Post-Truth Politics in the Age of Social Media

Rodrigo Duterte’s guide to diplomacy

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Rise of the wooden skyscraper SEPTEMBER 10TH–16TH 2016 Art of the lie

Post-truth politics in the age of social media

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ECONOMIST_203x267_PUWA1726.indd 1 08/07/2016 14:24 Contents The Economist September 10th 2016 5

7 The world this week Asia 31 Afghan refugees in Leaders Pakistan Homecoming spleen 9 Post-truth politics Art of the lie 32 Ending Myanmar’s insurgencies 10 Elections in Hong Kong A long road A not-so-local difficulty 33 Japanese politics 10 England’s National Get the party started Health Service Bitter pills 34 The wit and wisdom of Rodrigo Duterte Britain’s National Health 11 Reform in the Gulf Shoot from the lip Service The NHS is in terrible Time to sheikh it up 34 Australia and China shape. Keeping it alive 12 Interest-rate caps You can’t buy trust requires medicine both the On the cover Cut-price logic left and right will find hard to Politicians have always lied. swallow: leader, page10. China Does it matter if they leave Letters Reformers believe that new the truth behind entirely? 35 Politics in Hong Kong models of health care, many 13 On housing, wild horses, Leader, page 9. The manner The rise of localism pioneered in other countries, Scotland, longevity in which some politicians 36 Giant pandas can fix things, page 48 now lie, and the havoc they Survival of the cutest may wreak by doing so, are Briefing 37 Banyan worrying, pages17-20. 17 The post-truth world Trouble burying Mao An American sociologist Yes, I’d lie to you examines a political conundrum, page 70. Russian Middle East and Africa Tweetaganda, page 45 United States 38 Labour laws in the Gulf 21 Obamacare Hard work Encumbered exchange 39 Gulf migration The Economist online 23 The campaign Open doors but different Daily analysis and opinion to On the trail laws supplement the print edition, plus 23 National security 40 Extremism in Jordan audio and video, and a daily chart Sewers to submarines Muzzling mosques Economist.com Going after Gulenists 24 Georgetown and slavery 40 Driving in Johannesburg Turkey’s post-coup crackdown E-mail: newsletters and Atonement Bad robots has become a witch-hunt, mobile edition 26 Lexington page 42 Economist.com/email 41 Somalia The urban-rural canyon Most-failed state Print edition: available online by 7pm London time each Thursday Economist.com/print The Americas Europe Audio edition: available online 27 A Mexican minister falls 42 Turkey’s Gulen purges to download each Friday Invite Trump, get dumped A conspiracy so immense Economist.com/audioedition 28 Avocado wars 43 Spain’s coalition talks Rich, creamy and rare Ageing caretakers 28 Venezuela’s hapless 43 Ireland and Europe leader Upsetting the Apple cart Chávez without the charm 44 Homeopathy in Germany 30 Bello Not a molecule of sense Volume 420 Number 9006 Sacking Brazilian presidents 45 Trump and the Russians Economic reform in the Gulf Published since September1843 Brazen meddling How to get Gulf citizens to to take part in "a severe contest between work: leader, page 11. Forcing intelligence, which presses forward, and 45 Russian social media an unworthy, timid ignorance obstructing Tweetaganda the private sector to hire our progress." locals is hard and misguided, 46 Charlemagne Editorial offices in London and also: page 38. Because migrants in Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Unshrinking the continent the Gulf have few rights, more Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, of them are let in, page 39 São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf 6 Contents The Economist September 10th 2016

Britain 64 Private equity The Omaha play 47 Britain and the EU What will Brexit mean? 64 Financial education Quantum of scholars 48 The NHS Accident and emergency 65 Free exchange Work-life balance

International Science and technology 51 Race in Brazil and America Slavery’s different legacies 66 Wooden buildings Top of the tree Speculating in commodities 67 The story of yeast Wooden skycrapers The case A surge in capital from hedge Business Domesticated tipple for building tall structures funds is making commodity 53 A.P. Moller-Maersk 68 Military technology from wood is not barking, markets more choppy, page 60 Profits overboard Top Gun’s topper page 66 54 Auditors aren’t so bad Box ticked Books and arts Subscription service 55 Reliance Jio 69 China For our latest subscription offers, visit Free speech Economist.com/offers Water kingdom For subscription service, please contact by 55 Smartphones 70 The right in America telephone, fax, web or mail at the details Still ringing bells provided below: Hand on heart 56 Fashion retailing North America 70 Steven Runciman The Economist Subscription Center Passé P.O. Box 46978, St. Louis, MO 63146-6978 Shades of Byzantium Telephone: +1 800 456 6086 57 The space business 71 Venice film festival Facsimile: +1 866 856 8075 Mission, interrupted E-mail: [email protected] Showtime 57 German firms in America Latin America & Mexico 72 Johnson The Economist Subscription Center Making eyes P.O. Box 46979, St. Louis, MO 63146-6979 Trouble at sea A crisis in Talking in tongues Telephone: +1 636 449 5702 shipping is forcing the 58 German power companies Facsimile: +1 636 449 5703 industry’s leader to do things Breaking bad E-mail: [email protected] differently, page 53 59 Schumpeter 76 Economic and financial Subscription for 1 year (51 issues) Managing introverts indicators United States US $158.25 (plus tax) Statistics on 42 economies, Canada CA $158.25 (plus tax) plus our monthly poll of Latin America US $289 (plus tax) Finance and economics forecasters 60 Investing in commodities Of mice and markets Principal commercial offices: Obituary 25 St James’s Street, London sw1a 1hg 61 Buttonwood 78 Juan Gabriel Tel: +44 20 7830 7000 Green investing Mexico’s mirror Rue de l’Athénée 32 1206 Geneva, Switzerland 62 The G20 Tel: +4122 566 2470 Agreeing to disagree 750 3rd Avenue, 5th Floor, New York, NY 10017 62 Kenya’s interest-rate cap Tel: +1212 5410500 Ceiling whacks 1301Cityplaza Four, 63 Offshore finance 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Managing the reticent Tel: +852 2585 3888 Companies would benefit from The Bahamas helping introverts to thrive: Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Schumpeter, page 59 Paris, San Francisco and Singapore

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© 2016 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. The Economist (ISSN 0013-0613) is published every week, except for a year-end double issue, by The Economist Newspaper Limited, 750 3rd Avenue, 5th Floor, New York, N Y 10017. The Economist is a registered trademark of The Economist Newspaper Limited. Periodicals postage paid at New York, NY and additional mailing oﬃces. Postmaster: Send address changes to The Economist, P.O. Box 46978, St. Louis , MO. 63146-6978, USA. Canada Post publications mail (Canadian distribution) sales agreement no. 40012331. Return undeliverable Canadian addresses to The Economist, PO Box 7258 STN A, Toronto, ON M5W 1X9. GST R123236267. Printed by Quad/Graphics, Saratoga Springs, NY 12866 The world this week The Economist September 10th 2016 7

emissions. Mr Obama plans to A wounded animal Hungary’s prime minister, Politics bypass the Republican-con- At least 40 people were killed Viktor Orban, and the leader trolled Senate, which is rein a series ofbombings in ofPoland’s nationalist Law quired to give its approval to Syria forwhich Islamic State and Justice party, Jaroslaw any treaty, reasoning that the (IS) claimed responsibility. Kaczynski, joined forces to agreement constitutes an Possibly synchronised explo- launch a “cultural counter- executive action. He may try to sions tookplace in Tartus, revolution” to put an end to push the deal through before Homs and a suburb of Europe’s “crisis ofconscience”. he leaves office in January. Damascus (all areas held by Mr Orban’s anti-immigrant the government), and in government has formed close Hurricane Hermine battered Hasakah, which is controlled ties with Poland since Mr north Florida. It was the first by Kurdish forces. Kaczynski’s party tookpower hurricane to hit the state since there last October. Wilma in 2005, and caused a Turkey sent more tanks into lot less damage. northern Syria and is closer to Russia’s last remaining sealing offIS’s access to its independent polling firm, the Hong Kong held elections for Hillary Clinton and Donald border. Turkey’s president, Levada Centre, was designated its 70-member Legislative Trump tookpart in a televised Recep Tayyip Erdogan, said a “foreign agent” by the Council, known as Legco. Six forum that focused on foreign that together with America, government, two weeks ahead ofthe successful candidates policy. In a preview ofwhat to Turkey could soon expel IS ofparliamentary elections. No were “localists”, as those who expect from the presidential from its Syrian capital, Raqqa. reason was given forthe support greater independence debates Mrs Clinton stumbled decision, but Levada had forthe territory are often de- to answer searching questions America urged Bahrain to recorded a drop in support for scribed. It is their first presence on issues such as Iraq and her release a prominent human- United Russia, Vladimir Putin’s in Legco and is sure to anger misuse ofe-mails, whereas Mr rights campaigner, Nabeel ruling party. China, which fears they will Trump got away with some Rajab, who was detained use their new positions to bizarre and some invented earlier in the summer and is Theresa May, Britain’s prime push for a referendum on statements. believed to be facing further minister, said she opposes an Hong Kong’s relationship with charges forwriting to the New “Australian-style” points sys- the mainland. Dumped because of Trump York Times. tem to control immigration. Mexico’s finance minister, The system was one ofthe Uzbekistan buried Islam Luis Videgaray, resigned after Somalia’s beleaguered gov- main promises to “control our Karimov, the blood-drenched helping to organise the recent ernment began to implement a borders” made by the cam- despot who ruled the country unpopular visit to the country ban on flights to Mogadishu, paign to leave the EU, but Mrs since independence after the by Donald Trump. The Repub- the capital, from neighbouring May has repeatedly noted its break-up ofthe Soviet Union lican presidential candidate is Kenya that carry qat, a narcotic shortcomings. She also indicat- in 1991. His death was rather disliked in Mexico be- popular among Somalis. Illicit ed a strong desire to reintro- announced after days of cause ofhis disparaging re- flights to other parts ofthe duce “an element ofselection” feverish speculation about his marks about migrants. The country will doubtless ensue. in education, possibly by health. Vladimir Putin laid departure ofMr Videgaray was reviving the grammar-school flowers on his grave. seen as a chance forMexico’s The migrant crisis system. That would reverse a president, Enrique Peña Nieto, In Germany’s regional elec- decades-old policy held by The Taliban launched a series to improve his dire poll ratings. tions, a fifth ofthe voters in successive governments. ofattacks in Kabul, the Afghan Angela Merkel’s home state, capital. The defence ministry Mecklenburg-Vorpommern, and the offices ofa charity plumped forthe anti-immi- were among the targets. At grant Alternative forGermany least 35 people were killed. (AfD) party, pushingMrs Mer- kel’s centre-right Christian Rodrigo Duterte, the president Democrats into third place. ofthe Philippines, responded The Social Democrats came to a bombing in his home first. Mrs Merkel acknowl- town ofDavao by deploying edged that many Germans the army to help in his current have lost trust in her liberal crackdown on drug-dealing refugee policy. and other crimes. He also caused a diplomatic kerfuffle As opposition to Venezuela’s European foreign ministers by calling BarackObama a leftist regime mounted on the met Turkey’s European Union- At the G20 summit Mrs May “son ofa whore”. streets, the authorities charged affairs minister, Omer Celik. talked about trade deals with a journalist, Braulio Jatar, with The hot topic was the deal to Australia and China. She More than hot air money-laundering. He had slow the flow ofmigrants into downplayed her decision to Building on pledges made two used social media to publicise the EU. Despite Turkey’s earlier review the Hinkley Point years ago, America and China an incident in which President threats to renege on the deal if nuclear-power plant deal in said they were committed to Nicolás Maduro was jostled Europe failed to lift visa which China has a stake and implementing last year’s Paris and humiliated by pot-bang- restrictions on Turks, all con- declared that the two countries accord on climate change. ing women in a working-class cerned at the meeting gave were entering a “golden era” in America and China account district that was once his assurances that it would be relations. Chinese officials for40% ofthe world’s carbon stronghold. implemented. were not so positive. 1 8 The world this week The Economist September 10th 2016

corporate debt has driven unease”, and asked forclar- company, for$8.8 billion. The Business yields to new lows. iﬁcation on how oﬃcials who assets include what is left of used to workwith Mr Barroso, Autonomy, a formerstar of A federal investigation began including those who will head British tech. Its purchase, in into the explosion ofa SpaceX Britain’s PMI services index the EU’s Brexit negotiations, 2011, in a deal that rapidly rocket as it was undergoing 65 should liaise with him. turned sour, precipitated the tests on a launch pad at Cape splitting ofHP into two compa- Canaveral. Led by Elon Musk, 60 South Africa’s economy grew nies last year. X 55

Space is a pioneer in private- * IMPROVED by an annualised 3.3% in the sector space transport. But the 50 second quarter, the fastest pace Augmenting its business in D accident has prompted ques- 45 since late 2014. In the ﬁrst three 3 -printing, General Electric tions about its safety record. A months ofthe year GDP con- said it was buying Arcam of 40 satellite leased by Facebook 2013 14 15 16 tracted by1.2%, leading to fears Sweden and SLM Solutions of

that was to provide internet * DETERIORATED *Compared with the ofrecession, but mining, the Germany, two ofthe leading services to poor countries was Source: IHS Markit previous month mainstay ofthe economy, has companies in metal-based destroyed in the blast. Space- Markit said that its monthly since rebounded. additive manufacturing. GE com, which owned the satel- survey ofactivity in Britain’s will use the firms’ technologies lite, said it would want SpaceX services industry had posted Bayer sweetened its takeover to enhance its business in to conduct several safe flights a record gain in August. The offerfor Monsanto, to $65 printing aircraft parts. before using its services again. financial-data firm now thinks billion, the latest move in a the economy is unlikely to fall spell ofconsolidation in the Ear today, gone tomorrow Piping hot into recession, reversing its agricultural seeds and chemi- Apple unveiled the iPhone 7. Enbridge, which is based in forecast following Britain’s cals business. Monsanto has Sales ofthe device have Canada and shifts crude oil vote in a referendum in June to softened its response to the slowed recently, in part be- around North America, agreed leave the European Union. But approach from its German cause consumers have awaited to buy Spectra, a natural-gas it does thinkthe economy will rival, describing the latest its latest iteration. The new company in Texas, for$28 slow considerably. negotiations as “constructive”. phone is waterproofand, billion, creating a giant in controversially, does away energy infrastructure. En- The ultimate insider After a decade ofownership with the headphone socket, so bridge is one ofthe biggest The EU’s ombudsman raised by a private-equity firm, For- those who still want to use owners ofoil tanks in Cushing, concerns about the decision of mula One was sold to Liberty their top-of-the-range noise Oklahoma, a hub forWest José Manuel Barroso to join Media, an American com- cancellers will have to carry an Texas oil. Spectra has assets in Goldman Sachs. Mr Barroso is pany, in a deal that values the adaptor. Meanwhile, Apple’s the Marcellus shale-gas basin. a formerpresident ofthe Euro- racing-car championship at $8 arch-rival, Samsung, issued a With the industry under pres- pean Commission and over- billion. Bernie Ecclestone stays safety recall forits new Galaxy sure to consolidate because of saw reforms to the financial on as F1’s chiefexecutive. Note 7 smartphone because of the plunge in oil prices, more industry that were often resist- a fault in the battery that can mergers are thought to be in ed by the City ofLondon. The Hewlett Packard Enterprise cause the device to catch fire. the pipeline. ombudsman said Mr Barroso’s decided to sell most ofits appointment to the invest- remaining software assets to Other economic data and news Exor, an Italian investment ment bankhad caused “public Micro Focus, a British tech can be found on pages 76-77 company controlled by the Agnelli family, confirmed it was moving its legal headquarters to Amsterdam, from Turin. Exor, which is The Economist’s largest share- holder, says the move will simplify its operations. Its Fiat Chrysler and Ferrari businesses are legally based in the Netherlands. The company will remain listed on the Milan stockexchange.

The ﬁrst corporate bonds from the private sector to be sold with negative yields were issued in Europe. Henkel, a German company, and Sanoﬁ, a French one, sold bonds with a yield of-0.05%, meaning that investors who buy them are prepared to end up with less money in return. The European Central Bank’s expansion ofits asset-buying programme to include Leaders The Economist September 10th 2016 9 Art of the lie

Politicians have always lied. Does it matterifthey leave the truth behind entirely? ONSIDER how far Donald ers feel let down and left behind, while the elites who are in C Trump is estranged from charge have thrived. They are scornful ofthe self-serving tech- fact. He inhabits a fantastical nocrats who said that the euro would improve their lives and realm where Barack Obama’s that Saddam Hussein had weapons of mass destruction. Pop- birth certificate was faked, the ular trust in expert opinion and established institutions has president founded Islamic State tumbled across Western democracies. (IS), the Clintons are killers and Post-truth has also been abetted by the evolution of the me- the father ofa rival was with Lee dia (see pages 17-20). The fragmentation of news sources has Harvey Oswald before he shot John F. Kennedy. created an atomised world in which lies, rumour and gossip MrTrump isthe leadingexponentof“post-truth” politics—a spread with alarming speed. Lies that are widely shared on- reliance on assertions that “feel true” but have no basis in fact. line within a network, whose members trust each other more His brazenness is not punished, but taken as evidence of his than they trust any mainstream-media source, can quickly willingness to stand up to elite power. And he is not alone. take on the appearance of truth. Presented with evidence that Members of Poland’s government assert that a previous presi- contradicts a beliefthat is dearly held, people have a tendency dent, who died in a plane crash, was assassinated by Russia. to ditch the facts first. Well-intentioned journalistic practices Turkish politicians claim the perpetrators of the recent bun- bear blame too. The pursuit of “fairness” in reporting often gled coup were acting on orders issued by the CIA. The suc- creates phoney balance at the expense oftruth. NASA scientist cessful campaign for Britain to leave the European Union says Mars is probably uninhabited; Professor Snooks says it is warned of the hordes of immigrants that would result from teeming with aliens. It’s really a matter ofopinion. Turkey’s imminent accession to the union. When politics is like pro-wrestling, society pays the cost. Mr If, like this newspaper, you believe that politics should be Trump’sinsistence thatMrObama founded IS precludesa seri- based on evidence, this is worrying. Strong democracies can ous debate over how to deal with violent extremists. Policy is draw on inbuilt defences against post-truth. Authoritarian complicated, yet post-truth politics damns complexity as the countries are more vulnerable. sleightofhand expertsuse to bamboozle everyone else. Hence Hillary Clinton’s proposals on paid parental leave go unexam- Lord of the lies ined (see page 21) and the case for trade liberalisation is That politicians sometimes peddle lies is not news: think of drowned out by “common sense” demands forprotection. Ronald Reagan’s fib that his administration had not traded It is tempting to think that, when policies sold on dodgy weapons with Iran in order to secure the release of hostages prospectuses start to fail, lied-to supporters might see the error and to fund the efforts of rebels in Nicaragua. Dictators and of their ways. The worst part of post-truth politics, though, is democrats seeking to deflect blame for their own incompe- that this self-correction cannot be relied on. When lies make tence have always manipulated the truth; sore losers have al- the political system dysfunctional, its poor results can feed the ways accused the other lot oflying. alienation and lack of trust in institutions that make the post- But post-truth politics is more than just an invention of truth play possible in the first place. whingeing elites who have been outflanked. The term picks out the heart of what is new: that truth is not falsified, or con- Pro-truthers stand and be counted tested, but of secondary importance. Once, the purpose of po- To counterthis, mainstream politiciansneed to find a language litical lying was to create a false view of the world. The lies of of rebuttal (being called “pro-truth” might be a start). Humility men like Mr Trump do not work like that. They are not intend- and the acknowledgment ofpast hubris would help. The truth ed to convince the elites, whom their target voters neither trust has powerful forces on its side. Any politician who makes con- nor like, but to reinforce prejudices. tradictory promises to different audiences will soon be ex- Feelings, not facts, are what matter in this sort of campaign- posed on Facebook or YouTube. If an official lies about attending. Their opponents’ disbelief validates the us-versus-them inga particularmeetingorseekinga campaign donation, a trail mindset that outsider candidates thrive on. And if your oppo- ofe-mails may catch him out. nents focus on trying to show your facts are wrong, they have Democracies have institutions to help, too. Independent le- to fight on the ground you have chosen. The more Remain gal systems have mechanisms to establish truth (indeed, Mela- campaignersattacked the Leave campaign’sexaggerated claim nia Trump has turned to the law to seek redress for lies about that EU membership cost Britain £350m ($468m) a week, the her past). So, in their way, do the independent bodies created longer they kept the magnitude ofthose costs in the spotlight. to inform policy—especially those that draw on science. Post-truth politics has many parents. Some are noble. The If Mr Trump loses in November, post-truth will seem less questioning of institutions and received wisdom is a demo- menacing, though he has been too successful for it to go away. cratic virtue. A sceptical lack of deference towards leaders is The deeper worry is for countries like Russia and Turkey, the first step to reform. The collapse of communism was has- where autocrats use the techniques ofpost-truth to silence op- tened because brave people were prepared to challenge the of- ponents. Cast adrift on an ocean of lies, the people there will ficial propaganda. have nothing to cling to. For them the novelty of post-truth But corrosive forces are also at play. One is anger. Many vot- may lead backto old-fashioned oppression. 7 10 Leaders The Economist September 10th 2016

Elections in Hong Kong A not-so-local diﬃculty

China’s separatist troubles have just got bigger. It has only itselfto blame T LEAST for a few moments, groupsthattend to supportthe establishment). China tolerates AChina’s president, Xi Jin- Hong Kong’s distinctive politics because it promised to do so, ping, might have felt like king of at least until 2047. It knows that to scrap that promise would be the world on September 4th as, the death knell forHong Kong as a global financial hub. one by one, the leaders of the But China’s good sense cannot be entirely counted on. In- planet’s biggest economies deed, it is China’s own miscalculations that have fuelled sup- walked into a cavernous room port for politicians known as “localists”, who include outright in the centre of which he stood separatists as well as people who want Hong Kong to enjoy motionless, waiting for each to approach him, shake his hand more autonomy. The biggest mistake was a decision in 2014 and then disappear, stage left. It was the first time that China not to allow the territory’s leader to be elected by the public, had played hostto a summitofthe G20 (see page 62). The Com- with anyone allowed to stand. China said it would fulfil its munist Party’s propagandists milked the occasion for every promise of “universal suffrage” in such polls, but retain a sys- drop of patriotic feel-goodery that it could produce. Mr Xi has tem for weeding out candidates it does not like. Public anger promised a “great revival” of the Chinese nation; presiding over this decision triggered the “Umbrella movement” later over such a meeting of global grandees was a perfect opportu- thatyear,involvingweeksofdemonstrationsand sit-ins. Some nity to show the public that he was on target. ofthe localists just elected were leaders ofthat campaign. Howawkward, then, thatashe wasdoingso votersin Hong Since those protests, China has kept picking away at Hong Kong were sending Mr Xi a different—and, forthe party,shock- Kong’s freedoms. Voters were spooked by the detention, a few ing—message. In elections for the territory’s Legislative Coun- months ago, of several Hong Kong residents who had been cil, or Legco, six candidates who want Hong Kong to be more selling gossipy books about Beijing’s leaders. One of them ap- independent from China gained seats in the 70-member body pears to have been spirited from Hong Kong by the mainland’s (see page 35). Some lean towards Hong Kong’s outright separa- agents. And it was doubtless at the behest of leaders in Beijing tion. It is the first time since the party dismantled the Dalai that Hong Kong required candidates for Legco to forswear in- Lama’s government in Tibet in1959 that sympathisers of sepa- dependence. As a result, several of the more outspoken ones ratism have gained a foothold in a political institution in Chi- were barred from standing. na. Mr Xi will see this as a threat to his nation-building. Mercifully, it is extremely unlikely that China will resort to Separate ways the tactics it has used to crush separatism in Tibet and Xinjiang To prevent separatism from growing in Hong Kong, Mr Xi has in the far west, namely sending in troops and conducting mass only one option that might actually work. That is to give the arrests. Since China tookoverHongKongfrom Britain in1997,it territory full democracy,not a system that is rigged in favourof has allowed the territory to maintain freedoms that are forbid- the Communists’ supporters. MrXi maywell preferto stifle de- den on the mainland. These include the right to vote for some mocracy even more. That would increase anger and frustra- legislators in competitive elections (the Communist Party’s tion, boost separatist demands and make China’s great revival backers dominate Legco with the help of seats reserved for as a “harmonious” nation ever more distant. 7

England’s National Health Service Bitter pills

The NHS is in terrible shape. Keeping it alive requires medicine both the leftand right will find hard to swallow EARLY everyone born in £20 billion ($27 billion) by the end ofthe decade. Doctors have NEngland after 1948 was de- gone on strike over a new, less generous contract that the gov- livered into the care of the Na- ernment is imposing on them. And everywhere hospitals are tional Health Service, and most struggling to make ends meet. In recent weeks one trust has retain an almost filial loyalty to abruptly shut an emergency department to children because it the organisation. The taxpayer- was found to be unsafe; another said it was considering delay- funded service, which provides ing all surgery on obese patients. health care free at the point of The diagnosis is simple: rising demand for health care from use, is so precious in the public imagination that politicians are an ageing population is outstripping supply. But the cure will less likely to talkofimproving the NHS than “protecting” it. be hard to stomach forboth leftand right. Increasing the NHS’s Yet this national treasure is looking frail (see page 48). Nine capacity will require a far more ruthless focus on efficiency. out of ten of the local trusts which run hospitals are spending Even then, taxpayers will have to get used to forking out more. beyond theirbudgets; overall the service facesa funding gap of Managing demand will involve not just uncontroversial mea-1 The Economist September 10th 2016 Leaders 11

2 sures such as more emphasis on preventive medicine, but tox- government needs to rein in demand for NHS services. Pa- ic ones such as introducing charges forservices that have been tients should, where possible, be diverted from expensive free. Such is the price Britons must expect to pay for living a de- formsofcare into cheaper ones. One reason that hospital beds cade and a halflonger than when the NHS was founded. are in such short supply is that budgets for social care have Though the NHS is lean by international standards, it still been slashed. It makes no sense to use hospitals as expensive bleeds money through inefficiency.There can be few organisa- substitutes for old people’s homes. Amalgamating health and tions in England that still use fax machines as often as doctors’ social care, as some regions are already doing, would lead to a surgeries do. Poorstaffplanningmeans that shortages are tack- more sensible allocation of resources. If more doctors dealt ledbyexpensiveovertime.AndtheEnglishhavearomanticat- with simple queries from their patients by phone or e-mail, tachment to small local hospitals, which are costlier and deliv- they would have more time to devote to tricky ones. Subject- erworse results than bigspecialist ones. By scaling up, the NHS ing more services to fees would temper frivolous demand. In- could offerbettercare forthe same money.In some parts ofthe person doctor’s appointments, for instance, could incur a country family doctors are leaving their cottage practices to modest charge, as prescriptions and dental workalready do. join chains of larger surgeries that share back-office functions More fundamentally, the focus must shift away from treat- such as call centres. Countries such as Germany and Denmark ing illness and towards preventing it. The NHS was designed have found that by reducing the number ofhospitals that offer with acute conditions in mind; nowadays 70% of its spending particular surgical procedures, they can reduce the incidence is on long-term illnesses. It is cheaper, as well as better for pa- ofcomplications. tients, to reduce obesity, say, than to treatdiabetes. YetNHS providers are paid for the procedures they carry out, not for those You may feelsome discomfort that they render unnecessary. Abetter model would be to give Yeteven ifall such wastefulnesscan be eliminated, the govern- health providers a budget based on the population they serve, ment’s plan to close the NHS’s entire funding gap through and pay them accordingto theirability to meet targets ofbetter greater efficiency is heroically optimistic. Britain already public health. This would increase the incentives to use new spends less as a share ofits GDP on health care than most other technology that would give patients more responsibility for rich countries. It is now on course to shrink that share, from theirown health. Ifprivate outfits can do this with a profit mar- 7.3% to 6.6% by 2021. At a time of steeply rising demand that is gin to spare, good forthem. unrealistic. Politicians must make plain to voters that if they Higher taxes, new charges and more rationed services: want to keep the taxpayer-funded model and expect to carry these are bitter pills for politicians. But the English are ageing, on living into their 80s and beyond, they will have to pay forit. and as long as their leaders promise simply to “protect” the At the same time as making available more resources, the NHS by doing nothing, the service faces only decline. 7

Economic reform in the Gulf Time to sheikh it up

How to get the locals to work HE people of Saudi Arabia Butreformshave to go further. IfGulfcitizensare to keep en- Gulf employment by sector Thave for decades enjoyed joying rich-world standards of living, they will increasingly 2013 or latest available, m the munificence of their royal have to find productive work in the private sector. That means Nationals Foreigners family: no taxes; free education overhauling labour markets that keep too many ofthe region’s PUBLIC PRIVATE 4 2 0 0 2 4 6 8 and health care; subsidised wa- citizens idle. S. Arabia ter, electricity and fuel; unde- The pampering of Gulf citizens has made them expensive Kuwait manding jobs in the civil ser- for firms to hire (see page 38). By contrast, the third-class legal Bahrain vice; scholarships to study status of many migrant workers makes them extra-cheap (see abroad; and much more. This easy life has been sustained by page 39) and puts them at the mercy of their employers. Given gushers of petrodollars and an army of foreign workers. The the choice between a hardworkingforeignerand a costly local, only thing asked of subjects is public observance of Islamic private firms have long preferred the foreigner. strictures and acquiescence in the absolute power of the In response Gulf governments have imposed ever more sprawling Al Saud dynasty. stringent quotas on foreign companies to employ locals, espe- Similar arrangements hold in the other countries of the cially in desirable white-dishdasha jobs. In Bahrain 50% of Gulf Co-operation Council (GCC), a six-member club of oil workers in banks must be Bahrainis; but only 5% of those in monarchies. But these compacts are breaking down. The price construction need be. (It’s awfully hot on building sites.) Quo- of oil has fallen sharply since 2014, and the number of young tas reduce the incentive for Gulf citizens to do a job well: why Gulf citizens entering the job market is growing fast. The ma- bother, when your employer has little choice but to keep you liks and emirs can no longer afford huge giveaways, or to pay on? Firms often regard hiring locals as a sort of tax. Some pay ever more subjects to snooze in air-conditioned government them to stay at home. offices. The monarchs know it. They say they are seeking to The best policy would be to phase out quotas entirely, diversify their economies away from oil rents; they are also while also slimming the bureaucracy and making it clear that whittling away generous subsidies and plan a new value-add- civil-service jobs are no longer a birthright. In Saudi Arabia ed tax across the GCC. two-thirds of citizens are employed by the state. Public-sector 1 12 Leaders The Economist September 10th 2016

2 wages account for 12% of GDP in the Gulf and Algeria, com- for migrants—would reshape the labour market. More locals pared with an average of5% across emerging economies. would have to do real work. Migrants would be better treated, The way migrant labourers are treated needs to change, too. though inevitably fewer would be hired. Some new ideas are Gulf states deserve credit for letting in far more immigrants beingtested. Bahrain is allowingﬁrms to ignore quotas by pay- than almost all Western countries, relative to their popula- ing a feeforeach foreign worker they employ. As part ofits am- tions. (In many cases, foreigners outnumber locals.) Migrants bitious economic agenda, Saudi Arabia is talking of issuing gain from earning farhigher wages than they could back in In- green cards to some migrants. dia or Pakistan. But the coercive parts of the kafala system of sponsoring foreign workers should be dismantled. Migrant A new social contract workers should not need their employers’ permission to leave At a time of bloody turmoil across the Arab world, many roy- the country. After a while, they should be allowed to switch als fear undoing the social compact that has kept them in pow- jobs. Contracts should be clear and enforced by local courts. er. But cheap oil makes change unavoidable; doing nothing Long-term foreign workers should be able to earn permanent merely postpones the reckoning. Economic transformation residence; ultimately those who wish to should have the op- should nudge Gulf states towards political reform. Perhaps, as portunity to become citizens. theircitizens are asked to do more to earn theirliving, they will These reforms—less pampering for locals and more rights demand that rulers do more to earn their consent. 7

Interest-rate caps Cut-price logic

A bad idea that is remarkably common HE Kenyan government has After Ecuador introduced rate caps in 2007, the average size of Ta problem. Its banks will not bank microloans jumped, indicating that smaller loans had lend cheaply to the private sec- become less viable. A cap on payday-loan interest rates in Ore- tor. Tired of asking nicely, the gon, which became binding in 2007, increased the share of government has taken matters people reporting difficulties in getting short-term credit by17-21 into its own hands. This month percentage points: many resorted to paying bills late instead. it will put a cap on commercial With fewer options to choose from, some borrowers may in- banks’ interest rates: charging stead turn to loan sharks. One study suggests that illegal lend- borrowers more than fourpercentage points above the central ing was at the time more widespread in Germany and France bank’s base rate, which now stands at10.5%, will be illegal (see than in Britain because oftheir penchant forprice caps. page 62). Shares of the largest Kenyan banks plummeted by Sometimes conventional lenders keep extending credit but 10% in response to news ofthe cap. recoup their costs in other ways. A study ofcar loans in Ameri- This sort of crude meddling in the market may seem anti- ca between 2011 and 2013 found that dealer-lenders jacked up quated, but it is remarkably common. A review by the World the price of cars, and thus the amount of credit they were ex- Bankin 2014 found then that at least 76 countries impose a lim- tending, in response to interest-rate limits. Borrowers ended it on interest rates. Half the countries in sub-Saharan Africa up no better off. In Nicaragua and South Africa lenders intro- have such caps. Rich countries are also fond ofthem. In Ameri- duced so many extra fees and commissions in response to in- ca, 35 states have ceilings on payday-loan rates. Lending at a terest-rate caps that loans became more expensive overall. An rate of more than 17% in Arkansas, for example, is forbidden; interest-rate ceiling introduced in 2005 in Poland prompted any higher, and the borrower can claim backdouble the illegal lenders there to add a convenience fee that handily fell outside interest paid. the definition of administrative fees and charges, also capped The financial crisis of 2007-08 seems to have made govern- at 5%. A review by the European Commission found that rate ments more willing to intervene in this way. From Japan to El limits were unlikely to cut the level ofover-indebtedness. Salvador, lawmakers have either tightened their existing caps orslapped on fresh ones. British financial regulators limited in- If the cap doesn’t fit terest rates on payday loans in 2015. No one doubts that price-gouging happens. Some people Policymakers usually mean well: by controlling the cost of should not be borrowing in the first place. But rate caps target a credit, they may hope to improve access to finance. But rate symptom of a malfunctioning credit market, not the underly- caps often have precisely the opposite effect. The most expen- ing problem. Exorbitant interest rates usually stem from weak sive loans are pricey because they go to the riskiest borrowers: competition orfrom insufficient information about borrowers younger firms without collateral, poorer consumers without and lenders. Transparency about fees, more sources of fund- credit histories. If lenders cannot charge interest rates that re- ing and credit scoring all tackle market failures much more di- flect these risks, they may not lend at all. rectly than price caps. In Kenya’s case, a fiscal splurge has When microfinance loans in west Africa became subject to pushed up interest rates on government debt so much that interest-rate limits, small loans to the poorest borrowers in the banks make healthy returns by lendingto the government and most remote areas were the first to be axed. In Nicaragua an in- have scant incentive to make the effort to lend to the private terest ceiling introduced in 2001 reduced lending growth from sector. Ham-fisted price manipulation might make for good 30% a year to just 2%, according to a local microfinance body. headlines. But imposing rate caps is shoddy economics. 7 Letters The Economist September 10th 2016 13

Expand homeownership gage-finance reform needs to This information, inter alia but economic means ofconveying make that its priority so that also on its own, effectively ownership oftheir animals Youargued that America has more people have access to scotches any economic case rather than releasing them in effect nationalised its hous- safe and affordable mortgages. forScottish independence. onto the range or shipping ing market (“Comradely capi- PAT “ZIGGY” ZICARELLI Scottish Nationalist poli- them abroad. talism”, August 20th). But the President ticians castigated The Econo- ADRIAN SMITH government has been support- California Association of mist forits famous Skintland Member of the US House of ing home financing and Realtors cover (April 14th 2012). I was Representatives incentives forthe past 80 years, Los Angeles therefore surprised that you Gering, Nebraska whether through the mort- passed up the opportunity to gage-interest deduction or Youleft the most important demonstrate that you, and Who wants to live forever? programmes that ensure recent development in Ameri- most Scots, are right to contin- affordable mortgage capital. ca’s housing market until the ue to support Scotland’s place With mankind becoming ever Washington’sinability to press end: credit-risktransfer. The in the UK. more narcissistic, verified by forward with reform has risk-transfer mechanisms you ALASTAIR CAMERON selfies and inane posts on caused uncertainty and re- dismiss as “a little too like the Director Facebook, the pursuit of stricted credit forhomebuyers. opaque instruments that blew Scotland In Union longevity is the ultimate People are confident that if up in 2007-8” are nothing like Glasgow expression ofour conceit they qualify fora mortgage a the collateralised-debt obliga- (“Cheating death”, August bankwill lend them the mon- tions and credit-default swaps Lasso this bad policy 13th). Brilliant scientific minds, ey. The Federal Housing Asso- that were issued before the backed by investors fore- ciation, Fannie Mae, Freddie financial crisis. In fact, they casting tasty returns, will be Mac and other programmes represent de facto private able to extend our lives stead- provided this stability. They capital, the only way to build ily to doddery heights. Physi- tookon the credit riskofmort- the appropriate capital buffer cally this will be possible, but gages so long as Wall Street in the absence ofa congress- what about our mental state? tookon the interest-rate risk. ional resolution on their How agile will we be? How This system must be protected. current status. set in our ways and resistant to The FHA, Fannie Mae and Now covering $1trillion in change? We may be alive, but Freddie Mac have worked hard loans, this market is well on its will we be an infuriating brake to further their public mission way to the 20% oftotal capital on progress and innovation? In ofsupplying mortgage capital that would be required to shed a world where a diminishing during depressed markets almost all taxpayer riskin most number of working-age people while protecting their integrity. analyses ofthe market. Youdid must shoulder an increasing During the housing recovery not mention that the reason all Not only has the ban on horse- welfare burden, is it really fair they have repaired their bal- this was done under adminis- processing in America cost that we selfishly continue to ance-sheets and strengthened trative fiat was the inability of taxpayers billions ofdollars thinkit’s only about us? underwriting standards. Any the political system to do its (Lexington, August13th), it has Perhaps the clever scientific proposal that increases the cost part. Given this, the adminis- also hurt the horses. The pro- minds and the dollars that ofmortgages and threatens the trative actors are to be com- cessing oflivestockis well backthem should focus on availability ofmortgage capital mended forpointing the way regulated under the Humane providing solutions to younger is wrong. Fannie Mae and towards a long-term solution, Methods ofSlaughter Act, and people whose ability to realise Freddie Mac already charge a rather than criticised. has been found to be a decent their true potential is curtailed fee that reflects the costs of EKNATH BELBASE form ofeuthanasia for horses forone medical reason or paying losses and ofholding Director by the American Veterinary another. Our world would be capital (even though they are MBS Strategy Medical Association. How- much richer. As forthe rest of not allowed to increase their Andrew Davidson & Co ever, because ofthe ban, hors- us, we should live our lives to capital reserves). New York es which would have been the full, and when our natural We do need private capital processed in America are time comes bow out gracefully to come backto the mortgage A bit skint in Scotland instead being shipped thou- and quickly. We’ll be remem- market, especially in Califor- sands ofmiles to facilities in bered more fondly that way. nia where so many homes I was pleased to see your Canada and Mexico. Those not JOHN LOEBENSTEIN exceed the loan limits ofFan- recent article about Scottish sent to Mexico are starving on Pumpenbil, Australia nie, Freddie and the FHA. But education (“Not so bonny”, rangeland which cannot sup- private capital has struggled to August 27th). However, the port the growing population. “Cheating death”? Postponing make a significant return after most important recent story in Ifanimal-rights activists it. Easing or prolonging death, the bust. The private securities Scotland is the release ofthe were truly interested in horse maybe. But cheating death? I markets are still unable to Government Expenditure and welfare they would lobby to don’t thinkso. agree on how to fix many of Revenue Scotland statistics for strip language tacked on to MONTY LEDFORD the issues that caused the 2015-16. The figures, produced spending bills that prohibits Aberdeen, Idaho 7 financial crisis. by the Scottish government, the processing ofhorses and In America, we unapologet- show that Scotland’s public the euthanasia ofwild horses. ically promote homeown- finances last year gained £9 Removing the language would Letters are welcome and should be ership as it continues to be the addressed to the Editor at billion ($12 billion) from pool- allow the Bureau ofLand The Economist, 25 St James’s Street, best way forlow- and middle- ing and sharing across the Management to reduce the London sw1A 1hg class households to build United Kingdom, and that wild-horse population to a E-mail: [email protected] wealth and move up the socio- Scotland’s own deficit is al- sustainable level, and provide More letters are available at: Economist.com/letters economic ladder. Any mort- most £15 billion, or 9.5% ofGDP. horseowners with a viable 14 Executive Focus

The Economist September 10th 2016 Executive Focus 15

The Economist September 10th 2016 16 Executive Focus

UNESCO works to create the conditions for dialogue among civilizations, cultures and people, based upon respect for commonly shared values. Director of the Division of Human Resources Management UNESCO is seeking applications for the following positions: Geneva, Switzerland 1. Head of Internal Audit (P5) – Paris based apply by 2.10.16 Closing date for applications: September 24th 2016 The HIA aims at improving the effectiveness of risk and results based management, control and internal governance processes; manages staff The Director of the Division of Human Resources Management (DHRM) is based in and resources of the section, provides strategic and annual audit planning, Geneva and administers human resources for the 13,000-strong UNHCR workforce. maintains an effective quality assurance process for internal audits and The position oversees strategic responses to operational and organizational collaborates across the Organization in advancing risk management and concerns on workforce issues. As UNHCR’s work takes place primarily in emergency control and good governance in achieving UNESCO’s results. settings often under trying circumstances, a high degree of fl exibility in the workforce is critical to ensure quick and appropriate responses based on operational needs. 2. Senior Legal Officer (P5) – Paris based apply by 26.9.16 In this regard, the Director continuously balances the needs of the organization with those of individual staff members. The SLO provides strategic and technical leadership on general legal matters and gives authoritative advice to UNESCO management and the governing In 2016, DHRM issued a fi ve-year People Strategy to strengthen the way we recruit, bodies; reporting to the director, the SLO ensures leadership, direction and care for, support and manage our workforce. The Strategy situates UNHCR’s vision along four main goals: preparedness and diversity; performance and competence; supervision of the general legal section. fl exibility and timeliness; and, care and support. The Director oversees the implementation of a multiyear plan elaborated from the Strategy. 3. Member of independent Oversight Advisory Committee (non-paid) In an effort to modernize human resources practices and tools in use at UNHCR, several ground-breaking reviews and analyses were recently completed on a range The OAC advises the Director-General in fulfi lling her oversight responsibilities of subjects including diversity, inclusion, contractual arrangements, promotions and and reports annually to UNESCO’s Executive Board. UNESCO seeks assignments. The Director will be tasked with coordinating and maintaining oversight applicants with international public or private sector expertise in auditing, risk of the developments and determining priorities stemming from these reviews. management and control, corporate governance, evaluation, investigation, IT security. Members are expected to attend at least 2 meetings in Paris per year. The Director of DHRM reports to the Deputy High Commissioner and requires apply by 15.10.16 a minimum of an advanced university degree (Master’s degree or equivalent) in human resources, business administration, social sciences or in another fi eld 4. Short-term evaluation experts directly relevant to this position and 20 years professional experience, preferably in an international and/or multi-national environment, with at least 10 years serving The IOS Evaluation Office periodically seeks evaluation consultants to conduct as a senior manager, including signifi cant budgetary responsibilities as well as and/or manage evaluations. These positions are generally for a period of 6-9 extensive experience leading human resources reform and transformation to meet months. modern human resources standards.

Applications should be sent to: [email protected] by September 24th Please consult the complete vacancy announcements for 1-2 at www. 2016 unesco.org/employment and consult www.unesco.org/ios for positions 3-4.

The Economist September 10th 2016 Brieﬁng The post-truth world The Economist September 10th 2016 17

ness. “Those princes who do great things,” Yes, I’d lie to you Machiavelli informed his readers, “have considered keeping their word of little account, and have known how to beguile men’s minds by shrewdness and cun- ning.” British ministers and prime ministers have lied to the press and to Parlia- Dishonesty in politics is nothing new; but the mannerin which some politicians ment, as Anthony Eden did during the now lie, and the havoc they may wreakby doing so, are worrying Suez affair. Lyndon Johnson misinformed HEN Donald Trump, the Republican any relation to reality, so long as they fire the American people about the Gulf of Wpresidential hopeful, claimed recent- up voters. PolitiFact, a fact-checking web- Tonkin incident, thus getting the country ly that President Barack Obama “is the site, has rated more of his statements into Vietnam. In 1986 Ronald Reagan insist- founder” of Islamic State and Hillary Clin- “pants-on-fire” lies than of any other can- ed that his administration did not trade ton, the Democratic candidate, the “co- didate—for instance his assertion that “in- weapons for hostages with Iran, before founder”, even some of his supporters ner city crime is reaching record levels”, having to admit a few months later that: were perplexed. Surely he did not mean which playson unfounded fearsthatcrime “My heart and my best intentions still tell that literally? Perhaps, suggested Hugh He- rates are rising (see chart1on next page). me that’s true, but the facts and evidence witt, a conservative radio host, he meant And he isnotthe onlyprominentpracti- tell me it is not.” that the Obama administration’s rapid tioner of post-truth politics. Britons voted pull-out from Iraq “created the vacuum” to leave the European Union in June on the Fact or fiction that the terrorists then filled? basis ofa campaign ofblatant misinforma- It is thus tempting to dismiss the idea of “No, I meant he’s the founder of ISIS,” tion, including the “fact” that EU member- “post-truth” political discourse—the term replied Mr Trump. “He was the most valu- ship costs their country £350m ($470m) a was first used by David Roberts, then a able player. I give him the most valuable week, which could be spent instead on the blogger on an environmentalist website, player award. I give her, too, by the way, National Health Service, and that Turkey is Grist—as a modish myth invented by de- Hillary Clinton.” likely to join the EU by 2020. haut-en-bas liberals and sore losers igno- Mr Hewitt, who detests Mr Obama and Hang on, though. Don’t bruised elites rant ofhow dirty a business politics has al- has written a book denouncing Mrs Clin- always cry foul when they fail to persuade ways been. But that would be complacent. ton’s “epic ambition”, was not convinced. the masses of their truth? Don’t they al- There is a strong case that, in America and “But he’s not sympathetic to them. He ways say the other side was peddling lies elsewhere, there is a shifttowards a politics hates them. He’s trying to kill them,” he and persuaded ignoramuses to vote in which feelings trump facts more freely pushed back. against their interest? Perhaps, some argue, and with lessresistance than used to be the Again, MrTrump did not give an inch: “I British Remainers should accept the vote case. Helped by new technology, a deluge don’t care. He was the founder. The way he to leave the EU as an expression ofjustified of facts and a public much less given to got out of Iraq was, that, that was the grievance and an urge to take back con- trust than once it was, some politicians are founding ofISIS, OK?” trol—not unlike the decision by many getting away with a new depth and perva- For many observers, the exchange was Americans to support Mr Trump. siveness offalsehood. Ifthis continues, the yet more proof that the world has entered There may have been some fibbing in- power of truth as a tool for solving soci- an era of “post-truth politics”. Mr Trump volved but it is hardly as though politics ety’s problems could be lastingly reduced. appearsnotto care whetherhiswords bear has ever been synonymous with truthful- Reagan’s words point to an important 1 18 Briefing The post-truth world The Economist September 10th 2016

2 aspect of what has changed. Political lies sible”. In a study in 2014 for the Institute of the backfire effect. used to imply that there was a truth—one Modern Russia, a think-tank, he quotes a Given such biases, it is somewhat sur- that had to be prevented from coming out. political consultant for the president say- prising that people can ever agree on facts, Evidence, consistency and scholarship ing that in Soviet times, “if they were lying particularly in politics. But many societies had political power. Todaya growingnum- they tookcare to prove what they were do- have developed institutions which allow ber of politicians and pundits simply no ing was ‘the truth’. Now no one even tries some level of consensus over what is true: longer care. They are content with what proving ‘the truth’. You can just say any- schools, science, the legal system, the me- Stephen Colbert, an American comedian, thing. Create realities.” dia. This truth-producing infrastructure, calls “truthiness”: ideas which “feel right” In such creation it helps to keep in though, is never close to perfect: it can es- or “should be true”. They deal in insinua- mind—as Mr Putin surely does—that hu- tablish as truth things for which there is lit- tion (“Alot ofpeople are saying...” is one of mans do not naturally seektruth. In fact, as tle or no evidence; it is constantly prey to Mr Trump’s favourite phrases) and ques- plenty of research shows, they tend to abuse by those to whom it grants privi- tion the provenance, rather than accuracy, avoid it. People instinctively accept infor- leges; and, crucially, it is slow to build but of anything that goes against them (“They mation to which they are exposed and may be quickto break. would say that, wouldn’t they?”). And must workactively to resist believing false- when the distance between whatfeelstrue hoods; they tend to think that familiar in- Trust your gut and what the facts say grows too great, it formation is true; and they cherry-pick Post-truth politics is made possible by two can always be bridged with a handy con- data to support their existing views. At the threats to this public sphere: a loss of trust spiracy theory. root of all these biases seems to be what in institutions that support its infrastruc- This way of thinking is not new. Ameri- Daniel Kahneman, a Nobel-prizewinning ture and deep changes in the way knowl- ca saw a campaign against the allegedly psychologist and author of a bestselling edge of the world reaches the public. Take subversive activities of the “Bavarian Illu- book, “Thinking, Fastand Slow”, calls“cog- trust first. Across the Western world it is at minati” in the early19th century, and Sena- nitive ease”: humans have a tendency to an all-time low, which helps explain why tor Joseph McCarthy’s witch-hunt against steer clear of facts that would force their many prefer so-called “authentic” politi- un-American activities in the 1950s. In 1964 brains to workharder. cians, who “tell it how it is” (ie, say what a historian called Richard Hofstadter pub- In some cases confronting people with people feel), to the wonkish type. Britons lished “The Paranoid Style in American correcting facts even strengthens their be- thinkthat hairdressers and the “man in the Politics”. When George W. Bush was presi- liefs, a phenomenon Brendan Nyhan and street” are twice as trustworthy as busi- dent, the preposterous belief that the at- Jason Reifler, now of Dartmouth College ness leaders, journalists and government tacks of September 11th 2001 were an “in- and the University of Exeter, respectively, ministers, according to a recent poll by Ip- side job” spread far and wide among call the “backfire effect”. In a study in 2010 sos MORI. When Michael Gove, a leading left-wingers, and became conventional they randomly presented participants ei- Brexiteer, said before the referendum that wisdom in the Arab world. ther with newspaper articles which sup- “people in this country have had enough ported widespread misconceptions about ofexperts” he may have had a point. The lie of the lands certain issues, such as the “fact” thatAmer- This loss of trust has many roots. In Post-truth politics is advancing in many ica had found weapons of mass destruc- some areas—dietary advice, for example— parts of the world. In Europe the best ex- tion in Iraq, or articles including a correc- expertsseem to contradicteach other more ample is Poland’s ultranationalist ruling tion. Subjects in both groups were then than they used to; governments get things party, Law and Justice (PiS). Among other asked how strongly they agreed with the spectacularly wrong, as with their assur- strange stories, it peddles lurid tales about misperception that Saddam Hussein had ances about the wisdom of invading Iraq, Poland’s post-communist leaders plotting such weapons immediately before the trusting in the world financial system and with the communist regime to rule the war, but was able to hide or destroy them setting up the euro. But it would be a mis- country together. In Turkey the protests at before American forces arrived. take to see the erosion of trust simply as a Gezi Park in 2013 and a recent attempted As might be expected, liberals who had response to the travails of the world. In coup have given rise to all kinds ofconspir- seen the correction were more likely to dis- some places trust in institutions has been acy theories, some touted by government agree than liberals who had not seen the systematically undermined. officials: the first was financed by Luft- correction. But conservatives who had Mr Roberts first used the term “post- hansa, a German airline (to stop Turkey seen the correction were even more con- truth politics” in the context of American from building a new airport which would vinced that Iraq had weapons of mass de- climate-change policy. In the 1990s many divert flights from Germany), the second struction. Further studies are needed, Mr conservatives became alarmed by the like- was orchestrated by the CIA. Nyhan and Mr Reifler say, to see whether ly economic cost of a serious effort to re- Then there is Russia, arguably the coun- conservatives are indeed more prone to duce carbon emissions. Some of the less try (apart from North Korea) that has scrupulous decided to cast doubt on the moved furthest past truth, both in its for- need for a climate policy by stressing to the eign policy and internal politics. The Uk- Bodies of evidence 1 point of distortion uncertainties in the un- raine crisis offers examples aplenty: state- United States derlying science. In a memo Frank Luntz, a controlled Russian media faked interviews Homicides % of respondents who believe Republican pollster, argued: “Should the with “witnesses” ofalleged atrocities, such Per 100,000 that crime is increasing public come to believe that the scientific is- as a child being crucified by Ukrainian 12 90 sues are settled, their views about global forces; Vladimir Putin, Russia’s president, 10 80 warming will change accordingly. There- did not hesitate to say on television that 8 70 fore, you need to continue to make the lack there were no Russian soldiers in Ukraine, ofscientificcertaintya primary issue in the despite abundant proofto the contrary. 6 60 debate.” Challenging—and denigrating— Such dezinformatsiya may seem like a 4 50 scientists in order to make the truth seem mere reversion to Soviet form. But at least 2 40 distant and unknowable worked pretty the Soviets’ lies were meant to be coherent, well. One poll found that 43% of Republi- argues Peter Pomerantsev, a journalist 0 cans believe climate change is not happen- 1988 95 2000 05 10 15 whose memoir of Mr Putin’s Russia is ti- ing at all, compared to 10% ofDemocrats. Sources: Gallup; FBI tled “NothingIsTrue and EverythingIs Pos- Some conservative politicians, talk-1 The Economist September 10th 2016 Briefing The post-truth world 19

of Harvard University in his book “The work does not trap its users in their own Would you believe it? 2 Wealth of Networks”, individuals with world, its algorithms are designed to popu- Respondents’ belief* in conspiracy theories v shared interests are far more likely to find late their news feeds with content similar support for: Trump 2016 Romney 2012 each other or converge around a source of to material they previously “liked”. So, for 80 information online than offline. Social me- example, duringthe referendum campaign dia enable members of such groups to Leavers mostly saw pro-Brexit items; Re- strengthen each other’s beliefs, by shutting mainers were served mainly pro-EU fare. 60 out contradictory information, and to take But though Facebook and other social collective action. media can filter news according to wheth- Fringe beliefs reinforced in these ways er it conforms with users’ expectations, 40 can establish themselves and persist long they are a poor filter ofwhat is true. Filippo after outsiders deem them debunked: see, Menczer and his team at Indiana Universi- for example, online communities devoted ty used data from Emergent, a now defunct

Vote or vote intention, or vote % Vote to the idea that the government is spraying 20 25 200 website, to see whether there are differ- Size = number “chemtrails” from high-flying aircraft or ences in popularity between articles con- of respondents that evidence suggesting that vaccines taining “misinformation” and those con- cause autism is being suppressed. As Eric taining “reliable information”. They found 0 1.0 0.5 –+0 0.5 1.0 Oliver of the University of Chicago points that the distribution in which both types WEAKEST Conspiracy belief STRONGEST out in a forthcoming book, “Enchanted of articles were shared on Facebook are Sources: YouGov; *Surveyed August 27th- America: The Struggle between Reason very similar (see chart 3). “In other words, The Economist September 3rd 2016 and Intuition in US Politics”, this is the sort there is no advantage in being correct,” of thinking that comes naturally to Mr says Mr Menczer. 2 show hosts and websites, have since in- Trump: he was once devoted to the If Facebook does little to sort the wheat cluded the scientific establishment in their “birther” fantasy that Mr Obama was not from the chaff, neither does the market. list of institutions to bash, alongside the born an American. Online publications such as National Re- government itself, the courts of activist Following Mr Oliver’s ideas about the port, Huzlers and the World News Daily judges and the mainstream media. The increasing role of “magical thinking” on Report have found a profitable niche populist wing of the conservative move- the American populist right, The Economist pumping out hoaxes, often based on long- ment thus did much to create the condi- asked YouGov to lookat different elements circulating rumours or prejudices, in the tions for the trust-only-your-prejudices of magical thinking, including belief in hope that they will go viral and earn clicks. world of Mr Trump’s campaign. Some are conspiracies and a fear of terrible things, Newly discovered eyewitness accounts of now having second thoughts. “We’ve basi- like a Zika outbreak or a terrorist attack, Jesus’s miracles, a well-known ice-tea cally eliminated any of the referees, the happening soon. Even after controlling for brand testing positive for urine, a “trans- gatekeepers…There is nobody: you can’t party identification, religion and age, there gender woman” caught taking pictures of go to anybody and say: ‘Look, here are the was a marked correlation with support for an underage girl in the bathroom of a de- facts’” said Charlie Sykes, an influential Mr Trump (see chart 2): 55% of voters who partment store—anything goes in this par- conservative radio-show host, in a recent scored positively on our conspiracism in- allel news world. Many share such content interview, adding that “When this is all dex favoured him, compared with 45% of without even thinking twice, let alone over, we have to go back. There’s got to be a their less superstitious peers. These mea- checking to determine ifit is true. reckoning on all this.” sures were not statistically significant pre- Weakened by shrinking audiences and Yet gatekeepers would be in much less dictors of support for Mitt Romney, the far advertising revenues, and trying to keep trouble without the second big factor in more conventional Republican presiden- up online, mainstream media have be- post-truth politics: the internet and the ser- tial candidate in 2012. come part ofthe problem. “Too often news vices it has spawned. Nearly two-thirds of organisations play a major role in propa- adults in America now get news on social From fringe to forefront gating hoaxes, false claims, questionable media and a fifth do so often, according to a Self-reinforcing online communities are rumours and dubious viral content, there- recent survey by the Pew Research Centre, not just a fringe phenomenon. Even oppo- by polluting the digital information a polling outfit; the numbers continue to nents of TTIP, a transatlantic free-trade stream,” writes Craig Silverman, now the grow fast. agreement, admit that the debate over it in editor of BuzzFeed Canada, in a study for On Facebook, Reddit, Twitter or Whats- Austria and Germany has verged on the the Tow Centre for Digital Journalism at App, anybody can be a publisher. Content hysterical, giving rise to outlandish scare the Columbia Journalism School. It does no longer comes in fixed formats and in stories—for instance that Europe would be not help that the tools to keep track of and 1 bundles, such as articles in a newspaper, flooded with American chickens treated that help establish provenance and set ex- with chlorine. “Battling TTIP myths some- pectations; it can take any shape—a video, times feels like taking on Russian propa- False friends 3 a chart, an animation. A single idea, or ganda,” says an EU trade official. Worldwide news articles shared on Facebook “meme”, can replicate shorn of all context, The tendency of netizens to form self- 2013-15 Proportion of articles like DNA in a test tube. Data about the contained groups is strengthened by what From Emergent’s database, log scale -1 spread of a meme has become more im- Eli Pariser, an internet activist, identified 10 Misinformation* -2 portant than whether it is based on facts. five years ago as the “filter bubble”. Back in 10 The mechanisms of these new media 2011 he worried that Google’s search algo- 10-3 are only now beginning to be understood. rithms, which offer users personalised re- 10-4 One crucial process is “homophilous sort- sults according to what the system knows 10-5 ing”: like-minded people forming clusters. of their preferences and surfing behaviour, 10-6 Reliable information* The rise of cable and satellite television would keep people from coming across 10-7 channels in the 1980s and 1990s made it countervailing views. Facebook subse- 10-8 possible to serve news tailored to specific quently became a much better—or worse— 1 Number of shares, log scale 262,144 types of consumer; the internet makes it example. Although Mark Zuckerberg, the Sources: Emergent; Indiana University *Classified by Emergent much easier. According to Yochai Benkler firm’s founder, insists that his social net- 20 Briefing The post-truth world The Economist September 10th 2016

2 even predict the links most clicked on are what is happening in parts of Turkey,” says media. It is not always possible or appro- getting ever better. In fact, this helps ex- Ms Tufekci, who was born in the country. priate for reporters to opine as to what is plain why Mr Trump has been getting so This plurality of voices is not in itself a true or not, as opposed to reporting what is much coverage, says Matt Hindman of bad thing. Vibrant social media are often a said by others. The courage to name and George Washington University. power for good, allowing information to shame chronic liars—and stop giving them Equally important, ecosystems of polit- spread that would otherwise be bottled a stage—is hard to come by in a competitive ical online publications have emerged on up. In Brazil and Malaysia social media marketplace the economic basis of which Facebook—both on the left and the right. have been the conduitfortruth about a cor- is crumbling. Gatekeeping power will al- Pages such as Occupy Democrats and ruption scandal involving Petrobras, the ways bring with it a temptation for abuse— Make America Great can have millions of state oil company, and the lootingof 1MDB, and it will take a long time for people to fans. They pander mostly to the converted, a state-owned investment fund. And there come to believe that temptation can be re- but in these echo chambers narratives can are ways to tell good information from sisted even if it is. form before they make it into the wider po- bad. Fact-checking sites are multiplying, But ifold media will be hard put to get a litical world. They have helped build sup- and not just in America: there are now new grip on the gates, the new ones that port for both Bernie Sanders and Mr nearly 100, according to the Reporters’ Lab have emerged so far do not inspire much Trump, but it is the latter’s campaign, at Duke University. Social media have confidence as an alternative. Facebook friendly media outlets and political surro- started to police their platforms more (which now has more than 1.7 billion gates that are masters at exploiting social heavily: Facebook recently changed the al- monthly users worldwide) and other so- media and its mechanisms. gorithm that decides what users see in cial networks do not see themselves as me- A case in point is the recent speculation their newsfeeds to filter out more clickbait. dia companies, which implies a degree of about the health of Mrs Clinton. It started Technology will improve: Mr Menczer and journalistic responsibility, butas tech firms with videos purporting to show Mrs Clin- his team at Indiana University are building powered by algorithms. And putting artifi- ton suffering from seizures, which gar- tools that can, among other things, detect cial intelligence in charge may be a recipe nered millions of views online. Breitbart whether a bot is behind a Twitter account. for disaster: when Facebook recently News, an “alt-right” web publisher that moved to automate its “trending” news gleefully supports Mr Trump—Stephen The truth is out there section, it promoted a fake news story Bannon, the site’s boss, took over as the The effectiveness of such tools, the use of which claimed that Fox News had fired an Trump campaign’s “chief executive offi- such filters and the impact of such sites de- anchor, Megyn Kelly, forbeing a “traitor”. cer” last month—picked up the story. “I’m pends on people making the effort to seek And then there is Mr Trump, whose not saying that, you know, she had a stroke them out and use them. And the nature of Twitter following of over 11m makes him a or anything like that, but this is not the the problem—that the post-truth strategy gatekeeper of a sort in his own right. His woman we’re used to seeing,” Mr Bannon works because it allows people to forgo moment of truth may well come on elec- said. Mr Trump mentioned Mrs Clinton’s critical thinking in favour of having their tion day; the odds are that he will lose. Ifhe health in a campaign speech. Rudy Giu- feelings reinforced by soundbite truthi- does so, however, he will probably claim liani, a former mayor of New York, urged ness—suggests that such effort may not be that the election was rigged—thus under- people to look for videos on the internet forthcoming. The alternative is to take the mining democracy yet further. And al- that support the speculation. The Clinton power out of users’ hands and recreate the though his campaign denies it, reports campaign slammed what it calls “de- gatekeepers of old. “We need to increase have multiplied recently that he is thinking ranged conspiracy theories”, but doubts the reputational consequencesand change about creating a “mini-media conglomer- are spreading and the backfire effect is in the incentives for making false state- ate”, a cross of Fox and Breitbart News, to full swing. ments,” says Mr Nyhan of Dartmouth Col- make money from the political base he has Such tactics would make Dmitry Kise- lege. “Right now, it pays to be outrageous, created. Whatever Mr Trump comes up lyov proud. “The age of neutral journalism but not to be truthful.” with next, with or without him in the has passed,” the Kremlin’s propagandist- But trying to do this would be a tall or- White House, post-truth politics will be in-chief recently said in an interview. “It is der for the cash-strapped remnants of old with us forsome time to come. 7 impossible because what you select from the huge sea of information is already sub- jective.” The Russian government and its media, such as Rossiya Segodnya, an international news agency run by Mr Kiselyov, produce a steady stream of falsehoods, much like fake-news sites in the West. The Kremlin deploys armies of “trolls” to fight on its behalfin Western comment sections and Twitter feeds (see page 45). Its minions have set up thousands of social-media “bots” and other spamming weapons to drown out other content. “Information glut is the new censorship,” says Zeynep Tufekci of the Universi- ty of North Carolina, adding that other governments are now employing similar tactics. China’s authorities, forinstance, do not try to censor everything they do not like on social media, but often flood the networks with distracting information. Similarly, in post-coup Turkey the number of dubious posts and tweets has increased sharply. “Even I can no longer really tell United States The Economist September 10th 2016 21

Also in this section 23 On the trail, the return 23 Dullness v fantasy in 2016 24 Georgetown’s atonement 26 Lexington: The urban-rural canyon

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

The Affordable Care Act their health. And policies must offer “es- sential” coverage, which includes some Encumbered exchange things, like mammograms, which many buyers will never need. That has made plans cheaper for the riskiest customers, at the cost ofhigher premiums for the healthy and young. Poorer WASHINGTON DC AND NEW YORK folk, who receive subsidies, do not particularly notice. But those who are healthy and Obamacare’s future is not yet secure too well-off to receive subsidies are paying E HAVE to pass the bill so that you gramme now cover 23% of the population, more forinsurance. Since 2010 households “Wcan find out what is in it, away up from 18% in 2013. with incomes over $50,000 have reported from the fog of controversy,” said Nancy Second, the law established govern- the greatest increase in spending on premi- Pelosi, then Speaker of the House, of the ment-run insurance marketplaces, or “ex- ums, despite the fact that coverage expand- Affordable Care Act (ACA), Barack changes”. These offer federally funded ed most among poorer people (see charts). Obama’s health-care reform, in March subsidies to help those with incomes be- The regulations do more than just redis- 2010. More than six years later, that fog has neath 400% of the poverty line—$97,200 tribute, argues Jonathan Gruber, one of yet to recede fully. Nearly half of Ameri- for a family of four in 2016—to buy insur- Obamacare’s architects. A ban on lifetime cans say they oppose the law, despite large ance. Seventeen states run their own ex- limits on coverage gives everyone peace of majorities in favour of most of its contents changes; the federally run fallback option, mind. And a worker with medical pro- when these are polled separately. Donald healthcare.gov, does the job everywhere blems knows that if she loses her job, and Trump calls the act an “incredible eco- else. About 12m Americans now buy with it her employer-provided plan, she nomic burden”, to be replaced, under his health coverage on an exchange, 10m of can buy new coverage. presidency, with “something much bet- them with subsidies. Still, concentrated increases in premi- ter”. And critics continue to insist that the The third mechanism was the most ums help to explain some of the antipathy ACA is heading towards an inevitable fail- subtle. Insurance markets always redistrib- towards Obamacare. Before the law, Brian ure, a charge fuelled by recent headlines ute from the lucky to unlucky: everybody’s Anderson, a 30-something orthodontist about soaring premiums and struggling in- premiums pay for care for those who fall from Nashville, paid $80 a month forinsur- surers. Democrats, meanwhile, largely cel- victim to, say, cancer or a car crash. But a ance that came with a $5,000 deductible. ebrate the law as a defining success of Mr thicket of regulations in Obamacare has In 2014 his insurer cancelled the plan, as it Obama’s presidency. Who is right? made this redistribution more dramatic. did not now comply with the law. His new Under Obamacare, the percentage of Before the law, insurers selling new plan, from healthcare.gov, provides, in his Americans without health insurance has policies to individuals could vary what view, essentially the same coverage—the fallen from 16% in 2010 to 9% in 2015. The they charged based on customers’ sex, deductible is in fact higher—but costs fully law achieved this in three ways. First, it ex- medical history, occupation and most oth- $201 per month. Mr Anderson says he is panded Medicaid, government-provided er factors that correlate with health spend- glad many more people now have insur- insurance for the poor, to cover all those ing. Obamacare drastically limited this ance. But the estimated 2.6m others whose with incomes ofless than 138% ofthe feder- practice. Premiums now vary only with plans were cancelled that year may not all al poverty line. Only 31 states have gone age, smoking habits, family size and where be as understanding. along with the expansion, because the Su- customers live. Discrimination is limited: Yet on average, marketplace plans have preme Court ruled in 2012 that it was op- forexample, the old can be charged at most proved surprisingly cheap. A recent analy- tional. Nonetheless, together Medicaid three times as much as the young. Insurers sis by Loren Adlerand Paul Ginsburgof the and the Children’s Health Insurance Pro- must accept all applicants, regardless of Brookings Institution, a think-tank, found 1 22 United States The Economist September 10th 2016

2 that premiums were initially 10-21% lower ing to McKinsey, a consultancy. Premiums only one insurer; Pinal County, in Arizona, on the exchanges than in the pre-existing have risen from their initial low base, but is set to have an empty exchange. market. More competition on the ex- the earlyevidence suggeststhateven fewer Some insurers are faring better than changes may have brought premiums insurers—perhaps one in four—profited others. Health-maintenance organisa- down a bit. Butinsurersalso settheir prices from the exchanges in 2015. And losses tions, in which a general practitioner over- low because they failed to predict buyers’ seem to have grown. Profit margins are sees patients’ care within a limited net- poor health. now about minus 10%, so prices are rising work of specialists and hospitals, are Three things caught them out. First, it further. The average planned premium in- performingrelatively well. One example is was thought that many small employers crease for 2017 is around 25%, according to Kaiser Permanente, a not-for-profit outfit. would withdraw their plans once their Charles Gaba of acasignups.net, a num- Its insurance covers treatment at its own staffcould getto the exchanges. But thishas ber-crunching website. hospitals, tracks patients’ health and tries not happened much: Obamacare has to keep them well. But this example does killed off perhaps 2m employer plans, Spiralling down not offer a quick fix. Kaiser Permanente’s compared with a forecast of 6m. Second, Critics have long claimed that Obamacare model requires owning hospitals and clin- more people than expected continue to would face a “death spiral”, in which price ics, making it difficult to expand quickly. buy plans directly from insurers. About 9m rises would drive away the healthiest con- Molina, a Californian insurer, is in one Americans are covered this way, almost as sumers, forcing prices higher still. On the sense another success story. The company, many as use the exchanges. Third, more exchanges this is unlikely, because the gov- an experienced Medicaid contractor, en- people than expected chose to remain un- ernment will bear the extra cost forthose it tered the exchanges slowly. “We did not insured. Thanks to the ACA, doing so in- subsidises. Price rises are inconvenient, be- jump in with both feet,” says Mario Moli- curs a fine, though those who cannot af- cause buyers may need to switch plans to na, its chief executive. It would have made ford coverage are exempt. avoid paying more (possibly disrupting a slim profit last year, thanks to its low ad- The poorer people are, the bigger the their care). And it is possible that a death- ministrative costs and pre-existing small subsidy they get, and the keenerthey are to spiral could affect the pricier “gold” and networks of doctors. But rules requiring enroll (see chart). Poorer folk tend to be in “platinum” options. But government sup- healthy plans to pay strugglingones meant worse health. By contrast, those who stay port should keep the exchange market for Molina made a modest loss. on their old insurance or pay a fine proba- other plans standing. Exchanges can survive with just one in- bly do so because they are healthy. The re- The same cannot be said of plans surer. It is odd to worry about monopolies sult is that average claims have been bigger bought directly from insurers, without when the main problem is firms’ losses, es- than expected. “We have seen higher-than- subsidies. These are also getting pricier. pecially as regulators can already limit expected cost from membership with The only safeguard against healthy people price rises (indeed, the threat of overzeal- chronic conditions,” John Gallina, the abandoning those plans is the fact that ous price regulation may be helping to chief financial officer for Anthem, one in- they would be fined if they went without scare insurers away). If monopolists start surer, told investors in July. insurance. For a single adult, the fine is cur- to make juicy profits, there is nothing stop- Those who designed the ACA knew rently $695 or 2.5% of gross income, which- ping others from entering, or re-entering, that insurers would struggle to predict the ever is higher, up to a maximum. That may the market. Yet clearly it would be better to health of those enrolled. For that reason, it not be enough, given that even plans with have more insurers involved. Obamacare promised at first to redistribute cash from big deductibles typically cost several thou- came with a promise of a choice between profitable insurers to loss-making ones. If sand dollars a year. different plans. In any case, every county everyone did badly—ie, ifthe industry acci- The biggest threat to the exchanges is in- needs at least one insurer. dentally underpriced insurance en mas- surers leaving them. In April UnitedHealth se—the taxpayer would make up losses. Group, America’s largest insurer, an- The more the merrier Similarly, ifprofits were excessive, the gov- nounced it was pulling out from most ex- The lawwould workbetterwith more peo- ernment would take most of them. This changes. It will sell in only three next year. ple—especially healthy people—on the ex- was not a new idea: a similar “risk corri- In AugustAetna, anotherlarge insurer, said changes. The ideal way to achieve that dor” operates as part of Medicare, govern- it would withdraw from 11 of 15 states, cit- would be to nudge Americans away from ment-provided health insurance for ing losses of over $400m. This year one in employer-provided health insurance. over-65s. But congressional Republicans 50 potential exchange customers lived in a More than half of America’s under-65s get gutted this provision in 2015. county with just one carrier, according to coverage through their job, although this As a result, insurers have suffered from McKinsey. Next year, thanks to insurer arrangement serves no good purpose. mispricing their plans. In 2014 only 30% withdrawals, as many as one in six people The culprit is the long-standing tax ex- made a profit from the exchanges, accord- will. Some entire states will be served by emption for employer-provided health- care benefits. This costs taxpayers about $250 billion a year, and incentivises em- Pain and gain ployers to ramp up health coverage rather United States than raise wages. That, in turns, inflates Average household spending on Households with health insurance costs. The ACA’s “Cadillac tax” on lavish health-insurance premiums, 2010=100 at some point during year, % plans will mitigate this eventually (it was By income, $’000 By income, $’000 180 95 recently delayed until 2020). It would be >70.0 >75.0 better to abolish the deduction completely. 90 50.0-69.9 160 50.0-74.9 The same goes for the part of Obama- 85 care requiringfirms with over50 staffto of- 140 25.0-49.9 80 fer insurance to their employees. This bur- 120 dens firms with administrative costs and 30.0-49.9 75 100 <25.0 creates an unwelcome incentive for them <30.0 70 to stay small. It has cosmetic appeal to 80 some, because it appears to make firms 2010 11 12 13 14 15 2010 11 12 13 14 foot the bill for keeping their staff healthy. Sources: Census Bureau; The Economist But most economists agree that wages1 The Economist September 10th 2016 United States 23

2 eventually fallto offset such perks. The exchanges may look wobbly, but Number of exchange Fewer employer-provided plans would Ensuring coverage insurers, 2017 forecast they are only one part of the reform. Even mean more people on the exchanges. To 0123+ if the market shrinks and many more peo- the same end, the government could re- ple opt to pay the fine, it will be hard for quire all individually purchased plans to any politician to roll backthe expansion of be bought and sold on the exchanges, as Medicaid. And other, less flashy parts of Washington, DC does. That would not im- the law seem to be making dents in Ameri- prove the overall pool ofrisks, but it would ca’s biggest long-term health-policy chal- stop insurers withdrawing from the ex- lenge: rising costs. For instance, almost one changes and continuing to sell directly to in three dollars spent on Medicare now wealthier—and probably healthier—cus- flows through one of several promising tomers. Finally, the fine for not buying in- cost-reduction programmes. surance could be raised. Pinal County, AZ Cost-control must become the priority Unfortunately,these ideas are not polit- in the private market, too. Private health- Source: McKinsey Centre for US Health System Reform ically appealing. In fact, any change requir- insurance spending (including employer- ing bipartisan co-operation will be diffi- provided plans) is forecast to grow by 5.6% cult. Most Republicans want the law to fail, only when they become ill. Insurers want a year over the next decade, fuelled by so that they can relax regulations and re- the health departmentto improve a formu- spending on drugs. Overall spending on place income-linked subsidies with a tax la under which firms with disproportion- health care will rise to an absurd 20.1% of credit linked to age. Democrats, mean- ately healthy members pay those with GDP by 2025. If Obamacare’s redistribu- while, talk most about starting a publicly unusually sick ones. Marilyn Tavenner, tion mechanisms survive, these rising run insurer to compete on the exchanges, who oversaw the launch ofhealthcare.gov costs will be felt more broadly. It will be an idea Republicans hate. for the administration but now heads the easy for critical politicians to blame the The administration can tweak some main insurance lobby group, says she is ACA forthe underlyingtrend. America will rules. For instance, it is proposing to do keen to see such changes happen before be better off if they avoid such a misdiag- more to prevent people from signing up Mr Obama leaves office in January. nosis, and search hastily for a cure. 7

The election campaign National security and 2016 On the trail Sewers to submarines

Minority outreach Unemployment insurance TAMPA “I didn’t really know what I was getting “That’s not my job.” Dullness confronts fantasy when the into…Is this going to be nice? Is this going Fox’s Chris Wallace will not correct false candidates debate foreign policy to be wild?” statements when he moderates one of the Donald Trump makes his first visit to a presidential debates. Fox News ILLARY CLINTON used flag-waving black church Hspeeches in Florida and North Caroli- Gritted teeth na this week, and a military-themed televi- Wrong turn “I’m thrilled. No, really! I wanted to wel- sion forum in New York, to accuse her Re- “Alittle scheduling error.” come you onto the plane.” publican rival, Donald Trump, of talking Jill Stein, the Green Party candidate, is late Hillary Clinton at last invites the press down the armed forces and failing to cher- to a rally after she flies to the wrong Ohio aboard and takes some questions ish the military alliances that underpin city. Columbus Dispatch America’s global standing. Mrs Clinton’s Ancient wisdom hawkish instincts are sincere: several times Pride goeth... “I often quote a great saying that I learned as Secretary of State from 2009-13, she was “She is sitting at 269 electoral votes guar- from living in Arkansas for many years: If readier to use force as a tool of geopolitics anteed right now. I would argue she is you find a turtle on a fence post, it didn’t than was her boss, Barack Obama. sitting at 347 but forargument’s sake we get there by itself.” But politics also explains her focus on can suspend reality fora moment.” Mrs Clinton speculates that Russia is work- whether Mr Trump has the temperament David Plouffe, Barack Obama’s 2008 ing fora Trump presidency to be commander-in-chief. Recent opinion campaign manager, on Mrs Clinton’s poll averages have tightened, suggesting potential victory. Politico Rhetorical question? that Mrs Clinton has lost as much as half of “What the hell do you have to lose?” the roughly eight-point lead that she The new chicken in every pot Mr Trump’s last gambit opened up after the national conventions “My culture is a very dominant cultu- in July, and that a fifth of voters are unde- re...Ifyou don’t do something about it, The value of nothing cided, essentially because they dislike you’re going to have taco trucks on every “Ofcourse I disagreed with him, because both candidates. With millions of Republi- corner.” I was running against him.” cans, notably those with college educa- The founder of Latinos for Trump is under- Chris Christie explains why he mocked Mr tions, expressing distaste for Mr Trump, the standably confused. MSNBC Trump’s wall during the primaries, only to Democrats have much to gain from casting endorse it now. CBS News the property developer as a menace to The help America and the world. “I was raised by a blacknanny, there’s no Badge of the week A speech in Tampa was billed by the prejudice on my side.” “Trump Putin ‘16’” Clinton campaign as making a case that A member of Trumpettes USA. Politico Spotted in Tampa at a Clinton rally their nominee knows how to keep Ameri- ca safe, while Mr Trump is unfit to be com- 24 United States The Economist September 10th 2016

mander-in-chief. Alas her address was Georgetown and slavery lacklustre and rambling, ranging from education policy to the importance of infrastructure (“what about our water systems, Atonement our sewer systems?”) before reaching for- NEW YORK eign policy. The crowd did its bit, cheering How does a university confront and then atone forits ties to slavery? lustily as she recalled urging the president to launch the raid that killed Osama bin SAAC HAWKINS, along with his chil- would be considered part ofthe George- Laden in 2011 (“You go girl!” shouted a Idren and grandchildren, were among town community,and would have pref- woman). Mrs Clinton scolded Mr Trump the 272 slaves sold by Maryland’s Jesuits erence ifthey applied to the university. for being “very loose in his talk” about in1838 to pay offGeorgetown Universi- These ideas came from the universi- when nuclear weapons should be used, ty’s debts. The Jesuit-run university relied ty’s Working Group on Slavery,Memory and for saying that as president he would on money generated from the planta- and Reconciliation, which convened last order the use of torture, which she said tions the order owned. The slaves, who year. It released a report last week recom- would imperil Americans worldwide. included babies and old people, were mending building a centre on slavery, There is a faint element of awkward- sold for$115,000, about $3.3m today,to establishing a living memorial and en- ness when Democrats play hawk. The air plantations in Louisiana, where they gaging with slaves’ descendants. This is force reservist chosen to introduce Mrs laboured in dreadful conditions on cot- always tricky; most blackAmericans Clinton in Tampa was a shy formerboss of ton and sugar plantations. digging into their family histories, unless an aircraft maintenance squadron, rather Although Father Thomas Mulledy, they know the last slave-owner’s name, than a bullet-chewing warrior-type. In the who ran the college then, had the Vati- hit the “1870 brickwall”—earlier national crowd, Thomas Abel, a retired geologist can’s approval forthe sale, the Holy See censuses, taken before emancipation, did sporting a “Vietnam Veteran” baseball cap imposed conditions. It insisted that fam- not list the surnames ofslaves. But the at the Clinton rally, loyally condemned Mr ilies remained together and that they Working Group, using the detailed bill of Trump as frighteningly unpredictable. But continued to practise their faith. This sale and the ship manifests, which are he also admitted that he does not usually promise was not kept. More than170 still in the college archives, identified wear a veteran’s hat or other signs of war years later, John DeGioia, Georgetown’s most ofthe 272 slaves sold in1838 by first service, and chose his headgear to make president, has apologised forthe univer- and last name and by age. the point that not all ex-soldiers are Repub- sity’s role in slavery.In an attempt to Meanwhile, a team ofgenealogists led licans. Another veteran at the Tampa rally, make amends, he announced that de- by Richard Cellini, a tech entrepreneur Laura Westley, a graduate ofthe West Point scendants ofthe Jesuit-owned slaves and Georgetown alumnus who runs the academyforarmyofficerswho tookpart in Georgetown Memory Project—an in- the 2003 invasion of Iraq, says that ex-sol- dependent nonprofit researching the diers, like all votersthisyear, are sharplydi- Georgetown slaves—has traced more vided by education and gender. “There’s a than 200 ofthe 272 and has identified big divide between officers and enlisted,” some 2,500 living and dead descendants. she says, with rank-and-file troops stirred Judy Riffel, one ofthe genealogists, notes by Mr Trump’s talk of “fighting and win- that even today descendants bear the ning”. Mrs Clinton’s use of an insecure e- names oftheir slaves’ forefathers, such as mail system as Secretary of State enrages Nace (a form ofIgnatius, founder of the many fellow West Pointers, she admits, Jesuits). Many are still Catholic. About who insist that, had they done the same, 900 ofthe1,200 residents ofMaringouin, “they’d have lost their security clearance.” a small town in Louisiana near one of the Mr Trump held his own military- plantations, are descendants. Family lore themed campaign events this week, blend- often hinted that they originally came ing vague promises to increase defence from “up North.” spending with fact-trampling claims about Last year Georgetown students also a dangerous world which fails to “respect” demanded that Mulledy Hall should be America. Quizzed on foreign policy at a fo- renamed. Mr DeGioia says that it will rum in Virginia Beach, Mr Trump seemed now be Isaac Hawkins Hall, after the first to believe that North Korea will “soon” Your statutes are my heritage slave listed in the bill ofsale. have an aircraft-carrier (which is news to Korea-watchers) but that he will “very simply” oblige China to rein in North Korea. feating” the extremist network. His cam- Democrat asked sceptically about her Turning to the fight against IS, he suggested paign unveiled endorsements from 88 re- “hawkish” foreign policy. Mr Trump that finding common cause with Russia tired generals and admirals, prompting played a strongman who is above mere de- against Islamic extremism would be “nice” Team Clinton to release a list of 95 former tails, declaring that under Mr Obama “the and work better than Mrs Clinton’s tough generals and admirals who back her, and generals have been reduced to rubble” and talk about President Vladimir Putin, add- to note that the Republican nominee in that America has “the dumbest foreign ing: “Putin looks at her and he laughs.” 2012, Mitt Romney, found 500 flag officers policy”. Asked about praise from Mr Putin, Addressing supporters in North Caroli- to endorse him. he said the Russian president: “has very na, Mr Trump abruptly backed away from A televised forum in New York, hosted strong control over his country,” while Mr repeated boasts that he has a “foolproof” by NBC News and the Iraq and Afghani- Obama runs a “divided country”—as if de- plan to defeat IS, which he is keepingsecret stan Veterans of America, a charity, point- mocracy is rather a nuisance. He vowed to to remain “unpredictable” and avoid tip- ed up the downsides of Mrs Clinton’s ex- rebuild a “depleted” military while being ping off the enemy. Mr Trump now says tensive record. A Republican member of “very, very cautious” about using it. At its that, within 30 days of becoming presi- the audience charged that she had “cor- core, Mr Trump’s pitch is simplistic, chin- dent, he would ask “top generals” to hand rupted” national security by mishandling jutting, isolationism with a strong dose of him a plan for “soundly and quickly de- e-mails at the State Department, and a wishful thinking. 7 Becoming a Great Essayist Taught by Professor Jennifer Cognard-Black ST. MARY’S COLLEGE OF MARYLAND LECTURE TITLES

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The controversies that go with creating new national monuments grees down there, says MrWilson: “This isn’t the kind ofstuff that draws tourists.” Should any hikers try their luck, Mr Wilson adds doomily, the county has a tiny search-and-rescue budget. As the steppes roll on below, the men point out dirt roads that they fear might be barred to motor vehicles in a national monument, or creek-crossings that might be closed, forcing ranchers on 60-mile detours. Perhaps most of all, ranchers fear that a monument will open the door to endless lawsuits by environmental groups. The West has long seen arguments over land. Mr Skinner’s grandfather, as a boy, was posted to watch for free-roaming sheep that could strip pastures bare, until a 1934 act regulated grazing. The 1970s and 1980s saw “sagebrush rebels” chafing against the federal government, which owns half of all land west of the Rockies. The Skinner Ranch lies a short drive (by Oregon standards) from the Malheur National Wildlife Refuge, a remote spot occupied by armed anti-government militants early this year to protest against the jailing of two local ranchers for setting fires that spread to government property, and to challenge the feds’ legal right to own land at all—an occupation which ended with a protester’s death in a stand-off with FBI agents. Some Republi- cans, including Congressman Rob Bishop and Senator Mike Lee N GENERAL, any law that presidents mostly use in their second of Utah and Senator Ted Cruz of Texas, want federal lands trans- Iterms has unusual powerto cause rows. Take the American An- ferred wholesale to the states. There are eco-absolutists, too, who tiquities Act of 1906, giving presidents the right to protect land- call ranchers crony capitalists, exploiting too-cheap BLM grazing marks and landscapes by declaring them national monu- permits: some would ban cattle outright from public lands. ments—in the process bypassing Congress, which must approve Still, on the ground, compromise does not sound impossible. new national parks and formal “wilderness” reserves. Safely Mr Skinner sympathises with his ranching neighbours jailed for past his last election, BarackObama has been using the act with a arson; but he has no truck with anti-government radicals, and will in recent weeks, creating a new national monument in the thinks that the BLM has every right to exist. Nor does he think lo- woods of Maine and more than quadrupling the size ofa marine cal control a panacea. Though rural Oregon is conservative, polit- monument north-west of Hawaii, itself declared by George W. ical powerresideswhere mostpeople live, in such left-leaning cit- Bush during his second term. In all, Mr Obama has created more ies as Portland. If Democrat-run Oregon took over land than two dozen national monuments, protecting more square management from the feds, Mr Skinner thinks ranchers’ pro- miles ofland and sea than any predecessor. blemswould be “multiplied tenfold”. He also suggeststhat, if fed- If these actions delight some, they alarm others—notably folk eral officials called fora smallerreserve, perhaps covering 48,000 who run cattle, mine, log or otherwise exploit nature’s bounty in acres, many locals would be willing to talk. picturesque bits ofAmerica. One such place is the Owyhee basin A young neighbour, Elias Eiguren, says militants hurt the of eastern Oregon, a remote landscape of wild rivers and vertigi- ranchers’ peaceful, law-abiding cause. Most came from out of nous cliffs, and high desert edged with red and pinkrocks. Before state, he sighs: “Those people looklike us, but aren’t us.” The local Mr Obama steps down, environmentalists, outdoor-leisure com- congressman, Greg Walden, walks a fine line. He has joined fel- panies (including Keen, an Oregon-based shoe-maker) and some low-Republicans in seeking to bar new national-monument des- Democratic politicians want him to create an Owyhee Canyon- ignations, but has not endorsed sweeping transfers of federal lands National Monument covering as much as 2.5m acres. land to the states. Mr Walden says the right way to protect pre- Lots of monument-backers say that their main concern is pos- cious places is with legislation passed by Congress, to ensure in- sible oil and mineral extraction on what are today federally dividual rights are protected from bullying, far-off majorities. owned rangelands overseen by the Bureau ofLand Management Alas, a polarised Congress has passed hardly any public-lands (BLM), not grazing cattle. But ranchers are deeply wary. Bob Skin- bills in recent years. ner, whose family reached the Owyhee basin in 1863, is so alarmed that, one morning earlier this summer, he took Lexing- The rural-urban canyon ton up in hisown lightaircrafton an endearinglytransparent mis- Malheur County (population, 30,000) held a referendum in sion: to badmouth a landscape that, deep down, he clearly loves. March, with 90% of votes cast opposing a national monument. That’s lava from an eruption 600 years ago, Mr Skinner shouts Mr Wilson thinks his county’s wishes should weigh “very heavi- over the Cessna’s engine, pointing to an otherworldly expanse of ly”. Local voices must be “respected”, agrees Neil Kornze, director crusted black rock. Terrible, razor-sharp lava, he scowls: “Will of the BLM. But public lands are owned by all Americans: 60m cripple a dog in ten minutes.” A deep canyon is “pretty”, he con- visit them to hike, camp orriver-raftthere each year. Decades ago, cedes. But as he putters 100 feet above flat, sagebrush-scented Mr Kornze notes, his bureau’s badge showed five working men: a steppes that lie beyond it, he demands: “Once you’ve seen one surveyor, a miner, a cowboy, a loggerand an oilman. Now, reflect- mile of it, what’s more of it?” He is echoed by Larry Wilson, an ing public priorities, it shows a pretty mountain and a river. Man- elected commissioner for the surrounding region, Malheur aging that change will require national, state and local leaders to County, also along for the ride. Temperatures can exceed 100 de- find common ground: a seemingly monumental task. 7 The Americas The Economist September 10th 2016 27

Also in this section 28 Avocado wars 28 Venezuela’s bumbling strongman 30 Bello: Sacking Brazilian presidents

A Mexican minister falls Economist went to press he was due to pre- The cost of an unwanted guest sent the budget for next year that Mr Vide- garay had prepared. It is expected to aim for a deficit lower than this year’s (probably 3% ofGDP) and fora small primary sur- plus (ie, before interest payments). MEXICO CITY Mr Peña’s use of a scapegoat does not answer the most pressing questions he Donald Trump’s visit has upended Mexican politics faces: how to avoid irrelevance in the final O SAYthingshave been goingbadly for to the Republican ranter (pictured) ap- two years of his term and prepare his Insti- TEnrique Peña Nieto, Mexico’s presi- palled the vast majority of Mexicans. Even tutional Revolutionary Party (PRI) for the dent, would be an understatement. Recent before all that, Mr Peña had the lowest ap- next election. The government’s reforms embarrassments include allegations that a proval ratingsofanypresidentthiscentury. are moving ahead, with varying success. Miami-based company paid property tax- Mr Videgaray saw the visit as a way to reas- Energy is making progress; an education es for his wife, revelations that he plagiar- sure investors who fear a President Trump reform has been slowed by radical teach- ised part of his university thesis and an ill- would abrogate the North American Free- ers. But Mr Peña has had little to offer Mex- judged rendezvous with Donald Trump. Trade Agreement or block remittances icans who are increasingly angry about On September 7th Mr Peña tried to put the from Mexican workers in the United sleaze, rising violence and the overall fee- unpleasantness behind him by accepting States. He misjudged the political cost. bleness of the rule of law. The country’s the resignation ofthe finance minister, Luis But Mr Videgaray was under pressure corruption rating, as measured by the re- Videgaray, hismostimportantdeputy, who for other reasons. He has allowed public- searchers of Transparency International, is had hopes ofbecoming president in 2018. sectordebt to rise by more than 10% ofGDP stubbornly and embarrassingly poor for a Most observers assume Mr Videgaray since 2012; Standard & Poor’s, a rating agen- democracy whose economy is the 15th tookthe fall forsuggesting MrTrump’s visit cy, said in Augustthatitmightmark Mexico largest in the world (see chart). in the first place. The court paid by Mr Peña down. Mexicans, who see their salaries in The administration “needs a reset”, dollar terms, are angry about a slide in the says Luis Rubio of CIDAC, a think-tank. A value ofthe peso. MrVidegarayhad an em- credible fight against lawlessness would Not at the top table barrassment of his own involving the ac- be one option. But few analysts expect that Corruption Perceptions Index, 2015 quisition ofa house from a firm that sought to happen. A new “anti-corruption sys- Selected countries, 100=least corrupt contracts from the government (before he tem” established in the summercould help 0 20406080100 was finance minister, he notes). fight that scourge. But it cannot by itself Denmark 1 In parting with him, Mr Peña is cutting change a political culture that perpetuates Britain 10 loose the architect ofthe reforms for which corruption, and it may take years to show United States 16 his presidency is likely to be remembered. results. Mr Peña seems short of ideas for Chile 23 They include the introduction of competi- curbing violence. tion in electricity and in the oil sector, long Mr Rubio thinks the president could Costa Rica 40 seen as an inviolable bastion of Mexican still redeem the next two years by enacting South Africa 61 sovereignty, and a reform oftaxes. an electoral reform, which would take ef- Mexico 95 Mr Videgaray’s departure is unlikely to fect before the vote in 2018. One common Russia 119 change the course of those reforms. His proposal is the introduction of a runoff in Nigeria 136 successor, José Antonio Meade, who has the presidential election. Under the cur- Venezuela 158 served two presidents as the minister in rent system, heads ofstate are chosen with charge of finance, energy, foreign affairs a single round of voting which means that Afghanistan World rank 166 and, most recently, social development, is a candidate can prevail with much less Source: Transparency International more technocrat than politician. As The than half the vote (Mr Peña, for example, 1 28 The Americas The Economist September 10th 2016

Avocado wars Rich, creamy and rare

How anti-globalists ruin guacamole F THE avocado has an original terroir or Mexico, which was the main supplier Ihabitat, Costa Rica can’t be far from it. and raised the matter at the World Trade About 500 years ago, when Spanish Organisation. That variety has a high oil explorers penetrated the Mesoamerican content and a creamy texture, good for forest, they found people eating a tasty, guacamole. Its rough darkskin is durable, nutritious fruit with lime-green flesh and ideal for shipping. Avocados grown which looked quite unlike any edible in Costa Rica tend to be ofthe smooth, plant they had ever seen. In due course its green-skinned sort that go well in salads. cultivation proved a stellar success in The import ban was supposedly a places from Florida to Israel to New precautionary step against sunblotch, an Zealand. It became a feature ofAustralian infection that can hop from one species beach-parties and London dinners. to another. Costa Rica’s producers have Why then are people in Costa Rica hailed the measure as an overdue boost moaning that they can’t get enough of to their efforts to satisfy all local palates. this lovely food, orat least not at the right But that will take a long time: Mexico’s price or quality? “Steakis now cheaper pre-ban sales ofHass were about12,000 than avocado!” fumes a tweet from a tonnes a year and Costa Rica produces Tico, as the country’s people are called. about 2,000 tonnes ofall types. More- Venezuela’s hapless leader Put it down to a clunky piece ofpro- over, Ticos now have a taste for the Hass tectionism. Last year the government variety, both raw and mashed. Restau- Chávez without slapped a ban on the import ofHass rants in Costa Rica say about a fifth ofthe avocados—the most popular kind world- avocado they serve is wasted, because the charm wide—from nine countries, including customers prefer Hass to anything local. Youcan still get Hass in Costa Rica if CARACAS you are rich or desperate. Imports are Nicolás Maduro’s bumbling brings a allowed from Chile (at up to twice the messy end to his presidency closer price Mexican ones used to fetch), and also from Peru, though Ticos grumble HATEVER his awful defects, Hugo about the taste. And like most trade WChávez showed it when he was rid- curbs, this one helps smugglers. Border ing high as Venezuela’s firebrand leader. So police have seized truckloads ofthe fruit too did Fidel Castro when he played a simi- crossing the frontier with Panama. Some lar role in Cuba. A strongman in a crisis get through. needscharisma. NicolásMaduro, Venezue- In recent days, perhaps as a way of la’s current president, has none. assuaging local palates while still protect- Take, for example, the moment on Sep- ing growers, the government has started tember 2nd when his motorcade passed the process ofauthorising imports from through the gritty municipality of Villa the Dominican Republic, which can offer Rosa on the island of Margarita. This used cheap, year-round production: mostly of to be a red district, whose residents mostly the green-skinned sort, but also increas- backed the ruling leftists in December’s ing amounts ofthe oil-rich kind. So a few elections. But that support is vanishing. more Costa Ricans will soon be able to Margarita, like the rest of the country, has have their Hass and eat it. seen months of food and power shortages and, in particular, a lack of running water. When locals heard the president was com- 2 won with just 38%). Diminishing support who resigned as head ofthe PRI after it suf- ing, they reacted with a show of cacero- for traditional parties such as the PRI, cou- fered setbacks in state elections in June, lazo—banging pots and pans. pled with the emergence of smaller chal- may now make a comeback. The centre- Hearing the commotion, Mr Maduro lengers, makes it more likely that the next right National Action Party is in the open- tried working his charm on the masses as president will win with a small share of ing stages of a struggle among presidential his predecessor might have done. But the the vote, with dire consequences for his or aspirants. jeering grew. After some brusque ex- her legitimacy. The introduction of a sec- Moderate Mexicans fear Mr Peña’s fail- changes, he set off on a sort of defiant jog ond round would be a neat way of solving ings will open the door to Andrés Manuel through the crowd. But it looked more like that problem. López Obrador, a left-wing populist who running away. At one stage he seemed to Even if Mr Peña does not attempt to was runner-up in the last two presidential lash out at a saucepan-wielding lady. change the rules, the political world’s at- elections. (A two-round election would This farce, recorded on mobile phones, tention is now likely to turn to the next make that less likely, and that is one reason soon went viral on social media, thanks to presidential race. Mr Videgaray’s downfall why some people support it.) With Mr Vi- sharing by a prominent opposition jour- removed one major contender from the degaraygone and MrPeña lamed, the iden- nalist, Braulio Jatar. He has since been ar- race. The promotion of Mr Meade im- tity of the next president could be the only rested and, supposedly coincidentally, proves his presidential prospects. There is decision of consequence to be taken over charged with money-laundering. The inci- speculation that Manlio Fabio Beltrones, the next two years. 7 dent capped a disastrous few days for the 1 TURE O U F F

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2 president. On September 1st the opposi- supporters were there; many had been position march, to show its size, was jailed. tion held a march, dubbed the “taking of bused in by government vehicles. He de- A decree by the government-appointed Caracas”. Despite government closures of rided the rival event, insisting that only supreme court to invalidate all future deci- roads and transport, as many as1m protes- 35,000 people had showed up. Wielding a sions by the national assembly has made a ters tookto the streets. Theirostensible aim guitar at one point, he used even cruder political solution elusive, at least while Mr was to accelerate a “recall referendum” language than usual. On daytime TV,he Maduro hangs on. Will his cronies ditch which could oust Mr Maduro: the pro-gov- called the head of the national assembly, him? Vladimir Villegas, an ex-ambassador ernment electoral authorities are deliber- Henry Ramos Allup, a “motherfucker”. In who hosts talks between government and ately stalling. But, perhaps more signifi- a bid to exaggerate his support, a huge TV opposition, hinted atthis. He told a Colom- cant, the march was a vivid demonstration screen was mounted behind the podium. bian newspaper, El Espectador, that those that the Chavista movement is now out- Officials tweeted images of a big red- in power were struggling with the “new re- numbered by the opposition. shirted march. It emerged that these actu- ality” that their term could be finite. Some Mr Maduro seems unable to accept ally showed anotherrally,from 2012, when might see Mr Maduro as dispensable, he that. During the “taking of Caracas”, he Chávez was alive. A national assembly said: a movement would not be sacrificed held his own rally.Tens ofthousands ofhis stafferwho tried flyinga drone over the op- for“an already worn-out leadership.” 7 Bello The impeachment country

Does the ousting ofDilma Rousseffweaken orstrengthen Brazil’s democracy? S WELL as its five football World Cup Speaker ofthe lower house ofcongress. He money, smacks ofnegligence. Avictories and the world’s largest rain- accepted the petition, she plausibly claims, On its own, the Petrobras scandal forest, Brazil has just acquired another un- as an act ofvengeance because she refused didn’t doom her. When Mr Cunha ique distinction. It is the only country to to help him evade expulsion over corrup- launched the impeachment last Decem- have impeached two presidents in just 24 tion allegations. It is troubling, too, that ber, most political analysts expected it to years. In the first case, that of Fernando many of those who voted to oust her are fail. The subsequent stampede against the Collor, who resigned in 1992 on the brink accused of misdeeds. And Mr Temer, a 75- president owed everything to her own in- of being condemned for corruption, im- year-old political insider, hardly embodies competence and to public opinion, which peachment commanded near-universal the regeneration his country’s rotten poli- was enraged, too, by her catastrophic mis- support, and could be read as a sign of tics need. handling of the economy. Above all, she democratic vigour. In the case of Dilma Yet that is not enough to turn the moral failed to build alliances in Congress, Rousseff, ousted by the Senate by 61votes tables in Ms Rousseff’s favour: many ofthe which need not always involve back- to 20 on August 31st, judgments are far “coup-plotters” had been for a decade al- scratching. The crisis of governability in more mixed. Even some who did not lies (and several were ministers) of the Brasília intolerably prolonged the eco- sympathise with Ms Rousseff think her president and her predecessor. Their cor- nomic slump, undermining some of the ousting sullies democracy. They worry ruption, if proved, is venal and personal. social progress made under Lula. It would that Brazil has devalued impeachment, More sinister is that ofthe PT, which organ- have been resolved less divisively by Ms turning it into a means to dump an un- ised a vast kickback scheme centred on Pe- Rousseff resigning or by a fresh election. popular ruler—and, in this case, replace trobras as part ofa “hegemonic project that Butshe refused to step down, and an early her with her unequally unpopular vice- involved growing control ofparliament, of election is constitutionally difficult. president, Michel Temer. the judges and…of the media”, as Fernan- So Brazil is where it is. And it offers Some of the arguments Ms Rousseff do Gabeira, a left-leaning former congress- some lessons. One is that Ms Rousseff has deployed in two days of evidence before man, wrote in O Globo, a newspaper. Ms paid the ultimate price for her fiscal irre- the Senate were mere propaganda. No, Rousseff chaired Petrobras’s board (in sponsibility (which went far wider than her impeachment was not a coup, of any 2003-10) and then ruled the country while those disputed credits). That ought to be a description. It took place over nine this scheme flourished. Her claim to know salutary warning to Latin America’s more months, in strict accordance with the con- nothingofit, northat hercampaign guru in spendthrift politicians. Second, Brazilians stitution and supervised by the supreme the election in 2014 was paid with bribe want to hold their governments to ac- court, a majority of whose members count. Mr Temerwill lose all legitimacy if were nominated by Ms Rousseff or Luiz he yields to pressure from his friends to Inácio Lula da Silva, her predecessor and rein in the Petrobrasinvestigation orhelps the foundingleaderofherleft-wing Work- Mr Cunha avoid justice. ers’ Party (PT). The third lesson is that in Brazil, with The offence Ms Rousseff was accused its strong parliamentary tradition, no of—using credits from public banks to president can govern against Congress. swell the budget without the permission When Ms Rousseff brandishes her 54m ofCongress—is a “crime ofresponsibility” votes in the presidential election of 2014 under Brazil’s impeachment law of 1950. as a defence, she forgets that they were for But there the difficulties start. Her defend- Mr Temer too, and that the senators have ers are right that this charge was a relative- an equally valid democratic mandate. ly minor, technical matter. The lawyers Brazil has thus offered a tutorial in consti- who filed the impeachment petition hit tutional theory to the likes of Nicolás Ma- upon it because there is no evidence that duro, Venezuela’s dictatorial president. Ms Rousseff was personally corrupt. That The legacy of a divisive impeachment is is not true of Eduardo Cunha, the former not all bad. Asia The Economist September 10th 2016 31

Also in this section 32 Ending Myanmar’s insurgencies 33 Japan’s feeble opposition 34 The pearls of Rodrigo Duterte 34 Chinese inﬂuence in Australia

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

Afghan refugees in Pakistan Many refugees seem to have decided to go home before the winter sets in. The Homecoming spleen number of registration-card holders leaving Pakistan has surged in the past three months from 1,250 in June to 67,057 in Au- gust. Officials are expecting a further surge following the end ofthe Eid festival in mid- PESHAWAR September. The United NationsHigh Com- missioner for Refugees (UNHCR) and the One ofthe world’s largest refugee populations is being driven out ofPakistan International Organisation for Migration OR weeks the voluntary repatriation owning property. It has forced banks to (IOM) predict 620,000 registered and un- Fcentre run by the United Nations on the close refugees’ accounts and mobile com- documented refugees will return to Af- outskirts of Peshawar has been besieged panies to disable their SIM cards. Land- ghanistan by the end of the year. That by trucks laden with Afghan refugees and lordshave been encouraged to serve notice would be a huge increase on recent years their worldly possessions. Inside the com- on Afghan tenants. The police, charged (see chart). pound hundreds of men, children and with raiding shops and homes, have taken The UNHCR’s decision in June to dou- burqa-clad women wait bad-temperedly full advantage of the opportunities for ex- ble to $400 the repatriation grant paid to in the sun to complete the achingly slow tortion afforded by the crackdown. each returnee has helped to swell num- formalities of leaving Pakistan, a country “In the past we could go everywhere bers. But it has also added to the strain on that has hosted legions of displaced Af- and no one would ask us about showing a its budget. It and the IOM are appealing for ghans since the Soviet Union invaded Af- visa orpassport,” saysNoorullah Malik, an a combined $73m just to get them through ghanistan in 1979, but now wants to be rid Afghan who lived happily in the city of the year. ofthem. Nowshera for more than 30 years. This Pakistan used to counter charges that it The process, which involves scanning weekhe waswaitingforlornlyin the line at was harming Afghans through its support the soon-to-be-ex-refugees’ irises and issu- the repatriation centre, where a policeman formilitant groups like the Taliban by tout- ing them with temporary travel docu- had tried to relieve him of one of his few ing its decades of hospitality towards Af- ments, concludes with the cutting up of movable assets, a cow. ghan refugees. But many ordinary Paki- their“ProofofRegistration” cards. Pakistan stanis see the refugees as a source of crime, says these documents, once among refu- unemployment and militancy. A senior gees’ most important possessions, will Carry on up the Khyber police officer in Peshawar complains that cease to be valid on December 31st, leaving Number of Afghans returning from Pakistan, m the Afghans have turned an erstwhile “city any of the 1.5m-odd documented refugees Registered refugees of flowers” into a place of teeming slums, 0.6 who remain in the country then in legal Undocumented which harbour the most intractable re- limbo. As for the 1m-odd undocumented 0.5 doubts ofthe polio virus, a disease that has Afghans in Pakistan, the government says nearly been eradicated elsewhere. that from November 15th on, they will 0.4 The massacre of more than 130 school- need visas to remain—something hardly 0.3 boys in Peshawar in 2014 prompted the any ofthem currently have. government to unveil a “national action Although such deadlines have been ex- 0.2 plan” to repatriate all refugees, even tended or ignored in the past, there are 0.1 though no Afghans have been proved to signs that the government means business have participated in the attack. It does not this time. It is enforcing long-ignored rules 0 help that relations between the two coun- 2012 13 14 15 16* that bar refugees from living outside desig- tries have deteriorated, as they have Sources: IOM; UNHCR *Forecast nated camps, running businesses and swapped accusations about which is most 1 32 Asia The Economist September 10th 2016

2 responsible for the Taliban’s resurgence in strugglingto deal with 221,000 people who Afghanistan. have had to quit their homes within Af- The growing instability in Afghanistan, ghanistan to escape fighting with the Tali- CHINA however, makes it a poor time for the refu- ban. The bitter winter looms. Aid agencies KACHIN gees to return. Even with the UNHCR’s ex- fear a humanitarian crisis. INDIA tra cash the new arrivals will not find the Any problems the refugees may face on Myitkyina Laiza adjustment easy.The IOM says the flood of arrival in Afghanistan simply compound returnees has helped to drive up rents and the hardship of having to leave their adop- food prices in Jalalabad, the first big Af- tive home in Pakistan. Many of them were SAGAING ghan city up the road from Peshawar. In born in exile to refugee parents, and have 2015 the governor of Nangarhar, the prov- never set foot in the country to which they ince of which Jalalabad is the capital, said are “returning”. In Peshawar long-estab- he did not want returnees from different lished Afghan businesses, from carpet CHIN SHAN MANDALAY provinces to settle on his patch. shops to juice bars, are shutting down. MYANMA LAOS The Afghan government is still encour- Their owners are often forced to sell prop- RAKHINE MAGWE Naypyid aging refugees to return with a public- erty, electricity generators and whatever awareness campaign featuring the slogan other assets they have at giveaway prices. KAYAH “Grass is green in my land”. It promises to Fazle Amin, a carpet-dealer, is trying BAGO KAYIN THAILAND hand out land to the new arrivals. The Af- frantically to recover money from custom- Bay of ghan ambassador to Pakistan recently told ers who bought on credit. He fears he will Bengal a gathering of refugees in Islamabad, “You lose almost $2m when he leaves the coun- YANGON belong in Afghanistan!” But the govern- try.“I don’tknowwhatI will do in Afghani- IRRAWADDY ment, which provides little in the way of stan,” he says. “I have neverbeen there and Militia activity, 2015 7 services at the best of times, is already I will be a refugee in my own country.” Attended peace conference ABSDFALP ANC CNF DKBA KIA Ending Myanmar’s insurgencies TANINTHARYI KNLA KNPP KNU LDU NDAA NMSP A long road PNLO RCSS SSPP UWSA WNO

Did not attend MYITKYINA AA MNDAA TNLA 200 km Myanmar’s new government sets about making peace with its many ethnic Source: Burma News International minorities N NAYPYIDAW,Myanmar’s capital, Sep- edged that, for the first time, they had there.” Another student agreed: “She only Itember 3rd marked the end of four days talked to the army and it had listened. cares for Bamar [Burman] people. In Yan- of peace talks between the government Since theirspeecheswere shown on televi- gon there’s lots of development, but look and17ofthe insurgent groups that have be- sion, so did Myanmar’s Burman majority. around Myitkyina: nothing has changed.” devilled the country since independence On the streets of Myitkyina, however, That is not entirely true. Just a few years in1948. Delegates listened to a series of op- the eventseemed lessremarkable. “It’sall a ago, when Myanmar was under military timistic closing speeches. But on the same political illusion,” said one young man at a rule, displaying a Kachin flag, much less day in Myitkyina, the capital of Kachin Kachin school, who wears a T-shirt with publicly deriding the country’s president, State, people heard a different sound: fight- the green and red Kachin flag. “Aung San would have meant arrest, or worse. erjetsroaringoverhead. “Maybe they’re on Suu Kyi wants to show the world that she’s Still, Myanmar’s myriad ethnic minor- their way to bomb Laiza,” said a local, re- doing great things, but there’s nothing ities, which comprise around 40% of the1 ferring to the town where the Kachin Inde- pendence Army (KIA), one of the rebel groups, is headquartered. It would not be the first time. Just days before the peace talks began, Myanmar’s army attacked KIA positions with helicopter gunships and heavy artillery. As delegates poured into Naypyidaw from around the country, clashes continued in the states named for the Shan and Kachin minorities, showing that, for all the excitement surrounding the talks, the road ahead is long and obstacle- strewn. At the talks Aung San Suu Kyi, the country’s leader, declared that with persever- ance and courage, “we will surely be able to build the democratic federal union of our dreams.” Min Aung Hlaing, the army chief, promised to work towards peace. Even leaders from some of Myanmar’s many ethnic minorities, who had grum- bled their way to the conference, acknowl- Talk is cheap The Economist September 10th 2016 Asia 33

2 population and live mainly in resource- Thatwill be hard. Creatinga federal sys- rich border areas, come by their cynicism tem will require the army and central gov- honestly. In 1947 Aung San, who led the ernment to devolve far more authority fight forindependence from Britain, signed than they currently do—and, more impor- the Panglong Agreement with representa- tantly,to let go ofthe idea that the Burmans tives from the country’s Shan, Chin and are the country’s natural rulers. It is not Kachin people. It stated: “Full autonomy in clear that Miss Suu Kyi is willing to do that; internal administration…is accepted in and even if she were, the army almost cer- principle.” But Aung San was assassinated tainly would not be. The constitution before he could take power, and ethnic shields it from civilian control and over- conflict has plagued the country since, kill- sight. It has grown rich snatching land and ing and displacing hundreds ofthousands. resources in minority areas. Then there are Myanmar’s border regions remain groups such as the UWSA, which struck drenched in an alphabet soup of guerrilla deals with the army and so have run small groups (see map on previous page). The border areas entirely as they please for de- army,which ruled Myanmarformore than cades. Are they willing to enforce Burmese 50 years before permitting partially civil- law and abandon illicit activities such as ian government earlier this year, struck drug-smuggling? deals with some ofthem, allowingthem to If these questions are, miraculously, re- administer small enclaves. But it was not solved, another may arise: whether Myan- prepared to accept federalism on a grander mar’s minorities can get on with one an- A new face, but not much of a plan scale or to pay much attention to the griev- other. The country’s many and muddled ances ofethnic minorities more broadly. ethnicities are not perfectly divided by its 1955. Many Japanese and much of the civil The National League for Democracy, seven ethnically defined states and six offi- service (not to mention the party itself) see headed by Miss Suu Kyi, who is AungSan’s cial autonomous areas. Groups such as the it as synonymous with the state. daughter, won a landslide election victory Wa,Palaungand Pa-Oworry that the states Voters, meanwhile, have yet to forgive last year, and formed a government earlier in which their autonomous areas are locat- the DP for its disastrous stint in govern- this year. She has said that achieving peace ed will simply supplant the central government in 2009-12. It raised taxes, feuded is her highest priority. She grandly titled ment as the source of bias and repression. with bureaucrats and floundered in the this week’s talks “the 21st Century Pang- They would preferstates oftheir own; oth- wake of the Fukushima nuclear disaster. long Conference”. But she has also taken er groups do not even have autonomous “People let the LDP off the hook for their pains to dampen expectations, reminding regions. A long road indeed. 7 mistakes because they know they are ras- everyone that the talks were just the first cals; but they will never forgive the DP for step on a long road. Miss Suu Kyi’s huge lettingthem down,” says Koichi Nakano of mandate and personal stature give her Japanese politics Sophia University in Tokyo. greater credibility as a negotiator than the Thanks to Mr Okada’s steady hand, the juntas that preceded her. All but three of Get the party party is in a better state than when it lost the country’s20 insurgentgroupsattended power in 2012. It merged with the small Ja- the conference, which is an achievement started pan Innovation Party in March, and struck in itself. (Representatives ofthe biggest eth- a deal with the Japanese Communist Party nic militia, the United Wa State Army TOKYO before the elections in July to refrain from (UWSA), showed up but then stormed out, fielding candidates in the same constituen- The main opposition party hopes a new complaining about lapses in protocol.) cies, to avoid splitting the opposition vote. leaderwill revive its fortunes The talks featured no negotiations orof- Yet the pact is controversial within the ficial discussions, just around 80 speeches N THE dark-suited male world of Japa- DP, which has no clear ideology. Its mem- in which the various parties laid out their Inese politics, the front-runner in the race bers range from right-wing nationalists to positions. The insurgents said that their to lead the main opposition party is a diehard leftists. As a result, it lacks policy fight forself-determination is not a fight for breath of fresh air. If the young and charis- heft. “We have made the mistake ofalways secession; they want to run their own af- matic former TV host who goes by the sin- opposing the government’s policies, but fairs within a federal union. The army in- gle name of Renho emerges from the elec- not proposing our own alternatives,” says sisted that the constitution, which it wrote tion on September15th as the new chief of Akihisa Nagashima, a DP lawmaker. “This and foisted upon the country in a sham ref- the Democratic Party (DP), many members leadership election is our chance to debate erendum eight years ago, already involves believe it will improve the party’s for- policies and let people know what we a degree of federalism. That is a wild exag- tunes. “We need a female leader for a new stand for—perhaps our last.” geration. The constitution gives Myan- image,” says Katsuya Okada, the outgoing MrAbe has tried to co-opt perennial op- mar’s14 states, including seven dominated leader, who supports Renho (pictured). position causes, such asliftingthe wages of by a particular ethnic group, their own leg- The party fared badly at elections in ordinary workers and helping women. Yet islatures. It also allows for autonomous ar- July forhalfofthe seats in the upper house. he has left ample room for the DP to differ- eas within states forsmaller ethnic groups. It lost 11, leaving it with just 49 of the 242 entiate itself. Many voters oppose the But in all these localities most power re- seats in the chamber. This handed the rul- LDP’s policy of restarting Japan’s nuclear mains with a chief executive appointed by ing coalition the two-thirds majority in power stations, which were shut down the army. Nonetheless, to have the army both housesneeded to change Japan’scon- after Fukushima, and Mr Abe’s goal of accept the idea of federalism and the eth- stitution, a pet project of Shinzo Abe, the scrapping the constitution’s restrictions on nic armies renounce separatism is pro- prime minister. Japan’s armed forces. gress, by Burmese standards. Another Yet a new face will not be enough to re- Alas, policy is where Renho, a talented meeting is scheduled in around six vive the DP. For one thing, opposition par- communicator, is weaker than her two months; in the meantime, the government, ties always struggle in Japan. Mr Abe’s Lib- competitors for leader. (She is also likely to army and ethnic militias will negotiate a eral Democratic Party (LDP) has only been come under attack from traditionalists for framework for more substantive talks. out of power for a total of four years since being half-Taiwanese). Seiji Maehara, a for-1 34 Asia The Economist September 10th 2016

2 mer leader, has weightier positions on se- Australia and China his remarks on the South China Sea. The curity and foreign policy, but does not offer donations, he points out, had been de- the change the DP craves. (“If he wins, I You can’t buy trust clared as required and were perfectly legal. may as well have stayed,” says Mr Okada.) Australia’s politicians and political parties, Yuichiro Tamaki has ideas on helping fam- it transpires, took A$5.5m in donations ilies, but is unknown outside the party. from Chinese-linked firms in the two years The absence of a strong opposition is SYDNEY through June 2015, including A$500,000 unhealthy for any democracy, but Mr from Yuhu. Many are now callingfordona- A politician’s blunderexposes Abe’s growing authority makes it especial- tions from foreigners to be banned. inconsistencies in Australia’s attitudes ly worrying. He has largely stamped out China is Australia’s biggest trading LDP factionalism, which used to act as a ELDOM have Australia’s complex rela- partner, and one of its biggest sources of checkon the leader, and made reforms that Stions with China been more starkly ex- immigrants. Chinese demand for Austra- give the cabinet more control over the bu- posed than in the agonies ofSam Dastyari, lian resources, as well as ever-increasing reaucracy. It does not help that the media is a prominent opposition MP. Three months numbers of Chinese tourists and students, prone to self-censorship. Even some in the ago Mr Dastyari gave a press conference have helped to underpin Australia’s 25 LDP would welcome more robust competi- with Huang Xiangmo, the head of Yuhu years of unbroken economic growth. But tion. “I don’t necessarily want a powerful Group, a subsidiary of a property com- manyAustraliansworrythatthe pursuit of opposition, but a more credible one would pany linked to China’s government. Con- Chinese business is undermining their improve debates in parliament and sharp- tradicting both the government’s line and country’s independence. en our policies,” says Kuniko Inoguchi, an the policy of his own party (Labor), Mr Mr Turnbull seems to agree. In April his LDP member ofthe upper house. 7 Dastyari called on Australia to “respect” government vetoed a bid by Dakang, a China’s ill-founded territorial claims in the Chinese company, for S. Kidman and Co, a South China Sea, according to reports in vast outback empire of cattle ranches that The wit and wisdom of Rodrigo Duterte the Chinese press. owns 2.5% of Australia’s agricultural land. MrDastyari, it recently emerged, has ac- Last month it turned down a joint bid by Shoot from the lip cepted donations from Yuhu and from the State Grid, a Chinese government-owned Top Education Institute, a local firm run by company, and Cheung Kong, of Hong a Chinese-Australian with close ties to the Kong, for a 50.4% stake in Ausgrid, an elec- Fuckdiplomacy! governments of both countries. Mr Das- tricity-distribution network in New South HIS weekRodrigo Duterte, the tough- tyari used the money to pay for travel and Wales, Australia’s most populous state. Tguy president ofthe Philippines, was legal advice. Yuhu also gave Mr Dastyari Scott Morrison, the treasurer (the most asked how he would react ifBarack two bottles of Penfolds Grange, Australia’s senior finance minister), said both bids Obama criticised the crackdown on most expensive wine, worth around were “contrary to the national interest”, drugs he has instigated, in which the A$800 ($600) a bottle. From the G20 sum- without explaining how. Yet British firms police have killed1,000 people and mit in China, Malcolm Turnbull, Austra- own 7% of Australia’s agricultural land, unknown assailants another1,400. Mr lia’s prime minister, described Mr Das- withoutapparentlydamagingthe national Duterte said he would call Mr Obama a tyari’s behaviour as “cash forcomment”. interest. And State Grid already owns “son ofa whore” and then expressed On September7th MrDastyari resigned stakes in several electricity distributors in regret, through a spokesman, that Mr from a post within the Labor party,but not other parts of Australia. The rules have not Obama somehow tookthe phrase as an as an MP. Although he admits that accept- changed since those investments were insult. (Mr Obama called Mr Duterte “a ing the money was “a big mistake”, he de- made but, judging by the uproar about Mr colourful guy” and cancelled their nies any link between the donations and Dastyari, the mood has. 7 planned meeting.) Tobe fair, Mr Duterte was speaking about Mr Obama in exactly the same way he does about everything else. Here are a few ofhis memora- ble pronouncements:

On being stuck in a traﬃc jam during a papal visit to Manila: “Pope, son ofa whore, go home. Don’t visit any more.”

On Singapore’s execution of a Filipina maid: “Fuckyou…Youare a garrison pretend- ing to be a country.”

In response to a question about human-rights abuses: “Fuckyou, UN, you can’t even solve the Middle East carnage…shut up all of you.”

On the killing of a Filipino journalist: “Just because you’re a journalist, you are not exempted from assassination if you’re a son ofa bitch.” If you squint, you can just make out the national interest China The Economist September 10th 2016 35

Also in this section 36 Not-quite-so-rare pandas 37 Banyan: Struggling with Mao

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

Politics in Hong Kong kid”. In August Mr Law (pictured in front of a group of supporters after winning his The city that scares China seat with 50,818 votes) was sentenced to 120 hours of community service for incit- ing people to enter a fenced-off area at the start ofthe Umbrella protests. Hong Kong’s government, doubtless BEIJING AND HONG KONG with prodding from Beijing, tried to keep supportersofindependence from running. A new front opens in China’s struggle against separatism It introduced a rule requiring candidates to HINA’S leaders wince at the merest ates). It was no surprise, then, that the gov- sign a declaration that they agree Hong C hint of support for the separation of ernment’s backers were able to take 40 Kong is an “inalienable part” of China, anypartoftheircountryfrom the “mother- seats, a majoritythatwill ensure most ofits threatening criminal prosecution fordoing land”. Gun-toting police officers and ar- bills will be passed. In the previous Legco so falsely. Six of the more outspoken hope- mies of secret ones ensure that few dare elections in 2012 they took43. fuls were thus excluded (they want to chal- openly to express support forthe notion in As the Communist Party in Beijing sees lenge this in court). But some of those now Tibet and Xinjiang, traditionally restive re- it, it is the composition of the opposing elected have expressed support for inde- gions in the west of the country. China’s camp, not its slightly bigger size, that is a pendence. All have called for “self-deter- rapid military modernisation in recent cause for much anxiety. Gone from Legco mination”, meaning the right of Hong years has been aimed in part at deterring are several veterans who have been vocal Kongpeople to decide forthemselveswhat Taiwan, which has neverbeen ruled by the critics ofthe party (which operates only co- sort of relationship they have with China. Communist Party, from making its de facto vertly in Hong Kong). But localists have Youngspiration wants a referendum on independence a formal one. now gained seats for the first time. Not this within five years. Its members believe Imagine, then, their horror at the out- only do such people flirt with the idea of it is necessary to decide as soon as possible come of elections held in Hong Kong on independence, but they are also more what will happen after 2047; Hong Kong’s September 4th. Six of the 70 people who ready than old-guard democrats to engage constitution gives no guarantee that Chi- won seats in the territory’s Legislative in civil disobedience. Several were leaders na’s “one country, two systems” deal will Council, known as Legco, were people of the “Umbrella movement” of 2014, continue beyond that date. who want Hong Kong to be more indepen- which involved weeks of demonstrations China’s refusal to make concessions to dent from China. Though their numbers and sit-ins on busy roads by student-led the Umbrella protesters has fuelled the are small, the emergence ofsuch “localists” protesters demanding more democracy. growth of such groups, despite efforts by could change the way the party views the the government in Hong Kong to under- formerBritish colony. It is no longer merely The umbrellas’ shadow mine support for them (recently, for exam- troubling for its endless calls for democra- In the race for 35 seats in “geographical” ple, by banning teachers from expressing cy. Now it looms as a new front in China’s constituencies (ie, those filled by proper support forindependence in schools). It re- struggle against separatism. elections), pro-democracy politicians took fused to budge on their demands that the Thanks to a system that China (gladly) nearly 55% of the vote in a record turnout. chief executive, as Hong Kong’s leader is inherited from the British, the outcome of But a big share of this—nearly 20% of the known, be freely elected. China insists that elections to Legco is skewed in favour of vote—was for localists belonging to parties candidates for the post be screened by a pro-establishment politicians. That is en- formed in the wake of the failed Umbrella committee packed with loyal Hong Kon- sured by the reservation of 30 seats for campaign. Such groups seem to like port- gers, who can be counted on to exclude “functional” constituencies, namely pro- manteau or hybrid names. One of the Communist Party-baiting democrats. fessions, industries and other groups more radical ofthem, Youngspiration, now Supportformore radical political views whose members tend to support the gov- has two legislators. Nathan Law of a party has also been fuelled by China’s detention ernment (another five seats also techni- called Demosisto, who was a student a few months ago of five Hong Kong book- cally belong to such constituencies, but leader during the Umbrella movement, sellers forselling gossipy works on China’s they allow almost every adult to vote, un- has become the youngest ever to win a leaders. One of them disappeared from like the others, which have small elector- Legco seat. He calls himself a “23-year-old Hong Kong, apparently snatched by main-1 36 China The Economist September 10th 2016

2 land agents. Some Hong Kongers also re- One option that China may consider is wild one, merely threatened, and the more sent an influx of people from the main- pushing Hong Kong to revive its long- frequently-photographed captive one. land, blaming them for pushing up house shelved plans to introduce a new law Though fewer in number, the captive pan- prices, taking good jobs and stripping against subversion. That, however, would das are much more fertile. The wild popu- shelves bare on shopping trips. Localists risk a public backlash, such as occurred in lation rose by 268 between 2003 and 2013, have been at the forefront of protests 2003 when hundreds ofthousands ofpeo- or 17%. The captive population more than against the “locusts”, as some call the ple took to the streets in protest against the doubled from 164 to 375. Pandas have a rep- hordes ofmainland day-trippers. government’s previous attempt to do so. It utation for being hopeless at reproduction China’s initial reaction to the results in may also thinkabout backingLeungChun- (females come into heat only a couple of Hong Kong has been guarded (beyond try- ying, the current chiefexecutive, foranoth- days a year). But the old difficulty of getting ing, as usual, to scrub the internet clean of er term when elections are held next them to breed in captivity owed at least as any comment on the territory’s democrat- March for the post (without public input). much to human ignorance. As knowledge ic endeavours). Its media have barely men- Mr Leung is implacably anti-localist, but is of panda biology and behaviour has tioned them. But the leadership’s worries also hugely unpopular. Keeping him soared, so has the birth rate. are clear. A government statement said would also risk triggering more unrest on Unfortunately, this is making no differ- that advocating independence for Hong the streets. The least likely option is that ence to the wild population. The point of Kong was “a threat to China’s sovereignty China will grant Hong Kong the democra- the captive breeding programme is to re- and security” and would damage the pros- cy many of its people want. Among its populate the wild. Pandas born in captivi- perity and stability of Hong Kong. It ex- many fears is that others in China, not least ty undergo a two-year training process pressed support for any legal action taken in its restless west, may ask why they are from teachers dressed in urine-soaked by Hong Kong’s government to stop it. not allowed it, too. 7 panda costumes, who teach them how to gather food and to be wary of people. But after years of effort only five captive-born pandas have been released. Two of those died. Two more are due to be introduced into the wild this winter. After all this, China’s government might have been expected to crow about the IUCN’s decision. It refrained. The State Forestry Administration (which super- vises the pandas’ habitat) even came near to criticising it. The bureau pointed out that the wild panda population is fragmented into 33 subgroups, 18 ofwhich have just ten or fewer animals, making them (the bureau says) “highly endangered”. Moreover, these groups are isolated from one another. This limits their gene pool and makes Giant pandas them disease-prone. Furthermore, the bureau said, quoting the IUCN’s research, cli- Survival of the cutest mate change could destroy a third of panda habitat in the next 80 years. Around the world a sad parade of animals is travelling towards extinction (sometimes because of demand for their BEIJING body parts from users of traditional Chi- nese medicine). The IUCN recently put an- Down in the bamboo forest, something stirred other iconic species, the eastern lowland OOD news about conservation is al- panda populations in the wild. The num- gorilla, on its endangered list. So it is heart- Gways welcome, and never more so bers there, according to government sur- warming to see the panda going in the oth- than when it concerns that most charis- veys, have increased from 1,114 in 1988 to er direction. But the international symbol matic of charismatic mega-fauna, the giant 1,864 in the most recent panda census in ofconservation needs to lumber much far- panda. On September 5th the Internation- 2013. This is five times as many as the num- ther from the edge ofannihilation. 7 al Union for the Conservation of Nature ber of captive pandas. (IUCN), an environmental group that links Their increase in the wild reflects im- SHANXI governments and NGOs, downgraded the provements in the pandas’ habitat, the QINGHAI GANSU SHAANXI international symbol of cuteness from dense bamboo forests of China’s south- HENAN “endangered” (meaning with a high risk of west (see map). After a period of chopping Xi’an extinction in the wild) to “vulnerable” (ie, down everythingin sight, the country now to becoming endangered). “Everyone has 67 protected panda reserves, covering CHINAHUBEI should celebrate,” said Lo Sze Ping, the about half the animals’ range. Two-thirds CHONGQING boss ofWWF-China, a group whose logo is of wild pandas live in them. The opportu- SICHUAN Chengdu the cuddly-looking creature. nity cost of such reservations is doubtless China has made huge efforts to pro- made lighterby the pandas’ earningpower Chongqing mote panda-breeding over the past 30 (foreign zoos pay $1m a year to rent a pair). years. But those efforts have nothing to do But the government deserves credit for de- Giant panda with the animal’s reclassification. They cades ofconservation efforts. GUIZHOU take place in captivity. The conservation- The result is that China now has two reserves YUNNAN 200km ists’ decision was based on the health of panda populations, both increasing: the Source: WWF The Economist September 10th 2016 China 37 Banyan Abide with Mao

China still struggles to stuffthe Great Helmsman underground perhaps 2m “landlords” and “rich peasants”—wholly artificial definitions, imported from the Soviet Union, for a country without big landholders—were singled out and killed. A parallel campaign was waged against “counter-revolutionaries”. Mao and his accomplices laid down execution quotas foreach province: up to four people per thousand. Perhaps 5m were killed between 1949 and 1957—a golden era, relatively speaking, before the horrors of Mao’s Great Leap Forward and subsequent famine (up to 30m dead) and the Cultural Revolution ofthe 1960sand 1970s (over1m killed). Howcan a man with asmuch blood on hishandsas Adolf Hitler or Joseph Stalin be deemed acceptable? The question is not confined to China. This month, concerts glorifying Mao were to be held by a China-linked group hiring public venues in Sydney and Melbourne. Until they were cancelled because of threats by protesters to disrupt them, city officials defended the concerts as expressions of free speech. They would surely not have done the same forevents in honour ofHit- ler or Stalin. Elsewhere, a restaurant in London plays on the theme of the Cultural Revolution. A high-end Western but Chi- nese-themed department store long sold playful watches featuring Mao’s arm waving to the crowds. MERE 18 years after the death of Mao Zedong, it was possible One answer is that a personal side to Mao shines through in Afor a notable Sinologist to give his book on Chinese reforms his early years that inoculates against the memory of the mon- the title of“Burying Mao”. And who was to quibble? The point of strouslaterones. The earlyMao had a giftforempathy and friend- all the market-led economic change that Deng Xiaoping had pro- ship absent in Hitler or Stalin. He was, moreover, hugely well moted seemed to be to put as much distance as possible between read, and though it is not hard to be a betterpoet than Hitlerwas a his China and the era of Mao’s rule, so full of violence, trauma watercolourist, Mao was in fact one ofthe finest Chinese poets of and human suffering. And yet. With the 40th anniversary of his day. Last, as Kerry Brown of King’s College, London, points Mao’s death this month, a Sinologist now would think twice be- out, Mao’srise to powerwasaccompanied in the turbulent China fore choosing a similar title. “Mao Unburied” is more like it. ofthe first halfofthe 20th century by a moving personal trauma: For China still struggles to stuff the monster underground. not only the deaths of so many of his chief colleagues, but also Mao himself said he wanted to be cremated, and liberal intellec- members of his family. In 1930 his second wife was executed by tuals occasionally petition for his incineration and the return of the Nationalists for refusing to renounce Mao. His son, Mao An- his ashes to his hometown ofShaoshan. But his corpse still lies at ying was killed in 1950 by an American air strike during the Kore- the heart of the Chinese polity, in a glass sarcophagus on Tianan- an war. The trauma engenders sympathy among those who men Square, attended by streams of visitors. Though most im- know the story. Some suggest that the suffering Mao experienced ages of Mao have been removed from public places, his picture earlyin hislife mayhave numbed hissensesto the destruction he still hangs on the Gate ofHeavenly Peace. It is14 months in jail for later unleashed. you if you throw a bottle of ink at it. Mao would have been ap- palled at China’s present materialism. Yet his portrait is also on Mao-tied every banknote. It is as if he is having the last laugh. Yet the more forceful answer must be that, whereas Hitler’s and Taxi-drivers hang icons of Mao on their rear-view mirrors. Stalin’s regimes have long crumbled, China’s Communists con- When recently asked why, one replied that it was because Mao tinue in power. And, says Mr Brown, the national story that Mao was a “kick-arse leader” who had had the guts to go to war with crafted, of bringing together a nation after a century of turmoil the Americans (during the Korean conflict of 1950-53). For youn- and humiliation at Japanese and other foreign hands, remains gerChinese, Mao has retired to the position ofavuncular founder emotionallyreassuringand satisfyingformanyChinese—despite ofthe country. And in Shaoshan, Banyan has been to a restaurant a great many holes. that serves Mao’s favourite dishes to hordes of tourists. It even It means that China’s Communist rulers have to put up with has a shrine to the Great Helmsman. Plastic flowers are around Mao. His craze for permanent revolution and popular attacks on his neck, incense and oranges at his feet—along with Mao’s multi- the party are anathema to President Xi Jinping. Confucius, whom plyingbanknotes. The revolutionary atheist has become another Mao reviled, is much more Mr Xi’s fellow, with his precepts of or- god in the Chinese folkpantheon. der, hierarchy, loyalty and uprightness. But Mr Xi has a problem. To be clearabout his rule: he emerged as the Chinese Commu- As Mr Brown puts it, a party with its roots in terror, illegality and nist Party’s leader from ruthless party purges in the early 1940s. revolution has today to present itself as the bastion of stability From China’s “liberation”, ie, communist victory against the Kuo- and justice. Mr Xi knows that Mao remains the bedrock of his mintang Nationalists in 1949, violence was, as Frank Dikötter, a power. It is why the regime allows no chipping away—recently historian at the University ofHong Kong, puts it, not a by-product closing the only Chinese museum dedicated to the horrors ofthe but the essence ofMao’s rule: a reign ofbroken promises, system- Cultural Revolution, and shutting down a journal that ques- atic violence and calculated terror. The genius of Mao’s violence tioned Maoism. Mao positively oozed power, thrilling even Hen- was to implicate ever more people in it. Between 1950 and 1952 ry Kissinger. Mr Xi knows his power is merely borrowed. 7 38 Middle East and Africa The Economist September 10th 2016

Also in this section 39 Gulf states ease global inequality 40 Muzzling mosques in Jordan 40 Robot crime in South Africa 41 Somalia—Africa’s most-failed state

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

Labour laws in the Gulf sure to find more private-sector jobs forna- tionals will be huge. From oil to toil Some countries are less worried than others. In Qatar and the UAE, nationals are so thin on the ground that there are probably not enough of them to fill government positions, says William Scott-Jackson of MANAMA Oxford Strategic Consulting. In Oman and Bahrain, the situation is less comfortable, Forcing the private sectorto hire locals is hard, and misguided though at least unemployment among T City Centre mall, Bahrain’s largest, Saudi Arabia and the United Arab Emir- Bahrainis remains fairly low. Most is at ABahrainis buy, while foreigners operates (UAE). In Saudi Arabia, Bahrain’s big stake in Saudi Arabia, where the unem- ate the tills. Michelle is from the Philip- neighbour, two-thirds of nationals with ployment rate is already 11.6% and only pines, and lowers her voice to explain why jobs were on the public payroll in 2015, ac- 40% ofadultcitizensare in the labour force. there are so few Bahrainis working along- cording to Jadwa Investment, a Saudi re- For Saudi women, the participation rate is side her. “They are lazy,” she says. Whereas search firm. Whereas other emerging mar- a dismal 18%. she needs to workhard to keep her job and kets and developing countries devoted the visa that goes with it, they can do what- around 5% ofGDP to public-sector wages, a The tyranny of high expectations ever they want, which isn’t much. report from the IMF found in 2015 that in The trouble is that young Gulf Arabs have As part of a government plan to boost the GCC (plus Algeria) they splashed out come to feel entitled to government jobs. indigenous employment, employers in closer to 12%. Terms are generous and duties light, dull- Bahrain are given targetsforthe proportion But sliding oil prices since mid-2014 ing the incentive for bright graduates to in- oflocals they must hire. The targets vary: in have slashed Gulf countries’ revenues by vest in skills needed by the private sector, grubby or boring sectors, requirements are at least 10% of GDP, swelling deficits and such as engineering. Few Saudis would lower—large building-maintenance firms making the old model even less sustain- consider working in shops or restaurants, can get away with a 5% “Bahrainisation” able than it was before. With an extra 3.8m let alone on building sites. rate. Sectors with more prestige, like bank- young people expected to enter the labour The other, deeper, problem is weak de- ing or finance, face higher targets, of 50% market between now and 2021, the pres- mand from the private sector for Gulf na- for larger companies. Small clothes shops tionals. The lure ofthe public sector makes face a quota of 30%. Michelle points to the them expensive, and immigration laws ty- store opposite, which employs some Bah- Spot the difference ing foreigners to their employers make raini staff on the shop floor. They don’t Employment of national and foreign workers non-nationals extra-cheap (see next arti- even want to stand up when the customers By sector, 2013 or latest available, m cle). Solving either problem would mean come in, she grouses—they know they are Nationals Foreigners tinkering with a fragile social contract be- there purely to keep the government hap- PUBLIC SECTOR PRIVATE SECTOR tween oppressive regimes and popula- py, and are not likely to be fired. 4 2 0 0 2 4 6 8 tions who tolerate them as long as they put Meanwhile, in a room whirring with S. Arabia food on the table. cash-counting machines at the Bahraini Kuwait Under pressure, some governments are central bank, all the staff are local citizens, trying harder to force private companies to robed in their long white national dress. Oman hire locals. Oman has extended its list of Half of Bahraini nationals with jobs work Qatar jobsforwhich foreignersmaynotget visas. for the government. This model, of locals It now includes marketing, cleaning and stuffing the public sector and private firms UAE camel-keeping. Saudi Arabia plans to ex- hiring foreigners, is common across the six Bahrain punge foreigners from human resources members of the Gulf Co-operation Coun- and telecoms (and appears to be expung- cil (GCC)—Bahrain, Kuwait, Oman, Qatar, Sources: National statistics; IMF; WEO; Haver Analytics ing a fair few businesses in the process). In 1 The Economist September 10th 2016 Middle East and Africa 39

2 December the Saudi government will Migration in the Gulf tweak its “traffic-light” system, which im- poses harsh penalties on firms that em- Open doors but different laws ploy fewer women, or Saudis in senior roles, than the government wants. Such quotas are textbook examples of bad economic policymaking. They have GCC existed in the for a few decades now. MANAMA They corrupt the work ethic of those taken Because migrants in the Gulfhave few rights, locals let more ofthem in on purely to meet the quotas. One restaurant owner tells of a Bahraini employee UHAMMAD DEV arrived in Bahrain wages for foreigners were 27% lower than who took a holiday whenever he wanted, Mthree months ago from India, leaving theywould be iffirmshad to compete with then demanded extra compensation behind his wife and baby. He misses his each other forlabour. when he was fired. He will think twice be- family, and calls them daily. But driving a Yet still migrants flock to the Gulf. Ac- fore hiring another Bahraini, he says. Em- taxi along Bahrain’s humid highways, he cordingto the GulfLabourMarketsand Mi- ployers don’t like being told to hire people earns more than double what he did back gration programme, a research body, for reasons other than ability and willing- home. “That’s why I’m staying here and roughly half of the 50m people in the GCC ness to do the job. So some of them cheat: they are happy,”he says. are non-citizens. In Qatar and the UAE, it is for example, by adding phantom citizen- News about migrant labourers in the more than 85%. employees to their payroll. Gulfstates usually focuses on abuses. A re- One reason for the long queues of Indi- Some companies claim to see the quo- cent case involves thousands of Pakistani ans at the Qatari embassy is obvious: tas as no problem. Jamal Fakhro, managing and Indian construction workers who wages are much higher in the GCC than at partner for KPMG in Bahrain, boasts that have been stranded in Saudi Arabia after a home. Unpublished research by Michael 60% of his employees are Bahraini, and cash-strapped employer stopped paying Clemens, from the Centre for Global De- that in the banking sector the figure is them but refused to let them leave the velopment, compares migrants who 70%—above what the government re- country. Many are owed months of back moved to the UAE with those who had quires. But these are exceptions. The quo- pay. The Saudi government has promised their contracts cancelled at the last minute tas create an incentive to give nationals to give them plane tickets home, and in- because of the property-price crash in low-wage jobs (which some will not sists that this is a one-off. It is not. 2008. Those who moved earned 250-350% bother to do). Firms treat this as a cost of Under the kafala (sponsorship) system more. Many migrants send money home, doing business, like a tax, says Steffen Her- used in Bahrain, Kuwait, Oman, Qatar, which pays school fees and helps relatives tog ofthe London School ofEconomics. Saudi Arabia and the United Arab Emir- start businesses. Having a household Yet a survey by GulfTalent found that, ates (collectively, the Gulf Co-operation member working in the UAE made Indian in 2014, 95% of employers in Oman report- Council or GCC), migrant workers are tied households around 30 percentage points ed that the quota system was a real chal- to their employers. They may not switch more likely to own a family business. lenge, as did 84% in Saudi Arabia and 55% jobs or, in some cases, leave the country Another paper, by Glen Weyl of Micro- in Bahrain. Such heavy-handed regulation without their employer’s permission. soft Research and Yale University, finds is also nightmarish to enforce. In Bahrain, Many have their passports confiscated, that by letting in so many migrants the even with between 15,000 and 19,000 in- though this is illegal. GCC countries do more (per head) to re- spections a year, it takes five years for the The power that the kafala system gives duce global income inequality than richer government to visit each employer. to employers squashes wages. A study by OECD countries, which send loads of aid One way to make locals more attractive Suresh Naidu ofColumbia University,Yaw but keep their borders relatively closed. to employers would be to reduce the pay Nyarko of New York University, Abu Were the OECD countriesto open their bor- gap between them and foreigners. Wage Dhabi, and Shing-Yi Wang of the Wharton ders to the same extent as Kuwait, which subsidies for nationals have worked in the School of Business found that in the UAE has two migrants for every native, global past, but money for them is scarce. The inequality could be cut by a quarter. That is Saudi government recently announced politically impossible in the West. So why huge increases in visa charges for foreign is it possible in the Gulf? workers. Bahrain this year allowed em- Mr Weyl argues that it is the kafala sys- ployers to ignore the employment quotas tem itself that makes Gulf citizens tolerate if they pay the government a fee for each ultra-high levels of immigration. Precisely foreign worker they hire. because it grants migrants so few rights— The new charge, set at around15%ofthe they can never become citizens, nor share cost gap between locals and Bahrainis, is in the generous local welfare state—Gulf too low, says Ausamah bin Abdulla al- nationals do not feel threatened by them. Absi, head of the Labour Market Regula- On the contrary, they like having other tory Authority (LMRA), which introduced people to mop their floors and sweat on the scheme. He hopes to increase the their building sites. charge gradually and nudge employers Some Gulf states are trying to curb the away from their model of importing vast most coercive elements ofthe system. Bah- quantities of low-skilled labour and mak- rain and the UAE have scrapped exit visas ing their profits in low-productivity sec- and allowed migrants to switch jobs. The tors. Mr Absi’s vision, which is more likely Saudis are trying to crack down on exploit- to rebalance the GCC economies than ative middle men. Human Rights Watch, a blunt quotas, requires time. Some see the watchdog, urges construction firms to treat low oil price as a blessing in disguise, a workers better than the law requires. But means of forcing through change. But after the basic deal that Gulf states offer to mi- decades of living on petro-welfare, change grants—you can work, but you will never may come as a shockto many. 7 High pay, few rights be one ofus—remains unchanged. 7 40 Middle East and Africa The Economist September 10th 2016

Extremism in Jordan Muzzling mosques

BAQA’A CAMP Jordan’s novel approach to Islamist militancy HEN is a mosque not a mosque? In WJordan on a Friday, it turns out. To stop militant preachers ascending the min- bar (pulpit), Jordan’s leaders have come up with a novel approach. Each week, ahead ofthe main day ofprayer, they temporarily order the closure of unlicensed mosques— over a third of the 6,000-odd in the coun- Driving in Johannesburg try. Other measures being phased in require preachers to recite only approved sermons sent to them by mobile phone, Bad robots and insist that only registered and govern- JOHANNESBURG ment-trained imams may preach. “The Fri- A green light forthieves in South Africa’s biggest city. Literally day sermon is potentially a dangerous media channel,” explains the kingdom’s N1927 an industrialist named Isidore pickaxe while two others stand guard, religious-affairs minister, Wael Arabiyat. ISchlesinger installed Johannesburg’s scrambling into the bushes whenever a The government has reason to be fear- first traffic light. It drew crowds ofonlook- car goes by. Damage to robots has cost the ful; support for jihadist groups is wide- ers, but was short-lived: an errant motor- city12.7m rand ($900,000) in the past spread once you get outside the plush parts ist soon knocked it down. Today the city’s three years, says the JRA. of western Amman. In the covered market “robots” (as they are called in South To deter thieves, some metal parts of Baqa’a, the largest and grimmest of Jor- African English) are still unreliable, espe- have been replaced with nylon and dan’s ten Palestinian refugee camps, shop- cially when it rains. Traffic updates on plastic. Cables are being made with pers exchange news ofIslamic State’s latest talkradio include a rundown on which thinner (and so less valuable) copper doings when getting their groceries. From robots are out. Drivers must get used to wire. The 70 most frequently vandalised Othman bin Affan mosque, a preacher dodging other cars at malfunctioning traffic lights have been fitted with CCTV condemns rulers for obstructing the reli- eight-lane intersections. cameras and vibration detection, “so we giousobligation ofjihad and the defence of The Johannesburg Roads Agency can tell when someone’s trying to cut the Sunni realm—whether against Israel or (JRA), which manages the robots, blames down a pole”, explains Darryl Thomas, Syria’s Bashar al-Assad. “The jihad begins ageing infrastructure and technology that head ofthe JRA’s department formobil- from here,” says one al-Qaeda supporter is easily damaged by summer thunder- ity and freight. But technology can also over mint tea in an elegant Amman café. storms. Frequent power cuts don’t help. attract thieves. A remote monitoring “Half a million Jordanians are convinced “Pole-overs” (vehicles crashing into traffic system, using SIM cards, proved a disas- of our cause.” Some 4,000 Jordanians, he lights) are a big headache, too. On aver- ter. Within months, thieves had stripped says, have leftforthe Syrian front. Perhead, age, Johannesburg drivers damage 81 them all and run up huge phone bills says the Soufan Group, a New York-based robots a month. using them. Also stolen, in 2013, were 200 consultancy, more people from Jordan But the biggest problem is robot rob- back-up batteries installed in robots to have joined Islamic State’s fighters than bers. Like power lines and manhole keep them on during power cuts. from any other Arab state bar Tunisia. covers, traffic lights attract thieves who The city is taking drastic action. New The loss of their Palestinian, Syrian or sell the metal forscrap. Some will cut legislation, which came into effect in Iraqi homelands makes Jordan’s refugees down the entire pole to get a bit of copper June, makes infrastructure theft a major ready converts. But if the routes to foreign wire. In one theft, caught on video, a man crime. In some cases jail sentences can be jihad are closed off, warns an IS sympa- hacks away at a robot’s cables with a as long as formurder. thiser in Baqa’a, they may honour the obli- gation in Jordan instead. In June, a Baqa’a refugee walked into the fortress-like local though, they have gone for round-ups. der suspicion for denouncing government intelligence headquarters and shot five of Hundreds of cells have been broken up. policy on Palestine. itsagentsdead. “Mostofuscheered,” saysa And so far this year 1,100 Jordanians have Some think better public services resident, urging his neighbours to stage a been hauled before military courts on ter- would help. Thanks to the priorities of wake for the assassin’s execution. “There’s rorism charges. Amjad Qourshah, a uni- private benefactors and Gulf donors, a war within Islam,” says an official. “Ifwe versity lecturer in sharia studies who once many villages with unpaved roads and don’t fix the problem within Islam, it’s not taught in Britain, is spending his third ramshackle schools sport multiple America or Britain who will go first.” Jor- month in detention for a video he made mosques. Others wonder whether the se- dan, he means, will be the first victim. two years ago questioning Jordan’s securi- curity measures are the right tools. “People In the past the authorities opted for ne- ty alliance with America and Israel. From say you’re attacking Islam,” says Bassam gotiation. Two years ago they released two hismosque in southern Amman, where he al-Omoush, a former Jordanian minister leading jihadists, Abu Muhammad al- preaches weekly to 3,000 followers, who teaches at Jordan University’s Sharia Maqdisi and Abu Qatada al-Filastini, in an Sheikh Muhammad al-Wahhash has been College and insists on delivering his own, attempt to co-opt their followers into their summoned to the religious-affairs minis- unapproved, sermons. “Shut down night- own war on Islamic State. More recently, try for “a final warning”. He says he is un- clubs, not mosques.” 7 The Economist September 10th 2016 Middle East and Africa 41

Somalia the central government controls almost nothing. Itcollects just $200m in taxeseach Most-failed state year, UN officials reckon, mostly from the port in Mogadishu, and spends almost all of it on its MPs and the presidency. Else- where Somali statelets operate more or less independently—respecting Mogadi- MOGADISHU shu in theory only. Some, such as Puntland in the north, are fairly well organised, with Twenty-five years ofchaos in the Horn ofAfrica police and security forces. Others are little T THE Coconut Beach Hotel, which UN and African Union mandate. more than warlords’ fiefs. Aopened last month, new guests are Today, the Islamists control little in the The Somali National Army (SNA) is served coconut smoothies when they ar- way oftowns. But Somalia remains deeply meant to keep people safe and hold the rive. The rooms do indeed have a view of insecure. In Mogadishu, fearing kidnap or country together. Most independent ob- the ocean. What betrays where the hotel is, worse, foreigners generally confine them- servers agree with one UN official, who in Mogadishu, the war-torn capital of So- selves to the international airport—a jokes that it “doesn’t actually exist”, at least malia, are the two dozen guards in football sprawling compound protected by thick as a cohesive force. British instructors shirts loafing around the doors clutching fortifications and Ugandan soldiers. Travel brought in to train SNA soldiers have end- AK-47s. At the top of the stairs sits a mach- outside means taking a risk in a taxi or ened up training AMISOM instead. SNA com- ine-gun nest pointing at the gate. Aisha listing an armoured car. In other parts of manders cannot say who or where their Abdulle Hassan, the proprietor, explains the country, especially in the south, AMI- troops are, let alone what they are doing. that she has invested $2m in the business. SOM troops live in fortified camps with There are soldiers, but they often desert She is confident that it will soon be highly thin supply lines, while al-Shabab wander and mostly owe their loyalty to clan lead- profitable. But she is taking no chances: into villages and operate as they please. ers, not to Mogadishu. “Our security is as tight as we could make That is not to say there are no successes. This sets the context for the elections it,” she says. “Only Allah knows if it is At Villa Somalia, the bullet-pocked Italian- due this year. With no money and no army, enough.” built Art Deco presidential palace, Mo- the government can exert influence only Hotels are booming in Mogadishu. This hamed Sheikh Hassan Hamud, the police with the consentofregional leaders. Thisis isnotthanksto tourists—onlythe most dar- commissioner, says that things have got why elections involving people from all ing or idiotic would take a holiday in So- better. A few years ago, at least one police parts of the country and all Somalia’s ma- malia. Rather, the demand comes from officer was dying every day,he says. Today, jor clans are vital. Somalia’s president, power-brokers, who meet in them to dis- it is five to ten a month. But his officers still Hassan Sheik Mohamud, was selected in cuss how to create a new government. This cannot do much beyond escorting VIPs 2011by MPs who in turn were selected by a year Somalia is meant to hold elections, as and guarding government buildings. group ofaround 135 clan elders. But though part of the UN-led reconstruction effort. Asked what he does to protect businesses his term comes to an end on September Buteven aspeacemakersblatherinside air- from attacks, Mr Hamud answers: “We 10th, negotiations about the structure of conditioned conference rooms, battle con- cannot protect them. They must have their new elections, due by the end of the year, tinues to rage outside. Hotels have become own security.”That strengthens al-Shabab, have dragged on endlessly. a target for militants. On August 30th a car because most firms choose to pay off the Even if elections pass off well, it is un- bomb blew up outside one in Mogadishu, militants rather than riskattack. clear that they will deliver much legitima- killing at least 15 people. After a quarter- Somalia has a federal system, which cy. One problem is that the entire process is century of costly foreign intervention, So- means in practice that outside the capital dominated by diaspora Somalis. Some 55% malia is still Africa’s most-failedstate. of MPs have foreign passports, and while At no point since 1991, when the despot Mr Mohamud himself has never lived Siad Barre was overthrown by rebels, have abroad, almost all ofhis advisers are either Somalis had a government worthy of the British or American Somalis. They are not name. Officials from Mogadishu cannot always popular. For the moment, elections safely visit much of the country, let alone are the only hope, as donors’ patience is govern it (even excluding Somaliland, a re- wearing thin. gion in the north that has been de facto in- In February the EU, AMISOM’s main dependent since1991). War, famineand ter- funder, cut 20% from its budget for peace- rorism have prompted legions of Somalis keeping in Somalia. That followed a series to flee. A sixth of them—2m out of a popu- of attacks on AMISOM troops which have lation of perhaps 12m—now live abroad. led contributors to wonder whether it is For those who remain, life expectancy is worth it. Kenyan troops have all but just 55 years, and barely a third can read. stopped fighting this year. Uganda had Since 2007 Somalia has been occupied planned to pull its troops out by the end of by armies from neighbouring countries, 2017, though President Yoweri Museveni is who—beginning with the Ethiopians in now considering keeping them in place. 2006—invaded to eject an incipient Islam- A full withdrawal is unlikely. Com- ist government in Mogadishu. The result pared with a decade ago, Somalia’s pro- was the creation of a Western-backed So- blems are more contained. Piracy has all mali transitional government, and a new but stopped; al-Shabab are a guerrilla enemy, al-Shabab, a splinter group from army, but not a conventional one. People the Islamists. Al-Shabab immediately re- are generally not starving. All that would sorted to guerrilla war. In an effort to keep be undone quickly if the foreign soldiers the jihadists at bay, Western governments left. But the real prize—a Somalia with a pay for AMISOM, a force of 22,000 foreign functioning government and safe streets— soldiers operating in Somalia under a joint Wish you were here? seems as distant as ever. 7 42 Europe The Economist September 10th 2016

Also in this section 43 Spain’s coalition talks 43 Ireland backs Apple 44 Homeopathy in Germany 45 How Russians view Donald Trump 45 Russian Tweetaganda 46 Charlemagne: Unshrinking Europe

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

Turkey’s Gulen purges “Youmust wait until you have all the state power.” A conspiracy so immense The victory of Mr Erdogan’s Islamist Justice and Development (AK) party in the elections of 2002 cleared the way for Mr Gulen’s rehabilitation. In 2006 a Turkish court acquitted him. Mr Gulen, by now en- ISTANBUL sconced in a complex in rural Pennsylva- nia, became a spokesman for enlightened Turkey’s post-coup crackdown has become a witch-hunt Islam, preaching interfaith dialogue and STAR GOZAYDIN, a professor at Gediz businesses and foundations. According to the value of science. Teachers and volun- IUniversity in Izmir, felt the sting of Tur- one minister, the state has seized more teers linked to the cemaat fanned out key’s purges earlier than most. She was than $4 billion-worth ofGulenist assets. across the globe, blazing a path for Turkish fired daysafterJuly’sfailed coup, notby the Meanwhile the purge is spreading to contractors and diplomats. (Turkey had 12 government but by her own university. Turkey’s conflict with its Kurdish minority, embassiesin Africa in 2009; today it boasts She had tweeted articlesopposingreinstat- which over the past year has led to heavy 39. Trade with the continent has tripled ing the death penalty and condemning fighting in the country’s south-east. The since 2003.) Under AK, Gulen sympa- mob violence. “Perhaps [school officials] government now plans to suspend 14,000 thisers snapped up government jobs by thought they could escape intervention by teachers over alleged links to the outlawed the thousands, replacing the secular old suspending me,” she says. They could not. Kurdistan Workers’ Party (PKK ). Once a guard and establishing what Turks now Two days later Gediz and 14 other universi- witch-hunt starts, it is hard to stop. call a “parallel state”. ties were shut down over alleged links to They then began to hound their oppo- the Gulen community, or cemaat, a shad- A simple country preacher nents. Starting in 2007, Gulenist prosecu- owy Islamic movement that was in part re- The rise of the cemaat has its roots in the tors orchestrated show trials that put hun- sponsible for the coup. long struggle between the official secular- dreds of army officers, thousands of Most foreign analysts think an alliance ism established by Kemal Ataturk, Turkey’s Kurdish activists, several journalists and ofofficers from different backgrounds took foundingfather, and Islam. The imam who the chairman of a football club behind part in the plot to topple Turkey’s presi- founded the movement, Fethullah Gulen, bars. Gulenist newspapers cheered the ardent, Recep Tayyip Erdogan. But the gov- was born in 1941 in eastern Turkey. By the rests. In a recent interview with a Turkish ernment blames the cemaat exclusively, early 1970s poor students were flocking to daily, Ilker Basbug, a former army chief ar- and most Turks agree. The purge that Mr Er- his impassioned sermons, infused with rested in 2012, said he had warned MrErdo- dogan has launched against the group and Sufism and Turkish nationalism. His gan about the cemaat. “I told him, we are its sympathisers has swept up over wealthier acolytes set up a network of facing this threat today, you will face it to- 100,000 people. Last week50,000 civil ser- foundations, charities, newspapers and morrow,” he said. Mr Erdogan turned on vants were dismissed by decree. Soldiers, schools which pumped a stream of gradu- the movement only after its bureaucrats journalists, academics, airline pilots and ates (almost all men) into Turkish business turned against him in 2012, by trying to ar- businessmen have all been targeted. and government, testing the boundaries of rest his intelligence chief. A year later, he Increasingly the crackdown resembles Kemalism’s anti-Islamist dogma. accused Gulenistsofchoreographinga cor- a witch-hunt, far bigger than Senator Joe In 1999, two years after the army ousted ruption scandal involving AK politicians. McCarthy’s purge of suspected commu- an Islamist prime minister, MrGulen wise- The coup may have been prompted by nists in America in the 1950s. Its latest casu- ly left for America. Soon thereafter, he was government plans to purge Gulenists from alties include a pop singerarrested for pub- charged in absentia with subverting Tur- the army. lishing columns in a Gulenist newspaper key’s secular order. A videotape showed In the months since, Mr Erdogan’s gov- and a dancer sacked by the national ballet him urging followers to seize control ofthe ernmenthasbeen rewritinghistoryby pin- for allegedly selling his home through a state. “You must move within the arteries ning its mistakes on Gulenists in its midst. Gulenist bank (which he denies). The au- of the system, without anyone noticing It now blames the show trials, the collapse thorities have shut thousands of schools, yourexistence,” MrGulen said on the tape. of peace talks with the PKK in 2015, and the 1 The Economist September 10th 2016 Europe 43

2 army’s longreluctance to intervene against Islamic State militants on the cemaat.With the government exercising emergency powers, there is virtually nothing to check Mr Erdogan’s crackdown. The new interior minister compares the Gulenists to a plague, and has vowed to fight them “until not a single member is left”. The paranoia is spilling across borders, too. In the Netherlands, schools linked to the movement have hired security guards after parents complained ofthreats against them and their children. In Bulgaria, the government deported an alleged Gulen financier to Turkey over the objections of its own courts. Turkey’s state-run news agency, Anadolu, is churning out country-by- country blacklists of entities and people it claims are linked to the cemaat. A Turkish prosecutor recently accused the Vatican of Somebody has to run this place appointing Mr Gulen as a “secret cardinal” in the1990s. For this, most commentators put the the EU’s discussions about its post-Brexit Secular Turks have no love forthe Gule- blame squarely on Pedro Sánchez, the future. Without a government, it will be nists, who targeted them in their own leader of the opposition Socialists. His 85 unable to approve a budget for 2017 or purges in the 2000s. They have supported deputies hold the balance ofpower. But he meet promises to the EU to cut its fiscal def- the government’s crusade against the ce- refuses to allow enough ofthem to abstain icit from 5.1% ofGDP in 2015 to 3.1% in 2017. maat, most visibly at a national unity rally to give Mr Rajoy his mandate. He accuses Some Socialists are muttering about in August in Yenikapi, a square in Istanbul. Mr Rajoy and the PP of betraying Span- forcing Mr Sánchez to shift his stance or go. Butaspeople with no real linksto the Gule- iards’ trust and of burdening the country They have the increasingly shrill support nists are purged, other opponents of AK, with austerity and corruption. ofEl País, a newspaperthat generally backs and even some of the party’s supporters, Mr Rajoy argues that in 2011-15 his gov- the party. The pressure will mount if the are starting to fear they may be next. “This ernment tookthe tough measures required Socialists do poorly in regional elections in is not what we understood as [the spirit of] to return Spain’s economy to growth. Year- the Basque Country and Galicia on Sep- Yenikapi,” said Kemal Kilicdaroglu, the on-yearGDP growth was3.1% in the second tember 25th. That might induce them to let leader of the main opposition party, the quarter; for the European Union as a Mr Rajoy form a government before the CHP, on September 3rd. That misunder- whole it was just 1.8%. Last month Mr Ra- late-October deadline. But the chance of a standing may cost Turkey dearly. 7 joy struck an accord with Ciudadanos, a third election is rising steadily. 7 new liberal party, to crackdown further on corruption, reform the judiciary and re- Spain’s coalition talks store social spending. Ireland and Europe So what now? The PP has brushed off Ageing caretakers suggestions that Mr Rajoy might step Upsetting the down in favour of another of its leaders. The pressure will remain firmly on MrSán- Apple cart chez to bend. He hinted that he might seek MADRID to form a government himself, with Pode- mos, a new far-leftparty. But he failed to do With a government still out ofreach, a Europe’s most Europhile country is on thatafterthe election in December, and the third election looms the warpath with Brussels overtax numbers now do not add up. ACK in June, after Spain’s second inde- The party leaders are still struggling to EW of Europe’s economies have had a B cisive election in six months, many adapt to a new political world, in which a Fmore miserable decade than Ireland. people expected Mariano Rajoy (pictured), two-party system has given way to a frag- Since being hit hard by the financial crisis, the prime minister, to form a new govern- mented parliament, while Catalan and it has endured nearly ten years ofausterity. ment quickly. Although his conservative some Basque nationalists are set on inde- But on August 30th there was what, at first, People’sParty(PP) did notwin a majority, it pendence rather than deals in Madrid. The looked like good news: the European Com- remained the largest party, with 137 of the Socialists are split. Several ofthe party’s re- mission ordered Ireland to collect €13 bil- 350 seats in parliament, and was the only gional leaders support abstention; others lion ($14.7 billion), a sum almost equal to one to increase its share of the vote. But favour continued opposition. Mr Sán- 6% of annual GDP, in unpaid taxes from summer has come and gone and Spain’s chez’s calculation seems to be that the So- Apple, an American tech giant. political stalemate is no closer to ending. cialists would gain in a third election at the Yet instead of dreaming of ways to In two parliamentary votes, on August expense of Podemos, which may have spend the money, most senior Irish politi- 30th and September 2nd, Mr Rajoy fell peaked. Several corruption trials involving cians were apoplectic with rage when the short ofsecuringa mandate, with 170 votes formerPP officials are due to start in the au- ruling was debated in parliament on Sep- in favour but180 against. These votes start- tumn, which may hurt Mr Rajoy. tember 7th. “We will fight it at home and ed the clock for a third election, once seen This is a risky course for the Socialists. abroad and in the courts,” thundered Ire- as unthinkable. If no one can secure a ma- Mr Rajoy rightly charges that Mr Sánchez’s land’s finance minister. “This is not a com- jority by the end of October, parliament blocking of a government “carries a steep mission finding that stands by a small will be dissolved and Spaniards will face a bill which all Spaniards will have to pay”. country,” said the taoiseach (prime minis- Christmas election. Spain has already marginalised itself from ter). “It cannot be allowed to stand.” 1 44 Europe The Economist September 10th 2016

2 Such anti-Brussels views have sudden- Homeopathy in Germany lybecome surprisinglycommon acrossthe Irish establishment. Fianna Fail and La- bour unanimously supported the govern- Not a molecule of sense ment, led by Fine Gael, in its decision to ap- BERLIN peal. “They should write a letter to Europe A push to disabuse Germans ofa homegrown form ofquackery and tell them to fuck off,” advised Michael O’Leary, the forthright boss of Ryanair, Ire- T MAYnot be as ancient as acupunc- ly,so did the controversies. Australia’s land’s largest indigenous firm. Iture, but homeopathy is the closest medical-research council last year came Mainstream parties appear to be in line thing Germany has to a native alterna- out firmly against the technique; Britain with the broader mood. A poll published tive-medicine tradition. Practitioners line and Switzerland are still debating. by Amarach Research, a consultancy, on the high street. Upper-class Germans Nobody denies that some people are September 5th found just 24% of the Irish swear by it. Unusually,Germany gives sincerely convinced they benefit from public opposed appealingagainst the com- homeopathy a privileged legal status. homeopathy. This is thanks to the place- mission’s ruling. Those who want to keep Whereas other medicines must meet bo effect—the more one believes, the the money are mainly Eurosceptics, in- scientific criteria, homeopathic remedies bigger the effect. But no respectable scien- cluding Sinn Fein, a nationalist party. They need not, and health insurers are explicit- tific study has ever shown anything do so more to bash the political mainly allowed to reimburse fortheir use. This beyond that. That is why a group of stream than for any newfound love for the bothers sceptics such as Norbert German professors and doctors, in- EU, says Brian Hayes, a Fine Gael MEP. Schmacke, a professor ofmedicine and cluding Mr Schmacke, met in Freiburg The Irish see little point in dunning Ap- the author ofa bookexplaining why earlier this year to issue a declaration. ple for back taxes. The company did pay homeopathy is nonsense. “Ifyou believe Homeopathy is “a stubbornly surviving shockingly little on its profits—just 0.005% that water has memory,”as homeopaths beliefsystem”, they argue, which “can- in 2014. Yet were Ireland to collect the €13 do, you “might as well also believe in not explain itself” and relies on “self- billion, the EU ruling allows other coun- unicorns”, he says. deception” by patients and therapists. tries to claim a share if they think Apple’s Such objections have been raised for At a conference in Bremen in May, the activities took place on their turf. And the much ofthe two centuries since Samuel homeopathy lobby struckback, pub- company might well packup and leave. Hahnemann, a Saxon doctor, invented lishing a meta-analysis ofresearch that Many believe that the EU is using the homeopathy.He believed that “like cures supposedly proves homeopathy works. ruling as a way to attack Ireland’s low cor- like”—ie, that tiny doses ofa toxin can It contains old studies already debunked, porate tax rate of 12.5%. This regime is im- heal the patient. And he did mean tiny: the sceptics pointed out. As that fight portant forIreland’s economic model, says homeopaths dilute their chemicals into rages on, politicians are becoming bolder. Dan O’Brien, the chiefeconomist ofthe In- water or sugar to concentrations of1part In August JosefHecken, the chairman of stitute of International and European Af- to billions or even trillions. Usually not a the committee that governs what public fairs, a Dublin think-tank. Alongside EU single molecule remains in the prep- health insurance can cover, said he fa- membership and friendly business laws, it aration. Yet believers claim that this vours banning homeopathy from the list. is how Ireland attracted the foreign cash dilution makes the remedies stronger, None ofthis will sway the faithful. “I’m that transformed a country of poor farm- provided that practitioners use the not worried because I know that it ers into a wealthy knowledge economy. proper shaking technique. works,” says Cornelia Bajic, the homeop- Multinationals lured by the low rate pro- Homeopathy’s renaissance started in athy lobby’s leader. She trusts her experi- vide a fifth ofprivate-sector jobs. They also the 1970s, when it was rediscovered by ence as a practitioner, she says, as well as produce 14% of tax revenues, well above West Germany’s glitterati, including the hordes ofpeople showing up for the OECD average of8%. Veronica Carstens, the wife ofa former treatment. In other words, ifpeople think Ashaky economy urges caution against German president. A big lobby sprung it works, it must work. Some might term moves that alienate foreign investors. On up. As homeopathy spread international- such reasoning “superstition”. September 6th the governor of the central bank said that Ireland is “especially exposed” to “international shocks”. GDP grew by a record 26% in 2015, but that was inflated by multinationals moving in. The domestic economy is expanding at only around 3% a year. The appeal process will probably take years. Irish politicians are likely to pursue it through the courts to the bitter end. “There’s more at stake for them now than there was during the bail-out negotiations of 2010,” Mr O’Brien says. France and Ger- many failed to force Ireland to increase its 12.5% rate backthen, but theirleaders openly say that a common European rate is still their goal. And after Brexit, Ireland’s only bigally in the battle against taxharmonisa- tion, Britain, will disappear from the table. The Irish have consistently been among the EU’s most Europhile members in polls. But a bitter court battle over Ap- ple’s taxes will sour relations between Not as bad as leeches Dublin and Brussels foryears. 7 The Economist September 10th 2016 Europe 45

Donald Trump and the Russians Agency, popped up in Moscow at an anniversary dinner for RT, the Kremlin-backed Brazen meddling broadcaster. He spent part of the evening seated next to Mr Putin. Yet, as with many of Mr Trump’s proposals, it is unclear how committed he is to his pronouncements on Russia policy, if at MOSCOW all. There is no evidence that his campaign has received Russian money. Mr Trump’s The Kremlin prefers a Trump victory, but its feelings are mixed business interests in Russia amount to lit- HE plan was, as Donald Trump might tle, though not for want of trying: his mul- Tput it, “yuuuge”: a statue ofChristopher tiple attempts to crackthe Moscow proper- Columbus taller than the Statue of Liberty, ty market, beginning with a trip to the donated by the Russian government, to be Soviet Union in 1987, all fell through. If any- built on the banks of New York’s Hudson thing, this suggests a lack of well-placed river. “It’s got $40m-worth of bronze in it,” Kremlin connections rather than the oppo- Mr Trump bragged of the design by Zurab site. His most successful venture involved Tsereteli, a Moscow-based monumental bringing the Miss Universe pageant to sculptor, in 1997. But the project nevercame Moscow in 2013. While Mr Trump hoped to fruition. The statue found a home only Mr Putin would attend—tweeting “Will he this year, in Puerto Rico (see picture). become mynewbestfriend?”—the Russian Now Russia is hoping Mr Trump’s run president never made it. at the American presidency will prove Foreign-policy professionals in Mos- more successful, and the Kremlin appears cow understand the risks of Mr Trump’s to be trying to give him a boost. American unpredictability. “If Trump wins, it’s an officials believe Russia hacked the e-mails equation where everything is unknown. from the Democratic National Committee There, x times y equals z,” says Konstantin (DNC) that appeared in July on WikiLeaks. Kosachev, head of the Russian senate’s for- The Washington Post reports that Ameri- eign-affairs committee. While Mrs Clinton can spooks are investigating “a broad co- is seen as fiercely anti-Russian, she is a fa- vert Russian operation” to sow distrust in miliar figure, and even commands grudg- the elections. Michael Morell, a former ing respect. “As a rule, it is easier to deal deputy director of the CIA, suggested that with experienced professionals,” wrote Mr Trump had become an “unwitting Igor Ivanov, a former foreign minister, in a agent ofthe Russian Federation”. recent column in Rossiskaya Gazyeta, a That may be taking things a bit far. Mos- Beautiful, I’m telling you government newspaper. cow clearly prefers Mr Trump, largely be- Regardless of who takes the White cause it hates Hillary Clinton’s interven- Mr Putin’s circle has also been encour- House, Russia’s presence at the centre of tionist foreign-policy views. But many aged byMrTrump’suse ofadviserssympa- American electoral politics is celebrated in Russian officials are worried by the disrup- thetic to Moscow. His former campaign Moscow. While Russian officials deny alle- tive potential of a Trump presidency. “Ifhe chief, Paul Manafort, previously worked gations of meddling, the accusations also ends up in the White House, does it mean for Ukraine’s ex-president, Viktor Yanuko- reinforce the sense of Mr Putin’s power. he’ll actually begin to fulfil all his chaotic vych, a Kremlin ally. Carter Page, a foreign- The focus on Russia in the American cam- promises?” asks Valery Garbuzov, head of policy adviser to the Trump campaign, paign is “a true acknowledgment that Rus- the Russian Academy of Science’s Institute made a speech in Moscowthissummerde- sia has returned to the international arena forthe USA and Canada. nouncing America’s “hypocritical focus as a real factor in world politics”, says Mr Vladimir Putin is clearly pleased with on… democratisation”. Late last year an- Kosachev. That, perhaps even more than Mr Trump’s praise for him. (“He’s been a other adviser, General Michael Flynn, a Mr Trump’s victory, is what the Kremlin leader, far more than our president,” Mr former head of the Defence Intelligence truly craves. 7 Trump said this week.) And the Kremlin is thrilled byMrTrump’sstatementsderiding NATO, applauding Brexit, and suggesting Tweetganda that America might not defend allies Distribution of retweets of news organisations’ posts threatened by Russia. “His views on Amer- RT, the pro-Kremlin TV network, spits out July-September 2016, % ica’s role in the world completely align a tweet every two minutes, many of them 100 with the hopes that Russia has always shared hundreds of times. Are they Cumulative share of retweets had,” says Fyodor Lukyanov, a Russian for- shared because human beings find them 80 eign-policy expert. witty and persuasive? Perhaps not. An Stylistically, too, Mr Trump is Mr Putin’s analysis of over 33,000 tweets from three 60 type: a man ready to make a deal. Like Sil- news outlets shows that RT gets its ret- BBC vio Berlusconi, the former Italian leader weets from relatively few followers. A 40 and pal of Mr Putin, Mr Trump seems un- similar pattern holds for who “likes” its New York Times likely to put politically correct talk of West- posts on Facebook. Of the 50 accounts 20 * ern values ahead of mutual interests. That that most often retweet RT, 16 have such a Russia Today he may harm the Western alliance in the regular pattern that they are probably 0 process is a welcome bonus. “Trump will “bots”—ie, computer programs—or 0 102030405060708090100 smash America as we know it, we’ve got chronic insomniacs. Many of the rest are Cumulative share of retweeters* nothing to lose,” writes Konstantin Rykov, extremely fond of Donald Trump. Sources: Twitter; *Based on 33,000 tweets from each news a formerDuma deputy. The Economist company’s three biggest English channels 46 Europe The Economist September 10th 2016 Charlemagne Unshrinking the continent

Europeans see themselves as mouse-sized. They need to man up deeper promise was to resettle refugees to Europe in an orderly fashion. Yetthe EU haslostinterestin thatpledge, and remains entirely focused on preventing another migrant surge. In Germany politicians are revisiting last year’s arguments over open borders rather than grappling with the challenges of integration. The up- coming presidential campaign in France looks set to be dominated by inward-looking concerns about identity, security and burkinis. In most ofthe depopulatingcountries ofeastern Europe it is impossible even to begin a serious debate about migration, including the legal sort. And Europeans conflate migrants with their obsessive fear of terrorism, which, though a real threat, is less prevalent than it was in the 1970s. Or take trade. TTIP, a proposed trade-and-investment agreement with the United States, is on life support after taking a beat- ing from politicians across Europe. A “next-generation” deal concentrating on regulations and standards rather than tariffs was always going to be a tough sell. But rather than seek to shape negotiations with their most important ally, many Europeans now prefer simply to write the thing off. Even a trade deal with Cana- da, concluded two years ago and now awaiting ratification in Eu- rope’s parliaments, may fall foul of opposition in Germany and IKE all good B-movies, “The Incredible Shrinking Man” is deep- Austria. Bashing international trade—by one account responsible Ler than it seems. After his body’s growth is sent into reverse by for one in seven jobs in the EU—has become a favoured sport for a wayward encounter with a radioactive cloud (yes, this is 1957), European populists ofboth left and right. Scott Carey, the film’shero, finds his relationships destroyed and Like Carey, what Europe desperately needs is growth. Yet his self-esteem drippingaway. Richard Matheson, the screenwrit- Europeans train their sights on the sources of growth and shoot er, said it was a “metaphor for how man’s place in the world was them down, one by one. Easing digital trade within the EU might diminishing”. Today he might say the same forthe old continent. provide a boost. Yet the highlight of the European Commission’s Beleaguered by crisis and shorn of confidence, Europe seems to much-ballyhooed proposals to deepen the digital single market be shrinking by the day. may be a tired plan to help publishers charge search engines for It might seem an odd time for such a claim. This week came linkingto theirstories. Tacklinglabour- and product-market rigid- news that the euro zone grew by 1.6% in the second quarter com- ities could lift euro-zone GDP by 6% over the next decade, accord- pared with a year earlier, and the European Union, lifted by a pre- ing to the OECD, a club of mainly rich countries. But politicians referendum Britain, by 1.8%. This, as Eurocrats wasted no time are too scared; instead theyblame stagnation on the budget limits pointing out, was a good clip faster than the United States. In imposed byBrussels. Itisnothard to see why. Thissummer a mild most countries budget deficits are under control, and after years labour reform in France triggered weeks ofprotests. of austerity the euro zone is at last enjoying the mildest of fiscal expansions. Outside Italy its banks are in better shape. A pan-EU Hormones needed investment scheme launched, to much scepticism, by the Euro- Slow growth, small declines in unemployment and an absence pean Commission last year is starting to show results. of crisis have started to feel like grand achievements. The heavy Yet draw the camera back and the picture looks gloomier. The lifting has been done by the European Central Bank, which has American economy dug itself out of its hole long ago. But accord- bought €1trillion ($1.1 trillion) ofsovereign debt during18 months ing to calculations by the Peterson Institute forInternational Eco- of quantitative easing. That monetary stimulus lets leaders post- nomics, an American think-tank, output in 11EU countries has yet pone reform in sclerotic economies like Italy and Portugal. Spain, to recover to 2007 levels. Large economies, like France and partic- where youth unemployment has been over 40% since 2010, is ularly Italy, are struggling. The IMF has downgraded its forecasts held up as a success. From time to time a powerless European dig- for the euro zone, warning of the risks posed by Brexit. Unem- nitary will proclaim such figures a disgrace. A think-tank will la- ployment remains over 10%, twice the American rate. And there ment European inaction. And then everyone moves on. is precious little thinking about long-term challenges like ageing, It is not that Europe’s crises are imaginary. From Russia to refu- infrastructure or education. gees to Brexit, they are real enough. Polls show that European vot- Towards the end ofthe film, Carey, now reduced to a few inch- ersworrymore aboutimmigration and terrorism than about eco- es, laments that creatures like domestic cats and spiders have be- nomic insecurity, and their leaders must respond. But they come enemies that seem “immortal”. Today in Europe unexpect- should not allow fear to cloud their judgment. Europe is not as ed changes, from genetically modified food to Uber, are too often small and helpless as it seems to thinkit is. With 7% ofthe world’s perceived first as threats. “Even the slightest headwind seems to population, the EU accounts for22% ofits economic output. It still be framed as the beginningofthe next bigcrisis,” said Jeroen Dijs- wields considerable soft power. At the end of “The Incredible selbloem, head of the Eurogroup of finance ministers, this week. Shrinking Man”, Carey comforts himself with the thought that Afterbattlingcrisis forso long, Europeans now see it everywhere. however much his body may diminish, he will at least retain his Take migration. The refugee deal the EU signed with Turkey in own little place within the universe. With luck, Europe can mus- March has brought numbers under control. The agreement’s ter a little more ambition. 7 Britain The Economist September 10th 2016 47

Also in this section 48 How to ﬁx the NHS Bagehot is on holiday

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

Britain and the European Union lows banks based in London to trade across Europe and to let employers freely So what will Brexit really mean? hire EU nationals. These interventions worry Tory Brexi- teers, who fret that having won a famous victory in June, they could lose the war. Theirfearis that, given the choice, Mrs May and Mr Hammond will lean more to stay- Theresa May’s ministers are carefully avoiding specific answers. But she is ing in the single market than to taking back systematically disowning many ofthe Brexiteers’ promises full control of migration, money and laws. OME 77 days have passed since Britain Boris Johnson as foreign secretary and Mr Davis said this week that having access Svoted on June 23rd to leave the Euro- Liam Fox at the Department for Interna- to the single market was not the same as pean Union. Yet this period has been tional Trade. The three men have been hav- being a member of it, and added that giv- strangely reminiscent of 77 years ago, after ing the usual turf wars and squabbles over ing up border control to secure member- Neville Chamberlain declared waron Nazi exactly what Brexit should entail. ship was an “improbable” outcome. But he Germany: a phoney war. Theresa May, the Tellingly, two hints at answers emerged was slapped down when Mrs May’s prime minister, has created a new Depart- this week in Asia, not Westminster. In Chi- spokeswoman said the remark was only ment for Exiting the EU and put three lead- na for the G20 summit, Mrs May dis- Mr Davis’s personal opinion. He also ing Brexiteers (pictured) in charge of the avowed several pledges made by Brexi- talked of retaining as much of the status process. But little else has happened. Arti- teers before the referendum. She said she quo as possible, not least in areas like secu- cle 50 of the EU treaty, which would kick was against an Australian-style “points” rity and foreign-policy co-operation. off negotiations, has not been invoked. system for EU migrants (though mainly be- The case forstaying in the single market And Mrs May’s mantra, “Brexit means cause it might let in too many, nottoo few). is simple: economists say this will min- Brexit”, has become a tired cliché. She refused to back Leavers’ promises to imise the economic damage from Brexit. A David Davis, secretary of state for the transfer saved EU budget payments to the “hard” Brexit that involves leaving the sin- new department, had another go in Parlia- National Health Service or scrap VAT on gle market without comprehensive free- ment on September 5th. Brexit, he ex- fuel bills. The not-so-subtle message was trade deals with the EU and third countries plained helpfully, meant leaving the EU. that, though the three Brexiteers may be would mean a bigger drop in investment He added that this implied taking back nominally in charge, the real decisions will and output. Brexiteers claim that many control of borders, laws and taxpayers’ be taken by her and by Philip Hammond, countries want free-trade deals and the money. He brimmed with cheer about the her chancellor, both ofthem Remainers. economy is proving more robust than Re- opportunities it would bring. Yet when mainers forecast. Michael Gove, a leading asked specific questions—Would Britain A tip from Tokyo Brexiteer and former justice secretary, quit the EU’s single market? What migra- These two may have welcomed a second scoffed that soi-disant experts predicting tion controls would it seek? Would it stay Asian intervention: the unusual publica- economic doom had “oeuf on their face”. in Europol? When would negotiations tion by Japan’s foreign ministry of a Brexit Yet Mrs May is less complacent, ac- start?—he gave only vague answers. paper. Japanese companies, it said, were knowledging that it will not be “plain sail- That may be quite sensible, for a reason huge employers in Britain, which took al- ing” for the economy. Domestic business he also offered: that it is more important to most half of Japan’s investment in the EU and financial lobbies are pressing to stay in get Brexit right than to do it quickly. His de- last year. Most ofthatcame because Britain the single market. As for trade deals, al- partment is a work in progress. He has 180 is a gateway to Europe. The paper advised though she won warm words at the G20 officials and a further 120 in Brussels, but Mrs May to try to retain full access to the summit from Australia’s prime minister, he needs more. As he spoke, he was single market, to avoid customs controls on Malcolm Turnbull, she was told firmly by flanked by his two Brexiteer colleagues, exports, to preserve the “passport” that al- Barack Obama and others that bilateral1 48 Britain The Economist September 10th 2016

2 deals with Britain would not be a priority. paper for the think-tank Open Europe, An- trade union, is threatening strikes in Octo- The climateforfree-trade dealsisnot propi- drew Tyrie, chairman of the Treasury com- ber, November and December as part of a tious these days, and Mr Fox’s department mittee, says the government should first year-long dispute over a new contract. Jim is bereft ofexperienced trade negotiators. decide what sort of Brexit it wants, adding Mackey, chief executive of NHS Improve- Mrs May has ruled out an early election that its leverage is greater before it pulls the ment, a health regulator, puts it bluntly: and a second referendum. She refuses to trigger. He suggests waiting until the “The NHS is in a mess.” provide a “running commentary” on her French election in the spring or even the When it was established in 1948, the Brexit plans. And she insists she can invoke German one in September. NHS was the first universal health-care sys- Article 50 without a parliamentary vote. Yet Mrs May might not be allowed to tem free at the point of use. It is the institu- Yet she is being urged by some to delay, wait by her own party, let alone by fellow tion of which Britons are most proud. No since it would set a two-year deadline for EU leaders eager to get Brexit out of the way other country’s health service would have Brexit that can be extended only by una- before the European elections in mid-2019. had a slot in the opening ceremony of an nimity among EU leaders. In a thoughtful The phoney war may soon turn hotter. 7 Olympic games, as the NHS did in 2012 in London. And yet it is of middling quality. England has a few world-leadinghospitals. The National Health Service It vaccinates more people against influenza and screens more women for cancers than Accident and emergency mostrich countries. Butitsperformance on standard measures of quality—such as survival rates from cancers, strokes and heart attacks—compares badly. NHS BIRMINGHAM, CASTLE CARY AND SALFORD If one fallacy about the is that it is the envy of the world, as its devotees The NHS is in a mess. But reformers believe that new models ofhealth care, many claim, another is that it is a single organisa- pioneered in othercountries, can fixit tion. In fact it is a series of interlocking sys- ALLYEVANS is 75 years old. She lives on costlytypesofcare. The firstislooking after tems. Publichealth, hospitals, general prac- Sher own in a bungalow in Castle Cary, a the dying. About 25% of all hospital inpa- titioners (or GPs, the family doctors who market town in Somerset, where she loves tient spending during a person’s lifetime provide basic care outside hospitals) and to knit and tend her garden. Both hobbies occurs in the final three months. The sec- mental-health services all have separate are harder than they were; Mrs Evans has a ond is caring for those with more than one funding and incentives. Social care, which bad back and, like two-thirds of British chronic condition. About 70% of NHS includes old-folks’ homes and the like, is adults, she is overweight. She also has dia- spending goes on long-term illnesses. run by local councils, not the NHS. betes, high cholesterol, chronic heart fail- More than half of over-70s have at least Governments have relentlessly tin- ure, high blood pressure, hyperthyroidism, two and a quarter have at least three. In kered with this complex system. Since 1974 incontinence and gout. All of which are south Somerset 50% of health and social- there has been a reorganisation of the Eng- made worse by a waning memory. care funding is spent on 4% ofpeople. lish NHS aboutonce everytwo years. (Scot- Like health-care systems around the The same pattern is found across the land, Wales and Northern Ireland have world, the National Health Service (NHS) NHS, and it is struggling to cope. The pres- theirown autonomousservices.) The most is struggling to provide good care at low sureson the service once feltonlyin winter importantwasin 1990 when the Conserva- cost forpatients such as Mrs Evans (not her are now present throughout the year (see tive government introduced an “internal real name). Its business model has not kept chart 1 on next page). Performance against market”. Before the change, regional up with the changing burden of disease. waiting-times targets for cancer treatment health authorities had been responsible For as more people enter and live longer in and emergency care has deteriorated. The for almost every aspect of running hospi- their dotage, demand increases for two British Medical Association, a doctors’ tals. The reform divided the bureaucracy in two. Henceforth one part of the NHS would be responsible for buying services from hospitals and another would be in charge of running them. The subsequent Labour government encouraged more competition and made it easier for private hospitals to provide NHS treatment. It also unleashed a tsunami oftargets. The Health and Social Care Act, passed by the Conservative-led coalition in 2012, wasdescribed bya formerhead ofthe NHS as a reform so big it could be seen from space. But it has changed little on Earth. To- day 209 “Clinical CommissioningGroups” are simply the latest parts of the NHS to purchase services from providers of care, usually hospitals. Paul Corrigan, a former adviser to Tony Blair, says the NHS is still a system set up to fix acute problems, not to treat long-term conditions. He compares recent reformers to someone “trying to connect their iPhone to a landline”. One aim of the 2012 act was to prevent ministers from micromanaging the NHS. But the reality is closerto the ideal ofAneu-1 The Economist September 10th 2016 Britain 49

torically the public has been keener to fe- Vital signs 1 tishise the NHS than pay for it. Polls suggest Operating costs 2 England Patients waiting* that only a minority of people would be England, £bn Treatment days lost due more than four hours prepared to paymore in general taxation to to delayed patient in hospital emergency boost its funding. 140 transfers by the NHS, ’000 departments, % Budget required to 130 100 20 This has led some wonks to propose a meet forecast demand dedicated “NHS tax”. Though the Treasury 120 75 15 is almost genetically sceptical of hypothe- cated taxes, the idea is popular among 110 50 10 health officials and, more surprisingly, 100 Conservative MPs. Andrew Haldenby of NHS commissioning budget 25 5 Reform, a think-tank, suggests that there 90 could be chargesforservicessuch as seeing 0 0 2013 14 15 16 17 18 19 20 2010 11 12 13 14 15 16 a GP, as is the case in about two-thirds of Financial years beginning April *From arrival to admission, members of the OECD rich-country club. Source: NHS England transfer or discharge Source: Nuffield Trust Though this idea is controversial, the NHS has since 1952 charged for seeing a dentist 2 rin Bevan, the post-war Labour health sec- and forprescriptions. “There is no Rubicon they pay for goods and services.” There is retary who wanted the echo of bedpans to cross,” saysStephen Dorrell, a Conserva- huge variation in costs and outcomes. For hitting the floor in Tredegar to reverberate tive formerhealth secretary. hip replacements, hospitals pay between in Whitehall. Most Monday mornings, Je- Then there is a more radical option: £788 and £1,590 for similar prosthetics. remy Hunt, the current health secretary, ditch the taxpayer-funded model altogeth- Rates of deep-wound infection, an avoid- gathers officials to go through the indica- er and replace it with health insurance. able complication, vary from 0.5% to 4%. tors for each NHS trust, line by line. After- Typically the French, Swiss or German Reducing the average to 1% would improve wards hospital bosses are told to shape up. model of universal social insurance is the lives of 6,000 patients per year and But pep talks can only go so far. To fix pitched, as opposed to the American mod- save £300m. Some trusts always use the the NHS requires changes in three areas. el. This is not a new idea; William Bever- recommended “cemented” fixation meth- First, funding. Second, hospitals’ efficiency. idge, who proposed a national health ser- od for replacements, others for only one in And critically, third, reducing demand for vice during the second world war, 50 operations. And implementation of unnecessary treatments through better preferred it. Its supporters argue that in good ideas takes too long—about 17 years public health and joined-up care. countries that mandate health insurance, for scientific discoveries to enter day-to- Since 1948, spending on the NHS has more money is spent on health and out- day practice, by some estimates. grown by an average of3.7% peryear. From comes are better, partly as a result of com- This is not helped by the way hospitals 2010-11 to 2020-21 growth is set to average petition between providers. One recent are paid. The NHS tariff system rewards re- 0.9%. On a perperson basis the budget will paper calling forsocial insurance in Britain peat activity rather than innovation. Iain hardly budge—a big departure from the is entitled: “What are we afraid of?” Hennessey, a paediatric surgeon at Alder 2000s, when it shot up by 70%. NHS fi- “An administrative mess” isthe answer. Hey hospital in Liverpool, wanted to use nances are “in a much worse position than After the chaos of the 2012 reforms there is Skype to show parents remotely how to re- they have ever been”, says Chris Ham of little appetite for a shift in funding models. move their children’s dressings. Yet he was the King’s Fund think-tank. Most officials, and not only in the health prevented from doing so because the tariff “Itisall aboutthe money,” addsJennifer department, believe that the cost of mov- price for a “telemedicine consultation” Dixon of the Health Foundation, another ing to social insurance would outweigh its was too low. Patients instead came into think-tank. No other rich European coun- benefits. They argue that what you spend hospital for more expensive treatment. Sir try is going through as steep a deceleration is what you get: Britain spends less on David Dalton, head ofSalford Royal hospi- in funding. Britain-wide spending on health and its outcomes are worse than tal, says such practices reflect the NHS’s “in- health as a share ofGDP in 2014-15 was 7.3% those of its peers. “Social insurance is a red stitutionally low tolerance to risk”. (£134 billion or $180 billion), lower than in herring,” says one senior Conservative. This conservatism is also apparent in its most of its peers. It is projected to fall to approach to its workforce. The English NHS 6.6% by 2021. If demand grows as forecast Tightening the tourniquet is the biggest employer in Europe. It em- by the NHS, and it makes no efficiency sav- So the NHS must do more with what it al- ploys1.4m people, or5% ofEngland’swork- ings, the service faces a shortfall of about ready spends. A sign of inefficiency is the ers. Staff costs account for more than two- £20 billion by 2020-21(see chart 2). 6,000 patients in English hospitals who are thirds of hospitals’ budgets. But England It is already on the verge of crisis. Sever- ready to go home but not yet discharged, has more shortages of hospital staff than al hospital divisions face closure, according up from 4,000 in 2013. Theycostthe service other rich countries. In 2013-14 the NHS to Chris Hopson, head of NHS Providers, hundreds of millions of pounds per year spent £3.3 billion on agency staff to cover which lobbies government on behalf of and obstruct others from treatment. The gaps. Overtime costs rose, too. A consul- the local trusts that run services. Nearly bed-blockers themselves are harmed, too. tantin Lancashire lastyearearned £374,999 nine out of ten hospital trusts ended the Elderly patients lose up to 5% of muscle in overtime. His basic salary: about lastfinancial yearin deficit. Their costsrose strength for every day they are laid up in £89,000. This is because the pay and vol- as their income fell, a result of the govern- hospital. Some delays are the result of ume of NHS employees are still centrally ment reducingthe amount it paid pertreat- council cuts: about 400,000 fewerold peo- planned many years in advance via a sys- ment. When companies are in the red they ple receive social care than in 2010, mean- tem one official calls “Soviet”. eventually go bankrupt. When trusts are in ing that hospitals are sometimes used as Some ofthese problems would be fixed the red they are typically bailed out and expensive alternatives to care homes. But by recognisingthat there are too many hos- told to improve. Since most of them are in most are due to how hospitals are run. pitals. Across the world hospital chains are trouble, in July the NHS opted to “reset” A review published in February by Pat- scaling up. Simon Stevens, the NHS’s chief trusts’ financial and performance targets. rick Carter, a Labour peer, concluded that executive, cites health firms such as Apollo Rising patient frustration may force the “most [hospitals] still don’t know what in India, Helios in Germany and several government to increase funding. But his- they buy, how much they buy, and what American outfits that have saved money 1 50 Britain The Economist September 10th 2016

2 through shared staffing, back-office func- framework of targets had not led to any ing technology. Only 2% of people use the tions and procurement. Specialised care is “significant changes in mortality”. Gwyn internet to contact their doctor. But two better at scale. “Surgery is about practice Harris, medical director of Modality part- practices in Essex, forexample, are trialling and volume,” explains Mr Hennessey of nership, a group of GPs, goes further. Un- Babylon, an app that uses machine learn- Alder Hey. When Denmark reduced by der what he calls an “inverse pay law”, ingto diagnose symptoms. Others are clev- two-thirds the number of hospitals that those GPs who spend more on services erly using data. When Paul Mears became perform colorectal cancer surgery, post-op- which might keep patients out of hospital, chief executive of Yeovil hospital he used erative mortality rates after two years im- such as a home visit by a nurse, make customer segmentation techniques proved by 62%. In Germany, higher-vol- smaller margins. The worst doctors have learned in previous jobs at British Airways ume cancer-treatment centres have fewer the best returns. and Eurostar. This helped him to realise complications than others. Fewer people On average, the framework made GPs that unless south Somerset’s fragmented have died of strokes in London since it some of the highest-paid family doctors in systems worked together to deal with the merged 32 specialist sites into eight. the world when it was introduced in 2004. costliest 4% of patients, he would need “England has great attachment to the But since then it has become less generous. three new wards to keep up with demand. general hospital but it is a broken model,” GPs’ real-terms income has fallen by one- To integrate them he launched Sym- says Sir David of Salford Royal. In a recent fifth. This, and poor planning, has led to a phony, which cares for Mrs Evans. It is one review for the government, he suggests shortage of them. England needs 5,000 of the NHS’s “Vanguard” projects, many of that the 154 trusts that run hospitals should more in the next five years. The NHS is which are trying to integrate historically be reduced to 40-60 larger ones. It could be mulling a deal with Apollo, whereby the separate parts of the system. Symphony made easier for high-performing trusts to Indian health-care firm supplies enough took inspiration from the Esther Project in take over bad ones, and for private provid- doctors to fill the gap. Sweden, in which care for complex pa- ers to take over failinghospitals. Improving the GP system so that it can tients is organised around their timetables, cope with rising demand will require it to not those of doctors. Symphony has intro- Under the knife move away from its artisan model, em- duced “care co-ordinators” and “health Yet making up the funding shortfall brace technology and work more closely coaches” who spend hours with patients through efficiency savings alone would re- with hospitals and other parts of the to work out bespoke care plans. This quire a biggergain in productivitythan any health service. A few GP sites are already makes patients feel more in control and in the history of the NHS. And the funda- expanding. In Birmingham, 17 practicesrun has reduced admissions. mental problem remains that demand for by Modality cover 65,000 patients. Its GPs Nevertheless, the people who run Van- hospital services is outpacing what the are salaried ratherthan partners, following guard projects worry that they cannot NHS is supplying. Referrals to hospital a trend seen elsewhere in the world (most transform care without overhauling how have risen by 20% since 2009-10, about American doctors were self-employed a money flows through the health system. three times as much as NHS spending. decade ago, whereas now less than a quar- Budgets remain fragmented. Doctors face Curbing demand will be critical to the ter are). Modality has a single call-centre competing incentives. Like Mr Stevens, Mr NHS’s long-term viability. This is partly for booking patients. Nurses and doctors Mears thinks that the future ofthe NHS lies about public health. Mr Stevens has de- often attend to patients by phone or video- in Accountable Care Organisations scribed obesity, for example, as “the new link. This has reduced no-shows while al- (ACOs). These are increasingly popular smoking”. About one-third of English chil- lowing GPs to spend more time on com- ways oforganising health care in countries dren are overweight, compared with an av- plex cases. Sarb Basi, Modality’s managing like America, Germany and Singapore. In erage of one-fifth across the OECD. Never- director, thinks that in 20 years there will each case a single provider is responsible theless, funding for public health is falling be just 50 GP providers in England. for all health care in its area. It is paid for and the new government has slimmed GP practices are also belatedly embrac- outcomes, not activity. It is given a budget, down plans to reduce child obesity. adjusted for the health of the population. This will only increase pressure on the And so long as it meets its targets, it keeps NHS. In response, it will need to rein in de- the margin. Mr Stevens wants half of the mand for expensive hospital treatment by NHS to use a version ofthe model by 2020. changing how non-hospital care is organ- The move from “volume to value”—that ised. Since the NHS is largely free at the is, from paying providers for the proce- point of use, governments have managed dures they carry out to paying them for the demand via GPs, who act as gatekeepers to outcomes they achieve—has helped to hospital and prescriptions. And yet most stem the cost of Medicare, the American GP practices are “artisan shopkeepers in an health system for pensioners. The expan- age of Amazon”, according to one White- sion of ACOs as part of Obamacare led to hall official. They are ill-equipped to deal reduced mortality rates and savings for with rising demand. providers of about 1-2%. But Dan Norton- If hospitals have suffered from relent- Jones, a visiting fellow at Harvard, warns less overhauls, GPs have received malign that the potential for savings is greater in neglect. Though the vast majority of con- systems like Medicare, where there is no tactsbetween patientsand the NHSare car- cap on spending. ried out by GP practices, they receive only And yet ACOs reflect a growing belief about one-tenth of the NHS budget. The that if you want radically to improve deal between GPs and the NHS is one of health care you have to change how you the most complex public-sector contracts pay for it. They will not solve all the pro- in the world. Their funding is based on the blemsofthe NHS, some ofwhich are inher- number of patients in their area (adjusted ent in its taxpayer-funded model. But per- for demographics) and whether the GPs haps its business model may yet catch up meet targets set by the government. A with how illness is changing. The NHS study published in May by the Lancet, a should forget being the envy of the world, medical journal, concluded that this and instead learn from it. 7 International The Economist September 10th 2016 51

Race relations market after emancipation, they threatened white incomes, says Avidit Acharya Slavery’s legacies ofStanford University. “One drop” ofblack blood came to be seen as polluting; laws were passed defining mixed-race children as black and cutting them out of inheri- SÃO PAULO tance (though the palest sometimes “passed” as white). Racial resentment, as American thinking about race is starting to influence Brazil, the country whose measured by negative feelings towards population was shaped more than any other’s by the Atlantic slave trade blacks, isstill greaterin areaswhere slavery LEXANDRA LORAS has lived in eight bosses. The government has not a single was more common. After abolition, vio- Acountries and visited 50-odd more. In black cabinet member; its predecessor, lence and racist legislation, such as segre- most, any racism she might have experi- which called itself progressive, had one— gation laws and literacy tests for voters, enced because of her black skin was de- for equality and rights. On average black kept blackAmericans down. flected by her status as a diplomat’s wife. and mixed-race Brazilians earn 58% as But these also fostered solidarity Not in Brazil, where herwhite husband act- much as whites—a much biggergap than in among blacks, and mobilisation during ed as French consul in São Paulo for four America (see chart on next page). the civil-rights era. The black middle class years. At consular events, Ms Loras would The gap in Brazil, as in America, used to is now quite large. Ms Loras would not be handed coats by guests who mistook be even wider. Much progress has come seem anomalous in any American city, as her for a maid. She was often taken for a from anti-poverty schemes, which, though she did in São Paulo. nanny to her fair-haired son. “Brazil is the colour-blind in design, benefit darker- most racist country I know,” she says. skinned Brazilians more, since they are Colour card Many Brazilians would bristle at this poorer. More recently, Brazil has started to In Brazil, unlike America, race has never characterisation—and not just whites. try explicit racial preferences (known in been blackand white. The Portuguese pop- Plenty of preto (black) and pardo (mixed- America as “affirmative action”). But ulation—700,000 settlers had arrived at race) Brazilians, who together make up just American ideas cannot simply be trans- the start of the 19th century—was dwarfed over half of the country’s 208m people, planted to Brazil. Differences in how the by the number of slaves: a total of 4.9m ar- proudly contrast its cordial race relations two countries were colonised, and how rived. Portuguese men were encouraged to with America’s interracial strife. They see the slave economy operated, led to distinct consort with African women. Since most Brazil as a “racial democracy”, following ideas of what it means to be “black”—and came without wives, such unions gained the ideas of Gilberto Freyre, a Brazilian so- different attitudes to compensatory poli- some legitimacy. Their offspring, referred ciologist who argued in the 1930s that race cies and whom they should target. to as mulatto, enjoyed a social status above did not divide Brazil as it did other post- Of the 12.5m Africans trafficked across that of pretos. They worked as overseers or slavery societies. Yet the gulf between the Atlantic between 1501 and 1866, only artisans, but also doctors, accountants and white Brazilians and their black and 300,000-400,000 disembarked in what is lawyers. A mulatto, Machado de Assis, was mixed-race compatriots is huge. now the United States. They were quickly regarded as Brazil’s greatest writer even Brazil took more African slaves than outnumbered by European settlers. Most during his lifetime in the 19th century. any other country, and now has nearly whites arrived in families, so interracial re- Mixing led to a hotch-potch of racial three times as many people whose ances- lationships were rare. Though white mas- categories. In 1976 the Brazilian Institute of tors left Africa in the past few centuries as tersfathered manyslave children, miscege- Geography and Statistics (IBGE) recorded America does. Yet black faces seldom ap- nation was frowned upon, and later 134 terms used by Brazilians to describe pear in Brazilian newspapers outside the criminalised in most American states. themselves, mostly by skin colour. Some sports section. Few firms have black As black Americans entered the labour were extremely specific, such as branca 1 52 International The Economist September 10th 2016

2 suja (literally “dirty white”) or morena cas- in America. Two-thirds of Americans dis- tanha (nut-brown). The national census of- Far from equal approve ofthe use ofrace as a factor in col- fers just a few broad categories—as in Average weekly earnings as % of whites’ lege admissions, according to Gallup. America, which offers five, though these In Brazil, the picture is different. For the Brazil, 2014 $ days America’s also allows you to tick as few able to afford private schools and in- White 100 many as you like and add a self-descrip- 194 tensive coaching, getting into public uni- tion. Tiger Woods, a golfer, calls himself Black/mixed 58.2 113 versities used to be relatively easy. En- “cablinasian” (a portmanteau of cauca- trance exams were poorly designed and sian, black, American Indian and Asian). United States, 2015 old-fashioned; though they have been up- dated, theyare still a crude measure ofabil- Both black and white Brazilians have White 100 long considered “whiteness” something 835 ity. This is perhaps why hard-working, am- Black 76.8 that can be striven towards. In 1912 João 641 bitious cotistas, as students admitted Baptista de Lacerda, a medic and advocate under quotas are known, are able to hold Sources: IBGE; BLS; Thomson Reuters; The Economist of“whitening” Brazil by encouraging Euro- their own. The first universities to adopt pean immigration, predicted that by 2012 quotas have found that cotistas had lower the countrywould be 80% white, 3% mixed based on race and class. In 1997 barely one grades on entry but graduated with de- and 17% Amerindian; there would be no in 50 young pretos or pardos were studying grees similar to those oftheir classmates. blacks. As Luciana Alves, who has re- at university or had graduated. That share From this year half the places in all Bra- searched race at the University of São Pau- rose rapidly as the economy improved and zil’s public universities will be reserved for lo, explains, an individual could “whiten incomes rose, and from the early 2000s a students who have attended state schools, his soul” by working hard or getting rich. handful of public institutions began to re- which prosperous ones seldom do. Half Tomás Santa Rosa, a successful mid-20th- serve some places for non-white students. these quota places are reserved for appli- century painter, consoled a dark-skinned In 2012 the supreme court ruled the prac- cants whose family income per person is peer griping about discrimination, saying tice constitutional. Shortly afterwards no more than 1.5 times the minimum wage; that he too “used to be black”. Lula’s successor, Dilma Rousseff, brought and black, mixed-race and indigenous Bra- Though only a few black and mixed- in racial quotas at all 59 federal universities zilians are granted quota places in propor- race Brazilians ever succeeded in “becom- and 38 technical schools. The effects are al- tion to their share of the local population. ing white”, their existence, and the non-bi- ready visible on campuses. A study pub- The policy has wide support: a poll in 2013, nary conception of race, allowed politi- lished in August found that between 2010 soon after the law was passed, found that cians to hold up Brazil as an exemplar of and 2014 the share of students at federal two-thirds ofBrazilians approved. post-colonial harmony. It also made it universities who described themselves as Naturally, some people game the sys- harder to rally black Brazilians round a hy- pretos or pardos jumped from 41% to 48%. tem. A study in 2012 by Andrew Francis of phenated identityofthe sortthatunites Af- There were fears that those admitted Emory University and Maria Tannuri-Pin- rican-Americans. Brazil’s Unified Black under quotas would struggle, as some to ofthe University ofBrasília (UnB) found Movement, founded in 1978 and inspired think they have in America. The test that that some mixed-race but light-skinned ap- by militant American outfits such as the American students take to enter university plicants to UnB, which introduced quotas Black Panthers, failed to gain traction. Rac- is a good predictor of academic success, in 2004, thought of themselves as white ism was left not only unchallenged but and American colleges typically admit butsaid theyhad blackheritage to improve largely unarticulated. black and Hispanic students with much their chances of getting in. Once admitted, NowBrazil’sracial boundariesare shift- lower scores than whites or Asians. This some reverted to white identity. But not all, ing—and in the opposite direction to that sets them up to fail, argue Richard Sander as “curly clubs” springingup on previously predicted by Baptista de Lacerda. After fall- and Stuart Taylor in their book, “Mis- straight-hair-obsessed campuses attest. ing from 20% to 5% between 1872 and 1990, match”. They think that under race-neutral Brazil has a long way to go before it has the share of self-described pretos edged up policies more would graduate. Though a black middle class to rival America’s. A in the past quarter-century, to 8%. The narrowly approved by the Supreme Court, studyin 2009 bySergei Soaresfound that if share of pardos jumped from 39% in 2000 affirmative-action policies are unpopular the incomes of black and white Brazilians to 43% in 2010. These increases are bigger continued to evolve at 2001-07 rates, they than can be explained by births, deaths would converge by 2029. But a subsequent and immigration, suggesting that some severe recession has almost certainly Brazilians who used to see themselves as pushed this further into the future. Em- white or pardo are shifting to pardo or ployers continue to favour lighter-skinned preto. This “chromatographic conver- job applicants. Less than a quarter of the gence”, as Marcelo Paixão of the Universi- officials elected in the federal and state ty of Texas, in Austin, dubs it, owes a lot to races in 2014 were preto or pardo. “Decolo- policy choices. nising your mind is tough,” sighs Ms Loras, The first law signed by Luiz Inácio Lula whose experiences in Brazil have turned da Silva, a white former metalworker who her into a blackactivist. was Brazil’s president in 2003-10, required But there are hints that an American- schools to teach about Brazil’s African style black consciousness is emerging in slaves. He introduced a “Black Conscious- Brazil—and not only on campuses. In Feb- ness Day” on November 20th, on which ruary Ms Loras counted 17 blackmodels on day in 1695 the leader of a slave rebellion the covers of glossy magazines. Two years died. In 2004 an Afro-Brazil Museum earlier, she says, there were hardly any. She opened in São Paulo. Afewstatesand cities is publishing a children’s book about fam- now have racial quotas when hiring, as do ous black inventors. In America such titles the diplomatic service and federal police. are common; in Brazil hers will be the first. Brazil’s public universities—which are According to Renato Araújo da Silva of the more prestigious than private ones—have Afro-Brazil Museum: “We Brazilian blacks also introduced admissions preferences are finally learning to be black.” 7 Business The Economist September 10th 2016 53

Also in this section 54 Auditors aren’t so bad 55 Reliance Jio’s price war 55 Smartphones’ staying power 56 Fashion’s seasonal problem 57 An explosion at SpaceX 57 German bosses look to America 58 Power companies in Germany 59 Schumpeter: Shhhh!

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

A.P. Moller-Maersk nounce details this month. Maersk Group has invested in all sorts Profits overboard ofassets since the 1960s: supermarkets, air- lines and recently oil drilling, as well as shipping. The idea was to construct a hedge against falling freight rates and spikes in oil prices. When fuel is dear, COPENHAGEN squeezing container profits, drilling for oil and gas would keep it afloat, or so the The shipping business is in crisis. The industry leaderis not exempt thinking went. But since 2014 oil prices and HE collapse of Hanjin Shipping, a containers, but in 2015, for the first time freight rates have fallen together, throwing TSouth Korean container line, on August since they were invented in the 1950s, both the shipping and energy units into a 31st brought home the extent of the storm (apart from the 2009 recession), global sea ofred ink(see chart on next page). in shipping. The firm’s bankruptcy filing GDP grew faster than worldwide box traf- In June Maersk Group’s chairman, Mi- left 66 ships, carrying goods worth $14.5 fic. Insipid economic growth and mori- chael Pram Rasmussen, fired Nils Smede- billion, stranded at sea. Harbours around bund trade liberalisation play their part; so gaard Andersen, its CEO, and replaced him the world, including the Port of Tokyo, re- too do shifts in manufacturing. Multina- with Soren Skou, the head ofthe container fused entry for fear of going unpaid. With tional firms are increasingly building fac- line. Mr Andersen, a former boss of Carls- their stock beyond reach, American and tories in local markets; General Electric, for berg, a Danish brewer, and the first CEO to British retailers voiced concerns about the example, now makes engine parts where be brought in from outside the company, run-up to the Christmas shopping period. they are needed rather than shipping them was keen on retaining some diversifica- Hanjin is not alone. Of the biggest 12 from America. tion. MrSkou, who hasworked in shipping shipping companies that have published The second factoris a surge in the size of since he joined the group in 1983, is be- results for the past quarter, 11 have an- the global container fleet following a ship- lieved to be more sceptical. nounced huge losses. Several weaker out- ordering binge that began around 2011. fits are teeteringon the edge ofbankruptcy. Overcapacity has crushed freight rates. Breakers ahead In Japan three firms, Mitsui OSK Lines, NYK Sending a container from Shanghai to Eu- The main part of his review of the group’s Line and Kawasaki Kisen Kaisha, look vul- rope now costs half what it did in 2014, ac- operations will seekto determine whether nerable. Activist investors are now press- cording to figures from the Chinese city’s it should break itself into two: a separate, ing for them to merge to avoid the same shipping exchange. publicly listed shipping business, encom- fate as the South Korean line. Shipping has been through many crises passing Maersk Line and the group’s port Even the strongest are suffering. but few as severe as this one. The industry terminals and logistics arms, and another France’s CMA CGM, the world’s third-larg- may still resist doing what many recom- listed firm concentrating on its oil explora- est carrier, announced a big first-half loss mend, which is to tackle overcapacity di- tion and drilling businesses. That would on September 2nd. Maersk Line, the indus- rectly by scrapping vessels. But the depth reassure investors, worried that their mon- try leader, and the largest firm within A.P. and length of the downturn mean that ey is being used to prop up failing divi- Moller-Maersk, a family-controlled Danish firms will start doing things differently. sions. It could widen its pool of potential conglomerate, will be in the red this year, Eyes are trained on changes at Maersk investors as well as boost its value, says having lost $107m in the six months to Group in particular, which has long set the Neil Glynn ofCredit Suisse, a bank. June. The industry could lose as much as course forthe industry. The Danish line has The outcome of the review is still far $10 billion this yearon revenues of$170 bil- probably lost only $11per container moved from certain, but it is thought likely that lion, reckons Drewry, a consultancy. this year, less than the $100 figure for com- Maersk Group will end up more focused Two powerful forceshave rocked the in- panieslike Hanjin, butthatisstill unaccept- on its roots in shipping. Mr Skou, who re- dustry. The first is the ebbingofworld trade able to its bosses and to the family that mains CEO of Maersk Line as well as the since the financial crisis. Two-thirds of glo- owns it. They are considering splitting up overall group, has said he wants to see the bal seaborne trade by value is carried in the conglomerate, and are due to an- group’s revenues grow, and its oil division 1 54 Business The Economist September 10th 2016

chance of reducing costs by up to 30% by settled a case involving Colonial Banc- Shipwrecked better co-ordinating the interaction of Group, a lender it audited which went bust January 1st 2013=100 ships and shore, he says. after suffering fraud. The boss ofMonte dei Maersk Line is retrofitting its ships to Paschi di Siena, an Italian bank, said that 200 A. P. Moller-Maersk collect more data. Last year it installed sen- he was under investigation as part of a share price sors on its containers that track their loca- probe into false accounting. Shares in Orbi- 150 tion and contents. That makes it easier for tal ATK, an American defence firm, tanked portterminalsto handle them, so ships can after it said it had made accounting mis- 100 leave and start earning money again more takes, and an internet firm called Com- quickly. Software also works out how to Score replaced its top brass amid problems China stackcontainers on ships more efficiently. with its numbers. 50 Containerised Empty containers are another drain, The obvious conclusion is that the ac- Freight Index Brent oil price costing shipping lines up to $20 billion a counting industry has failed to clean itself 0 year, according to BCG, another consultan- up since 2001-03, when Enron and World- 2013 14 15 16 cy. Maersk Line is not the only one using Com, among others, blew up in spectacu- Source: Thomson Reuters data to deal with this problem. Japan’s lar style because of book-cooking. Those NYK saved over $100m by getting better at two American firms were worth a com- 2 will struggle to play its part in this. One spotting and using empty containers. A bined $250 billion at their peak, and their short-term but serious problem forMaersk new website called xChange, which start- collapse also brought down their auditing Oil, for example, is that production could ed operating last November, allows ship- firm, Arthur Andersen. halve by 2018 because its licence to operate ping lines to swap spare containers among In fact the opposite is true: accounting Qatar’s largest offshore oil field is expiring themselves to maximise efficiency. scandals have become less of a problem. in July next year. The Danish firm’s three-year-old ana- With over 10,000 listed firms in Europe, Maersk Line, in contrast, starts from the lytics team has also worked on discovering America and Canada, bad apples are inev- position of being the biggest shipping firm the optimal speed and course for its ships. itable. But the impact of recent blow-ups in the world. Yet it too has lots of work to Theyare tryingto cutitsbigrepair bills, too. has been far lighter than at the turn of the do ifit is to boost revenues and profits from The hope is that predictive maintenance century. WorldCom overstated its profits shipping. A favoured cost-cutting strategy could achieve this quickly.Instead of wait- by a colossal $7 billion. Enron puffed up its among shipping firms so far has been to ingforship engines to breakdown, sensors shareholders’ equity by $1 billion. Parma- form alliances. In January 2015 Maersk will report when they need care. lat, an Italian food firm that folded in 2003, Line and Mediterranean Shipping Com- WhatMaerskLine doesin digitisation is had a $15 billion hole in its accounts. pany (MSC) launched 2M, a partnership to likely to be followed by the rest of the in- Today’s scandals are smaller. When share space on theirvessels. This April four dustry in fairly short order. As an executive companies admit to fraud or mistakes, othersgottogether, followed bysixmore in at one of Maersk Line’s rivals admits: “We their books are restated, making compari- May. These three groups now account for just watch what Maersk does and copy it.” sons straightforward. Valeant’s restate- nearly three-quarters of the global market. And although few shipping outfits have ment, announced in February, was a mod- But alliances do not solve the problem of the resources to build ever bigger ships, est $58m, while Monsanto’s was $48m. overcapacity and they have not stopped even the smallest of them can learn to use Tesco, a British supermarket that confessed freight rates from falling. data better. Data crunching alone will not in 2014 to an accounting scandal, exagger- Another tack has been to build bigger save the industry from the current storm; ated its profits by about $350m. One im- ships. “When oil prices were high we built that will require ships to be scrapped. But it portant measure, which is the scale of the bigger ships and pioneered slow steaming may prepare it better forthe next one. 7 single largest restatement by an individual to save bunker costs,” says Soren Toft, Mr firm in America in any given year, has Skou’s COO and right-hand man. Maersk shown a marked decline in the size of the Line built 20 huge “Triple-E” class vessels Auditors aren’t so bad corrections, points out Don Whalen of Au- that could carry just under 20,000 contain- dit Analytics, a data provider and research ers each; its biggest rivals, MSC and CMA Box ticked firm (see chart on next page). CGM, followed itslead. Butwith fuel prices In the dark days of 2000-01, investors much lower—in 2015 they accounted for worried that no firm in America could be less than 13% of Maersk Line’s costs—the entirely trusted. If you look at the sum of E savings are slim. After the last Triple- ship NEW YORK losses across the economy due to account- entered service last year, it cut back on or- ing fraud now, the number is low. The fig- The rich world is not suffering an dering new vessels. ure in 2015 was $2.7 billion, or 0.3% of total outbreakofaccounting fraud MaerskGroup’s big new idea is to make corporate profits, suggestingthere is no sys- its existing ships smarter. Mr Toft says F YOU peer into the world of accounting temic problem. MaerskLine will focuson usingthese ships Iin any given month, it is easy to get the There are plausible reasons why audit- better by embracing the “age of digitisa- impression that an epidemic of skuldug- ing and book-keeping might have im- tion”. This is an area in which shipping lags gery and incompetence has broken out. proved so much. Sarbanes-Oxley, a cor- well behind other sectors, such as aero- Consider the month of August. A whistle- porate-governance law passed in America space. Whereas a modern jetliner creates blower at Monsanto, an American seeds in 2002, has bite: it requires chief execu- several terabytes of data a day, it takes the firm, received a reward from the Securities tives and chieffinancial officers personally average cargo ship 50 daysto produce a sin- and Exchange Commission, after spotting to certify accounts. The spread of a com- gle one. Most ships do not even have basic that the firm was misreporting its earnings mon international accounting rule book in sensors to ensure their hatches are closed for Roundup, a weedkiller. T. Rowe Price, Europe has raised standards. The grisly col- before leaving port. Until very recently the an asset manager, launched a lawsuit lapse ofArthurAndersen mayhave led the industry resisted using data properly, says against Valeant, a drugs firm which it ac- other big accounting firms to behave bet- Martin Stopford, president of Clarkson Re- cuses offraud and misleading accounting. ter. During the financial crisis, auditors, search, part of a shipbroker. Now it cannot The list goes on. PricewaterhouseCoop- along with regulators, pushed big banks to afford to ignore systems that offer the ers, one of the Big Four accounting firms, write down the value of subprime securi-1 The Economist September 10th 2016 Business 55

the internet a bit was a genuine shock. The More accountable share prices ofrival firms tumbled. Largest negative accounting revisions to Telecoms incumbents are right to wor- net profits in US, $bn ry.Reliance has been able to use billions in 7 cash from its main oil and refining busi- 6 nesses to invest over $20 billion in the infrastructure required to deliver high-speed 5 connectivity across India. And Mr Ambani 4 understands the industry extremely well. 3 He builta networkfrom scratch in the early 2 2000s, although that firm eventually went to his younger brother, Anil, in 2005 after 1 the pair fell out. 0 For the elder brother’s bet to pay off, In- 2002 04 06 08 10 12 14 15 dians will need to continue flocking online Source: Audit Analytics at speed through their mobiles. Smart- phones are in the early stages of becoming 2 ties to realistic prices, often to squeals of ubiquitous. Most of India’s nearly 400m protest from bosses and politicians. internet users go online through them. But There is still no room for complacency. many people on small incomes use expen- It is quite possible that huge undiscovered sive data services sparingly,if at all, down- frauds are takingplace. The incentive struc- loading content only when they have ac- Ambani dials up the pressure ture of the accounting industry remains cess to free Wi-Fi. New Jio customers will suspect: accounting firms are paid fees to get as much internet as they want free of once did. They invested stacks of cash in audit their customers, but they often earn charge until the end of the year, and cheap the latest technology, tolerated low prices more by selling various advisory services access thereafter. Reliance is also promis- and hoped that enormous volumes would to them. The rise of opaque private mar- ing free (for a time) access to Bollywood get the figures to add up. The formula may kets fortrading the shares ofprivate firms— films and music. work if Indians continue flocking to the in- including Silicon Valley “unicorns”— The incumbents expected Jio’s data ternet. Whatever happens, India’s march seems ripe forfraud. rates to be lower than what they charge online has been given a big shove. 7 And in many big emerging economies, now. Heavy data users will probably be including China and India, the state of ac- able to roughly halve their bills. But the countingrulesand ofthe auditingbusiness huge impact is on voice traffic, which Smartphones is still murky.In Japan an accounting scan- makes up around 70% of operators’ rev- dal at Toshiba, a conglomerate, which led enue. What had been a gentle decline in Still ringing bells to a restatement worth $1.9 billion last year, phone bills as Indians moved to data (in- dented faith in accounting and in the local cluding to make calls over the internet) is affiliate of EY, another Big Four audit firm. now likely to be much steeper. India’s al- Yet to argue that there is a crisis in the quali- ready low average revenue per user will ty of financial information that investors probably fall by 10-15% over the next year, Slowing growth and less innovation do get about Western firms is to be guilty of a say analysts at Fitch, a ratings agency. not spell the end ofan era misleading overstatement. 7 As for Reliance, it is said to have fac- tored in at least two years oflosses. MrAm- PPLE’s events have often been com- bani says he wants Jio to dash to 100m us- Apared to religiousworship. Evangelical Reliance Jio ers, beyond the 70m-80m that most fans watch as the company’s darkly-clad analysts think the firm will need to turn a boss—first Steve Jobs, now Tim Cook—pre- Free speech profit. Only 5% of phones used in India sents shiny new iSomethings in front of a nowcan access4G, so mostofJio’scustom- screen showing colourful slides reminis- ers will be people upgrading their hand- cent of stained glass. Yet Apple’s latest sets. Reaching 100m quickly will require event, on September 7th, was a less raptur- MUMBAI roughly one in three new smartphones to ous affair. The iPhone 7, the firm’s new be from Jio. smartphone, will come with a better cam- India’s mobile-phone operators get a If Mr Ambani can pull it off, it would era, a fasterchip and a brighter display, but daunting new rival leave little for the 12 other networks. A will otherwise notbe much ofan improve- N THE end it was even worse than they round of consolidation could result. That ment. The main novelty is that it no longer Ihad feared. For months now, India’s doz- might not be good news for the govern- has a conventional jack for headphones, en mobile-phone operators have been ment. A spectrum auction later this month which have to plug into the charging port pondering just how aggressively Mukesh had been expected to raise 5.6 trillion ru- or be wireless (conveniently, Apple also Ambani, the boss of Reliance Industries pees—more than corporation tax brings in introduced new untethered “AirPods”, and India’s richest man, would gatecrash over an entire year. Prospective bidders which will cost $160 a pair). theirmarket with the launch ofJio, his new may now ask whether spending that kind This lackofsparkle will disappoint dev- 4G telecoms operation. They certainly ex- of cash is worth it. Many of them are in- otees, but the new iPhone neatly encapsu- pected the thousands of billboards debted and making low returns. lates the mood in the smartphone market. adorned by Shah Rukh Khan, a ubiquitous If other telecoms firms aren’t making After almost ten heady years, dating from Bollywood star. Heavily discounted prices good profits, how can Reliance do so? Ri- the release of the first iPhone in mid-2007, were predictable, too. But the news that, vals argue that Mr Ambani will probably both growth and the pace of innovation from September 5th, anyone paying as lit- put up data tariffsforall his new customers have slowed markedly in recent months. tle as 149 rupees ($2.20) a month would be as soon as the freebie offer ends. But pri- Prices have fallen, too. Some people are able to make free phone calls and browse vately they concede he is doing what they startingto talkofan end to the smartphone1 56 Business The Economist September 10th 2016

2 era, much as when the reign of personal are Apple, China’s Huawei and South Ko- around the old calendar. Most designers computers came to an end a few years ago. rea’s Samsung. (The recall by Samsung of are sticking to it, with minor adjustments. Worldwide sales of smartphones are 2.5m phones after battery fires shouldn’t During February’s fashion week in New now barely growing. The devices are now linger long in customers’ minds.) Most oth- York, for example, Michael Kors and Tory good enough for most users’ needs, and er brands will disappear or serve small Burch showed only a very few looks that smartphone penetration ratesin rich coun- niches. It would be unwise to predict, as were available immediately. tries have reached 90%. But the absolute some do, that the leading smartphone Others are goingfurther. On September numbers are still mightily impressive. makers are on their way to becoming has- 7th Tom Ford staged not a “spring” runway Some 1.46 billion units will be shipped this beens. Apple may even be planning some- show, asiscustomary, buta partystreamed year, reckons IDC, and perhaps 1.76 billion thingmiraculous fornext year’s iPhone an- live online, featuring clothes from his au- in 2020. niversary.Keep the faith. 7 tumn 2016 collection that are available for Such numbers make the smartphone sale now. Rebecca Minkoff, another de- by far the world’s most popular electronic signer, will present her collection on the device. It is true that sales of “wearables”, Fashion retailing street outside her Manhattan store, with such as smartwatches and fitness bands, guests invited to shop forthe runway looks have taken off: they should reach $14 bil- Passé immediately. Because retailers have al- lion in 2016, according to CCS Insight, an- ready decided which ofits clothes to stock, other research outfit. But that is dwarfed by the fashion show can promote specific smartphone sales of$347 billion. So-called items to boost their sales. It becomes a “smart speakers”, such as Amazon’s Echo, more closely co-ordinated activity, says Uri which allows users to play music, turn on Minkoff, the company’s chiefexecutive. The fashion industry grapples with bad the lights and, of course, order stuff from British designers are adapting, too. Bur- timing the e-commerce giant by using voice com- berry’s show in September will forthe first mands, will be popular. But they seem un- EW YORK CITY has just begun its sa- time present only clothes that are available likely to become a must-have. Virtual- and Ncred ritesofretail. Foritsfashion week, immediately. The company has pulled its augmented-reality gear is not yet ready for which started on September 7th, tents go entire fashion-design process forward by the mainstream consumer; and it may nev- up, guests emerge from black cars, models about six months, with clothes conceived, er be as convenient as a device that users sulk down catwalks and the wealthy and samples produced and presentations to can slip into their pockets. celebrated clap in unison. The point of all editors and retailers all concluded much If smartphones remain at the top of this is for designers to declare what will be earlier. The catwalk event will not be a consumers’ want-lists, how will the mar- “in” next spring. But formuch offashion re- business event for the garment trade but a ket evolve? Hardware innovation will be tail, it is increasingly clearthat something is marketing event forconsumers. more incremental, says Ben Wood of CCS out ofplace. But old habits die hard. The CFDA is ex- Insight. New phones will have better For a sense of the problem, consider ploring whether retailers might stock more screens, faster processors and new materi- what happens when the week-long sched- clothes when people like wearing them. als. But another area promises rapid pro- ule of shows ends. Designers start making But many stores and designers still expect gress: artificial intelligence. Mr Wood ex- the clothes that retailers have ordered, them to buy fur coats in July. And some in pects firms to invest a lot in order to with delivery scheduled four to six the industry are sceptical. Pascal Morand, improve their digital assistants, such as Ap- months later. But consumers see collec- who oversees Paris’s fashion week, apple’s Siri or Google Now, so that handsets tions online instantly. “Fast fashion” shops proves of selling clothes that consumers can become truly smart, combining data such as Zara, which is part of Spain’s Indi- can wear now. But he also worries about from the devices to make it easy to, say, tex, rapidly produce clothes “inspired” by designers listening too much to what peo- booka restaurant with just a few words. what appeared on the runway. When the ple want. “Consumers favour incremental The need to invest will fuel consolida- originals arrive in stores, they feel tired. innovation,” he says, whereas the most ex- tion, reckons Francisco Jeronimo of IDC. This has produced clear winners and citing designs defy the norm and are often The likely candidates to rule the industry losers. The world’s two biggest clothes re- adopted by consumers only gradually. 7 tailers are now Inditex and TJX, according to Euromonitor, a research firm. TJX buys excess inventory of brand-name clothes and resells them at low prices. Traditional department stores, meanwhile, are struggling, partly because outdated frocks and coatslanguish on racksand then have to be sold at a discount. The challenge is widely understood. Now the industry is finally starting to deal with it. In March the Council of Fashion Designers of America (CFDA) and the Bos- ton Consulting Group suggested alternatives to the current, slow retail cycle, some of which have been championed by fash- ionistas. A small band ofdesigners are test- ingnew business models this weekin New York, or plan to at fashion week in London later in the month. The idea is to show clothes and sell them at the same time. It may seem obvious, but the shift is not easy fordesigners, suppliers, fashion magazines And on the 7th day... and retailers that have worked for so long The Economist September 10th 2016 Business 57

The space business German ﬁrms in America Mission, Making eyes interrupted across the ocean

An expensive rocket accident puts German firms are increasingly keen on pressure on SpaceX buying American rivals OCKET scientists love their jargon, and O GERMAN firm has paid a higher Rit seems to be infectious. On Septem- Nprice for shopping abroad than Daim- ber1st, when a Falcon 9 rocket belongingto ler-Benz with its disastrous $43 billion SpaceX, a private rocketry firm, blew up on merger with America’s Chrysler. When the launchpad at Cape Canaveral, in Flori- they did their deal in 1998, the carmakers da, the emergency services announced claimed it was a smart manoeuvre in the that the mission had undergone a “cata- face ofindustry consolidation. In fact, after strophic abort”. It happened while the culture clashes and much wasted effort, it rocket was being fuelled for a pre-launch fell apart within a decade. Eighteen years engine test. No one was hurt, although on, the record will be broken if Bayer, a windows were rattled several miles away. drugs and chemicals giant best known for A communications satellite costing $200m its pharmaceutical products such as aspi- that was mounted on the rocket, in prepa- rin, succeeds in its bid for Monsanto, the ration for the planned launch on Septem- A waste in space world’s biggest seed producer. Whether ber 3rd, was destroyed in an instant. the outcome would be any better is anoth- The blast is a setback for SpaceX, a firm pean Ariane 5, for instance, suffered two er question. founded by Elon Musk, an entrepreneur complete failures and two partial ones in Bayer first made an unsolicited bid for who also runs Tesla, an electric-car maker. the early part of its life, but has now gone the American firm in May. A deal now With contracts to fly cargo and supplies to through 72 launches and 13 years without looks close. Monsanto has spent the sum- the International Space Station (ISS)for mishap. And SpaceX’s machines are blaz- mer playing hard to get; this week it suc- NASA, as well as a thick book of orders ing entirely new technological trails. The ceeded in getting Bayer to raise its offer from private satellite firms, it is the flag- Falcon 9 is the first-ever reusable rocket. Its again, to a whopping $65 billion (including bearer for a growing, buccaneering “new first stage is designed to fly back to land on debt). The German firm is responding to a space” industry. The explosion was Spa- an ocean-going barge, a fiendishly difficult wave ofconsolidation in the global chemi- ceX’s second big failure in 15 months: on process that the firm seems now to have cals and seeds industry. Earlier in the year June 28th 2015, an uncrewed Falcon 9 rock- mastered. Mr Musk hopes that will allow ChemChina, a state-owned Chinese firm, et exploded halfway to the ISS. him to cut prices even further. agreed to pay $43 billion forSyngenta, a big The immediate consequence is finan- But the accident may delay the firm’s Swiss firm that sells chemicals to farmers. cial. The wrecked satellite belonged to an ambitious future plans. The post-mortem Buying Monsanto would give Bayer con- Israeli firm named Spacecom, which is the will tie up engineers at a time when the trol of the world’s biggest seller of seeds object of a takeover deal by Xinwei Tech- company already has a great deal on its and crop sprays. nology Group, a Chinese company. That plate. SpaceX had been due to launch nine A deal may come before Bayer’s boss, deal had been contingent on the satellite other Falcon rockets before the end of the Werner Baumann, is due to meet share- making it successfully into orbit. Space- year. All those launches have now been holders later this month, or talks could com’s shares fell by 40% after the explo- postponed. In the early months of next dragon. But doubts exist overthe prospects sion. The satellite was insured, but Space- year the firm is due to attempt the first for the acquisition, even if a deal is agreed. com is nonetheless reported to be launch of the Falcon Heavy, a new mach- The price offered bythe German firm looks demanding compensation from SpaceX. ine derived from the Falcon 9 that will be, remarkably high. Monsanto’s revenues The explosion also damaged the launch- by some distance, the most powerful rock- have been slidingbecause ofgenerally low pad, leaving it unusable, although SpaceX et in the world today. That date could well crop prices and questions over the efficacy has access to two others. The firm pointed slip. In addition to its contract with NASA of one of its best-known products, a weed- out that it still has contracts for around 70 to supply the ISS,SpaceX is soon due to killer. Antitrust concerns also loom large: launches. start flying astronauts. The first mission is regulators would certainly be lobbied by Its reputation could also be damaged. scheduled forsome time in 2017. farmers wary of rising input costs. Other The list of mishaps is lengthening. SpaceX In the aftermath of the explosion, chemical firms, such as BASF, another Ger- has flown 29 Falcon 9 missions to date. Be- NASA, one of SpaceX’s biggest customers, man company, are hoping forrich pickings sidesthe two total failures, the fourthflight, declared its support for the firm. SpaceX it- on the assumption that regulators would in 2012, suffered an engine failure in mid- self has said it intends to go back to flying eventually force a merged Bayer and Mon- launch. The rocket was able to carry on to rockets as soon as possible. Mr Musk is not santo to sell off businesses worth billions its rendezvous with the ISS, but its second- in the rocket business only to make money. ofdollars. ary payload—another satellite, owned by a He has always been clear that the ultimate Bayerislikelyto push on regardless. Un- firm called Orbcomm—could not be suc- goal of SpaceX is to lower the cost of space like Daimler, it has a proven record of successfully deployed. Potential customers, flight to the point where it is financially fea- cessful acquisitions in America, beginning attracted by the firm’s super-low launch sible to establish a human colony on Mars, some 150 years ago with an investment in a costs—it charges farless than its main com- as an insurance policy against potentially coal-tar dye factory in upstate New York. It petitors—may now start wondering about catastrophic events on Earth. Exploding bought two more firms in the 1970s. Recent its reliability. rockets hurt that aim, as well as profits, so deals have been grander. In 2014 it bought History suggests that rockets do be- the pressure for a successful launch next the consumer-care business of Merck, an come more reliable over time: the Euro- time will be intense. 7 American drugmaker, which makes sun-1 58 Business The Economist September 10th 2016

2 block and anti-allergy medicines, for $14.2 ate, SAP, an IT firm, and Infineon, a semi- rid ofthe “bad” fossil-fuel business. E.ON is billion, and absorbed the unit well. conductor maker, among others, each the most radical,” says Roland Vetter of Whatever happens, German managers made deals worth billions of dollars. The PraXis Partners, a utilities specialist. are widening their horizons. In July, inves- pace has not slowed. In November last RWE has followed a different route to torsin Deutsche Börse approved a planned year Merck, a German life-sciences giant the same destination. Instead of keeping $27 billion deal to buy the London Stock (confusingly, nothing to do with Merck in its renewables, grid and local businesses, it Exchange. Years of German firms punch- America in the present day), wrapped up a has moved them, as well as many of its ing below their weight in America appear $17 billion purchase of Sigma-Aldrich, a staff, into a new company, Innogy, which it to be over. Revised official estimates pub- chemicals and biotechnology firm. will partially float. A tenth of Innogy lished in June now count Germany as the The traffic is not all one way. In August shares will be listed in Frankfurtby the end third-largest foreign direct investor, hold- America’s Praxair and Germany’s Linde ofthe year. The dirtierpowerplants will re- ing10.8% ofthe total stockof$2.9 trillion of said they hope to merge and create a firm main with the rump RWE. foreign direct investment. It came seventh worth $60 billion, a giant of the industrial- Plenty have reservations about the on the list just a couple ofyears ago. gas industry, in which Praxair would prob- coming listings. Some describe Uniper as a That leap partly reflects new efforts to ably dominate. The consolidation of in- “bad utility”, much like the “bad banks” identify the nationality of the groups that dustries such as chemicals and industrial that were set up after the financial crisis of are the ultimate beneficial owners of gases offers one straightforward explana- 2008-09 to hold dud loans. Others believe American assets (German buyers based in tion for some of this activity across the At- that E.ON is wildly optimistic about the Luxembourg, for example, are now count- lantic. But German bosses’ renewed confi- value of the assets it has transferred to Un- ed as German). But most of the rise is due dence is also a factor. What explains that? iper. The unit is held on E.ON’s books at a to cash-rich German firmsstrikingdeals. In Perhaps painful memories of the fiasco of value ofabout€12 billion ($13.5 billion), but 2014 Siemens, an engineering conglomer- DaimlerChrysler are fading away at last. 7 may be worth no more than €3 billion-5 billion when listed. “In the short term at least, the outlook for those plants is terri- German power companies ble,” says Emanuel Henkel of Commerz- bank. To make matters worse, the com- Breaking bad pany is not promising a fixed dividend beyond 2016. What’s more, it may turn out to be too small for index funds, which may force many investors to dump their new shares in short order. E.ON’s own shares may perform no better. Initially the parent company had E.ON and RWE split theirclean and dirty businesses hoped to offload its nuclear-power plants ERMANY’S largest utilities, E.ON and and the cost of decommissioning them GRWE, used to be known in the stock- onto Uniper, marking a clean break with market as “widows’ and orphans’ paper”, conventional power generation. But the so dependable were their profits and divi- government prevented that, on the ground dends. Those days are long gone. Since that E.ON was ducking out of its responsi- 2011, when the government stepped up its bilities. Instead it will be required to pro- support for wind and solar energy and de- vide the biggest share of a €23.3 billion decided to abandon nuclear power after Ja- commissioning fund to be set up by the pan’s Fukushima disaster, the share prices government, which will also require con- ofboth firms have plunged by two-thirds. tributions from RWE and two other nuc- That is why both firms are splitting in lear-power providers. To finance its share, two. Their aim is to free up their renew- E.ON may have to raise equity ofits own. It ables businesses, allowing them to thrive will also remain tied to Uniper’s fossil-fuel relatively unencumbered by debts, while fortunesbecause ofits 47% stake. underpinning their earnings with boring RWE may have slightly better prospects but reliable returns from running electric- with Innogy’s IPO, because the latter is ity down pylons, poles and wires. Dirtier much more clearly a clean-energy com- power-generating assets, exposed to the pany, which is likely to attract new inves- vagaries of climate politics and commod- tors, and because it has learned from ities prices, are being put into separate E.ON’s mistakes, says Mr Vetter. But the companies. In a culmination of this pro- green-energy credentials of both the new cess, on September12th E.ON plans to spin E.ON and Innogy are open to question. In off Uniper, a new firm into which it has E.ON’s chiefexecutive. the past E.ON and RWE sought to slow Ger- separated its coal- and gas-fired power sta- In its listing on the Frankfurt Stock Ex- many’s energy revolution rather than tions. Later this year RWE will pull off a change, Uniper will issue 53% of its shares championingit. MrTeyssen admitsthat the similar split, albeit in a different way. to E.ON shareholders, leaving E.ON with company once thought “windmills” were The manoeuvres highlight the huge jolt the rest. Uniper says it will offerinvestors a something “out ofthe Middle Ages”. Germany’s Energiewende, or green-energy chance to bet on the changingnature of en- In their favour, they both have vast transition, has dealt to the business model ergy markets. Coal- and gas-fired power numbers of customers who could be per- of what were once two of Europe’s most plants are being replaced by wind and so- suaded to embrace renewable energy. Mr highly regarded utilities. “IfI had proposed lar as the main sources of electricity, but Teyssen prefers to see his company not as a this [split] ten years ago, I would have been they will carry on playing a potentially lu- dinosaur fighting extinction, but as a bird— the laughing stock of the stock exchange crative backup role, goes the pitch. E.ON, in the descendant of a dinosaur—flying into a and people would have sent me to the contrast, will seek a greener sort of inves- bright future. Provided, that is, it doesn’t mental home,” says Johannes Teyssen, tor. “Across Europe companies want to get crash into a power pylon. 7 The Economist September 10th 2016 Business 59 Schumpeter Shhhh!

Companies would benefit from helping introverts to thrive full advantage ofemployees’ abilities. What can companies do to make life better for introverts? At the very least, managers should provide private office space and quiet areas where they can recharge. Firms need to recognise that introverts bring distinctive skills to their jobs. They may talk less in meetings, buttheytend to putmore thoughtinto what theysay. Leaders should lookat their organisations through the introverts’ eyes. Does the company hold large meetings where the loudest voices prevail? That means that it is marginalising introverts. Does it select recruits mainly on the basis of how they acquit themselves in interviews? That could be blinding it to people who dislike performingin public. Some of the cleverest companies are beginning to look at these problems. Amazon has radically overhauled its meetings to make them more focused. Every meeting begins in silence. Those attending must read a six-page memo on the subject of the meeting before they open their mouths. This shifts the emphasis from people’s behaviour in the meeting to focused discussion of the memo’s contents. Google has downplayed the importance of interviews in recruiting and put more emphasis on candidates’ ability to carry out tasks like the ones that they will have to do at OST companies worry about discriminating against their the firm, such as writing code or solving technical problems. Memployees on the basis ofrace, gender or sexual preference. Managers cannot be on top of the very latest research on per- Buttheygive little thoughtto theirshabby treatmentof introverts. sonality types. Nonetheless, they should pay more attention to Carl Jung spotted the distinction between introverts and extro- the waythatgroupsofpeople interactwhen itcomesto designing verts in 1921. Psychometric tests such as the Myers-Briggs Type In- teams. One study that looked at operations lower down an orga- dicator consistently show that introverts make up between a nisation shows that extroverts are better at managing workers if third and a half of the population. Susan Cain’s book on their the employees are just expected to carry out orders, but those plight, “Quiet: The Power of Introverts in a World that Can’t Stop who tend towards introversion are better if the workers are ex- Talking”, has sold more than 2m copies; the TED talkbased on the pected to thinkforthemselves. book has been viewed just over 14m times. And yet, if anything, the corporate approach to introverts has been getting worse. Extrovert five times a day The biggest culprit is the fashion for open-plan offices and so- Introverts must also work harder at adapting to corporate life, called “group work”. Companies rightly think that the elixir of since work is essentially social. They could communicate over growth in a world where computers can do much of the grunt the keyboard rather than in meetings, or by arranging smaller work is innovation. But they wrongly conclude that the best way gatherings rather than rejecting them altogether. This is impor- to encourage creativity is to knock down office walls and to hold tant for climbing the ladder. Karl Moore of McGill University in incessant meetings. This is ill-judged for a number of reasons. It Montreal, who has asked over 200 CEOs about introversion on restson a trite analogybetween intellectual and physical barriers the radio show he hosts, says that introverts who make it to the between people. It ignores the fact that noise and interruptions top usually learn how to behave like extroverts for some of the make it harder to concentrate. And companies too often forget time. Claude Mongeau, the former CEO of Canadian National that whereas extroverts gain energy from otherpeople, introverts Railway, for example, set himself the goal of acting like an extro- need time on their own to recharge. vert five times a day. In any case, the majority of people are on a The recent fashion forhyper-connectedness also reinforces an spectrum of introversion to extroversion. Mr Moore thinks that ancient prejudice against introverts when it comes to promotion. quieterpeople can make as much impact as full extroverts, ifthey Many companies unconsciously identify leadership skills with give themselves time to recharge. He sets his students the task of extroversion—that is, a willingness to project the ego, press the “networking like an introvert” or “networking like an extrovert” flesh and prattle on in public. This suggests that Donald Trump is to broaden their perspectives. the beau idéal ofa great manager. Yet in his book“Good to Great”, In “Quiet”, Ms Cain concludes that business has long been Jim Collins, a management guru, suggests that the chief execu- dominated by an “extrovert ideal”, thanks to a succession of cor- tives who stay longest at the top oftheir industries tend to be qui- porate fashions—whether the 1950s model of the “organisation et and self-effacing types. They are people who put their compa- man”, who thrived by asserting himself in meetings and inside nies above their egos and frequently blend into the background. teams, or today’s fad for constant communication. Fortunately, Many of the most successful founders and chief executives in some trends do now push in the other direction. The field oftech- the technology industry, such as Bill Gates ofMicrosoft, and Mark nology, an industry where introverts are common, has made it Zuckerberg of Facebook, are introverts who might have floun- easier for everyone to communicate at a distance. The aim of en- dered in the extroverted culture of IBM, with its company songs lightened management is not to tilt an extrovert-oriented com- and strong emphasis on team-bonding. In penalising other peo- pany rapidly towards the introverts. It is to create a new kind of ple like them, firms are passing over or sidelining potential lead- firm, in which introverts, extroverts and all the in-betweeners are ers. Atall levelsofcompanyhierarchies, thatmeansfailing to take equally likely to flourish. Call it the ambivert organisation. 7 60 Finance and economics The Economist September 10th 2016

Also in this section 61 Buttonwood: Green investing 62 The G20 and the world economy 62 Kenya’s interest-rate cap 63 Oﬀshore ﬁnance in the Bahamas 64 Long-term private-equity funds 64 Educating quants 65 Free exchange: Work-life balance

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

Investing in commodities hedge their exposures because prices (and hence their profits) were rising. Of mice and markets Lately, however, markets have become harder to read. In oil, for instance, the heightened volatility appears to have attracted hedge funds, which for the first time have been the mostactive investors in futures markets all year, according to CFTC data. Kevin Norrish, head of commodities A surge in speculation is making commodity markets more volatile research at Barclays, describes today’s in- GAME of cat and mouse appears to be tions traded on its exchanges has risen by vestors as more tactical than strategic. Ataking place in the oil market. The fe- 21%, year on year, in 2016. Those of metals They are not investing out of confidence in lines are big producers who want prices to are also up strongly. Barclays, a bank, says the asset class as a whole. One example is go higher, the rodents speculators betting that inflows into commodity-based ex- their enthusiasm for gold, considered a that they will fall. Twice this year, in the change-traded products (ETPs), index safe-haven asset amid concerns about first quarter and the third, hedge funds and funds and other investments have surged Brexit and America’s presidential election. others have taken out record short posi- too. Led by gold and oil, this year they are Saxo’s Mr Hansen reckons the low tions on futures of West Texas Intermedi- at their highest for seven years (see right- yields offered elsewhere in financial mar- ate (WTI), an American crude-oil bench- hand chart). kets are also piquing interest in commod- mark, only to be mauled by (so far empty) The last time investment flowed heavi- ities. The cost of buying a tonne of copper talkamong members ofthe OPEC oil cartel ly into commodities was at the tail end of and storing it for sale, for example, is less and Russia of a production freeze. The re- the China-led supercycle, in 2009-12. But daunting when interest rates are negative. sulting scramble by funds to unwind their back then, says Erik Norland of the CME, The low-yield world may also be driv- short positions has fanned a rally in spot the pattern was different. Commodity ing brave, or foolhardy, retail investors into oil prices (see left-hand chart). markets were dominated by investors commodity ETPs. The biggest beneficiaries This reminds Ole Hansen, head ofcom- making one-way bets that prices would this year have been gold funds. In America modities research at Denmark’s Saxo rally. Moreover, producers saw no need to almost $12 billion has poured into one ex-1 Bank, of currency intervention by central banks. It often works best, he says, when speculators are positioned heavily in the Turning tail opposite direction. He mischievously pic- Number of West Texas Worldwide investment flows to commodities tures Saudi Arabia’s deputy crown prince, short contracts* Intermediate January-July, $bn ’000 $ per barrel Muhammad bin Salman, watching a Precious Base Agriculture Energy screen on his deskeach weekwhen Ameri- 250 55 metals metals 50 ca’s Commodity Futures Trading Commis- 200 50 sion (CFTC) reports speculative positions, 25 + poised to pounce. 150 45 0 Not long ago there were fewer mice to – catch: in 2012-14 volumes in commodity fu- 100 40 25 tures and options markets as a whole were 50 50 relatively muted, as China’s economy 35 75 slowed and prices of materials from cop- 0 per to coal tumbled. Now volumes have Jan Feb Mar Apr May Jun Jul Aug 100 bounced back. The Chicago-based CME 2016 2007 08 09 10 11 12 13 14 15 16 Sources: Barclays; Bloomberg says the volume of energy futures and op- *NYMEX light sweet crude oil futures The Economist September 10th 2016 Finance and economics 61

2 change-traded fund, State Street Global Ad- ness of markets. During the commodities weather-related crop damage in Vietnam, visors’ SPDR Gold Shares; the total invest- boom, speculators were often wrongly Indonesia and Brazil. Prices of robusta and ed in all such oil funds is just $1 billion. Yet blamed forpushingfood and energyprices arabica coffee are near18-month highs. oil has also attracted some devil-may-care to stratospheric heights, when the true Some believe inflows into commod- day traders prepared to risk everything for cause was China’s thirst forscarce raw ma- ities have already peaked. The pattern in a quick buck. Mr Hansen points out that a terials. Since then, the new mines, oil wells recent years has been to divest in the au- particularly hair-raising ETP, the family of and fields of grain carpeting the planet to tumn. But with the presidential election so-called 3X, or triple-leverage, notes meet that demand have started to produce looming and uncertainty about American linked to WTI prices, has surged in popu- goods just when the appetite for them has interest rates high, further volatility may larity this year, even though the fund is de- dulled, pushing down prices. But specula- be in store. Moreover, Saudi and Russian signed to multiply losses as well as gains. tors are jumpingon anythingthat may sug- officials are again talking about stabilising Investors in that are probably chasing vola- gest large changes in supply, which may oil markets as they prepare for a meeting tility, rather than thinking about the boring cause exaggerated price swings. For in- laterthis month, which could make waves. details ofsupply and demand. stance, they have placed big wagers on ris- The choppier markets are, the more specu- Such bets may be adding to the choppi- ing coffee prices this year, because of lative money they may attract. 7 Buttonwood Acclimatising

Getting more sophisticated about green investing T’S not easy being green, especially if thinks, by making it easier and cheaper to Iyou’re a fund manager. A decade or so Carbon positive store energy from renewable sources ago, when mainstream politicianssuch as MSCI World Index such as wind and solar power. Britain’s David Cameron were petting Companies grouped by change in carbon There are other climate-related risks intensity*, share-price performance v index huskies and embracing environmental is- Cumulative % change since March 2012 that investors need to consider. In Ameri- sues, the stocks of renewable-energy pro- 8 ca the frequency of extreme weather ducers were in vogue. But as in the dot- Quintile events that cause at least $1 billion-worth com boom a few years earlier, share 1st 4 of damage has risen sharply since 2000; prices ran way ahead of the potential for + that has implications for insurers. Ex- profits. An exchange-traded fund in glo- 2nd 0 treme weather can cause short-term 3th – 4th bal clean-energy stocks, set up by iShares 4 shocks to economic activity; rising tem- in 2008, has lost investors 79% since its 5th peratures can dent productivity growth. launch. Over the longer term, an analysis 8 Nevertheless, even as the impact of by Gbenga Ibikunle and Tom Steffen in 2012 13 14 15 16 environmental change is felt, short-term the Journal of Business Ethics found that Sources: BlackRock *Annual carbon emissions factors can still cause problems for inves- Investment Institute; MSCI divided by annual sales European green mutual funds had signifi- torskeen on greenery.China and America cantly underperformed their conven- may have ratified the Paris climate- tional rivals between1991and 2014. index, but choose the greenest companies change agreement on the eve of the G20 The rise in shale-oil and -gas produc- within each sector. BlackRock reckons that summit this weekbut there is plenty ofre- tion, and the accompanyingdecline in en- it is possible to create a portfolio which sistance to green policies that are per- ergy prices, have spelled double trouble tracksthe MSCI World Indexwith an annu- ceived to be expensive. Barack Obama forgreen investors. On the one hand, they al error of just 0.3% a year, yet comprises has succeeded in boosting the use of re- have reduced the incentive for govern- companies with carbon emissions 70% newable energy in America but has had ments to favour renewable-energy pro- lower than the index as a whole. to use executive action to bypass Republi- ducers—and thus dented the prospects of Another option is to look at the figures can opposition in Congress. some green stocks. On the other hand, companies report for their own carbon As mainstream politicians fend off at- they have also hit the share prices of con- emissions. BlackRock found that over the tacks from the populist right and left, the ventional oil and gas companies, which period from March 2012 to April 2016, the task of cutting emissions may get even environmental funds tend to avoid. firms that had reduced their carbon emis- harder. In Britain, forexample, Mr Camer- That decline has given succour to a sions most beat the MSCI World Index by on has been and gone, and Theresa May, campaign joined by a number of inves- 4%; those that had shown the smallest im- his successor, has abolished the Depart- tors—mostly from the public and charita- provement underperformed the index by ment for Energy and Climate Change. ble sectors—to boycott the shares of fossil- nearly 5% (see chart). Even if Hillary Clinton defeats Donald fuel producers. Such investors cannot be Although the world has struggled to re- Trump, a climate-change denier, in Amer- accused, at least in the short term, of duce its carbon emissions, it would be a ica’s presidential race, she seems likely to breaking the “fiduciary duty” that fund mistake for investors to believe that green face a sceptical Congress. The undemo- managers owe to their clients to generate policies cannot cause upheaval in individ- cratic government of China may find it the best possible return. ual industries. BlackRock points to the rev- easier to meet its targets. In a new paper, BlackRock, a big fund- olution in lighting. The phasing-out of in- Although they may be confident management group, argues that there are candescent light bulbs, induced by about their long-term analysis, therefore, more sophisticated approaches to green- regulation, hasspurred investmentin light- environmental investors will need inter- ery than boycotting oil and coal compa- emitting diode (LED) bulbs; the price of nal fortitude. Owning a green portfolio nies,orpilingintowind-turbinemanufac- LEDs has fallen by 90% since 2010. Im- means enduring stormy moments. turers. For example, investors could own provements in battery technology may yet a portfolio as close as possible to a given transform the power industry, BlackRock Economist.com/blogs/buttonwood 62 Finance and economics The Economist September 10th 2016

The G20 and the world economy Agreeing to disagree

HANGZHOU The global economy has many ailments and few easy remedies T ITS first leaders’ summit, the Group of A20’s raison d’être was clear. Held shortly after the collapse of Lehman Brothers in late 2008, the forum ofbig economies reas- sured a worried world simply by putting on a showofunity.Butasthe worstravages of the financial crisis have faded, the G20 hasstruggled to find the same sense of purpose. This year’s summit in Hangzhou, in eastern China, which ended on September 5th, pulled leaders’ attention in many different directions. Great show, shame about the substance It was preceded by another display of co-operation: America and China ratified There is no simple answer: the G20 prom- America hinting at retaliation. Such a con- the Paris climate-change agreement. Then ised to share technology with poor coun- flict would undermine one of the G20’s work began on a long list of problems, in- tries and to develop training for workers. main achievements: it was a request from cluding simmering trade disputes, over- But getting the world’s leading economies the group in 2012 that led the OECD, a club stretched central banks, corporate tax to thinkcollectively about the downside of of rich countries, to draft guidelines that avoidance and a populist backlash in sev- innovation was better than nothing. make it harder for companies to shift pro- eral countries against globalisation. The fi- On specific disputes, alas, little progress fits to their favoured tax regimes. The Ap- nal communiqué ran to more 7,000 words, wasmade in Hangzhou. Both America and ple case will roll on, but in the meantime not counting several lengthy appendices. Europe pushed China to do more to curb the G20 committed itself to more co-ordi- This sprawl frustrated some partici- its industrial overcapacity, especially in nation on taxes. Within two years, most pants, who wanted a sharper focus on steel. China countered thatweakglobal de- countries will automatically share infor- growth. The IMF noted that2016will be the mand was as much the problem as over- mation about taxes levied on non-resi- fifth straight year of global growth below supply. The proposed solution—to estab- dents, narrowing the scope for evasion. 3.7%, its average for nearly two decades be- lish a forum to monitor global excess steel To those visiting for the summit, China fore the crisis. The G20 economies are like- capacity—was a classic example of agree- sought to present an image ofstrength. The ly to miss a target they set themselves in ing to disagree. government shut down factories, near and 2014, ofliftingtheircombined output by2% Yet the summit was also a timely re- far, to ensure the air was clean. It blanketed over the IMF’s then forecast for2018. minder of why there is no substitute for Hangzhou with security. And it put on a Judging the G20’s success by growth such gatherings. Days before it began the grand evening gala, featuring a dazzling outcomes is unfair, though, when most of European Commission ruled that Apple light show and ballerinas dancing on waits big members are holding back. America had underpaid taxes in Ireland, by up to ter. The substance of the meetings was iscontemplatinga second interest-rate rise. €13 billion ($14.7 billion). That has raised much duller. But the summits will, indeed Germany remains sceptical of stimulus. the prospectofa transatlantictaxwar,with must, go on. 7 China is at present more intent on defusing financial risks than on ginning up GDP. And there is a more positive reading of Kenya’s interest-rate cap the G20’s spread: that it is evolving to tackle, if not quite solve, the range of pro- Ceiling whacks blems that bedevil the global economy.Al- though the G20 seemsunwieldy,italso has an advantage: flexibility. Lacking a permanent bureaucracy, it can switch emphasis annually, depending on which country is NAIROBI in the chair. Curbing lending rates makes good politics but bad economics China put “innovation” at the heart of its G20 agenda. Vague as that sounds, it HEN interest rates are uncomfort- the same law, banks will have to pay de- was sensible. First, debating whether to Wably high, what can be done? To positors at least 70% of the central-bank rely more on fiscal or on monetary policy Western central bankers struggling with rate. Bankers and the IMF are horrified. to promote growth only gets you so far. In overflowing liquidity, that would be a What effect will the cap have? the longer term, progress depends on im- pleasant question to have to answer. In MPs had already tried twice before to proved productivity—getting more out of Kenya, where the central bank’s headline cap rates. On both occasions the law they existing resources. Second, at least some of rate is 10.5%, it is a nagging political pro- put forward foundered on a presidential the anger directed at globalisation stems blem. On September 14th a law capping veto. The current president, Uhuru Kenyat- from anxiety about new technologies, the interest rates that commercial banks ta, signed the law despite the objections of such as artificial intelligence, that threaten can charge at fourpoints above the central- the central bank and most of the banking established patterns of employment. bank rate is due to come into force. Under industry. Kenya is holding a presidential 1 The Economist September 10th 2016 Finance and economics 63

2 election next year, and access to finance Offshore finance argues it is better suited to countries (like it- has become a hot political issue. According self) with systems based mainly on indi- to Aly Khan Satchu, a well-connected Ken- The holdout rect taxes. This looks like an excuse to drag yan financier, Mr Kenyatta felt too weak to its feet. The OECD has a team policing CRS resist. Pundits rejoiced. “Cheaper loans at members’ data-security safeguards, which last,” declared the Standard; “Why low even the Bahamians admit mitigates some bank rates are good for your family,” ran of the worries. Mark Morris, an indepen- the headline in the Daily Nation. dent tax expert, says the Bahamas has a The Bahamas cocks a snookat the war For most businesses, the more likely ef- “disingenuous ‘compliant non-compli- on tax-dodgers fect is a drying-up of credit. This is because ance’ strategy”: join the CRS, but choose the real cause of Kenya’s high interest rates ROWING peer pressure on countries the clunkier bilateral method and use fab- is not greedy banks but its government, Gto exchange information about clients ricated confidentiality concerns to share which is splurging money ahead of next of their financial firms has left tax evaders data with as few countries as possible. year’s vote. On June 9th Henry Rotich, the with few places to hide. Panama was one, The Bahamas Financial Services Board finance minister, announced that the bud- but the “Panama Papers” revelations this (BFSB), which promotes the islands’ finan- get deficit for 2016-17 would reach 9.3% of year have forced itinto line: itsgovernment cial centre, has stressed at international in- GDP, farhigher than anticipated. Yields on is poised to embrace the Common Report- dustry events that it will move very cau- government debt have typically hovered ing Standard (CRS), administered by the tiously on information exchange. Some around 14% over the past year. Under the OECD, a club of mainly rich countries, interpret this as a veiled invitation to park new law, banks are being asked to lend to which is becoming the global benchmark undeclared money there. Others say the private businesses for the same rate they forsharing data. “Automatic”—that is, regu- Bahamas’ talkofits strategy beingkey to its can get forlending to the government. lar and systematic—exchange is meant to finance industry’s “survivability” shows it How bad the impact on the economy begin in 2017. But some recalcitrants re- believes it can carry on only by accepting will be depends largely on how businesses main. Chief among them is the Bahamas, undeclared funds. Tax-dodgers may also react, says Anzetse Were, a Kenyan econo- an archipelago east ofFlorida and a tax ha- be attracted by the fact that the Bahamas is mist. Most probably,she reckons, business- ven oflong standing. one of the few places where tax evasion es will find other sources of credit than Most of the 100-plus countries in the does not count as a “predicate” (underly- banks. Microfinanciers will not be affect- CRS have signed a “multilateral conven- ing) offence formoney-launderingcharges. ed; nor will the savings co-operatives tion” designed to speed up the data-swap- All this worries the OECD’s tax-transpa- which provide credit to large parts of the ping. Although the Bahamas is in the CRS, rency crusaders. Pascal Saint-Amans, the economy. These lenders may well expand it is one of a few that have elected instead club’s head of tax policy, was concerned their business as banks shrink theirs. One to strike deals one country at a time—and enough to fly to Nassau last year to address “silver lining” could be to tip more Kenyan then only with those with which it already the cabinet. “I told them ifthey play games businesses, which rely heavily on debt, to has special data-exchange agreements they will lose. Their reputation will be hit,” raise equity instead, says Ms Were. known as TIEAs. The Bahamas has only 26 he says. The lack of a response has left him Bank shares fell sharply on the Nairobi ofthese (not counting TIEAs with other tax “extremely disappointed”. stock exchange after the law was passed. havens, which are meaningless). That On September 6th, just after receiving Habil Olaka, the chiefexecutive ofthe Ken- leaves a lot of gaps. It has only two with questions from The Economist, the govern- yan Bankers Association, says that al- Latin American countries, which provide ment issued a press release saying that though the law does not require it, banks the bulkofits offshore business. It says oth- “progress [is] being made” with CRS com- have agreed to applythe newtermsto their ers are in the works. pliance, that this is a “priority”, and that existing portfolio, meaning that their mar- The Bahamas justifies this go-slow ap- the Bahamas is “clean”. In response to the gins will fall at once. Mr Olaka says banks proach by citing concerns over the security questions, it said it sees no competitive ad- will try to make up forlosses by expanding ofdata passed to other tax authorities, and vantage from not signing the multilateral the use of technology such as mobile- convention and is “cognizant of the dam- phone apps to cut their costs. But most will age” it could suffer if it advertised itself as probably have to close branches, sack staff being a safe place forthe tax-shy. It said it is and lend less. willing to exchange data “with any appro- A study by the World Bank in 2014 priate partner that approaches us”. The found that half the countries in sub-Saha- BFSB said it “has NOT been promoting the ran Africa have interest-rate ceilings ofone Bahamas as a place for undeclared funds”. sort or another, including the biggest econ- The Bahamas is not quite alone. As omies, Nigeria and South Africa. African many as a dozen other CRS countries have economieswith capsgenerallyhave a low- declined to sign the convention or equiva- er ratio of credit to GDP than those with- lent multilateral agreements. But most ei- out. In Kenya GDP growth has been driven ther have lots of TIEA s with the countries bycreditgrowth, accordingto Exotix, an in- where their clients live (Hong Kong, for investment bank. That might now slow. stance) or are minnows that even Mr Saint- One consequence of interest-rate caps Amans won’t lose sleep over (like Domin- is that credit flows to safer borrowers rath- ica). The United Arab Emirates is a worry, er than to needy but risky businesses. In he says. But the Bahamas displays a un- Kenya the immediate beneficiaries may ique combination of defiance and a so- well include those who passed the law. phisticated offshore trust and banking sec- Compared with their constituents, Kenyan tor, givingclientsplentyofchoice. Itsbanks MPs are among the best paid in the world. have assetsof$223 billion, 26 timesitsGDP. But winning office is not cheap and, in the Mr Saint-Amans says he now plans to course ofcampaigning, manybuild up hef- write the government a stern letter. Some ty debts. Cheaper loans mean cheaper might conclude from this that he suspects campaigns. Which way’s the bank? 7 Why hurry? another visit would be a waste oftime. 7 64 Finance and economics The Economist September 10th 2016

Long-term private-equity funds Financial education The Omaha play Quantum of scholars

NEW YORK The promise ofa fasterand cheaperpath to WallStreet ATHEMATICAL wizards known as MIT and Oxford, have followed. Buy-out firms are seeking out quants are prized by trading firms These courses, usually12 or18 months longer-term investments M in Chicago, hedge funds in Greenwich, long, are fasterand cheaper than either ARREN BUFFETT’S Berkshire Hatha- Connecticut, and big banks in New York, doctoral programmes or typical MBAs. Wway is celebrated for identifying un- London and Hong Kong. They wear They are popular, too: last year the medi- dervalued companies, buying them, hold- T-shirts, not suits, and can bring in fatter an master-of-finance programme (a ing on to them for years and reaping pay-packets than bankers forless gruel- broader category that includes quantita- handsome rewards for its shareholders. ling hours. But becoming a quant is hard: tive finance) received 5.2 applications for Private-equity firms, by contrast, habitual- a PhD in maths or physics usually helps. each place, against 4.5 for MBAs, reports ly deal in shorter timespans. Funds with a More and more universities are trying the Graduate Management Admission typical life of ten years aim to turn round to provide students with a short cut to Council, a global group ofmanagement troubled companies and sell them profit- WallStreet, via master’s degrees in quan- colleges. In the early 2000s many stu- ably within just three to five years. Recent- titative finance. Familiarity with ad- dents were already working in general ly, though, the private-equity industry has vanced calculus, probability and pro- finance or technology.Today,over half of taken a page from Mr Buffett’s playbook. gramming are minimum requirements. would-be quants at American universi- Several buy-out firms have been setting Since Carnegie Mellon University ties are new graduates. Between 70% and up funds that intend to lock up investor launched the first computational-finance 80% are foreign, mainly from China, funds for 20 years and to hold individual programme in1994, more than 40 univer- India and France. companies for at least ten. Their target net sities worldwide, including Columbia, Demand formathematical skills is on annual return of 10-12% is well below the the rise. In trading people are needed to 20% usually aimed for by ten-year funds, design strategy and write codes, rather but they promise less volatility and lower than execute individual deals. Fintech fees—1% or so, rather than the customary startups are keen on data-mining and 2%. Amongthe largest private-equity firms, machine-learning skills. Courses have Blackstone, the Carlyle Group and CVC adapted to shifts in WallStreet’s require- have all set up dedicated long-term funds. ments. Since the financial crisis, banks The largest, Blackstone’s, has raised nearly have become more worried about quan- $5 billion. Specialised upstarts such as Al- tifying riskand less keen on designing tas Partners of Toronto, which raised $1 bil- exotic products; Carnegie Mellon has lion for its first fund in the spring, are also cancelled advanced derivatives courses getting in on the act. and started ones on riskmanagement. Private-equity houses are establishing Graduates from the best programmes these funds mainly because their clients can expect well-paid jobs: the average have an appetite for them. With interest starting salary foralumni ofthe Universi- rates at rock-bottom, investors are keen to ty ofCalifornia, Berkeley,was $154,668 find assets that can offer decent returns. last year. Freshly minted quants must still Sovereign-wealth funds, which can invest compete against PhDs, who are better for indefinite periods, are happy to accept trained to research and build models. long-term funds’ illiquidity. Endowments, Graduates are up against computer- too, are locking up money forlonger. science types and recruits from the tech Creating long-term funds is not simple. industry.But any quantitative analysis Ludovic Phalippou, from Said Business would conclude that demand forthese School at Oxford University, says that get- students is healthy,and growing. ting fee and incentive structures right can be “very tricky”. Fees, typically fixed for the life of a fund, may look reasonable at long-term funds. niche. Last year investors committed $384 first but prove wrong later. Low fees may Small, long-term specialists like Altas billion to the whole industry; the amount lure investors but give private-equity firms Partners should avoid that pitfall. Andrew going into long-term funds is a small frac- insufficient incentives to manage the in- Sheiner, Altas’s founder, says he intends to tion ofthat. Only 5% offunds set up in 2016 vestments diligently; high feescould allow hold on to investments for up to 15 years, have an intended lifespan longer than 12 firms to siphon off most of investors’ re- but to retain the flexibility to “own each years, according to Preqin, a data provider. turns. In quick turnarounds, new manag- business for as long as it makes sense”, so The large, sophisticated investors who ers are usually brought in with the promise some may be sold sooner. Altas says it has would be the best fit for such long-term ofjuicy bonuses linked to the sale; how, Mr attracted a lot of interest not only from in- funds can often build internal private-equ- Phalippou asks, could that be done with a vestors but also from the owners and ity teams more cheaply. For others keen to 20-year horizon? bosses of target companies, many of invest in a portfolio of companies for the Some have concerns about conflicts of whom are tired, in Mr Sheiner’s estima- long term, there is another option. If even interest. One worried investor fears that tion, of being handed from one private- HenryKravis, co-founderofKKR, a buy-out large private-equity firms might earmark equity owner to another, and instead seek behemoth, has called Mr Buffett’s method promising companies for their short-term a more stable, longer-term partner. “the perfect private equity model”, might it funds—which remain their core business— Despite their recent surge, longer-dated not make sense to invest directly in Berk- leaving only mediocre ones for the new private-equity funds are likely to remain a shire Hathaway? 7 The Economist September 10th 2016 Finance and economics 65 Free exchange All in the family

America does little to help people’s work-lifebalance. EnterHeatherBoushey grapple with changes in family structures. Women once stayed at home, cooking meals, ironing clothes and looking after children while their husbands went out to work. This division was not universal—in poorer families, especially, women have long been employed outside the home. But it was the norm. As women joined the paid labour force in increasing numbers, more household responsibilities were shoehorned into the hours outside work. (Although men do more in the home than they used to, women still carry out the bulk of domestic duties.) Some can afford nannies and cleaners to help out. But many families, and especially women, have too much to do and too little time in which to do it. That may in turn push them to give up formal work. Family-friendly policies almost certainly boost labour supply. The OECD reckons, for example, that increases in paid leave up to a total oftwo years raise women’s participation in the labour force. Ms Boushey therefore wants America’s government to step into parts ofworkplaces and homes that it has hitherto chosen to avoid. In herbook, she recommends reinforcingAmerica’s safety net to make it more like those in Europe: to grant workers more paid time to care fornew babies or ailing relatives; to allow great- MID the furore of America’s bizarre presidential election, it is er flexibility in working time; and to provide greater support for Aeasy to forget that history may be made. If elected, Hillary the education ofpre-school children. Those all sound like a boon Clinton will be the first female president. Her achievement for hard-pressed households. But is the government really need- would be one manifestation of arguably the most important so- ed to supply them? cial change ofthe past century.At the start ofthe1950sonly about With her co-authors, Ms Boushey argues that better family- one-third of American women worked, compared with almost leave policies should not only improve the lives of struggling 90% ofmen. Today 57% ofwomen are in work, while the share of families but also boost workers’ productivity and reduce firms’ men is just under 70%. This shift has added trillions to economic costs. In research with Sarah Jane Glynn, ofthe Centre for Ameri- output, and allowed women who might otherwise have been can Progress, another left-leaning think-tank, Ms Boushey found stuck at home to start companies, invent new products, advance that the cost to employers of replacing workers who leave (for the course ofscience orsimplyto earn a livingoftheir own. Italso any reason, from a new job to parenthood) could amount to be- transformed life within the home. Yet American policymakers tween 15% and 20% of annual pay, even in occupations paying have responded painfully slowly to this new reality. less than $30,000 peryear. Doinggood forworkers should, there- America is an extraordinary outlier in the quality of its safety fore, be good for businesses and for the economy. Other research net forfamilies.It does not require firms to provide any paid fam- suggests that more flexible work rules reduce absenteeism and ily leave (when, for example, a child is born). The average in the increase productivity. OECD, a club of mostly rich countries, is 54 weeks. As a share of But if enlightened family policies enable firms to raise their GDP, total spending on family benefits in America, at1.6%, is well workers’ productivity and cut costs, they ought to be leaping to below the OECD mean. And a third of that takes the form of tax provide them themselves. At the very least, the cost of hiring re- breaks—not much use to poorer families, which pay little income placements ought to give hard-pressed employees—those who tax in the first place. are pregnant, say,orwho have to care forelderlyparents—room to Mrs Clinton, it seems, means to fix this. She has named Heath- bargain for better treatment. On the face of things, new govern- er Boushey as chief economist in her transition team (putting her ment rules and regulations are unnecessary. in line fora top job in a Clinton administration). Ms Boushey,currently at the Washington Centre forEquitable Growth, a left-lean- Inside out ing think-tank, has made inequities in the labour market the fo- Some companies have indeed spotted that it pays to be kind to cus ofher research. theirstaff:when Google increased paid maternityleave from 12 to Despite decades of advances, the gender gap remains wide. 18 weeks in 2007, the rate at which new mothers left fell by half. Women are still under-represented in senior positions and But big, profitable companies such as Google are better placed among entrepreneurs. That helps to explain why the median fe- than most to notice the opportunity and act upon it. In firms em- male wage is 80% of that of men, lower than the OECD average. ploying a handful of people rather than many thousands, it can Worryingly,progress may be slowing. The proportion of women be debilitating if someone takes six months off. Here a nudge in the American workforce—which remains lower than in much from the state may help. Broad social insurance could help small- ofwestern Europe—hasdeclined in recentyears. The share ofpro- er companies to share the financial load: they would pay into a fessional degrees earned by women soared from almost nothing fund, from which they could draw when employees go on paren- to above 40% in the early 2000s, but has since fallen. tal leave, say. There are no easy answers here. But Mrs Clinton’s In “Finding Time: The Economics of Work-Life Conflict”, a team have at least started to askthe right questions. 7 book published earlier this year, Ms Boushey argues that Ameri- ca’s labour-market troubles are largely the result of its failure to Economist.com/blogs/freeexchange

66 Science and technology The Economist September 10th 2016

Building materials Also in this section Top of the tree 67 The story of yeast 68 Top Gun’s new helmet

The case forwooden skyscrapers is not barking HE five-storey pagoda of the Temple of and strength to wooden structures. Tthe Flourishing Law in the Nara prefec- A recent experiment by Skidmore, Ow- ture of Japan is one of the world’s oldest ings & Merrill, a firm ofarchitects, and Ore- wooden buildings. It has withstood wind, gon State University, shows how strong en- rain, fire and earthquakes for 1,400 years. gineered wood can be. The researchers Analysis of the rings in the central pillar used CLT in a hybrid form known as con- supporting the 32-metre structure suggests crete-jointed timber. This featured an 11- the wood that it is made from was felled in metre wide CLT floor section with a thin 594, and construction is thought to have layer of reinforced concrete spread across taken place soon after. the surface. Thicker sections of concrete In an age ofsteel and concrete, the pago- were added where the floor was sup- da isa reminderofwood’slonghistoryas a ported by pillars. It was put into a giant test construction material. New techniques rig where a powerful hydraulic press mean that wood can now be used for pushed with increasing force onto the sur- much taller buildings. A handful are al- face. The researchers wanted to see how ready going up in cities around the world. the structure moved under load, but kept The 14-storey Treet block of flats in Bergen, pressing in order to find its limits. The floor Norway, is currently the tallest. But Brock finally began to crack when the load Commons, an 18-storey wooden dormi- reached a massive 82,000 pounds tory at the University of British Columbia (37,200kg), around eight times what it was in Canada, is due to be completed in 2017. designed to support. That is when construction is expected to The concrete covering the floor was begin on the 21-storey Haut building in mainly forsound insulation, but it helps to Amsterdam. Arup, a firm of engineering deal with the second worry: fire. The con- consultants working on the project, says it crete adds a layer of fire protection be- will be built using sustainable European tween floors. In general, a large mass of pine. Some architects have even started de- wood, such as a CLT floor, is difficult to signing wooden skyscrapers, like the pro- burn without a sustained heat source—for posed Tratoppen (“the treetop” illustrated the same reason that it is hard to light a opposite), a 40-floor residential tower on camp fire when all you have is logs. Once the drawing-board in Stockholm. the outside of the timber chars it can prevent the wood inside from igniting. The big Timber! urban fires of the past, such as the Great Wood has many attractions as a construc- Fire of London, which occurred 350 years tion material, apart from its aesthetic qual- ago this month, were mostly fuelled by ities. A wooden building is about a quarter smaller sections of timber acting as kin- of the weight of an equivalent reinforced- dling. Prospective tenants would doubt- concrete structure, which means founda- less need lots of reassurance. But with oth- tions can be smaller. Timber is a sustain- er fire-resistant layers and modern able material and a natural “sink” for CO2, sprinkler systems, tall wooden buildings as trees lock in carbon from the atmo- can exceed existing fire standards, reckons sphere. Tall steel-and-concrete buildings Benton Johnson, a project leader with tend to have a large carbon footprint, in Skidmore, Owings & Merrill. part because of the amount of material re- He says the test showed that not only quired to support them. Using wood could can wood be made strong enough for tall reduce their carbon footprint by 60-75%, buildingsbutthat“itmakessense to use it”. according to some studies. Although a cubic metre of concrete is There are two main concerns about us- cheaperthan an equivalent volume oftim- ing wood to build high. The first is whether ber, wooden buildings can be built faster. wood is strong enough. In recent years Mr Johnson thinks the appeal of wood, there have been big advances in “engi- both visually and as a sustainable materi- neered” wood, such as cross-laminated al, will make it commercially attractive to timber (CLT) made from layers of timber property developers. sections glued together with their grains at What about woodworm and rot? “If right angles to one another. In much the you don’t look after it, steel and concrete same way that aligning carbon-fibre com- will fail just as quickly as timber,” says Mi- posites creates stronger racing cars, aircraft chael Ramage, head of the Centre forNatu- and golf clubs, CLT imparts greater rigidity ral Material Innovation at the University 1 The Economist September 10th 2016 Science and technology 67

2 of Cambridge in Britain. Dr Ramage and parison. They knew from past studies that his colleagues are also testing wooden ma- it was common for organisms exposed to terials for tall buildings, including for an artificial selection to carry evidence of 80-storey, 300-metre wooden skyscraper such tinkering in the form of duplicate (see illustration) presented as a conceptual chromosomes and genes. And, sure studyto the CityofLondon. Designed with enough, they found these characteristics in PLP Architecture and Smith and Wallwork, abundance and noticed that all the strains an engineering company,it would, if built, seemed to stem from wild ancestors that become the second-highest building in lived 500 years ago. London after the Shard. Further support came from traits car- For a busy city such as London, there ried by their genes. All yeasts engage in are yet more advantages to building higher asexual reproduction most ofthe time. But with timber, adds Dr Ramage. For a start, wild species are capable of mating when the construction site would be a lot quieter genetic diversity in a population declines. withoutthe heavyplantrequired to pound Such a trait can prevent populations from deep foundations, pump concrete and in- becoming homogenous and thus vulner- stall steel supports. There would also be able to a single disease or predator, but it less construction traffic. Dr Ramage calcu- serves no purpose in populations living in lates that for every lorry delivering timber stable, protected man-made environments for a wooden building, five lorries would London’s tree house and ought thus to fade away. This is pre- be needed to deliver concrete and steel. All cisely what the researchers found. More these things may mean that once the total One big obstacle to this wooden renais- than 40% of the beer yeasts were found to construction costs are calculated, a wood- sance is regulation. Building codes vary be incapable of reproducing sexually, and en building can workout cheaper. around the world. In America cities can re- the others showed dramatically reduced Anders Berensson, the Swedish archi- strict wooden buildings to five or six sto- sexual fertility. tect who designed Tratoppen, believes en- reys (about the height of a fire engine’s lad- Although domestication led sexual re- gineered wood will become the cheapest der). Exemptions can be made, however, production to decay, traits useful for life in way to construct tall buildings in the fu- and proponents of wood are hoping that a brewery became more common. The re- ture. Another benefit of the material, he astallertimberbuildingsemerge, city plan- searchers found that genes involved in the says, is the ability to carve the wood readi- ners will adjust the rules. Ifthey do, an old- fermentation of maltose, the main sugar ly.In his current design the numberof each fashioned branch ofarchitecture might en- found in beer, were duplicated several floor is cut into the building’s exterior. joy a revival. 7 times, allowingbeeryeaststo complete the fermentation process more rapidly than their feral ancestors. Similarly, wild yeasts The story of yeast typically carry genes associated with a range of unpleasant flavours; and these Domesticated tipple genes were rare in the culinary ones. In- triguingly, all these signs of domestication were farstronger in the 102 brewing strains that the researchers studied than those in the wine strains. The evidence suggests that yeast domestication began in the 1500s and was In a piece ofgenetic archaeology, researchers discoverthe origins ofa good pint more pronounced in brewing than it was ATTLEranchersknowthatiftheywant and grant specific flavours. But until the in winemaking. Drs Maere and Verstrepen C to increase their yields it is best to work of Louis Pasteur in the mid-19th cen- suggest that this may be down to different breed their largest cows with their biggest tury nobody knew that microorganisms practices. Brewing yeasts were likely to bulls. The same idea works when trying to existed. However, a process called “back- breed continuously in a man-made envi- improve otherlivestock, cropsand pets. Al- slopping”, whereby part of an old success- ronment, since they are recycled after each though less well known, microorganisms ful mix of fermented dough, wine or beer fermentation batch and beer is produced can also be bred selectively. Given that is seeded into a new mix, might have al- all year. In contrast, wine yeasts are only yeasts have a long history of being used to lowed early yeast users to confine species grown for a short period every year, and ferment food and drink, archaeologists that had favourable characteristics in man- spend much of their lives in and around have argued for years that early craftsmen made environments for years on end, ef- vineyards where they are subject to inter- may have selectively bred yeast strains fectively domesticating them. Drs Maere mingling with wild strains, so are subject- without even realising it. and Verstrepen suspected that regular ed to natural selective pressures. Now there is evidence to support this backslopping would have resulted in The work was more than an academic idea. Steven Maere of the University of yeasts developing traits that led them to exercise. The researchers went on to select Ghent and Kevin Verstrepen ofthe Univer- thrive in environments managed by hu- a strain of beer yeast that shows very effi- sity of Leuven, both in Belgium, and their mans, but to struggle in the wild. To ex- cient fermentation, but also produces an colleagues have been studying the ge- plore that idea, they set up an experiment. unwanted spicy flavour, and crossed it nomes of culinary yeast species. As they Working with a team of experts from with a less efficient but better-smelling report in Cell this week, the researchers White Labs, a company in San Diego that sake strain. By selecting progeny without have found evidence that people started develops and sells yeasts, the researchers the gene variants for the off-flavour, they domesticating yeast strains, particularly analysed the genomes of157 strains of Sac- obtained a new beer yeast that combines those used in beer, some 500 years ago. charomyces cerevisiae, a yeast species that swiftfermentation with a lovely, fruity aro- Today’s bakers, vintners and brewers is commonly used today. Most were beer ma. And this could be just the beginning. have intimate knowledge of yeasts and strains but the team included a number of The scientists expect a range of novel yeast choose strains that improve their products wine, spirit, sake and bread yeasts for com- hybrids to follow from their research. 7 68 Science and technology The Economist September 10th 2016

on Government Oversight, a watchdog in Washington, DC. The aircraft’s research was spread around more than 300 congressional districts whose legislators were keen to support contractors’ proposals for fancy and expensive new features, he maintains. The helmet is now so complex, he reckons, that it has become the F-35’s weaklink. Intricate kit breaks—and when it does, a pilot cannot simply borrow another’s helmet to fly. This is because each HMDS is calibrated to an individual flyer: for example, the alignment of their pupils foreye-tracking, which isa two-daylabora- tory job that only Rockwell Collins is au- thorised to conduct. In 2011 the Pentagon paid Britain’s BAE Systems to develop a backup helmet, lest the HMDS design prove flawed. Two years later the Pentagon decided to stickwith the Rockwell Collins effort. Since then, some problems have been mostly solved. The helmet now adjusts the display to com- pensate for different vibrations. A green glow on the display, once distracting, has been dialled down. Pilots say that a previously frustrating delay in image projection Military technology has also largely gone. But criticism persists. A report written Top Gun’s topper by a US Air Force F-35 pilot following mock dogfights last year said that the helmet was so large it restricted the ability of pilots to turn their head to see enemy aircraft. Tilt- ing back to look up turns the helmet’s avi- onics cable “into a spring, further increasing necktension”. Some flight manoeuvres Is the world’s most expensive fighter-jet helmet really that good? momentarily resulted in the helmet being N THIS style, $400,000.” That price tag put on a special set ofgoggles. pinned against the canopy, obstructing the “Ifor a hat sounds like something out of The visordisplay can also include infor- display and inhibiting weapon-firing. One a tea party attended by Alice. It is actually, mation from satellites, friendly aircraft and airman says few of his colleagues like the though, the expected cost of the world’s military units on the ground. The pilot’s F-35 helmet. most high-tech helmet—one to be worn by eyesare tracked bythe helmetto rapidly re- At 2.4kg, there is also concern about the pilots of the Lockheed Martin Lightning II, position images and symbols as they look helmet causing a whiplash injury if a pilot also known as the F-35, which has been de- around. If a missile is launched it can be is forced to eject. Test ejections with dum- veloped by America and its allies to re- steered towards the target with only the pi- mies by the Pentagon’s Operational Test place most of their existing strike aircraft. lot’s gaze. In other warplanes pilots would and Evaluation unit found this could cause In the context of a plane costing between have to expend “significantly more brain- possible fatal neck injuries for some pilots. $148m and $337m, depending on exactly power” assimilating data from multiple Designers are workingto lowerthose risks. which model you order, the price of the cockpit display screens, some of them not To reduce loading on the neck, Rockwell helmet is, perhaps, trivial. But for that in their line of sight, says Billie Flynn, a test Collins will lighten the helmet by a quarter amount you might expect to get something pilot forLockheed Martin. of a kilo, says Karl Shepherd, the firm’s pilots are universally happy with. And marketing boss. Mr Flynn, Lockheed’s test they are not. Mission impossible pilot, says that more than 300 pilots have The helmet is a wonder. Fighter pilots The helmet, known as the Gen III Helmet been trained to use the HMDS and that all have long been used to a “heads-up” dis- Mounted Display System (HMDS), has “have become believers” in the helmet. play—an image of cockpit data and target- been developed by a joint venture be- A lesson lies in all this, some say. Devel- ing information displayed on the wind- tween Rockwell Collins, an American oping exquisite technologies is not always screen in front of them. The F-35 helmet company, and Elbit Systems, an Israeli one, the best means to an end. Had the F-35’s goes much further. Not only does it display working with Lockheed Martin. Joe Della- cockpit not been positioned lower than that detail, and much else besides, on the Vedova, the Pentagon’s spokesman for the those ofother fighter jets to reduce its radar helmet’s visor but it also takes video im- F-35, says the combination of aircraft and signature, pilots would be able to see more ages from six external cameras mounted HMDS means the new warplane can safely with their own eyes. There are old-school around the aircraft and shows that as well. handle combat roles that no other can. ways around that: one F-35 pilot says he This allows the pilot to “look through” the Such boosterism is backed by numbers: sometimes banks the aircraft over when aircraft at any angle. Want to see what is America and its allies plan to order more he wants to see what is going on below. In happening below? Then look down and than 3,100 F-35s. future years, an entirely different solution instead ofyourlap you see the ground. The But some thinkthat the helmet’s “politi- may emerge. Given the pace of drone tech- projected view also doubles up as a night- cal engineering” is as much a marvel as its nology, the aircraft that replaces the F-35 vision system, without the pilot having to electronics, says Dan Grazier of the Project may not have a pilot at all. 7 Books and arts The Economist September 10th 2016 69

Also in this section 70 The right in America 70 Steven Runciman, a Byzantine life 71 The Venice ﬁlm festival 72 Johnson: Talking in tongues

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China lengesofflood control. The firstattempts to tame the Yellow river are ancient; the huge Water, water, everywhere Three Gorges dam, which a decade ago turned a fast-flowing stretch into a reser- voir the size of Lake Superior, is just the latest scheme. Mr Ball argues that “whatever one might think of China’s mega-engineering schemes, doing nothing is not an alterna- How China’s rivers shaped its history tive.” Indeed, his book, a rewarding read, is HE Chinese mental compass is orient- The Water Kingdom: A Secret History of at its most fascinating when describing Ted not north-south as with the rest of China. how in China the laws of nature seem to the world, but west-east—a consequence By Philip Ball. Bodley Head; 316 have embedded in them a moral precept. of tectonic forces that threw up mountains pages; £25. To be published in America by Success or failure in flood control and irri- in inner Asia from which rivers seek a University of Chicago Press in March 2017 gation can furnish or remove the Mandate course down through China to the sea. of Heaven. The Yellow river catastrophe of “Twisting around ten thousand times but own conveyor belt, sometimes 15 metres 1887 was seen as evidence that the Qing, always going eastward,” said Confucius: it above the surroundingcountryside. When the last dynasty, was losing its mandate. seemed a law of nature. Philip Ball argues rains inevitably breached the dykes, the When Chiang Kai-shek caused the deaths in his new book, “The Water Kingdom”, consequences could be catastrophic: up to of hundreds of thousands of Chinese by that the two greatest waterways, the Yel- 2.5m people are thought to have drowned ordering a breach ofthe same river’s dykes low river that flows across the north China or died from disease and starvation in the in an effort to avoid defeat by the Japanese plain and the Yangzi that charges through flood of1887. Aftersuch disasters, itwas im- in 1938, it was grist to the Chinese Commu- the heart ofthe country, are both “symbols possible to force the river back into its old nists’ claims that the Nationalists were of the nation” and, for millennia, have watercourse. Like an out-of-control fire unfit to rule. been the “keys to its fate”. hose, the Yellow river has thrashed across If heaven’s mandate comes from con- Nowhere is this clearer than with the the north China plain, its sea mouth shift- trolling the waters, might the demands of Yellowriver, China’s“motherriver”. Rising ing by hundreds of miles. “China’s Sor- hydrology, including the need for consider- on the Tibetan plateau, it cuts a giant loop row” indeed. able resources and legions of workers for through the loess badlands of China’s The vast ecosystem is shaped by hu- flood control and irrigation, have created north-west—the famous “yellow earth” man agency, yet nature remains god. The the highly centralised, authoritarian states formed of fine dust blown from the Gobi Yangzi, the more immense torrent, divides ofChinese dynastic rule, the Communists’ desert. By the time the river has turned the wheat-growing north from the rice cul- one included? The idea ofan “Oriental des- abruptly eastward onto the vast and popu- tivation of the south. It has long been Chi- potism” based on a “hydraulic civilisation” lousnorth China plain, a litre ofriver water na’s commercial artery, running deep into was advanced in the 1950s by Karl Witt- carries up to 300 grams ofalluvial silt. the country through spectacular gorges, as fogel, a Marxist historian. His ideas have For thousands of years the silt has both well, in earlier dynasties, as its line of de- fallen outoffashion, notleastbecause they nourished and destroyed on an unpar- fence. With floods no less brutal than the often overplay emperors’ reach and down- alleled scale. As the sediment settles, it Yellow river’s, the Yangzi has no equal for play historical local actors in trade, com- raises the river bed and makes the river beautyand cruelty, ascan be seen from the merce—and even hydrology. more prone to flooding with the summer flooding ofChangzhou in 2015 (pictured). And yet: China’s biggest current water rains. The response was always to build Nearly all cultures have flood myths projects, including piping water from the higher ramparts ofmud, rocks and matting and legends. China’s are unusual in that at Yangzi under the Yellow river to slake Beij- of woven reeds until the river ran on its the heart of them are the engineering chal- ing, are on an imperial scale that without 1 70 Books and arts The Economist September 10th 2016

2 authoritarianism would be hard to envis- “great paradox” of ordinary, hard-working Biography age. At the very least, water management Americans seemingly voting against their has created, as Mr Ball puts it, “a political own economic interests by supporting Shades of language, and it is one that speaks of legiti- small-state Republican politicians. And macyto rule”. Lookhowitsoaksinto politi- like Mr Frank, she is certain such voters Byzantium cal gesture, for instance, with the prime would be better off under the Democrats. minister, Li Keqiang, wading into the flood Much of the book is concerned with the waters in his office clothes. Such symbolic many environmental disasters suffered by Outlandish Knight: The Byzantine Life of offerings will have to count for more as Louisiana as a result of under-regulated oil Steven Runciman. By Minoo Dinshaw. Allen popular concerns grow about sediment and gas companies plundering its natural Lane; 767 pages; £30 building up behind the Three Gorges dam, wealth with the connivance of local increasing water extraction and desertifi- Republican leaders. Where she and Mr Y THE time he died, in 2000 at the age cation in the Yellow river basin. There is so Frank disagree is over his central premise B of 97, Sir Steven Runciman knew that much toxicity in northern Chinese cities that such voters are being duped by an he was a “‘relict of a past age’”, the “em- that halfthe water there is undrinkable. unholy alliance of Fox News, unscrupu- bodiment of a…nearly mythical era.” Mi- Like Confucius’s rivers, “The Water lous corporations and self-aggrandising noo Dinshaw’sbrilliantlyentertaining bio- Kingdom” twists around in spirals and me- Washington elites. graphy of the great historian of Byzantium anders.Thatisitscharm,asittakesinpaint- Ms Hochschild has been praised for restores him to public view and provides a ing, poetry and ancient history.Sometimes focusing on her subjects’ emotional lives. vivid picture of many aspects of 20th- the reader wishes the author had walked Her new bookis no exception. It is people’s century Europe that now seem almost as the rivers’ banks as much as the library emotional response, she argues, that is the remote as the crusades and religious stacks, and on occasion the narrative is raw stuff of politics. What, then, do her schisms he described in his books. shunted off course, as in overenthusiastic subjects feel? They see themselves as be- Runciman was not aristocratic by claims for China’s maritime prowess. The trayed by “line-cutters”—black people, im- birth—his grandfather,a shippingmagnate, shock-and-awe voyages of Admiral Zheng migrants, women and gays—who jump in had established the family fortune—but he He in the early 15th century that reached ahead of them in the queue for the Ameri- wasimmenselygrand and well connected. Hormuz and eastern Africa were remark- can dream. Southerners feel patronised Hisparentswere the firstmarried couple to able. But they were never repeated, while and humiliated by northerners who tell sit together in the House of Commons. hisvesselswere little more than lumbering them whom to feel sorry for, then dismiss And his father, who was part of Lord As- rafts. Meanwhile, for much of history, the them as bigots when they do not. They feel quith’s cabinet before the first world war, overseas trade with China was carried not they are victims of stagnant wages and af- survived the declining fortunes of the Lib- in Chinese craft but on foreign (Arab, Indi- firmative action but without the language eral party to lead the doomed mission to an and later Western) bottoms. But these of victimhood: struggling Southerners are Czechoslovakia in 1938. He could claim in are quibbles. MrBall puts waterback beau- not “poor-me’s”. They believe that they are 1991 to have known every 20th-century tifully at the heart ofChina’s story. 7 honourable people in a world where tradi- prime minister except Sir Henry Camp- tional sources of honour—faith, indepen- bell-Bannerman, who died when he was a dence and endurance—seem to go unre- toddler, and Bonar Law, “‘whom nobody The right in America cognised: until Donald Trump began knew’”. Introduced by his governess to offering hope and emotional affirmation. French, Latin and Greek by the age of sev- Hand on heart It is a convincing thesis, but not a new en, he won scholarships to Eton—in an era one. That conservative white middle-class of clever men like George Orwell, Cyril and working-class Americans feel a sense Connolly and Anthony Powell—and to of betrayal and loss is familiar territory.Ms Cambridge, where he lived in the “scorn- Hochschild has little new to say about fully beautiful Great Court” of Trinity Col-1 Strangers in Their Own Land: Anger and right-wing media or evangelical Christian- ity. What she does say about prosperity Mourning on the American Right. By Arlie preachers and Fox News shock jocks dup- Russell Hochschild. The New Press; 351 pages; ing their subjects by directing their anger $27.95 away from real sources of local grievance HE past is a foreign country. But so too like oil spills and gas leaks might confirm Tis the present, says Arlie Hochschild, an the argument she seeks to overturn. The American sociologist, of much of her own book’s appendix shows how misled Tea country.Ms Hochschild is a devoted liberal Party activists are on many of their most from Berkeley, California, and her latest cherished gripes, such as the size of federal book, “Strangers in Their Own Land”, is an government. According to the Bureau of astute study of America’s “culture war” Labour Statistics, at the end of 2014 only drawn from the perspective of the white 17% of the 143m American workers were conservatives who feel they are losing it. federal, state-government or military em- But it is also a Bildungsroman: one wom- ployees. The Tea Party activists she spoke an’s journey across the political divide, to to believe the figure is around 40%. an empathy with those on the other side. Ms Hochschild offers an entry pass to Based on five years among Tea Party ac- an alternative worldview, and with it a tivists in Louisiana—a typical, if perhaps route map towards empathy. In her book extreme, Southern “red state”—“Strangers people like Janice Areno, a Bible-bashing in Their Own Land” will elicit compari- Pentecostalist who says the poor should sons with “What’s the Matter with Kan- work or starve, become human. The anger sas?” by Thomas Frank, a bestseller in and hurt of the author’s interviewees is in- 2004. Like Mr Frank, Ms Hochschild is con- telligible to all. In today’s political climate, cerned chiefly with what she calls the this may be invaluable. 7 Birdman The Economist September 10th 2016 Books and arts 71

2 lege. Through his friend Dadie Rylands ular laird of the Isle of Eigg, not least be- weaves the strands of a long and variegat- (they were named the Tea Party Cats “for cause he would invite his musical friends ed life with sympathy, elegance and aware- their velvety urbanity”) he met Lytton Stra- to stay and perform at the village hall. (Ye- ness of the wider picture. In recognition of chey, John Maynard Keynes and other hudi Menuhin was “memorably de- Runciman’s fascination with the supernat- members ofthe Bloomsbury group. scribed” by the ferryman as “a handy man ural, chapters are headed with quotations Despite frequent trips to London to so- for a ceilidh”). He gave his name and time from Arthur Waite’s “The Key to the Tarot”. cialise with the “brightyoungpeople” (and to numerous public bodies and causes, at He refers frequently to novelists such as be photographed with his budgerigar by home and abroad. A final apotheosis, Evelyn Waugh and Olivia Manning, au- Cecil Beaton), Runciman won the first- three monthsbefore he died, forhisservice thors of trilogies about the war. And his class degree and prize fellowship that were as Grand Orator to the Patriarch of Con- turn ofphrase isasarrestingasRunciman’s to launch his academic career. Ofthe Cam- stantinople, was a descent byhelicopter on own—one family friend is “unceremoni- bridge spiesrecruited in the 1930s, GuyBur- the Holy Mountain ofAthos. ous, crapulous”. Mr Dinshaw has done gess was a pupil and friend and Anthony Mr Dinshaw’s choice of subject for his Runciman proud. To whom will he turn Blunt a “supercilious” colleague. Employ- first book is an inspired one. He inter- his attention next? 7 ingpolitical and diplomaticconnections to the full, he travelled in style to Romania, Bulgaria and Asia. He established his reputation with histories ofthe emperor Roma- nus Lecapenus, the first Bulgarian empire and Byzantium. When he inherited wealth from his grandfather in 1938, he gave up his university fellowship. Unfit for military service, Runciman spent the war in the Balkans and the Mid- dle East: in Sofia as press attaché to the Brit- ish Legation, Jerusalem, Cairo and Istan- bul. There he narrowly escaped a bomb blast, spent three years as professor of Byz- antine history and art, and became an honorary Dervish. Between 1945 and 1947 he led the British Council in Athens. Os- bert Lancaster, a witty cartoonist, and Pat- rick Leigh Fermor, who would become a glamorous writer, were there. Greece was lurching towards civil war and Runciman gained an abiding love for the country, The Venice film festival pleasure from upstaging the British ambassador and the position ofAstrologer Royal. Showtime On his return to Britain, Runciman split his time between London and the Hebri- des, and wrote the books that were to make hisname: the ground-breakingthree- volume “History of the Crusades”; and a VENICE succession of works on Byzantine history Unveiling the new films that will win Academy Awards that drew on a wide variety of sources, Muslim and Greek, most notably “The Si- POTLIGHT”, which won the best- Stone—pictured together) who adore the cilian Vespers” and “The Fall of Constanti- “S picture award at the Oscars this year, music and movies of Hollywood’s golden nople”. Francis Birrell, a Bloomsbury ac- was first shown at the Venice film festival age, it succeeds in being both innovative quaintance, had greeted Runciman’s first last September. “Birdman”, the best-pic- and nostalgic, frothy and melancholy, ro- bookwith the acknowledgmentthatfewer ture winner in 2015, was unveiled at Venice mantic and realistic. For all its bright col- than “halfa dozen people were really com- the year before. And in 2014, “Gravity” did ours, retro styling and toe-tapping tunes, petent” to review it (and that he was not not win the best-picture Oscar, but it col- the film asks, as “Whiplash” did, whether one of them). There were no such reserva- lected seven other Academy Awards, as pursuing artistic greatness means aban- tions about later volumes, which were well as a mountain of trophies from doning everything else in your life, espe- lively, authoritative and well received. around the world. No prizes for guessing cially in the economically squeezed 21st Runciman was not to everyone’s taste. where it was first shown to the public. century. The audience in Venice was so He loved to tease, possessed a “queenly Purists may say that no festival should enchanted that by the time the end credits persona”, snubbed people who failed to be judged on the number of prizes its films rolled, the Oscars had become a two-horse interest him and “had a tongue like a viper go on to pickup elsewhere. But in publicity race between “La La Land” and all the rest. if he wanted to use it”. He was a gossip terms, it is invaluable to be known—as Ven- Whether or not “Arrival” is in conten- who adored royalty; he entertained the ice is now—for being the launching pad for tion forthe best-picture award, Denis Ville- Queen Mother to lunch at the Athenaeum the winners of the Academy Awards, the neuve’s weighty and eerie science-fiction Club every year; four queens are said to Baftas and the Golden Globes. mind-bender is one of two films at the fes- have attended his 80th-birthday party. This year’s opening film was “La La tival that could snag a best-actress trophy Despite being able to compose an al- Land”, a delightful musical comedy from for Amy Adams, who has already been phabet of lovers with every letter except Q Damien Chazelle, the writer-director of nominated for five Oscars and five Baftas. (“I shall die Qless”), he was to claim that he “Whiplash”. Set in modern Los Angeles, Ms Adams stars as a linguistics professor had “never been in love”. He retained a but revolving around a jazz pianist (Ryan who is recruited by the American govern- wide circle of loyal friends and was a pop- Gosling) and an aspiring actress (Emma ment when a monolithic alien spacecraft 1 72 Books and arts The Economist September 10th 2016

2 lands in a meadow in Montana—or, to be designer is as skilled at writing and direct- Mel Gibson’s “Hacksaw Ridge” is precise, floats a few metres above it. Her ing films as he is at designing sunglasses, nowhere near as sophisticated as the other mission is to board the flying saucer, de- “Nocturnal Animals” cuts between three films shown. Nonetheless, his admiring code its occupants’ language and work out narratives. In one, Ms Adams plays a rich, biopic of Desmond Doss (Andrew Gar- whether they are friend or foe. As in “Grav- glamorous but miserable Los Angeles gal- field), a pacifist who won the Medal of ity”, the heroine of “Arrival” is a single lerist who is sent a proof copy of a novel Honour for his bravery as a medic in the mother getting over the death of her written by her ex-husband. In the second second world war, is likely to carry away daughter, but in contrast with “Gravity”, strand, which visualises the story in the many prizes. Forall the gore, the film is ulti- the tragic back story doesn’t feel as if it has novel, a mild-mannered man (Jake Gyllen- mately a straightforward, uplifting ode to been grafted on. It is crucial to the plot. haal) is terrorised by hoodlums in West patriotic duty and individual principles. Ms Adams’s other starring role at the Texas. And in the third, the gallerist re- Besides Hollywood loves a tale ofredemp- festival was in “Nocturnal Animals”, Tom members her bohemian youth in New tion, and “Hacksaw Ridge” marks Mr Gib- Ford’s proudly melodramatic and dizzy- York. Fact and fiction are woven together. son’s return to favour after years in the ingly ambitious follow-up to “A Single Mr Ford, being Mr Ford, makes it all look wilderness of scandal. What could be Man”. Proving definitively that the fashion absolutely fabulous. more Oscar-friendly than that? 7 Johnson Talking in tongues

Should religious language keep up with the times orstickclosely to the original? RECENT Johnson column looked at status in the Roman empire in the fourth chose a word more suitable for a military Athe English past subjunctive. The pre- century, it jumped languages again: St Je- chieftain—as would the Goths, one might sent subjunctive gets much less attention. rome’s Latin Bible was official for Western think, but it seems Wulfila wanted to This appears after verbs like “insist” and Christianity. In 1546 the Council of Trent wean his people offmarauding. “request”, and can be spotted when a said of this translation of a translation that Should churches regularly update first- or third-person singular verb, which “no one is to dare, or presume to reject it their translations, keeping the religion normally has an “s” on the end (he under any pretext whatever.” fresh and relevant, or preserve tradition brings), loses that “s”: for example, “We All this has theological consequences, and authenticity? The debate is as old as ask that each student bring a lunch.” as Nicholas Ostler explains in a masterly the faiths themselves. A fourth-century This subjunctive is becoming rarer. recent book, “Passwords to Paradise”. St commentator, arguing for translating The above would be more idiomatic as Jerome made basic errors, some due to the Greek into Latin for Western Christians, “We ask each student to bring a lunch.” fact that most vowels are omitted in He- said that “our heart is ignorant, ifit speaks Most ofthe subjunctives that people actu- brew texts: Johann Reuchlin (1455-1522), the in a language it doesn’t know.” But Reuch- ally know and use, in fact, are frozen first Christian Hebraist in northern Europe, lin, who corrected St Jerome, naturally phrases—many of them religious. “Peace found around 200 errors in St Jerome’s thought he had got nearer to the spirit of be with you.” “The Lord be with you.” translation. the scriptures, and so to their author him- “God save the Queen.” “God blessAmeri- Even defensible translation choices are self: “God wished his secrets to be known ca.” “God shed His grace on thee.” “Until meaningful. Mr Ostler skips over some to mortal man through Hebrew.” death do us part.” (In the plain indicative, well-known examples to tell the story of The practical answer is that young these would be “Peace is with you,” “God the fourth-century Goths, for example. people and new converts should study in saves the Queen” and so on.) These forms Their leader, Wulfila, chose a translation their own vernaculars. As they progress cannot be repurposed in modern English: for “Lord”, frauja, that meant something in the faith they can get closer to the origi- you can’t say to your neighbour “a good like the head of a household. Other tribes nal through study. But the underlying barbecue be with you,” or “your daughter theological question is hard to dodge. win the race tomorrow.” Would a loving supreme being want the Something about religious worship truth of religion to be plain even to unlet- seems to call forspecial, often archaic lan- tered people, in the simplest possible ver- guage. Islam and Judaism both give exclu- nacular? Orshould original language (like sive status to one language, classical Ara- Quranic Arabic) and archaic language bic and Hebrew, regardless of the spoken (thou and all those subjunctives in Eng- languages of the worshippers. Arabs lish) remind worshippers that religion is read, pray and hear sermons in a seventh- not just any old set of beliefs and prac- century language that is nearly as differ- tices, just as there are special rules for the ent from their spoken Arabic as Latin is Sabbath or a house ofworship? from Italian. Young Jews around the The question divided believers during world join the adult community by recit- the Reformation. Today, as science chal- ing a Torah passage in Hebrew. lenges many religious beliefs, some de- Christianity has also had its own poli- fenders ofreligion seekrefuge in the argu- cies. Early Christians accepted a Greek ment that faith has a special status where translation ofthe Hebrew Bible as the first the arguments of science do not apply. A part of God’s word, and a collection of language ofsacred mystery could be seen Greekwritings as the New Testament. But as a sign ofthat special status—or as an ad- the Greek accounts of Jesus were already mission that letting the faithful interro- translations: he and his followers spoke gate the doctrine in plain language can be Aramaic. After Christianity won official a dangerous thing. Auction 73

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Chief Economist and Director of Analysis Department for International Trade Reference: 1507096 Following the EU Referendum, the Prime Minster has established the new Department for International Trade (DIT) that integrates and elevates the trade agenda, to help secure a better deal for the UK as it negotiates a successful exit from the EU, and establishes new relationships with other countries around the globe. This is a tremendously exciting time to work in DIT, which is an important enabler for growth, and at the heart of the UK’s relationship with the EU and place in the world. While we continue to be a member of the EU, we need to continue to advocate and infl uence to achieve trade and investment openness. In parallel we need to prepare for the point at which the UK leaves the EU and becomes responsible for negotiating and enforcing its own trade arrangements. The Department is rapidly scaling up to rise to these challenges and is seeking to appoint a Chief Economist, who will play a key role for the Department. This person will be responsible for building, and subsequently leading, a new analytical function, which will be instrumental in the development of international trade strategy. Leading the economics profession within the Department, this individual must command credibility, applying best in class analysis to real world situations to provide advice on key issues relating to trade. It is crucial that they are comfortable interacting with and infl uencing, a wide range of policy makers in government, as well as external stakeholders. The closing date for applications is 19th September. A candidate pack and further information is available on the Civil Service Jobs website: www.civilservicejobs.service.gov.uk Applications and enquiries should be sent to: [email protected]. There is no need to register with Moloney Search to apply for this position.

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The Economist September 10th 2016 76 Economic and ﬁnancial indicators The Economist September 10th 2016

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* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Sep 7th year ago United States +1.2 Q2 +1.1 +1.5 -0.5 Jul +0.8 Jul +1.3 4.9 Aug -473.1 Q1 -2.6 -3.2 1.54 - - China +6.7 Q2 +7.4 +6.6 +6.0 Jul +1.8 Jul +2.0 4.1 Q2§ +256.1 Q2 +2.7 -3.8 2.59§§ 6.66 6.37 Japan +0.8 Q2 +0.7 +0.5 -3.8 Jul -0.5 Jul -0.1 3.0 Jul +167.6 Jul +3.4 -5.0 -0.02 102 119 Britain +2.2 Q2 +2.4 +1.6 +2.1 Jul +0.6 Jul +0.7 4.9 May†† -161.9 Q1 -5.4 -4.0 0.78 0.75 0.66 Canada +0.9 Q2 -1.6 +1.2 -1.3 Jun +1.3 Jul +1.7 6.9 Jul -51.1 Q2 -3.2 -2.5 1.00 1.29 1.33 Euro area +1.6 Q2 +1.2 +1.5 +0.4 Jun +0.2 Aug +0.3 10.1 Jul +393.5 Jun +3.2 -1.8 -0.12 0.89 0.90 Austria +1.2 Q2 -0.7 +1.3 +0.9 Jun +0.6 Jul +1.0 6.0 Jul +10.5 Q1 +2.8 -1.4 0.09 0.89 0.90 Belgium +1.4 Q2 +2.2 +1.3 +6.3 Jun +2.2 Aug +1.8 8.3 Jul +6.5 Mar +1.2 -2.8 0.12 0.89 0.90 France +1.4 Q2 -0.2 +1.3 -1.3 Jun +0.2 Aug +0.3 10.3 Jul -22.5 Jul‡ -0.5 -3.3 0.18 0.89 0.90 Germany +1.7 Q2 +1.7 +1.6 -1.2 Jul +0.4 Aug +0.4 6.1 Aug +307.7 Jun +8.4 +0.4 -0.12 0.89 0.90 Greece -0.4 Q2 +0.7 -0.6 +7.4 Jun -1.0 Jul -0.2 23.5 May +1.5 Jun -0.1 -4.6 8.25 0.89 0.90 Italy +0.8 Q2 +0.1 +0.8 -1.0 Jun -0.1 Aug nil 11.4 Jul +53.9 Jun +2.3 -2.6 1.08 0.89 0.90 Netherlands +2.3 Q2 +2.5 +1.5 +1.6 Jun -0.3 Jul +0.3 7.4 Jul +62.0 Q1 +9.8 -1.4 0.01 0.89 0.90 Spain +3.2 Q2 +3.4 +2.9 +1.0 Jun -0.2 Aug -0.4 19.6 Jul +22.7 Jun +1.3 -4.3 1.02 0.89 0.90 Czech Republic +3.6 Q2 +3.7 +2.3 -14.0 Jul +0.5 Jul +0.5 5.4 Jul§ +2.7 Q1 +1.1 -0.5 0.25 24.0 24.2 Denmark +1.0 Q2 +1.8 +1.1 -0.8 Jun +0.3 Jul +0.8 4.2 Jul +18.3 Jun +6.8 -2.5 -0.02 6.62 6.69 Norway +2.5 Q2 +0.1 +1.0 -1.4 Jul +4.4 Jul +3.5 4.8 Jun‡‡ +23.6 Q2 +6.6 +3.0 1.13 8.18 8.30 Poland +3.0 Q2 +3.6 +3.1 -3.4 Jul -0.8 Aug -0.8 8.5 Aug§ -1.7 Jun -0.8 -2.9 2.77 3.85 3.80 Russia -0.6 Q2 na -0.5 -0.3 Jul +6.8 Aug +7.1 5.3 Jul§ +38.4 Q2 +3.3 -3.7 8.01 64.5 68.8 Sweden +3.1 Q2 +1.2 +3.3 +4.2 Jul +1.1 Jul +1.0 6.3 Jul§ +25.4 Q2 +5.6 -0.4 0.14 8.44 8.47 Switzerland +2.0 Q2 +2.5 +1.1 -1.2 Q2 -0.1 Aug -0.5 3.3 Jul +71.9 Q1 +9.7 +0.4 -0.48 0.97 0.98 Turkey +4.8 Q1 na +3.2 +1.1 Jun +8.0 Aug +7.7 9.4 May§ -29.4 Jun -4.7 -2.0 9.55 2.93 3.03 Australia +3.3 Q2 +2.1 +2.8 +3.7 Q2 +1.0 Q2 +1.3 5.7 Jul -52.8 Q2 -4.4 -2.1 1.83 1.30 1.44 Hong Kong +1.7 Q2 +6.5 +1.5 -0.3 Q1 +2.4 Jul +2.6 3.4 Jul‡‡ +11.7 Q1 +3.0 nil 0.90 7.76 7.75 India +7.1 Q2 +5.5 +7.6 +2.1 Jun +6.1 Jul +5.2 4.9 2013 -22.1 Q1 -1.2 -3.8 7.06 66.4 66.8 Indonesia +5.2 Q2 na +5.0 +9.1 Jun +2.8 Aug +3.8 5.5 Q1§ -18.7 Q2 -2.2 -2.3 6.89 13,085 14,248 Malaysia +4.0 Q2 na +4.3 +5.2 Jun +1.1 Jul +2.0 3.4 Jun§ +5.3 Q2 +2.8 -3.4 3.51 4.06 4.33 Pakistan +5.7 2016** na +5.7 nil Jun +3.6 Aug +3.7 5.9 2015 -2.5 Q2 -0.8 -4.6 8.03††† 104 104 Philippines +7.0 Q2 +7.4 +5.8 +8.5 Jun +1.8 Aug +1.7 6.1 Q2§ +6.7 Mar +3.0 -1.0 3.40 46.7 46.9 Singapore +2.1 Q2 +0.3 +1.4 -3.6 Jul -0.7 Jul -0.8 2.1 Q2 +58.4 Q2 +19.5 +0.7 1.68 1.35 1.43 South Korea +3.2 Q2 +3.2 +2.6 +1.6 Jul +0.4 Aug +1.0 3.5 Jul§ +104.4 Jul +7.4 -1.2 1.46 1,090 1,204 Taiwan +0.7 Q2 +0.2 +0.5 -0.3 Jul +0.6 Aug +1.3 4.0 Jul +75.7 Q2 +13.5 -0.6 0.66 31.2 32.7 Thailand +3.5 Q2 +3.2 +2.7 -5.1 Jul +0.3 Aug +0.2 1.0 Jul§ +42.4 Q2 +6.2 -2.6 2.11 34.6 36.1 Argentina +0.5 Q1 -2.7 -1.2 -2.5 Oct — *** — 9.3 Q2§ -15.0 Q1 -2.3 -5.1 na 15.0 9.32 Brazil -3.8 Q2 -2.3 -3.3 -6.6 Jul +8.7 Jul +8.2 11.6 Jul§ -27.9 Jul -1.0 -6.6 11.84 3.24 3.80 Chile +1.5 Q2 -1.4 +1.6 -1.8 Jul +4.0 Jul +4.1 7.1 Jul§‡‡ -5.1 Q2 -2.1 -2.5 4.22 661 695 Colombia +2.0 Q2 +0.8 +2.0 +6.6 Jun +8.1 Aug +8.0 9.8 Jul§ -16.9 Q1 -5.5 -3.7 7.01 2,840 3,142 Mexico +2.5 Q2 -0.7 +2.1 +0.6 Jun +2.7 Jul +2.9 3.8 Jul -30.9 Q2 -3.0 -3.0 5.79 18.4 17.0 Venezuela -8.8 Q4~ -6.2 -15.1 na na +546 7.3 Apr§ -17.8 Q3~ -3.0 -24.2 11.52 9.99 6.31 Egypt +6.7 Q1 na +3.0 -16.5 Jun +14.0 Jul +12.1 12.5 Q2§ -18.3 Q1 -6.6 -11.5 na 8.88 7.83 Israel +2.6 Q2 +3.7 +2.7 +1.2 Jun -0.6 Jul -0.3 4.7 Jul +14.7 Q1 +3.6 -2.2 1.70 3.75 3.93 Saudi Arabia +3.5 2015 na +1.0 na +3.8 Jul +4.4 5.6 2015 -59.5 Q1 -7.3 -12.6 na 3.75 3.75 South Africa +0.6 Q2 +3.3 +0.3 +4.3 Jun +6.0 Jul +6.0 26.6 Q2§ -13.4 Q1 -4.3 -3.4 8.61 14.1 14.0 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, June 36.96%; year ago 26.70% †††Dollar-denominated bonds. The Economist September 10th 2016 Economic and ﬁnancial indicators 77

Markets % change on The Economist poll of forecasters, September averages (previous month’s, if changed) Dec 31st 2015 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP Sep 7th week currency terms 2016 2017 2016 2017 2016 2017 2016 2017 United States (DJIA) 18,526.1 +0.7 +6.3 +6.3 Australia 1.9 / 3.3 2.1 / 3.2 2.8 (2.7) 2.8 (2.7) 1.3 2.2 -4.4 (-4.5) -3.9 (-4.1) China (SSEA) 3,236.8 +0.2 -12.6 -14.9 Brazil -3.8 / -2.8 0.3 / 2.0 -3.3 (-3.5) 1.1 (1.0) 8.2 (8.0) 5.5 (6.1) -1.0 (-1.1) -1.1 (-1.2) Japan (Nikkei 225) 17,012.4 +0.7 -10.6 +5.7 Britain 1.2 / 1.9 -0.7 / 1.0 1.6 0.5 0.7 2.4 -5.4 (-5.1) -4.2 (-3.8) Britain (FTSE 100) 6,846.6 +1.0 +9.7 -0.7 Canada 1.0 / 1.4 1.2 / 2.5 1.2 (1.4) 1.9 1.7 2.0 -3.2 (-2.4) -2.7 (-2.1) Canada (S&P TSX) 14,796.8 +1.4 +13.7 +22.4 China 6.4 / 6.8 5.7 / 6.7 6.6 (6.5) 6.3 2.0 1.9 2.7 2.5 (2.6) Euro area (FTSE Euro 100) 1,053.8 +2.2 -3.7 -0.3 France 1.2 / 1.5 0.7 / 1.4 1.3 (1.4) 1.1 0.3 1.1 -0.5 -0.5 Euro area (EURO STOXX 50) 3,091.7 +2.3 -5.4 -2.1 Germany 1.4 / 2.0 1.0 / 1.7 1.6 (1.5) 1.2 (1.3) 0.4 1.5 8.4 (8.1) 7.9 (7.6) Austria (ATX) 2,394.3 +3.5 -0.1 +3.4 India 7.0 / 8.1 6.1 / 8.3 7.6 (7.4) 7.6 (7.5) 5.2 (5.1) 5.1 -1.2 -1.6 (-1.5) Belgium (Bel 20) 3,635.5 +2.3 -1.8 +1.7 Italy 0.6 / 1.0 -0.1 / 1.2 0.8 (0.9) 0.7 (0.9) nil 0.9 2.3 (2.1) 2.1 (1.9) France (CAC 40) 4,557.7 +2.7 -1.7 +1.7 Japan 0.2 / 0.7 0.1 / 1.4 0.5 0.8 (0.9) -0.1 0.7 3.4 3.0 (3.1) Germany (DAX)* 10,753.0 +1.5 +0.1 +3.6 Greece (Athex Comp) 575.1 -0.4 -8.9 -5.7 Russia -2.1 / 0.5 0.4 / 2.9 -0.5 (-0.8) 1.4 (1.5) 7.1 (7.2) 5.4 (5.7) 3.3 (2.9) 3.5 (3.2) Italy (FTSE/MIB) 17,292.8 +2.1 -19.3 -16.4 Spain 2.7 / 3.2 1.5 / 2.5 2.9 (2.8) 2.0 -0.4 1.2 1.3 0.9 Netherlands (AEX) 463.3 +2.0 +4.9 +8.5 United States 1.1 / 2.0 1.2 / 2.5 1.5 (1.7) 2.0 1.3 (1.4) 2.1 -2.6 (-2.5) -2.8 (-2.6) Spain (Madrid SE) 907.4 +3.2 -6.0 -2.7 Euro area 1.2 / 1.6 0.7 / 1.5 1.5 1.2 (1.1) 0.3 1.3 (1.2) 3.2 (3.0) 2.9 (2.8) Czech Republic (PX) 881.4 +2.6 -7.8 -4.6 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 845.5 -0.4 -6.7 -3.3 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 28,642.8 +2.4 +19.7 +26.7 Norway (OSEAX) 686.0 +1.2 +5.7 +14.4 Poland (WIG) 48,478.3 +1.1 +4.3 +7.0 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,005.8 +5.8 +17.2 +32.9 2005=100 % change on % change on Sweden (OMXS30) 1,441.5 +1.6 -0.4 -0.5 Dec 31st 2015 one one Switzerland (SMI) 8,321.0 +1.4 -5.6 -2.5 Index one in local in $ Aug 30th Sep 6th* month year Turkey (BIST) 77,643.1 +2.2 +8.2 +7.7 Sep 7th week currency terms Dollar Index Australia (All Ord.) 5,521.1 -0.2 +3.3 +8.9 United States (S&P 500) 2,186.2 +0.7 +7.0 +7.0 All Items 133.6 134.6 -2.5 +3.3 Hong Kong (Hang Seng) 23,741.8 +3.3 +8.3 +8.3 United States (NAScomp) 5,283.9 +1.4 +5.5 +5.5 Food 152.2 153.8 -2.7 +3.6 India (BSE) 28,926.4 +1.7 +10.8 +10.4 China (SSEB, $ terms) 356.0 +0.3 -14.3 -16.5 Indonesia (JSX) 5,381.3 -0.1 +17.2 +23.4 Japan (Topix) 1,349.5 +1.5 -12.8 +3.2 Industrials Malaysia (KLSE) 1,689.6 +0.7 -0.2 +5.6 Europe (FTSEurofirst 300) 1,379.5 +2.0 -4.0 -0.7 All 114.3 114.6 -2.2 +3.0 Pakistan (KSE) 40,084.9 +0.7 +22.1 +22.6 World, dev'd (MSCI) 1,747.5 +1.6 +5.1 +5.1 Nfa† 122.6 123.7 -3.5 +12.7 Singapore (STI) 2,893.7 +2.6 +0.4 +5.8 Emerging markets (MSCI) 926.0 +3.6 +16.6 +16.6 Metals 110.7 110.7 -1.5 -1.1 South Korea (KOSPI) 2,061.9 +1.3 +5.1 +13.1 World, all (MSCI) 424.3 +1.8 +6.2 +6.2 Sterling Index Taiwan (TWI) 9,259.1 +2.1 +11.0 +16.8 World bonds (Citigroup) 970.8 +1.1 +11.6 +11.6 All items 185.6 182.3 -5.7 +18.2 Thailand (SET) 1,487.2 -4.0 +15.5 +20.0 EMBI+ (JPMorgan) 819.6 +1.0 +16.4 +16.4 Argentina (MERV) 16,315.5 +4.3 +39.7 +20.4 Hedge funds (HFRX) 1,188.2§ +0.4 +1.2 +1.2 Euro Index Brazil (BVSP) 60,129.4 +3.8 +38.7 +71.7 Volatility, US (VIX) 11.9 +13.4 +18.2 (levels) All items 149.0 148.9 -3.6 +2.8 Chile (IGPA) 20,438.7 nil +12.6 +20.7 CDSs, Eur (iTRAXX)† 65.3 -3.3 -15.4 -12.4 Gold Colombia (IGBC) 10,447.9 +2.7 +22.2 +36.7 CDSs, N Am (CDX)† 71.7 nil -18.8 -18.8 $ per oz 1,318.1 1,340.7 nil +19.4 Mexico (IPC) 47,398.7 -0.3 +10.3 +3.6 Carbon trading (EU ETS) € 4.0 -8.7 -51.6 -49.9 West Texas Intermediate Venezuela (IBC) 12,490.9 +4.4 -14.4 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 46.4 44.8 +4.8 -2.0 Egypt (Case 30) 8,146.1 -0.1 +16.3 +2.5 †Credit-default-swap spreads, basis points. §Sept 6th. Israel (TA-100) 1,282.1 +0.8 -2.5 +1.2 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) 6,139.4 +1.0 -11.2 -11.1 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 53,456.4 +1.4 +5.4 +16.3 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Juan Gabriel The Economist September 10th 2016

to the 1960s, when the rancheras ofJosé Al- fredo Jiménez and Agustín Lara rang out across Latin America and in Spain. The ranchera tradition was all about Mexican machismo. It sang of domineer- ingmen, treacherouswomen and the man- ly solace of tequila. One of Juan Gabriel’s achievements was to soften and feminise the ranchera. In “Se me olvidó otra vez” (“I’d forgotten once again”), the jilted lover waits in sad futility “in the same town and with the same people, so that when you come back you won’t find anything out of place”. But reunion is impossible: “I’d forgotten once again that it was only me who loved you.” This unusual sensitivity led him to write countless songs for, and frequently perform with, female singers. The softening of the ranchera was also signalled by his visible homosexuality, with his tight white trousers, sequinned shirts, makeup and mannered gestures. As deeply reserved offstage as he was flam- boyant on it, he would never admit to it. When asked by an interviewerwhetherhe was gay, he replied: “What can be seen isn’t asked about, my son”—a very Mexican way ofsaying yes, he was. Mexico’s mirror Perhaps because ofhis unsettled youth, he was a man of the system. He appeared often on Televisa, Mexico’s quasi-official broadcaster, and publicly supported the long-ruling Institutional Revolutionary Party. But his loyalties were more personal Juan Gabriel (born Alberto Aguilera Valadez), songwriterand performer, died on than political, and he demanded respect. August 28th, aged 66 He fell out with Televisa when they ANY of the songs, and there were at sang in the town’s bars, then all over the claimed exclusive rights to air his shows. Mleast 1,500 of them, were syrupy and country. In Mexico City he was jailed for18 He knew he was bigger than they were. sentimental. Some were more sobbed months, mistakenly he said, over a stolen than sung. Juan Gabriel was not David guitar. He never stopped playing, and as A man without heirs Bowie. But in the Spanish-speaking world soon as he got out he became his new self, He leftfive sons, atleasttwo ofthem adopt- he was even bigger, and his death touched Juan Gabriel: determined, but still broke. ed, none certainly his; they loved him as a off similar mass mourning. Mexico’s great- Not for nothing was his first hit, in 1971, father and, for him, that was enough. His est modern pop singer touched the hearts called “No tengo dinero” (“I have no mon- musical legacy was similarly uncertain. of tens of millions, including millions liv- ey, nor anything to give, the only thing I Young Latin Americans are as likely to lis- ing north of the Rio Grande. His meaning have is love, to love with”). This catchy pop ten to salsa, rockor Colombian cumbia; for was deeper and more subversive than number announced his lifelong knack of them, Juan Gabriel’s music was what their some ofhis songs might suggest. addressing the cares ofordinary Mexicans. mothers hummed along to as they did the Part ofhis appeal lay in his own history. For almost half a century he provided housework. In one wayhe harked backto a Alberto Aguilera knew all about the soli- Mexico with a soundtrack as the country more innocent Mexico, without violence tude and loss of love of which Juan Gabri- changed. His songs were played at wed- and drug cartels. But in another he her- el, his stage persona, sang. The youngest of dings, funerals and quinceañeras, the com- alded a more tolerant country, where ho- ten children, his parents were farm working-out parties of 15-year-old girls. Some- mosexuality is becoming grudgingly ac- ers in the western state of Michoacán. one worked out that, at any given minute, cepted. He also represented a North When he was four, his father was confined on a radio somewhere in Latin America American fusion; though an ardent cultur- in a mental hospital. His mother moved one ofhis songs would be playing. He sold al nationalist (his last tour was called the family to Ciudad Juárez, on the border more than 100m albums worldwide and “MeXXIco es todo”), in recent years he with the United States. Unable to cope, she gave 15,000 performances, revelling tire- lived across the border in Santa Monica. placed Alberto in an orphanage. The sepa- lessly in the glitter of the stage. Many con- “The Mexican macho—the male—is a ration traumatised him. As he grew rich, in certs lasted hours, and featured audience hermetic being, closed up in himself,” his quiet way of pointing out the injustices singalongs and massed mariachi bands. wrote Octavio Paz, the country’s great in Mexican society, he bought her the (The last, two days before he died, was for 20th-century poet. He ascribed to his fel- house in Juárez she had once cleaned for a 17,000 people in Los Angeles.) Endlessly low countrymen “a painful, defensive un- living; when she died, she became the versatile, he dabbled in rock and wrote, as willingness to share our intimate feelings”, “AmorEterno” ofone ofhis biggest hits. He well as tear-jerking ballads, traditional folk and went on: “The Mexican succumbs gave money, too, to children’s homes. rancheras and slow, romantic boleros. He very easily to sentimental effusions, and He began to write songs at13, while sell- thus became an inheritor ofthe golden age therefore he shuns them.” Juan Gabriel ing burritos on the streets of Juárez. He of Mexican popular music from the 1930s helped Mexicans sing them out. 7 on tickets THE ECONOMICS OF CANCER with code SAVE 15% ECONMAG15. What are the cost components of cancer, and what is their impact on the health-care system at large? Last chance to save. Register today. 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