An American princess in London

Beware Italy’s next government

How firms cope with Trump’s sanctions

Special report: China in the world MAY 19TH–25TH 2018 Gaza There is a better way PURE AEROSPACE

The state that revolutionized the automotive industry has taken to the skies to become one of the top places in the country for aerospace business. Michigan. Home to more than 600 aerospace-related companies, Michigan is ranked among the top 10 states for major new and expanded facilities. When it comes to aerospace success, the sky’s the limit in Michigan.

michiganbusiness.org/pure-aerospace Contents The Economist May 19th 2018 3

6 The world this week 34 The Murray-Darling From paddles to puddles 35 North Korea Leaders Forewarned on disarmament 9 Israel and Gaza 36 Banyan There is a better way A Malaysian tsunami 10 Pharmaceuticals The price is wrong China 10 Italy’s next government Fiddling before Rome burns 37 Language One country, many tongues 11 The dollar The About that big stick 38 Football The royal wedding The home advantage monarchy is stronger than it 12 Non-compete clauses has been for years—and the Restrain the restraints government is weaker: On the cover Middle East and Africa Bagehot, page 51 Israel must be held to Letters 39 Burundi’s referendum account for this week’s Back to the bad old days 14 On happiness, crypto- deaths in Gaza. But it is time currencies, Marx, mental 40 Zimbabwe for Palestinians to take up Can the economy be fixed? health, Deutsche Bank, non-violence: leader, page 9. the post 41 State airlines in Africa Why Palestinians are ready to Where one is not enough brave bullets and risk death 41 Gulf politics on the border fence between Briefing Why Qatar is raising cows Gaza and Israel, page16. 16 Gaza Despite the politics of fear, Siege mentality 42 Iran’s stricken economy Israel is more successful A system in shock than ever, page18 18 Israel at 70 Promised land 42 Iraq’s election Muqtada al-Sadr’s win Trump and sanctions America The Economist online United States must take care when wielding Special report: its extraordinary power over Daily analysis and opinion to 19 The Justice Department China in the world A finger on the scale global finance: leader, page11. supplement the print edition, plus Opening the gates Business has little choice but audio and video, and a daily chart 20 Politics in California After page 42 to cave in to the Trump Economist.com Wacky races administration’s unpredictable E-mail: newsletters and 22 Gambling on sport sanctions policies, page 54. Europe mobile edition For the bettor How to escape a hegemonic Economist.com/email 22 Medicaid 43 Italy’s coalition talks currency: Free exchange, Print edition: available online by Will work for health care The wills of the people page 68. Europe has few good 7pm London time each Thursday 23 Missouri’s governor 44 Spain and Catalonia options for dealing with Economist.com/printedition Under fire No surrender America’s president: Audio edition: available online Charlemagne, page 47 26 Lexington 45 Sex in French to download each Friday A Democratic deficit Vive la différence Economist.com/audioedition 45 Orban visits Poland Drinking from one glass The Americas 46 Georgia’s hipster politics 27 Venezuela Dance dance revolution Mr Maduro’s mock election 47 Charlemagne 28 Peru Standing up to The Donald Volume 427 Number 9092 Vizcarra’s vision Published since September1843 30 Bello to take part in "a severe contest between Britain intelligence, which presses forward, and Argentina and the IMF an unworthy, timid ignorance obstructing 48 Corbynomics our progress." The great transformation Asia Editorial offices in London and also: 51 Bagehot Italy The prospect of a Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, 31 Politics in Thailand Mexico City, Moscow, Mumbai, Nairobi, New Delhi, American princess populist government is more New York, Paris, San Francisco, São Paulo, Seoul, Vacuum power dangerous than people think: Shanghai, Singapore, Tokyo, Washington DC 32 Rebellions in Myanmar leader, page 10. The new Rumble in the jungle administration threatens to 32 Bombings in Indonesia be fractious and risky, page 43 A new low

1 Contents continues overleaf 4 Contents The Economist May 19th 2018

International Science and technology 52 Higher education 71 Conservation in Colombia Ranking universities Something to shout about 72 Glaciology and history Business Core values 54 American sanctions 73 Astronomy What the OFAC? Inconstant 55 Music streaming 74 The science of songs Bad rap What makes good music? 56 Samsung and labour 74 Microdrones University rankings League Chinese abroad China’s Workers of the Galaxy Petite fly from a bright guy tables lead universities to decision to let its people travel favour research over teaching 56 AirAsia abroad freely is changing the and hard sciences over the On a wing and a slogan Books and arts world. James Miles argues that humanities. Yet they also 57 Bankruptcy advice 75 Russian theatre it is changing China, too. See foster global co-operation, Raising a racket The bandage and the wound our special report after page 42 page 52 57 China Three Gorges and EDP 76 Modern opera Opening the floodgates His dark materials Subscription service 58 Toyota and autonomy 77 Organised crime For our latest subscription offers, visit Speed limit The biggest gang in town Economist.com/offers For subscription service, please contact by 59 Crypto-currencies 77 Irish fiction telephone, fax, web or mail at the details Bitcoining it How the past holds on provided below: 78 The history of silence North America The Economist Subscription Center Finance and economics Whereof we cannot speak P.O. Box 46978, St. Louis, MO 63146-6978 Telephone: +1 800 456 6086 61 The world economy Facsimile: +1 866 856 8075 Levelling off 80 Economic and financial E-mail: [email protected] indicators Latin America & Mexico 62 Buttonwood The Economist Subscription Center Istanbuls and bears Statistics on 42 economies, P.O. Box 46979, St. Louis, MO 63146-6979 plus a closer look at oil Telephone: +1 636 449 5702 Music streaming In response 63 NAFTA negotiations Facsimile: +1 636 449 5703 to #MeToo, Spotify kicks off a Labouring away E-mail: [email protected] cultural shift in the music 63 Boeing v Airbus Obituary Subscription for 1 year (51 issues) 8 business, page 55 Flying blind 82 Ninalee Allen Craig United States US $15 .25 (plus tax) Canada CA $158.25 (plus tax) 64 China’s current account A woman walking Latin America US $289 (plus tax) Discovering deficits 64 Life insurance Declining years Principal commercial offices: The Adelphi Building,1-11John Adam Street, 65 Pension bonds London WC2N 6HT Will Selfies stick? Tel: +44 (0) 20 7830 7000 66 Non-compete agreements Rue de l’Athénée 32 1206 Geneva, Switzerland Ball and chain Tel: +4122 566 2470 68 Free exchange 750 3rd Avenue, 5th Floor, New York, NY10017 The long arm of the dollar Tel: +1212 5410500 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Global growth An economic Tel: +852 2585 3888 slowdown should not cause Other commercial offices: too many jitters—yet, page 61. Chicago, Dubai, Frankfurt, Los Angeles, How Turkey went from Paris, San Francisco and Singapore investment darling to a junk rating: Buttonwood, page 62. The demise of China’s current- account surplus will change the global economy, page 64

PEFC certified This copy of The Economist is printed on paper sourced from sustainably managed forests certified to PEFC PEFC/29-31-58 www.pefc.org

© 2018 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. The Economist (ISSN 0013-0613) is published every week, except for a year-end double issue, by The Economist Newspaper Limited, 750 3rd Avenue, 5th Floor New York, NY 10017. The Economist is a registered trademark of The Economist Newspaper Limited. Periodicals postage paid at New York, NY and additional mailing offices. Postmaster: Send address changes to The Economist, P.O. Box 46978, St. Louis, MO 63146-6978, USA. Canada Post publications mail (Canadian distribution) sales agreement no. 40012331. Return undeliverable Canadian addresses to The Economist, PO Box 7258 STN A, Toronto, ON M5W 1X9. GST R123236267. Printed by Quad/Graphics, Hartford, WI. 53027 MAGICAPPINMYHANDS,IFOLLOWYOUUNTILTHEEND MOBILE APP. Benefit from all its features: directions to the airport and boarding gate*, real-time flight information, notifications related to your flight, boarding pass available at any time… And so much more to discover at airfrance.us

*At Paris-Charles de Gaulle. 6 The world this week The Economist May 19th 2018

ka, a transport hub, raising Fidesz government, which less keen on giving up its nuc- Politics fears that the disease will blames the Jewish billionaire lear weapons than it had previ- advance rapidly. At least 42 philanthropist for much that ously implied. people have been infected by goes wrong in Hungary. this latest outbreakso far. China marked the tenth anni- Time to talk versary ofan earthquake in Fancy a flutter? Sichuan that killed 70,000 The Supreme Court over- people. President Xi Jinping turned a law that banned said China had provided betting on sports, finding that “enlightenment forthe inter- it infringed on states’ rights. national community” in re- The law was passed in 1992 building disaster zones. Offi- (Nevada was exempted). cials imposed tight security, Americans already place an fearful ofattempts by parents estimated $150bn ofillegal to mourn children who died in Tens ofthousands ofPalestin- wagers on sports each year. shoddily built schools. ians protested along the border between Gaza and Israel to Another round ofprimary The governor ofthe Indian highlight their various griev- elections was held in America Students, businessfolkand state ofKarnataka invited the ances. Israeli soldiers shot and to pickcongressional candi- civic leaders in Nicaragua Bharatiya Janata Party to form killed about 60, according to dates for the mid-terms. Penn- gathered in Managua, the a government, though two Gaza’s health ministry. Some sylvania’s contests tookplace capital, forthe first day of talks other parties had won a major- had attempted to breach the under new district boundaries, with Daniel Ortega, the presi- ity ofthe state legislature border fence; others threw after a court over-ruled Repub- dent. The “dialogue”, which is between them. The pair ap- rocks and Molotov cocktails at lican gerrymandering. Three being mediated by the Catho- pealed to the Supreme Court. the Israeli side. Most ofthe women won in heavily Demo- lic church, follows weeks of protesters, however, were cratic districts, so the state’s protests against Mr Ortega’s Suicide-bombers attacked unarmed. all-male delegation will prob- socialist government, in which churches and police stations in ably be slightly feminised in dozens ofpeople were killed. Indonesia, killing13 people. On the same day as the November. The attacks were mounted by violence, America opened its Margarita Zavala, an indepen- families, including children. new embassy in Jerusalem, Unknown territory dent candidate in Mexico’s Islamic State claimed recognising the contested city Italy’s populist Five Star Move- presidential election, dropped responsibility. as Israel’s capital. Binyamin ment (M5S) and far-right out to “free” her supporters to Netanyahu, Israel’s prime Northern League neared agree- vote formore popular candi- minister, said it was a “great ment on forming a governing dates. Her withdrawal could day forpeace”. Mahmoud coalition, more than two weaken Andrés Manuel López Abbas, the Palestinian months after an election. The Obrador, a left-wing populist president, described the government would be the first who has a big lead in the polls. embassyasa “US settlement all-populist one in western outpost”. Europe. Many fear it could pull Venezuela’s socialist regime Italy out ofthe euro and cosy tookover a factory that Kel- A coalition led by Muqtada up to Russia. The parties have logg, a food company, had al-Sadr, a Shia cleric who once struggled to reconcile their closed because ofthe coun- urged attacks on American programmes, which promise try’s economic meltdown. troops, won Iraq’s parliamen- big tax cuts (the League) and President Nicolás Maduro said tary election, according to benefit increases (M5S). workers at the factory could Anwar Ibrahim, Malaysia’s preliminary results. His allies “continue producing forthe formerfinance minister and a promised to tackle corruption Catalonia’s parliament elect- people”, who are going hungry leader ofthe opposition alli- and curtail foreign influence. A ed Quim Torra as president of because ofprice controls and ance that won the recent gen- coalition led by Haider al- the region. He was backed by official corruption. Mean- eral election, was released Abadi, the prime minister, Carles Puigdemont, who was while, prisoners tookover the from prison on the ground that came second. forced from office when he detention centre ofSebin, his jailing had been politically declared independence and is Venezuela’s feared intelligence motivated. Mr Anwar is ex- After a campaign marred by now in Germany. The Catalan agency, to protest against pected eventually to take over several murders, Burundi held parliament approved Mr Torra, abuses. The government said it from the current prime min- a referendum on whether to a hardline separatist who has had regained control; prison- ister, Mahathir Mohamad. extend the president’s term made disagreeable remarks ers disputed this. from five years to seven. If it about Spaniards, by a margin The windscreen ofa Chinese passes, Pierre Nkurunziza, ofone vote. Party poopers passenger jet blew out while who calls himselfthe North Korea cancelled a it was cruising at 32,000 feet. country’s “Supreme Eternal The Open Society Founda- meeting with the South about The co-pilot was sucked Guide”, might remain tions decided to close shop in improving ties and threatened halfway out, but was saved by president until 2034. Budapest, the birth place of to pull out ofa summit be- his safety belt. The pilot landed George Soros, its founder, and tween its leader, Kim Jong Un, the aircraft safely, despite the An outbreakofEbola in the move its Hungarian operations and Donald Trump, due to take sudden loss ofcabin pressure Democratic Republic ofCongo to Berlin. Mr Soros has been place in Singapore in June. The and a plunge in temperature to spread to the city ofMbanda- scapegoated by the nationalist Kim regime hinted that it was -30°C (-22°F). 1 The Economist May 19th 2018 The world this week 7

returned to shareholders. It about the capacity ofTurkey’s guarantees from PNB. Federal Business recently struckan agreement central bankto rein in inflation investigators have charged to expand in Europe by buying and arrest the currency’s fall. more than 20 people in the President Donald Trump some ofLiberty Global’s as- case, including a formerchief introduced a plan to lower the sets. NickRead, the company’s Britain’s financial-conduct executive ofthe bank. cost ofdrug prices forcon- chieffinancial officer, steps up regulators handed a £642,000 sumers in America. The pro- to the top job. ($865,000) fine to Jes Staley, The stakes are high posals include compelling the chiefexecutive ofBarclays, pharmaceutical firms to list Xerox called offan agreement for his attempt to unmaskan their prices in advertisements. that would have seen it merge internal whistleblower. The The government may also get with Fujifilm, with which it regulators said that Mr Staley tough with firms that prevent has a long-standing joint ven- “failed to act with due skill, their drugs from being copied ture in Asia selling photocopi- care and diligence” in his when patents expire. But Mr ers. The deal had been strongly response to an anonymous Trump stopped short ofkeep- opposed by Carl Icahn and letter that criticised a senior ing his populist pledges, such Darwin Deason, two investors executive at the bank. as allowing Americans to who own more than 10% ofthe import prescriptions from shares in Xerox. After months ofnegotiations, other countries. The share Saudi British Bank (SABB) and prices ofleading drug compa- In an acquisition underlining Alawwal Bank strucka pre- The British government re- nies rose after his speech. the popularity ofprice-com- liminary agreement to merge. duced the maximum stake at parison services, Silver Lake, The combination ofSABB, fixed-odds betting terminals The great protector an American private-equity which is 40% owned by HSBC, from £100 ($135) to £2. Groups Taking many in his administra- firm, agreed to buy ZPG, which and Alawwal, which is 40% helping gambling addicts had tion by surprise, Mr Trump owns several such websites in owned by the Royal Bankof pressed forchange, claiming tweeted that he was working Britain, including Zoopla and Scotland, would create Saudi punters could potentially lose to overturn a ban on American uSwitch, for£2.2bn ($3bn). Arabia’s third-biggest bank. It £18,000 an hour because £100 chip companies from selling to would also markthe largest can be wagered every 20 sec- ZTE, a Chinese maker oftele- A hawkish dove banking merger in the king- onds at the machines. FOBTs coms equipment, because of The Turkish lira tumbled dom since 1999. are the primary source of the job losses it entailed in against the dollar again, after income forbetting shops, China. The Commerce Depart- Recep Tayyip Erdogan, Tur- Punjab National Bank report- generating £1.8bn a year. Each ment imposed the ban on ZTE key’s president, said that he ed a net loss of134bn rupees terminal (restricted to four per forcontravening a settlement will seekgreater influence over ($2bn) forthe quarter ending shop) on average takes in over selling products to Iran monetary policy ifhe wins on March 31st, one ofthe big- £50,000 a year fora bookie. and North Korea. Mr Trump next month’s snap election. Mr gest ever at an Indian state- The industry has warned there said his remarks were made in Erdogan’s distaste for high owned bank. The loss was will be big job losses because the context ofnegotiating with interest rates, which he recent- mostly a result ofsetting aside ofthe change. China to avoid a trade war. ly described as the “mother money to cover a fraud in- and father ofall evil”, has volving diamond firms that For other economic data and America claimed victory after increased investors’ concerns raised credit abroad using fake news see Indicators section the World Trade Organisa- tion upheld a decision that the European Union wrongly provided subsidies to Airbus. Robert Lighthizer, America’s trade representative, said that unless the EU stopped “break- ing the rules” America would “have to move forward with countermeasures on EU products”. Airbus retorted that 94% ofBoeing’s original claims had been dismissed by the WTO. A separate case brought by the EU against American support forBoeing will come up later this year.

Vodafone announced that Vittorio Colao is to step down as CEO after ten years in the job. During Mr Colao’s tenure the world’s second-biggest wireless provider sold its minority stake in Verizon Wireless, a deal which fetched $130bn, $84bn ofwhich was

Leaders The Economist May 19th 2018 9 There is a better way

Israel is answerable forthis week’s deaths in Gaza. But it is time forPalestinians to take up non-violence AZA is a human rubbish- which administers the PA and parts of the West Bank, has Gheap that everyone would withheld salaries forcivil servants working forthe PA in Gaza, rather ignore. Neither Israel, nor limited shipments ofnecessities, such as drugs and baby milk, Egypt, nor even the Palestinian and cut payments to Israel forGaza’s electricity. Authority (PA) wants to take re- Hamasbearsmuch ofthe blame, too. Itall butdestroyed the sponsibility for it. Sometimes Oslo peace accords through its campaign of suicide-bombings the poison gets out—when, say, in the 1990s and 2000s. Having driven the Israelis out of Gaza, rockets or other attacks provoke it won a general election in 2006 and, after a briefcivil war, ex- a fully fledged war. And then the world is forced to take note. pelled Fatah from the strip in 2007. It has misruled Gaza ever Such a moment came on May 14th. Tens of thousands of since, proving corrupt, oppressive and incompetent. It stores Palestinians massed near Gaza’s border fence, threatening to its weapons in civilian sites, including mosques and schools, “return” to the lands their forefathers’ lost when Israel was making them targets. Cement that might be used for recon- created in 1948. Israeli soldiers killed about 60 protesters—the struction is diverted to build underground tunnels to attack Is- bloodiest day in Gaza since the war in 2014 (see Briefing). In a rael. Hamasall butadmitted itwasnotup to governing when it surreal split-screen moment, the Israeli prime minister, Binya- agreed to hand many administrative tasks to the PA last year as min Netanyahu, was exulting over the opening of America’s part of a reconciliation deal with Fatah. But the pact collapsed embassy in Jerusalem, calling it a “great day forpeace”. because Hamas is not prepared to give up its weapons. Many countries have denounced Israel; a few have recalled Israel, Egypt and the PA cannot just lock away the Palestin- diplomats. Some people accuse it ofwar crimes. Others blame ians in Gaza in the hope that Hamas will be overthrown. Only President Donald Trump forcausingthe clashesby moving the when Gazans live more freely might they thinkofgetting rid of embassy from Tel Aviv to Jerusalem. It is surely right to hold Is- their rulers. Much more can be done to ease Gazans’ plight rael, the strong side, to high standards. But Palestinian parties, without endangeringIsrael’s security. Butno lastingsolution is though weak, are also to blame. Seven decades after the cre- possible until the question of Palestine is solved, too. Mr Net- ation of Israel as a thriving democracy, there is a better way anyahu has long resisted the idea of a Palestinian state—and than endless conflict and bloodshed. has kept building settlements on occupied land. It is hard to convince Israelis to change. As Israel marks its How much blood is proportionate? 70th birthday, the economy is booming. By “managing” the Every state has a right to defend its borders. To judge by the conflict, rather than trying to end it, Mr Netanyahu has kept numbers, Israel’s army may well have used excessive force. Palestinian violence in check while giving nothing away. But any firm conclusion requires an independent assessment When violence flares Israel’s image suffers, but not much. The of what happened, where and when. The Israelis sometimes Trump administration supports it. And Arab states seeking an used non-lethal means, such as tear-gas dropped from drones. ally against a risingIran have neverhad betterrelations with it. But then snipers went to work with bullets. What changed? Israel is wrong to stop seeking a deal. And Mr Trump is Mixed in with protesters, it seems, were an unknown number wrong to prejudge the status of Jerusalem. But Palestinians of Hamas attackers seeking to breach the fence. What threat have made iteasyforIsrael to claim thatthere is“no partnerfor did they pose? Any fairjudgment depends on the details. peace”, divided as they are between a tired nationalist Fatah Just as important is the broader political question. The that cannot deliver peace, and an Islamist Hamas that refuses fence between Gaza and Israel is no ordinary border. Gaza is a to do so. Palestinians desperately need new leaders. Fatah prison, not a state. Measuring 365 square kilometres and home must renew itselfthrough long-overdue elections. And Hamas to 2m people, it is one of the most crowded and miserable must realise that its rockets damage Palestinian dreams of places on Earth. It is short ofmedicine, power and other essen- statehood more than they hurt Israel. tials. The tap water is undrinkable; untreated sewage is pumped into the sea. Gaza alreadyhasone ofthe world’shigh- The only way to stop fighting is to stop fighting est jobless rates, at 44%. The scene of three wars between Ha- For all their talk of non-violence, Hamas’s leaders have not mas and Israel since 2007, it is always on the point oferuption. abandoned the idea of“armed struggle” to destroy Israel. They Many hands are guilty for this tragedy. Israel insists that the refuse to give up their guns, or fully embrace a two-state sol- strip is not its problem, having withdrawn its forces in 2005. ution; they speak vaguely of a long-term “truce”. With this But it still controls Gaza from land, sea and air. Any Palestinian, week’s protests, Hamas’s leaders boasted of freeing a “wild ti- even a farmer, coming within 300 metres of the fence is liable ger”. They found that Israel can be even more ferocious. to be shot. Israel restrictsthe goodsthatgetin. Only a tinynum- If Hamas gave up its weapons, it would open the way for a berofPalestinianscan getoutfor, say, medical treatment. Israe- rapprochementwith Fatah. Ifitaccepted Israel’srightto exist, it li generals have long warned against letting the economy col- would expose Israel’s current unwillingness to allow a Pales- lapse. Mr Netanyahu usually ignores them. tinian state. If Palestinians marched peacefully, without guns Egypt also contributes to the misery. The Rafah crossing to and explosives, they would take the moral high ground. In Sinai, another escape valve, was open to goods and people for short, if Palestinians want Israel to stop throttling them, they just 17 days in the first four months of this year. And Fatah, must first convince Israelis it is safe to let go. 7 10 Leaders The Economist May 19th 2018

Pharmaceuticals Thepriceiswrong

America still lacks a serious plan to lowerthe cost ofdrugs OPULISTS often put theirfin- costs for foreign governments. Even if this proves possible— S&P pharmaceuticals Pger on problems that irk their and it seems unlikely to succeed with America’s big trading Previous day close=100 102 countrymen. They also tend to partners—it would not cut Americans’ drugs bills by a cent. Trump’s speech come up with inadequate sol- That is because the price ofdrugs in America would remain 101 utions to them. So it is with Pres- at what the market will bear. Put another way, prices would 100 ident Donald Trump’s plan, un- continue to be largely set by pharma companies. For, unlike 99 veiled on May 11th, to lower the other countries, America does a bad job of negotiating down 10:00 16:00 May 11th price ofprescription drugs. the prices of new drugs. If America really wanted cheaper Drugs are more expensive in America than anywhere else. drugs, it would copy what European countries do, and refuse A month’s supply of Harvoni, which cures hepatitis C, costs to buy drugs that do not offergood clinical value for money. $32,114 in America and $16,861 in Switzerland. Some cancer drugs can cost more than $150,000 a year. Mr Trump cam- A second opinion paigned on a promise to reduce prices. He suggested that he Even short of such radical action, there are plenty of opportu- would make it easier to import drugs from abroad and would nities for useful reform. The government could give Medicare, force drug companies to lower prices for Americans, using the the health scheme for the elderly, more power to negotiate state’s bargaining power to save $300bn a year—preposterous, prices and more freedom to determine the drugs it has to pro- given that this is almost the entire sum the government spends vide by law.At the moment it cannot haggle directly with drug on drugs. Nevertheless, his promises may have helped Mr companies. It could also expose the opaque and hugely profit- Trumpwin the support ofthe majority ofolder voters. able array of intermediaries which sit between the makers The president’s plan, which he called the “most sweeping and takers of drugs. These firms are supposed to negotiate action in historytolowerthe price ofprescription drugs”, lacks cheaper prices on behalfofinsurance companies, passing sav- potency. A few ideas are welcome, including the proposal to ings on to consumers. In reality, a complex and largely confi- hinder pharmaceutical firms that try to delay the arrival of ge- dential system of rebates on published prices has driven up neric versions of their drugs after patents expire. But many of the bill for patients, who pay from their own pockets and see MrTrump’ssuggestions need legislation, which is unlikely just little ofthe discounts. now.No wonder his speech triggered a rise in the share prices The Trump administration criticises the rationing of treat- ofpharma firms. ment in other countries. But American insurers routinely re- Mr Trump also repeated an argument beloved of pharma- strict the use of costly drugs—only their approach dispropor- ceutical companies—that foreigners are to blame forAmerica’s tionately affects those of very modest means, since they have high prescription-drugprices. Because Europeans pay too little flimsier insurance plans. The Food and Drug Administration is for their drugs, goes the argument, Americans make up the set to relax the efficacy test in order to cut the cost of develop- lossesbypayingmore. MrTrumppromisesto instructtrade ne- ingnewdrugs. Extra innovation iswelcome but, unless Ameri- gotiators to demand that other countries extend periods for ca gets a grip on prices at the same time, it will lead to yet more patents on American-made drugs, which in turn would raise costly new drugs offering poor clinical value. 7

Coalition negotiations in Italy Fiddling before Rome burns

A populist flirtation is more dangerous than it seems TALY has gone without a gov- the populist parties that won the most votes have conflicting Iernment for more than two policies. The far-right Northern League promised a flat tax rate months. That is no great shock. of15%, which would lower revenues. The Five Star Movement At elections on March 4th, Ital- (M5S), which claims to transcend left-right divisions, promised ians deserted mainstream par- a universal basic income of €780 ($920) per month, which ties and backed radical populist would require huge outlays. Bridging the gap between these ones whose leaders have never two parties, in office as well as in the coalition talks, would be had to haggle to form a coalition. hard forthe most charming and seasoned politicians, let alone The surprise has been the belated reaction of the financial the League’s firebrand of a leader, Matteo Salvini (pictured, markets, which this week suddenly woke up to the looming left), and M5S’s 31-year-old head, Luigi Di Maio (right). threat. The men who, as The Economist went to press, were on Anotherreason to beware is the parties’ programmes. Their the verge oftaking power in Italy cannot be trusted to run it. visceral Euroscepticism threatens the integrity of the euro One reason for the delay—and for general concern—is that zone. M5S has only recently stepped back from pledging to 1 The Economist May 19th 2018 Leaders 11

2 hold a referendum on leaving the single currency. The League spreads between Italian and German government bonds wid- goes well beyond reasonable concern over refugees, advocat- ened by 0.22 percentage points, to 1.5 points—their biggest sin- ing xenophobic and unworkable deportation policies. Both gle-day increase since the Brexit vote. parties want to scrap sanctions on Russia, threatening the Italians have reason to be angry with their politicians. Sil- European unity that deters President Vladimir Putin’s aggres- vio Berlusconi, besetbylegal troubles, neglected the euro crisis sion in Ukraine and elsewhere. At home they would undo vi- until he was forced from power. Matteo Renzi squandered the tal reforms, cutting the pension age in a rapidly greying coun- hopes invested in him by betting on an ill-fated referendum to try with low fertility. They have other perverse distractions, change the constitution, leaving other reforms largely undone. such as M5S’s sympathy with the anti-vaccination movement. The country is unstable at the top. It has had five prime minis- Dangerous in isolation, their policies could be worse in ters in ten years, and none ofthe past fourwas the leader ofhis combination. If Mr Salvini and Mr Di Maio reach an accord party at the time it was elected. Europe, too, has much to an- that includes both oftheir budgetary priorities, it would be fis- swer for. The EU promised to help Italy cope with the refugees cally irresponsible. Implementingthe flat tax, the universal ba- that arrive on its coast, but broke its word. sic income and the pension roll-back would cost tens of bil- lions of euros a year, probably increasing the deficit from 2.3% Circuses, but not enough bread ofGDP to more than 3% and breaching European rules. The pity is that neither the League nor M5S offers solutions to Perhaps that is why an early version of the parties’ accord Italy’s real problems. Italian productivity has scarcely risen included demands that the ECB forgive €250bn in Italian debt since 2001. (In Germanyitisup by16%; in Romania, by134%.) To and that the EU send over truckloads of money to finance put this right will require loosening labour laws, reforming the M5S’s basic income. It also hinted at scrapping the euro and courts, investing in education and infrastructure, and attack- bringing back the lira. The document’s latest version drops the ing corruption. Although the League and M5S pay some atten- wildest proposals, but retains plenty ofdisquieting ones. tion to these issues, their chiefplan seems to be a huge burst of The last reason to worry is Italy’s fragility. With a national stimulus from tax cuts and handouts, financed by wishful debt of over 130% of GDP, the euro zone’s third-largest econ- thinking. Italy has stagnated for too long; it cannot afford more omy is too bigto bail out—even ifthe single currency is at stake. years of inaction, or a government that makes matters worse Although Mr Salvini and Mr Di Maio have moderated their with incoherent radicalism. If Italians do not sort this out, the promises, the marketshave suddenlytaken fright. On May 16th markets will render a harsh verdict. 7

The dollar About that big stick

America must take care when wielding its extraordinarypoweroverglobal finance HAT is America’s greatest Startwith unpredictable decision-making. America’sfinan- US sanctions Wsource of power? Its mili- cial power is so great that its application is hard to calibrate. Administered by the OFAC, cumulative tary might is unparalleled. Its Afterthe Treasury sharpened sanctions against Russia in April, 6,000 market is vast. Alongside these Rusal, a large aluminium producer, was frozen out of financial 4,000 assets stands the dollar. The markets even though it does little ofits business in America. Its 2,000 world depends on America’s shares fell by more than half. Perhaps awed by its own might, 0 currency, and hence on access to America backtracked, offering the firm a partial reprieve. 2000 05 10 15 18 dollar payments systems and Calibration problems are exacerbated by inconsistency. In the banks America has effective control over. Greenbacks fuel April the Commerce Department banned American firms trade everywhere. On average, countries’ dollar imports are from doingbusiness with ZTE, a Chinese telecoms giant which worth five times what they buy from America. More than half violated sanctions against Iran and North Korea. The firm im- of all global cross-border debt is dollar-denominated. Dollars mediately foundered. President Donald Trump now seems to make up nearly two-thirds ofcentral-bankreserves. That gives want to trade ZTE’s survival as part of a larger trade deal with the Treasury a veto over much ofglobal commerce. China. As a result the administration is sending contradictory Most presidents have used the dollar-weapon sparingly. In messages: first that Iran is beyond the pale, and second that recent weeks the Trump administration has imposed tough fi- sanctions violations involving it may be negotiable. As the nancial sanctions against Russia. Having withdrawn from the number of sanctions multiplies, so will the exemptions, con- nuclear deal, America is acting against Iran and European tradictions and unintended consequences. If that happens, firms that trade with it. In 2017 the administration’s “blacklist” sanctions’ effectiveness will fall accordingly. gained roughly 1,000 new entries, almost 30% more than Ba- Abrupt shifts in policy cause uncertainty for companies rackObama added in his last year. (see Business section) and risk financial turmoil. That is be- There are times when it is wholly appropriate for America cause the corollary of dollar dominance is dollar dependence. to use its clout. But the country risks choosing quick wins re- At the end of 2007 the financial crisis went global when large gardless of the long-term and less visible costs. Using the dol- European banks ran short of currency with which to service lar as a bludgeon has already led to capricious and arbitrary their dollar debts. The Federal Reserve stepped in to provide decision-making. It also risks destabilising global finance. foreign central banks with liquidity. Since the crisis the off- Eventually, it may hasten the demise ofthe dominant dollar. shore dollar financial system has grown, especially in Asia. A 1 12 Leaders The Economist May 19th 2018

2 clumsily antagonistic move, such as cutting off a big Chinese How orderly that transition is will depend in part on how bank—a move which some American officials may have con- America is perceived by its allies as well as its adversaries. templated—could create havoc. This time, though, it would be European countries wish to continue honouring the Iran nuc- harder for the Fed to fight the fire, because the system is bigger lear deal, for example, from which Mr Trump unilaterally and more dispersed. Even large non-financial firms could des- withdrew earlierthis month. But faced with the threat ofbeing tabilise offshore finance ifthey defaulted on dollar debt. cut off from American markets and banks, European firms probably have little choice but to follow America’s lead. One reserve, no substitute That will surely be chalked up as a win by the White House. Just as serious are the long-term risks for America. There is no But it carries long-run costs. The dollar reigns supreme in part obvious substitute for the dollar (see Free exchange). The euro because foreigners trust American institutions and because its zone has yet to recover from its crisis. China does not have a friends think that their interests coincide with America’s. If stable banking system or an open capital account. Only Amer- alliances become chiefly transactional, efforts by others to ica can provide the safe, global asset needed to keep trade and wean themselves off the dollar will intensify—and inevitably finance flowing. But the dollar is unlikely to dominate for ever. spill over into military and intelligence relationships. For there As America’s share of world output shrinks, a shift to a mix of is another answer to the question ofwhat gives America pow- reserve currencies is, eventually, probable. er: its commitment to a rules-based system. 7

Non-compete clauses Restrain the restraints

America would benefit ifworkers had greaterfreedom to choose theirnext employer HE non-compete clause has workers’ job mobility fell by 8% when non-competes were al- Tbeen causing trouble for lowed. When people cannot work for another employer who over 600 years. In 1414 an Eng- would value their skills, wage growth suffers, too, because lish court heard the case of John people typically achieve the biggest bumps in their salary Dyer, an apprentice whose mas- when they move firm. Non-competes are also associated with ter had stopped him from plying a decline in enterprise. One study found that the rate of entry his trade for six months. The of new firms into knowledge-intensive industries fell by 18% judge was having none of it. when non-compete clauses could more easily be enforced. It is “The contract is contrary to common law,” he ruled. Individ- no accident that California, a notably innovative state, is one uals should be free to pursue the livelihood oftheir choice. of only three to make the clauses unenforceable except in spe- That principle has been diluted in the intervening centu- cial circumstances, such as the sale ofa business. ries—most countries give businesses some leeway to use non- The costs spill over to all workers—even those who are not compete clauses, whereby workers promise not to start or join subject to non-competes. Young firms are disproportionately firms that go head-to-head with their ex-employer. But their important for job growth, for example; if fewer firms are prevalence in America is striking(see Finance section). Accord- formed, it will affect everyone in the labour market. And non- ing to a study by the Treasury in 2016, almost 20% of American competes can have a chilling effect even in places that do not workers are bound by a non-compete agreement, and almost recognise them. One study found that 40% of employees who 40% have been subject to one at some point. Efforts to rein turn down job offers from competitors cite the clauses as a rea- them in are intensifying. Rightly so. son, whether they are in enforcing or non-enforcing states. The drawbacks of non-compete clauses are all the more Incumbency we trust worryingbecause oftoday’sbusinessclimate. The incentive to Defenders of these agreements put forward several argu- invest and train counts for less when, as now, the American ments. One is that non-competes encourage innovation by economy suffers from a lack of competition. Clamping down stoppingrivals waltzingoffwith trade secrets; there is some ev- on such agreements would not solve the problem—just look at idence that levels ofinvestment are higher at firms where they the tech giants that call California home—but it would help. are used. Another argument is that firms are less likely to train Non-competes are also more worrying when the balance workers if newly skilled employees are able to up sticks and of power between companies and employees is already take what they have learned with them to a rival. Again, re- skewed. The spread of mandatory-arbitration clauses in em- search backs up this claim. A third argument is that firms and ployment contracts and the decline of trade unions are both employees should be free to contract as they wish. signs of that imbalance. The counter-arguments are stronger. The prevalence of The bar to making all non-compete clauses illegal is high. non-compete agreements is clear evidence that they are being But the circumstances in which they can be enforced should used indiscriminately. Roughly 15% of American employees be narrow, asthey are in California. They should be negotiated without a college degree, and a similar share of those earning before employees accept a job offer and they should apply for less than $40,000 a year, are bound by them. Burger-flippers short times. If a company takes an ex-employee to court, it and care-home workers do not have trade secrets to hawk. should be required to demonstrate genuine harm to its busi- The gains in investment and trainingmust be set against the ness. Non-compete agreements were a bad idea in the 15th cen- wider costs. In one study, in Michigan, researchers found that tury. They still are. 7 “When I’m knocked down, I get back up because I choose to fight.”

Pablo / ALS Researcher Pat / ALS Patient

Researchers battling ALS are also battling time—so progress in the methodology of trials is accelerating, with innovations designed to yield more insight from each test in a shorter time and, ultimately, effective treatments. Welcome to the future of medicine. For all of us. GoBoldly.com 14 Letters The Economist May 19th 2018

We’re not just units of output out these features, money- backin hospital, sectioned and competitive position in Ameri- laundering would have been cared for at even greater cost. ca and Asia is not strong The criticism in a Free much harder in crypto-coins People with mental-health enough to challenge the likes exchange column ofGDP as a than in regular currencies. problems need proper care. ofGoldman Sachs on a global measure ofprogress was excel- OMER LEV Scrimping on skilled carers is basis. However, it is well posi- lent (May 5th). But it barely Ben-Gurion University of the cruel, misguided and ultimate- tioned to be the largest cor- mentioned the concept of Negev ly more expensive porate and investment bankin subjective well-being, which is Beersheba, Israel ROSIE HOARE the euro zone, serving regional the preferable alternative to Ipswich, Suffolk customers. Deutsche should GDP . Not only can we now Loafers of the world, unite! reaffirm its commitment to measure it; we also have a The tone ofyour article is that these businesses in Europe. good understanding ofwhat being detained under the RAY SOIFER determines it. This makes it Mental Health Act, or “being Green Valley, Arizona easier to target policy at the sectioned” as you call it, is well-being ofpeople. punitive and potentially da- Wait a minute, Mr Postman As Thomas Jefferson said, maging. I disagree. The MHA “The care ofhuman life and focuses on the rights ofpa- Yourleader calling forthe happiness, and not their de- tients suffering from mental United States Postal Service to struction, is the first and only illness and includes numerous be privatised gave short shrift legitimate object ofgood gov- safeguards to empower and to deliveries in remote areas ernment.” Wenow have the protect them. Unanimous (“Deliverance”, April 21st). The knowledge to implement that agreement is required by va- USPS is trying to close the post approach. Much ofit is found rious professionals in a MHA office in Pie Town, New Mexi- in the annual World Happiness Youpresented Karl Marx’s assessment. A patient who co. As there is no home deliv- Report and the Global Happi- vision ofa post-capitalist challenges detention has the ery here, locals will thus have ness Policy Report. future as “people essentially have the right to legal assis- to travel 40 miles to collect RICHARD LAYARD loafing about” (“Second time, tance and due process; this is their mail, including legal Director farce”, May 5th). You went on not possible for voluntary notifications, bills and medi- Well-Being Programme to enumerate their activities as patients. In the case ofa treat- cation, not to mention my London School of Economics “hunting in the morning, ment order patients get access subscription to The Economist. fishing in the afternoon, raising to fully funded lifelong after- To drive to the nearest post Laundering in public cattle in the evening and criti- care once they recover. office to pickup my mail even cising after dinner.” May one I do not wish to paint a once a weekwould cost me The fact that money-launder- inquire what The Economist’s completely rosy picture; pro- 10% ofwhat I live on. I cannot ing with crypto-currencies vision ofa strenuous life blems remain. Ethnic dis- do this. There are also people persists (“Digital detergent”, would entail? parities are alarming, though in Pie Town who are not physi- April 28th) actually shows that MATTHEW DRAPER the act itselfis not racist. The cally capable ofdriving that criminals, just like the general Charlottesville, Virginia fact that it is being used more far. Some items, especially public, do not yet fully often is largely explained by legal documents, can only be understand them. The ledger Mental-health policy the shrinking number ofin- delivered by post. What will forthese currencies—the block- patient psychiatric beds. happen to people in rural areas chain—is completely open. The rising numbers ofpeople BENJAMIN PERRY if, say, they don’t receive Every person can download it with mental-health conditions NIHR academic clinical fellow in summons to jury duty in a and trackeach and every (“Locked away”, April 21st) can psychiatry timely manner? transaction. The benefits of also be explained by short- Warwick UNCLE RIVER speed or processing little sighted budget constraints. I Pie Town, New Mexico chunks (or a long chain of know someone in his early 40s What to do with Deutsche? transactions, also common who was diagnosed with On the outside ofthe Post when laundering regular schizophrenia 20 years ago. He Schumpeter’s call forDeutsche Office building in New York is currencies and observed in can live an independent life, Bankto be dismantled con- a plaque that reads: “Neither bitcoin) matter little when a provided his medication is tained an inherent flaw (April snow nor rain nor heat nor very simple scan oftransac- supervised, as was the case 21st). Ifyou were a corporate gloom ofnight stays these tions can reveal the ultimate when he was living in a house customer, why would you stay couriers from the swift destination ofany crypto-coin. run by MIND. In an attempt to with a bankthat is in the pro- completion oftheir appointed This is a more powerful and save money spent on such cess ofbreaking up and going rounds”. To which a graffito extensive registry than what is outsourced care by skilled out ofbusiness? What does was once scrawled alongside: available to the authorities for professionals, the National make sense is to divest the “What is it, then?” conventional currencies. Health Service moved him to a bank’s German retail business, ROBERT GENTLE The convenience ofcrypto- flat in “the community”. which is unlikely ever to earn a Johannesburg 7 currencies forlaunderers He became isolated and decent return because ofnot- comes from the basic ano- soon relapsed, stopped his for-profit competition from nymity ofthe network. There medication and let his new state and mutual institutions. Letters are welcome and should be is no need to present any iden- accommodation fall into That would leave Deutsche addressed to the Editor at NHS The Economist, The Adelphi Building, tification to open a crypto-coin chaos. He was found by with corporate and investment 1-11John Adam Street, “banking” account, and, using staffwandering around near- banking and wealth manage- London WC2N 6HT secure online connections, one by woods barefootand scanti- ment, its long-standing and E-mail: [email protected] can access the internet without ly clad. Just months after this steady core businesses. More letters are available at: revealing one’s location. With- budget-saving exercise he was Realistically, Deutsche’s Economist.com/letters Executive Focus 15

The Economist May 19th 2018 16 Briefing The Israeli-Palestinian conflict The Economist May 19th 2018

Siege mentality Also in this section 18 Israel at 70 is thriving

GAZA CITY AND MALAKA Why Palestinians are ready to brave bullets and riskdeath on the borderfence between Gaza and Israel AZEN QASSAS was supposed to be in patches of ground, where music played on were proportionate, a justified attempt to Mbed, not hunched over a man miss- loudspeakers and sandwiches and soft defend a border. Soldiers did try to dis- ing a chunk of his thigh. The surgeon had drinkswere on sale. “People came to watch perse the crowds with tear-gas, but it was just finished a 12-hour shift at Al-Shifa, other people,” said one. ineffective in an open, windy area. Most of Gaza’s main hospital. But after a nap he At Malaka, east of Gaza City (see map the injured were shot in their legs—meant was back treating people who had been on next page), protesters ran up a raised to wound, not kill, though some died any- hurt in the territory’s bloodiest day of vio- bank to burn tyres or cut through coils of way from lack of proper medical care. And lence in four years. The hospital was over- barbed wire. Many came back down on in several instances militants tried to plant flowing with patients so Dr Qassas was stretchers. As the Israeli army sent tear-gas improvised explosive devices near the brief. He unwound a bandage to reveal a canisters whizzing overhead into Gaza, fence. Hamas says that most of the men gaping wound, the work of a sniper’s bul- kites sailed the other way, dangling cans of shot dead were its own people. let, gave instructions to nurses and moved burning fuel meant to ignite Israeli farms. Individually, few ifany ofthe protesters on. He had 50 patients waiting. “Yesterday Snipers’ rifles cracked amid shouting and posed a danger. The threat, simply put, is was worse than the last war, because the the blaring sirens of ambulances. By the that Israel does not have enough troops to rush came all at once,” he noted gloomily. next morning the death toll had reached stop 2m people from crossing a fence. It The bloodshed on May 14th started 60, according to Gaza’s health ministry, controls them through fear—through the after tens of thousands of people descend- with more than 2,700 others injured. belief that the armistice line is an inviola- ed on the barrier that separates Gaza from ble barrier. The marches chipped away at Israel. It was the latest of six weeks of The edge of reason thatfear. Afewyoungprotestersmarvelled weekly protests known as the “Great Re- The response to the march was a public-re- that they had never been so close to the turn March”, nominally an effort to re- lations disaster for Israel, which was fence before. claim the lands their grandparents fled or deemed by many countries to have overre- The shooting restored the trepidation, were pushed out from during the creation acted. No Israelis were killed and few were but only in the short run. As a tactical mea- of Israel. It also coincided with the conten- injured. Most of the protesters were un- sure, firing thousands of rounds at a crowd tious relocation of America’s embassy in armed. Those with weapons tended to is a successful deterrent. But it does noth- Israel from Tel Aviv to Jerusalem, which have slingshotsand Molotovcocktails, nei- ingto resolve the festeringconflict that sent Palestinians regard as yet another injustice ther of which posed much threat to sol- people to the fence in the first place. If the (see next story). diers more than 100 metres away. Some of blockade of Gaza persists, they will surely In some places the barrier is a concrete the wounded were not even trying to rush try again. wall topped with remote-controlled mach- the fence. One young man was shot walk- Outbursts of violence such as the ineguns. In others it is merely a chain-link ing on a dirt path parallel to the border but events ofMay14th have earned Gaza a rep- fence. Only a few protesters tried to cross it. 100m metres from it. utation as a war zone. More often it is a Most hung well back in fields or on dusty Israel’s army argued that its actions place of grinding boredom. Few of its 2m 1 The Economist May 19th 2018 Briefing The Israeli-Palestinian conflict 17

2 residents can leave the enclave. They have 2000. Ariel Sharon, Israel’s hawkish prime group). Mr Sisi accuses Hamas of aiding ji- been hemmed in by Israeli and Egyptian minister, withdrew from Gaza completely hadists in Sinai. His claims have some blockades since 2007, when Hamas, a mil- in 2005. The PA had day-to-day control, but truth to them. Hamas has allowed scores itant Islamist group, tookcontrol of Gaza. not for long. Yasser Arafat, founder and of Egyptian militants to slip into Gaza and The crossing to Israel at Erez is open leader of Fatah, the main Palestinian seekrefuge there. only to some businessmen, people need- nationalist group, and subsequently head Gaza is even caught up in the Middle ing urgent medical care and a few others of the PA, had made Gaza his base. The Is- East’s wider feuds. Qatar has long been (see chart on next page). For most Gazans raeli pull-outand hisdeath in 2004 opened close to Hamas and for years it was Gaza’s the only way out is at Rafah, on the border the way forHamas to take charge. main patron. It donated $1bn after the war with Egypt. But since 2015 the crossing has In January 2006 Palestinians voted for in 2014 to build thousands of new homes been open on 129 days, an average of five- a new parliament. The result was a shock and fix the coast road. But Qatar faces an and-a-half weeks a year. Only 63,000 peo- victory for Hamas, as Palestinians voiced embargo of its own, imposed by four Arab ple have been able to go to Egypt. Smug- their anger at the corruption of Fatah, states, to punish it for backing Islamists. It gling tunnels have been closed. Almost which had previously held power. This has now pulled back its support for such everyone is stuck. broke the Palestinian movement apart. Fa- groups, includingHamas. The United Arab So is Gazan commerce. Rafah is largely tah refused to join a coalition government Emirates, Qatar’s neighbour and rival, is closed to it. Israel tightly controls the flow with Hamas. Months of fighting between trying to usurp its influence in Gaza. of goods through another crossing, at Ke- the two groups in Gaza culminated in a rem Shalom. For decades Gazans had sent week-long battle in June 2007 that left Ha- Fault finding their wares, from strawberries to furniture, mas in control but Gaza under a blockade. Gazans, though, mostly blame other Pales- to Israel. Now that market is closed. The re- Since 2007 Israel has fought three wars tinians for their daily misery. Sixreconcili- sult is empty factories, rusting machinery against Hamas and other militant groups ation deals between Hamas and Fatah and unemployment. Over two-fifths of in Gaza. The last and deadliest dragged on have yielded little more than piles of Gazans are jobless; nearly two-thirds of for 51 days in the summer of 2014 and shat- worthless paper. In the past year Mah- young people have no work. Without it tered Gaza. More than 2,000 people were moud Abbas, the Palestinian president, many families cannot afford even basic killed in relentless bombing, most of them based in the West Bank, has imposed sanc- staples and rely on charity to survive. civilians; another100,000 were displaced. tions on the strip, halting shipments of Hamas celebrates the war as a victory sim- medicine and cutting payments for Gaza’s Sewers and reapers ply because it survived. electricity. Last October Hamas and Fatah Neglect and the Israeli bombardment have For Israelis, this confirms their worst signed yet another deal in Cairo, agreeing shattered infrastructure. The territory can- fears. Give the Palestinians a state in the that the PA would take power in Gaza. Ha- not treat its sewage, so it stores the stuff in West Bank and they will use it to fire rock- mas was happy to cede control of the sew- fetid open-air pools or dumps it straight ets at Tel Aviv. Hostility to Hamas is shared ers and schools—to make someone else re- into the Mediterranean. Sewage and sea- by Abdel-Fattah al-Sisi, Egypt’s president, sponsible for the awful conditions. water seep into Gaza’s depleted aquifer, who led a coup against a Muslim Brother- It refused to hand over control of the se- rendering most water supplies unfit for hu- hood government in 2013. Hamas was curity forces, however, let alone relinquish man consumption, according to the UN. founded as an offshoot ofthe Brotherhood its arsenal of rockets. When the agreement Electricity comes on for three hours a day, (though last year it severed ties with the took effect, smartly uniformed PA soldiers often atodd times. Gazansare used to wak- took over the Hamas checkpoint at Erez. ing in the middle of the night to wash their But the Hamas men just moved to a cluster clothes and charge their mobile phones. Tel Aviv WEST BANK of cramped trailers nearby. Foreign visitors Children study by candlelight. Mediterranean Ramallah must still obtain permits from Hamas and Sea Jericho Despair at such conditions brought Mu- endure a barrage of bizarre questions from jahid Abu Shuayb to a protest last month. Jerusalem its secret police. He lost his job at a marble factory last year. Israelis usually insist that the plight of Bethlehem He cannot afford to start a family. “I was ISRAEL Gaza is not their problem, as they ceased to bored and this was something new,” he Gaza City Dead occupy it in 2005. It is a nuisance but rarely says. Now he is in a hospital bed watching GAZA Hebron Sea intrudes on Israelis’ daily life. Yet this is his leg swell and blacken after being shot. STRIP false. Israel is still deeply involved in Gaza. Doctors expect to amputate it. A better- Its army controls Gaza’s coast and air equipped hospital might have saved it, but 40 km space. Israel decides how far its fishermen Mr Abu Shuayb cannot get permission to maysail offshore, and whetherGazans can 10 km cross into Israel fortreatment. Erez border use 3G services on their mobile phones. It Crowded, heavily populated by refu- crossing oversees a population registry that tracks gees and poorer than the other Palestinian Refugee every child born in a Gazan hospital. The camp Mediterranean territories on the West Bank, where much Gaza Malaka Sderot sewage that pours into the sea washes of the population has been settled for gen- Sea City ashore on Israel’s beaches. ++ erations, Gaza has a turbulent past. In the Closed Overthe years, Israeli officials have pro- 20th century it passed through the hands crossings posed ways to ease the suffering. Infra- of the Ottomans, the British and the Egyp- Netivot structure projects are suggested, or tians, until Israel captured it in 1967. schemes to let tens of thousands of day la- GAZA The Oslo peace accords in 1993 created STRIP bourers cross into Israel. None gets serious the Palestinian Authority (PA) and gave it ISRAEL consideration. Gazans have little support Khan limited autonomy in the Israeli-occupied Yunis in parliament and even less in Binyamin territories. Israel withdrew its troops from Netanyahu’s right-wing government. Gaza, except for settlements and military Lifting the blockade would ease the bases. This became hard to sustain, espe- Rafah + hardship. But Gazans would still be state- cially during the bloody fighting of the sec- EGYPT less, and for all its rhetoric, Hamas cannot ond intifada, or uprising, which began in Kerem Shalom change that by force. Its meagre arsenal is1 18 Briefing The Israeli-Palestinian conflict The Economist May 19th 2018

Israel at 70 Hard border Exits of people from Gaza to Israel Promised land At the Erez crossing, ’000s

180 JERUSALEM 150 A successful countryamid the politics offear 120 HESE are joyous days forIsrael. As the the collapse ofthe Soviet Union, has built TJewish state celebrates its 70th anni- many high-tech businesses. 90 versary, itis enjoying sustained economic Pressure on Israel to solve its conflict 60 growth (see chart), its lowest unemploy- with the Palestinians, who share the ment rate in decades, booming high-tech same small parcel ofland between the 30 exports and a growing list ofinternation- Mediterranean and Jordan river, has 0 al companies eager to set up research eased. Arab governments have other 2008 10 12 14 16 18* centres on its soil. worries, and often value Israeli trade and Source: United Nations *To April In an unstable region, Israel is more security co-operation much more than secure than ever. Arab states around it are paying lip service to the Palestinian 2 not a serious threat to the Middle East’s in chaos and regional powers including cause. Donald Trump likes Israel just the strongest army. The group fears that losing Egypt and Saudi Arabia are eager to form wayitis. its weapons would mean losing its identi- alliances to confront Iran and Islamists. A But Israel should not celebrate too ty, turning it into “Fatah with beards”, as procession ofworld leaders visits Jerusa- wildly. Israeli-Arabs, many ofthem poor, some officials joke. Yet many Gazans lem. Binyamin Netanyahu, its prime struggle to integrate. And ultra-Orthodox grumble (quietly, since Hamas has infor- minister, is well received in capitals Jews, whose numbers are rising fast, mantseverywhere) thatit has, in effect, giv- across the globe. Israel’s foreign relations often do not work. The two groups make en up the fight. Most of the time its weap- have never seemed in such good health. up over 30% ofthe population, putting a ons sit unused. “They talkabout resistance, This week’s relocation ofthe American strain on Israel’s welfare state. Techno- but the only ones fighting Israel are boys embassy from Tel Aviv to Jerusalem is a logical success is fuelling resentment with stones,” says a woman who lost a son moment ofglory. And Israel even won among those left behind in the “old in the protests. the Eurovision Song Contest, despite not economy”. Infrastructure is creaking and being in Europe. public transport is dilapidated. Xenopho- Violence begets non-violence Much has contributed to Israel’s suc- bia towards non-Jews and African refu- In recent months Hamas has begun to cess. A transition from a centralised gees is on the increase. praise non-violent resistance, a big step for economy, beginning in 1985, kept it from Although this resembles the problems a group psychologically wedded to politi- an inflationary meltdown, while it also ofmost Western democracies, Israel faces cal violence. A commitment to armed re- hung on to popular parts ofits socialist unique challenges, too. It lacks a political sistance is written into Hamas’s charter. legacy such as a free national-health consensus to draft a constitution that will The group’s leadership pays homage to service and a decent education system. A safeguard its democracy. Unresolved Gandhi and Martin Luther King. So far it is highly skilled workforce, including many contradictions ofstate and synagogue rhetoric. Yet it puts Hamas in an awkward young people trained by the Israeli army allow the Orthodox rabbinate sole con- position. A local activist dreamed up the and 1m immigrants who arrived during trol over marriage and divorce. Israel’s protests. Hamas quickly co-opted them, concept ofcitizenship, based on serving sending text messages to encourage sup- as a haven forall Jews, is hopelessly port and laying on buses to the frontier. Land of plenty outdated. Above all looms the Palestin- “There is a wild tigerthat was besieged and GDP per person, 2014 $’000 ian issue. Foreign pressure on Israel may starved through 11 years, and now it has have subsided, but 4.5m demoralised and been set free,” said Yahya Sinwar, Hamas’s 35 divided Palestinians live in Gaza and the leader in Gaza. Earlier he had issued a 30 West Bank. Israel warningto Israelis: “We will take down the 25 The good news is that Israel still has border and we will tear out their hearts plenty ofscope to develop its economy, from their bodies.” 20 particularly ifit can find ways to integrate After the latest bloodshed, Hamas lead- 15 the groups that have been left behind. ers worried they would lose control of the 10 The bad news is that Mr Netanyahu, who Gaza tiger. On a radio station run by Islamic Ji- West Bank has based his electoral success on divi- 5 had, a rival militant group, hosts urged sive politics and the fear ofArabs, shows their comrades to retaliate. Israeli jets car- 0 little inclination to use Israel’s moment of ried out airstrikes. An army spokesman 1995 2000 05 10 16 advantage to seeka lasting peace with threatened more to come if the protests Sources: IMF; OECD Palestinians. continued. Israel has more than doubled the standing force of troops ready for ac- tion around Gaza. All this raises the pros- fence. One man brandished a kitchen knife tively minor, but he fears the weeks of re- pect ofa war that Gaza can ill afford. and challenged Israeli soldiers to come covery may cost him his job on a poultry Rattled by the violence, Hamas pulled and fight. Another commandeered a fro- farm. But he might lose it anyway, as his back. May 15th, the day after the clashes, zen-drink cart and used its loudspeaker to struggling employer talks of lay-offs. And was meant to be the climax of the protests. hurl insults in Hebrew. The feeling of sol- with nothingbuta bleakfuture in prospect, Nakba (“Catastrophe”) Day marks the idarity was gone. he and those like him have little reason to mass displacement of Palestinians during Back at the hospital, Mustafa Murtaja turn theirbackson confrontation. “Forsure the establishment of Israel 70 years earlier. lay in another crowded room. He had I would go back and protest again. It’s kind Only a few hundred people turned up at joined the protests out of despair and took of a challenge,” he says. “What else do I Malaka, and few of them approached the a bullet to the leg. His injuries were rela- have to hope foras a young man here?” 7 United States The Economist May 19th 2018 19

Also in this section 20 California’s riotous primaries 22 Gambling on sport 22 Working for Medicaid 23 Missouri’s governor under fire 26 Lexington: A Democratic deficit

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

The Justice Department mandatory-minimum sentences and cut or commuted the sentences ofnearly1,400 A finger on the scale people, most of whom were imprisoned for drug-related crimes. The federal prison population was smaller when he left office than when he entered—somethingno pres- ident had achieved since Jimmy Carter, WASHINGTON, DC four decades ago. Donald Trump is radically reshaping federal law enforcement—while also Mr Sessions, who as a senator was a undermining it fierce drug warrior and opponent of crimi- N 2015 Jeb Bush, who was competing ments in four New York papers that nal-justice reform, has sharply reversed Iwith him forthe top job, warned that Do- screamed, “Muggers and murderers this course. In May 2017 he directed federal nald Trump would be “a chaos president”. should be forced to suffer, and, when they prosecutors to “charge and pursue the In many respects he has been proved right. kill, they should be executed for their most serious, readily provable offence.” President Trump has failed to keep many crimes.” After a terrorist attack in New Last January he rescinded the previous ad- of the promises he made on the campaign York, he called for “quick…strong justice”. ministration’s guidance on marijuana, trail. The White House leaks like a colan- He believes America’s method of prose- which he has called “only slightly less aw- der. The administration has suffered rapid cuting terrorists—gathering evidence and ful” than heroin. (In 2016 opioid overdoses staff turnover while weathering scandal building a provable case—to be “a joke, killed more than 42,000 Americans; mari- after scandal. Mr Trump often appears ca- and…a laughing stock”. juana overdoses killed none.) These poli- pable of remaining on-message for no He also believes that America is beset cies are likely to send more people to jail. more than 280 characters. by violent crime. At a meetingwith sheriffs Yet Mr Sessions’s budget aims to cut prison But ineptitude and inconsistency are in February 2017, Mr Trump claimed that staff. His prison bureau wants to boost the notquite the same asinaction. MrTrump is America’s murder rate “is the highest it’s populations ofprivate jails—anotherrever- transformingthe federal government—and been in 47 years”. In fact, murderand crime sal from practice under Mr Obama. one department in particular. With Jeff in general are much rarerthan they were in Another of Mr Trump’s core beliefs is Sessions, the attorney-general, he has radi- the 1990s. In 2016 just 21.1 per 1,000 people that too many of the wrong sort of people cally reoriented the Department of Justice over the age of12 reported being victims of are voting. After the election he claimed, (DoJ), undoingmanychangesmade under violent crime, around one-quarter of the without evidence, that “millions of people his predecessor, Barack Obama. At the 1993 figure. In Mr Trump’s home town of voted illegally”. Since he took office, the same time, he has relentlessly attacked Mr New York, crime has fallen for 27 straight Department of Justice’s voting section has Sessions and the department for failing to years, to levels not seen since the 1950s. not filed a single voting-rights case. The de- protect him from Robert Mueller, the spe- partment has, however, sent letters to 44 cial counsel charged with investigating al- And throw away the key states inquiring about the accuracy of their leged links between Russia and Mr Mr Obama took advantage of falling crime voter rolls—something many fear implies a Trump’s campaign. The DoJ is both com- rates to make American criminal justice a green light for states that want to make it prehensively Trumpified and deeply irk- little less punitive. His Justice Department harder for people to vote. some to Mr Trump. allowed prosecutors to bringlessercharges In two current voting-rights cases, the Though changeable in many ways, Mr against some drug offenders to avoid trig- DoJ reversed its position after Mr Sessions Trump has consistently approved of harsh gering mandatory-minimum sentences, took over. In February 2017 it decided that punishment and disliked due process. In and let them decline to prosecute non-viol- Texas’s strict voter-ID law was not enacted 1989, after five black and Hispanic teen- ent marijuana offences if they complied with discriminatory intent. Last August it agerswere accused ofrapinga white wom- with state law (marijuana is illegal under sided with Ohio, which had purged its rolls an in Central Park (wrongly, it turned out), federal law, but several states have legal- of voters it deemed insufficiently active. Mr Trump took out full-page advertise- ised it). Mr Obama called for an end to The Obama administration, along with 1 20 United States The Economist May 19th 2018

2 several civil-rights groups and a federal ap- ments they wanted. Mr Rosenstein ous for its extremely left-wing Democrats, pellate court, believed the purge violated retorted that the Department of Justice “is its extremely right-wing Republicans and federal law. Agencies’ priorities often not going to be extorted”, and is said to its political paralysis. The few moderates, change, but a 180-degree shift in an ongo- have told friends that he is ready to be fired. such as then-governor Arnold Schwarze- ing case—as one longtime voting-rights As for Mr Sessions, Ms Hennessey pos- negger, championed primary reform as a lawyer puts it, “one day saying the law its that he puts up with periodic threats way to empower centrists. In theory, top- means X, and the next saying it means not and public humiliation because he has an two primaries encourage candidates to ap- X”—is unusual. alternative agenda. As long as he is able to peal to lots of voters, not just the ideologi- The department has also reversed its roll backcriminal-justice reforms, reinstate cal purists who turn up for ordinary prim- position on civil-rights protections for gay mandatory-minimum sentences and stiff- ary elections. Constituency boundaries and transgender people. In 2014 Eric Hold- en punishments for marijuana dealing, and term limits were altered at about the er, then the attorney-general, issued a she suggests, “he seems to have decided same time. memo determining that federal protec- thatthisisa bargain worth making”. But, as The results have been mixed. Califor- tions against workplace discrimination with his boss’s efforts to undermine law nia’s legislature is more popular than it based on sex also applied to “gender iden- enforcement, it is also a bargain for which was (see chart). On the other hand, just tity, including transgender status”. Mr Ses- America will pay. 7 18.4% of eligible voters voted in the prima- sions revoked it. This runs counter not just ries of 2014, the first non-presidential elec- to the Obama administration’s position, tion year since the reform was enacted, but to a long-standing, bipartisan trend of Politics in California down from 24.1% in 2010. A study last year expanding civil-rights protections. Both by Eric McGhee, a researcher at the Public Bushes, forinstance, expanded federal pro- Wacky races Policy Institute of California, and Boris tections for the disabled. Shor, a political scientist at the University Morale in the department has crashed. of Houston, examined the ideologies of One lawyer who left in 2017 says that staff candidates before and after top-two pri- were instructed “to scrub words like ‘re- LOS ANGELES maries were introduced in California and form’” from their writing, because “any- Washington state. Evidence of moderation Ofall the primaryelections in 2018, thing that smacked of reform was too in both states was “modest and somewhat California’s are the most fun closely aligned with the previous adminis- inconsistent”, they decided. tration”. Lawyers provided copious evi- OTS of things come with warnings in One clear result of top-two primaries is dence that changes in sentencing had not LCalifornia. Signs in parking garages ad- that they have led to non-partisan general caused violent crime to rise, but “it was like monish drivers that they could be exposed elections. That happened in 2016 when shouting into a vacuum,” says the lawyer. to carbon monoxide gas. Recently a judge Barbara Boxer retired, leaving open her Fewer staff are now inclined to work late ruled that coffee-sellers must warn of can- seat in the US Senate. Kamala Harris, a nights or at weekends. cer. Voting instructions also come with an Democrat, went on to defeat Loretta San- Mr Trump’s attacks on the department alert. Under a bold exclamation mark, a chez, a fellow Democrat. This year’s gover- do not help. He seems to think of the agen- mail-in ballot insert sent to Los Angeles nor’s race may set Gavin Newsom, a cy as part of his operation, as though he voters in anticipation of California’s prim- Democrat and former mayor, against Ant- has been elected chief executive of Ameri- ary elections on June 5th reads: “There are onio Villaraigosa (ditto). ca and the DoJ is the company’s legal de- 27 candidates for governor” and “There are The reform now threatens to produce partment. It follows that, in failing to pro- 32 candidates for US senator”, adding: “If weird results. When many Democratic or tect him from Mr Mueller, the department you vote for more than one candidate, Republican candidates pile into a race (as is not doing its job. He has never forgiven your vote will not count forthat contest.” Democrats in particular are doing this Mr Sessions for recusing himself from Mr In many states, primary elections are year) they threaten to split the party vote Mueller’s investigation, and believes he simple affairs. Voters who are registered and allow two finalists from the other side. has “the absolute right to do what I want to with a party pick a champion from their So parties put pressure on their own candi- do with the Justice Department”. side to contest the general election. But in dates to drop out. Sometimes they go for This contravenes long-standing norms, 2010 Californians approved a “top-two” the other side. In the election to replace Ed underwhich a president appoints an attor- primary system, in which all voters receive Royce, a Republican congressman for Cali- ney-general and other top officials, then the same ballot and can choose anyone fornia’s 39th District, Democrats have be- sets general policy direction, but other- they like. The two most popular candi- gun airing advertisements attacking rela- wise respects the department’s indepen- dates move on to the general election. tively weak Republican candidates. They dence—and certainly does not intervene in Eight years ago California was notori- hope to ensure that the front-runner, investigations. Susan Hennessey, a fellow YoungKim, is the only Republican to reach at the Brookings Institution and former the general election. The Democratic Con- lawyer for the National Security Agency, All golden gressional Campaign Committee is using believes the president “has no reference to United States, state legislature similar tactics in several other races across the DoJ as an institution that has to be de- public-approval rating, % the state, where the stakes are high. They fended—it’s entirely personal forhim”. The “Top-Two Primary Act” approved need to flip 23 seats in November’s mid- DoJ 60 ’s independence, and the rule of law Florida terms to reclaim control of the House of that independence protects, are not fea- 50 Representatives. Ten of the races deemed tures ofthe American system to Mr Trump; 40 competitive by the Cook Political Report, a they are pesky inconveniences. 30 political newsletter, are in California—the Yet the department has stood more or most ofany state. 20 less firm against attacks from Mr Trump California “We tried to warn people that this was a and his congressional supporters. House 10 bad idea,” laments Bruce Cain, a political Republicans threatened Rod Rosenstein, 0 scientist at Stanford University. “But all the deputy attorney-general, who is over- 2004 06 08 10 12 14 16 18 you have to do in California is wave the seeing Mr Mueller’s investigation, with im- Sources: Public Policy Institute of flag of reform and people say: ‘Yay! Good peachment for failing to surrender docu- California; Quinnipiac University Poll idea! Reform!’” 7

22 United States The Economist May 19th 2018

Gambling on sport For the bettor

The Supreme Court’s ruling in favourof punters has more winners than losers MERICANS love gambling. Nearly two- Athirds of adults place some sort of stake each year, and about one-tenth visit Las Vegas to try their luck. Some even bet on whether the Supreme Court would strike down the Professional and Amateur Sports Protection Act (PASPA) of 1992, which prohibits most sports gambling in states other than Nevada. On May 14th the justices ruled in favour of New Jersey, which violated the act in 2014 by legalising such wagers. Chris Christie, a former go- The next round is on someone else vernor, had argued that PASPA represented an unconstitutional federal infringement. fledged betting products. Shares in foreign Nevada is unlikely to suffer much. Just The new precedent could have broad bookmakers like Paddy Power Betfair and 2.5% of its earnings come from sports bet- implications, perhaps making it harder for William Hill have risen. Punters may show ting. And America’s big sporting leagues the federal government to impose other more interest in less glamorous matches, are increasingly willing to move franchises laws, such as those covering drugs and im- which would boost ratings for televised to Las Vegas, which is part of a metropolis migration. For now, it ends America’s stint sport. Betting firms are likely to advertise of more than 2m inhabitants. They had as the only rich country that prevents most on television and try to sponsor teams. shunned it for years, citing the corrupting sports fans from betting. Each state will States could gain extra revenue by taxing temptations ofsports gambling. The NHL’s now decide whether to permit it. New Jer- bookmakers—but should be wary.Set rates Golden Knights, the city’s first bigteam, are sey will do so quickly. Pious states such as too high, and punters are likely to be enjoying a remarkable debut season, hav- Utah may never do so. Chris Grove of Eil- pushed onto the black market. Americans ing reached the playoff semi-finals. The ers and Krejcik Gaming, a research firm, currently wager about $50bn-60bn a year Raiders, an NFL franchise, will arrive in forecasts that 32 states will have some form using illegal services, says Mr Grove, 2020. The NBA could be next. Sin City is of regulated betting by 2023, handling though the vast majority now use offshore losing a monopoly on one of America’s about $90bn of wagers a year—compared websites rather than shady neighbour- vices, but gaining a share in its favourite with $4.9bn in Nevada today. hood bookies. pastimes. 7 Congress introduced the law at the be- hest of major sports leagues, who worried that gambling encouraged match-fixing. Medicaid That spectre has loomed over American competitions since 1919, when the Chicago Will work for health care White Sox deliberately lost the baseball World Series. But times have changed. Ath- letes’ rocketing salaries have made bribes lessappealing.Fanscanplacebetswithoff- shore bookmakers and gamble on their fa- WASHINGTON, DC vourite players in fantasy sports leagues, The Trump administration is quietly reshaping America’s social-safetynet which received a legal exemption in 2006 and handle about $3bn in entry feesa year. MERICAN lawmakers are acutely templated a waiver of its own which A recent poll found that only one in three Aafraid of rewarding the loafing poor. would impose some of the strictest work Americans opposes the legalisation of For that reason, Congress has set strict requirements yet seen. The impetus is less sports betting. work requirements on federal food assis- financial than moral—an attempt to sort America’s major leagues at first sought tance and cash welfare. The Trump admin- the deserving poor from the chaff. to halt Mr Christie’s plan in court. But they istration is now steadily doingthe same for The state proposals to reform Medicaid have since realised that gambling’s re- Medicaid, as America’s health-insurance are fairly similar. Exempting the pregnant, wards outweigh its risks. The National Bas- programme for the poor is known. On Jan- disabled and others, all adults would have ketball Association (NBA) reversed its posi- uary11th the CentresofMedicare and Med- to work, volunteer or undergo job training tion in 2014. Along with Major League icaid Services (CMS) issued a memo invit- to continue receiving benefits. Kentucky, Baseball, it is greedily lobbying for a 1% “in- ing states to apply for waivers that would the first to send a plan to CMS, set the mini- tegrity charge” on legal wagers. The Na- include “work and community engage- mum at 20 hours per week. Michigan had tional Football League (NFL) and National mentrequirements” on the theorythatthis proposed 29 hours per week. After one Hockey League (NHL) will probably come would both improve health and help fam- warning, those who failed to meet the re- round in time. ilies “rise out of poverty and attain inde- quirement would be locked out of cover- The leagues are not the only winners, pendence”. Ten states, all Republican-led, age fora year. notes Darren Heitner, a sports lawyer. Fan- quickly took up the offer. Michigan, anoth- The most controversial portion of tasy firms have been preparing fully er Republican-controlled state, has con- Michigan’s plan would exempt counties1 The Economist May 19th 2018 United States 23

2 with high unemployment rates, defined as Missouri’s governor report by the committee, he allegedly ille- 8.5% or higher, from the work require- gally obtained the list ofdonors ofMission ments. Only 17 rural counties, with a total Under fire Continues, a charity forveterans he found- population that is 91% white, would have ed, in order to raise money for his cam- reached the threshold. The residents of paign in 2016. The reportallegesthatthe go- struggling cities like Flint and Detroit, vernor lied in campaign filings and broke which have high unemployment rates and CHICAGO campaign-finance laws. He denies wrong- are disproportionately black, would not doing; the case may go to trial. The governorofMissouri could soon be have qualified because surrounding coun- Mr Greitens has become exceedingly impeached ties are better-off. “Lot of folks that really unpopular in the upper echelons of his need health care would lose it,” says Jim RIC GREITENS, who fired a machine own party, which has a supermajority in Ananich, a state senator from Flint. Egun and posed with an assault rifle in both House and Senate. Lawmakers voted The exempt counties are reliably Re- 2016 to advertise his love for gun rights, ap- unanimously to set up the investigative publican outposts, so currying favour with pears to have dodged a bullet. On May committee. Four-fifths of them voted for a constituents is a likelier explanation than 14th, with jury selection under way,prose- special session to consider the governor’s outrightracialanimus.“Itwasanhonestef- cutors in St Louis announced they were impeachment. Most Republican legisla- fort to recognise that across the state there dropping an invasion-of-privacy charge tors say they want him gone—and fast. are variations in the ability to get jobs. against Missouri’s Republican governor. John Hancock, a former state chairman of There was no thought given to the R-word “This is a great victory, and it has been a the party, sayshe isconvinced thatMr Grei- on this,” says Mike Shirkey, the Michigan long time coming,” said Mr Greitens after- tens will be impeached but would much state senator sponsoring the Medicaid leg- wards. Yet his tribulations are only begin- prefer him to resign, because of the dam- islation. Yet the effort has an unpleasant, ning. On May 18th the state House will age he is doing to Republicans as midterm and familiar, smell. Martin Gilens, a politi- meet fora special session to ponder the go- elections approach. cal scientist at Princeton University, has vernor’s removal from office. Only seven American governors have shown that antipathy towards welfare in On January 10th a television station in been impeached, none in Missouri. If the the 1990s was driven by hostile attitudes St Louis broadcast a recording of a phone House votes to do so (by a simple major- toward blacks, who were thought of as call between Mr Greitens’s mistress, who ity), the Senate will appoint seven judges lazy and undeserving. was his hairdresser, and her former hus- to hold a trial. Missouri’s constitution says band. In the course ofitshe alleged thatthe elected officials can be impeached for A costly point governor blindfolded her half-naked in his “crimes, misconduct, habitual drunken- Though the unemployment provision was basement, then took a photograph that he ness, wilful neglect of duty, corruption in in the bill that passed the state Senate, the threatened to make public if she told any- office, incompetency, or any offence in- House could well strip it out before the go- one about him. In February prosecutors volving moral turpitude or oppression in vernor, Rick Snyder, signs the bill, accord- charged Mr Greitens with invasion of pri- office”. These offences are elastic, points ing to Mr Shirkey. To hurry Mr Snyder vacy, related to the photo. (No photo was out Frank Bowman of the University of along, the state Senate also passed a bud- found, which is partly why the case col- Missouri School of Law. What exactly, for get which would suspend the salaries of lapsed.) A special investigative committee example, is “moral turpitude”? top health officials if the Medicaid reforms of the House, five Republicans and two Yet the salient question is whether the are not speedy enough. Democrats, subpoenaed the hairdresser to governor can be indicted forhis behaviour The plans seem likely to reduce the testify under oath and found her a credible before he tookoffice, as is the case with the number of beneficiaries. Kentucky esti- witness. In April it published pages of ex- affair and the alleged breaches of cam- mates that its rolls will shrinkby15%.Mich- cruciating details of her encounters with paign-finance laws. “The constitution is igan’s legislative research staffsuggest sim- the governor, including allegations of ambiguous on that point,” says Michael ilar effects. But state bureaucracies will spanking and non-consensual sex. Mr Wolff, a retired judge of the Missouri Su- have to spend dizzying sums to create the Greitens admits the relationship but de- preme Court. If Mr Greitens were facing infrastructure to monitor how much work nies blackmail and violence. federal impeachment, with senatorsrather people do. Kentucky will pay $374m to The governor is also facing a charge of than judges in charge ofthe trial, he would launch the plan—a higher cost than simply tampering with computer data, which is a be shown no mercy. The eminent justices keeping the original one. Asked about the felony in Missouri. According to another may be no softer on him. 7 cost savings, Matt Bevin, the governor, said that he did not know, “nor do I care”. Sav- ingmoney“wasn’tthe intent” ofthe Michi- gan proposal either, says Mr Shirkey. Americans on Medicaid are not merely poor. They are profoundly poor. Even after Obamacare’s expansion, a family of three would have to make less than $28,676 a year to qualify.The Brays, living in Ypsilan- ti, Michigan with their seven-year-old daughter, are one such family.Both are self- employed—Mr Bray as a metalworker and Mrs Bray as a weaver, primarily of baby wraps. The pending reform has left them worried. “I really have no idea how they are going to expect self-employed people to validate their hours. Are we exempt or are we excluded from Medicaid?” says Mrs Bray. “It would either be a lot of paper- work, or I would lose health care.” 7 Arnie looked better Gold MetalSM ®

Mastercard Gold CardTM 24K-Gold-Plated Metal Card

Apply now at luxurycard.com or call 844.LUX.CARD. 26 United States The Economist May 19th 2018 Lexington The perils of successful opposition

The Democrats are betterat resisting Donald Trump than at reflecting on theirown failures that Americans find unsatisfactory has made them the party of bad government. That is why the initial failure of Obamacare’s website, though a lesser matter than the 20m uninsured people covered by the reform, was so devastating to its reputation. The Democrats’ response to 2016, which mixes day-to-day re- sistance to Mr Trump with a pro forma commitment to do better, shows little serious reflection on any of that. “There’s still a feel- ing that if we just redistribute wealth, everything will be all right,” says Senator Mark Warner of Virginia. “We haven’t reck- oned with 2016, we haven’t changed our approach at all,” says SenatorMichael Bennet ofColorado. The Ideas summit, at which neither lawmaker appeared, supported their analysis. Most of the presidential hopefuls spoke powerfully, but on predictable is- sues. Senator Kirsten Gillibrand spoke on women; Senator Cory Booker, an appealing if slightly plaintive talent, on inequality; Senator Bernie Sanders was supposed to speak on criminal jus- tice, but reprised his stump speech on the “oligarchy in this coun- try, whose greed is insatiable”. Only Senator Elizabeth Warren, in remarks on shoring up democracy, notably extended her range. The new ideas on offer mostly involved swelling the size of a government which the Republicans’ latest tax cut has made even N SEARCH of a quiet spot to conduct interviews at the Centre more unaffordable than it was. There was no attempt to grapple Ifor American Progress’s Ideas Conference in Washington this with the political traps Mr Trump has created for the party. There week, Lexington found a space outside the gender-neutral bath- was, forexample, no re-examination ofthe Democrats’ question- room. This seemed doubly appropriate. The conference, an im- able support for “sanctuary cities” or their opposition to a border portant gathering of the Democratic establishment, reflected wall that looks like a $25-billion extravagance but not worth dy- how thoroughly the party has embraced liberal causes in recent ing in a ditch over. Indeed there was hardly any discussion ofim- years. The panel discussions on race, women’s power and “Mov- migration, perhaps the defining issue ofthe 2016 election. ing LGBTQ equality forwards” drew the biggest disapproving tuts The unhappy truth is that most Democrats don’t think they and whoops of excitement all day. But it also seemed notable, for need new ideas to defeat Mr Trump and his party. And they may those who wonder whether such base-rallying tactics can bring well be right. The vote in 2016 showed how irrelevant ideas are to the Democrats backfrom the wilderness, that even in this impec- winningelections. Mrs Clinton had plenty, MrTrump had almost cably progressive company there was little demand for the gen- none. Yet just enough voters in swing states were willing to be- der-neutral facilities. lieve he had their backs to see him home. “There is no evidence The gathering did acknowledge the economic anxiety that good ideas are better for winning elections than bad ideas,” says helped drive millions of working-class whites from the Demo- Lee Drutman, a political scientist at New America, a think-tank. crats to Donald Trump in 2016. Sherrod Brown, a gravel-voiced So long as the Democrats can find less objectionable candidates senatorfrom Ohio, which MrTrump won thanks to huge support than Mr Trump, for the mid-terms and the 2020 general election, from unionised workers, helped kick things off. “The economy is they will probably do well. But a party intent on attacking the where the motor” of Democratic policymaking is, said Senator root causes ofAmericans’ dissatisfaction should aim higher. Amy Klobuchar of Minnesota, another of the dozen Democratic Here are three reasons why fresh thinking is needed on the senators and governors with presidential ambitions making an centre-left. First, moderate Democrats need better arguments to appearance. The CAP, a think-tank launched in 2003 as a riposte explain why the all-government solutions preached by Mr Sand- to George Bush, also released a sheaf of policies aimed at low- ers are not merely unaffordable but bad. There is otherwise a risk skilled workers, including boosts to child care and infrastructure. they will mistake seething anti-Trump resistance with a desire for Yet such familiar ideas mainly illustrated how little the Demo- Mr Sanders’s similarly fervent pitch. Second, even if the Demo- crats have learned from their electoral wipeout in 2016. crats could reclaim power with a divisive Sandernista agenda, There was more to that failure than Hillary Clinton’s incoher- they could not implement it. The reality is that neither party can ence or Donald Trump’s race-baiting. The Democrats lost the bring big change without some support from the other. Hence, presidency to the most unpopular opponent they had ever faced. BarackObama’sexecutive record hasbeen easilyshredded bythe The centre-left, to be sure, is losing to right-wing populists wher- Republicans, and they now struggle to pass laws. ever globalisation has caused factories to close—yet the Demo- crats’ defences were too weak. Their dedication to minority Change no one should believe in causes, though admirable, looked out-of-touch when paired with The third, overarching, reason is that the contempt voters feel for a relative unconcern for struggling whites. Mrs Clinton’s unin- both parties is grounded in those failures. To mitigate their dis- spiring incrementalism made that relative disregard seem abso- dain will above all require much better government. The Demo- lute. Perhaps worse, considering the defining place it occupies in crats trying out presidential pitches all seem to want that: their American debate, the Democrats failed to think critically about shortcomings are not to be compared to Mr Trump’s cynicism the issue that divides conservatives and progressives most, the and greed. Yet they are some way from suggesting the requisite role ofgovernment. Endlessly pushingpublicly-funded solutions turnaround in Washington is a realistic prospect. 7 The Americas The Economist May 19th 2018 27

Also in this section 28 Vizcarra’s vision for Peru 30 Bello: The IMF is not the devil

Venezuela countries, including Brazil, Colombia, Mexico and Canada, has said it will not re- Mr Maduro’s mock election cognise the election result. Mike Pence, the United States’ vice-president, has declared the election “fake”. Even the election date, set by Mr Maduro, points to its spurious- ness: his term ends in January. In countries CARACAS where incumbents could lose, they do not linger in office fornearly eight months. The dangerto the president’s rule begins afterthe vote Mr Maduro faces enough opposition to F VENEZUELA were a democracy, Presi- uent assembly”, whose main purpose is to provide the illusion ofa real contest. Henri Ident Nicolás Maduro’s bid to win re-elec- circumvent the opposition-controlled Falcón, a former ally of Chávez who then tion would certainly fail. He leads a regime legislature, had been “manipulated”. became an opposition governor of Lara, a that has been in power for19 years. Its eco- But Mr Maduro may not have to steal north-western state, broke ranks with the nomic policies have made life intolerable the election on the day to win it. The re- MUD to run against the president. Another for most of the country’s 34m citizens. gime has arrested the most prominent challenger is Javier Bertucci, an evangelical Food is in short supply, and nearly 90% of leaders of the opposition or banned them pastor who draws huge crowds to rallies Venezuelans say they do not have enough from politics. Others are in exile, leaving with the offeroffree soup. money to eat properly. The contraction of the opposition leaderless, divided and de- A recent poll by Datanálisis suggests the economy is the biggest in the history of moralised. Little is leftofthe hope and fury that Mr Falcón should win. It puts his sup- Latin America. Prices are doubling nearly that animated protests against the regime port at 28% ofregistered voters. MrMaduro every month. At least a million people last year, in which at least163 people died. and Mr Bertucci are roughly even at 17% have left the country in the past four years. In last year’s regional elections the gov- each. Mr Falcón’s chances depend on anti- Yetalmostnobodythinksthe president, ernment placed booths at polling stations Maduro voters overcoming their sense of who looks as well fed as ever, will lose the where voters were required to renew their hopelessness to turn up at the polls. That is one-round election scheduled for May electronic“fatherland cards”, which entitle unlikely to happen, especially without the 20th. At rallies of loyalists and dragooned them to receive subsidised food. Nearly backing of parties in the MUD. A poll last state workersheld in barricaded streets, Mr 70% of the population gets such subsidies. month by Datincorp suggests that 38% of Maduro talks of getting 12m votes, even MrMaduro isagain suggestingthatthe gov- the electorate will not vote. more than Hugo Chávez, the charismatic ernment will exchange food for votes. Boycotters say Mr Falcón is giving legiti- founder ofVenezuela’s “Bolivarian revolu- “Whoever goes to vote with their father- macy to a fraudulent election and under- tion”, who died in 2013. To suffering voters land card is going to get a big prize from the mining international condemnation of it. he promises relief. “I am ready to make a country, because we give and give,” he said He denies doing this. He says he had no change,” he said on May11th. on May14th. hesitation in putting his name forward. The fact that few voters believe him “Every authoritarian, neo-dictatorial re- does not matter. The “independent” elec- Henri the hopeful gime is fraudulent by nature, but can be de- toral commission is a puppet ofthe regime. Talksaimed atestablishingconditions for a feated,” he says. “Today the conditions are After regional elections last October, it re- fair election between the regime and the in place, like neverbefore, in favour ofa po- fused to investigate evidence of fraud. Democratic Unity roundtable (MUD), the litical change in Venezuela.” Mr Falcón Smartmatic, the company based in Britain main opposition grouping, broke down in cites as a precedent the referendum called that supplied Venezuela’s voting ma- February. Mostopposition parties then de- in 1988 by Augusto Pinochet, Chile’s dicta- chines, has withdrawn its staff. It said that cided to boycott the vote. They have inter- tor, to extend by eight years his15-year rule. results in a vote last July for a new “constit- national support. The “Lima group” of 14 Pinochet lost. 1 28 The Americas The Economist May 19th 2018

2 Mr Falcón hopes to improve his Peru training, is “provincial and proud of it”, chances by exploiting divisions within the says John Youle, a consultant in Lima. government. He hasoffered to govern with Vizcarra’s vision The new president has two priorities. pragmatic members ofthe regime who see The first is to restore Peruvians’ faith in gov- the need fortaking steps to avert economic ernment and democracy, which has been and humanitarian disaster. weakened by Mr Kuczynski’s scandal and His economic adviser, Francisco Rodrí- SAN JOSÉ DE LOURDES by allegations or charges against four other guez, a formerWallStreet banker,proposes former presidents. “We need to rebuild The country’s new president talks to replacingthe debased bolívarwith the dol- trust by showing that public management The Economist larto end hyperinflation and the economic can be done transparently and honestly,” slump. To work, dollarisation would have HE narrow streets of San José de says Mr Vizcarra. His second goal is to to go along with cuts to the massive budget TLourdes, on Peru’s border with Ecua- boost economic growth, which is too slow deficits that cause inflation and with help dor, were jammed on May 10th for a once- to continue the recent progress Peru has from international bodies such as the IMF. in-a-lifetime event. Martín Vizcarra (pic- made in reducing poverty. In 2017 GDP Mr Maduro’s proposal for dealing with tured) was the first president ofPeru to visit growth dropped to 2.5% from 3.9% in the hyperinflation is simpler: just knock three the sweltering town, which was founded previous year and the poverty rate in- zeros off the bolívar. He says the new nearly 75 years ago and then, it seems, creased. The government has cut its fore- “sovereign bolívar” will replace the promptly forgotten. “We are taking a look cast for growth this year from 4% to 3.6%. “strong bolívar” on June 4th. at the entire country, focusing attention With more public and private investment, He will probably stay president long right now on areas that have been aban- “we will expand the economy, create jobs enough to make this happen. But threats to doned by the state,” he told The Economist and fight poverty,” he promises. his rule are mounting. Oil production by in his first interview with a foreign news- Though keen to show that he under- state-owned PDVSA, practically the only paper. “This zone fits that description.” stands people’s problems, he does not of- source of foreign exchange, has dropped Schools in San José de Lourdes lack fer quick and easy solutions for them. In by 30% since 2014 because of incompetent windows and running water. No doctor San José de Lourdes he spurned a waiting management and inadequate investment. has visited the health clinic in three years. pickup truck to walk from site to site, cud- The United States bars American investors The poverty rate of around 60% is nearly dled a newborn baby at the clinic and from accepting new debt from PDVSA and three timesthe national average. Cars cross placed a cornerstone fora bridge across the the government in exchange for bonds on the Chinchipe river on a pulley-drawn Chinchipe. But to pupils who lobbied for which they have defaulted. Bondholders platform, sometimes waiting days for pas- computers at their school he counselled are preparing to take legal action against sage. The town’s previous mayor is in pri- patience. “Before we can think about com- both debtors. In April the International son on corruption charges. puters, we have to provide water, electric- Chamber of Commerce awarded $2bn to Mr Vizcarra’s visit is part of a frenetic ity [and] bathrooms,” he told them. ConocoPhillips, an American oil company, travel schedule that he began after his un- His message seemed to be getting to compensate forthe nationalisation ofits expected elevation to the presidency in through. “It is nice to hear a politician talk- operations in Venezuela in 2007. The March. He heads to the countryside at least ing about real things and not just making American firm has begun to seize PDVSA’s once a week. In Lima, the capital, he shows promises,” says Jenny Tello, a teacher. “It oil stored in the Caribbean. up unannounced at schools and hospitals. will be a big change ifhe governs like this.” Cracks within the chavista government Part of the point is to show that he is noth- That will not be easy. The biggest party are widening. The former ambassador to ing like his predecessor, Pedro Pablo Ku- in congress is Popular Force, led by Keiko the UN (and head of PDVSA) and the for- czynski, who resigned to avoid impeach- Fujimori, the daughter of a former presi- mer attorney-general are in exile. They ac- ment in a conflict-of-interest scandal. The dent, Alberto Fujimori, who was jailed for cuse Mr Maduro of corruption and crimes former president is urbane, polyglot and human-rights crimes. Her implacable op- against humanity. Most of his main advis- out of touch. Mr Vizcarra, an engineer by position to Mr Kuczynski helped topple 1 ers are subject to sanctions by the United States and the European Union for drug- trafficking or undermining democracy. These could become harsher and target more people. The government has jailed some 60 officers in the army, whose sup- port is vital to the regime’s survival. The charge, it is thought, is that they plotted against it. On May 11th the president of neighbouring Colombia, Juan Manuel Santos, predicted that “a change in the re- gime” will happen “very soon”. That could open the way to the sort of hybrid govern- ment that Mr Falcón envisages. Mr Maduro has surprised people who wrote him off as a bumbling heir to the clever, charismatic Hugo Chávez. His vivi- section of the opposition and ruthless ex- ercise ofpower have put him in position to win re-election, despite a record ofgovern- ance that would destroy most presidents. But he cannot defy forever the laws of eco- nomics or the international coalition ranged against him. His victory on May 20th may be not only fake, but fleeting. 7 Martín’s dream: a cleaner Lima

30 The Americas The Economist May 19th 2018

2 him. The new president must get on better any candidate for public office. ating “consensus around advantages and with her. Some well-wishers fear that Mr A new “public-integrity office” under benefits” ofprojects. Mr Vizcarra can claim Vizcarra, a micro-manager with little na- the prime minister, César Villanueva, will to have done this before. As governor of tional experience, will be hamstrungby fu- oversee anti-corruption policies. Part of its Moquegua, a southern department, from jimoristas intent on preventing the institu- job will be to implement100 anti-graft rec- 2011to 2014, he “knocked mayors’ heads to- tional reforms he hopes to make. “We are ommendations from a body set up by Mr gether” to advance the planned Quella- going to talk to all parties and leaders to Kuczynski who, to the chagrin of cam- veco copper mine, says Mr Youle. show Peruvians that the country comes paigners, largely ignored them. Mr Vizcarra, who says he will not run before us,” he says. To counter the slowdown in economic for re-election, has just three years to con- On May 2nd congress gave his cabinet a growth MrVizcarra hopesto unblocksome vince voters that a moderate president can vote of confidence. The government has $10bn of private investment, much of it in clean up government and revive social asked congress for decree powers in six ar- mining projects stalled by farmers and en- and economic progress. If he fails, Peru’s eas, including taxes, political reform, infra- vironmental groups. “Peru is a mining sour-minded voters may offer the next structure and corruption. One proposal is country, but we need to do things different- chance to someone lesscommitted to prag- to publish the banking and tax records of ly from the past,” he says. That means cre- matism and democracy. 7 Bello The IMF is not the devil

Argentines should not scapegoat outsiders fortheireconomic plight N THE early months of 2002 Argentines In 2002 Argentines were angrier with Iwere gripped by rage, fear and a deep theirown politicians. “Societyblamesthe sense of loss. They had suffered years of political leaders for the situation, the austerity and slump and finally the corra- main parties without distinction,” Cris- lito, in which the governmenthalted a run tina Fernández de Kirchner, then a sena- on the banks by barring savers from with- tor, told this columnist in February ofthat drawing their money. None of this could year. Her husband, Néstor Kirchner, save “convertibility”, as Argentines called turned the fund into a scapegoat after he an arrangement under which the peso became president, initially with a weak had been pegged at par to the dollar since mandate, in 2003. Buoyed by a surge in 1991. As four presidents came and went in world prices for Argentina’s farm com- a week over Christmas 2001, Argentina modities, in 2005 he repaid Argentina’s devalued and defaulted on $82bn of debts to the IMF early, accusing it of being bonds, the largest sovereign default in his- “the promoter and vehicle of policies tory. Incomes plunged, unemployment which provoked poverty and pain”. That soared and the poverty rate rose to 56% in was unfair. The fund had not imposed a country that a century before had been convertibility. It was an accessory to, rath- one ofthe ten richest in the world. when the scheme succeeded in killing hy- er than the author of, those policies. These events seared the Argentine perinflation and promoting rapid eco- Argentines mainly have themselves to soul. Many blame the IMF for them. That nomic growth. Since convertibility meant blame for their economic decline. Their is why the decision by Mauricio Macri, forgoing exchange-rate flexibility and an governments rarely live within their Argentina’s president since 2015, to coun- independent monetary policy, fiscal disci- means, as Mr Macri’s aspires to. Ms Fer- ter a run on the peso this month by seek- pline was all-important for its success. The nández, who succeeded her husband as ing a standby loan from the IMF, though fund was remiss in not objecting when Mr president in 2007 and governed until economically sensible, is politically very Menem tried to spend his way to a third 2015, resorted to inflation to avoid fiscal risky. “We Argentines have a very bad col- term in the late 1990s, just when money discipline. Argentines are historically un- lective memory of the fund,” said Miguel was flooding out ofemerging economies. willing to accept that the peso may be Ángel Pichetto, the leader in the senate of The fund’s second mistake was to be worth less than they would like. The cen- the opposition Peronists, in an interview browbeaten by Mr Cavallo, brought back tral bank erred this year in intervening to with Clarín, a newspaper. byMrMenem’ssuccessor, into givinga sec- try to prop up the currency, although it is But are they right to fear the fund? ond loan to Argentina in 2001. Inevitably, overvalued. Armed with a prospective Since the 1950s Argentina has repeatedly the conditions attached to it included the IMF loan, it now appears to be letting the turned to the IMF to finance stabilisation austerity needed for the “internal devalua- currency depreciate, as it must. plans that failed because ofpolitical resis- tion” that convertibility required. It was Mr Macri’s attempt to stabilise the tance to the short-term pain involved. To- clearto many that the country should have economy gradually after Ms Fernández’s day, when Argentines criticise the IMF for devalued and defaulted. After Mr Cavallo populism was well intentioned. He its role in the traumas of 2001 and 2002, imposed the corralito, undermining his bought time by issuing foreign debt. With they give contradictory reasons. They own programme, the fund refused to dis- the era of cheap money in the financial blame the fund both for backing convert- burse the second tranche of that loan. markets now ending, Argentina must ibility and for pulling the plug on it. Right to the end, convertibility was very speed up its adjustment to reality after the Convertibility was a purely Argentine popular. That is why many Argentines pretend economics of concealed infla- invention—by Domingo Cavallo, the were shocked when the fund withdrew its tion, parallel exchange rates and unaf- economy minister under Carlos Menem, support. “Argentina obeyed, but was pun- fordable subsidies. Argentines should the president from 1989 to 1999. The IMF ished,” Juan CarlosVolnovich, a psychoan- come to understand that the IMF is their had qualms about it, but was won over alyst in Buenos Aires, said at the time. best hope ofsoftening the blow. Asia The Economist May 19th 2018 31

Also in this section 32 War and peace protests in Myanmar 32 A run of terrorism in Indonesia 34 The disappearing Murray-Darling 35 An about-face from North Korea 36 Banyan: A Malaysian tsunami

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

Politics in Thailand scared away. What is more, the new par- ties’ lack of policy ideas means they will Vacuum power fail to win support, believes PrajakKongki- rati ofThammasat University. The obvious solution, from the gener- als’ point ofview, is to smother the existing parties. Section 44 of the interim constitu- Bangkok tion, which has been in effect since 2014, gives the junta the power to curb The ruling junta is preparing, at last, to hold an election—and to win it “any act which undermines public peace AM not a vacuum cleaner,” Prayuth a new banner and won the subsequent and order or national security, the monar- “IChan-ocha, who heads Thailand’s vote, in 2007. After the courts banned the chy, national economics or administration military junta, insisted last month. The new outfit (and Mr Newin defected from of state affairs”. It has banned political ac- general was responding to the accusation it), a third Thaksinite party won the next tivities, including gatherings of more than that he was trying to hoover up support two elections. This time the army, al- five people, and accorded itself the power from political powerbrokers in anticipa- though notionally committed to free elec- to stop the publication ofnews it considers tion ofthe restoration ofdemocracy. None- tions, seems determined to make sure that unconstructive or misleading. During theless, he has been touring the country, voters are prevented from repeating their April members of parties were supposed addressing huge crowds in the company of past mistakes. to declare themselves and pay 100 baht local barons such as Newin Chidchob, ($3.15) for a year’s membership or 2,000 from the populous north-east, who used to A plague on both your houses baht for life. The public clearly sees little act as a political kingmaker before the mil- The new constitution, approved in a farci- point in signing up: just 80,000 of the 2.5m itary coup of 2014. The charm offensive cally circumscribed referendum, creates a former members of the Democrat party, comes ahead of elections currently sched- National Assembly consisting of an ap- the country’s oldest, chose to reconfirm uled for February, although delayed four pointed Senate with 250 members, to be their status. times already. Mr Prayuth insists he will picked by the generals, and an elected To make life even harder for the politi- not support any particular party, nor run House of Representatives with 500 mem- cians, a law passed last month bans poli- for office himself. But the constitution pro- bers. The system of proportional represen- cies that are intended to improve the gov- mulgated 13 monthsago deliberatelyweak- tation to be used in elections will diminish ernment’s popularity but that may cause ens existing political parties, and Mr Pray- the power of big parties, compared with a long-term damage to the economy or soci- uth has been compounding their woes. first-past-the-post system. ety—a definition so sweeping as to encom- The likeliest outcome seems to be a chaotic The prime ministerwill be selected by a pass nearly any government decision. Mr coalition, perhaps with Mr Prayuth, pre- joint sitting of the two houses. With 250 Prayuth seemed to have forgotten about tending to be surprised and reluctant, stay- senators in the bag, the junta’s candidate the rule, however, when appearing with ing on as prime minister. would still need the votes of 125 members Mr Newin at the “Thunder Castle”, the sta- Foralmost 20 years Thai politics has re- of the lower house to be selected, which dium of a popular north-eastern football volved around a feud between the suppor- explains both Mr Prayuth’s barnstorming team (pictured above). Mr Newin said the ters of Thaksin Shinawatra, who served as and the emergence of several parties back- region needed at least10bn baht in govern- prime minister from 2001 to 2006, and the ing the army or run by military men. But ment investment; Mr Prayuth duly prom- traditional elites, represented by the army the generals’ record is not impressive. They ised to improve local infrastructure. and the monarchy. The Thaksinites have have presided over widespread human- Preechapol Pongpanit, a Thaksinite for- won all six elections since 2001. When the rights abuses; economic growth is relative- mer member of parliament, says other army threw them out of office in 2006 and ly wan; workers are burdened by high per- new rules block even the most basic forms banned their party, they regrouped under sonal debt and foreign investors have been of campaigning. “The best strategy for me 1 32 Asia The Economist May 19th 2018

2 to communicate with my people is to majority as well as ethnic minorities. make a speech,” he explains. But election “We’ve been suffering from civil war for speeches will be allowed only at venues too long,” says one participant. Police have managed by the Election Commission ap- broken up these protests; some 40 people pointed by the junta, perhaps only during are being prosecuted for taking part. working hours. The generals’ 20-year stra- Aung San Suu Kyi, Myanmar’s de facto tegic plan, enshrined in law, binds future leader since 2016, says peace is her priority. administrations to its development poli- She has organised grand conferences and cies. The laws regulatingMPs and senators, delivered speeches about unity. But little which have not yet been completed, may has changed on the front lines. That is find ways to hamstring politicians further. mainly the army’s fault. Under the consti- None of this has deterred new en- tution drafted by the generals, the civilian trants. One of the most prominent of doz- authorities do not control the armed forces ens of new parties is Future Forward, led or the police. But her government still by a 39-year-old car-parts magnate, Tha- looks hapless. Khon Ja, a Kachin activist, nathorn Juangroongruangkit, who argues points out that the country’s peace negoti- forcefully for a meaningful restoration of atorisMsSuuKyi’sformerpersonal doctor, democracy. “There’s no consensus in the and that the chief minister she put in country on how to move forward,” he la- charge ofKachin state is a formerdentist. A ments. Yet he says that during recent visits local MP describes him as a nice man, but to the south and the obstinate north, a says he avoids confronting the army. Thaksinite bastion, he encountered far The civilian government has more au- more supporters than he expected, despite thority than it admits. Politicians could in- not being able to hold any rallies. His party Giving peace a charge tervene in the court cases against peaceful has already had to satisfy elaborate rules demonstrators and MPs could trim the regarding the distribution of its member- representing downtrodden ethnic minor- army’s budget. At the very least Ms Suu Kyi ship and branches around Thailand’s 77 ities have been fighting the central govern- could denounce the army and call for an provinces, without holding any political ment for decades, demanding greater au- end to the attacks instead ofkeeping silent. meetings. More hurdles are doubtless un- tonomy. Many agreed to a nationwide In the past she has even praised the army’s der construction. ceasefire in 2015, but the KIA, with at least “valiant effort” to stabilise the region. The The junta has had fouryears to make its 10,000 troops, has not. arrival of the monsoon next month is like- mark, as long as a democratically elected It is hard to identify the trigger for the ly to be more help to anguished Kachins. 7 government would have. But it has ducked latest violence. The generals, naturally,put necessary reforms. “They’ve run out of the blame on the rebels. But the army rou- ideas,” says a foreign diplomat. The one tinely attacks rebel outposts during the dry Bombings in Indonesia area in which they have shown a little cre- season. (Things usually calm down when ativity is in keepingpeople who might do a monsoon rains make the hilly jungle im- Anewlow better job than they do out ofpower. 7 passable.) Control overresourcesmay play a part. The region of Tanai, where the clashes erupted, is rich in gold and amber, Ethnic rebellions in Myanmar two important sources of income for the JAKARTA KIA. In June last year government soldiers Parents deploy theirown children in a attacked mines which, they said, were op- Rumble in the series ofsuicide attacks erating illegally. Two months later, under jungle the pretence of protecting the environ- LL terrorist attacks are sickening, but ment, soldiers who sit in Kachin’s state as- Asome more so than others. On May MYITKYINA sembly proposed making parts of Tanai 13th a family of suicide bombers killed 13 “restricted areas”. Sometimes, conflict people and wounded more than 40 others The government sits by while the army flaresup asa resultofa dispute between lo- in attacks on Christian churches in the city goes on the offensive cal warlords. An ethnic armed group allied of Surabaya in eastern Java. The father FTER fighting flared in April between with the KIA in neighbouringShan state re- drove a car packed with explosives into Athe Burmese army and the Kachin In- cently staged a bloody attack on a casino one Sunday service. His two sons, aged 16 dependence Army (KIA), an insurgent run by militiamen close to the army. and 18, struck a second. The mother and force controlling much of Myanmar’s Civilians caught in the crossfire bearthe two daughters, aged just 9 and 12, blew northern extremes, thousands of civilians brunt ofit all. The Kachin Women’sAssoci- themselves up at a third. It was Indonesia’s fled into the jungle. Some trekked for ation Thailand, a charity, says that soldiers deadliestterroristattacksince 2005 and the weeksbefore reachingMyitkyina, the capi- use civilians as human shields and mine- first to involve women or child bombers. tal of Kachin state, where they have taken sweepers. The Burmese army refuses to Later that day another family apparent- refuge in a local church. Plenty more are create new camps for displaced people, ly plotting a similar attack accidentally still trapped in the hills. According to the even though that would make it far easier killed themselves at their home near Sura- Red Cross, almost 7,000 civilians have to help them. baya. The next day a third family wounded been forced to flee their homes since the Outraged by the army’s belligerence, a 10 people when they blew themselves up beginning of April, to add to 100,000 al- group of Kachin youths held protests in at the gates of Surabaya’s police headquar- ready displaced. Myitkyina. The army sued the organisers ters. The father, mother and two sons were Violence is nothing new in this part of for defamation—a crime punishable by up killed but an eight-year-old daughter sur- Myanmar. The war in Kachin state has to two years’ imprisonment. Anti-war de- vived. CCTV images showed her stum- rumbled on since a ceasefire broke down monstrations spread to other cities includ- bling around after the blasts. And on May between the Burmese army and the KIA in ingYangon, the commercial capital, attract- 16th an assailant ran over a policeman in 2011. Dozens of similar guerrilla groups ing young, urban Burmese from the Bamar Sumatra. Four sword-wielding accom-1 Understanding Imperial China: Dynasties, TIME ED O Life, and Culture T FF I E IM R L Taught by Professor Andrew R. Wilson U.S. NAVAL WAR COLLEGE 70% LECTURE TTLES

off 1. Opium, Trade, and War in Imperial China O 8 R E 2. The First Emperor’s Terracotta Warriors DE UN R BY J 3. China’s Early Golden Age: The Han Dynasty 4. Amazing Ban Clan: Historian, Soldier, Woman 5. China’s Buddhist Monks and Daoist Recluses 6. Cosmopolitan Chang’an: Tang Dynasty Capital 7. China’s Grand Canal: Lifeline of an Empire 8. Triumph and Tragedy in Tang Poetry 9. Life and Times of Song Dynasty Literati 10. A Day’s Journey along the Qingming Scroll 11. Peasant Life on the Yellow River 12. Rice, Silk, and Tea: South China’s Peasants 13. Genghis Khan and the Rise of the Mongols 14. The Mongols and Marco Polo in Xanadu 15. Admiral Zheng He’s Treasure Fleet 16. China’s Bound Feet, Brides, and Widows 17. Ming Dynasty Trade and Spanish Silver 18. The Great Wall and Military Life in China 19. Qing Dynasty: Soul Stealers and Sedition 20. Emperor Qianlong Hosts a British Ambassador 21. The Taiping Rebellion and Its Cult Leader What Was Daily Life like in 22. China’s Treaty Ports 23. Experiencing China’s Civil Service Exams China’s Majestic Empire? 24. China’s Last Dynasty: Fall of the Manchus A knowledge of China’s imperial past is essential for any understanding of its present, as modern China is linked in many ways to the Understanding Imperial China: extraordinary culture of its empire. Understanding Imperial China: Dynasties, Life, and Culture Dynasties, Life, and Culture takes you to the heart of life during Course no. 3822 | 24 lectures (30 minutes/lecture) China’s imperial dynasties, revealing the empire’s historical unfolding through the lives of individual people of all walks of life, spanning the centuries from the empire’s founding in 221 BCE to its dissolution in SAVE UP TO $190 1912. In the inspired and detailed presentation of Professor Andrew R. Wilson of the U.S. Naval War College, this is cultural history of the DVD $269.95 NOW $79.95 most compelling vividness and insight. Video Download $234.95 NOW $59.95 Throughout 24 fascinating lectures, you’ll discover what daily existence CD $199.95 NOW $59.95 was like for scholars, women of the court, soldiers, government Audio Download $149.95 NOW $34.95 bureaucrats, merchants, craftspeople, emperors, concubines, poets, and +$10 Shipping & Processing (DVD & CD only) and Lifetime Satisfaction Guarantee imperial cooks. Drawing on decades of dedicated research, Professor Priority Code: 159687 Wilson uncovers how these people and many others lived, all set against the backdrop of the richness, diversity, genius, and splendor of For over 25 years, The Great Courses has brought imperial China. the world’s foremost educators to millions who want to go deeper into the subjects that matter most. No Of er expires 06/08/18 exams. No homework. Just a world of knowledge available anytime, anywhere. Download or stream THEGREATCOURSES.COM/8ECON to your laptop or PC, or use our free apps for iPad, iPhone, Android, Kindle Fire, or Roku. Over 600 1-800-832-2412 courses available at www.TheGreatCourses.com. 34 Asia The Economist May 19th 2018

2 plices were shot dead. cent attacks have appeared amateurish by tack in Jakarta in 2016 but have languished Joko Widodo, Indonesia’s president, comparison, although the latest ones attest in the legislature ever since. Critics say the condemned the attacks as barbaric. They to a degree of co-ordination and planning vaguely worded revisions, including ones have heightened fears ofa resurgence ofIs- not seen for more than a decade. The that could allow a larger counter-terrorism lamist terrorism in Indonesia. Police say home-made explosives used in them were role for the military, would be counterpro- the father involved in the Surabaya church also more powerful than those used in oth- ductive. Ms Jones says efforts to prevent bombings was the local head of Jemaah er recent bombings. terrorism need to target areas where mili- Ansharut Daulah, or JAD, a loosely organ- Jokowi, as the president is universally tants are known to be active, and aimed at ised militant network that supports Islam- known, has pledged to strengthen the women and teenagers as well as men: ic State. He led a religious study group at- country’s terrorism laws by decree if par- “The danger is that, after the initial shock, tended by all three families where he liament does not do so by June. Revisions the public slips backinto believing that the showed gruesome jihadi videos. IS were proposed shortly after a terrorist at- problem is over,” she says. 7 claimed to be behind the attacks, although contrary to initial reports, none of the bombers had trained with it in Syria. The Murray-Darling The authorities are now racing to reas- sure the world that the country is safe From paddles to puddles ahead of the Asian Games in August in the cities of Jakarta and Palembang, and the annual meetings of the IMF and World Bank in October on the island of Bali. The bombings came less than a week after Is- TOLARNO STATION lamist militants at a high-security prison Australia’s biggest riveris running dry, despite an expensive plan to save it outside Jakarta killed five guards during a 36-hour uprising, forwhich IS also claimed ADDLE steamers once chugged up and QUEENSLAND responsibility. Police have arrested or down the Darling, the main tributary of P n o w killed at least 20 suspected JAD terrorists in the Murray river, ferrying wool from re- r a SOUTH B ng an ongoing sweep. mote farms to the port of Adelaide. The AUSTRALIA li M r NEW a a c D q Sidney Jones of the Institute for Policy Murray-Darling basin, which is larger than SOUTH u a r Analysis of Conflict, a think-tank in Jakar- Ethiopia, gives life to Australia’s arid interi- Tolarno WALES ie Station ta, says that the Surabaya attacks underline or (see map). But these days the Darling is an hl ac Sydney the need for improved surveillance. She reduced to a putrid standstill with alarm- Mu L rra describes existing programmes to rehabili- ing regularity. Parts of it disappear alto- Adelaide y Canberra tate IS sympathisers, including some 500 gether at times, a phenomenon which was The VICTORIA Indonesians Turkey has sent home on sus- almost unprecedented before this century. Coorong Tasman picion ofseekingto cross into IS-controlled Robert McBride, whose parched sheep sta- Melbourne Sea parts of Syria, as “rudimentary”. Analysts tion in the state of New South Wales de- Murray-Darling basin warn that returnees could bring backmore pends on its flow, estimates that 600km of 250 km deadly methods ofterror. the lower Darling will run dry this year. That would be a reversal after Indone- This is just the kind of disaster that plan, published last year by the Went- sia’s success in crushing the network re- should have been averted after Australia worth Group of Concerned Scientists, sponsible for a horrific bombing in Bali in launched an ambitious plan to preserve found “no evidence yet to demonstrate im- 2002, in which 202 people were killed. Re- the river in 2012. The four states that de- provement across the basin as a whole”. pend on the Murray and its tributaries had Anotherreport, by the authority which ad- been fighting bitterly over its contents. ministers the scheme, concluded that irri- Since the 1970s enormous farms growing gation in the basin’supperreacheswasstill irrigated crops such as cotton and nuts had depriving those farther downstream, like spread across the basin. When a cata- Mr McBride, of water. Richard Kingsford, a strophic drought struck in the early 2000s, scientist in Sydney, says that the plan’s tar- the mouth of the river almost ran dry. So gets were not ambitious enough in the first politicians thrashed out a plan to conserve place. But it also seems that more water is the river, while sustaining the farms and being siphoned from the stricken river sys- communities that depend on it. tem than was intended. Australia already had an elaborate sys- Theoretically, water saved with taxpay- tem fortradingwaterrights, allowing farm- ers’ money should stay in the river. But not ers to buy or sell entitlements according to all of it does: the Wentworth Group says their need in any given season. The idea of state governments use several tricks to “re- the Murray-Darling Basin Plan was to re- tard” that process. Victoria hoards water in duce water consumption by at least 2,750 dams. New South Wales has altered local gigalitresa year, eitherbypurchasing water water-management schemes along the licences from farmers who were willing to Darling’s tributaries, allowing irrigators to sell them or by funding projects which pump out more. This means that liquid could deliver “equivalent” outcomes—for purchased by the government in Queens- instance, by making irrigation systems land is guzzled backup again when it cross- more efficient. So far, the government has esthe state border, explainsJamie Pittock, a spent over A$8bn ($6bn), and in theory cut member ofthe group. usage bytwo-thirdsofthe target. Yet, some- Illegal extraction is a second problem. how, the river is still at a low ebb. Farmers are meant to use meters to moni- Neither churches nor children spared The first independent review of the torhow much they pump. But last year, cot-1 The Economist May 19th 2018 Asia 35

recommended by its own researchers—on North Korea a water licence belonging to an agricultural Forewarned on disarmament company, Webster. The purchase was not put to a public tender. Webster had taken Seoul over Tandou Limited, which owns the property in question, only 18 months earli- Kim Jong Un reminds the world why past peace talks have failed er. Nick Xenophon, an independent sena- HE sun smiled down on the demilita- agency made it clear that economic assis- tor at the time, complained that the plan Trised zone between the two Koreas on tance would not be sufficient recom- was being “systematically undermined”. April 27th, the day Moon Jae-in, South pense fornuclear disarmament, as Mr This month the Senate approved an Korea’s president, met Kim Jong Un, the Kim seemed to suggest only last week. amendmentto the plan which letscommu- North Korean leader, fora strikingly Mr Trump’s eagerness to make history nities in the southern part of the basin con- warm summit at which they agreed on in front ofthe global media will not have sume more water. The extra consumption the “complete denuclearisation” ofthe escaped Mr Kim. Nor will southerners’ is supposed to be offset by 37 “efficiency- peninsula. On May16th the weather was desire forpeace. In South Korea, the bolt saving” projects. New South Wales had very different, and so was the news. from the blue did not seem to dent pop- threatened to abandon the plan altogether Thunderstorms battered Seoul as the ular optimism. On social media hardly if the amendment failed. But the Went- North announced that it was cancelling anybody reproached Mr Kim. Many worth Group questions whether the pro- high-level talks with the South to which it expressed sympathy. “Kim Jong Un is jects will really deliver the promised sav- had agreed barely 24 hours earlier. It also right. We shouldn’t push North Korea ings; it believes that only one of them is threatened to pull out ofa summit be- into a corner,” ran one popular comment. watertight, as it were. tween Mr Kim and Donald Trump, Amer- South Korea’s unification ministry Communities which rely on irrigation ica’s president, scheduled to take place in said the North’s about-face was “regret- detest the plan because it threatens their Singapore on June 12th. table”. Mr Moon’s office did not even go livelihood. Yet their thirst hurts farmers The North gave two reasons forits ire: that far, claiming the move was “just part downstream. Indigenous tribes who im- long-scheduled military exercises be- ofthe process”. The White House said it bue the river with spiritual significance say tween America and South Korea, to had received no indication that the Singa- that their elders are dying with it. Scientists which it had previously acquiesced pore summit would not go ahead. worry about the loss of fish and birds. The (although it may have been surprised by North Korea says the summit can Coorong, an important wetland near the the involvement ofStealth fighters, proceed only ifAmerica is “sincere” river’s mouth, has been polluted with salt which could be used in a “decapitation” about improving relations. But it is the and algae as the river’s flow diminishes. strike, and B-52s, which can carry nuclear North’s sincerity that has always been in David Paton, an ecologist, has spent de- bombs), and America’s insistence that it question. At the very least, the kerfuffle is cades monitoringits fairyterns. Their num- must unilaterally forswear nuclear a reminder that until a few months ago, bers are a quarter of what they were in the arms—the very condition on which Mr Kim was seen as untrustworthy and 1980s. “We’ve pushed this system to the America agreed to talks in the first place. belligerent. There is little reason to imag- point of collapse,” he laments, “and we’re Statements relayed by the official news ine he has changed. watching the species go to extinction.” Hope comes in the form of greater ac- countability. Overwhelming evidence of 2 ton irrigators in New South Waleswere ac- pressure group, notes that there is no legal theft and mismanagement has led to more cused of tampering with their machinery barto stackingthe board ofthe authority in prosecutions. New South Wales has estab- to mask how much they were taking. Two charge of the plan. Four of its six members lished a new regulator, and South Australia families face charges associated with have links to the irrigation industry. has launched a royal commission to look breaches of their licences. There is also Parliament recently ordered the publi- into breaches of the plan. If state govern- concern that money which was supposed cation of details of a series of “buy-backs” mentswalkaway, the national government to fund projects that would conserve the of water rights. In one case, the govern- could, by law, enforce the rulesinstead—if it Murray-Darling is being misspent, allow- ment spent A$78m—almost twice the sum were so inclined. 7 ing irrigators who have sold water to the government to replace it with flows to which they are not entitled. One big cotton farm is currently under investigation. Wide-scale abuse has been possible be- cause states and local governments have failed to enforce the rules. Last year, New South Wales’s top water bureaucrat was caught on tape offering to share confiden- tial information with irrigation lobbyists. (He was referred to the state corruption watchdog.) From the shelter of his veran- da, Mr McBride fumes that “the greatest man-made destruction in Australian his- tory is being condoned by New South Walesand the federal government.” The federal government has handed oversight of the plan to the farm-friendly National Party, the junior partner in the go- verning coalition. Since then, critics claim, regulatory oversight has slackened. The Environmental Defenders Office NSW, a Where did all the efficiency savings go? 36 Asia The Economist May 19th 2018 Banyan A Malaysian tsunami

At last, a cause to unite all the country’s ethnic groups tice Party (PKR) and 42 for the Democratic Action Party (DAP), which appeals to middle-class ethnic Chinese and Indians. Yet the election is Dr Mahathir’s. He represented, as Bridget Welsh of John Cabot University in Rome puts it, a “safe landing” for those in the system worried about the repercussions ofbetraying it. On May 16th Dr Mahathir’s exertions to form a cabinet were overshadowed by Mr Anwar’s release. While Dr Mahathir is Pa- katan’s “chairman”, Mr Anwar is its real leader. He plans to re-en- ter parliament and take over as prime minister—but only after a couple ofyears, Dr Mahathir insists. When Mr Anwar emerged, Dr Mahathir was there to greet him. In the 1990s Mr Anwar had been his assumed successor. But when he began resisting Dr Mahathir’s unorthodox response to the Asian financial crisis and, much worse, denouncing crony- ism, Dr Mahathir had him beaten and jailed. There is a touch of the martyr in Mr Anwar. But his reappearance this week under- scored not only a dogged will to power but a bottomless capacity to absolve when necessary. The two men’s relationship will now be the chief topic of speculation in politics. Mr Anwar says he will take a back seat for now. Dr Mahathir, he says, is “no great reformer. But he can be ex- T IS tempting to interpret the drama of the past week—in which pected to mend a lot ofwrongs, a lot ofthe excesses: the judiciary Ithe United Malays National Organisation (UMNO) and its al- can be respected, the media can be free…My role will be essen- lies, which had run Malaysia for61years, crashed from power—as tiallyto be the voice ofconscience. Ifministersgetnew wivesand the result ofthe interaction ofthree formercolleagues in UMNO. live in opulence, then you can expect me to be more critical.” Big Without the extreme greed of UMNO’s Najib Razak, the fallen transformations, he implies, will have to wait until his turn. prime minister, the country would not have so readily turned There are other, far more numerous protagonists, of course, against his corrupt and ruthless party. Without the return to poli- and a week after the vote millions are still loth to scrub off their tics of the new prime minister, Mahathir Mohamad, the 92-year- personal memento: the purple inkon their index finger. The elec- old who had dominated UMNO and the country for decades be- tion result, many insist, was not a “Malay tsunami”. Rather, it was fore retiring in 2003, the opposition could not have persuaded so a Malaysian one. When Mr Najib plugged the money holes by many voters to follow his lead and desert UMNO in the general handing land and contracts to firms linked to the Chinese state, election on May 9th. And without the quicksilver brilliance of many felt he was selling out the country. For the first time voters Anwar Ibrahim, who was jailed under Mr Najib on trumped-up intentionally came together across religious and ethnic divides. sodomy charges but who re-emerged into the limelight on May One campaign promise was to bring Mr Najib to justice. But 16th with a royal pardon, there would have been no momentum the coalition’s first reform was to suspend the tax on goods and forchange. Mr Anwar had been planning forthis for20 years. services from June 1st. Introduced in 2015, it is the first conspicu- The urbane Mr Najib, President Donald Trump’s “favourite ous levy many poor Malaysians have ever had to pay. Maybe the prime minister”, presided over the looting of billions of dollars Najib-era larceny was so large that the new government really from a state investment fund, 1MDB, according to America’s De- can, as it claims, make up the $5bn in forgone revenue with less partment of Justice. Nearly $700m appeared in his own bank ac- graft and more competitive bidding for procurement. counts, it says; some went on bling that subsequently appeared The coalition’s experience of running several of Malaysia’s 12 around the First Lady’s neck. As corruption grew, so did the states augurs well—the new government is not wholly green. abuses. Mr Najib suppressed investigations into lost funds, What is more, notable agreement exists around the road map. In hounded opponents, and gerrymandered elections. He went to going after Mr Najib, more emphasis is put on due process than great lengths to ensure victory and appeared shell-shocked by on settling scores. The talk is of overhauling a supine judiciary the result, presumably because his unctuous courtiers did not and strengthening parliamentary oversight. One adviser to Mr make clear the jeopardy he was in. This weekpolice once loyal to Anwar even worries that unless UMNO, now in disarray, refash- him searched the house where he sits awaiting arrest. ions itselfas a nimble opposition, the new coalition might fall for The hero ofthe moment is the comebackkid. DrMahathir had the “seductions ofpower” and reforms might slow. helped found UMNO in, oh, 1946. It was during his 22 years as prime minister that the party’s reputation for cronyism, high- Restoration drama handedness and pandering to the ethnic-Malay majority was Such sentiments are striking for Malaysia’s new insurgents. They honed. But for Dr Mahathir, who has reinvented himself as a seem to reflect not so much a desire to turn the world upside democrat (ora “listeningdictator” as he likes to joke), the excesses down as to return to an earlier era of settled law, fair judges and of his former protégé were too much. Last year he folded his democratic accountability that survives in the national imagina- breakaway party, Bersatu, into the motley, multiracial, left-of-cen- tion. ItiswhyMalaysia isbuckinga broadershiftto authoritarian- tre opposition, Pakatan Harapan, or Alliance ofHope. ism. At heart, the sentiments reflect less a revolution than a resto- Of the coalition’s three main parties, Bersatu is the smallest. It ration. And, despite the coalition’s inevitable bickering, that won only12 seats, compared with 48 for Mr Anwar’s People’s Jus- restoration has a good chance ofworking out. 7 China The Economist May 19th 2018 37

Also in this section 38 Cantonese football

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

Language At the same time, however, China’s leader, Xi Jinping, also wants to boost the A change of tone party’s appeal to Chinese nationalists at home and abroad by presenting the party as a champion of traditional culture—not the systematic destroyer of it, as it was in BEIJING Mao’s day. Mr Xi stresses the importance ofChina’sancientheritage almostasmuch The government is becoming more tolerant ofsome regional Han languages. It as communism. In a speech on May 4th to wants to be seen as a champion oftraditional culture mark the 200th anniversary of the birth of I SIYI tucks her hair behind her ears and The problem is that China is one of the Karl Marx, he said the party must not only Ltakes a deep breath. The high-schooler most linguistically diverse countries in the “imbue core socialist values”, but also pro- and aspiring journalist sits in a mock tele- world, with about130 ethnic-minority lan- mote “fine traditional Chinese culture”. vision studio in a basement of China’s guages as well as its Han ones. Of the Han Officials now accept that this requires most prestigious broadcasting university, languages, Cantonese is spoken by around showing off the country’s traditions in all practising scripts of the sort that she will 60m people in Hong Kong and neighbour- their diversity. In 2015, three years after he soon have to tackle as part of its entrance ing Guangdong province. Some 80m Hans came to power, Mr Xi visited the village in exam. When the time comes examiners speak one of the Wu languages, among Shaanxi province where he had lived dur- will grade herpoise and delivery. They will them Shanghainese. Languages of the Min ing the Cultural Revolution of the 1960s also assess the quality ofher putonghua, or family are used by around 70m people and 1970s. His use of local dialect to intro- “common language”, the official version of along the south-eastern coast. duce villagers to his wife became headline Mandarin that is supposed to represent its news in China (he is the first Chinese purest form. The pronunciation is based The mandarins’ mandate leader since the Communists took over in on the Beijing dialect, but even natives of But as officials see it, a monolingual China 1949 whose Mandarin is unaccented). the city, like Ms Li, find it tricky to attain the is more likely to be a strong and unified Also in 2015 the State Language Com- flawless accent that newsreading requires. one. They are also reluctant to accept that mission launched a five-year project to re- The languages spoken by ethnic-Han Han China might be an amalgam of cul- cord and protect China’s “language re- Chinese, who are more than 90% of the tures as varied as Europe’s. They prefer to sources”. This involves cataloguing population, belong to half a dozen main call the Han languages “dialects”, even languages used at 1,500 sites as well as on- groups (see map, next page). Since the col- though some are as different from each line. Wang Lining of Beijing Language and lapse of China’s last imperial dynasty in other as Romance languages such as Culture University says it is the biggest 1911, successive regimes have been ob- French and Spanish. (Chinese people, such survey in China for decades. It has al- sessed about popularising just one of however, use the same written language, a ready resulted in a 20-volume work on them: Mandarin. The Communist Party Mandarin-based non-phonetic form that China’s “linguistic culture”, published last has been particularly zealous in its promo- those who are literate all understand). In December, complete with QR codes that tion ofthe language. In 2000 abouthalfthe 2000 the country passed its first national readers can scan to access online audio re- population was reasonably fluent in it. The law on standard Chinese. It said people cordings ofregional tongues. proportion is now higher than 70%, thanks were free to use their own languages, but it In 2020 the scheme will enter a new partly to migration from the countryside reinforced long-standing policy that Man- phase, in which researchers try to use the into cities, which has compelled those darin be used in schools, government of- material they have collected to help speak- moving from non-Mandarin areas into fices and in the vast majority of broadcast ers of regional languages. Ms Wang says Mandarin-speaking ones to learn the offi- media in Han-majority areas. (The rules one idea is that the data be offered to devel- cial tongue. The government wants 80% to fornon-Han people notionally give greater opers of local-language software for voice- have a good command by 2020. protection to their minority languages.) controlled products. Han languages are 1 38 China The Economist May 19th 2018

Football E pluribus unum North-eastern Mandarin Han languages and dialects, traditional areas of use Long-term goal 2012 GUANGZHOU Beijing Mandarin A club is trying to enthuse fans by appealing to theirlocal identity BEIJING N A modest stadium built into a hillside parts ofGuangdong province, ofwhich Jilu Jiaoliao Mandarin Iat Yuexiu Parkin Guangzhou, around the city is the capital. Lanyin Mandarin 10,000 fans were supporting their club on Mr Wong cites the example ofJapan- Mandarin SHANGHAI a recent evening by waving blue flags, ese clubs, which 20 years ago started a SHAANXI Jianghuai Mandarin beating drums and shouting encourage- similar effortto end their reliance on Central plain Mandarin ment to their team in the local Cantonese foreign players and cultivate local talent. tongue. The club, Guangzhou R&F, plays Mr Wong also points to Barcelona. At the second fiddle in this huge southern city peakofits success earlier this decade, he South-western to its more illustrious crosstown rival, notes, the Spanish club had a high pro- Mandarin Evergrande, which has many more fans portion oflocal players and played a and a much larger stadium. But the own- philanthropic role in the local communi- GUANGDONG ers ofR&F (it stands for“rich and force”, ty. “Our long-term plan is to develop that the meaning ofthe two Chinese charac- kind oflocal bond with our fans,” he Hong Kong ters that form the name ofits sponsor, a says. More than one-third ofR&F’s cur- Guangzhou property company) thinkthey know rent squad are from Guangdong. That is how to turn the club into a winner. In a higher than the proportion ofhome- country where officials are often suspi- province players in most other clubs in Han languages/dialects cious ofregionalism, club bosses are the Chinese league, says Mr Wong. Mandarin Jin Xiang Hakka Gan trying to appeal to the pride ofCanton- Cantonese, a language rooted in Cantonese Ping & Tu Min Hui Wu ese speakers. Guangdong, is a help. Mr Wong says it is Source: Language Atlas of China, The Commercial Press Football in China is in a sorry state. used for most ofthe club’s business. Fans The country has qualified only once for like to know that many ofthe players can 2 benefiting from all this attention. Not long the World Cup, in 2002, when it was understand their chants, unlike those after Mr Xi took over in 2012, the authori- quickly knocked out without scoring a foreigners or people from other parts of ties in Shanghai launched a campaign to goal. The main national league has been China. But the comparison with Barcelo- promote their local tongue in kinder- plagued by corruption, match-fixing na might give pause to football officials in gartens. Officials have encouraged a reviv- scandals and a middling standard of play. Beijing. Regional pride in Catalonia, of al of regional forms of Chinese opera, per- But China’s leader, Xi Jinping, has a which Barcelona is the capital, led to a formed in their original languages. This dream. In 2011, a year before he came to referendum on independence. year organisers of the annual spring-festi- power, he said he wanted China to win val gala on national television tried to in- the World Cup. As president he has clude more southern accentsin orderto de- turned that idea into a sporting priority. flect accusations that the much-watched Many Chinese clubs have responded variety show has a northern bias. by buying foreign talent. They have not The government has come to accept always got what they paid for. Early this that support for local languages can bring year Carlos Tevez, a star Argentine striker, political and economic rewards. It may, for left Shanghai Shenhua. He was reported- example, help China’s efforts to woo over- ly paid tens ofmillions ofdollars, but seas Chinese, says Li Wei of University arrived out ofshape, scored only four College London. China’s trade in South- goals and sometimes did not even bother East Asia depends on contacts with ethnic to run during matches. Guangzhou R&F is Chinese in that region, many of whose an- trying a different approach. “Wedon’t cestors did not speakMandarin. want to rely on foreign players,” says Partyleadersappearto believe that Chi- Nicky Wong, the club’s vice-chairman na’s cultural “soft power”, including local (though Sven-Goran Eriksson, a Swedish language, can be used to persuade mem- formermanager ofthe England team, bers of the global Chinese diaspora to sup- was head coach in 2013-14 and the current port policies that are favourable to the manager is Dragan Stojkovic, a Serb). party, and even to win over people in Tai- Instead, it is investing in academies for wan. Jason Lim of the University of Wol- young players in Guangzhou and other Ooh! Aah! Cantonese! longong in Australia notes that the party has been dubbing propaganda videos into Hokkien, which is used in Taiwan as well zhou, in protest. The authoritiesbacked off, line, especially video. Local languages, as elsewhere in Asia. but in 2014 they implemented a modified which are often used in such content, have But the government’s support for local version of the plan. Some people worry become collateral damage. Supporters of languages is still tempered by a suspicion thatforall itstalk, the government wantsto regional tongues still have to fight for small of localism and the long-term threat it wipe out other Han tongues. (Don’t even concessions such as local-language an- might pose to national unity. In 2010 offi- ask Tibetans and Uighurs how their lan- nouncements on buses and trains. They cials in Guangdong province proposed re- guages are getting on.) have to rely on the ability of local officials placing some local-language broadcasts For a while, the internet appeared to of- to resist uniformity-demanding superiors. with Mandarin ones. Cantonese speakers fer hope. But officials are stepping up ef- For most Chinese, only one way of speak- took to the streets of the capital, Guang- forts to suppress “lowbrow” material on- ingstill enjoysthe full backingofthe law. 7 Middle East and Africa The Economist May 19th 2018 39

Burundi’s referendum Also in this section Back to the old days 40 Zimbabwe’s cashless economy 41 Where one state airline is not enough 41 Qatar’s desert cows NAIROBI 42 Iran braces for an economic crunch Burundi’s president has named himself“Supreme Eternal Guide” ofhis country. 42 Muqtada al-Sadr wins in Iraq So, no plans forretirement, then S OMENS go, it is not a good one. In Ki- tional amendment to pass comfortably (no did not count. He had been appointed by Anama, a district in north-east Bujum- matterwhich waytheyactuallyvote). Hav- parliament, not elected, you see. Two bura, the cobble-stoned capital ofBurundi, ing named himself “Supreme Eternal months before he was re-elected, his gov- residents found the body of a man floating Guide” of the country in March, Mr Nku- ernment was briefly overthrown in a coup in a field of rice on May 8th. His head was runziza could then stay in office until 2034. while he was on a trip to neighbouring missing; his heart had been torn out. Stuck The referendum in Burundi highlights the Tanzania. In the year afterwards, Burundi to his chest was a message written in Ki- steady erosion of term limits in recent was shaken by violence. Opposition sup- rundi, the language of most Burundians: years across central Africa (see map). Over porters (or those merely suspected of be- “Traitors are punished.” the past decade half a dozen countries ing so) were arrested or went missing. Al- Violence has broken out in Burundi have ignored orrevoked lawslimiting pres- most half a million people have fled to ahead of a referendum on May 17th to idents to no more than two terms in office. neighbouring countries. Rights groups say change the constitution to allow Pierre It also represents the final death of the 456 were assassinated in 2017 alone. Nkurunziza, a former rebel who has been Arusha accords that ended the civil war, Gunshots and grenades are a rarer president since the end of the civil war in created a blueprint for democracy and sound in Bujumbura than they were two 2005, to stand for office again in 2020. On mandated power-sharing between Hutus years ago, say residents. But repression May 11th, 26 people were killed in the and Tutsis, the two main ethnic groups, continues. “Many citizens today live in north-west of the country in an attack by whose fightinghas torn Burundian politics fear, even if they do not say so aloud,” says rebels who crossed in from the neighbour- apart since independence in 1962. Monseigneur Joachim Ntahondereye, ing Democratic Republic of Congo. Three Burundi’s latest crisis began in earnest president of the Burundian Council of days later an opposition activist who had in 2015, when Mr Nkurunziza decided to Bishops. The church is one of the few insti- been campaigning against the change was run for a third term. His party, the CNDD, tutions to have spoken out against the con- murdered in the street by a crowd ofyoung which is descended from the Hutu rebel stitutional change. Independent journal- pro-government militiamen. group he led during the civil war, argued ism has been all but banned; this month, Many Burundians expect the constitu- that under the constitution his first term the BBC and Voice of America transmitters were shut down. Most foreign publica- tions have been denied accreditation. Particularlyworryingisthe gradual eth- TUNISIA nic polarisation ofthe army. It had been re- MOROCCO built under the Arusha accords with quo- tas for Hutus and Tutsis at all levels of its ALGERIA officer corps, to win the trust of both WESTERN LIBYA SAHARA EGYPT groups. Yet many of the officers who dominated before 2005, most of them CAPE Tutsi, have been forced to retire or posted VERDE MAURITANIA abroad on peacekeeping missions in MALI NIGER SUDAN ERITREA places such as Somalia and the Central Af- SENEGAL CHAD rican Republic. Some officers have been THE GAMBIA BURKINA DJIBOUTI murdered. Meanwhile, rebels who served GUINEA- GUINEA FASO G BENIN

BISSAU H NIGERIA in Mr Nkurunziza’s force—mostly Hutus— IVORY A TOGO ETHIOPIA SIERRA LEONE N N SOUTH COAST A O CAR have risen up the ranks. The constitutional O SUDAN LIBERIA CAMER amendment opens up the possibility of UGANDA SOMALIA doing away with ethnic quotas, allowing EQUATORIAL GUINEA CONGO- GABON BRAZZAVILLE KENYA Mr Nkurunziza to make the army and po- RWANDA SÃO TOMÉ & PRÍNCIPE BURUNDI SEYCHELLES lice completely dominated by Hutus. CONGO The economy has been crushed. GDP TANZANIA per person has fallen every year since 2015, even as the population has risen by Constitutional two-term COMOROS ANGOLA around 10% to about 11m. Almost three- limits for African leaders MALAWI ZAMBIA fifths of Burundians are “chronically mal- Under current constitution, February 2018 UE nourished”, according to the UN’s World IQ MAURITIUS B ZIMBABWE M Leader left office when limit reached A Food Programme. Hunger has worsened NAMIBIA Z MADAGASCAR O of late, as the government has increased Limit not yet met by any president BOTSWANA M taxes to pay for the referendum. The only Retained after attempt to modify/eliminate growing industry has been smuggling gold SWAZILAND Modified or eliminated from Congo, where Mr Nkurunziza is said SOUTH LESOTHO to have allies in the remnants of the geno- AFRICA No two-term limit cidal Hutu militias that fled Rwanda after Source: Africa Centre for Strategic Studies the massacres there in 1994. Fears are grow-1 40 Middle East and Africa The Economist May 19th 2018

2 ing that a proxy war between Burundi and time are now used as bookmarks. Rwanda (whose president, Paul Kagame, is Out of cash Since 2009 the economy has recovered a Tutsi)is reigniting in Congo. Zimbabwe, payment transaction values, % of total somewhat. Farming has grown again, There is little hope of outside interven- partlythankstothe leasingoffarms backto 100 tion halting the crisis. The Tanzanian gov- Cash their previous owners, and partly thanks ernment played midwife to the Arusha ac- to the replacement of the old currency by Mobile & 80 cords. Yet today Tanzania itself is sliding internet the dollar. But Zimbabwe still cannot feed into authoritarianism. Its president, John 60 itself. Despite bumper rains, more than 1m Magufuli, an ally of Mr Nkurunziza, has people may not have had enough to eat tried to force Burundian refugees back to Inter-bank, 40 earlierthisyear,accordingto USAID, Amer- their original country. Without regional card & cheques ica’s aid agency. And the cash crunch hits support, foreign powers such as the Euro- 20 rural areas particularly hard. “I am getting pean Union are unable to do much. They nothing out of farming,” says a 43-year-old have already played their strongest card by 0 tobacco farmer who gives his name as cutting most aid. 2016 2017 Cloud. He must travel almost 50km from Democracy is struggling in other parts Source: Reserve Bank of Zimbabwe his home to buy anything with the elec- of the region, too. In Congo Joseph Kabila tronic money in which he is paid. will probably stand as his party’s candi- was simple: everyone used the American Mr Mnangagwa’s best hope is that after date in presidential elections this year, de- dollar, introduced in 2009 after hyperinfla- he wins the elections he can persuade in- spite having finished his second and sup- tion destroyed the Zimbabwean version. ternational lenders, such as the IMF, to re- posedly final term in 2016. In Rwanda Mr Since then, however, banks have run out of new Zimbabwe’s lines of credit, which Kagame was re-elected last year after real dollars because the cash-strapped and were cut under Mr Mugabe. Foreign inves- changing the constitution to let him stay in unscrupulous government grabs them in tors could also bring in more hard curren- power until 2034. In Uganda Yoweri Muse- exchange for all-but-worthless IOUs. Zim- cy: Zimbabwe has plenty ofgold and plati- veni, who has run the place for 31 years, babwe is becoming the world’s first cash- num, much ofwhich isn’t being exploited. first abolished term limits in 2005; last less economy,but not in a good way. ATMs But much more will have to change be- year, the 73-year-old also abolished a presi- are empty.Banks allow customers to with- fore Zimbabwe can really be called open dential age limit of 75. That will allow him draw just $20 a day, not in real dollars but for business. Under Mr Mugabe, legions of to run fora sixth presidential term in 2021. in local bond notes. Long queues form ruling-party loyalists were hired as civil The erosion of term limits bodes ill. each morning. Most people rely on elec- servants and endless irksome rules were Where they have been observed, they are tronic bank transfers or mobile money to written so they could demand bribes not generally associated with a sharp decline pay their bills, usually at a hefty premium. to enforce them. As formal businesses in armed conflict, according to the Africa All this loopiness was originally the have shut or gone underground, tax collec- Centre for Strategic Studies, a think-tank in fault ofZimbabwe’s formerpresident, Rob- tion has plummeted. Zimbabweans have Washington funded by the American gov- ert Mugabe, who was ousted in a coup last moved from offices and factories into in- ernment. Where they are ditched, the op- yearafter37 yearsin power. Can hissucces- formal jobs such as hustling. Roads have posite may prove to be the case. Presidents sor, Emmerson Mnangagwa, restore san- crumbled and many of the best-educated should be temporary,not eternal. 7 ity? It will not be easy.The fiscal deficit was workers have emigrated. Ms Magaya tenta- a daunting11% of GDP in 2017. Unpaid doc- tively predicts that things will get better. tors and teachers are striking. Businesses But she worries that “it will take as long to Zimbabwe are folding like useless banknotes. Elec- fix the country as it took to destroy it.” In tions are due by August. The ruling party is the meantime, she is hoping perhaps to In a while, itching to splurge cash on pre-ballot hand- move to South Africa. 7 outs and, perhaps, voter intimidation. Crocodile Mr Mnangagwa has spent the past few months jetting around the world, usually wearing a Zimbabwean-flag scarf over his HARARE suit, tryingto raise money.So often does he say“Zimbabwe isopen forbusiness” thatit Fixing the economy will not be easy has become a meme. Though he claims to NTIL recently Priscilla Magaya was an have secured some $11bn of promises of Uadministrator in a printing firm in Ha- foreign direct investment, many doubt that rare, Zimbabwe’s sunny capital. Today she it will amount to much. Since the coup spends her days on the side of a street, “things have actually got worse,” says Ten- clutching a thick bundle of different bank- dai Biti, an opposition activist and former notes. A few weeks ago, after two years of finance ministerwho served in the govern- not paying her wages, her employer went ment of national unity after disputed elec- bust. Ms Magaya turned to money trading, tions in 2009. Prices have gone up as real swappingreal American dollars forZimba- dollars have become even more scarce. bwe’s confusing profusion of local paper. Zimbabwe used to rely on farming (es- For $100 in actual greenbacks, buyers get pecially tobacco) for foreign exchange. Mr $120 in bright green “bond notes”—a Zim- Mugabe wrecked the country’s largest ex- babweancurrencyintroducedin2016that port industry by grabbing land from white is meant to be pegged to the dollar—or $140 farmers and handing it to cronies who of- in mobile money,which isalso meantto be ten knew little about farming. As agricul- on a par with real dollars. Her earnings are tural output collapsed and jobs disap- “not something that I can survive on”, she peared, the economy nosedived. Monthly says, but she has no other option. inflation hit80,000,000,000%, byone esti- Two years ago money in Zimbabwe mate. Worthless $100trn notes from that Green, but not backed The Economist May 19th 2018 Middle East and Africa 41

Zimbabwe Flights of fancy

Where one state airline is not enough AVINGone loss-making state- Howned airline is bad enough. What, then, ofa government that wants two? Earlier this year Zimbabweans were startled to learn that the government had concluded a secret $70m deal to buy four second-hand Boeing jets from Malaysia to form the core ofa new national air- line, Zimbabwe Airways. This venture is supposed to compete with Air Zimba- bwe, the flag carrier, which ran up huge debts thanks to poor management and ex-President Robert Mugabe’s habit of Gulf politics commandeering its planes so his wife could shop abroad. Milk sheikhs The government hopes to stimulate tourism and business by reopening long-haul routes that are closed to Air Zimbabwe, whose planes can be im- pounded as soon as they land on foreign AL KHOR runways. It suspended flights to Lon- Why Qataris raising cows in the desert don’s Gatwickairport in 2011, forin- stance, after one ofits planes was seized TEP inside, and it could be a scene from state-of-the-art facility has become an un- over an unpaid debt. It has since been Sthe English countryside or the Ameri- likely attraction for Qatar’s 2.6m citizens banned from European skies because of can heartland: one hundred well-fed dairy and foreign workers. They dine in its res- concerns over the safety ofits creaking cows spinning slowly on a circular milking taurant or bring their children to picnic in planes. parlour. But outside there are no green an adjacent park. A share listing is planned Critics questioned the secrecy and fields, only sand. Baladna (“Our Country”) for later this year, which could see Baladna the price paid forthe new planes. The is a dairy farm in the desert, 50km from valued at up to 2bn rials ($550m). government had claimed formonths Doha, the Qatari capital. Behind the milk- As the blockade nears its first anniver- that the new airline was a private initia- ing house is the din of construction. Hun- sary, there is talk of a thaw. The Saudis tive, funded by Zimbabwean investors dreds of labourers are working to expand thought Mike Pompeo, America’s hawkish living abroad. Joram Gumbo, the tran- the farm, building new barns and install- new secretary of state, would take their sport minister, told local newspapers it ing fansand misters to cool them. “None of side. But on his inaugural foreign trip to Ri- had been necessary to lie because “if this was here a year ago,” says John Dore, yadh he bluntly told the king to lift the em- they had been exposed as government the Irishman who manages the place. bargo. “We’re fed up with it,” says an ofZimbabwe planes, they would have There was no need forit. Until June Qa- American diplomat in one of the four been taken by the creditors who were tar imported milk from Almarai, a Saudi blockading states. “The Qataris aren’t per- claiming formoney.” He also revealed conglomerate. Then Saudi Arabia and fect, but none ofour [Gulf] allies is.” that “the man in charge ofZimbabwe three otherArab states closed theirborders This is just talk. America may be exas- Airways” is Mr Mugabe’s son-in-law. to punish Qatar for supporting Islamist perated, but it will not force the Saudis to Officials see the new airline as a groups and Al Jazeera, a state-owned end the blockade. And Qatar has learned panacea forthe economy. That seems broadcasterthat criticisesall the Gulf mon- to live with it. Although it burned through unlikely. It will be pitted against rivals archies except Qatar’s. Overnight the $40bn when the embargo began, the econ- offeringreliable connecting services via world’s richest country (measured by in- omy has stabilised. The spat has made Qa- their hubs in South Africa, Kenya, Ethio- come per head at purchasing-power pari- tari firms more creative. Architects say the pia and the United Arab Emirates. Air- ty) was cut offfrom its food supplies. It first cement they now import from Asia is lines based in those countries have the turned to Turkey and Iran. Shoppers got a cheaper and better than the old stuff from upper hand on numerous fronts, among crash course in Turkish: placards in the Saudi Arabia or the United Arab Emirates. them economies ofscale, networksyn- dairy aisle of supermarkets explained that The Saudis are determined to isolate ergies and more frequent flights. Zimba- “süt” meant milk. theirneighbour. Some wantto do so literal- bwe Airways will have only one ad- Now shoppers just look for Baladna’s ly, by turning Qatar into an island. In April vantage: the ability to fly between ubiquitous logo. The farm, founded in 2013 Saudi newspapers announced a plan to Harare, the capital, and destinations in to rear sheep, airlifted 3,400 Holsteins to dig a 650-foot-wide canal on the border, so Europe and Asia without boring stop- Doha lastyear. Thousandsmore arrived by that Qatar is surrounded by water. To an- overs. Yet there is probably not nearly boat in February. Within months the farm noy the Qataris even more, the Saudis enough direct traffic to fill its planes. will have 14,000 cows—and Qatar will be would also turn part of the frontier into a That Zimbabwe hopes to subsidise self-sufficient in dairy products. A litre of nuclear-waste dump. All this would cost not one, but two airlines ought to raise a Baladna milk costs slightly less than eight $750m—a steep price just to spite a neigh- red flag forinternational lenders who are rial ($2.20), comparable to what was once bour. The scheme sounds far-fetched. But being asked to write offits debts. paid for Almarai milk. It also sells cheese, then again, so did airlifting thousands of yogurt and laban, a fermented drink. The dairy cows to the Arabian desert. 7 42 Middle East and Africa The Economist May 19th 2018

Iran’s stricken economy and Brussels his ideas for dodging Ameri- of irregularities need resolving before re- can curbs. They include creating a bank sults are final. Parliament then has to elect A system in shock trading only in euros, and depositing Iran’s a president, who must ask the largest bloc oil takings in Europe’s central banks. But to form a government. Then the real jos- getting Europeans to forfeit American mar- tling forposts begins. kets will be hard. Mr Sadr, who cannot become prime Meanwhile, hardliners have Mr Rou- minister because he did not run himself, is hani in their sights. They say his deal gave in a strong position to be kingmaker. Al- With fearand opportunism, Iran braces up a lot for little reward. With their grip on though his most ardent supporters are Shi- foreconomic warwith America the judiciary, the security forces and some as in the shantytowns ofBaghdad and Bas- EHRAN’S grand bazaar, a weathervane state concerns, they are squeezing him. ra, he won by broadening his appeal. He Tof politics, is on strike again. Shut- They have chased an adviser of his back to joined up with communist and secular downs there foreshadowed Iran’s1979 rev- London and arrested many dual nationals. parties, wooed Sunnis by praying in their olution. In 2012 they pushed the govern- Some see in sanctions a chance to resume mosques and published a plan for recon- mentinto talksthateventuallyresulted in a smuggling. If regime change comes, it ciliation between Islam’s sects. Last year deal, signed in 2015, that restricted Iran’s could consist of a coup mounted by these he went to Saudi Arabia to meet Muham- nuclear efforts in exchange for sanctions darkand well-connected characters. 7 mad bin Salman, the Sunni kingdom’s relief. And Donald Trump’s pull-out from powerful crown prince. that deal on May 8th drew an instant reac- His bloc would need to form an inclu- tion from traders, who sense something sive coalition if it is to govern. In a post- ominous. “Tehran feels like it did be- election tweet, Mr Sadr named Kurdish, fore...1979,” says Pejman Abdolmoham- Sunni and Shia parties as potential allies. madi, an Iranian lecturer at the London But he left two staunchly Shia parties with School ofEconomics. strong ties to Iran off his list: the Badr Bri- Iran’s business world was already gades, which represents a coalition of Shia glum. America’s continued curbs on dollar militias, and Dawa, a Shia Islamist party transactions had muted the effect of the led by Nuri al-Maliki, a former prime min- lifting of global sanctions in January 2016. ister. They could yet spoil his chances. But now, merchants say, America is mov- Mr Amari may have failed to do as well ing from containing the regime to trying to in Iraq as his Iranian-backed counterpart, change it. Mr Trump has told firms world- Hassan Nasrallah, the leader of Hizbullah, wide that they have three to six months to did in Lebanon’srecentelection. Buthe still cut ties with Iran or face sanctions, too. Oil wields a lot of clout. His Badr forces domi- exports, which rose as a result of the deal, nate the interior ministry and fill the ranks are already falling. Maersk, the world’s of the federal police. He is close to senior largestshippingline, no longertakes orders Iranians, who have in the past worked be- for Iranian oil. South Korea has cut oil im- hind the scenes to cobble together a gov- ports from Iran by 40%. Iraq’s election ernment. And he has hedged his bets by President Hassan Rouhani, who struck meeting regularly with the American am- the nuclear deal, is struggling. His officials Sadr’s success bassador in Iraq. have shut currency exchanges, chased Mr Amari’s natural ally is Mr Maliki, money-changers off the streets and fixed whose “State of Law” faction inside Dawa the exchange rate. But most of the foreign fared poorly, winning 25 seats. But Mr Ma- reserves needed to calm the market are liki has influence over Mr Abadi, another abroad, and America is making it hard to Dawa stalwart. There are differences. Mr A populist clerichas won in Iraq, but repatriate them. On May 15th America’s Abadi does not share Mr Maliki’s Shia voters may not get the change they want Treasury called the governor of Iran’s cen- chauvinism and has canvassed Sunni and tral bank a financer of terrorism. The Paris- UQTADA AL-SADR is a master at tap- Kurdish votes. Remarkably for a Shia, Mr based Financial Action Task Force reports Mping Iraqi discontent. The firebrand Abadi’s list won Mosul, the Sunni strong- soon on whether Iran’s banks heed anti- Shia cleric (pictured) directed his suppor- hold once controlled by Islamic State (IS). terror and money-laundering rules. This ters to attack the American troops who in- All this means that Mr Abadi may “could knockIran offthe financial system”, vaded Iraq in 2003. More recently he has emerge as a swing player. By joining says a diplomat. led campaigns against corruption and for- Messrs Amari and Maliki, he could restore Middle-class Iranians are sullenly can- eign influence. His supporters ransacked the dominance ofthe fractured Shia house. celling foreign trips. But they always dis- governmentofficesin 2016. And in the elec- However, if he teamed up with Mr Sadr’s liked the regime; worse forthe clerics is the tion on May 12th they gave his nationalist Sairoun, he could putthe countryon a path loss of their base. In December the urban bloc, Sairoun (“Marching to Reform”), the towards less sectarian politics. Both camps poor in the provinces took to the streets, most seats in parliament. Unofficial results suggest they may back Mr Abadi’s bid for a denouncing theocracy. Despite efforts to put it unexpectedly ahead, with 55 seats. second term. quell it, industrial action rages on. Mer- The bloc led by Iraq’s mild-mannered In contrast to previous ballots, the elec- chants in other bazaars have also gone on prime minister, Haider al-Abadi, came sec- tion passed off without serious violence. strike, as have some teachers. Officials ond, with 51. A coalition led by Hadi al- For the first time since Iraq’s transition to have blocked Telegram, a popular social- Amari, the gruff commander of the Irani- parliamentary democracy in 2005, Sunnis media app. Young Iranians are furious. an-backed Badr Brigades, came third, with voted in large numbers for Shias. Party The regime is resilient, some say. Its 50. The surprising result signals growing leaders of all hues curbed their sectarian economy is the world’s 27th largest. It discontent with Iraq’s sectarian old guard. barbs. But Iraqis are disenchanted. Only pumps 3.8m barrels a day of oil, and it is But it is unlikely to sweep it away. 44% voted, down from 62% in 2014. Their good at smuggling. Muhammad Javad Za- It may yet take months to determine patience will be tested if their votes only rif, the foreign minister, hastaken to Beijing who has actually won the election. Claims perpetuate dysfunctional, corrupt rule. 7 SPECIAL REPORT CHINA IN THE WORLD May 19th 2018

Opening the gates SUPPORTED BY

Sea. Hear. Act.

To watch this film please scan the QR code using the camera on your Apple iOS 11 or Android 8.0 device and tap the link

WATCH: woi.economist.com/protectors-theunknown SPECIAL REPORT CHINA IN THE WORLD

Opening the gates

China’s decision to let its people travel abroad freely is changing the world. James Miles argues that it is changing China, too “THIS COMRADE IS politically reliable and has no criminal record.” Ap- CONTENTS plicants for a Chinese passport once anxiously awaited these words. Scrawled on a form by a bureaucrat, they meant an end in sight to weeks 5 Tourism ACKNOWLEDGMENTS or months of torment that involved queuing through the night, being Cash or WeChat? sent from pillar to post in pursuit of documents, having your loyalty to 6 Studying abroad In addition to those quoted in the the Communist Party checked, being grilled about your purpose and report, many others provided A formative experience valuable guidance and insights for sources of funding, and having to slip cigarettes to sullen officials. Not which the author is very grateful. many people got to see those precious words, or the fourChinese charac- 7 The rich and powerful They include: Michael Akuupa, Bob ters that followed them: tongyi chuguo (permitted to go abroad). Citizens of the world Birrell, Kerry Brown, Bob Carr, Chen Aspiring travellers in Communist-ruled China had to run this Kaf- Linghong, Chen Yonglin, Chin Jin, 8 Workers and merchants kaesque obstacle course until the early1990s. But in the past quarter-cen- Fan Huang, Allan Fels, Feng Chongyi, A long way from home Doug Ferguson, John Fitzgerald, tury a country once almost as paranoid as North Korea about keeping its Thomas Gold, John Grobler, Simone people within its borders has dramatically changed course. Whereas for 9 Long-term migration Guercini, Alexander Huang, Xiaoyi much of the 1980s the number of trips abroad taken by Chinese citizens Tuscan whine Huang, Alex Joske, Rich Klein, was in the tens of thousands a year, the current figure is well over 130m. James Laurenceson, Larry Li, Li 10 Returnees The reasons for travelling range from tourism and study to business and Zheng, Rebecca Liao, Louisa Lim, Turtles and seagulls Sean Lo, Lu Yiying, Arting Luo, Evan migration. By 2020 the total could reach 200m a year, officials estimate— Medeiros, Paul Medley, Angus the equivalent ofnearly one in seven ofthe country’s population. 11 Past and future Middleton, Jules Nadeau, Ronelle Much has been written about how China’s rise as a global eco- Rademeyer, David Rank, Richard The next sunrise Rigby, Orville Schell, David Sham- nomic, political and military power is changing the world. This special baugh, Xuhui Shao, James Shen, report is about another side to the story: the extraordinary number and Steven Shen, Shiao Jing, Shiao variety of Chinese people who are going abroad—and then mostly re- Ming, Wang Jinlin, Ling-Chi Wang, turning. It will examine the effect ofthis unprecedented flow on the trav- Jeffrey Wasserstrom, Yao Xiao, Yang Yang, Yidi Wu, Sue Xu, Xu Xiaoping, ellers themselves, on their host societies and ultimately on China itself. Zeng Shiran, Zhang Dabao, Alex Since the 1980s people have been moving around the globe in ever- Zhang, Raymond Zhang, Suzie growingnumbers. The reasonshave ranged from the collapse of commu- Zheng, Ray Zhou, Zhou Xueguang, nism in the Soviet Union and eastern Europe and the opening of borders Zhu Yuanyuan and others who asked to remain anonymous or whose in the European Union to the growth of middle classes across the devel- anonymity is best preserved. oping world and the flight of millions from conflict and poverty. But Chi- 1

The Economist May 19th 2018 3 SPECIAL REPORT CHINA IN THE WORLD

2 na’s contribution to this mass movement has eclipsed all others. The third gamble was to open the country’s gates and allow Its people are making a striking difference the world over. people to leave. The exodus started haltingly but steadily gath- On university campuses in Sydney Chinese students fill lecture ered pace. Since 2007 the number of visits abroad made by Chi- halls and research labs. In California’s Silicon Valley Chinese sci- nese people has more than tripled. To cash in on China’s tourism entists make up a big share of tech firms’ brainpower. In the me- boom, many countries have greatly eased their visa require- dieval Italian city of Prato thousands of Chinese toil in clothing ments. Some have also opened their doors to rich Chinese mi- factories. In small towns in Namibia Chinese traders peddle grants by giving them permanent residency, at a price. cheap wares. Big-spending tourists from China snap up luxury brands in Mayfairin London and the Champs Elysées in Paris. Bonanza or excess? Forty years ago, when DengXiaoping“unfastened the great For many people in host countries, the growing presence of gate of reform and opening”, as officials often put it, it was far Chinese people is a bonanza. But it is also fuelling resentment, from clear that this would ever happen. Deng’s idea of opening sometimes tinged with racism. Residents of Australian cities fret was warily to admit some foreign tourists and businesspeople about soaring property prices, which they attribute to Chinese and, on an even tighterrein, journalists. He saw this relaxation as demand. In parts of Africa people grumble about competition an economic and diplomatic necessity. Amore normal relation- from Chinese shopkeepers or construction firms. Italians sound ship with the West, including visits by Westerners, was an essen- offabouta perceived threatto theirtextile industry from Chinese tial salve forChina’s Mao-battered economy. migrants, many ofthem illegal. Deng also saw some benefit in sending more Chinese stu- Political and security fears come into the picture, too. dents to universities abroad to acquire technical know-how at Across the West concerns are growing that universities rely too state expense, but he never envisaged an outflow on the scale heavily on fee income from Chinese students, exposing the insti- seen since. “There are those who say we should not open our tutions concerned to the risk of espionage in high-tech labs and windows, because open windows let in flies and other insects,” ideological interference by the Chinese state. In February the di- Deng reportedly said in 1985. “But we say, ‘Open the windows, rector of America’s FBI, Christopher Wray, called China “not just breathe the fresh air and at the same time fight the flies’.” As it a whole-of-government threat but a whole-of-society threat”. turned out, swatting insects tookup a lot ofhis time. Noting the activities of what he called China’s intelligence “col- Fortunately for China, the Communist Party was some- lectors”, he said that “it’s not just in major cities; it’s in small ones times prepared to take risks. This was evident in three main ar- as well. It’s across basically every discipline.” Some govern- eas. The first was reforming the economy. In the 1990s leaders ig- ments worry that having millions of its citizens abroad will en- nored the complaints of conservatives and pushed ahead with courage China to boost its military power. the closure or sale of tens of thousands of state-owned enter- Western politicians might show more enthusiasm about prises. With the rapid growth of private business, the shift of this wave of Chinese visitors if they thought that the travellers, many state employees into these new jobs and the migration of once returned home, would transform theircountry with liberal tens of millions of people to find work in cities, the party lost ideas they had picked up abroad. But evidence ofthis is scant. As much of its once all-controlling network of workplace cells (it is Xi Jinping, China’s leader, clamps down ever harder on civil lib- still struggling to build a new one). But the reforms helped to cat- erties, flexeshismusclesin the South China Sea and squeezes for- apult China into the ranks ofglobal economic powers. eign firms forintellectual property, a more global China does not The second big riskwas taken by Deng’s successor, Jiang Ze- seem to be getting any easier forthe West to deal with. And forits min: embracing the internet. Mr Jiang may not have realised in people, familiarity with Western ways appears to be breeding the 1990s how much this new technology would change the mainly contempt. world (who did?). But it was still a gamble fora party that was de- Yet this report will argue that it is far too early to assess the termined to control the spread of information. And it paid off: full impact on China of this large-scale movement of people. It China became a global leader in information technology, and will lookat the tens ofmillions ofChinese tourists who are flock- the party remained in power. ing to Western countries every year and sending back images and accounts of their impressions to countless millions back home; the hun- dreds of thousands of students who head The hotspots annually to Western universities for their Chinese direct investment China, net outward direct- first taste of intellectual freedom; the tens investment flow, 2016, $bn -1 0124816 No data and emigrants of thousands who head abroad to eke a living in factories, shops and restaurants (and dream of making a fortune); and the hundreds of thousands of wealthy Chi- Japan nese who shuttle between two rich South Korea worlds—the affluent suburbs of Western cities, where they snap up expensive Hong Kong properties, and the boomtowns of China, where they fill boardrooms. Travellers returning from abroad, and the ideas they bring with them, have played a crucial role in the country’stortu- 2.5 ous history, especially since the 19th cen- 1.0 tury. The recentflowhasbeen greater than 0.5 Chinese citizens permanently anything seen before. In the long run, resident outside mainland China* 0.1 Deng may turn out to have been right to 2017, m Sources: CEIC; United Nations *Excluding undocumented emigrants worry about political flies. 7

4 The Economist May 19th 2018 SPECIAL REPORT CHINA IN THE WORLD

According to Global Blue, a tax-free-shopping firm, Chinese visitorsboughtmore than one-quarterofall the tax-free products sold in Britain last year. Their spending was up by nearly one- third on the year before. To make life easier forthem, Bicester Vil- lage has recently introduced facilities to pay through WeChat, a Chinese social-media and payments platform. Chinese travel- lers abroad often grumble about other countries’ backwardness in electronic payments. Their own big cities are almost cashless. Life’s big luxuries Economically, there is no doubt that the surgingnumbers of Chinese travellers abroad are changing the world. Most conspic- uously, they are becoming the main props of luxury brands. McKinsey, a consultancy, says Chinese people account for one- third of global spending on luxury goods. Between 2008 and 2016 they were responsible for three-quarters of the growth in such spending, the firm reckons. Much of this is done outside China, where prices are often lower than at home, but McKinsey says that even when prices are similar, nearly a third of Chinese shoppers still preferto buy luxury items abroad. According to the UN’s World Tourism Organisation, in 2016 they spent a total of more than $260bn, more than double the amount forked out by Americans abroad and about one-fifth of all global spending by international tourists. Only a decade earlier Chinese tourist spending had accounted fora mere 3% ofthe world’s total. The spending numbers for recent years should be treated Tourism with caution. Gavekal Dragonomics, a research company, says official figures may be misleading because they include people Cash or WeChat? who are not strictly tourists. It reckons that spending by recre- ational travellers alone in 2015 may have been less than $175bn, about 30% lower than the official figure forspending by all kinds oftravellers abroad. But even if many of the Chinese visitors are not really tour- Chinese travellers have become a mainstay of the ists, they are certainly spending. And they are increasingly inter- world’s tourist industry ested in buying not just goods but luxury experiences or costly adventures off the beaten track. The number of Chinese tourists IT IS SAID to be the second-most-popular destination for visiting Antarctica, for example, is now second only to those Chinese visitors to Britain after Buckingham Palace, yet Liu from America. There were more than 5,100 of them in the tour Xiaoming, China’s ambassador to the country since 2009, jokes season of2016-17, up from just over1,000 in 2011-12. that he has refused invitations to take part in tree-planting cere- And this is just the beginning. Less than 10% ofChinese cur- monies there. The attraction is Bicester, a town in Oxfordshire of rently hold passports, compared with more than 40% of Ameri- little note for tourists except for its shopping centre, called Bices- cans in 2017. By the end of this decade the number of passport- ter Village (pictured). It is a kilometre-long strip of more than 160 holders in China is expected to double to 240m, predicts Ctrip, a clapboard outlets selling luxury brands at a discount: Boss, Chinese travel company. Gucci, Salvatore Ferragamo, Versace and many more. For all its ratcheting up of political controls at home, the Mr Liu’s excuse for not visiting Bicester, as he informed a Communist Party does not seem concerned about the effect of think-tank audience in 2011, is that “China is a developing coun- exposing so many ofits people to freer societies abroad. Officials 1 try” and it would not be right for him as its ambassador to pro- mote the shopping mecca. Still, last year the outlets received some 6.6m visitors, about the same as the British Museum, of whom about half were foreigners. Half of those were from Chi- Let them go na—including diplomats, in their unofficial capacity. Without Outbound tourism spending, $bn China, Bicester would not be what it is today. As trains approach 300 Bicester Village station, passengers are alerted in Mandarin. i A middle-aged Chinese bureaucrat on a week-long trip to Ch na 250 Britain shows offseveral bags filled with shirts from Charles Tyr- whitt and a jacket from Burberry. He says he has spent more than 200 £1,000 ($1,400). Another Chinese visitor, a retired professor of 150 art, has splashed out over £200 on T-shirts from Boss. A woman United States from the central Chinese province of Hunan shows a couple of 100 bottles of Estée Lauder skincare lotion that she picked up for Britain 50 £190—one for herself, another for a friend. They all say the goods Canada they have bought are much cheaper than they would be in Chi- South Korea 0 na, helped by a weak pound and rebates of value-added tax for 1995 2000 05 10 15 16 foreign visitors. Source: UNWTO

The Economist May 19th 2018 5 SPECIAL REPORT CHINA IN THE WORLD

2 may calculate that Chinese rich enough to travel abroad are un- year there were nearly 2,300 of them, more than six times as likely to be impressed by the achievements of democratic sys- many as in 2007. They accounted forwell overone in three ofthe tems. Infrastructure in many Western countries is often shabbier total number of foreign students, up from less than one in seven than in China, homeless people abound in big cities and crime is a decade earlier. About one in 11 new students at the University a constant risk. “I went to New York and I thought, this isn’t as of California’s campuses is now from China, and that does not good as Shanghai,” says a Chinese businessman. include those born in China but permanently resident in Ameri- China’sone bigworryaboutthe surge ofoutbound travel is ca when they applied. that it could damage its image. Holiday destinations hear plenty of complaints about the noisiness of Chinese tourists and their Soft power personified disregard of local customs. In Hong Kong, locals staged several On the face ofit, this should be a windfall forAmerican soft protests against tourists from the Chinese mainland in 2014 and power. Well over 300,000 ofthe brightest young minds in China 2015. Partlyin response, the numberofmainland visitors to Hong are spending a good proportion of their formative years enjoy- Kongplummeted. Officials often hand out leaflets at airports tell- ing the freedom of campus life in America, with ready access to ing travellers how to behave in other countries. all the information that censors once denied them. Anotherfast-growinggroup ofChinese visitors abroad, stu- American optimism about the power ofeducation to make dents, are more alert to the social and political environment they foreign students more like Americans has a long history. “I can find themselves in—but that does not necessarily make them ap- think of no more valuable asset to our country than the friend- preciate liberal democracy. 7 ship offuture world leaders who have been educated here,” said Colin Powell, America’s then secretary of state, in 2001. Yet American officials and scholars find it hard to demonstrate any Studying abroad clear diplomatic benefits from having educated some 2m Chi- nese in America since the late 1970s. Among them have been children of several Chinese leaders of the reform-and-opening A formative experience period: Deng’s son Deng Zhifang, Jiang Zemin’s son Jiang Mian- heng, Hu Jintao’s daughter Hu Haiqing (by some accounts) and Xi Jinping’s daughter Xi Mingze (who graduated from Harvard in 2014). Even so, in the past decade relations between China and Chinese students flock to the West, but many are America have become ever more distant and strained. unconvinced by what they find Students who went to America in the 1980s did show pro- mising signs of enthusiasm for Western democracy. After the IN MANY WAYS Zhang Dayin, a 30-year-old doctoral stu- suppression of student-led unrest in 1986, more than 1,000 of dent of finance at the University of California, Berkeley, is them wrote a letter of protest against their government. In 1989, living the American dream. He grew up in a small town in the after the crushing of far more widespread pro-democracy de- eastern Chinese province of Jiangsu, the son of a disabled seller monstrations, they marched on American streets to vent their of lottery tickets. A decade ago he became the first person in his anger at the bloodshed. Most tookup an offerofpermanent resi- family to go to university—Renmin University in Beijing, one of dency made by the American government to Chinese studying the country’s best. The capital’s affluence impressed him. there at the time. And most reckoned that China was backward Five years later, having embarked on a master’s degree in and repressive, whereas America was rich and free. Beijing, he got another break: a chance to study for a spell at China’s economic take-off in the 1990s, however, began to Berkeley. “It was a dream for every kid,” he says. “Youhave to go change those views. Students arriving in America since then to America.” He toured the icons of American culture: Holly- have voiced mixed feelings about democracy and free markets, wood, Wall Street, the statue ofAbraham Lincoln in Washington, and how useful they might be for China. At Berkeley, Mr Zhang DC. He liked it all so much that he decided to apply to do a PhD at has his doubts. “The whole world is getting confused,” he says, Berkeley, where he has been since 2014. sitting in a coffee shop in nearby San Francisco. “Which system is MrZhangis one ofmore than 5.2m Chinese who have gone good, which system is bad? There’s a lot of criticism of democra- abroad to study since Deng Xiaoping launched his “reform and cy in America and Britain. China is doing really well.” opening” policy in 1978. The numbers are surging. In 2017 more Mr Zhang sees much to like: America’s tolerance, its respect 1 than 600,000 Chinese headed abroad to university, four times the figure a decade earlier, bringing the number studying at that level outside China to nearly1.5m. The main destinationsare English-speakingcountries, with Learning curve America way ahead. Between 2006 and 2016 the number ofChi- Chinese students abroad nese students at universities there increased fivefold, to more Total number In tertiary education, by host country than 320,000. They make up nearly one-third offoreign students ’000 ’000 at the country’s universities. And they contribute more than 600 400 $12bn annually to its economy, according to America’s Depart- United States 500 ment ofCommerce. Australia 300 The demand in China for education in the West, and the 400 Britain Japan ease with which wealthier Chinese can secure it, has been a 300 200 boon for many educational establishments. In America, cuts in Canada 200 South Korea state-government support have made public universities in- 100 creasingly reliant on foreign students who pay the full fee. At 100 Berkeley that is more than $45,000 a year for undergraduates. 0 0 The number ofChinese students enrolling at Berkeley, as at 1978 90 2000 10 17 1998 2005 10 15 17 many other American universities, has climbed steeply. Last Sources: Ministry of Education, China; UIS; IIE; HESA; Australian Trade and Investment Commission

6 The Economist May 19th 2018 SPECIAL REPORT CHINA IN THE WORLD

2 fordisabled people like hisfather. Buthe tellsrelatives thatAmer- ica is no paradise. “China is a big country and has so many peo- ple. I know that if it doesn’t have a strong government it’s very hard to control,” he says. “Probably our party is right forChina.” The nationalism displayed by Chinese students abroad— sometimes in the form of unquestioning support for their gov- ernment’s policies—has been causing disquiet in the West, on two main counts. The first is that students’ objections to views at variance with the Communist Party’s might stifle academic de- bate. The other is that the party might attempt to tap into this na- tionalism through Chinese student organisations and mobilise such groups to protest against activities that the party dislikes. Several incidents in the past year support such concerns. In 2017 the Chinese Studentsand ScholarsAssociation (CSSA) atthe University ofCalifornia, San Diego, protested against the univer- sity’s decision to invite the Dalai Lama to the campus to speak at a graduation ceremony. At the University of Maryland, the CSSA posted a YouTube video denouncinga Chinese student who had The rich and powerful praised America’s “fresh air” and “freedom” in a graduation speech (and criticised the lack of both in China). In Australia, Citizens of the world four cases of students criticising their teachers for appearing to slight Chinese people caused a political storm about the spread of Chinese political influence. At Durham University in England some Chinese students, and the Chinese embassy, protested against a debate titled “This House sees China as a threat to the West”, and the participation ofa supporter ofFalun Gong, a Chi- Wealthy Chinese increasingly choose to live abroad nese sectthatwasoutlawed bythe partynearlytwo decades ago. But most Chinese students are not flag-wavers for the A STRAIGHT TRACK through a wood, and a guard hut at party’s cause. Many say they have little if any contact with their the end ofit, is all there is to “China City ofAmerica”. A sign CSSA branches, and bridle at the suggestion that they might take on a flimsy barrier says, “Do not enter”. It is hard to imagine that political direction from them. Most show pride in China’s eco- if the developer, a Chinese emigrée, has her way, this rural nook nomic growth, but some also express doubts about the way the in the Catskill Mountains ofupstate New Yorkmight one day be- party rules. Examples include its tight controls over the internet come a sprawling complex of residential properties, China- and Mr Xi’s recent scrapping of the two-term limit for the presi- themed entertainments, a casino, shops, restaurants, offices, an dency. According to the New York Times, Chinese students at sev- exhibition hall and educational facilities covering hundreds of eral university campuses in America put up posters protesting acres. That, at any rate, was Sherry Li’s original plan, unveiled in against Mr Xi’s decision. 2013. Her aim was to attract1.5m visitors annually to a “Chinese- concept Disney” that would transform the struggling economy Fifty shades of nationalism of this sleepy area about two hours’ drive north-west of New Moreover, the apparent nationalism of Chinese students Yo rk Ci t y. may be less strong than many suppose. In a paper last year, Alas- Crucially, it would also attract Chinese investors. The pro- tair Iain Johnson of Harvard University said polling data from ject, Ms Li hoped, would be approved under the American gov- Beijing showed a decline in nationalism since about 2009. He ernment’s “EB-5” scheme, which offers permanent residency in also concluded that younger respondents were less nationalistic the United States to foreigners who put at least $500,000 into ru- than older ones. ral projects that create at least ten American jobs; or who invest Fran Martin ofthe University ofMelbourne has been track- $1m into other developments. In effect, this means you can buy ing the responses of about 50 female Chinese students to their the right to live in America. The greatest demand is from China. experiences in Australia since 2015. She is scornful of the idea About 75% ofthose who qualify forthe scheme are Chinese. that they are tools oftheir government, and describes their patri- The desolate trackis evidence that Ms Li has made little pro- otism as “ambiguous”. Some ofthe participants in her study told gress with her project. It has encountered stiff resistance from lo- her they became more patriotic after arriving in Australia. But cal environmentalists, who fear it would threaten protected wet- some students she has met also asked her about the unrest in lands. She has scaled backherplans. The current aim is to build a 1989. “They were really receptive to hearing about it,” she says. private college offering vocational courses in subjects including “They were clearly open to thinkingit was wrong” ofthe party to nursing, cooking and business, as well as accommodation for crackdown in the way it did. some 2,500 students and more than 270 staff—still big, but not The very presence of so many Chinese students on West- quite such a potential crowd-puller. The funding plan remains ern campuses demonstrates that their nationalism is complex. the same, however. The Thompson Education Centre, as it is Some are there because theirfamilieshave little faith in the party. known, aims to become an EB-5 project. It is looking for money Growing numbers of wealthy Chinese are anxious to secure a from rich Chinese. foothold abroad and think that sending a child to study there Catering to the visa needs of would-be wealthy émigrés is could help. Areportin 2012 byHurun, a Shanghai-based research big business in China. Several Chinese companies promote Ms firm, said that of 2.7m Chinese citizens who made over $1m a Li’s still non-existent centre on their websites. Remarkably, a flat- year, 85% intended to send their children abroad to be educated. tering article about it is even displayed in Chinese on the govern- The West, for all its failings, is seen as a safe haven both for their ment’s main news portal, China.com.cn. Investors in the money and, ifnecessary, forthemselves. 7 scheme, it gushes, will find emigrating to America “so easy”. 1

The Economist May 19th 2018 7 SPECIAL REPORT CHINA IN THE WORLD

2 Those two words are written in English. Workers and merchants There seems to be plenty of potential demand. America hasan annual quota of10,000 visas forEB-5 investors. In Novem- ber the number of applicants on the waiting list stood at more A long way from home than 30,000, nearly90% ofwhom were from China. Canada had a similar scheme, but scrapped it in 2014 after it became heavily oversubscribed by wealthy Chinese. The American one has come undergrowingscrutinysince itemerged thatNicole Meyer, Growing numbers of Chinese see opportunities in the the sister of President Donald Trump’s influential son-in-law, Ja- developing world red Kushner, had touted her connections with the Trump family when trying to attract investors to an EB-5 project during a trip to ON THE EDGE ofWalvis Bay, a porttown in Namibia sand- China last May. wiched between the Atlantic Ocean and endless sand In 2017 more than 46% of Chinese with fortunes between dunes, the offices-cum-residential-quarters of the China Har- 10m and 200m yuan ($1.3m-26.3m) were thinking of emigrating, bour Engineering Company (CHEC) look like a barracks. Electri- according to a survey by Hurun, the research company in Shang- fied barbed wire tops the surrounding wall. A Chinese manager hai. In a joint survey with Visas Consulting Group, a Canadian explains that “we have military-style management.” firm, more than three-quarters of respondents mentioned their The grim complex, with its rows ofsingle-storey tin-roof ac- children’s education as a reason. Nearly one in six pointed to the commodation blocks, ishome to several hundred Chinese work- political environment in China, and almost one in five said they ers. They are building a new container terminal in Walvis Bay were hoping to protect their assets. and an oil-storage facility just outside the town. They are taken to and from the construction sites in company buses and must ap- The rise of the ethnoburb ply for permission to leave their barracks. “They have very little The insecurity of wealthy Chinese, and their craving for interaction with local society,” says the manager. Western education for their children, is evident in the rapid Across Africa, state-owned companies like CHEC are open- growth ofwhole communities ofthem in the suburbs ofbig Aus- ing up new frontiers in China’s global economic expansion. tralian, American and Canadian cities. Hurstville in Sydney, Box They often recruit local workers. CHEC’s boss, Feng Yuanfei, says Hill in Melbourne and Richmond in San Francisco, as well as about halfthe staffat Walvis Bay are Namibians. Many locals are Richmond in Vancouver, are places for which 20 years ago Wei also employed at the Husab uranium mine, a vast opencast oper- Li, an academicnowatArizona State University, coined the word ation surrounded by desert and scrub about 70km (45 miles) “ethnoburb”: prosperous city districts where recent migrants north-east of Walvis Bay, which at around $5bn is one of China’s from China form a large share ofthe population. biggest investments in Africa. According to UNCTAD, a UN agen- Such places also point to a contradiction in the story ofChi- cy,the amount ofChinese investment in the continent nearly tri- na’s own development. Despite more opportunities at home, pled between 2010 and 2015, to $35bn. McKinsey reckons there growing numbers of those who can afford it seem to want to are thousands of Chinese businesses in Africa employing mil- leave. Even China’s state-owned media admit this. “The passion lions oflocals. shown by China’s super-rich for settling down abroad and ob- But it is the rise in the number of Chinese people in Africa tainingoverseaspassportshasreached a record high,” said China that is striking. Many are temporary resi- Daily, an official English-language newspaper, in 2014. dents employed by state-owned compa- The lecture halls of Australian universities provide more nies, like those workingon the harbour in visible evidence. In subjects that score highly in the Australian Walvis Bay. In recent years their number government’spoints-based system foracquiringpermanent resi- has ranged from 181,000 in 2011 to dency, such as accountancy and information technology, the 264,000 in 2015. Far more numerous are share of students from China is always much larger than in sub- the Chinese who have set offforAfrica to jects that do not. The numberofChinese students in Australia in- set up their own businesses as shopkeep- creased by17% lastyear, to 140,000. Apart from the quality of the ers, restaurateurs and traders. education, and less fierce competition for places than at China’s In his book, “China’s Second Conti- best universities, there is another powerful draw: the relative nent”, Howard French calls this influx ease with which foreigners who have graduated in Australia can “one of the most important and unpre- become resident there. dictable factors in China’s relationship In Sydney, Monika Tu, the founderofBlackDiamondz Prop- with Africa”. Numbers are hard to pin erty Concierge, specialises in selling expensive houses to rich down, but writing in 2014 Mr French esti- Chinese. She says she sees little impact from China’s recent mated that 1m had arrived in just a de- clampdown on the movementofcapital abroad, orfrom the gov- cade. The whole of Namibia has a popu- ernment’s efforts to stop corrupt officials from fleeing the coun- lation ofonlyabout2.5m, scattered across try with their wealth. Growing numbers of her clients are young an area more than twice the size of Ger- Chinese who have made theirfortunesin the country’sbooming many. Mr French thought it might have tech industries. They see bargains to be had in what is often jok- The rise in the highest concentration of Chinese ingly referred to as tu Ao (coarse Australia). Beijing and Shanghai people in any African country. In his are “much more expensive than Sydney”, says Ms Tu. the number book he quoted common estimates of Many poorer Chinese, too, are attracted by life abroad. The of Chinese 40,000, but the number is now likely to country’s economy may be booming, but for people from rural be lower than that. China, settling and prospering in a big Chinese city can often be people in Chinese businesspeople across Na- as hard as going to work in a foreign country, sometimes even Africa is mibia complain ofan economic chill, and harder. Internal migrants in China are often treated as second- some are thinking of leaving. The coun- class citizens. Too tough in Ningbo? Try Namibia. 7 striking try’s economy fell into recession last year. 1

8 The Economist May 19th 2018 SPECIAL REPORT CHINA IN THE WORLD

2 Unemployment is sky-high. Namibia’s own currency has suf- fered from global investors’ jitters about South Africa’s, to which it is pegged. This has made it more expensive forChinese traders to import products from China for sale in Namibia. But many Chinese doggedly carry on. Even remote towns have “China shops”, as locals call them: small stores filled with cheap, basic household goods made in China and run by Chi- nese. Locals may not have much cash to spare, but the prices are low and the shops are popular. The traders often employ locals to deal with customers, but on a recent weekday in Karibib (pop- ulation about 5,000), 190km north-west of the capital, Wind- hoek, the Chinese owners of the town’s two China shops were on duty. Both were young men from the southern Chinese prov- ince of Fujian. Both were despondent. One of them used to do business on the Angolan border and says many ofhis colleagues there have left for other countries. “I hear Zimbabwe is good now,” he says wistfully. But he does not talk about returning to China. Many Chinese traders say their country may be thriving, but the competition there is vicious. Africa still holds promise. Some Namibians wish the Chinese would go home, won- dering how they ever established such a strong foothold in Long-term migration trades that should be dominated by locals. Local media ask why so many Chinese workers have been brought in to work on big Tuscan whine construction projects, and why Chinese companies win so many contracts to build things—including government build- ings. They also point to the harm the incomers cause to wildlife. China has been trying harder recently to help stop the slaughter of elephants in Namibia and elsewhere in Africa. Last year it An influx of Chinese migrants is reshaping an Italian banned the sale of ivory. But although the sale of rhino horn has manufacturing centre long been illegal in China, the poaching of rhinos for sale to Chi- nese gangs continues. THE CITYOFPrato, in the hills ofTuscany, is as Italian as the region’s Chianti. It is also the heart of the fashion industry, Mutual antipathy where fine fabrics are made for brands such as Gucci and Ar- Beneath the surface, racial tensions simmer. “So tired of mani. “Made in Italy” is still a label proudly displayed. But many these foreigners coming to Namibia and ruining our beautiful ofPrato’s factories are now owned, and staffed, by Chinese. country,” wasone ofthe politercommentsbylocalson Facebook Within the 14th-century walls of Prato’s old town, Chinese in response to a report in 2016 in Namib Times, a newspaper tourists take snaps of the Romanesque cathedral and the pictur- based in Walvis Bay, about the arrest of three Chinese people for esque castle ofFrederickII, a 13th-century Holy Roman Emperor. alleged possession oflive pangolins, an endangered species. Last Some Chinese call this “kung-pao-chicken tourism” because the July the paper reported on a protest by local workers who had characters for that globally popular dish, gong bao ji ding, sound failed to get jobs at CHEC’s projects in the area. This started a like syllables in the Chinese words for palace, castle, church and stream ofxenophobic tirades on Facebook. “This is no longerNa- town hall—the staples ofany Chinese visitor’s tour ofEurope. mibia, it’s China,” said one. Via Pistoiese leads north-westwards from an ancient gate Conversely, Chinese people in Namibia often speakdispar- into a different world: the real Prato, a city of textiles, clothing agingly of “blacks” (feizhouren, the Chinese for African, is online and Chinese people of a different kind. Since the 1990s Chinese slang for a loser). The manager of a Chinese-owned factory in have been drawn to Prato not by its medieval architecture but by Walvis Bay is exasperated by endless protests and strikes by his the same forcesthatin the 1960sand 1970sbroughtpoormigrants local workforce. “They are so lazy. You give them more money from southern Italy: demand forlabourin the city’sfactories. Pra- and they still don’t work harder,” he says. “Where in China it to now has one of the biggest concentrations of recent Chinese takes three hours to do a job, here it takes 30.” immigrants in Europe. The official population count in 2017 was The mutual antipathy is not confined to Namibia. As Mr nearly20,700, almostdouble the numbera decade earlier, but es- French observes, grumblings about the Chinese presence in Afri- timates vary widely because many ofthe residents are illegal im- ca are rife amongordinarypeople, even astheirgovernments en- migrants. These days the four most common surnames in Prato courage and support it. Phil ya Nangoloh, the head of Nam- are Chen, Hu, Lin and Wang. Rights, a human-rights group in Windhoek, accuses China of More than 80% of Prato’s Chinese residents come from a “lookingforLebensraum” and practising“neo-colonialism” in Af- single coastal city, Wenzhou, and its rural hinterland—a region rica. He notes rumours that the new harbour at Walvis Bay could with a long history of overseas migration and therefore a global one day become a base for China’s navy. The Chinese, he says, network of kinships to which migrants can turn for support. In- are “operating literally above the law”. deed, Wenzhou and its environs are the source ofthe majority of Similarmutterings about Chinese immigrants can be heard Chinese who have moved to Europe in recent years, write Lo- in Europe. By the European Union’s reckoning, in 2011(when the retta Baldassar, Graeme Johanson, Narelle McAuliffe and Mas- most recent census was conducted) around 820,000 people born simo Bressan in their book, “Chinese Migration to Europe”. in China were living in the EU. That, notes the European Com- Around Via Pistoiese the occasional abandoned building mission’s website, was 40% more than the number of EU resi- that was once an Italian-run factory can still be seen. Some locals dents born in America. 7 have blamed the Chinese forthe demise ofsuch workshops and 1

The Economist May 19th 2018 9 SPECIAL REPORT CHINA IN THE WORLD

2 forpushing Italians out ofwork, especially after the global finan- Returnees cial crisisin 2008. The followingyearthe cityelected its firstright- wing mayor since the end of the second world war, Roberto Cenni, who had campaigned on a platform of getting tough on Turtles and seagulls immigration, especially what his supporters called the “Chinese invasion”. His successor, Matteo Biffoni, elected in 2014, is from the centre-left, but he still grumbles about the Chinese in Prato. “They don’t relate to Italian people,” he says. But he says it would Growing numbers of Chinese are heading back home be wrong to try to push them out. after studying abroad The arrival of Chinese factory owners and their workers has saved Prato from the fate of some places in the rich world JIMMY ZHONG IS a Beijinger who speaks English with an that suffered badly as a result of competition from developing American accent and wears a baseball cap. Sitting in his economies like China’s. Prato’s Italian-owned textile firms tooka tatty office in the Chinese capital, he recalls the heady days oflife hammering (though not a fatal one) from low-cost production in in Manhattan after finishing his degree in maths and computer China itself, not from the arrival in Prato of Chinese rivals in the science at Emory University in Atlanta, Georgia. By then he was same line ofbusiness. already rich, having sold his first company—an online market- place enabling students to sell class notes—for $40m. He was in The power of pronto NewYorkto help build anotherinternetstartup which he had co- The immigrants developed a new industry known as founded during his third year at university—a forum for students pronto moda. This involved importing cheap fabrics, mainly to buy tutorial help. The money was rolling in. from China, and turning them into fashion garments at lightning “I lived on the 54th floor, with a balcony. It was great,” says speed to keep up with fast-changing styles. Even as the number the boyish, fast-talking 24-year-old. Silicon Valley, to which he oftextile firms in Prato fell from more than 9,400 to below 3,000 had made a weekly trip while at college to pursue his sideline as in the two decadesto 2011, the numberofclothingmanufacturers a tech entrepreneur, had seemed boring by comparison. “Once more than tripled to nearly 4,400, three-quarters of which had you make some money in Manhattan, it’s heaven,” he says. Chinese owners. In 2015 Chinese firms accounted for more than In early 2017, missing home, he went to spend the lunar- halfthe value added by Prato’s textile and clothing firms, accord- new-year holiday in Beijing. He had heard about the opportuni- ing to Tuscany’s Regional Institute forEconomic Planning. ties there, about startup companies such as the bike-sharing The growth of Chinese-run, Chinese-staffed industries in firms Ofo and Mobike that had grown into billion-dollar busi- Prato has created a growing Chinese middle class. It includes not nesses in just a couple of years. But when he started talking to only the factory bosses but owners of the shops, restaurants, people, “I realised, what am I doing in New York City? It’s a com- hairdressers and travel agents that line the streets of Prato’s Chi- plete waste oftime.” nese district. But many ofits members feelsettled in Italy only up And so began his new ventures. One is a Beijing-based to a point. startup, Dora, that deals in self-service kiosks such as photo In her forthcoming book, “Tight Knit: Global Families and booths. Mr Zhong says it already has 300 employees and is the Social Life of Fast Fashion”, Elizabeth Krause notes that half worth $100m. He is now focusingon another one, IOST, based in of the children born in Prato since 2009 have been foreign, yet Singapore, which is developing software involving blockchain, many of those whose parents are Chinese are sent to China for the cryptographic technology behind bitcoin. Most of Mr schooling, even though they would be entitled to free education Zhong’s partners are Chinese educated at American universities. in Italy.Ms Krause calls this “a strategy ofkeeping options open”. The Chinese government is not a fan of bitcoin: it worries Cultural bonds, and the growing wealth of the motherland, are that such crypto-currencies could undermine the country’s fi- powerful forces to pull them back. 7 nancial stability. Last year it shut down exchanges in China where they were traded. But the country recognises the huge market potential for the underlying technology as an enabler of secure transactions. As in other digital domains, such as artificial Coastal connections intelligence, China is sparing no effort to establish itself as a HEILONGJIANG world leader, so the government badly wants more people like Total number Mr Zhong to return. 2.7m of emigrants JILIN 2015 estimate They are doing so in droves, many of them drawn back to XINJIANG China by a boom in tech-related business. In 2016 more than INNER LIAONING MONGOLIA 430,000 people went back to China after finishing their studies, GANSU BEIJING TIANJIN nearly 60% more than in 2011. In the same period, the numbers HEBEI leaving rose by less than 40%. China’s official news agency, Xin- NINGXIA SHANXI QINGHAI SHANDONG hua, called this one of the biggest return flows of talent in any

SHAANXI HENAN JIANGSU country’s history: the “magnetic effect” ofChina’s rise as a global TIBET power. About one-sixth of“sea turtles”, as returnees are jokingly ANHUI SHANGHAI SICHUAN HUBEI known in Chinese (the words sound the same), take up IT-relat- ZHEJIANG CHONGQING JIANGXI ed work, according to a survey published last year by the Centre HUNAN for China and Globalisation (CCG), a think-tank in Beijing, and GUIZHOU FUJIAN Zhaopin, a job-search website. Most of the 150 or so Chinese Origin of Chinese emigrants YUNNAN companies listed on NASDAQ were launched by returnees. By province, 2015, % of all emigrants GUANGXI GUANGDONG Hong Kong Officials have also offered them sweeteners: generous al- lowances to move back to China, as well as housing, health care 01251020 HAINAN and otherbenefits. “Today’sworld notonlyhasthe West’sAmer- Source: National statistics ican dream but the East’s Chinese dream as well,” wrote Li Yuan- 1

10 The Economist May 19th 2018 SPECIAL REPORT CHINA IN THE WORLD

2 chao, a now-retired party Past and future leader, in an article in 2012. Home’s best Months later Xi Jinping be- China, number of students The next sunrise came the Communist Party’s returning from abroad, ’000 chief and made “Chinese dream” his slogan. Chinese 500 abroad, living the Western 400 sort, were to be part ofit. What history tells us about the long-term effect of Officials say about 80% 300 of Chinese students now re- ideas from abroad turn after finishing their stud- 200 SUN YAT-SEN WAS stayingat a grand hotel in Denver, Colo- ies, compared with less than rado, atthe startofthe uprisingin 1911thatled to the collapse 100 one-third in 2006, but the fig- of 2,000 years of imperial rule. The local Rocky Mountain News ures are hard to verify. Some 0 was on the side of the English-speaking baptised Christian who may go back to China for a 1978 90 2000 10 16 wore European-style suits and saw Jesus as a “revolutionary” short period and then leave Source: CEIC like himself. The newspaper described Sun as an “Americanised again. Some, known as “sea- Chinaman of the most advanced type”. He was soon to become gulls”, flit back and forth be- the first president ofhis country’s new republic. tween East and West. But the trend is clear. The uprising was the product ofinfection from the West. Its The success of China’s plan to create world leaders in cut- leaders at home were radicals who had returned from study ting-edge industries, known as “Made in China 2025”, will de- overseas and set up cells that linked up with disaffected military pend on returnees. And indeed they make up nearly half of the officers. While abroad they had soaked up the language of liber- “core talents” involved in developing artificial intelligence in alism and constitutional rule. One inspiration was Japan, which China, according to ChinaHR.com, a recruitment website. Grow- had Westernised its politics in the late 19th century. Sun had ing numbers of them have not only been educated in America spent time studying there, learning the meaning of Western but have also gained crucial experience there. words like minzhu (democracy) and ziyou (freedom) which had Some Chinese companies are offering big remuneration recently entered the Chinese language via Japanese. Geming, the packages to lure tech talent from America. The financial sector new word forrevolution, was another ofthose borrowings. and its regulatory bodies are stacked with returnees. Most ven- For all the radicals’ efforts, Western-style democracy never ture capitalists in China have studied in the West. Zhou Xiao- really took hold in China. In 1913 Song Jiaoren was assassinated chuan, who stepped down as China’s central-bank governor in afterbeingelected prime ministerin the country’s first attempt at March, studied in America in the late 1980s. His successor, Yi democratic polls. China slipped back into despotism, warlord- Gang, has a PhD from the University ofIllinois and was a profes- ism and (followingan invasion byJapan) all-outcivil war. Butthe sor at Indiana University. West continued to provide inspiration. Chinese nationalists hat- ed the Western powers forhandingGerman territory in China to Slow march through the institutions the Japanese after the first world war. But they also believed that Less than 4% of those who return after studying abroad en- China’s weakness was a product of what they saw as the coun- terthe civil service, accordingto the surveybyCCG and Zhaopin. try’s own backward culture. But returnees are a growingpresence even at the highest levels of For some, the thinking of a 19th-century German, Karl the government and the party. Cheng Li ofthe Brookings Institu- Marx, whose ideology had inspired Russians to overthrow their tion reckons that at least one-fifth ofthe 370-odd members ofthe own imperial system and create a republic that seemed to work, party’s current Central Committee, appointed last October, have was just what was needed. Among the Chinese Communist spentatleasta yearon a foreign campus, mostlyin the West. That Party’s earliest members were Deng Xiaoping and Zhou Enlai. is twice as many as ten years earlier, he calculates. They both joined the party in the 1920s while in France on a Also last October, for the first time in the history of the “work-study” programme that involved much toil and little edu- party’s rule, its most powerful body, the seven-member Politbu- cation. The grimness of this experience turned them, and many ro StandingCommittee, gained a memberwho had spent time at other participants, into eager recruits for the communist cause. a Western university: Wang Huning, a formeracademic who has The Kuomintang (KMT), which ran a ruthless dictatorship been playing a central role in crafting the party’s ideology. In the until the Communist Party overthrew it in 1949 and established 1980s Mr Wang was a visiting scholar at the universities of Berke- another one, also took lessons from the Russians. Sun sent ley, Michigan and Iowa. Ofthe 25 membersofthe Politburo, three Chiang Kai-shek to study in Moscow in 1923. Chiang broke with othersare also returneesand hold importantportfolios: Chen Xi, the Soviets fouryears later after gaining control ofChina, but did the chiefofpersonnel; YangJiechi, PresidentXi’schiefadviser on notbecome a fan ofliberalism. Hisfearofthe potential damage it foreign affairs; and Liu He, Mr Xi’s chiefeconomic adviser. could cause in China, were it to take hold there, had much in In the coming years, as the recent wave of returnees moves common with the anxieties of subsequent Communist rulers, up through the ranks, the numbers at the very top may well con- includingXi Jinpingtoday. The nationalism Chiangtried to incite tinue to grow. And members of the party elite who have not to keep liberalism at bay is echoed in Mr Xi’s China, too. spent time on Western campuses will be increasingly likely to But American thinking retained a powerful allure. As John have been educated by people who have. The Communist Pomfret, an American journalist, notes in his book, “The Beauti- Party’s main training centre for senior officials itself is recruiting ful Country and the Middle Kingdom”, hundreds of people, returnees. All this is hard to square with China’s ever greater dis- many of them educated in America, “became the conscience of dain for the West, its leadership’s growing hostility to Western their nation in opposing the tyrannical ideologies” of the KMT values and its public’s tendency to respond to perceived slights and the Communists from the 1920s to the 1940s. And as MrPom- by Westerners with chest-thumping nationalism. But looking fret also points out, it was a “red-blooded mid-western Yankee”, further ahead, it is possible to take a more sanguine view. 7 Edgar Snow, whose pro-communist journalism inspired many 1

The Economist May 19th 2018 11 SPECIAL REPORT CHINA IN THE WORLD

2 others to tilt towards that camp. Snow’s book, “Red Star Over Tosee what could happen, China”, first published in1937, was the first that many urban Chi- Mr Xi need look no further than nese intellectuals heard ofthe rural guerrilla, Mao. Taiwan, where the KMT settled Much the same is true in China today. Liberals have been after its defeat by the Commu- largely silenced. Liu Xiaobo, a Nobel peace prizewinner, was the nists in 1949. As the island’s Reprints best-known campaigner for democracy among those who re- economy took off in the 1960s Reprints of this special report are available turned from Western campuses (after a spell as a visiting scholar and 1970s, the pattern of move- at US$7.00 each, with a minimum of 5 KMT copies, plus 10% postage in the United in America and Norway in the 1980s). He died last year in custo- ment abroad under the ’s States, 15% postage in Mexico and Canada. dy,having spent more than a decade locked up forhis efforts. But authoritarian rule wassimilar to Add tax in CA, DC, IL, NY, VA; GST in Canada. there are many less-well-known liberals—civil-rights lawyers, China’s today. Many members For orders to NY, please add tax based on house-church leaders and NGO workers—who keep up their of Taiwan’s new middle class cost of reprints plus postage. For classroom use or quantities over 50, low-key efforts to blunt authoritarianism’s impact despite the looked abroad, mainly to Amer- please telephone for discount information. party’s efforts to crush them. ica, to send their children for Please send your order with payment by studyorfora lessstifling place to cheque or money order to: A long game live. At the peak of the brain Jill Kaletha of Foster Printing Service Telephone: +1 866 879 9144 Extension: 168 It is certainly true that many others draw inspiration from drain in1979, only 8% ofTaiwan- or email: [email protected] the West’s latter-day Snows—people who argue that liberal de- ese who studied abroad re- (American Express, Visa, MasterCard and mocracy, or American power, has had its day and that China is turned to the island after com- Discover accepted) the new model and rightful global leader. The huge number of pleting their courses, wrote For more information and to order special people going to the West and returning has not nudged China to- Kevin O’Neill in a paper pub- reports and reprints online, please visit our wards democracy. On the contrary: Chinese authoritarianism lished by the Migration Policy website www.economist.com/rights looks reinvigorated. But the engagement ofChinese people with Institute. the rest of the world on such a scale is relatively new. So, too, is But in the 1980s, as Taiwan Future special reports the return ofpeople educated in the West in numbers farbeyond became a world leader in high- TQ: Technology and justice June 2nd anythingwitnessed since YungWingbecame the first Chinese to tech manufacturing, many of The Gulf June 16th graduate from an American university (Yale) in the1850s. those educated in the West be- Fixing the internet June 30th ri r July 14th Those returning are members of a fast-growing middle gan to see good job opportuni- Ame ca’s Democ ats class that may have little immediate interest in challenging the ties back home. They returned Previous special reports and a list of status quo. But thanks to the internet (and despite energetic cen- to become part of what was of- forthcoming ones can be found online: economist.com/specialreport sors) it is better equipped to do so than any social group has ever ten called the “Taiwan miracle”. been in the history of Communist China. It would be unwise to The brain drain began to re- dismiss the potential impact on China’s long-term development verse. By1987, one-fifth ofexecu- of the presence of such numbers of highly networked, highly tives at large Taiwanese firms were returnees, says Mr O’Neill. educated people with little interest in the party’s ideology. That turned out to be a momentous year: the one when Chiang Kai-shek’s son and successor, Chiang Ching-kuo, lifted martial law that had been in force on the island since the KMT Sun Yat-sen fled there. He died the following year, to be succeeded by his pro- tégé, Lee Teng-hui, who had studied at Cornell University. It was was an Mr Lee, an avowedly Christian president, who finished the job English- that Chiang Ching-kuo had started: turning Taiwan into a de- mocracy. In 1996 he conducted, and won, the island’s first free speaking presidential election. baptised When Mr Xi took over as China’s leader in 2012, many an- alysts wondered whether he might prove to be another Chiang Christian Ching-kuo. This was not merely the wishful thinkingofWestern- who wore ers. A few months earlier a liberal intellectual, Cao Siyuan, had published an essay on his blog hosted by a Beijing-based maga- European- zine, Caijing, on the topic ofpolitical reform. “Some friends say it style suits would be good if we had a leader like Chiang Ching-kuo to pro- mote constitutional democracy,” he wrote. “But no matter and saw whether conditions are ripe for this, as citizens we should do all Jesus as a we can to push for it.” Censors have yet to take down the essay. Mr Xi himselfshows no sign ofthinking that conditions are “revolution- ripe forchange alongTaiwanese lines. He clearlyviews the social ary” like forces unleashed by economic growth as a threat to his and the party’s grip. Nothing that is likely to happen in China in the re- himself mainingyears ofhis rule—and there could be many ofthem after his decision in March to make it open-ended—will make him feel more secure. But when change eventually comes, it is safe to assume that the ideas of Western-educated Chinese, and of tens of millions of Chinese who have visited or worked in the West, will play a vital role in the next stage of China’s political evolution. A future president of China may well, even now, be following in Sun’s footsteps: packing her bags to study abroad. 7

12 The Economist May 19th 2018 Europe The Economist May 19th 2018 43

Also in this section 44 Spain and Catalonia 45 Sex and French 45 Poland and Hungary 46 Georgia’s hipster politics 47 Charlemagne: Standing up to Trump

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

Italy’s coalition talks question the single currency”. But a draft of their government programme leaked to The wills of the people the Italian edition of Huffington Post, a news website, showed that until two days earlier they had been doing just that. It called for procedures to allow member states to leave the euro and “recover their ROME monetary sovereignty”. It also foresaw the immediate scrapping by Italy of all sanc- A government oftwo populist parties would be fractious and risky tions against Russia. Farfrom beinga threat UIGI DI MAIO (pictured, left) is only 31, thority to implement necessary reforms. to Western democracy, MrPutin’s domain Lbut as leader of the Five Star Movement Small wonder that signs of disquiet are would be a “strategic interlocutor”. (M5S), he is poised for a decisive role in Ita- emergingin Brussels. The vice-president of In the latest draft, the parties’ most con- ly’s next government. After coming first in the European Commission, Jyrki Katainen, troversial proposals have been watered the general election on March 4th, the M5S warned that Italy will get no exemptions down. The League’s electoral pledge of a appeared close this week to sealing a co- from the euro zone’s fiscal rules. His col- flat 15% income-tax rate has acquired an- alition agreement with the far-right North- league, Dimitris Avramopoulos, hoped other band at 20%. It may be introduced ern League and its leader, Matteo Salvini that the government would not change Ita- only partially and gradually. The M5S (pictured, right). That would give Italy, and ly’s stance on migration. Mr Di Maio and wants what it calls a “citizenship income” western Europe, its first all-populist gov- Mr Salvini reacted indignantly. of €780 a month, but this will apparently ernment. Mr Di Maio, a university drop- Markets have begun to worry, too. On be available only to job-seekers and the out, is known forhis grammatical howlers, March 16th the spread in yields between It- most needy; it will not be introduced be- but he can concoct a good soundbite. “Ob- aly’s ten-year government bonds and fore 2019. Yet both parties still appear bent viously, history is being written,” he de- those ofGermany jumped to more than 1.5 on undoing pension cuts introduced in clared on May 13th, as he left another percentage points. In a statement intended 2011as a sign ofItaly’s determination to get round of the interminable coalition talks. to reassure investors, the two party leaders a grip on its public finances. That raises the “So it takes a bit oftime.” said they had decided “not to call into question of how to avoid adding to the 1 One problem the two sides had not re- solved, asThe Economist went to press, was findinga prime minister. (Apossibility was A strange calm that each party’s choice might serve half a Stockmarket indices, May 1st 2018 = 100 Ten-year government bond yields, % term.) Yet the programme on which they 104 2.0 were toiling may indeed be historic. If they DAX* (Germany) Italy can agree, one of the European Union’s 103 most important states will have a Russo- 1.5 FTSE 100 (Britain) 102 phile government bent on challenging the Britain 101 1.0 constraints of the euro zone. An M5S- France League coalition would be eccentric, ideal- 100 istic, tinged with xenophobia, intolerant of CAC 40 (France) 0.5 99 Germany corruption and economically illiberal. If FTSE MIB (Italy) the two anti-establishment parties fail to 98 0 12347891011141516 12347891011141516 agree, the outlook will be no less uncer- May 2018 May 2018 tain. It will mean either new elections, or a technocratic government lacking the au- Source: Thomson Reuters *Total return index 44 Europe The Economist May 19th 2018

2 public debt, which stood at132% ofGDP by Their other priority now is the freeing of the end of 2017. Oxford Economics, a con- nine political leaders jailed pending trial sultancy, thinks the pension roll-backs for flouting the constitution in the inde- would run to €15bn a year. The taxcuts and pendence drive. Mr Rajoy cannot grant ei- citizenship income could well cost more. ther wish, legally or politically. Instead the Plans to finance these proposals seem government is prepared to talk about the shaky. The earlier draft imagined cutting Catalan administration’s financial and five percentage points of GDP from the na- other lesser grievances. tional debt by “selling” the Treasury’s port- Many in Madrid will mistrust Mr folio holdings to the institution that invests Torra’s government as long as Mr Puigde- Italians’ postal savings—which is con- mont, who precipitated Spain’s deepest trolled by the Treasury. Ten more points constitutional crisis since the return of de- would have come from securitising and mocracy in 1978, is seen to be pulling the marketing publicly owned property. The strings. Albert Rivera, the leader of negotiators have wisely dropped their as- Ciudadanos, a liberal party that leads in sumption that the ECB would obligingly many opinion polls, called on the govern- forgive €250bn in Italian bonds acquired ment not to lift Article 155, the constitution- through its programme ofquantitative eas- al clause under which Mr Rajoy dissolved ing, though they hope for some debt can- Mr Puigdemont’s government last autumn cellation across the euro zone. and called a Catalan election. Held in De- Even more worrying is the parties’ in- cember, this saw the separatists retain a difference to Italy’s central economic narrow majority of seats in the regional weakness: low productivity growth. Few parliament, though they won only 48% of of the measures in the draft would boost the popular vote. competitiveness. Indeed, the earlier draft Spain and Catalonia In fact, direct rule automatically lapses promised small businesses protection as soon as Mr Torra’s government takes of- from “the liberalisation of working hours, No surrender fice, probably within days. But Mr Rajoy the rapid expansion of large retailers” and warned the separatists that Article 155, nev- the EU’s directive on deregulating services. er previously used, is now “a precedent The parties seem committed to taking on and a procedure” and that “if necessary” it corruption. But swifter civil justice, which MADRID will be reimposed on Catalonia. For that Italy urgently needs to secure foreign in- he has the backing of Pedro Sánchez, the Catalonia has a new regional vestment, does not seem to be a priority. opposition Socialists’ leader, as well as Mr government bent on confrontation Until this week markets had been Rivera. Governmentsourceshave said that calmed by the economy’s relative solidity. T TOOK almost five months, but Catalo- they may still exercise control over the fi- Italy’s GDP grew by 1.5% last year and the Inia has at last chosen a new regional nances ofthe Catalan administration. health ofits bankingsystem has improved. president. Quim Torra, the nominee of Mr Torra must walk a fine line. The sep- The ECB is keeping the interest rates on Ita- Carles Puigdemont, his separatist prede- aratist project foundered last autumn ly’s debt low, and much public debt is now cessor, was elected in the Catalan parlia- when confronted with harsh reality. Inde- held either domestically or in Frankfurt, ment by 66 votes to 65, with four absten- pendence has never enjoyed majority sup- lowering the riskofbig price movements. tions, on May14th. This means that Spain’s portin the opinion polls. No European gov- government will end the direct rule it im- ernment wants to see the precedent of a Coalition of the wishful thinkers posed over one of the country’s richest re- national schism. Businesses took fright, Another factor is the expectation that EU gions after Mr Puigdemont organised an with more than 3,000 companies moving rules and fear ofupsetting markets will de- unconstitutional referendum on October their legal domicile outside Catalonia. ter radical change. Analysts at Unicredit, a 1st, followed by a unilateral declaration of These setbacks, and the jailings, bank, point to Portugal and Greece, where independence. But the Catalan conflict is prompted divisions in the separatist camp. populist governments toned down their far from over: indeed Mr Torra (pictured), Mr Puigdemont, from his voluntary exile, policies when faced with reality. But Italy’s an ultranationalist, was chosen in order to wants to keep up the pressure on Mr Rajoy. new government may be an exception. prolong it, rhetorically at least. He three times proposed candidates for The League resembles other populist- His first act was to fly to Berlin for talks president whose investiture was thwarted nationalist parties such as France’s Nation- with MrPuigdemont, who is fightingextra- because they were in jail or abroad. His al Front. The M5S is a very different crea- dition from Germany on charges relating main coalition partner, Esquerra Republi- ture, launched in 2009 with a mission of to the October events that range from re- cana (Republican Left), tired of such theat- introducing direct democracy through on- bellion to misuse of public funds. Mr Torra rics and called for an “effective govern- line voting. As it has snowballed, it has repeatedly stressed the “exceptional and ment”. While appearing not to renounce gathered a heterogeneous mix of policies provisional nature” of his mandate and unilateral action, in practice Mr Torra may and activists from left and right alike. that Mr Puigdemont remains Catalonia’s seekto remain within the law. One remaining area of disagreement “legitimate president”. He said his priority The separatists’ main strategy remains between the two parties is infrastructure. would be to “build the republic” and “elab- to try to mobilise Catalans and interna- The League would like to see big invest- orate a draftconstitution” forCatalonia. He tional opinion. Theyhave scored some vic- ments to create jobs. That is anathema to also called for unconditional talks with tories, mainly because of the heavy-hand- the environmentalist M5S, one of whose Mariano Rajoy, Spain’s conservative prime ed approach of Spain’s Supreme Court to negotiators cut her teeth in a campaign to minister. That was cautiously accepted by Catalan disobedience. The German court stop a high-speed rail linkto France. The co- Mr Rajoy. considering Mr Puigdemont’s extradition alition talks have shown that Italian popu- But a meeting of minds is not close. has so farcast doubt on the case. Spain has lism comes in radically different forms. If Over the past two years the only thing the since filed furtherevidence. the marriage of the M5S and the League Catalan separatists have wanted to talk Mr Torra’s appointment may sap sym- goes ahead, it may be stormy. 7 about is a referendum on independence. pathy forthe separatists abroad. They have1 The Economist May 19th 2018 Europe 45

Poland and Hungary Sex and French Vive la différence Drinking from the

PARIS same glass When identitypolitics meets a gendered language WARSAW N FRENCH, as in English, full stops In the example above, this would lead to ViktorOrban visits his populist traditionally belong at the end ofsen- des garçons et des filles intelligentes. I intellectual brethren tences. But lately they have been in- Needless to say, the linguistic purists vading the middle ofwords. Organisers are aghast. Last October the Académie BITofPolish doggerel from the 18th cen- ofrecent university sit-ins have called on Française, founded by Cardinal Richelieu Atury, when Polish and Hungarian no- étudiant.e.s (students) to join the block- in1635, issued a “formal warning” against bles fought together against the Russian ades. Pressure groups urge their mil- l’écriture inclusive, calling it an “aberra- empire, maintains that Poles and Hungar- itant.e.s (activists) and adhérent.e.s (mem- tion” and declaring the French language ians are “brothers, both of the sword and bers) to take part in rallies. Normally,the in “mortal danger”. Such was the contro- of the [wine] glass”. The Hungarians have forms ofthese nouns ending with “es” versy that Edouard Philippe, the prime a similar rhyme. Lately this friendship has are feminine; those with just an “s” are minister, whose government has made experienced a revival that goes beyond a masculine. The optional “e” between full sex equality a priority,felt obliged to step common interest in fighting and drinking. stops attempts to make them unisex. It is in. Affirming that he was all forthe “bat- The two countries’ ruling parties, Poland’s all part ofl’écriture inclusive, or inclusive tle against stereotypes”, he called none- Lawand Justice (PiS) and Hungary’sFidesz, writing—a defiant response to charges of theless fora compromise. All public- both disdain liberalism, disregard the inde- French linguistic patriarchy. sector job titles would henceforth be pendence of the judiciary and reject the As every student ofFrench knows, the feminised. So a female chef de cabinet European Union’s plans for resettling refu- traditional rule is that “the masculine (head ofstaff) is now une cheffe,anda gees from the Middle East. They also pro- form takes precedence over the femi- female préfet (prefect) is une préfète. tect each other in Brussels, where their nine”. So an adjective that refers jointly to Yet Mr Philippe drew the line at the policies have drawn the ire of the Euro- masculine and feminine nouns—des encroaching dot. He ruled that all official pean Commission. garçons et des filles intelligents (clever boys job adverts should call for“un candidat” On May 14th Viktor Orban, Hungary’s and girls)—agrees only with the mascu- or “une candidate”, so as to encourage prime minister, visited Warsaw on his first line one (adding just an “s” in the plural, both male and female applicants. All foreign trip since winning re-election in not an “es”). This principle has long been references to candidat.e.s, however, will April. Itwasa triumphal visitforMr Orban, implicit in the use ofmasculine nouns to remain strictly interdit.e.s. whom PiS has long admired. In 2011 Jaros- cover feminine cases too. Un sénateur law Kaczynski, PiS’s chairman and Po- (senator) traditionally refers to both men land’s de facto leader, said he was “con- and women who occupy the office. vinced that the day will come when we Such practices vex feminists. A group will have Budapest in Warsaw”. Since of314 teachers issued a public appeal a comingto powerin 2015, PiS has led Poland few months ago against a grammatical in the illiberal direction charted by Fidesz. tradition that amounts to “the dom- It has packed the supreme court and ination ofone sex over the other” and turned the public media into a govern- makes women invisible. Eliane Viennot, ment propaganda channel, echoing earlier who describes herselfas a literature changes in Hungary. professeuse (professor), recalled that such Mr Orban has gone further down the rules were codified only in the19th cen- road to autocracy. On May 15th the Open tury.In1480 Madeleine de France, Society Foundations, a liberal philan- Charles VII’s daughter, described herself thropic group, announced that Hungary’s as an autrice (female author). The pre- “repressive political and legal environ- Napoleonic French language referred to a ment” had grown so bad that it would shift charpentière (female carpenter) or docto- its Budapest operations to Berlin. (The resse (woman ofletters). Indeed, Quebec group’s billionaire founder, George Soros, recommended the use offeminised was targeted by Fidesz in a xenophobic forms forjob titles in1979. Today,French campaign during the election.) Yet the advocates ofgender-neutral language Poles are moving in the same direction. On would also prefer the adjective to obey a May 11th police in the town of Pobierowo rule ofproximity,and agree with the raided an academic conference on Karl gender ofthe nearest noun in a sentence. Marx to check whether it “propagates to- talitarian content”. The interior minister later apologised. 2 always presented their movement as open beasts in human form”. This weekhe apol- For the EU, the two governments’ ac- and progressive. Aformerinsurance execu- ogised forthese and other statements. Still, tions are a headache. The European Com- tive and publisher, Mr Torra comes from they are a propaganda gift to the oppo- mission has instituted so-called Article 7 the right wing of Catalan nationalism. He nents ofnationalism. proceedings against Poland over its has shown enthusiasm for Estat Català, a How long Mr Torra’s government may changes to the legal system, which give the quasi-fascist outfit in the 1930s. He has also last and to what extent he will be his own executive and legislative branches author- expressed a visceral hatred ofSpaniards. In man is unclear. Mr Puigdemont has sug- ity to appoint and remove judges. The pro- 2012 he wrote that those who live in Cata- gested a fresh election in December. What ceedings could lead to sanctions if Poland lonia but do not embrace its culture were is clearer is that Catalan society remains does not back down. But Mr Orban has “carrion-eaters, scorpions, hyenas, wild split down the middle. 7 vowed to block such sanctions. Now the 1 46 Europe The Economist May 19th 2018

2 commission is trying a new approach: in “We have replaced a shipwrecked liberal is “part of the experience”, says Maia Sida- its upcoming seven-year budget, it plans to democracy with a 21st-century Christian monidze, a former head of Georgia’s na- cut EU funding to countries where the rule democracy,”he said on May 10th. (The EU, tional tourism administration. Bassiani of law is at risk. Hungary and Poland, both he added, must give up its “delusional has been hailed by Resident Advisor, a among the largest net recipients of EU nightmares of a United States of Europe”.) trend-setting music website, as one of the funds, are mostlikelyto be affected.During PiS, too, leads in the polls. The commission world’s best clubs, drawing comparisons Mr Orban’s visit, the Poles and Hungarians has given the Polish government until June to Berghain in Berlin. After the raids, sup- agreed to try to block any such move to- 26th to come up with satisfactory changes port poured in from DJs who have played wards conditionality in EU funding. MrOr- to its judge-nobbling rules. But with his po- there. “Bassiani stay strong!” wrote Ben ban has threatened to veto the budget. litical position secure, and the support of Klock, a German techno artist. Both governments are here to stay. Mr his Hungarian brother, it is hard to see why Some in the government have warmed Orban’s victory in April was a landslide. Mr Kaczynski would retreat. 7 to the club culture. Tbilisi’s new mayor, Kakha Kaladze, a former footballer for AC Milan, campaigned on backing clubs and Georgia’s hipster politics hasestablished an official postfordevelop- ing the nightlife economy. (Some think the Dance dance revolution raids were a message to MrKaladze from ri- vals inside Georgian Dream.) The son of Bidzina Ivanishvili, Georgia’s richest oli- garch and de facto leader, is a rapper who advocates liberalising drug laws; the day MOSCOW after the raids, he released a new song called “Legalise”. Coincidentally, hours be- A tussle overnightclubs in Tbilisi is about more than partying fore the raids Mr Ivanishvili, who had long ACHO CHALADZE, a DJ, had just set- and techno music. “It felt like Paris must ruled the country from the shadows, took B tled into his set at Cafe Gallery,a night- have in ’68, just without the clashes,” says back the post of chairman of the Georgian club in Tbilisi, when a group of unwel- Mariam Pesvianidze, a filmmaker. Dream party. come guests burst through the door. “They On Sunday afternoon, counter-protes- Video ofthe rave spread internationally rushed in with rifles and masks,” he re- ters with shaved heads arrived, wearing on social media, especially in the former calls. “They ran to me to turn off the mu- masks, to spoil the fun. “Bassiani and Gal- Soviet Union. Sergii Leshchenko, a reform- sic”—atthatmoment, a bass-heavytrack by lery are gay clubs, where drugs are being ist MP in Ukraine whose wife is a popular FumiyaTanaka,aJapaneseproducer.Near- sold and the youth are recruited in illegal DJ, called it “an example of how sovok (the byatBassiani, a cavernousclubinthebow- activities,” said Dimitri Lortkipanidze, a Soviet mindset) has been definitively de- els of a football stadium, a similar scene leader of Georgian March, an ultranation- feated in the heads of the young genera- unfolded as armed Georgian police alist group. With the country “on the cusp tion” in Georgia. Some Russian liberals ad- stormed in, pushing patrons against the of civil confrontation”, as President Giorgi mired their bravery. “If thousands of peo- walls and the floor. As Kate Beard, a pho- Margvelashvili later put it, police separat- ple had started a rave outside the Duma, tographer visiting from London, puts it: ed the groups. The interior minister came the consequences would have been grim,” “The vibe got very dead very quickly.” out to apologise for the police brutality, says Elena Gracheva, a Muscovite who The government said the raids on May quelling the protests—fornow. was visiting when the protests erupted. 12th targeted drug dealers, in response to at The clubbers have allies. Tourism is a In Tbilisi, activists have threatened to least five recent drug-related deaths. Yetthe fast-growing industry in Georgia, generat- return to the streets if officials do not liber- standoff, Mr Chaladze says, is about some- ing nearly 7% of GDP in 2017. The govern- alise drug policy and allow the clubs to thing bigger: a struggle between Georgian ment promotes Georgia as a hip destina- reopen. The battle, like the music, looks set traditionalistsand agrowingmovement of tion for millennials, and Tbilisi’s nightlife to go on. 7 social liberals in Tbilisi. (Both tendencies are represented inside the ruling party, Georgian Dream.) Anew,Westernised gen- eration “want to express themselves not only by dancing, but through different life- styles,” saysGhia Nodia, a professorof pol- itics at Ilia State University in Tbilisi. “It’s not a teenage rebellion stage—they are be- yond that.” Many young people in Georgia saw the raids as an assault on their culture. The clubs have become islands of tolerance for nonconformists, sexual and otherwise, in a country that remains prudish and patri- archal. Just hours afterthe raids, thousands gathered outside the Georgian parliament to protest under the slogan “We Dance To- gether, We Fight Together”, demanding the resignation of the interior minister and prime minister, along with reform of the country’s harsh drug laws. The march turned into a rave that ran through the weekend, with loudspeakers on the steps of parliament filling the street with house Keep your billy clubs out of our night clubs The Economist May 19th 2018 Europe 47 Charlemagne Standing up to The Donald

Europe has few good options fordealing with America’s president from Mr Trump. Europe is rich and capable. Perhaps it is time to acknowledge that America can be an adversary as well as a partner. Should matters between Europe and America escalate, says MarkLeonard ofthe European Council on Foreign Relations, a think-tank, “It’s not clear to me that America would win.” But there are dangers in the “Love Actually” approach. It seems self-defeating to try to defend the multilateral order using the same divisive tactics as Mr Trump. The WTO, perhaps Mr Trump’snexttarget, isalreadytottering; itmightnot survive an es- calation between the world’stwo largesttradingpartners. Ameri- ca’s withdrawal from the Iran deal leaves the Europeans awk- wardly liningup with China and Russia to offersweeteners to the regime in Iran—a serial human-rights violator and source of re- gional instability. The need to convince the Iranians to stay in the deal means there is no leverage to make them end their missile programme or their regional troublemaking, as Europe had been trying to do before Mr Trump walked away. Most of all, Europe still depends on the American security guarantee. It should think hard before offering Mr Trump an excuse to jettison it. Such are the dilemmas thrown up for Europe when America comes First. And while Mr Trump has never hidden his allergy to EMEMBER “Love Actually”? Back in 2003, in the heat of the multilateralism, today his cabinet has fewer dissenting voices. RIraq crisis, British hearts were lifted by Hugh Grant’s portrayal The “adults in the room” on whom the Europeans had pinned of a prime minister publicly humiliating a bullying American their hopes, grey-haired generals or businessmen with an affec- president. In 2018 Donald Trump’sdecision to withdraw from the tion for diplomacy and stability, have largely been turfed out in nuclear deal with Iran is inspiring Europeans to their own mo- favour of men like John Bolton, Mr Trump’snational security ad- ments of Grantian hauteur. “Do we want to be vassals who obey viser, who has urged regime change in Iran and thinks rules are decisions taken by the United States while clinging to the hem of forwimps. Things will not get better under this administration. their trousers?” asked Bruno Le Maire, France’s finance minister. German diplomats are spitting blood. One magazine urged Eu- Trump 2.0 rope to join the anti-Trump “resistance”. Yet it would be myopic to blame The Donald alone for the sense If that seems a trifle overcooked, the strength of the fury oftransatlanticdrift. The end ofthe cold war, and growing threats shows the value of the Iran deal for Europeans. In one neat pack- elsewhere, set America on a different geopolitical course. Even age it diminished a security threat, bolstered multilateralism and Barack Obama, who believed in alliances and knew how to ap- strengthened the transatlantic bond. The Europeans fought des- peal to Europeans’ vanity, wanted to pivot America towards Asia. perately to assuage Mr Trump’s concerns, and earned only hu- It is hard to imagine a president who would not. Mr Trump’ssuc- miliation. Their current efforts to stop him slapping tariffs on cessors may not share his aversion to partnership. But nor will their steel and aluminium exports next month may be similarly they preside over a return to the status quo ante. doomed. The twin pillars of Europe’s place in the world are the So as Donald Tusk, president of the European Council, hinted multilateral rules-based order and the transatlantic alliance. Mr thisweek, itistime forEurope to attend to itsown yard. MrTrump Trump seems to be forcing Europeans to choose between them. has already spurred some gentle defence co-operation inside the For now, the path seems clear. Meeting this week in Sofia, Eu- EU; itcan be stepped up withoutunderminingNATO. Germanyis rope’s leaders agreed they would try to keep the nuclear deal going backwards on military spending, but it has at least learned, alive (see Business section). The options include countermea- in Mr Leonard’s phrase, to “weaponise” its economy in disputes sures like a “blocking regulation” to shield European firms invest- with Russia and Turkey. Mr Macron can lead a fresh European ing in Iran from American sanctions. Whether they will succeed diplomatic offensive in the Middle East; the regional tensions is an open question; for many European companies, the Ameri- which a collapse of the nuclear deal could unleash make that an can market is too important to risk. (Germany exports about as especially urgent task. Even Mrs Merkel has come to understand much to North Carolina as to Iran.) On the trade row, some Euro- that disasters abroad have consequences at home. On trade the pean governments think the current spat can be flipped, judo- EU has been striking deals with partners like Canada and Japan like, into talks about eliminating the tariffs which Mr Trump dis- that will boost growth and spread European standards. likes on cars and other goods; others doubt it. But all agree that if But maintaining unity is difficult when many European coun- his metals tariffs take effect, Europe must hit back. tries, especially in the east, are not convinced that they must line If all this hints at a new readiness to get tough, it is in part be- up with their own continental partners in geopolitical affairs. cause other tactics have flopped. Emmanuel Macron, the so- Only last week three governments vetoed a planned EU state- called “Trump whisperer”, tried flattery; he was ignored. Angela ment condemning Mr Trump’sdecision to move America’s Israe- Merkel’s softly-softly approach found only Trumpian derision. li embassy to Jerusalem. Standing up to Mr Trump feels intoxicat- Mr Trump paints the European Union as a plot against American ing, but Europe’s options are limited by its own divisions and interests and has urged its disintegration. These days European dependence. If America drops its end of the international order, diplomats mutter that only the hard-nosed seem to get results Europe lacks the strength to support the entire structure alone. 7 48 Britain The Economist May 19th 2018

Corbynomics Also in this section The great transformation 51 Bagehot: The mighty monarchy

Labour’s plans would change Britain—but not in the way most people think OHN MCDONNELL has been on a tea of- he would turn Britain into Venezuela— than it does to Karl Marx. And its radical- Jfensive. Labour’s shadow chancellor of whose government under Hugo Chávez ism, which is real, lies in the area that has the exchequerspentthree decadeson the he praised—onlyminusthe oil and the sun- so farattracted least attention. party’s left-wing fringe before he was shine. Labour sometimes sounds outright Economic programmes comprise three thrust to its top in 2015, following the sur- hostile to capitalism. “When they [bank- big things: monetary policy, fiscal policy prise election of Jeremy Corbyn as La- ers] say we’re a threat, they’re right,” Mr and structural reforms. The Conservatives’ bour’s leader. Now Mr McDonnell, who Corbyn boasted in November in a video attacks on Corbynomics have focused on lists among his hobbies “fermenting [sic] that swiftly went viral. Mr McDonnell has the first two categories. the overthrow of capitalism”, has been previously advocated nationalising the There is plenty of radical thinking touring the City of London and taking tea bankingsystem; in 2013 he declared that he about monetary policy going on in leftist with bankers to disabuse them of their was a Marxist. circles. Followers of Bernie Sanders, a so- fears. “They expect to meet a raving ex- At other times, however, the duo’s eco- cialist senator who challenged Hillary tremist who is about to nationalise their nomic plans don’t sound drastically more Clinton for the Democratic presidential companyand send them on a re-education radical than those of Labour’s previous, nomination in 2016, have leapt on “mod- course somewhere up north,” he told fi- centre-left leader, Ed Miliband. The party’s ern monetary theory”. MMTers believe nanciers during a speech at Bloomberg’s manifesto last year was more moderate that because currency is a creature of the headquarters in London last month. than expected. “If I was putting forward state, governments enjoy more financial The audience laughed. But the prospect these ideas in Germany, I’d be called de- freedom than they recognise. They can of a far-left government led by Mr Corbyn pressingly moderate, depressingly old- spend without first collecting taxes and and Mr McDonnell is not the joke it might fashioned,” Mr Corbyn has said. borrow without fear ofdefault. have seemed 18 months ago. Labour de- The eyes of Mr McDonnell’s advisers prived the Conservatives of their majority Marx brothers? would bulge at the suggestion that they ad- in a general election last year. Polls now Piecing together Corbynomics is difficult, here to MMT. Though Mr Corbyn enter- have the opposition snapping at the heels not least because it has evolved during Mr tained wacky policies in the early days of of the flailing Tories, who are hopelessly Corbyn’s time in charge of Labour. The his leadership—including “people’s quan- bogged down in Brexit negotiations. What gulf between the Labour leadership’s past titative easing”, which amounts to printing precisely would Labour’s leaders do to positions and the milder proposals in the money to fund public investment—the Britain’s economy ifthey got into power? manifesto means that enormous uncer- message today is orthodox. Labour is toy- Tory MPs warn that Mr Corbyn wants tainty hangs over what a Corbyn-led gov- ing with the idea of altering the Bank of to drag Britain back to the 1970s, when left- ernment would do in office. But it is al- England’s mandate, to make it more like wing Labour governments jacked up tax- ready clear that Corbynomics is not what the Federal Reserve’s, in which unemploy- ation and spending and made a hash of Labour’s opponents believe. It owes more mentistargeted in addition to inflation. Itis managing the economy. Some ofthem say to little-known 20th-century economists also thinking about moving parts of the1 The Economist May 19th 2018 Britain 49

2 bank to Birmingham, a cosmetic change. critique of capitalism is that it produces try would gain in other ways. For those on Labour’s left, the party’s reti- poverty and inequality, argues Tim Rogan The thinking of the moral economists cence is frustrating. “Labour have never of Cambridge University. The moral econ- hasa rich tradition in the LabourParty. R.H. ‘got’ monetary policy,” moans one promi- omists’ critique was socialist, but in a dif- Tawney, an English economic historian, nent left-wing thinker. ferent way. They focused on something ab- was a favourite ofmany Labour MPs in the If that all sounds fairly small-bore, so is stract and difficult to measure: the spiritual 1940s. Tawney, in a manner similar to Pola- much of Labour’s fiscal policy. The prim- and moral decline that is said to accompa- nyi, argued that capitalism encouraged ary objective is to undo much of the fiscal ny capitalism. greed and thereby corrupted everyone. austerity that Conservative-led govern- Polanyi aimed his critique at economic The “alternative economic strategy” of the ments have implemented since 2010. La- liberals. According to him, they believe 1970s, promoted by Tony Benn, a Labour bour would raise annual day-to-day that market exchange and self-interest are MP and mentor of Mr Corbyn, has echoes spendingby about £45bn ($61bn), ultimate- how societies naturally organise them- of the moral economists. According to a ly bringing it backto where it was in 2015. A selves. But other principles have under- 1981 issue of Marxism Today, it was popu- rise in corporation tax from 19% to 26%, re- pinned societies throughout history, too, larlyperceived as“a programme forgreater storingit to its level in 2011, is the biggest tax including reciprocity, honour and loyalty. state control ofthe economy”. In fact, Benn measure. A “national transformation If societies focus just on market exchange, “stressed the need fordemocracy and pop- fund” would raise public-sector net invest- Polanyi said, resistance (what he calls the ular involvement in economic planning.” ment from around 2% of GDP to 3%, the This is the intellectual tradition in highest sustained level in four decades. which Mr Corbyn and Mr McDonnell de- These policiesadd up to Labour’smostleft- veloped. Publications by Mr McDonnell wing programme in many years. But last when he was an obscure backbench MP, year’s election suggested that voters now stored on dusty shelves in the British thought the Venezuelan comparisons Library, have moral economy written all didn’t quite ring true. over them. “[F]ar from making people hap- pier, the net effect of consumer capitalism The other Austrian economist is to reinforce individualism at the expense In fact, fiscal and monetary policy turn out ofhealth and well-beingbecause itonly of- to be the least radical parts ofLabour’s eco- fers the illusion of control,” he wrote in nomic plan. “Keynesianism is not one. He spoke at a conference celebrating enough,” wrote James Meadway, now Mr Tawney in 2016. According to Mr Corbyn’s McDonnell’s economic adviser, in 2015. friends, he learnt most of his economics The problem with the British economy, as from Benn. When Mr Corbyn says that “it Labour sees it, is not a few too many years cannot be right …that profits extracted of austerity or over-tight monetary policy. from vital public services are used to line “There are no quickfixes,” added MrMead- the pockets ofshareholders,” the echoes of way. The third plank of Corbynomics, the anti-utilitarian approach of the moral therefore, involves structural reforms, pro- economists are loud. posals for which have been fleshed out Labour has also realised that Britain since the general election. Here the most seems to be having its own “counter- interesting ideas are to be found. movement”. Many feel increasingly un- From 1979 Margaret Thatcher launched easy about the deregulation and privatisa- an assault on the structure of Britain’s tions that have occurred since the 1980s. economy and society. Guided by the “counter-movement”) inevitably follows. More than three-quarters of Britons back worksofFriedrich Hayek, and in particular Polanyi was writing shortly after a tu- the renationalisation of water, electricity, his “Road to Serfdom”, published in 1944, multuous period of global history. Liberals gas and railways. The Brexit referendum her governments cut the size of the public of the early 20th century had believed that saw millions of people choose to risk their sector and blitzed trade unions. They in- integrated global markets, propped up by economic prosperity for what they saw as stilled a culture of individualism and self- the gold standard, would endure for ever. a chance to “take back control” from face- reliance in Britons. But in Polanyi’s view, economic liberalism less technocrats in Brussels. Those in the Labour leadership want a came at a cost. Free global trade put many repeat of 1979, except with a resurgence of firms out of business. Adhering to the gold From Polanyi to the present the collective, rather than the individual. standard required governments to impose This context makes it easier to understand Previous Labour governments largely fo- painful austerity measures. As people exactly what today’s Labour Party pro- cused on redistribution. Mr Corbyn wants moved around in search of work, family poses, and why. Last year a report commis- to overhaul the institutional structure of bonds were broken and friendships made sioned by Mr McDonnell, called “Alterna- the economy, argue Joe Guinan and Martin shallower. All this, he argued, ultimately tive Models of Ownership”, fleshed out O’Neill, two influential left-wing thinkers, provoked a reaction in the form offascism. ideas for what Labour thinkers refer to as in a forthcoming edition ofRenewal, an ac- The solution, in the moral economists’ the “democratisation” ofthe economy. ademic journal. Speaking to the Sunday view, was not to get rid of markets entirely, One element involves nationalisation— Times in 1981, Thatcher declared: “Econom- as Marxists would advocate. Instead, it but, Labour says, of a different kind from ics are the method; the object is to change was to soften them. That meant giving that which Britain saw after the second the heart and soul.” The Corbynites have workers more bargaining power and influ- world war. Guided by the thinking of Her- something similar in mind. ence over economic decisions. It meant bert Morrison, a Labour minister, post-war To understand how Labour intends to constraining the power of finance. And it nationalisation relied heavily on expert change Britain’s heart and soul, consider meant removing certain aspects of society groups managing industries and services the works of another Austrian who wrote from market exchange altogether. To those in the national interest. These groups were a book in 1944. Karl Polanyi was part of a who objected that all this would cause “too distant, too bureaucratic and too re- group loosely known by historians as the GDP to fall or unemployment to rise, the moved from the reality ofthose at the fore- “moral economists”. The typical socialist moral economistscountered thatthe coun- front of delivering services,” Mr McDon-1 50 Britain The Economist May 19th 2018

2 nell said in a recent speech. The result of if it is sold. The party has also said it will state-run days. Who owns and operates the Morrisonian model, according to the make it easier forco-ops to acquire finance, them may matter less than how they are report for Mr McDonnell, was “a small lackofwhich is one ofthe main things that regulated, somethingon which Labourhas private and corporate elite [with] little holds them back. Co-ops cannot list on so farsaid little. democratic scrutiny or debate around stockmarkets, since they are owned by The bigger question-mark over La- their operation.” This analysis mirrors Po- theirworkers. And banksare loth to lend to bour’s plans to “democratise” the econ- lanyi’s of the Soviet Union. A centralised what is an uncommon form of business, omy is whether they would really put or- system of economic management, he said, with difficult-to-understand ownership dinary people in charge. Distant, tookpower away from ordinary people. structures. Labour’sproposed “national in- out-of-touch private managers could sim- Labour therefore proposes a different vestment bank”, a new lender that could ply be replaced by distant, out-of-touch sort of public ownership. Local authori- capitalise itselfby issuing £20bn ofgovern- public bosses or by party apparatchiks. Re- ties, trade unions and workers, all of ment bonds a year, may be used to funnel moving the focus on economic returns whom are seen as more responsive than money their way. might make it easier to justify doling out expert panels to local needs, would play a jobs or contracts to political allies. Buying greaterrole in the management ofservices. Corbynomics’ cost local, as Preston does, is protectionist, a bit Councils would help run regionally These plans would incur some hefty up- like banning imports. A local supplier may owned utilities, for instance. “[N]ational front costs. When it comes to nationalising win a contract overa betterone in the next- state ownership of the grid and infrastruc- privately held utilities, Mr McDonnell says door town. Ifevery council did this, Britain ture of electricity and gas sectors could be that Parliament would determine the price as a whole would be poorer. combined with local, regional and com- to be paid for the companies’ holdings. In As for co-ops, it is worth asking why munity ownership,” the report says. practice itmightnotbe so simple. National- they have never taken off as a way of orga- An embryonic version of these energy isation forless than full market value could nising companies in any country. Even in proposals has already taken effect in Not- trigger compensation claims by investors. Italy, sometimes cited as a place where tingham, where Labour runs the city coun- And determining that value would be they have thrived, by one estimate only 4% cil. In 2015 the council set up a not-for-profit tricky. To nationalise the water industry, ofworkers are in co-operatives. Subsidised gas and electricity supplier, Robin Hood for instance, might cost anywhere from lending would risk propping up unprofit- Energy, which also sells across the country £14bn (according to Bernstein, a research able outfits. Although worker-ownership underothercouncils’ local brands (Angelic firm, using Labour’s preferred methodolo- ofbusiness gives ordinary people a greater Energy, in Islington, counts Mr Corbyn as a gy) up to £90bn (according to the Social stake, it also concentrates risk. Workers’ in- customer). Robin Hood Energy takes Market Foundation, in a study commis- vestments, as well as their salaries, be- risks—the council lent it £11m—and rein- sioned by the industry). Whatever the cost, come wrapped up in the companies they vests any rewards. Its prices compare well it is risky for a country with a large current- work for. Would a Corbyn government or with those of private rivals. “We are rein- account deficit to mess around with for- local authority allow such businesses to venting the wheel of municipal social- eign investors. Capital could flee at the fail, astheymustifthe economyisnot to be ism,” says Steve Battlemuch, the councillor prospect ofmore compulsory purchases. weighed down by zombie firms? who sits on the firm’s board. When itcomesto the long-term effect of These are the questions to askof Corby- Preston, in north-west England, is a lab- the nationalisation policy, there is little evi- nomics. And Labour’s critics should keep oratory for other aspects of Corbynomics. dence either way whether publicly or pri- in mind the philosophical underpinnings Under an agreement with the local coun- vatelyrun utilitiesperform better. The priv- of these policies. As far as their supporters cil, large public institutions such as the uni- ate sector has not always proved up to the are concerned, criticisingthe plansfor their versity bias their procurement towards job: on May 16th the government an- inefficiency misses the point. Just as warn- providers in the local area. For Matthew nounced that it would bring train services ings that Brexit would make people poorer Brown, the councillor who started the on the East Coast Mainline back under failed to deter those who longed to claw scheme, it is about taking back control of public control, following the failure of the back power from Brussels, those same ar- public resources. “It democratises the capi- private franchisees. Yet Britain’s utilities guments against Mr Corbyn’s programme tal,” he says. If elected to Downing Street, and services such as the railways were may not persuade voters determined to Labour would get the government to use hardly a byword for efficiency in their “take backcontrol” ofthe economy. 7 its colossal procurement budget for policy goals, demanding that suppliers pay the living wage (a voluntary amount slightly higher than the statutory minimum wage) or cap bosses’ pay at 20 times that of the median worker, forinstance. Another part of “democratisation” in- volves promoting worker control over private businesses. Worker-owned and -managed companies are rare in Britain. Less than 1% ofworkers are members ofco- operatives. Most people do not under- stand whata co-op isorhowto setone up— though theylike the lookofJohn Lewis, the retailer owned by its workers, which is of- ten cited by politicians trying to build sup- port for co-ops. (Even David Cameron, a former Conservative prime minister, praised the chain.) Labour goes further. It has promised to give workers a “right to own”, allowing them the first chance to buy their company The Economist May 19th 2018 Britain 51 Bagehot Something old, something new

The monarchy is strongerthan it has been foryears—and the government weaker ment and bullying. The Home Office is in turmoil. The govern- ment is preparing for Brexit, its most complicated task since the second world war, without a majority in the Commons or a con- sensus in its own ranks. Brexit has confronted the efficient branch with an existential crisis. By calling the referendum, David Cameron not only be- trayed the efficient branch’s guiding principle (that you keep the most difficult decisions for yourself) but also opened the door to a populist revolt. The efficient branch now has an agonising choice: implement a policy that it believes to be foolish, or frus- trate the “will of the people”. Hence the paralysis—and the pre- occupation with damage-limiting fudges. The dignified branch, by contrast, is thriving. The queen repre- sentsstabilityin an unstable world, aswell asunityin a polarised one. She has spent 66 of her 92 years on the throne and has sur- vived 12 prime ministers and innumerable political crises. The royal household has done a good job of moving Prince Andrew and his ilk into the background and replacing them with a new generation. Prince William and Kate Middleton look exactly like the dignified mannequins that Bagehot’s constitution demands. The marriage of Prince Harry and Meghan Markle is likely to ROYAL wedding is as good a time as any to conduct an audit be another brilliant chapter in this story of renewal. There are Aof the British constitution. Walter Bagehot, the editor of The blemishes; Ms Markle’s family look almost as strange as the Economist in 1860-77, argued that the constitution was divided Windsors. But the happy couple nevertheless offer the dignified into two branches. The monarchy represents the “dignified” branch a chance to reinvent itself for a more multicultural and branch. Its job is to symbolise the state through pomp and cere- touchy-feely age. Ms Markle is a mixed-race American divorcee. mony. The government—Parliament, the cabinet and the civil ser- As an actress, she has had the ideal training for her odd new ca- vice—represents the “efficient” branch. Its job is to run the coun- reer. Harry combines an easy charm with a sense of vulnerabili- try by passing laws and providing public services. The dignified ty, talking openly about undergoing therapy to recover from the branch governs through poetry, and the efficient branch through horrors ofhis upbringing, particularly his mother’s death. prose. Today, the dignified branch is adapting to an age of popu- lism much better than the efficient branch. God save the queen Twenty-odd years ago it looked as if the monarchy was in an The dignified branch nevertheless has a problem waiting in the advanced state of decomposition. The ill-starred marriage of wings, in the form of the future Charles III. A new book by Tom Prince Charles and Diana Spencer undermined the monarchy’s Bower, “Rebel Prince”, paints an unflattering picture of the claim to unify the country through dignity. The couple’s squab- world’s oldest intern. Charles is both entitled and whiny. He lives bles divided supporters of Diana from a much smaller group of in sixhouses but complains about his lot. He is astonishingly self- supporters of Charles, and provided the tabloid press with a rich ish, fretting about global warming while travelling by private jet. (and sickening) diet of gossip. The queen capped it all with her The really worrying thing about Charles is not that he is a handlingofDiana’s death. She said nothingforfive days, burning weakman but that he is a surprisingly strongone. He has a wacky decades ofgoodwill with her silence. butwell-worked-outphilosophy: NewAgeism meetsneo-feudal- The Charles and Di debacle was one of several. Prince An- ism. He has a record of getting what he wants. He forced a reluc- drew and his ex-wife, Sarah Ferguson, were derided as “Airmiles tant establishment to accept the “horsey home-wrecker”, Camil- Andy” and “Freebie Fergie”. The queen and Prince Philip looked la, as his wife. He takes on what he regards as vested interests, out of place in “Cool Britannia”. Prince Charles’s determination berating architects for building carbuncles, opposing genetically to marry Camilla Parker Bowles, with whom he had conducted modified crops and savaging modern educational theories. He an affairwhile married to Diana, furtheralienated the public. has advanced his causes by writing to politicians and lobbying At the same time, the efficient branch went from strength to behind the scenes. This would be manageable if his beliefs were strength. Tony Blair and Gordon Brown modernised the Labour all barmy. The problem isthatsome ofthem, like hisenvironmen- Party and went on to modernise the state, giving the Bank ofEng- talism, have proved both popular and prescient. land its freedom, devolving power to Scotland, Walesand North- Beingboth determined and rightisa wonderful thingin a poli- ern Ireland and spring-cleaning government departments. The tician but a dangerous one in a constitutional monarch—particu- efficient branch even had to step in to save the dignified branch larly when determination shades into pigheadedness and right- from itself. MrBlair pronounced Diana “the people’s princess” as ness comes with a hefty dose of foolishness. Charles would be the queen remained in herScottish castle, and persuaded the pal- well advised to spend the rest of his internship digesting Walter ace to set up a committee to lookat the Crown’s future. Bagehot’s great book, “The English Constitution”, which lays out, Today the situation has been reversed. The efficient branch is in pellucid prose, not only what a modern monarch should do in its worst state since the 1970s. The two main parties have been but also what he shouldn’t. Otherwise, he may find himself do- captured by their extremes. The prime minister lacks authority. ing to the dignified branch what the referendum has already Westminster has been rocked by scandals about sexual harass- done to the efficient. 7 52 International The Economist May 19th 2018

University rankings higher-educational stars; any government that failed to create them had failed its peo- Higher and higher education ple and lost an important global race. Eu- rope’s poor performance was particularly galling for Germany, home ofthe modern research university. The government re- sponded swiftly, announcing in 2005 an Exzellenzinitiative to channel money to in- League tables lead universities to favourresearch overteaching and hard sciences stitutions that might become world-class overthe humanities. Yet they fosterglobal co-operation universities, and has so far spent over ARLIER this month Peking University Liu, expected the Shanghai rankings to be €4.6bn ($5.5bn) on it. Eplayed host to perhaps the grandest glo- so popular. “Indeed, it was a real surprise.” Propelled by a combination of national bal gathering ever of the higher-education People are suckers for league tables, be pride and economic pragmatism, the idea business. Senior figures from the world’s they of wealth, beauty, fame—or institu- spread swiftly that this was a global com- most famous universities—Harvard and tions of higher education. University rank- petition in which all self-respecting coun- Yale, Oxford and Cambridge among ings do not just feed humanity’s competi- tries should take part. Thirty-one rich and them—enjoyed or endured a two-hour tive urges. They are also an important middle-income countrieshave announced opening ceremony followed by a packed source of consumer intelligence about a an excellence initiative of some sort. India, programme of mandatory cultural events good on which people spend huge where world rankings were once regarded interspersed with speeches lauding “Xi amounts of time and money, and about with post-colonial disdain, is the latest to Jinping thought”. The party was thrown to which precious little other information is join the race: in 2016 the finance minister celebrate Peking University’s 120th birth- available. Hence the existence of national announced that 20 institutions would aim day—and, less explicitly, China’s success in league tables, such as US News & World Re- to become world-class universities. The a race that started 20 years ago. port’s ranking of American universities. most generously funded initiatives are in In May 1998 Jiang Zemin, China’s presi- But the creation of global league tables— France, China, Singapore, South Korea and dent at the time, announced Project 985, there are now around 20, with Shanghai, Taiwan. The most unrealistic targets are Ni- named for the year and the month. Its pur- the Times Higher Education (THE) and QS geria’s, to get at least two universities in the pose was to create world-class universities. the most important—took the competition world’s top 200, and Russia’s, to get five in Nian Cai Liu, a professor of polymeric ma- to a new level. It set not just universities, the world’s top 100, both by 2020. terials science and engineering at Shang- but governments, against each other. The competition to rise up the rankings hai Jiao Tong University, got swept up in When the Shanghai rankings were first has had several effects. Below the very 1 this initiative. “I asked myself many ques- published, the “knowledge economy” was tions, including: what is the definition of emerging into the global consciousness. and criteria for a world-class university? Governments realised that great universi- What are the positions of top Chinese uni- ties were no longer just sources of cultural Essay: The Economist is holding an essay contest for versities?” Once he started benchmarking pride and finishingschools forthe children people aged between 16 and 25, based on the five them against foreign ones, he found that of the well-off, but the engines of future themes of our Open Future initiative: Borders, Ideas, Markets, Society and Progress. Essays should be no “governments, universities and stakehold- prosperity—generators of human capital, longer than 1,500 words and the deadline is July 15th ers from all around the world” were inter- ofideas and ofinnovative companies. 2018. The best essays will be published on The Economist’s ested. So, in 2003, he produced the first The rankings focused the minds of gov- Open Future website and winners are invited to attend one of the three Open Future Festivals on September ranking of 500 leading global institutions. ernments, particularly in countries that 15th, in Hong Kong, London or New York. Details can be Nobody, least of all the modest Professor did badly. Every government needed a few found at: Economist.com/openfuture/essay-contest The Economist May 19th 2018 International 53

2 highest rankings, still dominated by Amer- abouttheirresearch maybe lessinclined to having an excellence initiative, favours top ica and western Europe—America has spend their energies on students, and so universities through the allocation of re- three of the THE’s top five slots and Britain there may be an inverse relationship. Since search money. According to a study of over two this year—the balance of power is students suffer when teaching quality de- 120 universities by Alison Wolf of King’s shifting (see chart). The rise of China is the clines, theymightbe expected to push back College London and Andrew Jenkins of most obvious manifestation. It has 45 uni- against this. But Ellen Hazelkorn, author of University College London, the Russell versities in the Shanghai top 500 and is “Rankings and the Reshaping of Higher Group, a self-selected elite of 24 universi- now the only country other than Britain or Education”, argues that students “are buy- ties, get nearly half of the funding for the America to have two universities in the ing prestige in the labour market”. This entire sector, and increased their share THE’stop 30. Japan isdoingpoorly: its high- means “they want to go to the highest-sta- from 44.7% in 2001-02 to 49.1% in 2013-14. est-ranked institution, the University ofTo- tus university possible”—and the league ta- The rankings race draws other com- kyo, comes in at 48 in the THE’s table. Else- bles are the only available measure of sta- plaints. Some universities have hired where, Latin America and eastern Europe tus. So students, too, in effect encourage “rankings managers”, which critics argue have lagged behind. universities to spend their money on re- is not a good use of resources. Saudi Arabi- The rankingsrace hasalso increased the search rather than teaching. an universities have been accused of giv- emphasis on research. Highly cited papers The result, says Simon Marginson, Ox- ing highly cited academics lucrative part- provide an easily available measure of suc- ford University’s incoming professor of time contracts and requiring them to use cess, and, lacking any other reliable metric, higher education, is “the distribution of their Saudi affiliation when publishing. that is what the league tables are based on. teaching further down the academic hier- None of the rankings includes teaching archy”, which fosters the growth of an “ac- Intellectual citizens ofnowhere quality, which is hard to measure and com- ademicprecariat”. These PhD students and Notwithstanding its downsides, the rank- pare. Shanghai’s is purely about research; non-tenured academics do the teaching ings race has encouraged a benign trend THE and QS incorporate other measures, that the star professors, hired for their re- with far-reaching implications: interna- such as “reputation”. But since the league search abilities, shun asa chore. The British tionalisation. The top level of academia, tablesthemselvesare one ofitsmain deter- government is trying to press universities particularly in the sciences, is perhaps the minants, reputation is not an obviously in- to improve teaching, by creating a “teach- world’s most international community, as dependent variable. ing-excellence framework”; but the rating Professor Marginson’s work shows. is made up ofa student-satisfaction survey, Whereas around 4% of first-degree stu- Hard times dropout rates and alumni earnings—inter- dents in the OECD study abroad, a quarter The research boom is excellent news for esting, but not really a measure ofteaching of PhD students do. Research is getting humanity, which will eventually reap the quality. Nevertheless, says Professor Mar- more global: 22% of science and engineer- benefits, and for scientific researchers. But ginson, “everybody recognises this as a ing papers were internationally co-au- the social sciences and humanities are not problem, and everybody is watching what thored in 2016, up from 16% in 2003. The faring so well. They tend to be at a disad- Britain is doing.” rankings, which give marks for interna- vantage in rankings because there are few- A third concern is that competition for tional co-authorship, encourage this trend. er soft-science or humanities journals, so rankings encourages stratification within That is one reason why Japan, whose uni- hard-science papers get more citations. university systems, which in turn exacer- versitiesare asinsularasitsculture, lags. As Shanghai makes no allowance for that, bates social inequality. “Excellence initia- research grows—in 2000-14 the annual and Professor Liu admits that his ranking tives” funnel money to top universities, number of PhDs awarded rose by half in tends to reinforce the dominance of hard whose students, even if admission is high- America, doubled in Britain and quintu- science. Phil Baty, who edits the THE’s ly competitive, tend to be the children of pled in China—so does the size and impor- rankings, says they do take the hard sci- the well-off. “Those atthe top getmore gov- tance ofthis multinational network. ences’ higher citation rates into account, ernmentresourcesand those atthe bottom Researchers work together across bor- scoring papers by the standards of the rele- get least,” points out Ms Hazelkorn. That’s ders on borderless problems—from climate vant discipline. But that is only a partial true even in Britain, which, despite not change to artificial intelligence. They gath- solution: much social-science and human- er at conferences, spend time in each oth- ities output comes in the form of books er’s universities and spread knowledge rather than papers, which the rankings do The academic ladder and scholarship across the world. Forced not count. Moreover, researchers in those Number of universities in the top 500, by country* to publish in English, they share at least subjects tend to write in local languages. one language. They befriend each other, The rankings count only workin English. North America Europe Asia Oceania marry each other and support each other, The hard sciences have benefited from United 160 politically as well as intellectually. Last the bounty flowing from the “excellence States year, for instance, when Cambridge Uni- initiatives”. According to a study of these 150 versity Press blocked online access to hun- programmes by Jamil Salmi, author of 140 dreds of articles on sensitive subjects, in- “The Challenge of Establishing World- 130 cluding the Tiananmen Square massacre, Class Universities”, all the programmes ex- at the request of the Chinese government, cept Taiwan’s focused on research rather it faced international protests, and an than teaching, and most of them favoured 50 American academic launched a petition STEM subjects (science, technology, engi- Germany China which was signed by over1,500 academics Britain 40 neering and mathematics). This is no Japan around the world. CUP backed down. 30 doubtone ofthe reasonswhythe numbers Canada Australia The rankings race is thus marked by a Italy France of scientific papers produced globally 20 happyirony. Driven in partbynationalistic Spain nearly doubled between 2003 and 2016. S Korea urges, it has fostered the growth of a com- Netherlands 10 The rankings may be contributing to a Sweden munity that knows no borders. Critics are deterioration in teaching. The quality of 0 right that governments and universities the research academics produce has little 2003 2017 obsess too much about rankings. Yet the bearing on the quality oftheir teaching. In- Source: ShanghaiRanking *With at least ten in world benefits from the growth ofthis pro- deed, academics who are passionate Consultancy the top 500 in 2017 ductive, international body ofscholars. 7 54 Business The Economist May 19th 2018

Also in this section 55 Music streaming and #MeToo 56 Samsung and its labour unions 56 AirAsia votes incorrectly 57 McKinsey is sued for racketeering 57 China Three Gorges and EDP 58 Toyota’s route to self-driving cars 59 Bitcoining it from crypto Schumpeter is away

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

American sanctions law to trade with Iran will be under the cosh—unless their leaders fight back. What the OFAC? Whether or not there is the stomach for such a battle is the question haunting busi- nesses in Europe. French carmakers, Total, an oil supermajor, and Airbus, an aircraft manufacturer, developed stronger busi- ness ties with Iran after European sanc- Business has little choice but to cave in to the Trump administration’s unpredictable tions were lifted in 2016. Peugeot and Re- sanctions policies nault sold more than 600,000 cars there ONALD TRUMP is the sort of guy Jinping, to bring ZTE “back into business, last year. Total has signed a $5bn deal to ex- “Dwho punches you in the face and if fast” and that the lifeline was part of a larg- tract natural gas in Iran, in partnership you punch him back, he says ‘Let’s be er trade deal with China. American con- with PetroChina, a Chinese counterpart. friends’. China punched back and he re- gressmen said this smacked of submission Iran has ordered 100 planes from Airbus. treated. The Europeans told him how to retaliatory pressure from China. SWIFT, an international bank messaging beautiful he was, but they got nothing.” Not only was Mr Trump’s move an un- system based in Belgium that is used for This is how an American official-turned- usual intervention in a law-enforcement business payments, reconnected Iranian executive describes the latest twists in the matter. It also came on the day that his na- banks to the global system in 2016. Trump administration’s sanctions policy, tional security adviser, John Bolton, threat- which this year has roiled business from ened to punish European firms that violate Can the bloc block? America to Europe, Russia, China and Iran. new sanctions the Trump administration European leaders attempted this week to Whatbusinessleaderssee, analystssay, isa is imposing on Iran after withdrawing work out a plan for keeping the JCPOA punitive approach that is capricious, ag- from the Joint Comprehensive Plan of Ac- alive without America that would enable gressive and at times ill-prepared. But un- tion (JCPOA), a nuclear deal implemented their businesses to continue to trade with less companies or their governments take in 2016. In other words, a convicted Iran Iran. Ali Vaez, of the International Crisis the fight all the way to the White House, sanctions-buster allied to China might be Group, a consultancy, said that to keep Iran they have little choice but to abide by the let off, whereas firms allowed by European on board with an amended agreement, the long—and sometimes wrong—arm of Europeans may need to promise that it American law. could keep selling its oil to them, as well as The capriciousness was evident on American sniper keep access to SWIFT. But in order to do May 13th when President Trump executed United States, new sanctions added that, Europe faces “a set of ugly choices”. a handbrake turn on ZTE, the world’s Administered by the Office of Foreign Assets Control These include threatening to impose tariffs fourth-biggest telecoms-equipment maker, 1,000 on American imports if the Trump admin- which is strongly supported by the Chi- istration slaps secondary sanctions on nese government. It had been brought to 800 European firms trading with Iran, or im- the brink of bankruptcy after the Ameri- posing “blocking legislation” of the kind can government in April banned its firms 600 introduced in 1996 to protect its companies from supplying it with components. That 400 from Cuba-related sanctions. “The exemp- was punishment for ZTE’s violation of tion forZTE is a good example that ifthe EU American sanctions against Iran and 200 were to bring out the big guns...then it can North Korea and for its subsequent lies negotiate exemptions,” Mr Vaez says. about how it censured the staffinvolved. 0 But many doubt Europe’s appetite for a In two surprise tweets, Mr Trump said 2001 03 05 07 09 11 13 15 17 fight. “In my wildest dreams, I can’t imag- he was working with China’s president, Xi Sources: OFAC; Gibson Dunn ine Europe doing it,” says Amos Hochstein, 1 The Economist May 19th 2018 Business 55

2 who, as a member of the Obama adminis- with the transaction. deny any wrongdoing. Their music will tration, led the move to put sanctions on Ms Rosenberg says it is the Treasury’s still be available on the service, but it will Iranian oil in 2012. PatrickMurphy ofClyde job to anticipate what the market and po- not be pushed to listeners. It then quickly and Co, a law firm, says the proposed Irani- litical reaction will be, rather than impos- emerged that Apple Music and Pandora, an sanctions are too different from the Cu- ing sanctions and then “walking back in two other streaming services, had quietly ban ones fora similar remedy. the face of protests”. Others say that the taken similar action. Moreover, says Mr Murphy, in an in- more sanctionsare seen as“transactional”, Spotify’spublicdeclaration sentripples creasingly dollarised world, businesses the more their credibility is damaged. through the music industry, sparking ques- and banks are so worried about being shut Yet however murky America’s system tions about whether, and how, streaming out of the financial system that there is in has become, businesses are in no mood to companies should police their catalogues fact “over-compliance” with the legal re- dismiss it. Doing business in countries that of some 30m songs. Few executives wish quirements imposed by America. He says have been labelled as rogue regimes is not to speak publicly, but a veteran of both the this explains the sluggish pace ofEuropean much good for their reputations. And music and streaming industries wonders investment in Iran in 2016-18, even though muchastheymaydislikebeingatoolofMr whether Spotify and its peers should have European sanctions had been lifted. On Trump’s unorthodox foreign policy, they the power to be “judge and jury” on which May 16th Total said it would unwind its in- know that they cannot disregard it. 7 artists should be blessed or banished. One vestment in Iran by November unless digital-media boss called the move “abso- American authorities granted it a waiver. It lutely dumb”, asking, “How do you start said it could not afford to be exposed to Music streaming drawing lines?” sanctions, which might include the loss of Most executives at music-streaming financing in dollars by American banks. Bad rap firms had not seemed to contemplate any Firms face many other complications. need to do so until recently (apart from tak- According to Gibson Dunn, a law firm, ing down songs that might violate specific America’s reliance on sanctions to tackle rules, such as hate-speech laws in Ger- terrorism, nuclear proliferation, human- NEW YORK many). Their counterparts at the record la- rights abuses and corruption has bal- belshave fordecadeslooked the other way In response to #MeToo, Spotifykicks off looned since Mr Trump took office. Last as artists accused of various crimes rocket- a cultural shiftin the music business year it put about 1,000 entities on its ed to the top ofsales charts. Yet in the #Me- “blacklist”, almost 30% more than in Ba- AKING it on to an official playlist on Too era advocacy groups have been put- rackObama’s final year(see chart on previ- MSpotify,a streaming service, can help ting more pressure on industry executives. ous page). The Office of Foreign Assets turn a singer into a superstar in the way Time’s Up, an organisation that Control (OFAC), which enforces sanctions that major radio stations once could. Until emerged from the #MeToo movement, had from Washington, has attracted unprece- recently the main criterion for inclusion joined a recent lobbying campaign for mu- dented attention from Steven Mnuchin at was a curator’s taste. Artists who have sic industry players to cut ties with R. Kelly, the Treasury. “To the best of our knowl- been accused of domestic violence and who has been accused of keeping under- edge, there hasneverbeen a treasury secre- other serious crimes are on playlists with age women against their will in a sex cult. tary so clearly enamoured with the sanc- millions offollowers, as are songs that crit- XXXTentacion is awaiting trial on charges tions tool,” says Gibson Dunn. ics find violently misogynist. that in 2016 he violently attacked a preg- As a result, OFAC is “incredibly That is starting to change. On May 10th nant woman; earlier this year a video sur- stretched”, says Elizabeth Rosenberg of the Spotify announced a new policy on “hate faced that appears to show him beating an- Centre for a New American Security, a content and hateful conduct”, and re- other woman in 2013 (the rapper says the think-tank. That makes it harder for busi- moved two artists, XXXTentacion, a rap- video is misleading). nesses to seek clarity on the reach of sanc- per, and R. Kelly, an R&B singer, from their Spotify, which wentpublicin April, was tions. OFAC has recently lost its director, official playlists due to allegations ofabuse a particularly obvious target for activists. It John Smith, and another senior official. and mistreatment of women. Both artists isthe global leaderin paid musicstreaming1 This staffing shortfall may contribute to a further difficulty for business: the Trump administration has, at times, imposed sanctions without appreciating the conse- quencesofitsactions. Itscrackdown on Ru- sal, Russia’s biggest aluminium producer, in April was aimed at punishing Oleg Deri- paska, a Russian oligarch, who owns it through EN+, a company recently floated in London. But it caused immediate disrup- tion of the world’s aluminium market, of which Rusal supplies about 6%. Higher aluminium prices hurt carmak- ers, manufacturers of cans and other users of the metal, leading to a strong lobbying effort in Washington. Less than three weeks later, the Treasury watered down the sanctions by extending the “wind- down” period for firms to finish doing business with Rusal. It also gave EN+ a chance to save itself and Rusal from the sanctions if it sold off Mr Deripaska’s stake to below 50%—provided it can find an in- vestment bank brave enough to help it More blues than rhythm for R. Kelly 56 Business The Economist May 19th 2018

2 with 75m subscribers and nearly $5bn in AirAsia revenue in 2017. Its choice of playlist pro- motion is a big deal for music acts. Bill- board magazine reports that 20-30% of On a wing and a slogan Spotify’s music streams come from play- KUALA LUMPUR lists. The firm’s RapCaviar playlist, which Tony Fernandes gets caught on the wrong side ofMalaysia’s election used to feature XXXTentacion, has9.5m fol- lowers. In addition to the direct value to OU only have one vote so use it artists (roughly $1,000 per million “Ywisely,”advised the captain ofa streams), the extra visibility bestowed by lunchtime AirAsia flight from Singapore playlists helps them with touring, record to Kuala Lumpur on May 9th. It was the sales and label deals. third time he had reminded passengers The de-listed singers and their defend- ofMalaysia’s election that day.Travellers ers say they are being unfairly singled out. delighted by the personal touch shook A representative for XXXTentacion issued his hand as they disembarked. The pilot a listof19otherartistsaccusedorconvicted was not freelancing. AirAsia had planned ofviolent ordisturbingbehaviourwho are to provide120 flights with reduced fares featured on Spotify playlists, including Mi- to help Malaysians get home to vote (in chael Jackson and JamesBrown. Thisweek the end, halfofthe flights were approved RapCaviar still featured Famous Dex, an- by the airline’s regulator). And the low- other artist who has been allegedly caught cost carrier’s political play went further on video beating a woman. than encouraging people to vote. Tony It is unclear how far firms will go in de- Fernandes, its British-Malaysian boss, listing artists. Many ofthose accused ofdo- arranged for an AirAsia plane to be paint- mestic violence are in hip-hop, the most ed with the slogan ofthe ruling coalition popular genre in America. Increased noto- ofNajib Razak, the prime minister at the riety has drawn fans as well as deterring time. Mr Fernandes also appeared in a Co-pilots Najib and Fernandes them. XXXTentacion hit Billboard charts video attributing the success ofhis busi- for the first time months after his 2016 ar- ness to the Malaysian government. firm’s share price still dropped by a tenth rest. Dr Dre, who along with others sold Then came the most astonishing the day after Mr Fernandes’s contrite Beats to Apple for $3bn and became a con- political result in the country for 61years, display.) For good measure, he also threw sultant at Apple Music, has been accused as 92-year-old Mahathir Mohamad, a some mud at the formeradministration, many times in the past of violence against formerprime minister, defeated Mr alleging that the Malaysian Aviation women, though he has also shown re- Najib. On May13th Mr Fernandes went in Commission pushed him to cancel spe- morse. But with the precedent now set, the front ofa camera again. He apologised cial flights forvoters, perhaps because pressure on streaming services to demote forhaving “buckled” under pressure support forMr Najib’s Barisan Nasional artists can be expected to increase. 7 applied by the defeated administration is mainly in poor rural communities and ofMr Najib (the two men are pictured, in people flying in might have been more the centre). “It wasn’t right and I will likely to vote forthe opposition (the Samsung and labour forever regret it,” he said. commission denies having done this). Mr Among the explanations he offered Fernandes also revealed that other offi- Workers of the forhis behaviour, one was that his in- cials wanted him to remove the chair- dustry is tightly regulated, meaning that woman ofAirAsia X, a long-haul service, Galaxy, don’t unite his airline needs to be in the govern- forcriticising the government. Investiga- ment’s good books. Yet other carriers tions into the claims are planned. SEOUL managed to stay above the political fray. The furore is unlikely to bother Air- Mr Fernandes may have hoped that he Asia for long. It is hugely successful. South Korean prosecutors have accused could improve AirAsia’s lot at Kuala Grown from the ruins ofa state-owned Samsung executives ofunion-busting Lumpur International Airport by butter- firm which Mr Fernandes bought in 2001 N THE face of it Samsung, South Ko- ing up those he assumed would win. for1ringgit (about $0.26 at the time), the Orea’s biggest chaebol, as the country’s Many ofthe firm’s operations are based AirAsia group, which includes six low- family-controlled groups are known, has at KLIA2, a dingy terminal with leaky cost airlines, now has over 200 planes had a good couple of months. In April it loos and unappetising food. carrying over 60m passengers annually. was name-checked in a report by the coun- AirAsia’s operations at home are Customers in its other markets, such as try’s antitrust body for good progress on among its most lucrative, which explains the Philippines, Thailand and Japan, care corporate reform. It also posted record pro- why its boss is now desperate to appease less about political vagaries in Malaysia fits for the fourth quarter in a row, thanks Malaysians annoyed by his antics. (The than they do about cheap travel. mainly to its booming memory-chip busi- ness as well as its Galaxy range of smart- phones. But on May 15th prosecutors Mr Choi’s arrest is part ofan attempt by by Lee Myung-bak, a formerpresident. spoiled the mood. They raided Samsung’s prosecutors to prove systematic breaches Even though South Korea has a tradi- offices outside Seoul and arrested Choi oflabour law at the company’s highest lev- tion of energetic industrial action, unions Pyeong-seok, head of human resources at els. (Samsung says it is unable to comment, have been largely absent from Samsung. the after-sales subsidiary ofSamsung Elec- as the investigation is still going on.) Their Lee Byung-chul, the empire’sfounder, used tronics, the group’s main earner, on allega- probe began in February, when officials to say the firm would recognise them “over tions that he had been involved in sabotag- discovered evidence related to union-bust- my dead body”. Politicians and law-en- ing labour-union activities and might ing during a separate inquiry—into accusa- forcement authorities paid little attention destroy evidence unless he was jailed (he tions that Samsung had wrongly paid legal to claims that the firm was preventing the has not responded to the allegations). bills fora car-parts maker allegedly owned emergence of unions, perhaps because 1 The Economist May 19th 2018 Business 57

2 Samsung accounts for a fifth of South Ko- consultants, accountants and financiers. originally designed to litigate against crim- rea’s GDP. McKinsey is a relative newcomer: it set up inal organisations, is being used to grab Now they are looking more closely.The its restructuring arm, which turns around headlines. Nor is it clear how Mr Alix can evidence that led to Mr Choi’s arrest sug- companies in financial distress, in 2010. prove his firm was deprived of work. Even gests that one firm in the Samsung empire Though its share of the market is smaller if it had made more disclosures, says Ste- had monitored the personal interests, than those of the top players, AlixPartners phen Lubben, a law professor at Seton Hall friends and drinking habits of potentially and Alvarez & Marsal, its entry has stiff- University, McKinsey may not have been disruptive workers and used cash bribes to ened competition. Its clients have included disqualified all the time; and if it had been stave off unionisation. That echoes docu- American Airlines, Puerto Rico and a num- disqualified, AlixPartners may not have mentswhich people have unearthed in the ber ofenergy companies. snapped up all the work. Court cases, just past. In 2013 Sim Sang-jeung, a left-wing McKinsey is well-known for keeping like bankruptcy advice, can be messy. 7 lawmaker,made publica documentwhich the details ofits consulting workand its cli- she claimed contained Samsung’s guide- entele close to its chest. In contrast, the by- lines for preventing the formation of un- word forbankruptcy workis transparency. ions. It recommended gathering incrimi- Restructuring advisers have influence over nating information on workers who were how much creditors get paid, or which considered likely to form a union, and to parts of the business are sold off and to shut down such attempts early by using whom. They might even serve as interim disciplinary action. executives of a distressed firm. Creditors Ms Sim’s allegations did not lead any- want to know that potential buyers are not where at the time. Although prosecutors taking advantage of a company already on investigated her claims, which if proven its knees. So advisers must disclose any po- would have put Samsung in breach of tential conflicts of interest to a court before South Korean labour law, they were reluc- they are approved to work fora firm in dis- tant to probe too deeply, says Park Sangin, tress. A judge then decides if the advisory an economics professor at Seoul National firm’s connections pose a conflict, in University who studies the conglomer- which case it can be barred from working ates. The case was closed in 2015. on behalfofthe bankrupt business. Mr Park reckons the current investiga- In April the Wall Street Journal reported tion will be more thorough. The corrup- that McKinsey initially disclosed an aver- tion scandal that felled the former presi- age ofonly five potential conflicts per case, dent, Park Geun-hye, who was jailed for 24 whereas other professional-services firms years last month, also embroiled Lee Jae- divulged, on average, 171 connections. In yong, the heir to the Samsung empire, who most cases it disclosed no conflicts at all. is serving a suspended sentence forpaying That such a well-connected consultancy bribes to Ms Park’s aide in return for busi- had so few potentially problematic links to ness favours. That scandal galvanised law- declare might strain credulity. McKinsey enforcement agencies, whose anti-corrup- points out that courts routinely approved China Three Gorges and EDP tion drive has the backing of President its disclosures. Moon Jae-in’s reformist government. Ex- But Mr Alix, who no longer holds a ma- Opening the pect prosecutors to keep pushing. 7 jority stake in his firm and is suing inde- pendently of it, alleges that McKinsey de- floodgates liberately hid conflicts of interest in order Bankruptcy advice to gain work unlawfully, and so deprived PARIS his company of tens of millions of dollars A Chinese bid fora big Portuguese of business. He also accuses McKinsey of Raising a racket utilitymay run into opposition offeringtoreferitsconsultingclientstolaw- yers, iflaw firms in turn referred bankrupt- HOULD Europeans worry that China cy work to it. He says he discussed the alle- SThree Gorges (CTG), a state-owned firm, gations with McKinsey executives in 2014, wants to buy EDP, a utility that is Portugal’s but decided to take no action because they biggest company? It is three years since one McKinsey gets sued by a rival for promised to exit the bankruptcy business. local banker, Fernando Ulrich, called Por- racketeering McKinsey says the accusations are “base- tugal “a Chinese aircraft-carrier in Eu- OBSTERS, gangsters and bent cops less and anti-competitive”, and an attempt rope”—back then, Chinese buyers were al- Mhave all been tried under America’s to disparage the firm; it also denies having ready snapping up stakes in “strategic” Racketeer Influenced and Corrupt Organi- promised to exit the business. local companies as quickly as the govern- sations (RICO) Act. Might consultants be Mr Alix has already devoted plenty of ment could privatise them. CTG’s offer of next? McKinsey,a management consultan- energy to challenging McKinsey. He €9.1bn ($10.8bn) for EDP, which was made cy,is being sued under the law by Jay Alix, bought up a stake in one of McKinsey’s on May11th, will furtherunsettle those sus- the founder of AlixPartners, a competitor bankruptcy clients, Alpha Natural Re- picious of China’s desire to snap up Euro- in the field of bankruptcy advice. Mr Alix sources, a coal producer, so that he could pean assets. alleges that McKinsey knowingly misled convince regulators to press the consultan- The country is unusually welcoming to courts in order to land clients. The firm de- cy formore disclosures. McKinsey went on investors from the east. Its national airline, nies any wrongdoing. to disclose the names ofsome ofits clients, TAP Air Portugal, and Redes Energéticas Bankruptcyislucrative, forthose doling including banks, that were connected to Nacionais, the monopoly power transmit- out the advice. According to Debtwire, a the coal company. ter, both have Chinese investors. CTG is al- data provider, corporate bankruptcies gen- Mr Alix has said he wants to ensure all ready EDP’s largest owner, with a stake of erated $1.3bn in fees in 2016, with lawyers advisory firms operate on a level playing 23%, after a €2.7bn investment in 2012. takinghome overhalf,and the rest going to field. But some wonder if the RICO suit, Now the Chinese want outright control. 1 58 Business The Economist May 19th 2018

2 To get that, CTG will probably have to gain with its takeover offer remains to be over a quarter of people are over 65. But raise its offer; EDP’sboard rejected the price seen. Getting more access to European similar demographic crunches are coming offered by the Chinese on May 15th. Cru- technology is one possible benefit. Being elsewhere. “Imagine a car, one day, that is cially, however, CTG won Chinese approv- able to sell Chinese technology,such as the so good that it will neverbe responsible for al in advance, necessary these days given ultra-high voltage networks in which Chi- a crash, no matter what the driver does,” official restrictions on capital flowing na specialises, to European buyers might says Gill Pratt, chiefexecutive ofthe Toyota abroad. Portugal’s government is also re- eventually be another goal. Research Institute (TRI), the carmaker’s re- laxed, calling the Chinese “good inves- Probably more important for Chinese search hub in Silicon Valley. tors”. It helps that EDP’s headquarters companies, however, is learning how Eu- This incremental approach will not would remain in Lisbon. rope’s liberalised energy markets work. necessarily leave Toyota in the dust. As the Officials elsewhere may yet object. EDP John Seaman, who studies Chinese inves- Uber crash showed, fully automated driv- has electricity or gas operations in14 coun- tors in Europe’s energy sector for IFRI,a ing is difficult, and is progressing slowly, tries, including America, where it bought think-tank in Paris, points out that China is despite the billions being thrown at it. Rod- Horizon, a Texan wind-farm company, in reforming its own energy markets, letting ney Brooks, a roboticist who sits on TRI’s 2007. Joint ventures with CTG elsewhere its firms compete more in an effort to re- advisory board, recently predicted that no are sizeable. In Brazil the firms together run duce costs. “In Portugal China is looking unrestricted robotaxi service would arrive hydropower stations, and constitute one forknow-how,todriveitsownenergytran- in a big American city until 2032. Toyota’s of the largest private energy producers. sition [and] to learn how to integrate re- caution may let it avoid waves of self-driv- EDP makes and distributes electricity in newables,” he says. That interpretation of ing hype and disappointment, while still Spain; it operates wind farms in France, Ita- events sounds benign. But it may not giving it the tools to develop fully autono- ly and Poland. drown out talkofaircraft-carriers. 7 mous cars in future. Chinese firms have been investing A slower approach also lets Toyota heavily in energy in Europe (see chart). But build the high cost of gathering driving governments are getting twitchier about Toyota and autonomy data into its existing business. Before their this. France and Germany have started to cars can drive in a particular area, robotaxi push forstricterscreeningofforeign invest- Speed limited firms must map it in exquisite detail, man- ment, especially in sectors involving sensi- ually and at great cost, by driving mapping tive technology. Proposed deals have cars around the area they wish to service. caused trouble in the past: two years ago Those valuable data are used to teach AI al- another Chinese energy firm, State Grid, PALO ALTO gorithms about human behaviour in the failed in a bid for 14% of Eandis, a public area, as well as about road layouts. The Japanese giant is taking a measured distributor of gas and electricity in Flan- Toyota plans to gather similar data approach to autonomous vehicles ders, Belgium, after an intelligence service cheaply through its fleet of consumer-dri- warned ofthreatsoftheftand corporate es- BER’s fleet of autonomous vehicles ven cars (by 2025 this will number some pionage from China. A counter-bid for EDP Uhas been parked up since one of its 50m cars). Outward-facingcameras and ra- from a European buyer is possible. But that self-drivingcarsstruckand killed a woman dars, now being installed in all its new cars would be tricky to engineer, given the ex- in Tempe, Arizona in March. That death to make them safer, will also gather on- isting links between the Chinese investor highlighted once again the industry’s rush board data that can be used to train fully and its Portuguese partner. to develop self-driving cars. Waymo, a sis- autonomous driving software. Informa- CTG also faces hurdles across the Atlan- ter company of Google, plans to launch a tion gathered on such a large scale will al- tic. In view of EDP’s American operations, robotaxi service in Arizona this year. Gen- low Toyota’s AI to learn to handle traffic the Chinese firm needs approval from eral Motors says it will launch a fully au- events that are extremely unusual, the sort America’s powerful Committee on For- tonomous taxi service, using cars with no which robotaxi firms gathering data in eign Investment in the United States. Hop- steering wheel or pedals, in an American lesser quantities may never see. ing to pre-empt objections that Chinese city in 2019. Volkswagen will make autono- Lackof“lidar” (lightdetection and rang- ownership of power generation in Ameri- mous vehicles available through its new ing) sensors in Toyota cars could prove a ca threatens national security, CTG has ride-hailing service, Moia, in 2021. Ford hindrance, however. Lidar works by emit- hinted it would consider selling some as- says it will be mass-producing fully auton- ting pulses of laser light and watching for sets (though it also indicated it would drop omous cars by then, too. their reflections, thereby building a precise its EDP bid rather than give up too much). But not every carmaker is going at the 3D map of the surroundings—essential for Exactly what the Chinese firm hopes to same speed. Toyota, one of only three car training today’s automated driving soft-1 companies that sells over 10m vehicles a year, has made no equivalent commit- Gorging themselves ments. The Japanese firm is instead con- Chinese investment* in European utility and centrating on using artificial intelligence energy firms, $bn (AI) and automation to make conventional 30 cars safer and more enjoyable to drive. Including The immediate aim is to extend the age EDP offer at which it is safe for older people to drive themselves, by using technology that can 20 catch theirmistakes. Software that process- es data from on-board cameras and radar units will watch out forimpending crashes 10 and trytostopthe carbefore impact, orcor- rect for the slow out-of-lane swerve of a tired driver. Other software will guide the 0 car in slow traffic, so that drivers can relax. 2008 10 12 1416 18† Helping older drivers is a particular Source: Dealogic *Including debt †To May 16th concern in Toyota’s home market, where Intrepid data gatherers The Economist May 19th 2018 Business 59

2 ware, since video and radar do not capture cars it sells have internet connections to for $1,300 each on Amazon, and Bitfury the environment in sufficient detail. Robo- transmit data in real time. A new arm, will install shipping containers filled with taxi firms gather lidar data in every patch Toyota Connected, is aiming for that by mining machines for a price that is undis- of city in which they deploy their cars, but 2020 in the firm’s two main markets, closed but is thought to be around $1m-2m. Toyota will not, for the foreseeable future, America and Japan. Not all crypto-currencies are mined in be able to do so. The firm will either need All this adds up to a bet that massive the same way, however. For bitcoin, the to find a way to add expensive lidar sen- scale and patience can beat being first to three data inputs to the cryptographic puz- sors to the cars it sells, or to advance its market. Toyota is not chasing the robotaxi zle are relatively small but the maths pro- machine-learning software to the point dream directly. But it may nonetheless end blem is hard, meaning that chip design where it can learn to drive without it. up in the right place at the right time, and hands miners a big advantage. Bill Tai, a Toyota also needs to ensure that all the with the relevant data to cash in. 7 board member of Bitfury, says this irks some people in the crypto-community.Bit- main alone mines two-fifths of bitcoin Crypto-currencies blocks, which undermines the currency’s egalitarian ideals. Bitcoining it For that reason, VitalikButerin, the crea- tor ofEthereum, the second-most-valuable crypto-currency by market capitalisation, tried to set things up differently. The cryp- tographic puzzle used to mine ether (the digital coin associated with Ethereum) in- volves a fairly simple maths problem, but Some companies have struckgold in the crypto-currency mining boom the inputs are enormous. The hope is that NArecentvideoJeremySciarappa,aYou- this will blunt the advantage of ASICsand ITuber, flips the lid off a red box in his liv- prevent ordinary users being squeezed ing room to reveal a silver machine the size out. Most of those users mine on graphics ofa shoebox, whiningnoisily. The contrap- processing units, semi-specialised silicon tion is an Antminer S9, sold by Bitmain, a primarily designed to generate video- Chinese firm. Itsjob isto help validate tran- game graphics, but which are good at sactions conducted in bitcoin, the world’s crypto-currency mining. Those GPUsare best-known crypto-currency. Because bit- available for just a few hundred dollars, coin has no central authority, it relies on its much less than dedicated ASIC machines. users to keep things humming along. Those who help outare granted bitcoins, in Chipping away a processcalled mining. The Antminer s9 is A few crypto-currencies, such as ether and beloved of hobbyist miners worldwide. Monero, are therefore mined using GPUs Nestled inside are 189 application-specific rather than ASICs. The rising share prices integrated-circuit (ASIC) chips, designed of the two American companies that de- by Bitmain to solve bitcoin’s cryptographic sign most of the GPUs on the market, AMD puzzles as quickly as possible. They were and NVIDIA, have partly tracked the hash made by TSMC, a giant Taiwanese semi- rate ofGPU-mined currencies. conductor firm. Firms such as AMD, Bitmain, Bitfury Mr Sciarappa and his fellow enthusi- and NVIDIA design their ASIC or GPU asts are a 21st-century version of the chips but do not make them. They are all “49ers”, the youngmen who rushed to Cal- customers of “foundries” such as TSMC, ifornia in 1849 to try their luck digging and UMC and Globalfoundries, which manu- panning for gold. Few hit it rich, but the facture chips for others. These companies businesses that helped them on their way miners have used specialised gear, culmi- are the third category of supplier firm to profited handsomely. Cornelius Vander- nating in the super-efficient ASIC chips of benefit from the crypto-boom. Last year bilt sold them steamboat tickets, for exam- the sort found in the Antminer s9. Unlike demand from crypto-currency customers ple; Levi Strauss supplied “dry goods”, in- the chips in desktop PCs, which are jacks- such as Bitmain accounted for$1bn oftotal cluding combs and bedding; and of-all-trades, an ASIC is designed to per- revenues of $32bn at TSMC; demand from lesser-known firms sold the basic shovels form a single taskas efficiently as possible. NVIDIA and AMD will have boosted its that miners needed fordigging. These chips quickly solve the crypto- sales as well. History repeats. Bitmain is a miner first graphic puzzle needed to mine bitcoin. Slipping prices for crypto-currencies and foremost, but also sells what might be This requires would-be miners to combine have not dimmed miners’ enthusiasm. Mr termed crypto-shovels. It is privately held, three bits of data—a new block of bitcoin Sciarappa laments in his videos how little with profits thought to be around transactions, the last block on the block- bitcoin his Antminer S9 churns out now $3bn-4bn. It is one of three types of suppli- chain (the ledger of transactions), and a compared with November. He remains er to benefit from the crypto-rush. random number—into a “hash”, or a 256- hesitant to switch it off, yet firms know that Once upon a time you could give min- bit string ofletters and numbers. The faster demand could fade. TSMC’s management ing a shot with nothing more than a plug you guess hashes, the likelier you are to recently said that the firm is reluctant to socket, some free software and a computer. find a correct one before other miners. add capacity to cater specifically to crypto- But as the prices of crypto-currencies have Bitmain has come up with mining ma- currency demand. Bitmain, even though it risen, so too has the demand to mine them. chines that are custom-designed for each is helmed by die-hard crypto-enthusiasts, Bitcoin’s design means that as more people crypto-currency’s hashing puzzle. Bitmain wants to create artificial-intelligence chips contribute to the miningeffort, its difficulty and Bitfury, a Canadian firm, are designing for other uses. The firms that have made rises. That has made mining on general- ever-cleverer ASIC chips fortheir products. this virtual gold rush possible have no in- purpose hardware inefficient. Since 2011 Bitmain’s individual mining machines sell tention ofbeing flashes in the pan. 7 Trade options like you went to school for it.

Options trading doesn’t have to be intimidating. TD Ameritrade provides educational courses, expert trading support, and online coaching to help you learn to trade with confidence.

Get up to $600 when you open and fund an account.

Visit tdameritrade.com/tradeoptions to learn more.

Options trading is subject to significant risks and is not suitable for all investors. Options trading privileges subject to TD Ameritrade review and approval. Before trading options, carefully read Characteristics and Risks of Standardized Options. Contact TD Ameritrade at 800-669-3900 for a copy.

See tdameritrade.com/600offer for offer details and restrictions. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. TD Ameritrade, Inc., member FINRA/SIPC. © 2017 TD Ameritrade. Finance and economics The Economist May 19th 2018 61

Also in this section 62 Buttonwood: The parable of Turkey 63 NAFTA and pay rates 63 Boeing v Airbus at the WTO 64 China’s current account 64 Life insurance loses its vigour 65 Pension bonds 66 Non-compete agreements 68 Free exchange: The hegemonic dollar

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

The world economy seems to slow early in the year, only to re- bound, a phenomenon dubbed “residual Levelling off seasonality”. Strong retail sales and high consumer confidence suggest that if a downturn is coming, Americans have missed the memo. In a way, however, that is part of the problem. Demand is piling up where it is least needed. American core inflation, A global economic deceleration should not cause too many jitters—yet which excludes volatile food and energy N 2017 the global economy broke out of a first quarter America’s growth slowed to prices, is now1.9%, according to the Federal Irut. It grew by 3.8%, the fastest pace since 2.3%, annualised, from close to 3% in the Reserve’s preferred measure. That is only 2011. Surging animal spirits accompanied a preceding six months. At the same time, Ja- just below the central bank’s target. And rebound in business investment across the pan’s economy shrank by 0.6%, ending a the economy has yet to feel the full impact rich world. Global trade growth rose to growth spurt sustained since the start of ofthe tax cuts and spending rises President 4.9%, also the fastest rate since 2011. Emerg- 2016. Investors have begun to wonder if Donald Trump recently signed into law. ing-market currencies appreciated against the period of global exuberance is over. Outside America, however, inflation is the dollar, keeping inflation low and debts Even policymakers in China, which has falling short almost everywhere. In the affordable. Financial markets wobbled in seemed relatively immune to the slow- euro zone it is only 1.2%, no higher than at February, but only after reaching all-time down, have taken note of weakening do- the end of2016. The BankofJapan recently highs. In April the IMF said that the global mestic demand. In mid-April they loos- abandoned its pledge to raise inflation to economic upswing had become “broader ened monetary policy slightly by allowing 2% by fiscal year 2019—a target it had al- and stronger”. banks to hold fewer reserves. ready postponed six times. Inflation in Since then that healthy glow has begun Meanwhile, the slow upward march of most emerging markets has been subdued, to fade. First, economic surveys in Europe American bond yields—the resultofexpec- too. Even in Brexit Britain, where a big fall tooka turn forthe worse (presaginggrowth tations of higher inflation and interest in the pound pushed inflation well above in GDP of only1.6%, annualised, in the first rates—has turned the screw on emerging- the 2% target in 2017, it has tumbled more quarter). Then the restofthe world seemed market currencies, which have fallen by quickly than expected. to catch the same cold (see chart 1). In the 5.4% since the start of April (see chart 2). A In theory, the world economywould be1 run on the peso hasforced Argentina to ask for an IMF bail-out and raise interest rates Put the cork back in 1 to 40%. The Turkish lira has also taken a Trading places 2 GDP, % change on previous quarter, annualised beating, in part because the president, Re- January 4th 2017=100 J.P. Morgan emerging-market cep Tayyip Erdogan, says that low interest currency index 10 rates reduce inflation (see Buttonwood). 110 China 8 On May15th he promised to take more con- 105 trol ofmonetary policy after the upcoming 6 100 Euro area election. United States 4 Make no mistake: world growth has 95 2 slowed, but it remains strong. Surveys of Trade-weighted 90 + dollar index activity in China, America and Europe are, 85 Britain 0 Japan when combined, higher than they have – 80 2 been 83% of the time over the past decade, JFMAMJJASONDJFMAM Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 according to UBS, a bank. Poor weather 2017 2018 2016 17 18 may have depressed European growth in Sources: Federal Reserve Bank Source: Haver Analytics early 2018. America’s economy often of St. Louis; JPMorgan Chase 62 Finance and economics The Economist May 19th 2018

2 better off if this demand were spread dent this time. Among the ten largest tends to boost American investment. In around. Unfortunately, the mechanism emerging markets, only Turkey and Argen- any case, it is driven at least partly by de- that could achieve that is a dangerous one: tina ran current-account deficits greater mand, reflecting healthy growth. a stronger dollar. In theory a rising green- than 2% of GDP in 2017. Most have dollar The biggest risk to the world economy back should allow Americans to buy more debts that are comfortable compared with remains the possibility of a trade war. Mr imports, stimulating foreign economies. In the size oftheir economies. Trump is negotiating with China and oth- practice a rising dollar can play havoc with Another threat talked up by bears is the ers with the aim of closing America’s trade emerging markets that have dollar debts. oil price, which has risen to close to $80 a deficit. That is difficult to square with a ris- And because so much trade is invoiced in barrel. They think this will push inflation ingdollarsuckingin imports. The danger is dollars, a stronger American currency re- up further, forcing higher interest rates. But that slightly slower global growth, com- duces trade between other countries, too. the Fed usually ignores temporary infla- bined with ongoing stimulus in America, Four of the past five Fed tightening cycles tion driven by energy prices. And predict- lays bare this problem and further pro- have eventually triggered a crisis in emerg- ing the impact of oil prices on the world vokes Mr Trump’s protectionism. That ing markets. economy has become trickier than it was could set off a downturn that would really Yet there are reasons to be more confi- before the shale revolution. Pricier oil now be worth worrying about. 7 Buttonwood Istanbuls and bears

How Turkey went from investment darling to a junkrating ANY of the most famous hedge- When Mr Erdogan holds forth on his the- Mfund trades have been bets that Plucked ory ofinterest rates, he sounds as ifhe be- things were about to go wrong. Think of Turkey, current-account balance lieves it. In this regard, and others, he fits Enron’s bankruptcy or the souring ofsub- As%ofGDP the paradigm of “economic populism” prime mortgage bonds in America. The 2.5 sketched out in 1990 by Sebastian Ed- best trade made by “the Professor” was + wards and the late Rudiger Dornbusch. very different. It was a bet that something 0 This approach downplays or denies the was starting to go right. – notion that budget deficits or inflation are A visit almost 20 years ago convinced 2.5 constraints on economic growth. The Lat- him that Turkey was serious about fixing 5.0 in American populists of the 1970s and its economy. The yield on its one-year 1980s printed money to pay for public- Treasury bills was then above 100%. “It 7.5 spending sprees, only to find (after a bru- was a serious mispricing,” he tells Steven tal crisis) that the constraints were bind- Drobny in “The Invisible Hands”, a book 10.0 ing, after all. As Dani Rodrik of Harvard of interviews with pseudonymous 1999 2005 10 15 17* University has noted, Turkey is a variant hedge-fund managers. The IMF gave its Source: IMF *Estimate on this theme. It has relied instead on cap- approval to Turkey’s reforms soon after- ital inflows to fund private-sector excess. wards. The price of T-bills surged. The the wayto more profound changes. In 2001 A decade oflow inflation, easy money one-year interest rate fell to 40%. Kemal Dervis, a former World Bank offi- and surplus saving worldwide has kept The wheel has since turned almost full cial, became the country’s economy minis- the credit line open. That is how the Turk- circle for Turkey, which now seems to at- ter. He negotiated a big loan from the IMF ish economy has avoided a reckoning for tract more sellers than buyers. The lira is to create breathing-space. The central bank so long. The forbearance of foreign inves- sinking. S&P has cut the country’s credit was made more independent, putting an tors will not last for ever. Indeed, many ratingfrom junkto junkier, partly because end to the monetary financing of public think that a resurgent dollar and rising of concerns about its reliance on foreign spending. The lira was allowed to float. bond yields in America will end it. Yet capital. The deficit on its current account, When Recep Tayyip Erdogan became Turkey has emerged unscathed from simi- a broad measure of trade, is one of the prime minister, in 2003, his government lar tight spots in the past. Perhaps its frail- largest in the world. To bridge that gap, stuckwith the programme. ties are now so well-documented that Turkey’s banks and big firms have bor- The economy flourished, but a big they no longer seem worrying. rowed heavily, often in foreign currency. weakness remained. As in many countries IfTurkey is a parable ofeasy money,its Its tarnished credit rating is a hint that with a history of high inflation, savings in lessons cannot readily—orcan no longer— those debts may not be paid backin full. Turkey are low. When the economy picks be generally applied to emergingmarkets. It is tempting to see Turkey as a moral- up, foreign capital is needed to sustain the Current accounts have, by and large, ity tale for emerging markets. Just as the momentum. The country’s foreign debts moved towards balance, meaning most sound policies ofthe early 2000s were re- have steadily mounted. To make matters ofthem are lessrelianton foreign borrow- warded by rising incomes, the reckless worse, the policy orthodoxy of the early ing. Turkey’s double-digit inflation stands borrowing of recent years must soon be 2000s has been called into question. Al- out because low single-digit inflation has punished by a deep recession, the reason- most everyone thinks rising inflation in become the norm. Indeed, the approach ing goes. Yet the wonder is not that Turkey Turkey is a sign that interest rates are too to monetary policy in emerging markets is skirting the edge of a crisis, but that it low. Mr Erdogan, however, believes high is, bar a few renegades, rigidly orthodox. has managed to avoid one for so long. interest rates are the cause of inflation, not That is why bets of the kind the Professor Tounderstand how,startbygoing back the remedy for it. His efforts to bully the made almost two decades ago have be- to when the smart money was betting on central bank into seeing things his way come so rare. Turkey. The IMF blessing that made the have been unsubtle—and successful. Professor money was a staging-post on There is a trace of hubris in all this. Economist.com/blogs/buttonwood The Economist May 19th 2018 Finance and economics 63

NAFTA sensus emerged that international labour standards should be framed in terms of Labouring away rights, such as the freedom of association, rather than wages. Some of the strongest resistance to setting minimum-pay rates came from developing countries, which suspected a ploy to remove their main comparative advantage. Modern trade Trade negotiators clash over deals do not, therefore, focus on wage lev- minimum-pay rules forcarmakers els. The Trans-Pacific Partnership, which S FAR back as the campaign trail, Presi- Mr Trump pulled America out of shortly Adent Donald Trump had promised to after taking office, simply stated that mem- renegotiate or rip up the North American bers would have a national minimum Free Trade Agreement (NAFTA). But Paul wage, leaving each to decide what it Ryan, the Speaker of the House of Repre- should be. Writing a link between a car’s sentatives, has said that if this Congress is rules oforigin and a wage level into NAFTA to have time to approve a new version, it would be a first. needs word that a deal is going ahead by The Trump administration hopes it will May 17th. As The Economist went to press, reshape production chains in favour of that deadline seemed unlikely to be met. American workers. In America the sector’s Negotiations seemed to stall on May median wage in 2017 was around $16 an 11th over rules relating to carmaking. After hour in the south-east and $18 an hour in a briefmeeting between ministers, and de- the west, accordingto Raymond Robertson spite reports that momentum has been of Texas A&M University (see chart). Using Boeing v Airbus at the WTO building in recent weeks, wide differences household-survey data, he estimates that remained. Representatives of the Mexican in Mexico, if informal workers are includ- Flying blind car industry had planned to return to ed, it may be as little as $2. Carmakers there Washington on May 14th to resume talks, will face a choice if they want to continue but were told by their government not to benefiting from NAFTA’s duty-free treat- bother. ment. Either they can raise wages in Mexi- The impasse is over “rules of origin”, co, or move some production to America A new ruling on aircraftsubsidies raises which must be satisfied ifa car is to qualify (or Canada). the riskofa tariffwar for tariff-free export within the trade bloc. But if the cost of meeting the new rules Such rules normally set minimum require- is too high, then companies are likely to HE manufacture ofairlinersmaybe the mentsforthe share made locally: asNAFTA spurn the agreement altogether, and swal- Tworld’s most globalised industry. Only stands, 62.5% of a car’s manufacture must low non-NAFTA tariffsof2.5%. Ann Wilson two firms make big civil jets: Boeing of be inside the bloc. American negotiators of the American Motor and Equipment America and Airbus of Europe. Most of want to add a novel twist: that at least 30% Manufacturers Association reports her their revenues—55% forBoeing and 70% for of the content must be made by workers members’ concerns about an entirely new Airbus—are earned outside their home ter- earning more than the North American administrative burden. When shipping ritory. Both source parts from dozens of median for the industry. The intention is to parts between Mexico and America, they countries. But a ruling by the World Trade address a longstanding criticism of NAFTA have never had to keep track of wages in Organisation (WTO) on subsidies in the in- in America, namely that it has harmed the way such a rule would require. It is un- dustry could deal another blow to the be- American workers. Although the overall clear which workers will count and how leaguered international trading system. impact of NAFTA on the country’s labour the wage threshold will be kept up-to-date. On May 15th the WTO’s final appeals market has been negligible, there is some Indeed, some suppliers are already body upheld parts of a previous ruling, evidence of localised downward pressure planning to avoid the headache and pay finding that the European Union wrongly on wages among blue-collar workers. the tariff. According to the Centre for Auto- provided subsidies to Airbus to develop In the 1940s and 1950s, when the world motive Research, if the proposed rule was new aircraft. That, it concluded, had hit trading system was being built, policy- already in force many of the cars currently sales of Boeing’s jets. As soon as the WTO makers fretted about this sort of race to the sold in America would fall foul of it. If car gives the go-ahead America will have the bottom. But during the next decades a con- producerspassed on the extra tariffs to con- right to impose retaliatory tariffs on EU im- sumers, the prices of affected cars could ports. Trade expertswarn theycould be the rise by anything from $470 to $2,200. highest in the WTO’s history. Mexican Gulf Those who give up trying to meet the new Boeing crowed that the ruling showed US regions and Mexico, car industry rules may then look beyond North Ameri- that the EU had given $22bn in “illegal sub- median earnings, $ per hour ca for car parts, as Mexican ones would be sidies” to Airbus. But Tom Enders, Airbus’s 20 pitted against those from Asia. Even now chief executive, described it as “half the North-east China accounts for the same share, 31%, of story”, pointing to another WTO ruling 15 brake systems imported to America as due later this year on $11.7bn of tax breaks South-east West Mexico does. from Washington state forBoeing’s787 and 10 Squeals from the car industry may 777X jets. Both are half-truths, says Scott sound to the Trump administration like Hamilton of Leeham Company, a consul- 5 proof that their plan to reshape it will tancy in Seattle. Airbus’s counter-case may Mexico* work. MrRobertson saysthatthe proposed not be as strong as it claims. And the WTO 0 rules could perhaps shift “a little bit” of upheld only 14 of Boeing’s original 234 2005 07 09 11 13 15 17 money from bosses to American workers. claims against Airbus, with the ruling relat- Source: Raymond Robertson, *Assumes 4.3 weeks But it could also shrink the total there is to ing to just $9bn ofits claim of$22bn. Texas A&M University worked per month go around. 7 In the past, a ruling like this would not1 64 Finance and economics The Economist May 19th 2018

2 have threatened the rules-based trading China’s economy system, says Chad Bown of the Peterson Under water Institute for International Economics, a Disappearing trick China, current account, $bn DC think-tank in Washington, . Until Do- 150 nald Trump came on the scene, the heat Balance had gone out ofthe Boeing-Airbus dispute. 100 The administrations in Brussels and Wash- SHANGHAI 50 ington had hoped that a ruling would The demise ofChina’s current-account + prompt the two plane-makers to stop 0 surplus will change the global economy attacking each other and agree on which – subsidies they would both find acceptable. OT long ago China was a leading cul- Goods 50 Services And when retaliatory tariffswere imposed Nprit in global economic imbalances. 100 after previous WTO rulings, for example Whether blame was ascribed to its under- Income against America’s steel duties in 2002, they valued yuan or its frugal people, the pro- 150 were carefully aimed at politically sensi- blem seemed clear. China was selling a lot 2000 02 04 06 08 10 12 14 16 18 tive industries, such as Florida oranges, to abroad and buying too little back. One Source: CEIC force the other side to concede quickly. data-point summed this up: its current- That may not happen this time. Mr account surplus reached 10% of GDP in come more frequent, it will have to run Trump’strade representative, Robert Light- 2007, well above the level that is generally down its foreign assets or borrow more hizer, has threatened to use “every avail- seen as reasonable. Far less attention has from abroad to pay for its consumption. able tool”, including “countermeasures on been paid to its steady decline since then. Should its external liabilities—that is, mon- EU products”. But rather than taking a nu- In the first quarter of 2018 China ran a cur- ey it owes the rest of the world—increase anced approach, the administration may rent-account deficit, its first since joining rapidly, that might signal greater financial impose tariffson importsofEuropean cars, the World Trade Organisation in 2001. Just vulnerability. But as long as the increase is which Mr Trump says are taxed less than as its massive surpluses of yore had big moderate, it could actually help China by American ones exported to the EU.Europe consequences for the global economy, so boosting the yuan’s global profile. might then use any ruling in Airbus’s fa- does this swing in the opposite direction. To fund its deficit, China might choose vour to retaliate against Mr Trump’s pro- China still exports many more goods to sell more bonds to foreign investors. posed steel and aluminium tariffs. Rather than it imports, to the tune of nearly And in paying more forgoods and services than the two sides reverting to free trade, $500bn annually.But its share ofglobal ex- than it earns, it could supply its currency the row could escalate. ports appears to have peaked. At the same abroad. By itself this would not be enough When Boeing first brought the case in time its trade deficit in services is getting to make the yuan go global. Investors 2004, it hoped fora quickresolution. It was bigger, largely thanks to all its tourists ven- would need more faith in China’s institu- worried about the growth ofAirbus’s mar- turing abroad (see chart). tions. But technically, the conditions ket share from 18% to 50% in the 1990s, ex- At bottom, a current-account balance is would be ripe for the yuan’s emergence as plains Adam Pilarski of Avitas, a consul- the difference between a country’s invest- a more credible rival to the dollar. America tancy,and feared thatan EU-funded rival to ment and savings. When China had a big might find itself pining for the days when itsnew787 jetmightforce itoutofbusiness. surplus, its savings, at 50% of GDP, far out- the Chinese currency was undervalued. 7 But it has held onto market share since stripped even its colossal investment. Data then. The 787 has sold far more than Air- on savings are patchy in China. But it is bus’s rival A350. And Boeing’s share of known that investment has declined as a Life insurance sales outside North America has increased share of GDP. The implication is that the sharply since the early 2000s (see chart). rate of savings has almost certainly de- Declining years That means free trade is now in Boe- clined more sharply, reflecting a big in- ing’s interests, says Richard Aboulafia of crease in consumption. Its economy is, in the Teal Group, a research firm. In Decem- other words, better balanced than just a ber Canada cancelled an order for over short while ago. $5bn of Boeing’s fighter jets in retaliation China’s current-account deficit in the A long-established industryneeds to for its failed attempt to get tariffs of nearly first quarterwas exaggerated, since exports find a new source ofvigour 300% put on imports of airliners made by tend to be subdued atthe startofthe year. It Bombardier. When it comes to tariffs, Boe- is likely to return to a surplus in the coming IFE insurance is among the oldest finan- ing should be careful what it wishes for. 7 months. But Ding Shuang of Standard Lcial products. The Amicable Society, Chartered, an emerging-markets bank, founded in London in 1706, charged mem- forecasts that the surplus will be just 1% of bers a set contribution and paid out annu- Rising in the east GDP this year and 0.5% next year. The trade ally to widows and children of those who Boeing, aircraft deliveries ruckus with America could reinforce the had died in the previous 12 months. Today North America Europe downward trend. To placate President Do- it is a vast industry: life and health insurers Asia Other nald Trump, China will try to import more employ over 800,000 people in America 800 from America and pay more for foreign in- alone. It protects hundreds of millions tellectual property (IP), Mr Ding says. against the risk of dying early, through 600 One probable outcome is that the ex- death benefits, or the risk of living longer change rate will become more volatile. In than expected, for example through annu- 400 recent years capital outflows have pressed ities. According to Allianz, a German insur- down on the yuan, butthe current-account er, total life-insurance premiums are above 200 surplus has countered that effect. In the fu- 5% of GDP in many rich countries, includ- ture China will have a thinnercushion. De- ing Britain, France, Italy and Japan. In 0 pending on quarterly trade swings, the America, the world’s biggest market, annu- 2000 02 04 06 08 10 12 14 17 yuan will be as likely to fall as to rise. al premiums total more than $550bn. Source: Boeing If China’s current-account deficits be- But life insurers are struggling as never1 The Economist May 19th 2018 Finance and economics 65

2 before. Those parts of the industry that Insurers’ single most popular strategy have not evolved fast enough, says Clive has been to diversify into investment-like Bannister, the head of Phoenix Group, a products—an index-tracker bundled with a “closed” life insurer that buys and man- guarantee that the principal will be re- ages old policies but issues no new ones, turned, forexample. But since these resem- have experienced a “demolition”. He lists ble the offerings of asset managers, they half a dozen British life insurers that exist- are also the least distinctive. Antimo Per- ed15years ago but no longer do. retta of AXA echoes many of his peers The lacklustre partial spin-off on May when he says that risk-averse customers 10th of the American life-insurance unit of have much to gain from the smoothing of AXA, a French insurer, is just the latest sign returns an insurer can provide. Life insur- of worries about the industry’s prospects. ers also argue they give access to a broader Shares were priced at $20, well below the range of asset classes (including, say, expo- expected $24-27. Among its woes are low sure to private equity) than asset managers interest rates, which make it hard to fulfil do. And they point to the attractive tax promises of guaranteed returns on some treatment in most jurisdictions of savings products, and costly new regulations. products with a life-insurance element. Since 2016 Europe has required much more But that is to reverse the logic. Govern- capital to be held against long-term liabil- ments tax life insurance lightly because of ities, like those of life insurers. That has the social value of protecting people from prompted some to seek to rebalance their underestimating their life expectancy and businesses. AXA has not only listed its retirement needs. Australia used to offer re- American life arm this year but also an- tiring workers incentives to purchase an- nounced the purchase of XL, a Bermuda- nuities are still the core business, life insur- nuities; when it stopped these in 2007, the based property-and-casualty insurer. ers are branching out into savings products annuitiesmarketshrivelled away. Many el- More serious still are demographic and insurance against disability or need- derly Australians have used their freedom pressures. As the rich world ages and re- ing long-term social care. Greg Galeaz of imprudently: around half have emptied tires, total life-insurance premiums are flat PwC, a consultancy, notes that American their pension pot by the age of 70. Mr Ban- or falling. In developed countries they fell firms are crafting insurance products to ap- nister fears a repeat on a grander scale in by 0.5% in 2016 in real terms, according to peal to younger people, such as policies Britain, which in 2015 abolished a require- Swiss Re, a reinsurer. Some countries have that allow withdrawals to pay off student ment for retirees to purchase an annuity. fallen off a cliff, including Australia (an loans orsupportageingparents. The indus- Life insurers must somehow reinvent 18.2%drop in 2017in nominal terms) and Ja- try could do more to appeal to the moder- themselves without losing sight of their pan (11.3%), where negative interest rates ately affluent, who largely think of life in- core purpose: providinga wayfortheir cus- have savaged returns and prompted some surers as providers ofdeath benefits rather tomers to plan for a dignified old age with- life insurers to stop selling lump-sum than savings and retirement products. out overburdening the state. 7 death-benefit policies. The industry has long been used to accumulating new as- Pension bonds sets, with old policies sold offto specialists (such as Phoenix). It will now have to ad- Will Selfies stick? just to “decumulation”, says Henrik Nau- joks ofBain & Company,a consultancy. One way out of this bind is to add bells An ingenious way to provide retirement income and whistles to their basic offerings. A sur- vey by Bain suggested that customers liked HEN people stop working, they return ofthe capital. These would be the idea of receiving advice during illness Wneed a retirement income. Some linked to inflation, or another measure or regular health check-ups as part of their are lucky enough to have an employer- such as average consumption. So a work- life-insurance policy. That suggests they provided pension linked to their salary. er born in 1970, say, would buy a bond might welcome a blurring of the distinc- Everyone else faces a difficult choice. that made payments from 2035 until tion between life and health insurance. Some keep their pension pot in cash 2055. Every financial innovation needs Another option is to expand into new and watch as it is eroded by inflation. an acronym, and these are called SeLFIES markets. In emerging economies, life-in- Others use savings products with high (Standard ofLiving Indexed, Forward- surance penetration ranges from 2.6% of feesand riskbeing hurt by a stockmarket starting Income-only Securities). GDP in China to just 0.4% in Russia. (South downturn. A third option is an annuity, They would act somewhat like annu- Africa, at11%, is an outlier.) Total premiums which guarantees a lifelong income but ities, though without protecting against grewby16.9%inrealtermsin2016.Butcom- vanishes at death, even ifthat is a week the riskofliving much longer than ex- petition from domestic incumbents is after retirement. pected. One big advantage is that if hold- fierce, particularly in China. And attracting Lionel Martellini ofEDHEC, a French ers die before the maturity date, the new customers or providing new services, business school, and Robert Merton of capital would be passed to their heirs. whether at home or abroad, will be hard the Massachusetts Institute ofTech- They could also be attractive to corporate for an industry that is saddled with high nology (a Nobel laureate in economics) pension funds and institutions such as costs and has been slow to go digital. Most have come up with an alternative. Work- sovereign-wealth funds. But ifbond sales are still through agents and brokers. ers would buy government-issued bonds yields stay as low as they are now, work- Athird approach is to seeknew kinds of while in employment; these would pay ers will still need a big pension pot to be customers. Though death benefits and an- no interest until retirement. Over the next able to retire comfortably. The median 20 years (the typical life expectancy on pension pot ofan American aged 40-55 is Award: On May 16th Callum Williams, our Britain retirement) bondholders would receive $14,500. That will not generate much economics correspondent, was named joint winner of the Young Financial Journalist of the Year at the Wincott payments comprising interest plus the income, whatever security it buys. Awards, an annual set of prizes for British journalists. 66 Finance and economics The Economist May 19th 2018

Non-compete agreements position to negotiate. Other researchers have considered the Ball and chain spillover effects of non-compete agree- ments for the wider economy. Jessica Jef- fers of Chicago’s Booth School of Business finds that companies invest in equipment NEW YORK more in states where non-competes are le- gally enforceable. Mr Starr has found that Lawmakers are trying to curb contracts that make it harderforworkers they do more training, too, perhaps be- to move jobs cause they have more certainty that their N 2011 Kathleen started work at an insur- ing of copying California, where non-com- employees will stay and they will get the Iance-and-benefits consultancy in Bos- pete agreements count as illegitimate “re- benefit. All that should be good forproduc- ton. A couple of years later the firm gave straints of trade” unless they protect trade tivity. On the other hand, Ms Jeffers has her an ultimatum: sign a “non-compete” secrets or are part of the deal when a busi- also found that fewer companies are agreement within 30 days or wave good- ness is sold. The legislatures in Pennsylva- formed in these states in high-skilled sec- bye. She signed, which meant that, if she nia and Vermont are both considering tors such as technology, professional ser- left, she would be barred for three years laws similar to California’s. Bills in Massa- vicesand education. Thatislikelyto be bad from working for a rival or any firm that chusetts and New Jersey would bar non- for innovation. Silicon Valley became a had been contacted as a potential client, competes for workers earning less than a technology hub, says AnnaLee Saxenian and from starting a competing business. In certain amount, as well as limiting their of the University of California, Berkeley, 2015, when she accepted a new job in a dif- duration and entitling ex-employees to partly because of California’s long-stand- ferent industry at an unrelated company, compensation during the non-compete ing hostility to non-competes, which has her former bosses threatened to sue. The period. Although the law governing em- facilitated the flow of ideas and made it job offer was withdrawn, and reinstated ployment contracts has long been regard- easier to start new firms. only when she offered to pay any legal ed as a matter for states, a group of Demo- costs that resulted. The matter never came crats in Congress, led by Elizabeth Warren, Hands off to court, butthe fearoflegal action haskept has proposed a federal ban. (A similar ef- Even some employers are joining the fight her out ofher old industry ever since. fort in 2015, just for workers earning less against non-competes. Last July Veeva Sys- Non-compete agreements are widely than $15 an hour, failed.) tems, a cloud-computing company in Cali- used to stop ex-employees walking out of Non-competes might not be harmful fornia, filed a lawsuit against Medidata, the door with valuable know-how, or for workers, on balance, if employers had QuintilesIMS (now IQVIA) and Sparta, poaching suppliers and customers when to pay extra to compensate employees for competitors based elsewhere that had in- they move jobs. Sometimes a great deal of signing away some of their rights. But an voked agreementssigned byex-employees moneyand intellectual propertyisat stake. analysis by Evan Starr of the University of to stop them moving to Veeva. Out-of-state When Paul English, an entrepreneur, sold Maryland suggests this is not what hap- non-competes, the company argues, his travel-search website, kayak.com, to pens. Hourly wages are 4% lower in states should not be enforceable in California. Priceline for$1.8bn in 2012, he signed a con- that enforce non-competes than those that Peter Gassner, the firm’s boss, complains tract that barred him from working in the do not. This may be because the agree- of a “double standard”, whereby employ- travel industry for 18 months. The restric- ments make it harder to switch jobs—one ers based elsewhere can poach Califor- tion was fair, he says. “If a company pays of the main occasions when a worker’s nian workerswhile makingithard for Cali- nearly $2bn, they have the right to tell you payrises. MrStarrfindsthatapplicants pre- fornian companies to hire out-of-state. that you can’t create a competitor.” sented with non-competes after they have Non-competes may benefit some employ- But non-competes are common for or- accepted a new job earn on average 10% ers by making it cheaper and easier to keep dinary American employees, too. Nearly less than those who know it will be part of workers—but at the cost of leaving others one in five are subject to them and nearly the deal in advance, when they are still in a to fish in a shallower talent pool. 7 two-fifths have had to sign one at some point, ashave about15% oflow-wage work- ers and a similar share of employees with- out university degrees. A report in 2016 by the Treasury noted that less than half the workers covered by non-competes report- ed having access to trade secrets. They are sometimes used indiscriminately. Jimmy John’s, a chain of sandwich shops, used to make its restaurant workers and delivery drivers sign them. The clause barred them, for two years after leaving, from working for any other sandwich shop within two miles of any of its 2,700 outlets. It stopped usingthem in 2016 atthe behestofthe New York attorney-general’s office, which said that non-compete agreements “limit mo- bility and opportunity for vulnerable workers and bully them into staying with the threat ofbeing sued”. Such argumentsare gainingforce across America. Several state legislatures are con- sidering restricting their use, at least for workers on modest wages. Afew are think- A FORTUNE 50 CEO USES DOMO 15 TIMES A DAY TO RUN THE BUSINESS. ON HIS PHONE.

WHEN WILL YOU?

Bring together all your data. From all your systems. Connected to all your people.

Visit domo.com 68 Finance and economics The Economist May 19th 2018 Free exchange The long arm of the dollar

How to escape a hegemoniccurrency hitcompanieswhere ithurts. Formany, exclusion from America’s financial system is a more potent threat than exclusion from America’s customers. Last month, for example, the Treasury threatened to seize dollars paid to Rusal, a Russian metals firm that is one of the world’s biggest aluminium producers, crippling it and upending the global aluminium market, until the turmoil forced a rethink. The Rusal debacle and President Donald Trump’s decision to withdrawfromtheIrannucleardeal have raised fearsthat Ameri- ca might abuse its power. That may prompt foreign governments and financial institutions to thinkabout rerouting the sewer. Notall dollarsettlementsare subject to American jurisdiction. It is, for example, possible to clear large dollar payments in Tokyo, Hong Kong and elsewhere. But the pipes are narrow. America’s two big payments systems, Fedwire and CHIPS, handled transac- tionsworth $4.5trn a dayin 2017. HongKong’ssystem (which runs through HSBC, a private bank) dealt with only 0.8% of that amount. Moreover, the ability of offshore dollars to enter and leave the American financial system if necessary is vital to their appeal. The liquidity of Hong Kong’s system, for example, is but- tressed by HSBC’s ability to handle dollars in New York. EW banks can match the quaint serenity of Banco Delta Asia’s China is nurturing its own international payments system, Fheadquarters in Macau. Housed in a pastel-yellow colonial based on its own currency.It might ask Iran to accept the yuan in buildingopposite a16th-century church, its entrance is flanked by exchange for its oil. Certainly, America’s withdrawal from the tall vases, depicting sampan gliding between karst hills. In the Iran deal has increased trading in the yuan-denominated oil fu- tiled square outside, men laze under a banyan tree and an elderly tures contract that China recently launched in Shanghai. Like- woman peels a boiled egg forlunch. wise, Russia and China are increasingly paying each other for But in 2005 this backwaterbankincurred the wrath and might goods in their own currencies, rather than America’s. Russia paid of the world’s financial hegemon. America’s Treasury accused it for 15% of its Chinese imports with yuan last year, according to of laundering money for North Korea, prompting depositors to Russia’s central bank (as cited by Russia Today, a broadcaster). panic, other banks to keep their distance and the Macau govern- China’s capital controls and Europe’s fiscal balkanisation ment to step in. The Treasury subsequently barred American fi- weaken their currencies’ claims to rival the dollar. But since Chi- nancialinstitutionsfromholdingacorrespondentaccountforthe na’s economy seems destined to overtake America’s, it would be bank, excluding it from the American financial system. strange if its currency forever lagged far behind. And although Macau is over 8,000 miles from Washington, DC. But it is hard neithereconomic bloc is yet ready to match America’s position in to escape the long arm of the dollar. Its dominance reflects what the financial system, they might be able to build a set of financial economists call networkexternalities: the more people use it, the pipes big enough to sustain trade with blacklisted Russian com- more useful it becomes to everyone else. One person’s willing- panies or a country like Iran. Previous treasury secretaries took ness to accept dollars from another depends on a third person’s the danger seriously. “The more we condition use of the dollar readiness to accept dollars from them. and our financial system on adherence to US foreign policy, the The dollar also benefits from a hub-and-spoke model for the more the riskofmigration to other currencies and other financial exchange of currencies, the invoicing of trade and the settlement systems in the medium term grows,” said Jacob Lew in 2016. of international payments, as the late Ronald McKinnon of Stan- ford University argued. If every one of the more than 150 curren- Closing the sluice gate cies was traded directly against every other, the world would SteeringclearofAmerican jurisdiction isnotquite the same ases- need over 11,175 foreign-exchange markets. If instead each trades capingAmerican power. Even ifno paymentscrossAmerican ter- against the dollar, it needs only149 or so. Ifyou cannot buy the af- ritory,America could still impose extraterritorial or “secondary” ghani with the zloty,you can still sell one for dollars with which sanctions, refusingto do business with a company thatdoes busi- to buy the other. ness with a blacklisted party.To bluntthat threat, foreign govern- Likewise, ifeveryinternational bankkeepsan account in New ments would then have to foster banks, suppliers and customers York, any bank can transfer funds to any other through the same that can live entirely without America. financial hub. “The global financial system is like a sewer and all Banco Delta Asia, for its part, has survived America’s on- of the pipes run through New York,” says Jarrett Blanc of the Car- slaught, with the help of Macau’s government. It has yet to con- negie Endowment forInternational Peace. vince the Treasury to lift the ruling that stops it gaining access to This gives America’s Treasury great punitive power and juris- America’s financial system. But it is not completely cut off from dictional reach. Many companies that do not buy or sell wares in the dollar. At one of its bigger branches, your correspondent was America nonetheless make or collect payment through New able to sell 820 patacas fora crisp $100 note, bearing the signature York. Because these transfers pass through American financial in- ofa formersecretary ofthe Treasury. 7 stitutions, the Treasury can claim jurisdiction on the ground that itsbanksare exportingfinancial servicesto the bad guy.Itcan also Economist.com/blogs/freeexchange Property 69

The Economist May 19th 2018

Science and technology The Economist May 19th 2018 71

Also in this section 72 Ice cores and European history 73 A problem with the Hubble constant 74 The science of songs 74 The smallest drone yet

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

Conservation in Colombia ent question. Some habitats are clearly cru- cial. In particular, there are worries defor- Something to shout about estation will upset the hydrologic cycle in certain places, threatening water supplies and hydroelectric power generation. Also, trees have value as timber. But that is not quite what Mr Santos means when he Serranía de las Quinchas speaks ofturningColombia into a “bioeco- Colombia’s national biodiversity survey is ambitious and praiseworthy. But will it nomy”. The government’s aspiration is survive the forthcoming presidential election? that biodiversity itself might be harnessed LOODY plants! Always in the way.” They are also, as faras flora, fauna and fun- as an economic resource, and that this “B That is not the sort of expostulation gi are concerned, poorly catalogued. might contribute as much as 2½% of Co- expected ofa researcherfrom the Royal Bo- That, though, is changing as a result of lombia’s GDP by 2030. tanic Gardens, Kew. But Lee Davies is not a Colombia BIO, an attempt by the govern- Exactly what constitutes part of a bio- botanist, he is a mycologist—an expert in ment to take advantage of the FARC’s de- economy is a bit hazy. At the moment, fungi—who, at home in London, helps cu- parture and to explore what is living in the those involved tend to throw into the pot rate Kew’s fungarium. And, although his- recently vacated habitats. So far, since 2016, anything that might vaguely count: eco- tory and convenience mean the study of the project has sponsored 13 expeditions tourism; wild fruits and nuts that can com- fungi is often lumped together with that of staffed by botanists, mycologists, entomol- mand a premium price; cosmetics made plants, Dr Davies is keen to point out that ogists, ornithologists, herpetologists and from forest products that appeal to the vir- mushrooms and their kin have nothing in many other sorts of biologists. The figure tue-signalling middle classes. But the long- common with the vegetable kingdom be- should rise to 20 by the end ofthe year. term aspiration is more ambitious. It is that yond their sedentary way oflife. The hope is to run 100 more expedi- some of the organisms to which Colombia His sentiment was particularly under- tions over the next decade, by which time plays host might act as feedstock for a fu- standable on this occasion. Being ankle Colombia’s forests, swamps and moun- ture in which genes and metabolic path- deep in mud, on a narrow trail traversing a tains will have been comprehensively ways can be monetised in the ways that precipitous hillside that was sloping down sampled and recorded. Dr Davies and his gold and other minerals once were. And who-knew-how-far-or-where, and then colleagues were there because, to bolster forthem to be so monetised, theymust first tryingto collect a specimen hidden just out Colombia’s still-small regular army of per- be catalogued and analysed. of reach behind a tangle of greenery, tinent experts, the country’s government Making that happen is the remit of Ale- would fray anyone’s nerves. But the speci- has recruited several groups of foreign jandro Olaya Dávila, the director of Col- men was duly acquired, popped in a plas- mercenaries. ciencias, Colombia’s government science tic bag, labelled and carried back to base agency. This is Colombia BIO’s parent camp forprocessing and identification. Hi ho! Hi ho! It’s off to work we go body. The samples collected are destined Dr Davies and his compadres were in Colombia BIO is the brainchild of the for a national repository, whence they will Colombia, in the Serranía de las Quinchas, country’s president, Juan Manuel Santos. be distributed for study. There are also, ac- an area ofcloud- and rain-forest in the foot- Just as, in the 19th century, many countries cording to Dr Dávila, plans for a national hills of the Cordillera Oriental that was, set up geological surveys to assess their research centre for biotechnology and a until a peace deal signed in 2016, part ofthe mineral assets, so Mr Santos aspires to sur- government-backed venture-capital fund sphere of influence of the FARC, a group of vey, in a comprehensive and systematic that will finance start-ups in the field—an rebels fighting to overthrow the govern- way, Colombia’s biological assets. endeavour helped by the recent repeal ofa ment. The FARC did not encourage visitors. Measured by number of species, these law specifically preventing academics at As a consequence areas they controlled, are enormous. Its tropical location and to- state universities from doing this. which amounted at their height to about pographical variety mean Colombia’s bio- The repository is at the Alexander von 40% of the country, are often more or less diversity is second only to Brazil’s. How Humboldt Biological Resources Research pristine from an ecological point of view. valuable such assets are, though, is a differ- Institute, in Bogotá. Brigitte Luis Guillermo 1 72 Science and technology The Economist May 19th 2018

2 Baptiste, the Humboldt’s director and her- stacles. Perhaps the most curious is that ory there is plenty. By law, 10% of the royal- self an ecologist, says she was sceptical ecological researchers—even Colombian ties raised by the government on extracted about the likelihood of a grandiose project nationals—not only have to obtain permits oil and gas are supposed to be set aside for like Colombia BIO succeeding. She to collect specimens but also have to pay a scientific research. Last year, that amount- changed hermind, though, when initial ex- levy of 15,000 pesos (about $5) on every ed to $390m. Although the royalties are peditions proved successful in discovering specimen taken. And that means every collected centrally, the cash is then dis- new species and rediscovering old ones specimen. Collect 100 mosquitoes, for ex- bursed to the administrations of the coun- thought extinct. Her doubts now centre on ample, and you pay 100 times. This makes try’s 32 provinces. Colombia BIO’s central whether the government can act fast collecting an expensive business. budget is tiny—about $4m a year. The bulk enough to protect those areas vacated by It is also hard to export specimens for of the money for the expeditions comes the FARC. She cites an example of a stretch study abroad. That would matterless if Co- from the provinces in which those expedi- of river, tributary to the Amazon, that was lombia’s own facilities for things like ge- tions are mounted. It is the governors of almost completely denuded of its fish a netic sequencing were up to snuff. But they these provinces, therefore, who decide mere 15 days after the guerrillas left. are not. Yet such sequencing is a vital start- what science gets funded and, indeed, Silvia Restrepo, a mycologist who is ing-point for any serious investigation of what the definition of “science” is. Specu- vice-presidentofresearch atthe University the economic potential ofa species. lative surveys ofthe country’s biodiversity of the Andes, one of Colombia’s leading Another complaint by researchers in- are not always top ofthe list. academic institutions, points to other ob- volved in Colombia BIO is money. In the- Norare they top ofthe list formany oth-1

Glaciology and history Core values

Arctic ice brings an understanding ofancient Europe’s economy REENLAND’S icy mountains are not forit to be preserved in the layers of the first century BC, a rise again when Gan obvious place to search foran snow that, compacted, form the island’s Augustus abolished the Republic and archive ofeconomic history, buta study ice cap. brought the pax Romana ofthe Empire, just published in the Proceedings of the Although the lead concentration in and another fall during the third century National Academy of Sciences shows that the core that Dr McConnell looked at AD, when the state was engulfed once they provide one. Joseph McConnell of shows many peaks and troughs, some more by civil war, and also suffered the Desert Research Institute, in Reno, overall patterns are clear. Emissions invasion from the east. Nevada, and his colleagues have tracked began to rise in around 1000BC. This The decline in lead pollution was economic activity in Europe and the corresponds to the spread ofPhoenician enhanced by Rome’s switch from the Mediterranean over the centuries by traders and settlers from their home silver denarius, which had been increas- measuring variations in the amount of cities in the Levant into the western ingly debased with copper, to a gold lead in a core ofGreenlandic ice. Lead is a Mediterranean, and the consequent standard. Even allowing for that, though, good proxy foreconomic activity be- exploitation ofgalena mines in Iberia. the European darkages, during which cause it is a by-product ofsilvermaking The rise and fall ofRome is also vis- Spain was occupied by the Visigoths, are (lead and silver often occur in the same ible. An increase in lead concentration clearly visible in the record—as is the ore, known as galena), and therefore of coincided with Rome’s victories in the point when civilisation starts to return the money supply. Extracting silver from Punic wars, against Carthage, the largest with the rise ofthe Frankish state that, galena involves boiling offthe lead. Phoenician colony, during in the third under Charlemagne, became the “Holy Winds from Europe carried to Greenland and second centuries BC. This was fol- Roman Empire”, and with the takeover enough lead pollution from this process lowed by a fall during the civil strife of ofSpain by the Umayyad caliphate.

Treasure beneath the ice Lead emissions, Greenland glacial-core samples 1.0 Micrograms per square metre per year Crisis of the Pax Romana Crisis of the Introduction of silver Roman Republic 3rd Century standard by the Franks Wars Civil disorders (modern France), Second Punic war Third 755ad Rome gains Iberia Punic war 0.8 First Punic war

0.6 Precise measurement Rome moves from silver to ad gold standard, 301 0.4

General trend 0.2

Principal power in Iberia 0 Phoenicians Carthaginians Roman Republic Roman Empire Visigoths Moors 1100 1000 900 800700 600 500 400 300 200 100 1bc 1ad 100 200 300400 500 600700 800 Source: J. McConnell et al., PNAS The Economist May 19th 2018 Science and technology 73

2 er people. The newly liberated land is a tar- Astronomy get for squatters, whose modus operandi is to clear the trees forprofit and then run cat- Inconstant tle over the resulting pasture. Local politi- cians often turn a blind eye to such activity, especially if bribed to do so. And the aver- age Colombian, whether urban-dweller or rural smallholder, is less concerned with rarefied matters like biodiversity and its The two ways to measure how fast the universe is growing do not agree possible role in a speculative biotechno- logical future, than with the immediate NE of the most basic facts about the business ofmaking ends meet. Ouniverse is that it is expanding. This And speculative that future is. How big observation, made by Edwin Hubble (pic- a role biotechnology will play in the econ- tured) in 1929, leads to all sorts of mind- omy of the 21st-century world is hard to stretching ideas. That the universe is grow- predict. It could be huge, with products ing implies it was smaller in the past—pos- now unimaginable becoming available as sibly a lot smaller. Which leads to the a result of new techniques of gene editing thought that a “Big Bang” kicked every- and the creation of synthetic genomes. Or thing off. It also opens the question of it could, as now, be an important factor in whether the universe will expand for ever, agriculture and medicine but of little wid- or will eventually see its expansion halted er resonance. At least at the moment, suc- and reversed by gravity, thus ending in a cessful biotechnologies are more often de- Big Crunch. rived from microbes and fungi than from Things got stranger in 1998, when a the plants and animals that attract the at- group of astrophysicists discovered that tention of most conservationists. That ar- the rate of expansion is increasing, for this gues for recruiting more Restrepos and Da- finding raised another question in turn. vieses to the effort. Moreover, if Colombia The acceleration of the expansion was so really is to benefit from its genetic patrimo- great that it seemed something was active- ny,it will need to build up its scientific base ly pushing the universe apart. Thus was and get rid of red tape that stands in the born the notion of “dark energy”—a new way of research. In the end, therefore, Co- component of the cosmos, invoked to bal- lombia BIO will survive or fall depending ance the equations. on its support from the top. Trying to work out what dark energy really is (or if it even exists) requires accu- Will the end, will the means rate measurements, particularly of the rate Whether the president’s aspirations are at which the universe is expanding. This Edwin Hubble in his natural habitat shared by other national politicians will rate is known as the Hubble constant, and soon become clear. On May 27th, Mr San- there are two ways of measuring it. Unfor- can be measured directly, those relative tos having served as president for the tunately, the answers these methods come distancescan be turned into absolute ones. maximum period permitted by law, Co- up with disagree. That is not necessarily a This is done by observing their paral- lombians go to the polls to elect a replace- problem. Previous observational conflicts lax. As Earth orbits the sun, the positions of ment. After a possible second round in (for example, that the oldest stars in the nearby stars will seem to shift relative to June, the winner will take office in August. universe were older than the universe it- those fartheraway, in the same way that, to Amid Colombia’s many problems, not self) have gone away as measurements im- a passenger on a train, trees in the middle least making the peace settlement with the proved. But in this case a new set of mea- distance appear to move with respect to FARC stick, biodiversity would be easy to surements has confirmed the discrepancy. far-off mountains. This means their dis- forget about. But it is not forgotten entirely. And that has got those who study astro- tances can be worked out by triangulation. One candidate, Iván Duque, talks of an physics flummoxed. The result is a method that has been used “orange economy” of knowledge-based The new measurements were made by since Hubble’s day to work out the dis- production, which might bode well for as- a team led by Adam Riess, one of the re- tances to nearby galaxies in which individ- piring biotechnologists. A second, Gustavo searchers who discovered the accelerating ual Cepheids, which are extremely bright Petro, is a former guerrilla who says he is expansion. Dr Riess works at the Space stars, can be detected. Then, with this rung keen on renewable ways of creating Telescope Science Institute in Baltimore. In in place, other objects, such as certain sorts wealth. And a third, Sergio Fajardo, a a study just uploaded to the arXiv, a reposi- of supernovae that have predictable ener- maths professor who was once mayor of tory of papers awaiting formal approval gy outputs, can be observed in galaxies of Medellín, also seems interested. for publication, he and his colleagues offer known distance and used to extend the Whether such inclinations would a new set of measurements of 50 stars of a ladder. translate into action in office remains to be type known as Cepheid variables. The accuracy of the ladder, though, de- seen. But, at the very least, Colombia BIO Cepheids are important to astronomers pends on the measurement of each rung. offers an opportunity to clarify which because they are a rung on what is known With this in mind, Dr Riess and his col- parts of the country’s wild areas most de- as the cosmic distance ladder. A Cepheid leagues combined data from two space serve protection at a moment when the of- pulsates at a frequency related to its intrin- telescopes—Hubble, which has been in or- fer of protection is still meaningful. And, sic brightness. This makes it possible, by bit since 1990, and Gaia, launched in since no one actually knows how the bio- comparing the intrinsic brightness of such 2013—to measure with unprecedented ac- technological future will turn out, just pos- a star with its apparent brightness, as seen curacy the distances to nearby Cepheids in sibly the surveys it is sponsoring will re- from Earth, to work out how far away it is the hope that this might make the cosmic- veal riches that make the gold rushes ofthe relative to other Cepheids. Then, if the ac- ladder-based estimate of the Hubble con- 19th century looklike chump change. 7 tual distances to some nearby Cepheids stant converge with one derived from ob-1 74 Science and technology The Economist May 19th 2018

2 servations of the Cosmic Microwave Back- Microdrones ground (CMB), a thin soup of radiation suffusing the universe that is left over from its earliest moments. It did not. Rather, it Petite fly from a bright guy confirmed the previous estimate. According to the cosmic ladder, the uni- The world’s lightest wireless flying machine lifts off verse is expanding at a rate of 73.24km per second per megaparsec. (In English, this RONES are getting ever smaller. The ics which flap the wings lighter, by cut- means that for each additional megapar- Dlatest is the first insect-sized robot to ting the circuitry from copper foil using a sec ofdistance—about 3.3m light years—the take to the air without a tether delivering laser, rather than printing the pattern speed at which galaxies are moving away its power. onto a base. They have also added an from each other rises by 73km per second.) Toget their device aloft, Sawyer Fuller 8mg solar cell to their device. Focusing a According to the CMB method the rate is ofthe University ofWashington, in Seat- laser on this cell lets them power the 67km persecond. That suggests there really tle, and his colleagues, who will be pre- robot without wires. They have dubbed is something wrong with current under- senting their workat the International their gizmo “RoboFly”. standing of the universe. Perhaps this is no Conference on Robotics and Automation The caveat is that, because they have more than a mismeasurement of one of in Brisbane later this month, had to over- not yet developed a way to make the the other steps on the cosmic distance lad- come three obstacles. One is that the power laser trackthe drone, as soon as it der. But it could be quite profound. Which propellers and rotors used to lift conven- flies out ofthe beam it drops unceremo- is good news for the employment pros- tional aircraft are not effective at small niously to the bench top. Solving this pects ofastrophysicists. 7 scales, where the viscosity ofair is a should not, however, be too hard—and problem. A second is that making circuit- once it is done they hope RoboFly will be ry and motors light enough fora robot to flapping happily around their laboratory. The science of songs get airborne is hard. The third is that even After that, it is a question ofadding the best existing batteries are too heavy sensors and a communications capabili- What makes good to power such devices. Nature’s portable ty to permit their tiny automaton to be power supply,fat, packs some 20 times controlled remotely,so that it can actually music? more energy per gram than a battery can. be used forsomething. The result, the In 2013 Dr Fuller, then at Harvard, was team think, will be sure to make a buzz. part ofa team which overcame the first ofthese hurdles, making a robotic insect that weighed just 80mg. The team copied Composers and listeners disagree nature by equipping their device with a IT songs are big business, so there is an pair ofwings which flapped120 times a Hincentive for composers to try to tease second (close to the frequency ofa fly’s out those ingredients that might increase wing beat). They partly overcame the their chances of success. This, however, is second hurdle by doing away with con- hard. Songs are complex mixtures of fea- ventional motors and driving the wings tures. How to analyse them is not obvious using a piezoelectric ceramic that flexes in and is made more difficult still by the fact response to electrical currents. The third, thatwhatispopularchangesovertime. But however, stumped them. Their drone Natalia Komarova, a mathematician at the was powered by means ofa thin cable— University of California, Irvine, thinks she and this cable also served to send control has cracked the problem. As she writes in signals from equipment too heavy to be Royal Society Open Science this week, her installed on the drone. computer analysis suggests that the songs Dr Fuller and his new colleagues have currently preferred by consumers are dan- now—almost—cracked the remaining ceable, party-like numbers. Unfortunately, problems. They have made the electron- Where’s the swatter? those actually writing songs prefer some- thing else. Dr Komarova and her colleagues col- and so on). The team fed all ofthisinforma- her computer to try to predict whether a lected information on music released in tion into a computer and compared the randomly presented song was likely to Britain between 1985 and 2015. Theylooked features of songs that had made it into the have been a hit in a given year. The mach- in public repositories of music “metadata” charts (roughly 4% of those in the reposi- ine correctly predicted success 75% of the that are used by music lovers and are often tories) with those ofsongs that had not. time, compared with the 4% rate that tapped into by academics. They compared Overall, the team’s results suggested guessingsuccess at random from the music what they found in these repositories with that songs tagged as happy and bright have database would yield—something else what had made it into the charts. become rarer during the past 30 years; the music executives might pay attention to. Metadata are information aboutthe na- opposites have therefore appeared with Content is not everything. As might be ture ofa songthat can give listeners an idea greater frequency. That was not, however, expected, circumstances—particularly any ofwhat that song is like before they hear it. reflected in what made it into the charts. fame already attaching to a recording artist The repositories presented Dr Komarova Chart successes were happier and brighter or artists—had an effect, too. But not a huge and her team with more than 500,000 (though also less relaxed), than the average one. Adding in information about who songs that had been tagged by algorithms songs released during the same year. Chart was performing a song increased the accu- which had been trained to detect numer- toppers were also more likely than average racyofprediction to 85%. Thatsuggeststhat ous musical features. The tags included a songs to have been performed by women. musical fame is actually attached to talent, dozen binary variables (dark or bright tim- All this is important information for execu- rather than to hype. And this, perhaps, is a bre; can orcannotbe danced to; vocal orin- tives ofmusic companies. third lesson for an industry that some be- strumental; sung by a man or a woman; Dr Komarova used these results to train lieve is not wedded to talent enough. 7 Books and arts The Economist May 19th 2018 75

Also in this section 76 A dark modern opera 77 Organised crime in Russia 77 William Trevor’s last book 78 The rest is silence For an appreciation of Tom Wolfe, visit Economist.com/culture

Russian theatre experienced by an actorforhis character. “I can’t get away from myself when I am on The bandage and the wound stage. But I can co-suffer, or co-experience something with my character,” says Sergei Kuryshev, one of Mr Dodin’s principal ac- tors. For that, the character’s life has to be as real as the actor’s. LONDON AND MOSCOW Working on “Life and Fate”, Mr Dodin tookhiscompanyfirstto Norilsk, the site of On Lev Dodin’s stage, the traumas ofRussian history come to life one ofStalin’s harshest camps, where they N SEPTEMBER 9th 1944, not long after tour in London (see picture). The questions rehearsed in an abandoned barracks built Othe siege of Leningrad was lifted, a re- that haunted the writer exercise the direc- on permafrost, and then to Auschwitz-Bir- gional committee ofSovietdeputiesissued tor, too—above all, as Mr Dodin puts it, the kenau, where they were allowed to stay an orderestablishinga theatre, “to raise the recurrence in history of “destruction and the night. As with similar expeditions led spiritsofthe people and the army” and “in- ultimately self-destruction…in the name by Stanislavsky 120 years ago, the aim was spire confidence in the future”. The result ofa great idea.” to plunge through the textand ignite the ac- was the Maly Drama Theatre of what is MrDodin’s workis deeply Russian in its tors’ imaginations, reaching across time to now St Petersburg. In the same weekVasily rootsand themes, yetresonatesaround the establish a personal connection to the past, Grossman, a Soviet warcorrespondent, en- world as Tolstoy, Dostoyevsky, Chekhov making it part of their lives and ultimately tered the Nazi extermination camp of Tre- and indeed Grossman do. His ability to the lives ofthe audience. blinka with the Red Army. transform questions of life and death into Along with compassion, this distinct Grossman meticulously documented space and movement—to visualise the past philosophyoftime—compressingitand ex- what he saw, down to the colour of chil- and make it present—has made him one of panding it—is at the heart of Mr Dodin’s dren’s discarded shoes. “How can all this his country’s, and the world’s, most impor- work. In the case of “Life and Fate”, Gross- have happened?” he asked in his article, tant directors. man’s panorama of Nazism, Stalinism and “The hell called Treblinka”. “Was it a mat- the war is condensed into three and a half terofheredity, upbringing, environment or The future of the past hours of drama. Different aspects of that external conditions?” In his magnificent Wary of ideas and utopias in politics, Mr history unfold simultaneously in one com- novel “Life and Fate”, Grossman pursued Dodin has himself adhered to a great, uto- munal space. A volleyball net that divides that inquiry into both the gas chambers pian idea that he inherited from Konstan- the stage morphs into a prison fence; in- and the gulag, bravely setting out the kin- tin Stanislavsky, the legendary co-founder mates march along it, singing Schubert’s ship between Hitler’s totalitarianism and of the Moscow Art Theatre (Mr Dodin “Serenade” in German or Russian, accord- Stalin’s. In 1961 Soviet censors not only studied under one of his pupils). In Stani- ing to which camp they are in. The bowl of banned the book but seized the manu- slavsky’s conception of theatre, aesthetics soup that Viktor Shtrum, a nuclear phys- script and all Grossman’s drafts. and ethics are inseparable. The goal is not icist (played by Mr Kuryshev), leaves in his By coincidence, Lev Dodin, the Maly’s merely to imitate reality but to create an in- Moscow flat is finished by a prisoner in the artistic director, was also born in 1944, to a dependent version, at once recognisable gulag. Onstage the novel’s different plot Jewish family which had been evacuated and autonomous; to develop a theatre that lines become one life and one fate. from Leningrad to Siberia. He and Gross- is more than a theatre, just as Tolstoy insist- Just as lives intertwine in Mr Dodin’s man never met in life, but they have been ed that “War and Peace” was not a novel plays, so his oeuvre is designed to form a united on stage. His searing adaptation of but something else. single canvas of Russian history and cul- “Life and Fate”, first produced in 2007, is on Central to thisprojectisthe compassion ture. His productions remain in repertory 1 76 Books and arts The Economist May 19th 2018

2 for years or decades, subtly interacting Contemporary opera with one another. Rehearsals do not end on opening night but continue throughout His dark materials the life ofa show. Each production is firmly grounded in the period in which it is set: Mr Dodin has George Benjamin is one ofthe finest modern composers ofopera no truck with anachronistic costumes or gimmicks. But each, for him, represents a LL-ACTION and surround-sound, to study with Olivier Messiaen, who point in a broader historical arc. “The pre- Aopera was the19th-century equiv- compared him to Mozart. Pierre Boulez sent”, he observes, “is the future ofthe past alent ofcinema—and, some say,is now was another big influence. He is a defiant and the past ofthe future.” Perhaps it is this obsolete in an era ofhigher-tech enter- apologist forthe drily theoretical work long perspective that makes Mr Dodin tainment. The suggestion that it might be that Boulez and his acolytes produced in such a successful director of Chekhov, outmoded draws a furious response from the 1960s. “After the catastrophe ofthe whose plays always unfold in double George Benjamin (pictured). “It’s the second world war,” MrBenjamin says, time—the time of their characters’ lives but most thrilling and immediate form,” says these composers “embarked on an ex- also a kind of cosmic time, the eternity in the British composer, one ofthe few traordinary journey ofthe mind and ear. which they are suspended. The “distant anywhere to be producing new operas The resulting music was not very lovable, sound of a breaking string” that rings out that win both critical acclaim and wide but it wasn’t written to be loved.” plaintively in “The Cherry Orchard” rever- audiences. “How could the art ofsetting His own oeuvre is characterised by a berates in Mr Dodin’s work, too. stories to music ever become irrelevant?” pared-down economy and wizardry Striking, then, that his operas dwell in with unusual instruments, such as, in The band plays on the remote past. His latest, “Lessons in “Lessons in Love and Violence”, the Mr Dodin does not engage directly with Love and Violence”, premiered at the cimbalom. (He was once helped out of a contemporary politics; he sticks to the Royal Opera House in London on May creative blockby Hindustani music.) Like worlds he creates on stage. But in a country 10th. In it, he and Martin Crimp, his libret- “Written on Skin”, “Lessons” has no that is often said to have dodged a reckon- tist, retell the story ofEdward II, a14th- interval or chorus. Nor does it have the ing with its past—in which history is by century English king, and his supposed sort ofmelodic tunes many casual listen- turns manipulated, airbrushed, mytholo- lover Piers Gaveston. Their previous ers might expect in opera. Mr Benjamin gised and idealised—his honest treatment collaboration, “Written on Skin”, revisit- thinks that “self-sealed tunes may stop of it is courageous. In “The Old Man”, a ed an obscure Provençal tale ofcannibal- the drama, which should be continuous- novel by Yuri Trifonov that Mr Dodin istic sexual possession. ly evolving from start to finish.” adapted in 1988, the main character de- This is darkmaterial, but Mr Benjamin In “Lessons”, the drama hurtles from scribes memory as “old bloodstained ban- himself, now 58, retains a youthful ide- tenderness to savagery. The fierce mod- dages on a wound”. In the director’s view, alism in his approach to his art. He was ernism is offset by arresting tableaux. “the task of art is to disentangle those ban- extremely youthful when he came to Famished subjects rail against their coun- dages, getting to the wound.” prominence: at 20 he had an orchestral try’s misrule. In a pivotal duet after Gav- Throughout his career, he has been pre- piece performed in London’s venerable eston’s demise, the queen tries to woo occupied by the issue at the core of “Life Proms. At16 he began commuting to Paris backthe king; he rebuffsher and, still and Fate”: the terrible human price that mourning his lover, unwittingly seals his creeds and ideology can exact. His first pro- own fate. duction as the Maly’s director, in 1983, was The potential ofyouth and the power “Brothers and Sisters”. Based on a novel by ofmusic—the leitmotifsofMr Benjamin’s Fyodor Abramov and performed over two career—are among the opera’s central evenings, it depicted the life—or rather themes, along with sex, politics, violence death—ofa Russian village afterthe second and the relationship between them. The world war, and the corrosion ofits soil and king’s children are witnesses, then ac- soul by Stalinism. In the late 1980s, as the complices, then something worse. For all artsbecame fixated on the news, MrDodin Mr Benjamin’s faith in it, music is a sinis- immersed himself for three and a half ter force too, at first a sign ofdecadence, years in “The Devils”, Dostoyevsky’s pro- then an instrument ofpower. “The mo- phetic novel ofnihilistic revolutionaries. ment someone stands up in front ofan His dark, ten-hour adaptation opened orchestra”, the composer says, “it’s imme- in December 1991, on the eve of the Soviet diately a ritual.” The result is “something collapse, a stark counterpoint to the short- magic” which “can be lyrical, but ifthe termism of the era. In the programme he story is dark, it may demand the opposite prefaced the play with a quote from Dos- Killing it at Covent Garden to lyricism.” toyevsky: “God and the devil are fighting there, and the battlefield is the heart of man.” In this case the devil took the form art itself. “I used to think theatre can nade” on brass instruments, evoking the of Petr Verkhovensky, a pseudo-revolu- change life,” Mr Dodin confides. “It can’t. spirits of those who died in the death tionary and provocateur. As Kirillov, his But it should try. All the music, all the poet- camps and the gulag—“the naked people”, suggestible victim, paced the stage, prepar- ry, all the theatre did not prevent Ausch- as Grossman described them, “people ing to commit suicide as the ultimate proof witz. But then again, I often think that if it who had lost everything but who obsti- of his free will, Verkhovensky slowly and had notbeen forall thismusic, all this poet- nately persisted in remaining human.” Per- deliberately devoured a chicken, diligently ry, all this theatre—perhaps Auschwitz haps there is a distant echo of Chekhov’s sucking on every wing and bone. would not have been defeated.” “Three Sisters”, at the end of which a band These are sombre visions. Yet as with Life is tragic, Mr Dodin’s work suggests, is heard offstage. “Oh, but listen to the all great tragedians, a sense of hope ema- but it must go on. At the close of “Life and band!” one of the sisters exclaims. “We nates from the daring and integrity of the Fate”, actorsstrip naked and playthe “Sere- have to live…we have to live…” 7 The Economist May 19th 2018 Books and arts 77

Organised crime in Russia Irish fiction The biggest gang How the past in town holds on

The Vory: Russia’s Super Mafia. By Mark Last Stories. By William Trevor. Viking; 224 Galeotti. Yale University Press; 344 pages; pages; $26 and £14.99 $28 and £20 ILLIAM TREVOR’S prose runs as ANY labels have been applied to Wclear as water yet tastes like gin. The MVladimir Putin’s Russia: kleptocracy, Irish author—who died in 2016, aged 88— post-modern authoritarianism and, in Ba- was a master of understatement, depicting rack Obama’s ill-advised put-down, a “re- small lives with rangy precision. At its best gional power”. One that stuckcame from a his fiction earned comparisons with Che- Spanish prosecutor in a mob trial. He de- khov; in turn, he influenced a generation scribed modern Russia as a “mafia state”. of writers in Ireland and beyond. He was It is a memorable phrase, but what does considered for a Nobel prize and nominat- that notion actually entail? Mark Galeotti, ed five times for the Man Booker. “I live an expert on this murky subject, offers the with people who don’t exist,” Trevor said best answer to date. “The Vory”—meaning in 2011, while working on his final collec- “The Thieves”—is a colourful and compre- tion, “Last Stories”, nowpublished posthu- hensive guide to the intersection of crime mously. “I have to write about them and and politics in Russia. there isn’t enough time.” The unwritten rules of the criminal un- Set largely in England, these ten elegiac derworld developed underthe tsars, when tales depict loss ofinnocence, loss of mem- the country’s serfs—a big chunkofthe pop- ory, loss of love and, acutely, loss of life. ulation—lived under a code that smiled on The characters and their professions are occasional diddling of feudal overlords. These days he wears Armani varied. They include a piano teacher, a car- “Theftofwood from the landlords’ ortsar’s tographer and a painting restorer; in a wry forest”, MrGaleotti writes, wasno sin. That they played by the new rules—avoid desta- nod to Trevor’s own trade, a gentle widow ethos persisted amid the mutual cynicism bilising violence and defer to the interests “read the novels that time’s esteem had ofrelations between the Communist Party of the Putin system, the “biggest gang in kept alive, and judged contemporary fic- and the Soviet Union’s citizens. Scarcity, town”. The state consolidated its power, tion forherself”. uncertainty, and the gap between Soviet Mr Galeotti says, by “not simply taming In a bookthe author knew to be his last, ideology and practice allowed criminal but absorbing the underworld”. The gang- the past is presented as textured and alive. structures to flourish. As is often the case, sters were partially nationalised; the state “How the past holds on,” remarks Antho- prison—known as the akademiya—proved adopted some oftheir mores. ny in “An Idyll in Winter”. Anthony’s for- conducive to schooling villains in their Not only Russia, but the whole of the mer pupil, Mary Bella, “knew that she was shared culture. West, has been affected by this amalgam- living in the past, that the past would al- At first, Soviet “thieves”—the preferred ation. Mr Galeotti documents how crimi- ways be there, around her, that she was term for criminal authorities of various nal figures and outfits have been useful to part of it herself”. In “At the Caffé Daria”, a ranks—were wary of the government, and the Kremlin in itssemi-covertoperations in story of betrayal, love and friendship, the forbade the entanglement of their noble Ukraine. Hackers from the criminal under- past is inescapable. “Death exorcises noth- pursuits with the state’s. They looked world are equally handy, a shadow force ing,” Anita realises on learning of her hus- down on the suki, or bitches, who made that can carry out an assignment without band’s passing from Claire, her childhood common cause with state organs and offi- leaving the state’s fingerprints. best friend, who had long supplanted her cials. Yet the scale and horror ofStalin’s gu- Mr Galeotti’s insight is that today’s vory in his affections. lag broke that prohibition, opening up the are not the crude, tattooed mob of a gener- By contrast, “The Crippled Man”, set in opportunity for a “new generation of vory ation or two ago. They are clever, smooth Ireland, queries what it means to live. Guz- to collaborate with dishonest party func- entrepreneurs, equally at ease with Rus- zling whisky and dependent on his carer, tionaries when they felt it was in their in- sian government ministers and Western fi- the invalid who is its protagonist had been terest”. That shift proved decisive—not just nanciers. Importantly, Mr Galeotti says assumed dead by the locals. Within the for the criminal underworld but the coun- they “are not interested in challenging or suffocating smallness of this setting, quiet, try as a whole, perhaps even forthe world. undermining the West, but in enjoying the flawless observations dazzle. Simple sen- Finally, in the 1980s, Mikhail Gorbach- opportunities it provides”. tencescolourwith meaning. Martine, a dis- ev’s perestroika “shattered the state, but That means it is, in large measure, up to tant relative caring for the crippled man in also unleashed new market forces that the Western politicians and business people— return for lodging, can “crack open an egg vory would prove best placed to exploit”. bankers, lawyers, property brokers—to de- and empty it with one hand. Two each The tumultuous, Hobbesian, often violent termine how deeply the vory are able to in- they had.” Moments of sensuality hint at version ofcapitalism that followed proved filtrate their societies. Mr Galeotti ques- her wider, wilder perspective, such as the the “perfect incubator” for a brand that be- tions whether Western institutions can rain “drenching her arms and the grey- came infamous: the Russian mafia. resist the “common temptation to turn a black material of her dress, running down Mr Putin ascended to the presidency blind eye to money that is slightly grubby”. between her breasts.” avowedly intent on restoring the authority The particular folkways and culture of the Trevor was and remains an author of the Kremlin. The more independent- vory may be essentially Russian, but the against whom other talents are measured. minded vory were marginalised or elimi- impulse to make a quick buck when no- His work earns its place in the canon that nated. Others were co-opted, so long as body is looking is found the world over. 7 “time’s esteem” will keep alive. 7 78 Books and arts The Economist May 19th 2018

The rest is silence Lover, or the writer ofthe Chandogya Upa- nishad, “meditating on this visible world Whereof we cannot speak as beginning, ending and breathing in the brahman”. Like a deep dive, engaging with silence is an act offaith. For all his academic confidence, Mr Corbin himself sometimes seems reluc- tant to plumb those depths. Otherwise he would not spend so much time merely Two books attempt to pursue silence with nets ofwords quoting writers who use the word “silent” THEME of the age, at least in the devel- ofa church, a wood ora grey Belgian street. By Alain Corbin. oped world, is that people crave si- A History of Silence. He spends several chapters dealing with A Translated by Jean Birrell. Polity; 147 lence and can find none. The roar of traffic, what might be called “social silence”: the pages; $19.95 and £14.99 the ceaseless beep of phones, digital an- dumbstruck or mannerly holding of the nouncements in buses and trains, TV sets tongue, the practice of mentally removing By Erling blaring even in empty offices, are an end- Silence: In the Age of Noise. oneself. The paintings he chooses as illus- Kagge. Translated by Becky Crook. less battery and distraction. The human trations are of this kind of silence, which Pantheon; 160 pages; $19.95. Viking; £9.99 race is exhausting itself with noise and comes from the remoteness of others: es- longs for its opposite—whether in the tranged customers in an absinthe bar, lov- wilds, on the wide ocean orin some retreat Kagge keeps on his desk, as he explains in ers lost in thought, or Edward Hopper’s dedicated to stillness and concentration. “Silence”, he enters a deep mineral exis- “Gas”, in which a station attendant goes Alain Corbin, a history professor, writes tence laid down across aeons oftime. abouthisworkatdusk, mute asthe pumps. from his refuge in the Sorbonne, and Erling Or silence may open listeners up to the Mr Kagge, whose own silences are usually Kagge, a Norwegian explorer, from his unknown reality of themselves: to a uni- quick, self-imposed absentings in the car, memories of the wastes of Antarctica, verse within as infinite as the stars. With in the bath or at family mealtimes, prefers where both have tried to escape. good reason, that is what humankind may photographs—of the sky, mountains, And yet, as Mr Corbin points out in “A be afraid of. It has taken mystics to brave it: space—which, instead of expressing si- History of Silence”, there is probably no St John of the Cross venturing into the lence, reduce readers to it. more noise than there used to be. Before noche oscura in which the soul meets the Pictures may well do betterthan words, pneumatic tyres, city streets were full of which silence transcends. As Maurice the deafening clang of metal-rimmed Blanchot, a French philosopher, puts it in a wheels and horseshoes on stone. Before formulation Mr Corbin cites, the writer voluntary isolation on mobile phones, triesto build “a sea wall ofpaperagainst an buses and trains rang with conversation. ocean of silence”. At times it may be best Newspaper-sellers did not leave their just to pause. The notes left out, the phrase wares in a mute pile, but advertised them unresolved, the words left hanging, are of- at top volume, as did vendors of cherries, ten eloquent, but not in a way that can be violets and fresh mackerel. The theatre and explained. The best evocations of silence the opera were a chaos ofhuzzahs and bar- in literature are those in which the word is racking. Even in the countryside, peasants never uttered—Rilke’s loving descriptions sang as they drudged. They don’t sing now. of rose petals laid on eyelids, or the closing What has changed is not so much the sentence ofJames Joyce’s “Dubliners”: level of noise, which previous centuries also complained about, butthe level of dis- His soul swooned slowly as he heard the snow falling faintly through the universe traction, which occupies the space that si- and faintly falling, like the descent of their lence might invade. There looms another last end, upon all the living and the dead. paradox, because when it does invade—in the depths of a pine forest, in the naked In his best chapter, Mr Corbin speculates desert, in a suddenly vacated room—it of- on silence as the medium from which ten proves unnerving rather than wel- wordscome: aslightand creation in the tra- come. Dread creeps in; the ear instinctively ditional tellings emerged out of darkness, fastens on anything, whether fire-hiss or or as most people still find it essential to bird call or susurrus of leaves, that will think and write in quiet. On the other save it from this unknown emptiness. Peo- hand, as Mr Kagge points out, for both Pla- ple want silence, but not that much. to and Aristotle knowledge of the eternal The fundamental fact, Mr Corbin con- and oftruth lay where words stop. tends, is that silence is not just the absence It may hardly seem worth the candle, of noise. It is something in itself. For some then, to keep pursuing silence with nets of writers it has substance, like sand that words. And yet it is therapeutic. To write blocks the ears or water slipping over the about it provides the illusion that it is with- body. For others it is a counter-sound, the in our control, like breathing; that we can “still small voice” Elijah heard after a tu- admit it for a while, as in a moment of mult ofwind and storm, or the speaking si- wordless wonder at morning frost or a lence heard by Percy Bysshe Shelley on blossoming tree, and then return to our Mont Blanc. It may also be, as Rilke wrote, blaring world refreshed and wiser. For a medium through which we enterthe hid- frantic moderns, silence also seems part of den reality of things. Through the silence the comfort offered by primitive or eternal ofKeats’sGrecian vase, the readercomes to things. But it seethes with fathomless chal- vanished songs; through the stonesthat Mr Please switch off your mobile phones lenge, like the unspeaking sea. 7 Courses 79

Appointments

To advertise within the classified section, contact:

UK/Europe United States Agne Zurauskaite Richard Dexter Tel: +44 20 7576 8152 Tel: +1 212 554 0662 [email protected] [email protected]

Asia Middle East & Africa Shan Shan Teo Philip Wrigley Tel: +65 6428 2673 Tel: +44 20 7576 8091 [email protected] [email protected] The Economist May 19th 2018 80 Economic and financial indicators The Economist May 19th 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 May 16th year ago United States +2.9 Q1 +2.3 +2.8 +3.5 Apr +2.5 Apr +2.4 3.9 Apr -466.2 Q4 -2.8 -4.6 3.01 - - China +6.8 Q1 +5.7 +6.6 +7.0 Apr +1.8 Apr +2.3 3.9 Q1§ +121.0 Q1 +1.1 -3.5 3.14§§ 6.37 6.89 Japan +0.9 Q1 -0.6 +1.4 +2.4 Mar +1.1 Mar +1.0 2.5 Mar +197.0 Mar +4.0 -4.9 0.03 110 113 Britain +1.2 Q1 +0.4 +1.4 +2.9 Mar +2.5 Mar +2.5 4.2 Feb†† -106.7 Q4 -3.7 -1.8 1.56 0.74 0.77 Canada +2.9 Q4 +1.7 +2.3 +4.5 Feb +2.3 Mar +2.2 5.8 Apr -49.4 Q4 -2.7 -2.0 2.50 1.28 1.36 Euro area +2.5 Q1 +1.6 +2.3 +3.0 Mar +1.2 Apr +1.5 8.5 Mar +469.5 Feb +3.3 -0.9 0.62 0.85 0.90 Austria +2.9 Q4 +1.6 +2.8 +5.1 Feb +1.8 Apr +2.1 5.0 Mar +7.7 Q4 +2.4 -0.6 0.65 0.85 0.90 Belgium +1.6 Q1 +1.6 +1.9 +0.1 Feb +1.5 Apr +1.7 6.4 Mar -0.8 Dec nil -0.9 0.88 0.85 0.90 France +2.1 Q1 +1.0 +2.0 +1.8 Mar +1.6 Apr +1.7 8.8 Mar -12.6 Mar -0.8 -2.4 0.84 0.85 0.90 Germany +2.3 Q1 +1.2 +2.3 +3.2 Mar +1.6 Apr +1.6 3.4 Mar‡ +312.3 Mar +7.7 +1.0 0.62 0.85 0.90 Greece +1.8 Q4 +0.4 +1.6 +1.1 Mar nil Apr +0.7 20.8 Feb -2.2 Feb -1.2 +0.2 4.36 0.85 0.90 Italy +1.4 Q1 +1.2 +1.4 +3.6 Mar +0.5 Apr +1.1 11.0 Mar +53.2 Feb +2.7 -2.0 2.13 0.85 0.90 Netherlands +2.8 Q1 +2.1 +2.8 +3.5 Mar +0.9 Apr +1.4 4.9 Mar +84.9 Q4 +9.8 +0.8 0.78 0.85 0.90 Spain +2.9 Q1 +2.8 +2.8 -3.6 Mar +1.1 Apr +1.4 16.1 Mar +25.9 Feb +1.7 -2.6 1.25 0.85 0.90 Czech Republic +5.5 Q4 +2.0 +3.6 -1.0 Mar +1.9 Apr +1.8 2.2 Mar‡ +1.9 Q4 +0.7 +0.9 1.86 21.7 23.8 Denmark +1.3 Q4 +1.2 +1.9 -9.8 Mar +0.8 Apr +1.2 4.1 Mar +23.0 Mar +7.8 -0.7 0.63 6.32 6.71 Norway +0.3 Q1 +2.5 +1.9 -6.7 Mar +2.4 Apr +2.1 3.9 Feb‡‡ +20.2 Q4 +6.3 +4.9 1.98 8.11 8.48 Poland +4.4 Q4 +6.6 +4.2 +1.9 Mar +1.6 Apr +1.9 6.6 Mar§ -0.5 Mar -0.7 -2.2 3.27 3.63 3.78 Russia +1.3 Q1 na +1.7 +0.9 Mar +2.4 Apr +3.1 5.0 Mar§ +41.7 Q1 +3.4 -0.9 8.13 62.2 56.4 Sweden +3.3 Q4 +3.5 +2.5 +6.8 Mar +1.7 Apr +1.7 6.5 Mar§ +17.1 Q4 +4.0 +0.6 0.77 8.72 8.80 Switzerland +1.9 Q4 +2.4 +2.2 +8.7 Q4 +0.8 Apr +0.7 2.7 Apr +66.6 Q4 +9.7 +0.8 0.14 1.00 0.99 Turkey +7.3 Q4 na +4.3 +6.8 Mar +10.8 Apr +10.7 10.6 Feb§ -55.4 Mar -5.7 -2.8 14.56 4.43 3.55 Australia +2.4 Q4 +1.5 +2.7 +1.6 Q4 +1.9 Q1 +2.1 5.6 Apr -32.3 Q4 -2.2 -1.2 2.83 1.33 1.35 Hong Kong +4.7 Q1 +9.2 +2.9 +0.7 Q4 +2.6 Mar +2.5 2.9 Mar‡‡ +14.7 Q4 +4.0 +0.8 2.28 7.85 7.79 India +7.2 Q4 +6.6 +7.2 +4.4 Mar +4.6 Apr +4.8 5.9 Apr -39.1 Q4 -2.0 -3.5 7.90 67.8 64.1 Indonesia +5.1 Q1 na +5.3 +1.1 Mar +3.4 Apr +3.5 5.0 Q1§ -20.9 Q1 -2.1 -2.5 7.18 14,094 13,301 Malaysia +5.9 Q4 na +5.5 +3.1 Mar +1.3 Mar +2.5 3.3 Mar§ +9.4 Q4 +3.2 -2.8 4.20 3.97 4.32 Pakistan +5.4 2018** na +5.4 +5.8 Feb +3.7 Apr +5.0 5.9 2015 -16.6 Q1 -5.8 -5.4 8.50††† 116 105 Philippines +6.8 Q1 +6.1 +6.4 +13.5 Mar +4.5 Apr +4.8 5.3 Q1§ -2.5 Dec -0.2 -1.9 6.55 52.3 49.7 Singapore +4.3 Q1 +1.4 +3.0 +5.9 Mar +0.2 Mar +0.9 2.0 Q1 +61.0 Q4 +21.2 -0.7 2.65 1.34 1.39 South Korea +2.9 Q1 +4.4 +2.9 -4.3 Mar +1.6 Apr +1.7 4.1 Apr§ +71.1 Mar +4.7 +0.7 2.80 1,078 1,116 Taiwan +3.0 Q1 +1.3 +2.7 +3.1 Mar +2.0 Apr +1.3 3.7 Mar +84.1 Q4 +13.9 -0.9 1.03 29.9 30.1 Thailand +4.0 Q4 +1.8 +4.0 +2.6 Mar +1.1 Apr +1.3 1.2 Mar§ +50.2 Q1 +10.2 -2.3 2.64 32.1 34.5 Argentina +3.9 Q4 +3.9 +2.6 +6.1 Mar +25.6 Apr +22.5 7.2 Q4§ -30.8 Q4 -5.3 -5.1 6.23 23.9 15.6 Brazil +2.1 Q4 +0.2 +2.6 +1.3 Mar +2.8 Apr +3.4 13.1 Mar§ -8.3 Mar -1.2 -7.0 8.34 3.68 3.09 Chile +3.3 Q4 +2.6 +3.2 +8.7 Mar +1.9 Apr +2.3 6.9 Mar§‡‡ -4.1 Q4 -0.6 -2.1 4.48 630 666 Colombia +1.4 Q1 +1.6 +2.5 -1.4 Mar +3.1 Apr +3.3 9.4 Mar§ -10.4 Q4 -2.9 -2.0 6.60 2,875 2,871 Mexico +1.2 Q1 +4.5 +2.1 -3.7 Mar +4.6 Apr +4.3 3.2 Mar -18.8 Q4 -1.8 -2.3 7.78 19.7 18.6 Peru +2.2 Q4 -1.3 +3.7 +0.3 Feb +0.5 Apr +1.8 7.0 Mar§ -2.7 Q4 -1.7 -3.5 na 3.27 3.26 Egypt nil Q4 na +5.1 +6.2 Mar +13.1 Apr +16.9 10.6 Q1§ -9.3 Q4 -4.0 -9.8 na 17.8 18.1 Israel +3.9 Q1 +4.2 +3.6 +6.5 Feb +0.4 Apr +1.1 3.6 Mar +10.5 Q4 +3.5 -2.5 1.96 3.59 3.60 Saudi Arabia -0.7 2017 na +1.0 na +2.8 Mar +4.4 6.0 Q4 +15.2 Q4 +3.7 -7.3 na 3.75 3.75 South Africa +1.5 Q4 +3.1 +1.9 +2.3 Mar +3.8 Mar +4.8 26.7 Q1§ -8.6 Q4 -2.8 -3.6 8.48 12.5 13.1 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist May 19th 2018 Economic and financial indicators 81

Markets % change on Oil Global supply, m b/d, change on a year earlier Dec 29th 2017 Brent crude this week hit a three-and-a- Index one in local in $ 4 May 16th week currency terms half-year high of $78 a barrel. It is now OECD OPEC Others United States (DJIA) 24,768.9 +0.9 +0.2 +0.2 worth almost three times as much as it 2 China (Shanghai Comp) 3,169.6 +0.3 -4.2 -2.0 was at its nadir in 2016. The price of oil + Japan (Nikkei 225) 22,717.2 +1.4 -0.2 +1.9 has been creeping up since last summer, 0 Britain (FTSE 100) 7,734.2 +0.9 +0.6 +0.3 boosted in part by strong global con- – Canada (S&P TSX) 16,108.1 +1.2 -0.6 -2.8 2 sumption, which expanded by 1.6% in 2014 15 16 17 18 Euro area (FTSE Euro 100) 1,240.3 -0.1 +2.5 +0.6 2017. A deeper-than-expected cut in Euro area (EURO STOXX 50) 3,562.8 -0.2 +1.7 -0.2 output by OPEC and other oil-producing Brent crude, $ per barrel Austria (ATX) 3,490.5 -0.3 +2.1 +0.2 120 Belgium (Bel 20) 3,857.7 -0.9 -3.0 -4.8 countries has also buoyed prices. So too France (CAC 40) 5,567.5 +0.6 +4.8 +2.9 has the collapse of the oil industry in 80 Germany (DAX)* 12,996.3 +0.4 +0.6 -1.2 Venezuela. More recently prices have Greece (Athex Comp) 787.9 -3.8 -1.8 -3.6 rallied in response to President Donald 40 Italy (FTSE/MIB) 23,734.2 -2.2 +8.6 +6.6 Trump’s withdrawal from the nuclear deal Netherlands (AEX) 565.1 +0.6 +3.8 +1.9 with Iran. It is estimated that this deci- 0 10,111.0 -1.1 +0.7 -1.2 Spain (IBEX 35) sion could remove 1m barrels of Iranian 2014 15 16 17 18 Czech Republic (PX) 1,106.1 +1.2 +2.6 +0.7 crude a day from global markets. Sources: Thomson Reuters; World Bank; IEA Denmark (OMXCB) 916.7 -0.3 -1.1 -3.0 Hungary (BUX) 37,575.0 +2.7 -4.6 -8.1 Norway (OSEAX) 1,008.6 +0.9 +11.2 +12.1 Poland (WIG) 59,791.3 +0.2 -6.2 -10.3 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,189.8 +4.2 +3.1 +3.1 2005=100 % change on % change on Sweden (OMXS30) 1,602.3 -0.9 +1.6 -4.6 Dec 29th 2017 one one Switzerland (SMI) 8,973.9 -0.1 -4.3 -6.8 Index one in local in $ May 8th May 15th* month year Turkey (BIST) 102,157.9 +1.4 -11.4 -24.2 May 16th week currency terms Dollar Index Australia (All Ord.) 6,208.1 +0.1 +0.7 -3.0 United States (S&P 500) 2,722.5 +0.9 +1.8 +1.8 All Items 157.0 155.9 +0.6 +9.0 Hong Kong (Hang Seng) 31,110.2 +1.9 +4.0 +3.5 United States (NAScomp) 7,398.3 +0.8 +7.2 +7.2 Food 160.6 159.3 +1.0 +3.2 India (BSE) 35,387.9 +0.2 +3.9 -2.2 China (Shenzhen Comp) 1,832.3 -0.1 -3.5 -1.4 Indonesia (JSX) 5,841.5 -1.1 -8.1 -11.5 Japan (Topix) 1,800.4 +1.5 -0.9 +1.1 Industrials Malaysia (KLSE) 1,858.3 +0.6 +3.4 +5.5 Europe (FTSEurofirst 300) 1,543.4 +0.2 +0.9 -1.0 All 153.3 152.4 +0.1 +16.1 Pakistan (KSE) 42,301.2 -3.4 +4.5 -0.2 World, dev'd (MSCI) 2,123.0 +0.6 +0.9 +0.9 Nfa† 145.1 144.1 +2.1 +3.1 Singapore (STI) 3,533.1 -0.4 +3.8 +3.4 Emerging markets (MSCI) 1,155.1 +1.0 -0.3 -0.3 Metals 156.8 156.0 -0.6 +22.2 South Korea (KOSPI) 2,459.8 +0.6 -0.3 -1.0 World, all (MSCI) 517.0 +0.7 +0.8 +0.8 Sterling Index Taiwan (TWI) 10,897.6 +1.8 +2.4 +2.0 World bonds (Citigroup) 938.3 -0.8 -1.2 -1.2 All items 211.3 210.1 +6.7 +4.3 Thailand (SET) 1,750.6 -0.4 -0.2 +1.2 EMBI+ (JPMorgan) 792.4 +0.7 -5.2 -5.2 Argentina (MERV) 31,660.6 +13.4 +5.3 -17.1 Hedge funds (HFRX) 1,273.1§ +0.3 -0.2 -0.2 Euro Index Brazil (BVSP) 86,536.9 +2.7 +13.3 +2.0 Volatility, US (VIX) 13.4 +13.4 +11.0 (levels) All items 164.7 163.5 +4.7 +1.8 Chile (IGPA) 28,957.4 +1.4 +3.5 +1.0 CDSs, Eur (iTRAXX)† 56.4 -0.2 +25.0 +22.7 Gold Colombia (IGBC) 12,366.1 -0.6 +7.7 +11.9 CDSs, N Am (CDX)† 60.8 -0.8 +23.9 +23.9 $ per oz 1,307.8 1,294.0 -3.7 +4.6 Mexico (IPC) 46,419.8 +0.3 -5.9 -6.7 Carbon trading (EU ETS) € 15.2 +4.0 +86.7 +83.3 West Texas Intermediate Peru (S&P/BVL)* 20,952.9 +18.1 +4.9 +4.1 Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 69.1 71.3 +7.2 +46.5 Egypt (EGX 30) 16,993.2 -2.7 +13.1 +12.4 †Credit-default-swap spreads, basis points. §May 15th. Israel (TA-125) 1,352.7 +1.9 -0.9 -4.1 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 8,039.3 +2.0 +11.3 +11.3 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 58,621.8 +1.2 -1.5 -2.2 series, go to: Economist.com/indicators †Non-food agriculturals. 82 Obituary Ninalee Allen Craig The Economist May 19th 2018

ing at her. At six feet tall, beautiful, foreign and walking alone, she was clearly an ob- ject ofcuriosity. And so she was when they turned at10.30 into the Piazza della Repub- blica, where there was a sea of men, and Ruth told her to walk through. She did so twice. Two shots, 35 seconds. Afterthat, she climbed onto the back seat of the Lam- bretta whose riderhad drawn up to admire her, and went fora ride. Nothing was posed, she insisted. The men were just there, hanging round the Caffè Gilli because they had no jobs. She was furious when the Metropolitan Muse- um of Art, in an exhibition, described it as “staged”. Her second walk had increased the reaction, but that did not make it inau- thentic. It was the real McCoy. This was not, however, the ground on which she had to defend the picture for the rest of her life. As she moved through two marriages, and from America to Italy to A woman walking Canada, where she settled in Toronto, it was the sexual message that bothered peo- ple. In 1952, when it first appeared in Cos- mopolitan magazine with a piece advising single women that “ogling the ladies is a popular, harmless and flattering pastime Ninalee Craig, née Allen, starofone ofthe 20th century’s most controversial ...in many foreign countries”, the crotch- images, died on May1st, aged 90 grabber was cropped out. Time-Life books HE photograph, by Ruth Orkin, was aly to lookat art and to paint. airbrushed his hand out in 1961. She Tcalled “American Girl in Italy, Florence, At 23, she was quite alone. That was rare couldn’t thinkwhy. She was used to Italian 1951”. Whenever it surfaced, in restaurants, fora woman, and intoxicating. Europe was men doing it, almost as a good-luck sign; a in students’ rooms, on T-shirts, on tote open and empty of tourists, recovering sort of reassurance, that the family jewels bags, so did the questions for Ninalee Al- from the war. Almost no papers were were intact. As ifshe cared. len Craig, who walked at its heart through needed. In that spirit of adventure she re- When the censoring ended, feminist a phalanx of Italian men. They stared and vived her childhood nickname, “Jinx”, commentary began. Time after time the leered; one grabbed his crotch; their calls which sounded larky and exciting. No one Photograph was used for stories of wom- were almost audible. Wasn’t she afraid? kepttabson her. She could call atthe Amer- en’s harassment and victimhood. #MeToo Surely she was upset? Her downcast eyes, ican Express office to check letters, but made it worse. Though she supported the that clutch ofher shawl, strongly suggested there was no need to communicate with movement and thought it was a wake-up both those things. home. And just as well, because when her call, as ardent in her late 80s as she would Then she would laugh her boisterous father saw The Photograph, blown up big have been in her Jinx years, it also made full laugh and say, not at all. On the con- one day in Grand Central, he was horrified many more people see something sinister trary, she was imagining she was Dante’s that she had been walking round Italy in and awful in that image of her younger Beatrice. She had studied the “Divine that way. The world was hers to conquer. self. In 2017 she was heartbroken to hear Comedy” with Robert Fitzgerald at Sarah that a restaurateur in Philadelphia had tak- Lawrence in New York, and had fallen in Ignoring Pan en the picture down after two dozen cus- love with that notion of unattainable When she met Ruth, who was doing the tomers complained. beauty. Herdollar-a-night hotel was on the same and taking pictures as she went, they How to persuade them that she had not Arno, and she had a corny postcard of a agreed to do a photo essay together, a been scared, that she felt thrilled and Victorian painting by Henry Holiday that spoof on the perils of girls travelling alone. strong? In the first contact print, she looked showed Beatrice walking by the river, in It was August, the hottestdayofthe year. In frightened. Ruth told her to walk the sec- shining white, ignoring the stricken Dante, full Jinx mode, she put on her New Look ond time “as if it’s killing you, but you’re who pressed his pounding heart at the long skirt, a wide belt and an orange Mex- going to make it”. She explained that her sight of her. Who knew whether her very ican shawl. Herpurse was a horse-feed bag shawl had been her shield, sheathing her own Dante might not be standing on some which she had picked up in Spain. As they body, and that the last thing she wanted to corner, while she swept luminously by? walked through the city she asked the way do was to look the men in the eye and Besides, even when she was not Be- from a policeman, bargained for straw smile. Yet the more other, younger women atrice, she was a New York girl having a bags in a market, visited the Amex office. called this harassment, the louder she de- wonderful time. When she left college she Much of what she did was flirty. She chat- nied it. When a man whistled at you, or didn’t know where her place in the world ted to a young man in a café while putting called out “Que bella!”, you were appreci- was, so the answerseemed to be to explore on her violent red lipstick. Guide book in ated. You walked taller. In that moment, it. Her mother, who had travelled young to hand, she gawked at a statue of two naked you owned the street. She still kept the bag Sicily, encouraged her to tour Europe until wrestlers and sat, with a bored look, in and shawl from that day, as well as the the moneyran out. So she sailed third-class front of a statue of Pan with his usual erec- postcard in which Dante stood, staring, in with a cardboard suitcase, going to France tion. Ignoring him. Beatrice’spath. Howcould Beatrice ever be and round Spain on buses, ending up in It- In most ofthese pictures men were star- vulnerable? 7 World’s First “Self-Driving” Database

Oracle Autonomous Database

No Human Labor – Half the Cost No Human Error – 100x More Reliable

oracle.com/selfdrivingdb

Humanlaborreferstotuning,patching,updating,andmaintenanceofdatabase. Copyright © 2018, Oracle and/or its affiliates. All rights reserved. Oracle and Java are registered trademarks of Oracle and/or its affiliates. Noisy attacks aren’t hard VQƓPFų

But could you catch the silent attacker lurking beneath the surface?

8VLQJDUWĻFLDOLQWHOOLJHQFH'DUNWUDFḨQGVWKH TXLHWF\EHUWKUHDWVLQVLGH\RXURUJDQL]DWLRQ QRPDWWHUKRZWKH\JRWLQ  )URPVWHDOWK\DWWDFNHUVDQGLQVLGHUWKUHDWVWR KDFNVRIFRQQHFWHGREMHFWVRULQGXVWULDOQHWZRUNV 'DUNWUDFHGHWHFWVLWDQĢJKWVEDFNLQUHDOWLPH  )LQGRXWKRZDWGDUNWUDFHFRP

:RUOG/HDGLQJ&\EHU$,