Flynn and the turmoil in Trump’s White House

FEBRUARY 18TH–24TH 2017 Sex and science

Gene editing, clones and the ethics of making babies Life Sciences Look to Britain Silicon Fen, UK for world-class medical research.

Four of the top six universities in the world for clinical and health sciences can be found in the UK. It’s just one of the reasons we lead in biomedical innovation. Why don’t you take a closer look? Discover a land alive with opportunity at great.gov.uk Contents The Economist February 18th 2017 3

6 The world this week Asia 31 The Kim family Leaders Half-brotherly love 9 Reproductive technologies 32 North Korea tests a missile Sex and science Got a rocket in your pocket 10 Trump’s White House 32 Cambodian politics The Flynn fiasco One down, 54 to go 10 The United Kingdom 33 Elections in Turkmenistan Sliding towards Scoxit Protection racket 11 Greece and the euro 33 Elections in Jakarta The firing of Uphill task Fighting fake news Michael Flynn America’s national security 12 China’s liberals 34 Taiwanese politics A convenient untruth adviser raises questions that The two faces of Mr Xi won’t go away: leader, page On the cover 35 Japan’s forces 10. Mr Flynn’s departure will Barmy army Ways of making babies Letters not fix the problems in Donald without sexual intercourse 36 Banyan Trump’s government, page 21. 16 On televisions, are multiplying. History Red v green in Vietnam The press should criticise Venezuela, Singapore, suggests that they should be politicians when they lie. But multinationals, embraced, not rejected: lying isn’t the same as talking Republicans, Silicon China leader, page 9. What nonsense: Johnson, page 71 Valley happened after Dolly was 37 Liberal debate revealed to the world 20 Crushing the moderates years ago as the first animal Briefing 38 The stockmarket clone—and what didn’t, 17 Cloning War on manipulators pages17-20 The sheep of things to come 38 Trump’s trademark The greatest loos on Earth

The Economist online United States Middle East and Africa Daily analysis and opinion to 21 Turmoil around Trump 39 Kenya (1): dirty war supplement the print edition, plus Errant Flynn Food for the hyenas audio and video, and a daily chart 22 Labour markets Economist.com Forgotten men 40 Kenya (2): cows, guns and politicians newsletters and 23 Black colleges E-mail: I burned a farm in Africa Scotland Britain’s exit from mobile edition Welcome, amigos the EU appears to strengthen Economist.com/email 23 Detroit’s recovery 41 Israel and Palestine the case for Scottish Bibi consults a realtor Print edition: available online by The boon from newcomers independence. In fact, it 7pm London time each Thursday 24 Legal immigrants 41 Zimbabwe’s new notes weakens it: leader, page10. Economist.com/print Minding the door The king of funny money Twin downturns in its main Audio edition: available online 25 Howard Johnson’s 42 Reforming Islam in Egypt industries have set Scotland to download each Friday How HoJo lost its mojo Sisi v the sheikhs on a poorer path, page 48 Economist.com/audioedition 26 Lexington NAFTA on notice Europe 43 Greece’s endless woes The Americas A chorus with cabbages 28 Ecuador’s elections 44 Moldova’s economy Volume 422 Number 9028 After Correa A do-over 29 Bello 44 Donald Trump and NATO Published since September1843 One message: pay up to take part in "a severe contest between A Peronist on the Potomac intelligence, which presses forward, and 45 Russian politics an unworthy, timid ignorance obstructing 30 NAFTA our progress." Trudeau comes to Barred from the ballot Editorial offices in London and also: Washington 45 Italian politics Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, The gambler Suspected terrorists Lima, Mexico City, Moscow, Mumbai, Nairobi, 30 Venezuela Kenya New Delhi, New York, Paris, San Francisco, Black-listed vice-president 46 Turkish-Russian relations are disappearing and dying, São Paulo, Seoul, Shanghai, Singapore, Tokyo, In bed with the bear page 39. Land invasions in Washington DC 47 Charlemagne Laikipia portend electoral France’s elections: lessons strife in Kenya, page 40 in dégagisme

1 Contents continues overleaf 4 Contents The Economist February 18th 2017

Britain 62 Carbon tariffs Steely defences 48 Scotland’s economy Taking the low road 62 Asian trade Bouncing back 49 Britain in the Gulf Back to the desert 63 Copper Supply disruptions 50 Bagehot Harriet Harman’s 63 Inequality unfinished business The Great Divide of China 64 Free exchange Not enough Europe International North Korea An inconvenient Divorce For the rising number 51 International divorce relative of Kim Jong Un is of international and footloose When dad gets deported Science and technology murdered in dramatic style, families, breaking up can be 52 Inter-faith marriage 65 Delivery bots page 31. North Korea’s despot Heel! tricky—and tragic, page 51. challenges Donald Trump, Where Rashid and Juliet Many countries make it hard to 66 Agrichemicals page 32 can’t wed marry someone from another Holding fast religion, page 52 66 Tropical diseases Business Blame the worm 53 Electric cars 67 Oceanic pollution Subscription service Volts wagons Entrenched For our latest subscription offers, visit 54 Electric cars in Norway Economist.com/offers For subscription service, please contact by Northern light telephone, fax, web or mail at the details 54 Old media Books and arts provided below: The Trump bump 68 Islam and Enlightenment North America A road once travelled The Economist Subscription Center 55 New media P.O. Box 46978, St. Louis, MO 63146-6978 69 Heligoland Telephone: +1 800 456 6086 #Twittertrouble Facsimile: +1 866 856 8075 56 Radio spectrum Island of mystery E-mail: [email protected] Inventive auction 69 Jonathan Swift Latin America & Mexico Electric cars For carmakers, A man in full The Economist Subscription Center the switch to battery-powered 56 PSA and Opel P.O. Box 46979, St. Louis, MO 63146-6979 70 Late style Telephone: +1 636 449 5702 motoring signals short-term Driven together Facsimile: +1 636 449 5703 pain but long-term gain, page 57 Space firms When time is precious E-mail: [email protected] 53. Sales of green vehicles are Eyes on Earth 71 Johnson Subscription for 1 year (51 issues) booming, page 54. A potential A taxonomy of dishonesty United States US $158.25 (plus tax) 57 Private aviation 8 deal shows that size, though Up, up and away Canada CA $15 .25 (plus tax) important, is not everything, Latin America US $289 (plus tax) 58 Schumpeter 72 Economic and financial page 56 The slippery nature of indicators short-termism Statistics on 42 economies, Principal commercial offices: plus a closer look at 25 St James’s Street, London sw1a 1hg defence budgets Tel: +44 20 7830 7000 Finance and economics Rue de l’Athénée 32 1206 Geneva, Switzerland 59 Brexit and financial Tel: +4122 566 2470 centres Obituary 74 Brunhilde Pomsel 750 3rd Avenue, 5th Floor, New York, NY10017 Picking up the pieces Tel: +1212 5410500 A typist’s life 60 Buttonwood 1301Cityplaza Four, Undaunted by downgrades 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 61 Hank Greenberg A legal saga ends Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, 61 Spanish banking Paris, San Francisco and Singapore Greece In the never-ending See you in court drama over the country’s membership of the euro zone, EU institutions have become part of the problem they were intended to solve: Free exchange, page 64. Creditor v PEFC certified creditor: a worrying twist in This copy of The Economist is printed on paper sourced the saga of the bail-out: from sustainably managed leader, page 11. Greece has forests certified to PEFC become a bystander to its own PEFC/29-31-58 www.pefc.org tragedy, page 43

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promise, and told Mr Netanya- China policy”, backing away Politics hu to “hold back” on building from a veiled threat to recog- settlements in the West Bank. nise Taiwan’s independence.

Hamas, the Palestinian Islam- Basuki Tjahaja Purnama, ist group that controls the Gaza known as Ahok, topped the Strip, named a hardline mil- vote in an election forgo- itary commander, Yehiya vernor ofJakarta, the capital Sinwar, as its overall leader in ofIndonesia. Ahok, a Chris- the territory. Some fret that his tian who has been falsely appointment may increase the accused ofinsulting Islam, will riskofconflict with Israel, now face Anies Baswedan, a which unilaterally pulled formereducation minister, in a settlers and troops out ofGaza Anti-government protests run-offon April 19th. in 2005 but still controls its continued in Bucharest, the borders. capital ofRomania. Demon- Just before she was due to be After less than a month in the strations began several weeks sworn in as chiefminister of job, Michael Flynn departed The number ofmentally ill ago against a proposed law Tamil Nadu, Sasikala as Donald Trump’snational patients who have died after that decriminalised most Natarajan was convicted of security adviser, having ad- they were transferred out of forms ofcorruption. Though corruption by India’s Supreme mitted that he had provided state hospitals into unregulat- the bill was dropped, prot- Court. That left other members “incomplete information” to ed community-care centres in esters have continued to call ofher party to fight over the the White House about a South Africa reached 100, the forthe resignation ofsenior mantle ofJayalalithaa, Tamil conversation he had with the country’s health ombudsman politicians, including Sorin Nadu’s recently deceased, Russian ambassador weeks said. The deaths arising from a Grindeanu, the prime minister. wildly popular chiefminister, before Mr Trump was inaugu- mismanaged transfer add to who was also Ms Sasikala’s rated as president. All this pressure on the ruling African The Miami vice-president companion. added to the growing sense of National Congress, which is The American government a disorderly Oval Office, and losing support over concerns blacklisted the vice-president Sam Rainsy, the exiled leader fuelled speculation about about poor governance. ofVenezuela, TareckEl Ais- ofCambodia’s main opposi- alleged links between the sami, calling him a “drug traf- tion party, said he was step- Trump campaign team and While the world is distracted ficker” and a “kingpin”. The ping down, in a bid to prevent Russian officials. Russia reportedly deployed a decision bars American firms the Cambodian authorities new cruise missile, violating from doing business with him from banning his party. Mr Trump described an ap- an arms-control treaty from and freezes his assets in the peals-court’s decision to block 1987 that bans American and United States. Mr El Aissami Officials in Xinjiang, a prov- his temporary ban on refu- Russian intermediate-range said the order was an act of ince in western China, said gees and citizens from seven missiles based on land. The “infamy and aggression”. five people were killed by mainly Muslim countries as Kremlin denied the report. The three assailants armed with “disgraceful”. He may in- Obama administration criti- Canada’s prime minister, knives in a residential com- troduce a new, legally tight cised Russia when it tested the Justin Trudeau, visited the pound. They said the attackers order to enact the ban. Either missile in 2014; deploying it White House. Donald Trump were shot dead by police. The way, the issue seems destined would be provocative. was friendlier to Canada than authorities usually blame such forthe Supreme Court. he is to Mexico, saying that violence on Islamist militants The European Union sent its trade relations are “outstand- seeking Xinjiang’s The Senate confirmed Steven commissioner foreconomic ing”. Any changes to the North independence. Mnuchin as Mr Trump’sTrea- affairs to Athens fortalks about American Free Trade Agree- sury secretary. But Andrew Greece’s debt woes. He dis- ment would “benefit both our Puzder withdrew his name for cussed the economic reforms countries”, he promised. consideration as labour secre- that creditors want the country tary. He had come under criti- to implement with Alexis Emboldened cism for, among other things, Tsipras, the prime minister, North Korea tested a missile employing an illegal immi- and Euclid Tsakalotos, the in defiance ofUN sanctions. grant in his household. finance minister. EU officials The launch marked another hope that the review can be step forward in the country’s The two-state twin step completed by February 20th, quest fora long-range missile Binyamin Netanyahu, the when finance ministers meet that could carry a nuclear prime minister ofIsrael, met in Brussels, so that the latest warhead. A day later, the half- Donald Trump at the White round ofaid forGreece can be brother ofNorth Korea’s dic- House. In what appeared to be unlocked. tator, Kim Jong Un, was assassi- Gurbanguly Berdymukhame- a breakfrom established nated in Malaysia, in an attack dov, the president ofTurk- American policy promising Pablo Iglesias, the head of assumed to be the workof menistan, won re-election in a Palestinians their own state as Spain’s far-left Podemos Party, North Korean agents. nine-man field with 98% ofthe part ofa peace deal, Mr Trump won a leadership battle vote. The election was sup- said he could live with either against a moderate rival, giving In a call with China’s presi- posed to showcase Turkmeni- one state or two states, de- him a mandate to continue dent, Xi Jinping, Donald stan’s recent embrace ofmulti- pending on what both parties along a radical, anti-estab- Trump reaffirmed America’s party democracy. Turnout was want. He urged both to com- lishment track. commitment to the “one- said to be 97%. 1 The Economist February 18th 2017 The world this week 7

Britain’s annual inflation rate geot and Citroën cars. GM system and end the privileged Business rose to 1.8% in January. A recently reported another loss treatment ofmultinational weaker pound is expected to at the business, which com- companies. The measure had add to inflationary pressures prises the Opel brand in Ger- been backed by the govern- Toshiba’s share price because producers will pay many and Vauxhall in Britain. ment to fulfil its obligation to Yen more for imported raw materi- the OECD to abolish the “spe- 500 als and goods, though it is India’s biggest carmaker, Ta ta cial status” ofmultinationals

400 debatable how much ofthis Motors, said net profit in the by 2019. cost they will they pass on to last three months of2016 had 300 consumers. The growth in slumped by 96% compared A $3bn quarterly loss at Amer-

200 wages, meanwhile, slowed to with the same period a year ican International Group 2.6% in December. earlier, to just $16m. It was hit sent its share price tumbling. Dec Jan Feb by falling income from its The insurance company tooka 2016 2017 A rebound in exports towards Jaguar Land Rover subsidiary, $5.6bn charge because of Source: Thomson Reuters the end ofthe year helped and also by the surprise with- ballooning costs from com- Cost overruns at its American Japan’s GDP grow by1% in drawal of86% ofthe country’s mercial claims. nuclear-power subsidiary and 2016, down slightly from the banknotes by the government a general deterioration in the 1.2% it recorded in 2015. With in November. Snap, the parent company of outlookforits other nuclear domestic consumption still Snapchat, reportedly set the businesses abroad caused stagnant, international trade Feeling poorly price range ofits forthcoming Toshiba to announce a remains the driver ofthe Japa- There were furtherreverber- IPO at $14-16 a share, which ¥712.5bn ($6.3bn) write-down. nese economy, which makes it ations from court decisions in values it between $19.5bn and Its chairman resigned. The vulnerable to any tariffsthat America that struckdown two $22.2bn. That is lower than the troubled Japanese conglomer- might be imposed by the mergers ofhealth-care insurers valuation it listed in recent ate also revealed it had re- Trump administration. on antitrust grounds. Cigna regulatory filings, but still ceived furtherallegations launched a lawsuit against makes it the biggest tech stock- about how its American divi- The European Commission Anthem claiming $13bn in market flotation in America sion had accounted a takeover raised its forecast slightly for damages, the amount it says since Alibaba’s in 2014. deal. Toshiba’s ever-length- growth in the euro zone to shareholders will lose because ening list ofproblems has 1.6% this year and 1.8% fornext their merger was blocked. It The ethical bank caused it to consider selling its year. But it also pointed to the said Anthem had “assumed The Co-operative Bank in lucrative memory-chip busi- “exceptional risks” surround- full responsibility” for attain- Britain put itselfup forsale. It ness; it had said only recently ing its forecast, not least of ing regulatory approval. And had never properly recovered that it would limit any poten- which is the start ofnegotia- Humana, which had its merg- from the losses it incurred from tial buyer’s stake to 19.9%. tions forBritain to leave the er with Aetna overturned, bad property loans and the European Union. pulled out ofObamacare’s dent to its reputation from a Rolls-Royce reported an annu- state insurance-exchanges. sex-and-drugs scandal in- al headline loss of£4.6bn General Motors confirmed volving a formerchairman. ($6.2bn), the biggest in the that it is in talks to sell its busi- Swiss voters rejected a referen- British engineering group’s ness in Europe to PSA Group dum proposal to streamline Other economic data and news history. This was in part be- in France, which makes Peu- Switzerland’s corporate-tax can be found on pages 72-73 cause ofa £671m fine that Rolls-Royce incurred to settle allegations that it had bribed officials in various countries. But the vast bulkofthe loss was attributed to an account- ing charge the company had to bookafter it revalued its cur- rency positions following the slump in the pound.

Up in the air The increasing costs ofpetrol, clothing and cars helped push America’s annual rate of inflation up to 2.5% in January, from 2.1% in December. Speak- ing to congressmen this week, Janet Yellen cited rising in- flation as a reason to push ahead with interest-rate rises. The head ofthe Federal Re- serve also warned ofthe high degree ofuncertainty about what effects the new adminis- tration’s policies will have on the economy.

Leaders The Economist February 18th 2017 9 Sex and science

Ways ofmaking babies without sexare multiplying. History suggests that they should be embraced T USED to be so simple. Girl children to happy parents, who would otherwise have been Imet boy. Gametes were trans- alone. The same will no doubt prove true for mitochondrial ferred through plumbing opti- transplants, which are intended to avoid rare but dangerous mised by millions of years of diseases that affect cellular energy production. evolution. Then, nine months Happy parents and healthy children make a pretty good later, part of that plumbing pre- rule for thinking about any reproductive technology. A proce- sented the finished product to dure’s safety is the central concern. Proving this is a high hur- the world. Now things are be- dle. Researchers are, wrongly in the eyes of some, allowed to coming a lot more complicated. A report published on Febru- experiment on human embryos when they consist of just a ary 14th by America’s National Academy of Sciences gives few cells. They cannot, though, experiment on human fetuses. qualified support to research into gene-editing techniques so Nor can they experiment easily on fetuses from humanity’s precise that genetic diseases like haemophilia and sickle-cell closest relatives, the great apes, since these animals are rare anaemia can be fixed before an embryo even starts to develop. and often legally protected, too. So far, therefore, there has had The idea of human cloning triggered a furore when, 20 years to be a “leap offaith” when a technique that has been tested as ago this week, Dolly the sheep was revealed to the world (see far as is possible within the law’s bounds is used for real. That pages 17-20); much fuss about nothing, some would say, look- should continue, in order to avoid “freelance” operations out- ing back. But other technological advances are making cloning side reliable jurisdictions. This is not a theoretical concern. Al- humans steadily more feasible. though Britain developed mitochondrial transplants and was Some are horrified at the prospect of people “playing God” the firstcountryto license them, the firstcouple known to have with reproduction. Others, whose lives are blighted by child- had such a transplant travelled from Jordan to Mexico to do so. lessness or genetic disease, argue passionately for the right to Defining the limits of what should be allowed is more slip- alleviate suffering. Either way, the science is coming and soci- pery. But again, the test of happy parents and healthy children ety will have to workout what it thinks. is the right one. Growing sperm and eggs from body cells is surelythe leastproblematicnewtechnique soon to be on offer. Where have you been, my blue-eyed son? One advantage ofthis approach is that gay couples could have The range of reproductive options has steadily widened. AID children related to both parents. But the law should insist that (artificial insemination by donor, which dates back to the 19th two people be involved. If one person tried to be both father century) and IVF (in vitro fertilisation, first used in the 1970s) and mother to a child, the resulting eggs and sperm would, have become everyday techniques. So has ICSI, intracytoplas- without recourse to wholesale gene editing, combine to con- mic sperm injection, in which a sperm cell is physically insert- centrate harmful mutations in what would amount to the ulti- ed into an egg, bringing fatherhood to otherwise infertile men. mate form ofinbreeding. Last year another practice was added—mitochondrial trans- Gene editing and cloning involve more than parents’ hap- plantation or, as the headlines would have it, three-parent chil- piness and children’s health. The first gene editing will elimi- dren. The world may soon face the possibility of eggs and nate genetic diseases in a way that now requires embryo selec- sperm made from putative parents’ body cells (probably their tion—an advance many would applaud. Adults should be able skin) rather than in their ovaries and testes. to clone perfectcopiesofthemselves, asan aspectof self-deter- Such methods separate sexual intercourse from reproduc- mination. Butbreedingbabieswith newtraitsand cloning oth- tion. Most ofthem bring the possibility ofchoosing which em- er people raises questions of equality and of whether it is ever bryo will live, and which will die. At first they can seem bewil- right to use other people’s tissues without their consent. dering—disgusting, even. But one thing experience has shown is that, in this area, disgust is not a good guide to policy. AID A sense ofidentity was treated by at least one American court as a species ofadul- The questions will be legion. Should bereaved parents be able tery and its progeny deemed illegitimate in the eyes of the law. to clone a lost child? Or a widow her departed husband? IVF led to anguish among some theologians about whether Should the wealthy be able to pay fortheir children to be intel- “test-tube” babies would have souls. ligent and diligent, ifnobody else can afford to do so? Disgust often goes along with dystopian alarm. Science-fic- Commissions of experts will need to search for answers; tion versions of gene editing imagine, say, the creation of su- and courts will need to apply the rules—to protect the interests permen and superwomen ofgreat intelligence orphysical pro- of the unborn. They will be able to draw on precedents, such wess. When Dolly was announced the press was full of as identical twins, where society copes with clones perfectly headlines about clone armies. In truth no one has the slightest well, or “saviour siblings”, selected using IVF to provide stem clue how to create Übermenschen even if they wanted to. Yet cells that can cure a critically ill older brother or sister. Any re- the record shows how fast reproductive science can progress. gime must be adaptable, because opinions change as people So it makes sense to think about the ethics of reproductive sci- get used to new techniques. Going by the past, though, the risk ence even for outcomes that are not yet available. is not of people rushing headlong to the reproductive ex- It helps to start with IVF and AID, which have made the tremes, but ofholding back, and leaving people to suffer out of journey from freakishness to familiarity. Both give healthy a misplaced sense of what feels right. 7 10 Leaders The Economist February 18th 2017

Donald Trump’s White House The Flynn fiasco

The firing ofAmerica’s national securityadviseris welcome, but raises questions that won’t go away ESS than a month into Donald flawed man as Mr Flynn to fill a vital role looks reckless. After LTrump’spresidency,it is clear being told by the Justice Department of the conversations be- this is a Wild West Wing. Mr tween Mr Flynn and the ambassador, Mr Trump took two Trump is engulfed by a scandal weeks to ask for his resignation—while the vice-president that this week led to the firing of knew nothing. After he went, Mr Trump continued to defend his national security adviser, Mr Flynn as a “wonderful man”. Mr Trump faces accusations Michael Flynn. Dismissal will that his decisions were clouded by the lingering controversy not be the end of the Flynn af- over Russia’s election-tampering. Or was Mr Flynn operating fair. It invites bigger questions, about both the nature of the with his master’s blessing? A barrage of furious Trump tweets Trump administration’s ties with Russia and the way the new against the intelligence services points to trouble ahead. president runs his administration. First, Russia. At the end of December the Obama adminis- No more Flynn-flam tration imposed sanctions on Russia after the Kremlin inter- Until these matters are clarified, Russia will dog Mr Trump. fered with the presidential election—an attack on American Congress now needs to stiffen its spine and conduct a thor- democracy (see page 21). That same day Mr Flynn spoke on the ough investigation of the Flynn affair, despite the temptation phone to the Russian ambassador to Washington. After this of many Republicans to shelter the president, whom they came to light, Mr Flynn denied, both in public and in private, hope will further their own agenda. Separately, investigations having discussed the sanctions with the ambassador. It turns by the FBI into Russia’s interference in the election needs to be out he did, a disclosure that the administration says cost Mr seen to be scrupulously independent—which means that Mr Flynn the president’s trust. Trump’sattorney-general, JeffSessions, shouldstep aside from ThatMrFlynn mayhave soughtto undermine hiscountry’s them. And the president, who sold himself to voters as a policy was bad enough. But press reports this week, based on straight-talker, needs to avoid the suspicion that he is trying to leaks from the intelligence services, suggest that other mem- sweep the Russian questions under the Oval Office carpet. bers ofthe Trumpteam were in contact with Russia during the If anything good is to come of this, it will be to strengthen campaign. If so, what was discussed? And what hold might the defence secretary, James Mattis, and the secretary of state, Russia have over officials who now know from the example of Rex Tillerson—the axis of the sensible. Mr Trump has the Mr Flynn that exposure can cost them their job? chance to appoint a solid figure, such as Robert Harward, a for- The Trumpcamp denies havingany untoward Russian con- mer Navy SEAL commander, as his national security adviser. tacts. Yet the readiness of America’s spies to leak damning in- That might lead to a steadier foreign policy to bolster recent af- formation from wire taps and intercepts against their com- firmations of America’s support for the one-China principle, mander-in-chief shows how deeply unhealthy the situation Japan and NATO, which had been in doubt. It would also al- has become. It reflects concerns about the second question— low Mr Trump to deal with Russia on the issues, rather than the way Mr Trumpmanages his administration. through the prism of a scandal. But that supposes Mr Trump Mr Trump’s judgment is in question. The choice of such a can get a grip on his administration. 7

The United Kingdom Sliding towards Scoxit

Britain’s exit from the EU appears to strengthen the case forScottish independence. In fact, it weakens it ITTLE more than half a year different country has never looked more convincing. Regard- Scotland’s fiscal deficit Lafter the vote to leave the ing Brexit, the defining issue ofthe times, 62% of Scots voted to If it were independent, % of GDP 0 European Union, there is talk of Remain but will be dragged out anyway by the English. The 2 another referendum in Britain. dominant parties in Westminster, the Tories and Labour, have 4 6 This time the people who could a grand total of two of Scotland’s 59 MPs. And many of the ar- 8 be offered the chance to “take guments made in favour ofthe union in 2014 have evaporated. 10 1998 2005 10 15 backcontrol” are the Scots. They Scots were told that staying with Britain was their only way to Fiscal years voted against independence by remain in the EU, since independence would require them to a clear margin less than three years ago. But Brexit, which they reapply and face opposition from Spain, which wants to dis- also opposed, has put the issue back on the table. Scotland’s courage its own Catalan separatists. Instead, being part of Brit- nationalist government has drafted a bill foranother indepen- ain has proved a one-way ticket out of Europe. The strong Brit- dence vote. Polls suggest that it could have a shot at success. ish economy that they were urged to remain part of is forecast No wonder: the nationalists’ argument that Scotland is a to slow. And rousing talk about the union—the “precious, pre-1 The Economist February 18th 2017 Leaders 11

2 cious bond” that Theresa May evoked in hermaiden speech as face a harder border with England. Nationalists say they could prime minister—rings hollow, given the casualness with importwhateverarrangementismade in Ireland, where a sim- which Scottish concerns have been cast aside. ilar problem exists. But there may be no such neat solution. Yet if Brexit was a political earthquake, Scotland has suf- And rejoining the EU’s single market at the cost of leaving Brit- fered a less-noticed economic earthquake, too. At the time of ain’s would make no sense: Scotland exports four times as the independence referendum, Scotland was growingat a sim- much to the rest ofBritain as it does to the EU. ilar rate to the rest of Britain. Since then it has been on a differ- ent track (see page 48). In two of the past five quarters it has Scotland the brave failedto grow at all. The main reason is its reliance on fossil fu- This uncomfortable truth may be lost in the heat ofanother in- els and finance, which are doing badly.In 2014 a barrel ofBrent dependence campaign. The ruling Scottish National Party has crude cost $110, leading the nationalist government to forecast a knack for combining power with protest, claiming credit for that an independent Scotland would enjoy tax revenues from Scotland’s successes while pinning blame for its failures on energy of £8.3bn ($12.5bn) in 2015-16. Oil’s subsequent crash (it Westminster. As economic conditions in Scotland decline, the is now $55) meant the actual figure was1% ofthat forecast. And blame will fallon Brexit and Tory austerity. And whereas inde- the black gold is running out: the original Brent rig will be dis- pendence was once a frighteningunknown, it now looks like a mantled this summer. Finance, which along with oil and gas chance to turn back the clock to the safe old days of EU mem- has generated exports equivalent to up to a third of Scotland’s bership. When English ministers warn about the risks of seces- GDP in recent years, is also suffering. Since September 2014 sion, their own Brexit lines will be thrown back at them: Scots Scotland has lost a tenth of its financial jobs. (London gained will be urged to seize control from distant politicians they nev- some.) Last year average pay in the industry fellby 5%. er elected; those pointing out the costs will be branded mem- For a country of 5m people that depends on two sputtering bers of “project fear”; the trashing by Brexiteers of institutions industries, to go it alone would be a gamble. Yet Scots may con- from the Treasury to the Bank of England will mean that im- clude thatremainingin the Brexit-bound union would be riski- partial warnings can be dismissed as biased or incompetent. er still. They would be wrong. For although Mrs May’s willing- Many of those Scots who voted to stay in the union in 2014 ness to leave the single market and customs union is likely to did so for clear economic reasons. Britain’s exit from the EU be bad for Britain, it also makes independence more compli- muddies that case. The alarming result is that Brexit has made cated. If the EU were prepared to readmit it, Scotland would Scottish independence more harmful—and more likely. 7

Greece and the euro Uphill task

A worrying twist in the saga ofGreece’s bail-out: creditorvcreditor ISYPHUS was condemned to pean Central Bank (ECB) cut its emergency lending. GDP has Greece’s GDP Spush a boulder uphill only to risen fitfully after years of persistent decline. Unemployment % change on previous quarter 2 watch it roll down again. Yet an is still woefully high, at 23%, but is down from a peak of 28%. + eternity of boulder-shoving And Greece comfortably surpassed a crucial target by record- 0 – seems purposeful next to the ing a primary budget surplus (which excludes debt-interest 2 unending labour of keeping costs) above 0.5% of GDP in 2016. 4 Greece in the euro zone and out Still, the economy is too weak to withstand a fresh bout of 2010 11 12 13 14 15 16 of default. It is nearly seven austerity. Almost half of bank loans are non-performing. In- years since the first Greek bail-out. A second rescue package vestment is feeble. Credit to small firms, the backbone of the soon followed. In 2015 Greece came close to dropping out of economy, is scarce. Businessrules and taxcodes are unfriendly the euro before its newish prime minister, Alexis Tsipras, buck- and changeable. In addition, Greece’s primary surplus is the led down to the task of pruning the budget as part of a third result of policies that are inefficient and unfair. Marginal tax bail-out. Now a Greekdisaster is looming all over again. rates have been increased while exemptions proliferate, a reci- This time the source of the trouble is a row among the two pe for Greeks to exercise their mastery of tax avoidance. More main creditors over how to assess Greece’s public debt (see than half of wage earners in Greece are still exempt from in- page 43). The stand-offthreatens a payment to Greece from the come tax. Essential spending has been cut even as pensions re- euro zone’s bail-out fund, the European Stability Mechanism main generous. A newly retired Greek receives 81% of average (ESM), which would redeem €6.3bn ($6.7bn) of bonds that are wages, compared with 43% fora German. due in July. Ifthe money is withheld, Greece will be in default. Against this backdrop, a row between Greece’s creditors Sooner or later, Grexit would be hard to avoid. has been brewing. At issue is the IMF’s role in the bail-out. Ger- Hopes of an agreement before a meeting of euro-zone fi- many and the Netherlands do not trust the European Commis- nance ministerson February20th have evaporated. Adeal is in sion to police Greece, and have made the fund’s involvement a everyone’s interest, and the Greek crisis has a history of last- condition of their support. The fund is reluctant. Its officials minute fixes. Sadly, there are reasons to fear that brinkman- reckon that the programme’s target ofa sustained 3.5% primary ship and politics will get in the way. budget surplus might push the Greek economy into recession. Before this new impasse, Greece’s economy was improv- They would prefer to delay further austerity and to insist on ing. Deposits had trickled back to the banks, letting the Euro- more tenable fiscal measures that would do less harm. Europe 1 12 Leaders The Economist February 18th 2017

2 thinks the IMF is too gloomy about Greece’s prospects. mentfrom one euro-zone institution to another. The shape ofa These are not the only sticking-points. By the IMF’s own compromise is plain. Greece will have to pass legislation that rules, it cannot take part unless it believes that the bail-out will commits the government to reducing pensions and income- leave a debt burden that is “sustainable”—one that is steadily tax allowances after 2018. European creditors will need to falling and easily financed. For the Greek bail-out to pass mus- pledge to finance Greece’s debts at today’s low interest rates. ter would require a commitment to debt relief from the euro- And the IMF will have to stomach a higher fiscal-surplus target zone partners. But an explicit pledge to let Greece off its debts forGreece than it would like. would be politically poisonous, because it might increase sup- port for anti-EU parties ahead of elections in the Netherlands, Boulder games France and Germany.Instead Klaus Regling, the ESM’s boss, ar- Yet everything could still go wrong. Mr Tsipras seems to think gues that the euro zone’s evident “solidarity” with Greece (the he can wait for the IMF, egged on by America under Donald ESM holds two-thirds of its debt, much of it at long maturities Trump, to abandon its stewardship of the bail-out. The result- and low rates) is enough to make the sums add up. ing uncertainty will set back Greece’s fragile economy. Grow- This is a farce. Most ofthe bonds due forredemption in July ing political turmoil in Germany and France could also make a belong to the ECB. In essence, therefore, Greece’s creditors are deal harder to reach. A long stand-off risks seeing Greece roll arguing among themselves over whether to agree on a pay- down to the bottom again. Nobody would benefit. 7

China’s beleaguered liberals ThetwofacesofMrXi

China’s president sometimes talks like a free-traderand a reformist. Do not set much store byit HE words offew global lead- in 2012, Mr Xi has abhorred consistency. At times his language Ters these days sound as has been even more reformist than Deng’s, at others it has pleasing to liberal ears as those been coloured by nationalism, with warnings against the “in- of Xi Jinping. How comforting it filtration” of China by “Western thinking and culture”. He has was when, shortly before Don- called for the Communist Party’s power to be “put in a cage”. ald Trump’s swearing-in as But China’s chief justice (presumably with Mr Xi’s blessing) America’s president, Mr Xi ad- has recently railed against the “erroneous influence” of those vised the assembled elite at the who want an independent judiciary. At times Mr Xi sounds World Economic Forum in Davos that blaming globalisation pro-market, yet he refers to debt-laden and market-distorting for the world’s problems was “inconsistent with reality” and state-owned enterprises as his party’s “most dependable that protectionism was “like locking oneself in a dark room”. source of support”. The consensus among China-watchers is These were notjustplatitudescrafted forforeigners. Backin his that, underMrXi, the country has been more protectionist and own country, MrXi hasbeen strikinga similartone. He chaired intolerant ofdissent than formany years. a meeting this month that called on reluctant officials not to shilly-shally with economic and social reforms, but to “choose Who he, Xi? the heaviest burden and chew on the hardest of bones”. The There are two possible explanations for these contradictions. main state-run news agency said the central government’s de- The first is that Mr Xi has no real interest in reform: that his talk mands forreform were becoming “ever clearer”. about it is largely a sop to the West and an attempt to deceive If only there were evidence in China that Mr Xi really those Chinese who are eager for change. If so, he is using his means what he says, and that, if he does, bureaucrats are pay- enormous power for precisely the purpose he intends: crush- ing heed. Recent news has suggested quite the opposite. Offi- ing all opposition and keeping the party in control of every- cials have been trying to crush dissent with even greater vig- thing, including the main levers of the economy. The other our. Their targets now are not only the usual suspects—those possibility is that Mr Xi is less powerful than he appears—that few who dare to challenge the Communist Party openly—but he wants reform (at least of the economy), but feels he must also mainstream liberals who want to workwithin the system make concessions to his party’s hardliners, or that he tries to to make China a better place. In the past few months hard- initiate reform but is stymied by conservative subordinates. liners have taken control of a leading magazine once beloved It would be better for China ifthe second explanation were ofsuch reformists. Popularonline forumsformoderate, pro-re- true. A five-yearly reshuffle of the leadership is due later this form debate have been closed down—including, in January, year; it may leave Mr Xi feeling stronger and therefore more those run by one ofthe country’s most prominent think-tanks, able to pursue the reforms he says he wants and that his coun- Unirule (see page 37). Mr Xi’s predecessors had put up with try needs. But in the years ahead China must grapple with them. He looks keen to keep even the moderates quiet. slowing growth, an ageing population and social unrest. De- It is temptingto pin all the blame forthe suffering ofChina’s spite the best efforts of the government’s internet censors, so- liberals on Mr Xi himself. After all, he is often described as the cial media have provided unprecedented opportunities for country’s most powerful leader at least since Deng Xiaoping. the disaffected to join forces and put pressure on the party. It Who else could be responsible? But getting the measure ofthis would take consummate skill to navigate those hazards while colossally important figure, for China’s destiny as well as the keepingreforms on course. WhetherMrXi is a despot or a frus- rest of the world’s, is fiendishly hard. Since he came to power trated reformer, China is unlikely to loosen up. 7 GoBoldly.com ©2017 America’s Biopharmaceutical Companies. Biopharmaceutical ©2017 America’s

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The Economist February 18th 2017 16 Letters The Economist February 18th 2017

TVsand the environment “disarray” among the opposi- explains how Singapore went Youdescribed the tactics used tion. The Democratic Unity from being a poor place to one by the Republicans in blocking Yourstory about energy-effi- alliance is more united than ofthe richest countries in the a vote on BarackObama’s ciency testing fortelevisions in ever in its effort to establish world in 50 years. choice ofa Supreme Court America omitted the fact that sound policies and constitu- PETE KELLOCK justice as obstructionist the test procedure which the tional order. What we lackare Singapore (“Gorsuch test”, February 4th), National Resources Defence elections. However, what you did not Council is complaining about The ruling Socialist Party is They had their day mention is that during the last was created by all interested well aware that it would be year ofGeorge W. Bush’s parties, including the NRDC trounced at the ballot box. Regarding the declining profits administration senior Demo- (“Screen shocker”, February Although you noted the ofmultinational companies crats in the Senate at the time, 4th). The television energy-test regime’s illegal suspension of a (“In retreat”, January 28th), is including Charles Schumer standard was approved by the referendum to recall President this not a natural progression and Joe Biden, were arguing International Electrotechnical Maduro and its refusal to ofliberal, open markets? Estab- that no vote should be held on Commission and is used in recognise the legislative pow- lished Western firms were a president’s nomination ofa energy-efficiency programmes ers ofthe opposition-con- allowed to enter new,previ- judge to the Supreme Court if a around the world. Everyone trolled Congress, you did not ously closed markets, most vacancy comes up in his final must abide by the current test mention the indefinite post- notably China. As the first year. The Republicans were method until that procedure is ponement ofregional elec- entrants, they enjoyed domi- merely following the officially changed. Rather than tions that were supposed to be nant positions, and with that, Democratic script. acknowledging its own held in December last year. they earned huge returns. But MICHAEL CLAREY responsibility the NRDC is Those elections remain in local firms grew in expertise Sydney airing its objections publicly,as limbo, with no indication from and also offered attractive its agenda-driven study the government that they will profits. Multinationals subse- Transfigured tech titans demonstrates. ever be held. In practice, quently suffered as they car- The fact is, televisions are a Venezuela has now joined ried burdensome costs com- Schumpeter’s tirade against success story in terms ofener- Cuba as one ofonly two coun- pared with their local, nimbler Silicon Valley’s hypocrisies gy efficiency.The average tries in the Americas to elim- rivals. It will be interesting to over social and economic on-power mode density for inate the right to vote. see whether the same holds issues was not entirely unfair, flat-panel TVs decreased con- Faced with a government true fortoday’s dominant but it lacked perspective (Feb- siderably between 2003 and that has shifted from authori- technology companies. ruary 4th). Google’s “Don’t be 2015,even as average screen tarianism to classic dictator- NEDIM BAZDAR evil” motto and the holier- sizes got bigger by half, televi- ship, and thus relishes public Brisbane, Australia than-thou stance adopted by sions became internet-con- unrest and violence, the oppo- many new technology compa- nected and screen resolution sition remains committed to In defence of Trump nies was intended to set them increased greatly.The average peaceful and democratic apart from the old guard: the cost to power a television in change. Tothis end, we are infamous misanthropy of the American home is less moving forward with public Steve Jobs at Apple, the aggres- than six cents a day,and that is protests, and we appeal to the sive monopolism ofBill Gates assuming the viewer watches international community to at Microsoft and the self- TV five hours a day,every day demand that elections be held. aggrandisement ofLarry ofthe week. EUDORO GONZÁLEZ DELLÁN Ellison at Oracle. IfSilicon Televisions are becoming Secretary for international Valley’s revolutionaries made thinner, lighter and more affairs for Primero Justicia a mistake it was to believe their energy efficient, spurred not by Caracas own rhetoric, and now the misstated facts, but through tables have turned. the power ofinnovation. The What awaits Brexit Britain As they matured, Google history oftechnology proves and the rest turned out much that innovation, not hype and As a Briton who has been like other big companies, propaganda, is the best driver living in Singapore formore To understand the cover art of seeking to establish de facto offundamental advances in than 25 years, I chuckled to the February 4th issue, I con- monopolies and milking them video-screen technology. read that Theresa May’s idea of sulted my Oxford dictionary. fortheir shareholders. Mean- GARY SHAPIRO Britain’s future might be a sort An “insurgent” is one who while, Steve Jobs has become a President and CEO ofSingapore-on-Thames (“A rises in active revolt against cultural deity, Bill Gates is now Consumer Technology hard road”, January 21st). authority. The word precisely the world’s greatest philan- Association Perhaps Brexiteers will lead describes the blockading, thropist and Larry Ellison… Arlington, Virginia the way in adopting some firebomb-throwing, window- well, some things never typical Singaporean habits: smashing, intimidating, club- change. TIMO HANNAY Politics in Venezuela working 60-plus hours a week, wielding protesters whose sacrificing recreational time to avowed mission is to neutral- London 7 “Maduro’s dance ofdisaster” acquire a high level ofeduca- ise a lawfully elected presi- (January 28th) outlined the tion, sharing small apartments dent. Donald Trump’sactions disastrous economic crisis, with their parents until they may grievously exercise liberal Letters are welcome and should be addressed to the Editor at including shortages offood get married, welcoming sensibilities, but so far, at least, The Economist, 25 St James’s Street, and medicine, that Venezuela immigrant labour on a far they have been within his London sw1A 1hg has suffered under President higher scale than Britain ever lawful authority. E-mail: [email protected] Nicolás Maduro. But it was has, and other such things. RONALD MASSON More letters are available at: wrong to suggest that there is That proven model Topanga, California Economist.com/letters Briefing Cloning The Economist February 18th 2017 17

the eggs’ cycle. The sheep of things to come By showing that the DNA in a differen- tiated cell could be repurposed through nucleartransfer, Dolly opened up two new possibilities. One, which came to be known as “reproductive cloning”, was the copying of individual animals. The other What happened afterDolly was revealed to the world 20 years ago as the first was the creation of embryonic stem cells animal clone—and what didn’t (ES cells) capable of being turned into all N THE summer of 1996 Karen Mycock, a The existence of Dolly the sheep would sorts of other cells. Various ailments are Icell biologist, wasattendinga wedding in not be revealed to the world at large until caused by a lack of specific types of differ- the Scottish highlands. Returning to her the following February, when a scientific entiated cell: insulin-secreting beta cells in hotel to change her hat, she found a fax paper was published in Nature—at which the case of diabetes, for example, or my- pushed under her door. It said: “She’s been point a furore broke out that went far be- elin-forming cells in multiple sclerosis. born and she has a white face and furry yond the scientific world. Making embryos through nuclear transfer legs.” An unusual birth announcement; an The fuss among scientists was due to seemed likely to provide copious ES cells unusual birth. the fact that many believed cloning ani- with which to research and treat such con- In FebruaryMsMycock(nowMrsWalk- mals was impossible. John Gurdon of Ox- ditions—something which came to be er), who worked at the Roslin Institute, an ford University had cloned frogs by nuc- known as “therapeutic cloning”. animal-research centre near Edinburgh, lear transfer in 1958—but his creations had passed a tiny jolt ofelectricity through neverdeveloped beyond the tadpole stage. The udder mother two sheep cells in a dish. One was an egg All efforts to do the same in mammals had The Roslin Institute’s main concern was re- cell which had had its nucleus, the bit of failed. These failures had led biologists to productive cloning. Its researchers were in- the cell which contains almost all its genes, believe that, although all cells in a body terested in improving the “transgenic” ani- removed. The other, its gene-bearing nu- shared the same genetic material, they mal business, in which genes are added to cleus intact, was from the udder ofanother were not equally capable of the same re- an animal so that it secretes some protein ewe. The electric jolt had caused the two productive feats. “Stem cells”, such as of particular value. The ability to produce cells to fuse, forming an embryo. those found in early embryos, could devel- multiple copies of the most productive The egg donor was a Scottish Blackface op into the various sorts of specialist cells such animals would be a great boon. sheep; so was the surrogate mother that found in skin, muscle or nerves. But those The Roslin scientists knew that nuclear took the embryo to term. The udder cell “differentiated” cells could not change transfer would have other uses. Mrs Walk- came from a white-faced Finn Dorset. And back into stem cells. Development was a errecalls that when the sheep was still a se- that, the fax told Mrs Walker, was what the one-way street. cret, the team would talk among them- newborn lamb looked like, too. The “nuc- The research at the Roslin Institute selves about the therapies she might lead lear transfer” she had overseen had showed that this need not be the case. The to. What they did not appreciate was that, worked. An adult sheep had been cloned. key advance was made by Keith Campbell, once Dolly was unveiled, the public would Instantly understandable to an excited who realised the importance of synchro- pretty much want to talk about one thing Mrs Walker—“I knew we had done what nised “cell cycles”—the rhythms according only: making copies ofpeople. we had thoughtwe had done”—the faxhad to which cells grow and divide. By starving Dolly was supposed to be announced been kept terse and cryptic because the the donorcells in a way that forced them to at a press conference timed to the Nature breakthrough was, at the time, hush-hush. stop dividing, Campbell matched them to paper. But the news broke a few days early 1 18 Briefing Cloning The Economist February 18th 2017

2 when the Observer, a British newspaper, Me Go”. It did not help that a previous un- going to clone humans—or, later, that they scooped it. The story’s second paragraph natural intervention into British agricul- had. First came Richard Seed, a Chicago predicted that: “It is the prospect ofcloning ture—the addition of cows’ brains to cattle physicist. Then there was a Swiss sect people, creating armies of dictators, that food—had earlier in the 1990s led to the called the Raëlians, who claimed success will attract most attention.” It duly did. scandal of“mad cow” disease and the cull- in 2002. An Italian gynaecologist, Severino “Dreaded Possibilities Are Raised” one ing of4.4m animals. Antinori, also said he had succeeded in headline declared; “Cloned Sheep in Nazi Zanussi, a washing-machine-maker 2009. Experts remain highly sceptical Storm” shouted another. Der Spiegel put a known in Britain for its slogan “the appli- about these claims, which have not been regimentofHitlersand Einsteinson its cov- ance of science”, captured the mood with backed up by scientific evidence. er. The media and public became obsessed an advertisement that branded Dolly the with the idea that human clones were just “the misappliance of science.” President The bleat goes on around the corner. Bill Clinton instructed America’s National Yet moves in the late 1990s towards an out- Hank Greeley, a law professor at Stan- Bioethics Advisory Commission to report right ban on human cloning hit a snag: the ford University who specialises in issues on human cloning within 90 days; similar apparently impressive potential of thera- surrounding reproductive technology, instructions were issued by the French peutic cloning. This could not be realised if points out that the alarm at such a prospect president, the president of the European scientists were not allowed to develop nu- was hardly surprising. People are often dis- Commission and the director of UNESCO. clear-transfer techniques for humans. No concerted and disgusted by changes in hu- The Biotechnology Industry Organisation, embryos, no ES cells. Some opposed thera- man reproduction. In vitro fertilisation a pro-technology lobby group in America, peutic-cloning research as another form of (IVF) and surrogacy were worried about, called foran outright ban. The Vatican also embryo research, a practice to which many debated and staunchly opposed in some wanted a ban, saying that humans had a were already opposed; in 2001 the Ameri- quarters. “People were used to babiescom- right to be born in a “human way and not can government banned the use of federal ing out the old fashioned way,” says Dr in a laboratory.” funds to produce new embryonic cell lines Greeley. The way that cloning could con- Many argued that human reproductive through nuclear transfer. But some coun- ceivably render men unnecessary added cloning was contrary to nature and under- tries, including Britain, already had a more to the concerns. Much was made ofthe fact mined human dignity. For those who did liberal attitude to the use in scientific re- that Dolly was cloned from an udder and not feel this, the obstacles, both practical search of “spare” embryos originally named after a singer noted for her ample and ethical, seemed enormous. In the case created for the purpose of IVF, and sought bosom as well as her talent. of Dolly, 277 successful nuclear transfers a regulatory distinction between admissi- had produced just 29 normal-looking em- ble applications of nuclear transfer for Baaad news bryos, which were implanted into 13 surro- therapeutic research and prohibited repro- And cloning tapped into deeper concerns. gate mothers. Only one survived. It was ductive applications. From the Frankenstein-y frisson of Mrs hard to see an ethical defence of applying But regulatory approval or no, produc- Walker’s vital sparkofelectricity to the fact such a wasteful process to potential peo- ing human ES cells through nuclear trans- that the most famous fatherless human in ple, even if the end was, in itself, not offen- fer turned out to be a tall order. In 2004 history is known to believers as the “lamb sive. A further concern was the health of Hwang Woo-souk, a South Korean re- of God”, it would have been hard to craft a the offspring. Dolly developed osteoarthri- searcher, announced that he had success- scientific advance with a richer and more tis and a lung infection at an early age, fully created a new line of ES cells from a treacherous cultural context. Blasphemy, prompting an unresolved debate about cloned human embryo. The following “Brave New World” and “The Boys from whether she died prematurely; experience year he said he had created 11 more such Brazil”, a story about efforts to clone Adolf with clones in other species has shown a cell lines. His results, published in eminent Hitler, all added to the brew—and the back- tendency to various other anomalies. That journals, were farmore credible than those lash. There were nightmares of reproduc- said, four clones of Dolly herself are cur- of the Raëlians or Dr Antinori. But by 2006 tive cloning and therapeutic cloning be- rently enjoying a healthy old age at the an investigation had concluded that al- coming the same thing, with sentient University ofNottingham. most all his research was fraudulent— clones harvested for spare parts, as in Mi- The fact that most researchers consid- though he had cloned a dog. chael Marshall Smith’s novel “Spares”— ered human reproductive cloning a quag- By the time Dolly would have been cel- published shortly before Dolly’s unveil- mire did not stop some attention-seekers ebrating her tenth birthday, in 2006, nuc- ing—or, later, Kazuo Ishiguro’s “Never Let from stepping forward to claim they were lear transfer had still not produced human ES-cell lines. Different species and groups ofanimals take to nucleartransferin differ- Separated at birth ent ways. Cats and mice, it now turns out, Two ways of creating patient-matched stem cells are quite easy: dogs and rats hard. In pri- mates, according to Ian Wilmut, who led Genes added to Differentiated into Applications reprogram cells specialised cells the Roslin team, the technique proved per- IPS method Stem cells Therapeutic cloning sistently disappointing, with “very limited development and no offspring”. But an al- Science ternative technique that Dolly inspired had produced something almost as good— and much less morally problematic. Medicine Shinya Yamanaka, a Japanese scientist, Specialised cells says that when he first read of Dolly as a (skin, blood, etc) Reproductive cloning post-doctoral researcher he had become “almost depressed” over wondering what Cloned to do. Dolly excited him and gave him a animals goal. Her creation showed that chemical Dolly method Nucleus removed Embryo forms Embryo implanted factors in the egg had been able to force and fused with adult DNA to rejuvenate itself. Dr Yama- unfertilised egg containing stem cells in surrogate naka set about lookingforthem. He started1 The Economist February 18th 2017 Briefing Cloning 19

ic” memories of their differentiated past— Clones alone chemical modifications to their DNA that Papers citing: Original “Dolly” paper (1997) IPS cells paper (2006) influence their genes’ expression. “Viable offspring derived from fetal and “Induction of pluripotent stem cells from mouse embryonic and adult So, 16 years after the world was wowed et al adult mammalian cells”, by Wilmut fibroblast cultures by defined factors”, by Takahashi & Yamanaka by Dolly, a technique for cloning embryos 2010 First patient to receive had finally been demonstrated in the lab- medical treatment derived from human oratory. But nuclear transfer remains diffi- embryonic stem cells, for spinal injury 1996 Dolly, the first mammal cultand the creation ofcloned embryos for created by cell nuclear 1,200 transfer, is born 2005 Genetically matched research or therapy remains ethically human embryonic cell creation 2014 First trial of fraught. It is banned in some countries, in- shown to be fraudulent therapy based on 1997 IPS stem cells used for cluding France, Germany and Russia; in age-related blindness 900 Nature publishes 2006 other places, such as America, there is no Dolly paper Embryonic-like overarching regulation, which brings its cells are created 2013 Human from adult cells, own problems. And even in places like 1998 Human 2001 US President embryonic stem 600 known as cells created Britain and Japan, where it is allowed, get- embryonic George W. Bush IPS cells stem cells limits funding of by cell nuclear ting permission takes time and effort. first isolated research on human transfer embryonic stem cells 300 What is more, cell lines made this way might not match a patient’s immune sys- tem in the way an IPS-cell therapy pro- 0 duced from the patient’s own cells can. Re- 1996 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 searchers at ViaCyte in San Diego, California, have used IVF-derived ES cells Pig Sheep Camel Dog Ferret to create insulin-producing beta cells with Cow Goat which to treat type 1 diabetes. They antici- Horse Deer Mule Buffalo pate that the cells will, when placed in pa- Mouse Cloned domestic species Rat tients’ bodies, need to be encapsulated in a Rabbit Cat By date of published paper plastic mesh to protect them from the im- Sources: Clarivate Analytics, Web of Science Core Collection; Compassion in World Farming mune system. That may work for some conditions; it won’t workforall ofthem. 2 by putting into mouse cells the genes for24 Dr Yamanaka now runs an institute in That is why many feel that, whatever factors known to have a role in keeping Kyoto where hundreds of researchers are flaws IPS cells have, they are the most pro- stem cells from differentiating. The results pushing forward on IPS cells. There have mising option for future therapies. More looked quite similar to ES cells. Assuming been advances. Scientists at the New York than half a century after creating the first not all the factors were essential he repeat- Stem Cell Foundation have turned skin cloned tadpoles, Dr Gurdon is now one of ed the work with fewer of them. By 2006 samples from patients with progressive those searching for factors beyond those he had narrowed the field to four factors multiple sclerosis into IPS cells and then identified by Dr Yamanaka that will take which, administered together, could con- into myelin-forming cells. Yet turning such the technology further, bringing IPS cells vert differentiated tissues back into stem achievements into treatments has proved closer to the gold standard. cells. It was a way of turning back the bio- challenging. The only clinical trial of IPS logical clockwithout the fiddly business of cells to date, conducted by the Riken Cen- Copy cats and dogs nuclear transfer. tre for Developmental Biology in Kobe, After20 years ofworkon such possibilities was stopped abruptly in 2015. The idea was (more, in Dr Gurdon’s case) some see the Pluripotent possibilities to take stem cells made from skin cells and Petri dish as half-full, some as half-empty. Dr Yamanaka called his cells “induced plu- turn them into retinal cells which could be A couple of decades seem to some a rea- ripotent stem cells”. These IPS cells gar- used to reverse macular degeneration, sonable timeline for such technically de- nered a huge amount ofattention, funding which leads to blindness. Afterjust one pa- manding and fiddly work; run-of-the-mill and effort (see timeline). Not only could tient had been treated, the trial was halted drugs can often take a decade to develop, they be made without the ethically trou- because mutations were found in the cells. and this sort of thing is far less well under- bling intermediary of an embryo. They It may well be possible to overcome such stood and more demanding. What’s more, could also be made from cells donated by a problems, but any adult cell that is turned regulations have slowed things down; Dr potential patient. This meant that if they back into a younger state through genetic Mitalipov says much of the time between were then used for therapy, the patient’s engineering is likely to have its genome his successful cloning of monkey cell lines immune system would raise no objec- scarred in some way. in 2007 and his production of cloned hu- tions—something which was not necessar- And IPS cells are no longer the only man ES cellsin 2013 was“navigatingUS reg- ily the case for ES cells. Many labs trying to game in town. In 2013 Shoukhrat Mitali- ulations on embryo research”. The fact that make human ES cellsfrom cloned embryos pov, a reproductive biologist at Oregon progress has been slower than once hoped stopped when IPS cells came out, says Rob- Health and Science University, finally has costs. One of the members of the team in Lovell-Badge, a stem-cell expert at the cracked the tricky problem of how to that created Dolly, Marjorie Ritchie, died in new Francis CrickInstitute in London. create human ES cell lines. The timelyaddi- 2015 after suffering with multiple sclero- In 2012 Dr Yamanaka received a Nobel tion ofa little caffeine to stop the egg devel- sis—a disease thatmanyhoped would ben- prize for this work. The IPS cells he invent- oping too fast turns out to be crucial. efit from advances in stem-cell medicine. ed have become a scientific workhorse, Dr Mitalipov has compared his nuclear- But that is not to say there is no progress. providing limitless supplies of differen- transfer ES cells to IPS cells and ES cells tak- Others, more sceptical, see the 20 years tiated cells and tissue for use in the lab. en from embryos created by IVF; the sort of as evidence that even if such therapies can They are an invaluable tool for modelling cells which provide the gold standard in eventually be produced they will always human diseases and screening drugs. New such matters, accordingto DrLovell-Badge. be complicated affairs, and therapies techniques such as genome editing are ex- The nuclear-transfer ES cells look more like “matched” to the immune system will of tending their uses. But they have yet to the gold standard than the IPS cells, per- their very nature have to be handcrafted. prove their therapeutic mettle. haps because the IPS cells retain “epigenet- Even if they can be made to work they will 1 20 Briefing Cloning The Economist February 18th 2017

2 be very costly. Aguide to quite how expen- nising requests from parents whose chil- netically quite identical to its parent—but it sive these might be came last year when dren had died; researchers at fertility would be far closer than any natural rela- GSK, a druggiant, unveiled the pricing fora clinics also suddenly found themselves tive. Such creations would have to be personalised, stem-cell therapy for severe asked about the possibility. It is likely that screened carefully for genetic disorders combined immunodeficiency. The thera- they still are. and perhaps even gene edited. Reproduc- py extracts adult stem cells from bone mar- The thrust in reproductive technology ing this way would be, in effect, the closest row, introduces a missing gene and then remains a desire to allow people who sort ofinbreeding imaginable. And it is not uses the corrected cells to cure the patient. could not otherwise be able to do so to clear what might lead someone to want It costs $665,000. have any child at all, rather than to make such a child. Beyond the clinic, and beyond the hu- specific people. That does not mean the But if IVG becomes a part of the toolkit man, cloning has made slow but steady field does not still throw up ethical and le- for reproductive biology such possibilities progress; ithasnowbeen successfully used gal issues. Its most recent cause célèbre is will open up. And Dr Greeley thinks that on more than 20 species. The original idea the development of “three-parent babies”, IVG could eventually become a big thing. ofapplyingit to transgenic animals has not in which faulty mitochondria—power sta- As the possibilities of genetic screening— amounted to much, but the technique has tions that drive a cell’s metabolism—in an and in time, perhaps, genome editing—be- proven useful in cattle and dairy farming, egg are replaced by healthy mitochondria come clearer, people may see having em- allowing multiple copies of elite animals. from a donor before IVF. And it does not bryos made carefully outside the body as a In New Zealand and America it is regarded mean, in time, that the issue of reproduc- much safer bet than letting them haphaz- as a normal animal-breeding procedure tive cloning, or something similar, might ardly assemble themselves within it. And and clones are part of the pedigree market. not re-emerge. if that is the case, a plentiful supply of eggs Meat and milk from cloned animals is rou- derived from skin cells would suit many tinely farmed and sold in America, Argen- Parents: three, two orone? women much better than the difficult pro- tina and Brazil. In Europe, though, it is One odd possibility comes from work on cedures needed to dig eggs out of ovaries. banned on groundsofanimal wellbeing. A IPS cells that might provide a new alterna- Some specific applications of IVG—includ- studybythe European Food SafetyAuthor- tive for the infertile. In mice it is now possi- ing, most definitely, any attempts to pro- ity in 2008 said that developmental abnor- ble to turn IPS cells derived from skin cells duce “one parent” children—would un- malities in clones and unusually large off- into sperm and eggs. If this technique— doubtedlytriggerthe “yuckfactor” thathas spring resulted in difficult births and known as in vitro gametogenesis or IVG— always greeted developments in reproduc- excessive neonatal deaths. can be perfected and adapted to humans tive technology. But, ifthe technology can As well as cloning thousands of farm (still, at this stage, an imposing if) it could be made safe, it may well become accept- animals ViaGen, a small firm based in Ce- allow people afflicted by various disorders ed. As it did with IVF, the sight of grateful dar Park, Texas, has cloned many horses that stop their bodies from producing eggs parents with beloved children will prove a and pets; there are people happy to spend and sperm to have children. It would also powerful argument. lavishly in the hope that they can get a ge- allow same-sex couples to have biological This may not be the way things work netic copy of a lost companion. According children of their own, with sperm derived out. It may be that IVG proves impossibly to the firm’s website, a cloned horse will from one woman fertilising another’s egg, hard to apply to primates. There may turn set you back $85,000. The disgraced Dr or an egg derived from one man’s cells be- out to be no demand forwhat it offers, orat Hwanghasalso started a firm thatseems to ing fertilised by his partner’s sperm least not enough to encourage clinics or have cloned more than 400 dogs for cus- (though that would also require a surro- companies to involve themselves in devel- tomers willing to pay about $100,000 a gate mother). oping it; the commercial obstacles seem pup. In Tianjin, China, an outfit called And it would also, in principle, allow high. And there may be a public outcry. But Boyalife has been building an enormous one parent to provide both the sperm and the prospect ofchildren created in this way new facility, capable of producing 1m the egg. Because people have two copies of is probably a lot closer today than human calves a year as well as dogs and horses. every gene, but eggs and sperm get only clones were 20 years ago. And so far the But its clone factory seems to be well be- one, the resulting child would not be ge- world has made barely a bleat ofprotest. 7 hind schedule. One lucrative niche unanticipated by science-fiction writers is polo. Crestview Genetics of Buenos Aires, owned by Adolfo Cambiaso, the world’s best polo player, and two partners, has cloned more than 45 steeds including over 25 copies of Mr Cambiaso’s polo ponies—one sold at auction for$800,000. One ofthe ponies he cloned was a much-loved chestnut stallion called Aiken Cura which he had to have put down more than a decade ago, after it broke its leg in a match. Last December his team, La Dolfina, rode six clones of the same mare to victory in a prestigious match in Buenos Aires. One of Crestview’s founders, Alan Meeker, says that “rich individuals” have from time to time asked about cloning hu- mans. He refused. Yet there can be little doubt that there is at least some demand for human cloning—and it doesn’t come from Nazis. After Dolly’s existence was an- nounced the Roslin Institute received ago- United States The Economist February 18th 2017 21

Also in this section 22 Our new labour-market index 23 Recruitment at black colleges 23 Detroit’s recovery 24 Legal immigration 25 The last Howard Johnson’s 26 Lexington: NAFTA on notice

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

Turmoil in the administration ing level of trust as a result of this situation and a series of other questionable in- Errant Flynn stances” had made his position untenable. It seems likelier, on the basis of multiple leaked reports, that Mr Trump and his clos- est advisers, including Stephen Bannon, his chief strategist, reckoned that Mr Flynn WASHINGTON, DC could getawaywith it. Afewdaysafter Mrs The axing ofan ill-chosen national securityadviserwill not fixthe deep problems Yates delivered her report, Mr Trump in Donald Trump’s government sacked her for refusing to support his im- HE king, wrote Charles de Marillac, the 2014 when he was sacked for poor man- migration ban on seven mainly Muslim TFrench ambassadorto the courtof Hen- agement. He was appointed by Mr Trump, nationalities. He did not inform Mr Pence ry VIII, was so fickle he rendered even his for whom he was an early, raucous cheer- that he had been made a monkey of by Mr word “as softened wax [that] can be al- leader, because the president mistrusted Flynn. He decided to axe his national secu- tered to any form”. He was so suspicious many of the likelier alternatives, admired rity adviser only after the Washington Post he did “not trusta single man”. Some ofthe MrFlynn’stough-talkingstyle and perhaps revealed on February 13th, on the basis of dramatic twists ofDonald Trump’smonth- did not fully understand the requirements yet more leaks, that the Justice Department old administration, including the removal of the position. He sacked him, it seems, considered that his lies had left Mr Flynn on February 13th of Michael Flynn as na- not because of his misdemeanour or be- vulnerable to Russian blackmail. tional security adviser (NSA) after he alleg- cause he was doing a bad job, which alleg- Mr Flynn will not be missed. None of edly made inappropriate comments to the edly Mr Flynn was, but because he had be- his mooted replacements, Keith Kellogg Russian ambassador and fibbed about come an embarrassment. and David Petraeus, both retired generals, them, would have seemed familiar to de The relevant conversations between and Robert Harward, a retired admiral, Marillac. They are not merely the teething Mr Flynn and Ambassador Sergei Kislyak looks especially promising; yet they would troubles of an unusually messy adminis- took place on December 29th, the day Ba- be better suited than he was. Mr Harward, tration, but seem rooted in Mr Trump’s rack Obama slapped sanctions on Russia said to have been offered the job, also has idiosyncratic management style. in retaliation for its effort to rig the election the advantage of having worked for James Demanding Mr Flynn’s resignation, in MrTrump’sfavour. Afterreportsof these Mattis, the defence secretary, who is be- due to an “erosion of that trust” which the exchanges were leaked to the press, Mr lieved to have had a hand in the more con- president had formerly invested in the Flynn publicly denied having discussed ventional foreign-policy positions Mr tough-talking former military-intelligence the sanctions with Mr Kislyak. He reiterat- Trump has recently started staking out. officer, was in fact one ofMrTrump’sbetter ed his denial to Mike Pence, the vice-presi- Having dandled an idea of using rela- decisions. Abrasive, hot-headed and high- dent, who then spoke up forhim stoutly. tions with Taiwan as a bargaining-chip ly partisan, Mr Flynn was ill-chosen for the Yet a few days after Mr Trump took of- against China, on February 9th the presi- job. Yet the fact that Mr Trump so recently fice he was informed by the then acting at- dent endorsed the one-China principle hired him, and the circumstances of his fir- torney-general, Sally Yates, that Mr Flynn that has defined relations with China for ing, which have flooded out of the admin- had in factdiscussed the sanctionswith Mr four decades. Having questioned Ameri- istration in leaked reports from unhappy Kislyakand might therefore be in breach of ca’s commitment to Japan’s security, he re- officials, are not reassuring. the Logan Act, which forbids private citi- affirmed it on February 10th during a visit The job of NSA requires a cool head, a zens from trying to conduct foreign policy. by Shinzo Abe, Japan’s prime minister. big brain, excellent managerial skills and According to his spokesman, Mr Trump’s Similarly, on the international deal to con- an even temper: few have excelled at it. Mr response was to launch a careful review of tain Iran’s nuclear programme, which he Flynn had little high-level government ex- the case against Mr Flynn before conclud- once swore to tear up but now seems to perience aside from a stint running the De- ing, over two weeks later, that though he support, and on NATO, which he no longer fence Intelligence Agency, which ended in had broken no law, “the evolvingand erod- callsobsolete, MrTrump hasswerved from1 22 United States The Economist February 18th 2017

2 bomb-throwing to orthodoxy. Labour markets But such statements, while welcome, do not constitute a full-bodied foreign poli- cy, and Mr Trump appears to have little Forgotten men grasp of the painstaking processes policy- making entails. His flurry of executive or- An indexofthe fortunes ofthe white working-class ders, many of them badly drafted fulfil- ments of campaign promises, is symptom- N1922 Donald Trump’sfather, Fred, left atic of this. So is the vast power he has Ihigh school at16 to workfora carpenter. The forgotten-men index 2 awarded to a few trusted aides, including He was a “very smart guy” who could United States, gap between white working-class Mr Bannon, who has taken a privileged “add five columns ofnumbers in his men* and all men, December 2016=100 seat in the National Security Council. So, head”. Construction came naturally to 0 too, is the fact that the transition, including him, too. By1971he had amassed a multi- Unemployment the roll-outofthousandsofTrump appoin- million-dollar fortune. Working-class 20 tees, is falling behind schedule. success stories like Fred’s are rare in America, and becoming rarer. The presi- Labour-force 40 Making administration great again dent wants to see more ofthem. participation Mr Trump has so far nominated 35 people At his inauguration he declared that 60 to fill some 700 senior positions that re- America’s “forgotten men and women” Composite Wages† index score quire Senate confirmation. On February will “be forgotten no longer”. And he has 80 15th one of them, Andrew Puzder, his cho- vowed to bring backjobs to states that RECESSION sen labour secretary, withdrew his nomi- have been “hurt so badly” by global- 100 nation after it became clear he would isation. By America’s forgotten people, he 1994 2000 05 10 16 struggle to get confirmed. This poor pro- means above all white working-class *25- to 65-year-olds with a high-school diploma or less gress is making it even harder forMr Mattis men: three-quarters ofwhite men who †Production and non-supervisory employees only and his cabinet colleagues, including Rex left school at18 and voted in November Sources: BLS; NBER; The Economist Tillerson, the secretary of state, to push did so forMr Trump, the highest share of back against the turmoil emanating from any demographic group. have actively sought workin the past the White House. White men are also Mr Trump’smost fourweeks, as a percentage ofthe total Plenty of talented Republican wonks loyal supporters. While his approval labour force. At the end of2016 the rate are in theory available to them. But many ratings languish at 49% nationwide, stood at 4.7%, but among WWCM it was are former critics of Mr Trump, which ap- among working-class white men they are 6.4%: a difference of30% (see chart1). pears to have put them beyond the pale. at 69%, according to YouGov, a pollster. Between 1994 and 2001the average gap in Last week the president refused to let Mr This group also forms a big chunkof the unemployment rates between all men Tillerson have his choice of deputy, Elliott labour force: non-Hispanic white men and WWCM was only15%. Since the start Abrams, after being alerted to some harsh aged 25 to 65 with a high-school diploma ofthe Great Recession that average gap words Mr Abrams had written about him or less make up 23% ofmale workers. has swelled to 24%. during the campaign. Given that over 150 Mr Trump has little ofhis father’s Second, because the unemployment leading Republican national-security ex- precision with figures. A year ago he rate doesn’t count people who have perts put their names to letters containing reckoned that the unemployment rate— given up looking forwork, some argue even sharper criticisms, it is hard to imag- rather than hovering around 5% as the that it underestimates the true extent of ine MrTrump forminga competentadmin- official statistics showed—was “probably joblessness. So the second indicator is istration unless he relents on this issue. The 28, 29, as high as 35” or even, perhaps, labour-force participation, which counts greenhorns, oddballs and second-raters “42%”. To help clarify things, The Econo- workers, employed or not, as a percent- who were prominent in his transition ef- mist has created a set oflabour-market age ofthe working-age population. This fort seem unlikely to produce much good indicators to trackthe progress of Ameri- has fallen steadily, from 87% in 1948 to policy, bolsterMrMattis and his colleagues ca’s forgotten men. Our index ofwhite 69% today. For WWCM it has declined to and bring the leaky bureaucracy to heel. working-class males (WWCM) employs 59% (a proportionate gap of15%, com- The over-promoted Mr Flynn’s struggles il- three measures ofjob performance. pared with an average of10% between lustrated that. First, the unemployment rate. This 1994 and 2001). There is still time for Mr Trump to sal- counts the number ofjobless people who Finally, over the past 27 years, average vage his administration. But this will in- hourly wages have risen by 2.9% a year volve him not only changing tack on is- before adjusting forinflation. Meanwhile sues, as he often has in the past, but White woe 1 the hourly earnings ofWWCM (indus- expanding his view of the government United States, male unemployment rate, % tries weighted by their share ofWWCM and reforming his belligerent and highly 16 employees) have increased by 2.8% a personalised style of leadership. The qual- White working-class* year. A small difference but, when com- ities that made him a successful property pounded over 27 years, the gap in wage 12 developer are not translating well to run- Total levels between all workers and WWCM ningthe government. ButMrTrump shows has widened from an average of3.7% in no sign of recognising this. He does not 8 1990-92 to 6.9% over the past two years. even appear to recognise the shambles his Compiling these three indicators in an government is in. Appearing alongside Is- 4 equally weighted index provides a All other men rael’s prime minister, Binyamin Netanya- RECESSION month-to-month indicator ofMr Trump’s hu, on February 15th (see page 41), he 0 performance in the WWCM labour blamed Mr Flynn’s fall on the journalists 1994 2000 05 10 16 market (see chart 2). The index has shown who had reported his misdemeanours: Sources: BLS; NBER; *25- to 65-year-olds with a deterioration in recent years. Could Fred The Economist “He’s been treated very, very unfairly by high-school diploma or less Trump’sson make a difference? the media—as I call it, the fake media.” 7 The Economist February 18th 2017 United States 23

Black colleges cists were educated at Florida A&M,an between Republican lawmakers and HBCU. A recent report by the Brookings In- HBCU leaders is planned later this month. Welcome, amigos stitution, a think-tank, found that HBCUs Although some alumni worry that the do a better job at enrolling students from influx of Latinos may dilute the HBCUs’ low-income backgrounds than their tradi- primary purpose, to educate black stu- tional counterparts. HBCUstendtohave dents, administrators argue that the mis- NEW YORK lower tuition fees and provide a nurturing sion is intact. They are still educating the campus. That appeals to Latinos, who are underserved. “Wedon’t have the luxury of Latino students may help keep the often the first in their familiesto attend col- saying we only want black folks,” says Jar- doors open at historically blackcolleges lege, says Marybeth Gasman, the author of rett Carter of HBCU Digest, an online publi- HE mascot at César E. Chávez High the University ofPennsylvania report. cation. “Wewant everybody.” Most institu- TSchool in Houston, Texas, is the lobo, Even with the growing numbers of Lat- tions are walking the line ofhonouring the Spanish forwolf.Mostofthe pupilsare Lat- inos, many schools are still on shaky finan- past and maintaininga haven forblack cul- ino. The school is not the traditional pipe- cial ground. During the presidential cam- ture, while also allowing Latino students line for black colleges, yet last week Texas paign Donald Trumpsaid he would ensure to create their own fraternities and soror- Southern University (TSU), a historically HBCU funding. An executive order on ities. There have even been Latina home- black university, visited the place to pitch HBCU funding is said to be in the works. coming queens. As one head of an HBCU the benefits of its institution. The universi- The education secretary, Betsy DeVos, re- puts it, “Youdon’t have to be Catholic to go ty, which was founded in 1927 to educate cently visited Howard University,the most to Georgetown [a Jesuit university]. We black scholars when they had little access prestigious ofthe blackcolleges. Ameeting can diverge without losing our identity.” 7 to higher education, has seen a steady in- crease in Latino enrolment. Over the past six years the share of Latinos at TSU has Detroit’s recovery doubled, from 4% to 8%. Austin Lane, the university’s president, expects that figure The boon of the huddled masses to double again inside ten years. TSU is not alone. In 2013 the University of Pennsylvania’s Centre for Minority ServingInstitutionslooked atthe changing face of historically black colleges and uni- DETROIT versities (HBCUs). Although many are still Newcomers can ease the path to economic rebirth majority-black, the report found that a quarter have at least a 20% non-black stu- E ARE proud of our Muslim com- America. Almost half the population of dent population. Some of the growth is “Wmunity in Michigan,” says Rick Dearborn, a suburb that is home to Ford from white, Asian-American and interna- Snyder, the state’s Republican governor, Motor Company, is from the Middle East. tional enrolment. The strongest growth is sitting in his office in the grandiose Cadil- Hamtramck, another Detroit suburb, is the coming from Latinos, especially in places, lac Place, the former headquarters of Gen- first city in America with a majority-Mus- such as Texas and Florida, where the Lat- eral Motors. Ever since his first state-of-the- lim city council. ino population isalso surging. Some of this state address in 2011, Mr Snyder has em- Mr Snyder and Mike Duggan, the growth is organic. For instance, Paul Quinn phasised the importance of welcoming mayor of Detroit, are making population College started a soccer programme, people from across the world to this large growth a gauge of their efforts to revitalise which appealed to Latino students, who midwestern state. Thanks to once-plentiful a state that is slowly recoveringfrom a “lost now make up 20% of students. Others, like jobs in the car industry, greater Detroit has decade” and a city devastated by the larg- TSU, are actively recruiting in Latino com- the largest Arab-American community in estmunicipal bankruptcyin American his-1 munities. They visit Latino-majority high- schools and Spanish-language churches, and use bilingual recruiting material. “We are in the business of teaching and learn- ing,” says MrLane, “but we are a business.” Non-blackstudentenrolmentin HBCUs is nothing new—St Philip’s College admit- ted its first white students in1955—but since the recent recession it has been economi- cally necessary. HBCUs also face competi- tion from colleges and universities whose doors were once closed to black students. The share of all black students who were enrolled at an HBCU fell from18% in1976 to 8% in 2014. Falling enrolment has leftmany institutions cash-strapped. Endowments tend to be small (black alumni do not al- ways have spare money to donate), so most institutions rely on federal and state funding. Some of the 51 public colleges were also hit by state-funding cuts. HBCUs were founded to educate for- mer slaves and their descendants. They helped to create America’s black middle class. More than a fifth of black pharma- A trainee entrepreneur 24 United States The Economist February 18th 2017

2 tory. Between 2000 and 2010 Michigan lost started with ten employees five years ago lers from seven countries with predomi- nearly 800,000 jobs, income per head fell and now employs more than 350 in De- nantly Muslim populations? Mr Snyder from America’s 17th-highest to 39th, and troit. In January the last ofthe city’s 65,000 says, diplomatically, that it opens a debate. residents fled. In the same period the pop- new streetlights was switched on. A light- But in several Michigan cities, especially ulation of Detroit, a city built for 2m, rail line is being built, and the city has put Detroit, protests erupted. After hesitating, plunged to just over 700,000. By the start 80 new buses on the roads. Some 10,800 the chairman and chief executive of Ford of the next decade the city’s roads had fall- blighted houses have been torn down released a statement saying they did not en into disrepair; public schools were since 2014; another 2,500 will be removed support it. But the ban, combined with among the worst in the country; thou- soon. The rate of payment of property tax- newly stringent raids by Immigration and sandsofhouseholdshad no runningwater es has increased from just 68% during the Customs Enforcement, the agency charged and tens of thousands of building plots city’sbankruptcyto 82%, in partthanksto a with deporting undocumented workers, is were derelict or vacant. fairer assessment ofthe tax burden. sowing fear among immigrants, says Mr In his most recent state-of-the state ad- How do Michiganders feel about Presi- Tobocman. Such fear is the last thing De- dress last month, the governor set the goal dent Donald Trump’s effort to ban travel- troit needs, as it tries to lure them in. 7 of reaching10m state residents again in the next three years. He proudly pointed out that, in the past six years, Michigan had Legal immigration gained 50,000 new people. “Immigrants account for all of that population growth,” Minding the door explains Steve Tobocman, head of Global Detroit, a non-profit organisation promot- ing immigration. ForMayorDuggan, even a slowdown in his city’s depopulation is good news; and Los Angeles he owes it entirely to immigrants. From A new effortto narrow the route to permanent residency 2010 to 2014, Detroit lost 36,000 residents who had been born in America. It gained URING his presidential campaign, Do- Act, proposed by two Republican senators, 4,400 new immigrants—not enough to off- Dnald Trumpvowed to construct a wall Tom Cotton ofArkansas and David Perdue set the population loss, but a significant in- along America’s southern border with of Georgia, would restrict the family route, crease in the share of immigrants in the Mexico to curtail illegal immigration. He which is sometimes referred to as “chain” city’s population. often gave one caveat: this “big, beautiful migration. Unveiled on February 7th, the Adrive round greaterDetroit’s vast web wall” would have a “big, beautiful door” bill would allow legal permanent resi- of roads and freeways shows that the for those entering the country lawfully. dents to sponsor their spouses or children growing immigrant population is making Now, though, fellow Republicans have be- under18 forresidency,but not more distant its mark. On Dearborn’s Ford Road sits gun arguing that the door for legal immi- oradultrelatives, asgreen-card holders can America’slargestmosque, the Islamic Cen- grants should be made smaller. now.It would also cap the number of refu- tre of America, with its golden dome and There are two main paths for immi- gees offered residency at 50,000 a yearand two slim minarets; it contains a school, li- grants to become legal permanent resi- stamp out the diversity lottery, which dis- brary and conference centre. Also in Dear- dents in America: work and family. A new tributes 50,000 visas a year to people from born is the country’s only Arab-American bill called the Reforming American Immi- countries that have low rates of immigra- museum, which chronicles the experience gration for Strong Employment (RAISE) tion to America. 1 of the new arrivals from the Middle East with displays such as the sewing machine an immigrant used to start a small sports- wear factory. Decades ago other groups preceded the Arabs, congregating—and building businesses—in Mexicantown in south-western Detroit and Greektown in the city centre. Three years ago Mr Snyder created the Michigan Office for New Americans, with the aim of attracting skilled and entrepre- neurial immigrants. The statistics are en- couraging. Immigrants create businesses at triple the rate of American-born residents. Between 2011and 2015, 63% of adult immi- grants to Michigan had a college degree. Immigrants still represent only 6% of the state’s population, but 33% of high-tech firms created there between 1990 and 2005 have atleastone immigrantfounder. Many ofthem setup shop in newlytrendydown- town Detroit. Signs abound that Detroit has turned the corner, at least in the downtown and midtown neighbourhoods. Opposite Cad- illac Place are the offices and workshop of Shinola, a trendy maker of expensive watches and bikes, which Tom Kartsotis Proud to become an American The Economist February 18th 2017 United States 25

Remainers Howard Johnson’s United States, new legal permanent residents, m How HoJo lost its mojo 2.0 Legalisation of unauthorised LAKE GEORGE, NEW YORK immigrants The last outpost ofa once-great restaurant chain is forsale 1.5 Quota systems OES HoJo still serve fried clams?” ies, which was delivered to the restau- adopted 1.0 “Dasked a Howard Johnson’s pa- rants forfinal cooking. The large menu tron, using the nickname forthe restau- included 28 ice-cream flavours, tender rant chain. He recently ate there for the sweet Ipswich fried clams and butter- 0.5 first time in nearly 40 years. Backthen, grilled “frankforts”. “HoJo” could be found on almost every Mr Johnson tookfood quality serious- 0 highway and byway and felt as ubiqui- ly, spending 48% ofhis gross revenue on 1820 50 1900 50 2015 tous as McDonald’s or Starbucks are food (Chipotle, a present-day food chain, Fiscal years today. At its height in the 1970s, Howard which prides itselfon using fresh pro- Source: Migration Policy Institute Johnson’s had more than1,000 restau- ducts, spends only 35%). In1960 he hired rants and was the biggest food chain in chefsfrom Le Pavillon, then the finest 2 From 1990 to 2015 an average of1m peo- America. Only the army fed more people. restaurant in New YorkCity.One, Jacques ple became legal residents each year in Now,only one is left. The last one stand- Pépin, turned down an offerto be Presi- America—up from an average of 532,000 ing is in Lake George, a summer tourist dent Kennedy’s White House chef.Food between 1965 and 1990 (see chart). Accord- spot in New York’s Adirondacks. quality was part ofthe chain’s appeal, as ing to the Migration Policy Institute, during Howard Deering Johnson, the chain’s were affordability and reliability.Before the past decade between 60% and 70% of founder, started his food empire in1925 Howard Johnson’s, travellers found only lawful permanent immigration has been with an ice-cream shop outside Boston. greasy spoons and truckstops which family-based. Messrs Cotton and Perdue He was an early pioneer offranchising. At were not family-friendly.A Howard estimate that the RAISE Act would reduce one point in the1960s, a new restaurant Johnson’s meal was affordable glamour the number of legal immigrants by nearly opened every nine days. Growth coincid- for the growing middle-class. The wait- 40% in its first year and 50% by its tenth ed with the rise ofthe car, the highway resses wore uniforms designed by Dior. year. Doing so, according to Mr Cotton, system, the middle class and family But its reputation slipped in the1970s. would promote higherwagesfor“all work- holidays. Each franchise had to adhere to Food quality diminished. The brand ingAmericans—whetheryourfamilycame the “Howard Johnson’s Bible”, which became synonymous with bland, says over here on the Mayflower or you just dictated everything from decor to the Paul Freedman, author of“TenRestau- tookthe oath ofcitizenship.” amount oftartare sauce; and each had to rants that Changed America”. People Roy Beck, the founder of NumbersUSA, use food prepared by central commissar- began to joke that Howard Johnson’s a group that advocates reduced immigra- ice-cream came in 28 flavours and its food tion, applauds the bill, which he says will in one. It had difficulty competing with allow the labour market to tighten. He says fast-food chains, which imitated its busi- dry-wallers, roofers and other low-skilled ness model while stripping it down (no workers frequently write to him complain- real kitchens or wait staff). ingthattheywere edged outofworkby im- In1979 the Johnsons sold the com- migrants willing to accept lower wages. pany.It changed hands several times. The Critics say there is no evidence that immi- motel-lodge arm ofthe company still gration harms native-born workers on the exists, now owned by Wyndham Hotels. whole, and studies show that immigration The restaurant franchises formed their has a positive effect on labour-market out- own networkfora spell, but one by one comes in the long term. To that Mr Cotton they closed. responds: “Only an intellectual could be- John LaRockleases and runs the last lieve somethingso stupid. The laws of sup- Howard Johnson’s restaurant. It still has ply and demand have not been magically its orange-tiled roof, and the weather suspended.” vane with the old Simple Simon and The notion of curtailing legal immigra- pieman logo. Mr LaRockworked in the tion has lurched in and out of mainstream same kitchen in the1970s and, though the political debate in America for the past property is forsale, he has no intention of century. It was popular in the 1920s, in the closing. He hopes to buy it, and add a gift wake of an earlier surge in immigrant shop to sell HoJo paraphernalia: “People flows, and inspired the enactment of two Last but not least love that stuff.” restrictive laws: the Emergency Quota Act of 1921 and the Immigration Act of 1924, which together established a quota system his support. tion. Stephen Miller, who was once Mr Ses- based on national origins. Another effort The RAISE Act is also unlikely to prevail; sions’s communications director and now to reduce legal immigration came in the two prominent Republican senators, Lind- advises Mr Trump, seems to share his old 1990s, after three decades of elevated im- sey Graham and John McCain, have ex- boss’s attitudes. Mr Trump’s own rhetoric migration. In 1995 Bill Clinton initially en- pressed opposition to it, along with their on legal immigration is ambivalent. He has dorsed a bipartisan congressional com- Democratic colleagues. But even if the leg- both called for the “big, beautiful door” mission’s suggestion to slash legal islation flops, the ideas it promotes will and, in a policy speech before the election, immigration by a third, but the push for a have powerful advocates in Washington. said he wants “to keep immigration levels law that would have cut family-chain mi- JeffSessions, Mr Trump’sattorney-general, measured by population share within his- gration failed after Mr Clinton withdrew has long championed reduced immigra- torical norms.” 7 26 United States The Economist February 18th 2017 Lexington NAFTA on notice

The view from a midwestern county that relies on free trade, but loves Donald Trump sin, car-parts companies that come from France and Japan, re- spectively. With a jobless rate at 3.2%, the town enjoys what econ- omists deem full employment. Its centre, while not exactly bustling, is home to popular businesses such as Larrison’s, a din- er, the Bite the Bullet gun shop, and the clubhouses of fraternal or- ders including the Knights of Columbus and the Elks. Seymour is about 85% white, though its Hispanic population has more than doubled in a decade, as migrants from Guatemala and other countries filled low-paid jobs in industries like egg-processing. From the outside, Seymour is navigating a globalised age rea- sonably well. Nonetheless it swooned before Mr Trump, and his dystopian talk of trade bringing “carnage” to America. In 2012 Jackson County, of which Seymour is part, gave the Republican presidential candidate, the stiffly patrician Mitt Romney, 62% of its votes. In 2016 the county swung hard to Mr Trump, giving the NAFTA-bashing populist 73%. Mr Gambrel suggests that Seymour was ready to take a gam- ble: “People were tired, they wanted change.” Asked if he fears that Trumpian brinkmanship may imperil his job, the engine- makershrugs. “Trade dealscome and go. There probablyisa price to pay,” he says. “But I’m far enough away that I’m insulated. And OR too long American workers have been ignored, President the press blows everything out of proportion.” As for the Mexi- FDonald Trump declared on February 13th, as he promised to can components that Mr Gambrel installs, he would like to see “tweak” trade relations with Canada and to transform an “ex- them made in America. At root he trusts Mr Trump: “The man’s a tremely unfair” relationship with Mexico. Flanked by the Cana- billionaire, he’s made some shrewd moves.” dian prime minister, Justin Trudeau, Mr Trump made plain that Another Cummins worker, Lew Findley, concedes that cheap- he stands by a campaign pledge to rewrite the North American er Mexican components may save some American jobs. But still Free Trade Agreement (NAFTA), a 23-year-old pact underpinning his hunch is that workers like him are safer under President trade between Canada, Mexico and the United States. Trump, who he feels shares his values on other questions, from Demonising NAFTA helped Mr Trump to the presidency. But guns (good) to abortion (bad). Seymour’s Republican mayor, in reality millions of American jobs are supported by that pact. Craig Luedeman, says that issues such as gun rights and immigra- One of them belongs to Chris Gambrel, who builds vast diesel tion explain much of Mr Trump’s support. But unlike the Cum- engines in Seymour, Indiana. It would be odd to think of Mr mins workers, the mayor fears what a trade war could do to his Gambrel, a skilled and brawny employee of Cummins, an en- city: “We’re not in a regional economy any more, we’re global.” gine-maker, as ignored or “forgotten”. He is proud of the “world- class” engines that he produces: 95-litre behemoths powerful America First is a hard sell outside America enough to pull a cargo train. Three-quarters ofthem are exported Tom Linebarger, the chairman and CEO of Cummins, has a simi- to foreign customers forup to $1m apiece. lar message forhis 55,000 worldwide employees, ofwhom more Free-trade rules, notably those provided by NAFTA, helped than 25,000 are in America. “Our jobs overwhelmingly exist be- persuade Mr Gambrel’s bosses to build the giant engines in Sey- cause of trade,” says Mr Linebarger in an interview at his new of- mour, ratherthan ata Cumminsplantin India which almost won ficesin Indianapolis. Salesin 190 countriesmake the firm less vul- the work. America offered lower shipping costs and less red tape nerable to local downturns than it once was, he argues. But the when exporting the engines, and—vitally—lower and fewer cus- flipside of selling to so many countries is that a global company toms duties when components are imported from cost-effective cannot simply manufacture in one place and export products suppliers around the world. Add on quickaccess to American en- from that hub, as some mercantilists would like America to do. In gineers, and the Midwest was the most competitive site. MrGam- part, that is because local market conditions must be understood brel’s job involves installing cylinder-heads made in Mexico, a on the ground. But Mr Linebarger makes a subtler point: other taskhe carries out with a surgeon’s care. countries worry about their own workers, too. “If your deal is, I Elsewhere at the Seymour plant, which employs 1,300 work- am good with exports but not with imports, generally speaking ers, whole assembly lines are kept profitable by supply chains most people won’t strike that deal with you.” that run to and from Mexico, a manager says; one of the lines “re- Asa multinational CEO, MrLinebargerknowsboth greatpow- manufactures” 16-litre engines from parts stripped, cleaned and er and the anxiety such power provokes. Every time he visits a repaired at a Cummins plant in Ciudad Juárez. Experienced Cummins facility somewhere in the world, whether in a devel- workers in Seymour can earn $28 an hour or more. Cummins oping or mature economy, employees “are all worried I am going pays up to $7,000 a year for employees to study for college de- to close theirplant,” he relates. Defenders ofan open global order grees. The manager proudly notes that in ten years he can count are learning that two hard tasks must be tackled together: trade hourly workers who left oftheir own accord “on one hand”. must be made to work, and workers must be convinced that they Nor is the rest of Seymour really overlooked—certainly when have a place in today’s economy. Towns like Seymour—luckier compared with the bleakest bits of the midwestern rustbelt. In than many, yet still willing to risk everything on a trade-bashing addition to Cummins, steady jobs are provided by Valeo and Ai- president—are a living reminder ofhow much is at stake. 7

28 The Americas The Economist February 18th 2017

Also in this section 29 Bello: A Peronist on the Potomac 30 Trudeau meets Trump 30 Putting the “vice” into vice-president

Ecuador’s elections cise his unchecked power. Ecuadoreans will find themselves tighteningbelts rather After the whipping than waving them. By the standards of left-wing Latin American leaders, Mr Correa has not fared badly. Some $300bn flowed into govern- ment accounts during his presidency from QUITO oil revenues, higher taxes and fresh bor- UnderRafael Correa living standards rose. But he governed with a heavyhand and rowing. He used some ofthatto build “21st- leaves a lot ofproblems forhis successor century socialism”, which in practice HEN Rafael Correa first ran for Ecua- year during his three-year stint as the UN’s meant splashing out on roads, schools, Wdor’s presidency in 2006, supporters special envoy for disability (he has used a clinics and social housing. Social spending at his rallies brandished belts in homage to wheelchair since he was mugged in 1998) doubled as a share of GDP between 2006 their candidate, whose surname means plus $3.9m in travel expenses while he was and 2012; the minimum wage went up “belt” or “strap”. “Dale correa,” or “give vice-president. If Mr Moreno falls short, a sharply. MrCorrea did not strangle growth them a whipping,” the crowds roared. It president from right ofcentre could bring a and spur inflation with price controls, as was a demand to punish what they regard- decade ofcorreísmo to an end. Hugo Chávez and Nicolás Maduro did in ed as the corrupt elites who had governed Whatever the outcome, Ecuador’s 16m Venezuela. Ecuador’s adoption of the dol- Ecuador since the return of democracy in people face greater uncertainty. The halv- lar in 2000, after its currency collapsed, 1979. Mr Correa promised he would. He ing since 2014 of the price of oil, the coun- contained Mr Correa’s radicalism. won that election and then two more. His try’s biggest export, has pushed the econ- Between 2006 and 2011 Ecuador had presidency brought a rare spell of political omy into recession and widened a hole in the world’s most “inclusive” economic stability. Living standards rose and public the budget (see chart). Alianza PAIS, the growth, according to ODI, a British think- services improved. But few would say that “movement” Mr Correa created, may re- tank; incomes of the poorest 40% of Ecua- he kept his promise to clean up govern- tain its legislative majority in the elections, doreans grew by eight times the national ment. This year’s national elections, which but probably as a weakened force. Ecua- average. The poverty rate, which started begin on February 19th, are shrill with ac- dor’s next president will not be able to af- falling in the early 2000s, came down fur- cusations ofcorruption. ford MrCorrea’slargesse and maynotexer- ther, from nearly 40% in 2006 to less than Mr Correa, who has a respectable ap- 23% in 2016. proval rating of 42%, is not a candidate. He But Mr Correa’s spree left the economy is counting on Lenin Moreno, a former Correa’s corrosion vulnerable. Government spending dou- vice-president, and his running mate, Jorge Ecuador bled to a peakof44% ofGDP in 2014. Public Glas, the currentvice-president, to carry on GDP Budget balance debt has trebled to more than 50% of GDP % change on a year earlier As % of GDP his “citizens’ revolution”. Mr Moreno, who 9 9 since the global financial crisis. Having de- shares his alarming first name with 18,000 faulted on its debt, Ecuador pays close to other Ecuadoreans, hopes to win in the 6 6 double-digit rates to borrow, largely from first round by capturingthe bulkofMr Cor- Chinese lenders. Mr Correa is trying to re- rea’s support and adding to it. To do that he 3 3 place lost oil revenue with foreign invest- + + must get more than halfthe votes or, failing 0 0 ment but the climate is forbidding. In the that, at least 40% with a gap of ten percent- – – World Bank’s ranking of 190 countries by age points over his nearest rival. 3 3 ease of doing business, Ecuador ranks That may not happen. Although Mr 114th. The recession is beginning to hurt or- 6 6 Moreno is ahead in the polls, he has been 2007 08 09 10 11 12 13 14 15 16* dinaryfolk. Employmentfell by244,000 in hurt by revelations that he sought from Ec- Source: IMF *Estimate 2016 and the poverty rate is edging higher. uador’s government a budget of $1.6m a Ecuadoreans paid a high price for mate-1 The Economist February 18th 2017 The Americas 29

2 rial progress in the form of creeping au- traffic have closed. Odebrecht, a Brazilian from angeratMrMoreno’slavish spending thoritarianism and continued corruption. construction firm that bribed officials and accusations of corruption levelled at Campaigning in 2006 Mr Correa vowed to across Latin America, paid $33.5m to Ecua- MrGlas. One allegesthathe tookkickbacks “depoliticise the courts”. In effect he seized doreanofficialsbetween2007and2016, ac- in connection with a hydroelectric-dam control ofthem. Acommission led by a for- cording to the United States Department of project. He denies wrongdoing. mer interior minister disciplines and often Justice. Mr Correa has said that his name, Mr Moreno is promising voters a softer- removes judges. Mr Correa made war on a and that of Mr Glas, are likely to appear on edged correísmo. He entices them with critical press. He set up a regulator that ha- the Justice Department’s list of officials budget-busting promises to treble a cash rasses newspapers and radio stations by bribed by Odebrecht, but insists that is part benefit for the poor to $150 a month, raise levying fines, often for such lapses as fail- ofan American plot to undermine him. pensions and build “housing for all”. If he ing to cover a mayor’s speech. It is MrCorrea’s failures, not his success- fails to win in the first round, the anti-Cor- His building programme produced es, that are setting the tone for the elec- rea vote, now split among seven candi- backhanders and white elephants as well tions. Votersare mostworried aboutthe re- dates, may coalesce around the other sur- as useful infrastructure. New and rebuilt cession and the rise in unemployment. vivorofthatballot. The leadingcontenders airports which failedto attract commercial Much of the heat in the campaign comes have promised to undo much of Mr Cor-1 Bello A Peronist on the Potomac

Donald Trump through Latin American eyes PRESIDENT is swept into office after ism, that its best interests are served by co- Awhippingup a wave ofgrievance and operation with the United States and a resentment. He claims to represent “the liberal world order. “We could all hang people” againstinternal exploitersand ex- our hats on free trade, free markets and ternal threats. He purports to “refound” macroeconomic stability in part because the nation, and damns those who preced- the United States believed in it, both the ed him. He governs though confrontation Democrats and Republicans,” says Luis and polarisation. His language is aggres- Alberto Moreno, the president of the In- sive—opponents are branded as enemies ter-American Development Bank. “Now or traitors. He uses the media to cement there are protectionist forces in the world, his connection with the masses, while and that resonates in the region.” bridling at critical journalism and at re- One response is for Latin America to buffs to executive power. His policies fo- seek other partners. Though interest in cus on bringing short-term benefits to his deeper ties with Europe (both the Euro- political base—hang the long-term cost to pean Union and Brexit Britain) is reviving, the country’s economic stability. China is the main hope. It is already a big Donald Trump? Yes, but these traits trade partner and is investing in infra- come straight from the manual of Latin dent as a drug kingpin (an allegation Mr structure in the region. But Latin America American populist nationalism, a tradi- Maduro called “baseless”). Guillermo Mo- exports raw materials to China and im- tion that stretches from Argentina’s Juan reno, the former official entrusted by Ms ports its cheap manufactures. That does Perón to Venezuela’s Hugo Chávez and Fernández with producing Argentina’s sta- less for its economic development than beyond. Yes, Mr Trump is a billionaire tistics, has identified “a Peronist” in Mr does its more diversified trade with the capitalist whereas Chávez was an anti- Trump, “who is trying to do what we did”. United States, according to research by capitalist army officer. But populism is not It is not just Mr Trump’s assault on Mex- the World Bank. synonymous with the left: conservatives ico’s economy and national dignity, with The best response to Mr Trump would such as Peru’s Alberto Fujimori used its his threats to tear up the North American be for Latin American liberals to have the techniques, too. “Post-truth” politics and Free Trade Agreement and to build a bor- courage of their convictions. They should “alternative facts” have long been de- der wall, that Latin Americans have to deal keep their economies open and carry out ployed in Latin America, from Mr Fuji- with. The bigger question for the region is several tasks they have neglected. These mori’s use of tabloid newspapers to what Mr Trump represents in the battle of include building more infrastructure and smear opponents, to Chávez’s imaginary political ideas. The risk is that he may re- fostering more regional integration, coups and Cristina Fernández de Kirch- legitimise populist nationalism just when which the populists undermined by turn- ner’s fake inflation statistics in Argentina. it was waning south of the border. That is ing it into a political slogan rather than a So when they contemplate Mr especially so in Mexico, where Andrés Ma- business reality. Trump’s first few weeks in the White nuel López Obrador, who heads opinion Latin American experience teaches House, many Latin American liberal polls for the 2018 presidential election, that populists are easily underestimated democrats think they’ve seen this movie now talks of “the fatherland first”. Even and can stay in power for a long time. But before. And they know it usually ends Chile may not be immune: Alejandro Guil- notforever. Populistregimesare often cor- badly. Some ofthe continent’s own popu- lier, a former television presenter who rupt and spendthrift, and usually fail to lists, by contrast, recognise Mr Trump as a boasts ofa special bond with “the people”, make people better off. Whatever the ex- kindred spirit. Nicolás Maduro, Chávez’s has a chance in an election in November. ample from the White House, Latin dictatorial successor, criticised a “hate Mr Trump is helping to make life more American history shows that populist na- campaign” against Mr Trump—though difficult for those in Latin America who tionalism is a recipe for national decline. that was before the United States this have argued, in the face of the region’s in- That is the message liberals need to ham- week blacklisted Venezuela’s vice-presi- stinctive nationalism and anti-American- mer home. 30 The Americas The Economist February 18th 2017

2 rea’s legacy. They agree on the need to re- Venezuela store judicial independence, strengthen human rights and curb the budget deficit. Miami vice The likeliest candidate to join Mr More- no in the second round is Guillermo Lasso, a conservative banker from the coastal city of Guayaquil who was runner-up in the 2013 presidential election. Though his foes CARACAS brand him an out-of-touch plutocrat, he The blacklisting ofa vice-president sees himself as a challenger to old-style businessoligarchsfrom hishome town. He HE statement by the United States Trea- has promised to eliminate red tape and to Tsury Department was blunt. It alleges cut taxes by $3bn, which may clash with that Tareck El Aissami, Venezuela’s vice- his plans to shrinkthe deficit. president, is a “prominent” drug trafficker, His rivals for a second-round spot in- who amassed great wealth through his clude Cynthia Viteri, the nominee of the connectionsto gangsacrossLatin America, centre-right Social Christian Party, which including Mexico’s vicious Zetas. Among represents Guayaquil’s elite. The anti-Cor- the now-frozen American assets linked to rea left has united around Paco Moncayo, a him are three lavish apartmentsin the Four formermayor ofQuito. Seasons complex in Miami and a Gulf- Opposition parties failed to present a stream jet. If the allegations are true, Mr El unified list in elections to the national as- A good hombre, apparently Aissami’s carefully cultivated image as a sembly, increasing the chances that true believer in the socialist ideology of Alianza PAIS will retain control. That could da’s exports. American protectionism Venezuela’sgovernment is just a cover. make it harder for the next president to en- could trigger an economic crisis and politi- Asnormallyhappenswhen any outsid- act reforms, especially if it is not Mr More- cal turmoil north ofthe border. er accuses anyone in the Venezuelan re- no. Mr Correa is leaving the scene, at least Canadian planning for the meeting gime of wrongdoing, the country’s leaders for now. His belt-brandishing style of poli- went beyond combing the archives for a have closed ranks. The foreign ministry ac- tics may not. 7 flattering photo. Mr Trudeau revamped his cused the United States government of cabinet last month to take account of the committing“an international crime”. MrEl new reality in Washington. Chrystia Free- Aissami himself denounces the allega- NAFTA land, a former journalist who has worked tions as untrue, “miserable and vile”. in the United States and knows many of But rumours of malfeasance have Canada calls the decision-makers, replaced the cerebral swirled around the dapper politician since butbrusque Stéphane Dion asforeign min- he came to prominence under President ister. Before the summit Mr Trudeau dis- Hugo Chávezin the early2000s. He wasin- patched his foreign, finance and defence terior minister, and then governor of the ministers to Washington. coastal Aragua state. Defectors accuse him OTTAWA Canadians do not enjoy watching their of running his own intelligence agency to prime minister pay court to Mr Trump. intimidate his enemies. They say proceeds Justin Trudeau charms Donald Trump Nearly 75% think he will be a bad presi- from drug trafficking have smoothed his IVE Justin Trudeau credit foremotional dent, according to a poll published last advance, which culminated in his appoint- Gintelligence. Paying his first visit to month. The New Democrats, an opposi- ment, at the age of 42, to the vice-presiden- Washington after Donald Trump took of- tion party,urged the prime minister to cas- cy in January. Venezuela’s current presi- fice, on February 13th, the Canadian prime tigate Mr Trump for his ban on refugees dent, Nicolás Maduro, gave him sweeping minister brought his host the perfect gift: a (some of whom have crossed into Canada decree powers to oversee ministries’ photograph of the president in his youth to claim asylum). Mr Trudeau held his ton- spending and expropriate private firms. with Mr Trudeau’s father, Pierre, a glamor- gue, but preserved Canadian dignity by MrEl Aissami isnotthe firstVenezuelan ous prime minister of the 1970s. The subtle hinting at his disagreement with Mr official to be branded a drug trafficker. In caress of Mr Trump’s vanity seemed to go Trump’spolicies. August 2016 an American court indicted down well. Mr Trudeau went home with This artfulness seems to be working. Mr Néstor Reverol, a former head of the anti- Mr Trump’s promise that Canada has little Trump declared America’s trading rela- narcotics agency, for taking money from to fear from his plan to renegotiate the tions with Canada to be “outstanding” drug gangs. The day after the indictment North American Free Trade Agreement (while those with Mexico remain “ex- was made public, Mr Maduro made him (NAFTA), which gives Canada, Mexico and tremely unfair”). Tweaks to NAFTA,he interior minister. The army, which pledges the United States preferential access to said, “will benefit both our countries”. support to Mr El Aissami, has been ac- each other’s markets. Knowing he prefers bilateral deals, some cused by human-rights groups of large- Before the meeting, the Canadians analysts think he may replace NAFTA with scale corruption. were nervous. Mr Trump’s repeated separate accords with Canada and Mexico. American officials say that the sanc- threats either to renegotiate NAFTA or to The bonhomie could disappear when tions against Mr El Aissami are the result of rip it up were aimed almost entirely at Mr Trumpdefines his policies more clearly. a “years-long investigation” and do not Mexico (which, unlike Canada, has a big He wants a “buy American” programme, necessarily indicate a change of policy to- trade surplus with the United States). Yet which could discriminate against Canadi- wards Venezuela under the new adminis- Canada has almost as much to lose if the an exporters. A “border-adjustment tax” tration. Donald Trump called for the re- United States rescinds the 23-year-old on imports, part of a proposed corporate- lease of a prominent political prisoner on agreement or demands one-sided revi- tax reform, could reduce Canada’s GDP by February15th. The blacklistingofMrEl Ais- sions. The value of Canada’s trade world- 1%, reckons the C.D. Howe Institute, a sami is unlikely to moderate the regime’s wide is equivalent to 65% of its GDP; the think-tank. That would be poor thanks for ferocious crackdown on the opposition. United States buys three-quarters of Cana- Mr Trudeau’s gift. 7 But it hardly reflects well on the regime. 7 Asia The Economist February 18th 2017 31

Also in this section 32 North Korea tests another missile 32 Cambodia’s endangered opposition 33 98% of the vote in Turkmenistan 33 A slim lead for tolerance in Indonesia 34 Taiwan and the one-China policy 35 Reforming Japan’s peculiar army 36 Banyan: Red v green in Vietnam

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The Kim family with his half-brother. It is possible that Jong Nam was in- Half-brotherly love volved in financial dealings that Jong Un wanted to wind up. Some suspect he was laundering money through Macau’s casi- nos. Mr Madden says he had ties with Of- fice 39, a department that seeks foreign in- TOKYO come for the Kim regime through illicit means. More likely, however, is that Jong An inconvenient relative ofNorth Korea’s despot is murdered in dramatic style Nam simply irritated his half-brother by HE last time Kim Jong Nam made the Kim Jong Nam was not visible at his fa- criticising him. Mr Gomi quoted him as Theadlines he was also at an airport, ther’s funeral. He was known in recent saying Jong Un would “not last” as leader. travelling under a false name. In 2001 “Fat years to have been living in exile in Macau, Around the same time his son called the Bear”—the Chinese alias used by the son of a semi-autonomous enclave within China. North Korean regime a “dictatorship” on a North Korea’s leader at the time, Kim Jong Since the 30-something Kim Jong Un Finnish talkshow. Given thatNorth Korean Il—wasarrested afterarrivingin Tokyo on a came to power, he has consolidated power officials have been executed for slumping forged Dominican Republic passport, on by executing about 140 senior officials, in their chairs at meetings, such comments his way to Disneyland. This time it was most notably his uncle and security chief, would surely qualify as capital offences. “Kim Chol” who was waiting for a flight Jang Song Thaek. Yet exile had typically JongNam wasthoughtto have been un- from Kuala Lumpur to Macau on February been the fate ofmembersofthe Kim family der the protection of the Chinese security 13th when two women assumed to be who had fallen out of favour. Kim Jong Il’s services. China’s government, which had North Korean agents attacked him. He is half-brother, Kim PyongIl, was sent abroad had good relations with Jang, is bound to said to have died on his way to hospital. on never-ending diplomatic service, for in- be irked by the murder of yet another pro- As The Economist went to press, the re- stance. (Jang was not a blood relative of tégé. Kim Kwang Jin, a defector who once sults of an autopsy had not yet been re- Jong Un, unlike Jong Nam.) Some say Jong worked in North Korea’s “royal court” leased. Rumours suggest that Mr Kim was Nam was sidelined by Jong Un’s mother economy, says that even if rumours that poisoned, with a needle, spray or toxic and her family long before his Disneyland China had hoped to install Jong Nam if cloth to the face. Malaysian police said disgrace. As a political irrelevance, he had Jong Un fell from power are far-fetched, they thought sixpeople had been involved seemed likely to survive Jong Un’s purges. China would nonetheless have seen Jong in the attack; they have detained two Nam as useful leverage. women and one man, travelling on Viet- The Macanese candidate North Korea frequently irks China, namese and Indonesian passports. Wild rumours had circulated in the South however, without changing its apparent The 45-year-old Mr Kim had once been Korean press that Jong Nam had conspired conclusion that a violent nuclear dictator- Kim Jong Il’s favourite son: witnesses de- against his brother with Jang. Jong Nam ship makes a better neighbour than a uni- scribed a 10,000-square-foot playroom had been close to Jang, who was his escort fied Korea packed with American troops. filled with toys. Before each birthday, during his school days in Switzerland. But The timing, hard on the heels of a North North Korean diplomats would be sent on Michael Madden, who runs “North Korea Korean missile test (see next story), is prob- a month-long hunt for exotic presents. A Leadership Watch”, a blog, says tales of fra- ably coincidental. North Korea had been cousin ofhis who defected in 1982 said that ternal hostility have been overdone. Some trying to kill Jong Nam for some time, ac- Kim Jong Il would take his son to the grand sources say Jong Nam did in fact attend a cording to South Korea’s spooks: a North halls of state and say, “Jong Nam, this is private family funeral for his father in Korean spy jailed by South Korea in 2012 al- where you’ll be able to talkbig one day.” Pyongyang, the North Korean capital. Yoji legedly confessed to planning a hit-and- But in the end it was Kim Jong Il’s third Gomi, a Japanese journalist with whom run on him in China. And given how little son, Kim Jong Un, born to his second wife JongNam exchanged 100-odd e-mailsfrom clout he seems to have had in North Korea, and educated, like his half-brother, in Swit- 2004, quoted him in a book in 2012 as hav- there is no hint that his murder is a sign of zerland, who succeeded theirfatherin 2011. ing said that he wanted to “co-operate” turmoil within the regime. 7 32 Asia The Economist February 18th 2017

North Korea tests another missile nental missiles capable ofcarryingnuclear able, perhaps by next year, the chances of warheads. At first, South Korean officials success would be low. Got a rocket in monitoringthe launch said the missile was So too is the likelihood of diverting either a modified version of the Nodong, North Korea diplomatically. The day after your pocket first deployed more than a decade ago, or the testthe UN SecurityCouncil did what it the 3,000km-range Musadan, possibly usually does, deploring the launch and equipped with a solid-fuel rocket motor. calling fora redoubling ofefforts to enforce The Musadan was tested eight times last existing sanctions. These include mea- year, though only once successfully. sures aimed at cutting North Korea’s ex- Kim Jong Un challenges Donald Trump North Korea’s official newspaper said ports of coal and metals, which were F NORTH KOREA’S test of a ballistic mis- the missile had used solid fuel, and identi- passed in November after a nuclear test. Isile on February 12th was intended as a fied it as the Pukguksong-2. According to But until China decides that the dangers of provocation, Donald Trump, unusually, John Schilling, an analyst who writes for its exasperating neighbour’s nuclear pro- failed to take the bait. For once, the presi- the website 38 North, it looked very similar gramme outweigh those that might follow dent’s Twitter account stayed silent. When to the submarine-launched missile North the collapse of his regime, Mr Kim will not Mr Trump was given the news, he was en- Korea successfully tested in August be deterred. Mr Trumppromised on Febru- tertaining Japan’s prime minister, Shinzo (known in the West as the KN-11and by the ary13th to deal with the “big, big” problem Abe, at Mar-a-Lago, his resort in Florida. In North Koreans as the Pukguksong-1). Mr ofNorth Korea “very strongly”. But as ever, a joint appearance, Mr Abe described the Schilling estimates that it has a range of the options are dismal. 7 launch as “absolutely intolerable” and de- 1,200km, based on the trajectory ofthe test manded that North Korea should comply launch—enough to reach the whole of with a raft of UN Security Council resolu- South Korea and much ofJapan. Cambodian politics tions that have so far done little to restrain More important than its range are its its missile and nuclear programmes. Mr greater mobility,durability and ease of use One down, 54 Trump did not refer to the missile test di- compared with liquid-fuelled missiles, rectly, but pledged that America would such as the Nodong. Solid-fuel missiles do to go stand “100%” behind “its great ally” Japan. not have to travel with a retinue of tankers The statement was far more measured carrying propellant, and they can be KANDAL than some of his previous pronounce- launched at five minutes’ notice, against A leading opposition figure steps down, ments on North Korea. After Kim Jong Un, the hour required to prepare the Nodong. but the regime keeps harrying the rest the country’s leader, gave a bombastic Michael Elleman, a missile expert at the New Year address in which he boasted of International Institute for Strategic Studies T A wedding in the southern province being in the “final stages” of preparations (IISS), is surprised by the speed with which Aof Kandal, the resignation of Sam to test-launch a missile with the range to the North Koreans have developed a pow- Rainsy, the country’s longtime opposition threaten America, Mr Trump tweeted erful solid-fuel motor. He thinks it possible leader, is announced in passing by a teen- back: “It won’t happen!” Mr Trump’sretort that they have acquired the engines illicitly ager scrolling through Facebook. The ap- suggested that any such attempt would be from either China or Russia. A further con- parent departure of a figure who has been met with a military response. cern is that the Pukguksong-2 was fired central to Cambodian politics for 20 years The missile tested on Sunday may not from a transporter-erector-launcher vehi- created a kerfuffle among Cambodia- have crossed Mr Trump’s red line (it fell cle with tracks like a tank, rather than watchers when it emerged this week. The into the Sea ofJapan, some 500km from its wheels, giving it the ability to move be- wedding guests simply shrug. launch site). But it was indicative of North yond North Korea’s limited road network. The apathy reflects the disconnect be- Korea’s rapid progress towards developing Mr Schilling concludes that the Pukguk- tween Mr Sam Rainsy, who describes him- medium-range and, eventually, interconti- song-2 would be much harder to find and self as the “national and international destroy than other North Korean missiles. symbol of resistance” to Cambodia’s au- When North Korea comes to testing a thoritarian government, and the country missile with the range to hit America, it is from which he has been absent since 2015 likelyto use liquid fuel, since that isan easi- in order to avoid arrest on various charges. er technology to master. Even so, keeping As local elections approach in June, with Mr Trump’s pledge to prevent such a test parliamentary elections looming a year would be far from straightforward. One on, this cosmopolitan former banker cam- approach would be to try to destroy North paigning from Paris was always going to Korean missile bases pre-emptively. Earlier struggle to energise the provinces. this month the commander of American Cambodia’s strongman prime minister, forces in South Korea, General Vincent Hun Sen, had threatened a week earlier to Brooks, called for greater capability to do teach MrSam Rainsy “a lesson”. The courts just that. However, as Mark Fitzpatrick, had already convicted him in several du- also of the IISS, points out, South Korea bious cases. Next the ruling Cambodian would bear the full brunt of the North’s re- People’s Party (CPP) drafted a law that taliation. Convincing it that a shower of would allow the authorities to dissolve missiles on Seoul was a fair exchange for any party led by someone convicted of a protecting America from a notional threat crime. MrSam Rainsysaid he wasstepping would not be easy. down to avoid the dissolution of his Cam- Another approach would be to try to bodia National Rescue Party (CNRP), the destroy the long-range missile early in its only credible opposition. flight using interceptors fired from a naval But the CPP is pressing on with its plans vessel. But Mr Elleman warns that until the to amend the election law, adding a vague much faster and more capable version of clause that would allow the closure of par- Off the roads, on a roll America’s SM-3 interceptor becomes avail- ties that foment “disunity” and a rule ban-1 The Economist February 18th 2017 Asia 33

Presidential elections in Turkmenistan ing to unofficial results. This means the election will be decided by a run-off on April 19th. Ahokwill face Anies Baswedan, Protection racket a former education minister, who had ALMATY been trailing in early polls but ended up taking 40% of the vote. Agus Yudhoyono, The incumbent wins 98% ofthe vote the son of a former president, got just 17%. HERE are no darkhorses in elections He is now out ofthe race. Tin Turkmenistan, only stalking horses. Speaking at his ramshackle campaign The country was a one-party state until headquarters in a leafy neighbourhood, 2012 and the presidential election held on Ahok vowed to fight on. He will have to February12th was the first to feature campaign vigorously to win the run-off. candidates from rival parties. But a mul- Many Jakartans approve of his urban-re- tiplicity ofparties, alas, is not the same as newal schemes, but Islamists are not his a meaningful opposition. In a nine-way only detractors: many oppose the evic- race, the incumbent, Gurbanguly Berdy- tions of slum-dwellers that his infrastruc- mukhamedov (pictured), took98% ofthe ture schemes necessitate. Marcus Mietzner vote. That was an improvement on 2012, of the Australian National University reck- when he pulled in a mere 97%. ons that Ahokwill struggle to woo Mr Yud- Mr Berdymukhamedov,a former hoyono’s voters, given the “extreme acri- dentist who styles himself“Arkadag”, the mony” between the two camps. “Protector”, threw himselfinto the cam- Ahok had been deputy governor, but paign, crooning a song ofhis own com- won an automatic promotion when his position to gas workers and doling out A one-horse race predecessor, Joko Widodo, known as Jo- televisions to herdsmen in the desert. He kowi, stood down to run for president in also repressed all dissent with “a concert- five to seven years, sparing Arkadag the 2014. He had therefore faced voters only as ed campaign ofharassment against civil bother ofcampaigning again until 2024. Jokowi’s running-mate, during the previ- society activists and journalists”, accord- That is just as well: rather than the ous election for governor in 2012. Ahok’s ing to three human-rights groups. “Era ofSupreme Happiness” that Mr re-election had seemed assured until Sep- Mr Berdymukhamedov has held Berdymukhamedov promised at his tember, when he told a group offishermen power since the death ofthe previous previous re-election, he is presiding over that he understood some of them would eccentric dictator, Saparmurat Niyazov, in an era oflow prices forTurkmenistan’s notvote forhim because theyhad been de- 2006. He is 59—young by the standards of sole export, gas. Subsidies for utilities ceived into believingthat the Koran forbids Central Asian despots—and may remain may be cut, staple goods are in short them to vote fora Christian. president for life, after reforms passed last supply in some parts ofthe country and Islamists accused Ahok of denigrating year removed term limits and scrapped wages at state-owned firms are said to the word of God. They stirred up sectarian the requirement that presidential candi- have gone unpaid formany workers. outrage further by spreading a doctored dates be younger than 70. The reforms Humbler Turkmen, in short, do not have clip of the speech on the internet and also extended the presidential term from much to sing about. staged protests to press the authorities to arrest him. Prosecutors eventually charged Ahok with blasphemy. Since December he 2 ning donations from abroad, among other Elections in Jakarta has appeared in court once a week as the things. Both measures are aimed at the trial proceeds. CNRP, which is fiercely critical of the gov- Fighting fake news On the final day of the campaign, tens ernment and gets most of its funding from of thousands of people gathered at Jakar- Cambodian expatriates. ta’s largest mosque to hear preachers tell The hounding of the opposition is re- them it was God’s will that they cast their lentless. Kem Sokha, the CNRP’s acting ballot for one of the two Muslim candi- leader, has also been repeatedly dragged JAKARTA dates. The driving force behind the rally into court. Pro-CPP websites, meanwhile, was Rizieq Shihab, the fiery leader of the Voters plump fortolerance—by a hair have leaked recordings of senior CNRP Islamic Defenders Front (FPI), a vigilante members’ phone calls, fuelling suspicions ILLIONS of Indonesians went to the group. Outside the mosque, a giant banner of state-backed wiretapping. All critics of Mpolls on February 15th to elect local strung across a highway read “Arrest Ahok the government are frightened after the leaders, from Aceh in the west to Papua in the blasphemer”. Crowds posed beside murder last summer of Kem Ley, a political the east. Voters braved the floods and land- placards claiming that it is sinful for Mus- commentator; Mr Hun Sen fuels the fire by slides of the rainy season to cast their bal- lims to vote for a kafir, or infidel. Hawkers calling on them by name to watch out. lotsin a massive exercise ofdemocracy. But sold knick-knacks depictingMrShihab, the But even by the grim standards of Mr the day was dominated by the race for go- self-proclaimed “imam besar” (supreme Hun Sen’s 32-year rule, his latest efforts to vernor of Jakarta, the capital, which had leader) ofall Indonesia’s Muslims. dismantle the opposition mark a lurch to- become a test of tolerance in the world’s But the latest anti-Ahok protest was wards autocracy. The CNRP won 55 out of most populous Muslim country. The em- much smaller than the biggest one, in De- the 123 seats in the National Assembly in battled incumbent, Basuki Tjahaja Pur- cember, which drew some 500,000 peo- the most recent parliamentary election, in nama, is a Christian of Chinese descent ple. Thismaysignal waningsupportfor the 2013. Its strength seems to stem not from and thus a member oftwo tiny minorities. Islamist agitators, notably the sanctimo- the charisma of its leaders but from a gen- Islamists tried to turn voters against Mr nious Mr Shihab, who is caught up in a eral discontent with the status quo. Even Basuki, known to all as Ahok, by accusing sexting scandal. Nonetheless, the next two with Mr Sam Rainsy out of the picture, in him of insulting the Koran. On the day, months ofcampaigningare widely expect- other words, Mr Hun Sen will keep tor- Ahok came first but fell short of an abso- ed to turn even nastier now that the elec- menting the opposition. 7 lute majority, with 43% of the vote, accord- tion is a two-man race between a Christian 1 34 Asia The Economist February 18th 2017

Taiwanese politics strike a grand bargain with China, selling Taiwan down the river in exchange for big A convenient concessions on trade and security. This is highly unlikely, given that America’s de- untruth fence commitments to the island are en- shrined in an act of Congress which could TAIPEI not be undone without legislative approv- al. Still, there are serious concerns that fall America’s affirmation ofthe one-China shortofthatdire possibility. Ifthe stand-off policy brings reliefto both Chinas with China turned into a trade war, Taiwan HE idea that China and Taiwan might would suffer badly; its economy is inextri- Tbe separate countries, rather than es- cably linked to the mainland. tranged parts of “one China”, is anathema Putting the one-China policy up for ne- in Beijing. So on February 9th, when Do- gotiation would also have cut across Ms nald Trump told his Chinese counterpart, Tsai’s desired timetable for dealing with Xi Jinping, that America would respect the Mr Xi. Towards the end of the year China’s one-China policy after all (having previ- communist rulers are to hold a party con- ously questioned this polite fiction), Chi- gress—the biggest event of the Chinese po- nese officials were profoundly relieved. So, litical calendar. It seems unlikely that Mr oddly, was Taiwan’s government, which Xi, who is trying to consolidate his author- thought that questioning the policy had ity, would do anything before the congress been bad for Taiwan and scrapping it that might look to rivals like weakness on would have been worse. Taiwan. After the event, however, he might Still standing, despite the slander That is remarkable. After all, Taiwan’s have room formanoeuvre. ruling Democratic Progressive Party rejects Or so Ms Tsai hopes. She and her advis- 2 and a Muslim. the one-China policy and says the island is ers are consideringnew ways ofdescribing Ahok’s opponents seem to have con- already independent. Tsai Ing-wen, Tai- Taiwan’s relations with the mainland cluded that the surest path to victory is to wan’s president, cannot even bring herself which might replace or add to the 1992 for- pander to the sectarians. Both Mr Baswe- to utter the words “1992 consensus”—the mula. She recently told a group of Taiwan- dan and Mr Yudhoyono attended dawn name for a deal between China and the ese business people that the time to dis- prayers with Mr Shihab at the latest rally, Kuomintang party (KMT), now the island’s cuss such a formulation would be in the even though moderate Muslim groups had opposition, which affirmed the notion of second half of the year—though, even told their members to stay away. Mr Bas- one China butsaid the two sideshad differ- then, the chance that Mr Xi will show flexi- wedan, who was once feted as a model of ent interpretations of it. So why was her bilityon the one-China idea seemsremote. tolerance, also gave a speech at FPI’s head- government pleased? At least Ms Tsai will gain some time, quarters in January alongside Mr Shihab, Since coming to office last year, Ms Tsai which she needs to deal with her priority, who has twice been convicted of hate has presented herself as cautious, respon- the economy. It grew by only 0.7% in 2015 speech and used to be shunned by main- sible and predictable—as different as possi- and 1.4% last year. Salaries have stagnated stream politicians. ble from the previous DPP president, the for two decades, youth unemployment is Even if Ahok (pictured) were to win in irrepressible Chen Shui-bian, whose con- up and Taiwan’s state-run pension funds April, the courts could yet convict him. stant efforts to highlight Taiwan’s de facto all face bankruptcy. After months of delib- Blasphemy carries a prison sentence of up independence infuriated both China and eration, the government is ready to put its to five years, and almost all those charged America. In a speech in October that Ms pension-reform plan to the Legislative with it are convicted, presumably because Tsai hoped would reassure China, she Yuan, Taiwan’s parliament. This will inev- judges are afraid of being harassed by Is- promised she would “of course not revert itably involve painful choices and proba- lamists themselves if they dare to acquit to the old path ofconfrontation”. bly make Ms Tsai even more unpopular supposed enemies of the faith. In theory, Mr Trump’s stand-off with Mr Xi could (her poll ratings are dismal). Ahokcould still serve asgovernorwhile he have imperilled that approach. There was Mr Trump’s phone call with Mr Xi may exhausts the lengthy appeals process. In an outside chance, debated with paranoia help. Her party contains a significant mi- practice, however, he would come under in Taipei, that America’s president might nority of fundamentalists, known as1 intense pressure to step down. Although voters’ continued, if dimin- ished, enthusiasm forAhokisencouraging, the election has propelled fringe Islamist groups to the forefront of politics. That is also likely to be a feature of the next presi- dential poll, in 2019. Ahok is a close ally of Jokowi and isbacked bythe same party. Mr Baswedan, for his part, is backed by Pra- bowo Subianto, a former army general who narrowly lost the last presidential election. Mr Prabowo is an old-fashioned nationalist, not an Islamist, but he has mo- bilised the Muslim vote partly by allying with a religious party popular among poor voters. The current configuration of forces suggests that arguments about Islam could play a pivotal role in Indonesian politics foryears to come. 7 The Economist February 18th 2017 Asia 35

2 “deep greens”, who want faster strides to- lai Lama and Rebiya Kadeer, the head of tually swelled slightly, to 227,000 person- wards formal independence. They argue the World UighurCongress(who thisweek nel, but there has been a sharp decline in that, with Mr Trump in the White House, turned down a private invitation to visit the proportion ofthose training to become Taiwan has a historic chance to advance its the island). But Mr Trump’s volte-face re- officers at the National Defence Academy case for sovereignty. “She hasn’t shown duces the pressure they can exert on Ms of Japan who actually end up joining the she can seize the opportunity,” grumbled a Tsai to change course on China. SDF. Demography is not working in the deep-green politician, Parris Chang, before In almost any other circumstance, the SDF’s favour: the population of 18-year- Mr Trump’scall. president would be in deep trouble. Fortu- olds has shrunk by a million over the past Mr Trump’s change of heart over con- nately for her, the KMT is in an even bigger two decades, making recruitment difficult. fronting China seems to weaken the deep- mess. It has not recovered from heavy de- The issue, says Alessio Patalano of King’s green argument that American politics has feat in last year’s general election and its College London, is not just the number of become exceptionally friendly to their po- new leader, Hung Hsiu-chu, is unelectable would-be soldiers, but the quality. sition. This does not mean they will stop because she is too friendly to China. Mr The defence ministry has responded criticising Ms Tsai. They are unhappy Trump’s phone call may bolster the KMT’s with a lavish and sometimes creative pro- about her economic management, the argumentthatthe governmentwill have to motional drive, doubling its public-rela- presence in her government of officials accept the idea of one China eventually. tions budget and enlisting the help of car- from pastKMT administrationsand her un- But for the moment most Taiwanese, like toon characters, pop stars and schools. willingness to invite to Taiwan some of the government itself, are more interested Children at one secondary school even China’s foremost bugbears, such as the Da- in the economy. 7 found the number of the local SDF recruit- ment office printed on their toilet paper. Much of the drive explicitly targets a ne- Japan’s self-defence forces glected audience: women. Only 6% of the SDF’s employees are women; it wants to Barmy army raise that to 9% by 2030. Demands for a more muscular SDF will grow. China’s defence budget has in- creased 44-fold in three decades, points out Yoshitaka Shindo, an LDP hawk. A new pa- TOKYO per by the Institute forInternational Policy Studies, a think-tank considered close to The government tries to free its soldiers from pacifist shackles the LDP, says Japan could be “profoundly ASAKI TOMIYAMA’S fight seems affected” by Donald Trump’s “America Mquixotic. He was happy forhis son to first” policy. It believes Japan should devel- join one of the world’s biggest, best- op greatercapabilities ofits own, including equipped armies, but cannot abide the cruise missiles. “We must respond to idea that he might have to do any fighting. America first-ism with Japan first-ism,” “I was very angry when I heard my son says Masato Inui, executive editor of the was being trained to kill people,” says Mr Sankei Shimbun, a right-wing newspaper. Tomiyama—so angry,in fact, that he decid- But aversion to anything that smacks of ed to sue the Japanese government for vio- militarism runs deep. Last year 350 SDF lating the country’s pacifist constitution. “I personnel were dispatched to South Su- will never allow him to go to war—that’s dan as part of a UN peacekeeping force. not why he signed up.” The troops are only there to repair infra- Japan’s constitution, cobbled together structure and are supposed to be with- by the Americans in a few hectic days in drawn ifthere is fighting between local mi- 1946, prohibits the maintenance of land, litias(so far, the governmentsays, there has sea or air forces. But at the height of the only been “conflict”, which is apparently Cold Warit seemed otherworldly fora rich quite different). But, for the first time, the ally of the West, with unresolved territori- SDF has been authorised to use weapons al disputes with all its neighbours, to have to defend civilians and UN staff. Oppo- no armed forces at all, so in 1954 the gov- nents of the policy, including Japan’s most ernment set up the “SelfDefence Forces”. widely circulated liberal newspaper, the The SDF was to exist “to protect the Handy in a conflict but no use in a fight Asahi Shimbun, are campaigning to have peace and independence of Japan”. But it the troops withdrawn. “We worry about wascontroversial all the same. Fordecades to make the SDF more like a normal army. troops who get injured,” fretted a recent the biggest opposition party wanted it In 2015 the government passed several se- editorial. MrAbe hassuggested thathe will abolished. Such was the controversy, re- curity bills “reinterpreting” the constitu- resign ifany Japanese soldiers are killed. calls Noboru Yamaguchi, a former SDF tion to allow the SDF to engage in what Young people in the SDF joined to help lieutenant-general, that service members Shinzo Abe, the prime minister, called the victims of earthquakes and tsunamis, slipped into civilian clothes before leaving “proactive pacifism”—participating in says Norikazu Doro, a former service barracks to avoid abuse from the public. peacekeeping missions and the like. The member. “They had no idea they were The SDF remains one of the world’s od- move triggered protests and bitter parlia- joining an army that could one day go to der armies. It has never fired a shot in bat- mentary wrangling. Mr Abe was acting out war.” Mr Tomiyama is one of several par- tle. Its main role, for many Japanese, is di- of nostalgia forthe time when Japan was a ents who have taken the government to saster relief. Yet it has a larger navy than great power, critics said. They predicted court. He says his son signed up to help France and Britain combined, including that the legislation would ensnare Japan in and defend his country, notfight other na- fourhuge “helicopter carriers”. foreign wars and trigger a stampede from tions’ battles. “The principle was that only Hawkish members of the ruling Liberal the SDF’s ranks. if we were attacked would we attack,” he Democratic Party (LDP) have long wanted Seventeen months on, the force has ac- says. “That principle has been voided.” 7 36 Asia The Economist February 18th 2017 Banyan Red v green

The Communist Party’s inability to control pollution in Vietnam is corroding its authority ments up and down the long seaboard. Such worries are increasingly seeping into Vietnam’s politics, posing challenges to the repressive rule of the Communist Party ofVietnam (CPV). A government report says that at least 200,000 people were directlyaffected bylastyear’sdisaster. Some ofthem have dared to protestat the mill responsible—owned byFormosa, a Taiwanese company—orin front ofa local courthouse. They say that the $500m the firm has coughed up in compensation is pal- try, and demand the right to sue. Even more striking is the rage among Vietnamese who have not suffered from the poisoning themselves. Shortly after the disaster, a spokesperson for Formo- sa implied that industry and fishing were incompatible. Demon- strators in Hanoi and Ho Chi Minh City retorted: “I choose fish.” Nationalism amplifies anger about the environment. In 2014 Formosa’s steel mill was set ablaze by rioters protesting against China’s decision to move an oil rig into contested waters not far from Vietnam’s coast (never mind that Formosa is Taiwanese). Most Vietnamese think their leaders are soft on China, the coun- try’s biggest trading partner but also an old enemy and rival claimant to several islets in the South China Sea. That the party has allowed a (sort of) Chinese firm to poison the coast is particu- ISHING boats in Dong Hoi, a tranquil provincial capital on the larly galling. Fcentral coast of Vietnam, are decorated with bits of cactus. All thisisfrighteningto the CPV, which sawhowenvironmen- These prickly charms are said to protect seafarers from storms tal movements in Eastern Europe buffeted communists there, and other perils, but they did not ward off the misfortune that and which has dealt thuggishly with leaders of the protests. La- struck the town last spring. In April the tides spewed thousands belling civil-rights campaigners as stooges for foreign govern- of dead fish onto Dong Hoi’s beaches. Authorities dithered for mentsistrickierwhen the partyitselfisaccused ofprotecting pol- months before naming the culprit: a new steel mill up the coast luters from abroad. In search of new friends to help reduce its which had flushed its pipes with toxic bilge. reliance on trade with China, the cadres in Hanoi also fret about Nearly a year later, Dong Hoi—like all the settlements on a 125- Vietnam’s reputation. The CPV wants foreigners to see the coun- mile stretch of affected coastline—is still tallying the cost of that try as a reliable partner on global issues such as climate change, calamity. Worst affected are its fishermen, whose red and blue not as a throwback that reveres a dead leader in a glass box. skiffs cluster serenely on the town’s wide river. Some locals re- So Vietnam’s lawmakers are becoming greener. The country fuse to eat their catch, forfear oflingering toxins; others pledge to hasfairlycomprehensive green regulations, reckonsStephan Ort- eat only fish caught farout to sea, or at depths thought to have es- mann, author of a new book on the subject—stricter than those caped the poison. Freezers in many seafood restaurants are now scribbled by China’s rulers, and produced at a faster clip. It has stocked with chicken and pork. pledged to cull carbon from its economy (though how this The disaster has sapped tourism, too. The town was flattened squares with plans to build dozens of coal-fired power stations is during the war with America (except fora charred church facade, anybody’s guess). In November the government hosted a big now preserved as a memorial), but has profited from gargantuan pow-wowon wildlife conservation, obliteratingtonnesof confis- caves discovered on its doorstep. These include Son Doong, said cated ivory in a satisfying fireball. to be the world’s largest, which only opened to visitors in 2013. But last summer hordes of people cancelled their holidays, fear- A smog ofconfusion ful of splaying out on tainted sand. Half-built hotels and condos Yet there is more talk than action, and the government’s shallow dot the outskirts oftown, left orphaned by twitchy investors. coffers are only partly to blame. Economic growth—which in the Pollution marsmanyofVietnam’sstunninglandscapes. Dam- absence ofmeaningful elections is the party’s only claim to legiti- building, well-digging and intensive farming are corroding the macy—trumps everything else. Powerful officials in the prov- Mekong Delta, where roughly half the country’s rice is grown. inces ignore rules made in Hanoi, and powerful state-owned Each year its soil becomes saltier as seawater washes up its weak- firms often seem untouchable. A justice system that deals swiftly ening streams. Pungent smog smothers Hanoi, the capital. By and ruthlessly with dissidents fails dismally at enforcing quotid- some counts nearly two-thirds of Vietnam’s industrial wastewa- ian regulation. Whereas smog-fighters in Beijing have begun clos- ter flows into lakes and rivers. In 2015 the authorities identified a ing factories and restricting car usage, bigwigs in Hanoi still strug- score ofvillages with unusually high cancer rates, perhaps the re- gle to prevent scooter-riders from parking on the pavements. sult ofwater supplies laced with lead. Smouldering ire over pollution will make it harder for the party Acategory ofenvironmental trouble not entirely ofVietnam’s to cope with political or economic shocks. making will soon add to this list. With 2,000 miles of coastline, Dong Hoi’s prospects, meanwhile, hinge on whether the tour- Vietnam is especially vulnerable to climate change. Some esti- ists return this summer. The authorities say that the sea is safe for mates suggest that one-fifth of Ho Chi Minh City, its swiftly ex- swimming again, but not everyone believes them. A fisherman pandingsouthern metropolis, could be underwaterby the end of says he has been back at work fora while, but would not feed his the century. Harsher weather and flooding could batter settle- catch to small children foranother five or ten years. 7 China The Economist February 18th 2017 37

Also in this section 38 Cleaning up the stockmarket 38 Trump toilets trumped?

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

Intellectual debate (not including Mr Xi’s positions) immedi- ately after it. Mr Xi does not want anyone An illiberal dose to embarrass him amid the political horse- trading of the months ahead. Websites run by diehard Maoists, dripping with criti- cism offree markets, are still allowed to op- erate. But Maoists, at least, can be counted BEIJING on to support the party. MrXi seems to fear that moderate liberals may rattle it. Uni- Once tolerated, avenues fordebate about reform are now being closed rule’s co-founder, Mao Yushi, hasa habit of T HARDLY seemed a threatening scene Chunqiu was taken over by hardliners. The doing so. A few days before the authorities Iwhen, on a Friday afternoon in February, magazine’s founding publisher, Du Dao- pulled the plug on his institute’s accounts dozens of finance wonks gathered in Bei- zheng, said the purge reminded him of the he had joined dozens of intellectuals in jing for a three-hour symposium on Chi- Cultural Revolution, when radical Maoists calling on China’s chief justice, Zhou na’s exchange-rate mechanism. With a seized control ofa newspaperforwhich he Qiang, to step down. MrZhou had angered slide show featuring graphs and formulas, then worked, and berated him as a “coun- them by denouncing the “erroneous influ- the main speaker talked about the arcana ter-revolutionary”. In October a website ence” ofcalls foran independent judiciary. of the yuan’s adoption last year as one of called Consensus Net, much loved among Mr Mao’s views matter: before it was dis- the IMF’s reserve currencies (a develop- liberals, was closed. It had been publishing abled, his account on Weibo, a Twitter-like ment that Chinese reformists hope will en- articles about economic, social and politi- service, had 2.7m followers. courage the government to let the yuan cal reform since its founding in 2009. With Some are putting a positive spin on float freely). Other participants sipped the termination of Unirule’s online ac- these events. Dai Qing, a former journalist their green tea, jotted down notes and counts, moderate reformists have little at a national newspaper, says that, al- chipped in with their views. The host, the space left for open debate. though liberals like herare “very worried”, Unirule Institute of Economics, often those clamping down on the reformist fo- holds such events. Typically, it posts sum- The liberal threat rums may not disagree with the views ex- maries of speakers’ views online. Not this China’s president, Xi Jinping, professes pressed on them. Liberal-leaningleaders in time, however. The website is no more. himself to be in favour of market-oriented China sometimestryto protectthemselves It was shut down by the city govern- reform and upholding constitutional from hardline onslaught by looking tough ment in late January, as was another site rights, and his late father supported Yan- themselves. Mr Xi, a diminishing band of run by Unirule, as well as all of the insti- huang Chunqiu; yet he is nervous of liberal optimists believe, could be playing such a tute’s social-media accounts and those of views. Unirule has been one of the coun- game. “There’s a saying in China that you its leading researchers. Their closure was try’s most prominent independent think- put on the left blinker when you want to the latest blow to the country’s moderate tanks since it was founded in 1993. David turn right and the right blinker when you liberals, who for many years have contin- Kelly of China Policy, a Beijing-based con- want to turn left,” says Ms Dai. “So no one ued to enjoy at least some freedom to de- sultancy, says the institute “cannot be said can guess what is really going on.” bate reforms, even while the authorities to be unorthodox, subversive or dissident Staff at Unirule are puzzled. Sheng have been busy rounding up more radical in any obvious way”. He notes that pro- Hong, another co-founder of the institute, critics ofthe regime. market reform measures that were pro- says the authorities have not even both- The onslaught against liberal forums posed by Mr Xi in 2013 echoed those sug- ered to notify Unirule of their action, let began in Julywhen, aftera quarter-century gested by Unirule years earlier. alone explain it. Official media said that of cheerleading for reform, including bet- But these are tense political times in Unirule’s online accounts were among ter implementation of the constitution’s Beijing, as the Communist Party prepares several that had been closed for a variety guarantees of protection for human rights, for a five-yearly congress in the autumn of infractions, ranging from the provision a monthly magazine called Yanhuang and a sweeping reshuffle of its leadership of unauthorised news and information 1 38 China The Economist February 18th 2017

2 services to the broadcast of pornography. Trump toilets They did not specifywhich ofthe websites had broken which rule, but Unirule was certainly not guilty of the latter: the curves Improperly squatting on its website were of the economic rather BEIJING than the bodily sort. The Trump brand wins a legal battle in China Whether the pressure on liberals will be eased after the party congress will de- HINA has a history ofhilariously years ofdispute, and, by amazing coinci- pend largely on how secure MrXi feels. His C inappropriate export brand-names, dence, just after Mr Trump promised to record so farsuggestshe isprone to anxiety. including Front Gate men’s underwear, honour the “one-China policy” (see page Since 2015 police have rounded up and ha- Long March luggage and, guaranteed to 34), a Chinese court agreed that in the rassed hundreds of independent lawyers. raise a laugh, Great Leap Forward floor construction business, Trump belongs to A new law on the management of foreign polish. But it has also stumbled on a the Trump Organisation. The legal impli- NGOs came into effect in January aimed at brand that should surely open up vast cations forTrump toilets are not known. tightening government control over them. business opportunities, at least among “Maybe they hate us because we tell the Democratic-voting households in Ameri- truth,” laments Unirule’s Mr Sheng. “But ca: Trumpbrand toilets (see picture). we should do this in a great nation. If we The name has nothing to do with the don’t, China will have no future.” There is 45th president. Shenzhen TrumpIn- scant evidence that Mr Xi agrees. 7 dustries was founded in 2002. Its Chinese name, Chuang Pu, means “innovate everywhere”. It sounds similar to a name The stockmarket often used forDonald Trump: Chuan Pu. The firm makes toilets for“high-end spas, Hunting crocodiles hotels [and] public institutions”, and uses the world’s first “continuous rewinding toilet sanitary cover device”. Its boss says that Trumptoilets are used100m times a SHANGHAI year in China. This great Chinese success story is The government steps up its battle now under threat. It is one ofmany Chi- against market manipulators nese products unrelated to the American HE Chinese stockmarket is not for the president that use the word Trump. In Tfaint of heart. Over the past decade 2006 Mr Trumpapplied in China for punters have endured two bigbubbles and ownership ofit as a trademarkin con- two big crashes—the latest in 2015. But struction services. Alan Garten, the chief those still smarting from their losses can at legal officer ofhis company,the Trump least be thankful that they did not suffer a Organisation, told the Washington Post worse fate: making too much money. Last that “someone was improperly squatting week the government declared that it on” his firm’s rights. This week, after Not the throne he had in mind would be remorseless in going after inves- tors who manipulate the market for profit. We will catch these “giant crocodiles”, said was sentenced to five-and-a-half years in And it has the added benefit of spooking Liu Shiyu, the chief securities regulator. jail and fined 11bn yuan ($1.6bn), a record in other would-be manipulators. They will not be allowed to “flay the skin China foreconomic crimes. Nevertheless, the details of Mr Xiao’s and suck the blood” of retail investors, he There are also indications that the dis- case, riveting though they are, are unlikely added, belying his earlier reputation as a appearance of an even bigger tycoon, Xiao to have much impact on the market. The mild-mannered bureaucrat. Jianhua, is partly related to the stockmark- rarefied air of elite politics does not figure Normally it would be prudent to take et crash. Mr Xiao, the head of a sprawling in the strategy of most investors. What such statements with a pinch ofsalt. China investment company called Tomorrow does matter is whether the clean-up of the has often vowed to tackle insider trading, Group, is one of China’s wealthiest men, market affects traders at brokers and hedge to little effect. But the tough talk about dis- worth at least $6bn. At the end of January funds around the country. cipline this time seems to have more politi- he was abducted from his hotel in Hong There are tentative signs that this is in- cal weight. Looking at Xi Jinping’s first five Kong. Chinese agents reportedly removed deed happening. In 2016 the securities reg- yearsaspresident, the stockmarketcrash in him in a wheelchair with a sheet over his ulator levied 4.3bn yuan in fines and the summer of2015 ranks as one ofthe big- head and escorted him on a boat across the barred 38 individuals from the market, gestblotson hisrecord. Itwasa transparent border into mainland China. both record highs. “They are getting rid of display of shoddy governance. Investors Mr Xiao’s case is widely thought to in- the bad guys,” says one fund manager. who got burned still nurse grievances volve murky politics: he made his fortune Forthe time beingthisseemsto be help- against regulators. So Mr Xi, hardly a fan of through ties to Chinese leaders. But Caixin, ing the market. Companies with solid fun- marketsatthe bestoftimes, hasan extra in- a Chinese magazine, reported on February damentals have outperformed speculative centive to go after miscreants. 11th that Mr Xiao had controlled Securities stocks since late 2015. Chen Jiahe, chief A couple of big cases show he means Daily, a state-backed newspaper, and used strategist with Cinda Securities, a broker, business. One of the first major players ar- it to influence coverage of his listed compa- says it is nothing short ofspectacular to see rested was Xu Xiang, a so-called “kami- nies. If Mr Xi does want to neutralise Mr this kind of trend—which is common in kaze” investor who reputedly pumped up Xiao for political reasons (he may know more mature countries—last so long in Chi- stocks, lured in unsuspecting punters and too much about the financial dealings of na. But it will take longer than that to drain then cashed out. On January 23rd he was the elite), linking him to stockmarket she- such a swampy market. As the govern- found guilty of market manipulation. He nanigans is a safe way to bring him down. ment itselfsays, crocodiles still lurk. 7 Middle East and Africa The Economist February 18th 2017 39

Also in this section 40 Land invasions in Kenya 41 Zimbabwe’s “bond notes” 41 Trump and the two-state solution 42 Reforming Islam in Egypt

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

Kenya (1): a dirty war with suspected al-Shabab sympathisers, is in danger. Some bodies have been found Food for the hyenas dumped in a game park; others were pre- sumably eaten by hyenas before they could be found. Some of the disappeared were doubt- lessguilty, butnone had a chance to defend MOMBASA himselfin court. And in some cases the po- lice apparently grabbed the wrong man. Suspected terrorists are disappearing and dying Idris Mohamed, 26, was shot in Mombasa. ALBINA, a woman from Mombasa, by the Sultan of Zanzibar, rather than part The family told reporters that police offi- B Kenya’s main coastal city, remembers of the colony of Kenya. Unlike the rest of cers had stripped him naked, handcuffed fetching her neighbour Abdullah’s body the mostly Christian country, the coast is him and forced him to lie face down before from a police station. “It wasn’t so terrible,” largely Muslim, with a large ethnic Somali shooting him. (The police deny this, saying says Balbina (not her real name). Surpris- population to the north. And since inde- he was killed by an unknown assailant.) ingly, “there was not even any blood.” The pendence from Britain in 1963, it has had a Officers who brought his body to the mor- wound was hidden at the backofhis head; rebellious streak, built on anger about the tuary filed paperwork saying he was Is- his face was serene. He was killed by po- unequal distribution of land and jobs, per- mael Mohamed, a terrorism suspect and lice, in what they claimed (but she does not ceived persecution ofMuslims, and dislike the victim’s brother, who had not been believe) was a shoot-out. “Abdullah did ofrule by elites from Nairobi, the capital. seen for some months. “The facts strongly wrong. He went to Somalia, maybe he It is these resentments that help al-Sha- suggest a case of mistaken identity,” con- killed innocent people.” But he deserved bab to recruit. Abdullah, says Balbina, cludes Haki Africa. justice, she says, not to be shot in the back “had no parents; he was lonely and job- Such criticism irks the government. Mr ofthe head without a trial. less.” That made him easy prey for recruit- Auma says that Haki Africa has been ha- Such stories are easy to find on the Ken- ers, who stoked his anger while also flash- rassed by the authorities since it began yan coast, where young men are often re- ing cash and promising him a better life in publishing reports of extrajudicial killings; cruited to fight for al-Shabab (“the Youth”), Somalia. Moneyisa biglure, saysa local of- at one point, the group’s bank accounts a Somali jihadist group. Some go to fight in ficial. Some jihadists even pose as recruit- were frozen. Hassan Abdille of Muslims Somalia; some carry out terrorist attacks at ment agents for jobs in the Gulf, she says. for Human Rights, another lobby group, home. In recent years the government has “Yousee a man in a good car, he takes three says his staffhave been spied on. cracked down on anyone it suspects might or fourguys, promising jobs.” Apologists for the police note that the have joined al-Shabab. In December Haki wave of jihadist attacks that hit the coast Africa, a human-rights group, published The joy of jihad between 2011 and 2014 appears to have the names of 81 people, almost all young Many recruits are disappointed—Somalia ebbed. But even if brutal tactics have Muslim men, who it says were killed or is not the Islamic paradise they were told it curbed terrorism in the short term, they “disappeared” by police since 2012. The was, and foreigners are used as cannon riskinfuriating a generation ofyoung Mus- real number is probably much higher, says fodder. So they come backto Kenya, where lim men and storing up trouble for the fu- Francis Auma, the group’s co-ordinator, they face an awful choice. They can join an ture. “It’s counterproductive, as it is push- since many cases go unreported or leave amnesty programme and turn informer— ing some people towards radicalism when few clues implicating the state. thereby risking being killed by their erst- they see their kin killed and no justice The coast of Kenya has long felt differ- while chums. Or they can refuse, and risk done,” says Mr Auma. ent from the rest ofthe country. Under Brit- being “disappeared” by the police. Any Moreover, by killing those who return ish rule a ten-mile littoral strip was nomi- young man who has been away from his the police may be silencing an effective nally part of a protectorate administered village for a while, or who has been seen form of anti-jihadist propaganda. Left to 1 40 Middle East and Africa The Economist February 18th 2017

2 their own devices, those returning would SOUTH 250 km drought on Kenya’s overgrazed northern SUDAN surely tell other youngsters how awful it ETHIOPIA plains. Herdsmen have driven hundreds was going to Somalia to fight. Many of ofthousands ofcattle south, cutting fences those who come backare said to have com- Lake along the way to get at grass they think is plained that they were neverpaid as prom- Turkana rightfully theirs. An aerial survey in April ised. Others suffered abuse: “They went 2016 by the Laikipia Wildlife Forum found UGANDA there having been promised four wives 135,000 “visiting” cattle, about the same KENYA SOMALIA each,” says a community worker. “Instead number as “resident” ones. The number of they became wives.” visitors may since have doubled, reckons LAIKIPIA Police hit squads are operating in an al- Peter Hetz, who heads the forum. Lake ready febrile political atmosphere. In Au- Victoria T But tensions between landowners and a n gust Kenya will hold local and national Nairobi a herdsmen, many of them Samburu, date elections, and Mombasa will be among from well before the current drought. Ef- the most fiercely contested cities. A system forts have been made to ease them by, for MOMBASA INDIAN of devolution introduced in 2013 means REGION instance, reaching grazing agreements that that its governor controls a bigger budget. OCEAN allow cattle herders to bring their livestock Mombasa The incumbent, Ali Hassan Joho, is popu- TANZANIA onto private land duringdry spells. But dis- lar among local Muslims, whom he prom- putes still abound. “The ranchers and the ises to defend from grasping ruling-party police are colluding to intimidate us,” says politicians in Nairobi. He is close to Raila It would not be the first time that a Ken- one Samburu elder, who admits to illegal Odinga, Kenya’s main opposition leader, yan election turns bloody. After a flawed grazing on Segera Ranch, but is unhappy and is said to be financing Mr Odinga’s ballot in 2007 politicians stoked fighting that his cows were “arrested” and that he Orange Democratic Movement party. that claimed some1,300 lives. The whiff of wasfined the equivalentoftwo cows. (Seg- Locals say that some six months before that conflict hung heavily over the next era says its fines are equivalent to the usual the vote, all the main parties are already re- vote in 2013,which nonetheless proceeded daily grazing rates.) cruiting youngsters into political gangs, peacefully. But many in Kenya now fret However, it is no coincidence that in- known as “pressure groups” to intimidate that there may be a return to mayhem, par- cursions in Laikipia have worsened since opponents and their voters. They are pay- ticularly in Mombasa, where politicians 2013, the year that Kenya’s devolved consti- ing voters to register and there could be are fighting for control of Kenya’s lucrative tution came into effect. This established widespread vote-buying on the day.Many main port. With well-practised hit-squads county governments, with the aim of giv- say that Mr Joho’s supporters could turn alreadyon the prowl, the risksofconflagra- ing each ofKenya’s many tribes a fairshare violent ifhe looks likely to lose. tion are escalating. 7 of government revenues. An unintended consequence is that local groups now have more incentive to fight to control county Kenya (2): cows, guns and politicians governments (and their money) ahead of elections in August. Vote-hungry politi- I burned a farm in Africa cians are inciting their kin to grab land and even to displace rival communities. In Laikipia the young men carrying out armed invasions are mainly from the Po- kot and Samburu tribes. Mathew Lempur- KIFUKU kel, the member of parliament for Laikipia North, blames the violence on the police, Land invasions in Laikipia portend electoral strife and says that herdsmen are justified in T KIFUKU, a cattle ranch in Kenya, the on the Suyian Ranch on January 29th; visi- shooting back. “If the government be- Adry-stone walls are reminiscent of tors had to be evacuated from the Mugie comes a threat, the people have to protect England; by the farmhouse, a pair of boats Conservancy earlier in the month after a themselves,” he says. But others accuse Mr sit on an artificial lake. The farm has, how- staff member was shot dead. In all 11 peo- Lempurkel, a Samburu, of inflammatory ever, been anything but calm of late. Since ple may have been killed in such clashes, rhetoric; for example, claiming on local ra- Septemberdozensofcattle-ranchers, some according to Reuters, a news agency. dio there was no such thing as private land with assault rifles, have driven their cattle The armed incursions have drawn in the county. “Politicians are exploiting onto the farm’s8,000 acres (3,238 hectares) comparisons to the expulsion of white the drought,” says Richard Leakey, the of grass. Buildings have been wrecked, farmers in Zimbabwe. But the conflict in chairman ofKenya Wildlife Service. staff beaten up and a police officer shot Laikipia, which has the second-highest National politicians, from the deputy and injured. “We’re all extremely tired and density of wildlife in Kenya, is not black president to the interior secretary, have frustrated and short-fused [and] scared,” against white. John Wachira Mwai, a neph- said private land should be respected and says Maria Dodds, the owner. By February ew ofMwai Kibaki, Kenya’s president until the violence must stop. The president, 12th reliefhad arrived, in the form of an ar- 2013, had to abandon his farm in July. He Uhuru Kenyatta, repeated the warning on moured car filled with policemen. was shot by trespassing cattlemen and is a voter-registration drive in the region in The invasion of Kifuku farm is one of a still in a wheelchair. More than one small- January. But many of those affected in Lai- series that have taken place since 2013 holder has been murdered and hundreds kipia suspect the government of ignoring across Laikipia County, a fertile plateau have had their livestock stolen and their the invasionsto avoid jeopardisingits vote. between Kenya’s central highlands and crops trampled. “The situation here is Mrs Dodds says she appreciates the efforts arid north (see map). Much of it is covered worsening day by day,” says Samuel Lope- of the police who protect Kifuku. The farm by private ranches and nature conservan- tet Apolosiri, a community activist who will recover when the herders leave for cies owned by white Kenyans such as Mrs works across tribal lines in northern Laiki- new pastures, says her husband, Anthony Dodds and international investors. The at- pia. “We are facing intercommunity con- Dodds. But he worries about the hundreds tacks appear to have escalated in recent flicts, cattle rustling and killing.” of smallholders on Kifuku’s southern bor- weeks. A tourist lodge was burned down One reason for the increased conflict is ders: “They’re really on their knees.” 7 The Economist February 18th 2017 Middle East and Africa 41

Israel and Palestine ing: “So I’m looking at two-state and one- state, and I like the one that both parties Bibi consults a real-estate expert like...I can live with either one.” That presi- dential statement all but ends the dip- lomatic fiction that all sides are committed to a two-state process, and puts the onus on Israel to decide what should happen to the occupied territories. WASHINGTON, DC Mr Netanyahu has repeatedly said he is Donald Trump abandons the “two-state” formula forIsrael willingto negotiate overthe establishment URING eight years in which a glacial should be widened to include Arab states. of a Palestinian state “without precondi- Dchill fell on relations between the ad- But such admonishments are tiny—and tions”. But in a hardening of tone he insist- ministration ofBarackObama and a series could easily have been scripted by aides to ed on two long-held “prerequisites of of right-wing Israeli governments, Ameri- MrNetanyahu. Forthe prime ministerlikes peace”: Palestine would have to recognise can officials talked of Israel’s prime minis- to cite American sensitivities to the expan- Israel as a Jewish state and Israel would ter, Binyamin Netanyahu, as a political sion of settlements—and what he calls his have to “retain the overriding security con- coward unwilling to stand up to zealots on unrivalled ability to navigate them—as a trol over the entire area”. his own side. way to face down hardliners in his co- The visiting Israeli leader had to offer The contrast to that scorn was rather alition who would have him disavow any some concessions. Mr Trump had cam- striking as Mr Netanyahu arrived at the prospects for Palestinian statehood, or an- paigned on a promise to move the Ameri- White House on February 15th for his first nex bits ofthe West Bank. can embassy to Jerusalem from Tel Aviv. official visit to a White House run by Don- In a subtle but important shift, the Re- But since taking office the president has ald Trump. True, Mr Trump urged Israel to publican ditched a long-standing, biparti- been warned by foreign allies that taking show some restraint, telling his guest at a san American insistence that peace can be such a symbolic step in a city claimed by press conference to “hold back” on build- reached only through the establishment of both peoples as their capital would risk a ing Jewish settlements on territories occu- a sovereign Palestinian state alongside the backlash, and even violence. In his White pied by Israel in 1967 “for a little bit”, pend- Jewish one. Mr Trump signalled that House press conference Mr Trump said he ing peace talks that the new president said America would deferto local opinion, say- was looking at the embassy move “very, very strongly”. On this visit Mr Netanyahu backed Zimbabwe’s “bond notes” away, gingerly, from his previous demand thatAmerica tearup a deal brokered by the The king of funny money Obama administration and other world powers to curb Iran’s nuclear ambitions. HARARE MrTrump calls the nuclearpact “one ofthe Robert Mugabe hoped he could print his very own American dollars. He can’t worst deals” he has seen. But foreign allies OWmuch is an American dollar in US dollars). But ifthey want to pay for and members of Team Trump, such as the Hworth? The glib answer is exactly imports to restocktheir shelves, they still defence secretary, James Mattis, have told one buck. But that is farfrom the case if have to queue forreal dollars. the president that the deal is the least bad the dollar in question is one ofZimba- So desperate are shops forhard cur- option for slowing Iran’s nuclear pro- bwe’s “bond notes”, the world’s newest rency that they are offering discounts of gramme, as long as America enforces its currency that is not officially a currency. as much as 50% to customers who hand terms more strictly and is willing to sanc- Zimbabwe adopted the US dollar as over greenbacks. Some petrol stations tion Iran for other infractions in such areas its official currency after the spendthrift now have separate pumps where the as ballistic missile technology. The Israeli regime ofPresident Robert Mugabe price offuel is lower forcustomers who leader contented himself with praising Mr printed so many ofits own notes that it pay with hard-currency cash instead of Trump for taking a tougher line on Iranian 1 caused hyperinflation in 2008. The econ- using a debit card. A number ofshops in omy briefly stabilised; but old habits die Harare have resorted to indicating two or hard. Last year the government again three different prices forthe same item—a spent farmore money than it raised, US dollar cash price, a bond-note price much ofit on imports, causing scarce and a third price ifone pays by card. greenbacks to flow out ofthe country. Blackmarketeers have been quickto By the end ofthe year there were so help out. Some are offering to convert few dollars still circulating that banks bankbalances into real dollars at premi- were limiting withdrawals to $50 a day, ums ranging from 5% to 30%. crippling the economy. The central bank The big supermarket chains are not decided to issue a new currency, called allowed to offercash discounts or dis- “bond notes”, pegged to the American criminate against customers who use dollar. Two months on, the new notes, bond notes or electronic cards. Instead nicknamed “bollars”, are rapidly losing they have simply put up their prices. their value. People have discovered that With inflation surging, the bond notes they are not, in fact, convertible into real are proving to be exactly what many dollars. So they cannot be used to pay for Zimbabweans feared they might be: the imports—a real problem in a country that horribly resurrected zombie oftheir dead does not make much. Shops accepting cousin, the Zimbabwe dollar, which bond notes can use them to pay local burned itselfout almost a decade ago. wages and suppliers or deposit them in Unless the country changes tack, more their local bankaccounts (denominated economic misery looms. Trump has Bibi’s back 42 Middle East and Africa The Economist February 18th 2017

2 “aggression”. director of the Washington Institute for Mr Tayeb insists that al-Azhar is “the Mr Netanyahu also faces the fact that Near East Policy, an American think-tank. pulpit ofmoderate, centrist and tolerant Is- Mr Trump’spriority in foreign policy is de- He asks: “How do you destroy IS without lam”, butitisnotmonolithic. “People with- stroying the Sunni Muslim fanatics of Is- empowering Iran?” in al-Azhar are just as divided as the Egyp- lamic State (IS)—a goal that matters less ur- The Israeli prime minister fudged the tian society,” says Amr Ezzat of the gently to Israel than containing Iran, the distinction, denouncingboth IS and Iran in Egyptian Initiative for Personal Rights, a largest power in the Shia Muslim world. the same attack on “militant Islam” and pressure group. Some of its students and Given that Iran is itself fighting IS in Syria hailing Mr Trump’s“great courage” in tack- preachers are Salafists (purists); many are and Iraq, the two goals could even be in ling“radical Islamicterror”. Quite a change sympathetic to the Brotherhood. The gov- conflict, notes Robert Satloff, the executive since his last White House visit. 7 ernment has little control over its person- nel and MrTayeb toleratesthe different fac- tions. “He is not strict against religious Reforming Islam in Egypt extremism,” says Mr Ezzat. Despite the differences within its own Sisi versus the sheikhs walls, al-Azhar has tried to shut down de- bate outside. It has filed lawsuits against several authors and artists under Egypt’s blasphemy laws. A recent victim is Islam Behery, who parsed sayings of the Prophet CAIRO Muhammad and criticised al-Azhar on his television show, “With Islam”. The institu- Egypt’s clerics are resisting the president’s call to renew Islam tion brought several suits against him, re- EWEgyptians dare challenge Abdel-Fat- ousted the Muslim Brotherhood from gov- sulting in a one-year prison sentence (he Ftah al-Sisi, their authoritarian president. ernment in 2013, Mr Tayeb sat by his side. was later pardoned by Mr Sisi). “The blas- But one institution has stood up to him. The new constitution, adopted in 2014, phemy law is used by al-Azharas a sword,” “Youwear me out,” Mr Sisi reportedly told gave al-Azhar more autonomy. But since says Ahmed al-Habib, who has reported Ahmed al-Tayeb, the grand imam of Cai- then Mr Sisi has tried to exert control over on corruption at the institution—and who ro’s al-Azhar University, last month. religious matters. He has closed mosques is also being sued by the clerics. It has been over two years since Mr Sisi, and banned preachers who are not regis- Were al-Azhar to embrace reform, some an observant Muslim, lamented that some tered. In 2015 the authorities began to stan- still doubt it would win over the Muslim of his co-religionists were becoming “a dardise Friday sermons, a move designed masses. Its communication skills cannot source of worry, fear, danger, murder and to undercut radicalism—and to promote match IS or the Brotherhood, which beam destruction to all the world”. He urged the president’s policies. (His expansion of their message out on satellite television Egyptian clerics to push back against the ji- the Suez Canal, for example, was called a and social media. Al-Azharhasbeen trying hadists of Islamic State (IS). Egypt itself “gift from God”.) to set up a TV station foryears, to no avail. was a victim, he said: angry Islamists have Al-Azhar has pushed back. It says its Religious reform is anyway only a par- attacked the governmentand an affiliate of preachers can deliver their own sermons. tial solution. Many analysts blame au- IS battlesthe armyin Sinai. To combat such Some clerics have publicly opposed his thoritarian rulers like Mr Sisi for causing extremism, “a religious revolution” was tough stance against female genital mutila- the resentment, alienation and frustration needed, said Mr Sisi—and al-Azhar, the tion, though officially al-Azhar agrees with that seem to fuel violent extremists. “You Sunni world’s oldest seat of learning, him on this. After the president called for are asking al-Azhar to renew religious dis- should take the lead. an end to verbal divorce—a man must sim- course while the state is not renewing its But the clerics, led by Mr Tayeb, have ply say “talaq” (divorce) three times—a own discourse,” says Kamal Habib, a polit- largely resisted Mr Sisi’s appeal. Though al- council of scholars from al-Azhar deemed ical analyst and former jihadist himself. Azhar bills itself as moderate, critics say the practice perfectly Islamic. “Society “There is no mechanical relationship that it has allowed hardliners to remain in needs to adapt to the rules ofIslam, not the whereby you change religious discourse senior positions and failed to reform its other way round,” said one professor. and therefore things will be better.” 7 curriculums, which include centuries-old texts often cited by extremists. It has blocked efforts at social reform and tried to censor its critics. “Nothing has been done since the president called forrenewing reli- gious discourse,” said Helmi al-Namnam, the culture minister, last August. For most of its 1,000-year history, al-Az- har has acted independently. Each year it trains thousands of preachers, while tens ofthousands ofstudents, foreign and local, study in its schools. But it has also delved into politics, often frustrating Egypt’s rul- ers. Gamel Abdel Nasser, Egypt’s president from 1956 to 1970, reined in the clerics by nationalising their endowments. He and his successors pushed al-Azhar to issue fat- was (religious edicts) justifying their poli- cies. This hurt the institution’s credibility, but further enshrined it as the main arbiter ofthe faith in Egypt. Mr Sisi has also used al-Azhar. When he Islam’s ivory tower Europe The Economist February 18th 2017 43

Also in this section 44 Moldova’s surprising economy 44 Donald Trump and NATO 45 Barred from the ballot in Russia 45 Italy’s great gambler 46 Turkey and Russia cosy up 47 Charlemagne: French lessons in dégagisme

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

Greece’s endless woes tions for joining the bail-out: stricter (and pre-legislated) reforms from Greece, and a Enter the chorus, with cabbages credible promise from euro-zone govern- ments to relieve Greece’s debt burden when the bail-out expires, via guarantees oflong-term cheap finance. European governments do not believe ATHENS AND BRUSSELS that Greece needs debt relief. But they in- sist on IMF participation in the bail-out be- Greece has become a bystanderto its own tragedy cause they do not trust the commission to F HISTORY repeats itself first as tragedy pointless: 17% do not know a party they oversee the Greeks. The Germans and Iand then as farce, it continues thereafter support (or will not say), while 15% will not Dutch will not approve further disburse- as endless iterations ofGreekdebt dramas. vote atall. Whatsetstoday’sdrama apart is mentswithoutthe fund. Thatgivesthe IMF The script is wearyingly familiar. Greece’s the dispute among Greece’s creditors. an effective veto. But it has its own pro- European creditors are trying to close the These date back to the complex architec- blems. Its board, which must approve par- second review of its third bail-out, which ture of euro-zone bail-outs, jerry-built in ticipation, is split; shareholders from non- was signed in August 2015. That would en- haste in 2010. But today the debate is more European countries do not see why they able them to lend Greece the funds it needs public, and potentially more serious. should stump up again. Most IMF staff are to meet €6.3bn ($6.7bn) of bond repay- The biggest difference is between the sick of Greece. “If the fund agrees to some- ments due in July. But talks have run IMF and the Europeans. Burned by experi- thing on the basis of a hazy promise of fu- aground ahead of a meeting of euro-zone ence, the fund is jealously guarding its ture debt relief…then all this fancy talk finance ministers in Brussels on February credibility. Having seen Greece consistent- about standing up to the Germans at the 20th. Bond yields have spiked, German ly fail to meet previous bail-out targets (see board would once again be an empty ministers are issuing barbed comments, chart), it thinks the European Commis- show,” saysAshoka Mody, a formerIMF of- and dust is being blown offthe Grexit files. sion’s forecasts are too rosy, and that, with- ficial now at Princeton University. The review covers everything from out relief, Greece’s debt will balloon after Greece’s fiscal path is a particular point health care to military wages. But thanks to 2030, as cheap euro-zone loans are re- of contention. The IMF believes that the pressure from the IMF—which has not yet placed by private finance. It has two condi- country cannot sustain the primary-sur- joined the bail-out, as it did the previous plus (ie, before interest) target of 3.5% of two—Greece faces more pressing de- GDP demanded in the bail-outby2018, and mands: to pass tax and pension reforms When the oracle goes awry that the austerity such goals imply will de- worth 2.5% of GDP, to kick in after the bail- Greece, GDP, % change on a year earlier lay the recovery. The Europeans insist out expires. Alexis Tsipras’s hard-leftSyriza Predictions Greece is on track: last year’s surplus target after bail-outs government will struggle to get these mea- 2010 2012 2015 of 0.5% will be exceeded, and the commis- SIGNED SIGNED sures through parliament, but the alterna- MAY 3RD MAR 1ST sion forecasts growth of 2.7% this year. Re- tive is to call elections that Syriza would 4 lations have become poisonous; one Euro- 2 IMF probably lose to New Democracy, a centre- + pean official says the is deploying right party. Thousands offarmers wielding 0 “Trump University statistics”. – their produce took to the streets in Athens 2 Some formula will probably be found in outrage at more austerity (see picture). 4 to allow to Greece to avoid default, though Unions are pondering furtherprotests. SIGNED not in time for Monday’s meeting. But that 6 Greece has become a bystander to its Actual AUG 19TH will do little to alleviate Greece’s misery. 8 own tragedy. The conditions attached to FORECAST GDP has shrunk by over one quarter since the bail-outs drastically reduce the govern- 10 2008, and the recovery has been dismal by 2010 11 12 13 14 15 16* 17 18 ment’s control over economic policy. For historical standards. Nearly a quarter of many Greeks, this makes politics itself Sources: IMF; European Commission *Estimate the workforce is jobless, and over a third of1 44 Europe The Economist February 18th 2017

2 children are poor or nearly poor. Young, met current expenditures (bar interest pay- Donald Trump and NATO ambitious Greeks have been forced ments on debt) from revenues since 2014; abroad. Banks are clogged with non-per- today’s arguments are largely about shuf- Pay up forming loans, and tax-collection rates fling money from one public creditor to an- have actually fallen. Like its predecessors, other. Even if the July deadline is met, fur- Syriza has learned the art of complying ther cliff-edges lie ahead, meaning more with bail-out targets without owning summitry and more market jitters. North- them. The current delays will hurt the ern Europeans will grow more, not less, In James Mattis NATO has a friend, but economy and make it harder for Greece to hostile to debt forgiveness, even ifit comes he came to Brussels with a warning return to the markets next summer. A in disguise. The deadlockthistime may not fourth bail-out looms. be as serious as in 2015, when Greece came URING his first month in office Do- Locked inside the euro, unable to deval- close to ejection from the euro. Yet it shows Dnald Trump has often left allies con- ue, and confronted with German fears the problem of a bail-out architecture that cerned and confused. So when James Mat- over a “transfer union”, Greece has been is unfit forpurpose but from which neither tis, America’s new defence secretary, forced down the road of internal devalua- creditors nor Greeks can work out how to visited NATO’s headquarters in Brussels tion and austerity. The government has extricate themselves. 7 this week, he strove to calm anxious col- leagues. Attending his first meeting of NATO defence ministers, Mr Mattis said Moldova’s economy that the administration strongly supports the alliance, which remains the “funda- A do-over in Moldova mental bedrock for the United States and CHISINAU the trans-Atlantic community”. (Previous- ly, Mr Trump had described NATO as “ob- How Europe’s poorest countrysurvived a giant bankrobbery solete” and not doing enough to fight Is- OLDOVAis a country ofignomini- lamic terrorism.) Mous records. It is by farEurope’s But Mr Mattis also stressed that the poorest place. Among countries that president is serious when he demands that bother to count foreign tourists, only otherNATO members must spend more on Tuvalu welcomes fewer. Tothese du- defence. Otherwise, he warned, America bious achievements, this little Romanian- might “moderate its commitment to the al- speaking formerSoviet republic added a liance”. This is hardly a new refrain from new one in 2014. A leaked report revealed an American president. However, Mr that up to $1bn, equivalent to more than Trump’s uniquely sceptical view of alli- an eighth ofthe country’s GDP, had been ances raises the riskofignoring it. stolen from three banks. Relative to the Mr Mattis did not go quite as far as his size ofits economy,that may be the big- boss did, while a candidate, in arguing that gest bankfraud ofall time. What hap- America might honour its Article 5 com- pened next, however, was surprising. mitment to collective defence only if the Following the theft economists had ally in need had paid its dues. But irrespon- feared the worst, especially since two of sible as that pronouncement was, it has Moldova’s biggest trading partners, Uk- had some effect. Jens Stoltenberg, NATO’s raine and Russia, were mired in financial secretary-general and formerly Norway’s crises oftheir own. Yet since then the prime minister, never misses the opportu- country has coped remarkably well. GDP nity to call for increased spending. In two shrankbyamere0.5%in2015(whereas At least the wine is safe telephone calls with MrTrump, he has told Russia’s fell by 4% and Ukraine’s tanked the president that he backs his demands. by10%). Last year Moldova grew by 2%, rose by a third last year. A free-trade What those are in practice is still not fastby European standards. agreement with the EU in 2014 provides a clear. But as Mr Mattis reiterated, a more Some credit must go to the govern- ready market forMoldovan commod- determined push by some NATO members ment, which swiftly offered a blanket ities, including its delicious wine. to meet theirobligation to spend at least 2% guarantee ofdeposits. The state in effect Money sent backby Moldovan emi- of GDP on defence would be a start. Some issued debt to cover every deposit in grants may have also softened the blow. progress has been made since a summit in banks that failed.Moldova’s government Moldova is about twice as dependent on 2014 when all members agreed to hit that finances looka little shakier as a result. remittances as the Philippines, which is target by 2024. The context was fear of Rus- But neither households nor companies saying something. Though the flow has sia, which had startled Europeans with its have lost money directly.The govern- slowed, the weakness ofthe Moldovan annexation of Crimea, covert invasion of ment’s intervention has thus propped up leu ensures that expats sending money eastern Ukraine and increasingly threaten- consumption and investment. The tills at from the EU get a good deal. ing posture along NATO’s borders. Mr Stol- MallDova, a shopping mall in the capital, Problems remain. Even the poshest tenberg revealed this week that military are still ringing. areas ofChisinau have pockmarked spending by European members increased The odd structure ofthe Moldovan roads and poor lighting. Corruption is by 3.8% in real terms last year, equivalent to economy also helped. It is heavily agri- rampant (though the IMF is helping the about $10bn—a bit more than the defence cultural: about a third ofworkers are government to fight it),15%ofMoldovans budget of the Netherlands. However, only farmers. Most are smallholders. Few are poor and higher government debt four members other than America cur- borrow much from banks, so few have means fiscal policy will be tight. But fora rently spend as much as 2%: Britain, Po- noticed that credit has grown tighter. place that usually makes the news for the land, Estonia and Greece. Good weather played a part: following wrong reasons, a glimmer ofhope is To give NATO the boost it needs, more dry conditions in 2015cereal production about as good as it gets. big countries will also need to cough up. Germany is one of the worst laggards. De-1 The Economist February 18th 2017 Europe 45

2 spite promises by Angela Merkel, the chan- valny successfully appealed his Kirov con- Italian politics cellor, to raise spending, the defence bud- viction at the European Court of Human get is a measly 1.2% of GDP.Ifitweretohit Rights, and last year Russia’s supreme 2% by 2020, the budget would have to court agreed to hear the case again. But this The gambler grow by about $22bn more than is cur- month the Kirov court reaffirmed the deci- ROME rently planned. Germany’s defence minis- sion of 2013 with a verdict repeating, al- How to get ahead in Italy: quit ter, Ursula von der Leyen, has described most word for word, the original ruling. It the call for more spending as “a fair de- leaves Mr Navalny ineligible, for now, to ATTEO RENZI, Italy’s formerprime mand”. But other more fiscally-strapped take part in elections. Mminister, has never been one to countries, such as Italy and Spain, would Mr Navalny hopes to whip up enough shrinkfrom a bet. On February19th he is struggle to satisfy NATO while observing grassroots support to force the authorities set to stake all his remaining chips by restrictive European Union budget rules. to allow him to run. A precedent exists: resigning as leader ofthe governing No new commitments were made this after his conviction in 2013, thousands of Democratic Party (PD). It will be the week, but Mr Mattis has put NATO on no- supporters took to the streets of Moscow. second time in three months he has quit tice to come up with something more sub- The court unexpectedly freed him pending a top job, having resigned as prime min- stantial than the pledge made in 2014. They an appeal, allowing him to take part in the ister in December after losing a referen- have an added incentive to do so. When mayoral elections, where he won more dum on constitutional reform. But this the alliance meets for its next summit in than 27% of the vote despite being nearly time he is hoping that, in the ensuing Brussels, likely to be on May 25th, Mr invisible on Russian television. He says contest, he will be victorious. Why Trumpwill be there in person. 7 some 25,000 people have already offered should he need, or want, re-election? to volunteer for his presidential bid; when Since he was elected party leader in he opened his office in St Petersburg earlier 2013, Mr Renzi has faced dogged opposi- Russian politics this month, hundreds lined up on the icy tion from inside the PD. His adversaries streets. The campaign has been soliciting include left-wingers who dislike his Barred from the donations online, even accepting the on- business-friendly policies and members line currency Bitcoin, “like drug dealers”, ofthe party’s old guard. The latest dis- ballot Mr Navalny jokes. agreement is over the timing ofthe next Some see slight parallels with Boris election. Neither side can enforce a date: MOSCOW Yeltsin’s rise to power. In 1987 Yeltsin re- it depends on the president, Sergio Mat- signed one ofthe top positions in the Com- tarella, who has refused to dissolve How to run forpresident when your munist Party and publicly attacked Mikh- parliament until Italy has new electoral campaign has been ruled illegal ail Gorbachev, the Soviet leader, for rules that apply compatibly to both ITH little more than a year remain- dragging his feet on reforms. Despite being houses. Provided a new electoral law Wing before Russia’s next presidential blacklisted by the media, Yeltsin gained can be agreed, Mr Renzi wants a vote elections, Aleksei Navalny, the country’s popular support. soon afterwards so he can win backthe leading opposition politician, is hitting the Nonetheless, Mr Navalny is sombre premiership as the PD’s candidate; his campaign trail. Over the coming weeks he about his prospects. Mr Putin is still popu- critics want to delay so that he gradually will embark on a tour from Siberia to the lar. Russian state television rarely speaks of ceases to be the obvious choice. A leader- Black Sea, opening offices and recruiting Mr Navalny and, when it does, only to dis- ship contest, involving primary elec- volunteers. The factthat a Russian court re- credit him. Only a third of Russians recog- tions, would put the issue beyond doubt. cently ruled him ineligible to run has done nise him; most know him from his crimi- By resigning, Mr Renzi can make that little to change his plans. “Dance as if no nal charges. The opposition is divided and contest unavoidable. one can see you, campaign as if you’re al- dishevelled. During last year’s parliamen- Just as he has made a lot ofenemies ready on the ballot,” Mr Navalny quips. tary campaign, when Mr Navalny in his own party, MrRenzi has plenty of The court’s decision is farfrom the final stumped for the opposition party RPR-Par- critics among the voters who can take twirl in Mr Navalny’s ongoing foxtrot with nas, he spoke of sneaking into parliament part in the primaries. The economy the Kremlin. Even if he is barred from run- and buildinga coalition. Now,he acknowl- remained at a virtual standstill on his ning for office, he cannot be written entire- edges that “power is unlikely to change in watch. A big gap opened up between his ly out ofRussian politics; his place within it Russia as a result ofelections.” 7 bombastic promises and the relatively does not depend on electoral success, but modest reforms his government man- on support from young, urban Russians aged to introduce. Yet he nevertheless disenchanted with the rule of the current remains Italy’s most trusted party leader president, Vladimir Putin. And Mr Putin (although that is a low bar). As such, he is could let Mr Navalny run without fear that unlikely to lose. he might actually win. Letting him do so The greater riskis that, in imposing might provide useful window-dressing, his will, Mr Renzi will turn the fracture in making Mr Putin’s inevitable victory seem the PD into a much wider split. His un- less dodgy. (Although Mr Putin has yet to compromising use ofhis tactical genius declare his intention to run in 2018, few has cost him dearly before: in 2015, he have any doubts that he will.) “It’s all part outwitted the centre-right leader, Silvio of the process of the struggle for power,” Berlusconi, to get Mr Mattarella elected Mr Navalny says. president. The result was that an irate The courtroom is a regular setting for and humiliated Mr Berlusconi withdrew that struggle. In 2013, ahead of Moscow’s from a pact to support Mr Renzi’s consti- mayoral elections, Mr Navalny was found tutional reforms in parliament. Without guilty of trumped-up embezzlement char- broad parliamentary support, Mr Renzi ges linked to a lumber company in the city had to call the referendum that eventual- of Kirov.Since then he has been embroiled ly led to his departure from office. in a string ofsimilarly absurd cases. Mr Na- Aleksei Navalny: poster boy 46 Europe The Economist February 18th 2017

Turkish-Russian relations for the army. The sweeping purges that fol- lowed July’s coup were ostensibly directed Getting into bed with the bear against followers of the Gulen movement, an Islamic sect suspected of leading the mutiny. But they have also claimed the ca- reers of thousands of pro-Western officers, ISTANBUL clearing the way for those more sympa- thetic to Russia. Turkey sees Russia as an indispensable partner. Russia views it as one ofNATO’s Kerim Has of Moscow State University weakest links points to the growing influence inside the T ISTANBUL’S naval museum, around Turkmen, with impunity. Russia’s missile army of a group inspired by Dogu Perin- Athe corner from President Recep Tay- defences denied Turkey access to the air- cek, an ultranationalist ideologue. Mr Pe- yip Erdogan’s residence, reminders of one space over Syria. Russian sanctions cost rincek, who also heads a small political of Europe’s biggest geopolitical rivalries Turkey at least $10bn in tourism and trade party, insists there is no room forany politi- are everywhere. A bust commemorates revenue. cal divisions in the armed forces. But he re- Hasan Pasha of Algiers, a commander in a Russia remains the stronger partner. Mr joices that the purges have weakened battle in which the Russian fleet burned Erdogan’s government has offered Ros- Western influence. “Alarge share ofAmeri- the Ottoman one to a crisp. The remnants atom, the Russian company building Tur- ca’s power in the military and the police of the Mahmudiye, a galleon that led the key’s first nuclear plant, sweeteners worth has been crushed,” he gloats. siege of Sevastopol during the Crimean billions of dollars. It has endorsed Turkish War, overlookrows ofgilded boats used by Stream, a gas pipeline that would allow Authoritarian pillow talk the sultans. Such flare-ups are not just Russia to extend its grip over Turkey’s and The anti-Western hysteria that swept thingsofthe distantpast. In 2015 Turkish pi- Europe’s energy markets. (Turkey already through Turkey in the wake ofthe coup has lots shot down a Russian warplane, and depends on Russia for 55% ofits natural gas dimmed slightly over the past couple of the two powers appeared on the brink of imports.) Most importantly, Mr Erdogan months, partly because ofthe hopes Mr Er- another war. It would have been their 18th. has reversed course on Syria, abandoning dogan places in Donald Trump. Mr Erdo- Instead, the two countries resorted his dream of ousting its blood-drenched gan and many in his government expect only to insults and sanctions. Since then president, Bashar al Assad. Mr Trump to extradite the presumed mas- tensions have ebbed: in June last year Mr In exchange, Russia has allowed Tur- termind of July’s coup, Fethullah Gulen, Erdogan apologised for the incident. Two key’s army to set up a buffer zone inside and to sever links with the Kurdish YPG, weeks later, Russia’s president Vladimir Syria. Turkey has seized the chance to push which the Obama administration consid- Putin rushed to condemn a violentcoup at- IS backfrom its last border strongholds and ered an effective force against IS, but which tempt against Turkey’s government. The stem the advance ofAmerican-allied Kurd- Turkey considers a terrorist group. Mike two countries have subsequently signed a ish insurgents, known as the People’s Pro- Pompeo, the CIA’s new chief, was in Anka- big gas pipeline deal, agreed to resume tection Units (YPG). Mr Putin has been ra to discuss these issues on February 9th. workon a nuclearplantin southern Turkey slow to reciprocate in other areas, how- If Mr Trump disappoints, however, the and pledged to increase bilateral trade by ever. Most ofthe sanctions Russia imposed relationship between Mr Putin and Mr Er- more than fivefold, to $100bn a year. on Turkish food products in 2015 remain in dogan looks likely to get closer. Russia Even more strikingly, as European and place. “It seems as if they’re still rubbing needs Turkey to speed up the political pro- American diplomats watched from the our noses in it,” says Cenk Baslamis, a vet- cess in Syria by bringing anti-regime forces sidelines, in December the pair brokered a eran Russia observer. to the negotiating table. Turkey needs Rus- ceasefire in battle-scorched Aleppo and Turkey is not about to trade in NATO sian tourists, gas supplies and help rebuild- agreed on a plan to stop the fighting in the membership for an alliance with Russia. ing ties with Mr Assad. But when another rest of Syria the following month. At the But Turkey’s reliability as a Western crisis strikes, Mr Putin will try to push the height of their dispute, Mr Putin and Mr Er- partner increasingly looks in doubt. Ru- wedge between Turkey and NATO deeper. dogan were accusing each other of sup- mours abound that some of Mr Erdogan’s As a formerTurkish president put it, “build- porting the so-called Islamic State (IS). To- associates inside the ruling Justice and De- ing relations with big states is like getting day, the two autocrats are coordinating velopment (AK) party favour reneging on into bed with a bear.” When that bear is airstrikes against it in Syria. some NATO commitments. The same goes Russia, it is best to stay wide awake. 7 The speed and the scale of the rap- prochement between the two countries, which was unruffled even by the assassi- nation ofthe Russian envoy to Ankara by a Turkish policeman in December, is star- tling. Yet the two strongmen have different and contradictory expectations. Whereas Mr Erdogan appears to see his relationship with Mr Putin as a way to extract conces- sions from his Western allies, Mr Putin wants to loosen what he sees as one of the weakest links inside NATO—Turkey. One of the two is likely to be disappointed. Mr Erdogan decided to make friends with Mr Putin partly because having him as an enemy was so painful. After Turkey shot down that Russian plane in 2015, Mr Putin cut Turkey off from the Middle East. His fighterjets bombed Turkey’s proxies in- side Syria, including its ethnic cousins, the The Economist February 18th 2017 Europe 47 Charlemagne French lessons in dégagisme

The urge to elect an insurgent is helping two insiders pean Union, withdraw France from the euro, raise protectionist tariffs, curb immigration and reinstate welfare privileges. Mr Macron, by contrast, is a zealous champion of the EU, favouring open borders, global trade, technical innovation and the adapta- tion of France’s welfare system to a less stable future job market. She is the favourite among blue-collar workers; he draws dispro- portionate supportfrom universitygraduates. She hasclimbed to the top of the polls on the back of dire warnings of an immigrant invasion and Islamist infiltration; he has charmed his way to be- come the bookmakers’ favourite with a sharp mind and upbeat outlook. Their antipathy is unambiguous. Ms Le Pen calls him an “ultra-liberal” globalist, a sort ofcitizen ofnowhere, who is “surf- ing on air”. Mr Macron says that she pretends to speak “for the people”, but in truth speaks only for her clan. To underline their rivalry, on a recentweekend the paircould even be found holding rallies in the same city, Lyon. If the pair share a common feature, it is the perception that they are both outsiders: newcomers intent on breaking the grip that old-time parties of the left and right have held on executive power in France since the Fifth Republic was established in 1958, and on forcing a realignment of party politics. This is not a new HE tumbrels are rolling again in France, and the crowd is rest- idea, even in modern history. Pierre Poujade rallied shopkeepers Tless. One by one, political leaders of the ancien régime, who and artisans against the elite in 1956, and won his party 52 depu- had confidentlybeen preparingto face each otheratthe presiden- ties. The difference isthatthistime poweris, possibly, within their tial election this spring, have been carted offto the guillotine on a grasp. A year ago the notion that either Ms Le Pen or Mr Macron wave of revanchist fury. France is in the grip of what might be stood a serious chance of winning the presidency belonged to called “dégagisme”: a popular urge to hurl out any leader tainted the realm offantasy. French codes and conventions favour candi- by elected office, establishment politics or insider privilege. Less dates from established parties, with local networks and parlia- clear is which sort ofoutsider French voters want instead. mentary weight, and a long history of electoral campaigning. Mr This impulse is by no means unique to France. Casualties of Hollande first stood forelection in 1981, when MrMacron was just an anti-establishment rage are still nursing their wounds in three years old. His predecessor, Mr Sarkozy, was first elected in America, Britain, Poland and other liberal democracies. But the 1977, when Ms Le Pen was still in primary school. Ms Le Pen has list of French victims of this howl of anger is particularly star- neverheld executive office. MrMacron hasneverrun for election. studded. In recent months it has included a sitting Socialist presi- dent (François Hollande, who read the mood and declined to Sans-culottes? Hardly seekre-election), a formercentre-right president (Nicolas Sarkozy, Yet in reality Ms Le Pen and Mr Macron are decidedly odd outsid- who lost his party’s primary) and two ex-prime ministers (Alain ers. She is part of a political dynasty, founded by her father, Jean- Juppé and Manuel Valls, both also dispatched in a primary). Marie, who set up the FN in 1972. A European Parliament deputy, The hostilityseemsindiscriminate. The French have cast aside Ms Le Pen is accused by its watchdog of misuse of the public pay- the insipid and the showy, the sanguine and the sombre, old-tim- roll. She claims to speak “in the name of the people”, her cam- ers on the left and the right. Other victims could yet fall. Another paign slogan, yet was raised in a ridge-top mansion overlooking formerprime minister, François Fillon, the centre-right candidate, Paris, in one of the capital’s swankiest suburbs. Mr Macron, from is clinging on by a thread after it emerged that he employed his a medical family, is a graduate of the Ecole Nationale d’Adminis- wife for years as his parliamentary assistant, despite little evi- tration, the elite civil-service college. He worked asan investment dence that she did any work. A former beneficiary of this prefer- banker, then adviser to Mr Hollande at the Elysée, before becom- ence for the insurgent, the dour and tweedy Mr Fillon was the ing his economy minister. Unconnected ingénus they are not. outsider in his party primary last November before sweeping to Perhaps what Ms Le Pen and Mr Macron really represent, in victory. Today he has fallen from presidential favourite to third their diametrically opposite way, is the nature ofthe political out- place in the polls. It could yet be that a candidate from an estab- sider in an age of disillusion. The authentic version (such as Ger- lished party—Mr Fillon or, at a stretch, Benoît Hamon, the fresh- many’s Angela Merkel) is a rarity. Today’s successful insurgents faced Socialist nominee—pulls through in the end. But, for now, need not lack fortune or connections (as Donald Trump demon- the upswell of dégagisme has instead lifted two political outsid- strates). They need not lack experience, either (Ms Le Pen has ers. One is Marine Le Pen, leader ofthe nationalist Front National been an MEP since 2004). Rather, an insurgent must appear fresh, (FN), who tops first-round voting intentions (though not polls for sound in touch with new fears and ordinary concerns, and break the run-off). The other is Emmanuel Macron, who is running as convention—whether to disturbing, or thrilling, effect. French an independent, campaigning forvotes on both the left and right mainstream-party candidates may yet resist the forces of déga- under the “progressive” banner ofEn Marche! (On the Move!). gisme. If not, voters could face the stark choice between two un- In most respects, each of these candidates is the antithesis of tested, and wholly divergent, outsiders: Ms Le Pen’s nationalist, the other. Ms Le Pen calls herself a “patriot”, who wants to give xenophobic version, and the liberal-minded, internationalist “preference” to French nationals, escape the clutches of the Euro- brand ofthe dynamic young Mr Macron. 7 48 Britain The Economist February 18th 2017

Also in this section 49 A return to the Gulf 50 Bagehot: Harriet Harman’s unfinished business

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

Scotland’s economy and nothing looks amiss. Yet since 2014 employment in the industry has dropped Taking the low road by overa tenth (while risingslightly in Lon- don). Average pay has declined by 5% in the past year. Scottish finance is struggling for two reasons. First, argues Owen Kelly of Edin- ABERDEEN AND EDINBURGH burgh Napier University, it disproportion- ately comprises mid-range work, such as Crises in its main industries have set Scotland on a poorerpath than its neighbours customer service. Those jobs are vulner- VER the past seven months the British Street, the main shopping drag, vacancies able to automation, which is proceeding Oeconomy has beaten almost all fore- have risen; a nearby steak-and-lobster res- apace across the financial-services indus- casts. Since the Brexitvote lastJune, a reces- taurant, where a wagyu ribeye would set try. In March the Royal Bank of Scotland sion has easily been avoided and job punters back£40 ($50), closed last year. began cuttingmore than 500 jobsaspart of growth remains decent. In one part of the Few people expect to see a return to the a plan to automate investmentadvice. Offi- country, however, things look very differ- days of steak and lobster. With ageing cial data suggest that, in just two years, 20% ent. In the year to September Scotland’s fields and pricey labour, the North Sea is of Scotland’s administrative jobs in finan- GDP grew by 0.7%, while that of the rest of one of the world’s most expensive regions cial services have disappeared. the country grew by 2.4% (see chart). Em- from which to extract oil. At today’s prices, Second, speculation about another in- ployment there is falling and wages grow- production is barely profitable. With many dependence referendum is hurting the in- ing much more slowly than elsewhere. fields nearly exhausted, big firms are look- dustry. Since the Brexitvote, in which a ma- Scotland’s weak performance is linked ing elsewhere. In January Royal Dutch jority of Scots chose to Remain, the ruling to problems in its two most important in- Shell and BP both said they would sell Scottish National Party has accelerated dustries: energy and finance. Those two some oftheir North Sea interests. plans for what it calls “indyref2”. Last businesses’ exports have together account- The troubles in the oil industry are well month a consultation closed on a draft bill ed forup to a third ofScotland’s GDP in the known. Less noticed is that Scottish finan- for a fresh ballot. Polls suggest that support past. Now both are in trouble. cial services are also having a tough time. forindependence isnotfaroff50% (and na- The bad news begins in the North Sea. Wander around the handsome Georgian tionalists point out that in the ultimately The drop in the price of Brent crude from squares of Edinburgh’s financial district, unsuccessful campaign of 2014 they sub- $110 a barrel in 2014 to $55 today has hit the stantially outperformed early polls). oilmen hard. Taxrevenues from oil and gas This concerns Scottish financial firms are shared across Britain, so Scotland has I’ll be in recession afore ye much more than Brexit does. The vast bulk not felt much of a fiscal impact. But of the GDP, % increase on previous quarter of their business takes place in the rest of 100,000 or so British oil-and-gas jobs lost Britain, not Scotland, points out Graham 1.0 since 2014, perhaps a third were in Scot- Campbell of Saracen Fund Managers, Rest of land. Those gigs paid well—at the height of United Kingdom 0.8 based in Edinburgh. Independence might the boom, relatively unskilled folk could lead to trade barriers at the English border, command six-figure salaries—so their loss 0.6 or different regulations between the two takes a big bite out ofconsumer spending. countries, especially if Scotland sought to The effectsare plain to see. In Aberdeen, 0.4 rejoin the EU, as its government has im- Europe’s oil capital, hoteliers used to plied it would. Some firms are making con- charge almost whatever they liked. No 0.2 tingency plans. Murray Asset Manage- more: the average price of a room has Scotland ment, another Edinburgh firm, recently dropped by a third since late 2014. House 0 moved its registered office to London. prices in the city are fallingfaster than they 2013 14 15 16 The jitters seem to be more widely felt. The Economist are anywhere else in Britain. On Union Sources: ONS; Scottish government; Formation of startups in all industries has1 The Economist February 18th 2017 Britain 49

2 fallensharply since 2013, suggest data from will allow the Scottish government to re- British forces will redeploy to Oman after BankSearch, a consultancy. Foreign inves- spond more nimblyto local circumstances, they pull out of Germany in 2019. Mer- tors have also taken heed: the number of and if Scotland booms it will enjoy higher chants offering everything from weapons foreign direct investment projects has tax receipts. But during downturns its tax to sand for golf bunkers have made the dropped by a tenth in two years, while take will fall. Scottish public finances have Gulf Britain’s largest export market after jumping in the rest ofthe country.Reduced never been more vulnerable. the EU and America. London fund manag- investment will hit productivity growth Which makes the present difficulties all ers play on jitters over Gulf stability to at- and hence pay. the more serious. Regulations place strict tract locals’ wealth. Such landmarks as the Scotland’s changing fiscal architecture limits on how much the Scottish govern- Shard, the Olympic Village and Harrods— could compound these problems. Last ment can borrow, so if tax receipts are all Qatari-owned—are testaments to their April the Scottish government assumed weak it has to economise. In its draft bud- success. Even City Hall, the seat of Lon- partial control over income tax. Soon it get for 2017-18 it has already cut local-au- don’s mayor, belongs to Kuwait. will take almost complete control, and will thority spending, points out Ronald Mac- Britain’s pretensions can seem over- also get its hands on half of value-added Donald of Glasgow University. The fiscal blown. Behind the hype, the Juffair base tax (VAT) receipts, amongotherthings. Our pressure will intensify if employment falls amounts to little more than a pier inside calculations suggest that it will thus be re- further, cutting into the income-tax take. the sprawling base ofAmerica’s Fifth Fleet. sponsible for collecting tax equivalent to a Consumer spending is also looking shaky, Britain’s flotilla of seven warships in the third ofall public spendingin Scotland (the which will trim VAT receipts. While the Gulflookspunynextto America’s40, com- remaining two-thirds will continue to overall British economy will surely slow as plete with nuclear-powered aircraft carri- come from Westminster). This has advan- Brexit gets under way, Scotland is in for a ers with decks the area of three football tages: the freedom to raise or lower taxes very tight squeeze. 7 pitches. On his last visit to Bahrain as de- fence secretary, Ash Carter seemed to scoff at suggestions that Britain might replace a wary America. “There aren’t any good al- ternatives,” he said. That said, potentates who bridled at the restrictions the Obama administration placed on arms exports find Britain’s gov- ernment less pernickety. It licenses arms exports to all Gulf regimes and supports their forces oflaw and order (in 2015 a stink about a contract between Britain’s justice ministry and the Saudi prison service led to the deal’s cancellation). BAE Systems, an arms manufacturer, is one of Saudi Ara- bia’s largest private-sector employers. Ac- tivists have gone to court in Britain to chal- lenge the legality of over £3.3bn ($4.1bn) of arms sales to Saudi Arabia since the onset ofits Yemen war in March 2015. With Iran across the water, many Gulf leaders seem happy to pay for British pro- tection. Indeed, many trained at Britain’s military college, Sandhurst, before Britain Britain in the Gulf backed their succession. Oman’s sultan, Qaboos bin Said al-Said, served with the Back to the desert Scottish Rifles in Germany. But Britain also risks making enemies. Oman-watchers in London fearfortheir re- lationship (and the defence contracts) when the ailing sultan dies. “Money JUFFAIR NAVAL BASE ploughed into arms deals should be spent internally. The security challenges the Gulf The post-Brexit search forstrategicpartners arrives in the Middle East faces are internal, not external,” says an HE scenario for naval exercises carried Gulf. The union flag flutters over the new Omani official. Britain’s role as protector of Tout off the Iranian coast earlier this Juffairnaval base in Bahrain. More military Bahrain’s king infuriates the island’s sup- month was thinly disguised. “Redland and installations are sprouting in Dubai and pressed Shias. “Of all the main Western Grunland are regional rivals,” read the Oman. Bahrain’s rulers have covered their embassies, only Britain keeps its distance,” brief, code apparently for Saudi Arabia island in posters lauding “200 years of says a Shia elder. Abu Taqi, the father of a and Iran. “Relations have recently degrad- friendship and peace” with Britain. So co- stone-thrower who was shot dead, curses ed with aggressive rhetoric coming from pious are Gulf investments in London that Britain forbefriending Bahrain’s rulers. both sides.” Leading the way through the Britain’s capital is the “eighth emirate”, As tensions with America rise, Iran’s Strait of Hormuz was HMS Ocean, the Royal says Mr Johnson. ayatollahs, too, see Britain as a potential Navy’s flagship until its two new aircraft Brexit has given added impetus to Brit- weak spot. “In the event of a war in the carriers enter service. American and ain’s renewed interest in the region. Just as Gulf, the [Juffair] base will definitely be a French warships sailed close behind. itended colonial rule ofthe Gulfon the eve target for Iran,” says an ayatollah close to Forty-five years after a withdrawal that ofits accession in 1973 to the European Eco- senior officers of Iran’s Revolutionary the foreign secretary, Boris Johnson, de- nomic Community, so now Britain is woo- Guard Corps. Britain is sailing into rather scribes as mistaken, Britain is back in the ing old partners with a succession of visits. warm waters. 7 50 Britain The Economist February 18th 2017 Bagehot Harman’s unfinished business

Modernising Britain, and its politics, is slow and thankless work tors. And at every step ofthe way, vast walls ofopposition. When Ms Harman opposed all-male shortlists, she was informed that working-class women were not interested in politics. When she was made social-security secretary, herdeputy told civil servants to bypass her and take big decisions to him. When she beat a mostly male field to become Labour’s deputy leader she was not, unlike her male predecessor, made deputy prime minister. To the tabloids and the sort of Neanderthal MP who sees her as a men- ace she is “Harriet Harperson”, “Harridan Harman”, “bossy”, “icy” and “shrill”. The best illustration ofwhat hard, unglamorous and unpopu- lar work it can be to advance changes that ought to come natural- ly is Ms Harman’s account of how Westminsterhas evolved, and how it has not, since she first won her south London seat in 1982. Back then 97% of MPs were men; women were even outnum- bered by MPs called John. She describes the dismal experience of late-night votes, when MPs waiting to speak would get progres- sively more drunk, then would give progressively longer speech- es, then in the early hours would subject her rounding-up speech to “inebriated jeers”. The bookcontainssome jaw-droppinganec- dotes. In 1983 an anonymous MP complained that Ms Harman RITISH politics, it is widely noted, now revolves around two had voted with a baby under her coat; she was embarrassed to B axes: left v right and open v closed. But a third one predates tell the clerks it was just the residual weight from a recent preg- both. In the English civil war the Roundheads (parliamentarian nancy. When she argued formore family-friendly hours in Parlia- and prim) defeated the Cavaliers (royalist and flamboyant), then ment she was accused of being a marriage breaker: apparently lost the peace. The taxonomy lives on not as ideology but as two MPs’ wiveswould nottrustthem “beingoutand aboutin London demeanours. Westminster’s Roundheads are sober, earnest and in the evenings”. Desperately slowly, one tiny step at a time, Ms severe: think Margaret Thatcher, Gordon Brown and Theresa Harman and her comrades chipped away at this culture. Today, May. Its Cavaliers tend to be swaggering, arch and clubbable: Da- thanks to their efforts, there are 195 women MPs, Parliament’s vid Cameron, Nigel Farage and to a lesser extent Tony Blair. The hours have been reformed and there is a crèche for children of Cavaliers tend to have the most fun and get the best press. It is no MPs and other staff. coincidence that the supreme Cavalier ofBritain’s recent political Yet depressingly much stays the same. Ms Harman’s descrip- past was also its supreme diarist: Alan Clark. “I only can properly tion of the press lobby and the legislature when she arrived—“a enjoycarol servicesifI am havingan illicitaffairwith someone in boys’ club being reported on by a boys’ club”—still holds. The the congregation,” he once wrote. House of Commons is more male (70%) than equivalent legisla- Harriet Harman, Labour’s formerdeputy leader, is as roundly tures in Algeria, Belarus and Sudan. Recent studies of correspon- Roundhead as Mr Clark was confidently Cavalier. Her new auto- dents in Westminster put the proportion of women at around a biography, “A Woman’s Work”, is as serious as his books are riot- quarter. The boozy, late-night, wood-panelled stuffiness of the ous. Reading it, Bagehot was reminded of Oscar Wilde’s maxim place lives on, as recent news stories have shown. A survey of 73 that “the trouble with socialism is that it takes too many eve- women MPs by the BBC last month found that almost two-thirds nings”. The same, it seems, is true of the feminism to which Ms had experienced sexist comments within Parliament (a male MP Harman has dedicated her career—first as an activist lawyer, then told one she should be “in the kitchen washing dishes”). In a de- as a backbench MP, later as a minister. Over 400 pages she docu- bate on January30th a troglodyte Torywoofed ata woman MP as ments four decades of brow-furrowing evenings: procedural she spoke. In a text-message exchange leaked to the newspapers meetings, resolutions, commissions. Her very language bears the last weekend David Davis, the Brexit secretary, denied having dusty whiffofthe committee room: “Takingthe fight to the Tories tried to kiss Diane Abbott, the shadow home secretary, in a West- is undoubtedly an important role for Labour in opposition”; minster bar: “I’m not blind,” he chortled. “Frank was…not respected by the welfare stakeholders”. “Ever ready to solve rather than cause problems, I…” begins one sen- Thank you, Harriet Harperson tence, without irony (using humour would “deepen the problem The sheer inertia slowing changes to all this, so easily underesti- of me not being taken seriously”). This is a book on a mission: to mated by commentators, is why politics needs Roundheads. counterbalance what the author calls the “vanity projects” writ- With theircompromisingbonhomie Cavaliers are useful consoli- ten by her male colleagues. It is not one forthe beach. dators, lubricators of relations between social groups, guardians Yet it is one to read. For it makes a fine case for the Roundhead of good humour and thus perspective. But leave politics to such tendency in politics. It charts how the achingly slow, often thank- types and it becomes a golf club bar. For it to work, they must be lessand arduousworkofmodernisingsocietyroutinelymeets re- joined by the likes of Ms Harman: Roundheads willing to tread a sistance where it should not: getting wages and health care recog- stonier path. These politicians make enemies, call out bad con- nised as women’s issues, introducing measures to raise the sensuses and gradually, painfully reform the common sense of proportion of women MPs, improving child care, increasing the the age. “Today’s heresy is tomorrow’s orthodoxy,” she writes in pitifully low rate of prosecutions of domestic-violence perpetra- “AWoman’s Work”. How well her story illustrates this truth. 7 International The Economist February 18th 2017 51

International divorce Also in this section Unhappily ever after 52 The obstacles to inter-faith marriage

Forthe rising numberofinternational and footloose families, breaking up can be tricky—and sometimes tragic ATE BAGGOTT and her two children partner by the other is rare in France and another country’s unfamiliar laws. And Klive in a tiny converted attic in a village Texas—and ruled out in another American one spouse may be tricked or bullied into near Frankfurt. Ms Baggott, who is Canadi- state, Georgia, if the spouse seeking sup- agreeing to a divorce under the rules that an, has a temporary residence permit and port was adulterous. best suit the other. cannot work or receive benefits. The trio Under English law, by contrast, family The bitterest battles, though, are about arrived in Germany in October, after a Ca- fortunes are generally split evenly, includ- children, not money. Approaches to custo- nadian court order gave them a day’s no- ing anything owned before the marriage. dy vary wildly from place to place. Getting tice to get on the plane. Ms Baggott’s ex- Prenuptial agreements, especially ifdrawn children back if an ex-partner has taken husband, a Canadian living in Germany, up by a lawyer representing both spouses, them abroad can be impossible. And had revoked his permission for the chil- are often ignored. The wife ofa Russian oli- when a cross-border marriage ends, one dren’s move to Canada afterthey had been garch or a Malaysian tycoon can file for di- partner’s right to stay in the country where there nearly a year, alleging “parental child vorce in London if she can persuade a the couple lived may end, too, if it de- abduction”. A German court has given Ms judge that she has sufficient links to Eng- pended on the other’s nationality or visa. Baggott full custody, but she must stay until land. A judge, says David Hodson, a family an appeal is over. lawyer in London, might be presented Treasures of the heart Such ordeals are becoming more com- with a list of items supporting her claim, Under the Hague Abduction Convention, mon as the number of multi-national and which may be as trivial as which sports a treaty signed by 95 countries, decisions footloose families grows. Across the Euro- team the husband roots for, or where the about custody and relocation fall to courts pean Union, for example, one in seven family poodle gets a trim. in the child’s country of “habitual resi- births is to a woman who is a foreign citi- Across the European Union, until re- dence”. If one parent takes a child abroad zen. In London a whopping two-thirds of cently the rule has been that the courts of without the other’s consent or a court or- newborns in 2015 had at least one parent the country in which divorce papers are der, that counts as child abduction. The who was born abroad. In Denmark, Spain filed first gets to hear the case. The result destination country must arrange the and Sweden more than a tenth of divorces was that couples often rushed to file rather child’s return. end marriages in which at least one than attempting to fix marital problems. But plenty ofcountries have not signed, partner is a non-citizen. But in some countries that is changing: last including Egypt, India and Nigeria. They The first question in a cross-border year Estonia became the 17th EU country can be havens for abducting parents. break-up is which country’s laws apply. since 2010 to sign an agreement known as Around 1,800 children are abducted from When lots of money is at stake there is an Rome III that specifies how to decide EU countries each year. More than 600 incentive to “forum shop”. Some jurisdic- which country’s law applies (usually the were taken from America in 2015; about tions are friendlier to the richer partner. couple’s most recent country of residence, 500 abductions to America are reported to Germany and Sweden exclude assets unless they agree otherwise). Though the the country’s authorities each year. owned before the marriage from any set- deal brings welcome clarity, it can mean Some countries, including Australia tlement. Ongoing financial support of one that courts in one country have to apply and New Zealand, often regard themselves1 52 International The Economist February 18th 2017

2 as a child’s habitual residence from the cause she had lived in Britain for such a mean many more divorcing parents find moment the child arrives. The EU sets the short time. For the past year she has lived themselves in this desperate state. Around threshold at three months. America differs on charity from friends. The police have 3.3m citizens of other EU countries live in from state to state: six months’ residence is taken her passport to stop her leaving Brit- Britain, and 1.2m Britons have moved in usually what counts. GlobalARRK, a Brit- ain with the baby. Another European the opposite direction; so far it is unclear ish charity that helps parents like Ms Bag- woman, living in New Zealand, says she whether they will continue to have the gott, is campaigning for information on fears being deported without her toddlers right to stay put and work. And in America, such rules to be included among the docu- when hervisa expiresin a fewmonths. She says Jeremy Morley, a lawyer in New York ments issued to families for their move fled domestic abuse with the children and who specialises in international family abroad. It also lobbies for a standard a bagofclothes in December, and has been law, immigration issues are increasingly threshold of one year for habitual resi- moving from one friend’s house to anoth- used as weapons in child-custody cases. dence and advises parents to sign a pre- er ever since. Judges in family courts, he says, often pay move contract stating that the child can go Child abduction is often a desperate little attention to immigration issues when home at any time. Though such contracts parent’s move of last resort, says Global- ruling on custody, because they know few are not watertight, they would at least alert ARRK’s founder, Roz Osborne. One parent, people are deported solely because their parents to the issue. who has residence rights, may have been visas have expired. But under Donald Britain iscomparativelygenerous to for- granted sole or joint custody, meaning the Trump, that may change. eign parents who seek a child’s return: it children cannot be taken abroad without Many parents have no idea what they provides help with legal advice and trans- permission. But the other parent may have sign up for when they agree to follow a lation. But plenty of countries do little or entered on a spousal visa which lapses spouse abroad, says Ms Osborne. They nothing. Family judges in many places fa- when the marriage ends. Even if permis- may mistakenly believe that if things do vour their compatriots, though they may sion to remain is granted, it may be with- not work out, they can simply bring the dress up their decisions as being in the out the right to work or receive state bene- children back home. Ms Baggott’s move to child’s interests. Parents who can no longer fits. In such cases, the decision of a family Germany was supposed to be a five-year pay their way through foreign courts may court guaranteeing visiting rights or joint adventure, the duration of her husband’s never see their children again. custody can be close to meaningless. work visa. Instead, she says, she has en- Some parents do not realise they are Britain’s departure from the EU could dured “a decade ofhell”. 7 committing a crime when they take the children abroad, says Alison Shalaby of Inter-faith marriage Reunite, a British charity that supports families involved in cross-border custody Where Rashid and Juliet can’t wed disputes. Even the authorities may not know the law. Michael, whose former JAKARTA partner took their children from Britain to Many countries make it hard to marry someone from anotherreligion France in 2015, was told by police that no crime had been committed. After he ar- RMAN DHANI, an Indonesian jour- marriage. Others include Israel, Jordan, ranged for Reunite to brief them, it took Analist who is Muslim, broke up with Lebanon and almost all Arab states. Only more than five months to get a French his Catholic girlfriend offive years when unions conducted according to the rules court order forthe children’s return. he reached the heartbreaking conclusion ofofficially recognised religions can be Other countries are slower still, often that they would never be able to marry. registered. In Indonesia children of un- because there are no designated judges fa- Indonesian officials refuse to register registered unions cannot get birth certif- miliar with international laws. Over a inter-faith marriages because the law icates, without which they struggle to third ofabductions from America to Brazil, does not mention them. “My mother receive health care or schooling. for example, drag on for at least 18 months. said: ‘Ifyou want to marry her she must Some couples ofdiffering faiths, or When a case is eventually heard the chil- convert to Islam,’” he says. “But I didn’t none, go abroad fora civil ceremony. dren may be well settled, and the judge re- want to make her betray her religion.” He Each year about 3,000 couples from the luctant to order their return. felt he could not change religion either. Middle East get married in Cyprus, which A renewed push is under way to cut the “IfI converted to Catholicism I would brands itselfthe “island oflove”. numberofchild abductions, and to resolve become dead to other Muslims.” Campaigns to introduce civil mar- cases quickly. The EU is considering setting Indonesia is one ofabout two dozen riage are afootin many countries. But an 18-week deadline for the completion of countries with no provision forcivil governments often fear angering politi- all return proceedings and making the pro- cally powerful religious groups. In Leba- cess cheaper by abolishing various court non marriages and other matters of fees. And more countries are signing up to family law, such as divorce and inheri- the Hague convention: Pakistan, where tance, are left to the religious courts of18 about 40 to 50 British children are taken Muslim, Christian and other sects. This each year, will sign next month. India, one allows politicians to sidestep the tricky ofthe main destinations forabducting par- taskofcrafting family laws that would be ents, recently launched a public consulta- acceptable to leaders ofall those faiths. In tion on whether to sign up, too. Indonesia, says Mr Dhani, both Muslim But the convention has a big flaw: it and Christian leaders fear that an inter- makes no mention of domestic violence. faith marriage would inevitably end up Many of the parents it classifies as abduc- with one ofthe partners converting. tors are women fleeing abusive partners. In many places, anyone who dares to One eastern European woman who wed across religious lines faces ostra- moved to Britain shortly before giving cism—and perhaps even violence. Get- birth and fled her violent fiancé four ting rid oflegal barriers would not re- months later, says she was turned away by move all the risks. But it would help, a bit. women’s shelters and denied benefits be- Business The Economist February 18th 2017 53

Also in this section 54 Electric love in Norway 54 Trump boosts newspapers 55 Twitter squawks 56 Selling off spectrum 56 PSA and Opel 57 Making satellites a success 57 Private aviation 58 Schumpeter: Short-termism

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Electric cars be as low as 68g/km by 2025 compared with 130g/km today. Volts wagons Regulations are favourable outside Eu- rope, too. In China more than 400,000 pure EVs were sold last year, making it the world’s biggest market. The government, keen to clear the air of choking exhaust The switch to battery-powered motoring means short-term pain but long-term gain fumes, has plans for a quota that could in- forcarmakers sist that 8% of sales are EVs or hybrids by HE high-pitched whirrofan electric car years. Ford has promised 13 new electrified 2018. And even if Donald Trump relaxes Tmay not stir the soul like the bellow cars in the next five years. Others are mak- American emissions standards, this will and growl of an internal combustion en- ing bigger commitments. Volkswagen, the not hold back electrification. California, gine (ICE). But to compensate, electric mo- world’s biggest carmaker, said last year which accounts forone in eight cars sold in tors give even the humblest cars explosive that it would begin a product blitz in 2020 America, isallowed to settougherenviron- acceleration. Electric cars are similarly set and launch 30 new battery-powered mod- mental standards than the national ones. for rapid forward thrust. Improving tech- els by 2025, when EVs will account for up It, and seven of the other states that have nologyand tighteningregulationson emis- to a quarter of its sales. Daimler, a German adopted its emissions rules, have a target sions from ICEs is about to propel electric rival, also recently set an ambitious target of3.3m EVs on their roads by 2025. vehicles (EVs) from a niche to the main- ofup to a fifth ofsales by the same date. stream. After more than a century of reli- The surge has two explanations: the ris- Moving right along ance on fossil fuels, however, the route ing cost ofcomplying with emissions regu- Technology will have as much impact as from petrol power to volts will be a tough lations and the falling cost of batteries. politics. Vehicles that carmakers are forced one for carmakers to navigate. Pure EVs, which send no carbon dioxide to produce forthe sake ofthe environment The change of gear is recent. One car in directly into the atmosphere, and hybrids, will become ones that buyers want for the a hundred sold today is powered by elec- which produce far less than conventional sake of their wallets. EVs were once gener- tricity. The proportion of EVs on the engines, are a way to meet Europe’s emis- ally a second car forricher, environmental- world’s roads is still well below 1%. Most sions targets—albeit an expensive one. But ly minded drivers, prepared to pay a big forecasters had reckoned that by 2025 that the gains from cheaper methods such as premium for a vehicle with a battery that would rise to around 4%. Those estimates turbocharging smaller engines, stop-start took an age to charge and had a limited are undergoing a big overhaul as carmak- technology and weight reductions will no range. ers announce huge expansions in their longer be enough, since a tougher testing The falling cost of batteries will make production ofEVs. Morgan Stanley, a bank, regime, to be introduced in the wake of the cost of owning and running an EV the nowsaysthatby2025 EV sales will hit 7m a VW’s diesel-cheating scandal, will make same as that ofa traditionally powered car year and make up 7% of vehicles on the those targets still harder to reach. in Europe by the early 2020s, even without road. Exane BNP Paribas, another bank, The hefty cost of preventing nitrogen the hefty government subsidies that many reckons that it could be more like 11% (see oxide spewing from diesel engines, which rich countries use to sweeten the deal (see chart on next page). But as carmakers plan emit farless carbon dioxide than the petrol next story). Better batteries should also forevermore batterypower, even these fig- equivalent, may see them disappear by conquer “range anxiety”—most pure EVs ures could quickly seem too low. 2025. Further development of ICEs could nowrun outofjuice afteraround 100 miles Ford’s boss is bolder still. In January be enough to meet the 2021 targets. Car- (161km). If battery costs continue to tumble Mark Fields announced that the “era of the makers also need to be prepared to hit the and performance improves at the current electric vehicle is dawning”, and he reck- next ones, says Andrew Bergbaum of Alix- rate, the price of a car with a range of 300 ons that the number of models of EVs will Partners, a consulting firm. These, yet to be miles could hit $30,000 by the early 2020s, exceed pure ICE-powered cars within 15 finalised in the EU forcarbon dioxide, may according to Exane BNP Paribas. Slicker1 54 Business The Economist February 18th 2017

2 technology will also mean charging in mium brands such as Daimler and BMW minutes, not hours. Sparks fly have the resources to invest and can be The lack of charging infrastructure still Battery electric vehicles, worldwide confident that their richer customers will deters buyers, but signs of growth are en- Battery cost, €/kWh Penetration, % be the first to switch to more expensive couraging. In most rich countries govern- FORECAST EVs. Mass-market carmakers have a tricki- ments, carmakers and private companies 1,000 25 er task, according to Patrick Hummel of are puttingup the necessarycash. In Amer- 800 20 UBS, a bank. Despite falling costs, a cheap ica the number of charging points grew by New forecast EV for the mass market is still a distance more than a quarter to almost 40,000 in 600 15 away. The likes of Fiat Chrysler (whose 2016. Even Shell and Total, are planning to chairman,John Elkann,sitson the board of 400 10 put chargers on the forecourts of their pet- Old The Economist’s parent company) or PSA forecast rol stations across Europe. 200 5 Group, which makes Peugeots and Ci- But EVs are not yet a profitable business troëns, have barely begun changing. But for carmakers precisely because of their 0 0 these carmakers, already operating with 2009 15 20 25 30 batteries. Chevrolet’s Bolt, on sale late last wafer-thin profit margins, must still invest Sources: Exane BNP Paribas; UBS year, costs under $30,000 with subsidies heavily in anticipation ofthat moment. and travels 238 miles between charges. But EVs may eventually make more money each sale will reportedly set General Mo- els. Restructuring is also expensive. For a than ICE cars as battery costs fall further. tors back $9,000. Tesla’s rival, the Model 3, century carmakers have built factories, They are competitive in other ways too: is set to go on sale later this year; the firm employed workers and developed a sup- EVs are simpler mechanically, and require hasyettomakeanannualprofit.EvenRe- ply chain around the ICE. In one scenario less equipment and fewer workers to as- nault-Nissan, the world’s biggest EV manu- Morgan Stanley reckons that VW’s entire semble them. But carmakers first face a facturer, loses money on electric models. car business could make a loss between transition that will hit cashflow and pro- Research and development also costs a 2025 and 2028 as it transforms itself. fits. Getting ready for an electric race will fortune. Daimler says it will spend €10bn Some carmakers are better placed than be painful, but missing it altogether would by 2025 on just ten battery-powered mod- others for the transition. Profitable pre- be disastrous. 7

Electric cars in Norway Old media Northern light The Trump bump

Oslo Sales ofgreen vehicles are booming O JUDGE by the gleaming rows of emission vehicles also skip costly road Teslas, Nissan Leafsand other electric tolls, cross fjords by ferryforfree, park T Making America’s august news groups cars parked in the snow in central without paying in cities and use bus great again Oslo, Norwegians might already have lanes to whizz by other commuters. given up on the internal combustion The next step is to finish a part-built ONALD TRUMP calls it the “failing” engine. Before long they probably will. charging network. In Oslo seven in ten DNew York Times in his tweets, but his Battery-powered cars and plug-in hy- residents live in apartments and few can presidency has breathed new life into the brids together accounted for29% ofall charge a car at home. Opportunities newspaper and other mainstream media new car sales last year. The 100,000th abound. Providers offast-charging ser- outlets. The New York Times, the Washing- battery-powered unit sold in December. vices such as Fortum, a Finnish power ton Post and the Wall Street Journal have all Norway first introduced tax perks to firm, are starting to sell electricity at a received boosts in subscriptions and page boost the electric car market in the 1990s. premium. Big stores, including IKEA, views; cable news networks, such as CNN But sales only sparked in the past five have installed recharging stations—for and the Fox News Channel, are getting years or so after slicker vehicles with about NKr1m ($120,000) each—so cus- huge increases in viewers at a time when better batteries appeared. Now the coun- tomers can top up while shopping. The most other channels are losing them; and try’s 5m citizens constitute the most government says charge points will exist even the long-suffering stocks of newspa- developed national market forelectric every 50km on main roads, and is sub- per companies are rallying. Since the elec- cars anywhere. Christina Bu, who heads sidising firms that build and run them. tion shares in the New YorkTimes Co have the country’s association forelectric cars, Countries without Norwegians’ oil risen by 42%, outperforming even the expects 400,000 electric-only vehicles wealth will struggle to boost the market mighty Goldman Sachs. on the roads by 2020, and predicts 70% of forelectric vehicles similarly. Cheap Why the boost? The unprecedented na- new sales will be ofzero-emission cars. electricity—Norway produces a surplus ture of political events has kept American As range increases and price falls, de- from hydropower—and expensive petrol eyeballs glued to pages and screens. The mand will rise faster. and diesel skew running costs. Mr Solvik- pace of change, especially since the elec- Though less than 5% ofthe total fleet Olsen guesses that last year alone his tion, compels Mr Trump’s fans and foes ofcars in Norway are electric, the coun- government missed out on as much as alike to stay abreast of developments. try’s transport minister calls it “realistic” NKr3bn in tax because ofthe incentives. Many do so using Twitter (see next story). to expect an end to sales ofnew cars Most Norwegians, eager to do more to cut But many others seem to want the kind of powered by fossil fuels by 2025. Fiscal local pollution from traffic in cities, and analysis that established groups provide. incentives, not an outright ban, will bring short ofother ways to lower carbon Mr Trump’s bashing of certain outlets also this about. Eye-popping purchase taxes emissions, reckon this is money well may have encouraged some to subscribe typically double the cost ofa high-emis- spent. In other markets it will be crucial or watch in defiance. sion car, but these and other levies are that even cheaper and better cars appear The Trump bump has been most pro- waived forclean ones. Drivers ofzero- to create an appealing market. nounced at the New York Times. It man- aged to sign up more than half a million 1 The Economist February 18th 2017 Business 55

drop in print advertising last year, and like important role in the Arab spring and Reality TV virtually all American newspapers has movements such as Black Lives Matter. But United States, daily prime-time viewers gone through multiple rounds of staff re- the platform’s freewheeling nature makes Average of the first six-weeks of the year, m ductions. The Wall Street Journal endured a it hard to spin gold from. In fact, really try- 2016 2017 21% drop in advertising revenue in ing to do so—by packing Twitter feeds with 0 0.5 1.0 1.5 2.0 2.5 3.0 mid-2016, leading to yet more cost-cutting advertising, say—would drive away users. and voluntary redundancies. Fox News The recentTrump-ledmedia resurgence Business as unusual is ironic, for the decline of newspapers Twitter’s latest results are likely to encour- MSNBC probably benefited MrTrump. People have age those who think it should never have increasingly looked to free, less reliable become a publicly listed company, and CNN sources of information on the internet, in- want it to consider alternate models of cluding social media such as Twitter and ownership, such as a co-operative. They Source: Nielsen Facebook, where Mr Trump is in his ele- view Twitter as a kind of public utility—a ment. He proved adept at campaigning “people’s platform”—the management of 2 digital subscribers last year—including amid a confusing mire of fact, fiction and which should concern public interests 276,000 in the fourthquarteralone, mostly demagoguery. rather more than commercial ones. If the after the election. It now has 3m subscrib- How long can the Trump bump last? In company were co-operatively owned by ers in total, including about 1.7m digital- a call last month Mr Thompson told an- users, it would be released from short-term only subscriptions. By one measure traffic alysts that it will endure as long as the ad- pressure to please its investors and meet to its site is nearly a third higher than a year ministration continues “to be creating earnings targets. ago. A never-ending flow of big stories news and controversy”. Judging as a for- Though some co-ops have shown helps. “In the evening you put the non- mer journalist himself, he said, he suspect- themselves resilient, they are generally Trump pages to bed so you can focus on ed that would take many months, and thought to be less dynamic—a shortcom- the late-breaking Trump news,” says Mark “possibly years”. Media moguls certainly ing of democratic governance. Yet Sasha Thompson, its chiefexecutive. hope so. 7 Costanza-Chock, an activist who teaches The Washington Post, which has also at the Massachusetts Institute of Technol- produced juicy scoops in recent months, ogy, believes that Twitter users could also does not disclose subscriber numbers un- New media come up with features that would rescue it der the ownership of Jeff Bezos, Amazon’s from its most toxic elements, such as ha- chief executive. But speaking at a confer- #Twittertrouble rassmentandhatespeech. Othersenvision ence on February14th in California, Marty a futuristic co-op—or, inevitably, “co-op Baron, its editor, said subscriptions are 2.0”—in which responsibility is split be- growing “at a very rapid rate right now”. tween idealistic entrepreneurs, who con- The Wall Street Journal, owned by Rupert trol product innovation, and users, who Murdoch, also saw a substantial boost in have the say on such matters as data pro- Is there lifefortechnologyfirms beyond digital subscribers, to nearly 1.1m by the tection. Even ifsuch modelscould be made Wall Street? end of 2016, an increase of about 250,000 to work, Twitter is unlikely to become a over a year earlier. OR months Twitter, the micro-blogging co-op soon: its market capitalisation still One way or another, people simply Fservice, has received the kind of free at- exceeds $12bn, an amount users can hardly cannot get enough Trump. The three major tention ofwhich most companies can only dream of scraping together. Yet the debate cable news networks—Fox News Channel, dream. Politicians, corporate bosses, activ- about what to do with the service has MSNBC and CNN—have enjoyed the three ists and citizens turn to the platform to stoked another, long-simmering discus- biggest increases in viewership of all catch every tweet of America’s new presi- sion in the startup world: whether firms American cable channels in 2017, accord- dent, who has become the service’s de fac- should always aim to go public. “We have 1 ing to information from Nielsen, a research to spokesman. “The whole world is watch- firm. Each network enjoyed an increase of ing Twitter,” boasted Jack Dorsey 40% or more in the six weeks to February (pictured), the company’s chief executive, 12th (see chart). Fox News is the most- as he presented its results on February 9th. watched cable channel ofthem all, accord- He has little else to brag about. ing to Nielsen data supplied by Moffett- ButDonald Trumphasnotprovided the Nathanson, a research firm. The network is kind of boost the struggling firm really averaging 3.1m viewers during prime time needs. It reported slowing revenue growth as of January 2nd; its softer approach to Mr and a loss of $167m. User growth has been Trump and his antics makes it a destina- sluggish, too: it added just 2m users in that tion forhis supporters. period. Facebook added 72m. The day of The surge arrives at a challenging time the results, shares in Twitter dropped by for traditional media. In television, most 12%. Because news outlets around the cable channels are suffering declining world already report on Mr Trump’s most viewership, which in turn puts pressure on sensational tweets, many do not feel com- advertising sales. The situation for news- pelled to join the platform to discover papers is more dire. The market in North them. Others are put off by mobs of trolls America has been in structural decline and reams ofmisinformation. since the millennium, and lost$30bn in ad- And not even Mr Trump could change vertising revenue, a drop of 60%, in the de- the cold, hard truth about Twitter: that it cade to 2015. Last year print ads, still far can neverbe Facebook. True, it has become more lucrative than digital ads, continued one of the most important services for to decline sharply at major newspapers. public and political communication The New York Times experienced a 16% among its 319mmonthly users. It played an Not watching Twitter 56 Business The Economist February 18th 2017

2 become very myopic about what it means PSA and Opel to be a corporation,” explains Albert Wen- Steep incentives ger, a partner at Union Square Ventures, a United States, FCC spectrum auction revenue Driven together technology-investment firm. Armin Net, $bn Steuernagel, founder of Purpose Capital, a 50 consultancy, says he sees more and more start-ups questioningwhetherthey should 40 optforconventionalownershipstructures. 30 A potential deal shows that size is Options abound. Online, Etsy,Kickstar- important but not everything ter and Wikipedia, among others, have 20 pursued set-ups that allow them to keep FTER sweeping past a significant mile- their social benefit front-and-centre. But 10 Astone, drivers rarely slam their vehi- old media outlets can offer lessons too: cles into reverse. Yet General Motors (GM), many publications in Europe, including 0 which last year joined Toyota and Volks- 1994 2000 05 10 16* The Economist, have ownership structures wagen in an elite group that sells over 10m Source: Federal Communications Commission *Gross that isolate them to some degree from vehicles a year, may be on the brink of commercial interests. such a manoeuvre. On February 14th the As for Twitter, it is likely to be snapped for that spectrum. The rules are Byzantine American firm and PSA Group, which up once its value is low enough. Although and involve repackaging of spectrum into makes Peugeots and Citroëns, spranga sur- the most likely buyer is another tech firm, usable blocks, but broadly speaking the prise by confirming that they were in talks surprises cannot be excluded. Users process comes to a close when the bidding that could lead to the French carmaker should start thinking like a traditional la- price exceeds the selling price. If not, both buying GM’s European operation. GM’s bour union, says Mr Wenger. Ifthey stage a sets of auctions are repeated, starting with decision to downsize has many merits, but virtual walkout, they might have the bar- fewer blocks of spectrum on offer along- the advantages of getting bigger are much gaining power to change its governance side lower prices. less clear-cut forits European counterpart. structure. #Squadgoals. 7 This time round it took the FCC four at- The two carmakers say a deal for Opel tempts to match supply and demand. In (which carries the Vauxhall brand in Brit- the first reverse auction last March, the ain) is only a possibility. But GM’s global Radio spectrum agency obtained commitments from might is not reflected at Opel, and it is prob- broadcasters to sell 126 megahertz of spec- ably keen to offload a carmaker that it has Inventive auction trum for $86.4bn. In the end they gave up owned for nearly 90 years. Opel has done 84 megahertz for more than $10bn, for little other than disappoint in the recent whichbidderspaid$19.6bn,withthediffer- past. Its 6% share of the European market ence going mostly to America’s Treasury. puts it behind seven other brands and the Before wireless operators can start using business has lost money foryears. their new spectrum, however, they will GM has considered offloading Opel be- Despite poorproceeds, America’s latest have to take part in a third auction, which fore. In 2009, as it struggled in bankruptcy spectrum sale is a model worth copying will determine by the end of March the ex- protection in the wake of the financial cri- ARKETS don’t simply emerge, but are act frequencies they get. sis, it talked to Magna, a car assembler, and Mcreated by the state, argued Karl Pola- Compared with the FCC’s previous Fiat about a sale. So parlous was Opel’s nyi, an economist, in “The Great Transfor- auction in early 2015, which brought in state that the latter demanded money to mation”. This is certainly true for radio $41bn for 65 megahertz, the proceeds are take the business on and GM pulled out of spectrum, an intangible natural resource, disappointing. There is criticism of the negotiations. It also tried an alliance with which governments now regularly sell in complex process, which lasted a year and PSA to control costs, even taking a 7% stake auctions. The most intricate everorganised cost a remarkable $207m. Yet such gripes in the French firm in 2012, but the savings came to an end in America on February seem unfair. It is the auction of 2015 that is have disappointed and the shareholding 10th, bringing in $19.6bn. an outlier; the results of the latest one are was sold in 2013. GM may have finally de- When America’s Federal Communica- actually in line with earlier spectrum sell- cided that although it is unlikely to get a tions Commission (FCC) started auction- offs (see chart). The real test will be wheth- huge sum for Opel (which has big pension ing spectrum in 1994, it did so because lot- er regulators elsewhere will again copy the liabilities), the cash it invests in Europe teries and “beauty pageants” to allocate FCC’s novel approach. Europe, for in- might be better spent on its American and the scarce resource seemed otherworldly stance, could certainly do with this new Chinese businesses, where returns are when billions were at stake. Two decades type ofauction: as in America, demand for handsome, or on strengthening plans for later the FCC again tried something new, spectrum outstrips supply and broadcast- electric cars and autonomous vehicles. because the established auction system, in ers are loth to give up their licences. Selling while the European market is at turn, was no longer adequate. With most Another question is what type of sys- a peakis sensible. Buying may not prove as spectrum compatible with today’s tech- tem the FCC will introduce once all the wise. Although acquiring Opel would pro- nology already allocated, the agency could available spectrum has been shuffled pel PSA to second place in Europe with 16% only satisfy ever-growing demand from around. The incentive auction was a step of the market, it would still lag behind mobile carriers by convincing current towards a dynamic market, as it also ear- VW’s 24%. Taking out a competitor should holders of big slices, mostly broadcasters, marked some spectrum for shared unli- bring more pricing power but this will be to give up some oftheir licences. censed use (which will particularly please modest according to Exane BNP Paribas, a The FCC’s solution was to organise not those who make and use wireless gadgets). bank, and will benefit all of Europe’s car- one but two sets of sell-offs, collectively Perhaps, one day, small slices will be makers. But cost savings should at least called an “incentive auction”. The first set traded as much online advertising is today, help PSA spread the huge financial burden finds out the prices at which broadcasters with virtual property being auctioned off of electrification and developing self-driv- are willing to part with radio waves (hence in real time. Such a system would certainly ing across 4.2m cars rather than 3.1m. “incentive”). The second determines how qualify as being the most complex market Carlos Tavares, PSA’s boss, restructured much mobile operators are willing to pay ever created. 7 his company successfully, but the scope for 1 The Economist February 18th 2017 Business 57

2 repeating that trick at Opel is limited. Cost- them “doves”—measure 10cm by 10cm by Private aviation saving and efficiency drives at PSA, which 30cm. The first doves, launched five years came close to bankruptcy in 2013, have re- ago, could send back pictures of just 3,000 turned it to profitability.But PSA had lever- square kilometres a day. But the satellites Up, up and away age: it was in trouble and Europe’s car mar- have followed a trajectory of improve- ket in a trough when it struck a deal with ment much closer to that seen in cell- Flying forplay, not work French unions. Labour bosses in Germany, phones—from which theygetsome oftheir home to over half Opel’s employees, and components—than the established satel- S SCHOOLS across Europe breakfor Britain, where it has two plants, will not lite industry. The latest doves can cover AFebruary half-term, it is not just the prove as pliant. 2.5m square kilometres a day. Alpine pistes that are congested: private- The routes PSA and GM have taken re- The expanded fleet of satellites will jet terminals across the continent are cently suggest a shift from the industry send over 3 terabytes of data a day to more also full to bursting. The number of consensus that “bigger is better”. The than 30 receiverstationsspread around the bookings forprivate aircraft to the Alps French carmaker has sacrificed sales for Earth. After processing to remove distor- in the weekending February19th is 40% profitability; GM, in closing factories in tions and to locate each image, the data higher than in the same period last year, Russia and Australia and withdrawing the will be in the cloud and ready for the com- says Adam Twidell ofPrivateFly, a book- Chevrolet brand from Europe, has done pany’s clients within hours. ing service. Although about halfthe the same. For GM, selling Opel would fit Planet does not provide many details bookings were made by firms, not all with this strategy,but buying it would rep- about its customers, but Will Marshall, the those on board will be working much. resent a screeching U-turn for PSA. 7 company’s CEO, says that it has over 100. For executives are using corporate jets Some are spooks, historically the biggest less forbusiness, and rather more for consumers of satellite images. But though their leisure. Space firms Planethasspoken ofa bigcontractwith the Video-conferencing cuts the need for relevant American outfit, the National Ge- face-to-face meetings. Scheduled flights Eyes on Earth ospatial-Intelligence Agency, Mr Marshall linkmore destinations directly than ever says the NGA is not his biggest customer. before. And corporate jets are hard to Other buyers include mapmakers, finan- justify when squeezing costs elsewhere. cial companies and multinationals—espe- At companies acquired by private-equity cially those in the energy sectorwith wide- firms the number ofprivate flights falls spread assets. by a third within three years, according Planet’s satellites offercustomers a new Providing daily updated images of the to research by Jesse Edgerton, now at J.P. world view every day whole surface ofthe Earth fulfils one ofthe Morgan, a bank. UILT by the Indian Space Research Or- goals Planet had at its founding in 2010, But bosses are increasingly using B ganisation, the Polar Satellite Launch since when it has raised capital of $183m. executive jets for both workand play. Vehicle threw itself into the sky at 3.58am That does not mean it will stop launching The average value ofthis perkper exec- GMT on February 15th. It took with it a re- doves; among other things, passing over utive in Fortune 100 firms has risen by cord-breaking 104 satellites—88 of which the same place more than once a day in- about10% since 2013, says Equilar, a belonged to a single company, Planet, a re- creases the chances of a shot unobscured research firm. Executives justify flying mote sensing business based in San Fran- by cloud. But turning its unique product private on the grounds that they may cisco. Planet now has 149 satellites in or- into an ever bigger earner is the priority. need to get backto the office quickly in bit—enough for it to provide its customers A key to doing so is processing the im- an emergency, and that confidential with new moderately detailed images of ages to answer pressing questions: what documents or company devices may be all the Earth’sland surface everysingle day. has changed since yesterday? Is that illegal lost or stolen on a commercial flight. But The satellites Planet makes—it calls logging? Whatdoesthe numberofcontain- when they enjoy that extra security, they ers in these ports suggest about trade bal- are exposing themselves to another risk: ances? Planet will be providing more such private-plane crashes are a leading cause analysis itself, but there are also third par- ofdeath for CEOs, behind only heart ties eager to play. SpaceKnow, a startup attacks, cancer and strokes. which focuseson turningsatellite data into analysis the financial community will pay for, has just raised $4m. says Planet is interested in developing soft- Satellites alone do not make a good ware whereby the new sharper-eyed satel- business, as illustrated by the fate of an ear- lites would automatically take pictures of lierstartup, Terra Bella. Formerly known as places where the doves had spotted some- Skybox, it made SkySat satellites and was thing change between one day and the bought by Google for $500m in 2014 amid next. fanfare. But in recent weeks Google sold Planet is not the only company using the firm to Planet in an equity deal which small satellites to produce big data; the almost certainly gave Terra Bella a much launch on February 15th also carried up lower valuation; at the same time, it be- eight ship-tracking satellites owned by came a big customer for Planet’s data. Spire, just a couple of streets away from This is the second time Planet has Planet. The companies hope that, as more snapped up satellites from a rival in trou- and more customers come to see the value ble, and the deal could work out well. The of an endlessly updated, easily searchable resolution available from the doves, three view of the world, insights from satellites to five metres, is a bit coarser than many will become ever more vital to the data- consumers ofsatellite data are used to. The analysis market. The more normal their larger Terra Bella satellites can pick out fea- wares start to seem, the more spectacular tures less than a metre across. Mr Marshall their future may be. 7 58 Business The Economist February 18th 2017 Schumpeter Myopium

Corporate short-termism is a frustratingly slippery idea Take accuracy first. There are plenty of signs that short-ter- mism is not a problem. Those timorous chief executives serve longer than the average Roman emperor did: bosses departing in 2015 had an average of11yearsin office forS&P 500 firms, the high- est figure for13 years. Activist hedge funds own less than 1% ofthe stockmarket. The average share istraded manytimesbecause ofa cohort of high-frequency computerised traders. But their churn- ing masks the sharp rise ofpassive funds, which already own 13% ofthe market and which hold shares indefinitely. Supposedly myopic markets often lookfarinto the future. The bond market lends to the government for 30 years for an interest rate of just 3%. Equity investors place huge values on firms that won’t make serious profits for years and years. Amazon is the world’s fifth-most valuable firm, with a colossal $400bn market capitalisation. About 75% of that value is justified by profits that are expected to be made a decade or more from now. It is proba- bly the biggest bet in history on a company’s long-term prospects. Firms are not investing at weirdly low levels. Frightening fig- ures on them starving themselves to splurge on buy-backs are misleading. Investment—capital spending plus research and de- velopment—is 9% of sales for S&P 500 firms, in line with the 25- SAMERICA’Seconomyhasmisfired overthe pastdecade, sev- year average (excluding financial companies). For the economy, Aeral grand theories have emerged about what went wrong. private-sector capital spending, excluding housing, is at 12% of Economists fret about secular stagnation, debt hangovers and GDP, equal to the average since 1945. On both measures invest- whether demography explains sluggish growth. In American ment is not that farfrom the frothy levels seen in 2000, during the boardrooms, meanwhile, a widely held view is that a dangerous dotcom boom, the last time companies went wild. Buy-backs are short-termism has taken hold. This theory contends that inves- so high because profits are abnormally high, which in turn may tors and executives have become myopic, leading firms to invest reflect the rising level of concentration in most industries. Were too little. Like many business ideas, short-termism fits the experi- firms to try to invest all their surplus funds, they would need al- ence of some individual business people. But as a theory about mostto double investmentto a reckless17% ofsales. IfFord invest- how the economy works it is too nebulous to be much use. ed all its record cash flows, based on 2016 figures, it would double People have always worried that financial markets cannot see its plant in 30 months, an act ofinsanity in the car business. beyond their noses. In 1936 John Maynard Keynes noted that the What about the second flaw, causality? The McKinsey study horizon for investors was “three months or a year hence”, even makes clear that this is hard to demonstrate. Do short-term firms though they were trading the securities of firms and govern- become weak or do weak firms rationally adopt strategies that ments that would probably last for decades. Since the crisis of might be judged short term? Almost all managers think that their 2008-10, worries about short-termism have risen again. Bosses firms have a right to grow, but in any industry it is natural that fret that if they miss quarterly earnings forecasts they will be some firms stagnate ordecline just as some oftheirrivals expand. fired. Activist hedge funds seeking a quick buck are said to spook Shrinking firms should reduce costs and return cash to investors. big corporations. The average share changes hands every 200 Consider IBM. Its sales have sunk back to where they were in daysforfirmsin the S&P 500 index. Terrified companies, the argu- 1997. Over this period it has slashed costs and ramped up its mar- ment goes, no longer invest in their business and instead bribe gins, cut investment by half and halved its number of shares their owners. For every dollar of operating cashflow S&P 500 through buy-backs. By one account these were myopic choices companies make, excluding financial firms, they spend 44 cents that caused IBM’s decline. By another they were tough decisions, on capital investment and 56 cents on buy-backs and dividends. made in response to BigBlue’s retreat as a new generation of tech- A new study by McKinsey drills deeper. The consultancy took nology firms took over leadership of the industry. In the end, la- about 600 firms and labelled some as short-termist ifthey exhib- belling IBM as long-term or short-term doesn’t clarify much. ited five habits: investing relatively little, cutting costs to boost margins, initiating lots of buy-backs, booking sales before cus- From here to eternity tomers pay and hitting quarterly profit forecasts. The study con- The final flaw is that short-termism is a distraction. Many big cludes that 73% of firms are short-termist. The elite 27% of firms firms wallow in lucrative stagnation. Profits are abnormally high that are long-termist performed better, McKinsey reckons, seeing even as the cost ofcapital is low. The theory ofshort-termism sug- their profits increase by, on average, 36% more than short-term gests that the solution is to prod incumbent firms to invest vast firms between 2001 and 2014. The methodology is robust, and amounts and insulate their managers from investors. But there is controls forthe fact that some industries grow faster. another approach that gets to the root of the problem: incum- Surely it is an open-and-shut case? Not really. The theory of bents’ fatprofitsneed to fall. Competition policyneeds to weaken short-termism suffers from three difficulties: it isn’t an accurate the entrenched position of established firms and help new en- description of what is happening across America’s economy; it trants. That would make the economy more dynamic, boost doesn’t deal with the question ofcausality and, last, it is a distrac- wages and end the era of surplus profits that are put to no use. It’s tion from the real difficulty. not a message many powerful CEOs are keen on. 7 Finance and economics The Economist February 18th 2017 59

Also in this section 60 Buttonwood: Sovereign bonds 61 Hank Greenberg’s years in court 61 Bankia, Spain’s banking disaster 62 Carbon tariffs and steel 62 Asia’s rebounding exports 63 Copper’s disrupted supply 63 Inequality in China 64 Free exchange: The delicate political economy of the EU

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Brexit and financial centres tried to force clearing to move from Lon- don to inside the euro zone, but was Picking up the pieces thwarted in 2015 when EU judges ruled it lacked the necessary authority. After Brexit, it may try again. Nicolas Mackel of Luxembourg for Fi- PARIS nance, the grand duchy’s development agency, isrelatively“laid back”. All are wel- European cities hope to scoop business from London. The size ofthe prize is far come, MrMackel says, butno taxesor regu- from clear lations have been changed, nor applica- HEN the vote tookplace,” says Va- Especially, it seems, Frankfurt. Paris has tions fast-tracked. Business has been brisk “Wlérie Pécresse, “it was an opportu- more big local banks, more big companies anyway, because of the duchy’s expertise nity forus to promote Île de France”, the re- and more international schools than its with fund managers. China’sbigbanksuse gion around Paris of which she is the German rival. London apart, say the Luxembourg as a continental hub. elected head. Two advertising campaigns French team, it is Europe’s only “global After a slow start, the Dutch too are try- were prepared, depending on the result of city”. When, they smirk, did you last take ing to gain from any “Brexodus”. The for- Britain’s referendum last June on leaving your partner to Frankfurt forthe weekend? eign-investment agency has expanded its the European Union. The unused copy ran: This month the Parisians were in Lon- (small) office in London. The Netherlands “You made one good decision. Make an- don, briefing 80 executives from banks, as- offers a high quality of life and almost other. Choose Paris region.” set managers, private-equity firms and fin- everyone speaksEnglish. ButAmsterdam’s Brexit has made Paris bolder. Once Brit- tech companies. They are keen to dispel financial centre lacks the scale ofFrankfurt ain leaves Europe’s single market, the France’s image as an interventionist, high- or Paris, and is short of housing and many international banks and other firms tax, work-shy place. The headline cor- schools. A cap of 20% of salaries on bank- thathave made London theirEU home will porate-taxrate is 33.3% but due to fall to 28% ers’ bonuses is also off-putting, although lose the “passports” that allow them to by 2020. A scheme giving income-tax the finance ministry says global banks serve clients in the other 27 states. Possibly, breaks to high earners who have lived out- may be exempt under certain conditions. mutual recognition by Britain and the EU side France for at least five years will now Dublin is keen to attract more asset ofeach other’s regulatory regimes will per- apply for eight years after arrival or return, managers. Irish central bankers are wor- sist. But no one can rely on the transition to not five. The Socialists, who run the city it- ried about whether they have the right ex- Brexit being smooth, rather than a feared self, and Ms Pécresse’s Republicans are pertise to regulate, say, complex trading. “cliffedge”. Best to assume the worst. joined in a business-friendly “sacred un- Some would be relieved if the hordes do Britain is expected to start the two-year ion”, says Gérard Mestrallet, president of not materialise. The city is already short of process of withdrawal next month. Given ParisEuroplace, which promotes the finan- office space, housing, roads and interna- the time needed to get approval from regu- cial centre. Ms Pécresse and others play tional-school places. lators, find offices and move (or hire) staff, down the risk that Marine Le Pen, of the The size of the prize is hard to gauge. financial firms have long been weighing far-right, Eurosceptic National Front will Much depends on the post-Brexit agree- their options. London will remain Eu- win the presidential election this spring. ment between Britain and the EU, and rope’s leading centre, but other cities are More quietly, Hubertus Väth of Frank- what regulators demand in capital and keen to take what they can. furt Main Finance (the counterpart of Paris personnel. Banks may also shift some The Parisians are pushing hardest, Europlace) is “pretty confident” about his work out of Europe, to New York, or even pitching their city as London’s partner and city’s ability to attract more bankers. To Mr Hong Kong or Singapore. Some services, peer. “I don’tsee the relationship with Lon- Väth, the big prize is the clearing of trades warns a banker, may not be provided at all. don as a rivalry,” says Ms Pécresse. “The ri- in euros, which London dominates but Mr Väth thinks that, with euro clearing, valry is not with London but with Dublin, which both Frankfurt and Paris hope to Frankfurt could see an extra 10,000 jobs or Amsterdam, Luxembourg and Frankfurt.” snaffle. The European Central Bank once more. Arnaud de Bresson ofEuroplace esti-1 60 Finance and economics The Economist February 18th 2017

2 mates that Paris stands to gain 10,000 “di- have also mentioned Madrid. Fund man- centres and after the downsizing of recent rect” posts in finance and fintech, plus agersnotalreadyin Dublin orLuxembourg years, they still have vacant space. James 10,000-20,000 in law, accountancy and so are likely to head there. Lloyd’s of London, MaddockofCushman & Wakefield, anoth- on. Europlace hasn’t tried to quantify the an insurance market, and Blackstone and er property-services firm, says that since number tied to clearing. Carlyle, two American private-equity 2008, banks in Europe have shifted 34,000 Different institutions have their own giants, reportedly favour Luxembourg for back- and mid-office jobs to eastern Eu- priorities. HSBC, a big British bank, has al- their EU home. rope, a further 5,050 to Ireland and 14,200 ready said that it expects to move around The continental European financial to British cities outside London. Brexit will 1,000 jobs to Paris, where it already has a centres all say they have acres of space for involve fewer (ifbetter-paid) people. subsidiary; some other banks still sound new arrivals. There should be more than But in all the cities vying for post-Brexit wary of the place, despite the best efforts enough, at least fornow. “We’re not talking trade, a common refrain is heard: we wish of the French. Switzerland’s UBS, which about banks moving lock, stock and bar- it wasn’t happening. In Luxembourg too, also says around 1,000 London jobs are at rel,” saysLee Elliott, head ofcommercial re- Mr Mackel says, an ad was planned for the risk, set up shop in Frankfurt last year: that search at Knight Frank, a property consul- day after the referendum: “We would have seems a natural base, although its bosses tancy. All banks have bases in all the main missed you.” It didn’t appear. 7 Buttonwood Undaunted by downgrades

Politicians have been able to ignore the bond markets NCE upon a time, countriesjealously Greece, which is still struggling to deal Oguarded their credit ratings. Before Losing faith with its debts (see Free Exchange). the 2010 British election, George Osborne, Global AAA sovereign-bond issuers But even the euro zone has got away soon to be the chancellor of the exche- As%oftotal Number with less punishment than might have quer, emphasised the importance of cut- 40 20 been expected when the Maastricht crite- tingthe budgetdeficitin orderto maintain ria for single-currency membership were the country’s top AAA rating. 30 15 established 25 years ago. Germany has a But despite the spending cuts and the debt-to-GDP ratio over 70%, more than tax increases he imposed, Britain was 20 10 ten percentage pointsabove the target lev- downgraded in 2013. There are only 11 el. Its ten-year bonds yield just 0.37%. countries with AAA status, according to The rise of populism means that gov- 10 5 Fitch, a rating agency, down from 16 in ernments are even less likely to worry 2009. By value, only 40% of global sover- about an adverse reaction in the bond eign debt has the highest rating, down 0 0 markets. Donald Trump has promised a 1996 2000 05 10 16 from 48% a decade ago. combination of tax cuts, infrastructure Source: Fitch Therehasbeen anevenmoredramatic spending and the safeguarding of entitle- downward trend in corporate debt rat- ments such as Social Security and Medi- ings. There were 99 AAA-rated American lost its AAA ranking from S&P in 2011. Five care. These plans have to pass Congress, corporations in 1992, according to S&P years later, the ten-year yield was at a re- but the Committee for a Responsible Fed- Global, another ratings group; now there cord low of1.36%. eral Budget, a lobby group, estimated that are just two. That trend is linked to the tax Clearly the bond vigilantes that they would push American debt to 105% deductibility ofinterest: in terms oftax ef- spooked politicians in the 1990s have lost of GDP (from 77%) in a decade. Britain has ficiency,it has made sense to increase the their menace. Dealing with the deficit is no abandoneditstargetofeliminatingitsdef- amount ofdebt, and reduce the equity,on longer the most important issue. It is not icit by 2020 (Mr Osborne’s original target the balance-sheet. just central banks. Commercial banks, was 2015). Facing an insurgent threat from Clearly, at the sovereign level, the dete- pension funds and insurance companies the likesofMarine Le Pen and Geert Wild- rioration has been driven by the global fi- all also need to own governmentbonds for ers, European governments will be wary nancial crisis, which dented both eco- liquidity or regulatory reasons; they are ofraising taxes or cutting benefits. nomic growth and tax revenue. But with relatively indifferent to the actual level of In macroeconomic terms this is sensi- bond yields very low, and with central yield involved. ble. The main priority for rich countries banks willing buyers of government In fact, in terms of default probability, should be developing a decent rate of bonds, countries have not paid a penalty the difference between the highest credit growth rather than austerity. But if for their bigger debt burdens. ratings is pretty trivial. A 2014 study of growth does not pick up significantly, the Japan first lost itsAAAratingin 2001, as rankings since 1975 by S&P found that 97% outline of a future crisis looks clear. Cur- its debt-to-GDP ratio soared. But that of AAA sovereign bonds and 86% of AA rent debt levels are perfectly serviceable didn’t stop investors from buying its bonds were still ranked in the top two at current yields. But ifyields rise another bonds, especially when the country suc- bands ten years later. two to three percentage points that might cumbed to bouts of deflation. A very low When markets don’t penalise them for no longer be the case, especially as gov- nominal yield is still positive in real terms running deficits, it seems rational for gov- ernment budgets will be strained by ris- when prices are falling. Even if investors ernments not to risk the wrath of voters by ing pensions and health-care costs from did lose their appetite, the Bank of Japan curbingborrowingand imposingausterity. their ageing populations. At that point, is a willing buyer; it has a target for the There are exceptions to this rule—those bond investors might wake from their country’s ten-year bond yield ofzero and, countries that do not have the luxury of slumber and take their revenge. at 0.08%, the current level is not faroff. borrowing in their own currency. In the It is a similar story in America, which euro zone the most prominent example is Economist.com/blogs/buttonwood The Economist February 18th 2017 Finance and economics 61

Hank Greenberg The alleged chicanery at the heart of ulators had “full and thorough knowl- the legal dispute involved whether the edge” of Bankia’s plight. After its See you outside numbers AIG did provide were truly indic- nationalisation, it went on to report a ative of its performance. One of the con- €19.2bn ($24.7bn) loss for 2012, the largest tested transactions, with GenRe, a reinsur- in Spanish corporate history. er, transformed an underwriting loss into The investigation comes as several NEW YORK an investment loss, protecting the reputa- bankers are already awaiting sentencing tion of its underwriting. The other ap- for mismanagement and fraud. Most A settlement ends a long lawsuit, but peared to boost AIG’s loss reserves, and prominent is the former chairman of Ban- the arguments go on thus its appearance of financial strength. kia, Rodrigo Rato, previously Spain’s fi- SETTLEMENT to be signed in front of a Neither ofthe deals improved the underly- nance minister and managing director of ANew Yorkjudge as The Economist went ing performance of the company nor was the IMF. MrRato and otherdirectors are ac- to press on February 16th marked the end intended to transfer much risk. Asked as cused of misleading investors, and, sepa- of years of attritional legal warfare. It was the press conference ended why he did the rately, of embezzling money by using cor- less clear who had won: the state of New GenRe deal, Mr Greenberg replied, oddly, porate creditcardsfortheirown purchases. York or Maurice (Hank) Greenberg, the “for appearances”. That seemed to be pre- The evidence against the regulators now 91-year-old former chief executive of cisely the point the attorney-general was comes mostly from internal e-mails and re- AIG, once the world’s largest insurer, but trying to establish. But Mr Greenberg still ports compiled by inspectors and then al- saved by a government bail-out in 2008. insisted that “deceiving investors never en- legedly ignored by their superiors. In one Eric Schneiderman, New York’s attor- tered our mind.” He and the state have set- in-house exchange of information men- ney-general, had seemed in little doubt tled; but they refuse to call it a draw. 7 tioned by the court, an inspector called when he issued a surprise statement on Bankia “a money-losing machine”, whose February10th. HankGreenberghad admit- deficiencies could not be solved by a share ted “to initiating, participatingand approv- Spanish banking listing. The court also called “devastating” ing two fraudulent transactions…that fun- the content of another report, urging Ban- damentally misrepresented AIG’s fin- See you in court kia to look for a buyer, preferably a foreign ances.” He had agreed to pay a $9m fine. one, rather than proceed with a listing. Mr Greenberg, however, saw things dif- Based on its estimate of its losses, it de- ferently. Within hours of Mr Schneider- scribed Bankia as “a group that is not via- man’s statement, his attorney, David Boies, MADRID ble”, an opinion written in red capital let- issued a response, accusing the state of be- ters. The report was sent to Pedro Comín, a Assigning blame forthe calamitous ing false and misleading and noting that director of the Bank of Spain and one of near-collapse ofBankia Mr Greenberg’s own carefully negotiated three central-bank officials who resigned statement had no “reference to any ac- LMOST five years have passed since the this weekafter the court’s indictment. counting being fraudulent” or suggested Anear-collapse ofBankia, one ofSpain’s Spain’s judges rarely send first-time of- that Mr Greenberg was aware ofany fraud. biggest lenders, forced the country into a fenders to prison for financial crimes. But By February 13th Mr Greenberg was on European banking bail-out. But inquiries in January five senior executives of Nova- the offensive. In a press conference held at into what went wrong continue—and wid- caixagalicia, a regional bank, became the the ParkAvenue headquarters ofthe insur- en. This week, for the first time, the investi- first Spanish bankers to go to jail for being ance business he now runs, Starr Compa- gations embroiled Spain’s financial regula- guilty of fraud and mismanagement dur- nies, he denounced Mr Schneiderman’s tors, including a former governor of the ing the financial crisis. The national court characterisation of the deal and demand- central bank, the BankofSpain, Miguel An- unexpectedly altered a sentence issued in ed an apology (not forthcoming). He had a gel Fernández Ordóñez. 2015 that had found the five guilty of em- sympathetic hearing in many quarters. El- On February 13th the national court in- bezzlement, but had given them only sus- iot Spitzer, the attorney-general who com- dicted Mr Ordóñez and seven other senior pended prison sentences. menced the litigation in 2005, was known regulators, ordering a criminal investiga- Spain has drawn the curtain on its for loudly filing headline-grabbing cases. tion. The court is questioning why they al- bankingcrisis, led bya slimmed-down and Mr Greenberg had assembled a legal lowed Bankia to sell shares in an initial rescued Bankia that returned to profit un- dream team at a cost, he estimated during a public offering in 2011, less than a year be- der new management as early as 2013. But televised interview, of$200m. His various fore Bankia’s portfolio of bad mortgage the long—and slow-moving—arm of the lawyers filed eight pre-trial appeals and in- loans forced the government to seize con- law is only now reaching those responsi- numerable motions. In the process, the trol of it. It said there was evidence the reg- ble forthe mess in the first place. 7 scope of the original charges was whittled down. Demands for damages shrank from billions to millions of dollars. Mr Schnei- The years that were flat derman is the third attorney-general to Spain, Bankia share price, € have presided over the case; a fourth in- 50 cumbent might have given up. Seven AIG savings Mr Greenberg has long contended banks 40 would never have collapsed had he been merged Bankia Government intervenes; Spain’s national court launches to form raises Rodrigo Rato ousted investigation into regulators permitted to remain in charge, and conse- Bankia €3.3bn 30 in IPO Spain gets European banking bail-out Former Bankia quentlyitsfailure stemmed from the state’s directors stand trial actions. But long before his departure, AIG 20 under Mr Greenberg had built a massive Bankia reports record annual loss, €19.2bn derivatives position as well as a complex, 10 opaque corporate structure that made out- Privatisation starts, with sale of 7.5% stake side scrutiny ofriskdifficult, ifnot impossi- 0 ble, and raised concerns that genuine pro- 2010 11 12 13 14 15 16 17 Sources: Thomson Reuters; The Economist blems were being hidden. 62 Finance and economics The Economist February 18th 2017

Carbon tariffs and steel bound is that global demand is itself on solid ground. Global growth is still slower Steely defences than before the financial crisis of2008, but is heading in the right direction. Both the IMF and the World Bankthinkit will speed up a bit this year. Investors have turned more bullish: the MSCI all-world index, which covers 46 different markets, hit a re- Bordertaxes on carbon may be cord high this week. The rebound in Asian counterproductive exports is more reason forbullishness. HE European Union wants to slash Structural changes may also be at play Tgreenhouse-gas emissions to 80% be- in Asia. A much-cited factor behind the low 1990 levels by 2050. It is on course to slowdown in global trade in recent years cut just half that amount. To get back on has been China’s tightening grip on com- track, on February 15th, the European Par- plex supply chains. As more production liament voted fora plan to raise the cost for takes place inside a single country, fewer firms to produce carbon. It has prompted cross-border transactions are needed to growing calls for the bloc to tax the carbon produce final goods. Yet this consolidation emissions embodied in the EU’s imports. within China is starting to meet more fric- At best, such a levy will barely curb emis- tion. China is still aiming for a bigger share sions. At worst, it could cause a trade war. of high-tech industries, but less-developed The EU’s latest reforms try to put up the Fuel for a dirty war countries in Asia are scooping up more of price ofcarbon by cutting the emissions al- its low-end manufacturing, and wealthier lowances firms are granted. They include the charges into a form of quiet protection- marketsare also fightingback. Overthe last the EU’s first border tax on carbon, levied ism. The EU and America are already in a nine months of 2016, China’s export per- on cement imports. Steel firms, also heavy politically driven tit-for-tat over steel du- formance trailed the rest ofAsia. users of carbon, say their exclusion from ties with China. Rather than prod coun- Nevertheless, there are good reasons to this scheme is unfair. This week Lakshmi tries to tighten their own environmental restrain the optimism. The rebound in ex- Mittal, the CEO of ArcelorMittal, the regulations, new carbon tariffscould make ports from Asia’s commodity producers world’s biggest steelmaker, offered his sup- that more vicious. A global carbon price such as Indonesia and Malaysia is mainly port forthe tax. Similar proposals in Amer- would produce fargreater economic bene- the result of higher prices for oil and met- ica are also gaining support. This month a fits than border taxes, but would require als. Growth in their trade volumes has group including two Republican former closer international co-operation. A trade been much slower. For Asia’s high-tech treasury secretaries, James Baker and war is not the way to get there. 7 economies, the rebound’s durability George Shultz, proposed a similar carbon hinges on the fickle tastes of consumers. tax on all imports at the border. Both Samsung and Apple are expected to Boosters say such proposals remove the Asian trade launch shiny new gadgets this year. Semi- distortions carbon taxes cause. Under the conductor makers around the region have EU’s reforms, steelmakers in Europe would Bouncing back gone into overdrive in anticipation. If de- pay up to €30 ($32) to emit a tonne of car- mand falls short of expectations, exports bon, but foreign producers sellingin the EU ofelectronics will quickly dive again. would not have to pay a cent. Putting an And looming large over all these trends equivalent tax on these imports is a neat is Donald Trump. Fears that he might de- solution to this problem. “It’s wonderful in clare China a currency manipulator in his The world’s export dynamos shrug off theory,” says Jean Chateau, an economist first few days in office came to naught. But the threat ofa trade war, fornow at the OECD, a club of rich countries. But his threats during the election campaign to “in reality it’s very problematic.” T IS easy to be downcast about the state slap heavy tariffs on Chinese products still One big problem is how to calculate the Iof global trade. It has faced stiff head- linger in the background. A trade war carbon in imports. This is not easy even for winds in recent years: in 2016, for the first would be unwelcome at any time. If it simple steel sheets; for items made of sev- time in 15 years, it grew more slowly than came just when the world was breaking eral bitsofmetal from differentsources, itis the world economy. Regional and global free from a long slump in global trade, the hellishly complex. Some countries might trade deals are going nowhere, slowly. And irony would be all the more cruel. 7 even refuse to provide the information. America’s new president has promised to And any method brought in for foreign protect his country from trade-inflicted firms, ifnot applied to local ones, could fall “carnage”. Harnessed to China foul of WTO rules, adds Michael Moore of Amid all this gloom, optimism seems Goods exports, % change on a year earlier George Washington University. foolhardy. But in Asia’s export dynamos, 60 The environmental impact ofsuch poli- trade is picking up steam. In January, Chi- China cies can be overstated. Several studies by nese exports rose year-on-year for the first 40 economists at the DIW Berlin, a think-tank, time in ten months; South Korean ship- have found little evidence that raising the ments have increased forthree months in a 20 EU’s carbon price without a border tax has row. Surveys reveal strongexport pipelines + distorted trade so far. Border taxes may not in Japan, Singapore and Taiwan. Healthy 0 force dirty producers to close anyway. order books for Asia’s manufacturers nor- – But what trade economists fear most is mally bode well for global trade and in- 20 the risk that border taxes could spark a ta- deed the global economy. It is too soon to Asia excluding China riff war, adds Chris Beauman of the Euro- declare a definitive upturn in global trade, 40 pean Bank for Reconstruction and Devel- butitlookslike more than a blip (see chart). 2007 09 11 13 15 17 opment. Lobby groups could easily pervert The simplest explanation for the re- Source: WTO The Economist February 18th 2017 Finance and economics 63

Copper fords. The two sidesremain at loggerheads, It’s a fair copper so Freeport has started sending Grasberg Two down Copper Global mine workers home. disruptions, Price, $ per tonne, ’000 tonnes m Analysts believe that the government’s pressing need for tax revenues means it 10 1.5 may seek a compromise. But damage has 8 1.2 already been done. Rio Tinto, Freeport’s partner in Grasberg, says it is reconsidering Strikes and othersupply constraints 6 0.9 the option to increase its interest in 2021. fuel long-term optimism on copper In both Chile and Indonesia, swift reso- 4 0.6 URING the commodity “supercycle”, lutions are as likely as long-term disrup- Dprices largely marched up and down 2 0.3 tions. But in the meantime, they bolster the in unison, fuelled by the strength (or weak- case of those who believe the red metal ness) of demand in China. Since last year 0 0 has a stellar future. On February 16th 2010 11 12 13 14 15 16 17* commodities have again been on a tear, McKinsey Global Institute, a consultancy, Sources: Bloomberg; CRU *Forecast but for more idiosyncratic reasons. In the joined the fray, singling out copper as a case of copper, strikes and supply disrup- commodity forwhich demand could grow tions in two of the world’s largest mines to export copperconcentrate despite a 2014 strongly over the next two decades, be- have helped push prices this week to their ban on ore exports, it would have to con- cause of Chinese demand and its impor- highest level in 20 months. This fits into a vert its decades-old “contract ofwork” into tance to electric vehicles and wind- and so- narrative of longer-term potential supply a new mining licence. Freeport says it will lar-energy units. It also predicted that shortages that has investors licking their do so as soon as Indonesia attaches to the supply would be constrained by the deple- lips over prospects forthe red metal. licence the same guarantees of fiscal and tion ofcopper ores after 2025. Copper bulls A strike that began on February 9th at legal stability that the current contract af- will be snorting with excitement. 7 Escondida in Chile, the world’s largest cop- per mine, has been compounded by a dis- Inequality in China pute between operators of Grasberg, an- other huge copper mine, located in the The Great Divide of China Indonesian province of Papua, and the government. That led to a halt in copper- concentrate production there, too, on Feb- A new papercharts China’s widening income gaps ruary 10th. The two account for 9% of mined copper supply. UST as China’s GDP has converged Robert Edwards of CRU, a consultancy, Jtowards America’s, levels ofinequality Less equal than others says a one-month shutdown at both mines have also been catching up. That is one Income share of bottom 50% would remove about 140,000 tonnes, or ofthe conclusions ofresearch* from five Pre-tax, adults, % 0.7% of the world’s output this year. He authors, including Thomas Piketty,a 30 adds that labour contracts amounting to French economist famous forhis work on China 14% of production are up for renewal this wealth and inequality.Their new paper France 25 year, raising the spectre of further strikes. compares the evolution ofinequality in 20 The possibility that disruptions in 2017 China, America and France over four 15 could increase from 2016, at a time of ro- decades. United States bust Chinese demand, has pushed up Inequality has soared since China 10 prices recently (see chart). opened the door to private enterprise 5 In Chile, BHP Billiton, operator of Es- and growth tookoff.In1978 the highest- condida, has clashed with the workers’ un- earning tenth in China received just over 0 1978 85 90 95 2000 05 10 15 ion over benefits. This week, both sides a quarter ofoverall income before tax, Source: Alvaredo et al,2016 were toing and froing over whether to take significantly below the proportion in part in informal mediation talks convened America and France at the time. By 2015, by the government. The union wants to however, those top 10% of Chinese earn- Greater disparity between rich and preserve benefits from the previous labour ers were paid two-fifths oftotal income— poor in the West may well have driven contract and extend them to new workers. above the share in France, but still just anti-establishment sentiment. It might BHP is resisting. below that in America (47%). Wealth, too, seem no less palatable in China, where Juan Carlos Guajardo, a Chilean ana- is concentrated in fewer hands: the rich- the government still calls itselfcommu- lyst, says the stakes are raised by the intro- est10% own nearly 70% ofprivate wealth nist. But there the pain has been soothed duction of a new labour code in April that in China, up from 40% in1995 (and not far by rapid growth: it has lifted all boats. will dismantle curbs on the power of un- below the American level ofnearly 80%). Income forthe poorer halfofthe pop- ions and protect existing benefits. Both Rises at the top mean that the share of ulation fell by1% in America between sideswantthe bestpossible deal before the pre-tax income going to the poorest half 1978 and 2015.In China it quintupled. new law takes effect. The union also wants ofthe Chinese population has shrunk Another comfort is that measures suggest compensation for the hardships ofthe past dramatically and is now,at15%,not much that in recent years income inequality few years offalling prices, while BHP seeks higher than the American equivalent. In has no longer been rising. This form of to bring the labour productivity of the both countries, the shares have fallenby catch-up growth, at least, is on hold. mine up to rich-world standards. nearly halfsince1978 (see chart). Com- ...... The Indonesian stand-off could be just pare that with France, where the share is * “Global inequality dynamics: new findings from as fractious. On January 12th the govern- higher and has changed little, buoyed WID.world”, by Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman, ment said that if Freeport-McMoRan, an perhaps by labour-market policies, such National Bureau of Economic Research Working Paper American firm that operates Grasberg, as a more generous minimum wage. 23119 . wanted to keep an exemption allowing it 64 Finance and economics The Economist February 18th 2017 Free exchange Not enough Europe

European institutions have become part ofthe problem they were designed to solve net, a French official and a founding father of the European pro- ject, put it, “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.” In the past, states at odds with each other might use diplomatic or military pressure to set- tle an argument. But in post-war Europe self-interested Eurocrats in Brussels would charge into power vacuums to assert their new authority. European institutions were a mechanism through which European infighting could be turned to state building. These old patterns, however, have broken down during the drawn-out euro-area crisis. The locus of decision-taking, argue Markus Brunnermeier, Harold James and Jean-Pierre Landau in “The Euro and the Battle ofIdeas”, a bookpublished last year, has moved: from Brussels to national capitals; then to Berlin and Par- is; and finally to Berlin alone. When the crisis erupted in 2010 it was soon clear that meetings of heads of government or finance ministers mattered more than what the commission or parlia- mentarians said. Early on, Germany and France decided to reach their own consensus before EU meetings. It would prevail, focus- ingpowerin Berlin and Paris. As German economic performance and political continuity diverged from France, the duet became a solo. This dynamic brought back the sting to negotiations within REECE’S marathon crisis is at least instructive. Past flare-ups Europe, along with old chestnuts about northern heartlessness Ghave illustrated a textbook’s worth of economic principles. and southern profligacy, eroding an already thin sense of Euro- The latest episode—a dispute over the sustainability of Greece’s pean solidarity.In peripheral economies, the battle lines are clear mammoth debt—provides a lesson in political economy.The be- enough; Greeks see themselves as bowing to Angela Merkel, Ger- leaguered economy itselfis not at the centre ofthe disagreement; many’s chancellor, rather than to faceless Eurocrats. ratherit is the European Commission and the IMF and others that EU national governments argue, with reason, that policies im- are at loggerheads, squabbling over projections of Greek growth. posed by Europe did more harm than good: that, for instance, Thissortofinstitutional wranglingisnotincidental to the process without an independent monetary policy or a currency to deval- of European integration; it has historically been a crucial ingredi- ue, austerity is counterproductive. Brussels has graduated from ent, helping defang the continent’s tricky interstate relations. But convenient scapegoat to the IMF’s bogeyman enforcer. Main- as Greece’s latest turn in the spotlight demonstrates, the role of stream parties used to diverting blame to Brussels find them- Europe’s institutions has changed during the euro-area crisis. Par- selves challenged by radical parties desiring to escape it. adoxically, they themselves have become part of the existential Critically,instead ofexpanding in an attempt to limit the dam- threat facing the European project. age, as Monnet would have hoped, the authority of Brussels has Like European identity itself, the role of “institutions” can been checked. The crucial decision to involve the IMF in euro- seem vague, amorphous and of overstated importance. Yet insti- area programmes was partly based on a need to get around the tution-building has been one of the most consequential aspects Maastricht treaty’s “no bail-out” strictures. But it was also rooted of European integration. Economists view institutions as the sol- in a mistrust of EU institutions. Member states, and especially utions to social problems beyond the scope of markets and the Germany, reckoned the IMF could impose conditions on indebt- state. Europe’s supranational bodies are not simply talking-shops ed countries more credibly than the European Commission. A or bloated bureaucracies. They are entities apart from the EU’s proposal to create a new institution, the European Monetary members, and come to develop their own identity and culture. Fund, was rejected. The European Central Bank is the exception That the term “Brussels” is thrown around in national capitals among EU institutions; its power has grown massively in the as a catch-all for the pesky creature that is EU authority is a design course of the crisis. But as the least accountable of the European feature, not a bug. Old enmities between European neighbours institutions, its expanded authority does more to undermine the hinderco-operation. Even when the topicunderdiscussion offers legitimacy ofthe European project than to reinforce it. mutual gain, the spectre of, say, French leaders making conces- sions to Germans can so repel French voters as to scupper deals. Blue Angela Bowing to Europe’s supranational institutions is less painful. Had the EU a longer history before it faced this existential crisis, So Brussels has proved useful in domestic policy battles. In enough powermighthave shifted to Brusselsto make a more cen- countries where politics long thwarted efforts to rein in inflation, tralised response inevitable. But there is also an irony in the way put budgets on a sustainable course or liberalise the economy, EU the crisis has unfolded. No leader has worked harder to hold Eu- membershipalteredthe politicaldynamic:toughdecisionscould rope together than Mrs Merkel. And yet the forcefulness of Ger- be blamed on the hard taskmasters in Brussels. And forcountries man leadership, and its decision to trust the IMF over the institu- lookingto join the EU, the benefitsofmembership made unpalat- tions in Brussels, have shaken Europe’s delicate political able domestic reforms easier to swallow. economy. Strange to relate, Europe’s unhappiness with Brussels Perhaps most important, the architects of European integra- may stem not from too much eurocracy, but too little. 7 tion counted on the institutions they were creating to defuse the danger posed when vacuums ofpower led to crisis. As Jean Mon- Economist.com/blogs/freeexchange Science and technology The Economist February 18th 2017 65

Also in this section 66 Stopping the waste of fertiliser 66 The cause of nodding syndrome 67 The ocean’s polluted depths

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

The future of home delivery cially for about $1 a pop. The firm says that its robots have covered tens of thousands Heel! of kilometres and met millions of people so far, with no accidents. And although each robot currently requires its own hu- man overseer, the plan is that, ultimately, a SEATTLE single person will be able to herd a flock of up to 100 ofthem online. Pedestrians will soon have to get used to sharing the pavements with One problem faced by the designers of parcel-carrying robots ’bots such as these is that unlike roads, HO would be a delivery driver? As if makes it ideal for ferrying the shopping of which have well-established rules, lane Wa brutal schedule, grumpy motorists, those who still prefer to visit stores in per- markingsand trafficsignalsto guide auton- lurking traffic wardens and the risk of an son, rather than ordering goods online. omous vehicles using them, the pave- aching back were not bad enough, they Eventually, though, it will serve the online ments running alongside those roads are now face the fear of robots taking their market too, using its own cameras, maps what roboticists refer to as “unstructured jobs. Though the buzzing, parcel-carrying and ultrasonic sensors to carry out deliv- environments”. People can walk, jog or aerial drones planned by the likes of Ama- eries by itself. roller-skate wherever they please on them, zon and Google get most of the press, a and there is an ever-shifting array of dogs, more serious threat may come from a new Streetwalkers prams, signs and rubbish to avoid, as well. breed of’droidsthatare aboutto take to the Piaggio is now putting a dozen or so Gitas The key to robotic navigation is to un- world’s pavements. to work in pilot projects around America, derstand the way people use the space the The latest, called Gita, wasunveiled ear- doing things like carrying tools for work- robot is in, says Matt Delaney, an engineer lier this month by Piaggio Fast Forward, a ers, guiding people through airports and who has worked on autonomous cars and subsidiary of Piaggio, an Italian firm that is assisting with deliveries. And it is not lunar rovers, and is now starting his own best known formakingVespa motorscoot- alone. Starship Technologies, an Estonian robotic-delivery firm, Marble, in San Fran- ers. Gita’s luggage compartment is a squat, company started by Ahti Heinla and Janus cisco. “The pedestrian environment is very drumlike cylinder that has been turned on Friis, two of the founders of Skype, has cultural,” he says. “If you monitor people its side. This, as the picture above shows, is similar ambitions. Starship’s as-yet un- over many long repetitions in testing, a ro- fitted with two wheels of slightly larger di- named suitcase-sized robot has six small bot can learn the best routes.” ameter than the drum. These let the whole wheels, travels at 6kph and holds 10kg of Marble will not yet say exactly how its thing roll smoothly along, keeping the lug- cargo. Rather than doggedly following a robots adapt themselves from the fast- gage compartment upright, at up to 35kph human being, it navigates itself around us- paced streetsofManhattan to the laid-back (22mph). Normally, though, Gita does not ing cameras and ultrasonic sensors— hills of San Francisco—possibly because travel anything like that fast. Instead, it fol- though a remote operator can take control the Bay Area’s pavements are filling rapid- lows at walking pace a metre or two be- of it to supervise tricky manoeuvres such ly with aspiring rivals. Dispatch, also in hind its human owner—or, more accurate- as crossing roads. San Francisco, is testing tricycle “Carry” ro- ly, an electronic belt that the owner wears. Starship already has dozens of these ro- bots, which looka bit like beer-cooling pic- A wireless connection to a stereoscopic botstrundlingaround deliveringpackages, nic boxes on wheels, on two Californian camera on this belt lets it map its surround- groceries and takeaway food to customers university campuses. And, down the road ings, better enabling it to trail its owner in several European cities, and also in in Palo Alto, another newly started firm, around street corners or through doors. Washington, DC, and parts of Silicon Val- Robby, is also working on a delivery ’bot. Gita can carry up to 18kg of cargo for ley. When the kinks have been ironed out, Irritating though they may eventually about eight hours between charges. That it hopes to offer such deliveries commer- become to some, however, lightweight, 1 66 Science and technology The Economist February 18th 2017

2 slow-movingrobots like Piaggio’s and Star- be made cheaply by mixing ammonia and in all cases the level ofphosphorus (anoth- ship’s do not generate the safety concerns carbon dioxide together at high pressure. er important plant nutrient, levels of that accompany autonomous cars (which The result is turned into pellets that can be which were boosted incidentally by the are heavy and fast-moving) and flying scattered easily over fields. hydroxyapatite) were adjusted to match drones (which can fall out of the sky onto Unfortunately, when such pellets are from plot to plot. your head, and also cause a significant exposed to heavy rain, the urea they con- The hydroxyapatite did, indeed, make a noise nuisance). As a result, they do not at- tain is quickly and wastefully washed difference. Plots that received no nitrogen- tract the same level of official regulation. away. A method of keeping it in place based fertiliser at all averaged 5.5 tonnes of Starship has successfully sponsored legis- would thus be welcome. And Nilwala Kot- rice per hectare. Those that received urea lation in some American jurisdictions ex- tegoda of the Sri Lanka Institute of Nano- alone yielded 7.25 tonnes per hectare. plicitly permitting autonomous delivery technology thinks she has one. As she and Those fertilised with urea-hydroxyapatite ofthe sort it is proposing to carry out. It has her team report in Nano, they have man- managed 7.8 tonnes per hectare. found, though, that most cities welcome aged to bind urea molecules to a material Though the newly compounded fertil- the robots with open arms. They have the that stops them dissolving too quickly in iser is more expensive to produce than its potential to reduce pollution and conges- water. This material is hydroxyapatite, one conventional equivalent, DrKottegoda cal- tion by taking vans off the roads, to in- ofthe components ofbone. culates that this cost would quickly be off- crease convenience and to reduce costs. Her choice of hydroxyapatite for inves- set if using urea-hydroxyapatite obviated And they have one otheradvantage. When tigation was no wild guess. It is already the need to re-scatterfertiliserover a paddy they do bring something to your doorstep, used to make capsules that release certain after heavy rain—and that does not even they do not expect a tip. 7 drugs slowly, in the way she wanted to take into account the increase in yield it achieve for urea. Hydroxyapatite is made brings with a single application. There by mixing phosphoric acid and calcium might also (though she did not measure Agrichemicals phosphate, so Dr Kottegoda simply added this) be a bonus reduction in the amount urea to the process. The result, she found, of phosphorus-based fertiliser a farmer Holding fast was that each molecule of the material needs to deploy in addition to nitrogen- clung on to six molecules of urea—a pay- based pellets. Asimple idea, then. But a po- load big enough to justify further testing. tentially important one. 7 To this end she and her colleagues steadily flushed water past samples of urea-enhanced hydroxyapatite held in Tropical diseases A simple way to stop fertiliserbeing tubes, while watching what happened us- washed away by the rain ing a spectroscope. The material shed its Blame the worm N MEDIEVAL England peasants were urea load gradually: 40% after 1,000 sec- Ipermitted to graze their sheep on the onds; 60% after 2,000 seconds; 80% after lands ofthe nobility.There were no restric- 3,820 seconds. In contrast, when the re- tions on how much their livestock could searchers treated pure urea the same way, feed, but there was one ironclad rule: the it was all gone in 320 seconds. A strange and poorly understood illness peasants were not allowed to collect their To find out whether the new fertiliser may actually be a symptom ofanother animals’ droppings. Though the English would make a difference in the field, Dr nobles who came up with such regula- Kottegoda collaborated with some farmers ODDING syndrome is a form of epi- tions could not have known that the excre- near Sammanthurai, in eastern Sri Lanka. Nlepsy that strikes children, mostly be- ment was rich in nitrogen and vital for She ran tests on equal-sized rice paddies tween the ages of five and 15. Despite the plant growth, they clearly knew that lands for four months. Some plots received no innocuousname, itisdebilitating. It robsits denied faeces were less productive. Today fertiliser at all. Some got pure urea equiva- victims of their mental capacity, stunts most farmers rely on synthetic fertilisers to lent to 100kg of nitrogen per hectare. Some their growth and causes both the charac- do the nitrogen-enhancing job once re- got an amount of the newly created urea- teristic “nodding-off” motion which gives served for dung. Urea, a compound of ni- hydroxyapatite that contained the same its name and more serious seizures, often trogen, hydrogen, carbon and oxygen, can quantity of nitrogen as the pure urea. And when a child is being fed. The exact death rate is unknown, but it is high. The syndrome is also something of a medical mystery. The first cases were iden- tified in Tanzania in the 1960s. Now it has spread to parts of Uganda and South Su- dan. No one knows how many people are affected, but it is thousands, at least. Nor has anyone been sure what causes the dis- ease. But Tory Johnson, of America’s Na- tional Institutes of Health, and her col- leagues have a theory. As they describe in a paper just published in Science Transla- tional Medicine, they suspect that nodding syndrome is an “autoimmune” disease caused by sufferers’ attempts to fight off in- fection by a parasitic worm. The worm in question is Onchocerca vol- vulus, a tiny nematode spread by the bites ofblackflies that is best known for causing river blindness. Epidemiologists had al- Spreading growth ready drawn a link between nodding syn-1 The Economist February 18th 2017 Science and technology 67

2 drome and areas infested by O. volvulus, Oceanic pollution that trenches have somehow remained but whenever people have looked, they untouched by human activities question- have failed to find traces of the worm in Entrenched able. He suspected that long-lived pollut- sufferers’ brains, orin the cerebrospinal flu- ants such as polychlorinated biphenyls id (CSF) that bathes their brains and spinal (which were once used widely in electrical cords. This led to the suspicion that, if the equipment) and polybrominated diphenyl worm is indeed responsible, it is doing its ethers (employed in the past as flame retar- harm indirectly. dants) might have made their way into the Nastychemicals abound in what was To investigate, Dr Johnson and her col- bodies oforganisms living in trenches. thought an untouched environment leagues analysed blood and CSF from chil- To test this idea out, he and his col- dren with nodding syndrome in both OT far off the coast of Guam lies the leagues sent an unmanned lander to the Uganda and South Sudan. They were look- Ndeepest point on Earth’s surface, the bottom of the Mariana trench and also to ing for antibodies. These are proteins pro- Mariana trench. Its floor is 10,994 metres the bottom of the Kermadec trench, near duced by the immune system which bind below sea level. If Mount Everest were New Zealand. This landerfell to the seabed to and disable specific molecules on the flipped upside down into it, there would and spent between eight and 12 hours surfaces of invading viruses, bacteria and still be more than 2km of clear water be- there, capturing amphipods (a type of the like, thus damaging or destroying the tween the mountain’s base and the top of crustacean, pictured) using funnel traps invader. One ofthe antibodiestheydiscov- the ocean. Such isolation has led many to baited with mackerel. At the end of its mis- ered was tailored to a protein called leio- assume that it and similar seabed trenches sion it jettisoned some ballast and floated modin-1, which is produced by mammali- will be among the few remaining pristine backto the surface with its prey. an nerve cells. In particular,studies ofmice places on the planet. However, a study led In total, the lander collected specimens suggest it is foundin both the cerebellum (a by Alan Jamieson ofNewcastle University, from ten sites in the two trenches. The shal- region of the brain which, among other in England, has shown that nothing could lowest site sampled was 7,227 metres things, helps control muscle function) and be further from the truth. As Dr Jamieson down in the Kermadec trench. The deep- inthecerebralcortex(whereabstractthink- and his colleagues report this week in Na- est, in the Mariana, was 10,250 metres. ing happens). When the team looked forpollutantsin the Trials in a Petri dish confirmed that the captured amphipods, they found that po- leiomodin-1 antibody Dr Johnson isolated lybrominated diphenyl ethers were in- is toxic to human nerve cells. That suggests deed present, but at moderate concentra- nodding syndrome is, indeed, autoim- tions. Levels of polychlorinated biphenyls, mune: the victims’ immune systems are however, were almost offthe scale. attacking their own brains. It does, though, In animals collected from clean coastal leave the question of why infection with environments, polychlorinated-biphenyl O. volvulus should cause this antibody to levels do not normally exceed one nano- be produced in the first place. gram (billionth of a gram) per gram of tis- Dr Johnson and her colleagues think sue. In grossly polluted areas, like the Liao they know the answer to that. When they river in China, that level may rise a bit looked at proteins produced by the worm, above 100 nanograms. In the Mariana they found one, called tropomyosin, that is trench, Dr Jamieson found, amphipods strikingly similar to leiomodin-1. This simi- dwelling at 10,250 metres yielded 495 larity suggests antibodies intended to at- nanograms per gram of the pollutant. tack the worm’s proteins could end up in- Those 8,942 metres down yielded 800 flicting collateral damage on the human nanograms. And at 7,841 metres he and his versions, too. And it might not just be tro- colleagues discovered the staggering level pomyosin that is involved. The researchers of1,900 nanograms pergram ofamphipod found a handful of other worm proteins A messenger from the deep tissue analysed. Values from the Kermadec that were chemically similar to their hu- trench were more modest, but still pretty man counterparts. ture Ecology and Evolution, trenches are ac- high—ranging from 50 nanograms to 250 It is an elegant chain of reasoning. But tually loaded with pollutants. nanograms per gram. the study is not conclusive. For one thing, Despite the cold, the darkness and the Precisely why the Mariana trench has only halfofthose with nodding syndrome high pressure, ocean trenches are home to such elevated levels of polychlorinated bi- seemed to be producing the antibody to ecosystems similar in many ways to those phenyls remains unclear. Dr Jamieson sus- leiomodin-1. That, though, might be ex- found on other parts of the planet. In one pects it has to do with the trench’s proxim- plained by the fact that many of the sam- important respect, though, they are differ- ity to the North Pacific Subtropical Gyre, a ples tested came from people who had ent. This is the source of the energy that whirlpool hundreds of kilometres across been infected years before, and who may powersthem. In mostecosystems, sunlight that has amassed enormous quantities of have thrown off the parasitic infection fuels the growth of plants, which are then plastics over the years, and which has the (which is susceptible to treatment with consumed by animals. In a few shallower potential to send the pollutants that bind drugs) while still sufferingthe neurological parts of the ocean, hydrothermal vents to those plastics deep into the ocean as the effects. More difficult to explain is that a provide energy-rich chemicals that form plastics degrade and descend. third of nodding-free people seemed to be the basis of local food chains. No vents are What consequences all this has for the making the antibody too. But perhaps it known to exist below 5,000 metres, Mariana’s organisms is unclear. Polychlor- does not always attackhuman proteins. though, and no sunlight penetrates a inated biphenyls disrupt the hormone sys- Whatever the details, though, Dr John- trench. The organisms found in them thus tems of some animals that dwell nearer son’s hypothesis is tantalising. If she is depend entirely on dead organic material the surface, and can also cause cancer, so right, then nodding syndrome may not be raining down upon them from farabove. the news is unlikely to be good. But what a separate disease at all, but, like river Since these nutrients, having once Dr Jamieson’s work shows beyond perad- blindness, simply another symptom of in- flowed into a trench, never make their way venture is that no part of Earth’s surface is fection with O. volvulus. 7 out again, Dr Jamieson found the notion safe from the activities ofMan. 7 68 Books and arts The Economist February 18th 2017

Also in this section 69 Heligoland 69 Jonathan Swift 70 What is late style? 71 Johnson: A taxonomy of dishonesty

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The evolution of Islam medicine into a region ravaged by plague. In Persia, meanwhile, Abbas Mirza, a The road once travelled charismatic prince, drew on French and British help to modernise an army run on medieval lines. Young Persians were sent to train in Britain and proved quick learn- ers. One of them, Mirza Saleh, wrote a remarkable account of his travels and be- came the country’s first journalist. When Islam encountered modernity Mrde Bellaigue showsthatin the Islam- EW topics are as bitterly contested ic world, just as in the West, efficient forms The Islamic Enlightenment: The Modern today as the nature of Islam. America of transport and communication made it F Struggle Between Faith and Reason. By has just elected a president who speaks easier for intelligent individuals, including Christopher de Bellaigue. Bodley Head; pointedly of“Islamic terrorism”; his prede- women, to share ideas. This is one exam- 398 pages; £25. To be published in cessor balked at connecting Islam with vi- ple of the rich detail that his research America by Liveright in April; $35 olence and said those who did, including brings to the stories of these Muslim mo- terrorists, were misreading the faith. dernisers and the violent reaction they In Western intellectual debates, mean- world following Napoleon’s invasion of sometimes triggered. while, some maintain that Islam stultifies Egypt in 1798. In the book’s final two chapters, there is its followers, either because of its core The author succeeds in his main pur- an abrupt change of pace as the author teachings or because in the 11th century pose, which is to show that in Cairo, Istan- speeds through Islam’s dealings with Euro- Islamic theology turned its back on bul and Tehran, prominent figures em- pean colonial powers during the late 19th emphasising human reason. Others retort braced aspects of Western thought and and, above all, in the early 20th century. It indignantly that the Islamic world’s technology with discernment and gusto is a fairly accomplished gallop through dif- problems are the fault of its Western foes, while remaininggood Muslims. Hisheroes ficult terrain and its purpose is to show, in from crusaders to European colonists, who are writers, doctors, generals and sultans. very broad terms, why relations between bruised the collective Muslim psyche. They include Abdulrahman al-Jabarti, an Muslims and Westerners would eventual- A new book by Christopher de Bel- Egyptian sheikh who articulated the fasci- ly turn so sour. Western policies became laigue, a British journalist and historian of nated shock with which his compatriots greedier and more cynical, especially dur- the Middle East, hews to the latter side, but greeted the arrival of Napoleon, accompa- ing and after the first world war, and this with an unusual twist. He describes how nied by scientists and scholars. Jabarti had triggered a sharp reaction in the Muslim Islam’s initial encounter with modernity, grown up believing that his own faith’s world, enraging humble, pious folkas well two centuries ago, had some benign conse- superiority should assure success in war. as clever elites. quences and he sees that as a basis for However, his honest, lively mind had to The author empathises with the resent- hope. Sceptics will inevitably call the acknowledge both the invaders’ more ment felt by Muslims over being used as book’s title, “The Islamic Enlightenment”, effective firepower and the intellectual geopolitical pawns and over the arbitrary naive or oxymoronic. heft which the French were bringing to the borders that were drawn by Europeans. Still, having focused for a number of study ofhis homeland. That prompts him to write with a degree of years on Iran and modern Turkey (from In Istanbul the sultan, Mahmud II (pic- understanding about all the popular where he reported for The Economist), Mr tured), responded to the rising strength of movements that successively shook Is- de Bellaigue is well-placed to tease out at Western powers by imitating them. He lam’s heartland, including Turkish nation- least one strand of the debate about curbed the rapaciousness of his civil ser- alism, the Muslim Brotherhood in Egypt Islam: the reaction to European influence vants and clerical reactionaries. By remov- and even the Iranian uprising of1979. as it unfolded over the 19th century in the ing religious restraints on the study of the He acknowledges that these last two political and cultural centres ofthe Muslim body, he ushered modern hygiene and movements amounted to a form of“coun-1 The Economist February 18th 2017 Books and arts 69

2 ter-enlightenment”, reinstating theocracy, the19thcentury,the island saw remarkable but he insists that even the mullahs’ Iran intermingling of German and British has some modernising features: they edu- customs, language and laws. At the time, cated an unprecedented number ofgirls. though living under the German flag, Heli- Mrde Bellaigue is equallyadamant that golanders could even elect to be British the positive legacy of the period closest to citizens and serve in the Royal Navy. his heart (the early and mid-19th century) is Then duringperiodsofantagonism, no- still partially intact. For him, the very fact tably in the first half of the 20th century, that there was once an era in which the the island became a symbol of bitter con- Islamic world drew, selectively and intelli- frontation between two of Europe’s stron- gently, on Western ideas and technology gest powers. Before the first world war Brit- while remaining true to itself, still gives ish newspapers and politicians including hope. For one thing, it means that Muslims Churchill vowed there must be “no more now migrating to the West retain, deep in Heligolands”, lamenting the decision to their collective memories, an intimation cede even the smallest territory to a rising that Islam can flourish in an enlightened enemy.Germany made the island a “mon- form. His book thus offers a refreshingly ument” to nationalism, writes Mr Ruger. optimistic counterpoint to the idea that By the 1920s Hitler and Goebbels liked to Muslim and Western world-views are be seen visiting the island, from which 18th-century literary life doomed to clash. 7 they would gaze over the sea towards Brit- ain. Pro-Nazi painters depicted muscular A man in full eagles soaring above Heligoland’s cliffs. In Northern Europe both the wars, Germany fortified the rock and built mammoth harbours for sub- Island of mystery marines and ships. After each war, Britain flattened the place. Jonathan Swift: The Reluctant Rebel. By Mr Ruger makes his case that Heligo- John Stubbs. W.W. Norton; 752 pages; land’s fortunes are a useful bellwether of $39.95. Viking; £25 wider relations and he relates his story in an engaging style. Wisely, he never quite TALE OF A TUB”, “Drapier’s Letters” Heligoland: Britain, Germany and the suggests that the island—even as a military and “A Modest Proposal”, which Struggle for the North Sea. by Jan Ruger. “A outpost—wasofmuch more than symbolic envisaged the Irish poor farming infants OUP; 370 pages; $34.95 and £25 importance. Heavily fortified Heligoland forthe tables ofthe wealthy, all made Jona- S A historical oddity, the story of Heli- did not prevent Britain’s navy, forexample, than Swift famous in his time. But these at- Agoland—a partly populated lump of from blockading Germany from afarin the tacks on abuse of power and injustice, rock in the North Sea—is worth readers’ at- first world war. readable as they are, are of limited interest tention. Its rust-red cliffswere ruled mostly More people should know Heligo- now. By contrast “Gulliver’s Travels” by Danes until 1807. Then Britain seized the land’s story forthe echoes it has today. The endures and will continue to do so for its island, just 46km (29 miles) off the conti- late 19th century saw an emerging, milita- narrative and message. It is erroneously nental coast, using it as a forward base to ristic great power, with a fast-growing considered to be a children’s bookbecause break Napoleon’s economic blockade. navy, eager to exploit a speck of land in the most readers come across it at an early age Otto von Bismarck, a Prussian statesman, ocean even ifthat provoked an established in abridged, illustrated editions that focus craved the outcrop, and in 1890 Britain ced- global power. Much the same ishappening on the voyages to Lilliput and Brobdingnag ed it to Germany in exchange for a free with China, as it militarises atolls in the and the arresting experiences of being first hand in the former slave-trading sultanate South China Sea. Frantic debates in Britain, a giant in a land of little people and then ofZanzibar. just over a century ago, about Germany’s “terribly small and vulnerable” in a In these upheavals Heligoland’s inhab- intentions in Heligoland, sound strikingly country of giants. Swift’s tales of these itants (today they number roughly 1,400) similar to discussion today, in America, encounters, and subsequent ones with the were never consulted. It seems they cared over China’s rise. Geopolitics, like history, virtuous Houyhnhnms and odious little, as long as preferential taxes and has a habit ofrepeating itself. 7 Yahoos, were in fact satires designed to steady flows of visitors from the mainland remind his contemporaries that the world continued to let them prosper. Even under is not “just what we are told it is on our British control, Heligoland was a beloved own bitofearth…no civilisation hasa free- destination for throngs of German roman- hold on ‘normality’”. This is all too readily tic painters, musicians, pamphleteers and forgotten today. poets. A poem written on the island by A man of many contradictions, torn in Hoffmann von Fallersleben, in August1841, his loyalties, Swift was born in Ireland in became the lyrics of Germany’s national 1667 of English descent. Increasingly, as anthem. Day-tripping tourists crowded its dean of St Patrick’s cathedral in Dublin, he spa resorts and celebrated pollen-free air, would campaign for Ireland and its fre- gambling and dancing. quently starving people. But he regarded it For Jan Ruger, the author of a brisk as “where he was obliged to live”. England, account of the past two centuries on Heli- its mightier neighbour, home to fellow- goland, the island matters for reasons scribblers—Alexander Pope, Joseph Addi- more serious than its remote peculiarity. son and John Gay—was “where he wanted He calls Heligoland “an apt location from to be”. At first a Whig, he became “the most where to rethink the Anglo-German past.” articulate champion” of the Tory govern- It is indeed a good vantage point. When ment of1710-14, despite preferringto be “in- ties were friendly, as in the last decade of A clod washed away by the sea different to party politics”. Ahigh Anglican1 70 Books and arts The Economist February 18th 2017

2 but no Jacobite (as rumoured), convinced Late style The term “late style” was coined by that “the Church of England was right”, he Theodor Adorno, a German Marxist phi- was more hostile to Nonconformists and When time is losopher, as a label forhis doctrinaire view Dissenters than to Roman Catholics. A par- of Beethoven. For him, Beethoven’s last adox, “thrillingly rebellious and self-as- precious works were the triumphant expression of sured, yet stoutly institutional”, he was a a determined refusal to resolve life’s con- “velvety writer” of savage attacks on gov- flicts harmoniously. This view was later ernment and a “titanic patriot”. endorsed by Edward Said, a Palestinian- Swift’s life was shaped by the upheav- American writer and academic, who—in a The final years focus the mind als and civil war that began in 1642. “Most posthumous article in the London Review heinously of all”, they caused him to be UT, out, brief candle! As life nears its of Books—declared that this “negativity” of born in Ireland after his parental family Oend, thoughts can acquire urgent clar- late Beethoven was actually a strength. was dislodged from where they belonged. ity. This truth is more perceptible among “This lateness is a thing in its own right,” In his 20s he lived through the Glorious some artists than others; novelists, for ex- Said wrote approvingly, “not a premoni- Revolution and the conflicts in Ireland that ample, find endless ways of disguising it. tion or obliteration ofsomething else.” culminated in William III’s victory over But it is so evident among playwrights, Now musicians with very different the deposed Stuart monarch at the battle composers, and visual artists that “late views are wading into the lateness debate. of the Boyne in July 1690 (commemorated style” has become an accepted critical con- In a recital series at the Wigmore Hall in in Ulster to this day). He idolised his ori- cept. Consider the late plays of Henrik Ib- London last year, Sir Andras Schiff played gins, longed for an English, pre-civil war, sen, furiously rattling the bars of the bour- the last piano sonatas of Haydn, Mozart, rural idyll that had never truly existed, hat- geois cage. Discount for a moment a brain- Beethoven and Schubert. The connecting ed change “and indeed the movement of researcher’s recent suggestion that the thread was a culminating aesthetic mas- time itself” which was “shifting in the di- abstraction of Willem de Kooning’s late tery. In “Late Style”, a series of recitals in rection of irrevocable decay”. Emotionally paintings reflects the onset of dementia, America and Europe through the spring and physically, he passed his life “between and consider instead the late works of this year, Jonathan Biss, a young American the two islands, a prisonerofthe Irish Sea”. Vincent van Gogh and Francisco Goya. pianist, is presenting chamber works by Asin hispolitical opinions, so in hisper- Look at Goya’s “Black Paintings”, the three of those composers, as well as Carlo sonal life, Swift was inconsistent. At times most famous of which is “Saturn Devour- Gesualdo, Robert Schumann, Benjamin he was very generous, at others excessive- ing his Son”. No falling-off in technical Britten and Johannes Brahms. ly mean. He was loved forhis great wit and mastery there, but a view of humanity For each of these composers, late style entertaining company but, partly perhaps which is visionary in its hellishness. Look meant something different. Gesualdo had because he suffered from deafness, vertigo, at the paintings which Van Gogh made murdered his wife and herlover, and spent short sight and a “lurking melancholy”, he during his days in the asylum at Saint- his last days in a torment which one can could be “very irritable” and had “no com- Rémy, such as “The Olive Trees” from 1889 sense in his crazily discordant late works. mand ofhis temper” . (pictured). Observation has given way to a The emotional devastation ofSchumann’s His “dreadfully delicate sense of hon- celebratory stylisation, as swirling brush- final days becomes starkly evident in his our” could cause him to treat those closest strokes reflect exuberant patterns of ruthlessly pared-down Gesänge der Frühe to him with unreasonable cruelty or ne- clouds, trees, flowers and swelling ears of (“Songs ofDawn”). The Britten string quar- glect. This was particularly the case with wheat. For these artists “late style” meant tet which Mr Biss has chosen shows the the most important women in his life, the an encounter—one terrible, the other joy- composer delighting in an extreme—and to two Esthers, Johnson and Vanhomrigh, ful—with the hyperreal. him quite new—economy of expression. 1 known as “Stella” and “Vanessa”. He loved them both and wrote to them frequently. They moved to Dublin for him and he greatly enjoyed their company, but counte- nanced marriage with neither and stayed away when they were dying. John Stubbs’s painstaking, scholarly book is much more than a life ofSwift. It is an extended, thorough history of literary, clerical, social and political life in Ireland and England during the century from 1640. An immense amount of attention is de- voted to obscure individuals and events and the general reader may prefer to read Victoria Glendinning’s much shorter, yet full and enlightening, biography which came out in 1998. However, Mr Stubbs’s ac- count has a few surprising factual errors— the battle of the Boyne, arguably the best- remembered event in Irish history, is dated as 1689, a year early, and the medieval town ofKilkenny is placed “60 miles to the south-east” of Dublin (which would put it smack in the middle of the Irish Sea). That said, Mr Stubbs’s work is a magnificent achievement and an engrossing read that will surely represent the last word on his subject for many years to come. 7 Better late The Economist February 18th 2017 Books and arts 71

2 The chaotic middle movement ofMr Biss’s the world of real sound gave Beethoven before the right one is hit upon to launch a chosen Schubert sonata reflects the com- the freedom to create hitherto un- finale. Mr Solomon likens this process to a poser, who was dying of syphilis, dreamed-of new sound-worlds, and that search forthe thread outofa labyrinth, and going to pieces in rage and terror. Brahms’s played into his vaulting ambition to the liberated playfulness of the final Baga- late works suggest a man whose emotion- address posterity. telles indicates that Beethoven had indeed al energy has been sapped dry; Beetho- Moreover, his late works were deeply found that thread. ven’s suggest the opposite. What links symbolic, sometimes seeming, through As Fiona Maddocks observes in “Music these composers, as Mr Biss points out, is sheer technical illusionism, to make time for Life”, an elegant collection of mini- that “with each of them, something has stand still—as though he wanted to extend essays published last year, people tend to happened to completely change their his own life. In “Late Beethoven” (2003) over-romanticise last works, and there is style”. Maynard Solomon, an American musicol- some truth in that. But many great artists What is that something? It seems to be ogist, points to the frequency—most clearly experience a psychological and artistic an amalgam of circumstance and psycho- seen in the Hammerklavier sonata and the step-change late in life. For them, life’s logy, and no composer exemplifies this Ninth Symphony—with which a series of candle burns most brightly when it is more vividly than Beethoven. Deafness to themes is tried and impatiently rejected, about to go out. 7 Johnson A taxonomy of dishonesty

The press should call out politicians when they lie. But lying isn’t the same as talking nonsense IS inauguration was the biggest ever. president doubled down, promising a HDonald Trump could not make it thorough investigation into voter fraud. through the first days of his presidency It’s possible that he believes his own guff. without saying something that was de- The same goes for the murder rate: Mr monstrably untrue. The New York Times Trump said something wildly wrong dubbed it a “falsehood”. When Mr Trump about something easily checkable, leav- said that over 3m people had voted ille- ing an adviser, Kellyanne Conway, flailing gally, the Times headline was sharper: to cover for him by saying that Mr Trump “Trump RepeatsLie AboutPopularVote in may have been “relying on data perhaps Meeting with Lawmakers”. That word for a particular area; I don’t know who keeps recurring. CNN and MSNBC (both gave him that data”. cable-news stations) recently said that Mr Using “lie” strictly is not easy; it is im- Trump had lied about the murder rate be- possible to know another mind perfectly. ing the highest in almost a half-century. (It But politics often has a way ofleaving evi- is in fact near historical lows.) Mr Trump dence: e-mails, memos, witnesses. Mi- says a lot of things that are nakedly false. chael Flynn, briefly Mr Trump’s national Are they all lies? security adviser, said he never discussed There is a difference between false- sanctions with Russia’s ambassador. The hood and lying. The Oxford English Dic- Washington Post reported that America’s tionary defines a “lie” as a “false state- spies knew otherwise. He had to resign. ment made with intent to deceive”. It says Journalists should be tough when “falsehood” is “an uttered untruth; a lie. powerful people sayuntrue things. When Also false statements, uttered untruth, in for a comic or jarring effect. “Admit”, those statements first hit the headlines, general.” Falsehood is thus the wider “learn” and other words like them presup- “false” packs plenty of punch. Reporters word, covering lying and “uttered un- pose the truth ofthe following clause. should demand to know the reason for truth, in general”. Lying requires an intent “Lie” is special, a special kind of “anti- the false statements. In cases like Mr to deceive—which implies knowing that factive” verb. Not only must the informa- Flynn’s, with clear evidence, they can say what you’re saying isn’t true. tion in question be false, but the user ofthe “he lied”. In cases like that of Mr Trump What does a journalist know about verb “to lie” must know—or have very and the murder rate, journalists should the contents of Donald Trump’s mind? good reason to believe—that the speaker demand to know his sources, perhaps Certainly, the president cannot resist talk- knows it to be false. If Mr Trump really asking whether the president trusts con- ing up his own greatness. Some have ac- does have a pathological need to believe spiracy-theorist websites over his own cused him of suffering from narcissistic fantastic things about his greatness, he FBI. It hardly spares Mr Trump to call him personality disorder. Long-distance men- may very well think that he must have “deluded” rather than a liar. Finally, there tal-health diagnoses are beyond the remit beaten Hillary Clinton in the popular vote, is the possibility that the president simply of the language columnist. But the me- and that the only reason he didn’t was has no regard for the truth at all, not even dia’s overuse of “lie” indicates that jour- down to the millions ofillegal votes. caringwhetherhe’srightorwrong. In that nalists gloss all too easily over the fine dis- For a “lie”, Mr Trump would have to case, the press lacks an easy term for this tinction between “lie” and “falsehood”. have known the truth. If he did, he told a kind of falsehood. Many won’t print Certain verbs, “factive” ones, can be whopper that immediately gave rise to de- “bullshit”, one proposed suggestion. used only when the information that fol- mands for proof—proof he could not pro- Using exact terms will only make it lows is true. You can’t say, “He admitted vide. Mr Trump did not modify his words, more powerful when the press catches that the moon was made ofstyrofoam” or back down or duck further questions. If he Mr Trump red-handed in a “lie”. Report- “She learned that the UN was poisoning was lying, he was setting himself up for an ers can be patient as well as precise. His the water supply” unless you are aiming ever-bigger embarrassment. Instead, the presidency is still young. 72 Economic and financial indicators The Economist February 18th 2017

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 Feb 15th year ago United States +1.9 Q4 +1.9 +1.6 nil Jan +2.5 Jan +1.3 4.8 Jan -476.5 Q3 -2.6 -3.2 2.51 - - China +6.8 Q4 +7.0 +6.7 +6.0 Dec +2.5 Jan +2.0 4.0 Q4§ +210.3 Q4 +2.4 -3.8 3.07§§ 6.87 6.57 Japan +1.7 Q4 +1.0 +0.9 +3.2 Dec +0.3 Dec -0.2 3.1 Dec +190.9 Dec +3.7 -5.5 0.10 115 113 Britain +2.2 Q4 +2.4 +2.0 +4.3 Dec +1.8 Jan +0.7 4.8 Nov†† -138.1 Q3 -5.4 -3.7 1.35 0.80 0.69 Canada +1.3 Q3 +3.5 +1.2 +1.5 Nov +1.5 Dec +1.5 6.8 Jan -53.6 Q3 -3.5 -2.4 1.79 1.31 1.39 Euro area +1.7 Q4 +1.6 +1.7 +2.0 Dec +1.8 Jan +0.2 9.6 Dec +394.6 Nov +3.3 -1.8 0.37 0.95 0.89 Austria +1.2 Q3 +2.4 +1.5 +2.3 Nov +1.4 Dec +0.9 5.7 Dec +8.0 Q3 +2.5 -0.9 0.64 0.95 0.89 Belgium +1.1 Q4 +1.6 +1.2 +0.4 Nov +2.6 Jan +1.8 7.6 Dec +3.4 Sep +1.0 -3.0 0.83 0.95 0.89 France +1.1 Q4 +1.7 +1.2 +1.3 Dec +1.4 Jan +0.3 9.6 Dec -26.8 Dec‡ -1.1 -3.3 1.05 0.95 0.89 Germany +1.8 Q4 +1.7 +1.8 -0.6 Dec +1.9 Jan +0.4 5.9 Jan +294.5 Dec +8.9 +0.6 0.37 0.95 0.89 Greece +0.2 Q4 -1.4 +0.4 +2.1 Dec +1.2 Jan -0.8 23.0 Nov -1.0 Nov -0.3 -7.5 7.77 0.95 0.89 Italy +1.1 Q4 +0.8 +0.9 +6.6 Dec +0.9 Jan -0.1 12.0 Dec +50.9 Nov +2.7 -2.5 2.25 0.95 0.89 Netherlands +2.3 Q4 +2.0 +2.0 +4.8 Dec +1.7 Jan +0.1 6.4 Dec +57.1 Q3 +8.1 -1.1 0.54 0.95 0.89 Spain +3.0 Q4 +2.8 +3.2 -1.6 Dec +3.0 Jan -0.3 18.4 Dec +24.3 Nov +1.8 -4.6 1.75 0.95 0.89 Czech Republic +1.6 Q3 +0.8 +2.4 +2.7 Dec +2.2 Jan +0.7 5.3 Jan§ +3.7 Q3 +1.7 nil 0.67 25.6 24.1 Denmark +1.1 Q3 +1.6 +1.0 +10.0 Dec +0.9 Jan +0.3 4.3 Dec +24.5 Dec +7.3 -1.4 0.42 7.03 6.64 Norway +1.8 Q4 +4.5 +0.6 -2.2 Dec +2.8 Jan +3.5 4.7 Nov‡‡ +18.0 Q3 +4.2 +3.5 1.83 8.36 8.62 Poland +2.0 Q3 +7.0 +2.8 +2.4 Dec +1.8 Jan -0.7 8.3 Dec§ -2.5 Dec -0.5 -2.5 3.89 4.08 3.92 Russia -0.4 Q3 na -0.5 +3.0 Dec +5.0 Jan +7.1 5.3 Dec§ +22.2 Q4 +2.0 -3.6 8.25 57.3 78.8 Sweden +2.8 Q3 +2.0 +3.1 -0.9 Dec +1.7 Dec +1.0 6.5 Dec§ +22.2 Q3 +4.6 +0.2 0.76 8.94 8.44 Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 +0.3 Jan -0.4 3.3 Jan +68.2 Q3 +9.4 +0.2 -0.09 1.01 0.98 Turkey -1.8 Q3 na +2.4 +1.2 Dec +9.2 Jan +7.8 12.1 Nov§ -32.6 Dec -4.4 -1.1 10.94 3.68 2.93 Australia +1.8 Q3 -1.9 +2.4 -0.2 Q3 +1.5 Q4 +1.3 5.7 Jan -47.9 Q3 -3.1 -2.3 2.79 1.30 1.41 Hong Kong +1.9 Q3 +2.5 +1.2 -0.1 Q3 +1.2 Dec +2.4 3.3 Dec‡‡ +13.3 Q3 +2.8 +1.3 1.85 7.76 7.79 India +7.3 Q3 +8.3 +6.9 -0.4 Dec +3.2 Jan +4.8 5.0 2015 -11.1 Q3 -0.6 -3.8 6.86 66.9 68.2 Indonesia +4.9 Q4 na +5.0 +4.3 Dec +3.5 Jan +3.5 5.6 Q3§ -16.3 Q4 -2.1 -2.3 7.50 13,331 13,490 Malaysia +4.3 Q3 na +4.3 +4.8 Dec +1.8 Dec +2.1 3.5 Dec§ +5.6 Q3 +1.9 -3.4 4.13 4.45 4.17 Pakistan +5.7 2016** na +5.7 +7.8 Nov +3.7 Jan +3.8 5.9 2015 -5.0 Q4 -1.8 -4.6 7.59††† 105 104 Philippines +6.6 Q4 +7.0 +6.9 +23.0 Dec +2.7 Jan +1.8 4.7 Q4§ +3.1 Sep +0.9 -2.3 4.86 49.9 47.5 Singapore +1.1 Q3 +9.1 +1.8 +21.3 Dec +0.2 Dec -0.5 2.2 Q4 +63.0 Q3 +23.6 +0.7 2.24 1.42 1.40 South Korea +2.3 Q4 +1.6 +2.7 +4.3 Dec +2.0 Jan +1.0 3.8 Jan§ +98.7 Dec +7.4 -1.6 2.15 1,142 1,212 Taiwan +2.9 Q4 +1.8 +1.4 +6.2 Dec +2.2 Jan +1.4 3.8 Dec +74.7 Q3 +12.9 -0.2 1.13 30.7 33.3 Thailand +3.2 Q3 +2.2 +3.2 +0.5 Dec +1.6 Jan +0.2 0.8 Dec§ +46.4 Q4 +10.7 -2.1 2.58 35.0 35.6 Argentina -3.8 Q3 -0.9 -2.2 -2.5 Oct — *** — 8.5 Q3§ -15.7 Q3 -2.7 -4.7 na 15.5 14.8 Brazil -2.9 Q3 -3.3 -3.5 nil Dec +5.4 Jan +8.1 12.0 Dec§ -23.5 Dec -1.2 -6.3 10.22 3.06 3.98 Chile +1.6 Q3 +2.5 +1.7 +0.3 Dec +2.8 Jan +3.8 6.1 Dec§‡‡ -4.8 Q3 -1.6 -2.8 4.13 640 709 Colombia +1.2 Q3 +1.3 +1.6 +2.2 Dec +5.5 Jan +7.5 8.7 Dec§ -13.7 Q3 -4.8 -3.8 6.86 2,877 3,410 Mexico +2.0 Q3 +4.0 +2.1 -0.6 Dec +4.7 Jan +2.9 3.7 Dec -30.6 Q3 -2.9 -2.6 7.43 20.4 19.1 Venezuela -8.8 Q4~ -6.2 -14.1 na na +428 7.3 Apr§ -17.8 Q3~ -2.0 -24.3 10.43 9.99 6.31 Egypt +4.5 Q2 na +4.3 +17.2 Dec +28.2 Jan +13.8 12.6 Q3§ -20.8 Q3 -6.9 -12.2 na 16.5 7.83 Israel +5.2 Q3 +3.6 +3.5 -4.5 Nov +0.1 Jan -0.5 4.3 Dec +13.3 Q3 +3.3 -2.2 2.40 3.75 3.89 Saudi Arabia +1.4 2016 na +1.4 na +1.7 Dec +3.5 5.6 2015 -46.8 Q3 -5.7 -11.4 na 3.75 3.75 South Africa +0.7 Q3 +0.2 +0.5 -0.8 Dec +6.6 Jan +6.3 26.5 Q4§ -12.3 Q3 -3.8 -3.4 8.58 13.1 15.9 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% †††Dollar-denominated bonds. The Economist February 18th 2017 Economic and financial indicators 73

Markets % change on Defence budgets Defence spending, as % of GDP, 2016 Dec 31st 2015 The ten biggest defence budgets in 2016 in local in $ Index one added up to over $1.1trn, according to the 0246810 Feb 15th week currency terms International Institute for Strategic United States (DJIA) 20,611.9 +2.8 +18.3 +18.3 Studies (IISS). America remains the Saudi Arabia 57 China (SSEA) 3,364.4 +1.5 -9.2 -14.1 Russia* 47 Japan (Nikkei 225) 19,438.0 +2.3 +2.1 +7.2 biggest spender, China ranks second. The Britain (FTSE 100) 7,302.4 +1.6 +17.0 -1.2 balance of power is shifting to Asia United States 605 Canada (S&P TSX) 15,845.0 +1.9 +21.8 +29.3 though: between 2012 and 2016 defence South Korea 34 Euro area (FTSE Euro 100) 1,125.4 +2.5 +2.8 +0.1 spending in Asia grew on average by 5-6% India 51 Euro area (EURO STOXX 50) 3,323.7 +2.6 +1.7 -1.0 a year in real terms and now stands at Britain 53 Austria (ATX) 2,807.9 +3.8 +17.1 +14.0 $367bn. China makes up 10% of global Belgium (Bel 20) 3,618.6 +1.0 -2.2 -4.8 military spending, up from 3% a decade Australia 24 France (CAC 40) 4,924.9 +3.3 +6.2 +3.4 ago. Commodity exporters in the Middle France 47 Germany (DAX)* 11,793.9 +2.2 +9.8 +6.9 East have been hit by low oil prices: Brazil 24 626.3 +2.5 -0.8 -3.4 Greece (Athex Comp) spending in the region was down by 12% Italy (FTSE/MIB) 19,056.2 +1.5 -11.0 -13.4 China 145 in real terms last year. Saudi Arabia has Netherlands (AEX) 496.7 +2.7 +12.4 +9.4 Germany 38 Spain (Madrid SE) 968.7 +2.8 +0.4 -2.3 particularly suffered: its defence budget Japan Total, $bn 47 Czech Republic (PX) 972.8 +1.8 +1.7 -1.0 shrank by 31% last year, although it was Denmark (OMXCB) 828.3 +3.0 -8.6 -10.7 still worth almost 10% of GDP. *Excludes some defence-related Source: IISS spending such as pensions Hungary (BUX) 33,981.5 +4.3 +42.1 +41.7 Norway (OSEAX) 769.7 -0.2 +18.6 +25.6 Poland (WIG) 57,899.3 +4.1 +24.6 +20.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,172.6 +0.7 +54.9 +54.9 2005=100 % change on % change on Sweden (OMXS30) 1,574.0 +1.6 +8.8 +2.6 Dec 31st 2015 one one Switzerland (SMI) 8,486.3 +1.3 -3.8 -4.5 Index one in local in $ Feb 7th Feb 14th* month year Turkey (BIST) 87,881.9 -0.4 +22.5 -2.8 Feb 15th week currency terms Dollar Index Australia (All Ord.) 5,859.1 +2.7 +9.6 +16.1 United States (S&P 500) 2,349.3 +2.4 +14.9 +14.9 All Items 148.3 150.7 +1.8 +20.4 Hong Kong (Hang Seng) 23,994.9 +2.2 +9.5 +9.4 United States (NAScomp) 5,819.4 +2.4 +16.2 +16.2 Food 160.1 160.2 -0.5 +9.9 India (BSE) 28,155.6 -0.5 +7.8 +6.6 China (SSEB, $ terms) 344.8 +1.8 -19.2 -19.2 Indonesia (JSX) 5,380.7 +0.4 +17.1 +21.1 Japan (Topix) 1,553.7 +1.9 +0.4 +5.4 Industrials Malaysia (KLSE) 1,709.8 +1.3 +1.0 -2.5 Europe (FTSEurofirst 300) 1,465.1 +2.2 +1.9 -0.8 All 136.0 140.9 +4.6 +35.8 Pakistan (KSE) 49,214.2 -1.3 +50.0 +49.9 World, dev'd (MSCI) 1,833.6 +1.7 +10.3 +10.3 Nfa† 150.5 150.9 +3.2 +41.5 Singapore (STI) 3,088.5 +0.7 +7.1 +6.8 Emerging markets (MSCI) 941.8 +2.2 +18.6 +18.6 Metals 129.8 136.6 +5.3 +33.3 South Korea (KOSPI) 2,083.9 +0.9 +6.2 +9.1 World, all (MSCI) 443.7 +1.8 +11.1 +11.1 Sterling Index Taiwan (TWI) 9,799.8 +2.7 +17.5 +25.6 World bonds (Citigroup) 881.5 -1.4 +1.3 +1.3 All items 216.9 220.0 -1.5 +38.2 Thailand (SET) 1,573.4 -1.0 +22.2 +25.5 EMBI+ (JPMorgan) 792.5 -0.2 +12.5 +12.5 Argentina (MERV) 19,657.1 +2.7 +68.4 +40.9 Hedge funds (HFRX) 1,220.9§ +0.6 +4.0 +4.0 Euro Index Brazil (BVSP) 67,975.6 +4.8 +56.8 +103 Volatility, US (VIX) 12.0 +11.5 +18.2 (levels) All items 169.3 177.4 +2.2 +27.0 Chile (IGPA) 21,722.0 +2.0 +19.7 +32.6 CDSs, Eur (iTRAXX)† 73.0 -2.8 -5.3 -7.8 Gold Colombia (IGBC) 9,968.9 -0.9 +16.6 +28.7 CDSs, N Am (CDX)† 62.9 -5.8 -28.8 -28.8 $ per oz 1,234.0 1,226.2 +2.0 +0.9 Mexico (IPC) 47,161.7 +0.5 +9.7 -6.9 Carbon trading (EU ETS) € 5.1 -4.2 -39.6 -41.2 West Texas Intermediate Venezuela (IBC) 34,288.5 +21.3 +135 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 52.2 53.2 +1.4 +82.5 Egypt (EGX 30) 12,448.4 -5.9 +77.7 -15.7 †Credit-default-swap spreads, basis points. §Feb 14th. Israel (TA-100) 1,282.6 +3.0 -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) 7,073.7 +1.5 +2.3 +2.4 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,485.2 +1.3 +3.5 +22.9 series, go to: Economist.com/indicators †Non-food agriculturals. 74 Obituary Brunhilde Pomsel The Economist February 18th 2017

Not that she often saw him. He was po- lite but distant, and she wondered wheth- er he knew her name. He invited her one day to dinner at his villa, even seating her nextto him, butneversaid one word to her. If she had been a Hollywood starlet, he would have been all over her; but she was only medium pretty, and wore glasses. Magda, his wife, was kind, and gave her a beautiful blue wool suit when her flat was bombed. The sixchildren were darlings, so well-behaved, and played on hertypewrit- er when they came to the office.

Her Jewish friends The spell she was under—the spell every- one was under—broke only in April 1945, when she spent ten days cowering from Soviet artillery in Hitler’s bunker, trying to get drunk and stay drunk, gulping cold food out of cans, and numb as a lost soul. She planned to tell the Russians, when they came, that she was only Goebbels’s typist. He had already shot himself and Magda and they had murdered the chil- dren, pushing cyanide into their mouths as they slept. The thought of that made her cry bitterly, unable to forgive them. A typist’s life But what about the murders ofall those others, that business of the Jews? She nev- er knew they had been killed. There were camps; the Jews went to them; and then were sent on, she was told, to repopulate the eastern lands. That all made sense. As for the Jews she knew, their lives got diffi- Brunhilde Pomsel, secretaryto Joseph Goebbels, died on January27th, aged 106 cult, but she was not sure why. Her first HERE was only one time she felt afraid she felt, like most Germans, that Germany boss, Hugo Goldberg, a lawyer, kept cut- Tof him. But well into her 11th decade, had been betrayed by its own government ting her hours and pay as his clients dwin- when she remembered it, Brunhilde Pom- and kicked around by other countries. She dled. Herfriend Eva had to stop visiting her sel would tremble and the hairs would joined the Nazi party then, too, because at the ministry, and eventually disap- start to lifton her arms. The day was Febru- she had to join to geta job in state radio, but peared; she found her many decades later, ary 18th 1943, when she had gone with a she celebrated by having coffee with her on the death-roll of Auschwitz. Just before colleague to the Berlin Sportpalast to hear Jewish best friend Eva, so that was all the her death she confided to the maker of a her boss give a speech. Everyone at the difference itmade to her. And she had gone documentary about her that the love of Ministry of Enlightenment and Propagan- to work for Goebbels, Hitler’s chief of pro- her life had been Gottfried Kirchbach, a da was meant to go; as a junior, one of six paganda and architect of his most savage Jew; he had escaped to Amsterdam, but secretaries in her office, she hadn’t known schemes, because she had an excellent her regular visits to him aroused too much how to get out of it. So there they were, in typing speed and was ordered to. As a suspicion, and had to end. For medical rea- the huge sports stadium, among the party good Prussian girl, she did her duty. sons she also had to abort his child. She high-ups in the reserved seats. Besides, it was a nice job. The pay was never married afterwards. She knew Joseph Goebbels as soon as great, 275 marks a month, with flexible This untypical story had not emerged he appeared, of course: small, frail and hours and pleasant people. As for her in the documentary, or in any other inter- tense, with his exquisitely neat hair and work, it was the usual round oftyping, tak- view she gave. Some things she still kept hands and the draggingclub foot, which al- ing calls, sorting post, filing. She had to hidden—including, perhaps, the fact that ways made her feel sorry for him. What change some figures once, as the war she could be brave. She was tired of every- she did not recognise was what he became turned, reducing the numbers of Germans one saying she must have known more as he spoke: a raving, rantingmidget, foam- killed and increasing the number of rapes and should have resisted. No, she had been ing and roaring about the need for total of German women by Soviet soldiers. She a sillysuperficial coward, butshe had done war, and making the crowd roar back its was also given the file of Sophie Scholl, a nothingto be ashamed of. What could a ty- approval. She and her colleague gripped student leader of the anti-Nazi resistance, pist have to apologise for? hands in terror, forgetting to applaud, until who was executed for handing out leaflets Besides, she had been punished: five an SS man poked theirshouldersto remind at the airport. Her instructions were not to years peeling potatoes and sewing laun- them. They clapped then, bewildered. look at it, but to put it in the safe. She did as drysacksin Sovietprisons, no bed of roses, As forthe speech itself, she didn’t take it she was told, and felt proud for having before she returned to Germany and other in. She was apolitical, as she kept saying obeyed; proud, too, to have the key of the secretarial jobs. Back in her flat in ran- when, seven decades later, she began to safe, but neverto use it without Goebbels’s sacked Berlin, she found the blue suit talk about it. Stupidly so, but there it was. permission. The very thought that she had Magda had given her still hanging in the Yes, she had voted forHitlerin 1933 because his trust made her feel a little more noble. wardrobe. She wore it formany years. 7

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Source: IDC “Worldwide SaaS Enterprise Applications Market Shares, 2015: The Top 15 by Buyer Size,” doc #US41913816, Dec. 2016; Table 4. For the purposes of this report, SaaS enterprise applications include the following application markets: CRM, engineering, ERP, operations and manufacturing, and SCM. Copyright © 2017, Oracle and/or its affiliates. All rights reserved. Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners.