How Bad Will It Be? Contents the Economist October 13Th 2018 5

Dirty capital: the City of London

The fate of Jamal Khashoggi

Bolsonaro’s big breakthrough

Vegans on the rampage OCTOBER 13TH–19TH 2018 The next recession How bad will it be? Contents The Economist October 13th 2018 5

9 The world this week United States 36 Democratic policies Leaders Universal pictures 13 The world economy 37 Nikki Haley resigns The next recession UN done 14 Climate change 38 The mid-terms (1) The temperature rises Hispanic voters 14 Saudi Arabia 38 Wine growing The fate of a journalist Pinot v pot 16 The mid-terms 39 The mid-terms (2) Rampaging vegans People in “Medicare for all” The five-state conundrum rich countries are eating a lot 17 Financial crime 40 The mid-terms (3) Model voters more plant-based food. The Dirty capital further they go, the better, On the cover 41 Lexington page 21 Confronting China When the downturn comes, Letters toxic politics and constrained 20 On Brett Kavanaugh, central banks will add to the Chile, lamp bulbs, drones The Americas risks: leader, page 13. 42 Brazil’s elections Another recession is just a A ballot-box revolution matter of time. It will be Briefing harder to fight than the last. 43 Bello 21 Veganism Brazil’s next president See our special report after The retreat from meat page 44. Global growth is and its army slowing, but booming 44 Canada and cannabis America stands out, page 67. Britain Big bongs, little bang China is the only big country 25 The Brexit negotiations shifting to looser monetary Filling in the gaps Special report: policy, page 68 Brazil Jair Bolsonaro, a 26 Scottish independence The world economy The other Leavers far-right populist, is poised to The next recession win the presidency, page 42. 27 Russian and Britain The Economist online After page 44 Brazil’s soldiers are not itching Waging information war for power—they may even act Daily analysis and opinion to 28 Councils’ finances Middle East and Africa as a restraint on a militaristic supplement the print edition, plus Government, Inc. president: Bello, page 43 audio and video, and a daily chart 45 Saudi repression Economist.com 28 Human rights A dissident disappears Have your cake and speak it E-mail: newsletters and 46 Arab exiles in Istanbul mobile edition 29 Coldwar Steve A refuge for dissenters Furious absurdism Economist.com/email 46 Israel’s trade with China Print edition: available online by 30 Bagehot Too open for business? High culture’s king 7pm London time each Thursday 47 Ethiopia and Eritrea Economist.com/printedition Open borders, for now available online Audio edition: Europe 48 Elections in Nigeria to download each Friday 31 The war in Ukraine An ugly beauty contest Economist.com/audioedition Along the contact line 48 Beer in Niger 32 Bavarian elections The devil’s brew Conservative conundrums Khashoggi’s fate Muhammad 32 Latvia’s election bin Salman is starting to look Russian quarter like an old-fashioned Arab Volume 429 Number 9113 33 Revellers in Hungary despot: leader, page 14. Becoming a pest If Jamal Khashoggi was Published since September1843 murdered, it would be a 33 French nationalists to take part in "a severe contest between chilling escalation by an intelligence, which presses forward, and She’s back! an unworthy, timid ignorance obstructing increasingly repressive Saudi our progress." 34 Global warming in Svalbard state, page 45 Editorial offices in London and also: Melting away Amsterdam, Beijing, Berlin, Brussels, Cairo, Chicago, Johannesburg, Madrid, Mexico City, 35 Charlemagne Moscow, Mumbai, New Delhi, New York, Paris, Waiting for Goodot San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf 6 Contents The Economist October 13th 2018

Asia Finance and economics 49 Education in India (1) 67 The world economy The war on private schools Pulling ahead 50 Education in India (2) 68 Chinese economy Happiest days of your life Feeling humbled 51 Pakistan’s economy 69 Buttonwood Imran can’t The long and short of it 51 Women’s rights in 70 Human capital Central Asia A motivational metaphor Sing for solidarity 70 Short-selling The City of London Financial 52 Free speech in Singapore Baiting bears Rape The Nobel peace prize flows are polluted by illicit honours two campaigners Gavel-rousers 71 Financial planning money. Time to clean up: against rape in war—an evil 52 Elections in Bhutan Pet provisions leader, page 17. Britain is Polite but firm that is more lamented than strong on transparency but 74 Money-laundering understood, page 59 weak on enforcement, page 74. 54 Banyan in London The notion that the City of Japan and the Olympic Awash London needs to shrink is curse 75 Free exchange Subscription service gathering momentum. It is The Nobel prize For our full range of subscription offers, including digital only or print and digital mistaken: Schumpeter, page 66. China combined visit Britain takes on Russian spies, 55 Law enforcement Science and technology Economist.com/offers page 27 You can also subscribe by mail or telephone at The fall of Interpol’s boss 76 Global warming the details provided below: 56 Hong Kong’s freedoms War war not jaw jaw Telephone: +44 (0) 845 120 0983 A warning to the press 78 Probiotics for vegetables Web: Economist.com/offers A little help from my friends Post: The Economist 58 Chaguan Subscription Centre, Why costume drama matters 78 Extraterrestrial life P.O. Box 471, Haywards Heath, Where is everybody? RH16 3GY International UK 59 Rape during conflict Books and arts Subscription for 1 year (51 issues) Print only UK – £145 The wolves of war 79 Gandhi A hero for our time Business 80 Political slogans Principal commercial offices: 61 Electronics manufacturing They had a dream The Adelphi Building, 1-11John Adam Street, Supply chains China’s London WC2N 6HT dominance of the electronics The great chain of China 81 Theatre in New York Tel: +44 (0) 20 7830 7000 She the people supply chain worries Western 62 Social networks Rue de l’Athénée 32 companies and governments. Plus, minus 81 A novel of immigration 1206 Geneva, Switzerland Tel: +4122 566 2470 It will be hard to break 63 Ryanair and trade unions No escape nonetheless, page 61 750 3rd Avenue, 5th Floor, New York, NY 10017 Labour pains 82 North Korean art Tel: +1212 5410500 Mist on the mountains 63 Unilever 1301Cityplaza Four, Sour taste 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 64 Bartleby 84 Economic and financial Tel: +852 2585 3888 Minds do matter indicators Other commercial offices: Statistics on 42 economies, Chicago, Dubai, Frankfurt, Los Angeles, 65 Food delivery in India Paris, San Francisco and Singapore Free lunch plus a closer look at maritime trade 65 Coffee wars Full of beans 66 Schumpeter Obituary Britain and the City 86 Charles Aznavour Heartsong Climate change Action might yet avert the worst. But how likely is that? Page 76. A new report produces a mixture of PEFC certified alarm and apathy: leader, This copy of The Economist is printed on paper sourced page 14. Paul Romer and from sustainably managed William Nordhaus win the forests certified by PEFC PEFC/16-33-582 www.pefc.org Nobel economics prize: Free exchange, page 75

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sentenced to 25 years in prison take action to keep the Earth’s Politics forhuman-rights crimes. temperature to within 1.5oC (2.7 oF) ofpre-industrial levels, China can’t help a tougher goal than keeping The government ofPakistan the temperature “well below” turned to the IMF fora loan to 2oC that was agreed to in the help ease a balance-of-pay- Paris climate accord of2015. ments crisis. Imran Khan, the prime minister oftwo months, Hurricane Michael tore had previously suggested that through Florida’s Panhandle. his government would be able The category-fourstorm was to borrow from “friendly the strongest to hit the region countries” instead. A presidential election took in a century. It caught forecast- place peacefully in most parts ers offguard when it intensi- India’s #MeToo movement ofCameroon, although vio- fied rapidly over the Gulfof gathered steam, as a number lence was reported in English- Mexico in just a couple ofdays. Jair Bolsonaro, a right-wing ofwomen accused film exec- speaking regions. Counting is formerarmy captain, led the utives, actors and newspaper expected to take two weeks. A conservative majority race for Brazil’s presidency editors ofsexually harassing Brett Kavanaugh started work after a first round ofvoting. He them. Four women have com- Turkish officials said they think as a justice on America’s got 46% ofthe vote. In the plained about the conduct of Jamal Khashoggi, a prominent Supreme Court after the run-offhe will face Fernando M.J. Akbar, a formerjournalist Saudi journalist and govern- Senate voted 50-48 to approve Haddad, the nominee ofthe who is now a junior minister. ment critic, was murdered and him, the narrowest margin for left-wing Workers’ Party, who dismembered inside the Saudi confirming a judge to the court got 29%. In the congressional A formerpresident ofSouth consulate in Istanbul by a team since 1881. Mr Kavanaugh election Mr Bolsonaro’s Social Korea, Lee Myung-bak, was ofSaudi agents on orders from appointed an all-female team Liberal Party jumped from sentenced to 15 years in jail for the royal court. oflaw clerks to his office, a first eight lower-house seats in the corruption, the second such forthe court. outgoing congress to 52 in the conviction ofa previous head An increasingly dangerous job new one, becoming the sec- ofstate this year. Viktoria Marinova, a journal- A Chinese intelligence officer ond-largest party. ist, was raped and murdered in was extradited from Belgium The authorities in Hong Kong Bulgaria. Last month, she to the United States, where he A judge in California blocked refused to renew the workvisa hosted a television show was charged with economic plans by the Trump adminis- ofVictor Mallet, a British jour- reporting on a big fraud case espionage fortrying to appro- tration to deport some mi- nalist based in the territory. It involving the misuse ofEU priate trade secrets from Amer- grants from El Salvador, Haiti, gave no reason forthe deci- subsidies. This is the third ican aviation companies. It is Nicaragua and Sudan who had sion, but officials had objected recent murder in Europe ofa the first time that an alleged enjoyed “temporary protected to Mr Mallet’s hosting ofa talk journalist who had been Chinese spy has been brought status” in America. The admin- at the Foreign Correspondents’ investigating corruption. to America to stand trial. istration said it had ended TPS Club by the leader ofa pro- forcitizens ofthe fourcoun- independence party, which Two astronauts, a Russian and tries because the emergencies has since been banned. an American, en route to the that had justified giving them International Space Station, refuge in America had ended. China confirmed that it had survived the malfunction of arrested the Chinese president their Soyuz launch rocket. In Venezuela, Fernando ofInterpol, Meng Hongwei. Their capsule separated from Albán, a councilman whom Mr Meng disappeared in late the booster and landed safely the regime accused ofpartici- September after returning to in Kazakhstan. pating in an attempt to assassi- Beijing fora visit. China even- nate President Nicolás Maduro tually said that he was being Britain’s Supreme Court ruled by drones, died in the custody investigated forbribery. in favour ofa Christian- ofthe country’s intelligence Interpol was informed that he owned bakery in Northern service. The government said had resigned as its head. Ireland that refused to make a The White House began the he killed himselfby jumping cake with a slogan supporting search fora new American from the tenth floor ofthe Tentacles of a scandal gay marriage, which remains ambassador to the UN after agency’s headquarters. Oppo- South Africa’s finance min- illegal in the province. The Nikki Haley said she would sition politicians accused the ister, Nhlanhla Nene, resigned judges found that the bakers step down from the job at the government ofmurder. after testifying that he had met had not refused to serve the end ofthe year. the Gupta family, which is at customer who ordered the Keiko Fujimori, who leads the centre ofallegations of cake on the basis ofhis sexu- Donald Trump said he had no Popular Force, the largest party cronyism and “state capture”, ality, and were justified on plans to fire Rod Rosenstein as in Peru’s congress, was de- more often than he had previ- free-speech grounds in not deputy attorney-general. Mr tained by prosecutors investi- ously disclosed. There was no baking the message he wanted Rosenstein was thought to be gating undeclared campaign indication that Mr Nene had displayed on it. on his way out after it was donations. A court recently done anything illegal or im- reported that he had mooted reversed a pardon granted to moral. He was replaced by a The UN-backed Intergovern- removing Mr Trump from her father, Alberto Fujimori, a formergovernor ofthe central mental Panel on Climate office through constitutional formerpresident, who was bank, Tito Mboweni. Change urged governments to means. 1 10 The world this week The Economist October 13th 2018

Carillion, a global construction into another Lehman Brothers. over the course often years. Business company, has increased the The company’s share price Being the target ofan order scrutiny ofauditors’ practices. dropped to its lowest level in 18 does not imply wrongdoing. Stockmarkets around the months. world tumbled. Investors were Google faced more pressure American employers added spooked by a number offac- following the news that it had Meanwhile the share price of 134,000 workers to the payroll tors, including fears that trade failed to disclose a bug in its Nio, a Chinese electric-car- in September, the smallest tensions between America Google+ social network. The maker which recently listed on increase in a year. America’s and China were starting to company discovered in March the stockmarket, soared by a unemployment rate fell to hurt profits, especially at tech- that the personal details of up fifth upon the news that Tesla’s 3.7%, the lowest since 1969. nology companies. Apple’s to 500,000 users may have biggest outside investor, Baillie share price dropped by 4.6% in been exposed to developers of Gifford, a fund manager, has Phew! What a scorcher one day. Asian markets fared third-party apps. It will shut amassed an 11.4% stake in the particularly badly. The Shang- down Google+, though that did Shanghai-based company. Britain hai Composite fell by 5.2% on a little to stop observers compar- GDP, latest three months % change on previous three months single day to near a four-year ing the transgression to A brake in demand forcars in low. Hong Kong’s Hang Seng Facebook’s Cambridge China caused Jaguar Land 1.2 and Tokyo’s Topix index re- Analytica scandal. Rover to plan a two-week 0.8

corded similar plunges. closure ofits main assembly 0.4 America’s Justice Department plant in Britain. That prompted + 0 Of interest gave the go-ahead forthe a sell-offin the shares of Tata – Concerns about rising interest $69bn merger ofCVS Health Motors, JLR’s parent company. 0.4 rates in America also weighed and Aetna, which will reshape Volkswagen said its sales in 2016 17 18 Source: ONS on sentiment. Ten-year Trea- the health-care industry. The China had dropped by10% in sury-bond yields rose to their regulator approved the deal September, adding to poor The long hot summer injected highest point since 2011. In a after Aetna agreed to sell its sales in Europe, where many a bit ofheat into the British report, the IMF warned that Medicare drug business. ofits vehicles do not meet economy. GDP grew at a the divergence between ad- tougher emissions standards. robust rate of0.7% for the three vanced and emerging econo- Just a weekafter settling with months to August, the same as mies has grown over the past the Securities and Exchange The target ofBritain’s first the three months to July, which six months. Commission over the tweets Unexplained Wealth Order was the fastestpace since early he published claiming he lost her battle to retain her 2017. Consumer spending on China’s central bankpumped would take Tesla private, Elon anonymity. Zamira Hajiyeva, one-offevents like the World 750bn yuan ($108bn) into the Muskcourted more controver- the wife ofa formerbanker Cup played its part, but con- economy by reducing the sy by describing the regulator jailed in Azerbaijan forembez- struction also remained solid amount ofcash that banks as the “Shortseller Enrichment zlement, may now have to over the period. The outlook have to hold as reserves, after Commission”. David Einhorn, explain to the High Court how may not be so sunny as Brexit figures showed that invest- a prominent short-seller of the the London mansion she owns approaches. ment and exports have weak- electric-carmaker’s stock, said was paid for. She also spent ened. The trade war with Mr Musk’s erratic behaviour £16m ($21m) in Harrods, just a For other economic data and America, which has raised risked turning the company short walkfrom her home, news see Indicators section tariffson Chinese imports, and a strong dollar have increased the pressure on policymakers to bolster growth.

Facing a shareholders’ revolt, Unilever ditched its proposal to shed its London headquarters and retain Rotterdam as its sole base. The Anglo- Dutch consumer-goods group wants to simplify its corporate structure but came under pressure from British fund managers fearful that the move would have made Unilever ineligible forin- clusion in the FTSE 100 index.

The competition authority in Britain launched an investigation into whether the dominance ofthe Big Four accoun- tancy ﬁrms is driving down auditing standards. A number ofspectacular business fail- ures, such as the collapse of

Leaders The Economist October 13th 2018 13 The next recession

When the downturn comes, toxic politics and constrained central banks will add to the risks UST a year ago the world was Policymakers have other options, of course. Central banks Jenjoying a synchronised eco- could use the now-familiar policy of quantitative easing (QE), nomic acceleration. In 2017 the purchase of securities with newly created central-bank re- growth rose in every big ad- serves. The efficacy ofQE is debated, but ifthat does not work, vanced economy except Britain, they could try more radical, untested approaches, such as giv- and in most emerging ones. Glo- ing money directly to individuals. Governments can boost bal trade was surging and Amer- spending, too. Even countrieswith large debtburdens can ben- ica booming; China’s slide into efit from fiscal stimulus during recessions. deflation had been quelled; even the euro zone was thriving. The question is whether using these weapons is politically In 2018 the story is very different. This weekstockmarkets tum- acceptable. Central banks will enter the next recession with bled across the globe as investors worried, forthe second time balance-sheets that are already swollen by historical stan- this year, about slowing growth and the effects of tighter dards—the Fed’s is worth 20% of GDP. Opponents of QE say American monetary policy. Those fears are well-founded. that it distorts markets and inflates asset bubbles, among other The world economy’s problem in 2018 has been uneven things. No matter that these views are largely misguided; fresh momentum (see Finance section). In America President Do- bouts of QE would attract even closer scrutiny than last time. nald Trump’s tax cuts have helped lift annualised quarterly The constraints are particularly tight in the euro zone, where growth above 4%. Unemployment is at its lowest since 1969. the ECB is limited to buying 33% ofany country’s public debt. Yet the IMF thinks growth will slow this yearin every other big advanced economy. And emerging markets are in trouble. Spending ceilings This divergence between America and the rest means di- Fiscal stimulus would also attract political opposition, regard- vergent monetary policies, too. The Federal Reserve has raised less of the economic arguments. The euro zone is again the interest rates eight times since December 2015. The European most worrying case, if only because Germans and other Central Bank (ECB) is still a long way from its first increase. In northern Europeans fear that they will be left with unpaid Japan rates are negative. China, the principal target of Mr debts ifa country defaults. Its restrictions on borrowing are de- Trump’s trade war, relaxed monetary policy this week in resigned to restrain profligacy, buttheyalso curb the potential for sponse to a weakening economy. When interest rates rise in stimulus. America is more willing to spend, but it has recently America but nowhere else, the dollar strengthens. That makes increased its deficit to over 4% of GDP with the economy al- it harder for emerging markets to repay their dollar debts. A ris- ready runninghot. Ifit needs to widen the deficit still furtherto inggreenbackhasalreadyhelped propel Argentina and Turkey counter a recession, expect a political fight. into trouble; this week Pakistan asked the IMF for a bail-out Politics is an even greater obstacle to international action. (see Asia section). Unprecedented cross-border co-operation was needed to fend Emerging markets account for 59% of the world’s output off the crisis in 2008. But the rise of populists will complicate (measured by purchasing power), up from 43% just two de- the task of working together. The Fed’s swap lines with other cades ago, when the Asian financial crisis hit. Their problems central banks, which let them borrow dollars from America, could soon wash back onto America’s shores, just as Uncle might be a flashpoint. And falling currencies may feed trade Sam’s domestic boom starts to peter out. The rest of the world tensions. This week Steve Mnuchin, the treasury secretary, could be in a worse state by then, too, if Italy’s budget difficul- warned China against “competitive devaluations”. Mr ties do not abate or China suffers a sharp slowdown. Trump’sbeliefin the harm caused by trade deficits is mistaken when growth is strong. But when demand is short, protection- Cutting-room floors ism is a more tempting way to stimulate the economy. The good news is that banking systems are more resilient than Timely action could avert some of these dangers. Central a decade ago, when the crisisstruck. The chance ofa downturn banks could have new targets that make it harder to oppose ac- as severe as the one that struck then is low. Emerging markets tion during and aftera crisis. Ifthey established a commitment are inflicting losses on investors, but in the main their real ahead of time to make up lost ground when inflation under- economies seem to be holding up. The trade war has yet to shoots or growth disappoints, expectations of a catch-up cause serious harm, even in China. If America’s boom gives boom could provide an automatic stimulus in any downturn. way to a shallow recession as fiscal stimulus diminishes and Alternatively, raising the inflation target today could over time rates rise, that would not be unusual after a decade of growth. push up interest rates, giving more room for rate cuts. Future Yet this is where the bad news comes in. As our special re- fiscal stimulus could be baked in now by increasing the poten- port this week sets out, the rich world in particular is ill-pre- cy of “automatic stabilisers”—spending on unemployment in- pared to deal with even a mild recession. Thatispartly because surance, say, which goes up as economies sag. The euro zone the policy arsenal is still depleted from fighting the last down- could relax its fiscal rules to allow formore stimulus. turn. In the past half-century, the Fed has typically cut interest Pre-emptive action calls for initiative from politicians, rates by five or so percentage points in a downturn. Today it which is conspicuously absent. This week’s market volatility has less than half that room before it reaches zero; the euro suggests time could be short. The world should start preparing zone and Japan have no room at all. now forthe next recession, while it still can. 7 14 Leaders The Economist October 13th 2018

Climate change The temperature rises

A new report produces a mixture ofalarm and apathy OR decades scientists have after page, fact after fact, the evidence for anthropogenic cli- Net CO2 emissions 75 Fwarned that rising atmo- mate change, long clear, is harder than ever to ignore. Gigatonnes per year 60 spheric concentrations of green- The report’s message is also beyond doubt: the extra half a “Business as usual” 45 house gases from the burning of degree makes a big difference. Arctic summers could be ice- 30 fossil fuels risk adversely affect- free once a decade in a two-degree world, butonce a century in 1.5°C warming 15 ing the climate, increasing ocean a one-and-a-half-degree one. Virtually all the ocean’s coral scenario 0 acidity, the frequency of freak might be irreversibly wiped out in a two-degree world, rather 1980 200020 40 60 weatherand othersymptoms of than 70-90% iftemperatures rise by less. Sea levels may rise an planetary ill-health. But it seemed that keeping the tempera- extra 10cm, washing away the livelihoods of millions more ture within 2°C of pre-industrial levels, although disruptive, people. Permitting a rise oftwo degrees could also see an extra would probably leave Earth in a chronic but stable condition. 420m people exposed to record heat. The 2°C target has been A report unveiled this week from the Intergovernmental baked into climate policy for years—the number was first put Panel on Climate Change (IPCC), a UN-backed body that mus- forward by William Nordhaus, who shared the Nobel eco- ters the science needed to inform policy, shows how optimis- nomics prize this week(see Free exchange). It is too lax. tic that was. The survey was commissioned in 2015 by the then Hitting either target would entail transforming economies 195 signatoriesofthe Paris climate agreement—which commits at a breakneckpace. To achieve 1.5°C, the world would by 2050 them to keep warming“well below” 2°Cand to “pursue efforts need to eliminate all 42bn tonnes ofcarbon-dioxide in annual towards 1.5°C”. The effects and technical feasibility of keeping emissions. Renewables, including hydropower, would have at warming within this tighter limit were the report’s focus (see least to treble their share of electricity generation from today’s Science and technology section). How it was put together, the 25%. Internal-combustion engines, which power 499 out of message it contains and the reaction it elicited all matter. 500 cars on the road today, would have to all but vanish. Pro- gress is being made. The number of electric cars on the road is A question of degree rising fast; green finance is gathering momentum; zero-carbon First, the way it was assembled. Although the report presents technologies are being developed. But the scale ofthe effortre- no new science of its own, its survey of more than 6,000 stud- quired is unprecedented. ies is meticulous. With every passing year scientists amass That is why reaction to the IPCC’s report matters. Some more data about howthe climate has already changed. And, as European Union environment ministers want to adopt1.5°C as many people battered in Florida this week by Hurricane Mi- a guide to policy before a UN summit in Poland in December. chael will attest, it is changingfasterthan anyone foresaw even Their Australian counterpart called it “irresponsible” to phase two decades ago. This new knowledge, together with im- out coal by 2050. Donald Trump, who plans to withdraw proved understanding of the complex climate system, makes America from the Parisdeal, hasnotread it. Amixof alarm and projectionslike those the IPCC hascompiled more compelling. apathy has both galvanised efforts to secure a 2°C future, and Uncertainties remain; individual research contained within also bedevilled them. A target of 1.5°C is no more likely to be the report may yet be challenged. But in study after study, page met, but may nonetheless encourage the world to try harder. 7

Saudi Arabia The fate of a journalist

Saudi Arabia is starting to looklike an old-fashioned Arab dictatorship T HAS been over a week since footage? And why did 15 Saudis ﬂy in on private jets just before IJamal Khashoggi, a prominent he disappeared, and leave shortly after? The Saudis must pro- Saudi journalist and govern- vide answers, or the world will assume the worst. ment critic (pictured), walked If it transpires that Mr Khashoggi has been killed, whether into the Saudi consulate in Istan- deliberately or in a botched kidnapping, it will strengthen the bul to get paperwork for a mar- sense that Muhammad bin Salman, the Saudi crown prince riage. No one has seen him and de facto ruler, is more of a rogue than a reformer. He has since. Turkish oﬃcials say that locked up thousands of activists. He detained a sitting prime he was killed by a team ofSaudi assassins, who dismembered minister ofLebanon, Saad Hariri, for two weeks in November. his body, on orders from the top of the royal court (see Middle His long arm has already reached abroad. In March a wom- East and Africa section). The Saudis retort that Mr Khashoggi en’s-rights campaigner, Loujain al-Hathloul, was detained in left the building of his own accord. If so, when? Are there wit- Abu Dhabi, whisked to Saudi Arabia and, later, thrown in jail. nesses or written records? Why is there no security-camera In September a Saudi satirist based in London claimed that he 1

16 Leaders The Economist October 13th 2018

2 was beaten by goons who had been sent from Saudi Arabia. planned stockmarket listing of part of Aramco, the state oil Murdering a critic on foreign soil would be an escalation of giant, suffered from Prince Muhammad’s micromanagement a dismal trend. Unlike past Saudi royals, who allowed some and has been postponed indefinitely. Other grandiose pro- debate and often sought to mediate between competing inter- jects, such as NEOM, a futuristic city staffed by robots, seem ill- ests, Prince Muhammad rules as if only he has the answers. considered. But advisers dare not challenge the prince. His brutish handling of even mild critics is overshadowing more admirable policies, which include curbing the religious Some friendly nasiha police, letting women drive and encouraging them to work. As In countries like America, where Mr Khashoggi lived, the in- his regime starts to resemble an Arab nationalist dictatorship— stinct has been to offer the prince weapons and support. In- socially liberal but centralised, paranoid and built on fear—his stead, the prince’s allies should make clear that he does not promise ofa new, tolerant Saudi Arabia is receding. have a blank cheque—and that his rule would benefit from Prince Muhammad’s autocratic tendencies have economic more openness. Mr Khashoggi, a former government adviser, consequences, too. He aims, ambitiously, to wean the king- often said that his criticism of the Saudi regime was nasiha, or dom offoil. But investors are warned offby the capricious way friendly counsel. He did not consider himself a dissident and he takes decisions. Last year he locked up and seized assets disliked the idea ofregime change. “It’s just ridiculous,” he told from hundreds of businessmen, officials and princes in an The Economist in July. “I believe in the system—I just want a re- “anti-corruption” drive that lacked even a hint of due process. formed system.” The Saudi regime should listen to its critics, His effort to spur the private sector is, oddly, top-down. The not silence them. 7

The mid-terms “Medicare for all”

How to turn a meaningless slogan into something worthwhile ENATORS Bernie Sanders, In some alternate America imagined by Pixar the health- Health-care spending SElizabeth Warren and Cory care system could simply be reinvented. In the real world it As%ofGDP 20 Booker are all forit, as are Kama- would be unworkable—and political suicide. Because Ameri- United States 15 la Harris and Kirsten Gillibrand. can health-care costs are so high, making the government as- 10 “Medicare for all” has also be- sume them all would require a huge increase in taxation. Vot- OECD average 5 come a rallying cry for many ers in Colorado, California and Vermont, all relatively friendly 0 Democratic activists as the mid- territory for Democrats, rejected single-payer systems when 1980 90 2000 10 17 terms approach. Like “repeal they realised how much they cost. The rebellion that would and replace”, the Republican Party’s three-word proposal for followan attemptto remove jobs-based health insurance from improving on Obamacare, “Medicare forall” sounds good but the 55% of Americans who have it, putting medical-insurance is largely meaningless. Ask any five Democratic senators what companies out ofbusiness in the process, would make the pol- they have in mind and you will get five different answers. itics ofObamacare looklike a church picnic. The urge to reform American health care deserves support. America is the only rich country to lack universal coverage. Incredibles 2 Even in a booming economy, 12% of American adults remain A better approach would be to continue changing the health- uninsured. Though the best care they receive is world-beating, care system in small steps, frustrating though that might be. In the system asa whole hashigh costsand disappointing results. states that expanded Medicaid, the health-care programme for America spends 17% of GDP on health care, the highest of any low-income Americans, the proportion of people without rich country (see chart), but in return achieves an average life health insurance halved. IfDemocrats can win power in states expectancy no better than that of the formerly communist that rejected the federal government’s offer to pay for Medic- countries of eastern Europe. Even Americans with good insur- aid expansion, they will be able to bring down the number of ance plans find dealing with their providers maddening. uninsured further. The markets where individuals can buy in- Hence the urge to tear up the whole system and start again. surance should be shored up. Finally, individuals could be of- Mr Sanders has done the most to popularise Medicare for all. fered the option to buy Medicare, paying an annual premium He proposes converting the government scheme for the elder- to the government just as they would to any other provider of ly into a single-payer system funded from general taxation, as health insurance. in many European countries. Private companies would still Since Medicare has more pricing power than individual in- provide the care, unlike Britain’s NHS, but individuals would surers do, this option ought to bring costs down eventually. It no longer buy health insurance through their employers. would also provide choice forthose livingin the many rural ar- This plan appeals to Democrats scarred by their experience eas where there is currently no competition in insurance mar- with Obamacare, an incremental reform that worked with the kets. Senators Michael Bennett and Tim Kaine have a proposal grain of America’s market-based system but which Republi- along these lines. It is not perfect. If premiums were not set cans successfully targeted as unjust. To avoid repeating the high enough, the government’s liabilities would increase. It same mistake, the thinking goes, Democrats need a big-bang would leave much ofAmerica’s frustrating health-care system reform that cannot be unpicked later. Its backers point to polls unreformed. But unlike most other versions of Medicare for showing overwhelming support forMedicare forall. all, it might actually happen. 7 The Economist October 13th 2018 Leaders 17

Financial crime Dirty capital

London’s financial flows are polluted by illicit money. Time to clean up RITAIN likes to see itself as a efforts to embarrass Vladimir Putin’s intelligence agencies (see B leader in the fight against il- Britain section). Providing financial refuge for bent elites fuels licit finance and corruption. The corruption in other countries. government has recently been The challenge islessto write newlawsthan to enforce what talking even tougher, as worsen- is on the books—a common malaise in Britain. This month the ing relations with Russia have first “Unexplained Wealth Order”, which requires targets to focused attention on the num- show the sources of their wealth, survived a legal challenge ber of oligarchs who have inter- from the wife of a jailed Azerbaijani banker. The government ests in London. Anyone looking to stash dirty money “should rightly trumpets reforms launched afterDavid Cameron, a for- be in no doubt that we will come for them,” warns Ben Wal- mer prime minister, declared that corruption-fighting should lace, the economic-crime minister. be a priority. In 2016 Britain became the first G20 country to In fact the record suggests that wrongdoers can sleep easy launch a public register of companies’ beneficial owners, de- (see Finance section). The National Crime Agency (NCA) reck- signed to shed light on the shell companies behind which ons that “many hundreds of billions of pounds” of interna- wrongdoers often hide. But the system relies on self-reporting. tional money is rinsed through British banks each year, much CompaniesHouse, a governmentagency, hasneitherthe pow- ofit from kleptocrats and their cronies. Almost every big cross- ers nor the resources to check what is submitted. The supervi- border corruption case in recent years has had a connection to sion of firms that set up other companies is so weak, and the Britain or its palm-fringed overseas territories. British limited- fines for breaches so paltry—typically £1,000-2,000 ($1,310- liability partnerships were the vehicle ofchoice for suspicious 2,620)—that it makes the British Virgin Islands look robust. In- clients of Danske Bank, which is embroiled in the laundering evitably, therefore, the honest comply and criminals lie. ofas much as €200bn ($230bn). Worse, law enforcers lack the resources to pursue enough Some people in the governing Conservative Party and the big cases. The NCA’s budget, already stretched, is falling. It has City argue that a big clean-up would be harmful just when perhaps a few dozen investigators with the skills for complex British finance risks losingits lustre because ofBrexit. The more cases; America and Italy have hundreds. This is not an area importantpointisthat, in a countrywhich hasundergone bail- where justice comes cheap. On average, a big corruption case outs and austerity following the financial crisis of 2008, doing takes seven years. Prosecuting agencies need to be able to ab- nothing to tackle dirty capital flows could further undermine sorb hefty costs, especially if they lose—and, as oligarchs can the legitimacy ofcapitalism. afford the best lawyers, that is always a risk. Britain has not taken the lead on a large, cross-border case for years. Thames and misdemeanours Devoting greater resources to corruption cases would go a London is hardly unique. Other financial centres, including long way towards fixing things. Some of the extra cash should New York, Dubai and Singapore, also wash dodgy cash. The be used to raise investigators’ salaries, which are far below more clean money sloshes around, the easier it is to hide the those oftheirAmerican peers. Strengtheningoversight ofshell dirty sort. But London has exceptionally enticing attributes. It companies and the firms that set them up would also help, as handles vast cross-border capital flows. It boasts the English would money for the verification of ownership information. language, good schools and, ironically, a respected legal sys- Some ofthe fundingforthis could come from an increase in in- tem (which shields tycoons against the arbitrary plunder they corporation fees, which are as little as £12. One piece of new suffer at home). Relaxed rules on ownership are geared to- legislation would help: a “failure to prevent” law that makes it wards rich foreigners. Armies of lawyers and public-relations easierto prosecute seniormanagers orcompaniesifthey fail to firms specialise in rinsing reputations. Tough libel laws help take adequate measures against money-laundering. A similar keep pryingjournalistsand NGOsatbay. On top ofall this, Brit- provision on bribery works well. ain has its own network of secretive offshore territories, dubbed its “second empire” by anti-corruption campaigners. The fairmile London is, in short, ideal formoney-laundering. The City matters to Britain. It is a big employer (two-thirds of People give all sorts of reasons not to strangle this golden the jobs are outside London). It generates a trade surplus of 3% goose. The ancillary industries that depend on all that wealth of GDP and pays roughly a tenth of the country’s taxes. It is a would suffer. A clampdown risks scaring away legitimate in- hub for fintech, and Britain’s smaller firms appear to secure fi- vestment, especially if it is seen as targeting entire national- nancing more easily than their typical European counterparts ities: many Russians own London pads through offshore com- do (see Schumpeter). The opposition Labour Party under Je- panies forreasons ofprivacy or legal tax planning. Some fear it remy Corbyn sees things differently. It makes no secret of its would clobber the property market and the pound, just when deep hostility to finance. If the City does not demonstrate that a Brexit-bound Britain needs all the investment it can get. its markets are clean and honest, it will be giving the next La- But the case foraction is stronger. Predictions of severe eco- bour government a freer hand to act—savagely. nomic damage from a crackdown are overdone. Russians and Britain’s response to the threat posed by illicit financial Ukrainians hold only 0.2% oftotal British assets owned by for- flows has so farbeen more thundering rhetoric than meaning- eigners. Targetingiffy Russian money would reinforce Britain’s ful action. It is time to put that right. 7 18 Executive Focus

The Economist October 13th 2018 Executive Focus 19

The Economist October 13th 2018 20 Letters The Economist October 13th 2018

The Kavanaugh proceedings by anything other than would have been quite differ- the public-debt ratio, and have opinion. Add to that an ample ent. In fact, most ofthe men moved towards furtherim- I was candidly more than supply ofneedy attention- caught by #MeToohave not proving fiscal institutions, such disappointed to read your seekers, journalists delighted admitted any wrongdoing and as granting legal status and coverage of the #MeToo move- to dig them up and a few continue to claim innocence, autonomy to the advisory ment (“Truth and conse- editors who weren’t too fussy even that they are the victims. fiscal council. quences”, September 29th). By about verification, and the cast That is where the atonement We are committed to implication, you seemed to was complete. needs to begin. leading the Chilean economy support the accusations lev- This isn’t the first time VICTORIA STANLEY beyond the middle-income elled against Brett Kavanaugh. powerful people have tried to Washington, DC trap but are fully aware of the That was a cavalier riskin discredit someone they don’t tremendous challenges ahead. possibly destroying a demon- like, and it won’t be the last. How could an article on the FELIPE LARRAÍN strably capable and, to date, MARGARET MCGIRR decline ofcivility in politics Minister of finance innocent judge by embracing Greenwich, Connecticut (“Uncivil hands”, September Santiago, Chile uncorroborated and largely 29th) not have mentioned that disproved or irrelevant innu- Senator Susan Collins is one of Maxine Waters, a Democratic Turn that light off endo. It was shocking. the few remaining moderates congresswoman from Los Did it not occur to you that in Congress and no supporter Angeles, has loudly and The Centennial Light ifthese allegations remain ofthe president. Her floor publicly told her followers to described in your special unproven, and are possibly speech reviewing the pros and harass Republicans in restau- report on waste (September merely part ofan ends-justify- cons ofwhy she decided to rants, stores or wherever else 29th) is not a good example of the-means campaign ofthe confirm Mr Kavanaugh was they find them? the virtue ofa long-lived pro- women’s movement, that you one ofthe best in recent times. RICHARD CHRISTOPHERSON duct that reduces consump- have done women who have She looked at the charges La Mesa, California tion. The technology comes at actually been violated great against the judge and showed a cost: the lower-temperature harm? Where are you really how each was unsupported by Chile’s economy filament is less efficient at going with #MeToo? the facts. Senator Collins is a generating light, requiring Please hesitate before be- dedicated advocate for It is true that Chile’s real GDP more electric power consump- coming a pawn in this battle. women’s issues and has writ- growth has increased signifi- tion forthe same amount of We need to allow and encour- ten more than 25 bills concern- cantly (“Steering the economy light. As a rough estimate, the age our best and brightest to ing them. To thinkshe would away from the middle-income 100-year lamp would require seekpublic office without support anyone she had the trap”, September 29th). 60 watts ofpower to produce demeaning coverage of slightest doubt about regarding However, this economic recov- the same light output as could accusations that may have sexual assault, as some accuse ery has been broad-based and be obtained for40w from a been engineered. her of, is absurd. been led by non-mining 2,000-hour lamp. At near- MARC ROSENBLUM CHRIS DALY industries. Mining only continuous use (8,000 hours a Franklin Lakes, New Jersey Yucaipa, California accounts forroughly10% of year) it consumes an extra Chile’s economic output. The 16,000 kWh over100 years. Lexington laid into the Repub- recovery has had a tangible Moreover, the yellow film on licans over the Kavanaugh effect on the labour market, the bulb means that halfthe hearings (October 6th). What with job growth in the private light produced by the filament about the shenanigans ofthe sector more than doubling this never gets out. Democrats on the Judiciary year. The reason unemploy- JOHN WAYMOUTH Committee? Not a word about ment rates have not declined is Marblehead, Massachusetts Senator Dianne Feinstein that many more people are sitting on Christine Blasey looking forjobs. An evolutionary phrase Ford’s accusations against Mr A tax-modernisation bill is Kavanaugh for two months, in the works that simplifies the As a quadcopter enthusiast, I even as she was signing up the tax system, favours smaller was delighted to see you dis- top lawyer for #MeToo to assist businesses and spurs invest- regard the ancient crow idiom in her attackon the judge I appreciate The Economist ment and growth. It has re- fordescribing straight-line when the time came. No men- taking on this issue, but the ceived strong support from the distances. Rather, Tel Aviv to tion ofthe inability ofhis idea that “#MeToo needs a IMF. Moreover, although Jerusalem is now 55km “as the inquisitors to decide what they path towards atonement or productivity growth has been drone flies” (“Slow train to most wanted him guilty of. A absolution” is a bit tone deaf persistently negative since Jerusalem”, September 8th). hazily recalled sexual assault? (“#MeToo, one year on”, 2014, there has been a striking TIM DEYZEL Heavy drinking? Getting angry September 29th). Absolution improvement in the first half Chief pilot about the abusive treatment of and atonement require contri- of2018, to the fastestpace in Stately Drones his family? tion and remorse forthe harm seven years. Growth forecasts Blackheath, Australia 7 The unfairly accused have caused, and that has been have also been revised up- redress under the law and are lacking in most ofthese cases. wards. Our campaign prom- owed their day in court. But a Imagine ifMr Kavanaugh ised to focus on the poor and Letters are welcome and should be hearing isn’t a courtroom, is it? had come forward as soon as the middle class while safe- addressed to the Editor at The Economist, The Adelphi Building, And so this character assassi- the allegations emerged, guarding public finances, 1-11John Adam Street, nation masquerading as a admitted to being a drunken which we are doing. As such, London WC2N 6HT confirmation process was a teenage jerkand apologised we are implementing a fiscal- E-mail: [email protected] free-for-all ofallegations, none unreservedly to the women he consolidation package to More letters are available at: ofwhich had to be supported assaulted. The conversation reduce the fiscal deficit and cap Economist.com/letters Briefing Veganism The Economist October 13th 2018 21

people’s health, reducing environmental The retreat from meat degradation and making food more afford- able for the poor in developing countries. The founder of the first vegan society said in 1944 that “in time [people] will view with abhorrence the idea that men once fed on the products of animals’ bodies.” WARSAW Many since have shared his hope. Perhaps People in rich countries are eating more vegan food. The furthertheygo, the better their time is come at last. T IS lunchtime and a queue is forming for and Al Gore, Serena and Venus Williams, Ifso, itisa slowcoming. Meatconsump- Ithe burgers at Krowarzywa, voted the Lewis Hamilton, Mike Tyson, Beyoncé, tion worldwide has been growing consis- city’s best in an online poll: students, fam- take your pick. In America sales of “plant- tently by almost 3% a year since 1960, most- ilies, businessmen in suits. This is Warsaw, based” foods—a term forfoodsthatcontain ly because people in poor countries buy where (you might think) lunch is usually a no meat, eggs or dairy that reliably says more meat as they get richer, and the trend slab of meat with a side order of sausage. “vegan” to vegans but doesn’t say “weird” has yet to slow. In the early 1970s the aver- But at Krowarzywa—which means “cow to the less committed—rose 20% in the year age Chinese person ate 14kg(31lb) ofmeat a alive” and contains the word warzywa, to June 2018, according to Nielsen, a mar- year. Now they eat 55kg, which is 150g, or meaning vegetables—no animals were ket-research group. That was ten times the five ounces, a day. But though most growth harmed in the makingofthe food. The bur- growth in food as a whole that year and in consumption has been in the develop- gers are made of millet, tofu or chickpeas. two and a half times faster than vegan ing world, rich countries are eating more The bestselling “vegan pastrami” is made foods grew in the year before. meat, too; their consumption is just not ofseitan, a wheat-based meat substitute. McDonald’s is offering McVegan bur- growing as fast as it used to. According to Warsaw has almost 50 vegan restau- gers in Scandinavia. The American restau- the UN’s Food and Agriculture Organisa- rants. That does not mean it has all that rantsin the TGI Fridayschain sell soyabean tion (FAO), meat consumption in the rich- many vegans. Kassia, a 20-something pro- burgers that ooze blood made of beetroot est nations has risen 0.7% a year since 1991. fessional in the queue, saysshe hasno ethi- juice. Tyson Foods, one of the world’s larg- Polling data is used to claim that the cal objection to eating meat. She comes to est meat producers, recently bought 5% of number of vegans in rich countries is both Krowarzywa because she likes the food. Beyond Meat, the company which makes quite high—around 10% in some European Kornel Kisala, the head chef, thinks that them. Waitrose, a posh British grocery countries—and growing. But there is rea- most of Krowarzywa’s clientele eat meat, chain, introduced a range of vegan food in son to doubt at least the first ofthese. Some but it does not worry him. “Animals don’t 2017, expanded the selection by 60% in of the best data come from Britain, home care whether you eat a vegan burger be- mid-2018 and says sales ofvegan and vege- ofthe world’sfirstvegan society. Apoll car- cause it is fashionable or because it is tarian foods in July 2018 were 70% above ried out by that society in 2016 found that tasty.” Altogether, 60% of Poles say they the level in July 2017. 1.05% ofpeople in Britain never ate meat or plan to cut back on meat this year. Eating Some people see great things in this. animal products. This is considerably high- vegetarian and vegan meals now and then Two years ago Eric Schmidt, a Silicon Val- er than the result the society got in 2007, is one ofthe ways some choose to do so. ley figure who used to be chairman of which suggests real growth in numbers. Interest in vegan food has been boom- Google, called plant-based meat substi- But it is a far cry from the 5.3% of the popu- ing across the rich world. Celebrity claims tutes the world’s most important future lation reported as vegan in a more recent of veganism are everywhere: Bill Clinton technology; he foresaw them improving poll. In general, polls seem to find many 1 22 Briefing Veganism The Economist October 13th 2018

2 more people claiming to be vegan than get makes it unsurprising that accurate fig- in red meat. Lots of factors, both dietary they do people abstaining from all meat, ures on veganism are hard to come by. and non-dietary, influence health pro- fish and animal products. Overall, though, itseemssafe to saythat blems such as obesity, high blood pressure In America, Nielsen found in 2017 that the number of people sometimes or regu- or diabetes, and it is hard to understand ex- 3% of the population called themselves larly choosing to eat vegan food is growing actly what is responsible for what. Com- vegans and 6% vegetarians (people who much faster than the growth in people paring diets on a statistical basis, though, eschew meat, but eat eggs and/or dairy deeply committed to a meat-, egg- and allows some striking inferences. In 2016 a products). This proportion seems more or dairy-free life. Patrice Bula, a vice-president study by Marco Springmann and col- less stable; the country’s largest polling or- at Nestlé, says he thinks that only a quarter leagues at the University of Oxford found ganisations, Gallup and Harris, both found of the people buying his company’s vegan that, globally, a transition to well-balanced 3% of the population calling themselves meals are committed vegetarians or veg- vegan diets might result in 8.1m fewer vegan over the period 2012-18. But more de- ans. People in this larger group are often deaths a year. Universal vegetarianism tailed research by Faunalytics, a company called “flexitarians”, who shift back and would avoid 7.3m deaths. which has been running large surveys of forth between omnivorous and vegetable If the associations on which this com- eating habits for 20 years, puts the num- diets. Almost two Americans in five say puter modelling is based are robust, those bers at just 0.5% for vegans and 3.4% for ve- they fit this category, says Nielsen. The true are impressive figures. But much of the getarians. Fully a quarter of 25- to 34-year- vegan efflorescence lies in casual, part- benefit they claim to demonstrate could olds in America claim to be either vegan or time veganism. still be realised if omnivores ate better-bal- vegetarian, whereasstudiesbyFaunalytics anced diets with less meat. If the world find the median age ofAmerican vegans to Flexible friends ofthe Earth adopted what the study called a healthy be 42, four years older than the national In rich countries, people become flexitar- global diet, with less sugarthan most in the median. It seems that a fairamount of aspi- ians as a response to three concerns: their West consume, plenty of fruit and veg and rational self-deception, terminological in- own health; the health of the environ- just 43g of red meat a day, the number of exactitude or simple hypocrisy is at play. ment; and the welfare of animals. On all deaths avoided would still be 5.1m. The idea that veganism is most widely three, they have a point; on at least the first Red meat is typically a quarter to a third espoused, if not necessarily adhered to, by two, though, a lot of the benefits can be protein by weight, so just 43g is nowhere the young seems to be true in many coun- captured without strict veganism. near enough to supply the 50-60g of pro- tries. In Germany, according to Mintel, a re- The direct evidence that vegan and ve- tein a day that people require (the exact search firm, 15% of 16- to 24-year-olds say getarian diets are in themselves good for amount depends on a person’s weight, that they are vegetarian, compared with people is mixed. Between 2002 and 2007, amount of exercise and several other fac- 7% of the population at large. In many 73,000 Seventh Day Adventists, a religious tors). The global healthy diet thus has peo- countries declared vegans lean towards group in America, participated in a study ple relying on quite a lot of plant protein, the political left. In America polling byPew ofeating habits. The 27,000 vegans and ve- too. Rich-world diets, though, tend to getall has found that 15% of liberals espouse a getarians among them had significantly their daily protein requirement from ani- meat-free diet, as opposed to 4% of Repub- lower mortality rates. A smaller survey of mals, and then some. Americans eat 90gof licans. American vegans and vegetarians British vegetarians from 2016, though, protein a day, Europeans 85g, and most ofit are also poorer than average, and twice as found no such link. comes from animal products. likely to be single. Three-quarters of them Aspects of veganism do go with the Because meat is energy rich, eating are women. This all fits veganism’s associ- grain of some health advice. Large studies more than your protein needs dictate ation with valuing health, simplicity and have shown that people who eat a lot of means taking on a lot of calories, which low environmental impact—an implicit re- red meat have higher overall mortality may well be stored as fat. Vegans both eat jection of the values and coronary arteries rates (the same does not apply to eating less protein and get it from less energy-rich ofolder red-meat-eating men. poultry). Eating a lot of processed meat is and potentially fattening products. In 2017 Veganism is not a way of life that it is linked to colorectal cancer. The evidence a French study found that both vegans (62g easy to keep up. According to Faunalytics, on this seems clear enough for various au- of protein a day) and vegetarians (67g) for every active American vegetarian or thorities to recommend limits to the total were healthier than the meat eaters wolf- vegan there are more than five people who ingestion of red meat—the World Cancer ing down 81g. They were also eating more say they have abandoned such a diet. The Research Fund suggests less than 500g a varied diets, and, perhaps crucially, fewer growth in the number of restaurants cater- week—and minimising the intake of pro- calories overall; it may have been those ing to veganism and the availability of cessed meats such as bacon and salami. choices, rather than veganism per se, that plant-based products on shelves may re- And the damage to health done by made the difference. duce this churn and allow more to stick meat is not all captured in the sort of stud- On the environment, too, vegans and with the programme. As it is, a moving tar- ies that reliably cast doubt on diets heavy vegetarians have a point. Growing their 1

From field to fork 1 Protein gains and losses per hectare per year from food production to final consumption, tonnes Protein input* Feed to food loss Conventional food loss† Net protein after losses 1.25 1.25 Eggs Plant-based Poultry Dairy Pork Beef equivalent 1.00 1.00

0.75 If you 0.75 give plant 0.50 protein to 0.50 -40% -90% hens to lay -50% -75% -96% 0.25 eggs, you 0.25 lose 40% 0 0 Source: Ron Milo, Weizmann Institute of Science *A hectare’s worth of animal feed or a hectare’s worth of appropriate crop for plant-based equivalent †Supply chain losses, spoilage and waste The Economist October 13th 2018 Brieﬁng Veganism 23

cattle produces seven times more in terms tures when they are gone? When it comes Belch de jour 2 ofemissions pertonne ofprotein than rais- to wild animals, people tend to abhor pop- CO2 equivalent emissions per tonne of protein ing pork or poultry does, 12 times more ulation collapse; are things that different Tonnes ’000 than soya and 30 times more than wheat. when it comes to domestic animals? 0 50 100 150 200 250 300 Giving up beefcaptures many ofthe bene- Mr Singer’s project of seeking legal Beef fits of going vegan. Other animals make a rights for animals is certainly going to be a lot less difference. Getting your protein tough row to hoe, if not an impossible one. Pork from insects—very efficient converters— Neither courts nor legislatures seem very Dairy might be almost indistinguishable from interested. Reducing the cruelty that ani- Eggs veganism in environmental terms. mals suffer, though, is more plausible, both Except, that is, to the insects. One of the through legislation—battery cages for hens Poultry main things that motivates many vegans have been banned in the EU since 2013— Source: “Shifting Diets for a Sustainable Food Future” and vegetarians is a belief that killing and and through consumer pressure, such as a by J. Ranganathan et al., 2016 eating animals is wrong. The vegans also preference for free-range products, cruelty- abstain from milk and eggs because there, free certification, transparent sourcing and 2 food requires less land than raising meat too, they see a lot of exploitation, death the like. This second route, though, is not does. Animals do not turn all the energy in and suffering (the question of honey re- available to vegans. the crops they eat into calories in their mains a point of contention). In dairy Though biology is not destiny, humans, muscles. They need some ofthat energy to herds calves are typically taken from their like their relatives the chimpanzees, stay alive—and while that overhead is mothers within 24 hours, compared with evolved as omnivores; the evidence is in good for the animals, from a food-produc- the nine months to a year they would the teeth and the guts. If people’s diet is tion standpoint it looks like a waste. This suckle ifleft to themselves. Male calves are otherwise restricted, for example to staple waste means you need more land per calo- killed or reared for meat. In industrial egg- starches, meat does them good. As the in- rie offood ifyou are producingbeef than if production day-old male chicks are killed creasing consumption of meat worldwide you are producing broccoli. Admittedly, a and simply discarded. Even if one keeps shows, a lot ofpeople in most cultures real- lot ofgrazingis on land that would not nec- strictly to meat, though, the death toll in- ly do like eating it; the vast majority will do essarily be suitable for arable farming. But volved is immense. Over 50bn farm ani- so, at least a bit, when they get the chance. the FAO’s finding that raising livestock mals are killed formeat every year. The great exception is India, where, mostly takesabout80% ofall agricultural land and forreligious reasons, about 30% ofthe pop- produces just 18% of the world’s calories is #MooToo ulation has a vegetarian lifestyle. still telling. The best known proponent ofthe case that None of that makes veganism, full- or Alon Shepon of the Weizmann Insti- thismattersisPeterSinger, a philosopher at part-time, and the spread of plant-based tute and colleagues have looked at this in Princeton University. MrSingerargues that foods irrelevant. A mixture of ethical con- terms of opportunity costs. Choosing to treating the interests of humans as supe- cerns, innovative cuisine like Mr Kisala’s make a gram of protein by feeding an egg- riorto those ofotheranimals is a prejudice, and more convenient vegan shopping at laying hen, rather than getting the equiva- analogous to treating men as superior to supermarkets could yet see the rich world lent of a gram of egg protein from plants, women or whites as superior to blacks. It reach “peakmeat” and head down the oth- hasan opportunitycostof40%. Gettingthe depends on an arbitrary distinction beer side. If so, and in particular if reduced gram of protein from beef represents an tween two groups, one of which has the consumption ofred meat is part ofthe pro- opportunity cost of 96% (see chart1on pre- power to make the distinction stick. cess, there will probably be substantial vious page). They argue that if America What matters, he says, is not what spe- gains in health and happiness. And if the stopped paying these opportunity costs cies an individual belongs to but its capaci- world improves standards in the meat- and got the protein from plants in the first ty for suffering. If an animal suffers as rearing operations that remain, some of place, it would be equivalent to increasing much as a person, then things that it would that may even be shared with animals. 7 the food supply by a third—or eliminating be impermissible to do to a person—killing all ofthe losses due to food waste. and eating him, immobilising him in a Being so land hungry means cattle cage—are unacceptable if done to the ani- farming changes the climate; clearing land mal, too. “In suffering,” Mr Singer writes, for pasture creates greenhouse gases. On “the animals are our equals.” top of that, the bugs in ruminant digestive This moral point would seem to de- systems produce methane, a fairly power- pend in part on an empirical point; to what ful greenhouse gas. Once it gets out of the extentand in whatmannerdo animalssuf- cows—by belching, mainly, not, as is com- fer? Animals’ brainscontain regionsclearly monly thought, farting—this warms the analogous to those correlated with con- world. The FAO calculates that cattle gener- sciousness, perception and emotion in hu- ate up to two-thirds of the greenhouse gas- mans. What that reveals about their suffer- es from livestock, and are the world’s fifth ing as compared with a human’s is a subtle largest source of methane. If cows were a question. But they definitely feel pain, and country, the United Herds of Earth would some can both express preferences and, it be the planet’s third largest greenhouse- would appear, hold beliefs about the pref- gas emitter. erences of others. That would seem to Mr Springmann and his colleagues cal- have some moral salience. culated that in 2050 greenhouse emissions But would it be better for animals that from agriculture in a vegan world would suffer not to exist at all? A vegan world be 70% lower than in a world where peo- would have no need of cows, happy or ple ate astheydo today; in the “healthyglo- sad. The genus Bos currently numbers bal diet” world they would be 29% lower. some 1.5bn. Should those lives be valued The savings are not all owingto cows; but a less than the lives of the wildlife which large part of them are (see chart 2). Raising might repopulate their overgrown pas-

Britain The Economist October 13th 2018 25

Also in this section 26 Brexit and Scottish independence 27 An information war with Russia 28 Entrepreneurial councils 28 Cakes and Christianity 29 Coldwar Steve, furious absurdist 30 Bagehot: Culture and curiosity

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

The Brexit negotiations ment to a level playing-field, by pledging to automatically observe all future EU social, Filling in the gaps environmental and labour-market rules. Anand Menon, director of the UK in a Changing Europe, a think-tank, adds that concerns over Britain stealing a competitive edge are exaggerated, because they ignore the costofbeingsubjectto single-mar- The chances ofa Brexit deal this autumn have risen. But getting anything through ket rules with no say. Parliament will be a huge challenge Even with such concessions, there HERESA MAY certainly has her downs entire United Kingdom stay in alignment would have to be more checks between Tand ups. The prime minister bounced with the single market for goods, with cus- Northern Ireland and Britain. But rather back from last month’s humiliating rejec- toms controls avoided by fanciful high- than intrusive two-way customs controls, tion of her “Chequers” plan for Brexit by tech wheezes. But the EU said no. this could mean regulatory and food-safe- European Union leaders in Salzburg, to There should be ways out of the im- ty checks on goods goinginto Northern Ire- what felt like a relative triumph at the Tory passe, even so. One is to keep the UK, not land only. Inspections of live animals al- party conference in Birmingham a fort- just Northern Ireland, in a customs union ready take place. The backstop will night later. Next she will go to Brussels for until a high-tech solution is agreed on anyway take effect only if a trade agree- an EU summit beginning on October 17th, (though fixing a time limit forthis, as many ment does not deal with the border—as widely trailed as the crunch moment for Brexiteers demand, is contradictory). The Mrs May says it will. The DUP’s leader, Ar- Brexit. Despite Salzburg, the mood music EU is nervous that this might turn into a lene Foster, again rejected any separate has improved. But time is running out, and back door, giving Britain privileged market treatment for Northern Ireland after meet- rebellious MPs could yet blow up any deal. access without such obligations as the free ing the EU’s Brexit negotiator, Michel Bar- For all the rebuffs to Chequers at home movement of people. But Mrs May can re- nier, in Brussels this week, and her party is and from the EU, Mrs May’s advisers are assure them by expanding her commit- now threatening to vote against the British quietly confident. Their reasoning starts budget later this month. But in a crunch it from the point that the immediate negotia- may yet prove pragmatic. tion is not about Chequers or future trade Trick or treaty That will depend heavily on the second relations at all, but about a withdrawal Time taken for recent free-trade agreements component of a Brexit deal, a political dec- agreement. Almost all of this is settled, ex- with the EU, years laration on the future relationship. Unlike cept for the hardest part: a “backstop” de- Negotiation period the withdrawal agreement, this will have signed to avert controls at the Irish border Time before provisional application no legal force, so some vagueness about under any circumstances. Time before full application the outcome may be acceptable and even The principle of the backstop was ac- 0246810 desirable. Mr Barnier talks of a declaration cepted by Mrs May last December. Yetput- Ukraine running to just ten to 15 pages. A draft may ting it into practice has proved tricky. The South Korea emerge in the days before the summit. It EU wanted Northern Ireland to stay in a Canada will include positive messages about fu- customs union and in regulatory align- Japan ture co-operation on security, defence and ment with the single market, implying a foreign policy, within the framework of an Singapore border in the Irish Sea. Mrs May, backed by over-arching association agreement. the Northern Irish Democratic Unionist Georgia The hardest part will concern trade. Party (DUP), on which her government re- Brexit transition Mujtaba Rahman of the Eurasia Group, a lies for support, roundly rejected this. Her period consultancy, says the British want “fric- Chequers plan proposed instead that the Source: Institute for Government tionless trade” to be a goal, citing the Che-1 26 Britain The Economist October 13th 2018

2 quers plan of staying in the single market Chequers. And a Canadian-style deal itself is prepared to shift ground. Charles for goods. But the EU insists frictionless would be a big step back from today’s bar- Grant ofthe Centre forEuropean Reform, a trade is possible only if Britain is in the sin- rier-free trade. think-tank, says several countries are keen- gle market and a customs union, a deal Again, there should be a way through. erto enforce a level playing-field on regula- known as “Norway plus”. The only alter- The commitment to frictionless trade can tion than they are to keep untrammelled native, says Brussels, is “Canada plus-plus- be cast in aspirational terms. The outcome free movement of people. So some limits plus”, meaninga more standard trade deal. could be interpreted as leaning towards ei- may be acceptable. Brexiteers like the sound of this, believing therNorwayorCanada. The EU will repeat If a deal is done, it would presage a 21- it would require less regulatory alignment that it is ready to offermore generous terms month transition period after March 29th than Chequers. But the pluses required by if the British position evolves, code for a 2019, during which the trade agreement the EU include both the Irish backstop and further blurring of the red lines drawn by should be finalised. The big worry is that a level regulatory playing-field, similar to Mrs May. And there are signs that Brussels this is far too short a time. Free-trade deals typically take years, not months, to agree on (see chart on previous page). Any deal Scottish independence with Britain, the EU’s biggest trade partner, would be broader and more complex than The other Leavers all previous ones. And ratification by all national and some regional parliaments GLASGOW would take longer still. Trade negotiators Nationalists want to stayin the EU and leave the UK. Neitheris on the cards yet conclude that provision must be made for CHEMES to stay in one union over- extending the transition period, yet so far Sshadowed plans to leave another at neither side has accepted this. the Scottish National Party’s conference For the British, transition is very unap- in Glasgow this week. Nicola Sturgeon, pealing. More even than the Norway op- Scotland’s first minister and the SNP’s tion, it means accepting all EU rules with- leader, backed a second referendum on out any vote, a position labelled by many the terms ofthe Brexit deal, which could Tory MPs as vassalage. This is one of many keep Britain in the European Union. Ian reasons why getting a Brexit deal through Blackford, the party’s leader in West- Parliament will be hard. As EU leaders minster, promised to cause “maximum know only too well, Mrs May has no ma- disruption” in Parliament ifthe Conser- jority in the Commons. Labour and other vative government ignored Scottish calls opposition parties have made clear they fora softer Brexit. Ms Sturgeon went will vote against her. The DUP may object furtherand demanded that any special to the terms of the Irish backstop. Hard post-Brexit status forNorthern Ireland Brexiteers opposed to Chequers will hate should apply to Scotland, too. its successor. And soft Tories may prefer When it came to independence from Norway or even a second referendum to the United Kingdom, though, such gam- anything that Mrs May puts before them. bits were absent. Ms Sturgeon promised a In a doom loop, the difficult parliamen- long-term fight, rather than a quick es- Sturgeon, ready to take back control taryarithmeticalso makesitharderfor Mrs cape. Passion was all well and good, she May to secure concessions in Brussels. EU said, but it had to be mixed with “prag- ble, heroic Scottish defeats,” said Michael leaders see little point in helping her, only matism, perseverance and patience to Russell, the SNP’s constitutional minister. to see Parliament vote down a deal. Yet she persuade those not yet persuaded.” “We are not in that business.” has arguments on her side. She will point For now, Brexit is fine fodder in this Brexit may make Scots keener on out that a rebooted Chequers deal with an task. A big majority ofScots—62%—voted independence. But it also makes in- Irish backstop is the only serious option on to remain in the EU, but Scotland will dependence harder. The SNP wants the table. To the 40 or so hardline Tory leave anyway because ofthe wishes of Scotland to stay in the EU’s single market Brexiteers who insist they will vote English voters. Another referendum on and customs union. But this would com- against, she will repeat her line in Birming- Brexit would hammer this home. Scots plicate trade with England, its largest ham that pursuit of the perfect outcome would narrowly vote forindependence market, which intends to leave both. risks ending with no Brexit at all. in the event ofa “no deal” Brexit, accord- Roping Scotland into whatever arrange- Above all, Mrs May can highlight the ing to one poll. Some in the SNP are de- ment is devised forNorthern Ireland is a danger ofa no-deal Brexit ifhers fails. Both manding that the party call fora second pipe dream. The Irish backstop plan is the government and the EU have issued referendum soon. “We cannot dither at designed to preserve a fragile peace notices for what this might mean. Al- this point, we cannot be like the Jacobites process, not the competitiveness of Edin- though Brexiteersclaim itisall a giant bluff, in Derby!” declared Angus MacNeil, an burgh’s financial sector. the picture painted of long queues and MP from the Outer Hebrides, referring to As a result, the march to indepen- stockpiled food and medicines is not a failed 18th-century rebellion. dence is becoming a slog. Unless support pretty. Businesses on all sides are ramping But the party’s top brass are not keen rises significantly, anotherreferendum in up the pressure to avoid no deal. For all its on such a punt. A slim majority in the the next few years is unlikely. In any case, intransigence, the DUP knows it would be odd poll is not enough to riskanother the SNP has other worries. By the next disastrous, as it would imply a hard border vote, which would be the last for many election to the Scottish Parliament, in in Ireland. And Mrs May will use the threat years. One ofthe few political missteps 2021, it will have been in power for14 of no deal to try to peel off as many as 20 by Ms Sturgeon as first minister was a years. Its record is mediocre. Ifthe pro- Labour MPs, who are disenchanted with premature push for a second indepen- independence majority in Holyrood their party leader. With the weight of the dence vote in the wake ofthe Brexit disappears, the SNP will be unable to EU behind a deal, Torywhips believe they referendum. “There are many memora- launch a referendum at all. can eke out a parliamentary majority. Mrs May must pray they are right. 7 The Economist October 13th 2018 Britain 27

Russia and Britain four GRU men. What was new, however, was the decision by Britain and its allies to A declaration of information war publicise its intelligence. This marks a new approach. Counter- intelligence agencies normally keep their findings under wraps, says Sir Mark Lyall Grant, a former national security advisor: “firstly because they don’t wish to alert the adversary to their own capability, and sec- A rare spies’ press conference marks the start ofa counter-offensive ondly because they don’t necessarily want N MARCH 10th 2000, two weeks be- appeared on RT, a Kremlin-backed televi- to escalate the conflict.” This time Britain Ofore a Russian presidential election, sion channel, cockinga snookat the police. and its allies decided that the benefits of Tony Blair made a trip from Downing But a few days later they were turned exposing the Kremlin outweighed the risk. Street to St Petersburg to accompany Vladi- into a laughing stock. First an investigative The information divulged in The Hague mirPutin to a performance ofSergei Proko- outfit, Bellingcat, and its Russian partner, led to the exposure of more than 300 sus- fiev’s “Warand Peace”. The idea came from the Insider, exposed their true identity, and pected agents by Bellingcat and the Insider, a senior KGB officer, who suggested to his their spectacular incompetence. Then on marking Russia’s biggest security lapse MI6 counterpart that it would help boost October 4th British and Dutch spymasters since the cold war. Itmade MrPutin and his the international legitimacy of Mr Putin, held a highly unusual press conference, re- thugs look ridiculous, not terrifying. And it who as prime minister had just launched a vealing details of another botched opera- put the Kremlin on the backfoot, justifying brutal war in Chechnya. Mr Blair obliged, tion, by four GRU agents who had tried to itself with ever-less credible stories, such becoming the first foreign leader to en- hack into the Organisation for the Prohibi- as the notion that the spooks were there to dorse the incoming president. tion of Chemical Weapons (OPCW) in The test IT systems at the Russian embassy. Nearly 20 years on, Britain is again lead- Hague, to disrupt its investigation into Rus- ing the West’s engagement with Russia— sia’s use ofnovichok. More Austin Powers than Rosa Klebb but in the opposite direction. Since March, The Dutch officials showed photos of a Yet raising the stakes in this way is a forced when two officers in the GRU, Russia’s mil- car boot packed with spying equipment, measure. Mr Putin and his security ser- itary intelligence service, deployed a “nov- and even a taxi receipt for a ride from the vices have long used intelligence to frus- ichok” nerve agent in Salisbury to try to GRU’s headquarters in Moscow, which trate and embarrass Western countries. In murder a former Russian spy, Britain has one of the agents had kept in his wallet. At 2014, for instance, they released bugged been on the front line of efforts to counter the same time, America indicted seven conversations between American dip- the Kremlin’s clandestine operations. Russian officers, including the four identi- lomats in an attempt to portray the upris- Russian campaigns of subversion and fied by the Dutch and British, for various ing in Ukraine as an American plot. But the disinformation have paved the way for the cyber-attacks, including one on the World chemical attackon Sergei Skripal, in which annexation of Crimea, a war in Ukraine Anti-Doping Agency. a British citizen was accidentally killed, and interference in several Western coun- Western intelligence agencies have was a step too far. tries’ elections. In each case Mr Putin has long known that Russia was the source of Sergei Boeke of the Institute of Security denied responsibility, while also making such attacks. The bungled raid on the and Global Affairs, at Leiden University, sure that his message was received and un- OPCW took place in April, when Dutch says Russia has broken an unwritten rule derstood. After Britain presented evidence counter-intelligence, tipped off by British ofthe spyinggame byusingintelligence for against the two Salisbury suspects, the pair counterparts, detained and expelled the offensive purposes, something normally reserved for war. The British-Dutch press conference amounted to an information counter-offensive. The new tactic serves several purposes. One is to deter the Kremlin from carrying out further attacks. Another is to isolate and undermine Mr Putin. It may now be harder for his sympathisers abroad to look the other way when he breaks international rules. Russians, including members of the security services, may also have growing doubts about their president. Lastly, exposing Russian plots could make Western populations more resilient to disinformation. “We need to learn how to protect our open societies, without copying their methods,” says Bob Seely, a Tory MP and member of the parliamentary Foreign Af- fairs Committee. After the second world war, Britain developed an Information Research Depart- ment to counter Soviet propaganda. Sir Da- vid Omand, a former head of GCHQ, Britain’s signal-intelligence agency, says it may be time to relearn from its experience of making threats transparent. “Sunlight is the best disinfectant,” he says. “Lies cannot The Blairvich project thrive in the light.” 7 28 Britain The Economist October 13th 2018

Councils’ ﬁnances Human rights Government, Inc. Have your cake and speak it

Bakers win the right to turn down gayslogans—but not gaycustomers ASHFORD AND SHREWSBURY N OCTOBER10th the Supreme right to deeply held beliefswould have Facing budget cuts, entrepreneurial Court thunderingly reaffirmed the been “extinguished” ifthey were forced councils tryto make theirown money O principle that businesses must serve all to propagate a message which offended Y NEXT year Ashford Borough Council, customers, regardless ofsexual orienta- their conscience. They insisted that they B in prosperous Kent, will have lost all its tion, gender, race or creed. But even as it were happy to provide Mr Lee with any central-government funding. Before the did so, it delivered a sharp rebuff to a other service, and that the message he Tory-led coalition began tightening its belt public body which claimed that that requested was one they would have in 2010, government grants accounted for principle had been violated by a Chris- refused regardless ofwho asked for it. about half Ashford’s budget for services. tian-owned bakery in Belfast. The Supreme Court emphatically Yet Gerry Clarkson, the council’s leader, re- The judges accepted the bakers’ con- agreed. Its president, Lady Hale, observed fuses to moan. “I’m sickto death ofhearing tention that they were simply acting in that it was “deeply humiliating” to deny about austerity cuts,” he declares. line with their beliefswhen they de- someone service on grounds oflegally Instead, to maintain services, Mr Clark- clined to decorate a cake with the slogan protected characteristics, which include son is gradually turning his local authority “Support Gay Marriage”. The ruling sexuality. “But that is not what happened into a business. “We aim to be self-suffi- marked the end ofa four-year legal battle in this case,” she argued. cient by the 2018-19 financial year,” he says. in which Gareth Lee, a gay-rights activist, Peter Tatchell, one ofBritain’s best- Other councils around the country are im- argued he suffered illegal discrimination known campaigners forgay causes, plementing similar policies, albeit with when his order was turned away. His supported the bakers on grounds that it ratherless gusto. It amounts to a revolution case was backed by the statutory Equali- was “authoritarian” to force people to in local governments’ finances—and a ty Commission forNorthern Ireland. disseminate statements running counter risky one at that. Daniel and Amy McArthur, who run to their beliefs. He argued that the free- The squeeze on councils is severe. The the bakery, had argued that their own speech dimension made this story differ- National Audit Office (NAO), an official ent from other discrimination cases, such watchdog, calculates that central-govern- as hotels which turned away gay couples. ment funding for local authorities has fall- The story will be compared to the en by about halfin real terms since 2010. At many cases in America where florists or the same time, councils’ obligations have bakers have been taken to court after grown. Their populations are rising and refusing to cater forgay weddings. In June ageing. New rules oblige them to offer America’s Supreme Court vindicated a more help to the homeless. Social care, for Christian baker in Colorado who had which they are largely responsible, is a fast- refused to make a wedding cake fora gay growing burden. couple. But in that instance, too, the Cuttingcosts has been the first response justices stressed the specificity of the to this crisis. But, argues Peter Nutting, the case. They thought the baker had been leader of Shropshire Council, “the fat has treated maliciously by the civil-rights been squeezed out of the system now.” So commission in his state, but accepted the councils have been developing new in- legitimacy oflaws protecting gay people come streams in order to set balanced bud- from discrimination by firms. gets forday-to-day spending, as they are le- In every case ofthis kind, people fear gally required to do. Hence the business- or hope fora precedent. What they often fication oflocal government. get instead is a reminder that things are Take Ashford. The council has been Victorious sponge never simple when two freedoms clash. buying shopping centres, developing office blocks and even building a cinema complex, Elwick Place. Mr Clarkson hopes that The scale of purchases is big, and pick- tablished in 1793, its job is to lend cheaply these investments will provide the rents ing up. BNP Paribas Real Estate, a property to local authorities. During 2017-18 the and business rates to offset the impact of adviser, says councils spent £325m on PWLB advanced 780 loans worth £5.2bn, cuts in government funding. The council shopping centres in the first half of this 42% more than in the previous year (it is bought International House, an ugly office year, more than in all of 2016, the biggest unclearhow much ofthis was forcommer- block opposite the railway station, for year on record. Some councils have been cial investments and how much for other about £8m (then $13.2m) in 2014. It now buying up assets outside their boundaries. activities). Altogether, local authorities brings in an income of£550,000 a year. Essex County Council’s £50m property in- now owe the PWLB £70bn, out of a total Councils are forbidden from using their vestment fund has snapped up a shopping borrowing of£96bn, a figure which has ris- capital budgets to fund services. But they centre in Keighley, Yorkshire, and an office en from £84bn in 2014. can get around this rule by making capital block in Watford. Medway Council, in On October 3rd the government paved investments whose returns then fund day- Kent, has just bought a portfolio of ten dis- the way for councils to take on still more to-day spending. Shropshire Council tribution centres dotted around England, debt, when it announced that it would re- bought some rotting old shopping centres forover £6m. move a cap on how much money they in Shrewsbury in January, using£52m from To finance this spending spree, councils could borrow against the value of their its capital budget. The malls are expected are not only dipping into their capital bud- housing stock, in order to build more to generate about £3m a year—income the gets. They are also borrowing, mainly from houses. Ministers hope that this will allow council can spend on services. the Public Works Loan Board (PWLB). Es- councils to tackle the shortage of homes in 1 The Economist October 13th 2018 Britain 29

2 many parts ofthe country. The government is aware of these risks. Dyer has become a regular character in the Councils argue that their financial ex- It published guidelines earlier this year series, portrayed on an unending quest to periments have been made necessary by that seemed to discourage councils from murderMrCameron.) “You’ve gotKim Kar- their lack of other options. They have little borrowing purely “to profit from the in- dashian advising Donald Trump on prison ability to raise council tax, a property levy vestment.” But it is still allowed. The gov- reform,” Mr Spencer says. “That’s straight that is their main source of income. More ernment was also thought to be consider- out of Coldwar Steve.” Theresa May’s an- thanhalfthebusinesstaxestheycollect are ing a ban on all purchases outside a nouncement last month of a festival of handed back to Westminster. And charges council’s boundaries, but nothing has hap- Brexit Britain set social media alight with they can levy for services like granting pened. It is the sheer scale ofborrowing by requests that it be a Coldwar Steve produc- planning permission are set centrally.“The some local authorities that worries many, tion. Mr Spencer tweeted Downing Street system isthusforcingcouncilsto be attheir especially relative to the assets ofthe coun- to ask if he might be the event’s creative di- riskiest,” argues Simon Edwards of the cil in question. Spelthorne Borough Coun- rector (there has been no reply). County Councils Network. cil, in Surrey, has borrowed almost £1bn Furious absurdism can be seen in other Although their overall level of borrow- from the PWLB to finance a big splurge on art forms. Two British bands, Sleaford ingismanageable, the concern isthat some property. This includes probably the big- Mods and Idles—both admired by Mr councils are getting into businesses in gest single purchase by a council, about Spencer—shout with similar voices. All which they have no expertise, hundreds of £360m for a business parkin Sunbury. three have growing audiences. McFad- miles from home. “Are they investing in The fear is that some councils might den’s Cold War is followed by more than businesses that they truly understand?” have become over-exuberant. Local au- 100,000 people on Twitter; Sleaford Mods asks one finance expert. With online shop- thorities have been burned before on risky sell out large London venues; Idles have ping laying waste to bricks-and-mortar investments. Some were enthusiastic in- become one of this year’s most talked- malls, those shopping centres may be a vestors in Icelandic banks in the about bands, following the release of their poor investment. Councils are also vulner- late-2000s, for example. They may get second album. The movement has not yet able to a downturn in the property market. burned again. 7 found its expression on television, though David Quantick, a former screenwriter on “The Thick Of It” and “Veep”, has suggest- Popular culture ed thatMcFadden’sCold Warisa continua- tion ofthose programmes’ sensibilities. Furious absurdism What began as a coping mechanism for Mr Spencer’s depression has become a cottage industry. He will open his first exhibition on October 15th at the Social, a bar in London. This summerhe offered a print for sale for the first time, albeit through eBay rather than Sotheby’s. He expected to get ColdwarSteve, a Twittercollage artist, exemplifies an angry new movement “eighty or ninety quid. It was at two grand HE artist who calls himself Coldwar lates it, really,” Mr Spencer says. “It’s a within an hour. Itwentfor£5,500 [$7,170] in TSteve does a lot of his work on the bus boomtime for ridiculous figures, and I’m the end.” He fulfilled his guarantee to send to and from his real job, as a public-sector trying to create scenarios that are even the print to the buyervia second-class post. worker in Birmingham. “And some I do on more absurd than they are.” What is the point of it all? Is furious ab- the toilet when my manager’s not there. Life keepsimitatinghisart. The celebrat- surdism really any different from a drunk But the pieces are taking longer now. The ed moment when another soap star, in the parkshakinghisfistand bellowing at massive oneswith loadsofpeople can take Danny Dyer, appeared on TV alongside the sky? “I guess the objectives of McFad- quite a few bus journeys and some long af- Pamela Anderson, an actress and Playboy den’s Cold War would be to bring down ternoon poos. My bosses haven’t got a clue model, to offer his opinion of David Cam- Trump, end Brexit and stop the rise of the I do it. And even if they did, they wouldn’t eron—“a twat”—could have come straight far right,” Mr Spencer says. “That hasn’t know what it was,” he says. from McFadden’s Cold War. (Since then Mr been achieved yet, obviously.” 7 Coldwar Steve—his Twitter handle; his real name is Christopher Spencer and he is 43—has been creatinghis strange photo collages on a cheap mobile-phone app since March 2016. Politicians are crudely placed alongside light-entertainment personal- ities in incongruous settings: a grey sea- front, a grim hotel room, a grotty social club. His “McFadden’s Cold War” series has its regular characters, including Do- nald Trump, Kim Jong Un and Sir Cliff Richard. And it has a star: Steve McFadden, a soap-opera actor, who appears in almost all the collages, often as a disconsolate ob- server ofthe other principals. Mr Spencer says his work is, above all, comedy. Then it is satire and politics. And finally, “without meaning to sound pomp- ous,” it is art. But it is a very particular kind of art, in which rage at the world gets processed not into political activism, but a kind of furious absurdism. “That encapsu- Mixed media (ennui and impotent rage) 30 Britain The Economist October 13th 2018 Bagehot Sweetness and light

Melvyn Bragg’s “In OurTime” proves that there is a mass market forhigh thinking Week”, a current-affairs programme; and the only spot he could get for“In Our Time” was the “death slot” at 9am on Thursday. Lord Bragg seemingly did everything he could to make sure the shift didn’t come alive. He insisted that the programme should be “never knowingly relevant” and jumped wildly from the gin craze of the 18th century to the Palaeocene-Eocene ther- mal maximum. He expected to be out of a job in six months. But the programme went from strength to strength. Two million people now listen to the live broadcast, and another 300,000- 400,000 listen to the repeat. Another 3m people in 48 countries make it the BBC’s most downloaded weekly podcast. The audience rangesfrom academicsto workerson oil rigs. “I have been in broadcasting for 56 years”, says Lord Bragg, “and have never had such a warm and widespread response to a programme.” Its success is testimony to the power of curiosity. Rather than being sick of experts, people are desperate to hear their reports from the frontiers ofknowledge. It is also testimony to something deeper. People want to escape the cacophony ofdaily life, wheth- erthe noise ofTwitter-storms orthe clash ofangry politicians. “In Our Time” provides perspective and calm in a troubled age. Lord Bragg is remarkable but far from unique. Britain has a N HIS essays on “Culture and Anarchy”, Matthew Arnold ar- great ability to churn out people who can spread sweetness and Igued that the only thing which could prevent industrial societ- light. Today’s champions of the form include Neil MacGregor, Si- ies from disintegrating into warring tribes was high culture. High mon Schama and Mary Beard. They stand in a long line that in- culture pulls society together by popularising the “best that has cludes Jacob Bronowski, A.J.P. Taylor and Bertrand Russell. Some been thought and known in the world” and thereby encouraging of this has to do with the emphasis that British education places everyone, regardless of their social background, to live together on fluency. Oxbridge still forces its students to defend theiressays in an “atmosphere ofsweetness and light”. in an hour-long grilling. It also has a lot to do with the tortured re- Britain stands in more need of sweetness and light than it has lationship between class and culture. A remarkable number of fordecades. Globalisation has divided the country between win- the great popularisers are outsiders, who were promoted socially ners and losers, while social media has divided the population because oftheir love oflearning but never felt fully at home with into solipsistic tribes. The Brexit vote has unleashed dangerous the hereditary ruling class. Lord Bragg still has the flat northern passions. And a glance across the Atlantic suggests that there vowels of his childhood and keeps a house in the town where he could be worse to come. Yet sweetness and light are in precious grew up, where he regularly sees his old history teacher, now 97. short supply (indeed, the very phrase provokes sniggers). Brit- ain’s rulers are more interested in value formoney than the value And now forsomething completely different of what money provides. And great cultural institutions such as The establishment has been slow to wake up to this comparative the BBC have lost their self-confidence. advantage. The BBC isparalysed bythe fearthatitisalienating the Melvyn Bragg has had no truck with cultural self-flagellation. young, the “Cs and Ds” and ethnic minorities by lecturing them Every Thursday for the past 20 years (holidays aside) he has pre- or appearing snobby. Universities put on fatuous courses, such as sented a programme called “In Our Time” on BBC Radio 4 that cultural studies, in an attempt to remain relevant. The success of consists of high-minded conversations with three academics. A “In Our Time” demonstrates how foolish this is. Appetite for new book demonstrates the extraordinary range of subjects he knowledge is spread widely throughout society. There is nothing has covered. There are the classic high-cultural subjects, such as inegalitarian about catering to this curiosity, just as there is noth- George Eliot’s “Middlemarch”, but also plenty on the best that is ing egalitarian about doling out dumbed-down drivel. being thought by scientists and mathematicians as well. Successive governments have made the situation worse by Lord Bragg is a working-class boy who made good thanks to giving too much power to managers. In the 1980s, when cultural the power of education. His parents were factory workers who institutions tended to be sloppily run and self-serving, the mana- saved enough money to buy a pub. Young Melvyn went to uni- gerial revolution had much to be said for it. But over time it be- versity only because his history teacher, a Mr James, pestered his came counter-productive. Academicsspend theirlivesproducing parents to let him stay on in the sixth form. He read history at articles that nobody reads and BBC producers churn out formula- Wadham College, Oxford, where the master, Maurice Bowra, ic products aimed at the imaginary median viewer. summed up his criteria for selecting students as “clever boys, in- Institutions like the BBC need to rediscover their cultural self- teresting boys, pretty boys—no shits”. He enjoyed a glorious ca- confidence. The government needs to broaden its focus from reer at a glorious time for British broadcasting. His “South Bank measuring value formoney to liberating creativity. Britain’s intel- Show” broke new ground by profiling the likes of Eric Clapton as lectual-cultural complex is not only one of its most under-appre- well as high-cultural icons. He also found time to write three-doz- ciated assets. It also reminds us that there are better things to en books. But there were downs as well as ups: the “South Bank think about than political outrage and internet memes. Perhaps Show” was eventually cancelled; his decision to accept a peerage Lord Bragg could devote an upcoming “In Our Time” to Matthew from Tony Blair in 1998 meant he had to stop presenting “Start the Arnold’s “Culture and Anarchy”. 7 Europe The Economist October 13th 2018 31

Also in this section 32 Bavaria’s election 32 Russians in Latvia 33 Blotto in Budapest 33 Resurgent French nationalists 34 The unfreezing north 35 Charlemagne: Waiting for Goodot

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

Ukraine political steps; Russia insists on receiving political guarantees before relinquishing Along the contact line control of the territory it holds. Many in Ukraine believe the accords, imposed during a ferocious Russian advance, are a rot- ten deal. Continuingto relyon them is “like riding a dead horse”, argues one MP. Privately officials acknowledge that the AVDIIVKA AND DONETSK Minsk agreements will need to be amend- Peace in eastern Ukraine seems as faraway as ever ed, expanded oreven replaced before a set- O YOU know where you’re head- parliamentary elections next year. tlement can be reached. One addition un- “Ding?” asks Andrei, a wide-eyed Uk- Although the world’s attention has der discussion is a UN peacekeeping rainian soldierstationed at the edge ofgov- shifted, Ukrainians still see the war as the mission. Kurt Volker, the American special ernment-controlled territory in the country’s most important issue, surpass- representative for Ukraine, says several country’s war-torn east. On the other side ing corruption and the economy. Petro Po- countries have already agreed to contrib- of the front line, Artyom, a burly border roshenko, Ukraine’s president, has em- ute forces, among them Sweden, Finland, guard in the Russian-backed separatist en- ployed a slogan: “We stopped the Belarus, Turkey and Austria. Yet negotia- clave, passes his days in a booth adorned aggressor and defended the country!” Yet tions with Russia over the mandate have with a “Donetsk People’s Republic” em- few place much faith in the Minsk II agree- ground to a halt. Until Mr Putin decides blem and two portraits—Vladimir Putin, ment, the accords signed in 2015 that call otherwise, the smouldering status quo Russia’s president, and Ramzan Kadyrov, for the separatist-held territories to return will endure. There hasbeen no meeting be- the brutal ruler of Chechnya. There Ar- to Ukrainian control and be granted a neb- tween Mr Volker and his Russian counter- tyom interrogates arrivals who arouse his ulous “special status”. These comprise part, Vladislav Surkov, since January. suspicions, inquiring about their alle- large parts of the Donetsk and Luhansk ob- Plainly, Russia has decided to wait to see giance while rubbing a combat knife lasts. Disputes over implementation have what happens at the elections, hoping to strapped to his left thigh. been stuck in a vicious circle for years: Uk- end up with more pliable counterparts in As the war in Ukraine drags into its fifth raine argues that security and control over Kiev, if not as president, then at least con- year, there is still no end in sight. Large the borderwith Russia should come before trolling a large chunkofparliament. swathes of the Donbas region remain un- In the meantime, the separatist republic der the control of separatists. A 500-km in Donetsk plans to hold its own pseudo- KHARKIV “contact line”, bristling with landmines, LUHANSK elections this November, following the as- cuts through it. More than 10,000 people UKRAINE sassination ofits nominal head, Alexander have been killed there since 2014. Casual- Contact line Zakharchenko, at a café in Donetsk in Au- D ties continue to pile up, although at a slow- O Luhansk gust—the latest of several commanders to DNIPROPETROVSK N B er rate than in the past. Earlier this month, Avdiivka A S meet untimely deaths on their home turf. three schoolboys were blown up by a Donetsk While Russian and separatist officials landmine not far from Artyom’s post. In Controlled by blame his killing on Kiev and the West, an DONETSK Russian-backed Avdiivka, a front-line town in Ukrainian separatists inside job looks more likely, with Russia government-controlled territory, even a re- ZAPORIZHIA seeking to clear away troublesome local cent stretch of relatively quiet months RUSSIA leaders. Yet throughout Donetsk, Mr Zak- seemsominous: “When thingsare calm for 100 km harchenko’s likeness still adorns bill- a long time, it usually ends badly,” says boards, alongside such quotes as “We have Sea of Olga, a doctor stationed there. Talks aimed one motherland and that is Russia.” Azov at resolving the conflict have ground to a Though the division of the Donbas is halt ahead of Ukraine’s presidential and CRIMEA artificial, the longer the rupture remains, 1 32 Europe The Economist October 13th 2018

2 the harder reintegration will become. “The party likes to highlight its religious roots. sides seem determined to reinforce their Running out of oompah But Catholic and Protestant churches have positions on the ground and their physical Germany, Bavarian state election been active in helping refugees. “Some separation from each other,” argues a re- “Who would you vote for if the state election church leaders have distanced themselves cent report by the International Crisis were held next Sunday?”, % polled* from the CSU,” says Father Jörg Alt, a Jesuit Group, a Brussels-based watchdog. 2013 state election result priest who published an open letter, Even ifthe troops eventually retreat, the 0 1020304050 signed by more than 100 prominent basicstepsnecessaryforpolitical reconcili- CSU church figures, criticising CSU refugee poli- ation, such as drawing up voter lists for cies such as deportations. Some parishes credible elections, will be devilishly diffi- Greens are trying to prevent expulsions by provid- cult. Over 1.5m people have been dis- SPD ing migrants with church asylum—an an- placed. Crossing the contact line illustrates cient law which means the authorities AfD nil the estrangement: those leaving Ukrainian Free Voters have no jurisdiction over people as long as government-held territory have their pass- of Bavaria they remain on church property. Last year ports stamped as if leaving the country; FDP 276 asylum-seekers were given church asy- 5% threshold visitors to separatist-held territory are is- The Left lum in Bavaria. sued “migration cards”, copies of a docu- CSU leaders have belatedly realised ment handed out in Russia. The separatist Others their mistake. They have stopped imitating authorities have commandeered telecoms Sources: Forschungsgruppe Wahlen; *Poll conducted on the AfD, and started criticising it instead, infrastructure and launched a local phone Bavarian statistical agency October 1st-4th 2018 branding the party extremist and ruling networkcalled “Phoenix”, which, symbol- out entering into coalition with it. But ically, cannot connect with Ukranian cell- be Bavaria’s largest party, but would have many centrist voters think the change of phone networks. to cobble together an uncomfortable co- tone is too late to be effective, and the turn- For civilians on both sides, the political alition—traumatic for a party that, apart around too drastic to be credible. They are games have gone on far too long. Most from one term, has ruled Germany’s larg- considering the Green Party instead, wantan end to the conflict, whatever the fi- est state single-handedly since the 1960s. which is running second after the CSU, nal configuration maybe. Despite the fight- The shock waves would be felt in Berlin, polling at around 18%. A weakened CSU ing, they try to hang on to the pleasures of where Angela Merkel’s centre-right Chris- would reshape Germany’s national poli- normal life. In Avdiivka, Evgeniy, a sandy- tian Democratic Union (CDU) relies on a tics. In the short term Mrs Merkel might be haired teenager, skips home from school long-standing alliance with the CSU. relieved to lose Horst Seehofer, the CSU past a shrapnel-scarred apartment block, The CSU’s woes can be traced back to leader and her rebellious interior minister, though he admits that “the nights are still one issue: migration. Not because Bavaria who has repeatedly clashed with her over scary.” Long passes soar over a football is reeling with migrant-related problems. migration. He looks likely to be pushed out pitch nearby where locals still play. Across Well-organised local authorities have dealt after October 14th as the scapegoat for a the line in Donetsk, maintenance workers efficiently with the influx of asylum-seek- CSU disaster. Achastened CSU mightmake keep central gardens neatly sculpted. The ers in 2015 and 2016. Since then, thanks Mrs Merkel’s life easier. But it would also opera theatre advertises new autumn pro- mostly to an EU deal with Turkey, migrant make her coalition weaker. 7 ductions, including “Turandot” and Alex- numbers have dropped drastically. And ander Pushkin’s “The Queen of Spades”. Bavaria’s booming economy means the Yet like the elusive Ace in Pushkin’s drama, state can afford to help asylum-seekers, Latvia’s election peace for the people of eastern Ukraine is and even needs migrants to fill jobs. But out of reach. 7 migration is an emotional topic that has Russian quarter unnerved some voters and divides society. The CSU has handled it badly. Bavarian elections Bavarian conservatives have an almost religious belief that no party should exist to their political right, and reacted with Conservative RIGA panic to the success of the anti-migrant Al- EthnicRussians vote fortheirown conundrums ternative for Germany party, AfD. In 2015 and 2016 around 1.5m asylum-seekers ar- IGA’S central market, a bustling mosaic rived in Germany, most of them first cross- Rof stalls in the shadow of a Stalin-era ing the southern border into Bavaria. The skyscraper, is a testament to Latvia’s eco- NUREMBERG AfD, founded as an anti-euro party in 2013, nomic success. But, shopping there before Is the CSU lion losing its roar? had been starting to flag. It spotted its op- the country’s election on October 6th, N EAR-SPLITTING roar of drums and portunity and morphed into an anti-mi- Aleksandr did not share in the cheer. As Atrumpets blasts out of speakers as Ba- grant party. CSU leaders at first tried to out- one of hundreds of thousands of ethnic varia’s premier, Markus Söder, makes a flank it with anti-refugee rhetoric. This Russians who were not granted citizenship grandiose entrance. Never afraid of a bit of legitimised right-wing populism, making when Latvia seceded from the Soviet Un- kitsch, he’s backin his home town, Nurem- the AfD more palatable to some main- ion in 1991, he cannot vote: “I’m stateless, berg, for a pre-election rally before Bavaria stream voters. The CSU’s alliance with An- and my 30-year-old son is stateless too.” goes to the polls on October14th. A gibe at gela Merkel, who is demonised by anti-mi- Ethnic Russians make up about a quar- Berlin’s coalition chaos elicits a cheer and grant activists, meant the tough talk was ter of Latvia’s population. Most are citi- jokesaboutrival partiesgetthe crowd roar- never credible. The AfD is now polling at zens, and as usual the Harmony party, ing with laughter. He is relaxed, confident around 10-11%, and ispoised to enterthe Ba- which gets most oftheirsupport, came first and eloquent; you would think his cam- varian state parliament forthe first time. in the election. On issues like statelessness paign was going well. Except that it isn’t. Atthe same time the CSU’santi-migrant and protecting bilingual education, ethnic Polling at around 35%, his conservative stance has put off pro-refugee conserva- Russians feel that only a party oftheir own Christian Social Union (CSU) partyislikely tives, in particular churchgoers. The “C” in can represent them. Most get their news to lose its absolute majority. It would still CSU stands for Christian, after all, and the from Russian-language TV stations, many 1 The Economist October 13th 2018 Europe 33

2 with links to the Kremlin. Other Latvian the UniversityofLatvia: “Theysaid, what’s French nationalists parties always rule out letting Harmony the point?” Ethnic Latvians remain suspi- into government. cious of Harmony, pointing to corruption She’s back! During the campaign, Harmony’s scandals under Mr Usakovs in Riga. leader, Nils Usakovs, the mayor of Riga, Forming a government will be hard, tried to bridge the gap. Last year Harmony and may take months. Six other parties ended its co-operation with United Russia, split the rest of the vote. The second-larg- PARIS Vladimir Putin’s party, and joined the So- est, Who Owns the Government? (KPV LV), Marine Le Pen’s new National Rallyis cialists and Democrats group in the Euro- is a populist outfit run by a former actor hoping to come top next year pean Parliament. On sanctions against who calls for throwing out the traditional Russia, “we support a united European political elite. The third-largest, the New ESS THAN18 months ago, Marine Le Pen stand,” MrUsakovssays. He cultivated two Conservatives, wants to cut taxes while Lwas beaten and exhausted. She had lost hawkish American senators, Lindsey Gra- raising pensions and child benefits. Both the French presidential run-off to Emman- ham and the late John McCain, and hired a parties hope somehow to increase Latvia’s uel Macron, after a wild-eyed debate per- campaign consultant linked to them. population, which has shrunk from 2.38m formance that left her fans aghast. Her It did not work. Harmony’s vote share in 2000 to 1.93m today due to emigration leadership ofthe National Front, a party of dropped from 23% in 2014 to 20% this year. and low birth rates. That is the deeper rea- blood-and-soil populists, was strained, The unlikelihood that the party would be son why ethnic Latvians are still wary of and she was said to be depressed. Within allowed into government depressed eth- their ethnic Russian compatriots: fear that months, she lost her closest ally, Florian nic Russian turnout, says Janis Ikstens of their tiny nation will be overwhelmed. 7 Philippot, and found her party’s French bankaccounts unexpectedly closed. Yet there she was in Rome on October Hungary 8th with a new glint in her eye. Alongside Matteo Salvini, Italy’s interior minister, a Becoming a pest beaming Ms Le Pen railed against “totalitarian” Europe and proclaimed the start of BUDAPEST a new “history with a capital H”. Populism The capital’s party district is annoying locals and nationalism may have been defeated TANDING on the corner ofDob Street come a destination forBritish stag and at the ballot boxin France in 2017. But Ms Le Sand Hollo Street, in the heart of Buda- hen parties and most ofthe bars and Pen is hoping that next May’s elections to pest’s old Jewish quarter, David Popovits restaurants cater forthis crowd.” The the European Parliament will show that counts at least 20 bars and restaurants tourists’ money is welcome, says Andras her party, renamed the National Rally, is within easy reach. Mr Popovits, 44, a Torok, an author and cultural historian, still a force to be reckoned with. local entrepreneur and bar owner, knows but the influx is “out ofhand and makes Thanks to a turnout that is usually low, the quarter well. As a child he would life hell forlocals”. and the opportunity for a low-risk protest come here with his father, bringing ko- District VII municipal officials held a vote, the French far right has often done sher food forhis grandmother. “Back referendum in February asking whether well at European polls. In 2014 the Nation- then it was a run-down, even dangerous the area’s bars, cafés and clubs should be al Front came out on top in France, with place. Even ten years ago there were two closed between midnight and 6.00am. A 25% of the vote. Next year’s ballot will be restaurants and three pubs here. Now majority said yes, but the turnout failed the first mid-term electoral test for MrMac- there are hundreds ofplaces across Dis- to reach the 50% threshold needed forthe ron. After a summer of poorly handled trict VII.” vote to be valid. Officials have pledged to scandals and offensive remarks, the presi- District VII has a rich past. The site of workwith locals to reduce the noise and dent’s popularity ratings have tumbled. the wartime Jewish ghetto, it is still home mess as part ofa new citywide plan. For This week Mr Macron was struggling to re- to the Great Synagogue on Dohany locals, it’s time to say goodbye. shuffle his government, more than a week Street, the second-largest Jewish place of after his interior minister, Gérard Collomb, worship in the world, and to many other resigned after complaining that the presi- architectural jewels. Haunted by history, dent lacked humility. Next May’s election the narrow alleys and tree-lined squares will be “very complicated”, says one of his have survived invasion by Nazis and deputies. “The risk is that the vote turns Soviet forces. Now it is known as the into a referendum on him.” Asitis, one poll buli-negyed, or party quarter. But the puts Ms Le Pen’s outfit neck-and-neck with latest incomers, the thousands oftourists Mr Macron’s La République en Marche, on pouring into the hipster-run pubs and about 20%, comfortably ahead of all other artisan cocktail bars every night, are parties. Ms Le Pen could well come out on causing growing resentment. top again. “The populist wind is blowing Locals are weary ofbeing woken by everywhere,” warns Xavier Bertrand, pres- drunken revellers, and picking their way ident of the Hauts-de-France region, who through puddles ofurine and vomit the beat Ms Le Pen to that job in 2015. next morning. District VII used to be a Ms Le Pen hopes to benefit from this quiet, sleepy neighbourhood, says Mi- breeze. More importantly, she has enacted chael Miller, a long-term resident, author a strategic shift on Europe that could make of“Rabbis and Revolution”, who teaches the National Rally a less alarming prospect Jewish history at Budapest’s Central for certain voters. After the Brexit referen- European University. There were few dum in 2016, and steered by Mr Philippot, tourists, except for those who came to see then a party vice-president, Ms Le Pen be- the Jewish areas and pay their respects to came a Frexiteer. A party poster at the time the site ofthe wartime ghetto. “It’s be- Oh, don’t ask why showed a pair of fists breaking their shack- les next to the slogan: “Brexit, and now1 34 Europe The Economist October 13th 2018

Svalbard of those still standing but most at risk. The first of these, shipped in modules from the Melting away mainland, were installed in September. Climate change has made construction considerably trickier. Most of the town’s edifices are built on wood piles frozen into the permafrost; now that it is melting ever LONGYEARBYEN deeper, these are at risk of rotting, and so Climate change threatens homes in the becoming unstable. Statsbygg’s new hous- high Arctic ing will consequently be put atop steel pil- IFE in Longyearbyen, the world’s north- ings driven deep through the permafrost to Lernmost town, can be harsh. Average the underlying bedrock 10-15m beneath— high temperatures in July top out at 8°C; for the first residential buildings to be so con- three and a half months in the winter, the structed. The foundations will even come sun does not rise at all. Polar bears roam with sensors to monitor temperature and freely, meaning that anyone leaving the conditions. It is essential, says Hege Njaa settlement of just over 2,000 people must Aschim ofStatsbygg, to “be aware ofevery- carry a rifle. The mountainsides are bare thing [since] we cannot trust the perma- but for a couple of shacks marking the en- frost anymore.” trance to the coal mines that brought the Other places in Svalbard are affected, town into existence. Medical services are too. The Svalbard Seed Vault was built in limited, and specialist care must be sought 2008 into the permafrost just outside Long- on the Norwegian mainland. Indeed, few yearbyen to store seeds ofa huge variety of ifany people are born, or die, on the island crops in case of catastrophe. The vault it- of Svalbard, but instead move from the self, deep inside the mountain, is still fine, mainland fora few years. but the access tunnel to it from the surface Aux armes! Still, lower down in the valley, where a failed to refreeze in the permafrost as ex- few scrappy blades of grass manage to pected, leading it to be flooded with rain 2 France!” Lastyearshe campaigned fora ref- grow,the colourful houses oftoday’s Long- and meltwater in 2016. Now, Statsbygg is erendum on EU membership and a return yearbyen residents, engaged mostly in tou- spending Nkr100m to replace it with a wa- to a “national currency” in place of the rism, line the mountains’ lower slopes. De- terproof concrete one, and installing euro. Pensioners feared for the value of spite their cheery appearance, they are equipment around the tunnel to freeze the their savings. At first-round voting last increasingly threatened by climate change. surrounding soil. year, only10% of the over-70s voted for Ms The biggest danger comes from the in- So far, these problems have not stopped Le Pen—less than halfher overall total. creased risk of landslides and avalanches, adventurers from arriving. There is a un- As post-election recriminations flew linked to climate change. One avalanche in ique appeal to life in the remote archipela- within the party, however, Mr Philippot December 2015 killed two and destroyed 11 go—for outdoor enthusiasts, say, who can quit, and Ms Le Pen revised her Europe houses; another, in February 2017, de- hop on a snowmobile to explore majestic policy. Out went the promise ofa member- stroyed two buildings containing a total of glaciers. Locals swear by the camaraderie ship referendum and the confused talk six housing units. Svalbard’s local govern- born of the harsh environment. (Even about a new currency. In came a pledge to mentreckonsaround 250 homeswill even- Longyearbyen’s fanciest hotels ask you to work towards a reformed “Europe of na- tually have to be torn down due to their lo- leave your shoes at the door, as ifat home.) tions”. This was her songbook in Rome cation in risky areas. “Most people plan to come for a season, when she met Mr Salvini, another re- Through Statsbygg, a state property- but end up staying for years,” says one lo- formed Leaver. Together they promised to management company, Norway is plough- cal. Amid the melting glaciers and the des- reshape the EU and free it from the clutches ing Nkr220m ($27m) into 60 new houses to tabilisingmountain slopes, it remains to be of“those holed up in the Brussels bunker”. replace those already destroyed, and some seen ifthey can still do so in the future. 7 Ms Le Pen is no longer in favour of quitting the EU, but of conquering it. (Cynics might note that “in Europe, but not ruled by Eu- rope” was the refrain of many Conserva- tive leaders in Britain.) It was a measure of renewed confidence that Ms Le Pen also used her visit to Rome to distance herself from Steve Ban- non. Although previously eager to welcome Donald Trump’s former strategist, she now seems keen to show that her pan- European ambitions are not the workof an American. Ms Le Pen still faces difficulties at home. A court has ordered her to un- dergo a psychiatric test in connection with a case, brought under an absurd law, for tweeting images of Islamic State violence. In a separate investigation into payroll abuse, a court has seized €1m ($1.15m) of public subsidies from the party. Yet this week is a reminder that France’s nationalists were defeated in 2017, not crushed. 7 That sinking feeling The Economist October 13th 2018 Europe 35 Charlemagne Waiting for Goodot

Europe’s history explains why it will neverproduce a Google rope’s patchwork is a disadvantage. New technologies require vast lakes of data, skilled labour and capital. Despite the EU’s single market, in Europe these often remain in national ponds. Lan- guage divides get in the way. Vast, speculative long-term capital investments that make firms like Uber possible are too rarely available on European national markets. True, there is progress. European universities are working more closely together, and in 2015 the EU adopted a new digital strategy that has simplified tax rules, ended roaming charges and removed barriers to cross-border online content sales. But about half of its measures—like smoother flows ofdata—remain mere proposals. In the 19th century Europe was the first continent to industri- alise, and institutionsbased on thatexperience have deeper roots there than elsewhere. Most European countries are still run by marmoreal Christian or social democrats descended from the struggle between bourgeoisie and workers. Their propensity for bold thinking is limited. European investors expect to be able to claim physical assets against their losses if a firm goes bust—be- devilling software startups than ten to lack them. Research is too often incremental, not radical. The burden of early industrialisa- tion isalso somethingofa geographictale. Europe’straditional in- N SUNNY evenings in Brussels, young Eurocrats mingle on dustrial heartlands are struggling to adapt to the new digital era, Othe bar terraces of the Place du Luxembourg outside the but those once on the periphery—Bavaria and Swabia in Ger- European Parliament. The continent’s future leaders pay little many, and cities like Helsinki, Tallinn, Cambridge and Montpel- heed to the bronze-green statue ofJohn Cockerill at its centre. The lier—are leading the way, without the institutional fetters of old Englishman commemorated at the heart of today’s EU moved to factory towns like Liège. Belgium from near Manchester in 1802, importing the latest The 20th century also restrains Europe’s technological com- steam technologies. He founded a machine factory in a chateau petitiveness today. The collective experience of Nazi and Soviet near Liège which grew into an industrial empire and helped surveillance and dictatorship makes many Europeans protective make Belgium second only to Britain in industrial sophistication. oftheir data (Germans, forexample, are still reluctant to use elec- Is Europe living up to Cockerill’s legacy? The continent has tronic payments). Moreover, since 1945 the continent has mostly world-class companies in fields like biotechnology, luxury cars been at peace and protected by outsiders. So it has no institutions and nuclear energy, manufacturing sectors incorporating sophis- comparable to DARPA, the American military-research institu- ticated software (a BMW these days is as much a computer on tion where technologies like microchips, GPS and the internet wheels as a car). London, a global tech hub, is home to Deep- were born. Norhas it anythingcomparable to China’s military in- Mind, a leading artificial intelligence (AI) outfit; Stockholm is vestments in technology today. home to Spotify, a dominant music-sharing service; Cambridge- based Arm makes processor chips for almost all the world’s In Cockerill’s shadow smartphones. The equivalent historical forces in the 21st century could prove to Yet still Europe lacks large firms in areas like social media, e- be differing attitudes to migration. America’s technological supe- commerce and cloud computing comparable in scale to Ameri- riority is built on its ability to attract talented, success-hungry ca’s Google and Microsoft, or China’s Alibaba and Baidu. Of the people, one reason businesses resist Republican plans to limit le- world’s15 largest digital firms, all are American orChinese. Ofthe gal immigration. Of the 98 high-tech firms in the Fortune 500, 45 top 200, eight are European. Such firms matter. They operate (including Apple and Google) were founded by immigrants or dominant online platforms and are writing the rules of the new their children. China lacks immigration but sends many of its economy in the way Cockerill’s innovations did in his day. young abroad to study, and then repatriates their skills. Europe Mariya Gabriel, the EU’s digital economy commissioner, wor- does neither and treats migration as a threat, as its debates about ries that Silicon Valley and China now make the big decisions how best to seal offthe Mediterranean show. aboutthe internet, and thatthisaffectsEuropean domestic policy. Ifitwanted to, Europe could improve. Itsgovernments and the She is right. Even BMW, for example, does much of its cutting- EU could create a genuine digital single market, do more to pro- edge research in California and Shanghai. In Brussels officials mote enterprise and institutional innovation and make the most talk of a “Sputnik moment”, a sudden realisation of its techno- ofits strengths in, forexample, biomedicine and transport. Better logical disadvantage, akin to America’s when the Soviet Union integration of capital markets would help as well. Europe could put the first satellite into space in 1957. Asked whether the conti- harness the growing uncertainty about America’s trans-Atlantic nent will ever produce its own Google, one burst out laughing. security guarantees to invest serious cash in its own DARPA- Europe’s history explains the lag. In the 18th century, itslack of equivalents. Europeans may even eventually come to view im- standardisation made it the cradle of the industrial revolution. migration as an opportunity. But all of this perhaps demands a Rules and markets varied. Entrepreneurs who did not find sup- greater awareness of history itself, ofthe diverging technological port or luck in one country, like Cockerill, could find it in another. pasts and possible futures hovering over the continent like the All this created competition and variety. Today, however, Eu- bronze John Cockerill over the Place du Luxembourg. 7 36 United States The Economist October 13th 2018

Also in this section 37 Nikki Haley resigns 38 Missing Hispanic voters 38 Weed v wine in California 39 Florida’s gubernatorial race 40 Our mid-term predictions 41 Lexington: The end of the aﬀair

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

Democratic policies ratelylabelled as“Medicare formore”, says Sara Collins of the Commonwealth Fund, Universal pictures a health think-tank. The virtue of these ideas is that they are incrementalist and would require less federal spending than a fully fledged single-payer system. Their chief shortcoming, as Robert Blendon, a professor of health policy at Harvard puts WASHINGTON, DC it, is that “terms like public option don’t Medicare forall is a nice slogan. Could it become something workable? raise the blood pressure ofthe public”. ICTURE if you can Bernie Sanders, the First, though, Democrats need to decide As a result none of these proposals has Pdemocratic-socialist senator, as a young what Medicare for all actually means. The received as much attention as the detailed lad offour. That is how old MrSanders was details ofhealth policy resemble brain sur- plan put forward by Mr Sanders, which in 1945 when Harry Truman announced gery; the appeal of a slogan is that nobody goes the full monty. Medicare would be- his vision for single-payer health care, in need bother with the stultifying details. come the single payer of all insurance which the government pays all costs. Lyn- Some Democratic politicians and left-of- claims. It would be free at the point of use. don Johnson, backed by crushing congres- centre think-tanks have put forward more Premiums, deductibles and other pay- sional majorities, resurrected the idea in modest proposals under the aegis ofMedi- ments would be nearly eliminated. It 1965 when he signed laws creating Medi- care for all. They include: allowing more would also up-end the health-care system care, government-run insurance for the el- people to qualify for Medicaid (govern- by doing away with employer-sponsored derly, and Medicaid, a programme for the ment-provided insurance for the poorest), insurance. The majority (56%) of working- very poor and disabled. Now at the age of lowering the age requirements for Medi- age Americans are enrolled in these 77, Mr Sanders would like at last to enact a care and introducing a so-called public op- schemes; 71% ofthose covered by them say single-payer system under the banner of tion, a state-run insurer to compete with they are content. Unlike the other Medi- “Medicare forall”. existing private ones. These are more accu- care-for-all pitches, if you like your plan, The idea is now rather popular. When you most certainly cannot keep it. polled, nearly 75% of Americans declare a To fund all this, federal spending would favourable view—as do 87% of self-identi- Live free and die younger need to increase by an estimated $32.6trn fied Democrats. Ahead of the mid-terms, Average life expectancy at birth, 2016, years over ten years. If the government used its fealty to the idea has become a litmus test power to reduce the costs of drugs and of 70 75 80 85 for progressive voters. The popularising of Japan administration this could, according to an Medicare for all is largely owing to Mr Spain estimate by the Mercatus Centre, a think- Sanders’s evangelising during the 2016 Australia tank, result in $2trn less health spending presidential primaries, when the idea was Britain overall otherwise. lampooned by Hillary Clinton as unwork- Germany It would still be hard to get through. able. Since then, five likely Democratic Czech Rep. “While the taxes are upfront and real, be- presidential contenders—Cory Booker, Kir- United States liefin savings down the line requires some stin Gillibrand, Kamala Harris, Mr Sanders Hungary faith,” says Larry Levitt of the Kaiser Fam- and Elizabeth Warren—have endorsed Lithuania ily Foundation, a health-policy think-tank. Medicare for all. Should one of them win, Russia Republicans derided the much more mod- the expectation that he orshe would act on est Obamacare as spendthrift socialisation the slogan will be enormous. Source: OECD ofAmerican health care. Even Democratic-1 The Economist October 13th 2018 United States 37

2 led states that pondered enacting single- Nikki Haley resigns payer on their own balked when the cost became apparent. Efforts in Vermont, Mr UN done Sanders’s own home state, stalled once it became clear that an 11.5% surtax on pay- rolls and premiums up to 9.5% of income would be needed to fund single-payer insurance. Public support drops sharply WASHINGTON, DC once voters are reminded that taxes would The White House loses a reassuring memberofits foreign-policyteam have to rise to pay forMedicare forall. The problems identified by Mr Sanders AVERING voters in competitive con- “should be heard.” She tangled with other are nonetheless real. America is alone Wgressional districts are not going to members of his cabinet, and did not get among large, developed countries in lack- cast theirballots based on when America’s along with Rex Tillerson, Mr Trump’s first ing universal coverage. Even after Obama- ambassador to the UN resigned. That Nikki secretary ofstate. Like Bobby Jindal, anoth- care, 12% of adults are uninsured. For this Haley chose to do so on October 9th is er child ofIndian immigrants who became Americans pay17% of GDP, the most in the nonetheless odd. Just a few weeks before the Republican governor of a southern OECD club of mostly rich countries. Gov- the mid-terms, when Republicans are still state, Ms Haley once seemed to offer a ernment-run health programmes can re- crowing about having installed Brett Kava- more cosmopolitan, inclusive and open fu- duce costs by eliminating administrative naugh on the Supreme Court, her resigna- ture for the Republican Party, a prospect costs, private profits and using their domi- tion reinforces the impression that the that faded when Mr Trump reoriented it nant positions to keep prices low. But none Trump administration cannot hire and around nativist grievances. of the European systems from which Mr keep “the best people”. Still, anyone to She hasmanaged an unusual balancing Sanders draws his inspiration are purely whom that matters is probably voting for a act during nearly two years in the job, re- single-payer. Many use a mixofpublic pro- Democrat anyway. President Donald maining in the good graces of both Mr grammes and supplementary private in- Trump’s most dedicated supporters have Trump and his Republican-establishment surance to ensure universal coverage. Cost- little use forthe UN and would be happy to antagonists. Part of that was owing to her sharing, along with subsidies to those who see Ms Haley’s position unfilled. Her de- portfolio. Neither Mr Trump nor his sup- cannot afford it, are the norm. parture will not move the needle now. It porters have ever seemed terribly interest- Nor is Medicare itself so simple. As cur- nevertheless set off a lot of speculation ed in the details of foreign policy, express- rently constituted, Medicare coverage is about what she is up to. ing only a desire for respect. The positions separated for hospitals (Part A), other med- Ms Haley’s resignation seems to have Ms Haley advocated at the UN—tough on ical costs (Part B) and prescription drugs caught White House staff by surprise. De- Iran, defensive ofIsrael, pragmatically nur- (Part D). Part C allows for privately run spite a recent report raising questions turing alliances—were mainstream Repub- Medicare Advantage plans that offer sup- about her use of private jets, Ms Haley lican ones before Mr Trump came along. plemental service and replace Parts A and faced no pressure to resign. Unlike many of There has been speculation that Ms Ha- B. Got all that? the president’s initial cabinet appointees, ley resigned to preserve her future political Formost Americans enrolled in the pro- she began as a critic rather than a suppor- prospects. Things could get rockier for the gramme, none of these services is actually terofMrTrump. But, like so many other Re- Trump administration should the Demo- free at the point of use, as Mr Sanders’s bill publicans, she turned from critic to good crats win the House in November. Getting proposes. The agency that administers soldier, promoting Mr Trump’s policies out now lets her claim good service in the Medicare issues regulations that hospitals and adopting his combative style—warn- Trump administration, which should say impose billions in additional compli- ing before member states voted on a reso- count for something in the future with his ance costs. Coding procedures for billing lution condemningMrTrump’sdecision to supporters, while also keeping herself un- purposes is now a cottage industry em- move the American embassy to Jerusalem sullied by whatever Democrats may use ploying 206,000 people—and is projected that “the US would be taking names”. their subpoena power to unearth. to grow at 13% over ten years. “Arguably it Ms Haley was never a wholehearted Bill Kristol, a prominent Republican has too much coverage in some dimen- Trumpist. She said that the women who Never Trumper, has floated Ms Haley as a sions. It pays forevery treatment under the accused her boss of sexual misconduct possible primary challenger to the presi- sun as opposed to Medicaid or the Canadi- dent in 2020. During the Oval Office ap- an system. But it’s completely lacking in pearance with Mr Trump at which she an- catastrophic coverage,” says Amy Finkel- nounced her resignation, Ms Haley told stein, a health economist at MIT who re- reporters that she would campaign for the cently won a MacArthur genius grant. president in his next race. Should he run Medicare does provide health-care at de- for re-election in 2020, it would be classi- cent cost, but it is nothing like as efficient as cally Trumpian to dump Mike Pence from its devotees claim. the ticket after four years of devoted ser- A more pragmatic agenda would focus vice and pick someone else. Ms Haley on boosting competition in health-insur- could help Republicans rebuild her party’s ance exchanges and reversing the cuts, reg- brand with educated women. ulatory changes and work requirements Or, if Lindsey Graham, the senior sena- imposed by the Trump administration. tor from her home state of South Carolina, Even this would take a lot of legislation. If were to enter Mr Trump’s administration Democrats finished all that, they could after the mid-terms, his seat, which is up in then allowcustomersto buyMedicare cov- 2020, would be hers for the taking. Ms Ha- erage from the government (the non-coer- ley would face a challenge from the right, cive, “public option”). The difficulty with but she was elected governor there twice this agenda is that it does not fit onto a and remains popular. That would leave bumper sticker. The advantage is that it herwell placed to run forpresidentin 2024, might one day get through Congress. 7 All oval now when she would be just 52 years old. 7 38 United States The Economist October 13th 2018

Weed v wine in California Pinot or pot?

LOS ANGELES Dopers and topers go head to head in wine country OOZE and drugs usually belong to- sumers said they thought marijuana was B gether like Fred and Ginger. But not, it saferthan alcohol. seems, in California’s wine region. Wine- Weedsellers are already paying the makers are fretting that recreational wine business the compliment oftheir marijuana use, which became legal in the most sincere flattery.Marijuana dispens- state in January,could challenge their ers in California have created “tasting dominance ofwhat is delightfully wheels” and100-point ratings systems, known as people’s “intoxication bud- both based on techniques fordescribing gets”. They also complain that they can and marketing wine. Wine Spectator,a no longer afford seasonal labour to har- magazine, is suing Weed Spectator, pub- vest their grapes because workers have lished in northern California, fortrade- better-paid, year-round jobs on cannabis markinfringement. The mid-terms (1) farms. Sonoma County,one ofthe state’s But not all wine makers are bummed main wine-producing regions, recently out. Some Californian sommeliers are Missing, presumed imposed restrictions on who may grow giving classes on pairing wine and weed. weed, and where. A handful ofwine makers in Napa Valley, indifferent According to Rabobank, a Dutch firm another centre ofwine production, have that specialises in financing agriculture, set up the Napa Valley Cannabis Associa- marijuana and alcohol are to some ex- tion, with the idea ofplanting the stuffin WASHINGTON, DC tent substitutes. Legalisation, a recent the region next year. And—on the princi- America would be verydifferent if report from the bankargues, will encour- ple that ifyou can’t beat ‘em, join ‘em— Latinos voted like African-Americans age more women, baby boomers and Rebel Coast winery in Los Angeles Coun- NE measure of racial progress is that high earners—all stalwarts ofthe wine ty has produced a marijuana-infused OAfrican-Americans are as likely to business—to smoke weed instead. In sauvignon blanc. Andrew Jefford, a vote in elections as whites. Black voters other states, the legalisation ofmedical British wine writer, thinks drinking, not were actually slightly more likely to turn marijuana has been associated with a smoking, is the future ofweed. “Can- out than whites in the 2008 and 2012 presi- roughly15%fallin alcohol consumption. nabis drinks,” he writes, “may become dential contests. Hispanics lag far behind. Cannabis is taking offbecause it appeals the leading medium forrecreational Turnout rates for Latinos were 20 points especially to the health-conscious inebri- consumption.” Perhaps booze and drugs lower than for whites in 2016, a gap that is ate. In one poll, 72% ofAmerican con- do belong together after all. far wider than it was two decades ago. What is keeping Hispanics from voting? The answer will matter a lot in Novem- ber. Priyanka Mantha from the campaign for the Democratic candidate to be gover- nor of Georgia, Stacey Abrams, says the campaign is investing heavily in bilingual advertising and uses Spanish-speaking canvassers to spread its messages. The targeting team is hoping to build on the success of this year’s primary campaign, in which 250,000 more Democrats voted than in 2014. Public polls suggest these efforts might be payingoff. Ms Abrams is currently level in her race against the Republi- can Brian Kemp. Every national Democratic campaign for the past few decades has raised hopes about higher turnout from Hispanics, of- Don’t Bogart that bottle ten only to be disappointed. In two of this year’s key Senate races it seems to be happening again. The president’s “build the with RickScott, his Republican challenger. One answer is that Hispanics, a catego- wall” rhetoric, the separation of children Though many political scientists sug- ry created by the Census Bureau, do not from their parents at the border, his enthu- gest that factors like educational attain- feel very Hispanic. Florida’s politics often siasm for deportations: none of these ment and income explain why some sets Cubans against Puerto Ricans. In Tex- things is sending enough Hispanic voters Americans vote less often than others, vot- as, the term covers Mexicans who arrived into the arms of either Beto O’Rourke in er-turnout records show a more complicat- in the 1970s, recent migrants from Central Texas or Bill Nelson in Florida. Mr ed picture. Latinos without high-school di- America and families who have been in O’Rourke is trailing Senator Ted Cruz by plomas actually vote more often than Texas for centuries. Black Americans have roughly five points, half the margin by whites without them, according to a new a long history of mass political organising which Trump won in 2018. SenatorNelson, book by Bernard Fraga, a political scientist, dating back to before the civil-rights era. the Democraticincumbent, isin a tight race called “The Turnout Gap”. Latinos do not. The expectation that they 1 The Economist October 13th 2018 United States 39

If Democratic candidates were able to governor since 1994. The Democrats it Tilted stage flip a switch and better target Latinos, the elects to statewide office, such as Bill Nel- United States, Democratic Party electoral outcomes resultwould be large political upsets in No- son, the incumbent senior senator, tend to Number of seats won vember. The Economist’s weekly survey be dull, Anglo moderates. Many Demo- If equal shares of Latinos Actual with YouGov,a polling firm, finds that 55% crats worry that Mr Gillum, a young, black and whites voted of Latinos favour Democrats in the forth- progressive, is too left-wing. His opponent Senate Electoral college coming elections, versus 24% who favour gleefully accuses him ofbeing a socialist. 60 400 Republicans. Once uncertain voters are al- Even so, Mr Gillum has a small but 55 350 located, this is similar to the 70% ofLatinos steady lead in the polls. But casting a shad- Majority that Hillary Clinton won in 2016, according ow over his campaign has been an extend- 50 300 270 to win to survey data from the Co-operative Con- ed FBI investigation into corruption in Tal- 45 250 gressional Election Study. lahassee’s City Hall (MrGillum says he has Democrats are frustrated by these num- done nothing wrong and has been told by 40 200 bers; this seam of votes appears easy to the FBI that he is not a target). Since the pri- 2008 10 12 14 16 2008 12 16 mine but in reality it is plainly not. To real- maries his campaign has been steady; Mr Source: “The Turnout Gap”by Bernard L. Fraga, ise the promise of this apparently friendly DeSantis’s has been disorganised and be- Cambridge University Press collection of voters, “Democrats don’t set by racial controversies. have to persuade anyone,” Mr Fraga says, Mr Gillum is making the same electoral 2 should have a shared political conscious- “the voters just have to turn out!” He esti- bet as Stacey Abrams, the Democratic gu- ness might be mistaken. mates that if Hispanics voted at the same bernatorial candidate in Georgia. In recent Another explanation is that the cam- rate as whites in 2016 then Democrats decades, as Republicans have moved right- paigns are doing a lousy job of targeting would have won 51Senate seats (they won wards, Democrats have nominated white them. This is what Mr Fraga argues. Cam- 48, if you include the two independent centrists designed to win voters in the the- paigns usually focus their marginal extra senators that caucus with them) and Hilla- oretical middle, hoping that progressives efforts on voters who are most likely to ry Clinton would have been elected presi- or non-white voters would trudge to the show up, which ends up reinforcing pre- dent with 318 votes in the electoral college polls anyway forlackofother alternatives. existing turnout patterns. (she actually won 232). 7 That strategy has often failed them. In- stead, Mr Gillum is trying to excite non- white voters, hoping they will turn out in The mid-terms (2) numbers similar to presidential rather than off-year elections, when the elector- The five-state conundrum ate is typically older and whiter. Mr Trump has been polling better than in other swing states, partly because Flori- da has so many old people (over20% are 65 or over, compared with around 15% nation- ally), and they turn out to vote more reli- JACKSONVILLE AND ORLANDO ably than young people do. Christian The Sunshine State’s gubernatorial race offers the starkest choice of2018 Whitfield, an African-American Republi- HATyouhave to remember”, says campaign ad features him building a wall can running forthe city council in Jackson- “WRonald Brisé, in a conference with his daughter, then reading to her from ville, says Mr Trump is popular because room several storeysabove downtown Or- one of Mr Trump’s books. Mr Gillum, “people see his policies workingregardless lando, “is that Florida is like three to five meanwhile, was backed by Bernie Sand- of the noise you hear. They can pay their statesin one.” Spend more than a couple of ers. He favours universal health care, gun bills, go shoppingand go to dinnerevery so hours talking Florida politics and some control, raising business taxes to fund pub- often.” Thomas Esposito, another Jackson- version of Mr Brisé’s dictum will emerge. lic schools, and criminal-justice reform. ville Republican, says Mr Trump’stransfor- South Florida (Mr Brisé’s home, before he Neither candidate was expected to win his mation of the party has been popular in served in the state’s legislature) is multicul- primary; both defeated more mainstream, Florida. “It’sthe partyofthe common man, tural, crowded and Democratic. North establishment-backed candidates. the forgotten man, [and] there are a lot of Florida is whiter and staunchly conserva- Florida has not elected a Democratic forgotten people in Florida.” 7 tive. This gives statewide races a familiar pattern: Democrats seek to run up their totals down south while minimising their losses in the north, while Republicans do the opposite. The parties fight over central Florida, a region that changing demography—an influx of Latinos from Puerto Rico and the north-east, a steady flow of white pensioners seeking sunshine and pickle- ball in retirement—prevents from listing too farin either direction. Perhaps no race in the country offers a starker choice than the contest between Ron DeSantis, a three-term Republican congressman, and Andrew Gillum, the Democratic mayor of Tallahassee, to become Florida’s next governor. Mr DeSantis is among President Donald Trump’s most ardent congressional supporters. One Ron DeSantis and campaign bus 40 United States The Economist October 13th 2018

The mid-terms (3) Neither race will be easy. An outsize share of Democratic voters in both states Model voters are Hispanics, whose turnout has dropped precipitously in previous mid-terms. In an open-seat race in Arizona between two current congresswomen, Kyrsten Sinema, the Democrat, is clinging to a narrow lead. Dean Heller, the incumbent Republican in Ourforecast suggests Democrats will win a narrow House majority ofabout12 Nevada, isroughlytied with hischallenger. seats. Polls suggest Republicans will keep the Senate Although Democrats could well flip HERE are no iron rules of politics, but share of votes cast for House candidates both seats, that would probably not be Tsome patterns repeat often enough to (excluding third parties, and adjusting for enough for a majority. The party must also resemble physical laws. In America, per- districts where candidates run unop- defend its incumbents in five staunchly Re- haps the most reliable one is that voters exposed) is just over 54%. That would be a publican states, and beat a sitting governor press buyer’s remorse in mid-term elec- bigger opposition-party wave than those running for the Senate in Florida. The con- tions. In 23 of the 26 mid-terms held since of 1994, 2006, 2010 and 2014, and fall just firmation fight over Brett Kavanaugh may 1911, when the House of Representatives short of2008, when voters pummelled Re- well help Democrats in House elections. was fixed at 435 members, the president’s publicans during the financial crisis. It is However it has coincided with a strength- party has lost ground in the lower cham- consistent with a narrow Democratic ening of partisan loyalty in Republican ber. The average swingtowardsthe opposi- House majority, ofaround 12 seats. states with Senate races. tion has been 30 seats; Democrats need to Nonetheless, a takeover is far from as- Overall, the vulnerable Democrats gain just 23 to win control. sured. Thanks to gerrymandering and to have held up remarkably well. The party’s With less than a month ofcampaigning the concentration of Democratic voters in incumbentsin Indiana, Missouri and Flori- left, the most likely result is that Democrats bigcities, the Democratsneed to win about da are all tied or narrowly leading in post- will take the House while falling short in 53.5% of the vote—roughly their margin in Kavanaugh polling, while its senator from the Senate. Nonetheless, both contests are their wave of 2006—just to exceed a 50/50 Montana was clearly ahead in the most re- close enough that the outcome is highly chance of taking control. The Republicans’ cent polls, which were conducted in Sep- uncertain. Statistical models—including best hopes lie with a handful ofcandidates tember. North Dakota, however, looks like- The Economist’s own forecast of the House who have insulated themselves politically ly to be Senate Democrats’ Waterloo. In all race—and betting markets agree that there from the unpopular president. Voters in five polls taken since June, Heidi Heitkamp is around a 30% probability ofthe Republi- competitive districts with large Hispanic has trailed Kevin Cramer, the state’s lone cans holding both chambers, and perhaps populations have not shown the degree of congressman—the last two by double dig- a one-in-five chance that the Democrats anti-Trump fervour displayed by college- its. Such deficits are not insurmountable: will flip both. Either outcome falls within educated white women. Ron Johnson, a Republican senator from the range of credible estimates of Mr Wisconsin, rallied from ten points down to Trump’sodds in November 2016. Wildest dreams win re-election in 2016. And Ms Heitkamp The only prediction about the mid- In the Senate, it is the Democrats who need raised $3.8m in the third quarter, ensuring terms that can be made with confidence is an inside straight. A gain of just two seats she will have a large cash advantage. that many more people will vote for would give them control, which sounds Nonetheless, comebacks like Mr John- Democratic House candidates than for Re- like a low bar. However, only nine of the 35 son’s are rare. And if Ms Heitkamp cannot publican ones. When pollsters ask which races this year involve seats currently held replicate the feat, the Democrats’ backup party respondents plan to support this by Republicans. And of those, just two— plans to compensate for her loss are in year, Democrats lead by eight points. That Nevada’s and Arizona’s—are in states trouble. After a flurry of encouraging polls is the second-biggest advantage an opposi- where Democrats are even faintly compet- over the summer, the party’s polished, tion party has had at this point in a mid- itive in presidential elections. popularcandidatesin Tennessee (a centrist term campaign since 1994 (see chart). Dis- former governor) and Texas (a charismatic trict-by-district polls tell a similar story: congressman) have fallen behind their op- Democrats’ performances in surveys of Kingdom keys ponents. Aspecial election in Mississippi is single House districts are on average seven United States, mid-term elections even more ofa long-shot. percentage points higher than the party’s Opposition party’s generic* polling average, % Although the nature of Mr Trump’s vote shares in 2016. Seat change in House for president’s party presidency makes it foolish to rule out an Unexpected changes in the mix of peo- 57.5 October surprise, national-level surveys -30 ple who turn out to vote can undermine Rep. forCongresstend to be fairlystable. During the most rigorous polling methods. But in the past 40 years, the overall polling aver- Democrats 2006 special elections held to fill seats in state in opposition 55.0 age has moved by less than a percentage and federal legislatures that have become point during the final month of the cam- vacant, Democratic candidates have on av- 2018† paign. However, with the races for both erage fared five percentage points better Republicans Dem. chambers this close, even a modest change -63 52.5 than Hillary Clinton did in those districts in opposition could be decisive. MsHeitkamp’snumbers 2010 -13 in 2016. Fundraising totals also suggest 2002 in North Dakota may be temporarily de- +8 Democratic partisans are more fired up 50.0 pressed by the media’s focus on Mr Kava- than Republicans. Across all House con- 2014 -54 naugh. A few good polls for her could dou- tests in which both major-party nominees 1998 +5 ble the Democrats’ Senate chances. Mr have filed reports with the Federal Election Trump won two years ago thanks to 47.5 Commission, 57% of contributions by indi- 1994 80,000 votes spread across three states. He viduals have gone to Democrats. 100 50 0 may well find the fate of his legislative Combining all of these factors and Days before mid-term election agenda, the investigations into his cam- more, our mathematical model of the race Sources: Joseph Bafumi, Dartmouth *Excluding third parties paign and ultimately his presidency decid- † calculates that the Democrats’ most likely College; HuffPost Pollster 27 days until election ed by a similarly narrow margin. 7 The Economist October 13th 2018 United States 41 Lexington The end of the affair

The Trump administration is right to redefine relations with China—but bad at managing them ment with China seemed even to be reversed. His administration drifted from scepticism about China to resignation. That explains much of the pent-up support for Mr Trump’s more confrontational approach. Though the president’s tariffs and bellicose rhetoric are controversial, there is a consensus among the bureaucracy, many businessmen and both parties that it is time to call China out. “China’s goal is world supremacy and there is bipartisan support for pushing back,” says John Bar- rasso, a Republican member of the Senate Foreign Relations Committee. “There’s a broader, more intense and ideological competition with China than I had appreciated,” says Chris Coons, a Democraticmemberofthe committee. Itishard to imagine Mr Trump’ssuccessors arguing fora return to trustful co-operation. Yet there are huge uncertainties about what comes next. Xi Jinping, not Mr Trump, is the main catalyst behind their countries’ rivalry. Yet America’s next moves will probably shape the first phase of acknowledged competition between the countries. The American pushbackalready looks broad. To provide an alternative to Chinese credit, Congress has passed legislation to expand American financing of overseas infrastructure projects. The Justice Department has unveiled charges of economic espio- HE National Security Strategy released by President Donald nage against a Chinese intelligence officer, Yanjun Xu, who has TTrump’s administration last year augured a major change in been extradited from Belgium to stand trial. Relations are about China-US relations. Where its predecessors lauded the merits of to get even rockier. Yet they are unlikely to recall the cold war. co-operation with the emerging superpower, Mr Trump’s docu- Neither side wants to end all co-operation and it is unlikely, ment promised competition and resistance to Chinese trade and given theireconomic inter-dependence, they could. China’s strat- other abuses. The tirade Mike Pence launched against China last egy is also unlike the Soviet Union’s. A multi-faceted challenger, week doubled down on that commitment. In a speech delivered not a nuclear-armed bankrupt-in-waiting, it aims to increase its atthe Hudson Institute, a shortwalkfrom Congressand the ongo- leverage on many fronts while avoiding conflict. “Supreme excel- ing Kavanaugh brouhaha, the vice-president castigated the Chi- lence consists in breaking the enemy’s resistance without fight- nese for bullying investors, buying allies with cheap loans, “tearing,” wrote Sun Tzu in “The Art of War”. If a stand-off ensued, ing down crosses” and much else. This may turn out to be Mr moreover, the rest ofthe world would not neatly divide between Trump’s most significant mark on the world. America’s new ad- east and west, an essential feature of the cold war. Its history is versarial posture towards China is overdue, popular and proba- mainly relevant because it shows where America’s competitive bly irreversible. advantages lie. Worryingly, Mr Trump disdainsmost ofthem. That is notwithstanding the fact that the vice-president’s One of America’s advantages is the international system Mr speech was in some ways cynical and reckless. Much of it Trump is straining almost as much Mr Xi. It provides avenues to seemed to have more of an eye on the mid-terms than the world. settle, oratleastpursue, manyofMrPence’sgripes. The WTO was “To put it bluntly, President Trump’s leadership is working,” he founded to deal with trade disputes without causing trade wars, purred. MrPence then parroted his boss’s recent, probably bogus, the UN as a forum for great powers and to police human-rights claim that Chinese “covert actors, front groups and propaganda” abuses. The Trans-Pacific Partnership was negotiated by Mr were spreading more disinformation in America than the Rus- Obama with a view to checking China’s influence in Asia. Mr sian spies to whom Mr Trump may owe his job. He gave no sense Trump, having little understanding of institutions or esteem for ofwhich Chinese affronts he considered mostgrievous. He there- the moral high ground, rejects them all. He also undervalues the fore offered only a glint ofa counter-strategy. It was disorientating alliances that underpin them, which are a second American ad- to witness such tawdry politics at such a potentially momentous vantage. “We’re building new and stronger bonds with nations moment. Conversely, it was a useful reminder, in Trump-drunk that share our values…from India to Samoa,” said Mr Pence. He Washington, DC, that some things are bigger than Mr Trump. should check that with Narendra Modi, India’s prime minister, Sooner or later, America’s shift on China was inevitable. After whose frustration with MrTrump, on trade and otherwise, is said every big hot and cold war ofthe past century, notes Andrew Kre- to have led India to seekwarmer relations with Mr Xi. pinevich, a security savant, America’s leaders trusted to collective defence. Woodrow Wilson created the League of Nations, Know yourself, know your enemy Franklin Roosevelt the “Four Policemen”; Clintonians preached America’s most important advantage is its democratic system. It “co-operative security”. But, as surely as nations rise and fall, is the means by which its leaders obtain consent for the financial power politics returns, and this has been apparent in the current and other sacrifices that geopolitical struggles entail. Yet, not- iteration for over a decade. China, like Russia, is testing an Ameri- withstanding the support for his approach, it is hard to imagine can-led system it feels constrained by. Distracted by jihadists and the relentlessly divisive Mr Trump winning bipartisan approval fearing the costs ofa new superpower rivalry, America has mere- foranydifficultpolicy. Thisturnsa strength into a potentially seri- ly been unusually reluctant to accept that fact. Under Barack ous weakness. America will not be able to sustain a costly rivalry Obama, the usual mini-cycle of creeping presidential disillusion- with China unless Americans stand united behind it. 7 42 The Americas The Economist October 13th 2018

Also in this section 43 Bello: The politics of Brazil’s army 44 Canada’s cannabis anti-climax

Brazil’s elections electoral coalition, Mr Alckmin had 40 times Mr Bolsonaro’s allocation of free ad- A revolution at the ballot box vertising time on television. It did not help. The upstart got more attention on social media and in the news (in part because he wasstabbed ata campaign rallyin Septem- ber). For the first time in three decades the SÃO PAULO PSDB’s candidate failed to win the presi- JairBolsonaro, a far-right populist, is poised to win the presidency. That is not the dential election or enter the second round. onlyelectoral shock Almost as startling are the results of the STEEP hill and a concrete wall divide (Car Wash), which implicated all big politi- one-round congressional election also Athe worlds of Gabriela Moura, a stu- cal parties; and rising levels of violence. held on October 7th. The PSDB lost nearly dent from Paraisópolis, a favela in the city The number of murders reached a record half its seats in the lower house (see chart). ofSão Paulo, and Roberto Inglese, a lawyer ofnearly 64,000 last year. The PT, its longtime rival for national pow- from the prosperous neighbourhood of To fix these problems Brazilians are er, will remain a force (probably in opposi- Morumbi. But on October7th the two pau- turning to a politician-provocateur more tion) thanks to its strength in the poor listanos were united in their choice for Bra- notable for the extremism of his rhetoric north-east. But it lost important races fur- zil’s president: Jair Bolsonaro, a far-right than for anything he achieved in seven ther south. Dilma Rousseff, a Brazilian former army captain. “All the other politi- terms as a congressman. Mr Bolsonaro has president who was impeached in 2016, lost cians are corrupt,” said Mr Inglese, who insulted women, blacks and gays. He en- her race for a senate seat in Minas Gerais. drove his SUV to vote at a private Italian courages police to kill suspected criminals, Also humbled was the Brazilian Demo- school. “We need someone with a strong and regards the dictators of the 1970s and cratic Movement (MDB), the party of the fist against crime,” said Ms Moura, who 1980s as role models (see Bello). current president, Michel Temer. The presi- feared walking to a government-run day- He crushed candidates with more tem- dent of the senate, Eunício Oliveira, and care centre to vote because she had recent- perate views and more impressive track re- the party’s chief, Romero Jucá, lost their ly been assaulted nearby. cords, including Geraldo Alckmin, the senate seats. Of 32 senators who ran for re- Such sentiments have brought Mr Bol- nominee of the centrist Party of Brazilian election, just eight won. In the lower house sonaro to the verge of victory in a run-off, Social Democracy (PSDB). A longtime go- the re-election rate of deputies dropped to be held on October 28th. He won 46% of vernor of the state of São Paulo with a big from 56% in the previous election to 49%. 1 the vote in the first round in a crowded field of candidates. His run-off rival is Fer- nando Haddad of the left-wing Workers’ Scrambling the spectrum Party (PT), whose de facto leader is Luiz In- Brazil, 2018 general election ácio Lula da Silva, a former president who is serving a jail sentence forcorruption. Mr Seats in Chamber of Deputies Total seats: 513 Haddad enters the second round 17 per- Chamber- PT PSL PP MDB PSD PR PSB PRB DEM PSDBPDT 19 other parties centage points behind. Betting markets elect 56 seats 52 37 34 34 33 32 30 29 29 28 119 give Mr Bolsonaro an 85% chance of be- Outgoing coming Brazil’s next president. chamber 61 14 others 108 That would be an extraordinary response to a series of traumas that have be- Share of votes in first round of presidential election, % Ciro Gomes 12.5 fallen Latin America’s biggest country over Jair Bolsonaro 46.0 Fernando Haddad 29.3 the past several years: the worst recession 50 4.8 in Brazil’s history; interlocking corruption Geraldo Alckmin scandals, known collectivelyas “Lava Jato” Source: Brazil Superior Electoral Court The Economist October 13th 2018 The Americas 43

2 “It’s the end of a political cycle,” says Luiz furnish Mr Bolsonaro with a majority for His plans to loosen gun control and lower Carlos Mendonça de Barros, a formerpres- some purposes ifhe wins the run-oﬀ. the age of criminal responsibility are likely ident ofBrazil’s development bank. It is easier to say what Brazilians re- to encounter little congressional resis- The incoming congress will suit Mr Bol- belled against—the corruption, crime and tance. As he reduces environmental pro- sonaro, who once called for its temporary economic chaos of recent years—than tections much ofcongress may cheer him. closure, better than most analysts had ex- what they voted for. The clearest mandate Less certain is whether Mr Bolsonaro pected. His (misleadingly named) Social is for Mr Bolsonaro’s tough-on-crime con- will win support for contentious eco- Liberal Party (PSL) will be the second-larg- servatism. The elections show that the nomic reforms. His chief economic advis- est in the lower house. Gains forright-lean- “common man” has conservative attitudes er, a free-marketeer called Paulo Guedes, ingpartiessuch asthe Brazilian Republican on gay marriage, abortion and the death wants to reduce pension spending and pri- Party (PRB) make the incoming congress penalty, says Fernando Schüler, a political vatise state-owned companies. Financial the most conservative since the end of the scientist at Insper, a university in São Pau- markets, rightly worried about Brazil’s dictatorship in 1985. The centrão, a group lo. The “bullet, beef and Bible” parties, public debt, now 84% of GDP, are giddy at of small, ideologically ﬂexible parties that strengthened in this election, will back the prospect. On the day after Mr Bolso- originally backed Mr Alckmin, will help much ofMr Bolsonaro’s agenda ifhe wins. naro’s near-victory Brazil’s stockmarket1 Bello Flashbacks to 1964

Brazil’s soldiers are not itching forpower. More likely, theywould restrain JairBolsonaro N APRIL1st1964 units ofthe Brazilian political system, economic slump and a Oarmy toppled the democratic gov- crime wave—but not necessarily for mili- ernment ofJoão Goulart, a left-wing pres- tary rule. “This is not the cold war,” says ident. They did so with the support of the Matias Spektor, who teaches internation- elected civilian governors of the three al relations at the Fundação Getulio Var- most important states—Minas Gerais, Rio gas, a university. The media and a vibrant de Janeiro and São Paulo—and much of civil society support democracy. the congress. The politicians were con- Neither is there reason to believe that vinced that the army would merely hold the armed forces want to take over. They the ring until the election due in 1965. are proud to be Brazil’s most respected in- They miscalculated: the generals went on stitution. General Villas Bôas has said that to rule the country fortwo decades. “hotheads” who call for a coup are “cra- Some Brazilians see a similar civilian- zy”. He has criticised efforts, which Mr military collaboration, in reverse, in the Bolsonaro champions, to involve the likely victory in the presidential election army in fighting organised crime. (It is al- this month of Jair Bolsonaro, a former ready policing the city of Rio de Janeiro.) army captain. Mr Bolsonaro is a fervent Most senior officers are moderates who defender of the military dictatorship and many politicians, Brazil had evolved be- don’t want to take unconstitutional ac- a fan of Chile’s former dictator, Augusto cause “we know the names of supreme- tion, according to Alfredo Valladão, a de- Pinochet. He has said he would appoint court justices but not ofgenerals.” It is wor- fence specialist. “The army will take its military people as ministers. His running- rying that this is no longer true. But is it own decisions”, not bow to Mr Bolso- mate is Hamilton Mourão, a retired gen- worse than that? naro, he says. Indeed, if Mr Bolsonaro eral who last month mused about a “self- Certainly there are a few parallels with wins, its resistance to complete civilian coup” if the country slid into anarchy. 1964. Now, as then, Brazilian politics is po- control may prove to be a restraint on Partly on Mr Bolsonaro’s coat-tails, 17 mil- larised between leftand right. Goulart was him. The army would feel forced to inter- itary men and seven police officers, all on a would-be reformer but an ineffectual vene, Mr Valladão adds, only if Brazil slid leave, were elected to congress on Octo- one. He was a disastrous manager of the into large-scale political violence. ber 7th. economy, just as the PT was under Dilma More than an organised right-wing The army has edged towards the polit- Rousseff, Lula’s successor, who governed movement, Mr Bolsonaro commands an ical arena in other ways. In April, shortly from 2011until she was impeached in 2016. authoritarian current of opinion. He may before the supreme court considered an In 1964 the military plotters feared, not be more intent on dynasty than dictator- appeal by Luiz Inácio Lula da Silva, a for- without reason, that Goulart was planning ship. One ofhis sons has become the con- merpresident from the left-wingWorkers’ his own coup against congress and the go- gressman with the most votes; another Party (PT), against his jailing for corrup- vernors. Less plausibly, they feared that he was elected senator; a third is his foreign- tion, General Eduardo Villas Bôas, the was leading Brazil down the road of Fidel policy adviser. Rather than a flashback to commander of the army, tweeted that his Castro’s then-recent communist revolu- 1964, Mr Bolsonaro represents a more in- institution “shares the desire of all good tion in Cuba, just as Mr Bolsonaro’s sup- sidious threat. He expresses extreme citizens to repudiate impunity”. The court porters fear, wrongly, that the PT would views. He has said that the dictatorship rejected the appeal. The new supreme- turn Brazil into Venezuela. erred in “torturing rather than killing”. He court president has appointed a general Yet none of this means that Mr Bolso- wants the police to kill more “criminals”, as an adviser. naro, assuminghe wins, would orcould at- and to liberalise gun ownership. He has Only three years ago Fernando Hen- tempt to replicate the dictatorship. His rise talked about packing the supreme court. rique Cardoso, a former president, could reflects widespread hatred of the PT and a As Mr Spektor puts it, it is the quality of say that, despite an economic slump and popular demand for change, economic re- Brazilian democracy, rather than its sur- ahuge corruption scandal involving newal and security in the face of a failing vival, that is at more immediate risk. 44 The Americas The Economist October 13th 2018

2 rose by nearly 5%. Canada cases. Banks, though, are being cautious. That looks like overconfidence. The cen- They fear falling foul of the United States’ trão helped vote down a pension-reform Big bongs, little Patriot Act, underwhich banks that partici- proposal put forward by Mr Temer. Some pate in the drug trade can be punished. in its ranks back budget-busting subsidies bang For most Canadians the big bong this to agriculture and industry. Many new PSL month will feel like an anticlimax. It “will legislators are former military officers and pass relatively unnoticed”, says Patricia Er- OTTAWA AND TORONTO policemen who are protective of their gen- ickson, author of “Cannabis Criminals”, a The main high from legalisation of erous pensions. “Society and the markets book about how punishment affects drug cannabis is financial may be fooled fora while, but it will be sur- users. Canada has been heading towards prising if they follow a liberal agenda,” BLACK dragon with white claws, its legalisation since 1972, when the Le Dain says Marcos Lisboa, Insper’s director. Awings etched with Escher-like designs, Commission, appointed by the govern- With 30 parties, the incoming congress has a vitrine of its own at the centre of the ment, recommended that possession of is even more fragmented than the current Boroheads glass gallery in Toronto. The cannabis be decriminalised. That never one, which will make it harder to manage. “dab rig” (for smoking cannabis oil) sells happened. But in 2000 the Supreme Court The markets’ enthusiasm for Mr Bolsonaro forC$8,000 ($6,170). Such items are in high ordered the legalisation of medical mari- cooled a bit after he criticised Mr Temer’s demand, according to the gallery’s co- juana. Nearly 331,000 registered patients pension proposal and after news that Mr owner, who calls himselfJames Bongd. He buy pot produced by120 licensed facilities; Guedes is under investigation forfraud (he says “there’s a lot ofspeculative buying” of some patients may be dealers as well. denies wrongdoing). Brazil only functions cannabis-related paraphernalia, especial- People who just want to get high have when it has “a president with political ex- ly of pieces by famous artists like Cap’n not had a hard time doing so. Young Cana- perience and aptitude for dialogue”, says Crunk, the dragon’s creator. dians are the most avid users in the rich Maria Hermínia Tavares de Almeida, a po- Such speculation is the main sign that world: 28% of children from 11 to 15 years litical scientist at the University of São Pau- Canada is about to become the first large old have consumed cannabis, according to lo. Those are not Mr Bolsonaro’s strengths. country to legalise cannabis for recreation- a report by UNICEF in 2013. That finding With victory in sight, he is playing al use nationwide, on October 17th. It will helped persuade the Liberal government down his authoritarian impulses. “We will then become legal to consume fresh or of Justin Trudeau, which was elected in be slaves ofthe constitution,” he promises, dried cannabis and cannabis oil, and to 2015, to legalise the stuff. It hopes to push seeking to reassure voters who fear he is grow at home up to four plants. (Uruguay organised crime out ofthe business of sell- plotting to subvert democracy. Some of his passed a law to legalise cannabis in 2013.) ing cannabis and to keep children away supporters are not bothering to hide their Investors are bidding up the share prices of from it. It set 18 as the minimum legal age nastiness. PSL candidates in Mr Bolso- cannabis-connected companies. In the for smoking weed and plans education naro’s home state of Rio de Janeiro who past two months shares in Tilray, which campaigns to discourage younger teens smashed a sign paying tribute to Marielle grows medical marijuana, have risen in from indulging. Some provinces have put Franco, a left-wing councilwoman mur- value from C$25 to nearly C$130, bringing the smoking age higher. dered in March, went on to win their races. its stockmarket capitalisation to C$12bn. Criminals will not disappear right Many Brazilians voted for Mr Bolso- Cannabis-themed businesses are away, in part because neither federal nor naro notbecause theylike him butbecause sprouting. The Toronto Hemp Company, provincial governments are prepared to they think the PT, which governed when an emporium around the corner from Bo- cope with demand for legal cannabis. The the economy slumped and corruption roheads, offers equipment for home grow- federal government, which regulates pro- flourished, is worse. To have any chance of ers in the basement; one level up are roll- duction and health matters, has issued defeatinghim, MrHaddad, a formermayor ing papers, humidors and candles with only enough permits to supply 30-60% of of São Paulo and education minister, must just the right scent for banishing the smell demand in the first year, according to a re- placate those voters while retaining the of pot; on the top floor are glass bongs in port by the C.D. Howe institute, a business PT’s core supporters. That will not be easy. nightmarish shapes with padded carrying think-tank. Campaign ads that declare “Haddad is Most provinces, which are responsible Lula” may impress millions of Brazilians for regulating the sale of cannabis, will who stopped being poor when Lula was have few legal retail outlets on October president (from 2003 to 2010). But they sug- 17th. In Ontario, the most populous prov- gest to others that Mr Haddad would be ince, there will be none. Its Progressive the puppet ofthe jailed formerpresident. Conservative government, which took The PT has spotted the danger. Lula has over from a Liberal one in June, dropped disappeared from the campaign’s posters. plans to sell cannabis through govern- The candidate, who is more moderate than ment-owned shops. Private retailers will many of the most influential figures in the take over. But the first one will open next PT, has signalled his pragmatism by an- year. In the meantime, Ontarians can buy nouncing that he will appoint a business- cannabis online from the government. man to be his finance minister. He has “Every legal gramme produced will be promised a plan to combat crime. sold,” says Chuck Rifici, chairman of On the eve of the first round he had a Auxly, a firm that helps others produce and lower rejection rate than Mr Bolsonaro: market cannabis. When that is smoked up, 36% of Brazilians say they would not vote consumers will turn to the illicit market. for Mr Haddad under any circumstances, Mr Rifici notes that after prohibition of al- reports IBOPE, a polling firm; 43% say the cohol ended in the United States in 1933, le- same of Mr Bolsonaro. That offers only a gal distillers could not meet demand for15 glimmerofhope. MrBolsonaro can win “if years. He expects legal suppliers of canna- he stays quiet”, says Thiago de Aragão of bisto catch up more quicklyin Canada. But Arko Advice, a consultancy. Mr Haddad consumers will be stuffing black-market must speakloudly—in his own voice. 7 Puff the magic dab rig weed into their bongs foryears to come. 7 The next recession SPECIAL REPORT: The world economy

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The next recession

Another economic downturn is just a matter of time. It will be harder to fight than the last one, says Ryan Avent ust south of Indiana’s border with Michigan lies the city of Elk- But then the city edged away from the brink. By the end of Mr Jhart, with a population of just over 50,000. Apart from a small, Obama’s first term its unemployment rate had fallen by more than shop-lined high street near where one river, the Elkhart, flows into half. By the end of his second, as President Donald Trump took of- another, the St Joseph, the city is mostly shapeless, tree-lined and fice, the rate had more than halved again, and earlier this year it suburban. Scattered around the outskirts are the factories of sever- dropped to the extremely low level of 2% as Americans started to al of America’s largest producers of recreational vehicles (rvs). splash out on luxuries again. Companies in the area cannot fill the Rows of the finished products rest outside the giant sheds in jobs they advertise. The good times are back. which they are made. But for how long? One day, the forces that turned the palest, Modern rvs are impressive, leather-upholstered land yachts thinnest of green shoots after the financial crisis into the second- fitted with flat-screen televisions and gas fireplaces, the perfect longest American economic expansion on record will change di- vessels in which to navigate the American continent. The rv busi- rection, igniting a new recession—for which the world is woefully ness is one of the economy’s most strongly cyclical. Sales of big- unprepared. When that might happen is hard to say. Studies of ticket items like homes and cars inevitably rise and fall with the American business cycles suggest that the economy is as likely to business cycle, but rvs are especially susceptible to such swings. It flip from growth to contraction early in the life of a boom as later is only once cars and homes have been upgraded that consumers on. Indeed, America has no records of an expansion lasting longer consider splashing out on rolling living quarters. And when finan- than a decade, though many countries do: Australia, Canada and cial fear stalks the land, rv-makers have a particularly hard time. the Netherlands have all enjoyed sustained growth lasting more In Elkhart, more than a quarter of people in employment work than 20 years in recent memory.Yetall good things come to an end. on rvs. When the global financial crisis in 2007-08 plunged the Though there is no settled view on what constitutes a global re- world economy into its worst downturn since the 1930s, employ- cession, worldwide slumps are usually marked out by a sharp ment in the city’s factories fell by nearly half. The unemployment slowdown in global growth and a decline in real gdp per person. rate almost quintupled, to 20%. Incomes and population dropped. Roughly speaking, there have been four global recessions since Elkhart was among the first places President Barack Obama visited 1980: in the early1980s, the early1990s, in 2001, and in the crisis of after his inauguration in 2009: it exemplified the extraordinary 2007-08. Each was marked by a slowdown in gdp growth, a sharp economic challenge facing his administration. decline in trade growth, and retrenchment in the financial sector.1 4 Special report The world economy The Economist October 13th 2018

2 According to the Behavioural Finance and Financial Stability pro- Shifts in America’s monetary stance ject at Harvard University, an average of four countries a year suf- echo around global markets. In response to fered a banking crisis between 1800 and 2016. From 1945 to 1975, It might not the financial crisis and the weak recovery when the global financial system was tightly controlled, most take much to that followed, the Fed worked hard to bol- years were entirely free of banking crises. Since 1975, however, an ster American spending, mainly through average of 13 countries have found themselves in the throes of one bring on the quantitative easing (qe), the practice of each year. Since the 1970s, the deregulation of national banking next recession printing money to buy assets such as gov- systems and the lifting of constraints on the global flow of capital ernment bonds. The effects of this policy ushered in a new era of financial boom and bust. Re-regulation were felt in the rest of the world; as Fed pur- since 2009 has not fundamentally changed this picture. The cur- chases depressed the yield on American government bonds, inves- rent value of outstanding cross-border financial claims, at $30trn tors sought better returns elsewhere. Money flooded into the (and growing), is below the peak of $35trn reached in 2008, but emerging world. The dollar-denominated debt of emerging-mar- well above the 1998 level of $9trn. ket firms other than banks roughly quadrupled. Chinese corpora- Booms tend not to die of old age, and there are killers aplenty tions now hold dollar-denominated debt of roughly $450bn, com- lurking in the shadows. Globally, policy is slowly but surely be- pared with almost none in 2009. coming less supportive of boom conditions. True, America only A more hawkish Fed means trouble for such borrowers. Since recently passed a budget-busting tax reform, which promises to 2014 the dollar has risen by nearly 25%, on a trade-weighted basis, swell its deficit and thus to boost American spending. But in most buoyed by a stronger American economy and rising interest rates. other rich countries government borrowing is flat to falling. A dearer dollar makes life difficult for those with local-currency Across much of the emerging world, too, deficits are expected to assets and dollar debts. As such borrowers tighten their belts, cred- shrink in coming years. China’s government is trying to rein in the it contracts. Trouble in emerging markets like Turkey and Argenti- credit-dependency of its economy, with some success. na increases the appetite for safe-haven currencies. The resulting Central banks are pitiless executioners of long-lived booms, appreciation adds to the burden on other emerging markets, and monetary policy has shifted. America’s Federal Reserve has threatening to set off a cycle of contagion. The emerging world slowly been raising its benchmark interest rate since late 2015. The may avoid a cascading financial crisis for now, but its fast-growing Bank of England followed suit in 2017 and is expected to continue economies, accounting for ever more of global growth, face a pain- to increase interest rates slowly over the next few years. The Euro- ful adjustment that will weigh on advanced economies too. pean Central Bank (ecb) will probably conclude its stimulative bond-buying in December and may begin to raise its benchmark New world disorder rate in late 2019. Global financial conditions, though still fairly re- As this special report will explain, the rich world is ill-equipped to laxed, have become slightly less so recently. Most central banks manage such stress. Handling a bout of economic weakness used have become less concerned about economic weakness and more to be simple: the central bank would cut short-term interest rates worried about inflation. If they overdo their reaction, they could until conditions improved. But in the aftermath of the global fi- slow down the global economy more than intended. nancial crisis rates around the world fell to zero, and the weak re- America’s Fed, in particular, is treading a difficult path. Over covery that followed kept them pinned there. Even the Fed, which the past few decades economic and financial cycles in the global has chalked up the most post-crisis rate increases, will almost cer- economy have become more closely connected. Some economists tainly enter the next recession with a historically small amount of reckon that the link remains loose. Eugenio Cerutti of the imf, room to cut rates. In a downturn, central banks are likely to turn al- Stijn Claessens of the Bank for International Settlements (bis) and most immediately to other tools used after the 2007-08 crisis, such Andrew Rose of the University of California, Berkeley reckon that as qe. But such tools are politically harder to deploy, and their global financial factors explain no more than a quarter of the stimulative effects are less certain. movement of capital across borders. Others disagree. Hélène Rey, Fiscal stimulus could pick up the slack, but mobilising govern- of the London Business School, links the global financial cycle to ment budgets to aid the economy will also prove a tall order. worldwide swings in appetite for risk, which is in turn governed by Across advanced economies the average government debt load has the stance of American monetary policy. Òscar Jordà and Alan Tay- risen above 100% of gdp, up more than 30 percentage points from lor, of the University of California, Davis and colleagues have 2007. Debt in emerging markets has risen as well, from an average found cross-border wobbling in financial variables such as equity of roughly 35% of gdp to over 50%. Plans for large-scale fiscal stim- prices is at its most synchronised for more than a century. ulus were politically difficult to enact during the financial crisis, 1

Ripe for another one?

World GDP per person Global merchandise trade Global cross-border claims Number of banking crises % change on a year earlier % change on a year earlier $trn Worldwide 4 24 40 30 3 25 12 30 2 20 1 0 20 15 0 10 -1 -12 10 -2 5 -3 -24 0 0 1980 90 2000 10 17 1980 90 2000 10 17 1980 90 2000 10 18 1945 60 70 80 90 2000 10 16 Sources: World Bank; IMF; Bank for International Settlements; Harvard Business School The Economist October 13th 2018 Special report The world economy 5

2 and will be harder still the next time around. In Europe, any debate about government borrowing threatens to revive the disastrous Taking over political showdowns of the euro-area debt crisis. World GDP at PPP*, % of total In the end politics may prove the greatest stumbling block to 70 managing a new global downturn. A decade ago, when the weak link was a disintegrating financial system, co-operation among Advanced economies 60 governments—from the close co-ordination of central-bank action around the world to the establishment of the g20 as a crisis 50 talking-shop—helped prevent a bigger disaster. The world looks very different now. The American economy, which remains the 40 linchpin of the global economic system, is now presided over by Emerging-market and developing economies Mr Trump. Britain is close to leaving the European Union, possibly 30 in chaotic fashion. The political climate across some of the rest of the eu has turned ugly. Most advanced economies now have viable 1980 85 90 95 2000 05 10 15 17 populist or nationalist parties, waiting to capitalise on the first Source: IMF *Purchasing-power parity sign of renewed economic distress. Many emerging markets have regressed as well. Nationalism and strongman tactics are in the as- cendant. Power in China is worryingly concentrated in the hands mies. Every struggling emerging market founders in its own way, of one man, Xi Jinping. Thanks to Mr Trump’s trade war, relations and Turkey’s troubles have been exacerbated by its own particular between America and China have become openly hostile. economic and political woes. But the broad shift in financial con- In 2007 financial markets were primed for a massive crisis, but ditions that is now squeezing the emerging world will inevitably governments were able to draw heavily on their monetary, fiscal induce some familiar crises. and diplomatic resources to prevent that crisis from destroying Business cycles are a matter of feedback loops. In good times, the global economy. Today the financial dominoes are not set up people spend and invest more. Asset prices rise, worries about risk quite so precariously, but in many ways the broader economic and recede, and banks open their credit taps. Easier credit underpins political environment is far more forbidding. It might not take spending and investment, and on the cycle goes. Governments try much to bring on the next recession. 7 to moderate booms but often overdo or underdo it. Eventually some error flips the cycle from expansion to contraction. Nervous consumers cut back, firms shelve investment plans, asset prices fall and banks curtail credit. Lending which looked sensible one Danger signs day becomes a danger to the economy the next. The integration of the global financial system has turned national financial systems into a vast single sea of money that rises Spotting the black swans and falls with changes in saving and investment around the world. In the 2000s, for example, the international banking system channelled massive savings accumulated by oil exporters and large emerging markets into rich-world property markets. If such shifting tides are mismanaged, they almost invariably cause economic The next crisis could start a long way from New York trouble. Today, the tide is on the move again. urkey’s largest city, Istanbul, is intimately linked to the Bos- It is most easily observed in the emerging world. Developing Tporus. In the year 324ad, the emperor Constantine established countries bounced back from the global financial crisis relatively a new capital for the Roman empire on the western side of the quickly, buoyed by an explosive Chinese recovery. As quantitative strait of water that connects the Black Sea with the Aegean. The lo- easing in advanced economies depressed the yield on rich-world cation was perfect: easily defensible and strategically invaluable, bonds, investors increasingly looked to the emerging world for at the hinge between Europe and Asia. better returns. The double boost of Chinese demand and rich- If one Bosporus is a strategic asset, two are even better, rea- world capital threatened to create unmanageable credit booms in soned Suleiman the Magnificent, sultan of the Ottoman empire in some emerging economies, which have long viewed such inflows the 16th century. So he proposed to dig a canal to Istanbul’s west, of capital with a wary eye. Reversals in the past often left the un- providing a second sea route across the Eurasian isthmus. His plan lucky ones with piles of unaffordable debt. did not come to fruition, but it is back on the agenda now. In 2011 The recent experience of some developing countries such as Recep Tayyip Erdogan, another Turkish leader with grand visions, Turkey may foreshadow a return of the sort of woes experienced by announced a $20bn project called “Kanal Istanbul” to provide a emerging Asia in the late 1990s. Turkey has been running a large route parallel to the existing strait. It is an example of what Mr Er- current-account deficit (indicating heavy reliance on capital flows dogan himself has called “crazy projects”: monumental building from abroad), has borrowed heavily in dollars and has an alarm- feats to reflect the greatness of his regime. ingly low level of foreign-exchange reserves. A loss of market con- No one is sure if the canal will be finished. But the economic fidence could lead to a dramatic depreciation, waves of defaults tailwinds that made such grandiose plans possible have abated, so and painful adjustments in the Turkish economy. Turkey is not big Turkey is now facing an economic reckoning which could threaten enough to cause global economic trouble all on its own. But should the canal’s completion and is starting to threaten other emerging the forces squeezing Turkey drag down a broader swathe of emerg- markets, too. After the global financial crisis, money draining ing economies, governments around the world could have a seri- away from stricken advanced economies flooded into emerging ous problem on their hands. markets. Some of them borrowed too enthusiastically and kept an In the past, torrents of money from abroad proved irresistible imprudently loose rein on banks and firms. to governments in the emerging world. Most have since learned to The recovery of the rich world, and the withdrawal of monetary borrow more carefully and in local currency, and to accumulate a support, now threatens those overextended developing econo- war chest of foreign-exchange reserves. Even so, borrowing by 1 6 Special report The world economy The Economist October 13th 2018

2 emerging-market firms (not banks) through issuance of dollar-de- by borrowing, much of it by local governments and large firms. nominated bonds has increased by an average of more than 10% Overall, Chinese debt rocketed after the crisis, from about 175% of per year since the financial crisis. It has roughly doubled in Brazil gdp in 2009 to more than 300% now. To make matters worse, bor- and Mexico, tripled in South Africa and Indonesia, and quadrupled rowing has become less efficient over the past decade as more of it in Chile and Argentina, according to a recent analysis published by has been done in places and by firms with declining growth in pro- the Bank for International Settlements (bis). ductivity. In more recent times the government has tried to rein in, Borrowing from abroad has gone hand in hand with large cur- though not stop, the credit boom. rent-account deficits; net flows of foreign money into a country al- Such an extraordinary rise in debt, and particularly in credit low it to consume more than it produces. But as the American used unproductively, would normally ring alarm bells. But China economy has strengthened and the Fed has tightened, capital is not a normal country. Highly indebted emerging economies flows into America have grown and the dollar has appreciated. The usually worry about servicing foreign-currency-denominated first big round of post-crisis appreciation took place in 2014, in the debt as capital flees the country. But China tightly controls its capi- wake of the “taper tantrum”, as the Fed phased out the stimulative tal account, and both the government and Chinese banks maintain bond-buying it had undertaken in the early 2010s. As a result, large asset piles. Moreover, the govern- emerging-market currencies dropped and growth in trade, bor- ment has far more control over the econ- rowing and gdp slowed. Now monetary policy across rich econo- omy than in most countries and is deter- mies is becoming tighter and the rise in the dollar has resumed. Italy, in particular, mined to avoid the emergence of any kind The problem, says Hyun Song Shin, of the bis, is that dollar bor- is a ticking of destabilising crisis. rowing by emerging-market firms effectively expanded the mone- Even so, China’s debts are hardly prob- tary reach of the Federal Reserve. Higher American interest rates time bomb lem-free. Economic growth has deceler- and a stronger dollar will place financial pressure on big emerging- ated steadily since 2010. Still, it continues market firms, forcing them to cut back on investment and spend- at more than 6% per year, which adds about $1.5trn to the global ing. Foreign-exchange reserves held by governments are probably economy each year (a Russia, give or take). To maintain growth at sufficient to prevent financial stress at big corporations from that clip requires a steady increase both in the economy’s supply translating into a broader panic; but the closing of the credit taps, capacity and in demand. Increasing capacity has long ceased to and pressure on firms to deleverage, will cause a sharp contraction mean adding new factories, railways and skyscrapers; instead, it in much of the emerging world that will be felt in advanced econo- involves the difficult business of technological advancement and mies, too. For countries which have been running current-account reallocation of resources to sectors with higher productivity. deficits, that means buying less from the rest of the world and sell- Maintaining political support for the reforms needed to make this ing more. Advanced economies will be affected as the value of their possible has proved hard, even for a powerful leader like Xi Jin- investments abroad declines and their exports shrink. ping. On the contrary, recent borrowing props up low-productivity firms and sectors that ought to have shrunk. China is not normal And if China were to succeed in boosting the supply side of the Just how much all this will dampen growth will depend on what economy, demand might become a problem. Culling unproduc- happens in China. Although it shares some features with other tive businesses would mean less spending and fewer jobs. House- emerging markets, it is so vast and so unique that it represents its holds would be obvious candidates for replacing lost demand, but own sort of threat. The economic collapse of China’s main export progress on shifting to a more consumption-based growth model markets during the global financial crisis raised the risk of a sharp has been slow and has relied in part on increasing levels of house- slowdown, rising unemployment and political instability. Its lead- hold debt. Besides, setting monetary policy in such a way as to re- ers responded with a massive fiscal stimulus directed primarily at duce borrowing by weak firms but encourage household credit investment, estimated at around 12.5% of gdp and financed mostly growth is tricky. Rising household incomes could help, but China 1 The Economist October 13th 2018 Special report The world economy 7

2 has had difficulty in achieving this; household incomes as a share Monetary policy of gdp have fallen since 2016. If China’s exchange rate were to weaken sufficiently, the increase in sales to foreigners could help offset weak domestic demand. But that risks enraging America, and encouraging Mr Today’s arsenal Trump to intensify his trade war. A drop in the yuan would also add to the financial stress on Chinese firms with large dollar-denominated debts. And China exporting its way out of trouble might place an undue burden on the rest of the global economy. Will it work tomorrow? In the past, rich countries could shrug off the sort of adjustments in emerging markets that appear to be looming. But times arly in 2001, while the rest of America was recovering from the have changed. China’s last real economic dip occurred during the Eholiday season, the Fed’s monetary-policy committee con- financial crisis, when the entire world was reeling. The last serious vened for a conference call on the state of the economy. Spooked by growth hiccup before that was after the Tiananmen Square unrest poor Christmas sales and rising unemployment, it moved boldly, in 1989. At that time Chinese gdp was about 4% of the global total; cutting rates by half a percentage point. “I believe that the markets now it is 19% (measured at purchasing-power parity, or ppp). Over and the leaders of major firms…are at or near a point of psycholog- the same period emerging markets’ share of world gdp has risen ical crisis,” said the Fed’s vice-chairman, William McDonough. from 36% to 59% at ppp. Those markets could cause a downturn in “The pessimism about what is likely to happen in the economy is the global economy all by themselves. at a point where it can start feeding upon itself.” The economy was Yet not everything is rosy in the rich world either. Although the not obviously on the brink, and share prices remained exalted. But euro-area economy enjoyed faster growth in 2017, the boom has the Fed wanted to head off a downturn before it had begun. since cooled, even as the European Central Bank (ecb) has moved As it turned out, 50 basis points were not remotely enough to do toward monetary tightening. An end to quantitative easing by the that. As America sank into recession, then limped through a fragile ecb, set for the end of 2018, and the prospect of rate increases, recovery, the Fed slashed rates from 6.5% to 1%. But at least it had probably would not be enough to endanger the euro-area recovery. the room to do that. Its rate had barely got back above 5% when, in But an end to asset purchases could make markets react faster to early 2007, a collapsing housing market forced a return to cutting; political changes that threaten to reignite the euro crisis. in late 2008, as the full extent of the recession was only just becom- Italy, in particular, is a ticking time bomb. The election of a pop- ing clear, rates dropped to near zero, leaving the Fed to combat the ulist coalition in March rattled bond markets. With Italian govern- worst downturn in generations without its main weapon. ment debt at around €200bn, or 130% of gdp, it would not take The next recession will probably be more like that of 2001 than much to set off a new crisis, which would be extremely difficult to the one that started in 2007 in its severity and in the risk it poses to control. Panic in Italy might radiate out across financial markets, the financial system. But the central bankers who will be tackling it putting a chill on investment and growth worldwide. will start with their backs against the wall. Every step taken to re- America has its own vulnerabilities. The ratio of non-financial store the economy to health will be less certain to work. That un- corporate debt to gdp has reached an all-time high of more than certainty will provide room for pessimism to feed on itself and 73%. A worryingly large share of recent borrowing has come in the perhaps grow into something unmanageable. form of leveraged loans, an alternative to bonds. The business is Since the 1980s, advanced economies have relied on central reminiscent of the mortgage-backed security market which fea- banks to smooth the business cycle by adjusting short-term inter- tured prominently in the global financial crisis. Investor demand est rates. Rate increases affect economic activity directly, by dis- for such securities has rocketed in recent years, because payouts couraging borrowing and encouraging saving, and indirectly, by vary with interest rates, which have been rising. The size of the signalling to markets that the central bank intends to slow growth. market has doubled since 2010, to more than $1trn, and is now Rate cuts work in the opposite way. But once rates get close to zero, nearly as large as the market for high-yield bonds. Expansion in it is as if the accelerator of an automobile were pushed to the floor. lending has come at the expense of credit standards. The share of Much of the world is likely to have to fight the next downturn new leveraged loans considered to have weak protections against with its armoury severely depleted. Markets reckon that American default is growing; in the first quarter of 2018 it exceeded 80%. short-term rates will remain below 3% until the end of 2020. Rates 1 Despite the parallels with pre-crisis mortgage lending, a melt- down in this market is unlikely to generate the same havoc. But an outbreak of defaults could contribute to a rapid contraction in lending to firms and a tightening of credit—sufficient, perhaps, to The long climb touch off a new American recession. One of the lessons of the crisis Central-bank policy rates, % FORECAST is that panics can be caused by things hidden until it is too late. 7 One such surprise might be a rise in the cost of oil. Prices have 6 crept up over the past year, from $50 per barrel to around $80. Po- litically generated disruptions to supply in Venezuela and Iran Britain 5 could strain the market further. A number of other black swans 4 may be heading upriver even now. Costly frauds may be hiding 3 within underexamined corporate balance-sheets. Elections could go one way not another. Global pandemics might erupt. United States 2 Once credit, spending and optimism have reigned for a time, Euro area 1 the interplay of foreseen and unforeseen circumstances may Japan 0 cause them to stop doing so. At that point behaviour which seemed reasonable and responsible will start to look like folly, the “crazy -1 projects” of the world will seem unconscionably reckless, and the 2000 02 04 06 08 10 12 14 16 18 20 world will be in trouble again. 7 Sources: Haver Analytics; Thomson Reuters; Bloomberg 8 Special report The world economy The Economist October 13th 2018

2 in Britain are expected to be no higher than 1.5% at that point, and assets to replace their government bonds. to be barely positive in the euro area and Japan. Barring a dramatic Central banks could deal with this by buy- change in circumstances, the main tool of monetary policy over Empirical ing more exotic assets, on which yields re- the past few decades will be unavailable. Central banks will almost assessments of main high. But that would expose them to a immediately have to rely on the much more contentious and less greater risk of financial losses, which could certain instrument of quantitative easing (qe). QE programmes invite political scrutiny. In America the law Such money-funded asset purchases were used widely during convey mixed explicitly authorises the Fed to buy debt se- and after the 2007-08 crisis; they continue in Europe and Japan. qe messages about curities with government guarantees, as is thought to work in several different ways. Banks hold bonds as a their impact well as foreign exchange and gold. Cor- safe but better-yielding alternative to cash. When central banks porate bonds and stocks are not specifical- buy bonds, it is assumed that banks, rather than keep the cash, will ly authorised. If the Fed tried to buy them, buy better-yielding replacements. Those purchases should raise it might face a court challenge. asset prices and reduce borrowing costs across the economy, mak- The ecb faces its own constraints. If European qe ends in De- ing it more attractive to borrow and invest. By lowering rates on cember, its balance-sheet will have grown from around €1.5trn long-term government bonds, qe can also loosen borrowing con- ($1.8trn) before the crisis to roughly €5trn. In March 2015 the ecb straints on the government and perhaps allow it to ease fiscal poli- intended to buy no more than 25% of an issuer’s outstanding cy. And qe might encourage the economy’s “animal spirits”, per- bonds, to avoid becoming the primary creditor to euro-area gov- suading people that the central bank is committed to growth. ernments. The threshold was raised to 33%. Germany’s shrinking Yet the effectiveness of asset purchases depends on whether debt (a result of its persistent budget surpluses) posed a particular markets believe they are permanent or will be unwound in due problem; earlier this year the ecb began buying bonds issued by course. The Fed has been allowing its balance-sheet to shrink, de- state-owned German banks in order to keep up the German share clining to redeploy all of the cash it is paid when bonds mature. It is of purchases. Should a new downturn require the resumption of probably undermining the effectiveness of future qe by indicating purchases, they will quickly threaten to make the ecb the main that most purchases are likely to be temporary. creditor of several member states and important financial institu- qe will also be undermined by the low level of long-term rates, tions, or else lead to a wildly disproportionate share of purchases which is likely to continue. The smaller the difference between the flowing to the most troubled states, or both. At some point the ecb yield on the new money, credited to bank reserves, that the central may feel that it is assuming too much political risk and may ask for bank uses to purchase bonds and that on the bonds being pur- more explicit support from member states. That could make it cau- chased, the less of an incentive banks will have to hunt for other tious to restart qe or use a new programme. Much of this is a matter of theory, however. Empirical assessments of qe programmes convey mixed messages about their impact, and are hamstrung by the difficulty of isolating the effect of one policy among many on complex economies buffeted by many forces. What is more, central banks are often less than clear on their precise intentions when beginning qe. Programmes and jus- tifications evolve over time. Perhaps most important, qe remains politically controversial. When it was first introduced in America, Republicans accused the Fed of courting hyperinflation. Germany sees the ecb’s asset-purchase programmes as debt monetisation: a backdoor bail-out of governments that lack the moral courage to balance their budgets. The rub for central banks is that what makes asset purchases most effective—a promise not to reverse them, paired with a commitment to reflate a sagging economy—is also most likely to rile politicians worried about fiscal moral hazard and runaway inflation. Monetary policy works, in large part, by increasing borrowing and spending, but success depends on there being willing and able borrowers, who in times of economic trouble may be in short supply. Corporate debt has been soaring in recent years, which suggests firms will not be particularly eager to take further advantage of easier monetary policy. Firms with large cash piles could help by spending them down, but seem to have been keener to use their lu- cre for dividends and share buy-backs than for new investment. Households could help, but rich-world consumers continue to carry large debt loads. Recent work by Atif Mian of Princeton Uni- versity and others examines 30 countries in 1960-2012 and concludes that a rise in the ratio of household debt to gdp is associated with lower gdp growth and higher subsequent unemployment. Households might be induced to borrow more by a rise in expected income growth, but such expectations would be more likely to decline during a downturn. That leaves the government, which picked up much of the slack during the global financial crisis. The price was a significantly higher level of public debt. Most large emerging economies must worry that large-scale borrowing could put market confidence in 1 The Economist October 13th 2018 Special report The world economy 9

promised to reflate the economy. The boj supercharged its asset Look east purchases; its balance-sheet grew from about 40% of gdp in 2012 Central-bank assets as % of GDP to 100% now. It bought not just government bonds but corporate 100 debt, shares in equity exchange-traded funds and in property investment trusts. It announced a yield target of 0% on ten-year gov- Japan 80 ernment bonds, in effect extending the rate control central banks have long exercised over short-term rates to very long maturities. 60 Japan’s efforts offer just a sample of the unconventional tools available to governments when rate cuts and qe disappoint. When Euro area 40 the next recession strikes, Japan-like interventions might mark only the first foray into an uncharted policy landscape. 20 Economists recognise the challenge that lies ahead. Since early United States Britain in the recovery it has been clear that rates would probably be low, 0 and debt loads high, when the next downturn arrives. The energet- 2009 10 11 12 13 14 15 16 17 18 ic discussion this knowledge provoked has ensured that there is a Source: Haver Analytics rich menu of options for policymakers to draw upon when a new slump arrives. It is not clear how eagerly they will reach for them. Politicians and central bankers have been remarkably complacent 2 their solvency at risk, as Brazil has found for much of the past few in preparing to combat a recession in a low-rate world. years. China is in a different situation. Its tight control over its fi- Proposals fall into a few different categories. Many economists nancial system gives it more freedom to borrow cheaply, and its reckon it is important to try to salvage central banks’ traditional central-government debt is relatively modest. But its public purse role in stabilisation by adjusting monetary-policy targets. The pro- might have to assume responsibility for bad corporate and local- blem is the zero lower bound on nominal interest rates. The econ- government debts, so tacking on a fiscal stimulus large enough to omy responds to the real rate of interest, which is the nominal rate buoy the global economy could look too risky. (the one observed in the market) adjusted for inflation. For exam- Rich countries which borrow in their own currencies have ple, if the nominal rate is 4% and inflation is expected to be 3%, the more capacity to support their economies—if politics allows. A real rate is roughly 1%. The higher inflation is, the less likely econ- loss of confidence in the creditworthiness of the American gov- omies are to hit the zero lower bound, because a zero nominal rate ernment is unlikely , but if the economy were to enter the next re- corresponds to a lower real rate. cession with a deficit of 5% of gdp and debt in excess of 100% of In the 1980s and 1990s, most economists concluded that a 2% gdp, a large stimulus might be politically toxic. In Europe, restric- rate of inflation struck the right balance between containing tions on government borrowing adopted in the wake of the euro- prices rises and avoiding the zero lower bound. Yet from the 1980s, area crisis complicate new stimulus. the real rate of interest needed to keep economies from falling into As the next downturn approaches, the initial response will be a slump fell ever lower. According to work by Kathryn Holston, to hope for it to blow over. If it persists, central banks will no doubt Thomas Laubach and John Williams, of the Federal Reserve, this start to deploy qe, and some anxious governments might turn to “equilibrium real rate” has fallen from about 3% in America and fiscal stimulus. If recovery proves elusive, politicians will feel Europe to below 1%. The cushion that 2% inflation provided be- compelled to turn to more dramatic measures. 7 tween zero and the nominal rate thus proved to be too small. There are a number of ways to fix this problem. One would be simply to raise the rate of inflation targeted by central banks. Some economists have mooted this as a possibility. Olivier Blanchard New policy responses did so in 2010, as chief economist of the imf. Laurence Ball, of Johns Hopkins University, has also advocated for a 4% inflation target. With a higher background level of inflation, nominal inter- Try this est rates would be higher on average and the zero lower bound would bind correspondingly less often. On the other hand, firms and households would have to deal with a higher rate of inflation all the time. Where central banks have a strict price-stability mandate, raising the target might require a change in the law. If the usual weapons fail An alternative would be to target a trend-level of inflation rath- rom the robots that help care for an ageing population to holo- er than a rate. Should inflation fall below target during a slump, a Fgraphic pop stars, the future always arrives early in Japan. Eco- level-targeting central bank would promise to allow faster-than- nomic policy is no exception. When the massive Japanese finan- normal, “catch up” inflation in the future, in order to return the cial bubble of the 1980s imploded, the Bank of Japan (boj) struggled economy to trend. The expectation of that faster growth in future to respond. In 1995 short-term interest rates fell to near zero, pre- should boost animal spirits and help drag the economy out of a senting a headache the rest of the rich world would not confront slump. The downside to a level target occurs when inflation acci- until 13 years later. dentally rises too high. Central banks would in such cases need to In battling its “lost decade”, the boj tested many of the policies, deflate the economy back to the trend level, which would mean in- such as qe, that would enter the toolkit of other central banks dur- ducing a painful slump. To avoid that necessity, Ben Bernanke, ing the financial crisis. Yet Japan was seen as an example of cen- now a fellow at the Brookings Institution, proposed in 2017 that the tral-bank incompetence, until smug Western central banks dis- Fed should temporarily adopt a level target when the economy covered after 2008 that getting an economy to perk up when runs into the zero lower bound on interest rates. Then, the Fed interest rates were near zero was harder than it looked. could promise to return the price level to its pre-recession trend, Since the election of Shinzo Abe in 2012, Japan has reprised its making up for the shortfall induced by the recession, at which pioneering role. Mr Abe replaced the head of the central bank and point it would revert to targeting an inflation rate. 1 10 Special report The world economy The Economist October 13th 2018

2 Others reckon that inflation is the wrong target altogether. Paul Krugman, an economist. Monetary economists have long used nominal gdp (ngdp), or sim- Of course, monetary policy need not ply the total money value of all income or spending, as a proxy for The fiscal costs of carry the burden of recession-fighting aggregate demand. There are advantages to targeting ngdp instead borrowing during alone. Prior to the financial crisis, main- of inflation. Inflation-targeting central bankers must try to guess stream macroeconomists were sceptical whether an acceleration in spending will lead to an acceptable rise slumps might be about the need for government borrowing in real output or an unacceptable increase in inflation. A central significantly less to lift an economy out of slumps. It was as- bank targeting ngdp can remain agnostic on such questions. Fur- than previously sumed central banks could do the job, and ther, for firms and households considering investment decisions thought fiscal stimulus would often come too late, or grappling with large debts, stable growth in incomes matters too inefficiently and at too high a cost to more than stable growth in prices. During the Great Recession, government debt burdens. ngdp fell faster and more sharply than inflation. Though prices The crisis upended this thinking. Whereas many analyses of were relatively stable, households found themselves forced to pay government spending prior to the crisis concluded that $1 in gov- bills with incomes much smaller than they had anticipated. ernment spending contributed less than $1to gdp (or had a multi- There is no time like the present to adopt a monetary target bet- plier of less than one), estimates of the effect of fiscal stimulus and ter suited to a world of low interest rates. Yet should governments austerity during and after the crisis routinely found multipliers in drag their feet today, a change in target during a downturn could it- excess of one: a dollar spent (or cut) had a disproportionately large self boost demand, by proving policymakers’ desire to revive the effect on output. Most dramatically, an imf analysis in 2013 by Mr economy. In 2011Christina Romer, of the University of California, Blanchard and Daniel Leigh estimated that fiscal consolidations Berkeley, argued that a switch to ngdp targeting could jolt expecta- after the crisis were associated with multipliers substantially larg- tions in a positive way, much as Franklin Roosevelt’s decision to er than one, and thus placed a serious drag on growth. abandon the gold standard did in 1933. She seems to have persuad- The upshot of this work is, first, that fiscal stimulus is an im- ed Mr Abe, whose pledge to raise incomes was a centrepiece of his portant tool for fighting recessions. And, second, the fiscal costs of economic reform package. But conservative central banks might borrowing during slumps might be significantly less than previ- be loth to change targets without political support. ously thought. In 2012 Lawrence Summers of Harvard University, and Brad DeLong of the University of California, Berkeley, argued Moving targets that, if prolonged unemployment threatens to reduce an econ- While the Fed could argue that such a target fits within its dual omy’s long-run growth potential, then fiscal stimulus at the zero mandate to promote both price stability and maximum employ- lower bound might well pay for itself. More recent work by Alan ment, the ecb, charged with keeping prices stable above all else, Auerbach and Yuriy Gorodnichenko, also of Berkeley, suggests has less freedom. Governments might set other targets of their that government borrowing during periods of economic weakness own. Mr Blanchard and Adam Posen, of the Peterson Institute for does not tend to raise long-run indebtedness or borrowing costs, International Economics, proposed in 2015 that Japan consider even for countries with large existing debt burdens. adopting an official incomes policy. The government could direct That still leaves the question of how to use fiscal stimulus. Giv- firms to raise wages by 5-10% a year. The resulting sharp rise in en a prolonged slump, concerns about the timeliness of govern- wages (and prices) could free the economy from its zero-rate trap, ment spending become less pressing. Indeed, Mr Summers has ar- though firms may respond by curtailing recruitment. gued since the crisis that near-zero interest rates may represent a Regardless of the official target, central banks could improve new normal, requiring sustained fiscal stimulus, including sup- the potency of their asset purchases. They could condition qe on port for investments in infrastructure and other public goods. yields on long-term bonds (as the boj has done) or on other In a new paper summarising a broad set of analyses of stimulus economic variables, like the unemployment rate. Such promises programmes Jason Furman, a former economic adviser to Presi- work by signalling a commitment to keep policy accommodative, dent Barack Obama now at Harvard University, identified several even if inflation rises outside the central bank’s normal comfort key lessons from the crisis. While discretionary stimulus pro- zone. Central banks’ normal hostility to inflation can undercut grammes—like the large, one-off legislative packages enacted in efforts to boost a slumping economy, because firms and house- 2009—are economically effective, political systems seem to lose holds fear that stimulus will be removed at the first sign of rapid their appetite for such programmes rather quickly. A more sus- growth. When interest rates fall to zero, central banks must tainable approach then, would lean more heavily on automatic therefore “credibly promise to be irresponsible”, in the words of stabilisers: programmes which mechanically add to spending and 1

Spot the diference G20, selected countries, % of GDP, 2007 v 2017

Non-financial corporate debt2017 Household debt 2017 General government debt 2017 200 200 200 RISING China Japan DEBT 150 150 150 United States 100 100 100 United States Japan Japan 50 China United States 50 China 50 FALLING DEBT 0 0 0 0 50 100 150 200 0 50 100 150 200 0 50 100 150 200 2007 2007 2007 Source: Bank for International Settlements The Economist October 13th 2018 Special report The world economy 11

2 reduce taxes when economic trouble strikes, without the inter- vention of a parliament. Large social safety nets already provide some automatic support during downturns: deficits grow as tax revenues decline and payments for unemployment benefits and other emergency outlays increase. This natural stabilisation is one significant reason that the post-crisis downturn was less severe than the Depression. More such features could be added, however. Taxes on labour could be linked automatically to the level of unemployment. In more federal systems, like America’s, central-government support for constrained local governments could also rise automatically as local economic conditions deteriorate.

Don’t be so negative There is always the possibility of greater radicalism. Milton Fried- man, a Nobel-prizewinning economist, argued that printing money could never fail to boost the economy. If necessary, the central bank could simply shower fresh banknotes on the economy as (he joked) from a helicopter. While a large tax cut funded by qe would accomplish something similar, governments could authorise central banks to manage cash handouts themselves. This could be feasible were individuals able to bank directly with the central bank—a privilege currently reserved for banks. In a recent essay Morgan Ricks of Vanderbilt University and colleagues propose such a reform in order to improve consumer banking and financial stability. The accounts could also improve monetary policy transmission, they argue. In normal times, interest-rate changes would apply directly to the public’s deposits at the central bank, rather than through the banking system. When rates fall to zero, the central bank could use the accounts to deliver new- The impact of politics ly created money to the public. Central-bank accounts, and central-bank money, might also enable central bankers to cut rates deep into negative territory. Though some central banks experimented with sub-zero rates Next time will be diferent over the past decade, few ventured far into negative territory. So long as holding cash (which has a nominal yield of zero) remains an option, negative rates can only be used sparingly, lest deposi- tors take their money and run. Indeed, an analysis of negative rates post-crisis by Gauti Eggertsson of Brown University and col- In fighting the next recession, politics will be crucial leagues found that banks generally do not reduce the rate paid on n the dark days of the Great Depression, the balance of eco- deposits below zero, presumably because they fear cash withdraw- Inomic terror was measured out in movements of gold from one als. A radical monetary reform which replaced cash with electron- country to another. Physically, though, the gold more or less ic money could solve this. But sucking money from bank accounts stayed put. Most central banks kept their gold in the vaults of the might have unintended consequences and would be unpopular. Bank of England. Flows were accomplished by placing gold bars on Roger Farmer of the University of Warwick reckons that animal a trolley and wheeling them from one pile to another a few feet spirits could be most effectively managed through stabilisation of away. Told that the economic cataclysm was the product of too asset prices, including stock indexes (like the s&p 500). Central much gold on one side of the vault rather than another, Britain’s banks could undertake this in places where they are authorised to ambassador to Germany sighed: “This depression is the stupidest buy equities or equity funds. An alternative would be to establish a and most gratuitous in history.” sovereign wealth fund with the resources to buy and sell securities Once again, the world is at risk of bumbling into an unnecessar- in order to stabilise wobbly markets: to unload shares when inves- ily painful economic mess. If the next global slump takes a turn to- tors turn exuberant and buy in times of despair. wards the catastrophic, it will not be because of a dearth of ideas Recessions occur where there is too little spending to keep an for how to pry an economy out of a rut. Rather it will be because economy’s resources from falling idle. Economists have spent the politicians given a long list of ways to pump money into an econ- past decade thinking up ways to boost spending and escape reces- omy badly in need of it proved unwilling or unable to choose any. sion when interest rates are at zero, as they almost certainly will be Sadly, such an outcome is all too real a possibility. during the next global slump. But these proposals, while promis- Even so, the resulting slump might not prove an utter disaster. ing, are largely untested. Those which have been tried, as in the ex- Struggling economies might accept their fate with equanimity, periments in Mr Abe’s Japan, have delivered mixed results. Given much as Japan did in the two decades after its bubble burst. But it is uncertainty about how and whether experimental policies work, far too easy to imagine how a misfiring global economy could an effective global response to the next downturn will need to be place unbearable pressure on the world’s strained geopolitical sin- bold, sustained and co-operative. It will hinge, in other words, on ews. There are many reasons for concern. what political decisions are made. But if the menu of recession- The biggest is the simple fact of the financial crisis, looming so fighting options is longer than ever, politicians have rarely seemed recently in the past. Crises are politically toxic. As Messrs Mian less eager to co-operate, across party lines or borders, to produce and Sufi and Francesco Trebbi of the University of British Colum- good economic policy. 7 bia noted in 2014, political polarisation and factionalisation al-1 12 Special report The world economy The Economist October 13th 2018

2 most inevitably follow crises. Voters are more attracted to ideolog- against a basket of currencies rather than ical extremes, and political coalitions grow weaker. The world is just the dollar, and its current-account sur- awash with supporting evidence. In some places radical parties The greatest plus has shrunk to almost nothing. Yet the have found their way into government, as in Greece, where Syriza threats to the Trump administration continues to rail is now the largest party, or Italy, where a coalition of the populist against Chinese surpluses and currency Five Star Movement and the nationalist Lega is in power. Poland’s global economy manipulation, and has launched an esca- Law and Justice party has pushed the country in an ever more illib- today are political lating trade war. An economic slowdown in eral direction since it won a majority in 2015. In many other coun- China combined with American monetary tries establishment parties have become more radical in response tightening could prove explosive. The yuan to changing public opinion or to fend off challenges from the would drop; indeed, the dollar has risen by 10% against the yuan fringes. In America and Britain, venerable conservative parties are since April. undercutting the stabilising institutions they once championed. As credit conditions around the world tighten, most emerging Weak governments will often struggle to enact the policies markets will face pressure to reduce their current-account defi- needed to respond successfully to a slump in a zero-lower-bound cits. They will accomplish this, in large part, by depreciating their world. Many radical and populist governments seem to lack the currencies against those of advanced economies and the dollar in deep commitment to long-standing institutions that helped hold particular. America’s current-account deficit tumbled after the together the world economy during the crisis. Then, trust and sac- global financial crisis but has been on the rise again since 2014. Fed rifice prevented a destructive economic nationalism. Even though tightening and the larger budget deficits created by Mr Trump’s tax individual countries could have benefited temporarily from nar- cuts practically guarantee that it will continue to grow, meaning rowly self-interested policies, they decided to stand together, that America will export demand to the rest of the world. avoiding a cascading protectionism that would have hurt every- That includes Europe. The eu’s current account, which was one. g20 countries agreed in 2009 that all those who could afford it more or less balanced as recently as 2012, has moved sharply into should borrow and spend, which benefited everyone. They prom- surplus, thanks to a protracted downturn that depressed European ised not to throw up tariff barriers as governments did during the wage growth, monetary easing by the ecb and continued fiscal 1930s, and their commitment largely held. Now, though, even be- austerity. The monetary and fiscal restraints binding the euro area fore a new slump hits, geopolitical amity is eroding. are the closest modern analogue to the gold standard; if and when a new downturn strikes, Europe may well face the most explicit Lessons from the 1930s choice between depression and heavy reliance on foreign demand. The unprepared state of most economies means that co-operation During the global financial crisis, many economists worried is more important than ever, but also more tenuous. As Brad Setser that this economic calamity might have geopolitical conse- of the Council on Foreign Relations argues, an economy stuck quences like those of the Great Depression. It did not. Yet global without recourse to its most powerful monetary tools has two op- politics have changed. The country on which the burden of depre- tions, with different implications for the rest of the world. It can ciations will fall most heavily is run by a man who hates globalisa- use fiscal stimulus to increase spending, even though some of the tion. The greatest threats to the global economy today are political. benefits will inevitably flow across borders as people buy foreign When the next downturn comes, politics could well get in the goods and services. Or it can depreciate its currency and siphon off way of a sensible response. China’s brittle government could prove expenditure by foreign economies. Among the greatest risks unequal to the task of managing a slowdown. Saving the economy posed by a new recession is that governments may might force Beijing to choose between doubling engage in a zero-sum war for spending. Unable to down on debt-fuelled growth and shifting the bur- overcome the technical and political hurdles to cre- acknowledgments den of a downturn onto foreigners, through export- ating more money at home, they might opt to suck A list of acknowledgments and boosting currency depreciation. The euro area rein money from abroad. That fear goes back to the sources is included in the online version of this special report mains vulnerable to a new outbreak of its debt cri- dark days of the 1930s when most advanced econo- sis. If Italy were to fall out of the euro area, the mies adhered to the gold standard. It gave them very offer to readers ensuing financial panic could dwarf the global fi- little room for manoeuvre, so they were unable to Reprints of this special report are nancial crisis, and the eu could collapse. America, available, with a minimum order use expansionary fiscal and monetary policy to re- of five copies. For academic pushed once more into the role of global consumer verse a downturn. institutions the minimum order of first and last resort, might acquiesce to its presi- The modern world owes the relative absence of is 50 and for companies 100. dent’s desire to dismantle the integrated global We also oer a customisation deep depressions to the fact that fiat currencies, un- service. To order, contact Foster economy, ushering in a much more dangerous era constrained by gold, allow governments to stimu- Printing Service: of economic nationalism and dealing a huge blow late economies in times of trouble. But when inter- Tel: +1 866 879 9144 to incomes around the world. e-mail: economist@fosterprint- est rates fall to near zero and, at the same time, ing.com None of these things must happen. None are in- governments find it hard to borrow, economies be- evitable consequences of slightly lower growth in gin to look similar to those of the gold-standard era. For information on reusing the global spending. But the world spent the better part articles featured in this special It is easy to imagine a downturn causing ten- report, or for copyright queries, of a century learning to tame business cycles and sions over exchange rates. After the financial crisis contact The Economist Rights respond to them in ways that minimised the stress China pegged its currency to the dollar, preventing and Syndication Department: on political systems, only to find itself in uncharted Tel: +44 (0)20 7576 8000 the yuan from appreciating by buying massive e-mail: [email protected] waters. The global financial system is more prone amounts of dollar-denominated securities. As a re- Online: Economist.com/rights/ to havoc than previously appreciated and its reces- sult, Americans spent hundreds of billions of dol- reprints+and+permissions.html sion-fighting tools no longer pack a punch. Econo-

lars more on Chinese goods each year than Chinese more specal reports mists and politicians are certainly clever enough to households spent on American goods: a critical Previous special reports, and a adapt and respond to new challenges. What is un- drain on American demand at a time when growth list of forthcoming ones, can be known is whether world leaders are still conﬁdent found at: remained weak and unemployment high. Economist.com/specialreports and committed enough to averting geopolitical China has since moved to managing the yuan havoc to take the action so badly needed. 7 Middle East and Africa The Economist October 13th 2018 45

Also in this section 46 Israel’s worrying trade with China 46 An Arab haven in Turkey 47 The Ethiopian-Eritrean border opens 48 Elections in Nigeria 48 The devil’s brew in Niger

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

Saudi repression would have had precedent. In March a women’s-rights activist, Loujain al-Hath- A dissident disappears loul, was arrested in Abu Dhabi, put on a plane to Saudi Arabia and, later, jailed. None ofthis brought any consequences for Prince Muhammad. Heads of state and titans of industry still cheered him as a re- ISTANBUL former and accepted Saudi contracts. But IfJamal Khashoggi was murdered, it would be a chilling escalation byan the latest escalation, ifproven, may forever increasingly repressive Saudi state mark him for his ruthlessness. Murdering AMAL KHASHOGGI is gone, and with Mr Khashoggi’s time inside. critics abroad is a tactic previously em- Jeach passing day it seems more likely It is no mystery why Saudi Arabia ployed by despots like Saddam Hussein that his government killed him. A promi- might have wanted to silence Mr Khash- and Muammar Qaddafi, who used their nent Saudi journalist living in self-im- oggi. He was a critic ofthe powerful crown embassies to terrorise exiles. It would be posed exile, he visited the Saudi consulate prince, Muhammad bin Salman. Mr an unmistakable, brutal message to Saudi in Istanbul on October 2nd to collect some Khashoggi wrote frequently in Arabic, dissidents: the state can reach you any- paperwork for a new marriage. A CCTV penned a regular column for the Washing- where. That Mr Khashoggi was an insider camera recorded him entering it. There is ton Post, and kept close ties with countless only makes it more powerful. no sign that he left. Turkish police believe diplomats and journalists. For more than a Mr Erdogan’s relationship with Saudi he was murdered by men flown in from Ri- year he used that platform to criticise Arabia was already strained, partly over yadh. Some believe it was a botched kid- growing repression in Saudi Arabia and his support for Qatar in its dispute with its napping. His body, say the Turks, was urge an end to the war in Yemen. But he Gulf neighbours. His country has become carved up with a bone saw and smuggled was hardly a radical. Mr Khashoggi was a haven for Arab dissidents, particularly out in a blackMercedes van. part of the Saudi elite, close to members of exiled members of the Muslim Brother- Though there is no proof, the evidence the royal family. In the 2000s he advised hood, an Islamist group which the Saudis offoul play is mounting. On October10th a Turki al-Faisal, a former intelligence chief dislike and their Emirati allies detest (see pro-government Turkish newspaper pub- who became Saudi Arabia’s ambassador next article). The authoritarian Mr Erdogan lished photosofthe men itsaid were flown to Britain and America. He often stressed is also the world’s leading jailer of journal- in from Saudi Arabia. Video footage that his criticism of the regime was con- ists. Saudi apologists are using those facts showed them arrivingat the consulate and structive, not a rejection of the monarchy. to try to discredit any Turkish investiga- leaving later that afternoon. One was later His editor at the Post says he did not even tion. Prince Muhammad may not care identified as a forensic expert; others as like the label “dissident”. much about a démarche from Mr Erdogan. members of the Saudi security services. Other reactions will matter more. If the Turkey’s president, Recep Tayyip Erdogan, The brutal prince crown prince abducted or killed a critic in has not repeated the allegation of murder. Though his disappearance was widely Istanbul, business leaders may reconsider But it is unlikely police would have made covered because of his connections, it was attending an investment conference in Ri- such a claim without his blessing. not entirely unusual. The crown prince de- yadh later this month. In America, where Saudi officials deny the charges and in- tained more than 100 royals and ministers Mr Khashoggi lived, members of Congress sist Mr Khashoggi left the building safely. in an “anti-corruption” sweep last year. have expressed outrage. President Donald But they have offered no evidence. The Many hundreds ofactivists languish in jail; Trump, who is close to the Saudis, bitterly Saudi consul in Istanbul says, implausibly, some may face the death penalty. Last year feuding with Turkey and not exactly a that his CCTV system did not record any the Saudis detained Saad Hariri, Leba- champion of human rights, still said, on footage. He has not produced visitorlogs or non’s prime minister, for two weeks. Even October 10th: “This is a bad situation. We documents, nor even offered an account of spiriting Mr Khashoggi out of Turkey cannot let this happen—to reporters, to 1 46 Middle East and Africa The Economist October 13th 2018

2 anybody, we can’t let this happen. And we’re going to get to the bottom ofit.” Istanbul’s Arabs A final question is how Saudis themselves will react. Prince Muhammad en- Dissident haven joys strong support at home, even though ISTANBUL parts of his agenda are going poorly. His A century afterTurkey lost its Arab provinces, Istanbul is an Arab capital again economic reforms have met predictable headwinds. Hisforeign policiesrange from EFUGEES, dissidents and émigrés lim Brothers who briefly ran Egypt until missteps, like the blockade of Qatar, to ca- Rfrom across the Arab world are flock- its current president, Abdel-Fattah al-Sisi, tastrophes, like the war in Yemen. But his ing to the old imperial city which ruled tookover in a coup in 2013. “It’s the last cultural reforms—granting women the their lands until 1918. In Mukhtar, a pop- corner ofthe Arab spring,” says Ayman right to drive, allowing cinemas and con- ular café in Istanbul’s “Little Syria”, out- Nour, once a candidate for Egypt’s presi- certs—are broadly popular, and few inde- casts from regimes that crushed the Arab dency, who now runs his own television pendent voices are left to criticise him. spring sip coffee spiced with cardamom— station from the city. Saudi propagandists are working tire- and plot their comeback. They hail from These days hot Arab bands come to lessly to spread misinformation. Al Ara- Egypt, Syria, Yemen and other Arab play in Istanbul. The city also hosts the biya, a Saudi-owned channel, aired an in- countries where the Ottoman Turks once biggest Arab bookfairin a non-Arab land. terview with Mr Khashoggi’s son, Salah, in ruled. Some advocate peaceful means, Last month a school opened forPalestin- which he suggested that his fatherwas not others violent. “These tyrants will never ians from Israel, the West Bankand Gaza. even engaged. This is nonsense; acquaint- hand over power peacefully,” says a Ibn Haldun, a new university on Istan- ances in Istanbul knew his fiancée. On so- Kuwaiti dissident. bul’s outskirts, offers scholarships to cial media Saudi commentators promote Istanbul may host as many as1.2m students across the umma, or Muslim the absurd theory that Qatar killed him. In Arabs, including many ofthe 3m-plus nation, to promote Islamist values. Mr a recent conversation Mr Khashoggi la- Syrian refugees in Turkey. Aformer presi- Erdogan’s son, Bilal, is on the board. A mented the cult of personality surround- dential candidate from Egypt is there, new Arab Council forthe Defence of ing the crown prince. The media are not al- along with Kuwaiti MPs stripped oftheir Revolutions and Democracy seeks to lowed to debate problems in Saudi Arabia, citizenship and a crop offormermin- bring all the city’s Arab émigrés together. because thatwould suggestthatthe regime isters from Yemen. Dozens ofArab web- But after the disappearance ofJamal isweak, he said. He tried to nurture thatde- sites, satellite-TV stations and think-tanks Khashoggi, a Saudi journalist, their ha- bate while in exile. Perhaps even that was relay grievances backhome. Istanbul’s ven may feel a bit less safe. too much for the kingdom’s increasingly Arab Media Association now counts 850 autocratic leaders. 7 journalists as members. Most Arab states deny citizenship to foreigners and their offspring, even those Israel and China born and raised in their countries. By contrast, Arabs may get a Turkish pass- Too open for port after five years ofresidency,or immediately ifthey bring in at least business? $250,000. “There they treat us like slaves,” says a Lebanese education consultant who tooka pay cut to move from JERUSALEM Dubai to Istanbul. “Here we belong.” Israel’s commercial ties with China are Some Arabs arrive after failing to win raising securityconcerns asylum in less friendly Europe. “It’s more HE chief of one of Israel’s intelligence familiar, Muslim and closer to home,” Tagencies was recently surprised to dis- says an applicant. Saudis snap up proper- cover that Chinese construction workers ty in case things go wrong backhome. on a major building project might be able Turkey’s political system is another to see into a sensitive installation. But it is attraction. Its democracy looks flawed to in keepingwith a trend. Israeli security offi- European eyes. But it is a paragon com- cials are growing increasingly uneasy with pared with most Arab regimes. Its presi- China’s expanding role in the economy, dent, Recep Tayyip Erdogan, whose wife particularly its involvement in several big is ofArab origin, still openly champions infrastructure projects and its purchase of the Arab uprisings of2011and the Mus- Islamists welcome cutting-edge technology. The concern fallsinto two broad categories. The firstisoverChinese control ofstra- firm was never discussed by the cabinet or poses. This worries Israel and its allies tegic infrastructure and the possibility of the national security council, a situation alike. Security officials note that China is espionage. Officials are reluctant to go on one minister described as astonishing. the biggest trading partner of Iran, Israel’s the record, butmanypointto the new com- The other concern is over the transfer of mortal enemy. China has helped moder- mercial-shipping facility in Haifa as an ex- weapons technology to the Chinese. Gone nise Iran’s armed forces and sold it civil nu- ample of what is at stake. It is run by the are the days when Israel would sell them clear technology. Shanghai International Port Group, which military hardware. After numerous com- The Chinese are always trying to find won the tender in 2015 and began working plaints from America, Israel agreed to cut ways to buy dual-use products, say Israeli on the site in June. Haifa is Israel’s busiest off arms sales to China in 2005. But a grey businessmen. Security officials fear more portandthe base ofitsmain naval fleets. Is- area has sprung up around dual-use tech- ofit is making its way to China. raeli submarines, widely reported to be ca- nology, such as artificial intelligence and Israel’s commercial ties with China pable of launching nuclear missiles, are cyber-security products, which could be have flourished under Binyamin Netanya- docked there. Yetthe deal with the Chinese used for surveillance and intelligence pur- hu, the prime minister, who met President 1 The Economist October 13th 2018 Middle East and Africa 47

Ethiopia and Eritrea was one of the biggest sources of migrants and refugees crossing into Europe. A few Prison break years ago the UN reckoned that about 5,000 people were leaving every month. Since nobody knows how long the border will stay open, thousands are rushing across. According to the UN the number of ADIGRAT AND ZALAMBESSA people registering as refugees has jumped Thousands ofEritreans are streaming from 53 to 390 people a day. “We are very out ofthe country afraid—maybe it will close again,” says a HE hotels of Adigrat, an entrepot near young Eritrean woman catching a bus TEthiopia’s border with Eritrea, are al- from Mekele to AddisAbaba, the Ethiopian ways busy during Meskel, a feast celebrat- capital, where she hopes to find a house ed annually by Orthodox Christians in and a job. both countries. But this time room prices Trade, which had ceased entirely since have soared. Returning visitors reckon the the war, is booming again. The road from numbers congregating in the city’s streets Adigrat to the border town of Zalambessa are twice those of previous years. Eritrean heaves each day with lorries loaded with flags pop up amid the Ethiopian bunting. cement, building materials and Ethiopian On a street corner a girl sports a shirt com- teff, a staple grain, bound for Asmara, the memorating Eritrean independence. Out- Eritrean capital. At markets in Mekele, the side a café Nigusse Bararki, an elderly Eri- capital of Ethiopia’s Tigray region, Eritre- trean, sits with his family, which lives in ans sell electronics and clothes from the Let’s make a deal Ethiopia. They were recently reunited for boots of their cars. Many of the new arriv- the first time in more than 20 years. als marvel at ATM machines and the fact 2 Xi Jinping in Beijing last year (see picture). The reason is peace between Eritrea that the city’s many new buildings are not In the first eight months of 2018 Israel sold and Ethiopia, which came into force in July, owned by the government. (Private con- $3.5bn-worth of goods and services to Chi- nearly two decades after war broke out in struction is banned in Eritrea.) na, up 63% compared with the same period 1998 (and 18 years after the signing of a This all has historical echoes. In the last year. China accounts for a third of the peace deal in 2000 that was then ignored years immediately after Eritrea seceded investment in Israel’s impressive technol- by Ethiopia). Friendlier relations have from Ethiopia in 1993, after a long war for ogy sector, said Mr Netanyahu last year. brought hope. They have also brought peo- independence and a referendum, the two The prime minister will host Wang ple. In the first two weeks after the land countries enjoyed a brief honeymoon. Qishan, China’s vice-president, for an “in- border was opened on September 11th by Citizens were allowed to move seamlessly novation summit” in Jerusalem on Octo- Ethiopia’s new prime minister, Abiy Ah- between them. Mr Issaias mulled eventual ber 24th. Mr Wang, the most senior Chi- med, and the Eritrean president, Issaias Af- political union as well as economic inte- nese official to visit Israel, will be werki, more than 15,000 Eritreans crossed gration. Some imagined a “United Statesof accompanied by a large delegation of Chi- the frontier. Many are on holiday and re- the Horn ofAfrica”. nese investors, including Jack Ma, China’s uniting with family. Others are leaving to But soon came allegations that Eritrea best-known e-commerce tycoon. escape indefinite conscription. was undermining Ethiopia’s economy. Lo- But Israel’s oversight of its trade with The borderisalmostentirelyopen. Ethi- cals in Tigray recall the sheets of corru- China does not appear to be keeping up opians can cross without visas and with gated iron imported from Asia, stamped with the pace of commerce or technology. only a cursory ID check. Even some for- with marks saying “Made in Eritrea”, and Special export licences are needed to sell eigners have been able to enter Eritrea brought into Ethiopia without being taxed. some dual-use technologies, but there are without any documentation. There are as Some fret that similar economic tensions plenty of loopholes, say Israeli business- yet no customs officers or tariffs on any may emerge again. “It’s déjà vu,” says a vet- men. In his zeal to improve commercial goods. Most remarkably, Eritreans are for eran Ethiopian diplomat. ties, Mr Netanyahu has dragged his feet on the first time in years able freely to leave Nobody knows why, after years oflock- plans to form a government agency that the country without permits or the risk of ing his citizens in, Mr Issaias appears to would regulate deals with China—and, he being shot. “Before you could never leave,” have had a change of heart. Some wonder fears, slow down trade. “Israel has to do says Muhammad, an Eritrean naval sea- if letting out those opposed to his tyranni- business with China, ofcourse, but there is man on holiday in Adigrat with family. cal rule is a way of easing pressure on him no serious mechanism to make sure that “But now there is no security, no soldiers, to reform. Fewer youngsters at home also we don’t sell off key economic assets and and all is peaceful.” means fewer who will need jobs once the valuable technological knowledge,” says Even before the borderwasopened, Eri- expected demobilisation of the army and Efraim Halevy, a former head of Mossad, trea, a tiny country of about 3.2m people, civilian conscripts begins. Israel’s foreign-intelligence service. Even the president’s colleagues appear

With oversight lacking, Israeli firms are Red Sea to be in the dark. Last week three ministers often left to police themselves. “Ultimately were reported to have resigned in protest. SUDAN Israeli companies want to be able to work ERITREA There are also murmurs of discontent in Asmara both in China and in the West,” says an Is- Badme Zalambessa the army. After years of saying that Eritrea raeli businessman with nearly two de- would never negotiate until Ethiopia had Blue Adigrat cades of experience selling high-tech pro- Nile Mekele withdrawn its troops from the disputed ducts to the Chinese. “It means we have to DJIBOUTI town of Badme, Mr Issaias has done pre- regulate ourselves and learn how to say no TIGRAY cisely that. Eritrean troops have pulled to the Chinese when they want to buy or White back from the frontier but Ethiopian forces Nile SOMALIA investin some ofourproducts.” Unsurpris- Addis Ababa have yet to do so. For many citizens, how- ingly, security officials are not satisfied ETHIOPIA ever, it seems wise to scoot now and ask with that set-up. 7 400km questions later. 7 48 Middle East and Africa The Economist October 13th 2018

Beer in Niger The devil’s brew

NIAMEY Breweries in Africa nearlyalways make money. Not in Niger N AN industrial parkin Niamey,the is doing neither. This is perhaps because Icapital ofNiger, unemployed men rest Nigériens are becoming more religious. in the shade from thirst-inducing heat. “The marabouts (imams) say that Bière Warehouses gather dust. But there is a Niger is the devil’s drink,” says Karl Nien- buzz around the country’s only brewery. haus, its technical director. Once-proud Steam billows from 50-year-old copper employees no longer tell people they cauldrons, and bottles rattle offthe con- workat the brewery. veyor belt before they are stamped with a A year ago Mr de Boisset was dis- label bearing two giraffesand the words: patched to close the brewery. Instead he “Bière Niger”. hopes to save it by offering an even small- Not many people associate Niger, er, cheaper bottle. The pale, bittersweet which is mostly Muslim, with beer. The lager will never win awards in Europe. brewery, Braniger, was founded in 1967, But it washes down the dust rather well. seven years after Niger’s independence When the mercury hits 42 °C, a small from France. Its turbulent history says beer is better than none. Elections in Nigeria much about the fragility ofNiger’s economy. In the 1990sthe regional currency, An ugly beauty the CFA franc, was devalued by about half, driving up the cost ofthe imported contest raw materials. Instead ofraising prices, Bière Niger shrankits bottles by a third. The brewery, part ofCastel Group, a ABUJA French family firm, survived the crisis but Nigeria’s election will pit two familiar has again lost its fizz. Xavier de Boisset, foes against each other Braniger’s director, says that it is the only ND then there were two. After a long one ofCastel’s 67 African breweries that Anight of intrigue and counting in prim- is losing money. One reason is its tax bill, ary elections in Port Harcourt, the People’s which it says has gone up about 20% over Democratic Party (PDP), Nigeria’s main op- the past five years. Others are geography position, chose Atiku Abubakaras its presi- and corruption. Since Niger is land- dential candidate for the elections in Feb- locked, its imports ofmalt and barley ruary. At the same time, the ruling All have to come overland. Import taxes, as Progressives Congress (APC), more predict- well as unofficial ones extracted at check- ably, unanimously backed the incumbent, points, lead to delays and drive up costs. Muhammadu Buhari, for a second term. Although the economy is expanding Both candidates are boringly familiar to and the population is booming, demand voters. Mr Abubakar has been in every election since 1999; Mr Buhari every one since 2003. Oddly fora country where half who does not hurry to make decisions and Nigeria. A key to his success was his ability the population is younger than 18, both is suspicious of Nigeria’s corrupt political to hold together an awkward coalition of candidates are in their 70s. Both face the and business elite. Mr Buhari’s aides say parties to defeat MrJonathan. To repeat the challenge ofenergising an electorate that is his administration can claim successes in trick, Mr Abubakar will need to win the growing disenchanted by extravagant the fight against jihadists in the north-east full-throated support (and financial re- promises that bring little change. and in diversifying the economy away sources) of rivals he has just trounced for Equally striking is that both are north- from its dependence on oil, which once ac- the nomination. erners, Muslim and belong to the Fulani counted for90% ofgovernment revenues. Mr Buhari’s challenge is different. Al- ethnic group. That ought to be of little con- Corruption is likely to be a prominent though his nomination was uncontested, sequence. But it counts formuch in a coun- issue. Mr Abubakar was singled out by the party has been tearing itself apart over try where people often vote along ethnic America’s Senate in 2010 in a report on which candidates will run for state gover- and religious lines, and where parties usu- money laundering. It said he had chan- norships and seats in the senate. The first ally ensure that candidates from the north nelled substantial funds of uncertain ori- lady, Aisha Buhari, said on Twitter that and south take turns standing. gin into America through proxy accounts. some of the APC’s primaries had been For all their outward similarities, the Mr Abubakar is backed by Goodluck Jona- rigged. She criticised party managers for two are quite different characters. Mr Abu- than, a formerpresident under whose cha- sanctioning a culture of“impunity”. bakar, a wealthy former vice-president otic rule between 2010 and 2015 corruption Her husband will need to impose disci- and customs-service chief, is a politicians’ proliferated. Mr Abubakar’s supporters pline on the party. Turnout in 2015 was just politician, a gregariouscharacterwho mas- note that their candidate is the most inves- 43%. In more recent state elections it terfully outflanked his rivals in Port Har- tigated politician in Nigeria’s history, and dropped to 20%. In a system where the court. He campaigns as a business-friendly that no charges have ever stuck. party machinery is needed to turn poten- candidate who will get Nigeria’s economy Mr Buhari’s extraordinary victory in tial support into actual votes, it is the battle going. By contrast PresidentBuhari, austere 2015 challenged the long-held view that it within that may determine the outcome of and introverted, is a former military ruler was impossible to unseat an incumbent in the presidential election. 7 Asia The Economist October 13th 2018 49

Also in this section 50 Teaching Indian pupils happiness 51 Pakistan turns to the IMF 51 A debate on sexism in Central Asia 52 Scandalising Singapore’s judges 52 A genteel election in Bhutan 54 Banyan: Japan and the Olympic curse

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

Education in India (1) usefulness). The great majority of private schools teach, or claim to teach, in English. The war on private schools Shrinkingpupil numbers are an embarrassment to chief ministers. “My one target when I took this job was to reverse the migration out of government schools,” says Sarvendra Vikram Singh, director of education forUttar Pradesh. Lucknow State governments are reacting in two Indian states are reacting to the popularity ofprivate education in different ways ways. One is to make life difficult for priv- HE 80 or so pupils in Class 9 of YDVP bourer in the nearby village, has another ate schools. The Right to Education (RTE) TInter College, a private school in Uttar explanation: “My children will not go to Act of 2009 sets out detailed requirements Pradesh, India’s most populous state, the government school because they say which they must meet—to have a class- chorus “good morning” to the visitor, and there is no education, so I have to pay for room for every teacher, a library and a then turn their attention back to the maths private school.” His children attend YDVP. kitchen, for instance—in order to get the of- teacher. Smartlydressed in blue-and-white India has long had elite private schools, ficial “recognition” (ie, licence) they need uniforms, the children are seated at desks but over the past decade low-cost private to operate. Although many government in brick classrooms in a compound sur- schools have also boomed. Their rolls in- schools do not meet these norms, the re- rounded by fields. Fees are Rs170-250 creased from 44m in 2010-11 to 61m in quirements are being used to close private ($2.29-3.37) a month, depending on the 2016-17, while those in government schools schools. Shivnandan Singh, an education grade. That is a stretch for the area’s subsis- fell from 126m to 108m in the 21ofIndia’s 29 officer in Lucknow, the biggest city in Uttar tence farmers and labourers, but the states for which there is any data. Geeta Pradesh, with 215 government schools and school, which has 1,000 pupils, is full. The Kingdon, a professor at University College 200 recognised private schools on his beat, 11 teachers are paid Rs2,000-5,000 a London who also runs a private school in says he has closed down 60 unrecognised month, dependingon theirage, experience Lucknow, suspects that the private-school private schools this year. The axe is hang- and quality. numbers are an underestimate because ing over a further 69, which have applied At the government-run Upper Primary many of them are not registered with the for, but may not get, the right paperwork. School, Khujehta, a few miles away, 63 chil- government. “Up until now we have been going easy on dren are enrolled, of whom 50 are present them but this year[the RTE Act] is being im- on the day of your correspondent’s visit. Bottom ofthe class plemented strictly.” The press is suppor- They sit on the floor in three classrooms, There are two reasons for the shift. One is tive, carrying stories about the closure of dressed in grubby pinkish government the failure of public education. Just how “fake schools”. uniforms, looking at textbooks. Nobody is bad India’s schools are became clear when But recognition, as Ghanshyam Chatur- teaching them; the school’s two teachers two Indian states participated in a scheme vedi found, isnot just a matteroffollowing are sitting on the veranda. They are paid that compares attainment around the the rules. He used to run a 250-pupil school Rs50,000 and Rs40,000 a month apiece. world and came 72nd-74th out of 74 juris- in Lucknow. “The officials were saying, The average income in Uttar Pradesh is dictions in reading, maths and science (ac- ‘Come to my office’, hinting that I should Rs4,600 a month. ademic research suggests private schools give them money under the table,” he Enrolment in the government school are little better). The other reason is the claims. “How can I give them money? I has been falling, say the teachers. They popularity of English-medium education, don’t have enough money, and anyway I blame it on the fact that the head of the vil- driven by a combination of social status don’t want to be part of their corruption.” lage panchayat(council) hasopened a priv- (English has never quite lost the cachet it The school was closed down. ate school nearby (not YDVP) and people had as the language of the ruling class in Other school-owners take a different are sending their children there to curry fa- colonial times) and pragmatism (the inter- tack. “I gave a donation of one lakh vour with the big man. Bharat Lal, a la- net and globalisation have magnified its [Rs100,000] to get recognition,” says one. 1 50 Asia The Economist October 13th 2018

2 “They said I would go to jail ifI didn’t.” Delhi, with a fast-growing population Education in India (2) and overflowing public schools, cannot afford to shut private schools. But the Aam The happiest days of your life Aadmi Party (AAP), which runs the city, is Delhi restricting their freedom to raise fees. That, The schoolchildren ofthe capital are being taught how to be mindful presumably, will discourage investment in the sector. T 8am on a Saturday morning there is a big success.” To its credit, the AAP has also pursued a Asilence in Class 8A at Kautilya Gov- The children all like the happiness second approach to reviving government ernment Sarvodaya Boys’ Senior Second- curriculum. They say that their parents schools: tryingto improve them. “The state ary School in Delhi. The pupils sit with were sceptical at first—as well they might of the schools was worse than we expect- their eyes closed; the teacher has told be, seeing hours that could have been ed,” says Atishi Marlena, a former adviser them to concentrate on the noises around spent on maths or English whiled away to Manish Sisodia, the local education them. Outside the sound ofheavy mon- in meditative silence—but have come minister. “There was the smell of toilets in soon rain muffles the honking traffic. round to the idea. There is some science the classroom, children sitting on the floor, This is the “mindfulness” section of to backit up: a study ofsimilar classes in children not there, teachers not there.” Mr the new “happiness” curriculum, which Bhutan, Mexico and Peru showed im- Sisodia has taken to visiting schools unan- wasintroducedinJulybytheAam provements both in pupils’ well-being nounced, which is reckoned to have sharp- Aadmi Party (AAP), the reformist outfit and in their academic results, although ened up performance. He says state-school that runs the city government. The idea there have been no follow-ups to show if pupils now do better in exams than priv- ofthe classes, which include storytelling, the gains are sustained. ate-school pupils. But no teachers have self-expression and workon relation- Peculiarly,the meditative technique been fired for absence, or anything else— ships, is to improve the children’s well- used in the curriculum, which originated teachers’ unions wield enormous political being and ability to concentrate. in India, is referred to by the English word clout, and tend to torpedo reforms that India comes133rd out of156in the “mindfulness”, even in Hindi-medium threaten their position. UN’s most recent World Happiness Re- schools, although there is a perfectly Outside Delhi, fallingenrolment means port, the lowest out ofthe six South good Hindi word forit, dhyana. Does small, shrinking schools, which makes it Asian countries included and annoying- “mindfulness” no longer play a part in hard to run an education system well. ly farbehind Pakistan (75th). The pro- Indian life? “Wehave lost the concept,” Closing schools is unpopular, but Raja- blem, says C.S. Verma, the school’s head says Sanjay Sood, a chartered accountant sthan has shut about 8,000 and merged teacher, is India’s huge population: “More on the school’s management committee. others; the numberofschools has dropped people means more competition, more “Ahundred years ago, our education was from 82,000 in 2013 to 63,000 now. It has competition means more stress.” The all about meditation, but English educa- also decentralised management some- pressure on children in Delhi, he says, is tion made us forget all this.” Sudhan what. Although head teachers still do not particularly severe: “Most ofthe parents Rawat, a parent and migrant from the have the power to hire, fire or discipline are migrants from the rural areas. They nearby state ofUttarakhand, has a differ- other teachers, they can recommend disci- reside in the slums and are determined ent explanation. “At our level ofsociety, plinary action to a higher administrative that their children should not stay there. we’re too busy working. Wedon’t have level. “We are thinking of giving power Every parent wants their child to become time forthat sort ofthing.” overdisciplinaryactionsto the head teachers, but these are very sensitive matters,” says a local official. “Now at least the teachers are coming to school and teaching.” Uttar Pradesh is trying to improve quality by addressing a different problem: the range of abilities in classes. Some Grade 8 children can’t read, and laggards who have slipped too farbehind may never catch up. So this year, in partnership with Pratham, an NGO that has pioneered the system, the state government is introducing “graded learning”. Pupils will be divided into three ability levels, rather than the standard age- determined grades. Many states are trying another technique to increase the appeal of government schools: teaching in English. In Uttar Another gruelling happiness class Pradesh 5,000 schools converted to Eng- lish-medium in April this year. That can be a challenge forboth teachers and pupils. At they won’t understand anything.” Even so, the question ofwhat impacttheywill have Kurauni Primary School in Lucknow, the Grade 5 pupils struggle to learn terms like on educational attainment. Under Naren- head teacher, Pradeep Pande, says that “chlorophyll” and “photosynthesis” dra Modi, the prime minister, the govern- most parents are illiterate. Learning is hard- alongside Hindi explanationsofplant biol- ment has got serious about collecting data er for such children in Hindi, let alone in a ogy. But enrolment has risen from 117 in on whether children are actually learning language which nobody uses either at April, before the switch, to 185 now. anything. So in a couple of years it should home or in the playground. Whereas the These measures may be having the de- become clear whether the campaign to youngest children are being taught in Eng- sired effect. In both UttarPradesh and Raja- stop children moving from government to lish, classes are bilingual forGrades 3-5, be- sthan, enrolment in government schools is private schools has improved Indian edu- cause “if you teach them purely in English, growing again. More important, though, is cation or made it worse still. 7 The Economist October 13th 2018 Asia 51

Pakistan’s economy CPEC does not seem to have been enough Running out to persuade China to become Pakistan’s Imran can’t Pakistan, $bn lender oflast resort. Current-account Net foreign-exchange As Mr Khan hunted for benefactors, in- deficit reserves vestors panicked. The stockmarket had its 0 20 biggest daily drop in a decade on October – 8th, doubtless spurring the government’s Islamabad 1 18 reluctant reversal the same day. The delay, The prime ministerchanges course and 16 2 says Khurram Hussain, a journalist, has turns to the IMF 14 3 weakened Mr Khan’s hand in negotiations 12 N THE campaign trail, Imran Khan, 4 with the IMF over the terms ofany loan. In OPakistan’s new prime minister, pre- 10 addition to demanding a good look at sented himself as the man to break the 5 8 CPEC contracts to make sure Pakistan can country’s addiction to hand-outs from the 6 afford them, the fund is likely to push for West. Whereas previous governments 2015 16 17 18 2016 17 18 furtherdevaluation ofthe rupee, increased used to go begging to the IMF for funds, he Source: State Bank of Pakistan tax collection and higher interest rates. said, his Pakistan Movement for Justice None of these readily aligns with Mr (PTI) would focus instead on recouping bil- mainly by China. That seemed to upset Khan’s promise to create an “Islamic wel- lions of dollars hidden from the taxman China, Pakistan’s “iron brother”, oldest fare state”. But if Mr Khan was unsure of it abroad. But after less than two months in ally and another potential donor, so was before he assumed power, he must surely office, Mr Khan reversed himself on Octo- dropped. Some observers had imagined now realise that Pakistan’s problems run ber 8th. His finance minister announced that China might increase its lending to deeperthan corrupt leadership. And if vot- that the government would, after all, be Pakistan rather than have the IMF pore ers were unsure of it before they cast their seeking a big loan from the IMF. over the details of the contracts behind ballots, they are quickly discovering that The economy’s troubles are not Mr CPEC, which have not been made public Mr Khan, for all his self-assurance and star Khan’sfault. The previousgovernment, led and are thoughtto be unfavourable to Paki- power, cannot fixthings quite as quickly or by the Pakistan Muslim League-Nawaz stan. But even the prospect of a row over easily as he promised. 7 (PML-N), lifted annual GDP growth to a ten- year high of more than 5%. But it did so on the back of expensive imports of fuel and Women’s rights in Central Asia machinery, even as its determination to prop up the Pakistani rupee hurt export in- Sing for solidarity dustries such as textiles. The result has been dramatic growth in the current-account deficit since early 2016 (see left-hand chart). Foreign-exchange reserveshave fallen sharplyasa result(see right-hand chart). ALMATY They currently stand at $8bn, which is not AKyrgyz singerhas sparked a debate about sexism enough to cover the expected bill for imports and foreign-debt repayments until HENZere Asylbek, a19-year-old sing- Zere what to wear and do. One threatened the end of the year. To keep the lights on Wer from Kyrgyzstan, took to YouTube on social media to cut offher head. (literally—many of Pakistan’s power plants with a lyrical cry for equality, she did not Her attire seemed to arouse even more run on imported coal), the government expect to draw much attention, let alone ire than her message. In the video she needs to find around $10bn in short order. death threats. The song, called “Kyz” (Girl), wears a miniskirt and an open jacket with Even Mr Khan could see that Pakistan was hardly militant. Zere (her stage name) nothing (horrors!) but a lacy purple bra un- was going to need a loan. But for the past yearned in husky tonesfora newera when derneath. Women in various outfits, in- few weeks he has desperately been seek- “no one will tell me, ‘Don’t wear this, don’t cluding one in a hijab, stand alongside as ingalternatives to an IMF bail-out. In a tele- do that.’” In a country of 6m people, her she urgesthem to unite forfreedom. Moral- vised address, he asked all Pakistanis living clip went viral—and the self-appointed ists declared the glimpses of cleavage and abroad to donate $1,000 apiece to the gov- guardians of Kyrgyz morality began telling flashes of bare midriff uyat, a word mean-1 ernment, ostensibly to help pay for a big dam. To show that government funds would no longer be wasted, he has engaged in public displays of austerity. The government has auctioned off eight buffa- loeskeptto provide milkforthe prime minister’s residence, along with 61luxury cars. As recently as October 7th Mr Khan held out hope that “friendly countries” would stump up loans, sparing him the embarrassment of turning to the IMF. Mr Khan has courted Saudi Arabia, in particular, visitingit on his first official trip abroad. Yet the Saudis did not offer a bail-out (it was “awful to beg”, sighed the commerce adviser, Abdul Razzak Dawood). Instead, they volunteered to invest in the China- Pakistan Economic Corridor (CPEC), a $60bn infrastructure scheme financed Frogmarched to the altar 52 Asia The Economist October 13th 2018

Free speech in Singapore Gavel-rousers

Singapore Mild social-media posts scandalise the city-state’s judges T WAS hardly a zinger. “Malaysia’s severe and expanded the scope ofthe Ijudges are more independent than rules to include social-media posts. Singapore’s forcases with political impli- Even before being strengthened the cations,” wrote Jolovan Wham, an activ- contempt-of-court law got plenty of use. ist, on Facebookon April 27th. On Octo- In 2008 three men (including Mr Tan) ber 9th Singapore’s high court found him were convicted forturning up at the guilty of“scandalising the judiciary”. He Supreme Court wearing T-shirts de- was not the only rabble-rouser. John Tan, picting kangaroos in judges’ robes. Later a a politician from the opposition Singa- British journalist was sentenced to six pore Democratic Party, had observed in weeks in prison forwriting a critical book May: “By charging Jolovan forscandalis- about the death penalty in Singapore. ing the judiciary, the [Attorney-General’s Cartoonists and bloggers have also been Chambers] only confirms what he said prosecuted. Li Shengwu, a nephew of the was true.” Mr Tan was convicted ofthe prime minister, is currently on trial for same crime. The pair have not yet been calling the government “very litigious” Elections in Bhutan sentenced, but face up to three years in and the judiciary “pliant”. prison and a fine ofas much as The government has little compunc- Polite but firm S$100,000 ($72,000). tion about curbing freedom ofexpres- It is the first time that Singapore’s new, sion. A law adopted in 2017 makes it beefed-up contempt-of-court law has harder forgroups to assemble in public. been used. The amendments came into Recent changes to rules that govern the Thimphu force last October. One effect was to creation and exhibition offilms allow Anti-incumbencygrips the land ofthe broaden the definition ofscandalising film-makers’ possessions to be seized thunderdragon the judiciary. Previously actions that without a warrant. Many worry that posed a “real risk” ofundermining public proposed laws aimed at countering fake T MUST be the most genteel canvassing confidence in the courts were considered news could be used to limit free speech I operation in the world. Lily Wangchuk, a crime. Now a mere “risk” will do. The yet more. For some, the government’s who is running for a seat in the National changes also made the penalties more repressive instincts are the real scandal. Assembly, chats with a shaven-headed monk in the shade of a weeping willow, she in a silk kira (traditional dress for Bhu- 2 ing “shameful” that is widely used in Cen- and look after the children. Senior jobs al- tanese women), he in maroon robes. A tral Asia to censure female behaviour. most always went to men. passer-by stops to laud her expertise. A Some detractors, including women, ob- The picture remains mixed. Many wo- shopkeeper decries the coarseness of de- jected to Zere’s clothing on religious men have prestigious jobs. Kyrgyzstan has mocracy—it is only ten years since the king grounds. Most Kyrgyzstanis practise a had a female president, Roza Otunbayeva. surrendered absolute authority—before in- moderate form of Islam. Those who have But old traditions persist. Women are still sisting that she stay fora cup oftea. castigated Zere most vehemently seem to expected to marry young, bear children Yet the voters of Bhutan, a Himalayan be social conservatives who want women and obey husbands and mothers-in-law. country of 800,000 sandwiched between to know their place. The controversy has And not all women marry willingly. In India and China, are capable of delivering also inspired an ardent defence of Zere by Kyrgyzstan the kidnapping of brides, harsh verdicts. The second round ofvoting both men and women, some of whom known as ala-kachuu (grab and run), is rife. takes place on October18th. In the first, last have posted photographs of themselves in Some 12,000 women are abducted every month, voters selected two parties to bras to show solidarity. year, sometimes by complete strangers nominate candidates for the second Zere is not alone in facing denigration who coerce them into wedlock. The vic- round. To general astonishment (polling is and threats for speaking up for equality of tim’s family may also press her to marry not permitted), the ruling party was elimi- the sexes in Central Asia. In Tajikistan Ma- her kidnapper, even—or especially—if he nated. An upstart outfit, the Druk Nyam- rifat Davlatova, an artist, has been dubbed has raped her, since many still consider it rup Tshogpa (DNT), took first place and Ms a “disgraceful whore” for her portraits of uyat for a woman to return home after be- Wangchuk’s relatively established opposi- nude and topless women intended to prot- ing kidnapped. It was the fate of a kidnap- tion party, Druk Phuensum Tshogpa (DPT), est against sexual harassment and the ob- ping victim that inspired Zere to write came a close second. jectification ofwomen. “Kyz”. Earlier this year Burulay Turdali- Many Bhutanese harbour mixed feel- Before the Soviet Union collapsed in yeva, a 19-year-old student, was stabbed to ings about the transition to constitutional 1991, the authorities in Kyrgyzstan and the death by her abductor in a police station democracy. Echoing the shopkeeper, a other four Soviet republics of Central Asia after her family reported the crime. grandee declares that, given the choice, the claimed to have emancipated the region’s Zere says to her critics, “Shut up, and lis- people would “take back monarchy in a formerly downtrodden women. In the ten and try to understand what this is heartbeat”. The surprise was that so many 1920s, under a policy known as hujum, about.” One man who is listening is her fa- ofthe 290,000 voters were keen to kick out women were encouraged to burn their ther, who defends her on Facebook as a the incumbent government. Its economic veils to show they had been liberated. “freethinking girl in a free Kyrgyzstan”. record, at least, had been impressive: in its Women did indeed start to work outside Though he hinted at disapproval of her five years in office annual GDP growth had the home and fields in Soviet days, but clothing, he eagerly endorsed her message: accelerated from 2% to 7%. they also continued to do the housework “Daughter, make your own decisions!” 7 Differences between the parties’ plat-1

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2 forms were subtle at best. Foreign policy is 2012, India grew chilly. Six days before the wisheshiscountrywere more open to Chi- not mentioned explicitly, yet it may have subsequent election, it abruptly ended na. He sells caterpillar fungus, which is played a significant role. Bhutanese re- subsidised sales of cooking gas to the king- used as an aphrodisiac there. He believes member the fate of two other Himalayan dom. The pain was instant, and the DPT that Chinese tourists bring more money to kingdoms, Tibet and Sikkim, which were was booted out. the kingdom than those ofall othernation- swallowed up by China and India respec- This year both the DPT and the DNT alities put together. tively. Last year Indian and Chinese troops touched on external matters in a round- Ms Wangchuk, however, is most inter- had a tense confrontation over a disputed about way in their campaigns, by com- ested in social issues, in particular the patch of territory where China, India and plaining about foreign debts for dam- treatment of women. One of her aides, a Bhutan all meet. India has near imperial building, dependence on imported fuel 27-year-old, argues that youth unemploy- power in the kingdom, and throws its and the government’s failure to attract a ment is to blame for depression, suicide weight about in Bhutanese politics. After Japanese embassy—all matters that hint at and drug use, and could be reduced by a the prime minister of the previous DPT India’s overbearing influence. “Sovereign- more engaged and representative govern- government met his Chinese counterpart ty, security, self-sufficiency” was the DPT’s ment. As he holds forth, some older voters on the sidelines of a conference in Brazil in dog-whistle slogan. A young businessman listen quietly—too polite to disagree. 7 Banyan So long

Tokyo’s greatest institution makes way fora carpark AST Saturday at six in the morning the tury.Now many family businesses are call- 13thcenturywhenconqueringMongolar- Lhandbells rang and auctioneers ing it a day. To close Tsukiji is to sever miessettled around the emperorthey had launched with guttural chanting into the Tokyo’s remaining link to its vibrant, mer- just installed. The destruction of Beijing’s last auction ofbluefin tuna at Tokyo’s Tsu- cantile past, celebrated in countless old ancient fabric was a tragedy. The city’s kiji market. The next day the market woodblock prints. It was a natural target bombastic new plan worships faceless closed forever. A procession ofits distinc- forbureaucrats tidying up the world. power and the dour deity of the motor tive “turret trucks”—miniature flat-beds Two years back, Tsukiji had hopes of a car. A few hutong are preserved as an er- driven by standing drivers—made their reprieve. The Toyosu site, where a coal-gas satztouristexperience, justasMs Koike in- way from Tsukiji, on the edge of the works had once sat, was heavily contami- tends Tsukiji’s outer market to become a earthy Shitamachi or Lower Town, a his- nated. The new governor of Tokyo, Yuriko culinary theme park. torically working-class area, to Toyosu, a Koike, putthe move on hold. In the end, the The Olympics have not been all bad in joyless landfill in Tokyo Bay. Tsukiji, the inexorable logic of Tokyo’s hosting of the Asia. Sydney’s site for the games in 2000, greatest fish market on Earth, is gone. Olympic games in 2020 spelled Tsukiji’s 14km out of town, is ageing well as its Built in the 1930s, it was a model of demise. The site, afterall, is needed as a car trees mature. But a predicted post-Olym- functional modernism. Fish and seafood park for Olympic vehicles. After that, pre- pic tourist bonanza never materialised. were brought from the quay via auctions sumably, the developers will move in. Sydneysiders stuck in traffic jams still and wholesalers in curved rows of ware- What is it about the Olympics? In prep- grumble that all that money would have houses through to end-buyers. City offi- aration for its previous hosting of the been better spent improving the city’s cials had long claimed that the market games, in 1964, Tokyo disfigured itself by creaking infrastructure. was no longer fit for purpose. The build- filling in the canals that made the city the And don’t forget the 1988 games in ings were old. A big earthquake posed Venice of the East, and built ugly express- Seoul. They helped end dictatorship and risks, not least of the release of asbestos wayson top ofthem. And in Beijing, where bring in democracy. On the games’ eve, from crumbling walls. And the site was Banyan lived when its bid for the 2008 students and others took to the streets de- unhygienic. Tokyoites are on alert for an gameswasaccepted, a corruptCommunist manding constitutional government. In exodus of sashimi-starved rats from the elite, on the pretext of preparing Beijing for the full glare of the world’s media the disused buildings. its global debut, displaced hundreds of strongman, Chun Doo-hwan, could hard- But there is no getting around it. To thousands of people and razed the hutong, ly beat them all up as past practice would close Tsukiji is to kill something vital. As a the network of alleyways laid out in the have demanded. Soon he was gone, and great sushi master, Hachiro Mizutani, elections tookplace. Today South Korea is once told Banyan, Tsukiji is “not just To- a beacon ofdemocracy. kyo’s best known brand. It’s the people’s Many predicted that the Beijing games market.” Its 23 hectares sat at the heart of would move China in the same direction. the world’s seafood trade, dealing on a But instead of acting as a spur for open- typical day with 1,500 tonnes of fish and ness, they were presented as the world seafood—450 species in all. coming to China, like so many tribute The human connections were many missions. The Olympics presaged the im- and varied, too. The economy of the mar- perial pomp ofPresident Xi Jinping. ketplace was etched across the neigh- In Sydney in 2000, teams from North bourhood in complex social, cultural and and South Korea marched together at the ritual patterns. Over 60,000 people made opening ceremony. Now, the two coun- a living in or around Tsukiji as auction- tries want to jointly host the 2032 Olym- eers, stevedores, clerks, grocers, restaura- pics. If it nudged North Korea towards de- teurs and knifemakers. In this warren, Mr mocracy, that would be something to Mizutani had dealt with the same hand- celebrate. Luckily there’s no fish market in ful of trading families for over half a cen- Pyongyang to get nostalgic about. China The Economist October 13th 2018 55

Also in this section 56 A blow to Hong Kong’s freedoms 58 Chaguan: Tremble and obey

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

Law enforcement Xi’s long-running campaign against corruption, Mr Meng’s treatment is not pecu- Unwanted red notice liar. Interpol’s chiefs retain their old government jobs while on secondment to Lyon. As a serving vice-minister of public security, Mr Meng is not immune to proceedings instigated by superiors in his BEIJING home country. By arresting the boss ofInterpol, China has drawn attention to the murkiness ofits Since Mr Xi took over as China’s leader politics and legal system in 2012 hundreds of thousands of officials HEN in 2016 a senior Chinese police- threatening call. Interpol said Mr Meng have been jailed or otherwise punished, Wman was elected president of Inter- had resigned. ostensibly for their involvement in graft. In pol—an international agencythathelps po- It will probably never be known how some cases the charges have appeared lice to co-ordinate across borders—state long China would have waited before an- aimed at neutering political rivals as much media portrayed the event as a vote of con- nouncing Mr Meng’s arrest had not his as cleaning up the party. Until recently, the fidence in China’s justice system and a wife and employer expressed their con- usual practice was to detain suspects using milestone in the country’s rise. Yet less cerns about him in public. On October 8th a system known as shuanggui, an extra-le- than two yearsafterhe tookoffice, the pres- China’s Ministry of Public Security re- gal form ofarrest that allowed party mem- idency of Meng Hongwei (pictured, left, at leased a report of a pre-dawn meeting that bers to be held in secret for months. At the an Interpol meetingin Beijinglastyear) has day of its Communist Party committee. It start of this year shuanggui was replaced come to a chilling end. quoted participants as saying that Mr with an alternative investigatory process Chinese officials took the 64-year-old Meng was being investigated for allegedly managed by a new branch of government, into custody in late September, after he taking bribes and for other unspecified the National Supervision Commission flew back to China for what was supposed wrongdoing. They said that Mr Meng’s de- (NSC). Mr Meng is the most senior official to be a short trip away from Interpol’s tention was evidence that no one was known to have been detained by this body. headquarters in the French city of Lyon. above the law, and that MrMenghad “only They did not admit that they had done so himself to blame” for his difficulties. At- Powerunleashed until October 7th, and only after Interpol tendees agreed on the need to “maintain a One reason forthe creation ofthe NSC was had issued a statement sayingthat its presi- high level of conformity with the political supposedly to impose some legal restraint dent’s whereabouts were unknown. stance, the political direction and the polit- on the party’s powers to discipline its own It had been a strange few days, during ical principles ofthe party centre” with the 90m members. Yet the new body has end- which all that was known was that Mr country’s leader, Xi Jinping(pictured, right) ed up with greater powers than the shad- Meng’s wife, Grace, had reported him at the centre’s “core”. Such emphatic lan- owy system it replaced. The organisation missing to French police. On October 7th guage suggests that the case may involve can investigate wrongdoing not just she appeared before reporters in Lyon, allegations of political misbehaviour, not amongpartymembersbutamongall man- keeping her backto the cameras in order to just of graft. “This is political ruin and fall!” agersworkingin publicservice. This triples hide her face. She showed the journalists MsMengsaid in a textmessage to the Asso- the number of people at risk of arbitrary an emoji ofa knife that had been sent from ciated Press, a news agency. detention. The NSC’s agents may hold peo- her husband’s WhatsApp account shortly The hugger-mugger of Mr Meng’s arrest ple in places of the party’s choosing for up after he arrived in China. She said she had seemed a snub to an organisation that is to six months. Investigators do not have to understood the message as a sign that he supposed to respect and promote due pro- inform relatives or employers, should offi- was in danger, and that she had heard cess—and to the delegates whom China cials believe that doing so might hinder nothing from him since. French officials had persuaded to electitsman asInterpol’s their inquiries. Nor are they required to al- said Ms Meng and her two children were president (he was the first Chinese citizen low access to a lawyer. under police protection, having received a to hold the post). Yet in the context of Mr There are various theories about why 1 56 China The Economist October 13th 2018

2 the party initially chose to deal with Mr Press freedom in Hong Kong ernment has since banned for threatening Mengin the secretive wayitdid. One isthat “national security”, amongothervague ac- China’s leaders are uninterested in, or pos- The long arm of cusations. China’s foreign ministry, which sibly ignorant of, how the country’s anti- has a branch in Hong Kong, had made it corruption procedures appear to foreign- the party clear that it saw any public gathering in- ers, including those who run Interpol and volving a separatist speaker as a provoca- other international organisations that Chi- tion. It had asked the club to cancel the HONG KONG na would like its citizens to lead. Officials event. The club had refused, arguingthat to Forthe first time, Hong Kong has forced may be wagering that, once clearer evi- do so would violate the principle of free a resident journalist to leave dence is presented of Mr Meng’s alleged speech. Local laws do not explicitly ban corruption, their decision to detain him so T IS not like he is getting executed,” public discussion ofindependence. furtively will appear more understand- “Iwrote a columnist for Ta Kung Pao, a Ms Lam has dismissed as “pure specu- able. Or they may simply reckon that Chi- leading newspaper in Hong Kong with lation” any attempt to draw a linkbetween na can continue to cajole countries into close links to the Chinese Communist Mr Mallet’s ejection and his hosting of Mr supporting its candidates for big interna- Party. The writer was referring to Victor Chan at the FCC. But the government re- tional jobs, regardless ofhow well or badly Mallet, a Hong Kong-based editor of the Fi- fuses to explain its decision (the Financial its government behaves. There has been nancial Times whose application to renew Times isappealingagainstit). MrChan says speculation that China’s leaders are un- his work visa, which expired earlier this he is in no doubt. Mr Mallet was “guilty by happy that MrMengdid not do a better job month, was rejected by the territory’s im- association”, he says (stressing that he can of persuading Interpol to do China’s bid- migration department. China has a long only speak in “a personal capacity”, given ding. Theywere angered byInterpol’sdeci- history of showing the door to adventur- that his party has been outlawed). Mr sion in February to cancel a long-standing ous foreign correspondents. But this is the Chan worries that journalists in Hong “red notice” (an alertthatsomeone is want- first time that Hong Kong, a semi-autono- Kong may increasingly censor themselves ed by a member country’s police) for Dol- mous territory, has forced a resident for- by avoiding sensitive topics. kun Isa, a prominent campaigner on be- eign journalist to leave. Mr Mallet has until The “one country, two systems” ar- half of China’s oppressed Uighur Muslim October14th to do so. rangement that China promised Hong minority who lives in Germany. The pro-Communist press aside, many Kong when it tookover the territory in 1997 Another theory is that China is acutely in HongKongaswell aselsewhere are wor- does not cover foreign affairs and defence. aware of what foreigners think and regrets ried bywhatthe territory’streatmentofMr It is likely that the government in Beijing that it had to waste political capital abroad Mallet portends. The European Union, put pressure on Ms Lam’s government in by making Mr Meng disappear. If indeed Britain and Canada have weighed in on his Mr Mallet’s case. Almost certainly at the they felt they had no choice but to act so behalf. America’s chamber of commerce central government’s request, HongKong’s furtively, that would lend weight to specu- in Hong Kong said any effort to curtail immigration officers sometimes deny en- lation that Mr Meng’s disgrace has less to press freedom in the territory could dam- try to people disliked by the Communist do with common-or-garden corruption age its business competitiveness. On Octo- Party—among them a British human-rights and more with some kind of high-stakes ber 10th, as Carrie Lam, Hong Kong’s chief activist, Benedict Rogers, who was turned political struggle unfolding in Beijing. The executive, was about to deliver her annual away last year. report published by Mr Meng’s ministry policy address to the Legislative Council, Instead of a new work visa, Mr Mallet associated him with the “pernicious influ- several pro-democracy lawmakers walked has been given a visitor’s permit valid for ence” of Zhou Yongkang, a former security out in protest, holding placards saying just seven days. After his departure, how- chiefwho since 2015 has been serving a life “Free press” and “No persecution”. ever, the journalist still has unfinished sentence forcorruption and who is widely Mr Mallet’s sin, it is assumed, was to business in Hong Kong. On October 23rd believed to have opposed Mr Xi’s rise to host a talk in August at the Hong Kong For- Mr Mallet is due to moderate panels at a power. Referring to him and other high- eign Correspondents’ Club (FCC), ofwhich conference organised by his newspaper. It ranking jailed officials, Mr Xi said in 2016 he is a vice-president and was then its act- is unclear whether he will be allowed back that senior people in the party had ening leader. The speaker was Andy Chan, into the territory to appear at the event. Ms gaged in “political conspiracies”. Early this the leaderofthe HongKongNational Party, Lam may regret having promised to attend summer rumours began to circulate that a pro-independence group which the gov- as a keynote speaker. 7 Mr Xi may be facing resistance from political rivals irked by his decision to revise the constitution in a way that allows him to retain power indefinitely, instead of for a maximum often years. None of these interpretations reflects well on the party. At best China unwitting- ly persuaded Interpol’s members to elect someone ofdubiouscharacter, despite criticism from human-rights activists who warned that appointing a policeman from a country with such a weak commitment to the rule of law would be a mistake. At worst China has embarrassed Interpol by allowing the party’s toxic political struggles to interfere with the body’s management. China’s leaders like to argue that the West is intent on slowing their country’s rise as a respected global power. The evidence suggests that the party is perfectly capable ofdoing that all by itself. 7 Officials want to muzzle them

58 China The Economist October 13th 2018 Chaguan Tremble and obey

Whystressed-out Chinese fall formelodrama about life in the imperial court housed in a palace built by Japanese occupiers when they installed the last Qing emperor as the puppet ruler of north-east China from 1932-45. Such dramas just use history as a backdrop, scoffed two students, Taylor Wu and Linda Zhang. They are really stories about “modern life”, they added, whether that means love stories or concubines seeking promotions. The students are on to something. Watching bored, paranoid concubines waiting for the emperor’s summons, the penny drops: this is a workplace drama, and these employees are failing a performance review. Young maids in a palace dormitory, torn between small acts of kindness and infighting, could be teenage workersatan electronicsplant. Even bejewelled dowagers sound like scolding parents from 2018, with one calling a daughter “gut- less” forfailing to askQianlong fora promotion. Imperial dramas have reflected the politics of their time since they first hit Chinese TV screens in the 1980s. Film-makers study whatCommunistPartyideologuescall the “main melody”, a mu- sical term they have borrowed to describe the core political ideas upon which creative sorts are encouraged to riff. “TV Drama in China”, a studypublished bythe HongKongUniversityPress, ele- gantly catalogues permitted themes. Historical dramas from the BIT surprisingly, one of the best things about the “Story of 1980s stressed the weakness ofthe last Qingrulers. In the authori- AYanxi Palace”, a television drama about an 18th-century em- tarian aftermath of the Tiananmen democracy protests, such perorthat has broken Chinese viewingrecords this year, is watch- shows praised 18th-century emperors as stern patriots whose ing concubines being rude to eunuchs. Even less predictably, the ruthlessness supposedly preserved national unity. “Yongzheng particular rudeness—combining scorn, resentment and a dash of Dynasty”, a drama from 1999, recast the unpopular Yongzheng fear—offers insights into how Chinese people cope with life in to- emperor as a flinty corruption-fighter. That reminded contempo- day’s ruthless and unequal society. An early scene shows the rary viewers of Zhu Rongji, a crusty reformer who was prime Qianlong emperor’s chief eunuch, a tubby, squeaky dimwit, minister at the time, Ying Zhu of the City University of New York bustling into a silk-draped waiting-room with an order for the has noted. By 2007 viewers were glued to “The Great Ming Dy- harem. Return to your quarters, he announces, the emperor is nasty1566”, a cynical drama about rampant corruption. working late. “What? His majesty is sleeping alone again?” grum- As years passed market forces joined Communist propaganda bles Noble Consort Gao, a boo-hiss villain. “Let’s go,” she tells her chiefs as a second boss. Early shows were dominated by male fellow concubines, stalking past the eunuch without a glance. characters and mostly watched by men. Today’s TV drama audi- “What else is there to wait for?” ence is 70-80% female and mainly from smaller cities, says Lei “Yanxi Palace” is a gorgeously costumed fantasy, filled with Ming of ABD Entertainment, an audience-analysis firm. Viewers poisonings, betrayals and young women competing for the For- typically watch on smartphones, he adds. Their favourite part bidden City’s great prize: being bedded by the emperor. “Join the about the show is talking it over afterwards with friends. army, you might as well become a general,” as one ambitious re- The leading man in “Yanxi Palace”, Qianlong, is something of cruit to the harem chirps. The show is driven by female charac- a cipher: a stern autocrat who finds his harem a chore. Chinese ters, including a kind but sickly empress, murderous concubines pundits have debated whether the show is a feminist tale about and—at the heart of the 70-episode epic—Wei Yingluo, a quick- strong women, or a retrograde saga about women who survive witted, justice-seeking maid, who rises to become Qianlong’s be- by obeying and pleasing bossy men. It is both. It is a reflection of loved consort. The formula is wildly popular, drawing700m live- the country today, a chauvinist place full ofstrong women. streaming views on the drama’s best single day, in August. Yet that night-time scene in the harem reflects some bleak re- Just trying to make a living alities of court life. The eunuch is ridiculous, and obsequious to In a fast-rising China, life is hard and filled with obstacles and high-ranking concubines. But he is also terrifying. For the concu- anxiety, says WangXiaohui, chiefcontent officerat iQiyi, the Net- bines live only to please his master, the emperor, an absolute rul- flix-like entertainmentcompanybehind “Yanxi Palace”. MrWang er in whose name the guilty and innocent alike are shown being describes today’s main melody. The masses (and the party) like jailed, executed or exiled without hope ofappeal. The Forbidden stories in which subordinates are loyal, kindness is rewarded and City is a crimson-walled tyranny, filled with spies. Noble Consort wickedness punished, and in which young people who work Gao’sdrawlinginsolence in the face ofrejection is, in the end, bra- hard can succeed. Mr Wang hails the women in his drama for an vado. She is privileged, cosseted and ready to hurt those below “independent spirit” that resonates with viewers. Outsiders may her in the pecking order. But in this system she has no individual note that such spirits do not always seek to reform or change a rights. And she does not challenge its rules. society. Getting ahead can be enough. Many Chinese might mock attempts to extract political les- A recurring theme of “Yanxi Palace” is that the Forbidden City sons from “Yanxi Palace” or other recent Qing dramas drawing is a place of harsh rules, but that rules keep chaos at bay. Such huge audiences, such as “Ruyi’s Royal Love in the Palace”. Yet obedient resignation suits China’s modern rulers well. With 15bn Chaguan quizzed visitors to a museum in the city of Changchun, cumulative downloads, this will not be the last ofits kind. 7 International The Economist October 13th 2018 59

Rape during conflict They said if I moved they would shoot. Three of them did it, one after the other,” The wolves of war she says, with startling composure. When she returned to her village, bleedingheavily, herhusband saw she had been raped and abandoned her. She was rejected by most of her neighbours. After BUKAVU three years of sporadic bleeding and acute The Nobel peace prize honours two campaigners against rape in war—an evil that is abdominal pain, some women from her more lamented than understood church collected money so she could travel HEN the women who fill the beds in their offices with his portrait, the man him- to Dr Mukwege’s clinic. When he exam- WPanzi hospital heard that Denis Muk- self is modest. A gynaecologist and obste- ined her, at first she felt “ashamed”. But he wege had won the Nobel peace prize, they trician, trained in Burundi and France, he is waskind and she soon sawhim asa friend. got up and started dancing. Laughter and delighted that the prize will make it harder “Thanks to him I am still here,” she says. clapping echoed through the hospital for his government to claim that the coun- Dr Mukwege has had to make big sacri- wards. Many women are recovering from try is at peace. “Rape is used systematically, fices. He lives “almost as a prisoner”, inside internal damage caused by rape. One 30- methodically,” he says. “Women are the hospital compound. It is not safe to year-old, suffering intermittent bleeding ashamed and stay silent.” walk the streets. He survived an assassina- after being raped in a forest, says she was The endless stream ofwomen, children tion attempt in 2012 and fled to Belgium feeling weak that day. “But when I heard and even babies with maimed insides has with his family. His former patients rallied that Papa Mukwege had won that prize, I sometimes brought him close to despair. to bring him home, writing without reply was so happy, I had to stand up and dance. He remembers the helpless rage he felt to Congo’s president, Joseph Kabila, and to He won it forhelping us.” when an 18-month-old baby was brought the UN’s secretary-general at the time, Ban Dr Mukwege’s co-winner is Nadia Mu- in with genitals mangled by rape. After Ki-moon. Then, he says, his voice cracking, rad, a member of Iraq’s Yazidi minority treating her he called 50 men into his office “they started coming to the hospital every and a former sex slave of Islamic State (IS). and begged them to go to the village and Fridayto leave $50 thattheyhad collective- She wrote a book called “The Last Girl” be- find the culprits. But the rapists—rebels ly earned by selling fruit and vegetables.” cause she wanted to be the last girl in the from one of the region’s several militia The money was for his air fare. These world with such a story. That these two groups—had long since melted back into women survive on less than $1a day. “I de- brave campaigners won the prize says the bush. cided that their sacrifice was greater than much about changing attitudes. For centu- mine and so I came back.” ries rape in war was seen as inevitable. But Punishing the victim The assassination attempt came soon recent years have seen widespread revul- The doctor blames such atrocities on a cul- after the doctor had given a speech at the sion and a determination to curb it. ture of impunity. Gloria, a Panzi patient in UN lambasting Congo’s leaders for letting None too soon. Since 1999, when Dr her twenties, says she was raped by three conflict and rape continue. Even now, his Mukwege founded his hospital, perched militiamen on the edge of a mud path. government does not feign admiration for on a grassy hillside in his hometown of Bu- They were celebrating a victory over the him. “We commend a fellowcitizen forthis kavu in the east of the Democratic Repub- national army. The men, each toting a Ka- honour but have not always agreed with lic ofCongo, it has treated over 40,000 sur- lashnikov, grabbed herand three friends as his observations,” the Minister ofInforma- vivors ofsexual violence. The perpetrators they walked through scrubland. “They tion mumbled about his award. have nearly always gone unpunished. beat me, then they laid me on the ground, Worldwide, however, awarenessofsex- Though many of his staff have decorated put a cloth over my head and raped me. ual violence in war has risen. Hundreds of1 60 International The Economist October 13th 2018

2 thousands were raped in the 1990s, during their men to do it to terrorise populations can be markedly different from in peace- the Bosnian war and the Rwandan geno- or to achieve other military objectives. time. It is usually more violent, sometimes cide. The international tribunals set up That is sometimes true. Ms Murad’s rapists involvingsticks orrifles. It is also more like- after those conflicts broke new ground in were following an explicit, written doc- ly to be done in public, to maximise hu- the prosecution of sex crimes. In 2008 UN trine that IS jihadists were free to enslave miliation, and to involve many perpetra- Security Council resolution 1820 recog- and “marry” captured infidels. IS com- tors. In “Rape during Civil War”, Dara Kay nised sexual violence as a tactic of war. In manders encouraged this, partly to destroy Cohen of Harvard notes that though less 2014 Angelina Jolie, an actress, and Wil- the Yazidi faith (by killing the men and en- than a quarter ofreported peacetime rapes liam Hague, then the British foreign secre- slavingthe women), and partlyasa recruit- are gang rapes, in war the figure is estimat- tary, played host to a summit in London on ingtool—join the jihad and gain a sex slave. ed to be three-quarters or more. ending wartime rape. Such written orders are vanishingly Fighters take part in gangrapes to forge rare, however. Usually, even when mass bonds with each other, argues Ms Cohen. The invisibles rape is clearly being used for strategic ends, What they are doing is taboo and danger- Some typesofwartime sexual violence are such as the “ethnic cleansing” in Bosnia, ous—some contract crippling sexually often still overlooked. Men and boys can Darfur, Myanmar and Rwanda, it is fiend- transmitted diseases from it. Having done also be victims. Charu Lata Hogg, the foun- ishly hard to prove who is to blame. something so vile together, they become der of the All Survivors Project, a charity, Rape in wariscomplex. Perpetrators are partners in crime and this helps foster says that this issue is “a blind spot in law, not always combatants—at Panzi, forexam- group loyalty. This may be why, as Ms Co- policy and humanitarian response”. ple, over the past ten years, 34% of victims hen found, conscripts, who mayhave been In Sri Lanka, for example, where many were raped by civilians. Nor is rape always abducted or press-ganged, are more likely men suffered sexual violence in army depart of a military plan. A commander can to rape than volunteers. They start off with tention during a 26-year civil war that end- prohibit, tolerate or order it. Understand- little or no loyalty to the unit. Command- ed in 2009, the law does not recognise ers know this, and so allow or encourage male rape, and so does not ban it. In coun- them to commit sexual crimes as a group, tries where gay sex is illegal, men who knowing that this will bind them together. have been raped feel not only shame but Armies that switch from voluntary recruit- also fear, in case they are accused of being ment to the forcible sort, such as the Civil accomplices to a crime. Few speak up, let Defence Forces in Sierra Leone, tend to be- alone seek help. So the prevalence of male come more sexually violent. rape in war is even harder to estimate than Policymakers need to recognise such that offemale rape. According to a study by early-warning signals. It might also help if the UN High Commissioner for Refugees, commanders were held responsible for refugee women in Jordan last year estimat- tolerating widespread sexual violence, ed that 30-40% of men from their commu- rather than just for ordering it. One insight nities in detention in Syria suffered sexual noted in the debrief notes from the Inter- violence. The problem is starting to be re- national Criminal Tribunal for the Former cognised. Cases at the International Crimi- Yugoslavia was that it was unhelpful to re- nal Tribunal for the former Yugoslavia quire investigatorsto prove thatsexual vio- (ICTY) included sex crimes against men. lence was used strategically, because this Atrocities against women are more was all but impossible. widely acknowledged, bringing support The world has tried to deter wartime for those, like Dr Mukwege, who deal with rape largely by bringing war leaders to jus- their consequences. Whether they are tice. High-profile prosecutions matter, but growing less common is hard to say. In ab- they cost millions of dollars and often fail. solute terms, they probably are, simply be- Nearly 20 years after the establishment of cause wars are rarer than they were a gen- the International Criminal Court, it has yet eration ago. But whether the number of ingwhyithappensshould make iteasier to to convict anyone for sexual violence as a sex crimes in a typical war is rising or fall- prevent it, and to prosecute the culprits. war crime. A Congolese warlord was ac- ing is unknown. Data that appear to show Not all armies and militias rape. Over a quitted in June. an increase may merely reflect improved third of the 91 big civil wars in 1980-2012 Prosecuting perpetrators is seldom the reporting. There are also inconsistencies in had no large-scale sexual violence. In El survivors’ priority, either. (Though Ms Mu- how“sexual violence” isdefined; some de- Salvador’s civil war National Liberation rad urges that IS commanders face justice.) finitions are limited to penetrative rape, Front militiamen very rarely raped and More worry about food and shelter, says others include shaving women’s heads. those who did were punished severely. the International Committee of the Red And there is huge variation in how likely The militias needed civilians for shelter Cross. Rape victims often sufferstigma, so- victims are to report an attack, depending and intelligence, and trained fighters not to cial isolation and even, like Gloria, aban- on local customs. outrage them. The otherwise brutal rebel donment by their families. They also re- But, it is certain that the problem per- Tamil Tigers in Sri Lanka prohibited sexual quire protection, because even after war is sists. In South Sudan a UN survey found abuse. The National Resistance Army in over, high levels ofrape tend to persist. that 70% of women in civilian camps in Uganda had a code of conduct noting that Dr Mukwege says he has kept going, Juba had been raped. And, as women in “many women are wives or daughters of even through the darkest of times, thanks refugee camps in Bangladesh give birth to somebody, somewhere.” Crucially, argues to his patients’ unrelentingwill to carry on. babies conceived in rape, aid workers are Elisabeth Wood of Yale University, in all When she limped into his clinic, Gloria only beginning to grasp the scale of sexual these cases, commanders had both the half collapsed against a tree in the court- violence, mostly gang rape, during the bru- will and the control to enforce such rules. yard. Now she is strong enough to face the tal expulsion of 1m Rohingya people from Some combat groups commit mass future. “When I go backto mycommunityI Myanmar last year. rape without clear orders. Some men will walk through the village to show The idea has caught on that rape is a doubtless do it because, in the fog of war, everyone I am alive,” she says. “I’ll show weapon of war: that commanders order they can get away with it. But rape in war them there is life after rape.” 7 Business The Economist October 13th 2018 61

Also in this section 62 Goodbye, Google+ 63 Ryanair and trade unions 63 Unilever stays in London 64 Bartleby: Mental health 65 Food delivery in India 65 Coﬀee wars 66 Schumpeter: Britain and ﬁnance

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

Electronics manufacturing “Made in China 2025”, and it is easy to see why America is worried. It was fretting The great chain of China even before Mr Trump came to office. Re- porting to his predecessor, Barack Obama, the President’s Council of Advisers on Sci- ence and Technology found that China’s policies to foster its semiconductor indus- SHENZHEN try, for instance, “are distorting markets in China’s dominance ofthe electronics supply chain has Westerners worried, but it ways that undermine innovation...and put will be hard to break US national security at risk”. HE first floor is all about components: National University ofSingapore. The origin of China’s dominance lay in Tevery type of switch, every cable and More than half of the world’s mobile cheap labour. In the early 2000s compa- every screw can be found here, often in phones are made in China, along with al- nies in all sorts of industries sent at least bags of thousands. The second floor is most all of the printed circuit boards, the some manufacturing to China to stay com- filled with circuit boards and small gad- guts ofany device. Chinese factories install petitive. Although much production has gets, from video cameras to headsets. The two-fifths of the world’s semiconductors. been automated since, electronics can be higher you go, the bigger and more sophis- Of the production facilities operated by labour-intensive even today: components ticated the devices get: smartphones, Apple’s top 200 suppliers, 357 are in China. often need to be assembled by hand or tak- drones, hoverboards. On the top floor, the Just 63 are in America. en from one machine to another. Foxconn, tenth, a blinding cornucopia of LEDsofev- This dominance has shot up the politi- Apple’s main contract manufacturer, em- ery shape and colour assails the eyes. cal agenda—in particular, in the United ploys 250,000 people in Shenzhen. The SEG Electronics Market (pictured) States. America’s trade deficit with China and similar places in the Huaqiangbei dis- and unfair Chinese practices, such as the Circuit training trict of Shenzhen, a fast-growing city in forced transferofintellectual property and In recent years labour costs have gone southern China, an hour’s drive north of even outright theft, are the main reasons up—by more than 60% between 2011 and Hong Kong, have been described as sweet why President Donald Trump has raised 2016, say some estimates. Vietnamese or shops forhardware geeks. But they are bet- tariffs on many Chinese products. But Indian workers are far cheaper. But China ter understood as showcases and sales of- American officials have other reasons for now has much else to offer. Flying into fices for the thousands of factories in the wanting companies to re-route supply Shenzhen and taking the subway to Hua- city’s hinterland and elsewhere in China. chains. Growing strategic rivalry is one qiangbei is a breeze. An ecosystem of firms The people at the markets’ booths are hap- worry. And on October 5th the Pentagon has sprung up to provide everything from py to sell you items in ones or twos, but warned that not enough attention had logistics to prototyping. Although high- they prefer to talk to much bigger custom- been paid to the security of the electronics end components, such as processors and ers on the phone. supply chain. The day before, Bloomberg memory chips, must still be imported, Huaqiangbei’s markets are also a per- BusinessWeek, a magazine, reported that most other things can be sourced locally. fect symbol of how dominant China has Chinese agents had managed to implant “The total production cost is still lower become in the electronics industry. The spy chips on circuit boards used by 30 than elsewhere,” says Mr Yeung. country is the core of the sector’s global American firms, including Amazon and Other factors also favour concentra- supply chain. Chips and other compo- Apple. (Both companies have strongly de- tion. Shenzhen’s ecosystem pulls in more nents pour in, mostly from other Asian nied the story, although some experts, hardware-makers the bigger it gets—just as countries; they are assembled in China; such as Greg Allen of the Center for a New Silicon Valley’s dense network of venture- the finished devices are then sent all over American Security, a think-tank, say the capital funds, law firms and other service the world. China ishome to more than half scenario is plausible.) providers has attracted more and more of the world’s manufacturing capacity for Add China’s ambitious plan to move startups. And in contrast to other products electronics, estimates Henry Yeung of the up the electronics value chain, called such as cars, notes Greg Linden of the Uni-1 62 Business The Economist October 13th 2018

2 versity of California, Berkeley, gadgets and 50m Facebook users in 2014. Those data their components can easily be flown Shenzen calling were used to target advertisements in around the world, meaning that making Top mobile-phone exporters, % of world total America’s presidential election and Brit- everything in one place does not entail 2007 2017 ain’s referendum on leaving the European high transport costs. 0102030405060 Union in 2016. When the data-harvesting The question is whether the forces that Hong Kong was exposed, also in March, the resulting have pulled the electronics industry into China stink led to Mark Zuckerberg, Facebook’s nil China can be broken or weakened. To Vietnam boss, being summoned before America’s some extent, thishasalreadyhappened. To Congress. Cambridge Analytica shut nil offset higher labour costs, and to reduce UAE down in May. (Its staff have since set up a their reliance on one country, some firms new firm, called Auspex International.) United Mobile-phone exports have moved some activity. Most promi- States Internal documentsshowthatGoogle’s nently, since 2009 Samsung, the world’s Worldwide lawyers were well aware ofthe risks of ad- South Korea biggest smartphone-maker, has shifted 2007 2017 mitting to their own bug in the midst ofthe $107bn $269bn most of its production to Vietnam, making Germany Cambridge Analytica furore. Disclosing it, the countrythe biggestexporterofsuch de- they wrote, could invite “immediate regu- vices after China (see chart). Source: International Trade Centre latory interest”, and lead to Google “com- America’s tariffs on goods made in Chi- ing into the spotlight alongside or even in- na are pushing others to follow suit. Firms dependence in the global electronics instead of Facebook”. Sundar Pichai, such as SK Hynix, of South Korea, and Mit- dustry is too strong for that. But recent Google’s chief executive, might even have subishi Electric, of Japan, have started events have given American firms an in- been dragged before legislators along with moving production back home. Taiwan’s centive to reduce their reliance on Chinese Facebook’s Mr Zuckerberg. Compal Electronics is considering reactiv- manufacturing. Chinese firms will feel the There are differences between Google’s ating a Vietnamese factory. Some contract same way about American technology, case and Facebook’s. Only a hundredth as manufacturers, such as Jabil, an American given the near-death experience of ZTE,a many people were affected. In a blog post firm, see the trade war as an opportunity: Chinese maker of telecoms equipment, Google said that, as far as it could tell, no- with factories in many countries, they can after the Department of Commerce briefly body else had spotted the bug and no data switch production as conditions change. banned exports to the company,which de- had actually leaked (although, less reassur- In theory the trickle could become a pends on processors designed in America. ingly, the firm keeps only two weeks of log flood if the trade war heats up or worries A tech cold war is not yet under way. But data at any one time). That meant that, ac- about supply-chain security intensify. things are a lot chillier. 7 cording to both the law and Google’s inter- Many factories in China are owned by for- nal guidelines, there was no need to do eign firms, which could move facilities anything other than fix the problem and elsewhere. But in practice the outflow is Social networks stay mum. likely to be limited. China’s advantages That has not silenced claims of a cov- look too great: Vietnam’s infrastructure is Plus, minus er-up: at least one lawsuit has already been far worse; India’s bureaucracy makes filed. Perhaps to soften such accusations, building a factory and hiring a few thou- the rest of the blog post talked at length sand people too onerous to bother with. about better privacy protections for users Similarly, the notion put forth by some of Google’s other products. The firm plans in the Trump administration that firms to stop many third-party developers from Google’s little-used social network will, under pressure from tariffs and poli- reading text messages and call logs on shuts down in disgrace tics, “reshore” much of their manufactur- smartphones running its Android operat- ing to America, is an illusion. Companies T WAS not a good way to go. On October ing system, for instance, and to reduce the such as Apple and Foxconn may well build I8th Google said it was closing Google+, a number of developers allowed to develop factories in America, to make high-end social networkthat it had launched in 2011. add-ons to Gmail, a free email service that products or for political reasons. But repa- On the face of it, that hardly matters: Goo- shows advertisements to users based on triating assembly and the production of gle+ is a ghost town. Although the network the content oftheir messages. commodity components “would be im- notionally has hundreds of millions of us- Tightening access to personal data possible”, says Mr Yeung—not least be- ers, Google itself admits that 90% of visits should help make accidental exposures cause of a lack of people willing to do bad- last less than five seconds. Few will miss it. less likely in future. At the same time, regu- ly paid, repetitive jobs. Most firms will The internet-search and advertising giant lators are pickingup theircudgels. The EU’s have no choice but to wait things out and plans to resurrect some version of it for in- General Data Protection Regulation came pass the cost oftariffson to their customers ternal use in companies. into force in May, two months after Google if they can. They will also have to invest Less important than the fact of its clo- found its bug; it requires firms to disclose more in supply-chain security. Happily, the sure, though, was the manner. The an- data breaches within 72 hours or face steep technology for this is improving. For in- nouncement came hours after the Wall fines. California has passed a data-privacy stance, Instrumental, a startup created by a Street Journal revealed that, in March, Goo- law of its own, helped along by the Cam- former Apple engineer, uses computer vi- gle had discovered a bug in Google+’s code. bridge Analytica affair. sion to scan circuit boards for signs of tam- Information that around half a million us- The internetgiantsseem to have accept- pering as they leave assembly lines. ers had marked as private was neverthe- ed tighter regulations as inevitable. Their Some experts have posited the idea ofa less made visible to their friends and objective now is to try to shape them as bifurcation ofthe electronics supply chain, through them to more than 400 third- best they can. Several big computing firms, along with other parts of the information- party apps. includingGoogle and Facebook, are lobby- technology industry such as the infrastruc- Both the nature of the bug and its timing America’s federal government over nature for mobile networks and even the in- ing are significant. The bug has echoes of tional privacy rules, to avoid having to ternet itself. One part would serve the the way in which Cambridge Analytica, a comply with a patchwork of local state West; the other, China and allied countries. British political-advertising firm, was able codes. The foxes have decided their best A complete split seems unlikely: inter- to illicitly harvest the data of more than bet is to try to help build the henhouse. 7 The Economist October 13th 2018 Business 63

Ryanair and trade unions Unilever Labour pains Sour taste

DUBLIN Skill shortages are empowering transport unions in Europe The makerofMarmite stays in Britain UNNING an airline used to be a sure- EW companies can beat Unilever at Rfire way to lose money. Warren Buffett Fmarketing stuff, whether a bar of Dove once joked that the best thing a clairvoyant soap, a box ofKnorr bouillon cubes or a jar could have done for investors in 1903 was ofMarmite savouryspread. Itsbosses have to shoot down Orville Wright. Michael proved rather less successful at pitching to O’Leary of Ryanair has done his best to their own investors. On October 5th Uni- change that. By stripping away benefits lever’s board scrapped its plans to quit Brit- and inefficient working practices that pi- ain in favour of the Netherlands after its lots and cabin crew had cherished for de- own shareholders had balked at the move. cades, he has turned the Irish airline into There is enough egg on management’s Europe’s biggest and most profitable. But faces to blend a jumbo tub of Hellmann’s now the workers, with many others in the O’Leary, we’re weary mayonnaise. transport industry, are fighting back. The plan to simplify Unilever’s Anglo- Ryanair is feeling this new assertive- But although Ryanair now recognises Dutch structure was meant to be the part- ness keenly. Last December it was forced to unions, it is not taking negotiations with ing triumph of Paul Polman, its chief exec- recognise unions for the first time after a them seriously, says Philip von Schöppen- utive for nearly a decade, who is expected shortage of pilots had forced it to cancel thau of the European Cockpit Association, to retire soon. Scrapping the firm’s dual 20,000 flights in the autumn. This summer a group of pilot unions. One point of con- holdingcompanies, the legacy ofthe merg- itwashitbya longseriesofpilotand cabin- tention isitsrefusal to talkto union officials er of the Netherlands’ Margarine Unie and crew strikes. At one point in August, it had who still work for other airlines. Mr O’Le- Britain’s soapmaking Lever Brothers in to cancel a sixth of its flights. In September ary fears his rivals’ staff want to eliminate 1929, would make the company more agile, a union-led campaign against the re-elec- Ryanair’s competitive advantage by im- its bosses had boasted. Rotterdam was tion of David Bonderman as Ryanair’s posing their own inefficient working prac- pitched as the company’s new home in chairman was defeated by a much thinner tices. This angers the unions, which claim March, after months of boardroom delib- margin than Mr O’Leary expected. On Oc- the right to picktheir own representatives. erations. Its headquarters in London tober1st, blaming the strikes, the airline cut Ryanair will have a hard time making would be ditched. its profit forecast. Its share price fell by13%. them back down, says Philipp Goedeking Unileverdenied thatitsproposed move Transport unions are throwing their of Avinomics, a consultancy. Instead of re- had anything to do with Brexit, or with the weight about elsewhere, too. Air France- cognisingone union formostofitsworkers gentler brand ofcapitalism practised in the KLM’sshareshave fallen by38% since Janu- in each country, as in Ireland, it is dealing Netherlands. MrPolman hasbeen a propo- ary, largely because unions have refused to with lots. That provokes competition be- nent of engaging all “stakeholders” when compromise on pay and conditions. tween unions for the biggest pay rises. (At doing business, not merely short-termist French railways were paralysed this spring Lufthansa inter-union relationsonce got so shareholders, as Anglo-Saxon types are by striking train drivers and conductors. bad that signs saying “no pilots allowed” wont to do. An unwanted approach in Feb- And a scarcity of lorry drivers has resulted appeared in the canteen.) ruary 2017 by Kraft Heinz, an American in pay increases of 30%-plus for some Some executives instead ascribe un- food manufacturer controlled by Warren American and European truckers this year. ions’ greater militancy to worries about Buffett’s Berkshire Hathaway and 3G Capi- Skill shortages partly explain unions’ losing jobs to drones and self-driving vehi- tal, a private-equity firm, highlighted the increased willingness to flex their muscles, cles. They accuse union officials of trying advantages (for management) of being says Dave Emerson of Bain & Company, a to setexistingpracticesin cement. In Amer- based in a place where such takeovers 1 consultancy. A decade on from the last re- ica the Teamsters, a union forlorry drivers, cession and afterseveral yearsofabove-av- lobbies against self-driving trucks on pub- erage increases in air, rail and road traffic, lic roads. Air-traffic controllers have resist- Magnum force all three industriesare runningoutof spare ed new technology and working practices Largest FTSE 100 companies, October 9th 2018 pilots and drivers. Training new ones is for decades. Eurocontrol, which co-ordi- By market value, £bn slow and expensive, costing as much as nates air-traffic control in Europe, forecasts 0 50 100 150 200 250 $160,000 for an airline pilot and $500,000 that the resulting lack of capacity will in- Royal Dutch Shell for an air-traffic controller. Less-well-paid crease flight delays by 53% this year. These workers, such as cabin crew and lorry driv- delays and consequent compensation will HSBC ers, have been lured away by job openings hit Ryanair’s profits harder than continued Unilever in more family-friendly industries. pilot and cabin-crew strikes, says Gerald BP Transportunionsalso feel thatthe polit- Khoo ofLiberum, a bank. BHP Billiton ical winds are in their favour. On October Alas forflyers, delays will get worse un- BAT 2nd Belgium, Denmark, France, Germany, til policymakers are annoyed enough to GSK Luxembourg and the Netherlands an- overrule the unions, says David McMillan AstraZeneca nounced their support for stricter labour of the ATM Policy Institute, a think-tank. Rio Tinto laws in aviation, including bans on Ryan- Transport unions are getting better at help- air’s practice of employing workers based ing their members. But they may be getting Diageo outside Ireland on stingier Irish contracts. better at hurting consumers too. 7 Source: Thomson Reuters 64 Business The Economist October 13th 2018

2 could be stymied more easily. that it will be trickier to issue new shares to man and Unilever’s chairman, Marijn To shareholders the move to Rotterdam make a large purchase, or to spin oﬀ a unit. Dekkers, who is also Dutch. was Marmite: some loved it, others hated Neither is imminent. And sceptics point Choosing London instead would prob- it. Some British fund managers fretted that outthatthe dual structure wasno hurdle to ably irritate Dutch shareholders, who a fully Dutch Unilever would be shut out UnileverreshapingitselfafterKraft Heinz’s would argue they would be forced to sell of the FTSE 100 index of companies in approach, notably by selling its margarine shares in much the same way as their Brit- which they may invest (see chart, previous business to a private-equity fund for $8bn ish counterparts declined to do. A compro- page). Why vote for a proposal that would in late 2017. mise will have to be found. Royal Dutch force them to sell their shares in a well-run Unilever’s next move is unclear. The Shell, another Anglo-Dutch group, hedged company? Mr Polman acknowledged this Netherlandshasgone outofitswayto getit itself in 2005 by sending its headquarters was a problem but seemed to think the in- to go Dutch. Mark Rutte, a former Unilever to The Hague but keeping its primary list- vestors should vote against their own in- man turned prime minister, had even ing in London. Unilever is no stranger to terests forthe company’s greater good. agreed to change the tax code in its favour. fudge, not least in its Ben & Jerry’s ice The main consequence of keeping the Plenty think the Rotterdam caper was dri- creams. It will have to create a similar con- current convoluted structure seems to be ven by the personal preferences of Mr Pol- fection forits aggrieved investors. 7 Bartleby Minds do matter

There is more acceptance ofmental-health issues at work ISTORY is full ofjobs that took an im- weekends,sothatpeoplecangethelpout- Hmense physical toll on employees, side office hours. He says that people are from miners and construction workers reluctant to tell their friends and col- through to those who suffered “phossy leagues that they need therapy. That is jaw” (a destruction ofthe jawbone) in the why Mynurva has no app: it would be match factories of the late 19th and early permanently visible on users’ phones. 20th centuries. But it is only in the past One approach that might encourage couple of decades that workers’ mental greater understanding, Dr Sikafi suggests, health has become more widely discuss- would be a change of terminology.Terms ed and understood. The first World Men- like “mental illness” are still associated tal Health Day was organised in 1992; the with some severe conditions. latest was marked on October10th. Chari- Some companies have a long-hours tycampaigns,like“timetochange”inBrit- culture; others insist on near-continuous ain, try to remove the stigma associated contact with their employees through with mental-health problems. their smartphones. That makes it very Those problems are widespread. A re- hard for workers to escape stress and to cent review of studies in Europe found devote their attention to their families or that 38% of the EU’s population suffers the doctors suggested electric-shock treat- to enjoy activities outside work. from a mental disorder (on a broad defini- ment. Bartleby’s grandmother suffered On the other hand, flexitime has be- tion, ranging from anxiety to drug depen- from severe post-natal depression in the come more common, home working may dence) each year. As well as severe dis- 1920s; she was placed in a mental home create a calmer environment, and it is tress, this inevitably leads to absenteeism and never saw her child again. more acceptable for men to take time off and poor performance. The World Health Nowadays treatment is much more for family events. And a reticence to talk Organisation (WHO) estimates that men- likely to be associated with pharmaceuti- about mental health in front of the boss tal-health troubles cost the global econ- cals (though admittedly this can bring its may be unnecessary. Executives are peo- omy $1trn a year in lost output. own problems, notably the risk of addic- ple, too. A study by BUPA, a health insurer, In a survey of American workers, 63% tion) and with therapy. Workers are more of global business leaders found that 64% of respondents reported that stress in the inclined to accept help ifthey feel the treat- had suffered a mental-health issue at workplace had a significant impact on ment regime will be considerate. “Cogni- some point. That ought to make them their mental and behavioural health. Ac- tive behavioural therapy”, which teaches sympathetic to staffin the same situation. cording to a study by the Confederation people to bypass unhelpful thoughts, has In theory, a more humane approach of British Industry, which represents big few negative connotations. should be good for managers and work- businesses, 40% of employers in 2017 re- The business world has also made great ers for other reasons as well. The WHO ported that more than 5% of their work- strides in dealing with mental health. A says that “workplaces that promote men- force had a mental-health issue. That was 2017 report by Business in the Community, tal health and support people with men- nearlya fourfold increase on a similar sur- a British charity, for example, found that tal disorders are more likely to reduce ab- vey conducted in 2013. 53% of workers said they felt comfortable senteeism, increase productivity and This higher figure may actually be an about discussing mental-health issues at benefit from associated economic gains.” encouraging sign. As the stigma sur- work. But plenty of progress still needs to Justthe abilityto talkfreelyabout stressor rounding mental illness fades, more peo- be made. Only13%ofthose with a problem anxiety may reduce the problem. Perhaps ple may be willing to admit to it. Society felt they would be able to discuss it with in future workers will be no more reluc- has certainly come a long way in its treat- their line manager. tant to reveal a mental condition than to ment of mental health. When Bartleby’s Zain Sikafi, a British doctor, has set up report a broken bone or a dose ofthe flu. father suffered from depression after los- Mynurva, an online therapy service that ing out from a job reshuffle in the 1960s, schedules appointments after 5pm and at Economist.com/blogs/bartleby The Economist October 13th 2018 Business 65

Food delivery in India Coﬀee wars Free lunch Full of beans

Competition is hotting up in the coffeeindustry MUMBAI N1934, in the Italian city ofTrieste, Allegra World Coffee Portal, a consulting Investors are pouring money into Francesco Illy came up with a way to firm. In the past few years the market has deliveryapps—and fornow, losing it I package coffee in pressurised containers consolidated—and at a fasterpace in the FTHE thousands ofyoung men trying that kept it fresh. In1935 he invented the past year or so. Oto make their fortunes in Mumbai, In- first automatic coffee machine. In1974 In 2015 JAB bought Keurig, America’s dia’s biggest city, Abdul Haq Ansari is do- Illy,the company he founded, became biggest coffee-pod system, for $13.9bn. It ing better than most. Wearing a black and the first to sell a kind ofcoffee pod—single has also swallowed Jacobs Douwe Eg- orange jacket and carrying a cooler bag, he servings ofground, tamped beans that berts, Espresso House and Peet’s Coffee. climbs aboard his battered Royal Enfield produced espresso anywhere, any time. Nestlé signed a $7bn deal in May with motorbike and sets off towards a local res- Aluminium capsules, the successors Starbucks to distribute the ubiquitous taurant. In the past month, he has started ofthose pods, have become a fiercely chain’s products. Today JAB and Nestlé making deliveries for Swiggy, a fast-grow- contested battleground forthe world’s together control about a third ofthe ing food-ordering app, around Bandra, a biggest coffee companies, notably Nestlé, market forfresh and instant coffee, which hip suburb popular with Bollywood stars a Swiss food-and-drinkgiant, and JAB Euromonitor International, a research and cricketers. Delivering meals is “very Holdings, an investment firm intent on firm, estimates to be worth $83bn a year. good formoney”, he enthuses. Workingfor building a coffee empire. On October 8th, Capsules—an expensive but conve- five or six hours an evening, Mr Ansari in the latest sign that the coffee wars are nient way ofmaking coffee—have been makes about 20,000 rupees a month hotting up, Illy signed a licensing deal for the market’s fastest-growing area in ($270), enough to put him into the top 20% capsules with JAB, blending Illy’s coffee recent years. The pace has slowed recent- of Indian earners. And because this is his and cachet with JAB’s commercial clout. ly,notably in America where the market second job—Mr Ansari is also a personal Two decades ago as many as 20 sub- has matured, but Europe is still bubbling trainer—he is in fact well into the top 10%. stantial companies competed in the away.Nespresso, owned by Nestlé, leads India’s urban middle classes have long retail-coffee trade, says Jeffrey Young of in Europe but has failedto make inroads expected to be able to get anything deliv- in America. Keurig got there first, offering ered to their doors by a horde of underem- a variety ofbrands, and selling them ployed young men. Mumbai’s “dubbawal- through supermarkets. Until recently lahs”, who deliver thousands of lunch Nespresso only sold its products in its boxes to offices each day, have been the own shops and through its website. subject of earnest studies by management Nestlé’s acquisition in 2017ofa majority consultants. But now techies hope they stake in Blue Bottle Coffee, a hip Califor- can beat them at the same game. Over the nian brand, is a sign ofits eagerness to past six months, food delivery has taken boost its presence in America. off, thanks to huge investments in app- Despite JAB’s and Nestlé’s heft, others based logistics firms. are keen to compete. Coca-Cola bought Swiggy has raised $465m in total, much Costa, a British chain, in September for ofit from Naspers, a South African internet £3.9bn ($5bn). This month Lavazza, an- firm which also owns a large share of Ten- other Italian coffee-maker, bought Mars’s cent, one of China’s online titans. It now coffee business, including its Flavia and claims to “partnerwith” some 70,000 driv- Klix vending systems. But—as formany ers and deliver 700,000 meals a day. Its other products—Amazon is the great main competitors include Zomato, which unknown. Sales ofhot drinks have been has raised $200m from Alibaba, another slow to take offonline. As capsules’ huge Chinese e-commerce firm, and Food- popularity grows that may change, says Panda, which is owned by Ola, an Indian Matthew Barry ofEuromonitor. Ama- ride-sharing app with many foreign inves- zon’s purchase ofWhole Foods, a trendy tors. Dozens more are trying to get in, nota- grocer, in 2017brought with it Allegro, bly Uber, an American ride-hailing giant. another fancy coffee brand. A bigger Investors are clearly licking their lips. The taste of the 1930s battle may be brewing. The trouble is that for now they are mostly tasting losses. Take Mr Ansari: for each delivery, he makes between 40 and 120 ruin the year to March. profits do arrive there is nothing to stop pees, depending on the time of day and Could food delivery pay off? India’s firms such as Amazon, which already has a distance. Yet most customers pay less than economy is growing at 7-8% a year, and huge distribution network, jumping in too. that; few meals, he says, cost more than with it the number of people able to afford India has been here before. In 2016 Zo- 200 rupees. Restaurant prices are higher. takeaways. The number with smart- mato stopped serving several cities after The apps also offera plethora ofcheap “ex- phones and access to the internet is grow- making big losses. The same year Ola clusive” specials with free delivery, des- ing even faster. So profits may yet come— closed its “Ola Cafe” service. This wave of serts and drinks. The gap is made up by the but probably not fast enough for every in- investment is more ambitious. The risk, firms. Indian newspapers estimate that vestor. Forone thingthe middle class is still jokesone investor, isthatitmayprove to be Swiggy’s losses may be as high as $20m a relatively small, as well as rather stingy. If little more than a free gift“from pensioners month (the company publishes no such Swiggy and others stop subsidising their in California to the Indian middle class”. numbers). Zomato lost around 1bn rupees customers, they may stop buying. And if And, for now at least, to the drivers. 7 66 Business The Economist October 13th 2018 Schumpeter Under the microscope

The notion that the CityofLondon needs to shrinkis gathering momentum. It is mistaken described as socially useless: who really benefits from speculation on a derivative which is the fifth-cousin-once-removed ofan interest rate? But many in the industry have studied hard, or moved to London from abroad, precisely to excel in finance. If their jobs left the City, they would surely follow them rather than set up an engineering firm in the provinces. It is also hard to firm up MrShaxson’s claim that Britain’s large financial sector makes other industries uncompetitive. True, the City does encourage foreign investment in British firms and property. That pushes up both wages and rents in London, and probably the pound too, making it harder for other, price-sensitive export industries to thrive. But dynamic industries squeeze out sluggish ones everywhere: try being a steel-processor in the Bay Area. And the City is not to blame for some deep-rooted British shortcomings. The trade-weighted value of sterling has been declining for 50 years. Britain’s manufacturing exports as a share of the global total have been falling since the 1860s, long before the City became as powerful as it is today. Manufacturing’s share of output began falling in the 1950s, when financial regulation was extremely strict. Governments have tried countless times to arrest this decline, without success. EASURES of the attractiveness of global financial centres, Against these uncertain costs can be set more certain benefits. Mrough and ready as they are, are consistent: only New York Surveys suggest that Britain’s small and medium-sized enter- can vie with London for the title of top dog. Financial firms from prises find it easier to get hold of finance than the average Euro- around the world are drawn to the British capital; the assets in the pean firm. Britain’s burgeoning peer-to-peer lenders help. Lon- country’s financial system are ten times its GDP. Yet little of the don has a vibrant fintech scene partly because ofproximity to the Square Mile’s bountiful wealth seems to trickle out. The gap be- City’s pools ofexpertise and money. tween Britain’s richest and poorest parts is perhaps the biggest in Britain runs a large overall trade deficit but last year the sur- Europe. Britain’s productivity growth is woeful. plus in financial services was 3% of GDP. From that, some may Many Britons suspect that the City succeeds at everyone else’s conclude that Britain is over-reliant on finance. But it may simply expense. That view is decades old, but the financial crisis of be a sign of strength. Nor, despite appearances, is finance con- 2007-08 intensified it greatly. The crisis brought the economy to fined to the City. Two-thirds of its jobs are outside London. Fi- its knees; the state spent £140bn ($220bn) bailing out banks. Pub- nance also contributes around a tenth ofBritain’s total tax take. lic services have been squeezed in the years since; living stan- dardshave stagnated. Yetbankersstill earn royal ransoms. AsBrit- Monopoly money ain prepares to fall out of the European Union’s single market That reliance on finance can cause trouble is not in doubt. The cri- after Brexit—thereby weakening the City’s appeal—some wonder sis of 2007-08 is Exhibit A. Another worry is that an oversized fi- whether it is time to rethink Britain’s economic model. Jeremy nancial sectorhasturbocharged the recenttrend across rich coun- Corbyn, the leader of the opposition Labour Party, boasts that he tries forindustries to be dominated by ever fewer big companies. is a “threat” to bankers, who, he says, “should not run our coun- Investment bankers get juicy fees when firms merge, so encour- try”. Now a new book by Nicholas Shaxson, a writer (and a for- age them to do so. Relative to its economy, Britain sees 50% more mer contributor to The Economist), in effect argues that Britain mergers and acquisitions than America, where the financial sec- would indeed be better offwith a smaller financial sector. tor is less powerful. Finance may play some part in Britain’s wid- MrShaxson provocatively compares Britain’s situation to that er competition problem. of Angola, a country where oil makes up over 95% of exports. Oil But in preventing both crises and monopolies, regulation is a should bring widespread prosperity to Angola, but it does not. better way forward than shrinking finance. Banks must already Brainy Angolans flock to the oilfields rather than to the civil ser- hold more equitythan theydid before the crisis. Bynext yearthey vice or health care. Floods of foreign capital raise the value of the must put a “ring-fence” between retail and investment banking. currency, making non-oil industries uncompetitive. Angola, in Supervisors could go further—demanding yet more capital or do- wonk-speak, suffers from a “resource curse”, in which plentiful ing more to discourage frothy property lending. Tightening anti- natural resources lead to worse economic growth. Mr Shaxson trust policy, meanwhile, would help to ensure that mergers did worries that Britain suffers from something similar, with finan- more good than harm. cial services playing the role ofoil. There is no need to be “sizeist”, in other words. Finance is big The comparison isunwarranted. Since the City’sderegulatory in Britain because Britain is good at it. Mr Shaxson is right that “Big Bang” of 1986, GDP per person has grown faster in Britain parts offinance are socially useless. He is also right that the City is than the average for rich countries. The claim that Britain’s finan- too welcoming to dirty money (see Finance section). Neverthe- cial industry sucks the best people from elsewhere is dubious. less, forcing finance to leave Britain is the road to a smaller econ- The share of economic output accounted for by finance is much omy and less tax revenue for the exchequer. Especially with higher than the share ofuniversity graduates in the sector. Brexit looming, running down a successful commercial cluster True, some of these brainy folk do things that could fairly be looks like folly. 7 Finance and economics The Economist October 13th 2018 67

Also in this section 68 The Chinese economy 69 Buttonwood: Investment horizons 70 Human capital 70 The case for short-selling 71 Pets and planning 74 Money-laundering in London 75 Free exchange: Greener pastures

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

The world economy tries seem to be gently slowing, with one big exception: America. There, growth has Pulling ahead sped up dramatically, exceeding an annualised rate of 4% in the second quarter of 2018. America is the only large advanced economy in which the IMF projects activity will expand more quickly this year than it did last year. This acceleration is because of Presi- Global growth is slowing, but booming America stands out dent Donald Trump’s tax cuts. In Septem- T HAS been a nervy few days for finan- chronised acrossmuch ofthe world in 2017, ber the unemployment rate fell to 3.7%, the Icial markets. A sell-off in bond markets, the global economy’s expansion now lowest since 1969; wage growth is slowly prompted by monetary tightening in looks increasingly unbalanced. but surely rising. Rampant demand is America, this week infected global stock- Two divides stand out. The first is be- pushing up interest rates. The Federal Re- markets, too. The S&P 500 share-price in- tween emerging markets, which are suffer- serve has raised short-term rates by two dex fell by over 3% on October 10th, its ingfrom particularly volatile financial con- percentage points since it started tighten- worst day in eight months. Markets in ditions, and advanced economies. The ing monetary policy in 2015. This week Mr Shanghai hit their lowest level for nearly cause of this divergence is a strong dollar, Trump described the Fed’s policy as “cra- four years the next day; those in Japan and which is making emerging markets’ debts zy”. The yield on ten-year Treasury bonds Hong Kong closed around 3.5% lower. that are denominated in the currency cost- has risen by more than in most other rich At first glance, the sell-off seems odd. lier to service. The latest casualty is Paki- countries (see chart). It now stands at over The world economy is still growing briskly stan. On October 8th it announced that it 3.2%, higher than at any time since 2011. enough: this week the IMF only slightly would seek an IMF bail-out, which is ex- trimmed its forecast forworld GDP growth pected to amount to $12bn. It joins the America first for2018, from 3.9% to 3.7%. But investors are ranks of other emerging markets in dis- These differentgrowth pathscould yet sep- right to fret. Whereas acceleration was syn- tress, notably Argentina, which has negoti- arate further, because many of the imme- ated a record $57bn credit line from the diate economic risks threaten countries IMF, and Turkey. otherthan America. One emanatesfrom It- Each at its own pace Sustained falls in emerging-market cur- aly, where bond yields are also rising rap- Ten-year government-bond yields renciesand stockshave been painful for in- idly—and not because of a robust econ- Percentage-point change since January 1st 2018 vestors. Several countries have raised in- omy. Instead, an extravagant budget put 2.0 terest rates to stem capital outflows. Yetthe forward by its populist coalition govern- Italy damage to the real economy has for the ment has sparked a confrontation with the 1.5 most part been confined to those with European Commission and reignited fears large current-account deficits, such as Ar- about the sustainability of the country’s 1.0 United gentina. From a global perspective, the big- huge public-debt burden. The spread be- States 0.5 ger worry is China. Authorities there are tween yields on Italian and German ten- Britain + trying to reduce leverage in the financial year bonds now stands at around three 0 system at the same time as American ta- percentage points, its widest in over five – riffs are squeezing their exports (see next years. Those rises will chill the Italian Japan Germany 0.5 story). The currency is under pressure; economy. Rising yields have not so far Jan Feb Mar Apr May Jun Jul Aug Sep Oct growth expectations are being lowered. spread beyond Italy’s borders, but further 2018 The second divide exists within the increasescould mean thatcrisisengulfs the Source: Thomson Reuters ranks of advanced economies. Rich coun- euro zone again. Such fears will do no fa-1 68 Finance and economics The Economist October 13th 2018

2 vours to European business confidence, like an asymmetric shock—certainly as far from stocks. Many local investors are also which has already softened this year. as China is concerned. nervous about the direction of Chinese Another threat is a rising oil price. In The danger is that America’s outperfor- politics. President Xi Jinping’s recent September the price of Brent crude sur- mance pushes the dollar even higher, lead- pledge to make state-owned companies passed $80 perbarrel forthe firsttime since ing to more volatility in global finance and “stronger, better and bigger” reinforced the 2014, driven in part by falling Venezuelan crimping growth in emerging markets. Yet impression that the government is turning supply and the prospect ofAmerican sanc- America’s boom will not last for ever. Tax against entrepreneurs. tions on Iran. It now stands at around $82. cuts will no longer provide incremental The yuan is also under pressure. It is Costly fuel used to threaten the American stimulus after 2019. Some forecasters fret down by nearly 10% against the dollar economy. Today, however, it spurs invest- that an end to the largesse, together with since the start ofFebruary. Even ifthat ech- ment in shale rigs. That gives America a higher interest rates, may be sufficient to oes other emerging-market currencies, it natural hedge against oil-price shocks, tip the country into recession by 2020. An- risks adding fuel to the trade war. Steven even though, in the short term, limited alysts expect America’s economy, with its Mnuchin, America’s treasury secretary, pipeline capacity might mean investment ageing population, to expand by less than warned China against competitive devalu- responds only slowly. 2% a year in the long run. That suggests ations in an interview with the Financial Finally, there is Mr Trump’s trade war. that, unless productivity surges, a slow- Times on October 10th. China has in fact America will eventually suffer from the down must eventually come. been trying to slow the yuan’s slide, wor- distortive effectsofrisingtariffs, butitis not The question then is whether the rest of ried that weakness might spur capital out- all that dependent on trade to fuel demand the world can withstand, let alone make flows. A currency trader with a major forin the short term. Forecasts of the effect of up for, an eventual slowdown in America. eign bank in Shanghai says that a regulator existingtariffson American growth and in- Not long ago, the consensus may have scolded his team last month for not doing flation predict only a small impact. The re- been that it could cope. Now there is more more to support the yuan. As is common sult is that the trade war so far also looks to worry about. 7 when sentiment is fragile in China, propaganda authorities have ordered local media to make their reporting about the econ- Chinese economy omy more positive. Hence the extensive coverage of the strong tourism figures dur- Feeling humbled ing the National Day holiday. The government is betraying some jit- ters itself. China is now the only major economy that is shifting to looser monetary policy. On October 7th it reduced the amount of money that banks are required SUZHOU to hold in reserve, the fourth such cut this China is the onlymajorcountry shifting to loosermonetary policy year. That freed up about 750bn yuan HEN Wang Xianchen, a Chinese offi- tranquillity is long gone. During the first ($108bn) forextra lending. The central bank Wcial in the early 1500s, tired of the week of October, China’s National Day has yet to lower benchmark interest rates, scheming of imperial politics, he returned holiday, some 30,000 people walked over but it has guided bond yields down by to his home in the southern city of Suzhou its stone arch bridges every day, with about a percentage point since January for a simpler life. He planted gnarled trees queues to get in stretching around the (see chart). and built up rocky islets, creating what he block. They were among the 726m visitors Fiscal policy is also set to provide more called the “Humble Administrator’s Gar- to domestic tourist sites during the week, a of a boost. On October 8th the State Coun- den”, a fine place for tranquil contempla- record and a rise of 9% on last year’s figure. cil, or cabinet, announced that it would tion. His garden remains stunning. But its China’s present-day administrators, less give exporters bigger tax rebates and also 1 humble, touted this as proof of the economy’s resilience despite a growing cata- logue ofconcerns. Down a notch The backdrop certainly looks ominous. China, interest rates, % The trade war with America is heating up. Deposit reserve-requirement ratio In a speech on October 4th, Mike Pence, Large deposit-taking financial institutions the vice-president, accused China of eco- 22 nomic aggression and vowed that Ameri- 20 ca would “not stand down”. Its tariffs are just starting to bite: the biggest round so far, 18 covering $200bn-worth of Chinese im- 16 ports, came into effect in September and 14 will be ratcheted up at the start of2019. The troubles forChina could easily spread. The 2010 11 12 13 14 15 16 17 18 Trump administration has indicated that it wants to stop other big economies, includ- Five-year yield to maturity of medium-term notes (AAA-rated bonds) ing Japan and the European Union, from negotiating trade deals with China. 8 Domestically, confidence has taken a 6 battering. The CSI 300 index, a gauge of the 4 biggest Chinese equities, is down by 29% since January, putting it among the world’s 2 worst-performingmarketsthisyear. Efforts 0 to stabilise debt levels and to crack down 2010 11 12 13 14 15 16 17 18 A refuge from the trade war on shadowbankinghave drained liquidity Source: Wind Info The Economist October 13th 2018 Finance and economics 69

2 called on municipal officials to accelerate up the financial system, the government growth is still running at about 6.5% year their investment plans, an important sig- does not want to erase its gains. “We must on year would be an alarming over-reac- nal in China’s governance system. avoid flooding the economy with a strong tion. And it is easy to exaggerate the gloom. If officials thought that these various stimulus,” Premier Li Keqiang said at a re- Some noted that the 9% rise in visitor num- steps would change the tide of investors’ cent cabinet meeting. In real terms, bond bers over the National Day holiday opinion, they were mistaken. Stocks yieldsare a percentage pointhigherthan in marked the first time in a decade that do- dropped sharply when trading resumed late 2016, when the government was fo- mestic tourism had increased at less than a after the holiday. The exchange rate slid to- cused on revving up growth. A campaign double-digit rate. Yet popular destinations wards 7 yuan per dollar, a level it has not to close loopholes in tax collection has hit can scarcely handle much more. At the breached in more than a decade. Partly, small firms especially hard. At the same Humble Administrator’s Garden it was im- these moves reflected China’s catch-up time officials have continued to limit bor- possible to take pictures without dozens of with global markets after its week off. But rowing by the most indebted companies. other people in them. A few daring visitors they also pointed to a deeper truth about The restraint makes sense. China’s seeking the illusion of solitude instead the policy easing: that it has been tentative. economy might be slowing but the situa- climbed onto the grey-tiled roofs of its cov- Having made some progress cleaning tion is far from dire. A big stimulus when ered walkways. 7 Buttonwood The long and short of it

When the case forlong-term investment makes sense—and when it doesn’t NE LUNCHTIME around 1960 a pro- This logic begins to fray ifyou relax the Ofessor proposed a wager to a col- random-walk assumption. Stock prices league. Flip a coin and call “heads” or appear to fluctuate around a discernible “tails”. If you call right, you win $200. If trend; they have a tendency, albeit weak, you call wrong, you pay $100. This is a fa- to revert to that trend over very long hori- vourable bet for anyone who would take zons. That means stocks are somewhat it. Even so, his colleague refused. He predictable. If they go up a long way, giv- would feel the loss of $100 more than the en enough time they are likely to fall, and gain of $200. But he would be happy, he vice versa. In that case, more nervous said, to take 100 such bets. sorts of investors are able to bear a higher The professor who offered the bet, exposure to stocks in the long run than Paul Samuelson, understood why it they would be able to in the short run. might be refused. A person’s capacity for Samuelson’s reasoning also assumes risk could no more be changed than his that people’s taste for risk does not vary nose, he once said. But he was irked by his with how rich or poor they are. In reality, colleague’s willingness to take 100 such attitudes change when a target level of wagers. Yes, the likelihood of losing mon- wealth is within reach (say, to pay for re- ey after that many tosses of the coin is slight advantage in odds (the “house edge”) tirement or a child’s education) or when vanishingly small. But someone who it enjoys. But a casino that would take a outright poverty looms. When such ex- takes very many bets is also exposed to a hundred $100 bets would not refuse a sin- tremes are far off, it is rational to take on small chance of far bigger loss. A lot of gle bet of the same size. That was part of more risk than when they are close. The bets, reasoned Samuelson, were no safer Samuelson’s beef. If his colleague dislikes calculusalso changeswith a broader reck- than a single bet. a single bet, after 99 bets he should refuse oning of wealth. Young people, with de- This lunchtime wager was of more the 100th. By this logic he should also re- cades of work ahead, hold most of their than academic interest. It drew the battle fuse the 99th bet, after 98 bets. And so on wealth in “human capital”, their skills lines in a debate on the merits of long-ter- until all bets are spurned. and abilities. This sort of wealth is a mism. Samuelson challenged the conven- hedge against riskier kinds of financial tional wisdom that his colleague embod- Clouds on the horizon wealth. Indeed the more stable a person’s ied. In later work, he used the bet as a Only a naive reading of the law of large career earnings are, the greater the hedge. parable. He showed that, under certain numberswould supporta beliefthatrisk is It follows that young people should hold conditions, investors should keep the diminished by more bets, said Samuelson. more of their wealth in risky stocks than same fraction of their portfolios in risky The scale of potential losses rises with the people who are close to retirement. stocks whether they are investing for one number of bets. “If it hurts much to lose Samuelson vigorously disputed the month or a hundred months. But what $100,” he wrote, “it must certainly hurt to dogma of long-termism, which says that Samuelson’s logic assumed does not al- lose 100 x$100.” Similarly, itisfoolish to be- the riskiness of stocks diminishes as time ways hold. There are cases where a long- lieve that by holding stocks for the long passes. It doesn’t. That is why long-dated term horizon works in investors’ favour. haul—taking multiple bets on them—you options to insure against falling stocks are To understand the debate, start with are sure to come out ahead. It is true that dearer than short-dated ones. The odds of the law of large numbers. It means that stocks have usually yielded higher returns winning favour risk-takers over time. But the more often a favourable gamble is re- than bonds or cash over a long period. But they are exposed to big losses in the times peated, the more likelyitisthatthe person there is no guarantee they will always do when they lose. Still, it would also be dog- who takes it comes out ahead. Though a so. Indeed if stock prices follow a “random matic to say that time horizon does not casino may lose on a single spin of the walk” (ie, an erratic and unpredictable matter. It does—in some circumstances. roulette wheel, over a large number of path), long-term investing holds no advan- What Samuelson showed is that it mat- spins its profits are determined by the tage, said Samuelson. ters less than commonly thought. 70 Finance and economics The Economist October 13th 2018

Human capital country doubles its human-capital score it should, in the long run, double its GDP per A motivational metaphor person, compared with a scenario where its score stayed the same. That prospect should make a government’s eyes widen. Unfortunately the index is still hobbled by gaps in the data and in economists’ understanding. The link between stunting and productivity, for example, remains Two new rankings show which countries are raising the most productive humans murky. Only 65% of the world’s births are ESPITE their dour reputation, econo- index, which instead places Finland top. registered, as are only 38% of deaths. Many Dmists frequently play with metaphor The divergence reflects two differences in countries test their schoolchildren infre- and simile, just like literary folk. One famil- approach. The World Bank’s method ig- quently, ifat all. If pupils are not tested un- iar example is “human capital”, as Deirdre nores higher education (which is even til the age of15, then any reform that helps McCloskey ofthe University ofIllinois has more prevalent in Finland than in Singa- primary-schoolers learn will not improve pointed out. Economists have been liken- pore). And its measures of health (stunting the country’s ranking until they grow old ing knowledge, skill and stamina to physi- and survival rates) are too crude to distin- enough to ace the tests. cal capital, such as plant and equipment, guish between Singapore’s healthy popu- The World Bank has itself flagged these since Adam Smith, who counted “the ac- lation and Finland’s even healthier one. data shortcomings. It hopes the very exis- quired and useful abilities” of a country’s The indices are not just exercises in tence of its index will motivate govern- people asone ofseveral kindsoffixed capi- measurement. They are also motivational ments to collect the data the index needs if tal, alongside “useful machines” and “prof- tools. The World Bankworries that govern- itisto workproperly. To adaptanother met- itable buildings”. ments underinvest in human capital, be- aphor favoured by Ms McCloskey, the But unlike poets, economists prefer to cause the rewards arrive painfully slowly World Bank has built a sleek sports car; quantify their analogies—to measure and often without fanfare. By ranking now it must shame governments into whether thou art 15% or 20% more lovely countries, these indices may appeal to gov- building roads that are worthy ofit. 7 and more temperate. In that spirit, the ernments’ national pride and competitive World Bank this week unveiled a new spirit, much like the bank’s annual assess- measure ofhuman capital for157 countries. ments of the ease of doing business Financial markets Its indexcombines five indicators of health around the world. and education (including the chances of The two indices are also intended to be Baiting bears dying before the age of five and between responsive to reforms. Although invest- the ages of15 to 60, the chances of stunted ments in human capital can take decades growth, the years of education an average to payoff, countrieswill nothave to waitas child will complete by age 18, and the score long to rise up the two league tables. Both they can expect on school tests) to measure indices are designed to be forward-look- Short-sellers are much maligned, but how much human capital a person born ing, measuring the human capital that will theyare good formarkets today is likely to accumulate. It follows a be accumulated if a newborn grows up in similar measure for 195 countries from the the health and educational conditions pre- T IS a stressful time to be an investor in Institute for Health Metrics and Evaluation vailing now. For example, France’s deci- ITesla. On September 29th shares in the (IHME) published in the Lancet, a medical sion to start mandatory schooling at age electric-car manufacturer soared by 17% journal, in September. three will improve its ranking when the afterits boss, Elon Musk, settled fraud char- Both indices try to reflect the quality of first toddlers are enrolled, long before the ges with America’s Securities and Ex- education, not just the quantity. Agrowing economy feels the benefit. change Commission (SEC). Just days later, number of countries now take part in ini- The bank’sindexoffersa furtherprod to on October 4th, a series of belligerent tiatives like PISA, the Programme for Inter- reform. It uses research on the economic tweets by the firm’s outspoken founder national Student Assessment, which in returns to health and education to weight sent shares tumbling by more than 7%. 2015 tested pupils in 72 countries. With a lit- the components of its index according to The tweets in question, like many ofMr tle effort, these various measures can be their contribution to productivity. If a Musk’s market-moving social-media rendered comparable. That allows re- posts, were targeted at short-sellers, who searchers to calculate what a year of aim to make money by selling borrowed schooling is worth in different parts of the Shall I compare thee shares and buyingthem backlaterat a low- world. For example, the World Bank calcu- Human-capital measures* er price. With a quarter of its publicly lates that a year ofeducation in South Afri- traded shares lent out to facilitate short- 1.0 ca is worth only about 60% as much as one Singapore sellers’ bets, Tesla is one of the most heavi- in Singapore. Britain inland ly shorted companies in America. Mr 0.8 United States Unsurprisingly, the correlation be- France Musk has publicly feuded with short-sell- tween the two indices is close (see chart). Vietnam China ers for years, calling them “haters”, “jerks” America ranks 24th on the World Bank’s 0.6 and “not supersmart”. Research suggests Banglade Malaysia new index, and 27th on the IHME’s. China India that such insults are undeserved. Short- ranks 46th on the first and 44th on the lat- 0.4 sellers are savvy investors who help to ter. But there are also notable discrepan- South Africa keep the market’s exuberance in check. cies. On the bank’s index, Bangladesh does 0.2 Short-sellers have always had their de-

better than India, Vietnam better than Ma- World Bank, 2018 index, 1=maximum tractors. In 1610 regulators in Amsterdam laysia, and Britain betterthan France. None 0 banned short-selling after it was blamed ofthat is true in the IHME’s rankings. 0 5 10 15 20 25 30 for driving down the value of the Dutch Diﬀerent countries also stand at the top IHME score, 2016, 45=maximum East India Company. Two centuries later *Based on health and of the two tables. Singapore leads the Sources: IHME; World Bank education indicators Napoleon deemed the practice an act of bank’s ranking. But it lies 13th in the IHME treason and prohibited it. After the stock-1 The Economist October 13th 2018 Finance and economics 71

Financial planning Pet provisions

Furry friends increasingly feature in theirowners’ budgets NE ofDianne Burns’ most important surgery,pituitary-gland removal and Oretirement plans involved a dapple- heart-valve-replacement surgery show grey horse named Scout. The former that vets can now do just about anything forensic scientist had dreamed of riding that doctors can forhumans. For a big once she stopped work. So it was a happy group ofpet-owners, he says, the de- coincidence when she discovered that mand forveterinary treatment is essen- her financial planner—who advises tially inelastic to changes in prices. Better clients on California’s central coast— pet health-care has in turn led to longer— loved horses, too. Thanks to precise and dearer—lives. financial modelling and strict budgeting, The legal frameworkis also becoming Ms Burns managed to set aside $20,000 more supportive. As a general principle, fora pickup truckand $10,000 to buy beneficiaries ofnon-charitable trusts Scout in 2016. Ms Burns says she plans to need to be humans. Pets, however, are sell some shares next year so that she can regarded as property, and people are not buy her horse a trailer—though she hopes typically allowed to bequeath property Elon’s not a shorts man not to draw down her savings too much. to other property—leaving a dishwasher Ms Burns joins a growing number of to the sink, say. But pets are an exception 2 market crash of 1929 Herbert Hoover, people who are including their pets in when it comes to trusts, says Brian Sloan, America’s president, similarly decried their financial plans. Two-thirds of all who lectures on family law at the Univer- speculative short-selling as unpatriotic. horse-owners in America have made sity ofCambridge. Precedent in several The shorts are viewed with such suspicion some provision in their wills fortheir common-law jurisdictions makes excep- because they profit from the misfortune of pets, according to a survey by the Ameri- tions forthose set up forthe maintenance others. When markets plummet, they are can Pet Products Association. Over a third ofanimals. Ms Burns is considering one often blamed fordeliberately exacerbating ofAmerican pet-owners say they would for Scout. the fall to reap bigger returns. pay foranimal-related expenses by put- Academics say such accusations are farting less into their retirement accounts. fetched. Studies that look at when short- And three-quarters ofthose buying a sellers place their bets find that they be- home said they would turn down an have much like other investors. Price de- otherwise ideal property ifit did not clines that make short trades profitable meet their animal’s needs. tend to endure, underminingclaims of ma- Urbanisation helps to explain the nipulation. By seeking out overvalued as- changing relationship between humans sets, short-sellers help rein in animal spir- and their pets. As people flocked to cities, its and prevent bubbles from forming. they started to anthropomorphise their They make markets more liquid: when animals, explains James Serpell from the short-selling is banned by regulators, bid- University ofPennsylvania’s school of ask spreads—the difference between the veterinary medicine. Demography may price at which shares are bought and sold, also play a part. Millennials—who are widely used as a measure ofmarket liquid- putting offchild-rearing—are now the ity—increase. largest group ofpet-owners in America. The shorts can also root out malfea- But whatever the reason, pets are increas- sance. Jim Chanos, a well-known short- ingly considered members ofthe family. seller who is one of those betting against This change entails greater costs. Tesla, famously predicted the collapse of Pet-product companies now make pricey Enron, an energy-trading firm that went hypoallergenic feed for geriatric dogs, cat bust in 2001. food made with mackerel and lamb from Shorts’ bets do not always pay off im- New Zealand, and even antioxidant mediately. Ihor Dusaniwsky from S3 Part- supplements forhorses. David Church of ners, a financial-technology and analytics Britain’s Royal Veterinary College says firm, thinks that Tesla’s short-sellers are sit- that procedures foranimals such as brain Well looked after ting on unrealised losses of close to $3.5bn since the start of 2016. So far this year, borrowing fees alone have cost them more than a month. But recent workby research- “explode” theirbearish positions. Recently, than $200m. ers at the University of Missouri and Ren- though, he has done the opposite. His Although short-sellers endure long min University in China suggests that op- tweet on October4th, which mockingly re- stretches in the red, as a group they are portunities for generating returns can ferred to the SEC as the “Shortseller Enrich- clever stock-pickers. Studies show that persist for as long as a year. The authors es- ment Commission”, made short-sellers a heavilyshorted stocksunderperform light- timate that a tenth of short positions last whopping $645m. According to Mr Dusa- ly shorted stocks by as much as 16% a year forat least six months. niwsky, the company’s nay-sayers are con- on average. It was once thought that short- Mr Musk has demanded that short-sell- vinced the stock is still overvalued. The sellers profited mainly from bets on near- ing “should be illegal”. He has repeatedly shorts will not be exiting their positions term price movements lasting no more vowed to “burn” Tesla short-sellers and any time soon. 7 Put your feet up with 184. Style and stories, brought to you by The Economist

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Madame Macron comes of age A new model for French women 74 Finance and economics The Economist October 13th 2018

Money-laundering in London nomic-crime team, insists it is “upping its game”. Big cases involving money from Af- Awash rica and Asia are in the works. Britain’s corruption-fighters have a new tool: the “unexplained wealth order” (UWO), which puts the onus on targets to show that properties under suspicion were bought with clean money. The first UWO to be issued in In the fight against dirty money, Britain leads the way on transparency but lags Britain (Australia already uses them) has behind on enforcement just survived a legal challenge from the re- HEN Bill Browder investigated a money lacks oomph. Its most recent high- cipient, an ex-banker’s wife from Azerbai- W$230m fraud perpetrated by Russian profile case was the prosecution of James jan. Mr Toon expects a “handful” ofUWOs officials against his investment company, Ibori, a former regional governor from Ni- in the coming months. Campaigners want Hermitage, he uncovered a money trail geria. That was a decade ago. more: Transparency International says it that led to several financial centres, includ- Blame, in part, a lack of funding. The has identified 150 London properties that ing London. At least $30m of the stolen NCA’s already modest 2017-18 budget, warrantUWOs, and thateven those are the money flowed into British banks. Much £437m ($577m), will fall by £10m next year. “low-hanging fruit”. was moved through British shell compa- It has farfewer investigators with the skills But the legal barriers to conviction re- nies with British nominee directors, one of to handle complex cases than its peers in main daunting. Prosecutors will have to go which was set up by a corporate-registra- America and comparable European coun- through several more stages before they tion firm based near Mr Browder’s London tries, including Italy’s Guardia di Finanza, can seize the ex-banker’s wife’s house. Dis- office. The lootflowed on to, amongothers, with its army of forensic investigators. Pay proving even a flimsy explanation of the British interior-design firms, estate agents is lower too, and many quickly end up at money’s provenance can be hard if the and a personal concierge service. private firms. “If you bought a round of country where the original crime took No one knows how much dirty money drinks forall the ex-NCA investigators now place does not co-operate. Deep-pocketed is rinsed through London, but Britain’s Na- in the City or Canary Wharf, you’d bank- defendants challenge every move. tional Crime Agency (NCA) reckons British rupt yourself,” says Tom Keatinge, a finan- In one regard, Britain is a financial- banks and their subsidiaries (including cial-crime expert at RUSI, a think-tank. crime-fighting trailblazer. In a bid to crack those in overseas territories) launder Fragmentation is another problem. down on shell-company abuse, in 2016 it “many hundreds of billions of pounds” Though the NCA is the most prominent became the first G20 country to introduce each year. British companies and partner- crime-fighting agency, a major money- a public register for company owners. ships were prominent among the getaway laundering probe might also involve the However, submitted information is not vehicles used in some of the biggest mon- Serious Fraud Office, the City of London systematically checked. Recent analysis by ey-laundering schemes of recent years, in- Police, HM Revenue & Customs (HMRC) Global Witness, an NGO, found thousands cluding the “Russian laundromat”, in and others. The government is hoping that of “highly suspicious” entries, including which at least $20bn was siphoned out of the imminent launch of a National Eco- firms creating circular structures where Russia in 2010-14, and an even bigger wash- nomic Crime Centre (NECC), housed with- they appear to own themselves. ing exercise through Danske Bank’s Esto- in the NCA, will bring more coherence. Companies House, the government’s nian branch. Much of the iffy money is This will lead big cases and co-ordinate corporate-registration agency, says it has ploughed into swanky British pads. Over other agencies’ work. Ministers have 80 people working to improve the regis- 40,000 London properties are held by agreed “significant” new investment in fi- ter’s “integrity”, but that it does not have overseas firms, a quarter of them regis- nancial-crime capabilities from 2019. But the capability to verify the accuracy of all tered in the British Virgin Islands. they have not said how much. The NECC details sent in. The only prosecution for As well as highlighting the plethora of will mostlyuse staffand moneyfrom exist- false submission wasofa campaignerwho British links to money-laundering, the Her- ing agencies. Its forecast spending for submitted dodgy information to show mitage case illustrates the inadequacy of 2018-19 is an underwhelming £4m-5m. how easy it was, then shopped himself. itslawenforcers’ response. Authorities in 11 Donald Toon, head of the NCA’s eco- Meanwhile, policing the 2,700 outfits that countries, including America, Switzerland help set up British companies falls to and Monaco, have acted on Mr Browder’s HMRC. It has shown little enthusiasm for findings. Not Britain. Five separate ap- the job. The largest publicly disclosed fine proaches between 2010 and 2016 were ig- it imposed last year was £6,000. nored orrejected. Eventually, afterhis team That leaves some worried about how provided devastating detail on suspect effective another planned public register transactions with a British link, an NCA in- will be: for owners of overseas companies vestigatortried to take up the case. Asenior that own British property. Moreover, the colleague—the agency’s liaison with the timetable for this has been pushed back to Foreign Office—told him to drop it because 2021; it could slip further. Mr Browder was “a pain”. Others, not least in government, have a Two MPs have called on the agency to more pressing concern: a looming evalua- explain to Parliament why it is not investi- tion of Britain’s anti-money-laundering gating. The NCA says there was no political progress by the Financial Action Task Force interference and thatitconcluded an inves- (FATF), which setsglobal standards, expect- tigation was not “an effective way for- ed by December. The report card should ward” because there was “no realistic pros- contain at least a few low grades; the FATF pect” of successful prosecution or the is, for instance, no fan of relying on unver- recovery ofillicit funds in Britain. ified data. An unfavourable assessment Cock-up, conspiracy or a justifiable re- would give anti-corruption activists even jection? Whatever the explanation, it is more ammunition to urge a proper clear that Britain’s broader war on dirty clean-up ofthe London laundry. 7 The Economist October 13th 2018 Finance and economics 75 Free exchange Greener pastures

Paul Romerand William Nordhaus win the Nobel prize in economics But the pace at which they are generated, and the way in which they are translated into growth, depends on other factors—such as state support for research and development, or the protection ofintellectual property. The “endogenous” growth models produced by Mr Romer, and by others influenced by him, were once hailed as a critical step towards understanding patterns of economic growth across the globe. They have not quite fulfilled that promise: knowledge may be necessary for growth, but it is clearly not sufficient. But their shortcomings have themselves raised important questions about the stubborn disparities in growth rates. Why are some countries able to exploit existing ideas and grow, while others are not? Should policymakers who want to boost growth focus on policies that support the creation of knowledge or on those that break down barriers to the exploitation of existing knowledge? Ordoes it make most sense to shiftpeople and resources from the parts of the world that struggle to grow to those that do not? By provokingsuch questions, MrRomer’sworkidentified a rich vein forother researchers to mine. MrNordhaus, forhis part, has been a toweringfigure in the debate about how to respond to one of the biggest challenges that HYdo economiesgrow, and whymightgrowth outstrip the humanity faces. When he was beginning his career in the early Wnatural world’s capacity to sustain it? There are few more 1970s, awareness of the dangers of environmental damage and important questions in economics. The answers require a work- the threat posed by climate change was just starting to grow. Un- ing grasp ofthe mechanisms underlying growth. For the progress derstanding the economic costs such damage imposes is essen- thatthe profession hasmade towardsthatunderstanding, itowes tial to answering the question of how much society should be a particular debt to Paul Romer and William Nordhaus, this willing to pay to avert it. year’s winners ofthe Nobel prize in economic sciences. Mr Nordhaus applied himself to solving this problem. That Although both scholars have long been talked of as potential meant working out the complex interactions between carbon winners, they are not an obvious pairing for the prize. Mr Romer emissions, global temperature and economic growth. He com- tends to be described as a growth theorist; MrNordhaus’s workis bined mathematical descriptions of both climate and economic in the field of environmental economics. The Sveriges Riksbank, activity into “integrated assessment models”. This allowed him which awards the economics Nobel, found a common thread in to project how different trajectories for the world’s carbon emis- their work incorporating two crucial processes—knowledge cre- sions would produce different global temperatures. That, in turn, ation and climate change, respectively—into models ofeconomic allowed him to estimate the likely costs ofthese different scenari- growth. But what most links their work is that they have im- os—and thus what level of reduction in emissions would be eco- proved the way the profession thinks about impossibly complex nomically optimal. He was the first to suggest that warming systems, while also revealing the extent ofits ignorance. should be limited to no more than 2°C higher than the world’s The influence of both men extends beyond their most noted pre-industrial temperature. Models like his have become the scholarly achievements. Mr Romer’s career has been especially linchpin ofmost analysis ofthe cost ofclimate change. varied. He left academia in the early 2000s to found an educational-software company. More recently he served as the World The known world Bank’s chief economist (his tenure ended abruptly when staffers As with Mr Romer’s work, Mr Nordhaus’s contributions are also bridled at his management style, which included an insistence notable for the lessons imparted by their shortcomings. Four de- on more crisply written reports). But it is his analysis ofeconomic cades after he began publishing research on climate change, the growth that has had the greatest impact. limits to scholars’ predictive abilities have become abundantly Economists used to think that sustained long-run growth de- clear. Indeed, his workhas prompted vigorous debate about how pended on technological progress, which in turn relied on the best to think through the huge uncertainties associated with glo- creation of new ideas. They struggled, however, to explain con- bal warming—from howemissions translate into highertempera- vincingly how markets generated and propagated those ideas. tures to how well society can adapt to rapid changes in climate. When Mr Romer came into economics, most prominent models Policymakers prefer the comfort of hard numbers. But the of- of growth relied on “exogenous” technological progress: it was ten-unfathomable complexity ofhuman society and natural pro- simplyassumed, ratherthan generated bythe models’ equations. cesses may mean that other guides are sometimes needed to set Dissatisfied by this state ofaffairs, he sought answers by prob- policy, from the precautionary principle to moral reasoning. Iron- ing the non-rivalrous nature of knowledge: the fact that ideas, ically, Mr Nordhaus’s computations, like those of Mr Romer, once created, can be endlessly exploited. The firms or individuals made that awareness possible. that come up with new ideas can only ever capture a small share Above all, both of this year’s prize-winners tackled problems of the benefits arising from them; before long, competitors copy that the field both could not understand and could not afford not the original brainwave and whittle away innovators’ profits. In to understand. They blazed trails that scholars continue to fol- Mr Romer’s work, markets are capable of generating new ideas. low—to the benefit ofeconomics and humanity. 7 76 Science and technology The Economist October 13th 2018

Also in this section 78 Probiotics for vegetables 78 Where are all the aliens?

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

Global warming 2°C are 18%, 16% and 8%, respectively. At that temperature rise, ecosystems War war is better than jaw jaw covering between a twelfth and a fifth of Earth’s land mass can be expected to un- dergo transformation to another type—sa- vannah to desert, say. That is 50% more than would happen with a rise of 1.5°C. Most dramatically, the IPCC finds it almost certain thata 2°Crise would wipe outmore Action now might still avert the worst ofclimate change. But how likely is that? than 99% of corals. By contrast, a rise of N 1996 the European Union became the But exactly how much better has been far 1.5°Cwould leave 10-30% ofthem alive, and Ifirst significant political body to suggest from obvious. So the Paris agreement also with them the hope ofregeneration if tem- that the goal of preventing “dangerous an- gave to a body called the Intergovernmen- peratures subsequently stabilised. thropogenic interference in the climate”, to tal Panel on Climate Change (IPCC) the Permitting a rise of 2°C rather than 1.5°C which the world had signed on at the Rio task of finding out. Given that the world is could also see 420m more people exposed Earth summit of 1992, meant, in practical actuallyon trackfora rise ofmore than 3°C, regularly to record heat. “Several hundred terms, keeping global warming below 2°C regardless ofthe pieties ofParis, it was also million” more would have to contend with relative to the late 1800s. This two-degree charged with finding out whether limiting climate-induced poverty. Food security limit had been an informal measure of the the rise to 1.5°C is in any way feasible. would decline and water scarcity increase, point where climate change gets serious especially in poorand already-fragile areas since the 1970s. William Nordhaus, a pio- The judgment on Paris such as the Sahel region of Africa, just neer of climate economics who this week On October 8th, nearly three years, several south of the Sahara desert. And an addi- shared the Nobel prize for his efforts (see drafts and some 40,000 reviewer com- tional 10cm of sea-level rise could hurt the Free exchange) seems to have been the first ments later, the panel unveiled the fruit of livelihoodsofmore than 10m people living to use it as such. But between 1996 and the its labours at a gathering in Incheon, South on the coast. Copenhagen climate summit of 2009 it Korea. The 1,200-page report, written by 91 The report also nods towards the was transformed from one possible inter- researchers from 44 countries, presents no chance of dangerous feedback loops. A pretation of the Rio goal to the target on truly new science. The panel’s brief was to two-degree temperature rise could lead to which the world agreed. survey all relevant literature—more than the thawing of 1.5m-2.5m km2 of perma- At the Paris climate summit of 2015, 6,000 studies, many spurred by the re- frost—about the area of Mexico. That, in though, this changed. In light of both new port’s commissioning—and to synthesise turn, would release methane, a potent evidence and new concerns, notably those the results. It makes for sobering reading, greenhouse gas which would lead to fur- of low lying countries that might not sur- both in terms of what the half-degree dif- ther warming, thawing and so on. vive the amount of sea level rise two de- ference between the two targets may mean The IPCC does not quantify the effects greeswould bring, the nationsofthe world for the planet, and regarding the effort of such feedback. But work which ap- agreed a new target: keeping warming needed to meet the tougher goal. peared in August, after the deadline for “well below” 2°C above pre-industrial The authors profess “high confidence” consideration in the report, attempts to do temperatures. Indeed, they urged them- of a “robust difference” between 1.5°C and so. This study, led by Will Steffen of the selves to “pursue efforts towards1.5°C”. 2°Cworlds. At1.5°C, 6% ofinsectspecies, 8% Stockholm Resilience Centre and pub- This lower target would presumably be of plants and 4% of vertebrates would lose lished in the Proceedings of the National better for all, not just the likes of Kiribati. more than halftheirhabitat. The figures for Academy of Sciences, concludes that five 1 The Economist October 13th 2018 Science and technology 77

2 feedback loops unleashed by a rise of 2°C between India and Canada. An alternative attempt to value the flip side—the damage are likely to be important. These involve is “direct air capture”—artificial devices caused by delay. the permafrost, natural carbon sinks such that retrieve carbon dioxide directly from Another paper that missed the dead- asthe ocean, increased methane emissions the atmosphere. These exist but they, too, line, by Simon Dietz of the London School from marine bacteria, and the dying of would need to be deployed at a gargan- of Economics and his colleagues (one of Amazonian and boreal forests. Together tuan scale. (Solar geoengineering, a contro- whom worked on the IPCC report), tries to these could add between 0.24°C and versial idea to disperse particles of matter fill the first of those gaps. It estimates that 0.66°C ofextra warming. into the atmosphere to reflect heat back keeping temperature rises to 1.5°C would Such alarming conclusions are neces- into space, was not considered in detail.) cost 150% more than keeping them to 2°C, sarily subject to the huge uncertainties in- Negative emissions or solar geoengi- though it gives no absolute figures. Like the herent in climate science. Though they neering might ease the need to decarbo- IPCC, Dr Dietz stops short of comparing have survived scrutiny by peer review in nise economies quickly—but not eliminate this to averted losses. But earlier work by the journals in which they appeared, and it. As the charts show, even with negative others suggests that a rise of 1.5°C would then again by the IPCC’s authors, individ- emissions carbon-dioxide release still shave 8% from global GDP per person by ual studies may yet be challenged. Taken needsto fall by45% orthereaboutsby2030. 2100, relative to a world with no more together, however, they paint a picture that To have any hope of achieving this, two- warming. A rise of 2°C, by contrast, would looks bleak. There is, remarks Glen Peters thirds of coal use must be phased out in lit- cause a discrepancy of13%. of the Centre for International Climate Re- tle more than a decade. By the middle of search in Oslo, who was not involved in the century virtually all electricity must Third-degree treatment? the report, perhaps one-tenth of the mate- come from carbon-free sources (up from a The world’s press reacted to the IPCC’s rial where there might be disagreements, quartertoday), and all cars will need to run tome with alarm sometimes verging on but scientists agree 100% about the remain- on electric motors (up from one in 500), as hysteria. News bulletins, front pages and ing nine-tenths. will trains and most ships. op-eds harangued governments to get Some of the technology needed to theiract togetherand ratchet up climate ac- Cooking in gas achieve this (solar panels, nuclear-power tion—especiallysince all ofthem signed off The same uncertainties apply to the re- plants, electric cars and so on) is around, on the report’s 30-page précis. That includ- port’s outline of possible pathways to a but not all of it. For aeroplanes to keep fly- ed the government of America, which 1.5°C future. On the bright side, the IPCC ing, either novel aviation biofuel will need President Donald Trump plans to yank out concludes that such a future remains geo- to be developed or negative emissions of the Paris agreement. (Mr Trump has physically within reach, thanks to what re- used to offset those from aircraft. Because since expressed doubts about the précis’s mains of the Earth’s “carbon budget” for cows produce lots of methane people will legitimacy.) 1.5°C—the cumulative sum of emissions at either have to switch to laboratory-grown On October 9th, a day after the vol- which the climate system stands a good burgers or change diets (see Briefing). Even ume’s release and ahead of an important chance of remaining below a particular when appropriate technology does exist, UN climate summit in Poland this Decem- temperature. The panel’s Assessment Re- marketforcesalone will notimprove it and ber, environment ministers from 15 of the port, a septennial compendium of the lat- spread it fast enough to have the necessary EU’s 28 members pressed the bloc to revise est climate science, most recently pub- climatic effect. its climate targets in line with the 1.5°C tar- lished in 2013-14, warned that an eventual Were any of this actually to happen, it get. This is welcome. But in a world where minimum rise of1.5°C, though it would not would transform economies beyond rec- even the existing target looks likely to be manifest itselfuntil mid-century, would be ognition. And it would cost money. How missed by a mile, how much difference it “baked” irreversibly into the climate sys- much, the IPCC has resisted predicting, will make is open to doubt. In climate tem by 2020 if economic activity contin- blaming limited economic research in the change, as in so many other areas, words ued to belch carbon dioxide at the present area. But, for the same reason, it does not are cheap. It is actions that are eloquent. 7 rate. In the past few years climate model- lers have, controversially in the eyes of some, revised the Earth’s remaining bud- Aim lower get to around 12 years’ worth of current Pathways to limit global warming to 1.5°C emissions, thus pushing back the date of Worldwide carbon-dioxide emissions, gigatonnes per year bake-in. Radical change Improved sustainability Managed transition High growth Even with a bigger carbon kitty though, 40 keeping the temperature rise below 1.5°C 2055 Target year to reach would take an epic effort. Of 90 published net-zero Fossil fuels and emissions industry models purporting to chart the most eco- 20 nomically efficient way to achieve this Net carbon goal, the IPCC considers that just nine stay emissions + below the threshold throughout this cen- 0 tury. The rest overshoot it, and so require removal of carbon dioxide from the atmo- Agriculture, forestry Bioenergy with carbon – and other land use capture and storage sphere to offsetthe excess emissions. 20 These “negative emissions” could come 2020 60 2100 2020 60 2100 2020 60 2100 202060 2100 from planting more forests, which draw in Business, technology A worldwide focus on Energy demand rises at Rapid economic growth carbon dioxide as they grow. Planting “en- and society as a whole sustainability keeps a moderate pace, in line drives global energy ergy crops” such as fast-growing grasses, change, dramatically energy demand stable. with historical trends. demands ever higher, which could be burned instead offossil fu- reducing demand for Renewable energy More renewable-energy keeping emissions up. els (with the carbon dioxide thus generat- energy. Apart from largely replaces fossil production and the Technological fixes and ed captured and stored underground), is changed land use and fuels. Carbon capture intensive use of carbon zealous use of carbon reforestation, no carbon compensates for the capture keep emissions capture ultimately claw also possible. Either approach, though, removal is needed remaining emissions in check back carbon emissions would mean convertingto that purpose an area ofagricultural land somewhere in size Source: IPCC 78 Science and technology The Economist October 13th 2018

Probiotics for vegetables Extraterrestrial life A little help from Where is everybody? my friends Why has ET neverbeen found? Perhaps people have not looked hard enough F ALIENS are so likely,why have we Perhaps there are plenty ofaliens, but Some plants nurture soil bacteria that in never seen any?” That is the Fermi they have decided that discretion is a turn serve to keep them healthy “I Paradox—named after Enrico Fermi, a saferbet than gregariousness. Or perhaps HE bacteria which inhabit human be- physicist who posed it in1950. galactic society avoids communicating Tings, particularly the guts of those be- Fermi’s argument ran as follows. The with Earth specifically.One chilling idea ings, have been found in recent years to be laws ofnature supported the emergence is that technological civilisations destroy important for fending off disease. That ofintelligent life on Earth. Those laws are themselves before they can make their something similar happens in other ani- the same throughout the universe. The presence known. They might blow them- mal species is doubtless true as well. But universe contains zillions ofstars and selves up after inventing nuclear weap- workbySeon-Woo Lee atDong-AUniversi- planets. So, even iflife is unlikely to arise ons (an invention that, on Earth, Fermi ty and Jihyun Kim at Yonsei University, on any particular astronomical body,the had been part of), or cookthemselves to both in South Korea, suggests that it is not sheer abundance ofcreation suggests the death by over-burning fossil fuels. only animals which benefit from such bac- night sky should be full ofalien civilisa- In a paper published last month on terial shielding. Their study, just published tions. Fermi wondered why aliens had arXiv, an online repository,a trio of in Nature Biotechnology, shows that plants never visited Earth. Today,the paradox is astronomers at Pennsylvania State Uni- do, too. And that may have important im- more usually cast in light ofthe inability versity have analysed the history of plications foragriculture. ofradio-telescope searches to detect the alien-hunting and come to a different Crop plants of the nightshade family, equivalent ofthe radio waves that leak conclusion. In effect, they reject one of such as potatoes and tomatoes, are suscep- from Earth into the cosmos, and have the paradox’s main pillars. Astronomers tible to a soil bacterium called Ralstonia so- done forthe past century. have seen no sign ofaliens, argue Jason lanacearum. This enters their roots and Thinking up answers to this apparent Wright and his colleagues, because they spreads through their water-transport sys- contradiction has become something of a have not been looking hard enough. tems, causingthem to wilt. Infection isusu- scientific parlour game. Perhaps life is Dr Wright’s argument echoes that ally lethal; the disease costs potato farmers really very unlikely.Perhaps the priests made by another astronomer, Jill Tarter, alone $1bn a year. Some apparently suit- are right: human beings were put on in 2010. Dr Tarter reckoned that decades able plants, though, seem exempt from R. Earth by some creator God forHis own ofsearching had amounted to the equiv- solanacearum’s attentions. In particular, a inscrutable purposes, and the rest of the alent ofdipping a drinking glass into variety of tomato called Hawaii 7996 does universe is merely background scenery. Earth’s oceans at random to see ifit con- not suffer from such bacterial wilt. Dr Lee tained a fish. Dr Wright and his col- and Dr Kim wondered if the explanation leagues built on Dr Tarter’s workto come for this exceptionalism lay with other bac- up with a model that tries to estimate the teria in the soil. amount ofsearching that alien-hunters To test that idea they grew crops of Ha- have managed so far. They considered waii 7996 and a second, wilt-vulnerable, nine variables, including how distant any tomato variety called Moneymaker. Once putative aliens are likely to be, the sensi- the plants were established, the research- tivity oftelescopes, how big a portion of ers analysed bacteria in the soil around the the electromagnetic spectrum they are plants’ roots and found systematic differ- able to scan and the time spent doing so. ences that depended on which tomato Once the numbers had been crunched, strain was growing. This observation the researchers reckoned humanity has made their hypothesis plausible. done slightly better than Dr Tarter sug- They then transplanted some of their gested. Rather than dipping a drinking Moneymaker plants into soil that had pre- glass into the ocean, they say,astrono- viously supported Hawaii 7996s, and mers have dunked a bathtub. The upshot some of the Hawaiian plants into soil that is that it is too early to assume no aliens had been home to Moneymakers. As con- exist. Fermi’s question is, for now at least, trols, they similarly uprooted individuals not a true paradox. of both varieties and replanted them in soil once inhabited by the same variety. That done, they exposed all of their plants peared to be providing the protection. Dr Kim that the roots of Hawaii 7996 are re- to R. solanacearum and monitored them Lee and Dr Kim therefore cultivated this leasing compounds which encourage the over the course of14 days. bug in their laboratory and used it to treat growth of TRM1. What those compounds They found the disease progressed al- soil into which Moneymaker plants were are has yet to be determined. But the two most 30% more slowly in Moneymaker then planted. When these were infected researchers’ work suggests at least three plants grown in “Hawaiian” soil than it did with R. solanacearum they proved, though ways in which bacterial wilt might be tack- in those Moneymakers that had been re- not completely resistant to it, certainly led. One is to apply TRM1itselfto the soil, if planted into their own soil. In contrast, it more resistant than others that had been it can be cultured in sufficient quantities. progressed rapidly in the normally resis- planted into untreated soil as controls. The second is to apply the stimulating tantHawaiian varietywhen thiswastrans- More than 40% of them were still alive chemicals to soil, once they have been ferred into Moneymaker soil. after16 days. Only12% ofthe control plants identified. The third is to tweak the DNA of Further study revealed that a single lasted that long. vulnerable crops to produce the stimulat- type of soil bacterium, called TRM1, ap- These findings suggest to Dr Lee and Dr ing chemicals directly. 7 Books and arts The Economist October 13th 2018 79

Also in this section 80 Sloganeering in America 81 Political theatre in New York 81 A novel of immigration 82 North Korean art

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Gandhi’s life and influence Muslim harmony, forthe interests ofDalits (formerly “untouchables”), for women’s A hero for our time equality and the shunningofindustrialisa- tion in favour of village-based crafts. In all of these endeavours, except the last, he shaped India’s subsequent democratic character. Crucially, he also nurtured successors, most obviously Nehru. The contrast with militaristic, unstable and often The Mahatma’s values are as relevant to his country as ever repressive Pakistan under Muhammad Ali HE stock of national heroes fluctuates Jinnah could not be more striking. Gandhi: The Years That Changed the over time. For decades Jawaharlal Neh- Every generation of Indians must revis- T World 1914-1948. By Ramachandra Guha. ru, India’s first prime minister, was vener- it Gandhi for themselves, argues Mr Guha Knopf; 1,104 pages; $40. Allen Lane; £40 ated at home. Agifted writer, he turned out in his magnificent new biography. It isn’t impressive books while incarcerated in only that the changing political climate en- British-run prisons. In power he kept his into India proper. Thismonth a monument tails a reassessment. The growing mounds multi-religious country democratic and to him—at 182 metres, the world’s tallest of Gandhi-related material require con- stable, despite enormous strains. Abroad statue—will be inaugurated in a remote stant resifting. At times he churned out 80 he guided it away from cold-war entangle- area ofGujarat, Mr Modi’s home state. letters a week; his collected works run to 97 ments. Yet today the admiration is fading: Other historical figures and episodes volumes. Researchers, including Mr Guha, “the popular mood in India has turned have been re-evaluated, too. Mr Modi has continue to unearth neglected writings. fiercely against Nehru and his legacy,” ob- encouraged popular acceptance of the serves Ramachandra Guha, a historian. Rashtriya Swayamsevak Sangh (RSS), a Great soul, no saint The shrivelling of Congress, once In- movement that was banned under Nehru Mr Guha’s book—the second of two vol- dia’s dominant party, partly explains that after Mohandas Gandhi was shot dead in umes—begins in 1914, as his subject returns shift. Official propaganda used to fete Neh- 1948 by a Hindu extremist associated with from South Africa. His narrative is sympa- ru and his descendants, prime ministers it. Occasionally Mr Modi celebrates Vi- thetic, if needlessly detailed in places: sad- Indira Gandhi and Rajiv Gandhi. When nayak Damodar Savarkar, a brilliant radi- ly its bulk may deter many would-be read- Congress was in power, every dynastic cal who reviled Gandhi and advocated vi- ers. He conveys Gandhi’s playfulness as birthday was celebrated on billboards and olence against Muslims (and was close to well as his intellect. Dispensing endless in fawning press notices. Today Hindu na- the RSS and the assassin). health advice to correspondents, Gandhi tionalists hold office and forcefully reject What ofthe reputation ofthe most ven- referred to himself self-deprecatingly as a that legacy. The old rulers are ridiculed for erated luminary ofall? Gandhi was India’s “quack” doctor. Mr Guha celebrates his corruption, economic mismanagement pre-eminent nation-builder. He did more skill with a pen. Seepersad Naipaul (father and the military enfeeblement they are than anyone else to secure the end of im- ofV.S.) praised Gandhi for writing passion- said to have overseen. perial rule. His decades of agitation, civil ately and directly, “from the belly rather Narendra Modi, the current prime min- disobedience, marches, fasting, lobbying, than from the cheek”. ister, reveres others instead. Foremost imprisonment and publicity-seeking— The Mahatma, or great soul, does not among his heroes is Nehru’s deputy, Val- techniques he first practised in British-run emerge as a saint. Gandhi admitted he labhbhai Patel, a more muscular South Africa—gradually made India’s free- could be a “beast” to his wife, Kasturba. He nationalist and pro-Hindu politician. Patel dom inevitable. was often inconsistent, self-regarding or ir- supervised the sometimes violent incor- He built up Congress from an elitist to a rational, as when he claimed his habit of poration of Muslim-run princely states mass movement. He pressed for Hindu- celibacycould somehowend religiousvio-1 80 Books and arts The Economist October 13th 2018

2 lence. He was a bore in his insistence that Sloganeering in America period invented its own American dream others should shun sex and contraception. according to the prevailing conditions. He erred in telling German Jews, Czechs They had a dream For the first 20 years the expression and Britons not to resist Nazi attackers. Mr mainly had a political, not an economic Guha also reveals a long-kept, juicy secret: meaning. But from the mid-1920s it tookon in the 1920s Gandhi had a prolonged (ifun- a familiar ring, and in the 1930s, against the consummated) infatuation with the niece background of the Depression, its use ex- of Rabindranath Tagore, a Bengali poet, ploded as it came to describe what one of Behold, America: The Entangled History of whom he called his wife in some letters. its champions, the historian James Trus- “America First” and “the American The author skilfully traces the evolu- low Adams, called “that belief in the right Dream”. By Sarah Churchwell. Basic Books; tion ofGandhi’spolitical beliefs. For exam- and possibility ofa betterlife forall, regard- 368 pages; $19.99. Bloomsbury; £20 ple, he was an early campaigner against less of class or circumstance”. By the 1950s the ill-treatment of Dalits, yet for much of T IS common for historians to examine and the advent of the cold war, says Ms his life kept faith in Hinduism’s caste divi- Ithe actions of great men. Sarah Church- Churchwell, the dream “had shrugged off sions and failed to supportinter-caste mar- well, a professor of American literature at all sense of moral disquiet, becoming a tri- riages (initially he was also against Hindu- the University of London, does something umphalist patriotic assertion”. Muslim unions). Only gradually did he re- different. Her protagonists are not people “America first”, meanwhile, has always ject caste outright. “No upper-caste Hindu but two expressions: “the American been a political slogan, with many applica- did as much to challenge untouchability as dream” and “America first”. By tracking tions. President Woodrow Wilson tried to Gandhi,” Mr Guha concludes, convincing- their usage down the years in newspapers, wield it with subtlety, explaining that ly. He rejects revisionist, left-leaning critics books and politicians’ speeches, her aim is America needed to think of itself first, but such as Arundhati Roy, who have labelled to cast light not just on the country’s past to be ready to be Europe’s friend once the Gandhi a sell-out on caste. but also on its politics today. President Do- first world war was over. Others were Many details in the book are fresh. nald Trump launched his bid forthe White cruder, urging protectionism, isolationism More closely than any other biographer, House proclaiming that “the American or worse. When the nationalist mood took Mr Guha tracks the forgotten influence of dream is dead”; he has used “America first” him, William Randolph Hearst slapped Gandhi’s long-serving secretary, Mahadev as a rallying cry. “America First” on the masthead of his Desai. He offers lively trivia. Gandhi, it Both phrases are about a century old newspapers. The Ku Klux Klan used it to transpires, saw just one film in his lifetime and have had a richer and more varied life boost white supremacism. and had no idea who Charlie Chaplin was than is commonly realised. The American It has been strikingly popular. The Re- when they met. He charmed many he en- dream nowadays tends to evoke individ- publican Party adopted it as a catchphrase countered. Dressed only in a loincloth, uals’ pursuit of riches, Ms Churchwell ar- in 1894. Wilson picked it up in a speech in Gandhi had an amicable exchange with gues, but it started out in the Progressive 1915 and used it as a slogan forhis presiden- KingGeorge V, though the pope refused the Era meaning almost the opposite: “the so- tial campaign the followingyear(as did his Indian an audience, objecting to his attire. cial dream of justice and equality against Republican opponent, Charles Evans But Mr Guha’s analysis is most valuable individual dreams ofaspiration and perso- Hughes). The next three presidents—War- on the big issues. Even more important nal success”. After that, each successive ren Harding, Calvin Coolidge and Herbert than securing independence, reckoned Hoover—all embraced it. The anti-war Gandhi, India had to seek Hindu-Muslim America First Committee brandished it. It peace. Upsetbythe bloodshed ofpartition, seems almost an anomaly that “America he especially pressed moderation on fel- first” went quiet for so long until its recent low Hindus, enshrining the idea that India thunderous revival. should not be dominated by one religion, As she weaves the twin strands of her becoming a Hindu raj. He did this despite history, shuttling between the American earlier British efforts to set Muslims and dream and “America first”, Ms Churchwell Hindus against each other, and notwith- sometimes relies on tenuous connections standing the antics ofJinnah, Savarkar and to (and between) her yarns. Books de- others who stirred up antipathy for nar- scribed as “American dream novels” (“The row partisan gain. Great Gatsby”, “Of Mice and Men”) turn It would be reckless to forget Gandhi’s out not to mention the phrase at all. Ajuicy warnings. But, with good reason, Mr Guha tale of Fred Trump, the president’s father, fears that is indeed happening. At a time of being arrested along with five “avowed hardening Hindu nationalism, crude at- Klansmen” at riots in Queens in 1927 has tacks on Gandhi have become routine on- only a tangential connection to the Ameri- line: “worryingly, there is a wider disen- ca-first narrative. chantment with Gandhi’s ideas of Yet this book is timely and instructive. religious pluralism,” Mr Guha notes. The Mr Trump’scritics can be mildly reassured likes of Mr Modi may offer lip-service to that banging on about “America first” has Gandhi, but then they “seek to diminish plenty of precedent; yet they will also be his stature by elevating their own heroes,” disturbed by the nastiness of some of that such as Savarkar. history. As for the American dream, Ms More than ever, perhaps, Indians and Churchwell lamentsthatithasbecome fos- outsiders would benefit from reacquaint- silised and flat. Americans once dreamed ance with Gandhi’s belief in compromise. more expansively, she says, invoking ideas Mr Guha’s magisterial account of a com- of social democracy and social justice. For passionate man provides a timely oppor- all her evident abhorrence of Mr Trump, tunity. Yet, as Gandhi knew, in the end it is she may agree with him on one thing: re- political actors, not writers, who bring viving the dream might help make Ameri- about real change. 7 America first and last ca great again. 7 The Economist October 13th 2018 Books and arts 81

A novel of immigration A mirror up to nature She the people No escape

NEW YORK Broadwaytakes a political turn T A time when the news features What We Owe. By Golnaz Hashemzadeh heroes and villains, high-stakes A Bonde. Translated by Elizabeth Clark Wessel. choices and grand revelations, audiences Mariner Books; 208 pages; $15.99. Fleet; are bound to find echoes ofcontempo- £14.99 rary life on stage. But in its impending season, Broadway is embracing politics LD clichés die hard—and sell well. in an unusually concerted way. The run OWhile Nordic artists profit abroad will include plays about race and justice from lucrative stereotypes involving (“American Son”, “To Kill a Mocking- sweaters, saunas and snowdrifts, at home bird”), gay love and shame (“Torch Song their societies are changing fast. Around Trilogy”, “Prom Night”, “Choir Boy”), one in 100 Swedes, for instance, has Irani- rapacious greed and hucksterism (“Glen- an heritage, one component of a popula- garry Glen Ross”), perverse news-spin- tion with a “foreign background” (the ning (“Network”, “Ink”), and the grisly state’s demographic term) that amounts to fate ofa vain ruler who is undermined by 24% of the total. Many Swedish writers his inner circle (“King Lear”). strive to capture this complexity, even if “Theatre has a huge responsibility publishers elsewhere still prefer morose right now,” says Leigh Silverman, director blonde sleuths. The arrival, in translation, of“The Lifespan ofa Fact”, a new play Read it and weep ofa Swedish-Iranian novelist is a welcome about the relation between factual accu- chance to cross the bridge into another ver- racy and deeper truths, which will have Constitution Means to Me”, off-Broad- sion ofScandinavia. its world premiere at Broadway’s Studio way at the New YorkTheatre Workshop, “What We Owe”, the second novel by 54 on October18th. Ms Silverman says also benefits from grimly auspicious Golnaz Hashemzadeh Bonde, an econo- she was drawn to “Lifespan” because it timing. A playwright and performer, Ms mist and social entrepreneur, is above all a wrestles with acutely topical questions Schreck(pictured) knows the constitution family story. It knots the experiences of about the moral duties ofart, the rele- well. She put herselfthrough college with three generations of women into a taut vance ofsmall details when telling a the money she won making speeches and moving account of grief, a legacy larger story and the fragile nature of about it in high-school competitions. handed down from motherto daughter“as credibility. It is also very funny. Now in her 40s, she revisits her guileless sure as the raven-black hair”. Yet the or- Written by Gordon Farrell, Jeremy teenage talks with the wisdom ofexperi- deals ofpersecution and exile shape every Kareken and David Murrell, the play ence and finds a more troubling docu- scene in the family’s thwarted quest to find dramatises a real-life debate between ment. Created as it was by white, slave- “both freedom and roots”. Public upheav- John D’Agata, an acclaimed writer with owning men, the constitution’s promises als frame the private pain. an impressionistic notion oftruth, and long excluded women and non-whites. Shocked by a terminal cancer diagnosis Jim Fingal, a young magazine intern Dominated as it overwhelmingly has in her early 50s, Nahid—the novel’s narra- given the taskoffact-checking John’s been by white, male justices, the Su- tor—looks back on her childhood in Iran, essay about a teenage suicide in Las preme Court has been slow to recognise her flight to Sweden, and her troubled rela- Vegas. Their fiddly exchanges over de- the claims ofothers. Ms Schrecknotes tionships with her mother, violent hus- tails, which spanned several years and that women won the rights to use birth band Masood and alienated daughter spawned an unconventional co-written control and terminate unwanted preg- Aram. “Such a beautiful place,” Nahid says book, seem unlikely fodder forthe stage. nancies only in the early1970s. Some of of prosperous, placid Sweden, “and I have It is all the more impressive that this these gains may now be under threat. almost no good memories of it.” Her new production—which stars Bobby Can- But this quicksilver play is no dull starts never healed her old wounds. 1 navale as the self-important essayist, civics lesson. Ms Schrecktoggles between Daniel Radcliffe as his pernickety fact- analysing the constitution and telling hound and Cherry Jones as their formi- stories about the legacy ofsexual abuse dable editor—turns out to be so provoca- in her family and her own experience of tive and entertaining. having an abortion. She talks about a The drama is set against a backdrop of Supreme Court ruling of2005 that found an industry in free-fall. Advertising sales women have no federal right to police are declining, subscribers are dying off protection from violent partners, about a and a “streamlined” editorial process has step-grandfather who raped her aunt, dispensed with the old fact-checking and about the time when, aged 17, she department. Although Jim’s scrupulous had sex with a boy because “it seemed research veers into obsession, he is the like the polite thing to do”. play’s moral centre. His declaration that Her show is darkbut not bleak. Ms white lies not only weaken John’s argu- Schreckprobes the constitution’s flaws ments but “undermine society’s trust in but also demonstrates the power of itself” earned hearty applause during a understanding it. Stirred viewers are sent recent preview. home with a theatre-issued copy ofthe Heidi Schreck’s arresting “What the text tucked into their pockets. 82 Books and arts The Economist October 13th 2018

2 One of seven daughters in “a family Aram protests that “we never got to have it mean that—to a surprising extent for a pro- with no sons”, she won a place at medical good”. The “profound shame” of exile en- duction line in a totalitarian state—individ- school; then came the revolt against the dures: “Fleeingsits in yourblood…and like ual artists are able, even encouraged, to de- shah, which “fell upon us like a rain of a tumour it grows inside you.” Worse, velop personal styles. Their “aesthetic stars”. Soon the Islamic revolution be- “everything is passed down” to the chil- priorities” are distinctive, says B.G. Muhn comes a tyranny that wrecks the dreams of dren. Terse, urgent prose—ably channelled of Georgetown University, curator of the Nahid and her secular comrades. Her be- by Elizabeth Clark Wessel, the translator— Gwangju show. loved sisterNoora diesaspolice crush a de- givespace and heftto a novel ofcontagious Take the landscapes of Jong Yong Man monstration. Nahid and Masood flee; a trauma. Still, Ms Hashemzadeh Bonde lets (see below), one of the most famous paint- half-life ofregret and recrimination begins. in a closing ray of hope. The baby Aram is ers in a country where the best-known are “We didn’t escape,” Nahid laments, as she expecting may allow mother and daughter household names. His depiction of Mount reckons the cost oftheir displacement. to “create something beautiful”. Perhaps Kumgang, with its striking use of negative “What We Owe” refuses sentimental another generation will, at last, enjoy that space and accomplished evocation of consolations. Nahid becomes a nurse, but “Swedish peace”. 7 cloud and mist, contrasts starkly with Choe Chang Ho’s more literal rendering of the same peaks. True, much North Korean North Korean art art glorifies Mr Kim’s regime, but not all is simplistic propaganda. The artists, Mr Mist on the mountains Muhn says, cling to “human dignity”. This mix of skill and kitsch has won ad- mirers overseas. Exhibitions have been staged in London, Vienna and Assen in the Netherlands. An art-tourism industry has sprung up along the Chinese border, in cit- GWANGJU ies such as Dandong, where visitors have The tangled connections between art and diplomacy sampled North Korean food, watched folk HEN South Korea’s president, Moon works include portraits, industrial scenes dancers and bought relatively inexpensive WJae-in, visited North Korea last and landscapes that evoke classical Chi- North Korean paintings. A Mansudae- month, he was given a tour of the Mansu- nese ink-painting. themed gallery operates in Beijing’s hip dae Art Studio, an enormous complex in This kind of figurative work is a far cry 798 Art Zone. Pyongyangwhere mostNorth Korean art is from Dansaekhwa, the South Korean mini- But this nascent cultural exchange has produced. At what is one of the largest art malist movement that has achieved wide- hita formidable obstacle, linked to another factories in the world, around 1,000 artists spread appeal. In the North, by contrast, North Korean specialism—monumental and 3,000 assistants churn out ornaments there is no avant-garde or abstract tradi- sculpture. Nurtured on an insatiable do- for Kim Jong Un’s regime. Mr Moon’s eye tion. Still, in some ways the show con- mestic appetite for gigantic bronzes, Man- was drawn to a series ofpaintings of Pung- founds presumptions about socialist real- sudae’s sculptors have created statues san hunting dogs; afterwards Mr Kim sent ism, a genre to which some ofthe paintings across Asia and Africa. They include the his counterpart a pair of the animals as a loosely belong. giant African Renaissance Monument in gift. In a guest book, Mr Moon wrote: “I The heroic studies are intimate as well Senegal and the Heroes’ Acre war memori- wish that art would become a bridge con- as dramatic. The artists reputedly immerse al in Namibia. Recently, however, these ac- necting South and North Korea as one.” themselves in the activity they aim to cap- tivities have come under scrutiny by the That mission has already begun, albeit ture—building a dam, for example—before UN, suspected of being a front for sanc- in fraught circumstances. At the Gwangju painting it. The result is an unexpected em- tions-busting—resulting in the UN Security Biennale, a few hours south of Seoul, 22 phasis on detail, a daintiness that is also in- Council blacklisting Mansudae. paintings produced at Mansudae are on herent in the medium. Painted on hanji, a Mr Muhn could put on the show in display in a groundbreaking exhibition. It traditional paper made from mulberry Gwangju only because the paintings came consists entirely of Chosonhwa, the tradi- bark, Chosonhwa works are delicate, a from collectors, not directly from the fac- tional North Korean technique ofink-wash quality that offsets the ruggedness of the tory (the sanctions apply only to current painting. Other forms of art, such as oil- subjects. As with Chinese calligraphy or sales). Likewise the gallery in Beijing says it painting and printmaking, are common in ink-wash landscapes, the paper is too thin is independently owned and sells work North Korea, but Chosonhwa has long to absorb more than a single brush-stroke. from a private collection. Art can be a tool been the country’s most revered form. The The confidence and virtuosity required ofdiplomacy, but it can be a victim, too. 7 Courses 83

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The Economist October 13th 2018 84 Economic and ﬁnancial indicators The Economist October 13th 2018

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2018† latest latest 2018† rate, % months, $bn 2018† 2018† bonds, latest Oct 10th year ago United States +2.9 Q2 +4.2 +2.9 +4.9 Aug +2.7 Aug +2.5 3.7 Sep -442.8 Q2 -2.6 -4.8 3.23 - - China +6.7 Q2 +7.4 +6.6 +6.1 Aug +2.3 Aug +2.1 3.8 Q2§ +67.8 Q2 +0.5 -3.6 3.42§§ 6.92 6.63 Japan +1.3 Q2 +3.0 +1.1 +0.6 Aug +1.3 Aug +0.9 2.4 Aug +193.8 Aug +3.8 -3.7 0.18 113 113 Britain +1.2 Q2 +1.6 +1.3 +1.4 Aug +2.7 Aug +2.4 4.0 Jun†† -97.5 Q2 -3.4 -1.7 1.66 0.76 0.76 Canada +1.9 Q2 +2.9 +2.3 +3.2 Jul +2.8 Aug +2.3 5.9 Sep -53.4 Q2 -2.6 -2.3 2.54 1.30 1.26 Euro area +2.1 Q2 +1.5 +2.1 -0.1 Jul +2.1 Sep +1.7 8.1 Aug +471.0 Jul +3.4 -0.7 0.55 0.87 0.85 Austria +2.3 Q2 -4.0 +2.9 +4.8 Jul +2.2 Aug +2.1 4.8 Aug +10.9 Q2 +2.2 -0.3 0.57 0.87 0.85 Belgium +1.4 Q2 +1.6 +1.5 -2.3 Jul +2.3 Sep +2.2 6.5 Aug +0.1 Jun -0.3 -1.1 0.93 0.87 0.85 France +1.7 Q2 +0.6 +1.7 +1.6 Aug +2.2 Sep +2.1 9.3 Aug -15.4 Aug -0.9 -2.6 0.88 0.87 0.85 Germany +1.9 Q2 +1.8 +1.9 -0.4 Aug +2.3 Sep +1.8 3.4 Aug‡ +317.0 Aug +7.9 +1.7 0.55 0.87 0.85 Greece +1.8 Q2 +0.9 +2.0 +1.4 Aug +1.1 Sep +0.9 19.1 Jun -2.5 Jul -1.2 -0.2 4.47 0.87 0.85 Italy +1.2 Q2 +0.8 +1.1 -0.8 Aug +1.5 Sep +1.4 9.7 Aug +58.4 Jul +2.4 -2.0 3.54 0.87 0.85 Netherlands +3.1 Q2 +3.3 +2.8 +3.1 Aug +1.9 Sep +1.7 4.8 Aug +94.3 Q2 +10.1 +1.3 0.65 0.87 0.85 Spain +2.7 Q2 +2.3 +2.7 +1.2 Aug +2.2 Sep +1.8 15.2 Aug +17.6 Jul +1.1 -2.7 1.46 0.87 0.85 Czech Republic +2.7 Q2 +2.9 +3.0 +1.9 Aug +2.3 Sep +2.3 2.7 Aug‡ +1.5 Q2 +0.8 +1.0 2.17 22.4 22.1 Denmark +1.5 Q2 +1.0 +1.3 -4.4 Aug +0.6 Sep +1.1 3.9 Aug +20.3 Aug +7.2 -0.7 0.50 6.47 6.34 Norway +3.3 Q2 +1.5 +1.6 -0.7 Aug +3.4 Sep +2.3 4.0 Jul‡‡ +28.0 Q2 +7.4 +5.4 2.06 8.20 7.98 Poland +5.1 Q2 +4.1 +4.6 +5.0 Aug +1.8 Sep +1.8 5.8 Sep§ -0.7 Jul -0.7 -2.0 3.33 3.74 3.66 Russia +1.9 Q2 na +1.6 +2.8 Aug +3.4 Sep +2.9 4.6 Aug§ +89.3 Q3 +5.1 +0.3 8.98 66.5 58.5 Sweden +2.4 Q2 +3.1 +2.7 +3.0 Aug +2.0 Aug +2.0 6.1 Aug§ +13.4 Q2 +3.8 +0.9 0.71 9.10 8.12 Switzerland +3.4 Q2 +2.9 +2.7 +8.7 Q2 +1.0 Sep +1.0 2.5 Sep +71.7 Q2 +9.9 +0.9 0.17 0.99 0.98 Turkey +5.2 Q2 na +3.8 +7.9 Jul +24.5 Sep +15.3 10.2 Jun§ -54.6 Jul -5.7 -3.4 19.99 6.03 3.74 Australia +3.4 Q2 +3.5 +3.2 +3.4 Q2 +2.1 Q2 +2.1 5.3 Aug -41.8 Q2 -2.6 -0.9 2.77 1.41 1.29 Hong Kong +3.5 Q2 -0.9 +3.4 +1.6 Q2 +2.3 Aug +2.2 2.8 Aug‡‡ +13.8 Q2 +4.3 +2.0 2.53 7.84 7.81 India +8.2 Q2 +7.8 +7.4 +6.6 Jul +3.7 Aug +4.6 6.4 Aug -49.5 Q2 -2.4 -3.6 8.03 74.2 65.4 Indonesia +5.3 Q2 na +5.2 +4.9 Aug +2.9 Sep +3.4 5.1 Q1§ -24.2 Q2 -2.6 -2.6 8.46 15,202 13,518 Malaysia +4.5 Q2 na +5.0 +2.5 Jul +0.2 Aug +0.9 3.4 Jul§ +11.2 Q2 +2.6 -3.3 4.12 4.15 4.23 Pakistan +5.4 2018** na +5.4 +0.5 Jul +5.1 Sep +5.4 5.9 2015 -18.1 Q2 -5.8 -5.4 11.00††† 134 105 Philippines +6.0 Q2 +5.3 +6.2 +8.8 Aug +6.7 Sep +5.2 5.4 Q3§ -5.1 Jun -1.5 -2.7 7.98 54.2 51.2 Singapore +3.9 Q2 +0.6 +3.5 +3.3 Aug +0.7 Aug +0.6 2.1 Q2 +64.6 Q2 +19.7 -0.7 2.64 1.38 1.36 South Korea +2.8 Q2 +2.4 +2.8 +2.5 Aug +1.9 Sep +1.6 4.0 Aug§ +76.4 Aug +4.5 +1.0 2.41 1,134 1,145 Taiwan +3.3 Q2 +1.6 +2.6 +1.3 Aug +1.7 Sep +1.7 3.7 Aug +84.5 Q2 +12.9 -0.7 0.92 31.0 30.4 Thailand +4.6 Q2 +4.1 +4.1 +0.7 Aug +1.3 Sep +1.2 1.0 Aug§ +49.0 Q2 +9.6 -2.9 2.67 33.0 33.4 Argentina -4.2 Q2 -15.2 -2.3 -7.0 Aug +34.2 Aug +33.6 9.6 Q2§ -35.4 Q2 -4.3 -5.6 11.26 37.4 17.5 Brazil +1.0 Q2 +0.7 +1.5 +2.0 Aug +4.5 Sep +3.8 12.1 Aug§ -15.5 Aug -1.0 -7.1 8.78 3.75 3.18 Chile +5.3 Q2 +2.8 +3.9 -1.8 Aug +3.1 Sep +2.4 7.3 Aug§‡‡ -3.6 Q2 -2.0 -2.0 4.54 684 633 Colombia +2.5 Q2 +2.3 +2.7 +3.5 Jul +3.2 Sep +3.3 9.2 Aug§ -10.6 Q2 -2.8 -1.9 7.01 3,093 2,954 Mexico +2.6 Q2 -0.6 +2.1 +1.3 Jul +5.0 Sep +4.8 3.3 Aug -19.7 Q2 -1.8 -2.3 8.17 19.1 18.6 Peru +5.4 Q2 +12.5 +4.1 +1.0 Jul +1.3 Sep +1.4 6.3 Aug§ -3.2 Q2 -1.8 -3.1 na 3.33 3.27 Egypt +5.4 Q2 na +5.4 +5.3 Jul +16.0 Sep +17.0 9.9 Q2§ -6.0 Q2 -2.4 -9.7 na 17.9 17.6 Israel +3.9 Q2 +1.8 +3.6 +5.5 Jul +1.2 Aug +1.1 4.0 Aug +7.5 Q2 +1.9 -2.9 2.10 3.63 3.51 Saudi Arabia -0.9 2017 na +1.5 na +2.3 Aug +2.6 6.1 Q1 +44.4 Q2 +7.3 -3.5 na 3.75 3.75 South Africa +0.4 Q2 -0.7 +0.7 +1.8 Jul +4.9 Aug +4.8 27.2 Q2§ -12.1 Q2 -3.5 -3.6 9.23 14.7 13.9 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist October 13th 2018 Economic and ﬁnancial indicators 85

Markets % change on Maritime transport Worldwide, % change on a year earlier Dec 29th 2017 Global seaborne trade rose by 4% in Index one in local in $ Oct 10th week currency terms volume terms in 2017, according to UNC- 12 United States (DJIA) 25,598.7 -4.6 +3.6 +3.6 TAD, the fastest growth rate in five years. Fleet capacity China (Shanghai Comp) 2,725.8 -3.4 -17.6 -22.0 Expansion was largely driven by in- 9 Japan (Nikkei 225) 23,506.0 -2.5 +3.3 +2.0 creased industrial production in emerg- Britain (FTSE 100) 7,145.7 -4.9 -7.1 -10.6 ing markets, which account for 60% of 6 Canada (S&P TSX) 15,517.4 -3.5 -4.3 -6.5 shipped exports. Rising trade was accom- Euro area (FTSE Euro 100) 1,132.0 -4.4 -6.4 -10.1 panied by a 3.3% increase in maritime- Euro area (EURO STOXX 50) 3,266.9 -4.1 -6.8 -10.4 fleet capacity. UNCTAD thinks the pros- 3 Austria (ATX) 3,252.8 -4.2 -4.9 -8.6 + Belgium (Bel 20) 3,575.3 -4.5 -10.1 -13.6 pects are bright, too. Autonomous ships 0 France (CAC 40) 5,206.2 -5.2 -2.0 -5.8 could boost efficiency in the industry, Germany (DAX)* 11,712.5 -4.7 -9.3 -12.9 though job losses and cyber-security Seaborne trade – Greece (Athex Comp) 625.8 -6.1 -22.0 -25.1 concerns may slow adoption of the tech- 3 Italy (FTSE/MIB) 19,719.0 -4.9 -9.8 -13.3 nology. Despite tensions between Ameri- Netherlands (AEX) 528.0 -4.5 -3.0 -6.8 ca and China, seaborne trade is forecast 6 Spain (IBEX 35) 9,162.9 -2.1 -8.8 -12.3 to rise by another 4% in 2018, and then 2000 02 04 06 08 10 12 14 17 Czech Republic (PX) 1,097.2 -0.9 +1.8 -2.9 by 3.8% annually until 2023. Source: UNCTAD Denmark (OMXCB) 820.2 -8.9 -11.5 -15.1 Hungary (BUX) 36,821.1 -1.1 -6.5 -13.6 Norway (OSEAX) 1,044.6 -2.5 +15.2 +15.1 Poland (WIG) 56,830.2 -4.0 -10.8 -16.8 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,143.4 -4.4 -1.0 -1.0 2005=100 % change on % change on Sweden (OMXS30) 1,595.1 -4.2 +1.2 -8.1 Dec 29th 2017 one one Switzerland (SMI) 8,892.9 -3.1 -5.2 -6.6 Index one in local in $ Oct 2nd Oct 9th* month year Turkey (BIST) 94,440.7 -2.8 -18.1 -48.4 Oct 10th week currency terms Dollar Index Australia (All Ord.) 6,163.8 -1.6 -0.1 -7.9 United States (S&P 500) 2,785.7 -4.8 +4.2 +4.2 All Items 139.8 139.2 +1.3 -5.0 Hong Kong (Hang Seng) 26,193.1 -3.3 -12.5 -12.7 United States (NAScomp) 7,422.1 -7.5 +7.5 +7.5 Food 143.3 144.0 +2.2 -3.8 India (BSE) 34,760.9 -3.4 +2.1 -11.0 China (Shenzhen Comp) 1,383.1 -4.1 -27.2 -31.1 Indonesia (IDX) 5,820.7 -0.8 -8.4 -17.6 Japan (Topix) 1,763.9 -2.2 -3.0 -4.2 Industrials Malaysia (KLSE) 1,735.2 -3.4 -3.4 -5.6 Europe (FTSEurofirst 300) 1,443.1 -4.2 -5.7 -9.3 All 136.1 134.2 +0.3 -6.2 Pakistan (KSE) 38,792.1 -4.4 -4.1 -14.8 World, dev'd (MSCI) 2,089.1 -4.3 -0.7 -0.7 Nfa† 125.5 123.1 -8.2 -4.4 Singapore (STI) 3,131.5 -4.2 -8.0 -10.6 Emerging markets (MSCI) 985.7 -4.8 -14.9 -14.9 Metals 140.6 139.0 +4.0 -6.9 South Korea (KOSPI) 2,228.6 -3.5 -9.7 -13.6 World, all (MSCI) 500.5 -4.4 -2.4 -2.4 Sterling Index Taiwan (TWI) 10,466.8 -3.7 -1.7 -4.5 World bonds (Citigroup) 917.4 -0.3 -3.4 -3.4 All items 195.8 193.4 +0.6 -4.1 Thailand (SET) 1,721.8 -1.2 -1.8 -1.1 EMBI+ (JPMorgan) 780.8 -1.4 -6.6 -6.6 Argentina (MERV) 28,549.8 -11.3 -5.0 -52.3 Hedge funds (HFRX) 1,245.5§ -1.4 -2.4 -2.4 Euro Index Brazil (BVSP) 83,679.1 +0.5 +9.5 -5.6 Volatility, US (VIX) 23.0 +11.6 +11.0 (levels) All items 150.4 151.0 +2.3 -2.1 Chile (IGPA) 26,658.9 -1.8 -4.7 -11.1 CDSs, Eur (iTRAXX)† 71.0 +3.0 +57.4 +51.3 Gold Colombia (IGBC) 12,409.0 -1.5 +8.1 +7.1 CDSs, N Am (CDX)† 61.8 +4.2 +25.9 +25.9 $ per oz 1,207.1 1,188.2 -0.2 -8.1 Mexico (IPC) 48,136.2 -1.8 -2.5 +1.8 Carbon trading (EU ETS) € 19.5 -8.8 +139.4 +130.0 West Texas Intermediate Peru (S&P/BVL)* 19,211.3 -3.1 -3.8 -5.8 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 75.2 75.0 +8.2 +47.2 Egypt (EGX 30) 13,621.2 -4.8 -9.3 -9.9 †Credit-default-swap spreads, basis points. §Oct 9th. Israel (TA-125) 1,450.5 -3.3 +6.3 +1.8 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 7,834.8 -2.2 +8.4 +8.4 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,813.4 -4.3 -11.2 -23.5 series, go to: Economist.com/indicators †Non-food agriculturals. 86 Obituary Charles Aznavour The Economist October 13th 2018

as well as bicycles abandoned at railway stations by fleeing Parisians. After the war it was Edith Piaf who encouraged him to write songs, and included several of his works in her concert reper- toire. Soon he began touring himself. Inev- itably, given the age, he also tried the cinema. He worked with some of the great directors, among them François Truffaut in Tirez sur le pianiste (“Shoot the Piano Play- er”). But acting was never his thing. What really brought him to life was songs and songwriting. Troubadour is a French word. In the high Middle Ages, travelling singer-poets wrote of chivalry and courtly love. He was the 20th-century version—a troubadour of transience, a poet of impermanence. Like many people born in Europe between the mid-1920s and the mid-1930s, he learned at fartoo tender an age that the difference between being OK and not OK, between safety and death, between peace and war, is mostly wafer thin. Piaf, who persuaded him to have a nose job and then told him she preferred him as he had been before, famously regretted nothing. He regretted plenty. Youcould hear it in his words. “My Heartsong shortcomings are my voice, my height (he measured just five foot three inches, 1.6 metres), my gestures, my lack of education, my frankness and my lackofpersonality.” His lyrics, written for more than 1,000 songs that sold well over 100m albums, told an even more plaintive story of long- Charles Aznavour, French-Armenian troubadour, died on October1st, aged 94 ingand loss. In Reste (“Stay”), he implores a OR a small guy,Charles Aznavour liked there while they waited for visas to Ameri- lover, “satiated, breathless, languid, dizzy”, Fhis stage to be big. Really big. He would ca. Meanwhile, his father took over a res- to staya while, theirlimbsentwined, in the slip through the curtains at the back and taurant that featured live music and of- warmth of the night. “I lost, and so I slide into the spotlight, left hand in his fered free food to the less well-off. When drank”, he explains in J’ai bu. “You never pocket, ready to face his audience head-on. the business inevitably went bust his understood that I was lost, and so I drank.” Wearing a black rollneck or a skinny tie, he mother took in work as a seamstress. But it Always that regret, that sense of loss of projected an almost jaunty insouciance was singing and performing for other émi- friends and lovers of the past, and even, as with his little crooked smile. But his fans grés that consumed the family. Both par- he sang fondly in Mes emmerdes, of “my knew he was a survivor, someone who got ents had been trained in the theatre. He troubles”. knocked down a lot but always rose made his inadvertent stage debut at three Bob Dylan admired him (“I saw him in again—someone a lot like them. As he lift- when he wandered in from the wings to- 60-something at Carnegie Hall, and he just ed the microphone, his face showed a defi- wards the lights. blew my brains out,” he said in 1987), but ant chin, a circumflex of dark eyebrows, At the age of nine he heard Maurice many Americans never really took to the closed eyes. For a moment their lids were Chevalier sing Donnez-moi la main French crooner, perhaps because his lyrics as white and as curved as a beach in Cuba mam’zelle et ne dites rien (“Give me your were so execrably translated or perhaps (one of the many countries that broadcast hand, miss, and say nothing”). And so he because they regarded his songs as hours of his music in the days after he set his young heart on being a singer. But schmaltzy rather than soulful. died). His dark eyelashes fluttered like first he took acting classes at l’Ecole des En- But the French, the Armenians (for palm trees. And then came that voice, fants du Spectacle, known as the Collège whom he sang and raised money after a crashing on to the heart’s shore. Rognoni after the elderly member of the deadly earthquake in 1988), the Cubans Hier encore, j’avais vingt ans… Comédie Française who had founded it and the French-speaking north Africans Yesterday when I was young the year that Mr Aznavour was born. never stopped loving the little guy, the The taste of life was sweet like rain upon my His school years, already rickety as he chanteur who recalled their fleeting youth, tongue, tried to combine homework with touring their lost selves. He would have smiled his I teased at life as ifit were a foolish game in provincial theatres, came to an end with little crooked smile had he heard that at a The way an evening breeze would tease a the start of the second world war when he service of national homage, attended by candle flame was 15. He learned to smoke cigarettes three French presidents, Emmanuel Mac- He was born Shahnour Vaghinag Azna- backstage, all the better to fit into life in the ron stood by the flag-draped coffin placed vourian near the Latin Quarter in Paris in theatre. And after the fall ofFrance in 1940, in front of Napoleon’s tomb at Les Inval- 1924, and christened “Charles” by a French as he later told the Paris Review, he grew ides, compared his literary gifts to those of nurse who could not pronounce his name. adept at selling occupying German sol- Guillaume Apollinaire and declared: “In His Armenian parents had taken refuge diers black-market lingerie and chocolate France, poets never die.” 7