https://t.me/finera Chaguan: a new column on China

Africa’s looming debt crisis

How to fix America’s Supreme Court

The world’s most expensive pet fish SEPTEMBER 15TH–21ST 2018 Financial Era Advisory Group https://t.me/finera Financial Era Advisory Group https://t.me/finera Contents The Economist September 15th 2018 5

7 The world this week United States 37 Public policy Leaders Wunderbar 11 The Economist at 175 38 New York A manifesto Sleaze and the city 14 Britain and the EU 39 Cyber-attacks Selling Chequers Suing spies 14 The Supreme Court 39 Muslim politicians Weak is strong Bushies to Bernie 16 Emerging markets 40 Flying pets America’s Supreme Court Lessons from Lusaka It’s emotional Deepening partisanship is bad 18 Alibaba 41 Lexington Gary Johnson for liberty for the court and bad for Ma where he came from? America. Term limits would On the cover Letters help: leader, page 14. Over Success has turned liberals The Americas recent decades it has become 21 On air-conditioning, into a complacent elite. It is increasingly political, page 22 Scotland, rebalancing, 42 Impunity in Guatemala time to rekindle the spirit of nudity The fears of a clown radicalism: leader, page 11. 43 Colombian guerrillas Reinventing liberalism for Whack-a-mole the 21st century: an essay, Briefing page 45 44 Bello 22 America’s Supreme Court Coup-plotting in Venezuela And Brett makes five

The Economist online Essay Britain Daily analysis and opinion to 45 Liberalism supplement the print edition, plus 25 The Brexit negotiations The Economist at 175 audio and video, and a daily chart Chequers, the unlikely survivor 47 21st-century Corn Laws Economist.com Free markets and more E-mail: newsletters and 26 Boris Johnson The clown prince 49 Immigration Brexit The Chequers plan is in mobile edition Open societies big trouble at home. More Economist.com/email 27 Labour’s economics flexibility from the EU would Take back control 51 Welfare and taxes Print edition: available online by The new social contract help improve it: leader, page 14. 7pm London time each Thursday 27 Electoral reform Despite being under attack Economist.com/printedition Cut on the bias 52 The world order from all sides, Theresa May’s Something to fight for Audio edition: available online 28 The Open University plan refuses to die, page 25. to download each Friday Degrees of trouble 54 A call to arms Boris Johnson’s bid for the Use liberalism or lose it Economist.com/audioedition 28 Prostitution leadership of the Conservative Sex, drugs and Party is gathering momentum, non-enforcement Middle East and Africa page 26 29 Dementia care 55 Zambia’s debt Colour me happy End of the road

V olume 428 Number 9109 30 Bagehot 56 Farming in Congo A hunger for ideas War and cheese Published since September1843 57 A new battle for Iraq to take part in "a severe contest between intelligence, which presses forward, and Europe Infighting after the vote an unworthy, timid ignorance obstructing 57 America and the PLO our progress." 31 Sweden’s population Back to the future Editorial offices in London and also: Still standing Amsterdam, Beijing, Berlin, Brussels, Cairo, 32 Asylum-seekers 58 Gun control in Yemen Chicago, Johannesburg, Madrid, Mexico City, Heat check Moscow, Mumbai, New Delhi, New York, Paris, Under the gaydar San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC 33 Hungary Orban sceptics Zambia A looming debt crisis should serve as a warning 33 Cricket in Corfu At the crease in Greece for the rest of Africa: leader, page 16. An increasingly 34 Russia and China authoritarian regime is Brother enemy pushing Zambia towards 35 Charlemagne financial ruin, page 55 For those in peril on the sea

1 Contents continues overleaf Financial Era Advisory Group 6 Contents The Economist September 15th 2018

Asia 80 Infrastructure in Colombia 59 An inter-Korean summit The highway, my way Showtime in Pyongyang 80 Impact ETFs 60 Australia’s aboriginals Opposites attract A new way to curb crime 81 Buttonwood 61 Banyan Market millenarians Team Trump’s Asia policy 82 Ant and Tencent 62 Politics in Pakistan And now for something Liberal apostasy completely different 62 The ornamental-fish trade 83 Free exchange Chaguan Our new China Ornamental fish Why Asia is Economies of scale Upsetting the Apple cart column takes its name from a obsessed with arowanas, 63 Arrests of Indian activists meeting-place of ideas: An ill wind in politics page 62 Chaguan, page 66 Science and technology 84 Recycling China On the plastic highway Subscription service 64 Separatism in Hong Kong For our full range of subscription offers, 85 Marine litter including digital only or print and digital Bracing for a ban Sweeping the ocean combined visit 65 Overcrowded schools Economist.com/offers 86 Scientific publishing You can also subscribe by mail or telephone at Class struggle The S-Plan diet the details provided below: 66 Chaguan 86 Wildlife conservation Telephone: +44 (0) 845 120 0983 The importance of Tending the flock Web: Economist.com/offers teahouses Post: The Economist Subscription Centre, Books and arts P.O. Box 471, International Haywards Heath, 87 Bob Woodward RH16 3GY 67 Climate change UK America’s economy America The Trump chronicles Local government v is pushing the labour market 88 American fiction Subscription for 1 year (51 issues) global warming Print only UK – £145 to its limits, page 77. The The other side of paradise Democratic Party’s left flank 89 Adventures in has some ideas for fixing the Business 18th-century finance Principal commercial offices: country, page 37. Tariffs may 69 Chinese bosses Wind and smoke The Adelphi Building, 1-11John Adam Street, well bring some high-tech Command and control London WC2N 6HT manufacturing back to 89 Reimagining Homer Tel: +44 (0) 20 7830 7000 America. But ordinary people 70 Bartleby Achilles and the heels Rue de l’Athénée 32 won’t gain much: Free Artificial stimulant 90 The price of mega-wealth 1206 Geneva, Switzerland exchange, page 83 71 Volvo’s IPO Another country Tel: +4122 566 2470 Safe at any Swede 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 71 CBS’s Les Moonves 92 Economic and financial 1301Cityplaza Four, Final episode indicators 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 72 Vaping in America Statistics on 42 economies, Tel: +852 2585 3888 Smoked out plus a closer look at Other commercial offices: 72 America’s housing market education spending Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore Fixer-uppers 73 Copyright rules Obituary Screen grab 94 Luca Cavalli-Sforza 74 Schumpeter The drift of humankind An empire of the mind

After Jack Ma No entrepreneur has defined China’s Finance and economics transformation as he has. His 77 The Federal Reserve success will be hard to repeat: Feeling the heat leader, page 18. His gradual 78 Turkish banks exit from Alibaba contrasts Offside with other bosses’ 79 Venezuela PEFC certified overweening clout, page 69. This copy of The Economist The half-life of a currency is printed on paper sourced As regulators circle, China’s from sustainably managed fintech giants put the forests certified by PEFC PEFC/16-33-582 www.pefc.org emphasis on tech, page 82

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The hospitalised candidate ment led by Mahathir Moha- coast. On the other side of the Politics Doctors said that Jair Bolso- mad against the flood ofChi- world, Hong Kong battened naro, the far-right candidate in nese money swashing around down the hatches ahead of Brazil’s presidential election, infrastructure projects. In a SuperTyphoon Mangkhut, will be kept in care forweeks visit to Beijing recently, Dr forecast to be one ofthe stron- after he was stabbed in the Mahathir warned about a new gest storms to hit the territory. stomach at a campaign event. “colonialism” and complained Mr Bolsonaro is leading the ofunfaircontracts drawn up to A country in chaos polls forthe first round of next service China’s Belt and Road Five days after reopening the month’s election among those Initiative. only functioning airport in who are allowed to run. Luiz Libya’s capital, Tripoli, the Inácio Lula da Silva, a former A suicide-bombing in eastern authorities closed it again president, has been jailed for Afghanistan killed at least 68 because ofrocket fire. Clashes corruption and is banned from people. The bomber had tar- between rival militias contin- standing. He ended his legal geted a group ofprotesters. ued in the south ofthe city and In Sweden’s general election, challenge to that ban this week Hours earlier a series ofbombs Islamic State fighters stormed the anti-immigrant Sweden and pulled out ofthe race. hit schools in the city ofJalala- the state oil company’s offices. Democrats did less well than bad. One child was killed. many had feared, ending up in Protesters swept through much third place with 17.5% ofthe Japan’s ruling Liberal Demo- ofBasra, Iraq’s second city, vote. But forming a new cratic Party began a leadership torching government build- government could now be contest which will culminate ings, party offices and the difficult, as the centre-right and in a vote on September 20th. Iranian consulate in a week- centre-left alliances are both Shigeru Ishiba, a formerde- long rampage. Government well short ofa majority. fence minister, who has criti- forces shot backbut failed to Another election may have to cised Shinzo Abe, the prime contain rioting sparked by be called. minister, for failingto raise contaminated water in the living standards, is standing, oil-rich but neglected city. The European Parliament but Mr Abe is predicted to win. voted to condemn Hungary The Saudi-led coalition for abusing democratic norms. A movement ofpoor and The king of green resumed its battle forHodei- This starts a process that could indigenous people blocked California’s governor, Jerry dah, Yemen’s main port, after theoretically see Hungary sections ofthe Pan-American Brown, issued a surprise exec- peace talks collapsed before stripped ofits voting rights, but highway in Guatemala to utive order to make California they began. The delegation actual sanctions are certain to protest against the decision by carbon neutral by 2045, representing Houthi rebels be blocked by Poland and the country’s president, Jimmy though it is debatable whether failed to show up. perhaps others. Morales, to end the mandate that goal can be achieved. In ofthe UN-sponsored Interna- contrast, the federal govern- Zimbabwe’s president, Theresa May, Britain’s prime tional Commission Against ment proposed easing the Emmerson Mnangagwa, shuf- minister, faced speculation Impunity in Guatemala, requirements on energy com- fled his cabinet, naming tech- about a leadership challenge. known as CICIG. Mr Morales panies to carry out repairs and nocrats to key posts, signalling Some 80 Tory MPs opposed to has also barred the head of the inspections ofmethane leaks, his desire to revive a stagnating her Chequers proposal on commission, Iván Velásquez, which could raise emissions of economy. Among the appoint- Brexit were reported to have from returning to Guatemala. the greenhouse gas. ments is Mthuli Ncube, an met to discuss options that CICIG has attracted the presi- economist, who was named as include a no-confidence vote. dent’s ire forinvestigating his In his first speech as Donald finance minister. Jean-Claude Juncker, the family. Trump’snational-security president ofthe European adviser, John Bolton threat- Commission, added to Mrs China moves into the backyard ened to impose sanctions on May’s woes. In a speech he America recalled its top dip- the International Criminal said that her proposal was “the lomats from the Dominican Court ifit brings any action starting point” fora trade deal, Republic, El Salvador and against America or its allies, but his overall tone was down- Panama forconsultations. It notably Israel. Based in The beat and other key parts of the objected after the countries Hague, the ICC was founded in plan were dismissed. decided to cut ties with Tai- 2002 and has had a rocky wan and recognise China relationship with America Vladimir Putin said that Brit- instead. Only17 nationsstill ever since. ain’s allegation that two mem- recognise Taiwan. Four of bers ofRussia’s military in- those are in Central America Around 1.7m people were telligence poisoned a former and could also be tempted to ordered to evacuate the south- Ethiopia and Eritrea re- spy in Salisbury earlier this end links with Taiwan, raising eastern coast ofthe United opened their border crossings year is wrong. The Russian concern in Washington that States as Hurricane Florence forthe first time since the start president claimed that the two China is gaining influence. bore down on the region. The ofa war in 1998. There has men were civilians and would storm could be the strongest to been a rapid improvement in explain “everything them- Malaysia cancelled three hit the Carolinas in decades. In relations with Eritrea after selves”. They later popped up pipeline projects backed by South Carolina freeways were Ethiopia’s prime minister, Abiy to say they were just tourists China, the most conspicuous converted to one-way routes Ahmed, agreed to withdraw visiting Salisbury’s cathedral. push yet by the new govern- away from the danger on the from disputed territory. 1 Financial Era Advisory Group ADVERTISEMENT

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executives, had been em- The unemployment rate held electric carmaker’s chiefexec- Business broiled in a battle with the steady at 3.9%. It has been utive, when he tooka puffof Redstone family, the control- hovering just below or above marijuana during a live ling shareholders in CBS, to 4% all year so far; the last time interview. Tesla’s stockhas dilute its voting power. With that happened was in 2000. fallen by almost 20% in the his departure, CBS shookup All ofwhich gives the Federal past month. the board, bringing in new Reserve plenty to digest when directors allied with the it considers lifting interest rates The problems at Tesla weighed Redstones. later this month. on NIO, a Chinese maker of electric cars that touts itself as The fashion for vaping More details were made public a potential competitor to Mr Scott Gottlieb, the head of about Unilever’s plan to scrap Musk’s firm, when it launched America’s Food and Drug its dual British-Dutch stock- its IPO in New York. With Administration, said that the market listing and move its investors looking closely at the use ofe-cigarettes among headquarters from Britain to prospects for the industry, NIO MarkCarney, the governor of teenagers had “reached an the Netherlands. The consum- priced the offering ofits Ameri- the BankofEngland, agreed to epidemic proportion”. Retail- er-goods group, which makes can depositary shares at $6.26 extend his term until January ers and manufacturers were many well-known household a share, the bottom ofits target 2020. Philip Hammond, Brit- warned to “substantially brands and is the world’s price range. They rose 5% on ain’s chancellor ofthe exche- reverse these trends” or face biggest manufacturer ofice- the first day oftrading. quer, requested the seven- fines and the possibility of cream, has denied that its month extension to Mr Car- having the products removed decision is related to Brexit. The European Parliament ney’s planned leaving date to from the shelves. That has not stopped it from voted in favour ofa proposal “support a smooth exit” for being criticised in Britain. that could force Google, Face- Britain from the European Debenhams reassured in- Unilever will drop out ofthe bookand other big internet Union, saying the summer of vestors about its financial FTSE 100 index ifit relocates, firms to stop users uploading 2019 “could be quite a turbu- performance after its share which will force some in- copyrighted content and to lent period”. price swooned in response to vestment funds to sell their share revenue from that con- reports that it is considering a shares in the group. tent with musicians and writ- Jack Ma announced that he restructuring. The British chain ers. Critics say the costs of would step down as chairman ofdepartment stores has Driven to distraction monitoring such a system, ofAlibaba in September 2019. issued three profit warnings Tesla’s investors absorbed which would make the likes of Mr Ma founded the Chinese this year. Its close rival, House news ofthe departure ofboth YouTube liable for copyright e-commerce company19 years ofFraser, was saved from its chiefaccountant after less infringement, would be huge. ago and has been involved in liquidation last month. than a month in the position The proposal is a long way running it ever since. The and its human-resources from becoming law; the EU’s English-language teacher- The pace ofgrowth in the director, who is not returning member states still have to be turned-billionaire wants to average hourly earnings of to her job following a leave of consulted. focus on his workin education American workers quick- absence. There was also more and philanthropy. His succes- ened in August, rising by 2.9% concern about the erratic For other economic data and sor will be Daniel Zhang, who from the same month last year. behaviour ofElon Musk, the news see Indicators section is currently Alibaba’s chief executive.

Sino-Russian co-operation As he’s still in charge, Mr Ma signed a deal through which Alibaba will take a 10% stake in Mail. Ru, a Russian internet giant and the owner ofVkon- takte, the country’s most pop- ular social network.

Les Moonves resigned with immediate effectas the chief executive and chairman of CBS, following a spate ofsexu- al-harassment allegations dating from the 1980s to the 2000s. The broadcaster has employed lawyers to investi- gate the claims, which Mr Moonves denies; ifthey find there is cause to dismiss him, he will forgo some or all of his severance package. Mr Moonves, one ofthe media industry’s most powerful https://t.me/finera Leaders The Economist September 15th 2018 11 A manifesto

Success has turned liberals into a complacent elite. It is time to rekindle the spirit ofradicalism IBERALISM made the modern The economy must be cut free from the growing power of cor- Lworld, but the modern world porate monopoliesand the planningrestrictionsthatshut peo- is turning against it. Europe and ple out of the most prosperous cities. And we urge the West to America are in the throes of a shore up the liberal world order through enhanced military popular rebellion against liberal power and reinvigorated alliances. elites, who are seen as self-serv- All these policies are designed to deal with liberalism’s cen- ing and unable, or unwilling, to tral problem. In its moment oftriumph afterthe collapse ofthe solve the problems of ordinary Soviet Union, it lost sight of its own essential values. It is with people. Elsewhere a 25-year shift towards freedom and open them that the liberal revival must begin. markets has gone into reverse, even as China, soon to be the Liberalism emerged in the late 18th century as a response to world’s largest economy, shows that dictatorships can thrive. the turmoil stirred up byindependence in America, revolution For The Economist this is profoundly worrying. We were in France and the transformation of industry and commerce. created 175 years ago to campaign forliberalism—not the leftish Revolutionaries insist that, to build a better world, you first “progressivism” ofAmerican universitycampusesorthe right- have to smash the one in front of you. By contrast, conserva- ish “ultraliberalism” conjured up by the French commentariat, tives are suspicious of all revolutionary pretensions to univer- but a universal commitment to individual dignity, open mar- sal truth. They seekto preserve what is best in society by man- kets, limited government and a faith in human progress aging change, usually under a ruling class or an authoritarian brought about by debate and reform. leader who “knows best”. Our founders would be astonished at how life today com- pares with the poverty and the misery of the 1840s. Global life An engine of change expectancy in the past175 years has risen from a little under 30 True liberals contend that societies can change gradually for years to over 70. The share of people living below the thresh- the better and from the bottom up. They differ from revolu- old of extreme poverty has fallen from about 80% to 8% and tionaries because they reject the idea that individuals should the absolute number has halved, even as the total living above be coerced into accepting someone else’s beliefs. They differ it has increased from about 100m to over 6.5bn. And literacy from conservatives because they assert that aristocracy and rates are up more than fivefold, to over 80%. Civil rights and hierarchy, indeed all concentrations of power, tend to become the rule of law are incomparably more robust than they were sources ofoppression. only a few decades ago. In many countries individuals are Liberalism thusbegan asa restless, agitatingworld view. Yet now free to choose how to live—and with whom. over the past few decades liberals have become too comfort- This is not all the workof liberals, obviously. But as fascism, able with power. As a result, they have lost their hunger for re- communism and autarky failed overthe course ofthe 19th and form. The ruling liberal elite tell themselves that they preside 20th centuries, liberal societies have prospered. In one flavour over a healthy meritocracy and that they have earned their or another, liberal democracy came to dominate the West and privileges. The reality is not so clear-cut. from there it started to spread around the world. At its best, the competitive spirit of meritocracy has created extraordinary prosperity and a wealth of new ideas. In the Laurels, but no rest name ofefficiency and economic freedom, governments have Yet political philosophies cannot live by theirpast glories: they opened up markets to competition. Race, gender and sexuality must also promise a better future. And here liberal democracy have never been less of a barrier to advancement. Globalisa- faces a looming challenge. Western voters have started to tion haslifted hundredsofmillionsofpeople in emerging mar- doubt that the system works forthem orthat it is fair. In polling kets out ofpoverty. last year just 36% ofGermans, 24% of Canadians and 9% of the Yet ruling liberals have often sheltered themselves from the French thought that the next generation would be better off gales of creative destruction. Cushy professions such as law than their parents. Only a third ofAmericans under 35 say that are protected by fatuous regulations. University professors en- it is vital they live in a democracy; the share who would wel- joy tenure even as they preach the virtues of the open society. come military government grew from 7% in 1995 to 18% last Financiers were spared the worst of the financial crisis when year. Globally, according to Freedom House, an NGO, civil lib- their employers were bailed out with taxpayers’ money. Glo- erties and political rights have declined forthe past 12 years—in balisation was meant to create enough gains to help the losers, 2017, 71countries lost ground while only 35 made gains. but too few ofthem have seen the pay-off. Against this current, The Economist still believes in the pow- In all sorts of ways, the liberal meritocracy is closed and er of the liberal idea. Over the past six months, we have cele- self-sustaining. A recent study found that, in 1999-2013, Ameri- brated our 175th anniversary with online articles, debates, ca’s most prestigious universities admitted more students podcasts and films that explore how to respond to liberalism’s from the top 1% of households by income than from the bot- critics. In thisissue we publish an essaythatisa manifesto for a tom 50%. In 1980-2015 university fees in America rose 17 times liberal revival—a liberalism forthe people. as fast as median incomes. The 50 biggest urban areas contain Ouressaysetsouthowthe state can workharderfor the citi- 7% of the world’s people and produce 40% of its output. But zen by recastingtaxation, welfare, education and immigration. planning restrictions shut many out, especially the young. 1 Financial Era Advisory Group 12 Leaders The Economist September 15th 2018

2 Governingliberals have become so wrapped up in preserv- from interwarisolationism to post-warengagement in order to ing the status quo that they have forgotten what radicalism contain the Soviet Union, as is often assumed. Instead, having looks like. Remember how, in hercampaign to become Ameri- seen how the chaos of the 1920s and 1930s bred fascism and ca’s president, Hillary Clinton concealed her lack of big ideas Bolshevism, its post-war statesmen concluded that a leader- behind a blizzard of small ones. The candidates to become less world was a threat. In the words ofDean Acheson, a secre- leader of the Labour Party in Britain in 2015 lost to Jeremy Cor- tary ofstate, America could no longer sit “in the parlour with a byn not because he is a dazzling political talent so much as be- loaded shotgun, waiting”. cause they were indistinguishably bland. Liberal technocrats It follows that the break up of the Soviet Union in 1991 did contrive endless clever policy fixes, but they remain conspicu- not suddenly make America safe. Ifliberal ideas do not under- ously aloof from the people they are supposed to be helping. pin the world, geopolitics risks becoming the balance-of-pow- This creates two classes: the doers and the done-to, the think- er, sphere-of-influence struggle that European statesmen grap- ersand the thought-for, the policymakersand the policytakers. pled with in the 19th century. That culminated in the muddy battlefields ofFlanders. Even iftoday’s peace holds, liberalism The foundations ofliberty will sufferasgrowingfearsofforeign foesdrive people into the Liberals have forgotten that their founding idea is civic respect arms ofstrongmen and populists. for all. Our centenary editorial, written in 1943 as the war It is the moment for a liberal reinvention. Liberals need to against fascism raged, set this out in two complementary prin- spend less time dismissing their critics as fools and bigots and ciples. The first is freedom: that it is “not only just and wise but more fixing what is wrong. The true spirit of liberalism is not also profitable…to let people do what they want.” The second self-preserving, but radical and disruptive. The Economist was is the common interest: that “human society…can be an asso- founded to campaign for the repeal of the Corn Laws, which ciation forthe welfare ofall.” charged duties on imports of grain into Victorian Britain. To- Today’s liberal meritocracy sits uncomfortably with that in- day that sounds comically small-bore. But in the 1840s, 60% of clusive definition of freedom. The ruling class live in a bubble. the income of factory workers went on food, a third of that on They go to the same colleges, marry each other, live in the bread. We were created to take the part of the poor against the same streetsand workin the same offices. Remote from power, corn-cultivating gentry. Today, in that same vision, liberals most people are expected to be content with growing material need to side with a struggling precariat against the patricians. prosperity instead. Yet, amid stagnating productivity and the They must rediscover their belief in individual dignity and fiscal austerity that followed the financial crisis of 2008, even self-reliance—by curbing their own privileges. They must stop this promise has often been broken. That is one reason loyalty to main- stream parties is corroding. Britain’s Con- Liberals should approach today’s challenges with servatives, perhaps the most successful vigour. If they prevail, it will be because their ideas party in history, now raise more money are unmatched for their ability to spread freedom from the wills ofdead people than they do from the gifts of the living. In the first elec- and prosperity tion in unified Germany, in 1990, the tradi- tional parties won over 80% of the vote; the latest poll gives sneering at nationalism, but claim it for themselves and fill it them just 45%, compared with a total of 41.5% for the far right, with their own brand of inclusive civic pride. Rather than the farleft and the Greens. lodging power in centralised ministries and unaccountable Instead people are retreating into group identities defined technocracies, they should devolve it to regions and munici- by race, religion or sexuality. As a result, that second principle, palities. Instead of treating geopolitics as a zero-sum struggle the common interest, has fragmented. Identity politics is a val- between the great powers, America must draw on the self-re- id response to discrimination but, as identities multiply, the inforcing triad ofits military might, its values and its allies. politics of each group collides with the politics of all the rest. The best liberals have always been pragmatic and adapt- Instead ofgenerating useful compromises, debate becomes an able. Before the first world war Theodore Roosevelt took on exercise in tribal outrage. Leaders on the right, in particular, ex- the robber barons who ran America’s great monopolies. Al- ploit the insecurity engendered by immigration as a way of though many early liberals feared mob rule, they embraced whipping up support. And they use smug left-wing arguments democracy. After the Depression in the 1930s they acknow- about political correctness to feed their voters’ sense of being ledged that government has a limited role in managing the looked down on. The result is polarisation. Sometimes that economy. Partly in order to see off fascism and communism leads to paralysis, sometimes to the tyranny ofthe majority. At afterthe second world war, liberals designed the welfare state. worst it emboldens far-right authoritarians. Liberals should approach today’s challenges with equal Liberals are losing the argument in geopolitics, too. Liberal- vigour. If they prevail, it will be because their ideas are un- ism spread in the 19th and 20th centuries against the backdrop matched fortheirabilityto spread freedom and prosperity. Lib- first of British naval hegemony and, later, the economic and erals should embrace criticism and welcome debate as a military rise ofthe United States. Today, by contrast, the retreat source of the new thinking that will rekindle their movement. of liberal democracy is taking place as Russia plays the sab- They should be bold and impatient for reform. Young people, oteur and China asserts its growing global power. Yet rather especially, have a world to claim. than defend the system of alliances and liberal institutions it When The Economist was founded 175 years ago our first created after the second world war, America has been neglect- editor, James Wilson, promised “a severe contest between in- ing it—and even, under President Donald Trump, attacking it. telligence, which presses forward, and an unworthy, timid ig- This impulse to pull back is based on a misconception. As norance obstructing our progress.” We renew our pledge to the historian Robert Kagan points out, America did not switch that contest. And we askliberals everywhere to join us. 7 https://t.me/finera This advertisement has been approved for issue by Pictet Asset Management Limited, authorised and regulated by the Financial Conduct Authority. The value of an investment can go down as well as up, and investors may not get back the full amount invested.

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Britain and the European Union Selling Chequers

The Chequers plan is in big trouble at home. More flexibility from the EU would improve its chances HERESA MAY could be for- including, in effect, the jurisdiction of the European Court of Tgiven for seeing next week’s Justice. It offers a way to avert a border between Northern Ire- trip to Salzburg to meet her fel- land and the Irish republic that a Canada-type agreement on low EU leaders as a welcome its own does not. And the promise to maintain a level playing- break from continual harass- field for competition answers one ofBrussels’s biggest fears, of ment at home. Her plan for a race to the bottom in standards. Brexit, announced at Chequers, Though including services would be beneficial, member- her country retreat, in July, is un- ship ofthe single market for goods alone is hardly heresy. Most der attack from all sides (see Britain section). Hardline Brexi- free-trade deals cover goods, not services. Moreover, Switzer- teers hate the idea of keeping in close alignment with EU regu- land and the Channel Islands are in effectmembers of the EU’s lations so as to preserve frictionless trade in goods. Remainers single market for goods alone. Brussels may hate these prece- dislike the plan’s omission of services, which are Britain’s dents, but it cannot deny their existence. most competitive sector. This week there was even wild talk As for free movement of people, there is no economic logic among some Tory MPs of ousting Mrs May as party leader. In arguingthatthisisneeded fora single market. In practice sever- today’s febrile political climate, the chances of getting a Che- al countries restrict it. The Swiss offer jobs to their nationals quers-like plan through Parliament seem alarmingly small. first. The Belgians throw out migrants who cannot find work. Alas the EU may not offerthe prime minister much succour. Liechtenstein has quotas for how many EU nationals it admits. Reports that it is softening its objections to Chequers are pre- There should be scope for compromise, the more so since the mature. It regards the proposal to use a customs arrangement numbers coming to Britain from the EU have fallen sharply. to avoid a hard border in Ireland as complex and unworkable. It believes that allowing Britain to stay in the single market for The only game in town goods but not services would undermine the market’s integri- Chequers has enemies everywhere, yet it is the only serious ty. Its mantra is that Britain can have a Canada-style free-trade proposal on the table. Even at home, Brexiteers who are cam- deal or full membership of the single market with full obliga- paigning to sink the scheme have failed to come up with a co- tions like Norway—but nothing in between. Its hope is that, herentalternative plan oranycredible wayto avoid a hard bor- with time running out, its bullheadedness will push Mrs May der in Ireland. into making more concessions, even to the extent of accepting The EU’s leaders may reckon that, since the Chequers plan’s free movement ofpeople. unpopularity in Mrs May’s party makes it unlikely to pass Such intransigence is a mistake. Chequers certainly has muster, theyhave little to lose byrubbishingit. But doingso too flaws that will need fixing in further negotiations. It could yet aggressively could make it harder forany Brexit deal at all to be evolve into something closer to Norway plus a customs union. agreed on. The risk of then getting a new hardline Tory prime Buteven asitstands, MrsMay’splan isa bigshiftbythe govern- minister set on a no-deal Brexit is surely worse than Chequers, ment towards accepting the EU’s principal demand—that a especially as Mrs May’s plan can evolve further. Given this, Eu- post-Brexit Britain should abide by most single-market rules, rope’s leaders should be ready to bend a little more now. 7

The Supreme Court Weak is strong

America’s highest court needs term limits HE judiciary, wrote Alex- in American life (see Briefing). Tander Hamilton in Federalist The centrality stems largely from gridlock. As Congress has Paper 78, “may truly be said to grown incapable of passing laws involving even straightfor- have neither FORCE nor WILL, ward political trade-offs, power has flowed to the executive but merely judgment...[It] is be- and judicial branches. Political questions best settled by the yond comparison the weakest ballot box—about abortion, for instance, or gay marriage— of the three departments of have become legal ones settled by nine unelected judges. power.” For much of American The untenability stems from the court’s growing partisan- history, politicians saw the Supreme Court as a backwater. ship. It was not always thus. Republican presidents appointed John Rutledge, one of the first justices appointed by George three ofthe 20th century’s greatest liberal jurists—Earl Warren, Washington, resigned to become chief justice of South Caroli- William Brennan and Harry Blackmun—as well as Anthony na. Not until 1935 did the court have a building of its own. To- Kennedy, the recently retired “swing vote”. But today the day it occupies a central and increasingly untenable position court’sfourconservative justiceswere all appointed by Repub-1 https://t.me/finera Financial Era Advisory Group 16 Leaders The Economist September 15th 2018

2 lican presidents, the four liberals by Democratic ones. The lican-appointed justices repeatedly strike down the ambitious nomination process has grown ever more poisonous. social programmes these politicians promised. Like a bar fight, it is hard to be sure who started it, but each Breaking this cycle requires reform. Some have proposed punch leads to retaliation. Republicans point to Democratic radical solutions, such as making all of the roughly180 federal tactics during the hearing for Robert Bork, a Reagan nominee. appellate judges associate justices, and having nine of them Democratsare the victimsofthe mostrecentblow—which was drawn at random to hear and choose cases at the Supreme also the most shameless. In 2016 Republicans refused even to Court for a limited period—a term, at most. Defenders argue hold a hearing forMerrickGarland, whom BarackObama had that this would make the court more deferential to precedent, nominated, denying the president a power that is granted to and any one judge less able to spend years cutting a partisan him under the constitution, and allowing Donald Trump to fill path across the nation’s highest court. But it could also just the seat instead. push the political brawling down a level, so that every appel- Mr Trump’s second Supreme Court justice, Brett Kava- late nomination becomes a bloodsport. In any case, it is prob- naugh, will be confirmed only because Republicans hold a ably too drastic a change to be feasible. two-seat majority in the Senate. Should they lose that major- A more workable change would be to appoint justices for ity in the Senate this autumn, and should another Supreme single 18-year terms—staggered, so that each president gets two Court seat before long open up, Democrats will probably pre- appointments per term—rather than for life. Each presidential vent Mr Trump from filling it. The norms that Republicans term would thus leave an equal markon the court, and no sin- created for Mr Garland will be used to justify their behaviour. gle justice would remain on the bench for 30 or 40 years. New And on it will go. blood would make the court more vital and dynamic. A poll This partisan ratchet is bad forthe judiciary and bad forthe taken in July showed widespread bipartisan support for term country. It risks hobbling the court, in two ways. First, if the limits. So longasformerjusticeswere prevented from standing only time a president can fill a seat is when his party controls for office, becoming lobbyists or lawyers after stepping down the Senate, then the court will spend long periods at less than from the court, this would be an improvement. full strength. Second, the court’s legitimacy depends on its rep- Some fear that term limits would simply entrench the utation as a credible neutral arbiter. court’s political centrality by making it an issue in every elec- The judgments ofa court seen as just anothernakedly polit- tion. But that bridge has already been crossed. “You have to ical body, no different from Congress or the presidency, can vote for me,” Mr Trump told a rally in 2016. “You know why? easily be dismissed—or fought. Franklin Roosevelt mulled Supreme Court judges. Have no choice.” packing the court in the 1930s when it frustrated his New Deal What better way for Americans to start finding a path back ambitions. It is not hard to imagine a Democratic president towards civil politics than reminding themselves that biparti- and Congress doing the same in fouryears’ time, iffive Repub- san institutional reform remains possible? 7

Emerging markets Lessons from Lusaka

Zambia’s looming debt crisis is a warning forthe rest ofAfrica EBT stalks Africa once governments unless it was accompanied by reforms to speed African Eurobonds Dagain. Over the past six up economic growth and improve governance. Issuance, $bn 25 yearssub-Saharan governments To be fair, the scheme did a lot ofgood by freeing up money 20 have issued $81bn in dollar for schools and clinics. But Mr Easterly’s warning was pre- 15 10 bonds to investors hungry for scient. Zambia tookbarely a decade to run up fresh debt worth 5 yield. Piled on top of this are 59% of GDP. The government blames a fall in copper prices 0 2007 09 11 13 15 18* murkier syndicated loans and from 2011. But the real reason is that Zambia is run by an inept *To September bilateral debts, many to China and venal elite who used easy credit to line their own pockets. and tied to big construction projects. Public debt has climbed Much ofthe money Zambia borrowed was squandered or sto- above 50% of GDP in half the countries in sub-Saharan Africa. len. Bigwigsskimmed from worthy-soundingcontracts. When The risk of a crisis is growing. Consider Zambia. In 2012 this the country bought bright new fire-engines their price some- southern African country could borrow more cheaply than how ballooned by 70%, to more than $1m each. Its new roads Spain. Now bond yields have jumped above 16%, suggesting mysteriously cost twice as much per kilometre as its neigh- that investors fear that it will default(see Middle East and Afri- bours’. Its new airport terminal was designed to accommo- ca section). This fall from grace offers several lessons. date an improbable ten-fold jump in traffic. A slide into au- thoritarianism made corruption harder to check. Zambia’s Time to tighten the copperbelt main independent paper, which used to squeal about graft, The first relates to the “moral hazard” of debt write-offs. Zam- was shut down. bia, along with 29 other African countries, had many of its The second lesson is that an increasing number ofcreditors debts wiped clean since 2005 under the IMF’s “heavily indebt- are willing to encourage irresponsible borrowing. By 2016, ed poor countries” (HIPC) scheme. Sceptics such as William when it was clear that Zambia was hurtling towards a crisis, Easterly, an economist, warned at the time that debt relief the IMF urged it to put a brake on new borrowing. Aspike in in- would simply encourage more reckless borrowing by crooked terest rates in the bond market provided some discipline. Yet1 https://t.me/finera

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O cial fuel consumption figures in mpg (l/100km) for the All-New Ford Focus range: urban 36.2-74.3 (7.8 -3.8), extra urban 54.3-85.6 (5.2-3.3), combined 45.6-80.7 (6.2-3.5). Official CO2 emissions 138-91g/km. The mpg fi gures quoted are sourced from o cial EU-regulated test results (EU Regulation 715/2007 and 692/2008 as last amended), are provided for comparability purposes and may not refl ect your actual driving experience. Information correct at time of going to print. Financial Era Advisory Group 18 Leaders The Economist September 15th 2018

2 governments, particularly China’s, were happy to fill the gap. demanded his removal. Amazingly, the fund complied. China now holds perhaps a quarter to a third of Zambia’s ex- Because so many competing interests are involved, Zam- ternal debt. (No one knows how much—itself a cause for con- bia’s latest debt mess will be much harder to unscramble. cern.) The regime has also asked for loans from Turkey, which Western creditors and the IMF want the government to stop has ambitions in Africa. That leads to the third lesson. The wasting money on overpriced infrastructure. But the Chinese rules forhow to handle Africa’s debt crises are changing. In the banks that finance infrastructure projects are also large cred- pastmuch ofthe moneywasowed to the World Bank, IMF and itors whose short-term loans to Zambia need to be restruc- Paris Club, an informal group of Western government credi- tured. If projects are cancelled, they may refuse to roll over ex- tors. This gave the fund the power to demand prudent eco- isting loans. Or they may demand to be given, say, Zambia’s nomic reforms as a condition for help. Now China’s influence state power utility as compensation. A crisis will be inevitable has risen—and it puts much less emphasis on good gover- unless all creditors, China included, give the IMF the backing it nance. The IMF’s clout has diminished. When the fund’s repre- needsto chivvyZambia into gettingitsfinancesin order and its sentative irked Zambia’s president, Edgar Lungu, the regime economy backon track. Alas, that seems all too unlikely. 7

Alibaba Ma where he came from?

No entrepreneurhas defined China’s transformation like JackMa. His success will be hard to repeat HE most recognisable face of cultivated both closeness and stand-offishness (“Love them, TChinese capitalism belongs don’t marry them,” he once said of the government). Under to Jack Ma, the founder of Ali- the leadership ofPresident Xi Jinping, however, China’s politi- baba, an e-commerce jugger- cal system has grown hostile to private businesses that be- naut matched in size only by come too big or too disruptive. Officials have constrained Amazon. Mr Ma, who launched bosses’ freedom to make splashy deals. Bytedance, a brash Alibaba from a small apartment technology firm set up in 2012, has been reined in, and forced in Hangzhou in 1999, is an em- to withdraw one of its apps. Its founder issued a grovelling blem of China’s extraordinary economic transformation. This public apology after being chastised by the government. Ant, week’s announcement that he will step down as the firm’s meanwhile, has seen its aspirations to compete with state- chairman a year from now, to concentrate on philanthropy, owned banks held backby regulators (see Finance section). was greeted with comparative calm by investors. He stopped China is puttingits corporate champions at the service ofits being chief executive in 2013; Alibaba’s share price has more ambitions to compete globally in high-tech industries. Ali- than doubled since its initial public offering, the world’s larg- baba’s task is to use artificial intelligence to improve cities. est-ever, in 2014 (see Business section). But one question pre- Through state-backed venture-capital funds, the government sents itself: could China produce another story to match his? is pouring money into industries that were once the preserve The answer is almost certainly not. of the private sector. Rumours occasionally surface that it There are some verygood reasonsforthat. China’sown rise plans to take stakes and board seats in big tech firms. All this is an unrepeatable one. When Mr Ma, then an English-lan- hasfed growinginternational suspicion ofChina, especially in guage teacher, launched Alibaba, the country was still gearing America. Mr Ma was one of the first out of the blocks to con- up to join the World Trade Organisation. Its GDP per head, in gratulate President Donald Trump on his election victory; this terms of purchasing-power parity, stood at under $3,000; it is year America prevented Ant’s purchase of MoneyGram, a now more than six times higher. The internet was still young, money-transferfirm, on national-security grounds. The reality too. Less than 1% of Chinese had access to the web back then, was always more complicated, but MrMa embodies an idea of compared with some 36% ofAmericans. As incomes grew and China as market-driven and open. That idea has faded. connections proliferated, Mr Ma tookfull advantage. Thousands of small businesses have since flourished on Jackbe nimble Alibaba’s platforms. About 1m merchants trade in its virtual None ofthis is to say that enterprise is fizzling in China. Indeed emporiums. Its services have helped push China’s economy one of Mr Ma’s legacies is a shift to a culture that values start- towards consumption-led growth. Last year it boasted sales of ups more than ever. His charisma and folksy advice have $25bn on Singles’ Day, China’s equivalent of Black Friday earned him cult-like status among the country’s entrepre- (when Americans spent a measly $5bn). It has transformed lo- neurs. Venture capitalists are lavishing money on hundreds of gistics and finance, as well as retailing. Last year Alibaba deliv- newcomers, in industries from biotech to electric vehicles. ered an average of 55m packages a day; its financial offshoot, Small private firms will continue to flourish. Ant Financial, accounts for more than half of China’s vast mo- But it is harder to be as disruptive today as Mr Ma was 20 bile-payments market. Its reach is so great that many startups years ago. That is partly because his own creation is so dom- decide to workwith Alibaba rather than strike out alone. inant. Increasingly, however, the greatest obstacle to disrup- But more has changed than the structure of China’s econ- tion is China’s rulers. The party is intent on having a say much omy and the clout of digital giants like Alibaba. Politics has earlier in the development of industries that it considers im- changed, too. Alibaba thrived partly thanks to Mr Ma’s skilful portant. As a result, China is unlikely to see new business lead- dealings with China’s ruling Communist Party, with which he ers with the boldness and brio to match Mr Ma. 7 https://t.me/finera Executive Focus 19

Chief Executive Officer (CEO) Egypt Fund

The Government of Egypt (GoE) is hiring the Chief Executive Offi cer (CEO) for its newly established sovereign fund, the “Egypt Fund”. The Egypt Fund (EF) is being created to maximize the value of selected assets owned by the GoE, and to attract local and foreign private investment to existing and greenfi eld projects.

The Egypt Fund will be privately managed and operated on a commercial basis, implementing international best practices in investment, portfolio management, governance and transparency. The GoE is looking to hire the best caliber candidates in relevant areas of fi nance, investment and fund management for the Egypt Fund and will offer competitive, market-based, packages.

The CEO is expected to have extensive world-class experience in fi nance, investment banking and in working with government and international fi nancial institutions. The CEO will lead a high caliber, culturally diverse, workforce. S/he is expected to develop and implement investment and portfolio management strategies in accordance with the Egypt Fund mandate, observing international best practices in portfolio management, in accounting and reporting, and in environmental, social and corporate governance standards.

The CEO will be responsible for building a sophisticated, state of the art, institution that will work with the GoE to promote investment and help unlock the potential of a range of resources and sectors in Egypt. The position is high profi le and will require working and interacting with governments, international fi nancial institutions and the media.

Interested professionals should please send a detailed CV accompanied by a cover letter to [email protected] by 17:00 Cairo local time on September 27, 2018. Please direct any enquiries to this email. Only shortlisted candidates will be contacted for interviews.

The Economist September 15th 2018 Financial Era Advisory Group 20 Executive Focus

EXCITING OPPORTUNITIES IN TRADE & REGIONAL DEVELOPMENT IN EAST &

CENTRAL AFRICA Growing Prosperity Through Trade

TradeMark East Africa (TMEA) is an aid-for-trade organisation that was established with the aim of growing prosperity in East Africa through increased trade. TMEA operates on a not-for-profit basis and is funded by the development agencies of the following countries: Belgium, Canada, Denmark, Finland, the Netherlands, Norway, United Kingdom, and United States of America. TMEA works closely with East African Community (EAC) institutions, national governments, the private sector and civil society organisations. TMEA, with an annual expenditure of around US$100 million, is now the leading aid-for-trade facility in the world. TMEA has its headquarters in Nairobi with vibrant and successful operations in EAC-Arusha, Burundi, Tanzania, Democratic Republic of Congo, Ethiopia, South Sudan, Uganda and Rwanda. The first phase of TMEA has delivered exceptional results which have directly contributed to substantial gains in East Africa’s trade and regional integration environment in terms of reduced transit times, improved border efficiency, and reduced barriers to trade. We are now in the second phase and we aim to deliver even more large-scale impact to maximise the potential benefits of aid-for-trade interventions which lead to sustainable and inclusive prosperity through job creation, poverty reduction and enhanced economic welfare. We are looking for high calibre, results-oriented and experienced professionals to join our team in the positions below. CHIEF TECHNICAL OFFICER The Chief Technical Officer (CTO) will oversee the successful delivery of TMEA’s strategic objectives (and therefore results) through the Technical Services Teams and will lead programme delivery at regional and EAC levels. S/he will be responsible for formulating the right technical solutions and projects for TMEA’s entire portfolio to achieve TMEA’s impact targets. This will include working in close collaboration with external partners and stakeholders, other major programmes of key development partners, EAC Partner States and key development partners, particularly DfID, USAID, World Bank, African Development Bank, European Union etc. The ideal candidate will possess an undergraduate degree with at least 15 years relevant work experience OR a Master’s degree with at least 13 years relevant work experience. A minimum of seven years of leadership and management experience is essential. The position is open to national, regional and international candidates. CHIEF OPERATING OFFICER The Chief Operating Officer (COO) will oversee TMEA’s programme delivery at country level through working with a team of experienced Country Directors to develop and implement TMEA’s in-country strategies and programmes to generate the required results. S/he will be responsible for liaising with external partners and stakeholders and other major programmes of key development partners, to solidify TMEA’s reputation as a significant and respected organisation and programme, in response to the challenges of regional trade and integration in East Africa. The role involves strategic quality assurance, management and oversight of TMEA’s matrix management delivery system to deliver agreed organisational impact objectives and related Key Performance Indicators (KPIs). The ideal candidate will possess an undergraduate degree with at least 15 years relevant work experience OR a Master’s degree with at least 13 years relevant work experience. A minimum of seven years of leadership and management experience is essential. The position is open to national, regional and international candidates. APPLICATION DETAILS

The detailed job profiles for these posts can be accessed on our website: www.trademarkea.com.

These positions are available on contract to 30 June 2020 with the possibility of renewal. Please apply online through http://www.trademarkea.com/work-with-us/ by Friday, 5 October, 5.00pm Kenyan time. Attach your cover letter and detailed CV, including details of your qualifications, experience, and present position. Your application should also include a working e-mail address, daytime telephone contacts, and names and contact details of three referees. Interviews will be conducted in November and December 2018.

Please note that we will only consider applications received on-line through the link provided above. Applications received after the deadline will not be accepted. We reserve the right to accept or reject any application. Only short-listed candidates will be contacted.

TMEA is an equal opportunity employer and is committed to open and transparent recruitment processes. Qualified women and persons living with disabilities are particularly encouraged to apply. The Economist September 15th 2018 https://t.me/finera Letters The Economist September 15th 2018 21

Reducing heat by design On a bus tour down the west income tax and punitive levels naked dining, clothing-option- coast ofAmerica to Mexico we ofstamp duty on a family al theatre and the opening of We are over-dependent on air were frozen to the marrow by home are among the deter- large, popular thermal spas, conditioning (“Global cool- roaring air-con and asked for it rents. The constant agitation such as Therme Erding in ing”, August 25th). This has to be turned off.Wewere told forindependence means that Munich. Hundreds ofmainly promoted the design ofglass that it could not be turned off, the number ofskilled Scots young bathers ofboth sexes buildings, lightweight or even down, but were leaving is not matched by great and all shapes and sizes are structures and deep-plan offered thickblankets. I have enough numbers moving in comfortable in their skin with- buildings, which preclude the never understood this. the opposite direction. out objectification or insecuri- use ofnatural ventilation. HILARY POTTS ROBERT CLAYTON ty. Few ofthese events existed Many contemporary buildings London Consultant orthopaedic surgeon or were tolerated 20 years ago. in temperate climates are built Edinburgh The irony, as many studies using lightweight components, Scotland’s poor performance have shown, is that women insulation (forenergy efficien- Rebalancing act are farmore likely to be sexu- cy in winter) and without The lackofsuccessful policy alised when wearing a bathing cross-ventilation. This causes innovation and the unimpres- Buttonwood overstated the suit that tantalisingly hides buildings to overheat sive performance ofpublic benefits ofrebalancing something. Among all the internally even in modest services in Scotland since investment portfolios (July relaxed bodies ofa northern summer temperatures. Nicola Sturgeon became first 28th). The success ofthis European beach or spa, the The use ofair conditioning minister (“The not so brave”, strategy rests entirely on the indistinguishable nudity has meant that people in their August18th) is all the more assumption that share prices rapidly becomes frankly rather homes and workplaces are remarkable given the level of are mean reverting. Most unremarkable. being exposed to a very funding available to her empirical studies conclude KATE GRIFFITHS narrow temperature band, administration. The latest data that the random-walk Brussels which is detrimental to health. show that in the year 2017-18 hypothesis fits the data better. Cities often exacerbate high Scotland’s public finances In that case, it is straight- temperatures because ofthe benefited from £11bn ($14bn) forward that any derivative, urban heat-island effect. Shad- thanks to the redistribution of including rebalancing, has ing, building height and config- UK revenues via the Barnett exactly the same return-risk uration can adversely affect Formula. This equates to near- ratio as the underlying share not only the local micro- ly £1,600 per person above the price. Wecannot entirely climate ofstreets, but also the UK average. With additional dismiss the notion that mean amount ofenergy needed for resources over several years, reversion may occasionally heating and cooling buildings, the new tax and welfare pow- occur, but relying on it is just which city planners should ers in the Scotland Act 2016, another kind ofspeculation. take note of. and the robust fiscal safety net ESPEN SIRNES Ifsocieties become too from being part ofthe UK, it is Associate professor in finance reliant on air conditioning, it is doubly disappointing that the University of Tromso I am reminded of“An immod- likely that the peakenergy Scottish National Party have Tromso, Norway est proposal” put forward by demand will not be met and not developed more successful Nicholas Humphrey in the the resilience ofour cities will approaches to addressing our Rebalancing is not nearly that early1980s. The neuropsychol- be diminished. It is farbetter to nation’s challenges. simple. The example of1926 to ogist’s essay suggested that create cities and buildings that ALASTAIR CAMERON 1940 had greater stockmarket “our leaders must be given no can provide thermal comfort Director volatility than the vast major- choice but to go naked into the with little energy demand. The Scotland in Union ity ofother similar periods. conference chamber”. “No capabilities and technologies Glasgow Yourcherry-picked period naked human being”, he exist to provide an alternative would lookdifferent over wrote, “conscious ofhis own to air conditioning. One area which you did not longer and rolling rebalancing essential ordinariness, the RICHARD LORCH mention was the performance periods. I am forrebalancing, chairseat pressing against his Editor-in-chief ofScotland’s NHS under the but there are tax consequences buttocks, his toes wriggling Building Research & Information SNP. Unachievable guarantees forbuying and selling in peri- beneath the conference table, London foraccess to treatment have ods that are less than a year. his penis hanging limply a few been enshrined in law, so MICHAEL FALK feet from Mr Andropov’s, Can I askbusinesses to cease patients are forced to travel for Partner could possibly play the game their insidious habit ofproduc- many hours to receive treat- Focus Consulting Group ofinternational politics and ing Arctic temperatures in ment forwhich they have Riverwoods, Illinois barter like a god with the lives midsummer? I have come to waited forever-increasing ofmillions ofhis fellow men.” GALEN STRAWSON hate entering cinemas and times. Regional trauma-care The naked truth shopping malls on a swelter- centres have been successfully Austin, Texas 7 ing August afternoon because introduced in England but “All the young prudes” the inside temperatures are continue to be held up in (September1st) observed how kept at goose-pimpling lows. Scotland forpolitical reasons. Europeans are shying away Letters are welcome and should be In many restaurants, ladies are Recruitment in the Scottish from public nudity. There is addressed to the Editor at NHS The Economist, The Adelphi Building, now offered use ofa shawl lest is a problem, fornumer- also, however, a growing 1-11John Adam Street, they shiver uncontrollably ous reasons. The devolved body-positive movement in London WC2N 6HT through the meal. administration has failed to Europe. Casual nudity is E-mail: [email protected] EDMUND TIRYAKIN make it sufficiently attractive encouraged at events such as More letters are available at: Hillsborough, North Carolina as a place to work. The rises in World Naked Bike Rides, Economist.com/letters Financial Era Advisory Group 22 Briefing America’s Supreme Court The Economist September 15th 2018

nee. There are 51Republicans in the Senate. And Brett makes five And even senators who are retiring, and sometimes critical of Mr Trump, can be re- lied on to vote forhis pickon this matter. But if the Republicans’ victory in this WASHINGTON, DC battle is politics as usual, their overall vic- America’s highest court has been becoming increasinglypolitical fordecades. It tory in the war fora Supreme Court major- needs respect and reform ity sits on far more dubious ground. After Antonin Scalia died in February 2016, Ba- ARL WARREN was the 20th century’s court rules on such questions. rack Obama nominated a moderately lib- Emost consequential American jurist. Beyond the particulars of Mr Kava- eral judge, Merrick Garland, to take his During his nearly 16-year tenure as chief naugh’s appointment, though, the political place. But Mitch McConnell, the Republi- justice, the Supreme Court ruled, in Brown drama that now surrounds the Supreme can senate majority leader, refused to hold v Board of Education, that segregation was Court is explained by the fact that over the confirmation hearings for him, a move unlawful; in Gideon v Wainwright, that past four decades it has decided some of without modern precedent. Mr Garland’s states must provide attorneys to indigent the most inflammatory and divisive issues nomination lapsed when Mr Obama’s criminal defendants; in Miranda v Arizona, in America: Can gay people get married? presidency ended in January 2017; Mr that police must inform suspects that they Can universities consider race in admis- Trump nominated Neil Gorsuch, a conser- have the right to an attorney and to remain sions? Should abortion be legal? It also vative jurist, to the seat instead, and Mr silent; and, in Reynolds v Sims, that legisla- makesdecisionswith far-reachingpolitical McConnell’s Senate promptly confirmed tive districts within a state must comprise implications: What limits can be set on ger- him. This stolen seat will, if Mr Kavanaugh roughlyequal populations. All ofthose po- rymandering? Does contributing money is confirmed, form part of the new conser- sitions today seem uncontroversial; all to political candidates count as speech? vative majority. were furiously contested at the time. Most weightily,in Bush v Gore: Who gets to Mr McConnell knew what he was What today seems remarkable, though, be president? about. As the chart shows, although Mr is how a liberal justice such as Warren got Such a range of questions comes before Garland isnotparticularlyliberal, if he had on to the court in the first place. A Republi- the court partly because it fills an unusual replaced Scalia, who was staunchly and can president, Dwight Eisenhower, in- role. It interprets the constitution as well as brilliantly conservative, the court would stalled him when the Senate was out of statutory and administrative law. Many have moved more sharply to the leftthan it session, and though there was some poli- other countries divide those duties, with a hasfordecades. MrTrumpalso knewwhat tics in-between (some Southerners wor- constitutional court handling one type of he was about. Having a Supreme Court ried Warren was too liberal, some liberals case and a supreme legal court handling seat held empty for him gave him an op- that he was too conservative) he was even- questions of law. America, like India and portunity to appeal to conservative voters tually confirmed with a unanimous voice Japan, invests both in a single body. by making it clear that he would fill it with vote in the Republican Senate. What is more, Warren was a Republican himself. The confirmation hearing for Brett Ka- Liberty can have nothing to fear from the judiciary alone, vanaugh which began on September 4th but would have every thing to fear from its union with went, instead, true to modern form: a pitched partisan brawl played out on live either of the other departments television, with deafening echoes in the – Alexander Hamilton, Federalist Paper 78 more political parts of social media. How did the process of filling one of the court’s But a bigger reason is that, over recent someone of whom they would approve. nine seats become so contentious? decades, Congress has become both more Even ifyou dislike me, he told a rally in July In the particular case of Mr Kavanaugh, partisan and more prone to gridlock. Ques- 2016, “you have to vote forme anyway. You whom President Donald Trump nominat- tions that might otherwise be settled legis- know why? Supreme Court judges. Have ed after Anthony Kennedy retired from the latively are instead the object of arcane le- no choice.” The gambit worked. bench in June, it is in large part because his gal and constitutional wrangling. As the The guarantee of a conservative justice appointment will give the court its first sol- court’s role has grown more political, so mattered to white evangelicals—who idly conservative majority in generations. has the choice of its judges, which the con- might otherwise have had problems with In a court with four mostly liberal justices stitution vests in the president. The days a foul-mouthed, thrice-married libertine— and four pretty solid conservatives, Mr when Republican presidents nominated because of Roe v Wade, the 1973 ruling that Kennedy had sided sometimes with one liberals like John Paul Stevens, David Sou- recognised a constitutional right to abor- bloc, sometimes with the other: he was the ter, HarryBlackmun and William Brennan, tion. Conservative Christians were scan- court’s swing vote. Mr Kavanaugh will be orDemocratsappointed conservativeslike dalised at such a decision being taken by far more reliably conservative. Byron White, are long gone. Since the the Supreme Court; it was this issue above The excitement and controversy over 1980s, presidents have picked justices they all others that brought such voters to the Mr Kavanaugh also had to do with Mr think will consistently stay on their side of Republican party, and this issue above all Trump himself. He has been implicated in the partisan divide, and they have been others that politicised the court. a conspiracy to breakfederal law and is un- largely successful (see chart). In 1992 Planned Parenthood v Casey pro- der investigation for his campaign’s ties to Because justices serve for life, the battle vided an opportunity forthe court to over- Russia. The court may have to decide over Mr Kavanaugh, who is 53, is a battle turn Roe. The court did not take it, but its whether Mr Trump can be forced to testify over the country’s direction for decades to ruling in the case did allow states to pass in that investigation, or whether he can be come. And it is one the Republicans will all new restrictions and regulations on abor- indicted, or whether he can pardon him- but certainly win. Because filibusters can tion provided that they did not impose an self. Mr Kavanaugh’s views on the powers no longerbe used forconfirmations, it only “undue burden” on women seeking abor- of the presidency may determine how the takes 51 Senate votes to approve a nomi- tions. The result is a game of Grandmoth-1 https://t.me/finera The Economist September 15th 2018 Briefing America’s Supreme Court 23

rights could still see tens of millions of Bend it like Brennan women in states with conservative legisla- Ideology of United States Supreme Court justices tures denied the ability to exercise in prac- By Martin-Quinn score, a statistic that tracks how justices’ views have changed over time tice the right Roe recognised in principle. Justice appointed by MORE LIBERAL CENTRE MORE CONSERVATIVE MrKennedyacted asa stayin such matters. Republican or Democrat Mr Kavanaugh probably will not. One of Chief justices his former clerks wrote in July that “on the vital issues of protecting religious liberty 1940 and enforcing restrictions on abortion, no Harlan Owen Stone Court court-of-appeals judge...has a stronger, Stone Roberts more consistent record” than he does. The court’s “median justice” is its most influential. With In the only major abortion case he Vinson Court four justices to either side, heard during his 12 years on the US Court they are most likely to cast the of Appeals for the DC Circuit, Mr Kava- deciding vote in a 5-4 ruling 1950 Earl Fred Vinson naugh dissented from a ruling that al- Warren lowed an undocumented teenager in cus- Warren Court tody to obtain an abortion, arguing that forcing the girl to wait a couple of weeks was not an undue burden. This ruling wor- 1960 ries liberals, though it was also criticised at John Harlan the time by conservatives who thought it William O. Douglas did not go farenough. Mr Kavanaugh’s expansive view of reli-

Harry Blackmun gious liberty also has gay-rights activists worried. MrKennedy’slandmarkruling re- 1970 Burger Court cognising the right to same-sex marriage is unlikely to be overturned; there is no pub- lic appetite for the mass annulment of same-sex marriages. But in this, too, the William Warren Rehnquist court’s new conservative bloc might seek Burger 1980 to limitthatrightin practice bymeans ofin- cremental exemptions—for instance, per- mitting clerks with religious objections to deny gay couples marriage licences. Byron Rehnquist On various racially charged issues Thurgood William White Court Marshall Brennan things may be sharper. Scalia and the 1990 court’s three still-sitting conservatives all Harry ruled against affirmative-action policies. Blackmun Mr Kennedy, though, unenthusiastically

John Paul joined the court’s liberal wing in uphold- Stevens Antonin ing universities’ rights to consider race in Scalia admissions. Mr Kavanaugh and Mr Gor- In March 2016 Barack Obama 2000 nominated Merrick Garland, a such (untested, as yet, on this matter in the moderate liberal, to fill the David court) seem more likely to side with the vacancy left by the death of Souter other three conservatives. Mr Kavanaugh conservative Antonin Scalia. John Roberts worked on the George W. Bush administra- Senate Republicans blocked Mr Roberts Court Garland’s nomination, and Neil tion’s opposition to the University of Gorsuch eventually filled the seat. 2010 Michigan Law School’s affirmative-action Had Mr Garland been confirmed, policy. He also wrote an op-ed while in the median justice would have been at its furthest left in 50 years private practice approvingly citing Scalia’s Merrick Garland* belief that “in the eyes of government, we are just one race here. It is American.” The Sonia Sotomayor Elena Neil Samuel Clarence Stephen Kagan Gorsuch Alito Thomas court has, for the most part, also recently Ruth Bader Ginsburg Breyer permitted states to enact voter-ID laws that John Roberts Brett Kavanaugh* Anthony Kennedy opponents say are intended to depress mi- Sources: Andrew Martin; nority turnout. Mr Kavanaugh is unlikely Kevin Quinn; Lee Epstein *Predicted Martin-Quinn score, based on Judicial Common Space score of lower-court votes to change that. Another worry about the new court is 2 er’s Footsteps; states impose rules on abor- The court is typically reluctant to stray too that it may be too deferential to executive tion clinics—such as requiring their doctors far from public opinion, and most Ameri- power. Mr Kavanaugh, who spent years to have admitting rights at local hospitals, cans do not want Roe overturned. MrKava- working for the independent counsel’s or demanding that their corridors be wid- naugh, for his part, has called Roe “settled team that investigated Bill Clinton in the ened—that do as much as possible to make law”, which lends credence to the idea that mid 1990s, later decided such investiga- them close down without imposing what whittlingawayisthe likelyapproach. (That tions impinged unreasonably on a presi- the court would see as an undue burden said, he has also noted that the court “can dent’s time and attention. During a panel on their clients. always overrule its precedent”—as it did in discussion in 1998 he indicated that the law Itisbyupholdingsuch restrictions, rath- a liberal direction in Lawrence v Texas, in- protects a sitting president from indict- er than overturning Roe, that a conserva- validating laws banning sodomy.) ment. In a 2009 law-review article, he pro- tive court is likely to reduce abortion rights. But the piecemeal approach to abortion posed that Congress pass a law protecting 1 Financial Era Advisory Group 24 Briefing America’s Supreme Court The Economist September 15th 2018

2 presidents from criminal investigations bench (since 1869, the court has had nine bly stonewall Mr Trump’snominee, just as and civil suits while they were in office. justices, but this is convention: the consti- Mr McConnell did Mr Obama’s. Mr Kavanaugh does not believe presi- tution says nothing about its size). “It is dif- In the face of growing political rancour, dents are above the law: the article suggest- ficult to see,” Owen Roberts, a justice who calls for reform are getting louder. Perhaps ed temporary investigatory deferrals, not changed course, later wrote, “how the the most widely canvassed idea is that jus- permanent immunity. But during his con- court could have resisted the popular urge tices should serve a single 18-year term firmation hearing Mr Kavanaugh refused for uniform standards throughout the rather than for life, with two new justices to answer any specific questions on such country—for what in effect was a unified chosen each presidential term. Daniel matters, including whether presidents can economy.” As if chastened, the court re- Epps and Ganesh Sitaraman, of Washing- pardon themselves. turned to a more restrained role for de- ton and Vanderbilt universities, have pro- On more general matters of judicial cades. It cut loose again, in the opposite di- posed more sweeping reforms. The nine philosophy he was, for what it was worth, rection, only with the advent ofthe activist permanent justices could be replaced with more forthcoming. When he interprets the Warren court. nine-judge panels drawn at random from constitution, Mr Kavanaugh told the judi- Some hope Chief Justice Roberts will the entire federal appellate bench, com- ciary committee, he considers himself tackleftward, as his namesake did (and, in- prising around 180 judges, to sit for two- bound by the document’s “original public deed, as justices tend to, overtime, whatev- week periods. Alternatively, the court meaning, of course informed by history er their original ideological stance, though could be expanded to 15, with five justices and tradition and precedent.” This view, the trend ishardlyuniversal). With Mr Ken- chosen by Republicans, five by Democrats that the constitution has one meaning, the nedy gone, it will now be Mr Roberts who and the last five by the justices themselves, one it was originally taken as having by its has four justices to his left and four to his who would have to nominate them from readers, and that singular meaning is best right. Though he is without doubt a man of the appellate bench unanimously. found by close study of the text, is known the right, he also evinces caution and a Either reform could reduce the role of asoriginalism. Scalia wasfora long time its sense of constitutional propriety. He voted partisanship in judicial selection. But they most prominent exponent on the court (its twice with the court’s liberal bloc to up- could also simply push partisanship most ardent advocate now is Clarence hold Mr Obama’s Affordable Care Act, in downward and turn every federal appel- Thomas). Partly because Scalia regularly part, perhaps, because he felt that the court late nomination into the sort ofbrawl seen and persuasively expounded on its merits should not throw out a major piece of leg- over the past weeks. And enacting them it has gained much currency. This is partic- islation for which the president had a clear would require both parties to cede power ularly true on the right—Mr Thomas is the mandate. over the courts, which they will never court’s most conservative justice—but But Mr Roberts may not be the median want to do at the same time. holds to some extent across the ideological judge for long. Two of the court’s liberals But doing nothing carries its own risks. spectrum. Justices pay far more heed to are in their eighties; if one dies, or is forced With ample justification, Democrats want specific wordings today than they did in by ill health to retire, before the next elec- revenge for the theft of Mr Garland’s seat, the Warren Court’sheyday. AsElena Kagan tion, and Mr Trump were to fill the void, and how it paved the way for Mr Trump’s once put it, “We’re all textualists now.” the median position might well move ascent to the White House. Faced with a rightward to Mr Gorsuch, hardening the conservative court that could frustrate Associate justice, no peace court’s ideological tenor. their ambitions for decades, some have be- However some, such as Eric Segall ofGeor- That prospect may well make the bad gun whispering about court packing—add- gia State University, the author of a forth- situation brought about by the stonewall- ing justices to the court should they retake coming book on originalism, worry that ing of Mr Garland worse. Brian Fallon, Congress and the White House. No doubt originalist language is often used by jus- chiefspokesman forHillary Clinton’s pres- that will outrage Republicans, and lead ticesto uphold positionsquite atodds with idential campaign in 2016, recently started them to do the same the next time power the philosophy’s seemingly hands-off te- Demand Justice, a court-focused pressure swings back. Both sides will prize ideologi- nets. “Justices use the rhetoric of original- group. He wants his party to be as ruthless cal purity over competence and indepen- ism to mask political judgment,” Mr Segall and court-focused as the Republicans have dence ofmind. says. Past proponents of originalism ar- been. Democrats, he says, need to “get over Down this path lies the dark day when gued that courts should strike down laws the idea that the courts are anything other another part of the government takes the only in the case of clear textual error. To- than a place where a power struggle is tak- decisive, perhaps irretrievable, step of ig- day, argues Mr Segall, proponents of origi- ing place.” If another seat does come up noring a Supreme Court ruling. And at that nalism want to “shrink the federal govern- soon, and if the Democrats retake the Sen- point the constitution’s checks and bal- ment and deregulate the economy, but ate in this year’s elections, they will proba- ances come tumbling down. 7 there is no reasonable originalist argument for that kind of strong judicial interference with our political system.” Reasonableness of argument notwith- standing, such an agenda may well come to dominate the court in the years and de- cades to come. It would not be the first time. In the early 20th century the court re- peatedly struck down minimum-wage laws and limits on hours worked, which it believed illegally infringed on “liberty of contract” guaranteed by the 14th amend- ment’s due-process clause. Under this the- ory, the court invalidated several of Frank- lin Roosevelt’s New Deal laws. It reversed course at roughly the same time that Roosevelt threatened to dilute the justices’ power by expanding the https://t.me/finera Britain The Economist September 15th 2018 25

Also in this section 26 Boris Johnson’s leadership bid 27 Labour’s plan for worker ownership 27 Bias in the electoral system 28 The Open University 28 Prostitution 29 How design helps dementia patients 30 Bagehot: A hunger for ideas

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

The Brexit negotiations What sort of deal might be achievable? In Brussels the emphasis is on the formal Chequers, the unlikely survivor Article 50 withdrawal treaty that has to be agreed and ratified before Brexit, whereas details around future trade relations will be negotiated afterwards. Most of the withdrawal treaty, on money, EU citizens BRUSSELS AND LONDON and so on, is settled, but with one big out- Despite being underattackfrom all sides, Theresa May’s Chequers plan standing issue: a backstop to avoid a bor- forBrexit refuses to die der in Northern Ireland in all circum- OMPROMISES have few friends. So it ing for the Norway option as a temporary stances, even ifno deal can be reached. C hasproved with the Chequersplan for home that would both avoid the pain of a The EU claims that last December Mrs Brexit, which proposesstayingin the single no-deal Brexit and create the time and May acquiesced to a backstop that keeps market forgoods alongwith a complex “fa- space needed to negotiate a more compre- Northern Ireland in the customs union cilitated customs arrangement” chiefly de- hensive free-trade deal. Others like the and single market even if the rest of the signed to avert a hard border in Ireland. idea of another referendum, especially if country leaves both. Mrs May says this is Brexiteers hate being tied closely to Brus- Parliament cannot pass any deal. unacceptable since it implies a border in sels. Pro-Europeans thinkthe plan is worse Across the channel other EU countries the Irish Sea. Yet Brussels is unwilling to than continuing membership. And the EU are closely watching Britain’s political cha- apply the backstop to the whole country, sees both of its main features as unwork- os. They expect Mrs May to have a torrid insisting it must be for the province alone. able and undermining the integrity of its time with Mr Johnson and his friends at It also downplays worries about a border single market. the Conservative Party’sconference in two in the Irish Sea. Already inspections of The noisiestattackscome from hardline weeks’ time (see next story). They know meat products take place on ferries. Add- Tory Brexiteers. Two ministers, Boris John- that Labouris likely to oppose any deal she ing extra customs checks on all goods son and David Davis, quit the cabinet in brings back from Brussels. That this would would hardly amount to the EU annexing July over Chequers. They want Brexit to be make it hard to win parliamentary approv- Northern Ireland—and would surely be based on a Canada-style free-trade deal in- al will colour their approach to Mrs May. less damaging than the alternative of bor- stead. Yet this week the Brexiteers failed to Why concede ground over a deal they dis- der checks between north and south. come up with the detailed alternative plan like if it is heading for rejection at home in It may be possible to fudge some as- that they had long promised. A paper any event? pects ofthe backstop, but EU diplomats say claiming that a no-deal Brexit would boost The timetable is now desperately tight. it has to be legally operational. Even so Mrs the economy attracted much ridicule. So Brexit is due to happen on March 29th 2019. May could accept it on the ground that it did a purported plot by Tory MPs to oust Next week Mrs May will lobby her fellow will never come into force as a future trade Theresa May as prime minister. Yet Tory EU leaders at an informal summit in Salz- deal supersedes it. That points to ensuring hardliners believe that, even ifthey cannot burg. Theywill listen politelyand are likely that a political agreement on the future topple Mrs May, they have enough votes to to avoid declaring Chequers dead. Yet deal is reasonably specific about its terms. scupper a Chequers deal in Parliament. hopes that leaders might then soften the Yet Mujtaba Rahman of the Eurasia Group, At the same time, Chequers is disap- strict guidelines they have set forthe Brexit a consultancy, sees this as tricky, since the pointing to the hardliners’ opponents. talks will be dashed. Only at the October other EU countries want to make clear that They see rule-taking in the single market summit will they seriously engage with the future arrangement is not one that is forgoods, with no privileged access for ser- Brexit, for the first time. There is then likely overtly based on the Chequers model. vices, as a backward step. Several would to be an emergency summit in mid-No- Hence the appeal of another idea that prefer to be like Norway, which as a mem- vember that tries to agree to a deal, al- would, in effect, kick the can down the ber ofthe European Economic Area is fully though many in Brussels consider Decem- road. The detailed withdrawal treaty in the single market. Some Toriesare argu- ber a more realistic goal. would still have to be agreed and ratified, 1 Financial Era Advisory Group 26 Britain The Economist September 15th 2018

2 but the political declaration on the future cials think that Mrs May could still win the tive Party…He’s a media clown, not a seri- trade relationship would be kept largely day, mainly by using different arguments ous politician.” “He’s a shit who doesn’t aspirational. Mrs May could still maintain forthe various factions in her party. give a shit about anything but himself,” that this keeps the Chequers plan going Thus hardline Brexiteers will be told says another. The list of charges against (despite what the EU says). If the declara- that if they vote down a deal, the resulting him is long: he doesn’t believe in anything tion avoids too many specifics and ges- political chaos risks not just bringing in a but his own advancement; he doesn’t lift a tures towards a deep and comprehensive Labour government but also reversing finger to help his colleagues; he was a di- free-trade agreement, the thinking is, it will Brexitaltogether.ThemessageforsoftBrex- saster as foreign secretary. be harder to attack. Surely neither Brexi- iteers will be that, if the deal fails, the most He has one big thing going for him, in teers nor Remainers can easily object to a likely alternative will be to leave the EU the eyes of most Tory MPs: his perfor- vague statement ofintent? without a deal. Remainers unhappy with mance at the polls. When he won two Such an ambiguous, “blind” Brexit may Chequers will be advised that, if Mrs May terms as mayor of Labour-leaning London run into problems with the European Par- is forced out by a rejection of the deal, they he was praised for possessing the “Heine- liament, which will have to ratifyit. But the risk getting Mr Johnson as their new party ken factor”—the ability to reach parts ofthe bigger obstacle will be Westminster. Mrs leader. And so on. country that other Toriescouldn’t reach. May has proved a rotten salesman forChe- The Brexit negotiations are entering a But since Brexit, Heineken has turned quers, both at home and abroad. Many high-risk, high-pressure phase. The into Marmite: while some still like him, MPs say they would be unhappy to be chances of an accident that leads to a many loathe him. When he attended the asked to approve a withdrawal treaty, in- messy no-deal Brexit are rising. Yet how- England v India cricket match at the Oval cluding paying some £39bn ($50bn) to the ever much its opponents on all sides may on September 8th and his face flashed up EU, without firmer guarantees about the insist that Chequers is dead, its shade on the screen, the crowd booed. A recent exact nature of a future trade deal. Yet offi- seems very much alive. 7 YouGov poll found that, among the gen- eral public, Mr Johnson leads Mrs May on “being liked” (36% to 29%) but trails her by Boris Johnson 24% to 31% on “being a good prime minis- ter”. More important, amongConservative The clown prince voters he is on par with Mrs May on “being liked” and trails her by 42% to 69% in the good-prime minister stakes. But should Mrs May lose a confidence vote, Mr Johnson has a good chance. The two further hurdles are probably supera- The formerforeign secretary’s bid forthe leadership ofthe Conservative Party is ble. He has to get onto a shortlist of two gathering momentum MPs that the parliamentary party sends to NE of Boris Johnson’s favourite confidence vote on the prime minister. the party’s 124,000 members, and then he Ophrases is aut homo aut mus: are you a Mrs May might well win such a vote, if has to win the membership’s support. man or a mouse? The formerforeign secre- only because Mr Johnson is so unpopular On the first, the Brexiteers, who include tary, classicist and contender for the Con- among Tory MPs. His problem is not just not just the ERG but other eurosceptics, servative Party leadership is going out of that the majority of Tory MPs voted “re- have enough votes to get one of their own his way to prove that he is no rodent. Bare- main” in the referendum, and hate him as onto the final shortlist, and are likely to co- ly a weekpasses without his lobbing a mis- leader of the Brexiteers. MPs of all political alesce behind Mr Johnson. Jacob Rees- sile at Theresa May in the form of a news- persuasions regard him as a cad. One se- Mogg, their leader, has already said that he paper article, speech, bon mot (or faux pas). nior Torysays that “it’s100% inconceivable thinks that Mr Johnson would make an ex- He uses his weekly column in the Daily that he’ll become leader of the Conserva- cellent prime minister. Telegraph to explain why she is making a On the second, Tory party members mess of things. On September 9th he took like Mr Johnson more than Tory MPsdo— to the pages of the Mail on Sunday to deliv- and are getting keener with every suicide- er his most incendiary one-liner yet: “We vest jibe. In a poll published on September have wrapped a suicide vest around the 6th by Conservative Home, a website, Mr British constitution and handed the deto- Johnson came top, with 35% ofthe vote; Sa- nator to Michel Barnier,” he wrote, refer- jid Javid, the home secretary, in second ring to the EU’s chiefnegotiator. place, got 15%. A month earlier Mr Johnson Never a strong leader, Mrs May has got 29% and Mr Javid 19%. As Mr Johnson’s been weakened by her travails over Brexit. numbers go up those of his rival Brexiteers On September 11th members of the Euro- go down: Mr Rees-Mogg, the most extreme pean Research Group (ERG), an 80-strong Brexiteer, is running at 10% and Michael collection of Brexit-supporting MPs, met in Gove, the most pragmatic, is at 6%. In a Westminster to discuss the mechanics of party that voted overwhelmingly for bringing down the prime minister. Mr Brexit, Mr Johnson is the popular leader of Johnson is the prime contender to replace the Brexit cause. her. But what are his chances? There is an uncomfortably close paral- She will be at her most vulnerable in lel with the rise of Labour’s leader. Jeremy November or December when (and if) she Corbyn was distrusted by the vast major- returns from Brussels with a deal—presum- ity of Labour MPs but nevertheless won ably a modified version of her Chequers the support of party members. And just as proposal—on which the House of Com- Mr Corbyn has tapped into deep wells of mons will vote. Steve Baker, the shop stew- anger on the left, so Mr Johnson might on ard of the Brexiteers, claims that he has 80 the right. If he succeeds, it will be unfortu- votes gainst Chequers. That could trigger a The Brexiteers’ great white hope nate for the country. 7 https://t.me/finera The Economist September 15th 2018 Britain 27

Labour’s economics Electoral reform Take back control Cut on the bias

Britain’s electoral system is biased—but not as it used to be MANCHESTER HE Conservative Party has long com- 21% ofpro-Labour bias. Other factors also John McDonnell fleshes out Labour’s plained ofthe electoral system’s bias contributed and their effects are now plan forcollective ownership T towards Labour. In 2005 Labour won a reversed. HEN the Swedish Social Democrats majority of65 MPs out of646 with a lead One is the performance ofsmaller Wunveiled a plan to force companies ofjust 2.8 percentage points; five years parties. From 1992 to 2010 the largest was to hand over shares to its workers, opposi- later the Tories failed to win a majority at the Liberal Democrats. When they won tion came from an unlikely source: ABBA. all, despite leading Labour by seven seats, it was typically at the expense of The pop group led a vociferous campaign points. The variation in constituency the Tories. This gave Labour an advan- against the proposal in 1982, hosting an sizes is often cited as the reason for this: tage. But in 2015 this factor had the oppo- open-air gig to raise funds to fight it and places where Labour does well, such as site effect: the Lib Dems collapsed and the pledging to leave the country if it was im- Wales, tend to have smaller constituen- Scottish National Party emerged as the plemented. ABBA won. Four decades on, cies, so it takes fewer votes to elect an MP. third-biggest political force at the expense Labour’s shadow chancellor John McDon- Periodically, boundaries get redrawn ofLabour, which was almost wiped out nell is hoping for a better reception after to correct these anomalies. On Septem- in Scotland. To the Conservatives this taking a chance on the same idea. ber10th the government announced was worth 38 extra seats over Labour, Speaking at the Trades Union Congress plans to redraw Britain’s electoral map according to Charles Pattie at the Univer- on September 11th, Mr McDonnell and create constituencies with roughly sity ofSheffield and Ron Johnston at the launched his own version of the Swedish equal numbers ofvoters—cutting the University ofBristol. scheme, with large businesses compelled current number ofMPs, from 650 to 600. The Conservatives have also learnt to give sharesto worker-owned funds. This But in the past two elections, the how to game the system. Under first past will bringslices ofcompanies “into the col- system actually benefited the Conserva- the post, whopping majorities and close lective ownership and control ofthe work- tives (see chart). This is because Labour’s defeats both mean lots ofwasted votes. force” he declared. earlier advantage was only partly down During the 1990sand 2000s, Labour Ownership ofthe means ofproduction to constituency sizes. According to one developed a talent fortight wins in mar- has been at the centre of the biggest study ofthe 2010 election, rejigged ginal seats. Meanwhile the Conserva- changes in British politics over the past boundaries would have removed just tives built up fat majorities in safe seats. century, points out Mathew Lawrence of This significantly reduced the average the IPPR, a left-wing think tank. Under number ofvotes required to elect a La- Clement Attlee, nationalisation shifted Pro-Tory again bour MP, compared with a Conservative ownership from private to state hands. Un- Britain, net bias* at general elections one. Recently, however, the Torieshave der Margaret Thatcher, it went the other Parliamentary seats successfully gone formarginals. This gave way. Mr McDonnell wants to make as big 150 them an edge over Labour at the last an impact with a different method: collec- election, to the tune of32 extra MPs; in 100 tive ownership by the workers. Pro-Labour bias 2015, the number was 60. This idea lurks at the heart of Corbyn- 50 Opposition from Labour and Tories omics and handing workers minority whose seats would be at riskmeans that 0 stakes in their firms is a small, but signifi- the proposed changes are unlikely to be cant step towards it. That would help solve 50 implemented soon. When they are final- the problem identified by French econo- Pro-Conservative bias ly in place, they will remove one source 100 mistThomasPiketty, thatreturnson capital 1950 60 70 80 90 2000 10 17 ofbias, potentially costing Labour 30 apparently outstrip growth in incomes, ar- Source: Charles Pattie, *Disparity in seats seats. But they will not iron out other, gues Joe Guinan, a left-wing thinker. University of Sheffield & won, assuming more substantial, kinks in the system, Not all are so keen. Undera Labour gov- Ron Johnston, University of Bristol equal vote share which now help the Conservatives. ernment, investors in Britain would face a triple whammy of Brexit, higher corpora- tion tax and now the prospect of share- digits. Where Labour sets the limit—and When Mr McDonnell announced the pro- holder dilution. It is an unappetising mix. whether it keeps it low—will dictate posal at the TUC, he was met with a silence How it would apply to multinational com- whether the scheme amounts to a tweak that contrasted sharply with the cheers for panies is also unclear. Mr McDonnell in- in favour of labour versus capital, or hand- his plans to rollback Conservative anti-un- sists that as long as Labour is straight about ing the means ofproduction to workers. To ion legislation. its plans, investors will not mind. Firms in Mr McDonnell’s supporters, the proposals What will make the unions happier is which workers have a stake are more pro- are a modest shift; to his critics, they are the Mr McDonnell’s fresh willingness to go be- ductive, according to many studies. The thin end ofa thicksocialist wedge. yond Labour’s last manifesto, which was owners of Britain’s businesses may feel How increased collective ownership stuffed with goodies for the middle classes that there are other ways to improve the would work needs clarifying. At present it such asscrappinguniversitytuition fees. In country’s lousy productivity. has only a toehold in Britain. In total, co- front of an audience of trade unionists, Mr As they stand, the proposals are more ops account for roughly 2% of British GDP McDonnell said that his team was comb- John Lewis than Karl Marx. The percentage compared with about 7% in Italy and Ger- ing the manifesto see “whether or not it companies must issue to workers each many. Britain also has no history of friend- stands the test of time, whether or not it year is up for consultation, says Labour, as ly industrial relations, which the new needs to be radicalised”. Labour is slowly is the total stake the worker fund can con- plans would probably require. Nor is there heading further left. Unless someone fol- trol. But both are expected to be low single much enthusiasm among the workers. lows ABBA’s lead and issues an SOS. 7 Financial Era Advisory Group 28 Britain The Economist September 15th 2018

The Open University Prostitution Can’t get no Degrees of trouble Open University Sex, drugs and Global, number of Britain, student students, ’000 satisfaction ranking* non-enforcement 300 1

250 10 LEEDS 200 Alackofstudents is not the Open 20 Councils are trying new ideas to University’s onlyproblem 150 manage street sex 30 HEN the Open University was 100 LUTCHING a cup oftea handed out by Wfounded in 1969 to offer distance- 50 40 C volunteers, Tracey waves at passing 47 learning degrees, the intention was to 0 cars. She is one of 80 sex workers who ply throw open the gates of higher education. 2008 17 2008 18 their trade in Holbeck’s “managed area”, It would offer respected, cheap qualifica- Sources: Open University; *Out of 154 an industrial part of Leeds where, from National Student Survey universities in 2018 tions to students lacking the exam results 8pm to 6am, prostitutes can solicit and orfreedom to attend otheruniversities. De- punters can kerb-crawl without getting col- spite scepticism at the time, it became the Chris Williams, a historian at the OU. Now lared by the police. Tracey says she would largest university in Europe, and is consid- there are more youngsters who have failed rather not be out tonight, but she needs ered one of the great success stories of to get into the mainstream and are tricky to cash forheroin. 20th-century highereducation. “What oth- teach, as well as those who want a change Although buying and selling sex are le- er nation”, asked Bill Bryson, an American of career path. As a result, the OU argues it gal in England and Wales, kerb-crawling, writer, “could possibly have given us Wil- iswell-placed to meetthe growingneed for soliciting, pimping and running a brothel liam Shakespeare, pork pies, Christopher “lifelong learning”—if only the govern- are not—which, in effect, criminalises the Wren, Windsor Great Park, the Open Uni- ment would increase its funding. trade. Nobody is satisfied with this ar- versity, Gardeners’ Question Time and the There are, however, other problems on rangement, and there are frequent calls for chocolate digestive biscuit?” the horizon. Technology has brought reform. In 2016 a parliamentary committee Few national treasures are today in mainstream universities into competition said it would investigate the benefits of such a ropey state. Student numbers have with the OU. Traditional institutions all fully decriminalising the sex trade, as in fallen from 260,000 in 2009-10 to 174,000 over the world are getting into distance New Zealand. Two years earlier, a group of in 2016-17. The universityhaslostits place at learning. And building online courses is an MPs called forimporting the “Nordic mod- the top of the student-satisfaction rank- expensive business, in which competitors el”, which criminalisespuntersbuying sex, ings, partly as a result of the botched intro- are investing billions. The OU is trying to but not prostitutes selling it. duction of a new computer system. In benefit from its experience in the market As debate drags on, some areas have April its vice-chancellor, Peter Horrocks, by becoming a supplier to some ofits com- taken matters into their own hands. Ips- stepped down after a staff revolt over his petitors. Its platform, FutureLearn, is used wich opted forthe “Nordic model” in 2007, plans to cut £100m ($128m) from the uni- by 143 (mostly British) institutions to pro- after several prostitutes were murdered in versity’s £420m annual budget to invest in vide online courses. But in six years of op- the town. The results are contested. Alan technology, redesign the curriculum and eration, it has yet to make a profit. Caton, a retired police officer, says it has retrain staff. Academics were upset by the The OU now plans to improve its own wiped out Ipswich’s street sex trade. But scale of the job losses this would involve, offering, putting more than £10m into de- others argue that it makes prostitutes more but few denied that the OU was in a diffi- veloping new technology. Already, instead vulnerable, because they have less time to cult situation. of broadcasting to students, lots of tuition negotiate with clients fearful of arrest. The main causes ofthe university’s pro- takes place online. The university hopes to Leeds tried various initiatives to stamp out 1 blems are changes to the student-finance become more responsive to student needs, regime. In 2012 the English government using close analysis of online data to spot doubled the cap on part-time tuition fees when courses are causing difficulties. It to £6,750 ($8,810) a year and cut backon the also wants to integrate social media with cash it gave the OU per student, meaning traditional teaching methods to build a the university had little choice but to raise sense of community and use technology prices. Since applyingforloans imposes an to enhance teaching in other ways. But the extra layer of bureaucracy, and since many virtual-reality courtroom (for trainee law- older students do not qualify for govern- yers) your correspondent was shown, to ment support, numbers have fallen sharp- give him a taste ofthe results ofthe OU’sre- ly. They have, however, held up in Wales, cent investments in tech, did not augur Scotland and Northern Ireland, where well: the graphics looked like those from a funding works differently. mid-2000s games console. This suggests the university has man- The OU’s academics like to point out aged one transformation well. Its original that it has been fine-tuning distance-learn- purpose was to cater to people who ing education for decades, whereas most missed out on the opportunity to go to uni- other universities are starting from scratch. versity after school. But the increasing ease But others are doubtful of the OU’s of access to higher education means that strength. “The field is still open at the mo- today, by the age of 30, half of the popula- ment,” says Richard Garrett of Eduven- tion has been to university, compared with tures, a higher-education consultancy. Ei- one in 12 in 1970. ther way, the courses it provides will need The OU thus gets a different sort of stu- to be atleastasgood asthe increasing num- dent these days. In the 1970s it was mainly ber on offer in what is becoming a fiercely “older, clever, hard-working” types, says competitive marketplace. 7 Under the spotlight https://t.me/finera The Economist September 15th 2018 Britain 29

2 street sex work, including a “kerb-crawler chanic says the wind regularly blows such change, not only because it helps older rehab”, which taught busted punters about rubbish into his shop. Similar debris spills people see better. Light pooling causes the evils of prostitution. In 2014, after they into nearby residential areas: parents com- shadows and dark corners, which may failed,it set up the “managed area”. plain of syringes and condoms found near look scary. The lights at the St Thomas’ de- By ending the cat-and-mouse game of schools. Punters kerb-crawl local women mentia-friendly unit are adjustable, which arresting sex workers, the zone has boost- they mistake forsex workers. helps with sleep. “It becomes much quiet- ed trust: the number ofsex workers willing Some prostitutes do not stick to the er when we dim them,” says Darlene Ro- to share their full details when reporting rules. One, touting for business on the mero, the unit’s matron. assaults to the police has risen, from 7% to zone’s fringes in the middle of the after- Several tweaks can prevent confusion. 57%. Such co-operation has helped convict noon, says she cannot wait until 8pm be- Dementia patients sometimes refuse to predators, including a lorry driver’s mate cause she needs cash for her next heroin walk on shiny floors because they think who killed a sex worker in the zone in 2015. fix. Stories abound of family barbecues in- they are wet. Patterns or colour changes Nearly all the prostitutes working in Hol- terrupted by prostitutes and punters ca- may appear as steps or holes to them. Matt beck are drug addicts. Basis Yorkshire, a vorting in nearby gardens. Several resi- finishes and uniform colours are therefore charity that helps sex workers get drug dents have been threatened after reassuring. Different room colours and un- counselling, says the approach makes their confronting rule-breakers. ique pictures above each bed help with work much easier. Non-enforcement also A residents’ group is calling forthe zone way-finding. gives prostitutes more time to vet potential to be scrapped. The councillors who repre- To accommodate restless patients, new clients and increases their ability to refuse sent the local ward have labelled the layouts have small socialising areas, such unsafe services, such as unprotected sex, scheme a failure: they want to try the Nor- as a couple ofchairs nearthe nurses’ desks, says Kate Lister ofLeeds TrinityUniversity. dic model instead. If it comes down to a or eating areas made to look like home But, perhaps understandably, locals do battle between the interests of locals and kitchens. A few hospitals with ground- not like it. Condom wrappers and dirty those ofprostitutes, it’s a fairbet that the lo- floor wards have added gardens where pa- baby wipes litter the trading estates. A me- cals will win. 7 tients can wander safely. St Thomas’ has dog therapy to improve patients’ mood. The effects of decor can be dramatic. At Dementia care the Julian Hospital, three months after de- mentia patients were moved into a rede- Colour me happy signed ward in 2012, use of antipsychotic medication fell by nearly 40%. A study of ten sites in England published in 2015 by the King’sFund, a think-tank, found that in- cidents of aggression fell after dementia- friendly spruce-ups. Such changesare becomingpressing for Careful design helps dementia sufferers, and Britain is particularlygood at it British hospitals. A quarter of the patients HE three inpatient wards that take up mentia sufferers feel lost. And many get on their wards have dementia. In 2025 Brit- Tthe ninth floor of St Thomas’ Hospital anxious about being confined to their ain will have 25% more people with de- in London look like children’s quarters. rooms because dementia increases their mentia. The bright, pleasant wards and The walls and doors are brightly coloured. desire to explore and walkaround. their calming effect on patients also boost Large pictures of showers and toilet bowls Layout and design can alleviate all staff morale, helping to attract and keep on some doors make it easy to guess what three problems. A common alteration to nurses and doctors in dementia care. In the is behind. There are hardly any written make a ward calmer is replacing the nur- past, people with dementia were usually signs. Instead, giant arrows matching each ses’ station—hub of activity and chatter— relegated to the worst bits of hospitals; room’s colour point the way. with several small reception desks. Bright now their wards are beginning to look like But these wards are not for toddlers: lighting throughout is another popular the cheeriest. 7 this is the hospital’s Older Persons Unit. The layout and decor have been designed for dementia patients. In recent years, doz- ens of other hospitals around Britain have refurbished wards and other areas to make them dementia-friendly. Other countries are looking to Britain, already a leader in dementia care and research, says Hugo de Waal, an academic clinician at the Julian Hospital in Norwich. St Thomas’ recently hosted a tour for health officials from Aus- tralia and Singapore. Going into hospital is stressful for any- one. But forpeople with dementia, even in a mild form, admission can cause extreme distress, for three reasons. First, the clutter and bustle in a typical hospital ward can be overwhelming. This often leads to agita- tion, fear and aggressiveness—signs of de- lirium, which is the reason formost admis- sions of people with dementia to begin with. Another problem is that the feature- less corridors in a typical ward make de- A still point in a turning world Financial Era Advisory Group 30 Britain The Economist September 15th 2018 Bagehot Looking for light

Britain is seeing a resurgence ofinterest in political ideas ternet companies and insecure gig-economy jobs, than they have been fordecades. The neo-liberal era wascharacterised bya narrowingof politi- cal debate. Economics was acknowledged to be the Queen of the Sciences. Managerialism wassacrosanct. Questionsofblood and soil were ruled out of bounds. The technocratic bent of policy- making was so pronounced that Downing Street even set up a “nudge unit” thatdreamed up waysof“nudging” citizensinto im- proving their behaviour. With the retreat of neo-liberalism, the debate is broadening once more. Thinkers are asking difficult questions about things that have been taken forgranted foryears. Jerry Muller’s “The Ty- ranny ofMetrics” mercilessly exposes the downside ofthe cult of measurement and managerialism. They are also focusing on sub- jects that have been unjustly neglected. The most emotive of these is immigration. Thanks to books such as David Goodhart’s “The Road to Somewhere”, Britain is belatedly having a serious debate about immigration after de- cades in which the subject was sidelined among the bien pen- sants. The most inspiring is the importance ofaesthetics. Mr Free- man’s ideas festival had two fascinating sessions on the TUCK in the middle of the fens outside Cambridge, the Babra- subject—“can design beat nimbyism?” and “the fight forbeauty in Sham Research Campus is a nightmare to get to. Yet on Septem- public life”. Policy Exchange, a think-tank, has recently published ber8th 1,500 people braved challenginglogisticsand intermittent pollingwhich demonstratesthatpeople are much lessresistant to rain to spend a day in eight makeshift tents there to discuss politi- new buildings if designers take more trouble to tailor their cre- cal ideas. Is this the end ofthe liberal era? Can we forge a new na- ations to their surroundings. tional consensus in the aftermath of Brexit? How can we use the great thinkers ofthe past to solve today’s problems? The festival is Too-whit too-who? the brainchild ofGeorge Freeman, a Torypolitician. Although the The second underlying explanation for the hunger for ideas is speakers and the audience tilted right, the participants included a that Hegel’s owl of Minerva loves nothing more than a puzzle, smattering of left-leaning grandees and activists. “It’s nice to and the modern world is throwing up puzzles at a disconcerting come to a political meeting where people aren’t spitting at you,” pace. Not long ago tech gurus predicted that technology would said a Labour moderate. dissolve some of our biggest political problems—replacing a The British public’sappetite forthissortofthingisgreater than world ofshortages with a world ofabundance and a world oftri- fora generation. MrFreeman’sBigTentIdeasFestival isjust one of bal loyalties with a world of internet-enabled comity. Now the several focusing on political ideas. The Economist is holding its tech gurus are figures of derision, and technology has joined cli- Open Future Festival on September 15th, in London, Hong Kong mate change at the heart of political debate. Digital abundance is and New York; in mid-October the Academy of Ideas is staging a leading to digital over-indulgence as consumers gorge on the two-day Battle ofIdeas. Publishers are cranking out books on the fruits ofthe internet and then grow sick. Internet-enabled comity crisis ofliberalism and democracy. Anewish internet-based mag- is going hand-in-hand with internet-enabled hatred. And the in- azine, UnHerd, was founded with a mission to produce political ternet platforms are now so big that they are becoming threats to long-form journalism. democracy itself. Several engines are driving this interest in big ideas: frustra- Thisraisesprofound political questionsaboutpower. When is tion with politics as normal—the emptiness of political rituals, it reasonable for the state to step in to regulate the free market in the viciousness of political quarrels and the vapidness of rolling bits and bytes? It also raises older political questions about how news channels; a sense that Britain is failing to deal with big pro- people should control themselves in the face of abundance and blems—rough sleeping is painfully conspicuous, food banks are temptation. Julia Hobsbawm, the authorofa bookon how to sur- multiplying, prisons fallingapart; and fear—that Britain will crash vive in an age ofoverload, recommends that people should redis- out of the European Union without a plan and suffer the biggest cover the wisdom of ritual and observe “techno-Shabbat” when economic shocksince the second world war. they disconnect entirely from the virtual world. There are deeper explanations for the hunger, too. The first is So farno thinkerorworkhas emerged with the capacity to gal- Hegel’s axiom that “the owl of Minerva spreads its wings only vanise opinion in the way that John Maynard Keynes’s “The End with the fallingofthe dusk.” With the financial crisis, the growing of Laissez-Faire” did in 1926 and Milton Friedman’s “Free To hostility to immigration and the rise of populist nationalism has Choose” did in 1980. That may be in part because ofthe complex- come the retreat of liberal orthodoxy. As intelligent liberals try to ity of today’s problems, which concern not just the barriers to work out what went wrong, they are re-examining some of their economic progress but also the engine of progress itself—digital most cherished assumptions. Supporters of other traditions are technology—and the profound psycho-social problems it throws pressing their advantage. The 200th anniversary of Marx’s birth up. Yet the appetite forchange is palpable. Anyone who can satis- earlier this year saw an outpouring of books and articles on why fy this hunger with a well-cooked polemic has a chance to define his ideas are more relevant today, in a world of monopolistic in- the next political era. 7 https://t.me/finera Europe The Economist September 15th 2018 31

Also in this section 32 Absurd tests for gay refugees 33 Europe chides Hungary 33 Cricket in Greece 34 Russia’s far east 35 Charlemagne: For those in peril on the sea

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

Sweden Instead, the Sweden Democrats won 17.5%, 4.7 points more than in 2014 but still Still standing only good enough for third place. The So- cial Democrats won 28.3%, down only 2.8 points. The Moderates’ showing of 19.8% was better than the polls predicted. Over- all, the country’s left- and right-wing STOCKHOLM groupings (excluding the SD) ended up The anti-immigrant Sweden Democrats did much less well than theyhoped at the with almost exactly the same number of election. But theymayhold the balance ofpower seats in the Riksdag, Sweden’s parliament. LECTION day, September 9th, looked ty now. The Swedish people come sec- Since all parties have vowed not to co-op- Elike a festival in Rinkeby, a largely immi- ond.” For the first time, the SD finished first erate with the populists, neither side can grant neighbourhood of social-housing in Habo-Tibble, with 29% ofthe vote. form a majority coalition. projects outside Stockholm. On the pedes- All over Europe, observers had been That is forcing a change in Sweden’s trian shopping square, Somali-Swedes in watching Sweden for signs of the strength politics, traditionally divided between the niqabsand Eritrean-Swedesin leather jack- of anti-immigrant populists. The migrant conservative Alliance (comprising the ets milled about between the parties’ cam- crisis of 2015, when Sweden let in 163,000 Moderates, the Christian Democrats and paign booths. A stream of voters marched asylum-seekers (more than any European the Centre and Liberal parties) and the towards the local school to cast their bal- country but Germany, and more than Ger- “green-red” bloc (the Social Democrats, the lots. Turnout was high, said Ismahan Abd- many as a proportion of the population), Greens and the Left Party). On September ulahi, a Somali-Swedish woman canvass- gave the Sweden Democrats a huge boost. 12th the four conservative parties invited ing forthe centre-left Social Democrats. Polls showed them passing the centre-right the Social Democrats to discuss terms for “They’re voting out of fear,” Ms Abd- Moderates to become the country’s sec- supporting an Alliance government. Mr ulahi explained. Immigrants are worried ond-largest party. The governing Social Lofven refused, deriding them for “acting by the rise of the Sweden Democrats (SD), Democrats and the prime minister, Stefan asthough theyhad won”. Coalition negoti- a nationalist party that blames them for a Lofven, looked set for one of the wallop- ations may take weeks or fail entirely, re- rise in violent crime, and wants to make it ings that centre-left parties all over Europe quiring new elections. What is clear is that harder for them to stay and to get benefits. have suffered. The Moderates’ leader, Ulf as in other European countries, political The number of votes cast in central Rin- Kristersson, was expected to form the next fragmentation will push the mainstream keby rose by a fifth since the previous elec- government. left and right to co-operate—or force the 1 tions in 2014, with 69% backing the Social Democrats and a further14% the more rad- ical Left Party. Rising tide Just 25km north-west ofRinkeby, where Sweden, parliamentary election results the city gives way to horse farms and birch Left Social Greens Centre Christian Sweden forests, the tide was running the other way. Party Democrats Liberals Party Moderates Democrats Democrats In Habo-Tibble, a village of wooden 2018* Seats 28 100 16 20 31 70 22 62 houses and trimmed hedges, Helena Pers- Vote share, % 8.0 28.3 4.4 5.5 8.6 19.8 6.3 17.5 1.5† son, who used to support the Social Demo- crats, had switched to the SD. The govern- 2014 Seats 21 113 251922 84 16 49 ment no longer has money to provide Vote share, % 5.7 31.2 6.8 5.4 6.1 23.2 4.6 12.9 4.0† summer jobs for teenagers, she com- Source: Swedish Election Authority *Preliminary result †Others plained: “I feel the immigrants have priori- Financial Era Advisory Group 32 Europe The Economist September 15th 2018

2 right to bring in the populists. Gay asylum-seekers Dutch LGBT group, says that new kinds of Mr Lofven has rejected Mr Kristersson’s stereotyping have emerged. Her research demand that he resign over the election, Under the gaydar in the Netherlands found that case officers which leftthe governmentofSocial Demo- expected gay asylum-seekers from conser- crats and Greens with just a third of the vative Muslim countries to conform to a seats in parliament. But the Alliance will preconceived personal narrative. “If you call a no-confidence vote when parliament don’t say that you feel ashamed to be gay, reconvenes on September 24th, which the or if you say you didn’t struggle with the Ridiculous tests forgayasylum-seekers prime minister is sure to lose. Mr Kristers- contradictions between your sexuality in Europe son is then expected to get the first chance and religion, they are unlikely to believe to form a coalition. Yet a government ofthe OW can you tell if a refugee is gay? you,” she says. Alliance alone might be too weak to with- HAustrian officials seem to have relied It is hard to know the scale of the pro- stand a challenge from the red-green bloc if on old Bee Gees lyrics for a reason to reject blem, as most countries do not provide the SD joined in to bring it down. an 18-year-old man from Afghanistan who data on the grounds forasylum claims. But The Social Democrats argue that as the said he risked persecution back home for figures from Britain show that only 39% of biggest party, they should continue to gov- his sexual orientation. “Neither your walk, the 3,535 people who applied for asylum ern, especially if the final results (due on your behaviour, nor your clothing indicate based on sexual orientation were accepted September 14th) confirm that the leftist even in the slightest that you could be ho- between July 2015 and March 2017. Ms Jan- parties won slightly more votes. Initial re- mosexual,” they told him. Confusingly, an sen says that the Netherlands accepted 63% sults gave the red-green bloc 144 seats in Iraqi seekingasylum was reportedly reject- of267 such applications from October 2015 parliament, to the Alliance’s143. But in fact ed last month because he was too effemi- to April 2016. the Social Democrats’ route to holding nate. Officers thought he was shamming. Such cases are inevitably hard. No test power looks no easier. They have declined The Austrian interior ministry says it can reliably tell whether someone who to include the Left party in government, in has removed the official who turned away claims to be gay is telling the truth. A mis- large part because of its anti-NATO foreign the Afghan man. But such stories are com- take could be fatal: gaypeople in Saudi Ara- policy. Many Social Democrats would mon. Many European countries recognise bia or Yemen can still be stoned to death. prefer to work with the Centre party and that for people from some parts of the To make matters trickier, LGBT asylum- the Liberals, but those parties would turn world, simply being gay is grounds for be- seekers are often reluctant to go into details down any coalition supported by the Left. ing granted asylum. Yet Evelyne Paradis of about their intimate lives. Many do not When it comes to policy, though the left ILGA-Europe, a gay umbrella group, says bring up their sexual orientation during and right are sharply divided over privati- that many officials “think there is only one initial interviews, hoping to secure asylum sation in health care and education, in oth- way to be an LGBT person”. on other grounds, and only mention it as a er areas a centrist government could find The European Court of Justice (ECJ) has last resort. much to agree on. Nearly all parties have curbed some of the most egregious prac- “Officials who handle these cases need taken a tougher line on immigration since tices. A ruling in 2014 barred prurient ques- to learn that queer people come from all 2015, and border restrictions have cut the tions about sexual activity and “arousal kinds of backgrounds and experiences,” inflow ofasylum-seekers to a trickle. tests”, where asylum-seekers are shown saysMartyHuberofQueerBase, an Austri- But for the Social Democrats, the spec- gay porn to see if it excites them. This year an NGO. “They need to really listen to peo- tre loomingoverany broad coalition is that the court told Hungary to stop using Ror- ple’s stories.” In practice, this would mean of the other European countries that have schach tests. Some officials had been try- pursuing multiple lines of questioning tried it. In the Netherlands, the Labour ing to discern gayness from the way refu- during an interview, offering asylum-seek- party joined a coalition with the centre- gees responded to inkblots. ers more than one way to demonstrate right Liberals in 2012 in order to keep out Sabine Jansen of COC Nederland, a theircredibility. Some might best be able to1 the populist Freedom Party. In the 2017 election, its vote fell from 25% to 6%. Ger- many’s Social Democrats have been in co- alition with Angela Merkel’s Christian Democrats since 2010, and have seen their support shrinkrelentlessly to around 17%. Meanwhile, some Moderates have ar- gued that excluding the SD from power is self-defeating. Populist-nationalist parties have long participated in government in Denmark, Finland and Norway. But unlike those groups, the SD grew out of explicitly racist movements in the 1980s, and some of their founders had neo-Nazi ties. The current leader, Jimmie Akesson (pictured, previous page), has moderated the party; many of the more racist and anti-Muslim members left last year to form the Alterna- tive for Sweden. But Mr Kristersson says he will not co-operate with the SD on policy, and Mr Akesson says he will backno Mod- erate government that does not give the SD influence. For now, all parties say they will shun the populists. But should coalition negotiations drag on, threatening new elections, some may reconsider. 7 Well, you can’t tell by the way I use my walk https://t.me/finera The Economist September 15th 2018 Europe 33

2 do so by describing their internal struggle, but others might instead prefer to discuss Cricket in Corfu participation in underground LGBT groups orinstancesofpersecution fortheir sexual- At the crease in Greece ity. Sweden, unlike Austria, requires an ex- pert in LGBT issues to be present when a Anotherisland where flannelled fools thrive—despite batty rules gay asylum-seeker is questioned. Some fear that gay people will find it HE guide books all note that Corfu’s electrician who came from Karachi in harder to win asylum in the future as polit- Tlovely old town bears the markof 1995 and never left. ical pressure grows to accept fewer refu- lands to the north. But even so, it can still Ideally, keen Corfiots and proud Paki- gees. Ms Huber suspects that in Austria, feel surreal to sit in a Parisian-style arcade stanis should combine to give Greek where the government has vowed to re- or a Venetian-inspired mansion and look cricket a boost. But Greece is sadly absent duce immigration, some of the questions out at 22 white-clad players engaged in an from the current European champi- in interviews are designed to trip people English-born game. onship; Germany, with no historic back- up. She cites the story of an Iranian man Corfu is one ofthe few non-Common- ground in the game, excels. who wasasked ifhe knewwhatthe orange wealth spots where cricket thrives. It Why so? First, the International Crick- stripe in the rainbow flag means. (It stands offers enjoyable, knockabout games, as et Council (ICC) says participating coun- forhealing, though itispossible that notev- players from Australia, India and South tries must have 10 organised men’s teams ery gay Iranian man knows this.) “He had Africa can attest after recent exhibition playing at least five matches a year. Corfu an Austrian boyfriend waiting outside matches. And since 1978, when a gaggle fell slightly short. The ICC has also slack- who was willing to serve as a witness, but ofEnglish comedians and sportsmen ened the rules for players, so a passport, a they didn’t even call him in,” she says. 7 flew in to play, it has been loved in crick- birth-place or three years’ residence et’s homeland. entitle you to represent a country.That The island has two cricket grounds helps Germany,with many residents of Hungary besides the pretty one in the old town, Commonwealth origin. But Greeksport- which adjoins UN-protected heritage and ing rules foolishly make it hard for non- Orban sceptics the azure sea. Less happily,a car park is citizens to represent the country.Only if gobbling up the turf, though only in jest that problem is solved can Hellenic crick- do players suggest that smashing a wind- et hope to score another century. screen merits extra runs. All this is a legacy ofthe day in1823 when islanders saw the Royal Navy play Europe’s parliament condemns a the British garrison (Britain had taken the strongman, but sanctions are unlikely island during the Napoleonic wars). INCE coming to power in 2010, the gov- Corfiots longed to participate, and pro- Sernment of Hungary’s prime minister, duced a couple ofteams which survived Viktor Orban, has consistently disdained and multiplied after Britain’s exit in1864. judicial independence, academic and me- Amid Greece’s turbulent history, dia freedoms, and the rights of migrants. It Corfiot cricket could have died, but it has, in the view of many people, run remains popular among local men and, roughshod over some of the core values of increasingly,women. Three female teams the European Union. So far, the EU has have just been formed. done nothing to rein it in. But on Septem- Not all Greekcricket is Corfiot; 200 ber 11th Judith Sargentini, a Dutch MEP , miles south-east a different scene exists. made an attempt to do so, launching a de- In grimy Athens, Asian migrants borrow tailed report that documents Mr Orban’s a football ground three times a year for transgressions, from widespread corrup- two-day contests. Last month’s attracted tion to the forced sterilisation of Roma 12 teams. Mehdikhan Chaudry,the organ- women in the past. She took to the floor of iser, says he could get twice that number, the European Parliament and called on her given time and space. These worlds colleagues to choose: “Will you ensure the occasionally connect. One ofCorfu’s top value ofthis union is more than just words cricketers is Mohammad Aslam, an written on a piece ofpaper?” MrOrban, who bashes Brussels even as he accepts colossal subsidies from EU tax- and the rule of law. Notably, another con- vowed to support each other. payers, arrived at the debate both late and servative leader often accused of excessive Mr Orban may not care all that much defiant. It was “insulting”, he told the nationalism, Austria’s Sebastian Kurz, told about the vote. His primary audience in chamber, that they wanted to “strip Hun- his party to vote against Hungary. Mr Kurz Strasbourgwas not MEPs but domestic vot- gary of the right to represent its interests in is a fellow-member of the European Peo- ers, and the defeat will only serve to boost the European family where it belongs”. ple’s Party, the main right-of-centre politi- his popularity, as he presents himself as a Supporters of the Hungarian populist, in- cal grouping at the parliament. valiant defender of the beleaguered Hun- cluding Nigel Farage, the chief cheerleader In theory, the vote could lead the EU to garian nation against the hostile external forBrexit, came to hisaid. Butthe following impose sanctions on Hungary and even to forces (that pay its bills). “These debates day MEPs voted with more than the re- suspend its voting rights. But in order for help him to mobilise his own camp and quired two-thirds majority to start the pro- this nuclear option to be used, the leaders will work much more at a domestic level,” cess of sanctioning Hungary under Article of the EU’s other 27 members must unani- says Andras Biro-Nagy of Policy Solutions, 7 of the EU treaty. In doing so they collec- mously agree. That is unlikely because Po- a Budapestthink-tank. The lead in the polls tively stated that Mr Orban’s government land is currently facing the same proce- held by Mr Orban’s Fidesz party is anyway posed a “systemic threat” to democracy dure; and Poland and Hungary have unassailable. More than 50% of Hungar-1 Financial Era Advisory Group 34 Europe The Economist September 15th 2018

China’s president, Xi Jinping, ate caviar Two planned bridges to China that were and toasted each other with vodka. Rus- supposed to symbolise an improvement sian youth danced to old Soviet pop songs have become symbols of the wide gap be- among eastern-style pavilions. All this tween expectations and reality. symbolised Russia’s new improved friend- One, a railway bridge that was pro- ship with China, energised by the Western posed more than a decade ago to cut the sanctions that followed the annexation of distance required to shift Russian iron ore Crimea in 2014, and China’strade warwith to China quite literally hangs in the air. The America. Chinese long ago completed their part of Russia’s pivot to Asia, so Mr Putin has the bridge to the line in the Amur river that repeatedly promised, would transform the forms the frontier, but Russia has barely fortunesofthe sparsely populated Russian started on its much shorter bit. Having far east. So far, however, the words have missed manydeadlines, Russia nowprom- not been matched by actions. The two ises to complete it next summer, along leaders’ personal relationship may be with a two-lane bridge for cars that will flourishing, but the partnership rests large- link Blagoveshchensk, little changed since ly on military co-operation and political Soviettimes, with Heihe, which hasgrown alignment. The only significant economic from a village into a metropolis of 1.6m deal announced during the forum was an people and numerous skyscrapers. agreement by Alibaba, a Chinese e-com- merce giant, to team up with Russia’s Too many snoops Is he bothered? sovereign wealth fund and a Kremlin- One ofthe main barriers to better relations friendly oligarch, Alisher Usmanov, who is Russia’s security apparatus, which still 2 ians backit against a fractured opposition. controls the country’s rival to Facebook, to views China (and ordinary Russians, for The EU vote, though expected, infuriat- create a jointplatform. The deal, yet to be fi- that matter) with great suspicion. In con- ed Fidesz MPsand MEPs, who said the pu- nalised, shows that Russia is looking to trast, local people see China as an underex- nitive action was in revenge for Hungary’s China for technology, notjust money. ploited opportunity rather than a threat, determination to stand firm against mass The main beneficiaries of Russia’s turn and are frustrated byMoscow’scolonial at- migration. The decision was an act of “pet- towards China are Mr Putin’s cronies and titude towardsthe region. According to Vik- ty revenge”, said Peter Szijjarto, the foreign state firms such as Gazprom and Rosneft, torLarin, a scholarofthe area, a third ofthe minister. The Sargentini report was full of the state gas and oil giants. China’s invest- population in Russia’s far east say Mos- “unjustified, untruthful accusations”. ment in Russia overall is relatively modest. cow’spolicytowardsthem isone ofthe top The criticisms have long been resolved The figures are murky, since many Chinese three security threats, along with interna- with the European Commission, govern- firms invest in Russia via offshore hubs tional terrorism. Taxbreaks have not done ment officials argue. Mr Orban, they note, such as Singapore, but it is estimated that much to change this attitude. has won three elections in a row, partly by China has invested $40bn in Russia since Frustration at all this showed up in re- promising to crackdown on migration and 1991, half of it in the past six years, a num- cent regional elections, where Kremlin- the NGOs which support it. His team reck- ber that is dwarfed by Europe’s investment backed candidates fared poorly, and were on that he is being punished for fulfilling in Russia and China’s investment in Eu- forced into run-offs, considered a slap in his democratic mandate. 7 rope. Only a tiny part ofthat Chinese mon- the face for the central government. While ey goes to the Russian far east, and the Chi- ideologues try to persuade Russian people nese presence there is mostly limited to that their destiny lies with authoritarian Vladivostok small manufacturers and farmers. Private China, people in the far east seem as keen business is cautious, lacking in incentives on Western lifestyle and institutions—such Brother enemy and success stories. as property and human rights—as are the China still sees Russia primarily as a Chinese. The irony is that Russia’s confron- source of energy and raw materials. Its tation with the West, as well as its weak trade war with America will increase de- property rights, is making it less attractive mand for this. China is particularly keen to China, whose banks are reluctant to do VLADIVOSTOK on Russian soya beans, and Russian offi- business with people and institutions un- Russia’s fareast is close to China but far cials are promising to give Chinese inves- der sanctions. North Korean choirs, vodka from making good use ofthat fact tors 1m hectares of land to grow them. But and rockets will not remedy that. 7 USIC was blasting, rockets were fly- research by Ivan Zuenko, a China expert in Ming and pancakes were frying in Rus- Vladivostok, shows that the region does sia’s far east on September 9th. A vast not have much available land, and its soya RUSSIA screen placed on the embankment in Vlad- production is already reaching its peak. Blagoveshchensk Heihe ivostok, a port city on the shores of the Pa- Such promises, he argues, are “an imitation r mu cific, juxtaposed a North Korean military of activity”. The result will be inflated ex- MONGOLIA A choir singing patriotic songs with images pectations and inevitable disappointment. of burning American flags and rockets hit- Some Russian firms complain that Chi- CHINA ting Capitol Hill. A few hundred miles to na puts up trade barriers to their products, Vladivostok the north-west, Russian, Chinese and while flooding the Russian market with Beijing goods that often circumvent Russian cus- NORTH Mongolian troops were readying for their Pyongyang KOREA joint war games, timed to coincide with toms by going via poor Central Asian JAPAN SOUTH the Eastern Economic Forum, a three-day countries, such as Kyrgyzstan, which are Seoul Tokyo annual gathering organised by Vladimir part ofRussia’s customs union. KOREA Putin. For all the talk of closer ties, Russia’s Nagasaki On Russky Island, linked to Vladivos- bordercrossings to China are pitiful and of- Shanghai tok by a shiny new bridge, Mr Putin and ten look like sheds rather than gateways. 500 km https://t.me/finera The Economist September 15th 2018 Europe 35 Charlemagne For those in peril on the sea

J ean-Claude Junckerbraces forthe storms on Europe’s horizon Set against such mighty waves, it is questionable whether the patches on Mr Juncker’s dinghy will hold. The notion ofthe EU as a “global player” looks farcical at a time when Beijing, for exam- ple, barely pays attention to Brussels (and vice versa, grumble some). The next economic downswing is only a matter of time, and MrMacron’s push to reform the euro while the sun is shining has mostly dissolved on contact with German reluctance. Full banking union remains a distant prospect. Meanwhile the migra- tion crisis is far from resolved: 400 asylum-seekers enter Ger- many every day, a higherproportion ofthose riskingthe Mediter- ranean crossing are dying, and successive rescue ships are being turned away from ports. The next surge in numbers is a question ofwhen, not if. Much of this comes down to politics. The differing outlooks and traditions ofEU states still make a truly common foreign poli- cy difficult. Angela Merkel’s domestic circumstances prevent her from backing Mr Macron’s plans to fix the euro. Migration poli- cies that make sense and command diplomatic support in the ab- stract—the centralised border force, pre-screening at “disembark- ation platforms” in third countries outside the EU, processing centres within Europe and national quotas for the admission of HE custom of the president of the European Commission de- valid asylum-seekers—all run up against national reluctance. Tliveringan annual American-style “state ofthe union” speech Mediterranean memberstates are wary ofdelegatingborder con- to the European Parliament dates back to 2010. It has come to trols to Brussels, countries in north Africa lack the willingness or serve as a barometerforthe Brussels institutions, and to some de- ability to run the platformshumanely and effectively and few EU gree for the continent. In 2016 Jean-Claude Juncker was gloomy, states would accept the processing centres or quotas. speakingin the wake ofBritain’s vote to leave the EU. Last year he As Mr Juncker suggested in the melancholy peroration of his was cheerful, declaring that “the wind is back in Europe’s sails” speech, the politicsmaybe gettingeven harder: “I would like us to following economic recovery and the election of Emmanuel reject unhealthy nationalism and embrace enlightened patrio- Macron, a vigorous pro-European, to France’s presidency. On tism,” he urged, in a nod to shifts in national politics that some September12th he gave his final State of the Union speech ahead fearwill markthe nextEuropean Parliamentbutalso—with popu- of European Parliament elections and the appointment of a new lists in power in Rome, Warsaw, Budapest and Athens—the next commission next year. What did it augur? commission, whose members national governments nominate. Some of the optimism lingered. Mr Juncker noted that Greece The new populist coalition in Italy, which is both the greatest risk had left its bail-out programme and that the number of migrants to the euro zone and at the heart of battles over how to intercept, attempting to cross the Mediterranean had fallen. He hailed 21 process and distribute Mediterranean migrants, is spoiling for quarters of economic growth, a new “zero tariffs” agreement battles with the EU on both fronts. It may well be over Rome that with Donald Trump, unity on Brexit and the nearly completed Europe’s next big storm breaks. EU-Japan partnership agreement. Under the mantra of “deliver- ing on our promises” he pledged to boost the EU’s popular legiti- The next bail-out macy by cracking down on single-use plastics and to return the If the commission has done too little to prepare the union for the power over clock-changing in summer and winter to member coming tempest, that is partly Mr Juncker’s fault. (He never really states. This, to co-opt last year’s nautical metaphor, was about a understood the eastern states, complains one insider.) But the European hull made fast against the slapping ofthe waves. main reason is to do with the institution’s declining structural Yet the president’s speech was really about the storm clouds power; that is, its waning ability to drum up support for its ideas on the horizon. Europe now needed Weltpolitikfähigkeit, “the ca- amongnational governmentsand the European Parliament. That pability to do world politics”, insisted Mr Juncker. This should story goes back many years. A more dynamic commission presi- take several forms: increasing defence spending, a new partner- dent (say, Christine Lagarde, who heads the IMF) might have ship with Africa, expanding the use ofthe euro as an internation- achieved more in the circumstances. But she would still have al alternative to the dollar and a move to qualified majority vot- faced the same obstacles. ing on certain foreign-policy subjects (opposing Chinese Europe’s national leaders should nonetheless note the warn- human-rights abuses, forexample). Closer to home, there should ings between the lines ofMr Juncker’s speech, and resolve to give be measures to strengthen the euro’s stability, a drive to remove the next commission more power and flexibility to respond to terrorist content from the internet faster and a big increase in the them. Tolerating “multi-speed” vanguards of nation states on staffing and powers of the EU’s puny border- and coastguard. In subjects where unanimity is lacking and selecting the next presi- other words: crisis prevention and mitigation measures for a Eu- dent for her or his skill and experience—rather than through the rope whose neighbourhood is increasingly turbulent and whose Spitzenkandidat process whereby the figurehead of the largest protector and bastion, America, has gone missing. It was “sunny, European Parliament group gets the job—would help. Without optimistic and peaceful” in 1913, noted the commission president more backing, the commission, the EU’s executive authority, can in one ofhis better lines. only do so much to ready the ship forthe squalls to come. 7 Financial Era Advisory Group ADVERTISEMENT

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www.brandhk.gov.hk https://t.me/finera United States The Economist September 15th 2018 37

Also in this section 38 Sleaze and the city 39 Taking spies to court 39 Muslim politicians 40 Flying pets 41 Lexington: Gary Johnson for liberty

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

Public policy with children and dependants, it’s actually a tax on firms for hiring low-skill parents.” Make America Germany Again Companies would have perverse incen- tives to filter out the applicants they thought likeliest to be on benefits. Because they would be barred by law from asking about welfare status directly, they would probably resort to pernicious stereotypes WASHINGTON, DC (such as not hiring a middle-aged black The DemocraticParty’s leftflankhas ideas forfixing the country woman without a wedding ring). It would UCKER CARLSON, a Fox News host, chusetts, would like to up-end corporate also encourage companies to minimise Tand Bernie Sanders, a democratic-so- boards by requiring that employees pick low-skilled labour as much as possible, cialist senator, seldom agree. Yet on the 40% ofthe members. hastening automation. matter of billionaires supposedly spong- Start with Mr Sanders’s proposal. The ing off taxpayer largesse, they are com- cost of safety-net programmes like food Bad, worse, wurst pletely simpatico. On September 5th Mr benefits, Medicaid coverage and rental Ro Khanna, a Democrat from Silicon Val- Sanders introduced a bill which would subsidies could easily amount to thou- ley, introduced an identical bill in the force large firms to pay taxes exactly equal sands of dollars per employee. A pitch to House of Representatives. While he con- to the amount of safety-net benefits con- charge firms that amount would be a de cedes that automation is a real worry, he sumed by their employees, including food facto head tax, strongly discouraging em- dismisses the discrimination critique of- stamps, housing vouchers and Medicaid. ployment. “It’s essentially a tax on hiring fered by liberal economists. Though dis- The targetofMrSanders’slegislation, titled low-skill workers, but worse,” says Samuel crimination is notoriously difficult to the “Stop Bad Employers by Zeroing Out Hammond of the Niskanen Centre, a prove in court, high penalties would still Subsidies” or “Stop BEZOS” Act, was clear. think-tank. “Since eligibility largely varies encourage firms to behave, Mr Khanna in- Attacking Jeff Bezos, the founder and boss sists. Besides, he says, the point of the bill is of Amazon, is a uniquely bipartisan pas- to encourage companies to forgo the head- time. The left of the Democratic Party Mergers and acquisitions ache by paying their employees a higher views him as a latter-day Ebenezer United States, means-tested benefits received minimum wage. “If you raise to a liveable Scrooge. Trump-cheerleaders like Mr Carl- by income, % of total wage, like $15 an hour, then you’re exempt. son despise him for owning the meddle- 80 But if you’re not going to provide a decent some Washington Post. Mainstream econo- Poorest quintile wage, and you’re making trillions of dol- mists tooka dismal view ofthe pitch. 60 lars, then you’re goingto be on the hook for Congressional Democrats, especially all the public benefits that you’re consum- those eyeing a presidential run in 2020, are 40 ing,” Mr Khanna says. awash with bold policy ideas. In addition Middle class* The idea that benefits schemes for low- to Mr Sanders’s pitch, Kamala Harris, a 20 income workers are corporate welfare is Democratic senator from California, has Richest quintile mainstream on the far left. Yet it is also offered a proposal to give generous tax 0 quite strange, since it implies that for those credits to citizens who spend more than 1979 85 90 95 2000 05 10 14 at the bottom of the earnings distribution, 30% of their incomes on rent. Elizabeth Sources: Brookings *Middle 60% of wages would rise if the safety-net were Institution; CBO income distribution Warren, a progressive senator from Massa- slashed. “Some people could draw a mes-1 Financial Era Advisory Group 38 United States The Economist September 15th 2018

2 sage from the bill that programmes like New York politics the leaflet before it went out. Given Mr Cu- SNAP [food stamps] or Medicaid are bad- omo’s outsized influence over the state …because they’re fundamentally cor- Sleaze and the city party apparatus, this explanation has been porate subsidies,” says Robert Greenstein questioned. There seems to be a lot else of the Centre on Budget and Public Priori- that MrCuomo is sadly unaware of. The ar- ties, a left-leaning think-tank. The earned- chitect of his upstate development pro- income tax credit, which operates explicit- gramme, called “the Buffalo Billion”, was NEW YORK ly as a wage subsidy for working-class fam- convicted in July of running a bid-rigging An exceptionallyunderhanded smear ilies through the tax system, has been scheme in which several hundred million lands the governorin hot water helpful in alleviating poverty. Indeed, dollars were awarded to favoured firms. many—including Mr Sanders—would like IRTY politics knows no party affili- Joe Percoco, the governor’s enforcer and to see it expanded. Dation. Less than a week before New right-hand man, was also convicted this Similar problems haunt Ms Harris’s York’s Democratic governers’ primary, year foraccepting bribes. daringplan to offertaxcredits forthose fac- which will be held on September 13th, the The flap over Ms Nixon pales in com- ing high rents. She would like the federal state party circulated a leaflet implying parison to those lapses. But it gives further government to reimburse households for that Cynthia Nixon, the progressive chal- ammunition to those who detect some- rent that is over 30% of household income. lenger, posed a threat to Jewish New York- thing amiss with Mr Cuomo, who has oth- Housing affordability is certainly a grow- ers. The accusations—that Ms Nixon was erwise proved a competent administrator. ing issue, especially in America’s booming “silent on the rise of anti-Semitism”, sup- Longtime observers of New York politics cities. But that is because of constrained ported the campaign to boycott Israel and compared the Nixon episode to another supply. Fuelling demand with billions in opposed taxpayer funding for yeshivas— moment in politics, when Mr Cuomo’s fa- government cash while housing supply is appear to be entirely fact-free. Though Ms ther was running for mayor of New York stuck means that prices will only rise. The Nixon is not personally Jewish, she is rais- City in 1977 and supporters employed the winners would be landlords, who would ing two Jewish children from a past mar- slogan “Vote for Cuomo, not the homo”. pocket most ofthe vast expenditure. riage and regularly attends synagogue (her Mr Cuomo senior’s opponent, Ed Koch, Ms Harris’s proposal would encourage rabbi, married to a prominent teacher-un- suffered decades of speculation over his people to rent flats well beyond their ion boss, called the allegation a “baseless sexuality. The elderCuomo lost the mayor- means. Those making less than $25,000 lie”). An actor-turned-politician, Ms Nixon ship, but later became governor. would get 100% of their excess rent subsi- also says she got news of her most promi- The incentives to accuse an opponent dised by the government. In San Francisco, nent role, as Miranda Hobbes on “Sex and of anti-Semitism are clear. Ultra-orthodox the costliest city in America, this means the City”, while preparing a Passover se- Jews are a powerful voting constituency, that such a person would pay at most $625 der. However poorly executed, the at- especially within New York City, who are a month, even for a flat costing $4,681 a tempted smearing of Ms Nixon illustrates known to vote as a bloc. A central issue for month. Uncle Sam would kick in the rest. two disparate truths about New York poli- the group is non-interference with yeshi- Because the policy abruptly shifts reim- tics: some strange Albanian miasma fol- vas, private Jewish schools which critics bursement rates around cut-off points, lows around Andrew Cuomo, the sitting say focus on Talmudic instruction and de- those making $75,000 in San Francisco Democratic governor who is vying against prive students ofbasic mastery ofessential could lose as much as $8,500 of tax credits Ms Nixon for his third term; and Jewish secular subjects like English and mathe- by making an additional dollar. In cities voters are quite important. matics. The schools also receive hundreds with high rents, those making up to The listed sponsor ofthe offensive cam- ofmillions in public funds. $125,000 a year, hardly a needy bunch, paign literature was the State Democratic Though yeshivas have received special would qualify for subsidies. Committee, an organisation which Mr Cu- exemptionsbystate lawmakersfrom strict- omo funds. He insists he knew nothing of er regulation, state law also requires that Wunderbar private schools provide an education that Ofall the proposals, Ms Warren’s Account- is “substantially equivalent” to public able Capitalism Act is the least destructive. schools. A lawsuit filed by former yeshiva Some ofits provisions—like requiring firms students in July argues that this is not the with more than $1bn in revenue to obtain a case, and that the city is turning a blind eye federal charter and barring executives to the problem because of political consid- from selling shares for five years—are rela- erations. An investigation into 30 schools tivelymodest. Others, like requiring corpo- has been plodding along in New York City rations to create a “general public benefit”, since 2015. Half of the 30 schools under in- seem vague and unenforceable. The most vestigation refused entry to the city’s edu- eye-catching proposal, which is for em- cation officials. Bill de Blasio, the mayor, ployees to elect 50% of the representatives who has benefited from ultra-Orthodox on corporate boards of directors, seems support in previous campaigns, seems re- radical but has been commonplace in Ger- luctant to push too hard. many since 1976. Although such a system There is scant polling on the New York might not work as well in America, where primary. What little exists suggests an ex- employees are less likely to remain loyal ceedingly comfortable margin for Mr Cu- foryears, it is hardly the stuffofrevolution. omo. Some have held him up as a strong None of the proposals will become law contender to challenge President Donald anytime soon. But they do foreshadow the Trump in the next presidential election de- themes of the next Democratic presiden- spite his protestations. At the very least he tial primary, at a time when the party is likely to accomplish the feat of running seems to be in its wilderness-wandering one ofAmerica’s most important states for stage. Populistpolicies, such assticking itto more than a decade. Mucking up that lega- Mr Bezos, subsidising rent and giving more cy with small-time scandals and smears power to workers, are in the ascendant. 7 Nixonian seems short-sighted. 7 https://t.me/finera The Economist September 15th 2018 United States 39

sands of computers. The charges docu- dictments, used alongside sanctions and ment how North Korean hackers go about quiet diplomacy, are a worthwhile tool in their work, much of it on Chinese soil. The this effort to establish norms. The aim human story occasionally breaks through. should be cyber arms control that pro- Political commissars peer over the hackers’ motes restraint among the big powers. shoulders; programmers interrupt their Unfortunately, even insiders disagree cyber-pillaging to search for information on where to draw the line. Michael Hay- on North Korean food rationing. den, a former CIA and NSA chief, has ar- The indictment of Mr Park fits with a gued that Russia’s hacking of the Demo- broader trend in America’s approach to cratic National Committee was cyber-attacks. It began in 2014 with the “honourable state espionage”. “I would Obama administration’s indictment of not want to be in an American court of five Chinese army officers forindustrial es- law”, he said, “and be forced to deny that I pionage. Last year, the Trump administra- never did anything like that as director of tion followed suit by charging two officers the NSA.” 7 of Russia’s FSB, a successor to the KGB, for cyber-attacks on Yahoo. In March it charged nine Iranians of stealing scientific Muslim politicians secrets on behalf of Iran’s Revolutionary Guard. Most dramatically, it indicted a doz- From Bushies to en Russian spies in July for their interfer- ence in the presidential election in 2016. Bernie The forensic evidence published in these charges refutes the myth that attribu- CHICAGO tion is impossible in cyberspace. MrTrump The political transformation of memorably claimed that the election at- American Muslims tack might have been carried out by a 400lb amateur from his bed. But it is plain N HIS first presidential campaign, George Cyber-attacks that America and its partners can peer IW. Bush received 42% of the Muslim- deep into the workings of their adversar- American vote, compared with 31% for Al Suing spies ies, sometimes literally so: Dutch spies Gore. The 9/11attacks, and the warsthat fol- were able to activate security cameras in- lowed, changed that affiliation. Eight years side the office ofthe Russian intruders. later, Muslim-Americans overwhelmingly Yet not everyone is pleased with the de- backed Barack Obama. This was a big cision to turn to the courts. Some of those change fora religious minority that tended who have worked as hackers for the gov- to have conservative views: traditionalist America is putting foreign hackers in ernmentwarn thattheywill bearthe brunt Muslims and LBGT advocates are strange the dock. Not everyone is pleased of retaliation; after all, American spies bedfellows. Donald Trump’s election, N SEPTEMBER 6th, President Donald break into computers across the world. In- though, has brought a clutch ofprogressive OTrump tweeted his gratitude to Kim deed, North Korea’s WannaCry attack re- Muslims into politics. Some are now head- Jong Un for the North Korean leader’s “un- used potent code originally developed by ing to Congress. wavering faith” (in Donald Trump). “We America’s National Security Agency America’s has 3.5m Muslims, around 1% will get it done together!” A few hours later (NSA). Jake Williams, who worked in the of the population. Some say the number is the Justice Department published a 174- NSA’s hacking arm, has expressed concern closer to 5m and rising; the Census Bureau page criminal complaint against Park Jin that prosecuting foreign hackers could put has not asked questions about religion Hyok, a prolific hacker working for North him and others at risk of arrest overseas. since the 1950s, so it is hard to know for Korea’s military intelligence bureau. It ex- This would not be unprecedented. Italian sure. Only about 100 Muslims filed papers emplified the tangled threads of a North courts convicted 22 CIA officers in absentia this year to run for office. These few attract Korea policy seesawing uneasily between in 2009 ofkidnappingan Egyptian cleric in a disproportionate amount of attention, diplomacy and pressure. But America’s in- Milan. Hacking groups with links to Russia largely because ofAmerica’s views oftheir creasingly litigious response to cyber-at- have threatened to reveal the names of for- faith. Pollingby the Pew Research Centre in tacks throws up another concern: will its mer NSA employees. April 2017 found that 44% of eligible voters own legion ofgovernmenthackersface ret- These concerns are valid, but over- think there is a “natural conflict” between ribution in kind? blown. One reason is that going public can Islam and democracy. The rap sheet against Mr Parkis remark- yield results when private warnings have Rashida Tlaib, a Palestinian-American able. The “scope and damage” ofNorth Ko- failed. The indictment of its officers in 2014 lawyer, narrowly emerged from a crowded rea’s operations, notes an FBI agent, “is vir- shocked China into agreeing to a pact to field in the Democratic primary in Michi- tually unparalleled”. Three attacks stand rein in commercial espionage. Another gan’s 13th congressional district, which out. The first wiped almost half of Sony’s factor is that America’s adversaries lack covers Detroit. As she is running unop- data in 2014. It aimed to terrorise the film both the technical proficiency to catch it in posed in the mid-term electionsforthe seat studio into halting the release of “The In- the act and the moral high ground to em- John Conyers occupied for more than half terview”, a film thathad enraged North Ko- barrass it on the world stage. America may a century (until he resigned, following alle- rea for its depiction of an assassination be an aggressive actor in cyberspace, but it gations ofsexual harassment), she is all but plot against Kim Jong Un. The second was has not vandalised movie studios or guaranteed to become the first Muslim the theft of $81m from the central bank of robbed banks. In choosing what to prose- woman to sit in Congress. Bangladesh in 2016, the largest ever digital cute, American officials seek to draw a line She will probably be joined there by Il- bank heist from a single institution. The between old-fashioned spying, which is han Omar, a Somali immigrant who won a third, known as WannaCry 2.0, was a ran- seen as fair game, and piratical deeds, like primary in Minnesota to fill the congres- somware attack against hundreds of thou- election sabotage and spying for profit. In- sional seat of Keith Ellison, one of two 1 Financial Era Advisory Group 40 United States The Economist September 15th 2018

2 Muslim men in Congress (the other is Indi- conservative views on same-sex marriage tion forms from veterinarians, as well as ana’s André Carson). Fayrouz Saad ran in and abortion, young Muslims tend to be confirmation that their animals have been the primary for Michigan’s 11th district; much more secular. Many of the women trained to behave properly in a public set- Deedra Abboud ran in the Arizona Senate runningforoffice eschew head scarves: Ms ting, which they do not always do. primary; and Tahirah Amatul-Wadud ran Omar in Minnesota and Ms Abboud in Ar- Between 2016 and 2017, Delta Air Lines in the primary in Massachusetts’s 1st dis- izona are the exceptions. According to Pew, reported an 84% increase in animal inci- trict. Ms Saad, Ms Abboud and Ms Amatul- 23% of Americans brought up as Muslims dents, most of which involved urination, Wadud lost, but many predict a bright fu- no longer identify with the faith. defecation or aggressive or threatening be- ture for 34-year-old Ms Saad, the telegenic Ms Tlaib is keen to take the focus away haviour by a support animal. A survey re- daughter ofLebanese immigrants. from her religion. She also does not want leased on September 12th by the Associa- All five women are progressive. “The to be drawn into a discussion on a two- tion of Flight Attendants echoes these progressive wing of the Democratic Party state solution for Israel, or on the absence findings. Sixty-one percent of the atten- is the only gateway to political office for of liberal democracy in Muslim-majority dants surveyed say they have worked on a Muslims,” says Abdulkader Sinno of Indi- countries. Her district is the second-poor- flight where an emotional-support animal ana University. All five argue for abolish- est in the country, she says, so her focus caused disruption in the cabin. ing the Immigration and Customs Enforce- will be on the concerns ofher constituents, Passengers seated next to emotional- ment agency, which is charged with in particular their civil rights and the rav- support animals have been put on oxygen rounding-up undocumented migrants. ages of economic inequity. The question because of allergic reactions to the crea- They also want universal health care, free she gets most often, she says, is whether tures, flight attendants have been bitten college and a minimum wage of$15. she will sell out once she is a member of when attempting to put drinks on tray ta- Whereas older Muslims generally hold the House in Washington. 7 bles and veterinarians have been sum- moned because the animals meant to be managing the anxiety attacks of their han- Flying pets dlers have had anxiety attacks themselves. In an attempt to save the honour of her It’s emotional dog, which had relieved itself mid-flight, one passenger instead claimed that she herselfhad had an accident in the aisle. “We want to ensure the safety and com- fortofall ofour passengers,” says Sara Nel- son, president of the Association of Flight NEW YORK Attendants. “But the widespread abuse of The dodge that allows an increasing numberofpets to flywith theirowners the system ruins it for people with a legiti- CCORDING to the Air Carrier Access mise to send them overnight, along with mate need. Now anyone bringing an ani- AAct, pigs might indeed fly. Technically certificates, collars, harnesses, vests and mal on board is being looked at with great- so might dogs, cats, miniature horses, kan- other paraphernalia proclaiming “emo- er scrutiny.” Even so, the popularity of garoos, possums, parrots, hamsters, ducks, tional support animal”. After an incident travelling with support animals is grow- turkeys, ferrets, lizards, snakes, turtles and earlier this year in which a woman flying ing. Last year the number of support ani- a variety of other animals seldom seen at from Newark Liberty Airport to Los Ange- mals on United Airlines flights increased 35,000 feet. Although individual airlines les attempted to board a United Airlines from 43,000 to 76,000. For many of those have policies that bar many of these crea- flight with her emotional-support peacock who are very attached to their pets, the tures from boarding, the Air Carrier Access (they were denied passage), certain air- perk of being able to fly with their animal Act, established in 1986, prohibits commer- lines, including United, now also require (as opposed to sending it in cargo), and to cial airlines from discriminating against passengers to provide health and vaccina- paynothingforit(a benefitextended to ser- passengers with disabilities. Differentiat- vice and support animals under federal ing between those with genuine disabili- regulations), is worth fibbing for. ties, who are allowed to travel with service Celebrities from Miley Cyrus and Kim animals, and those seeking a free flight for Kardashian to Oprah Winfrey and Bradley pets, is the responsibility ofairlines. Cooper have praised their emotional-sup- Emotional-supportanimalsare defined port animals. Jane Fonda, an actress, is as companion animals which, on the de- rarely seen without her dog, nor is Ivana termination ofa medical professional, pro- Trump, the former wife of President Do- vide benefit for an individual with a psy- nald Trump, who made headlines when chological disorder. These benefits include she tried to passoffhersix-pound Yorkie as helping to calm people with post-trau- a service animal, so that it could dine with matic stress or providing a sense of securi- her in an upscale Manhattan restaurant. ty for those suffering from anxiety. Unlike Under the Americans with Disabilities service animals, which provide an actual Act, emotional-support animals are not service such as guiding the blind, being granted the same public-access rights as ears for the deaf or alerting and protecting service animals, which is why they are sel- an epileptic on the verge of a seizure, the dom seen at the opera or on the laps of need for emotional support is harder to lunching billionaires. The Disabilities Act judge and therefore easier to fudge. does entitle them to live in otherwise pet- To fly with an emotional-support ani- free accommodation, a frequent source of mal, a passenger needs a letter from a men- tension with landlords, and to stay in ho- tal-health professional describingthe emo- tels without their handlers having to pay tional benefit the animal provides. These extra deposits. But their public access is can be obtained cheaply and speedily on- otherwise restricted. For now, at least, the line through a variety of websites that pro- Keep calm carry-on sky really is the limit. 7 https://t.me/finera The Economist September 15th 2018 United States 41 Lexington Gary Johnson for liberty

Liberty is underattack, mainlyfrom the partythat claims to defend it Tea Partiers love Mr Trump, who seems to have zero regard for liberty. Their revolt, it turns out, was not just against spending. It was also against immigrants and poor people and the vast hand- outs they imagined these scapegoats received. The populist liber- tarian strain—represented in the 1990sby Ron Paul, another serial presidential candidate—has long been infused with racial anxi- ety. It also contains a lot of anti-government paranoia, which ex- plains why Mr Paul’s followers—including his son, Senator Rand Paul—are suckers forMr Trump’s deep-state conspiracy theories. Thomas Massie, a libertarian-ish congressman, has admitted to revisinghis view ofhis supporters. “Aftersome soul-searching, I realised when they voted forRand and Ron and me in these pri- maries, they weren’t voting for libertarian ideas—they were vot- ing for the craziest son ofa bitch in the race.” While Mr Trump has blown up the deficit, raised barriers to trade and immigration, threatened civil liberties and states’ rights, and put former lobby- ists in charge ofderegulation, MrPaul, a self-described libertarian conservative, has been one ofhis staunchest allies. The mega-donors have not done much better. Contrary to ex- cited media reports, Charles Koch, who now runs the brothers’ network, has not rethought its backingfora Republican Partythat ACK on the campaign trail, Gary Johnson cuts a slightly dis- appears no longer even to support free trade. Its members, who B consolate figure. Appearing in a sports bar in the town ofGal- have profited hugely from Mr Trump’stax cuts and deregulation, lup, New Mexico, the former Republican governor, serial presi- are expected to spend $400m on Republican campaigns over the dential hopeful and now Libertarian Party candidate for the mid-terms. Democrats have long claimed that Republicans’ harp- Senate, spoke unenergetically about what he would do there. He ing on liberty was a pretext for lower taxes for the rich and fewer would fight the deficit, be bipartisan, facilitate whistle-blowing food stamps for the poor and curbs on pollution. That used to be on government waste, he said, with lengtheningpauses between an exaggeration. But the Trump party and its wealthy abettors ap- each item. After ten minutes, a puzzled look crossed his face and pear to be proving their most partisan critics right. Mr Johnson fell silent. An aide suggested that the small crowd All ideologies are vulnerable to opportunists, but the purity should mingle with him instead. demanded bylibertarian conservativeshasmade theirsespecial- Lexington later put it to Mr Johnson that he seemed to dislike ly susceptible. Unthinking anti-government rhetoric has preclud- campaigning. He nodded. “The bad part is you find yourself with ed serious new thought about the relationship between govern- people that have really bad breath,” he said. “What comes out of ment and individuals in an anthropogenic climate, changing their mouth is just as bad. You cannot make heads or tails out of economy and more atomised and diverse society. Moderate con- what the person talking to you is even saying.” Mr Johnson is servatives often have more nuanced ideas. They typically want a many things: a wealthy builder, ultra-marathon runner, fiscal more efficient, but not radically smaller, government. They might hawkand pothead. He is not much ofa retail politician. even expand it sometimes, to combat obesity or global warming. He could still be competitive in a race the Democrats were as- They are also increasingly repelled by strident social conserva- sumed to have sewn up. A recent poll puts him in second place to tism: they may oppose abortion, but they are relaxed about gay the Democratic incumbent, Martin Heinrich, with 30% of voters marriage. They are arguably the most sincerely liberty-minded undecided. MrJohnson isremembered in NewMexico asa frugal group of Americans. Yet the Republicans, who claim to stand for and fairly effective governor. After his presidential run in 2016, liberty, are driving them away. The party will not win national also asa Libertarian, he isknown nationallyforhisgoofball man- elections unless it can win them back. ner, indifference to world affairs and dope habit. Yet he may be the most prominent advocate of libertarian principles left stand- Equality and fraternity also matter ing. That illustrates how badly the ideology has recently fared. If Mr Johnson’s campaign takes off, it could also illustrate how Only a tiny minority ofAmericans are ideological in any way, that might be done. Because, in a state that leans Democratic, he and the number of committed libertarians is a rounding error. must borrow Republican voters, then add moderate Democrats, Most of those who voted for Mr Johnson in 2016 were protesting a group that also worries about liberty out West. Mr Johnson’s against the alternatives. Yet a clutch of liberty-minded Republi- pragmatism should help him. He tends to argue for libertarian can mega-donors have made their views prominent on the right. policies on the basis of economic sense, not ideology. He says he Led bythe industrialistsCharlesand David Koch, theyhave spon- wants to legalise his favourite drug because it would create thou- sored free-market think-tanks and policies, on immigration re- sands ofjobs, not because it would make Americans freer. form as well as tax cuts, which liberty-inclined conservatives His injudicious comments on halitosis aside, he also avoids such as Ted Cruz and Marco Rubio have sometimes taken up. attacking others, including his rivals, whom he scarcely men- Most Republican voters are more drawn to the party’s social con- tions. That is amiable as well as ideologically sound, and liable to servatism. Yet in the Koch-supported Tea Party revolt of 2010, os- be effective. Some libertarians dare to hope that, in response to tensibly against government spending, some saw an army of lib- Mr Trump, Americans will start demanding more liberty from erty-minded voters awaken at last. How wrong they were. their leaders. But many ofthem would settle formore civility. 7 Financial Era Advisory Group 42 The Americas The Economist September 15th 2018

Also in this section 43 The other Colombian guerrillas 44 Bello: Coup-plotting in Venezuela

Guatemala’s fight against impunity land-reform advocates became common- place, and were rarely, ifever, solved. The fears of a clown Recognising that those seeking to root out corruption were outgunned by those participating in it, in 2007 the Guatemalan government invited the UN to set up CI- CIG. Since then its investigators have iden- tified more than 60 criminal organisations GUATEMALA CITY belonging to the so-called “parallel state”, The government races to get rid ofan anti-corruption commission and have assisted in bringing cases against N HIS old television sitcom, Jimmy Mo- one year to wrap up its work. In addition, 680 people. No fish has been too big. In Irales used to dress up as a prisoner. In while Iván Velásquez, CICIG’s Colombian 2015 CICIG’s revelation ofa corruption net- one sketch, he told his cellmate that the head, was on a trip abroad, the president workin the tax-collection agency led to the country’s high-ranking public officials barred him from returning to Guatemala. removal and imprisonment of the then were all atheists. “None of them can imag- Around 40 CICIG staffers are waiting for president, Otto Pérez Molina. ine a better life than this one,” he said, rub- visa renewals. And just in case the govern- CICIG’s mandate also calls for it to bol- bing his fingers together as cash registers ment’s message was unclear, it punctuated ster Guatemala’s own prosecutors. The and laughter rang in the background. its decision by sending armoured cars to commission has beefed up protection for Such quips about Guatemala’s endem- prowl around CICIG’s headquarters. witnesses, expanded the use of wiretaps, ic graft helped propel Mr Morales to the trained local sleuthsin tracingcross-border presidency in 2015. Abusinessman and co- An actual “deep state” transactions and helped different agencies median, he ran on the slogan “neither cor- CICIG is a unique institution set up to deal collaborate to get more cases to court. Its rupt nor a thief”. But three years later, the with a grave problem. Even by Latin Amer- successes have made it a role model. In joke seems to be on the voters. Rather than ican standards, the Guatemalan justice sys- 2016 neighbouring Honduras set up its cleaning up government, he is on the brink tem is weak. The country suffered the re- own international anti-impunity body. of undermining Guatemala’s long struggle gion’s bloodiest civil war, which killed Unsurprisingly, CICIG has a long list of to establish the rule oflaw. some 200,000 people in 1960-96. In a cam- enemies. The commission should have In January 2017 the International Com- paign against insurgent groups, its army been easy to abolish. It must disband if its mission Against Impunity in Guatemala slaughtered indigenous civilians, for mandate is not renewed every two years. (CICIG)—a UN body that aids local prose- which it has been accused ofgenocide. As CICIG’s investigators circled Mr Pérez cutors with corruption cases—accused the Once the conflictended, politicians and Molina in January 2015, he said the body president’sson and brotheroffilingfake in- generals afraid of being held to account would soon “come to an end”. Yet he voices for the use of public funds. Later launched shadow campaigns of harass- wound up extending its mandate that that year CICIG presented evidence that ment and violence against human-rights April—fourmonths before he was ousted. Mr Morales’s party accepted more than activists. Theyalso derailed criminal inves- CICIG has fended off such threats $1m in illegal donations for the 2015 elec- tigations through bribes and threats aimed thanks to two sources of strength: foreign tion. The president denies all wrongdoing. at judges, prosecutors and witnesses. backing and domestic public opinion. But he would already have been charged The resulting climate ofimpunity led to Guatemala’s cash-strapped treasury de- had congress agreed to strip him of his im- what Amnesty International, in a report pends on bountiful aid from America’s munity from prosecution, which it has published in 2002, called a “corporate ma- government, and remittances from abroad twice declined to do. fia state”. It consisted of an “unholy alli- make up 11% of GDP. Under Barack Obama On August 31st Mr Morales struck back, ance” between criminal gangs, the busi- the United States staunchly supported CI- announcing that he will not renew CI- ness elite, politicians and the security CIG. In 2015 Joe Biden, his vice-president, CIG’s mandate. The commission will have services. Murders of environmental and warned that a planned aid package would 1 https://t.me/finera The Economist September 15th 2018 The Americas 43

2 probably require renewing CICIG’s man- Lawmakers have their own reasons to op- date. Mr Pérez Molina listened. pose CICIG: 20% ofthem are underinvesti- One step forward, one step back A change of tune in Washington may gation. A bill now under review would en- Colombia, attacks by armed groups* explain why MrMorales has dared to tread able congress to strip the constitutional Peace talks Peace deal 250 where his predecessor did not. In May court’s five justices oftheir immunity from with FARC ratified begin Marco Rubio, an American senator, prosecution. That could pave the way for 200 CI- blocked a $6m grant to CICIG to protest charges to be filed against its three pro- FARC ELN against Guatemala’s imprisonment, for us- CIG judges, who blocked Mr Morales from 150 ing false passports, of a Russian family havingMrVelásquez expelled in 2017. Such 100 who say they were persecuted by Vladimir fears may be premature. But CICIG is ner- FARC dissidents Putin’s government. They were later freed, vous: one member fears the justices “could 50 but the episode made clear that America’s be arrested within weeks”. 0 support for CICIG was now wobbly. The best hope for CICIG’s survival lies 2011 12 13 14 15 16 17 18† Mr Morales has reinforced this trend by in the presidential election next June. In Source: *Based on press coverage. Not including Ideas for Peace attacks by other illegal armed groups courting Donald Trump. In 2017 a group of one recent poll, 70% of respondents said † Guatemalan political parties signed an they wanted the commission to stay. On Foundation or unknown actors To Sep 12th $80,000-a-month lobbying contract with September11th indigenous protesters dem- Barnes & Thornburg, a law firm whose onstrated in front of Congress, calling for tacks on security forces. The group is on boss has often worked for prominent Re- CICIG to remain. In another recent survey track for its most violent year since records publicans. One weekafter neighbouring El measuring confidence in institutions, CI- began in 1986. Salvador drew America’s ire by recognis- CIG came fourth, behind the fire service As the Colombian government’s main ing China instead of Taiwan, Guatemala and the Catholicand evangelical churches. adversary has changed, so too has its lead- reaffirmed its support for Taiwan. Mr Mo- Mr Morales landed near the bottom. ership. On August 7th Iván Duque was rales was also the second world leader Moreover, the opposition may have a sworn in as Mr Santos’s successor. The after Mr Trump to recognise Jerusalem as strong recruit. Thelma Aldana, a former at- new president campaigned on criticising Israel’s capital, and moved his country’s torney-general, led some of CICIG’s best- the agreement with the FARC as too le- embassy there. His efforts seem to have knownprosecutions,andhaspubliclyflirt- nient. Now he must confront the same di- paid off. The United States conspicuously ed with a run forpresident. Polls show that lemma that Mr Santos faced, weighing neglected to condemn his decision to let she would have a good chance ofwinning. society’s demands for justice and punish- CICIG’s mandate lapse. Mr Morales can always change his ment against the costs ofcontinued war. mind. However, he still might manage to In his inauguration speech, Mr Duque Parallel universe cripple CICIG without kicking it out. One said he would take 30 days to evaluate With one of the pillars supporting CICIG plausible scenario is a deal that would peace talks with the ELN. He has backed off knocked down, the government is now keep it in place, but with “reforms” to make a demand thatthe group’smembersgather seekingto topple the other: publicopinion. it less fearsome. In any such negotiation, in designated zones before negotiations Turning CICIG’s words against it, Sandra however, Mr Morales’s bottom line is like- begin, but still insists that they release all Jovel, the foreign minister, calls the com- ly to be CICIG’s case against him perso- hostages as a pre-condition for further dis- mission a “parallel structure” of its own. nally. Ultimately, it is Guatemala’s elected cussions. The group has already freed She says that the UN has established a “su- politicians who will determine whether some of its captives—including a group of per-national entity that dictates to govern- Mr Morales faces trial. Only if they turn six on September 12th—but is still believed ments how to exercise their duties”. against him will the courts decide whether to hold ten people. On September 8th Mr For anyone familiar with CICIG’s char- he joins Mr Pérez Molina behind bars. 7 Duque said he would not resume talks. ter, such arguments are flimsy. The com- With just 2,000 fighters, the ELN pales mission operatesatthe pleasure ofthe gov- in comparison with the FARC, who were ernment. Only local authorities can Guerrillas in Colombia once 18,000 strong. With the FARC out of prosecute cases; CICIG merely assists the way, Mr Duque can focus his counter- them. The body has proposed or endorsed Whack-a-mole insurgency resources on a far weaker tar- 34 legal reforms, but it is up to congress get. Yet the ELN might still prove harder to whether to accept them. And the commis- defeat militarily. Unlike the FARC, ELN sion’s international nature is central to its members dress and live as civilians in mission. Only investigators with experi- towns and cities. None of its urban cells BOGOTÁ ence around the world can hope to take on have contact with the others, preventing The newpresident calls offtalks with a globe-spanning criminal networks. them from informing on distant comrades. lesser-known leftist insurgent group CICIG was never intended to remain in The only people with full knowledge of Guatemala indefinitely. The true measure N 2016 Juan Manuel Santos won the No- the ELN’s operations are the five members of its legacy will be whether Guatemala’s Ibel peace prize forhispeace deal with the of its central command, which has been own justice system has developed enough FARC guerrillas. The group handed over its difficult to penetrate. Colombian authori- to prosecute corruption successfully itself. arms and entered democratic politics, and ties are not believed to know the where- In theory, local authoritiesmightsimply be Colombia’s former president was credited abouts of Jaime Galvis (known as “Ariel”), ready forthe challenge at last. with ending 50 years ofarmed conflict. who masterminds the ELN’s attacks in ma- However, Mr Morales’s other policies Such triumphalism was both justified jorcities, such asa bomb thatkilled five po- suggest he hopes to kneecap the judiciary, and premature. Although the FARC were licemen in the coastal city of Barranquilla not empower it. Since March several se- Colombia’s largest guerrilla force, they earlier this year. And the ELN’s strong en- nior police officers have been removed were not the only one. And now that the cryption system has prevented the army from their posts without obvious cause, as FARC have demobilised, the National Lib- from extracting information from seized have 25 local police chiefs and 100 officers. eration Army (ELN), a still-formidable left- computers, as it did with the FARC. Many of their successors have ties to the ist insurgency, has stepped into the breach. As unappealing as Mr Duque’s military army, where the “parallel state” began. The yearafterthe treaty with the FARC was options are, a negotiated peace might be The legislature seems to be on board. finalised, the ELN more than doubled its at- even harder to achieve than a forced sur-1 Financial Era Advisory Group 44 The Americas The Economist September 15th 2018

2 render. Nobody knows if or when the ELN universities. It is now thought to have at with Venezuelan army officers have in- will free its remaining hostages, some of least as many unarmed members as fight- creased the ELN’s importance for Mr Ma- whom were kidnapped long ago and ers, and says it will not give up their identi- duro, says Kyle Johnson ofthe Internation- could be dead. Even iftheyare released, Mr ties in any peace process. al Crisis Group, an NGO. The Venezuelan Duque has more red lines: he says he will Like the FARC before it, the ELN also dictator reportedly believes he may need only discuss disarmament, demobilisa- benefits from an external sponsor in the the guerrilla group to fight forhis survival. tion and reintegration, and refuses to con- left-wing dictatorship led by Nicolás Ma- No one knows how much influence Mr sider political demands. duro in neighbouring Venezuela. Its com- Maduro exerts over the ELN. But if the That is unacceptable to the ELN. Its lead- manders are thought to have planned at- group is in fact becoming his cat’s paw in ersare farmore ideological than the FARC’s tacks in their home country for decades Colombia, it is unlikely to strike a peace were, and have never engaged seriously in from the safety of training camps just deal while he remains in power. Most Co- peace talks. It has already de-emphasised across the border, and have established lombians who voted for Mr Duque want- armed struggle in favour ofplanting covert new drug-trafficking routes to export co- ed a harder line against domestic guerrilla operativesin political parties, local govern- caine through Venezuela. Recent reports of groups. They may not have been expecting ments, progressive social movements and American officials discussing coup plans a proxy war as part ofthe bargain. 7 Bello Who will rid us of this irksome regime?

The desire that dare not speakits name outside Venezuela EPTEMBER 11th is best known for al- which Mr Maduro re-elected himself. But can help. According to the New York SQaeda’s attack on the World Trade they argue that yanqui threats merely Times, a United States government offi- Centre and the Pentagon in 2001. But in strengthen him. They trust in diplomatic cial met three times in the past year with a Latin America the date is remembered for pressure and opposition within the coun- group of army officers who planned such another act ofvillainy. On that day in 1973 try to restore democracy. a power-grab. But in the end the Trump General Augusto Pinochet staged a mili- The problem is that Venezuela is no lon- administration denied them support. tary coup against the chaotic Socialist ger just a danger to itself. It is a pressing re- Although a one-off meeting to seek in- government ofSalvador Allende in Chile. gional issue. Since 2016 over 2.3m Venezue- formation is not unusual, the purpose of This ushered in a 17-year dictatorship lans have fled, mainly to neighbouring the subsequent dealings is not clear, says that murdered 3,000 people and tortured countries, “due largely to lack of food... Frank Mora, who served under Mr many more. The coup was hatched in medicines and health care, insecurity and Obama. Marco Rubio, a Republican sena- Chile. Butitwasbacked byRichard Nixon, political persecution”, as Michelle Bache- tor, said recently that there was a case for who had earlier ordered the CIA to “make let, a former Chilean president and now military action to topple Mr Maduro. the economy scream”. It was one of the the UN High Commissioner for Human Such hawks should be careful what they more notorious ofmany interventions by Rights, put it this week. On the whole, wish for, warns Mr Mora. Venezuela’s top the United States in Latin America, start- South American countries have received brass have much to lose, not least their co- ing with a war against Mexico in 1846, in- the migrants with great generosity. But caine business. There is no guarantee that cluding other coups during the Cold War their arrival inevitably puts pressure on a coup would lead to a swift and blood- and culminating in the invasion of Pana- public services that are already strained, less restoration ofdemocracy. ma in 1989 to topple Manuel Noriega, a and arouses fears of competition for jobs. Were this indeed to happen, many in former American intelligence asset Meanwhile, Venezuela has become a base Latin America would doubtless breathe a turned ally ofdrug traffickers. for organised crime and drug smuggling. quiet sigh of relief. But no government Intervention was farfrom continuous. How can this nightmare end? In the wants its fingerprints on a putsch. Many Presidents such as Franklin Roosevelt and past Venezuela’s combination of hyperin- prominent Latin Americans still insist John Kennedy sought partnerships south flation, economiccollapse and an unpopu- that the Venezuelan regime will collapse of the Rio Grande (as did Barack Obama lar and now illegitimate government of its own accord. “A foreign intervention and George W. Bush), and support for would have prompted a pronunciamiento is never justified [unless] there was a mas- democratic government has under- (bloodless coup), with or without Ameri- sacre or genocide,” says Ottón Solís, an pinned the United States’ policy towards adviser to Costa Rica’s government. This Latin America since the end of the cold is a widely shared view. war. But in the region this legacy forged But the regime’s demise is far from in- enduring and widespread resentment. It evitable. Mr Maduro is driving opponents has made non-intervention in the affairs out. Tellingly, the coup-plotters asked ofother states Latin governments’ default their American contact for encrypted ra- diplomatic position, attenuated only tim- dios. Protected by Cuban counter-intelli- idly by the adoption of the defence of hu- gence agents, Venezuela’s government man rights and democracy in the Inter- pounces on dissent. Scores of would-be American Democratic Charter of2001. military mutineers have been arrested. This history explains why the region Latin America has good reason to re- expressed alarm when Donald Trump ject American military intervention in mused a year ago about military action to Venezuela. But it faces a stark choice. Ei- overthrow the dictatorial government of ther it mobilises global support to force Nicolás Maduro in Venezuela. The main serious talks in which Mr Maduro agrees Latin American governments refused to to go, or it will have to live with the conse- recognise a fraudulent election in May in quences ofhis country’s implosion. https://t.me/finera The Economist September 15th 2018 ESSAY LIBERALISM 45

The Economist at 175

Reinventing liberalism for the 21st century

ACKNOWLEDGMENTS NSEPTEMBER1843 JamesWilson, a hatmakerfrom Scotland, founded thisnewspaper. Hispurpose was simple: to champion free trade, free markets and limited government. They were the central principles This essay has benefited from the I insights and assistance of a great ofa new political philosophy to which Wilson adhered and to which The Economist has been committed many people. In particular, ever since. That cause was liberalism. Alexander Zevin of City University Today liberalism is a broad faith—farbroaderthan it was to Wilson. It has economic, political and mor- of New York, author of a forth- al components on which different proponents put different weights. With this breadth comes confusion. coming independent history of this newspaper (“The World Many Americans associate the term with a left-wing belief in big government; in France it is seen as akin According to The Economist”, to be to free-market fundamentalism. But whatever version you choose, liberalism is under attack. published by Verso Books), was an The attackis in response to the ascendancy ofpeople identified by their detractors, not unreasonably, outstanding guide to our history. as a liberal elite. The globalisation ofworld trade; historically high levels ofmigration; and a liberal world A bibliography and suggestions order premised on America’s willingness to project hard power: they are all things that the elite has for further reading can be found sought to bring about and sustain. They are things the elite has done well out of, congratulating itself all online at economist.com/liberalism175 the while on its adaptability and openness to change. Sometimes it has merely benefited more visibly than a broad swathe oflesser souls; sometimes it has done so at their expense. Populist politicians and movements have won victories by defining themselves in opposition to that elite: Donald Trump over Hillary Clinton; Nigel Farage over David Cameron; the Five Star Movement over the Brussels bureaucracy; Viktor Orban over George Soros, who was not actually running in the Hungarian elections last April but personifies that which Mr Orban despises, and is Jewish to boot. The populists deride the leadersofthe pastasobsessed with bossypolitical correctnessand outoftouch with what matters to ordinary people; they promise their voters the chance to “take backcontrol”. Meanwhile rising powers—as well as Russia, which though in decline is still dangerous—seek to challenge, or at least amend, the liberal world order. And in the near future the biggest economy in the world will be China, a1 Financial Era Advisory Group 46 ESSAY LIBERALISM The Economist September 15th 2018

2 one-party dictatorship. In all these ways the once-barely-ques- liberal and his forefathers is the place tioned link between economic progress and liberal democracy is that he finds for the organising pow- being severely put to the test. The Economist marks its 175th anni- ers of the state.” Followers of Frie- versary championing a creed on the defensive. drich Hayek thought those organis- So be it. Liberalism has succeeded by serially reinventing itself ing powers always overreached in while staying true to what Edmund Fawcett, a formerjournalist at dangerous ways; hence the emer- this newspaper, identifies in his excellent history of the subject as gence of a “neoliberalism” interested four key elements. The first is that society is a place of conflict and in radically curtailing the state. that it will and should remain so; in the right political environ- The Economist has, at times, em- ment, this conflict produces competition and fruitful argument. braced elements of both, driven by The second is that society is thus dynamic; it can get better, and lib- pragmatism and a sense of the pre- erals should workto bring such improvement about. The third is a sent’s shortcomings as much or more distrust of power, particularly concentrated power. The fourth is Many liberals than by ideology. When we sup- an insistence, in the face ofall power, on equal civic respect for the have become ported graduated income taxes in the individual and thus the importance of personal, political and early 20th century, a position Wilson property rights. conservative would have scorned, it was in part Unlike Marxists, liberals do not see progress in terms of some because those taxes, a Liberal policy, Utopian telos: their respect for individuals, with their inevitable were more to our liking than the pro- conflicts, forbids it. But unlike conservatives, whose emphasis is tectionist tariffs the Conservatives on stability and tradition, they strive for progress, both in material were touting. After the Depression and the second world war we terms and in terms ofcharacterand ethics. Thus liberals have typi- hewed to Keynesian views that both allowed for significant state cally been reformers, agitating for social change. Today liberalism involvement in the economy and saw value in liberal nations needs to escape its identification with elites and the status quo working together to create a world in which their values could and rekindle that reforming spirit. thrive. When we rebelled against the subsequent state overreach to champion the deregulation and privatisation that Margaret Epic stale males Thatcherand Ronald Reagan would laterbringin, we were moved The specific liberal philosophy Wilson sought to promulgate was as much by the failures ofthe status quo as by libertarian zeal. born amid the tumult of industrialisation and in the wake of the The Economist of recent years has been a supporter of stable French and American revolutions. It drew from the intellectual in- prices and fiscal responsibility at home, of open trade and invest- heritance of Enlightenment thinkers such as John Locke and ment internationally, and ofthe market-friendly cocktail ofpolicy Adam Smith. That tradition was further shaped by a series of Vic- prescriptions dubbed the “Washington consensus”. Amid today’s torian intellectuals, most notable among them John Stuart Mill, distrust of liberalism—and liberal self-doubt—it is worth remem- which included this newspaper’s second editor, Walter Bagehot. beringjust how fruitful those positionshave been. The core liberal There were at the time liberal movements and thinkers causes of individual freedom, free trade and free markets have throughout continental Europe as well as the Americas. The first been the most powerful engine for creating prosperity in all his- politicians to claim the name, Spain’s liberales, did so in a short- tory. Liberalism’s respect fordiverse opinions and ways of life has lived era ofparliamentary rule after1812. The creed was embraced whittled away much prejudice: against religious and ethnic mi- by many ofthe 19th century’s newly independent Latin American norities, againstthe proposition that girlsand boysshould have an countries. But the movement’s centre was Britain, the world’s pre- equal opportunity to attend school, against same-sex sex, against dominant economic and political power. single parents. The post-war liberal world order has contained That liberalism was not today’s. Take foreign affairs. Victorian conflict better than any previous system of alliances. Liberalism’s liberalswere often pacifistswho welcomed the tiesoftrade butes- principles, pragmatism and adaptability have generated policies chewed military alliances. Later, a tradition of “liberal imperial- that solve practical problems while advancing its core tenets. ism” justified colonialism on the basis that it brought progress—in There is, in short, much to be proud of. Butthe liberal ascendan- the form of laws, property rights and so forth—to peoples that cy that came with the end of the cold war has been troubled. The lacked them. Few make either argument today. The Economist was misguided invasion of Iraq (which this newspaper supported at sceptical of imperialism, arguing in 1862 that colonies “would be the time), and other failed interventions in the Middle East have just as valuable to us...ifthey were independent”. But “uncivilised exposed the hubris and difficulty of military action in the pursuit races” were owed “guidance, guardianship and teaching”. of universal values. The global financial crisis laid bare the dan- Liberalism was not born with the umbilical linkto political de- gers of under-regulated finance. Liberal economists paid too little mocracy that it now enjoys. Liberals were white men who consid- attention to the people and places harmed by trade and automa- ered themselves superior to the run of humanity in both those tion. The liberal world order failed to confront the epic challenge particulars; though Bagehot, like Mill, supported votes for wom- ofclimate change or to adapt its institutions to the growing impor- en, for most of its early years this newspaper did not. And both tance of emerging economies. Liberal thinkers paid too little heed Mill and Bagehot feared that extending the franchise to all men re- to those things people value beyond self-determination and eco- gardless ofproperty would lead to “the tyranny ofthe majority”. nomic betterment, such as their religious and ethnic identities. Or consider the relationship between the state and the market. These failures mean thatliberalism needsanotherreinvention. Liberals like Wilson had a near-religious faith in free enterprise Those in favour of open markets and societies need to see off the and saw scant role for the state. Early Economist editorials inveigh threatposed bythose who value neither. Theyalso need to do a lot against paying for state education through general taxation and more to honourtheirpromise ofprogressforall. Thatmeans being greater public spending on relief efforts during the Irish famine. willing to apply their principles afresh to the existing and emerg- But in the early 20th century many European liberals, and their ing problems ofthe ever-changing, ever-conflicted world. progressive cousins in America, changed tack, seeing progressive It is a tall order. And it is made taller by the fact that this has, in- taxation and basic social-welfare systems as necessary interven- deed, been a period of liberal ascendancy. Liberals like Wilson tions to limit the market’s failures. saw themselves, by and large, in opposition to entrenched elites. This led to schism. Liberal followers of John Maynard Keynes Today that is hard for liberals to do with a straight face. They have embraced a state role in boosting demand to fight recession and been the shapers ofthe globalised world. Ifit is a smallish number providing social insurance. As this newspaper noted on its cente- of the rich, and a large number of the very poor, who have done nary in 1943, “The greatest difference...between the 20th century best out of that ascendancy, rather than liberals per se, liberals1 https://t.me/finera The Economist September 15th 2018 ESSAY LIBERALISM 47

2 have still done pretty well; it is not too wide of the mark to carica- from their cake—bad though such barriers were, and strongly ture their views on migration as more influenced by the ease of though they were resented. They were barriers that held them employing a cleaner than by a fear of losing out. The wars, finan- back, and which setpeople againsteach other. Tearingthem down cial crisis, techified economy, migrant flows and chronic insecuri- would not just increase the wealth ofall. It would bring to an end, ty that have unsettled so many all happened on their watch, and James Wilson believed, the “jealousies, animosities and heart- in part because of policies they promoted. This undermines their burnings between individuals and classes...and...between this credibility as agents ofchange. country and all others.” Worse, it can also, shamefully, undermine their willingness to The age of global trade ushered in by the free trade that fol- be such agents. Many liberals have, in truth, become conservative, lowed the repeal created a remarkable amount of wealth. Given fearful ofadvocatingbold reform lestitupseta system from which that it ended in the first world war, though, its record on reducing they do better than most. animosity was, at best, mixed. The next great age of global trade, They must overcome that fear—or, ifthey cannot, they must be which began after the second world war and grew into fullness attacked by true liberals who have managed to do so. As Milton with the end of the cold war, did even better, bringing with it the Friedman once put it, “The 19th-century liberal was a radical, both greatest reduction in poverty ever. Unfortunately there is still sig- in the etymological sense of going to the root of the matter, and in nificant cause for jealousy, animosity and heartburning among the political sense of favouring major changes in social institu- those who live in places that lost out—enough of it that, amplified tions. So too must be his modern heir.” On the occasion of our by unscrupulous leaders with protectionist politics, it is putting 175th birthday, we offersome ideas to meet Friedman’s challenge. the remarkable gains ofpast decades at risk. The modern era of multilateral trade negotiation was ushered in by the General Agreement on Tariffs and Trade (GATT) in 1947. It was based on the insight that unilateral tariff reductions, such as II the repeal of the Corn Laws, are unstable. The concentrated dis- pleasure of producers exposed to foreign competition is more Free markets and more powerful than the diffuse gratitude ofthe mass ofconsumers, and so tariffsget reimposed. Ifreductions are taken in concert with for- ESUS CHRIST is free trade and free trade is Jesus Christ.” Even eign powers, some producers gain new foreign markets, thus be- “Jby the standards of the1840s, Sir John Bowring, a British poli- coming supporters, and the international nature of the obliga- tician, made bold claims for the rock on which The Economist tions makes backsliding harder. was founded. But his zeal was ofthe times. In 1995 the GATT became the WTO, and almost every country The case for getting rid of British tariffs on imported grain was on Earth now belongs to it. Tariffs are cut by negotiation and not a dry argument about economic efficiency. It was a mass agreed rates applied to all trade partners; a dispute-settlement sys- movement, one in which well-to-do liberal thinkers and progres- tem authorises retaliation against miscreants. There are still high sive businessmen fought alongside the poor against the land- levies on some goods, and many emerging economies, such as owners who, by supporting tariffson imports, kept up the price of Egypt’s or India’s, would benefit a lot iftariffswere cut further. But grain. As EbenezerElliott, a radical and factory owner, put it in one tariffson goodsare in general no longera bigbarrier to global com- ofthe poems that led him to be known as the “Corn Law rhymer”: merce. The best estimate is that getting rid of those which remain would add only about1% to global GDP. Give, give, they cry–and take! Freeing trade in services, such as those oflawyers, architects or For wilful men are they Who tax’d our cake, and tookour cake, airlines, would yield gains six times larger, maybe more. But the Tothrow our cake away. WTO, for which nothing is settled until everything is settled, has spent decades failing to reach big deals on services. Nor has it suc- When liberals set up the Anti-Corn Law League to organise prot- ceeded in stopping China, which joined in 2001, from flouting the ests, petitions and public lectures they did so in the spirit of the spirit, if not always the letter, of its rules by shaking down foreign Anti-Slavery League, and in the same noble name: freedom. The investors fortechnologies it fanciesand giving under-the-table as- barriers the league sought to remove did not merely keep people sistance to its own industries. 1

175 not out UN replaces League of Nations World Bank and IMF NATO North Atlantic Treaty Organisation James Wilson founds The Economist Trans-national League of Nations to serve as a voice against organisations ECSC EEC European Union Britain’s Corn Laws European Coal and Steel Community European Economic Community Failureof Walter Bagehot becomes GATT General Agreement on Tariffs and Trade WTO replaces GATT the Irish editor of The Economist Trade treaties potato Henry George publishes ASEAN NAFTA c op r “Progress and Poverty” Association of Southeast Asian Nations North American Free Trade Agreement Corn Laws 15 Collapse of the repealed David Lloyd George United States John Maynard Keynes publishes puts forward the Immigration Act “The General TheoryofEmployment, Soviet Union “People’s Budget” Interest and Money” 12 to British parliament The fall of the Berlin Wall 9 Britain’s Aliens Bill Friedrich Hayek publishes “The Road to Serfdom” China joinsWTO 6 World GDP per person 2011$,’000 3

0 1843 50 60 70 80 90 1900 10 20 30 40 50 60 70 80 90 2000 10 18 Arab Spring American civil war WWI Stockmarket WWII Korean Vietnam Black Dotcom Great Sou rces: Maddison Project Database, by Jutta Bolt, Robert Inklaar, crash, start of war war Monday bubble Recession Herman deJongand Jan Luiten van Zanden, 2018; The Economist the Depression Invasion of Iraq Financial Era Advisory Group 48 ESSAY LIBERALISM The Economist September 15th 2018

2 The trade system would benefit hugely from a grand agree- ment forged between America, China and Europe that put multi- lateral trade on terms appropriate for the 21st-century economy, and for a world in which the biggest trader is not a free market. Terms attractive enough that the rest of the world could be brought into them would both require and allow substantial re- form ofthe WTO. Multilateral agreements in which groups oflike- minded countries forge ahead should lead the way. Working to- wards such a goal should be at the forefront oftrade policy. Alas, the more urgent necessity is to ensure the survival of the current system which, having been undermined by China, is now under determined attack by America, once its greatest support. Fighting to forestall losses is not as inspiring as fighting for new progress. But it is yet more vital; backsliding is a threat to the liveli- hoods ofhundreds ofmillions ofpeople.

By George he had it Defendingthe existingtrade system is thus a paramount goal. And the gains it may yet offer, in services and elsewhere, are substan- tial. But no one could claim that free trade has the capacity to stir the spirit today in the way that the fight against the Corn Laws did, nor that it offers as much scope for progress in an already global- ised world as in the mercantilist 19th century. Modern liberals must look for new reforms where dismantling barriers and in- creasingfreedom will once again produce transformative gainsfor individuals and society. They are spoilt for choice: there is much to do, from rewriting campaign-finance laws that give lobbyists disproportionate pow- er in politics to removing the implicit subsidies still enjoyed in parts ofthe financial system. In both those cases, and many more, concentrations of power allow the rigged markets and rent-seek- values are heavily taxed, NIMBYism will not be such a profitable ing that liberals abhor. But the cause of free trade was powerful in strategy. The problem is getting those owners to give up the wind- its simplicity, and in that respect two new targets stand out. fall and submitto a land tax in the first place. One is the market in urban land; the other, the anti-competitive The concentration ofcorporate power is a trickier problem. Re- economicsofthe modern economy, and particularlyofthe digital- turns to scale and strong network effects—the more users you technology businesses that increasingly dominate it. In both cases have, the more you have to offer the next user—have encouraged monopoly power distorts markets in ways that are economically concentration in various industries built around digital technol- significant, politically potent and ethically unjustifiable. ogy, and this encouragement has gone largely unchecked. One or Start with land. Most 21st-century productivity growth and two giant firms dominate each segment: Google in search, Face- wealth creation will take place in highly productive cities. The book in social on one side of the Great Firewall, Alibaba and Ten- world’s50 largestconurbationshouse 7% ofthe population but ac- cent on the other. In addition, by collecting ever more data on ever count for 40% of gross product. The productivity gap between more users’ habits, and armed with ever better algorithms, the in- such cities and poorer places has widened by 60%, on average, in cumbents can tweaktheir products to make them yet more attrac- the past two decades, according to the OECD, and is still growing. tive in various ways. Property prices in leading cities have soared. In Paris, Hong Kong, This risks reinforcing, perhaps supercharging, a wider trend for New York and London the median household spends on average industries to be dominated by a few companies. In 2016 research 41% ofits income on rent, as opposed to 28% 30 years ago. by this newspaper showed that two-thirds of America’s 900 in- This is a huge windfall gain for a relatively small number of dustrial sectors had become more concentrated from 1997 to 2012. property owners. It reduces the chances of prosperity for a much In 2018, in a similaranalysisforBritain, we found the same trend. It largernumberwho are prevented from movingto high-productiv- may help explain both higher profits and the squeeze on labour ity cities offering better wages, and in doing so holds back the that has seen the wages ofthe less-skilled lowered. economy. One study suggests America’s GDP would be 9% higher Ifthere is an economic problem in need ofradical new intellec- if the less restrictive zoning laws of the median American city tual approaches, this is it. The existing antitrust framework, were to be applied to the priciest, fanciest ones. created in the progressive era and refined in the 1980s, cannot deal The best solution to this is not new: it was well known, and with the nature of market concentration in the 21st century. The pursued by liberals, in the 19th century. Taxlandowners according pace of mergers has risen. Large asset managers hold sizeable to the underlying market value of the land that they own. Such a stakes in today’s bigincumbent firms, and may encourage them to tax would capture forsociety part ofthe windfall that accrues to a hoard profits and adopt safety-first strategies. Tech-platform firms landowner when his local area thrives. Land taxes capable of re- enjoy networkeffects and are continually bundling more services placing all existing property taxes (which are raised on the value together. The spread of artificial intelligence will give even more of what sits on the land, rather than just the land itself) and then power to firms with access to lots ofdata. some would greatlysharpen the incentive to develop. Because the Part of the answer is a tougher attitude to policing deals and to amount of land is fixed, a land tax, unlike most other taxes, does ensuring that new firms are not unfairly squashed. But when it not distort supply. At the same time, ease planningrestrictions. It is comes to tech, something fresher and rooted in individual action no good raising the incentive to develop if regulation then stands and competitive markets would be best. One approach is to con- in the way. But development rights have been so far collectivised sider the data that users generate as a good they own or a service in many cities as to come close to undermining the very notion of they provide forfees. property. The curtailment of development rights enriches even As with land taxes, there will be intense resistance to newly ownersofvacantplots; ifthe windfall gainsfrom soaring property vigorous antitrust and competition law, or changes in the power1 https://t.me/finera The Economist September 15th 2018 ESSAY LIBERALISM 49

2 structures building up around data, however popular they may ago. Indeed, in America the appetite for more immigration has be. Henry George’s call for a land tax, “Poverty or Progress”, sold grown even as the immigrants have arrived. In 1965 only 7% more copies in America in the 1890s than any other book save the thought the country needed more immigrants; 28% do today. But Bible. But the immense political power oflandowners saw offthe any liberals feeling complacent are clearly not paying attention. threat, there and elsewhere. David Lloyd George, a Liberal chan- Anger over immigration has fuelled the rise of illiberal regimes in cellor of the exchequer, put forward a land tax (with this newspa- central Europe; it is the main reason why right-wing populist par- per’s support) in his1909 “People’s Budget”. It did not pass. ties are now in power in six of the European Union’s 28 countries; Still, more affordable housing, more choice, lower prices and it explains much ofthe popularity ofBrexit, and ofDonald Trump. betterjobsremain causesthatpeople can getbehind. And the abil- Concerns are growing in emerging economies, too—from Latin ityofpopularmovementsto growasneverbefore with the help of America, where the exodus of Venezuelans is roiling the region’s both social and mass media is one of the striking aspects of the politics, to Bangladesh, which is struggling with the arrival of modern age. This has allowed dissatisfaction with today’s liberal 750,000 Rohingya fleeing genocide in Myanmar. elite to mushroom; it might allow a liberalism of new reforms, There are four reasons to expect the issue to get yet more divi- new ideas and new alliances to do so, too. sive. First, migrant flows are likely to rise. People in the global This makes keeping the digital sector open and competitive all south are still poor compared with those in the north; modern the more vital. Barriers to wealth-creation there are bad enough. communications make them very aware of this; modern tran- Dominant companies which might limit, or skew, free expression, sport networks mean that, poor as they are, many can afford to try open deliberation and self-determination—encouraging “jealou- to live the life they see from afar. According to Gallup, 14% of the sies and animosities” in the realm ofideas—are worse. world’s adults would like to migrate permanently to another country,and most of those would-be migrants would like to go to western Europe orthe United States. Overthe comingdecades the consequences of climate change are likely to force large numbers III of people, particularly in sub-Saharan Africa and south Asia, to move, and though most will probably not move all that far, some Immigration in open societies will try to go all the way. Some will be welcome; ageing popula- tions in developed countries will need more working-age people HE bill in frontofthe House wasa wretched thing, as the oppo- to lookafter them and pay tax. It is very unlikely that all will. Tsition politician explained. It would “appeal to insular preju- Second, the world lacks good systems formanaging migration. dice against foreigners, to racial prejudice against Jews, and to La- The1951UN Convention on Refugees set up a liberal and eventual- bour prejudice against competition”. But he could see why the ly near-universal regime for people fleeing oppression and other majority party might like it. It would “no doubt supply a variety of state malfeasance. It is ambitious and (theoretically) generous. rhetorical phrases forthe approaching election.” There are no other mechanisms that give people general rights to Substitute the word “Mexicans” for “Jews”, and this might seek their fortunes abroad. The result is that refugees’ treatment have been a Democrat on the floor of the House of Representa- frequently falls far short of the legal rights to which they are enti- tives denouncing this year’s Securing America’s Future Act, a tled. Meanwhile low-skilled people without family members in hardline Republican immigration bill. In fact they are the words of rich countries with whom they might seek to be reunited have no Winston Churchill, in 1904, speaking from the Liberal benches in way in. So some seekrefugee status on dubious grounds. opposition to the Aliens Bill that the Conservatives had brought before the House of Commons. The bill was the first attempt to The wrong kind of liberalism legislate a limit to migration into Britain. Third, the modern welfare state complicates the issues around mi- Immigration was as politically potent in the early 20th century gration in a waythatitdid nota centuryago. Illegal immigrantsare asitisin the early21st. Previousdecadeshad seen a surge ofpeople not entitled to such benefits. But refugees often qualify, as do the on the move across Europe. Millions had moved farther, heading children of people who have arrived illegally. The absolute level across the Atlantic to America: hundreds ofthousands of Chinese ofspending may be small; the perception of inequity,though, can crossed the Pacific to the same desti- be beyond all proportion to the cost. People resent paying taxes to nation. Xenophobic backlashes fol- fund benefits that they perceive as going to outsiders. lowed. Congress passed a law pro- Open borders Fourth, liberal attitudes to immigration have changed. Liberal- hibiting Chinese migrants in 1882. By are rarely if ism came of age in a Europe of nation states steeped in barely the time of the Immigration Act of questioned racism. Nineteenth-century liberals were quite capa- 1924 it had, in effect, banned non- ever politically ble ofbelievingthatnationshad no dutiestowardspeople beyond white immigration. It also curtailed feasible their borders. The Economist, although it did not support the the rights of non-whites already Aliens Bill in 1904, made clear that it did “not want to see the al- there in the same ways as it did the ready overgrown population swollen by ‘undesirable aliens’”. rights of its black population, with Much modern liberalism has a more universalist view, along laws against miscegenation and the the lines ofthat enshrined in the Universal Declaration ofHuman like. The flow of migrants across Europe produced a similar reac- Rights. To some, this means that no controls on immigration are tion. In “The Crisis of Liberalism” (1902) Célestin Bouglé, a French justified: that a person born in Mali has the same right to choose sociologist, marvelled at how a modern society could spawn big- where to live as one born in Germany. Totally open borders are otry and nativism. When Churchill mocked the idea ofa “swarm- rarely if ever politically feasible. But increased migration tends to inginvasion” in1904, Britain was the only European country with- be seen asgood in itselfbytoday’sliberals. Itremovesbarriers that out immigration curbs; the following year it brought in its first. keep people from the lives they want, it produces more diverse Today some 13% of Americans are foreign-born; that propor- societies and it offers economic betterment to all. People who tion is approximately what it was in1900, but much higher than it move to places where they can be more productive realise almost was in the intervening years. In 1965 it was just 5%: older Ameri- instant gains; higher shares of immigrants are correlated with cans grew up in a pretty homogeneous society that was hardly a higher rates of entrepreneurship and dynamism. Economists esti- nation of immigrants. In many European countries the foreign- mate that, were the world able to accommodate the wishes of all born share ofthe population has surged. In Sweden it is19%,twice those who wanted to migrate, global GDP would double. what it was a generation ago; in Germany,11%; in Italy,8.5%. A positive attitude to immigration pits liberals against many of The reactions have not been as harsh as they were a century their fellow citizens—forall liberals, despite what anyone may say,1 Financial Era Advisory Group 50 ESSAY LIBERALISM The Economist September 15th 2018

2 are citizens of somewhere—more than any of their other beliefs would include a broaderdefinition ofrefugee statuswhile encour- do. The conflict is made worse by the fact that today’s left, includ- aging people who claim that status to stay closer to their former ing many identified in America as liberals, has moved sharply to- homes. For this to work the refugees need to be integrated into lo- wards an emphasis on group identity, whether based on race, gen- cal labour markets; investment needed to further that end should derorsexual preference, overcivic identity. This leaves them leery come from richer countries. At the same time, new avenues need ofimposing cultural norms, let alone a sense ofpatriotism. to be found to give people who do not qualify as refugees some The 19th-century assumption that immigrants would assimi- real hope ofa legitimate route to wherever they want to go. late and learn their new country’s language seems, to such sensi- Then there is the question of distributing the benefits. Today bilities, oppressive. Several American universities have declared most of the financial gains from migration accrue to the migrants the phrase “America is a melting pot” to be a “microaggression” (a themselves. Lant Pritchett of Harvard University reckons the an- term in pervasive use and taken by the majority to be innocuous nual income of the average low-skilled migrant to the United but which communicates a hostile message to minorities). It is States increases by between $15,000 and $20,000. How could hard, given such views, for left-liberals to articulate a position on some of those gains be shared with the hosts? The late Gary immigration much more sophisticated than opposition to what- Becker, an economist from the University of Chicago, argued for everrestrictionson itcurrentlyseem mostegregious. The more op- auctioningmigrant visas, with the proceeds goingto the host state. position you show, the better your credentials. In their book “Radical Markets” Eric Posner and Glen Weyl argue that individual citizens should be able to sponsor a migrant, tak- Trust, but E-verify ing a cut of their earnings in exchange for responsibility for their This is not a way to win. Liberals need to temper the most ambi- actions. There is a bevy of less extreme reform ideas, such as “in- tious demands for immigration while finding ways to increase clusion funds” paid for by a modest tax on the migrants them- popular support formore moderate flows. They have to recognise selves, which would spend their money in the places where mi- that others place greater weight on ethnic and cultural homogene- grants make up a disproportionate share ofthe population. ity than they do, and that this source of conflict cannot be wished As well as taking a little more from immigrants, there will be away. They must also find ways for the arrival of new migrants to circumstances when the state should give them a little less. Sys- offertangible benefits to the people worried about their advent. tems that offermigrants no path to citizenship, such as those ofthe People often dislike immigration because it exacerbates a Gulfstates, are hard forliberals to stomach, and that is as it should sense that they have lost control over their lives—a sense that has be. But that does not mean all distinctions between migrants and grown stronger as globalisation has failed to spread its prosperity established citizens should cease the moment they leave the air- as fully as it should have. Removing other barriers that get in the port. In America entitlement to retirement benefits kicks in only way of self-determination for people already living in their coun- afterten years ofcontributions; in France, we hear, no one gets free tries is thus both a good in itself and a way to lessen antipathy to baguettes until they can quote Racine. This is all entirely reason- migration. But restoring a sense of control also means migration able, and not illiberal. All who have arrived legally, or have had no has to be governed by clear laws that are enforced fairly but firmly. choice in the matter, should have access to education and health Warythough liberals rightly are of state snooping, technology care. Other benefits may fora time be diluted or deferred. can help with this in various ways. Fully 75% of Americans sup- Liberal idealists may object to some or all of this. But if history port E-verify, a system that allows employers to check a worker’s is a guide, the backlashes that often follow periods of fast migra- immigration status online. If the system is administered in a just, tion hurt would-be migrants, the migrants who have already ar- efficient way and with proper procedures for appeal, liberals rived and liberal ideals more generally. Liberals must not make the should feel happy to join them. perfectinto the enemyofthe good. In the longrun, pluralist societ- One aspect of setting clear rules is reforming the international ies will accept more pluralism. In the short run, liberals riskunder- system for refugees. In “Refuge” (2017) Alexander Betts and Paul mining the cause of free movement if they push beyond the Collier, two British academics, argue fora complete overhaul. This bounds of pragmatism. https://t.me/finera The Economist September 15th 2018 ESSAY LIBERALISM 51

forhelping people to adapt to changes in the world ofwork, much too little has been done. The greatly increased need for parental leave and for some forms of child care has been scarcely ad- IV dressed. Workers desperate fornew skills see public investment in The new social contract education overwhelmingly directed at the not-yet-employed. Meanwhile the interaction of tax policy and welfare system often TTO VONBISMARCK—no one’sidea ofa liberal—started Ger- makes jobs unreasonably unattractive. Nearly 40% of the jobless Omany down the road to a welfare state in the 19th century. in the OECD see a marginal tax rate of more than 80% when they Trade unionists across the world fought forthem in the 20th. Beni- start work. to Mussolini built a fascist one. And James Wilson would have The failure of welfare systems to cushion the huge changes hated the idea. But from Lloyd George’s People’s Budget of1909 to brought about largely by liberal policies—on destigmatising single FDR’s New Deal in the1930s to Ludwig Erhard’s soziale Marktwirt- parenthood as much as on trade—is one of the reasons people are schaft in post-war West Germany, there was a distinctive liberal a lot less likely than they once were to trust liberals offering to fix cast to the creation of modern welfare states. William Beveridge, things. But things must be fixed. According to the OECD, the ratio the architect ofthe post-war British welfare state, was a liberal and of working-age to retired people across rich countries is set to fall Liberal politician. (He was also a trustee ofThe Economist.) from 4:1 in 2015 to 2:1 in 2050. Add on higher health-care costs and Some liberals, as well as most conservatives, grudgingly ac- spending on the old will soar as the number of workers to sustain cepted these reforms as the lesser of two evils. By sharing the that spending plunges. If the failure to raise the retirement age sig- benefits of free enterprise more evenly welfare states could stave nificantly is expensive today, it will be ruinous tomorrow. And if offthe more radical, and damaging, redistributive promises offas- workers are not made more productive, even the less-than-ruin- cism and, for rather longer, socialism. But their creation was more ous expenses will be hard to pay. than just a way to maintain the conditions in which liberalism could flourish. At their best and most liberal, welfare states cush- UBI enchaîné ion people from the rougher edges ofcapitalism while still putting The erosive effects ofrobotisation and artificial intelligence on the a distinctive liberal stress on individual responsibility. They en- world of work are debatable and frequently exaggerated. But hance freedom, enable free enterprise and bring about a broader though optimists think clever and more dexterous machines will embrace of progress. Or at least that is what their liberal creators make most of their human colleagues more productive, rather believed—and what today’s liberals need to make sure of. than redundant, they hardly see a return to the 20th-century Giving governments responsibility for the education of the world of copious lifelong jobs. The coming decades will further young, pensions forthe old, financial support forthe indigent, dis- strain people’s ability to predict what skills they will need and abled and jobless, and health care forat least some, and occasion- how their careers will evolve. ally all, required massive reforms, the This means that a liberal rethinkofthe welfare state starts with details and ambition ofwhich varied education. Thanks to earlier liberal reformers, who sought univer- in different places. Since their cre- Welfare systems sal schooling in the19th century and welcomed greatly expanded ation, though, welfare states have and tax regimes universities in the 20th, today’s states make their educational in- changed rather little. Some countries vestments mostly in people from five or six to 20 or 21. This no lon- have added benefits. America, even have lagged ger makes much sense. Pre-school interventions, including many before Obamacare, was incremental- behind a not specifically aimed at the classroom, do a lot more for the life ly expanding the government’s role chances ofpoor children than spending on universities does. And in health. Others, especially in Eu- changing world people can need training and further education a long time after rope, have trimmed them: less gener- their years of university and apprenticeship. There is a case for a ous assistance for the unemployed, big change in priorities here. extra conditions for welfare. But Bev- New approaches should lay less stress on existing institutions eridge would recognise today’s NHS,andFDR would recognise and more on helping people take down the barriers that stand in America’s unemployment insurance. their way. The periodic “lifetime learning” credit that Singapore This is not because everyone is satisfied with the status quo. gives to all adults to pay fortrainingis one way forward, but things Conservatives contend that it dulls the edge of capitalism and the need to go further, perhaps with lifetime vocational education urge for self-betterment. Those on the left see it as a flimsy and taking the place ofa year or so’s support at university. patchy safety-net that needs expanding. Indeed, those counter- Then there is the challenge of curbing the continuous rise in vailing stances go a long way towards explaining why social pro- pension payments by focusing their benefits on the people who tection has changed remarkably little since the1970s. The problem need them most. Better educated, more skilled people are work- is that while welfare states have stood still, societies have not. And ingand livinglonger; the less affluent and skilled stop workearlier interventions originally intended to help people help themselves and tend to live less long. (In America they are seeing their life ex- have not always done so. pectancy fall.)Pension policy should reflect this. It makes no sense Farmore women take paid worknow than in the middle of the forrich workersto begin drawinga state pension in their 60s. They 20th century.Far more households are headed by a single parent. do not need the support and their long lives mean that the state Jobs are much less likely to last for life, to start at nine or to end at will end up paying out for years. There are people with better five. People are more likely to have more than one at a time. Some claims on that money. of them like this, especially when one is a passion that the other The greatest potential for reform, however, lies in consolidat- subsidises. Others resent working at unpredictable hours for little ingand reducingthe distortions in the mass ofothersocial-protec- money at the beck and call of more than one master. An OECD tion schemes—unemployment insurance, food stamps, welfare study suggests only 60% of the rich world’s workforce has stable and so forth. In the past few years the idea ofa “universal basic in- employment. Most important, in terms of expense, health care is come”(UBI)thatwouldbepaidtoall,withnostringsattached,has getting costlier and people are living much longer. generated a lot of debate, and significant support, both on the left The system has tried to cope, especially with the bits that most and the right. drain the public purse. But the coping has been neither sufficient Right-wing UBI supporters like it because an unconditional (increases in retirement age have not kept up with increases in life payment does not affect people’s incentives to work; an extra job, expectancy) nor popular (people, especially people likely to rely or an extra hour at work, does not reduce benefits. They also see it on state pensions, do not like having the retirement age raised). As as removing various distortions in today’s welfare states, slashing1 Financial Era Advisory Group 52 ESSAY LIBERALISM The Economist September 15th 2018

ing payroll and other employment taxes into the income-tax sys- A change is gonna come tem would ease the squeeze for low-skilled workers. Shrinking OECD countries, public spending and tax, % of GDP the gap between taxes on capital and taxes on labourwould coun- 1980=100 ter the skew towards capital; and if capital investment were writ- 150 Social spending ten offagainstcorporation tax, thiswould notneed to deterinvest- (incl. pensions) ment. Moderate inheritance taxes—a liberal invention, stemming 140 in part from a healthy distrust of the concentration of wealth and Pension 130 power—should be maintained or reinstated, not least because spending they are fairly efficient. Loopholes used to avoid them should be 120 tightened up. Property taxes should be reformed into land taxes. 110 Taxes on carbon and other negative externalities, though not a Tax revenues universal panacea for the problems ofclimate change, would be a 100 reform in the right direction, too. This adds up to an agenda for reform much bigger than the tax- 90 1980 85 90 95 2000 05 10 16 and-welfare tinkering seen over recent decades. In some ways Source: OECD these changes are likely to be politically harder than the reforms which built up the welfare state and the taxation systems which 2 bureaucracy and government snooping. Supporters on the left are support it in the first place. It is easier to build from scratch than to keen because they see UBIs as redistributive, egalitarian, welfare attempt to change a huge and complex edifice on which millions enhancing and liberating. Enthusiasm for UBIs has spawned pres- rely, which millions resent, and which all have opinions on. And sure groups, public campaigns and randomised trials. all this needs to happen in a world where the threat of socialism Many of the idea’s attributes appeal to liberals too. A UBI no longer scares conservatives into taking the liberal side. would reduce the state’s interference in people’s lives. But from But if liberal democracies are to continue to provide progress the liberal point ofview such gains must be set against two bigdis- for their citizens they need a new form of welfare. And if they are advantages, one a matterofprinciple, one ofpracticality. The prin- to afford that welfare reform, they need a tax system that is both ciple is that the 20th-century social contract from which the wel- more efficient and better fitted to encouraging what society wants fare state was born was that the state would help people help more ofand discouraging what does it harm. themselves, rather than just give them stuff: it should provide a Similar arguments apply to the other great innovation of the safety-net, not a platform scattered with silk divans. Liberals tend post-second-world-war world: the international liberal order. It is to believe that people will be happiest ifthey can achieve self-reli- necessary to preserve it; it is perhaps harder to preserve than to ance. And, in practical terms, UBIs would mean either eye-pop- build; and there is no longer a socialist, or indeed communist, bo- ping increases in tax or cuts in support for the genuinely needy, geyman that can serve to unite liberals with all others committed particularly in countries where welfare spending is already rela- to private property and economic well-being. Indeed, there is tively targeted on the poor. In America a UBI of $10,000 a year what some might see as a state-led post-communist siren instead. would require a tax take of at least 33% of GDP—less than the level It is to that challenge that we now turn. in many countries, but some $1.5trn more than the current 26%. Amore modest, but still radical, alternative is to replace today’s welfare schemes with an expanded commitment to guaranteeing minimum income through negative income taxes. First champi- V oned by Milton Friedman, such taxes mean that the state tops up the income of anyone earning less than a guaranteed minimum. A liberal world order to fight for Both Britain and America have tax credits to top up wages along these lines. ERE a single document to mark the high-point of liberal- Because they avoid transfers to the rich, such schemes are in- Wworld-order hubris, it would surely be “The End of His- herently cheaper than UBIs. A great deal could be achieved by si- tory?”, an essay written by Francis Fukuyama, an American aca- multaneously overhauling payroll taxes (the form of tax that has demic, in 1989. Mr Fukuyama’s question, posed a couple of the greatest impact on low-income earners) so that the path from months before the fall of the Berlin Wall, was whether the world receiving a top-up to paying taxes is much smoother, and perhaps was seeing the “universalisation of Western liberal democracy as by broadening the eligibility criteria forthe negative tax. There are the final form ofhuman government”. His answer was yes. various forms of currently unpaid labour, most notably in caring, How extraordinary that seems in 2018. China, the world’s most that some societies might wish to support in such a way. successful economy over the past 30 years and likely to be its larg- This, though, is only the beginning of the reform needed. Like est over the coming 30, is growing less liberal, not more, and its welfare systems, tax regimes have lagged behind a changing state-led, quasi-capitalist illiberalism is attracting admirers across world. Indeed, reform has often gone the wrong way. Over the the emerging world. In the Muslim world, and elsewhere, ties of past 40-odd years taxes on capital have fallen, as have income tax- sect and community, often reinforced by war and the fear of war, es on high earners. That made sense, considering the heights bind far tighter than those of liberal aspiration. On a measure of which the top rates of those taxes reached. The benefits that ac- democracy made by the Economist Intelligence Unit, our sister or- crue to society as a whole from investment and well-rewarded ganisation, more than half of the 167 countries surveyed in 2017 workrequired that taxes be reduced. were slipping backwards. The backsliders include America, At the same time wealth taxes, particularly on property and in- where the president seems to preferdictators to democrats. heritance, have been reduced or eliminated in many developed That is particularly worrying. America did more than any oth- countries. As a result the share of tax revenue from property has er nation to create and sustain the order Mr Fukuyama celebrated. stayed the same and that from capital has fallen, even as the value In the1940s it underwrote the Marshall plan and championed the of property and the share of national incomes going to capital creation of the IMF, the World Bank, the GATT and NATO.It have soared. Outside America, value-added taxes have been im- cheered on the first moves towards European unity. Its armed posed on consumption, producing a welcome increase in the tax forces contained liberalism’s greatest enemy,the Soviet Union. Its system’s efficiency but also making it more regressive. dollar underpinned the global economy. And because America In the 21st-century economy these shifts should be reversed. was founded on liberal values, this Pax Americana espoused lib- Labour, particularly low-skilled labour, should be taxed less. Fold- eral values, even ifit did not always live up to them. 1 https://t.me/finera The Economist September 15th 2018 ESSAY LIBERALISM 53

2 Mr Fukuyama thought the end of the cold war would let the it will always be easierand wiserforliberals to trust America to do liberal internationalistprojectmove beyond itsreliance on Ameri- the right thing in the end. can power. The prosperous examples of America, Europe, East Butifthere isno clearinternational order, justbig powersdoing Asia’s tiger economies and a Latin America abandoning military what they want, the world will get more of the same as Brazil, In- rule, along with a lack of alternatives, would bring the rest of the donesia, India, Nigeria and others increase in strength. Regional world on board. So it did, to some extent, fora while. But it was far powers rubbing up against each other unconstrained; nuclear from universal. And America has become an unhappy Atlas. weapons; the destabilising effects of climate change: it might all President Donald Trump’s rejection of the values underlying workout forthe best. But that is not the way to bet. NATO and the WTO has been remarkable, his spurning of Ameri- ca’s role in maintainingthem even more so. Yet his approach is not Getting a League of Nations right without precedent, orsupport. In 2002, the outrages ofSeptember Faced with this uncomfortable reality, 21st-century liberals must 11th 2001 still fresh in their minds and hearts, only 30% of Ameri- remember two lessons from the 20th. The failure of the League of cans agreed that “America should deal with its own problems and Nations between the world wars showed that liberal ideals are let other countries deal with theirs”. But long, painful wars in Af- worthless unless backed by the military power of determined na- ghanistan and Iraq have reinforced American scepticism about in- tion states. The defeat of communism showed the strength of terventions abroad that cannot be pulled off quickly and do not committed alliances. seem vital to the national interest. By 2016, the idea of America Liberals should thus ensure that the states which protect their dealing with its own problems and leaving the rest ofthe world to way of life are able to defend themselves decisively and, when deal with theirs appealed to 57%. Younger people are astonishing- necessary, to blunt the ambitions of others. America’s European ly insouciant about revanchist Russia and ascendant China. Only and Asian allies should spend both more, and more wisely, on one in two millennials think it is important for America to main- their arsenals and training their troops. Healthier existing alli- tain its military superiority. ances will ease the creation of new ones with countries that have It is possible that the next president could swingin the opposite reason to worry about China’s ambitions. direction, recognising the vital role its alliances play in American Militarycapabilitiesare crucial. Onlywith them firmly in hand security, seeking to reform rather than vilify international institu- can the most be made ofthe world’s many mechanisms for peace. tions like the WTO and reinvigorating international co-operation In the cold war, the West and the So- on climate change—a grave threat to the world order which has viet Union had few economic links. been farless doughtily faced than that ofcommunism. But it is un- The bigeconomies ofthe 21st century likely.So is any notion ofEurope and other democracies taking on are highly integrated. The gains to be the challenge. And even if either were to come about, China reaped from working together to re- would still represent a dauntingchallenge. Xi Jinping’s determina- pair, reform and sustain the rules- tion to centralise power and to hold on to it indefinitely is a large based trade and economic system part ofthat. But Mr Xi may represent a deeper shift: one made pos- are huge. sible by the addition ofdigital technology to the apparatus ofcen- In this spirit China’s ambitions to tralised authoritarianism. make the yuan an international cur- Liberals have long believed that state control eventually col- rency should, in general, be wel- lapses under its inefficiencies and the damage that the abuse of comed—they will only serve to has- power does to systems that lend themselves to it. But the enthusi- ten its economic liberalisation. The asm with which China has embraced digital living has given the Liberal ideals are new Asian infrastructure bankit sup- Communist Party new tools for political control and responsive worthless unless ports is likely to prove a useful addi- tyranny. Cyber-China may not have solved for all time the chal- tion to international finance. Some lenge of identifying and quashing opposition without stirring up backed by of the “One Belt One Road” infra- more of it. But its efforts in that direction could last longer than military power structure with which it is forging hitherto imagined. It would be a foolish mistake to base an inter- links to the rest ofEurasia will be use- national order on the assumption that China will become more ful—though the West needs to keep liberal any time soon. an eye out for cryptic militarisation. Liberals also used to believe that autocracies might be capable A strong West can welcome China’s ofone-offburstsofinnovation, like Sputnik, butcould notproduce more forthright voice and increased influence, while limiting the technical progress reliably, year in year out. Yet in the past five threats that it poses. years, Chinese tech firms have generated hundreds of billions of The strength which serves that end cannot be purely military, dollars of wealth. The protection afforded them by the Great Fire- or indeed purely economic. It must be a strength of values, too. At wall and government policy is part ofthat success, but not all ofit. the moment, the West is in disarray on this front. MrTrump has no China’s government is investing huge resources in tomorrow’s valuesworth the name. European politiciansare hard put to main- technologies while its new digital giants make full use of the vast tain liberal values at home, let alone stand up for them abroad. amounts ofdata they have on Chinese needs, habits and desires. Nor do the leaders of India, South Africa, Brazil and the other big Mr Xi sometimes stresses China’s commitment to peaceful, democracies of the developing world go out of their way to sup- harmonious development. But he then speaks more ominously port abroad the values they espouse at home. about “great-power diplomacy with Chinese characteristics”. On A decade ago the late John McCain proposed the idea of a climate change, or indeed trade, China talks warmly of the rules- “league ofdemocracies”. Such a league’s members might champi- based global system. Yet it ignores international-court rulings on liberal, democraticvaluesand atthe same time hold each other against its militarised island-building in the South China Sea and to account in such matters. It is an idea worth revisiting as a cred- blocks UN criticism of its abysmal record on human rights. ible and useful alternative forum to the UN. The more clearly the A reasonable forecast is that China will embrace international people of liberal democracies can show that their countries work collaboration where it sees advantage in doing so and act unilater- well, and work well together, the more secure they will feel, the ally where its interests dictate. It will also devote some of its bur- more secure they will be and the more others will wish to join geoning technological capabilities to new ways of making war. If them. The world needs a vision of international relations which America continues on its current path it will do much the same. shores up, promulgates and defends liberal ideals. If liberal na- This will not make the two equivalent. Though China’s military tions look only inward and give up either the power or the will to capabilitieswill growquickly, theywill notmatch America’s. And act, they will lose the moment, and perhaps their future. Financial Era Advisory Group 54 ESSAY LIBERALISM The Economist September 15th 2018

there is a greater liberal stronghold than the international institu- tions which liberals need to reform, it is the universities that they need to reappraise, given the urgent need to support lifetime VI learning. Liberals have gained the most when they have taken on A call to arms entrenched power. Now that means attacking both their current allies and their own prerogatives. VER the past couple of years there has been a boom in How do you kick-start a liberal reinvention? It may be neces- Ogloomy books with titles such as “The Retreat ofWestern Lib- sary to up-end traditional party structures, much as Emmanuel eralism” or “Has the WestLost It?”. Magazine articles routinely ask Macron has already done in France. It may demand a new gener- “Is Democracy Dying?” (Foreign Affairs and more recently the At- ation of politicians who cannot be blamed for the way things are lantic) or“What’s killingliberalism?” (the Atlantic again). The cock- and articulate better than today’s crop how things should be. But of-the-walk confidence with which liberals strode into the 21st whoever leads, they and their followers need to be willing to test century has given way to trembling self-doubt. their ideas against others’ as forthrightly as possible. Good. A complacent liberal is a failing liberal. The crucial liber- That means free speech—a lot of it. And speech that is well in- al reinventions at the turn of the 20th century, during the Depres- formed and in good faith, too. But as autocrats gain clout, the room sion, and in the stagnation and inflation of the 1970s were all ac- forfree speech isshrinking. Only13% ofthe world’speople live in a companied by books in which liberals (and sometimes a few country with a truly free press, according to Freedom House. In others) declared the creed to be in crisis, betrayed or dead. Such America, Donald Trump’spathological lying and constant attacks restless self-doubt spurred the adaptability that has proved liber- on the media as “enemies of the people” and “fake news” are tak- alism’s greatest strength. ing their toll. But the fact-free world of paranoid fantasy that right- This essay has argued that liberalism needs an equally ambi- wing media provide for his followers is a bigger problem. tious reinvention today. The social contract and geopolitical So is the echo chamber afforded by social media—even when normsthatunderpin liberal democraciesand the world order that they are not being manipulated by foreign powers. By reinforcing sustains them were not built for this century. Geography and tech- people’s biases, they cut off the competition ideas need if they are nology have produced new concentrations ofeconomic power to to improve. At the same time they discredit the compromise that tackle. The developed and the developing world alike need fresh democracy needs. They relentlessly encourage a focus on the ideas for the design of better welfare states and tax systems. The identity politics that increasingly consume left-liberals, particular- rights of people to move from one country to another need to be ly in America, drawing attention away from the broad canvas of redefined. American apathy and China’s rise require a rethinking economic and political reform to the fine brush strokes ofcompar- ofthe world order—not least because the huge gains that free trade ative victimology. Online as elsewhere, identity politics have ob- has provided must be preserved. structed robust debate and promoted soft censorship. The need fornew thinking does not mean ignoring the lessons The Economist thus marks its 175th anniversary with wariness, of history. The 21st century brings some challenges not seen be- with optimism and with purpose. Wariness because not enough fore, most obviously and most worryingly climate change, but people have grasped the scale and urgency of the reforms needed also the prospects of intrusive new technologies of the mind. But if the values and insights that underpin our founding creed are to inequality ofopportunity and the discontent it drives are not new. flourish as they should. Optimism because those values are as rel- Nor is the unhealthy concentration of wealth and power. That is evant as ever. why it is worth dusting off19th-century ideas, from vigorous com- Purpose because nothing serves liberalism better than “a se- petition policy to the taxation ofland and inheritance. vere contest between intelligence, which presses forward, and an Whether it was the Anti-Corn Law League, America’s Progres- unworthy, timid ignorance obstructing our progress”. James Wil- sive movement, the architects of the Bretton Woods system or the son’s words are reprinted on the first page of his newspaper this free-marketeers who urged the taming of inflation and the rolling week and every week. We start our second 175 years with a re- back of the state in the 1970s, liberal reformers at their best have newed determination to live up to them. 7 shared a dissatisfaction with the status quo and a determination to attackestablished interests. That sense ofurgency and boldness is missing now. Liberal reformers have become liberal insiders, satisfied beneficiaries of the world they have helped to build. Their setbacks provoke despondency and panic more than deter- mination. They lack a motivator on a par with the fear (of social- ism, fascism or communism) or the trauma of failure (the Depres- sion, the world wars) that drove past reinventions. The threats of nationalism and authoritarianism, though grave and pressing, seem less acute. The success with which policymakers prevented the 2008 financial crisis from spiralling into a global depression added to the complacency and dulled the hunger formore radical reform—even though the mishandlingofthe crisis in Europe led to many ofthat continent’s current political problems. Liberals need to shake themselves out of this torpor. And they need to persuade others of their ideas. All too often, in recent years, liberal reforms have been imposed by judges, by central banks and by unaccountable supranational organisations. Per- hapsthe best-founded partoftoday’sreaction againstliberalism is the outrage people feel when its nostrums are imposed on them with condescending promises that they will be the better forit. Liberals also need to look at the degree to which self-interest blunts their reforming zeal. The people who produce and promul- gate liberal policy are pretty well enmeshed with the increasingly concentrated corporate elite. Its well-heeled baby-boomer bloc is happy to get pensions that economic logic says it should forgo. If https://t.me/finera Middle East and Africa The Economist September 15th 2018 55

Also in this section 56 War and cheese in Congo 57 A new battle for Iraq 57 America and the Palestinians 58 Gun rights in Yemen

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

Zambia 21% of GDP in 2011to 59% at the end of 2017. Roughly two-thirds of that borrowing is End of the road denominated in foreign currency and owed to Chinese creditors or Western in- vestors who bought its Eurobonds: $3bn worth ofdollar bonds issued in Europe. Paying back these debts is putting huge pressure on Zambia’s finances. The biggest LUSAKA item in the budget used to be education. An increasingly authoritarian regime is pushing Zambia towards a debt crisis Today it is debt service, with nearly a quar- HE cars in Lusaka are moving even 57% of national income in 1995, was just 5% ter of government spending going to pay Tmore slowly than usual: hidden speed by 2010. back loans. The fiscal deficit for 2018 is set cameras have spooked drivers in Zambia’s The boom ended in about 2011. Copper to be more than 9% of GDP. Civil servants capital. The government is desperate for prices fell and growth slowed. The Patriot- were not paid on time last month. When cash, so motorists who speed are being ic Front (PF), which still rules Zambia, was pay was delayed last year a government fleeced. The regime has also announced elected that year. It soon embarked on a spokesperson helpfully recommended taxes on boreholes, internet calls and even spending splurge. As well as new roads, that bureaucrats start breeding chickens. weather reports. “The pressure is falling on hospitals and airports, the PF has almost Arrears for government contractors are the ordinary people,” complains John doubled the civil-service wage bill in real mounting. This in turn is hurting business- Phiri, a taxi driver. “All because the state terms and expanded the number of dis- es. The share of bad loans on banks’ books has run up too much credit.” tricts from 72 to 115 so as to dole out more hasincreased to 13% from 8% two yearsago. Concern on the street is mirrored in patronage. Zambia is one of 18 African countries markets. Of the 75 countries whose bonds Extra spendinghasbeen funded by bor- the IMF says is at risk of “debt distress”— make up the BloombergBarclays Emerging rowing. Public debt increased rapidly, from double the number in 2013. A further eight Markets Index, a basket of sovereign debt, are already in distress (meaning they are none has performed as badly in 2018 as delinquent or in default). Yet Zambia is re- Zambia (see chart). Given crises in Argenti- Feeling nervous sisting the fund’s call for restraint and rela- na and Turkey, that is some achievement. Bloomberg Barclays emerging-market tions with it have all but broken down. “The market is pricing in a default,” notes government bond index*, Jan 1st-Sep 11th 2018 Talks over a bailout are on ice and, under Gregory Smith of Renaissance Capital, an Zambia Other African countries pressure from Zambia, the IMF has reas- investment bank. Zambia is therefore a 1,200 signed its representative. warning for other African countries which It is not as if the money has been well also received debt forgiveness in 2005-06 900 spent. Much has been spent haphazard- but today find themselves on the verge of ly—or, in some cases, stolen. “People are another crisis. 600 asking: where did all the money go?” says Zambia’seconomymade a good start to Geoffrey Chongo of the Jesuit Centre for 300 the century. Growth averaged more than + Theological Reflection, a local charity. 7% a year from 2000 to 2010, buoyed by One answer is tarmac. Since 2011 Zam- Yield change, basis points Yield change, 0 high prices for copper, which makes up – bia hasannounced plansto build 9,000km 80% of exports. (The top destination for 300 of roads. Few doubt the need for better in- Zambia’s exports is Switzerland—home to 05101520frastructure. But the country has overpaid. Duration, years Glencore, a commodities trader.) The A study by the World Bank in 2017 found Source: Renaissance Capital *Excluding Venezuela boom meant that aid, which amounted to that Zambia paid $360,000 per kilometre, 1 Financial Era Advisory Group 56 Middle East and Africa The Economist September 15th 2018

2 which is more than twice the African aver- age. And since upkeep has been neglected, The Democratic Republic of Congo many new roads are already potholed. Other deals have been similarly waste- War and cheese ful. Zambia bought 42 fire engines for $1m MASISI each—a 70% mark-up. And it has regularly How dairy farmers cope with chaos paid over the odds for infrastructure built by state-owned Chinese companies. Take ASTERN CONGO is best known for Making a profit is something ofan the contract forthe new airport terminal in Eproducing coltan, a mineral used in achievement. Mr Sinamenye, whose Lusaka (known locally as “the hamburger” mobile phones, and refugees. But it also family has managed a dairy farm here though it looks more like a bao sandwich), makes rather good cheese. At his dairy on since 1976, recalls how it once supported which has been designed to accommodate the hillside ofMasisi in North Kivu, a herd 4,500-strong. Then chaos spilled a rather improbable ten-fold increase in Lambert Sinamenye churns out12 rounds across the border. After the genocide passenger traffic. a day. After maturing for21days they taste against Tutsisin neighbouring Rwanda in These deals are opaque. Typically loans like Gouda, only more salty, and are 1994, the Hutu militias that had perpetrat- are agreed between Zambian government named “Goma”, after the provincial ed it fled into Congo (then called Zaire), departments and China’s Export-Import capital, 55km away. where they terrorised civilians and Bank, which then lends directly to the Chi- The verdant hills ofthis region, dotted slaughtered cows, which were seen as nese contractor. Only later, if at all, are the with Friesian cows and known as “Afri- symbols ofTutsi wealth. true costs revealed. Many worry that some ca’s Switzerland”, are ideal for caseicul- “Twice a weekwe’d flee at the sound deals remain undisclosed, and that Presi- ture. Some Belgian monks who arrived in oftheir gunshots,” he remembers, “and dent Edgar Lungu will hand over state as- the 1970s soon began crafting camem- return to find more cows were missing.” sets such as ZESCO, the energy utility, to bert. Italian missionaries whet appetites Many ofthe carcasses were left to bloat in China in exchange for debt relief. A Zam- for mozzarella. In their heyday, dairies in the fields. Over the following few years bian delegation returned last week from Masisi also churned out butter, cream armed groups would loot the farm, kill- Beijing, where it attended the triennial and yogurt. ing cows to eat or for meat to sell. By1998 summit ofChinese and African leaders. Now, however, farmers are lucky to all the cattle were dead and Mr Siname- Many Zambians resent the Chinese in- eke out a few dollars a day. Warand nye had fled to Goma. fluence. Businessmen, for instance, com- lawlessness have curdled their business. In 2000 he returned, leasing enough plain that they are locked out of the best Twice a weekMr Sinamenye sells his land from the farm’sowner, an army contracts. Privately, though, Zambia’s elites cheeses forthe equivalent of$3 each to a general in Kinshasa, to graze 400 cows. are more likely to blame their government trader who straps them onto the back ofa Business is picking up since the reopen- than the Chinese. Under the PF, gover- motorbike and braves the muddy track to ing ofa nearby coltan mine: he now has nance is weak and venal. Reports from Goma. There they are sold to shopkeep- hungry miners coming to the farm to buy Zambia’s Auditor-General and the Finan- ers, who in turn sell them for$5 each. cheese and milk. Sometimes they even cial Intelligence Centre, an ombudsman, Mr Sinamenye could make bigger buy a whole cow, which is chopped up suggest that corruption has increased profits selling milk. But, as in most of and cooked forthem by Mr Sinamenye’s markedly under Mr Lungu’s regime. One Congo, there is no electricity to pasteur- wife. But he still fears the rebels who economistwho hasstudied road dealsesti- ise it or keep it cool on the way to market. descend from North Kivu’s nearby hills, mates that 5-10% is skimmed offthe top. The only way ofpreserving it is to cast it killing and kidnapping villagers. “We can Corruption goes hand in hand with re- into sturdy rounds. A few villagers come only rely on God to protect us,” says Mr pression. After the election in 2016, which and buy fresh milkin plastic jerrycans, Sinamenye. Not all cheesemakers are he won amid allegations of rigging, Mr but most ofit is turned into cheese. blessed. Lungu jailed the opposition leader, Ha- kainde Hichilema, for the crime of not yielding to the presidential motorcade. A critical newspaper was shut down and journalists have been harassed. Mr Lungu has packed the constitutional court with his hand-picked judges and threatened chaos ifthey do not allow him to run foran unconstitutional third term in 2021. “I have been here for 21 years and never seen so many people afraid to speak out,” says an academic in Lusaka. “Zambia has become an authoritarian state.” Defenders of Mr Lungu reckon that Zambia has time on its side. The principal on the first ofits three Eurobonds is not due until 2022. China may extend the terms of its credit. But given the rising debt burden, Zambia cannot go on as it is. Later this month the government will outline its budget for 2019; investors and the IMF will be watching to see if there is any sign of change from Mr Lungu and his cronies. If not, 12 years after the world forgave its loans, Zambia will keep heading towards Who will move his cheese? another debt crisis. 7 https://t.me/finera The Economist September 15th 2018 Middle East and Africa 57

A new battle for Iraq Messipotamia

BAGHDAD Rivalry between America and Iran may wrench Iraq apart again HE capital has not looked so good in Tdecades. Baghdad’s restaurants have had fancy facelifts. New malls seem to be opening every month. Cranes motionless since Saddam Hussein’s fall in 2003 are moving again as rich Iraqis have begun to invest at home instead of squirrelling their takings abroad. Huge billboards of frown- ing clerics have been replaced by neon ad- vertisements of unveiled smiling girls. Rockers pack an open-air peace festival on the bankofthe River Tigris. Anger boiling over Baghdad’s security has improved mark- edly since the jihadists of Islamic State (IS) fields and only port, which provide 90% of saying they are worse than Saddam Hus- were repelled from the city’s gates in 2014. government revenues. Security forces at- sein, the blood-drenched formerdictator. But the city’s revival is under threat again, tempted to impose a curfew by shooting In past crises Iraq’s senior Shia clergy in this time by rivalry between America and protesters, but only inflamed their ire. In a the holy city of Najaf, such as the now ail- Iran and their proxies. Inside the Green four-day rampage, they torched govern- ing Grand Ayatollah Ali al-Sistani, would Zone, Baghdad’s government enclave, ment offices and the Iranian consulate. have mediated. But their authority has Brett McGurk, America’s regional envoy, This should have alerted the politicians waned. The non-aligned Kurds have and Qassem Suleimani, commander of in Baghdad. After all, the last time they watched from the sidelines. Few influen- the Quds Force, Iran’s foreign legion, are bickered after another inconclusive elec- tial voices urge compromise. Militiamen marshalling their allies. tion in 2014, IS fighters swooped into Mo- and politicians alike predict a return to as- Each is trying to shape the formation of sul and much of northern and western sassinations and a Shia-on-Shia civil war. a ruling coalition to his taste, following Iraq, igniting three years ofwar. And after months of merciful calm, the Iraq’s messy general election in May. Iran Haider al-Abadi, the caretaker prime thud of car-bombs can be heard again on wants a “Shia house”—comprising more minister, has sought American backing for highways out ofBaghdad. 7 than 200 of the parliament’s 329 members a second term by suspending Abu Mahdi drawn from a range of Shia parties—to run al-Mohandes, Iran’s man commandingthe the show. Mr McGurk wants to have the Popular Mobilisation Committee, which America and the Palestinians reins held by a cross-sectarian coalition of oversees the country’s plethora of militias. Kurdsand Sunni Arabsled byShia “nation- Mr Abadi has also promised to abide by Back to the future alists” less beholden to Iran. Mr McGurk’s American sanctions on Iran’s reeling econ- would-be coalition, called Islah (“Re- omy. He has told Iraqi banks to stop dollar form”), has some 145 seats. General Sulei- transactions with the country, thus block- mani’s rival bloc, known as al-Bina (“Re- ing a prime conduit for foreign currency. If CAIRO construction”), has 109 or so. Neither has America does not grant a reprieve, say Mr Afterdecades oftalks, the Palestinians the majority required to choose a presi- Abadi’s officials, Iraq will stop importing are no longerwelcome in Washington dent and prime minister. an array of goods, including fuel, from its Political tensions are turning violent eastern neighbour by November. ORTYyears ago the Palestine Liberation and spilling out ofthe Green Zone. Though Those Iraqis who see Iran as their chief FOrganisation (PLO) took a first step to American and Iranian commanders bat- ally are fuming. After all, Iran was the first representation in Washington, DC. Presi- tled in tandem against IS, they are now at to rush to Iraq’s aid when IS closed in on dent Jimmy Carter allowed it to open a loggerheads. On September 6th mortars Baghdad. Hoteliers in Iraqi cities hosting three-person “information office” in 1978, landed near America’s embassy in Bagh- Shia shrines bemoan the recent dearth of though it was then considered a terrorist dad; its consulate in Basra was later struck, Iranian pilgrims. “We’ve had no bookings group. It was a move towards an Ameri- too. These were the first attacks by Shia mi- since June,” says a hotel manager in Najaf. can-brokered peace process meant to lead litias on American targets in Iraq since 2011. But Iraq’s nationalist camp is just as fe- to a two-state solution. The relationship Two days later Iran fired missiles at a Kurd- verish. “Iran bara, bara!” (“Out, out, Iran!”), was often rocky. Ronald Reagan wanted to ish base in Koya, an Iraqi town close to its chant supporters of Muqtada al-Sadr, a close the office. George Bush senior was fu- border. This was reportedly the first salvo Shia cleric who is popular among the ur- rious that the PLO supported Saddam Hus- fired by Iran at Iraq since the long war be- ban poor. His bloc won the most seats in sein’s invasion of Kuwait. But it endured, tween the two countries in the 1980s. the election. Sadrists ripped down por- and the peace process became central to Even more dangerously, Iran is flexing traits of Ayatollah Ali Khamenei, Iran’s su- American diplomacy. Perhaps no longer. its muscle in Basra, Iraq’s neglected second preme leader, to whom many of Iraq’s mi- On September 10th America an- city, which lies close to the Iranian border. litias are loyal. Massing for Friday prayers nounced that it would shut the PLO’s mis- It plugged rivers supplying the city with in Baghdad’svastslum known asSadrCity, sion, which served as a de facto embassy. It water and cut its electricity. Locals prot- they castigate pro-Iranian militia leaders, offered a few justifications, accusing the ested by blocking roads to Iraq’s giant oil- whom they once cheered for repelling IS, PLO of“refusingto engage with the US gov-1 Financial Era Advisory Group 58 Middle East and Africa The Economist September 15th 2018

2 ernment”, which is untrue. The ambassa- dor, Husam Zomlot, visited the White Guns in Yemen House fourtimes in 2017 and met the presi- dent’s special envoy, Jason Greenblatt, Heat check three times. MUKALLA America also complained that the Pal- Acity in war-scorched Yementries gun control estinians had condemned Donald Trump’speace plan before theyhad seen it. S YOU would expect in a country at in public. Those wishing to enter Mukalla That is accurate, though understandable. Awar, Yemenbristles with guns. The must hand over their weapons at one of Since December the president has recog- forces ofthe internationally recognised several checkpoints. As ifmanning a nised Jerusalem as Israel’s capital and end- government carry Kalashnikovs. So do cloakroom, soldiers hand out receipts so ed payments to the UN Relief and Works the Iranian-backed Houthi rebels, who that owners can reclaim their guns when Agency, which aids Palestinian refugees. toppled it in 2015. But it is not just the leaving. A storage container at the al-Solb This month Mr Trump also froze $25m in combatants who packheat. The country checkpoint holds enough confiscated funding for six Palestinian hospitals in East has more privately owned guns per guns to equip a militia. Jerusalem. Unlike his predecessors, who person than any except America, where In 2015Mukalla was overrun by al- urged Israel to stop Jewish settlers from prosperous gun-lovers can afford far Qaeda in the Arabian Peninsula (AQAP), building in the West Bank, Mr Trump more. Many Yemenis sling rifles over seeking to carve out an emirate farfrom seems to encourage the settlements. They their shoulders or tuckhandguns into the battlefields to the West. A year later are not an obstacle to peace, says his am- their trousers before going out. Markets Yemenirecruits trained and backed by bassador to Israel. sell everything from pistols to bazookas. the United Arab Emirates and its special Given this record, Palestinians con- Youcannot go farin most cities without forces wrested control ofthe south and clude that Mr Trump, egged on by Israel, is seeing someone with a gun. kicked out the jihadists. The fighting led trying to bully them into surrendering That is what makes Mukalla, the to an influx ofweapons, says Brigadier their aspirations to a state in territories oc- capital ofHadramawt province on the Omar Ahmed Badubeis, who manages cupied by Israel in 1967, with East Jerusa- southern coast, so unusual. The only operations in the southern part ofHadra- lem as its capital. If America loses interest people carrying guns are in uniform. mawt. Nevertheless, the city has re- in a two-state deal, there is scant hope of Banners warn civilians not to bear arms mained relatively peaceful since then. anyone else taking the job. The ban on carrying guns in public aims The European Union haslittle influence to keep it that way. over Israel. Arab states, preoccupied with No other city in Yemenhas tried such theirrivalry with Iran ortheirinternal diffi- an experiment—because it probably culties, have little interest. As for the Pales- would not workanywhere else. “In other tinians, they have few tools with which to places, manhood is proven by carrying respond to Mr Trump. weapons,” says a resident ofMukalla. It is The Palestinian Authority (PA), the lim- also how tribes show their strength. But ited self-government created under the with its strong ties to India, Mukalla has Oslo Accords of 1993, often threatens to been different forgenerations. In the stop security co-operation with the Israeli 1930s Britain established a Hadrami army. But co-operation serves the author- Bedouin Legion to bully local tribes into ity’s interests by propping up Mahmoud signing truces. The lasting result was Abbas, the Palestinian president, who has weaker tribes, fewer feuds and less ofa more to fear from Hamas, a militant Islam- gun culture. “Even in tribal disputes, ist group, than Israel does. people decline to fight, and go to the A more credible threat runs through courts instead,” says Faraj al-Bahsani, the The Hague. The Palestinians signed up to governor ofHadramawt. the International Criminal Court (ICC) in The ban has gone down well with 2015, and in May asked it to investigate pos- Hadramis, who consider themselves sible Israeli war-crimes. That has infuriat- unique. Abu Bakr, a trader in Mukalla, ed both Israel and America. John Bolton, says they are less politically ambitious America’s national security adviser, an- and therefore more peaceful than most nounced the closure of the PLO office dur- Yemenis. The Sufi brand ofIslam is pop- ing a speech assailing the ICC, a bugbear of ular in the region and is credited with his. But the court has not decided whether steering people away from weapons. It is to start an investigation, and it would be really quite simple, says Abu Bakr, “we years before it pressed any charges . don’t like carrying guns.” Ifonly the rest That leaves a final, dramatic option Dressed for a wedding, shotguns optional ofYemenfelt the same way. available to Palestinians: to dissolve the PA. Corrupt and ineffective, it offers resi- dents of the West Bank overcrowded hos- tinians, only 42% of them support getting on deaf ears. Losing it is symbolic—but the pitalsand roadsthatare more pothole than rid of it. That number has not increased for symbol matters. Twenty-five years after pavement. Itlostcontrol ofGaza more than five years. The PA employs about 170,000 the Oslo accords, the Palestinian national a decade ago. Most of all, it preserves the civil servants in the occupied territories. movement is weaker than ever. Far from fiction ofa conflict between two sovereign Closingitwould be painful. Mostpeople in winning a state, it could not even keep an states when ultimate powerrests with Isra- the West Bank worry that without it there office in Georgetown. Some hope to restart el. Dissolving the PA, critics argue, would would be chaos and economic crisis. peace talks with Israel once Mr Trump force Israel to bear responsibility for its The Palestinian embassy in Washing- leaves office. But others have started to ut- half-century ofoccupation. ton did not provide consular services, and ter the unthinkable: what ifa two-state sol- Though the PA is loathed by most Pales- its lobbying and public-relations work fell ution is no longer possible? 7 https://t.me/finera Asia The Economist September 15th 2018 59

Also in this section 60 Aboriginal crime-fighters 61 Banyan: America’s hawks uncaged 62 Capitulating to Pakistan’s Islamists 62 Asia’s expensive piscine pets 63 An ill wind in Indian politics

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

The Korean peninsula That would be fine for Mr Kim and his cash-strapped regime. As well as goose- Keeping hope alight stepping soldiers, the country’s birthday parade featured brightly coloured floats praising economic development. Indeed, despite tough international sanctions on the North, the two Koreas have already SEOUL started preparing for closer economic co- The two Koreas are preparing foranothersummit. The South’s president badly operation. In July they conducted joint in- wants a breakthrough spectionsofcross-borderrailways. On Sep- T HAS been a busy month fortheatrics in were under way for a second Trump-Kim tember 14th they plan to open a joint liai- IPyongyang. On September 9th North Ko- summit. No dates have been announced son office in Kaesong in readiness for the rea celebrated its 70th anniversary with a forthis encounter. day when South Koreans start doing busi- big parade through the city centre (pic- But the primary aim of the Kim-Moon nessthere again. Ata regional economic fo- tured). It also kicked off weeks of “mass meeting will be to strengthen inter-Korean rum this week in Vladivostok (see Europe games”—synchronised gymnastics by ties, says Moon Chung-in, a senior adviser section), Gazprom, a Russian state energy thousands of performers in homage to the to Mr Moon (they are not related). The two firm, said that it was mulling plans to build eternally ruling Kim clan. This year’s sides hope to discuss ways ofreducing mil- pipelines to South Korea. Business leaders games have featured flip-card displays of a itary tensions, such as by moving guard are expected to accompany Mr Moon to meeting in April between the North’s des- posts farther away from the “demilitarised Pyongyang next week to explore invest- pot, Kim Jong Un, and the South’s elected zone” that divides them. They are also ea- ment opportunities. president, Moon Jae-in. In North Korea ger to work on an agreement that would Unfortunately for Mr Kim and Mr summitry is showbiz. Mr Kim will be star- formally end the Korean war of 1950-53. Moon, the sanctions are unlikely to be ring again on September 18th when Mr During their summit in April, the two lead- eased until North Korea is deemed by Moon is due to travel to Pyongyang for the ers said they aimed to declare the conflict America and the UN to have made suffi- first visit to the city by a South Korean over by the end ofthe year. cientprogresstowardsgivingup itsnuclear leader in more than a decade. weapons. Unlike China, which in recent Politically, however, the third North- Moonshine overthe North months has turned a blind eye to sanc- South summit this year will be more im- Mr Moon wants much more than such tions-busting, South Korea cannot afford to portant for Mr Moon than for Mr Kim. His symbolic gestures, however. He talks of a jeopardise its relations with America by popularity has fallen thanks to bad eco- “new economic map” for the two Koreas, floutingthem, saysAndrei LankovofKook- nomic news and a minimum-wage hike involving the repair of their road and rail min University in Seoul. Mr Moon is pain- that unions thought too small and firms links, the building ofpipelines through the fully aware ofthis. too big. His trip to Pyongyang will be a North to send Russian gasto the South, and Ordinary South Koreans are losing pa- chance to show that he can still succeed as the revival of visits to the North by South tience. Most still support Mr Moon’s dove- a peacemaker. Mr Moon and officials in Korean tourists. Mr Moon also wants to re- ish approach, butheadyexpectationsof an Washington hope the summit will revive open a joint industrial complex in Kaesong imminent nuclear deal, which were fu- nuclear diplomacy on the peninsula, on the North’s side of the border that was elled by the first inter-Korean summit in which has largely stalled since Donald closed in 2016 following a North Korean April, have faded. The president’s approval Trump, America’s president, met Mr Kim missile test. This, he hopes, will be a pre- ratings, which hit a peak of 83% in May, in Singapore in June. On September 10th lude to investment by South Korean firms have slumped to below 50% in some polls. the White House said that preparations in economic zones throughout the North. South Koreans want Mr Moon to get on 1 Financial Era Advisory Group 60 Asia The Economist September 15th 2018

2 with fixing the economy at home. The president may grow even less pop- ular when voters realise how much of their money he will need to spend to real- ise his economic plans in the North—all the new infrastructure will cost sums that the North does not have. Few people in the South say they are willing to cough up more taxes for this cause. Much less do they want to bear the cost of eventual re- unification, which could involve huge gov- ernment spending on northern areas. A nuclear breakthrough might help to distract the public from its concerns about the economy. So at next week’s summit Mr Moon will encourage Mr Kim to make pro- gress in talks with America over nukes. In late August Mr Trump called off a planned visit to Pyongyang by Mike Pompeo, his secretary of state, saying North Korea had not done enough to dismantle them. The North disputes this, pointing to what it claims was its demolition in May of its main nuclear test site. The North says Mr Australia’s aboriginals Trump should reciprocate by declaring that the Korean war is over. Mr Kim says he Turning the tide promised to do so in Singapore. The White House is guarded about whether this is so. Like Mr Trump, Mr Moon believes that the next step is for North Korea to hand over an inventory of its nuclear capabili- BOURKE ties. Moon Chung-in, his adviser, says that An outbacktown resurrects lost tribal authority to fight crime next week the South Korean leader will press Mr Kim on this. Mr Moon hopes that VERYdayJamesMoore meetspolice at a proudly called it the “largest single prison if Mr Kim shows his nuclear hand, Ameri- Ecommunity centre for aboriginal peo- expansion in the state’s history”. ca might be ready to declare an end to the ple in Bourke. He and the officers swap re- More sensitive approaches to curbing war and ease sanctions. Moon Chung-in ports of trouble during the previous 24 crime among aboriginals are unusual in says that South Korea is placing hope in hours. A local aboriginal himself, Mr Australia. Frustrated by this, and by the “Trump personally”, rather than in any of Moore says he wants to change the mind- government’s failure to reduce crime by his advisers who are deeply suspicious of set of the town, which had a romantic past jailing large numbers of people, aborigi- the North (see Banyan). as a booming river port but became better nals in Bourke decided to take matters into Mr Trump has yet to spell out his condi- known for its rampant crime, especially theirown hands. Abouttwo yearsago they tions for sanctions relief, but he does ap- among aboriginals. The daily briefings are started Australia’s first big trial of “justice pear upbeat about his relationship with part of a novel experiment aimed at mak- reinvestment”, a scheme suggested by the Mr Kim. He was delighted by the absence ing the town safer. Open Society Institute, a think-tank fund- of nuclear missiles from the North’s anni- “Back of Bourke” is Australian vernacu- ed by George Soros, an American billion- versaryparade. “Thisisa bigand veryposi- lar forthe outback. The town faces the Dar- aire. It encourages governments to redirect tive statement from North Korea. Thank lingRiver, about 800km north-west ofSyd- some ofthe moneyearmarked forbuilding you To Chairman Kim. We will both prove neyin the state ofNewSouth Wales. About more prisons towards projects that help everyone wrong! There is nothing like a third of its almost 3,000 people are ab- people stay out ofthem. good dialogue from two people that like originals. Until recently, Bourke had one of On the Darling’s banks, the pilot seems each other!” the president tweeted (never the state’s highest imprisonment rates for to be working—albeit with funding from mind that previous such parades have not aboriginals under 17. (Nationwide they are philanthropic outfits rather than prison always featured nukes and that America’s just over 2% of the population, but more budgets. The experiment was launched by spies believe the North has built more of than a quarter ofprison inmates.) Alistair Ferguson, a former civil servant of them since the summit in Singapore). In its late-19th-century heyday, people the Barkinji tribe, who said he was tired of The announcement of plans for anoth- called Bourke Australia’s “Chicago of the “the constant revolvingdoorofyoungpeo- er Trump-Kim summit was apparently in- west” because ofits wealth from wool. But ple in handcuffs” at Bourke’s courthouse. spired by a friendly letter from the dictator. the white settlers who made it rich treated Just Reinvest, a Sydney-based advocacy Stephen Biegun, America’s diplomat in aboriginals with contempt, grabbing their group, has been collaborating. charge of North Korean affairs, has been land and trampling on their culture. Mr One of the project’s aims is to make visiting Seoul this week to discuss the next Moore blames the high crime rate among youngaboriginalsfeel more positive about steps. Even ifthe North has no intention of aboriginals on these historical abuses. But their future. It offers them vocational train- engaging in meaningful disarmament, “it Australia’s state governments have re- ing. Mr Moore takes groups of them into suits all sides to keep pretending that sponded to such problems mainly by the outback to immerse them in age-old, everything is fine,” says Mr Lankov. That stressing the need for punishment. New long-lost cultural practices. His daily meet- will certainly be evident next week in South Wales, the most populous state, last ings with police help him to identify Pyongyang. Expect one of Mr Kim’s usual year said it would spend A$4bn ($2.8bn) young people who need support to pre- performances. 7 on building more prisons. Its government vent them from turning to crime. He liaises 1 https://t.me/finera The Economist September 15th 2018 Asia 61 Banyan Hawks uncaged

Asia hands in Washington are working with Donald Trump, not against him OW is Asia policy made in Washing- pointman forAsia atthe Pentagon, are Chi- lations with the island in 1979). As for the Hton? The trite answer is by Donald na hawks. (So is the likeliest candidate for South China Sea, President Xi Jinping Trump’s Asia hands waking up each day the still unfilled post of chief diplomat re- broke the promise he made to Barack and checking the president’s tweets. The sponsible for East Asian and Pacific affairs, Obama in 2015 not to militarise China’s answer from Mr Trump’s officials is that General David Stilwell.) The hawks de- installations there. Mr Obama was fartoo not all Mr Trump’s pronouncements on plore China’s growing military footprint in soft on China, Trump people say. Some Asia should be taken literally. They say the South China Sea, its pressure on Tai- want a greater show of force by America the old alliances with Japan and South wan and its pursuit ofwhat they call “debt- in the disputed maritime area. Korea still stand (despite Trumpian grum- trap diplomacy” through the Beltand Road It is not clearthat these matters interest bling), and that America still believes in Initiative. Their latest concern is China’s Mr Trump much. But trade, and China’s upholding an international order in mass detention of Muslim Uighurs in the surplus with America, certainly do. So a which Asia has prospered. And despite far western region of Xinjiang, surely the hardening towards China, including Mr the president’s infatuation with strong- world’s most egregious example of hi-tech Trump’s latest threat to impose tariffs on men, America—they say—really doesn’t dictatorship in action. most of China’s trade with America, is all thinkleaders should gun down suspected The hawks believe China is trying to ofa piece, even though trade policy is run drug-dealers. An anonymous official make the world, in their language, a “safe notbyAsia handsbutbythe United States wrote last week in the New York Times of space” for authoritarians. They advocate Trade Representative, Robert Lighthizer, a “steady state” pushing back against cha- pushing back on every front. The adminis- who backs the president’s approach. os and misrule in the White House. Many tration lambasted China last month when Tariffs, restrictions on Chinese invest- Asia hands would consider themselves El Salvador became the latest Central ments and strong-arming American firms such defenders ofstability. American country to fall for blandish- in China to bring production home: Chi- There is not much those hands can do ments and threats and switch diplomatic nese leaders claim this increasingly feels about the president’s dealings with North recognition from Taiwan to China. Last like cold-war containment. Once upon a Korea. Since his summit in June with Kim week America recalled its senior envoys time in Washington the arguments of Jong Un, Mr Trump has been trying to do from El Salvador, the Dominican Republic China hawks were met by those calling things his way. His people see Mr Kim and Panama for “consultations” following for “constructive engagement”. But in pulling the wool over his eyes by promis- those countries’ dumping of Taiwan (even frustration or alarm over China’s state ing “denuclearisation”. Mr Trumpdreams though America itself broke off official re- capitalism, corporate espionage and tech- of a dramatic peace deal, preferably be- nology theft, no one calls forthat now. fore congressional elections in Novem- Aconsensus, then—yet the administra- ber, and a Nobel prize. Both men want to tion’s confrontation with China looks as deal capo a capo. Even Mike Pompeo, Mr much like a gorilla beating its chest as a Trump’s secretary of state, is little more considered Asian strategy. For a start, it is than the desk officer on North Korea mat- not clear what concrete measures the ad- ters, as Douglas Paal of the Carnegie En- ministration wants China to take. dowment, a think-tank, puts it. As for the “free and open Indo-Pacific” Yet do not exaggerate how much the policy unveiled by Mr Trumpat the annu- Asia hands work in opposition to their al APEC regional summit last year, intend- president’s preoccupations. Among the ed to show his commitment to Asia as policy experts, a consensus is hardening China rises, his experts have struggled to over confronting China. Mr Trump’s key get him to mention it since. In fact, he is Asia officials, including Matt Pottinger, a not even attending this year’s meeting. As former journalist and marine who is in they say at these Asian gatherings, show- charge of Asian affairs at the National Se- ing up is half the battle. Mr Trump’saides curity Council, and Randall Schriver, the can’t seem to get him to do even that.

2 with school heads and social workers to male who would like to talkto peers about dropped. Greg Moore, the local police ensure they get the attention they need. problems relating to domestic violence chief, says the project has been crucial to Importantly, it is the town’s aboriginal and the abuse ofdrugs and alcohol that fu- achieving this. In March the Australian people who are running the project. Mr els it. Jonathon Knight, a member, says par- Law Reform Commission, a federal agen- Ferguson set up two bodies for the pur- ticipants want to “focus on men so we can cy, said it wanted a national body to be set pose: Maranguka (“caringforothers” in the be role models”. The Sisters of Charity, a up to promote similar efforts elsewhere. A language ofNgemba, a local tribe); and the Catholic group, recently donated a plot of report by KPMG, an auditor, says that the Bourke Tribal Council. “This concept of al- land shaded by gum trees for use by the success of the Bourke experiment suggests lowing the community to be decision- group, called “Men’s Space”. that governments should pay. makers has been here for thousands of Local officials are pleased with the re- Even the prison-loving government of years,” Mr Ferguson says. “It got lost when sults. At a meeting ofproject leaders in July, New South Wales sounds keen. Brad Haz- white settlement pushed traditional struc- police said domestic violence, as well as zard, its health minister, says Bourke has tures away.” The aboriginal leaders have crimes committed by children, had fallen. found “the most likely recipe for success”. overseen the creation of “Men of Bourke”, School attendance has risen steadily; num- But his government has yet to agree to put an informal group open to any aboriginal bers suspended from classes have prison money into it. 7 Financial Era Advisory Group 62 Asia The Economist September 15th 2018

The ornamental-fish trade Economies of scale

SELIMBAU WhyAsia is obsessed with arowanas T THE end ofa dirt trackframed by recorded, three times more than in 2006. Arubber trees, Herman proudly shows Most ofthe fish came from Indonesia or offhis family’s fish farm.Three rectangu- Malaysia and ended up in Chinese lar ponds ofcloudy water house about 70 aquariums. Breeders in Singapore say Asian arowanas, a coveted ornamental that since the 2000s the price ofred fish. Both ofhis parents are civil servants arowanas has fallenby a third. in Selimbau, a village in West Kaliman- Still, arowanas remain Asia’s favour- tan, a province in the Indonesian part of ite fish, despite competition. Their appeal Borneo. But they earn more from selling has endured partly because they are arowanas. Young ones can fetch 4m tricky to breed. Mr Yap’sfarmcollects rupiah ($268) from a local wholesaler, DNA from the fish to help monitor their more than Indonesia’s average monthly fecundity and boost productivity. wage. Big ones make even more. Wire But the high price makes the arowana netting and CDs suspended by string business risky.Violent thefts are not above the ponds prevent eagles from uncommon. Owners have even been snatching the prized livestock. Corru- killed or kidnapped fortheir fish. At fish gated-iron walls, watchtowers, barbed beauty-contests armed guards escort rare Politics in Pakistan wire and a hefty padlockkeep out breeds. So valuable a pet needs pamper- thieves. Similar small-scale operations ing, too. Plastic surgeons for fish have Liberal apostasy are cropping up across the province. sprung up in Singapore. Procedures That is because arowanas, or “dragon- include eyelid lifts and fin enlargements. fish”, are the world’s most-prized aquari- Some owners, known as arofanatics, put um pets. They come in a range ofcolours their fish through a tanning regime to and are bred across South-East Asia. In perfect their hue. Singapore the average price fora young ISLAMABAD arowana is around $300. Rare breeds, like Anew blow fora beleaguered minority the red ones found in West Kalimantan, T SEEMED a speech worthy of a place in go forabout $1,500. Adult albinos sell for Ihistory, and one to delight Pakistan’s an astronomical $70,000. shrinkingcohort ofliberals. On September The fish was listed as endangered in 4th Fawad Chaudhry, information minis- 1975. That helped turn it from a meal into ter of the Pakistan Movement for Justice a status symbol, says Emily Voigt, author (PTI), the party that leads the new govern- ofa bookon arowanas. By the1980s they ment, hit out against religious bigotry. He were in vogue in Taiwan before spread- defended the appointment of Atif Mian ing to the rest ofAsia. Superstition also (pictured), a Princeton professor, as an eco- helps make them popular. Some owners nomic adviser. That Mr Mian belongs to believe they bring good luck. Their dra- Pakistan’s 400,000-strong Ahmadi minor- gon-like features—shimmering scales and ity should not matter, he thundered. Why, long bodies—add to the allure. he asked, should the PTI not appoint “the But the surge in new breeders has person everyone thinks will win a Nobel depressed prices, says YapKokCheng of prize in the next five years?” Qian Hu Corporation, an ornamental- In the 44 years since Pakistan declared fish firm in Singapore. In the 2000s new Ahmadis non-Muslim, no politician has money flooded into the market. Big farms spoken so openly in their support. They proliferated. Data from the Convention believe a second prophet, Mirza Ghulam on International Trade in Endangered Ahmad, born in 1835, followed Muham- Species trackthe legal exports ofarowa- mad. So many Pakistanis deem Ahmadis nas. In 2016 over 200,000 trades were Pretty in pink in a tank heretics; the law forbids them from even reading the Koran. In the past decade, around half of them have left Pakistan. PTI caved in and on September 7th asked make a stand. It enjoys widespread sup- Conspiracies painting them as wealthy, him to step down. Two otherforeign-based port, credibility among Islamists, and un- Jewish-backed saboteurs have flourished, members of the 18-strong Economic Advi- precedented backing from the country’s with distressingly bloody consequen- sory Council—typical of the bright young most powerful institution, the army. “This ces. The PTI itself exploited such fears in minds the PTI had hoped to recruit—re- was the time to push back,” argues Madiha the run-up to the election. signed in protest. The prime minister, Im- Afzal of the Brookings Institution, a think- Alas, Mr Chaudhry’s words were des- ran Khan, a formercricketstar, should have tank in Washington, DC. Party leaders trot- tined not for the history books but the been ready for this. In 2014, in opposition, ted out realpolitik excuses. Mr Khan only scrapheap. Tehreek-e-Labbaik(TLP), a new, he had bowed to Islamist pressure to re- grudgingly went along with the decision, rabble-rousing Islamist party dedicated tract an invitation to Mr Mian to be his they briefed. With a slim majority in par- solely to punishing blasphemers, was prospective finance minister. liament, the PTI was dangerously split over quick to demand Mr Mian’s dismissal. The Yet the PTI has the political capital to Mr Mian. The opposition, for its part, let its 1 https://t.me/finera The Economist September 15th 2018 Asia 63

2 cadres whip up the issue. If the TLP had Khadim Hussain Rizvi, a surprisingly foul- every Hindu-nationalist bogey— violent launched another of its city-crippling prot- mouthed cleric, may well seek to grab Maoists, human-rights groups, Christian est rallies, it might have disrupted the PTI’s headlines on his own. That might mean missionaries, Muslim Kashmiri separat- crucial first months in office. calls to execute blasphemers languishing ists, the opposition Congress party, West- Even if, as seems likely, the PTI makes on death row (the state has yet to imple- ern academics, Dalit activists, China and no furthereffortto stand up forAhmadis, it ment the death penalty forthe offence). academic institutions abhorred as “anti- will probably face more trouble. The TLP Or the party could call for apostasy national” by the Indian right. On August has been “really bolstered”, says Hussain laws, formalising Ahmadis as leavers of 28th the latest arrests prompted a warning Nadim, an Ahmadi political adviser. Fund- the faith, an offence for which Islam man- from India’s Supreme Court: “Dissent is raising and recruitment are up. It had al- dates death. In the wake ofthe controversy the safety-valve ofdemocracy. Ifit is not al- ready claimed credit for forcing the PTI to over Mr Mian, many quipped that Mr lowed, the pressure cooker will burst.” put pressure on the Dutch government Rizvi, not Mr Khan, was the real leader of Several theories circulate as to why, de- over a “blasphemous” cartoon competi- Pakistan. Ahmadis can only pray that they spite its obvious flimsiness, the case is be- tion, which was cancelled. Lacking other are wrong, and that the elected prime min- ing pursued and even loudly endorsed by such causes to latch on to, the TLP’s leader, ister does not give in so easily next time. 7 Mr Modi’s senior henchmen. One is that this is pure politics. The rumpus allows the BJP, which faces state elections in Novem- Politics and the law in India ber and a general one in the spring, to play to its strengths as nationalist, pro-Hindu Conspiracy theories and pro-dominant caste. A more alarming theory suggests that India’s generally qui- escent “deep state” wants a stronger role. However innocent, the charged activists may find themselves entangled in years of legal wrangles, servingas a warningto crit- DELHI ics of the security forces in such ugly are- The aftermath ofa riot could bode ill forIndian politics nas as Kashmir and the Naxalite regions. USTone person died in the riotthat broke the country, arresting ten well-known left- Or perhaps it is all local. Maharashtra’s Jout on January 1st this year in the river- ists, amongthem activists, lawyers, writers police force has egg on its face from the side village of Bhima Koregaon in the and academics, and charging them under limpness of its investigation into the mur- western state of Maharashtra. But shock- draconian anti-terror laws. Pro-govern- der of two outspoken critics of Hindu na- waves from the violence, which pitted ment TV networks have put the spotlight tionalism in the state in 2013 and 2015. By higher-caste agitators against an annual on letters allegedly found that neatly tie contrast, police in the neighbouring state gathering of out-of-caste Dalits (once each suspect by name to a 50-year-old ofKarnataka have rounded up more than a known as untouchables), have spread far. armed insurgency by ostensibly Maoist dozen suspects, including the confessed As the Maharashtra police tell it, they in- guerrillas, known as Naxalites, that festers trigger man, in the similar murder last year clude a plot to kill Narendra Modi, the in India’s poorest interior regions. One let- of Gauri Lankesh, a firebrand secular jour- prime minister, and topple his govern- ter also appears to hint at plans to kill Mr nalist. The rival detectives appear to have ment. Liberal activists retort that the riots Modi with a suicide-bomb. exposed a Hindu extremist hit squad, have provided a pretext for a crackdown The ten arrested activists, including Va- mainly based in Maharashtra, linked to on dissent that bodes ill for looming na- ravara Rao, a poet in Hyderabad (protesters well-connected religious groups and tional elections, and forIndian democracy. are pictured demanding his release), are armed with a list ofsecular targets. But this A pillar in a dusty park in Bhima Kore- unlikely to be convicted. Few were any- theory, too, is odd. It suggests that Maha- gaon marks the victory on New Year’s Day where near Bhima Koregaon in January. rashtra’s finest think they can appear hero- in 1818 of a British-led but largely Dalit- The lettersare riddled with inconsistencies ic by labelling elderly sandal-wearing in- manned army against the Marathas, a Hin- and, all too conveniently, linkup virtually tellectuals as dangerous assassins. 7 du dynasty which then controlled most of western India. Locals of Maratha descent still tend to disdain Dalits, who come from far and wide to mark this triumph. Yet be- fore this 200th anniversary year, which drew a bigger crowd than usual, there was seldom trouble. Different groups have traded blame forit. Dalits accuse Hindu ex- tremists of planning and leading attacks. Hindu-nationalist groups, allied local poli- ticians and a think-tank in Pune run by ex- army officers have all fingered leftist activ- ists, who theyclaim soughtto use the event to stir anti-government feelings. Unsurprisingly, since Dalits face contin- ued discrimination and the Hindu- nationalist Bharatiya Janata party (BJP) is in charge both of Maharashtra’s govern- ment and the national one, the state police have ignored eyewitness testimony. In- stead, they have pursued the theory of a leftist—specifically Maoist—conspiracy. Since April they have raided houses across Preposterous allegations against a grey-haired poet Financial Era Advisory Group 64 China The Economist September 15th 2018

Also in this section 65 Angry parents protest 66 Chaguan: The original tea party

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

Separatism in Hong Kong “HongKongers”, ratherthan “HongKonger and Chinese” or just “Chinese”—double A slippery slope the proportion a decade ago. On the face of it, Mr Chan’s party is un- likely to pose a real threat. He says he has under a thousand members. (Some sus- pect the real figure is a few dozen.) The party does not have a physical headquar- HONG KONG ters. It does not hold a single elected seat at The government wants to ban a pro-independence party. Democrats are worried any level. But China appears to worry that IPPING tea in the corner of a chic café in stituencyforthe idea”, even ifonlyasa the- the party’s emergence two years ago could SKowloon, a commercial district of Hong oretical notion, says Ray Yep of City Uni- be the start of a bigger political movement. Kong, Andy Chan seems like just another versity. Many are angered by what they see On his visit to Hong Kong last summer to yuppie on his lunch break. With a disarm- as China’s increasingly blatant attempts to mark the 20th anniversary of its return to ing smile, he chats about his day job as an undermine the “one country, two sys- China, Xi Jinping, the country’s president, interiordesigner. Before long, however, the tems” arrangement whereby China prom- warned people not to cross a “red line” by 28-year-old warns that plain-clothes police ised Hong Kong a “high degree of autono- challenging China’s rule. officers may be listening in. That is because my” from 1997 until at least 2047 and Such alarm is likely to have grown this Mr Chan (pictured) doubles as leader of eventually to allow “universal suffrage” in month. Atwelcomingceremoniesmarking the Hong Kong National Party, a group that the territory’s elections. the first day of term, student-union presi- advocates the territory’s formal separation dents at four of Hong Kong’s biggest uni- from China. In July the government, al- Fertile ground versities called for the territory’s indepen- most certainly at the urging of higher-ups After the failure of the pro-democracy dence or expressed sympathy for in Beijing, launched proceedingsto ban the “umbrella movement” in 2014 many pro-independence activists such as Mr party. It would be the first political group to youngsters concluded that China would Chan in their prepared remarks. Carrie be outlawed in Hong Kong since China never grant Hong Kongers full democracy. Lam, the territory’schiefexecutive, quickly tookcontrol ofthe territory in 1997. They have been further disheartened by condemned the speeches as “unlawful” The clock is ticking for Mr Chan. He has the barring of people from standing for (and mentioned the red line). One of the been given until September14th to explain election to the semi-democratic legisla- union leaders, Owen Au of the Chinese to the Security Bureau why his party ture, Legco, because of their indepen- University of Hong Kong, says he later re- should not be banned. He has already dence-leaning views (Mr Chan was one), ceived a threatening phone call from a been granted three extensions of the dead- the expulsion from Legco ofmembers who “mysterious” person who warned him line. Another is unlikely. As The Economist had failed to swear proper allegiance to that he was betraying his country. went to press, Mr Chan was consulting his China, and the abduction ofHong Kongers Many pro-democracy politicians reject team of lawyers over how, or whether, he by Chinese agents for selling gossipy Mr Chan’s views and his party’s offensive should respond. books about China’s leaders. Surveys by language on Facebook about Chinese Only a small fraction of Hong Kongers the University of Hong Kong show that mainlanders (concerning, for example, support his call foroutright independence. confidence in “one country, two systems” their “repulsive behaviour” and “vile” Even Mr Chan admits that there is very lit- has fallen from 77% in 2008 to just 40% to- Mandarin tongue). But the government’s tle chance ofactuallyachievingitas longas day. Anotheropinion poll by the same uni- efforts to ban Mr Chan’s party has wider the Communist Party still rules China. But versity found that 40% of residents choose implications for other, more mainstream, among the young “there is a growing con- to identify themselves exclusively as democrats. That is because China has nev-1 https://t.me/finera The Economist September 15th 2018 China 65

2 er made it clear exactly where the red line The police dossier against Mr Chan, a omy, has exacerbated fiscal crises in some is. As many Chinese officials see it, calling copy ofwhich was given to him and which Chinese cities. Leiyang, a city of 1.3m peo- for free elections, in which the central gov- he later published on Facebook , contains ple in the southern province of Hunan, ernment would have no ability to veto more than 700 pages. Evidence cited started to warn early this year that its fi- candidates, is tantamount to separatism. against him includes a speech he gave to nances were in a shambles. Social services Yet many Hong Kongers fear that banning the Hong Kong Foreign Correspondents’ were under stress, civil servants were go- Mr Chan’s party could lead to bans on oth- Club in August; media interviews with ing unpaid, and a city-owned firm that fi- er activities. him and his postings on social media nances infrastructure had started to miss The use of the Societies Ordinance, a (“conducting propaganda”, it is alleged). its debt payments. colonial-era law used mainly against triad But as long as his advocacy remains non- In early September all this boiled over gangs, has fuelled such concerns. Freedom violent, says Johannes Chan (no relation) in violent protests at schools and govern- of speech and association is enshrined in of the University of Hong Kong, even the ment buildings. As a remedy forthe under- the Basic Law, Hong Kong’s mini-constitu- Societies Ordinance does not provide a funding and overcrowding, city officials tion. But the Societies Ordinance allows clear legal basis for banning the party. announced that many students would be the government to ban any society on “Mere advocacy itself cannot be equated sent to privately run schools. Hundreds of grounds of “national security or public to threatening national security,”he says. angry parents, concerned that these were safety,public order or the protection of the Andy Chan has no doubt what the out- of lower quality and that attending them rights and freedoms of others”. This word- come will be. “It’s a political issue, not a le- would entail far greater expenses, took to ing was added to the bill in 1997. National gal one,” he says. He suspects that any doc- the streets. They threw bricks and bottles, security is defined as matters relating to uments he files by this week’s deadline blocked roads and hoisted banners that “safeguarding the territorial integrity and will be thrown into the bin. Other groups read, “Reject private schools!” and “Fair independence” ofChina. that China dislikes are next, he warns. 7 education” (see picture). Police said that 30 oftheir officers were injured and that vehi- cles were damaged. Protests continued for Education several days; 46 people were detained. Lo- cal officials, clearly worried about the reac- Class struggle tion of higher-ups to the disorder, said im- plausibly that the disturbances had been stirred up by “outside troublemakers”. To calm the parents, Leiyang’s govern- ment promised subsidies that would spare LEIYANG families from paying extra fees because of Rising urbanisation and drooping local finances lead to school crowding, parents’ the change. But parents have another wor- angerand violent protests ry: reports of formaldehyde contamina- TUDENTS should be encouraged to along with their schools, are becoming tion in some private-school buildings. The “S treasure theirtime in school and con- hollowed out. As a result, the number of city government said that independent centrate on seeking knowledge in an un- primary schools has tumbled, from parties had carried out tests and found distracted manner,” said Xi Jinping, Chi- 280,000 in 2009 to 176,000 last year. There nothing abnormal, but many residents re- na’s leader, on September10th. His speech, were 28.9m students enrolled in rural main sceptical and angry. at an education conference in Beijing schools in 2016, down from 56.6m a decade The rootofLeiyang’sfinancial trouble is marking Teachers’ Day, coincided with the earlier. But in the cities, student popula- the collapse of its coal industry. The effects end of the long summer holiday and a re- tions are growing. of this can be seen in places like Gaolu, a turn to school for a quarter of a billion This influx, along with a slowing econ- village under the city’s jurisdiction. Most youngChinese. Across China, coolingtem- of the shop fronts on Gaolu’s main street peratures have been matched by the sight have been shuttered. Lorries piled high of yellow school buses and crowds of with coal still rumble through, but in noth- backpack-toting children adding extra ing like the numbers they once did. Resi- noise and bustle to each day’s commuter dents say there is now only one coal mine rush. Alas, once they get to school, many of operating in the area, compared with a them face serious distractions. dozen or so a decade ago. One of the biggest of those distractions “We have nothing else here but coal,” is overcrowded classrooms at govern- laments one man. Some have tried their ment-run schools. Education officials de- hand at growing crops but most have gone fine classes of “normal” size as those with to find work in Leiyang or elsewhere. Resi- up to 45 students. Classes with more than dents know that theirlost jobs in the mines 55 pupils are considered “large” and those will not be coming back. As part of a na- with more than 65 are “super-large”. But tional policy to consolidate the industry, the average forjunior-high schools exceeds Hunan closed 650 coal mines between 45 in 15 Chinese provinces, and is more 2014 and 2016, and announced plans to than 55 in two. One districtin Chongqing, a close another130 by the end ofthis year. region in the south-west, reports an aver- This means the city’s fiscal woes are age size ofnearly 73 students. A class size of likely to persist, along with the strain on its 120 has been reported at a secondary school system. In his speech on Teachers’ school in Hebei province, which sur- Day, Mr Xi spoke of a need to give educa- rounds Beijing. tors the “social prestige” they are due. He In some cases, this pressure is a result of said students should, among other things, China’s rising level of urbanisation, which “be guided to love and support” the Com- last year reached 58%, up from 45% a de- munist Party. That will be a lot easier when cade earlier. Rural towns and villages, Leave our kids alone everyone has a place to sit. 7 Financial Era Advisory Group 66 China The Economist September 15th 2018 Chaguan The original tea party

OurnewChina column takes its name from a meeting-place ofideas The author Lao She, who in 1956 charted a Beijing teashop’s woes over a half-century in his play “Teahouse”, drew on life when he had the establishment’s manager pin up signs pleading “No talk ofstate affairs”, orwhen he showed grey-gowned secretpolice ar- resting customers forquestioning the government. That teahouses managed equally to enrage Red Guards, Nationalist police chiefs and desiccated imperial mandarins might be reason enough to cherish them, and to name The Econo- mist’s new China column “Chaguan” in their honour. But tea- houses are more than fine places that attracted the right enemies. In their heyday, when some city streets might have boasted halfa dozen, they were places to relax, do business, gossip and ex- change ideas, both lowbrow and highfalutin. Some teahouse liti- gators were crooks, writes Qin Shao ofthe College ofNew Jersey, another teahouse historian. But at its best, teashop mediation with crowds hearing every word, could expose and shame local bullies, offering a rough sort ofaccountability. Like users of social media today, teahouse patrons loved tales of corruption, broken promises and immorality among the mighty. Some were false. Others contained enough truth to help explain why officials raged at them. A stubborn, indignant, often IVEN his love of Chinese teahouses, Mr Yang, a retired aca- mocking resistance to finger-wagging propaganda is as much a Gdemic from Chengdu, was born in the right place at a terrible Chinese tradition as deference to authority. time. Within living memory his home town, the capital of Si- Officials have spent more than a century vowing to moder- chuan province, had boasted more than 600 teahouses, or cha- nise China, promoting reforms that—certainly in the past 40 guan. Some were famous for storytellers or opera. Others wel- years—often demand the world’s admiration. Chinese leaders ar- comed bird-lovers, who liked to suspend their pets in cages from gue that their vast country cannot riskthe morale-sapping confu- teahouse eaves to show off their plumage and singing. Some sion that might be sown by a free press, independent courts or served as rough-and-ready courtrooms for unlicensed lawyers even civic groups with the right to criticise official wrongs. Any- (to “take discussion tea” was to seekmediation). One place might one calling fordemocratic freedoms is attempting to infect China attract tattooed gangsters, another intellectuals. Wang Di of the with dangerously alien, indeed Western notions, officials assert. University of Macau, a scholar of teahouses, cites an old editor Yet such claims look questionable, not to mention self-serv- who in the 1930s and 1940s ran his journal from a teashop table. ing, after reading historic accounts of teahouses and the unmis- Mr Yang, who declined to give his full name, favours Heming takably democratic impulses that sometimes moved customers. teahouse, a lakeside tea garden where patrons may spend hours Even signs reading “No talk of state affairs” can be read as ironic in bamboo armchairs, reading newspapers, munching melon symbols of protest against the suppression of free speech, as seeds or paying a professional ear-cleaner to rootle away with Wang Di has written. Similar democratic impulses can still be metal skewers. But he has known more dangerous times. Soon seen all overChina, whenevercitizensnote thatpowers are being after first visiting the teahouse as a child in the 1960s, such busi- abused, mistakes covered up or that life seems unfairor absurd. nesses were targeted when young, fanatical Red Guards roamed Teahousesare unlikelyto boom again in Chengdu. Youngsters his city during the Cultural Revolution. “Back then everyone was at Heming spoke of making time to “chill for the afternoon”, as busy chanting about revolution on the streets—this type of cul- they are usually too busy. Tastes change. This writer was on a first ture was criticised,” he recalls. Slow tea-sipping was called time- China posting two decades ago when Starbucks opened its inau- wasting, vain and bad. Maoist zealots closed teahouses. gural shop there, in Beijing. The chain plans to have 6,000 outlets This was not their first taste of repression. Before Commu- in China by 2022, with one opening every15 hours. nism, Chengdu endured iron-fisted rule by the Nationalist regime of Chiang Kai-shek. Despots with a bossy, scoutmasterly streak, Orders forthe doctor the Nationalists issued dozens of orders to stamp out bad tea- Butteahousesare more than placesto buya drink. They represent house habits. Managers were told to report clients spreading po- somethingprecious: a space thatispublicyetnotstate-controlled, litical rumours. Bawdy songs were banned. Teahouses were told where citizens may speak, listen and be moved, find work, do to expel itinerant barbers (who did sometimes drop hair clip- deals or seek redress, or simply idle for a while. Today that spirit pings in other patrons’ teacups, it is true). During the war with Ja- can be found online or in the gig economy, despite government pan, teahouses in Chengdu were ordered to display Nationalist controls. Itisseen when citizens’ groupsreportinjustices, display- flags, slogans and leaders’ portraits, and to inscribe approved ing a complex mix of distrust and trust in officials, whose help news headlines on blackboards. In 1948 Sichuan’s governor de- they seekwhile doubting what it can achieve. manded teahouse controlsto “regulate people who do notfollow “Chaguan” aims to cover that China, writing about society, rules” and “turn uselessness into usefulness”. the economy and culture. Long ago, in a spirit of teasing respect, Teahouses had been little safer during the first decades of the teahouse waiters were dubbed “tea doctors”. To be a tea doctor, 20th century, when warlords had brought terror to cities, or even patiently serving while patrons talk, seems a good ambition for a earlier in the dying days of the final imperial dynasty, the Qing. China columnist. Stoke the stove, then. To work. 7 https://t.me/finera International The Economist September 15th 2018 67

Climate change the Paris treaty’s survival. Many American cities and states are turning to renewables Local government v global warming for ever more of their electricity, imposing tougher energy-efficiency standards on buildings, or electrifying public buses. That includes even Republican-led ones prone to playing down the dangers of cli- SAN FRANCISCO mate change. In Illinois the Republican go- Cities, regions and corporations want to help tackle global warming. How much vernor, Bruce Rauner, signed a bill mandat- can theyachieve? ing a sharp rise in the state’s solar capacity, UPPOSE Britain’s prime minister or- wows like this one, aimed at making ab- and earmarking $750m for job training in Sdered civil servants to make the world’s stract Paris goals a reality. This time they re- clean-energy industries. Utah is toying fifth-biggest economy fully carbon-neutral fused even to discuss aid for developing with a carbon tax. by 2045, and thereafter to extract more countries’ efforts to cut emissions and Local efforts have also proliferated in greenhouse gases from the atmosphere adapt to floods, droughts and other perils countries still hewing to the Paris accord. than it emits. In a sense that is what hap- of climate change. At home Mr Trump also From Aachen in Germany to Zapopan in pened on September10th, when Governor wants to make it easier for energy firms to Mexico, cities are pledging emissions re- Jerry Brown of California—whose econ- leakmethane, a potent greenhouse gas. ductions. In August, 19 cities, including Par- omy last year overtook Britain’s—inked an America is the most unruly of the Paris is and Tokyo, vowed to make all new executive order mandating state agencies agreement’s 197 signatories. But many oth- buildingscarbon-neutral from 2030, and to to begin such preparations. ers look half-hearted at best. The current retrofit others to meet the same standard He had just signed into law a bill setting set of “nationally determined contribu- by 2050. In May London’s mayor, Sadiq the same 2045 deadline forthe state’s com- tions” (NDCs), as countries’ pledges are Khan, promised to make the British capital plete transition to renewable and other known, put Earth on course for 3°C of zero-carbon by mid-century. zero-carbon electricity. The bill could be re- warming. Instead of strengthening their voked by a future legislature, and the order carbon-cutting targets, as the agreement Tales of the city by Mr Brown’s successor. But the Golden envisaged, some countries want to weak- This year 620 cities and 122 regions have re- State’s inveterate environmentalism en them. Australia’s resources minister, ported climate actions to CDP, a watchdog. makes that unlikely. Californians, the out- Matt Canavan, recently declared that More than 800 firms worth almost $17trn going governor has made clear, remain NDCs’ voluntary nature “doesn’t actually have joined the We Mean Business co- committed to the Paris agreement of 2015, bind us to anything in particular”. No big alition to reduce their carbon footprint. In in which countries vowed to keep global advanced economy attacked American all, the Non-State Actor Zone for Climate warming “well below” 2°C relative to pre- penny-pinching in Bangkok. Irked by the Action (NAZCA), a UN-run repository, lists industrial levels, and ideally to no more lack of progress, on September 10th Antó- more than 12,500 pledges by 2,500 cities, than 1.5°C. nio Guterres, the UN’s secretary-general, 209 regions, over 2,100 firms and nearly Days earlier, in Bangkok, President Do- unveiled plans for a big climate summit of 500 investors. nald Trump’sadministration had been try- heads of state next year. Many of these pledgers have descend- ing to scupper the Paris deal. Mr Trump National governments’ foot-dragging ed on San Francisco fora three-daysummit plans to quit it as soon as rules permit has raised the profile of local initiatives. organised by Mr Brown that started on (which happens to be a day after he faces California’s heftmeans few are as momen- September 12th. The aim is partly to help re-election in 2020). For now, however, his tous as Mr Brown’s. But taken together, the formal Paris process keep up steam negotiators still attend—and disrupt—pow- theyare increasinglyviewed asessential to ahead ofa crucial meeting in Poland in De-1 Financial Era Advisory Group 68 International The Economist September 15th 2018

2 cember, when the agreement’s rulebook is emissions cuts could total between 15bn 1 supposed to be finalised. But the meeting How to get there and 21bn tonnes of CO2 by 2030, Ms Hsu will also showcase what is being done and Global greenhouse-gas emissions and her co-authors estimate. That would Gigatonnes of CO equivalent compare the best methods to monitor, re- 2 be enough to set the world on a path to port and reconcile municipal and regional Ranges meeting the Paris goal, perhaps even the Current policies NDCs* 2°C warming progress. Projection 1.5°C aspiration. Potential In principle, subnational governments 1.5°C warming impacts Yet other forces are pulling in the oppo- could play a big role in combating climate 60 site direction. For all the power of peer change. This is particularly true of cities. pressure, places that have resisted joining Existing 50 Roughly half of the world’s population individual such forums are by definition harder to at- lives in them, and that proportion is fore- commitments tract. The number of jurisdictions report- by cities, 40 cast to rise to 70% by mid-century. Urban regions and ing to CDP continues to expand, but areas consume two-thirds of the world’s firms Including growth hasslowed (see chart2). And, asMr multi-party 30 energy. They are vulnerable to the effects initiatives’ Drost points out, “the more ambitious an of climate change, such as flooding, so the FORECAST goals initiative gets, the less attractive it becomes 20 cost of inaction is all too tangible. A survey to many members.” by100 Resilient Cities, a network of conur- 2010 15 20 25 30 The NAZCA database brims with prom- bations, found that climate change is the Source: Data Driven Yale, *Nationally determined ises but it is hard to tell the serious from the third-biggest concern among its members, NewClimate Institute, PBL contributions flaky. Kevin Kennedy of the World Re- behind inequality and ageing infrastruc- sources Institute, a think-tank, with head- ture. Cities also stand to benefit from cli- year the Global Covenant of Mayors esti- quarters in Washington, DC, notes another mate-friendlier policies. New research pre- mated that they could curb emissions by pitfall. Mobilisation in some quarters sented in San Francisco by the C40 group 1.3bn tonnes by 2030. might demobilise others, who conclude of big cities and the Global Covenant of Indeed, many commitments seem little they can free-ride on the climate-champi- Mayors, which groups more than 9,000 more than attempts to signal virtue, per- ons’ efforts. If a carmaker “is selling more municipalities, finds that climate policies haps to green-minded constituents. Philip electric cars in California, it can sell more such as boosting energy efficiency and de- Drost of the UN Environment Programme gas-guzzlersin Texas” and still meetnation- carbonising public transport and power says many are “selfie initiatives” that are al fuel-efficiency standards for the whole generation could create 14m new jobs and thin on specifics. Of the 220 pledges like fleet, he remarks. prevent 1.3m premature pollution-related the Covenant of Mayors or the C40, just 48 Echoing Mr Guterres, Mr Kennedy says deaths a year by 2030. have adopted quantifiable goals, accord- that averting catastrophic climate change So local climate activism is a cause for ing to the UN’s annual “Emissions Gap” re- requiresa concerted global effortinvolving joy. Just how much joy, though, depends port; 165 lack clear mechanisms for moni- those currently unwilling to act. That al- on what all their policymaking adds up to. toring and reporting progress. most certainly requires top-down diktats. So farthe answer appears to be: not a lot. Even numerical targets may reflect Even Mr Brown would admit that Califor- merely what would have been done any- nia’s sterling environmental record stems A hill ofbeans way. Mr Brown would doubtless have en- less from its citizens’ inherent green-heart- Angel Hsu of Yale University and col- acted California’s clean-energy mandates edness, than from a century of state-level leagues have sifted quantifiable pledges without America’s Pledge. Worse, local ac- regulation to keep its air and water clean. made by nearly 5,900 cities and 76 regions, tions can have adverse unintended conse- All this hints at the paradox of bot- home to about one in six humans, as well quences. After Shougang Corporation, a tom-up climate policies. Placeslike Califor- as by more than 2,100 companies with Chinese steelmaker, in 2010 began moving nia showthatnational action isnota prere- combined annual revenues of$21trn. After its dirty business from Beijing to Hebei, the quisite for local activism, but “mayors will stripping out overlaps—how far Seattle’s capital’s emissions of CO2 fell by 7.6m move fasterand more efficiently ifthey are ambition is embedded in Washington tonnes over the next five years, estimates a supported by national governments,” con- state’s, say, orMicrosoft’s in Seattle’s—they recent paper by Yuli Shan of Tsinghua Uni- cedes Mark Watts of the C40. Robust na- found that individual commitments add versity and colleagues. But Hebei’s bal- tional action makes the grassroots sort less up to reductions in annual carbon-dioxide looned by 87m tonnes, in part because He- necessary. In the end, Mr Brown says, the emissions of between 1.5bn and 2.2bn bei’s energy production is much more climate challenge cannot be solved by cit- tonnes by 2030, compared with current carbon-intensive. ies, states and corporations alone. “It is not policies—or 200m-700m tonnes relative to The record of subnational action, then, an either-or,” he says. “National leaders what could be expected under the current looks patchy. What about future prospects? must get offtheir dime.” 7 NDCs (see chart 1). Compare that with the Helen Mountford of the Global Commis- 52bn tonnes emitted globally each year, ex- sion on the Economy and Climate, an inde- pected to rise to 59bn tonnes by 2030 on pendent body of experts, believes that lo- A league of subnations 2 current trends. California’s latest measures cal action could eventually provide “cover, Global jurisdictions reporting to the Carbon would bring only marginal improvement, inspiration and a nudge” to national gov- Disclosure Project, cumulative total as it had already pledged to cut emissions ernments. It may also encourage other lo- 800 by 80% by 2050. calities to step up their efforts for fear ofbe- Cities Other studies have made similarly inglabelled laggards. On September12th in States and regions 600 underwhelming findings. Bean-counters San Francisco 11 cities joined the Under2 at America’s Pledge, a response to Mr Coalition, bringing to 217 the membership Trump’scarbon-cuddling led by Mr Brown of the biggest of the international under- 400 and Mike Bloomberg, a former mayor of takings, which covers a fifth of the world’s New York, calculate that 155 American population and two-fifths ofits economy. 200 companies which have joined 115 cities The Under2 Coalition wants to reach and 20 states in the effort would cut just 250 members in the next few years. If the 0 2011 12 13 14 15 16 17 18* 26m tonnes ofCO2 from current emissions dozen orso biggestinitiativescan be scaled trajectories over the next seven years. Last up as their backers hope, the resulting Source: CDP *To August https://t.me/finera Business The Economist September 15th 2018 69

Also in this section 70 Bartleby: AI and workers 71 Volvo’s IPO 71 Les Moonves exits CBS 72 Vaping burned 72 Tech firms v estate agents 73 Internet regulation in Europe 74 Schumpeter: An empire of the mind

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Corporate leadership in China in America, JD.com has a “dual-class” share structure, which allows founders to Command and control own a special class ofshares with superior voting rights. JD.com set the ratio for those weighted voting rights at one share to 20 votes (it is typically half that). The result is that MrLiu is able to control SHANGHAI four-fifths of JD.com’s voting rights even JackMa’s graceful exit from Alibaba contrasts with some otherbosses’ though he owns less than one-fifth of the domineering influence stock. JD.com has not convened an annual WRY joke has been circulating on Chi- All of which makes for a striking con- shareholders’ meeting since its flotation, Ana’s internet. The founders of the trast with events at JD.com, Alibaba’s arch- which it is allowed to do under the lax go- country’s three most prominent technol- rival in e-commerce. Early this month it vernance laws of the Cayman Islands, ogy firms—Jack Ma of Alibaba, Pony Ma of emerged that Richard Liu, JD.com’s foun- where it was incorporated. Baidu, listed in Tencent and Robin Li of Baidu—go for a der and boss, had been briefly arrested in America in 2005 and also based in the Cay- stroll. One drowns. How would their the American state of Minnesota on a rape mans, has not held one since 2008. stocks react? Ifit were MrMa ofAlibaba, its allegation. His mugshot circulated and News of Mr Liu’s arrest (on a university shares would fall. If it were Mr Ma of Ten- Chinese internet users swapped informa- campus, while studying for a business-ad- cent (no relation), they would remain un- tion on details of America’s legal process. ministration doctorate) was a reminder of changed. And ifit were MrLi ofBaidu, they In two days of trading JD.com’s shares fell how few Chinese tech giants have clear would rise. by 16%, their biggest drop since listing on succession plans; no one is sure who is his The joke is one small indication of how America’s Nasdaq in 2014, losing $7.2bn of second-in-command. Lin Yu-Hsin, a cor- China’s entrepreneurs-turned-billionaires, market value. The police investigation is porate-law expert in Hong Kong, expects symbols of the rise of its internet, engross ongoing (Mr Liu has denied any wrongdo- key-man risk to worsen in the next15 years citizens. They publish collections of their ing, through his lawyers). as tech-firm founders, now in their40s and speeches and pen books, such as “Intelli- The two events have concentrated 50s, come closer to retirement. gence Revolution” by Mr Li and “China At minds on a thorny, long-standing problem Your Fingertips” by Tencent’s Mr Ma, and in Chinese corporate governance: “key- Doing it Ma’s way their various pronouncements on how to man risk”. Over-mightytechnologybosses Against this backdrop, Mr Ma has handled succeed are memorialised as quotes. are a problem elsewhere, but in China his own transition with aplomb. Duncan Lately China’s corporate superstars opaque legal processes make it much Clark, author of a book, “Alibaba: The have given social-media crowds plenty worse, says Jamie Allen of the Asian Cor- House That Jack Ma Built”, says it wanted more to parse. The joke proved partially porate Governance Association, based in to show it was different early on. To last at correct about Jack Ma (pictured above): a Hong Kong. China’s global champions em- least102 years(to span three centuries from report that he would abruptly retire, later ploy control structures, built to ensure the its founding in 1999), it planned to build a clarified bythe companyto explain that Mr founder’s hold is ironclad, that attract criti- culture that did not rely on a founder. The Ma would be stepping down as chairman cism at home and abroad. firm has partly achieved that. MrMa began in a year’s time, prompted a decline of 3.7% JD.com is outstandingly bad. According to pull back in 2013, when he stepped in Alibaba’s share price. But mostly inves- to its articles of association, its board of di- down as chief executive. (By contrast, Mr tors took the news in their stride. To focus rectors is inquorate without Mr Liu, even if Ma of Tencent, and Messrs Li and Liu, re- on his philanthropic foundation, he will he has been arrested somewhere—a struc- main chief executives and chairmen of hand over to Daniel Zhang—who lacks Mr ture “unusual not just in China, but any- their firms.) He is the first founder of a big Ma’s star quality, certainly, but who has where”, says Mr Allen. The board has only Chinese internet firm to announce his exit. been an adroit chief executive for Alibaba five members, allowing Mr Liu huge clout. His role is also being reduced in Ali- since 2015. Like many other Chinese companies listed baba’s “variable interest entities” (VIEs), a 1 Financial Era Advisory Group 70 Business The Economist September 15th 2018

2 legal device beloved ofChinese tech firms. Literature, a Tencent offshoot, and Xiaomi, centrates control of the company in a club China does not allow foreign entities to a smartphone-maker, have both listed of 36 senior staff. They appoint a majority own sensitive assets, such as the govern- with this structure. Investors mainly shrug ofboard seats. Jefferies, a bank, expects Mr ment licences they need. Alibaba, like oth- them offas a necessary evil, despite the oc- Ma to keep “an influential role in the com- ers, bundled them into VIEs which are casional scare. In 2011, investors were un- pany’s culture and ecosystem”. The succes- owned by individuals in China and that nerved after the ex-wife of the founder of sion plan will unite Alibaba’s two biggest hand control of those assets to its interna- Tudou, an online-video firm that was pre- roles under Mr Zhang, a step backwards. tional holding company. Four of its five paring to list in America, which has since For the cleanest of the bunch, say cor- VIEs were indirectly owned by Mr Ma and been acquired, filed a lawsuitdemanding a porate-governance experts, look to Ten- one ofhis co-founders; next year all will be portion of the equity interests in Tudou’s cent. It has VIEs, butthe companyhashad a owned by two layers of holding compa- VIE, in which her former husband held a one-share-one-vote structure since it listed nies, in turn owned by a broader set of Ali- 95% stake. (She later dropped the claims.) in Hong Kong in 2004. One account claims baba’s senior Chinese staff. For all its fresh thinking, Alibaba is not thatPonyMa chose HongKong’sexchange, VIEs continue to be popular, despite the perfect. MrMa will remain a lifetime mem- which only allowed dual-class shares in powertheybestowon theirowners. China ber of the Alibaba Partnership, which con- April, because he wanted his internet firm 1 Bartleby Artificial stimulant

Fears ofthe impact ofnew technology maybe overdone SPECTRE is haunting workers—the the danger of groupthink. A program Arise of artificial intelligence (AI). The could analyse e-mails and meeting tran- fear is that smart computer programs will scripts and issue alerts when potentially eliminate millions of jobs, condemning a false assumptions are being made (rather generation to minimum-wage drudgery like the boy in the Hans Christian Ander- or enforced idleness. Never mind the ro- sen tale who notices that the Emperor has bots, fear the software. no clothes). Or it can warn a team when it There is no need to be so gloomy, say is getting distracted from the task in hand. Ken Goldbergofthe University ofCalifor- When a firm is starting a new project, nia, Berkeley, and Vinod Kumar, the chief AI can also suggest experts from other executive ofTata Communications, a unit parts of the organisation who could con- of India’s biggest business house (which tribute. In recruitment, managers could stands to profit from the spread of AI). set criteria for “cognitive diversity” (seek- They have produced a report* that is ing people with different academic and much more optimistic about the outlook cultural backgrounds) when conducting a for ordinary employees. In many cases, it job search and allow AI to suggest candi- says, job satisfaction will be enhanced by dates. This could eliminate remaining hir- the elimination of mundane tasks, giving placed by autonomous vehicles. But ing biases in favour ofwhite males. people time to be more creative. manoeuvring a lorry around busy streets Helen Poitevin of Gartner, a research Their views are backed up by a survey is farharder than driving down the motor- company, says that some firms are using of 120 senior executives, conducted for way. So the driver could switch into auto- AI to suggest training possibilities to exist- the report, which found that more of matic mode (and get some rest) when out- ing workers, based on the career paths of them (77%) thought that AI would create side the big cities, and take over the wheel similar staff, as an aid to their career de- new roles than believed it would replace once again when nearing the destination. velopment. And programs are also being existing positions (57%; respondents The obvious analogy is with jetliners, used to analyse individual employees’ could choose both options). Extra skills where the pilots handle take-off and land- feedback so that managers can be aware may be needed to cope with the new ing but turn on the computer to cruise at of specific areas where a lot of people are technology and more than half of the 35,000 feet. Using AI may prevent tired unhappy. Iftheyreactin the right way, this bosses are already taking steps to train drivers from causing accidents. should make workers’ lives better. their workforces. Turning to office life, AI can help with All of which is a useful corrective to Previous technology shifts have not complex and fiddly tasks like managing some of the more alarming predictions had as negative effects on employment as supply chains, allocating desk space and about the potential effects of AI. But as was first feared. The authors note some keeping records of meetings. All this can ever, it needs to be remembered that pro- well-known examples. Bar-code scan- free up time for people to work on more grams are only as good as the data they ners did not eliminate the role of cashiers important strategic decisions. The authors are given. If those who input the data in America; jobs in the retail industry also think that AI could help collaboration have biases, they may show up in the sug- grew at an annual rate of more than 2% within companies. One obvious example gestions that it generates. As Ms Poitevin between 1980 and 2013. The arrival of is the elimination of language barriers. says, AI can help improve diversity in the automated tellermachines (ATMs) spared Multinational companies may have em- workforce “if we want it to”. The best em- bank employees the job of doling out ployees who lack a common language; AI ployers should be able to turn AI into a cash and freed them to offer financial ad- can handle translation in real time so that positive for workers. vice to customers. dialogue is easier...... Some jobs could be made a lot easier And the report argues that AI can pro- * “Cognitive Diversity: AI and the Future of Work” by AI. One example is lorry-driving. duce better decision-making by offering a Some fear that truck drivers will be re- contrarian opinion so that teams can avoid Economist.com/blogs/bartleby https://t.me/finera The Economist September 15th 2018 Business 71

2 to stand out as able to meet its stricter cor- nese carmaker, decided to delay when it and autonomous driving, success is as un- porate-governance requirements at the became clearthat the firm would not merit certain for Volvo as it is for other carmak- time. MrMa haslowered hiseconomicand such a high valuation. ers. Volvo is setting the pace on electric ve- voting rights since 2007, from13% to 9%. Volvo is nevertheless worth a lot more hicles (EVs), for example: it has promised Amid the online stir caused by JD.com, than when it was snapped up in 2010 for that all its cars will be electrified by 2019. Wang Xing, the usually reserved founder $1.8bn by Li Shufu, owner of Geely. The But the transition to EVs will be expensive, of Meituan-Dianping, an online-services seller was Ford, and the Volvo brand was and Volvo is far smaller and less profitable startup that is due to list in Hong Kong on then close to the scrapyard (which was than German rivals. Returns from selling September 20th, sent a cryptic message to where Saab, another Swedish carmaker, mobility services are largely untested. his social-media followers: “Hope war ended up in 2011 under the ownership of Volvo is at least trying to articulate a fu- does not break out or that there are other General Motors). Even so, there was wide- ture for high-end autonomous cars. It re- black-swan events in the next nine days.” spread incredulity that a Chinese maker of cently unveiled a concept car with an inte- For investors, the pressing matters are nei- cheap, low-quality vehicles could be a suit- rior that includes a seat that turns into a ther war nor shock events. They are more able guardian fora premium marque. bed for overnight driving, which it thinks preoccupied by whether companies have In fact, Volvo has thrived largely by be- might challenge short flights or high-speed VIEs, super-voting stock and a joint posi- ing left to get on with what it does best—de- trains in a decade or so. Another idea is an tion forfounders as chairman and chief ex- veloping fine cars with advanced technol- office on wheels. If and when plans for an ecutive. It is not reassuring for critics of go- ogy and cool Scandinavian design. IPO are revived, ideas such as these will vernance that Meituan, China’s latest tech Production has nearly doubled since the help determine whether Volvo is more de- star, will have all three. 7 last full year of Ford’s ownership, to serving ofa premium price tag. 7 572,000 in 2017, when profits hit a record SKr14bn ($1.6bn). Volvo The association with Geely has worked American television well for both. Mr Li’s willingness to in- Safe at any Swede vest—Geely has put $11bn into Volvo—has Final episode resulted in a string of well-received new models, such as the XC40 SUV (pictured). Volvo is also part of Mr Li’s attempts to build a worldwide carmaking group, GOTHENBURG NEW YORK which includes Malaysia’s Proton, Lotus (a A Chinese-owned Swedish carmaker The boss ofCBS is out, which could British sports-car firm), the maker of Lon- abandons plans foran IPO clearthe wayfora mergerwith Viacom don taxis and significant stakes in both the OLVO puts safety first. The Swedish Volvo lorry business (a separate firm since T SAYS something about the power Les Vcarmaker was the first to introduce 1999) and Germany’s Daimler. IMoonves wielded in the entertainment three-point seat belts in 1959. Its aspiration Geely has used Volvo’s expertise to im- industry that one bombshell report of alle- is that its technology will ensure that no prove its own cars. Owning the Swedish gations by multiple women of sexual mis- one is killed or seriously injured in any brand also brings scale to a small company conduct and harassment could not dis- Volvo sold after 2020. Safety issues may that has to make big investments in the fu- lodge him as chairman and chiefexecutive also explain the decision on September ture ofmotoring. Lynk& Co, a joint venture ofCBS. Instead, it took two. 10th to shelve long-held plans for an initial setup in 2016 between the two, ismanufac- But fall he finally did. On September public offering, which Volvo had hoped turing SUVs on the Swedish firm’s plat- 9th Mr Moonves, long considered one of might value the firm at $30bn. At that lofty form for less than a Volvo equivalent. the most astute executives in the media price it might have struggled to protect in- These are mainly for use in a car-sharing business, was forced out hours after the vestors’ money as conscientiously as it service that may one day substitute for car New Yorker reported allegations that he looks after the well-being ofpassengers. ownership. The new headquarters ofPole- sexually assaulted or harassed six women The firm said the unpredictability of a star, another joint venture between the in incidents dating from the 1980s to the brewing global trade war had persuaded it two that will make high-performance elec- early 2000s. That followed another report to wait. But an IPO that valued the upmar- tric cars, is a shimmering cube of light at in July, also in the New Yorker, of accusa- ket Swedish carmaker on a par with Audi— the firm’s otherwise grey concrete head- tions from other women ofmisconduct. which makes nearly 2m cars a year, three quarters in Gothenburg. Mr Moonves denies both sets of allega- times as many as Volvo produces—always Yet despite its readiness to embrace a tions, although in response to the earlier looked a stretch. Its owner, Geely, a Chi- world of electrification, mobility services ones he said he “may have made some women uncomfortable by making ad- vances”. He has surrendered $60m of $180m in severance pay that he would or- dinarily be due, pending the outcome of an investigation by the CBS board. If the probe findsthathe violated the firm’ssexu- al-harassment rules, he could be owed nothing. Joseph Ianniello, CBS’schiefoper- ating officer and Mr Moonves’s deputy, is serving as interim chief executive while the board searches fora successor. For years Mr Moonves impressed Wall Street by pepping up the business even as the industry of broadcast television de- clined around it. CBS became America’s most-watched network under his over- Less boxy, still safe sight (and he became one of the highest-1 Financial Era Advisory Group 72 Business The Economist September 15th 2018

2 paids CEO of a public company). He pro- daughter Shari. Ms Redstone had been America’s housing market grammed procedural law-and-order feuding with Mr Moonves over her desire shows that were popular with viewers to recombine CBS with Viacom, a strug- Fixer-uppers over 50, the only segment of the American gling sister firm that owns cable networks public that has increased its viewing of such as MTV and Comedy Central, and conventional television this decade. He which is also controlled by the Redstones. had a penchant for simple storylines of (The two companies were combined from ATLANTA good versus evil. As one former associate 2000 until 2005, at which point Mr Red- Tech firms are buying and selling homes putit: “He had a real feelingforwho should stone splitthem up, puttingMrMoonves in directly, cutting out estate agents be the hero, who should be the villain.” His charge ofCBS.) In May MrMoonves and al- own standing in the TV business will not lies on the CBS board filed a lawsuit seek- ELLING a home is stressful and time- recover soon, ifever. ing to dilute the Redstone family’s control. Sconsuming. You must first put up with Mr Moonves’s ousting is the most con- Now Ms Redstone’s grip on CBS could estate agents’ admonishments about old sequential for a public company since the scarcely be more secure. On September carpets that need replacing, then with in- #MeToo era began nearly a year ago. Early 9th the CBS board also named six new di- trusions by prospective buyers who find this year reports of alleged misconduct rectors, tilting the majority in favour of Ms more faults. A good offer can take months forced Steve Wynn, a casino magnate, to Redstone. The litigation was dropped. As to materialise, only to fall through later. step down as boss of Wynn Resorts; the part ofthe bargain Ms Redstone has agreed “It’s just not worth your sanity,” groans firm’s market capitalisation has fallen by a not to initiate a merger for two years. But Anne Aviles, a schoolteacher in Atlanta. third, to lessthan $15bn. Butthe shake-up at nothing prevents the new bosses of CBS To preserve her equanimity Ms Aviles CBS, which is valued at $21bn, will almost from initiating such a move. It is not at all turned to a firm called Opendoor. She en- certainly alter the company’s trajectory. clear that CBS would benefit from merging tered her property details on its website Although it is publicly traded, CBS is with Viacom, a group of networks in dis- and received an offer of $298,500 in sec- controlled by the family of Sumner Red- tress. But it is certain that Mr Moonves will onds. Afewdayslaterthe companysent an stone, an ailing media magnate, via his not be around to call the shots. 7 inspector, who deducted $4,000 for a faulty air-conditioning unit and a shabby paint job. It offered Ms Aviles $278,000, Vaping after knocking a further 5.5% off forits own benefit. This price was a bit lower than list- Smoked out ings for similar homes. But the hassle-free experience, which took about a week, made up forit. She accepted. The FDAmoves to harsh the mellow ofthe e-cigarette industry Although listings services such as Zil- OR some, e-cigarettes are nothing low, a property portal based in Seattle, be- Fshort ofa miracle. Over time tobacco gan to supplant classified adverts in the kills halfofits users, according to statis- mid-2000s, deeper disruption in the prop- tics from the World Health Organisation. erty market has been slower to emerge. In- But when a solution ofnicotine is heated dividuals sell homes infrequently, in what up, the inhalable vapour that results both are the biggest transactions of their lives. satisfies smokers and does away with They have little incentive to rush or seek most ofthe harmful effects ofordinary greater efficiency. But like Ms Aviles, many cigarettes. An array ofenticing flavours, would like to speed things along. such as cherry, dessert, mint and mango, Enter “instant buyers” such as Open- adds to the allure. door. These companies, known by the ab- As the number ofpeople who vape breviation “i-buyers”, try to do to property has risen, from around 7m in 2011to 35m sales what Billy Beane did to baseball. Just in 2016, fortuneshave been made. The as the manager of the Oakland A’s substi- most popular brand in America is Juul, a tuted software for conventional talent San Francisco-based startup which has scouts, i-buyers replace estate agents with captured 71% ofthe e-cigarette market algorithms that crunch data on everything there. Part ofits appeal comes from the from the number of bedrooms to local fact that its discreet device, shaped like a Genuine device addiction crime rates, to estimate what a property USB flash drive, uses a proprietary blend should sell for. They then buy it at a dis- ofnicotine to deliver a more immediate must come up with plans to reduce use of count to the computed price (as Mr Beane hit, closer to that ofa cigarette. their products by minors. He noted that did with players), spruce it up and offload But success has brought scrutiny. The nicotine was not a benign substance. it. Opendoor says its average fee is 6-6.5%, problem forJuul, and forfirms that want Shares in tobacco firms leapt. about the same cut as conventional estate to emulate it, is that e-cigarettes appeal to Juul and others have no choice but to agents take on a sale. youngsters as well as to hardened smok- comply. The FDA can force them to take Zillowannounced in April thatit would ers. Regulators are on the warpath. In products offthe market. It could also launch its own i-buyer, which began oper- August Israel banned Juul. And on Sep- bring forward its plans to regulate e- ating in April in Phoenix, in June in Las Ve- tember12th Scott Gottlieb, head ofthe cigarettes. The firms’ response will al- gas, and this month in Atlanta. It will short- Food and Drug Administration (FDA) in most certainly involve tightening up the ly expand to Denver. Some shareholders in America, put five e-cigarette firms on distribution ofproducts to retailers who the firm were unimpressed about its entry notice. Mr Gottlieb called teenagers’ use sell to children. Some flavoured products into a business which promised relatively ofe-cigarettes an “epidemic” and said will probably have to go. E-cigarette firms low margins, high costs and extra risks to that within 60 days the companies—Juul, have thrived. To keep doing so, they now its balance-sheet; its share price fell by 9% Vuse, MarkTen, blu e-cigs and Logic— have to cough up a decent plan. when it outlined its plans. But venture cap- italists see promise in the approach, valu-1 https://t.me/finera The Economist September 15th 2018 Business 73

2 ing Opendoor at above $2bn. home, before repair costs and fees to buy- some collateral damage seems likely. The To be sure, there is a way to go before ers’ agents (who are paid by the seller in effects could reach into unexpected places. the promise ofi-buyers is fulfilled. Their al- America and whom i-buyers have not dis- GitHub, for instance, is an online code re- gorithms are good at appraising identikit placed). Zillow has told investors to expect pository. It worries that open-source com- single-family units, but struggle with idio- a profit of only 1.4% per home. Because puter code hosted on its site might fall foul syncratic properties—flats in city centres, around 85% of i-buyers’ purchases are fi- ofthe new filters. say,or luxury villas. For its part, Opendoor nanced with borrowed money,risinginter- plans to expand from 16 cities today to 50 est rates may squeeze margins further. Fall- Whose internet is it anyway? by 2020, but not to large, complex urban ing prices represent another risk. The The second fight was over Article 11, which markets such as New York, San Francisco potential market is massive, however. pits tech firms against publishers. It re- or Los Angeles. Even for mid-range subur- Spencer Rascoff, Zillow’s boss, estimates it quires social networks and aggregators ban homes, i-buyers still make up only a at 2.75m homes in the biggest 200 cities in such as Google’s “News” search engine to thin slice of transactions. In the past year, America (about half of the country’s 5.5m obtain a licence from publishers before dis- 7,640 such properties in Phoenix were annual home sales). America has endless playing snippets of news reports to their boughtandsoldthroughi-buyers,account- suburbs lined with millions ofhomes, and users. Firms such as Google and Twitter ing for 3.4% of transactions, according to armies of estate agents who are often re- profit from the attention generated by Mike DelPrete, an independent consultant. garded with suspicion by buyers and sell- news that is gathered by others, note Arti- That share will need to rise a lot before ers alike. If i-buyers can dispense with at cle 11’s advocates, and should therefore i-buyers make real money. In Phoenix least some of them, and speed up home share the revenues that result. But critics Opendoor earned 6% on average per sales in the process, few would grumble. 7 decry it as a “linktax” that would also radi- cally limit the freedom ofinternet users. Article 11 is a Europe-wide version of Internet regulation in Europe similar rules introduced in Germany and Spain in 2013 and 2014 respectively. Goo- Screen grab gle’s response in Spain was to pull the plug on its news service, to the detriment of publishers that relied on it for traffic. By making a similar law apply across the en- tire European market, the hope is that Goo- gle (and other companies) will be forced to A new copyright law and a court case are the latest examples ofthe EU’s keep services running and share some of technological assertiveness their revenues. UDWIG VAN BEETHOVEN has been probably means they will have to deploy Predictingthe exact consequences ofall Ldead for nearly 200 years. The copy- many more content filters like Content ID, these new rules is difficult, says Jim Killock right on his music is long expired. But which are worryingly imp`recise. of the Open Rights Group, a British organi- when Ulrich Kaiser, an academic at the Technology companies, and those who sation that opposed the changes. They University of Music and Performing Arts advocate an open internet, say the effect must be approved by both the European Munich, recently tried to upload a public- will be dire. In the quest to give more pro- Commission and the EU’s 28 member domain recordingofhisFifth Symphony to tection to copyrighted work, everything states before they can be finalised. But the YouTube, he was thwarted by Content ID, from political-protest videos to citizen planned legislation is another example of an automated copyright filter. Mr Kaiser journalism and viral memes, they argue, rising European assertiveness when it tried again with recordings of music by risks being squashed by overzealous en- comes to regulating the internet—in May Schubert, Puccini and Wagner. Despite be- forcers. The freewheeling nature of the in- the EU brought into force the General Data ing in the public domain, all were flagged ternet could change, they warn. That is a Protection Regulation (GDPR), a far-reach- forcopyright violations by the algorithm. prospect often wheeled out by the internet ing privacy law. One result could be yet YouTube built Content ID a decade ago, lobby and is probably an exaggeration. But more “geo-fencing”, whereby the internet under pressure from copyright-holders becomes fragmented along geographical worried that users were uploading com- lines. Afterthe GDPR came into force, some mercial music and videos without permis- American websites decided to block Eu- sion. Ever since users have complained rope-based visitors rather than comply. that the algorithm is too aggressive. Now More regulation may be in the offing. YouTube and other big internet firms may The day before the parliamentary vote be obliged by European law to employ Google was at the European Court of Jus- similar methods there. On September 12th tice, in Luxembourg, to do legal battle with members of the European Parliament ap- the CNIL, France’s data-protection author- proved, by 438 votes to 226, a draftofa new ity. The dispute concerned the “right to be copyright law designed to update the EU’s forgotten”, under which the EU requires copyright legislation, which predates the search engines, in certain circumstances, to rise of big internet gatekeepers such as remove links to webpages with personal Google and Facebook. The rules sparked information aboutEuropean citizens. Goo- death threats against MEPs and a million- gle’s approach has been to remove links to signature petition against the proposals. the offending pages only for EU users. The Two provisions are particularly conten- CNIL saysthat, because the tech used to de- tious. The first is Article 13, which compels termine where a user is based can be cir- internet firms, whose users upload large cumvented, links should be removed for quantitiesofvideo, music, text and the like, all users, anywhere in the world. A ruling to work with copyright-holders to ensure is expected next year. Europe may not have that anything that breaches copyright can its own internet giants, but it is having be detected as soon as it is posted. That plenty ofimpact on America’s. 7 Financial Era Advisory Group 74 Business The Economist September 15th 2018 Schumpeter An empire of the mind

American firms and securitychiefs want tight control ofthe global flow ofideas. Good luck supremacy. History is not encouraging. At any point in time an elite group of firms in a particular country are on the frontier of innovation. Businesses and governments in poorer places try to catch up, because that is the best way to get rich. According to the IMF, the absorption offoreign IP explains40% ofthe growth in la- bour productivity in emerging economies between 2004 and 2014. The incentives for such countries are so powerful that hoardingideasawayfrom them islike clutchinga wetbar ofsoap. Thus in the Anglo-French wars of the 1700s France recruited British defectors to unlock the secrets of coal technologies. In the subsequent century America stole British designs for looms and trains. Japan mimicked the West during the Meiji Restoration. South Korea, Taiwan and Singapore industrialised by buying and stealingWestern ideas on everythingfrom ships to chips. Cries of foul play from the global hegemon are to be expected. In the case of Britain, it passed an act against economic espionage in 1719. In the 1980s CasparWeinberger, America’s defence secretary, fretted about the haemorrhaging of high-tech ideas to the Soviet Union, which had a wishlist forits spies called the Red Book. Despite this, the Soviets did less for computers than Steve Wozniak in the Jobs family’s garage. To take off, after all, foreign NE of the quirks of LinkedIn, a career-oriented networking ideas need to be absorbed and commercialised by firms and en- Osite with over 562m users, is that strangers wish you a happy trepreneurs. One channel iscontractual relationships, such asfor- birthday even when your mum has forgotten. If this happens to eign direct investment or licensing. Another is persistent theft. you, don’t respond: it could be a Chinese spy. According to Reu- But often there is a grey area that includes reverse-engineering ters, American counter-intelligence chiefsthinkthat China is run- products, tips from suppliers and headhunting experts from ri- ning a “super-aggressive” campaign on LinkedIn to recruit ex- vals. Globalisation and the web have deepened all these chan- perts in health care, green energy and technology. Other agencies nels. Companies’ IP is more scattered owing to global production are nervous, too. The FBI complains of an “unparalleled” level of chains. A global jobs market exists for technical experts and ar- economic espionage. The National Security Agency says Ameri- mies ofstudents learn abroad. ca is being “pummelled”. How might America control the flow ofideas? Duringthe cold The spooks’ warnings are part of a wave of anger in the West war it ran a Western embargo of the Soviet Union for military about ideas leaking across borders. On June 1st the European Un- goods and some high-tech ones, through a secretive body known ion complained to the World Trade Organisation (WTO) that Chi- as COCOM. Today it would need an even more intrusive and co- na prevents European firms from getting a fairprice for theirintel- ercive approach to assert its IP rights unilaterally. Establishing an lectual property (IP). A 215-page White House report on China’s extraterritorial deterrent would require crippling punishments trading practices published in March was filled with accusations for firms that violated IP, such as banning them from using the ofIP violations, including outright theftand the forced transferof dollar-based banking system. A Big Brother regime would be IP to joint-venture partners in China. On August 1st Congress ap- needed at home. There are 67,000 AI experts working in America proved a law that gives the government sweeping powers to po- who are ethnic Chinese, according to an analysis of LinkedIn by lice cross-border deals involving “critical technologies”. Bernstein, a research firm. They can hardly all be suspects. For American firms the stakes are high. They derive 80% of their market value from intangible assets such as patents and Brain freeze brands, as opposed to physical ones. They own half of the Even then, China and other countries might balk at paying a big- world’s IP. At the biggest 50 multinationals, 65% of foreign profits ger tribute to America’s IP supremacy. If USA Inc charged the come from IP-intensive businesses such as tech and drugs. The world $600bn more, and this hit was absorbed by all foreign latest star firms rely on selling intangibles across borders. Netflix companies, it would cut total profits outside America by about a has 73m users outside ofUncle Sam. NVIDIA, which designs arti- tenth. The return on equity of American multinationals abroad ficial-intelligence (AI) chips, makes 87% ofits sales abroad. (excludingfinancial firms) would soarfrom 8% to 14%. Europe and Yet in the eyes of many American bosses and security types emergingcountriesare alreadyuneasyaboutthe large and lightly the global IP regime is broken. The Economic Espionage Act of taxed rents that American firms extract abroad, from the drugs in- 1996 is intended to police IP theft by governments and firms but dustry to the big tech companies. has led to few prosecutions; WTO rules on safeguarding IP America’s economy is shifting further towards intangibles. abroad have little bite. What is required now, many believe, is The administration and bosses are right that China has misbe- tough, unilateral action by America to enforce its rights abroad. haved. But ideas are harder to police than gearboxes and coils of Companies want stronger control of IP, allowing them to maxi- steel. The solution is a global regime that permits the flow of mise their profits. The IP Commission, a lobbying group in Wash- ideas, prohibits theft, offers a framework for pricing IP and sees ington, reckonsthattheyare beingrobbed ofup to $600bn a year. that rules are enforced. A next-generation global trade treaty, in Politiciansand the securityestablishmenthave a grander aim: other words. Sadly, this is exactly the multilateral approach to regulating the flow of ideas to preserve American technological trade that America has rejected. Not one ofits best ideas. 7 https://t.me/finera Property 75

Chateau in Normandy, France For Sale - EUR 1.9m 18th century French chateau in the heart of Calvados - Normandy, France, set within 12 acres (4.8 hectares) of walled parkland. The grounds feature a fountain, well-manicured lawns, flower gardens, woods and tennis court. The chateau is comprised of 9 bedrooms, 8 bathrooms and 3 living rooms, with listed hand painted wall murals, and has been beautifully restored by the current owner/occupier. Facilities are in place both inside and outside to host weddings and events. Additionally there are numerous outbuildings, including a 3 bedroom guest cottage, two 1 bedroom apartments and office space. The property is surrounded by fields, and is 30 minutes from the sea, 2.5 hours from Paris, and 40 minutes away from both Caen and Deauville international airports.

http://www.lemesnildo.fr/ Contact: Guillaume +447532003972 [email protected] The Economist September 15th 2018 Financial Era Advisory Group

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6IEHIVWSJ8LI)GSRSQMWX VIGIMZIE3 HMWGSYRX`9WIGSHIECON https://t.me/finera Finance and economics The Economist September 15th 2018 77

Also in this section 78 Turkish banks 79 Hyperinflation in Venezuela 80 Infrastructure in Colombia 80 Impact ETFs 81 Buttonwood: Market millenarians 82 Ant and Tencent 83 Free exchange: Upsetting the Apple cart

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The Federal Reserve from 2.5% in 2012 to 1.9%. Whether they were right to do so is the Feeling the heat subject of much debate. Some economists thinkpolicymakers have been too quick to conclude that dismal growth after the fi- nancial crisis indicates a new normal. A re- cent paper suggests that the standard ways of estimating an economy’s potential are WASHINGTON, DC overly influenced by blips in its perfor- America is pushing the labourmarket to its limits mance. Othersthinkthatrunningthe econ- Y MANY measures, America’s econ- shocks and structural shifts, as well as by omy hot could spur productivity-enhanc- B omyispoweringahead. GDP ison track economic policy. Errors take time to show ing innovation, as wage growth forces to grow at around 3% this year, and the un- up. It is as if the rate-setters must adjust the firms to economise on labour. Sceptics of employment rate is an impressively low flow of hot and cold water not only with- thatargumentpointoutthatthe productiv- 3.9%. For President Donald Trump, it is an out knowing what temperature is most ity slowdown started before the crisis, sug- unmissable opportunity to gloat. On Sep- comfortable, but also without knowing gestingthat it is unrelated to labour-market tember 10th he described the economy as howhotthe bath isto begin with—orwhen conditions. “soooo good” and “perhaps the best in our they will be getting in. As the Federal Reserve’s mandate refers country’s history”. But for others the very Over time, those best guesses have to employment, not output, members of same figures present an economic puzzle. changed. Six years ago the central estimate the FOMC must consider a narrower ques- The Federal Reserve has been raising its among members ofthe Federal Open Mar- tion: what does full employment looklike? benchmark interest rate since December kets Committee (FOMC), the body that sets Here, the puzzle of the past few years has 2015, and will probably do so again this interest rates, was that in the long run, un- been why, even as the unemployment rate month, from a range of 1.75-2% to 2-2.25%. employment would settle at 5.6%. Now has plunged, inflation has been so stub- This is the central banker’s version oftwid- their estimate is 4.5%. Weak productivity bornly low. Hawks think that hidden infla- dling the bath taps, but on a national scale. growth has led them to cut their estimate tionary pressures are building; doves, that It requires a delicate touch. Too much cold of America’s long-run growth rate, too, behind that headline unemployment rate water, in the form of higher rates, will there is still excess labour capacity. choke off demand and hence jobs. Too Until very recently, the doves have had much hot, and rising inflation will eat Bath time the best of the argument. The most obvi- away at people’s spending power. The aim United States, % change on a year earlier ous interpretation of such a low unem- is to find the perfect temperature, where 6 ployment rate is that the labour market employmentisashigh asitcan be while in- Inflation expectations could not improve much without pressing in 12 months* flation stays subdued. 4 prices upwards. However, it has been soak- But as Jerome Powell, the chairman of ing up not only job-seekers, but also peo- the Federal Reserve, reminded his listeners 2 ple who reported that they had not been in a speech in Jackson Hole on August24th, + looking for work, or who had been work- no one knows what that perfect tempera- 0 ing fewer hours than they wanted. ture is. Policymakers must make their best Headline inflation† – But arguing that the labour market still guess of what “full employment” looks 2 has hidden slack is becoming harder. Data like, or when the “output gap” (the differ- 2007 09 11 13 15 17 18 released on September 11th revealed that ence between where the economy is and Sources: Bureau of *Taken from surveys Americans are quitting their jobs at the its long-run potential) is zero. Inflation and Economic Analysis; †Index of personal highest rate since 2001. For each job open- employment are affected by temporary University of Michigan consumption expenditures ing, there are just 0.82 hires and 0.9 unem-1 Financial Era Advisory Group 78 Finance and economics The Economist September 15th 2018

2 ployed people hunting for a slot. All of the Turkish banks main measures of labour underutilisation reported by the Bureau of Labour Statistics Offside are at or below their pre-crisis trough, and near to where they were at the peak of the dotcom boom. It is possible that still more people will be drawn into the labour market. The ISTANBUL prime-age employment rate in August was What the slide in the lira and the economymean forTurkey’s lenders 79.3%, a little below the pre-crisis peak of 80.3% and below the high of the past 70 HESE are glorious days at Recep Tayyip years, of 81.9%. But those benchmarks may TErdogan Stadium, a tidy 14,000-seat Falling due no longer be appropriate: male labour- football ground perched on a steep hillside Turkey, private-sector borrowing from abroad force participation hasbeen drifting down- in the Kasimpasa district of Istanbul—and By maturity date, $bn wards fordecades. named after a local lad who became presi- Financial Non-financial Recent data have also favoured the dent. Kasimpasa SK are top of the Super 10 hawks. Headline inflation has been above Lig, Turkey’stop division, havingwon their 8 target for five months. Inflation excluding first fourgames ofthe season. food and energy prices, generally regarded The economy over which Mr Erdogan 6 as more useful than the headline figure presides, by contrast, is embroiled in a bat- 4 when it comes to predictions, is rising. It hit tle for survival. This year the lira has fallen 2% for the first time since 2012 in July. Ac- by 40% against the dollar, tumbling espe- 2 cording to a survey by the University of cially hard last month after a diplomatic 0 Michigan, inflation expectations appear to row with America. Inflation is nearly 18%. Sep Oct Nov Dec Jan Feb Mar Apr May Jun be rising gently, too. Even average hourly The central bank, pressed by MrErdogan to 2018 2019 earnings seem to be accelerating, up by keep interest rates down, has been slow to Source: Turkey Data Monitor 2.9% in August compared with 12 months react, but on September 13th, even as the ago (though admittedly, that is not much president urged a cut, it raised its policy rect 40% share of Yapi Kredi), have also more than inflation, and still below the rate by 6.25 percentage points, much more wobbled. Last month Moody’s, a rating pre-crisis norm). than markets had expected, to 24%. The lira agency, downgraded 18 Turkish lenders. Olivier Blanchard of the Peterson Insti- leapt in response. Against that, by the usual measures Tur- tute for International Economics points Turkey’s economy is already slowing key’s banks meet the crisis in decent shape. out that over recent decades, inflation has sharply. Year on year, growth fell from a Their ratios of equity to risk-weighted as- become less influenced by the jobless rate, breakneck7.4% in the first quarterto 5.2% in sets are well above regulatory floors, im- and is therefore less useful as a signal of the second. GDP may shrink in the closing plying that they can absorb some blows. whether the economy has hit full employ- months of 2018. The credit that fuelled the They have ample liquidity. They have hith- ment. Nevertheless, he sees enough evi- boom—much of it from abroad, pushing erto enjoyed returns on equity in the mid- dence from the labour market to conclude the current-account deficit to 6% ofGDP—is teens. Sam Goodacre of J.P. Morgan says that the economy is very close to full em- drying up. Adjusted for inflation, bank that their net interest margins, at 4% or so, ployment, and predicts an end to all the lending is declining. Even big companies are thick enough to cope with higher fund- head-scratching. are being quoted borrowing rates of35%. ing costs. One wayto interpretthe recenttrends is Such a sudden halt often spells trouble Howmuch trouble theywill getinto de- as a vindication ofthe FOMC’s approach to for banks. Warning signs are flashing. List- pends largely on two things. One is the interest rates. As the economy seems to be ed banks’ share prices have fallen by more willingness of foreign lenders to keep sup- heating up, they are twisting the bathtap to than 40% this year. Those of Western plying them with funds. Turkish banks what they thinkis a neutral position. So far, banks with stakes in Turkish ones, such as have borrowed lots from abroad. Some of they have managed not to overdo it. Some Spain’s BBVA (which owns half of Garanti) that money has been lent to Turkish com- have called for faster action, fearing a re- and Italy’s UniCredit (which has an indi- panies eager for cheap dollars and euros. 1 peat of the 1970s, during which inflation, and inflation expectations, rose in a mutu- ally reinforcing spiral. But as Mr Powell pointed out in his speech, although infla- tion has recently moved up to near 2%, there are no clear signs of an acceleration above that. Whether congratulations are warrant- ed will depend on whether recent trends are sustained. If they are, the debate be- tween hawks and doves will not end, but change. Central bankers have managed to train the general public to expect low infla- tion, meaning that, for now at least, any fears of spiralling prices seem unjustified. But that may imply that the risks of run- ning the economy hot have fallen. In other words, the stronger central bankers’ prom- ises to control inflation, the more tempting it may be to break them. It’s enough to make you want a long, hot bath. 7 Relegation battle https://t.me/finera The Economist September 15th 2018 Finance and economics 79

2 Some has been swapped into lira, to meet Venezuela demand forlira loans, which farexceed lira deposits. Regulation obliges the banks to The half-life of a limit their own exposure to currency risk, but foreign lenders may fear that the ulti- currency mate borrowers will default. About $100bn of the banks’ foreign debt falls due within a year. A bit more than $20bn in Hyperinflation is hard to grasp, harder loans, including syndicated loans raised still to tolerate from dozens of banks, must be repaid or rolled over by the end of 2018 (see chart on N 1946 Gyorgy Faludy, a Hungarian poet, previous page). Ireceived 300bn pengo for a new edition A banker involved in the market says of his works. The sum would have been that the cost of syndicated loans has dou- worth $60bn before the second world war. bled in the second half of the year, albeit But after the Nazis departed with Hunga- from a low base. The banks are unlikely to ry’s gold reserves and the Russians occu- be able to roll over all the maturing loans. pied its territory, the country’s currency But they have plenty of liquidity to make was not what it was—and becoming even up the shortfall. And the foreign lenders less so. After collecting the money, Faludy they have dealt with for a long time are rushed to the nearby market and spent it Loose change likely to keep supporting their core rela- all on a chicken, two litres of cooking oil tionships. Mr Goodacre notes that Ak- and a handful ofvegetables. persists at its peak monthly pace. Their re- bank, a leading bank with $940m of debt For those not enduring it, hyperinfla- sults provide a kind of “half-life” for a cur- maturing this month, has relationships tion can seem mind-bendingly abstract. rency, showing how long it takes for it to with 300 foreign banks, ofwhich nearly 40 The numbers are hard to fathom. In Vene- lose 50% of its value (relative to the coun- lent to it in a syndicate this time last year. zuela’s faltering economy, prices rose by try’s consumer goods and services). 223.1% lastmonth alone, accordingto Ángel This alternative calculation turns the Slow motion Alvarado, an economist and opposition astronomical percentages of hyperinfla- The other factor is how much of the debt politician (the government has longceased tion into more mundane intervals of time: owed to them by Turkish companies turns publishing official statistics). Each day millions into days and quintillions into bad. For several years firms have been bor- throngs of Venezuelans rush across the hours. In Venezuela’s case it took less than rowing dollars and euros at ultra-low post- 300m Simón Bolívar bridge joining their 19 days in August for the currency to lose crisis interest rates. The lira’s fall has made country to the economic sanity of Colom- half its value. In the worst month of Hun- those debts much costlier. To be sure, some bia, where they hope to obtain medicines, gary’s hyperinflation, it took just 15 hours. borrowers earn foreign currency. Others food and a better-preserved currency. “Soon the depreciation of the currency ad- have hedges—some developers of shop- Venezuela’s inflation could reach 1m vanced so rapidly that it not only was felt ping malls have obliged retailers to pay percent for the full year, according to a from day to day, but even from hour to rent in dollars, for example. But plenty do (somewhat loose) forecast by the IMF. hour,” notes one historian ofthe episode. not. And if shopkeepers cannot pay the Such a figure is far from unprecedented, That ever-present feeling has one con- rent, eventually their landlords suffer too. however. In the worst month of its post- solation: it can make hyperinflations quick Fornow, banks’ bad-loan ratiosare only war hyperinflation, Hungarian prices rose to end. Of the 57 episodes identified by about 3%, piddling by Greek or Italian stan- by 41,900,000,000,000,000%. The gov- Messrs Hanke and Krus, many lasted less dards. State banks report lower figures ernment had to print a 100 quintillion note than a year. Because people are always than private lenders, which may be mis- (with 20 zeroes), the highest denomination thinking about prices, their inflation ex- leading. State banks were keener to lend to ever produced. One elderly gentleman pectations are unusually fluid. If the gov- small firms under the government’s credit- used one to line his hat, according to Victor ernment can convince them that it has guarantee fund, a scheme intended to keep Sebestyen, a historian. stopped printing and spending money so the economy cooking. The ratios look sure IfVenezuela’s monthly inflation gets no recklessly, shops, businesses and workers to rise, but that will take a while. worse, its hyperinflationary horror will will be quickto act on that conviction, rais- Supervisors have bought the banks rankonly23rd outofthe 57 episodesidenti- ing their prices and wages more conserva- time. They have softened rules on poten- fied by Steve Hanke of Johns Hopkins Uni- tively. In high but not hyperinflationary tially bad loans, and delayed the revalua- versity and Nicholas Krus (see chart). To scenarios, by contrast, people become ac- tion of foreign-currency loans in lira, make the numbers easier to grasp, they customed to rapid price increases and ex- which would have dented banks’ capital have provided an alternative way to ex- pect them to continue. That makes it more ratios. But had it not been for Mr Erdogan, press them. They calculate how long it likely they will do so. Hyperinflation is so questions about Turkey’s banks might not would take for prices to double, if inflation disruptive no one can get used to it. 7 have arisen at all. Since America’s Federal Reserve started to unwind quantitative easing in 2014, the days of ultra-cheap Runaway reaction money in emerging markets have been Hyperinflation, number of days for prices to double at peak monthly rate numbered. Rather than accept that, and a gradual slowdown, Mr Erdogan has risked 051 2 3 4 10 15 20 25 30 running Turkey into a wall. Byfacingdown a coup in 2016, and win- ning a subsequent election and referen- Germany 1923 Argentina 1989 Zaire Republic of 1991 dum to tighten his grip on power, he has Zimbabwe 2008 China 1945 USSR 1924 changed the rules of Turkish politics. But Hungary 1946 France 1796 Venezuela 2018 Austria 1922 he cannot change the laws of economics, any more than those offootball. 7 Sources: “World Hyperinflations” by Steve Hanke and Nicholas Krus; The Economist Financial Era Advisory Group 80 Finance and economics The Economist September 15th 2018

Infrastructure in Colombia Impact ETFs The highway, my Opposites attract way

Anational development bankwith Moneymanagers and charities are private-sectordiscipline offering joint investment products T COSTS more to send a 40-foot contain- MPACT investing, or investing according Ier by road from Bogotá, Colombia’s capi- Ito your values, seems a nice idea. But it is tal, to Buenaventura on its Pacific coast hard to turn boutique products into mass- than to ship it on from Buenaventura to market ones without diluting their virtues. Shanghai. According to the World Eco- Impact Shares, a non-profit money manag- nomic Forum, Colombia’s roads are er, thinks it has a solution: exchange-traded among the worst in Latin America. For funds (ETFs) developed with charities and more than 20 years governments have non-profits. “Non-profits, with their long tried to improve matters, with little suc- history of fighting for social causes, are cess. Now Colombia is trying again. much better equipped to determine good Central to the latest attempt, called the Removing road blocks corporate citizenry than the asset manag- Fourth Generation (4G) road-develop- ers who currently make those calls,” says ment programme, is the National Develop- financing, the board must sign it off. The Ethan Powell, its founder. ment Finance corporation (FDN), which hope is that the foreign and independent Impact Shares hopes to ride two big was launched in 2013. Unlike most devel- members will reject those that show signs trends: a shift over the past decade in in- opment banks elsewhere, it funds at most ofrigged bids or padded contracts. vesting from active (stock-picking) to pas- 25% of any project. It must seek out private So farthe model appears to be working sive (index-based), and investors’ growing investors, at home and abroad, and pack- well. By the end of 2018 the FDN expects to desire to put their money where their val- age projects to offeracceptable risks and re- have closed financing for17 projects, worth ues are. Each ofthe new ETFs houses a bas- turns. Colombia’s needs are so great, says $8.4bn, of the 30 planned under the 4G ket of around 200 stocks that score well on Clemente del Valle, the FDN’s president, banner. Of that, 24% will come from criteria set by a non-profit in the relevant that it “can’t just sit around and wait till abroad. It is now branching out from roads field. The first, which started trading in July, those markets are developed.” to other investments, including Bogotá’s focuses on empowering minorities and That forces it to support only viable pro- Metro, which will be Colombia’s priciest was created with the National Association posals, says Ramiro Lopez-Ghio of the In- infrastructure project to date, at an estimat- for the Advancement of Coloured People ter-American Development Bank (IDB). ed costof$4.6bn for25km ofelevated track. (NAACP), an American civil-rights group. The result is that the FDN’s involvement is The bank will soon need more capital. A second launched late last month, fo- a signal of quality. It gives investors com- In 2016 the Colombian government sold its cusing on female empowerment and trad- fort in other ways, too. The bank offers a stake in Isagen, a power-generating com- ing on the New YorkStockExchange under peso credit line that helps foreign investors pany, to a Canadian investment fund for the ticker WOMN. It was developed with offset their exchange-rate risk. And it lob- $2bn, and used the money to buy FDN the YWCA, another non-profit. A third, bied congress to make it easier for Colom- bonds, giving the institution the where- which will invest in the world’s least de- bian pension funds to invest in the infra- withal to fund its endeavours. But to con- veloped countries, is being created with structure-debt funds it helped set up. tinue long-term infrastructure financing, the UN Capital Development Fund. More Another aim of the FDN is to help fight says Mr Valle, an IPO will soon be needed. will follow. graft. This is common in government infra- A bigger problem, says Mario Dib, who These ETFs have more complex selec- structure projects the world over. Colom- manages one of the infrastructure-debt tion criteria than other funds. That makes 1 bia has been no exception. In one recent funds set up by the FDN, is that Colombi- scandal, dubbed the Merry-Go-Round, ans hate road tolls. Earlier this year tolls construction firms overpriced work and were suspended in Urabá, in the country’s bribed politicians, including Bogotá’s for- north, afterprotestersburnttoll-points and mer mayor, who was sentenced to 24 years killed three people. The government has in jail. (He is appealing.) And it is one of at agreed to pay FDN concessionaires any least ten Latin American countries where money they are unable to collect. Odebrecht, a Brazilian construction giant, That is supposed to give investors the bribed politicians to win contracts. certainty they need to keep coming. But it Respected foreign institutions have would weaken the rationale for the FDN if been brought in to try to change all that. taxpayers are stuck with bills they were Though Colombia’s government is the never supposed to pay. And it raises fears FDN’s majority shareholder, the Interna- thata future governmentmightsouron the tional Finance Corporation and the Ande- institution. The next presidential election, an Development Corporation each hold in 2022, coincides with the expected com- around 8-9%. The Sumitomo Mitsui Bank- pletion of many 4G roads. If the tolls spark ing Corporation, a private Japanese bank, more protests, and someone less market- holds a similar share. They appoint three friendly than the centre-right incumbent, board members between them, matching Iván Duque, wins, public-private partner- the government’s quota. A final three, also ships might fall out of fashion. That would chosen by the government, must be from be rotten luckforthose tryingto fix Colom- outside politics. For a 4G project to get FDN bia’s rotten infrastructure. 7 https://t.me/finera The Economist September 15th 2018 Finance and economics 81

2 them more costly to produce. WOMN’s an- some of their money and that the ETFsare a speedy public apology and arranged nual fees of 0.75% of assets under manage- aligned with their values. They may also staff training. Shares quickly recovered. It ment, compared with 0.2% for SHE, State hope that higher returns will offset at least had made the index with flying colours. Street’s gender-diversity ETF, are partly be- some of the costs. Good corporate citizen- For the non-profits, the benefits go be- cause it has 19 selection criteria, some of ry can sometimes predict performance. yond the extra cash. The products raise which are hard to monitor, such as policies In July the founder ofPapa John’s, a piz- awareness of the social problems they fo- on parental leave. SHE usesjustthree, all re- za chain, stepped down after admitting to cus on and may prod corporate America to lating to the number of women in leader- using a racist slur. The share price suffered. act, says Dorri McWhorter of the YWCA. ship roles. The higher feesare also because Impact Shares had already excluded the Non-profits working with Impact Shares the charities involved will receive whatev- company from the index created with have been approached by firms wanting to er is left over after the money managers’ NAACP, since it had scored poorly on the know how they can improve. The effect costs. Impact Shares estimates that the non-profit’s measures. By contrast, after an may be felt beyond public markets. Ms YWCA will get up to 0.5% ofmoney raised. employee of Starbucks called police to re- McWhorter says she has heard from a ven- Investors may regard higher costs as a move two black customers from one of its ture-capital fund keen to use the YWCA cri- fairexchange forknowingthat charities get coffee shops in April, the firm’s CEO made teria to screen potential investments. 7 Buttonwood Leaning against the wind

Whyeverything might turn out just fine SKIT in the 1979 film, “The Secret When you have just lived through one APoliceman’s Ball”, features Peter trauma, another seems more plausible. Cook, a revered British comedian, as the But disaster can breed so much cau- leader of a cult whose members have tion that a crisis becomes less likely, says gathered on a mountain to watch the end Eric Lonergan of M&G, a fund-manage- of the world. His followers are full of ment group. He cites the example of the questions. How will the Earth perish? East Asian crisis in 1997-98. The countries Will there be a mighty wind? What will it affected went on to make sure they happen to homes? “Well, naturally they would not be at risk of another balance- will be swept away and consuméd by the of-payments crisis. Likewise, after a crisis fire that dances on the Jeroboam,” he re- as far-reaching as the most recent one, lev- plies. “Serve them bloody well right!” els of watchfulness among rich-world The skit sends up the millenarian sects policymakers militate against the risks of of medieval Europe whose adherents be- a global recession. “Your prior [assump- lieved they were living in the “end times” tion] should be for a very long expan- or “last days”. It could as fittingly be sion,” says Mr Lonergan. aimed at many investors today. Astrain of So how might it all go right? It is en- millenarian thinking has been common cal means. Meanwhile, China’s economy couragingthat a numberofFed governors since the bankruptcy ofLehman Brothers has slowed. Its debt mountain looms large. seem anxious about the risk of tightening ten yearsago thismonth. Itsdevotees, too, President Donald Trump’snumerous trade monetary policy too much. Emerging rail against a discredited priesthood and wars present another threat. markets may be out of favour, but only a its vices—in this case, central bankers and Moreover, the origins of a crisis can of- handful are plagued by the old evils ofin- quantitative easing (QE). They also main- ten be found in the response to the previ- flation and over-reliance on foreign fi- tain that a reckoning is due. ous one. The Fed’s interest-rate cuts follow- nancing. The chance of progress on fiscal Perhaps it is. As the crisis that followed ing the East Asian and Russian crises risk-sharing in the euro zone is higher the collapse of Lehman brought home, it helped blow up the dotcom bubble. When than isgenerallyappreciated. Daniele An- is a mistake to be complacent about what that burst, the Fed slashed interest rates tonucci of Morgan Stanley notes the pro- may happen next. Extreme economic and and fuelled a housing boom and bust that mising noises coming out of Germany. financial events are far more likely than did forLehman Brothers. There is good rea- The threat of a trade war has reduced the investors had believed. But the real lesson son to worry that the end of QE in Europe, likelihood ofglobal recession, reckons Mr of Lehman is not so much that very bad and its reversal in America, will unsettle fi- Lonergan. It has spurred the Chinese au- things can occur. It is that anything might. nancial markets. thoritiesto stimulate the economysooner Investors should of course be mindful of than they would have otherwise. the risk of further crises. But they should Deliverus from salvation Optimists can seem naive. Looking on also keep in mind the possibility that The possibility that markets might be sur- the bright side does not have the same in- things might turn out just fine. prised bygood newsmayseem absurd. It is tellectual cachet as forecasting calamity. Admittedly, this is hard. It is far easier natural to respond to trauma with caution. Prophets ofdoom know they will eventu- to thinkofways that things might soon go But this caution can be so extreme that it ally be proved right. It is the nature of wrong. America’s stockmarket is pricey. impairs people’s judgment. In “The Pursuit business cycles that recessions happen. Its economy has enjoyed a long expan- of The Millennium”, first published in 1957, Good news is just bad news postponed. sion. Perhaps the Federal Reserve will tip Norman Cohn showed that outbreaks of When the doomsayer played by Peter it into recession. The trouble in emerging millenarianism often followed a big dis- Cook is forced to recognise that the Earth markets may worsen. The euro zone is ac- ruption of some kind—a plague, a famine has not been consumed by flames, he is cident-prone. It still lacks a shared mecha- or even a sharp increase in prices. Prophets phlegmatic. “Never mind, lads,” he tells nism for propping up the economy by fis- of doom tend to spring up after disasters. his followers. “Same time tomorrow?” Financial Era Advisory Group 82 Finance and economics The Economist September 15th 2018

Ant and Tencent financial services to poorer people and force state-owned behemoths to up their And now for something completely game. But their popularity is also an eco- nomic risk. As Yu’e Bao shows, they can different hoover up savings. “Customers are leaving banks,” says Cliff Sheng of Oliver Wyman, a consultancy. A bigger exodus might de- stabilise the financial system. SHANGHAI So over the past year, regulators have As regulators circle, China’s fintech giants put the emphasis on tech put speed bumps in their way. Under pres- OR those still trying to work out what active users in China. On Alipay’s side are sure to deflate Yu’e Bao, Anthascapped the Fexactly “fintech” involves, we are sorry the fact that people spend more on it and amount of cash users can invest or with- to bring you this update from China, a its rapid expansion overseas. It already draw in a day. The online banks launched world leader in mixing finance with tech- works with more than 250 financial firms by Tencent and Ant—respectively, WeBank nology. Fintech is passé; the hot new thing abroad, so that Chinese tourists can use it. and MYBank—have also been hindered by is “techfin”. This ungainly portmanteau But Ant and Tencent are more interest- deposit caps. And the central bank called was coined by Jack Ma, the chairman of ed in hooking users on other financial ser- off a trial in which Ant and Tencent were Alibaba, an e-commerce giant, who an- vices than in payments alone. Once a user developing credit scores on individuals. In- nounced on September 10th that he plans is on one of their platforms, mutual funds, stead, they were given stakes in Baihang, a to step down in a year’s time (see Business insurance products and virtual credit cards state-owned credit-rating system. section). It is not mere semantics, but indic- are accessible with a tap of a finger on a Potentially most significant is the ative of the way that China’s fintech up- phone. Online banks specialising in small launch in July of NetsUnion, a clearing starts—firms that have excited investors, loansare justa fewclicksaway. The scale of house for online payments. Although it frightened banks and attracted legions of these activities is breathtaking. Alipay should make mobile paymentssafer, it will users—are adjusting as their reach is limit- launched Yu’e Bao (“leftover treasure”) in also stand between fintech firms and ed by regulators. 2013 as a money-market fund to give cus- banks, making it more difficult for Ant and The landscape of Chinese fintech is tomers a small return on their idle cash. By Tencent to drive a hard bargain over fees. dominated by two players: Ant Financial, June it had some $210bn in assets under Ms Sun-Mattison thinks it only a matter of an affiliate of Alibaba, and Tencent, best management, makingitthe world’sbiggest time before it is used to limit mobile trans- known for WeChat, its social-media net- money-market fund by a wide margin. actions, ostensibly to address concerns work. Ant is estimated to be worth $150bn, It is easy to see why big banks want to such as money-laundering but also pro- only a little less than HSBC, putting it restrain the fintech dynamos. “If the banks tecting banks from competition. amongthe world’s most valuable financial don’t change, we will change the banks,” All this is the backdrop for the decision firms. Tencent’s financial services are Mr Ma said in 2008. Some bankers chor- by Ant and Tencent to play up technology wrapped inside Tencent Holdings, which tled; they are not laughing any more. Ka- offerings instead of financial services. It is has a $400bn market capitalisation. They pronasia, a research firm, estimates that remarkable how similar their executives will, if left unchecked, grow much bigger. fintech firms will take more than 40% of can sound. Henry Ma, the vice-president China’s government must now decide China’s potential payment-card fees by of WeBank, talks of being the “infrastruc- whether to try to slow their rise. 2020, an annual loss of about $60bn for ture provider” to commercial banks. Lei- Both firms got their start in payments. banks. The fintech firms’ incipient move ming Chen, general counsel at Ant, talks of Ant stems from Alipay, created in 2004 to into retail banking is even more alarming. giving banks a platform to “connect with make online shopping easier. Tenpay was “This is the most profitable area forbanks,” users”. The idea for both is that, with their launched in 2005 for QQ, Tencent’s online- says Linda Sun-Mattison of Bernstein Re- vast user bases and data troves, they can messaging platform, and was later grafted search. “They don’t want to just get stuck help banks identifysmallerborrowers and onto WeChat. Both have boomed by link- with lower-margin commercial clients.” manage lending risks. Banks put up the ing mobile apps with offline payments. Al- Regulators are more conflicted. By mak- capital; Ant and Tencent get “technology most all merchants in China, from the ing spending easier, the fintech duo boost fees”. Techfin is not as attention-grabbing humblest vegetable stall to cafés where consumption, which has long been too asan all-out assaulton banks. Butas a busi- customers can feed the pets and upwards, low as a share of China’s GDP. They bring ness model, it is more likely to succeed. 7 provide QR codes to be scanned by phone in order to pay. According to iResearch, a consultancy, mobile transactions in China reached nearly 120trn yuan ($18.7trn) last year, 100 times more than in 2013—and more than all transactions handled world- wide by Visa and MasterCard combined. At the moment Alipay has 54% of the mobile-payment market, to Tenpay’s 40%. But Steven Zhu of Pacific Epoch, a research firm, predicts that within five years Tenpay will pull level. Its main advantage is that WeChat, the main entry point for people using Tenpay, has more than 1bn active us- ers. Alipay, asofearly2017, had about520m

Correction: In the article entitled “Cleaner than thou” in last week’s issue we stated that civilian power plants were the only way to produce fissile material for nuclear-weapons programmes. They are not. Sorry Kitty cash https://t.me/finera The Economist September 15th 2018 Finance and economics 83 Free exchange Upsetting the Apple cart

The Trump administration’s trade waris forcing hard choices on American companies fect substitutes, and that it therefore enjoys pricing power in the market. Its bosses can choose whether to sacrifice sales or absorb the tariffs and accept thinner margins. Where high-end electron- ics are concerned, in other words, tariffs foist hard choices on do- mestic firms rather than China’s government. Thatmightbe to Trump officials’ liking. Two decadesago, tech- nology firms began outsourcing production. Asia became the dominant hub for electronics. Roughly 1.5bn smartphones were sold in 2016. At peak output, according to the IMF, smartphone components accounted for more than 33% of exports from Tai- wan, and 15% ofthose from Singapore and South Korea. Finished smartphones accounted for 5% of Chinese exports. Although Asia captures only a modest share of the income generated by such sales, it takes much more of the associated employment— which MrTrump covets. When Foxconn, which assembles Apple products in China, broke ground on a production plant for LCD screens in Wisconsin in June, he gleefully claimed credit. But reclaiming portions of a supply chain is tricky. “Factory Asia” enjoys considerable efficiencies ofscale. Because parts sup- pliers and final assembly are relatively close together, it is flexible and responsive; a trans-Pacificsupplychain would be slower and OU might think a company worth $1trn would gain a sympa- less efficient. And China’s mammoth smartphone industry hoo- Ythetic hearing in the White House. Not, it seems, when the vers up skilled workers and engineers, creating demand for la- subject is China. On September 7th, as President Donald Trump bour that coaxes a corresponding supply into existence. Filling prepared a new salvo of tariffs on Chinese imports, Apple re- such jobs in America would be hard, at least in the short run. leased a letter pleading with the administration to change tack But hard is not the same as impossible. Officials at Apple no lest it harm American consumers. “Make your products in the doubt recognise the vulnerability created by their dependence United States instead of China,” Mr Trump tweeted back. “Start on China. When tech executives complain about China’s abuses, building new plants now. Exciting!” The response reflects a view China hawks sympathetic to Mr Trump respond that they have within his administration that in a trade showdown with China, only themselves to blame. As difficult as reshoring large parts of America cannot lose. the electronics supply chain would be, the prospect of a pro- Mr Trump’s officials are finalising a list of Chinese imports, of tracted trade war may persuade some American firms to opt for $200bn in value, which will be subject to new tariffs. If and when the costlier, but less uncertain, option of disentangling them- they come, they would be in addition to tariffs previously levied selves from China. And though other parts of Asia may look ap- on $50bn ofChinese goods. The president has expressed himself pealing, they might decide that reshoring to America makes most willing to put tariffs on all Chinese imports. China, for its part, is sense, given Mr Trump’sprotectionist bent. unbowed. At a summit on September11th Xi Jinping, the Chinese To an economic nationalist, the tariffs are a win-win proposi- president, and Vladimir Putin, Russia’s leader, agreed to strength- tion. Either China abandons elements of its industrial policy en economic ties and resist American protectionism. deemed to be unfair, orAmerica’s tech titans reshore production, In a sense, America’s aggression is a less conventional, more reverse the dramaticshiftsin global trade ofthe past two decades, belligerent version of a trade war many advanced economies and rebuild a top-to-bottom domestic high-tech industry. have been itching to declare. Although China is a member of the World Trade Organisation (WTO), it engages in dubious growth- How do you like them apples? boosting measures that skirt the rules, such as pressing foreign The decline in manufacturing employment since 2000 has been manufacturers to share proprietary technologies as a condition felt keenly in many parts of America. But reshoring electronics of market access. Many countries would applaud if America got production will not mean reshoring anything like the number of China to stop such practices. Tariffs of 25% on low-margin Chi- jobs that were lost in the first place, thanks to relatively high la- nese goods like clothing could hit sales in America, and can be bourcosts and betterlabour-savingtechnology. To the extent that seen as a way of cudgelling China into making concessions. But firms with pricing power charge more, it will hurt consumers. that is not the only light in which to view them. Forthe Trump ad- And it will cause a potentially irreparable tear in the geopolitical ministration may not even care whether China yields. fabric joining America and China. The norm that trade differ- Apple, and firms like it, are the reason why. Stifftariffs on high- ences should be settled in a peaceful and orderly manner will end imported electronics are unlikely to reduce sales as much as have been sacrificed to no advantage formost Americans. those on cheaper items. Apple makes vast margins on its pro- The harm may already have been done. Analyses of China’s ducts. An analysis in 2011concluded that it captured a staggering accession to the WTO suggest that the reduction in uncertainty 58% of the iPhone’s retail price, which helps explain its towering about tariffrates, rather than falling tariffsthemselves, accounted market value. Although the planned tariffs will spare the iPhone, for more than a third of subsequent growth in exports. Times are otherApple products that will be included, such as the Watch, are once more uncertain. Even ifthe Trump administration suddenly thought to enjoy similarly extravagant margins. Apple’s ability to declares that the trade war is over, America’s tech titans will charge so much above cost suggests that rival products are imper- surely rethinktheir reliance on China. But to what purpose? 7 Financial Era Advisory Group 84 Science and technology The Economist September 15th 2018

Also in this section 85 Cleaning up the Pacific 86 Europe demands open journals 86 Why birds love churches

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

Recycling two-to-three times longer than conven- tional roads and cost less, the companies On the plastic highway claim, mainly because construction times would be reduced by almost two-thirds. Anti-slip surfaces could be incorporated, too, including crushed stones which are traditionally used to dress road surfaces. The sections, when replaced, can also be recycled. But engineers will be watching to Roadmakers are using waste to create harder-wearing surfaces see how the track stands up to wear and F ALL the plastic produced since the will be used to test a product called Plastic- tear and if the hollow structure causes res- O1950s, lessthan 10% hasbeen recycled. Road, which is being developed by two onance, which would make such a road The vast majority ends up being dumped, Dutch firms—KWS, a road builder, and Wa- unduly noisy. most ofit in landfill. Some is leftto litterthe vin, a firm that makes plastic piping—in An alternative method of using recy- natural environment, where it can get into partnership with Total, a French oil-and- cled plastic is to mix the material into hot rivers and wash out into the sea (see fol- gas firm. bitumen when making asphalt. A road is lowing story). The plastic-waste problem PlasticRoad is prefabricated in a factory about to be built this way on the campus of will worsen before it gets better: some as modular sections. The sections are then the University of California, San Diego, to 380m tonnes of the stuff are likely to be transported to the site and laid end to end test a number of specialist roadmaking made this year. That is more than three on a suitable foundation, such as sand. Be- plastics developed by MacRebur, a British times as much as the 120m tonnes of bitu- cause these sections are hollow, internal firm. Each mix is produced from plastic men produced annually, most of which channels can be incorporated into them that is not easily orcheaply recycled and so goes into building the world’s roads. for drainage, along with conduits for ser- typically ends up in landfill, says Toby There is a connection. Just as plastic is vices such as gas and electricity. For the McCartney, who founded the firm in 2015 derived from petrochemicals, bitumen is Zwolle project, sections that were 2.4 me- with a group ofcolleagues. produced as a by-product of refining oil. tres long and 3 metres wide were used. MacRebur cleans and sorts the plastic Both are polymers, which consist of long These were fitted with sensors to measure and then grinds the waste into flakes or strands of molecules bound together firm- things such as temperature, flexing and the pellets. The plan is for this part of the pro- ly. It is this characteristic that makes plastic flow of water through the drainage chan- cess to be carried out in the localities strong and contributes to its great longev- nels. A second pilot cycleway is being built where roads are being laid or repaired, so ity. Such features are also useful for road in the nearby town ofGiethoorn. that local waste is used to produce local builders, who use hot bitumen to bind to- roads. Each mix can contain 20 or so differ- gether aggregates made from broken rocks Smart roads, too ent polymers for specific surfaces. One and stones, into what is commonly known Ifall goeswell, the inventorshope to devel- mix, for instance, might be suitable for a as asphalt. All of which has got some peo- op the idea and make the sections entirely bus lane that carries heavy loads. Another ple thinking: why not swap one polymer from recycled plastic. Paths, car parks and would provide some flexibility in an area with another? railway platformscould follow. Eventually, of turning traffic, such as a roundabout, Recycled plastic is already used to make sections for use as actual roads are where lateral forces from vehicles’ wheels some products, such as guttering and sew- planned. These could contain sensors for can stretch the surface causing it to tear. Ex- age pipes. Now attention is turning to traffic monitoring. In time, the circuits in tremes of heat and cold can also be adjust- roads. On September11th in Zwolle, a town the plastic roads might extend to assisting ed for. And because the addition of plastic in the Netherlands, a 30-metre bicycle autonomous vehicles and recharging elec- helps to seal up small holes, which allow track made from 70% recycled plastic and tric cars wirelessly. water to get below the surface of a road the restfrom polypropylene wasopened. It Prefabricated plastic roads should last and cause it to break up, the modified as-1 https://t.me/finera The Economist September 15th 2018 Science and technology 85

2 phalt can help to prevent potholes. Marine litter tre segments at a shipyard across the San The company’s plastic mixes have al- Francisco Bay in Oakland. A three-metre- ready been used in roads, carparks and air- Sweeping the deep skirt (made of sturdy polyester) dan- port runways in various parts ofthe world. gles beneath the boom to prevent litter One of the oldest projects is a stretch of ocean from escaping under it; buoyant plastic road in Cumbria, in north-west Britain, tends to float within a metre of the water’s which is extensively used by heavy lorries. surface. The device is even simplerthan Mr SAN FRANCISCO BAY This used to need resurfacing every six Slat’s original idea, having dispensed with Ateenager’s plan to trawl forplastic in monthsorso, butwith the addition of plas- the anchor. Instead, it relies on the obser- the north Pacificbecomes reality tic it is still going strong after two years, vation that the boom, which is driven by says Mr McCartney. When resurfacing is EW things exercise green sensibilities the current as well as by waves and wind, needed, the material can be recycled again. Fmore these days than marine plastic lit- always moves faster relative to the plastic, Cleaning and sorting plastic made out ter. The detritus looks unsightly when it which is propelled by the current alone. It of multiple polymers can be relatively ex- washes up on beaches, and cruel when it therefore scoops the litter up as it drifts. pensive, especiallyifitisused to make low- chokes photogenic sea creatures. Scientists A straight boom will first be towed 250 value products such as packaging. But us- estimate that perhaps 8m tonnes of plastic nautical milesoffthe coastofCalifornia for ing such plastic as a replacement for bitu- waste enters the ocean each year, dis- a fortnight of tests, before embarking on a men is cost-effective, claims Mr charged by rivers or shed from ships. Plen- three-week voyage to its final destination. McCartney. As an example, he says that a ty stays close to shore. Some, though, is car- There it will be turned into a U-shape, with tonne of bitumen might cost around £400 ried by currents to mid-ocean gyres. its ends fastened in place using metal lines, ($521) in Britain. A recycled-plastic additive The biggest of these is located halfway and set adrift. Satellite tracking and other for a standard road works out at £300-£350 between California and Hawaii—and so electronics will allow its progress to be a tonne. The additive would replace a pro- littered with flotsam that it has been nick- monitored remotely. Light beacons will portion of the bitumen, so there are sav- named the Great Pacific Garbage Patch. A alert the two dozen ships which cross the ings to be made. At present 5-10% of the bi- study published last March in Scientific Re- gyre each week to its presence. Some time tumen is replaced by the additives, but this ports by Laurent LeBreton of the Ocean next year another vessel will be dis- could be increased to 25%. Cleanup, a Dutch charity, and colleagues, patched to fish out the collected rubbish, Mr McCartney decided to develop spe- found that it contains between 45,000 and which the charity hopes to sell to recyclers. cialist recycled-plastic additives after 129,000 tonnes of plastic debris spread IfSystem 001succeeds, MrSlat wants to watching a practice sometimes employed over an area roughly the size ofAlaska. deploy another 60 booms, measuring1km in India to repair potholes. Plastic waste The idea of sweeping it all up might or more. Corporate sponsors would foot collected by pickers is piled into the hole sound fanciful. To Boyan Slat it seemed the bill of €5m apiece forconstruction and and then set alight with diesel to form a merelyambitious. Whatif, he wondered in three years’ operation, Mr Slat hopes. He molten mass. It is crude and polluting, but 2012 (then aged 18), you could build a mas- already enjoys the backing ofdeep-pocket- it provides a fix ofsorts. A number of roads sive bow-shaped floating barrier, anchor it ed endowments and of tycoons like Marc in India are also made by mixing to the seabed and letcurrentsshuffle the lit- Benioff, founder of Salesforce, and Peter chopped-up plastic into bitumen. ter into the scoop? Despite his youthful age Thiel, a noted investor. Australia is another country that is and madcap scheme, Mr Slat set up the The system can do little about plastic starting to recycle plastic into roads. Earlier Ocean Cleanup to put it into practice. Six thathasfragmented into microscopicparti- this year a 300-metre stretch was complet- years, €20m ($23m) and several proto- cles, but these make up just 8% of plastic in ed in Rayfield Avenue, Craigieburn, a sub- types later, the device set sail from San the gyre. MrLeBreton reckons that a fleet of urb ofMelbourne, usinga substance called Francisco on September 8th, escorted by a booms could, by 2040, sweep up virtually Plastiphalt. This consisted of recycled ma- Coast Guard vessel, a shipload of camera all the non-tiny detritus, but only if plastic terial from more than 200,000 plastic bags crews and a flotilla ofcurious boaters. leakage into the sea is stanched. Ifit contin- and packaging, 63,000 crushed glass bot- System 001, as the contraption has been ues unabated, the incoming debris would tles and toner from 4,500 printer car- christened, isa hollowcylinder600 metres outweigh the fleet’s capacity to skim it tridges. All this was blended into 50 tonnes long and 1.2 metres in diameter, itselfmade within a few years. The ocean’s plastic pro- of reclaimed asphalt to create a total of 250 of plastic (polyethylene). It was moulded blem cannot really be solved without bet- tonnes of road-building material. The road togetherinto a seamlesswhole from 12-me- ter waste management on land. 7 will be monitored to see how it performs. Stuart Billing of Downer, a firm in- volved in constructing the road, said that the cost ofusingthe recycled materials was comparable with building a road in the usual way. But the road is expected to last a lot longer and prove better at coping with heavy traffic. Officials in Craigieburn reckon that the amount of rubbish used to construct the road, all of which was diverted from land- fill, isequivalentto whatRayfield Avenue’s residents would have put into their recy- cling bins over the past ten years. One of the biggest complaints to local councils is about the state ofthe roads, especially pot- holes. Households in Australia and else- where might well do more sorting and re- cycling of plastic if they knew it could result in a smoother drive. 7 Sailing to the garbage patch Financial Era Advisory Group 86 Science and technology The Economist September 15th 2018

Scientific publishing Wildlife conservation The S-Plan diet Tending the flock

Churches help to preserve bird biodiversity HRISTIANITYand conservation colleagues visited101ofthem, as well as European countries demand that have not always gone hand in hand. an equal number ofnearby farmhouses publiclyfunded research be set free C Yet the structures raised by Christians to (known to be ecologically beneficial, ANY scientists have championed the exercise their faith offertangible sanctu- too), to compare the number ofspecies Midea that publicly funded research ary to some ofGod’s smaller creatures. the two types ofbuildings host. should be available to all and not locked Bats, famously,roost in belfries. And, Starting at daybreakon days offair away in pricey journals. Although this according to a paper just published in weather, the researchers walked slowly, “open access” ethos has become more Biological Conservation, churches are also carefully noting over 5,500 individual popular in recent years, most researchers’ good places forbirds. They are complex birds living in and around the buildings. work remains fenced off by an online pay- structures, with lots ofnooks, crannies, They jotted down the physical dimen- wall. That may change with a radical Euro- rafters, holes and towers to sleep and sions ofeach building, together with pean initiative unveiled earlier this month. nest in. Churchyards also often host a other structural elements such as trees, Eleven European countries, including diverse collection ofgreenery and an- shrubs and gardens. They then used a Britain, France and the Netherlands, have cient trees. statistical analysis that included six signed up to whatiscalled “Plan S”. Thisre- A team led by Piotr Skorka ofthe measures ofbird diversity to gauge the quires scientists who benefit from those Polish Academy ofSciences set out to see effects ofdifferent building configura- countries’ national-research funding orga- just how good churches are as bird habi- tions on the number ofspecies, and the nisations to publish their work only in tats. In villages dotted across the south- abundance ofeach. open-access journals on freely accessible ern Polish countryside, Dr Skorka and his Churches beat farmhouses in almost websites by 2020. That would in turn pre- all respects. They supported more spe- vent papers from appearing in around 85% cies, more varied types ofspecies and of periodicals, including some of the most more individual birds. Certain species esteemed, such as Nature and Science. were seen only in and around churches. Plan S was forged underthe aegis ofSci- The spotted flycatcher and the short-toed ence Europe, an umbrella group of Euro- treecreeper, forexample, both benefited pean research funders. Marc Schiltz, its from the surrounding trees. The older a president, takes a muscular stance. “Mone- church, the greater its levels ofornitho- tising the access to new and existing re- logical diversity.Stability is an important search results is profoundly at odds with promoter ofsuch diversity. the ethos ofscience,” he has written. That these buildings were designed to Not surprisingly, publishers have given be closer to God helped, too. The taller a Plan S a frosty reception. The policy “po- building, the more species there were. tentially undermines the whole research Separate bell towers also boosted num- publishing system,” said Springer Nature, bers. The team frequently observed birds which publishes more than 3,000 jour- in and around these lofty structures, well nals, including Nature. The American As- out ofthe reach ofpredators such as cats. sociation for the Advancement of Science One ofthe most important concepts (AAAS), which publishes Science, said it in ecology is that ofthe niche—the set of would “disrupt scholarly communica- ecological criteria that a particular spe- tions, be a disservice to researchers, and cies is best adapted to. In light of Dr impinge academic freedom”. Skorka’s workit is worth remembering That is not what Robert-Jan Smits that the original meaning ofthe word thinks. He is the European Commission’s was a recess to accommodate a statue in open-access envoy and is pushing Plan S Coming home to roost the wall ofa building such as a church. hard (the “S” can stand for “science, speed, solution, shock”, he says). Shock is certain- ly right. Plan S would, after a short period, the International Association of Scientific, would continue to pay forthe final typeset also prohibit publication in “hybrid” jour- Technical, and Medical Publishers, which versions. As it stands, this approach is of- nals that make papers free online provided represents 145 publishers, believes this ten prohibited by the publishing agree- the authors pay a fee (a subscription is re- could reduce the level of peer review that ments made with scientists. quired for readers to access other papers). journals could afford, and thus undermine In the meantime, momentum is on the Publishersargue thatthismixed model has quality. Backing up that view, the AAAS ar- side of the reformers. Horizon Europe, the helped to open up established subscrip- gues that a wholesale switch from sub- European Union’s seven-year, multi-bil- tion journals and is a useful stepping stone scriptions to open access would be “unsus- lion-euro research programme, which be- to full open access. Critics say hybrids have tainable” for the group. gins in 2021, may well have requirements simply inflated publishers’ profits by al- Plan S is not yet a done deal. Agree- akin to Plan S. Mr Smits is offto America in lowingsome journalsboth to charge scien- ments will be needed forhow the terms of October to lobby funding agencies there to tists to publish and libraries to subscribe. future grants will be changed. A middle sign up to the plan. If he succeeds, then the Another point of contention is that the way might be found. One possibility is that era of the subscription journal, which be- publication fees which scientist pay to universities will be able to post peer-re- gan with the publication in 1665 ofthe Roy- open-access journals would be capped viewed papers online as soon as they are al Society’sPhilosophical Transactions, may across Europe. Afigure has yet to be set, but accepted for publication, while libraries come to an abrupt end. 7 https://t.me/finera Books and arts The Economist September 15th 2018 87

Also in this section 88 Gary Shteyngart’s new novel 89 Adventures in 18th-century finance 89 Reimagining Homer’s women 90 The corrosive price of mega-wealth

For daily analysis and debate on books, arts and culture, visit Economist.com/culture

Truth and the president racy. Meanwhile Mr Trump’s indiscretion poses a different problem for the exposé The Trump chronicles form. Disagreements and conflicts that would normally count as insiderish gossip (the president does not agree with his sec- retary ofstate on North Korea, say) have al- ready been tweeted by the subject himself. Mr Woodward’s style, employed in Rendering a convincing account ofAmerica’s 45th president is almost as hard as books about five other presidents, is to re- embarrassing him port debates between the commander-in- N “MILES GLORIOSUS”, a comedy by chief, his cabinet and advisers. The impres- By Bob Plautus from the second or third century Fear: Trump in the White House. sion this gives in “Fear” is, initially, of a rea- I Woodward. Simon & Schuster; 448 pages; BC, the main character is a soldier who has sonably normal administration. Cabinet $30 and £20 a thing for kidnapping women and con- secretaries disagree with each other and stantly embellishes the truth. The audi- plot to win Mr Trump round. Everyone is ence know this because the soldier has a counters with the president to relate. Ms obsessed with getting access to him. He in slave, Artotrogus, who flatters his master Manigault Newman has more access but is turn asks sensible questions about why to his face but makes asides about what is no Mark Twain. “I got many offers after America still has troops in Afghanistan, really going on. When a liar is disparaged leaving the White House, but I chose ‘Ce- eventually dispatching a few more. by someone who is himself only intermit- lebrity Big Brother’ because it has always But the veneer of normalcy peels off tently trustworthy, how can observers sep- been one of my favourite shows,” she fast. Mr Woodward’s Trump has no arate what is true from what is not? writes in “Unhinged”. In “Fire and Fury” friends. Nobody who works with him Authors of books about the Trump Mr Wolff gets some details wrong and in- seems to like him. The constant dissem- White House are confronted by the same cludes things that were too good to check; bling does not help (Mr Trump is “a profes- problem, as are their readers. In the words still, he captures the absurd, terrifying ear- sional liar”, in the view of Gary Cohn, for- ofhis own lawyer, John Dowd—as cited by ly months ofthe administration. merly the director of the president’s Bob Woodward in “Fear”—the president is Mr Woodward brings decades ofWash- National Economic Council). Nor do the “a fucking liar”. Like Artotrogus, his under- ington gravitas to the job. Togetherwith his small acts ofcruelty towards his staff. lings praise him lavishly in public, then tell assistant, Evelyn Duffy, he interviews One story Mr Woodward recounts cap- journalists that he is a “moron” (attributed everyone he can, on tape if possible, and tures this personality. On board Air Force to Rex Tillerson, his former secretary of gathers documents. Then he reconstructs One, Reince Priebus told Mr Trump that he state), an “idiot” (attributed to John Kelly, key moments of the presidency so far, told would soon resign as chief of staff. They his chief of staff) and has the understand- as ifthey were recorded on a bugunder the agreed to talk later about the timing of the ing of “a 5th or 6th grader” (attributed to Resolute desk. But even Mr Woodward announcement and who might replace James Mattis, the defence secretary). puts in quotation marks dialogue that he him. Afterthe plane landed, MrPriebus got There have already been four book- got second-hand, so that it is impossible to in a car and opened up Twitter, to find the length attempts to solve this puzzle. Given distinguish between what someone actu- president had broadcast his resignation the appetite forstories about what goes on ally said, what someone recalls saying and and named a successor. “It made no sense, in the room where it happens, there will be what someone else says someone said. Priebus realised, unless you understood more. Two have been written by partici- Set against the epistemological stan- the way Trump makes decisions. ‘The pres- pants (James Comey and Omarosa Mani- dards of the 45th president, pointing this ident has zero psychological ability to re- gault Newman) and two by observers (Mi- out feels like nitpicking. Yet the technique, cognise empathy or pity in any way’.” chael Wolff and, now, Mr Woodward). Mr while making the book a better read, in- In principle, a certain sort of ruthless- Comey is reliable but only has a few en- vites another set of questions about accu- ness could be an asset for a president, but1 Financial Era Advisory Group 88 Books and arts The Economist September 15th 2018

2 MrTrump is too disorganised to profit from it. Memos must be kept to a single page, New American fiction and even then often go unread. Attempts to brief him are futile. “It’s pointless to pre- The other side of paradise pare a meaningful, substantive briefing for the president,” Mr Woodward quotes Mr Cohn as saying. “He’s going to get through the first ten minutes and then he’s going to Lake Success. By Gary Shteyngart. Random deeply fishy about Valupro, a pharma- want to start talking about some other top- House; 352 pages; $28. Hamish Hamilton; ceutical firm with which This Side of ic.” Mr Trump “acted like doing too much £16.99 Capital is enmeshed. The strain these advance preparation would diminish his pressures put on his marriage leads him skills in improvising,” according to an aide. ARRY COHEN’S hedge fund, This Side to Port Authority in the small hours, That distinctive approach is deployed B ofCapital, takes its name from F. Scott determined to live out a hedge-funder in the service of two fixed ideas: that trade Fitzgerald’s first novel, “This Side ofPara- version of“On The Road”. Halfofthis deficits are bad, and that foreigners should dise”. Like Amory Blaine, Fitzgerald’s novel belongs to him, its other half to pay for American protection of their coun- hero, Barry went to Princeton, where he Seema, who was born plain-old middle tries. When these two gripes come togeth- studied writing while preparing to build class in Ohio to immigrants from Bom- er, as in the case ofSouth Korea—which has his fortune. Unlike Blaine, Barry is a son bay. In Barry’s absence she cares forShiva a trade surplus with America and an ofworking-class Queens; his father (with the help ofa nanny, a chefand a American missile-defence system on its scraped a living maintaining the swim- huge team oftherapists) and embarks on soil—the president can become apoplectic. ming pools ofthe wealthy. Barry has an affairwith a neighbour, an ostensibly His desire to withdraw from a trade deal since become a master ofthe universe, glamorous Guatemalan novelist. with South Korea is a recurring theme in “with 2.4 billion dollars ofassets under Like Tom Wolfe’s“The Bonfire ofthe “Fear”; the opening chapter has Mr Cohn management”, as the first line of“Lake Vanities” or William Thackeray’s “Vanity swiping the paperwork to make it happen Success”, Gary Shteyngart’s new novel, Fair”, this is a novel that captures the offMr Trump’sdesk. declares. Yet the reader meets him as he raucous spirit ofits age. Most ofthe story staggers into the grime ofManhattan’s takes place in the run-up to the election The last laugh Port Authority Bus Terminal, drunkand of2016, the prospect ofDonald Trump’s This story, coupled with an anonymous bleeding at twenty past three in the presidency like a rumble ofdistant thun- opinion piece in the New York Times de- morning. What went wrong? der. Barry’s adventures elicit a delicious scribing internal resistance to the presi- Mr Shteyngart is a hilarious chronicler Schadenfreude as he travels across the dent, has set off a debate about whether a ofthe vicissitudes ofthe American country by Greyhound bus, carrying a silent coup is unfolding at 1600 Pennsylva- Dream. Born in what was then still Lenin- suitcase full ofstaggeringly expensive nia Avenue. “Fear” does not suggest that is grad, he emigrated to America as a boy, watches. Barry is a watch aficionado, as is so. Mr Cohn and his allies do slow-walk and his observations have an outsider’s Mr Shteyngart, who last year wrote pas- paperworkwhen the president is planning acuity. In “Lake Success” Barry is a striver, sionately in the New Yorker ofthe elusive to do something unwise. But, says Mr a titan offinance grimly determined to comfortoffered by the perfect wrist- Woodward, this only works because Mr make it to the very top. He is always watch: “Ifonly watches could do what Trump “seemed not to remember his own aware ofwhere he stands in the hier- they so slyly promise. To record. To keep decision because he did not ask about it. archy offantastic wealth. He and his wife track. To bring order.” He had no list—in his mind or anywhere Seema may own a swanky apartment in Ifa kind oforder is found by the nov- else—oftasks to complete.” Midtown, but Barry is perpetually con- el’s end, it is not the kind Barry sought or In this account, what matters most to scious that Rupert Murdoch owns the the reader expects. With his sharp hu- Mr Trump is not governing, but avoiding whole top three floors ofthe building. mour and gift forcharacter, MrShteyn- the impression of weakness. After the Not all is as it seems, however. Barry’s gart makes the implausible seem cred- “grab them by the pussy” tape emerged three-year-old son, Shiva, has just been ible. He migh even make you want to take during the campaign, he was contrite for diagnosed with autism; and something is a Greyhound. about a day, then went on the attack again. After his inept first response to the killing of a woman in Charlottesville by a white supremacist, he eventually delivered a speech to mollify those who said he had given racists the impression that he was on their side. He quickly regretted it. “That was the biggest fucking mistake I’ve made,” he told an aide. “You never make those concessions. Younever apologise.” Naturally, Mr Woodward’s bigwig sources have publicly denied saying the things he says they did. Mr Trump himself has denounced the author as a Democratic stooge. For all that, taken together the Trump chronicles throw up another quan- dary, beyond the issues of accuracy and novelty: whether these tell-alls actually do the president any harm. Plautus suggests otherwise. At the end of his play, the phi- landering soldier is humiliated—and turns Tender is the night to the audience for applause. 7 https://t.me/finera The Economist September 15th 2018 Books and arts 89

Economists abroad Reimagining Homer Wind and smoke Achilles and the heels

The Silence of the Girls. By Pat Barker. John Law: A Scottish Adventurer of the Doubleday; 304 pages; $27.95. Hamish Eighteenth Century. By James Buchan. Hamilton; £18.99 MacLehose Press; 528 pages; £30 ORGET share prices, interest rates and RISEIS, an enslaved Trojan queen, FGDP. A better measure ofthe severity of B speaks only once in the “Iliad”. Yet a financial crisis is who is paying attention. she is crucial to Homer’s epic: Agamem- If only financiers are watching, it is proba- non’s seizure ofher from Achilles enrages bly a manageable blip. When politicians the Greeks’ indispensable warrior, lead- start to notice, it is time to be concerned. ing to his withdrawal from the battlefield. When artists become interested, panic. In “The Silence ofthe Girls”, Pat Barker As the 18th century dawned, the atten- makes Briseis her central character. The tion of one of France’s greatest writers was result is a masterful and moving novel. held fast by the finances of its capital. Ms Barker, a British writer best known “Have you all truly lost your heads in Par- forthe “Regeneration” trilogy about the is?” exclaimed Voltaire in horror. “Nobody first world war, gives Briseis and the talks of anything but millions.” Beggars other Trojan slave-girls voices that feel were now rich, he wrote, and the rich were refreshingly modern, steeped in history The slave-girl’s tale destitute. Daniel Defoe thought the French though they are. They are bawdy, mother- seemed to have converted “refined air” ly, angry and abused. They keep watch a moment oftenderness in a callous into profit. Voltaire offered a different sug- on the men who killed their relatives and world. Later, she befriends Patroclus gestion: perhaps they had “found the phi- now treat them as sexual objects. Domes- almost against her will. She even comes losopher’s stone in the mills ofpaper”. tic details are piercingly described, bring- to half-love Achilles, her captor. He waseerilyclose to the mark. The ma- ing the squalor ofthe camp to life: In this telling Achilles, notionally a nia was the work of John Law, a Scottish Even from that distance I caught the stench demi-god, is a flawed, fleshy mortal. economist, who had indeed bragged that ofsweat, today’s sweat, still fresh, but When Patroclus is killed in battle (dis- he had found the philosopher’s stone— under that the stale sweat ofother days guised as Achilles), his devastation is though in his view the trick was to “make and other nights, receding into the far visceral. Ms Barker zooms out to relay the gold out of paper”. When Law took charge distance, the darkness, all the way back to isolating quality ofmourning: the first year ofthis interminable war. of France’s finances, he promptly did just Nobody looks him in the face now, it’s as if that, promoting paper money and a finan- The story flickers between Briseis’s recol- his grieffrightens them. What are they cial bubble that inevitably burst. lections and a third-person narration of afraid of? That one day they’ll have to Law, as James Buchan explains in this the progress ofthe war. This combination endure pain like this? Or that they never exceptionally thorough biography, was a allows Ms Barker to switch nimbly be- will, that they’re incapable ofit, because gambler in life as much as in finance. The tween the daily drudgery ofthe camp grief’s only ever as deep as the love it’s son of an Edinburgh goldsmith, he ma- and the horrors ofconflict, described in replaced. tured first into a troublesome youth, then, all their gut-spilling drama. It gives the Her use ofsimiles is almost Homeric in by the age of 23, into an outlaw: having novel the pace ofa thriller, blood-soaked its brilliance. When Nestor, a wily Greek killed a man in a duel he was given leg fet- spears and shields suddenly glistening leader, first suggests that Patroclus might ters and a death sentence. In 1695 he es- on the page, while also making the char- fight in Achilles’s place, he sees “possibili- caped from prison and fled to Holland. acters painfully real. ties worklike maggots under the young It was an exciting time to be an econo- Through Briseis’s eyes the relation- man’s skin”. In the women’s hut, “faces, mist abroad. Ever since Caesar had ship between Achilles and his manser- clustering round the lights, shone like the marched across Gaul, money in France vant (and presumed lover) Patroclus is pale wings ofmoths”. In Ms Barker’s had meant metal, mainly silver (hence “ar- acutely observed. She glimpses them on hands, these venerable scenes and myth- gent”). But in the financial markets of Hol- the beach, leaning forehead to forehead, ic names magically become new. land and Italy, money was evolving with astonishing speed. Behaving less like silver than quicksilver, it was mutatingfrom hard of the king’s finances. France watched in again, this time into what a Dutch cartoon metal to lines on paperorentries in a book. awe as paper money was printed and called “wind and smoke”. Montesquieu What mattered was not coinage but confi- shares in its new joint-stock company, satirised money’s reputation in a sketch in dence. Dreaming of financial revolution, which administered the Louisiana colony, which a man moans about lending his Law wrote a pamphlet titled “A Proposal rocketed; the word “millionaire” appeared. friend some. His complaint wasn’t that the forSupplying the Nation with Money”. Then the bubble burst. Confidence in loan vanished but that “the rat paid it back! He caught the eye of the French regent, Law’spapermoneycrumbled. There was a What abominable perfidy!” the duc d’Orléans. France was desperate run on the bank; several investors were Law’s system had failed. The “richest for cash. Costly wars and Louis XIV’s pro- crushed to death while trying to have their citizen there has ever been” was ruined. fligacy meant that, as one soldier put it, the paper turned back into silver. The Louisi- But he may have got his revolution, just not “Treasury is absolutely empty.” A miracle ana company’s shares tanked. the one he wanted. Some historians think was needed—and the alchemical Law was Mr Buchan chronicles the collapse in the French revolution itself was the indi- on hand to provide it. The regent hired him gruesome detail. The French were aghast rect consequence of the state in which he and, in 1720, made him controller general asmoneyand shareswere transformed yet left the country’s finances. 7 Financial Era Advisory Group 90 Books and arts The Economist September 15th 2018

Servicing the mega-rich tions into corrupt behaviour which never saw the light of day because of the mere Another country threat oflegal action. This is just one way in which dark mon- ey—billions of dollars a year—corrodes both its source and its destination. Among those selling goods and services to the mega-rich, it encourages a pathological in- An urgent exposé ofthe industry that has grown up around the flow ofcash from curiosity about the origins of clients’ for- struggling nations to the West tunes. Prices, especially for high-end prop- ROM the outside, 29 Harley Street looks erty, rocket. As the gravy train rolls on, By Oliver Bullough. Profile like anyotheroffice blockin central Lon- Moneyland. halting it becomes harder: too many liveli- F Books; 298 pages; £20. To be published in don. But it is an entry port to Moneyland, hoods depend on the ride. By tolerating it, America by St. Martin’s Press in May; $28.99 Oliver Bullough’s term for a virtual coun- and benefiting from it, the West under- try populated by the mega-rich and their mines any efforts to complain about cor- hangers-on. The building came to promi- of Ukraine’s health system, in which offi- ruption, money-laundering and foreign in- nence when Ukrainian anti-corruption cials ransacked the medicine and equip- terference in its politics. campaigners investigated Mezhyhirya ment budgets, leaving patients to suffer. Thus Moneyland is not just a financial (pictured), the once-secret retreat of Viktor The invisible money trail goes through community; its tentacles spread to other Yanukovych, Ukraine’s disgraced former offshore jurisdictions such as Nevis, a Ca- parts of life, too. A scintillating chapter president. The ownership of the gro- ribbean island where an official laughingly deals with the market in citizenship: the tesquely luxurious palace passed through dismisses Mr Bullough’s suggestion that its mega-rich can, in effect, buy their way to a this respectable London address before corporate secrecy and abundant scandals new and easier life through investing in ending up in anonymity in Liechtenstein. might be linked. But it also involves seem- countries such as St Kitts, gaining a pass- Mr Bullough and others found that 29 ingly reputable locales such as the City of port (perhaps in a new name) that enables Harley Street was the registered office for London and parts of the United States. Ne- untroubled, visa-free travel. Best of all is a more than 2,000 other companies. An out- vada, for instance, is creating ingenious sinecure representing one of these coun- fit based there that provides registrations corporate vehicles that add new layers of tries abroad, bringing a diplomatic pass- hascreated 10m firmsin the past16 years, in impenetrability—such as trusts that can be port—and immunity from prosecution. jurisdictions ranging from Britain to the foreign in American law yet count as Seychelles. As Mr Bullough stresses, none American under overseas regulations. Land ofthe free of this is necessarily illegal. There are re- Clever lawyers devise Chinese puzzles Nobody voted for Moneyland. Mr Bul- spectable reasons to incorporate abroad, of these structures. In another of Mr Bul- lough explains how the designers of the and to use the shield of anonymity that lough’s examples, a trail ended in three post-war financial architecture tried to companies and trusts provide. Rich people anonymously run companies that owned keep international financial flows under and celebrities may have legitimate fears each other. Even armed with warrants, in- control, with a network of fixed exchange about kidnapping, extortion or privacy vestigatorsrun into corporate-secrecy laws rates based on the dollar’s convertibility to breaches. Some of the money involved is and daunting costs in time and money. For gold. The City of London disrupted this ar- what he calls “naughty” (deriving from journalists or activists, life is even harder, rangement in the 1960s, first with the Euro- clever tax planning) rather than crooked. especially in places like England that have dollar market (trading America’s currency All the same, Moneyland has huge costly and risky libel courts. Mr Bullough outside the scrutiny of its authorities) and costs. It generates a climate ofimpunity for gives tantalising accounts of two investiga- then the Eurobond market (enabling anon- looters. Prosecutions for grafts are rare, res- ymous lenders to invest footloose money titution following convictions rarer. Infor- in reputable securities). mation in public registries is scant. Mr Bul- Moneyland is not a conspiracy, Mr Bul- lough followed one ownership trail that lough notes. Rather it is a system, nurtured led via Harley Street to a woman who had by incentives and disincentives stemming been dead forfive years. from loopholes in national legislation and The obvious villains are foreign pluto- gaps between jurisdictions. Curbing it is crats. But the real scandal is the way ritzy entirely possible—for example by insisting bankers, lawyers, accountants and PR peo- that those buying (or selling, or renting) ple enable money stolen in poor, ill-run high-end property must declare and verify countries to be invested in rich, safe ones. their real identity. Jailing the money-laun- There are limits to how much cash the pil- derers’ pinstriped accomplices, when they lagers can spend in their own misruled do- do breaklaws, would help too. mains, but the ability to teleport money in- The most contentious argument in this visibly around the world means, as Mr devastating exposé is that the right to de- Bullough puts it, that the rich can continue cide where and how money can be spent eating without ever feeling full. and invested lies not only with its owners, Defining these flows, let alone tracing but with its creators—governments, which, them, is hard. Weak legal systems mean in MrBullough’sview, should impose capi- that what looks like brazen theft to the out- tal controls to jam the illicit flows. That is a side world may not technically count as controversial idea; the free movement of crime. In the worst-run countries power money has been a conduit not just of eco- and wealth are so entwined that the own- nomic growth but offreedom itself. Never- er-managers have no need to flout the law; theless, asthisurgentbookmakesclear, the if you write the rules yourself, you don’t tables have turned. Unchecked, invisible need to break them. Mr Bullough, a former cash flows now promote not democracy Moscow correspondent, tells a grim story Viktor’s spoils and liberty, but kleptocracy and misery. 7 https://t.me/finera Courses Announcements 91

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The Economist September 15th 2018 Financial Era Advisory Group 92 Economic and financial indicators The Economist September 15th 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 Sep 12th year ago United States +2.9 Q2 +4.2 +2.9 +4.2 Jul +2.9 Jul +2.5 3.9 Aug -465.5 Q1 -2.7 -4.6 2.88 - - China +6.7 Q2 +7.4 +6.6 +6.0 Jul +2.3 Aug +2.1 3.8 Q2§ +68.3 Q2 +0.6 -3.6 3.53§§ 6.87 6.53 Japan +1.3 Q2 +3.0 +1.1 +2.3 Jul +0.9 Jul +0.9 2.5 Jul +198.9 Jul +3.8 -3.8 0.08 111 110 Britain +1.3 Q2 +1.5 +1.3 +1.0 Jul +2.5 Jul +2.4 4.0 Jun†† -106.3 Q1 -3.5 -1.7 1.45 0.77 0.75 Canada +1.9 Q2 +2.9 +2.3 +2.5 Jun +3.0 Jul +2.2 6.0 Aug -53.4 Q2 -2.5 -2.3 2.34 1.30 1.21 Euro area +2.1 Q2 +1.5 +2.1 -0.1 Jul +2.0 Aug +1.7 8.2 Jul +476.8 Jun +3.4 -0.7 0.41 0.86 0.84 Austria +2.3 Q2 -4.0 +2.9 +5.0 Jun +2.1 Jul +2.1 4.9 Jul +9.5 Q1 +2.2 -0.3 0.57 0.86 0.84 Belgium +1.4 Q2 +1.6 +1.6 -2.3 Jun +2.2 Aug +2.0 6.2 Jul +0.2 Mar -0.1 -1.1 0.76 0.86 0.84 France +1.7 Q2 +0.6 +1.7 +1.8 Jul +2.3 Aug +2.0 9.2 Jul -10.4 Jul -1.1 -2.4 0.71 0.86 0.84 Germany +1.9 Q2 +1.8 +2.0 +1.2 Jul +2.0 Aug +1.8 3.4 Jul‡ +320.6 Jul +7.6 +1.3 0.41 0.86 0.84 Greece +1.8 Q2 +0.9 +2.0 +1.9 Jul +1.0 Aug +0.8 19.1 Jun -2.6 Jun -1.2 -0.2 4.09 0.86 0.84 Italy +1.2 Q2 +0.7 +1.2 -1.3 Jul +1.7 Aug +1.4 10.4 Jul +57.3 Jun +2.5 -2.0 2.79 0.86 0.84 Netherlands +2.9 Q2 +2.8 +2.8 +1.9 Jul +2.3 Aug +1.6 4.7 Jul +91.3 Q1 +9.7 +1.3 0.53 0.86 0.84 Spain +2.7 Q2 +2.3 +2.7 +2.8 Jul +2.2 Aug +1.7 15.1 Jul +19.0 Jun +1.4 -2.7 1.32 0.86 0.84 Czech Republic +2.7 Q2 +2.8 +3.0 +10.3 Jul +2.5 Aug +2.2 2.3 Jul‡ +0.9 Q1 +0.6 +1.0 2.16 22.0 21.8 Denmark +1.4 Q2 +0.8 +1.6 +7.4 Jul +1.0 Aug +1.1 3.9 Jul +19.7 Jul +7.4 -0.7 0.37 6.42 6.22 Norway +3.3 Q2 +1.5 +1.6 -2.3 Jul +3.4 Aug +2.3 3.9 Jun‡‡ +28.0 Q2 +7.4 +5.4 1.88 8.25 7.83 Poland +5.1 Q2 +4.1 +4.6 +10.3 Jul +2.0 Aug +1.8 5.8 Aug§ -0.1 Jun -0.7 -2.0 3.23 3.71 3.57 Russia +1.9 Q2 na +1.7 +3.8 Jul +3.1 Aug +3.0 4.7 Jul§ +64.6 Q2 +4.3 +0.3 8.92 68.8 57.6 Sweden +3.3 Q2 +4.2 +2.8 +2.3 Jul +2.1 Jul +2.0 6.0 Jul§ +13.4 Q2 +3.6 +1.1 0.57 8.98 7.97 Switzerland +3.4 Q2 +2.9 +2.2 +8.7 Q2 +1.2 Aug +0.8 2.6 Aug +72.9 Q1 +9.7 +0.8 0.03 0.97 0.96 Turkey +5.2 Q2 na +4.0 +2.9 Jun +17.9 Aug +13.3 9.7 May§ -57.4 Jun -6.1 -3.4 20.18 6.34 3.44 Australia +3.4 Q2 +3.5 +2.9 +3.4 Q2 +2.1 Q2 +2.1 5.3 Aug -41.8 Q2 -2.6 -1.0 2.59 1.40 1.24 Hong Kong +3.5 Q2 -0.9 +3.4 +1.0 Q1 +2.4 Jul +2.2 2.8 Jul‡‡ +14.3 Q1 +4.3 +2.0 2.39 7.85 7.81 India +8.2 Q2 +7.8 +7.3 +6.6 Jul +3.7 Aug +4.6 6.4 Aug -49.5 Q2 -2.4 -3.6 8.13 72.2 64.0 Indonesia +5.3 Q2 na +5.2 +9.0 Jul +3.2 Aug +3.6 5.1 Q1§ -24.2 Q2 -2.5 -2.6 8.56 14,830 13,198 Malaysia +4.5 Q2 na +5.7 +2.5 Jul +0.9 Jul +0.8 3.4 Jun§ +11.2 Q2 +2.9 -3.3 4.17 4.14 4.21 Pakistan +5.4 2018** na +5.4 +0.6 Jun +5.8 Aug +5.4 5.9 2015 -18.1 Q2 -5.8 -5.4 10.00††† 124 105 Philippines +6.0 Q2 +5.3 +6.6 +11.8 Jul +6.4 Aug +5.0 5.4 Q3§ -1.9 Mar -1.3 -2.8 7.55 54.1 50.9 Singapore +3.9 Q2 +0.6 +3.2 +6.0 Jul +0.6 Jul +0.6 2.1 Q2 +64.6 Q2 +17.2 -0.7 2.44 1.38 1.35 South Korea +2.8 Q2 +2.4 +2.8 +0.9 Jul +1.4 Aug +1.6 4.0 Aug§ +74.0 Jul +4.6 +1.0 2.26 1,129 1,129 Taiwan +3.3 Q2 +1.6 +2.6 +4.4 Jul +1.5 Aug +1.6 3.7 Jul +84.5 Q2 +13.4 -0.9 0.85 30.8 30.0 Thailand +4.6 Q2 +4.1 +4.1 +4.6 Jul +1.6 Aug +1.2 1.0 Jul§ +48.2 Q2 +9.3 -2.9 2.58 32.8 33.1 Argentina +3.6 Q1 +4.7 +0.5 -5.6 Jul +30.9 Jul +27.3 9.1 Q1§ -33.8 Q1 -4.5 -5.6 11.15 37.9 17.1 Brazil +1.0 Q2 +0.7 +1.6 +4.0 Jul +4.2 Aug +3.8 12.3 Jul§ -15.0 Jul -1.0 -7.0 9.67 4.13 3.11 Chile +5.3 Q2 +2.8 +1.9 -1.5 Jul +2.6 Aug +2.5 7.3 Jul§‡‡ -3.6 Q2 -3.7 -2.1 4.50 690 624 Colombia +2.5 Q2 +2.3 +2.7 +1.3 Jun +3.1 Aug +3.3 9.7 Jul§ -10.6 Q2 -2.8 -1.9 6.93 3,056 2,924 Mexico +2.6 Q2 -0.6 +2.1 +1.3 Jul +4.9 Aug +4.5 3.4 Jul -19.7 Q2 -1.7 -2.3 8.08 19.1 17.8 Peru +5.4 Q2 +12.5 +3.7 +1.5 Jun +1.1 Aug +1.4 6.2 Jul§ -3.2 Q2 -1.5 -3.1 na 3.33 3.23 Egypt +5.4 Q2 na +5.4 +5.4 Jul +14.2 Aug +16.1 9.9 Q2§ -7.7 Q1 -2.4 -9.6 na 17.9 17.6 Israel +3.8 Q2 +2.0 +3.7 +1.5 Jun +1.4 Jul +1.1 4.2 Jul +9.7 Q1 +1.8 -2.4 2.04 3.58 3.54 Saudi Arabia -0.9 2017 na +1.0 na +2.3 Jul +2.6 6.1 Q1 +19.9 Q1 +7.4 -3.3 na 3.75 3.75 South Africa +0.4 Q2 -0.7 +1.5 +1.8 Jul +5.1 Jul +4.8 27.2 Q2§ -12.2 Q1 -3.3 -3.6 9.20 15.0 13.0 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. https://t.me/finera The Economist September 15th 2018 Economic and financial indicators 93

Markets % change on Education spending Tertiary education, 2015, as % of GDP Dec 29th 2017 OECD countries spent an average of 5% of Index one in local in $ 0 0.5 1.0 1.5 2.0 2.5 3.0 Sep 12th week currency terms GDP on education in 2015. Between 2010 United States United States (DJIA) 25,998.9 +0.1 +5.2 +5.2 and 2015 total spending fell in more than China (Shanghai Comp) 2,656.1 -1.8 -19.7 -23.8 two-thirds of countries surveyed, as belts Britain Japan (Nikkei 225) 22,604.6 +0.1 -0.7 +0.3 tightened after the financial crisis. The Norway Britain (FTSE 100) 7,273.5 -1.5 -5.4 -9.1 private sector is playing an increasingly Finland Canada (S&P TSX) 16,049.0 -0.5 -1.0 -5.6 important role: its share of education Euro area (FTSE Euro 100) 1,156.5 -0.1 -4.4 -7.8 spending rose by 11% across all OECD Sweden 3,311.7 -0.1 -5.5 -8.8 Euro area (EURO STOXX 50) countries in that period. The private OECD average Austria (ATX) 3,280.9 nil -4.1 -7.4 France Belgium (Bel 20) 3,668.9 -0.1 -7.8 -11.0 sector is particularly important to tertia- France (CAC 40) 5,283.8 +0.4 -0.5 -4.0 ry-level education—especially in Ameri- Poland Germany (DAX)* 11,970.3 -0.6 -7.3 -10.6 ca, where almost two-thirds of spending Portugal Greece (Athex Comp) 692.0 -0.6 -13.8 -16.8 is accounted for by households and Public Spain Italy (FTSE/MIB) 20,853.8 +1.3 -4.6 -7.9 private institutions. Things are different Public-to- Netherlands (AEX) 539.8 -1.3 -0.9 -4.4 Italy private in Scandinavia. In Norway, 1% of total transfers* 9,284.1 -0.2 -7.6 -10.8 Spain (IBEX 35) tertiary-education spending, or under Ireland Private Czech Republic (PX) 1,081.4 +1.5 +0.3 -3.7 0.1% of GDP, came from private sources. Source: OECD *Includes scholarships, loans and subsidies Denmark (OMXCB) 911.1 -0.4 -1.7 -5.4 Hungary (BUX) 36,371.9 -2.1 -7.6 -14.9 Norway (OSEAX) 1,022.1 +0.5 +12.7 +10.4 Poland (WIG) 57,575.1 -2.0 -9.7 -15.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,055.9 -1.2 -8.5 -8.5 2005=100 % change on % change on Sweden (OMXS30) 1,620.4 -0.7 +2.8 -7.2 Dec 29th 2017 one one Switzerland (SMI) 8,914.9 +0.5 -5.0 -4.9 Index one in local in $ Sep 4th Sep 11th* month year Turkey (BIST) 92,389.1 -0.4 -19.9 -53.0 Sep 12th week currency terms Dollar Index Australia (All Ord.) 6,283.9 -0.9 +1.9 -7.0 United States (S&P 500) 2,888.9 nil +8.1 +8.1 All Items 137.9 137.4 -2.5 -5.7 Hong Kong (Hang Seng) 26,345.0 -3.3 -11.9 -12.3 United States (NAScomp) 7,954.2 -0.5 +15.2 +15.2 Food 141.4 141.0 -3.0 -4.7 India (BSE) 37,413.1 -1.6 +9.9 -3.5 China (Shenzhen Comp) 1,403.6 -2.7 -26.1 -29.9 Indonesia (IDX) 5,831.1 +2.6 -8.3 -16.2 Japan (Topix) 1,691.3 -0.8 -6.9 -6.0 Industrials Malaysia (KLSE) 1,785.3 -0.6 -0.6 -3.0 Europe (FTSEurofirst 300) 1,466.1 -0.1 -4.1 -7.5 All 134.3 133.8 -2.0 -6.9 Pakistan (KSE) 40,759.5 -2.1 +0.7 -10.5 World, dev'd (MSCI) 2,147.7 -0.2 +2.1 +2.1 Nfa† 133.9 133.9 +0.3 -2.6 Singapore (STI) 3,109.9 -1.5 -8.6 -11.3 Emerging markets (MSCI) 1,003.3 -1.8 -13.4 -13.4 Metals 134.4 133.7 -2.9 -8.6 South Korea (KOSPI) 2,283.2 -0.4 -7.5 -12.0 World, all (MSCI) 514.0 -0.4 +0.2 +0.2 Sterling Index Taiwan (TWI) 10,722.6 -2.5 +0.7 -2.7 World bonds (Citigroup) 930.8 -0.2 -2.0 -2.0 All items 195.4 192.3 -4.4 -3.8 Thailand (SET) 1,672.4 -0.8 -4.6 -5.3 EMBI+ (JPMorgan) 771.4 -0.1 -7.7 -7.7 Argentina (MERV) 29,766.9 +3.5 -1.0 -50.8 Hedge funds (HFRX) 1,256.8§ -0.5 -1.5 -1.5 Euro Index Brazil (BVSP) 75,124.8 nil -1.7 -21.9 Volatility, US (VIX) 13.2 +13.9 +11.0 (levels) All items 148.4 147.5 -4.3 -2.7 Chile (IGPA) 26,652.3 +2.4 -4.7 -16.3 CDSs, Eur (iTRAXX)† 61.5 -6.7 +36.2 +31.4 Gold Colombia (IGBC) 12,332.2 +1.8 +7.4 +3.8 CDSs, N Am (CDX)† 57.4 -4.4 +17.0 +17.0 $ per oz 1,192.5 1,190.7 -0.6 -10.2 Mexico (IPC) 49,224.3 +1.3 -0.3 +1.3 Carbon trading (EU ETS) € 23.0 +12.8 +182.4 +172.5 West Texas Intermediate Peru (S&P/BVL)* 19,026.7 +0.4 -4.7 -7.5 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 69.9 69.3 +3.3 +43.6 Egypt (EGX 30) 15,628.4 -0.8 +4.1 +3.2 †Credit-default-swap spreads, basis points. §Sep 10th. Israel (TA-125) 1,470.6 +0.2 +7.8 +4.5 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indor icat s for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 7,693.1 -0.3 +6.5 +6.4 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 56,174.0 -1.6 -5.6 -22.9 series, go to: Economist.com/indicators †Non-food agriculturals. Financial Era Advisory Group 94 Obituary Luca Cavalli-Sforza The Economist September 15th 2018

He represented his genetic data as “trees” branching over time: simplistic dia- grams, but beautiful in their simplicity. They often agreed, as he had hoped, with the findings of linguists and archaeolo- gists: suggesting, for example, that human- ity arose in Africa, where it stayed for a long time before moving outwards, some- where between 100,000 and 50,000 years ago. The earliestAfrican migrantsprobably reached Asia first, moving on to Oceania, Europe and America, in that order. He particularly liked to tell his story of farmers. By checking variations between individuals based on their blood groups, he discerned a gradient in that variation that stretched south-east-to-north-west across Europe. This he saw as the genetic signature of farming after its invention around 9,000 years ago in the Fertile Cres- cent. As early farmers radiated out of the Near East, he argued, they bred with indig- enous hunter-gatherers, until by the time they reached colder climates their genes were a good mix ofboth. This theory stood until the 2000s, when new technology reversed it. He had often carped about the public’s interest in The drift of humankind fossils, so much less informative—to him— than genetic studies of the living. Once DNA could be extracted from ancient bones, however, it showed that although agriculture had indeed reached Europe from the Middle East, a wave of immigra- tion from the north-east, starting about Luigi Luca Cavalli-Sforza, population geneticist, died on August 31st, aged 96 5,000 years ago, had diluted those first OR a man who spent his career illumi- in 91 provinces, he showed that the Apen- farmerswith tall herdsmen from the Pontic Fnating the vast, dim migrations of peo- nines—the backbone of Italy—had formed Steppe. People had moved and mixed in ple in prehistory, Luca Cavalli-Sforza’s life a natural barrier to migration for millen- prehistory more than he thought; and not was remarkably circular. He first became nia, resulting in genetically distinct popu- all ancient events, as he supposed, had left interested in hismajorfield, genetics, in the lations on either side. And because he their markin modern populations. house of the geneticist Adriano Buzzati at could also measure variation in blood pro- Belluno, in the hills north of Venice. There teins, such as that between A, B and O Breaking down walls he helped to collect thousands of flies in blood types, he also collected blood sam- Even more controversial was his Human search of mutant Y chromosomes; and ples from townsfolkall over the Parma val- Genome Diversity Project, which he set up though he subsequently travelled the ley to show that marriage between related in the 1990s. He wanted to study isolated world to study the makeup ofits tribes and individuals had led to many of the genetic populations in order to understand where populations, it was in Belluno that he died. differences between those towns. all the others came from; to measure the He had vaguely meant to be a doctor, For two decades from 1970, when he background ofdrift, or genetic change, that but found his training useless in wartime took up a professorship at Stanford, he de- takes place without marauding or migra- hospitals. Instead, he took up the genetic voted himself to this subject. By the 1990s tion. Some people thoughtthisracist, and a study of E. coli bacteria, shutting himself he was able to study variation in DNA it- more worldly man might have realised away in the laboratory. But human beings self. When he and his colleagues instruct- that. A few critics even brought up his still fascinated him: notleastbecause he in- ed a computer to sort around 1,000 people membership of Benito Mussolini’s fascist creasingly realised that the human ge- from across the globe into five clusters by youth organisation, compulsory before nome contained not only the instructions similarity ofDNA, the clusters matched the the war. All this dismayed him, as he had forbuildingfuture members ofthe species, labels by which humans had long grouped done so much to strike down “scientific” but also its entire past. Migration, conquest themselves intuitively: West Eurasians, studies based on race. The project died in and isolation had also left their traces in East Asians, Native Americans, New Guin- its original form, though it was resurrected living populations. He set out to find them. eans and Africans. He soon concluded, as the Genographic Project, which goes on. The technology available was rudi- though, that race was not a scientifically From Belluno he witnessed the over- mentary. He pored over names in parish valid way to classify them. Europeans, for turning of many other conclusions. Every registers and learned to do statistics, con- example, were about two-thirds Asian and evolutionary story he had touched be- vinced that with enough patience he could one-third African, but after millennia of came more complex by the day. Yet he measure anything. For one early paper he mixing there was no such thing as pure could comfort himself that without his pulled surnames from Italian phone direc- Asian orpure African either. Skin colour, or original vision for the study of human his- tories as proxies for father-son transmis- the shape of a nose, were just superficial tory through its genes, much of that great sion. By plotting the distribution of names adaptations to climate and place. debate would not have happened at all. 7 https://t.me/finera

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