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The great Tory panic What will Modi do next? Raytheon and UTC join forces Germany’s anonymous billionaires

JUNE 15TH–21ST 2019 H ng K ng Financial Era Advisory Group Contents The Economist June 15th 2019 3

The world this week Britain 6 A round-up of political 21 Tory no-dealers and business news 22 Drones at airports 23 Lib Dems seek a leader Leaders 23 Hargreaves Lansdown 9 The rule of law and the Woodford affair Hong Kong 24 SOAS sends out an SOS 10 The ECB Presidential credentials 25 Victims’ rights in court The BBC v OAPs 10 British politics 25 Conservative clown show 26 Bagehot Tories flirt with extinction 12 Sudan Stop the war Europe On the cover 14 The European Union A Balkan betrayal 27 Banning buying sex Huge demonstrations have 28 Emmanuel Macron’s Act II rattled Hong Kong’s Letters 29 Ivan Golunov’s ordeal government—and the On Brazil, water, chess, leadership in Beijing: leader, 17 30 German greenery Britain, criminal justice, page 9. The territory’s people 30 A Moldovan oligarch Germany, the Bible, look like losing a security that presenteeism 32 Charlemagne English is dear to them: briefing, in the EU page 18 Briefing • The great Tory panic The United States 18 Hong Kong candidates to be prime minister A palpable loss 33 Black lives longer are throwing away the 34 Buffet, ABBA and Bernie Conservative Party’s reputation 20 International reaction 35 Moving leftwards for economic prudence: leader, Caught in the crossfire page 10. Hardliners say a no-deal 35 Religious freedom Brexit would be fine. Moderates 36 Burying New York’s poor say it could be stopped by 37 Green New Democrats Parliament. Both may be in for a 38 Lexington Southern nasty surprise, page 21. The Baptists question is not who will lead the Tory party, but whether it will survive: Bagehot, page 26 The Americas 39 North America’s • What will Modi do next? alternative diplomacy India’s prime minister should use his second term for reform, 40 Bello Brazil’s corruption page 47. Official GDP figures investigations have been disavowed—by a 41 Colombia’s ayahuasca former official, page 65 41 Canadian basketball • Raytheon and UTC join forces Banyan Australia’s Military and industrial pressures easy-going image cloaks a Middle East & Africa are behind America’s biggest bossy and vindictive 42 Sudan on the brink government, page 50 defence merger: Schumpeter, 43 Shocking schools in page 60 Senegal • Germany’s anonymous 44 Free speech in Nigeria billionaires We report from 44 Gay rights in Africa inside the secretive world of Iraq’s Kurds rising Germany’s business barons, 45 page 55 46 The riches of the Gulf

1 Contents continues overleaf https://t.me/finera

4 Contents The Economist June 15th 2019

Asia Finance & economics 47 India under Modi 64 The ECB’s next president 48 The recycling trade 65 India’s growth mirage 48 Flipping Japanese names 66 Martin Feldstein’s legacy 49 An election in Kazakhstan 66 Hidden government debt 49 South Korean energy 67 What will the Fed do? 50 Banyan Australia’s nanny 67 An anti-poverty failure state 68 Buttonwood Talking to Robert Merton China 69 Technology and big banks 51 The rare-earth weapon 70 Free exchange Capitalism 52 Teenage debaters and democracy

Science & technology 71 Small satellites 72 Orbital intelligence 73 A better way to edit genes International 74 Sparking creativity 53 Air-traffic control: congestion in the sky 74 Puncture-proof tyres

Books & arts 75 The internet’s gatekeepers 76 Elif Shafak’s new novel 77 Arson in Australia Business 78 Alma Mahler 55 Meet Germany’s tycoons 78 Opera in the Gulf 56 Bartleby Guilds of the future 57 Drugs by drone Economic & financial indicators 58 Video games in the cloud 80 Statistics on 42 economies 59 Big tech and antitrust 59 Tesla's tribulations Graphic detail 60 Schumpeter An offensive 81 Cricket’s sizzle owes much to India defence merger Obituary 82 Claus von Bülow, villain or victim?

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ronmentalists oppose the Binyamin Netanyahu, Israel’s Oil prices jumped after two mine, arguing that coal threat- prime minister, as a dog tankers were reportedly dam- ens the climate and the Great leading a yarmulke-wearing Mr aged in a suspected attack off Barrier Reef. Trump. Presumably if the the coast of Oman. America paper ever publishes a has blamed Iran for several reprehensible article, it will recent attacks on shipping. The Peronist revival thereafter have to distribute Mauricio Macri made a sur- only blank pages. A Saudi Arabian teenager prising selection for his run- faces possible execution for ning-mate in Argentina’s taking part in a demonstration presidential election in Octo- Spiralling when he was ten years old. The ber: Miguel Ángel Pichetto, Dozens of people, including boy, now 18, has been held for Police in Hong Kong used who leads the Peronist bloc in several children, were killed in four years. rubber bullets, tear gas and the senate. The other presi- a Dogon village in central Mali. water hoses on crowds demon- dential ticket will be all-Pero- The murders were blamed on a strating against a proposed law nist, including Cristina Fulani militia and are the latest Old tricks that would allow people to be Fernández de Kirchner, a for- in a series of tit-for-tat ethnic Ivan Golunov, a Russian jour- extradited to the Chinese mer president. Previous Pero- killings. In March a Dogon nalist who exposes corruption, mainland. Three days earlier, nist regimes have borrowed militia slaughtered more than was arrested after police perhaps 1m marchers thronged and splurged with unusual 150 Fulani villagers. claimed to have found drugs in the streets, worried that the recklessness. his possession. Photos pur- law would make anyone in A child became the first person porting to show a drug lab in Hong Kong, citizens and Jair Bolsonaro, Brazil’s presi- in Uganda to die of Ebola, a his flat turned out to have been visiting businessfolk alike, dent, contradicted the coun- deadly virus that has infected taken somewhere completely vulnerable to prosecution in try’s central bank when he more than 2,000 people in the different. After huge protests, Chinese courts, which are claimed a plan to create a Democratic Republic of Congo which included the front pages under the thumb of the monetary union with Argenti- next door. The boy had trav- of normally quiescent newspa- Communist Party. na was under consideration. elled to Uganda from Congo pers, at his obvious framing, The central bank was further with family members, some of the authorities released him. For the third time, a court in ruffled when Mr Bolsonaro whom are also infected; his New Zealand prevented the said that a single currency grandmother also died. In Moldova police surrounded government from extraditing a could one day be used through- Uganda’s system for contain- government buildings after a murder suspect to China. It out South America. ing epidemics is far more rival administration declared asked the government to con- effective than Congo’s. itself in charge. The pro-Rus- sider whether China could be sian president, who supports relied upon to adhere to the A quick U-turn Protesters in Sudan called off a the new team, was sacked by human-rights treaties it has Donald Trump dropped his general strike and agreed to the old team. signed and whether a trial threat to raise tariffs on goods resume talks with the junta would be free from political from Mexico, after its govern- that took charge after the fall of Ten candidates jostled to be- interference. ment promised to do more to the country’s dictator, Omar come leader of Britain’s Con- stop migrants from Central al-Bashir, in April. Negotia- servative Party, and thus the Tsai Ing-wen, the president of America illegally crossing the tions over who would lead a country’s next prime minister. Taiwan, survived a primary border into the United States. transitional government had Boris Johnson is the bookies’ challenge from Lai Ching-te, In Mexico the deal was hailed collapsed when security forces favourite, but not Europe’s. her former prime minister. She for averting a potential crisis. murdered at least 100 demon- will face the winner of the Mr Trump’s critics said that strators on June 3rd. The British government opposition Kuomintang’s some of the details were not, in amended the Climate Change primary at the polls in January. fact, new. Act to set a target of eliminat- ing Britain’s net emissions of Kassym-Jomart Tokayev was Mr Trump claimed executive greenhouse gases by 2050. confirmed as Kazakhstan’s privilege (again) in with- The “net zero” target is the first president in an election in holding details from Congress in any g7 country. There are which he won 71% of the vote— about the procedure used for two wrinkles: it is unclear somewhat less than the 98% placing a question on the next whether the target will include that his predecessor and census about citizenship. The emissions from aviation and patron, Nursultan Nazarbayev, House oversight committee shipping; and policies adopted won in 2015. Observers said recommended that the at- to reach the target may make both votes were unfair. Police torney-general and commerce use of international offsets. arrested hundreds of peaceful secretary be held in contempt demonstrators. for refusing to co-operate. Botswana’s high court legal- Norway’s parliament voted to ised gay sex, striking down a require the country’s sover- The government of the The New York Times decided to colonial-era prohibition. Half eign-wealth fund, the world’s Australian state of Queens- end political cartoons in its of young people in Botswana largest, to divest from fossil- land issued the final approvals international edition, follow- now say they would not object fuel companies. Energy giants for the proposed Carmichael ing the publication in April of a to a gay neighbour, a marked that have invested heavily in coal mine, to be built by Adani, “clearly anti-Semitic and increase in tolerance from renewables, such as bp and an Indian conglomerate. Envi- indefensible” caricature of previous generations. Shell, are excluded. 1 https://t.me/finera 8 The world this week Business The Economist June 15th 2019

The proposed merger of June 6th to postpone further financial misdeeds at Nissan. In what it described as an t-Mobile and Sprint, first rises in interest rates until at The French government, “unprecedented action”, the floated in April last year, faced least the middle of 2020. Mr which holds a 15% stake in British government ordered a fresh hurdle as a group of Draghi pledged to use “all Renault, has undermined Mr Whirlpool to recall up to American states led by Califor- instruments” under his control Senard recently, most spectac- 500,000 tumble dryers over nia and New York launched a to avert an economic setback ularly by thwarting the com- safety concerns. The American lawsuit to block it. The states in the euro zone. pany’s attempt to merge with maker of white goods issued a are challenging the deal be- Fiat Chrysler Automobiles. Mr warning in 2015 that certain cause it is “exactly the sort of Senard said he had been “sad- brands of dryers might catch consumer-harming, job-kill- Germany dened” by the state’s meddling. fire, but rather than issue a ing mega-merger our antitrust Ten-year government-bond yields, % recall it tried to fix them. 0.30 laws are designed to prevent”, Volkswagen ended its associa- according to Letitia James, New 0.15 tion with Aurora, a self-driv- Beyond Meat had a roller- York’s attorney-general. 0 ing-vehicles startup, clearing coaster week on the stock- -0.15 the way for it to work with market. The American fake- -0.30 Argo, a similar outfit that Ford, meat company’s already bu- Playing defence Jan Feb Mar Apr May Jun which launched a partnership oyant share price soared after Antitrust concerns were also 2019 with vw this year, has invested its first earnings report since voiced when United Technol- Source: Datastream from Refinitiv in. This week Argo expanded going public in May revealed a ogies Corporation announced testing of its fleet of autono- boom in sales. But investors its intention to merge its aero- Market jitters caused investors mous cars to Detroit, the lost their appetite when an space business with Raytheon, to flee to safe assets. The historic home of carmaking. analyst warned that the stock creating a $166bn behemoth in German government sold was overpriced, sending the the industry. utc provides ten-year Bunds at a yield of Salesforce, a highly acquisitive price down by a quarter. electronics and communica- -0.24%, meaning the buyers cloud-based software com- tions systems mainly to com- will lose money if they hold the pany, struck its biggest deal to mercial airlines and Raytheon bonds until they mature. It was date when it offered $15.7bn for A new chapter sells defence equipment, the bond’s lowest yield on Tableau, a provider of comput- Elliott Management, a hedge including the Patriot missile record in a direct auction. er-graphics for data bods. fund, agreed to acquire Barnes system, to the Pentagon. They & Noble in a $683m deal. Elliott hope the civil/military split of Jean-Dominique Senard, Insys, which makes a fentanyl- also owns Waterstones, a their interests will satisfy Renault’s chairman, admitted based painkiller spray, filed for British chain of bookstores competition regulators. that relations with Nissan, the bankruptcy protection, days that is thriving despite predic- Donald Trump has already French carmaker’s alliance after it settled with the federal tions that Amazon would kill it waded in, suggesting that the partner, were tense, but said government for its marketing off. James Daunt, who, as new “big, fat, beautiful com- that they could rebuild trust. of the product. Many of the managing director, is credited pany”, will raise costs for Mr Senard was speaking at his pharmaceutical companies with reviving Waterstones is America’s armed forces. first shareholders’ meeting blamed for America’s opioid also to run Barnes & Noble, since taking up his position in crisis face potentially large where he will hope to turn the The trade dispute between January, after Carlos Ghosn’s legal claims; they stand ac- page on the American book- America and China was the hot arrest in Tokyo for alleged cused of pushing the drugs. seller’s declining fortunes. topic at Foxconn’s first in- vestor conference. The Taiwan- ese contract electronics manu- facturer said customers were concerned about uncertainties surrounding trade arrange- ments, but it assured Apple that it could move production of the iPhone and other devices away from its factories in China if need be. Around 25% of Foxconn’s capacity is based in factories outside China. Foxconn also rejigged its management in preparation for Terry Gou’s departure as chairman to run for president of Taiwan.

Worries over trade continued to unsettle global markets. “The rising threat of protec- tionism” was citied by Mario Draghi, the president of the European Central Bank, as one factor in its decision on Financial Era Advisory Group Leaders Leaders 9 Hong Kong

Huge demonstrations have rattled the territory’s government—and the leadership in Beijing hree things stand out about the protesters who rocked and a tycoon taken from the Four Seasons hotel in 2017. The mes- THong Kong this week. There were a great many of them. Hun- sage is plain. Mr Xi not only cares little for the rule of law on the dreds of thousands took to the streets in what may have been the Chinese mainland. He scorns it elsewhere, too. biggest demonstration since Hong Kong was handed back to Chi- The Hong Kong government says the new law has safeguards. na in 1997. Most of them were young—too young to be nostalgic But the protesters are right to dismiss them. In theory extradi- about British rule. Their unhappiness at Beijing’s heavy hand tion should not apply in political cases, and cover only crimes was entirely their own. And they showed remarkable courage. that would incur heavy sentences. But the party has a long record Since the “Umbrella Movement” of 2014, the Communist Party of punishing its critics by charging them with offences that do has been making clear that it will tolerate no more insubordina- not appear political. Hong Kong’s government says it has re- tion—and yet three days later demonstrators braved rubber bul- duced the number of white-collar offences that will be covered. lets, tear gas and legal retribution to make their point. All these But blackmail and fraud still count. It has said that only extradi- things are evidence that, as many Hong Kongers see it, nothing tion requests made by China’s highest judicial officials will be less than the future of their city is at stake. considered. But the decision will fall to Hong Kong’s chief exec- On the face of it, the protests were about something narrow utive. That person, currently Carrie Lam, is chosen by party loy- and technical (see Briefing). Under the law, a Hong Kong resident alists in Hong Kong and answers to the party in Beijing. Local who allegedly murdered his girlfriend in Taiwan last year cannot courts will have little room to object. The bill could throttle Hong be sent back there for trial. Hong Kong’s government has there- Kong’s freedoms by raising the possibility that the party’s critics fore proposed to allow the extradition of suspects to Taiwan— could be bundled over the border. and to any country with which there is no extradition agree- It is a perilous moment. The protests have turned violent— ment, including the Chinese mainland. possibly more violent than any since the anti-colonial demon- However, the implications could not be more profound. The strations in 1967. Officials in Beijing have condemned them as a colonial-era drafters of Hong Kong’s current law excluded the foreign plot. Ms Lam has been digging in her heels. But it is not mainland from extradition because its courts could not be too late for her to think again. trusted to deliver impartial justice. With the In its narrowest sense, the new law will not threat of extradition, anyone in Hong Kong be- accomplish what she wants. Taiwan has said comes subject to the vagaries of the Chinese le- that it will not accept the suspect’s extradition gal system, in which the rule of law ranks below under the new law. Less explosive solutions the rule of the party. Dissidents taking on Bei- have been suggested, including letting Hong jing may be sent to face harsh treatment in the Kong’s courts try cases involving murder com- Chinese courts. Businesspeople risk a well-con- mitted elsewhere. Anti-subversion legislation nected Chinese competitor finding a way to drag was left to languish after protests in 2003. There them into an easily manipulated jurisdiction. is talk that the government may see this as the That could be disastrous for Hong Kong, a fragile bridge be- moment to push through that long-shelved law. Instead Ms Lam tween a one-party state and the freedoms of global commerce. should take it as a precedent for her extradition reform. Many firms choose Hong Kong because it is well-connected with The rest of the world can encourage her. Britain, which signed China’s huge market, but also upholds the same transparent a treaty guaranteeing that Hong Kong’s way of life will remain rules that govern economies in the West. Thanks to mainland unchanged until at least 2047, has a particular duty. Its govern- China, Hong Kong is the world’s eighth-largest exporter of goods ment has expressed concern about the “potential effects” of the and home to the world’s fourth-largest stockmarket. Yet its huge new law, but it should say loud and clear that it is wrong. With banking system is seamlessly connected to the West and its cur- America, caught up in a trade war with China, there is a risk that rency is pegged to the dollar. For many global firms, Hong Kong is Hong Kong becomes the focus of a great-power clash. Some both a gateway to the Chinese market and central to the Asian American politicians have warned that the law could jeopardise continent—more than 1,300 of them have their regional head- the special status the United States affords the territory. They quarters there. If Hong Kong came to be seen as just another Chi- should be prudent. Cutting off Hong Kong would not only harm nese city, Hong Kongers would not be the only ones to suffer. American interests in the territory but also wreck the prospects The threat is real. Since he took over as China’s leader in 2012, of Hong Kongers—an odd way to reward its would-be democrats. Xi Jinping has been making it clearer than ever that the legal sys- Better to press the central government, or threaten case-by-case tem should be under the party’s thumb. China must “absolutely scrutiny of American extraditions to Hong Kong. not follow the Western road of ‘judicial independence’,” he said But would this have any effect? That is a hard question, be- in a speech published in February. In 2015 Mr Xi launched a cam- cause it depends on Mr Xi. China has paid dearly for its attempts paign to silence independent lawyers and civil-rights activists. to squeeze Hong Kong. Each time the world sees how its intransi- Hundreds of them have been harassed or detained by the police. gence and thuggishness is at odds with the image of harmony it The authorities on the mainland have even sent thugs to other wants to project. When Hong Kong passed into Chinese rule 22 jurisdictions to abduct people, including a publisher of gossipy years ago, the idea was that the two systems would grow togeth- books about the party, snatched from a car park in Hong Kong er. As the protesters have made clear, that is not going to plan. 7 https://t.me/finera

10 Leaders The Economist June 15th 2019

The European Central Bank Presidential credentials

The ecb is Europe’s most powerful institution. Erkki Liikanen should be its next boss ne of the biggest jobs in Europe is up for grabs: head of the and sovereign-debt crises are a constant danger. And, if a crisis OEuropean Central Bank (ecb). It sets interest rates across does strike, sound judgment becomes paramount. If the markets much of the continent, supervises banks and underwrites the sniff equivocation or muddle from the ecb president, the finan- euro, used by19 countries with 341m citizens. The ecb’s outgoing cial system could rapidly spiral out of control, as panicky inves- boss, Mario Draghi, who steps down in October after eight years tors dump the bonds of weaker banks and countries. in charge, has done a sterling job in difficult circumstances. His When Mr Draghi was appointed in 2011, he was already a tenure illustrates what is at stake. After a sovereign-debt crisis in strong candidate. Since then he has passed the three tests. He ex- 2010-12 threatened to sink the euro, it was Mr Draghi who ended panded the ecb’s toolkit by standing ready to buy up unlimited the financial panic by pledging that the ecb would do “whatever amounts of sovereign debt, known as outright monetary trans- it takes” to stop the euro zone from breaking up. actions, or omts (the promise was enough to reassure investors Although he saved the euro, Mr Draghi leaves behind pro- and the policy has never been implemented). He put his personal blems. The economy is faltering; a recession at some point in the authority on the line and marshalled support outside the ecb. next eight years is possible. There is little prospect of fiscal eas- None of today’s leading contenders is as impressive (see Fi- ing—Germany doesn’t want to borrow more and nance section). Some risk undermining the southern Europe can’t afford to. So monetary bank’s hard-won credibility. Jens Weidmann, policy is the main lever to stimulate growth. Un- the head of the Bundesbank, opposed omts. In a fortunately interest rates are close to zero. And crisis, markets might worry that he would be the risk of another debt crisis bubbles away. Ita- prepared to let the euro zone collapse. Olli Rehn, ly’s populists have been ignoring demands from the newish head of the Bank of Finland, could the European Commission to take control of the invite doubt, too. In a previous role in Brussels public debt, now132% of gdp. he was an enforcer of austerity on southern Europe’s political leaders will gather on June European countries, which might in the future 20th and 21st to divide up the top jobs in Europe, including the need the ecb’s help. Benoît Cœuré, the head of the ecb’s market ecb presidency. The temptation will be to make the central-bank operations, is clever and impressive. But the bank’s fuzzy rules position part of the horse-trading, picking the new chief on the appear to bar him from a second term on its board. basis of nationality. Instead, for Europe’s sake, the selection Erkki Liikanen, a former boss of Finland’s central bank, has should be determined by three tests: economic expertise, politi- the best mix of attributes for the role. Although he is less techni- cal talent and sound judgment. cally strong than some other candidates, Philip Lane has recently Technical competence matters. Interest rates are so low that taken over as the ecb’s chief economist: the bank will not lack in- the bank’s toolbox may need to be expanded in creative ways. Po- tellectual clout. Mr Liikanen was a vocal advocate of unconven- litical nous is more important than at other big central banks tional tools. His political skills have been tested both as a com- such as the Federal Reserve. The new boss must build support in missioner in Brussels and as finance minister in Helsinki. Mr the bank’s 25-strong rate-setting body, and across 19 national Draghi has transformed the ecb, but 21 years after its creation, governments and their citizens. The bank must also make the there are still nagging doubts about its strategy and firepower. case for further reform to the euro zone, without which banking With Mr Liikanen at its helm, they might be put to rest at last. 7

British politics A Conservative clown show

The candidates to be prime minister are throwing away their party’s reputation for economic prudence ritain’s conservatives like to think they are the party of umph of chest-thumping over economic reason, most say they Beconomic competence. Although they have overseen some are prepared to see the country crash out of the European Union debacles in recent decades, they have typically had a clear vision without a deal. And, between them, the candidates are champi- for the British economy. In the 1980s, under Margaret Thatcher, oning tax policies that are reckless, unjust and ill-informed. they deregulated markets, privatised state-run industries and Britain is a third of the way through the Brexit breathing space encouraged home ownership. In the 2010s their defining idea that the eu gave it in April. By the time a new prime minister is in has been fiscal rectitude. By cutting spending and slightly rais- place, there will be only three months to go—hardly enough time ing taxes they have contained the rise of Britain’s public debt. to renegotiate the deal Mrs May already struck with the eu, even Competence has turned to chaos. This week Tory mps nomi- were Brussels prepared to budge. Yet several Tory contenders, in- nated ten candidates to replace Theresa May as leader of the cluding Boris Johnson, the front-runner, promise that Britain party, and thus as prime minister (see Britain section). In a tri- will leave on October 31st come what may. The threat of a disor-1 Financial Era Advisory Group 12 Leaders The Economist June 15th 2019

2 derly rupture with the eu hangs over Britain’s economy, which Gove’s sales tax might be simpler, but it would create a single appears to have shrunk in March and April, in part because car- point of failure where avoidance would be lucrative: the final makers halted production after the original Brexit deadline. sale to consumers. Every rich-world economy has a vat except You might think that risking the biggest disruption to the America, which should have one. Where are Mr Gove’s wonks? economy since wartime was enough incompetence for one Among the most-fancied candidates, Mr Hunt’s plan is the party. You would be wrong. Amid creaking public services—on least bad of a dire bunch. Corporation tax deters investment and which two-thirds of voters want more spending, even if it means is increasingly unsuited to a modern economy of digital, cross- higher taxes—the candidates are proposing huge tax giveaways, border sales. Yet cutting it so deeply would be odd given the pres- often directly to their supporters. Mr Johnson pledges to hand an sures on the budget and the fact that the rate has already fallen average of £2,000 ($2,550) a year to the top 10% of earners. Jeremy from 28% to 19% this decade. It would be better to overhaul the Hunt wants to slash corporation tax from 19% to 12.5%. Dominic tax to target cashflows rather than profits—as proposed by Sam Raab has suggested cutting the main rate of income tax by a bare- Gyimah, an mp who wanted to be leader but could not persuade ly credible five percentage points. Michael Gove would replace enough of his colleagues to nominate him. vat with a lower sales tax. The sum total is a mix of ideas that smack of These proposals range from unwise to ex- Public-sector receipts desperation and panic. Entertaining a no-deal traordinarily bad. Mr Johnson’s tax cuts would Britain, % of GDP, fiscal year ending Brexit is a reckless attempt to hold back Nigel 45 be both a waste of scarce resources and grossly Farage’s Brexit Party at the ballot box. Mr John- 40 unfair. He would reduce their cost by raising na- son’s tax cut is a beggarly plea for party mem- 35 tional-insurance contributions, a payroll tax. As 30 bers’ votes based on self-interest, but with little a result the biggest beneficiaries would be well- appeal to the broader electorate. Mr Gove seems off pensioners, because payroll taxes fall only 1979 90 2000 1810 anxious to find a benefit in Brexit (the eu re- on those in work. The policy is a shameless bribe quires that member states levy vat). to the elderly and prosperous Tory party members who choose Panic produces poor policy (see Bagehot). The Tories should the leader. Wealthy pensioners have already been coddled dur- be focused on an orderly Brexit while confronting economic ing Britain’s period of austerity, enjoying protected benefits questions that predate the referendum. For the party’s market (such as free access to the bbc, taken away this week to much liberals, that should mean deciding how to promote a small- bleating) even as working-age welfare has been slashed. Many state philosophy in an already deregulated and privatised econ- are homeowners who have also benefited from the soaring prop- omy. For moderate “one nation” Tories, it should mean finding erty prices that are locking youngsters out of ownership. policies to help left-behind places and reduce regional inequali- Mr Gove rightly condemns “one-club golfers”, like Mr John- ty. For all of them, it should mean honesty about the fact that, in son and Mr Raab, who want to cut taxes no matter the circum- the long run, spending cannot go up as taxes are cut. stances. But Mr Gove’s plan to scrap vat is a bogey. The tax dis- At the moment the Tories are leaving the big thinking on eco- torts the economy less than most levies. It is also less regressive nomics to Jeremy Corbyn, the hard-left leader of the Labour than is often claimed, because of exceptions for basic goods. And Party. They are failing to make the best argument against putting because it is paid by businesses throughout a supply chain, with him in Downing Street—that he is a unique threat to British pros- each claiming back the tax paid earlier, it is hard to avoid. Mr perity. Losing that debate is the greatest risk of all. 7

Sudan Stop the war before it starts

A fragile state may disintegrate unless outsiders press its factions to talk he burst of optimism in Sudan did not last long. In April, weed, a militia notorious for village-burning in Darfur, has ter- Tafter months of mass protests, a tyrant was deposed. Presi- rorised the capital. Militiamen barge into shops and steal goods. dent Omar al-Bashir, who had ruled for 30 years, was ousted in a Both men and women are raped. The clear aim is to intimidate ci- bloodless coup. No one was sorry to see him go. Mr Bashir had vilians into giving up hope of a say in who rules them. unleashed genocide in the western region of Darfur, his violent The junta, however, is far from united. The rsf reports to Mu- oppression drove the southern third of his vast country to se- hammad Hamdan Dagalo, its deputy head, a warlord who goes by cede, and he presided over a regime of exceptional cruelty and the nickname Hemedti. Although theoretically junior to the avarice. Alas, the joyful crowds who gathered in Khartoum to ser- junta’s chairman, General Abdel Fattah al-Burhan, Mr Dagalo has enade his departure and paint their faces the colours of the Suda- become the most powerful man in Sudan. By letting his hired nese flag have been tragically let down. killers rampage through Khartoum, he appears to be signalling The Transitional Military Council, a junta that took over, has that he wants to be president, and will deal firmly with anyone no intention of holding free or fair elections, as the crowds de- who gets in his way. Other members of the junta are unhappy mand. To underline this point, on June 3rd a paramilitary group with this. Officers of the regular army are hostile to Mr Dagalo’s called the Rapid Support Forces (rsf) started slaughtering peace- ambitions and furious that an ill-disciplined militia is looting ful protesters (see Middle East & Africa section). They shot and the capital. This divide risks descending into civil war. killed at least 100, probably far more. Some were thrown howling Sudan is a mosaic of feuds. One ended when the mostly non- from bridges. Since then the rsf, which grew out of the Janja- Muslim and black African south split from the Muslim and Arab-1 https://t.me/finera

14 Leaders The Economist June 15th 2019

2 dominated north in 2011. But South Sudan took most of the oil, despite the regime’s repression. Discipline in the armed forces is leaving less cash for Khartoum to buy off the many northern fac- said to be breaking down: soldiers are demanding weapons to tions. Mr Bashir stayed on top for three decades by setting these protect Khartoum from the rsf. Some predict open war, or even a factions against each other. Hoping to coup-proof his regime, he Syrian-style implosion that sucks in outside powers. divided power between the army, the rsf and the intelligence To avert such a disaster, Sudan needs a power-sharing agree- service. All now dislike and distrust one another. In April, when ment, led by civilians but with representatives of the armed Mr Bashir ordered the intelligence services to fire on protesters forces—an arrangement that worked reasonably well after a rev- and clear the streets, soldiers of the regular army protected the olution in Burkina Faso in 2014. Outsiders should press for it. crowds. To prevent a civil war, the generals teamed up with Mr The African Union has made a good start by suspending Sudan Dagalo to depose Mr Bashir. Now they are falling out. and threatening sanctions on Sudanese military chiefs unless Outsiders complicate the picture still further. Egypt, Saudi they hand over to civilians. The United States needs to persuade Arabia and the United Arab Emirates (uae) support the junta and its Gulf allies and Egypt that they share a common interest in have promised it $3bn in cash. But within the junta they back dif- keeping Sudan stable (not least to keep out their regional rivals, ferent forces. Egypt supports the army, perhaps because Egypt’s Iran, Qatar and Turkey). The Trump administration should urge president is also an army man. Egypt wants stability and hates them to set aside their differences and work together to defuse the idea of a bloodthirsty militia with Islamist ties ruling its the time-bomb in Khartoum. Donors should be poised to help neighbour. Saudi Arabia and the uae, by contrast, back Mr Da- any plausible effort to move towards election and civilian rule. galo with guns and money, because his militia has provided Sudan is wobbling on a cliff-edge above an inferno. A concert- thousands of footsoldiers for their pointless war in Yemen. ed international effort might just pull it back from the brink. It Pro-democracy demonstrations keep breaking out in Sudan, would be unforgivable not to try. 7

The European Union A Balkan betrayal

The eu must keep its promise to open membership talks with North Macedonia nlarging the European Union long ago fell out of fashion. sition seems to have lessened: he probably feared the issue ENo country has joined since Croatia became the 28th mem- would help Marine Le Pen, his nationalist rival. ber, in 2013. As the leaders of Hungary and Poland attack the in- Other opponents of widening argue against admitting more dependence of their judiciaries it seems quaint to argue, as many eastern European countries in which democracy and the rule of once did, that negotiating membership would instil democratic law are weak. Bulgaria’s accession, it is said, has allowed its nu- habits in countries with long memories of dictatorship. How merous criminal gangs free access to the union. That is a fair ob- much harder to make the case in the Balkans: Kosovo and Serbia jection for Albania, with which the commission is also propos- are at daggers drawn, and Bosnia is an ungovernable mess. ing membership talks after its progress in other areas. But not for But a happier story is unfolding in the country known, since North Macedonia which has been doing well under Mr Zaev. February, as North Macedonia. After years of authoritarian mis- The commission’s original hope was for ministers to approve rule the new government, led by Zoran Zaev, has started tackling the two candidates’ eu bids at a meeting on June 18th. But resis- corruption and reforming the judiciary. In an unhappy region, tance from mps in Angela Merkel’s Christian Democratic Union the country’s Slavic majority and Albanian mi- makes that improbable: she needs a mandate nority enjoy good relations. And last year Mr from parliament before she can agree. A special Zaev’s government signed the Prespa agreement summit could be called in July were North Mac- with Greece, ending a destabilising dispute over edonia’s bid sure to pass. But the Bundestag will the country’s name. (Greece insists that “Mac- soon begin its summer break, and another op- edonia” can refer only to a Greek region, but has portunity will not arise until October. By then grudgingly accepted “North Macedonia”.) the habit of delay may have become ingrained. Recognising all this progress, the European Such treatment would be shabby, and dan- Commission wants the eu’s governments to gerous. North Macedonia’s opposition is ready open membership talks with North Macedonia. It was the pro- to pounce at any sign of failure. And by autumn Greece may well mise of accession to the eu (and to nato, which is going ahead) have a new centre-right government that will face strong pres- that helped Mr Zaev push through Prespa at home. In June 2018 sure from anti-Prespa voters to stall the talks. More broadly, for his bid to start talks was kicked down the road for a year. Now, the eu to break its promise to one Balkan state will boost leaders alas, further delay is likely. in others who say the Europeans cannot be trusted, and other Opposition to the talks has come in part from France’s presi- powers sniffing around, from Russia to China to Turkey, will take dent, Emmanuel Macron, who argues that the eu should concen- note. Conversely, opening talks with North Macedonia will trate on deeper integration rather than adding new members. strengthen the hand of pro-European reformers throughout the History, however, suggests that there is not necessarily a trade- Balkans. Starting talks does not commit anyone to concluding off between these goals. On the contrary, previous waves of wid- them, as Turkey knows only too well. To reject North Macedonia ening have in the view of many required more deepening. Any- without even trying to reach an agreement would be cruel, self- way, now that the European elections are over Mr Macron’s oppo- defeating and wrong. 7 Financial Era Advisory Group 16 Executive focus https://t.me/finera Letters The Economist June 15th 2019 17

coastal zone, and it is these tician’s shtick. As I idly workers you mentioned. Militias in Brazil blooms that reduce the oxygen followed him over the years I Having spent 20 years as a Your leader and article on the levels in the bottom layer once realised he wasn’t putting on lecturer, I can testify to the militias operating in Rio de they die and sink. The main an act. His callous refusal to often poor quality of students Janeiro criticised Brazil’s pub- thrust of the article, that wet- accept even basic facts when at hopelessly overcrowded lic-security policies (“Fighting lands can help reduce nitrate shamelessly trolling for the public universities and the thugs with thugs” and “Shadow pollution, is certainly right. position of prime minister by high quality of those at private state”,June1st). It is natural piers chapman shilling Brexit was awful. It institutions, which have strict that policies be debated and Department of Oceanography would be appalling if the Con- admission requirements. But differences discussed. But it is Texas A & M University servatives were to choose him in our modern, democratic not acceptable for The Econo- College Station, Texas as their leader. But having society everybody is at least a mist to insinuate, and at one watched the Republican Party manager and selection is point bluntly affirm, that the sell out every principle in the frowned upon. That attitude is new government in Brazil has The importance of pawns pursuit of power, and succeed- leading to big problems for the “links” with the militias. That Johnson denigrated the pawn ing somewhat, I can almost German economy. is an irresponsible claim. in chess by comparing the understand their actions. roger graves The federal government has piece to a simple foot soldier carl owen Wentorf, Germany taken decisive steps to combat that is “lowly and dispensable” Moore, Oklahoma organised crime in general and (May11th). This greatly militias in particular. For underestimates their role. Bible studies instance, it has sent draft François-André Danican Phili- Minority report An article on success in acade- legislation to congress that dor, who wrote about the game Computer algorithms are mia presented yet another clearly identifies militias and in the18th century, described already being misused in the example of the application of drug-trafficking factions as pawns as “the soul of chess”. criminal-justice system Matthew, chapter 13, verse 12, to criminal organisations. It has gero jung (“Files, not faces”,May 25th). A worldly affairs (“Never give also proposed that the leaders Montreux, Switzerland study by ProPublica examined up”, May 11th). “For whosoever of these organisations face 7,000 computer-generated hath, to him shall be given, and tougher prison sentences. “risk-assessment scores” on he shall have more abundance: These are but a few indications Country above party scores of people arrested in but whosoever hath not, from of the Brazilian government’s I take issue with Bagehot’s Broward County, Florida, in him shall be taken away even firm determination to promote remark, in his column on Boris 2013 and 2014. It found that that he hath.” A more in-depth public security. Johnson, that the Tories only 20% of those predicted to reading of those words in fred arruda punted and “won big” when commit violent crimes went Matthew’s Gospel reveals two Ambassador of Brazil they chose Winston Churchill, on to do so. Police may despise important points. First, it is London another “maverick”, as their the grind of old fashion paper- clear that Matthew is talking leader (May 25th). Churchill pushing, but without much about spiritual knowledge, and The long list of recommenda- became prime minister not testing we are adopting these not material matters. And tions you provided to deal with because the Conservatives technologies at our peril. second, Matthew suggests that this problem—reform in- thought he could lead them to peter tuths serious and regular devotion to stitutions, fairer services, a electoral success, but because Research associate acquiring such knowledge is crackdown on corruption— he was the only figure who Open Government Partnership especially beneficial. omitted one item. The favelas could form a national coalition Arlington, Virginia In that sense, Matthew will remain mired in drug- to tackle the worst crisis in anticipates your own conclu- related violence because of the British history. Britain did “win sion: “If at first you don’t suc- demand for illegal drugs. big”, but the Conservatives did Under-qualified Germans ceed, try, try, try again.” marshal alan phillips not. At Churchill’s first elector- Another reason for the lack of christoph steinbruchel Curitiba, Brazil al test, in 1945, they spectacu- skilled labour in Germany is Nashville, Tennessee larly lost. Churchill, like the reluctance of school-leav- Benjamin Disraeli, another ers to take advantage of the What causes the dead zone? Tory leader mentioned in the admirable dual-education Turning up at the office “Save the swamp” (May 25th) is column, achieved greatness by system, and instead enroll at a Those who are sympathetic to correct in saying that nitrate is service to their country, not to university (“Opening up a Bartleby’s intelligent critique a big contributor to the dead their party. Their biggest crack”, May 18th). The problem of presenteeism at work (“The zone in the Gulf of Mexico. The accomplishments were cross- is that every pupil who has joy of absence”, May 18th) reduction in oxygen is caused party in nature: leading the passed the school-leaving should also remember Woody by the difference in density of wartime coalition for exam, the Abitur, has the Allen’s quip that 80% of the fresh water from the Churchill, passing the 1867 constitutional right to a place success is showing up. Mississippi that runs into the Reform Act with the support of at university, even if he or she yacov arnopolin salty waters of the Gulf. But the radical Liberals for Disraeli. has to wait some semesters London surface layer is relatively fresh r.l.f. calder and has no real academic and therefore less dense, and London inclinations or talents. The does not have low oxygen result is a proliferation of Letters are welcome and should be levels. Its oxygen concentra- I first became acquainted with abstruse and socially irrelevant addressed to the Editor at The Economist, The Adelphi Building, tions are essentially in equilib- Boris Johnson through an courses, a drop-out rate of 1-11John Adam Street, London WC2N 6HT rium with the atmosphere. The episode of “Top Gear”. I about 30% (a shocking waste of Email: [email protected] excess nitrate from the river thought his oafish, buffoonish human and financial re- More letters are available at: supports algal blooms in the manner was the typical poli- sources) and the lack of skilled Economist.com/letters Financial Era Advisory Group 18 Briefing Protests in Hong Kong The Economist June 15th 2019

contemplating an display of defiance it A palpable loss cannot, and will not, tolerate. Mrs Lam, who was hand-picked by a panel dominated by politicians and ty- coons loyal to Communist rulers in Bei- jing, says the new bill will plug a “loop- hole”—as if previous leaders somehow forgot to draft rules for sending suspects to BEIJING AND HONG KONG China’s courts, which take orders from the The people of Hong Kong look like losing a security dear to them Communist Party. Its opponents, she says, his is a story told in tears. The most ob- those of Hong Kong’s chief executive, Car- would make Hong Kong a refuge for fugi- Tvious were those streaming from the rie Lam—tears all the more chilling for be- tives. Besides, the authorities there note, eyes of protesters in the shadows of Hong ing seemingly heartfelt. On the sweltering the law excludes those accused of political Kong’s glass-walled office towers, while afternoon of June 9th the city saw a huge crimes. To this opponents retort that Chi- police tried to disperse them with tear gas, march against the extradition law. As many nese dissidents routinely face trumped-up as well as plastic bullets, water hoses and as a million people may have joined it, pos- charges of offences like bribery or black- clubs. The protesters had gathered late on sibly making it the largest demonstration mail. When Gui Minhui, a Hong Kong- June 11th to try to stop a debate in Hong since China took over in 1997. Mrs Lam was based publisher of scandalous books about Kong’s legislature on an extradition bill. If asked by a local television channel if she Communist leaders, vanished in Thailand passed into law it would allow, for the first might consider shelving the extradition and reappeared in custody in China, the time, the sending of criminal suspects law in response to this protest. Sadly, she charges against him referred to a car acci- from the territory to mainland China, would not. “I’m a mother, too,” she said, dent more than a decade earlier. where judges explicitly serve under the ab- wiping her eyes. “If I let him have his way solute leadership of the Communist Party. every time my son acted like that, such as Bad governments make bad law The protest escalated on June 12th and when he didn’t want to study, things might The occasion, or pretext, for Mrs Lam try- succeeded in delaying the debate. But be ok between us in the short term. But if I ing to rush the law through with minimal when the protesters refused to leave, and indulge his wayward behaviour, he might debate was the murder in Taiwan of Poon pushed forwards through police lines to- regret it when he grows up.” Her tone—self- Hiu-wing, a woman from Hong Kong. Chan wards the Legislative Council building, vi- righteous and pitilessly parental—was the Tong-kai, her boyfriend and the prime sus- olence broke out. Hospital officials say 72 authentic voice of Hong Kong’s ruling elite pect, was subsequently convicted in Hong people were injured, two seriously. The fol- Kong of money-laundering. Hong Kong’s lowing day a few dozen protesters gath- government said that, to make sure Mr ered, as well as many police. But as The Also in this section Chan stands trial in Taiwan when he fin- Economist went to press, the city was calm. ishes his sentence, the chief executive 20 America’s response The most revealing tears, though, were needed the power, with only limited proce-1 https://t.me/finera

The Economist June 15th 2019 Briefing Protests in Hong Kong 19

2 dural oversight from the courts, to extra- dite fugitives to places with which Hong From fireworks to tear gas Kong has no extradition deal. These in- Hong Kong, GDP as % of mainland China’s clude other parts of China—which, as far as China resumes sovereignty over Hong Kong Umbrella Movement 20 protests the governments in Hong Kong and Beijing More than 500,000 Chief executive Tung are concerned, include Taiwan. people march against Chee-hwa steps China’s legislature issues Legislators reject Article 23 legislation down; Donald plan for political reform China’s election 15 This will not wash. Taiwan will not use Tsang takes over the proposed law to seek Mr Chan’s rendi- in Hong Kong package for the China accepts Democratic Party’s chief executive tion because it refuses to be treated as Chi- compromise offer for Legco election in 2017 10 na’s territory. Opposition lawmakers and elections in 2012 Fishball riot academics in Hong Kong have drafted pro- Hong Kong government Leung Chun-ying Carrie Lam posals for a one-off arrangement which releases Article 23 appointed chief appointed chief 5 (anti-subversion) executive executive Mass would let the territory return Mr Chan to consultation paper protests Taiwan with no new law. 0 As to Mrs Lam’s loophole, it is not a bug 1997 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 but a feature, according to Margaret Ng, a Sources: IMF; The Economist barrister. The current extradition law took effect just months before the territory was handed over from Britain. Ms Ng, who was territory’s population. Many dressed in cling film for protecting bare skin. Some a legislator from 1995-2012, says that the of- white, the colour of mourning. Several con- also came armed with bricks, which they ficials drafting it chose to maintain a fire- fided that this was their first time at a polit- hurled after the police began using force. wall between Hong Kong’s justice system ical demonstration. The scale of the protest The scale of the protest against the ex- and that of the mainland. They wanted “to was a surprise to many observers. It gave tradition law has been a surprise even to protect the rule of law in Hong Kong and the lie to the oft-aired notion that Hong pro-democracy activists. In an interview confidence in Hong Kong as an interna- Kongers have tired of standing up for their last year Benny Tai, a rumpled law profes- tional hub free from China’s much-mis- freedoms. sor from Hong Kong University who was trusted system.” If China’s nostrum of “one one of the leaders of Occupy Central, ex- country, two systems” was to mean some- An unexpected turn pressed doubt as to whether his city might thing, this part of Hong Kong’s system The protest that began on June 11th was ever see large demonstrations again. “Peo- would have to stand apart from China’s. smaller, involving tens of thousands of de- ple are concerned that it is not safe to prot- Anson Chan, who was the chief civil ser- monstrators who returned to the city’s ad- est, especially in the business sector,” he vant in the Hong Kong government both ministrative and ceremonial heart when sighed. He talked of “holding the line” under the British and for the first four years the legislature was due to debate the bill. while waiting for democracy to stir in of Chinese rule, notes that the colonial gov- This time, most were dressed in black. mainland China. ernment considered granting Hong Kong Many were university students on their It would be interesting to hear Mr Tai’s courts extraterritorial powers to try serious summer vacation. Others were workers views now. But since April he has been in crimes committed by Hong Kongers in the from hundreds of businesses that had giv- prison, along with other Occupy Central mainland as long ago as 1986. It did so pre- en staff the day off. They were mostly leaders. Some of today’s crop of demon- cisely because it believed that Chinese young. But they were not inexperienced. strators will doubtless follow in their foot- courts were not trusted. Under China’s cur- Many had taken part in the pro-democracy steps; and their sentences may well be lon- rent leader, Xi Jinping, she says “there is “Occupy Central” protests that snarled ger than Mr Tai’s 16 months. Mrs Lam called even less” trust today. streets for weeks in 2014, also known as the the protest “a blatantly organised instiga- It was the prospect of losing that fire- “Umbrella Movement” after the means tion of a riot”. If “riot” was meant in its wall that brought out the crowds on June used by protesters to ward off pepper spray. strict legal sense, that suggests partici- 9th. If the organisers’ estimate is correct, On June 12th they had not just umbrellas pants could face ten years in prison. the turnout represented a seventh of the but masks, scarves, hard hats and plastic Officials in Beijing, too, were probably not expecting such widespread opposition to the bill. By now, 22 years after Hong Kong became a Chinese Special Administrative Region, the country’s rulers had expected the territory’s people to have accepted their allotted fate: a life of well-fed but political- ly neutered domestication, like so many golden-egg-laying geese. Recent years have seen the emphasis on autonomy at the time of the handover being overturned by proposals that would leave Hong Kong merely China’s wealthiest and most inter- national city. Hong Kong remains valuable to China as a global financial centre. But whereas the territory was responsible for over 15% of the combined gdp of China and Hong Kong in 1997, it provided less than 3% in 2018. The costs of defiance, meanwhile, have risen. In 2003 marches convinced the au- thorities to shelve an anti-sedition law that Up against it Beijing wanted to impose, an upset which 1 Financial Era Advisory Group 20 Briefing Protests in Hong Kong The Economist June 15th 2019

Hong Kong’s economy Garrotting the golden goose

Erosion of the rule of law puts Hong Kong’s privileged economic status at risk s events unfold in Hong Kong, the beyond its handover to China in1997. This Review Commission, set up by Congress Aworld is watching closely. Vladimir boosted Hong Kong as a bridge between to report on the security implications of Putin, who this week had to deal with the rich world and a booming China. More trade, recommended a fresh look at demonstrations of his own, can observe recently, it has meant freedom from Amer- export controls for sensitive technology a fresh case study in the handling of ica’s tariffs on China. via the treatment of China and Hong discontent, for note-sharing at his next Even before the latest troubles in Hong Kong as separate customs areas. meeting with Xi Jinping, his partner in a Kong, however, concerns were growing A lot is at stake. Hong Kong is China’s new axis of authoritarianism. Britain, that it would get caught in the crossfire of conduit. It accounted for nearly 60% of the former colonial ruler, called for calm President Donald Trump’s trade war with direct investment both into and out of and urged the Hong Kong government to China. As restrictions on China led to the China in 2012-16 (see table). It has a heed the concerns of its people and its diversion of more transactions via Hong mighty share of offshore yuan-denom- friends abroad. But the reaction that Kong, its privileged position has inevitably inated payments. Western firms put really matters is in Washington, dc, attracted attention. Transferring tech- money and headquarters there because it where the response could have big impli- nology to Hong Kong may increasingly be is seen as part of the Western system. Its cations for Hong Kong’s future. seen as equivalent to passing it to China— currency is tied to the American dollar. It Nancy Pelosi, the Speaker of the not the intent of the Policy Act. Last year ranks third in the world as a financial House, said on June 11th that if the “hor- the us-China Economic and Security centre; its banking assets are worth a rific” extradition bill passes, Congress whopping 851% of gdp. would have to reassess whether Hong Such might makes it vulnerable. A Kong was “sufficiently autonomous” to Fortunate belief that its financial system is no justify its current status in trade with Hong Kong, May 2019 or latest longer fungible with the West’s would be America, which sets it apart from China. devastating. Erosion of the rule of law, Ms Pelosi has a long history of champi- Share of offshore 75% and louder questioning of Hong Kong’s oning human rights in China. In 1991she RMB-denominated payments trading status, pose a growing threat. Share of offshore 39% unfurled a banner in Tiananmen Square RMB-currency dealing Whether actually killing that status dedicated “To those who died for democ- would do anything to help Hong Kong’s Share of direct investment 63% racy in China”. But support for Hong into China (avg. 2013-17) protesters is doubtful. “That’s a gun you Kong’s protesters is bipartisan. The Share of direct investment 59% don’t want to shoot, frankly,” says Jeffrey Senate majority leader, Mitch McCon- from China (avg. 2013-17) Bader of the Brookings Institution, a nell, and fellow Republicans such as Global financial centre rank 3 think-tank. But the deepening strategic Marco Rubio and Lindsey Graham, have (Out of 102) rivalry between America and China will joined a chorus of condemnation. Plans Banking assets, % of GDP 851 bring greater scrutiny of Hong Kong. are afoot to legislate for a review of Stockmarket value, % of GDP 1,207 Under the Policy Act the president can America’s relationship with Hong Kong. Number of multinationals with regional HQ* 1,333 suspend specific privileges by executive The framework for that relationship Number of banks 194 order if he deems Hong Kong insuffi- is the us-Hong Kong Policy Act of 1992, ciently autonomous. In the midst of a Sources: BIS; CEIC; government statistics; which established continued separate Hong Kong Monetary Authority; IMF; Long *Excluding mainland trade war with China, a big blow to Hong economic treatment for the territory Finance; SWIFT; World Federation of Exchanges Chinese firms Kong’s future may be only a tweet away.

2 led to the resignation of the first chief exec- that usually shun politics. Mrs Chan spent China, that safety is at risk. utive, Tung Chee-hwa. Since then, and four-and-a-half hours among the marchers Mrs Chan hopes that the chief executive most notably after Mr Xi became party on June 9th. They probably “held out very will think again and set out “viable op- leader in 2012, the central government has slim hope that the government will change tions” for handling fugitives from China, grown less patient. One of the most strik- these proposals” she says. “But they want- with a long period of consultation. Alas, ing, and disturbing, aspects of the extradi- ed to stand up and be counted.” that seems too optimistic. It cannot help tion-law crisis has been that members of Hong Kong has already endured limits that Mr Xi is already under pressure within the Standing Committee of the Politburo in on the freedom of locals to stand for elec- China’s elite for his handling of the trade Beijing have weighed in directly. Such un- tion—they have to accept Chinese rule and war with America, suggests Jean-Pierre precedented interventions say much about forswear independence for Hong Kong— Cabestan of Hong Kong Baptist University. the central government’s growing impa- and has seen activists jailed. Critics and en- China’s rulers have suffered a clarifying tience with the territory. emies of the Communist Party have never rebuke, and a lesson about the power of Though news outlets and social media been truly safe, even without an extradi- loss and the limits of bribing people to give aimed at mainland audiences censored re- tion law. Some have been abducted, usually up freedoms. Exposure to China’s cynical ports of the protests, in commentaries in- reappearing on the mainland mouthing version of the rule of law feels like an un- tended for overseas consumption Chinese stilted confessions of guilt. But the protec- bearable loss to many Hong Kongers—out- state media have accused “foreign forces” tion of their rights still matters to Hong weighing the rewards of integration with a of trying to create “havoc” in Hong Kong. Kongers. “People with a clear conscience in faster-growing mainland. Assuming that Actually, this is a strikingly moderate, or- Hong Kong feel safe in their own beds,” the extradition law is rammed through ganic movement, backed by local lawyers, says Mrs Chan. Now, with the prospect of anyway, it will be a victory for fear and res- priests, scholars and by business lobbies being taken into arbitrary detention by ignation, not parental love. 7 https://t.me/finera Britain The Economist June 15th 2019 21

The Conservative leadership contest er of the Commons, John Bercow, is willing to change the usual rules if necessary. Dealers and no-dealers Somehow or other, the argument goes, Westminster would stop a prime minister who is bent on leaving without a deal. This may turn out to be correct, but it is not a certainty. No-deal is the default op- tion in the absence of other action before Hardline candidates say a no-deal Brexit would be fine. Moderates say it could be October 31st. Any further extension of the stopped by Parliament. Both may be in for a nasty surprise deadline also requires the unanimous ap- ully ten leadership candidates faced a ship candidates promise a swift renegotia- proval of eu governments. Charles Grant of Ffirst ballot of Conservative mps as we tion, and many are talking of a time limit to the Centre for European Reform, a think- went to press. In hopes of being one of the the backstop. Although a new prime minis- tank, believes they may agree, but adds that final two to go through to a vote by party ter would be listened to politely, it is fanci- some exasperated leaders just want Brexit members, they are vying to promise the ful to expect the eu to abandon the Irish— out of the way, deal or no deal. most extravagant tax and spending plans. especially for a mistrusted hardliner such Hardline leadership candidates like Do- But the immediate challenge for the win- as Boris Johnson, the early favourite. That minic Raab have suggested suspending ner, who will take office in late July, will be raises the chances of no-deal. Parliament until November to stop it inter- Brexit, which is due to happen three And here two misconceptions kick in. fering. The attorney-general is reported to months later. And here the promises vary The first is the claim that Parliament is sure have called this unconstitutional but not from instant renegotiation of Britain’s exit to prevent a no-deal Brexit. A majority of illegal. Yet most candidates have con- deal to withdrawing with no deal at all. mps have voted against the idea. In March demned it as too anti-democratic to be a se- The timing is tight. Parliament is likely backbenchers even took control of the rious proposal. What is more, suspension to go into recess just after the new prime agenda to call for an extension. The speak- is a royal prerogative, and no serious leader minister is installed, and the European Un- would want to draw the queen into politi- ion will go on holiday. mps come back in Also in this section cal controversy. September, but for less than two weeks be- Still, there are limits to what mps can do. 22 Drones at airports: they’re back! fore their party conferences. Brussels will The March gambit—taking over the parlia- be preoccupied with getting a new com- 23 The Lib Dems seek a leader mentary timetable to pass a law demand- mission approved by the European Parlia- ing another extension—relied on there be- 23 Hargreaves Lansdown takes a knock ment by November 1st. A summit of eu ing legislation or an amendable motion leaders on October 17th-18th will come just 24 SOAS sends out an SOS before mps. Brexiteers believe they can a fortnight before the Brexit deadline. avoid both. On June 12th Labour lost by 11 25 Victims’ rights in court The eu has made clear that it will not votes an attempt to secure a day to try to reopen the withdrawal agreement, which 25 The BBC v OAPs block no-deal by law. It may have another includes the backstop to avert a hard bor- go, but a new prime minister could deny it 26 Bagehot: The edge of the volcano der in Ireland. Even so, most Tory leader- the necessary debating time. 1 Financial Era Advisory Group 22 Britain The Economist June 15th 2019

2 The nuclear option might be a vote of no Climate-change protests jamming or electronic hijacking, to the de- confidence in the prime minister. Yet any cidedly low-tech, using nets, projectiles or such vote is likely only in late October, after The sky’s the limit even eagles. But “in an environment like the eu summit. It might not be carried, as Heathrow your options are limited to elec- Tory mps fear an election (see Bagehot). tronic measures,” says Arthur Holland Mi- Even if it were, the Fixed-term Parliaments chel, who wrote the report. Blasting the Act allows 14 days for a new prime minister things out of the sky would put people in to try to form a new government. If no one danger. Jamming is not ideal either, since What can an airport do to defend could do so, the outgoing prime minister most drones operate on the same radio fre- against drone incursions? Not much could defer the date of a new election be- quency as consumer Wi-Fi, and use the yond October 31st. Hannah White of the In- t used to take some effort to shut down same gps as everyone else. stitute for Government, another think- Ian airport. A quarter of a century ago the And that is just the tip of the autono- tank, concludes that, though mps may do Irish Republican Army (ira) fired mortar mous iceberg. Modern drones are not just their utmost to stop no-deal, a determined rounds into Heathrow on three separate “low and slow devices”, says Anna Jackman prime minister might thwart them. days over the course of a week. It failed to of Royal Holloway, University of London, This brings in the second big miscon- make much of a dent. Nothing exploded, but are capable of speeds up to 160mph. ception, which is that no-deal would soon nobody died and the airport was closed for Moreover they can be adapted by hobbyists lead to friendly talks on a speedy free-trade only a few hours. A plane carrying the both benign and malicious. Examples of agreement similar to Canada’s, during queen touched down between two attacks. diy modifications include graffiti sprays, which both sides could agree not to impose No more. Just as modern-day organisers grabbing claws, firework launchers, flame- trade barriers. This is highly unlikely. A no- of a coup may be better off seizing a popu- throwers, tasers, handguns and chainsaws. deal Brexit in October would be acrimoni- lar Instagram account than the national James Rogers of the University of Southern ous, especially if a new prime minister re- broadcaster, so too have the barriers to en- Denmark points to an environmental ac- fused to pay the £39bn ($50bn) that Britain try collapsed for shutting down the busiest tivist who landed a drone carrying radioac- has agreed it owes. That would scupper airport in Europe. This summer Extinction tive material on the Japanese prime minis- hopes for a series of “mini-deals” to reduce Rebellion, a climate-change pressure ter’s residence. It sat there for nearly two disruption, as some candidates promise. group, may well achieve what the ira failed weeks before it was discovered. Any bid to start trade negotiations to do, using nothing more than a drone of Even unmodified, drones can be made would see the eu putting all the demands the sort available for under £100 ($127) on harder to tackle with the application of a in the withdrawal agreement back on the Amazon. The first “non-violent direct ac- little imagination. Modern drones can fly table as preconditions. It would also be im- tion” will be on June 18th, followed by an- pre-set paths, obviating the need to com- possible to exploit the rules of the World other ten days of action starting on July 1st. municate with an operator. Moreover, if Trade Organisation that can allow trade What can be done to avert the cancella- taking out a single drone is hard, taking out barriers to be avoided. The wto’s non-dis- tion of 1,300 flights carrying 220,000 pas- a dozen—or a hundred—could be near-im- crimination provisions permit this only if sengers a day? Not a lot. Heathrow tried a possible. “You only need to have a few more both parties agree and are well on the way detection system after drone sightings drones than you have counter-measures to forming a new customs union or free- shut down Gatwick airport for several days and the drones have won the battle,” says trade deal, neither of which would be the before Christmas. This could help avoid Mr Michel. case after a no-deal Brexit. the embarrassing state of affairs at Gat- If technological measures do not pre- No-deal also has serious legal implica- wick, where nobody was quite sure wheth- sent an obvious solution to the problem, tions. Britain would become a third coun- er there really was a drone (there probably legal ones might. Experts advocate harsher try. That not only implies tariffs and non- was, say experts). But removing the offend- punishments for drone operators who in- tariff barriers, but also falling out of most ing object from the sky is trickier. trude on sensitive sites such as airports, ar- of the eu’s regulatory agencies. Member- The Centre for the Study of the Drone, at guing that a catastrophic accident is a mat- ship of the Europol crime-fighting agency Bard College in New York state, recently ter of “when, not if”. If the threat of long would lapse, as would eligibility to use the counted at least 235 counter-drone systems prison terms and large fines does not deter European Arrest Warrant. Replacing any of on the market or under development, protesters who believe they are saving the these would be time-consuming. which promise to detect, track or intercept planet, the danger of unwittingly killing a And there is a treaty obstacle. So far the machines. The technology for this few hundred people might. The risk, like Brexit negotiations have come under Arti- ranges from the high-tech, such as radio the equipment, is sky-high. 7 cle 50, allowing a deal to be agreed by a ma- jority of eu governments and approved only by the European Parliament. Once Britain is a third country, any negotiations would fall under a different provision, probably Article 218, which requires not just unanimous agreement but also ratifi- cation by all national and several regional parliaments. After Britain had repudiated the negotiated withdrawal agreement, the temptation for one of these bodies to reject any replacement deal would be large. The risk of a no-deal Brexit under a new prime minister is greater than many think, and the consequences more serious. Any would-be Tory leader should acknowledge this. The worry is that many of them don’t even seem to realise it. 7 Complimentary in-flight whine https://t.me/finera

The Economist June 15th 2019 Britain 23

Hargreaves Lansdown Nice little earner

The Woodford affair weighs on middle England’s favourite fund supermarket eter hargreaves, the billionaire co- Pfounder of Hargreaves Lansdown (hl), Britain’s biggest retail-investment plat- form, is a frequent commentator on sub- jects ranging from Margaret Thatcher’s leg- acy to regulation to Brexit (he was one of the Leave campaign’s biggest funders). But he is keeping shtum about the biggest cri- sis to have struck the firm he and Stephen Lansdown started in Bristol in 1981. He no longer works at hl but has a 32% stake. Liberal Democrats hl has been such a loyal backer of Neil Woodford, a fallen star fund-manager, that The centre holds its fortunes are tied to him. At the end of March its customers owned about £2bn ($3.3bn) of the £10.6bn Mr Woodford had Two candidates vie to lead a party that is having a very good Brexit under management, mostly in the Wood- or the first time in almost a decade, says Sir Ed. “It is much more sustainable ford Equity Income Fund (weif), which has Flife as a Liberal Democrat is good. The in terms of the underlying philosophy.” long featured on hl’s “Wealth 150” favour- party posted its best-ever European The Conservatives and Labour have ite-fund list. hl customers are also ex- election result on May 23rd, scooping up abandoned the centre. Although this gap posed through multi-manager funds. 16 meps. It seems to have seen off Change has existed since at least 2015, when Now investors cannot get out of weif. uk, a challenger to its centrist crown. Jeremy Corbyn became Labour’s leader Playing for time to fix his portfolio, Mr The party zips along near the top of the and the Tories called the Brexit referen- Woodford on June 3rd suspended redemp- polls. Can it last? dum, the Lib Dems have only recently tions. Eventually hl customers may take The task of keeping the boom going taken advantage of it. Fierce local cam- losses. Chris Hill, hl’s boss, apologised to will fall to Jo Swinson, the Glasgow- paigning at the beginning of May (a Lib clients at the weekend as shares in the firm, based deputy leader, or Sir Ed Davey, the Dem leaflet in Sunderland revelled in the a ftse 100 company with a market value of party’s home-affairs spokesman (both fact a former Labour councillor was a £9bn, continued to fall. The price is down pictured). While Conservative candi- paedophile) laid the foundations for a by nearly a fifth this month. dates tear strips off each other, Lib Dem breakthrough in the European election How many of hl’s 1.1m well-heeled cus- hustings are marked by agreement. Both later that month, helped by a propor- tomers are trapped is unknown, but it is candidates want to position the Lib Dems tional voting system. Decent showings in something that Nicky Morgan, chair of the as an anti-Brexit party with an enthusias- elections boost credibility, says Tim Treasury select committee, is demanding tically green agenda—which it already is. Farron, a former leader. After the Euro- to know. This week she sent Mr Hill a list of Both served in the coalition government pean vote, one poll put the Lib Dems top, information requests. These probe the cen- with the Tories in 2010-15. Sir Ed is a bit for the first time in nine years. tral mystery of why weif was still on the fa- more experienced; Ms Swinson a bit These strong showings have under- vourite-fund list until last week, though it better with the media. They agree on the mined Change uk’s claim that the Lib had been doing badly since late 2017 and destination and route for the party. They Dems are irredeemably tainted by their was an obvious dog. just disagree over who should be driving. time in government. Voters have either The official line is that Mark Dampier, In some ways, the party’s improved forgiven or forgotten. Any sins of the hl’s head of research, believed Mr Wood-1 standing is a return to normal. The Lib coalition are overshadowed by the far Dems trotted along at roughly 20% in the bigger cock-ups made by the Tories when polls for much of the noughties and parts they governed alone, as Ms Swinson Caught with its pantsdown of the 1990s. It was their slump to mar- argues. If Brexit causes an eruption in the Hargreaves Lansdown gin-of-error-bothering lows after 2010 party system (see Bagehot), the Lib Dems % increase, 2014-18 2018, totals that was the odd period. will be well placed. 0 20 40 60 80 100 But a few things are different from First-past-the-post remains the big- Assets under £92bn previous surges. Cleggmania—when gest obstacle. The job of the new leader management Britain fell briefly in love with Nick will be to smash through the 25% ceiling, Active clients 1m Clegg, the party’s then-leader, in one mad above which vote-share starts to trans- spring in 2010—was not sustainable. Nor late into big seat gains. After 2015 there Net revenue £448m was the boost from opposing the Iraq was only a narrow path back to relevance Pre-tax profit £292m war, when peacenik refugees from La- for the Lib Dems, but they walked it. bour flooded the party. This time defec- Going beyond their historical role as the Profit margin, tors are from the moderate left and right, third party will prove trickier still. 2018 Source: Hargreaves Lansdown Financial Era Advisory Group 24 Britain The Economist June 15th 2019

2 ford would turn things around. But the sus- For a firm that under Messrs Hargreaves soas expert on South-East Asia, notes in a picion is that discounts and possibly com- and Lansdown prided itself on slick mar- history of the university, there are no lon- missions also played a role. Mr Woodford’s keting, its crisis-handling has been cack- ger teaching posts in Bengali, Punjabi or sticker price was an annual 0.75% fee on to- handed. It does not look good that Mr Dam- Tamil, and social scientists do not need to tal funds managed, but he charged hl pier and his wife sold £5.6m of hl shares in master a non-Western language, as was 0.6%. That is still hefty—active asset man- May. Another poor bit of timing was send- once expected. agement is expensive—but the discount ing customers out-of-date marketing ma- The main problem is that soas has left room for hl to take its own cut of 0.45% terial this weekend praising Mr Woodford struggled in a more competitive environ- on top. This fee is the basis for hl’s extra- with no mention of the weif suspension. ment. The old system of state grants helped ordinary profit margin of 65%. It will probably take more than that to support universities that did a lot of lan- In January hl decided to cut its Wealth drive lots of customers away. Mr Hill has guage teaching. Nowadays in England 150 to 60 funds and call it “Wealth 50”. The explained hl’s rapid growth (see chart on most of their funding comes from tuition obvious thing to do was to dump weif in previous page) as down to the fact that as fees, and since 2015 universities have been the cull, but after Mr Woodford slashed his people take on managing money for retire- free to recruit as many students as they fee again, to 0.5%, Mr Dampier kept him. ment, they lack the knowledge, confidence want. In the words of an internal soas That now looks like investor neglect. Ms and ability to do it easily. hl’s customer memo, rival institutions “went growth- Morgan has peppered hl with questions service is trusted—humans rather than mad”, with King’s College and Queen Mary about the discount it got from Mr Wood- automated systems answer the phone. Ri- University London hoovering up students. ford. Best-buy lists will come under scruti- val retail investment firms may now snap soas initially responded by lowering its ad- ny again. The Financial Conduct Authority up some market share. But with its juicy mission standards to attract more appli- said in March that no new rules were need- profit margin hl can afford to lose some cants. It has since changed tack, raising the ed, but that conclusion now looks wrong. disgruntled investors and motor on. 7 bar in order to maintain its position in league tables. Insiders say the school has been slow to tap donors to make up the Higher education shortfall. “It’s not a terribly capitalist insti- tution,” is the verdict of one. SOS for SOAS The university promises measures to turn things round, including investments in the estate, better teaching and more overseas education. It says that applica- tions for next year are looking perkier. Yet after last year’s disastrous admissions cy- cle, an extra £2.6m ($3.3m) had to be cut One of Britain’s most unusual universities is in trouble from academic staffing costs by 2021-22, on or young folk in search of a grounding It is not that the university is frozen in top of planned cuts of £3.4m since 2017-18. Fin Austronesian languages, say, or per- time. There has been growth over the past If things don’t improve, soas may have haps Sinhalese or Tibetan, London’s School two decades in the number of students tak- to lay on fewer courses, or perhaps even be of Oriental and African Studies (soas) has ing degrees in social sciences and law, absorbed by another institution. “There’s long been the place to go. Founded in 1916 to which have the advantage of being cheap to no way of teaching languages like Burmese train colonial administrators, military offi- teach, and can thus subsidise niche lan- or Zulu profitably,” accepts Justin Watkins, cers and the odd spy, the university came to guage courses. Nevertheless, while uptake a linguistics professor at the university. But be home to scholars with knowledge of the of languages such as Japanese, Chinese and if the school ends up going under, “some- most obscure corners of the globe, as well Arabic has risen, some less popular ones thing will have been lost that will be very as experts on rising countries like China have fallen by the wayside. As Ian Brown, a hard to reacquire.” 7 and India. Its academics have composed the Swazi national anthem and written sweeping histories of the Meiji restoration; they have also been killed by the Khmers Rouges. In the words of a former director, “They must have formed the single biggest bunch of eccentrics in Europe.” Today 4,345 students from more than 130 countries study courses ranging from global pop music to accounting and fi- nance. Since the 1960s the erstwhile colo- nial training centre has been a hub of radi- cal politics (a recent campaign by students sought to “decolonise our minds” by changing the curriculum). It also repre- sents a type of university—small, specialist and focused on languages—that has strug- gled in recent years. Since 2016 soas’s un- dergraduate admissions have fallen by 37%. In a warning seen by Times Higher Education, the school’s director wrote at the end of last year that without action soas would “exhaust [its] cash reserves” in an- other two years. It used to be so nice, it used to be so good https://t.me/finera

The Economist June 15th 2019 Britain 25

The justice system Paying for the BBC Court in the Grannies v Auntie middle Weep for rich over-75s, who will no longer be able to watch television fee-free n june10th the bbc announced that its commercial activities. Since a blanket Victims are playing a bigger role in the next year most over-75s will have to exemption for over-75s was introduced prosecution of those who wrong them O pay to watch television like everyone by Labour in 2001, its cost has been met elen newlove’s legal education came else. Cue an outbreak of hysteria. Chari- by the government. But the Tories have Hquickly. In the weeks after her hus- ties complained that the decision would decided to shift responsibility to the bbc band, Garry, was kicked and beaten to leave lonely old folk with nothing to fill from June next year. death outside their house by a gang of teen- the day. A petition urging the bbc to The organisation says that to foot the agers in 2007, an “endless stream” of police reconsider raced to 350,000 signatures. bill, which is estimated to reach £745m officers and lawyers came to call on her. By Newspapers published letters from by 2021-22, it would probably have to the time the case reached court, she had pensioners vowing to go to prison rather scrap four tv channels, as well as nation- reached a discomfiting conclusion. The than cough up £154.50 ($196.80) a year for al and local radio stations. Instead it will prosecutor represented the Crown. Five de- a tv licence. “Boycott is surely one of the continue the giveaway only for house- fence barristers represented the defen- most effective ways of challenging this,” holds where at least one person is poor dants. But, she recalled in a recent speech, argued one. “So come on, all you oldies: enough to receive pension top-ups, “no one represented me and my daugh- let’s flood the prisons!” which covers about a fifth of pensioners. ters”. She shared waiting rooms and a can- The licence fee has long roused oddly Conservative leadership candidates teen with the defendants’ families; her strong emotions. It dates back to1923, have vociferously defended the right of daughters, who witnessed the fatal assault, when the Wireless Telegraphy Act in- well-off oaps to watch tv for nothing were told not to show emotion when they troduced a charge of10 shillings (about (unsurprisingly, since they make up so gave evidence in case it swayed the jury. £20 in today’s money) to listen to the much of the Tory party). But the plan “It’s very cold, very clinical,” she says. radio. Last year it raised £3.8bn, equiv- hardly came as a surprise. When the Until the 19th century, victims of crime alent to three-quarters of the bbc’s in- decision to pass responsibility for the had three roles in English and Welsh come, with most of the rest coming from bill to the bbc was taken in 2015, Sir courts: complainant, witness and prosecu- Christopher Bland, a former bbc chair- tor. They were responsible for hiring their man, described it as “the worst form of own lawyers. Then the police began to pur- dodgy Whitehall accounting”.It was clear sue offenders themselves. “There was a that the oldies’ exemption was unsus- move away from private vengeance to pub- tainable. Costs will continue to rise as lic prosecution,” says Pamela Cox of Essex the population ages, leaving younger University. “Victims disappeared from the viewers of all income levels footing the courtroom, except to be called as witnesses bill for a service given free of charge to for the state.” some of its heaviest users. The pendulum is beginning to swing Ministers want the bbc to be more back. In the past two decades, successive commercially minded in its battle for governments have expanded the role of eyeballs with American behemoths like victims, allowing them to make statements Apple, Amazon and Netflix (which last at sentencing about the impact of the crime year spent $12bn on programmes). Ex- and handing them more rights to challenge pecting it simultaneously to act as an decisions such as parole for prisoners. Last arm of the welfare state, redistributing September the government published the from young to old, never made much first ever “victims strategy”, promising a sense. Not that it will be any consolation law to enshrine their rights. Many of the re- to the burghers of Middle England, pre- forms have been championed by Lady paring for a stint behind bars. Newlove, who was given a peerage in 2010 and has held the new post of victims’ com- missioner for the past seven years. On June from different authorities to share office plainants as victims before the accused is 24th she will be succeeded by Vera Baird, a space, so that traumatised people do not tried. It “implicitly presumes guilt on the former solicitor-general. “We’re putting have to keep repeating their stories. part of the defendant,” says Ms Vine. the victim [at] the table again,” Lady New- Other reforms raise more questions. Yet protecting defendants’ rights does love says. Victims are banned from expressing their not require victims to be silent. Evidence Plenty of the changes in the strategy are views on an appropriate sentence in their from several jurisdictions that now allow uncontroversial. Few could quibble with personal statements, but some defence personal statements suggests their intro- attempts to ensure that police and prose- briefs worry that judges will nevertheless duction did not lead to harsher sentences. cutors inform victims of developments in be swayed by emotional accounts. “Judges But victims who make a statement are their case. In one survey, only a little more are only human,” says Sarah Vine, a crimi- more satisfied with the process than those than a third of victims felt that had hap- nal-law barrister. Some doubt that victims who do not, suggesting that paying them pened. Offering tours of the court before a should take part in parole hearings, since more attention will increase the perceived trial starts and providing separate waiting they are not qualified to assess how likely a legitimacy of the justice system. “It makes areas for the defence and prosecution prisoner is to reoffend. There is also a risk the person human, instead of being a case ought to make the process less daunting. in applying the label too loosely. Police file,” says Lady Newlove. The court must be Lady Newlove wants victim-liaison staff have been rebuked for referring to com- fair, but it need not be cold. 7 Financial Era Advisory Group 26 Britain The Economist June 15th 2019 Bagehot The edge of the volcano

The big question is not who will lead the Conservative Party, but whether it will survive Brexit Party on one side and the Remain-supporting Liberal Demo- crats on the other. Not that long ago when Conservatives talked about “Canada” they meant a free-trade deal. Now they are just as likely to be referring to the election of 1993 that saw the Canadian Conservative Party wiped out. The combination of Brexit and the leadership contest is re- inforcing the party’s biggest weaknesses: that it is the party of el- derly homeowners in the south-east who did well out of the 1980s. For all his faults, David Cameron did a good job of detoxifying the party and recruiting bright young candidates who looked more like modern England. Brexit has acted as a Chernobyl of toxicity by giving airtime to the likes of Jacob Rees-Mogg and John Redwood. Various thinkers have tried to galvanise conservatism for a post- Thatcher age by showing that it has solutions to things like market failure and rampant greed. But the candidates have thumbed their noses at all this effort by putting so much emphasis on tax cuts for the well-off. The leadership election is turning into a machine for maximis- ing the conflict between the party and the country at large. Conser- vative members (who number 160,000) are 97% white, 71% male and overwhelmingly affluent. The members who are solidifying behind Mr Johnson, the most likely winner, are even more unrep- here are few things that Britain’s Conservatives relish more resentative. A new study by Tim Bale, of Queen Mary University of Tthan a leadership election. For candidates, it is a chance to talk London, shows that Mr Johnson’s supporters are a fringe of a about their favourite subject—themselves. For mps and party fringe: 85% support no-deal, compared with 66% of party mem- members, it is an opportunity to trade their votes for favours or bers and 25% of the population. It’s not just the tail that is wagging flattery. But the brighter Tories recognise that this is a leadership the dog, but the very tip of the tail. election with a difference: this time they are dancing on the edge of In Parliament, the Boris surge is being driven less by the self-in- a volcano. The natural party of government for much of the past terest of the affluent than by the panic of the petrified. mps are co- century-and-a-half could face catastrophe, in the form of an inter- alescing around him not because they like or trust him but because nal split or a wipeout in the next election. they fear that they will otherwise be crushed by the Brexit Party or The party’s recent electoral performance has been disastrous. It the Labour Party. ConservativeHome, a news site for activists, en- saw its vote-share crumble to 9% in the European election last dorsed Mr Johnson “on a wing and a prayer” for much the same rea- month and then came third in the Peterborough by-election. It is son. But his electoral magic will have to be potent indeed if it is to polling below 20%. Any honeymoon the next party leader enjoys is overcome not just his obvious moral failings but also the fact that sure to be brief, for the Conservatives run a minority government his views are so far outside the mainstream. that is trying to push through a complicated and controversial di- The panic is infecting more than just the leadership election. In vorce bill in the face of profound divisions in their own ranks, not 2016 Michael Anton, an American conservative, wrote a provoca- to mention the country, and mounting impatience in Brussels. tive essay dubbing the forthcoming presidential contest the The next prime minister could face a vote of no confidence within “Flight 93 election”. He argued that, just as the passengers on the a month and a general election within a year. hijacked United plane in 2001had no choice but to storm the cock- The one thing Conservatives agree on is that they must see pit, conservatives had no choice but to embrace Donald Trump, in Brexit through if they are to survive, not just as a government but order to avoid a victory by establishment Republicans (who were as a serious party. But doing so will take a heavy toll. Boris Johnson all sell-outs) or Hillary Clinton (who represented an existential has pledged to get Britain out by October 31st. This could well mean threat to the republic). a no-deal Brexit that plunges the country into chaos and destroys the party’s remaining reputation for competence. Other candi- Let’s roll dates have promised to keep negotiating with the eu if necessary. Leading British Conservatives have started to talk like Mr Anton. But this could amount to the continuation of Mayism by other Hard-Brexiteers are so worried about an establishment plot to means—trying to wring concessions out of an adamantine Brus- block Brexit that they are embracing extreme tactics, such as sus- sels, wrangling with implacable ultra-Brexiteer Tory mps, and pending Parliament, and denouncing civil servants. A few months watching activists defect to Nigel Farage’s Brexit Party. ago Mr Johnson was recorded at a private dinner salivating over the The Conservatives are beginning to realise that they could face idea of Mr Trump “doing Brexit”. “He’d go in bloody hard…There’d not just an electoral setback but an extinction event. Having been be all sorts of breakdowns, all sorts of chaos. Everyone would think one of the great beneficiaries of the British electoral system, they he’d gone mad. But actually you might get somewhere.” Now even could suddenly become its victim. Under first-past-the-post, once more moderate Conservatives such as Jeremy Hunt and Rory Stew- you fall below a certain threshold—about a quarter of the vote— art have taken to talking about what the Conservatives can learn your number of seats collapses. Britain could soon have four viable from Mr Trump. A panicking party seems primed to bring about parties that can each command roughly that share. The Conserva- “all sorts of breakdowns” and “all sorts of chaos”. Whether this will tives in particular could see their supporters jumping ship for the “actually get somewhere” is another matter. 7 https://t.me/finera Europe The Economist June 15th 2019 27

Prostitution doubtless be more attempts. Under current Dutch law, prostitution The new puritans is regulated and taxed. The barriers to join- ing the profession are high: a licence to work as an individual prostitute can cost anywhere between €1,000 ($1,130) and €10,000 initially and must then be re- newed periodically. About a quarter of mu- AMSTERDAM nicipalities refuse to issue any licences at Even the Dutch are debating whether to criminalise the buying of sex all, and Amsterdam, the capital, has been re you getting enough satisfaction in urged eumembers to adopt it. Spanish law- trying to reduce the size of its red-light dis- “A your bedroom?” purrs the narrator of makers are in the process of doing so. In trict, which locals complain attracts organ- a recent advert for ikea, a Swedish retailer. America politicians in Maine and Massa- ised criminals and excessive drug use. If not, the “ikea Karma Sutra” has the sol- chusetts are calling for a similar approach. Nationwide, the number of licensed sex ution: loft beds for those who “are not On July 3rd lawmakers in the Netherlands, businesses has fallen from 1,100 in 2006 to afraid to be on top”; lustrous duvet covers where prostitution is legal and highly visi- fewer than 700 in 2014. Many prostitutes to bring “feelings of ecstasy”. Swedes have a ble, are to start discussing such a law, as work illegally, for various reasons. Some reputation for being pro-sex. Yet Sweden’s well as whether to ban pimps. As in Swe- are coerced. (How many is hard to say, but prostitution laws are surprisingly illiber- den, the crusade is cheered on by feminists estimates for the Netherlands put the fig- al—and increasingly being copied else- and Christians with stern moral views. ure around 10%.) Some are immigrants where. The Netherlands is the latest coun- Exxpose, a Dutch organisation led by evan- without work visas, or who cannot meet try to flirt with the Swedish model. gelical students, has gathered 40,000 sig- certain licensing rules, including one re- In 1999 Sweden banned the purchase— natures on a petition to criminalise the quiring the ability to speak Dutch. Some do but not the sale—of sex. A curious coalition buying of sex. Parliament is unlikely to not want to pay for a licence or be taxed. of feminists and Christians backed the law. agree, in such a liberal country, but the Some want to work from home, though this They argued that it would wipe out prosti- campaign is spreading and there will is harder than it could be, since advertising tution by eliminating demand, and that for such services online is illegal. this would be a good thing because all sex Evidence that the Swedish approach ei- work is exploitative. Anyone selling sex is a Also in this section ther reduces demand for commercial sex or victim, even if she denies it. As for the men harm to prostitutes is scanty. After buying 28 Emmanuel Macron’s Act II who pay for sex, they are predators who sex was criminalised in Sweden, the num- should be punished, campaigners believe. 29 Framed and freed in Russia ber of women selling it on the streets of Over the past two decades the Swedish Swedish cities fell, but soon began to creep 30 German greenery model has been taken up by nearby Norway up again. The number of Swedish men who and Iceland, and beyond, by Canada, 30 Moldova’s political crisis tell pollsters that they pay for sex has fall- France, Ireland, Israel and Northern Ire- en, but that may reflect a reluctance to ad- 32 Charlemagne: A Brexit dividend land. In 2014 the European Parliament mit that they have committed a crime, rath-1 Financial Era Advisory Group 28 Europe The Economist June 15th 2019

2 er than a genuine change in behaviour. ficked become reluctant to do so. protests began. Mr Macron may have come Other measures suggest that the sex Advocates of a more liberal approach in second to Marine Le Pen in the recent business is still thriving. Between 2009 point to New Zealand, which treats selling European elections, but only by a fraction. and 2012 the number of Thai massage par- sex like any other job. An official report And the vote confirmed the collapse of the lours in Stockholm, which often double as says that “the vast majority” of sex workers traditional French right and left that the brothels, nearly tripled to 250, according to are safer and healthier since prostitution young leader helped to engineer. Now, the Swedish police. And growing numbers was decriminalised in 2003. Those work- after months of crisis management, Mr of sex workers ply their trade indoors or ing on the streets report that their relation- Macron is launching “Act II” of his presi- online, making them hard to count. ship with the police has improved. Like- dency. This second round of reforms, un- Despite the ban, many men are still wise, in the Australian state of New South veiled by Edouard Philippe, the prime min- keen to pay for sex. When Astrid, a Swedish Wales, where selling sex is legal, prosti- ister, on June 12th, is designed to match in prostitute who works throughout Europe, tutes’ use of condoms is higher than in oth- scale and ambition the shake-ups to the la- returned to Stockholm for a couple of days, er Australian states where it is banned. bour market, railways, education and fiscal she says she received 67 inquiries from po- No country has ever eliminated prosti- policy that marked the first 18 months of tential clients. She accepted just two. The tution. Many people want more sex than his presidency. Besides a fresh emphasis others were unwilling to disclose their they can get without paying. Sex workers on greenery, three structural reforms stand names or telephone numbers, perhaps be- meet that demand, and so long as the terms out: reorganisation of the public sector, re- cause they feared arrest. are freely negotiated, the law should not form of unemployment insurance and wel- Supporters of the Swedish model claim stop them, argue their unions. Police fare benefits, and rationalisation of the it protects prostitutes by giving them some should concern themselves only with gen- French pension system. power over clients, who will be worried uine cases of coercion. “Nobody wants a On the first, a bill to “transform” the about being shopped to the police. Prosti- safer sex industry more than sex workers public sector is already going through par- tutes say it has the opposite effect. Face-to- themselves,” says Fleur (not her real liament. The purpose, says Olivier Dus- face negotiations are more hurried. Kate name), of the Prostitution Information sopt, the junior minister in charge, is “to McGrew of Sex Workers Alliance Ireland Centre in Amsterdam. Perhaps Dutch law- modernise management in the public sec- says that fewer sex workers are heeding makers should listen to the experts. 7 tor, and make it more responsive—both for what used to be red flags. For example, a the careers of public-sector workers and trans woman was beaten up after taking on for users of public services.” France’s a client who asked if she was alone. Clients France mighty civil service employs 5.5m people, are more likely to insist on assignations in most with jobs for life. These are secured by remote places. And because men refuse to Emmanuel passing an entrance exam, after which reveal identifying information, prostitutes “management” is a generous term for what have little recourse if they are attacked. Macron’s Act II happens to careers. Bosses have little say In a study of more than 500 sex workers over recruitment, let alone promotions, in France, nearly 40% said their power to which depend on approval by committees, negotiate prices and insist on condoms PARIS on which unions occupy half the seats. The president kicks off a second big had diminished since buying sex was Teachers, for instance, need the commit- round of reforms banned in 2016. Nearly 80% said their earn- tees’ approval even if they want merely to ings had fallen, and almost 90% did not ix months ago Emmanuel Macron was change schools. The system cramps mobil- support the law. In Ireland violence against Sfacing the most serious political crisis ity and demoralises all concerned. prostitutes shot up by almost 80% in the of his presidency. Gilets jaunes (yellow- The new rules will enable managers to year after buying sex was banned, accord- jacket protesters) marched on the Elysée hire more easily from the private sector for ing to Ugly Mugs, a group that encourages Palace, vowing to invade the presidential short-term projects and longer contracts. sex workers to report attacks. office. Tear gas hung over the wreckage of The promotions committees will be rele- Yet the number of sex workers in Ire- torched vehicles and smashed windows. gated to judging contested cases. The idea land who tell the police about such crimes Mr Macron’s time as a credible reformist is to give managers more freedom and has fallen. France has seen similar shifts. leader, it seemed, was up. responsibility, a change that Mr Dussopt Sex workers are wary of contacting the cops Today the French president has a fresh calls “very profound”. For French civil-ser- for fear of being prosecuted for other spring in his step. His poll ratings, though vice culture, these amount to “very radical things, such as immigration violations or low, are back where they were before the changes”, says Ross McInnes, the chairman1 brothel-keeping. Swedish-style laws are often used as a pretext to crack down on migrants, says Niina Vuolajarvi, a sociolo- gist at Rutgers University. Norway intro- duced its law in part because voters object- ed to the sight of Nigerian sex workers on the streets. Since Ireland’s law has come into effect, police have picked up just one man for buying sex, but they have arrested 55 sex workers, most of them foreign. Natasja Bos, one of the leaders of Exx- pose, claims that the Swedish model deters trafficking (ie, recruitment through force or deception) by discouraging both clients and pimps. But 15 years after the law was passed, Swedish police found no such de- cline. Men who might once have told police about women they feared had been traf- https://t.me/finera

The Economist June 15th 2019 Europe 29

2 of Safran, an aeronautical giant, who co- ness dailies, none of them radical, came chaired an official public-sector efficiency out with identical front pages, spelling out review last year. in large print: “We Are Ivan Golunov”. By A second reform, of benefits, is two- 10am that day newsagents had sold out. pronged. The government will soon unveil Journalists announced a mass protest for new rules for unemployment insurance June 12th, a holiday that marks Russia’s in- which will, among other things, involve ta- dependence from the Soviet Union. But 24 pering payments and lowering payouts for hours before the march was supposed to higher earners. France is unusually gener- start, something changed. The police ous. An employee on average earnings gets abruptly dropped the case and cleared Mr 68% of previous income if he loses his job, Golunov of all charges. Almost simulta- compared with 59% in Germany and 34% neously, and surely not coincidentally, a in Britain, according to the oecd. The re- court in Chechnya released another victim form will be controversial; talks between of the police’s drug-planting tactics, Oyub unions and employers on this subject col- Titiev, a human-rights campaigner. There lapsed earlier this year. Even more so will is no doubt that the order to release both be the government’s bill next year to merge men came from the Kremlin. Yet Mr Putin housing and a tangle of other welfare pay- is better known for encouraging rather ments into a single “universal benefit”. The than restraining his security services. So underlying principle of all this, says a pres- why the reversal? idential adviser, is “to make work pay”. First, Mr Golunov’s release shows that Perhaps the boldest of all is pension re- the Kremlin is worried about losing its mo- form, designed to merge 42 existing re- nopoly on force. An investigation by activ- gimes into a single, fairer and more trans- Russia ists and supporters concluded that the parent system. The idea is to encourage job journalist was nabbed by members of a cor- mobility and, implicitly, to delay retire- Five days that rupt group of fsb officers who work with ment. The French currently spend more the criminal underground, connections time in retirement than anybody else in the rattled the Kremlin that Mr Golunov has exposed. Mr Titiev oecd, and the state pension system is in was arrested and jailed for crossing Ram- deficit. Mr Macron says he will not raise the zan Kadyrov, a strongman in Chechnya legal retirement age, which would help who commands a small army. But although meet that shortfall. But the merged system, neither arrest was sanctioned by the Krem- A rare climbdown by Vladimir Putin when its rules are unveiled in the autumn, lin, the gangs were only following the may end up encouraging later retirement week ago few people had heard of Ivan Kremlin’s example. Having observed their anyway. The reform is as politically sensi- AGolunov, a freelance journalist who re- ultimate bosses act with impunity against tive as it is ferociously complex. “It’s prob- ports on corruption in Moscow. His work their opponents, the police and local fsb ably the most ambitious reform of Mac- was published by Meduza, an independent men decided there was nothing stopping ron’s presidency,” says Jean Pisani-Ferry, news website that operates out of Latvia. them from doing the same. an economist who co-ordinated Mr Mac- Police and prosecutors ignored him. By slapping them down, the Kremlin ron’s campaign manifesto in 2017. That changed on June 6th, when police hopes to portray Mr Putin as the only true The president’s newfound confidence arrested Mr Golunov in central Moscow, source of justice, a good tsar who can par- will not in itself be enough to make these beat him up and charged him with the pos- don and punish as he sees fit. This is no reforms work. Some in government worry session and distribution of drugs. They de- thaw. On June 12th the police broke up a that they involve a big political effort for lit- nied him access to his lawyer, and refused peaceful rally against their tactics, detain- tle budgetary gain, at least in the short run. to conduct forensic tests. The case was ing hundreds of protesters including some The government has already pushed its clearly fabricated. Photos purporting to of the journalists who helped to get Mr Go- budget deficit back above the 3% of gdp show a drugs lab in Mr Golunov’s flat were lunov freed. Alexei Navalny, Russia’s most Maastricht limit this year, partly because of taken elsewhere, the police later admitted. prominent opposition leader, was also ar- income-support measures designed to Russian social media exploded. Hun- rested, but later bailed. He said that the calm the gilets jaunes. Others fear that Mr dreds of journalists and citizens queued up Kremlin’s actions only seemed illogical: Macron has let slip his campaign promise in front of police headquarters to stage “They are fantastically scared of consolida- to trim the size of the civil service. Detrac- “single pickets”, the only permitted form of tion in Golunov’s case, so they first need to tors of a different sort accuse Mr Macron of protest, demanding Mr Golunov’s immedi- break up the solidarity and then intimidate wanting to privatise it, and to dismantle ate release. Some were promptly bundled and jail those who persevere.” the welfare system. After the gilets jaunes into police vans, further increasing the The outpouring of support for Mr Golu- have monopolised the airwaves for so long, general outrage. nov shows the power of online media and a unions are keen to make their voice heard. The Kremlin had spent millions of dol- growing mood for protest. Five years of de- If anything, the gilets jaunes protests lars staging a summit in St Petersburg with clining incomes, added to brazen corrup- showed that public policy cannot be de- Xi Jinping, the Chinese president, on the tion and injustice, make a combustible creed from on high, and Mr Macron claims day of Mr Golunov’s arrest. In the event, the mix; the Kremlin is keen not to add a spark. that he has heard and understood this mes- formerly obscure journalist overshadowed But it is also keen not to let protesters seize sage. Yet his reputation also rests on a will- the powwow. The story of his arrest circu- the initiative. As Mr Putin prepares for his ingness to enact unpopular reform, at a lated widely; international and Russian annual televised phone-in show on June time when his earlier policies are now media ran pictures and posted videos of 20th, and contemplates ways of retaining starting to show promising results, notably him in tears inside a cage in a courtroom. power after the end of his final presidential in terms of job creation. Act II of Mr Mac- Actors, singers and other public figures de- term under the constitution, he needs qui- ron’s presidency will test whether those nounced his treatment. et on the streets. Mr Golunov’s case sug- two objectives can be reconciled. 7 On June 10th three mainstream busi- gests he is unlikely to get it. 7 Financial Era Advisory Group 30 Europe The Economist June 15th 2019

The politics of climate change Moldova’s political crisis Germany’s green Plahotniuc v Putin makeover Russia and America both want Moldova’s ruling oligarch to go BERLIN n june 8th Nicu Popescu was on his with a new pro-Western party that holds Politicians are scrambling to respond way to a party in London. When the the balance of power in parliament. to the Green Party’s surge O train entered the Channel Tunnel at Untainted by accusations of corruption, he tone was measured, but the content Calais he was a humble think-tanker, it is led by Maia Sandu, a popular former Talarming. Governments could “no lon- based in Paris. When it emerged in Brit- education minister. ger close their eyes”, wrote Angela Merkel ain he had become foreign minister of But Mr Plahotniuc is not giving up in the Frankfurter Allgemeine Sonntagszei- Moldova. Since an inconclusive election power easily. The constitutional court, tung, back in 1995. “Climate protection re- more than three months ago, Moldovan still controlled by his Democrats, has quires swift and energetic action.” Just four political life has been gridlocked. Now it moved to dissolve parliament and re- months into her job as Germany’s environ- is moving at breakneck speed. place the Socialist president with an ally ment minister, Mrs Merkel went on to bro- Moldova’s corrupt leaders have long of Mr Plahotniuc’s. A tv station close to ker a deal among her peers at a climate con- played its location, sandwiched between him broadcast a film of the old president ference in Berlin that paved the way for the Ukraine and Romania, to their advan- apparently discussing illegal Russian Kyoto agreement two years later. tage. They have demanded bounty from party financing. He claims the words Since then, at the global carousel of Moscow, Brussels and Washington, were taken out of context, but the old summits Mrs Merkel has kept up the advo- warning that if they did not get it they government is refusing to budge. Ms cacy that led some to dub her the “climate would seek it elsewhere. But Vlad Plahot- Sandu says that if it does not vacate chancellor”. But at home, the urgency niuc, an oligarch who has dominated government offices she will call her comes from elsewhere. At the European Moldovan politics in recent years, is so supporters onto the streets. Mr Popescu elections 48% of voters said climate unpopular that he has managed to unite denies they are planning to storm the change was their top concern. The Green all three against him. offices. “We are not commandos!” Party came second in that election and now Elections in February produced a Lacking international support, Mr leads Mrs Merkel’s Christian Democratic hung parliament. Subsequent negotia- Plahotniuc is losing his grip on power. Union (cdu) in polls. Every week “Fridays tions failed to produce a new govern- But many suspect that the Russian strat- for Future” protests fill the heart of Berlin ment, but the likeliest outcome seemed egy may be to get rid of him first, then with marching schoolchildren. to be either new elections or a deal be- eliminate Ms Sandu and take Moldova The change of mood among voters tween Mr Plahotniuc’s Democratic Party firmly back into the Russian sphere of means “a wishy-washy policy course is no and the Russia-friendly Socialists. Then influence. Her plan is also to deal with longer compelling,” says Ottmar Eden- on June 3rd envoys from Russia, America Mr Plahotniuc first and then defeat the hofer, who directs the Potsdam Institute and the eu arrived. Encouraged by the Socialists at a new election. “I’m very for Climate Impact Research. The cdu and Russians, the Socialists struck a deal optimistic,” she says. its Bavarian sister party, the Christian So- cial Union (csu), are scrambling to sharpen their climate profile. With their coalition ment of nuclear power after a tsunami- powered cars from their centres, and car- partner, the Social Democrats (spd), the induced meltdown at a Japanese reactor in makers are rewriting business models to parties must enshrine in law Germany’s 2011, and warped price signals that made avoid being overtaken by Chinese upstarts. commitment to ensure that by 2030 carbon gas-fired power uneconomical, meant that But a future in which Germans zip around emissions are 55% lower than their 1990 cheap coal has made up much of the rest. in electric cars is some way off. Nor are the level. That the spd is spoiling for a fight The last mine is due to be shuttered by incentives yet in place for the mass refur- maks that harder. The cdu itself is divided. 2038. Too late, say activists. bishment of Germany’s housing stock. Some back a carbon tax, with revenues re- Secondly, since 1990 Germany has failed The governing parties face dilemmas distributed to those hit hardest. Others to bring down its emissions from tran- balancing climate protection with their want to expand the eu’s emissions-trading sport. Some cities have banned diesel- traditional economic goals. The cdu wants scheme (ets), a carbon market. Businesses to avoid harming industry, already smart- want clarity. A decision will be taken by ing from high energy prices, and is wary of September, and legislation will follow. Green shoots the powerful motorists’ lobby. The spd Much of the frustration comes from Germany, support for political parties, % polled fears for its industrial voter base. Many of Germany’s sluggish performance. In the 35 the coal mines earmarked for closure lie in past decade it has spent a fortune rejigging Germany’s east, where the hard-right Alter- 30 its energy system while barely reducing native for Germany is popular. emissions. This embarrassment comes CDU/CSU 25 All this bolsters the Greens, with their with a price tag; under eu rules Germany Greens 20 crystal-clear pitch, made from the safety of could be liable for penalties worth tens of SPD 15 opposition. The party gains from voters’ billions should it fail to meet its 2030 tar- climate worries, but also from their frus- get. The 2020 goal is already abandoned. AfD 10 tration with a fractious coalition. Yet its Two factors explain this. First is Ger- Die Linke 5 success in soaking up votes from across the many’s ongoing dependence on coal, par- FDP 0 political spectrum hints at shaky founda- ticularly lignite, the dirty brown sort. Jan Feb Mar Apr May Jun tions. It cannot remain all things to all vot- Thanks to hefty subsidies, renewables ac- 2019 ers. “We know our support is fragile,” says mp count for over 40% of electricity produc- Source: Politico Kerstin Andreae, a Green . The party’s tion. But Mrs Merkel’s sudden abandon- influence, however, is not. 7 https://t.me/finera

32 Europe The Economist June 15th 2019 Charlemagne A Brexit dividend

Britain’s exit is the ideal moment to make English the EU’s common language (like The Economist) to dominate. In fact, several big continental media houses—including most of Germany’s major newspapers, Spain’s El País and Greece’s Kathimerini—now publish online Eng- lish versions in order to take part in pan-European debates. Forma- lising English would merely encourage others to follow suit. The keenest proponents of an Anglophone eu are not Brits or Ameri- cans but Joachim Gauck, Germany’s former president, and Mario Monti, Italy’s former prime minister. Another complaint from the English-bashers is that other po- litical entities, like America, Canada and Switzerland, manage without a single official language. But unlike the eu, they all have centuries of history as common polities and a strong majority ton- gue; by contrast, only 18% of eu citizens speak German as their first language. Polyglot India is the nearest international comparator to the eu, but there too debates rage over whether to adopt a sole offi- cial language to add coherence. The most compelling objection is that replacing Europe’s babel with a common discourse in English is elitist. Yet that is precisely why the eu should do more to promote it as the definitive language of European exchange. Its current agnosticism has created a Eu- rope where a brahmin class of multilingual university graduates can breeze from country to country and dominate pan-European or most of its life, the European Union had three main lan- debates. A firmer commitment to English at European and nation- Fguages. German was its leading mother tongue. French was the al levels would help extend that skill to Europeans who currently preferred register of Brussels diplomacy. English was a widely lack it. used second language. But in recent years the rise of the internet The choice is ultimately not between an Anglophone Europe and the accession of central and eastern European states have and a truly polyglot Europe but between wishful thinking and real- made English dominant. Today over 80% of the European Com- ism. Nicolas Véron, a French economist in Brussels, notes that mission’s documents are written first in that language, then trans- English is already in effect the working language of the eu; a devel- lated into the eu’s remaining 23 official tongues. opment that helped him and others set up Bruegel, one of the first That has raised some hackles. “English is not the only official genuinely pan-eu think-tanks, in 2005. Some 97% of 13-year-olds language of the European Union,” huffed Jean-Claude Juncker, the in the eu are learning English. The number of English-language European Commission president, last September. Some have university courses has risen from 725 in 2002 to over 8,000. Con- hailed Brexit as a chance to re-establish French as the eu’s leading tinent-wide political movements work overwhelmingly in Eng- language, or at least remove English as an official language. “By lish: the website and social-media accounts of Fridays for Future what miracle will 450m citizens have to be governed in this future are in English, as are those of the right-populist Identitarian move- minority language?” fumed one French journalist at the eu’s fail- ment. At a rally of nationalist leaders in Milan before the European ure to ditch the tongue of Boris Johnson and Nigel Farage. elections, Finnish, Danish, Dutch, Czech and German leaders all On the contrary, there has never been a better time for the eu to addressed the Italian crowd, to cheers, in English. embrace English as its single official language. Britain’s exit makes the politics simpler. Philippe Van Parijs, a Belgian philosopher, ar- Spread the word gues that it will make English a neutral language within the eu Formally acknowledging such realities would enable the eu and (Ireland and Malta also speak it, but make up 1% of the remaining national governments to focus more resources on spreading Eng- population) and thus ideal for exchange between Europeans of ri- lish skills. Resources—some perhaps freed by shrinking the eu’s val mother tongues. Given its Latinate and Germanic roots, he mammoth translation operation—could go towards teaching the adds, embracing it would be an act of linguistic repatriation; re- language to older and less-educated workers. It would spur more turning the language to the European mainland. “We want our lan- media organisations to publish in English and thus nurture the guage back,” he jokes. Second, Europe is growing together politi- emergence of a genuinely pan-European media. cally. From anti-migrant protests to the “Fridays for Future” The biggest barrier is symbolic. “The language of Europe is environmental demonstrations by school pupils, causes are cross- translation,” wrote Umberto Eco, an Italian author. The eu is proud ing borders more than before. Turnout rose to a 25-year high in the of its everyday multilingualism, which becomes more fluent and European elections last month after a campaign in which leaders, accessible with every year as the use of machine translation tools from Matteo Salvini of Italy’s populist right to Emmanuel Macron grows. Yet the adoption of English as a common language should of France’s liberal centre, made an impact beyond their own coun- be seen not as a challenge but as a complement to this tradition. tries. The French president wants to introduce pan-eu lists of can- Europe is about diversity, and its patchwork of languages and dia- didates at the next elections. In this more genuinely European po- lects must be promoted and protected. But it is also about the sort litical era, a universally accepted lingua franca makes all the more of unity that is possible only with a common tongue, even imper- sense. English is the only logical candidate. fectly spoken. Universalising English while upholding the eu’s na- Some fret that formalising its pre-eminence would entrench tive languages would be not a betrayal of the cosmopolitan Euro- Anglo-Saxon culture and allow English-language publications pean ideal, but its affirmation. 7 Financial Era Advisory Group United States The Economist June 15th 2019 33

Race and life expectancy The downward trajectory can be ex- plained by several simultaneous phenom- Black lives longer ena, not all of them cheerful. Among the el- derly, more of whom die after all than the rest, the narrowing is due to mortality from heart disease and cancer declining faster for blacks than for whites. But for prema- ture deaths, racial gaps—especially be- NEW YORK tween black and white men—have also The life-expectancy gap between black and white Americans has steadily declined narrowed because of substantially reduced ack in1980 when Harlem was still a by- white boys. Put another way, the typical mortality from homicide, the result of the Bword for poverty, criminality and the black boy had 30% less life to live. Incre- great crime decline, and hiv, the result of decline of New York City, black men in the mental progress, however fitful, was made improved medical therapies. Yet the emer- neighbourhood had a worse chance of liv- for the next century, but epidemics of gence of the opioid epidemic, which kills ing to the age of 65 than men in Bangladesh crack, hiv and urban violence threatened whites at higher rates than other races, has did. At that time Harlem’s residents—al- to reverse it. By 1993, a peak year for violent also hastened the racial convergence. most all of them black, and many of them crime, the life-expectancy gap between Criminologists still do not know why poor—died of heart disease at double the black and white men had widened again by violent crime and homicides began to de- rate of whites. They died of liver cirrhosis, nearly three years, to 8.5 years. cline in the mid-1990s. A wide array of the- brought on by alcoholism or hepatitis, at But then it began a sustained, steady ories have been proposed: the eroding ap- ten times the rate of whites. And they were fall. In 2011 the black-white gap had nar- peal of crack cocaine, mass incarceration 14 times likelier to be murdered. Today the rowed to 4.4 years for men (5.7% less) and actually working as intended, legalisation prominent corner of Malcolm X Boulevard just 3.1years (3.8% less) for women. Though of abortion, less lead poisoning of children and West 125th Street houses a Whole progress then levelled off until 2016, the and the improving economy. But the pub- Foods, an upmarket grocery chain, and life most recent year available from the cdc, lic-health consequences are abundantly expectancy is up to 76.2 years. That is still the trend is stable and not reversing. clear, particularly for black men who were five years behind the rest of the city, but the and remain the most frequent victims of gap is no longer so egregious. murder. Patrick Sharkey and Michael Also in this section The case of Harlem exemplifies a re- Friedson, two sociologists, conducted a markable trend in American public health 34 Worker-ownership funds thought experiment showing that life ex- that is seldom noticed: the persistent gap pectancy for black men would have been 35 Political ideology in life expectancy between whites and 0.8 years lower if homicide rates had per- blacks has closed substantially, and is now 35 The case of Scott Warren sisted at their levels in 1991. That is a re- at its narrowest ever. In 1900, the earliest markably large health effect—on the order 36 Burying the poor date for which the Centres for Disease Con- of entirely eliminating obesity among trol and Prevention (cdc) publishes statis- 37 Environmental policy black men. The authors calculate that 17% tics, the life expectancy for black boys at of the narrowing of the life-expectancy gap 38 Lexington: Southern Baptists birth was 32.5—14.1 years shorter than for for black and white men between 1991 and 1 https://t.me/finera

34 United States The Economist June 15th 2019

Wherever they lived, blacks were less ly related to measures of income and pov- Race to the bottom likely to obtain legal opioids in the first erty: a simple regression shows that a five- United States, life-expectancy gap in years place. A study of pain-related visits to percentage-point increase in the poverty between blacks and whites, by sex emergency departments between 1993 and rate is associated with a one-year decline in 2005—a period that overlaps with the life expectancy. Men Women 20 20 run-up to the crisis—shows that whites Research by Raj Chetty, an economist, were substantially more likely to obtain an and his colleagues shows that the income 15 15 opioid prescription, even after controlling gap in life expectancy has been growing for the reported severity of pain and other even as the racial one has been declining. 10 10 factors. A wealth of studies have found So has the education gap. Although people similar effects. Doctors are also much more have long assumed that higher socioeco- 5 5 likely to stop prescribing opioids for blacks nomic status bought better health, that was after detecting illicit drug use. In the case of not as true for blacks as it was for whites, 0 0 opioids, racial bias probably saved lives. says Arline Geronimus, a public-health 1900 50 2016 1900 50 2016 Despite improvements in the racial gap, professor at the University of Michigan. Source: Centres for Disease Control and Prevention inequality in life expectancy by class and Now that is changing. “The convergence is income still remains. The cdc has begun due to more affluent, educated blacks liv- publishing estimates of life expectancy at ing longer while less-affluent, less-educat- 2 2014 could be explained by the unexpected the census-tract (or neighbourhood) level. ed whites are not living as long. It shouldn’t halving of the murder rate over that period. Life expectancy at the 90th percentile is 83.1 be interpreted as though we’ve made great Considerable improvement in the treat- years compared with 73.1 years at the 10th. strides,” she says. Even so, the improve- ment of hiv has also decreased premature In Chicago, census tracts a few miles apart ments for black men run counter to the deaths for black men, who were hammered can differ in average life expectancies by drumbeat of pessimism about race in by the epidemic. An estimated 42% of the two decades. The estimates are quite close- America. Black lives are longer. 7 1.1m Americans living with hiv today are black, triple their share of the population. At the peak of the epidemic, around 1994, Worker-ownership funds the virus was killing blacks at an age-ad- justed rate of nearly 60 per 100,000—or The winner (no longer) takes it all three times the rate at which opioid over- doses killed whites in 2017. Though blacks still make up a majority of Americans killed by hiv, the overall rates of death have plummeted to around 10 per 100,000. At the same time as lifespans have been How Warren Buffett’s billions may help Bernie Sanders defy abba increasing for blacks, prospects for whites, especially the non-elderly, have sagged. ernie sanders, a contender for the “The Winner Takes It All” and “Money, This is mainly because of the rapid increase BDemocratic presidential nomination, Money, Money” helped lead opposition to in deaths from drug overdoses, opioids will face plenty of opposition to his latest the proposal, producing pamphlets and chief among them. Death rates for whites plan to force companies to hand over even hosting an open air gig to protest. In caused by all drugs more than quadrupled shares to workers. But at least he will not the end, abba saw off the socialist menace. from 1999 to 2017, and are now 32% higher have to compete with abba. When the The idea was watered down by the Swedish than for blacks. Historically drug epidem- Swedish Social Democrats proposed the government, then scrapped in the 1990s. ics have disproportionately hit non-white same idea in 1982, the pop group behind Under the scheme being considered by Americans. But of the 47,600 people killed the Sanders campaign, businesses will is- by opioids in 2017, 37,100 were white. sue a small chunk of equity each year to a Opioid addiction, suicide and overdose-re- fund controlled by current workers. The lated deaths all affect whites at much high- fund will pay dividends to employees, er rates than blacks. Some of the reason for while also giving them the same say as oth- this may, ironically enough, lie in racial er shareholders. Supporters argue that discrimination. companies rewarding bosses with equity has been the norm for years. If this is a sen- A life-saving bias sible way to incentivise management, they About three in four heroin addictions be- ask, why not do the same for workers? Crit- gan with a legitimate prescription. The ics argue that it amounts to de facto confis- hotspots of the opioid crisis—the tri-state cation by the state. meeting of Ohio, Kentucky and West Vir- The idea, first devised by Rudolf ginia as well as rural New England—where Meidner, a Swedish economist, in the blizzards of pills were later followed by a 1970s, lay dormant until it was rediscov- rise in overdose deaths, are much whiter ered by British wonks, who pitched it to an than the rest of the country. “It is consis- increasingly left-wing Labour opposition tent with pretty different rates of prescrib- in Britain. John McDonnell, the shadow ing opioids. We supplied it very differently chancellor, adopted it and announced that, to whites versus blacks in these areas,” says under a Labour government, workers at Ellen Meara, a health economist at Dart- businesses with more than 250 staff would mouth College. “But we also know that be gradually handed 10% of the stock. there’s a lot of racial discrimination in our Also involved in blowing the dust off health-care system.” Bjorn and Benny v Bernie and Buffett the idea have been Democracy Collabora-1 Financial Era Advisory Group The Economist June 15th 2019 United States 35

Political ideology Left nation

Donald Trump’s presidency, like George Bush’s before it, has moved America left mericans are more in favour of leaning ones, even when these are ac- A“big-government” policies today companied by the promise of higher than at any point in the last 68 years. That taxes. Mr Stimson’s data show a steady is the conclusion of James Stimson, a leftward shift in Americans’ views on the political scientist, who has analysed scope of government since 1952. And long-running polls from the Universities according to data from the Policy Agen- of Chicago and Michigan to come up with das Project, an academic research group, annual estimates of the “public mood”. the public also holds views that are more Mr Stimson estimates that the last time tolerant than ever on social issues like America was feeling this left-wing was in same-sex marriage; worries more about 1961, when the civil-rights movement the environment; and is more enthusi- was full-steam ahead and Alan Shepard astic about immigration and giving a became the first American to be helping hand to African-Americans. launched into outer space. The American public’s preferences on Public opinion is contradictory: many policy have long shown an allergy to more Americans describe themselves as whatever the occupant of the White conservative than as liberal; yet Ameri- House is trying to do. In this respect cans prefer left-leaning policies to right- public opinion is like a thermostat: when Religion and freedom policy gets too hot, Americans turn the temperature down. When the govern- I can do no other High tide ment drifts too far right, Americans want Americans’ ideology on key issues to move back to the left, as happened in 100 the 2018 mid-term elections. Mr Stimson is careful not to suggest “Scope” of government* that the leftward swing is only a reaction Health care 80 Is helping illegal immigrants to Donald Trump’s presidency. He points a protected religious practice? 60 out that the policy preferences he sees now “are the issues of American politics ne trouble with liberty is that you 40 of earlier generations, the New Deal and Onever know what people will do with it. Overall Great Society agenda”. Mr Trump has In recent years, American conservatives Immigration ↑ More 20 done little to shift policy on Social Secu- have been passionate defenders of individ- lefty rity, for example, so increasing leftiness ual religious freedoms, such as the right to 0 on that issue may reflect real attitude- have nothing to do with same-sex wed- 18102000908070601952 changes rather than thermostat-tweak- dings. But Scott Warren (pictured above), Sources: James Stimson; *Includes health care, economics, ing. On policy preferences at least, Amer- an idealistic geographer who is facing felo- Policy Agendas Project education and taxes, among others ica is moving leftwards. ny charges for succouring migrants in the Arizona desert, has now become a stan- dard-bearer for a very different sort of con- 2 tive, a think-tank which has lobbied heavi- boxsets of “The West Wing”, crave Ameri- scientious objection. ly for the proposal on both sides of the At- can approval. An idea backed by a presiden- On June 11th his trial, which has been lantic. One of their main backers is the tial candidate seems less outlandish. closely watched at the liberal end of Ameri- NoVo Foundation, a fund set up by Peter How far the proposal will go under Mr ca’s religious spectrum, reached deadlock and Jennifer Buffett, with the cash fronted Sanders has yet to be decided. It is flexible. after jurors failed to agree despite three by Peter’s dad, Warren. A new model of In effect the policy creates a knob, which days of deliberation. That was a better re- business ownership is being developed can be twiddled between a redistribution sult than Mr Warren and his many suppor- with cash left over from the old one. of capital and control, all the way to hand- ters feared. Prosecutors may seek a retrial. British businesses have started eyeing ing the means of production to workers Lawyers for Mr Warren, who has taught the scheme nervously, now that Mr Mc- wholesale (as was Mr Meidner’s original in- at Arizona State University, have insisted Donnell’s Labour Party has a decent chance tention, until abba intervened). that a generically spiritual motive lay be- of taking power. Executives grumble that it Polling for Democracy Collaborative in- hind the actions he took, which involved is causing more of a headache than Britain dicates that people like the idea: about 55% feeding and sheltering two migrants. He leaving the eu. If Mr Sanders ends up in the of American voters support putting up to has been charged with conspiring to har- White House, they will face a transatlantic half of a company’s shares in a trust for bour and transport illegal aliens, crimes pincer movement. workers. Even 50% of Republicans support punishable by up to 20 years in jail. For lefties on both sides of the Atlantic, such a scheme, with only 30% opposed. An With the help of some eminent schol- this is part of the plan. American thinkers idea that was rejected as too left-wing in ars, his defenders had made an unsuccess- hoping to shove the Democratic Party fur- 1980s Sweden is being revived in the twin ful but plausible enough effort to shelter ther left can point to Britain as a laboratory engines of the Anglo-Saxon economy. Nev- him behind the Religious Freedom Resto- of left-wing ideas. Meanwhile British poli- ertheless, with abba on tour again in ration Act of 1993, a measure intended to ticos, whose bookshelves bulge with biog- America this summer, maybe Mr Sanders protect a broad variety of religiously mo- raphies of dead American presidents and should watch out. 7 tived acts from the heavy hand of the law. 1 https://t.me/finera

36 United States The Economist June 15th 2019

2 Where does religion come in? Mr War- Burying the poor ren is a leading light in No More Deaths, an ngo associated with the Universalist Uni- tarian Church, a liberal denomination, Potters’ fields which tries to reduce the number of would-be migrants who perish in the des- NEW YORK What happens to the corpses of those who die poor or unclaimed in NYC ert. Nearly 3,000 bodies have been found in southern Arizona since 2001. o one who sleeps there had a Carolina unclaimed bodies are cremated, Although not formally religious him- “Ndollar to their name in life…the then stored for three years before being self, Mr Warren has much to say about the bodies interred here are as utterly for- scattered at sea. In Washington’s King numinous nature of the desert and the rit- gotten and wiped away as if they never County, which includes Seattle and its uals he performs when (as has happened 18 existed.” This is how the New York Herald suburbs, the poor and the unclaimed are times) he discovers a dead body. On June described Hart Island in 1874, five years cremated and stored until a biennial 5th robed representatives of more conven- after the city began burying its poor on burial ceremony. Because of the high tional faiths, including a rabbi and an the island off the Bronx. A century and a number of migrant deaths in Pima Coun- imam as well as many Protestant churches, half later the poor and unclaimed are still ty in Tucson, Arizona, its medical exam- came to the courthouse in Tucson to show buried in pine coffins, usually marked iner’s office handles more unidentified their solidarity. only with numbers, not names. These are remains relative to population than any Jim Wallis, a prolific writer who is one stacked three deep in a trench, three feet office in America. of the best-known figures on America’s re- below the surface. Each trench holds 150 Those who die without the means to ligious left, says the case was crystal-clear: adult coffins. Roughly 1,200 people are pay for a funeral, which costs nearly “He is being prosecuted for following the buried there each year. $9,000 on average, end up on Hart Is- command of Jesus, which is to feed the Jurisdictions across America are land. Nearly two-thirds had next of kin hungry, refresh the thirsty and invite in the wrestling with what to do with their who opted for a public burial. In all about stranger.” The case was so simple that it unclaimed dead. A state fund in West 1m people lie there. The earliest victims should not be a matter of political conten- Virginia, which has been hit hard by of aids were buried there in 1985, far tion, he thought. opioid overdoses, ran out of money to away from the other graves. Hart Island But the cause of religious freedom, bury the unclaimed dead last year. Some may be the largest cemetery for victims which is one of America’s founding ideals, cities, including Los Angeles, cremate of the epidemic. During heavy rains has mutated ideologically in odd ways. The the unclaimed after a certain period, bones are sometimes washed away and Religious Freedom Restoration Act (rfra) which is cheaper than burial. In North end up on nearby beaches. drew near-unanimous support in Congress The island, which has a stark beauty, and was signed by Bill Clinton. It laid down is under the jurisdiction of the city’s that the government could not “substan- Department of Corrections. Four days a tially burden” an individual’s religious lib- week eight inmates from Rikers, New erty unless it had a “compelling interest” in York’s biggest jail, travel to the island to doing so. The law was a counterweight to a dig graves and lower coffins into them. Supreme Court ruling (concerning the use They are paid a $1an hour. of intoxicants in Native-American rituals) Because of Hart Island’s close connec- which had made it a bit easier for the gov- tion with jail and prisoners, it is difficult ernment to override individual liberty in for relatives (or anyone else) to visit. “It is matters of belief. clear to me we can do better, much better Then, in 1997, the Supreme Court ruled for the people buried on Hart Island,” that the rfra could not constrain the be- says Corey Johnson, the Speaker of the haviour of state governments. That city council. “This needs to be changed prompted states to pass their own versions immediately.” He is backing a bill that of the rfra, of which the most controver- would transfer operations to the Parks sial was the one signed in Indiana by Go- Department, create an office to help vernor Mike Pence, now the vice-president, those who need help with a burial and which was denounced as a charter for dis- make travel to the island easier. The city crimination against gay people. also needs to think about what to do As Elizabeth Sepper of the University of when Hart Island is full. The Department Texas, points out, the Clinton rfra was in- of Corrections says there will only be tended to protect small, idiosyncratic mi- Cold, cold Hart space for eight or ten more years. norities or individuals. Recently, rfra- type laws have been used to shield mem- bers of the Christian majority from having face the possibility of 25 years in jail after argue that their freedom is substantially to obey anti-discrimination laws. That has entering a naval submarine base in 2018. burdened by a health-care plan, then it be- made the “religious freedom” slogan so un- In some ways, the use of religious-free- comes a bit more plausible for an altruistic popular on the left that House Democrats dom laws in left-wing causes is a mirror aid worker, or even a pacifist nun, to say introduced a bill over the winter that would image of the tactics energetically em- that freedom is being curtailed unless they limit the scope of freedom-of-conscience ployed by conservatives. By rooting suc- too are free to act on their ideals. As Brie cases to harm third parties. cessfully for the right of devout employers Loskota of the University of Southern Cali- Mr Warren is by no means the only pro- to opt out of contraceptive coverage, con- fornia puts it: “Conservatives have turned gressive hero invoking religious liberty in servatives have loosened the accepted religious freedom into a super-right that court. The Clinton law is also being cited by meaning of the term “substantial burden” undermines all others…their new idea is seven left-wing Catholic activists from the and reduced the onus of proof. that an individual conscience can override anti-nuclear Plowshares movement, who If the pious owners of a corporation can absolutely anything.” 7 Financial Era Advisory Group The Economist June 15th 2019 United States 37

gressively) that would bypass Congress. The second way, which would require leg- islation, is through $1.7trn in federal fund- ing for what Mr Biden calls a “Clean Energy Revolution”. There are other proposals in there too, like developing high-speed rail and reforming zoning to encourage more dense, energy-efficient cities. One innovation is to threaten tariffs on countries without adequate environmen- tal policies. America accounts for 15% of the world’s greenhouse-gas emissions. China accounts for nearly twice that. Mr Bi- den’s language on this point—he says he wants “strong new measures to stop other countries from cheating on their climate commitments”—sounds almost Trum- pian. Given that Mr Biden is the clear front- runner for the nomination, this perhaps paves the way for a future attack on the president for focusing his trade actions on the wrong problem. Climate change is a Environmental policy more serious problem for America’s future than illegal immigration or bilateral trade Green New Democrats deficits, Mr Biden could credibly argue. Ms Warren’s plan has a Trumpian echo, too: it was released under the banner of “economic patriotism”. It represents, ac- cording to her, “my commitment to a Green New Deal”—one that applies the analogy of WASHINGTON, DC wartime mobilisation during Franklin The Democratic front-runners respond to the Green New Deal, whatever it is Roosevelt’s presidency to modern times. ne of elizabeth warren’s formative them. That is second only to health care. Hers is straightforward industrial policy, Opolitical tangles, which prompted her The Green New Deal, as first proposed, calling for $2trn of investment over the move from law professor at Harvard to sen- had two problems. The first is that it was next ten years for research and develop- ator from Massachusetts, occurred in 2005 only a sketch, with handwaving in lieu of ment, with three-quarters of that vast sum over a bankruptcy reform bill. Ms Warren detail on the massive economic reorgani- spent through federal procurement. Ms was concerned about the repercussions for sation it envisages. The second is that it in- Warren thinks that all this production middle-class Americans, especially wom- cluded a gratuitous list of progressive mea- would generate 1m jobs, which would pay en, who would have a harder time filing for sures—including a federal jobs guarantee, at least $15 per hour and guarantee 12 weeks bankruptcy as a result of the bill. A particu- universal basic income and universal of paid family and medical leave. About lar target of her ire was Joe Biden, then a health insurance—that are only tangential- $100bn of the money would be spent on a senator from Delaware and one of the bill’s ly related to climate policy. Many top-tier “Green Marshall Plan”, dedicated to export- strongest backers. “Senators like Joe Biden Democratic candidates, who would no ing the clean-energy technology developed should not be allowed to sell out women in doubt balk at such sweeping changes, in America to other countries. the morning and be heralded as their friend signed on to the Green New Deal nonethe- Curiously, both proposals dodge the in the evening,” she wrote at the time. less. Yet with the release of Mr Biden’s and question of a price on carbon, whether To this day the two are seen as ideologi- Ms Warren’s plans, both less quixotic and through direct taxation or a cap-and-trade cal foes. Ms Warren appeals to the left of the more scrupulous than the earlier sketches, scheme. Though research into more cost- party, while Mr Biden has made a concerted the debate is much improved. effective technology for carbon capture effort to court moderate Democratic voters. and sequestration or solar power is helpful Yet both contenders, who are placed sec- Make America green again and necessary, a carbon price incorporat- ond and first respectively in the Democrat- Mr Biden was one of the few leading Demo- ing the negative externality of pollution ic field in YouGov’s most recent poll for The cratic contenders to resist endorsing the would seem a simple first step. Mr Biden’s Economist, have released environmental Green New Deal. He would instead release plan only nods towards the principle “that plans. The striking similarity of their his own climate plan, he said. An adviser’s polluters must bear the full cost of the car- schemes shows how the politics of climate comment that Mr Biden was seeking a bon pollution they are emitting” and says change has evolved from a niche issue “middle ground” gave rise to grumbling nothing more on the subject. Ms Warren’s among Democrats to one of great urgency. among activists that his would be a mish- plan does not mention it at all. Those who called for a Green New Deal, mash that offered carbon taxes for liberals Both candidates employ clever staffers particularly Alexandria Ocasio-Cortez, a and fracking subsidies for conservatives. who know about carbon pricing. But they first-term congresswoman from New York, In fact, Mr Biden’s plan is more ambitious. also employ strategists who note that car- can claim some credit for this change. A se- He would like the American economy to bon taxes are easily dismissed as energy ries of recent calamitous weather events— be a net-zero emitter of carbon pollution by taxes by political opponents. The lessons fires, polar vortices, hurricanes and 2050. This would be achieved in two ways, of 2010, when a Democratic effort to create floods—has also helped. In a recent You- including executive orders and actions a carbon market collapsed despite unified Gov poll 19% of Democrats said the envi- (taking Barack Obama’s playbook for cli- control of government, leading to an elec- ronment was the most important issue for mate policy and applying it much more ag- toral backlash, have been well learned. 7 https://t.me/finera

38 United States The Economist June 15th 2019 Lexington On the edge

The Southern Baptists are beset by two related fiascos: sex scandals and Donald Trump Southern Baptist officials, including several well-known pastors, had been credibly accused or convicted of abuse. These twin crises are not merely bad in themselves. They also appear to have flipped how many Southern Baptists look on their decline, turning an atti- tude of righteous stoicism into something closer to panic. Though the revivalist hopes that attended the conservative re- surgence were long ago dispelled, its enduring combination of fundamentalism and politicisation gave Southern Baptists two sorts of comfort. From the former, a hardened conviction of being heaven-bound even if the rest of society was going south; from the latter, the significant boon of presidential power every other cycle. Today’s crises have whipped both comfort blankets away. Most obviously, revelations that hundreds of women and chil- dren were abused in church camps and Sunday schools—and of- ten cruelly suppressed when they tried to protest—have made it harder for Southern Baptists to find solace in their own holiness. Especially as the revelations point to something worse than a few bad apples: they are an indictment of the institutionalised male chauvinism that the conservative resurgence helped cement. Even before the scandals broke, leading evangelical women such as Beth Moore were straining against the doctrine of “com- plementarianism” (a hoary idea of gender difference that gives orty years ago in Houston, Texas, a group of conservative pas- men the whip-hand in the home and bars women from preaching). Ftors pulled off a heist at the annual meeting of the Southern The impunity that hundreds of powerful male abusers long en- Baptist Convention that reshaped both America’s biggest Protes- joyed has made this seem even less supportable—especially as tant denomination and its national politics. Liberal Baptists, who leading complementarianists, such as Paige Patterson, an archi- had dared question the literal truth of the Genesis myth, were de- tect of the resurgence, were among those tainted by the scandals. nied leadership positions and, in due course, driven out. “Biblical “Did we win confessional integrity only to sacrifice our moral in- inerrancy” was the conservatives’ war-cry. tegrity?” asked another conservative, Albert Mohler, as the first Within months they had joined battle in the culture and politi- wave of revelations broke last year. “This is exactly what those who cal wars, too. The Southern Baptists’ hitherto nuanced position on opposed the conservative resurgence warned would happen.” abortion—they would allow it whenever a woman’s well-being The damaging effect of this on the convention’s ability to evan- was in question—became one of implacable opposition. And the gelise—in theory, its core mission—is obvious. It has also high- next year the convention’s president, Adrian Rogers, was among a lighted the pre-existing damage done by politicisation, which has throng of Southern Baptists around Ronald Reagan as he uttered made the Southern Baptists largely unacceptable to half of Ameri- the line that sealed the bond between Republicans and the reli- ca. And their contentious embrace of Mr Trump has made that sit- gious right: “I know you can’t endorse me, but I endorse you.” uation even worse, by alienating the younger and non-white evan- This week in Birmingham, Alabama, Mr Rogers’s 46-year-old gelicals they must recruit merely to tread water. Mr Greear, a successor, J.D. Greear, one of the youngest men to lead the denom- conservative theologian with the relatively moderate outlook of ination, attempted a more cautious reorientation. “We are at a de- his native North Carolina, has made increasing diversity in the fining moment regarding the future of our convention,” he told a convention a priority. Yet Mr Trump’s election, he acknowledges, vast audience of “messengers” from its 47,000 churches. has driven a “quiet exodus” of blacks from its churches. That was an understatement. The confidence that fuelled the He is at least trying to confront both crises. This week he backed 1979 resurgence is long gone. The convention’s membership of a change to the convention’s rule-book that will make it easier to 15m, concentrated in the Bible belt, is its lowest in 30 years, and expel any church that fails to respond satisfactorily to allegations falling. Half of Southern Baptist children leave the faith; annual of abuse. A guarded critic of Mr Pence’s speech last year, he also baptisms—which reached a high in the mid-1970s, when the mod- warned against cheerleading for Mr Trump. By the convention’s re- erates were ascendant—are at their lowest level in almost a cen- cent standards this is progress, albeit insufficient. tury. Worse, the convention is gripped by two mutually reinforcing crises that are both illuminating and accentuating its decline. Judge not... The first is a split over Donald Trump far more rancorous and It is unclear how much influence Mr Greear wields over the con- damaging than most non-evangelicals appreciate. At last year’s vention’s disparate parts. It is also not obvious how, in practical confab, in Dallas, Mike Pence made headlines by giving a jarringly terms, he can expect to wean his brethren off party politics without self-congratulatory speech. Less remarked on was the fact that revising the tenets of the 1979 resurgence, which he claims to sup- around 40% of his audience had voted to bar the vice-president port. So long as Southern Baptists put fighting abortion and gay from speaking at all. The second crisis is a slew of sexual-abuse rights before the acts of grace and social justice they once gave scandals that have made what is still the biggest Protestant de- equal billing to, they have only one party to support: the Republi- nomination appear as unsafe for children as the Catholic church. cans, whose shrinking, white coalition is the future they are trying Recent investigations by the Houston Chronicle and San Antonio to escape. Mr Greear can clearly see that looming cliff-edge. He just Express-News found that over the past two decades nearly 400 cannot bring himself to hit the brake. 7 Financial Era Advisory Group The Americas The Economist June 15th 2019 39

North American diplomacy decayed in the years before Mr Trump’s rise. Now both countries are again trying to Chatting over the fence court people of influence—lawmakers and governors, particularly Republican ones, as well as business groups. Mexico espe- cially is hoping that the lobbying effort will help dampen Mr Trump’s wrath if the num- ber of Central American migrants ap- LOS CABOS AND OTTAWA proaching the United States does not fall. Mexico and Canada try to bypass Donald Trump Hours before the tariff threat was lifted, few days before Donald Trump an- But the kind of work done in the Ameri- Andrés Manuel López Obrador, Mexico’s Anounced that he was not going to act on can restaurant helps, too. Many in Mexico president, gave a speech at the first-ever his threat to impose a 5% tariff on Mexico’s think their best chance of curbing Mr Summit of North American Mayors, a sea- exports to the United States, a group of Trump’s worst instincts is by persuading side talkfest in the sunny resort town of Los Mexican and American businessmen had friends who can appeal to his self-interest. Cabos. Some 120 mayors from three coun- dinner with two American politicians, one In 2017 the president reportedly reversed a tries attended the event arranged by Mar- local and one national, in a Republican- decision to terminate the North American celo Ebrard, Mexico’s foreign secretary. (Mr voting state. The Mexicans produced eco- Free Trade Agreement (nafta) on his 100th Ebrard missed his own party, as he was nomic data showing what the cost of such a day in office after his agriculture secretary, trapped in Washington negotiating.) tariff on the state and counties might be. Sonny Perdue, dashed to his office with a Such summits are popping up with The next day both politicians made public map showing that the states he won in the growing frequency. The associations of statements of concern about the levies. election in 2016 would be worst hit by its Mexican and American governors and Ca- Since June 7th, when the proposed ta- demise. nadian premiers now meet each year. A riffs were “indefinitely suspended”, the fo- In the lead-up to the introduction of meeting of Mexican and American ceos cus has been on the work done by Mexico’s nafta in 1994, Mexico and Canada paid held in Mexico in April was attended by negotiators in Washington. They agreed to American lobbying firms lots of money to Wilbur Ross, America’s commerce secre- send 6,000 national guardsmen to Mexi- woo politicians. But the “nafta coalition” tary. Last year’s elections in Mexico were co’s southern border and to host asylum- the first in which senators were allowed to seekers as they await news of their claims stand for a second term (until 2014, law- from the United States. Mr Trump later Also in this section makers could serve only one). That should claimed to have a second “secret” deal with help links between Mexican and American 40 Bello: Lava Jato in trouble Mexico, waving a sheet of paper in front of politicians to deepen over time. photographers. It appeared to show a pro- 41 Ayahuasca in Colombia In Washington, the Canadian and Mex- mise that there would be “burden-sharing” ican embassies trade tips on which Ameri- 41 Canadian basketball of processing refugees. can senators are pliable and which are te-1 https://t.me/finera

40 The Americas The Economist June 15th 2019

2 pid on trade (both worry about the lomat jokes that it is like advertising. It gets The aim for now is to ensure that Con- trade-scepticism of newly-arrived Demo- through half the time, but no one knows gress will be quick to approve the United crats). And each has painstakingly collect- which half: “You know that speaking to 20 States-Mexico-Canada Agreement, Mr ed state- and even county-level economic influential people at a time, something will Trump’s revamp of nafta. And perhaps data to be presented in one-on-one meet- work.” Canada and Mexico both share bor- some lobbying will also work its way up the ings. They pounce when lawmakers leave ders with important states that helped Mr chain to Mr Trump. But even if it does not the capital for their home states, where Trump win the presidency. Along the Mex- change his mind, this new diplomacy their schedules tend to be emptier. “If there ican border, where there are large Mexican- could also outlast the president. Efforts by is a barbecue, we’ll go there,” says one offi- American populations, not everyone North America’s regions to build links cial. Most American lawmakers are said to shares Mr Trump’s antipathy to their across borders have been “accelerated by be surprised when told how much trade southern neighbour. Mexico’s new ambas- our national leadership”, says Eric Garcetti, their district does across the Mexican and sador to the United States, Martha Bárcena the Spanish-speaking mayor of Los Ange- Canadian borders. Coqui, has visited four states won by Mr les, who will host the mayors’ summit next What is the effect of all this? One dip- Trump in her first five months. year. Those links will last. 7 Bello Lava Jato in trouble

Brazil’s gigantic anti-corruption probe could self-destruct t was brazil’s most controversial trial should it return to power. lawyers’ attempt to quash his sentence. Isince Tiradentes (“Toothpuller”) was More serious, perhaps, is the revelation Even if they succeed, the bigger picture hanged in 1792 for plotting in Minas that four days before unveiling his case still looks bad for Lula. In February he Gerais against Portuguese colonial rule. against Lula, Mr Dallagnol doubted its was convicted, on stronger evidence, of In July 2017 Sergio Moro, a crusading solidity and rejoiced when his team found receiving a country house from con- young judge, convicted Luiz Inácio Lula an old press cutting about the flat. The case struction firms; he faces another six da Silva, a popular former president, of relied heavily on the testimony, derived cases. As for Mr Moro, he had already corruption, sentencing him to nine years from a plea bargain, of the jailed construc- aroused suspicion over his motives in jail for receiving a beachside apart- tion magnate. Lula insists he never owned when he became Mr Bolsonaro’s justice ment from a construction magnate who or occupied the flat. minister. He is a hero to many Brazilians. obtained padded government contracts. Most damaging are the many messages But his position now looks untenable. This week that conviction was called into Mr Moro exchanged with Mr Dallagnol, in Mr Moro and Mr Dallagnol were cen- question after the Intercept, an investiga- which he appeared both to coach and to tral protagonists of Lava Jato, in which tive news website, published hacked chide him. The two seemed to work closely some 200 businessmen, officials and messages from Mr Moro and Deltan together. Under Brazil’s constitution of politicians have been convicted. The Dallagnol, the chief prosecutor in the 1988, judges are supposed to be neutral investigation has plenty of enemies on case, which appear to throw doubt on the arbiters. In practice, lawyers say, judges the right as well as the left. Although judge’s impartiality and the integrity of often exchange information with prosecu- many of its critics are self-interested, the prosecution. tors. That is against both the law and the others worry about the prosecutors’ use For several reasons, Lula’s situation code of judicial ethics. In such an impor- of preventive detention and plea bar- may not change much. But the sprawling tant case, Mr Moro should have known gaining. For all that, Lava Jato has broken anti-corruption investigation known as better than to break the rules. new ground in holding the powerful to Lava Jato (Car Wash) may have suffered a Neither Mr Moro nor Mr Dallagnol has account and revealing the unbearable fatal blow. The Intercept claims to have denied the authenticity of the messages, scale of corruption in Brazil. Its excesses “an enormous trove” of hacked mes- though they complain that they were should be corrected. But its enemies will sages, many of them on Telegram, an obtained illegally. That means they might now feel emboldened to ensure that encrypted communications app. In some not be admissible as evidence in Lula’s further investigations of politicians die. ways, the material published so far Mr Moro is a close student of Mani amounts to less than is claimed. Pulite (Clean Hands), an Italian anti- Lula’s conviction, and his jailing after corruption campaign in the 1990s. It a failed appeal, barred him from running ended with a counter-revolution, led by in last year’s presidential election. He Silvio Berlusconi, a prime minister and was leading in the opinion polls but was frequent target of investigation, which far from certain to win. Jair Bolsonaro, weakened judicial powers. In a study the populist eventual victor, profited published by the imf, Maria Cristina from widespread hatred of Lula’s Work- Pinotti, a Brazilian economist, notes that ers’ Party (pt) because of its catastrophic in Italy since then trust in the courts and economic mismanagement and involve- other indicators of good governance have ment in a vast web of corruption. Never- plunged—and so have productivity and theless, on Telegram the prosecutors economic growth. That is a warning for expressed alarm at the prospect of Lula Brazil, whose economy has yet to recover giving a press interview from jail. As from a slump in 2015-16, mainly because much as political partisanship, that investment remains low. Having gone so looks like self-preservation, since they far towards punishing corruption, it had reason to fear the revenge of the pt would be tragic if Brazil turned back now. Financial Era Advisory Group The Economist June 15th 2019 The Americas 41

Ayahuasca in Colombia Canadian basketball Bad trip Slam dunk, eh?

TORONTO Canadians, desperate to win something, embrace basketball CAQUETÁ rofessional basketball got off to would take the cup, which would be a Indigenous Colombians fear losing an inauspicious start in Canada. The first for a Canadian team. Fans have filled their hallucinogenic brews P first game in what would later become the19,800-seat Scotiabank Arena; tens of t is a wet evening deep in the Amazon the National Basketball Association was thousands more have camped outside. Irainforest when members of the Kore- played in1946 at Maple Leaf Gardens Canada’s usual game is ice hockey, a guaje, a tribe of indigenous Colombians, between the New York Knickerbockers sport so loved that it can provoke riots line up to receive brews of ayahuasca, a hal- and the Toronto Huskies. The rules had among a people famous for saying “sor- lucinogenic potion made from vines. They to be explained to ticket-holders. The ry” when others tread on their toes. But are handed out by taitas, or shamans, who Knicks were stopped on their way to the could basketball edge it out? have travelled in by boat along a river to game by a customs officer, who suppos- The Raptors benefit from good mar- reach the jungle. As the brew kicks in, the edly told them they would not “find keting. They appointed Drake, a rapper participants’ stomachs rumble—diarrhoea many people up this way who’ll un- who has tattoos of the Toronto area code and vomiting are the vine’s other main ef- derstand your game”.The Huskies folded 416 and the cn Tower, as their “global fects. The taitas play a harmonica tune as the next season. ambassador” in 2013. His courtside an- some people go outside in search of relief; That has not been a problem this year tics are now part of the spectacle. It also others lie back in their hammocks. The cer- for the Toronto Raptors, who became the helps that Torontonians, 46% of whom emony ends with the taitas singing to par- city’s first nba team in1995. As The Econ- are immigrants, are better reflected by ticipants and patting their backs with dried omist went to press, the team was prepar- the multiracial Raptors than the nearly- leaves. At dawn, the ground around the ing for their penultimate game of the all-white Toronto Maple Leafs, an ice shack is littered with used toilet paper. nba championship. If they win, they hockey team. The Raptors’ biggest fan is a For centuries ayahuasca has been taken turbaned Sikh who has been to every in ceremonies like this one by several home game in their 24-year history. tribes inhabiting the Amazon region. In But probably the best explanation for Colombia, consuming the brew is as much the new fandom is the sweet taste of a political symbol as a cultural rite. Under victory. No Canadian ice hockey team the country’s constitution, indigenous made the National Hockey League finals groups, who have long been persecuted by this year. The Raptors have made the cocaine smugglers and others, are entitled playoffs of the nba every year since 2014. to special rights such as collective land Kawhi Leonard, an American who joined ownership and self-governance. But given the team last year, has pushed them to that most people in Colombia have some unexpected heights. Amerindian ancestry, claiming that status According to the most recent census, is difficult. Because ayahuasca has been ice hockey is still the sport Canadians are used by these tribes since before the Span- most likely to play. Basketball came fifth. ish arrived in the 16th century, it is one of But fans with a sense of history know the few ways in which indigenous groups that it was a Canadian, James Naismith, can prove to the government that they are who invented basketball. Perhaps it is culturally distinct. Tribe members have time for the game to come home? testified in court to its importance. But now they face a new irritation: tour- ists and city-dwellers who are increasingly said to infuse the drink with borrachero, a must be approved by their community, and keen to try the potion for themselves. Some plant that contains hyoscine, a drug that promise not to scam or sexually abuse their of them are excited by studies that suggest can make people vulnerable. Reports of clients. The group hopes these measures its active component, n,n-dimethyltrypta- sexual abuse have become common. Co- will help prevent the brew from being stig- mine, or dmt, may help with addiction and lombians were shocked last month when matised or criminalised. post-traumatic stress disorder. Others just Orlando Gaitán, a popular (non-indige- But Alhena Caicedo, an anthropologist want a trip. nous) shaman and a celebrated peace activ- at Los Andes University in Bogotá, says it The new trippers create demand for hal- ist (his organisation won the Swedish will be hard to stop people from selling aya- lucinogenic services. Many new ayahuasca Right Livelihood Award in 1990) was found huasca. Most are extremely poor and lack shamans have started touring Colombia guilty of sexually abusing three under-age other skills. The more money there is to be giving yagé (another term for the brew) to girls. At least one foreign tourist has died made, the harder it will be to enforce the enthusiasts. They charge anything up to after taking part in a ceremony. code, which has no legal status. Ms Caicedo 200,000 pesos ($60) for ceremonies that Without ayahuasca tribes are “nothing”, worries that if ayahuasca’s popularity con- gather up to 100 people. New shamans are says Ernesto Evanjuanoy, the president of tinues to spread, it could follow the same modifying the traditional ayahuasca ritu- umiyac, an organisation created by elders trajectory as coca, the plant used to make als. Insensitive backpackers can now com- and medicine men from the five tribes cocaine. Coca was once also considered sa- bine it with distinctly non-Amazonian In- most closely associated with the halluci- cred by certain Colombian indigenous dian elements, such as sweat lodges (North nogen, who are uncomfortable with its use tribes. But as cocaine consumption rose American Indian) or yoga (Indian Indian). by others. In an effort to take back control, and cartels started killing people, the tribes Commercialisation is giving ayahuasca umiyac has created a code of ethics around lost control of the plant. Anyone growing a bad reputation. Some dodgy shamans are the use of ayahuasca. Member shamans coca today is treated as a criminal. 7 https://t.me/finera 42 Middle East & Africa The Economist June 15th 2019

Crisis in Khartoum are shuttered. Wild dogs roam Khartoum’s normally bustling streets. Sudan on the brink Talks between the junta and the protes- ters broke down last month when it said it would not allow civilians to lead a transi- tional government. Relations have wors- ened further since the massacre, which the generals blamed on criminals and “organ- KHARTOUM AND ADDIS ABABA ised groups paid by certain parties”. Inter- A struggle for power between the army and militias could lead to civil war national mediators including Abiy Ahmed, amahir mubarak, a 29-year-old phar- accept military rule now?” Ethiopia’s prime minister, have tried to Smacist, points to a television in the cor- There is little open rebellion. Most peo- broker peace. But trust in the junta was fur- ner of her living room. On the flickering ple stay at home, afraid of the Rapid Sup- ther undermined when it arrested several screen a presenter warns viewers not to port Forces (rsf). This paramilitary group opposition leaders a day after they had met pick up the weapons that litter the streets of perhaps 30,000 men, which is rampag- with Abiy. of Sudan’s capital, Khartoum. “Peaceful, al- ing through the capital, grew out of the Jan- The mixed signals coming from the ways peaceful,” urges the presenter of “Su- jaweed, a genocidal militia that has terror- junta—negotiating one day and making ar- dan of Tomorrow”, a new tv channel. ised Darfur for two decades. On June 9th rests the next—may reflect splits within it. For Ms Mubarak, the channel is a source security forces ransacked the University of The main fracture line is between generals of hope. She is an organiser of the peaceful Khartoum and killed at least four of the few in the regular armed forces and Muham- protest movement that prompted the army protesters brave enough to man the re- mad Hamdan Dagalo (widely known as He- to oust Sudan’s murderous dictator, Omar maining barricades. A strike called by the medti), who controls the rsf. Although the al-Bashir, in April. On June 3rd, however, opposition has paralysed the city. Nearly junta is headed by Abdel-Fattah Burhan, an security forces killed more than 100 peace- all shops, restaurants and small businesses army general, power has steadily shifted ful demonstrators, including 19 children. towards Mr Dagalo, his deputy, whose mili- Since then, the capital has been in lock- tiamen are now riding around the capital down. The internet has been switched off Also in this section in gun trucks. and hundreds have been arrested. Many ac- The rsf’s brutality may be Mr Dagalo’s 43 Abusive schools in Senegal tivists have gone into hiding. Television, undoing. Many officers regard it as an ill- Ms Murabak explains, is now one of the few 44 Media freedom in Nigeria disciplined mob. Residents of the capital, ways to mobilise people against the Transi- who weeks ago cursed the army, now look 44 Gay rights in Africa tional Military Council, the junta that re- to it for protection from the “Janjaweed 2”, placed Mr Bashir and is refusing to hand 45 Iraqi Kurdistan as they have dubbed the rsf. “We need a power to civilians. “If you look at people’s military presence on the streets,” says a 46 Investing the Gulf’s riches faces there is anger,” she says. “How can we nervous businessman. “If they left we’d be 1 Financial Era Advisory Group The Economist June 15th 2019 Middle East & Africa 43

2 another Libya.” Religious schools in Senegal Some think further atrocities by the rsf could spark fighting with the army. If that Chained to tradition were to happen the rsf would “loot and shoot and kill anything”, says a un official. “No creature will be spared, not even a don- key.” Those who can have quietly begun leaving the country. There are also grumblings in the Na- SAINT-LOUIS Thousands of children are abused and forced to beg in religious schools tional Intelligence and Security Service, which had remained faithful to Mr Bashir bar lifts up his trousers and points port by ppdh, a coalition of Senegalese until the end. Its leader, Salah Gosh, re- Mat the marks where the chains wore rights groups, and Human Rights Watch in signed shortly after the coup. It is not clear his skin away. He was 11 when his father New York, documents some of the abuse where the spies’ loyalties now lie, but they sent him from his village to a religious suffered by the estimated 100,000 children are thought to loathe the rsf for its betrayal school on the outskirts of Senegal’s holy who are forced to beg. of Mr Bashir, who used to call Mr Dagalo city of Touba. His teacher made him recite Isolated and far from home, dozens of “Hemayti” (“my protector”) and who ele- passages from the Koran in the morning. boys sleep in filthy rooms. They are given vated the rsf into a praetorian guard. “The Then Mbar (not his real name) was sent out just enough food to survive. If they fail to leader right now should be from the army,” to the streets to beg for money for his mas- meet their begging quota of about $1 per says a former intelligence official. ter until night fell. If he misbehaved, he day, or try to escape, they may be beaten, Yet even the generals are divided about was beaten or starved. starved or chained for weeks at a time. how to pull back from the brink of chaos. After two years Mbar ran home. But his Many are sexually abused. According to a Many think that a political settlement with father sent him to another school. This psychologist at Samu Social, a centre work- protesters is the junta’s best hope of gain- time he was not made to beg. Instead, he ing with boys in Dakar, many children try ing legitimacy and forestalling a civil war. was chained to a wall. “I couldn’t move. to kill themselves or hurt themselves delib- But “there are elements within the junta They used to bring me a bucket to pee in,” erately so they will need medical attention which want to turn back the clock” and im- says Mbar, in a cracked voice. and can get out of the daaras. From 2017 to pose military rule “based on coercion not Senegal is one of Africa’s more success- 2018, researchers recorded at least 16 inci- consent”, says Murithi Mutiga of the Inter- ful countries. It is peaceful. Its government dents in which children died from beat- national Crisis Group, a watchdog. functions relatively well and the economy ings, neglect or poor conditions. International pressure may help con- is growing at 7% a year. But along the old vince them otherwise. On June 6th the Afri- boulevards of Dakar, the capital, thousands Suffer the little children can Union suspended Sudan until the gen- of talibé—the “seekers” attending nearby Most of the boys come from farms or vil- erals give way to a civilian-led government. religious schools—beg for change. Some lages in Senegal, but some are also traf- America has sent Tibor Nagy, its senior dip- boys are as young as four. Many families ficked from the Gambia, Guinea Bissau and lomat for Africa, to Sudan and has asked send their sons to such schools, or daaras, Mali. Agents go to rural areas and promise the junta’s main backers—Egypt, Saudi where they memorise the Koran. Some do parents that the boys will study at the best Arabia and the United Arab Emirates so for religious reasons but, for many, daa- religious schools in Senegal. The costs for (uae)—to use what influence they have to ras offer the only opportunity for children the traffickers are minimal. They pay bor- restrain the generals. Perhaps in response to get a basic education. Many marabouts, der guards about $1a child to smuggle them to the pressure, on June 12th the army said or religious teachers, respect children’s in from Gambia, says Issa Kouyaté, who it would release political prisoners. The op- rights. And begging has long been accepted runs Maison de la Gare, a talibé shelter in position movement called off its general as a way of teaching talibés humility and Saint-Louis, a city in northern Senegal. strike in order to resume talks. funding their education. Government officials have repeatedly But there is little common ground. The But the system is almost completely un- pledged to deal with the problem, but their generals still insist on having a military regulated, and rackets flourish. A new re- attempts have been half-hearted. The daa-1 man in charge of the interim government. Leaders of the protest movement are de- manding an international investigation into the massacre. They also want rsf troops to withdraw from Khartoum and other cities. Some, like Ms Mubarak, say no transitional government can include any of those responsible for atrocities. One thing that ought to unite generals and opposition is that the longer the stale- mate continues, the greater the risk of a civil war. That would not only be disastrous for the country, but could also suck in out- side powers such as Qatar and Turkey, which have lost influence since the fall of Mr Bashir, or Iran, which has proved adept at filling vacuums. Alex de Waal of Tufts University likens Sudan’s situation to that in Yemen, where regional powers have fought a proxy war since 2015. They could, he suggests, “do to Sudan what they’ve done to Yemen”. 7 Isolated and far from home https://t.me/finera

44 Middle East & Africa The Economist June 15th 2019

2 ras are powerful and the marabouts can in- fluence the way people vote in elections. Politicians compete for their support. In 2013 a law setting minimum stan- dards for daaras was drafted. It has yet to be passed by parliament. In 2016 President Macky Sall spoke about taking the children off the streets and jailing those who forced them to beg. But official figures show that only about 300 children were helped in 2018. Children often beg openly outside po- lice stations. The marabouts who abuse them rarely face justice. All this may be storing up trouble for Senegal. “You have a large population of impoverished, abused children, isolated away from their families. I can’t think of a more perfect target population for crimi- nals,” says Jeffrey Bawa of the United Na- tions Office on Drugs and Crime, a un agen- cy, adding that the boys were also likely to be future targets for jihadist recruiters. Mbar was chained to the wall for a Gay rights in Africa month. An older, stronger boy kept the keys for the chains in his robe and disci- plined the children when the marabout was Love and the law away. One night he left his robe on the floor near Mbar, who found the keys and un- Botswana’s courts legalise gay sex locked himself from the wall. He couldn’t find the key for the chains around his an- n zimbabwe “sodomy” can land you in enforced, they leave people open to kles but it was enough. He jumped out of Iprison for a year. In Zambia “carnal extortion and abuse. the window. Strangers helped him out of knowledge against the order of nature” Anti-gay laws also reinforce a culture his chains and took him to a shelter in Da- could mean seven or more years behind of intolerance in many countries. In May kar. After almost a year of eating good food, bars. Uganda passed a law in 2013 pun- religious conservatives rejoiced when he is beginning to grow again and dreams ishing gay acts with life imprisonment, Kenya’s High Court upheld a law that of becoming a footballer. 7 though a court later struck it down. criminalises gay sex. Judges found that it Botswana’s high court decided that did not violate a constitutional guaran- such laws “deserve a place in the muse- tee of freedom from discrimination, Media freedom in Nigeria um or archives and not in the world”. though it plainly discriminates against Judge Michael Leburu, who read out a gay people. (Kenya’s constitution also Don’t gag me unanimous verdict when the court promises everyone “adequate housing”, struck down the country’s ban on gay so perhaps the framers did not expect it sex, said: “It is not the business of the law to be taken literally.) to regulate private consensual sexual Botswana is a conservative place, too. encounters.” This ruling follows the Hereditary chiefs advise parliament, LAGOS unbanning of gay sex in Angola in Janu- rather like hereditary lords do in Britain. Journalists and the opposition say that ary and in Mozambique in 2015. So far, But views about gay people are evolving. free speech is under attack South Africa is the only sub-Saharan Discriminating against them at work has igeria’s president, Muhammadu Bu- country that allows gay marriage. been illegal since 2010—despite the ban Nhari, once described press freedom as a However, gay people are still perse- on their bedroom activities. And younger “sound democratic ideal”. At the time he cuted by law in more than 30 African people in Botswana are more tolerant was on the presidential campaign trail, countries. In some, such as Sudan and than their elders. Some 76% of 50-64- keen to prove himself a democrat and to Somalia, their love is punishable by year-olds would object to a gay neigh- jettison the baggage of his 20 months as death. Although such laws are seldom bour; only 48% of18-29-year-olds would. military ruler in the 1980s. He told bosses of media companies that, if elected, he would uphold the constitution and respect free- ment”. Within 24 hours they were back on ging rule imposed by Mr Buhari when he dom of speech. air after a federal high court overturned the was a military ruler. It criminalised the Four years on—and just weeks into his suspension. publication of “any message, rumour, re- second term in office—that promise is Mr Buhari has not commented, but one port or statement” that brought the govern- wearing thin. Earlier this month the Nige- of his aides praised the blackout. “Kudos to ment or any public officer “to ridicule or rian Broadcasting Commission (nbc) the nbc,” she tweeted. Mr Buhari’s suppor- disrepute”—ie, any journalism feistier switched off transmission from Nigeria’s ters insist the suspension had nothing to than a weather report. oldest private television channel and from do with politics. Critics note that the head Nigeria has vibrant and critical media. radio stations owned by Raymond Dok- of the nbc, who was appointed by Mr Bu- And unlike several other African leaders, pesi, a member of the opposition People’s hari, is a member of the ruling party. Mr Buhari has never tried to shut down the Democratic Party, for “inciting broadcasts The brouhaha is an uncomfortable re- internet to silence critics. But repression is and media propaganda against the govern- minder of Decree Number 4, a media-gag- on the rise. The Nigerian Guild of Editors 1 Financial Era Advisory Group The Economist June 15th 2019 Middle East & Africa 45

2 called the closure of the stations a “barbar- cation. The Committee to Protect Journal- three years. Flush with cash, families pack ic crackdown” on free speech and pointed ists, a watchdog in New York, has also re- restaurants and malls. Payments have re- out that the government has closed several corded multiple instances in which sumed to contractors. Workers are again other radio and television stations over the security forces have beaten and arrested building motorways. Kurdistan’s airspace past year. In January soldiers raided the of- journalists, including an attack on a re- has reopened. Threats by the national gov- fices of one of the country’s leading news- porter by police on June 5th. ernment to take control of Kurdish border papers, the Daily Trust, and arrested report- The lyrics of a musician Mr Buhari’s old crossings (and impose its convoluted visa ers. In March a journalist who had military regime once jailed, the late Fela process) never materialised. Trade with previously been held without access to a Kuti, still resonate as powerfully as ever. Iran, Turkey and north-eastern Syria, lawyer for two years was rearrested. In both “Je’nwi temi” (“Don’t gag me”), he crooned which is held by Syrian Kurds, is flourish- cases, national security was cited as justifi- in Yoruba. 7 ing. Although the central government took control of Kirkuk and its oilfields, it ex- ports much of the black stuff via the krg’s Iraqi Kurdistan pipeline, paying transit fees. The Kurds played a big role in repelling Comeback Kurds Islamic State (is) in 2014-16, seeing off 16 as- saults by the jihadists on Kirkuk. But at- tacks by is in and around the city are in- creasing again—and the national security forces are again looking to the Kurds for help. The Kurdish Asayish, or gendarmes, KIRKUK have kept their bases and are reviving their Two years after a disastrous referendum, the Kurds in Iraq are prospering again networks in the city; one of its command- he monitor recording the descent of a ers says he leads 2,000 men. In northern Tdrill beneath the green hills of Khor Kirkuk, it is as if the Kurds never left. Shop- Mor, in Iraqi Kurdistan, flashes 3,044—or fronts are painted with Kurdish flags. just over 3km. In a caravan next to a roaring Kurds in the city complain of Arabisation, derrick a Canadian oilman and his team but a huge statue of Jalal Talabani, a Kurd- from Crescent Petroleum, a company ish leader and former president of Iraq, based in the United Arab Emirates, watch who died in 2017, still rises out of the hills for the first signs of gas. Other wells in the above the northern entrance to the city. area are already meeting 80% of the elec- The Kurds have become good at playing tricity needs of Kurdistan. Capacity at an off regional rivals against each other. Iran adjoining processing plant is set to double. and Turkey, which vie for influence in Kur- The Kurds could begin supplying the rest of distan, have encouraged their merchants Iraq with gas by next year, says Falah Mus- to return. Sanction-squeezed Iran needs tafa, the foreign minister for the Kurdish outlets for exports; its oil trucks cram the Regional Government (krg). Exports of gas roads of Iraqi Kurdistan. But America also to Europe via Turkey could follow in 2022. sees the Kurds as a potential ally in its cam- Such confidence signals an about-turn paign to squeeze Iran, just as they were an for Iraq’s Kurds, who enjoy relative autono- ally in the battle against Saddam Hussein, my from the rest of Iraq. In 2017 the en- Iraq’s former dictator, and is. clave’s leaders reached for more, recklessly For all the optimism, Kurdistan still holding a referendum on independence, faces challenges. Economic ties with the which passed overwhelmingly. The central rest of Iraq are not what they were before government in Baghdad responded by the referendum. A chicken farmer says his booting Kurdish militias, known as the sales inside Iraq, which fell by over half Peshmerga, out of oil-rich Kirkuk. It ended after the referendum, have only slightly re- budgetary support for the regional govern- Where there’s Kurds there’s a way covered. Foreigners are returning to Kur- ment and, with the help of Turkey and Iran, distan—but in smaller numbers. The gov- closed its airspace and some border cross- harmony with each other from now on,” ernment still wastes money on a bloated ings. Western leaders abandoned the said the president, from a podium fes- bureaucracy. Corruption is a problem. The Kurds; foreigners fled the region. Masoud tooned with Iraqi as well as Kurdish flags. Barzani and Talabani dynasties continue to Barzani, Kurdistan’s humiliated president, The Kurds owe their comeback, in part, dominate Kurdish politics, which would resigned and left a power vacuum. Inde- to the national elections held last year. benefit from fresh faces. pendence did not happen. Turnout was low and the Kurds did well, Even though relations have improved, But, like its gas, Kurdistan is rising. On becoming kingmakers in the new parlia- there is lingering distrust between the cen- June 10th politicians from the central gov- ment. They helped Mr Abdul-Mahdi, who tral government and the krg—for good ernment converged on Erbil, the Kurdish had fought with the Peshmerga in his reason. The Kurds have not stopped dream- capital, for the inauguration of Nechirvan youth, to become prime minister. In return ing of independence. Arabic is Iraq’s offi- Barzani, Masoud’s nephew, as the new Mr Abdul-Mahdi made Fuad Hussein, a cial language, but it has been three decades president of the krg. Turkey and Iran sent close adviser to Masoud Barzani, his fi- since it was properly taught in Kurdish representatives. Kurdish opposition politi- nance minister and restored budgetary schools. Courts refuse to accept Arabic doc- cians, who protested against the govern- support for the region (amounting to over uments without a Kurdish translation, says ment’s poor handling of the situation in 12% of the central government’s budget). a businessman. Officials refer to the refer- 2017, will join the new government. Iraq’s Lately Kurdistan’s economy has been endum as a step towards independence. “It prime minister, Adel Abdul-Mahdi, con- booming. In March public employees re- is our title deed for a state,” says an official. gratulated the younger Barzani. “Let’s have ceived their full salaries for the first time in “We will never give it up.” 7 https://t.me/finera

46 Middle East & Africa The Economist June 15th 2019

The Gulf large chunk of London, including the Har- rods department store. A subsidiary owns Sovereign wealth, sovereign whims the Paris Saint-Germain football club. Lately its investments have taken on a political tinge. Last year it secured a 19% stake in Rosneft, a Russian energy giant. The emir also pledged to invest billions in Turkey (though Qatar has not yet done so). MANAMA AND DOHA Both countries are important partners. Gulf sovereign-wealth funds are growing more ambitious Russia’s military intervention in Syria decade ago, few people in Silicon Val- made it a power in the region. Turkey has Aley had heard of Uber or the Public In- An embarrassment of riches troops stationed in Qatar. No one ques- vestment Fund (pif). The former had not Selected Gulf sovereign-wealth funds tions these deals. The chairman of qia and provided its first ride. The latter, a Saudi Assets under management, $bn his deputy are relatives of the emir. sovereign-wealth fund, was a small entity 800 Bahrain and Oman lack the oil and gas with investments in local industry. But wealth of their neighbours, and their hold- when the ride-sharing firm went public in UAE (ADIA) 600 ings are an order of magnitude smaller. But May the pif was among its five largest they seem determined to use them as tools shareholders. It had bought a 5% stake in Kuwait (KIA) to modernise their economies. Bahrain’s Saudi Arabia 400 2016 when Uber was valued at $49 per (PIF) fund, Mumtalakat, was founded in 2006 share. It started trading at $42. On paper, with 8bn dinars ($21bn) in assets. Its early Saudi Arabia took a $200m loss. Qatar (QIA) 200 investments were domestic. It bought a The world’s sovereign-wealth funds UAE (Mubadala) stake in Gulf Air, the state telecoms firm control $8trn in assets. More than a quarter 0 and other national champions. Just 3% of of that is held by four Gulf countries: Ku- 2007 09 11 13 15 17 19 assets went abroad. Today the figure is wait, Qatar, Saudi Arabia and the United Source: Sovereign Wealth Fund Institute 30%. Instead of risky tech firms, it focuses Arab Emirates (uae). In decades past this on companies offering services such as was a dull business. The Saudi central bank education and health care. It hopes to con- parked the nation’s oil wealth in Treasury more than smooth the flow of revenue aris- vince some to open regional offices in Bah- bonds and other low-risk, low-return as- ing from bumps in commodity prices. rain, which positions itself as a services sets. Kuwait had one of the first stand- Now, they are being given more ambitious hub for the Gulf. alone sovereign-wealth funds. It too in- goals. The princes who call the shots in the Other Gulf states are making similar at- vested in bonds and blue-chip companies. Gulf want to make their countries’ savings tempts at state-directed capitalism. Abu No longer. All six Gulf sovereign-wealth work much harder. Others fret that the Dhabi’s Mubadala has made big invest- funds are growing more adventurous. A princes themselves are part of the pro- ments in renewable energy, building solar few act like venture capitalists. Others use blem—that tens of billions of dollars and wind farms across the country. A their billions to cement political alliances. should not change hands on a royal whim. $200m subsidiary of Oman’s main sover- The rest are trying to give a leg-up to local Saudi Arabia is the most aggressive risk- eign-wealth fund wants to bring high-tech businesses and industries. taker of the lot. Though the central bank firms to the sultanate. “The agenda is to de- Gulf economies need to modernise and still holds $500bn in assets, it is being velop the local ecosystem, not just to have diversify away from oil and gas. Saudi Ara- eclipsed by the pif, a pet project of the capital flow to Britain or America,” says Ali bia, especially, needs to create good jobs for crown prince. Five years ago the fund had Qaiser, an Omani venture capitalist. its swelling number of underemployed $84bn under management. Today it has All could do well to look at the world’s citizens. Sovereign-wealth funds can help. $320bn. It has become an unexpected pa- wealthiest sovereign, Norway, which man- Some were originally set up to do little tron of Silicon Valley, with big stakes in ages about $1trn in its oil-surplus fund. Tesla and Lucid Motors, a rival electric-car Parliament oversees its investments. A re- manufacturer, as well as Virgin Galactic cent decision to dump oil and gas stocks and Magic Leap, a maker of virtual-reality and pour money into renewables was the headsets. Another $45bn went into a high- subject of long public debate. tech fund managed by SoftBank, a Japanese Funds in the Gulf lack such transpa- conglomerate. These deals could be lucra- rency. Some do not even publish regular fi- tive—if the firms ever turn profits. Uber nancial statements. Each is controlled by a never has. The tie-up with SoftBank made few officials close to the monarch. Qatar the kingdom an investor in WeWork, a has bought assets that look more like van- property startup that is posting huge losses ity projects than sound investments. Saudi as it pursues rapid growth. Arabia may regret gambling on tech firms Qatar, by contrast, seems to use its fund beset with regulatory and managerial pro- as an adjunct to diplomacy. It has a tiny blems. Khadem al-Qubaisi, the former di- population and the world’s third-largest rector of an Abu Dhabi fund, was arrested gas reserves, so its rulers worry little about for his dealings with 1mdb, a defunct Ma- short-term investment returns. “We don’t laysian development fund that was a cess- have unemployment. All Qataris can find a pit of corruption. job,” says Ahmed al-Sayyed, a former direc- Governments in the Gulf urge citizens tor of the Qatar Investment Authority (qia), not to worry about the future: when oil and which holds $1m in assets for each of the gas revenue stops flowing, sovereign- emirate’s 300,000 citizens. wealth funds will pick up the slack. Those In its early days it ploughed money into promises mean little if the funds are run swanky investments in Europe: qia owns a like personal fiefs. 7 Financial Era Advisory Group Asia The Economist June 15th 2019 47

Also in this section 48 The trade in recyclable waste 48 Saying Japanese names correctly 49 An election in Kazakhstan 49 Power generation in South Korea 50 Banyan: Australia’s nanny state

Indian politics an impressive 92m toilets. His new govern- ment’s laudable first promise is to follow Costume drama this up by bringing safe, piped drinking water to every Indian home by 2024. As a start, it has merged a handful of agencies and ministries dealing with water. Mr Modi’s new minister of finance, Nir- mala Sitharaman, has started off with a DELHI broom, sweeping 12 top bureaucrats out of What will Narendra Modi focus on in his second term? the tax administration and inviting wider arendra modi, India’s prime minis- minister, Amit Shah. public consultation on the budget, which Nter, famously wears a different hat for Tireless as Mr Modi, Mr Shah has for de- is due to be released in July. The ministry every audience, from feathered head- cades been a close henchman and enforcer. has won plaudits over the past five years for dresses to towering turbans. He adopts dif- As president of the bjp he greatly strength- relative fiscal probity and for bringing in a ferent personas, too: a hug-happy uncle on ened party numbers and discipline, and is long-awaited national goods-and-services trips abroad, a finger-wagging prosecutor widely credited as the organisational ge- tax (gst) to replace a web of local duties. against critics, a pious ascetic for the reli- nius behind the party’s electoral success. But it remains unclear whether Ms Sithara- gious, a chowkidar (watchman) to please Mr Shah’s new job, with oversight of do- man, a former bjp spokesperson who most law-and-order nationalists. Now, after a mestic intelligence and police, confirms recently ran the defence ministry, has the landslide election that gave him an even his standing as second-in-command. He understanding or her bureaucrats the will stronger mandate than in his first five-year will take a hard line on unrest among Mus- to sweep away a clutter of other tax rules term, Indians are wondering which of lims in the seething state of Jammu & which, among other things, discourage these guises will prove to be the real Mr Kashmir and has promised a nationwide employers from adding workers or proper- Modi. With no looming elections to dis- register of citizens to root out illegal immi- ly registering them, punish savers and im- tract, and the opposition crushed, he can grants, whom he labels “termites”. pose unduly tangled compliance require- do whatever he likes. ments on even small businesses. Judging from his ministerial picks, Mr Power play An early test will be whether the govern- Modi intends to be even more hands-on The new government has signalled plans to ment can simplify the gst and reduce rates. than before. Coalition partners of his Bha- build on some of Mr Modi’s first-term suc- If it wanted to succour the moribund con- ratiya Janata Party (bjp) had hoped for top cesses. During the campaign Mr Modi struction industry, for example, it could posts. But Mr Modi owes them nothing: he claimed to have brought electricity to all lower the tax on cement from 28%, as well won a parliamentary majority without 600,000 of India’s villages; the next step is as slash heavy fees for property registra- them. So his bulging 57-person govern- to make it work around the clock. He will tion. Corporate debt presents another chal- ment consists largely of loyalists from his also bolster vote-winning social pro- lenge: just as a $150bn accumulation of bad own party. Many of the new ministers are grammes, such as cash handouts to farm- debts in the banking system peaked and provincials with little experience of Delhi. ers and a broadening of health insurance began to decline last year, the debts of other The big exceptions are his new foreign for the poor. sorts of finance firms ballooned danger- minister, Subrahmanyam Jaishankar, a ca- Mr Modi’s personal pledge to eliminate ously. Mr Modi’s government has until now pable career diplomat, and the new home “open defecation” spurred the building of reacted slowly and hesitantly to this mess, 1 https://t.me/finera

48 Asia The Economist June 15th 2019

2 hoping that injections of fresh capital at ban planners or financial experts. Mr Modi Japanese names state-owned banks, lower interest rates has made a first chink in this system by al- and rapid economic growth would help to lowing for contract employment of a limit- Flipping out paper over the disastrous lending. But this ed number of specialists. But there is a long week Arvind Subramanian, a former advis- way to go. er to Mr Modi, released a paper suggesting On other big issues, such as the choking that the economy has been growing much air pollution that afflicts northern India, or more slowly than official data say (see Fi- the water mismanagement that has led to TOKYO A chrysanthemum by any other name nance section). That suggests that more dangerous shortfalls across the country, would smell as sweet vigorous action may be needed. the government has been less than impres- For a prime minister with so resound- sive. Some of Mr Modi’s ministers have he world calls the leader of China Xi ing a mandate, Mr Modi has proved sur- done incremental work to address pollu- TJinping. His North Korean counterpart prisingly shy about another pressing issue: tion, but others dismiss complaints as ex- is known as Kim Jong Un. The man who led administrative reform. India is peculiar in aggerated. Even as the government talks of North Vietnam to independence is almost having a hugely fussy but remarkably skin- bringing clean water to every home, it also always dubbed Ho Chi Minh. In all three in- ny and understaffed bureaucracy. Around a suggests linking all India’s big rivers with a stances, the surname comes first, and then quarter of central government positions series of canals, to the horror of environ- the given names, as is customary in China, are vacant at any given moment. Top bu- mentalists. India’s problems are as varied Korea and Vietnam. That is the custom in reaucrats are shunted between posts at be- as Mr Modi’s hats. Only by concentrating Japan, too. Yet English-speakers refer to the wildering speed. Rules rarely allow for the less on appearances and more on actions Japanese prime minister as Shinzo Abe, hiring of outside brainpower, such as ur- will he get to grips with them. 7 rather than Abe Shinzo. Why the inconsis- tency, asks Japan’s foreign minister, Taro Kono—or rather Kono Taro, as he would Recycling like to be known. He says he plans to ask foreign media to start conforming to Japa- Refusing refuse nese practice. The oddity that upsets Mr Kono does not stem from the West attempting to im- South-East Asia is fed up with foreign waste pose its norms on Japan. When Matthew here is no point collecting recy- her government would be sending back Perry, an American naval officer, forced Ja- Tclable waste unless someone is will- 3,000 tonnes of foreign plastic. Much of pan to end its self-imposed isolation in ing to buy it and actually do the recy- it was of poor quality, she noted, and 1854, he had no qualms about referring to cling. Until late 2017 China was the hence unrecyclable. the Japanese officials he was threatening as world’s biggest importer of scrap by far. Thailand plans to ban plastic-waste they referred to themselves. Instead it was This made sense. Like most other forms imports by 2021. Vietnam’s government local elites who, after the Meiji Restoration of manufacturing, recycling is cheaper has similar ideas. Kate O’Neill of the of 1868, when Japan was rapidly modernis- there. Moreover, Chinese factories con- University of California, Berkeley, reck- ing by imitating Western institutions and sumed lots of the resulting plastic and ons these bans are motivated not only by mores, took it upon themselves to reverse pulp, whereas developed economies, environmental concerns but also by the order of their names for foreign con- which tend to be net importers of goods, pride: Asia does not want to be the sumption. The intention was to disasso- had plenty of plastic bottles and card- world’s dumping ground. ciate Japan from the rest of Asia and signal board boxes to spare. It also helped that Rodrigo Duterte, the president of the its advanced status to Westerners. shipping to China was cheap, since ships Philippines, recently threatened to go to Mr Kono is no nationalist firebrand. He would often otherwise return to the war with Canada if it did not take back a speaks fluent English and is hearteningly country with empty containers. shipment of plastic scrap. Canada agreed open-minded. Indeed, the cause is not All this came to a halt when the Chi- to take it away, and Mr Duterte stopped really a nationalist one: even at the height nese government banned the import of blustering after an election had passed. of Japanese expansionism during the sec- all but the purest scrap material in 2017, All the same, rich-world exporters might ond world war, Japanese stuck to the con- killing a trade worth $24bn a year. Waste want to start work on Plan C. vention he is now challenging. The cabinet dealers in the rich world had to scramble and the wider population are split on the to find new buyers. South-East Asia soon issue. Some organisations, such as Japan’s emerged as the pre-eminent destination Waste not national football team, already put family for foreign waste. Unfortunately, the South-East Asia*, monthly imports of plastic names first in English. region’s recycling industry is much waste from America and the EU, $m The debate is an illustration of Japanese smaller than China’s; its processing 50 culture’s unique, and sometimes awkward, plants were quickly overwhelmed. Plas- blend of east and west, which stems not tics from America and Europe have piled 40 only from the Meiji era but also from the up in landfills. Lots of toxic rubbish has American occupation after the second simply been torched. 30 world war. The Japanese love both baseball South-East Asian governments are and shogi (Japanese chess); sushi and 20 not pleased. They have begun to ban or doughnuts. Mr Kono argues that the switch crimp imports themselves, abruptly 10 to indigenous practice should occur in diminishing a booming business (see time for an impending series of showcase chart). On May 28th Yeo Bee Yin, Malay- 0 events including the Olympics, which To- sia’s environment minister, complaining 2003 05 07 09 11 13 15 17 19 kyo is hosting next year. But others would that “garbage [was] being traded under Sources: Eurostat; US Department *Indonesia, Malaysia, argue that Japan’s relaxed and largely un- the pretext of recycling”, announced that of Commerce; The Economist Philippines, Thailand, Vietnam selfconscious blending of foreign and local customs should be the main exhibit. 7 Financial Era Advisory Group The Economist June 15th 2019 Asia 49

(who was already interim president) is part Power generation in South Korea of an experiment that Mr Nazarbayev has dreamt up for his country, untested else- A muddy future where in the post-Soviet world. In an ap- parent effort to secure his legacy, he has handed over power to a chosen successor while still alive. Some speculate that Mr To- kayev is merely a seat-warmer for Mr Na- SAEMANGEUM The government wants greener energy. zarbayev’s daughter, Dariga Nazarbayeva, Who will pay for it? who presides over the Senate. Either way, Kazakhstan’s 78-year-old tanding in the middle of a huge coast- founding father is micromanaging the Sal mud flat, Moon Jae-in, South Korea’s transition. Mr Tokayev, 66, is a Soviet-era president, announced in October the be- apparatchik who became foreign minister ginning of “a new 1,000-year energy his- and prime minister after Kazakhstan be- tory” for his country. Behind him stretched came independent. His diplomatic skills a field of solar panels; a large windmill should help him juggle relations with Kaz- loomed in the background. The area, called akhstan’s mighty neighbours, Russia and Saemangeum, was dammed with the China, as well as the West—a trick Mr Na- world’s largest seawall under a previous An election in Kazakhstan zarbayev managed with great dexterity. administration. Mr Moon wants it to be- But it is at home that Mr Tokayev will come home to wind farms and solar plants Old problems, no face his greatest challenges. Mr Nazar- capable of generating 4gw of power, to give bayev’s resignation has spurred some of South Korea a “brighter future”. solutions Kazakhstan’s 18m citizens—especially peo- The site has unfortunate associations. ple under 29, who have only ever known Mr The seawall, conceived in the early 1990s to Nazarbayev as leader and are now over half reclaim land for agriculture, is the coun- ALMATY the population—to challenge the regime’s try’s most famous white elephant. It cost A choreographed succession departs zero-tolerance attitude towards dissent. billions to build, but by the time it was from the script The authorities in Almaty and Nur-Sultan, completed, in 2010, there was little de- appy holiday!” cried a pie-seller in the capital recently renamed after Mr Na- mand for new farmland. Environmental- “Hnational dress as voters left a polling zarbayev, arrested 500 protesters on elec- ists, meanwhile, lamented the destruction station in Almaty, Kazakhstan’s financial tion day and hundreds more later, after re- of an important way-station for migratory capital. A short stroll away in a leafy park, sults were released and Mr Tokayev sworn birds. Local fishermen complained their police were ruining the festive mood. in. Three mothers are under house arrest catches had shrunk. The vast expanse of Masked officers carried away prostrate after taking part in a demonstration in May. stagnant, brackish water trapped behind protesters and hurled them into police The regime has jailed people for demand- the dyke hardly speaks of a greener future. vans. They were breaking up a peaceful de- ing a fair election. One man held up a blank Yet a greener future is needed. By Mr monstration by a few hundred dissenters piece of paper, with no overt criticism of Moon’s own admission, South Korea lags who had gathered to demand change, even anyone, to test the limits of peaceful ex- “embarrassingly behind” other countries as the man on the verge of being elected pression. Police grabbed and detained him. when it comes to renewable energy. In 2017 president promised continuity. (He was later released.) 43% of its electricity came from coal-fired With 71% of the vote, Kassym-Jomart Such repression has backfired. It has be- plants, up from 39% the year before (the in- Tokayev easily won the election, which was come a catalyst for protests invoking a crease is because of another of Mr Moon’s called after the resignation in March of phrase from a century-old poem urging Ka- policies, the slow phase-out of nuclear Nursultan Nazarbayev, the autocrat who zakhs to shake off Russian colonial rule: power). Emissions of greenhouse gases are had ruled for three decades. Mr Tokayev’s “I’ve woken up.” Inventive videos mocking rising, even though South Korea is a signa- closest rival, Amirzhan Kosanov, trailed far the government’s heavy-handedness have tory to the Paris climate agreement and has behind, on 16%. But monitors from the Or- gone viral. Offline, activists have formed a pledged to reduce them to 20% below the ganisation for Security and Co-operation new movement, “Oyan, Qazaqstan” (Wake level of 2010 by 2030. In April the govern- in Europe said the poll showed “scant re- Up, Kazakhstan). Their nine-point plat- ment said it would increase renewables’ spect for democratic standards”. form for political reform includes the abo- share of generation from the present 6% to Kazakhstan has never held an election lition of the executive presidency. The gov- 20% by 2030 and to 35% by 2040. deemed free and fair by credible observers. ernment’s apologists have been deriding The commitment is timely. South Kore- Mr Nazarbayev won the previous one with them as out-of-touch sophisticates. an voters are increasingly sensitive to envi- 98% of the vote. This week’s contest Even if he wanted to, Mr Tokayev will ronmental matters, particularly the fine marked some superficial improvements. It find it difficult to adopt reforms in the dust that blankets the country for large was the first presidential election in 14 shadow of Mr Nazarbayev, who will not parts of the year. Scrutiny of coal-fired years to feature a challenger with a record want to see the system he fashioned dis- power plants and other industries is grow- of opposition. Mr Nazarbayev used to run mantled. Despite the country’s oil wealth ing, and the authorities are backing away against loyal supporters who took part many complain of unemployment, low from their long-standing claim that most simply to provide the illusion of competi- wages, corruption and a lack of access to air pollution is blown in from China, and tion. Democracy activists worry that Mr housing, health care and education. Before so is out of their hands. Kosanov, too, simply ended up providing a the election, Mr Tokayev took to Twitter to But the government is woolly about democratic veneer. How could it be other- promise “political modernisation”. “Old how it will achieve its goals. A generous wise in a country that has no formal oppo- problems—new solutions,” he tweeted price subsidy for renewable generation sition parties, and in which the media and brightly. Kassymkhan Kapparov, a democ- was scrapped in 2012. Saemangeum aside, civil society are muzzled? racy activist, riposted tartly: “Old pro- the country’s rugged terrain makes install- The rubber-stamping of Mr Tokayev blems—old people who created them.” 7 ing renewables expensive. The average 1 https://t.me/finera

50 Asia The Economist June 15th 2019

2 electricity price paid by consumers is preferential land leases to investors who it has lost money in every quarter but one. around $0.10 a kilowatt-hour, among the are willing to take the plunge. Since 2012 In the first quarter of this year it posted an lowest in the oecd, a club of rich and mid- the government has said that a steadily operating loss of 630bn won ($525m), more dle-income countries. Raising it would be growing share of power sold by utilities— than twice as much as expected. kepco the obvious way to pay for the expansion currently 6%—must come from renewable blames the poor results mainly on the ris- (as well as to encourage efficiency). But sources, but it is not rising fast enough to ing price of imported natural gas and coal, that would be politically tricky, says Jung hit the government’s targets. “It’s just not as well as having to cut back on cheap nuc- Tae-yong of Yonsei University in Seoul: that attractive to invest in renewable ener- lear generation. It is thinking of petition- “People think of electricity as a public gy in South Korea,” says Mr Jung. ing the regulator to raise prices. Mr Jung good—they expect it to be cheap.” More than 90% of the country’s electric- thinks that this is the way forward. “We’re That makes it hard for the government ity is generated by kepco, a listed but state- not a developing country any more. Even- to attract private investment to projects controlled utility, which also controls the tually, the government will just have to ad- such as Saemangeum. The local develop- grid. Since the government began scaling mit that if we want clean and safe energy, ment agency is offering tax breaks and back nuclear power in earnest in late 2017, we’re going to have to pay for it.” 7 Banyan The rugged nanny state

Australia’s pioneering image cloaks a bossy government or a growing number of Australians, snooping on people’s e-mails, text mes- Even so, the balance Australia has Fit is like stumbling out of bed and not sages and bank accounts. Last year a for- struck between freedom and security recognising, let alone liking, the face you mer spy, known as Witness k, and his looks skewed. Since 9/11government has see in the bathroom mirror. In early June lawyer, Bernard Collaery, were charged for passed more than 60 pieces of legislation federal police raided the Sydney head- (years ago) exposing Australia’s bugging of that impinge on civil liberties (including quarters of the state broadcaster, the abc. the government of Timor-Leste during one, last year, that obliges social-media It had aired allegations of appalling sensitive negotiations over rights to off- firms to find ways for spooks to access deeds by Australian special forces in shore oil and gas. Meanwhile, a former encrypted communications). That is Afghanistan, including the killing of employee at Australia’s tax office, Richard more than either America or Britain. unarmed men and children. You might Boyle, faces 66 charges and no fewer than What is more, America’s first amend- think the abc was doing the country a 161years in jail for exposing its allegedly ment and related laws protect journalists service by revealing such gross mis- aggressive debt-collection techniques. from police who want them to disclose conduct. The Australian Defence Force When Mr Boyle reported such practices their sources. Britain acknowledges the itself had become concerned about a internally he himself became the subject guarantees of free speech in the Euro- “drift in values” among elite troops in of an investigation. Only after he refused pean Convention on Human Rights. Afghanistan. Yet the warrant against the to sign a gag order in return for compensa- Australia is almost alone among estab- abc read as if it was straight out of an tion did he make his claims public. lished democracies in lacking explicit authoritarian rulebook. Among other All democracies face a tension between constitutional protection for civil liber- things it allowed investigators to “add, civil liberties on the one hand and national ties. Its feeble whistleblower laws point- copy, delete or alter” material in the security and confidentiality within gov- edly exclude protection for public ser- broadcaster’s computers. ernment on the other. The tensions have vants—even in cases that have nothing to The eye-rubbing is not just over press grown along with the threat of Islamist do with national security. freedom, but about Australia’s direction extremism. In Australia the establishment For all the opposition Labor party’s as a liberal democracy. The whistle- feels another profound insecurity, too: the attempts to make hay out of the govern- blower over the Afghanistan allegations insidious influence of an authoritarian ment’s discomfort, it has long been an was formerly a lawyer with the defence China in commerce, society, academia and enthusiastic backer of security legisla- department. David McBride had followed even politics. tion. Indeed, few Australians challenge public-interest disclosure rules by rais- the overweening state. Could their self- ing his concerns with his department. image as authority-averse larrikins be Only when he concluded that they were wide of the mark? Could it be that Austra- being ignored did he take his material to lia’s rugged individualists are happy to journalists. Far from being protected as a defer to nanny? whistleblower, he is charged with the Mr McBride, whose trial is due to start disclosure of unauthorised documents in a couple of weeks (and whose obstetri- and faces a life sentence. His allegations, cian father is credited with exposing the which have to do with events more than side-effects of thalidomide, a drug for six years ago, have no obvious national- morning sickness that caused babies to security implications today. be born with deformed limbs), says the Nor is this an isolated case. The day government is using the security appara- before the abc raid, police separately tus “to fight its own people now”. He feels raided the home of a journalist at the he has a duty to point this out: “I’ve never Sunday Telegraph, one of Australia’s felt better. I’ve never liked myself more. bestselling papers, in connection with a I’ve never had a doubt it was the right story about secret plans to expand the thing to do for Australia.” Mr McBride, for state’s surveillance powers to include one, is not afraid to look in the mirror. Financial Era Advisory Group China The Economist June 15th 2019 51

Also in this section 52 Debating contests — Chaguan is away

Rare earths a possible weapon. State media have played up the threat. “China gears up to use rare- Magnetic attraction earth advantage” ran a headline in Global Times, a nationalist tabloid, on June 9th. But doing so is not so simple. After the scare in 2010 Japan lent money to Lynas, an Australian mining company with a refin- ery in Malaysia. Today, it can meet nearly a GANZHOU third of Japanese demand for rare earths. Control of a crucial industry gives China power. Using it will be costly The Mountain Pass mine in California, t looks at first like a classic Chinese trol of the raw materials into dominance of which once supplied most of the world’s Ipainting: water-soaked paddies nestled the valuable next steps: turning oxides into rare earths but which shut in the early against endless green hills. But then the metals and metals into products. To extend 2000s, has reopened. And on June 11th brown begins. Abandoned brown pits on Mr Deng’s comparison, it is as if the Middle America said it would help other countries the hilltops. Brown gashes down their East not only sat on most of the world’s oil to develop their reserves. China’s share of sides. Brown sludge in the streams. Gan- but also, almost exclusively, refined it and global rare-earth production fell from zhou, until a few years ago, was southern then made products out of it. more than 95% in 2010 to 70% last year, and China’s mining country. The damage done This is why rare earths now figure in the is likely to dip lower (see chart, next page). in the name of economic growth involves trade war. America can hobble Chinese an industry that has given China leverage tech giants by stopping American firms A rare gift in its trade war with America. The rocks ex- from selling them components such as China has much more leverage in down- tracted are rich in rare-earth minerals, used semiconductors. But China could, in re- stream products. America last year bought in everything from planes to smartphones. turn, cut off their supplies of rare-earth about $250m of rare-earth magnets from It is a dirty business that China dominates. products. The most important of these are China, and there are no easy alternative Rare earths, covering 17 elements on the specialised magnets for motors in electric sources. “These magnets are the farthest periodic table, are in fact common. But vehicles, generators in wind turbines and thing from a commodity that we can imag- China holds two-fifths of global reserves. missile-guidance systems. China produces ine,” says Ryan Castilloux, of Adamas Intel- In 1992 Deng Xiaoping quipped that “the more than 90% of the world’s output, ac- ligence, a rare-earths consultancy. They are Middle East has oil, China has rare earths.” cording to Citigroup, a bank. Even the Pen- made to exact specifications. And, says Mr The chemicals used to extract them from tagon, through its suppliers, is a client. Castilloux, the industry is small enough for the ore create toxic run-off, and for years China’s rare-earth power is not a new China to be able to spot any American at- China was more willing to bear that cost worry. In 2010 it restricted exports—in or- tempts to skirt a Chinese ban by importing than other countries. By the early 2000s it der, it said, to protect its environment. The magnets through other countries. accounted for almost all the world’s pro- World Trade Organisation ruled against the The Pentagon would probably be able to duction. “There were no laws back then restrictions after America and others chal- cope. An industry joke has it that it can car- and everyone here was digging up the lenged them. But since then many coun- ry its annual supply of heavy rare earths ground,” says Xie Yizhen, a local who tries have fretted about relying on China. (the kind used in its missiles) in a single worked in mining for 18 years. So it is no surprise that in the past few suitcase. Businesses would find it harder. Crucially, China has translated its con- weeks China has brandished rare earths as David Merriman of Roskill, a metals re-1 https://t.me/finera

52 China The Economist June 15th 2019

Debating contests prepare. An early round is won by a pair of Down to earth 17-year-old girls who attend the interna- Rare-earth exports, tonnes, ’000 Dialectical tional section (a bilingual school-within- 180 a-school) of a state-run high school in Start of China’s rare-earth dispute with the materialism Shenyang. In confident, rapid-fire English China US, EU and Japan 150 the duo argue that climate change should Rest of world be treated with realism. They praise a sea 120 WUHAN wall being built in Jakarta and note the po- Teenagers enjoy a rare chance to hone litical lessons to be drawn from French gi- 90 American-style argumentative skills lets jaunes protests against a proposed fuel 60 hen the Chinese government first tax. The pair also had speeches arguing the sent students to America in the late opposite ready, in case the coin-toss had 30 W 19th century, it could not decide whether gone the other way. 0 their goal should be to acquire specific Chinese pupils are pushed to study re- 1994 2000 05 10 15 18 technical knowledge or to absorb new ways lentlessly, says one. But American-style de- Source: Wind Info of thinking. More than a century later, a bate forces students to “brainstorm a lot of third of a million Chinese students are en- ideas in a short time”. Unlike America, rolled at American schools and universi- where debating clubs are dominated by 2 search firm, says it would disrupt the sup- ties. Yet folks back home remain divided shouty, self-assured boys, most contes- ply chain enough to put American car com- about what an American degree means. tants in the Chinese league are girls. Of its panies “at a competitive disadvantage”. Attending an American university is a 20 highest-ranked debaters, 16 are female. But it is far from certain that China will good career move. It is also scorned as a In a still-chauvinist society, the chance block exports to America. Doing so would soft option for well-off kids, scared of the to argue forcefully and be applauded for it also hurt Chinese companies, which are of- gaokao, China’s brutal university-entrance has a rare appeal, suggests Liam Mather, ten the ones that build the motors and bat- exams. Yet many bright Chinese young- the league’s 20-something executive direc- teries for American customers using rare- sters explain the appeal of an American tor. The winners in Wuhan are Joyce Yi and earth magnets. Longer term, a ban would education in remarkably idealistic terms. Erica Chen, from a state school in the encourage the same process that happened One place to hear such dreams, on a recent southern boomtown of Shenzhen. Their in mining. Foreign firms, perhaps with smoggy Saturday morning, is an English- swaggering first-round performance government support, will invest in facili- language debating tournament in the cen- leaves two ill-prepared boys open- ties to make finished products. tral city of Wuhan. It follows a format pop- mouthed like fish. Ms Chen initially rel- That would set back China’s grand strat- ular at high schools across America, known ished debating in English because “I’m egy for rare earths, seen in the hills around as “Public Forum Debate”. On this occasion kind of an argumentative person.” Then Ganzhou. Over the past few years it has 182 teenagers are taking part. she realised the subtle effects of having to shut scores of unlicensed mines. At a huge At first sight, the event reeks of privi- research both sides of an argument. Chi- cost, it is trying to clean up local rivers. The lege. It uses the classrooms at a bilingual nese education emphasises one correct an- big state-owned mining firm in the area private boarding school in Wuhan with its swer to a question, she says. has started filling in some of its pits with own golf course and an ice-hockey team The debaters are not starry-eyed about grass and shrubs. China is still excavating coached by imported Russians. But the de- America. They talk of gun violence, in- plenty of rare-earth elements, especially in bate is not for big-city elites. It is run by the equality and crumbling cities. At a practice the north, but it has decided that it can buy National High School Debate League of camp some call the American way of argu- much of what it needs abroad, and spare its China, a company founded by two young ing “very chaotic.” But debate can prevent own environment. Last year, it became a Americans in 2011. It stages contests in doz- “huge mistakes” because competing per- net importer of rare-earth concentrate. ens of Chinese cities each year. This one spectives are heard, notes Angela Pan, a Instead, China has shifted its focus to has drawn pupils, aged 13-18, from nine cit- teenager from Beijing. The young Chinese rare-earth products, to increase its down- ies. Many will never study overseas. assert—perhaps a little optimistically— stream advantage. In an industrial park on The proposition is: “Countries should that American college students are diverse, the edge of Ganzhou, the government is prioritise climate-change adaptation over free and informed about the world. They ploughing money into factories that make mitigation.” Teams have had three weeks to long to cross the Pacific and meet some. 7 rare-earth magnets and alloys. This manu- facturing is much cleaner than the mining, and captures more value. Tellingly, when Xi Jinping, China’s president, visited the city last month, news reports showed him at jl mag, a magnet company, not a mine. At another company in Ganzhou, a manager shows off several of its products: little disc magnets, each containing about 30% rare earths. When the magnets are smaller than a fingernail, it is hard to pull them apart. When they are slightly bigger, just wider than a thumb, it is impossible to do so. That is a good metaphor for what China ultimately wants from rare earths, and for its economy more generally: to reach a size where no country, not even America, can pull away. Cutting America off now would undercut that ambition. 7 Financial Era Advisory Group International The Economist June 15th 2019 53

Delays in the skies constrained control capacity are leading to big increases in flight delays and cancella- A holding pattern tions. In America the length of delays caused by air-traffic control problems soared by 69% between 2012 and 2017. In China the average delay per domestic flight spiked by 50% in 2017 and remains at an av- erage of 15 minutes per flight. In Europe BRUSSELS, BUDAPEST AND MAASTRICHT things are worsening faster than anywhere Air-traffic control is a mess. Unions and other vested interests block reform (see chart on next page). Last year, accord- t first glance, the industrial estate much faster than speaking over a two-way ing to Eurocontrol, the length of delays due Anear Maastricht’s out-of-the-way air- radio. “Here is the future,” beams John San- to en route air-traffic-flow problems grew port, hardly appears the future of civil avia- turbano, muac’s director. It is a future few by 105%. Over 60% of those delays were be- tion. But it houses the Maastricht Upper countries are embracing, though rising cause of a lack of capacity or staff, 25% were Area Control Centre (muac), where up to congestion is making flight delays and can- weather-related and 14% caused by strikes 100 air-traffic controllers work at a time to cellations more common across the world. by controllers and others. Eamonn Bren- ensure that planes flying high above Bel- nan, boss of Eurocontrol, expects things to gium, Luxembourg, the Netherlands and The Maastricht exception be as bad, if not worse, this year. north-western Germany do not bump into muac’s control room, alas, is far from typi- The cost of this is huge. Eurocontrol es- each other. Covering one of Europe’s busi- cal. Most air-traffic controllers still rely on timates that the delays and cancellations est air spaces, every day its controllers technologies used in the second world war. caused by air-traffic-flow problems cost guide 1,200 planes through a 16km (10- Planes are located by radar, though global- the European economy €17.6bn ($20.8bn) mile) gap in Belgium between two military positioning satellites are cheaper and last year, up by 28% on 2017. Holding planes no-flight zones—without any near misses. more accurate. Information is exchanged in the air and making them fly farther Founded in 1972 by Eurocontrol, an by voice radio instead of by data link. And— wastes fuel. More efficient air-traffic con- intergovernmental agency, muac was the hard to credit in the digital age—in Ameri- trol could bring fuel savings of 5-10% per world’s first attempt to pool controllers be- ca controllers still hand each other slips of flight, reckons Graham Spinardi of the Uni- tween countries. Still the only such ven- paper to track aircraft. Meanwhile, small versity of Edinburgh. Moreover, public ture, it is one of the most modern and cost- drones—invisible to radar and impervious confidence has been shaken by several efficient control centres in Europe. That is to voice messages—are proliferating and near-misses. In 2017 an Air Canada jet car- partly thanks to its use of technology. Pilots flying higher. rying 140 people misunderstood the con- and controllers at muac, for instance, com- The system cannot cope with demand. trollers’ instructions and nearly landed on municate through digital messages— And across the world, heavier traffic and a taxiway where four aircraft were parked. 1 https://t.me/finera

54 International The Economist June 15th 2019

2 In 2016 an Eva Air flight from Los Angeles based in Brussels. The extra capacity they home more than €200,000 a year—over flew perilously close to a mountain peak produce will be gobbled up by rising de- seven times the average salary in the coun- after an air-traffic controller’s instructions mand for air travel. And the longer flights try and more than pilots earn. France’s mi- confused right with left. the plans entail will waste even more fuel. litant air-traffic controllers spent the This is just what controlling air traffic is So the eu is changing tack, releasing a equivalent of nearly nine months on strike intended to avoid. The current system de- report in April calling for the creation of a between 2004 and 2016, according to a re- veloped in the 1950s after a series of deadly “Digital European Sky”. Instead of merging port by a finance committee of the French mid-air collisions. In 1956 two aircraft col- each country’s air-traffic manager, the fo- Senate—mainly because of sympathy lided over the Grand Canyon, killing all 128 cus is on cutting costs by, for example, set- strikes for other public-sector workers. on board. Soon after, in 1958, America gave ting a common standard for digitisation to the faa the power to manage air traffic over ensure each country invests in compatible Open skies its territory. Other countries soon set up systems. A reform of licensing, which lim- Nonetheless, airlines argue that privatisa- their own air-traffic-control systems. its controllers to working only in one re- tion alone is not the answer. Air-traffic ser- The market for air-traffic services is gion, would also encourage them to move vices can charge extortionate prices worth over $14bn, according to Markets to where they are needed. whether or not they are in public hands, and Markets, a research firm. But unlike This reflects a realisation in Brussels notes Kenny Jacobs of Ryanair, Europe’s airlines and airports, air-traffic control is, that merging air-traffic-control services largest low-cost carrier. muac, for in- with few exceptions, still run by national would not be a magic bullet. After all, stance, made a profit margin of 70% in 2017. governments. Of the eu’s 28 member states America and China, continent-sized coun- Air-traffic-control services should have to the air-traffic services of only two—Britain tries with single air-traffic control services, compete against each other to lower costs, and Italy—have private shareholders. still endure rising congestion. argues Andrew Charlton of Aviation Advo- In many places, options are limited by cacy, a consultancy based in Switzerland. If Blue-sky thinking the closure of air space for military pur- different private companies had franchises The drawbacks to the present system of poses. In China four-fifths of air space is re- for different blocks, they could offer air- managing air traffic were evident even in served for military use, according to the lines competing prices and services to at- the 1950s. In 1960 Britain, France, Germany Centre for Asia Pacific Aviation, a consul- tract flights. And governments could en- and the Benelux countries set up Eurocon- tancy. So the thin corridors open to civil courage competition by holding auctions trol, intending to merge their airspaces. In aircraft are congested. Britain has dealt for these contracts every five or ten years. 2001the goal of creating a “Single European with this by closing military air space only Nowhere has yet gone that far. But some Sky” became official eu policy. The hope during air-force exercises, instead of all the countries do already contract out control of was that it would boost efficiency and that time as in the rest of Europe and China. their upper-air space. Australia, Fiji and economies of scale would save money. A That governments run air-traffic sys- New Zealand have long run the upper-air single air-traffic regulator could carve the tems themselves adds to the problems. In space over Pacific islands for the islands’ continent into blocks based on traffic flows America for instance, the faa, a govern- governments. HungaroControl, Hungary’s rather than national borders. ment agency, is vulnerable to budget cuts forward-thinking air-traffic-control ser- But, apart from the small area covered from Congress and cannot borrow to invest vice, has done the same for Kosovo since by muac, virtually no progress has been in new technology to boost productivity. As 2014. It is also a pioneer of remote air-traf- made since 1960. One reason is that Britain a result, in 2017 the cost for each flight-hour fic-control towers for airports, hoping and France want to retain sovereignty over controlled was almost a third less in Cana- eventually to use its cheaper local labour to their skies for military reasons. But opposi- da than in America, where Nav Canada is offer control-tower services to other air- tion also comes from the controllers them- an independent company allowed to bor- ports from its base in Budapest. selves. Last October atceuc, an umbrella row. For instance, it has replaced paper Even so, real reform that will stop air- group for controller unions in Europe, at- slips with digital ones, and is licensing that traffic-control failures from wrecking mil- tacked the idea of setting targets for im- technology to other control systems lions of holidays each summer is unlikely proving air-traffic services as “a waste of around the world. Public ownership may without more political will, says David Mc- time and effort”. Trade unions see a merger also encourage excessive pay demands Millan of the atm Policy Institute, a think- as a backdoor for introducing new technol- from trade unions. In 2010 the Spanish gov- tank in Geneva. eu officials privately con- ogy. That would cut costs for airlines and ernment found that at least ten controllers cede that in the short term they have given passengers—and threaten controllers’ were paid over €810,000 ($1.1m) a year. To- up hope of merging air-traffic services in jobs. The atceuc insists that “humans day the average Spanish controller takes the way Eurocontrol originally intended. have to remain at the core of air-traffic Similarly, in America, a tentative proposal management”. Moreover, unions and na- to split air-traffic-control services from the tional politicians do not want a single regu- Behind the times faa into a separate entity, as in the rest of lator moving well-paid jobs to places in Europe, average delay per flight the developed world, was last year ground- eastern Europe with cheaper labour. 2011=100 ed in Congress. Although big airlines, air- Razvan Bucuroiu, Eurocontrol’s head of 250 ports and controller unions supported the network strategy, says that, blocked from proposals, the business-aviation lobby op- fully integrating national systems, Euro- En-route air-traffic-control delays posed them, worried that private jets might control is trying to reduce delays by en- 200 eventually be forced to pay for the air-traf- couraging airlines and national air-traffic fic services they currently get free, thanks managers to divert flights to less busy 150 to American taxpayers. routes. It has also redesigned flight paths And so, back at muac in Maastricht, Mr Departure delay (all causes) as far away as Malmö in Sweden to accom- 100 Santurbano jokes that if he had to advise a modate the new airport in Istanbul, which young person today on how to find a well- fully opened in April. 50 paid job unlikely to be disrupted by auto- But these measures will only “stop the mation for decades to come, he would sug- 2011 12 13 14 15 16 17 18 bleeding for one summer”, explains Thom- gest air-traffic control. “That’s how well re- Source: Eurocontrol as Reynaert of a4e, an airline-trade body form is going in this industry.” 7 Financial Era Advisory Group Business The Economist June 15th 2019 55

Also in this section 56 Bartleby: Guilds of the future 57 Drugs by drone 58 Cloud computing and video games 59 Big tech and antitrust 59 Tesla’s tribulations 60 Schumpeter: Fighting the next war

The life of German tycoons host of other consumer-goods brands. “We do not want to get noticed,” says Ni- The reticent rich cola Leibinger-Kammüller, boss of Trumpf, one of the world’s biggest makers of mach- ine tools, which her father, Berthold Leib- inger, bought from its heirless founder, Christian Trumpf. A devout Lutheran, Ms Leibinger-Kammüller, her father and her BERLIN two siblings worked out a family code of Inside the secretive world of Germany’s business barons conduct that members of the third genera- f they think their ranking on rich lists is one for every 539,000 (though it has 607 in tion sign when they turn 16. It covers suc- Itoo low, American tycoons fume. Ger- total). The German Institute for Economic cession and the sale of shares in the firm, man ones kick up a fuss when theirs looks Research, a think-tank, estimates that the but also guidelines for religious tolerance, suspiciously high, explains Heinz Dürr. combined assets of the richest 45 Germans modesty and respect for others. When a magazine called him a billionaire a are roughly the same as those of the entire A third of German entrepreneurial fam- few years ago, Mr Dürr rang the editor to re- poorer half of the country. ilies have similar rules, according to a monstrate. The reporters had double- That such figures are a surprise to many study by the whu Otto Beisheim School of counted his ownership of Homag, a maker is testament to the persistence of attitudes Management and pwc, a consultancy. The of wood-processing machines that Dürr, outlined by Mr Dürr. German business bar- constitution of the Reimanns enshrines his family’s mechanical-engineering firm, ons have guarded their privacy more jeal- secrecy, reportedly obliging family mem- bought in 2014. Plutocrats have reached the ously than those from elsewhere. Almost bers to sign a charter at the age of 18 where- top of politics in America and Italy, while everyone knows what Jeff Bezos, the boss by they pledge to stay away from day-to- in Asia the super-rich often display their of Amazon, looks like. Most French people day workings of the family business, shun wealth in ostentatious style. Germany’s will recognise Bernard Arnault, the luxury- social media, avoid being photographed in magnates love to shun the limelight. goods magnate who is France’s richest public and turn down interviews. The country is hardly short of super- man. Neither the German nor English Wi- Several factors account for this ano- rich people. It has the most of any country kipedia page for Dieter Schwarz, who con- nymity. One is the nature of the tycoons’ after America and China. In February trols Lidl and Kaufland, two supermarket businesses. In America many vast fortunes Forbes, a magazine which tracks such chains, shows his photograph. And good have been made in finance or technology. things, counted 114 German dollar billion- luck with finding a snap of the Albrechts, Many rich Germans owe their success to aires, more than double the number in owners of Aldi, a discount grocer, or the staid businesses where progress happens Britain (see chart later in article). This Reimanns, a super-rich clan that controls not through headline-grabbing disruptive equates to one for every 727,000 Germans, jab, a privately held conglomerate that leaps but unremarkable incremental tinke- not a world away from America’s tally of owns Krispy Kreme, Panera Bread and a ring. Over half the riches of the country’s 1 https://t.me/finera

56 Business The Economist June 15th 2019

2 billionaires comes from dull endeavours mans are shy because they worry about that Germany’s wealthiest 5% try to protect such as retailing, manufacturing and con- making fools of themselves, not least in themselves against a redistributive welfare struction. The ten wealthiest German fam- light of a national disposition towards So- state by lobbying for lower taxes and hid- ilies make cars (bmw and Volkswagen), zialneid (envy of those better off), and fear ing their wealth offshore. In May Die Zeit, a brakes (Knorr-Bremse) and car parts for their safety—especially in the wake of news weekly, published a series of articles (Schaeffler), or run supermarkets (Mr the tragic kidnap and murder in 2002 of Ja- about “the responsibility of the rich”, and Schwarz and the Albrechts). Many of Ger- kob von Metzler, an 11-year-old boy from a backed a wealth tax and higher inheritance many’s “hidden champions”, which lead banking dynasty. taxes. “A billionaire cannot win in the Ger- the world in niche endeavours like me- As in other countries, many German man media,” says Tobias Prestel of Prestel chanical engineering, are tucked away in journalists are left-leaning and display in- & Partner, who organises conferences for the countryside. stinctive hostility towards plutocrats. In the family offices of the super-wealthy. Culture, too, plays a part. Dirk Ross- March Stern, a weekly magazine, published Chequered history is another reason to mann, the founder of an eponymous chain a cover story about the “Shamelessly rich”, keep heads down. Most German billion- of pharmacies, says that fellow rich Ger- illustrated with a gold spoon and arguing aires are not self-made but scions of indus-1 Bartleby For the future, look to the past

Workers may need new ways of organising themselves he debate about the future of work omy has boomed and technology has thermore, in two of the main markets Ttends to divide commentators into made it easier for employers to find work- where on-demand workers toil, America two camps. The optimistic case is that ers (and vice versa). and India, they have little access to the technology may cause temporary dis- How much of this low-paid work is the legal protections associated with formal ruption but will ultimately result in result of the gig economy? Not much so employment. A digital Downton Abbey, economic growth and thus more jobs. far; it represents about only1% of Ameri- in other words. Combine harvesters reduced the need for can employment. But in their book, “Ghost However, the new forms of employ- agricultural labourers and personal Work”,Mary Gray and Siddharth Suri ment have a plus side. Many workers in computers eliminated the typing pool, forecast that what they call “on-demand emerging markets relish the opportunity but the displaced workers found other work” will reach 60% of the global work- to work at home and at times of their jobs in the end. force by 2055. They define this category to choosing. They are only expecting to The pessimists argue that new tech- include those who work for temporary supplement their family’s other sources nology, even if it does not cause mass staffing agencies, have short-term con- of income. On some platforms, workers unemployment, will create a “digital tracts or who accept work from employers are identified by a sequence of letters and divide”.The future will resemble a high- through websites or apps. numbers, meaning that they are free tech Downton Abbey, with the skilled All this makes it sound as if the future from discrimination on the grounds of elite lording it over the rest. Unskilled of jobs will look like the past. Before the age, religion or sex. workers will be delivering pizzas to, and days of the factory and the office, many Workers may also look to the past to cleaning the bathrooms of, the likes of workers were part of a “putting-out sys- find a way to organise themselves. Some Elon Musk and Tim Cook. tem”,in which merchants hired them to have set up online forums which share A new report* from the consultants at undertake specific tasks, such as spinning information on the most reliable em- McKinsey veers towards the optimistic or weaving, for which they were paid a ployers. Ms Gray and Mr Suri suggest that camp. It predicts that men and women piece rate. The attraction to employers is these could be expanded to create the will be roughly equally affected by auto- that such work is cheap. The authors quote equivalent of medieval guilds which mation over the next decade, with 21% of one marketing executive as saying that could enable workers to learn new skills. working males and 20% of females los- “We can save up to 40% by not paying Such guilds could also act as a repository ing their jobs by 2030. In the developed benefits or allocating office space.” Fur- for employees’ work records. At the world, McKinsey estimates that men will moment, it is as hard—or harder—to tend to lose machine-operating jobs and transfer your work rating from one on- women will lose clerical and service line platform to another as it is to wrest roles. But new jobs will be created, if not your user data from Facebook. Lack of necessarily for the same people. Women interoperability means workers have to will find work in the expanding health- start each contract from scratch. care industry and men in the profession- Responsible employers could pledge al, scientific and technical fields (a high- only to use workers from guilds and to er proportion of men than women have apply minimum standards on issues science degrees). such as prompt payment. They will Not all of these jobs will be well paid, benefit from more reliable and skilful especially for women, says McKinsey— employees. That way, if the workers of just as, according to left-wing critics, the the world unite, everyone may gain. jobs boom of recent years has been in low-paid work (though data suggest that ...... high-paying ones also rose fast). On the * “The future of women at work: Transitions in the bright side, discouraged workers have age of automation” rejoined the labour market as the econ- Economist.com/blogs/bartleby Financial Era Advisory Group The Economist June 15th 2019 Business 57

2 trial dynasties. Their forebears were nei- ther particularly private nor parochial. All Sensible rich Swabians that changed after the second world war, during which some had prospered under Number of $ billionaires, by economy Germany, top $ billionaires the Third Reich. February 8th 2019 February 8th 2019 A few years ago the Reimanns, whose 0 100 200 300 400 500 600 Name Industry Wealth, $bn fortune dates back to a chemicals business United States 0.5 Beate Heister & Supermarkets 36.1 founded in 1823 by Johann Adam Benckiser China 4.3 Karl Albrecht Jr (hence jab), asked Paul Erker, a historian at Germany Dieter Schwarz Supermarkets 22.6 Munich University, to look into the fam- 0.7 Susanne Klatten Cars 21.0 ily’s behaviour under the Nazi regime. Mr India 12.6 Stefan Quandt Cars 17.5 Erker discovered that the then patriarch, Russia 1.5 17.4 Albert, and his son were early and ardent Theo Albrecht Jr* Supermarkets Hong Kong 0.1 supporters of Adolf Hitler. They permitted Heinz Hermann Thiele* Vehicle parts 13.6 the brutal abuse of forced labourers in their Brazil 3.6 Hasso Plattner* Software 13.5 business and their own home. Britain 1.2 Dietmar Hopp* Software 13.4 13.4 Werner Bahlsen, the current head of the Canada Population per 0.8 Georg Schaeffler Machine parts Bahlsen biscuit empire, said the family will France billionaire, m 1.6 Klaus-Michael Kühne Logistics 12.9 hire a well-known historian to examine their Nazi past after Verena, his 26-year-old Sources: Forbes; IMF *Including family daughter, recently blurted in response to a question about Bahlsen’s exploitation of a fancy watch, has lived with his wife in the which he merged with eastern Germany’s forced workers that they were treated well. same relatively modest house for 35 years Reichsbahn and in 1994 transformed into a (Ms Bahlsen has since apologised for her and buys a new Mercedes car every eight privately run joint-stock company. Like Mr “thoughtless” remark.) years. If he or others like him exert influ- Rossmann, Mr Dürr does not hide from the The Quandts (bmw), Krupps (steel), ence, it is typically close to home, often in public eye. He even briefly considered run- Porsches and others have grappled with an obscure small town. Ms Leibinger-Kam- ning for political office, though ultimately similarly tainted legacies. In 2000, 4,760 müller’s generosity to her local parish led a demurred. Old habits die hard. 7 German companies including Siemens, leftist paper to christen her “the Madonna Daimler, Deutsche Bank and Volkswagen, from Swabia” in an admiring profile last created a foundation that, along with the year. Families like hers may also maintain Transport German state, raised more than €5bn close relations with local politicians, who ($4.8bn) for survivors of Nazi atrocities in turn make their voices heard in Berlin. Flying start and slave labour. The Reimanns chipped in They have learned to keep those voices €5m at the time. After the first results of Mr low. In 2006 the Stiftung Familienunterneh- Erker’s study became public, the family an- men, a foundation for family firms, lobbied nounced it would donate an extra €10m to so hard and loudly for lower inheritance charity (though did not specify which). taxes that its efforts backfired and the en- Drone deliveries are advancing in Unsavoury pasts and secrecy may partly tire reform collapsed. A decade later their health care explain why Germans dislike the rich. In a main national lobbies—the bdi (associa- survey last year by the Allensbach Institute, tion of German industry), the bda (associa- few years ago Jeff Bezos made a pre- commissioned for a study by Rainer Zittel- tion of German employers) and the foun- Adiction. By 2018 his e-commerce em- mann, a historian, the foremost qualities dation itself—put the case more subtly and pire, Amazon, would be delivering items by associated with the rich were selfishness managed to get easier rules that let heirs drone. Prime Air has yet to launch. But (62%), materialism (56%), recklessness avoid paying inheritance tax provided they startups are making progress—mostly in (50%), greed (49%) and arrogance (43%). keep their business running for at least health care, where they are vying to tap into Only 2% admitted that it was “very impor- seven years and protect jobs and wages. a lucrative, $70bn global market in health- tant”, and 20% that it was “important”, for As the German rich mingle with pluto- care logistics. As they deal with regulators them to become rich. Ipsos mori asked crats elsewhere and their companies have and investors, these firms are charting the similar questions of Americans and found globalised, they are starting to become a course for other aerial deliveries. that 39% of young respondents, who tend little less diffident. This is not always to One of the best known is Zipline, based to be more critical of wealth than older their advantage. Before Ms Bahlsen’s tone- in San Francisco. It took off in Rwanda in ones, said it was important or very impor- deaf comments about forced labour, she re- 2016, where it is now a national on-demand tant for them to become rich. acted to a proposal of a youth chief of the medical drone network, delivering 150 Germans are also likelier than Ameri- Social Democrats to collectivise big firms medical products, mostly blood and vac- cans to blame the world’s ills on the by saying, “I’m a capitalist. I own a quarter cines, to hard-to-reach places. Maternal wealthy, according Mr Zittelmann. One in of Bahlsen, that’s great. I want to buy a sail- mortality rates are declining thanks to the two Germans thinks that they caused the fi- ing yacht and stuff like that.” But Mr Ross- delivery of blood. Other firms have used nancial crisis or humanitarian disasters, mann, who does not shy away from the drones to supply medicines in Bhutan, Ma- compared with one in four Americans. Sur- press, thinks that Germany’s rich should be lawi and Papua New Guinea. Patients in veys also show that Germans are likelier more active in politics, which lacks a spirit many Swiss hospitals can receive results than Americans, Britons or French to expe- of enterprise. Few have so far tried and on the day a sample is taken. Zipline is ex- rience Schadenfreude when wealthy busi- none has succeeded. panding into Ghana and, later this year, nessfolk lose their shirts in risky deals. Mr Dürr has raised his profile, too. After into North Carolina, an American state Such attitudes explain why German building his family’s firm into a global with many out-of-the-way rural medical business barons have kept a low profile. Mr leader and listing it on the stock exchange, facilities. It wants to serve 700m people in Rossmann lives an unassuming life by any he moved to the public sector as boss of the next three to four years. measure. He does not own a smartphone or Deutsche Bahn, the state-owned railways, For governments and regulators ner-1 https://t.me/finera

58 Business The Economist June 15th 2019

2 vous about allowing drones to roam the Computer games Microsoft is well-placed to make cloud skies, health-care deliveries offer a com- gaming work, says Piers Harding-Rolls of pelling reason to give it a go. Drones can fall Unconsoled ihs Markit, a research firm. It has a 20-year out of the sky, collide with other air traffic, pedigree through its xbox series of con- create perceived privacy concerns and soles, and its Azure cloud platform is the make a noise. All this is hard to justify world’s second-biggest, after Amazon Web when they are delivering a light bulb. When Services. But it is not the only tech giant in- they carry life-saving medicines the calcu- terested in the idea. A few days before e3, Cloud computing is coming to the lation is different. It is also easier, says Ben Google, which also runs a big cloud busi- video-gaming business Marcus, founder of AirMap, a drone-tech- ness, gave more details about Stadia, its nology firm, because health-care deliveries ore than 70,000 gamers, developers own cloud-gaming product, which is due typically happen between a limited num- Mand publishers descended on Los An- to launch in November. Industry rumours ber of fixed sites, not to and from innumer- geles to goggle at each other’s wares and suggest that Amazon is mulling a similar able doorsteps. show off their own at the Electronic Enter- business. The threat from the cloud giants Like most fast-growing startups, drone tainment Expo (e3), which began on June helped to persuade Sony, which makes the firms are coy about profitability but say 11th. This year big publishers like Ubisoft PlayStation series of consoles, to jump into they are generating revenue. Investors look and Square Enix used the annual video- bed with its arch-rival. It already runs a convinced. On May 17th Zipline announced game jamboree to show off previews of cloud-gaming service called PlayStation $190m in new financing, which values it at new games. Keanu Reeves, an actor, hyped but in May Sony signed a deal to employ $1.2bn. Like its competitors, it sees lucra- up “Cyberpunk 2077”, a hotly anticipated ti- Microsoft’s Azure cloud platform in its fu- tive opportunities. For one thing, medical tle in which he plays a big role. ture endeavours. parcels are lightweight but valuable, so One of the most significant announce- It all sounds promising in theory. drone costs would make up a relatively ments at the show was also one of the brief- Whether cloud gaming will catch on, small portion of the final bill. Drones can est. Towards the end of a two-hour presen- though, remains uncertain, for it is techni- also replace the stocks of expensive medi- tation, Phil Spencer, the head of Microsoft’s cally much more demanding than existing cines hospitals keep just in case they are gaming division, offered a few more details streaming services. Unlike films or music, needed, by flying them quickly to hospital about Project xCloud, Microsoft’s foray games are interactive, which means they beds from a central hub. Lightweight elec- into cloud gaming. The service will be must respond instantly to a player’s input. tric drones are likely to be less expensive available in October, he said, before letting The laws of physics impose limits on how than car or motorcycle couriers, and faster. gamers loose to try a demo version in the quickly a player’s commands can traverse Andreas Raptopoulos, boss of Matternet, conference centre. the internet to reach a data-centre to be another drone-delivery firm, thinks that Cloud gaming aims to do for video processed, and then how quickly the re- this could save hospitals millions in lab games what companies like Spotify and sulting video can be sent back. For the and pharmacy costs. Netflix have done for music and films— twitchy action games that dominate best- The prospect of such efficiency gains (as make them available on any device with an seller lists, even delays of a fraction of a well as eco-friendliness) was factor in the internet connection. For the $140bn gam- second are an irritation for players. Such partnership between Swiss Post and Mat- ing industry, that would be a revolution. technical glitches are one reason that pre- ternet. Drones now serve three cities in The consoles and beefy pcs required to run vious attempts at cloud gaming, by firms Switzerland. Swiss Post says journeys of 45 modern games cost several hundred dol- such as OnLive (which launched its service minutes have been reduced to flights of a lars. Cloud gaming aims to shift the com- in 2010 but shut down in 2015), failed to few minutes only. Matternet is, like Zip- putational heavy lifting into data-centres catch on. line, moving into North Carolina, where and to pipe the results to users over the in- The cloud giants insist that times have the local transport authority has champi- ternet. That would allow gamers to play changed. Microsoft, Amazon and Google oned drone delivery. ups, a big delivery cutting-edge titles on nearly any screen have data-centres dotted around the world, company, is using Matternet’s drones to re- with an internet connection, no matter which should help keep response times place some courier cars to move medical how feeble the underlying hardware. low. Consumer internet connections are samples across the state. ups lags behind faster than ever and data allowances more Swiss Post in drone delivery, but hopes that generous. And although dedicated gamers experience in health care will lay the may turn up their noses at even short time- groundwork for national expansion. lags, cloud gaming could prove attractive The future of drone deliveries of all to the less hard-core. kinds in America, and elsewhere, rests Cloud computing can be used in other with regulators. In less developed coun- ways, too. Rather than running the whole tries the skies are empty and permission to game remotely, one intermediate option is fly can be granted by a single person. In de- to use it for tricky calculations that are also veloped countries, with their more crowd- relatively insensitive to small delays. ed airspace and thicker rule books, every- “Crackdown 3”, an action game released for thing takes longer. the xbox and pc in February, uses cloud The buzz in America stems from a pilot computing for complex physics calcula- programme by the Federal Aviation Admin- tions, allowing players to blow up their en- istration (faa), which is using it to help de- vironment in a realistic way without over- velop a regulatory framework. As part of taxing their computers. An updated the project, Zipline is expected next week version of Microsoft’s “Flight Simulator”, to announce its plans for health-care deliv- shown at e3, was also, according to its eries directly to the consumer. Some ex- trailer, “powered by Azure”. Cloud comput- pect that by the time the faa pilot ends in ing has already disrupted everything from November 2020, Mr Bezos will finally have films to corporate it departments. Gaming, his way. 7 Yet another excuse to stare at your phone it seems, is now also in play. 7 Financial Era Advisory Group The Economist June 15th 2019 Business 59

Antitrust in America as it stands is fit for purpose, but he did not mention the role of data, which underpins The break-up conversation much of the power of the tech titans. Rather than the start of a big antitrust push, the speech can be read as a reaction to mounting pressure to rein in big tech. Democrat politicians who want to be their party’s presidential candidate have found SAN FRANCISCO calls for breaking up the firms to be popular Monopoly-busting tough talk does not necessarily mean big tech is in trouble but Mr Delrahim’s speech is more likely a f we will not endure a king as a politi- deals on suppliers, for instance when Mi- response to Republicans. They are increas- “Ical power, we should not endure a king crosoft forced makers of pcs to give prefer- ingly worried that the growing efforts of over the production, transportation and ence to its browser. The other is mergers platforms to moderate content produced sale of any of the necessaries of life.” Advo- and acquisitions. These can be good for by users limit free speech, particularly con- cates of a muscular approach to antitrust competition, he said, but added that there servative voices. often quote the words of John Sherman. In is “potential for mischief if the purpose Then again, Mr Delrahim has the cour- 1890 the senator urged Congress to pass the and effect of an acquisition is to block po- age to act. In 2017 he went to court to block antitrust act that carries his name. On June tential competitors, protect a monopoly.” the megamerger of at&t with Time War- 11th they were uttered by someone who Critics of big tech shouldn’t get their ner, though he lost the case on appeal. But many believed would be less keen on such hopes up. Mr Delrahim stopped short of if the Microsoft antitrust case is any guide, action. Makan Delrahim, boss of the anti- pointing to any specific case of how the big it will take years before a final decision in trust division of America’s Department of platforms may have run afoul of antitrust any potential case is handed down. Ameri- Justice (doj) used a speech in Tel Aviv to de- law, nor what he would do about it. And he ca’s antitrust machine is revving loudly but liver the latest sign that America’s long- seems intent to stay within established it is unclear whether it will ultimately pro- slumbering antitrust machine has woken limits. Not only does he think that the law duce anything more than noise. 7 up and is looking around threateningly, particularly at the country’s tech giants. Signs of renewed vigour in antitrust en- Needing a recharge forcement are growing. Last week it emerged that the Federal Trade Commis- Tesla, share price, $ Battery-electric vehicles, worldwide sales doj sion, another antitrust agency, and the 2018, ’000 400 had agreed to divvy up the work, with the 0 30 60 90 120 150 former looking into Facebook and Amazon Tesla Model 3 and the latter Apple and Google (an investi- 300 BAIC EC-Series gation of the search firm is reportedly im- Nissan LEAF minent). On June 11th, a Congressional Tesla Model S committee opened an investigation into 200 the impact of big tech firms on the news in- Tesla Model X dustry. And more than a dozen state attor- JAC iEV E/S 100 neys-general are soon expected to do BYD e5 something similar. In another sign that big Renault Zoe business is under antitrust scrutiny, on the 0 Chery eQ EV same day a group of states sued to block a 2013 14 15 16 17 18 19 BAIC EU-Series $26bn merger between Sprint and t-Mo- bile, two big mobile operators. Tesla, cash and debt, $bn Tesla, quarterly vehicle deliveries, ’000 In laying out a case against big tech, Mr Delrahim has used some of the same argu- 12 100 ments as many of the industry’s critics. Im- Cash & equivalents 10 80 portant digital markets, he explained, tend Debt 8 to be dominated by one or two firms, 60 thanks to network effects. Such dominance 6 40 is not necessarily bad for consumers. Even 4 monopolies, such as that of Standard Oil, 2 20 have led to lower prices. But price effects, 0 0 he correctly argued, are “not the sole mea- sure of harm to competition”. The view in 2013 14 15 16 17 18 19* 2012 13 14 15 16 17 18 19 antitrust circles is that only price matters. Sources: Datastream from Refinitiv; CleanTechnica; Bloomberg; Greentech Media *Q1 Web browsers, for instance, are free, but in Tesla’s tribulations the 1990s Microsoft’s bundling of one with its dominant Windows operating system At Tesla’s annual shareholders meeting on June 11th Elon Musk was as ebullient as ever. hurt competition and innovation. The gov- But its shares, which started the year above $300, have plunged close to $200 and its ernment’s successful case against Micro- bonds recently traded at an all-time low of close to 80 cents on the dollar. Deliveries of soft, he said, “arguably paved the way for the Model 3, the firm’s mass-market electric vehicle (EV), fell by over a fifth in the first companies like Google, Yahoo and Apple to quarter compared with the previous quarter, casting doubt on the firm’s annual sales enter the market.” target. Tesla raised $2.7bn in convertible debt and stock in May, but questions remain Mr Delrahim also hinted at what will be about how much cash it can generate—it burned through over $900m in the first scrutinised. One area is “exclusivity agree- quarter. Tesla may have outsold competitors last year, but faltering demand and a ments”, where a dominant firm imposes phase-out of EV subsidies in America are tough new challenges it has to face. https://t.me/finera

60 Business The Economist June 15th 2019 Schumpeter Fighting the next war

Military and industrial forces are behind America’s biggest defence merger probably welcome the combination because the two trends it re- flects may make America stronger. First defence. Amid rising geo- political tensions, America is pouring money into high-tech arma- ments. The Trump administration, identifying a new era of “great power competition” with China and Russia, has boosted defence spending sharply this year and last, and hopes for a gargantuan $750bn budget in 2020. Many analysts expect spending to plateau after that, but given the global frictions, that is no certainty. The nature of spending is also changing, as fancy kit for intelli- gence, surveillance and other stealthy warcraft is given higher pri- ority. Kara Frederick of the Centre for a New American Security, a think-tank, recalls that when she served as an intelligence officer in Afghanistan, for instance, the focus was terrorism; if you sent up a drone, there was little risk of having an enemy intercept its communications system. “The Taliban didn’t even have an air force.” But now America faces rivals, such as China, that match it technologically. For software, the Pentagon has urged Silicon Val- ley and other tech firms to overcome their ethical quandaries and help shield American forces from cyber-attacks, or develop mach- ine learning to support them on the battlefield. utc and Raytheon, by pooling their technologies, will be better able to develop the new types of hardware of interest to the Penta- ith a deep voice and physique of a former American-foot- gon. Examples are hypersonic missiles, which combine velocity— Wball player, Greg Hayes, boss of United Technologies Corp travelling at five times the speed of sound—with pinpoint accura- (utc), does not seem like the soft sort. But the ego is delicate. As he cy. The merged firm intends to invest $8bn a year in research and told Schumpeter in February while explaining his decision to development on hypersonics and other systems, for instance by carve utc, a conglomerate dating back to the 1920s, into three combining Raytheon’s missile expertise with utc’s use of high- parts, it was hard for him emotionally to accept that he may end up temperature materials and heat-management systems in engine in charge of a smaller slice of the pie. Shed no tears, though. As he turbines to stop the projectiles overheating. (In return, utc hopes said those words, he was probably plotting a megamerger that that Raytheon’s cyber-security skills can help it counter such could make him one of America’s biggest military-industrialists. threats in aerospace.) Hawk Carlisle, head of the National Defence On June 9th utc, which is big in jet engines, and Raytheon, a Industrial Association, a lobby group, expects defence mergers to prominent missile-maker, said they would join together to create unite traditional weapons contractors with tech firms. America’s second-largest aerospace and defence company after Such combinations will be helped by the second trend that the Boeing, with a combined market value of $166bn. utc share- merger underscores: the constant re-engineering of old-fash- holders will get 57% of the combined company, to be called Rayth- ioned industrial structures, especially conglomerates. The moti- eon Technologies. The merger reflects two trends sweeping Amer- vation is partly to avoid attacks by activist investors and also to ica: the reshaping of defence because of fears about China and the generate higher returns. Jorge Rujana of Bain, a consultancy, says streamlining of industry because of shareholder activism. managers who frequently streamline their portfolios by buying Neither firm’s share price reacted well to the news and feelings and selling assets have, over the past decade, returned far more to are mixed. Those who support the deal see it as a neat way of bal- shareholders than those doing big one-off deals—or nothing. The ancing utc’s cyclical aerospace business, which mostly supplies fashion led two famous chemicals firms, Dow and DuPont, to Pratt & Whitney engines for passenger jets, with Raytheon’s more merge in 2017 and simultaneously promise to split into three parts. recession-proof defence capabilities, such as making Patriot mis- siles. Their combined $26bn net debt is manageable. As usual, they Trigger-happy promise to return a ton of money to shareholders. The trouble is that reconfiguring conglomerates can be a night- Some critics say it bodes ill if two firms with apparently strong mare. General Electric has been through endless, pointless, con- stand-alone businesses have to cling together for survival. Scep- tortions. Shareholders in DowDuPont have not been well reward- tics, besides worrying about the business logic, feel that Mr Hayes ed. And activists are unpredictable. The newly formed chemicals may be biting off more than he can chew. He aims to spin off utc’s giant was pressured to rejig its rejigging after interventions by two lift business, Otis, and temperature-control firm, Carrier, early activists, Nelson Peltz of Trian and Daniel Loeb of Third Point. Al- next year before completing the merger. And utc is still integrat- ready some accuse Mr Hayes of the “reconglomeration” of utc by ing a new avionics business after buying Rockwell Collins for merging with Raytheon. William Ackman of Pershing Square, a $30bn last year. The promised gross annual cost savings of $1bn by utc investor, has written a letter urging him to call it off. “It does 2024 are paltry—mostly from combining head offices. Mr Hayes not seem consistent with the Greg Hayes we know.” and his Raytheon counterpart, Tom Kennedy, promise to give half Perhaps Mr Hayes is keen to stroke his own ego; he will be the of that back to customers, the biggest of which is America’s De- new firm’s chief executive and, in 2022, become its chairman, too. fence Department. Nonetheless, President Donald Trump ex- But by grappling with the new dynamics of aerospace and defence, pressed concern about the impact of the deal on competition. as well as the changing nature of the industrial firm, he is being From a different standpoint, however, the president would proactive. It is better to fight the next war than the last one. 7 Financial Era Advisory Group 64 Finance & economics The Economist June 15th 2019

François Villeroy de Galhau, France Governor of the Benoît Cœuré, France Olli Rehn, Finland Banque de France Head of market Governor of the Bank of Finland Pro Macron’s favourite operations at the ECB Pro Politically astute Con Seen as being too Erkki Liikanen, Finland Pro The geeks’ favourite Jens Weidmann, Germany cosy with the banks Con Past job as Brussels Former governor of Con ECB rules seem to bar austerity-enforcer President of the Bundesbank Backstory Scion of ceramics the Bank of Finland a second term on its board Pro Formidable intellect maker Villeroy & Boch Backstory Former top-division Pro Consensus-builder Backstory Fluent in Japanese footballer–in Finland Con Vocal critic of ECB policies Con At 68, gettingg on a bit Backstory Former economics Backstory Formeer part-owner adviser to Angela Merkel of a jazz bar in Brusr sels

The European Central Bank form her hard line on Greece during its sovereign-debt troubles. Olli Rehn, the Constrained optimisation head of the Bank of Finland and a former eu commissioner, is also seen as a candidate. Erkki Liikanen, Mr Rehn’s well-liked predecessor in Helsinki and also a former commissioner in Brussels, is in conten- tion, as is François Villeroy de Galhau, the governor of the Banque de France. So is Europe is all about backroom deals. The ecb is distinct, but not immune Benoît Cœuré, a Frenchman already on the he longest lunch in history” is how they are also deciding other top jobs. At a ecb’s executive board, though the ecb’s “TJonathan Powell, an adviser to Tony summit on June 20th-21st the European rules seem unlikely to permit him a second Blair, a former British prime minister, has Council of leaders aspires to pull off a pack- term as a member. Klaas Knot, the Dutch described the appointment of the first head age deal covering the key roles. Succeed or central-bank head, Klaus Regling, the head of the European Central Bank (ecb) in 1998. no, the next few months will be a test of of the eu’s bail-out fund, and Sylvie Gou- The French, keen to have their man in the whether the process for choosing the next lard, deputy head at the Banque de France, job, had convinced the Germans that Wim ecb leader has become any more sensible. are also mentioned. Duisenberg, a Dutchman, should serve No one knows precisely who is in the Officials in Berlin and Paris claim that only half of his eight-year term before mak- running: there is no formal nomination they see the ecb presidency as distinct ing way for a Frenchman. Mr Duisenberg process. Among the five leading contend- from the three more political jobs of the resisted, giving in only after midnight. ers, pictured above, is Jens Weidmann, the heads of the commission and European The choice in 2011 of the third and cur- hawkish chief of the Bundesbank. As a for- Council and the high representative, or the rent president, Mario Draghi, an Italian, in- mer adviser to Angela Merkel he helped eu’s foreign-policy chief. They describe volved less drama. Even so, France and Italy their approach as “3+1”, says Mujtaba Rah- fell out after Lorenzo Bini Smaghi, another man of Eurasia Group, a consultancy. Per- Also in this section Italian on the bank’s six-strong executive haps Mr Draghi’s crucial role in keeping the board, initially refused to give way to a 65 India’s growth mirage currency union together during the sover- French national. “What can I do? Shall I kill eign-debt crises in 2010-12 has taught 66 Martin Feldstein’s legacy him?” Silvio Berlusconi, then Italy’s prime everyone that the bank’s president needs minister, asked Nicolas Sarkozy when his 66 Clandestine government debt more than a modicum of competence. French counterpart complained. Looming economic threats should re- 67 What will the Fed do? Mr Draghi departs in October. What mind them why their decision matters. A tales will be told of his successor’s selec- 67 How an anti-poverty scheme failed trade slowdown is hammering the euro tion? The scope for theatrics is greater than area’s economy. A row between Rome and 68 Buttonwood: Against the clock ever. The choice is always political: nation- Brussels over public debt risks unnerving al leaders make nominations and eventu- 69 American retail banking investors. Market expectations of euro- ally agree on a name. But Mr Draghi’s term zone inflation in five years’ time have ends in the wake of European elections, as 70 Free exchange: Votes of confidence drifted below the bank’s 2% target. On June 1 https://t.me/finera

The Economist June 15th 2019 Finance & economics 65

2 6th Mr Draghi said the bank would keep in- Dodgy data timates the typical relationship between terest rates low for the next year, and raised gdp growth and four other indicators: the the possibility of further asset purchases. The Indian growth growth of credit, exports, imports and elec- Mr Weidmann is the most contentious tricity. Before 2011 that relationship also candidate. His vocal opposition to ecb as- fable held in India. But after it, India became an set-purchase programmes was reportedly outlier. Its reported growth was over 7%, derided by Mr Draghi as “Nein zu allem” even as the weakness of imports, exports (“No to everything”). Appointing him and credit suggested growth closer to 4.5%. Official gdp figures have been would be a mistake, says Christian Oden- If India’s statistics are overstated, who disavowed—by a former official dahl of the Centre for European Reform, a or what is to blame? Political meddling is think-tank: the bank would be less activist lmost two years ago Arvind Subrama- an inadequate answer, although this gov- in downturns and less supportive of fiscal Anian, then India’s chief economic ad- ernment, under Narendra Modi, has done easing. That prospect could lose him the viser, published a little-noticed passage in plenty to arouse suspicion. In November support of countries keen on further inte- the finance ministry’s annual economic statisticians revised down growth figures gration, such as France and Spain, in which survey. The previous two years posed a from last decade, taking the shine off the case Germany might instead plump for an- “puzzle”, he wrote. India had reported mir- previous government’s record. In January other northerner, perhaps one of the Finns. acle growth in gdp (averaging 7.5%) despite they revised up growth in 2016-18, the two But the decision cannot be divorced en- miserable growth in investment, exports fiscal years most affected by Mr Modi’s daft tirely from the eu’s tiresome preoccupa- and credit. He looked for comparable ex- and disruptive decision to remove high- tion with balance of various sorts. Despite amples elsewhere since 1991. He found denomination bank notes from circula- their noble talk about “3+1”, leaders still none. No country had grown faster than 7% tion. Both exercises raised eyebrows. want national balance on the bank’s six- in such circumstances. None, in fact, had But Mr Subramanian sidesteps these strong executive board, which, together grown faster than 5%. India’s rapid expan- two recent controversies, excluding the with the 19 governors of national central sion, he warned, might be hard to sustain. latest revisions from his analysis. Instead banks, constitutes its policymaking body. Or, indeed, hard to believe. Mr Subra- he concentrates his fire on a more funda- Having had an Italian at its helm for eight manian’s official position meant he could mental technical change: a new method of years, and a Spanish vice-president, the re- not say that loudly then. But he is saying it calculating gdp, from 2011-12 onwards, that ceived wisdom is that the ecb presidency now. In a paper published by Harvard Uni- was adopted in early 2015. Much of the now belongs to a northerner—if not to Ger- versity, where he is a visiting fellow, he ar- preparation for this switch dated back to many, which has yet to hold the post. gues that India’s growth figures have been the previous government. And one of the Such calculations, surprisingly, are the greatly overstated. From the 2011-12 fiscal new method’s strangest results was an up- reason Mr Weidmann seems to have sup- year to 2016-17, its economy officially ex- ward revision of growth in the tumultuous port from Italy, even though it is the coun- panded by about 7% a year, eventually out- year before Mr Modi took office, when the try most likely to benefit from the uncon- pacing China’s to become the fastest-grow- economy was reeling from high inflation ventional policies he has spoken against so ing big economy. That boast has helped and capital outflows. That contradicts the forcefully. Its finance minister, Giovanni entice over $350bn of foreign investment charge of political interference. Why Tria, has said that he would be “open” to Mr in the past seven years. But India’s true would Mr Modi’s government fiddle the Weidmann as president. The reason seems growth, Mr Subramanian thinks, is more figures to flatter its hated predecessor? to be that once the top job is allocated, any like 4.5%. Rather than outperforming Chi- The new method may nonetheless suf- compatriots already on the board tend to na, India has underperformed Indonesia. fer from other shortcomings. It may, for ex- step down. If the job goes to a Frenchman His paper starts by reporting a variety of ample, have failed to cope with the drop in or German, that would leave a gap for Italy indicators that have slowed sharply since oil prices in 2014. To illustrate: if an Indian to claim. Italian economists suspect fur- 2011-12, even as growth has remained company imports 10,000 rupees-worth of ther Machiavellian plotting: if the ruling steady (see chart). He then tries to measure crude oil and adds 100 rupees of value to it, populists were to elevate an official at the the size of the problem. Looking at more it might sell the refined product for 10,100 Bank of Italy to the ecb, that in turn gives than 70 countries from 2002 to 2016, he es- rupees. If the oil price subsequently halves, them a chance to install one of their own at the company might try selling the same the bank in Rome, realising their ambition product for 5,110 rupees, boosting its mar- to gain influence over it. Growth-Deficient Product gin. An unwary statistician might conclude The obsession with balance extends India, selected indicators that Indian prices have dropped dramati- Average annual % change across European institutions. Leaders 2012-13 to 2017-18 cally. But the Indian part of the total (the want to ensure that nationalities, genders gdp 20 only bit that matters for ) has increased and party affiliations are well-represented in price (from 100 to 110 rupees). The con- across the top jobs. Emmanuel Macron, 15 fused statistician may then treat an in- France’s president, sees the commission Airline-passenger crease in rupee profits as evidence of real presidency as the prize, says Mr Rahman. traffic 10 growth, not merely higher prices. Such ecb Electricity The price could be a German at the . consumption Steel Two-wheeler sales problems are less likely in more developed All this means that expertise is not the 5 g20 countries, which keep better track of GDP Exports† sole criterion for replacing Mr Draghi. And Credit the prices of inputs. IIP* Imports† until the commission presidency is decid- 0 As a check on his results Mr Subrama- ed, there are plenty of permutations. A Railway-freight Commercial- nian searched for other outliers—coun- drawn-out process raises the risk that the traffic vehicle sales -5 tries growing much faster than alternative job is traded for other positions. Other 0 5 10 15 20 indicators would suggest. A big example is names could emerge. A fudge, with the 68- 2001-02 to 2011-12 China, a familiar target of statistical scorn. year-old Mr Liikanen doing half a term and *Index of industrial production †Goods and services During India’s spells of real and imagined giving way for someone else, is not impos- Source: “India’s GDP mis-estimation: likelihood, miracle growth, it has often aspired to be sible. Just as a break with the past cannot magnitudes, mechanisms and implications”, by the next China. In the production of du- yet be ruled out, nor can a reversion to it. 7 A. Subramanian, CID faculty working paper, June 2019 bious data, it is catching up fast. 7 Financial Era Advisory Group 66 Finance & economics The Economist June 15th 2019

Martin Feldstein al—or not. Even the imf is scratching its head about how much governments truly An economic owe. In some places the mystery is loans from China and other emerging lenders. In institution others it is advance payments from oil trad- ers, liabilities from public-private partner- ships or hidden loans from commercial WASHINGTON, DC banks. The Institute of International Fi- Adviser to presidents, teacher and nance (iif), a group of banks and financial mentor to young economists institutions, has responded to mounting or a half-century Martin Feldstein concern by drafting principles on debt Fwas everywhere you looked in Ameri- transparency. Finance ministers of g20 can economics. He was an astoundingly countries endorsed them at a summit in prolific columnist, sometimes churning Fukuoka, in Japan, on June 8th-9th. out several a week, for several newspapers, The iif principles are voluntary and on the big economic stories of the day. He would apply only to lending from the priv- was a fixture at conferences and seminars ate sector, not from states. Lenders would and the teacher, for two decades, of Har- disclose any loans they make to low-in- vard University’s introductory economics come governments or state firms within course. He served presidents of both par- 60-120 days of funds being released. Details ties. In short Mr Feldstein, who died on would include the loan’s purpose and June 11th aged 79, was an American eco- structure, and a range within which the in- nomic institution. Pillar of the profession terest rate falls. The data would be held by Born in New York City, he spent most of an international institution, perhaps the his life in Cambridge, Massachusetts, at (nber), helping to secure its place as an es- imf or World Bank. Harvard, where he moved in 1967 after a sential conduit for economic scholarship. The g20 countries could use their vot- doctorate at Oxford. His early career was re- He convened regular meetings of scholars ing power at the imf to insist it stores the markably productive. In 1974 he published to encourage collaboration, and built the data. Their endorsement will have weight an influential paper examining how Social nber’s working-paper series into one of with the private sector, says Sonja Gibbs of Security, America’s public pensions sys- the world’s most respected vehicles for the iif. Although lenders benefit from tem, affects saving patterns. Astonishing- publicising new research. knowing more about government debts, ly, he concluded that the programme re- Just as important, he mentored and in- some are reluctant to share information duced personal saving by between 30% and spired scores of young economists, includ- they consider commercially sensitive. 50%; throughout his life he was a staunch ing some who became giants of the field They will need to be pressed to take part. “It advocate for its reform. and prominent public servants, among will be a name and shame game,” says Mark In work with Charles Horioka he identi- them Larry Lindsey, an adviser to George W. Plant of the Centre for Global Develop- fied one of the great enigmas in interna- Bush, and Larry Summers and Jason Fur- ment, a think-tank. “That sometimes tional economics, now known as the Feld- man, who advised Mr Obama. For quite works, it sometimes doesn’t.” stein-Horioka puzzle. Economists reckon some time to come, Mr Feldstein’s influ- How to give the scheme bite? One pro- that capital free to move should go where ence will still be there, everywhere you posal is that sovereign-loan contracts that returns are highest. There should therefore look in American economics. 7 are not publicly disclosed within 30 days of be little correlation between a country’s signature should be unenforceable in savings and domestic-investment rates, court. Most international loans are made since places with too little investment Government debt under New York or English law—as Mo- should offer investors higher returns, zambique’s dodgy deals were—so tweaking sucking in capital from abroad. In fact, Open book the rules in those two jurisdictions would they pointed out, the two rates are quite be a good start. Case law and legal institu- closely linked, an oddity that still moti- tions are so well established that business vates research. For his academic work Mr would be unlikely to move elsewhere, ar- Feldstein was awarded the John Bates Clark gues Tim Jones of Jubilee Debt Campaign, medal in 1977, given (then every second KAMPALA the British charity behind the idea. Some 51 How to stop governments borrowing year, now annually) to the top American mps have written to the British chancellor behind their people’s backs economist aged under 40. to support Jubilee’s proposal, among them His work earned him the attention and n 2016 the government of Mozambique former Labour and Conservative secretar- respect of politicians. As the chair of Ron- Iconfessed to secret debts of $1.4bn, or 11% ies of state for international development. ald Reagan’s Council of Economic Advisers of gdp, mostly as loan guarantees for state- On June 5th the Labour Party said it would from 1982 to 1984, he helped shape the Tax backed companies. Growth faltered, the implement the idea if it wins power. Reform Act of 1986, which dramatically currency slumped and foreign donors Legal changes are not yet on the g20’s simplified the tax code and slashed tax pulled back. The results have been “devas- agenda. But rising debts are fuelling a rates. Two decades later he served Barack tating”, says Denise Namburete, a civil- sense of urgency. The imf reckons that Obama as a member of the Economic Re- society activist, describing health centres 44% of low-income countries are in debt covery Advisory Board, convened to gather that have gone two years without medi- distress or at high risk of it—even without ideas for addressing America’s worst eco- cines. American prosecutors are pursuing more nasty surprises. The average develop- nomic crisis since the Depression. eight people involved in the scandal, in- ing country’s external-debt payments have Yet Mr Feldstein’s most enduring con- cluding three foreign bankers and a former risen from 6.6% of government revenue in tributions are likely to be to the profession finance minister, on charges of money- 2010 to 12.2% in 2018, calculates Jubilee. of economics itself. For 30 years he led the laundering and fraud. Clandestine debts could mean the actual National Bureau of Economic Research The Mozambique case may be unusu- picture is even worse. 7 https://t.me/finera

The Economist June 15th 2019 Finance & economics 67

Monetary policy Charity at scale Washington hold ’em The tail that wags Market-implied probability of given federal More is less funds rate* after September 2019 meeting, %

May 12th 2019 June 12th 2019 60 60 NEW YORK Current The market believes the Fed will cut rate 50 50 A promising-looking attempt to cut rates by September. Should it? 40 40 poverty grew, and flopped he federal reserve is changing direc- 30 30 year and a half ago The Economist tion. In December it predicted that it wrote about a promising approach to T 20 20 A would raise the federal funds rate twice in cutting poverty in Bangladesh (“On their 2019, to 2.75-3.0%. In March it thought it 10 10 bikes”, January 27th 2018). rdrs, a charity, would hold rates steady instead. Investors 0 0 was offering small loans to more than now think there is a one-in-five chance 1.50 1.75 2.00 2.25 1.50 1.75 2.00 2.25 100,000 poor farmers on the condition that that it will cut rates at its meeting on June they migrated temporarily to a city for Source: Bloomberg *Lower bound of target range 19th, and a 95% chance that it will do so by work. Everything seemed to be set fair. September (see chart). Jerome Powell, the Smaller randomised controlled trials had Fed’s chairman, has said it is “ready to act”. out can central bankers conclude that mar- shown that many men could be persuaded The reason for the change is a darkening kets are telling them something they need to move while the rice crop is growing, world economy, caused primarily by the to hear about growth and inflation. Dis- when there is not much work to be done at failure of America and China to strike a cerning this signal becomes trickier the home. Although the migrants found only deal to bring their trade war to an end. Yet more the Fed appears to respond to the low-paid jobs, as rickshaw drivers, build- for all the ructions, the visible impact on market. To see why, suppose that the Fed ig- ing labourers and the like, their fortunes America’s hard economic data has so far nores market movements completely, and had greatly improved. It looked like a true been relatively small. True, American firms instead sets policy in an entirely predict- poverty cure. hired only 75,000 workers in May, on first able way, responding only to hard data on Sadly, things soon began to go wrong. estimate, well below the recent monthly growth and inflation. Any change in mar- Evidence Action, the charity overseeing the average. But jobs data are volatile, and the ket expectations about Fed policy would scheme, heard rumours that somebody in- unemployment rate is a very low 3.6%. then reflect only changes in investors’ per- volved with the project may have sought to Where the pain of the trade war has ception of the outlook for those variables. bribe a government official, though it shown up is mainly in financial markets. “If Fed policy is clear and systematic,” says could not substantiate them. More damn- The ten-year Treasury yield, for instance, Charles Calomiris of Columbia University, ingly, as the data came in, it became clear was 2.5% in early May but has since fallen “policymakers can glean useful informa- that in 2017 few men had been persuaded to to 2.1% as investors have rushed to safety tion from markets.” The more the Fed re- migrate. On June 6th Evidence Action an- and anticipated rate cuts. Large moves like sponds to the market, however, the more it nounced it was shutting down the scheme. these raise an uncomfortable question for is “looking in the mirror”, as Alan Green- What looked like a miracle cure for poverty the Fed. Should it yield to the market, span, a former Fed chairman, supposedly now seems like a warning about the pitfalls thereby risking the appearance that mone- once quipped. of development projects. tary policy is set by traders? Or should it If monetary policy were entirely auto- Do-gooding schemes that work bril- consider only backward-looking economic mated, however, the information embod- liantly in trials often fail when they are1 data, which move slowly? ied in markets would be useful but unused. Markets provide the aggregated wisdom What is more, reacting only to real data is of a crowd of individuals with money on like driving while looking only in the rear- the line. In most contexts their forecasts view mirror. Central bankers often say that will outperform those of a financially dis- monetary policy works only with a lag of 18 interested committee, even one made up of months or two years. Many economists be- experts. But there are other reasons why an lieve that flat-footedness at the Fed has apparent discrepancy between the two been to blame for numerous post-war may endure. American recessions. The first is that there is not really a dis- If the Fed wants to glean useful infor- crepancy at all. Suppose the Fed and the mation from markets, it cannot pander to market make the same judgment about the them. “The Fed needs to be the dog that risk of an economic shock such as a trade wags the tail,” says Mr Mishkin. But when war. “The Fed has the luxury of more time,” market movements have a fairly clear says Torsten Slok, an economist at Deut- cause—in today’s case, the trade war—and sche Bank. It can wait to see what happens the reaction is severe, it is likely that a rate before changing policy, whereas investors cut will eventually be necessary. The short- must hedge their bets immediately to ac- term risk of moving in anticipation of count for even unlikely events. events is that the outlook brightens and the The second is that markets agree with rate cut then sparks inflation. Yet to the ex- the central bank about the economic out- tent that economic data are telling a clear look, but are confused about how it will act. story, it is that inflation is contained. Con- “The Fed might have failed to communi- sumer-price inflation, for example, slowed cate well,” says Frederic Mishkin, a former to 1.8% in May. That suggests it would be rate-setter. better for the Fed to get on with the rate cuts Only if these possibilities can be ruled that the market expects. 7 The wheels are coming off Financial Era Advisory Group 68 Finance & economics The Economist June 15th 2019

2 scaled up, says Justin Sandefur of the Cen- the contracted teachers were promised would have made the journey anyway, the tre for Global Development, a think-tank. trade-union representation, just like or- project had little effect. Trials are often overseen by determined dinary teachers. Not surprisingly, an evalu- Mushfiq Mobarak of Yale University, phd students. When large charities or gov- ation by Mr Sandefur and others found that who helped develop the Bangladesh migra- ernment officials take over, as they must if the government’s reform had no effect. tion project, says that the episode shows a project is to be done at scale, much In Bangladesh the problem may have how important it is to keep collecting and changes. Rules and regulations multiply; been targets. Many of the “migration or- analysing data as schemes grow. But, as he bad behaviour becomes more likely. Big ganisers” who fanned out to villages, offer- points out, it is possible that exactly the op- schemes can attract hefty opposition. ing to subsidise journeys to cities, seem to posite lesson will be learned. Rigorous, on- One charity in Kenya had shown that have been expected to sign up 450 migrants going analysis of development projects is hiring teachers on fixed-term contracts im- each. They may have done what anybody slow, expensive, hard—and, as researchers proved pupils’ test scores. So the govern- would do in that situation: approach men keep discovering, liable to turn up uncom- ment rolled out the contracts across the who had migrated before or were especially fortable facts. It is much easier just to as- country. But a political backlash meant that eager to travel. Because most of those men sume that your project is doing good. 7 Buttonwood Against the clock

Robert Merton and the effect of time on portfolio choice inance theorists are, as everybody dictable. Alter these assumptions, as Fknows, unworldly people who can future researchers would, and the results scarcely tie their shoelaces, still less change. Mr Merton’s use of continuous- change a car tyre. Robert Merton con- time mathematics created a valuable founds this stereotype. As he talks ami- template. Finance theorists were able to ably at the London office of Dimensional apply the same toolkit to solve related Fund Advisors (he is the firm’s “resident problems, says Hugues Langlois of hec scientist”), you sense that here is a man Paris, a business school. The best ex- who could fix a flat in no time. He would ample is the Black-Scholes model for probably deliver a cheerful lecture on the pricing financial options, for which Mr importance of the correct tyre pressure Merton was awarded the Nobel prize, while he was tightening the wheel nuts. along with Myron Scholes. Mr Merton has always had a bent for A lot of finance theory that came later engineering, whether financial or me- would tease out the circumstances in chanical. He bought his first stock aged which time horizon really does matter. ten and completed a risk-arbitrage trade The reckoning changes, for instance, (on a takeover by Singer, a maker of when wealth is looked at in the round to sewing-machines) aged 11. He rebuilt his include non-tradable human capital— first car aged 15. In 1997 he won the Nobel Their first step was to assume that in- knowledge, skills and abilities. Sitting in prize for economics aged 53—a career vestors seek the highest returns for a given a London office, Mr Merton gives an high. A year later, a career low: ltcm, the amount of risk. Stocks are riskier than illustrative example. hedge fund he co-founded, imploded. bonds. The issue for portfolio choice is Say, a young person’s human capital, These markers of the passing years mat- how much of this risk to bear. That will which determines his future earnings, is ter. For Mr Merton’s specialism is the vary. Each person should indeed hold as 90% of his lifetime wealth, with the mathematics of time applied to finance. much as is compatible with sound sleep. balance in stocks. And say that for an His first paper on the subject was In this new, formalised set-up, in- almost-retired person the proportions published almost exactly 50 years ago. Its vestors decide once and for ever how to are reversed. If the stockmarket crashes title—“Lifetime Portfolio Selection under divide their financial wealth. But real-life by 40%, the young person has lost only Uncertainty: The Continuous-Time investing is a movie, not a snapshot. Time 4% of his wealth. But the nearly retired Case”—is forbidding. The ten pages of is a factor, on top of risk appetite. Mr Mer- person has lost 36%, which is much more equations that follow are daunting. But ton wanted to go further and discover how serious. For older people, having all their for Mr Merton, the equations are tools, investors, faced with an uncertain future, financial wealth in stocks is not a sen- no different from a car jack. They allowed should decide at each moment on their sible risk to take, says Mr Merton. Hu- him and subsequent researchers to mix of risky and safe assets. The folk wis- man capital is low-risk. If you have lots clarify an important question: when dom of the time said that young people of it, you can take more financial risk. does time horizon matter in investing should hold a riskier portfolio than older The best lifetime strategy is a complex and when does it not? ones, because the passing of time makes problem to solve, even for brainy people To start to understand the paper’s stocks less risky. That turned out to be such as Mr Merton. But he hopes that, importance, go back more than half a wrong—or, at least, it was not quite right. with the passage of time, the pension century to the birth of modern portfolio In two papers published in August 1969, industry will create more user-friendly theory. Finance theory had been mostly a Mr Merton and his mentor, Paul Samu- products. Cars are easy for their users; collection of stories and rules of thumb. elson, showed that time horizon should the complex work is done by designers Some was useful (“sell down to the sleep- make no difference to portfolio choice. But and engineers. Pensions should be the ing point”). Little was rigorous. A new the result holds only if risk appetite is same. Needs drive innovation, says Mr generation of scholars changed this. unchanging and stock prices are unpre- Merton. “That is why I’m an optimist.” https://t.me/finera

The Economist June 15th 2019 Finance & economics 69

American retail banking and co-branded ones for American Air- lines, Costco and others, mean it already The giants are coming has a mighty digital presence, says Stephen Bird, its global head of consumer banking. Citi hopes to persuade credit-card custom- ers to open current (checking) and savings accounts, using extra card rewards as a lure. Drawing on its experience in Asia, it is NEW YORK offering digital lending products through Digital technology is likelier to strengthen America’s big banks than usurp them its mobile app; people who would pay a y almost any measure, America’s big- credit-card bill at once may roll over a loan Bgest banks are behemoths. JPMorgan Hungry heavyweights at a lower rate. Chase’s balance-sheet weighs in at $2.7trn, United States, banks, domestic deposits, $trn As giant banks expand, who loses? Bank of America’s (bofa) at $2.4trn. Citi- March 31st 2019 Community banks may seem most at risk. group tips the scales at almost $2trn and 0 0.5 1.0 1.5 The smallest are already vanishing at a rate Wells Fargo at $1.9trn. Their combined Bank of America 2.38 of five per week, mainly through mergers. market value is nearly $1trn. Last year they But as a class, local lenders are more resil- raked in over $100bn after tax. Wells Fargo 1.89 ient than they look, thanks largely to their Yet by one gauge, the titans are curious- JPMorgan Chase 2.74 expertise in small-business lending. “The ceo ceo ly tiny. Together that quartet holds only Citigroup 1.96 of a small business can talk to the about a third of Americans’ deposits (see of a small bank,” says Aaron Fine of Oliver chart). The biggest names in other rich US Bank 0.48 Wyman, a firm of consultants. “That value countries, from Canada to Sweden, have far BB&T/SunTrust* 0.45 proposition is pretty solid.” larger shares. Perhaps only Germany’s mar- PNC 0.39 Regional lenders, with neither the ket, with its hundreds of municipal and co- giants’ heft nor the community banks’ operative banks, is similarly fragmented. Capital One 0.37 small-town appeal, may face a harder fight. Despite years of mergers, including sev- Citizens 0.16 This year bb&t and SunTrust, two south- eral mid-crisis in 2008-09, America still eastern banks, agreed to merge, creating Fifth Third Total assets, $trn 0.17 has over 5,300 banks. Almost 5,000 are America’s sixth-biggest retail bank. More Source: Bloomberg *Merger agreed “community” banks, mostly with assets may bulk up to beat the behemoths. below $1bn, which collectively hold 15% of But the biggest regionals are not exactly deposits. Even the giants are still filling have,” says Dean Athanasia, president of surrendering. Betsy Graseck of Morgan gaps, the fractured geography of their retail bofa’s consumer bank—which in the past Stanley notes that us Bank, based in Min- networks reflecting the genealogy of past year has cut its cost-to-income ratio from neapolis, gained share in the year after mergers. bofa opened branches in Pitts- an already decent 51% to 45%. Put all this bofa opened; Wells, the city’s other leading burgh only last year and in Salt Lake City in together and, in the phrase of Mike Mayo, bank, gave up ground. us Bank, mean- January. The first Chase branches in Boston an analyst at Wells Fargo, “Goliath wins.” while, will this year open its first branch in and Washington opened in late 2018. More surprisingly, most big banks still Charlotte—by chance, bofa’s hometown. Digital technology is already reshaping see branches as assets. Yes, they are closing Tim Welsh, head of consumer and busi- the landscape. After 147 years of disdain for lots. But to grow, they need to spread. The ness banking, says that it already has an of- retail banking, in 2016 Goldman Sachs biggest cannot simply buy their way into fice serving thousands of mortgage, car- launched Marcus, a consumer bank. It has new markets, because takeovers that create loan and credit-card customers there. snared $35bn of deposits, helped by a posh banks with more than 10% of all deposits American banking is unlikely ever to be brand and generous interest rates. “Our ad- are barred. So in the past few years bofa has as concentrated as in many other rich vantage is that we are unencumbered by also set up shop in Denver, Indianapolis countries. But digitisation will help the legacy systems,” says Harit Talwar, Gold- and Minneapolis; Ohio’s big cities are next. biggest get bigger. Though giants are rarely man’s global head of consumer business. JPMorgan Chase said in 2018 it would enter nimble, it still takes a lot to fell them. 7 Goldman built its platform in 11months. 20 markets and open 400 branches. It too is Many reckon that banks, burdened with coming to Minneapolis this summer. Both old it and ever-emptier branches, will suf- are formidable competitors, aiming to fer the fate of retailers and taxi drivers. The reach the top three wherever they attack. closure of Finn, JPMorgan’s mobile brand “We go in digital first,” says Mr Athana- for millennials, reported on June 6th, looks sia. “But without the branch you can only like further evidence that banks are not get so far. Countless people have tried digi- nimble enough for the digital age. tal-only, and they never develop any scale.” Not surprisingly, they disagree. Frag- Branches of Merrill Lynch, bofa’s investing mentation means that even the biggest arm, have also been a bridgehead. But tech- have room to grow; they believe digitisa- nology makes it easier and cheaper to reach tion will help. Their advantages start with customers. “Plenty of people download the sheer firepower: JPMorgan Chase spends app,” says Jamie Dimon, JPMorgan Chase’s $11bn-odd a year on it. They have tens of chief executive. “But, in America, they millions of customers and lots of data on hardly ever open a bank account until we their incomes and outgoings. Their brands open a branch nearby.” are household names. Their funding costs By contrast Citi, whose branches are are low, whereas financial-technology concentrated in half a dozen cities, sees lit- companies with no banking licences lack tle need to open many more. A vast fee-free access to cheap, federally insured deposits. atm network and its huge credit-card busi- “They have to build something we already ness, which offers both own-branded cards Financial Era Advisory Group 70 Finance & economics The Economist June 15th 2019 Free exchange Votes of confidence

Just how compatible are democracy and capitalism? Dani Rodrik, have argued that full participation in the global econ- omy forces a country to give up a degree of either national sover- eignty or democracy. Lowering barriers to trade means harmonis- ing trade and regulatory policies with other countries, for instance, which reduces each government’s ability to accommo- date domestic preferences. But if capitalism and democracy are such uneasy bedfellows, what explains their long co-existence in the rich world? Mr Iversen and Mr Soskice see capitalism and democracy as potentially mutu- ally supporting, with three stabilising pillars. One is a strong gov- ernment, which constrains the power of large firms and labour un- ions, and ensures competitive markets. Weaker countries find it harder to resist the short-term expediency of securing power by protecting monopolies. The second is a sizeable middle class, forming a political bloc that shares in the prosperity created by a capitalist economy. A bargain is struck in which the state provides mass higher education on generous terms, while encouraging the development of frontier industries that demand skilled workers. Middle-class households thus reckon that economic growth is likely to benefit them and their children. (Rising inequality is not a threat to capitalist democracies, the authors reckon, because mid- dle-class voters care little about the poor and do not support f late the world’s older democracies have begun to look more broader redistribution that could raise their tax bills.) Ovulnerable than venerable. America seems destined for a con- Providing the education, infrastructure and social safety net stitutional showdown between the executive and the legislature. that support a prosperous middle class requires substantial tax Brexit has mired Britain in a constitutional morass of its own. Such revenue. For the system to hold a third pillar is needed: large firms troubles could be mistaken for a comeuppance. In recent years po- that are not very mobile. Before recent rapid globalisation that was litical economists have argued that rising inequality in the Anglo- no problem. Yet even now firms are more rooted than commonly American world must eventually threaten the foundations of de- thought. Though multinationals are adept at shifting production mocracy; a book on the theme by Thomas Piketty, a French econo- and profits around the world, in a knowledge economy leading mist, has sold well over a million copies. That argument channels firms cannot break their connections to networks of skilled indi- a time-worn view, held by thinkers from Karl Marx to Friedrich viduals like those in London, New York or Silicon Valley. Their Hayek, that democracy and capitalism may prove incompatible. complex business plans and frontier technologies require the As powerfully as such arguments are made, the past century or know-how developed and dispersed through these local networks. so tells a different story. The club of rich democracies is not easy to That increases the power of the state relative to firms, and allows it join, but those who get in tend to stay there. Since the dawn of in- to tax and spend. dustrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into Middlemarch authoritarianism. This is not a coincidence, say Torben Iversen of Quibble with the details, but the overarching story—immobile Harvard University and David Soskice of the London School of Eco- companies giving governments a degree of sovereignty, which nomics, in their recent book, “Democracy and Prosperity”. Rather, they self-interestedly use to boost the middle classes—seems a they write, in advanced economies democracy and capitalism tend plausible account of the stability of advanced capitalist democra- to reinforce each other. It is a reassuring message, but one that will cies. It leaves plenty to be concerned about, however. It hinges on face severe tests in years to come. the middle classes feeling confident about the economy. A sharp Economists and political theorists have imagined all sorts of slowdown in growth in real median incomes, as in America and ways capitalist democracies might fail. The oldest is the worry that Britain in recent years, might not send voters rushing to the barri- grasping masses will vote to expropriate the wealth (hard-earned cades, but could strengthen the appeal of movements that threat- or not) of entrepreneurs and landowners—and without secure en to disturb the status quo. Governments, too, are becoming less property rights there can be no capitalism. Hayek thought that the responsive to middle-class priorities. America’s is too dysfunc- governments of the early 20th century, in responding to the con- tional, and Britain’s too distracted by Brexit, to focus on improving cerns of the masses, had over-centralised economic decision- education, infrastructure and the competitiveness of markets. making, a road that led eventually to totalitarianism. Other think- Demographic change might also take a toll: older and whiter ers followed Marx in reckoning that it was the greed of the capital- generations may not much care whether a would-be middle class ists that would do the greatest harm. Joseph Schumpeter feared that does not look like them has opportunities to advance or not. that as firms grew more powerful, they might push a country to- Then, too, the authors may have underestimated the corrosive ef- wards corporatism and clientelism, winning monopoly rights that fect of inequality. Threatening to leave is not the only way the rich would generate profits they could share with politicians. Mr Pi- can wield power. They control mass media, fund think-thanks and ketty and others say that inequality naturally rises in capitalist spend on or become political candidates. Proud democracies may countries, and that political power becomes concentrated along- well survive this period of turmoil. But it would be a mistake to as- side economic power in an unstable way. Other economists, like sume survival is foreordained. 7 https://t.me/finera Science & technology The Economist June 15th 2019 71

Space business planned, and the billions of dollars re- quired to install them are feeding the en- Orbital ecosystem tire market. Many of the capabilities of the new smallsats already existed, but mostly as government projects or as secretive intelli- gence operations. America has long sought to inhibit the commercial development of SAN FRANCISCO AND DIDCOT radar satellites, so powerful are their sur- An in-orbit economy is taking shape veillance properties. Military radar satel- n may 1999 a group of researchers from Planet Labs is an industry leader. The lites, which bounce radio waves off the sur- Ithe Technical University of Berlin cost of making and launching satellites has face of the Earth in order to build up a launched an unusual satellite. At a time tumbled, enabling an array of new space- detailed picture of it, were said to be capa- when most of the machinery in orbit based businesses to emerge. In the past ble of detecting enemy submarines by weighed thousands of kilograms, tubsat year smallsats have been launched that can measuring the tiny disturbances that their was a petite 45kg. A box that measured use radar to peer through clouds or dark- wakes left in the curvature of the surface of 32cm on each side, it carried three video ness. Others watch for illegal shipping ac- the ocean. cameras, the idea being to test whether tivities and yet more are built to service or Payam Banazadeh, the boss of Capella such a titchy spacecraft could capture use- move around other satellites in orbit. Per- Space, a startup based in San Francisco and ful imagery of Earth. The researchers cited haps the most outlandish venture is a res- founded in 2016, says his firm will use low mass, and the resultant low costs, as cue satellite, designed to pull other satel- smallsats to work similar magic. Capella’s the benefits of such comparatively tiny sat- lites down to safety if something goes satellites will use radio waves, rather than ellites. They promised to open up “new wrong, to avoid catastrophic collisions light, to create images of the surface of the market areas” for Earth observation. with neighbours. Earth. Mr Banazadeh says that his small- It took around 15 years for them to be Much of the recent attention has fo- sats will be able to measure the volume of proved right. A few such “smallsats”, some- cused on the internet-connection constel- oil-storage tanks, for example, which are times called nanosats or CubeSats, were lations in low Earth orbit proposed by Spa- often open-topped to avoid fire risks, sim- launched every year in the decade up until ceX and OneWeb. These have long been ply by pinging a radar beam into them. The 2014, when numbers spiked. Planet Labs, a first operational satellite is intended to Californian company founded by ex-Nasa launch this year, one of a planned constel- Also in this section engineers, launched 33 smallsats that year, lation of 36. A competitor, Finnish com- each weighing just a few kilos. Planet’s sat- 72 Smart satellites pany iceye, already has satellites in orbit ellites are spiritual successors of tubsat, gathering data. 73 A better way to edit genes designed to gather imagery of the Earth’s Capella relies on a host of new space surface. The firm sells its customers im- 74 Stimulating creativity in the brain businesses as suppliers. Blue Canyon Tech- ages from around 150 active satellites it has nologies, founded in 2008, will provide 74 A puncture-proof tyre in orbit. small thrusters that allow the satellites to 1 Financial Era Advisory Group 72 Science & technology The Economist June 15th 2019

2 be pointed at specific spots on Earth. A AI in space company called Phase Four, founded in 2015, will provide tiny ion drives that will allow Capella’s satellites to adjust their al- In high detail titude as needed. This will let the firm cap- ture a wider variety of imagery. Speeding up the processing of space images Another new firm, Hawkeye360, takes a different approach. Instead of pinging the uch of the information that is dard-sized10x10x11.5cm modules. surface of the Earth with radio waves, it lis- Mbeamed back from space is useless. Intuition-1will be equipped with a tens for any that are being emitted by activ- Pictures taken by satellites orbiting the hyperspectral imager, which takes 150 ity down below. This kind of orbital signal Earth might take days to download, only pictures of every scene it looks at. Each sniffing also used to be the domain of gov- to show lots of cloud obscuring the area picture is at a different spectral frequen- ernments. But smallsats have advanced to of interest. The subject matter may also cy, so contains different information. the point where Hawkeye can deploy clus- be surrounded by irrelevant informa- The neural network stitches these to- ters of three radio-frequency sensing satel- tion. All this uses up a lot of valuable gether using powerful graphics chips lites to pick up weak signals from the bandwidth. hardened against radiation. The devel- ground. The company says its primary ser- Processing data in space, before trans- opers have also built error correction vice will be maritime surveillance, looking mission, would reduce clutter, but this into their software. for anomalous radio signals such as a fish- can be tricky. Cosmic rays randomly flip Intuition-1will view a 15km-wide ing vessel turning off its automated identi- the ones and zeroes that computers swathe of Earth at a resolution of 25 fication tracker near a marine protected operate on, introducing unpredictable metres per pixel. This will be able to zone. The stated purpose is to stop illegal errors. High levels of radiation can also reveal details such as how well crops are fishing and keep ports secure, but it is easy damage electronic circuits. kp Labs, growing or allow the number of trees in a to see how the smallsats could be used to based in Gliwice, Poland, is building a forest to be counted. curb oceanic migration too. Hawkeye’s first satellite to overcome some of these But instead of transmitting back every cluster of satellites has been in orbit since problems. Their device, called Intu- last bit of image data, the satellite will December 2018. ition-1, is controlled by a neural network, summarise what the user requests as a form of artificial intelligence modelled useful information. This might, for The data deluge on the human brain. The satellite is what instance, be a heat-map showing areas of All of these new forms of imaging generate is known in the trade as a 6u CubeSat, weeds in a field or the location of a forest huge volumes of data—terabytes a day, which means it is composed of six stan- fire. Reducing the data load means that enough that getting it down to the ground some of this information can be trans- for processing becomes its own problem. mitted live. Some companies want to reduce the The satellite will be used to prove that amount of data they send back by process- a hardened neural network can survive ing some of it up in space (see box). Barry in space. This could pave the way for Matsumori, a space-industry veteran, is other space applications. For example, boss of Bridgesat, a company that has de- the Curiosity rover on Mars was success- veloped a tiny, powerful laser, which can be fully upgraded in 2016 with a set of algo- embedded in spacecraft and which can rithms to detect “interesting” rocks for beam data down to ground stations at ex- investigation, instead of picking them tremely high bandwidths. iceye is one of randomly. A neural network could pro- its first customers. Bridgesat’s first ground vide future rovers and deep-space probes station, in California, is already in opera- with a better ability to make decisions. tion, and more in Italy and Sweden are on The neural network and hyperspec- their way. The plan is to have ten around tral imager have already been built and the world. tested by kp labs. The kit will go into a The firm has competition from Ama- satellite body being constructed by Clyde zon, which just announced its own back- Space, a satellite producer based in Scot- bone service for data out of orbit and into land, and launched in 2022. After that its data centres, called aws Ground Station. there will be more intelligence in space. Capella is an early customer of the service, which uses radio waves rather than lasers to get data down from orbit. As with Ama- Perhaps the most futuristic new pro- atmosphere where it will burn up before it zon’s cloud-computing business, the idea blem for the space business is the risk of can collide with anything. The “rescue” with Ground Station is to invest in plenty of debris. The concern is that, with so many craft will use computer vision to lock onto expensive infrastructure and then charge new satellites in orbit operated by so many the out-of-control satellite and match ve- startups only for what they use, making it different companies, the chance of losing locity with it, then latch onto it magneti- easier and more affordable to run a busi- control of one goes up. A collision could be cally. The company, which has raised ness up in space. disastrous, producing a wave of debris with $132m in the past few years, is planning a Managing all those extra satellites gets a high chance of wiping out other satel- demonstration of its technology next year. tricky when the companies launching lites, potentially crippling the whole com- Earth’s orbits suddenly look busier than them have to get their orbits perfect the mercial low-Earth orbit ecosystem at a ever before. Companies are going into first time. Currently, companies get only stroke. Astroscale, a Japanese company, is space because it offers a different vantage one shot. D-Orbit, an Italian company, has tackling this problem by building a proto- point, allowing them to gather valuable built a “carrier” satellite that is designed to type craft capable of being launched at new, previously-unaffordable informa- boost already-launched smallsats to their short notice in order to grab any malfunc- tion. tubsat’s “new market areas” are at correct configuration. tioning satellite and pull it down into the last open for business. 7 https://t.me/finera

The Economist June 15th 2019 Science & technology 73

Gene editing mechanisms to conduct and make good the edit, it offers a mechanism for adding Jump start genes into a wider variety of cells. This in- cludes neurons and, most critically, cells that are not currently replicating in a suit- able way for crispr to work. Although the new papers only demonstrate that jump- ing-gene editing works in bacteria, scien- tists have high hopes that it might work in From designer babies to selfish genes, crispr is back in the spotlight human cells. s far as experts are concerned, the team led by Feng Zhang of the Broad Insti- The news is welcome in a field where Atechnology of gene editing is nowhere tute in Cambridge, Massachusetts, was the potential applications in medicine near ready to be used to create gene-edited published on June 6th, in Science. The sec- seem to grow by the day. Verve Therapeu- babies. This, of course, is separate from the ond comes this week in Nature from Samu- tics, a biotech firm in Cambridge, Massa- question of whether it is morally right to do el Sternberg’s team at Columbia University chusetts, recently said that it wanted to use so. Nevertheless, around the world, would- in New York. genetic editing to protect patients from -be baby tinkerers have failed to get the coronary heart disease. crispr Therapeu- memo. This week a Russian scientist an- Selfish genes tics, based in Zug, Switzerland, wants to nounced his ambition to repeat a Chinese Both teams made use of “jumping genes” or edit beta cells, which produce insulin, so scientist’s gene-editing experiment on hu- transposons (often called selfish genes), that they can be transplanted into diabetics man embryos, which lead to the birth of which are pieces of dna that seem to hop without rejection. In all these therapies, two babies with modified ccr5 genes last around genomes with little more purpose regulators will have to assess the risks and year. The Chinese effort was roundly con- than to proliferate. They were thought to do benefits. That will be easier when small demned on grounds of safety and ethics. so aimlessly but, in 2017, it was discovered risks of mistakes are set against the bene- Moreover, at the start of June evidence that some contained gene-editing systems fits of curing a fatal disease. But if crispr is emerged that the genetic mutation in the that were very good at recognising specific to be used more widely and safely, more gene ccr5, one that offers protection dna sequences. These were able to control understanding will be needed of how ge- against infection from hiv, is also associ- where the jumping genes landed. That, in netic changes actually relate to differences ated with slightly earlier death. turn, led to the idea, says Dr Sternberg, that in how a cell functions. The finding highlights the need to un- it might be possible to harness jumping That effort got a boost this week. Jenni- derstand far more about how alterations in genes in gene editing. fer Doudna (pictured) of the University of a cell’s dna translate into changes in how it Dr Zhang and Dr Sternberg have now California, Berkeley, who discovered functions. There are also a variety of con- demonstrated programmable crispr-Cas crispr-Cas gene editing and is a leading cerns about the basic technology that need gene-editing systems that do just this by scientist in the field, will collaborate with to be dealt with before it can be used widely harnessing a protein encoded by a jumping gsk, a drugs firm based in London, to eluci- in treatments for the sick—let alone to tin- gene known as Tn7. Dr Sternberg says that date the basic science of gene editing. The ker with healthy embryonic humans. instead of making a double-stranded cut to new Laboratory for Genomic Research, crispr-Cas genome-editing systems, dna, and waiting for the cell to repair itself, based in San Francisco, is a $67m five-year often just known as crispr, are molecular in the new system the act of insertion hap- collaboration that may ultimately be use- machines that can be programmed to pens at the same time a cut is made. ful for drug development and would-be home in on specific sections of dna in the Because the transposon method of gene gene editors—whether they seek to make genome and cut both strands of the double editing does not need a cell’s own repair changes to adults or embryos. 7 helix molecule. This system allows genes to be knocked out or, in some cases, added. It is not a perfect mechanism. One con- cern, for example, is that editing can alter dna in places it isn’t supposed to and that these “off-target” effects could trigger can- cers. A second worry is that the cell can fill gaps with random dna when it is making repairs. These could silence genes that the organism may need. A third concern is that although crispr successfully hunts down and cuts out faulty dna, it is harder to get it to insert the right new genes. Firms involved in developing crispr editing for use in medicines have down- played concerns. Perhaps that was inevita- ble as they depend on investors’ optimism. Rapid advances in many areas have sup- ported the optimists’ case that the grem- lins in the new techniques can be over- come in time. “Yesterday’s problems are not necessarily tomorrow’s,” observes Hel- en O’Neill, a molecular geneticist at Uni- versity College London. In that vein come two papers describing a way to improve crispr. The first from a Doudna and her team, watching out for jumping genes Financial Era Advisory Group 74 Science & technology The Economist June 15th 2019

Neuroscience Tyre technology Spark of genius Flat out useful

An airless, puncture-proof tyre unctures always seem to strike at around the outside of the wheel. Miche- Stimulating the brain with electricity the most irksome times. Scrambling lin has filed some 50 patents on the can improve creativity P around on the ground to change a wheel technology. aul McCartney famously took the in the wet on the side of a busy road is a The company reckons that as 200m Pmelody for “Yesterday” from a dream, sure way to ruin any journey. And punc- tyres have to be scrapped worldwide while Thomas Edison argued that his best tures can be extremely dangerous, espe- every year because of punctures or the ideas came from hard work. Others have cially if a tyre blows out at high speed on uneven wear caused by incorrect air- looked to coffee, drugs or love. But what if a motorway. For decades carmakers have pressure, the Uptis will be more environ- creativity could be turned on with a flick of sought various solutions, but with new mentally sustainable than standard a switch? materials and novel manufacturing tyres. It would also save weight, as vehi- Elisabeth Hertenstein at the University methods, a genuinely puncture-proof car cles will no longer have to carry a spare of Freiburg, Germany, and her colleagues tyre has finally appeared. wheel, a jack, a puncture-repair kit or have done just that, using a technology This summer Michelin and General need to be fitted with a tyre-pressure known as transcranial direct current stim- Motors (gm) will begin testing a proto- monitoring system. ulation (tdcs). Their insights could help type airless tyre on a fleet of Chevrolet But an Uptis will still wear out, like a creatives to stay at the top of their game. Bolt electric cars. Although it does not conventional tyre. When that happens it tdcs uses electrodes attached to the need to be inflated, the self-supporting will need a new tread—one way Michelin scalp to pass a tiny electrical current tyre is said to produce the ride and han- and gm hope to do that is using a 3d through the brain. Neuroscientists think dling of a standard pneumatic tyre. And printer to create a new outer shell for the the current makes the brain cells under- being airless, it is thus immune from tyre. That could open up new motoring neath the positive electrode (anode) work punctures. The French tyremaker and possibilities, including having seasonal harder, while the negative electrode (cath- the American car giant call the tyre Uptis treads printed on your wheels: a summer ode) has the opposite effect and calms ac- (for “unique puncture-proof tyre sys- one for faster roads and a winter tread for tivity in nearby neurons. In a paper pub- tem). Provided the trials in Michigan go increased grip in the wet and snow. lished in Brain Stimulation, the scientists well, the two partners reckon Uptis tyres reported that 22 minutes of tdcs signifi- could be available for cars by 2024. cantly improved the performance of uni- At first sight the Uptis (see picture) versity students on three standard tests resembles the diminutive, airless rub- used by psychologists to measure aspects ber-spoked wheels already used on some of creativity. small machines, such as golf carts, lawn- The first test is called the Alternate Uses mowers and certain all-terrain vehicles. Task and measures conceptual expansion: There is a similarity, although the Uptis typically by asking people to think of as is designed to take the greater weight of a many possible uses for an everyday object, car and cope with high-speed manoeu- such as a brick or a paperclip. The second, vring. Uptis tyres are also different from the Compound Remote Associate Task, “run-flat” tyres, which use beefed-up asks for words that work as common pre- sidewalls to remain upright if punctured fixes or suffixes for unrelated terms. So the and must be driven at reduced speeds for answer to “age; mile; sand” is stone. And a limited distance only. the third, the Wisconsin Card Sorting Task, The Uptis uses an integrated wheel has long been used to track how well volun- and tyre that comes in one piece. The teers can adapt to changing circumstances wheel part consists of an aluminium by getting them to match pictures by shape, assembly in the centre, from which colour or number of objects, and then emerge spokes made from a new com- changing the rules of the game. posite material described as “resin- The student volunteers performed the embedded fibreglass”.The spokes are best when the anode was attached above fitted to a conventional-looking tread Bad news for tyre fitters the right side of their inferior frontal gyrus (ifg)—part of the frontal cortex and a re- gion associated with problem solving and entists saw a corresponding decrease in think outside the box. spontaneity—and the cathode fitted above measured creativity compared with the Dr Nissen says most of his team are the left side of the ifg. The researchers sham group. looking for new ways to help patients with were trying to increase activity in the right Exactly how tdcs has this effect on the mental disorders, such as breaking pat- side and reduce activity in the left. brain is not clear. The left side of the ifg terns of repetitive negative thinking by en- Christoph Nissen, a member of the re- works according to a more rigid interpreta- couraging cognitive flexibility. But his search group, says the students given tdcs tion of the world based on concrete fea- study’s insights can be applied to work and performed 10-20% better on the three tasks tures like language comprehension. Inhib- jobs outside the lab or clinic. The Alternate than those given a sham stimulation, in iting that under the cathode, while Uses Task, for example, assesses the cre- which the electrodes were put in place but encouraging activity in the more free- ative skills required to brainstorm new the current was turned off. And when the thinking right-hand side of the ifg with the products or see previously untapped po- electrode positions were reversed, the sci- anode, perhaps helped the students to tential in an everyday object. 7 https://t.me/finera Books & arts The Economist June 15th 2019 75

Also in this section 76 Elif Shafak’s new novel 77 Arson in Australia 78 Alma Mahler’s turbulent life 78 Opera in the Gulf

Policing social media the hierarchy are third-party contractors in India and the Philippines, who handle ma- Guardians of the galaxy terial for corporate websites, dating sites and online retailers, as well as for the big platforms. Whether in San Francisco or Manila, their task is fundamentally the same. These are the rubbish-pickers of the internet; to most of the world, they are all but invisible. Content moderators are the unacknowledged legislators of the online world An estimated 150,000 people work in hey are paid to spend their days watch- content moderation worldwide. Ms Rob- Ting filth: beheadings and chemical- Behind the Screen. By Sarah Roberts. Yale erts’s book is one of just a few about them. weapons attacks, racist insults and neo- University Press; 280 pages; $30 and £20 Much of her research was conducted early Nazi cartoons, teenagers encouraging each this decade; for recent developments, she other to starve, people having sex with ani- content moderators interviewed by Sarah is obliged to refer to articles by journalists mals or with ex-lovers against whom they Roberts in “Behind the Screen”—before ad- such as Adrian Chen of Wired. But in some want revenge. When batches of images mitting to gaining weight and developing a ways little has changed. A short documen- leap onto their screens, they must instantly drink problem. They avoid discussing their tary Mr Chen made in 2017 about modera- sort them into categories, such as violence, work with friends or family, but it intrudes tors in India suggests the job was largely hate speech and “dare” videos, in which anyway. War-zone footage, child sex-abuse the same as it was in California in 2012. people offer to do whatever a stranger asks. and threats of self-harm are especially hard One reason content moderation is hard If the material violates the platform’s ex- to repress. “My girlfriend and I were fooling to investigate is that social-media compa- plicit policies (nudity, sensationalistic around on the couch or something and she nies prefer not to talk about it. The plat- gore), they take it down. If it contains sui- made a joke about a horse,” says another forms have never been comfortable with cide threats or evidence of a crime, they moderator. “And I’d seen horse porn earlier their role as gatekeepers. Like much of Sil- alert law-enforcement authorities. If it is a in the day and I just shut down.” icon Valley, their culture reflects the liber- borderline case (violence with possible Those who work directly for the big tarian optimism of the internet’s pioneers, journalistic content, say), they mark it for American internet platforms may boast which Ms Roberts terms “an origin myth of review. Some earn $15 an hour, some a about it to their friends, but they are main- unfettered possibility for democratic free piece-work rate of a few cents per item, ly on short-term contracts with little kudos expression”. Early cyberspace utopians sorting anywhere from 400 to 2,000 a day. or chance of promotion. At a huge Silicon thought censorship would soon be obso- With soldierly bravado, they insist the Valley firm that Ms Roberts calls MegaTech, lete: the internet would treat it as a broken job does not upset them. “I handle stress the content moderators were barred from node and route around it. (The Great Fire- pretty well,” says one of the social-media using the climbing wall. Even further down wall of China had not yet been erected.) Un-1 Financial Era Advisory Group 76 Books & arts The Economist June 15th 2019

2 til recently, strategists at giant social-me- Anglo-Turkish fiction dia firms seemed to imagine they were still running the sorts of self-policing commu- nities which existed on text-only messag- Life after life ing boards in the 1990s, and which survive today on forums like 4chan and Reddit. The platforms also have less rarefied reasons to keep content moderation out of 10 Minutes 38 Seconds in This the public eye. America’s law on online Strange World. By Elif Shafak. Viking; content, the Communications Decency Act 320 pages; £14.99 of 1996, lets internet companies restrict it as they see fit, and holds them largely im- he protagonist of Elif Shafak’s11th mune from liability for third-party materi- Tnovel is dead when it begins. It is al on their websites. A fear that legislators 1990, and the body of “Tequila Leila” has might deem the firms’ methods biased or been dumped in a wheelie bin on the inadequate—and decide to regulate outskirts of Istanbul; yet, somehow, her them—makes executives circumspect in mind remains active. “She wished she both what they do and how they talk about could go back and tell everyone that the it. The big platforms and their contractors dead did not die instantly, that they routinely require moderators to sign non- could, in fact, continue to reflect on disclosure agreements. things, including their own demise.” Since the American presidential elec- Later a medical examiner muses on the tion of 2016 and the Brexit referendum, fascinating research he has encountered, controversies over fake news, hate speech apparently showing that brain activity and online harassment have forced inter- can continue for up to 10 minutes and 38 net companies to bring content modera- seconds after death. This is how Ms tion into the light—up to a point. Facebook Shafak’s book gets its title, and its con- says it now has 30,000 people working on ceit, as the dead-but-not-dead Leila safety and security worldwide, of whom scrolls back through the story of her life. half are moderators (many of them em- Ms Shafak, who writes in both Turk- Elif Shafak, bard of the oppressed ployed by outside contractors). Twitter has ish and English, is the most widely read beefed up its moderation staff; it now female author in her native country. In her, is “a graveyard”. boasts about the number of accounts it sus- 2006 she was prosecuted for “insulting In death, the graves open. Leila’s pends, sometimes millions per month. A Turkishness” (in her novel “The Bastard father had two wives; when she was new German law requires internet sites to of Istanbul”, a character refers to the born, she was given from the second to delete material that breaks hate-speech massacre of Armenians during the first the childless first. The weight of this laws within 24 hours of a complaint. Last world war as a genocide). She was acquit- secret distorts Leila’s life, as other da- week YouTube began taking down thou- ted, but has recently come under unwar- maging secrets corrode the whole clan. sands of channels that violated policies ranted pressure from the authorities Five stalwart friends help her survive. against racism, sexism and religious bigot- again. Her novels are lyrical and often Their own narratives punctuate the ry. It has also been criticised for algorithms magical, drawing on a storehouse of novel; together they form a family far (now amended) that routed family videos Ottoman narrative culture; but they are more loving than the one Leila escapes. to viewers who expressed an interest in also a reflection of her political beliefs, Ms Shafak weaves the history of mod- child porn. her characters frequently struggling ern Turkey through her story, sometimes against oppression. glancingly (in Van, Leila’s parents live in Lines in the sand In this book, Leila is a sex worker who a house which once belonged to Arme- These efforts have exposed the platforms to comes to Istanbul from the distant east- nians) and sometimes more directly, as just the sort of criticisms they are least ern city of Van. Her childhood, her youth when Leila is caught up in a bloody clash comfortable with. Alt-right YouTubers and the chain of events that lead to her between protesters and police in 1977. Yet whose channels are taken down because of death unspool through the sense-memo- this book is also a love-letter to Istanbul, racism complain they are being censored ries which haunt her as those 10 minutes which “like a lover’s face” is “receding in by the liberal establishment. Some history and 38 seconds pass. Salt, cardamom the mist”. By the end Ms Shafak per- channels were initially knocked out too, coffee, spiced goat stew, sulphuric acid: suades the reader to care powerfully because they displayed racist material in each is a clue to a past that, during her about Leila, as the novel comes to a sor- order to critique it (they have since largely life, she was in flight from. Memory, for rowful but redemptive conclusion. been restored). Still, when targets of sus- pensions complain, they are usually met by a boilerplate statement that their con- their decisions. A report in February by the the rules is insufficient, because formal tent violated company policies, with no ex- Verge, a news site, found that a Facebook criteria can never capture the irreducible planation of what those policies are or ex- subcontractor’s training regime required moral and political decisions moderators actly what the violation was. moderators to learn a decision-tree of make. Ms Roberts’s subjects already faced As Ms Roberts shows, the opacity is in- rules, then justify which one led to a take- such dilemmas in 2011, when MegaTech de- grained. Social-media sites have often down. Even so, individual instances often cided that gruesome images from the Arab been reluctant to tell malefactors precisely involve subjective judgments, which are spring constituted news (and so could what they did wrong. Beside the political almost never explained to users. stay), but equally grim ones from gang con- risks, they fear that would let provocateurs For years, tech activists have called for flicts in Central America had to go. flirt with the edges of prohibitions, and more transparency about these bound- Others think the focus on what may be furnish endless fodder for challenges to aries. But some say that simply revealing published misses the bigger question of 1 https://t.me/finera

The Economist June 15th 2019 Books & arts 77

2 which posts get amplified—by being nience, but “in many ways, the commodity kaluk collected scrap metal to sell for shared, liked or “ratioed” (the current term that platforms offer”. Increasingly, these pocket money and enjoyed watching epi- for a wave of negative comments). Last sites are where people conduct their lives, sodes of “Thomas the Tank Engine” in his week Carlos Maza, a reporter for Vox.com, and the task of keeping them within ac- shed. He can barely read or write and had pilloried YouTube for refusing to take ceptable bounds of discourse, and exclud- never been on a plane, but was able to draw down videos by Steven Crowder, a conser- ing the unconscionable, may be the most complex maps with an uncannily precise vative YouTuber who had mocked him us- important thing the firms do. It is too de- bird’s-eye perspective. He was the “butt of ing homophobic slurs. As well as com- manding for harried box-tickers. jokes amongst people who were them- plaining about the slurs themselves, Mr Facebook has recently raised modera- selves the butt of jokes”, the author says of Maza said he had been subjected to online tors’ pay; YouTube has limited their expo- his ostracised life in a downtrodden part of harassment by some of Mr Crowder’s many sure to disturbing videos to four hours a the country. followers. This raises the difficult question day. But in general, as Ms Roberts chroni- Mr Sokaluk emerges as both vulnerable of whether platforms should impose strict- cles, moderators are treated as low-skilled and an odd, sometimes malicious, pest. To er rules on influential personalities. labour. She is particularly good at depicting the detectives, he was a cunning fiend ca- A different approach was suggested last how the strange international network of pable of “unleashing chaos and horror”. To year by Tarleton Gillespie, a consultant, in content moderation mirrors the class di- his lawyers he was hapless and naive. After his book “Custodians of the Internet”. Part vides of other globalised industries. Just as the verdict was delivered they felt devastat- of the problem, he says, is that both users it dumps some of its nastiest refuse in poor ed, “for it seemed they were leaving behind and companies have got it wrong: content countries, the West leaves it to them to sort a child”. moderation is not a peripheral inconve- much of the internet’s yuckiest trash. 7 Another villain lurks in the background of this story: the Hazelwood power station, a coal-powered plant that looms over La- Crime and the environment trobe Valley and provided almost a quarter of the state’s electricity before it was closed Into the inferno in 2017. Brown coal is dirty and unstable, and the lives of those associated with it are liable to be equally volatile. The plant’s pri- vatisation in the 1990s led to a rise in long- An inquiry into bushfires in Australia identifies more than one culprit term unemployment. “People’s friends and eehives spontaneously combust and family worked cutting the stuff out, burn- Btrees ignite in sudden blasts. Burning The Arsonist. By Chloe Hooper. Scribner; ing it, and then everyone breathed in the birds fall from the sky. As embers the size of 272 pages; £14.99 vapours of strife,” writes Ms Hooper. “The dinner plates rain down and a blaze roars valley became a human sink.” “like seven jumbos landing on the roof”, pointing the way the fire had gone”. But Unpredictable as arson can be, she people submerge themselves in any body arson is notoriously difficult to solve: only learns that people are more inclined to de- of water they can find. They cover their 1% of wildfire arsonists are ever caught. struction in places where “high youth un- faces with lilypads, pond slime, tea-towels The conviction of Brendan Sokaluk, a mid- employment, child abuse and neglect, in- or wet gloves. The sun is smothered by dle-aged man on the autism spectrum, for tergenerational welfare dependency and smoke and everything turns red. There is, deliberately starting a blaze that killed 11 poor public transport meet the margins of reports Chloe Hooper, “no air in the air”. people, was a surprising success for the the bush”. In an age of climate change and This was how survivors described their Victoria police. stubborn inequality, in Australia and be- experiences ten years ago, after hundreds But the road to the guilty verdict was yond, that is an unsettling conclusion to a of fires, giving off the heat of 500 atomic rocky. Unemployed and eccentric, Mr So- gripping and insightful book. 7 bombs, raged through the state of Victoria in south-eastern Australia. Thousands of homes were lost, 173 people died and 450,000 hectares of land were burnt to a crisp, over seven times the area that was in- cinerated in and around Paradise, Califor- nia, last year. When investigators looked down from helicopters afterwards, it seemed that the roofs of houses had been peeled off, the rooms below resembling “chambers of the heart”. Although many of the fires that wreaked havoc in the state were subsequently found to have been caused by failures in its badly regulated electricity grid, two turned out to have been lit intentionally. In “The Arson- ist” Ms Hooper focuses on the infernos sparked by a “firebug” in the Latrobe Valley. She asks what she calls “the impossible question”: What sort of person would do this, and why? The answers were not simple. Evidence was all around—in the wasteland, the rub- ble and the gum leaves of highly flammable eucalyptus trees, “thousands of fingers A world on fire Financial Era Advisory Group 78 Books & arts The Economist June 15th 2019

Art and love been overshadowed by Gustav’s genius. opened in 2011. Its staircase and marble This portrait of Alma is compelling; the match the Opéra de Paris in grandeur. A muse’s burden feminist gloss, less so. Alma is known to But the region’s opera boom transcends have edited her diaries (and Gustav’s corre- Oman. Dubai opened a glass-cased opera spondence), making them unreliable re- house in the shadow of the world’s tallest cords of her travails. His dominant streak skyscraper in 2016. Kuwait’s glitzy new cul- does not account for her later behaviour. ture complex staged “The Magic Flute” last They were married for only nine years; year. Meanwhile Jordan’s open-air opera Alma lived to be 85. festival, the region’s first, is now held each Passionate Spirit: The Life of Alma Did she have the tenacity and discipline year in Amman’s Roman amphitheatre. Mahler. By Cate Haste. Bloomsbury; 486 to have been as prolific a composer as Gus- One reason for the fad is economic. Qa- pages; £26. To be published in America by tav? She seems generally to have preferred boos wants to create jobs for Omanis and Basic Books in September; $32 more immediate forms of gratification. diversify beyond oil, including by boosting lma mahler was the supreme femme The sad truth, from a feminist perspective, tourism. The rohm has reputedly become Afatale of early-20th-century Vienna. is that, if Alma had actually led the life of a Muscat’s second-most-popular sight, after From composers to priests, artists to archi- dedicated composer and forgone her sen- the Grand Mosque; three-quarters of its tects, scientists to writers, she conquered sational flings, she might now be a much staff are Omani. hearts—and broke them. Her first kiss was less famous figure. 7 Soft-power diplomacy is also part of the with Gustav Klimt; her first husband was story. For example, a plan is afoot for Oman Gustav Mahler. Her second was Walter Gro- to fund an opera house in Beirut. A bid to pius, founder of the Bauhaus movement; recruit a Saudi minister to the board of La her third, the writer Franz Werfel. Her lov- Scala in Milan—and for it to accept €15m ers included Oskar Kokoschka, a daring art- from the Saudi government—foundered ist who commissioned a fetishistic, life- amid an outcry over human-rights abuses. size doll of Alma after she ditched him. A But La Scala’s academy still plans to set up century on, she has become the subject of an opera school for children in Riyadh. feminist revisionism. Was she a capricious Oil has fuelled the opera boom, but muse—or victim of chauvinist oppression? Western expertise has helped. Jasper Hope, “Passionate Spirit”, Cate Haste’s seduc- formerly of the Royal Albert Hall in London tively accessible biography, offers a sympa- and now chief executive of Dubai Opera, thetic interpretation of Alma’s life. Written has introduced a spin-off from the bbc in elegant, lucid prose, her book is a trea- Proms. Umberto Fanni, the well-connected sure trove of European cultural riches and director of the rohm, has attracted presti- scandalous intrigue. She uses Alma’s dia- gious artists to Oman. Plácido Domingo ries to capture her subject’s inner world. has sung there; a new production of “Rigo- Alma was born in 1879, the daughter of letto” by Franco Zeffirelli, a legendary di- the painter Emil Schindler. She wor- rector, is due to open in Muscat next year. shipped her father, which may help explain Still, adapting a mannered—and often the magnetism that talented men exerted bawdy—European art form to local tastes is on her throughout her eventful life. Yet as Culture in the Middle East a challenge. “The risk is that you disorien- Ms Haste emphasises, Alma was creative tate audiences,” says Farid Rahi, ceo of Op- herself, pursuing both musical composi- The sultan’s song era Lebanon (itself founded in 2015). “You tion and piano. need a very simple theatrical language.” Sex Her first serious fling was with the com- and religion cause particular problems. poser Alexander von Zemlinsky. She jetti- “When we staged ‘La Traviata’ [Verdi’s op- soned him after meeting Mahler, whose era about a Parisian courtesan], we had wa- fiancée she soon became. Sternly he de- ter instead of wine,” Mr Fanni recalls. The creed that there was room for only one art- MUSCAT production in Muscat emphasised the How Gulf rulers learned to love opera ist in their relationship. Devastated, Alma heroine’s “dignified journey to death rather nevertheless gave up her music for the sake n “lakmé”, an opera by Léo Delibes, a than her libertine lifestyle.” of love. Theirs at first seemed a happy mar- IBrahmin priest laments his daughter’s As well as European classics, the rohm riage, but, increasingly frustrated, she be- affair with a British officer. The patriarch’s offers works from the Middle East, such as gan an affair with Gropius. Gustav sought view of forbidden love has a special pi- “Antar and Abla”, an Arabic opera commis- advice from Sigmund Freud, but Alma con- quancy at the Royal Opera House, Muscat sioned by Opera Lebanon. Mr Fanni’s ulti- tinued the dalliance until his death. Ms (rohm), where the work was performed mate aim is to replace the imported shows Haste thinks she took the only way out of earlier this year. One of the most spectacu- that have hitherto dominated the reper- an oppressive marriage. Others claim that lar opera houses in the world, the venue is toire with in-house productions. The Tea- she as good as killed her husband. the flagship of the art form’s swift rise tro Carlo Felice in Genoa provided the This biography captures the turmoil of across the conservative Gulf region. chorus and musicians for “Lakmé”, but the Alma’s affairs, her artistic disappoint- In 1970, when Sultan Qaboos ousted his rohm made the sets. Mr Fanni hopes soon ments, visceral appetites and the tragic father, Oman had only two hospitals and to mix Omani musicians with the foreign deaths of three of her four children. She three schools. Qaboos, now 78, has used players who occupy the orchestra pit now. emerges as a tough, lively, cultured and some of the country’s oil wealth to update The complexion of the audience is also wilful woman, who also composed highly both its infrastructure and its image. The changing—slowly. When the rohm was in- regarded songs that were characteristic of sultan is an autocrat (and a spendthrift), augurated during the Arab spring, protes- her era; a modern performer describes but he affects an enthusiasm for the arts. ters decried the project’s profligacy. Local them as “sensual, charming and surpris- He founded the Royal Oman Symphony Or- interest in opera has risen; but even now, ing”. As Ms Haste says, these works have chestra in 1985; the rohm (pictured) only around 15% of punters are Omani. 7 https://t.me/finera 80 Economic & financial indicators The Economist June 15th 2019

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* 2019† latest 2019† % % of GDP, 2019† % of GDP, 2019† latest,% year ago, bp Jun 11th on year ago United States 3.2 Q1 3.1 2.2 1.8 May 2.2 3.6 May -2.4 -4.7 2.1 -81.0 - China 6.4 Q1 5.7 6.3 2.7 May 2.9 3.7 Q1§ 0.2 -4.5 3.1 §§ -38.0 6.91 -7.4 Japan 0.9 Q1 2.2 1.0 0.9 Apr 1.1 2.4 Apr 4.1 -3.2 -0.1 -16.0 109 1.2 Britain 1.8 Q1 2.0 1.0 2.1 Apr 1.8 3.8 Mar†† -4.1 -1.6 0.9 -60.0 0.79 -5.1 Canada 1.3 Q1 0.4 1.6 2.0 Apr 1.7 5.4 May -2.6 -1.1 1.5 -80.0 1.33 -2.3 Euro area 1.2 Q1 1.6 1.2 1.2 May 1.4 7.6 Apr 3.1 -1.1 -0.2 -73.0 0.88 -3.4 Austria 1.4 Q1 3.8 1.3 1.7 Apr 1.8 4.7 Apr 2.1 0.1 0.1 -78.0 0.88 -3.4 Belgium 1.2 Q1 1.1 1.2 1.9 May 2.2 5.7 Apr 0.1 -0.9 0.2 -73.0 0.88 -3.4 France 1.2 Q1 1.4 1.2 1.0 May 1.3 8.7 Apr -0.6 -3.3 0.1 -68.0 0.88 -3.4 Germany 0.7 Q1 1.7 0.9 1.4 May 1.4 3.2 Apr 6.6 0.7 -0.2 -73.0 0.88 -3.4 Greece 0.9 Q1 0.9 1.8 0.2 May 1.3 18.1 Mar -2.7 nil 2.7 -180 0.88 -3.4 Italy -0.1 Q1 0.5 0.1 0.9 May 0.9 10.2 Apr 2.0 -2.9 2.4 -42.0 0.88 -3.4 Netherlands 1.7 Q1 1.9 1.6 2.9 Apr 2.6 4.1 Apr 10.2 0.7 -0.1 -74.0 0.88 -3.4 Spain 2.4 Q1 2.9 2.2 0.8 May 1.2 13.8 Apr 0.5 -2.2 0.5 -87.0 0.88 -3.4 Czech Republic 2.6 Q1 2.2 2.8 2.9 May 2.5 2.1 Apr‡ 0.2 0.5 1.6 -51.0 22.6 -4.0 Denmark 2.8 Q1 1.0 1.9 0.7 May 1.1 3.7 Apr 6.3 1.0 -0.2 -70.0 6.60 -4.4 Norway 2.5 Q1 -0.3 1.7 2.5 May 2.6 3.5 Mar‡‡ 8.1 6.5 1.5 -40.0 8.63 -7.0 Poland 4.7 Q1 6.1 3.8 2.3 May 1.8 5.6 Apr§ -0.5 -2.4 2.5 -77.0 3.77 -4.0 Russia 0.5 Q1 na 1.2 5.1 May 4.9 4.7 Apr§ 6.9 2.1 7.7 11.0 64.5 -2.9 Sweden 2.0 Q1 2.4 1.6 2.1 Apr 1.7 6.2 Apr§ 2.2 0.8 -0.1 -73.0 9.45 -8.4 Switzerland 1.7 Q1 2.3 1.6 0.6 May 0.5 2.4 May 9.6 0.5 -0.4 -55.0 0.99 -1.0 Turkey -2.6 Q1 na -1.7 18.7 May 16.1 14.7 Feb§ -0.7 -2.3 17.3 168 5.83 -22.6 Australia 1.8 Q1 1.6 2.5 1.3 Q1 1.7 5.2 May -2.4 -0.2 1.5 -133 1.44 -9.0 Hong Kong 0.6 Q1 5.4 2.0 2.9 Apr 2.3 2.8 Apr‡‡ 4.6 0.5 1.7 -61.0 7.84 0.1 India 5.8 Q1 4.1 6.7 3.0 May 3.6 7.2 May -1.8 -3.4 7.0 -96.0 69.5 -2.9 Indonesia 5.1 Q1 na 5.2 3.3 May 2.8 5.0 Q1§ -2.7 -2.1 7.7 46.0 14,235 -2.1 Malaysia 4.5 Q1 na 4.5 0.2 Apr 0.6 3.4 Mar§ 2.0 -3.5 3.7 -50.0 4.16 -4.1 Pakistan 5.8 2018** na 3.4 9.1 May 8.2 5.8 2018 -4.0 -7.0 14.1 ††† 564 151 -21.8 Philippines 5.6 Q1 4.1 5.7 3.2 May 3.6 5.1 Q2§ -2.0 -2.5 5.2 -91.0 51.9 2.1 Singapore 1.2 Q1 3.8 1.8 0.8 Apr 0.5 2.2 Q1 18.7 -0.6 2.0 -61.0 1.36 -2.2 South Korea 1.6 Q1 -1.5 2.4 0.7 May 1.0 4.0 May§ 4.5 1.0 1.6 -112 1,181 -8.9 Taiwan 1.7 Q1 2.3 1.8 0.9 May 0.3 3.7 Apr 13.1 -1.2 0.7 -24.0 31.4 -5.1 Thailand 2.8 Q1 4.1 3.5 1.1 May 0.9 1.0 Apr§ 8.3 -2.9 1.9 -72.0 31.3 2.4 Argentina -6.2 Q4 -4.7 -1.1 55.8 Apr‡ 49.2 9.1 Q4§ -2.2 -3.4 11.3 562 44.7 -43.3 Brazil 0.5 Q1 -0.6 1.0 4.7 May 4.0 12.5 Apr§ -1.0 -5.8 6.2 -342 3.86 -4.7 Chile 1.6 Q1 -0.1 3.0 2.3 May 2.1 6.9 Apr§‡‡ -2.5 -1.4 3.5 -108 693 -8.6 Colombia 2.3 Q1 nil 3.1 3.3 May 3.1 10.3 Apr§ -3.5 -2.0 6.1 -51.0 3,247 -11.9 Mexico 1.2 Q1 -0.7 1.4 4.3 May 4.2 3.5 Apr -1.8 -2.3 7.7 -22.0 19.1 7.1 Peru 2.3 Q1 -5.3 3.7 2.7 May 2.2 5.5 Apr§ -1.7 -2.0 5.6 64.0 3.33 -2.1 Egypt 5.6 Q1 na 5.4 14.1 May 13.0 8.1 Q1§ -0.9 -7.7 na nil 16.8 6.4 Israel 3.3 Q1 5.2 3.1 1.3 Apr 1.2 3.8 Apr 2.7 -3.9 1.6 -34.0 3.58 -0.3 Saudi Arabia 2.2 2018 na 1.9 -1.9 Apr -1.1 5.7 Q1 3.6 -5.4 na nil 3.75 nil South Africa nil Q1 -3.2 1.5 4.4 Apr 5.0 27.6 Q1§ -3.2 -4.2 8.4 -66.0 14.7 -10.7 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 Index one Dec 31st index one Dec 31st commodity-price index % change on In local currency Jun 12th week 2018 Jun 12th week 2018 2005=100 Jun 4th Jun 11th* month year United States S&P 500 2,879.8 1.9 14.9 Pakistan KSE 34,937.9 -1.6 -5.7 Dollar Index United States NAScomp 7,792.7 2.9 17.4 Singapore STI 3,207.7 2.1 4.5 All Items 136.9 136.6 3.1 -12.5 China Shanghai Comp 2,909.4 1.7 16.7 South Korea KOSPI 2,108.8 1.9 3.3 Food 148.3 147.7 7.0 -4.7 China Shenzhen Comp 1,528.4 2.2 20.5 Taiwan TWI 10,615.7 1.5 9.1 Industrials Japan Nikkei 225 21,129.7 1.7 5.6 Thailand SET 1,671.1 1.4 6.9 All 125.0 125.1 -1.4 -20.5 Japan Topix 1,554.2 1.6 4.0 Argentina MERV 40,930.7 16.0 35.1 Non-food agriculturals 118.4 117.7 0.6 -20.5 Britain FTSE 100 7,367.6 2.0 9.5 Brazil BVSP 98,320.9 2.4 11.9 Metals 127.8 128.3 -2.2 -20.6 Canada S&P TSX 16,227.2 0.1 13.3 Mexico IPC 43,800.2 0.9 5.2 EURO STOXX 50 3,386.6 1.4 12.8 EGX 30 14,158.1 2.7 8.6 Sterling Index Euro area Egypt All items 196.4 195.4 4.7 -8.2 France CAC 40 5,374.9 1.6 13.6 Israel TA-125 1,434.4 -0.1 7.6 Germany DAX* 12,115.7 1.1 14.7 Saudi Arabia Tadawul 9,084.8 6.7 16.1 Euro Index Italy FTSE/MIB 20,463.3 1.5 11.7 South Africa JSE AS 58,710.6 2.9 11.3 All items 151.5 150.1 2.1 -8.9 Netherlands AEX 556.1 2.3 14.0 World, dev'd MSCI 2,134.4 1.8 13.3 Gold Spain IBEX 35 9,238.5 1.0 8.2 Emerging markets MSCI 1,026.2 2.1 6.3 $ per oz 1,321.4 1,326.3 2.3 2.1 Poland WIG 58,917.6 2.3 2.1 RTS, $ terms 1,343.3 3.1 26.0 West Texas Intermediate Russia $ per barrel 53.5 53.3 -13.8 -19.7 Switzerland SMI 9,859.7 2.1 17.0 US corporate bonds, spread over Treasuries Turkey BIST 92,605.8 2.5 1.5 Dec 31st Sources: CME Group; Cotlook; Darmenn & Curl; Datastream from Refinitiv; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Australia All Ord. 6,628.9 2.9 16.1 Basis points latest 2018 Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional. Hong Kong Hang Seng 27,308.5 1.5 5.7 Investment grade 171 190 India BSE 39,756.8 -0.8 10.2 High-yield 492 571 IDX 6,276.2 1.1 1.3 Indonesia Sources: Datastream from Refinitiv; Standard & Poor's Global Fixed For more countries and additional data, visit Malaysia KLSE 1,650.7 0.4 -2.4 Income Research. *Total return index. Economist.com/indicators Financial Era Advisory Group Graphic detail Cricket The Economist June 15th 2019 81

Cricket has evolved from a slow-moving game into three very different ones

Test Rate of boundary shots*, by match format By share of matches Matches stop after five days Average boundary rates Share of matches, % Each team bats for two 20 innings of unlimited balls. ← In 2000, batsmen scored boundaries Test ODI nearly as often in Tests as in ODIs To avoid being bowled out 10 quickly, batsmen often block the ball defensively. → Faster-scoring games 2000-03 0 0 5 10 15 20 25 20 ↓ Once T20 was invented, T20† batsmen learned to take more risks in shorter formats 10 One-day international (ODI)

0 Matches take one day 2004-07 Each team bats for one 20 innings of 300 balls. Because opportunities to score are ← In the average T20 match, 15.3% limited, batsmen play risky of balls are hit to the boundary 10 shots more often than in Test matches. 2008-11 0 0 5 10 15 20 25 20 In some T20 matches the boundary rate is three times T20 higher than in Tests ↓ 10

Matches take four hours 2012-15 0 Each team bats for one innings of 120 balls. Batsmen 20 look to hit most balls to the ← Batsmen have brought aggressive tactics from boundary, because it is T20 to ODIs, but still play more safely in Tests unlikely the whole team 10 will be bowled out. 0 2016-19 0 5 10 15 20 25 Share of balls hit to the boundary, % *A shot that reaches the edge of the pitch †Includes Indian Premier League Sources: Cricinfo.com; Cricsheet.org; Navaneesh Kumar

Unlike Test matches—in which each team But because it is rare for ten men to get out Beyond a boundary bats for two innings, taking up to five in just 120 balls, players in T20 try riskier days—T20 gives each side one innings of shots in pursuit of faster rewards. The re- 120 balls, limiting games to four hours. The sult makes baseball look sedate. Whereas rules are the same. Batsmen score as many an average night at Yankee Stadium pro- runs as possible during an innings. Whack- duces two home runs, an average T20 ing the ball over the boundary rope yields match features 39 boundary shots. The sport’s increasing sizzle owes four runs if it bounces on the field, and six These aggressive tactics have also been much to India if it does not. The fielders try to get the bats- adopted in one-day internationals (odis), ricket matches between India and men out by hitting the wooden wicket or the format used in the World Cup, which CPakistan are always heated. Their World catching an errant shot (among other gives each side one innings of 300 balls. Cup fixture on June 16th will be particularly methods of dismissal). Each side bats until Boundary rates in odis have soared since fierce: in February an attack by militants on either ten players are out or the fixed num- 2003. In contrast, the long increase of run- Indian police in Kashmir led to tit-for-tat ber of balls, or days, is used up. scoring in Tests stopped just when T20 was airstrikes. Even neutral spectators, how- In Test cricket batsmen often block the invented. It may not be possible to hit ever, eagerly await pyrotechnics on the ball defensively, to preserve their wickets. much more than 6.4% of balls to the pitch. Scoring rates in cricket have been boundary, as batting teams did in 2000-03, rising for decades, but in recent years they Cricket media rights while occupying the crease for five days. FORECAST have exploded in the sport’s newer, shorter Annual global value, $bn 2.0 Purists insist that slow-building Tests formats. The game’s evolution into a faster- are more gripping than a flurry of sixes. But Test ODI paced, more exciting spectacle has been 1.5 a survey of fans in 2018 found that only 69% T20 (includes club leagues) most notable in India. The Indian Premier are interested in Tests, rising to 92% for League (ipl), founded in 2008, has become 1.0 T20. Media Partners Asia, a consultancy, cricket’s most lucrative product by copying expects broadcasters to pay $1.4bn a year the franchise system of American sports 0.5 for T20 over the next four years, compared and importing star foreign players in a with $190m for Tests. England and Austra- tv ipl huge country with growing viewership. 0 lia hope to emulate the ’s success, using The ipl’s other innovation was to adopt 2008-11 2012-15 2016-19 2020-23 a similar template. Once a sporting imita- the T20 format, devised in England in 2003. Source: Media Partners Asia tor, India is now setting the trend. 7 https://t.me/finera 82 Obituary Claus von Bülow The Economist June 15th 2019

turned, because the black bag had been taken without a search warrant and the first investigator’s notes had not been turned over to the prosecution and the defence. The next year, in a second trial, every piece of the medical and forensic evidence was taken apart by his new million-dollar team of lawyers. Sunny, they showed, was psychologically fragile, heavily dependent on drink and drugs. On that night in 1980 she had binged on sweets, tranquillisers and a giant eggnog containing 12 fresh eggs and a whole bottle of bour- bon. The culprit was not insulin. Nor was it the needle in the black bag, which would not have been encrusted after withdrawal from the skin. Nor, therefore, was the culprit her husband. At the “Not guilty” verdict, he sank his head into his hands. Yet speculation roared on. He had not testified at either trial, so press and public could only look at his life to establish which verdict might be right. And he would add to their confusion, first by refus- ing after 1987 to speak about the case (the result of an agreement with Sunny’s children by her first marriage, though he had already written 300 pages of his version), and second by showing that there was more than one Claus von Bülow; maybe several. The “von Bülow” itself was slightly misleading. His father’s side was Danish; his mother, whose name was Bülow, had distant Ger- man nobility. His English upbringing endowed him with a Cam- bridge degree and a call to the bar, but the aristocratic “von” had been added when he and Sunny married, in 1966. He was the one who collected Chippendale and ormolu furniture, but she was the one who had Clarendon Court, as well as a 14-room apartment on Fifth Avenue in Manhattan, in which to put it. Opera and theatre were his passions, and he loved to drop classical allusions as well as names; back in Newport during his second trial, greeted by his labradors, he felt “like Ulysses returning”. But it was Sunny, whose first marriage had been to an Austrian prince, who brought most of the dukes, diamonds and gala nights into his life. As an aristocrat, tall in his double-breasted suits, he could do stiffly jut-jawed one moment, warm and charming the next: a study in inscrutability, or a witty ornament to the highest social tier of Newport or New York. He also had an outrageous side. When he worked for John Paul Getty, the oil tycoon, in London in his Did he or didn’t he? bachelor days he fell in with the Clermont set, including John Aspi- nall and Lord Lucan (who had hoped to murder his wife, but killed the nanny), and hosted their illegal gambling parties. During his second trial he posed for Vanity Fair in zippered black leather, tight blue jeans and a devilish grin, with a new, thrice-divorced mistress in tow. He liked unsettling jokes, telling them in his best dark Claus von Bülow, socialite and protagonist of two voice. “What is another name for fear of insulin? Claus-trophobia.” sensational American trials, died on May 25th, aged 92 His feelings for Sunny changed in different lights. They had n every person’s life, Claus von Bülow said once, there re- been happy early on and had a daughter, Cosima, whom he adored. Imained a big question mark. A shadow of doubt. It remained He and Sunny fell out because she did not like him working; she even if they had been convicted of a crime, and even if they had did not mind his mistresses, as long as he was discreet. In sum she been acquitted. He had been both. His glitter-laden trials, among was a fair and decent human being who would, he thought, have the first to be televised, caused a sensation in America. They left been his strongest defender. He wore his wedding ring at the trials, half the country thinking one thing, and half thinking another. though he had to get it back from Ms Isles. He spoke of wanting to He was convicted in 1982 of the attempted murder of his wife, visit Sunny, who lay comatose for 28 years until she died, but he Sunny, by injecting her with insulin. In 1980 she had been found moved to London by agreement with the stepchildren, giving up unconscious on the marble floor of the master bathroom of their too any claim to her fortune. In Knightsbridge his life revolved mansion, Clarendon Court, in Newport, Rhode Island. Soon she round amusing dinner parties, theatre reviewing and quiet acts of was in a coma from which she did not emerge. She had low blood charity. He complained that “Reversal of Fortune”, a film of his sugar, and he knew too much insulin would kill her. He had the trials made in 1990, did not tell the truth in dozens of small ways. motive: he wanted to leave her for his mistress, Alexandra Isles, a He did not say what the truth actually was. In the end, the film had tv actress, but divorce would cut him off from Sunny’s fortune. He left the verdict open. He preferred to be seen as he generally was in also apparently had the means. A small black travel-bag had been London, as the victim of a miscarriage of justice. found by Sunny’s maid in his closet; it contained a bottle of insulin He did not make that claim himself; he had agreed not to men- and a needle encrusted with it. The maid also testified that Sunny tion the case. Instead, he saw it as a tragedy that satisfied “all of Ar- had fallen ill before from too much insulin, and her husband had istotle’s definitions”. Everyone was wounded. As for him, he was a refused for four hours to call a doctor. He called his mistress then tragic hero straight out of the “Poetics”: neither a villain nor a vir- to say that he was watching his wife die. The evidence was over- tuous man, but someone in between. His misfortune had occurred whelming; he was given 30 years. not because of depravity, but by some error, some ambiguous ac- But then he was acquitted. In 1984 his conviction was over- tion. It was hardly surprising that there could be no catharsis. 7