The economy Joe Biden will inherit America’s allies: a long wishlist The trouble with value investing Zambia, becoming the next Zimbabwe

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Contents The Economist November 14th 2020 5

The world this week Britain 8 A summary of political 25 Protest in the provinces and business news 26 Foreign-investment rules 27 Brexit and Biden Leaders 27 Chumocracy 13 Vaccines Suddenly, hope 28 Phone-hacking 28 New nukes? 14 America and its allies Great expectations 29 Rishi and the City 14 America’s next president 30 Bagehot Princess Diana, Biden’s economy populist politician 15 Asset management Beyond Buffett Europe 31 Nagorno- Karabakh On the cover 16 Democracy in Africa Zambia’s descent 32 Corruption and Ukraine A highly effective vaccine 33 Europe’s recovery fund should transform the fight Letters against covid-19. But a lot 33 France fights jihadists On transgender sports, remains to be done: leader, 18 in Africa diplomacy, Facebook, page 13, and briefing, page 21. management, Armenia, Cheap, rapid tests for avatars, Brazil sars-cov-2 are here. Will they United States be the stopgap needed? Page 72 35 Covid-19 and Biden Briefing • The economy Joe Biden 36 Republicans and the result 21 Covid-19 vaccines will inherit He faces two 37 The Pentagone The technology of hope extraordinary challenges: leader, 38 Fox News page 14. What he would do 38 Unhappy cowboys differently, and how much Special report: difference it would make, Asset management 39 The urban-rural divide page 35. A vaccine and the The money doctors 40 Lexington A Democratic world’s largest economy, page 66 After page 40 defeat in victory • America’s allies: a long wishlist What they can do for The Americas Joe Biden: leader, page 14. And 41 The impeachment of what the world wants from him, Martín Vizcarra page 55 42 Hurricane Eta • The trouble with value 43 Bello Proxy presidents investing Made famous by Warren Buffett, it is struggling to remain relevant: leader, page 15, and briefing, page 63. A special Middle East & Africa report on asset management 44 Corruption in South Africa after page 40 45 Why Zambia may default 46 Fed-up feminists in Egypt 47 Saeb Erekat, RIP

Bagehot How Princess We are working hard to Diana shaped politics, ensure that there is no dis- page 30 ruption to print copies of The Economist as a result of the coronavirus. But if you have digital access as part of your subscription, then acti- vating it will ensure that you can always read the digital version of the newspaper as well as all of our daily jour- nalism. To do so, visit economist.com/activate 1 Contents continues overleaf 6 Contents The Economist November 14th 2020

Asia Finance & economics 48 Kyrgyzstan’s president 66 America’s rebound 49 Sino-Australian trade 67 The vaccine and investors 50 India’s covid-19-proof 68 Buttonwood Emerging ruling party markets 50 Myanmar’s election 69 Turkey’s economic policy 51 Banyan Filipinos abroad 69 Grain prices in America 70 A Swedish unicorn China 71 Free exchange Working 52 Hong Kong’s legislature with epidemiologists 53 Self-help books 54 Chaguan Musing over Science & technology tea about unequal lives 72 Fast tests for covid-19 73 Life on Venus, redux 74 Better disposable cups

International 55 What the world wants from Biden Books & arts 75 Britain and slavery 76 Chinatown chic 77 American society 77 Billy Wilder’s story Business 78 Johnson Language and China’s battered 58 evolution entrepreneurs 60 Disney’s TV success Economic & financial indicators 60 A growing taste for pasta 80 Statistics on 42 economies 61 Royal Enfield revs up 62 Schumpeter McDonald’s Graphic detail supersized comeback 81 How less-educated whites spurn Joe Biden

Briefing Obituary 63 Value investing struggles 82 James Randi, magician and professional sceptic

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Arceau, L’heure de la lune Time flies to the moon. 8 The world this week Politics The Economist November 14th 2020

exile last year after protests civil wars, Ms Suu Kyi remains against his re-election. After popular, especially among the Coronavirus briefs Mr Arce took office Mr Morales ethnic-Bamar majority. To 6am GMT November 12th 2020 returned overland to Bolivia Weekly confirmed cases by area, m from Argentina. China authorised Hong Kong’s government to disbar legisla- 2.0 Europe Eta, this year’s strongest tors deemed to oppose Chinese 1.5 hurricane, killed at least 130 rule in the territory or to Latin America 1.0 people in Central America. threaten national security. The US Other Perhaps 300,000 lost their local government promptly 0.5

homes. Eta broke a record set dismissed four pro-democracy 0 in 2005 for the number of lawmakers. Fifteen others said Donald Trump refused to named storms in a season. they would resign. NOSAJJMAM concede defeat in America’s Confirmed deaths* election, despite Joe Biden’s Britain’s House of Lords voted America removed the East Per 100k Total This week passing the required 270 to amend a bill that would Turkestan Islamic Movement Belgium 118.7 13,758 1,427 electoral-college votes. The allow the government to re- from its list of terrorist organi- Peru 106.1 34,992 321 president is pursuing several write parts of its European sations. It said there was no Spain 85.8 40,105 1,987 legal challenges to states’ Union withdrawal treaty, credible evidence that the Brazil 76.9 163,368 2,262 results. None is expected to including provisions about group, allegedly founded by Chile 76.5 14,633 293 Argentina 76.4 34,531 2,011 succeed. Mr Biden’s transition Northern Ireland. The govern- Uyghur separatists, still exist- Bolivia 75.5 8,818 60 team is considering suing to ment says it will override the ed. China reacted angrily, Mexico 74.8 96,430 3,202 obtain federal funds and infor- changes. Joe Biden warned saying the organisation was a Britain 74.2 50,365 2,623 mation usually granted to Boris Johnson, Britain’s prime threat not only to China but to Ecuador 73.2 12,920 216 incoming administrations. minister, not to imperil peace the world. United States 72.7 240,783 7,785

in Ireland. Sources: Johns Hopkins University CSSE; UN; World leaders queued up to Several people were injured by The Economist *Definitions differ by country congratulate Mr Biden. Among After weeks of fighting over a bomb at an Armistice Day the strongmen who have so far Nagorno-Karabakh, Armenia ceremony in Jeddah, in Saudi The European Commission demurred are Vladimir Putin and Azerbaijan agreed to a Arabia. The event was attended agreed to buy up to 300m doses of Russia, Xi Jinping of China peace deal. Armenia surren- by representatives of foreign of the vaccine developed by and Jair Bolsonaro of Brazil. Mr dered the districts surround- consulates, including that of Pfizer and BioNTech. Bolsonaro railed against Mr ing the enclave, though a corri- France. Emmanuel Macron, Biden’s proposals to punish dor linking Armenia and France’s president, has angered Russia’s claims that its home- Brazil for not protecting the Nagorno-Karabakh will be some Muslims by defending grown “Sputnik V” vaccine is Amazon rainforest, saying, placed under Russian control. the right to publish caricatures 92% effective in preventing “Diplomacy alone won’t work. Protesters demanded the of religious figures, including infection, a similar success Once the saliva runs out, you resignation of Armenia’s prime the Prophet Muhammad. rate to Pfizer’s, were met with have to have gunpowder.” minister, Nikol Pashinyan. scepticism. Saeb Erekat, a veteran Pales- Joe Biden announced a The European Parliament tinian diplomat who was The number of people in hos- covid-19 advisory board to deal reached an agreement with eu involved in three decades of pital with covid-19 in America with the pandemic. He said his member states over the cre- negotiations with Israel, died reached 65,000, a new record. response would be led “by ation of a €1.8trn ($2.1trn) after contracting covid-19. He Europe’s death toll from the science and by experts”. spending package for the next was 65. virus passed 300,000. seven years, including a Donald Trump tweeted that he €750bn recovery fund which Prince Khalifa bin Salman Lebanon announced a new had “terminated” his defence will be raised on the capital al-Khalifa, the hardline prime lockdown that will last until secretary, Mark Esper. In June markets by the eu itself, not by minister of Bahrain, also died. the end of November. Authori- Mr Esper publicly disagreed individual countries. He had held the post since ties in Tehran ordered restau- with the president about the independence in 1971. Prince rants and shops to close early use of troops to quash protests. Bihar, one of the poorest parts Khalifa was 84. amid rising cases. of India, voted for an alliance Peru’s Congress removed from led by the party of Narendra Hundreds of people were killed Denmark’s government ad- office the president, Martín Modi, the prime minister, in in fighting between Ethiopian mitted it could not force mink Vizcarra. He has been accused state elections. It was the first government troops and forces farmers to cull livestock but of taking bribes when he was a big state poll since covid-19 loyal to the province of Tigray. recommended they do so, after governor, which he denies. The swept the country and induced Abiy Ahmed, the prime min- new strains of covid-19 jumped legislature’s speaker, Manuel a deep recession. Voters in ister, ordered the army into from the animals to people. Merino, succeeded Mr Vizcarra Bihar, at least, do not seem to Tigray after its leaders held as president. blame Mr Modi. regional elections in defiance of the federal government. For our latest coverage of the Luis Arce was sworn in as The National League for De- virus and its consequences Bolivia’s president. He was the mocracy, led by Aung San Suu Police in Mozambique said please visit economist.com/ candidate of the Movement to Kyi, retained power in Myan- jihadists had beheaded more coronavirus or download the Socialism, founded by Evo mar’s election. Despite failing than 50 people in Cabo Delga- Economist app. Morales, who was forced into to end the country’s simmering do, a province in the north. Look around and you’ll see a world in transformation. For right now we have the rare chance to grow into something better. To rethink everything, reset and rebuild our economic model. Creating one that’s Circular, Lean, Inclusive and Clean (CLIC™️). And the metamorphosis is already under way. So now is the time to build forward. To build back better. And not only survive in this new world - but thrive in it. Learn more about our CLIC™️ investment strategy at LombardOdier.com

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Pfizer and BioNTech, two iour and data. The move fol- Following two quarters of technology companies in pharmaceutical firms, an- lows the suspension of the contraction, Britain’s gdp America. But that was offset by nounced that their vaccine initial public offering of Ant grew by 15.5% between July and an improved performance by against covid-19 is more than Group, a fintech firm, days September. The economy is its Vision Fund, which is now 90% effective, according to before its flotation in Hong still 8.2% smaller than it was worth $1.4bn more than the early results from trials. The Kong and Shanghai. before the virus struck and is costs of it 83 investments. high success rate raised hopes likely to shrink again in the last SoftBank also removed several of a quicker return to nor- three months of the year be- executives from its board, mality than previously expect- Out with the old cause of a second lockdown. following investors’ concerns ed. Other pharmaceutical firms Unemployment over the same about governance. are also working on vaccines period rose to 4.8%, up from and are expected to make 4.5%. Redundancies surged to McDonald’s reported revenues announcements in the coming a record high, as firms were of $5.4bn in the latest quarter, weeks. Current projections forced to contribute more to down 2% from the same period suggest 50m doses of the the cost of furloughed workers. last year but beating analysts’ Pfizer-BioNTech vaccine will expectations. It performed well be available in 2020, rising to Unemployment figures from in America where same-store 1.3bn the following year. On the America were better than sales grew by 4.6% from the day of the announcement, expected. Non-farm employ- previous quarter. Pfizer’s and BioNTech’s share ment rose by 638,000 in Octo- prices surged 8% and 14%, ber. The unemployment rate Beyond Meat, an alternative respectively. In a surprise shakeup Recep fell by one percentage point to protein provider, reported Tayyip Erdogan, Turkey’s 6.9% in the same month. losses of $19.3m in the third The news excited stockmark- president, fired the country’s quarter, compared with profits ets. In America the Dow Jones central-bank governor, only 16 China’s consumer-price index of $4.1m in the same period Industrial Average jumped by months after sacking his pre- dropped to 0.5% in October, its last year. An easing of covid- 2.9% on Monday. The s&p 500 decessor. One day later the lowest level in over a decade. induced consumer stockpiling rose sharply when it opened, Turkish finance minister, Mr That reflects low food prices, and falling sales to restaurants before ending the day up 1.2%. Erdogan’s son-in-law, resigned particularly of pork, supplies were blamed. The stoxx Europe 600 climbed supposedly because of a feud of which were hit by African 4%. Oil prices increased to $45 with the new central-bank swine fever but are now recov- per barrel. By contrast, many governor. After the reshuffle, ering thanks to record imports. What goes around technology firms that have the banking regulator said it Sluggish consumer demand is Singaporean holiday-makers been buoyed by the pandemic would curb restrictions on another factor. itching for escape can now take faced a sell-off, including foreigners trading the Turkish a “cruise to nowhere”. Pas- Zoom, a video-conferencing lira, which were imposed last SoftBank Group announced sengers undergo covid-19 tests firm, Ocado, a grocery delivery year. Investors seemed to profits of $6.1bn in the three before boarding and are re- company, and Peloton, a maker welcome the changes. The lira months to the end of Septem- quired to carry contact-tracing of exercise bikes. rose by more than 7% against ber. The Japanese firm booked devices. The ship idles in the the dollar in the past week, losses of $3.7bn with its foray waters off the city state for two Regulators continued to take reversing a long decline. into investing in publicly listed days before returning to port. aim at technology firms on antitrust grounds. The Euro- pean Union brought charges against Amazon. After an investigation, the European Commission claimed that the tech giant uses data gathered from vendors to give its own products and services an un- fair advantage. Amazon said that it disagrees with the com- mission’s findings.

Meanwhile, India’s competi- tion watchdog has ordered a probe into Google’s app store. It fears that a requirement that consumers buy apps using the firm’s payment service smoth- ers competition. In China regulators have drafted new antitrust rules aimed at tech- nology firms. They will target a range of practices, including treating customers differently based on their spending behav-

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Scientists have managed to create a vaccine for covid-19. Getting enough people vaccinated will be even harder ine long years elapsed between the isolation of the measles declared safe, though further monitoring of the vaccine will be Nvirus in 1954 and the licensing of a vaccine. The world waited needed. The companies predict that immunity will last for at for 20 years between early trials of a polio vaccine and the first least a year. The 90%-plus efficacy is so high that this vaccine American licence in 1955. Marvel, then, at how the world’s scien- may offer at least some protection to all age groups. tists are on course to produce a working vaccine against sars- While the world waits for data, it will have to grapple with dis- cov-2, the virus that causes covid-19, within a single year. tribution. Vaccine will be in short supply for most of next year. And not just any vaccine. The early data from a final-stage Although rna jabs may prove easier to make at scale than those trial unveiled this week by Pfizer and BioNTech, two pharma based on proteins, Pfizer’s requires two doses. The company has companies, suggests that vaccination cuts your chances of suf- said that it will be able to produce up to 50m doses in 2020 and fering symptoms by more than 90%. That is almost as good as for 1.3bn next year. That sounds a lot, but America alone has over measles and better than the flu jab, with an efficacy of just 20m first responders, medical staff, care-home workers and ac- 40-60% (see Briefing). Suddenly, in a dark winter, there is hope. tive-duty troops. Perhaps a fifth of the world’s 7.8bn people, in- Not surprisingly, Pfizer’s news on November 9th roused the cluding two-thirds of those over 70, risk severe covid-19. Nobody markets’ bulls. Investors dumped shares in Clorox, Peloton and has ever tried to vaccinate an entire planet at once. As the effort tech firms, which have all benefited from the coronavirus, and mounts, syringes, medical glass and staff could run short. instead switched into firms like Disney, Carnival and Interna- Worse, Pfizer’s shots need to be stored at temperatures of tional Consolidated Airlines Group, which will do well when the -70°C or even colder, far beyond the scope of your local chemist. sun shines again (see Finance section). The oecd, a club of main- The company is building an ultra-cold chain, but the logistics ly rich countries, reckons that global growth in 2021with an early will still be hard. The vaccine comes in batches of at least 975 vaccine will be 7%, two percentage points higher than without. doses, so you need to assemble that many people for their first There is indeed much to celebrate. Pfizer’s result suggests that shot, and the same crowd again 21 days later for a booster. No- other vaccines will work, too. Over 320 are in development, sev- body knows how many doses will be wasted. eral in advanced trials. Most, like Pfizer’s, focus on the spike pro- So long as there is too little vaccine to go around, priorities tein with which sars-cov-2 gains entry to cells. must be set by governments. A lot depends on If one vaccine has used this strategy to stimulate them getting it right, within countries and be- immunity, others probably can, too. tween them. Modelling suggests that if 50 rich Pfizer’s vaccine is also the first using a pro- countries were to administer 2bn doses of a vac- mising new technology. Many vaccines prime cine that is 80% effective, they would prevent a the immune system by introducing inert frag- third of deaths globally; if the vaccine were sup- ments of viral protein. This one gets the body to plied according to rich and poor countries’ pop- make the viral protein itself by inserting genetic ulation, that share would almost double. The instructions contained in a form of rna. Be- details will depend on the vaccine. Poor coun- cause you can edit rna, the vaccine can be tweaked should the tries may find ultra-cold chains too costly. spike protein mutate, as it may have recently in mink. This plat- The domestic answer to these problems is national commit- form can be used with other viruses and other diseases, possibly tees to allocate vaccine optimally. The global answer is covax, an including cancer, BioNTech’s original focus. initiative to encourage countries’ equal access to supplies. Ulti- So celebrate how far biology has come and how fruitfully it mately, though, the solution will be continued work on more can manipulate biochemical machinery for the good of human- vaccines. Some might survive in commercial refrigerators, oth- ity (there will be time later to worry about how that power might ers will work better on the elderly, still others might confer lon- also be abused). And celebrate the potency of science as a global ger protection, require a single shot, or stop infections as well as endeavour. Drawing on contributions from across the world, a symptoms. All those that work will help increase supply. small German firm founded by first-generation Turkish immi- Only when there is enough to go around will anti-vaxxers be- grants has successfully worked with an American multinational come an obstacle. Early reports suggest the jab causes fevers and company headed by a Greek chief executive. aches, which may also put some people off. The good news is that Yet despite the good news, two big questions stand out, about an efficacy of 90% makes vaccination more attractive. the characteristics of the vaccine and how fast it can be distri- buted. These are early results, based on 94 symptomatic cases of The tunnel ahead covid-19 from among the 44,000 volunteers. Further answers The next few months will be hard. Global recorded death rates must wait until the trial has gathered more data. It is, therefore, have surged past their April peak. Governments will struggle not clear whether the vaccine stops severe cases or mild ones, or with the logistics of vaccination. America is rich and it has whether it protects the elderly, whose immune systems are world-class medicine. But it risks falling short because the virus weaker. Nor is it known whether inoculated people can still is raging there and because the transition between administra- cause potentially fatal infections in those yet to receive jabs. And tions could lead to needless chaos and delays. Squandering lives it is too soon to be sure how long the beneficial effects will last. when a vaccine is at hand would be especially cruel. Science has Clarity will take time. In the next few weeks the trial should be done its bit to see off the virus. Now comes the test for society. 7 14 Leaders The Economist November 14th 2020

The world and Joe Biden Great expectations

America’s allies need to show that they have learned to pull their weight n much of the world, and nowhere more so than among nato’s front line with Russia like the way defences have been IAmerica’s allies, Joe Biden’s victory has come as a great relief. beefed up under Mr Trump. And Asian allies like how Mr Trump Under his presidency there will be no more bullying and threats has confronted China, talked of a “free and open Indo-Pacific” to leave nato. America will stop treating the European Union as a and worked on the “Quad” with Australia, India and Japan. Mr Bi- “foe” on trade, or its own forces stationed in South Korea as a pro- den needs to prove that he will not turn soft. tection racket. In place of Donald Trump’s wrecking ball, Mr Bi- His priorities will be to quell the virus and improve the econ- den will offer an outstretched hand, working co-operatively on omy. On both counts he can count on little support, and much global crises, from coronavirus to climate change. Under Mr pushback, if the Senate is under Republican control, as is likely. Trump, America’s favourability ratings in many allied countries Such troubles at home have probably also exacerbated the coun- sank to new lows. Mr Biden promises to make America a beacon try’s reluctance to take on more foreign burdens. Who can be again, a champion of lofty values and a defender of human sure that world-wary Jacksonians won’t come galloping back in rights, leading (as he put it in his acceptance speech) “not only by 2024, perhaps even with Mr Trump in the saddle? the example of our power but by the power of our example”. So rather than pile demand upon needy demand, America’s Allies are central to Mr Biden’s vision. He allies should go out of their way to show that rightly sees them as a multiplier of American in- they have learned to pull their weight. nato fluence, turning a country with a quarter of glo- partners, for example, should not relax defence bal gdp into a force with more than double that. spending just because Mr Trump is no longer He is also a multilateralist by instinct. On his bullying them. Germany should pay heed to first day in office he will rejoin the Paris agree- French efforts to build European defence capa- ment on climate change, which America for- city—there is scope to do so without undermin- mally left on November 4th. Unlike Mr Trump ing nato. Europeans could lend a bigger hand to he believes it is better to lead the World Health France in the Sahel (see Europe section). In Asia Organisation than to leave it. He will reinvigorate arms control, a the Quad could keep deepening naval and other co-operation. Ja- priority being to ensure that New start, the last remaining nuc- pan and South Korea should restrain their feuding. Taiwan ought lear pact with Russia, is extended beyond February 5th. He would to make a more serious contribution to its own defence. like to rejoin the nuclear deal with Iran that Mr Trump dumped, Allies should also work with America to repair the interna- if he can persuade the Iranians to go back into compliance. tional order. They can support efforts to resist Chinese or Rus- Inevitably, America’s friends have a long list of things they sian rule-bending. Many countries will want to join Mr Biden’s hope it will do as it re-embraces global leadership (see Interna- efforts at concerted carbon-cutting. tional section). The demands stretch from places and organisa- Mr Biden will face a world full of problems, but he will also tions Mr Trump has abused, such as the un and allies like Ger- start with strengths. Thanks to Mr Trump, he has sanctions on many, to parts of the world he has ignored, such as much of adversaries including Iran and Venezuela that he can use as bar- Africa. Yet it will not all be smooth travelling. Not all countries gaining chips. And among friends, he can seek to convert relief at are nostalgic for a return to Obama-era policies, when America renewed American engagement into stronger burden-sharing. “led from behind” and blurred its red lines. Several countries on His allies would be wise to answer that call with enthusiasm. 7

America’s new president The economy Biden inherits

The incoming administration faces two extraordinary economic challenges merica’s voters did not elect Joe Biden because they The good news is that gdp has rebounded impressively from Athought he would be the best steward of the economy. The its collapse in the spring. The unemployment rate has dropped economy may well define his presidency nonetheless. Mr Biden much faster than most forecasters expected, from 14.7% in April will take office in January amid a crisis brought about by the pan- to 6.9% in October. Were private-sector employment to keep demic, which is capable of causing immensely more economic growing at the pace of September and October it would return to harm before vaccination is widespread. He will also inherit a its pre-pandemic level in less than a year. On most forecasts business landscape in the throes of a once-in-a-generation shift, America’s economy will shrink by less than any other big rich as technology becomes more embedded in everyday life and in country’s in 2020—the euro zone will take almost twice the hit, more industries—a shift that has been simultaneously hastened for example. So far there is little sign of the economic scarring and overshadowed by the disease. Whether Mr Biden succeeds or that was feared at the onset of the crisis (see Finance section). fails depends on how he manages these twin sources of change. Unfortunately this rebound is threatened by the winter wave 1 The Economist November 14th 2020 Leaders 15

2 of the virus. The logistics of rolling out a vaccine are daunting is changing. After the global financial crisis of 2007-09, the share and at first only emergency workers and the most vulnerable will of private non-residential investment flowing to intellectual receive it. The spread of the disease will worsen before a mass in- property hit 30%. Soon it may breach the 40% threshold (see oculation can take place. Already more Americans are in hospital next leader). In this world, Walmart must become an e-com- with covid-19 than at the peak of the outbreak in the spring, merce giant, Ford must compete with Tesla to make electric cars, though many fewer are dying. Some parts of the country could and computers must allocate capital. Even McDonald’s has been soon face more restrictions and lockdowns. Others might ex- working on its digital strategy (see Schumpeter). The tech re- periment with letting the virus rip—an approach which could volution will change the economy as much as the globalisation still bring about a sharp drop in consumer spending if people wave that defined Bill Clinton’s presidency in the 1990s. As it re- choose to stay at home in order to stay safe. shapes the labour market—blue- and white-collar jobs alike—it If the virus again puts the economy to the sword, it might not could tear at the social fabric, much as the automation of manu- benefit from the life support it got in March in the form of lavish facturing jobs did. unemployment insurance and emergency loans for small busi- America’s epidemic could be fading by the end of 2021. The nesses. Republicans in the Senate will probably tech surge will outlive Mr Biden’s presidency. support a limited second round of fiscal stimu- GDP forecasts Yet the same principle should guide him on lus, but are in no mood for another blowout. A 2020, % decrease on a year earlier both: that government must not resist eco- debate is raging about whether the Federal Re- 0-2-4-6-8-10 nomic change, but should instead help people Britain serve should extend its emergency lending into Euro area adapt to it. One reason America’s economy is the new year. Job cuts by state and local govern- Canada outperforming Europe’s is that its stimulus has ments, whose budgets have been hit by the pan- Japan done more to prop up household incomes than demic, are already weighing down the labour United States it has to preserve redundant jobs. Similarly, gov- market. They need a bail-out that Republicans ernments that respond to technological change do not want to give. Mr Biden’s first challenge will be to persuade by remaking safety-nets and rewriting social contracts for the Congress to keep the purse strings loose until the vaccine has new era will do better than those which seek to preserve obsolete brought about a full reopening. models of capitalism and government. At the same time the new president will need to grapple with There are thus reasons to worry that Mr Biden’s platform has a the post-vaccine economy, which will look different from the protectionist streak, a nostalgia for manufacturing jobs and an one that entered the pandemic. The crisis has hastened the dig- impulse to load firms with worthy social goals. One of his new- itisation that was already poised to define business and invest- economy policies already looks like a flop: he wants to extend ing in the 2020s. That trend will not fully reverse, even after the nationwide the regulations for gig-economy work that Califor- pandemic has subsided. Investors are still struggling to make nia voters rejected last week. To succeed, Mr Biden will need to sense of an economy in which intangible capital replaces the show competent crisis management. But he also needs to recog- bricks-and-mortar kind, and in which network effects make in- nise the deeper changes taking place in the economy, and to help cumbents more dominant and profits more enduring. Americans profit from them. That is the way to raise living stan- As technology permeates business, the nature of investment dards—and, as it happens, to succeed as president. 7

Asset management Beyond Buffett

The agonies of traditional value investing are a sign of frothy stockmarkets—and a changing economy or a moment this week investors could afford to ignore the pre-1914 era, during which capital markets were dominated Fstockmarket superstars like Amazon and Alibaba. As news of by railway bonds and insider-dealing. Instead he proposed a sci- a vaccine broke, a motley crew of more jaded firms led Wall Street entific approach of evaluating firms’ balance-sheets and identi- higher, with the shares of airlines, banks and oil firms soaring on fying mispriced securities. His disciple, Warren Buffett, popular- hopes of a recovery. The bounce has been a long time coming. So- ised and updated these ideas as the economy shifted towards called value stocks, typically asset-heavy firms in stodgy indus- consumer firms and finance in the late 20th century. Today mea- tries, have had a decade from hell, lagging behind America’s sures of value are plugged into computers which hunt for “fac- stockmarket by over 90 percentage points. This has led to a crisis tors” that boost returns and there are investors in Shanghai of confidence among some fund managers, who wonder if their loosely inspired by a doctrine born in Depression-era New York. framework for assessing firms works in the digital age (see Brief- The trouble is that value investing has led to poor results. If ing). They are right to worry: it needs upgrading to reflect an you had bought value shares worth $1 a decade ago, they would economy in which intangibles and externalities count for more. fetch $2.50 today, compared with $3.45 for the stockmarket as a For almost a century the dominant ideology in finance has whole and $4.65 for the market excluding value stocks. Mr Buf- been value investing. It has evolved over time but typically takes fett’s Berkshire Hathaway has lagged behind badly. Despite its ef- a conservative view of firms, placing more weight on their as- forts to modernise, value investing often produces backward- sets, cashflows and record, and less on their investment plans or looking portfolios and as a result has largely missed the rise of trajectory. The creed has its roots in the 1930s and 1940s, when tech. The asset-management industry’s business model is under Benjamin Graham argued that investors needed to move on from strain, as our special report this week explains. Now one of its 1 16 Leaders The Economist November 14th 2020

2 most long-standing philosophies is under siege, too. figure is $1.5trn or more. Intangible firms can also often scale up Value investors might argue that they are the victims of a quickly and exploit network effects to sustain high profits. stockmarket bubble and that they will thus be proved right even- The second change is the rising importance of externalities, tually. The last time value strategies did badly was in 1998-2000, costs that firms are responsible for but avoid paying. Today the before the dotcom crash. Today stockmarkets do indeed look ex- value doctrine suggests you should load up on car firms and oil pensive. But alongside this are two deeper changes to the econ- producers. But these firms’ prospects depend on the potential li- omy that the value framework is still struggling to grapple with. ability from their carbon footprint, the cost of which may rise as The first is the rise of intangible assets, which now account emissions rules tighten and carbon taxes spread. for over a third of all American business investment—think of Value investing’s rigour and scepticism are as relevant as data, or research. Firms treat these costs as an expense, rather ever—especially given how frothy markets look. But many inves- than an investment that creates an asset. Some sophisticated in- tors are still only just beginning to get their heads round how to stitutional investors try to adjust for this but it is still easy to mis- assess firms’ intangible assets and externalities. It is a laborious calculate how much firms are reinvesting—and firms’ ability to task, but getting it right could give asset management a new reinvest heavily at high rates of return is crucial for their long run lease of life and help ensure that capital is allocated efficiently. performance. On a traditional definition, America’s top ten list- In the 1930s and 1940s Graham described how the old investing ed firms have invested $700bn since 2010. On a broad one, the framework had become obsolete. Time for another upgrade. 7

Democracy in Africa Zambia’s descent

There is still time to stop a slide to autocracy and economic collapse decade ago, as the rich world was struggling with the after- In the hearing they threw out the case, citing a constitutional Amath of the global financial crisis, much of Africa was surf- provision that election petitions must be heard within 14 days. ing a wave of optimism. At the front was Zambia, which in the Mr Lungu is taking few chances ahead of the next presidential early 1990s was among the first African countries to ditch one- poll in August 2021, which he would probably lose if it were free party rule and socialism. In 2012, after a decade of stunning eco- and fair (see Middle East & Africa section). He has arrested and nomic growth, it joined the small club of African countries bor- harassed Hakainde Hichilema, the main opposition leader, as rowing on international bond markets. Demand for its debt was well as journalists, musicians and other critics. The electoral so strong that it was able to borrow more cheaply than Spain. commission is scrapping its voters’ roll and requiring all voters Now Zambia finds itself at the front of another, less admirable to register again in just 30 days. And if it turns out to be harder to pack. On November 13th it was poised to become the first African register during the rainy season in the opposition’s rural strong- country to default since the imf’s “heavily indebted poor coun- holds than the ruling party’s urban ones, tough luck. tries” scheme in 2005 wiped clean the debts of 30 of the conti- Many Zambians worry that their country is sliding into auto- nent’s poorest countries. cracy and economic ruin, like next-door Zimbabwe. To stop that Zambia is not the only indebted African state that is strug- slide, the region and the wider world need to start paying atten- gling. Because of covid-19, sub-Saharan Africa’s tion now, rather than just sending election ob- economy is expected to shrink by 3% this year, Zambia servers a few weeks before the poll. South Afri- equivalent to 5.3% per person. The imf reckons General government gross debt, % of GDP ca, which has the most clout, needs to speak up. that six African countries are struggling to pay FORECAST 120 So does sadc, the regional bloc. And Zambia’s 90 back loans and another 11 are thought to be at 60 creditors should insist on cleaner and more “high risk of debt distress”. 30 democratic governance before agreeing to a However, Zambia’s economic problems owe 0 bail-out. They wield a big stick. Zambia’s mas- more to the disastrous presidency of Edgar 14122010 16 2018 sive fiscal deficit of 12% of gdp means that it has Lungu than to the pandemic. When he took of- to win their agreement if it is to keep borrowing fice in 2015 after the death of his predecessor, public debt stood at in order to pay the salaries of soldiers, teachers and policemen. 32% of gdp. After five years of profligacy and theft by the ruling Lenders—a disparate group that includes both Chinese con- elite, debt has ballooned to 120%. Economic growth has tum- struction firms and private bondholders—may object that it is bled—to 1.4% in 2019 owing in no small part to his government’s not their job to safeguard democracy. Their main interest, quite habit of scaring off investors by seizing mines and detaining reasonably, is to be repaid; or, in the case of the imf, to help Zam- mining bosses. A central-bank governor who resisted Mr Lungu’s bia’s public finances get back on a sound footing. They do not hints that he print more money was fired in August. want to be involved in politics. Yet Zambia’s economic crisis is Mr Lungu may be economically incompetent, but he is politi- caused mainly by its authoritarian and dysfunctional politics, cally shrewd. Before a presidential election in 2016, his regime not the pandemic or the slump in commodity prices. Its debt arrested opposition leaders and shut down the main independ- problem cannot be fixed without facing up to its political pro- ent newspaper. He won by the slenderest of margins; eked out by blem. Zambia’s next government will have to raise taxes and re- last-minute ballot-stuffing, according to the opposition. When strain spending to balance its books and repay creditors any it asked the constitutional court for a recount, the judges (many more than a token amount. Only a government which Zambians appointed by Mr Lungu) set a date for a hearing two weeks later. see as legitimate can do this without sparking unrest. 7

18 Letters The Economist November 14th 2020

on men with different testos- be done in an astonishing 30 The only alternative is a The sporting life terone levels? seconds. The key is for leader- peaceful resolution, in which The problem of ensuring fair The supposed risk that ship to move beyond being a the security of Armenians of competition in women’s sport women face from trans rights role, position or competence Artsakh finds its expression goes wider and deeper than the is as much a mirage as was the (which are typically static) to a and their legitimate right for question of whether trans fear of homosexual indoctrina- vibrant dynamic. This achieves self-determination will be women should compete as tion in the1980s, which led to agile self-organisation that can delivered. females (“Scrum down”, Octo- oppressive legislation, such as navigate uncertainty better, aram araratyan ber 17th). There really are big Britain’s Section 28. faster and with less stress. Press officer differences between men and thomas robertson Various companies around Embassy of Armenia women in genes and gene Oxford the world have since used this London activity, size and strength, approach to good effect. In although there is a lot of varia- China, a team at Dow Chemical tion and some overlap in any Diplomatic dispatches achieved a 25% increase in How might you feel? trait you can measure. These Thank you for introducing a project productivity. In Ameri- Technology Quarterly reported differences are largely, but not new black humour section in ca two senior leaders of Nokia on virtual realities (October entirely, the result of androgen your edition of October 24th. It achieved six times in a few 3rd), noting that in virtual action during development, is regrettable, though, that you weeks what had taken a previ- worlds “users will often co-opt and are not obviated by anti- had to sacrifice over two ous team many months. the avatars as almost real ex- androgen treatment. columns of your Letters page to Sadly, many see the armed tensions of their own bodies”. It is clear that athletes who a response from the Chinese forces in light of the movies, One interesting experiment were born and developed as embassy to your articles on the strictly “command and con- would be to use avatars to males have the advantage of Uyghurs to do so. trol”. The truth is far from that. implement the veil of igno- higher stature, more lean ian cartwright major (ret’d) prince rance as set out by John Rawls muscle and a bigger heart and Isle of Lewis, Outer Hebrides nicholas obolensky in his “A Theory of Justice”. Let lungs. But so, too, do female Founder the subjects of the experiments athletes with naturally high Complex Adaptive Leadership make decisions about fairness testosterone levels. It seems Filter out the noise Bath and equity while inhabiting nonsensical to apply arbitrary Schumpeter missed a trick avatars with characteristics limits to testosterone levels in with regard to annoying other than their own. sport, unless you were to ban advertisements and news Armenia responds How might evangelical athletes with unusually long feeds on Facebook (October Your article on the fighting in Christians feel about abortion legs, big hearts or lungs as well. 24th). Not only are ad blockers Nagorno-Karabakh provided a if their avatars were rape vic- Elite athletes are usually on the available, many other anti- distorted picture of the conflict tims? How might supporters of very edge of distributions of all spyware and tracker-blocking (“The wheel turns, this time”, Black Lives Matter feel about sorts of qualities that enhance apps can easily be installed. In October 31st). The reality is that police intervening in riots if performance. particular, an app known as fb Artsakh (Nagorno-Karabakh) their avatars were Korean jenny graves Purity integrates with Face- has always been populated grocery-store owners? How Melbourne book and enables me to block overwhelmingly by Armenians might rich people feel about out not just annoying news- and it has never been a part of tax reform if their avatars were Few aspiring trans athletes will feeds and adverts, but also independent Azerbaijan. In poorer citizens? be tempted to compete as irritating spam thanks to 1991Nagorno-Karabakh voted christopher bruce women, given the massive keyword-based text filtering. for its independence based on Calgary, Canada disadvantages they face. In the nicholas coote the same legal framework as United States, trans women are Devizes, Wiltshire Azerbaijan. twice as likely to live below the Armenia has been consis- Reaching the bottom of a case poverty line. Trans women of tent in its intentions for peace, I was intrigued to read in The colour face higher risks of Army training by pushing for a compromise world this week (October 24th) murder and other violence. Bartleby’s column on what the acceptable to the people of all that Brazilian police had raided That’s a poor swap for a leg up armed forces can teach busi- parties: Artsakh, Armenia and a senator’s home and discov- in the 100-metre sprint. ness scratched the surface of Azerbaijan. This message has ered about $5,000 wedged peter johnston much deeper opportunities never been reciprocated, thus between his buttocks. He has San Francisco (October 24th). In the 1980s the making it clear that Azerbai- denied diverting funds that strategy for the defence of jan’s intention is neither nego- were meant for the pandemic. A bizarre fixation on sport western Europe was changed tiations nor peace, but war. If he is innocent then this is a dominates the conversation on from positional defence to In the month of this latest most unfortunate case of a trans rights. The only real fighting a mobile defensive conflict Azerbaijan, compre- bum rap. advantage possessed by a trans battle. This meant a high hensively backed by Turkey david roessler woman would be that of testos- degree of uncertainty with the and with the use of interna- Hazel Park, Michigan terone if she has not begun need for increased agility, a tional terrorist fighters, has hormone treatment. The Inter- latter-day buzzword in busi- consistently shelled Artsakh’s national Olympic Committee ness. As a battlefield com- towns and villages. Civilian Letters are welcome and should be suggests changing results mander I pushed the decisions infrastructure, hospitals, addressed to the Editor at The Economist, The Adelphi Building, based on testosterone levels. I would normally take down to schools and even kinder- 1-11John Adam Street, London WC2N 6HT Given that these levels can vary the lowest possible level. Some gartens have been bombed and Email: [email protected] among cis women, should this things that would take 30 war crimes committed by the More letters are available at: be imposed on them also? Or minutes to accomplish could Azerbaijani armed forces. Economist.com/letters COVID-19 has aff ected billions of lives. Some call it a ‘black swan event’. But it isn’t, pandemics have always existed.

Many of the eff ects of a pandemic of this scale have been known for years, knowledge to which Swiss Re’s analysis has contributed. As the world’s leading provider of reinsurance and risk transfer, we specialise in modelling and underwriting risk.

Swiss Re and the re/insurance industry have set aside billions to help shoulder the fi nancial impact of the pandemic. And across the world, countries have made emergency aid programmes available. Still, the suff ering and the uncertainty for those aff ected is enormous.

To do better next time, we as a society need to be better prepared. One solution is to partner in public-private risk-sharing arrangements to cover pandemic-related losses.

Swiss Re is committed to helping society become more resilient and progress. swissre.com 20 Executive focus Briefing Covid-19 vaccines The Economist November 14th 2020 21

power, provided an exit strategy. Pfizer and BioNTech have not just developed a vaccine against a previously unknown disease in a scant ten months. They have done so on the basis of an approach to vaccination never before used in people. And their novel vac- cine has shown an unanticipated efficacy. Most in the field thought 70% efficacy was good as could be hoped for first time out; just 50% could have been good enough for regulatory approval. Exceeding 90% hits the virus for six. Russia and China have been vaccinating some citizens against covid-19 for some time outside the scope of clinical trials. On November 11th the Russian Direct Invest- ment Fund announced that data showed Russia’s vaccine, known as Sputnik V, to be 92% effective. Before the Pfizer announce- ment this would have seemed highly im- plausible. Now it may seem less so, though the evidence is weak compared with Pfizer’s. And neither Sputnik V nor the Chi- nese vaccines have yet had their safety and efficacy addressed by the stringent regula- tors at the Food and Drug Administration (fda) in America and the European Medi- cines Agency (ema). Pfizer’s vaccine is now headed into that regulatory gamut with a small posse of fol- lowers hot on its heels (see table on next page). Two other vaccines which are in phase-three trials—the sort of large, rando- mised trials designed to show the efficacy of a treatment—could submit data to the regulators fairly soon. Moderna, an Ameri- can biotech firm, is expected to deliver in- terim findings about the efficacy of its vac- cine in the next few weeks. AstraZeneca, a pharmaceuticals company working in partnership with the University of Oxford, should deliver results from its trial before Bullseye the end of the year. Challenges remain. Though the regula- tors will want to move quickly, they will still have to do their job. Missteps could erode confidence in the vaccine, as well as vaccination more generally. Plans for scal- ing up manufacture and for distribution on A highly effective vaccine will transform the fight against covid-19. But a lot an unprecedented scale have been being remains to be done made around the world for months, but it is eliverance, when it arrives, will out of ten—had been given the placebo, not hard to imagine that they will not require Dcome in a small glass vial. First there the vaccine. A bare handful of those vacci- revision on the hoof. Even if the news con- will be a cool sensation on the upper arm as nated fell ill. The vaccine appeared to be tinues to be good, the numbers vaccinated an alcohol wipe is rubbed across the skin. more than 90% effective. will remain small for months to come. But Then there will be a sharp prick from a nee- Within a few weeks the firms could a fateful corner has been turned. dle. Twenty-one days later, the same again. have the data needed to apply for emergen- As the nurse drops the used syringe into cy authorisation to put the vaccine to use. The technology of hope the bin with a clatter, it will be hard not to The British and American governments Great speed has come from great efforts. wonder how something so small can solve have said that vaccinations could start in Cath Green, the boss of the clinical bioma- a problem so large. December. The countries of the eu have nufacturing facility at the University of Ox- On November 9th Pfizer and BioNTech, also been told it will be distributed quickly. ford, remembers the pressure to get the two firms working as partners on a vaccine The news lifted spirits around the first candidate-vaccine vials filled in April. against covid-19, announced something world, not to mention stockmarkets (see Everyone was doing double shifts and extraordinary about the first 94 people on Finance). The end of the pandemic seemed working on weekends. “We knew it had to their trial to develop symptoms of the dis- in sight; scientific insight and industrial be this fast if we were to get a vaccine to ease. At least 86 of them—more than nine know-how had, in a bravura display of their people this year,” she says. 1 22 Briefing Covid-19 vaccines The Economist November 14th 2020

2 But it was not just hard work. New tech- It is no accident that the vaccines that platforms in play all pay off, Dr Hatchett nology, a lack of financial constraint and a have come along fastest are based on these says, it will “transform vaccinology”. commitment to speeding up regulatory novel strategies. Before the coronavirus The fact that there are more vaccines on processes without sacrificing standards struck these technologies were already be- the way matters for a number of reasons. mattered, too. ing developed as platforms on which a rap- One is that, despite this week’s good news, Technology first. Vaccines against vi- id response to a new viral disease could be the Pfizer vaccine is not yet guaranteed ap- ruses used to be based on the virus parti- built, work supported in part by the Co- proval. For one thing, its safety needs to be cles they were meant to stymie. Some were alition for Epidemic Preparedness Innova- more fully ascertained. The firm says that strains of the virus “attenuated” so as not to tions (cepi). Vaccines which are built on no serious safety concerns have arisen dur- cause disease; some were normal virus par- such platforms are quick to engineer and ing the trial. But the vaccine will come with ticles inactivated so that they could not re- comparatively easy to make. side-effects, at least for some, and the com- produce at all. Design was somewhat hit pany will only be in a position to request and miss. Today vaccine development is The correct egg-to-basket ratio approval for the vaccine on an “emergency based on viral genomes. Researchers look That said, the work still requires money, use” basis after it has two months of safety for a gene which describes a protein the im- which in the vaccine world is usually in data showing such effects to be manage- mune system seems likely to recognise. short supply. With covid-19, though, gov- able. That requirement looks likely to be Then they put that gene into a new context. ernments have been willing to shovel cash met in time for an application in the third In the case of sars-cov-2, the virus that at vaccine developers even though there week of November. causes covid-19, the genome was published was a risk they would get nothing in return. Then comes the question of what exact- on January 10th. Understanding its struc- “We persuaded the uk government to fund ly the vaccine does: is it stopping infec- ture on the basis of their experience with us before they had any idea whether it tions completely—providing “sterilising other coronaviruses, would-be vaccine- would work,” says Dr Green. It was this immunity”—or simply amping up the makers immediately homed in on the gene ready cash, sometimes provided in the body’s response so that infections do not for the distinctive spike protein with form of a commitment to buy the end pro- cause disease? The latter attribute is un- which the virus’s membrane is studded: duct, which sped the process up, rather doubtedly a useful one for the individual just the sort of thing, they reckoned, to pro- than any loosening of normal rules and concerned; all the better if, as well as lower- voke a response from the immune system. procedures. “We haven’t cut any corners,” ing the chance of infection leading to dis- At BioNTech, a German biotechnology Dr Green continues. “And we haven’t taken ease, it also makes the disease less severe in company that specialises in the use of any risks with our product.” those who succumb (there is as yet no mrnas—sequences of genetic material Rather than standing back, regulators available data on this). But it is a lot less de- that provide cells with recipes for making in many countries have worked closely sirable in public-health terms. If the vac- proteins—the spike-protein gene was with companies to make sure their trials cine stops disease but not infection, vacci- more or less all it took. The company’s re- provide all the data needed for approval nated people may be able to infect others searchers made an mrna version of it that when the time is right. When it was safe to while staying safe themselves. could be injected into the body in tiny cap- do so, the different phases of trials were al- If the Pfizer vaccine does not provide sules made of lipids. There it would lead lowed to overlap, with larger, later trials sterilising immunity there will be a need cells to produce the spike protein, and the starting before smaller preliminary ones for one that does. And there are other ways immune system would then take note. Or had produced all their data. At Oxford they that subsequent vaccines might prove so they hoped: no mrna vaccine had been were able to start human trials the day after preferable. Different vaccines can work used in humans before. Moderna, too, has animal safety data had been published. better or worse with different populations, as its name suggests taken the mrna route. Richard Hatchett, the head of cepi, says and for covid-19 it is important to find a In Oxford a version of the spike gene Pfizer’s positive results increase the proba- vaccine which works well in old people. was instead put into the genome of a harm- bility that other covid vaccines will be suc- Their immune systems can often be unre- less adenovirus originally found in mon- cessful, too. They show that an mrna vac- sponsive to vaccination, and they may do keys; when the resultant virus infects cells cine can work, which is good news for better with vaccines which, in the general it, too, makes them produce spike proteins Moderna; they also show that targeting the population, do not look as effective. There that attract the immune system’s atten- spike protein pays off. And the success goes is no guarantee that the best vaccine overall tion. The vaccine developed by J&J also beyond the current pandemic. Work cepi will be the best for the elderly. uses the adenovirus approach, as does expected to take five or ten years has been And the Pfizer vaccine has some incon- Sputnik V. managed in less than one; if the various venient characteristics. It needs to be kept at -70°C or even colder as it is moved from where it is made to where it is used, which A full field requires a lot of equipment that other vac- Selected covid-19 vaccines in phase-three clinical trials, 2020 cines do not need. Seth Berkley, head of the Phase-3 vaccine finance group gavi, warns that Developer Type Doses Participants* Study location start date many countries do not currently have the wherewithal to meet that challenge. But he Johnson & Johnson Viral vector 1 60,000 International Sep 7th also notes that the lack is not insuperable. AstraZeneca/Oxford University Viral vector 2 50,000 International Aug 28th† The Democratic Republic of Congo suc- Novavax Inactivated 2 45,000 Britain, US, Mexico Sep 28th cessfully deployed an Ebola vaccine that required similarly special care. “It’s a pain Pfizer/BioNTech 43,998 mRNA 2 International Jul 27th‡ in the ass, it’s expensive, but it’s doable.” Gamaleya (Sputnik V) Viral vector 2 43,600 International Sep 7th Still, a vaccine which, if not liking it hot, at least liked it less cold would be a boon. So Moderna mRNA 2 30,000 United States Jul 27th would one that only needed to be given Sinovac Inactivated 2 27,980 International Jul 21st once. The Pfizer, AstraZeneca and Moderna

Sources: PLOS; VFA; ClinicalTrials.gov; press reports *Estimated number of enrolees in phase three †US trial ‡Announcement of phase 2/3 vaccines all require two jabs weeks apart. A one-and-done vaccine, which is what J&J 1

24 Briefing Covid-19 vaccines The Economist November 14th 2020

year. The demands of covid are likely to tre- Getting a piece of the action ble or quadruple that number. Covid-19 vaccines, top four by confirmed number of doses ordered*, to November 12th 2020 There is clearly a risk that nations will hoard some vaccine for their own use rath- Vaccine Destination er than that of the most needy, but it is not developer easy to say how large the problem will be. Pharma firms have cleverly placed manu- AstraZeneca/ India facturing sites around the world, including Oxford University in small countries such as Belgium and 2.4bn doses Switzerland which can quickly produce EU more vaccine than these countries could ever want. And the covax framework has Novavax United States wide international support. 1.3bn That framework follows advice from the Other who in identifying three priority groups Sanofi-GSK for early vaccination: front-line health- 732m Covax† and social-care workers; the over 65s; and Pfizer/BioNTech Britain those under 65 who have underlying health 526m Japan conditions, such as diabetes, which put *There may be gaps due to the speed of developments and lack of public them at particular risk. Countries setting Sources: Duke Global Health Innovation Centre; press reports knowledge †An organisation working for equitable access to vaccines their own priorities are by and large priori- tising the same groups. This means that 2 hopes for, makes setting up a vaccination developers carry on with trials as long as young and middle-aged people not in any programme far simpler. It also means a giv- possible. But this may be hard unless early risk categories are unlikely to be vaccinat- en number of doses will go a lot further. use is restricted to specific groups. If a vac- ed until well into next year. Social distanc- On top of all this, the long-term efficacy cine is approved for use in the general pop- ing and mask wearing will stay important of the vaccine will matter a lot. The Pfizer/ ulation, few will volunteer to take part in a for some time to come even after vaccina- BioNTech collaboration says that protec- trial for another vaccine that uses a placebo tion becomes widespread. But a more nor- tion should last at least a year. But that will as a control (if Pfizer and BioNTech receive mal form of life looks unlikely to be too not be known for sure before they apply to an emergency authorisation they plan to long delayed. regulators for full authorisation on the ba- offer all the volunteers who were given a For vaccination to work as well as it can sis of final trial results, which they are ex- placebo the active vaccine). A trial that requires a widespread willingness to be pected to do in the first quarter of next year compares an experimental vaccine with vaccinated—something that cannot be tak- (as are the makers of the other front-run- one that is already approved needs to be en for granted in a world where anti-vac- ners). A vaccine that provides protection very large to get results, since both wings cine disinformation has a strong foothold. only briefly might well not be able to dis- can be expected to show comparatively few The data on this front, though, are broadly rupt the virus’s transmission, instead feed- infections. Such trials are under discus- encouraging. A survey of 20,000 adults in ing a constant stream of newly susceptible sion, but they will take a long time. 27 countries undertaken for the World Eco- people back into the population at large. If vaccines are approved for widespread nomic Forum this August found that 74% Marcus Schabacker, the boss of the Emer- use, the world will face what some have would get a vaccine if it were available. In gency Care Research Institute, an Ameri- called the largest supply-chain challenge China the figure was 97%, in India 87%, in can organisation focused on the quality in history. There is normally little spare America 67%. Countries with low rates of and safety of medical practices, thinks six vaccine-manufacturing capacity to repur- acceptance were Russia (54%), Poland and months of follow-up data ought to be scru- pose. And production is not the only limit- Hungary (both 56%) and France (59%). tinised, not just two, before final decisions ing factor. Analysts at ubs, a bank, warn are made on deploying the vaccine. that “fill and finish”, where the vaccine is A cold coming Such questions will be on the minds of put into vials and packaged, could be one of Better testing, new antibody treatments regulators at the fda and ema when they the most significant bottlenecks. and improvements in care will continue to are asked to consider the Pfizer vaccine for Pfizer says it will only be able to make drive down the death rate for coronavirus emergency use later this month and when enough vaccine to inoculate 25m people in both before widespread vaccination and Pfizer and the makers of other vaccines 2020. Up to 1.3bn doses are possible, in the- after it. Vaccination will instead change the submit all the data from their trials next ory, next year—enough for another 650m fundamentals. Its advent marks the begin- year. Their opinions will have worldwide people. If other vaccines are approved then ning of the end of covid-19 as a pandemic. effects, as the World Health Organisation the supply will increase. In even the most But for all the hope that diligence and (who) will use the analytical capabilities of optimistic scenarios, though, Dr Hatchett science have kindled, there are hard winter those authorities to accelerate the review expects demand to exceed supply through- months to face before that spring. The offi- of vaccines for use in low- and middle-in- out 2021. cial tally of daily deaths round the world is come countries. Various countries have already set up now for the first time higher than it was in If emergency authorisation is granted it purchase agreements with vaccine devel- the pandemic’s first peak, and the spread of is likely the agencies will restrict the use of opers (see chart). The covax facility set up the virus in America appears to be out of these vaccines, initially, to those at highest by cepi, gavi and the who will buy vac- control (see United States). In the next risk of death or serious disease. If after see- cines for 150 countries, and aims to procure three months hundreds of thousands of ing the full data the regulators still have enough for them to get 20% of their popu- people look likely to die. Not only will their worries they may continue to limit the vac- lations vaccinated over the course of 2021. loved ones have to come to terms with this cines’ use. Whatever they decide they are unicef, the un’s children’s agency, will loss, they will also have to live with the very likely to insist on years of follow up. take a leading role in distribution. It nor- knowledge that a vaccine that could have Andrew Pollard, director of the Oxford mally procures 600m-800m syringes for saved them, even though developed at Vaccine Group, says it is important that all routine childhood immunisations every breakneck speed, arrived just too late. 7 Britain The Economist November 14th 2020 25

Also in this section 26 Foreign-investment rules 27 Brexit and Biden 27 Chumocracy 28 Phone-hacking 28 New nukes? 29 Rishi and the City 30 Bagehot: Princess Di the populist

Protest that day. Further protests are planned each Saturday until lockdown ends. Small-town revolution These gatherings are a sign not just of the rise of weird ideas during the pandem- ic, but also of the changing pattern of prot- est. The route from Marble Arch to Parlia- ment Square is no longer the only venue for STROUD, GLOUCESTERSHIRE people wanting to make a point. The scene Protest movements used to focus on Central London and ignore the provinces. in Stroud is increasingly common, as data Now rebellion has spread around the country from police forces show (see chart). f the united nations staffers who Labour, Conservative and Brexit parties, xr The failure of big marches calling for a Idrafted Agenda 21 in 1992 had been pre- activists and members of the local Rudolf second referendum to shift the dial may sent at the protest on November 7th in a Steiner community.” have encouraged organisers to try other op- park in Stroud, a market town carved into The speeches were fiery, but swiftly dis- tions. For much of this year, huge marches the Cotswold hills, they would have been rupted by police. A few arrests were made. have been out of the question. And current bemused by the vitriol poured on their An organiser was fined £10,000 ($13,000). protest movements are local affairs, not work. But to those in the know, this non- Similar scenes played out in 26 other towns top-down operations run from the capital. binding resolution to promote sustainable Extinction Rebellion (xr), for instance, was development conceals a plan for “the Great founded in Stroud and is organised on Reset”, which will change society beyond Grab your pitchforks what it calls a “holacratic” basis, in which recognition. Covid-19 has been faked to Britain, number of protests local groups operate as loosely regulated soften the world up for it and allow a vacci- By police force area, 2017=100 franchises. Those who marched for Black nation programme that will render hu- 500 Lives Matter (blm) this year belong to a manity infertile. “I’ve heard this has been variety of distinct regional groups. The Bedfordshire planned for 60 years,” says a protester. 400 Democratic Football Lads Alliance (dfla), “Longer than that,” says another. “It’s been 300 whose followers protected statues threat- planned since Babylonian times.” A third Northamptonshire† ened by activists this summer, is a co- dismisses the conspiracy theories as “bull- 200 alition of football-supporters’ groups. shit”. He is protesting against “not being 100 The anti-lockdown movement includes able to go to the pub”. people with varying motivations—oppo- Greater Manchester The 200-odd people brought together 0 nents of big government, covid-19 deniers, by the Stroud Freedom Group were an un- 2017 18 19 20 raging conspiracy theorists and far-right likely marriage of cranks and conserva- Source: Police forces; includes only those that activists—and different competences. recorded at least five protests in 2017 and 2018 x tives. Among them, said Bruce Fenton, a lo- †Includes parades StandUp is better at street activism; Save cal author, were “members of the Green, Our Rights focuses on legislation. Science 1 26 Britain The Economist November 14th 2020

2 deniers congregate in Stop New Normal; way people think about the climate and The bill would require companies to tell Piers Corbyn, its figurehead, is a climate- about Britain’s culpability in the slave the government about any planned tran- change sceptic whose brother Jeremy is the trade. The anti-lockdown protests may, sactions within 17 areas of the economy, fo- former Labour leader. The most rapid con- similarly, have contributed to the finding cused on technology, including categories spiracies abound in Collective Action of a recent research study, that a quarter of as broad as “computing hardware”, “artifi- Against Bill Gates. And there are adherents Britons think covid-19 was manufactured cial intelligence” and “data infrastructure”. of qanon, a theory that the world is run by a in a Wuhan laboratory and an eighth think The government will also have the power to cabal of Satanist paedophiles, blending at it is a plot to vaccinate humanity. unwind any transaction completed within protests with the other strands. Whether or not these protests change the last five years if it deems that transac- The demographics of protest have policy, they change people’s lives. Those tion to be a matter of “national security”. changed, too. Last year Boris Johnson de- involved now belong to vast social net- Chinese investment is the principal scribed xr activists as “nose-ringed…crus- works, formed by, and reliant on, protest. concern. Britain’s new rules look very simi- ties” living in “hemp-smelling bivouacs”. For some, that is part of the appeal. “I feel lar to America’s Foreign Investment Risk But today’s protest movements have di- quite on my own with my neighbours lo- Review Modernisation Act (firrma), verse followings, from construction work- cally, who don’t see the agenda for what it passed in 2018. Both rely on the application ers to civil servants. A protester is just as is,” says Dominic Graville, a Stroud protes- of the rather loose term, “national securi- likely to resemble Mr Johnson—well-edu- ter whose acting work dried up during the ty”, and have sweeping remits over broad cated, middle-aged and overweight—as an pandemic. “It’s a way to form new bonds categories of technologies. Chinese in- anarchist student from central casting. and connections: we’re stronger together.” bound investment to the United States has Regional tendencies shape protest in The campaign to roll out a covid-19 vaccine plunged in the two years since firrma was different parts of the country. In Cornwall, is likely to bind them tighter. 7 passed. Australia, France and Germany all rural conservatism has rubbed off on the have similar laws. area’s revolutionaries. Black Voices Corn- Although Alok Sharma, the business wall, a group set up after the summer’s blm Foreign-investment rules secretary, says that the new legislation will protests, has abandoned its progenitor’s ensure that Britain remains attractive to socialism and doesn’t support police de- For your foreign capital, problems loom. The big- funding. Devon and Cornwall’s assistant gest is an open question over the extent to chief constable, Jim Colwell, will be on the protection which the law would give the government assurance board that the organisation is control over any economic activity involv- setting up. ing the flow of data, which underpins most The internet’s role in campaigning has of the 17 categories targeted. Britain’s government is increasing its changed. Online petitions are out of fa- It is unclear whether deals like Ctrip’s control over foreign investment vour, because politicians pay no attention. £1.4bn purchase in 2016 of Skyscanner, a Instead people huddle in densely populat- n september 2016, Theresa May ap- flight-booking service based in Edinburgh, ed chat channels on Telegram, an instant- Iproved a plan allowing a state-owned would be caught. James Palmer of Herbert messaging platform, which is used for or- Chinese company to take a minority stake Smith Freehills, a London law firm thinks ganising real-life protest. Patriotic Alterna- in a project to build Hinkley Point nuclear that they would. The proposed purchase of tive, a nationalist group with around power station, but her government was un- a stake in Nanopore, a genetic-sequencing 15,000 members, now mostly works off- comfortable with the decision. It carried company based in Oxford, by Tencent, a line. “Forming ‘in real life’ communities is out a review of its power to control foreign Chinese messaging and gaming app, is now much better than operating only online,” investments from a national-security in question. says Laura Towler, its deputy leader. “The standpoint, and found it wanting. If the government insists on reviewing relationships you form are more authentic On November 11th Boris Johnson’s gov- all foreign transactions involving data and long lasting.” ernment introduced legislation stemming flows, that would discourage firms from Digital communication encourages from that review process to Parliament. basing themselves in Britain. Why would a proliferation. When a messaging group tech startup subject its future, and any po- gets too big to manage, it spawns new tential sale, to the national-security deter- groups. xr Kettering was first part of xr minations of the British government when Northampton, but numbers swelled and it it could just as easily set up shop in freer ju- seceded. That process of localisation en- risdictions in Ireland or the Netherlands? sures that there are battalions ready to re- The American government has defined na- spond to a local incident, says Paul Mason, tional security so broadly that both a New a writer who tracks protest movements. York Times story on spying and Joe Biden’s “It’s not like they have to assemble the net- criticisms of immigration policy fall into work from scratch; it’s already there.” it. If Britain were to follow the same path it Despite the lockdown, the pandemic would bode ill for foreign investment. has accelerated these trends. Michelle Mc- The government has set up an Invest- Donald, a StandUpx organiser in Brighton, ment Security Unit which will be the first says that it motivated her to find out the port of call for notifications when the bill disturbing truths behind the new world or- becomes law. Corporate lawyers are in the der. “We’re waking up to all the darkness business of reducing risk, and so will not- that’s going on… I feel like I’m living under ify it when there is any doubt. At present, a mix of communism and the Taliban.” there is plenty of it. Foreign control of vital The provincial protesters have not yet technologies is a serious issue, with genu- changed the world. xr’s target of making ine national-security risks. But the govern- Britain carbon neutral by 2030 has had no ment must be sure that the damage it does more uptake than blm’s call to defund the the tech sector in dealing with them does police. Yet both have, arguably, shifted the not outweigh the benefits. 7 The Economist November 14th 2020 Britain 27

Brexit negotiations Public spending Joe calling Chumocracy

If Britain does a deal with the EU, it has The government is getting a reputation a better chance of a deal with the US for wastefulness and cronyism owning street was cock-a-hoop on f britons get a covid-19 vaccine next DNovember 10th when Joe Biden, Ameri- Ispring, the government wants them to ca’s president-elect, telephoned Boris thank Kate Bingham. A big shot in venture Johnson before any other European leader. capital, she is the head of the government’s Yet the call was not just a friendly one to ce- vaccines taskforce, a body which has ment the “special relationship”. There was placed early orders for 340m vaccine doses. an implicit threat in it: if Mr Johnson al- She has also been in the limelight for less lowed Britain to leave the eu without a favourable reasons: her taskforce spent deal, thus undermining the Good Friday £670,000 ($883,000) on public relations Agreement (gfa) that brought peace to advisers, she was accused of divulging sen- Northern Ireland, Britain would not get a sitive information to an investor confer- trade deal with America. Boris on the line ence—and, to cap it all, she is married to a Just seven weeks remain until the end Tory minister. of the standstill transition period, with no the next weeks will see growing pressure Ms Bingham’s case represents the ten- trade deal in sight. Talks are continuing, for a deal from business and pro-business sions in Boris Johnson’s government. To its but agreement is elusive on the most con- cabinet ministers and Tory mps. Mr John- fans, it is bringing in skilled outsiders to do tentious issues: a level playing-field for son’s rising unpopularity and reputation jobs that politicians cannot, and stripping competition (including limits to state for incompetence also suggest he badly out the penny-pinching bureaucracy that aids), fisheries, and dispute resolution. Mi- needs to show he can at least get a much- hobbles ambitious programmes. To its crit- chel Barnier, the eu negotiator, says the promised Brexit trade deal. ics, it has tossed aside proper spending talks are not currently on a path to a deal. Yet some make the opposite argument. controls and is becoming a chumocracy. David Frost, his British counterpart, insists Fabian Zuleeg of the European Policy Cen- Jolyon Maugham, a campaigning law- solutions must fully respect uk sovereign- tre, a Brussels think-tank, sees a danger yer, is suing the government over contracts ty, a tricky condition since any treaty inev- that eu leaders may conclude that, since for personal protective equipment (ppe), itably impinges on it. Mr Biden’s victory will push Mr Johnson to- which he claims were improperly awarded As ever, Northern Ireland looms large. wards making a deal, there is now no need to a pest-control firm and a confectionery On November 9th the House of Lords de- to offer him face-saving compromises. But wholesaler. Mr Maugham also accuses the cided by 433 to 165 votes to strike out Mr Johnson’s troubled relations with Tory government of wrongly handing deals to clauses in the internal-market bill seeking mps leave him wary of giving concessions. consultants close to the Conservative Party. to overturn parts of the Northern Ireland Many Brexiteers now criticise those he The two big pandemic-related jobs went to protocol in the withdrawal treaty. Mr John- made in the withdrawal treaty. Mujtaba well-connected people: Ms Bingham and son vowed to reinstate the clauses when Rahman of Eurasia Group, a consultancy, Dido Harding, a businesswoman who is the bill returns to the Commons. He also notes that almost all members of the new head of the covid-19 testing regime and is plans to use the finance bill for other group of lockdown-sceptic mps are hard also married to a Tory mp. She was hired changes to the protocol. This breach of in- Brexiteers who prefer no deal to compro- without a public recruitment process. Pe- ternational law has been denounced by all mise. As a new National Audit Office report ter Riddell, the Commissioner for Public living former Tory prime ministers, as well shows, even a deal will bring huge disrup- Appointments, said last month that non- as by Michael Howard, a former leader who tion at the borders. It would be easier for Mr executive board memberships, intended to is a passionate Brexiteer. Johnson to blame this on the eu if it came bring business expertise into government, The eu says that Mr Johnson’s changes after no deal than after a deal. were being used to promote political allies. undermine the gfa by risking a hard border The other concern is that time is short. The pandemic is part of the explana- in Ireland. Mr Biden, who has Irish roots, The eu is famous for missing deadlines, tion, for it has forced the government to agrees. Optimists believe his election but its claim that a deal must be done with- spend money and fill jobs with wartime makes it more likely that Mr Johnson will in a week or two is serious. Lengthy trade haste. In a reply to Mr Maugham, the gov- compromise to get a deal and drop his re- treaties typically take months to translate, ernment’s lawyers describe a global scram- write of the Northern Ireland protocol. To put into legal form and ratify. This one ble for ppe which made a normal tendering be out in the cold with no trade deal with ei- needs to be approved by national govern- process impossible. Not surprisingly, the ther the eu or America would be uncom- ments as well as the European Parliament. number of ministerial directions—official fortable. And if it involved breaking inter- Several members of the parliament have notices from ministers approving spend- national law, it would also stymie Mr said that, unless Mr Johnson drops his ing on projects that senior civil servants Johnson’s ambitions for “Global Britain” plans to change the Northern Ireland pro- think may be irregular, undeliverable or and make Britain’s chairmanship of the g7 tocol, they will reject a deal. poor value for money—has increased and the cop26 climate-change summit The risk that no-deal may come about sharply in the pandemic. next year more awkward. because time runs out is not small. If that The political climate has changed too. Coming on top of covid-19, the disrup- happens, Mr Johnson has nobody to blame David Cameron’s government made reduc- tion and cost of a no-deal Brexit also argue but himself, for in June he had the opportu- ing the deficit its central political goal; it for compromise. Charles Grant of the Cen- nity to extend the transition period and hunted out spending on biscuits, air travel tre for European Reform, a think-tank, says chose not to do so. 7 and consultants by officials. This govern-1 28 Britain The Economist November 14th 2020

2 ment, by contrast, will make a virtue of lar- sion of Mr Murdoch’s News Corporation), between one of the claimant’s contacts— gesse as it seeks to hold working-class seats is still settling legal claims for past dodgy say, his agent or his mother—and the de- it won from Labour in the last election, and practices like blagging confidential infor- fending newspaper. A lawyer for the origi- believes in state intervention in industry. mation about the subject of a story or hack- nal claimant may then speak to that con- In June, the business secretary issued a di- ing into their voicemail messages. Mirror tact to establish whether there was a rection to buy a $500m stake in OneWeb, a Group Newspapers, part of the publisher legitimate reason for the call. If not, it bankrupt satellite company, saying it Reach, also faces scores of claims, some of might indicate that the contact’s phone would signal “uk ambition and influence which are listed for trial next January. “It’s was hacked, too, potentially adding a new on the world stage”. Officials warned the in- got an incredibly long tail,” says Christo- claimant to the roll. “Person y then puts vestment may fail. On November 11th the pher Hutchings of Hamlins, a law firm rep- forward their associates,” says Mr Hutch- House of Commons Public Accounts Com- resenting some of the claimants. “I don’t ings. “It becomes a web.” mittee (pac) said ministers had exposed see any immediate end in sight.” Justice delayed may be justice denied themselves to allegations of political bias Thanks to the slow-burning litigation, but the lawyers, at least, are unlikely to when they allocated £3.6bn of grants to the High Court sometimes seems stuck in complain on that count. Settlements and provincial towns before last year’s general the 1990s and early 2000s. In one judg- legal costs already amount to hundreds of election by “vague and broad-brush” crite- ment, Mr Justice Mann considered the cir- millions of pounds. The final bill has yet to ria. Preparations for Brexit also encouraged cumstances of a footballer’s row in a super- arrive but Hacked Off, a campaign group, bad habits: in 2019 the government was market and argued that a story about reckons it could run to £1bn. “I couldn’t sued by Eurotunnel over a hastily-arranged another player requiring a custom-made genuinely argue that it hasn’t been a lucra- contract for ferries in case of a no-deal exit. seven-foot bed would be “too trivial to at- tive area to be involved in,” says Mr Hutch- A third factor is Number 10’s attitude to tract a sensible claim for damages”, even ings, with a lawyerly double negative. 7 civil-service procedure. Dominic Cum- had the information not already been dis- mings, the prime minister’s chief aide, has closed by his now wife. The evidence re- long complained that risk-averse civil ser- calls an era predating smartphones, when Energy vants use European procurement law to rambling voicemails were a popular means choke projects and believes that the state of communication. “It’s almost going back Chain reaction should back high-risk projects that the to Dickens,” says one of the lawyers. market won’t fund. The government differs Three factors explain the saga’s length. from its predecessors in its obsession with First, the scale of alleged wrongdoing. speed and appetite for risk in using public When evidence of phone-hacking was first money, reckons Meg Hillier, chair of the unearthed in 2006, the News of the World Britain’s nuclear industry faces a pac. “This is where the civil service has to insisted it had been commissioned by “one do-or-die moment be robust.” Former mandarins sympathise rogue reporter”, Clive Goodman, who was with Mr Cummings’s frustration at pro- jailed in 2007. In fact, it emerged that the he village of Sizewell, on the east curement rules, and few doubt the need for paper targeted not only the royal fam- Tcoast of England, has hosted nuclear haste in the pandemic. But if such process- ily—as in the Goodman case—but also ce- power stations since 1966. The first is es put a ceiling on dynamism and bril- lebrities and members of the public such as closed. The second, Sizewell b, started liance, they also provide a floor against Milly Dowler, a schoolgirl who was kid- feeding power into the grid in 1995. The waste and graft. 7 napped and murdered in 2002. A lawyer es- government is considering whether to timates that News has so far settled about back the construction of a third. It would be 1,000 cases. The Mirror Group denied for a replica of the Hinkley c plant that is under Phone-hacking years that its newspapers had hacked any construction in Somerset, the first new nu- phones at all. It took years of dogged work clear power station built in Britain in 25 Hanging on the by journalists, lawyers and campaigners to years. Sizewell c, if it is built, will be the establish how widespread the practice was. second. The decision is crucial for the fu- telephone The second reason is procedural. The ture of Britain’s nuclear industry. Crown Prosecution Service dropped a cor- Climate change has made the politics of porate prosecution of News and individual nuclear power even more complex than it prosecutions of Mirror staff in 2015. The used to be. Public concerns about radiation For Britain’s tabloids, one story won’t second phase of the Leveson Inquiry, an of- and the disruption caused by construction1 go away ficial sleuthing exercise into media mal- hen a newspaper is written about practice, was also dropped. Had it contin- Won a rival’s front page, you can be sure ued, claims one of the campaigners, “this Wind of change it isn’t good news. So it proved in July 2011, would have been wrapped up a long time Britain, energy generation mix, TWh with a flurry of stories about illegal news- ago.” In the absence of a compensation 100 gathering techniques at the News of the scheme, which News established in 2011 World, a tabloid that once boasted of shift- but closed two years later, the civil courts 80 ing more copies than any other English are the only forum left for redress. Since language newspaper and that, thanks to its the wrongdoing alleged differs in time, Fossil fuels* 60 principal obsession, was known to report- scope and nature in each case, claims can- Hydro ers as the Screws. Within three days Rupert not be resolved in one go. Bioenergy 40 Murdoch ordered the closure of the paper The third factor is the clandestine na- Nuclear he had bought in 1969, his first acquisition ture of the hacking. There is a six-year limit 20 outside New Zealand and his native Austra- to such claims, but it runs from the time a Wind & solar lia. “Thank you,” its final headline blared, claimant discovered—or might be expect- Other 0 “& goodbye”. That, it seemed, was that. ed to have discovered—the alleged wrong- 20181614122010 Hardly. Nine years later, the paper’s doing, not when it took place. One case of- Source: Ofgem *Natural gas, oil and coal publisher, News Group Newspapers (a divi- ten throws up evidence of phone calls The Economist November 14th 2020 Britain 29

2 must now be balanced against the capabili- At last, the conversation moved beyond ty of nuclear power to generate large the fiendish business of untangling links amounts of electricity without the emis- with the eu. Mr Sunak spoke of two ave- sion of carbon dioxide, which warms the nues for growth: climate change and digiti- atmosphere. sation. Britain will issue its first green Unlike the two fast-growing mainstays bond in 2021, he announced, to fund infra- of zero-carbon electricity generation, wind structure investment. He also proposed to and solar power, nuclear power’s output is regulate privately-issued digital currencies stable, and does not fluctuate with the and blessed efforts to study whether the weather. This makes it valuable to any central bank should mint virtual money. country attempting to decarbonise. Most This is hardly radical stuff. Other coun- of the mathematical models which stay tries already issue green bonds and finan- within the confines of the Paris Agreement, cial watchdogs have been fretting about which aims to constrain the temperature digital currencies since Facebook said it increase on the planet to less than 2°C, have would launch one last year. But the an- nuclear power playing a significant role. nouncements signalled that the Treasury Yet the West is abysmal at building new has its fingers on the pulse and wants to re- nuclear power stations. Olkiluoto 3, in Fin- tain Britain’s financial-technology crown. land, is running 12 years behind schedule. Also significant is his pledge to keep Flamanville 3, which is being built in Britain’s international markets open and France, is about ten years behind and €10bn governed by objective and predictable ($12bn) over budget. Both use European Rising or setting? rules. That is more than a platitude. He Pressure Reactors (epr) from a French promised to grant “equivalence” to a bunch company, Areva, which is owned by the istic option of including it in the grid. Its of eu rules, a status that recognises them as French state utility Electricité de France existing nuclear fleet is scheduled for de- valid in Britain, without waiting for the (edf). Hinkley c and Sizewell c are also be- commissing within the decade. Wind pow- bloc to reciprocate. That will provide clar- ing built by edf. Each contains two eprs. er is cheap and getting cheaper; nuclear ity to firms on both sides of the Channel Critics of large nuclear-power stations power is yet to start moving in the right di- and make it easier for foreign firms to oper- cite edf’s overruns as reasons why Britain rection. But it may; and given the danger of ate in Britain. He hinted, too, that Britain’s should pull back from its nuclear ambi- global warming, there is an argument for rules could be tweaked to make the City tions. Instead, some say, Britain should fo- keeping the nuclear option open. 7 more attractive. Notably, the government cus on offshore wind turbines, diverting wants to make it easier for innovative com- the money it will take to build plants like panies to list in London—it has lagged be- Sizewell c. In just the past few years, the Financial services hind peers in recent years (see chart)—and proportion of electricity generated by wind for funds to get domiciled there. has jumped dramatically (see chart on pre- London calling, That is a clever move. Mr Sunak’s ap- vious page). proach stands in flattering contrast to the Since Hinkley c is under construction, at last eu’s own position on access to its market Sizewell c is the project around which the by outsiders, which is looking increasingly current debate is playing out. edf argues unreliable and politicised, says Denzil Da- that the situation in Britain is different to vidson, a former adviser to Theresa May As it loses business to Europe, the that in Finland and France, and that its Brit- now at Global Counsel, an advisory firm. chancellor pitches the City to the world ish reactors stand to benefit from cost re- And his promise of a simplified, tailored ductions as it builds more copies of the ven before covid-19 sent its workers rulebook seeks to show there are advan- same design in a way that its European re- Ehome and deprived its soulless restau- tages to being outside the bloc. The busi- actors have not. This summer Julia Pyke, an rants of any remaining souls, the City of ness the City has lost to the continent will edf director, said that the second epr to be London was in a funk. In its negotiations not be recovered. But this statement, how- used in Hinkley c has had 45% more steel with Brussels, the government lavished at- ever aspirational, is an important first step installed than the first unit over the same tention on fishermen but hardly seemed to in making the case for global firms to stay timeframe, and that the reactor’s cooling be putting up a fight for financial services, in London. Better late than never. 7 components had been installed 50% faster. which account for 7% of Britain’s gdp and Sizewell c would benefit from the same dy- 10% of its tax receipts. No wonder, then, namic, as well as lower regulatory costs, that British-registered firms–which at the Listless London since the Office for Nuclear Regulation has end of the year will lose “passporting IPO proceeds, $bn rights” that enable them to sell funds, debt approved its progenitor. 70 Even if Boris Johnson announces his or advice across the eu–were shipping support for Sizewell c, additional barriers thousands of workers and billions of New York 60 edf remain. won’t complete the govern- pounds of financial assets to the continent. Hong Kong 50 ment’s planning process until 2022 at the Two developments on November 9th earliest. Its approval will also take time. A brought a rare smile. The first was a stock- 40 method of financing the plant’s construc- market rally, prompted by promising news 30 tion must still be worked out and private on a covid-19 vaccine and Joe Biden’s vic- 20 investors found. tory in the American election. The second The risk of overruns is considerable, but was a statement by Rishi Sunak, the chan- Nasdaq 10 London the risks of failing to decarbonise are much cellor, on his ambitions for post-Brexit fi- 0 greater. If Sizewell c does not go ahead, nancial services. City bosses were cheered 2010 20*18161412 Britain will lose any hope of reducing the by his vow to renew Britain’s position as Source: Refinitiv *To November 11th cost of nuclear power, and thereby the real- “the world’s pre-eminent financial centre”. 30 Britain The Economist November 14th 2020 Bagehot A populist in the palace

How Princess Di shaped politics tional state. The traditional deal to which royals signed up allowed them to behave as they liked in private—kings have almost always had mistresses because they marry for reasons of dynasty not compatibility—so long as they behaved with decorum in public. Princess Diana regarded this as humbug. She succeeded in reconciling the most jarring of opposites. De- spite being a top-tier aristocrat (her family, the Spencers, looked down on the Windsors as German carpetbaggers) she was univer- sally known as “Di”. Her death in a car crash won her a spectacular posthumous victory against the royal court. It produced the great- est outburst of public lacrymation Britain has ever seen and led to widespread demands that the royals should display more emo- tion, as if the damp cheek had replaced the stiff upper lip as the de- finition of Britishness. “What would really do the monarchy good, and show that they had grasped the lesson of Diana’s popularity,” an editorial in the Independent thundered, “would be for the Queen and the Prince of Wales to break down, cry and hug one another on the steps of the Abbey this Saturday.” Since her death, her emotional populism has threaded through politics. Tony Blair presented himself as the people’s prime minis- ter. He championed “Cool Britannia”, surrounded himself with pop stars and urged his staff to “call me Tony”. The next Conserva- etflix’s flagship series, “The Crown”, has done a fine job of tive prime minister, “Call me Dave” Cameron—a distant relation of Ntelling the story of post-war Britain through the prism of the Princess Diana’s—adopted this combination of compassion-sig- monarchy. The previous series left viewers in the mid-1970s, mired nalling (hugging hoodies instead of cracking down on juvenile de- in the miners’ strike and the three-day week. The new one, which linquents) and studied informality (chillaxing and kitchen sup- begins streaming on November 15th, introduces us to two women pers replacing previous Tory premiers’ stiffness). who were destined to change the country in profound ways—Mar- Both men were too responsible to let emotional populism in- garet Thatcher and Lady Diana Spencer. terfere with the affairs of state. Domestic and foreign policy Lady Thatcher made it clear from the first that she was in the choices continued to be conducted according to the icy dictates of business of changing the nation. Lady Diana Spencer was a bird of reason and evidence. Brexiteers, by contrast, followed the Diana- a very different feather—a shy girl who had failed all her o-levels script. They appealed to the heart rather than the head; to win their twice and had no interest in politics. She was brought onto the na- arguments they used feelings of patriotism and resentment rather tional stage for the sole purpose of producing (male) heirs to the than facts about trade flows. They denounced the elites for trying throne. Yet the country is still living with her political legacy as to frustrate the wisdom of the people in much the same way as Di- surely as it is with Lady Thatcher’s. anaphiles had denounced the Palace for ignoring the people’s Princess Diana’s genius was to mix two of the most profound emotions. They turned on the nation’s core institutions—Parlia- forces of modern politics—emotion and anti-elitism—into a pow- ment, the civil service, the Supreme Court—when they suspected erful populist cocktail. She was one of the modern masters of the attempts to frustrate their wishes. They succeeded in defeating the politics of emotion, feeling the people’s pain just as they felt hers. establishment in much the same way as Princess Diana had, by She repeatedly outmanoeuvred Prince Charles during the long claiming to stand for emotion rather than reason and the people “War of the Waleses” because she was willing to bare her soul in rather than the elite. Alexander Boris de Pfeffel Johnson has recon- public. Her interview with Martin Bashir of the bbc in November ciled the opposites he embodies just as she did. A card-carrying 1995 is now the focus of controversy, as her brother, Earl Spencer, member of the metropolitan elite, he has managed to sell himself claims that it was obtained under false pretences, using forged as a man of the people. As she was Di, so he is Boris. documents. Whatever the reason for giving it, the interview was a The first series of “The Crown” shows a young Queen Elizabeth masterclass in emotional manipulation. At one pivotal moment studying Walter Bagehot’s “The English Constitution” under the Princess Diana acknowledged that she would never be queen but guidance of Sir Henry Marten, the vice-provost of Eton, who kept a hoped that she would be “queen of people’s hearts”. pet raven in a cage and addressed the young princess as “gentle- The princess used her mastery of the politics of feeling to turn men”. Bagehot’s great work distinguishes between the dignified herself into a champion of the people against the powerful—the branch of the constitution (the monarchy) and the efficient branch “people’s princess” in Tony Blair’s phrase. She patronised charities (elected politicians). Implicit in that distinction is Bagehot’s per- that helped marginalised folk such as hiv patients, and kept com- ception that emotions pose a dangerous threat to the proper con- pany with pop stars and celebrities rather than with the usual royal duct of politics. The monarchy provides a controlled outlet for waxworks. The most memorable music at her funeral was not an them, thus enabling responsible people to get on with the difficult historic hymn but a song by Elton John, adapted for her but origi- task of running the country. nally written about another icon-turned-victim, Marilyn Monroe. By using people’s feelings as the fuel for her astonishing career, Her anti-elitism was directed not at the monarchy’s wealth— Princess Diana broke that safety valve. Britain will be living with she happily lived in Kensington Palace and received a £17m ($23m) the consequences of the emotional populism that she helped to re- divorce settlement plus £400,000 a year—but at its stunted emo- lease for years to come. 7 Europe The Economist November 14th 2020 31

Also in this section 32 Hobbling graftbusters in Ukraine 33 Sharing Europe’s recovery fund 33 France fights jihadists in the Sahel — Charlemagne is away

Nagorno-Karabakh baijan went back to war. It was aided by Turkey, which provided drones and train- Peace, for now ing. It recaptured most of its lost territory. The war was all but inevitable. Azerbai- jan, a petro-state, had grown richer, more confident and more frustrated at the lack of progress in talks with Armenia. However, three other factors played a role. One was the growing assertiveness of A bloody war ends in the Caucasus Turkey. It has shown its willingness to use he two capitals erupted at roughly the miliation for which Mr Pashinyan had force and provide military backing to Azer- Tsame time. On November 9th, known as done nothing to prepare his country. baijan, in the form of planners and Syrian the national flag day in Azerbaijan, Baku The peace deal marks one of the biggest mercenaries. burst into jubilation. Crowds swarmed the shake-ups in a turbulent region at the The second was Russia acquiescing to city and flocked to the Alley of Martyrs, a crossroads of Europe, Asia and the Middle Azerbaijan’s advance and to Turkey’s in- memorial to fallen soldiers. They wrapped East since the collapse of the Soviet empire, volvement. In the past Azerbaijan had been themselves in Azerbaijani and Turkish which also began in Nagorno-Karabakh. In afraid to launch an all-out offensive be- flags, sang the national anthem and February 1988 a few hundred Armenians cause of Russia’s commitment to defend praised their victorious leader, Ilham Ali- came out onto Lenin Square in Stepana- Armenia. But as Azerbaijan correctly yev. On the same day in Yerevan, the capital kert, the enclave’s capital, demanding to be guessed, Vladimir Putin cared more about of Armenia, angry crowds stormed the par- united with Soviet Armenia. They started a his anti-Western alliance with Turkey and liament building, cursing Nikol Pashin- chain of events that catalysed the break-up was no longer inclined to side with Arme- yan, their prime minister. of the Soviet Union and later led to a two- nia’s government after a largely peaceful The cause of both scenes was the an- year war between Armenia and Azerbaijan. “colour” revolution in 2018 swept the popu- nouncement of a peace deal. Brokered by That war ended with the victory of the list Mr Pashinyan to power. Russia’s presi- Russia and Turkey, it ended a six-week war Armenians, partly because of Russian mil- dent does not recognise the legitimacy of over Nagorno-Karabakh. This is an enclave itary support. Armenia captured Nagorno- leaders brought to power by uprisings. Mr in Azerbaijan, mostly populated by ethnic Karabakh and occupied seven adjacent dis- Pashinyan further angered Mr Putin by im- Armenians but of cultural and historical tricts that belonged to Azerbaijan. The con- prisoning a friend of his, Robert Kocharian, significance to both sides. A day earlier, flict was (mostly) frozen but never a former Armenian president. Mr Putin Azerbaijan had raised its flag over Shusha, resolved, leaving Azerbaijan with a sense of was not allowed to see him during a visit to a strategic hilltop citadel inside Nagorno- trauma and the border between Turkey and Yerevan last year. Karabakh and a cradle of Azerbaijani cul- Armenia shut. The third factor has been the gradual ture. Within hours Armenia’s exhausted On September 27th, after 25 years of disengagement of America from the re- and demoralised forces surrendered, a hu- waiting for the return of its territory, Azer- gion, which has accelerated under Presi-1 32 Europe The Economist November 14th 2020

Areas of control Ukraine cern. Ukraine’s economic stability is bol- RUSSIA November 10th 2020 stered by a $5bn loan secured in June from imf GEORGIA Nagorno-Karabakh Judge not, that ye the . It stands to get another €1.2bn Armenian forces ($1.4bn) in economic and covid-19 aid from Tbilisi Azerbaijani forces be not judged the eu (as well as continuing to enjoy visa- Unclear free travel in it). Both organisations make Source: Polgeonow.com ARMENIA their assistance conditional on fighting Nagorno-Karabakh KYIV corruption. On November 3rd the eu Yerevan Ukraine’s constitutional court attacks AZERBAIJAN warned that both aid and visa-free travel Baku anti-corruption laws Stepanakert could be jeopardised. It says it will first TURKEY Shusha Lachin n 2014 ukrainians got so fed up with the wait to see whether Ukraine restores power Nakhchivan Igrotesque corruption of their political to the anti-corruption bodies. AZER. Caspian class that they staged a revolution. Since Reformers are divided over how to do then, reformers have been trying to build this. Mr Zelensky, trying to rally popular IRAN Sea 100 km institutions to hold the country’s oligarchs support after his party did badly in munici- and crooked politicians to account. One big pal elections last month, has urgently de- 2 dent Donald Trump. So the autocratic lead- victory was establishing an electronic as- manded that parliament pass legislation ers of Russia and Turkey were left alone to set-declaration system, an online registry firing all of the constitutional court’s hammer out their deal. Under it, Armenia where officials must list all of their main judges. It is not clear that he has the votes. is to withdraw from the remaining districts possessions. But on October 27th Ukraine’s Even if he does, legal experts say the move around Nagorno-Karabakh. Russia will de- constitutional court found a clever way to would itself be unconstitutional. Another ploy a 2,000-strong peacekeeping force in cripple this system: it struck down the proposal is to pass new laws re-establish- Nagorno-Karabakh, for the next five and anti-corruption authorities’ power to pun- ing the anti-corruption agencies on firmer possibly ten years. There was no mention ish anyone for lying on it. ground. But activists, who suspect the of the status of Nagorno-Karabakh, which Piquantly, four of the court’s 18 justices court of being corrupt and compromised in the past had been promised autonomy were being investigated by those same au- by pro-Russian interests, fear it will find an within Azerbaijan. Tens of thousands of thorities. After the ruling, Schemes, an in- excuse to strike down those new laws too. ethnic Armenians fled their homes in Ste- vestigative news outfit, reported that the In the short term the court has been slowed panakert during the fighting as Azerbai- chief judge had failed to declare property by four liberal judges who are refusing to jan’s army closed in. he owns in Russian-occupied Crimea, ac- attend, denying it a quorum. Some propose Within hours of the announcement, quired under Russian law, which would raising the quorum requirement, making it Russia moved in its troops, establishing its imply recognising Russian sovereignty. In easy for a few reformers to block action. long-craved presence in the Lachin corri- his defence, he said he did not know how to Those who dislike the clean-up efforts dor linking Armenia to Nagorno-Karabakh. file an e-declaration for land in Crimea. may next attack laws that have let dodgy Mr Aliyev had for years resisted this. Hav- It has been 18 months since Volodymyr banks (owned by oligarchs) be national- ing closely observed the use of Russian Zelensky went from playing Ukraine’s ised, and a new law opening up the land peacekeepers in the war unleashed by Mos- president on television to being elected market. The Anti-corruption Action Centre cow against neighbouring Georgia in 2008, president in real life. He now faces a test of (antac), the country’s premier watchdog, he had no desire to see Russian troops in his pledge to clean up the country. Bit by says such legal challenges are a stubborn Nagorno-Karabakh. Yet he had little bit, the country’s top court is dismantling effort to re-establish the sort of klepto- choice. Going any further in the war risked the anti-corruption infrastructure. In Au- cratic order that existed under Viktor Yanu- a direct confrontation with Russian forces. gust it partially struck down the National kovych, a disgraced ex-president, and to Turkey probably helped persuade Azer- Anti-Corruption Bureau of Ukraine (nabu) sabotage Ukraine’s turn towards the West. baijan to accept the deal. Though not men- and ruled that its head had been appointed The constitutional court is “the most pro- tioned in the trilateral agreement signed illegally. The new ruling strips the National tected organ in the country,” says Olena between the two belligerents and Russia, Agency on Corruption Prevention (nacp) Shcherban, Antac’s chief legal expert. If Mr Turkey is a big beneficiary of it. It is to get of much of its power. Zelensky wants to salvage his presidency, access to a transport corridor through Ar- Fighting graft is not just a domestic con- he will have to take it on. 7 menian territory from the Azerbaijani en- clave of Nakhchivan, which borders Tur- key, to the main bit of Azerbaijan and the Caspian Sea, thus linking Turkey to Central Asia and China’s Belt and Road Initiative. Russia will control the road itself, but Turkish and Chinese goods will travel along it, and all parties stand to benefit eco- nomically. “This trade route could trans- form the entire region and become the main staple of a peace settlement,” says Mi- kayil Jabbarov, Azerbaijan’s American-edu- cated economy minister. Perhaps it is the prospect of this geopolitical transforma- tion that has enticed Mike Pompeo, the American secretary of state, to visit the re- gion in the next few days. After four years of Mr Trump’s presidential neglect, he is very late to the party, and there are many pitfalls ahead. 7 The Economist November 14th 2020 Europe 33

Europe’s recovery fund ture fiscal and monetary tightening trig- Dividing the pie gered a needless double-dip recession. Turn on the spigot Recovery and Resilience GDP, 2020* Funding furlough schemes and other de- Facility grants, 2021-22 % decrease on a year earlier mands could cause average deficits across Selected countries, % of 2018 GNI the eu to swell to 9% of gdp this year, eu 1086420 helped by a suspension of the ’s fiscal rules and the European Central Bank’s ul- Croatia -9.6 BERLIN tra-loose monetary policy. Yet some worry The European Union’s €750bn recovery Bulgaria -5.1 lest governments withdraw stimulus too plan comes one step closer -9.0 Greece soon. Shahin Vallée at the German Council he puff of white smoke came on No- Romania -5.2 on Foreign Relations reckons that, stripped Tvember 10th. After months of ill-tem- Portugal -9.3 of accounting tricks, the French and Ger- pered talks between governments and the Poland -3.6 man draft budgets for 2021 reveal, at best, a European Parliament—one French mep Spain -12.4 neutral fiscal stance, even as a second covid even went on hunger strike to protest Italy -9.9 wave portends a deeper recession and a against cuts—the two sides at last agreed France -9.4 spate of corporate bankruptcies looms. on a seven-year budget for the European Germany -5.6 With the outcome of a suspended fiscal- Union. Some hurdles remain. Rules must rules debate unknown, some governments Sources: European Commission; Eurostat *Forecast be thrashed out for running the Recovery may fear racking up debts too quickly. and Resilience Facility (rrf), the centre- As for the Hamiltonian moment, in the piece of the covid-19 recovery plan agreed and face competing claims on any available long run that will depend in part on wheth- by eu leaders in July. (This, along with the cash. Some, such as Italy, have a less than er talks on eu-wide taxes—“own re- regular budget, makes up an overall €1.8trn stellar record of investing for the long sources”, in the jargon—on matters like fi- package.) Viktor Orban, Hungary’s prime term. Eastern European countries often nancial transactions get anywhere. (A minister, is threatening to veto the whole have trouble absorbing eu funds as it is. “roadmap” approved this week does not thing because of rule-of-law conditions at- The commission itself will face serious commit governments to anything.) A more tached to the budget. But officials are cau- technical and capacity constraints, and pressing question is whether the recovery tiously optimistic that an end is in sight. there will be pressure to get the scheme up fund can be made to work in the first place. The deal in July empowered the Euro- and running soon. “You need strong gov- The commission says ngeu could boost eu pean Commission to borrow €750bn ernments to implement the changes the output by up to 2% at its peak. But if gov- ($886bn) from capital markets and distri- rrf demands, and you don’t have that in It- ernments pour money into pensions and bute the proceeds, in grants and loans, to aly and Spain,” says Mujtaba Rahman of the public-sector wages rather than electric eu governments over six years according to Eurasia Group, a consultancy. cars and 5g networks, sceptics in Germany specific economic criteria. The plan (see While they wait for the process to grind will be reluctant to see the experiment re- chart) emerged from a fear that the di- on, governments must keep economies peated. Success is far from assured, and vergent effects of covid-19 could drive a afloat themselves. Europe has avoided the Brussels is nervous. But at least meps permanent wedge between governments. mistakes of the early 2010s, when prema- should be able to start eating again. 7 Its scale sparked talk of a “Hamiltonian moment”—a watershed for eu integration. In truth, it may do more than pessimists France in the Sahel had feared, and less than the optimists hoped. Mission impossible but necessary It has slowly dawned on governments that the recovery fund—Next Generation eu (ngeu), to give it its full title—is not there to prop up short-run demand. Real money will not start flowing until the sec- ond half of 2021 at best, by when the recov- GAO AND MÉNAKA France’s thankless yet valuable war against jihadists in the Sahel ery should be in full swing. The bulk of the grants will not be dished out until 2024. In- he twin-engine French army helicop- ing from Paris. The soldiers have just con- stead the commission hopes to use ngeu Tter swoops at high speed and low alti- ducted an operation code-named Bour- to promote its own vision for long-term re- tude over the arid plains of the Sahel, its rasque against jihadists from Islamic State form. The recovery plans governments side-mounted machineguns trained on the in the Greater Sahara (isgs) in the plains must submit to Brussels next year will have ground. A vast expanse spreads out in each and valleys of the Liptako region. to identify projects in line with European direction, interrupted only by acacia trees For a month, troops from France, Niger priorities. Fully 37% of the spending in the and the occasional herd of goats sent scam- and Mali, backed by special forces and act- rrf, for example, should go on climate- pering by the helicopter’s roar. It is en route ing on French and American intelligence, friendly schemes, such as insulating old from the French military base in Gao, cen- tracked jihadists. Temperatures inside ar- buildings, and 20% on digital projects. A tral Mali, to Ménaka, at the heart of a zone moured vehicles were at times sweltering. second, related aim is to promote structur- where a jihadist insurgency last year killed Tyres often blew out, and sand snarled up al reform in member states to lift long-term some 4,800 people. the mechanics. They killed several dozen growth rates. The commission is quietly Arising from the rust-coloured sand, insurgents and seized weapons, motor- helping governments knock their recovery the French forward base at Ménaka is a bikes, fuel and food supplies. It was “in- plans into shape, and some are struggling. compound of newly built tents and con- tense”, says a unit captain, with “violent So far, says an official, they are doing better verted containers. Under a searing sun on a encounters” at close range on the ground, on the investment part than on reform. November morning, parachutists and often at night. “We slept when we could.” But Brussels will have its work cut out. commandos line up to brief Florence Parly, The French government first dis- Governments have their own priorities, the French defence minister, who is visit- patched troops in 2013 to halt a jihadist ad-1 34 Europe The Economist November 14th 2020

2 vance on Mali’s capital, Bamako. Today it 500 km Certainly the mood in Gao, where one keeps 5,100 soldiers in the Sahel, as part of a recent morning French officers could be ALGERIA counter-terrorism mission called Opera- SAHEL found in the canopied mess discussing Ni- tion Barkhane, which President Emmanuel MALI gerian and Malian novelists over crois- MAURITANIA Liptako Macron this year reinforced. No other region sants, is more upbeat. General Marc Con- European country contributes anything ruyt, who commands Barkhane, declares S Gao Ménaka CHAD* like this number to military activities in A H E L NIGER himself very satisfied with recent opera- the Sahel, even to a parallel United Nations Bamako tions. The French sense they have dealt a peacekeeping operation. The un has 13,600 real blow to isgs. “They certainly haven’t soldiers, among them some 350 Germans, NIGERIA disappeared,” says the general. “But they soon to be joined by 250 British. don’t have the same capacity to cause trou- BURKINA FASO Most combat operations, though, fall to ble in this zone that they did at the end of CAMEROON the French-led forces. These campaigns, 2019.” The French now consider rival amid the heat and billowing sand, are gru- Operation Barkhane Violent events involving groups affiliated to al-Qaeda to be the elling and risky. Last year, described by Mr Bases Permanent jihadist groups, 2020 greater threat. On October 30th Barkhane Macron as “cruel and painful”, was the re- Temporary To Oct 30th killed at least 50 jihadists linked to al- gion’s deadliest for years. The French lost 13 Sources: ACLED; Menastream; *Two temporary bases Qaeda in an assault on a night-time convoy. elite soldiers in a single night-time heli- French Ministry of Defence in Chad not shown For all these encouraging signs, how- copter crash in the “three frontiers” zone ever, the French are stuck in an unwinna- between Mali, Niger and Burkina Faso. The This has brought some successes. In ble war. On motorbikes and pick-up trucks, French base in Gao, Barkhane’s biggest, Ménaka and Gao, Estonian special forces insurgents are mobile and nomadic. They was attacked with a car-bomb. The armies took part in operation Bourrasque along- support themselves by trafficking guns and of Niger and Mali lost scores of soldiers in side French commandos, as part of a new drugs, and have a talent for disappearing terrorist attacks. Across the Sahel, an esti- joint task-force, Takuba. They worked well into the bush. Across the north of Mali, mated 4m people have fled their homes. together, says an Estonian commando. they still hold sway. Tactical successes in In January Mr Macron hosted a summit Czech and Swedish special forces are due to one zone can push jihadists into another. in the French town of Pau with the leaders arrive soon. Such forces, explains a French The operational aim, says General Conruyt, of the five Sahel countries (Burkina Faso, commando, operate discreetly alongside is to harass and weaken them so as to “tip Chad, Mali, Mauritania and Niger). Amid Malian regulars, so that villagers can see the balance in favour of our allies”. France, accusations of neo-colonialism, France’s their own country’s troops on the job. This suggests Michael Shurkin of rand, a think- president partly sought confirmation from is part of a broader plan to improve local tank in Washington, in a recent paper, regional leaders that they actually wanted confidence and security. The British and “does not aspire to…defeat the jihadists.” French troops to stay, which they gave. But Danes help to provide air-lift. During Bour- Rocky local politics do not help. As it is, the idea was also to share out the security rasque, French soldiers worked with units Sahelian armies have themselves been ac- burden, both by recruiting fellow Euro- from Niger and Mali, a form of on-the-job cused of atrocities, which can help jiha- peans to help and getting regional armies training that went better than expected, a dists recruit. In August Malian officers to do a better job themselves. French officer says. ousted the president in a coup. The new leaders have promised elections, and say they want France to stay, even if its mission is unpopular. But they dismayed French observers by freeing 200 jihadists as part of a hostage-liberation deal last month. The new rulers now want to negotiate with armed jihadist groups. France disapproves. Ms Parly stresses that “France is no lon- ger alone.” Yet the Sahel is nobody else’s priority, despite France’s efforts to per- suade its friends that the region’s stability directly affects Europe’s. The French will not be thanked for staying, but nor would they be for packing up. Under Joe Biden, America will still be under pressure to withdraw personnel from Africa. “The bot- tom line is that the French are actually out there on the ground,” says Charles Kup- chan of the Council on Foreign Relations in Washington. “When the us is looking to lighten the load, having a partner ready to step up to the plate is a big deal.” Next month Mr Macron, who has now put soldiers on anti-terrorist patrol on the streets in France, will take stock. He could decide to bring some troops home. “The objective”, says Ms Parly, “is progressively to be more in a support role than on the front line.” But for now, like it or not, France is stuck there. As Ms Parly says, “This is a Gruelling and risky long-term job.” 7 United States The Economist November 14th 2020 35

Also in this section 36 Digesting the election 37 Firings and hirings 38 Fox News and Donald Trump 38 Rewilding the prairie 39 The urban-rural divide 40 Lexington: A Democratic defeat in the midst of victory

Covid-19 and the next president But whereas President Emmanuel Macron has declared a second national lockdown, Transmission and the transition Governor Doug Burgum, a Republican, re- cently declined to impose even a mask mandate in his state. Forecasting the course of the disease has proved supremely difficult. It is there- WASHINGTON, DC fore unclear how bad a situation a newly What the Biden administration would do differently, and how inaugurated President Biden would inherit much difference it would make on January 20th 2021. But current signs do artisanship has long coloured Ameri- proaching 10%—suggesting that even now, not augur well. Ashish Jha, dean of the Pcan perceptions of covid-19. Even so, the many infections are being missed. In all Brown University School of Public Health, contrast between the top echelons of the but a handful of states, there seems to be reckons that there may be 100,000 new main parties was striking on November uncontrolled transmission, limiting the deaths between now and then. The Econo- 9th, the day the country passed 10m record- efficacy of contact-tracing. Hospitalisa- mist’s best estimate of total deaths in Amer- ed cases of the disease. On that day the tions had been declining up until the end ica, including those we think are missed by White House of outgoing President Donald of September, when they bottomed out un- official reporting, is nearly 300,000. After Trump was dealing with reports that it may der 30,000. Now they have doubled to over nine long months of living with the virus, have hosted a second superspreading 60,000—higher than the previous peak in Americans and their elected officials seem event in the span of a month—this one for April. In North Dakota, the location of the tired of restrictions on movement and an election-night party that may have sick- worst outbreak in the country, nearly every businesses. With no new curbs, exponen- ened Ben Carson, the housing secretary, intensive-care bed is occupied. tial growth could continue for weeks. Cold among others. The same day, President- The argument that Mr Trump has han- weather may push more people to move elect Joe Biden announced the members of dled the epidemic uniquely terribly may their gatherings indoors, where transmis- the coronavirus advisory board for his just have cost him the election. However, sion is much more likely. Many Americans transition, staffed by the sort of public- this most recent surge is not an America will travel for Thanksgiving and Christmas; health experts the president likes to mock. First phenomenon. It has roughly coincid- no politicians will want to take the blame While national attention was otherwise ed with a second wave in Europe which, for cancelling the holidays. diverted, an extraordinary third surge in measured both by deaths and by cases per Federal action on the economy does not covid-19 infections began in the weeks be- person, is even more severe. European seem imminent either. Democrats and Re- fore the presidential election. There are countries have reimposed harsh lockdown publicans in Congress have been dead- now 1,000 new deaths reported each day measures, whereas the president and locked over a new economic stimulus along with 120,000 new infections. Even America’s governors have been less draco- since many supports expired in July. The though testing has been ramped up to near- nian. France’s intensive-care wards look al- stalemate has not yet been broken. Nancy ly 1.5m per day, the test-positivity rate is ap- most as strained as those of North Dakota. Pelosi, the Democratic leader in the House 1 36 United States The Economist November 14th 2020

2 of Representatives, may with to hold out Digesting the election Typically, the head of the General Ser- for the larger package her party could vices Administration (gsa), the federal gov- achieve if Democrats win two run-off Sen- Nothing to see here ernment’s non-partisan procurement ate elections in Georgia, thus flipping con- agency, issues an “ascertainment” letter, trol of the chamber. Mitch McConnell, the which gives the incoming president’s tran- Republican leader in the Senate, may not sition team access to federal funds and want to concede a pre-emptive victory to space, within 24 hours of an election being the Biden administration. WASHINGTON, DC called. Emily Murphy, whom Mr Trump ap- Republican elites indulge Donald A virus spreading fast with no compen- pointed gsa head in 2017, has yet to do so. Trump’s alternative election fantasy sating stimulus would be a brutal starting White House officials note precedent from position for a Biden administration. Even mong republicans’ favourite griev- 2000, in which a disputed election delayed with expedited approval and distribution, Aances over the past four years is a claim the start of a transition until December. getting a vaccine to every American who that Democrats never accepted the results Then the election hinged on just 537 needs it would take months (see Briefing). of the 2016 election. In fact, nine hours votes in a single state, Florida. Of the five Mr Biden has announced plans to take after the Associated Press called the elec- states where the Trump campaign has filed more serious federal action. He has named tion for Donald Trump, Hillary Clinton post-election lawsuits—Nevada, Arizona, Ron Klain, who co-ordinated Obama White took to a much smaller stage than she had Michigan, Georgia and Pennsylvania—Mr House’s response to an Ebola outbreak in hoped to command to say that she had Biden’s smallest margin of victory is over 2014, as chief-of-staff. Mr Biden would use “congratulated Donald Trump, and offered 11,000 votes (in Arizona). His lead in Michi- his executive authority to create a Roose- to work with him on behalf of our country.” gan is nearly 150,000 votes. His campaign veltian Pandemic Testing Board to compel Soon afterward, then-President Barack has produced no evidence of fraud or irreg- companies to produce more tests, labora- Obama said he would “make sure that this ularities large enough to shift tens of thou- tory materials and personal protective is a successful transition...we are now all sands of votes in multiple states. equipment. He probably lacks the author- rooting for [Mr Trump’s] success in uniting A few prominent Republicans, notably ity to impose a mask mandate nationwide, and leading the country.” Democrats may senators Mitt Romney, Susan Collins, Lisa but would push states to do so. not have liked the result, but they did noth- Murkowski and Ben Sasse, have acknowl- Most Republican governors are already ing to prevent Mr Trump from taking office. edged Mr Biden’s victory. Other senators wary about implementing public-health Things have gone differently this time. have implicitly done so. Roy Blunt noted measures. They might see the chance to The Associated Press called the election for that Mr Trump’s legal challenges will prob- defy Mr Biden’s recommendations as an Joe Biden on November 7th. Mr Trump has ably fail. Marco Rubio has urged the gsa to additional incentive to stay that course. spent the time since insisting that he won begin its transition process. Democratic ones seem averse to a Euro- and tweeting evidence-free conspiracy Most have fallen back on, in the words pean-style response too. The ban an- theories. His campaign has filed lawsuits of Mitch McConnell, the Senate majority nounced by Phil Murphy, the Democratic in five states that Mr Biden won, and his ad- leader, defending Mr Trump’s “rights to governor of New Jersey, on indoor dining ministration has refused to co-operate look into allegations...and weigh his legal in restaurants between 10pm and 5am, with Mr Biden’s transition team. And al- options”. Some Republican senate staffers typifies the urge to do something, but not though four Republican senators have con- explain this reticence by saying that allow- too much. gratulated Mr Biden and his running-mate, ing the courts to rule in these cases will In her vice-presidential debate with Kamala Harris, most elected Republicans build trust in the result. Larry Hogan, Mike Pence, Kamala Harris expressed some have remained quiet or supported Mr Maryland’s anti-Trump Republican gover- distrust in the imminent vaccine Mr Trump’s effort to challenge the result, an nor, calls his party’s response “a train Trump had been hyping ahead of the elec- effort which looks doomed to failure. wreck,” but says that behind the scenes, a tion. “If the doctors tell us we should take growing number of Republicans have “had it, I’ll be the first in line to take it. Absolute- some pretty frank conversations with him, ly. But if Donald Trump tells us to take it, and he doesn’t seem to be listening.” I’m not taking it,” she said. Republican vot- So far, Mr Trump’s lawsuits have fared ers offered a new vaccine by President Bi- poorly. But as long as he keeps fighting, den might be similarly sceptical. Already, most Republicans see more political risk in 33% of Republicans tell pollsters that they accepting Mr Biden’s victory—and thus in- would not take a coronavirus vaccine when viting the wrath of Mr Trump—than in hu- it becomes available, compared with 18% of mouring him. Another goal of his lawsuits Democrats and 31% of independents. may be to raise just enough doubt about the While campaigning, Mr Trump liked to outcome in key states to pressure Republi- talk about covid-19 as though it were al- can-held state legislatures to put forth most over. “It is disappearing” he said on their own sets of electors, substituting October 10th, shortly after contracting it their will for the voters’. himself. “We are rounding the corner,” he And continuing to fight keeps the pres- argued on October 22nd. The assessment of sure on other Republicans. Brad Raffen- Mr Biden’s transition team is more in tune sperger, Georgia’s secretary of state, has ac- with reality, which is a good start. “Our ceded to the Trump campaign’s demand for country is facing an unprecedented time a hand recount, to be conducted by all of with covid-19 cases accelerating nation- Georgia’s 159 counties at taxpayer expense. wide,” says Marcella Nunez-Smith, a Yale Recounts rarely change more than a few epidemiologist who is co-chairing Mr Bi- hundred votes, but Georgia’s will be diffi- den’s advisory board. Anyone who hopes cult to complete before the state’s certifica- the virus will go away once America in- tion deadline of November 20th—particu- stalls a president who follows scientific ad- larly for the state’s larger and more vice is likely to be disappointed. 7 A new lost cause Biden-friendly counties. That, in turn, 1 The Economist November 14th 2020 United States 37

2 raises the risk of the state legislature ap- took pride in his record of standing up to pointing a Trump-friendly slate of electors. the president, asking: “Who’s pushed back Mr Trump’s administration has also more than anybody? Name another Cabi- backed him. Asked about transition plans net secretary that’s pushed back.” He went at a briefing on November 10th, Mike Pom- on: “I could have a fight over anything, and peo, the secretary of state, made what I could make it a big fight, and I could live seemed to be a joke about “a smooth transi- with that—why? Who’s going to come in tion to a second Trump administration”. behind me? It’s going to be a real ‘yes man’. One day earlier Mr Barr, who previously And then God help us.” compared line prosecutors to preschool- Mr Esper’s fears are not unfounded. Like ers, authorised them to investigate allega- Mr Tata, many of the Pentagon’s new lead- tions of electoral irregularities. ers are better known as partisan ideologues Mr Trump is fundraising on the back of than serious policy wonks. Kash Patel, the his refusal to concede. His campaign sends new chief-of-staff, worked for Devin out several texts each day, warning that Nunes, a fervently pro-Trump congress- “the Left will try to steal this election”, and man. In 2018 Mr Patel sought to discredit urging recipients to “step up & fight the fbi investigation into Mr Trump’s ties back” by sending cash—most of which will to Russia. Ezra Cohen-Watnick, the new in- go to a Trump’s political action committee. telligence chief, worked for Michael Flynn, Going along with it makes some sense Mr Trump’s first national security adviser, for elected Republicans, at least in the who later plead guilty to lying to the fbi. short term. Most of their voters like Mr Christopher Miller, picked to succeed Trump more than they like their congress- Mr Esper, carries less political baggage—he man or senator. In the medium term, served for three decades in the army, retir- though, if the party wants to get back into Yesper? No sir ing as a colonel in 2014—but has little expe- the business of winning over a majority of rience. He led the National Counterterror- Americans it needs to move past him. This terminated”, tweeted Donald Trump on ism Centre for less than three months. will become harder if Republican elites November 9th. That leaves a vacuum of ex- Before that, he was a lowly deputy assistant send their voters a signal that he is the perienced civilian leadership just as Amer- secretary of defence with responsibility for rightful president, rather than Joe Biden. ica plunges deeper into a political crisis. special forces. It is not clear why he has su- Republican timidity risks long-term Mr Esper’s dismissal was not out of the perseded David Norquist, Mr Esper’s for- damage. Mr Pompeo’s hilarious gags may blue. When protests over racial injustice mal deputy, as federal statute demands. Be- hamper American diplomats’ work on rocked the country in June, Mr Esper had cause he has been retired for less than transitions of power in younger democra- outraged protesters first by encouraging seven years, he may also require a waiver cies abroad. At home, Mr Trump’s doubt- governors to “dominate the battlespace” from Congress. sowing about the election has damaged and then by appearing alongside Mr Trump “This is a legal move, but it is not a wise Americans’ faith in their own institutions. in Lafayette Square in Washington, dc, one,” says Peter Feaver, an expert on civil- The most recent Economist/YouGov poll shortly before the area was forcibly cleared military relations at Duke University who shows that 86% of Mr Trump’s voters be- of peaceful demonstrators. Mr Esper quick- served in Bill Clinton’s and George W. lieve Mr Biden’s victory to be illegitimate. ly apologised for his bellicose language Bush’s administrations. “Normally, ad- Mr Trump will leave office on January 20th, and—contradicting the president—said ministrations are begging the talent to stay but the distrust he has sowed will not. 7 that he did not support invoking the Insur- through the lame-duck session so they can rection Act, a centuries-old law that would continue to govern responsibly.” Mr Bi- allow the domestic use of federal forces to den’s transition team will have to deal with Firings and hirings put down unrest. Mr Trump was furious at officials who have only just turned up that act of modest dissent. themselves. The change of leadership will Going, going, In July Mr Esper provoked the president also disrupt the department’s budget sub- further. First, he approved a promotion for mission for 2022, which is in preparation. Pentagone Lieutenant-Colonel Alexander Vindman, Perversely, the best-case scenario is that who as director for European affairs on the Mr Trump has cleaned out the Pentagon National Security Council had been a key “for the petty joy of settling a score”, as Mr witness during Mr Trump’s impeachment Feaver puts it. A more worrying possibility, Another Defence Secretary is sacked, hearing in November 2019 (Colonel Vind- entertained by some former senior defence probably for insufficient subservience man chose to retire). Then he issued an or- officials, both in and out of the Biden camp, nthony tata, a retired brigadier-gen- der that in effect banned the Confederate is that he is planning a radical policy move, Aeral, wrote in 2018 that Barack Obama flag, a symbol of the pro-slavery South in such as an accelerated withdrawal of was a Muslim “terrorist leader”. Shortly af- America’s civil war, from military facilities. troops from Afghanistan, Syria or Iraq. terward he accused John Brennan, a former Days later, Mr Trump insisted that “when The darkest scenario is that Mr Trump is director of the cia, of sedition, asking Mr people proudly have their Confederate consolidating control of America’s security Brennan to choose between “firing squad, flags, they’re not talking about racism…It forces to frustrate a peaceful transfer of public hanging, life sentence as a prison represents the South.” power. Insiders suspect that the heads of b*tch, or just suck on your pistol”. On No- That largely settled Mr Esper’s fate. In the cia and fbi may be fired next. Mark vember 10th Mr Tata was appointed policy August the president publicly belittled his Milley, the chairman of the joint chiefs of chief at the Department of Defence. defence secretary, calling him “Mark staff, America’s most senior uniformed of- His arrival was part of a wider clear-out Yesper” (having earlier dubbed him “Mark ficer, is said to be in the cross-hairs, too. “It which also ousted the Pentagon’s chief-of- Esperanto”). In an interview with the Mili- all has a terrible ‘burn it down’ on the way staff, intelligence chief—and the defence tary Times conducted on November 4th out feeling,” tweeted James Stavridis, a for- secretary himself. “Mark Esper has been and published after his firing, Mr Esper mer admiral and commander of nato. 7 38 United States The Economist November 14th 2020

Fox News and Donald Trump pers switched their support from the Con- servatives to Labour in 1997, he described it Season two is as “like two porcupines making love: very slowly and very carefully”. cancelled Fox is already having a prickly time. Outside one Arizona vote-counting centre, Trump fans chanted, “Fox News sucks!”. Despite reporting strong earnings on No- The conservative cable network vember 3rd, Fox Corp’s share price dipped. prepares for a spell in opposition “There appears to be something below the ith florida in the bag, at 11.20pm on surface that is torpedoing the stock,” wrote Welection night the party at the White Michael Nathanson, a media analyst. “That House was in full swing. Then Fox News, something might be the potential launch playing on large television screens around of a new Trump News Network.” the building, punctured the mood, calling Rival conservative channels that could Arizona for the Democrats—the first time a form the basis of such a venture are gleeful. network had projected a Republican state “Fox News viewers have been writing us to flip. Despite a complaint from the White and expressing frustration with the funda- House to Rupert Murdoch, Fox’s boss and mental shift…to a more liberal slant,” says one-time friend of the president, the Fox Charles Herring, head of One America decision desk did not budge. News, whose website has a story entitled: Fox has been the most reliable main- “Trump Won, Fox News Admitted Its Leftist stream-media ally of Donald Trump’s ad- Agenda”. “We’ve arrived at Waterloo, and ministration. Its hosts have given the pres- the battle is about ready to take place,” de- ident unchallenged airtime and amplified clares Chris Ruddy, head of Newsmax. Mr pro-Trump conspiracy theories from the Ruddy says revenues from advertising—for Rewilding the prairie internet. The relationship has been mutu- hearing aids, testosterone pills, hats that ally beneficial: since 2015 the network’s rat- prevent hair-loss, and so on—have dou- Where the wild ings have risen by one-third (see chart), bled in the past six months. and in the latest financial year Fox News Yet Fox looks buoyant. Even if Mr Trump things are and Business generated 80% of Fox Corp’s became the star of another network, the gross operating profit. Now, with the cred- damage would be to advertising, which its ready to roll on the Trump show, the net- makes up only about 30% of Fox News’s LEWISTOWN, MONTANA America’s answer to the Serengeti is work must figure out how to deal with the revenue. The rest comes from the fees cable spreading in Montana exit—and wrath—of its star. companies pay to carry it, and 90% of those Fox has influence like no other news deals are locked down for at least two years. eanna robbins and her husband, outlet. About 60% of Republicans watch it The Trump presidency has been a gift to Dranchers in a wild patch of central weekly, double the share of any other net- all news media. “It may not be good for Montana known as the Missouri Breaks, work. When the Pew Research Centre asked America, but it’s damn good for cbs,” Leslie fought a blizzard this week. They ploughed in September whether mail-in ballot fraud Moonves, its then-boss, remarked in 2016. through knee-deep snow, spending hours was a “major problem”, 61% of Republicans But if anything it has been better for the lib- to find a herd of black Angus cattle. Then, to who got their tv news from Fox agreed, eral rebels. msnbc has seen its ratings al- feed the cows, they had to dig out bales of compared with 23% of Republicans who most treble since 2015. The New York Times, buried hay. “We were trudging through got their news elsewhere. Mr Trump, a Fox leader of the resistance in print, has seen drifts, it’s hard work,” she says, but she rel- addict, hired its producers into the White subscriptions soar. Fox’s ratings under Mr ished every moment of it. “It has to be in House and sent staff in the other direction. Trump have been sky high, but its share of your blood,” she says. Her family have been But the lost election has broken the rela- the total was greater in the Obama years. ranchers in Montana for the past century. tionship. Prime-time hosts have largely The outrage business works better when Could anything chase her out? She dis- stuck to the White House’s script, Sean you’re not in power. 7 likes her neighbours. Abutting her sprawl- Hannity declaring that “it will be impossi- ing ranch on three sides is federal land that ble to ever know the true, fair, accurate is being incorporated into a wildlife park. election results.” But Fox’s news anchors Eyes right The American Prairie Reserve (apr) was have got gutsier. On November 9th Neil Ca- United States, viewers of cable television* founded as a charity in 2001 and aspires to vuto abruptly cut away from footage in By channel, average, m become the largest park in the Lower 48 which the White House press secretary was 1.5 states. Already it stretches over nearly claiming fraud. After the election was 420,000 acres (from 29 ranches it has Fox News called, Fox’s website’s headline read: 1.2 bought so far), and will eventually grow “Americans take to streets in celebration and stitch together another 2.75m acres of MSNBC after Biden projected to win White House”. 0.9 public land. Its aim is for prairie dogs, sage Other Murdoch-owned outlets, includ- CNN grouse, coyote, bighorn sheep and other ing the New York Post and Wall Street Jour- 0.6 species of native plants, birds and mam- nal, have taken a similar line. Mr Murdoch’s mals to thrive in a contiguous space the friendship with Mr Trump, like most of his 0.3 size of Connecticut. alliances, appears pragmatic. In 2015, Cable average† For environmentalists, scientists and ahead of the Republican primaries, he 0 the apr’s donors—notably wealthy Silicon tweeted: “When is Donald Trump going to 2015 16 17 18 19 Valley folk—this is a bold, market-friendly stop embarrassing his friends, let alone the Sources: Nielsen; *Total live and same-day audience experiment in massive conservation. The whole country?” When his British newspa- MoffettNathanson analysis †Excluding news area is precious: one of only four vast, tem-1 The Economist November 14th 2020 United States 39

2 perate, grassland ecosystems left on Earth The urban-rural divide more divided today than they were in 2016. (steppe land in Mongolia, Kazakhstan and Preliminary results also show that Mr Patagonia are the other three). This territo- City v hills Biden gained most ground in counties that ry of shortgrass prairie could become swung hardest toward Democrats between America’s answer to the Serengeti, along Barack Obama’s re-election in 2012 and Hil- the upper reaches of the Missouri River. lary Clinton’s failed bid for the White In the view of many ranchers, whose House in 2016. One possible explanation beef industry is worth $1.5bn annually in WASHINGTON, DC for this trend is the tendency for Democrats Our analysis of the results suggests a Montana, that is a grim prospect. They and Republicans to live among their own long-running trend has sped up worry about more ranch land disappearing kind. Americans are still sorting them- into the reserve. “They’d be idling 3.5m or a moment, it looked as if voters were selves into politically like-minded com- acres from food production,” complains Fstarting to find some common ground. munities, a movement noted by Bill Bishop Mrs Robbins. She helps to run a campaign In the weeks leading up to the elections on in “The Big Sort” published in 2008. For lib- against the “elite” apr, known as “Save the November 3rd, polls showed that many of erals, this means diverse, densely populat- Cowboy”. It opposes the sale of ranches to the fault lines dividing Democrats and Re- ed cities; for conservatives it is places that the reserve and argues that the Bureau of publicans—including age, race and educa- are mostly white, working-class and where Land Management is wrong to allocate fed- tion—were beginning to narrow. Even the the neighbours are a .22 round away. eral lands to it. Its placards, showing the gap between city dwellers and rural folk Such sorting has two major conse- silhouette of a big-hatted horserider in an seemed to be shrinking. According to a poll quences. Jonathan Rodden, a professor at orange sunset, are ubiquitous in central conducted by YouGov between October 31st Stanford University and author of “Why Montanan towns. and November 2nd, voters in rural areas fa- Cities Lose”, a book about geographic polar- A large one is in Lewistown, where the voured President Donald Trump over Joe isation, says that the partitioning of Ameri- apr will open a centre for tourists. Resi- Biden, his Democratic opponent, by a mar- ca by density has led to an underrepresen- dents sound less than keen. “We’re trying gin of ten percentage points. Four years tation of Democratic votes. Because the to preserve the ranching way of life against ago, this gap was 20 points. seats in the House of Representatives and a bunch of billionaires who came in and got But an analysis of the election results by the Senate are awarded on a winner-take- control”, says Kari Weingart. Her husband’s The Economist suggests that the partisan di- all basis, rather than in proportion to the family is unhappy that its old ranch has vide between America’s cities and open popular vote, they can end up skewing the been sold to the reserve. She says younger spaces is greater than ever. Preliminary re- allocation of legislative seats away from Montanans, unexcited by city ways, are sults supplied by Decision Desk hq, a data- the party whose voters are crammed into growing interested in farming again but provider, show that voters in the least ur- just a few states or congressional districts. struggle to find land. A rancher’s wife, banised counties voted for Mr Trump by a As Democrats cluster in cities, the system Joann Bristol, suspects the project is a ruse margin of 33 points, up from 32 points in reduces their political clout. It can be by outsiders to take over from locals. The 2016. (Specifically these are the bottom thought of as a natural gerrymander. spending power of the reserve is “scary” 20% of counties by population density. Geographic polarisation also hurts while promises of gains from tourism are Counties which are more than 10% Hispan- Democrats’ chances in the electoral col- “overblown” says another. ics, which shifted right for reasons unrelat- lege, America’s system of choosing its pres- Then there are long-standing fears of ed to density, have been excluded.) Mean- ident. In this year’s election, for example, dangerous animals. The odd prairie dog while, voters in the most urbanised Mr Biden will win the national popular may be cute, but ranchers long ago exter- counties—the top 20%—plumped for Mr vote by about five percentage points. But minated wolves, mountain lions and griz- Biden by 29 points, up from Hillary Clin- his margin in the “tipping-point” state that zly bears which threatened their stock. ton’s 25-point margin in 2016. More broad- ultimately gave him enough votes to win Now the apr wants them all back. Wolves ly, the greater the population density, the the election, Wisconsin, will be less than and bears may return on their own, from bigger the swing to the Democratic candi- one point. That four-point advantage for Canada or Yellowstone. The first 850 bison date (see chart). Even after controlling for the Republicans is the biggest in at least have already been reintroduced; they could other relevant demographic factors, such four decades. So long as Democrats contin- eventually number 10,000. Farmers worry as the proportion of whites without college ue to be the party of the cities, and Repub- bison could trample fences or spread a dis- degrees or Hispanics in each county, the licans the party of small-town and rural ease, brucellosis, to cattle. Worse could be data suggest that urban and rural voters are America, those biases will persist. 7 the impact of huge increases in elk num- bers. The apr wants 40,000 of them, ten- times more than now, to serve as tasty prey Big city blues for predators. Ranchers fear escaping elk United States presidential elections 2016-20 change in Democratic vote margin will chomp grass their own cattle need. By county* Percentage points Beth Saboe, of the apr, says complaints 15 are overblown. Land prices are rising in Circle size = 10 Montana, she agrees, but not because of the total votes, 2020 deep-pocketed charity. One recent factor is 5 that outsiders, fleeing cities because of co- vid-19, are keen on second homes or land in 0 Big Sky Country. Nor is the apr hostile to -5 agriculture, she says. It lets farmers, for now, graze 14,000 head of cattle on its land -10 and runs a company to sell bison meat. -15 With 63m acres in Montana for farming, it 0.1 1 10 100 1,000 10,000 also sees plenty of space for cowboys. No- Population density, 2020, people per km2, log scale where else in America, however, could host Sources: Decision Desk HQ; US Census Bureau; The Economist *Excluding those in which Hispanics exceed 10% of the population a prairie wildlife reserve of this scale. 7 40 United States The Economist November 14th 2020 Lexington A Democratic defeat in victory

If Joe Biden’s party cannot wrest power from the Republicans now, when ever will it? Democrat ran on socialism, “defund the police” or other leftist slo- gans, she notes. Any damaging impression to the contrary was confabulated by right-wing attack ads—which Democrats should therefore do more to counteract. Point by point, she is right. But as a proposed solution to the Democrats’ problems, it suggests that “aoc”, who won her own district in Queens by a comfortable 38 points, has little conception of how hostile the battlegrounds have become for Democrats. That chiefly reflects the imbalances in the electoral system, which mean that Democrats, the most popular party, need to filch votes from the other side in a way that less-popular Republicans need not. Democrats’ inflated—as it turned out—hope for this election was to ride an anti-Trump wave big enough to compensate for the over-representation of rural, conservative voters in the Senate and electoral college that is the cause of the imbalance. Some hoped the president’s unpopularity might even give them a big enough Senate majority to reform it. Instead, the Republicans’ structural advantage appears to have grown so large as to have dashed even the Democrats’ more modest expectation of power. Mr Biden is on course to win the election by more than 5m votes, but the presidency by less than 100,000 across a handful of increasingly conservative states. Wisconsin—the indispensable esides donald trump, the election’s big loser was the Demo- last component in his electoral-college majority, which he won by Bcratic Party. Having been predicted to win a governing trifecta, a whisker—is more than three points more Republican than the it retained its House majority with around six fewer seats, won the country at large. That is a measure of Mr Biden’s achievement; it White House by a nerve-jangling margin and has probably fallen may also suggest how unrealistic it was for Democrats to have short in the Senate. Joe Biden can expect to sign little legislation as counted on adding Senate seats in even more conservative states. a result. He may be constrained in his cabinet appointments. If he If all the battlegrounds continued on their current electoral tra- nominated as attorney-general Stacey Abrams, the hero of his jectory, North Carolina and Texas, where they had such hopes, probable win in Georgia and a hate figure on the right, for example, might not turn Democratic until after the ageing, white rustbelt Mitch McConnell might give her the Merrick Garland treatment. has become so reliably Republican that Democrats will have lost Unlike the president, Mr Biden’s party is already reckoning their five Senate seats there. Having approached the election hop- with its failure. Bruised members of the centre-left—a faction that ing to win sufficient power to reform the system, Democrats are includes almost all the party’s candidates in the battleground now contemplating a bleak struggle to stay competitive in it. states—blame the activist left for making them seem radical and The early Democratic feuding is mainly a response to the grim- untrustworthy. The left, in particular its 31-year-old standard- ness of that prospect. Ms Ocasio-Cortez makes herself an easy tar- bearer, Representative Alexandria Ocasio-Cortez, is hitting back. get for the aggrieved centre-left. Her claim that Democrats mainly A leaked record of a meeting between House Democrats last need a better Facebook strategy is as dilettantish as the “defund the week—before Mr Biden’s victory had been called—included angry police” insanity she signally failed to disavow. The election also exchanges between the two groups, which have continued on so- suggests the left’s bigger idea to change the political tide, by wean- cial media and in the pages of the New York Times. Abigail Span- ing working-class voters off right-wing identity politics with pop- berger, a narrowly re-elected Virginian moderate, warned that the ulist economic policies, may be no more feasible. An electorate party must resolve among other things “to not ever use the word that has embraced Mr Biden personally but rejected his agenda as socialist or socialism again”. Ms Ocasio-Cortez, a proud democrat- too radical seems unlikely to warm to the left’s actual radicalism. ic socialist, responded by suggesting the centre-left losers didn’t Yet that was already off the menu, following Mr Biden’s thumping understand how to campaign on social media (unlike her, presum- win in the Democratic primaries. The dejection of battle-hardened ably, with her 10m Twitter followers). Moderates were outraged. moderates such as Ms Spanberger chiefly reflects the overthrow of Understandably so. The Democratic losses were in spite of a their more promising effort to break the partisan deadlock. huge cash advantage and against a Republican opponent that over the past four years appeared to have given up on governing. The Change the record Trump party passed no major law besides a tax cut. It has no If the left dreams of moving America with the power of its ideas, health-care policy. Yet Democratic candidates ran behind Mr Bi- the centre-left places its hope in compiling a solid governing re- den almost everywhere. And there are signs—beyond what Ms cord. The evidence of previous bouts of populism suggests there is Spanberger and other battleground Democrats heard from their no better way to re-establish the centre. It is also a bolder approach constituents every day—that the party’s perceived “radical left- than the Sandernistas allow. The Democrats’ historic weakness, ism” was a big reason why. The Democrats lost most ground with devastatingly exploited by the Tea Party movement, is its reputa- two groups that have a special loathing of socialism, Cuban-Amer- tion for defending bad government against small government. The icans and Venezuelans. Their shift to the Republicans cost the centre-left’s commendably daunting ambition is to compile a rep- Democrats two House seats in Florida and Mr Biden the state. utation for modern, effective government. But to do that, it must Ms Ocasio-Cortez says this is wrong because it is unfair. No have power. And Mr McConnell is likely to give it none. 7 SPECIAL REPORT: Asset management

→ November th   The industry outlook  Index funds  Agency problems  Capital allocation  Private markets  Venture capital  The Chinese future  Prescriptions

The money doctors ADVERTISEMENT

Setting the bar - the case for investing in gold

Gold has been the asset to own this The strong demand for the asset class has mean increasing allocations above the year. The first half of 2020 saw the been supported by its dual nature as both 10% threshold. price of the precious metal soar by an investment and a luxury good, says For investors wishing to add gold to their 16.8% in US dollars,1 outperforming Juan Carlos Artigas, head of research at the World Gold Council. portfolios there are a variety of options, most major asset classes and even including physical gold bars and coins, its own average return of around He explains that consumer demand is vaulted gold, Internet Investment Gold 10% per year 2 since 1971. procyclical, meaning it is positively linked (IIG), derivatives and gold-mining stocks. to the economic cycle. The investment The covid-19 pandemic has caused side, on the other hand, is countercyclical. Increasingly, investors are turning to gold- instability across global markets, raising As a result of these opposing forces, gold backed exchange-traded funds (ETFs)— the appeal of gold as a volatility hedge. remains in demand during both times of a liquid option for tracking the price of At the same time, the crisis has caused expansion and contraction in the economy. gold without physically buying it. In the central banks to U-turn on plans to tighten Looking ahead, Mr Artigas believes that first three quarters of 2020, gold-backed monetary policies, with the US Federal ETFs recorded global net inflows of “the combination of elevated risk and low 4 Reserve signalling its intention to keep opportunity cost will continue to support £42.9bn. interest rates at ultra-low levels until 2023. investment demand for gold”. The choice depends on an investor’s As a result, government bonds— In fact, research by the World Gold Council objective, time horizon and personal traditionally seen as safe-haven assets shows that adding a 2-10% allocation preferences. and portfolio diversifiers—have lost to gold within a well-diversified portfolio The wide variety of vehicles to invest their appeal while the opportunity cost can significantly enhance long-term in gold and its multiple advantages mean of holding gold has fallen significantly. risk-adjusted returns.3 The decision as the asset class suits a broad selection Coupled with its negative correlation to to how much to allocate within this range of investor objectives and can be a smart equity and bond markets, it is unsurprising should be based on the risk profile of an investment in all market conditions. that a growing number of investors are individual portfolio. turning to gold. The general rule of thumb is that the Visit goldhub.com/gold-for-individuals According to David Coombs, head of multi- riskier the portfolio, the more gold it to learn more about the case for asset investments at Rathbone Investment should include as a counterbalance and investing in gold Management, gold “has a place in a safeguard. Additionally, in today’s ultra-low portfolio now more than at any other point interest-rate environment, gold can act as since the 1970s”. a substitute to fixed income, which could

1 According to the World Gold Council’s Gold mid-year outlook 2020 2 In US dollar terms 3 The relevance of gold as a strategic asset, World Gold Council 4 Global gold-backed ETF flows data, World Gold Council Special report Asset management The Economist November 14th 2020 3

The money doctors

The asset-management industry is at last sorting the quacks from the true specialists, argues John O’Sullivan n march 1868 a prospectus appeared for a new kind of money- Imarket scheme. The Foreign & Colonial Government Trust would invest £1m ($5m at the time) in a selection of bonds. For £85 an investor could buy one of 11,765 certificates giving an equal share. The trust promised a 7% yield. Its aim was to give “the inves- tor of moderate means the same advantages as the large capitalist in diminishing the risk of investing…by spreading the investment over a number of different stocks.” The modern asset-manage- ment industry was born. A week later The Economist ran a leading article broadly wel- coming the new trust. But—setting the tone for 150 years of finan- cial punditry—it quibbled about the selected bonds. A chunk was allocated to Turkey and Egypt, countries that “will go on borrow- ing as long as they can, and when they cease to borrow, they will also cease to pay interest.” Fears were expressed that Europe was disintegrating. “In lending to Italy, you lend to an inchoate state; and in lending to Austria, you lend to a ‘dishevelled’ state; in both there is danger.” The trust was the brainchild of Philip Rose, a lawyer and finan- cial adviser to Benjamin Disraeli. His idea of a pooled investment fund for the middle class caught on. In1873 Robert Fleming, a Dun- dee-based businessman, started his own investment trust, the First Scottish, modelled on Rose’s fund but with a bolder remit. It was largely invested in mortgage bonds of railroads listed in New York. The holdings were in dollars, not sterling. And whereas Rose’s trust was a buy-and-hold vehicle, the trustees of the First Scottish reserved the right to add or drop securities as they saw fit. Rose’s trust survives to this day, but asset management is now a far bigger business. Over $100trn-worth of assets is held in pooled investments managed by professionals who charge fees. The in- dustry is central to capitalism. Asset managers support jobs and growth by directing capital to businesses they judge to have the best prospects. The returns help ordinary savers to reach their fi- nancial goals—retirement, education and so on. So asset manage- ment also has a crucial social role, acting as guardian of savings and steward of firms those savings are entrusted to. It is a business unlike any other. Managers charge a fixed fee on the assets they manage, but customers ultimately bear the full costs of investments that sour. Profit margins in asset manage- ment are high by the standards of other industries. For all the talk of pressure on fees, typical operating margins are well over 30%. Yet despite recent consolidation, asset management is a fragment- ed industry, with no obvious exploitation of market power by a few large firms and plenty of new entrants. In many industries firms avoid price competition by offering a product distinct from their rivals—or, at least, that appears dis- tinctive. Breakfast cereal is mostly grain and sugar, but makers of- fer a proliferation of branded cereals, with subtle variations on a theme. Asset management is not so different. Firms compete in marketing, in dreaming up new products and, above all, on their skill in selecting securities that will rise in value. The industry has not performed well. Ever since a landmark pa- per by Michael Jensen in 1968, countless studies have shown that managers of equity mutual funds have failed to beat the market in- dex. Arithmetic is against them. It is as impossible for all investors to have an above-average return as for everyone to be of above-1 4 Special report Asset management The Economist November 14th 2020

2 average height or intelligence. In any year, funds, run by computers, that track bench- some will do better than the index and Passive aggression mark stock and bond indices. The indus- some worse. But evidence of sustained out- United States, fund flows, $bn try’s big winners have been indexing performance is vanishingly rare. Where it giants whose scale keeps costs down and exists, it suggests that bad performers stay Active Passive fees low. The two largest, BlackRock and bad. It is hard to find a positive link be- 800 800 Vanguard, had combined assets under tween high fees and performance. Quite the management of $13.5trn by the end of 2019. 600 600 opposite: one study found that the worst- The losers were active managers that try to performing funds charge the most. 400 400 pick the best stocks. Why do investors put up with this? One 200 200 High fees have not disappeared. The explanation is that investment funds are boom in passive investing has spawned its more complex than breakfast cereals. At 0 0 antithesis: niche firms, run by humans, in best they are an “experience good” whose -200 -200 thinly traded assets charging high fees. A quality can be judged only once consumed. growing share of assets allocated by big But they are also like college education or -400 -400 pension funds, endowments and sover- medical practice: “credence goods” that 20*152009 20*152009 eign-wealth funds is going into privately buyers find hard to judge immediately. Source: Morningstar *To September traded assets such as private equity, prop- Even well-informed investors find it tricky erty, infrastructure and venture capital. to distinguish a good stockpicker from a What has spurred this shift is a desperate lucky one. Savers are keen to invest in the latest “hot” funds. But search for higher returns. The management of private assets is an studies by Erik Sirri and Peter Tufano in the 1990s show that, once industry for boutiques rather than behemoths. But it has its own fund managers have gathered assets, those assets tend to be sticky. big names. A quartet of Wall Street firms—Apollo, Blackstone, Car- They are lost only slowly through bad performance. lyle and kkr—have captured much of the growth in assets allocat- Firms have a fiduciary duty to act in the best interest of custom- ed to private markets. ers. Securities regulators (eg, the Financial Conduct Authority The shake-up in asset management owes a lot to macroeco- (fca) in Britain and the Securities and Exchange Commission (sec) nomics. The investors who snapped up certificates in Rose’s trust in America) oversee asset managers. Unlike banks, which borrow were dissatisfied with 2% interest in the money markets. Today in- from depositors and markets, asset managers are unleveraged and vestors would sell their grandmothers for such a yield. Interest so not subject to intensive rules. The assets belong to beneficial in- rates in parts of the rich world are negative. In Germany and Swit- vestors; they are not held on a firm’s balance-sheet. The thrust of zerland, government-bond yields are below zero across the curve, regulation is consumer protection from fraud and conflicts of in- from overnight to 30 years. Inflation is absent, so ultra-low inter- terest. It does not prescribe investment strategies or fees. An in- est rates are likely to persist. The expected returns on other as- vestigation by the fca in 2016 found that investors make ill-in- sets—the yields on corporate bonds, the earnings yields on equi- formed choices, partly because charges are unclear. The problem ties, the rental yield on commercial property—have accordingly of poor decision-making is most acute for retail investors. But been pulled down. The value of assets in general has been raised. even some institutional investors, notably those in charge of small The steady decline of long-term rates is a nightmare for pen- pension schemes, are not very savvy. Around 30% of pension sion funds, because it increases the present value of future pen- funds responding to a survey by the fca required no qualifications sion promises. Industry bigwigs often blame the Federal Reserve or experience for pension trustees. Investors are a long way from and other central banks. But interest rates have been falling steadi- the all-knowing paragons of textbook finance theory. ly since the 1980s. There are deeper forces at work. The real rate of return is in theory decided by the balance of supply and demand Medical manners for savings. The balance has shifted, creating a bonanza for asset A paper in 2015 by Nicola Gennaioli, Andrei Shleifer and Robert managers, whose fees are based on asset values. Vishny argued that fund managers act as “Money Doctors”. Most There are competing explanations for the savings glut. Demo- people have little idea how to invest, just as they have little idea graphy is one: people are living longer, but average working life has how to treat health problems. A lot of advice doctors give is generic not changed much. More money must be salted away to pay for re- and self-serving, but patients still value it. The money doctors are tirement, with much of the saving taking place in the years of peak in the same hand-holding business. Their job is to give people the earnings in middle age. A bulge in the size of the middle-age cohort confidence to take on investment risk. has pushed the supply of savings up. Another factor is the growth In asset management, as in medicine, manner and confidence of China and other high-saving emerging markets. At the same are as important as efficacy. “Just as many patients trust their doc- time, the demand for savings has fallen. When Robert Fleming set tor, and do not want to go to a random doctor even if equally qual- up his investment trust, enterprises like railways were capital-in- ified, investors trust their financial advisers and managers,” say tensive. Today the value of firms lies more in ideas than in fixed Mr Shleifer and his co-authors. This may explain why investors capital. Big companies are self-financing. Small ones need less stick with mutual-fund managers even in capital to start and grow. The upshot is that more money is chasing the face of only so-so performance. As long fewer opportunities. Investors are responding by trying to keep as asset prices go up, a rising tide lifts most fund-management costs down and putting more money into priv- boats in the asset-management industry— In asset manage- ate markets in hopes of higher returns than in public markets. This including a lot of leaky vessels. ment, as in medi- response is reshaping the asset-management business. But the seas are getting rougher. Over This special report will consider the outlook for the industry the past decade, investors have placed cine, manner and and ask what it means for the economy, for the stewardship of more capital with low-fee “passive” funds. confidence are firms, for capital allocation and for savers who place their trust in These funds invest in publicly listed stocks as important as the money doctors. It will examine whether China’s untapped or bonds that are liquid—that is, easy to efficacy market can be a source of renewed growth. A good place to start is buy or sell. The most popular are “index” with the forces shaping the industry’s elite. 7 The Economist November 14th 2020 Special report Asset management 5

as it is known) for a few basis points. Indeed, “beta is becoming Index funds free” is an article of faith among industry bigwigs. Technology al- lows access to stockmarkets at vanishingly low cost. BlackRock and State Street Global Advisors, the other firms of a leading trium- Passive attack virate, owe their growing heft to index (or “passive”) investing. These three are the industry’s big winners; everyone else is “fight- ing for scraps”, as the boss of a midsized asset manager puts it. These firms benefit from a virtuous circle, in which lower costs mean lower fees, more inflows and yet lower costs. Their domi- How index investing is reshaping the asset-management industry nance is only the most salient sign of consolidation in the asset- he story of a quiet revolution in asset management begins management industry. The biggest firms are getting bigger. A glo- Twith Jack Bogle. Actually, it starts in 1974 when Paul Samuelson, bal elite has emerged of firms that each manage more than a tril- an economist and Nobel prizewinner, published an article in the lion dollars in assets. Unsurprisingly the idea has taken hold that Journal of Portfolio Management arguing that the bulk of mutual- size is a strategic advantage. If you are not a niche player in an in- fund managers should go out of business. Most failed to beat the dustry, you had better be a scale one, says business-school wis- market average and those that did could not be relied upon to re- dom. No one wants to be stuck in the middle. peat the trick. An archetype was required. Someone should set up a Bigger is not always better in asset management. A point ar- low-cost, low-churn fund that would do nothing more than hold rives when size becomes a spoiler of performance. The portfolio the constituents of the s&p 500. Mr Bogle decided that Vanguard, manager may lose focus. The size of the fund begins to push up the mutual-fund group he founded in 1975, should take up the trading costs, notably in illiquid assets in which the buying and challenge. His index fund was denounced on Wall Street as un- selling of large tranches tends to move prices adversely. But asset American. It received only a trickle of inflows. But by the time of managers benefit from operational gearing. As the value of man- Bogle’s death last year, Vanguard was one of the world’s biggest as- aged assets goes up, profits rise even faster. Fees are a fixed per- set managers, largely on the strength of its index funds. centage of assets under management: the bigger the fund, the An investor can now buy exposure to the market return (beta, higher the revenues. But costs—mostly the wages of research an-1

Double trouble

The trouble with delegating choices about what to invest in omeone wise once said that all the such agency costs. A classic paper pub- buy discounted shares once their price Sproblems of capitalism are agency lished in 1976 by Michael Jensen and Wil- reaches a predetermined target. Stock problems. Agency costs arise when liam Meckling argued that loading a public options, it is argued, make managers act as somebody (the principal) delegates a task firm with debt was a useful device to stop if they were shareholders. Yet this device to somebody else (the agent) and their managers frittering away shareholders’ just creates a different sort of agency prob- interests are at odds. In the textbook cash. Bosses feel greater pressure to cut lem. Traders of shares use quarterly earn- example, the principal is a manager, the costs and raise revenues if they must meet ings as a rough-and-ready guide to how agents are employees. It is in the manag- regular interest payments. The leveraged well a company is run. Managers know er’s interest that the agent works hard. buy-out boom of the 1980s was predicated this. So they eschew investment projects The more effort each worker puts in, the on the idea of debt as a tool to focus the that are in the long-run interests of share- higher the firm’s output and the greater minds of managers. Private-equity firms holders in order to boost short-term pro- its profits. But the employer cannot employ this trick. fits, lifting the share price and the value of gauge the true effort of the workers, Another way to limit this sort of agency their stock options. especially if the results are a team effort. problem is to give managers the right to The second agency problem arises from Each worker has an incentive to shirk. conflicts of interest between asset manag- Asset management has a double ers and those on whose behalf they invest. agency problem. The first lies with the It is in the interests of investors that asset separation of ownership and control in managers seek out the best long-term large public companies. Shareholders are returns. But fund-management firms are the principals, who delegate running the paid a fixed percentage of the value of firm to managers. Shareholders care assets. To attract capital into their funds, about returns on their investment, but they may opt for faddish stocks that do managers have different goals. They may well in the short term, but whose short- value perks and prestige—a plush office, comings become apparent only in the long a company jet, a high-profile merger run. They may shun unfashionable stocks, deal—more than profits. Running a big even if they believe they are good long- company is a complex task. It is hard to term investments. Once an asset manager be sure if the bosses are making a good has captured funds to manage, they tend to fist of it. No individual shareholder has a stay. A good recent run will lure in more big enough stake to make the effort of funds. This agency problem has no easy monitoring worthwhile. solution—but investors could be quicker Mechanisms have emerged to limit to ask searching questions. 6 Special report Asset management The Economist November 14th 2020

2 alysts, office space, marketing and so want to understand their whole portfolio on—do not rise in lock-step. The trillion-dollar club of assets (to get a sense of how diversified it Scale is both a friend and an enemy, says Global assets under management, 2019, $trn is); to push fees down by concentrating Manny Roman, boss of pimco, a giant Asset managers with more than $1trn under management their buying power; and to have a long- fixed-income manager. If you have a lot of 0 2 4 6 8 term relationship with asset managers. exposure to bad positions, it is hard to es- BlackRock That means cutting the number they use. cape. But buying at scale can also mean Vanguard So managers offering the full spectrum of keener prices—on new corporate-bond is- State Street Global Advisors products (stocks, bonds, property, private sues or from a seller looking to get out of a Fidelity Investments assets and so on) will have an edge. This big position. There are other advantages. Allianz Group trend towards fewer managers is happen- Research capabilities and technological JPMorgan Chase ing on the retail side as well. The prolifera- muscle can be spread over a large number Capital Group tion of funds sows confusion. There is too of similar markets and securities. BNY Mellon much choice. So the retail gatekeepers— Industry types distinguish between the brokerages, online platforms and mo- PIMCO manufacturing (managing assets) and dis- bile apps—are starting to cut back the Goldman Sachs tribution (selling funds to retail investors). number of funds they carry. Amundi Fidelity, a family-owned Boston-based If index funds and etfs are winning in- Legal & General giant, does both. Scale matters in retail dis- vestors, who is losing them? One way to in- Prudential Financial tribution, where brand is important. In in- fer this is the spread of fees. The more liq- dexing there is also a real scale advantage, UBS uid the assets, the greater the fee pressure. says Cyrus Taraporevala, of State Street Glo- BNP Paribas The managers of so-called “core” active bal Advisors. Index funds hold stocks in Northern Trust funds, generally large-company shares proportion to their market capitalisa- Invesco listed in rich-world stockmarkets, have tion—by the value weighting in the index. T. Rowe Price seen fees fall towards the indexers’ level. It Trading costs are tiny. The fund buys a Wellington Management is hard to categorise but industry wisdom stock when it qualifies for the index (as a Morgan Stanley is that “closet indexers” are gradually being handful of new ones do each year) and sells Wells Fargo winnowed out. These funds are ostensibly any that drop out. In between it simply AXA “active” (ie, they are stockpickers) but they holds them. The market for large-capital- Nuveen manage their portfolios to ensure that isation stocks is liquid enough to absorb Natixis Investment Managers their performance does not deviate much sales or purchases whenever index funds Aegon from the index. need to match inflows or redemptions. The Sources: Thinking Ahead Institute; Pensions & Investments 500 For all the talk about polarisation, the marginal cost of running an ever-bigger change in asset management is not that fund is trivial: it just requires a bit more dramatic. The squeezed middle—firms in computing power. There are no expensive portfolio managers. the top 250 but outside the top 20—have lost around five percent- Beta is not the only passive strategy. Trillions of dollars are also age points of market share since 2005. But they retain a 50% share. invested in “factor-based” or “smart-beta” strategies. These rely on Inflows follow performance, but outflows do not. Investors are re- powerful computers to sort stocks by characteristics, such as low markably conservative. For individuals, a move from one mutual price-to-book (“value”) or high profitability (“quality”), that have fund to another often triggers capital-gains tax. Institutional in- been shown to beat market averages in the long run. The churn in vestors suffer from inertia, or perhaps from a failure of nerve. these portfolios is higher than for index shares. But the analysis What if your underperforming active managers suddenly improve and trading are automated. Increasingly bond investing is going after you drop them? As a consequence, says an executive at a big passive, too. The value of bonds held in exchange-traded funds (or asset manager, the industry’s market structure “forms like stalac- etfs, baskets of securities listed on an exchange like company tites and stalagmites—drip by drip”. shares) passed $1trn last year. The largest bond etfs track an index, In any other industry, mergers would speed up the sorting into such as the Bloomberg-Barclays Aggregate, and are often more liq- scale and niche. There has been a spate of tie-ups in recent years: uid than the individual bonds they contain. Factor-based bond Standard Life and Aberdeen Asset Management in Scotland; the etfs are also growing in popularity. marriage of Janus, an American outfit, with Henderson, a British The growth of the big three passive managers is part of a trend one; Invesco and Oppenheimer; and Franklin Templeton and Legg towards greater industry concentration. Of assets managed world- Mason. None has been a roaring success. Perhaps that is not sur- wide by the industry’s leading 500 firms, prising. In an industry where human capi- the proportion managed by the top 20 firms tal plays a big role, it is not easy to find cost has risen from 37% in 2005 to 42% now. But savings. People are not as fungible as of- the search for scale economies to offset The sticky middle fices. Integrating it systems is a headache. pressure on fees is not the only factor be- Top 500 managers, assets under management Corporate-culture clashes are common. hind this. The bigger fund-management % of total There is a risk of losing clients if things go groups increasingly look to offer expertise 806040200 100 wrong—and even if they don’t. New clients across asset classes, from large-cap equi- will steer clear while a merger is pending. ties to private assets. A lot of asset manag- Top 20 21-250 251-500 Despite the pitfalls, the merger wave ers, including BlackRock, are betting on the 2010 managers continues. Morgan Stanley recently ac- benefits of scope as much as scale. quired Eaton Vance to fold into its asset- The heads of big pension funds now management business. Nelson Peltz, an want three things, says David Hunt, boss of 2019 activist investor, has taken biggish stakes pgim, the asset-management arm of Pru- in Janus-Henderson and Invesco with a dential Financial, an insurance giant. They Sources: Thinking Ahead Institute; Pensions & Investments 500 view to pursuing mergers. The industry 1 The Economist November 14th 2020 Special report Asset management 7

2 seems set for a shake-up. A bold response for a midsized firm Both matter. Search matters in the early stages of economic de- would be to downsize: strip back to the core; cut prices; offer fewer velopment, when ideas are abundant, businesses are capital-in- products; and focus on those in which one has a chance to be dis- tensive and savings are scarce. The late 19th century was such a tinctive. In a different industry Steve Jobs followed something like time. In New York, Fleming’s hunting-ground, most bonds were this strategy when he returned to Apple in 1996. Apple was fighting for railroad companies. In Britain, brewers, distillers and miners for its survival, however. Things are not that desperate in asset were also thirsty for capital. In 1886 Guinness, a century-old beer management. The fee pressure on new business is intense, but a company, raised £6m in London. A few years later shares in the lot of existing customers will stay put. A mediocre firm with a big Broken Hill Proprietary Mining Company (bhp), which began trad- back-book can stay alive for quite a while. ing in Australia, were owned and exchanged in London. Perhaps that explains all the talk of “zombie” asset managers— When search works well and capital runs to “where there is firms from which life is slowly draining as their initially fat mar- most to be made of it”, relevant information is quickly reflected in gins grow ever thinner. Is there another means of escape? The vir- asset prices. The case for index investing rests on the idea that the tue of passive funds is their low cost; they buy stocks in the index stockmarket is, in this sense, broadly efficient. Prices are set by in- or whatever the quantitative screen prescribes. There is no need to formed buying and selling by active and engaged investors. But as think deeply about the companies behind the securities. But that more money goes to index funds, the market might become less ef- virtue is also a vice. Investors increasingly care about what compa- ficient. Whether it does rests in theory on the quality of investors nies do. And many active asset managers hope there might be a liv- being displaced. If they are “noisy” active managers, who buy and ing from that. 7 sell on gut feel, expect more efficiency, not less. If they are farsight- ed stockpickers, the quality of market prices might suffer. Some empirical studies hint at a problem. A paper in 2011by Jef- frey Wurgler finds that whether a share is part of an index influ- Capital allocation ences its price. Shares that are included in an index go up in value relative to similar shares that are not. When shares drop out of an index, they tend to fall disproportionately. And once in the index, a Stewards’ inquiry share’s price moves more in sympathy with others that are also in- cluded. Another paper, by researchers at the University of Utah, finds that index inclusion leads to a higher correlation with index prices. Inclusion also spurs a reduction in “information produc- tion”: fewer requests for company filings, fewer searches on Goo- If investors buy index funds, who watches the companies? gle, and fewer research reports from brokerages. Even so, the au- obert fleming has a claim to be a pioneer of active asset man- thors conclude that more intensive effort by the remaining active Ragement. His First Scottish investment trust pledged to invest investors may counter any adverse effects. mostly in American securities, with choices informed by on-the- Share prices may no longer matter so much for how capital is ground research. Fleming saw that shareholders needed to act as allocated. Most big companies are nowadays self-financing. Guin- stewards in the governance of the businesses that they part- ness (now Diageo) and bhp are still among the leading stocks list- owned. So once the fund was launched, in 1873, he sailed directly to ed in London. Like a lot of businesses, they generate enough cash America. It was the first of many fact-finding trips across the At- to cover their investment needs. When a company taps the capital 1 lantic over the next 50 years, according to Nigel Edward More- croft’s book, “The Origins of Asset Management”. The art of asset management is capital allocation. It is easy to miss this amid confusing talk of alpha and beta, active and passive, private and public markets. For investors of Fleming’s kind the work of finding the best investment opportunities and engaging with business was inseparable. Walter Bagehot believed the rapid growth of the mid-Victorian economy owed much to the efficient channelling of capital. In England, he wrote, “Capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level.” Most of today’s financiers will say they are engaged in capital allocation. There are many dedicated stockpickers who take this social role seriously and see it as a vocation. But for the most part ties between suppliers and users of capital have become more ten- uous. An index fund does not screen the best stocks from the worst. It holds whatever is in the index. Other passive strategies se- lect stocks or bonds based on narrow financial characteristics. The nature of the entity behind the securities and how well the people running it perform their duties are incidental. Does such disen- gagement matter? Some evidence suggests that it might. To understand why, it helps to distinguish two functions of capital allocation. The first is to direct savings to their best use. This involves finding new opportunities, comparing their merits and deciding which should receive capital and on what terms. John Kay, a business economist, calls this role “search”. The sec- ond role is stewardship, ensuring that the best use is made of the capital stock that is the product of past investment. 8 Special report Asset management The Economist November 14th 2020

2 markets, it is usually to tidy up its capital structure (lengthening the maturity of debt, say, or buying back shares) or to build cash re- serves in times of stress, such as now. It is management teams that now do most to allocate capital. This makes stewardship more important. When it works, in- vestors engage with a firm’s managers to verify that the business is well run. The problem is that the incentives to be good stewards are weak. An asset manager that bears the cost of stewardship will capture only a small share of the benefits. A paper in 2017 by Lucian Bebchuk, Alma Cohen and Scott Hirst, a trio of law professors, found that asset managers mostly avoid making shareholder pro- posals, nominating directors or conducting proxy contests to vote out managers. Index funds are especially at fault. Their business model is to avoid the costs of company research and deep engage- ment. The law professors reckoned that the big three asset manag- ers devoted less than one person-workday a year to stewardship.

Bosses and agents The growth of index investing is likely to have raised the agency costs of asset management. Bosses may be either too timid or too lax, depending on the circumstances, to act in the best interest of shareholders. They may shun profitable projects because it is hard to persuade disengaged owners that the rewards justify the risks. Or they may be careless with shareholders’ money. Some research finds passive ownership aggravates these problems. A paper by Philippe Aghion, John Van Reenen and Luigi Zingales finds that companies with a larger share of active owners are more innova- tive. They find no such link between index ownership and innova- tion. Other research suggests that indexing makes it more likely that managers will pursue ill-judged mergers. Investors now care more about what they are investing in. The Private markets growth of environmental, social and governance (esg) investing, which selects companies on how they score on such matters, re- flects this. Some asset managers suspect esg is a fad, but many do not. An esg score will soon be a requirement, says one. It will even- Taking back control tually be as important to a firm as its credit rating, says another. “Sustainability” is increasingly seen as a risk factor for long-term performance. “If your firm is more sustainable, you will get the best people, customers and regulators,” says Christian Sinding, Privates are what listed assets are not: niche, illiquid and fee-rich boss of eqt, a Swedish private-equity firm. These are the firms you will want to own in ten years’ time, he adds. he notion of the “first 100 days” as critical for a new adminis- esg looks like a lifeline for active fund managers. “Active has a Ttration goes back at least as far as Franklin Roosevelt. He first big advantage over passive when it comes to esg,” says Ashish Bhu- used the term in a radio address in 1933, shortly after becoming tani, chief executive of Lazard Asset Management. Passive funds America’s 32nd president. Private equity has its own version. The can only tick boxes. Some environmental matters, such as a firm’s 100-day plan sets priorities for a bought-out business. The new carbon footprint, can be quantified, but others cannot. The social owner looks for “quick wins”—standard remedies for the most criterion requires qualitative judgment about a firm’s hiring prac- glaring operating problems. Fixes may include updating comput- tices, its efforts to reduce inequality or the broader impact of in- ing systems, slimming the array of products or closing loss-mak- vestment projects. Governance is somewhere in between. Good ing divisions. The plan also prescribes the easiest ways to raise analysts have a deep knowledge of companies and their manage- cash to pay off hefty debts used to acquire the firm. ment. They know things that are hard to quantify and cannot be The promise of private asset management (buy-out funds, priv- found on a financial statement or a boilerplate disclosure. ate debt, venture capital and so on) is that endurance will be re- The challenge for active managers is to show that sifting firms warded. Investors in private equity must lock up their money for by esg or any other qualitative criteria will make for better port- years; they cannot easily sell out. Big stakes in private assets trade folios that justify a fee premium over an index fund. A greater fo- quite rarely. But there is an upside. Private managers are able to eke cus on the long term would be welcome for both companies and out better returns than would be possible if their assets were their shareholders. It is a stretch to claim that active managers in traded each day. Investors in the public markets like predictable the main are great stewards. They are not. Most are (or at least have short-term profits and strategic certainty. They are too skittish to been) either transient owners, trading in and out of faddish stocks, invest in a corporate turnaround. If the boss of a listed company or closet index-huggers. unveiled a 100-day plan, it might spark a run on the shares. The best-performing stockpickers are both patient and strong That is the sales pitch—and plenty of investors buy it. Desper- in their convictions. They hold stocks for long periods in a concen- ate for returns, pension funds have piled into private markets in trated portfolio. It is in part a quest for these traits—commitment recent years. A survey by Morgan Stanley finds that 64% of institu- and patience—that has persuaded a lot of investors to flock into tional investors plan to increase their allocation to private equity private equity and other closely held assets. 7 this year and only 5% to reduce it—a net balance of 59%. The bal-1 The Economist November 14th 2020 Special report Asset management 9

2 ance for venture capital was 39%; for private debt, 33%. For listed might be sold to only a handful of lenders, or even to just one. Bor- assets, the balance was negative. Private markets are at the niche rowers may feel that they ought to know who their creditors are be- end of asset management. Only around $4trn or so is invested in cause they might have to renegotiate with them. That is the case private equity, about half of total assets under BlackRock’s man- for private-equity firms. Specialist private-credit funds also often agement alone. But private assets are where the fees are. The ques- prefer to be the sole financiers of a private-equity buy-out if they tion is whether performance and fees can be sustained. like the terms and judge the bought-out firm to be a good risk. They Of several influences behind the growing interest in private as- might even be the credit division of a buy-out outfit that has lost sets, three stand out. The first is the example of successful pio- the bidding war for the borrowing company. neers. In the1980s and1990s the endowment funds of a handful of big American universities shifted much of their invested funds Private lives into private assets. The largest retirement schemes in Canada, led Do the results justify the hype? Private equity uses a lot of debt to by the Ontario Teachers’ Pension Plan (otpp), have a similar ap- make its acquisitions. One suspicion is that allocation to private proach: run the plan like a business, pay for good in-house fund equity is simply a way for pension funds to get around constraints managers and invest in lots of private assets. This model has been on borrowing to enhance returns. But the buy-out industry has a copied by sovereign-wealth funds in other parts of the world. The decent story to tell on capital allocation. The academic literature intellectual leader of such investing was David Swensen, at Yale. finds that private-equity and venture-capital funds mostly add op- He argued that, since life-insurance funds, endowments and erational nous to businesses. They inspire better management sovereign-wealth funds have obligations stretching far into the fu- habits than in entrepreneur- or family-owned firms. Buy-outs lead ture, they can afford to take a long-term view. It is hard to be re- to modest net job losses but big increases in job creation and de- warded for diligence in listed stocks. Private markets, in contrast, struction. They promote efficiency by taking capital off “sunset” are inefficient. Data are hard to come by, assets are complex and firms and putting it into more promising “sunrise” firms. trickier to appraise and waiting for opportunities to pay off re- And returns? Asset managers are adept at presenting statistics quires patience. But the right homework brings rewards. in the most favourable light. Dud mutual funds are often quietly A second factor is disenchantment with public markets. The merged or folded. Managers can then claim that most of their1 age-old agency problem means that invest- inginprojectswithanuncertainpayoffcan be a career risk for managers of a listed business. It is easier to explain corporate Frogs and princes strategy to a few committed backers than to lots of shareholders. Founders of technol- More and more capital is chasing fewer and fewer ideas ogy firms who are used to getting their own way often struggle in the glare of public ho are the heirs of Robert Flem- competing to write big cheques for Sil- markets, and so prefer to stay private for as Wing, the 19th-century Scot who saw icon Valley’s next generation of stars. But long as they can. And the costs and hassle that America was the coming place to put unlike the railways, brewers, distillers associated with being a public company risk capital? The venture capitalists of and mines of the Fleming era, today’s have grown. The Sarbanes-Oxley act, Silicon Valley have the best claim. The new firms have no great need of capital. passed in 2002 in the wake of a slew of cor- businesses that loom largest in public A young technology firm can rent com- porate scandals in America, introduced equity markets—Amazon, Apple, Face- puting power from the cloud, download tougher disclosure and financial-reporting book, Google, Tesla and the rest—were basic software from the internet and use requirements for public companies. The nurtured by vcs. Venture-backed com- a range of cheap, outsourced services to regulatory requirements on private com- panies account for around a fifth of the help it grow. Startups are staying private panies are significantly lighter. And the market capitalisation of public com- for longer. When they list, it is because National Securities Markets Improvement panies in America and almost half their the founders need to cash out or (as with Act of 1996 made it easier to set up pools of research spending. The funds that un- the latest rash of tech ipos) when the private investors. earth such gems stand to make pots of money on offer in the public markets is A third factor is changes to banking. The money. vcs have on average (an impor- simply too good to turn down. It is not to growth of private debt is, in large part, a re- tant qualifier) beaten the public market raise capital for the business. sponse to the retreat of banks from lending net of fees over the long run. Very few new firms turn out to be to midsized businesses and their private- Most firms that receive vc funding world-beaters. Good ideas are scarce. But equity sponsors. Asset managers, starved fail. But the winner-takes-all nature of vc firms that have succeeded in the past of yield in the government-bond markets, technology markets means those that may have an edge in finding them. A are happy to fill the void. The bigger firms succeed often do so extravagantly. The vc study by Morten Sorensen finds that will even take souring loans off the books industry is at the frontier of capital allo- companies funded by more experienced of banks looking to clean up their balance- cation. The typical investor has to kiss a vcs are more likely to succeed. And sheets. In 2017 pimco, the fixed-income lot of frogs to find a prince (or even a sourcing the best entrepreneurial talent giant, led a buy-out of €17.7bn ($20bn) of decent-looking frog). The average vc firm is more important to success than the loans from UniCredit, an Italian bank. screens 200 targets, but makes only four development of that talent. There are likely to be more such deals in investments, according to a study in the In this sense the best venture-capital Europe. China is another potential hunt- Journal of Financial Economics. Part of the firms resemble elite universities. Be- ing-ground for distressed debt. added value, say its authors, is to im- cause the brightest turn up at their door, One of the fastest-growing areas of priv- prove the governance of startups and they are able to charge the highest fees. ate credit is direct lending to companies keep a watchful eye on management. And those fees are mostly for the accredi- which cannot (because they are too small) No wonder pension schemes, sover- tation and the social networks that the or will not (for reasons of confidentiality) eign-wealth funds and mutual funds are institution can offer. tap the public markets. A private bond 10 Special report Asset management The Economist November 14th 2020

2 funds beat the market—these being simply the funds that have China survived the cull of underperformers. The private-equity business is notorious for selecting metrics that flatter its performance. Nonetheless, over the long haul, the best private-equity funds do really well. A landmark study led by Steven Kaplan, of the Univer- The Shanghai Open sity of Chicago, found that venture-capital and buy-out funds, on average, beat the s&p 500 index over the long term. The range was wide. Funds in the top quartile did much better than average; those in the bottom quartile did a lot worse. Pension-fund managers fac- The future of finance is Chinese. But what will it look like? ing big deficits have an incentive to put money into private assets in the hope that their fund will be one of the winners. sset management is mostly a rich-world affair. North Amer- As more capital chases opportunities, the evidence points to di- Aica, Europe, Australia and Japan between them account for minishing returns. Mr Kaplan and his colleagues find that returns around three-quarters of assets under professional management. in the buy-out industry beat the stockmarket in nearly all years be- The United States is far and away the single most important mar- fore 2006, but broadly matched the s&p 500 afterwards. Private- ket. America sets the tone for capital markets everywhere else. Glo- equity funds used to buy businesses that were cheaper than listed bal trading starts when New York opens. firms. But the competition is keener now. The bigger beasts of priv- Yet just as London gave way to New York after economic su- ate equity are becoming even bigger. They have large fixed costs— premacy passed from Britain to America, so it is not hard to imag- all those in-house rainmakers, lawyers, analysts and consultants. ine a future when the global trading day will begin in Shanghai. With so much capital yet to draw from their pension-fund part- China already has the world’s second-largest economy. Its heft in ners, the pressure to do deals that might once have been shunned global finance lags, but it is putting much effort into catching up. It has increased. has opened its mainland markets to foreign investors in shares Investors need to be cautious. “Focus and bonds. It is relaxing regulations to allow foreign asset manag- and selection are very important” in priv- ers to operate more freely. Asset management is growing faster in ate markets, says Jo Taylor, ceo of the otpp. Over the long Asia than in the West. The industry’s balance of power is shifting His fund is big enough, with C$200bn haul, the best inexorably. Time, size and momentum are on China’s side. ($150bn) under management, to do its own What is not clear is precisely how asset management will devel- buy-outs. This gives it a big advantage in private-equity op in China. No asset manager can offer a global service unless it choosing good managers as well as deals. funds do has a footprint in China and across Asia. If you are selling Chinese In general bigger schemes also have more really well equity or bond mutual funds to Western investors, you need peo- muscle in fee negotiations. The surest way ple on the ground in China. The same business logic applies to sell- to irritate a private-equity boss is to say the ing global assets to Chinese investors, once outgoing capital con- curse words “two-and-twenty”, which was once a common fee ar- trols are relaxed. The big prize—and the big unknown—is “local to rangement for “alternative” asset managers, meaning a 2% annual local” ie, selling Chinese mutual funds to Chinese investors. And fee and 20% of the profits. Private-equity bigwigs claim that such the competition for this prize looks wide open. large fees are vanishingly rare. Big clients can usually negotiate China’s financial markets are immature. Much household lower charges by, for instance, taking a direct stake in an acquired wealth is on deposit in banks or tied up in homes. The commonest business (a so-called “co-investment”). A typical management fee kinds of pooled investments resemble bank deposits: either mon- is “in the low- to mid-ones plus free co-investments”, says a priv- ey-market funds or “wealth-management products”, higher-yield- ate-equity boss. And, he insists, the 20% performance fee is paid ing alternatives to bank deposits, which have a fixed term of a few only once returns have cleared a hurdle rate. months but are often used to finance long-term property projects. Fat fees, outperforming funds, happy clients: from the perspec- Stockmarket trading is dominated by retail investors, who trade di- tive of asset managers that invest in public equities the buy-out rectly in individual shares via brokerages. Only around a tenth of business looks too good to be true. “Hope-and-pray assets,” sneers listed shares are owned through domestic mutual funds. one. But hope springs eternal in all parts of the asset-management China’s stockmarket has a very high churn rate. But the market business. A lot of it now rests on China. 7 is becoming more institutionalised. Mostly this reflects buying by foreigners, following the inclusion of a selection of shares and bonds listed on China’s mainland markets in the benchmark indi- ces compiled by msci and Bloomberg Barclays. The hope is that A rock and a hard place China’s domestic market will also come under the stabilising sway Market capitalisation, January 1st 2014=100 of asset managers. 250 If it does, it is an enticing fee pool. As China gets richer, house- Private-equity firms* holds are likely to change their mix of wealth: less in bank deposits 200 and wealth-management products (which regulators are keen to BlackRock kill off for reasons of financial stability); more in traded securities, 150 such as shares and bonds. More of those securities, it is hoped, will be held in diversified mutual funds, managed by professionals for 100 a fee. Pension funds will mushroom. gdp is likely to continue to grow faster than in rich countries. A bigger economy implies more 50 savings to be deployed—and more securities to be issued, by both companies and the government. Other asset managers† 0 In short, managed assets will continue to grow faster in China. 2014 15 16 17 18 19 20 For active asset managers, it is a dream. Their concern is that fee Source: Refinitiv *Apollo Global Management, Blackstone, Carlyle Group and KKR †Affiliated Managers, revenue in America and Europe is diminishing, or at least cannot Datastream AllianceBernstein, Eaton Vance, Franklin Resources, Invesco, Legg Mason and T. Rowe Price grow much further. China offers a new frontier. “These are very big 1 The Economist November 14th 2020 Special report Asset management 11

surance companies, retail banks or investment banks. A foreign asset manager with no brand in China needs to find another way to build the business. For some a tie-up with a local bank is a good fit. Amundi is an offshoot of two European banks, Crédit Agricole and Société Générale, from whose customer base they have built a for- midable market share in France. It has a joint venture with Agricul- tural Bank of China and another with Bank of China. These are lenders with hundreds of millions of customers. It also has a joint venture with State Bank of India, the country’s largest commercial bank. From such strongholds, Amundi has accumulated an asset base of €300bn across Asia. But banks are not the only money doctors in China. Some rich- world equity funds have emerged out of life-insurance businesses. They essentially sold equity risk under the guise of an insurance product. Something similar might yet happen in China. China Life, for instance, has a sales force of 1.8m. The two tech giants, Alibaba and Tencent, have mobile-payment platforms that are widely used and trusted. These are potential launching pads for asset-manage- ment businesses.

Very big, China In 2013 Ant Group, an offshoot of Alibaba, created a fund for its cus- tomers to invest the cash piling up in their Alipay mobile-payment accounts. Within a few years it was the world’s largest money-mar- ket fund. Vanguard now has a joint venture with Ant Group to offer investment advice. It signed up 200,000 clients in its first 100 days. The choice of distribution channel hinges on whom Chinese in- vestors will ultimately trust. It is not mostly a matter of technology. “People make a distinction between tech platforms and bank net- works,” says Yves Perrier, chief executive of Amundi. “But it is a false distinction because the way we bank in France is both human and digital.” A second uncertainty is how the industry in China will evolve. The bet is that it will become more like America, a market in which 2 and liquid markets that are also inefficient,” says the boss of one mutual funds have the muscle. But there is no guarantee of this. In- European fund. Many of the same conditions are found in other deed, in recent months America’s stockmarket has looked a lot like parts of emerging Asia. A secular fall in inflation in India, the other China’s: retail-led, noisy and informed by social-media fads and a Asian giant, has encouraged the well-off out of inflation hedges gambling mentality. China’s market might stay that way. Or the like gold and property into the stockmarket. market for pooled investments might be swiftly captured by index China appears to want to graduate from a rickety system in and other kinds of low-cost products. which state-backed banks decide who gets capital. Its regulators A third source of uncertainty is policy in China. It is friendly plan to establish a professional class of asset allocators. They see now, but might not always be. “With distribution-driven jvs, foreign involvement as a means to this goal. Since 2018 foreign sometimes you lose control of the factory,” warns one industry big- firms have been allowed to take majority stakes in asset-manage- wig. That is not the only risk. The prospect of selling rich-world se- ment joint ventures with domestic banks. From April this year, curities to Chinese investors depends on China allowing capital to they have been permitted to set up wholly owned subsidiaries in flow freely outwards. It has been loth to do this because it would China. Within days of this rule change, JP mean ceding greater control of the yuan to Morgan Asset Management paid $1bn to market forces. China may balk at further buy out its minority partner. Others are opening up. A bigger question lies behind moving to take advantage of China’s open- America First this. One industry executive puts it bluntly: ing up. Still, most Chinese asset managers Assets under management by region, $trn “How serious is it about allowing people to have foreign partners. The foreigners bring 2019 make money?” with them expertise in building portfolios, 403020100 Perhaps the trade-and-technology wars trading, research, investment process, re- will make China inhospitable to American North America cord-keeping and the management of asset managers. Perhaps Europe has an ad- highly skilled teams. Their partners bring Europe vantage. If Shanghai is to follow London customers and local know-how. and New York, the yuan must become free- Asia* Everyone thinks that China will be a big ly convertible. China has to be open. But deal. But industry bosses are not confident Japan and economic and financial hegemony may be Australia about how things will shake out in practice. expressed differently. “Will we make mon- There are broadly three areas of uncertain- Offshore ey? We haven’t a clue,” says the executive. ty. The first is how to acquire customers. Latin America But like many of his peers, he sees China as Some of the world’s biggest asset managers Middle East a low-stakes bet with a potentially large became that way partly from having a cap- and Africa payoff. “We still need to be there,” he says. tive market. They are often offshoots of in- Source: Boston Consulting Group *Excluding Japan “So we are there.” 7 12 Special report Asset management The Economist November 14th 2020

creased salience of corporate governance, the big passive funds The end-game may ultimately choose not to use their vast voting power to influ- ence firms—a fourth prediction. Securities-market regulators will continue to push them to vote their shares, to fulfil their fiduciary Doctor’s prescriptions duty to investors. But antitrust agencies will increasingly fret about the latent ability of big funds to soften competition among firms they indirectly own. Trustbusting is moving back to the “big is bad” assumption that governed it before the 1980s. It may prove costly and legally messy for funds to exercise their voting power in How will asset management look in 2030? a way that satisfies all watchdogs. here are two kinds of forecasters,” said the economist John Some popular predictions about private markets—that they “TKenneth Galbraith. “Those who don’t know and those who will be “democratised”, and fees will come under pressure—will don’t know they don’t know.” Asset management is a business turn out to be wrong (or premature). Private-equity fees do look built on the notion that the future is somewhat knowable, even if out of whack and big pension-fund managers are more inclined to in large part it is not. So we must look for omens. Today’s “dishev- haggle over costs. Returns on private equity are likely to disap- elled” or “inchoate” borrower should not be expected to pay back point. Yet fees for public equity came down because there was a its debts tomorrow, as The Economist warned in its editorial of cheaper option: buy the index. Private-equity stakes are not as March 28th 1868. tradable as listed shares, so there is no index. So fees will stay high. Speculations about the future are also often helpful in organis- Other popular predictions will prove correct. Private debt will ing thoughts about the present. In this spirit, this special report grow in importance. America will slowly lose its lead in venture finishes with some predictions tied to its main themes. Some are capital. The big brand-name vcs of Silicon Valley will retain their extensions of current trends. Others are lustre, thanks to their record of creating more speculative—concerning, say, a billionaire founders. But more new trend that may reverse or one that could champions will emerge elsewhere. go in a surprising direction. Finally, there is China, where the un- The first prediction is the least bold. certainty is perhaps greatest. Sceptics By 2030 the sorting of the industry into a point to China’s record of allowing for- small club of giant asset managers and a eigners to profit only as long as it takes bigger one of niche managers will be Chinese firms to copy and supplant largely complete. Already in 2020, index- them. Asset management is different. tracking funds and etfs account for a Unlike with makers of breakfast cereals, majority of pooled investment funds in it is hard for consumers to judge the mer- America. In a decade’s time they may its of an asset manager. It is equally hard make up the bulk of all stockholdings. for copycat firms to find out what works Investors will mix beta, the market risk, and what doesn’t. with exposures picked from a menu of That is not the only reason the foreign smaller specialists which, to survive the money doctors will stick around in Chi- industry’s upheaval, must have a truly na. Rich-world banks are increasingly distinctive approach. These remaining contained by national borders. Busi- funds might be thematic, based around nesses are less inclined to set up abroad. increased longevity, say, or climate Offshoring is being replaced by onshor- change. Or they could have a particular investment philosophy. ing. Almost by default, capital markets will become the main ave- Such specialist funds will be global or regional in scope. nue for diversifying risk by geography. If China’s leadership wants A second prediction is that competition in asset management Shanghai to be a global financial centre and the yuan to be an inter- will revolve around products designed for particular needs. The national currency, it needs to keep channels open. Foreign asset present-day industry is a creature of the baby-boom era. Many managers will be a crucial conduit. boomers have built up assets in workplace schemes in which In the quiet revolution of asset management, one thing will re- benefits depend on the size of a pension pot at retirement. Their main constant. Philip Rose’s investment trust was composed of ex- needs are changing. A challenge to which the industry has not re- otic foreign bonds traded in London; his idea inspired Robert sponded well is to find ways for people to draw on their retirement Fleming, who mostly invested in America. From the start, asset savings without running out of money too quickly, says Mr Tara- management has been global. Why change that now? 7 porevala, of State Street Global Advisors. Quite so. Another challenge is to tailor products to millennials. Their share of wealth is still small, but it will grow. And their preferences acknowledgments A list of acknowledgments and sources is included in the online version are different. For baby-boomers a mutual fund was the only way to of this special report invest in equities at a reasonable cost. The technology now exists offer to readers Reprints of this special report are available, with a minimum order to buy and sell individual shares at virtually no cost. Low-fee of five copies. For academic institutions the minimum order is 50 and for companies 100. “robo-advisers” mechanically allocate savings to a mix of bond We also offer a customisation service. To order, contact Foster Printing Service: and equity index funds according to preset rules. These advances Tel: +1 866 879 9144; email: [email protected] appeal to a generation reared on smartphones. Millennials have For information on reusing the articles featured in this special report, or for copyright queries, less need of the money doctors who tended to the boomers. contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000; A third forecast is that esg will not be the saviour of active asset email: [email protected] management. By 2030 it will be too mainstream to be a source of more special reports Previous special reports can be found at differentiation. There is likely to be a surfeit of choices for inves- Economist.com/specialreports tors who want even the most exacting kinds of esg. Despite the in- The Americas The Economist November 14th 2020 41

Peru ic. Mr Vizcarra challenged the “legality” and “legitimacy” of the impeachment, but Early retirement went quietly. He declared his innocence and said he would go home “with my head held high”. As he left the palace residents of Lima banged pots and pans to oppose his remov- al. Several thousand people gathered near LIMA Congress and outside the capital on No- Congress topples President Martín Vizcarra on its second attempt vember 10th to protest. Riot police used eru’s constitution makes it relatively elections scheduled for next April, in tear gas and water cannon to control the Peasy for Congress to get rid of a presi- which by law none of the current office- protesters. Some were arrested. More than dent. The legislature need only decide that holders may seek to hold on to their jobs, three-quarters of Peruvians opposed his he or she is “morally unfit”, and, by a two- will produce leaders who can manage the impeachment, according to one survey. thirds majority of its single chamber, evict economy or the pandemic better. It is the latest crisis for a political sys- the chief executive from the Pizarro Palace. Mr Vizcarra fell over allegations that he tem whose prestige and institutions have On November 9th, by a vote of 105 to 19 with took kickbacks from public-works projects been ground down by allegations of graft. four abstentions, Congress did just that to during his one term as governor of the All of Peru’s presidents since 2001 have Martín Vizcarra (pictured). That marks the southern department of Moquegua from been ensnared in one way or another by the second time in less than three years that it 2011 to 2014. Although he clearly has ques- scandal surrounding Odebrecht, a Brazil- has toppled a president. (Mr Vizcarra took tions to answer, nothing has been proved. ian construction firm that bribed politi- over from Pedro Pablo Kuczynski, who quit His critics say he has been meddling in the cians across Latin America. Two former before he could be impeached.) judiciary to avoid prosecution and to harm presidents are under house arrest; one is at Manuel Merino, who was Congress’s his foes. In his 50-minute self-defence be- liberty while he awaits trial; a fourth com- speaker until he took over as president on fore Congress, Mr Vizcarra agreed that an mitted suicide to avoid arrest. Keiko Fuji- November 10th, will probably hold on to investigation was warranted but said it mori, until recently the most powerful op- the office until his term expires next July. should wait until he finished his term. His position leader, is awaiting trial. The But that does not mean Peru will enjoy sta- ousting would cause chaos, he warned. allegations against Mr Vizcarra were the re- bility. It is dealing with an outbreak of co- Rather than debate the merits of the sult of a tentative plea bargain by suspects vid-19 that has killed 35,000 people. As a case against him, lawmakers denounced in the Odebrecht investigations. share of the population, that is the third- his ethics and his handling of the pandem- Peruvians see corruption as the coun- worst in the world. The economy contract- try’s biggest problem, even ahead of the ed by 15.7% in the first eight months of 2020 pandemic, according to opinion polls. But Also in this section compared with the same period a year ear- they regard Mr Vizcarra as part of the sol- lier, and is expected to shrink by 12% for the 42 Hurricane Eta hits Central America ution. His approval ratings averaged 58% in full year. There is little reason to believe the three main polls published in October. 43 Bello: Proxy presidents that the presidential and congressional To many, his war with Congress looked like 1 42 The Americas The Economist November 14th 2020

2 a valiant battle against graft. Last year, when Congress resisted en- acting political reforms proposed by Mr Vizcarra, he found a pretext to dissolve it and call new legislative elections. The vote in January this year did not produce a more pliant body. The nine parties represented in the chamber extend from the far left of the political spectrum to the religious-fun- damentalist right. Mr Vizcarra had hoped for support from a reasonable centre, com- posed of about 70 lawmakers. But from the beginning the new Congress rowed with him over how to handle the pandemic and the economic crisis that came with it. Congress made an abortive attempt to impeach him in September, when record- ings leaked that appeared to show him meddling in an investigation of contracts between the government and a folk singer who had given him political support. This month’s attempt looked like a long shot at first. It succeeded after Mr Vizcarra angered congressmen by pointing out that many of Central America them, too, are under investigation. Peruvians now worry that Mr Merino Greek tragedy will seek to postpone the election in order to continue enjoying the spoils of office. Others fear an orgy of populism in a previ- ously well-managed economy, in the ex- pectation that this might benefit presiden- tial candidates who are either in Congress As well as causing destruction, Hurricane Eta could spread covid-19 or have allies there. Mr Vizcarra’s finance minister, María Antonieta Alva, had fought n only one previous year, 2005, have slides in Honduras, Guatemala and Cuba. tenaciously to block populist measures, Imeteorologists resorted to the Greek Scores of Central Americans are confirmed such as early withdrawals from the pay-as- alphabet to name Atlantic storms. They dead and many are missing or injured. you-go public pension system (with a fiscal had run through the 21names starting with Countries on the edge of the storm’s path, cost of up to 2% of gdp) and a freeze of re- the letters of the Roman alphabet (five un- including Mexico and Panama, suffered payments of bank debts. She has now re- common letters are not used). With Hurri- deaths and damage. Flooding disrupted an signed, along with the rest of Mr Vizcarra’s cane Eta this month the storm-namers election in Belize on November 11th. Across cabinet. The price of Peru’s foreign bonds have reached further into the Greek-letter the region, perhaps 300,000 people left slumped after the impeachment vote, and sequence than ever before. The strongest their homes to seek shelter in community the sol sank against the dollar. storm of this year’s season, Eta made land- centres or with family and friends. Mr Merino, a congressman from fall on November 3rd in Nicaragua as a The death toll in Guatemala—with 18m Tumbes, the smallest department, has giv- category-four hurricane, with gusts of up people Central America’s most populous en few clues as to how he will handle Peru’s to 240km (150 miles) per hour. It proceeded country—will probably be the highest. So overlapping crises. He has promised to ap- to cause havoc across Central America and far, 44 people are confirmed dead and near- point an ideologically diverse cabinet and the Caribbean (see map). ly 100 are missing. Mudslides engulfed to work closely with Congress. A former The winds weakened after landfall, but houses in central Guatemala, which bore speaker, Ántero Flores-Aráoz, is to lead it. torrential rain caused floods and land- the brunt of the storm in that country. In His most important pledge in a 13-minute Quejá a villager lost 22 members of her inauguration speech was that elections UNITED STATES family, Reuters reported. In Honduras 1.7m will happen on schedule. Hurricane Eta of the country’s 10m people have been af- His successor may find it no easier to Wind strength fected in some way, says the Red Cross. Nov 12th govern, even if he or she is free from suspi- Tropical storm Hondurans criticised the government for 00:00 EDT cions of wrongdoing. Twenty-four people Over 63kph failing to prepare for the storm. Nicaragua have declared their candidacy for the presi- Hurricane BAHAMAS had just two deaths but lots of damage to dency. None is backed by a strong political Over 119kph roads and houses. Thirty thousand people Source: NOAA party. Some hope to boost their chances by were evacuated and 25,000 households CUBA echoing popular indignation at Mr Viz- BELIZE have no electricity. carra’s removal. George Forsyth, a former MEXICO Eta is far less devastating than many mayor and football goalkeeper who is the Quejá past disasters, such as Hurricane Mitch, early front-runner, tweeted that it was a GUATEMALA HONDURAS which in 1998 killed more than 11,000 peo- “veiled coup”. The eventual winner is un- EL SALVADOR ple in Central America. But it comes at a likely to be able to elicit co-operation from NICARAGUA worse time. Eta adds to the misery caused a fragmented Congress. It may eventually by the pandemic and makes it more dan- COSTA RICA find an excuse to usher Peru’s next presi- gerous. Central America appears to have 500 km PANAMA dent out of the door. 7 contained the number of cases and deaths 1 The Economist November 14th 2020 The Americas 43

2 from covid-19 better than Brazil, Ecuador, habitable water supplies have been cut, so temalans will fall below its poverty line of Mexico and Peru. Guatemala’s reported people cannot wash their hands. $1.90 of income a day. death toll from covid-19 is a fifth of Peru’s as The storm has hit livelihoods, especial- The combination of Donald Trump and a share of population. Nicaragua is an out- ly in farming. In Honduras, where agricul- covid-19 had largely stopped the flow of mi- lier. It barely attempted to curb the spread ture accounts for a tenth of gdp and nearly grants heading from Central America to the of the disease. Its reported death toll is a third of employment, coffee and banana United States. It could be restarted by Eta, among the lowest in Latin America, though estates have been devastated. Food may be- plus the belief that Joe Biden, the American that may be because the government is come scarce. Rebuilding will be even slow- president-elect, will be friendlier to immi- simply refusing to disclose accurate infor- er than after past disasters. Government fi- gration. Tropical Storm Theta, which has mation. In all the countries battered by Eta nances are stretched by recession and by formed in the middle of the Atlantic, seems doctors and aid workers fear that infec- extra spending to control the pandemic. to be heading away from the Americas. But tions will rise. Thousands of people are Guatemala’s budget deficit is forecast to be the hurricane season runs to the end of No- crammed into shelters, where the virus can 6% of gdp, nearly triple what it was last vember, and there are 16 letters to go in the easily spread. In some places that are still year. The World Bank expects 1m more Gua- Greek alphabet. 7 Bello The problem of proxy presidents

They are proliferating in Latin America n november 8th Luis Arce took president, as his party’s candidate—only are people close to Mr Uribe with no Ooffice as Bolivia’s president following for his successor to turn on him. Mr Uribe previous security experience. Prominent his clear victory in an election last reluctantly backed Juan Manuel Santos, members of Mr Uribe’s party campaigned month. A day later the man who picked his former defence minister, to succeed for Donald Trump in Florida. Mr Duque him as a candidate, Evo Morales, was him in 2010. The two men soon became must now deal with his victorious oppo- greeted by adoring crowds as he crossed bitter foes. In Brazil Luiz Inácio Lula da nent, Joe Biden. into Bolivia from Argentina, a year after Silva (2003-10) chose Dilma Rousseff to Mr Fernández, a more substantial fleeing his country after protests over keep the presidential seat warm for him. politician than Mr Duque, is struggling to electoral fraud. Mr Arce, who was Mr Ms Rousseff outmanoeuvred him to run project authority, too. His controversial Morales’s finance minister, insists he is for a second term, only to be impeached vice-president, a leftist-populist, contin- his own man. His former boss, who ruled for breaking budget rules. ues to control the street in Buenos Aires’s as an increasingly authoritarian socialist When the gambit works it causes even rustbelt. Mr Fernández has imposed the strongman for 13 years, “has no role in bigger problems. A proxy risks being a world’s longest lockdown, which delayed the government”, he said. But some weak president, carrying the can for deci- rather than curbed the coronavirus. It Bolivians believe Mr Arce will have Mr sions inspired by a sponsor who exercises increasingly looks like a sign of political Morales breathing down his neck. power without responsibility. Take Colom- weakness. The government pulled off a Mr Arce joins a small but growing bia: Mr Duque is a moderate who in 26 restructuring of its debt with bondhold- band of proxy presidents who owe their months has yet to put his stamp fully on ers but failed to capitalise on that by jobs to the sponsorship of a more pow- his own government. Mr Uribe is seeking launching a credible economic plan, erful leader. In Colombia Iván Duque was to abolish a special court to investigate war perhaps because of the difficulty of an inexperienced senator when he was crimes set up under the peace agreement getting agreement between the two elected to the top job in 2018 thanks to with the farc guerrillas negotiated by Mr leaders. Mr Fernández is paying a politi- the backing of Álvaro Uribe, a conserva- Santos. Mr Duque, meanwhile, must de- cal price for a plan for a judicial reform tive two-term former president who was fend his implementation of that agree- that seems designed to save his running- barred from re-election by term limits. In ment before the un and other bodies. mate from corruption charges. Argentina Cristina Fernández de Kirch- Security has deteriorated under Mr Duque. That is an example of the underlying ner, president in 2007-15, struck a deal His former and current defence ministers problem that proxies face. The interests with Alberto Fernández (no relation) of their sponsors are not necessarily whereby he ran and won in 2019, with her those of the country. Mr Uribe appears to as his running-mate. Ecuador may be be pursuing a personal vendetta against next. Rafael Correa, the country’s strong- his enemies and seems to want to install man between 2007 and 2017, hopes to another proxy in 2022 by continuing to return to power via a proxy candidate, polarise Colombian politics. Mr Correa Andrés Arauz, a young economist. Mr wants revenge, too, and like Ms Fernán- Correa lives in Belgium and has been dez wants control of the courts. convicted of corruption in absentia. As for Mr Arce, he has named a cabi- The rise of the proxy president is net in which only the defence minister is partly a result of term limits and partly a close to Mr Morales. Their party, the consequence of the commodity boom of Movement to Socialism, is broad-based, the 2000s, which helped leaders fortu- and includes people critical of the former nate enough to be in office at the time to president. Mr Arce has no illusions about become popular and politically strong. Mr Morales. “He’s not going to change,” The gambit sometimes backfires. Mr the new president said. If so, sooner or Correa thought he would control things later Mr Arce will face a choice: impose by choosing Lenín Moreno, his vice- his own authority or lose it. 44 Middle East & Africa The Economist November 14th 2020

South Africa mier during the Zuma presidency. On No- vember 10th he was issued with a warrant Ace in the hole? for his arrest on corruption charges related to the asbestos case. (He denies any wrong- doing.) The move by the country’s National Prosecuting Authority (npa) and the Hawks, a police unit, may therefore prove good news not just for people like Mr BLOEMFONTEIN Mzaza, but also for Mr Ramaphosa. The imminent arrest of a ruling-party bigwig is good news for Cyril Ramaphosa Mr Magashule’s alleged role in the as- he residents of the township in to describe politically connected winners bestos deal was described in “Gangster TBloemfontein call it Dark City. The area of public contracts. Under Jacob Zuma (pic- State” by Pieter-Louis Myburgh, a journal- was one of many segregated neighbour- tured, centre), president from 2009 to 2018, ist. The book, published in 2019, drew on hoods built during apartheid. Today it is a the corruption reached such kleptocratic leaked documents and a spreadsheet used microcosm of the failures of the ruling Af- levels it became known as “state capture”. by Igo Mpambani, one of two businessmen rican National Congress (anc): pock- One of the former president’s closest al- given the contract (and who was murdered marked roads, sporadic electricity, erratic lies was Ace Magashule (pictured, left). To- in his Bentley in broad daylight in 2017). rubbish collection and house after house day Mr Magashule is the secretary-general Last month the other businessman, Edwin of people unable to find work. And, on the of the anc, one of the most powerful peo- Sodi, was arrested. “Gangster State” alleged top of most, roofs made of asbestos. ple in the party and the locus of internal re- that Mpambani shared the proceeds of the These should be long gone. In 2014 the sistance to Mr Zuma’s successor, Cyril Ra- tender with various insiders, including Mr regional government awarded a contract maphosa (pictured, right). For several Magashule, whom Mr Myburgh placed worth 255m rand ($23.5m) to survey and re- years there has been speculation that Mr close to the businessman soon after the lat- move the health hazards. But in Dark City, Magashule would be brought to book for ter made large withdrawals of cash. The au- as in most of Free State province, there is corruption in Free State, where he was pre- thor later estimated that just 3% of the nothing to show for it. Geelbooi Mzaza, funds went to the clean-up. who has lived in the area since 1995, says The case is one of many scandals from that nurses have told him that asbestos is Also in this section Mr Magashule’s time as premier. Others in- worsening his tuberculosis. “They said I clude a taxpayer-funded trip to Cuba for 45 Why Zambia may default had to move, but I have nowhere to go.” him and fellow “comrades”, and shoddily Corrupt procurement deals are ubiqui- 46 Fed-up feminists in Egypt completed contracts for low-cost housing tous in South Africa. So much so that the that involved Thoko Malembe, his daugh- 47 Palestinians mourn Saeb Erekat country coined the term “tenderpreneur” ter. Then there is the other major case be-1 The Economist November 14th 2020 Middle East & Africa 45

2 ing aggressively pursued by the npa: a Zambia state-subsidised dairy costing hundreds of millions of rand linked to Mr Zuma’s close Slouching towards Zimbabwe allies, the Gupta brothers, for whom Mr Magashule’s son, Tshepiso, worked. That much is known about state capture is testament to many of South Africa’s in- stitutions. Investigative journalists, ngos, civil servants such as Thuli Madonsela, the LUSAKA Zambia is starting to look like the failure next door former public protector, and dogged oppo- sition politicians, especially from the n his studio Fumba Chama gets ready to soaring price for copper, which accounts Democratic Alliance, have all helped reveal Iplay his new song. Unlike in most Zam- for four-fifths of exports. the extent of the graft. But whether anyone bian workplaces there is no photograph on After it took office in 2011the pf was not goes to jail will depend on a criminal-jus- the wall of Edgar Lungu, the president helped by droughts and a fall in the copper tice system eviscerated in the Zuma era. since 2015. Looking down instead is a price. Yet it made matters worse by ramp- Upon taking office, Mr Ramaphosa young Kenneth Kaunda, who led Zambia ing up borrowing. Government debt as a pledged to revive organisations like the for 27 years after independence from Brit- share of gdp has risen from 21% to 120% npa, the Hawks and the South African Rev- ain in 1964. (see chart). External debt has increased enue Service. He has replaced party hacks If that is a silent protest, then out of the seven-fold, as Zambia borrowed in dollars with competent leaders and let them get on speakers comes a louder one. In “Coward of from Western bondholders and Chinese with their jobs. South Africans are under- the County” Mr Chama raps laconically state banks. It now spends four times as standably impatient. But prosecutors are about Mr Lungu’s failings over—why much on external debt as on health care. finally racking up arrests. And if the state not?—a sample of the song of the same Much of the money has been wasted. A wins its case against Mr Magashule, it name by the late Kenny Rogers, a bearded dual carriageway north from Lusaka esti- would be the clearest sign yet that the pres- American country star. It is his latest track mated to have cost $1.2bn stops on the out- ident’s anti-corruption drive is serious. about how the ruling Patriotic Front (pf) skirts of the capital. Other roads have been History suggests that a successful pros- has crushed civic freedoms and crashed commissioned at inflated prices (roughly ecution will not be easy. No anc politician the economy. As if to prove his point, the twice the African average per kilometre), has so far been convicted for taking part in authorities have repeatedly arrested and suggesting ample opportunities for the state capture. For 15 years Mr Zuma has intimidated Mr Chama, whose stage name well-connected to take a cut. An order for been in and mostly out of court for his al- is PilAto. “People say I have no fear,” he fire engines and a cash-transfer scheme for leged part in a corrupt arms deal dating says, “but I’m scared.” the poor are among many fishy tenders. back to the late 1990s. Mr Magashule may Mr Chama is not alone. Unless it pays an The Financial Intelligence Centre, an offi- try to copy the mix of denial and delay that overdue $42.5m coupon, or bondholders cial watchdog, found $520m worth of mon- has served the former president well. And give it more time, on November 13th Zam- ey-laundering or suspicious transactions although the relevant law defines corrup- bia will officially default on its debt. in 2018, up from $382m in 2017. Institutions tion fairly broadly, it may be hard to prove Though it would be the first African state to meant to oversee borrowing—the finance Mr Magashule’s involvement; his former do so since the start of the pandemic, co- ministry and parliament—have been by- colleagues note that he had a habit of using vid-19 is not the root cause of its troubles. passed as departments and agencies with- other people’s mobile phones. More important is the pf’s misrule, which in the presidency have racked up debts. Mr Ramaphosa should benefit from will worsen ahead of elections in August Ordinary Zambians are paying the price. having his rival occupied, even if Mr Ma- 2021. “We are heading in the same direction Annualised inflation was 16% in October, gashule refuses to step down from his post as Zimbabwe,” says Laura Miti of Alliance versus 11% a year ago. The local currency, while he is facing charges. Since Mr Rama- for Community Action (aca), an ngo. the kwacha, has lost almost a third of its phosa took office his (over)cautious re- Any such comparison to the failing value against the dollar this year. Civil ser- formism has been hobbled by internal op- state on its southern border is cause for vants are not paid on time. Graduates ponents. Though these include more than alarm. Since 1991, when Mr Kaunda eventu- struggle to find jobs; such is the plight of just allies of Mr Magashule, the secretary- ally made way for multiparty democracy, teacher-training graduates that the Unem- general’s arrest should give the president the country has held regular, if flawed, ployed Teachers Association of Zambia greater power in negotiations with party elections. In the 2000s gdp grew by an av- represents tens of thousands of people. factions and trade unions, for example erage of 7% per year, thanks in part to a Zambia has asked the imf for a cheap concerning his efforts to slow the growth of loan to tide it over. An imf programme the public wage bill. would also reassure creditors who worry Mr Ramaphosa nevertheless has much Cliff-edge that any relief they provide will only bol- to do to convince increasingly sceptical Zambia, general government gross debt ster the pf’s election war chest or the ac- South Africans that the anc can change. % of GDP counts of Chinese lenders. Yet the antics of State capture was about more than just in- 125 the Lungu regime have done little to con- dividuals, however powerful. It was about vince creditors that it can be trusted. an entire system of corruption, deploy- 100 In August Mr Lungu fired Denny Kalya- ment of party members and patronage. 75 lya, the governor of the central bank, and Back in Dark City, the residents’ mood is replaced him with Christopher Mvunga, a also sombre. Most scoff at the notion that 50 political ally. Mr Kalyalya was dismissed arrests would signal a change in their for- partly because he rebuffed efforts to have 25 tunes. The best some people hope for is to the central bank print money, according to be next in line for the spoils of a rotten sys- 0 people familiar with the decision. Mr tem. Approaching your correspondent, a 20*1918171615141312112010 Mvunga “does not have the power to resist”, young man calls out: “Write it down—we Source: IMF *Forecast says a former senior central banker. want the next tender!” 7 Zambia’s latest budget, passed on Sep-1 46 Middle East & Africa The Economist November 14th 2020

2 tember 25th, also raised eyebrows. It in- But weak “strongmen” are often the after that post disappeared, Ms Ashraf cluded 5.7bn kwacha ($275m) for farm in- most dangerous. After the bill’s demise, a launched an account on Instagram called puts, such as fertiliser—a 300% increase on further anti-democratic backlash may oc- Assault Police, which repeated the allega- the previous year. It may win over some of cur, fears Ms Miti. The ruling party has tions against Mr Zaki—and listed more. He the 56% of Zambians who live in the coun- shown itself willing to throttle freedoms. It was soon arrested. Assault Police was born tryside. Another crafty tactic is cancelling has put allies of Mr Lungu on the constitu- out of anger, says Ms Ashraf, who also at- the voter roll and replacing it with a new tional court, which in 2018 ruled that he tends auc. “I was very frustrated that wom- one. Zambians have been given just 30 days could stand a third time for president, con- en’s voices were not being taken seriously.” to sign up. Many fear it will be harder to reg- trary to the views of many Zambian jurists. Around the time of Mr Zaki’s arrest, oth- ister in opposition strongholds. “Lungu Authorities have shut Zambia’s main inde- er cases began making headlines. A woman hopes to disenfranchise as many opposi- pendent newspaper and a television sta- alleged that a group of wealthy young men tion supporters as possible,” argues Sish- tion. pf thugs harass journalists and oppo- drugged and gang-raped her at a five-star uwa Sishuwa of the University of Zambia. sition campaigners. hotel in Cairo in 2014. Another woman, Mr Lungu has not had it all his own way. And musicians. In his studio Mr Chama called Aya Khamees, accused a man of On October 29th parliament rejected a bill points out that many of his friends are paid rape—and accused the police of ignoring that would have removed constraints on to play by the pf, or have received money her claims. It seemed as if Egypt was having the president and made it easier for him to from a youth “empowerment” fund, an- a #MeToo moment. The National Council win re-election. The defeat suggests that he nounced in August. Though he worries for Women, a government body, urged oth- does not have an iron grip on his party, es- about what will happen next, he would er victims of sexual violence to come for- pecially among its Bemba-speaking elites never take the cash. “Better to be dead than ward. Parliament approved a law guaran- hailing mainly from the north-east. alive in a dead country,” he says. 7 teeing them anonymity. Assault Police now has over 200,000 followers. But the progress was largely illusory. Take the alleged gang rape, which was re- portedly recorded by the attackers. It took weeks of campaigning by activists before the Public Prosecution Office moved, al- lowing some of the suspects to flee the country. Five men have since been arrest- ed; at least two suspects are still at large. Three of the men arrested have been charged with rape, which they deny. Ab- surdly, the authorities also charged four people who came forward as witnesses (and two of their acquaintances) with vio- lating laws on “morality” and “debau- chery”. The media have characterised the incident as a “group sex party”, smearing all involved, including the alleged victim. This has had a chilling effect: once-vocal women have gone into hiding. After Ms Khamees was turned away by the police, she broadcast her accusations on TikTok, an app for sharing short videos, Feminism in Egypt where she had more than 100,000 follow- ers. Days after the video went viral, the po- Speaking up about sex crimes lice picked up the entire group who had been partying with her that night. The au- thorities seemed as concerned with their use of hash and the mixing of unmarried men and women, as with Ms Khamees’s claim that a man had held a razor to her face CAIRO and raped her. Her attackers (she accused a But are the men of Egypt listening? group of people of facilitating the rape) hen nadeen ashraf was walking have long policed women’s behaviour, us- were charged with rape and other offences. Wthrough a wealthy part of Cairo last ing antiquated notions of morality, while But Ms Khamees was also charged—with month, she was not surprised to hear sex- tolerating crimes by men against women. prostitution, drug use and “violating fam- ual comments aimed her way. Most women But lately young women like Ms Ashraf ily values”. Only after she completed a pro- in Egypt have experienced sexual harass- (pictured) have been challenging the coun- gramme to “correct her concepts” were the ment or violence. But her catcaller was sur- try’s conservative, male-dominated cul- charges against her dropped. prised when the 22-year-old philosophy ture, using social media to amplify their These cases are indicative. Egypt has student jumped into the taxi he was driv- voices. It has not always gone well. laws against sexual violence and harass- ing. “I had an hour-long conversation with The reckoning began in June, when a ment (the latter enacted only in 2014), but him,” she recalls. “It was so foreign to him student at the American University in Cai- victims keep quiet for fear they will be that this was sexual harassment.” ro (auc) posted a warning on Facebook blamed and shamed. The authorities have For much of this year Egypt has wrestled about a former student, Ahmed Bassam been known to subject women to so-called with the problem of sexual violence and Zaki, whom she accused of sexually harass- “virginity tests” and to ask about their sex- the issue of women’s rights. Men there ing and blackmailing women. Days later, ual history, often using the information to 1 The Economist November 14th 2020 Middle East & Africa 47

2 muddy a case. The law is vague and, any- tians supported the arrests of the TikTok land as the capital of their future state. In way, “it is just what you write on a piece of stars. A survey released in 2017 by the un Mr Erekat’s words, though, he was ready to paper,” says Salma El Tarzi, a film-maker and Promundo, an advocacy group, give Israel “the biggest Yerushalayim in who focuses on sexual violence. The real showed that 64% of Egyptian men (and Jewish history” (the Hebrew name for the problem is the attitude of Egyptian men. 60% of women) believe that a woman city). He got nothing in return—and re- Most of Egypt’s judges and prosecutors should marry her rapist. Almost three- signed soon after the documents were pub- are men. They decide what violates Egyp- quarters of men (and 84% of women) said lished, something he did every few years. tian values. Lately they have been using a women who dress provocatively deserve to His departures were always short-lived. cyber-crime law to crack down on women be harassed. Only in Egypt are the views of In its immediate ramifications, Mr Ere- dancing and clowning around on TikTok. young men as conservative as those of old- kat’s death may say more about domestic Since April the authorities have arrested er men when it comes to gender, says Amel politics than about the moribund peace ten female TikTok influencers on charges Fahmy, who worked on the survey. process. Mahmoud Abbas, the Palestinian of violating family values and inciting “in- “TherearemillionsofmeninEgyptwho president, turns 85 on November 15th and decency” and “debauchery”. Six have been have no clue about their sexuality and the has been ailing for years. His term should sentenced to two years each in prison; two ideas of boundaries and consent,” says Ms have ended 12 years ago. Yet he clings jeal- have received three-year sentences. Part of Ashraf. She grew more disillusioned after ously to his post and views would-be suc- what panics the old arbiters of morality is talking to her catcalling cab driver. He ulti- cessors with suspicion. Mr Erekat was one how the internet has empowered young, mately apologised, she says, but then of the few to stay in his good graces and had often lower-class women. claimed he would never get married. Asked been a contender to replace the ageing The country as a whole, though, re- why, he responded, “Because you told me I president. Instead Mr Abbas will have to re- mains deeply conservative. Many Egyp- shouldn’t compliment girls.” 7 place him; his choice may hint at who leads in the succession struggle. Still, it is hard to escape the symbolism Saeb Erekat of his death. In Jordan last year your corre- spondent asked Mr Erekat about his health. A negotiator in winter “I’m fine,” he replied. “On two feet, working for two states.” Typical Saeb: earnest and folksy, even at a time when there was little for him to negotiate. The Obama adminis- tration dispatched John Kerry, its secretary of state, on a quixotic quest to broker an BEIRUT agreement. Talks stalled in 2014 and never The Palestinians mourn the loss of a forceful advocate for their cause resumed. President Donald Trump had his t was 1991, and dozens of men were hud- would coexist under a single political sys- “deal of the century”, unveiled in January Idled around a long white table in Spain, tem: in his mind Israel would never relin- and dead on arrival. clad in the formless dark suits that are de quish its Jewish majority. Only divorce— Mr Trump’s successor, Joe Biden, is un- rigueur at diplomatic functions. Only one territorial partition—would grant his peo- likely to spend much time on his own ef- stood out: a bearded, bespectacled univer- ple their rights. In public he could be fort, likely to be futile. Mr Netanyahu, now sity professor, shoulders draped in a keffi- obstinate, prone to legal diatribes and oc- the Israeli prime minister, has devoted his yeh, the chequered scarf that has become a casional outbursts. In private, though, he career to obstructing an agreement that symbol of Palestinian nationalism. Saeb often recognised that he had a bad hand. would lead to a Palestinian state. The Pales- Erekat caused a stir at the Madrid confer- Palestinian critics accused him of play- tinians are mired in divisions and increas- ence, the first direct talks between Israel ing it badly. A batch of leaked memos, pub- ingly cast doubt on the two-state idea. Mr and the Palestinians. Binyamin Netanya- lished in 2011by Al Jazeera, revealed that Mr Erekat will be mourned as a fighter for the hu, then a mere spokesman for the Israeli Erekat and his team offered to cede nearly Palestinian cause. When the eulogies are delegation, suggested that his dress was a all of east Jerusalem when negotiating with done, many Palestinians will wonder if his “provocation”. But, for Mr Erekat, the sum- Israel in 2008. The Palestinians claim that is a fight worth continuing. 7 mit would start a diplomatic process that became his life’s work. On November 10th Mr Erekat died in Je- rusalem at the age of 65. He tested positive for covid-19 in October, a grim diagnosis for a man who had a lung transplant in 2017. Is- rael allowed him to receive treatment at Hadassah hospital, but he never recovered. Born in 1955, he grew up in Jericho, an ancient city nestled in the Jordan valley. After university studies in America and Britain he returned to the West Bank and became a loyal member of Fatah, now the territory’s ruling party. A mediator rather than a militant, he would play an integral role in the earliest agreements between Is- rael and the Palestinians, including the second Oslo accords, signed in 1995. The two-state solution became an ob- session. He never bought into the idea of a binational state where Jews and Arabs Rest, but no peace 48 Asia The Economist November 14th 2020

Politics in Kyrgyzstan cal parties. As acting president he would not be allowed to stand, so he plans to re- A crowd-sourced commander-in-chief sign, handing the reins to an ally he has helped install as speaker of parliament. And he wants to amend the constitution to strengthen the presidency and reduce the clout of parliament. Mr Japarov, a former mp, rose to promi- ALMATY nence by campaigning for the nationalisa- The new president says he is restoring the rule of law. Others say he threatens it tion of Kumtor, a Canadian-owned gold merican diplomats warned of an “at- In early October crowds protesting mine. He has twice been convicted of Atempt by organised crime groups to ex- about tainted parliamentary elections crimes in connection with his political ac- ert influence over politics and elections”. sprang Mr Japarov and several other politi- tivism: once for leading a crowd that The acting mayor of the capital city stepped cians from prison. When the prime minis- stormed the grounds of the White House, down in protest at a “wave of ochlocracy”— ter resigned to appease the protesters, Mr which houses parliament and the presi- mob rule. mps complained that they were Japarov got mps from the outgoing parlia- dent’s office, and once for orchestrating the being coerced into acceding to an illegiti- ment to award him the job, though there kidnapping of a local official as part of a mate power grab. A candidate for prime were rows about quorums and proxy votes. protest, although he was not present at the minister was knocked unconscious when He then persuaded the president to resign time and denied any involvement. He is thugs attacked a political rally. and the speaker of parliament to decline more comfortable speaking Kyrgyz than Yet the man who has benefited most the role of acting president, which there- Russian, which sets him apart from the from the tumult in Kyrgyzstan, Sadyr Japa- fore fell to Mr Japarov instead. Russophone elite. His nationalism goes rov, denies that his meteoric rise, from pri- Mr Japarov next convinced mps to delay down well in a country that fears becoming son to the presidency in ten days, has any fresh elections for parliament, to allow for an economic dependency of neighbouring sinister underpinning. It was popular prot- a presidential poll in January first—to the China and has suffered strife between the ests that brought him to power, he says. consternation of many officials and politi- Kyrgyz majority and the Uzbek minority. Those who claim “that I’m a bandit, that I The uprising that brought Mr Japarov to came out of prison and seized power” are power is the third since 2005. Although the Also in this section simply political rivals trying to smear him, mountainous country of 6m is sometimes he insisted this week in an interview with 49 The Sino-Australian trade war described as the only democracy in Central The Economist over WhatsApp. Far from try- Asia, in practice it has run through a series 50 India’s covid-proof ruling party ing to hijack Kyrgyzstan’s shaky democra- of presidents whose behaviour gradually cy, he intends to “establish justice, transpa- 50 Aung San Suu Kyi’s triumph became more autocratic until they were rency, honesty and legality, and eradicate turfed from office by public protests. With 51 Banyan: Filipinos abroad corruption at the root”, he said. politics in constant turmoil and competing1 The Economist November 14th 2020 Asia 49

2 politicians in search of financial backing, any more, given its dwindling reserves. He an outright, if unofficial, ban on seven big organised crime has flourished. Journal- has urged protesters to end their attacks on exports did not appear to be correct. ists last year exposed a smuggling ring Chinese firms. Locals must understand the China hoovers up a third of Australia’s which laundered at least $1bn of its pro- value of such investments, he says, and exports of goods. Belinda Allen of the Com- ceeds abroad (gdp last year was $8bn). keep the country open for business. monwealth Bank of Australia calculates America has labelled Kyrgyzstan a “major Mr Japarov seems likely to win the elec- that 7% of the total have now been affected money-laundering country”. tion, given the reluctance of possible rivals by or threatened with restrictions. (China Mr Japarov insists he marks a break to run. His flair for populism is evident: he is also a massive consumer of Australian with all that. He has ordered the arrest of has ordered the removal of the fence services such as education and tourism.) two alleged crime bosses whom the previ- around the White House, to reduce the dis- In theory, China has distinct and unre- ous government left be: Raimbek Matrai- tance between politicians and the gov- lated reasons for each step it has taken. The mov, who has been accused of involvement erned. And whatever constitution the tariffs on wine and barley are supposedly in the smuggling ring, and Kamchybek Kol- country ends up with, he insists, he could because those products are being exported bayev, whom America has labelled a “sig- never become a strongman, thanks to the below cost. Concerns about hygiene have nificant foreign narcotics trafficker”. Mr ultimate safeguard: the Kyrgyz people. been used to justify impediments to food Kolbayev remains in detention, but Mr Ma- “They can put up with things for a year, or imports, and so on. The Australian govern- traimov was allowed to return home after two, or three, then chase out any presi- ment assumes there is a bigger grievance at promising to pay the state $24m in a vague dent,” he says. “You can’t establish a dicta- work, though Mr Birmingham’s Chinese penalty for unspecified abuses. The opac- torship in our country.” 7 counterpart won’t even speak to him, ity and arbitrariness of this step (Mr Japa- much less explain. rov concedes it was a political decision, al- The spat started shortly after Australia though he denies links to Mr Matraimov) Australia’s trade with China led international calls for an inquiry into have prompted some to question Mr Japa- the origins of covid-19. Australia has also rov’s sincerity. Keneshbek Duyshebayev, a Down under annoyed China by rejecting its claims in former senior security official, dismisses the South China Sea, legislating to prevent his attack on organised crime as a “show”. and out Chinese interference in Australian politics By the same token, when Mr Japarov and cosying up to the likes of America, speaks of the need for constitutional re- Japan and India—with which it is holding forms to ensure strong, stable government, joint naval exercises this month. China is curbing imports of more and some see a naked power grab. The present China could also be angling for specific more Australian goods constitution was intended to guard against concessions. Its investigation into the strongman rule. Its architect, Omurbek Te- he row is already six months old and is “dumping” of barley came after Australia kebayev, an mp, says Mr Japarov’s propos- Tsteadily intensifying. In May China im- launched 33 anti-dumping probes of Chi- als will set Kyrgyzstan’s politics back 30 posed an 80% tariff on imports of Austra- nese goods between 2006 and 2018. The years, to their state at the time of indepen- lian barley and restrictions on imports of two countries began talks on a trade deal in dence from the Soviet Union in 1991. This Australian beef. More recently shipments 2005 on the condition that Australia treat week journalists issued a statement ex- of Australian lobsters have been subject to China as a market economy, making pressing “extreme concern” about Mr Japa- delays. Aussie wine has been formally dumping claims harder to sustain—but rov’s vilification of outlets that have criti- threatened with higher tariffs. The Chinese Australia never followed through. cised him—“distorted information” is his authorities are reportedly discouraging Restrictions on agricultural products constant retort to uncomfortable ques- firms from buying Australian coal, cotton may have another benefit for China, too. tions—which presents a “risk to the free and timber. There are fears that more Aus- The Chinese government has pledged to press”. Last month a mob of his supporters tralian goods will soon feel the squeeze. On buy $37bn of agricultural goods from threatened to burn down the offices of an November 9th Australia’s trade minister, America as part of a recent trade deal, but is obstreperous radio station and website. Simon Birmingham, said that rumours of badly behind schedule. Pushing Chinese Yet Mr Japarov is trying to present him- importers away from Australian suppliers self as a moderate, unifying force. Tilek could help to get it back on track. Toktogaziyev, the politician attacked by Mr Uneven keel Whatever the explanation, the Austra- Japarov’s supporters, has been named min- Trade dependence, 2019 lian government has been encouraging ex- ister of agriculture. Mr Japarov has also Chinese imports as % of all Australian exports porters to find other buyers, and has been won over Omurbek Babanov, a liberal op- Australian exports as % of all Chinese imports pursuing trade deals that might help, in- position leader who ran for president in cluding the reportedly imminent Regional 2017. Mr Babanov says he won’t run in the 7550250 100 Comprehensive Economic Partnership, coming election and has endorsed Mr Japa- Iron ore* which involves other 14 countries, includ- rov instead. Mr Japarov promises not to Barley ing China. A recent poll by the Lowy Insti- pursue the politics of revenge “because I’ve Crustaceans tute, a think-tank, found that 94% of Aus- been through that myself”. In early Novem- Animal hair tralians supported government efforts to ber he invited the only two former presi- Wood chips reduce dependence on China. dents who are not in exile or in prison— Cotton Realistically, though, China is too big a Sooronbay Jeyenbekov, whom Mr Japarov market for Australian exporters to replace Wine has just elbowed out of office, and Roza very quickly. For most of the affected pro- Otunbayeva, the elder stateswoman of Kyr- Copper ore ducts, China, in contrast, can easily find gyz politics—to attend an event with him. Copper other sellers. For some goods, such as coal, Mr Japarov is also toning down his jin- Beef it may want to succour its own producers. goism. “I am not a nationalist,” he insists, Coal Iron ore is the only big Australian export of promising to rule for Kyrgyz and minor- Wheat which China would struggle to find alter- ities alike. He says he is not sure whether it Source: ITC Trade Map *Not yet implicated in trade tensions native suppliers (see chart)—and trade in is worth nationalising the Kumtor mine it, oddly enough, has not been curtailed. 7 50 Asia The Economist November 14th 2020

State elections in India the help of a local partner, only to eclipse it soared past its opponents’. Exhausted but gradually with the help of its vastly greater jubilant, Ms Su Pon Chit went home to Against daunting financial resources and the disciplined write her report. Hundreds of nld suppor- ground troops provided by Hindu- ters, sharing her confidence, flocked to odds nationalist groups allied to the party. party headquarters to celebrate. To be fair, the bjp’s narrow victory in Bi- The Union Election Commission, har owes as much to the fragmenting of its which organised the poll, has not yet re- DELHI opponents in a first-past-the-post system leased all the results, but Monywa Aung Neither a pandemic nor a recession as to its own potency. Congress’s ally, the Shin, the nld’s spokesperson, says it has can slow Narendra Modi’s juggernaut rjd, a local party led by the 31-year-old sci- won 399 of the 476 elected seats in the two s the state of Bihar went to the polls at on of a political dynasty, won 75 seats, one chambers of the legislature. That is enough Athe end of October, its 125m citizens more than the bjp. With a slightly broader to form a government and name the presi- were contending with both the pandemic coalition it might have carried the day. dent, and nine more than the nld won in and the associated economic slump. Four more states are due to elect new as- its big victory five years ago. Once again the Would they punish the Bharatiya Janata semblies in the first half of next year. Sever- nld appears to have trounced its biggest Party (bjp) of the prime minister, Narendra al of the contests promise to be big and bru- opponent, the army-backed Union Solidar- Modi? Exit polls suggested they might. tal. The bjp has vowed to seize West Bengal ity and Development Party (usdp), and it But when the results were released on in particular. If Mr Modi had begun to wor- has beaten expectations in states domin- November 11th, they showed the bjp and its ry that he was losing his famous hawa, or ated by ethnic minorities. local ally, the Janata Dal (United) (jdu), tailwind, he will be resting easier now. 7 The usdp, however, claims that the poll winning roughly the same share of the vote was unfair. The election commission is an as their biggest challengers, a coalition of easy target. It is appointed by the president, the local Rashtriya Janata Dal (rjd), leftist Myanmar’s election an nld stalwart. It did not publish the final parties and Congress, a much enfeebled number of registered voters until after vot- party that nonetheless remains the only Mother knows best ing started. It disqualified candidates well nationwide rival to the bjp. In terms of into the campaign. Citing security worries, seats in the state assembly, the bjp’s alli- it did not hold elections in several states, ance actually won a narrow majority. And disenfranchising 1.5m voters, mainly from within the alliance it was the bjp that per- ethnic minorities. Yet on the day itself, the formed best, winning most of the seats it YANGON Carter Centre, an ngo that monitored the Aung San Suu Kyi’s party defies contested. The jdu, whose leader, Nitish election, found “no major irregularities”. expectations with a landslide victory Kumar, has served three near-consecutive Nevertheless, the scale of the nld’s vic- terms as Bihar’s chief minister, floundered. u pon chit had to contain her excite- tory is surprising. Its record in office has “The bjp has achieved exactly what it Sment. It was November 8th, the day of been lacklustre. Economic growth has wanted in Bihar, which is to have a govern- Myanmar’s second election since the end been disappointing. Efforts to end the civil ment but to cut Nitish Kumar down to size,” of military rule in 2015. A poll observer, she wars simmering on the country’s periphery says Pavan Varma, a former adviser to Mr was duty-bound to be impartial. But she is are flagging. Discontent with the nld has Kumar. To make things sweeter for the bjp, also an ardent supporter of Aung San Suu been mounting, especially among ethnic Congress won only a meagre 19 of the 70 Kyi, Myanmar’s de facto leader, and her minorities. seats it fought. Better yet for Mr Modi, the party, the National League for Democracy After their poor performance in the pre- Election Commission declared his party (nld). She watched as voters queued and vious election in 2015, many parties cham- the winner in dozens of local by-elections ballots were counted in her neighbour- pioning ethnic minorities merged, in order that were held simultaneously in 11 other hood in Yangon, the commercial capital. not to split the opposition vote. The num- states. Most significantly it strengthened The nld’s tally, scrawled on a blackboard, ber of covid-19 cases sharply increased in 1 its hold on the pivotal state of Madhya Pra- desh, returning under its banner a clutch of deputies whose defection from Congress last year gave the bjp a narrow majority in the state assembly. Given that India’s economy has shrunk perhaps by 10% since covid-19 hit and that more than 128,000 people have died from the disease, this was a stellar performance. Six years into office and 18 months after winning a landslide national election, Mr Modi has not only kept his own sheen bright but has also expanded his party’s in- fluence. The serial humiliation of Con- gress, now widely blamed for dragging down the opposition’s “grand alliance” in Bihar, will further shrink its bargaining power in other states where it needs allies to challenge the bjp. And by outshining his own ally in Bihar, Mr Modi has again shown the effectiveness of a tactic that has trans- formed the bjp from a regional party to the dominant political force across India. In state after state it has gained power with Voters’ enthusiasm for the NLD has not flagged The Economist November 14th 2020 Asia 51

2 September, just as campaigning began, controls government budgets, notes Salai prompting fears that the top brass might stirring fears about turnout. Jimmy Rezar Boi, secretary of the Chin Na- repudiate the election result (it is anyway But “Mother Suu” remains hugely popu- tional League for Democracy (cnld), an guaranteed 25% of the seats in parliament, lar in Myanmar, especially among the eth- ethnically based party. He says that in Chin enough to block constitutional reform). nic-Bamar majority, but also with some state, the nld, having promised to build The general, perhaps realising his mistake, minorities. Win Lae Shwe Yee, an ethnic schools, bridges and the like, took 35 out of later said he would accept the outcome. But Shan, voted for the nld in this election and 39 seats in the state parliament, up from 28 Moe Thuzar of the iseas-Yusof Ishak Insti- in 2015. She vehemently disagrees with in 2015. The cnld won just one. tute, a think-tank in Singapore, suspects those who have come to see the nld as a The army may have given the nld an that his intervention helped to turn out the party of the Bamar, rather than all Burmese, unintentional fillip just days before the vote. On November 11th the usdp demand- saying Ms Suu Kyi works “tirelessly” for the election, when Min Aung Hlaing, the com- ed that the election commission “hold a whole country. It helps that the nld tends mander-in-chief, impugned the integrity new election again, co-operating with the to field candidates from the dominant eth- of the election and accused the govern- military”. That will only strengthen Mother nicity in each constituency. Moreover, it ment of making “unacceptable mistakes”, Suu’s appeal. 7 Banyan Money but not a class

Filipinos working abroad are a source of cash, not reform ine months after Taal volcano them but an elderly father with big medi- vote.” Presidential candidates or their Nerupted, life in the Calabarzon re- cal bills. She has put the son, now 17, proxies come to Hong Kong for rallies. gion of the Philippines, south of the through boarding school. Her six siblings Not only do ofws’ votes count, but loved capital, Manila, is slowly returning to call on her when they have a financial ones at home will listen to them. normal, despite the raging pandemic. emergency. Through all this, she has On occasion, expats’ social-media Cinders buried houses, destroyed papaya bought a plot of land back home and built a campaigns have drawn attention to plantations and sent tens of thousands two-storey house. She and many other government corruption or incompe- fleeing. Today, the roads have been ofws are immensely proud of what they tence, such as after the deadly Typhoon cleared and the power is back on. Evacu- have accomplished. They are welcomed on Haiyan in 2013. Some academics hope ees have returned to patch up homes. their annual Christmas trip home (can- that expatriates, when they return, can in Local distilleries producing lambanog, a celled this year because of the pandemic) future help reshape the country’s poli- fierce spirit made from fermented palm as bayani, or heroes. Huge parties are tics, demanding better government and a sap, have sputtered to life. Few locals, thrown for them. They nearly always pay. more responsive approach to the coun- though, are holding their breath for the ofws are only one part of a 10m-strong try’s inequalities in the place of graft and promised splurge of government assis- Philippine diaspora. Without the Philip- the cult of the strongman. There are too tance. That leaves only one sure source of pines’ 378,000 seafarers, the global mer- few signs of that happening. ofws do not income: remittances from relatives chant fleet would be sunk. Nurses, doctors yet represent the kind of middle class working abroad. and oil and mining engineers the world capable of urging change. While remit- The 2.2m Overseas Filipino Workers over make up an expatriate professional tances can enable upward mobility— (ofws, as they are typically known) are class. In all, the diaspora sends home Bernadette’s son plans to study aeronau- feted nationally for their sacrifices. $30bn a year, a tenth of gdp. tical engineering—they can just as easily Nearly half toil in Saudi Arabia or the Politicians recognise the political and be spent by husbands on booze, roast Gulf states as maids, drivers or hotel economic clout of expatriates. In Calaca, pigs, gambling and lovers. Professionals, staff. All hotel bands in China seem to says Bernadette, they woo ofws with meanwhile, are more likely to emigrate have a Filipina singer. Hong Kong has promises of jobs when they return, schol- permanently. more than 150,000 ofws and Singapore arships for their children or health insur- One professional returnee, Ronald 120,000, most of them women working ance—“but they are just trying to get our Mendoza, dean of the school of govern- as domestic helpers and nannies. Central ment at Ateneo de Manila University, Hong Kong on a Sunday is like the Philip- posits another factor: ofws work largely pines writ small: a pavement map of the in authoritarian places, where the model country’s many languages as Filipinas of the strongman is rarely questioned. gather with friends from their region. Most Filipinas in Hong Kong, for A fifth of all ofws are from Cala- example, were bemused by recent pro- barzon. One, Bernadette, is a nanny in democracy protests and approve of their Hong Kong. Her home in Calaca, in the suppression. As for President Rodrigo shadow of the volcano, escaped the worst Duterte, who embodies personal rule and of the ash fall. But many of her friends promotes vigilante justice, he remains have been sending what money they earn wildly popular among ofws. When, at (just over HK$5,000, or $645, a month) to home, this columnist lamented that 18 help rebuild homes and livelihoods journalists have been murdered while Mr destroyed by the eruption. Duterte has been unremittingly hostile In other respects, Bernadette’s story is to the press, his Filipina cleaner was typical. The 40-year-old has worked in indignant, taking it as an insult to her Hong Kong for a decade, far from her president. Banyan was impelled to mut- husband and son. She supports not only ter an apology. 52 China The Economist November 14th 2020

Politics in Hong Kong mitting their resignations as The Economist went to press. Leaving in despair Just a year ago prospects looked much brighter for pro-democracy politicians. In local-council elections, held in November 2019 during anti-government unrest that had been sweeping the city since mid-year, they made unprecedented gains. It was HONG KONG widely believed that they would have Expulsions and resignations strip the territory’s legislature of a vocal opposition achieved similar success in this year’s here is “nothing to be ashamed of”, ment in a scuffle in the chamber. Then Legco polls, if they had been held—even Tsaid Hong Kong’s leader, Carrie Lam, came the ruling by the parliament in Bei- though only half of the body’s 70 seats are when asked how she would feel about the jing, the National People’s Congress (npc), directly elected. By issuing this week’s rul- territory’s legislature passing controver- that resulted in the final purge and, on the ing the npc has made it clear that even if sial bills after being stripped of an opposi- same day, Mrs Lam’s chilling response. It opposition politicians were to win a major- tion by the expulsions and resignations of said Hong Kong’s government could disbar ity of seats (in the most recent elections in pro-democracy lawmakers. “We are more any legislator who did not accept Chinese 2016 they fell just short), their numbers excited when bills are passed more effi- rule in Hong Kong or who otherwise violat- could be whittled down again at the gov- ciently.” Mrs Lam’s remarks on November ed national security. ernment’s whim. 11th signalled a dark new phase of China’s The Hong Kong authorities responded The four legislators who were disbarred campaign to snuff out Hong Kong’s free- swiftly to the npc’s edict. It declared that following the npc’s ruling were Dennis doms and usher in rule by rubber stamp as the four legislators who had been barred Kwok, Kwok Ka-ki, Kenneth Leung and Al- practised on the Chinese mainland. from re-election would also be stripped of vin Yeung. They are hardly radicals. “We Storm clouds had been gathering over their seats. In response, 15 other opposition follow the rules of procedure, we wear the Legislative Council (commonly known lawmakers held a press conference to an- suits. The four of us—two lawyers, one as Legco) ever since China imposed a dra- nounce they would resign in sympathy (see doctor, one accountant—are the most conian national-security law on Hong picture). With two others from their camp moderate of moderates,” says Dennis Kong on June 30th. In July the local govern- having already stepped down in September Kwok. The government has not spelled out ment barred 12 politicians, including four in protest against the postponement of the why they were kicked out. But in July, when sitting members of Legco, from standing in polls, their move would leave Legco with they were disqualified from standing elections that were due to be held in Sep- no opposition voice for the first time in de- again, they were variously accused of sign- tember. It accused them of opposing the cades. The legislators were formally sub- ing petitions against the national-security new law and other political misbehaviour. law, pledging to block passage of the bud- Shortly afterwards it postponed the elec- get were democrats to gain a majority and Also in this section tions for a year, citing the pandemic. supporting American sanctions on Hong Early this month police arrested eight 53 Self-help books Kong. In March Mr Leung travelled to Cali- opposition politicians, including five fornia to attend a conference about such 54 Chaguan: Tea before dawn Legco members, for their alleged involve- sanctions. But he says he did not encourage1 The Economist November 14th 2020 China 53

2 the imposition of them, fearing they would Self-help books harm Hong Kong’s economy. Pro-democracy politicians—at least Highly effective people’s republic those not disqualified—may still stand in next year’s elections. Mr Leung says the next Legco must have an opposition. But the trend is clear. Vocal opposition in Legco, which increasingly has involved filibustering by democrats, will be throt- The market for self-help books is booming, strongly influenced by America’s tled. The opposition “may have to shift to venues outside the establishment” to ex- ookshops in china are replete with America. That may be because both China press discontent, says Eliza W.Y. Lee of the Bworks offering advice on self-better- and America are “hyper-competitive and University of Hong Kong—although, as she ment. Topics range from coping with shy- materialistic regimes”, argues Mr Hen- notes, opportunities for street activism are ness (“How to Make Friends with Strangers driks-Kim, who has described this in his being shut down, too. The national-securi- in One Minute”) to succeeding in business book “Life Advice from Below: the Public ty law, along with coronavirus-related re- (“Financial Management in Seven Min- Role of Self-Help Coaches in Germany and strictions, have all but stamped out unrest. utes”). The title of one recent bestseller China”. In the early 2000s a Chinese trans- It is unlikely that many members of the urges: “Don’t Opt for Comfort at the Stage of lation of “Who Moved My Cheese?”, a moti- public will be upset by the democrats’ de- Life that is Meant to be Difficult”. Their vational book by an American, Dr Spencer parture from Legco. Those who support the popularity and contents reflect the stresses Johnson, became so popular that a play government have long regarded them as of a society in rapid flux—one in which based on it toured theatres and the Chinese troublemakers bent on disrupting legisla- paths to wealth are opening up in ways word for cheese acquired a new meaning: tive proceedings. Opinion polls suggest the barely imaginable a generation ago and one’s own self-interest. Books proliferated government’s many critics have little hope competition is fierce (see Chaguan). in China with cheese in their titles. that the legislature will ever be democratic. Reliable statistics on China’s book mar- China has a long tradition of reading for So, as the Communist Party tightens con- ket are hard to find. But according to a practical purposes. In 2018 fiction account- trol over Legco, they increasingly regard study by Eric Hendriks-Kim, a sociologist ed for 7% of sales, compared with more the involvement of pro-democracy politi- at the University of Bonn, self-help books than 30% in Germany. “One of the most cians in it as meaningless, says Ho-Fung may account for almost one-third of Chi- striking features of China’s market for Hung of Johns Hopkins University. In Sep- na’s printed-book market. In America they books is its absolute and passionate rele- tember the Hong Kong Public Opinion Re- make up only 6% of adult non-fiction print vance to life,” said a report in 2006 by Arts search Institute canvassed views on the de- sales, reckons npd Group, a research firm. Council England. The exam-focused edu- cision to delay the elections. It found an Although China’s leaders keep stressing cation system leaves little time to develop almost even split among opposition sup- the need for China to be “self-reliant”, seek- interpersonal skills, so people, desperate porters between those who wanted their ers of advice on how to succeed often turn for advice on how to sell themselves, turn camp’s legislators to carry on working dur- to American books for guidance. In China to self-help books instead. ing Legco’s extended term, and those who last year the top ten self-help sellers in- That may suit the Communist Party, ea- preferred that they resign. “I’ve been re- cluded translations of several American ger as it is to promote “positive energy”. But ceiving a lot of messages of support from works, such as “How to Win Friends and In- the party would prefer native-born role members of the Hong Kong public saying fluence People”, “Peak: Secrets from the models. State media have touted a book by they don’t want us to give credence to this New Science of Expertise” and “The Seven President Xi Jinping, “Seven Years as an institution anymore. They tell us that by re- Habits of Highly Effective People”. Educated Youth”, as the kind of tome peo- maining, we give it some sort of credibil- Chinese readers appear more eager for ple should study (see picture). It describes ity,” says Mr Kwok. such imports than people in many other Mr Xi’s hard life in the countryside during Such pessimism is easy to understand. countries that are culturally closer to the Cultural Revolution of the 1960s and Since the security law was adopted there 1970s. “Is there really any self-help book has been a steady stream of news that has better than Xi’s?” asked one headline. spooked Hong Kong’s democrats. Several Mr Xi is also fond of the classics, some outspoken academics have been forced to of which are being repurposed for self-im- quit, or have not had their contracts re- provement purposes. Yu Dan, perhaps Chi- newed. Earlier this month a television na’s best-known pop philosopher, has sold journalist was arrested after helping to 11m legal copies (millions more may have produce a story for Hong Kong’s public been peddled in photocopied form) of broadcaster, rthk, that was critical of the “Confucius from the Heart”. Some Chinese police response to an attack by thugs on have mocked it for making the sage sound anti-government protesters during last “much like the masters of American self- year’s protests. Her alleged offence was ob- help”, says Mr Hendriks-Kim. taining car-ownership details from a gov- Perhaps the self-help industry has come ernment database using a false pretext. full circle. After all, China’s 6th-century-bc But the existence of an opposition in masterpiece for would-be generals, “The Legco, however frustrated by the electoral Art of War” by Sun Tzu, was arguably the system (almost half of the seats are re- self-help prototype. Its title has been ech- served for interest groups such as indus- oed, consciously or otherwise, in the tries and professions), has long made Hong names of countless other books of the Kong’s political system stand out from the genre. One such is Donald Trump’s “The Art mainland’s. The prospect of a Legco de- of the Deal”. Its fifth and most recent trans- prived even of the few teeth it has is indeed lation in China was published in 2016 by a bleak one. 7 Xi and the power of positive thinking the Communist Youth League. 7 54 China The Economist November 14th 2020 Chaguan Tea before dawn

Visiting a century-old chaguan in China’s heartland, for the 100th Chaguan column seat each morning from four o’clock. Crop-haired and chain- smoking, Ms Jiang married in 1957 at a time of scarcity and hunger. Her wedding feast consisted of carrot porridge, but only after she had pleaded tearfully with her production-brigade leader for an advance on her vegetable ration. None of her four children fin- ished junior high school. Her eldest son dropped out in his first year of primary school after being unjustly accused of vandalism. He earned money by “collecting dog shit and chicken shit”, re- members Ms Jiang. In the 1950s toughs attacked anyone with a side business as “capitalists”, she recalls. During the Cultural Revolu- tion, from 1966 to 1976, Red Guards smashed Buddhist statues in Pengzhen’s temple-teahouse and “nobody dared to stop them”. Unsurprisingly, she thinks life today is far better. As a rural pensioner she receives social insurance and old-age payments of over 2,000 yuan ($300) a month. Her grandchildren, having gradu- ated from university, are upwardly mobile like many young people these days. A quarter-century ago just one-in-twenty Chinese at- tended university. Today half of all Chinese youngsters of under- graduate age are in higher education. Ms Jiang no longer lives in fear of hunger or political violence. Still, some forms of scarcity in- volve things that are harder to spot, such as equal access to oppor- tunity. Like many in Pengzhen, Ms Jiang’s family have rural house- ecades spent brewing tea in rural Sichuan have left Li Qiang hold-registration, or hukou. As a result, her grandchildren are Dwith firm views on what makes for an authentic chaguan, or second-class citizens, able to live and work in big cities but denied Chinese teahouse. If age and beauty were the only tests, his shop, many public services there. Notably, they will have to find fees of the Old Teahouse in Pengzhen, would pass easily. A place to drink 30,000 yuan a year to send Ms Jiang’s great-grandchildren to high tea for more than a century, the grey-roofed, timber-framed build- school. “If we didn’t borrow money from others, how could we af- ing dates back to the Ming dynasty, when it was a temple to Guan- ford that?” she asks. Ms Jiang is emphatic: “We have a good life yin, a Buddhist immortal. Maoist slogans painted on the walls, in now.” But she adds: “Young people face a lot of pressures.” characters of faded red, reflect Pengzhen’s history as a people’s commune. Hours before dawn the air is already thick with tobacco In China to get rich is glorious, but daily life is a slog smoke and fumes from a coal-fired stove, for the first customers A middle-aged man sipping tea before work will give only his sur- arrive for “early tea” at half past three in the morning. Human com- name, Huang. He praises modern China, declaring that “Each gen- panionship makes a teahouse, says Mr Li, who rented the hall from eration is doing better than the last.” Yet Mr Huang’s own life re- a collective enterprise in 1995. Only when customers treat a mains precarious. Now 59, he has no retirement fund. So he saves teashop like a home is it a chaguan, he declares. Until then, in Mr 1,000 yuan from his monthly pay as a cleaner in a factory, which Li’s withering judgment, it is merely “selling tea to passers-by”. ranges from 2,000 to 4,000 yuan depending on overtime. He went Your correspondent visited Pengzhen this week to mark the unpaid while covid-19 closed his factory for nearly three months, 100th Chaguan column, a name that pays homage to China’s tea- and has not forgotten the terror of worrying if his savings would houses and their history as places where ideas are exchanged. Mr run out before work resumed. His hopes rest on enabling his five- Li’s establishment draws a stream of locals. Many are old men in year-old grandchild to land a good job one day, though he worries farmers’ blue cotton jackets and caps, puffing on pungent cheroots about school fees. Taking early tea is one of his few indulgences. or cigarettes in sturdy bamboo armchairs. Those photogenic cus- His daughter is too busy working to visit teahouses, he sighs. tomers lure Chinese urbanites, who carry expensive cameras and Two 20-year-old women photographing tea-drinkers turn out look for images of rural life or selfies to post on social media. Such to be undergraduates from Sichuan University of Media and Com- a diverse customer base makes Mr Li’s teahouse a good place for an munications, on a class assignment. “There is definitely a lot of experiment: an unscientific survey of how Chinese think. It being pressure” on the young, says one. She has an internship but no job unsafe and unfair to ask Chinese citizens directly, in public, about lined up after graduation. Her mother’s uncomplicated childhood Communist Party rule, this columnist spent a happy (if painfully memories—“stealing bananas in the countryside”—make her al- early) few hours asking people two questions often used to assess most envious. Still, the students are confident that life is better to- morale in different countries. The first concerns a subject’s own day, though not confident enough to give their names to a foreign economic circumstances. The second is about whether future gen- reporter asking almost-political questions. erations are likely to be better off than their parents. Mr Li, 55, suggests that some people create pressure for them- The exercise generated strikingly consistent answers. Despite selves by setting their sights too high. A devotee of the simple life, wide differences of age and education, patrons in the Old Teahouse his menu consists of a single item: jasmine tea from Ya’an, in the are optimistic about China as a whole, after decades of rising pros- foothills of the Tibetan plateau. He charges locals one yuan for un- perity. Yet many also describe modern life as stressful, with too limited refills, and everyone else ten yuan. “You chat a bit, drink many families chasing too few chances to secure a good education, some tea every day, that’s happiness,” he says. Pengzhen’s un- a good job and other paths to success. eventful pleasures are not for everyone, for modern China is a rest- Jiang Huiyun, an 82-year-old widow, sits in a prime window- less, brutally unequal place. The tea, however, is excellent. 7 International The Economist November 14th 2020 55

American foreign policy it clear that he wants to integrate climate action across his foreign and domestic What does the world want policy. The importance of having America back on the climate train is hard to over- from Joe Biden? state. Over the past four years, voters around the world have noticed not only warmer temperatures, but increasing numbers of floods, droughts and forest BEIRUT, BRUSSELS, PARIS, SÃO PAULO AND TOKYO fires. Europe is pushing through an ambi- Predictability, and a sense that people all share the same planet tious green deal at home and working n the morning after the polls closed target of net-zero emissions by 2050, closely with China, the world’s largest Olast week, America withdrew from the which modellers say will shave 0.1°C off emitter. If Mr Biden can formalise Ameri- Paris agreement on climate change. The ef- their temperature projections for the end ca’s emissions targets for 2030 and 2050 fects will be short-lived. President-elect of the century. To rejoin the Paris deal, he before the cop26 un climate summit next Joe Biden has promised to rejoin the pact as will need formally to submit this goal year, that will help convince other govern- soon as he enters the White House. alongside an updated national pledge to ments that the country intends to pull its Donald Trump’s defeat has evoked slash emissions. Most observers believe a weight. That should give others—includ- strong reactions around the world. The 45-50% decrease from 2005 levels by 2030 ing China—the guts to decarbonise faster. main one “is relief”, says Andreas Nick, a would be tough but feasible, fair and com- However, not all governments will wel- German mp. But the world will not return to mensurate with what Europe is doing. come a carbon warrior in the White House. how it was in 2016, and Mr Biden will not Mr Biden can re-enter the Paris deal Oil- and coal-producers are wary. So is Bra- please everyone. without congressional approval, but he zil’s President Jair Bolsonaro, not least be- Consider climate change. Most coun- will need some degree of buy-in from both cause Mr Biden has threatened “economic tries are eager to welcome America back sides of the aisle to make his pledges cred- consequences” if Brazil continues to tear into the club of those that care about it. In ible. Integrating green infrastructure, ener- down the Amazon rainforest. Mr Bolso- the past eight weeks, China, Japan and gy, and research and development into any naro, who thinks foreign eco-scolds have South Korea have vowed to reduce net new government stimulus would help. imperialist designs on Brazilian territory, emissions to zero by mid-century or there- American public opinion is broadly favour- tweeted “OUR SOVEREIGNTY IS NON-NE- abouts. Four of the five largest economies able. In exit polls two-thirds of voters said GOTIABLE” and spoke vaguely of needing have now committed themselves to emis- that climate change was a serious problem. “gunpowder” to defend it. Brazil’s carbon sions cuts that are in line with limiting glo- Whether they will accept higher energy emissions rose by a whopping 9.6% in bal warming to 2°C above pre-industrial prices to fix it remains to be seen. 2019, mainly due to deforestation. levels or less (see chart 1on next page). Outsiders are watching to see if Mr Bi- Another area where the world expects Mr Biden has said he intends to adopt a den structures his team in a way that makes more collaboration is health. Mr Trump an-1 56 International The Economist November 14th 2020

2 nounced in July that America was pulling States. Still, many would like to see Mr Bi- 1 out of the World Health Organisation They have promises to keep den approach China in closer co-ordina- (who), the main global body for fighting Greenhouse-gas emissions* tion with allies, and with less blind rage. pandemics (among other things), grum- Gigatonnes of CO2 equivalent For all that Japanese policymakers wish to bling that it was beholden to China. Mr Bi- 15 constrain their huge neighbour, they are, den says he will reverse this rash decision given China’s proximity and the two coun- PLEDGES on the first day of his presidency. 12 tries’ enmeshed economic ties, reluctant to By executive order, he can stop the clock China confront it. They dread the kind of open on the withdrawal process, which was to be 9 break with China that the Trump adminis- US† completed by July 2021. It is unclear how 6 tration has seemed bent on. big the disruption will be. America is the Japan’s new prime minister, Suga who’s biggest donor: in 2019 it provided European 3 Yoshihide, surely hopes for a more conven- around 15% of its budget. With Mr Biden in Union tional relationship with his country’s main charge, America is also expected to join a ‡‡0 ally. “It’s extremely important for us to global coalition funding the development 60504030201020001990 have professional consultations with the of covid-19 tests, drugs and vaccines and Source: Climate *Excluding land use and forestry United States, and with a head of govern- Action Tracker †Biden election pledge ‡Net zero their distribution to poorer countries. In- ment who is knowledgeable about foreign ternational co-operation is likely to work policy,” says Tanaka Hitoshi, a former dep- better than “America First”. The pandemic American Enterprise Institute, another uty foreign minister. “won’t be over in the us if it’s not over in think-tank, is “Let us do whatever we like, South Koreans would agree. Mr Trump Mexico,” notes a Mexican official. because we are with you on China.” tore up a trade deal and constantly threat- Governments everywhere are asking When it comes to asserting hard power, ened to withdraw American troops from how Mr Biden will affect their national in- America’s friends in Asia want Mr Biden to Korean soil if Seoul did not pay more for terest. China’s state media have given him a be closer to Mr Trump than to Barack their presence. Mr Biden, in an op-ed for cautious welcome. Global Times, a tabloid, Obama. Mr Obama drew red lines in the South Korea’s national news agency, called even called him an “old friend”. China’s re- South China Sea, but then did little when such threats “reckless” and vowed to gime may have relished the decline of China crossed them. The Trump adminis- strengthen the alliance. In a poll before the American soft power under Mr Trump, but tration, by contrast, more vociferously re- election, almost two-thirds of South Kore- it also chafed at the capriciousness of his jected China’s claims in the sea and upped ans said they wanted Mr Biden to win. China policy and the hawkishness of his the American naval presence. It reaffirmed Likewise, in South-East Asia, Mr officials. In its view, the Trump administra- America’s defence commitment to Japa- Trump’s calls for an ideological crusade tion is to blame for pushback in much of nese islands harassed by China. And it sold against “Communist China”, to be fought the West against Chinese influence. arms to Taiwan. Bilahari Kausikan, former- on every front, showed an administration China does not expect a Biden presiden- ly Singapore’s top diplomat, says that when out of touch with diplomatic realities, ar- cy to reduce Western anxiety. But it hopes Mr Trump told President Xi Jinping of Chi- gues Dino Patti Djalal, an Indonesian for- for more predictability. Under Mr Trump, na, his guest at Mar-a-Lago in 2017, that he mer ambassador to America, in the Dip- China feared a sudden policy shift towards had just bombed Syria over its use of chem- lomat, a magazine. Yes, China causes Taiwan that might have brought the two ical weapons, he did much to restore the headaches in South-East Asia. But it has countries closer to war. It hopes that Mr Bi- credibility in Asia of American power. posed no ideological threat for decades. For den will be more careful. now, he says, the region’s priority is to China would also like a less choppy Say it ain’t so Joe overcome the pandemic (with China’s trade relationship. It doubts that Mr Biden Some Asians worry that Mr Biden might help) and chart an economic recovery (in will ramp up tariffs in a futile effort to make make security concessions to China in pur- which China will be the motor of growth). bilateral imports equal to exports, as Mr suit of other goals, such as co-operation on The American presence is welcome, but Trump did. It hopes that he will cut some of climate change. Where Mr Obama “put em- having to take sides is not—which is why those tariffs. It does not expect any change phasis on engagement first, it’s time to put Indonesia recently refused to offer a home in America’s attitude towards Chinese in- deterrence first,” says Miyake Kunihiko of to American spy planes. volvement in building 5g networks, or its the Canon Institute for Global Studies, a As for Mr Biden, Asians are counting on military build-up in the South China Sea. think-tank in Tokyo. “They shouldn’t leave a return of what Kevin Rudd, an Australian India’s prime minister, Narendra Modi, China with any illusions it would be able to former prime minister, calls “strategic and was quick to fire congratulatory messages attack Taiwan,” says Sasae Kenichiro, a for- economic ballast” to America’s relation- both to Mr Biden and to his running-mate. mer Japanese ambassador to the United ship with Asia, and “a more nuanced diplo- Kamala Harris inspires “immense pride” macy”. Is that likely? Mr Rudd thinks so. Mr not just among her chittis (aunties) but Biden is pulling together a team of Asia ex- 2 among all Indian-Americans, Mr Modi Whither will he wander? perts for whom “the granularity of the gushed. Indian pundits speculate that he is United States, countries visited by the president Indo-Pacific is like second nature”. Average, per year of term keen not to be punished for having bet Total During the Trump years the European heavily on Mr Trump, his fellow populist. Union (eu) unexpectedly found itself the He probably won’t be. Whoever is in 1086420 guardian of multilateralism. After Mr Bi- charge, bilateral ties have warmed in recent Ronald Reagan 27 den’s victory, Europeans hope this burden decades. “The us cannot create an effective George H. W. Bush 37 will be shared. Besides rejoining the Paris balance of power against China without In- Bill Clinton 74 agreement, they would like America to dia,” notes Ashley Tellis of the Carnegie En- stop undermining the World Trade Organi- dowment for International Peace, a think- George W. Bush 74 sation and to revive the Iran nuclear deal. tank. Mr Biden’s campaign website took In- Barack Obama 59 Mr Biden has suggested he will do so. eu dia to task for its backsliding on democracy Donald Trump 22 In grand strategic terms, the ’s main and human rights. India’s unspoken retort, aim is to avoid being dragged into a hege- Source: US Department of State in the words of Sadanand Dhume of the monic struggle between America and Chi-1 The Economist November 14th 2020 International 57

2 na. It wants to be slightly firmer and less ground that Mr Biden’s party stood for 3 credulous with China, but may not support Bring the boys back home “moral imperialism”. Poland’s rulers did so Mr Biden if he pursues confrontation. United States, overseas active-duty troops*, ’000 for similar reasons. Janez Jansa, prime Mr Biden will not undermine nato as 300 minister of Melania Trump’s native Slove- his predecessor did. And he will insist that Unknown/ nia, insisted for days that Mr Trump had nato other 250 allies, two-thirds of whom fail to Americas won and retweeted fake news to that effect. gdp spend 2% of on defence, invest more in South & 200 their own armed forces. Germany hopes Central Asia Back to life, back to reality 150 that this message will no longer be accom- East & South These countries now face a president who panied by threats to slap tariffs on German -East Asia 100 sees upholding the rule of law as a foreign- cars, and that disputes between allies will Middle East & policy priority. As vice-president, Mr Biden be settled quietly, rather than over Twitter. north Africa 50 repeatedly toured eastern Europe explain- France hopes for a fresh American push Europe ing that America saw corruption as a tool of 0 to resolve regional conflicts that affect Russian influence, and fighting it as crucial European security, from Turkish expan- 2012 16 20 to nato’s security. Daria Kaleniuk of antac, sionism in the eastern Mediterranean to Sources: Defence Manpower an anti-graft group in Kyiv, hopes Mr Biden Data Centre; The Economist *At September instability in Lebanon and Libya. Germany will be “much stronger and more involved”. and France will welcome a return of Ameri- Many autocratic leaders will miss Mr can civility and seriousness, and an end to Netanyahu, was close to Mr Trump, and Trump’s tendency to overlook their sins. Mr Trump’s efforts to divide Europe. will have to mend ties with Mr Biden. How- Saudi Arabia’s crown prince, Muhammad Yet there is also a clear-eyed recognition ever, his country retains strong support in bin Salman, will find his regular WhatsApp in European capitals that, even under Mr America. The Palestinians hope to reverse chats with Jared Kushner less useful. Vladi- Obama, Europe had begun to slip out of some of Mr Trump’s more antagonistic mir Putin expects frostier relations. Hence, American sight. “The Americans are obvi- moves, such as closing their diplomatic perhaps, the histrionics of Dmitry Kiselev, ously indispensable,” says a French presi- mission in Washington and cutting aid. his propagandist-in-chief. “For a long time, dential source, “but the world has They are unlikely to convince Mr Biden to they have been trying to teach us [democra- changed.” France now wants Europe to do move America’s embassy in Jerusalem cy],” he said. “But now the teacher has more for itself, and differently. Emmanuel back to Tel Aviv.Most countries want Mr Bi- staged a debauchery, smashed the win- Macron, France’s president, will need to den to slow the drawdown of American dows and shit his pants.” persuade the Biden team that his ambi- troops from Afghanistan, where fighting Many poor countries hope that Mr Bi- tions to build up “strategic autonomy” in between the government and the Taliban is den will notice them. Governments in Afri- Europe are not aimed at sidelining nato. intensifying, and to keep a foothold in Iraq, ca want support to deal with the economic where Islamic State is active (see chart 3). fallout of the pandemic. Central America Not your average Joe For the world’s populists and national- wants aid to curb violence and give people Britain hopes to secure a trade deal with ists Mr Trump’s presence in the White an alternative to emigration. Developing America (to offset the damage done by House was evidence that theirs was the ide- countries everywhere would like less blus- Brexit) and to punch above its weight glob- ology of the future. “The value Bolsonaro ter about a new cold war with China and ally via its “special relationship” with the derived from Trump was the narrative,” more American trade and investment. superpower. However, Mr Biden, who has says Oliver Stuenkel of the Fundação Getu- Human-rights groups would like a vo- Irish ancestry, has hinted that Britain can lio Vargas, a university in São Paulo. Andrés cal ally in the White House, or even a long- forget about a trade deal if it reimposes a Manuel López Obrador, Mexico’s left-wing winded one. “We will clearly see a more se- hard border between Northern Ireland and populist president, has so far refused to rious voice on democracy and human the Republic of Ireland. He has described congratulate Mr Biden. rights in Africa,” says Judd Devermont of Boris Johnson, Britain’s prime minister, as Viktor Orban, Hungary’s illiberal prime the Centre for Strategic and International “the physical and emotional clone of Do- minister, supported Mr Trump on the Studies, a think-tank. “The Trump admin- nald Trump”, which is not meant as a com- istration’s absence was most deafening on pliment. That Mr Johnson was the second politics and governance.” world leader to speak to Mr Biden after his Finally, the world expects America to victory will allay some fears, but Britain welcome more foreign talent. Mr Biden will probably lose its role as the bridge be- vows to repeal Mr Trump’s toughest immi- tween the United States and Europe. gration curbs, stop building the wall, stop In the Middle East reviving the Iran nuc- putting children in cages and offer a path to lear deal will not be easy. Most American citizenship for people living in America il- Republicans and some Democrats revile it. legally. Countries that send lots of emi- Mr Biden may lift some sanctions and then grants, such as India, are pleased. try to negotiate a follow-up agreement. Is- So are the migrants themselves. Arvin rael and the Gulf states will want it to go Kakekhani, an Iranian researcher at the much further than the original 2015 ver- University of Pennsylvania, designs cata- sion—to impose limits on Iran’s ballistic- lysts to turn water and carbon dioxide into missile programme and perhaps its sup- clean fuels. After Mr Trump’s “Muslim ban” port for militant groups. Iran is unlikely to he felt “so insecure”, not knowing whether agree to such terms, though, in which case he would be able to stay in the country, he America’s Middle Eastern partners will recalls. He has had to live apart from his urge Mr Biden to maintain the sanctions. Iranian wife for two years. “My dream is to Mr Trump had a notable success in per- use expertise to tackle the climate crisis,” suading Arab states to recognise Israel. Mr he says, adding that with Mr Biden’s vic- Biden will be under pressure to continue tory, he is “now much more motivated to the thaw. Israel’s prime minister, Binyamin stay” and do it in America. 7 58 Business The Economist November 14th 2020

Chinese private enterprise banks. But on November 10th the publica- tion of an extensive draft of new rules for The intimidation game technology groups laid bare the state’s am- bitions to bring to heel not just Ant, but the whole of China’s tech industry. Mr Xi’s relationship with China’s ty- coons has always been troubled. When he HONG KONG became president in 2013, he inherited a The humbling of Jack Ma wasn’t a one-off. Xi Jinping is determined to assert corporate system replete with fraud, more Communist Party authority over China’s glittering tech industry patchy regulation and surging debt. After t a summit with China’s richest entre- tech, which has expanded rapidly (see the success of an anti-corruption cam- Apreneurs in late 2018 Xi Jinping sought chart on next page). Six of China’s 20 most paign that mostly targeted officials, Mr Xi to allay concerns that the state had de- valuable listed companies are tech firms took aim at a group of businessmen who clared war on the country’s private sector. and with billions of users they touch the were ploughing huge sums into risky over- Although officials in Beijing had spent the lives and wallets of almost all citizens. seas investments. Purchases included Sea- previous year bringing to heel unruly ty- A reckoning for the sector began with World, an American amusement-park coons, China’s president insisted that ru- what looked like a shot across the bows of group, and the Waldorf Astoria, a swish ho- mours of a forceful push for party influ- China’s largest financial-technology tel in New York. Officials argued that many ence in the private sector were untrue. He group. The suspension by regulators on of these acquisitions were thinly disguised exhorted the business leaders to “take a pill November 5th of Ant Financial’s $37bn ini- means to divert capital out of China. of reassurance”. tial public offering with less than 48 hours’ Many of the businessmen who once The medicine has been hard to swallow. notice was at first interpreted merely as a fancied themselves as a Chinese Warren Since then the Communist Party has warning to its founder, Jack Ma, who had Buffett are in prison or worse. Wu Xiaohui, sought a more active hand in recruitment previously criticised China’s state-owned the chairman of Anbang, which bought the and business decisions. And after sub- Waldorf among other assets, was handed duing a band of headstrong bosses at over- an 18-year prison sentence in 2018 for fi- extended financial conglomerates, the Also in this section nancial crimes. Ye Jianming, who attempt- state is now taking aim at China’s tech bil- ed to buy a $9bn stake in Rosneft, a Russian 60 Disney’s streaming-TV success lionaires, making it clear that outspoken oil producer, was detained in early 2018. critics will not be tolerated. 60 A growing taste for pasta His whereabouts is still unknown. Xiao Mr Xi’s preoccupation has always been Jianhua, a broker for China’s political elite 61 Royal Enfield revs up maintaining China’s social and financial who once controlled Baoshang Bank, was stability. Keeping big business in check is 62 Schumpeter: The big McComeback kidnapped by Chinese agents from his flat part of that plan. It should come as no sur- at the Four Seasons Hotel in Hong Kong in prise that the state is now homing in on — Bartleby is away 2017 and is thought to be co-operating with 1 The Economist November 14th 2020 Business 59

2 authorities in the unwinding of his finan- but also to individual political leaders, cial conglomerate. Tech-tonic shift needs to be strictly maintained,” says Sun The crackdown has put an abrupt end to China Xin, an academic at King’s College London. a boom in global spending by Chinese “The case of Ant is just one manifestation firms: in 2016 there were $200bn-worth of Mainland-domiciled companies of this underlying logic.” overseas mergers and acquisitions, the fig- Market capitalisation*, $trn The halting of Ant’s ipo was triggered by ure in 2019 was less than a fifth of that. And new draft regulations aimed at online mi- under government pressure private groups 6.8 14.7 23.7 cro lending. For Ant, the rules can only be have divested assets worth billions of dol- 18 interpreted as an attack on the firm’s lend- lars. hna, an airlines and logistics group ing platform, its biggest source of revenue. Tech companies 15 that bought a large stake in Deutsche Bank share of total, % Mr Ma may regret comparing China’s banks and Hilton Worldwide, a hotel group, has 12 to pawnshops in a speech in October. The sold assets worth over $20bn in recent Other 9 comments infuriated senior officials and years. Anbang Insurance was nationalised, 6 played a part in the hasty suspension of putting the Waldorf under the ownership Ant’s ipo. But Mr Ma is not to blame for the of China’s Ministry of Finance. Baoshang 3 latest onslaught of antitrust rules, al- Tech was taken over by the state and allowed to 0 though he may have sped up their arrival. file for bankruptcy in August. Acquisitions 2010 15 20 of European football clubs by Chinese vie-ing for influence groups have all but ended. Listed companies† with “party building” The new rules, under consideration for Analysts have praised the way in which terms‡ in charter, June 2020, % some while, will for the first time explicitly systemic risks posed by companies such as apply monopoly controls on internet and 100806040200 Anbang and hna appear to have been re- e-commerce firms. For many years China’s duced on Mr Xi’s watch. Within China few All antitrust laws have not exempted the dare to criticise him for his failings. Those groups but they have also not been targeted who have done so have been dealt with se- State-owned in monopoly cases. This has allowed a few verely. Ren Zhiqiang, a senior member of companies to control large swathes of the the Communist Party who once ran a state- Private digital economy. They also take aim at the

owned property firm, penned a missive to *At November 11th structures that have allowed Chinese tech friends earlier this year in which he re- †Based on 1,378 firms representing 80% of Chinese market cap firms to raise capital overseas. Barred from ferred to Mr Xi as a “naked clown”. He was ‡Guidelines promoting Communist Party allowing foreign investors to take direct sentenced to 18 years in prison in Septem- Sources: Plenum; Bloomberg stakes, for two decades virtually all capital- ber for bribery and embezzlement. hungry tech groups have skirted the rules The party has also been increasing its ible and not as economically important, by using a “variable-interest entity” (vie) to influence over private firms in more subtle party cells are little more than a rubber link foreign cash to the Chinese market. ways. Under a strategy referred to as “party stamp as profits will trump state influence The structure creates an offshore holding building”, firms have been asked to launch on decision-making. Their influence may company into which foreigners invest. party committees, which can opine on not necessarily be unwelcome either. One That company has a contractual agreement whether a corporate decision is in line with executive, whose company has a party with an onshore firm to receive the eco- government policy. The number of com- committee, argues that by growing closer nomic benefits of the underlying assets. mittees in publicly traded but privately to the thinking of the party leadership, “we The vie structure has long been tolerat- controlled companies is still low. Accord- can steer the company accordingly”. This ed by Chinese authorities, but without full ing to a survey of 1,378 Chinese listed firms heads off potential clashes with the state. legal recognition. Foreigners have virtually by Plenum, a consultancy, of the 61% that So far there is little evidence to suggest no recourse in China to claim rights to the were privately controlled only 11.5% had that party committees have hurt profitabil- assets they have invested in. Foreign funds party-building clauses in their charters ity, says Huang Tianlei of the Peterson In- have long been wary of the framework but compared with 90% of state-owned firms. stitute for International Economics, a most Chinese tech companies still use it to think-tank. But increased party influence structure their overseas listings. The new Party invitation could inhibit some operations. “Innova- antitrust rules could require companies to Yet the prevalence of such committees tion may be suppressed. More red tape can seek approval for such arrangements, call- looks likely to grow. In September Mr Xi emerge. A firm can turn from profit-driven ing into question whether vies will be per- asked for the private sector to “unite to goal-driven, sacrificing profitability,” mitted in the future and so the way that for- around the party”. A day later Ye Qing, vice- says Mr Huang. eign capital will reach Chinese tech chairman of the All-China Federation of In- It is possible that party committees may firms. The threat of withdrawing tacit ap- dustry and Commerce, a powerful organi- soon play a larger role in tech firms. A raft proval for a vie is another way the state can sation controlled by the Communist Party, of new regulations presents a more imme- intimidate firms and their owners. issued a more detailed list of demands. He diate threat. Ant is connected to hundreds Perhaps the new rules will humble the called for private groups to establish hu- of millions of people through its payments outspoken Mr Ma. He has not spoken pub- man-resources departments led by the and lending platforms. Like other Chinese licly on the matter, but Ant has bent the party and monitoring units that would al- tech giants it holds precious data on cus- knee and agreed to embrace the new regu- low the party to audit company managers. tomers as well as controlling a pipeline lations. Mr Xi has made clear that no com- This might not affect all firms equally. through which hundreds of billions of dol- pany is too big, and no ipo too valuable, to “For big companies, there’s no negotiation. lars are lent and spent. That such power be allowed to challenge the state. 7 The party approaches you and you say yes,” lies in private hands is a source of tension says Joe Zhang, a business consultant who between the party and entrepreneurs. has sat on the boards of Chinese private “These resources need to be tightly con- Correction In our article on video-gaming last week we wrongly attributed a quote to Tony Habschmidt and state corporations. However, he also trolled and the political loyalty of the firms at Newzoo, rather than his colleague, Tom Wijman. argues that for most smaller firms, less vis- and entrepreneurs, not only to the regime Apologies for the error. 60 Business The Economist November 14th 2020

Disney subscribers unless it regularly offers origi- Screen capture nal grown-up fare. Third Point, an activist The streaming United States, streaming subscribers* investor, wants Disney to stop its dividend Q3 2020, m and spend the $3bn a year on Disney+. Disney could do more than that if it kingdom 1209060300 went “all-in” on streaming, dropping its Amazon Prime† current system in which, for example, big- Netflix budget films go exclusively to cinemas, Disney bet on the right new product. Hulu and putting everything it makes onto Dis- But has it bet on the right new boss? HBO Now/Max ney+ at once. The service could then spend Disney+ isney promised investors in spring as much as Netflix and raise its price from D2019 that a new video-streaming ser- Peacock $6.99 per month to over $10. vice would win between 60m and 90m sub- Showtime OTT This would make for a huge global busi- scribers by 2024. Disney+ has outper- CBS All Access ness but there is a danger that it would formed that forecast spectacularly, hitting ESPN+ swiftly cannibalise the existing parts of its five-year subscriber target in just eight Sources: UBS; Netflix; *Selected services Disney’s empire. A more likely course is press reports †Includes non-streaming services months. In doing so it is fulfilling the digi- that Disney will move new content more tal-transformation plan set in motion rapidly onto Disney+. It could also com- three years ago by Bob Iger, Disney’s long- operating profits at its parks, experiences bine Disney+ with Hulu, a separate and time boss, now its executive chairman. and products division in three months. successful video-streaming service the Marketing muscle, crucial to success, The company is expected to report another firm took control of last year. has been backed up by “The Mandalorian”, quarterly loss on November 12th, after The Disney is expected to announce in a space western inspired by “Star Wars”. Economist went to press. Yet the streaming December that it will spend a lot more on Such is its popularity that Disney was late service’s subscriber gains have helped content for the service. All eyes will be on meeting demand for a plush-toy of its baby shield the firm’s share price. It has fallen whether Mr Chapek seems as tuned-in to Yoda character. The pandemic added a tur- but by far less than its peers. streaming’s bright future as Mr Iger was. 7 bocharge, dashing fears that Disney+ and Disney+’s rapid success also underlines other new streaming services, like hbo a doubt about the firm—whether Mr Iger’s Max and Apple tv+, might struggle to at- choice of successor was correct. The fa- Pasta tract time-starved consumers. Lockdowns vourite for the top job was Kevin Mayer, mean extra hours to while away, notes Tim who designed and launched Disney+. Mr On board the Mulligan of midia Research. Iger chose Bob Chapek, a talented operat- Amid school closures Disney+ has been ing executive who had been running theme spaghetti express as trusty a baby-sitter as baby Yoda’s nurse parks. “Given the runaway success of Dis- droid. Of all the new streaming services ney+ it is even harder to understand how Disney+, which launched in western Eu- the theme park and home-entertainment BERLIN Germany’s insatiable appetite for rope in March, just as lockdowns began, is executive got the top job,” says Rich Green- Italian pasta is keeping one firm busy the clear winner. Even so it has not touched field of LightShed Partners, a research firm. the leader, Netflix, which has 195m sub- Mr Mayer left Disney this summer. upermarket shelves stripped bare by scribers worldwide and over 70m in Ameri- Will Mr Chapek now bet heavily on Dis- Sstockpilers were familiar scenes as anx- ca alone (see chart). ney+? The firm as a whole lavishes nearly ious shoppers loaded up with toilet rolls Disney’s other businesses have suffered $30bn a year on original and acquired con- and pasta when lockdowns were first im- because of the pandemic. Shuttered theme tent but this year set aside only $1bn for posed. The taste for long-lasting dried food parks, closed cinemas and cancelled sport- Disney+. Netflix spends $15bn a year. The has been a boon for Italy, a country in deep ing events have taken their toll. In August Disney service’s rich library is enough to recession. Although Italians remain the Disney said covid-19 wiped out $3.5bn of keep under-tens engaged but it may lose biggest eaters of pasta worldwide, munch- ing through 23kg per head annually, the country’s pasta-makers export 60% of their production, mostly to Europe and Ameri- ca. While stuck at home far more cooks made plates of spaghetti, fettuccine and farfalle. According to istat, the Italian sta- tistics agency, exports of pasta increased by 30% in the first six months of the year com- pared with the same period in 2019. Barilla, the world’s biggest pasta-maker with sales of €3.6bn ($4.2bn) last year, must keep up with increased demand for its core product. The 143-year-old family firm also owns Wasa, the world’s biggest maker of Swedish crisp bread, as well as a host of smaller snack brands. The com- pany’s high-tech headquarters in Parma operated at close to capacity, producing 1,000 tonnes a day, throughout Italy’s harsh lockdown in spring. Some other Ba- rilla factories produced more pasta than From “Star Wars” to streaming wars ever, says Bastian Diegel of Barilla in Ger-1 The Economist November 14th 2020 Business 61

Royal Enfield Kickstart

KENT, CONNECTICUT An Indian reincarnation of a failed British motorcycle brand is going global espite the autumn chill, a group has chines that bikers generally hanker after Dgathered in front of the Iron Horse in rich countries. Improvements have Royal Enfield dealership, a small stone tackled mechanical shortcomings with- building set in the Connecticut hills. A out undermining the existing sound, feel woman sits on a motorcycle, its single- and look. They must, says Siddhartha Lal, cylinder engine thumping with a dis- Eicher’s boss, provide “everything you tinctive sound. In the window a striking need and nothing you don’t”. chrome-and-black model looks much A consequence of this approach is like what would have rolled out of En- that production is confined to a limited field’s original factory in Redditch in the number of straightforward motorcycles British Midlands in the company’s hey- produced at high volume which en- day in the 1950s. hances economies of scale and enables Profit sauce Enfield, dating back to 1901, boasts of profitability at low prices. The most the longest lifespan of any motorcycle expensive Enfield in America is $6,400, 2 many, albeit at significantly higher cost manufacturer. But Iron Horse only began making the bikes accessible to a wider thanks to the additional safety measures. It selling its bikes in 2018 and the name potential market. Machines from Harley- continued to make all of its 120 varieties. remains relatively unknown in America Davidson, which has suffered falling Maintaining supplies to Germany, one and other markets outside India. The sales in recent years, often cost more of Barilla’s most important markets, even company’s original British operations than three times as much. required dedicated transport. Starting in closed in 1970; the surviving Indian Enfield is aiming to sell 20% of its March the job of providing 22% of the pasta remnant was heading the same way production abroad. Over the past five and as much as 39% of the sauces eaten in before a stunning revival that saw annual years, it has added 700 dealers world- Germany meant dispatching two trains a sales grow from 31,000 units in 2006 to wide to its 1,600 in India. Exports dou- week from Parma to Ulm, its main ware- more than 800,000 in 2019, transforming bled to 39,000 units in the year to the end house in the country. Each train has 16 wag- the value of Enfield’s parent company, of March and in June, admittedly an odd ons transporting 490 tonnes of pasta, 60 Eicher Motors, a tractor-maker, from just month because of the covid-19 lockdown, tonnes of sauces and 50 tonnes of pesto. a few hundred million dollars to $8.5bn. an Enfield 650cc motorcycle topped the From June the trains ran three times a Now the company is accelerating into the British sales chart. week; soon they might make four journeys. wider world. A sign that it might succeed as an The question for Barilla and other pas- Enfields are a throwback, devoid of exporter is that the bikes are becoming ta-makers is whether the boom will outlast modern frills and with the looks of a part of popular culture outside India. A the pandemic. Luigi Cristiano Laurenza of classic bike. Engines ranging from 350cc YouTube diary by a young Dutch woman, the International Pasta Organisation is to 650cc are large for India but small for example, begins with her purchase of confident. Pasta consumption worldwide compared with machines from firms an Enfield in Delhi and follows her jour- increased from 7m tonnes in 1999 to 16m such as of Triumph and bmw. Enfield ney back to theNetherlands. More than tonnes last year, even before it became a declined to enter the largest part of the 100,000 people subscribe to her posts. pandemic staple. Italy may have lost its ap- Indian market, which is for small and The urge to cross borders is shared not petite a little in recent years but there is cheap bikes, and will not attempt to only by Enfield but, apparently, its cus- room for growth nearly everywhere else, in make the expensive, tech-laden ma- tomers as well. particular in Africa and Asia. Pasta is cheap, tasty and versatile, says Mr Laurenza, mak- ing it especially attractive for cash- strapped families battered by a pandemic. It is especially important for Barilla that plates remain laden after a series of mis- steps. In 2002 it spent €1.8bn on a hostile takeover of Kamps, a German baker. It turned out to be a costly mistake and in 2010 Barilla sold Kamps to a private-equity firm. In September 2013, Guido Barilla, the company’s chairman, said that the firm’s family values meant that he would not do a “commercial with a homosexual family”. The comments provoked an outcry, in par- ticular in America, and threats of a boycott. Mr Barilla was forced to apologise and the firm subsequently launched a limited-edi- tion pasta box showing two women shar- ing a kiss over spaghetti. Although cooking pasta requires plenty of hot water, pasta- Taking the classic route makers should stay out of it. 7 62 Business The Economist November 14th 2020 Schumpeter The big McComeback

Takeaways from the revival of a fast-food behemoth impressive. Across McDonald’s sales exceeded $100bn last year; its operating margins, thinner than a frazzled patty in most of the res- taurant industry, ballooned to 43%. And its share price sizzled. Since 2015 its market value has almost doubled to $160bn. As it recovered its financial footing, it turned to investing in the future. But counter-intuitively, it probably benefited by not rush- ing. According to John Gordon, a San Diego-based restaurant con- sultant, its franchisee model makes it hard to move fast—and im- portant to build consensus. It tests new ideas out in local markets before suggesting them to franchisees worldwide. Its ownership of the land under franchisees’ restaurants gives it a joint interest with them in co-investing in refurbishments and technological upgrades. Not only does this help woo customers by reinforcing the brand, it also supports the value of the land. In recent years Mc- Donald’s and its franchisees have invested heavily in installing kiosks for touchscreen ordering and making other improvements such as two-lane drive-throughs. Last year the company made its biggest acquisition in years, buying a tech firm that helps perso- nalise the drive-through experience. The overhauls may have cost franchisees a lot. But over the course of the covid-19 pandemic, they have started to reap the benefits. That is because McDonald’s has used the crisis to step up the hris kempczinski is anything but supersized. One year into pace of its transformation, resulting in big sales surges in recent Chis tenure, the ceo of McDonald’s is a lean-framed 52-year-old months, especially in America. With the interiors of many of its who runs marathons. Hard to believe, then, that he eats a McDon- restaurants closed, it has relied on the roll-out of its digital, drive- ald’s meal twice a day, five days a week. “There are days when I’m through and delivery initiatives, all of which encourage a more indulgent and days when I’m careful about what I’m eating, but I “contactless” experience that it believes will outlast the pandemic. eat a lot of McDonald’s,” he admits in an interview. Indeed he puts Recalling Kroc’s aphorism that “We’re not in the hamburger busi- many of his best customers to shame. On average, the top 10% of ness. We’re in show business,” it has dazzled customers with cus- Big Mac bingers visit his restaurants a fifth as regularly as he does. tomised menus by superstar rappers such as Travis Scott. And it Perhaps he is making up for lost time. Unusually for a McDon- has made old favourites, such as Big Macs and Quarter Pounders, ald’s boss, he is not a company lifer. He joined in 2015, hired by his central to its menu, which adds to simplicity in the kitchen and predecessor, Steve Easterbrook, when McDonald’s was on the speeds up customer service. Over the next two years it hopes a verge of meltdown. It was floundering in its attempts to compete long-awaited digital loyalty programme will enhance sales growth with innovative American upstarts, such as Chipotle and Shake and maintain margins at their elevated levels of 2019. With a covid Shack. Its premises were shabby even as it offered hundreds of vaccine, it could do even better. items on the menu that many of its customers could not afford. Many challenges remain for Mr Kempczinski. On food, McDon- Critics called it a parasite on society, paying low wages and pro- ald’s is a laggard when it comes to chicken sandwiches and plant- moting obesity. Mr Kempczinski acknowledges that it suffered based products. It promises a Crispy Chicken Sandwich and non- from hubris. Under Mr Easterbrook, who took charge in 2015, the meat McPlant soon. The former is vital to catch up with competi- mission was to shake it out of its complacency. tors such as Chick-fil-a. The company says it is shifting marketing What followed was a lesson in corporate renewal that could away from sales drives towards promoting itself as a community- have made Mr Easterbrook a megastar ceo had he not been fired focused-brand, but not everyone likes the pious tone. “Social Jus- last year for having a consensual relationship with an employee. tice Warriors are now running McDonald’s Corporation. Stuff that (McDonald’s has recently sued him for allegedly concealing other has nothing to do with selling Big Macs,” says one franchisee sexual relationships and wants to recover a big pay-off.) Yet sensi- quoted in an analyst’s report. McDonald’s faces two lawsuits from bly Mr Kempczinski is sticking to the programme. Unlike many former and current black franchisees, alleging racial discrimina- new bosses overeager to tear up the legacy of their disgraced prede- tion by pushing them into poor areas. It refutes the accusations. cessors, he unveiled a new strategy on November 9th that builds on the work started in recent years. In the midst of a pandemic, it From Big Macs to big data offers a valuable lesson of its own. Never let a crisis go to waste. Its ubiquity means McDonald’s is often in the news for the wrong The seeds of the revival of McDonald’s started with a simple de- reasons. But as a corporate turnaround, it is a compelling story. In- cision that is surprisingly easy to get wrong: go back to basics. stead of suffering from a tech onslaught as many bricks-and-mor- From 2015 onwards, it pared back its array of menu offerings and tar chains have, it has turned itself into a digital pioneer. Instead of focused on price and quality. It recommitted to Ray Kroc’s beloved hunkering down during the pandemic, it has embraced new ways business model, increasing the share of franchises last year to 93% of doing business. Despite Mr Kempczinski’s baptism of fire, even (of almost 39,000 restaurants), up from 82% in 2015. That provided the leadership transition has been the best the industry has seen in it with higher-margin and steadier royalty and rental income. It years, says Sara Senatore of Bernstein, an investment firm. He streamlined its sprawling international operations, selling con- should not be harshly judged for his frequency at the lunch coun- trol of its restaurants in China and Hong Kong. The results were ters. So far he has earned all the Quarter Pounders he can eat. 7 Briefing Investment strategies The Economist November 14th 2020 63

Mauboussin and Dan Callahan of Morgan Diminished value Stanley Investment Management. The job of stockpicking remains to take advantage of the gap between expectations and fundamentals, between a stock’s price and its true worth. But the job has been complicated by a shift from tangible to in- tangible capital—from an economy where Value investing, made famous by Warren Buffett, is struggling to remain relevant factories, office buildings and machinery as an ever greater share of the economy becomes intangible were key to one where software, ideas, t is now more than 20 years since the book, Microsoft and Amazon. The value brands and general know-how matter INasdaq, an index of technology shares, stocks favoured by disciples of Graham most. The way intangible capital is ac- crashed after a spectacular rise during the have generally languished. But change may counted for (or rather, not accounted for) late 1990s. The peak in March 2000 marked be afoot. In the past week or so, fortunes distorts measures of earnings and book the end of the internet bubble. The bust have reversed. Technology stocks have sold value, which makes them less reliable met- that followed was a vindication of the off. Value stocks have rallied, as prospects rics on which to base a company’s worth. A stringent valuation methods pioneered in for a coronavirus vaccine raise hopes of a different approach is required—not the the 1930s by Benjamin Graham, the father quick return to a normal economy. This flaky practice of the dotcom era but a seri- of “value” investing, and popularised by might be the start of a long-heralded rota- ous method, grounded in logic and finan- Warren Buffett. For this school, value tion from overpriced tech to far cheaper cy- cial theory. However, the vaunted heritage means a low price relative to recent profits clicals—stocks that do well in a strong of old-school value investing has made it or the accounting (“book”) value of assets. economy. Perhaps value is back. hard for a fresher approach to gain traction. Sober method and rigour were not features This would be comforting. It would vali- of the dotcom era. Analysts used vaguer date a particular approach to valuing com- Graham’s cracker measures, such as “eyeballs” or “engage- panies that has been relied upon for the To understand how this investment phi- ment”. If that was too much effort, they best part of a century by some of the most losophy became so dominant, go back a simply talked up “the opportunity”. successful investors. But the uncomfort- century or so to when equity markets were Plenty of people sense a replay of the able truth is that some features of value in- still immature. Prices were noisy. Ideas dotcom madness today. For much of the vesting are ill-suited to today’s economy. about value were nascent. The decision to past decade a boom in America’s stock- As the industrial age gives way to the digital buy shares in a particular company might market has been powered by an elite of age, the intrinsic worth of businesses is not by based on a tip, on inside information, on technology (or technology-enabled) well captured by old-style valuation meth- a prejudice, or gut feel. A new class of equ- shares, including Apple, Alphabet, Face- ods, according to a recent essay by Michael ity investors was emerging. It included far-1 64 Briefing Investment strategies The Economist November 14th 2020

2 sighted managers of the endowment funds increasingly at odds with how the econ- 1 of universities. They saw that equities had Not by the book omy operates. advantages over bonds—notably those Russell 3000 stockmarket index, total returns In Graham’s day the backbone of the backed by mortgages, railroads or public November 1st 2010=100 economy was tangible capital. But things utilities—which had been the preferred as- 500 have changed. What makes companies dis- set of long-term investors, such as insur- Growth tinctive, and therefore valuable, is not pri- ance firms. 400 marily their ownership of physical assets. This new church soon had two doctrinal The spread of manufacturing technology texts. In 1934 Graham published “Security Main 300 beyond the rich world has taken care of Analysis” (with co-author David Dodd), a that. Any new design for a gadget, or gar- dense exposition of number-crunching 200 ment, can be assembled to order by con- techniques for stockpickers. Another of Value tract manufacturers from components 100 Graham’s books is easier to read and per- made by any number of third-party fac- haps more influential. “The Intelligent In- 0 tories. The value in a smartphone or a pair vestor”, first published in 1949, ran in re- of fancy athletic shoes is mostly in the de- 2019181716151413122010 vised editions right up until (and indeed sign, not the production. Source: Refinitiv Datastream beyond) Graham’s death in 1976. The first In service-led economies the value of a edition is packed with sage analysis, which business is increasingly in intangibles— is as relevant today as it was 70 years ago. vesting. An empirical study in 1992 by Eu- assets you cannot touch, see or count easi- Underpinning it all is an important dis- gene Fama, a Nobel-prize-winning finance ly. It might be software; think of Google’s tinction—between the price and value of a theorist, and Kenneth French found that search algorithm or Microsoft’s Windows stock. Price is a creature of fickle senti- volatility, a measure of risk, did not explain operating system. It might be a consumer ment, of greed and fear. Intrinsic value, by stock returns between 1963 and 1990, as ac- brand like Coca-Cola. It might be a drug contrast, depends on a firm’s earnings ademic theory suggested it should. Instead patent or a publishing copyright. A lot of power. This in turn derives from the capital they found that low price-to-book shares intangible wealth is even more nebulous assets on its books: its factories, machines, earned much higher returns over the long than that. Complex supply chains or a set of office buildings and so on. run than high price-to-book shares. One distribution channels, neither of which is The approach leans heavily on company school of finance, which includes these au- easily replicable, are intangible assets. So accounts. The valuation of a stock should thors, concluded that price-to-book might are the skills of a company’s workforce. In be based on a conservative multiple of fu- be a proxy for risk. For another school, in- some cases the most valuable asset of all is ture profits, which are themselves based cluding value investors, the Fama-French a company’s culture: a set of routines, pri- on a sober projection of recent trends. The result was evidence of market inefficien- orities and commitments that have been book value of the firm’s assets provides a cy—and a validation of the value approach. internalised by the workforce. It can’t al- cross-check. The past might be a crude All this has had a lasting impact. Most ways be written down. You cannot easily guide to the future. But as Graham argued, investors “almost reflexively describe enter a number for it into a spreadsheet. it is a “more reliable basis of valuation than themselves as value investors, because it But it can be of huge value all the same. some other future plucked out of the air of sounds like the right thing to say”, says Mr either optimism or pessimism”. As an extra Damodaran. Why would they not? Every in- A beancounter’s nightmare precaution, investors should seek a margin vestor is a value investor, even if they are There are three important aspects to con- of safety between the price paid for a stock not attached to book value or trailing earn- sider with respect to intangibles, says Mr and its intrinsic value, to allow for any er- ings as the way to select stocks. No sane Mauboussin: their measurement, their rors in the reckoning. The tenets of value person wants to overpay for stocks. The characteristics, and their implications for investing were thus established. Be conser- problem is that “value” has become a label the way companies are valued. Start with vative. Seek shares with a low price-earn- for a narrow kind of analysis that often measurement. Accounting for intangibles ings or price-to-book ratio. confuses means with ends. The approach is notoriously tricky. The national ac- The enduring status of his approach has not worked well for a while. For much counts in America and elsewhere have owes more to Graham as tutor than the rep- of the past decade, value stocks have lagged made a certain amount of progress in grap- utation he enjoyed as an investor. Graham behind the general market and a long way pling with the challenge. Some kinds of ex- taught a class on stockpicking at Columbia behind “growth” stocks, their antithesis penditure that used to be treated as a cost of University. His most famous student was (see chart 1). Old-style value investing looks production, such as r&d and software de- Mr Buffett, who took Graham’s investment velopment, are now treated as capital creed, added his own twists and became spending in gdp figures. The effect on mea- 2 one of the world’s richest men. Yet the sto- Let’s get non-physical sured investment rates is quite marked (see ries surrounding Mr Buffett’s success are as United States, intellectual property investment chart 2). But intangibles’ treatment in com- important as the numbers, argued Aswath % of non-residential pany accounts is a bit of a mess. By their na- Damodaran of New York University’s Stern fixed investment % of GDP ture, they have unclear boundaries. They School of Business in a recent series of You- 50 5 make accountants queasy. The more lee- Tube lectures on value investing. The bold way a company has to turn day-to-day costs purchase of shares in troubled American 40 4 into capital assets, the more scope there is Express in 1964; the decision to dissolve his 30 3 to fiddle with reported earnings. And not partnership in 1969, because stocks were every dollar of r&d or advertising spend- too dear; the way he stoically sat out the 20 2 ing can be ascribed to a patent or a brand. dotcom mania decades later. These stories This is why, with a few exceptions, such 10 1 are part of the Buffett legend. The philoso- spending is treated in company accounts phy of value investing has been burnished 0 0 as a running cost, like rent or electricity. by association. The treatment of intangibles in mergers 1970 80 90 2000 10 20 It helped also that academic finance makes a mockery of this. If, say, one firm Sources: BEA; Bloomberg gave a back-handed blessing to value in- pays $2bn for another that has $1bn of tan-1 The Economist November 14th 2020 Briefing Investment strategies 65

means the costs incurred in creating the as- does, the returns on that investment and 3 By the few, not the many set are not recoverable—hence sunken- how long the opportunity lasts. To begin to United States, estimated share ness. Business and product ideas can easily estimate this you have to work out the true of total business investment, % be copied by others, unless there is some rate of investment and the true returns on 25 legal means, such as a patent or copyright, that investment. to prevent it. This characteristic gives rise The nature of intangible assets makes Top 50 listed firms 20 to spillovers from one company to another. this a tricky calculation. But worthwhile And ideas often multiply in value when analysis is usually difficult. “You can’t ab- 15 they are combined with other ideas. So in- dicate your responsibility to understand tangibles tend to generate bigger synergies the magnitude of investment and the re- Top 10 listed firms 10 than tangible assets. turns to it,” says Mr Mauboussin. Old-style 5 The third aspect of intangibles to con- value investors emphasise the steady state sider is their implications for investors. A but largely ignore the growth-opportuni- Listed tech firms 0 big one is that earnings and accounting ties part. But for a youngish company able 1999 2005 10 15 20 book value have become less useful in to grow at an exponential rate by exploiting Sources: BEA; Bloomberg gauging the value of a company. Profits are increasing returns to scale, the future op- revenues minus costs. If a chunk of those portunity will account for the bulk of valu- costs are not running expenses but are in- ation. For such a firm with a high return on 2 gible assets, the residual $1bn is counted as stead spending on intangible assets that investment, it makes sense to plough pro- an intangible asset—either as brand value, will generate future cashflows, then earn- fits back into the firm—and indeed to bor- if that can be appraised, or as “goodwill”. ings are understated. And so, of course, is row to finance further investment. That distorts comparisons. A firm that has book value. The more a firm spends on ad- Picking winners in an intangible econ- acquired brands by merger will have those vertising, r&d, workforce training, soft- omy—and paying a price for stocks com- reflected in its book value. A firm that has ware development and so on, the more dis- mensurate with their chances of suc- developed its own brands will not. torted the picture is. cess—is not for the faint-hearted. Some The second important aspect of intan- The distinction between a running ex- investments will be a washout; sunken- gibles is their unique characteristics. A pense and investment is crucial for securi- ness means some costs cannot be recov- business whose assets are mostly intangi- ties analysis. An important part of the ered. Network effects give rise to winner- ble will behave differently from one whose stock analyst’s job is to understand both takes-all or winner-takes-most markets, in assets are mostly tangible. Intangible as- the magnitude of investment and the re- which the second-best firm is worth a frac- sets are “non-rival” goods: they can be used turns on it. This is not a particularly novel tion of the best. Value investing seems saf- by lots of people simultaneously. Think of argument, as Messrs Mauboussin and Cal- er. But the trouble with screening for the recipe for a generic drug or the design lahan point out. It was made nearly 60 stocks with a low price-to-book or price-to- of a semiconductor. That makes them un- years ago in a seminal paper by Merton earnings ratio is that it is likelier to select like physical assets, whose use by one per- Miller and Francesco Modigliani, two businesses whose best times are behind son or for one kind of manufacture pre- Nobel-prize-winning economists. They di- them than it is to identify future success. cludes their use by or for another. vided the value of a company into two In their book “Capitalism Without Capi- parts. The first—call it the “steady state”— Up, up and away tal” Jonathan Haskel and Stian Westlake assumes that that the company can sustain Properly understood, the idea of funda- provided a useful taxonomy, which they its current profits into the future. The sec- mental value has not changed. Graham’s call the four Ss: scalability, sunkenness, ond is the present value of future growth key insight was that price will sometimes spillovers and synergies. Of these, scalabil- opportunities—essentially what the firm fall below intrinsic value (in which case, ity is the most salient. Intangibles can be might become. The second part depends buy) and sometimes will rise above it (in used again and again without decay or con- on the firm’s investment: how much it which case, sell). In an economy mostly straint. Scalability becomes turbo-charged made up of tangible assets you could per- with network effects. The more people use haps rely on a growth stock that had got a firm’s services, the more useful they are ahead of itself to be pulled back to earth, to other customers. They enjoy increasing and a value stock that got left behind to returns to scale; the bigger they get, the eventually catch up. Reversion to the mean cheaper it is to serve another customer. The was the order of the day. But in a world of big business successes of the past decade— increasing returns to scale, a firm that rises Google, Amazon and Facebook in America; quickly will often keep on rising. and Alibaba and Tencent in China—have The economy has changed. The way in- grown to a size that was not widely predict- vestors think about valuation has to ed. But there are plenty of older asset-light change, too. This is a case that’s harder to businesses that were built on such network make when the valuation differential be- effects—think of Visa and Mastercard. The tween tech and value stocks is so stark. A result is that industries become dominated correction at some stage would not be a by one or a few big players. The same goes great surprise. The appeal of old-style value for capital spending. A small number of investing is that it is tethered to something leading firms now account for a large share concrete. In contrast, forward-looking val- of overall investment (see chart 3). uations are by their nature more specula- Physical assets usually have some sec- tive. Bubbles are perhaps unavoidable; ond-hand value. Intangibles are different. some people will extrapolate too far. Nev- Some are tradable: you can sell a well- ertheless, were Ben Graham alive today he known brand or license a patent. But many would probably be revising his thinking. are not. You cannot (or cannot easily) sell a No one, least of all the father of value in- set of relationships with suppliers. That vesting, said stockpicking was easy. 7 66 Finance & economics The Economist November 14th 2020

Also in this section 67 A booster shot for investors 68 Buttonwood: Emerging markets 69 Turkey—a new economic regime? 69 An amber wave in America 70 Klarna, a Swedish payments unicorn 71 Free exchange: Epidemiologists v economists

America’s economy admittedly unlikely event that current trends were to continue, 1m Americans a Giant jab day would be catching the disease by the end of the year (see United States section). Renewed local restrictions on activity seem inevitable. That will lower some types of economic activity and could in turn increase the number of people who have lost their jobs permanently. What a vaccine means for the world’s largest economy Still, it seems unlikely that America will n november 9th the end of the coro- scars that take time to heal. Here, a look at enter a double-dip recession, as Europe is Onavirus pandemic came into tantalis- firms’ and households’ finances offers expected to. For one thing, it probably will ing sight. Pfizer and BioNTech announced grounds for optimism. not impose lockdowns as severe as those in that their vaccine was more effective than The resurgence of the virus will put a Britain, France or Germany. High-frequen- expected. Investors’ hopes for a stronger dampener on the recovery in the months cy indicators, including The Economist’s economy sent stockmarkets soaring. Ten- before a vaccine becomes widely available. analysis of Google mobility data, suggest year Treasury yields neared 1%, levels last Infections are rising so rapidly that, in the that America’s recovery has slowed com- seen in March (see next page). pared with the summer. But it has not gone Even before the vaccine news broke, the into reverse, as it has in Europe. And the speed of America’s economic bounceback Outperforming acts 1 vaccine could boost the economy in some was exceeding forecasts and surpassing GDP forecasts, 2020 ways even before it becomes available. Tor- others in the rich world. In April the imf % change on a year earlier sten Slok of Apollo Global Management, an gdp reckoned that would shrink by 6% in Forecast made in: April 2020 October 2020 asset manager, argues that “households 2020. It now projects a decline of 4%. Un- and firms are going to plan ahead, for ex- employment peaked at 14.7% in April; in -9-12 -3-6 30 ample by booking travel [and] vacations”. June the Federal Reserve had expected it to China On the current growth path, at the turn still be around 9% by the end of the year. It of the year there will still be 10m fewer jobs went on to fall below that rate only two United States than there would have been without the months later. In October it stood at 6.9%. pandemic. Output will be some $700bn, or Can a vaccine accelerate the economy’s World 4%, lower than otherwise. Most forecasters return to its pre-covid state? The coronavi- Euro area reckon that income per person will not ex- rus is still spreading unchecked, with the ceed its pre-covid level until 2022, if not burden often falling on the poorest. But Britain later. But growth will accelerate as jabs are many economists had also worried that the administered. Everything from theatres to Source: IMF pandemic would leave broader economic public transport will feel safer. That will 1 The Economist November 14th 2020 Finance & economics 67

their employees. A paper by David Autor of 2 On the mend the Massachusetts Institute of Technology United States and colleagues found that “each job sup- ported by the ppp cost between $162,000 Active small businesses, m Temporary lay-offs, % of total unemployed and $381,000 through May 2020”. But this 12 80 money was poorly targeted: a lot of it was lapped up by firms that planned to contin- RECESSION Total 9 60 ue operating, come what may. Other factors are more important. Many Unincorporated 6 40 small firms have managed to trim their outgoings. A recent paper from Goldman Sachs, a bank, finds that in May rent-col- Incorporated 3 20 lection rates fell to 10% or less for firms RECESSION 0 0 such as cinemas and gyms. A growing number of landlords now set rent as a per- 1996 2000 20151005 1996 2000 20151005 centage of tenants’ revenues, an arrange- Sources: Goldman Sachs; Department of Commerce; Federal Reserve Bank of St Louis; Bureau of Labour Statistics ment that was uncommon before covid-19. But perhaps the biggest reason for the 2 further revive the labour market. Before active businesses fell during the first wave lack of small-business carnage relates to the pandemic over a fifth of workers were of the pandemic, it has recovered almost all consumer spending. In September retail in jobs involving close proximity to others. the lost ground, suggesting that new firms sales were more than 5% up on the previ- There are other reasons to think Ameri- may have come up in place of exiting ones. ous year. Americans appear to have tilted ca’s recovery may be faster than after previ- Firms’ resilience helps explain why un- their spending towards small firms over ous recessions. History suggests that re- employment has dropped much faster large ones, on the premise that they are less coveries are sluggish when downturns than expected. The share of unemployed likely to catch covid-19 in places with fewer leave deep economic scars. The financial Americans who say they have lost their job people. The latest figures from JPMorgan crisis of 2007-09 cast a long shadow over temporarily remains unusually high. Such Chase, a bank, show that credit-card subsequent years in part because of its workers expect to be recalled to their old spending in early November was only mar- chilling effect on bank lending, for in- employer, pointing to further declines in ginally lower than it was a year ago. stance. This time around, the effect of the unemployment rate. This relatively sturdy consumption in school closures on children’s education What explains small firms’ surprising turn reflects the second factor behind the will be felt for decades to come. But in resilience? It seems hard to credit Ameri- lack of scarring this time around: resilient many other respects there is less evidence ca’s business-focused stimulus measures. household finances. Compared with other of lasting economic damage. A wave of So far less than $4bn (or 0.02% of gdp) has rich countries, America has directed more bankruptcies and permanent closures has been doled out by the Fed’s Main Street of its fiscal stimulus towards protecting been avoided—especially of small firms, Lending Programme, which is supposed to household incomes. The federal govern- which employ half the workforce. And channel funds to small and midsized en- ment sent out cheques worth up to $1,200 families’ finances have been resilient. terprises. Economists are also under- per person and temporarily bumped up un- Start with small firms. At one point in whelmed by the Paycheck Protection Pro- employment benefits by $600 a week. That April nearly half of them were closed, ac- gramme (ppp), which provided loans to is not to say that the disadvantaged have cording to data from Opportunity Insights, small businesses that are turned into not been badly hit: some measures of de- a research team based at Harvard Universi- grants as long as recipients do not sack privation have risen sharply. But viewed in 1 ty, as shelter-in-place orders forced clo- sures and fear of the virus prompted people to stay at home. Six months on, many firms A dose of optimism are still struggling. In early October nearly a third of small firms reported that the pan- United States demic had a large negative effect on busi- ness, according to the Census Bureau. One S&P 500 companies, 2020 Government-bond yields, % quarter of small businesses remain closed. % change in share price Since Pfizer vaccine 2.0 But these closures may not become per- announcement* 40 manent. Total commercial bankruptcy fil- Kimco Realty 1.5 ings are running below their pre-pandemic Prices rose for much of Boeing Wynn Resorts 20 trend, not to mention the levels of the last the year, but fell after Nov 11th 2020 Pfizer the vaccine news Carnival 1.0 recession. Such data are not perfect, be- 0 cause not every firm that closes down files Etsy for bankruptcy. A new paper by economists Share price fell eBay 0.5 in 2020, but rose NVIDIA -20 Amazon at the Fed brings together many different post-vaccine Nov 6th 2020 news measures of “business exit”, and finds Biogen -40 0 “somewhat mixed” evidence that more 200150100500-50-100 1M 3M2M 1Y6M 3Y2Y 5Y 7Y 10Y 20Y 30Y businesses have gone bust in 2020. Before Pfizer vaccine announcement† By maturity But these unlucky outfits do not appear to represent a large share of employment. Sources: Bloomberg; US Department of the Treasury *Nov 6th-11th 2020 †Jan 2nd-Nov 6th 2020 In addition, this bankruptcy ripple seems Booster shot unlikely to turn into a wave. The share of small firms very late on their debt repay- After news of an efficacious vaccine broke on November 9th, investors bet on a partial ments is currently about half its level in return to economic normality. Cruise and casino stocks leapt, and e-commerce firms 2009. Moreover, although the number of skidded. The yield on ten-year Treasuries climbed to almost 1%. 68 Finance & economics The Economist November 14th 2020

2 aggregate, the financial security of house- reason, another blowout stimulus package A lot could still go wrong. Stringent holds has proved remarkably stable. may not be needed now that a vaccine is lockdowns, European style, could still de- A survey by the Federal Reserve found near. Lawmakers from the Democratic rail the recovery. Stimulus may not be that 77% of adults were doing “at least OK” Party have pressed for spending of $3trn or passed at all. Either would worsen the eco- financially in July 2020, up from 75% in Oc- more. Injecting money into the economy nomic scars that have so far been min- tober 2019, before the pandemic struck. Be- could well hasten the recovery. But another imised, for instance by making it harder for tween March and September households $1trn a year in stimulus may be enough to the 3.6m Americans who have been unem- saved 19% of their gross income, up from restore normality, assuming that by the ployed for more than six months to find 6% during the same period the year before, start of next year the gap between Ameri- work. America’s many layers of govern- thereby accumulating $1.3trn (6% of gdp) ca’s current and potential gdp may be ment could delay the distribution of vac- in extra savings. around 4% of output, and that increases in cines, just as they have botched the alloca- The stockpile gives consumers a buffer government spending will translate some- tion of covid-19 tests. But households and for the coming months, and should help what less than one-to-one into extra gdp, businesses, at least, are in better shape support economic growth. In part for that as the evidence currently suggests. than you might have feared. 7 Buttonwood Coming out of the ultracold

Will the vaccine be a jab in the arm for ailing emerging-market shares? n indian economic official once much better value than their rich-world These discrepancies have not gone Aremarked to Buttonwood that his counterparts. According to Oxford Eco- unnoticed. Some strategists think that country’s economy does best when the nomics, a consultancy, the ratio of price to unloved emerging-market shares might rest of the world does well—but not too earnings, adjusted for the cycle, for emerg- benefit from the kind of “rotation” that well. India’s exports benefit from global ing markets lies in the bottom half of its in the past few days has propelled in- growth. But when the world economy historical distribution. America’s ratio, by vestors out of expensive “growth” stocks gains too much momentum, interest contrast, is above the 98th percentile. (such as tech) and into “value” stocks, the rates and oil prices can rise uncomfort- The valuation gap looks even more revenues of which are more closely tied ably high, hobbling a country that is a net glaring when compared with immediate to the state of the economy. importer of both capital and crude. growth prospects. The gdp of emerging They also think that the most belea- His observation came to mind as markets, weighted according to their guered emerging markets might benefit India’s stockmarket roared to a record stockmarket capitalisation, will shrink by from a rotation within the rotation. John high on November 10th, after news that a less than 2% this year and grow by about Lomax of hsbc, for example, recom- covid-19 vaccine developed by Pfizer and 5% in 2021, according to forecasts by the mends increasing holdings of countries BioNTech was proving more effective Economist Intelligence Unit, a sister com- like Brazil and South Africa (which are than expected. It will be months before it pany of The Economist. America is doing still heavily down on the year) at the becomes widely available even in the better than most of the rich world, but expense of Asian ones, like Taiwan. countries equipped to handle it. But the even so its economy will still shrink by There may be a catch, though. Emerg- reproduction number of investors’ exu- 4.6% in 2020 and grow by less than 4% in ing-market assets may be priced like berance can be very high. 2021. Some members of the msci’s index, value stocks. But in another important Another spur to India’s stockmarket— such as China and Taiwan, have handled respect—their sensitivity to bond and to emerging-market equities more the pandemic well, allowing for an early yields—they more closely resemble broadly—was America’s election. The return to growth. Others, such as India, growth stocks. When interest rates and result, when it emerged at last, removed have handled it badly. But precisely be- bond yields rise, investors become less one lingering source of uncertainty. That cause their first attempts at lockdowns willing to bear risk or wait for future has made room in investors’ stomachs were so ineffective, they are unlikely to profits. That hurts growth stocks and for other types of risk. The renewed interrupt growth by trying another one. emerging markets alike. appetite for edginess helped lift msci’s Consider the following scenario. The benchmark emerging-market equity Pfizer vaccine is approved. But because it index by over 6% from November 3rd to must be stored at Antarctic tempera- 9th. It is now up by more than half from tures, it never reaches the emerging its lowest point in March. markets, such as India, that lack the cold Though Wall Street has been setting chains needed to distribute it safely. The records, the emerging-market index is vaccine might therefore spur an uneven still far from the all-time high it reached recovery, led by rich countries. in 2007 or even its peak in 2018. Indeed That rebound could put upward over the past decade emerging-market pressure on bond yields: the Pfizer news shares have made little forward progress, alone raised yields on ten-year American albeit by the most nail-biting route pos- Treasuries to almost 1% on November sible. Big gains in 2012, 2016-17 and 2019 9th. And the tightening of global fi- were offset by spectacular falls in the nancial conditions could hurt emerging intervening years. Overall the index is economies by more than the improve- just 3% higher than ten years ago. ment in rich-world growth helps them. That underperformance, however, They could do badly, if the rest of the leaves emerging-market stocks looking world does too well. The Economist November 14th 2020 Finance & economics 69

Turkey Commodities Comings and Amber wave goings

ISTANBUL Will a shakeup at the finance ministry NEW YORK and central bank win over investors? Demand for American grain is surging or someone thought to be the second- he harvest rush in America’s heart- Fmost-powerful person in Turkey and a Tland is subsiding. More than 90% of the possible successor to President Recep Tay- country’s corn and soyabeans had been yip Erdogan, it was an unseemly exit. In a picked by November 8th. Crops moved statement posted on Instagram on Novem- from cart to trailer to grain elevator. Now a ber 8th and riddled with grammatical mis- different kind of frenzy is taking hold. takes, Berat Albayrak, the president’s son- Exports of American corn are poised to in-law, said he was stepping down as fi- Berat departs reach a record of 67.3m tonnes for the mar- nance minister and leaving politics. It took keting year that began in September, ac- Mr Erdogan and his officials over a day to multiple interest rates to tighten the mon- cording to forecasts by the United States digest and confirm the news. It took anoth- ey supply indirectly. For his part, Mr Albay- Departure of Agriculture (usda) published er day to name Lutfi Elvan, a former deputy rak laughed off concerns about the curren- on November 10th. Demand for corn and prime minister, as his replacement. cy collapse. “For me, the exchange rates are soyabeans may push American stocks to Mr Albayrak, popularly referred to as not important at all,” he told reporters in their lowest levels in seven years. By the the damat (son-in-law), said he was leaving September. “I don’t look at that.” time markets closed after the usda’s re- for health reasons. But insiders blame a Investors hope for a return to more or- port, the most actively traded corn and feud with the new central-bank governor, thodox policies. In its first few days of trad- soyabean futures contracts had jumped to Naci Agbal, who had criticised the minis- ing since the shakeup, the lira had risen by $4.23 and $11.46 a bushel, respectively, with ter’s record. Mr Agbal had been appointed over 7% against the dollar, reversing a long corn up by more than a third since early Au- only a couple of days earlier, after Mr Erdo- decline (see chart). Both Mr Elvan and Mr gust and soyabeans at their highest price in gan ousted his predecessor, Murat Uysal, Agbal, who preceded the damat as finance over four years. They may rise higher still. without giving an explanation. (Mr Uysal is minister, are staunch allies of Mr Erdogan, The surge in prices follows years of tur- the second head of the central bank to be but experienced technocrats. Both say they moil for American farmers. Gripes include: sacked in as many years.) Mr Albayrak was will prioritise fighting inflation, which in the government’s limit on the ethanol that reportedly not briefed on the decision. October approached 12%, almost two per- can be blended in petrol; President Donald Mr Albayrak’s management of the econ- centage points higher than the policy inter- Trump’s trade war with China; and the co- omy was even worse than his grammar. As est rate. Mr Agbal is said to have already be- ronavirus, which depressed demand for oil the minister and his father-in-law leaned gun removing Mr Albayrak’s surrogates and therefore the biofuels mixed with it. on both the central bank and commercial from top posts at the central bank and Prices are climbing, in part, due to bad lenders to keep borrowing rates low, the promised to improve communication. In weather. Wet conditions prompted some lira set one record low after another. Be- another encouraging move, on November American farmers to forgo planting and tween the damat’s surprise appointment in 11th the banking regulator eased restric- collect government crop insurance in- 2018 and his shock resignation, the curren- tions on lira trading by foreigners. The stead, notes Dan Basse of AgResource, a re- cy lost 46% of its dollar value, eating away curbs had been imposed to stop outsiders search firm. Other farms suffered a dry Au- at Turks’ buying power. Instead of raising short-selling the currency. gust. A derecho, or wind storm, blasted interest rates the central bank sold dollar Still, for all of Mr Albayrak’s foibles, the across the Midwest, with gusts of more reserves to relieve pressure on the lira. It damat only did what all ministers are now than 100 miles per hour. Farmers else- threw in the towel this summer, but only used to doing: follow Mr Erdogan’s lead. where have also experienced dismal condi- after squandering more than $100bn, and And the president gives no sign of being tions. Usually fertile fields near the Black had begun to use a byzantine system of ready to loosen his grip on the finance min- Sea are producing less corn than expected. istry and the central bank, or to dispense Production in Ukraine is expected to fall by with his bizarre economic views, such as more than 20% compared with last year. Losing purchase that high interest rates cause inflation. Meanwhile demand from China has Turkey “There’s this narrative building that pins soared. In the first phase of Mr Trump’s all the bad things that happened since 2018 trade deal, announced in January, China Lira per $ Consumer prices on Mr Albayrak,” says Erik Meyersson of agreed to buy an additional $200bn-worth Inverted scale % increase on Handelsbanken. “Maybe it was his strategy of American goods in 2020-21. Even with- a year earlier to start selling foreign reserves, but the rea- out the deal, Chinese demand for crops 6 25 son they resorted to this stupid measure would probably have been robust. The 20 was because they had this stupid directive country is keen to expand its herds of hogs, 7 15 [from Mr Erdogan] not to increase rates.” decimated last year by African swine fever. The central bank’s monetary-policy That is raising demand for animal feed, 10 8 committee convenes on November 19th. It such as soyabeans. Anxiety about food se- 5 “needs to meet expectations by hiking curity means the government is refilling 9 0 rates and simplifying the policy frame- stockpiles, too. The usda expects Chinese 2020 2019182017 work”, says Hakan Kara, a former chief wheat imports to reach the highest level in Source: Refinitiv Datastream economist at the bank. If not, the change at 25 years, with total imports of corn and oth- the top will have been window-dressing. 7 er coarse grains setting a new record. 1 70 Finance & economics The Economist November 14th 2020

2 Little surprise, then, that export prices Still, prices may hold up in the short this year has opened some 95,000 accounts for American corn and soyabeans have term, for better or worse. In America, says a week—that made it reckon that it could sailed above $220 and $470 a tonne, re- Mr Doshi, “demand is improving well from conquer America, where online-payments spectively, up by about 60% and 50% from the covid-19 trough in the second quarter.” firms have typically struggled to gain mar- their 52-week lows. But bulls should not be Dry weather from La Niña is interfering ket share. It began 2019 with its splashy too confident. China’s buying may ebb if it with planting in Brazil. A spat may prompt “Smoooth Dogg” campaign and poured seeks a different trade deal with America’s China to ban imports of several Australian funds into its operations in New York, Los president-elect, Joe Biden. Agricultural crops (see Asia section). Russia’s govern- Angeles and Columbus, Ohio, ahead of its commodities move in much quicker cycles ment is mulling a quota on wheat exports. launch in America. The firm now has 9m than, say, metals, points out Aakash Doshi For the more than 100m people who have customers there, and will probably go pub- of Citigroup, a bank. It is simpler to plant sunk into poverty this year, that is worry- lic there in the not-too-distant future. extra beans than it is to start mining for ing. An index of food prices, published by It is expanding in other ways, too. Back bauxite. Higher prices now may prompt the United Nations, rose in October for the in Europe, it obtained a banking licence in farmers to plant more later; a spell of good fifth straight month. The index is now 6% 2017, and has launched new products in weather could boost supply further. above its level a year ago. 7 some countries, such as a credit card. It has opened a tech hub in Berlin’s trendy Mitte neighbourhood that employs 500. This Klarna helps explain why last year Klarna ran its first loss since it was set up in 2005. “Profit- Smooth shopping ability is for later,” says Mr Siemiatkowski. Demand is certainly on Klarna’s side. According to Kaleido Intelligence, a re- search firm, bnpl will grow to $680bn in transaction value in 2025 worldwide, from $353bn in 2019, driven by young, credit- STOCKHOLM hungry shoppers. Covid-19 has only accel- A Swedish payments unicorn hopes to crack the American market erated the rise in online shopping. s a child, when you see your parents The ease of the process hugely increases Still, the business model brings risks. “A struggling, it creates a drive,” says Se- the “conversion” rate—the share of cus- One comes from some shoppers’ worsen- bastian Siemiatkowski, the chief executive tomers who go ahead and buy an item after ing finances. Klarna reported a net loss of and co-founder of Klarna, an online-pay- putting it into their virtual basket. That is Skr522m between January and June, a sev- ment-processing firm. His family moved why Klarna attracts retailers like bees to a enfold increase from the net loss of Skr73m to Sweden from Poland in 1981, the year he honeypot. It has signed up 200,000 sellers in the same period last year. Credit losses was born; his university-educated father in 17 countries and captured 10% of the e- almost doubled to Skr1.2bn, more than 25% was unemployed for long spells or just got commerce market in northern Europe. of revenue compared with 19% in the first by behind the wheel of a cab. The experi- Etsy, an online marketplace for arts-and- half of 2019. The industry is also drawing ence nurtured a strong ambition “to fix the crafts items, signed up on October 26th. criticism for encouraging people to over- economy for the family”. Last year Klarna’s revenue jumped by al- spend. “I am concerned about anything Today, just shy of 40, Mr Siemiatkowksi most one-third to Skr7.2bn ($840m) as the that makes it very easy to sleepwalk into is at the helm of one of Europe’s biggest fin- value of wares sold through it rose by 32%. debt,” says Martyn James of Resolver, a Brit- tech firms. A funding round in September Merchant fees are the main source of its in- ish consumer-rights group. In September raised $650m and valued Klarna at come; it also runs checkout infrastructure Britain’s Financial Conduct Authority be- $10.65bn. Investors include Sequoia Capi- for some retailers. Late fees from custom- gan a review of the unsecured-credit mar- tal, a venture-capital firm; Visa, a credit- ers make a smaller contribution. ket, which includes bnpl. Having charmed card firm; and Snoop Dogg, a rapper who It was Klarna’s success in Britain— shoppers and retailers, the firm may have performs as “Smoooth Dogg” in a pepto- where it has almost 10m customers and to win over regulators too. 7 pink ad for the payments firm. Having gained a foothold in Europe, Klarna has its sights set on America. Klarna is one of several “buy now, pay later” (bnpl) services that have grown rap- idly in recent years. Its attraction, for both online retailers and their customers, is simplicity. Instead of entering their card details at checkout, shoppers sign up to Klarna’s app with their email and delivery address, and leave payment to be made in 14 or 30 days. Klarna pays the retailer in the meantime, bearing the risk that shoppers do not pay—something few other fintechs do—while charging the merchant a fee. Customers are recognised when they use the app again, without needing to re- enter their details. Algorithms use publicly available credit information and details of the size, type and timing of the purchase to calculate the chance of fraud, and offer ex- tended-payment plans, for a charge. Snoop’s into it The Economist November 14th 2020 Finance & economics 71 Free exchange Field excursion

Economists have had a rocky relationship with epidemiologists this year. But there are gains to trade ling approaches were similarly rooted in misinterpretation of their intended audience and purpose, she reckons. Given that building models is a favourite pastime of econo- mists, the perception that epidemiologists’ efforts were not good enough led many to dig into the data themselves. This too proved problematic, writes Ms Murray. Drawing sound conclusions from the available epidemiological data is hard when the scope of po- tential uncertainty is unknown—because the share of covid-19 cases that are asymptomatic either cannot be determined or changes as the virus spreads, for example. Such ambiguities neces- sarily apply when dealing with a novel pathogen like the virus which causes covid-19, a fact that economists unaccustomed to dealing with epidemiological data may not have appreciated. Rather than attempting to outdo the experts, Ms Murray writes, economists ought to have taken advantage of specialisation, and focused their efforts on questions epidemiologists are less equipped to address. This is a bit unfair. Yes, some modelling attempts by econo- mists have been the work of dabblers. But the subfield of economic epidemiology has been studying how social factors influence the spread of a disease for decades. Much of the outpouring of recent economic work on issues related to covid-19 has steered clear of or epidemiologists, 2020 has been a trial by fire. Economists modelling its course, and focused instead on precisely those areas Fshould be able to relate; it was just over a decade ago that their where economists can better add value. Confounding uncertainty own practices and forecasts were subjected to the harsh glare of notwithstanding, scholars have worked at great speed, producing the public eye in the aftermath of the global financial crisis. In- hundreds of papers evaluating policy measures, analysing the eco- stead the relationship between the two disciplines has been a testy nomic costs associated with outbreaks and lockdowns, and as- one. Some economists even questioned whether epidemiologists sessing how the pandemic is reshaping the global economy—work were intellectually equipped for the trial. “How smart are they? that this newspaper has relied upon in its coverage of covid-19. What are their average gre scores?” wondered Tyler Cowen of Still, economics could do better. Interdisciplinarity has long George Mason University in April. The snootiness is unfortunate. been eyed with suspicion. Robert Solow, a Nobel prizewinner, The challenges posed by the coronavirus pandemic—and those once dismissed critics of his profession by saying that, “When they that are still to come, as vaccines are distributed—cry out for co- want economics to be broader and more interdisciplinary, they operation. But too often, when economists venture into other aca- seem to mean that they want it to give up its standards of rigour, demic areas, their arrival often looks more like a clumsy invasion precision and reliance on systematic observation interpreted by force than a helpful diplomatic mission. theory, and to go over instead to some looser kind of discourse.” The two fields got off on the wrong foot early on in the pandem- Even those scholars interested in wandering off-piste face incen- ic. Back then there was an acute need for models that predicted the tives not to collaborate with researchers in other fields, reckons possible course of covid-19, in order to inform the policy response. Tony Yates, an economist formerly of the University of Birming- Epidemiologists, like economists, use different sorts of models in ham. For academics seeking tenure, publication in top economic their work, each subject to its own limitations and more useful in journals is of paramount importance. Co-operation with a non- some contexts than others. In March researchers at Imperial Col- economist places some control over research in the hands of lege London used a model to calculate the potential death toll of scholars for whom acceptance by a top journal is less of a priority. the virus, assuming that people and governments took no mea- Economists’ forays into other disciplines therefore benefit much sures to stop its spread. The analysis concluded that perhaps less from knowledge-sharing across fields than is ideal. 500,000 Britons and 2.2m Americans would die in such circum- stances (roughly ten times as many as have died so far). The num- A lack of disciplines bers frightened governments into taking drastic steps to mitigate All this is especially unfortunate, because epidemiologists’ chief the spread of the virus, but they drew intense criticism, much of it source of frustration in the pandemic is one that also bedevils the from economists. Detractors argued that the model’s assumptions economics profession. As Ms Murray notes, the epidemiological were unrealistic (a strange stone for an economist to throw). Peo- community was unprepared for the way in which its policy recom- ple would of course act to protect themselves from harm, they ar- mendations would be politicised and its public statements gued, meaning that the death toll would surely be much smaller. warped by agents of misinformation. Economists should empath- The authors of the Imperial College study had been open about ise. Their efforts to explain complicated ideas to the masses, from this assumption, though, and even noted that it was unrealistic. In the virtues of trade to the need for bank bail-outs, have often foun- a newly published essay in the Journal of Economic Perspectives El- dered. Such failures encourage economists to become more insu- eanor Murray, an epidemiologist at Boston University, says econo- lar. But, as the pandemic has revealed, sometimes the effects of a mists misunderstood the aim of the model, which was to set out a policy hinge on how well the public understands what is being worst-case scenario as a baseline against which to estimate the ef- done and why. A profession that is more open to collaboration fects of potential policy interventions. Criticisms of other model- might also learn from the communications struggles of others. 7 72 Science & technology The Economist November 14th 2020

Fast diagnosis for covid-19 spur the immune system into making oth- er proteins, called antibodies, that go on to Test match disable the virus. Antigen tests need no laboratory backup and can report a result in 15-20 minutes. They work by dipping the swab into a vial containing a solution that extracts the antigen of interest. A few drops of the mix are then applied to a test strip Cheap, rapid tests for sars-cov-2 are here. Will they be the stopgap needed laced with antibodies that recognise that before a vaccine is deployed? antigen. The test strip displays the results s news emerged this week that an ex- tings ranging from airports to nursing like a home pregnancy test. Aperimental vaccine against covid-19 homes. In Europe, indeed, they are some- The speed with which these tests have has proved effective in late-stage clinical times used to blitz entire neighbourhoods, been developed is impressive. More than trials, hopes that the pandemic’s days may cities and even small countries, like Slova- 70 are now on the market in one part of the be numbered are running high (see Brief- kia. But will they change the course of the world or another, according to a catalogue ing). But, even with the best of luck, it will pandemic? compiled by the Foundation for Innovative be months before a vaccine starts to make a New Diagnostics (find), a charity in Gene- difference on the ground in those coun- Smaller, faster, cheaper va that supports the World Health Organi- tries that get the first supplies of it, let pcr tests look for the genetic sequence of sation (who) with research on diagnostic alone the ones at the back of the queue. In the virus in nose and throat swabs. These tools. So far, only two of them have been the meantime, the pandemic juggernaut swabs have to be processed in laboratories granted provisional (“emergency use”) ap- rolls on. and require machines that take hours to proval by the who, and seven by America’s To try to slow it, many countries are come up with a result. They are extremely federal regulator, the Food and Drug Ad- starting to deploy tests which, at some cost accurate. But the delay involved can hobble ministration. But more approvals are ex- in accuracy, deliver their results much test-and-trace systems. pected to be forthcoming in the weeks more rapidly than the polymerase-chain- Rapid tests, by contrast, are designed to ahead as find and other organisations reaction (pcr) tests that were common- detect certain proteins that sars-cov-2 complete validation studies that test the place at the pandemic’s beginning. These sheds when it replicates during an infec- tests in the real-life conditions in which rapid tests will allow greater numbers of tion. These proteins, known as antigens, they are likely to be used. infected people than previously possible to Early antigen tests were not terribly be detected and quarantined before they good, but many of the newer ones are ex- Also in this section can spread the contagion. They are there- tremely accurate. If a pcr test is negative, a fore being used in increasing numbers to 73 Life on Venus, redux modern antigen test on the same individ- screen people for the presence of sars- ual will agree with that analysis more than 74 Better disposable cups cov-2, the virus that causes covid-19, in set- 97% of the time, a value called its specific-1 The Economist November 14th 2020 Science & technology 73

2 ity. The story gets complicated, though, haps lives in an area with a high covid-19 ciently, leaving poorer places with a short- when the virus is actually around. If some- rate. But testing people when there is no age. To avoid this, the Bill and Melinda one tests positive for covid-19 in a pcr test, obvious reason to believe they may be in- Gates Foundation, a big charity, has teamed the best antigen tests will agree in more fected is likely to be a waste. A positive re- up with the who to place an order for 120m than 90% of cases if the testing is happen- sult in that case will be suspect. rapid tests which will go to 133 developing ing within a week or so of the onset of countries over the next six months. symptoms, a value called the sensitivity. Do try this at home Dr Tromberg, who leads a project at the But the rate of agreement falls if the anti- Doctors are used to making such decisions nih which invests in new covid-19 testing gen test is done at the beginning or end of when testing for things like cancer, sexual- technologies that can be scaled up rapidly an infection, when the amount of virus ly transmitted infections and so on. The to mass production, reckons the 22 pro- present in the nose and throat is consider- guidelines they employ draw on years of ducts in his pipeline which are already at ably lower. This means that diagnoses rely- research and practice. But for covid-19 the manufacturing stage will add 2.5m ing on antigen tests are unreliable during things are new and changing rapidly. To tests a day by the end of this year—helping those periods. deal with that, some test developers are raise America’s total to 6m-7m. Around the Fortunately, from a public-health point pairing their products with “digital wrap- world, several makers of rapid covid-19 of view this may not matter. The relation- arounds” such as apps in which such deci- tests have said they have the capacity to ship between viral load and contagious- sion-making algorithms are fed up-to-date make tests in the tens or hundreds of mil- ness is not fully understood, but current data on things like trends in local covid-19 lions a year. This sounds plausible, given thinking is that higher loads make people prevalence and the weight of various per- that 400m malaria test kits are made each more contagious. Since those with higher sonal risk factors derived from various an- year. But expanding into the billions is ter- loads are most likely to show up as positive alyses. Some of these apps issue a time- ra incognita. Though new production lines in an antigen test and therefore be asked to limited bar code to those who test negative, can be built and existing ones put to work isolate themselves, the transmission- for use where proof of a negative test may around the clock, making tests requires breaking value of the new tests should not be required. skilled workers, who are in limited supply. be too badly compromised. For now, rapid tests are licensed for use Whether rapid tests change the course In theory, then, all of this sounds great. only by medical professionals. The regula- of the pandemic and end the need for lock- But reality is messier. Even a highly accu- tory bar for stand-alone home tests is set downs until a vaccine can likewise be made rate test will produce fewer true positives high. They must be 99% accurate and pass and distributed at scale will depend on than false positives if the people being test- extensive usability trials to ensure that whether those which are available are used ed are unlikely to be infected in the first people employ them correctly. That would wisely. Eventually, such a vaccine will re- place (see chart). That would be the kind of be easier if the secretion being tested was duce the demand for tests dramatically. problem which arises with mass testing in saliva, which is freely accessible, rather But, for now, the world needs them. 7 places that are not covid-19 hotspots. For than material found high in the nose or example, Britain’s Office for National Sta- deep in the throat. Saliva does work reli- tistics estimates that on October 28th ably in some pcr tests but no one has yet Planetary science 0.82% of people in private households in devised a good antigen test that uses it. London were infected. If everyone in Lon- At the current pace of progress, though, Questions of life don that day was given a test that has the this may soon change. Bruce Tromberg of minimum “acceptable” accuracy for rapid America’s National Institutes of Health tests set by the who (80% sensitivity and (nih) thinks that a rapid over-the-counter 97% specificity) the number of those with test could be available in America as early false-positive results will be 353% bigger as next summer. Rapid antigen tests are, than those with true positive results. then, likely to become a big part of coun- Is there really phosphine on Venus? This is why deciding whether to trust tries’ covid-19 testing strategies. In particu- the result of an imperfect rapid test—or, in- lar, they will be used for testing at home, in xtraordinary claims require extraor- deed, whether it is worth using the test at doctors’ surgeries, and in remote places Edinary evidence. So goes the dictum, all—depends on who is being tested, and where pcr laboratories are not available. usually credited to Carl Sagan, a celebrated why. A positive result is more credible for They will be especially handy for mass test- astronomer, on the need for caution when someone with symptoms, or who is a close ing in places prone to outbreaks, such as interpreting radical new ideas in science. contact of an infected individual, and per- prisons and student dormitories. And there are few claims more extraordi- As more rapid tests are developed and nary than that of the discovery of life be- demand for them increases, competition yond Earth. What is truth? and manufacturing at scale will make them Jane Greaves of Cardiff University, in Covid-19 test results*, % cheaper. Stand-alone antigen tests are now Britain, has not actually made that claim. But she came close to it when, in Septem- 100 available for as little as $5 apiece, but prices may eventually drop nearer to $1, which is ber, she and her colleagues published re- the cost of a rapid test for malaria. Tests search that appeared to show the existence 75 True negative that use small machines are about $10-20 of a gas called phosphine in the clouds of each, plus a few hundred dollars for the de- Venus. This substance, a compound of As % of negative tests 50 vice. A pcr test now costs around $50, but phosphorus and hydrogen, should be able will be cheaper for automated large-scale to survive only briefly in an atmosphere 25 testing of samples that come in bulk on a like that of Venus. But Dr Greaves’s team re- True positive set schedule, such as samples from univer- ported that it actually seemed to be persis- As % of positive tests 0 sities or workplaces. tent there, at a concentration of 20 parts per 0 25 50 75 100 Even though antigen tests are cheap, billion. This turned heads because, on Share of population with active infection, % however, some people worry that rich Earth, the minuscule amounts of phos- *For a test with 80% countries will corner the market for them phine around have only two sources: Source: The Economist sensitivity, 97% specificity until production has ramped up suffi- chemists and microbes. The former are 1 74 Science & technology The Economist November 14th 2020

2 surely absent from Venus, so the question sian spectrum they found five other strong At the moment, most of this is burned. became whether there was a plausible, nat- signals for molecules not actually believed Often, it fuels local generators that power ural, but non-biological explanation for to be present in the planet’s atmosphere. the mills, so it is not wasted. But Zhu Hon- the gas being there. Neither Dr Greaves nor Dr Greaves’s claim in September was, gli, a mechanical engineer at Northeastern anyone else has yet come up with one, so then, just the starting gun. Investigations University in Boston, thinks it can be put to that leaves open the tantalising possibility about phosphine will continue, probably better use. As she and her colleagues de- that it is a sign of life on the planet. for years and perhaps for decades, as as- scribe in Matter this week, with a bit of But there is another possibility. This is tronomers spiral in on the truth. Indeed, as tweaking bagasse makes an excellent—and that the signal Dr Greaves and her team if to highlight both the messiness of the biodegradable—replacement for the plas- suggest is phosphine isn’t. And, in the current uncertainty and the desire of most tic used for disposable food containers weeks since the results were published, scientific researchers to get at the truth re- such as coffee cups. other groups have been busy poring over gardless, Dr Greaves herself is one of the co- Dr Zhu is not the first person to have this them, conducting their own analyses and authors of the phosphine-dissenting paper idea. But previous attempts tended not to attempting to poke holes in the original published by Dr Encrenaz. survive contact with liquids. She thought claims. Their concerns are twofold. One is One way to settle the matter would be to she could overcome that by spiking the an inability to find evidence for phosphine send a spacecraft to Venus and take sugar cane pulp with another biodegrad- in independent observations of Venus’s at- close-up measurements of its atmosphere. able material. She knew from previous re- mosphere. The other is whether Dr Greaves There are hopes here. India’s space agency search that the main reason past efforts fell and her colleagues have processed their plans to launch Shukrayaan-1, which is in- to pieces when wet is that bagasse is com- data correctly. tended to orbit the planet, in 2025. Mean- posed of short fibres which are unable to while, nasa, America’s space agency, has overlap sufficiently to confer resilience on Crucial gaps two Venus probes—veritas and da- the finished product. She therefore sought Those data came from the Atacama Large vinci+—in the final selection stage for its to insert a suitably long-fibred substance. Millimetre Array (alma), a set of radio- next programme of missions. Rocket Lab, a Bamboo seemed to fit the bill. It grows telescope dishes that sit at an altitude of private space company with a launch site quickly, degrades readily and has appropri- 5,000 metres in the mountains of Chile. in New Zealand, is also considering dis- ately long fibres. And it worked. When the The solar radio spectrum reflected from Ve- patching a mission as soon as 2023. Per- researchers blended a small amount of nus has, according to Dr Greaves, a gap haps it won’t take decades after all. 7 bamboo pulp into bagasse, they found that known as an absorption line in it at a wave- the result had a strong interweaving of length of around 1.1 millimetres. Phos- short and long fibres. As a bonus, they also phine molecules are known to absorb radi- Materials science discovered that the hot pressing used as ation of this wavelength. part of the process had mobilised some of But phosphine also absorbs other wave- Would you like the lignin in the fibres, and that this stiff, lengths. A robust way to verify Dr Greaves’s water-repelling material was now acting as findings, therefore, would be to find simi- sugar cane in that? an adhesive that bound the fibres together. lar characteristic gaps in other parts of Ve- To put their new material through its nus’s reflected solar spectrum. Therese En- paces, Dr Zhu and her colleagues first crenaz of the Paris Observatory set herself poured hot oil onto it and found that, rath- How to kill two environmental birds this task, and went hunting for appropriate er than penetrating the material, as it with one stone gaps in the infrared region of that spec- would have with previous bagasse pro- trum. She combed through data collected ugar cane contains around 10% sugar. ducts, the oil was repelled by their inven- using texes, a spectrograph at the Gemini SBut that means it contains around 90% tion. They also found that when they made Observatory in Hawaii, between 2014 and non-sugar—the material known as bagasse a cup out of the stuff and filled it with water 2016. But she drew a blank. That result, (pictured) which remains once the cane heated almost to boiling point, the cup re- published in the November issue of Astron- has been pulverised and the sugar-bearing mained intact for more than two hours. omy & Astrophysics, seems to be a contra- juice squeezed out of it. World production Though this is not as long as a plastic cup diction to the original claim of phosphine of cane sugar was 185m tonnes in 2017. That would last (it would survive indefinitely) it on Venus. results in a lot of bagasse. is long enough for all practical purposes. The second possible contradiction, of Moreover, the new material is twice as Dr Greaves’s data-processing methods, strong as the plastic used to make cups, and comes from Ignas Snellen of Leiden Uni- is definitely biodegradable. When Dr Zhu versity in the Netherlands. Any work of this buried a cup made out of it in the ground, sort requires the data to be passed through half of it rotted away within two months, a software noise-filter in order to subtract and she reckons six months would have the effects of both Earth’s atmosphere and seen it gone completely. the telescope array itself. Dr Snellen and Last, but by no means least, she esti- his colleagues have reprocessed the origi- mates that cups made from the new mate- nal alma data using a different noise-filter, rial would cost $2,333 a tonne. That is half to see if similar results emerge. the $4,750 a tonne cost of biodegradable In a paper posted on arXiv (a website for cups made from polylactic acid (fermented so-called preprints, which have not yet plant starch), and only slightly more than been peer-reviewed but which their au- the $2,177 a tonne that it takes to make plas- thors wish nevertheless to put into the tic cups. Overall, then, Dr Zhu argues that public domain), they found some evidence bagasse is an obvious choice for making for phosphine, but not enough to claim a coffee cups, straws, disposable plates, confident discovery. More troubling, per- lightweight cutlery and so on. Once used, haps, was that when they used Dr Greaves’s these could be dumped in landfills with a noise-filter on a wider portion of the Venu- Waste not, want not clear conscience. 7 Books & arts The Economist November 14th 2020 75

Also in this section 76 Chinatown chic 77 Diagnosing American society 77 Billy Wilder’s story 78 Johnson: Language and evolution

Home truths ence was infinitely bigger than it seems on the page. Chains that bound people before The human stain the vote held firm after it. The 700,000 souls who had been enslaved in the West Indies remained enslaved, and tormented, for decades. Traditional accounts of Britain’s role in slavery culminate with Wilberforce and that act. These two are just getting going. Two new books spell out Britain’s role in the transatlantic slave trade Mr Taylor’s book, “The Interest”, switches unimpeachable respectability; similarly, the focus from the saints to the sinners. His Slave Empire. By Padraic Scanlan. modern Britain has cloaked the country’s title derives from the West India Interest, a Robinson; 464 pages; £25 role in the slave trade in a haze of selective lobbying group of planters and politicians, The Interest. By Michael Taylor. Bodley memory. It has long celebrated William publishers and intellectuals, which dog- Head; 400 pages; £20 Wilberforce and his “Saints”, the group gedly opposed abolition. Support for slav- who fought to abolish slavery. David Cam- ery pervaded British society. Viscount Nel- n june 7th this year Edward Colston eron, a former prime minister, once said son declared himself a “firm friend” to the Oplunged, periwig first, into the waters that one of Britain’s “proud achievements” colonies. The Duke of Wellington toiled to of Bristol harbour. It was an incongruous was its “role in ending slavery”. frustrate abolitionists. The celebrated car- scene: at least until recently, Britons im- Like some others, the country is rather toonist George Cruikshank caricatured mortalised in bronze were rarely toppled or less keen to remember its sinners. Two them. John Murray, a publishing house drowned by mobs. Part of the shock of this timely books, by the historians Padraic known today for introducing Jane Austen image, and part of its power, was to see a Scanlan and Michael Taylor, set out to to the world, was so famous for pro-slavery figure dressed in gentleman’s breeches and weave a more accurate, less flattering ver- arguments that its Quarterly Review was de- a frock-coat being treated as a criminal. sion of this story. Take the idea that Britain scribed as “one of the most effective and The Victorians who put up this statue worked to reduce slavery from 1807, when mischievous props” of the system. had burnished Colston as a philanthropist. the act that abolished the slave trade in the And this was true: he had given Bristol, his British Empire was passed. That is true. It is Out of sight home city, schools and almshouses. But he equally true that until that date Britain did Mr Scanlan’s book, “Slave Empire”, concen- did other things too, which the statue and much to make it thrive. Of the more than trates on the financial benefits that slavers its plaque downplayed. During his decade 6m enslaved Africans transported across reaped. This harvest by no means ended on the board of the Royal African Company the Atlantic, it is thought that 2.5m were with abolition. The £20m in compensation in the late 17th century, it trafficked 84,000 packed into British ships. that was eventually paid by the British gov- slaves from Africa to the Americas. An esti- Or take the widespread but mistaken ernment to slavers for the loss of their hu- mated 19,000 died en route. notion that the act of 1807 outlawed the in- man property was a vast sum, equating to If statues can be misleading, so can per- stitution of slavery itself. It did not: it 40% of the state’s annual expenditure at ceptions of entire historical periods. The stopped British slaving. In the flesh—and the time. Until the banking bail-out of Victorians dressed Colston in an air of this was an argument of flesh—the differ- 2008, it was the largest specific payout in 1 76 Books & arts The Economist November 14th 2020

2 British history; the loan it required was paid off only in 2015. The money provided Street style the seed capital for mines, banks, railways and more. Britain’s liberal, free-trade em- Fashion statements pire was, in part, built on human bondage. Slavers gained not just gold but a fine gilding from their trade. Many were men of status and consequence. Joshua Reynolds Chinatown Pretty. By Andria Lo and painted them; Eton educated them; society Valerie Luu. Chronicle Books; 224 pages; opened its doors for them. Until this year, $24.95 and £18.99 Colston had not only his statue but a fleet of institutions named after him. Even to- en wuey chew’s look involves a day scholars at Oxford study in the Cod- Llayered mash-up of florals and plaids rington Library in All Souls College, en- of a kind you might spot on a couturier’s dowed by the Codrington family who catwalk. Her runway is a steep hill in San owned plantations in Barbados. The great- Francisco’s Chinatown, which she nego- grandfathers of George Orwell and Graham tiates with a pink-and-blue cane. Her Greene were slaveholders. After emancipa- husband, Buck, favours white gloves and tion, Orwell’s received £4,000 in compen- loud ties festooned with parrots or but- sation for the 218 slaves he had owned, terflies. In their winningly garish outfits, which Mr Taylor describes as “a perversion the nonagenarian couple embody a of justice that would have fitted seamlessly thrifty yet exuberant way of life. into the Orwellian canon”. On every bench in Portsmouth “Slave Empire” is lucid, elegant and fo- Square, Chinatown’s outdoor living rensic. It deals with appalling horrors in room, elderly people in bright plumage cool and convincing prose. “The Interest” chat, play cards and practise tai chi. is more impassioned. Mr Taylor can tell a Fuchsia scarves top crocheted vests; story superbly and has a fine eye for detail paisley sweaters wrap formal striped (George IV, readers learn, breakfasted on shirts. Jade accessories glint. Impishly pigeon and beef-steak pie, washed down stylish, this venerable crowd is “Chi- blocks. Many emigrated from China long with champagne, port, wine and brandy). natown Pretty”, in the words of a new ago, have endured war, revolution and His argument is a potent and necessary book devoted to their sartorial flair. exile and now subsist on fixed incomes corrective to a cosy national myth. But his Valerie Luu, a writer, and Andrio Lo, a in single rooms. Around a third live in writing can be a distraction, peppered as it photographer, spotted their first “poh poverty. Yet their neighbourhood bursts is with phrases such as “bogus nonsense” poh hou leng”—“pretty grandma” in with colour. Look past the tourists and and “twisted logic”. Such caustic judg- Cantonese—six years ago. A blog and a pagodas, and Chinatown resembles a ments may be correct but they are superflu- photography show in a Chinatown alley bustling, open-air senior centre, the ous. An argument of this gravity does not followed. Their book collects portraits denizens of which pay close attention to require such flourishes. from six North American Chinatowns, their clothes. “Going out is dressing up,” It never did. One of the most striking including Chicago, New York, Los Ange- Feng Luen Feng, 77, tells the authors. things about Britain’s debates over slavery les, Oakland and Vancouver. But their The eclectic outfits are pragmatic. In is how unemotional many of the most in- heart remains in San Francisco, home of the city’s foggy, unpredictable climate, it fluential texts were. Take the basic ques- America’s oldest, densest Chinatown. pays to wear several layers—sometimes tion of how slaves in the West Indies were Five thousand souls, a big chunk of up to seven or eight, plus a hat or two. treated. As in the United States, British abo- them elderly, are crammed into 30 city Beyond the insulation, though, the litionists and slavers had for years quar- fashions speak volumes about the com- relled bitterly over this, the latter painting munity’s resourcefulness and joie de an image of paradise, the former of hell. vivre. In his bright red suit, for instance, There was stalemate. You Tian Wu has been a Chinatown Then, in 1789, the Board of Trade pub- fixture, sometimes seen wearing two lished a damning report on slavery, filled bow ties above a Windsor knot. Dressing with statistics and testimony of the tor- to the nines on a tight budget is a matter tures inflicted on slaves. “It is no uncom- of pride. “When you’re young you don’t mon thing”, the document recorded, “for a have to care about fashion,” says Mr Wu, Negro to lie by a Week after Punishment.” 82. “But when you’re old, you have to.” More damning still was the mass of data Each garment tells a story. Some were published in the Anti-Slavery Monthly Re- stitched in Hong Kong decades ago; porter, which sold 1.7m copies in six years. others have been sewn or patched at You can read its findings now, online. home, or were handed up or down. One Even at a distance of almost two centu- lady sports a hot pink backpack over a ries, they make appalling reading: “39 tailored blue skirt-suit. Another’s socks lashes”; “three or four hundred lashes”; “on bear the slogan “My favourite salad is her bared body fifty-eight lashes of the cart wine”. The styles may not be to every- whip”. On and on go the accounts, unemo- one’s taste. But as surrounding neigh- tional, unsparing, utterly unpardon- bourhoods become ever more costly and able—50 lashes, 49 more. This was not gentrified, this frugality and grit are both rhetoric. It was cruelty, quantified. And lit- a sign and a means of survival. tle was more persuasive. 7 The Economist November 14th 2020 Books & arts 77

American society meritocratic society and the ideal it aims to wards are rightly merited. As he says, that realise, equality of opportunity. For true ethical question runs back to theological All for one egalitarians, who want fairer outcomes, a disputes about the arbitrariness or earna- uniform starting line has always seemed a bility of God’s grace. These days, free-mar- fudge. To some rugged conservatives, pro- keteers and redistributionists tussle over mising equal opportunity is necessary lip- whether and how to offset the lottery of tal- service to unmeetable popular demands. ent and energy that underlies supposedly Mr Sandel, a political philosopher, ends up merited rewards. on the fence. He is not an out-and-out Like Mr Putnam’s, the solutions Mr San- The Upswing. By Robert Putnam and egalitarian, but nor does he dismiss hopes del suggests call for profound changes in Shaylyn Romney Garrett. Simon & Schuster; for some degree of genuine civic equality. prevailing attitudes: acknowledgment of 480 pages; $32.50. Swift Press; £25 He recognises that gauges of perfor- luck in the share-out of rewards, recogni- The Tyranny of Merit. By Michael Sandel. mance and success often measure the tion that all work has dignity, new commit- Farrar, Straus and Giroux; 288 pages; $28. wrong things—or measure the right things ment to the public good, and readiness to Allen Lane; £20 badly. His critique of over-reliance on pa- argue such matters out in a healthier, more he rancour of American politics, say per credentials in hiring and university deliberative democracy. A sceptic may Tthese two distinguished scholars, is a placements is telling. (Similar flaws of share the pair’s concerns about American symptom of an even deeper malaise. Rob- ranking mania in medicine, policing, society yet wonder if, in such a vigorously ert Putnam charts a rise in economic in- schooling and the armed forces were ex- competitive, capitalist place, those pro- equalities, cultural tribalism and frayed so- pertly exposed in Jerry Muller’s “The Ty- found changes in thinking are probable. cial connections since the1960s—when, he ranny of Metrics”.) Mr Sandel’s larger con- And whether, given how long the argu- recalls, the spirit of solidarity and reform cern, however, is not whether achievement ments over unmerited disadvantage have was by contrast strong. Michael Sandel fo- is properly calibrated but whether its re- lasted, they are likely to end soon. 7 cuses on the meritocratic rat-race and its justifications, which create, in his words, “hubris among the successful and resent- Hollywood fiction ment among the disadvantaged”. Both blame the ills they identify on Ready for his close-up widespread acceptance of egotistical go- getting at a cost to common purpose. Their bleak picture of private indifference to public welfare prompts an equally sweep- A novel reimagines the life and work of a legendary film director ing solution. America needs nothing less, they think, than a recovery of community Coe’s mischievous and inventive re-enact- and rededication to the common good. Mr Wilder and Me. By Jonathan Coe. ment, this film about a reclusive, fading Mr Putnam, a political scientist, is well- Viking; 256 pages; £16.99 star is, at heart, as much about the end of known for “Bowling Alone” (2000), which Hollywood’s Golden Age as the ephemeral reported a drop of clubbability in a nation n the summer of 1977 an international nature of youth and fame. of joiners. Written with Shaylyn Romney Ifilm crew descended on the sleepy Greek Mr Coe’s novels typically fuse politics, Garrett, “The Upswing” is a reprise that an- island of Lefkada, temporarily casting it satire and the passage of time. This one swers critics and laments a yet broader re- into chaos. Billy Wilder (pictured), the leg- draws heavily on factual accounts of Wild- treat to private concerns. It offers a histori- endary director of “Sunset Boulevard” and er and his associates but places a fictitious cal account of trends in public commit- “Some Like It Hot”, had chosen it as the lo- outsider at the heart of the story. Calista is ment over120 years. cation for key scenes in what would be his an aspiring young composer brought up by The narrative arc is simple. A dog-eat- penultimate movie, “Fedora”. In Jonathan her bohemian parents in a shabby flat in 1 dog Gilded Age at the end of the 19th cen- tury prompted ever greater social engage- ment and reform in three stages—Progres- sivism, the New Deal and the 1960s. Soon, however, dog-eat-dogism returned and is now again uppermost. To support that analysis, a mass of survey data and statis- tics is mapped onto what Mr Putnam calls “I-we-I” curves, which show a rise and fall in economic equality, political co-opera- tion, social solidarity and a sense of shared American culture. “The Upswing” ranges widely, yet its scrupulous survey-mining and curve-fit- ting is not wholly persuasive, or indeed necessary. Up on the latest research and impeccably open to counterargument, Mr Putnam tends to take away with one study what he has just offered with another. A heartfelt communitarian essay, “What ails America”, without the social-science appa- ratus, might have been just as convincing. Mr Sandel’s focus is tighter. His target is Nobody’s perfect 78 Books & arts The Economist November 14th 2020

2 Athens. She first encounters Wilder while become a biting rebuttal of a Holocaust-de- To appear knowledgeable on set, she mem- travelling around America in 1976; later he nying guest. orises and quotes every entry in “Halli- hires her to act as an interpreter and secre- Calista narrates the novel, largely in well’s Film Guide”, accidentally finding her tary for “Fedora”. flashback from the present day. Now a mar- vocation as a composer of scores. She and the production move from ried woman with twin daughters, she gives Mr Coe has drawn on real-life memories Greece to the final shoot in West Germany. a retrospective view of her own life as well of the production, including those of Wild- A lack of American backing had meant as insights into the enigmatic Wilder, who er’s actual personal assistant, to create the Wilder, an Austrian-born Jew, was obliged rails against the “kids with beards” (a new composite figure of Calista. “Fedora” to turn to German investors. In a dramatic generation of film-makers such as Martin flopped on its release in 1978; the New York and ingenious scene, Mr Coe grafts the Scorsese and Steven Spielberg). Thus “Mr Times thought it had “the resonance of an transcript of an actual interview with the Wilder and Me” is also a coming-of-age epitaph”. It is now widely recognised as an director onto a swanky dinner in a Munich story, in which the first sip of a martini is, artistic masterpiece about the illusion of hotel. Wilder’s reflections in the interview for the unworldly Calista, “like a gentle slap cinema itself. In his finely tuned novel Mr on the fate of his relatives under Nazism in the face to bring you round after a faint”. Coe has done it, and its director, justice. 7 Johnson On natural declension

The evolution of language mirrors the evolution of species ecause politics.” “Latinx.” tinct species—offers one of the closest words from old pieces (as in “doom- “B“Doomscrolling.” Language is parallels between linguistic and biological scrolling”) may all baffle the uninitiated. developing all the time, as new usages evolution. Darwin found that finches As tweaks of these and other kinds like these arise and old ones disappear. separated on different Galapagos islands mount up in one group, its speakers One common way to describe this pro- had developed into different species, and gradually lose the ability to converse cess is to say that “language evolves”. It is worked out why. When a homogenous with another—as two speciating pop- an apt formulation, for there is a deep population is split, each subset will be ulations begin to lose the ability to mate. and revealing relationship between affected by its own genetic changes. Those Mark Pagel of Reading University has linguistic change and biological evolu- that contribute, even a little bit, to survival made a list of other compelling parallels tion—along with some big differences. will tend to become more prevalent between the two processes. Like genes, Linguists today aim to apply methods through the process of natural selection. he notes, words are “discrete, heritable from other sciences to messy social When such changes accumulate, you no units”. The replication of dna is akin to phenomena. But the influence once ran longer have two populations of a single language teaching. Physical fossils re- the other way, with discoveries in lin- species, but two different species. semble ancient texts. And so on. But guistic history leaving a mark on evolu- Two linguistic populations separated there are contrasts, too, perhaps the tionary theory. In the late 18th century by enough distance, or by a physical barri- biggest being that the chief driver of William Jones, a British judge in Calcut- er such as a mountain range, can undergo a biological evolution—natural selec- ta, concluded that Sanskrit’s similarity to similar experience. Random alter- tion—is mostly absent in language. Latin and Greek was too great to attribute ations—to pronunciation, the meaning of Nature is red in tooth and claw: a to mere chance. He proposed a parent words or grammar—are often so small that maladaptive mutation can get you killed. language, the descendants of which no one notices them as they are happen- Language doesn’t quite work that way. included Sanskrit, Greek, Latin, Persian ing. Over the course of many generations, For the most part, changes don’t take and other European tongues. Like Co- for instance, a t sound might become an s. hold because they help you avoid a pred- lumbus, he was not the first to get there, Or take the terms in the opening lines of ator, but because they help people com- but he made the revelation famous. this column: using “because” as a preposi- municate. For that, they have to be adopt- As Jones’s findings were elaborated by tion, shedding grammatical gender (as ed by others at the same time—which the philologists who came after him, “Latinx” purports to do) or forging new may happen for reasons that have little to they also came to the attention of a do with “fitness”. A celebrity’s coinages young Charles Darwin. As early as 1837, will take off quicker than those of a bril- looking at the evidence that wildly differ- liant basement neologist not because ent languages had once diverged from a they are superior, but because the star single parent, he wrote to his sister that has more Twitter followers. mankind must have been around much There is, though, a final, important longer than the Bible allowed. In 1871he overlap between the two kinds of evolu- made the parallel between language tion. In a common visual depiction of the divergence and evolution more specific, ascent of man, an ape gradually becomes writing in “The Descent of Man” that “the a human through a series of intermedi- formation of different languages and of ate steps. That gives the impression that distinct species, and the proofs that both evolution is a process of ever increasing have been developed through a gradual sophistication. Not always: rather, or- process, are curiously the same.” One ganisms, like languages, change to fit language giving birth to both Hindi and their environments. They may not al- English was not so extraordinary if you ways become more refined. But neither— gave tiny changes time to accrete. despite the incessant chorus of grum- Speciation—the emergence of dis- bles—are they in decline. Courses 79

Property 80 Economic & financial indicators The Economist November 14th 2020

Economic data

Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units % change on year ago % change on year ago rate balance balance 10-yr gov't bonds change on per $ % change latest quarter* 2020† latest 2020† % % of GDP, 2020† % of GDP, 2020† latest,% year ago, bp Nov 11th on year ago United States -2.9 Q3 33.1 -4.6 1.4 Sep 1.1 6.9 Oct -2.2 -15.3 1.0 -96.0 - China 4.9 Q3 11.2 1.8 0.5 Oct 2.9 4.2 Q3§ 1.7 -5.6 3.1 §§ 6.0 6.62 5.9 Japan -9.9 Q2 -28.1 -6.4 0.1 Sep 0.2 3.0 Sep 2.6 -11.3 nil -8.0 106 3.3 Britain -9.6 Q3 78.0 -10.6 0.5 Sep 0.6 4.8 Aug†† -1.5 -18.9 0.4 -38.0 0.76 2.6 Canada -13.0 Q2 -38.7 -5.8 0.5 Sep 0.7 8.9 Oct -2.1 -13.0 0.8 -81.0 1.31 0.8 Euro area -4.3 Q3 61.1 -8.3 -0.3 Oct 0.3 8.3 Sep 2.2 -9.0 -0.5 -26.0 0.85 7.1 Austria -14.3 Q2 -38.2 -6.4 1.5 Sep 1.1 5.5 Sep 1.0 -7.4 -0.4 -35.0 0.85 7.1 Belgium -5.1 Q3 50.2 -8.1 0.7 Oct 0.4 5.2 Sep -1.6 -9.6 -0.3 -36.0 0.85 7.1 France -4.3 Q3 95.4 -10.1 nil Oct 0.7 7.9 Sep -1.6 -10.4 -0.3 -28.0 0.85 7.1 Germany -4.2 Q3 37.2 -5.8 -0.2 Oct 0.5 4.5 Sep 5.5 -7.2 -0.5 -26.0 0.85 7.1 Greece -15.3 Q2 -45.4 -8.5 -1.8 Oct -1.0 16.8 Aug -2.9 -7.5 0.9 -46.0 0.85 7.1 Italy -4.7 Q3 81.8 -10.0 -0.3 Oct -0.1 9.6 Sep 2.5 -11.0 0.7 -66.0 0.85 7.1 Netherlands -9.4 Q2 -30.0 -6.0 1.2 Oct 1.1 3.8 Mar 7.0 -6.0 -0.5 -32.0 0.85 7.1 Spain -8.7 Q3 85.5 -12.7 -0.8 Oct -0.3 16.5 Sep 0.5 -12.3 0.1 -25.0 0.85 7.1 Czech Republic -10.8 Q2 27.2 -7.0 2.9 Oct 3.2 2.8 Sep‡ -0.5 -7.7 1.2 -42.0 22.5 2.9 Denmark -7.6 Q2 -24.6 -4.0 0.4 Oct 0.4 4.8 Sep 10.0 -6.3 -0.4 -17.0 6.33 7.0 Norway -4.7 Q2 -19.0 -3.5 1.7 Oct 1.4 5.3 Aug‡‡ 1.8 -0.9 0.8 -75.0 9.09 0.6 Poland -8.0 Q2 -31.4 -4.0 3.0 Oct 3.4 6.1 Sep§ 2.8 -11.3 1.3 -90.0 3.81 1.6 Russia -8.0 Q2 na -4.4 4.0 Oct 3.3 6.3 Sep§ 1.9 -4.1 6.1 -49.0 77.0 -17.1 Sweden -4.1 Q3 18.3 -3.8 0.4 Sep 0.4 8.3 Sep§ 4.5 -4.1 0.1 1.0 8.66 12.1 Switzerland -8.3 Q2 -26.1 -4.1 -0.6 Oct -0.9 3.3 Oct 9.0 -4.6 -0.4 -1.0 0.92 7.6 Turkey -9.9 Q2 na -3.9 11.9 Oct 11.7 13.2 Aug§ -4.1 -5.6 12.4 17.0 7.82 -26.2 Australia -6.3 Q2 -25.2 -4.5 0.7 Q3 0.3 6.9 Sep 1.3 -7.6 1.0 -30.0 1.38 5.8 Hong Kong -3.4 Q3 12.6 -4.2 -2.3 Sep 0.9 6.4 Sep‡‡ 4.4 -5.8 0.7 -106 7.75 1.0 India -23.9 Q2 -69.4 -9.8 7.3 Sep 6.5 7.0 Oct 0.7 -7.8 5.9 -66.0 74.4 -3.9 Indonesia -3.5 Q3 na -2.2 1.4 Oct 1.9 7.1 Q3§ -1.8 -7.1 6.3 -72.0 14,085 -0.2 Malaysia -17.1 Q2 na -8.0 -1.4 Sep -1.1 4.6 Sep§ 2.1 -8.1 2.7 -75.0 4.13 0.2 Pakistan 0.5 2020** na -2.8 8.9 Oct 9.8 5.8 2018 -0.4 -8.0 9.9 ††† -148 158 -1.9 Philippines -11.5 Q3 36.0 -6.1 2.5 Oct 2.4 10.0 Q3§ 0.9 -7.9 3.0 -158 48.3 5.4 Singapore -7.0 Q3 35.4 -6.0 nil Sep -0.4 3.6 Q3 18.0 -13.9 0.9 -87.0 1.35 0.7 South Korea -1.3 Q3 7.9 -1.5 0.1 Oct 0.5 3.7 Oct§ 3.0 -5.8 1.7 -13.0 1,110 5.1 Taiwan 3.3 Q3 18.9 -0.2 -0.2 Oct -0.3 3.8 Sep 12.3 -1.5 0.3 -40.0 28.5 6.7 Thailand -12.2 Q2 -33.4 -5.9 -0.5 Oct -0.8 1.9 Aug§ 3.1 -6.4 1.2 -40.0 30.3 0.2 Argentina -19.1 Q2 -50.7 -11.3 36.6 Sep‡ 42.0 13.1 Q2§ 2.4 -9.2 na -464 79.5 -25.0 Brazil -11.4 Q2 -33.5 -5.2 3.9 Oct 3.1 14.4 Aug§‡‡ -0.4 -15.9 2.0 -260 5.39 -23.0 Chile -14.1 Q2 -43.3 -5.9 2.9 Oct 2.9 12.3 Sep§‡‡ 0.2 -8.9 2.6 -61.0 758 0.1 Colombia -15.5 Q2 -47.6 -7.3 1.7 Oct 2.6 15.8 Sep§ -4.6 -8.8 5.0 -94.0 3,635 -8.1 Mexico -8.6 Q3 57.4 -9.1 4.1 Oct 3.4 3.3 Mar 1.8 -5.3 5.7 -112 20.6 -7.1 Peru -30.2 Q2 -72.1 -13.0 1.7 Oct 1.8 15.5 Sep§ -1.1 -9.2 3.9 -25.0 3.62 -6.9 Egypt -1.7 Q2 na 3.6 4.6 Oct 4.7 9.6 Q2§ -3.4 -9.4 na nil 15.6 3.3 Israel -6.7 Q2 -28.8 -5.7 -0.7 Sep -1.0 4.7 Sep 3.4 -10.4 0.8 -10.0 3.38 3.5 Saudi Arabia 0.3 2019 na -5.2 5.7 Sep 3.4 9.0 Q2 -3.9 -10.9 na nil 3.75 nil South Africa -17.1 Q2 -51.0 -7.7 2.9 Sep 3.5 23.3 Q2§ -2.1 -16.0 8.8 35.0 15.7 -5.3 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

Markets Commodities % change on: % change on: The Economist commodity-price index Index one Dec 31st index one Dec 31st % change on In local currency Nov 11th week 2019 Nov 11th week 2019 2015=100 Nov 3rd Nov 10th* month year United States S&P 500 3,572.7 3.8 10.6 Pakistan KSE 41,197.3 2.3 1.1 Dollar Index United States NAScomp 11,786.4 1.7 31.4 Singapore STI 2,713.3 7.8 -15.8 All Items 128.0 132.3 3.2 21.4 China Shanghai Comp 3,342.2 2.0 9.6 South Korea KOSPI 2,485.9 5.5 13.1 Food 105.3 109.8 4.9 12.2 China Shenzhen Comp 2,264.0 0.1 31.4 Taiwan TWI 13,262.2 3.1 10.5 Industrials Japan Nikkei 225 25,349.6 7.0 7.2 Thailand SET 1,345.3 10.1 -14.8 All 149.2 153.2 2.2 28.5 Japan Topix 1,729.1 6.3 0.4 Argentina MERV 51,435.0 9.4 23.4 Non-food agriculturals 106.5 108.8 5.0 12.4 Britain FTSE 100 6,382.1 8.5 -15.4 Brazil BVSP 104,808.8 7.1 -9.4 Metals 161.9 166.4 1.6 32.1 Canada S&P TSX 16,774.1 4.8 -1.7 Mexico IPC 40,859.0 9.0 -6.2 Sterling Index Euro area EURO STOXX 50 3,467.3 9.7 -7.4 Egypt EGX 30 10,997.7 4.2 -21.2 All items 149.5 152.4 1.2 17.6 France CAC 40 5,445.2 10.6 -8.9 Israel TA-125 1,465.9 3.9 -9.3 Germany DAX* 13,216.2 7.2 -0.2 Saudi Arabia Tadawul 8,449.7 4.5 0.7 Euro Index Italy FTSE/MIB 20,993.0 8.4 -10.7 South Africa JSE AS 57,607.3 7.4 0.9 All items 121.0 124.1 2.6 13.1 Netherlands AEX 599.2 6.0 -0.9 World, dev'd MSCI 2,528.2 4.6 7.2 Gold Spain IBEX 35 7,793.7 14.9 -18.4 Emerging markets MSCI 1,178.9 3.8 5.8 $ per oz 1,905.1 1,884.6 -0.4 29.9 Poland WIG 51,280.0 8.4 -11.3 Brent Russia RTS, $ terms 1,233.8 11.3 -20.3 $ per barrel 39.8 43.7 2.8 -30.5 Switzerland SMI 10,532.3 2.4 -0.8 US corporate bonds, spread over Treasuries Turkey BIST 1,279.2 9.6 11.8 Dec 31st Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream; Australia All Ord. 6,651.1 6.2 -2.2 Basis points latest 2019 Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional. Hong Kong Hang Seng 26,227.0 5.4 -7.0 Investment grade 152 141 India BSE 43,593.7 7.3 5.7 High-yield 486 449 Indonesia IDX 5,509.5 7.9 -12.5 Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income For more countries and additional data, visit Malaysia KLSE 1,570.1 7.2 -1.2 Research. *Total return index. Economist.com/indicators Graphic detail Polling in America The Economist November 14th 2020 81

→ Polls expected whites without college degrees to drift back towards the Democrats. They stuck with Donald Trump

United States presidential elections 2016-20, change in Democratic vote margin predicted by Pew v county results*, percentage points

White college-educated voters Hispanic voters White voters without degrees

Predicted change in margin of victory: +4 Dem Predicted change in margin of victory: +4 Rep Predicted change in margin of victory: +10 Dem 2016 +17 Dem 2020 +21 Dem 2016 +38 Dem 2020 +34 Dem 2016 +36 Rep 2020 +26 Rep

Actual change in margin of victory Actual change in margin of victory Actual change in margin of victory 30 ↑ More Democratic than in 2016 ↓ A lot more Republican than in 2016 ↓ Slightly more Republican than in 2016 20 20 Indianapolis suburbs 10 10

0 0

-10 -10

-20 -20 Miami-Dade, Florida Laredo, Total votes, m Texas -30 2.0 -30 1.0 0.5 -40 -40

0 20 40 60 0 20 40 60 80 100 0 20 40 60 80 100 White college-educated voters, % Hispanic voters, % White voters without degrees, %

Sources: US Census Bureau; Decision Desk HQ; Pew Research Centre; The Economist *Counties with over 95% of votes reported

ticians can unearth promising clues by ex- the first Democrat to win Georgia or Arizo- Déjà vu all ploring the relationships between official na since Bill Clinton. Similarly, Mr Trump vote totals in counties where tabulation is fared far better in majority-Hispanic coun- over again nearly complete and those areas’ demo- ties than he did in 2016, padding his advan- graphic makeup. These data show that Mr tages over Mr Biden in Florida and Texas. Biden failed to realise one of his central However, there was scant evidence that electoral promises: clawing back some of white voters without degrees preferred Mr Once more, less-educated whites Democrats’ recent losses among white vot- Biden to Mrs Clinton. Mr Trump’s margins spurned the Democratic nominee ers without college degrees. of victory in white working-class counties or the second presidential election in a Among the most reliable analyses of the this year were just as large on average, and Frow, polls underestimated support for election of 2016 is a study published by the in some places even bigger, than in 2016. As Donald Trump and the Republicans. In Pew Research Centre, a polling and re- a result, Mr Biden had to rely mostly on his states that have mostly finished counting search organisation, which surveyed 3,000 strength in affluent suburbs to rebuild votes, the error of an average of presiden- voters confirmed to have cast ballots that Democrats’ “blue wall” of Wisconsin, tial polls released during the final two year. Pew also published a nationwide poll Michigan and Pennsylvania. He won these weeks of the campaign was 5.5 percentage this October, making possible direct com- states by far smaller margins than pollsters points, nearly double the average miss of parisons of how voting intentions had expected, and just barely squeaked by in 3.1percentage points registered in 2000-16. changed within each demographic group. Wisconsin, the decisive state in the elec- Moreover, whereas both major candidates Pew found that Mr Trump had made in- toral college in both 2016 and 2020. in 2016 benefited from state-level errors— roads with black and Hispanic voters, trim- So far, most attention has focused on Mr Hillary Clinton won California by seven ming his deficits with these groups by four Trump’s gains among Hispanics, which ap- points more than pollsters expected—this percentage points, while suffering an off- pear to have been even greater than polls year, virtually all of the misfires were un- setting four-point decline among college- foresaw. However, the durability of his derestimating support for Mr Trump. educated whites. However, most of Mr Bi- edge among less-educated whites, a much What went wrong? Exit polls do not pro- den’s predicted gains relative to Mrs Clin- larger group than Hispanics, is far more vide a trustworthy answer: their estimates ton came from whites without degrees: he electorally consequential. No one knows of vote margins within each demographic was expected to reduce Mr Trump’s margin how much of this affinity is specific to Mr category, as well as the share of the elector- with such voters by ten percentage points. Trump, and how much will carry over to ate each group represents, are often biased The county-level data affirm some of other Republican candidates. The party’s and differ vastly from other sources. The fi- these findings. Places with lots of college- electoral future depends largely on its abil- nal analysis will have to wait until all bal- educated whites, particularly in suburbs, ity to keep these supporters, while making lots are counted and rigorous post-election did indeed swing towards Mr Biden this itself more palatable to the college-educat- studies can be conducted. However, statis- year—a trend that will probably make him ed white voters who have abandoned it. 7 82 Obituary James Randi The Economist November 14th 2020

him “L’Étonnant Randi”—the Amazing Randi.He liked it enough to adopt it as his stage name. In 1973 he went on tour with Alice Coo- per, the ghoul-eyed rock star; every night he decapitated him on- stage using a fake guillotine. Later he wriggled out of a straitjacket while suspended, in deep midwinter, over the Niagara Falls. For all the trickery and sleight of hand, he always insisted that magicians were the most honest people in the world. They did ex- actly what they said they were going to do. It was the hucksters that made him mad: the hoodwinkers and bamboozlers, the card sharps, cozeners and thimbleriggers. Pedlars of woo-woo, he called them. Perhaps he felt a growing need to live by the truth. He was 81 when he finally came out publicly, but when he was almost 60 he fell in love with the man he would eventually marry and he gave up turning tricks of his own to focus on another line of work he’d been developing: looking, with his insider’s eye, at how other people worked their magic. He could see through them, of course. He knew how. One of the first he had rumbled was an evangelical Christian healer called Pe- ter Popoff who liked to summon forth individuals from his congre- gation, and tell them they should throw away their crutches and walk. God had told him they would be healed. On “The Tonight Show”, Mr Randi played Johnny Carson a clip in which Mr Popoff appeared to know what each congregant was called and what ailed them even though he’d never seen them before. And then he played the clip again, with the sound turned up, to show how an electrical scanner revealed Mr Popoff was wearing a secret earpiece and be- ing fed the information by his wife who was backstage. “Popoff says God tells him these things,” he would later say. “Maybe he does. But I didn’t realise God used a frequency of 39.17 megahertz and had a voice exactly like Elizabeth Popoff’s.” Time did not mellow him, as it does others. His ten books—on The woo-woo catcher psychics, faith healers, extrasensory perception and the mask of Nostradamus—were rambling, crotchety and filled with diagrams and long-winded explanations. He did not set out to be a debunker; that presupposed that something deserved to be debunked even before it had been examined. He thought only that people should be open-minded and willing to question what they saw before James Randi, magician and professional sceptic, died on them. What he wanted most was to inspect and test every claim October 20th, aged 92 that was presented to him. Over the years these numbered into the s a boy he invented a pop-up toaster. He blew a hole in the floor thousands. He offered a $1m reward to anyone who could produce Aof the breakfast room while conducting a chemistry experi- evidence of paranormal powers under controlled conditions. ment in the family basement in northern Toronto. And when, at Many tried, but none of them succeeded. He never paid out a cent. Sunday school, he queried whether what the Bible claimed was ac- Nor did he lose a single libel action brought against him by the tually true, he was promptly sent home. His parents never knew angry and the thwarted. what he might do next. When they took him to Toronto General His most devoted adversary was a tall handsome Israeli, who Hospital for psychological testing, all they learned was that he was arrived in America in the early 1970s, claiming to be able to bend terrifically bright—his iq was 168, higher than Albert Einstein’s is spoons using psychokinesis, or mind power. With consummate thought to have been. At least his high school had the right idea. showmanship, Uri Geller travelled across the United States, insist- They let him bunk off class and teach himself, coming in only to do ing that he could read minds, foretell events and, with nothing his exams. more than psychic energy, distort magnetic fields, streams of elec- Before he was able to graduate, though, he was hit by a car while trons and solid metallic objects. Even the venerable Stanford Re- out riding his bike. For 13 months he lay in a full-body cast, beating search Institute was taken in. Shortly afterwards, Johnny Carson boredom by reading magic books, unpicking locks and turning again asked Mr Randi for advice on how to test Mr Geller’s claims. card tricks. His doctors thought he would never walk again, but he Use only your own props, he said; nothing that Mr Geller could showed them. And when he did he joined the carnival, where for have had access to beforehand. As the cameras rolled and Mr Geller two summers he called himself Prince Ibis and wore a black tur- realised he was going to be put on the spot, any paranormal abili- ban. He was a small chap, secretly gay and distant from his father. ties he may have had simply vanished. “This scares me,” he said. “I Doing magic made him feel bigger, especially when two policemen don’t feel strong.” who recognised him showed him a pair of handcuffs. Could he get out of them? He could. They drove him to the local jail. Could he The uses of enchantment break out of there? He could—and did, 28 times over the years from “The Truth about Uri Geller” was one of Mr Randi’s most popular different jails in Canada and America. books. Mr Geller never forgave his tormentor. At his death, he His ambition was to beat his hero, Harry Houdini. In 1956 he ap- tweeted: “How sad that Randi died with hatred in his soul. Love to peared on television, submerged for 104 minutes in a sealed metal you all.” Such pious glee would have delighted the little magician box at the bottom of a hotel swimming pool, which earned him his with the twinkling eyes. As he had said himself many times over first entry in the “Guinness Book of Records”. Houdini barely man- the years: “When I die I want to be cremated and I want my ashes aged an hour and a half. A local newspaper in Quebec christened blown into Uri Geller’s eyes.” 7