saudi Arabia ap- Kambale Vincent, one of 75 people who Throughout the summer Saudi forces peals to their sense of Arab nationalism— have died from Ebola in the Democratic shelled its 400-year-old neighbourhoods and suspicion of Persians. Shiism flour- Republic of Congo this month. His widow, and erected siege walls to trap some 200 ished in the Arab world a thousand years a hunched, 60-year-old in a blackcardigan, gunmen. But in February, when the rebels before Iran, says a Saudi prince involved in pulls her arm out of her sleeve and winces stopped shooting, he sent in his engineers, the effort. (Iran only converted to Shiism as a needle pierces her skin. She is receiv- diggers and cranes to clear up the damage. underthe Safavidsin the 16th century.) “We ing an experimental Ebola vaccine, fresh Six months on, new roads, shopping cen- used to use Islam to resist nationalism,” he from trials in west Africa, that is being of- tres and a small hospital are rising from the says. “Now we do the reverse.” fered to anyone who may have touched ruins ofthe levelled town. A new highway, Well-to-do Shias praise Prince Muham- her late husband. stretching across Eastern Province, runs mad for ridding Awamiyah of a slum in- Getting vaccines to the centre of this past Awamiyah, which had been largely fested by gun-toting criminals, drug-deal- outbreak, the scrubby village of Mangina isolated. By next March the $64m facelift ers and a Shia cult, called the Shirazis, in the North Kivu province ofEastern Con- will be complete. which appealed to landless peasants in go, is no easy task. The area is in infested Prince Muhammad hopes the recon- Eastern Province. Some Shirazis took up with about 40 armed militias, most of struction will send multiple messages. In arms and called for the death of the Al which have been hidingin the forests since exchange for absolute loyalty, he is offering Sauds after their rabble-rousing preacher, the end of a war in 2003 that claimed the 1 The Economist September 1st 2018 Middle East and Africa 41

CAR S. SUDAN Ponte City Previous 1 4 13 outbreak 280 May 2018 Mangina A shaft of light Con A go D 75 N GABON E A - L 33 G O L NORTH U JOHANNESBURG G I 49 N V A KIVU O Z RWANDA Africa’s tallest residential building epitomises Johannesburg’s fall and rise C Z A Current R BURUNDI B 187 outbreak* N1976 Africa’s most glamorous resi- and there is a waiting list. Three of the 15 Kinshasa 250 Idence opened in downtown Johan- top-floor flats are available for daring CONGO nesburg. Ponte City, a cylindrical brutalist tourists via Airbnb. The inaugural jazz 300 km skyscraper stretching 54 storeys, was built evening at the top-floor bar was held on ANGOLA foryuppies who had flocked to the city, August 25th. Ebola outbreaks, 1976-2018 often from Europe. It was reserved for the The revival ofPonte is often lumped Number of confirmed deaths wealthy—three-storey penthouses had in with the gentrification taking place in Sources: *To Aug 26th, includes wine cellars, saunas and jacuzzis— and parts ofinner-city Johannesburg. This is WHO; CDC probable deaths for whites. The only blackresidents were most notable in Maboneng, where hip- servants, in whose quarters windows sters gather at a market on Sundays to coo 2 lives ofbetween 1m and 5m people. had to be at least six feet offthe ground, over minimalist lampshades. Just a day after the outbreak was de- lest they see into whites’ rooms. There are some enterprising artsy clared on August 1st, machete-toting mili- Almost as soon as it opened, however, types, including a few from Europe, in tiamen sprang out of the bush and abduct- Ponte City began its decline. In1976 the Ponte City.But ifit is undergoing gentrifi- ed 16 people in a field around 30 kilometres suppression ofan uprising in Soweto, a cation it is by people selling avocados in from Mangina. In broad daylight they blacktownship on the outskirts ofJohan- supermarkets rather than eating them in dragged ten men, four women and two nesburg, ushered in sanctions and boy- cafés. Its residents are overwhelmingly teenage boys—who were walking back cotts, crimping South Africa’s economy. blackand working-class. They may not from a day’s farming—into their forest Whites fled inner cities for the suburbs be able to afford to move to suburbs, but hideout. Fourteen of the villagers’ because ofrising crime in the1980s. In they can spend a little more on rent to live hacked-up bodies were found in shallow moved blacks, and to a lesser extent in a building with 24-hour security.That scrubland graves five day later. The two coloureds and Indians, fleeing town- counts fora lot when the surrounding boys were probably taken as recruits. ships. Migrants from the rest ofAfrica areas are dangerous. Hillbrow has a The attacks have been blamed on the soon joined. The share ofblacks in Johan- murder rate ofmore than 70 people per Allied Democratic Forces (ADF), a group of nesburg’s inner-city increased from 20% 100,000, akin to some ofthe most violent Islamist ideologues originally from Ugan- in1983 to 85% by1993. This mixing, cities in Mexico. When you are on the da. In recent years the anti-government re- known as “greying,” was illegal. The city 54th floor, that can seem a long way away. bels have gone from attacks on the Congo- cut offservices to the Ponte building and lese army and UN peacekeeping troops, to landlords cared little formaintenance. indiscriminately abducting citizens. Each By the1990sPonte was a vertical time they strike, frightened families rush slum. The11th and12th floors were through the porous border into Uganda stripped bare and turned into drug dens nearby—exactly the kind of hurried, un- and brothels. There was no waste col- traceable movement that makes it harder lection, so residents threw rubbish into to contain the Ebola virus. the cylinder’s inner core. At its peak the “We have a toxic mix of factors,” says detritus reached the14th floor. Dead Mike Ryan, of the World Health Organisa- bodies were later found among the rub- tion (WHO), which is trying to get 9,300 bish. “My mum used to tell us to work vaccinations to those who need them. “We hard at school or you’ll end up in Ponte are dealingwith security problems, a weak like the rest ofthe failures,” recalls Bijou health system and disease. We have to bal- Dibu, who grew up in nearby Hillbrow. ance access with security all the time.” Today, however, living in Ponte is Health workers risk more than expo- becoming a markofsuccess. The Kemp- sure to a virus. Médecins Sans Frontières, ston Group, which owns the building, an international charity running the Ebola cleared and renovated the tower from treatment centre in Mangina, had four of 2008 to 2012. For the first time since1976, its staff abducted by the ADF in 2013. it is fully,and legally,occupied. Though one escaped after 13 months, the Rents start at R3,200 ($223) a month, Hello, anybody home? rest have not been seen since. Other factors may also have contributed to the spread of the disease, including a signs ofthe deadly virus. from infection, workers from the WHO strike by local nurses who were not paid This particularly deadly strain of the talked to the village chief. “The chief is for three months. The virus may have disease, known as “Zaire Ebola”, has killed more listened-to than we are,” says Frizzia reached Mangina as early as May 11th 78% of those it has touched. It is transmit- Safari, a Congolese doctor. “We talk to him when a man with Ebola-like symptoms ted through bodily fluids and can be and then he talks to the people.” died in the local clinic. But the first deaths passed on with as little as a sweaty hand- Ifnursescan prickenough armsquickly were reported only in late July. Josephine shake. Thankfully some lessons learned in then it may be possible to halt this out- Kahambu, a nurse, alerted the officials in the west African outbreak, which killed break before it spreads much further. But the capital, Kinshasa, after two men with 11,310 people between 2014 and 2016, seem they are finding it difficult to outrun the vi- bloodshot eyes, diarrhoea and fevers came to be helping. Instead of barking at fright- rus because ofpoor roads and the threat of to her clinic. Although she was on strike ened villagers through a megaphone attack from armed rebels. So new cases she decided to see to them and recognised abouthowtheyshould protectthemselves keep cropping up each day. 7

Asia The Economist September 1st 2018 43

Also in this section 44 Australia’s new prime minister 44 A claim of genocide in Myanmar 45 Thailand nears an election, of sorts 45 India spurns disaster relief 46 Banyan: Crazy rich Asians

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

Singapore’s schools making”) that it wants every pupil to acquire. Wong Siew Hoong, director-general Can do even better of the ministry of education, says they inform almost everything his department does. Exam questions, for instance, have been reframed to be more open-ended, to encourage critical thinking as well as knowledge ofa subject. Teacher appraisals SINGAPORE measure not just academic performance The world’s best education system tries to improve itself but also the social development ofpupils. HE library at Woodgrove Primary ofeducation in 2011-15. Teachingmethodsare changing, too. All TSchool has been turned into a “Maker- Unlike most revolutions, this one is a teachers get 100 hours of training a year. Space”. After regular lessons end at around gradual, long-term project. The most no- They learn new pedagogical techniques, 2pm, pupils sign up for sessions like 3D de- ticeable changes so farhave been to reduce which encourage group work and discus- sign, stop-motion film-making and coding pressure on children taking exams. In 2012 sion between teacher and pupils. As Yan for robots. Instructors leave the children to the government abolished league tables Song, a pupil at Deyi Secondary School it once they have explained how things forsecondary schools, which it felt skewed who moved from China mid-way through work. The overall message is that it’s OK to teachers’ priorities. It also stopped publish- his education, puts it, in Singapore they fo- fail, says a teacher. On a Thursday after- ing the names of top scorers and widened cus “on how you behave as a human be- noon just after the summer break, one the criteria used for entry to the best sec- ing.” In China, in contrast, “you just study young boy stops to explain that these ses- ondary schools. From 2021primary-school from day to night.” sions make a nice change: ifhe wasn’t here, leavers will no longer receive a precise The final change has been to align the he would only be studying at home. score, instead getting a broad grade. classroom with the workplace. By 2023 al- Singapore’s schools have long held a More significant changes lurk beneath most all schools will have “applied learn- reputation fordidactic teaching, rote learn- the surface. The education ministry has ing” programmes in subjects like computing and academic brilliance. Their pupils published a fuzzy-sounding list of “21st ing, robotics and electronics, but also lead the rankings in the OECD’s Pro- Century Competencies” (including “self- drama and sports. The emphasis in all of gramme for International Student Assess- awareness” and “responsible decision- them is on practising in “real-world” envi- ment (PISA), a triennial test of 15-year-olds ronments; there are no exams. At Deyi Sec- around the world, and the Trends in Inter- ondary School, broadcast journalism is national Mathematics and Science Study, Top of the class used as a way to improve communication which measures ten- and 14-year-olds. PISA test score, average of maths, reading and skills, for instance. The ministry of educa- But decades of economic growth have science, 2015 tion has also hired 100 career-guidance of- changed priorities. Andreas Schleicher of OECD average 492 ficials. Many previously worked in indus- 480 500 520 540 560 the OECD reckons Singaporean education Singapore try. They keep tabs on labour shortages isgoingthrough “a silentrevolution almost and work with schools to inform children entirely unnoticed in the West”. Politicians Japan about their options, often trying to push now hope to marry good exam results Canada them beyond “iron rice bowl” careers like with the promotion of skills that will help China* banking, the civil service and medicine. pupils work in the city’s growing service Persuading parents that there is more to sector, and even to lead contented lives. Germany life than exam results and a job in a high- “It’s not just about teaching how to be Russia status industry is hard. The ministry of smart, but how to be a better human be- US education works with parent-support ing,” enthuses Heng Swee Keat, the coun- groups and online influencers, organises try’s finance minister, who was in charge Source: OECD *Beijing, Shanghai, Jiangsu & Guangdong seminars and is active on social media to 1 44 Asia The Economist September 1st 2018

2 get the message out. Tay Geok Lian, a ca- Human rights in Myanmar reer-guidance official, says some parents, particularly richer ones, are indeed begin- Worse than even ning to lookbeyond the usual professions. But some habits are hard to change. imagined Many children receive after-school tutoring. Jacqueline Chua, who runs Paideia Yangon Learning Academy, a tutoring centre in a The UN accuses the Burmese armyof leafy part of town, says parents are no less genocide keen on her services. “The system drives behaviour,” she explains. “Kids are YEAR ago insurgents armed mostly stressed because their parents are Awith makeshiftweaponsattacked a se- stressed… And that’s because they under- ries of police posts in Myanmar’s Rakhine stand what’s before them.” The primary- state, killing a dozen security personnel. In school leaving exam, taken at 11 or 12, is a response, the Burmese army led a pogrom critical pressure point. Pupils who excel against the Rohingyas, a downtrodden end up in the best, most selective schools, Muslim minority in whose name the in- and can expect a future of foreign study surgents had launched the attacks. More and top government jobs. Those who do than 700,000 fled to nearby Bangladesh to badly go into vocational streams. The gov- escape the violence. But the scale of the ernment has no plans to end selection. atrocities has been hard to confirm, since The direction of travel is nonetheless the Burmese authorities have restricted ac- One of the lucky ones clear. Officials say they see no reason why cess to the affected area. This week, how- results should slip in the quest to foster ever, the UN’s Human Rights Council pub- were perpetrated on a massive scale… more well-rounded pupils. Educationalists lished an authoritative report, which Children were killed in front of their par- from around the world have longsought to shows that the abuses were, if anything, ents…At least 392 villages were partially or replicate Singapore’s success. Many are in worse than has been suspected. totally destroyed.” awe of the quality of teacher training, the The received wisdom that the army’s Most damningly, the report says there is tightly-focused lessons and the govern- rampage claimed 10,000 lives is probably evidence that the violence was premedi- ment’s long-term planning. With such an underestimate, the report argues. “Peo- tated. For years, it points out, the army has strong fundamentals, the Singaporean sys- ple were killed or injured by gunshot, tar- abetted the persecution of Rohingyas, tem is in a good position to reform. As Mr geted or indiscriminate, often while flee- whom the authorities regard as illegal im- Heng, the finance minister, notes, “If you ing…Others were killed in arson attacks, migrants from Bangladesh. It deployed lots want to connect the dots, you have to have burned to death in their own houses… of extra troops to Rakhine shortly before the dots in the first place.” 7 Rape and other forms of sexual violence the violence erupted. As the abuses esca- lated Min AungHlaing, the armychief, stated baldly that his troops were solving the Australian politics “Bengali problem” once and forall. He and other senior generals, the report con- Age of healing cludes, should be tried forgenocide. That will not be easy. The army does SYDNEY notadmitthatmuch bloodshed tookplace, A new prime ministertries to end divisions in his party and has punished only seven soldiers in- HE age ofbitterness has come to a the backbenches, was awarded a token volved in one especially well documented “Tclose,” Scott Morrison, Australia’s role as an adviser on indigenous affairs. massacre. The civilian government has no prime minister, declared on August 27th, Mr Morrison has also bowed to the authority over military discipline, and three days after a feud within the right-of- conservatives on climate change. He has anyway largely takes the army’s side. The centre Liberal Party toppled his predeces- split responsibility for energy and the UN Security Council could refer Myanmar sor, Malcolm Turnbull. Mr Morrison, the environment, giving the formerto Angus to the International Criminal Court, but formertreasurer, became prime minister Taylor, a climate-change sceptic who two of its veto-wielding members, China almost by default, after a hard-right fac- denounces renewable energy.Mr Taylor and Russia, also defend the army’s con- tion within the party launched a failed is charged only with lowering power duct. Even if they agreed to a referral, it is bid forthe leadership. He has assembled prices. There has been no talkofreducing farfrom certain the generals would end up a “new generation team” (consisting emissions—the subject that sparked the in the dock. “The problem is not to find mainly ofageing white males) and prom- rebellion against Mr Turnbull. somewhere to prosecute them but to get ises to “begin the process ofhealing”. Polls show that voters are unim- your hands on them,” says Kevin Jon Hell- Mr Morrison’s cure involves offering pressed at the turmoil. Mr Morrison must er ofthe University ofAmsterdam. several important cabinet positions to devise a platform to win them back So farthe firmest response to the report the losing band ofrestive conservatives. before an election due by May.A clue to has come from Facebook, a synonym for Peter Dutton, its leader, returns to his his plans comes from the creation of a the internet in Myanmar and the means by previous job as home-affairs minister, in ministry for “congestion-busting” and which virulently anti-Muslim propaganda which he will continue to champion the population growth. It was awarded to has spread throughout the country. It de- policy ofdetaining “boat people” in Alan Tudge, another supporter ofMr leted the army chief’s account the day the Pacific island processing centres (respon- Dutton’s. He says his job will be to make UN report was published and promised to sibility forlegal immigration has been high rates ofimmigration palatable by store its data on him. Christopher Sidoti, given to a different minister). Tony Ab- improving infrastructure. But many fear one ofthe UN investigators, says that could bott, a formerparty leader and prime that hostility to immigration will be the be a formidable tool for justice: “Facebook minister who harried Mr Turnbull from undercurrent ofthe election campaign. is more helpful than the UN Security Council at the moment.” 7 The Economist September 1st 2018 Asia 45

Politics in Thailand Foreign aid for India Dotting their i’s Help not wanted

The government spurns disasterrelief BANGKOK HIS weekwas supposed to be a time foreign development aid. The World The military junta mayat last be ready forcelebration in the Indian state of Banksays that the country received to call an election T Kerala, with feasts, dancing and boat $2.7bn ofit in 2016. But India’s policy of EPTEMBER will sizzle with political in- races to markthe harvest festival of refusing disaster reliefis not unique. Strigue in Thailand. The prime minister, Onam. But as the waters recede from Chile turned down most outside help Prayuth Chan-ocha, has announced that what may be the state’s worst floods in a afteran earthquake in 2010, as did Ameri- his military government will shortly begin century,few are feeling festive. More than ca after Hurricane Katrina in 2005. The discussions with political parties about re- a million people were displaced by the Democratic Republic ofCongo went one storing democracy. Every year since his downpours. The state government step furtherearlier this year, boycotting junta came to power in a coup in 2014, it would like to accept foreign aid to help an international conference to raise has promised—and failed—to hold an elec- speed reconstruction, but the central money forthe war-torn country.Other tion. This time it may actually keep its authorities are turning it away. countries show greater humility.Japan, word. The tentative date is February 24th. For more than a decade, successive where GDP per person is 20 times that of Mr Prayuth has also said that he will de- national governments have declined India, accepted outside help following an clare in the coming month whether he in- foreign disaster reliefas a matter ofpoli- earthquake in 2011. This included 86,400 tends to remain in politics, and if so which cy,choosing instead to advertise India’s cans oftuna from the Maldives, which party he will join. This is in spite of the fact self-sufficiency.But when the central offered $50,000 for Kerala last weekbut that he previously insisted that he would government turned down a reported was turned away. neither support any particular political offerof$100m forKerala from the United tribe nor run for office himself. Arab Emirates (which hosts almost1m The constitution enacted by the junta 16 expatriate workers from the state), many monthsago deliberatelyweakensbigpolit- flood-victims were furious. ical parties, notably by introducing a new The anger stems in large part from a system of proportional representation for sense that Narendra Modi’s government elections. A series of laws passed since in Delhi is not doing enough to support then further constricts political life. All this Kerala. The state’s finance minister, will help to ensure that only a chaotic co- Thomas Isaac, claims that it asked for a alition emerges from an election, whenev- 22bn-rupee ($312m) reliefpackage from er it is held. the central government, but has only The intention is to thwart the political been offered 6bn rupees. He argues it is allies of Thaksin Shinawatra, a tycoon and only fairfor the centre to compensate the former prime minister. The government state for the foreign aid it was too proud overthrown by the junta in 2014 was led by to accept. Shashi Tharoor, a politician his sister. Mr Thaksin himself was toppled from Kerala belonging to the opposition by an earlier coup, in 2006. The conflict be- Congress party,wrote that it was “churl- tween Mr Thaksin’s “red shirts” and the ish and irresponsible” to turn down “yellow shirts” of conservative elites has foreign aid when Kerala’s needs “vastly defined Thai politics for almost two de- exceed anything that the central govern- cades. Political groups linked to Mr Thak- ment can provide”. sin have won all six elections since 2001. Although it turns down hand-outs in The generalswantto preventthatever hap- emergencies, India is happy to accept It could have been a speedboat pening again. In the meantime, the absurdly strict rules the junta introduced after seizing the justice system. Five-year prison terms group of politicians known as “The Three power remain in force. Political gatherings hang over the trio. Friends”, heavyweights once aligned with of more than five people are banned, mak- Bigwigs in Pheu Thai, the Thaksinite Mr Thaksin, have been travelling around ing it difficult both to craft policy and gath- party, remain confident that they can win the country encouraging Pheu Thai figures er support. Other regulations dictate when enough votes to control the government to switch sides. They want them to join the and how party figures can communicate after an election. Even a vague law passed Palang Pracharat Party, a new pro-govern- with prospective voters. Politicians who earlier this year that bars governments ment outfit. Not that the friends’ rallies complain about all this have even been from introducing populist policies—seen should be considered political gatherings, sent to camps for “re-education”. One for- as an attack on Pheu Thai’s brand of poli- of course. “As far as I know, they are not a mer inmate says only public outcry dis- tics—fazes them little. party,” the deputy prime minister, Prawit courages the generals from doing so more Some wonder whether Pheu Thai’s Wongsuwan, disingenuously averred in often. And in recent days a charismatic continuingpopularitywill promptthe gov- mid-August. young billionaire, Thanathorn Juangroon- ernment to engineer its dissolution before Mr Prayuth has been doing the rounds, gruangkit, leader ofFuture Forward, a new any election. That is what happened to Mr too, holding cabinet meetings all over party, was charged under the Computer Thaksin’s previous political vehicle, the Thailand to woo prospective voters. De- Crime Act along with two other senior fig- Thai Rak Thai party, which was disbanded spite the ban on political meetings and the ures in the party. The junta’s chieflegal offi- by a pliant court after the coup of2006. doubts about when or if the election will cer claims that in a Facebook Live video re- Another way to hobble Pheu Thai be held, many Thais are already exhausted corded in June Mr Thanathorn slandered would be to suborn its membership. A by all the electioneering. 7 46 Asia The Economist September 1st 2018 Banyan Crazy rich omission

An Asia-focused romcom breaks ground in America, but raises questions in Singapore It may resemble an extended episode of“Lifestyles ofthe Rich and Famous”, but the film has been heralded as a milestone for Hollywood, for one striking reason. Not a single central or even auxiliary character is played by a white actor. On the few occa- sions when white people do feature, they flash across the screen as extras: as plane passengers or, on a giant container ship char- tered for an over-the-top bachelor party, as bikini-clad beauty queens forhire. Asian-Americans, including among the cast, hail this as a breakthrough moment in American cinema. Not since “The Joy LuckClub” in 1993 have people ofAsian descent telling a contemporary Asian story been given such commercial prominence. No white actor stars in this Asian-themed movie, as Matt Damon did in “The Great Wall”, a mega-film aimed at Chinese audiences. The cast are not fighting their way across the stage as martial-arts supremos, nor do they feature as exotic sex objects. In her role as Rachel, Constance Wu, an American, told the Guardian that she was proud to have helped “amplify the voices of people who don’t feel heard”. Yet seen from the perspective of Singaporeans, the film looks rather different. Granted, with Singapore as a backdrop, you can HISweek’scolumn comesfrom the top ofSingapore’sMarina hardly expect a revolutionary message. Wealth is closely held in TBay Sands hotel and casino. Its authorwould not like his read- Asia, contributing to extreme inequalities, but this is not the film ers—not to mention The Economist’s bosses—to think this his usu- to highlight them. Singapore’s role in the screenplay, as a play- al perch. It is true that the “Skypark”, a 340-metre-long curved ground for Asia’s Maserati-and-Chanel set, aligns closely with platform set on three, 55-storey towers, is perhaps the most spec- the country’s carefully honed tourist image. Never mind that in tacularman-made vantage pointin Asia. Itisa bold monument to real life the revellers are often the offspring of ethnic-Chinese dy- 21st-century Asian consumerism, all the more fitting for its tacky nasties who have made their wealth in less stable parts of South- faux-Angkor columns and an infinity pool more crowded than a East Asia, where anti-Chinese resentment has on occasion boiled London lido in a heatwave. over into pogroms. This is a feel-good movie. It is also a fitting setting for the final, extravagant party scene— It is also, at its heart, a highly conservative one. If there is a admittedly one of many—in “Crazy Rich Asians”, an American moral, it is that you can’t live only in love. The power of family film taking the world’s cinemas by storm. The pool is given over ties and networks, and what that means in terms of the moral to a troupe of synchronised nymphs. Fireworks race around the and material legacy you leave yourchildren, are an ancient Asian platform’s rim. The champagne flows. And the girl gets her crazy tale, which the film rehashes (Nick’s mother’s engagement ring rich guy. A column about “Crazy Rich Asians” could hardly be plays a big part). Individualism is frowned upon. written from the usual garret. The Straits Times, Singapore’s main paper, which never ex- In this Cinderella comedy with a nod to Jane Austen, the cen- presses a view without glancing first at nanny, has evinced enor- tral character, Rachel Chu, is a Chinese-American economics pro- mous pride over “Crazy Rich Asians”. It has run a light-hearted fessorfrom a modestbackground. She fallsfora super-handsome quiz about how to tell “old” money from “new”. It has even, with fellow academic in New York, NickYoung, without knowing that a measure of relief, reported on the reaction of Singapore’s real he isa Singaporean aristocrat, heirto itsoldestand wealthiest eth- rich and famous. One high-roller had been nervous that the film nic-Chinese business dynasty. She understands this only when would be too negative towards them, but was pleasantly sur- he invites her to the city-state for the wedding of his best friend. prised. Another socialite complained that some of the scenes The film is about how she negotiates the pratfalls of trying to lacked the wow factor ofthe parties she was used to. make a good impression on Nick’s family. Several ofits members, including his mother and grandmother, do not take to her, either The otherAsians because they think she is a gold-digger or because Nick’s marry- What the paper has failed to note, however, is how the film ig- ing for love would be disastrous for a dynasty built on business nores all Asians other than the Chinese kind. One-quarter ofSin- and careful alliances. Spoiler alert: it all ends well. gapore’s population is not ethnic-Chinese, but ofMalay or Indian In its scenes and costumes, the film is lavish. It is wealth porn, descent. Yet when Malays feature, it is as valet-parking atten- celebrating the luxury-branded materialism of Asia’s super-rich dants. Indonesians are masseuses. As for the pair of Sikh guards even as it sends them up, often hilariously. It nails the intercon- at the Young family mansion, their buffoonish performance is as nectedness of Asia’s billionaire families in clever and funny excruciating as Mickey Rooney’s as the Japanese photographer ways. A photograph of Rachel and Nick in a New York café living above Audrey Hepburn in “Breakfast at Tiffany’s”. Brown spreads across East Asia within seconds in an amusing social-me- bodies, writes one anonymous film-goer, were disembodied dia storm. One member of the Young clan later tries to place Ra- “footnotes”: mere openers of doors or cleaners of homes. “Crazy chel. Is she one of Thailand’s peanut-packing Chus? Or the Tai- Rich Asians” is not just “money porn”, she goes on, it is also, to wan-plastics Chus? (“Not exactly old money, but at least they are many South-East Asians, “othering porn”. What passes as a vic- one ofthe most solid familiesin Taiwan.”) tory in Hollywood can looklike a glaring failure in Singapore. 7 China The Economist September 1st 2018 47

Falun Gong Also in this section The party’s scourge 48 A ﬂood causes a furore

LONDON AND VANCOUVER Despite a 20-yeareffortto crush it, a quasi-Buddhist sect still worries officials UCKED away in a corner on Gerrard sects. It is likely that the Chinese govern- nese-language media report on recent ar- TStreet, in the heart of London’s China- ment overstates the comparison as a way rests of Falun Gong suspects. In May a town, three middle-aged Chinese women ofundermining the appeal ofa movement woman from the southern province of sit on the ground, their legs tightly crossed, that it sees not so much as a threat to soci- Guizhou was sentenced to a year in prison in silent meditation. A deafening loud- ety, but as a challenge to the party itself. As for sending pro-Falun Gong messages to speaker behind them blasts out a stream of Carl Minzner of Fordham University puts more than 2,000 people on WeChat, a so- invective against the Chinese Communist it in a new book, Falun Gong has become cial-media platform. In July three women Party. Before long, one of them gets up and “by far the most organised” among anti- in Beijing were each sentenced to between starts handing out flyers to passers-by. But Communist movements within the Chi- three and four years in jail for distributing pedestrians from China who are ap- nese diaspora. Chinese dissidents in exile the sect’s literature at a market. proached by the woman grimace and dart are prone to factious squabbles; they find it Overseas the movement, which has a away. Mostdo not even bother to glance at very hard to unite. Falun Gong shows little large unofficial headquarters in hilly the meditators, who are adherentsofFalun obvious sign ofdisunity. woodland in upstate New York, has been Gong, a spiritual practice which China expanding its public profile (pictured are banned in 1999 and calls an “evil cult”. Gong underground followers marching through Washington, Such a brusque response should offer It is difficult to assess how much of a fol- DC, in June). In the early 2000s practition- some solace to China’s government, lowing Falun Gong retains in China. So ers in America launched multi-language which has been trying for nearly two de- brutal has the government’s campaign news media such as Epoch Times, a news- cades to crush Falun Gong, a movement against it been—including the imprison- paper, and NTD, a television station. These that once enjoyed widespread main- ment of thousands of Falun Gong follow- have grown to rival China’s state media in stream acceptance. The ruthless campaign, ers—that practitioners are extremely wary their reach abroad. In 2006 followers however, has significantly weakened, but of proclaiming their beliefs openly. In the created a pro-Falun Gong cultural group not destroyed, the sect. Chinese officials 1990s Falun Gong may have had millions called Shen Yun Performing Arts. It has put still worry about its influence at home. Of- of adherents. Some of them were party on showsoftraditional Chinese dance and ficial lists of proscribed cults still put Falun members and officials. Students and staff music (spiced up with anti-Communist Gong at the top. But it is the sect’s activities met on university campuses to take part in themes) before capacity audiences at pres- abroad that are an even bigger, and grow- Falun Gong meditation. Massimo Intro- tigious venues. Next year the troupe is due ing, concern forthe Communist Party. vigne of the Centre for Studies on New Re- to perform in 81 cities in four continents. Officials like to tar Falun Gong with the ligions, a think-tank in Italy, says that the Overseas adherents have also been adept same brush as apocalyptic cults such as current following in China is probably at lobbying Western politicians. In 2009 America’s Branch Davidians and Aum only about 5% ofwhat it was then. Even so, Canadian legislators set up a bipartisan Shinrikyo in Japan, but it shows no sign of the numbers remain large enough to alarm “Friends ofFalun Gong” association. the violent extremes associated with those the government. Every few weeks Chi- One of China’s biggest anxieties about 1 48 China The Economist September 1st 2018

2 Falun Gong is that it is led by someone liv- Public opinion ing outside China over whom it has no control: Li Hongzhi, a 67-year-old former A flood of complaints government clerk in a grain-procurement office in north-eastern China. Mr Li founded Falun Gong in1992. It was then no more than a quasi-Buddhist spiritual movement. Adherents would try to gain enlight- SHOUGUANG enment by reading the works of “Master The inundation offarmsaround an eastern city unleashes an online furore Li” (said to be able to walk through walls) and engaging in slow-motion exercise rou- HEN loudspeakers in Kouzi, a village the local authorities were at fault. “They re- tines, oftenin groups in public. MrLi fled to Win the eastern province of Shandong, leased too much water all at once. They America a couple of years before the sect blared out urgent warnings of floodwaters should have done it more slowly, or re- was banned, and remains active. In a heading downriver towards them, resi- leased the water in different places. In- speech in June to thousands offollowers at dentswereanxious, buttheydidnotpanic. stead, it all came straight at us,” says a 50- a stadium in Washington, he praised prac- They had been told it would be another year-old villager, surnamed Li. Asked how titioners in China forkeepingtheirfaith de- daybefore the crestwould reach them, and she knows this, she replies that “everyone spite repression by the “evil” party. that the water would not cause extensive says so”, both in Kouzi and online. It was only in response to the party’s ef- damage. They took precautions to protect Officials admit that water discharged forts to eradicate it that Falun Gong turned theirproperty as best they could and leftas through the damscaused floodingin Shou- anti-Communist. In April 1999 thousands ordered. When they returned a day later guang. But they say the rain was heavier of followers protested outside Zhongnan- they found their homes in chest-deep wa- than forecast, and they had no choice but hai, the party’s headquarters in Beijing, ter and their farms wrecked. This was not to open the sluices when they did. Retain- about the arrest of Falun Gong activists in only a natural disaster caused by unusu- ing the water in the reservoirs could have the nearby port of Tianjin. It was the big- ally heavy rain during a typhoon, locals al- caused the dams to collapse, they say. But gest demonstration in the capital’s heart lege. It was also a man-made one. rumours have been swirling online that since the pro-democracy movement of For all the ever-tighter controls on pub- dam managers initially allowed reservoirs 1989. Although it had no political aim, it lic grumbling that have been imposed dur- to fill, hoping they could profit from selling spooked the party. Chinese leaders felt ing the rule of Xi Jinping, flashes of discon- the water to parched farms. They could threatened by what they saw as a “compet- tent are occasionally visible. The flood on have begun reducing levels sooner, neti- ing ideology”, says Anastasia Lin, a Cana- August20th in and around Shouguang, the zens insist. This, they say, would have dian human-rights advocate (and winner city that administers Kouzi village, has trig- avoided the need for the sudden large re- of the Miss World Canada pageant in 2015) gered one. The outcry is not so much about lease that flooded Shouguang. who practises Falun Gong. Three months the number of casualties—13 people were “Water can keep a boat afloat, and can later China banned the sect. Thereafter, Mr killed in the Shouguang area, compared cause it to capsize,” grumbled one user of Li began openly attacking the party. with an annual nationwide death toll from Weibo, a Twitter-like service. The saying, Among Chinese diplomats based flooding that is often in the hundreds. used by Mao Zedong, is meant as a warn- abroad, monitoringFalun Gong’s activities Rather, it is about the possibility that the lo- ing to unpopular governments that they and combating its influence is treated as an cal government may have been partly to can be overthrown bythe people theyrule. important duty. They put pressure on ven- blame forthe calamity,which caused dam- “Power grows out of the barrel of a gun,” ues to cancel Shun Yun’s performances age estimated at 9.2bn yuan ($1.3bn). Resi- responded another, also quoting Mao. (sometimes successfully) and not to allow dents of Beijing feel a particular connec- “Don’t bother saying anything unless you speeches by Falun Gong adherents. In 2015 tion: Shouguang produces many of the have a gun,” chimed in a third, who then Chinese officials denied Ms Lin a visa to fresh vegetables sold in the capital. alluded, with obvioussarcasm, to a favour- take part in a Miss World contest in China. Villagers in Kouzi clearly believe that ite saying of President Xi: “Just carry on Last year the Chinese embassy in London with your Chinese dream.” told a student society at Durham Universi- China’s censors have not been idle. ty not to allow her to speak in a public de- Some comments on the disaster have been bate (she did anyway). A Falun Gong prac- scrubbed from the internet. State media titioner in Calgary, Canada, says she have been ordered to tone down their cov- believes she has seen Chinese spies try to erage. Guangming Daily, a Communist infiltrate the sect in her city.She says some Party mouthpiece, published an online ar- of them are “pretty conspicuous”, giving ticle which accused the local government themselves away by not knowing the cor- of “inertia and carelessness” in the issuing rect posture formeditating. of warnings and the evacuation of resi- In recent years, from New York to Hong dents. It was later deleted. The local au- Kong, “anti-cult” stalls have become an in- thorities are also on guard. Police have creasingly common sight in public places been deployed at entrances to some of the where Falun Gong practitioners gather. hardest-hit villages. They usually have a handful of staff, who In Kouzi, MsLi declaresa near-total loss. distribute anti-Falun Gong literature and Her flat-screen television, fridge and wash- display photographs aimed at making ad- ing machine have all been ruined. But herents look unhinged. Organisers deny more important to her and her neighbours that they are agents of the Chinese govern- is the loss of the greenhouses in which ment, but it is likely that the party encour- they had grown cucumbers, bitter melons, ages their efforts. As David Ownby of the aubergines and peppers. In Beijing, this is a University of Montreal puts it, China’s worry too. Residents fret about a possible campaign againstFalun Gongislikely to be ripple effect of the disaster in the prices of a never-ending war ofattrition. 7 Much to grumble about, all the way home vegetables in the city’s markets. 7 International The Economist September 1st 2018 49

Loneliness mans would have been at a disadvantage if isolated from a group, he noted, so it Alone in the crowd makes sense for loneliness to stir a desire for company. Transient loneliness still serves that purpose today. The problem comes when it is prolonged. To find out how many people feel this way, The Economist and the Kaiser Family BLACKPOOL, GJØVIK, AND TOKYO Foundation (KFF), an American non-profit Loneliness is increasingly being treated as a serious public-health problem group focused on health, surveyed nation- ONDON, says Tony Dennis, a 62-year- ing several related conditions. Loneliness ally representative samples of people in Lold security guard, is a city of “sociable is not synonymous with social isolation three rich countries.* The study found that loners”. Residents want to get to know (how often a person meets or speaks to 9% of adults in Japan, 22% in America and each other but have few ways to do so. To- friends and family) orwith solitude (which 23% in Britain always oroften feellonely,or night, however, is different. Mr Dennis and implies a choice to be alone). lack companionship, or else feel left out or a few dozen other locals are jousting at a Instead researchers define loneliness as isolated (see chart1). monthly quiz put on by the Cares Family,a perceived social isolation, a feeling of not The findings complement academic re- charity dedicated to curbing loneliness. having the social contacts one would like. search which uses standardised question- The competitors are a deliberate mix of Of course, the objectively isolated are naires to measure loneliness. One drawn older residents and young professionals much more likely than the average person up at the University of California, Los An- new to the area. “Youngpeople are increas- to feel lonely.But loneliness can also strike geles (UCLA), has 20 statements, such as “I ingly feeling disconnected too,” argues those with seemingly ample friends and have nobody to talk to”, and “I find myself Alex Smith, the charity’s 35-year-old foun- family. Nor is loneliness always a bad waiting for people to call or write”. Re- der. He hopes that nights like this will fos- thing. John Cacioppo, an American psy- sponses are marked based on the extent to ter a sense ofbelonging. chologist who died in March, called it a re- which people agree. Respondents with tal- Doctors and policymakers in the rich flex honed by natural selection. Early hu- lies above a threshold are classed as lonely. world are increasinglyworried aboutlone- A study published in 2010 using this liness. Campaigns to reduce it have been scale estimated that35% ofAmericansover launched in Britain, Denmark and Austra- All the lonely people 1 45 were lonely. Of these 45% had felt this lia. In Japan the government has surveyed Share of people saying they always/often way for at least six years; a further 32% for hikikomori, or “people who shut them- feel lonely, left out or isolated, and whether one to five years. In 2013 Britain’s Office for selves in their homes”. Last year Vivek this is a problem, April-June 2018, % National Statistics (ONS), by dint of asking Murthy, a former surgeon-general of the a simple question, classed 25% of people United States, called lonelinessan epidem- 0 5 10 15 20 25 aged 52 oroveras“sometimeslonely” with ic, likening its impact on health to obesity United Major Minor Not a an extra 9% “often lonely”. States problem problem problem or smoking15 cigarettes per day.In January Other evidence points to the extent of Theresa May, the British prime minister, isolation. For 41% ofBritons over 65, TV or a1 appointed a minister for loneliness. Britain That the problem exists is obvious; its ...... nature and extent are not. Obesity can be Japan *A detailed report on the survey’s results can be found h www r h r r r n in nd measured on scales. But how to weigh an at ttps:// .kff.o g/ot e / epo t/lo el ess-a Sources: Kaiser Family Foundation; The Economist -social-isolation-in-the-united-states-the-united emotion? Researchers start by distinguish- -kingdom-and-japan-an-international-survey 50 International The Economist September 1st 2018

2 pet is their main source of company, ac- ical, since loneliness can augment depres- cording to Age UK, a charity. In Japan more sion or anxiety. Do you need anybody? 3 than halfa million people stay at home for Orisitthe otherwayround? Maybe sick “Is your loneliness made better or worse at least six months at a time, making no people are more likely to be lonely. In the by social media?”, respondents reporting contact with the outside world, according KFF/Economist survey six out often people loneliness/social isolation, April-June 2018, % to a report by the government in 2016. An- who said they were lonely or socially iso- Better Do not use social media other government study reckons that 15% lated blamed specific causes such as poor Worse Don’t know/rather not say of Japanese regularly eat alone. A popular mental or physical health. Three out of ten 0 20406080100 TV show is called “The Solitary Gourmet”. said their loneliness had made them think about harming themselves. Research led United States by Marko Elovainio of the University of Is your heart filled with pain? Britain Historical data about loneliness are scant. Helsinki and colleagues, using the UK Bio- Butisolation doesseem to be increasing, so bank, a voluntary database ofhundreds of Japan loneliness may be too. Consider the rise in thousands ofpeople, suggests that the rela- Sources: Kaiser Family Foundation; The Economist solitary living (see chart 2). Before 1960 the tionship runs both ways: loneliness leads share of solo households in America, Eu- to ill health, and vice versa. rope or Japan rarely rose above 10%. Today Other studies show more about the loneliness, too. A study of older people in in cities such as Stockholm most house- causes of loneliness. A common theme is Anhui province in eastern China pub- holds have just one member. Many people the lackofa partner. Analysis ofthe survey lished in 2011 found that 78% reported opt to live alone, as a mark of indepen- data found that married or cohabiting peo- “moderate to severe levels of loneliness”, dence. But there are also many in rich ple were far less lonely. Having a partner often as a result of younger relatives hav- countries who live solo because of, say, di- seems especially important for older peo- ing moved. Similar trends are found in vorce or a spouse’s death. ple, as generally they have fewer (but often eastern Europe where younger people Isolation is increasing in other ways, closer) relationships than the young do. have left to find workelsewhere. too. From 1985 to 2009 the average size of Yet loneliness is not especially a phe- Loneliness is usually best explained as an American’s social network—defined by nomenon of the elderly. The polling found the result of individual factors such as dis- number of confidants—declined by more no clearlinkbetween age and loneliness in ability, depression, widowhood or leaving than one-third. Other studies suggest that America or Britain—and in Japan younger home withoutyourpartner. Yetsome com- fewer Americans join in social communi- people were in fact lonelier. Young adults, mentators say larger forces, such as “neo- ties like church groups or sports teams. and the very old (over-85s, say) tend to liberalism”, are at work. The idea that loneliness is bad for your have the highest shares oflonely people of health is not new. One early job ofthe Roy- any adult age-group. Other research sug- Where do they all come from? al Canadian Mounted Police in the Yukon gests that, among the elderly, loneliness In fact, it is hard to prove that an abstract region was to keep tabs on the well-being tends to have a specific cause, such as wid- noun is creating a feeling. And research on of gold prospectors who might go months owhood. In the young it is generally down rates of reported loneliness does not sup- without human contact. Evidence points to a gap in expectations between relation- port the view that rich, individualistic soci- to the benign power of a social life. Sui- ships they have and those they want. eties are lonelier than others. A study pub- cides fall during football World Cups, for Whatever their age, some groups are lished in 2015 by Thomas Hansen and Britt example, maybe because of the transient much more likely to be lonely. One is peo- Slagvold of Oslo Metropolitan University, feeling ofcommunity. ple with disabilities. Migrants are another. for example, found that “quite severe” But only recently has medicine studied AstudyofPolish immigrantsin the Nether- loneliness ranged from 30-55% in southern the links between relationships and lands published in 2017 found that they re- and eastern Europe, versus10-20% in west- health. In 2015 a meta-analysis led by Ju- ported much higher rates of loneliness ern and northern Europe. “It is thus a para- lianne Holt-Lunstad of Brigham Young than Dutch-born people aged between 60 dox that older people are less lonely in University, in Utah, synthesised 70 papers, and 79 (though female migrants tended to more individualistic and less familistic cul- through which 3.4m participants were fol- cope better than their male peers). A sur- tures,” concluded the authors. lowed over an average of seven years. She vey by a Chinese trade union in 2010 con- Their research pointed to two explana- found that those classed as lonely had a cluded that “the defining aspect of the mi- tions. The most important is that southern 26% higher risk of dying, and those living grant experience” is loneliness. and eastern European countries are gener- alone a 32% higher chance, after account- Regions left behind by migrants, such ally poorer, with patchier welfare states. ing fordifferences in age and health status. as rural China, often have higher rates of The second reason concerns culture. The Smaller-scale studies have found corre- authors argued that in countries where lations between loneliness and isolation, older people expect to live near and be and a range of health problems, including Living alone for so many years 2 cared for by younger relatives, the shock heart attacks, strokes, cancers, eating disor- Single-person households as % of total when that does not happen is greater. ders, drug abuse, sleep deprivation, de- Selected places in Europe, United States & Japan Another villain in the contemporary pression, alcoholism and anxiety. Some re- 60 debate is technology. Smartphones and so- search suggests that the lonely are more cial media are blamed for a rise in loneli- likely to sufferfrom cognitive decline and a 50 ness in young people. This is plausible. quicker progress ofAlzheimer’s disease. 40 Data from the OECD club of mostly rich Researchers have three theories as to countries suggest that in nearly every how loneliness may lead to ill health, says 30 member country the share of 15-year-olds Nicole Valtorta of Newcastle University. 20 saying that they feel lonely at school rose The first covers behaviour. Lacking encour- between 2003 and 2015. agement from family or friends, the lonely 10 The smartphone makes an easy scape- may slide into unhealthy habits. The sec- 0 goat. A sharp drop in how often American ond is biological. Loneliness may raise lev- 1600 1700 1800 1900 2012 teenagers go out without their parents be- els of stress, say, or impede sleep, and in Source: “The Rise of Living Alone and gan in 2009, around when mobile phones turn harm the body. The third is psycholog- Loneliness in History”, by K.D.M. Snell became ubiquitous. Rather than meet up 1 The Economist September 1st 2018 International 51

2 as often in person, so the story goes, young therapy that allows users in care homes to chusetts, to testthe initiative across the city. people are connecting online. have “bucket list” experiences, such as ski- Similar schemes are run by Home- But this need not make them lonelier. ing in Colorado. In 2016, Liminal, an Aus- share, a network of charities, operating in Snapchat and Instagram may help them tralian VR firm, teamed up with Medibank, 16 countries, including Britain. Elsewhere feel more connected with friends. Ofthose an insurance company, to build a virtual policymakers are experimenting with in- who said they felt lonely in the KFF/Econo- experience for lonely people who could centives to encourage old and young to mist survey, roughly as many found social not leave their hospital beds. mix. In cities such as Lyon in France, De- media helpful as thought it made them feel As technology becomes more human it venter in the Netherlands and Cleveland worse (see chart 3 on previous page). Yet may be able to do more and more to substi- in Ohio, nursinghomes orlocal authorities some psychologists say that scrolling tute for human relationships. In the mean- are offering students free or cheap rent in through others’ carefully curated photos time, services that offer human contact to exchange forhelping out with housework. can make people feel they are missing out, the lonely will thrive. In Japan this mani- That so many startups want to “dis- and lonely. In a study ofAmericans aged 19 fests itself in agencies and apps that allow rupt” loneliness helps. But most ofthe bur- to 32, published in 2017, Brian Primack of you to rent a family or a friend—a girlfriend den will be shouldered by health systems. the University of Pittsburgh, and col- for a singleton, a funeral mourner, or sim- Some firmsare tryingto tackle the problem leagues, found that the quartile that used ply a companion to watch TV with. at root. Last year CareMore, an American social media most often was more than Such products are not just Japanese health-care provider owned by Anthem, twice as likely to report loneliness as the quirks. One Caring Team, an American an insurer, launched a dedicated scheme. one using it least. company, calls and checks in on lonely el- “We’re trying to reframe loneliness as a It is not clear whether it is heavy social- derly relatives fora monthly fee. The Silver treatable medical condition,” explains Sa- media use leading to loneliness, or vice Line, a similar(butfree) helpline, is run bya chin Jain, its president. versa. Other research shows that the corre- British charity. Launched in 2013 it takes lation between social-media use and, say, nearly 500,000 calls a year. Its staff in their All by myself depression is weak. The most rigorous re- Blackpool headquarters are supported by This means, first, screening its 150,000 pa- cent study of British adolescents’ social- volunteers across the country in the Silver tients forloneliness. Those at riskare asked media use, published by Andrew Przybyl- Friend service, a regular, pre-arranged call if they want to enroll in a “Togetherness ski and Netta Weinstein in 2017, found no between a volunteer and an old person. Programme”. This involves phone calls link between “moderate” use and mea- Most conversations last about 15 min- from staff called “connectors” who help sures of well-being. They found evidence utes. Those contacting the helpline during with transport to events and ideas for so- to support their “digital Goldilocks hy- yourcorrespondent’s visit started on a gen- cialising. Patients are coaxed to visit clinics, pothesis”: neither too little nor too much eral topic—the weather, pets, what they did even when not urgently ill, to play games, screen time is probably best. that morning. Their real reason for calling attend a “seniors’ gym” and just chat. only emerged later, through an offhand For its part, England’s National Health Know the way I feel tonight comment. Often that referred to the need Service is increasingly using “social pre- Others are sure that technology can reduce for a partner and the companionship that scribing”, sending patients to social activi- loneliness. On the top of a hill in Gjøvik, a would bring. Others call in but barely talk, ties rather than giving them drugs. More two-hourtrain-ride from Oslo, lives Per Ro- noted one Silver Line staffmember. than 100 such programmes are running in lid, an 85-year-old widowed farmer. One For many, phone calls are no substitute Britain. Yet last year a review of 15 papers daughter lives nearby, but he admits feel- for company. Nesterly, founded in 2016, is concluded that evidence to date was too ing lonely. So he has agreed to take part in a designed to make it easier for older single- weakto supportanyconclusionsabout the trial of Komp, a device made by No Isola- tons with spare rooms to rent them to programmes’ effectiveness. This reflects tion, a startup founded in 2015. It consists young people who help in the house for a poorly on the state of thinking about lone- of a basic computer screen, a bit like an discount on rent. The platform has “stum- liness. There are plenty of reasons to take etch-a-sketch. The screen rotates pictures bled into loneliness”, notes Noelle Marcus, its effects on health seriously. But the quali- sent by his grandchildren, and messages in its co-founder. Users sign up to the plat- ty ofevidence about which remedies work large print from them and other kin. form and create a profile, then make a list- is woeful. Sadly, therefore, loneliness is set No Isolation also makes AV1, a fetching ing for their room. Last year the startup to remain a subject that causes a huge robot in the form of a disembodied white teamed up with the city of Boston, Massa- amount ofangst without much relief. 7 head with cameras in its eye-sockets. It allows users, often out-of-school children with chronic diseases, to feel as if they are present in class. AV1 can be put on a desk so absent children can follow goings-on. If they want to ask a question, they can press a button on the AV1 app and the top of the robot’s head lights up. So-called “social robots”, such as Paro, a cuddly robotic seal, have been used in Ja- pan for some time. But they are becoming more sophisticated. Pepper, a human-ish robot made by a subsidiary of SoftBank, a Japanese conglomerate, can follow a person’s gaze and adapt its behaviour in response to humans. Last year the council in Southend, an English seaside town, began deploying Pepper in care homes. Other health-care providers are experimenting with virtual reality (VR). In Amer- ica UC Health is conducting trials of VR 52 Business The Economist September 1st 2018

Also in this section 53 When YouTubers attack 53 Airlines in India 54 Atlantia after Genoa 55 Passive investors, activist approach 55 BMW ﬂames out 56 Schumpeter: As good as it gets Bartleby is away

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Pharmaceuticals approval in March last year of AstraZe- neca’s lung-cancer drug, Tagrisso (osimer- Swallowing bitter pills tinib), came seven months after regulators in developed markets gave theirs—“a very different timeline” compared with the past, confirms Sean Bohen, head of global medicines development at the British firm. On August 20th Roche, a Swiss company, SHANGHAI secured Chinese consent for its own lung- As China reforms its drugs market, Big Pharma is the biggest beneficiary—for now cancer drug, Alecensa (alectinib), less than HINA is home to 1.4bn people. The duced fast-trackreview fordrugs for unmet nine months after it launched in the West. C population is ageing, and thus more medical needs, ditched the requirement to As well as these regulatory changes, vulnerable to ailments. Sustained eco- perform clinical trials with Chinese pa- China’s national insurance scheme has ex- nomic growth is making the country rich- tientsin state-run Chinese labsand relaxed panded to cover most citizens. Although er, and more able to afford remedies. To for- rules that obliged many firms to invest in patients remain on the hook for part of the eign pharmaceutical firms, this looks like a local factories. The CDA has also joined a cost of the priciest treatments, the govern- winning combination. They are less keen global body which harmonises the way ment is coughing up for more high-end on protracted review times, onerous rules drugs are assessed. It is adopting interna- drugs. In May the government extended and the reams of paperwork required to tional standards for the collection of clini- patent protection for pharmaceuticals by sell drugs in China. It can take a decade cal data. In three years Mr Bi accomplished five years, to as much as 25 years. It also re- after approval in America forforeign drugs what would normally take three decades, moved import tariffs on cancer drugs and to reach Chinese patients. gushes Lu Xianping, the co-founder of cut it on other medicines, despite trade ten- The Chinese authorities at last appear Chipscreen Biosciences, a Chinese bio- sions with America. to have acknowledged the problem—and technology firm. The Chinese authorities do demand are administering a cure in doses that have For foreign drugs firms this means steep discounts on the prices of expensive surpassed even optimists’ expectations. A quicker and cheaper drug approvals. The treatments. Across 36 premium drugs that reinvigorated regulator is waving through were included on the national reimburse- drugsfrom abroad, and clampingdown on ment list last year, producers had to swal- unscrupulous domestic companies. The Macro-dosing low price cuts of44% on average, relative to government is spendingmore on drugs, in- China, number of new molecules approved the previous year’s average prices, calcu- cluding foreign ones, as it expands public for clinical trials lates IQVIA. But firms are making up for health care. It is letting market forces weed lower margins with mammoth volumes. 140 out frail local firms. In other words, China Deutsche Bank reckons that in the first is becoming a more normal market. Global 120 quarter of 2018, the top 20 global pharma drugmakers are rubbing their hands. By 100 firms saw Chinese sales grow by 18% com- some estimates China became the second- 80 pared with last year. This was chiefly largest global consumer of medicines in 60 thanks to newly approved drugs. 2017. The market is worth $122.6bn, accord- Big Pharma thus has reason to cheer the 40 ing to IQVIA, a research firm. shake-up; local drugmakers less so. Chi- The normalisation owes a lot to the 20 nese producers of low-quality copycat overhaul of the China Drug Administra- 0 drugs have been slow to meet the CDA’s tion (CDA). Under Bi Jingquan, who took 2012 13 14 15 16 17 tougher new manufacturing standards over the regulator in 2015, the CDA intro- Source: McKinsey and the requirement to prove that their 1 The Economist September 1st 2018 Business 53

2 pills are biologically equivalent to the orig- panies are being founded, often by Chi- Developing new drugs is an uncertain, inal drugs. Unblocking the backlog of nese returning from stints at foreign lengthy process. Mr Bi, the regulator who 22,000 applications for approval for sale companies. A decision by the Hong Kong championed drug quality, was ironically (by foreign and domestic firms) will stiffen stock exchange earlier this year to allow one ofthose forced to resign in August after competition, which weaker firms may firmsto listbefore theyturn a profit will en- hundreds of thousands of children were struggle to withstand. Aprogramme to ver- courage Chinese biotech startups to seek discovered to have been given ineffective ify clinical-trial data appears to have capital at home rather than abroad. vaccines. Reforms to the CDA still have a curbed flaky applications. Mr Lu thinks Inthelongertermthatshouldspellstiff- long way to go. The agency has only just thatin the nextfive to ten years, half ofChi- er competition for foreign drugmakers. Mr begun harmonising its rules with those of na’s 4,000 pharma companies could die as Bohen says that it is only a matter of time foreign counterparts. The goal of having a result ofthe changes. before a Chinese discoveryin basicscience 289 generics pass bioequivalence tests by That appears to be the point. Hong leads to a new drug sold by a Chinese firm. the end ofthe year is optimistic. Chow,general manager of Roche in China, MarkMcDade ofQiming Venture Partners, Franck Le Deu, a senior partner with reportsthatshehasheardagovernmentof- a big health-care investor in China, points McKinsey,a consultancy,foresees a period ficial say: “Better short-lived pain than a to top-notch Chinese research in cancer of uncertainty following Mr Bi’s sudden long one.” The tough love is meant to let therapies known as CAR-T. The number of departure. The direction of reform is un- laggards wither and innovators flourish. It molecules approved for clinical trials in likely to change but its pace or focus might, is having an effect: perhaps 50 local gener- China has ballooned (see chart on previ- he notes. That in turn will determine how ics firms are transforming into research- ous page). long the boom times last for foreign- driven ones and more biotechnology com- The speed of change is not guaranteed. pharma firms in China. 7

Video streaming Airlines in India Missed punches Into the red

YouTube is fighting fora slice ofthe premium-video market OME 20,000 spectators paid an aver- May.It offers shows and films featuring age of£135 ($175) to see the bout live at YouTube stars (as well as some Hol- S In a world ofsolid airline profits, Indian the Manchester Arena in Britain. Another lywood names), plus ad-free streaming carriers buckthe trend 800,000 or so spent £7.50 to follow it on ofall YouTube videos and access to mu- YouTube. An estimated1m more were sic. YouTubekeeps mum about subscrib- VER the past few weeks whispered glued to pirated streams. The fighters in er numbers, but reports suggest it has Oadvice has circulated among frequent the ring had no boxing experience. But attracted a few million. YouTube TV, flyers in India. Do not book any tickets in they have plenty ofYouTube fans. KSI, a which sells a bundle oflive television advance with Jet Airways, the country’s British internet personality (whose real channels (including CNN) to American second-largest airline; it might not be long name is Olajide Olatunji), has more than viewers, reportedly adds another for this world. The suspicions had a grain 19m followers. His challenger, an Ameri- 300,000. The odd celebrity face-offis oftruth. On August 9th the carrier took the can vlogger named Logan Paul, has18m. unlikely to change the picture much. extraordinarystep ofdelayingthe planned In the fight for eyeballs, Messrs Olatunji Until YouTube works out a proper strat- release ofits results forthe three months to and Paul knocked out David Haye and egy, it will flail around to no great effect— June. On August 27th it delivered the bad Tony Bellew, two British professional much as the vloggers did in the ring. news—it lost $189m in the quarter, com- fighters whose heavyweight clash in May pared with a small profit in the same per- attracted 775,000 paying viewers. iod of last year. It wants to raise capital to YouTube did not organise the contest, avoid running out ofcash. which tookplace on August 25th; the Jet Air is not the only Indian carrier to boxers did. But the video-sharing giant stall this summer. Airlines stocks have fall- tookan undisclosed cut ofthe earnings en even as Indian shares have performed and ran adverts alongside the stream. decently overall (see chart on next page). The event’s enormous success has re- On August 14th SpiceJet, India’s fourth- vived hopes that YouTube can get view- largest carrier, announced a surprise loss ers to pay forcontent. of $5m in the second quarter. A month ear- The platform continues to rake in lier IndiGo, India’s largest airline, posted a money from advertising (Alphabet, 97% year-on-year decline in net profits for which owns it, does not reveal how the same period. And in June the govern- much). But wider concerns about fake ment abandoned its planned privatisation news, data privacy and extremist content of Air India, the flag carrier which has lost have not spared it. Several big brands money for a decade and is saddled with pulled commercials from YouTube last $7.8bn in debt, after it attracted no bidders. year after finding that they were being At first glance, the Indian aviation mar- posted alongside offensive videos. ket should be booming. Domestic “rev- YouTube’s desire to convert some of enue passenger kilometres”, a measure of its1.5bn users into paying customers bums on seats, grew by 18% in the year to predates the ad kerfuffle. It has struggled June. IATA, a trade body, forecasts that by to achieve this aim. Its subscription ser- 2025 India will be the world’s third-largest vice, YouTube Premium, launched in 2015 aviation market. What has crippled airline as YouTube Red but was rebranded in Not exactly a knockout profits this year are rising costs and flat fares, explains Rahul Kapoor ofBloomberg1 54 Business The Economist September 1st 2018

2 Intelligence, a research firm. The price of jet fuel has surged in tan- dem with thatofoil (up from $26 a barrel in 2016 to over $70). IndiGo’s fuel bill rose by 54.4% in the three months to June, compared with last year. Making matters worse, since January the dollar, the curren- cyin which fuel ispriced, hasstrengthened by a tenth against the rupee, the currency in which ticket revenues are booked. Despite higher oil prices, IATA expects airlines globally to make $33.8bn in profit this year. Many carriers hedge against swings in fuel prices and exchange rates to ensure sudden spikes do not bankrupt them, says Mark Martin, an aviation con- sultantbased in Dubai. Butairlinesin India did not do this. Poor corporate governance is likely to be responsible. In another departure from industry norms, Indian airlines have not been able Atlantia after Genoa to pass those higher fuel costs on to flyers by raising fares. Indian travellers are “the After the fall world’s most price-sensitive”, says Mr Ka- poor. If fares rise, they take the train instead—or stay at home. Whereas low-cost Western carriers, such as Ryanair and Southwest, recoup what they lose on dis- GENOA counted fares with offsetting fees for A disasterleaves one ofEurope’s biggest infrastructure firms on edge checked-in luggage and extra legroom, In- dian passengers simply forgo the extras. ROSECUTORS are still investigating Autostrade says it will prove that it had The Indian government does not help Pwhatcaused Genoa’sMorandi bridge to fulfilled its maintenance duties before the airline profits either, says Robert Mann, a collapse on August 14th, killing 43 people. deadline. Even if it does, the pressure on it former airline executive. India has Asia’s Autostrade per l’Italia, the company which will not abate. Luigi Di Maio, the deputy highest aviation-fuel taxes. Airlines are manages the bridge—as well as half of Ita- prime minister and leader of the populist forced to fly some loss-making regional ly’s toll roads—has until early September to Five Star Movement, has said the bridge routes to gain access to the best airport prove that it had performed proper main- should be rebuilt by a state-run company. slots in Delhi and Mumbai. tenance. If it misses the deadline, it could He also wants Autostrade renationalised. But the industry’s underlying problem lose all its road concessions in the country. A return to state ownership is only a re- isovercapacity. State subsidiesforAir India The disaster has left Atlantia—the hold- mote possibility; Mr Di Maio’s coalition mean some routes are flooded with too ingcompany which owns Autostrade—in a partners from the right-wing Northern many seats. The larger issue is a race for precarious position. Its share price is down League are unconvinced. Taking away its market share in what will become one of by 27% since the collapse. The loss of the concession is also easier said than done. the world’s biggest markets for air travel. Italian concessions would clobber its bot- Analysts reckon that if it were revoked, This problem looks poised to get worse be- tom line. In the first halfof 2018 Autostrade Autostrade could be entitled to around fore it gets better. Qatar Airways has plans accounted for almost two-thirds of Atlan- €10bn-15bn. Generous contracts entitle it to to start a new full-service carrier in India tia’s profits of€1.7bn ($2.1bn). compensation equal to value of the deal, with over 100 new jets. GoAir and Vistara, The state sold Autostrade in 1999, to an which expires in 2042, minus penalties of two fast-growing Indian carriers, plan to entity that later became Atlantia, at a time up to 10%—even if Autostrade is deemed to launch their first international flights in when Italy was intent on reducing its pub- have shirked its obligations. Such a payout October. The lure is tomorrow’s profits. lic debt, a condition for entering the euro would be difficult to pull off politically The upshot is losses today. 7 zone. In the years since, Atlantia’s shares and, given Italy’s towering public debt, fi- have greatly outperformed Italy’s sleepy nancially. The scale and complexity of stockmarket. Healthy returns allowed the Autostrade’s concession—its entire net- Losing lift company to snap up airports in Italy and work is covered by a single agreement— Share prices, January 1st 2018=100 France; toll roads in Latin America, Poland makes it hard to unravel, too. and India; and a 15.5% stake in the Eurotun- It helps that, after a bungled initial re- 140 nel. In March it agreed to buy Abertis, a sponse to the disaster, in which it indeli- IndiGo BSE Sensex index 120 Spanish rival, in a deal that would create cately asserted its right to compensation if the world’s biggest toll-road operator. its concession were revoked, Autostrade 100 ButItalian motorwaysremain central to has sounded more contrite. Other bits of 80 Atlantia’sfortunes. Once the Abertisacqui- the government seem to have different SpiceJet 60 sition is complete—the Genoa disaster has goals to Mr Di Maio; Giuseppe Conte, the Jet Airways notyetderailed the deal—Italian assets will prime minister, wants fourorfive times the 40 still contribute one-third ofthe group’spro- €500m Autostrade has committed to help 20 fits, accordingto Standard & Poor’s, a credit- victims’ families, rehouse the displaced Jan Feb Mar Apr May Jun Jul Aug rating agency. Were it stripped of those and build a new bridge. Autostrade will 2018 concessions, Autostrade could become a pay a heavy price for the disaster, but it Source: Thomson Reuters brake on Atlantia’s earnings, not a motor. mayyet keep its business intact. 7 The Economist September 1st 2018 Business 55

Corporate governance Consumer protection Passive, aggressive Repair job

SEOUL BMW’s reputation in South Korea goes up in flames BOSTON RIVING a plush BMW is an emblem some time to recover. Asset managers get more involved in ofstatus among brand-conscious BMW’s contrition, and its assurances the companies theyown D South Koreans. Lately,it has become a to owners ofdefective vehicles that they XECUTIVES have grown used to being source ofangst. After 40 ofthe German can count on all necessary assistance, Enagged about their company’s strategy carmaker’s diesel models mysteriously have not doused the indignation. On and governance by all and sundry. Activist burst into flames, car parks have turned August 28th Kim Hyo-joon, the head of hedge funds targeted 524 companies them away,forcing desperate motorists BMW Korea, was hauled before parlia- worldwide between January and June, to parkillegally in the street. “BMW pho- ment. Many Koreans suspect there may compared with 570 in the whole of 2013 bia” is trending on social media. Since it be additional problems with cars sold in and 805 in 2017, according to Activist In- owned up to the defect in July,the com- the country (the firm denies this, and any sight, a research firm. Last year two big in- pany has recalled106,000 vehicles in the other wrongdoing). dex-makers, S&P Dow Jones and FTSE Rus- country.In August the government As the Audi precedent shows, a fiasco sell, excluded firms with multiple share banned several models from the roads. can dent a marque’s prospects foryears. classes from their flagship indices. On Au- On August 30th the police raided BMW’s Politicians are already murmuring about gust 22nd Glass Lewis, a firm of “proxy ad- offices in Seoul, the capital. a ban not just on driving Beemers, but on visers” which advises shareholders on South Korea is not the only country sales, too. That would be a blow to BMW, how to vote, gainsaid the management of where BMW has had to recall the vehi- which, like other luxury carmakers, Sports Direct by urging the British retailer’s cles, which were built between 2011and covets well-heeled Korean consumers. owners to evict its founder, Mike Ashley, 2016, for having a faulty exhaust. In Eu- The fires have not injured anyone or from the board. Now hitherto quiescent rope it is replacing the defective part in caused any physical damage (other than bigasset managers are stickingtheir oars in more than 300,000 cars. Inexplicably, to the cars themselves). But BMW’s rep- as well. however, only cars in South Korea have utation needs some new bodywork. Institutional investors, which own the caught fire. That goes some way to ex- largeststakesin mostlisted firms, have con- plaining why fury there has been fiercer, ventionally deferred to proxy advisers in and the government response tougher, matters of corporate governance. A posi- than elsewhere. But the episode also tive recommendation from Glass Lewis or illustrates the willingness ofthe authori- Institutional Shareholder Services (ISS), ties in Seoul to impose harsh penalties on the two giants of the shareholder-advice businesses it deems irresponsible. industry, can raise the vote in favour of a In most places, when flaws are discov- motion on board appointments, executive ered in products, the authorities impose pay and the like by up to 20 percentage temporary restrictions on their sale, fine points, according to a recent analysis by ac- the manufacturers, and let life go on. Not ademics at Stanford University. in South Korea. When most countries But big funds do not always blindly fol- levied penalties on Volkswagen after the low proxy advisers’ suggestions. Black- German carmaker was discovered in 2015 Rock, the world’s biggest fund manager, to be cheating in emissions tests, Korea overseeing more than $6trn of assets, is banned sales ofmany VW marques, putting more emphasis on “stewardship”: including Audi, its highly profitable active engagement with firms it co-owns premium brand. The bans were lifted late (and, in the case of index-tracking funds, last year, but sales will probably take Heated debate, too from which it cannot divest). It employs only 35 people to liaise with firms’ management and decide how its passive funds Rock, State Street, Vanguard and Elliott, a the board in 22 ofthem. It intervened at Rio should vote, but that number is likely to prominentactivistfund, aswell asthe state Tinto when the miner was picking a new double in the next three years. State Street pension funds of states like Illinois and chairman, and atBT, a telecomsfirm, about Global Advisors, another big asset manag- California, launched a stewardship “code” poor capital allocation.When TCI, a stri- er, boasts that last year it managed to for America, the last big advanced econ- dent hedge fund, alleged that the chief ex- shame a number of companies without a omy to lackone. ecutive of the London Stock Exchange had woman on their boards to hire some. Institutional investors in British-listed been ousted against his will, the Forum As well as their separate efforts to be- firms have gone a step further. In 2014 a helped investors obtain the information come more involved in the companies group of them founded a body called the they needed to decide whether to support they own, asset managers are also banding Investor Forum to allow them to approach the board’s position. together. Focusing Capital on the Long specific firms while avoiding legal restric- The Forum does not forbid members Term, an organisation founded in 2016, tions on shareholders acting “in concert”. from acting independently. Rather, ex- wants to reduce short-termism in invest- Its 40 members include British fund-man- plains Andy Griffiths, its head, it serves as ment, for instance by abolishing quarterly agement firms such as Legal & General and an “escalation mechanism” when firms ig- guidance. Its members include asset man- Schroders, and foreign giants like Capital nore individual investors or exhibit pro- agers and pension funds, as well as compa- Group and GIC, a Singaporean sovereign- blems that worry many shareholders. Ex- nieslike DowChemical, an American firm, wealth fund. ecutives can expect to receive more such and Tata, an Indian conglomerate. In 2017 a Since 2015 the Forum has looked at 34 earfuls from investors, whether they are group of 50 investors, among them Black- problem cases and spoken directly with acting solo or in a chorus. 7 56 Business The Economist September 1st 2018 Schumpeter As good as it gets

Goodwill can seem arcane. But it adds up to an $8trn accounting puzzle booked on balance-sheets, the value bears some relationship to a number that can be validated externally. But there is a queasy cir- cularity about goodwill: the more companies bid up the price of acquisitions, the bigger the asset they can book. Meanwhile, the process of impairment is horrendously subjective. Most buyers fold their acquisitions into their existing businesses, making it hard to separate them in order to measure their performance. And there is usually a gap ofseveral years before companies own up to mistakes. Investorshave alreadyreacted longbefore then so the accounts become a lagging indicator, ofdiminished utility. The second problem is comparability. Goodwill relates to intangible assets: a firm’s culture or strategic presence in a growth market, say. But these are not normally recognised on balance- sheets. Take two identical firms, with the same operations, cash- flow, debt, strategy and value. The firm built through past acquisitions would have a bloated asset base. As a result its ratio of debt to assets would look healthier. Its shares would look artificially cheap compared with their bookvalue. And it would have a lower return on equity. Sophisticated investors adjust for this distor- tion. But retail investors and computers may not. Hans Hooger- HEN it comes to concepts with inappropriate names, good- vorst, the IASB’s chairman, has noted that many ofthe computers Wwill is near the top of the list. Instead of benevolence and behind factor funds, a popular type of statistically driven invest- big-heartedness, it provokes irritation and theological feuds ing, don’t adjust properly for goodwill. It is an alarming insight. amongfinancial types. Goodwill isan intangible assetthat sitson One Utopian answer to the goodwill conundrum would be firms’ balance-sheets and represents the difference between the for all firms to recognise all their intangible assets on their bal- price they paid to buy another firm and their target’s original ance-sheets. That would eliminate the comparability problem. It book value. If you think that sounds too abstract to care about, might also please economists who fret that accounts do not cap- the numbers are huge. Total goodwill for all listed firms world- ture the economy-wide shift from tangible to intangible assets. wide is $8trn, according to Bloomberg. That compares to $14trn of This was discussed at the gathering of central bankers at Jackson physical assets. Dry? Yes. Irrelevant? Farfrom it. Hole on August 23rd-25th. But the high-wire game of calculating Controversy has boiled ever since takeovers took off in the the market value of entire companies is what the stockmarket 1980s. Today, the treatment of goodwill matters for almost all does. The goal of accounts is more modest: to measure past per- companies. Take the top 500 European and top 500 American formance and provide useful information that helps investors. firms by market value. Some 50% have a third or more of their Allowing firms to constantly estimate their own market value bookequity tied up in goodwill. The biggest goodwill carriers are would duplicate the job ofinvestorsand also be a dog’sbreakfast. the deal-junkies: AT&T ($143bn), Anheuser-Busch InBev ($137bn), A potential fix for the measurement problem, which the IASB General Electric ($82bn) and Berkshire Hathaway ($81bn). Apple is considering, is a return to the practice of writing off a fixed is a rarity: it has little goodwill because it has eschewed big deals. amountofgoodwill everyyear, ratherlike screwsare depreciated So it is of some consequence that on August 29th the Interna- over time (this was the approach in America and Europe before tional Accounting Standards Board (IASB), which frames the the 2000s). But this involves spurious precision: no one has any rules in most countries apart from America, said that as part ofan idea how fast a company depletes its brand per year. And since ongoing review it would consider a shake-up. The existing rules goodwill isnota cash charge, reported profitswould diverge from are almost identical in America and Europe—when an acquirer cashflows. Investors would ignore whatever annual charge the buys a firm, it books the goodwill on its balance-sheet. It then per- accounts showed. This is how Warren Buffett advised Berkshire iodically reviews this sum in an impairment test. Has the acquisi- Hathaway shareholders to view these costs backin the 1990s. tion flubbed its market-share targets or got flabby? If so the goodwill is adjusted down by the firm, overseen by its auditors (it can Impaired judgment only very rarely be adjusted up). The revised value is based on For all its flaws, the status quo is the best available approach. It newforecastsofthe expected cashflows. The write-offappears as can be tinkered with sensibly—the IASB is considering asking a loss on the buyer’s income statement and life goes on. firms to give more detail about their unrecognised intangible as- Just as the stock of goodwill sitting on balance-sheets has be- sets. In time this might help develop a coherent methodology for come vast, so have the write-downs. For the top 500 European valuingthem. Butfornowthe keyisforinvestorsto be clearabout and top 500 American firms by market value, cumulative good- their objectives. If you are scrutinising a company’s history and will write-offsover the past ten years amount to $690bn. There is working out whether it has wasted vast sums on deals, then a clear pattern of bosses blowing the bank at the top of the busi- goodwill and write-downs are highly relevant. But if the objec- ness cycle and then admitting their sins later, splattering their in- tive is to assess a company’s prospective ability to service debts come statements in red. Vodafone has written off $52bn of good- or create value for its shareholders, goodwill does not matter will in the past decade, a similar sum to its current market value. much at all and should be ignored. After a long boom and lots of The present system fortrackingall this has two disadvantages. pricey deals, the write-downs are coming. A discerning eye, not First, measurement. When assets like factories or software are an accounting revolution, is what is required to interpret them. 7 Philosophy brief Liberal thinkers The Economist September 1st 2018 57

fied in helping people overcome their internal, mental vices. That lets government decide what people really want, regardless of what they say. It can then force this on them in the name of freedom. Fascists and communists usually claim to have found a greater truth, an answer to all ethical questions, which reveals itself to those who are sufficiently adept. Who, then, needs individual choice? The risk of a perversion of liberty is especially great, Berlin argued, if the revealed truth belongs to a group identity, like a class or religion or race. To reject positive liberty is not to reject all government, but to acknowledge that trade-offs exist between desirable things. What, forexample, ofthe argument that re- distributing money to the poor in effect increases their freedom to act? Liberty must not be confused with “the conditions of its exercise”, Berlin replied. “Liberty is liberty, not equality or fairness or justice or culture, or human happiness or a quiet con- science.” Goals are many and contradic- tory and no government can infallibly pick among them. That is why people must be free to make their own choices about what constitutes good living. Yet determining the proper sphere of Berlin, Rawls and Nozick that freedom has been the great challenge all along. One lodestar is the harm princi- Rawls rules ple. Governments should interfere with choices only to prevent harm to others. But thisishardlya sufficientrule with which to exercise power, because there are plenty of harms that liberals typically do permit. An entrepreneur might harm an incumbent businessman by bankrupting him, for ex- Three post-warliberals strove to establish the meaning ofindividual freedom ample. The most significant attempt of the NE definition of a liberal is a person 20th century to find a stronger boundary Owho supports individual rights and In this series between the state and the individual was opposes arbitrary power. But that does not made by the Harvard philosopher John tell you which rights matter. For example, 1 John Stuart Mill Rawls in 1971. some campaigners say they want to un- Rawls’s “A Theory of Justice” sold over 2 Alexis de Tocqueville shackle transgender people, women and half a million copies, reinvigorated politi- minorities from social norms, hierarchies 3 John Maynard Keynes cal philosophy and anchored debates be- and language that they see as tyrannical. tween liberals for decades to follow. It pos- 4 Schumpeter, Popper and Hayek Their opponents say that this means limit- ited a thought experiment: the veil of ing what individuals do and say, for in- 5 Berlin, Rawls and Nozick ignorance. Behind the veil, people do not stance by censoring frank discussions of know their talents, class, gender, or even 6 Rousseau, Marx and Nietzsche gender, or forbidding the emulation of mi- which generation in history they belong nority cultures. Supporters of these kinds to. By thinking about what people would of “identity politics” claim to be standing Positive liberty might arise when the state agree to behind the veil, Rawlsthought, itis up forrights against unjust power. But their educates its citizens. It might even lead the possible to ascertain what is just. opponents do, too. If both claim to be “lib- governmentto ban harmful products, such To begin with, Rawls argued, they eral”, does the word mean much at all? as usurious loans (for what truly free indi- would enshrine the most extensive The problem is not new. Isaiah Berlin vidual would choose them?). scheme ofinalienable “basicliberties” that identified the crucial fault line in liberal Berlin spied in positive liberty an intel- could be offered on equal termsto all. Basic thought in Oxford in 1958. There are sup- lectual sleight of hand which could be ex- liberties are those rights that are essential porters of “negative” liberty, best defined ploited for harm. Born in Riga in 1909, he forhumans to exercise their unique power as freedom not to be interfered with. Nega- had lived in Russia during the revolutions of moral reasoning. Much as Berlin tive liberties ensure that no person can of1917, which gave him a “permanent hor- thought the powerto choose between con- seize his neighbour’s property by force or rorofviolence”. In 1920 his family returned flicting ideals was fundamental to human that there are no legal restrictions on to Latvia, and later, after suffering anti- existence, so Rawls argued that the capaci- speech. Then there are backers of “posi- Semitism, went to Britain. As his glittering ty to reason gives humanity its worth. Ba- tive” liberty, which empowers individuals academic career progressed, Europe was sic liberties thus include those of thought, to pursue fulfilling, autonomous lives— ravaged by Nazism and communism. association and occupation, plus a limited even when doing so requires interference. Under positive liberty the state is justi- right to hold personal property. 1 58 Philosophy brief The Economist September 1st 2018

2 But extensive property rights, allowing Hayek—Thatcher’s favourite thinker—won power, in which arguments cannot be di- unlimited accumulation of wealth, do not the Nobel prize in economics. Two years vorced from the identity ofthe speaker. On feature. Instead, Rawls thought the veil of later it went to Milton Friedman. But al- some university campuses conservative ignorance yields two principles to regulate though the world moved rightward, it did speakers who cast doubt on the concepts markets. First, there must be equality ofop- not shift far enough to become Nozickian. of patriarchy and white privilege, or who portunity for positions of status and “Anarchy, State and Utopia” called foronly claim that gender norms are not arbitrary, wealth. Second, inequalities can be per- a minimal, “nightwatchman” state to pro- are treated as aggressors whose speech mitted only if they benefit the least well- tect property rights. But vast government should be prevented. The definition of off—a rule dubbed the “difference princi- spending, taxation and regulation endure. “mansplaining” is evolving to encompass ple”. Wealth, if it is to be generated, must Even America, despite its inequality, prob- men expressing any opinion at length, trickle all the way down. Only such a rule, ably remains more Rawlsian. even in writing that nobody is compelled Rawls thought, could maintain society as a to read. Arguments, it is said, should be co-operative venture between willing par- Too much Utopia rooted in “lived experience”. ticipants. Even the poorest would know Some of Rawls’s fiercest critics have been This is not how a Rawlsian liberal soci- that they were being helped, not hindered, to his left. Those concerned with racial and ety is supposed to work. Rawls relied on by the success of others. “In justice as fair- gender inequality have often seen his the notion that humans have a shared, dis- ness”—Rawls’s name for his philosophy— work as a highfalutin irrelevance. Both interested rationality, which is accessible “men agree to share one another’s fate.” Rawls and Nozick practised “ideal the- by thinking about the veil of ignorance, Rawls attributed his book’s success ory”—hypothesising about what a perfect and is strengthened by freedom of speech. with the public to how it chimed with the society looks like, rather than deciding If arguments cannot be divorced from political and academic culture, including how to fix existing injustices. It is not clear, identity, and if speech is in fact a battle- the civil-rights movement and opposition for example, whether Rawls’s principle of ground on which groups struggle for pow- to the Vietnam war. It demonstrated that equality of opportunity would permit af- er, the project is doomed from the outset. left-wing liberalism was not dreamed up Rawls thought that the stability of the by hippies in a cloud of marijuana smoke, ideal society rests on an “overlapping con- but could be rooted in serious philosophy. sensus”. Everyone must be sufficiently Today, the veil of ignorance is commonly committed to pluralism to remain invested used to argue for more redistribution. in the democratic project, even when their Ironically, since 1971 the rich world has opponents are in power. The polarised mostlygone in the opposite direction. Hav- politics of America, Britain and elsewhere, ing already built welfare states, govern- in which neither side can tolerate the oth- ments deregulated markets. Tax rates for er’s views, pushes against that ideal. the highest earners have fallen, welfare The more thatgroup identityiselevated benefits have been squeezed and inequal- above universal values, the greater the ity has risen. True, the poorest may have threat. In America some on the left de- benefited from the associated growth. But scribe those who have adopted theirviews the reformers of the 1980s, most notably as “woke”. Some fans of Donald Trump— Margaret Thatcher and Ronald Reagan, who has taken the Republican party a long were no Rawlsians. They would have way from Nozickian libertarianism—say found more inspiration in Rawls’s Harvard they have been “red pilled” (a reference to contemporary: Robert Nozick. the film “The Matrix”, in which a red pill Nozick’s book “Anarchy, State and Uto- lets characters realise the true nature of re- pia”, published in 1974, was an assault on ality). In both cases, the language suggests Rawls’s idea of redistributive justice. some hidden wisdom that only the en- Whereas Rawls’s liberalism relegates prop- lightened have discovered. It is not far from erty rights, Nozick’s elevates them. Other firmative action, or any other form of posi- there to sayingthatsuch a revelation isnec- forms of liberty, he argued, are excuses for tive discrimination. Rawls wrote in 2001 essary to be truly free—an argument that the immoral coercion of individuals. Peo- that the “serious problems arising from ex- Berlin warned is an early step on the path ple own their talents. They cannot be com- isting discrimination and distinctions are to tyranny. pelled to share their fruits. not on [justice as fairness’s] agenda.” Noz- The good news is that pluralism and Nozick questioned whether distribu- ick acknowledged that his views on prop- truly liberal values remain popular. Many tive justice is even coherent. Imagine some erty rights would apply only if there had people want to be treated as individuals, distribution ofwealth that is deemed to be been no injustice in how property had not as part of a group; they attend to what just. Next suppose that a large number of been acquired (such as the use ofslaves, or is being said, not just to who is saying it. people each pay 25 cents to watch Wilt the forced seizure ofland). Much hand-wringing about public life re- Chamberlain, then the top player in the Rawls was also more concerned with flects the climate on social media and cam- NBA, play basketball. A new distribution institutions than with day-to-day politics. puses, not society at large. Most students would emerge, containing a very rich Mr As a result, on today’s issues his philoso- do not subscribe to radical campus leftism. Chamberlain. In this transition, people phy can fire blanks. For example, feminists Still, backers of liberal democracy would would have engaged in purely voluntary often say he did too little to flesh out his do well to remember that the great post- exchanges with resources that are properly views on the family. His main prescription war liberals, in one way or another, all em- theirs, if the initial distribution really is is that interactions between men and phasised how individuals must be free to just. So what could be the problem with women should be voluntary. That is not resist the oppression of large groups. That, the later one? Liberty, Nozick said, disrupts much help to a movement that is increas- surely, is where liberal thought begins. 7 patterns. Justice cannot demand some pre- ingly concerned with social norms that are ferred distribution ofwealth. said to condition individual choices. His work contributed to a philosophy Rawlsianism certainly provides little to in favour of small government that was support identity politics. Today’s left in- Read more on classical liberal values and blooming at the time. In 1974 Friedrich creasingly sees speech as an exercise in thinkers at Economist.com/openfuture Finance and economics The Economist September 1st 2018 59

Also in this section 60 KPMG’S tribulations 61 Banking in poor neighbourhoods 61 Argentina and Turkey 62 Informal trade in Africa 63 Free exchange: Made from concentrate

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

NAFTA Mr Trump had originally said he wanted a sunset clause, with the newNAFTA ex- Wheeler dealer piring after five years unless all sides agreed otherwise. He has settled for less. After six years in force NAFTA will be re- viewed, and terminated after ten more if all sides cannot agree to continue it. As WASHINGTON, DC longas the deal remains in force, further re- Adraftagreement between America and Mexico clarifies what populist trade views will come every six years. This is policymeans in practice supposed to prevent imbalances Mr T’S a big day fortrade, a big day forour Canada, however, may be emboldened by Trump claimsbuiltup overtime in the orig- “Icountry,” boasted President Donald hostility within America to anything less inal, to America’s detriment, while giving Trump on August 27th. The cause ofthis ju- than a trilateral deal, and by the domestic companies notice to rearrange their affairs bilation was progress in renegotiating the political payoff from standing up to Mr should a deal be impossible to make. North American Free Trade Agreement Trump. (NAFTA), a deal between America, Mexico But even if it collapses, this week’s ten- Automatic transmission and Canada. Enrique Peña Nieto, Mexico’s tative deal is significant. It brought into The Trumpian imprint is most visible in president, confirmed that Mr Trump had sharper focus the sorts of terms Mr Trump new rules of origin for cars, an industry managed to secure a bilateral “understand- seeks to impose on America’s trading part- that captured negotiators’ attentions in ing” with Mexico. According to the White ners. A Trumpian trade deal, it appears, in- part because of its contribution to Ameri- House’s spin doctors, Mr Trump had kept volves not only spin (as all trade deals do), ca’s bilateral trade deficit with Mexico. All his pledge to renegotiate NAFTA and had but threats (far more than is usual). Com- trade deals set conditions for products to produced a “mutually beneficial win for pared with other trade agreements of re- qualify for preferential treatment. Other- North American farmers, ranchers, work- cent years, it is an uneasy blend of sweet- wise European or Japanese parts makers, ers and businesses”. eners for the left and for business interests. say, could benefit from deals their govern- The deadline forpublishinga more con- It increases uncertainty for companies. ments never negotiated. This rewrite is crete version of the deal is August 31st, And it manages markets with a much striking for the extent to which existing when the American administration plans heavier hand. conditions have been tightened and new to notify Congress of Mr Trump’s intent to Playing to the left, the Trump adminis- ones introduced. sign. The rush is to enable Mr Peña to sign tration istoutingwhatitsaysare the “stron- The Mexicans have agreed to a higher before December 1st, when he will be re- gest, fully enforceable labour standards of threshold for regional content in cars (up placed by Andrés Manuel López Obrador, any trade agreement”. These will suppos- from 62.5% to 75%) and to the removal of a firebrand leftist. Both men are keen to edly give teeth to rules that American un- loopholes that meant some auto parts have the deal wrapped up by then, Mr ions complained were easy to ignore were, in effect, exempt. A minimum share Peña to make it part of his legacy and Mr (though how, exactly, remains unclear). of steel and aluminium must be sourced López Obrador so he can concentrate on Provisions allowing investors to sue for- from the region. Most unusually, a mini- his domestic policy agenda. eign governments will be fudged, with mum share ofproduction must be done by As The Economist went to press, negoti- some sectors carved out (whether enough workers earning above $16 an hour. ators were still hard at work. Most signifi- to please those fretting about corporate All this is supposed to sharpen carmak- cantly, Canada was not yet on board, power also remains unclear). Several pro- ers’ incentives to locate production in though its negotiators were sounding opti- visions are intended to please corporate America. Juan Pablo Castañón, head of the mistic. Mr Trump has said he will go ahead lobbyists, among them protection for ten Mexican Business Co-ordinating Council, without the Canadians—and apply tariffs years for drugs known as biologics and an says that 70% of Mexican car plants com- on Canadian cars—if they resist his terms. extension ofcopyright from 50 years to 75. ply with the new rules for parts and metal. 1 60 Finance and economics The Economist September 1st 2018

2 So the renegotiation could shift employ- Volpe, the president ofthe Canadian Auto- 500 in 2017 and a quarter of companies in ment towards the United States, if carmak- motive Parts Manufacturers’ Association, the FTSE 350. If clients fled, other firms ers rejig their supply chains in response or an industry group, worries about how en- would have to absorb that work. ramp up the supply of compliant vehicles forceable any new arrangement would be. More nasty news is quite possible. The there while selling non-compliant ones Normally, trade agreements are self-rein- inquiry into KPMG’s audit of Carillion is elsewhere. But they might simply choose forcing, with members sticking to them be- still under way, and the trial against its for- instead to import more parts from outside cause they generate gains for all con- mer partners in America is due to begin the NAFTA region, and swallow the result- cerned. This one is clearly being held only in 2019. But it is in South Africa that ing 2.5% tariff. In any case, consumers will together with threats. KPMG’s reputation has been hit hardest. Its probably have to pay more. Some of these features of the new links to the Guptas have tapped into public The most distinctive Trumpian feature NAFTA may help sell it to American voters anger at state corruption, says Iraj Abedian is the bullying that is being used to impose suspicious of conventional trade deals. It of Pan-African Investment & Research Ser- the new deal. Reports emerged on August may even be better than no NAFTA at all. vices, a consultancy. The firm has laid off 28th of a separate side letter that would ex- But the way talks have been conducted, more than 400 staff; some senior partners empt some level of Mexican car exports and the gap between the promises made have jumped ship. It has been banned from any new American tariffs imposed in for it and the likely reality, have stored up from auditing public-sector entities; some the name of national security. Flavio problems forthe future. 7 private-sector clients, including Barclays Africa, a bank, have switched auditor. Mr Abedian reckons that national regulators KPMG’s tribulations might even revoke its licence. But according to Jim Peterson, who was In the eye of the storm once an in-house lawyer forArthur Ander- sen, an accounting firm that went bust in 2002, each of the Big Four has weathered storms similar to those now buffeting KPMG. Critics attribute this resilience to a broken market for auditing services. Large companies may employ several of the Big The accounting firm is caught up in scandals, but its woes are not existential Four as consultants or advisers. That limits UDITORS are often accused of being severed ties with the Guptas earlier. In Brit- a company’s choice ifit wants to switch au- Atoo lenient on the companies they ain the regulator has lamented an “unac- ditor, because regulators generally prevent scrutinise. After all, those companies pay ceptable deterioration” in the quality of a single firm from providing many consult- the bills. The four that dominate the mar- audits. For its part, KPMG says it has made ing and auditing services simultaneously. ket—Deloitte, EY, KPMG and PwC—also of- clear to stakeholders that “conduct that vi- Some wonder if the concentrated market, fer lucrative services like consulting and olates its code of ethics will be strongly and the potential disruption ifa large audit tax advice. Concerns have long swirled dealt with”. Partners found to have fallen firm were to fail, also leads regulators to go that conflicts ofinterest riskdeterring audi- short of standards in America and South easy. (Regulators maintain that their priori- tors from challenging dodgy accounting. Africa have been sacked. The firm has ac- ty is to ensure that quality stays high.) Recent controversies have centred on knowledged some failings in South Africa Atleastasimportanta reason for the au- KPMG, the smallest of the Big Four. In Brit- and says it looks forward to co-operating diting trade’s resilience is a feature that ain lawmakers have criticised it forsigning with a regulatory review. It is also taking stops scandals in one market having much off the accounts of Carillion, a public-sec- steps to improve audit quality in Britain. impact in others. Rather than being stan- tor contractor that later went bust. A regu- KPMG’s troubles tarnish its main asset— dard multinationals, all the Big Four are latory investigation is under way. Last its reputation. A big enough blow could networks of local firms that share a brand week regulators fined it for misconduct in knock it over, disrupting capital markets in but are managed separately. That creates fi- its audits ofTed Baker, a clothing retailer. turn. According to Audit Analytics, a re- rewalls between jurisdictions. Auditing In America three former partners face search firm, KPMG audited 19% of the S&P firms can plausibly tell regulators and cli- criminal charges for alleged involvement ents that problems elsewhere are nothing in the theft of confidential information to do with them. about the regulator’s plans to inspect Moreover, clients tend to form relation- KPMG audits. In South Africa KPMG is un- ships with their individual audit partner; der investigation for its work for compa- news about the firm matters less. Investors nies owned by the Gupta family, which generally wave through the selection of has been accused of corruption. Among auditors (though a significant minority of the auditor’s alleged misdeeds are allow- shareholders of General Electric voted ing the costs of a wedding as business ex- against reappointing KPMG this year). penses. On top of all this, in the United Accounting networks have survived Arab Emirates it has been under scrutiny the closure oflocal offices before. PwC’s af- for its audits of Abraaj, a private-equity filiate in Japan shut down in 2007. Its Indi- firm thatfiled forliquidation in June. Inves- an affiliate has been banned from auditing tors in Abraaj claim that money from some clients for two years, starting in March. funds was used to plug holes in others, and That has passed largely unremarked else- that KPMG failed to notice. where. Still, Arthur Andersen’s fate is salu- The scandals have raised questions tary. The collapse ofEnron and WorldCom, about KPMG’s culture. The partners two big clients, led to a series of legal cases charged with data theft in America were against the firm. Clients fled. So did mem- high-ranking. Eight executives in South Af- ber firms—for fear of exposure to legal rica stepped down afteran internal investi- damages, says Mr Peterson. Audit firms are gation concluded that they should have resilient, but they are not immortal. 7 The Economist September 1st 2018 Finance and economics 61

Argentina and Turkey Go Fund Me

Markets bash the peso and lira again HE first YouTube video, posted in 2005, Tshowed the site’s 25-year-old co-founder standing in front of elephants at the San Diego zoo. One of its most recent videos is a little different: it shows Argentina’s president, Mauricio Macri, explaining why he needs the IMF to stand in front of the bears destroying his country’s currency. The peso fell by more than 7% on Au- gust 29th, capping another difficult month. Its fall will make it harder for the central America’s Community Reinvestment Act bank to meet next year’s inflation target, further undermining the institution’s cred- Another equity debate ibility and the currency’s appeal. Argenti- na must also roll over or replace about NEW YORK $50bn of debt falling due over the remain- The sensitive taskofrevising rules on banklending in poorneighbourhoods der of 2018 and 2019. The financial markets HE document is dry,dusted with OCC, the Federal Reserve and the Federal worry that the government will struggle to Treferences to “benchmarks”, “perfor- Deposit Insurance Corporation (FDIC). secure both refinancing and re-election, mance evaluation” and “a metric-based Banks have long grumbled that the since the sky-high interest rates required to framework”. But the 25 pages published CRA’s rules are unclear and inconsistent- attract creditors may furtherrepel voters in on August 28th by the Office ofthe ly applied, and that inspections are costly the October 2019 elections. Comptroller ofthe Currency (OCC), one and time-consuming. Much less loudly, On YouTube, Mr Macri asked the IMF to ofAmerica’s federal bankregulators, they also complain that the CRA has speed up disbursement of the $50bn loan may start a protracted dispute over lend- been a sort ofshakedown, in which they it had agreed to in June. Argentina received ers’ obligations to poor neighbourhoods must satisfy political needs rather than $15bn upfront. The remainder, which it had and hence to racial minorities. meet well-defined regulatory standards. hoped not to need, is scheduled to arrive in The OCC is inviting responses to 31 The act’s defenders insist that it is an 12 equal quarterly instalments, provided questions about putative changes to the essential bulwarkagainst redlining and Argentina meets the fund’s conditions. In a rules implementing the Community other restrictive practices. statement, Christine Lagarde, the IMF’s Reinvestment Act (CRA), which was Both the Treasury and the OCC argue managing director, said the fund would passed in 1977 with the best ofintentions: that new rules would boost lending to “re-examine the phasing” ofthe loan. maintaining lending and bankbranches needy areas rather than choke it. Wheth- Mr Macri admitted that the market had in America’s poorest areas; and combat- er or not that is true, there are good tech- expressed a lack of confidence in his gov- ing “redlining”, the denial ofloans to nical reasons foran overhaul. In its ernment’s finances. In Turkey, by contrast, people in certain districts as a disguised memo the Treasury noted, forexample, the president, Recep Tayyip Erdogan, has means ofracial discrimination. The CRA that there is no formal process to help often expressed a lack of confidence in obliges regulators to assess not only banks decide whether a loan will meet markets. He sees the sell-off in the Turkish banks’ financial soundness but also their the act’s requirements; and that the terms lira as a weapon in an economic war lending to poor customers and small used to assess banks’ performance (“ex- waged by America, which has imposed businesses, and their commitment to cellent”, “substantial”) are undefined. sanctions on two Turkish ministers and “community development” in the areas Banks are assessed on lending within two of its exports (steel and aluminium) 1 where they operate. The results can areas based on the siting oftheir head determine whether banks are allowed to offices, branches and deposit-taking merge, or to open or move branches. automated teller machines. Mobile On the ropes The rules have changed several times technology makes this lookout ofdate. Currencies against the $ in the past 40 years (eg, to reflect the The OCC’s paper is studiously formal. January 1st 2018=100 legalisation ofinterstate banking in the It invites comments on the current rules, 110 OCC 1980s). The ’s paper is part ofa asks whether more quantitative assess- 100 broader review ofbankregulation begun ments are needed and so forth. The result 90 last year by the treasury secretary, Steven may well be a new system that relies Turkish lira Mnuchin, at the behest ofPresident more heavily on objective data. That may 80 Donald Trump—who sympathises with sound technocratic and benign, but it 70 pleas from banks, especially small ones, will cause political ructions. And the Fed Argentine peso that red tape is restricting lending. Mr and the FDIC will doubtless also want 60 Mnuchin published his own assessment their say. Change is on the way for the 50 ofthe CRA in April, in a memo to the CRA. Despite the technocratic tone, it will Jan Feb Mar Apr May Jun Jul Aug 2018 three regulators that implement it: the not happen quietly. Source: Thomson Reuters 62 Finance and economics The Economist September 1st 2018

2 because of the detention of an American The prevalence of cross-border busi- smuggling. Many of the goods crossing at pastor, Andrew Brunson. ness challenges the idea that African coun- Busia are local farm produce, which can Like Argentina, Turkey suffers from tries, warped by colonialism, trade little generally move duty-free within the East stubborn inflation, a wide current-account with each other. True, four-fifths of official African Community. Even so, traders often deficit and heavy foreign-currency debts, exports go to other continents. But statisti- prefer to use the unofficial panya (“rat”) although Turkey’s liabilities are mostly the cians in Uganda reckon that the country’s routes. It is faster, say some. Others distrust result of corporate, not government, over- informal exports were worth $419m in the state. “Ifthey just see this building, they borrowing. On Tuesday Moody’s, a rating 2016, equivalent to 17% of recorded trade. fear,” says Margaret Katambi, a second- agency, downgraded 18 Turkish banks and Perhaps 30-40% oftrade in southern Africa hand clothes trader, sitting near the impos- two finance firms, which could face pro- is informal. In Benin, informal transit trade ing border post. blems rolling over foreign-currency loans. to Nigeria may account fora fifth of GDP. Using the panya routes is risky. If you Berat Albayrak, Turkey’s finance minister Some informaltradersrun unregistered meet a policeman he may demand bribes and the president’s son-in-law,denied that businesses, but pass through official bor- or confiscate goods, says Mariam Babu, the economy faced a big risk, because gov- der posts. Others dodge customs, but sell who chairs an association of women trad- ernment and household debt remain rela- their goods into formal markets. In Nigeria ers. Sometimes a man might pose as a po- tively low.The lira slid furtherafterwards. cars and rice are smuggled by criminal syn- lice officer, she says: “He can tell you, ‘Give Since April, Argentina and Turkey have dicates. But many ofAfrica’s informal trad- me sex and I’ll give you back your goods.’” responded quite differently to their curren- ers operate on a tiny scale, carrying a bun- Things are particularly bad in the eastern cy crises. Argentina has hiked interest rates dle of second-hand clothes or a basket of Democratic Republic ofCongo, where half aggressively and asked the IMF for help vegetables to market. Most of these small of the traders surveyed by the World Bank promptly. Turkey, by contrast, has tight- traders are women. in 2010 said they had experienced vio- ened monetary policy belatedly and often They follow trade routes established lence, threats or sexual harassment. In indirectly.And it has appealed forfinancial long before Europeans drew lines on such lawless borderlands the lines be- assistance to allies like Qatar, rather than maps. One study finds that grain prices dif- tween tax and extortion, and enforcement the IMF, not least because the fund’s help fer across much of the Nigeria-Niger bor- and assault, are all too frequently crossed. might first require a thawing of relations der, as they do at frontiers the world over, In Busia the situation is improving, says with America. But despite their differ- but that the difference shrinks where the Ms Babu. More than 1,200 women are ences, these two emerging-market re- same ethnic group lives on both sides. members of her association, which regu- sponses share a common feature: so far, Even today,only a third of African borders larly meets customs officials and police. neither seems to be working. 7 are marked on the ground. Livestock herd- Special customs procedures for goods ers in the Horn of Africa may be hundreds worth less than $2,000 let traders obtain a of miles from any border post; most of the simplified certificate of origin. A Kenyan African trade cattle driven from Ethiopia to Sudan prob- startup called Sauti helps traders check ably use unofficial crossings. prices, tariffs and exchange rates on their The river between Traders also exploit opportunities for mobile phones. arbitrage. In the season of 2017-18 perhaps The challenge is to manage smuggling 100,000 tonnes of cocoa were smuggled while leavingspace forsmall traders. Infor- from Ivory Coast into neighbouring Gha- mal trade can empower women, reduce na, where farmers were paid more for the poverty and improve food security, says BUSIA crop. And protectionism diverts trade from Francis Mangeni of the Common Market Informal trade is ubiquitous in Africa, official channels. A recent study in Benin for Eastern and Southern Africa, a 21-coun- but too often ignored by the Centre d’Etudes Prospectives et d’In- try bloc. Governments are slowly coming HE border is like a river,” says Ron- formations Internationales, a French round to that view. “These borders were “Tald Sembatya, “where somebody think-tank, finds that raising tariffs by 10% imposed on us,” says Dicksons Katesh- can come to get fish.” He is resting beside makes it 12% likelier that a product is im- umbwa, Uganda’s top customs official. “So his wheelchair in the muddy no-man’s ported informally. the worst thing you can do is say, ‘I am put- land between Uganda and Kenya. His dis- But informality cannot be reduced to ting up a wall’.” 7 ability makes it hard to find work elsewhere. But here he earns his “fish” by shuttling goods across the border, slotting a bag of flour or carton of eggs beneath the seat of his chair. Scores of other wheelchair- users trundle back and forth, their loads rarely inspected by officials. The local police commander says he has orders not to touch them. Stop a wheelchair, sighs a customs officer, and “people will lynch you”. Informal trade is ubiquitous in Africa, but often, like Mr Sembatya’s wheelchair, tactfully ignored. He passes on a potholed track a few hundred metres from the main border post at Busia, a town straddling the frontier. Kenyan women tramp through the same puddles to buy cheap Ugandan tomatoes. Some traders deal in charcoal; other hoist sacks of maize onto bicycles, slipping truckloads across one bag at a time. Such trade shapes border communities. It also shapes national economies. Fair exchange, sometimes robbery The Economist September 1st 2018 Finance and economics 63 Free exchange Made from concentrate

Central bankers grapple with the changing nature ofcompetition work effects, convening great minds to produce ideas jointly that surpass anything they could dream up separately? Rising market concentration, Mr van Reenen pointed out, might reflect not a decline in competition, but a change in its nature. Platforms such as Google, Uber and Airbnb match buyers and sellers, and thus make outsize gains as they grow. In such winner-takes-most competition, a slight advantage can tip the entire market in a company’s favour. Mr van Reenen finds that America’s risingeconomic concentration is mostly caused by big, productive companies gaining market share. Far from growing complacent and fat, they seem impressively muscular. Other observations chimed with this narrative. Alberto Car- vallo of Harvard University showed that the prices of goods sold in brick-and-mortar shops vary less by location and are updated more often if they are also sold by online rivals. Prices of shops’ products were much more likely to reflect changes in exchange rates if the same items were sold on Amazon. Such cost-sensitiv- ity is hard to square with the idea that competition is lacking. The differences between these rival narratives matter for economic policymakers. In one version nefarious market forces are constricting productivity, holding down investment and wages. ECENTvisitors to Jackson Hole, a resortin the Teton Mountain Ifso, that would make the trade-offbetween inflation and unem- Rrange in Wyoming, were denied the usual scenic views by a ployment harder to manage. In the other, restrained investment shroud of smoke from recent forest fires. Disappointing, no and wages are signs of structural changes that boost productive doubt, for the tourists among them—but oddly fitting for the eco- potential—in which case, there would be fewer ill-effects from nomic panjandrums attending the Federal Reserve Bank of Kan- running the economy hot. sas City’s annual symposium on August 23rd-25th. Not only are economic policymakers used to making choices in a fog of uncer- Two economists, three opinions tainty, but this year’s theme of market structures generated its Unsurprisingly, given the number of economists assembled, the own haze. Though the nature of competition in America’s econ- only point of agreement was on the need for more evidence. Part omy is changing, it is unclear how worried they should be. of the difficulty is that the two narratives are not as distinct as Jerome Powell, the chairman ofthe Federal Reserve, highlight- they appear. As Janice Eberly and Nicolas Crouzet of Northwest- ed slow wage growth in recent decades. America seems stuck in a ern University pointed out, the same forces could be creating “low-productivity mode”, he said. Others pointed to sluggish in- both competition-harmingbarriers to entry and risingproductiv- vestment, despite cheap capital, and a fall in workers’ share ofna- ity associated with economies of scale. They find a correlation tional income. Could these ills share some common causes, between a company’s market share and its investment in patents, namely rising market concentration and crimped competition? algorithms and other intangible capital. As evidence, Alan Krueger of Princeton University pointed to Moreover, the impact on competition seems to vary by indus- nominal wage growth that is 1-1.5 percentage points lower than try. In retail and manufacturing, although concentration and in- would normally be expected with inflation and unemployment tangible investment have risen, the researchers’ measure of price as low as they are now. He laid some blame on employers’ grow- markups has stayed low. By contrast, in the high-tech and health- ing power, as no-poaching agreements and non-compete restric- care industries, they find an association between intangible in- tions proliferate, on sickly union membership and on the falling vestments and markups. Even as sophisticated logistical algo- real value ofthe federal minimum wage. rithms sharpen the battle between the likes of Amazon and Wal- Antoinette Schoar of the Massachusetts Institute of Technol- mart in retailing, in other words, a proliferation of patented ogy (MIT) remarked that a banking shakeup by fintech upstarts, devices and databasesfull ofcustomerinsightscould be enabling long predicted, has not fully materialised. Rather than turning market leaders in pharmaceuticals and finance to shut rivals out. new firms into viable competitors, venture capital seems to have Raghuram Rajan of the University of Chicago offered another nurtured them only for incumbents to gobble them up. As mar- reason to wait before declaring increased economic concentra- kets have become more concentrated, observed John van Ree- tion either good or bad forthe economy overall. Even if superstar nen, also ofMIT, the gap in productivity between the biggest and companies are passing efficiency gains on to consumers now, smallest companies has widened. If something is stopping sub- they may not keep doing so indefinitely. If they continue to be standard firms from closing the gap, that could be sapping the boosted by the trends behind economic concentration, from stel- economy’s dynamism. larreturnsto amassingtrovesofcustomerdata and the increasing These concerns fit into a dark story, ofan economy weakened sophistication of proprietary software, their pricing forbearance by behemoths abusing their market power. But there is a compet- may not last. Once their dominance is secure, they could turn ing narrative. Consider the Jackson Hole conference itself, stuffed predatory, milking consumers and squeezing innovative poten- with star academics and policymakers. Is it an incumbent mo- tial from the broader business environment. The economy has nopolist, resting on its reputation as the year’s hottest macro- changed a lot in recent years—and there is no reason why it can- economic event? Or is it a shining example of the power of net- not keep changing. 7 64 Science and technology The Economist September 1st 2018

Also in this section 65 The dangers of air pollution 65 Secrets of a motorboat 66 Replicating scientiﬁc research

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

Machine learning ed it would find. In other words, it searched for novel data. Using prediction Head full of brains, shoes full of feet errorworked, butithad a bigflaw. An agent looking at passing cars, for instance, might become obsessed with the sequence ofthe colours of each car, because its prediction about what colour would come next is almost always wrong. That serves no useful purpose. Nor would a curious robot re- Asense ofcuriosityis helpful forartificial intelligence peatedly throwing itself down the stairs OFTWARE that can learn is changing is supervised learning very realistic. The for the sheer informatic thrill of it, rather Sthe world, but it needs supervision. Hu- real world does not often label things or than learning to walkits way down. mans provide such oversight in two ways. provide explicit signals about the progress This problem is fixed by concentrating The first is to show machine-learning algo- that a learner is making. Both AlexNet and on the rate at which an agent’s prediction rithms large sets of data that describe the DeepMind’s game-playing agents require error changes, rather than on the error it- task at hand. Labelled pictures of cats and millions or billions of examples or simula- self. Using this process, a robot watching dogs, for instance, allow an algorithm to tions to workon—and powerful computers the sun rise and set will see its prediction learn to discriminate between the two. The that use lots of electricity. “Ifyou are going errors start high but decrease over time, as otherform ofsupervision isto seta specific to do this with every new [training] task, it learns about the actual properties of a goal within a highly structured environ- you are going to need dozens of nuclear physical system. Using the rate of change ment, such as achieving a high score in a power plants doing nothing else,” says in a prediction-error system as a signal for video game, and then let the algorithm try Pierre-YvesOudeyer, an AI researcherat In- the agent to move on to something else is out lots of possibilities until it finds one ria, the French national institute for com- equivalent to giving it a boredom thresh- that achieves the objective. puter science in Paris. old. If the robot trying to work out the pat- These two approaches to “supervised tern of colours of passing cars were to use learning” have led to breakthroughsin arti- I wonder… such a system it would make errors at a ficial intelligence. In 2012 a group of re- If AI is going to really take off, then some- steady rate, and get bored. searchers from the University of Toronto thingmore isneeded. DrOudeyersays that Dr Oudeyer has tried out his curiosity used the first method to build AlexNet, a requirement is driving interest in one of algorithms in practical pursuits. In June his piece of software that in a competition re- the fundamental mechanisms used by hu- group tested one on 600 primary school- cognised one in ten more images than its mans to learn about the world: curiosity. children at a number of public and private closest competitors. In 2015 researchers at Instead of training algorithms with func- schools in the Aquitaine region of France. DeepMind, a British AI firm owned by Al- tions created by humans, Dr Oudeyer and The idea was to model each child’s learn- phabet, used the second method to teach others have spent the past 20 years devel- ing in mathematics and present each pupil an algorithm to play Atari video games at oping artificial agents that use their own with exercisesin a waythatoptimises their superhuman levels, an advance that led to intrinsic reward systems to inspect the learning. The system, called KidLearn, later triumphs at Go, a board game. world around them and gather data. Such treats each child as its own curious agent, Such breakthroughs underpin much of workis starting to come into its own. and adapts the learning content to suit that the excitement in AI today. But supervised The first generation of curious AI used child’s level of understanding and pro- learning has weaknesses. Human guid- “prediction error” to motivate the agent. gress. Unlike other software, KidLearn ance is expensive, involving manual tasks The software would explore the environ- does not rely on data gathered from other such as labelling data or designing virtual ment it was required to study, whether children as its guide but is tuned primarily environments. Once complete, that guid- physical or virtual, looking for things that by a child’s curiosity. Dr Oudeyer’s re- ance cannot be used for other lessons. Nor deviated significantly from what it predict- searchers will shortly report on how well 1 The Economist September 1st 2018 Science and technology 65

2 their system performs. Air pollution Researchers in Silicon Valley have been embracing curiosity, too. In a recent paper A poisoned mind Deepak Pathak and his colleagues at the University of California, Berkeley and OpenAI, a non-profit research firm backed by Elon Musk, showed that curiosity-driven learning works well across a range of Oldermen are more prone to cognitive virtual environments, despite the fact that impairment from dirty air their agent was told nothing about the video games it was playing, nor given any sig- IVING under thick layers of smog is nal when it died in the game or reached a Lknown to cause illness and reduce life higher level. expectancy.The degree to which pollution The curiousagentdisplayedsome inter- harms the mind is less clear. In theory esting behaviour. It learned to achieve some of the toxins that get inhaled could higher scores in Breakout, a block-breaking damage the nervous system and hamper game, because the higher the score the intellect, but few studies have looked into more complicated the pattern ofblocks be- this. One just has, however, and the results comes, and the more the agent’s curiosity are worrying, particularly forolder men. was satisfied. When two curious agents The new study is by Xiaobo Zhang, Xin Hold your breath played Pong they learned to rally so long Zhang and Xi Chen ofPeking University,in that they crashed the game because they China. When Dr Zhang returned to China posed to an increase of13.23 units of pollu- found rallying was more interesting than in 2012, afterteachingin America, he found tion over three years. For men who had at- winning. Dying is also boring. “The agent it difficult to concentrate during days when tended middle school at least, this loss was avoids dying in the games since that brings the air in Beijing was heavily polluted. He reduced to just1.88 points. it back to the beginning of the game, an knew from previous research conducted Precisely why the mathematics scores area it has already seen many times and by another lab that young students living barely changed, and why men were where it can predict the dynamics well,” in polluted areas performed more poorly harmed most, remains unclear. Dr Zhang the researchers said in a recent paper. in exams, but there was no exploration of speculates that pollutant damage is proba- There are other ways to bestow ma- whether this held true for a broader popu- bly accumulating in the white matter of chines with the urge to explore. Kenneth lation and, ifit did, what specific effects the the brain, which people depend upon Stanley,a researcher at Uber’s AI lab in San toxins were having on cognitive function. more heavily for verbal tasks; and men Francisco, mimics evolution. His system Tofind out, the team looked at tests car- have less white matter than women. It is starts with a set of random algorithms, ried out as part of the China Family Panel possible, too, that men with a poor educa- chooses the one that looks good for the Studies (CFPS), a survey by Peking Univer- tion may work outside, and are thus more task at hand, then generates a set of algo- sity. In 2010 and 2014 the same group of exposed to air pollution. Whatever the rea- rithms derived from it. Eventually it arrives around 20,000 people were tested in stan- sons, the results ought to be food for at an algorithm that is most suited for the dardised mathematics and given a verbal thought in polluted cities everywhere. 7 job. Evolution, Mr Stanley notes, can yield test in word recognition. Crucially, the serendipitous results that goal-driven opti- CFPS logged precise information about the misation cannot. Biological evolution was date and location ofeach test. Marine technology not explicitly curious about flying, and yet Putting this information together al- it still managed to come up with birds. lowed the researchers to match test scores Shiver me timbers All this suggests that a more complete at each location with the local air quality setoflearningalgorithmsisemerging. Arti- as reported by the air-pollution index, a ficial agents that are driven by curiosity or measure that rates pollution levels in dif- evolution could lookafterthe earlier stages ferent cities across China based on daily PLYMOUTH of learning. They are also more suited to readings ofsulphur dioxide, nitrogen diox- Anew type ofmotorboat uses foils to sparse environments devoid ofmuch data. ide and tiny bits of particulate matter. The zip through the water Once something interesting has been index ranges from zero to 500, signifying found, supervised learningcould take over the highest level ofpollution. STRANGE craft has been seen darting to ensure particularfeaturesare learned ex- As they report in Proceedings of the Na- Aaround Britain’s south coast recently. It actly. Last week, in a video-game competi- tional Academy of Sciences, the researchers has been causing something ofa sensation tion in Vancouver, AI agents created by showed that chronic exposure to pollution among local seafarers, not least because it OpenAI, using the most advanced super- lowered the scores on the verbal tests, and is painted in “dazzle” camouflage. This is vised-learning techniques available, were that the higher the pollution levels were composed of a series of geometric shapes crushed by humans in DOTA 2, a strategy the more the scores dropped. On average, and was used on vessels in the first world game. More curious modes of learning an increase of13.23 units (one standard de- warto make it difficult foran enemy to esti- might have helped AI play the long-term viation) in the pollution index over the mate a ship’s speed and heading. A similar parts of the game, in which there are few course of three years resulted in a reduc- bit of subterfuge was behind the paint reward signals and no changes in score. tion of 1.36 points for men and 0.91 points scheme on this mystery boat. But rather “I’d hate to die twice. It’s so boring,” for women, on the 34-point verbal exam. than dodging artillery shells or torpedoes, were the death-bed wordsofRichard Feyn- In contrast, mathematics scores were hard- this dazzle was designed to make it hard for man, an American theoretical physicist. ly altered by pollution exposure. competitors to see details ofthe hull. His last salute to curiosity followed a life- The effects were particularly dramatic That is because the vessel was a proto- time probingthe innerworkingsofthe uni- in older men who had no education be- type of a new type of craft called the R35, verse, finding new things to model and to yond primary school. The data showed developed by Princess Yachts, a producer understand. That very human inclination that these men lost an average of 9.18 of luxury motor yachts. (Fittingly, the com- can motivate machines as well as man. 7 points on the verbal exam if they were ex- pany’s base in Plymouth is near the naval 1 66 Science and technology The Economist September 1st 2018

2 dockyards that did much of the wartime dazzle painting.) But the secrets behind the Scientific research boat’s hull will be available for all to see when the first production R35 is unveiled Betting on the result at the Cannes boat show, which opens on September 11th. Its most obvious feature is Experts are good at figuring out which experiments can be replicated a pair of retractable hydrofoils positioned near the rear ofthe hull. XCITING results from a scientific results were better than those ofthe 2015 Hydrofoils have long been used on ma- Estudy are in effect meaningless if they study,eight ofthe 21experiments failedto rine craft, such as ferries, to raise the bow cannot be replicated. All too often, at replicate. Among the13 that did, a calcula- so that the boat skims along the surface of least in psychology experiments, that tion ofthe size ofthe effectthe studies the water. This reduces drag which means seems to be the case. A new report by a were examining was, on average, 75% of a boat can travel more quickly, and it scientist who looks at this area, Brian that in the original experiment. smooths out the ride over waves. The most Nosekofthe University ofVirginia, has As a psychologist himself, Dr Nosek extreme use of the technology occurred in once again showed that a high propor- was curious whether the research com- the 2013 America’s Cup yacht race, when tion ofpsychology studies failedto repli- munity had a sense ofwhich sorts of the contenders introduced hydrofoils to lift cate. And this time, Dr Nosekand his experiments were likely to replicate. To their hulls completely out of the water. colleagues may have found a shortcut to this end, he found 206 social scientists These yachts appear to fly above the sur- identify which fallinto this category. (mostly psychologists and economists) face. The R35 takes a different tack, by de- In most circumstances, a study is via social media. Given tokens, each with ploying its foils to keep itselfin the water. considered to be significant ifthe odds a nominal value of50 cents, the experts are 5%, or lower, that the result would were invited to trade on the outcome of The thrill switch have occurred by chance. So forevery 20 the re-run experiments, buying into the Racing yachts and speedboats are a bit like studies that get published, it is reasonable “shares” ofstudies which they thought high-performance cars. Justasa vehicle de- to expect that one will have results that would replicate and selling or shorting signed forthe racetrackcan prove ungainly are not correct. In 2015Dr Nosek, working those they thought would not. when driven slowly around town, boats with a different team, found something The social scientists were on the that are honed for speed can be difficult to alarming: that a whopping 64% of97 money.The market prices foreach share handle when pottering about, and vice psychology experiments that he re-ran associated with workthat replicated all versa. The solution in the automotive failedto replicate. ended up being worth more than those world is a system that lets a driver easily Those experiments had appeared in that did not. Those owning shares in the adjust the setting of things such as the sus- specialist publications. For his new work, replicating studies got paid out according pension, throttle and steering response. published this weekin Nature Human to the value ofthe tokens they held. On a typical high-performance car today Behaviour, Dr Nosekselected experi- Stakes in the non-replicants were worth you can flicka switch to “comfort”fora trip ments that had appeared in Science and nothing. All this suggests that experts had to the shops or “track” for a blast around Nature between 2010 and 2015.He expect- a decent inkling ahead oftime ofwhich the Nürburgring. ed replications ofworkin these top-tier ofthe studies would not replicate, de- A similar switch can be found at the journals to be more successful. He also spite the peer-review process used by helm of the R35. It provides options for re-ran them using samples that were five scientific journals to weed out experi- “comfort”, “sports” and one for safer han- times larger than those ofthe originals to ments that might not be robust. Perhaps, dling in rough seas. Unlike most previous reduce the possibility ofgetting a differ- then, there is a market opportunity in craft using fixed foils, those on the R35 are ent result due to chance. Although the testing scientific results. constantly adjusted. They remain retracted at slow speed, as when berthing in a mari- na. Out on the ocean, the foils deploy as position in the waterto improve thrust and to control the boat and more comfortable speed increases. Sensors detect the posi- handling. And, as both the port and the for passengers, says Paul MacKenzie, Prin- tion ofthe boat in the water, and a comput- starboard foils can be adjusted indepen- cess’s director of product development. er calculates 100 times a second the ideal dently of each other, the R35 can “lean” The company worked on the project with angle at which the foils should be set to lift into a fast turn, making it highly manoeuv- BAR Technologies, a firm setup byBen Ain- the bow and reduce drag. The foils also en- rable at speed. slie, who is leadingBritain’s attempt to win sure that the stern remains in the optimum The use of active foils means it is easier the America’s Cup, which next takes place in 2021. Pininfarina, an Italian design house famous for supercars, styled the craft. The boat is also unusual because it is made from carbon-fibre composites, which means it is both stronger and 25% lighter than it would have been if con- structed from fibreglass, the material mostly used forleisure craft. All this makes the R35 a bit ofa supercar among boats. The foils, plus twin V8 Volvo Penta petrol engines, take the boat to 50 knots (92.6kph). It also comes with a supercar price tag: around $1m, depending on specifications. Kiran Haslam, Princess’s marketing director, says the active foils could be scaled up foruse on larger marine craft. But he won’t say more. Watch out for Can’t catch us more dazzle offthe south coast. 7 Books and arts The Economist September 1st 2018 67

Also in this section 68 The history of personality tests 69 Yuval Noah Harari’s new book 69 A love song to Oklahoma City 70 From Venice to the Oscars

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Lifeasart as he can get. He does it because, like Mar- tin Luther, “I can do no other.” A bizarre in- Sins of the fathers ner compulsion drives him to bare his soul to the world in the name of“truth”. His second great obsession, after himself, is with that other author of a book called “My Struggle”, Adolf Hitler. About half-way through, “The End” shifts abrupt- A masterpiece orjunk? Amonumental volume completes one ofthe oddest literary ly in tone and focus—from a reflection on works ofthe 21st century the life ofa writerin rich and stable Scandi- HE title of the British edition of the navia to a 400-page essay on Hitler’s early By Karl Ove sixth and final volume of Karl Ove My Struggle: Book Six. years. Mr Knausgaard follows Hitler’s pro- T Knausgaard. Translated by Don Bartlett Knausgaard’s “My Struggle” seems self-ex- gress from aspiring artist to down-and-out. and Martin Aitken. Archipelago; 1,160 planatory.But what exactly is it that is com- He undertakes a close reading of “Mein pages; $33. Published in Britain as “The ing to an end in “The End”? A novel? A dia- Kampf” to see how the trainee dictator’s End” by Harvill Secker; £25 ry? A memoir? An autobiography posing mind works, and reconstructs the intellec- as a novel ora novel posingas an autobiog- tual world ofpre-war Europe—with its exu- raphy? Or the biggest act ofself-indulgence “I hadn’t masturbated, not a single time, berant high culture on the one hand, and in modern literature? until I was nineteen,” he writes. He la- its obsession with race and biology on the “My Struggle” is a phenomenon. In Mr ments “the ignominy and the constant hu- other. He insists on treating Hitler as “one Knausgaard’s native Norway one in ten miliation ofpremature ejaculation”. of us”, an ordinary human being who was people owns a copy ofone ofthe volumes, “The End” is the strangest of the six vol- abused by his father and disappointed in but its popularity is global. “It’s completely umes as well as the most self-indulgent: a his life, rather than as a monster. blown my mind,” said Zadie Smith, liken- book about self-obsession that opines at ing her yearning for the next book to the length about what it is like to write a book My only friend, The End crack-addict’s hunger for another hit. Ra- about self-obsession. It starts with an im- Why has such a quixotic and demanding chel Cusk—who like Mr Knausgaard is a pending disaster. Mr Knausgaard’s uncle is work achieved such success? The title no practitionerof“autofiction”, in which writ- so furious about his depiction of his fa- doubt played an important part. So did Mr ers take their own lives as subject matter— ther’s death from alcoholism—“verbal Knausgaard’s craggy good looks; had he dubbed it “perhaps the most significant lit- rape”, the uncle callsit—thathe threatens to been pimply and puny, he might have erary enterprise ofour times”. sue him to high heaven. The Norwegian found a much smaller audience for his It is also one ofthe strangest: ridiculous- media relish the fight. The harassed author thoughts on masturbation and Hitler. But ly long (3,770 pages overall in Don Bart- struggles to meet his next deadline, getting there are also more substantial reasons. lett’s and Martin Aitken’s admirable trans- up at four every morning while bringing The most obvious is Mr Knausgaard’s lation), devoid of plot, hopelessly up his three small children and looking unflinching honesty. In an age of spin he meandering. “My Struggle” just keeps com- after his manic-depressive wife. dwells on the imperfections of human ing at you, much as life does. One moment Mr Knausgaard repeatedly returns to life—his father’s drinking, his wife’s needi- Mr Knausgaard is meditating on whether the question of whether his project—to ness, his children’s tantrums. In an age of it’s possible to find meaning in a world turn his life into art—is worth it. Is it reason- political correctness, he confesses that he without God; the next he is describing the able to impose such suffering on his family feelsemasculated bychild care. Such trans- mundane details offeeding a child or light- for the sake of his craft? He doesn’t really gressive blurring of the borders between ing a cigarette (the series would have been do it for the fame; though he gets a certain the public and private, sayable and unsay- considerably shorter if he wasn’t such an thrill from discovering that he’s “big”, he able, can be both life-affirming and rivet- avid smoker). The readeris spared nothing. lives as faraway from the literary limelight ing. Readers see that they are not alone in 1 68 Books and arts The Economist September 1st 2018

2 at once loving their families and resenting conviction that people wanted to be there, in New Republic inviting readers to find their them forimpinging on their time. the hatred on the one side, the hope and uto- hue in Jung’s “personality paint box”. In Just as important, though Mr Knaus- pia on the other, the gleaming, almost divine 1943 Myers distilled these ideas into “a se- gaard wrote them fast, his books take their future that was theirs for the taking if only ries of pleasurable and provocative ques- time. “My Struggle” is the equivalent of they would follow him and obey his words. tions”, formulated to assign people to one slow food in a drive-thru age. The internet This reviewer finished “The End” with of16 personality types. serves up instant gratification: buzzy sto- mixed emotions: gratitude that Mr Knaus- Her early customers were companies ries that command attention fora few min- gaard had broken all the rules to admit keen to introduce efficiencies. But the quiz utes or even a few seconds. The medium readers into his life, but also relief that the also interested practitioners of a nascent renders everything equally accessible and whole thing was over, and a conviction branch of academic psychology con- equally disposable. Mr Knausgaard pro- that he and his acolytes should now find cerned with personality. Thus, in 1959, the vides the internet in reverse: a slow-mov- new experiments to pursue. In his “Con- MBTI came under the purview of the Edu- ing contemplation of everything from the fessions”, Jean-Jacques Rousseau prom- cational Testing Service (ETS), publishers trivial to the profound. ised to tell his story with such brutal hon- ofthe SAT, which sought to vet the prolifer- The trickier question is whether the se- esty that his project, “which has no ating array of tests associated with “perso- ries actually deserves its success. Is it a precedent”, would also, once complete, nology”. Employed by ETS as an adviser, masterpiece, as its many fans maintain? Or “have no imitator”. Let us hope that this is Myers was a fish out of water. She set little is Mr Knausgaard a literary circus freak? also the case with “My Struggle”—and that store by “empirical validation”; Jung had Ostensibly he ignores most of the rules of “The End” really is the end. 7 not bothered with that rigmarole, instead great literature. His sentences are deliber- drawing his theories from religion, philos- atelyunder-wrought; he writesin the same ophy and literature. Besides, her product flat tone about lighting a cigarette and the Personality tests was already in use. essence of beauty. The structure can feel For their part, her colleagues at ETS slapdash. A discussion of Anders Breivik’s Jung at heart deemed it “little better than a horoscope” slaughter of77 Norwegians in 2011is disap- (as Ms Emre paraphrases), and were quea- pointingly brief; rather than using the epi- sy about marketing it. Still, Henry Chaun- sode to drive home his point that the foun- cey, the outfit’s boss, made a prescient ob- dations of civilisation are dangerously servation about its appeal. Without fragile, Mr Knausgaard moves on. wishing to “dignify the hypotheses by The Personality Brokers. By Merve Emre. But at his best he is wonderful. The speaking of them as a theory”, he noted Doubleday; 336 pages; $27.95. To be study of his relationship with his dysfunc- that the system “can be described in words published in Britain by William Collins as tional father—which forms the centrepiece that have meaning to the layman”, and “What’s Your Type?”; £20 of“ADeathintheFamily”,thefirstvolume, “isn’t so complex or unusual that he and ripples through the other five—is un- ONG a staple ofpersonnel departments, throwshishandsup”. AfterETS ditched the forgettable. Mr Knausgaard captures the Lthese days personality tests are grist for MBTI in1975, Myers found a publisher with torture of a child’s interactions with a diffi- dating sites and New Age seminars. They no qualms about selling it to all-comers. cult and self-obsessed parent: the longing are the ultimate pop-psychology product, Today,the MBTI is variously assailed for forapproval from someone who is incapa- catering to both the age-old injunction to spreading a phoney sense of selfhood and ble of giving it, at least with any consisten- “Know thyself” and the modern notion of its susceptibility to gaming. But its popular- cy; the highs and lows as this object of awe identity as a personal brand. Yet they lack ity endures. As Ms Emre says, the personal- praises him one moment and scorns him any verifiable basis in science. That awk- ity test offers a double-hit of narcissism the next; and the emotional turmoil as a ward fact is among the many insights in and community. Respondents experience complicated man slowly becomes de- “The Personality Brokers”, Merve Emre’s a “rush of self-discovery” and “the cheer- ranged, moving in with his mother (the au- brilliant cultural history ofthe personality- ful lull of self-acceptance”, but also “the thor’s grandmother), persuading her to assessment industry. She focuses on the comfortofsolidarity”. Afterall, “partofthe join him in his drinking binges, and finally best-known example, the Myers-Briggs appeal of type was imagining that there drinking himself to death, surrounded by TypeIndicator (MBTI). were others out there like you”. 7 filth, from discarded bottles to unwashed Readers could be forgiven for suppos- clothes and human excrement. ing that the MBTI was the creation of And, flat though it may be, Mr Knaus- white-coated psychometricians. In fact it gaard’s style can be compelling. “It wasn’t was the work of a singular mother-and- hard to write well,” he reflects in one pas- daughter pair of amateur psychologists. sage, “but it was hard to make writing that Born in1875, Katharine Briggs idolised Carl was alive, writingthat could prise open the Jung, writing an adoring ditty in his hon- world and draw it together in one and the our (“Hail, Dr Jung!”) and an unpublished same movement.” Paradoxically, by not fan-novel, “The Man from Zurich”. Her bothering with conventional fine writing, daughter Isabel Myers, born in 1897, wrote Mr Knausgaard succeeds in producing mystery stories. prose that is “alive”, partly because of his These were formidable women. Briggs eye for detail and partly because of the graduated top of her class from Michigan quality of his intellect. His lengthy section Agricultural College (now Michigan State on Hitler, for example, contains one of the University); Myers accomplished the same best discussions anywhere of the Führer’s feat at Swarthmore. In a more emancipat- skill as a public speaker: ed era, they might have found outlets for their talents in orthodox careers. As it was, his enormous ability to establish community,in which the entire register ofhis inner be- both channelled their energies into child- ing, his reservoir of pent-up emotions and rearing and, in Myers’s case, theories for suppressed desire, could find an outlet and the promotion ofharmonious marital rela- pervade his words with such intensity and tions. In 1926 Briggs wrote an article in the Myers and Briggs, masters of typology The Economist September 1st 2018 Books and arts 69

Urban history How the Thunder rolls

Boom Town. By Sam Anderson. Crown; 448 the land is starting to react to fracking, pages; $28 and unprecedented earthquakes are rocking the state. KLAHOMA CITYwas born in a Zany anecdotes abound, including Osingle day—to be precise, at noon on one about the first mayor getting shot April 22nd1889. That was the date ofthe (over a land dispute, naturally). Mr An- Land Run, one ofthe federal govern- derson spends a wild night on the tiles ment’s wackiest experiments. Anyone with Mr Coyne. There’s the tale ofhow could claim160 free acres ofwhat was the city stole the Thunder from Seattle: formerly Native American territory.You just had to get there. People came from far The Thunder, like almost everything else in and wide, awaiting the bugles that would Oklahoma City,was not native to the region. Its transplant was sudden, violent, allow them to flood in (see picture). The scandalous, messy,and—foreveryone ensuing years were devoted to creating a involved—transformative. Visions of the future city out ofthe resulting mess. This tension between chaos and It is an unruly stew ofa book, which In the kingdom of control is at the heart ofSam Anderson’s defies genres and expectations, but Mr “Boom Town”, a portrait ofone ofAmeri- Anderson’s writing is good enough to cyborgs ca’s least-celebrated metropolises. Mr pull it off.He can make a non-sports fan Anderson yokes together urban history, anxious about bygone games; he makes mini-profiles oflocal characters—such as Oklahoma City seem a cross between a Wayne Coyne ofThe Flaming Lips, a rock struggling heartland town, an outpost of 21 Lessons for the 21st Century. By Yuval band, and Clara Luper, a civil-rights the Wild West, and Oz. Noah Harari. Spiegel & Grau; 372 pages; $28. leader—and the story ofthe Thunder, Jonathan Cape; £18.99 Oklahoma City’s basketball team. Its rise UVAL NOAH HARARI may be the first and decline serve as a metaphor for the Yglobal public intellectual to be native to city’s volatile fortunes. the 21st century. Where other authors are But if“Boom Town” is a bookabout carpetbaggers, hauling their 20th-century basketball, civic ambition and the rela- thinking into the new millennium, Mr Ha- tionship between them, it is also a chron- rari is its local boy done good. He comes icle ofviolence: the outlaw violence of with all the accoutrements of the modern yore, the natural violence oftornadoes pop thinker: a posh education (Oxford, fol- and the horror ofthe bombing in1995, lowed by a teaching gig at the Hebrew Uni- which left168 people dead. And, like versity of Jerusalem), two bestsellers and many stories ofthe American West— the obligatory TED talk. He even meditates where culturally and historically Oklaho- fortwo hours a day. ma City belongs, though geographically And he is armed with a big idea: that it is firmly in the middle—it is a saga of human beings will change more in the land. Early residents were obsessed with next hundred years than they have in all of land; that was the whole point ofthe their previous existence. The combination place. Later local powerbrokers em- ofbiotechnology and artificial intelligence barked on a campaign to annex nearby (AI) may enable some people to be digital- towns, expanding the city into a sprawl. ly enhanced, transforming what being hu- The oil beneath the surface has long man means. As this happens, concepts of driven economic booms and busts. Now It ain’t too early and it ain’t too late life, consciousness, society, laws and morality will need to be revised. The ballast for these views was laid education and immigration, as well as “big data”—the notion that more informa- down in Mr Harari’s earlier books. In “Sa- more abstract subjects such as justice, lib- tion than ever can be collected about the piens” he argued that what made humans erty, war and religion. This descent from world—means algorithms will know peo- special was their ability to organise on a the ivory tower to the crowded terrain of ple better than they know themselves, and large scale around shared beliefs, such as punditry has inevitably attracted criti- that this knowledge can be used by busi- religion, nationalism or capitalism. In cism—and there is plenty to mock. Clichés ness or governments for manipulative “Homo Deus” he looked at how humans abound: “Strangeness becomes the new ends. “Just as divine authority was legiti- may meld with technology, and what this normal”, Mr Harari tells readers, a few sen- mised by religious mythologies, and hu- means for inequality. He foresaw a world tences before counselling them to “feel at man authority was justified by the liberal divided between biologically and digitally home with the unknown” and “reinvent story, so the coming technological revolu- enhanced “gods” and the “useless”, who yourself”. Still, his is a creative mind teem- tion might establish the authority of big lackthe cash foran upgrade. ing with provocative ideas. Even—or espe- data algorithms, while undermining the In his new book Mr Harari takes these cially—when they are questionable, they very idea ofindividual freedom.” changes as a given, and turns his attention are worth considering. As more of the world becomes tailored to contemporary themes such as work, The most controversial is that so-called around individuals’ personality traits and 1 70 Books and arts The Economist September 1st 2018

2 interests, Mr Harari prophesies, people Marketing movies “When we chose ‘Birdman’ as our will become passive recipients of AI deci- opening film in 2014,” says Alberto Bar- sions. Their autonomy and capacity for Do look now bera, director of the Venice festival, “no- free thinking will wither. The individual body expected it to win Best Picture.” But agency on which democracy and capital- awestruck reviews turned Alejandro Iñár- ism are predicated may become extinct. ritu’s experimental backstage farce into a Accept this premise, and Mr Harari is contender. “Room”, an adaptation of correct that (for example) the way political Emma Donoghue’s bestselling novel of VENICE leaders are chosen, how inequality is abuse, followed a similar trajectory. “We The Oscars race begins on the Lido treated and how young people are educat- went to Telluride in 2015 as a small film ed will all have to change. But will the tech- NYONE thinking of betting on Febru- with a cast that wasn’t very well known,” nology that generates Amazon book rec- Aary’s Academy Awards should keep says Ed Guiney, the producer; “we came ommendations and micro-targeted ads on an eye on the Venice Film Festival, which out of there with so much critical support Facebook ever be so flawless that people began on August 29th, and the Telluride that we were seen as an awards-worthy become zombies? In any case, if human Film Festival in Colorado, which starts two movie.” “Room” went on to be nominated brains really do get upgraded, wouldn’t ad- days later. There is a good chance that the for Best Picture; its star, Brie Larson, took vanced critical thinkingand free will be en- next Best Picture will be publicly screened the trophy forBest Actress. shrined in the code? for the first time at one or both of those And, in the Oscarstakes, notall festivals The basic danger that Mr Harari identi- events. In the past decade, four of the films are equal. Appearing at any of the presti- fies is certainly real. AI’s machine-learning that won that Oscar were first shown at gious ones helps attract attention, says Mr systems already utilise troves of data to Venice, including “The Shape of Water” Guiney; but timing is key. As esteemed as spot obscure patterns and solve tricky pro- and “The Hurt Locker”, and five at Tellu- the festivals at Berlin and Cannes are, they blems. Today’s web giants hold daunting ride, among them “Moonlight” and “Slum- take place in February and May respective- amounts of information on customers’ dog Millionaire”. Of the past ten Best Pic- ly: too early to influence Academy voters preferences, intentions and activities. As tures, the remaining one, “The Artist”, was when they are filling in their ballot papers well as diagnosing the problem, Mr Harari first seen at the festival in Cannes. the next winter. The race for the Oscars be- sees a possible way out: “Ifwe want to pre- It wasn’t always thus. In 2006 “Crash” gins at Venice and Telluride. vent the concentration of all wealth and took the top prize, after being launched at Not surprisingly, studios now jostle for power in the hands of a small elite, the key the Toronto International Film Festival. But their films to open in Venice (as the Cole is to regulate the ownership ofdata.” Yet he before that almost every Best Picture had Porter lyric puts it). Once, says Mr Barbera, is vague as to how that might be accom- its own red-carpet premiere in Los Angeles Hollywood marketing types worried plished, merely intoning that “this may or New York. What has changed since is about the damage that a slew of bad festi- well be the most important political ques- that Hollywood has abandoned the kind val reviews might do. Now Venice has its tion of our era”, and that, unless it is an- of commercial, middlebrow epic that once pick of “the most important new movies”; swered soon, “our sociopolitical system dominated the Oscars—the likes of “Brave- this year, he says, some that would previ- might collapse”. heart”, “Titanic” and “Gladiator”—in fa- ously have been included have been Despite its occasional hyperbole, the vour of superhero blockbusters. The Acad- turned away for lack of space. The curtain- book contains many gems. Mr Harari’s emy’s new award for “achievement in raiser is “First Man”, a biopic of Neil Arm- analysis of the Industrial Revolution is popular film”, also known as the “Popcorn strong. New offerings from the Coen broth- compelling. He traces the political clout of Oscar”, is a bid to accommodate that shift; ers and Paul Greengrass will also feature, socialism to the economic power of work- meanwhile, the films that pick up the es- as will “The Favourite”, co-produced by Mr ers, noting that this transmission mecha- tablished awards tend to be quirkier, low- Guiney. Whether or not “The Favourite” nism has broken down in the 21st century, er-budget art-house dramas—and they becomes the favourite of the awards sea- when workers are no longer “exploited” need festivals to boost their profile. son, one ofthese films probably will. 7 but “irrelevant”. He puts forward an in- triguing thesis about the sputtering engines of history. The 20th century, he contends, offered three “global stories” to follow: fascism, communism and liberal capitalism. Today “we are down to zero.” The ideas shine most when Mr Harari discards the strut of the pundit and delves into the areas he knows well, history and religion. His commentary on Judaism, Ca- tholicism and Buddhism in a supposedly post-truth world sparkles. “When a thousand people believe some made-up story for one month, that’s fake news. When a billion people believe it for a thousand years, that’s a religion,” he quips. The division of the book into thematic sections creates a jagged structure. Some of the material is recycled from old articles and interviews, and indeed from bits of Mr Harari’s previous books. This is a collection ofideas, nota fullyfledged cosmology. But readers who accept these shortcomings can accompany the author as he peers fascinatingly into the future. 7 Slow boat to Hollywood Appointments Property 71

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The Economist September 1st 2018 72 Economic and ﬁnancial indicators The Economist September 1st 2018

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2018† latest latest 2018† rate, % months, $bn 2018† 2018† bonds, latest Aug 29th year ago United States +2.9 Q2 +4.2 +2.9 +4.2 Jul +2.9 Jul +2.4 3.9 Jul -465.5 Q1 -2.7 -4.6 2.83 - - China +6.7 Q2 +7.4 +6.6 +6.0 Jul +2.1 Jul +2.1 3.8 Q2§ +68.3 Q2 +0.6 -3.7 3.43§§ 6.82 6.60 Japan +1.0 Q2 +1.9 +1.2 -0.9 Jun +0.9 Jul +1.0 2.4 Jun +201.8 Jun +3.7 -3.8 0.06 112 109 Britain +1.3 Q2 +1.5 +1.3 +1.2 Jun +2.5 Jul +2.4 4.0 May†† -106.3 Q1 -3.5 -1.7 1.39 0.77 0.77 Canada +2.3 Q1 +1.3 +2.3 +3.8 May +3.0 Jul +2.2 5.8 Jul -53.4 Q2 -2.6 -2.3 2.32 1.30 1.25 Euro area +2.2 Q2 +1.5 +2.1 +2.5 Jun +2.1 Jul +1.7 8.3 Jun +476.8 Jun +3.4 -0.7 0.40 0.86 0.83 Austria +3.4 Q1 +9.7 +2.9 +5.0 Jun +2.1 Jul +2.2 4.7 Jun +9.5 Q1 +2.3 -0.4 0.57 0.86 0.83 Belgium +1.3 Q2 +1.2 +1.6 -2.3 Jun +2.2 Jul +2.0 6.0 Jun +0.2 Mar nil -1.1 0.76 0.86 0.83 France +1.7 Q2 +0.6 +1.8 +1.7 Jun +2.3 Jul +1.9 9.2 Jun -10.2 Jun -0.6 -2.4 0.72 0.86 0.83 Germany +1.9 Q2 +1.8 +2.1 +2.5 Jun +2.0 Jul +1.8 3.4 Jun‡ +323.5 Jun +7.8 +1.3 0.40 0.86 0.83 Greece +2.3 Q1 +3.1 +2.0 +1.2 Jun +0.9 Jul +0.8 19.5 May -2.6 Jun -1.2 -0.2 4.24 0.86 0.83 Italy +1.1 Q2 +0.7 +1.2 +1.7 Jun +1.5 Jul +1.3 10.9 Jun +57.3 Jun +2.6 -2.0 3.14 0.86 0.83 Netherlands +2.9 Q2 +2.8 +2.7 +3.5 Jun +2.1 Jul +1.6 4.7 Jul +91.3 Q1 +9.6 +1.3 0.49 0.86 0.83 Spain +2.7 Q2 +2.3 +2.7 -2.0 Jun +2.2 Jul +1.7 15.2 Jun +20.7 May +1.4 -2.7 1.26 0.86 0.83 Czech Republic +3.4 Q1 +2.0 +3.5 +3.4 Jun +2.3 Jul +2.2 2.4 Jun‡ +0.9 Q1 +0.5 +0.9 2.12 22.0 21.7 Denmark -1.4 Q1 +1.2 +1.6 -1.8 Jun +1.1 Jul +1.0 3.9 Jun +19.5 Jun +7.4 -0.7 0.38 6.38 6.19 Norway +3.3 Q2 +1.5 +1.9 +0.6 Jun +3.0 Jul +2.3 3.9 Jun‡‡ +22.8 Q1 +7.4 +5.4 1.77 8.35 7.73 Poland +5.2 Q1 +3.6 +4.4 +10.3 Jul +2.0 Jul +1.8 5.9 Jul§ -0.1 Jun -0.4 -2.2 3.16 3.66 3.55 Russia +1.8 Q2 na +1.7 +3.8 Jul +2.5 Jul +3.0 4.7 Jul§ +64.6 Q2 +4.0 +0.3 8.79 68.4 58.8 Sweden +3.3 Q2 +4.2 +2.8 +5.4 Jun +2.1 Jul +1.9 6.0 Jul§ +16.8 Q1 +3.3 +1.1 0.53 9.16 7.92 Switzerland +2.2 Q1 +2.3 +2.2 +8.7 Q2 +1.2 Jul +0.8 2.6 Jul +72.9 Q1 +8.9 +0.8 -0.03 0.97 0.95 Turkey +7.4 Q1 na +4.3 +2.9 Jun +15.8 Jul +12.8 9.7 May§ -57.4 Jun -5.9 -2.8 21.67 6.43 3.44 Australia +3.1 Q1 +4.2 +2.9 +4.3 Q1 +2.1 Q2 +2.2 5.3 Jul -36.8 Q1 -2.5 -1.0 2.56 1.37 1.25 Hong Kong +3.5 Q2 -0.9 +3.4 +1.0 Q1 +2.4 Jul +2.1 2.8 Jul‡‡ +14.3 Q1 +3.9 +1.9 2.21 7.85 7.82 India +7.7 Q1 +10.1 +7.2 +7.0 Jun +4.2 Jul +4.6 5.6 Jul -48.7 Q1 -2.4 -3.6 7.92 70.6 64.0 Indonesia +5.3 Q2 na +5.3 +1.0 Jun +3.2 Jul +3.5 5.1 Q1§ -24.2 Q2 -2.4 -2.6 7.92 14,655 13,341 Malaysia +4.5 Q2 na +5.7 +1.1 Jun +0.9 Jul +0.8 3.4 Jun§ +11.2 Q2 +2.9 -3.3 4.04 4.11 4.27 Pakistan +5.4 2018** na +5.4 +0.6 Jun +5.8 Jul +5.4 5.9 2015 -18.1 Q2 -5.8 -5.4 10.00††† 124 105 Philippines +6.0 Q2 +5.3 +6.6 +17.9 Jun +5.7 Jul +5.0 5.5 Q2§ -1.9 Mar -1.3 -2.8 6.38 53.5 51.1 Singapore +3.9 Q2 +0.6 +3.2 +6.0 Jul +0.6 Jul +0.6 2.1 Q2 +64.6 Q2 +17.2 -0.7 2.38 1.37 1.35 South Korea +2.9 Q2 +2.8 +2.8 -0.4 Jun +1.5 Jul +1.7 3.7 Jul§ +72.5 Jun +4.8 +1.0 2.36 1,110 1,126 Taiwan +3.3 Q2 +1.6 +2.6 +4.4 Jul +1.7 Jul +1.6 3.7 Jul +84.5 Q2 +13.4 -0.9 0.84 30.7 30.2 Thailand +4.6 Q2 +4.1 +4.1 +4.6 Jul +1.5 Jul +1.2 1.1 Jun§ +50.3 Q1 +9.3 -2.9 2.52 32.7 33.2 Argentina +3.6 Q1 +4.7 +1.3 -5.6 Jul +30.9 Jul +24.2 9.1 Q1§ -33.8 Q1 -4.7 -5.7 10.77 31.6 17.4 Brazil +1.2 Q1 +1.8 +1.6 +3.5 Jun +4.5 Jul +3.9 12.4 Jun§ -15.0 Jul -1.0 -7.0 9.54 4.13 3.17 Chile +5.3 Q2 +2.8 +3.8 +5.0 Jun +2.7 Jul +2.5 7.2 Jun§‡‡ -3.6 Q2 -1.6 -2.1 4.42 667 627 Colombia +2.5 Q2 +2.3 +2.7 +1.3 Jun +3.1 Jul +3.3 9.1 Jun§ -9.8 Q1 -2.8 -1.9 6.86 3,002 2,934 Mexico +2.6 Q2 -0.6 +2.2 +0.2 Jun +4.8 Jul +4.6 3.4 Jul -19.7 Q2 -1.7 -2.3 7.87 19.1 17.9 Peru +5.4 Q2 +12.5 +3.7 +10.5 May +1.6 Jul +1.4 6.2 Jul§ -3.2 Q2 -1.5 -3.1 na 3.30 3.24 Egypt +5.4 Q2 na +5.4 +8.0 Jun +13.5 Jul +16.1 9.9 Q2§ -7.7 Q1 -2.4 -9.6 na 17.9 17.6 Israel +3.8 Q2 +2.0 +3.7 +1.5 Jun +1.4 Jul +1.1 4.2 Jul +9.7 Q1 +1.8 -2.4 1.94 3.61 3.57 Saudi Arabia -0.9 2017 na +1.0 na +2.3 Jul +2.6 6.1 Q1 +19.9 Q1 +7.4 -3.3 na 3.75 3.75 South Africa +0.8 Q1 -2.2 +1.5 +1.3 Jun +5.1 Jul +4.8 27.2 Q2§ -12.2 Q1 -3.2 -3.6 8.94 14.4 13.0 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist September 1st 2018 Economic and ﬁnancial indicators 73

Markets % change on Corporate profits S&P 500, earnings per share, Q2 2018* Dec 29th 2017 It has been a bumper earnings season for % increase on a year earlier Index one in local in $ Aug 29th week currency terms America Inc. Second-quarter earnings 0 25 50 75 100 125 United States (DJIA) 26,124.6 +1.5 +5.7 +5.7 per share for S&P 500 companies are Energy 20.8 China (Shanghai Comp) 2,769.3 +2.0 -16.3 -19.9 expected to be 25% higher than a year Materials 15.1 Japan (Nikkei 225) 22,848.2 +2.2 +0.4 +1.7 ago, boosted largely by a big corporate- Financials 8.1 Britain (FTSE 100) 7,617.2 +0.6 -0.9 -5.7 tax cut. A healthy global economy has Technology 13.9 Canada (S&P TSX) 16,390.3 +0.3 +1.1 -1.9 also helped—for those firms that break Euro area (FTSE Euro 100) 1,200.8 +0.9 -0.7 -3.2 out revenue by country, 39% of sales are S&P 500 9.5 Euro area (EURO STOXX 50) 3,447.6 +0.8 -1.6 -4.0 Consumer 8.0 Austria (ATX) 3,329.8 +1.0 -2.6 -5.0 made outside America. But clouds loom. discretionary Belgium (Bel 20) 3,816.0 +0.4 -4.1 -6.4 The direct impact of the tax cut will fade; Industrials 9.5 France (CAC 40) 5,485.0 +1.2 +3.2 +0.7 turmoil in Turkey and concerns about Health care 7. 0 Germany (DAX)* 12,527.4 +1.1 -3.0 -5.4 tariffs have pushed up the value of the Telecom services 3.3 Greece (Athex Comp) 737.5 +2.5 -8.1 -10.3 dollar, which may depress American Consumer staples 5.7 Italy (FTSE/MIB) 20,620.1 -0.4 -5.6 -8.0 multinationals’ overseas earnings. Profits Revenue per share, Netherlands (AEX) 563.0 +0.7 +3.4 +0.9 in the oil industry, however, are likely to Utilities Q2 2018*,% increase 0.8 Spain (IBEX 35) 9,606.5 +0.3 -4.4 -6.7 remain strong, reflecting the effect of Real estate on a year earlier 13.8 Czech Republic (PX) 1,079.6 +0.6 +0.1 -3.0 production cuts on oil prices. Source: Thomson Reuters I/B/E/S *Reported and estimated Denmark (OMXCB) 945.4 +1.2 +2.0 -0.7 Hungary (BUX) 36,818.9 +1.2 -6.5 -12.7 Norway (OSEAX) 1,038.4 +1.0 +14.5 +12.4 Poland (WIG) 61,426.7 +3.2 -3.6 -8.1 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,078.3 +1.2 -6.6 -6.6 2005=100 % change on % change on Sweden (OMXS30) 1,671.2 +1.7 +6.0 -4.9 Dec 29th 2017 one one Switzerland (SMI) 9,084.3 +0.4 -3.2 -3.3 Index one in local in $ Aug 21st Aug 28th* month year Turkey (BIST) 93,866.9 +4.1 -18.6 -50.6 Aug 29th week currency terms Dollar Index Australia (All Ord.) 6,457.0 +1.3 +4.7 -1.5 United States (S&P 500) 2,914.0 +1.8 +9.0 +9.0 All Items 140.4 139.1 -3.6 -4.1 Hong Kong (Hang Seng) 28,416.4 +1.8 -5.0 -5.4 United States (NAScomp) 8,109.7 +2.8 +17.5 +17.5 Food 144.0 140.0 -5.7 -4.1 India (BSE) 38,896.6 +1.6 +14.2 +3.9 China (Shenzhen Comp) 1,489.3 +2.4 -21.6 -25.0 Indonesia (IDX) 6,042.6 +1.7 -4.9 -11.8 Japan (Topix) 1,739.6 +2.4 -4.3 -3.0 Industrials Malaysia (KLSE) 1,820.6 +1.3 +1.3 +0.1 Europe (FTSEurofirst 300) 1,507.8 +0.4 -1.4 -3.8 All 136.6 138.2 -1.3 -4.0 Pakistan (KSE) 42,544.5 +0.3 +5.1 -6.6 World, dev'd (MSCI) 2,182.5 +1.2 +3.8 +3.8 Nfa† 135.7 134.7 -1.8 +1.4 Singapore (STI) 3,243.9 +1.4 -4.7 -6.5 Emerging markets (MSCI) 1,070.6 +1.9 -7.6 -7.6 Metals 137.1 139.6 -1.1 -6.1 South Korea (KOSPI) 2,309.0 +1.6 -6.4 -9.7 World, all (MSCI) 525.2 +1.3 +2.4 +2.4 Sterling Index Taiwan (TWI) 11,099.6 +2.7 +4.3 +1.0 World bonds (Citigroup) 936.6 -0.1 -1.4 -1.4 All items 198.5 196.4 -1.8 -3.5 Thailand (SET) 1,718.2 +1.2 -2.0 -2.0 EMBI+ (JPMorgan) 785.6 -0.1 -6.0 -6.0 Argentina (MERV) 25,460.9 -5.2 -15.3 -49.3 Hedge funds (HFRX) 1,266.8§ +0.3 -0.7 -0.7 Euro Index Brazil (BVSP) 78,388.8 +1.9 +2.6 -17.6 Volatility, US (VIX) 12.5 +12.3 +11.0 (levels) All items 151.5 147.6 -3.7 -1.5 Chile (IGPA) 26,697.5 +0.2 -4.6 -10.9 CDSs, Eur (iTRAXX)† 65.7 -1.5 +45.6 +42.0 Gold Colombia (IGBC) 12,243.2 +0.7 +6.7 +7.7 CDSs, N Am (CDX)† 58.6 -2.0 +19.4 +19.4 $ per oz 1,187.9 1,209.3 -1.0 -4.8 Mexico (IPC) 50,143.7 +0.5 +1.6 +5.2 Carbon trading (EU ETS) € 21.1 +6.4 +158.9 +152.6 West Texas Intermediate Peru (S&P/BVL)* 19,653.2 +1.0 -1.6 -3.2 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 65.8 68.5 -0.3 +47.6 Egypt (EGX 30) 15,606.2 +2.2 +3.9 +3.2 †Credit-default-swap spreads, basis points. §Aug 27th. Israel (TA-125) 1,483.1 +2.0 +8.7 +4.1 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 8,036.6 +2.2 +11.2 +11.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 60,039.3 +3.3 +0.9 -11.6 series, go to: Economist.com/indicators †Non-food agriculturals. 74 Obituary John McCain The Economist September 1st 2018

which he could plunge himself. Discipline was the hard part. He had always struggled with it, whether at Annap- olis, where his cheeky behaviour led to graduation fifth from the bottom of his class, or in flight training, where he drank, chased tail and had a good time generally. But his worst failing was his temper, his sheer rapid-fire, finger-jabbing rage against the jerks who frustrated him. He excused it as impatience, especially at the crawling way Congress worked and the failure of parties to work across the aisle. (Demo- crats made great partners: he teamed up with Russ Feingold for his greatest legisla- tive achievement, campaign-finance reform, with Joe Lieberman on cap-and- trade bills, with Ted Kennedy on immigration reform.) Or he called his temper passion, especially for curbing pork-barrel spending—and if that passion ever ebbed, he was ready forthe old soldiers’ home. Truth and principles. Those were his watchwords, though political life made them tricky. On hisnational campaign bus, the Straight Talk Express, he chatted can- didly to the press, but in the vain hope that they would lay off him. In Congress he Means of resistance took dogged stands against Big Tobacco, global warming and over-regulation, but swerved on health-care reform and balanced budgets, as well as immigration in the end. This, and his openness to Demo- crats, earned him a maverick reputation. John McCain, navy pilot, senatorand presidential candidate, died on August 25th, He preferred to thinkhe was an honest free aged 81 agent, still conservative most of the time, VERY inch of John McCain’s body accepting favours and funds from Charles but not in thrall to the hard-right Republi- Eshouted endurance. The brisk, slightly Keating of the savings-and-loan scandal; can base. That principle was dented when- swinging walk, the stiffly held arms, the trading low blows with rivals in his runs ever he ran forhigher office—most famous- tight shoulders and clenched smile, all car- for the Republican nomination in 2000 ly when, in 2008, he made a naked appeal ried the mark of Vietnam like one scar. His and for the presidency in 2008—and then to the base by picking the ludicrously un- arms were stiffbecause they had been bro- failing at both. Withstanding prison beat- qualified Sarah Palin as his running-mate. ken when he fell out of the sky in his bom- ings was hard, but for a greater cause. The ber, then yanked up by ropes in prison day unaccustomed pain of political failure had The need forwar after day. Released from the “Hanoi Hil- no obvious upside, therefore hurt more. His greatest consistency lay in urging wars ton”, after five and a half years of sporadic He did not want Vietnam to define his abroad, wherever winnable, and for him torture and solitary confinement, he could career, but inevitably it did. (Neither did he both Afghanistan and Iraq fell under that no longer reach up to comb his hair. His want to be called a hero, but inevitably he head. America had a duty to spread free- hairitselfhad turned white, though he was was.) Vietnam brought the best moment of dom and democracy, by force of arms if only in his 30s. He walked with something his life, when he refused early release from necessary. He longed to go into Syria to like a strut because his damaged knees had prison and gained, for the first time in his support the rebels, to send heavy weapons hardly any cartilage left. Not that this self-indulgent life up till then, a serious to Ukraine and to “bomb, bomb, bomb” stopped him hiking for miles through the sense of a shared purpose larger than him- Iran, as he sang once. When it came to Grand Canyon and the desert hills of Ari- self. And Vietnam brought the worst mo- wars, he suspended his usual backing for zona, the stunningly beautiful piece of ment, when he signed a forced confession tax cuts and balanced budgets. Even Viet- America that he represented in Congress admitting that he was a “black criminal”. nam, he thought, should have been win- for more than 30 years. The swell of his He neverquite gotoverthe disgrace of that. nable, if those idiot civilian commanders chest was pride in what he felt he had Also looming over him were the had bombed enough. achieved there. straight-backed shadows of his grand- That said, the gung-ho approach of Do- At times, though, his shoulders father and father, both admirals, both nald Trump lefthim cold. They might share hunched and he would clasp his arms steeped in duty, honour, country. When he a party, but he had nothing to do with him round his chest, as if against a jailer’s felt proud of himself, it was also on their and the half-baked nationalism he promo- blows. It happened when he found him- behalf. When he was ashamed it was be- ted. The brain-cancer diagnosis in July 2017 self embroiled, and caught out, in some- cause he had also let them down. By 1981, freed his tongue, and tested his mettle, in thingdistasteful: doingtoo much for lobby- when he knew he would never make full all the ways he relished. The talkwas never ists from the gambling industry (he loved admiral and had wrecked hisfirstmarriage straighter, the stance never more upright, to toss $100 chips round a craps table, lucky with affairs, old political ambitions resur- than when he called on his fellow-Repub- feather and penny stowed in his pocket); faced: another sort of national service into licans not just to endure, but to resist. 7 8LI[SVPHŞWPIEHMRK MRXIVREXMSREP XVIEWYV] IZIRX

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