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Contents The Economist March 7th 2015 5

9 The world this week Asia 39 Afghanistan, Pakistan Leaders and the Taliban Hope springs 13 Atomic weapons The new nuclear age 40 Australian politics The Abbott effect 14 Global banks Cocking up 41 Politics in Malaysia Gathering steam 15 Afghanistan, Pakistan and the Taliban 41 India’s budget Seize the day But where’s the main act? Russia The assassination of 15 Health care in America 42 Japan and the past Boris Nemtsov leaves liberal Don’t kill Obamacare Undigested history Russians in fear of a new wave 16 Gender and education of violent repression, page 51. On the cover Nature plus nurture China Our obituary, page 94 A quarter of a century after 43 Economic growth the end of the cold war, the Letters The new normal world faces a growing threat 18 On deflation, 44 Hong Kong of nuclear conflict: leader, German-Americans, The power of fish page 13 and briefing, pages London, money, hipsters 44 Pollution 23-26. The likely outline of an Reinforcing the message Iranian nuclear deal, page 24. Why Binyamin Netanyahu’s Briefing 45 Banyan Xi Jinping’s ideology speech to Congress will not 23 Nuclear weapons stop Iran going nuclear, The unkicked addiction page 30 24 Negotiating with Iran Middle East and Africa Deal or no deal? 46 Iran’s economy Fading hope The Economist online Obamacare As the Supreme United States 47 Nigeria and its Court considers whether to gut Daily analysis and opinion to neighbours Obamacare, evidence is 27 Health policy (1) supplement the print edition, plus Big fish in a small pond mounting that the law is audio and video, and a daily chart Will Obamacare curb costs? Economist.com 47 Boko Haram working: leader, page 15. The 28 Health policy (2) On the back foot slowest health inflation in five E-mail: newsletters and Obamacare in court, again 48 Islamic State decades, page 27. A wasteful mobile edition 30 Israel and America Destroying history and inefficient industry is Economist.com/email Bibi in DC being disrupted, page 63 Print edition: available online by 30 Unions in Wisconsin 7pm London time each Thursday Labour pains Technology Quarterly Economist.com/print 32 Hillary Clinton’s e-mails After page 48 Audio edition: available online Nothing to hide? to download each Friday Economist.com/audioedition 33 Republican presidential Europe hopefuls 51 Russia after Nemtsov Bobby Jindal’s pitch Uncontrolled violence 34 Lexington 52 Estonia’s election Of dogcatchers and On the border democracy 53 Turkey’s Kurds Volume 414 Number 8928 Put the weapon down The Americas Published since September 1843 53 Kurdish football Afghanistan Improved to take part in "a severe contest between 35 Mexican education Scoring the equaliser intelligence, which presses forward, and relations with Pakistan offer an unworthy, timid ignorance obstructing Flunking the test 54 Macedonia’s scandal the possibility of making peace our progress." 36 Mexican drug cartels Getting it on tape with the Taliban. Other Editorial offices in London and also: Captured capos 54 Media in Italy countries should help: leader, Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Lima, 36 Intrigue in Argentina Sliced RAI page 15. How the Afghan Los Angeles, Mexico City, Moscow, New Delhi, The end of the affair? 55 Charlemagne Taliban may be brought to the New York, Paris, San Francisco, São Paulo, negotiating table, page 39 Singapore, Tokyo, Washington DC 38 Bello Europe’s energy union A long game in Havana

1 Contents continues overleaf 6 Contents The Economist March 7th 2015

Britain 77 Inﬂation in Japan The signal and the noise 58 The Liberal Democrats A cold shower 78 Training professional investors 59 Amnesty International Oﬀ-track betting A reputation at risk 80 Free exchange 60 Bagehot Secular stagnation The hunter and the hapless

Science and technology International 82 Evolution and disease 61 Gender, education and Decline of the global bank A Faustian bargain Technology Quarterly work Badly managed and under- How Silicon Valley-funded The weaker sex 83 Computer security performing, the giants of Unintended consequences startups are moving into the global finance are in trouble. 84 3D printing sustainable-food business, Don’t take their survival for Business Entering the jet age how to back up a country’s granted: leader, page 14. Why 63 Health care in America data, low-gravity space they are floundering, page 71. Shock treatment rovers, hacking your brain and Citigroup’s woes, page 75 Books and arts much more, after page 48 64 Berkshire Hathaway Corresponderous 85 The Ottoman Empire Heading towards disaster 65 Silicon Valley HQs Subscription service 86 American power Googledome, or temple For our latest subscription offers, visit of doom? The end is not nigh Economist.com/offers 86 Homicide in Los Angeles For subscription service, please contact by 66 Altice telephone, fax, web or mail at the details Borrow, buy, cut Murder, she wrote provided below: 87 Disraeli’s marriage Telephone: 1 800 456 6086 (from outside 66 The glass-ceiling index the US and Canada, 1 636 449 5702) Slow progress A mismatch made in Facsimile: 1 866 856 8075 (from outside heaven the US and Canada, 1 636 449 5703) 66 The art market Web: Economistsubs.com Brush with the law 88 McQueen and Galliano E-mail: [email protected] Two butterflies, one wheel Post: The Economist Subscription 69 E-commerce in Asia Services, P.O. Box 46978, St. Louis, MO 63146-6978, USA Home-field advantage 88 Paul Durand-Ruel Gender gaps Girls now do Making the Impressionists Subscription for 1 year (51 issues) better than boys in school and 70 Schumpeter United States US$160 university. But both sexes can Management by targets Canada CN$165 still improve: leader, page 16. 92 Economic and financial Latin America US$338 Why boys are being outclassed indicators by girls, page 61. Progress in Finance and economics Statistics on 42 improving women’s chances in 71 Global banks economies, plus our Principal commercial offices: the workplace is mixed, page 66 A world of pain monthly poll of forecasters 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 72 Buttonwood Rue de l’Athénée 32 The curse of scale Obituary 1206 Geneva, Switzerland 75 Citigroup 94 Boris Nemtsov Tel: 4122 566 2470 The Citi never reaps The ruler who never was 750 3rd Avenue, 5th Floor, New York, NY 10017 76 Greece’s economy Tel: 1212 5410500 Running on empty 60/F Central Plaza 18 Harbour Road, Wanchai, Hong Kong Tel: 852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

Warren Buﬀett The sage of Omaha’s 50th annual missive to shareholders is unusually confusing, page 64

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The world this week The Economist March 7th 2015 9

finance ministers ofGermany Ferguson’s “policing practices accusation, was found dead in Politics and the Netherlands denied disproportionately harm” January. The prosecutor now that a new bail-out was being blackresidents, but he is not dealing with Mr Nisman’s discussed. The remarks contin- bringing charges against the claims has appealed against ued a war ofwords begun officer, who says he shot the the judge’s ruling. when Alexis Tsipras, the far- teen in self-defence. left Greekprime minister, Lowering expectations accused Spain ofworking to Hillary Clinton reportedly undermine his Syriza party for used a private e-mail account fear ofits own far-left move- to conduct nearly all her offi- ment, Podemos. cial business when she was America’s secretary ofstate, a Tusk force possible breach ofrules in- Kenya burned 15 tonnes of tended to encourage transpa- ivory with a black-market rency. Since the e-mails are Thousands ofRussians at- value of$30m in an effortto stored on her private server, tended the funeral ofBoris stigmatise the trade and curb critics charge that Mrs Clinton Nemtsov, an opposition poli- poaching. This was in response will pickand choose which tician who was murdered in to a sharp increase in elephant ones to make public. Jeb Bush, Moscow two days before he and rhino poaching across who has published a trove of The annual session ofChina’s was due to take part in a rally sub-Saharan Africa. e-mails from his time in office rubber-stamp parliament, the to protest against the war in as Florida’s governor, wasted National People’s Congress, Ukraine. Many blamed his Iraqi government forces, sup- no time in calling on Mrs began in Beijing. The prime assassination on a rising cli- ported by Iran, started the Clinton to release hers. minister, Li Keqiang, told the mate offear and nationalistic largest military campaign yet 3,000 delegates that China’s hatred fomented by govern- to take background lost to Deeper and deeper economy was expected to ment propaganda. Islamic State (IS). The offen- Brazil’s chiefprosecutor asked grow by around 7% this year. It sive centres on Tikrit, which is the Supreme Court to investi- grew by 7.4% in 2014, the slow- Ukraine’s central bankraised about midway between the gate 54 people, including poli- est rate in 24 years. A budget its key interest rate from 19.5% capital Baghdad and Mosul, a ticians, fortheir role in the submitted to the legislature to 30% in an effortto halt the big city that fell to IS last year. scandal surrounding Petro- called fora 10% increase in slide ofthe hryvnia. The cur- bras, the giant state-controlled military spending. Earlier, the rency has lost 80% ofits value Bibi won’t play ball oil company. Police have ac- People’s BankofChina cut its since April 2014, when the war cused formerexecutives at the benchmarkinterest rate for the in eastern Ukraine broke out. company ofaccepting bribes second time since November. The UN estimates that 6,000 in exchange forawarding people have since died in the contracts to them. The exec- BarackObama criticised conflict. Meanwhile, the Ukrai- utives allegedly funnelled the China’s plan to require tech nian parliament passed a slate money to political parties companies to hand over ofreforms demanded by the allied with the government, encryption keys and provide IMF as conditions fora $17.5 including the Workers’ Party of backdoors into their software billion bail-out package. the president, Dilma Rousseff. ifthey want to operate in China. Chinese officials say The leader ofTurkey’s Kurdish Mexican security forces arrest- that this is necessary to combat rebels, Abdullah Ocalan, ed two alleged drug kingpins. terrorism. called on his Kurdistan Work- Binyamin Netanyahu gave a Federal police nabbed ers’ Party (PKK) to end the speech to the American Con- Servando Gómez, also known Police in Hong Kong arrested armed struggle it has waged gress, where he had been as “El Profe”, a formerteacher more than 30 people in con- against the Turkish state since invited by the Republicans who heads the Knights nection with a protest against 1984. A peace deal could bring without bothering to consult Templar cartel, which deals in shoppers from the Chinese more freedoms and benefits to the White House. In his methamphetamines. He was a mainland. It was the third such Kurds in Turkey as well as in address the Israeli prime powerful figure in the state of demonstration in a month. Iraq and Syria. minister denounced the way Michoacán. And police and Many in Hong Kong blame an the Obama administration is armed forces captured Omar influx ofChinese shoppers for The Council ofEurope repri- negotiating a deal over nuclear Trevino Morales, the alleged causing scarcities ofgoods by manded France forfailing to weapons with the Iranian leader ofthe Zetas cartel, in the buying them to resell across outlaw the smacking of chil- regime, which, he said, is city ofMonterrey. the border. dren by parents. It wants all competing with IS “forthe European countries to ban the crown ofmilitant Islam”. A federal judge in Argentina The sale and consumption of practice, but French law recog- dismissed allegations that the beefwas banned in the west nises a right forparents to America’s Justice Department president, Cristina Fernández Indian state ofMaharashtra, discipline their children. released its report into policing de Kirchner, and officials in- including India’s biggest city, in Ferguson, the town in terfered with the investigation Mumbai. Several Indian states Spain’s finance minister said Missouri where the shooting ofthe bombing ofa Jewish have restrictions relating to that Greece would need a ofa blackteenager by a white centre in 1994 in Buenos Aires beef, but Maharashtra’s are third bail-out package ofabout policeman sparked nation- in order to cover up the com- among the strictest. People $50 billion after its current wide protests. Eric Holder, the plicity ofIran. Alberto Nisman, who sell or eat cow meat could programme ends in June. The attorney-general, said that the prosecutor who made that be jailed forup to five years. 1 10 The world this week The Economist March 7th 2015

ruled that the central bank AbbVie, a drugs company that Uber, a ride-sharing firm, Business does not have the regulatory ditched a bid forBritain’s Shire made its first significant acqui- power to intervene anyway. last year after the American sition by agreeing to buy India’s central banklowered Treasury changed the rules on deCarta, a startup specialising its main interest rate by a quar- It’s taken a while inversion takeovers, agreed to in navigation tools formaps. ter ofa percentage point to The NASDAQ stockmarket buy Pharmacyclics, which The deal could lessen Uber’s 7.5%. It was the second cut this index closed above 5,000 on specialises in cancer treat- dependence on mapping year, but markets were sur- March 2nd forthe first time ments, in a $21billion deal. services provided by Google prised by the timing, coming since the height ofthe dotcom and Apple, and also boost its soon after the legal framework boom in March 2000. A changing culture research into driverless-car was approved forthe Reserve Toyo ta tooksteps to diversify technology. BankofIndia to set official A German court ordered senior management by ap- inflation targets forthe first Jürgen Fitschen, one ofthe two pointing its first non-Japanese time. An initial target was set at co-chiefexecutives at vice-president as well as its Global smartphone sales 6% until January 2016, with 4% Deutsche Bank, to stand trial first foreign female executive % of total the aim after that within a 2-6% next month in the legal saga and first African-American Q4 2013 Q4 2014 range. Inflation has slowed related to the collapse ofthe executive (the latter two are 0 10 20 30 considerably in India over the Kirch media group in 2002. Mr based in America). Like other past two years. It was an annu- Fitschen will share the defen- Japanese companies Toyota is al rate of5.1% in January. dants’ bench with two former noted forits lackofforeign chiefexecutives, JosefAcker- staff, even though 74% ofits The road less travelled mann and RolfBreuer, and sales come from abroad. The The rate cut followed the Indi- two formerboard members. Japanese government is push- Source: Gartner an government’s annual The trial is a distraction for the ing formore corporate div- budget, which included plans bank, which is undertaking a ersity, and wants 30% ofJa- Annual sales ofsmartphones to rationalise the country’s big rethinkofits strategy. pan’s senior executive jobs to exceeded 1billion forthe first labyrinthine tax system and to be held by women by 2020. time in 2014, according to reduce the corporate-tax rate to Actavis, a drugs company, Gartner, a research firm. 25%. Investors were also issued $21billion in bonds, The British government sold its Buoyed by demand in China cheered by the start ofthe making it the second-biggest 40% stake in Eurostar, which and the release ofthe iPhone 6, auction for 3G telecoms li- corporate-debt offering to date runs trains through the Chan- Apple overtookSamsung in cences in India, which are (behind Verizon’s $49 billion nel Tunnel connecting Britain the fourth quarter as the expected to raise $13 billion bond sale in 2013). Actavis and France, to an Anglo-Cana- world’s biggest seller ofthe over the coming weeks. issued the bonds to fund its dian consortium. The deal devices. But the South Korean acquisition ofAllergan, the raised £757m ($1.2 billion) for company retained the top spot Consumer prices in the euro maker ofBotox. With safer the Treasury, about twice what forthe year as a whole, taking zone fell by 0.3% year on year government debt now offering had been expected. SNCF, the 24.7% ofthe market compared in February, the third consec- very low, oreven negative, French state-owned railway with Apple’s15.4%. utive month ofnegative yields, the corporate-bond company, still owns 55% of inflation in the currency bloc. market is attracting hordes of Eurostar; and SNCB, its Belgian Other economic data and news The unemployment rate income-hungry investors. equivalent, the remaining 5%. can be found on pages 92-93 dropped to 11.2%, the lowest since April 2012 (though in Greece it was 25.8% and in Spain 23.4%).

Brazil’s central bankraised its benchmarkinterest rate by halfa percentage point to 12.75%, a six-year high. Although other countries are fretting about deﬂation, Brazil’s inﬂation rate soared in January to 7.14%.

In a big victory forthe City of London, a court in the Euro- pean Union overturned a decision by the European Central Bankthat would have forced clearing houses to relocate their euro-denominated business to within the euro zone. The ECB had argued that it could not help clearing houses that operate outside the currency area ifthey got into trouble, but the court The cloud that makes business personal.

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A quarterofa century afterthe end ofthe cold war, the world faces a growing threat ofnuclearconflict ITHIN the next few leardoctrine into guesswork. Even duringthe cold war, despite Wweeks, after years of stall- all that game theory and brainpower, the Soviet Union and ing and evasion, Iran may at last America frequently misread what the other was up to. India agree to curb its nuclear pro- and Pakistan, with little experience and less contact, have vir- gramme. In exchange for relief tually nothing to guide them in a crisis but mistrust and para- from sanctions it will accept, in noia. If weapons proliferate in the Middle East, as Iran and principle, thatitshould allow in- then Saudi Arabia and possibly Egypt join Israel in the ranks of trusive inspections and limit nuclear powers, each will have to manage a bewildering four- how much uranium will cascade through its centrifuges. After dimensional stand-off. 2025 Iran will gradually be allowed to expand its efforts. It in- Worst of all is the instability. During much of the cold war sists these are peaceful, but the world is convinced they are de- the two superpowers, anxious to avoid Armageddon, were signed to produce a nuclear weapon. willing to tolerate the status quo. Today the ground is shifting In a barnstorming speech to America’s Congress on March under everyone’s feet. 3rd, Binyamin Netanyahu, Israel’s prime minister, fulminated Some countries want nuclear weapons to prop up a totter- against the prospect of such a deal (see page 30). Because it is ing state. Pakistan insists its weapons are safe, but the outside temporary and leaves much of the Iranian programme intact, world cannot shake the fear that they may fall into the hands he said, it merely “paves Iran’s path to the bomb”. Determined of Islamist terrorists, or even religious zealots within its own and malevolent, a nuclear Iran would put the world under the armed forces. When history catches up with North Korea’s shadow ofnuclear war. Kim dynasty, as sooner or later it must, nobody knows what Mr Netanyahu is wrong about the deal. It is the best on offer will happen to its nukes—whether they might be inherited, and much better than no deal at all, which would lead to stale- sold, eliminated or, in a last futile gesture, detonated. mate, cheating and, eventually, the dash to the very bomb he Others want nuclear weapons not to freeze the status quo, fears. But he is right to worry about nuclear war—and not just but to change it. Russia has started to wield nuclear threats as because ofIran. Twenty-five years afterthe Soviet collapse, the an offensive weapon in its strategy ofintimidation. Its military world is entering a new nuclear age. Nuclear strategy has be- exercises routinely stage dummy nuclear attacks on such capi- come a cockpitofrogue regimesand regional foesjostling with tals as Warsaw and Stockholm. Mr Putin’s speeches contain the five original nuclear-weapons powers (America, Britain, veiled nuclear threats. Dmitry Kiselev, one of the Kremlin’s France, China and Russia), whose own dealingsare infected by mouthpieces, has declared with relish that Russian nuclear suspicion and rivalry. forces could turn America into “radioactive ash”. Thanks in part to Mr Netanyahu’s efforts, Iran commands Just rhetoric, you may say. But the murderofBoris Nemtsov, worldwide attention. Unfortunately, the rest of the nuclear- an opposition leader, on the Kremlin’s doorstep on February weapons agenda is bedevilled by complacency and neglect. 27th was only the latest sign that Mr Putin’s Russia is heading into the geopolitical badlands (see page 51). Resentful, nation- The fallout from Prague alistic and violent, it wants to rewrite the Western norms that Afterthe end ofthe cold warthe world clutched atthe idea that underpin the status quo. First in Georgia and now in Ukraine, nuclear annihilation was off the table. When Barack Obama, Russia has shown it will escalate to extremes to assert its hold speaking in Prague in 2009, backed the aim to rid the world of over its neighbours and convince the West that intervention is nuclear weapons, he was treated not as a peacenik but as a pointless. Even if Mr Putin is bluffing about nuclear weapons statesman. Today his ambition seems a fantasy. Although the (and there is no reason to think he is), any nationalist leader world continues to comfort itself with the thought that mutu- who comes after him could be even more dangerous. ally assured destruction is unlikely, the risk that somebody somewhere will use a nuclear weapon is growing apace. Towards midnight Every nuclear power is spending lavishly to upgrade its China poses a more distant threat, but an unignorable one. Al- atomic arsenal (see pages 23-26). Russia’s defence budget has though Sino-American relations hardly look like the cold war, grown by over 50% since 2007, and fully a third of it is devoted China seems destined to challenge the United States for su- to nuclearweapons: twice the share of, say, France. China, long premacy in large parts ofAsia; its military spending is growing a nuclear minnow, is adding to its stocks and investing heavily by 10% or more a year. Nuclear expansion is designed to give in submarines and mobile missile batteries. Pakistan is amass- China a chance to retaliate using a “second strike”, should ing dozens of battlefield nukes to make up for its inferiority to America attempt to destroy its arsenal. Yet the two barely talk India in conventional forces. North Korea isthoughtto be capa- about nuclear contingencies—and a crisis over, say, Taiwan ble ofadding a warhead a year to its stockofaround ten, and is could escalate alarmingly. In addition Japan, seeing China’s workingon missilesthatcan strike the westcoastof the United conventional military strength, may feel it can no longer rely States. Even the Nobel peace laureate in the White House has on America for protection. If so, Japan and South Korea could asked Congress for almost $350 billion to undertake a decade- go for the bomb—creating, with North Korea, another petrify- long programme ofmodernisation ofAmerica’s arsenal. ing regional stand-off. New actors with more versatile weapons have turned nuc- What to do? The most urgent need is to revitalise nuclear di-1 14 Leaders The Economist March 7th 2015

2 plomacy. One priority is to defend the nuclear Non-Prolifera- Arms control became a vital part ofSoviet-American relations. tion Treaty, which slows the spread of weapons by reassuring So it could between China and America, and between Ameri- countries that their neighbours are not developing nukes. It ca and Putin’s Russia. Foes such as India and Pakistan can fos- was essential that Iran stayed in the treaty (unlike North Korea, ter stability simply by talking. The worst time to get to know which left). The danger is that, like Iran, signatories will see en- your adversary is during a stand-off. richment and reprocessing as preparation for a bomb of their In 1960 Albert Wohlstetter, an American nuclear strategist, own—leading their neighbours to enrich in turn. That calls for wrote that, “We must contemplate some extremely unpleas- a collective effort to discourage enrichment and reprocessing, ant possibilities, just because we want to avoid them.” So too and forAmerica to shore up its allies’ confidence. today, the essential first step in confronting the growing nuc- You don’t have to like the other side to get things done. lear threat is to stare it full in the face. 7

Global banks Cocking up all over the world

Badly managed and unrewarding, global banks need a rethink ANKS are yet again in trou- on. Instead, therefore, supervisors regulated them more tight- Return on equity, % B ble—not pure investment ly—together JPMorgan Chase, Citi, Deutsche and HSBC carry 2006 2014 banks such as Lehman Brothers, 92% more capital than they did in 2007. Global banks will 0 5 10 15 20 or mortgage specialists such as probably end up having to carry about a third more capital Citigroup Northern Rock; but a handful of than their domestic-only peers because, if they fail, the fallout HSBC huge global “network” banks. would be so great. National regulators want banks’ local oper- JPMorgan These lumbering giants are the ations to be ring-fenced, undoing efficiency gains. The cost of Chase woolly mammoths of finance, sticking to all the new rules is vast. HSBC spent $2.4 billion on and if they cannot improve their performance they deserve a compliance in 2014, up by about half compared with a year similarly grievous fate. earlier. A discussion of capital requirements in Citi’s latest reg- The pressure is intense. Last month JPMorgan Chase felt ob- ulatory filing takes up 17 riveting pages. liged to tell investorswhyitshould notbe broken up. Citigroup Partly as a result, global banks are now flunking a different awaits the results ofits annual exam from the Federal Reserve: test: that of shareholder value. Most of these titans struggle to if it fails, as it did last year, its managers will be for the chop. make returns on equity better than (much safer) electrical util- Deutsche Bank is rethinking its strategy, after years of feeble ities. Last year Citi’s was a dismal 3.4%. JPMorgan Chase esti- performance and drift. HSBC, the world’s local bank, has been mates that its scale adds $6 billion-7 billion a year to its profits. hammered forboth a taxscandal in itsSwissoperation and be- Yet the costs of the additional capital it must carry, and of the cause ofits poor profits. extra rulesand complexitythatbeingglobal entails, offseta big chunkofthat. (No other firm makes estimates this explicit, pre- A shining Citi on a hill sumably because the figures would not flatter.) Up to half the On paper global banks make sense. They provide the plumb- capital invested in the big global banks failed to make a return ing that allows multinationals to move cash, manage risk and on equity of10% or more last year (see page 71). finance trade around the world. Since the modern era of glo- Investors are asking if the costs of their global spread out- balisation began in the mid-1990s, many banks have found the weigh the benefits. If the likes of Citi and HSBC don’t buck up idea ofspanning the world deeply alluring. soon, they will be dismembered—not by regulators, but by In practice, however, they have been a nightmare to run. their shareholders. Their sprawl remains vast. Citi is in 101 countries, employs Global banks insist they have a competitive advantage. No 241,000 people and has over 10,000 properties. Talkof global one else can do what they do. A mesh of alliances between best practice is hollow, given the misdemeanours that banks hundreds of local banks would be rickety and hard to police; have been accused of facilitating, including money-launder- Silicon Valley has yet to invent a virtual international bank; ing in Mexico (HSBC and Citigroup) and breaking sanctions and emerging-market contenders such as Bank of China are a (Standard Chartered and BNP Paribas). No boss but Jamie Di- decade away from having global footprints. But genuinely glo- mon of JPMorgan Chase gives a convincing impression of be- bal activities, such as foreign-exchange trading and providing ing in full control—and even he suffered a $6 billion trading cross-border banking services to multinationals, typically ac- lossin 2012. Some, like Royal BankofScotland (RBS), havingde- count foronly a quarter ofbig banks’ revenues. cided that they have suffered enough, have sounded a full- It is hard to avoid the conclusion that global banks are, by scale retreat and pledged to concentrate on their home mar- the standards of normal firms, dysfunctional conglomerates kets. Others, like Citi (see page 75) and HSBC, are slimming that struggle to allocate their resources well. Their bosses must down and shrinking their global presence. now try to forge lean firms that facilitate global trade at low The wave of regulation since the financial crisis is partly to cost and risk. If clients find these services valuable, the banks blame. Regulators rightly decided not to breakup global banks will be able to charge enough to offset their huge overheads, after the financial crisis in 2007-08 even though Citi and RBS and make a decent return for their shareholders on top. If cli- needed a full-scale bail-out. Break-ups would have greatly ents do not, the global bank deserves to become just another multiplied the number of too-big-to-fail banks to keep an eye offinance’s failed ideas. 7 The Economist March 7th 2015 Leaders 15

Afghanistan, Pakistan and the Taliban Seize the day

Pakistan is helping Afghanistan’s president make peace with the Taliban. Otherpowers should backhim N THE face of it, prospects prime minister, Nawaz Sharif (who is no relation). Mr Ghani Oforlasting peace in Afghan- understands that General Sharif needs help to deal with Paki- istan lookas bleakas at any time stan’s own terrorists, its version of a home-grown Taliban: a in the 13 years since NATO-led threat that Pakistani commanders and politicians for too long forces ousted the Taliban—only refused to acknowledge, but which was brought home by a for them to regroup in a long, murderous attack on a school in Peshawar in December that bloody insurgency. Last year a killed 132 children. So the Afghan president has sent forces to record 3,700 civilians died in the fight anti-Pakistan militants in their refuges in eastern Afghani- fighting. As America and other NATO countries pull out their stan, an unthinkable course under Mr Karzai. The army claims troops, Afghanistan’s own army, less well trained and that it is now reciprocating by making it hard for Afghan mili- equipped, is being hammered. It has struggled to find enough tants to train in Pakistan. General Sharif is helping Afghan recruits to replace those who die or desert. And now the Tali- forces secure the long border. And he appears to be urging Tali- ban and other insurgents are preparing fora spring offensive. ban leaders to sit down with Mr Ghani and discuss peace. Fortunately, this grim picture is not the whole story. The There are good reasons forthem to do so. Although the Tali- bright spot is the efforts made by Ashraf Ghani, Afghanistan’s ban can cause mayhem inside Afghanistan, they struggle to president since September, to improve his country’s tattered hold territory. Last year’s election saw a clear vote against dealings with Pakistan. Closer relations hold out the tantalis- them and their violence. Plenty within the group have long ing possibility ofmaking peace with the Taliban. been keen on a deal; talks were mooted in Qatar in 2013. Some Taliban might settle for more autonomy in the Pushtun heart- From meddling to making land in southern Afghanistan, which is their main base ofsup- Peace in Afghanistan is inconceivable without help from Paki- port. Many Afghans resent an overcentralised state. stan. Machinations by the Pakistani army’s spy agency in the The goal, in the long run, should be a new constitutional 1990s helped bring the Taliban to power. The country’s mili- settlement. If he hopes to fix a fractious, multi-ethnic country tary establishment still backs them and related groups, such as and lay the foundations for peace and prosperity, Mr Ghani the Haqqani network, which have wreaked havoc in Afghani- must come round to the idea that power should be devolved. stan from theirbasesin Pakistan’stribal areas. The Taliban’sse- All sorts ofother issues will arise, including education for girls, nior leaders live unmolested in the Pakistani cities of Quetta, which the Taliban abhor. But that is not for now. The urgent Peshawar and Karachi. task is to get the two sides round a table. Pakistan is critical in Yet whereas his predecessor, Hamid Karzai, went out of his achieving that—and China and America, acting in concert, way to taunt Pakistan, not least by flaunting his friendship could help press it into action. Moreover, outside powers, in- with India, Mr Ghani is staking his political career on finding cluding Iran and India, must also make clear to both sides that ways to work with it (see page 39). On a visit to Pakistan in No- they will stand behind a deal and offer plenty of economic as- vember Mr Ghani broke with protocol by calling on the all- sistance if one is done. Mr Ghani’s chance may prove fleeting. powerful army chief, General Raheel Sharif, as well as on the He deserves all the help he can get. 7

Health care in America DonÕt kill Obamacare

As the Supreme Court considers whetherto gut Obamacare, evidence is mounting that the law is working MERICA’S health-care sys- attack. This week the Supreme Court heard yet another legal Health-care spending Atem is the costliest in the challenge. In King v Burwell, the law’s opponents argue that its As % of GDP GDP 20 world, gobbling up 17% of . subsidies forindividuals buyinghealth insurance on the feder- United States 15 The average for rich nations is ally organised online exchanges are illegal (see page 28). They 10 only 9%; even the French spend are unlikelyto prevail but, iftheydo, the law will be gutted and 5 less than 12%. Despite this ava- the insurance market thrown into turmoil. OECD average 0 lanche of cash, one American in That would be a terrible shame, for Obamacare appears to 1980 85 90 95 2000 05 10 13 ten has no cover and American be working better than expected. First, despite the incompe- life expectancy, at 79, is fouryears worse than Italy’s. tent rollout of healthcare.gov (the website that allows people The Aﬀordable Care Act of 2010, better known as Obama- to use the federal exchanges), the proportion of Americans care, was supposed to deal with these problems. Five years lat- who lack cover has fallen from 16.2% to 12.3% since 2009. Sec- er, BarackObama’s most important domestic reform is unpop- ond, the previously terrifying pace of medical inﬂation has ular (56% of Americans disapprove of it) and under renewed slowed. The amount that America spends on health care grew1 16 Leaders The Economist March 7th 2015

2 by 3.9% a year in nominal terms between 2009 and 2011—hav- This is highly unusual—the last time Medicare spending fell ing grown by 7.3% a year in 2000-08. The trillion dollar ques- was in the late 1990s. Granted, Medicare beneficiaries are tion is: how much ofthis squeeze is because ofObamacare? healthier than they were, since swarms ofbaby-boomers have Not all, clearly. The economic downturn accounted for pulled down their average age. But the programme has also much of the fall in health-care inflation: 77% by one estimate, grown more efficient. The Congressional Budget Office pro- 37% by another. Yet Obamacare also played its part. For one jects that Medicare spending per head will be no higher in thing, it may have helped trim some of the fat from Medicare, 2020 than it is now. By then, spendingon Medicare and Medic- the bloated public-health scheme for the old. Many hospitals aid (cover for the poor) could be $160 billion a year less than appear to have changed the way they behave in anticipation previous estimates. In the widermarket, too, health inflation is of the law. The old rule of thumb for American health care— subdued (see page 27). and particularly for Medicare—was that doctors were paid for everytestand surgical procedure, and so performed many that Plenty more flab to trim were unnecessary. The new law has provisions that encourage As Americans age and Obamacare continues to extend cover- them to keep people well; forexample, it imposes penalties on age, federal outlays on health will probably start to grow again hospitals where patients are frequently readmitted. Hospitals asa share ofGDP overthe nextdecade. America still spends far are merging, streamlining and restraining their enthusiasm for more than it needs to on health care, as the gap with other na- buying all the latest expensive equipment (see page 63). A new tions shows. But there is hope at last that health inflation can paperin Health Affairs showsthattheyhave improved produc- be made more manageable. Scrapping Obamacare and start- tivity in the past decade, and especially since 2009. ing again from scratch would make this harder. Far better to Annual spending per Medicare beneficiary has fallen in build on what appears to be working. For the Supreme Court real terms from $12,000 in 2011to an estimated $11,200 in 2014. to rule forthe challengers would be a woeful outcome. 7

Gender and education Nature plus nurture

Girls do betterthan boys in school and university. But both can still improve—sometimes forsurprising reasons TENDHAL once wrote that who took it, the gender gap shrinks by a third. Most of the Sall geniuses who were born world’s teachers are now women, who find it easier to spot women were lost to the public ability when it appears in their own likeness. They give better good. At least in the rich world, marks, perhaps unconsciously, to the punctual, orderly and that wasteful truth has been tri- neat: fine qualities that society associates with girls, but which umphantly overcome. More are not the same as reading and understanding a text. Poor than half of new graduates in grades damage motivation and mean that pupils are put in the OECD club of mostly rich lower ability groups, so that biased assessments turn into self- countries are now female. In several the share is around 60%. fulfilling prophecies. Falling behind in literacy, as boys dispro- Former male redoubts such as medicine and law have increas- portionately do, is particularly worrying, since reading is ingly been captured by women. Indeed, elite American col- needed to learn anythingelse. The solution is simple: whenev- leges are widely suspected of admitting male applicants with er possible, school tests should be made anonymous. lower grades, to even up the numbers. Yet despite this monu- Sometimes it makes sense to go with the grain. Young boys mental advance, prejudices continue to hamper girls—and are more likely to read when the topic is zombies or superhe- boys, too. Happily, neutralising them, at least within schools, roes; older ones prefer newspapers or comic books. So make should be much easier than reversing centuries ofpatriarchy. them all available. More often stereotypes get in the way: if Educational results still seem to support the old idea that girls believe they cannot do sums and boys think that books male and female intellectual capabilities differ. An analysis by are sissy, neitherwill do as well as they could. Pupils live down the OECD of PISA tests for 15-year-olds in 60-odd countries to low expectations or pick up subtle cues about gender differ- turns up some eerily similar patterns. Girls trounce boys in lit- ences. In maths, forinstance, when female teenagers are asked eracy, but boys do better in mathematics. Boys do less home- how confident they feel about solving an abstract equation, workand are more likely to fail in all subjects. The courses that they rate their chances almost as highly as boys. But when the both sexes choose at university mirror their earlier strengths at question involves calculatinga car’s fuel efficiency, many balk. school. Women dominate in education, health, arts and humanities; men lead in computing, engineering and physics Easy on the carburettors (see page 61). The most encouraging finding is that gender gaps can be nar- All this might suggest that intellectual differences are hard- rowed as attainment rises across the board. Even more impor- wired, with women abler and more assiduous, but men better tant than rooting out hidden bias is improving education for atthe exactsciences. Acloserlookatthe data reveals a newver- all. Boys in countries with the best schools read better than sion of Stendhal’s lament: that much ability, both male and fe- girls elsewhere. In Shanghai hardly any youngsters, of either male, is wasted because oftenacious stereotypes. sex, fail in everything, and girls are almost as good at maths as One startling fact uncovered by the OECD number-crunch- their male classmates—and far ahead of boys elsewhere. Had ers is that, when teachers marka readingtest without knowing there been a Mrs Stendhal, she would have smiled. 7 A CLEANER CLEAN.

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Deflation isn’t all bad classes be taught in German Modi visited New York. Glo- Money forsomething should parents want it. By1850 balisation has meant that The Economist has fallen for this had spread to Illinois, Indian-Americans are more A curious tale in the rich his- the conventional view that Iowa, Kentucky, Missouri and connected to their place of tory ofmoney (“Means of deflation is worse than Nebraska. Local governments origin than previous waves of exchange”, February14th) is inflation (“Feeling down”, in Indiana, Minnesota and migrants ever were, causing that ofJ.S.G. Boggs, an Ameri- February 21st). Yet the direction Wisconsin soon joined the them to be less likely to assimi- can artist who drew one-sided ofcausality between prices bandwagon. By1880 fourout late fully. dollar banknotes by hand, and and investment may also run offive German-American My personal experience is exchanged (not sold) the the other way. The global children were enrolled in that Indian immigrants who works ofart forgoods at the economy has been hit by bilingual schools. By1900, 4% arrived here in the 1960sas- same value his dollars depict- successive booms in tech ofAmerican school-age chil- similated to a much greater ed. His habit of“spending” his markets, housing and the rise dren were learning in German- degree than more recent arriv- art, exchanging an image of a ofChina. Falling inflation is a language schools. als, who came after the revolu- $100 note for$100 in goods, benign consequence ofthis, One has to wonder what tion in communications. Not and even accepting change, got yet central banks are desperate the reaction would be ifSpan- that you need to give up your him arrested and prosecuted, to avert deflation and have ish speakers today demanded culture, food, religion or lan- but never convicted. injected vast amounts of the same privileges. guage to be a good American. It has been noted that the liquidity into the financial NOEL MAURER SUBRAMANIAN IYER government and Mr Boggs system. Rather than inflating Washington, DC Mount Kisco, New York could fund their court cases the prices ofgoods and indefinitely simply by “making services, this has simply result- Germans from the Rhineland Made famous by Pink Floyd money”. But “Boggs bills”, ed in asset-price inflation. who settled in New Yorkcolo- especially the early workthat The data bear this out. Our ny in the early1700swere not was sought by collectors and analysis ofthe past 300 years immigrants to America, they museums, increased in value across 30 countries found that were subjects ofthe British farmore dramatically. average productivity growth Empire under the terms ofan PAUL KLENK during periods ofboth agreement with Queen Anne. New York inflation and deflation was the Halfa century before that, same, at1.6%. Moreover, point- Prince Rupert ofthe Rhine had It’s square to be hip ing to the situation in the euro enthusiastically encouraged area since 2008 misses the his people to cross the Atlantic. Youdescribed U Street in point that inflation was actual- The point is that Germans Washington, DC, as “an infer- ly positive formost ofthose were never outsiders, but have no ofhipsterdom” (“Bring on years, so it is not a panacea. been among those who sorted the hipsters”, February 21st, Over the past year Spain and out the geopolitics ofthe con- 2015). Please. U Street is so Greece have experienced tinent ofNorth America over I was surprised to see you lay passé. H Street is the current deflation, yet growth has the past fourcenturies. And the blame forthe lackofregen- epicentre ofdesigner facial picked up. And although the they have not merely assimi- eration over the past few hair, overpriced small plates, euro area will go through a lated, but have authenticated decades in London’s Nine Mumford & Sons, and slow, bout ofdeflation this year, the culture. Elms area at the door oflocal “ironic” fixed-gear bicycles. growth will be higher. V.J. PHILLIPS government (“Building on the The always soon-to-open H The problem is not defla- Englewood, Florida boundaries”, February 21st). In Street streetcar, a multimillion tion. For Europe it is finding the fact, central government was dollar “cool” boondoggle that right way to clean up bad debts Yourleader outlining how to the primary cause ofany delay. combines the charm ofa slow- and provide investment. For fix America’s “broken The main site in Nine Elms is moving bus with the steering America it is preventing new immigration system” disingen- Battersea Power Station. After manoeuvrability ofa railway bubbles forming. For China it uously compared the migra- it closed in 1983 it was listed as train, will only increase the is how best to unwind from a tion ofGermans in the 19th a heritage site by the British area’s cachet. long period ofoverinvestment. century to today’s influx of government, immediately I would mockfurther. BILAL HAFEEZ migrants from Latin America adding huge costs to any future However, as I am reading your Global strategist (“Let the states decide”, Febru- development ofthe site. This newspaper on an iPad, accom- Deutsche Bank Konzept ary 7th). Germans in the 19th meant that any scheme would panied by a $12 White Lady London century immigrated here only become viable when expertly concocted by a mixol- legally under a system admin- either the building fell down or ogist at a bar in the heavily This land is your länder istered by a federal govern- property prices in London gentrified Shaw neighbour- ment that observed and reached astronomical levels. hood, I fear I haven’t a skinny- German-Americans, you enforced the laws. Most of Whether you love or hate jeaned leg to stand on. reckoned, “have assimilated today’s migrants from Latin the iconic building (and I am a S.D. PLATTON and prospered without any America arrive here illegally. huge fan), there is little doubt Washington, DC 7 political help specially tailored ARTHUR ASSON that the heritage listing was the fortheir ethnic group” (“The Spring Creek, Nevada largest factor inhibiting the silent minority”, February 7th). regeneration ofNine Elms. Letters are welcome and should be RUSSELL KING addressed to the Editor at That would come as a huge Immigration to America today The Economist, 25 St James’s Street, surprise to the politicians in is a more complex situation Former cabinet member for London sw1A 1hg Pennsylvania and Ohio who than in the past. Take the case strategic planning in the London E-mail: [email protected] in 1839 managed to get laws ofthe Indian immigrants who Borough of Wandsworth More letters are available at: passed requiring that school went wild when Narendra Sydney Economist.com/letters 261 CITY ROAD ISLINGTON LONDON

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A rap on the knuckles Why can’t I get a signal on my phone? Fever pitch Corporal punishment is out of fashion By 2020 80% of adults may have a Last October North Korea sealed its borders across most advanced economies, but in smartphone in their pocket, but wimpy 3G to outsiders wanting to visit as an Ebola France nearly 70% of parents admit to signals often disappoint. The problem epidemic raged in west Africa. Why the having given their sprogs a smack. Now the largely lies with the telecoms operators who hermit kingdom, ever suspicious of the Council of Europe is reprimanding the have ﬁnancial incentives to build the worst outside world, reacted so dramatically country for not outlawing the practice network they can get away with remains something of a mystery

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Financial markets: Stampede! “Brazil’s economy has been a massive bubble European lenders are hunting for 1 Brazil with huge current-account deﬁcits. Now that yield in the corporate sector and In a quagmire has to go and repay debts. Brazil’s Olympics American companies are lining up to borrow are yet to come. Still Brazil is facing from them at historically low rates stagnation. Just imagine what will happen Smartphones after the Olympics. Greece II”—on “The crash Religion: Divine purposes 2 Planet of the phones Leaders of big countries often claim of a titan”, February 28th 2015 grand destinies for their people. But Buttonwood exceptionalism can be bad news for their 3 Polls apart Follow us@TheEconomist smaller neighbours, as Russia’s are learning

The female body Links to all these stories America: Shot in the right direction 4 Shape-shifting can be found at: Amid the worst outbreak in decades economist.com/dh109 vaccinations look to be on the up in or by scanning this code Boris Nemtsov America. That’s cheering news to scientists 5 Liberal martyr To subscribe go to who worried that children were skipping jabs econ.st/Sb6Prb Executive Focus 21

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The Economist March 7th 2015 22 Executive Focus

The Economist March 7th 2015 Brieﬁng Nuclear weapons The Economist March 7th 2015 23

The unkicked addiction Also in this section 24 The shape of the Iran deal

Despite optimistic attempts to rid the world ofnuclearweapons, the threat they pose to peace is growing N JANUARY 2007 Henry Kissinger, The following year he returned to America and its allies to mount a response, IGeorge Shultz, William Perry and Sam Prague to sign an arms agreement with should it come to that. But it is hardly a Nunn—two Republican secretaries ofstate, Russia, New START, which capped the huge step back from the threshold, or for- a Democratic defence secretary and a numberofdeployed strategic warheads al- ward forpeace. Democratic head ofthe Senate Armed Ser- lowed to each side at 1,550. His co-signato- And the Iran deal is pretty much the vices Committee—called for a global effort ry, Russia’s then president, Dmitry Medve- only item on 2010’s list of high hopes that to reduce reliance on nuclear weapons. dev, had endorsed Global Zero’s aims. A has got anywhere at all. Co-operation on The ultimate goal, they wrote in the Wall month later the NPT’s quinquennial re- New START has been suspended thanks to Street Journal, should be to remove the view conference agreed a 64-point plan in- Russia’s aggression in Ukraine; promised threat such weapons pose completely. The tended to reinforce the treaty’s three mutu- follow-on measures have been aban- article generated an astonishing response. ally supportive legs: the promise that all doned. Vladimir Putin, Mr Medvedev’s Long seen as drippily Utopian, the idea of countries can share in the non-military predecessor and successor, takes every op- getting rid of nuclear weapons was sud- benefits of nuclear technology; the agree- portunityto laud hiscountry’snuclearpro- denly taken on by think-tankers, academ- ment by non-weapons states not to be- wess, and is committing a third of Russia’s ics and all sorts of very serious people in come weapons states; and the commit- booming military budget to bolstering it. the nuclear-policy business. The next year ment of the weapons states to pursue It is not the only power investing in its a pressure group, Global Zero, was set up to nuclear disarmament. There were hopes nukes (see box on subsequent page). campaign for complete nuclear disarma- that, when the parties to the NPT met again America is embarking on a $348-billion de- ment. Its aims were endorsed by scores of in May 2015, there would be substantial cade-longmodernisation programme. Brit- government leaders, present and past, and progress to report. ain is about to commit to modernising its hundreds ofthousands ofcitizens. forces, as well, while France is halfway In April 2009 Barack Obama, speaking An idea whose time has gone through the process. China is investing in Prague, promised to put weapons reduc- Alas, no. Mr Obama’s agreement with Iran heavily in a second-strike capability. In tion back on the table and, by dealing remains possible, even likely—but it will short, there has been no attempt to reduce peacefully but firmly with Iran’s nuclear hardly be one that energises the cause of a the role ofnuclear weapons in the military ambitions, to give new momentum to the nuclear-free world (see box on next page). and security doctrines of the five perma- nuclear Non-Proliferation Treaty (NPT). Iran will continue to sit close to the nuclear nent members of the UN Security Council, Processescould nowbe setin train, he said, threshold, retaining an ability to enrich despite their commitments under the NPT. that would lead to the worldwide renunci- uranium which, if it were to withdraw An initiative aimed at making nuclear ation of nuclear weapons within a genera- from the agreement, would allow it to weapons illegal under international hu- tion. This speech, alongwith his ability not create a bomb’s worth of weapons-grade manitarian law, backed by over 150 NPT to be George W. Bush, was a key factor in material in about a year. That is more than signatory countries, has attracted little to landing Mr Obama the Nobel peace prize a the current estimated breakout period of no support from the weapons states and few months later. three months, and longenough, it is felt, for only lip service from countries which wel-1 24 Briefing Nuclear weapons The Economist March 7th 2015

ues to provide the hermit kingdom with Negotiating with Iran energy and food aid is the fear of what a Deal or no deal? Kim regime facing collapse might do with its nukes. Iran has wanted a nuclear option in part because of the contrasting fortunes of the two other countries that appeared Negotiations on Iran’s enrichment and plutonium facilities are nearly over with it on Mr Bush’s “axis of evil” in 2002: ITH the March 24th deadline for to get up to high levels ofenrichment. North Korea and Iraq. Some Ukrainian pol- Wreaching agreement looming, and • Because bombs can also be made from iticians bemoan the fact that, in 1994, the Israel’s prime minister, Binyamin Netan- plutonium, Iran’s reactor at Arakwould country gave up the nuclear weapons it yahu, kicking up a fuss in Washington be reconfigured to produce only around had inherited from the Soviet Union. The (see page 30), the outlines ofa deal to 1kg ofplutonium a month. security guarantees it received in return constrain Iran’s nuclear programme are These measures would remain in from Britain, France, America and Russia in place. But as another round ofnegotia- force forten years, after which there ring more than a little hollow today. tions between Iran and the P5+1coun- would be a staged relaxation and the tries—America, Britain, China, France, time taken fora bomb’s worth ofenrich- Calling Major Kong Germany and Russia—wrapped up in ment would start to reduce again. The But big countries, too, can value the heft Montreux, Switzerland, on March 4th, rate at which it might do so is a continu- added to their conventional might by nuc- there were still gaps between the parties. ing concern forthe P5+1negotiators, lear supplements. Thérèse Delpech, a dis- The aim ofthe negotiators is to in- especially as Iran wants to develop faster tinguished French nuclear strategist, ar- crease by at least a year the “breakout” centrifuges between now and then. gued shortly before her death in 2012 that time it would take Iran to create enough For its part Iran is demanding the the West’s adversaries were already de- weapons-grade material to make a immediate removal ofall sanctions ploying a range of asymmetric tactics to bomb—currently estimated to be about against it. Although Mr Obama can sus- offset their conventional military disad- three months. To that end, in return foran pend most American sanctions, only a vantage; it would be wrong to assume that easing ofsanctions, Iran should reduce deeply sceptical Congress can legislate to nuclear weapons might not find a place in both the capacity ofits uranium-enrich- end them, a non-starter forthe foresee- that range. Russia is a case in point. In 1999 ment facilities and its stocks oflow- able future. A final unresolved issue is Mr Putin was struck by the effectiveness of enriched uranium. According to the that no reliable inspection regime can be the West’s precision weapons in Kosovo. London-based International Institute for implemented unless Iran provides a full When he became president a year later he Strategic Studies the shape ofthe deal account ofits weapons programme, introduced a military doctrine of “de-esca- may be like this: something it has refused to do because it lation”, in which the threat of a limited nu- • Iran would cut the number ofcentri- still denies one ever existed. clear strike, probably though not necessar- fuges it is using forenrichment from the ily against a military target, could be used RUSSIA 9,500 in service today to about 7,000. Iranian nuclear facilities to force an opponent backto the status quo Most would be at Natanz; perhaps only a AZER- Civilian Military ante. It was aimed at deterring America few hundred would be in the deep un- BAIJAN and its NATO allies from involving them- Uranium mines derground hard-to-bomb facility at For- Caspian selves in conflicts in which Russia felt it Sea TURKMENISTAN dow (see map). Its other centrifuges, Ramsar had vital interests. including 9,000 that are installed but not Bonab The key to the doctrine’s credibility is Tehran operating, would be placed in secure for the West to believe that Russia might be Fordow stores under the seal ofthe International Parchin AFGHANISTAN willing to take the risk of using nuclear Arak Atomic Energy Agency. Natanz weapons because it cares far more about • Much ofIran’s 8,000kg stockpile of Saghand IRAQ Isfahan the outcomes in its “nearabroad” than oth- low-enriched uranium would be either Yazd ers do. Since 2000 nearly all Russia’s big exported to Russia or converted into IRAN military exercises have featured simula- KUWAIT uranium oxide, which cannot easily be Bushehr PAKISTAN tions of limited nuclear strikes, including T used forfurtherenrichment. SAUDI h one on Poland in 2009. After a crash mod- ARABIA e Gchine • The way in which material passes G ernisation effort, Russia now has greater u BAHRAIN l between the remaining centrifuges f confidence in its conventional forces. That 300 km would be changed so as to make it harder QATAR may explain why a major exercise staged in 2013 went without a simulated nuclear attack. But the conflict in Ukraine is discon- 2 come America’s nuclear protection. Elsewhere, things looked rather differ- certingly similar to the kind that Russian The truth is that enthusiasm for a push ent. Nuclear weapons are an effective way forces have consistently war-gamed and to zero was never quite as global as it to make up for a lack of conventional mili- planned for. Russia’s keenness for nuclear- seemed. America’s superiority in conven- tary power—as America readily appreciat- backed bullyingcan be seen in its threats to tional weapons, although not readily con- ed when, in the 1950s, it used the threat of launch pre-emptive strikes against Ameri- verted into lasting victory in real wars, was retaliation with its comparatively sophisti- can missile-defence sites due in Romania striking enough to make gradual nuclear cated nuclear weapons to hold off massed this year and in Poland in 2018. In late 2013 disarmament attractive to a number of Soviet tank divisions in Europe. Now the Russia stationed nuclear-capable Iskander American security professionals and aca- fact of America’s immense conventional missiles in Kaliningrad, the enclave which demics. Some of them, former cold war- power puts the boot on other feet. borders Poland and Lithuania. riors, shared a guilty awareness of how The evening-up effect is most obvious The thought of “nuclear combat—toe- close the planet had come to destruction as forthe smallest fry. Apresumed handful of to-toe with the Russkies”, as Major Kong a resultofaccidentand miscalculation. In a weapons allows North Korea to bully and putitin StanleyKubrick’s“DrStrangelove”, world of failing banks and successful jiha- subvert its otherwise far more powerful feels like a return to the cold war. But this is dists, nuclear weapons felt to many like southern neighbour and cock a snook at different. In the cold war the two sides dangerous, expensive anachronisms. America. One ofthe reasons China contin- were broadly committed to international 1 The Economist March 7th 2015 Briefing Nuclear weapons 25

2 stability, with nuclear weapons seen as a great care was taken to prevent the pos- er and growing. That increasing possibility way to preserve, rather than challenge, the sibility of accidental or unauthorised feeds the likelihood of more countries status quo. This did not mean there were launch. The development of “second- choosing the nuclear option, which in turn no risks—things could quite easily have strike” nuclear forces, which could guaran- increases the sense ofinstability. gone terribly wrong by accident or design, tee a response even after the sneakiest of Many of the factors that made deter- and the mutual interest in stability could sneakattacks, bolstered stability. rence work in the cold war are now weak- have waned. But both American and Sovi- The new nuclear age is built on shakier ened or absent. One is the overarching ac- et leaders showed themselves highly risk- foundations. Although there are fewer nu- ceptance of strategic stability. Some of averse when it came to nuclear weapons. clear weapons than at the height of the today’s nuclear powers want to challenge Protocols such as the use of the “hot line” cold war (see chart on next page), the pos- the existing order, either regionally or glob- evolved to defuse and manage crises, and sibility ofsome ofthem being used is high- ally. Both China and Russia are dissatisfied with what they see as a rules-based international order created for and dominated Arsenals and aspirations by the West. There are disputed borders with nukes on both sides between India United States (estimated total warheads: 4,764) France (300) and both China and Pakistan. In line with its 2010 New START agreement with The core of the force is four Triomphant-class The kind of protocols that the cold-war Russia, America has no plans to increase the size missile submarines, the most recent of which era America and Soviet Union set up to re- of its strategic arsenal, but it is developing a new entered service in 2010. France is also updating its warhead that would fit on both submarine- airborne systems with 40 new Rafales that can assure each other are much less in evi- launched and ground-launched missiles. The 14 carry the ASMPA cruise missile. A thorough-going dence today. China is particularly cagey Ohio-class ballistic-missile submarines currently modernisation programme for the submarines, about the size, status and capabilities of its in service will be replaced at a rate of about one a aircraft, missiles, warheads and weapons-produc- year from 2027 onwards. There is also a tion facilities will continue into the next decade. nuclear forces and opaque about the doc- programme to field a new long-range bomber trinal approach that might govern their capable of penetrating enemy air defences and a use. India and Pakistan have a hotline and new air-launched missile for it to carry. The ability of such a system to attack well-defended targets Britain (225) inform each other about tests, but do not using low-yield weapons is seen as making it a discuss any other measures to improve nu- particularly credible deterrent against a minor Four ageing Vanguard-class missile submarines will nuclear power. be replaced with new Trafalgar-class boats in the clear security, for example by moving middle of the next decade; they will be equipped weapons farther from their border. Israel Operational nuclear warheads, 2014 with refurbished American Trident D5 missiles because, unusually for a nuclear power, Britain does not even admit that its nuclear arse- 0 1,000 2,000 3,000 does not design its own missiles. It is possible that nal exists. The protocols that used to gov- the next government will only commit to building ern the nuclear relationship between three of the submarines, which would make it America and Russia are also visibly fray- Deployed by: sea air land much harder always to have one on patrol at sea. Unspecified/other/reserve ing; co-operation on nuclear-materials safety ended in December 2014. Russia (4,300) Pakistan (120) Can’t live with them... Several new intercontinental ballistic missiles In the world’s fastest-growing nuclear-weapons (ICBMs) are being planned as replacements for old progamme, Pakistan has up to 11 aircraft, ballistic Second-strike capabilities—which theo- land-based systems. One of them, the liquid-fu- missiles and cruise missiles in development as rists believe, under some circumstances, to elled Sarmat, is a monster which can carry up to delivery systems. Particularly troubling is the strengthen deterrence—are spreading, 15 independently targeted warheads; some see it possibility of low-yield, short-range ballistic-mis- as being designed for use as a first-strike weapon. sile systems (Hatf-2 and Hatf-9) for early use which may provide some comfort. An as- Ten new Borei-class submarines, three of which against an attack by conventional Indian forces. sured second-strike capability greatly re- have recently entered service, will allow Russia to duces the destabilising “use them or lose keep ballistic-missile submarines on permanent patrol for the first time since the end of the cold India (110) them” dilemma that a country with a war. The country also has plans for a stealthy small or vulnerable nuclear force faces in a nuclear bomber. Having once promised to reduce The Agni family of land-based missiles are its commitment to tactical nuclear weapons, improving in range, payload and accuracy. The new crisis. Russia, America, France and Britain Russia appears to be increasingly incorporating road-mobile Agni V has a range of up to 8,000km have long enjoyed this assurance thanks to them into its war-fighting doctrines. It may be (5,000 miles); later versions will carry multiple missile submarines that are practically in- developing new ones to be carried on cruise warheads. India’s first missile submarine, the missiles, which might violate the Intermedi- Arihant, is being deployed after years of troubled vulnerable while at sea. China now has ate-Range Nuclear Forces treaty of 1987. development. It will be followed by three more. mobile missiles that might survive a first strike, and is deploying its own fleet of bal- Israel (80) listic-missile submarines. India has just begun trials of its first missile sub. Israel has China (250) The mobile Jericho III missile, with a range of 6,000km, will soon be deployed. Israel also has submarines which can launch cruise mis- Despite testing its first nuclear weapon half a F-16 and F-15 aircraft capable of nuclear attacks and siles that could carry nuclear warheads. century ago, China had until recently built up its three Dolphin-class submarines that can fire It is worth remembering, though, that nuclear forces extremely slowly. Until 2006 its nuclear-capable cruise missiles with a range of only ICBMs were a small number of liquid-fuelled around 1,500km, making it one of only five nations the prospect of one of the two parties in a DF-5As which sat in silos that were vulnerable to a to have a land-sea-air triad of delivery systems. conflict developingsuch a capability while first strike. But with the recent arrival of the DF-31A, which can be moved around on roads, the other lacks it can in itself be destabilis- and the deployment, after many false starts, of at North Korea (10) ing. There isalso a worrythatthe leaders of least four Jin-class ballistic-missile submarines, some current and aspirant nuclear powers China now has a plausible second-strike Though the reality is hard to disentangle from the capability. If it chose to make new warheads it rhetoric, North Korea may have as many as ten may be less risk-averse than their cold-war could easily accomodate them on some of its huge warheads and designs that would miniaturise analogues. A wariness of leaders who feel arsenal of medium- and short-range missiles. them for use on missiles; it could probably add President Xi Jinping appears to have dropped the one weapon a year. Its Scuds can reach most of their regimes to be under internal or exter- country’s long-standing promise not to be the first South Korea and its Nodongs could hit Japan. Its nal threat, or whose religion or ideology to use nuclear weapons. work on a Pacific-spanning ICBM continues. embraces apocalyptic confrontation, adds to fears about nuclear weapons in North Korea and possibly Iran. 0 1,000 2,000 3,000 0 1,000 2,000 3,000 Weakinstitutions also increase the dan- Sources: The Economist; SIPRI ger ofthe unauthorised use ofweapons, or1 26 Briefing Nuclear weapons The Economist March 7th 2015

Fewer weapons, more worries Nuclear-threat level S. Africa 1 Number of operational Minutes to midnight on 1986 Israel 44 nuclear warheads 224 the Doomsday Clock China ’000 France 355 0 Britain 350 60 USSR 40,159 US 23,317 3 50

6 40 Soviet Union/ 9 The Doomsday Clock is an Russia 30 indicator of perceived nuclear peril developed by 12 the Bulletin of the Atomic 20 Scientists United States 15 10

18 0 1945 50 55 60 65 70 75 80 85 90 95 2000 05 10 15 US Soviet Russia Union Britain France China Israel

YEARS AS S. Africa India Belarus* Pakistan NUCLEAR POWER NUCLEAR Kazakhstan* N. Korea Ukraine* Sources: Federation of American Scientists; Arms Control Association; Bulletin of the Atomic Scientists; SIPRI *From break-up of Soviet Union, figures n/a

2 of some ending up with non-state groups. commitment is clear. China’s growing mil- statescontinue to see nuclearweapons asa This danger is especially acute in Pakistan, itary capabilities and the wild card of way of intimidating purportedly powerful where responsibility for short-range sys- North Korea threaten Japan and, less so, adversaries, the incentive to hangon to nu- tems may be delegated to field command- South Korea, American allies that have clear weapons will outweigh other considers during a crisis, a large part of the army thus far forborne from becoming nuclear- erations. This is all the more true given that has been radicalised and jihadist networks weaponspowers. Both could do so quickly nobody has shown convincingly that re- have multiplied. were they so minded. Were Iran to break nouncing nuclear weapons would really Putting together the risk that nuclear out from the NPT and pursue a bomb, Sau- make the world safer. suasion could be used to push for change di Arabia, the UAE and maybe Egypt, too, The economist and strategist Thomas instead of stability, the increasing number would be under pressure to do so. Schellinghas argued that a world ofrenun- of actors, and the ever greater possibilities America can help practically as well as ciation has no good answer to the problem for confusion as to what might actually be doctrinally. It has increasingly effective of reconstitution—the ability of a former going on, Ms Delpech wrote in 2012 that anti-ballistic missile systems that it can nuclear power to restore its nuclear capa- the world was entering a new “era of stra- share with allies; they might sometimes be bility very quickly. No government could tegic piracy”. This new piracy was charac- destabilising, but perhaps not as much so allow itself to lose a war that it would win terised by lawlessness and deception, and as proliferation would be. America is also if it were to re-produce nuclear weapons. she saw it as including surprise attacks as developing “prompt global strike”—the Thus there would be very strong incen- well as blatant threats. China was a partic- ability to deliver a precision strike using tivesto cheat, forexample bycaching some ular concern because of its refusal to en- conventional weapons anywhere in the weapons-grade material just in case. Mr gage in serious discussions about what world within an hour—which would al- Schelling concludes that such a world sort of strategic stability might suit it. The low the possibility of quickly neutralising might have a dozen countries with “hair- West, she warned, was ill prepared. small, hostile nuclear forces without re- trigger mobilisation plans to rebuild nuc- Some strategists believe that, given the course to nuclear weapons. lear weapons and mobilise or comman- existential threat nuclear weapons pose, deer delivery systems”. “Every crisis new forms of deterrence will be found. It ...Can’t live without them would be a nuclear crisis”, he warns. “Any worked in the cold war and mutatis mutan- Such things are not much help, though, war could become a nuclear war.” dis can work today. But as Lawrence Freed- against the largest and smallest threats. An Mr Obama was right six years ago to man, a British strategist, observes, “deter- emerging near-peer nuclear power such as warn the world against complacency rence works; until it doesn’t.” In a much China may have a much higher tolerance when it came to nuclear weapons. The more complicated and chaotic future, for risk during some sorts of regional crisis knowledge that at some point, eitherby ac- “doesn’t” becomes more likely, especially (over Taiwan, say) than has been seen in cident or design, one or more is very likely if thought is not given to the problem. the past. At the other end of the to be used is no reason not to work hard to America is willing to spend heavily on spectrum, when it comes to postpone that wicked day. Their use newnuclearkit, butthere islittle sign ofthe non-state groups without as- should certainly never be considered part intellectual effort needed to develop new sets that can be held at risk, de- of the normal currency of interna- theories ofdeterrence. terrence may simply not have tional relations. But for now the One way to bolster stability could be much to offer. best that can be achieved is to through a more overt doctrine ofextended The recent hopes for a Global Zero search for ways to restore effective deterrence on America’s part. In Asia and now seem desperately premature. deterrence, bear down on prolifera- the Middle East, America’s security guar- As long as great-power relations tion and get back to the dogged grind antees to its allies are more ambiguous remain unstable, regional rival- ofarms-control negotiationsbetween the than they are in Europe, where the NATO ries linger unresolved and rogue main nuclear powers. 7 United States The Economist March 7th 2015 27

Also in this section 28 Obamacare in court, again 30 Bibi in DC 30 Right-to-work in Wisconsin 32 Hillary Clinton’s murky e-mails 33 Bobby Jindal’s presidential pitch 34 Lexington: Of dogcatchers and democracy

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

Health policy (1) 41.3m Americans lacked health insurance. That has fallen to 30m (of whom 48% are Will Obamacare cut costs? eligible forassistance). Curbing costs is more complicated. Tra- ditional American health care is inefficient and wasteful. Costs vary enormously from provider to provider—sometimes by an order of magnitude—and until recently were CHICAGO largely opaque. Medical bills were long The growth in America’s health-care spending is slowing paid by third parties, such as insurers, so ACK in 1980, when Jimmy Carter was law made it compulsory for Americans to patients neither knew nor cared whether B president and leg warmers were cool, have health insurance, on pain of a fine. It one option was cheaper than another. Un- America spent 9% of GDP on health care. also offers subsidies for those who cannot der the “fee-for-service” system every Now it spends a whopping 17%—far more afford it and bars insurance firms from blood test, bandage or X-ray triggers a pay- than any other rich country. In absolute charging people more if they have “pre-ex- ment. Doctors are tempted to order lots of terms it spends more than twice as much isting conditions”; ie, they are already ill. unnecessary procedures to pay for a new per head as Britain. And for what? Ameri- Before the exchanges arrived in 2013 some yacht or their children’s education. 1 can figures for diabetes, infant mortality and life expectancy are worse than the me- dian forthe OECD, a club ofrich countries. America the outlier Fordecades health spendinghas grown Health-care spending Hospital productivity in the United States* faster than the economy as a whole. The As % of GDP Cumulative % change since 2002 soaring cost of health insurance provided 18 30 by employers has left little or nothing in United States Pneumonia the pot for pay rises. Out-of-control public- Germany 20 health programmes such as Medicare and Switzerland 16 Medicaid have threatened to crowd out Canada 10 Japan + everything else that Uncle Sam pays for. Sweden Heart attack 14 0 Yet something appears to have Britain – changed. America is experiencing its slow- OECD est growth in health spending in five de- average 10 Heart failure cades. In 2013 the share of GDP devoted to 12 health care was the same as it was in 2009. 20 Some of this is due to the recession and its 2002 03 04 05 06 07 08 09 10 11 aftermath—when Americans lose their 10 Health-care spending in the United states jobs, they often lose theirhealth insurance, As % of GDP too. But the Affordable Care Act of 2010, 20 better known as Obamacare, may also 8 Total national health have helped to curb costs. As the Supreme 15 Court considers whether to strike down a crucial pillar of that law (see next article), 6 10 economists are furiously debating how big that effect has been. By one estimate the 5 Medicare economic downturn accounted for 77% of 4 the dip in health-care inflation; by another, 0 it was only 37%. 1980 85 90 95 2000 05 10 13 1960 70 80 90 2000 13 Obamacare sought to fixtwo problems: Sources: OECD; Bureau of Economic Analysis; *Labour and capital used for Centres for Medicare and Medicaid Services; Health Affairs each successful treatment coverage and cost. To extend coverage, the 28 United States The Economist March 7th 2015

2 Obamacare introduced (or encouraged hospitals and other providers surely saw grammes in 2039 will be 8% of GDP, about the adoption of) various tools to restrain Obamacare on the horizon. Anticipating 15% less than had been projected in 2010. all this. For example, health-care providers changes in the way hospital payments are Projections for Medicare and Medicaid receive financial rewards for cutting costs updated each year, they realised they spending between 2011-2020 have been re- and penalties for bad care, such as when would have to shape up. Anecdotally, they vised downwards by $1.1 trillion. The gov- patients have to be readmitted to hospital have been preparing for years. New evi- ernment also claims that since 2011 some after they have been discharged or when dence from the journal Health Affairs sug- 50,000 fewerpatients died in hospitals asa they catch nasty infections in a clinic. Be- gests that hospitals grew more productive result ofObamacare. tween January 2012 and December 2013 between 2002 and 2011—particularly after Far from bankrupting the nation, as its there have been 150,000 fewer readmis- 2009 (see chart on previous page). Chapin critics predicted, Obamacare may be mak- sions among Medicare patients—an 8% de- White of the RAND Corporation says that ing medicine thriftier. Even so, health-care cline. The law also requires greater price the fall in Medicare spending in hospitals spending as a share of GDP is likely to rise transparency. last year was worth $98 billion, for which over the next decade as Americans age. Doctors and hospitals are encouraged Obamacare can take some credit. With the economy recovering this year, the by the law to club together in Accountable Overall the CBO projects that, if the law total health-care bill isprojected to growby Care Organisations. Instead of charging is unchanged, net federal spending for the 6%. Hold the champagne, then, and not fees for everything they do, most ACOs try government’s main health-care pro- just because it is bad foryou. 7 to keep people healthy. Obamacare rewards them for keeping costs below a set Health policy (2) limit per person covered. Not everyone is convinced that ACOs—which strongly re- semble the unpopular Health-Mainte- Obamacare in court, again nance Organisations of the 1990s—will WASHINGTON, DC work: Regina Herzlinger of Harvard Busi- Five words that could upend America’s health-care system ness School calls them a “fantasy” because they are so difficult to manage. HREE years ago ChiefJustice John sidies forpeople who buy insurance on a TRoberts infuriated conservatives federal exchange, the challengers say, Stop shovelling cash out of the door when he cast a deciding vote to uphold such payments are illegal. The health lawencouragesthe use of“bun- the Affordable Care Act, also known as Michael Carvin, the challengers’ dled payments”, where a hip replacement Obamacare. On March 4th, when the lawyer, called the case “straightforward”. or a heart bypass generates a single fee, no justices heard arguments in King v Bur- Stephen Breyer, a liberal justice, dis- matter how many tests are performed or well, the latest episode in what Justice agreed. “What’s the problem,” he asked, how many complications arise. These Elena Kagan called a “never-ending saga” with viewing a federal exchange as the bundles may also help to cut spending on ofchallenges to the law, the chief kept his functional equivalent ofstate-run mar- drugs, says Paul Keckley ofNavigant, a con- poker face. He was all but mum forthe kets? Donald Verrilli, the solicitor-gen- sultancy. When hospitals cannot simply 80-minute hearing. eral, who made a bumbling defence of charge extra for each pill, they are more The issue in King is whether five Obamacare in 2012, tookoffhis gloves likely to haggle for discounts with the drug words in a 1,000-page, ill-drafted and this time. The challengers’ view “makes a firms that supply them. almost incomprehensible statute spell mockery” ofthe law and leads to a “tex- On January 26th Sylvia Burwell, the doom forthe rest ofit. Obamacare pro- tual brickwall”, he said, “revok[ing] the health secretary, said she hoped that by the vides subsidies to the cash-strapped promise ofaffordable care”. Here Justice end of 2016, 85% of Medicare’s payments when they buy health insurance through Antonin Scalia huffed that while “it may would have some linkto value and quality “exchanges established by the state”. But not be the statute they intended”, it is (as opposed to simply shovelling money 34 states opted not to set up exchanges. “the statute that they wrote”. Only Con- out of the door willy-nilly), and almost a The federal government set exchanges up gress, not the justices, he said, has the third will be via ACOs or bundles. Private forpeople in those states, and offered authority to “rewrite” a bad law. insurers such as Anthem, Aetna and Un- them subsidies like everyone else. Since The stakes are high. With subsidies ited HealthCare are following suit. the law does not expressly allow sub- removed, many people would find their The amount that Medicare spends on insurance policies unaffordable. The each beneficiary has actually declined in Urban Institute estimates that 8.2m real terms, from $12,000 in 2011to $11,200 in Americans would lose coverage ifthe 2014. If this is sustained, it could make a challengers prevail. And the broader huge difference. Medicare has long been insurance market would be thrown into the most frightening part of the federal turmoil unless Congress acted swiftly to budget. Falling Medicare spending could re-draft the law. Given the vast differ- be driven by falling demand—lots of baby- ences between the Republican-con- boomers have just turned 65, and they are trolled Congress and the president, a deal healthier than their elders. But it could also to revise Obamacare would be nearly be because hospitalsand doctorsare work- impossible to reach. ing more efficiently. A paper by the Con- On the court, there seem to be three gressional Budget Office suggests that over votes to gut Obamacare and fourto the previous decade providers were trim- salvage it. As forthe other two, Mr Rob- ming costs, for example by treating benefi- erts was inscrutable and Justice Anthony ciaries at lower-cost clinics, adopting more Kennedy may have revealed his hand efficient procedures and introducing new when he said that coercing states to set technology more slowly. up their own exchanges raised a “serious Much of the American health-care sys- constitutional question” offederalism. A tem still clings to fee-for-service. But to- ruling is expected by the end ofJune. wards the end of the past decade doctors,

30 United States The Economist March 7th 2015

Israel’s prime minister ly abandoned an attempt to stop funding for Mr Obama’s programme to shield mil- Bibi in DC lions of unlawful immigrants from depor- tation by holding up funding for the De- partment of Homeland Security. It was a good day to bury news of a surrender that was always inevitable—the party of national security could hardly shut down His speech helped Republicans, but will America’s domestic-security apparatus. not stop Iran going nuclear Mr Netanyahu’s warnings were hailed S A guide to how America might craft a by the Republican leader of the Senate, Adeal that would stop Iran building a Mitch McConnell, who moved quickly to nuclear bomb, the doom-laden speech giv- schedule votes as early as March 10th on en by Binyamin Netanyahu to a joint meet- legislation to give Congress power to ap- ing of Congress on March 3rd was not very prove any final Iran deal, limiting Mr helpful. To repeated ovations from Repub- Obama’s ability to lift sanctions. That an- licans and a divided response from Demo- gered centrist Democrats, who have their crats, the Israeli prime minister mostly ex- own vocal concerns about the dealmaking plained his conviction that an agreement of Mr Obama and his secretary of state, currently being brokered by the American John Kerry, but who do not wish to torpe- government and other world powers is so do those talks before March 24th, a dead- bad that it “doesn’t block Iran’s path to the line fora provisional agreement. bomb; it paves Iran’s path to the bomb.” A Democratic hawk on Iran policy, Sen- Mr Netanyahu (pictured) did identify ator Robert Menendez of New Jersey, has elements ofa possible deal that he thought co-sponsored legislation that would re- especially naive and foolish, notably its quire Mr Obama to submit any Iran nuc- ten-year expiry date for curbs on Iran’s nu- Full marks for oratory; less for diplomacy lear deal to Congress for review. On March clear programme. The accord, in its current 3rd Mr Menendez angrily vowed to block form, leaves Iran with a vast nuclear infra- ed the Israeli leader to Washington as an his own bill if Republicans insisted on try- structure and relies on inspectors to pre- expert witness forthe Republican case that ing to accelerate its passage. vent a breakout, Mr Netanyahu said, call- Mr Obama is a feckless and naive leader Ironically, several membersofboth par- ing a decade “the blinkofan eye” in the life who makes concession after concession to ties are queasy about the limited goal set ofa regime bent on “conquest, subjugation America’s foreign enemies. In that context, by Mr Obama, namely preventing Iran and terror” across the Middle East. Mr Netanyahu was under little pressure to from obtaining an actual nuclear weapon. He did not describe an alternative deal offer much more than criticism—though in Many would prefer the goal set by Mr Net- with any chance ofbeing accepted by Iran, his address the Israeli leader carefully anyahu: stopping Iran from becoming a or indeed the European and other coun- praised Mr Obama as a friend ofIsrael and threshold nuclear state with the ability to tries working with America. Instead he set said he deeply regretted any perception sprint towards a bomb. The Israeli leader’s out three extra, non-nuclear conditions that his visit was “political”. visitmayormaynotimpressvotersback in that should be imposed on Iran before The address was doubly useful for Mr Israel, where a closely-fought election will sanctions are lifted. “First, stop its aggres- Boehner. Excitement over Mr Netanyahu’s be held on March 17th. But it has made bi- sion against its neighbours in the Middle visit muted anger from the hard right that, partisan agreement on Iran policy harder East. Second, stop supporting terrorism on the same day, House Republicans quiet- in Washington. 7 around the world. And third, stop threatening to annihilate my country,” he said. In reality Mr Netanyahu’s plan Organised labour and the law amounts to “no deal” with Iran, grumbled Barack Obama. An accord which freezes Republicans v unions Iran’s nuclear infrastructure for ten years with intrusive inspections is the best that is possible, the president said after Mr Netan- yahu’s speech, which he did not attend. “Nothing else comes close,” he said, “Sanc- CHICAGO tions won’t do it. Even military action Wisconsin may become the 25th right-to-workstate would not be as successful as the deal that we have put forward.” EVER confuse a single defeat with a Senator Fitzgerald is confident that his Adding to Mr Obama’s anger, the Israeli “Nfinal defeat,” wrote Scott Fitzgerald, bill will be law by next week. The Republi- prime minister’s visit to Washington was the novelist. His namesake, Scott Fitzgerald can-controlled state assembly is expected organised at the invitation of Republican the Wisconsin state senator, suffers no to pass it soon and Scott Walker, the Repub- leaders in Congress without consulting the such confusion. Republicans have beaten lican governor, has promised to sign it as White House, two weeks before elections the unions once in the Badger state, but soon as it reaches his desk. Opponents of in Israel. This was an affront to protocol they are not yet declaring victory. the law may take it to court, but this has without apparent precedent. As the Republican majority leader, Mr been tried before, in Indiana and Michi- If Mr Netanyahu’s speech was poor di- Fitzgerald pushed a “right-to-work” law gan, without success. On February 28th plomacy, it was nonetheless a good guide through the senate on February 25th, unions bused thousands of workers from to how the Iran debate may play out in which would stop private-sector workers around the state to Madison, the state capi- American domestic politics in the coming from being forced to join a union—and pay tal, where they rallied in frigid tempera- months. John Boehner, the Speaker of the dues—as a condition of employment. Un- tures ringing cow bells, waving American House ofRepresentatives, essentially invit- ion members cried “Shame!” as it passed. flagsand holdingup signssuch as“Stop the1 Find outmore at your people. So you can allsucceed together. That’s runningsimple. business, making iteasier for you to hire, engage andempower brought you there. SAP’s HRsolutions are integrated withyour The larger you grow, theharder itisto take care of thepeoplewho © 2015 SAP SE or an SAP affiliate company. All rights reserved. sap.com/runsimple COMPLEXITY IS APROCESS-ORIENTED PUTS PEOPLE FIRST. SIMPLE PROCESS.

32 United States The Economist March 7th 2015

dues nonetheless benefit from collectively Hillary Clinton’s e-mails Right-to-work la ws in force* WA bargained contracts. By reducing union MT VT OR ND MN ME NH power, they say, right-to-work laws make Nothing to hide? ID WI MA WY SD NY pay and conditions worse. According to CA NV MI RI V UT NE IA PA AFL-CIO IL IN OH CT the , a union umbrella body, the CO NJ KS MO WV VA DE average worker in a right-to-work state AZ KY NM OK TN NC MD earns $5,971 less annually than workers TX AAR SC MS AL GA elsewhere in America. Only 46.8% of priv- LLA WASHINGTON, DC HI ate-sector employers in right-to-work FL A hoo-hah about transparency AK states offer health insurance to their employees, compared with 52.6% in other S SCANDALS involving people called Source: The National Right *Workers may not be forced to join a states, says the AFL-CIO. A“Clinton” go, it seems a bit tame. On to Work Committee union as a condition of employment It is hard to be sure what effects such March 2nd the New York Times revealed laws have, since so many other factors are that when Hillary Clinton was secretary of 2 war on workers”. involved: right-to-work is not the main dif- state, she used a personal e-mail account The crowd was smaller than the tens of ference between California and Texas, for ratherthan a governmentone forall her ofthousands who rallied in 2011 against Act example. But Richard Vedder of Ohio Uni- ficial business. Thisstumble reveals a more 10, a law promoted by Governor Walker, versity says that right-to-work confers sig- general problem with Mrs Clinton’s unde- which required government workers to nificant economic benefits, since business- clared presidential campaign. contribute more to theirown pensions and es prefer states where there is less The finding came through the Republi- health care and limited most public-sector uncertainty about the cost oflabour. can-controlled House Select Committee collective bargaining to wages. This time Emotions run high largely for political on Benghazi. (House Republicans have Mr Walker stayed in the background. reasons. Any attempt to undermine un- spent two years hunting fruitlessly for “Iowa, Michigan, Indiana—they all have ions hurts the Democratic Party, which re- proof that, for political reasons, American [right-to-work],” says Senator Fitzgerald, lies on organised labour to raise money missions in Libya were left vulnerable who claims that the absence of such a law and knock on doors at election time. when they were attacked in 2012.) Federal puts Wisconsin at a disadvantage com- Democrats are right to be worried. Only rules require all e-mails sent for govern- pared with other states in the Midwest. 6.6% of private-sector workers are union ment business to be stored by depart- Twenty-four states already have right- members—down from more than 30% in ments. Mrs Clinton’s evidently were not. to-work laws (see map). Advocates say it is 1960. Firms are free to move to less union- Theywere in factstored on a personal serv- unfair for unions to levy dues from work- ised states, and workers are free to follow er set up in her home in Chappaqua, New ers who do not want to join. They add that the jobs. York. That looks suspicious: because only curbing union power promotes jobs and The public sector is largely immune Mrs Clinton possesses physical access to growth. Figures from the Department of from such pressure, but taxpayers often re- her e-mails, she can be selective about Labour and the Bureau of Economic Anal- sent the lavish benefits that public-sector which ones she turns over. ysis support this view. Between 2003 and unions have negotiated at their expense. For Republicans, the finding is political- 2013 right-to-work states created a net 3.6m This is one reason why Mr Walker was rely convenient. The investigation into Ben- private-sector jobs, saw wages increase by elected last yeardespite his union-bashing, ghazi had all but died for lack of anything 15.1% and manufacturing GDP rise by 26.1%. and why conservatives think him a plausi- interestingto say. The idea thatMrs Clinton The 26 other states added only 1.5m jobs, ble candidate for president. The novelist may have kept back e-mails could help to saw wages rise by just 8.2% and manufac- Scott Fitzgerald once said that “there are no revive the allegations. Trey Gowdy, the turing GDP increase by13.8%. second acts in American lives.” Both Mr chairman of the investigative committee, Unions protest that they face a “free rid- Walker and (in a different way) the unions quicklycalled forall MrsClinton’scommu- er” problem if workers who do not pay must be hoping he was wrong. 7 nications to be made available for his committee to scrutinise; on March 4th a sub- poena was duly issued. For Mrs Clinton, the story could prove a lasting headache. It fits into a pattern of cloudy dealings. Republicans were already complaining about the Clinton Founda- tion, a charity controlled by Mrs Clinton and her husband Bill, for accepting dona- tions from foreign governments, including some while she served at the State Depart- ment, which could raise conflicts of interest. The foundation does plenty of charita- ble work, but it also helps to provide a platform for Mrs Clinton to do things that looka lot like campaigning. Few think that such murkiness will be cleared up by better control of e-mails, however. Politicians who want to conceal shady dealings have plenty of other ways to communicate. They can meet in person or use intermediaries. Some might simply use more private electronic systems. A Snapchat message disappears after a few seconds. Does the Freedom ofInformation Joining a union is so great it should be compulsory Act cover that? 7 The Economist March 7th 2015 United States 33

smooth. He talks fast, tossing out torrents of statistics. However, he struggles to elec- trify a crowd or make undecided voters swoon. Polls suggest that Americans are keener on the idea of putting a governor in the White House than they were before Senator Obama first ran for the presidency—executive experience matters, they have concluded. But a small, poor, rural state such as Louisiana makes a wobbly launching pad. Mr Clinton made it from Arkansas to DC, but he was the best retail politician of his generation. Mr Jindal is not. Nor can he claim, as the Republican governors of Ohio or Wisconsin can, that he brings a home-turf advantage to a crucial swing state. It is nearly 20 years since Louisiana last voted for a Democrat in a Republican presidential hopefuls presidential election. Mr Jindal’s record as governor is mixed. Bobby Jindal’s parsimonious pitch Conservatives will applaud his passion for school choice and his zeal for cutting and simplifying taxes and shrinking the state. But his plan to abolish income tax died in the state legislature, and the recent col- NEW ORLEANS lapse in the oil price makes his job much harder. Louisiana, a big oil-producer, faces AnotherRhodes scholarfrom a rural state eyes the White House a $1.6 billion budget shortfall this coming OBBY JINDAL came to America in utero conservatives who have not yet heard of fiscal year—6.5% of the total. On February B when his parents moved from India. him fall in love with him. Thatmeans offer- 27th Mr Jindal proposed slashing more He jokes that he was “a pre-existing condi- ing them plenty ofred meat. than $500m in subsidies to business and tion”—the kind of witticism that comes He has several qualities that will help. putting up the state cigarette tax. He also naturally to a health-care wonk. At 43, he is young and energetic. A Hindu- hopes to trim state spending on health- Mr Jindal is obviously brainy: he was turned-Catholic, he seems comfortable care services by 0.3% and on higher educa- running Louisiana’s Department ofHealth talking about his faith—in a way that Mitt tion by 6%, saving another $171m or so. and Hospitals, an agency with 13,000 staff, Romney and John McCain never were. He How he handles Louisiana’s money trou- at the age of 24. Two years later he was di- is also not white—an advantage in a party bles will be closely watched. If he can rector of a bipartisan commission to re- that would like to stop alienating minor- muddle through without raising income form Medicare, the giant federal health ities. His family history—of immigrants taxes, fiscal hawks will be impressed. scheme for the elderly, under Bill Clinton. who struggled and succeeded—has wide MrJindal remains a longshot for the Re- As governor of Louisiana since 2008, he is appeal. It also makes it easier forhim to say publican nomination. But he could make a known for his grasp of detail and for his fairly tough things about immigration. He good running mate for a more centrist can- warning to fellow Republicans to “stop be- wants to let more skilled immigrants into didate, argues Bob Hogan of Louisiana ing the stupid party”. Yet now that he is America, but fewer illegal ones. He com- State University. “The governor would sat- thinking of running for president, he has plains that the current system is “a low isfy and assuage the concerns social and started to say things that sound—how can wall and a narrow gate”. “We need the op- religious conservatives would have with a one put this?—less subtle than you might posite,” he says. Overall, he comes across candidate like [Jeb] Bush,” he says. 7 expect from a formerRhodes scholar. as more socially conservative than Jeb Sharia ...... (Islamic law) is “oppressive and Bush, more of a defence hawk than Rand For a transcript and video of The Economist’s interview it is wrong”. Barack Obama is “unfit to be Paul and more sensible than Ted Cruz. with Bobby Jindal, please go to commander-in-chief” because he won’t In person, Mr Jindal is affable and www.economist.com/blogs/democracyinamerica say that America is at war with radical Is- lam. The president is also waging a “silent war on religious liberty”, Mr Jindal claims, Bobby Jindal’s White House checklist Helpful in citing an unsuccessful attempt to force Republican primary general election companies with devout owners to subsi- Loves tax cuts; hates spending ✔ Maybe dise contraceptives they consider abortifa- cients. Asked if this is perhaps a bit of an Comes from a small, solidly Republican state ✘ ✘ overstatement, he says it is not, though he Son of Indian immigrants; favours more skilled immigration ✔ ✔ concedes that, unlike in some other coun- Tough on illegal immigrants ✔ ✘ tries, the war on religious freedom in America is “not a shooting war”. Military hawk: calls Obama “unfit” to be commander-in-chief ✔ Maybe Mr Jindal’s change of tone is common Plans to repeal and replace Obamacare ✔ Maybe among aspirants for the White House. Supports school choice ✔ Maybe Party primaries demand primary colours. Mr Jindal has neither a famous name nor Devout Catholic ✔ Not really deep pockets, and he is vying with at least Accuses Obama of waging a “silent war” on religious freedom ✔ ✘ a dozen other plausible contenders for the Source: The Economist Republican nomination. He has to make 34 United States The Economist March 7th 2015 Lexington Of dogs and democracy

What an elected dogcatcherreveals about small-town America was bruising for some of his neighbours. The budget was challenged line by line, down to the cost oflaundering road-crew uni- forms. Individual town employees found themselves explaining why they worked hard enough to deserve their pay. A member of the selectboard, or town council, abruptly resigned after being accused of arrogance towards the “dirt road people”, meaning the many locals who live on the steep wooded tracksthatlead up from the town’sonlypaved road. Seething suspicions were aired, notably around public debts run up a few years ago as Duxbury was rebuilt after a big flood. Nor was the meeting strikingly efficient. It lasted more than eight hours, including a breakfora potlucklunch, and much time was spent discussing points ofprocedure. The impressive part is how Duxbury deals with conflict. Deep differences are often visible, as old-time conservatives butt heads with liberal newcomers, or pony-tailed professionals compete for election against retirees in check shirts. Sometimes transparency is painful, as when votes are held by a show ofhands, forcing neighbour to snub neighbour. There is a lot of grumbling. As Duxbury’s elected moderator drily asked at one point, as he attempted to press on with the agenda: “Is everyone relatively hap- MIXTURE of altruism and self-interest first prompted Zebu- py?” But transparency also eases distrust: some ofthe angriest in- Alon Towne, a surveyor’s assistant and maple-sugar-maker, to terventions turned out to have roots in a misunderstanding. The volunteer for the official post of dogcatcher in Duxbury, his mere fact of being allowed to air grievances left several speakers hometown in Vermont. Some ten years ago Mr Towne owned a visibly mollified, and willing to bow to the consensus in the clever but faithless canine called Biscuit whose great joy was run- room. All those hours sitting on hard chairs in a school canteen ning away. So often was the hound found by locals, prompting left Duxbury residents weary. But the repeated votes and endless phone calls either to her owner or to the dogcatcher, that Mr discussions also left them with a personal stake in the running of Towne decided: “It might as well be me both times.” the town forthe coming year. The part-time office comes with neitherpay norspecial equipment. It is mostly a “mediation job”, Mr Towne has discovered, People power, unleashed after years of resolving disputes about dogs that are noisy, ill- The absence of party labels helps, as does a taboo against overt treated or have just eaten someone’s chickens. However, holding campaigning foroffice. Rebecca Ellis served on the selectboard of the office does involve one solemn condition, even if it sounds the next-door town of Waterbury for eight years. She now sits in more like a political punchline. Duxbury’s dogcatcher is formally the state House of Representatives as a Democrat, and admits elected each year at “town meeting”, an annual mini-parliament that: “At the state level, almost everything goes through on a that is held in towns across Vermont and New England, typically Democratic or Republican track.” A town meeting is less predict- in early March. In places such as Duxbury, following traditions able. The system may not always produce elegant decision-mak- that date back to colonial times, all adult residents are invited to ing: Waterbury recently spent three years debating whether to become legislators fora day, electingdozens ofoffice-holders and build a new municipal office and, if so, whether to combine it debating the fine details of budgets, such as which brand of with the library. But, says Ms Ellis, it creates a core of engaged citi- dump truckto buy. zens: “Youget a better town out ofthis system.” Even in Vermont some question the value ofsuch citizen-gov- It would be hard to replicate town meeting elsewhere. Ver- ernment. On March 3rd, this year’s statewide Town Meeting Day, mont is a curious state, where good manners and civic spirit co- sceptics noted that just11% of registered voters attend the average exist with curmudgeonly individualism and self-reliance. But town meeting in Vermont, and that the number is falling. This there is no need to clone town meetingforits example to do some yearthe town ofMonkton rejected a proposal to letresidents skip good. Frank Bryan, a political scientist at the University of Ver- town meetingand take decisionsbydroppingoffa paper ballotat mont, is the author of “Real Democracy”, a study of almost1,500 a polling station: a change that other communities have adopted New England town meetings. He writes: “If town meeting teach- to increase turnout (but which killed their town meetings). Some es anything, it is how to suffer damn fools and to appreciate the townsvoted to move meetingsto the evening, so thatmore work- fact that from time to time you too may look like a damn fool in ing-age locals can attend, or to a Saturday. The town of Bethel of- the eyes ofpeople as good as yourself.” fered those who showed up this year child care and free pie. All too often, national politics takes the opposite approach, Yet after attending Duxbury’s assembly, which drew 144 peo- pandering to partisans and corralling them into tribes that con- ple, or one in seven registered voters, Lexington came away per- cede nothing to the other side. Not every town needs to elect its suaded that—if it can be saved—town meeting has much to teach dogcatcher. But democracy that asks a bit more of its citizens is politicians farther afield. It is not that such gatherings are all worth a try. 7 beaming goodwill. Mr Towne was re-elected unopposed, retain- ...... ing his status as America’s only elected dogcatcher (some other Award: Our cartoonist Kevin Kallaugher (KAL) has won the 2015 Herblock prize for Vermont towns elect animal-control officers). But the meeting editorial cartooning. Congratulations The Americas The Economist March 7th 2015 35

Also in this section 36 Mexican drug cartels 36 Intrigue in Argentina 38 Bello: A long game in Havana

For daily analysis and debate on the Americas, visit Economist.com/americas

Mexican education Mr Peña is getting tough with teachers, who earn, with copious benefits, the Flunking the test equivalent of 513.6 days of salary for 200 days of school, according to Marco Anton- io Fernández ofthe Monterrey Technologi- cal Institute’s School of Government. His OAXACA reform exposes them forthe first time to independent evaluation, both at entry level Failing schools pose a big challenge to President Enrique Peña Nieto’s vision for and further up the career ladder. Those modernising Mexico who miss three consecutive days ofschool OING into the offices of the National of the pillars of Mr Peña’s government: a without good reason can be sacked. GCo-ordinator of Education Workers transformation of education that is central The reform has also centralised pay- (CNTE) in Oaxaca, a city 350km (220 miles) to a series of reforms aimed at making ments of salaries at federal level, in an ef- south-east of Mexico’s capital, is like enter- Mexico a more competitive economy. fort to end a ludicrous anomaly by which ing a world of rebellious teenagers rather Despite its crude methods, in part it is both central and state governments paid than teachers. Graffiti are scrawled on the succeeding. “If they give in to these guys, teachers, though neither knew how many walls and posters denounce “state terro- they are giving in to counter-reform and there were. The reform is supposed to rism”. The trade union’s radio station, Ra- corruption,” says Claudio X. González, streamline spending, and use the savings dio Plantón (Demonstration Radio), rails president of Mexicanos Primero, a charity to improve education. Largesse continues against President Enrique Peña Nieto’s that champions education reform. Last nonetheless, and unionised teachers still education reforms, which it blames on the month he sent a letter to the government hold powerful positions in national and IMF and other capitalist bogeymen. accusing it ofendangering reform—and the state education ministriesand in Congress. In the main square nearby, the CNTE’s rule of law—by bowing to the demands of This year’s federal budget increases spend- Oaxaca chapter, known as Section 22, the CNTE. He says that blows to Mr Peña’s ing on teachers’ pay by 6.7% maintains a campsite occupied by teachers credibility, such as the disappearance of 43 Imperfect as it may be, pollsters say the not a bit repentant about abandoning their students in September and scandals over education reform is far more popular na- classrooms forweeks on end. Drivers have his family’s properties, have weakened his tionwide than others promoted by Mr adopted a pragmatic response to the teach- government’s resolve to confront the dissi- Peña, such asbringingcompetition into the ers’ frequent road blocks: they use a GPS dent teachers. monopolistic energy and telecoms busi- app called, appropriately, S-22 to avoid The reform of 2013 is aimed at boosting nesses. That is particularly true in the in- them. The state government is just as anx- the quality of education in a country that dustrialised states in central and northern ious to keep out of the way. It is wary of a Mexicanos Primero says gives children an Mexico, where PISA scoresare alreadywell repeat of a crisis in 2006, when a teachers’ average of 8.8 years of study, compared above the national average (see map, next strike turned into a violent rebellion that with 13.3 in the United States. As in much of page). They see better education as a way shut down parts ofthe city for months. Latin America, most schools are awful. to attract more investment. The moderate This is not a local affair, however. The Graduates of teacher-training colleges SNTE largely supports the reforms, and is CNTE, which issmallerbutfarmore aggres- have been promised jobsforlife, regardless implementing them in most states. sive than Mexico’s main teachers’ union, of their performance. According to PISA, a In the south, where reform is needed the SNTE, holds sway over fourofMexico’s global education study, less than a fifth of most, resistance is strongest. Teachers there most unruly states, Oaxaca, Guerrero, Mi- Mexican students performed adequately say what they need is electricity, running choacán and Chiapas, which contain in maths in 2012, compared with more waterand toilets, not evaluations. In Oaxa- about15% ofthe population. All have large than three-quarters in South Korea. Private ca and Michoacán, CNTE-affiliated teach- concentrations of indigenous people. Us- schools are little improvement on public ers have forbidden inspectors, including ing a mixture of intimidation and political ones; the poorest children in Canada do those from PISA, to test pupils, let alone skill, the union istryingto knockdown one better than the richest in Mexico. themselves. Mohamed Otaqui, the spokes-1 36 The Americas The Economist March 7th 2015

its demands are not met. It has won open If militant unions can so easily under- Proximity to national average, PISA scores points variation, 2012: support from Oaxaca’s leftist state govern- mine reform by threatening havoc, so may Average of maths, >15 significantly above ment. Moisés Robles Cruz, the state’s edu- moderate teachers, who still wield huge in- reading and science -15 to +15 around average cation secretary, challenges the assump- fluence in the states. Vested interests <-15 significantly below tion that Mexico’s industrial north and threatened by Mr Peña’s other reforms will unranked poorer south can be united under a com- also be tempted to counter-attack. Sadly mon education policy. His area, he says, is for Oaxaca’s children, that is probably the too underdeveloped. Onlypartlyin jest, he most important lesson the CNTE will teach pulls out a one-peso banknote printed in this year, unless the government stands up MEXICO Oaxaca a century ago, when the state was forwhat it believes in. 7 pressing forautonomy during the Mexican Mexico City revolution. “I may not be in agreement with [the teachers’] methods, but [their] Intrigue in Argentina MICHOACÁN Oaxaca GUERRERO OAXACA CHIAPAS causes are totally legitimate,” he says. Such statements ought to be a red rag to The end of the Mexico 417 the federal government. The education minister, Emilio Chuayffet, declares that all OECD average 497 affair? children should have the same opportuni- Source: National Institute for Educational Evaluation ties and that no state is above the law. But BUENOS AIRES with mid-term elections approaching in A case against the president is thrown 2 man for Section 22, says the union has suc- June, the interior ministry is handling the out. The questions it gave rise to remain cessfully blocked the Oaxaca state govern- crisis, implying that political dealmaking ment from ratifying the constitutional will win out over policy. Last month Oaxa- N EBULLIENT crowd greeted Argenti- changes. Instead, it wants to enact a local ca’s teachers occupied the main road in Ana’s president, Cristina Fernández de policy rooted in indigenous values, rather Mexico City to press their claims. Analysts Kirchner, when she arrived at Congress on than in those of an industrial economy. say that they have shrewdly outmanoeu- March 1stto deliverherfinal state of the un- These include better use of the land, and vred the government by forcing it to pay ion address. Thousands of kirchneristas respect fortraditions such as village fiestas. perhaps 5,000 extra school staff, probably had gathered outside the Greco-Roman Despite itsextremism, the union hasgot including union officials who should not building, carrying balloons and waving itswaybythreateningruinousblockades if have been on the payroll. flags. They had reason to cheer. A few days before the speech a federal judge, Daniel Rafecas, threw out allegations that Ms Fer- Mexican drug cartels nández and her officials had obstructed an investigation into Argentina’s deadliest Captured capos terror attack. MEXICO CITY Mr Rafecas’s decision does not end the saga, which has gripped Argentina since Few ofthe drug lords who terrorised the country remain at large January. Alberto Nisman, a federal prose- OWEVER unruly Mexico’s teachers one ofMr Peña’s biggest security pro- cutor, began it by alleging that Ms Fernán- Hare, none has had a more chequered blems. A master ofpolitical extortion and dez had offered to shield Iranians suspect- career than Servando Gómez Martínez, public relations, he acted foryears as a ed of complicity in the 1994 bombing of a “El Profe”, a formerprimary-school spokesman fordrug lords in Michoacán, Jewish centre in Buenos Aires. In return, teacher who became head ofthe Knights saying they were fighting a war to rid the Iran would sell oil to Argentina. Just hours Templar, one ofMexico’s most ruthless state ofthe heinous Zetas, only to adopt before presenting this claim to Congress, drug gangs. Federal police captured Mr the same brutality themselves. Mr Nisman was found dead in his bath- Gómez on February 27th, ending one of Guillermo Valdés, a formerhead of room from a gunshot wound. The prosecu- the biggest manhunts conducted under Mexican intelligence, says Mr Gómez tor’s death remains as mysterious as ever. the presidency ofEnrique Peña Nieto. combined guerrilla tactics with the “law On March 4th Gerardo Pollicita, the prose- The drug lord’s only consolation is oflead or silver” against Michoacán’s cutor who is now in charge of the case, that five days later security forces also politicians: those who denied him access lodged an appeal against Mr Rafecas’s de- seized Omar Treviño Morales, the head to their coffers were murdered. In 2014 cision. ofhis gang’s biggest rival, the Zetas, in a videos emerged ofhim with the son of a Nevertheless, Ms Fernández has won swanky suburb ofMonterrey, in north- recent governor and with an interim an important victory. In a bluntly worded ern Mexico. Mr Treviño, aka Z-42, is be- governor. Mr Gómez is now in the high- judgment Mr Rafecas pronounced Mr Nis- lieved to have taken over the Zetas after security Altiplano prison, where fellow man’s 300-page complaint, which was his brother, Miguel, was captured in 2013. drug lords recently complained ofworm- based mainly on wiretaps of low-ranking More than a dozen ofMexico’s worst infested food. officials, “alarming” in its shoddiness. He drug lords have been captured or killed The arrests are good news forMr Peña, found no proof that the government had during Mr Peña’s 27-month tenure, and who has been on the defensive ever since asked Interpol to cancel warrants for the almost all the famous ones are now September, when 43 students disap- arrest of Iranian suspects; the agency’s behind bars. Though the subsequent peared in Iguala in southern Mexico. He head has stated that he received no such re- splintering oftheir gangs does not neces- promised to make security a higher quest. There is not “even minimal evi- sarily reduce crime, violence or the flow priority. On the day ofMr Gómez’s cap- dence” to justify taking the inquiry further, ofdrugs, analysts say the arrests send a ture he moved the attorney-general, Jesús Mr Rafecas concluded. strong message against impunity. Murrillo Karam, to another ministry. He Although Ms Fernández has co-opted Mr Gómez’s arrest is particularly is the only senior official to pay a price for parts of the judiciary, it is hard to dismiss significant. His reign ofterror in the the bungled handling ofthe case. It con- Mr Rafecas as a presidential pawn. He an- south-western state ofMichoacán was tinues to haunt Mr Peña. gered the government by ordering a search of the vice-president’s flat in an investiga-1

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2 tion of his dealings with a currency-print- tainty, and the 63 pages that he wrote, ers. In her final speech she offered no hint ing company. Mr Rafecas also has the re- which most people will never read, don’t that she would negotiate with them. In- spectofArgentina’sJewish community. He help calm it,” says Martín Böhmer, a law stead, she called them “bloodsuckers”. wrote a book on the Holocaust and spoke professor at the University ofSan Andrés. That truculent tone is likely to continue at the reconstructed Jewish centre on the Such quibbles did not dampen the until Ms Fernández steps down as presi- 17th anniversary ofthe attack. mood of Ms Fernández or the kirchneristas dent in December. So farshe has endorsed Even so, his decision has not cleared the gathered outside Congress. In a speech none of the candidates to succeed her. The mephitic political air. The opposition lasting nearly four hours she extolled an one most relieved by Mr Rafecas’s decision called it rushed, as well as obsequious in eight-year record in office characterised to exonerate herislikelyto be Daniel Scioli, its tone towards the president. By dismiss- more than anything by defiance. During a former vice-president and current gover- ing Mr Nisman’s charges just six working her tenure Argentina has been prickly to- nor of Buenos Aires province, who be- days after taking up the case, Mr Rafecas wards outside interests and investors; at longs to Ms Fernández’s party. His task is to missed an opportunity to investigate them home she has been unyielding towards win over the kirchneristas without driving fully, his critics claim. “The quickness ofMr herrivals. Argentina defaulted in 2014 rath- away the many Argentines who revile Rafecas’s decision fuels society’s uncer- er than pay in full a minority of bondhold- them. That may now be a little easier. 7 Bello A long game in Havana

Cuba wants a controlled courtship with the United States, not a fevered embrace. That may frustrate Americans HE contrast was striking. On February Havana puts it, the leader of the opposi- T28th Venezuela’s president, Nicolás tion is Fidel. Raúl cannot ignore his broth- Maduro, announced the de facto expul- er’s views, even though Fidel is now frail sion of scores of American diplomats. It and elderly. And Fidel is not a fan of the was a transparent ploy by a deeply un- rapprochement with the United States. popular leader to foment a clash with the “Cuba’s president has taken appropriate United States so as to justify his repres- steps in accordance with his prerogatives sion of the opposition and the possible and powers,” he wrote stiffly in a letter re- cancellation of a forthcoming legislative leased on January 26th. But “I don’t trust election that he would otherwise lose. Yet the policy of the United States, nor have I a day earlier diplomats from Cuba, Vene- exchanged any words with them.” zuela’s closest ally, sat down in Washing- Raúl has negotiated with Mr Obama ton, in an atmosphere thattheycalled one regardless. A big reason is that his eco- of “respect”, for a second round of talks nomic reforms cannot succeed without with the Americans on restoring dip- closer ties with the United States. Despite lomatic relations after a 54-year hiatus. the reforms undertaken so far, and de- After the talks, Barack Obama said he spite Venezuelan aid (the future of which hoped the United States could lay the prompt an immediate embrace of capital- depends on the survival of Mr Maduro), groundwork for reopening its embassy in ism, democracy and the American way of Cuba’s low-wage economy has grown at Havana before the Summit of the Ameri- life by Mr Castro’s communist govern- an average of just 1.9% a year since 2009. casin Panama on April 10th-11th, which he ment. Instead, he has portrayed the dip- After much delay, the government plans will attend along with Cuba’s Raúl Cas- lomatic breakthrough, which followed 18 to take two big steps over the next two tro. Cuba confirmed that it is prepared to months of secret talks, as a victory—vindi- years. State firms will become autono- restore diplomatic ties as soon as the ad- cation of Cuba’s resistance to American ef- mous, which implies the freedom not just ministration recommends the island’s re- forts to topple its regime. to compete but also to fail, with the loss of moval from the State Department’s list of Mr Castro told a Latin American sum- jobs. A trickier change is unifying Cuba’s state sponsors of terrorism. This is likely mit in January that full normalisation ofre- two currencies—state firms use a “conver- to happen “very soon”, says a State De- lations with the United States would de- tible peso” at parity to the dollar while partment official. pend on the formal lifting of the embargo, wages are paid in Cuban pesos, worth Following Mr Obama’s historic gam- compensation for the costs it imposed on barely four cents. Unifying the currency bit, announced on December17th, to start Cuba and the restitution of the Guantá- without triggering high inflation requires dismantling the embargo against Cuba, namo naval base. The last two items are the backing of more foreign-exchange American companies are queuing up to politically impossible, as he surely knows. earnings. The best hope of those comes offerflightsand tours. There isfevered talk Why is he being so prickly? Since he from American tourism and remit- ofimporting cigars and exporting poultry took office as president in 2008 he has qui- tances—and the foreign loans that the end and building materials. Mr Obama said etly dismantled many ofthe policies of his ofAmerican hostility might bring. this week that “we’re already seeing” elderbrother, Fidel. Afifth ofCuba’slabour Raúl Castro insists that he will step change in Cuba. force now works in a fledgling private sec- down in 2018. He clearly wants to be- Such enthusiasm is understandable tor comprising small businesses, farms queath a viable Cuba to his successor. It after the half-century freeze between the and co-operatives. While communist rule will be one in which markets play an in- two countries, but it may be premature. is still ruthlessly enforced, Cubans enjoy creasing role. To get there he is treading an Even if embassies are reopened in the more everyday freedoms. obstacle-strewn path between past and next five weeks—which looks highly un- But change faces stubborn opposition future. Progress will be halting. But unlike likely—this will not lead to a speedy nor- from within the Communist Party and the Mr Maduro, he knows that the cold war is malisation of relations. Still less will it state bureaucracy. As a Cuban academic in over and his country must evolve. Asia The Economist March 7th 2015 39

Also in this section 40 Australian politics 41 Politics in Malaysia 41 India’s budget 42 Japan and the past

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

Afghanistan, Pakistan and the Taliban the Afghan Taliban poses no threat to Paki- stan itself, while providing a useful chan- Hope springs nel for Pakistan to influence events over the border. The good news is that General Sharif is clear-eyed about how negotiations be- ISLAMABAD AND KABUL tween the Afghan government and the Ta- liban could help bring wider stability to The chances are growing that the Afghan Taliban will be brought to the the region. Pakistan has its own chronic negotiating table problems with terrorists—the December NYWHERE else, the delivery of food, ban’s historical backer. “Nothing he has massacre in Peshawar brought that pain- Atents and blankets to victims of ava- done has caused more dishonour to Af- fully home. lanches in a neighbouring country would ghanistan,” a former foreign minister, Ran- The Pakistani authorities have influ- be seen as a welcome but unremarkable gin DadfarSpanta, fumes. ence over the Afghan Taliban, whose lead- humanitarian act. Not, given their history General Sharifhas since made many re- ers enjoy broad protection in the Pakistani of poisonous bilateral relations, when Af- ciprocal visits to Kabul. Mr Ghani has or- cities of Quetta, Karachi, Peshawar and ghanistan is the recipient and the donor is dered his security forces to workwith their elsewhere. Many Taliban own property in Pakistan. The arrival of Pakistani help in Pakistani counterparts on managing a vo- Pakistan, and their children attend local the stricken Panjshir valley, where snow- latile border. He has also sent cadets to en- schools. The Quetta Shura, their ruling falls have killed more than 280 people, is a roll in Pakistan’s military academy in Ab- council, remains intact. A senior Western sign of how markedly relations between bottabad, in contrast to Mr Karzai’s diplomat in Islamabad, Pakistan’s capital, the two countries have improved of late. preference for training officers in India believes that the Pakistanis are actively Now Pakistan may be poised to help bro- rather than in Pakistan. This counters Paki- pushing the Afghan Taliban into negotia- ker talks between the Afghan government stani anxiety over the Afghan army’s fu- tions. He judgesthatamongthe Taliban are and the Afghan Taliban who have long ture leaders being indoctrinated by a mor- “reasonable people” ready to be guided by fought a bloody insurgency against it. Even tal enemy. instructions from their leader, Mullah an uncertain prospect of negotiations is Perhaps most strikingly, MrGhani is di- Omar, should he sue forpeace. significant. vertingsoldiers away from the fight against Back channels between the Afghan Ta- Much credit for the improvement goes the Afghan Taliban—on March 3rd a sui- liban and the government in Kabul, the Af- to Ashraf Ghani, Afghanistan’s president cide-bomber killed nine soldiers in Hel- ghan capital, have long existed, yet previ- since September. In an early speech Mr mand province—to deal instead with Paki- ous hopes of talks have foundered. This Ghani declared Pakistan to be his priority stan’s own version ofthe Taliban, Tehreek- time could be different. With American- and consigned India, once a tight ally ofAf- e-Taliban Pakistan (TTP), whose militants led foreign troops withdrawing, it is harder ghanistan’s, to the outer rings of a “five cir- have taken refuge in Dangam in eastern Af- for the Taliban to claim to be fighting a pa- cle” foreign policy. Whereas his predeces- ghanistan. After TTP men in December at- triotic war against foreign occupiers sor, Hamid Karzai, made frequent forays to tacked a school for army families in Pesha- (though Mr Ghani will be lobbying hard India, Mr Ghani has yet to visit. When he war in north-west Pakistan, killing 132 formore American troops to remain when went to Pakistan in November, he broke children, Mr Ghani’s is a notable gesture. he visits Washington later this month). protocol by calling on General Raheel Sha- He now needs to win a big prize in re- And if, thisyear, Afghan securityforces sur- rif, the army chief who, more than his (un- turn ifhe is not to be written offas a stooge vive their first full fighting season without related) namesake and prime minister, Na- of Pakistan. The Pakistani army must help NATO firepower, it might disabuse those waz Sharif, holds real power in Pakistan. lure the Afghan Taliban into early peace militants who believe that only American That courtesy caused dismay among those talks. Mid-ranking officers in the Pakistani forcesare denyingthem victory. Afghan se- backhome forwhom the Pakistani army is army and its spy agencies have tradition- curity forces are losing more men in a a source ofall evil, most notably as the Tali- ally opposed that. In private they say that year—4,350 in 2013, the latest year with full 1 40 Asia The Economist March 7th 2015

2 statistics—than all foreign troops killed Might the Taliban form part ofit? tinguished” legal scholar, adding that the since 2001. Yet the 169,000-strong army The problem is that Mr Ghani probably main issue “is the children”. and the police are forces to be reckoned does not have two years. His standing at Ordinary Australians have never really with. They should easily deny the Taliban home is already weakened by the way he taken to Mr Abbott. But he also has pro- their grandiose promise to capture the came to power in an election so tainted by blems in his cabinet. His colleagues resent provinces ofHelmand and Kunarthis year. fraud that supporters ofhis rival, Abdullah the powerwielded byhischiefofstaff, Peta Further, useful diplomacy is being Abdullah, claimed that their candidate Credlin. She happens to be married to the brought to bear. China, Pakistan’s closest had been cheated. Although Mr Ghani Liberal Party’s director, Brian Loughnane. ally, has hosted Taliban delegations in Bei- struck a power-sharing deal with Mr Abd- A leaked memo from the party treasurer to jing in hopes of securing peace. China has ullah, antagonism between the two camps Liberal party officials fretted about a po- mining interests in Afghanistan, and it is remains high, and there are problems in tential conflict of interest. The press have also increasingly concerned about Islamist forming a government. That is all before made much of the leak as an apparent at- militancy among its Uighur population. It taking into consideration how deeply un- tempt to damage Mr Abbott. He dismissed is keen to see a more stable region. Ameri- popular in some quarters Mr Ghani’s poli- it as a storm in a teacup. ca, too, supports peace talks with the Tali- cy of co-operating with Pakistan remains. After the respite produced by the latest ban, having once opposed them. MrKarzai continuesto snipe from his mini- poll, MrAbbottissued a flurry ofpolicy an- Some Afghan politicians envisage two palace a short distance from Mr Ghani’s of- nouncements. He pledged 300 more Aus- years of peace talks, with the Taliban then fice, warning that Afghanistan must not tralian troops for Iraq, on top of170 special taking part in parliamentary elections. A “be under Pakistan’s thumb”. Ifhe is to sur- forces there now, to serve with about 100 national council, a loya jirga, is already vive in office, Mr Ghani needs early results New Zealand soldiers training the Iraqi planned, giving parliament more powers. to showforhisendeavoursto find peace. 7 army. Amuch-ballyhooed report was published about the pressure on budgets that can be expected from an ageing popula- Australian politics tion over the next 40 years. And the prime minister finally dropped one of the most The Abbott effect unpopular measures in his government’s first budget last year: a plan to charge those using public health insurance for visiting doctors. MrRobb says the Liberals will now give SYDNEY Mr Abbott “clear air” to carry on as leader until the next budget, due in May, “and be- Speculation continues to swirl about the prime minister’s future yond”. Other colleagues are less happy UST18 months after Tony Abbott became wing, Mr Abbott unseated the centrist Mr with that prospect, given that the first bud- JAustralia’s prime minister, pundits are Turnbull as party leader in 2009. In the lat- get was bungled between Mr Abbott and writing his political obituary. A string of est jostling, Mr Turnbull has taken a steady his treasurer, Joe Hockey. Moreover, a state gaffes, disastrous polls and bitter divisions approach that voters seem to prefer to Mr election is due on March 28th in New within his conservative Liberal Party Abbott’s street-fightingstyle. Atelling clash South Wales, Mr Abbott’s home state, sparked a motion last month to open his came over a recent report by Australia’s which is currently governed by the Liber- leadership to a party ballot. He survived, Human Rights Commission that criticised als. Recent defeats of one-term conserva- just. But the drama continues to feed a fe- both Labor and coalition governments for tive state governments in Victoria and brile mood in Canberra, the capital. On locking child asylum-seekers in detention Queensland have rocked the Liberals. If March 2nd an opinion poll gave Mr Abbott centres. Mr Abbott responded by attacking Mike Baird, the popular state premier, does some breathing space. For how long is an- the commission’s boss, Gillian Triggs. Mr badly, the “Abbott effect” could take most other matter. Turnbull defended MsTriggs as a “very dis- ofthe blame. 7 The Ipsos poll showed the Liberals and their coalition partner, the National Party, trailing the opposition Labor Party by only two percentage points, after including second-preference votes. A month earlier the government had lagged by eight points. Mr Abbott’s personal approval rating edged up slightly, though only to a measly 32%. His allies jumped to defend him. Andrew Robb, the minister for trade and investment, says that in the poll the voters “have spoken” and that the push by colleagues to topple the prime minister is “dying”. That may be optimistic. Asked who they would like to lead the Liberals, 39% of voters chose Malcolm Turnbull, the communications minister, and 24% chose Julie Bishop, the foreign minister. Just 19% plumped for Mr Abbott. Some pollsters read the rise in positive sentiment towards the government as a sign that some voters expect to see Mr Turnbull in charge before the next election, due in 2016. Backed by the Liberals’ conservative Tony Abbott’s waking nightmare The Economist March 7th 2015 Asia 41

Politics in Malaysia India’s budget Gathering steam Waiting for the main act

MUMBAI A scattergun budget had welcome reforms butlacked real boldness SINGAPORE OPES were so high forthe budget Problems at a state investment fund are unveiled by Arun Jaitley, India’s bad news forMalaysia’s prime minister H finance minister, on February 28th, that IX years ago Malaysia’s prime minister, measures that would have seemed dar- SNajib Razak, launched a national investing until recently looked underwhelm- ment fund that he expected to be “bold ing. Narendra Modi’s Bharatiya Janata and daring”. The assets that1 Malaysia De- Party (BJP) came to power last year on velopment Berhad (1MDB) has since ac- promises ofeconomic reform. MrJaitley quired include 15 powerstations and desal- set out plans forcutting the budget deficit, ination plants and some valuable land in reforming taxes, streamlining bureauc- Kuala Lumpur, the country’s megalopolis. racy and improving infrastructure. The But lately the fund has struggled to service central bank, forwhich Mr Jaitley set an its debts of more than $11.6 billion. In Feb- inflation goal of4% from 2016-17, signalled ruary it finally repaid overdue loans of its approval ofMr Jaitley’s fiscal plans on about $550m, perhaps by borrowing from March 4th by trimming its main interest a local businessman. It will probably need rate by a quarter ofa percentage point, to to find more cash for an interest payment 7.5%. Yet Mr Jaitley’s measures were in- due by the end ofMarch. cremental, not the “quantum jump” that The fund’s difficulties have handed Mr he boasted of. Najib’s critics an easy target. They have He will meet his target forthe budget also made Malaysians curious about how deficit of4.1% ofGDP this year, but getting 1MDB has been spending its money. On it down to 3% ofGDP must now wait until February 28th Sarawak Report, a website, 2017-18, to allow formore spending on published e-mails that it claimed cast light roads and railways. The state will bear on a joint venture that 1MDB formed in greater riskin so-called PPP (public-priv- 2009 with PetroSaudi, an international oil ate partnership) projects, and legislation How do you play “Giant Steps”? company. Ifthey are genuine, they appear will be proposed to make disputes over to demonstrate that a prominent role in public contracts less frequent. Some social-security system based on private settingup the deal was played by Low Taek money was found fora new infrastruc- insurance was sketched out. Business- Jho, a high-living Malaysian tycoon whose ture fund. But other claims pressed. The friendly measures include making it association with 1MDB the fund had previ- finance commission, which advises on easier to open or close a firm, a cut in the ously downplayed. The website also said it fiscal matters, had recommended that main corporate-tax rate from 30% to 25%, had obtained messages suggesting that more tax revenue go directly to states. Mr paid forby pruning tax breaks, and delay- around $670m was transferred out of the Jaitley needs their blessing to replace a ing a new regime forgoing after tax dodg- venture shortly after it was set up. myriad ofstate and federal levies with a ers to assuage concerns about India’s The correspondence is among thou- harmonised goods-and-services tax over trigger-happy tax inspectors. An e-busi- sands ofdocuments related to 1MDB’s tran- the coming year. That left him a smaller ness portal will act as a one-stop shop for sactions which Sarawak Report claims to budget from which to squeeze savings. 14 ofthe permits needed to start a busi- possess. It says it will pass them to regula- He might have looked harder. Spend- ness. And public banks will be managed tors who can investigate whether rules ing on subsidies will fall next year, but more at arm’s length from government. have been broken. The parties involved thanks largely to cheaper oil. Although Missing, though, was a sense ofthe deny any wrongdoing. PetroSaudi says all he raised the prospect ofreplacing sub- giant steps that might follow these small- funds from 1MDB went to entities owned sidies on cooking fuel, basic foods and er moves. All is not lost. The planned by PetroSaudi, and that any other infer- fertiliser with cash payments to the poor, goods-and-services tax would forthe first ence is false. 1MDB says that it recovered all the BJP’s loss ofa recent election in Delhi time create a common market in India. If the money invested in its partnerships seems to have been taken as a sign that the government can push that through, with PetroSaudi, which ended in 2012, such a move would be unwise. and persuade the upper house, where it along with a profit of $488m. Mr Low has The measures Mr Jaitley did commit lacks a majority, to pass planned land- made clear that he has advised the fund to were sparing ofthe government’s acquisition reforms, history will judge “from time to time and without receiving political capital. A plan fora national Mr Jaitley’s budget more generously. compensation”; a spokesperson says Mr Low provided views on the joint venture but had “no decision-making authority”. Malaysia’s money. (He is also the country’s makings of the biggest financial scandal in The furore is unhelpful to the govern- finance minister.) Analysts say that wor- the nation’s history”. Mr Najib is probably ment, whatever happens next. As for the ries about 1MDB are weighing on Malay- more worried about criticism from within broader question of 1MDB’s poor perfor- sia’s credit rating and currency, just as low- his own party, the United Malays National mance, the government stresses that the er oil prices are not good for an Organisation (UMNO). The fund has long prime minister has never been closely in- energy-exporting economy. attracted sniping from factions loyal to volved in 1MDB’s day-to-day operations. The opposition smells blood. Lim Kit Mahathir Mohamad, a meddling former But he chairs its board of advisers. His Siang of the Democratic Action Party said prime minister who is itching for Mr Najib standing at home and abroad rests in part that, ifjournalists really have obtained lots to step down. on a reputation as a reliable guardian of of documents about 1MDB, “we have the Talkofan imminent rift within the gov-1 42 Asia The Economist March 7th 2015

2 ernment subsided a little on March 4th, the election in 2013 when UMNO, which Mr Saotome. Official attempts to docu- when the prime minister’s office released a has ruled Malaysia for almost 60 years, ment who died began only in 2009 and re- statement asserting that the cabinet is con- was very nearly thrown out of power. His main incomplete, although a memorial in fident that 1MDB has done no wrong. As a approval rating has fallen sharply since a cornerofYokoamicho parkbearswitness further safeguard, Mr Najib says that he then, to a new low of44% in January. Some to the dead, next to a charnel house with has asked the auditor general indepen- had thought that his opponents in the the mixed ashes of thousands who died. dently to verify the fund’s accounts. He party—now said to be rallying behind (The park also commemorates those who also promises that the law will be enforced Muhyiddin Yassin, a deputy prime minis- died in Tokyo’s devastating earthquake “without exception” should any wrong- ter—would have to wait another year to and fire in 1923.) doing be proven. gain enough support for a leadership chal- After the war, the capital lacked the Nevertheless, the prime minister has lenge. But they may choose to move emotional and financial resources proper- seemed to be on borrowed time ever since sooner than that. 7 ly to mourn the victims, says Bret Fisk, a novelist who has written about the 1945 raids. Nor was there appetite to take issue Japan and the past with America, Japan’s new cold-warally. A museum project got bogged down in the Undigested history 1990s. Conservatives said the plans, including descriptions of war crimes, were unpatriotic and “masochistic”. If the suffering of civilians is difficult to acknowledge, it is harder still for Japan’s TOKYO nationalists to accept the atrocities inflict- ed by the imperial Japanese army across Whetheras victim oras aggressor, the country finds it hard to face up to the past Asia. A custom is now established for each ANY asleep in Tokyo did not hear the sitting prime minister to issue a statement Mrumble of the American B-29 bom- about the war on every tenth anniversary bers. By the time his father shook him ofJapan’s defeat, which is commemorated awake, Katsumoto Saotome’s neighbour- on August 15th. In 1995 Tomiichi Mura- hood in Tokyo’s lower town was in flames. yama, a Socialist prime minister, went fur- Canals were no escape, for the jellied par- thest. He expressed “deep remorse” for Ja- affin in the bombs turned water into fire. pan’s “colonial rule and aggression”. In Once it stuck to you, he says, flesh kept on 2005 Junichiro Koizumi, a nationalist from burning, “right down to the bone”. the Liberal Democratic Party (LDP) that has Mr Saotome, now 83, is about to mark ruled for most of the post-war period, re- the anniversary of Tokyo’s firebombing in peated key phrases from the Murayama 1945. In the single night of March 9th-10th, statement almost word-for-word. about 100,000 people were killed. With What Shinzo Abe, the current prime many men away at the war (which was go- minister, will say on the 70th anniversary ing disastrously), most of the victims were is now a topic of much speculation. Mr women, children and the old. Abe presumably knows what he thinks. In The level of casualties that night was the past he has queried the definition of somewhat less than from the atomic Japanese aggression, criticised the victors’ bombing of Hiroshima on August 6th 1945, justice of the Tokyo war-crimes tribunal, but greater than from the nuclear bomb and questioned the contents ofan apology dropped on Nagasaki three days later. Nor offered in 1993 by the then chief cabinet was the firebombing confined to the capi- Grief and devastation secretary, Yohei Kono, to “comfortwomen” tal. Between November 1944 and August coerced into sex with imperial army sol- 1945, nearly 70 cities were reduced to rub- ing of Japanese civilians on an unprece- diers. Yet he has now formed a committee ble and perhaps 300,000, mostly civilians, dented scale. Even today, the firebombings of sensible-minded historians, journalists were killed—a far more devastating cam- go oddly unremarked. The 70th anniversa- and others for advice. The panel met for paign than any that took place in Europe ry of Dresden was commemorated across the first time on February 25th. (see table below). Europe in February. In Tokyo, however, A consensus exists among many Japa- But if the British bombing of Dresden a there is not even a publicly funded muse- nese politicians, not to mention Japan’s month earlier than Tokyo produced a rip- um to commemorate its firestorm, and friends in Washington, that Mr Abe must ple of public concern in Europe, there was only a modest number of people are ex- unambiguously repeat his predecessors’ little Allied revulsion over the targeted kill- pected to mark the anniversary alongside expressions of remorse. China and South Korea will be watchingclosely forchanges. Mr Abe has said that he will uphold “as a Selected bombing campaigns of the second world war whole” the Murayama statement. Yet recent signs suggest that crucial phrases on Target Estimated deaths Date Perpetrator Japan and the war may be altered. Warsaw, Poland 25,800 Sep 1939 Germany Mr Abe certainly wants to emphasise Britain (of which London) 40,000 (20,000) Sep 1940-May 1941 Germany Japan’s model post-war record of promot- Dresden, Germany 18,000 Feb 13th-15th 1945 Britain & US ing peace and prosperity, and how it will Japan* (of which Tokyo†) 300,000 (100,000†) Nov 1944-Aug 1945 United States continue. Yet as a senior LDP politician Hiroshima, Japan 140,000 Aug 6th 1945 United States urged last month, the surest way for the Nagasaki, Japan 74,000 Aug 9th 1945 United States prime ministerto highlight Japan’s promising future would be to inherit without eva- † Source: The Economist *Excludes atomic bombs March 9th-10th 1945 sion previous statements on the past. 7 China The Economist March 7th 2015 43

Also in this section 44 Hong Kong’s inﬂuential ﬁsherwomen 44 Attacking pollution 45 Banyan: Xi Jinping’s ideology

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

The economy a sectorlongdominated by the state. He acknowledged one area of desperate need: Go slow more non-government nursing homes for the elderly, who face extremely long waiting lists for beds in state institutions. Mr Li also repeated the government’s pledges to control smog and other forms ofpollution. BEIJING In last year’s speech he declared “war” on the problem, but public anxieties remain The prime ministerseeks to lowerexpectations forthe economy high. An independent documentary on ONE are the days of double-digit ously, as a warning to officials and bosses the environment has aroused intense de- Ggrowth in China, with official targets of state-owned enterprises not to obstruct bate online recently (see next page). always farexceeded. That was the message reforms. But there is a number in the prime min- delivered on March 5th by the prime min- Many will have got that message al- ister’s speech that will command the atten- ister, Li Keqiang, at the opening of the an- ready from a vigorous anti-corruption tion ofeveryone from village bosses to for- nual session of the National People’s Con- campaign, which began more than two eign investors: the one for economic gress, the country’s rubber-stamp years ago and, unlike the economy, shows growth. China’s formal growth targets parliament. Mr Li called for growth of no sign of a slowdown. Among its targets used in effect to be irrelevant, with the “about 7%” this year. At 7.4%, last year’s are 39 legislators, who have either resigned economy handily outpacing them. But as growth was already the slowest in nearly a or been dismissed. “Our tough stance on the economy has matured and slowed, quarter-century. He said the slowdown corruption is here to stay,” Mr Li said. On they have emerged as much more impor- was what the government had expected as March 2nd the army published the names tant guides to the government’s bottom it tries to build a steadier, stronger econ- of14 generals who have been punished for line. Last year, when GDP was at risk of omy. But the going will be tough. corruption or are under investigation. But slipping too far below the target, officials In his address to nearly 3,000 delegates this has not dulled the government’s fer- sped up public spending plans and loos- in Beijing’s Great Hall of the People (pic- vour for military spending, which contin- ened monetary policy, which allowed tured above, with posingattendants), MrLi ues to grow faster than the economy as a growth to come in only slightly short ofthe said economic difficulties in the year whole. MrLi announced a 10.1% increase in goal of7.5%. ahead “may be even more formidable” the military budget, to $144 billion, com- The lower target for this year is an ex- than in 2014. “Downward pressure”, he pared with a 12.2% increase last year. plicit recognition that the economy faces said, was intensifying. But he also used a State media describe the prime minis- stronger headwinds. But it is also a way for phrase that has in recent months become a ter’s annual speech to the legislature as the government to give itself extra slack to mantra for Chinese officials: slower akin to an American president’s state-of- pursue much-needed reforms. These are growth, he said, was the “new normal”. the-union address. The flavour is hardly aimed at shifting from heavy reliance on His speech was peppered with calls for fur- the same, however—Mr Li’s nearly 100-mi- investment and credit, towards more con- ther economic reform, despite the com- nute oration was as usual, larded with dry sumption-led growth. plaints ofindustries hit by closures and job statistics and, barring renxing, heavy with With regulators tightening the credit losses. Mr Li spoke several times of the wooden language. He had no American- flow to both municipalities and compa- need to reduce the power and meddling of style partisan wisecracks to share with denies, many in China had hoped the central government. He tossed in a term popular legates, all of whom are hand-picked by government would ease the pain by taking among China’s playful netizens, renxing, the Communist Party and “elected” with- on more spending burdens itself. In the which means doing whatever you want: out a popular vote. event, itwidened itsdeficittargetfor 2015 to “It goes without saying, having power Mr Li told them that reforms of state- 2.3% ofGDP, up just a touch from last year’s doesn’t mean you can renxing”. This touch owned enterprises would continue, and 2.1%. If China is really to hit its target of 7% was his best line: delegates chuckled ap- that the government would allow more growth, the central government may yet preciatively. But Mr Li clearly meant it seri- private and foreign investment in services, need to provide a bigger fiscal boost. 7 44 China The Economist March 7th 2015

Hong Kong Pollution The power of ﬁsh Particulates matter

BEIJING An online video whips up public debate about smog HONG KONG RUMBLING about the semi-perma- health problem has led to speculation A peculiardistortion in Hong Kong’s nent smog that cloaks Chinese cities about politics at work. Did some leaders political structure G has grown louder in recent years. But hope it would encourage green reforms ONG FOR-KAM has long ceased to discussion has been muted by the reluc- in the powerful energy industry? The Wmake her living only from catching tance ofofficials to wag fingers too often timing ofthe release, shortly before the grouper and snapper, but she still fishes at large state-owned enterprises (SOEs), start ofthe national legislature’s annual and is proud ofher profession. She is chair- or the government itself, fortheir roles in session, may not be coincidental. Many woman ofthe Aberdeen Fisherwomen As- fermenting the toxic brew. That changed bosses ofSOEs, as well as senior officials, sociation, whose 230 members work from on February 28th with the release ofan serve as lawmakers. a harbour crowded with sampans and online video-documentary pointing The film includes poignant individual trawlers. That obscure post gives her unex- precisely at these culprits. Within days it stories: children saying they have never pected influence. Unlike most residents, had attracted 200m views and raised the seen stars or white clouds and only rarely the association has voting rights in the temperature ofpublic debate. a blue sky. Ms Chai shares her own story choice of Hong Kong’s chief executive, as Intriguingly, government officials and ofgiving birth to a child with a benign the city’s leader is known. state-controlled media have been among tumour. She cites the estimate ofa former The group is one of about 160 farming those singing the praises ofthe 104-mi- minister that 500,000 Chinese die pre- and fishing organisations which fill 60 of nute video, “Under the Dome”. It was maturely every year from air pollution. the 1,200 seats in the committee that se- made independently by Chai Jing, a The party’s propaganda overlords—a lects the chiefexecutive. The same farming former state-television journalist, and deeply conservative bunch—clearly have and fishing groups also elect one of the 70 was released on busy websites, including mixed feelings. Within a couple ofdays members of Hong Kong’s legislative coun- that ofthe Communist Party’s mouth- ofthe video’s appearance, references to it cil, or Legco. Granting special voting rights piece, People’s Daily. The new environ- in the official media began diminishing: a to businesses and professions is a practice ment minister, Chen Jining, praised Ms strong hint that censors had decided to dating to Hong Kong’s days as a British col- Chai and said the film reminded him of muffle the brouhaha it had sparked. ony. Pro-democracy politicians want to “Silent Spring”, a bookpublished in 1962 Yawei Liu, ofAmerica’s Carter Centre, end the system, but neither China’s ruling by an American author, Rachel Carson, says some officials may be worried that Communist Party, nor the interest groups which exposed the dangers ofDDT and the video will inspire others to use simi- themselves, are keen. “Our contributions, led to a ban on the pesticide. lar techniques to mobilise public opin- if you ask me, are very big,” says the 58- Such signs ofofficial backing for a ion. There is no sign that anyone in the year-old Ms Wong, surrounded by piles of workthat blames state entities and the leadership wants to loosen the party’s baskets, boxes and bamboo poles. “Be- government itselffor a huge public- control ofthe message any further. cause everybody eats fish.” When the current chief executive, Leung Chun-ying, was chosen in 2012, de- ate representation to certain occupations. The Communist Party does not operate legates to the selection committee were The 60 seats controlled by agriculture and openly in Hong Kong—a nod to its “One chosen from four sectors: the professions; fishing (aquaculture accounts for less than country, two systems” principle. But it cul- businesses; labour, social and religious one-tenth of a percent of Hong Kong’s tivates groups like Ms Wong’s which sup- groups; and politicians, including local leg- GDP) compare with a mere 18 seats allocat- port its policies. Hong Kong’s fishing fleet islators and delegates to the parliament in ed to financial firms. MsWongdoesnot see of4,000 vesselscannotafford to offend the Beijing. A frequent complaint about the a problem. “I don’t think we have enough Chinese authorities, who control vital fish- votingsystem is that it gives disproportion- seats,” she says firmly. ing grounds. On August 31st China’s parliament announced that, in the election forthe post of chief executive due in 2017, the winner would be chosen by popular vote for the first time. But candidates must be pre-approved by a committee comprising representatives of much the same interest groups as before. Next month the government is expected to publish a bill that will be needed to implement these changes. Pro-democracy legislators have vowed to blockit. If the bill fails to pass, the current system will be preserved at least until 2022. Any attempt to scrap Legco’s “functional constituencies”, as the 50% of seats reserved for special interests are known, would then have to wait until 2024. The fisherwomen of Aberdeen harbour are likely to retain their peculiar political role Kingmakers convene foryears to come. 7 The Economist March 7th 2015 China 45 Banyan Comprehensive education

Xi Jinping’s new big idea is not quite as vacuous as it first appears corruption. His predecessors could also rely on the slavish admi- ration ofthe party press. But Mr Xi is now the object of hero-worship. The party’s mouthpiece, People’s Daily, ran five front-page editorials last month extolling the Four Comprehensives in gush- ing terms. It has even set up a special webpage for the theory’s devotees. The idea is an “unprecedented and strategic leap forward”, it says, and a “major breakthrough in political theories”. Such hyperventilating boosterism is both a reflection of Mr Xi’sstature and a wayofenhancingitfurther, puttinghim in a line ofgreat thinkers who have mastered and elaborated Marx’s “dia- lectical materialism” (the arcane topic of a Politburo “study session” that Mr Xi presided over in January). The Four Comprehen- sives may sound like an off-the-cuff slogan, but Mr Xi’s spin doctors want people to believe it has deep philosophical roots. A further reason why the theory may have staying power is that it is actually recognisable as the platform Mr Xi has tried to implement. Zheng Yongnian, a Chinese scholar who is director of the East Asia Institute, a think-tank in Singapore, says that the most important of the comprehensives is the first: “Comprehen- sively build a moderately prosperous society.” (The Chinese is considerably less clunky.) This, says Mr Zheng, is the “Chinese EMEMBER the “Scientific Outlook on Development”? Not dream” Mr Xi has been advertising since he took office. The Rmany people do. Yet in 2003 when Hu Jintao, then head ofthe “dream” actually seems to encompass more than material well- Chinese Communist Party, launched the idea, it seemed a big being. But without it, it will be hard to achieve other ambitions: deal. Four years later the party even amended its constitution to fully shaking off the legacy of a century of humiliation and en- enshrine the principle in its guiding ideology. MrHu’s successor, abling China to take its place as one of the world’s great powers— Xi Jinping, will hope his own new contribution to the party’s perhaps even the greatest, as the most ambitious dreamers hope. canon lingers longer in the public’s mind. But his newly unveiled The other“comprehensives” are meansto thisend: deepening theory—the “Four Comprehensives”—faces similar difficulties. economic reform; governing “according to the law”; and “apply- Like Mr Hu’s bright idea, Mr Xi’s is not exactly a crowd-pleaser— ingstrictnessin governingthe party”. No one will be surprised by more a vague and prosaic formulation of propositions with the mention ofeconomic reform, which has been a mantra ofev- which it is hard to argue. Yet it starts life with some advantages, ery Chinese leader from Deng onwards. Enforcing the rule oflaw and those mean China may be studying it foryears to come. sounds on the face of it revolutionary, since it implies that the It may be beneficial that Mr Xi has rejected his predecessor’s party itself is subject to external authority. It is not clear that is Mr outlandish precedent of not attaching a number to his doctrine. Xi’sintention, however. He hasdisappointed liberal reformers by Before Mr Hu, Jiang Zemin went for the “Three Represents”, an not repeating a suggestion he made in 2012, that no organisation opaque theory that seemed to boil down to the idea that it was can “overstep” China’s constitution. At present, the law is seen as possible to be both a successful entrepreneur and a good party one ofthe tools MrXi can use to clean up the system, not a way of member. Before Mr Jiang, Deng Xiaoping’s thinking was distilled placing checks on party power. The final “comprehensive”, en- in the phrase: “One centre and two basic points” (or, for audi- forcing party discipline, refers to his anti-corruption drive—the ences in Hong Kong and Taiwan, “One country, two systems”). fiercest modern China has seen. But the party still polices itself. Chinese Communist slogans do not count ifyou cannot count by them. The number four, though shunned in many Chinese Promises, promises contexts because the word sounds like “death”, has a particularly Although they are naturally being interpreted as yet another sign good party pedigree. Mr Xi grew up under Chairman Mao, learn- of Mr Xi’s all-pervasive sway, it is also possible to see the “Four ing to smash the “Four Olds” (customs, culture, habits and ideas); Comprehensives” campaign as evidence of his anxieties. Since he will have cheered when Mao’s successor, Hua Guofeng, re- coming to power, he has made many promises to the public that vived the “Four Modernisations” (agriculture, industry, defence he has yet to redeem. Doing this will be harder as China’s econ- and technology); and he will have been able in his sleep to recite omy slows down. Already the fast-growing urban middle classes Deng’s “Four Basic Principles” (don’t ask). Mr Xi is right to add his are grumbling about pollution, food-safety scares and traffic con- own offering to the abacus of party thought that proceeds on gestion. Even the anti-corruption drive, though broadly popular, through the five principles of peaceful coexistence, the six evils has drawbacks: Mr Xi is attacking his own power base of party (such as gambling)—or these days the six bans—and the seven cadres and government officials. don’t mentions (such as, ofcourse, “freedom ofspeech”). He has responded to such worries by reaching back in the Another boost for Mr Xi’s theory is that, just 2½ years into his party’s playbookto the timeworn tactic ofa mind-numbing ideo- tenure, he is already the most powerful Chinese leader since logical campaign. Many of China’s young will shrug it off and Deng. The “collective” leadership that marked Mr Hu’s years has look at something more interesting on their smartphones. Even been replaced by one in which Mr Xi is in sole charge. He has bro- those who pay attention may wonder when the party is going to ken with precedent by arresting a former member of the party’s stop trying to reduce complex issues and policy debates to slo- highest body, the Politburo Standing Committee, on suspicion of gans you can count on the fingers ofboth hands. 7 46 Middle East and Africa The Economist March 7th 2015

Also in this section 47 Nigeria and its neighbours 47 Boko Haram on the back foot 48 Iconoclasm and Islamic State

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

Iran’s economy American and European energy and banking sanctions continue to hammer Fading hope business. The optimism that a nuclear deal would soon see sanctions lifted has largely evaporated. Domestic investment has stalled. Several state-owned banks are said to be close to collapse. Efforts to circum- TEHRAN vent sanctions have made an already corrupt country worse: Transparency Interna- Foreign businesses are looking beyond falling oil prices and a limping economy tional, a Berlin-based anti-corruption O TEHRAN’S businessmen, they are of 4% in the six months to September, pull- lobby, ranks Iran a lowly 136th out of 175 Tknown as the tea-ceremony set: foreign ing it out of two years of recession. Infla- countries in its index for2014. day-trippers sizing up the bounty that tion, once around 40%, is now below17%. Foreign business visitors continue to could be on offer if Iran’s supreme leader, Yet many of these gains are now at risk pop in for tea, but the numbers have Ayatollah Ali Khamenei, takes the plunge because of low oil prices. Although Iran’s dropped sharply in the past quarter, ac- and backs a conclusive nuclear deal with economy is less dependent on the black cording to a European airline manager in the West. The number of businessmen en- stuff than some others in the region, it still the capital. Other indicators also suggest tering Iran surged once before, after an in- accounts for 42% of government revenues. that hope is fading: the Tehran stock ex- terim deal with six world powers was The latest budget will cut spending by change slipped 21% last year after surging struckin November2013, raisinghopes of a about 11% after inflation, potentially tip- by131% in 2013. Almost the only bright spot windfall forinvestors. ping the economy back into recession. is tourism, with numbers up by 35%, ac- With a population close to 80m and the Even this looks optimistic: it was initially cording to the government’s latest figures. world’s18th-largesteconomy, Iran could be based on an oil price of $72 a barrel. “It’s Mr Rohani has placed much store on an attractive market. Hassan Rohani, its not a question ofwhether the government the nuclear talks, but his officials seem to outward-looking moderate president, ar- wants to do business with us,” says a Euro- be hedging their bets. Until recently many gues the case for foreign investment and pean businessman. “The problem is that said they wanted to do less business with the jobs it could create. Yet his hopes of they no longer have any money to pay.” China—which has happily kept on buying opening up the economy are stymied not The squeeze on government revenues oil—saying it makes shoddy goods, breaks just by sanctions and the elusive hope of a is setting Mr Rohani on a collision course its promises and lacks Western technology. deal that would lift them. He also faces with Iran’s powerful Revolutionary Now such criticism is rarer. strong opposition from hardliners in Teh- Guards. The military force that underpins American officials, for their part, are di- ran, many of whom bridle at the notion of Iran’s clerical regime has a sprawling com- ligently tightening the screws. When a foreign companies on their turf. And time mercial empire. With their control of sea- large delegation ofFrench businessmen re- is not on his side. Iran’s economy is suffer- ports and multiple land borders, guard turned from Tehran last year, many were ing from the effects of sanctions, a plum- commanders have become rich sanctions- warned by the American embassy in Paris meting oil price and decades of misman- busting traders, dabbling in industries that they should tread carefully and not agement, not to mention the cost of from telecoms to banking. When Mr Ro- sign preliminary contracts in Iran if they fundingmilitiasand dictatorsin the region. hani speaks of the need for “monopolies” wanted to retain access to American finan- Youth unemployment is rising and living to pay their taxes, people know exactly cial markets. A group of Germans received standards are falling. who he means. “It was impossible to make a similar warning a few months later. The The president’s team oftechnocrats has any money,” says Mehrdad, an Iranian- thought of having their dollars frozen un- had some successes and stanched the American who recently shut his stationery der American banking sanctions, or of be- economy’s heaviest bleeding. On Febru- store in Tehran and moved back to Califor- inglocked out ofAmerica’s capital markets ary 11th, in a speech to mark the 36th anni- nia. “When the Sepah [army] import from altogether, has cooled enthusiasm for do- versary of the revolution, Mr Rohani said China and don’t pay any taxes, well, it ing business in Iran. the economy had grown at an annual rate makes guys like me unviable.” Yet some foreign businessmen moan 1 The Economist March 7th 2015 Middle East and Africa 47

2 that American companies are not playing Boko Haram by the same rules. Rather than operate openly in Iran, many American firms are busily using local front men. One such On the back foot middleman in the oil and banking busi- LAGOS ness, who is a frequent visitor to Iran’s oil West African forces may at last be gaining ground ministry, says prime contracts have already been snapped up. “If there is a nuc- LMOST two months ago, Abubakar sale ofsophisticated weapons, such as lear deal, you will find overnight that the AMohammed fled from Boko Haram attackhelicopters, because ofhuman- Americans have signed one-year options as it overran his home town in north- rights abuses by Nigerian soldiers. on the best projects,” he says. “The Euro- eastern Nigeria. Since then he has been New tactics are helping. Demoralised peans will be queuing up, but they will among the wandering ranks of1m-plus battalions have been replaced and new end up negotiating with Exxon Mobil and displaced people. But a glimmer ofhope generals have taken command on the Chevron, just as happened in Libya.” now shines on the horizon. Monguno, front line, says Mike Omeri, an army Such talk is particularly galling to com- the fishing village on the edge ofLake spokesman. British-trained units have panies from Western countries that were Chad that he calls home, was liberated by been praised foradvances in Adamawa, reluctantly pulled into applying sanctions. Nigeria’s army last month. Mr Moham- one ofthe three most afflicted states. “We can’t help but think we have been med is now planning to return. The army also cites better co-oper- played by the Americans,” says one Euro- Monguno is one ofabout 30 villages ation with neighbouring countries, pean business leader. 7 reportedly reclaimed from Boko Haram which are gathering an 8,700-strong force since February 7th. That was the day to fight the rebels. Troops stationed along Nigeria announced a delay ofthe presi- the borders with Cameroon and Niger Nigeria and its neighbours dential election until the end ofMarch to are trying to blockescape routes. Chad- give the army time to quell the insurgen- ian forces, which entered Nigeria in Big fish (or shark) cy, which would have prevented a vote in January, have reclaimed territory. (They large parts ofthree north-eastern states. helped defeat fighters linked to al-Qaeda in a small pond After years oframpaging almost without in Mali in 2013, and reckon they could end opposition, Boko Haram now faces a this insurgency on their own.) fight. This change is well timed for the But regional relations are still tense. COTONOU AND LAGOS government, since it faced the prospect of Chad does not take part in joint oper- electoral defeat before the poll was post- ations with Nigeria, whose government Nigeria’s ills spill across its borders poned, not least because ofits failure to wants to claim victories foritself. And far UGE jars of iridescent yellow liquid provide better security. from being defeated, Boko Haram has Hglow on almost every street corner in Locals wonder why it has taken so responded with a string ofsuicide-bomb- Cotonou, the commercial capital of Benin. long. Army spokesmen say better arms ings and attacks on countries that have Taxi drivers pull over to fill up their cars us- have arrived. Many are said to have come joined the fray. One ofits recent videos ing a hose and funnel. Proper petrol sta- from Russia afterAmerica blocked the shows two victims being beheaded. tions, by contrast, stand empty. “It’s cheaper this way,” explains a taxi driver, as he tanks up using the unofficial method. to create a “politically motivated disrup- not the only way in which Nigeria affects The origins of this black market lie less tion”, reports Malte Liewerscheidt of Ve- its region. Since its population, of 170m or than an hour’s drive away, across Benin’s riskMaplecroft, a riskconsultancy. so, and its economy are both by farthe big- eastern border, in Nigeria, where imported Ghana is another country in the region gest in Africa, it has a huge influence in al- fuel is sold at subsidised rates and the price that has been hurt by Nigeria’s shortcom- most all spheres. Some of it is beneficial. paid by drivers is capped, thus generating a ings—in the supply of gas. Nigeria has con- With annual growth of over 6% in the past massive trade in illicit petrol. Known in Be- sistently failed to fulfil a contract to supply decade, it lifts the economy ofthe entire re- nin as kpayo, it is a third cheaper than the its neighbour with 120m cubic feet a day. In gion. The Economic Community of West legal stuff; 80% ofthe petrol in Benin’s cars fact, it has recently been providing as little African States (ECOWAS), which embraces is said to have been smuggled in. Ofthe 2m as half that amount, causing Ghana to fall 15 countries, relies on Nigeria for the lion’s or so barrels of oil pumped out of wells in shortbyasmuch asa third ofpeakdemand share of its money. In the past decade or so Nigeria each day, as many as 400,000 are forelectricity every day. Nigeria’s armed forces and its diplomatic reckoned to be stolen, often with the con- Fuel-smuggling and gas hold-ups are muscle have helped end wars in Liberia, nivance ofpoliticians. Ivory Coast and Sierra Leone. Some argue that the black market does S A H E L Lake Yet Nigeria is also an exporterof insecu- N ig 166,123 Chad at least provide jobs. But Daniel Ndoye, a e NIGER rity, much of which can be traced to dizzy- r Senegalese economist at the African De- BURKINA 17,000 ing levels of corruption and political iner- MALI FASO Monguno CHAD velopment Bank in Cotonou, says that on BENIN tia. “Corruption is so pervasive in Nigeria,” balance it holds back Benin’s develop- GHANA NIGERIA said a report in 2011 by Human Rights ment: “It causes huge loss of revenue for IVORY TOGO Abuja Watch, a New York-based watchdog, that COAST Lagos government, which affects infrastructure Cotonou “it has turned public service…into a kind development and the business climate.” 50,000 C.A.R. of criminal enterprise”—with spillover ef- CAMEROON Illegal fuel can be dangerous: people have Niger Delta fects across the region. been burnt alive in accidents with it. Gulf of The inability ofNigeria’s army to defeat Guinea Sabotage of Nigerian gas pipelines also GABON or even contain Boko Haram, a violent Is- upsets the country’s neighbours. Attacks 750 km CONGO- lamist group that has been trying to set up BRAZ. have been increasingin the approach to Ni- Actual/attempted pirate attacks, 2014 a caliphate from its base in the north-east,

geria’s presidential and general elections Refugees Total 233,123 CONGO has also hurt the region, by letting the re- (Feb 4th 2015) expected (after a delay) later this month. ANGOLA bellion seep into Chad, Niger and Camer- Sources: IMB; Reliefweb Some say that opposition supporters want oon (see box). This, too, is partly down to 1 48 Middle East and Africa The Economist March 7th 2015

2 corruption. While Nigerian generals have port of hundreds of goods, from cement to ues destroyed by Muhammad, the arte- pocketed vast chunks of the military bud- noodles. Yet Nigeria has failed to industri- facts destroyed by IS “are nothingbut stone get, ill-paid, poorlyequipped and demoral- alise. The biggest beneficiariesmaywell be and no one believes they are gods,” says ised soldiers have been either unable or businessmen (often politicians) with ties Abbas Shouman, under-secretary of the unwilling to fight the enemy. to government. With friends in the right influential al-Azhar University in Egypt. Piracy is another growing regional pro- places, Nigerian supermarkets and posh Mullah Muhammad Omar, the Taliban blem that can be blamed largely on Nige- shops can stock up with prohibited im- leader, said much the same about the Ba- ria’s inability to police its oily creeks in the ports such as exotic beer and shoes. miyan Buddhas, which he once favoured Niger delta. Since 2012 the Gulf of Guinea Meanwhile a new regional tariff sys- preserving, since there were no Buddhists has replaced the waters off Somalia as the tem, altered at Nigeria’s insistence, levies left in Afghanistan. world’s piracy hotspot. Ships along the 35% on certain imported goods, almost The destruction in Mosul should be coast between Ivory Coast and Angola twice the highest level proposed by other seen in a political context, says Bernard have been attacked. Ghana’s offshore west African countries. The International Haykel of Princeton University. The show stretch is now particularly exposed, says Growth Centre, part of the London School of hyper-piety is “part of a publicity cam- Harry Pearce ofAmbrey Risk, a British con- of Economics, reckons this trade policy paign” to grab the mantle of the original sultancy. Piracy may cost the region as could mean that the average level of tariffs Muslims. Others see it as an attempt to pro- much as $2 billion a year. on goods imported into Liberia, for in- voke America into a holywar. Butthe moti- Nigeria also hurts the region with its stance, could double. Not a good way to vation for ransacking museums, even for protectionist trade policy. It bans the im- make other west Africans love Nigeria. 7 fundamentalists, is sometimes simpler. In the past militants from IS and al-Qaeda have sold looted artefacts to finance their Iconoclasm and Islamic State activities. In Afghanistan, Mullah Omar saw the Bamiyan Buddhas as “a potential Destroying history’s treasures major source of income for Afghanistan from international visitors”. A representative of the group said they were destroyed in a fit of pique after the West offered money to preserve the statues, but no other aid. CAIRO Wars, looting and neglect have left the region’s antiquities in a sorry state. Au- The jihadists are attacking more than the region’s people thoritarian regimes tend to promote them- HE beheadings, this time, were per- have been Muslims. In 2001 the Taliban, selves, not the national heritage. But the Tformed with hammer and drill, not then rulers of Afghanistan, blew up two threatofIS iscausingsome governments to sword or knife—for the victims were made giant Buddha statues in Bamiyan that dat- act. Last month Turkish soldiers entered of stone, not flesh. The destruction of an- ed from the 6th century. The Saudi govern- Syria to move the tomb ofSuleyman Shah, cient statues (some replicas) at the Mosul ment has destroyed historic sites in Mecca, grandfather ofthe founder ofthe Ottoman museum in Iraq, a video of which was re- ostensibly to pursue development but also empire, to a more secure spot. leased on February 26th, is far from the to prevent idolatry, say some. Abdel Mo- In Baghdad the national museum has most heinous crime committed by Islamic neim el-Shahat, a prominent Salafist in just reopened, 12 years after it closed dur- State (IS). The jihadists have killed thou- Egypt, has suggested covering the heads of ing the American invasion. The ceremony sands ofpeople, often in grisly fashion. But ancient statues in wax. was brought forward in response to the de- the group’s sacking of holy sites and librar- Most Muslims find the destruction ab- struction in Mosul, where the vandals may ies are elements of a broader attack, perpe- surd. Islam says nothing about smashing be wearing out their welcome. Last year trated in the name of Islam, on the Middle statues that are not harming anyone, says residents confronted IS members when an East’s rich cultural and religious heritage. Ahmed Hassan, a 33-year-old Cairene. This ancient leaning minaret was targeted. It is Although its actions are abhorrent, IS opinion is shared by Islamic scholars, and still standing, but much ofthe city’s culture poses a dilemma forMuslims. Many ofthe even some of the Taliban. Unlike the stat- and history has now been erased. 7 group’s beliefs are not disconnected from Islam, as some claim, but rather the product of an extreme interpretation of the faith. IS supporters justify their actions with verses taken from the Koran or exam- ples from the life of the Prophet Muham- mad. In Mosul the militants said they were shattering “idols”, the worship of which is forbidden in Islam. Muhammad himself cleared idolatrous statues from the Kaaba, the centrepiece ofMecca’s Sacred Mosque. This was in keeping with the tradition of Abraham, another prophet (sacred to several faiths) who destroyed the wooden gods being worshipped by his people. Idolatry is taboo in many faiths, so the history of iconoclasm is multi-denomina- tional. King Hezekiah purged idols from Solomon’s temple in Jerusalem, according to the Old Testament. Protestant reformers destroyed religious images in the 16th century. But the most ardent recent iconoclasts To the dustbin of history How to back up Hacking your Space hoppers a country brain in orbit TechnologyQuarterly March 7th 2015

Green food from Silicon Valley Tech firms start cooking up sustainable produce

The Economist Technology Quarterly March 7th 2015 Monitor 3

Contents

On the cover Silicon Valley-funded startups are moving into the sustainable food business. Their idea is to disrupt the industry by using plant protein to mimic meat and dairy products—and provide a taste which is as good, if not better than, animal-derived produce, page 13 How to back up a country

Monitor 3 How to back up a country in case of a cyber-attack, DIY mobile networks, medical Internet security: To protect itself from attack, Estonia is finding ways to diagnostics by smartphone, back up its data rounding up oil slicks, protecting health-care workers IPING a country offthe map is one sions and propaganda attacks are a con- against infection from Ebola, Wthing. Wiping its data is another. stant headache. speech-recognition technology Estonians know what the formeris like. Estonia’s first dry run ofdigital continu- and self-cleaning surfaces They are determined to avoid the latter. ity, carried out in September last year in Just as computer users backup their lap- conjunction with Microsoft, had several Difference engine tops in case they breakor are lost, Estonia elements. One was to maintain e-govern- 9 The little engine that could is working out how to backup the country, ment services by using back-up computers Downsizing cars with the latest in case it is attacked by Russia. within Estonia. Ifthat became impossible, turbochargers Estonia has already shown notable the services migrated abroad. prowess in putting government services One part ofthe experiment involved Space rovers online. It has pioneered the use ofstrong the website ofthe president, Toomas digital identities forevery resident, en- HendrikIlves. A digital-savvy, American- 10 A lightness of being abling them to sign and encrypt docu- educated advocate fore-government—and Low-gravity vehicles that will hop ments, access government services, and a hate figure forthe Kremlin—his website around asteroids and comets conduct e-commerce. is a likely target for Russian attack. During But the latest project, termed “digital the war in Georgia in 2008, unknown New food continuity”, is the most ambitious yet. It hackers defaced the website ofthat coun- 13 Silicon Valley’s taste for food aims to ensure that even ifEstonia’s gov- try’s president, Mikheil Saakashvili. Mr Tech startups move into ernment is sabotaged it will continue to Ilves’s website was moved fairly smoothly sustainable produce function over the internet, providing to the “cloud”—networks ofthird-party services and enabling payments. The computers—in this case Microsoft data lessons will be valuable to any organisa- centres in Dublin and Amsterdam. Neurostimulation tion concerned about disaster recovery. 16 Hacking your brain Estonia, which regained independence The load and the stress Using electricity to stimulate in 1991after being occupied by the Soviet A more complicated effortinvolved the your grey matter Union, was the target ofwhat many regard State Gazette—the official repository ofall as the first instance ofcyber-warfare. In Estonian laws. These do not exist in paper 2007 its main websites were over- form. As well as backing up the data, the Brain scan whelmed with traffic from multiple experiment tried to see how accessible it 19 Medicine by numbers sources in a distributed denial ofservice would be in an emergency. It applied two Susan Ellenberg on avoiding attackduring a row with Russia over a war tests: one ofload (ifan unusually large mistakes in an era of Big Data memorial. The episode crippled the coun- number ofpeople were trying to access try’s online banking system and came the sites); and the other ofstress (if outsid- within a whisker ofdisabling emergency ers were, forinstance, swamping the sys- services. Lately Russian airspace intru- tem with bogus requests forinformation). 1 4 Monitor The Economist Technology Quarterly March 7th 2015

2 The result was broadly a success—the ing someone in the United States might experimenters even succeeded, fora brief actually be cheaper. This is thanks to a planned period, to run services from series ofrepeater antennae scattered outside Estonia. But it also highlighted DIY telecoms through the mountains and providing a numerous obstacles. “It became clear that connection to Oaxaca city, the state capi- no matter how ready you thinkyou are, tal. It allows voice-over-internet calls. you are never ready enough,” notes a draft The cost ofmobile equipment is falling report jointly compiled by the Estonian thanks to open-source systems and a new authorities and Microsoft. Mobile networks: Fed up with the generation ofbase stations that make use One set ofissues is legal. Laws on failings of the big operators, remote ofa process called software-defined radio. personal data, and public expectations of Mexican communities are acting for As its name suggests, this uses software to privacy, are strict in European countries; themselves manage the networkinstead oflots of just as with back-up services for comput- dedicated hardware. Such kit is now avail- ers, users need to be sure that their data N THE cloud forests ofthe Sierra de able to groups such as Rhizomatica, a will be properly safeguarded ifthey are IJuárez mountains in southern Mexico, a non-profit operating from the state capital. sent abroad. Storing such personal infor- new kind oftree is springing up: the mo- Peter Bloom, its founder, has been in- mation in “digital embassies”—computers bile telephone mast. Unlike most phone stalling the equipment aided by a bevy of in Estonian diplomatic missions abroad— masts in the world these are installed, Italian, Spanish and other engineers. helps as they are Estonian sovereign terri- owned and operated by small, mostly They have been able to do this because tory. But internet law is still unclear. indigenous communities. Providing a Mexico’s constitution gives indigenous Technical problems included the way mobile service in these villages was not community radio stations the right to use the internet deals with addresses—the profitable enough forbig telecoms compa- radio spectrum in places neglected by Domain Name System (DNS). How would nies to bother with, unless the locals national concession-holders. Rhizomatica the Estonian authorities ensure that peo- stumped up $50,000. But improvements teamed up with a lawyer to persuade ple trying to reach president.ee, for ex- in software and the falling price ofhard- regulators that the principle also applies to ample, would actually get there in an ware has made it possible to build a local wireless telephony. “Communication is emergency—particularly ifa massive mobile-phone base station foraround an essential human right,” says Mr Bloom. cyber-attackwere under way? Sorting this $7,500, which non-profit operators and In the spring of2014 the national telecom out required “extensive manual oper- small communities can muster. regulator awarded Rhizomatica a two- ations”, the report notes dryly. Sixteen communities in this remote year experimental, non-profit licence to Digital continuity would become even corner ofMexico now count on local operate in the region. It also helps that this trickier ifthe back-up operation were to mobile services which cost much less than area ofOaxaca has long governed itself include more complex services. Estonia’s that ofMexico’s dominant operator, under Mexico’s so-called indigenous public and private databases exchange América Móvil, or its nearest rival, Movi- customary practices, which include com- information over a peer-to-peer network star. Eliel López, a motorcycle-taxi driver, munal land and labour-sharing. called the X-Road, a kind ofinformation says the business he gets using the com- Now that Rhizomatica’s networkis federation. Users give their digital consent, munity-owned networkin Villa Talea de sprouting new nodes, the communities by using their ID card and PIN, to allow Castro in the state ofOaxaca more than are encountering some ofthe same diffi- one database to get information from pays his monthly fee of40 pesos ($2.71), culties faced by larger operations, such as another (forexample, ifa hospital needs to which covers local calls, and per-minute people from one local networkwanting to checka patient’s status with a health call costs of0.82 pesos to mobiles on other use their mobiles in another area. The insurer). So it is not just the data, but also networks in Mexico. The big networks local networks do not use SIM cards to the software that deals with them, that charge around 3 pesos a minute. identify users, who must register their would need to be exported. Calls to mobiles on other networks can phones with the local network’s adminis- The experiment’s designers soon spot- be dialled using pre-paid credit. But ring- trator. When someone registered in one ted several snags. One was that Estonia’s community visits another they can auto- system uses lots ofdifferent software, in matically use the networkthere, too. At multiple versions, some ofthem out of present they are not charged, but roaming date. That works fine when they just need feescould be introduced. to exchange data, but makes it hard to In December Mexico’s regulator issued replicate the system in the cloud. a plan to reserve some ofthe radio spec- Another was that the architecture of trum forindigenous and community use Estonia’s system is poorly documented, under15-year non-profit licences. This and that rules for classification ofdata as could encourage more communities to set sensitive, personal, secret or public were up their own mobile services. But the not suitable fordigital continuity: “fre- non-profit requirement might dissuade quently only a small number ofexperts outside investors from putting money into understand the workings ofthe system,” such schemes, making it difficult for them the report notes. to scale up. The main conclusion ofthe exercise is In some countries community-based both simple to articulate and difficult to networks form partnerships with in- achieve: the better data and networks are cumbent telecoms firms to provide ser- organised, the better the system is docu- vices at a profit. Endaga, an American firm mented, and the more standardised and spun out ofthe University ofCalifornia, up-to-date the software, the easier it is to Berkeley, set up such a networkin In- backup and restore. That may be no sur- donesia in 2013. In Mexico a similar part- prise to any computer user, but it will be a nership would probably require a change spur to improvement on top ofEstonia’s in the rules. As is often the case, tech- already impressive efforts. 7 Local networking nology moves fasterthan regulators. 7 The Economist Technology Quarterly March 7th 2015 Monitor 5

Rounding up oil slicks

Pollution: a quick way to contain tremely lightweight plastic boom which oil spills with lightweight booms can be deployed rapidly from a small craft. It is so compact that an experi- INCE the disaster in the GulfofMexi- mental version was delivered in a suit- Sco in 2010 after the Deepwater Hori- case to Ohmsett, America’s testing zon drilling rig exploded, there has been facility foroil-spill response equipment a flurry ofideas on how to clear up oil in New Jersey. The booms tested there spills. Various machines called “skim- usually arrive in shipping containers. mers” have been developed to recover A lightweight boom can be easily oil from the surface. New chemical upset by wind and waves, allowing oil methods have been tried to disperse oil to spill over the top or seep out from and biological ones to digest it. An below. The HARBO system overcomes Italian project even found that coarse this in a number ofclever ways. As it is wool is particularly good at mopping up deployed the top is filled with air for oil. But much depends on how quickly flotation while the bottom is filled with an oil slickcan be prevented from water forballast. To prevent the boom spreading with floating booms. Now an tipping over its cross section is T-shaped. Israeli startup reckons it has come up The wings on each arm ofthe T are with the quickest way to do that. designed in such a way to provide sta- There are a wide variety ofbooms bility in winds, currents and waves. In which can be used as a physical barrier the trials at Ohmsett a 30-metre-long Smartphone to contain an oil spill. The booms can be prototype boom managed to successful- made ofplastic, metal and other materi- ly contain around three tonnes ofoil. diagnosis als. They typically consist ofa solid or The company is now developing a inflatable floating section with a “skirt” way to deploy the boom rapidly. As the hanging below and weighed down with boom weighs just 300 grammes a metre, Medical apps: From exposure to HIV a chain. Such booms are bulky and the operation could be carried out by a to a nasty throat infection or heavy. They also have to be transported small boat with just two operators (as confirmation of a heart attack, the by boat or barge to the site ofthe spill, illustrated below). Mr Ur says it would phone will know where a specialist crew is required to take no more than a day to train the launch the boom into the water. All this crew. As both the boom and the vessel Y SOME accounts, one in five Ameri- takes time—sometimes days—which are small and lightweight, the complete B cans use health apps on their smart- gives oil a chance to spread further and system could be installed close to where phones. The apps can also connect to breakup into smaller slicks, making the oil spills are likely, such as ports, and sensors worn on the body to monitor vital eventual clean-up harder. carried on oil rigs and tankers. Being signs, such as a runner’s heart rate. Others The idea which Boaz Ur, the chief near to hand, a rapid-response boom assist with diagnostics, for instance by executive ofHARBO Technologies, and team might prevent an oil spill from using the phone’s camera to analyse the his colleagues came up with is an ex- becoming a nightmare to clean up. colour oftest strips dipped in samples. Plug-in devices are also appearing to enable phones to take biological measurements directly. Two ofthe latest can detect exposure to HIV, the virus which causes AIDs, and diagnose other conditions. Samuel Sia and his colleagues at Co- lumbia University in New Yorkhave miniaturised a laboratory-based blood test called an ELISA (forenzyme-linked immunosorbent assay). It detects biological markers, such as antibodies made in response to an infection. A sample of blood from a finger prickis placed in a small disposable plastic cassette that The equipment was recently tried out The other idea is from Descue Medical, contains reagents necessary foran ELISA. by health-care workers in Rwanda testing a Salt Lake City-based startup founded by The cassette is inserted into the test-device pregnant women, from a single sample of two brothers, Christopher and Andrew itself, which is small enough to fit into the blood, for HIV and syphilis. The results Pagels. They have come up with a product hand ofthe user and contains what is were encouraging and the team are now called iTest. The pair, both biomedical- known as a “lab-on-a-chip”. This, in turn, exploring how to bring their smartphone engineering students, hope to have their is plugged into the phone. An app man- test to market. Dr Sia says he estimates the first test-kit on sale in 2016 after obtaining ages the test and after15 minutes a nega- device itselfwould cost about $35 to clearance from America’s Food and Drug tive or positive result is displayed on the manufacture. An ELISA machine in a Administration. It can diagnose “strep phone’s screen. laboratory could cost more than $18,000. throat”, a nasty infection by Streptococcus 1 6 Monitor The Economist Technology Quarterly March 7th 2015

2 pyogenes, a bacterium. The condition diagnose a range ofconditions, says An- looking forspecialist gear he was unable needs treatment with antibiotics. It is most drew Pagels. The brothers say they have to find any easily transportable treatment common in children and young teenagers already developed tests for HIV and units able to contain the virus. In July last and can cause complications, such as MRSA, a bacterial infection which is par- year he asked Odulair, an American com- inflamed kidneys and rheumatic fever. ticularly difficult to treat, and are working pany based in Cheyenne, Wyoming, if Their kit includes a swab that is rubbed on tests forthe flu, sexually transmitted they could help. The firm makes mobile against an infected patch ofthroat. This is diseases and a combination test forden- medical clinics. placed into a vial containing a liquid, gue fever and malaria. Another test would Two months later Odulair put a mod- which washes the sample into solution. allow a smartphone to detect troponin. ular Ebola-isolation unit on the market. The vial is then fitted into the iTest device, Elevated levels ofthis protein in the blood The firm says it can be manufactured, which in turn is plugged into a phone. The can verify that someone has had a heart air-freighted and set up within a month. brothers say the device uses a technique attack. The brothers anticipate the main The unit maintains a differential air pres- called voltammetry, which measures the iTest device would sell forabout $150 with sure between rooms to help prevent the current in a sample as a function ofthe the test kits available separately. virus from spreading; although not an voltage applied to it. Rapid strep tests are By offering lab-type diagnostics to airborne disease it can attach to particles not new, but usually involve mixing sol- almost any population with access to a which drift in the air. A higher pressure is utions and looking fora visible reaction. smartphone, such devices would be par- maintained in areas reserved formedical The strep test, though, is only the begin- ticularly useful in remote and resource- staffand those awaiting diagnosis. The air ning ofthe brothers’ ambitions. The idea is poor areas. But they are bound to give in each room is purified up to 36 times an to offera variety ofdifferent test kits that hypochondriacs yet another reason to hour with filters that trap almost all parti- can be used by the same iTest device to fiddle with their handsets. 7 cles larger than a third ofa micron, or three millionths ofa metre, which is smaller than the Ebola virus. Air is also zapped with germ-killing ultraviolet light.

The video doctor The doors in the unit can open automatically, allowing a “telepresence” robot to patrol. It displays live video ofa doctor or nurse, allowing them to speakto a patient. The RP-VITA, as the robot is called, greatly reduces the number oftimes staffmust put on protective suits and step inside, says Anita Chambers, Odulair’s boss. All fluid and solid waste, including things like needles and mattresses, is fed into a cylindrical chamber housed in a shipping container. This grinds it up with a macerator and then cooks it with scalding steam under high pressure until all that is left is a sterile greyish powder. Odulair’s isolation unit also incorporates a fogging system that sterilises unoccupied rooms with hydrogen-peroxide vapour. Some hospitals disinfect rooms with remote- controlled machines, such as the Q-10 made by Bioquell, a British manufacturer, Ebola’s low-down on high tech or a robot produced by Xenex Disinfection Services in Texas, which can sterilise a room in ten minutes. Last autumn the UN Office forProject Services in Abidjan, Ivory Coast, suggest- Disease control: Advanced equipment has been developed to help protect ed some governments in Africa might health-care workers, but the gear may not be helpful in poor countries invest in such kit. But only two Odulair isolation units have been sold. Neither ELIRIOUS and occasionally thrashing dealing with the victims. New high-tech was forAfrica or even a country that has Daround, an Ebola patient wracked equipment is now available foruse by an Ebola patient. One unit was delivered with acute symptoms may shed as much health-care workers, but in some countries to a contractor working forAmerica’s as ten litres a day ofhighly infectious it may be inappropriate. Department ofHomeland Security and blood and other body fluids, faeces and The Ebola virus is spread by direct the other will soon be sent to Trinidad and decomposing tissue. It makes caring for contact, which can be through the tiniest Tobago. For poor countries such equip- patients suffering from this dreadful dis- piece ofbroken skin or via mucous mem- ment is unaffordable, says Ghana’s Dr ease difficult and dangerous—so much so branes in, forinstance, the eyes, nose or Gebe. An Odulair unit to house ten con- that some health-care workers quit their mouth. The source can be contaminated firmed and eight suspected patients costs jobs rather than face another stressful day. blood or other body materials and objects about $900,000—robot not included. A As in all Ebola episodes, preventing in- like needles and syringes. Protective Q-10 comes in at around $53,000 and a fection in west Africa during what has equipment is needed. But when Nichode- Xenex robot at some $100,000. been the worst outbreakin history has mus Gebe, head ofbiomedical engineer- Cost is not the only reason high-tech placed a lot ofefforton looking after those ing at Ghana’s Ministry ofHealth, started solutions are failing to be deployed in 1 The Economist Technology Quarterly March 7th 2015 Monitor 7

2 Ebola hotspots. Repairing and servicing restricts gas exchange enough to prevent mechanical and electronic systems is evaporative cooling, so wearers in hot tricky. Sharp metal parts and tools can weather may quickly overheat, becoming slice through protective clothing and into confused or even suffering a heat stroke. skin, increasing infection risks. Local staff, Sweat and fatigue build so fast that staff in unfamiliar with such technology, are west Africa are limited to two or some- sometimes less keen to maintain it, says times three 45-minute sessions in coveralls Agnès Lamaure, a logistics expert with a day, says Hélène Esnault, a MSF nurse Médecins Sans Frontières (MSF), a French now working in the Democratic Republic charity which has led much ofthe interna- ofCongo. Dr Sprecher hopes that research tional response to Ebola. by CDC will lead to a more breathable Another difficulty is that Ebola field Ebola-resistant fabric. clinics typically must generate their own In the past decade latex gloves have electricity. Assessing the value ofa system largely been replaced by those made with or device therefore involves taking into nitrile, a synthetic rubber that better re- account not just its cost, but also the pre- sists disintegrating in chlorine disinfec- cious power it will consume, Ms Lamaure tants. Goggles are increasingly designed adds. The most practical way to vaporise with ventilation slits not placed on the disinfectants at Ebola centres in Africa is top, lest sweat or rain wash contaminants with hand-pumped sprayers typically into the eyes. And surgical masks are now used forgarden pesticides. And rather more widely used in Africa’s poorest than import a machine to destroy infected countries because their cost has dropped material, which could cost $300,000, some 75% in the past15 years, says Juan Ebola centres burn their waste in pits Martínez Hernández, an epidemiologist Watch what which are sealed and covered in concrete. and Ebola expert based in Madrid. Surgical masks, however, lose effective- On with the scrubs ness when soaked with sweat. More you say Nevertheless, some new technology is expensive “duckbill” designs that pro- helping in west Africa, where the number trude from the face workbetter. MSF is ofcases has fallen, but the disease is hang- field testing a handful ofrespirators, Speech recognition: Better ing on. The bible on stopping transmission which are powered by a battery pack automated acquisition of speech in poor countries was formany years a worn on the belt. Filtered air is supplied may be more about seeing than it is 1998 report by the World Health Organisa- via a rubber hose into a hood with a plas- about hearing tion and America’s Centres forDisease tic visor. More air is delivered than can be Control and Prevention (CDC) entitled inhaled, so pressure under the hood is F HE were proven to be malfunction- “Infection Control forViral Haemorrhagic slightly higher than that outside, which “Iing, I wouldn’t see how we’d have Fevers in the African Health Care Setting”. helps to keep particles out. any choice but disconnection.” In the film It enshrined a “sort oflowest common At about $1,600 apiece, few “positive- “2001” (pictured above), FrankPoole, an denominator” realism based on what was air-pressure respirators” are used in west astronaut played by Gary Lockwood, widely available rather than most appro- Africa. And wearing them can have conse- considers what should be done with HAL, priate, says Armand Sprecher, an MSF quences, says Dr Martínez Hernández. He the homicidal computer in charge ofthe epidemiologist. It helped to establish was one ofthe authors ofa letter dis- ship. HAL learns ofhis human masters’ surgical garb as the thing to wear. couraging their use which was published plan to unplug him by lip-reading their But clothing designed foroperating in the Lancet. Health-care workers who see conversation through a window—an idea theatres is not the best for, say, collecting colleagues using the respirators are less that researchers and companies are getting corpses lying in infectious body fluids. willing to settle for a traditional passive closer to realising. Their goal is less about Aprons and surgical gowns leave the face-maskeven though, used with care, it spaceship-driving robots and more about wearer’s backmostly unprotected so, is good enough, he says. Many African improving voice-controlled helpers such when squatting to lift a body, material on health ministries do not want to see pro- as Apple’s Siri and Microsoft’s Cortana. their boots is likely to wet the cotton surgi- tection standards “get dialled up” to unaf- No matter how good voice-recognition cal scrubs on their buttocks and thighs. fordable levels, adds MSF’s Dr Sprecher. software becomes, it will always be hos- “That’s an uncomfortable feeling,” says Dr One practical way to prevent infection tage to its sonic environment. Askyour Sprecher. He began working on Ebola and lessen the riskto health-care workers digital assistant to dial a number in a quiet outbreaks with MSF in 2000 several years is to educate the general population about office and it might hear the right numbers. before coveralls made with a DuPont the disease, says Khadija Sesay, head of Tryagain near a busy road or at a noisy synthetic fibre called Tyvekbecame wide- the Open Government Initiative in Sierra party and you will probably be disap- ly available. Leone. With help from IBM, the group uses pointed. Ifonly your phone could read Tyvekis produced from high-density software to analyse text messages and your lips. polyethylene fibres. These are not woven, phone calls to government hotlines. This Ahmad Hassanat, a researcher in artifi- as most fabricsare, but “flashspun” in a allows maps to be generated showing the cial intelligence at Mu’tah University, in process which involves the evaporation of prevalence ofpeople whose actions risk Jordan, has been trying to teach a comput- a solvent. Although tear-resistant and spreading infection. Eating bushmeat, for er program to do just that. Previous at- waterproof, Tyvekdoes allow air mole- instance, can transmit Ebola. It is unlikely, tempts to get computers to lip-read have cules under high pressure to pass through. then, that the most sophisticated technol- focused, understandably enough, on the This has now led to the wide adoption ofa ogies will play much ofa role in contain- shape and movement ofthe lips as they more impermeable laminated DuPont ing Ebola in Africa, especially ifthe num- produce phonemes (individual sounds fabric called Tychem. ber ofinfected remain high. Ebola has like “b”, “ng” or “th”). Such shapes-of- Coveralls made with Tychem, how- come and gone before, but ifit abates, one sounds are called visemes. The problem is ever, have a big drawback. The material day it will be back. 7 that there are just a dozen visemes for the 1 8 Monitor The Economist Technology Quarterly March 7th 2015

2 40 to 50 phonemes in English; “pan” and Scientists investigating such natural “ban”, forexample, lookremarkably surfaces have found they exhibit patterns similar to a lip-reader. That makes it rather and structures on more than one scale— taxing to reconstruct words from visemes Out of the groove what is known as hierarchical structuring. alone. Instead, Dr Hassanat has been Morpho wings, forexample, are made of trying forthe past few years to detect the tile-like structures about a millionth ofa visual signature ofentire words, using the metre long. On each, however, lies a series appearance ofthe tongue and teeth as ofgrooves measuring just nanometres, or well as the lips. Materials science: A simple billionths ofa metre. In some config- His method has had some success. In a treatment using a laser can produce urations, hierarchical structuring leads to a paper published late last year, Dr Hassanat surfaces with the ability to clean reverse effect: an extreme water-loving described how he had trained his system themselves property called superhydrophilicity. by filming ten women and 16 men of Chunlei Guo and Anatoliy Vorobyev, different ethnicities as they read passages LIGHTNING strike lasting just a few physicists at the University ofRochester, oftext. The computer first compared these Atens ofmillionths ofa second might in New York, have become experts in recordings with a text it knew, then tried to seem, well, lightning-fast. Elsewhere, using femtosecond lasers to make surfaces guess what they were saying in a second though, nature often gets its workdone in with hierarchical structuring. Unlike video. When the computer was allowed to periods farshorter than that. In recent industrial lasers, femtosecond lasers use the same person’s training speech, it years, scientists’ attention has been caught release their energy in pulses leaving no was fairly accurate—around 75% ofwords by lasers that produce pulses lasting just time for a material to heat up appreciably. spoken for all subjects and up to 97% for femtoseconds—that is, millionths ofa As that energy dissipates, single atoms one speaker. But when the person’s own billionth ofa second—which can act as and clusters ofvarying sizes evaporate off training video was excluded from the flashbulbs that illuminate the fastest the surface, leaving nanometre-scale analysis—just like untrained digital assis- processes in biology and physics. Now bumps and valleys where the laser has tants—the program’s accuracy plunged to femtosecond pulses have shown offtheir removed differing amounts ofmaterial. 33% on average and as poor as15% in some abilities in a more quotidian task: making By scanning a laser beam repeatedly cases (moustaches and beards, it seems, surfaces water-repellent. across samples ofmetal, the researchers are particularly confusing to the system). Nature has plenty ofexamples of are able to cut arrays ofgrooves about 100 Another idea is not to focus on the hydrophobicity, as water-shedding is millionths ofa metre wide (the width ofa mouth. In 2013 Yasuhiro Oikawa, an engi- known, not least the duck’s idiomatic human hair). Within each ofthe grooves, neer at Waseda University in Japan, used a back. But a superlative degree ofit is of though, lies structure at the nanometre high-speed camera capable ofshooting particular interest, because super- scale. That arrangement, as the pair have 10,000 frames a second ofa speaker’s hydrophobic surfaces are also, in effect, shown in a paper in the Journal of Applied throat. This measures tiny, fleeting vibra- self-cleaning. As they shed water, any dust Physics, results in an astonishing level of tions in the skin caused by the act of or dirt on them sticks better to the passing superhydrophobicity on platinum, brass speaking. The precise frequencies present water beads than to the surface. Exposed and titanium. It is not just that water in the vibrations can then, in principle, be to the elements, such surfaces stay clean, dropped onto the surfaces does not stick; it used to reconstruct the word being spo- dry and free ofrust or ice (water does not actually bounces. ken. So far, however, Dr Oikawa’s team stickaround long enough to make either). Dr Guo admits, however, that the team has managed to map the visual vibrations There are myriad applications that have an incomplete understanding of ofjust a single Japanese word. could make use ofsuch properties: aircraft why it works so well. A great many physi- The best results come when a system or power lines that never get icy, and ships cal mechanisms may be involved, and does more than just passively watch. or toilets that never get dirty. The idea is these need to be unravelled. But making VocalZoom is an Israeli startup whose already employed by industry, typically the surfaces is simple, so applications may idea is to point a low-power laser beam at by covering surfaces with polymers to not be long coming. The pair believe it will a speaker’s cheekto measure vibrations, achieve hydrophobic effects. But even the workon any metal and, with some tweak- and use those to inferthe frequencies of best ofthese do not perform as well as ing, on materials such as plastics, semicon- speech. The system combines those re- nature’s superstars, such as the Morpho ductors and ceramics. So perhaps a self- sults with ordinary speech audio from a butterfly, the leaves ofthe lotus plant or cleaning toilet that sparkles after every microphone, subtracting unwanted ambi- the garden nasturtium. flush is not far in the future. 7 ent noise or other talkers and leaving just the cheek-wobble frequencies. In January the firm tookits technology to CES, a giant technology trade show in Las Vegas and a notoriously ear-splitting environment, and impressed the tech press. But the system is not yet ready for the mass market. The prototype is still larger than the smartphones it is intended to be built into, and tempting manufacturers into adding components to ever-slim- mer, ever-sleeker handsets will not be easy. The company may have more luck getting its technology into cars, another industry increasingly reliant on voice control; VocalZoom claims to be in early talks with a big carmaker. Perhaps the company will, one day, even get its kit into space-faring vehicles. 7 The Economist Technology Quarterly March 7th 2015 Difference engine 9 The little engine that could

Car engines: Downsizing to a car with a smaller engine is being made easier by the latest turbochargers. They can transform a standard four-cylinder engine into a much more powerful motor

RUGAL four-cylinder engines used to The modern turbocharged petrol en- Fbe found only in the cheapest cars. But gine owes much to its diesel equivalent. today they are being fitted to even luxury But there are significant differences that re- models. What has made them more acquire design changes. Forinstance, petrol is ceptable—indeed, desirable—is the devel- more volatile than diesel—igniting faster, opment of advanced turbochargers that burning hotter and requiring a lower air/ cram more air than normal into the fixed fuel ratio. Petrol engines are also expected volume of their cylinders, allowing the en- to operate over a much wider range of gines to burn proportionally more fuel. crank speeds, and to respond much more The result is a compact unit that punches rapidly when called upon by the driver to way above its weight in terms of power do so. If turbo lag is longer than a few sec- and torque, a turning force which makes onds, the vehicle can be tricky to drive— that power available at lower revs. These with nothing happening initially, and then engines also provide better fuel economy the boost suddenly arriving with a wallop. and emit less pollution. The reverse is also true. If the turbo- A turbocharger works by tapping the charger does not come off boost quickly hot exhaust gas from the engine to spin a enough when the driver lifts his foot from small turbine which, in turn, drives an the accelerator pedal—which causes the equally small air compressor. For higher throttle to shut off the air flow to the en- performance, an intercooler is sometimes placed between the gine—pressure waves can surge backto the turbochargerand dam- compressor and the engine’s inlet manifold. This lowers the tem- age the compressor. To prevent that a “blow-off” valve, which perature ofthe compressed airand raisesitsdensitystill further. In dumps surplus compressed air into the atmosphere, is fitted be- general, a turbocharged 1.8-litre four-cylinderpetrol engine can de- tween the turbocharger and the inlet manifold. liver the power and torque ofa naturally aspirated 3-litre six-cylin- On the exhaust side, a “wastegate” regulates the turbocharger’s derunit. By the same token, a turbocharged V6 can be more than a output by bleeding off some of the hot exhaust gas so that it by- match for a conventional V8. passes the turbine. This makes it possible to match the amount of Turbochargers are not to be confused with superchargers, energy the turbine receives to the amount the compressor needs, made famous by the 4.5-litre Blower Bentleys of the 1920s. While so only as much boost is produced as is required. With their more they serve broadly the same purpose—to squeeze more air into an sedentary nature, diesels avoid much ofthis complexity. engine—they function differently. Asupercharger does not rely on Numerous other tricks have been tried to make turbochargers an exhaust-driven turbine but is driven directly by the engine. Su- more responsive. Obviously, the smaller and lighter the rotating perchargers are better in one respect: they do not suffer from “tur- parts in a turbocharger are, the faster it can respond to changes in bo lag” (the time taken for a turbocharger to spool up to speed). the throttle setting. Unfortunately, small turbochargers quickly The disadvantage is that a supercharger robs the engine of power run out of puff. Bigger ones produce all the boost required, but are and, thermodynamically, it is nowhere near as efficient. slow to spool up to speed. A number of hybrid designs have Carmakers started to take turbocharging more seriously in emerged that combine the best ofboth worlds. 2010, after the American government announced that its CAFE (corporate average fuel economy) target would rise to 35.5 miles Two are better than one per US gallon (6.63 litres/100km) by the 2016 model year. Turbo- The most popular type today is the “twin-scroll” turbocharger. charged four-cylinder engines typically use 15% less fuel than larg- This works like a pair of turbochargers connected in parallel, one er, naturally aspirated, motors of comparable output. Also, with foreach oftwo separate exhaust manifolds. However, while using an abundant supply of oxygen to support combustion, the mix- a pair of turbochargers reduces turbo lag, it doubles the cost and ture in the cylinders gets burned more thoroughly. The result is a complexity of the installation. The twin-scroll design gets around cleaner exhaust all around. this by having two exhaust-gas inlets and two nozzles feeding a In Europe, where half of all cars and light trucks sold are diesel single turbocharger. One nozzle injects exhaust gas at a steeper an- models, the benefits of turbocharging are well understood. Be- gle to the turbine blades, for quick response, while the other in- cause dieselsignite theirfuel usingthe heatofcompression (rather jects the exhaust gas at a shallower angle, for peakperformance. than spark plugs), they need much higher compression ratios to Having two exhaust manifolds on a four-cylinder engine adds, function. To cope with the greater internal pressure, a diesel’s en- of course, to the cost. But by pairing cylinders so their power gine blockand cylinderhead, aswell asall itsreciprocating and ro- strokesdo notinterfere with one another, the two exhaust streams tating parts, are made much stronger, and thus are heavier. can be injected into separate spirals in the turbocharger, causing it Unfortunately, heavy rotating masses do not like being spun to spin more smoothly. Apart from making the turbine more effi- rapidly. As a result, diesels tend to operate in a lower, more narrow cient, this helps to improve the scavenging of burned gases from band of engine speeds. And because they spin relatively slowly, the cylinders, lowers the exhaust temperature (and thus emis- they neverget enough airneeded to fill the cylinders properly dur- sions of nitrogen oxides) and reduces the turbo lag still further. ing intake strokes, which is why diesel engines have long used tur- Small turbocharged engines mean that farfrom fearingthe depriv- bochargers to overcome their inherent shortness ofbreath. ations ofdownsizing, motorists could be pleasantly surprised. 7 10 Space rovers The Economist Technology Quarterly March 7th 2015

bly be made to work in gravity as low as a hundredth of that on Earth, says Issa A lightness of being Nesnas, head of the Robotic Mobility Group at NASA’s Jet Propulsion Laboratory in Pasadena, California. But in the far weaker microgravity of small bodies like asteroids and comets, they would fail to get a grip in fine regolith. Wheels might also hover above the ground, spinning hope- Microgravity rovers: Space vehicles that can operate in the ultra low-gravity lessly and using up power. So an entirely on asteroids and comets are having to employ novel locomotive systems different system of locomotion is needed forrovers operating in a microgravity. FTER hurtling more than 6 billion kilo- As luckwould have it, Philae fell back to Surprising as it may seem, one promis- Ametres through space for over a de- the surface and eventually came to a stop ing form of transportation in microgravity cade, the European Space Agency’s (ESA) where insufficient sunlight could reach its is a space hopper. These machines are probe Rosetta began orbiting comet 67P/ solar panels. The craft managed to deliver nothing like the bouncy toys made popu- Churyumov–Gerasimenko last year. In some data until itsbatteriesran out ofpow- lar in the 1970s-1980s. But they share the November the mother ship released its er 64 hours later. One day Philae might be same idea, because bouncing from one lander, Philae, which appeared to descend revived if 67P happens to move into more place to another has its advantages. to the surface successfully. But elation at sunlight. Even so, the difficulties the mis- the European mission-control centres soon sion encountered help to explain why The first hop turned to concern. Philae had bounced space agencies are putting so much effort No one has yet demonstrated if a space back up again due to a failure of the explo- into designing machines which are capa- hopper will work in space. But in a few sives-powered harpoons that were sup- ble of not only landing on bodies with mi- years that opportunity will arise. A space- posed to anchor it to the surface. The har- crogravity but also travelling around them craft loaded with fourrobotic hopping rov- poons were necessary because a small without flying offin all directions. ers blasted off from Japan’s Tanegashima body like a comet generates little gravity. Wheeled rovers have long trundled Space Centre on December 3rd. The mis- So little, in fact, that ifPhilae bounced faster across the Moon and Mars, but their gravi- sion, called Hayabusa 2, is being run by the than 44cm per second it was in danger of ties are merely low—a sixth and a third, re- Japan Aerospace Exploration Agency exceeding the comet’s escape velocity, the spectively, of that on Earth, which has an (JAXA). The aim is to collect samples from speed that an object needs to be travelling escape velocity of 11km per second. an asteroid called 1999 JU3 and return to breakfree ofa body’s gravity. Wheeled and tracked rovers could proba- them to Earth. The spacecraft will arrive at1 The Economist Technology Quarterly March 7th 2015 Space rovers 11

Until they are tested in a real microgravity no one can be sure these rovers will work

2 the asteroid in the summer of 2018 and will undertake. CNES will use spend abouta yearsurveyingit. Itwill then information from the Haya- move in extremely close to fire projectiles busa 2 survey of1999 JU3’s gravi- into the asteroid’s surface. This will throw ty and surface composition to up material which the spacecraft will suck calculate the swing-arm ve- in with a suction nozzle. locities needed for the most With a diameterofonlyabout1km, 1999 efficient hops, says Pierre JU3 has an escape velocity ofjust 32cm per Bousquet, head of micro- second. To hop across its surface the rovers gravity projects. will use a moving internal mass. The largest rover on board the Hayabusa 2 space- In free fall craft is a 10kg cube-shaped machine called The biggest challenge will be MASCOT (for Mobile Asteroid Surface Scout, getting the four rovers onto the and illustrated on the previous page with asteroid, says DLR’s Dr Ho. They must be its mother ship). MASCOT employs a ejected from the Hayabusa 2 mother ship weighted internal swing-arm, a bit like a at precise velocities and locations to free pendulum. An electric motor swings the fall to the surface from about 100 metres, gen and nitrogen—elements that were arm around and then suddenly brakes the she adds. Such separationsare tricky, asthe needed forlife to begin on Earth. movement. This jolt transfers inertia to the first Hayabusa mission showed. In 2005 its Asteroids that orbit near Earth can be body ofthe rover, pushing it down into the mother ship released a space hopper easier and cheaper to reach than many surface, which results in the machine named MINERVA 200 metresabove an aster- planets or moons. And because the escape bouncing up. To ensure that the rover oid called Itokawa. That was130 metres too velocities of small bodies are so slow, only drops back down again and does not drift far. MINERVA was not captured by the aster- a little fuel needs to be carried for a space off into space, its hopping speed will be oid’s gravity and floated offinto space. The vehicle to take off from one. Asteroids capped at about two-third’s of the aster- three MINERVA-II Japanese space hopperson could therefore serve as stepping stones to oid’s escape velocity. the current Hayabusa 2 mission are im- get astronauts into deep space, says Marco MASCOT was built by DLR, Germany’s proved variations ofthe lost original. Pavone, a Stanford University roboticist aerospace centre. Besides hopping it can If Hayabusa 2’s space hoppers work who is designing a microgravity space use its swing-arm to tumble over if it lands well such roverswould help to broaden ex- hopper for NASA. The rocks could also be the wrong way up. This is to ensure that its traterrestrial exploration, particularly on mined forelementssuch asoxygen and hy- instruments—a camera, magnetometer (to asteroids and comets. Scientists are inter- drogen to replenish supplies of water, measure magnetic fields), radiometer (to ested in these bodies because they are the breathable air and fuel. measure temperature and radiation), and purest remnants of the early solar system, The space hopperwhich DrPavone and an infra-red microscope (to study miner- unadulterated by many of the chemical his colleagues are working on (pictured be- als)—are all pointed in the right direction. and geological transformations that have low) sports three internal flywheels, one Hopping mechanisms such as these are taken place on planets. Some may contain for each axis of motion. Each flywheel is lighter and less intricate than wheeled and matter that predates the formation of stars. powered with an electric motor, so they tracked systems. And by hopping the rov- Many appear rich in complex organic mol- can reach different speeds. In order to hop, ers do not require detailed information ecules containing carbon, hydrogen, oxy- the inertial energy from each flywheel about the terrain to ensure safe routes. must be transferred to the robot’s frame Even if a space hopper lands on a sharp simultaneously. rock it is unlikely to damage itself, because Some microgravity space hop- in microgravity objects are a fraction of pers using a similar system are their weight on Earth. Hopping known as “hedgehogs” because of also requires less energy than their protective spikes. Once such turning wheels. The equivalent prototype built at the Jet Propulsion amount of power required to run Laboratory (pictured above) uses an iPad for not much more than 30 brakes to stop the flywheels. The Stan- seconds will toss MASCOT 70 metres or ford team are experimenting with an also, reckons Tra-Mi Ho, who leads the ternative method that delivers momen- project at DLR. tum more suddenly and with less energy To keep the €28m ($32m) rover small lost as braking heat. It uses a small metal and light enough to be carried by the part to snag each flywheel to an immedi- mother ship MASCOT does not have solar ate halt. Having multiple flywheels al- panels to recharge its batteries. These will lows hops to be more steerable and last for just 16 hours, the equivalent of precise. Benjamin Hockman, a me- two of the asteroid’s days and nights. So chanical engineer working on the pro- the rover has to packin a lot of workbe- ject, says hedgehogs could also be used to tween its hops. explore moons, such as Phobos, a Martian CNES, the French space agency, is ana- moon with a tiny microgravity. lysing data on Philae’s ill-fated bounces to A team at the University of Tokyo has better calibrate the hops which MASCOT gone about things in a different way. They1 12 Space rovers The Economist Technology Quarterly March 7th 2015

such a place because it could double as ity on Earth. Some components ofthe MAS- both the locomotion system and a landing COT system have been tested in a 146-metre mechanism, says Vytas SunSpiral, an drop tower in Bremen, Germany, which Ames roboticist. The structures, lacking uses a catapult to produce 9.3 seconds of rigid joints, are able to absorb large shocks near weightlessness. The Draper Laborato- without damage. Conventional rovers ry, an independent research centre in Cam- dropped on Mars are cushioned with ex- bridge, Massachusetts, tested the guidance pensive, elaborate and heavy airbag sys- and control systems on a space hopper tems. A Super Ball Bot could fall from orbit which it has developed during a reduced- orroll offa cliffand become its own airbag, gravity flight on board a NASA aeroplane says Dr SunSpiral. known as a “vomit comet”. But it will be Yet mobility in a microgravity will only one of Hayabusa 2’s space hoppers that take a rover so far. Sometimes they must may be the first to complete such a mis- stop and analyse samples. The reason the sion, although which rover that will be has Hayabusa 2 spacecraft will fire projectiles yet to be decided. into the surface of1999 JU3 to kick up samples is that drilling is not much of an op- Saving the planet tion. No robotic microgravity anchoring The importance of a successful deploy- system has yet been successfully used, and ment is higherthan you might imagine. For Digging its claws in without one it is the spacecraftor the rover, although they are designed for explora- rather than the drill bit, that would spin. tion, microgravity rovers might one day 2 have built a spherical space hopper that Giving rovers claws might be a solution. save Earth from a catastrophic collision generates motion with electromagnets. Aaron Parness, who works in the Jet Pro- with an asteroid. Many asteroids are com- Four electromagnets are fixed to the pulsion Laboratory’s “extreme environ- posed of loosely coalesced rocks and sphere’s inner wall and a small iron ball is ment” robotics lab has developed a mach- would be hard to push orpull into a safe or- suspended in the centre. Using battery ine which uses hundreds of tiny claws to bit. A paint job, however, might do the power to activate one or more electromag- grip the rough surfaces often found on bo- trick, reckons CNES’s Mr Bousquet. Just as nets results in the ball being pulled across dies like asteroids. The machine (pictured space hoppers rely on every action having to the side of the sphere. This imparts mo- left) is still under development but it has an equal and opposite reaction, light and mentum to the robot’sframe and thusiniti- the potential to climb vertical rock faces heat reflected off an asteroid’s surface ex- ates a hop. If more precision in hopping is and even creep along upside down on ertsa tinypressure. So increasingthe reflec- required then two additional electromag- overhead formations. tivity of the rocks would alter this gentle nets could be used. Such a set-up would Until they are tested in a real micrograv- pushbackand, over time, the asteroid’s tra- also allow the rover to roll along, says its ity no one can be sure these rovers will jectory. However they move, rovers that designer, Yoshihiko Nakamura. work. There is no practical way to fully rep- can operate in extremely low gravity may Rolling is another option for a rover op- licate a mission in a simulated micrograv- one day have a very important job to do. 7 erating in low gravity. One type, known as “structurally compliant” rovers, are designed specifically to roll along. These are constructed from a latticeworkofrigid rods connected with elastic cables. Mechanical actuators are used to shorten and lengthen the cables, so that the rovers change shape as they repeatedly tip over in the direction they want to go. Although more jerky than graceful, little traction is needed resulting in a “punctuated rolling motion”, says Al- ice Agogino, a NASA-funded researcher workingon such a project at the University of California, Berkeley. The rovers’ instruments and power supply would be suspended in the centre ofthe structure. A partner team at NASA’s Ames Re- search Centre is developing structurally compliant rovers they call Super Ball Bots (one of which is pictured right). The researchers hope their robots could be used on Phobos orTitan, one ofSaturn’s moons. The two moons differ greatly. With a sev- enth of Earth’s gravity, Titan could be tra- versed with a conventional wheeled rover. A Super Ball Bot, however, makes sense for Rocking and rolling along The Economist Technology Quarterly March 7th 2015 New food 13

a way to use plant protein instead of animal protein there’san enormouseﬃciency Silicon Valley in terms of the energy, water and all sorts of other inputs involved—which translates atthe end ofthe dayto savingmoney,” says gets a taste Ali Partovi, a San Francisco-based entrepreneur and investor in tech startups, such as Dropbox and Airbnb, as well as half-a- for food dozen sustainable-food companies. The problem is many people shun veg- etables and prefer to eat meat or dairy products. Dr Brown and others think the solution is to mimic the taste of meat and other animal-derived foods with plants and take the animal out ofthe equation. In theory at least, there would be plenty of food for everyone and fewer resources needed to produce it. “We’re reinventing the entire system of transforming plants into meat and milk,” he says. Other startups have similaraspirations. Beyond Meat, which makes plant-based chicken strips and beef “crumbles”, is already selling its products in stores. As is Hampton Creek, whose eggless mayonnaise has become a bestseller at Whole Foods Market, a big American chain.

Beyond vegetarianism Of course, the food giants already offer a variety of meat and dairy alternatives that many vegetarians and vegans buy. What is different with this new approach is that the startupsare nottargetingthe small percent- PLANT-BASED hamburger patty that age ofthe population who largely live on a Ableeds. Meatless chicken strips with plant-based diet already. They are after the same fleshy and fibrous texture as Green food: Tech startups are moving people who love meat and dairy products, cooked poultry. Mayonnaise made with- into the food business to make and that means replicating the meaty, out eggs that is creamy and smooth. And a sustainable versions of meat and cheesy or creamy flavours and textures vegan beverage that contains all the ingre- dairy products from plants that so many people crave. “We want to dients for human sustenance, making it have a product that a burger lover would unnecessary to bother eating ordinary such startup, Impossible Foods, based in say is better than any burger they’ve ever food every again. Hungry yet? Redwood Cityin the heartofSilicon Valley. had,” says Dr Brown. These are the offerings from a recent It has raised $75m to develop plant-based This is also different from “growing” crop of Silicon Valley-funded startups meat and cheese imitations. meat in a laboratory using tissue engineer- which are trying to change the way people According to the United Nations, live- ing, which involves culturing cells taken eat. The idea ofmaking such products is at- stock uses around 30% of the world’s ice- from live animals. Modern Meadow, a tracting entrepreneurs and venture-capital free landmass and produces 14.5% of all New York company, is working on this firms who think that the traditional food greenhouse-gas emissions. Making meat technology, although its more immediate industry is ripe for disruption because it is also requires supplying animals with vast aim is to grow unmarked cultured leather. inefficient, inhumane and in need of an amounts of water and food: in the United Introducing a new food category is overhaul. The companies have different States producing 1kg of live animal weight risky as it takes a lot oftime and money. Big approaches, buttheyshare the ambition of typically requires 10kg of feed for beef, 5kg food firms preferto acquire innovative pro- creating new plant-based food that they for pork and 2.5kg for poultry. Yet between ducts rather than develop them internally, say will be healthier, cheaper and just as now and 2050, the world’s population is explains Barb Stuckey, chief innovation of- satisfyingasmeat, egg, dairyand other ani- expected to rise from 7.2 billion to over 9 ficer at Mattson, a California-based food mal-based products—butwith a much low- billion people—and the appetite for meat and beverage consultancy which has deer environmental impact. to grow along with it. To keep up with developed many new products. “It may take “Animal farming is absurdly destruc- mand, food production will need to in- someone from outside the food industry to tive and completely unsustainable. Yet the crease significantly. really disrupt it,” reckons Ms Stuckey. And demand for meat and dairy products is go- It is a big challenge, but also an eco- Silicon Valley has enough hubris to do so. ing up,” says PatrickBrown, founder ofone nomic opportunity. “Anytime you can find The businesshasalreadyattracted a fair1 14 New food The Economist Technology Quarterly March 7th 2015

“Change happens by making something so delicious and so aﬀordable, everyone chooses it”

2 share of famous venture-capital firms and investors, including Kleiner Perkins, Goo- gle Ventures, Andreessen Horowitz, Khosla Ventures, Bill Gates and others. “If we can provide [plant-based] food that’s healthier, tastes equal to better, at an equal to lower cost, it’ll go everywhere,” says Khosla’s Samir Kaul. Ifthe companies they are backing succeed, the returns could be massive. The US beef industry alone is worth $88 billion. And even for condi- ments, such as mayonnaise, the market to- tals $2 billion. Still, not everyone is bullish on the prospects. These are high-risk en- deavoursand some ofthem mightfail, cau- scribed the taste of the very first prototype meat has a masculine bent to it. You can’t tions Michael Burgmaier of Silverwood as “rancid polenta”. Recent versions have sell it the same way you sell lettuce,” says Partners, an investment bank involved in been reviewed much more favourably as Mr Brown. Hence the company is building dozens of food and beverage deals. The “better than a turkey burger”. In terms of the brand with images of vitality, fitness question is, he says: “Isthe consumerready nutrition, the patty’s protein content may and health. In promotions it is using ath- forsome ofthese products?” be slightly higher than that of a conven- letes. David Wright, captain of the New Impossible Foods’ Dr Brown thinks tional burger and have at least as many mi- York Mets baseball team, has already they are. The inventor of a DNA chip now cronutrients. Because it is made from signed up. In return, he is getting a small widely used in gene-expression analysis, plants, it will not contain any traces ofanti- stake in the company. his firm has been developing meat and biotics, hormones or cholesterol. The com- Still underdevelopmentiswhatmay be cheese imitations from plants for three pany hopes to start selling the burger be- Beyond Meat’s most ambitious product to years. Formeat, the aim isto recreate itskey fore the end ofthis year. date—a raw ground beef equivalent which components—muscle, connective and fat it hopes will be offered in supermarkets’ tissue—using suitable plant materials. The Getting the flavour meat sections right next to actual beef. Due company’s first product, a hamburger pat- Beyond Meat, based in Southern Califor- for release later this year, it can be cooked ty, already looks and cooks like meat, and nia, has also been studying the compo- and moulded into a meatloaf or meat- will taste as good or better by the time it nents ofmeat to emulate its texture and fla- balls—or, as Mr Brown hopes, even sup- reaches the shops, Dr Brown promises. vour. “We’re smart enough now to plied to a fast-food chain to make burgers. To do this he has assembled a team understand the architecture and the com- San Francisco-based Hampton Creek comparable to one at a biotech or pharma position of a piece of muscle,” says Ethan has replaced eggs with plant proteins in company. It is largely made up of molecu- Brown (no relation to Dr Brown), the com- the products it has released so far. Its Just lar biologists and biochemists, as well as pany’s CEO. The firm’s flagship product, Mayo and Just Cookie Dough are now dis- some physicists; only a few members of Beyond Chicken Strips, has been on sale tributed in 30,000 stores, including Kroger his staffhave a background in food science since 2012, and hasa surprisinglyauthentic and Walmart. Other items in the works in- orhave culinarytraining. In the company’s feel when eaten. When several Whole clude a ranch salad dressing, a scrambled- laboratoryscientistsbreakdown plant ma- Foods Markets accidentally sold misla- egg alternative and pasta. The goal is to terials and extract individual proteins with belled chicken salads with the company’s create products that make it easy for people functional properties that can, for exam- plant-based strips there were no com- to choose sustainable plant-based foods ple, make foods firm up or melt down dur- plaints. Only when an employee discov- over conventional items. “Change hap- ing cooking or baking. ered the mix-up after two days were the pens by making something so delicious The company has also spent a lot of salads officially recalled. The product’s tex- and so affordable, everyone chooses it,” time working out what gives meat its un- ture is based on years of research at the says the firm’s boss, Josh Tetrick. ique flavour. According to Dr Brown, the University of Missouri, and it can now be To accomplish this, Hampton Creek has secret to a burger’s taste is haem, a com- created in a processthattakeslessthan two assembled a team that includes experts in pound found in all living cells, including minutes. An extruder rapidly heats, cools biochemistry, bioinformatics and food sci- plants. It is especially abundant in haemo- and pressurises a mixture of proteins and ence along with a number of chefs. Scien- globin in blood, and in muscle tissues as otheringredientsinto a structure that mim- tists extract and isolate proteins from plant myoglobin. It also gives a burger its red col- ics the fibrous tissue ofmuscle. materials and conduct basic biochemical our. During the cooking process haem acts The company’s most recent product, studies to understand their characteristics as a catalyst that helps transform the ami- the Beast Burger, was released last month. and possible applications for a variety of no acids, vitamins and sugars in muscle tis- It has more protein, more iron and is over- foods. The promisingones are tested in rec- sue into numerous volatile and flavourful all more nutritious than actual meat bur- ipes in the company’s bakery and culinary molecules, he explains. To create the gers. “The entire quest for meat in human sections to see how they perform. meatyflavourin itsburgerpatties, the com- evolution is really about a nutrient-dense So far, Hampton Creek has analysed pany uses a heme protein equivalent to source of food,” explains Mr Brown. “I more than 7,000 plant samples and identi- one found in the roots oflegumes. wanted to build on that theme.” fied 16 proteins that might prove useful in Development of the burger has come a But marketing plant-based burgers to food applications. Several are already be- long way. Dr Brown says one person de- carnivores is not easy. “My view is that ing used in its commercial food products, 1 The Economist Technology Quarterly March 7th 2015 New food 15

“It’s much easier to make a cookie dough without egg than it is to create a scrambled egg without egg”

2 including a type of Canadian yellow pea egg,” says Mattson’s Ms Stuckey. In a cook- search ofcheaper office space. in itsmayonnaise. The team are looking for ie dough ormayonnaise there are plenty of Some users of the first version of the proteinswith functional propertiessuch as other ingredients to work with. But in cre- beverage complained of flatulence be- foaming, gelling and moisture retention. ating an egg or meat analogue there is a cause of the high fibre content. That pro- Mayonnaise, for example, requires a sub- higher bar in the consumer’s mind, she blem has now largely been solved by stance that binds the right amount of oil adds, because the product is not combined changing the carbohydrate blend and add- with water to create a stable emulsion. For with other ingredients it can hide behind. ing some digestive enzymes. Mr Rhinehart its version in stores the company tested Perhaps the most radical approach to likensthe improvementsto the continuous more than 1,500 different formulations. disrupting the food industry comes from updates to software that tech companies Dan Zigmond, the former lead data sci- Soylent, whose beverage is designed to be make. Soylent 1.3, the most recent version, entist for Google Maps and now Hampton a complete substitute for food and not just has a smoother texture than the original, a Creek’s vice-president of data, is in charge one of the many diet drinks or nutritional more neutral taste and its omega-3s now ofsimplifying the process offinding useful supplements. Sold as a powder to be come from algae as opposed to fish oil. proteins. There are an estimated 400,000 mixed with water, it contains all the ingre- plant species in the world, each of which dients needed for sustenance, says Rob Out with the dishes may have tens ofthousands ofproteins. To Rhinehart, Soylent’s founder. It also elimi- Mr Rhinehart himself uses Soylent for search this vast number more efficiently, nates the need to plan meals, cook and about 80% of his dietary needs. As a result his team are feeding data the company has clean up afterward. “I see it as a life-simpli- he has not made a trip to the grocery store already gathered into machine-learning fication tool,” he says. in years. He owns neither a fridge nor dish- models, which are designed to predict The name originates from the sci-fi nov- es. And he has turned his kitchen into a li- which types of proteins could be useful in el “Make Room! Make Room!” in which brary. “I’ve also been able to separate the specific food applications without having people in an overcrowded, apocalyptic feeling of biological hunger from the crav- to go through all the biochemical tests. world live on foods made of soy and len- ing of food from an experiential aspect,” Last October Unilever, a consumer- tils. (A twist in the movie version “Soylent explains Mr Rhinehart, who still enjoys goods giant, sued Hampton Creek for false Green” isthatitssecretingredient ishuman “recreational food” on occasion. advertising, saying its product should not flesh.) The company moved from the San As of mid-February his firm had a four- be called “mayo” because it does not con- Francisco area to Los Angeles in late 2013 in to-five-month backlog fornew orders. Cus- tain eggs. (Based on food standards from tomers subscribe online to receive month- America’s Food and Drug Administration ly shipments with a “meal” costing that date back to 1938, mayonnaise in- roughly $3. According to Mr Rhinehart, his cludes eggs.) Unilever also complained company is already profitable and will use that the plant-based product had taken a recent $20m cash infusion to expand pro- market share away from its well-known duction and sales. brand Hellmann’s, which is made with Mr Rhinehart is, to put it mildly, a little eggs. Some people sawthe lawsuitasa friv- extreme. Not everyone may want to sepa- olous food fight in which a big company rate eating into utility versus pleasure. Im- tries to bully a fledgling one. Andrew Zim- possible Foods’ Dr Brown does not believe mern, a celebrity chef who had preferred such a compromise is necessary. “I don’t Just Mayo over Hellmann’s in a blind taste- see any reason why you can’t have it all— test, even started an online petition to urge the besttastingfood, healthiest, best forthe Unilever to drop the lawsuit. It gathered planet and most affordable.” over100,000 signatures. Buteven ifthe scientifichurdles ofmak- “This was great for Hampton Creek be- ingplants taste like meat and otheranimal- cause it got their name out there and peo- based products are overcome, the bigger ple on their side,” says Matthew Wong, a obstacle these companies face may be cul- research analyst at CB Insights, an analy- tural. People have been eating meat and tics firm. Initially Unilever demanded that having meals together for thousands of Hampton Creek rename its product, take years. Meat in particular is not only prized existing inventory off the shelves and pay for its taste but also perceived as a force of damages. But in December, the company vitality, strength and health. suddenly dropped its lawsuit. It was on the Arecentstudybythe Humane Research same day that Hampton Creekannounced Council, an animal advocacy group, says its latest funding round of $90m, bringing most vegetarians and vegans, about 2% of its total raised to $120m. America’s population, go back to eating Hampton Creek has been successful meat eventually. In the future that may not with the productsitalreadysells. However, be an option. “We can’tsustain the number it is not trying to build a burger patty from of people that we’re going to need to feed scratch with plants, as Impossible Foods is over the next couple of decades with the trying to do, and it has not yet released its current way that we’re eating, ” says Ms scrambled-egg replacement. “It’s much Stuckey. Whether out of necessity or easier to make a cookie dough without egg choice, Silicon Valley’s vision of a big shift than it is to create a scrambled egg without to plant-based foods may be inevitable. 7 16 Brain stimulation The Economist Technology Quarterly March 7th 2015

and Parkinson’s disease, control cravings for alcohol and drugs, repair stroke damage, and accelerate recovery from brain injuries, to say nothing of improving memory, reasoning and fluency. Remarkably, some effects seem to persist for days or even months. And the closer that scientists look at tDCS, the more they seem to find. Scientific papers about the technology appear at an ever-faster rate. Hardly surprising, then, that DIY brain hackers want in on the action. Christopher Zobrist, a 36-year-old entrepreneur based in Vietnam, is one of them. With little vision he has been registered as blind since birth due to an hereditary condition of his optic nerve that has no established medical treatment. Mr Zobrist read a study of a different kind of transcranial stimulation (using alternating current) that had helped some glaucoma patients in Germany recover part of their vision. Despite neither the condition nor the treatment matching his own situation, Mr Zobrist decided to Hacking your brain try tDCS in combination with a visual training app on his tablet computer. He quickly noticed improvements in his distance vision and perception of contrast. “After six months, I can see oncoming traffic two to three times fartheraway than be- Neurostimulation: With a DIY bundle of electronics or a ready-made device it fore, which is very helpful when crossing is possible to stimulate the brain. But does it work and is it safe? busy streets,” he says. Online communities dedicated to tDCS T’S like coffee timesten,” raves one en- boost their memory, speed up learning or are full ofsimilarstories. More still claim to “Ithusiast. “I use it a couple of times a induce meditative calm. Yet more are try- have gained cognitive enhancements that week and problems solve themselves. At ing to self-medicate for conditions such as give them an edge at work or play. Users the end of the day, I haven’t wasted hours depression, chronic pain and motor, sen- follow the latest scientific papers avidly on frivolous websites. At the end of the sory or neurological disorders. The bene- and attempt to replicate the results at week, my apartment is clean.” This marvel fits might sound implausible, but there is home, discussing the merits of different of productivity is not a new energy drink some science to support them. The idea currents, waveforms and “montages” (ar- oran experimental wonderdrugbut a sim- goes back a long way. Scribonius Largus, a rangements ofthe electrodes on the skull). ple electrical device that he built at home first-century Roman physician, prescribed Dissenting voices are rare. Here and for less than $10. Whenever this physicist the shock of an electric ray for headaches, there are tales of people who experienced feels like an extra burst of motivation, he and in the 19th century electrical pioneers headaches, nausea, confusion or sleepless- places electrodes on his skull and sends a such asLuigi Galvani and Alessandro Volta ness after tDCS, while temporary visual ef- jolt ofelectricity into his brain. toyed with crude bioelectric experiments. fects and mild skin burns are fairly com- The currents, which are typically ap- It was not until the 1960s, however, that the mon. There have been no reports of plied forten to 20 minutes, are hundreds of first rigorous studies of electrical brain seizures, serious injuries ordeaths. But that times smaller than the seizure-inducing stimulation tookplace. does not mean it is without risk, says Peter shocks used in electroconvulsive therapy. Reiner, co-founder ofthe National Core for Plans to make such transcranial direction Directing the flow Neuroethicsatthe UniversityofBritish Co- current stimulation (tDCS) machines are The theory behind tDCS is that a weak di- lumbia. He says DIY users may place elec- freely available online and their compo- rect current alters the electric potential of trodes incorrectly, thus stimulating the nents can be bought at hobbyist stores. Kits nerve membranes within the brain. De- wrongpart oftheirbrain, orreverse the po- cater to those lacking soldering skills, and pendingon the direction ofthe current, it is larity of current, potentially impairing the now companies are emerging offering said to make it easier or more difficult for very things they are trying to improve. No nicely designed and packaged brain zap- neurons in a brain circuit to fire. Position one really knows how tDCS interacts with pers formainstream consumers. the electrodes correctly and choose the chemical stimulants or recreational drugs Not everyone using tDCS is seeking to right current, so the idea goes, and you can like marijuana, or with pre-existing condi- become more efficient in their daily life. boost or suppress all kinds of things. Some tions like epilepsy. Even something as fun- Some hope to enhance their concentration researchers have reported that tDCS can re- damental as being left-handed can alter for study or video gaming; others want to duce pain, ease depression, treat autism the functional organisation of the brain. 1 The Economist Technology Quarterly March 7th 2015 Brain stimulation 17

Happiness and health may always be more than just a 9-volt battery away

2 And if the benefits of tDCS can persist for But it wants supplying brain zappers to well do something, exactly what is open to weeks, perhaps its side-effects can linger, children to be made illegal. Last year the question. As the hype around tDCS grows, too. Many neuroscientists are particularly FDA allowed transcutaneous electrical some neuroscientists are starting to ques- worried that the use of tDCS by children nerve stimulator (TENS) machines for tion whether the technology really is the and young adults could affect their long- headache relief as it rated them as low-to panacea it appears to be. term neural development. moderate-risk devices. TENS devices use a In 2013 Teresa Iuculano and Roi Cohen Some of these concerns can be ad- different waveform to tDCS and target cra- Kadosh of the Department of Experimen- dressed by manufacturing tDCS devices to nial nerves rather than the brain itself, but tal Psychology at the University of Oxford make it difficult, or impossible, to exceed they rely on a similar controller and head- split volunteers up into three groups and recommended currents or to apply the mounted electrodes. Before allowing new asked them to learn a made-up mathemat- electrodes incorrectly. One such product TENS products to be sold, the FDA now ical notation system. The first two groups already exists. The Foc.us V2, made by wants to see evidence that the compo- received tDCS to different parts ofthe brain Transcranial, a London company, is adver- nents are not likely to cause injury, that the previously associated with numerical un- tised as a $199 pocket-sized controller that controller can reliably provide the correct derstanding and learning, while a non- pairs with a $99 headset intended to help output, that there are no thermal or me- functional “sham” device was used on the with concentration and reaction speed chanical hazards, and that clinical data third group as a control. After a week, all while videogaming. Donning the headset demonstrate the device is safe and effec- three groups were tested on how well they automatically positions the electrodes on tive as a headache treatment. Recent draft had learned the new notation system, and the left and right temples, and both the du- FDA guidelines for wellness devices sug- whether they could use it in practice. The ration and maximum current are capped. gest tDCS machinesmayeventuallybe reg- first group showed an improvement in A second headset provides a different ulated in a similar way. learning compared with the control group, montage aimed at improving performance but a decrease in their ability to apply their and motivation while exercising. Going underground knowledge, while the second group expe- In reality, however, there is no guaran- The University of British Columbia’s Dr rienced the opposite result. This suggests tee that even slick products are any safer Reiner doubts that any manufacturer to- that the brain is actually rather well bal- than a pocket-money brain stimulator as- day can provide such information for anced: boost performance in one cognitive sembled at home from a 9-volt battery, tDCS. Even ifthey could, the cost of gather- realm through stimulation, and aptitude in electrodes, a few wires and other compo- ing it would make consumer devices more another will naturally diminish. nents. Unlike the tDCS machines used for expensive. “When you can make a tDCS There is also the possibility that a varia- medical trials and clinical research, con- device yourself for less than $20, we tion in individual responses to tDCS will sumer versions may not have been as- would advise strongly against heavy regu- overshadow any general effects. In a study sessed by any official body for safety or ef- lation because it will only drive the tech- published last year, Dr Cohen Kadosh set fectiveness. Ifthe maker insists they are for nology underground,” he says. up two groups: one of people who were use only by healthy adults to enhance cog- Proving the effectiveness of brain stim- anxious when presented with mathemati- nition or leisure activities and make no di- ulation will be difficult. Although it may cal problems, and another who had confi- agnostic or therapeutic claims, such “well- dence in their ability to breeze through nu- ness” devices have slipped under the merical quizzes. When treated with tDCS regulatory radar of both the Medical De- to their prefrontal cortices, the nervous in- vices Directive in Europe and the Food and dividuals improved their reaction time on Drug Administration (FDA) in America. simple arithmetical problems and showed That worries some experts. A recent pa- reduced levels of stress. Given the same per from the Institute for Science and Eth- treatment, the confident group had longer ics at the University of Oxford points out reaction times and no less stress. “If you thatconsumertDCS productsare mechani- can get exactly the opposite results with a cally and functionally equivalent to medi- different population, that shows DIY brain cal neurostimulation devices that require hackers and companies marketing stimu- licensing. Why regulate the version that is lation to improve gaming or other abilities likely to be operated responsibly by health are not on the right track,” says Dr Cohen professionals, and not the one freely avail- Kadosh. “We need to understand how the able to unskilled and inexperienced users? brain works in different people.” The Nuffield Council on Bioethics agrees, Felipe Fregni, directorofthe Laboratory recommending in 2013 that the European of Neuromodulation at Harvard Medical Commission should consider regulating School, saystDCS hasbeen shown to accel- all such gadgets under its medical devices erate the learning of new skills. But he regime, regardless of the purposes for agrees that individual variation is impor- which they are marketed. tant, noting that younger people some- The Institute for Science and Ethics pro- times do not improve as much as older poses a graded regulation system that errs subjects, and that people at later stages of on the side of consumer choice for tDCS learning may even experience detrimental devices, requiring comprehensive, objec- effects. “The more science you know, the tive information about risks and benefits more confused you can become of what to allow users to make informed decisions. really is the effect oftDCS,” says Dr Fregni. 1 18 Brain stimulation The Economist Technology Quarterly March 7th 2015

2 One advantage ofthe deluge ofscientif- nitive processes like working memory. ic papers is that they can be subjected to While Thync’s stimulator is not yet avail- meta-analysis, whereby studies can be sta- able to the public, the firm was willing to tistically combined to tease out new dis- give your correspondent a pre-launch trial. coveries. Last year, Jared Horvath, a neuro- The Thync device attaches with one scientist at the University of Melbourne in sticky electrode on the right temple and Australia, published a meta-analysis of 30 one behind the right ear. The unit is con- measurements taken during tDCS studies, trolled via a smartphone app, with the including neural responses, oxygen levels user able to adjust the intensity but not the and electrical activity in the brain. Surpris- duration of the session. At first, the unit ingly, he found that tDCS had a reliable ef- generated a barely perceptible crawling fect on only one: the electrical response of feeling on the skin near the electrodes, muscles to stimulus, and even that has building gradually to a pronounced tin- steadily declined in studies over the last 14 gling sensation. Over the 20-minute ses- years. Mr Horvath believes this indicates sion, the strength of the signal varied up that the response has historically been and down according to a preset routine. It measured poorly and that it too will even- felt itchy at times and, at its most powerful, tually disappear as techniques mature. caused muscles in the forehead to spasm Equally troublesome is a meta-analysis nology look as though it is doing nothing alarmingly. Although the experience was ofthe cognitive and behavioural effects on when in fact it has real but opposing effects not altogether unpleasant, any extra ener- healthy adults that Mr Horvath subse- in different people. Mr Horvath insists that gy or focus proved, alas, elusive. Dr Tyler quently carried out. As before, he included his analysis allows forthis possibility. acknowledged that perhaps one in four only the most reliable studies: those with a Critics might also wonder why Mr Hor- people do not perceive any immediate sham control group and replicated by oth- vath omitted tests where tDCS seems to benefit from the device. er researchers. It left 200 studies claiming have been most effective, in alleviating, for Even for those who find themselves to have discovered beneficial effects on instance, clinical conditions such as de- susceptible to itscharms, the challenges for over 100 activities such as problem solv- pression. He admits that would be useful a product like Thync are formidable. The ing, learning, mental arithmetic, working but says, “If something doesn’t demon- cognitive enhancements of a strong cup of memory and motor tasks. After his meta- strate any type of effect in healthy people, tea or a glass of vintage Burgundy are well analysis, however, tDCS was found to have it becomes incredibly difficult, if not im- established. And partaking of them can be had no significant effect on any ofthem. possible, to argue why it would workwith- socially acceptable, deliciously enjoyable If tDCS alters neither the physiology of in a clinical population.” and rapidlyachieved. None ofthese can be the brain nor how it performs, thinks Mr Not all neuroscientists are defending said of a disconcerting gizmo that needs Horvath, then evidence suggests it is not the status quo. “I’m not surprised that he half an hour to work and causes eyebrows doinganythingatall. Marom Bikson, a pro- found no effect from conventionally ap- to raise, both literally and socially. fessor of biomedical engineering at City plied tDCS,” says Jamie Tyler, a professor at Regardless of their questionable utility University of New York, disagrees. “I can Arizona State University and one of the and effectiveness, tDCS gadgets are too literally make you fall on your butt using founders of Thync, a Silicon Valley startup novel, cheap and alluring to simply dis- the ‘wrong’ type of tDCS,” he says. Dr Bik- that recently unveiled a smartphone-con- miss. Consumer-wellness devices like son thinks the biggest challenge fortDCS is trolled tDCS device. Thync tried to repli- Thync may appeal to those who cannot optimising techniques, such as the dose. cate some basic tDCS findings on cognition use caffeine or alcohol for medical or reli- Mr Horvath notes that many papers but could not do so. Dr Tyler now believes gious reasons, and there will always be measure 20 or more outcomes, with brain that tDCS may not directly stimulate the healthy overachievers seeking to super- stimulation showing a weak effect on one brain at all but instead modulates cranial charge their cognition for study or work. or two. “But in the title and abstract, that’s nerves in the skull, like the headache-bust- More importantly, tDCS presents the tanta- all they talk about,” he says. “No one men- ing TENS technology. He designed the lising promise of relief from some medical tions the tons of effects that tDCS didn’t Thync device, a pocket-sized unit with dis- conditions for which traditional therapies have an impact on but that technically it posable pre-shaped electrodes, to target are either ineffective or unaffordable. As should have ifitisdoingwhatthe research- these nerves with the aim of generating ei- the University ofMelbourne’s Mr Horvath er thinks it is.” ther relaxed or energetic mental states. says, “If there are ten percent of people Another problem might be the small who are feeling a huge effect, even if that’s sample size, sometimes as few as ten or 15 A shot of caffeine placebo, who are we to say no to them?” people. Mr Horvath says future studies Dr Tyler recently published a study of 82 If people want to experiment with should use at least150 subjects. There is, of people with a control. Its results suggest tDCS, there seems to be no reason to pre- course, the possibility that Mr Horvath’s that Thync’s device can reduce psycho- vent them, provided it is done in the safest analyses are flawed. His paper included physiological stress by altering skin con- way possible. Devices could be regulated only one-off sessions, while many scien- ductivity (a measure used in pseudoscien- lightly with a view to safety rather than ef- tists believe the effects oftDCS accumulate tificlie detectors), stressenzymesand heart fectiveness, and neuroscientists encour- with repetition. However, too few multi- rate variability. He likens Thync’s “modi- aged to design future studieswith more rig- ple-session studies exist for a valid meta- fied tDCS” programs to ingesting either a our. Happiness and health may always be analysis. Dr Cohen Kadosh points out that third of a cup of coffee or a glass of wine, more than just a 9-volt battery away, but individual variations could make the tech- and says no effect has been found on cog- brain hacking looks like it is here to stay. 7 The Economist Technology Quarterly March 7th 2015 Brain scan 19 Medicine by numbers

start chemotherapy within six weeks of their operation forthe best chance of Susan Ellenberg is a biostatistician catching any remaining cancer cells. Those trying to avoid mistakes in an era of who missed the deadline were automati- Big Data and high-tech personalised cally excluded from the analysis. medicine Dr Ellenberg realised that most reasons for starting treatment late, such as a slower F WE didn’t take any risks, we recovery from surgery because ofold age “Iwouldn’t approve any drugs,” says or a particularly large tumour, would Susan Ellenberg, a professor ofbiostatis- probably mean a poorer prognosis regard- tics at the University ofPennsylvania. less ofany subsequent treatment. Exclud- “Some people will always want a new ing those people would leave the chemo- drug sooner and say they’re willing to take therapy group with healthier members on a chance. Others will ask, why didn’t you average, making a drug lookbeneficial study it longer and find out about this even ifit did nothing. Dr Ellenberg insisted horrible side-effect?” that the investigators trackeveryone who During her long career, Dr Ellenberg had been randomised into the study, even has used data to quantify and communi- ifthey were treated late or not at all. cate those risks. Along the way she has In 1988, Dr Ellenberg became the first helped to shape a discipline that owes as chiefofbiostatistics for AIDS at the US much to ethics and philosophy as it does National Institute ofAllergy and Infec- to pure mathematics. Now medicine is tious Diseases. She arrived at a desperate entering a new digital age, one ofBig Data time. HIV appeared to be a death sentence, and high-tech personalised treatments patients were demanding treatments, that are tailored to an individual’s genetic however unproven, and doctors were make-up. But more data does not necessar- struggling to catch up. With most infec- ily mean better data, so amid the increas- tious diseases, patients could be treated ing complexity it will be as important as and followed up within weeks to see ever to measure correctly which treat- whether the pathogen had disappeared. ments workand which do not. With HIV/AIDS, they might have to mon- It is a job Dr Ellenberg is well suited to. itor trial members foryears to see who She has already played a big part in im- lived and who died. proving the data-monitoring committees that now oversee virtually all clinical Measuring surrogates trials; she has helped establish standard Dr Ellenberg championed a concept called practices fortracking dangerous treat- surrogate endpoints that she had pioneer- ments; and she has encouraged patient ed in cancer trials. These are biochemical lobbies to find a voice in clinical testing. measures that can indicate quickly wheth- But Dr Ellenberg nearly missed becom- er a patient in a trial is likely to improve, ing a statistician at all. As a high-school remain stable or deteriorate in the long- maths teacher in the 1970s, she tooka term. For example, blood pressure can be a summer job analysing clinical trial data. surrogate endpoint forcardiovascular Luckily, she became so engrossed that she mortality. The challenge with AIDS was quit her job and returned to graduate working out which ofdozens ofbiological school fora doctorate in statistics. The markers had the best predictive value. Dr basics ofrandomising subjects into differ- Ellenberg helped narrow these down to ent groups and leaving the patient (and ones that were strongly associated with ideally health-care workers as well) un- long-term survival, such as CD4 white- aware ofthe treatment each was receiving blood-cell counts. “I wish I could tell you were well known. However, there were that led to wonderful results and now we still plenty ofmistakes being made. know how to do it,” she says, “But we’re “In the old days, people used to throw still limping along.” out some oftheir data,” says Dr Ellenberg. The problem is that a surrogate for one “Ifa patient didn’t comply with their treatment may not workwith another, treatment, the researchers would say, how either because the second treatment func- can they possibly contribute to the questions differently or has side-effects. But it tion ofhow that treatment works? So they was still a step forward, allowing investi- just dropped them.” In one case Dr Ellen- gators to screen potential drugs more berg worked on in the 1970s, doctors want- quickly. Nothing could be fast enough for ed to test whether chemotherapy could some activists, however, who wanted help people recovering from colon cancer early access to anything that might slow surgery. The study required patients to the progression ofAIDS. “The clinical 1 20 Brain scan The Economist Technology Quarterly March 7th 2015

Without the right analytical methods, more data just gives a more precise estimate of the wrong thing

2 leadership was unwilling to talkwith serious. But we’re not doing anybody any harder to spot. Nevertheless, Dr Ellenberg activists at that point,” says Dr Ellenberg, favours ifwe don’t find out whether these believes statistics can help by integrating “But I saw that the Act Up group in New drugs or vaccines actually work.” evidence from other trials. Yorkhad a very carefully thought-out set Much ofDr Ellenberg’s workat the FDA Dr Ellenberg continues to workon ofprinciples fordoing AIDS trials.” focused on the safety ofmedicines, partic- surrogate endpoints and clinical trials, Dr Ellenberg welcomed Act Up to her ularly vaccines, once they were on the including a new study testing an innova- statistical working group on AIDS, and market. No clinical trial can ever catch the tive approach to attacking HIV. She also changes began to trickle through. Until rarest side-effects but tracking those down recently travelled to Botswana to help then, some studies had not allowed trial from sporadic reports, anecdotes and statisticians and clinicians there develop patients to take drugs other than the one coincidences is incredibly difficult. She their own biostatistics programmes. Like being tested, even though many AIDS notes that most infants are vaccinated and most medical academics, Dr Ellenberg sufferers needed a cocktail ofmedications sometimes children get very sick. But is it would like to see an end to the practice of to fight opportunistic infections. Dr Ellen- the vaccine or just coincidence? “I was some pharmaceutical companies quietly berg showed that a study could deliver trying to make something out ofthe worst, burying trial data that is inconvenient to useful results while allowing its members dirtiest kind ofdata that you could pos- them. Thousands ofclinical trials have to continue with life-saving medicines. sibly imagine,” adds Dr Ellenberg. never been registered with oversight Patient groups are now routinely involved The arrival ofelectronic medical re- agencies and results from around half of in planning clinical trials. cords and the advent ofBig Data promises all clinical trials (often those with unfa- The role ofplacebos in clinical testing massive statistical analyses that can un- vourable results) remain unpublished. was a thornier problem. The most reliable cover everything from uncommon side- Making that data available to statisticians results can always be obtained by compar- effects to how peoples’ genes might affect would almost certainly lead to new dis- ing two identical groups, one ofwhich their future well-being. The technology is coveries and clinically useful findings. receives a treatment and the other an inert likely to be particularly useful in detecting However there could also be negative placebo. Ethically, however, doctors are bad treatments, thinks Dr Ellenberg. While consequences. “Sharing raw data could loth to withhold an effective treatment most reported problems may continue to promote inappropriate re-analyses,” where one exists, so many trials simply be coincidences, at least biostatisticians warns Dr Ellenberg. She says there are compared a new drug to an existing one. will be able to compare reliable lists of many who would be ready to believe any In 1993 Dr Ellenberg moved to the US Food who tooka drug and who experienced analysis claiming to prove that vaccines and Drug Administration (FDA). In a series unpleasant reactions. The problem, says caused harm. ofscientific papers, she and a colleague Dr Ellenberg, is detecting the signal from That the dry world ofstatistics is be- demonstrated that such trials can often fail the noise. “The more people you have the coming a battleground ofideas and com- to demonstrate the effectiveness ofnew richer your database will be but also the mercial interests, affectingthe future of treatments. In 2002, the World Medical more ways there are to be misled by the medical care and the lives ofpeople Association changed its recommenda- data.” Without the right analytical meth- around the world, may shocksome. For Dr tions to permit placebo-controlled trials ods, she believes, more data just gives a Ellenberg, who has spent her professional explicitly where patients would not suffer more precise estimate ofthe wrong thing. life emphasising the life-saving impor- serious or irreversible harm. tance ofaccuracy, it is no surprise at all. The same year, Dr Ellenberg wrote a From the genes “We’ve got all this data,” she says. “The bookabout the importance (and the dan- Dr Ellenberg points out that services like answer isn’t to ignore it. The answer is to gers) ofanalysing data as it accumulates 23andMe, which provide ancestral and figure out how to limit the number of during a clinical trial. Her ideas of how medical interpretations ofindividuals’ mistakes we make.” 7 data-monitoring committees should genetic information, have not yet deliv- function quickly became standard prac- ered the revolution in health that many Offer to readers tice. It had long been realised, forexample, had expected. In the early days ofgeno- Reprints of this special report are available at that a trial might reveal one treatment to mics, excited mathematicians thought US$7.00 each, with a minimum of 5 copies, plus be much better than another. The only they had discovered thousands ofcorrela- 10% postage in the United States, 15% postage ethical thing to do in that case would be to tions, most ofwhich were chance findings. in Mexico and Canada. Add tax in CA, DC, IL, NY, stop the trial and give everyone the su- Dr Ellenberg also worries that presenting VA; GST in Canada. perior drug. In the past, statisticians keen people with links between particular For orders to NY, please add tax based on to find such magic bullets would crunch genes and health outcomes might lead cost of reprints plus postage. their data every few weeks or months. them to worry needlessly or seekout For classroom use or quantities over 50, “But ifyou lookat your data often enough, potentially harmful treatments forcondi- please telephone for discount information. sooner or later you’ll observe by chance tions they do not yet sufferfrom. that one arm ofthe test looks better,” says In his state-of-the-union address, Ba- Please send your order with payment by Dr Ellenberg. “There is now a mistrust of rackObama lauded personalised medi- cheque or money order to: the whole concept ofearly termination.” cines. But these are tricky to approve. Jill Kaletha of Foster Printing Service She also cautions against the tempta- When a disease affects millions, large Telephone: 866 879 9144, extension 168 tion to set statistics aside when faced with clinical trials can reliably spot even small or e-mail: [email protected] something that appears to be urgent: differences between drugs. But forperson- (American Express, Visa and MasterCard “There are groups saying they would be alised treatments, or ones targeting rare accepted) opposed to doing randomised trials for “orphan diseases” that affect only a few drugs or vaccines forEbola because it’s so people, those differences become much

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Also in this section 52 Estonia’s election 53 Turkey’s Kurds 53 Kurdish football 54 Macedonia’s scandal 54 Media in Italy 55 Charlemagne: Europe’s energy union

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Russia after Nemtsov men, who several months ago swore a public oath to defend Mr Putin. “Tens of Uncontrolled violence thousands of us, who have been through special training, ask the Russian national leader to consider us his voluntary detach- ment,” said Mr Kadyrov. America and Eu- MOSCOW rope have declared economic war on Rus- sia. Although Russia has regular forces, The assassination ofBoris Nemtsov leaves liberal Russians in fearofa new wave of “there are special tasks which can only be violent repression solved by volunteers, and we will solve N THE night of February 27th 2014, of Moscow, bearing slogans denouncing them.” Mr Kadyrov’s men have long ORussian soldiers without insignias— Ukraine, the West and Russian liberals. roamed Moscow with arms and special se- soon to be known as “little green men”— Muscle-bound toughs representing Chech- curity passes. seized the parliament ofCrimea. It was the nya’s Ramzan Kadyrov, a warlord installed This is only the most brazen example of start of Russia’s annexation of Crimea and by Mr Putin to keep the territory under his the Russian state outsourcing repression to its waragainst Ukraine. Exactly a year later, thumb, bore signs proclaiming “Putin and non-state groups, thus losing its monopoly Boris Nemtsov, a leader of Russia’s liberal Kadyrov will prevent Maidan in Russia”, on violence. Far from being a sign of opposition, was shot dead on a bridge by alongside photographs of Mr Nemtsov la- strength, thisisan indication ofstate weak- the walls ofthe Kremlin. A few days earlier belled as “the organiser ofMaidan”. ness. But it is precisely a state’s weakness Mr Nemtsov had been handing out leaflets The anti-Maidan march was the culmi- that often leads it to engage in violent re- for a March 1st anti-war rally. The march nation ofa longcampaign ofhatred and in- pression. None of Russia’s security experts turned into his memorial procession. tolerance. As Mr Nemtsov said in an inter- orformerKGB officersbelieve thatthe mur- Mr Nemtsov’s postcard murder, with view recorded hours before his death, der of Mr Nemtsov could have been car- the cupolas of St Basil’s church in the back- “Russia is quickly turning into a fascist ried out so close to Mr Putin’s office in the ground, marks the return of Russia’s cam- state. We already have propaganda mod- Kremlin without the complicity ofstate se- paign of political violence from Ukraine to elled on Nazi Germany’s. We also have a curity. “It is the territory of the secret ser- the homeland. Russian aggression abroad nucleus of assault brigades, like the [Nazi] vice, where every metre is under surveil- and repression at home are intimately con- SA.” Alexei Navalny, a blogger and opposi- lance,” one former KGB officer explains. nected. State propaganda has portrayed tion leader who was jailed to stop him at- Mr Putin’s initial response was to call Kiev’s Maidan revolution as a “fascist tending the planned anti-war rally, under- the murder a “provocation”. He did not at- coup” and the democratic Ukrainian gov- lined the emergence of reactionary gangs, tend Mr Nemtsov’s funeral, although he ernment as a Western-backed “junta”, “pro-government extremists and terrorist sent a wreath of flowers. The state media with the Russian-backed rebels in the east groups which openly declare that their that once hounded Mr Nemtsov began of Ukraine as its victims. The media have aim is to fight the opposition where the po- speaking of him in neutral terms. Mr Pu- called on Russian patriots to fight the “fas- lice cannot.” tin’s propagandists blamed the killing on cists” at home, identifying pro-Western lib- Such groups are not grass-roots ama- foreign security services and liberals who erals as a traitorous “fifth column”, and Mr teurs who have sprungup on a wave of na- wanted a “sacrificial” murder to mobilise Nemtsov as one oftheir leaders. tionalism, but organisations seeded and fi- their supporters. Ominously, this same Prompted by the far-fetched fear that nanced by the Kremlin. The anti-Maidan scenario wasoriginallyfloated byMr Putin the Maidan revolution could be replicated activists include the leather-clad “Night three years ago, on the eve of his accession in Russia, the Kremlin has re-imported the Wolves” biker gang, who played an active to a third presidential term. The opposi- violence it deployed in Ukraine. Six days role in the annexation of Crimea and have tion, he said, would sacrifice one of their before Mr Nemtsov’s death, the Kremlin been patronised by Mr Putin. More alarm- own and blame the Kremlin. organised an “anti-Maidan” protest that ing are Mr Kadyrov and his well-trained, Many Russian liberals fear that the kill- drew thousands of marchers to the heart heavily armed private militia of 15,000 ing of Mr Nemtsov will be used to unleash 1 52 Europe The Economist March 7th 2015

litical Russia we see an opponent being up. A rapid response force is in the works. Putin’s downs and ups stopped by a bullet. This is a new and inad- National security loomed over Esto- Russians who think their country is heading in missible reality and it concerns all of us.” nia’s general election on March 1st, when the right/wrong direction, % No government officials, including Dmitry the ruling Reform Party beat its pro-Rus- FINANCIAL CRISIS PROTESTS IN RUSSIA Medvedev, the prime minister, spoke out. sian rival. The Centre Party, which has UKRAINE REVOLUTION 70 Most liberal voices have been drowned close ties to Vladimir Putin’s United Russia 60 in the din of war. The dominant feeling party and relies on the ethnic Russians Right direction 50 among liberal Russians in the wake of Mr who make up a quarter of Estonia’s popu- 40 Nemtsov’s murder has been of despon- lation, came second. Taavi Roivas, the 30 dency and emptiness. Grigory Revzin, a prime minister, has ruled out co-operating Wrong direction columnist, compared the murder of Mr with it, and will instead form a coalition 20 Nemtsov to the killing of Jean Jaurès, a with his current partner, the Social Demo- 10 French Socialist leader and pacifist who crats, and another party. 0 was assassinated just before the outbreak Since 1991 Estonia has struggled to inte- 2005 06 07 08 09 10 11 12 13 14 15 of the first world war. Mr Nemtsov’s mur- grate a chunkofits Russian-speakers, some Source: Levada Centre der, he wrote, was a point ofno return. of whom are still stateless (knowledge of On March 1st, in place of the planned of Estonian is usually a condition for citi- 2 a new bout of political repression, as hap- anti-war rally, tens of thousands of Musco- zenship). Though integrated Russians fare pened in 1934 after the murder of Sergei Ki- vites marched in complete silence towards well, the rest earn less, and are more likely rov, a charismatic Bolshevik leader. Stalin, the bridge where Mr Nemtsov was killed. to be unemployed than the average. The who is generally believed to have ordered The next day, a meetingwas held inside the Centre Party runs Tallinn, but its political that killing, blamed it on “enemies of the Kremlin. In order to stop the bridge where isolation at national level fuels alienation. people”. The state information agency, Mr Nemtsov was killed from turning into a But what divides Estonians and Rus- Russia Today, headlined its press confer- memorial to him, it was decided to use it sians most is their media. Those whose ence on Mr Nemtsov’s killing as “Murders later this month as the site for a celebration mother tongue is Russian rely largely on ofPoliticians: the Methods ofMaidan”. ofRussia’s annexation ofCrimea. 7 news from Russian state media. Its world Other analysts say a better parallel is view has rubbed off. Researchers at the not the Kirov murder, but the waves of po- Sinu Riigi Kaitse programme, who study litical killings that swept through Latin Estonia’s election young ethnic Russians, find a sharp wors- American political dictatorships in the ening of attitudes to America and NATO. 1960s, or Italy in the late 1970s. Such decen- On the border The governmentplans to launch a Russian- tralised violence carried out by militant language station this autumn. But Roman groups in the name of the Kremlin may Vikulov, a correspondent for Viru Prospekt, prove impossible to control. “Even if the a weekly, says the problem is not lack ofal- Kremlin decides this is enough of hatred, it NARVA ternative sources, but that “local Russians will be all but impossible to defuse it don’t trust the Estonian authorities.” How nervousness overRussia affects peacefully,” said Sergei Parkhomenko, a For many Estonians, the mistrust is mu- daily life and politics liberal Russian journalist. Given the likely tual. The wounds of the Soviet occupation complicityofthe Russian securityservices, ARVA, an Estonian town on the Rus- still ache; most Estonian familieshave per- few people believe that the assassination Nsian border, is tired of hearing it is sonal tales of repression under Stalin. The will ever be solved. Mr Putin will simply next. “There simply couldn’t be a repeat of anti-Russian atmosphere “may be alienat- have to cover up for whoever killed Mr Crimea here,” says Vladislav Ponjatovsky, ing, but that’s just a fact of life,” says Esto- Nemtsov. head of a local trade union. Mr Ponjatov- nia’s president, Toomas Hendrik Ilves. Yet Russian liberals, including Mr Nemtsov sky, an ethnic Russian, helped launch a Estonian politicians are reaching out to himself, had long worried that Mr Putin’s Narva autonomy referendum in 1993. Now Russian compatriots. Those born in Esto- regime would have no choice but to esca- he would never consider it. Today’s Esto- nia can now receive citizenship, regardless late repression and violence as the only nia offers higher living standards and of parental status. Last year Mr Roivas’s way of consolidating its rule. Over the past membership of NATO and the European government appointed the first ethnic Rus- year, physical violence hasbeen mainly di- Union. Nobody in Narva longs to be in sian ministersince Soviet days. The Ameri- rected againstUkraine. IfMrPutin has now Ivangorod, the Russian town overthe river. can embassy has taken special note of decided that he has reached the limit ofhis The fear that the Kremlin may test Narva, expanding cultural outreach and adventurism in that country, he is likely to NATO by stirring up trouble in the Baltics arranging for a group of cadets to study try to compensate with more repression at haunts the West. Britain’s defence secre- Russian there last summer. home. tary, Michael Fallon, says there is already a The situation crystallises in a ware- The assassination of Mr Nemtsov, who “real and present danger”. Russia has vio- house outside Tallinn, where a volunteer had served in the governmentofBoris Yelt- lated Baltic airspace and harassed ships in group called Dobrosvet is collecting hu- sin and even been groomed as his poten- the Baltic Sea. Russian agents crossed the manitarian aid for civilians in rebel-held tial successor (see our obituary), has shak- border and kidnapped an Estonian intelli- eastern Ukraine. Boxes stuffed with food en many members of the political elite. It gence officer last autumn. The new securi- and clothes lean in precarious stacks, wait- breaks an unwritten pact, agreed after Sta- ty environment is “not just bad weather, ing to be sent to hospitals, schools and vil- lin’s death, that conflicts at the top should it’s climate change,” says General Riho Ter- lages throughout the Donbas. The boxes be resolved by non-violent means. Those ras, head ofthe Estonian Defence Force. will travel through Russia with the help of who are still close to the Kremlin and con- As one of the five NATO members with the Night Wolves, a Kremlin-endorsed sider themselves liberals now choose their a land border with Russia, Estonia must nationalist biker gang. Yet even these activ- words carefully. Alexei Kudrin, a former fi- prepare forthe storm. NATO has pitched in ists, like MrPonjatovsky in Narva, call Esto- nance minister who sponsors civic pro- with “Operation Atlantic Resolve”, send- nia home. Russians in Estonia “already jects, told TV Rain, a liberal internet-based ing 150 American troops to each of the have a different mentality,” says Alina Esa- television channel, thatthiswasa “dramat- three Baltic states and Poland. Air policing kova, Dobrosvet’s leader. Her son serves in ic page in Russia’s history…in modern, po- missions in the region have been beefed Estonia’s army. 7 The Economist March 7th 2015 Europe 53

Turkey’s Kurds another party, probably the HDP. AK-dominated parliament, grant the police The main secular opposition party, the sweeping new powers, including the right Put the weapon Republican People’s Party (CHP), says AK to shoot demonstrators. This will give the and the HDP have already struck a secret government greater leeway to suppress down deal. (Selahattin Demirtas, the HDP’s co- any street violence that may erupt if the chair, calls such claims “lies”.) The allega- Kurds are shut out ofparliament. But the bigger challenge to Mr Erdo- ANKARA AND DIYARBAKIR tion may be linked to the fact that the Kurd- ish party is eyeing CHP voters in hopes of gan’s ambitions may come from within his A call forpeace by the PKK’s leader winning the minimum 10% share needed own party. Agrowing number of AK insid- could mean a new deal forTurkey to secure seats in parliament. Should the ers, including the prime minister, Ahmet OR decades Turkish warplanes rained HDP fail to clear this hurdle, AK will snatch Davutoglu, are said to be wary of their in- Fbombs on the snow-capped Qandil most of the seats in its region, perhaps giv- creasingly unpredictable president gather- mountains in northern Iraq to flush out re- ing Mr Erdogan his supermajority. ing more power to himself. A battle is bels from the Kurdistan Workers’ Party Some HDP officials privately gripe that looming over who will draw up candi- (PKK), who have been fighting for Kurdish Mr Ocalan has weakened their hand: he dates’ lists for the elections. Mr Erdogan is self-rule inside Turkey since 1984. Now Tur- ought to have made his peace call condi- likelyto prevail. Yetthere are no guarantees key is pondering operations of a different tional on the government shelving a con- that his handpicked deputies will remain kind. “Ifall goes to plan we will explore for troversial public-order bill. The bill’s mea- loyal, so the executive presidency he oil in Qandil,” declares Taner Yildiz, the sures, mostly already approved by the yearns foris not yet in the bag. 7 country’s oil minister. Mr Yildiz’s plans are part of a sea Kurdish football change in Turkey’s relations with the PKK. On February 28th the party’s imprisoned leader, Abdullah Ocalan, called on his Scoring the equaliser men to convene a congress this spring to DIYARBAKIR AND SIRNAK declare an end to their armed campaign. In a conservative culture, a women’s football team breaks barriers Years of secret haggling between Mr Oca- lan and his captors may be bearing fruit. URESA AKA scored her tenth goal of “We are closer than ever to achieving Nthe season on a sunny afternoon last peace,” beamed Sirri Sureyya Onder of the weekin Diyarbakir, the unofficial capital Peoples’ Democracy Party (HDP), the big- ofTurkey’s mainly Kurdish south-east. gest legal Kurdish party, as he read out Mr Ms Aka’s strike helped to clinch a 4-1 Ocalan’s statement on television. victory forthe Diyarbakir Women’s Turkey’s president, Recep Tayyip Erdo- Football Club over a rival team, Kahra- gan, has done more than any of his prede- manmaris. “They call me Ronaldo,” cessorsto improve the Kurds’ lot. AKurdish boasts the lanky17-year-old forward, shiftto peaceful politics would reverberate referring to the Portuguese football star not just in Turkey but in Iraq and Syria, Cristiano Ronaldo. “People tell me I play where the PKK and its Syrian affiliate have like him.” been receiving American aerial support in Ms Aka is one ofthe reasons why battling the jihadists of Islamic State. Diyarbakir is at the top ofTurkish wom- “Once the PKK stopstargetingTurkey, itwill en’s professional football’s third division. Kicking it be easier for America to justify its support She began dribbling as a child in the forthe PKK,” reckons a Western diplomat. alleyways ofthe shantytown where she wanted his sisters to behave,” complains Mr Erdogan’s magnanimity to the and her six siblings live. “Most ofmy girls a prominent sheikh in the neighbouring Kurds may come at a price. He wants to al- are from poor, religiously conservative province ofSirnak. But attitudes are ter the constitution to turn the presidency, families,” explains the team’s coach, softening. Mothers who once forbade which has limited powers, into a true exec- MelekAkgol Karakoc. “It’s a miracle that their daughters to play are now flocking utive presidency. His Justice and Develop- they are here at all.” to their games. ment (AK) party needs to win two-thirds of Women’sfootball is, in itself, nothing Many credit the imprisoned Kurdish the seats in the parliamentary election due new in Turkey. The officially secular PKK leader, Abdullah Ocalan, an ardent on June 7th to make such changes on its country prides itselfon treating women promoter ofgender equality. One of the own. Polls suggest it will fall short, leaving better than its Muslim peers. Turkish 40 books Mr Ocalan has written, entitled Mr Erdogan dependent on support from women gained the right to vote earlier “To Kill a Man”, is something ofa feminist than French women, and females are bible. Around a third ofPKK guerrillas are common in all professions, including thought to be women. Their bravery in Kurdish-populated areas sports. But patriarchal attitudes remain recent battles against Islamic State mil- Source: CIA 250 km Ankara ingrained, and so-called “honour kill- itants in northern Syria has made them ings” ofwomen deemed immodest by the darlings ofthe global media. TURKEY AZ. family members are especially high Kurdish nationalism burns bright in among Kurds. Persuading families in Diyarbakir, and the football club is hardly Adana Sirnak Diyarbakir Diyarbakir to let their girls wear shorts in immune. It calls itself“Amed”, the Kurd- Kobane public is “a near-impossible task,” says ish name forDiyarbakir. Hevidar Odun- Mediterranean E Mosul Semra Budak, a club official. git, a left-winger who scored the third up h Erbil Sea ra Qandil Unsurprisingly, much ofthe resistance goal in the day’s match, reveals that one te SYRIA s T Mts. PKK IRAQ i comes from Islamic clerics who hold ofher brothers has joined the . “And g LEBANON r i s Beirut Damascus sway in the region. “It is utterly disgrace- here’s where I fight,” she says, gesturing ISRAEL Baghdad ful. This is not how our holy prophet at the pitch. 54 Europe The Economist March 7th 2015

Macedonia’s scandal cal analyst, says that, if the tapes scandal “even the mostmeritoriousindividuals are fails to revive their fortunes, they are favoured by theiracquaintanceships in po- Getting it on tape “done”. A good sign is that civil society is litical circles”. waking from years of slumber. There have Italian commentators call RAI the “mir- been demonstrations against pollution. ror of the nation”: an institution so per- Protests by students and those hurt by a meated by competing interests that it SKOPJE new tax law have forced the government sometimes anticipates political shifts even into concessions. But Fatmir Besimi, a dep- before they surface. Once, this was not un- Ifyou speakto a big shot in Macedonia, uty prime minister, says the scandal has healthy. Instead of being in thrall to the you may be recorded hurt Macedonia’s reputation and may government of the day, RAI offered con- ACEDONIA suffers a lack of interna- threaten its hopes ofEU accession. trasting viewpoints. The Christian Demo- Mtional attention partly because, un- The economy has been doing better crats controlled the first television channel, like its neighbours, it emerged from Yugo- than most neighbours’: this year could see the Socialists the second and, from 1979, slavia’s disintegration without fighting a GDP growth of3.7%. But official unemploy- the Communists a third. All three parties big war. The European Commission sup- ment remains at 28% and wages are low. disintegrated in the 1990s, but the idea that ports the country’s desire to open talks on With no census since 2002, nobody knows politicians were entitled to meddle in RAI joining the European Union, but this has ifthe official population estimate of 2.1m is survived. The number ofnewsrooms grew been stymied by Greece’s objections to correct. In 2010 the World Bank reckoned to 11, as did a spirit offierce internal rivalry. Macedonia’s name, which it shares with a 447,000 people from Macedonia were liv- “Our channels were born to compete Greek province. Now a snooping scandal ing abroad. Anecdotal evidence suggests with each other, not to co-operate,” says threatens to undermine even the commis- that more are packing their bags. 7 the director-general, Luigi Gubitosi. He sion’s support. For the past month, Zoran produces a photograph ofthe prime minis- Zaev, leader of the opposition Social ter, Matteo Renzi, being buttonholed by Democrats, has been leaking tapes of al- Media in Italy four camera teams, three of them from ri- leged conversations gathered for Nikola val RAI channels. In 2012, the then prime Gruevski, the prime minister, and his spy Sliced RAI minister, Mario Monti, plucked Mr Gubi- chief, who happens to be his cousin. tosi from an investment bank and asked Mr Zaev claims that the pair have lis- him to turn RAI into a normal company. “I tened in on 20,000 people. This would replied that I would try to upset everyone mean that almost every bigwig in politics, ROME in equal measure, and I think I have been business and the media has been spied quite effective at that,” says Mr Gubitosi. The bloated state-run broadcasterjust on—including Mr Gruevski’s ministers. In Nevertheless, in recent weeks, he has may undergo reform one tape, the interior minister tells the fi- won approval for a blueprint that would nance minister that she has talked to the ELDOM has an organisational chart give RAI’s news and current affairs opera- chiefprosecutorabout dismissingcriminal Sprompted a defamation trial. Yet judges tions a structure closer to that of Britain’s charges against him. In another, the fi- in Milan recently heard a case involving a state broadcaster, the BBC. On February nance minister calls Mr Gruevski’s eco- colour-coded table published by Libero, a 26th, it was narrowly approved by RAI’s nomic policies “insane”. newspaper. The chartlisted 900 executives politically appointed board, two weeks Macedonians might have guessed that of Italy’s public television and radio net- after winning a parliamentary commis- their government was spying, but many work, RAI, and the political parties to sion’s approval. The plan would slash the are stunned by the extent. Mr Zaev has which they supposedly owed their ap- number of newsrooms to two, saving an been charged with trying to “overthrow pointment. Dismissing charges of libel, the estimated €17m ($19m). But it is anathema the constitutional order”. Mr Gruevski judges said it was well known that, in RAI, to many RAI journalists, especially senior saysthatthe wiretappingwasorganised by ones; the number of deputy editorships, a former secret-police chief close to the So- for example, would fall from 32 to at most cial Democrats, at the behest of foreign 12. The plan also worries politicians who spooks. He has accused Mr Zaev of trying fear it will reduce their powers of patron- to blackmail him into forming an interim age. The parliamentary commission that government and calling an election. The approved the plan inserted a demand to Social Democrats have shunned parlia- preserve “the editorial identity of the indi- ment since last April’s election, which they vidual newsrooms”. say was fraudulent. The plan’s fiercest parliamentary critics Mr Gruevski’s power base seems solid. have been the representativesofSilvio Ber- He has been in office since 2006. But his lusconi’s party, Forza Italia. The push foran main coalition partner, an ethnic Albanian overhaul of RAI has revived the old issue party, has called for the EU to mediate an of the conflict between Mr Berlusconi’s in- end to the political logjam. Veton Latifi, a terestsasa television magnate and as a pol- political scientist, says democracy is “un- itician. His followers say they are defend- ravelling”, and that the scandal reveals a ing RAI’s traditional “pluralism”. But retrograde political culture. The main me- suspicions persist that they are acting on dia outlets toe the government line, and behalf of their leader’s three-channel Me- are used to smear opposition politicians. diaset network, for which a more credible This may be related to the scandal: one and efficient RAI would pose a challenge. tape released by Mr Zaev appears to record With Mr Gubitosi’s mandate due to ex- a minister and the secret-police chief giv- pire before the summer, much depends on ing instructions to editors. Mr Zaev claims the government’s commitment to his plan. that over100 journalists were bugged. Mr Renzi has said he wants the “[political] The Social Democrats have been strug- parties out of RAI”. Now is his chance to gling for years. Nenad Markovikj, a politi- Slimming down patronage show he means it. 7 The Economist March 7th 2015 Europe 55 Charlemagne Power up

Europe’s energy plans are a cautious step in the right direction hates the plan. Britain and France back it, but want to restrict the grounds on which the commission can get involved. But Ger- many and others that have alternatives to Gazprom, and therefore enjoy lower prices, are sceptical. Asked why such countries should support proposals that could cost them more, diplomats speak solemnly of “solidarity”, which in Europe is usually code for redistribution. If there is hope, reckon EU officials, it is that heads of government used to horse-trading may be better placed to pull off a deal than their energy ministers, who tend to be bound by old thinking (or too close to their national champions). The EU’s climate-change goals, particularly a pledge to reduce greenhouse-gas emissions by 40% from 1990 levels, show ambition. Yet Mr Sefcovic’s confidence rests not on such promises, but on two looming concerns. First, the shale revolution in America has turned the transatlantic gap in energy prices into a chasm, deterring investors and riling European consumers (who pay twice as much on average forelectricity as Americans do). Second, Rus- sia accounts for one-third of the EU’s imports, around half of which are piped through Ukraine; its meddling in Ukraine has increased European concerns over the reliability of its main gas supplier. The energy weapon is less potent these days: the EU im- Y TRADITION European countries club together when the proved storage and internal distribution after the Kremlin turned Bbenefits of doing so exceed the costs in lost sovereignty. Ener- offthe taps to Ukraine in 2006 and 2009. But Russia’s geopolitical gy looks like a classic candidate: a single market should smooth antics leave some keen to seekalternative suppliers. supply and demand fluctuations, facilitate economies of scale All this lends a defensive flavour to Mr Sefcovic’s proposal. In and check the divide-and-rule tactics of exporters. Yet Europeans their brighter moments EU officials liken it to another ambitious have proved oddly resistant to this logic. Governments hug ener- (if half-finished) project: the banking union, which is today often gy policy close, calling it “strategic”. Big companies, often state- credited with protecting the euro zone against the contagion that owned, have been loth to lose influence over politicians and do- was such a damaging feature of previous crises. But it took some- mestic markets. The nationalisation of energy policy has, if anything close to economic catastrophe to galvanise the euro zone thing, accelerated. Germany’s Energiewende lavishes subsidies into action. The EU’s hope is that it will not take a crisis of similar on renewables, for instance, while Britain continues to finance magnitude to concentrate minds on energy. nuclear power and Poland to prop up inefficient coal mines. It is therefore brave of Maros Sefcovic, the European commis- Great news forTurkmenistan sioner in charge of energy, to call his mooted “energy union” the A unified internal market is all well and good, but it will not lead most ambitious such plan since the creation in 1951 of the Euro- to energy self-sufficiency. Thanks to dwindling domestic produc- pean Coal and Steel Community–the six-country body that was tion, the EU now imports over half the energy it consumes, a the forerunner of the European Union. Launched recently with share thatissetto rise considerably. Butthe mixofsuppliers could all the glitz Brussels can muster, Mr Sefcovic’s proposal, a grab- start to look very different. New pipelines and facilities (such as bag of policies, promises and compromises, is a political confec- import terminals forliquefied natural gas) will increase opportu- tion as much as anything. Much ofit simply aims to press govern- nities for Central Asian and African exporters, among others. ments to implement agreements that they have already accepted. Infrastructure horizons are long, and many of Gazprom’s Some ambitions have been lowered: a Polish idea to create a European contracts last for well over ten years, so new transpa- single European buyer for Russian gas has been downgraded, as rency rules will take a while to kick in. But it all adds up to a has a plan for a new EU regulator with teeth. But there is new gloomy picture for Gazprom. Russia has found it harder to twist wine in the bottles, too. Among other things, the energy union the knife eversince the EU’s“third energypackage” barred suppli- proposes to stop governments from capping prices below cost; ers from owning both pipelines and the gas that passes through energy-poorconsumers should instead be helped via the welfare them. And the commission is breathing new life into an antitrust state. Regional plans to cope with supply shocks will be drawn case against Gazprom for market abuse. up, after energy “stress tests” last year exposed vulnerabilities in Thatshould free the EU to pursue whatoughtto be itsfirst aim: eastern countries. More cross-border electricity interconnectors a fully functional internal energy market. Mr Sefcovic speaks of will be built, to help “energy islands” like Iberia and the Baltics. energy as the EU’s “fifth freedom”, flowing across borders as easi- The most contentious idea is to inject the commission into ly as goods, services, capital and people are supposed to. That is a talks between governments and third-party suppliers to guaran- long way off: Europe’s patchwork of subsidies and regulations tee that contracts meet EU law. The energy-union document co- will not soon be undone, and its infrastructure needs are daunt- quettishly avoids almost all mention of Russia, but the target is ing. It is also not obvious that Europeans are in the mood for a clear. Gazprom, the Russian gas giant, exploits its position in east grand centralising project. So it is unsurprising that Mr Sefcovic’s European countries that struggle to find alternative suppliers; Po- proposal falls some way short ofhis rhetoric. But it is a start. 7 land pays 40% more than Germany forgas, forexample. Hungary, which enjoys cosy energy relations with Russia, Economist.com/blogs/charlemagne Dated: January 30, 2015 NOTICE REGARDING COMMENCEMENT OF A JUDICIAL INSTRUCTION PROCEEDING IN CONNECTION WITH THE ACCEPTANCE OF THE SETTLEMENT AGREEMENT DATED AS OF APRIL 7, 2014, AS MODIFIED (THE “SETTLEMENT AGREEMENT”), FROM CITIGROUP INC. AND ITS DIRECT AND INDIRECT SUBSIDIARIES (“CITIGROUP”). NOTICE IS HEREBY GIVEN BY:

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THIS NOTICE CONTAINS IMPORTANT INFORMATION FOR THE CERTIFICATEHOLDERS AND OTHER PERSONS POTENTIALLY INTERESTED IN THE RMBS TRUSTS. ALL DEPOSITORIES, CUSTODIANS AND OTHER INTERMEDIARIES RECEIVING THIS NOTICE, AS APPLICABLE, ARE REQUESTED TO EXPEDITE THE RE-TRANSMITTAL OF THIS NOTICE TO CERTIFICATEHOLDERS IN A TIMELY MANNER. This notice is given to you by the RMBS Trustees under certain applicable Pooling • a hearing (the “Article 77 Hearing”) will be held on May 19, 2015 at 10 a.m. at the and Servicing Agreements or other similar agreements governing the Accepting Trusts and Supreme Court of the State of New York, County of New York, 60 Centre Street, New Loan Groups (the “Governing Agreements”). Capitalized terms used in this notice and not York, New York 10007; otherwise defned have the meanings assigned to them in the Settlement Agreement. • any Certifcateholder or other person potentially interested in the Accepting Trusts ACCEPTANCE OF THE SETTLEMENT AGREEMENT and Loan Groups may object to or support any aspect of the Settlement Agreement and request to be heard at the Article 77 Hearing by submitting a written notice prior In notices to Certifcateholders dated December 19, 2014 and December 31, 2014 (the to the Article 77 Hearing in the manner required by the Court; “Notices”), the RMBS Trustees informed Certifcateholders that they had notifed Citigroup that, following an evaluation process in which the RMBS Trustees, among other things, • any objections to, or submissions in favor of, the Settlement Agreement must be fled considered reports prepared by expert advisors, the RMBS Trustees each accepted the with the Court and served upon the RMBS Trustees’ counsel by April 17, 2015; Settlement Agreement with respect to the Accepting Trusts and Loan Groups within such • any responses to objections or submissions in favor of, or with respect to, the trusts, subject to Final Court Approval through a judicial instruction proceeding as set Settlement Agreement, must be fled and served by May 4, 2015; forth in Section 2.03(c) of the Settlement Agreement. The RMBS Trustees’ acceptance of the Settlement Agreement extended the Tolling Period for the Accepting Trusts and Loan • any Certifcateholder who fails to object in the manner required by the Court shall be Groups as set forth in Section 2.04 of the Settlement Agreement. deemed to have waived the right to object (including any right of appeal) and shall be forever barred from raising such objection before the Court or in any other action or The execution version of the Settlement Agreement is available on the RMBS Trustees’ proceeding, unless the Court orders otherwise; and Website within the tab entitled “Certain Relevant Documents” (available at: http://www. citigrouprmbssettlement.com/pdflib/Citigroup_RMBSTrust_Settlement_Agreement_ • the Court retains jurisdiction over the RMBS Trustees, the Accepting Trusts EXECUTION_VER.pdf). Copies of the Notices are posted on the RMBS Trustees’ and Loan Groups and all Certifcateholders (and their successors-in-interests, Website within the tab entitled “Notices” (available at http://www.citigrouprmbssettlement. assigns or transferees) for all matters related to the Settlement Agreement and the com/notice.php). Article 77 Proceeding. ARTICLE 77 PROCEEDING AND IMPLICATIONS UPON THE EFFECTIVE Following the Article 77 Hearing, the Court will determine, among other things, DATE OF THE SETTLEMENT AGREEMENT whether to grant the requested judgment and will consider other important matters described in the Settlement Agreement. If the Court grants the requested judgment, and The RMBS Trustees have commenced a judicial instruction proceeding pursuant to such judgment becomes fnal and non-appealable (including the expiration of any time to CPLR § 7701, In the Matter of the Application of U.S. Bank National Association, et al., apply for discretionary review), and if the other conditions to Final Court Approval and the (Index No. 653902/2014) (the “Article 77 Proceeding”), in the Supreme Court of the State effectiveness of the Settlement Agreement are satisfed, (i) the Settlement Agreement will of New York, County of New York (the “Court”). In the Article 77 Proceeding, the RMBS become effective and (ii) all Certifcateholders will be bound by the Settlement Agreement Trustees are seeking a judgment that (i) the RMBS Trustees’ acceptance of the Settlement regardless of whether they appeared in the Article 77 Proceeding or submitted any objection Agreement on behalf of the Accepting Trusts and Loan Groups was a reasonable and good to the Settlement Agreement. On its Effective Date, the Settlement Agreement will affect faith exercise of the RMBS Trustees’ authority under the applicable Governing Agreements, the rights and interests of all Certifcateholders (and their successors-in-interests, assigns and (ii) barring Certifcateholders from asserting claims against the RMBS Trustees with or transferees) in the Accepting Trusts and Loan Groups, including by, among other things, respect to the RMBS Trustees’ evaluation and acceptance of the Settlement Agreement releasing claims against Citigroup on behalf of the Accepting Trusts and Loan Groups and implementation of the Settlement Agreement in accordance with its terms. Such a arising out of or relating to the Rep and Warranty Claims. Please refer to the Settlement judgment, if granted, would constitute, after becoming fnal and non-appealable (including Agreement for a complete description of the releases provided for therein. the expiration of any time to apply for discretionary review), “Final Court Approval” under and as defned in the Settlement Agreement. All papers fled on the public docket for the Article 77 Proceeding have been made available on the RMBS Trustees’ Website within the tab entitled “Court Documents – New On January 28, 2015, the Court entered an Order to Show Cause (available at http:// York State Court Proceeding” (available at http://www.citigrouprmbssettlement.com/ www.citigrouprmbssettlement.com/pdfib/41_Order_to_Show_Cause.pdf) approving a NYcourt.php), which will be updated periodically to include any new flings. You should notice program and directing that, among other things: also be able to obtain any documents fled with the Court by visiting the e-Courts tab within other documentation relating thereto or under applicable law, shall impair any such right or the Court’s website (available at: http://www.nycourts.gov/). remedy or constitute a waiver thereof or an acquiescence therein. Certifcateholders should NOT direct inquiries to the Court or the Clerk of the Court. Each of the RMBS Trustees expressly reserves all rights in respect of each applicable If you have any questions, you may call (855) 382-6442 (toll-free) or (614) 779-0359, or Governing Agreement, including without limitation its right to recover in full its fees and send an email to [email protected]. costs (including, without limitation, fees and costs incurred or to be incurred by such RMBS Trustee in performing its duties, indemnities owing or to become owing to such OTHER MATTERS RMBS Trustee, compensation for such RMBS Trustee’s time spent and reimbursement for fees and costs of counsel and other agents it employs in performing its duties or to pursue This notice references certain terms of the Settlement Agreement and the Article 77 remedies) and its right, prior to exercising any rights or powers in connection with any Proceeding and is not a complete summary or statement of the material terms thereof, applicable Governing Agreement at the request or direction of any Certifcateholder, to of relevant law or of relevant legal procedures. Certifcateholders and other potentially receive security or indemnity satisfactory to it against all costs, expenses and liabilities that interested persons are urged to review carefully the Settlement Agreement and to consider might be incurred in compliance therewith, and all rights that may be available to it under its implications, including the releases of the Rep and Warranty Claims. applicable law or otherwise. Certifcateholders and other persons interested in the Accepting Trusts and Loan Deutsche Bank National Trust Company Groups should not rely on the RMBS Trustees, their counsel, experts or other advisors HSBC Bank USA, National Association retained by the RMBS Trustees, as their sole source of information. Certifcateholders Law Debenture Trust Company of New York and other potentially interested persons are urged to consult with their own legal and U.S. Bank National Association fnancial advisors. each acting in its capacity as trustee, separate trustee, successor trustee, or other similar capacities of the Please note that this notice is not intended and should not be construed as investment, RMBS Trusts accounting, fnancial, legal, tax or other advice by or on behalf of the RMBS Trustees, or their directors, offcers, affliates, agents, attorneys or employees. Each person or entity 1 CUSIP numbers appearing on the website maintained by the RMBS Trustees located receiving this notice should seek the advice of its own advisors in respect of all matters at http://www.citigrouprmbssettlement.com (the “RMBS Trustees’ Website”) at the set forth herein. tab entitled “List of RMBS Trusts” (available at http://www.citigrouprmbssettlement. com/pdflib/CGU%20Citigroup%20RMBS%20Trusts_6.13.14%20302pm.pdf) Please be further advised that each of the RMBS Trustees reserves all of the rights, have been included solely for the convenience of the Certifcateholders and pertain powers, claims and remedies available to it under the Governing Agreements and applicable to trusts in addition to the Accepting Trusts and Loan Groups. The RMBS Trustees law. No delay or forbearance by an RMBS Trustee to exercise any right or remedy accruing assume no responsibility for the selection or use of such CUSIP numbers and make no upon the occurrence of a default, or otherwise under the terms of the Governing Agreements, representations as to their correctness.

EXHIBIT A

List of Accepting Trusts and Loan Groups Accepted subject to Final Court Approval through a judicial instruction proceeding as set forth in Section 2.03(c) of the Modifed Proposed Settlement Agreement

U.S. Bank National CMLTI 2005-6 Group I CMLTI 2006-AR3 Group 1-1 CMLTI 2006-NCB1 Group I CMLTI 2007-AR4 Group 1 Association, as Trustee CMLTI 2005-6 Group II CMLTI 2006-AR3 Group 1-2 CMLTI 2006-NCB1 Group II CMLTI 2007-AR4 Group 2-1 CMLTI 2005-1 Group I CMLTI 2005-6 Group III CMLTI 2006-AR3 Group 2-1 CMLTI 2006-WF1 Group I CMLTI 2007-AR4 Group 2-2 CMLTI 2005-1 Group II-1 CMLTI 2005-7 Group 1-1 CMLTI 2006-AR3 Group 2-2 CMLTI 2006-WF1 Group II CMLTI 2007-AR4 Group 2-3 CMLTI 2005-1 Group II-2 CMLTI 2005-7 Group 1-2 CMLTI 2006-AR3 Group 2-3 CMLTI 2006-WF2 Group I CMLTI 2007-AR5 Group 1-1 CMLTI 2005-1 Group III CMLTI 2005-7 Group 1-3 CMLTI 2006-AR3 Group 2-4 CMLTI 2006-WF2 Group II CMLTI 2007-AR5 Group 1-2 CMLTI 2005-10 Group I-1 CMLTI 2005-7 Group 1-4 CMLTI 2006-AR5 Group 1-1 CMLTI 2006-WFH1 Total Pool CMLTI 2007-AR5 Group 1-3 CMLTI 2005-10 Group I-2 CMLTI 2005-7 Group II-1 CMLTI 2006-AR5 Group 1-2 CMLTI 2006-WFH2 Total Pool CMLTI 2007-AR5 Group 2-1 CMLTI 2005-10 Group I-3 CMLTI 2005-7 Group II-2 CMLTI 2006-AR5 Group 1-3 CMLTI 2006-WFH3 Total Pool CMLTI 2007-AR5 Group 2-2 CMLTI 2005-10 Group I-4 CMLTI 2005-7 Group II-3 CMLTI 2006-AR5 Group 1-4 CMLTI 2006-WFH4 Total Pool CMLTI 2007-AR7 Group 1 CMLTI 2005-10 Group I-5 CMLTI 2005-7 Group II-4 CMLTI 2006-AR5 Group 1-5 CMLTI 2006-WMC1 Group I CMLTI 2007-AR7 Group 5 CMLTI 2005-10 Group II CMLTI 2005-7 Group II-5 CMLTI 2006-AR5 Group 1-6 CMLTI 2006-WMC1 Group II CMLTI 2007-AR8 Group 1-1 CMLTI 2005-11 Group I CMLTI 2005-8 Group I-1 CMLTI 2006-AR5 Group 1-7 CMLTI 2007-10 Group 1 CMLTI 2007-AR8 Group 1-2 CMLTI 2005-11 Group II CMLTI 2005-8 Group I-2 CMLTI 2006-AR5 Group 2-1 CMLTI 2007-10 Group 2-1 CMLTI 2007-AR8 Group 1-3 CMLTI 2005-11 Group III CMLTI 2005-8 Group I-3 CMLTI 2006-AR5 Group 2-2 CMLTI 2007-10 Group 2-2 CMLTI 2007-AR8 Group 2 CMLTI 2005-2 Group I-1 CMLTI 2005-8 Group I-4 CMLTI 2006-AR5 Group 2-3 CMLTI 2007-10 Group 2-3 CMLTI 2007-FS1 Group I CMLTI 2005-2 Group I-2 CMLTI 2005-8 Group II CMLTI 2006-AR5 Group 2-4 CMLTI 2007-10 Group 2-4 CMLTI 2007-FS1 Group II CMLTI 2005-2 Group I-3 CMLTI 2005-8 Group III CMLTI 2006-AR5 Group 2-5 CMLTI 2007-10 Group 2-5 CMLTI 2007-OPX1 Total Pool CMLTI 2005-2 Group I-4 CMLTI 2005-9 Group I CMLTI 2006-AR5 Group 2-6 CMLTI 2007-10 Group 3-1 CMLTI 2007-WFH1 Total Pool CMLTI 2005-2 Group I-5 CMLTI 2005-9 Group II-1 CMLTI 2006-AR5 Group 2-7 CMLTI 2007-10 Group 3-2 CMLTI 2007-WFH2 Total Pool CMLTI 2005-2 Group II-1 CMLTI 2005-9 Group II-2 CMLTI 2006-AR6 Group 1 CMLTI 2007-10 Group 3-3 CMLTI 2007-WFH3 Total Pool CMLTI 2005-2 Group II-2 CMLTI 2005-9 Group II-3 CMLTI 2006-AR6 Group 2 CMLTI 2007-2 Group 1 CMLTI 2007-WFH4 Group I CMLTI 2005-3 Group I CMLTI 2005-HE1 Group I CMLTI 2006-AR7 Group 1-1 CMLTI 2007-2 Group 2 CMLTI 2007-WFH4 Group II CMLTI 2005-3 Group II-1 CMLTI 2005-HE1 Group II CMLTI 2006-AR7 Group 1-2 CMLTI 2007-6 Group 1-1 CMLTI 2008-2 Group I CMLTI 2005-3 Group II-2 CMLTI 2005-HE1 Group III CMLTI 2006-AR7 Group 1-3 CMLTI 2007-6 Group 1-2 CMLTI 2008-2 Group II CMLTI 2005-3 Group II-3 CMLTI 2005-HE3 Group I CMLTI 2006-AR7 Group 1-4 CMLTI 2007-6 Group 1-3 CMLTI 2005-3 Group II-4 CMLTI 2005-HE3 Group II CMLTI 2006-AR7 Group 2-1 CMLTI 2007-6 Group 1-4 Deutsche Bank National CMLTI 2005-3 Group III CMLTI 2005-HE4 Group I CMLTI 2006-AR7 Group 2-2 CMLTI 2007-6 Group 2 Trust Company, as Trustee CMLTI 2005-4 Total Pool CMLTI 2005-HE4 Group II CMLTI 2006-AR7 Group 2-3 CMLTI 2007-AHL1 Group I CMLTI 2005-OPT1 Total Pool CMLTI 2005-5 Group I-1 CMLTI 2005-WF1 Total Pool CMLTI 2006-AR7 Group 2-4 CMLTI 2007-AHL1 Group II CMLTI 2005-OPT3 Total Pool CMLTI 2005-5 Group I-2 CMLTI 2005-WF2 Group I CMLTI 2006-AR9 Group 1 CMLTI 2007-AHL2 Group II HSBC Bank USA, National CMLTI 2005-5 Group I-3 CMLTI 2005-WF2 Group II CMLTI 2006-AR9 Group 2 CMLTI 2007-AHL3 Group I Association as Trustee CMLTI 2005-5 Group I-4 CMLTI 2006-4 Group II CMLTI 2006-FX1 Total Pool CMLTI 2007-AHL3 Group II CMLTI 2005-HE2 Total Pool CMLTI 2005-5 Group I-5 CMLTI 2006-4 Group I CMLTI 2006-HE1 Total Pool CMLTI 2007-AHL3 Group III CMLTI 2005-SHL1 Total Pool CMLTI 2005-5 Group II-1 CMLTI 2006-AMC1 Group I CMLTI 2006-HE2 Group I CMLTI 2007-AMC1 Group I CMLTI 2007-SHL1 Total Pool CMLTI 2005-5 Group II-2 CMLTI 2006-AMC1 Group II CMLTI 2006-HE2 Group II CMLTI 2007-AMC1 Group II CMLTI 2005-5 Group II-3 CMLTI 2006-AR1 Group I CMLTI 2006-HE3 Group I CMLTI 2007-AMC2 Group II Law Debenture Trust CMLTI 2005-5 Group III-1 CMLTI 2006-AR1 Group II CMLTI 2006-HE3 Group II CMLTI 2007-AMC2 Group III Company of New York, as CMLTI 2005-5 Group III-2 CMLTI 2006-AR1 Group III CMLTI 2006-NC1 Group I CMLTI 2007-AMC3 Group I Separate Trustee CMLTI 2005-5 Group III-3 CMLTI 2006-AR2 Group I-1 CMLTI 2006-NC1 Group II CMLTI 2007-AMC4 Group I CMLTI 2005-OPT4 Group I CMLTI 2005-5 Group III-4 CMLTI 2006-AR2 Group I-2 CMLTI 2006-NC2 Group I CMLTI 2007-AMC4 Group II CMLTI 2005-OPT4 Group II CMLTI 2005-5 Group III-5 CMLTI 2006-AR2 Group II CMLTI 2006-NC2 Group II CMLTI 2007-AR1 Total Pool CMLTI 2006-SHL1 Total Pool 58 Britain The Economist March 7th 2015

Also in this section 59 Amnesty International and jihad 60 Bagehot: Let’s go foxhunting

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

The Liberal Democrats probably return Lib Dem MPs. Those defined by the choice between a Tory-led A cold shower government and a Labour-led one will probably see the Conservatives prevail. Hence the importance of the A417. Mar- tin Horwood, Cheltenham’s Lib Dem MP, CHELTENHAM is fighting hard on the issue of roads: pic- tures of rain-flooded potholes (complete To survive as a party ofgovernment, the Lib Dems must hold south-west England. with rubber ducks, for scale) dominate his They probably won’t electoral literature. His newsletter to resi- N OTHERWISE sedate Cheltenham, a Re- between holding on to, say, 30 seats and dents hails the good news that the co- I gency spa town known chiefly forhorse- salvaging halfthat number. The more seats alition government will widen the A417. racing, a girls boarding school and Britain’s the party holds, the more useful itis as a co- Lib Dems reckon that even if voters loathe signals intelligence agency, one subject alition partner forLabour or the Tories. the party’s leaders in Westminster, they boils the blood: the A417. The single-lane Its fate will be decided largely among will back local champions like Mr Hor- road leading into the Cotswold hills is al- the rolling hills ofsouth-west England. The wood. Polling bears this out: support for a most always jammed. “It’s a huge issue lo- Lib Dems have 15 seats there, more than in Lib Dem MP typically jumps by around cally. Huge. Huge,” proclaims one Chelto- any other region. The lack of heavy indus- eight percentage points when respondents nian in the Air Balloon pub. “We had five try (and thus of a Labour Party with deep are reminded ofhis or her name. accidents up there on race day,” sighs an- roots) has long made them the main alter- To dislodge these street fighters, the other. Improbably enough, the politics of native to the Conservatives. They control Conservatives are attempting to do two such a banal local issue could determine comfortable settlements like Cheltenham things. Their first task is to neutralise the who runs Britain. and Bath as well as farming areas (see map Lib Dems’ local advantages. Thus the local No party emerged from the 2010 elec- on next page). Tory candidate, Alex Chalk, also claims tion with a majority, so the largest, the Liberal Democrats and Toriesboth reck- credit for the A417 expansion: his leaflets Conservatives, had to form a coalition on that the kind ofbattle that takes place in describe how he personally lobbied the with the third-largest, the centrist Liberal these seatswill determine who winsthem. prime minister for the £255m ($390m) of Democrats. The result of the general elec- Campaigns defined by local politics will funding subsequently released. He talks of tion on May 7th could be even more finely using Cheltenham’s spook credentials to balanced. The Toriesand the Labour Party attract cyber-security jobs. are neck-and-neck in polls. The Liberal Libs damned The Tories’ second task is to convince Democrats have been badly burned by the Voting intention, % voters that the battle is not entirely paro- compromises they have had to make as a MAY 2010 ELECTION RESULT chial, but is also about the government of 50 junior coalition partner: after winning 23% Labour Britain. David Cameron, much the most of the overall vote in 2010, the party popular of the party leaders, will tour the 40 reached a new low of 5% in a YouGov poll region in the run-up to the election. Pic- published on March 4th (see chart). 30 tures of Nick Clegg, the Liberal Democrats’ The Lib Dems are bracing themselves Conservatives unpopularchief, are splattered across Con- for the loss of many of their 56 seats in the 20 servative leaflets. Surveying focus-group House ofCommons. The party’s footholds results, one Tory strategist cannot believe in the north of England and Scotland will 10 his party’s luck in having Mr Clegg for a ri- probably crumble, so unpopular is its deal Liberal Democrats val: “Voters hate him so, so much.” with the Conservatives in those left-lean- 0 The Liberal Democrats are confident ing parts. But it is fighting hard in southern 2010 11 12 13 14 15 that they can hang on in the south-west England, knowing there is a big difference Source: YouGov nonetheless. Britain’s first-past-the-post1 The Economist March 7th 2015 Britain 59

uencies is less gloomy than the national “defensive jihad” is “not antithetical to hu- South-west parliamentary constituencies 2010 election results one. Lib Dem activists also speak in rever- man rights”. % of vote 30-39.9 40-49.9 50-60 ential tones of Connect, the snazzy Ameri- Ms Sahgal, who later co-founded a Liberal Democrats na can software programme, based on one group called the Centre for Secular Space, Conservative Labour na na used by Barack Obama, which enables the returned to the fray this month after the party to pinpoint voters’ concerns and tar- revelation of Cage’s connection to Mr Em- get its campaigning accordingly. wazi and its blaming of MI5 for his radical- Cheltenham Still, the Tories will probably win most isation and brutality. She also chided Am- of the 15 seats. A study by YouGov for the nesty International for letting Cage (along Thornbury and Yate Times newspaper in January found that with seven other human-rights groups) co- Bath the Lib Dems’ support in the region had sign a letter in December to David Camer- fallen from 35% in 2010 to 16%. Even factor- on, the prime minister, calling for a judge- ing in their ability to cling on in places they led inquiry into Britain’s alleged involve- hold, they would require “a heck of an in- ment in the rendition and torture of Islam- Yeovil cumbency bonus”, says Peter Kellner, You- ist terrorist suspects. Gov’s president. He reckons that the Lib Far from being a genuine human-rights Source: ©2015 OS. Media 028/15 Dem could lose all but their three strongest group, says Ms Sahgal, Cage is “completely seats (Thornbury & Yate, Bath and Yeovil) poisonous”, promoting an ideology that 2 electoral system has long punished them in the region, including Cheltenham. In mocks the values of tolerance, especially for having geographically dispersed vot- most, they have a fairly small majority. towards women. “Immense damage has ers. But their popularity has fallen dispro- Combined with a hated leader and dy- been done to Amnesty,” she says, “not portionately in seats they did not win in namic Torychallengers like Mr Chalk, that least because they won’t come clean about 2010, so their support—though much will prove Mr Kellner more right than their association with Cage.” Yet Amnesty smaller—is now more efficiently distri- wrong. Lib Dems are excellent campaign- has “taken their research from them, they buted. In short, the picture in their constit- ers. But they cannot defy gravity. 7 have shared logos with them, they have produced briefing papers together, signed letters to the government together.” Amnesty International and jihad Amnesty hotly denies it is too close to Cage or endorses its ideology, though a A reputation at risk spokesman says it is “highly unlikely” it would now sign a joint letter with it. Still, Amnesty may need to ponder the scope of its advocacy and the sort of allies with whom it is willing to team up. Some “agonising” is said to be taking place. Lord (Alex) Carlile, a long-term Amnesty sup- The weightiest human-rights outfit has waded into a moral quagmire porter who for more than nine years was EPORTS that “Jihadi John”, a particular- people persecuted for their beliefs have Britain’s Independent Reviewer of Terro- Rly ghastly member of the Islamic State benefited from Amnesty’s courageous rism Legislation, said the organisation had who has been identified as the beheader moral and practical support overthe years. been “extremely unwise and lacking in of at least five Western hostages in Syria, is In 1977 it won the Nobel peace prize. critical faculty” by associating itself with a Briton named Mohammed Emwazi em- In the past decade or so Amnesty has Cage, whose reputation had been “dam- barrassed several outfits. One of them was widened its brief from human rights and aged beyond repair”. Amnesty’s, he reck- MI5, Britain’s domestic security service, torture into such matters as how to reduce ons, could be rescued, but it must hurry. 7 which had apparently interviewed him poverty and limit the arms trade. (By con- but then let him slip out ofBritain. Another trast, Human Rights Watch, a pre-eminent was Cage, a British Islamist outfit which New York-based monitoring group, has had warm relations with Mr Emwazi. But stuck closely to the mission for which it is the twitchiest reaction was at Amnesty In- named.) Amnesty has forged alliances and ternational. shared platforms with groups which do Cage caused the rumpus after one of its not necessarily share its original aims. leading lights described Mr Emwazi as Controversy over Amnesty’s relations “kind”, “gentle” and “a beautiful young with Cage goes back five years, when Gita man”. Mr Emwazi’s crimes, he explained, Sahgal, a senior figure in Amnesty, was were partly due to harassment by MI5, sacked for criticising her organisation’s which got onto MrEmwazi in 2009 afterhe close ties to Moazzam Begg, a British for- had been arrested in Tanzania, probably mer detainee ofthe Americans in Afghani- on his way to wage jihad in Somalia. Cage stan and then in Guantánamo, and a direc- was widely barracked for that insinuation. tor ofCage (formerly Cageprisoners). And then so was Amnesty, because of its Cage describes itself as “an indepen- links to Cage. dent advocacy organisation working to Amnesty was founded in 1961 with a empower communities impacted by the mission to campaign for“prisoners of con- war on terror.” Ms Sahgal, however, has science”, defined as those who have been long argued that Cage is by no means a hu- locked up for expressing their views—em- man-rightsgroup buta promoterofviolent phatically without advocating violence. jihad against the West and against non-Is- Since then it has grown into a huge organi- lamists in general. She has derided a claim sation with more than 70 national chap- by another formersenior Amnesty figure a ters. Many thousands of prisoners and few years ago that Cage’s promotion of Speak no evil 60 Britain The Economist March 7th 2015 Bagehot The hunter and the hapless

The decade-old fox-hunting ban has irked countryfolk, spared few foxes and damaged politics vice, was a fading vestige of the class-based, yet not wholly class- bound way ofmuch ofBritish rural society forcenturies. “If the French nobility had been capable of playing cricket with their peasants, their chateaux would never have been burnt,” the historian G.M. Trevelyan wrote. Had they ridden to hounds with their tenants, as 19th-century English gentlemen huntsmen did, then cheered them as they sent in the terriers, it might also have helped their cause. Perhaps it is a sign of how eternal Britons once considered their absurd class distinctions that they were comfortable with such mixing. Nonetheless, it was positive—as that devotee of the Cheshire Hounds, Friedrich Engels, appreciated. The author of the “Communist Manifesto” of 1848 considered fox-hunting “the greatest physical pleasure I know”, the apogee of English culture and, less convincingly, a source ofuseful ideas formanaging the revolution. What lessons should be drawn from this farrago? The obvious one is that politicians make the laws they deserve. Ill-conceived and illogical, the ban is unworkable. It allows hunts to follow an artificial scent-trail—because an outright ban could criminalise anyone taking his pet dog for a walk in the country. And because it would not be illegal forthat pooch to kill, peradventure, a fox, it ISING on his stirrups, somewhere in the west of England, the follows that if the hounds veer onto a real scent and make a kill, Rhuntsman issued the same statement he, impeccable in red no law has been broken. The huntsman who welcomed your col- coat and white stock, gives every Saturday morning of the sea- umnist explained that, in practice, this means that before a hunt son. “We will hunt today within the law,” he told the assembled one of his helpers films himself laying a pretend scent-trail—by riders, who were sipping from tiny port glasses astride their dragging a rag theoretically, but not actually, soaked in fox scent, champing steeds, with hounds boiling beneath them. He said it from a quad bike—to provide evidence for a possible defence in with a straight face, too, and no hint ofa blush. court. Then the hunt goes out and hunts as it always has, but ille- A decade after the 400-year-old pursuit of hunting foxes with gally. The police—one of whose officers was riding with the dogswasoutlawed bya Labourgovernment, itcontinuesremark- hounds that wintry day—understand this, but do not much care. ably unchanged. None of England’s and Wales’s 175 fox-hound Animal rightsactivistsknowit, and itmakesthem mad, butitis so packs has been disbanded because of the ban; just as many peo- hard to collect evidence oflawbreaking, in the form of video foot- ple ride to them; and they probably still kill thousands of foxes a age showing a huntsman urging hounds on to a fox, that prosecu- year. The hunt Bagehot visited had killed three in mid-week, two tions are rare. Only a couple of dozen huntsmen have been con- the previous Saturday, and, by the time the season ends later this victed for contravening the ban, for which they mostly received month, expects to have dispatched its customary tally of around small fines. 140 foxes. Only Prince Charles and the Tory prime minister, Da- vid Cameron, they like to josh, have actually been forced to give Going to ground up hunting because ofthe 2004 Hunting Act. Your columnist, though he has never wanted to kill a fox, is This is not a good advertisement forlegislation. Yet, to appreci- cheered by this. It suggests the resilience of an interesting aspect ate the full force of the sham, recall, in wonder, the great ruptures ofEnglish culture, whateversocial change and meddlers throwat between town and country, left and right, liberals and animal- it, for the good reasons that it is successful and loved. That is also welfare nuts, that preceded the ban. The march of 400,000 wax- why Steve, a well-built yokel who lays the fraudulent scent-trails, jacketed pro-hunt protesters through London, the 700 hours of refers to the huntsman as “Sir”. It is his culture he respects; not, as parliamentary debates devoted to the issue, the threat from La- Labour’s class-warriors might assume, a poshly spoken superior. bour backbenchers to oppose all government business unless As an expression ofa similarcommitment, Bagehot also enjoyed, the ban was brought—it was madness. Even at the time, it seemed he confesses, the explanation John, a retired terrierman, gave for so: a dilettantish, illiberal, class-infused blot on what was other- there being no antis about that day. Was it because the country wise a British golden age, for politics and the economy—as even was remote? “No,” he said. “It’s cause we bashed ’em.” the ban’s reluctant main architect, Tony Blair, later admitted. A But it won’t do. The cost of the ban, one of Mr Blair’s best- man not given to regrets, the then prime minister considered the remembered legacies, goes beyond the trouble and money wast- ban one of his biggest. “God only knows,” he reflected, what the ed on it. The disdain Britons reserve for politicians is fuelled by point ofit was. doubts about their efficacy as well as their motives, and the ban Foxes are considered vermin by landowners, have a popula- invites both. Many rural folk consider it malicious; semi-interest- tion inflated by modern farmingtechniques, and may be shot or ed townies tend to approve ofit, which is why it may never be re- snared by anyone—which is not clearly less cruel than hunting pealed, but must also note the ineptitude it represents. That is bad them with dogs. Nor was the ban a blow for class warfare, con- forpoliticians ofall stripes; and the Labourcrusaders responsible trary to the belief of many Labour antis, who considered the “so- forthe mess should reflect on it. In banning hunting they thought called sport” an exclusive preserve of cruel toffs. It never was. to weaken a reviled establishment, and so they have; but the es- And by then fox-hunting, with village cricket and the Sunday ser- tablishment in question, it turns out, includes themselves. 7 International The Economist March 7th 2015 61 video games and trawling the internet. Three-quarters of girls read for pleasure, compared with little more than half of boys. Reading rates are falling everywhere as screens draw eyes from pages, but boys are giving up faster. The OECD found that, among boys who do as much homework as the average girl, the gender gap in reading fell by nearly a quarter. Once in the classroom, boys long to be out of it. They are twice as likely as girls to report that school is a “waste of time”, and more often turn up late. Just as teachers used to struggle to persuade girls that science is not only for men, the OECD now urges parents and policymakers to steer boys away from a version of masculinity that ignores academic achievement. “There are different pressures on boys,” says Mr Yip. “Unfortunately there’s a tendency where they try to live up to certain expectations in terms of[bad] behaviour.” Boys’ disdain for school might have been less irrational when there were plenty of jobs for uneducated men. But those days have long gone. It may be that a bit of Gender, education and work swagger helps in maths, where confidence plays a part in boys’ lead (though it some- The weaker sex times extends to delusion: 12% of boys told the OECD that they were familiar with the mathematical concept of “subjunctive scaling”, a red herring that fooled only 7% of girls). But their lack of self-discipline drives teachers crazy. Boys are being outclassed by girls at both school and university, and the Perhaps because they can be so insuf- gap is widening ferable, teenage boys are often marked T’S all to do with their brains and bo- gramme called “Boys, Blokes, Books & down. The OECD found that boys did “Idies and chemicals,” says Sir Anthony Bytes”. In just a couple of generations, one much betterin itsanonymised teststhan in Seldon, the masterofWellington College, a gender gap has closed, only for another to teacher assessments. The gap with girls in posh English boarding school. “There’s a open up. reading was a third smaller, and the gap in mentality that it’s not cool for them to per- The reversal is laid out in a report pub- maths—where boys were already ahead— form, that it’s not cool to be smart,” sug- lished on March 5th by the OECD, a Paris- opened up further. In another finding that gests Ivan Yip, principal of the Bronx Lead- based rich-country think-tank. Boys’ domi- suggests a lackofeven-handedness among ership Academy in New York. One school nance justaboutenduresin maths: at age 15 teachers, boys are more likely than girls to charges £25,000 ($38,000) a year and has a they are, on average, the equivalent of be forced to repeat a year, even when they scuba-diving club; the other serves subsi- three months’ schooling ahead of girls. In are ofequal ability. dised lunches to most of its pupils, a quar- science the results are fairly even. But in What is behind this discrimination? ter of whom have special needs. Yet both reading, where girls have been ahead for One possibility is that teachers mark up are grapplingwith the same problem: teen- some time, a gulf has appeared. In all 64 students who are polite, eager and stay out age boys are being left behind by girls. countries and economies in the study, girls of fights, all attributes that are more com- It is a problem that would have been outperform boys. The average gap is equiv- mon among girls. In some countries, aca-1 unimaginable a few decades ago. Until the alent to an extra year ofschooling. 1960s boys spent longer and went further in school than girls, and were more likely xx > xy? Bad boys to graduate from university. Now, across The OECD deems literacy to be the most 15-year-olds who are low achievers in all subjects* the rich world and in a growing number of important skill that it assesses, since fur- % of total, 2012 Girls Boys poor countries, the balance has tilted the ther learning depends on it. Sure enough, 0 10 20 30 40 50 60 other way. Policymakers who once fretted teenage boys are 50% more likely than girls Indonesia about girls’ lack of confidence in science to fail to achieve basic proficiency in any of Brazil Turkey now spend their time dangling copies of maths, reading and science (see chart 1). Sweden “Harry Potter” before surly boys. Sweden Youngsters in this group, with nothing to France has commissioned research into its “boy build on or shine at, are prone to drop out United States crisis”. Australia has devised a reading pro- ofschool altogether. OECD average Britain To see why boys and girls fare so differ- Australia Award: The Economist has won one of the Peter Benchley ently in the classroom, first look at what Germany Ocean Awards, which focus on marine conservation and they do outside it. The average 15-year-old Finland are named after the author of “Jaws”, who was a keen girl devotes five-and-a-half hours a week Japan environmentalist. For “excellence in media”, it cites our China† r r in n m rin i u nd ur nnu r d n to homework, an hour more than the aver- epo t g o a e ss es a o a al Wo l Ocea Source: OECD *Maths, science and reading †Shanghai Summits, which we have run since 2012. age boy, who spends more time playing 62 International The Economist March 7th 2015

2 demic points can even be docked for bad in the average number of children, togeth- tion, the humanities and social work pay behaviour. Another is that women, who er with later marriage and childbearing, less than engineering or computer science. make up eight out of ten primary-school have made it easier for married women to But academic research shows that women teachers and nearly seven in ten lower-sec- join the workforce. As more women went attach less importance than men to the ondary teachers, favour their own sex, just out to work, discrimination became less graduate pay premium, suggesting that a as male bosses have been shown to favour sharp. Girls saw the point of study once high financial return isnotthe main reason male underlings. In a few places sexism is they were expected to have careers. Rising fortheir furthereducation. enshrined in law: Singapore still canes divorce ratesunderlined the importance of At the highest levels ofbusiness and the boys, while sparing girls the rod. being able to provide for yourself. These professions, women remain notably Some countries provide an environ- days girls nearly everywhere seem more scarce. In a reversal ofthe pattern at school, ment in which boys can do better. In Latin ambitious than boys, both academically the anonymous and therefore gender- America the gender gap in reading is rela- and in theircareers. Itishard to believe that blind essays and exams at university pro- tively small, with boys in Chile, Colombia, in 1900-50 about half of jobs in America tect female students from bias. But in the Mexico and Peru trailing girls less than were barred to married women. workplace, says Elisabeth Kelan of Brit- they do elsewhere. Awkwardly, however, So are women now on their way to be- ain’s Cranfield School of Management, thisnearlyalwayscomeswith a wider gen- coming the dominant sex? Hanna Rosin’s “traditional patterns assert themselves in der gap in maths, in favour of boys. The re- book, “The End of Men and the Rise of miraculous ways”. Men and women join verse is true, too: Iceland, Norway and Women”, published in 2012, argues that in the medical and legal professions in Sweden, which have got girls up to parity America, at least, women are ahead not roughly equal numbers, but 10-15 years lat- with boys in maths, struggle with uncom- only educationally but increasingly also er many women have chosen unambi- fortably wide gendergaps in reading. Since professionally and socially. Policymakers tious career paths or dropped out to spend 2003, the last occasion when the OECD did in many countries worry about the pros- time with their children. Meanwhile men a big study, boys in a few countries have pect of a growing underclass of ill-educat- are rising through the ranks as qualifica- caught up in reading and girls in several ed men. That should worry women, too: in tions gained long ago fade in importance others have significantly narrowed the gap the past they have typically married men and personality, ambition and experience in maths. No country has managed both. in their own social group or above. If there come to matter more. are too few of those, many women will Onwards and upwards have to marry down or not at all. The last bastion Girls’ educational dominance persistsafter Accordingto the OECD, the return on in- For a long time it was said that since wom- school. Until a few decades ago men were vestment in a degree is higher for women en had historically been underrepresented in a clear majority at university almost than for men in many countries, though in university and work, it would take time everywhere (see chart 2), particularly in not all. In America PayScale, a company to fill the pipeline from which senior ap- advanced courses and in science and engi- that crunches incomes data, found that the pointments were made. But after 40 years neering. But as higher education has return on investment in a college degree of making up the majority of graduates in boomed worldwide, women’s enrolment for women was lower than or at best the some countries, that argument is wearing hasincreased almosttwice asfastas men’s. same as for men. Although women as a thin. According to Claudia Goldin, an eco- In the OECD women now make up 56% of group are now better qualified, they earn nomics professor at Harvard, the “last students enrolled, up from 46% in 1985. By about three-quarters as much as men. A chapter” in the story of women’s rise— 2025 that may rise to 58%. big reason is the choice of subject: educa- equal pay and access to the best jobs—will Even in the handful of OECD countries not come without big structural changes. where women are in the minority on cam- In a recent paper in the American Eco- pus, their numbers are creeping up. Mean- Storming the ivory towers nomicReview MsGoldin found thatthe dif- while several, including America, Britain Tertiary enrolments, ratio of female to male ference between the hourly earnings of and parts of Scandinavia, have 50% more 100=gender parity highly qualified men and their female women than men on campus. Numbers in Central Europe East Asia & Pacific peers grows hugely in the first10-15 years of many of America’s elite private colleges & Baltics Arab countries working life, largely because of a big pre- North America are more evenly balanced. It is widely be- South Asia mium in some highly paid jobs on putting European Union lieved that their opaque admissions crite- Sub-Saharan Africa in long days and being constantly on call. ria are relaxed formen. Latin America On the whole men find it easierthan wom- & Caribbean The feminisation of higher education 150 en to workin this way. Where such jobs are wasso gradual thatfora longtime it passed common, for example in business and the unremarked. According to Stephan Vin- law, the gender pay gap remains wide and cent-Lancrin of the OECD, when in 2008 it 125 even short spells out of the workforce are published a report pointing out just how World severely penalised, meaning that mother- MORE FEMALES farit had gone, people “couldn’t believe it”. 100 hood can exact a heavy price. Where pay is Women who go to university are more roughly proportional to hours worked, as likely than their male peers to graduate, in pharmacy, it is low. and typically get better grades. But men 75 There will always be jobs where flexi-

and women tend to study different sub- MORE MALES bility is not an option, says Ms Goldin: jects, with many women choosing courses those of CEOs, trial lawyers, surgeons, 50 in education, health, arts and the human- some bankers and senior politicians come ities, whereas men take up computing, en- to mind. In many others, pay does not gineering and the exact sciences. In mathe- 25 need to depend on being available all matics women are drawinglevel; in the life hours—and well-educated men who want sciences, social sciences, business and law 1970 80 90 2000 12 a life outside work would benefit from they have moved ahead. Sources: World Bank, UNESCO change, too. But the new gender gap is at Social change has done more to encour- Interactive: Our “glass-ceiling index” reveals the best the otherend ofthe pay spectrum. And it is age women to enter higher education than and worst countries for equal treatment at work not women who are suffering, but un- anydeliberate policy. The Pill and a decline Economist.com/glassceiling skilled men. 7 Business The Economist March 7th 2015 63

Also in this section 64 Buffett’s unilluminating letter 65 The edifice complex of tech firms 66 Europe’s big telecoms consolidator 66 Our glass-ceiling index 66 A scandal in the art-broking business 69 E-commerce in Asia 70 Schumpeter: Management by goal-setting

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

Health care in America patients make the most ofthis new world. Patients are increasingly having to pay Shock treatment higher “deductibles” out of their own pockets, before the insurance kicks in, to keep the cost of the cover down. So for mi- nor ailments and simple tests, it makes sense for such patients to go to one of the increasing numbers of walk-in clinics, staffed by well-qualified nurses, on the A wasteful and inefficient industry is in the throes ofgreat disruption premises of retail pharmacies such as CVS HE best-known objective of America’s Obamacare has come into effect at a time and Walgreens (see chart). The prices are TAffordable Care Act of 2010—common- when American employers, who often clear, the care is cheap and the service is ly known as Obamacare—was to ensure provide health cover for their workers, are quick. Walgreens has a partnership with that the 40m-plus Americans who lacked seeking to cut its cost by encouraging them Theranos, a diagnostics firm, which offers health insurance could get it. Less widely to shop around on private exchanges, and customers a range of tests from a tiny drop appreciated, but at least as important, are by offering less generous plans. of blood. Walmart, a giant supermarket the incentives and penalties the law intro- The upshot is that there are growing chain with many in-store pharmacies, also duced to make the country’s hideously ex- numbers of consumers seeking better intends to become one of the leading sell- pensive and poorly performing health ser- treatment for less money. Existing health- ers of affordable health services, says Alex vices safer and more efficient. Economists care providers will have to adapt, or lose Hurd, its product-development chief. are debating how much credit Obamacare business. All sorts of other businesses, old For injuries and illnesses that are more should get for a recent moderation in the and new, are seeking either to take market serious but not immediately life-threaten- growth of health costs, and for a fall in the share from the conventional providers, or ing, lots of “urgent-care centres” are being number of patients having to be readmit- to provide the software and other tools opened as an alternative to going to a hosted to hospital (see page 27). Whatever the that help hospitals, doctors, insurers and pital emergency unit. Private-equity firms answer, many companies see the disrup- are pouring money into independent tion unleashed by the reforms as the busi- chains of centres. Merchant Medicine, a ness opportunity ofa lifetime. High-street healers consulting firm, reckons that between One ofthe biggest shifts under way is to Number of retail clinics in the United States them, these chains now have just over phase out the “fee for service” model, in CVS (MinuteClinic) 1,500 urgent-care centres, up from about which hospitals and doctors’ surgeries are Walgreens 1,000 1,300 at the start of 2013. The market is still reimbursed for each test or treatment with Kroger (The Little Clinic) fragmented but a national brand could Walmart no regard for the outcome, encouraging Target 800 emerge from one ofthe largest chains, such them to put patients through unnecessary All others as Concentra or MedExpress. and expensive procedures. Since Obama- Some hospital operators, seeking to cut care they are increasingly being paid by re- 600 their costs of care, and choosing to be sults—a flat fee for each successful hip re- among the disrupters rather than the dis- placement, say. There are also incentives 400 rupted, are also opening urgent-care cen- for providers which meet cost or perfor- tres. Aurora Health Care, a Wisconsin- mance targets, and new requirements for 200 based chain of hospitals and clinics, now hospitals to disclose their prices, which has more than 30 ofthem. can vary drastically forno clear reason. Hospital operators are now facing a Millions of people are now looking for 0 classic “innovator’s dilemma”, as de- 2007 08 09 10 11 12 13 14 15 health insurance on the new public ex- scribed by Clay Christensen, a Harvard Source: Merchant Medicine changes set up under the reforms. And business professor. If they persist with 1 64 Business The Economist March 7th 2015

2 their high-cost business model even as storage in the online “cloud”: Athena- sulting firm, puts it—the most significant re- their customers discover that cheaper al- health, a seller of medical back-office soft- engineering of the American health sys- ternatives are good enough, they will be in ware, is trying to get doctors and hospitals tem, by far the world’s costliest, since em- trouble. According to Strata Decision Tech- to move patients’ health records onto its ployers began providing cover for their nology, an analytics firm, many hospital cloud-based service. workers in the 1930s. groups saw what was coming and started And the revolution has only just begun. to cut their costs well before the provisions Preliminary diagnosis The Obama administration recently set a of Obamacare started to bite. One of the For supporters of Obamacare, it is clear target of making 50% of Medicare pay- fastest movers is Advocate Health Care, a that the reforms are empowering patients, ments value-based, rather than fee for ser- hospital operator from Illinois, which says driving public and private health insurers vice, by the end of 2018. America’s largest it now earns two-thirds of its revenues to achieve better value, forcing existing private payers have a target of75% by 2020. from value-based payments. providers to shape up and providing op- So hospitals do not have long to shape up. The largest chains of for-profit hospi- portunities fordisruptive newcomers. Dig- Some will have their profits squeezed, and tals, such as Tenet Healthcare, HCA and ital technology is also helping to increase customers stolen by new rivals. Some may Community Health Systems, are rather transparency about prices, makingit easier close, or be taken over. But for other busi- profitable. They have trimmed their costs, to share information and increase efficien- nesses, from supermarket and pharmacy been conservative with capital and, thanks cy. For some analysts it all adds up to a chains to digital-health startups, there will to Obamacare raising the number of “new health economy”—as PwC, a con- be billions to be made. 7 Americans with health insurance, now have more patients and fewer bad debts. However, credit-rating agencies are wor- Berkshire Hathaway ried about the prospects for the not-for- profit hospitals, which are 60% of the total. Corresponderous With lower margins, and less capital to make investments, they have become targets for takeover, says Jim Bonnette of The Advisory Board Company, another con- NEW YORK sulting outfit. Warren Buffett’s 50th annual missive to his company’s shareholders obfuscates As a result further consolidation in the ratherthan illuminates hospital business is likely. This could mean greater efficiency and lower costs. But if HE annual letters Warren Buffett sends that hang over Berkshire’s conglomerate antitrust authorities are not vigilant, it may Tto shareholders of Berkshire Hathaway model and its durability. Second, because lead in the longer term to a concentration are among the most influential documents ofthe uncharacteristiccoynesswith which of market power. If so, the benefits from in business. For 50 years they have offered Mr Buffett and his partner Charlie Munger the efficiencies beingwrungout ofthe hos- a ruthlessly honest review ofthe company —respectively aged 84 and 91—discuss how pital system may end up in the pockets of he runs. In 1999 Mr Buffett reflected on the or when they will give up their jobs. shareholders rather than saving patients worst year of his tenure. “Even Inspector First, the conglomerate question. Berk- and insurers money. Clouseau could find last year’s guilty shire has gradually shifted from being an Obamacare is also encouraging the cre- party: your chairman.” In his latest letter, investment vehicle that owns traded ation ofall sorts ofhealth-related advisory released on February 28th, he admits mak- shares to a collection of wholly- or partly- and intermediary companies that help ing a “big mistake” by hanging on to shares owned businesses, such as Heinz, a food care providers, insurers and patients save in Tesco, a troubled British retailer. manufacturer. Listed equities now make money. Acompany called Vitals approach- The letters have also provided an un- up only 22% of Berkshire’s assets, down es employees on behalfoftheircompany’s failingly intelligent explanation of the from 72% in 1994. Mr Buffett offers a barn- health plan, and offers them cash rewards, broader principles of investing, stripped storming defence of Berkshire as a con- and a taxi, if they agree to be treated at a bare of mumbo-jumbo. Little wonder that glomerate, which he says is sprawling, cheaper provider. The sums to be saved they are read around the world. Guo “and constantly tryingto sprawl further.” It can be astonishing: a newcost-comparison Guangchang, the boss of Fosun Group, a buys businesses to hold on to them for tool created byBlue CrossBlue Shield, a big Chinese conglomerate, is a fan. Jamie Di- ever, avoids getting involved in weak or alliance of private health insurers, has mon, the boss of JPMorgan Chase, models hard-to-understand companies, gives found that a colonoscopy with a biopsy his own letters on the sage ofOmaha’s. managers autonomy, ignores the advice of costs $8,489 at one clinic in Chapel Hill, Yet Mr Buffett’s 50th letter to share- investment bankers and keeps central North Carolina, but just $928 at another holders is an exception, serving to muddy overheads lower than a limbo stick. Berk- provider in Greensboro, only 50 miles rather than clarify, for two reasons. First, shire’s head office employs just 24 people. (80km) or so away. because it does not tackle the questions But the letter offers little analysis on 1 Cohealo offers a “sharing economy” solution for hospitals and clinics wanting to make the best use of expensive equip- Brought to book ment, in much the same way as Airbnb % change on a year earlier helps people with spare rooms fill them S&P 500 total return Berkshire Hathaway: book value per share market value with paying guests. Doximity is trying to 40 be a Facebook for doctors, letting them re- 20 fer patients and discuss treatments secure- + ly without the blizzard offaxes they rely on 0 Ð today. Grand Rounds is a sort of medical 20 Match.com: an online matchmaker that pairs patients with specialists. As in other 40 2005 06 07 08 09 10 11 12 13 14 industries, administrators are being tempt- Source: Company reports ed to switch to renting software and data The Economist March 7th 2015 Business 65

2 how much of Berkshire’s success is due to Mr Buffett rather than its business model. He makes “all major capital-allocation decisions”, according to the statutory annual report. The culture that keeps managers happy surely owes a lot to him, as does Berkshire’s reputation as a fine custodian, which is one reason why family-run firms like sellingoutto it. MrMunger, who writes his own letter, insists that there is a “Berk- shire system” that will endure his and his boss’s eventual departure, but he posits rather than proves this. MrBuffett used to argue that Berkshire’s book value per share, rather than its share price, was a good proxy for its long-term worth. But the group’s book value has stopped outperforming the broader stockmarket—in fact it has underperformed it in five of the past six years (see chart, previous page). So now Mr Buffett has begun to argue that book value is no longer such a good measure, and to give greater promi- Silicon Valley headquarters nence to Berkshire’s share price. This sort of goalpost-moving is a habit of lesser con- Googledome, or temple of doom? glomerates than Berkshire, and is hardly a promising sign. As forthe succession question, the message is cryptic. In his letter Mr Buffett says that “I believe we now have the right person to succeed me,” but declines to specify Tech firms are building pharaonic head offices again who thatis. MrMunger’sletterislessvague than that message but not entirely consis- ARC ANDREESSEN knows a thing or tures (pictured) that can be rearranged to tent with it. He mentions two individuals, Mtwo about Silicon Valley’s penchant meet changing requirements. Ajit Jain (who runs the group’s main insur- for status symbols and its braggadocio. As Apple’s new doughnut-shaped, four- ance business) and Greg Abel (who is in a venture capitalist and serial entrepre- storey headquarters, resembling nothing charge of its energy business), who he says neur, he has helped turn more than a few so much as an alien spacecraft lurking eeri- are “world-class” managers. minnows into high-tech giants. As an in- ly among a forest of 6,000 freshly planted Despite his stated confidence in the vestor, he serves these days on the boards trees, is under construction in Cupertino. next generation, Mr Buffett seems insecure of Facebook and Hewlett-Packard, among This “mother ship”, the costs of which are about their likely performance. His letter others. Along with avoiding such cardinal rumoured to have escalated beyond $5 bil- all but pre-commits his successor to a fixed sins as going public too soon and being too lion, will be two-thirds the size of the Pen- strategy, stating that no dividend or buy- eager to cash out, Mr Andreessen is ada- tagon and capable of housing more than backs are likely to occur for10-20 years. He mant that his charges must refrain, at all 12,000 people when it opens next year. is keen for his son, Howard, to take over cost, from pouring huge sums into glamor- There has not been such a flurry of edi- eventually as non-executive chairman, to ous new headquarters. fice-building in the Valley since the glory act as a safeguard in case “the wrong chief Silicon Valley did not invent the edifice days of the dotcom boom in the late 1990s. executive should ever be employed”. Mr complex. The compulsion to build monu- Firms like Sun Microsystems, Silicon Buffett owns about 34% of Berkshire’s vot- ments to a ruler’s power and prestige has Graphics, Excite and Borland Software ing rights, but he has also pledged to give existed since history began. But flush with built vainglorious corporate complexes away much of his wealth—so it is unclear cash and with interest rates near zero, the just before the tech bubble burst. By coinci- how much influence the family will have Valley’s leading lights are now competing dence, the tech-heavy NASDAQ composite in the long run. with each other over who can build the index this week hit 5,000 for the first time Berkshire has always been an uncon- most lavish digs, to feed their corporate since March 2000, when it peaked at 5,048. ventional firm, from its early investments egos as well as to attract and retain talent. By October 2002 it had fallen to 1,114, and in the unfashionable area of insurance, to Despite Mr Andreessen’s forebodings, many a glass palace in Silicon Valley stood its takeover of Burlington Northern Santa Facebook’s new West Campus in Menlo empty as a result. Fe, a railway operator, during the 2009 Park features a nine-acre (36,000 square As in every boom, the bulls say this slump, and its unshakable confidence in metre) rooftop picnic area and a tunnel time is different. At the height of the dot- America, which receives 90% of its capital under the adjacent expressway to connect com frenzy, NASDAQ companies’ shares investment and where it says “the mother itto the firm’sexistingheadquarters. When were trading at 50 times earnings. Now lode of opportunities” lies. Berkshire is 2,800 employees move in this summer, it is they are at a more realistic18 times(see But- worth $360 billion and is America’s fourth expected to be the world’s largest open- tonwood). Google, Apple and Facebook most valuable firm—so perhaps it has plan office. are highly profitable and look likely to re- earned the right to do as it pleases. Yet On February 27th Google sought plan- main so. Still, a New Yorker looking up at judged by the fine standard of its predeces- ning permission for an even grander cam- the Pan Am, Chrysler and General Motors sors, Mr Buffett’s 50th letter to share- pus than its existing Googleplex in Moun- buildings might recall, wistfully, that the holders, like Mr Munger’s, leaves them tain View. The 230,000 square metre site same must once have been said of those with more questions than answers. 7 will be covered by light, canopy-like struc- fallen titans, too. 7 66 Business The Economist March 7th 2015

Altice and Numericable-SFR price has more than trebled; it is now val- 4 times EBITDA. Both are at least double ued at more than €23 billion ($25 billion). the norm for mobile operators, though ca- Borrow, buy, cut Mr Drahi hit the headlines a year ago ble firms often have similar ratios. when Altice and Numericable, its French Analysts expect net debt to rise above cable subsidiary, bought control of SFR, even these limits once the payments to Vi- France’s second-biggest mobile operator, vendi and Portugal Telecom are factored PARIS from Vivendi, a conglomerate, for €13.5 bil- in. Nawar Cristini of Nomura, an invest- lion in cash. Itwasannounced on February ment bank, estimates Altice’s net debt by A fast-growing telecoms empire is being 27th that another €3.9 billion will secure the end ofits2015 financial year at4.8 times built on debt and cost-cutting Vivendi’s remaining 20% ofSFR. EBITDA, and that is before any bid for ATRICK DRAHI, the main mover-and- In December Altice bought Virgin Mo- Bouygues. On February 20th Moody’s, a Pshaker in Europe’s slowly consolidating bile France, the country’s largest “virtual” ratings agency, said it was reviewing Nu- telecoms market, says he likes to keep a mobile operator (meaning that it uses mericable-SFR fora possible downgrade. low profile. That is getting harder. On spare capacity on another operator’s net- Mr Drahi can muster powerful counter- Forbes magazine’s latest list of the world’s work), for an unspecified sum. The pur- arguments, however. At today’s low inter- richest people, published this week, he chase of Portugal Telecom from Oi, its Bra- est rates, investors are ravenous for yield; shot from 215th to 57th place, and from 14th zilian owner, in a deal valuing it at €7.4 Altice can borrow cheaply and in spades. to third in France. billion, is likely to close in late April. In all, Looking to raise €5.7 billion in January for The outfit through which he is trans- Altice and its subsidiaries have in the past Portugal Telecom, Altice found takers for forming the industry, as well as his own year or so spent about €28 billion on bulk- €60 billion; in April 2014 the group’s €12 fortunes, is still far from a household ing up. And there is speculation Mr Drahi billion package ofhigh-yield debt attracted name. Altice is a holding company regis- will make an offer for Bouygues Telecom, demand for$100 billion-worth. tered in Luxembourg, quoted in Amster- the third-biggestoperatorin France, forper- Ms Cristini calculates that Altice’s debt dam and 57%-owned by Mr Drahi through haps €7.5 billion-€9 billion. In all these ac- will fall slightly to 4.3 times EBITDA in 2017, another holding company called Next LP. quisitions, the plan is to send in a crack as cost savings boost profits. But this as- Until recently its main activity was acquir- team to cut costs quickly. sumesthatAltice can cutcostsasquickly as ing and sprucing up an eclectic collection Much of this dealmaking is financed by it hopes—no easy task in Europe—and that ofdozy cable (and some mobile) operators borrowing. Altice aims to keep its debt to it stops borrowing in order to expand. Hav- in countries from Israel to the Caribbean. four times earnings before interest, taxes, ing got so far with his debt-fuelled acquisi- But its sights have been raised. It was float- depreciation and amortisation (EBITDA); tion spree, it is hard to imagine Mr Drahi ed in January 2014. Since then its share and Numericable-SFR’s to between 3.5 and stopping now. 7

The art market The glass-ceiling index Progress towards workplace equality for Environment for working women, 2014 or latest Brush with the women comes in small steps. Last month 100=best possible score Keidanren, Japan’s powerful business (rank, selected countries out of 28) law lobby, appointed its first female exec- Change in rank on year earlier utive. This week Toyota announced its 0 20 40 60 80 first foreign female executive. Japan’s Finland (1) 2 A well-known middleman is accused of government is pressing businesses to -1 fleecing wealthy clients appoint more women to their boards. But Norway (2) as shown by our glass-ceiling index, Sweden (3) -1 NY billionaire with a weakness for Pi- updated to mark International Women’s Poland (4) Ð Acasso or Gauguin will know Yves Bou- Day on March 8th, it remains far behind vier. The suave Swiss businessman owns the Nordic countries, which are the best France (5) 1 and runs Natural Le Coultre, one of the places to be a working woman. Spain (8) 2 largestshippersand storersofartfor super- The index combines data on higher edu- New Zealand (10) -5 rich clients. He pioneered the concept of cation, labour-force participation, pay, fine-art freeports—fancy storage and priv- child-care costs, maternity rights, busi- Canada (11) -2 ate-viewing facilities that are popular with ness-school applications and repre- Israel (13) -2 plutocrats who have far more paintings, sentation in senior jobs. Finland is now in Germany (15) 3 sculptures and fine wine than they can fit first place, leaping ahead of Norway and in their palaces. Mr Bouvier has also bro- Sweden, in part because it has recently Australia (16) Ð kered discreettransactionsbetween collec- given women almost two and a half weeks United States (17) Ð tors, and it is this role of middleman that of extra paid maternity leave. New Zea- has landed him in trouble. Italy (18) 3 land has slipped five places, because of On February 28th Mr Bouvier was mise the rising cost of child care. Britain (22) Ð en examen (charged) in Monaco with fraud This year’s index includes Turkey, which Switzerland (25) Ð and complicity in money-laundering, and

with South Korea and Japan is among the OECD AVERAGE subsequently bailed for €10m ($11m). The Turkey (26) na worst OECD member countries for wom- investigation isoverthe alleged bilking ofa en’s workplace equality. It has the largest Japan (27) Ð long-standing client: Dmitry Rybolovlev, gap between male and female workforce South Korea (28) Ð an oligarch who made his fortune in fertil- participation, and the lowest share of Sources: OECD; Catalyst; Egon Zehnder; European isers and owns the principality’s football women in senior management jobs—10%. Commission; GMAC; ILO; Inter-Parliamentary Union; club. The Russian grew suspicious after a Turkish women can only dream of the World Economic Forum; The Economist chance meeting with the seller of a work rights enjoyed by their Finnish sisters. Interactive: Select weights for nine indicators to he had bought through Mr Bouvier. (Buy- create your own index at Economist.com/glassceiling ers and sellers in high-end art deals are of-1

The Economist March 7th 2015 Business 69

E-commerce in South-East Asia By far the biggest challenges are payment and delivery. Fewer than one in ten Home-field South-East Asians has a credit card, and those that do have them tend not to use advantage them online, for fear of fraud. So a big chunk of Lazada’s customers prefer to pay JAKARTA in cash when their goods arrive, which requires more sophistication from delivery The global online-shopping giants may partners. Postal services are often sluggish not find it easy to conquerthe region and unreliable—especially in the vast ar- ROPICAL rain pounds on the roof of a chipelagos of Indonesia and the Philip- Tcavernous warehouse near Jakarta, pines—and local logistics firms are still un- Indonesia’s capital. Inside, youngsters in used to handling high volumes of small orange T-shirts haul around clothes, lug- packages. About a third of Lazada’s orders gage and electrical goods for Lazada, an e- are delivered by its own fleet of vans and commerce firm, which has just moved in. motorbikes, which now serve more than The 12,000 square metre space is three 80 South-East Asian cities. times the size of the depot it has vacated, Lazada’s rapid growth has started to but it already looks full. Three years ago rouse competitors, including the big con- Lazada’s entire stock filled a storeroom the glomerates whose shopping centres domi- size of a studio flat, recalls Magnus Ekbom, nate the region’s retail markets. On Febru- Head-scratcher, and Mr Bouvier its twenty-something boss in Indonesia. ary 25th Lippo Group launched Matahari- Internet shopping accounts for less Mall, a new e-commerce venture, in 2 ten kept at arm’s length.) He concluded than 1% of all purchases in South-East partnership with the Matahari chain of de- that the broker must have secretly raised Asia—a region twice aspopulousasAmeri- partment stores, in which Lippo owns a his cut by fiddling documents so that the ca, where the proportion is nearly10%. But stake and which are anchor tenants of buyer’s paperwork showed a higher price surging smartphone use and a broadening some ofLippo’s shopping centres. than the seller’s. Mr Bouvier’s lawyers middle class mean the market is set to mul- Messagingservices and web portals are have denied that he was involved in any tiply; perhaps fivefold by 2018, reckons turning to e-commerce to boost their pro- wrongdoing. Frost & Sullivan, a consulting firm. Since it fits. In February, Line, a popular messaging The case could undermine the viability launched in 2012 Lazada has laid claim to app owned by Naver of South Korea, start- ofR4, a €150m exhibition-and-performing- six South-East Asian countries, largely un- ed selling groceries in Thailand. Last Octo- artsparkspread over20,000 square metres challenged by e-commerce giants such as ber Softbank, a Japanese internet and tele- of Île Seguin, in Paris; building work is due Amazon of the United States, Alibaba of coms conglomerate, and Sequoia Capital, to start this year, and Mr Bouvier is the China and Rakuten of Japan. It may soon an American investor, put $100m into main backer. It could also lead to greater have to fight them forits territory. Tokopedia, a sort ofIndonesian eBay. scrutiny of his state-of-the-art freeports in Lazada was created by Rocket Internet, But the most serious threat to Lazada Geneva, Singapore and Luxembourg, a Berlin-based investor and incubator that comes from the overseas e-commerce which between them house hundreds of cranks out startups designed to dominate giants. After Lazada was set up, Indonesia billions of dollars’ worth of valuables. emerging markets. Rocket still holds a 24% passed a law banning further foreign in- These were already under the regulatory stake, though Lazada has now raised more vestment in e-commerce firms which hold spotlight for the tax benefits and secrecy than $600m from investors including their own inventory (Tokopedia does they offer—though Mr Bouvier has always Tesco, a British grocer, and Temasek, a not)—but politicians have recently talked vehemently rejected claims that they are Singaporean sovereign-wealth fund. These of repealing it. Amazon has begun offering havens fordodgy deals or ill-gotten wares. deals appearto value it at about $1.3 billion, free delivery to big-spending South-East Whatever the facts of the present case, which could well make it South-East Asia’s Asian shoppers who don’t mind waiting critics say it is time a harsher light was dearest technology firm. for wares shipped from America. Last shone on the art world. Oversight has re- Like other Rocket companies, Lazada is month Alibaba opened an Indonesian out- mained scant, even as art has flourished as run by a gaggle ofyoung European expatri- post of Aliexpress, which helps shoppers an asset class. Stories abound of collusion ates, plucked from finance and consulting. import goods from Chinese manufactur- among bidders to support prices at auc- It seems ready to stomach years of losses. ers. In May it took a 10% stake in Singpost, tion, and “chandelier bidding”, in which In the first halfof2014—the only recent per- Singapore’s state postal service—perhaps auctioneers call out phoney bids, while iod for which results are available—it lost in preparation for a more vigorous assault. gazing vaguely over bidders’ heads. Auc- $50m before interest, tax, depreciation and Max Bittner, Lazada’s overall boss, tion houses cleaned up their act after a amortisation, on revenues of$60m. thinks it would take time for these firms to price-fixing scandal in the 1990s but some Again like other Rocket companies, its replicate his firm’s local knowledge and still engage in questionable practices, such critics say it is just a copycat, in this case a delivery networks. One of his priorities is as “irrevocable” bids, whereby third par- mere clone of Amazon. Lazada’s bosses to expand relationships with suppliers tiesguarantee a sale price and take a cutif it say such charges underestimate the so- and manufacturers in China, the better to is exceeded, but do not have to disclose if phistication and gumption required to suc- compete with the bottomless catalogue of they themselves bid the price up. ceed in places such as Thailand, Indonesia, cheap products which Alibaba, in particu- Given the opacity of the business, alle- the Philippines and Vietnam. Online mar- lar, could bring to the region. South-East gations ofshenanigans can be hard to veri- keting is trickier there than in America or Asia may still prove big and diverse fy. Its defenders argue that buyers are gen- Europe, because locals use a much wider enough forseveral large e-retailersto co-ex- erally rich and sophisticated, and can look variety of search and social-media sites. ist—but investors will spill a lot of red ink after themselves. Indeed, other billionaire The region’s diversity means constant finding out, thinks Paul Srivorakul of buyers are now likely to follow Mr Rybo- tweaking ofonline portals to suit local lan- aCommerce, which processes online or- lovlev’s lead and track down sellers, to see guages and cultures. It also means battling ders for consumer brands and retailers. “It iftheir paperworkmatches. 7 a hotch-potch ofcustoms rules. could be a bloodbath,” he says. 7 70 Business The Economist March 7th 2015 Schumpeter The quantified serf

Management by goal-setting is making a comeback, its flaws supposedly fixed ting, ofwhich over90% have produced positive results, says Gary Latham ofthe University ofToronto. Ifso, it must surely be one of the most tested, and proven, ideas in the whole of management theory. The studies show that an employee with a goal that is clear and simple, and challenging yet attainable, will perform better than one whose only instruction is to do as good a job as possible. Among other things, such a goal helps an individual or team to focus, to evaluate performance, to assess whether to maintain or change course, and to enjoy a sense of achievement when they succeed. Recent evidence also supports Mr Duggan’s argument that it pays to set goals more frequently than once a year. A study of big companies by Deloitte, a consulting firm, found that those which set goals quarterly were nearly fourtimes more likely to be in the top quartile of performers. (It also found that more than half of senior executives have their goals revised in the course of the year, but only one-third ofmiddle managers do so.) Then again, there is also ample evidence of the nasty consequences that can follow when employees are given poorly chosen objectives. Forinstance, a recentstudybyMrLatham and others found that managers who believe they have been set a goal HINK of it as the workplace equivalent of the Fitbit or Nike that is unattainable are more likely to abuse their subordinates. TFuelBand: a way to set your goals and monitor your progress, “It’s like taking out your frustrations by kicking the dog,” he says. and to share the journey with colleagues, who will cheer you on It can be hard to judge the dividing line between goals that are and give you a helpful nudge whenever you fall behind. Or, for suitably stretchingand ones that are excessively demanding, says the more sceptically inclined employee, think of it as a way to Max Bazerman of Harvard Business School. He was one of the make the big boss even more like Big Brother. authors of a 2009 study in failure, “Goals Gone Wild”, which “Quantified work” is the vision of BetterWorks, a Silicon Val- found several adverse side-effects of poor objective-setting. leystartup thataimsto bring“goal science” to officeseverywhere. These included employees neglecting important matters that Its software lets groups of employees collaborate in setting each happened not to be included among their goals; the corrosion of other’s objectives. Everyone can see how everyone else is doing, a workplace’s internal culture; reduced motivation among by means of a smartphone app. This sort of collegial, real-time employees; and the temptation to indulge in unethical or risky performance measurement has already been introduced at some behaviour. For example, an hourly revenue goal for car-repair ofthe Valley’s most prominent firms, such as Google, Twitter and workersatSearsin the 1990sled to systematicovercharging, often Intel. BetterWorks’ version is so far being used by 50 businesses, for work that was not needed. A goal of getting the Ford Pinto to from Vox, a media company to Kroger, a grocery chain. market by 1970 led to the car being launched in a hurry without “The traditional once-a-year setting of employee goals and safety checks that might have revealed a deadly tendency forit to performance review is totally out of date,” says Kris Duggan, one burst into flames in accidents. of BetterWorks’ founders. “To really improve performance, goals need to be set more frequently, be more transparent to the rest of Measured response the company, and progress towards them measured more often.” Mr Duggan argues that the BetterWorks system, by letting every- Working out how best to set targets for employees has long one in a firm see everyone else’s goals, harnesses crowdsourcing been an obsession ofmanagementthinkers. In 1954 PeterDrucker to ensure that the objectives are neither too hard nor too easy. came up with a theory of “management by objectives”. He pro- Goal-setting should also be separate from performance reviews posed that bosses should set the company’s overall goals and that influence salary and bonuses, he says, to give workers per- then, in discussion with each worker, agree on a subset ofgoals to mission to test themselves and sometimes to fail. Google expects align what they were supposed to do with the goals of the firm. its goals to be met only 60-70% ofthe time, forexample. Drucker believed that these goals should be SMART (specific, Letting employees set and monitor their goals in collabora- measurable, actionable, realistic and time-sensitive). His idea tion, and giving them licence to fail occasionally, may well be fea- was briefly the height of corporate fashion. Yet its results were sible at young, innovative firms, such as Google, with a high-per- often disappointing and even Drucker lost some of his enthusi- formance culture. It is harder at businesses where staff are asm forit. One problem wasthatitwastoo bureaucratic. Another, disengaged and managers less open to experimentation. And according to today’s management thinkers, was that Drucker even Google sometimes gets its goals in a twist. Reports on its re- focused only on outcome goals (say, increase sales by 20% a year), cent decision to withdraw Google Glass temporarily from the whereas the ideal outcome is often uncertain. It is sometimes bet- market suggest that the wearable computer was launched too ter to set workers indirect goals, such as gathering data, that will soon. Sergey Brin, one of the firm’s founders, was said to have in- point to what the final objective should be. sisted on pressing ahead, despite his engineers’ protests that they There isnonethelessa wealth ofevidence thatsetting well-de- could not make the product good enough by his deadline. Even signed objectives does improve employees’ performance. There the most motivated and dedicated workers may fail to meet their have been more than 1,000 academic experiments in goal-set- goals ifthe boss demands the impossible. 7 Finance and economics The Economist March 7th 2015 71

Also in this section 72 Buttonwood: The curse of scale 75 Citigroup’s long march 76 Greece’s sputtering economy 77 Deﬂation looms again in Japan 78 Training professional investors 80 Free exchange: Questioning secular stagnation

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

Global banks ceed the potential benefits. It all seemed far rosier 20 years ago. A world of pain Back then banks saw that globalisation would lead to an explosion in trade and capital flows. A handful of firms sought to capture that growth. Most had inherited skeleton global networks of some kind. BNP NEW YORK European lenders such as Paribas and Deutsche Bank had been active abroad for The giants ofglobal finance are in trouble over a century. HSBC and Standard Char- NLYpop music and pornography em- standing boss, Peter Sands. tered were bankers to the British empire. Obraced globalisation more keenly Domestic lenders that global banks Citigroup embarked on a big international than banks did. Since the 1990s three kinds have long sneered at are doing farbetter. In expansion a century ago; Chase, now part ofinternational firm have emerged. Invest- Britain, Lloyds has recovered smartly over of JPMorgan Chase, opened many foreign ment banks such as Goldman Sachs deal the past two years. In America the most branches in the 1960sand 1970s. in securities and cater to the rich from a highly rated banks—based on their share As they expanded in the 1990s and handful of financial hubs such as Hong price relative to theirbookvalue—are Wells 2000s all of these firms concentrated on Kong and Singapore. A few banks, such as Fargo and a host ofmidsized firms. multinationals, which required things like Spain’s Santander, have “gone native”, es- The panic about global banks reflects trade finance, currency trading and cash tablishing a deep retail-banking presence their weak recent results: in aggregate the management. But all expanded beyond in multiple countries. Butthe mostpopular five firms mentioned above reported a re- these activities to varying degrees and in approach is the “global network bank”: a turn on equity of just 6% last year. Only different directions; today they typically jack of all trades, lending to and shifting JPMorgan Chase did passably well (see account for only a quarter of sales. Deut- money for multinationals in scores of chart). Investors worry these figures betray sche and StanChart bulked up in invest- countries, and in some places acting like a adeeperstrategicproblem. There isa grow- ment banking. BNP built up retail opera- universal bank doing everything from ing fear that the costs of global reach—in tions in America. At the most extreme end bond-trading to car loans. The names of terms of regulation and complexity—ex- of the spectrum Citi and HSBC tried to do the biggest half-dozen such firms adorn everything for everyone everywhere, skyscrapers all over the world. through lots of acquisitions. They sold de- This model ofthe global bankhad a rea- Not good enough rivatives in Delhi and originated subprime sonable crisis in 2008-09: only Citigroup Return on equity for major global banks, 2014, % debt in Detroit. required a full-scale bail out. Yetit isnowin Actual ROE “Best case” ROE* This model is in trouble for three rea- deep trouble. In recent weeks Jamie Di- 024681012 sons. First, these giant firms proved hard to mon, the boss of JPMorgan Chase, has JPMorgan Chase manage. Their subsidiaries struggled to been forced to field questions about break- build common IT systems, let alone estab- ingup hisbank. StuartGulliver, the head of HSBC lish a common culture. Synergies have HSBC, has abandoned the financial targets Standard been elusive and global banks’ cost-to-in- that he set upon taking the job in 2011. Citi- Chartered come ratios, bloated by the costs of being group is awaiting the results of its annual Citigroup in lots of countries, have rarely been better exam from the Federal Reserve. If it fails, Deutsche Bank than those of local banks. As a result these calls for a mercy killing will be deafening firms have all too often been tempted to nil (see next story). Deutsche Bank is likely to BNP Paribas make a fast buck. Citi made a kamikaze ex- shrink further. Standard Chartered, which *Return on core Tier-1 equity. cursion into mortgage-backed bonds in operates in Asia, Africa and the Middle Sources: Company Excludes “one-off items” and 2005-08. StanChart made loans to indebt- reports; The Economist assumes 12% core-capital ratio East, is parting company with its long- ed Asian tycoons. 1 72 Finance and economics The Economist March 7th 2015

2 Second, competition proved to be fierc- operations. Banksupervisors, meanwhile, have im- er than expected. The banking bubble in If mismanagement and fierce competi- posed higher capital standards on global the 2000s led second-rate firms such as tion were problems before the crisis, the banks. Most face both the international Barclays, Société Générale, ABN Amro and regulatory backlash after it has been bru- “Basel 3” regime and a hotch-potch oflocal Royal Bank of Scotland (RBS) to expand tal. American officials have begun to en- and regional regimes. A rule of thumb is globally, eroding margins. In 2007 RBS force strict rules on money-laundering, tax that big global banks will need buffers of bought ABN in a bid to rival the big net- evasion and sanctions, meaning that glo- equity (or “core tier one capital”) equiva- work banks. It promptly went bust, prov- bal banks must know their customers, and lent to 12-13% of their risk-adjusted assets, ing that two dogs do not make a tiger. The their customers’ customers, if they want to compared to about10% for domestic firms. global giants also lost market share in Asia maintain access to America’s financial sys- National regulators increasingly demand to so-called “super-regional” banks, such tem—which is essential given that the dol- that global banks ring-fence their local op- as ANZ of Australia and DBS of Singapore. lar is the world’s reserve currency. Huge erations, limiting their ability to shift capi- Big local banks in emerging markets, such fines have been imposed on StanChart, tal around the world. The cost of operating as ICBC in China, Itaú in Brazil and ICICI in BNP and HSBC, among others, forbreaking the systems that keep regulators happy is India, also began to build out cross-border these rules. huge. HSBC’s compliance costs rose to $2.4 1 Buttonwood The curse of the top dog

Apple’s low price-earnings ratio reflects understandable scepticism PPLE’Sgrowth record isstaggering. The cation strategy. Remember Kidder Pea- Acompany’s share price has risen more Better to travel hopefully body, the investment bank that it was than 300-fold since flotation. It recently Average ten-year total return, 1983-2005, % forced to sell in the mid-1990s after large became the first company in history to Most valuable company in S&P 500* losses in bond trading. reach a market capitalisation of $700 bil- S&P 500 There seems to be an innate tendency lion, givingita biggervalue then the entire for market giants to underperform (see 0 250 500 750 1,000 1,250 1,500 stock exchanges of Mexico, Russia or Sau- chart). Between 1983 and 2005, the title of di Arabia. In the first quarter of its current Before largest company in the S&P 500 switched being financial year, Apple generated more most between IBM, Exxon Mobil, GE and Mi- than $30 billion of cash. At that rate, it valuable crosoft. In the ten years before each be- could pay off Greece’s entire debt burden came top dog, these stocks achieved an within three years. After average return of1,282%, compared with a being While sales of both the iPod and iPad most return of 302% for the S&P 500 over the have been slipping, more than 1% of the valuable same period. But in the ten years after global population bought an iPhone in *IBM, ExxonMobil, GE and Microsoft they reached the peak, the average return Sources: Thomson Reuters; The Economist the latest quarter. Overall, sales were 30% of the top dogs was just 125%, compared higherthan in the same quartera year ear- with 199% forthe S&P 500. lier. The next big hope is the Apple Watch, gerous than the tendency to extrapolate The simplest explanation is that com- which may be unveiled on March 9th. from a recent trend. panies become “hot stocks” because of a Back in the late 1990s, when the dot- At some point, a company will so dom- combination of rapid growth in profits com boom was in full swing, you would inate its market that further growth be- and a widely admired business model. have expected a company growing that comes impossible. The executives may be- This prompts investors to award the com- fast to have traded on a price-earnings ra- come complacent and fail to recognise the pany a premium rating, pushing up its tio of100, or at least 70-80. But at the start threat ofnew products and services. Think market value. By that stage, the company of March, based on earnings forecasts of of how Nokia dominated the market for isvulnerable to disappointment: either its $8.50 forthe currentyear, Apple’sp/e ratio mobile phones, only to be caught out by profits growth will falter or doubts will is just15. That is the kind of rating given to the rise of first BlackBerry and then Apple appear about its long-term potential. Pro- a run-of-the-mill stock, not a turbo- and Samsung. It takes an enormous fit forecasts will be reduced, or the multi- charged growth star. amount of willpower to respond to an ple investors are willing to pay for those This may reflect scepticism about evolving market by cannibalising your profits will fall. whether the company can replace the own product; few executives have been Since Apple does not command that iPhone with a hotnewproduct: the watch able to manage it. high a rating at the moment, investors are may not do the trick. But investors may Another option is for a big company to clearly dubious about its long-term also be recognising an old problem. Com- use its cash or shares to diversify into other growth prospects. After all, just to main- panies cannot grow forever at the kind of sectors, but history suggests this approach tain its recent sales pace, it will have to sell pace Apple has been managing. has only a limited chance of success. The 3 billion iPhones over the next ten years. In his book “The Second Curve”, management usually spends too much And ifthe stockwere to replicate the aver- Charles Handy, a management guru, re- money on the acquisitions and too much age 125% total return of previous top dogs, counts seeing a graph in the office of IBM time tryingto integrate the new businesses its market value would have to reach $1.4 showing American GDP on one line and into the merged group. Even GE, the only trillion by 2025. Perhaps everyone will be the company’s revenues on another. The survivor from the original list of compa- wearing Apple watches and driving Ap- latter were eventually projected to over- nies comprising the Dow Jones Industrial ple carsbythen. Buthistory, and the stock- take the former. Mr Handy assumed the Average back in 1896 (sadly, National Lead market, suggest not. graph was a joke, but the Big Blue execu- and Tennessee Coal & Iron are no longer tives were serious. Nothing is more dan- with us), has made mistakes in its diversifi- Economist.com/blogs/buttonwood Physiology and Fitness Taught by Dean Hodgkin INTERNATIONAL FITNESS EXPERT TIME LECTURE TITLES ED O T FF 1. Components of Fitness I E IM R 2. How Fit Are You? L 3. Overcome the Barriers to Exercise 70% 4. Your Heart in Action 5. The Fitness of Breathing O off 3 6. You Can Reduce Stress R 2 7. Fitness and Pregnancy D H ER RC 8. Refuel, Recover, and Reenergize BY MA 9. Thinking—The Brain-Body Connection 10. Healthy Joints for Life 11. Protecting Yourself from Injury 12. 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2 billion in 2014, 50% higherthan the yearbe- fore. JPMorgan is spending $3 billion more on controls than it did in 2011. One measure of these firms’ viability is their “best case” return on equity (ie, as- suming that the huge, supposedly, one-off legal fines and restructuring costs incurred over the past half-decade suddenly stop, but the new capital standards are fully implemented). On this basis most global banks barely achieve 10% (see prior chart). The overall figures hide lots of rot. After three decades oftrying to diversify from its base in Asia, HSBC still makes the bulk of its money there; the other two-thirds of its business underperforms badly for the most part. JPMorgan Chase’s profits are more evenly spread, but about two-thirds ofitsbusinessesfail to crossthe 10% hurdle. The same is true of StanChart. From the outside—and perhaps from the inside, too—Citi’s reporting system is too crude to make any sensible judgment. Deutsche looks better than most, but many of its rivals question its capital calculations. Another test of viability is to compare the benefits of being global with the costs. In February JPMorgan Chase said that the Citigroup revenue uplift and cost savings it gets from its scale boost profits by $6 billion-7 billion Citi never reaps a year. There is a plausible case that the extra capital it must carry, and the regulatory costs its complexity incurs, offset a big chunk of that benefit. (If they dared to reveal them, the figures for other banks NEW YORK would probablylookfarworse.) Scale does Making money from a global banking networkis as difficult as it is alluring not seem to mean cheaper funding. It is no cheaper to buy a credit-default swap, ILLIAM BRADY (pictured above, in of OneMain Financial, a subsidiary that which pays out ifa borrowergoes bust and Wthe middle) and Howard Sheperd makes high-interest consumer loans, and a so is a reasonable proxy for borrowing had each spent more than 30 years at Na- stake in Akbank, a Turkish lender. costs, on the debt of JPMorgan Chase or tional City Bank before becoming its lead- In spite of all this restructuring, Citi’s Citi than it is on that of mid-sized Ameri- ers in 1948. But even after all that time, they performance remains dismal. Part of the can banks. All are regarded by debt inves- were not really sure how the sprawling fi- problem is the endless restructuring itself: tors as government-backed. nancial conglomerate that would become provisions related to it were $148m in the The financial arguments for global Citigroup made money. George Moore, first quarter of 2013, $75m in the second, banksno longerappearconvincing. Yet un- who would later rise to chairman, was ap- $133m in the third, $234m in the fourth, scrambling these firms would be hellish. pointed head of a “New Look Committee” $211m in the first quarter of 2014, $397m in And in any case both managers and inves- to unravel the mystery. His conclusion: the second, $382m in the third and $655m tors see two possible rays of light. One is “We have never really known just where in the fourth, accordingto S&P Capital IQ, a gradually rising interest rates in America: we made our net profits, but have general- financial-data firm. Its return on equity last JPMorgan Chase reckons these might add a ly proceeded on the assumption that we year was 3.4%. Regulators have frozen its fifth to its profits by 2017. The other is de- should encourage the growth of all these dividend at one cent per share (a yield of clining competition, which would allow businesses to the maximum, on the theory less than 0.1%) since the crisis. Even as the them to raise their prices. The withdrawal that the more they grow the more money share prices of other American banks ap- of second-tier banks should help—on Feb- we could make.” proach or pass their pre-crisis peaks, Citi’s ruary 26th RBS said it would shrink its The assumption underthe currentboss, is down by 90% (see chart on next page). Its commercial and investment-bankingoper- Michael Corbat, is precisely the opposite. market capitalisation is well below its ations down to 13 countries from over 50 at But working out how Citigroup makes its book value, suggesting it would be more the peakofits pomp in 2008. money—and therefore which parts of the valuable ifbroken up. Yet there are always new competitors to business are most dispensable—is just as On March 11th the Federal Reserve will push down margins. Japanese banks are vexing. In total, Mr Corbat reckons 60 busi- reveal the results of the second of the two on a cross-border lending bender for the nesses have been sold since the crisis. annual “stress tests” it conducts for big first time since the 1980s. China’s banks are Amongthem are brokerage arms in Ameri- banks, which attempt to simulate down- steadily expanding. The Western network ca and Japan, a student-loan operation and turns to make sure that banks have enough banks were right to assume that globalisa- some credit-card units. The most visible capital to withstand them. Citi failed this tion would lead to a big increase in the contraction has been in Citi’s consumer test in 2012 and in 2014, and as a result has amounts of money sloshing around the business, which is shrinking from 50 coun- not been allowed to raise its dividend. The world. They have yet to work out how to tries to 24, and in America, from 14 cities to first failure prompted the depature of its prosper from it. 7 seven. This week, Citi announced the sale then chiefexecutive, Vikram Pandit; a third 1 76 Finance and economics The Economist March 7th 2015

2 one would probably put an end to Mr Cor- make any sense: American clients come to bat’s tenure. Cititank it for seamless access to foreign markets, Citi’s sprawl is hard to fathom. It is pre- Share prices, March 2005=100 and vice versa. sentin 101countries, and handles$3 trillion It is possible that Citi is already shrink- of transactions daily. It finances $600 bil- 200 ing too much, consuming the seed corn lion in trade every year. More than half its that will produce profits later on, specu- JPMorgan Chase deposits are foreign—far more than any 150 lates Charles Peabody, an analyst with Por- other American bank, according to Moebs Wells tales Partners. Operations like retail bank- Services, a research firm. Foreign opera- Fargo ing, brokerage and asset management take tions provide 60% of its revenue; two- 100 time to build but provide steady pay-outs thirds come from emerging markets. This once established. It is this part ofCiti that is part of the bank initially catered to multi- Bank of being shed. America 50 nationals, and to the American govern- Citigroup Whatremainsisa more opaque and vo- ment and military. But as ever more, and latile corporate bank. Citi, Mr Peabody smaller, firms expanded abroad, its cus- 0 says, has recently become farmore eager to 2005 07 09 11 13 15 tomer base grew. undertake various risky sorts of transac- Source: Bloomberg Citi’sinternational presence hasalways tions, such as “bought deals”, in which a been both a strength and a liability. Take its bank buys a huge block of shares in the Chinese operations, which helped keep liquid assets add yet more complication hope that it can sell them in smaller parcels the bankafloat in the 1930s, only to be forc- and expense. Each time the overall capital ata profit. The mostrecentdata from Amer- ibly closed in 1949. By the same token, Ba- requirement increases by a percentage ican regulators, from September, show namex, its Mexican unit, has been one of point, Citi’s return on equity declines by a that Citi held derivatives contracts with a the most profitable parts of the bank, but similar amount, Mr Chubakestimates. notional value of $70 trillion—far more lost $360m due to fraud in 2013. Frank Van- These rules are giving smaller banks, or than any other commercial bank. derlip, the CEO who first expanded purely domestically focused ones, a com- Citi says it is simply catering to its cus- abroad, nearly killed the bank with a hefty petitive advantage. American banks that tomers, who want to hedge against move- bet on Russia just before the revolution. He regulators do not consider systemic, for in- ments in commodities and currencies. But was succeeded by James Stillman, who stance, need an equity buffer of just 7%. it is also on an increasingly urgent hunt for staked Citi’s fortunes on global sugar mar- Even Wells Fargo, America’s biggest bank decent profits. How to produce them, how- kets with similarly disastrous results. Next by market capitalisation, must hold only ever, is a question that has bedevilled Citi- up was “Sunshine Charley” Mitchell, who 10%, Mr Chubakestimates, thanks to its do- group formore than a century. 7 expanded both abroad and at home in the mestic focus. It is no coincidence that Wells run-up to the Depression, leaving the bank recently exceeded the record valuation for in need ofits first government bail-out. an American financial firm set by Citi in Greece’s economy If anything, the risks of big internation- 2001, of$283 billion. al operations appear to be growing. The Mr Corbat’s response to all this, and Mr Running on empty fines and investigations the bank faced for Pandit’sbefore him, hasbeen to shrink and its dealings in American mortgages before simplify. Citi’s workforce has dropped by the crisis seem to be fading away. But it over a third since 2007, from 375,000 to faces continuing litigation over allegations 241,000. It will continue to fall. Consumer ATHENS that it manipulated currency markets and businesses are being jettisoned in various Political brinkmanship has exacted a interest rates and helped its clients launder countries in the Middle East and Latin heavy economic toll money. Banamex is the subject of a fresh America, where concerns about money- investigation; foreign transactions that laundering and financing terrorism are N LATE February, as Greece’s new prime may have helped companies to avoid most acute. Iminister, Alexis Tsipras, reversed a cru- American taxes have also caught the au- But just how far to go is hard to decide. cial campaign pledge and infuriated his thorities’ attention. Some activities still look like anomalies: it left-leaning Syriza party by asking for a Increasingly, big banks are held respon- is the only big bank that uses proprietary four-month extension ofthe country’s hat- sible not only for their own misdeeds, but designs forits cash machines. Others, such ed bail-out, there waslittle sense of crisisin also for the conduct of their clients. They as OneMain, are easily shorn, but very central Athens. Cafés were busy; streets have to be on the look-out not only for spe- profitable: its return on equity is19%. were clogged with traffic. cific crimes like fraud, but for unsavoury Reducing the retail business is especial- The impression of business as usual people and activities, from tax evasion to ly fraught. Citi initially tried to shrink its was illusory. The new government may terrorism, more generally. operations in Texas to two cities, Dallas have stepped back from the impending rift On top of this, big global banks face and Houston. But customers were put off with its creditors, but its readiness to go so ever higher capital requirements, with by its diminished presence, so it was forced close to the edge hashurtthe economy and overlapping regulations set in multiple ju- to pull out of the state altogether. Analysts brought the state close to bankruptcy. risdictions. The discussion of Citi’s obliga- question whether it has an adequate net- Worse, there is scope for more damage to tions in this respect in its latest regulatory workin the suburbs ofChicago and Boston be done this spring, since nothinghas been filing extends over 17 pages. The most im- to preserve its business in those cities. settled between the Greek government portant elements, says Steven Chubak, an Contraction abroad carries similar and the IMF, the European Central Bank analyst with Nomura Securities, are the 9% risks. Operations in obscure or hazard- (ECB) and the European Commission (the in common equity demanded by interna- prone countries may provide little or no re- institutions that speak for Greece’s credi- tional banking standards (more than dou- turn on their own, but may also be where tors). Fleshing out the thin list of reforms ble the pre-crisis level of 4%) and various Citi provides the greatest value to multina- the government has presented so far is surcharges imposed by the Fed, which tionals, in thatcompanieshave fewreputa- bound to be an agonising process. push the total to 11%. Further impositions ble alternatives when doing business in The Greek economy had at last begun may be on the way, includinga “countercy- such places. Hiving off Citi’s corporate to grow again in 2014, after six years of re- clical capital buffer”. Rules on holdings of business in different countries would not cession had lopped more than a quarter 1 The Economist March 7th 2015 Finance and economics 77

2 off GDP. Output started to increase in the Inflation in Japan first three months of last year (compared with the final three of 2013) and growth The signal and the continued into the third quarter, when GDP rose by 0.7%, one of the best perfor- noise mances in the euro area. That seems like a distant memory now. TOKYO In the final three months of 2014, as elec- The BankofJapan is still farfrom its tions loomed, output fell by 0.2%. The po- inflation target, but that may matter less litical turbulence has buffeted the economy and public finances in three main RECENT speech by Haruhiko Kuroda, ways. First, anxieties about a possible Agovernorofthe BankofJapan, referred “Grexit” from the euro and the forced con- wistfully to the monetary regime in New version ofbankaccounts into less valuable Zealand in the 1990s, in which the finance drachmas caused a massive drain of de- minister offered the central-bank governor posits (see chart). In December and Janu- “escape clauses” absolving him of blame ary Greek households and businesses for missing inflation targets if, say, com- pulled €17 billion ($19 billion) out ofbanks; modity prices fluctuated wildly. For Mr Ku- astonishingly, the outflows over these two roda, there is no “get out of jail free” card. months were biggerthan those in May and The BoJ’s target, laid down in 2013, was to June 2012, when two elections were held raise core inflation (a measure that in- and fears ofa Grexit also loomed large. The cludes energy but excludes fresh food) to withdrawals continued in the first three A euro in hand is worth two in the bank 2% byApril. Itremainsfarshortofthat goal. weeks of February, reportedly at a weekly In January, core prices rose by a mere 0.2% rate ofbetween €2 billion and €3 billion. forms that creditors still insist upon and year on year, excluding the effect of a re- The loss of deposits, which brought that are supposed to steady both the econ- cent increase in the consumption tax. Ja- Greece alarmingly close to imposing capi- omy and the public finances. On the cam- pan may even lurch back into deflation in tal controls, has undermined the banks. paign trail Syriza denounced many of the coming months. They have had to turn to the Greek central them as intolerable. The precipitous fall in the price of oil bank to tap “emergency liquidity assis- Third, the political storm has induced a has thrown the BoJ off course. During the tance”. Since such support is kept on the crisis in the public finances. Cut off from early stages of its monetary-easing pro- shortest-possible rein by the ECB in Frank- the bond markets again and without help gramme, which began in April 2013, the furt, this means that the banks are still from official lenders, the Greek govern- weakening ofthe yen raised the cost of im- acutely vulnerable. With their funding in ment is struggling to pay its bills. This ported energy, which in turn boosted infla- disarray they are in no position to help month is particularly tough as it has to find tion. That may have lulled Mr Kuroda into businesses by making new loans, so the €1.5 billion to repay a portion of its debt to overconfidence. In early 2014 he basked in shortage of money at the banks is now af- the IMF, as well as €4.5 billion to redeem the success of the monetary “arrow” of fecting the wider economy. maturing Treasury bills. Even if the bills Abenomics, the economic revival plan of Second, the political upheaval has can be refinanced, money is tight because Shinzo Abe, the prime minister. In April of created fresh uncertainty. With Greece’s tax revenues are down by €2 billion in Jan- that year the consumer-price index (CPI) place in the euro once again in question, uary and February compared with the reached 1.5%. Mr Kuroda might then have domestic investors have put projects on same two months in 2014. Many taxpayers pointed out that inflation was artificially hold and foreign investors have been have simply stopped paying taxes in the high, says Christopher Wood of CLSA, a scared away. This paralysis will not abate hope that the new government will be broker. Instead the governor declared in until a lasting deal with creditors is struck more lenient. the summer that price growth would nev- that rebuilds confidence in Greece’s long- The worse the economy does, the more er again sinkbelow1%. term future within the euro area. Syriza’s the public finances will deteriorate. The But if things were not as rosy as they climbdown in late February has bought government had won permission from its looked back then, they are also now less time but it has not brought any money creditors to run a smaller primary budget dire than they seem. “Core core” CPI, from Greece’s creditors. None will be avail- surplus (ie, excluding interest payments) which excludes energy as well as fresh able until the government shows that it is than previously planned, but that conces- food, is healthier, at 0.4%. The BoJ expects sincere in its promise to complete the re- sion may now be meaningless. And if the thatthismeasure ofinflation will stay posi- government responds by allowing arrears tive or rise, even as core CPI falls. Econo- on purchases it has made to build up, as mists reckon that Mr Kuroda chose the The price of politics has happened in the past, that will hurt the wrong gauge of prices. Switching now, Greece, private-sector bank deposits, €bn businesses that go unpaid. however, might damage the bank’s credi- FIRST BAIL-OUT ELECTIONS Amid the gloom, there is one piece of bility even more than the return of defla- 240 good news. The turmoil does not appear to tion. Measures of inflation expectations, 220 have harmed tourism bookings. The hope meanwhile, remain fairly stable. is that 2015 will be anothergood year, after For the broader economy, moreover, 200 the number of tourists reached a record of cheaper oil is greatly to be desired. The lift 22m in 2014. But for Greece to resume its to growth from increased household 180 economic recovery a lot ofthings will have spending capacity should eventually spur 160 to go right. In particular, Mr Tsipras will price rises. All in all that should add back have to break more election promises. some ¥7 trillion ($58 billion) to the econ- 140 Even if he climbs down completely, how- omy, roughly the same sum taken out by ever, there is no way to undo the damage the rise in the consumption tax last April. 2006 07 08 09 10 11 12 13 14 15 already done to the economy by the events The government seems to be signalling Source: Bank of Greece ofthe past few months. 7 that it is relaxed about Mr Kuroda’s failure 1 78 Finance and economics The Economist March 7th 2015

2 to meet his goal. The idea of setting 2% as a If the BoJ does end up easing further, it ond woman to the board, which would ad- target was a fine one, but the BoJ should will need to handle internal opposition. In vance another aim of Abenomics, to boost not be too theoretical, says Takeshi Nii- October dissent on its policy board about the role of women in the workplace. Yet nami, a businessman who sits on an im- the merits of monetary easing made a there are few ardent reflationists among fe- portant economic-policy council. Inflation close thing of Mr Kuroda’s surprise deci- male academics. The pool is narrowed fur- of 0.5%-1% would be adequate, says a close sion to loosen further: he won the day by ther by the apparent need to have a totally advisor to Mr Abe. five votes to four. The government will anodyne personal life: one potential can- Many argue that the Bank of Japan’s stack the board with easing advocates didate is said to have been ruled out be- quantitative easing (QE, the printing of when current members retire in the com- cause she had recently acquired a licence money to buy bonds, in the hope of stok- ing months. One idea is to appoint a sec- forprofessional mah-jong. 7 ing inflation) is now serving chiefly to in- flate asset-price bubbles, particularly in To- Training professional investors kyo’s property market. A weaker yen is seen as negative for household purchasing power. All this leaves many officials luke- Off-track betting warm about furthermonetary easing. Another reason to hold fire could be Fund managers turn to a cycling coach that the BoJ’s ability to ease may run into practical limits as it hoovers up ever more ROFESSIONAL cycling is not the of the Japanese government-bond (JGB) Pobvious place to lookforlessons in market. It is now buying about ¥80 trillion investing. But in the past year several big oflong-term JGBs a year, over twice the an- British investment firms, including GLG nual issuance. At the end of 2014 it owned Partners, J.O. Hambro and Schroders, about ¥200 trillion of JGBs, or nearly a have used the services ofShane Sutton, quarter of the outstanding stock. Even big- the technical director ofBritain’s cycling ger purchases would further distort the team. Mr Sutton, they hope, will teach bond market. Although the aim of QE is to managers to steer clear ofbiased hunches lower rates and spur lending, the BoJ pre- and performance-sapping habits. sumably does not want to dispense with Mr Sutton’s coaching insights range the discipline ofthe market altogether. from the mundane—12-hour days offer Then again, saysNaohiko Baba ofGold- diminishing returns—to the arresting: he man Sachs, “It is hard to imagine the Bank discovered that one trader made his most of Japan doing nothing if CPI turns nega- profitable decisions outside the office, tive this year.” Other options include making him the rare employee who adopting a negative interest rate for excess could plausibly claim to be adding value bank reserves, or buying up equities. For on the golfcourse. He sent one trader now the BoJ has simply delayed its dead- home fora weekto breaka losing streak. line for reaching inflation of 2% until early- Mr Sutton works with a firm called ish next year. Inalytics, which uses data to lookfor Mr Kuroda’s new mantra is higher other foibles among its clients. The most wages as the key to lifting both inflation common is the tendency to sell winners and overall growth (Japan exited two too early, cashing in a profit only to see quarters of mild recession in the fourth the stockgain further(economists call It applies to the economic cycle too quarter, when GDP expanded by an annu- this “the disposition effect”). The firm has alised 2.2%). In January he made a surprise crunched 12m individual trades going Investors should be especially wary visit to a meeting of Japan’s main associa- backto 2002, across 900 portfolios, to oftwo portfolio techniques that act as tion of trade unions. Prospects for raises examine the performance ofwinning Trojan horses forsuch biases. The first is during the spring wage offensive (shunto), stocks—those worth more when sold top-slicing, whereby managers sell part now under way, seem promising. After last than when bought. In all but a tiny num- ofa money-making position. They may year’s shunto, base salaries rose forthe first ber ofcases, returns would have im- claim this is to avoid holding too much of time in more than a decade, by 0.4% (see proved by1-2% a year ifthe stocks had a single stockor in order to manage port- chart). A higher rise is expected this year. been held fora further12 months. folio risk; frequently they are just selling Holding onto losers that you should winners. The second is the practice of have sold in the hope that they will recov- building up a position slowly: buying a One out of two ain’t bad er is the flipside ofthe disposition effect, small amount ofthe stock, waiting to see Japan’s: and means portfolios tend to contain ifit goes up, then buying more ifit does, % change on a year earlier more losers than winners. A study con- thereby missing out on a portion of the 2 ducted in 2006 by Andrea Frazzini, an initial gain. contractual wages academic and investor, found that man- In his pep talks, Mr Sutton reminds 1 agers ofAmerican mutual funds sold an traders ofsuch pitfalls. He issurprised by + average of3% more winners than losers how much they rely on gut instinct, he 0 from 1980 to 2003. But the impact on says. Their employers, however, are – performance ofholding losers is harder “starting to embrace the idea that any- 1 to measure: they frequently turn into thing can be coached”. Investors might core consumer prices* winners when the price ofa stockrecov- benefit from coaching, too. The hope of 2 ers, even though the manager might have picking winners leads customers to 2010 11 12 13 14 15 done better to take the loss and reallocate active funds, when passive ones tend to Sources: Statistics Bureau of *Excludes impact of the money to another stock. do even better. 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1. Bloomberg, as of 2/5/15. Cash is deﬁ ned as cash and marketable securities. Corporate universe is S&P 500 companies ex-ﬁ nancials. 2. Based on $4.652 trillion in AUM as of 12/31/14. Visit www.iShares.com or www.BlackRock.com to view a prospectus, which includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Risk includes principal loss. Funds that concentrate investments in a single sector may underperform or be more volatile than other sectors or than the general securities market. Technology companies may be subject to severe competition and product obsolescence. This information is strictly for illustrative and educational purposes and is subject to change. Funds distributed by BlackRock Investments, LLC. ©2015 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. iS-14497-0215 80 Finance and economics The Economist March 7th 2015 Free exchange Still, not stagnant

Economic history suggests that talkofAmerican secularstagnation may be overblown S AMERICA stuck in a rut of low growth, feeble inflation and the brink of insolvency. The authors note that such stormy peri- Irock-bottom interest rates? Lots of economists believe in the ods are usually short-lived, and that when the headwinds abate idea of “secular stagnation”, and they have plenty of evidence to the equilibrium rate tends to pop backup. point to. The population is ageing and long-run growth prospects They also reckon the stagnationists are misinterpreting some look dim. Interest rates, which have been near zero for years, are ofthe evidence. Growth in the 1990s was not illusory, they argue. still not low enough to get the American economy zipping along. The stockmarket boom only really got going in 1998, after Ameri- A new paper published by the University of Chicago’s Booth ca’s unemployment rate had already fallen below 5%. School of Business, however, reckons that secular stagnation is The expansion ofthe 2000s looks like a better example of sec- not quite the right diagnosis for America’s ills.* ular stagnation. Investment in housing, which rose from 4.9% of Acountry in the grip ofsecularstagnation cannot find enough GDP in 2001 to 6.6% at the market’s peak in 2006, helped sustain good investments to soak up available savings. The drain on de- the boom. Risinghouse pricesmade Americansfeel flush, propel- mand from these underused savingsleadsto weakgrowth. Italso ling consumer spending. Expanding credit added about one per- leaves central banks in a bind. If the real (ie inflation adjusted) centage point to growth each year, says the paper. “equilibrium” interestrate (the one thatgetsan economy growing Yet the behaviour of the economy in this period looks more at a healthy clip) falls well below zero, then central bankers will like a product of distortion than stagnation. At the time China struggle to push theirpolicyrate lowenough to dragthe economy and oil-producing states were running enormous current-ac- out oftrouble, since it is hard to push nominal (ie, not adjusted for count surpluses with America and building up large foreign-ex- inflation) rates deep into negative territory. Worse, in the process change reserves, contributing to what Ben Bernanke, Mr Green- oftrying, theymayend up inflatingfinancial bubbles, which lead span’s successor as Fed chairman, labelled a “global saving glut”. to unsustainable growth and grisly busts. Expensive oil and rising Chinese imports placed a drag on Stagnationists argue that this is not a bad description ofAmer- growth thatmore orlessoffsetthe boostfrom housing. Take away ica since the 1980s. Real interest rates have been falling for years, the savings glut and the housing boom, and the American econ- they note, a sign ofa glut ofsavings. Recoveries from recent reces- omy would not necessarily have grown any faster or slower, just sions have been weak and jobless. When growth has perked up, more healthily. soaring asset prices and consumer borrowing appear to have done the heavy lifting. Wallowing The authors of the Chicago paper—James Hamilton, Ethan What about the situation now? Some of the distorting forces of Harris, Jan Hatzius and Kenneth West—dispute this interpretation recent years are slowly fading. Household finances are certainly of events. Stagnationists are right, they note, that real interest in bettershape aftera longperiod ofdeleveraging. That is helping rates have been falling, and have in fact been negative for much to power a consumer-driven recovery in America that will even- of the past 15 years. But low real rates do not necessarily imply tually lead to higher interest rates. that future growth will be weak, as many economic models as- On the other hand, stagnationists argue that the effects of de- sume. The authors examine central-bank interest rates, inflation mographic change are intensifying. Baby-boomers approaching and growth in 20 countriesover40 years. Theyfind atbesta weak retirement may be stashing more money away. Longer lifespans relationship between economicgrowth and the equilibrium rate. continue to spur saving. Axel Gottfries and Coen Teulings of Ifthere is a long-run link, they argue, it tends to be overshadowed Cambridge University have found that the increase in life expec- by other factors. tancy over the past 40 years in rich and middle-income countries Afterthe second world war, forexample, governmentcontrols has raised the desired stockofsavings by two times GDP. on rates (“financial repression”) prevented the market from hav- Global conditions must also be taken into consideration. The ing its say. In recent years short-run woes have dragged down the authors of the Chicago paper calculate that over the long term, equilibrium rate, such as the “50-miles-per-hour headwinds” America’s real interest rate tracks the one prevailing across the that Alan Greenspan, the chairman of the Federal Reserve, de- world as a whole (see chart). Yet since about 2000 the real rate in scribed in 1991, when bad loans pushed big American banks to America has generally been well below that of the world as a whole. The authors argue that thanks to the mobility of international capital that gap should soon close (albeit in part because They’ll come crawling back global rates will probably fall). On theirbest estimates America’s Real interest rates, % equilibrium rate hasprobablyfallen a little, relative to the average 20 from the 1960suntil 2007 ofabout 2%. But, they argue, the decline World is smallerthan many stagnationists believe, and the rate is almost certainly positive. Nor is a lower rate now a sign that growth will 10 permanently fall below past averages. + That is still no reason to breathe easy. Alow equilibrium rate 0 raises the risk that central-bank interest rates will sometimes be- – come stuck at zero, leaving an economy in a prolonged slump. 10 Even ifthe riskofsecularstagnation isoverdone, the authorsreck- 7 United States* on that the Fed has good reason not to raise rates too soon. 20 ...... 1860 1900 1950 2000 14 * Studies cited in this article can be found at www.economist.com/secstag15 Source: J. Hamilton, E. Harris, J. Hatzius and K. West *Based on expectations of inflation Economist.com/blogs/freeexchange Property 81

The Economist March 7th 2015 82 Science and technology The Economist March 7th 2015

Also in this section 83 Computers, cryptography and the law 84 Printing jet engines

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Brain evolution and disease process of learning. So Dr Cattaneo began by looking into how the huntingtin gene A Faustian bargain evolved in creatures with increasingly complex nervous systems. Huntingtin-like genes go back a long way, and display an intriguing pattern. A previous study had found them in Dictyo- stelium discoideum, an amoeba. Dictyo- stelium’s huntingtin gene, however, con- Could the key to the evolution ofthe human brain be found in a dreadful illness? tains no CAG repeats—and amoebae, of UNTINGTON’S disease is awful. It C, A and G are repeated several times, in course, have no nervous system. Dr Catta- Hslowly robs its victims of mobility, that order. This translates into a chain of neo added to this knowledge by showing wits and emotions. And there is no cure. identical amino acids within the hunting- the huntingtin genes of sea urchins (crea- The idea that it might be the obverse of tin molecule. (The amino acid in question tures which do have simple nervous sys- something good sounds, to say the least, is called glutamine.) In most people, the tems) have two repeats; those of zebrafish counter-intuitive. Yet that is the contention number of repeats ranges from nine to 35. have four; those of mice have seven; those of a small band of neuroscientists who These people are healthy. Those with 36 or of dogs, ten; and those of rhesus monkeys have been studying it. They suggest the un- more repeats are, however, at risk of devel- around 15. derlying cause of Huntington’s, a strange oping Huntington’s—and those with more The number of repeats in a species, form ofgenetic mutation called a triplet-re- than 40 will definitely develop it, unless then, correlates with the complexity of its peat expansion, might also be one of the they die beforehand ofsomething else. nervous system. Correlation, though, does driving forces behind the expansion of the Harmful dominant mutations such as not mean cause. Dr Cattaneo therefore human brain. Huntington’s, these people this are rarities. Unlike recessives, they turned to experiment. She and her col- suspect, may be a price humanity pays for have nowhere to hide from natural selec- leagues collected embryonic stem cells being clever. tion. It is that which has led some people to from mice, knocked the huntingtin genes Most genetic diseases are recessive. wonder if there is more to Huntington’s out of them, and mixed the knocked-out This means a faulty gene inherited from disease than meets the eye. That even the cells with chemicals called growth factors one parent can be covered for by a healthy healthy have a variable number of repeats which encouraged them to differentiate one from the other. For someone to suffer suggests variety alone may confer some into neuroepithelial cells. symptoms, both of his or her parents must advantage. Moreover, there is a tendency A neuroepithelial cell is a type of stem have a faulty copy ofthe gene in question— for children to have more repeats than cell. It gives rise to neurons and the cells unless the victim is a man and the faulty their parents, a phenomenon known as that support and nurture them. In one of gene is on his single X chromosome. Hun- anticipation. This suggests a genetic game the first steps in the development of a ner- tington’s by contrast is a dominant disease. of“chicken” isgoingon: up to a point, more voussystem, neuroepithelial cellsorganise A faulty gene from either parent is enough repeats are better, but push the process too themselves into a structure known as the to cause it. farand woe betide you. neural tube, which is the forerunner of the The fault’s nature is also strange. Usual- brain and the spinal cord. This process can ly when a gene goes wrong, part of it is ei- The trouble with triplets be mimicked in a Petri dish, though imper- ther missing or has the wrong genetic let- Elena Cattaneo, a cell biologist at the Uni- fectly. In vitro, the neuroepithelial cellslack ters in it. In Huntington’s, the disease- versity of Milan, has been investigating appropriate signals from the surrounding causing version of the gene has too much this idea for the past three years. Hunting- embryo, so that instead of turning into a DNA, not too little, and the protein pro- tin’s exact role remains obscure. But it is neural tube they organise themselves into duced, known as huntingtin, is thus too known (because it is produced in the rele- rosette-shaped structures. But organise big. One part ofevery huntingtin gene con- vant cells) to be involved in both the con- themselves they do—unless, Dr Cattaneo tains a stretch in which the genetic letters struction of brains in embryos and in the found, they lackhuntingtin. 1 The Economist March 7th 2015 Science and technology 83

2 Replacing the missing gene with its the extra tissue is likely to end up as a bur- that seems to be in social species, where equivalent from another species, however, den that cannot be accommodated into the intelligence they bring can be used to restored the cells’ ability to organise them- the brain’s architecture, and thus causes understand and manipulate other group selves. And the degree to which it was re- disease. More CAGs are therefore neces- members. Big brains may also be sexy, in stored depended on which species fur- sary, but not sufficient, for a more sophisti- the way that peacocks’ tails or child-bear- nished the replacement. The more CAG cated nervous system—and too many are ing hips are, and thus deliberately selected repeats it had, the fuller the restoration. bad foryou. in partners by members of the opposite This is persuasive evidence that CAG re- That makes sense, but does not quite sex. Both of these mechanisms will lead to peats have had a role, over the course of capture what is happening in humans. Fol- an arms race in which the important thing history, in the evolution of neurological lowing Dr Cattaneo’s logic, most people is to have a bigger brain than your neigh- complexity. It also raises the question of might be expected to have 36 repeats, for bour’s. In these circumstances a mutation whether they regulate such complexity maximum neurological benefit with mini- which made it easier for big brains to within a species in the here-and-now. mum risk. In fact, the average is 17. But the evolve might do well. Anticipation could They may do. At the time Dr Cattaneo range goes up above 200. And then there is be such a mechanism. was doing her initial study, a group of doc- the odd phenomenon of anticipation to The speed of the human brain’s expan- tors led by Mark Mühlau of the Technical explain, too. sion is one of the most remarkable phe- University of Munich scanned the brains What causes anticipation is unknown. nomena in evolutionary history. It has tri- of around 300 healthy volunteers, and But it might, in conjunction with human- pled in volume in less than 4m years. That also sequenced their huntingtin genes. ity’s unusual habit of living in social this was permitted by a mutation which These researchers found a correlation be- groups, be the key to what is going on. constantly generates brains that push the tween the number ofa volunteer’s CAG re- Big brains are expensive to run, so will upper limits of the possible is a specula- peats and the volume ofthe grey matter (in appear only when they are useful. Mostly, tion. But it is an intriguing one. 7 other words, nerve cells) in his or her basal ganglia. The job of these ganglia is to co-or- dinate movement and thinking. And they are one of the tissues damaged by Hun- tington’s disease. Another investigation into huntingtin’s role in brains is now being carried out by Peg Nopoulos, a neurologist at the Univer- sity of Iowa. She and her team are testing the cognitive and motor skills of children aged between six and 18, and comparing these volunteers’ test performances and brain scans with their CAG counts. So far, Dr Nopoulos has tested 80 children who have 35 or fewer repeats. She has found a strong correlation between the number ofrepeats and a child’s test performances. More repeats are associated with both higher intelligence and better physical co-ordination (the former effect seems more pronounced in girls and the latter in boys). Like Dr Mühlau, Dr Nopoulos has found a correlation between repeat numbers and the volume of the basal ganglia. She has also found a correlation with the volume of the cerebral cortex—another Computer security area affected by Huntington’s. In the next part of her study, Dr Nopou- The law and unintended consequences los plans to look at children whose repeat count is above 35—that is, in the range where disease is possible but not certain. If the trend to higherintelligence and co-ordination continues here, it will suggest some sort of equilibrium between the positive The perils ofdeliberately sabotaging security and negative effects of extending the glutamine chain in huntingtin, and that the OMPUTERS are notoriously insecure. search in Computer Science and Automa- game ofgenetic chicken is thus real. C Usually, this is by accident rather than tion, in France, discovered something design. Modern operating systems contain slightly different. They found a serious Repeat performance millions of lines of code, with millions flaw in cryptography designed to guard Dr Cattaneo’s view is that something simi- more in the applications that do the things private data such as e-mails, financial in- lar is happening at an evolutionary scale. people want done. Human brains are sim- formation and credit-card numbers as they Pushing up the CAG count increases the plytoo punyto build somethingso compli- wing their way across the internet. By ex- amount of neural tissue available, but this cated without making mistakes. ploiting this flaw, a malicious hacker could only helps if it is accompanied by the evo- On March 3rd, though, a group of re- see such information as unencrypted lution of other developmental processes searchers at Microsoft, an American com- text—and thus insert data of his own, such that can organise the extra tissue into puter company, Imdea, a Spanish research as password-stealingcode, while making it something useful. If that does not happen, institute, and the National Institute for Re- seem to come from a trusted source. 1 84 Science and technology The Economist March 7th 2015

2 Discovering such bugs in the mess of 3D printing code that underpins the internet is not unusual. But unlike most flaws, this one— dubbed FREAK (for “Factoring RSA Export Entering the jet age Keys”)—is not an accident. Rather, it is a direct result of the American government’s Aircraftengines may soon be built one layerat a time attempts to ensure, two decades ago, that it could spy on the scrambled communica- DDITIVE manufacturing, as it is alloy then solidifies and adds to the tions of foreigners. That is an idea which, Aknown to those who use it—or 3D growing structure. On-the-ground tests following Edward Snowden’s revelations printing, as the rest ofthe world more are encouraging, but proofwill come about the long reach of Western spy agen- poetically calls it—is unlikely to replace when a plane powered by the tweaked cies, is backin the news again. the metal bashing ofmass production Trents takes off—which the firm hopes to In the early1990sthe internetwasan ac- anytime soon. But forbespoke applica- try out later this year. ademic network that was only just begin- tions, even those that must meet tough The Monash device, put on display in ning to reach into the outside world. Secu- engineering requirements, or “toler- the closing days ofFebruary at the Aus- rity was an afterthought. Programmers at ances”, it may oust more traditional tralian International Airshow, is what is Netscape, a firm which made an early web methods surprisingly quickly. Building a known as an auxiliary power unit. It browser, decided to correct that. They machine’s components a layer at a time generates electricity rather than thrust came up with a way to use high-quality means that complicated shapes can be and is used, among other things, to help cryptography to secure the link between a made more easily than by starting with a start an aircraft’s main engines. It works, web page and its visitors. lump ofmetal and removing what is not though, on the same principles as a jet In those days America’s government needed. There is also far less waste. that is designed to propel an aircraft. classified cryptography—then an arcane The latest straws in the wind come WuXinhua ofMonash’s Centre for subject, of interest mostly to soldiers, dip- from the world’s antipodes. In Britain Additive Manufacturing (pictured, with a lomats and spies—as a munition, and regu- Rolls-Royce, a large engineering firm, is disassembled version ofthe engine) and lated its export. American software com- testing the technique formaking parts of her colleagues based their power unit on panies could therefore supply their foreign commercial-jet engines. In Australia a a model built by Safran Microturbo, a clients only with an emasculated version group ofresearchers at Monash Universi- French firm with which they are collabo- that American spies, with their piles of ty, in Melbourne, has built an entire, rating. They used a laser, rather than an powerful computers, were able to break. albeit small, such engine this way. electron beam, to do the melting. The It is this weakened cryptography that Rolls-Royce’s plan is to use 3D printing result—whose components are made FREAK exploits. Although America’s rules to construct the front bearing housing of from titanium, nickel and aluminium were relaxed years ago, many web servers its Trent XWB-97 engines. The bearing alloys—is 60cm long and 40cm in diame- and browsers retain the code needed to housing includes 48 aerofoil vanes which ter when assembled, and weighs 38kg. comply with them—for this code still guide air into the jet’s compressor. It is 1.5 Whether it works has yet to be deter- works and no one has bothered to rewrite metres in diameter, measures halfa mined, but a test is planned. it. The researchers found a way to per- metre from front to back, and is made of Like Rolls-Royce, Safran does not suade servers to generate 1990s-quality en- an alloy oftitanium and aluminium. intend to print entire engines routinely. cryption keys from this code, and browsers Engineers in Rolls-Royce’s addi- Some parts, such as the central shaft, to accept them. In the 1990s, only govern- tive-manufacturing division, led remain easier to make by standard ments had the computing muscle to break by Neil Mantle, have been mak- “subtractive” manufacturing. But such keys. These days, $50 oftime on Ama- ing experimental bearing hous- both firms’ interest shows that a zon’s cloud-computing service will do. ings forthe Trent using a version of technology which was, not so long According to the researchers, millions 3D printing that employs a beam of ago, regarded by many as a bit of a of people are likely to be vulnerable. For electrons to melt layers of toy, really is now ready for the trick to work, someone must be using powdered alloy. The melted some heavy-duty work. an affected piece of software such as Ap- ple’s Safari web browser, or the standard browser built into phones powered by Google’s Android operating system (though not Chrome, Google’s proprietary browser). Theymustalso connectto a website that is configured in a way that makes the exploit possible. When the bug was announced, there were millions ofsuch sites, includingthe websites ofthe White House, American Express and Bloomberg. This time, fortunately, there is an easy fix. The number of vulnerable sites is already falling and Apple has promised a begun demanding that those firms install Western governmentsisvulnerable to any- patch within days. But the idea of deliber- cryptographic “back doors” to allow spies one who finds it. Matthew Green, a cryp- ately weakening cryptography in the to unscramble those same communica- tographer at Johns Hopkins University, in name of national security has not gone tions, while reassuring citizens that their Baltimore, observes, “this [vulnerability] away. MrSnowden’s revelations about the security would remain strong. David Cam- has been open for decades. Who knows extent of Western surveillance have per- eron, Britain’s prime minister, said recently whether it’s ever been exploited? There are suaded many information-technology that there should be no form of communi- lots ofsmart people out there.” Weakening firms—including Google and Apple—to be- cation that the government could not read. everyone’s security in the name of coun- gin encrypting their users’ communica- But mathematics applies to just and un- ter-terrorism may be a worthwhile trade- tions. Western governments, in turn, have just alike; a flaw that can be exploited by off, but it is a trade-offnonetheless. 7 Books and arts The Economist March 7th 2015 85

Also in this section 86 America’s global dominance 86 Murder in Los Angeles 87 Benjamin Disraeli’s marriage 88 The enfants terribles of fashion 88 Making the Impressionists

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

The Ottoman Empire about the slaughter in Europe, Mr Rogan, the director of the Middle East Centre at Heading towards disaster Oxford University, sets out to tell the story through Ottoman eyes. Although he does notalwayssucceed in deliveringthat view- point, the book stands alongside the best histories. Mr Rogan ably weaves the think- ingand doings ofthe politicians and generals with theirimpact on the soldiers and ci- How a multinational Muslim empire was destroyed by the first world war vilian populations. He sketches many NTO us a son is born!” It was with The Fall of the Ottomans: The Great War revealing vignettes: Anzac troops rioting great excitement that Enver Pasha, around the brothels of Cairo; soldiers in “U in the Middle East. By Eugene Rogan. the most powerful of the triumvirate of the desert struggling to distinguish enemy Basic Books; 442 pages; $29.99. Allen Young Turks who ruled the Ottoman Em- combatants from harmless sheep; and a Lane; £25 pire, greeted the news that two German north African soldier-poet describing the warships had sailed into neutral Turkish carnage in a foreign field at Charleroi in waters on August 10th 1914. The Goeben, a na was broken up; the first modern Belgium: “They perished without anyone heavy battleship, and the Breslau, a light genocide, of the Armenians, was commit- reciting the profession of faith for them, cruiser, had bombarded French Algerian ted; the Arab provinces were parcelled up Lords! They lay exposed to the wild beasts, ports at the start of the first world war, and into benighted colonial “mandates”; the eagles and birds ofprey.” were being pursued by French and British foundationsofthe future Jewish state were Mr Rogan offers a nuanced account of vessels across the Mediterranean. laid; and the caliphate, established in the the greater and lesser moments—the Allied The Turks extracted a high price for earliest days ofIslam, was abolished. disaster at Gallipoli, the quagmire at Kut, granting the ships haven, including recog- If Germany’s humiliation at Versailles the mass-murder of the Armenians, the nition oftheir demands forthe recovery of set the stage forGerman revanchism in the Arab revolt, the conquest of Baghdad and territories lost in earlierconflicts and finan- second world war, then the dismantling of Jerusalem, and the messy political scram- cial help if they entered the war. To avoid the Ottoman Empire created the festering ble forDamascus. immediate hostilities, though, the Turks os- sore that is today’s Middle East. “The legiti- But he is arguably at his most interest- tensibly bought the German ships (and the macy of Middle Eastern frontiers has been ing in his account of the failure of what the services of their crews), replacing two called into question since they were first Kaiser called Islampolitik, the idea that alli- dreadnoughts that had been ordered from, drafted,” writes Eugene Rogan. “Arab na- ance with the Muslim power, and the au- but requisitioned by, Britain. tionalists in the 1940s and 1950s openly thority of the caliphate, would weaken Thus did Germany appear to gain a called for unity schemes between Arab Britain and France by subverting the Mus- new ally, and Turkey a protector against states that would overthrow boundaries lim populations of their colonies in India dismemberment. The Ottomans came widely condemned as an imperialist lega- and north Africa. There were isolated suc- fully into the war two months later, when cy.” Nearly a century and several wars lat- cesses, including the enlisting of French Germany sent the now Turkish-flagged er, the worst exponents of that resent- north African prisoners-of-war to serve in Goeben to attack the Russian navy in the ment—the jihadists of Islamic State—have Ottoman armies. But despite the call to ji- Black Sea. The European war turned glo- proclaimed the recreation ofthe caliphate. had, for the most part Muslim populations bal, with Indians, Australians and New The story of how the Ottoman Empire and soldiers remained loyal to their colo- Zealanders brought in to fight against Ar- stumbled into a conflict for which it was nial masters. Even the revelation of Allied abs and Turks. The conflict was to prove as unprepared, how it put up a stronger fight double-dealing to carve up the Middle disastrous for the Ottomans as for Ger- than anyone expected and how its carcass East, as detailed in the Sykes-Picot agree- many, ifnot more so. A multinational Mus- was torn apart are the subject of Mr Ro- ment, did not blunt the rebellion of the lim empire that had once threatened Vien- gan’sassured account. Amid myriad books Arab Hashemites against the Ottomans. 1 86 Books and arts The Economist March 7th 2015

2 The Bolshevik revolution of October policy in a state of collapse, its economy prize. “Marketing experts call this ‘stepping 1917, which took Russia out of the war, ailingand itsdemocracybroken, the Amer- on your own message’,” says Mr Nye. might have ensured survival or even some ican century ended last year. Perhaps the greatest threats to Ameri- kind of victory for the Ottomans, by free- Mr Nye, a veteran observer of global af- can pre-eminence are domestic. As pun- ing up troops from the east to go south. But fairs, is more optimistic. He expects that dits often point out, young American it was squandered. Their capture ofthe oil- America will still play the central role in workers score terribly on cross-country fields of Baku left them vulnerable to the the global balance of power in the 2040s. comparisons of numeracy, and Americans British breakthrough in Palestine. In the What, after all, is the alternative? are disillusioned with their government. end, Mr Rogan writes, the Ottomans were Europe is hardly a plausible challenger. Yet even here, Mr Nye sees hope: 82% of more influential than many imagined; in- Though its economy and population are Americans say America is the best place in stead of being the weakest link among the larger than America’s, the old continent is the world to live. It remains a magnet for Central Powers, they held out to the end. stagnating. In 1900 a quarter of the world’s foreign talent, and could be an even stron- The Ottomans had lost wars before, but people were European; by 2060 that figure ger one if it sorted out its immigration poli- never the empire itself. This time it was dif- could be just 6%, and a third of them will cy. A“long Jeffersonian tradition” says that ferent. The demands imposed by the Allies be over 65. one “should notworrytoo much aboutthe provoked a revolt by Mustafa Kemal, the By 2025 India will be the most popu- level ofconfidence in government”. Amer- hero of Gallipoli, who pushed the Greeks lous nation on Earth. It has copious “soft icans may grumble constantly about and Italians out of Anatolia, deposed the power”—a term Mr Nye coined—in its dias- Washington, but the Internal Revenue Ser- sultan and abolished the caliphate. Turkish pora and popular culture. But only 63% of vice detects no increase in cheating on tax- nationalism thus salvaged the rump of An- Indians are literate, and none of its univer- es, and the proportion of Americans who atolia. But Arab nationalism was stillborn; sities is in the global top 100. India could bother to vote has risen since 2000. the promise ofself-determination made by only eclipse America if it were to form an “Leadership is not the same as domina- America’s president, Woodrow Wilson, anti-American alliance with China, reck- tion,” says Mr Nye; influence matters more was not applied to Egyptians demanding onsMrNye, butthatisunlikely: Indians are than military might. This short, well- the end ofBritish rule. Islam was the sword well-disposed towards Washington and argued book offers a powerful rebuttal to that the Kaiser had hoped to use; instead it highly suspicious ofBeijing. America’s premature obituarists. 7 was later grasped by disgruntled, disen- China isthe likeliestcontenderto be the franchised Muslims against their own rul- next hyperpower: its army is the world’s ers, and against perceived foreign foes. 7 largest and its economy will soon be. (In Homicide investigation in America purchasing-power-parity terms, it already is.) But it will be decades before China is as Murder, she wrote American power rich or technologically sophisticated as America; indeed, it may never be. By 2030 The end is not nigh China will have more elderly dependants than children, which will sap its vitality. It has yet to figure out how to change govern- Ghettoside: A True Story of Murder in ments peacefully. And its soft power is fee- America. By Jill Leovy. Spiegel & Grau; 384 ble for a country of its size. It has few real pages; $28. Bodley Head; £16.99 friends or allies, unless you count North Is the American Century Over? By Joseph Korea and Zimbabwe. IOLENT crime in America has Nye. Polity Press; 152 pages; $12.95 and Hu Jintao, the previous president, tried dropped dramatically in the past 20 £9.99 V to increase China’s soft power by setting years. In both New York and Los Angeles, MERICANS have a long history of up “Confucius Institutes” to teach its lan- the number of murders fell from about “A worrying about their decline,” guage and culture. Yet such a strategy is un- 2,000 a year in the early 1990s to a quarter notes Joseph Nye. Puritans in 17th-century likely to win hearts in, say, Manila, when of that number today. But though farfewer Massachusetts lamented a fall from earlier China is bullying the Philippines over is- are being killed, blackmen are still dying at virtue. The Founding Fathers fretted that lands in the South China Sea. The staging alarming rates in the toughest urban pock- the republic they had created might dissi- of the 2008 Olympics in Beijing was a soft- ets. One such is a part of Los Angeles pate like ancient Rome. Modern scholars power success, but was undercut by the known as Watts, the subject of a harrow- are a gloomy lot, too. Michael Lind of the jailing of Liu Xiaobo, a pro-democracy ac- inginvestigation byJill Leovy, a veteran po- New America Foundation, a think-tank, tivist, and the resulting empty chair at the lice reporter forthe Los Angeles Times. has written that, with America’s foreign ceremony to award him the Nobel peace In 2007, frustrated that so little attention was being paid to these street murders, Ms Leovy started a blog for her paper called “Homicide Report”, describing every single murder in the city. Now, after a decade shadowing an LAPD homicide squad, she has gathered all she learned into a book to stress that this epidemic of murder is still raging. At a time when the Twitter hashtag #BlackLivesMatter is a rallying cry against police killings of black men, her aim in “Ghettoside” is to show that black lives in the inner city matter too—and must be made to matter more. Ms Leovy powerfully portrays the cycle of violence in Watts through the true story of a single murder, told with the chilling Captain America demonstrates his soft power detail and gripping pace of a prime-time 1 The Economist March 7th 2015 Books and arts 87

What no one knew was that Mary Anne was a hoarder. Examining her papers after her death in 1872, Disraeli was astonished: “She does not appear to have destroyed a single scrap I ever wrote to her.” Until Dai- sy Hay took on the task, no one had mined them forher sake rather than his. Ostensibly, “Mr and Mrs Disraeli” is a portrait of a marriage once considered an absurd mismatch. But the pairhad much in common, as Ms Hay, an academic at the UniversityofExeter, shows. Both were outsiders: Mary Anne, a sailor’s daughter thrown among political aristocrats; and Benjamin, a novel-writing dandy in a hun- tin’ and shootin’ party, and of Jewish de- scent in an anti-Semitic society. Both were romantics and mythmakers, inventingand reinventing themselves to suit each other and their circumstances. All this Ms Hay brings out with scholarly perceptiveness. And yet, despite the parallels, it is Mary Anne’s half of the portrait that catches the Watts, Los Angeles, 1966: What future awaited them? light. Born in 1792, she carried a rackety, Re- gency air about her to the end. When Dis- 2 drama. Bryant Tennelle is the 18-year-old flawless record of solving cases, show that raeli first met her in 1832 he called her blackson ofan LAPD detective, a good boy things can be different. The conviction of pretty, but “a flirt and a rattle”. The words gunned down by mistake; John Skaggs, a Tennelle’smurderers is an example ofhow conjure up a character from Jane Austen—a blond surfer turned homicide detective, cops can catch the bad guys and bring re- Lydia Bennet or an Isabella Thorpe. In fact doggedly investigates. As she chronicles lief to the community, if they throw she was 40, and married—to a Welsh iron the case, Ms Leovy weaves in other heart- enough manpower at the problem. (Never magnate and Tory MP, Wyndham Lewis. breaking stories, taking the reader into po- mind that not all victims are the sons of But Disraeli was on to something. There lice interrogations, the homes of grieving cops, a fact the author does not really ac- was a whiff of scandal about her. In her mothers, and hospitals where parents knowledge.) Herein lies the book’s main youth, a duel had been foughtoverher rep- plead for the lives of their dying sons. A weakness. Ms Leovy is so close to the ho- utation. It would have been easy for her to portrait emerges of a traumatised commu- micide squad that she rarely looks beyond have fallen through the cracks of respect- nity cut off from the world, where thugs it. Little is heard from residents about why able society. Ms Hay makes the point by kill with impunity and residents are too they distrust police, for example. Nor can prefacing her chapters with tiny stories terrified of reprisal to provide information readers assess complaints that “no one about unfortunate women—sometimes to the cops. cares” about these black victims without friends and relations—who suffered social The strength of “Ghettoside” lies in its understanding how the LAPD spends its exile and disgrace, related in letters that blunt reminder of an ugly fact: murder vic- vast budget. This is a compelling report Mary Anne collected throughout her life. tims in America are disproportionately from the trenches, but more remains to be Childless herself, there was something blackmen. They represent 6% ofAmerica’s written, and done. 7 of the child about Mary Anne. She loved population, but account for40% ofits mur- dressing up and being outside. She would der victims, according to one study cited. garden by torchlight so as not to lose the For all the gains, Ms Leovy notes, two Disraeli’s marriage evenings. She also talked non-stop, with- damning statistics have not budged for 30 out “a proper concatenation of images, years: the murder rate for black people re- A mismatch made ideas and phrases”, said a friend. It all mains five to seven times that of whites, helped on the campaign trail. She can- and less than halfofthose doingthe killing in heaven vassed tirelessly for her husbands—wear- are caught and punished. ing a Welsh hat in Cardiff, purple ribbons The violence is usually attributed to a in Maidstone and “playingthe amiable to a hopeless cocktail ofdrugs, gangs and guns. pitch of distraction”. Voters loved her: Mr and Mrs Disraeli: A Strange Romance. But in Watts this is false, Ms Leovy reports. “Such a gay lady!” they told Disraeli. “You By Daisy Hay. Farrar, Straus & Giroux; 308 In recent years the drug trade has account- never can have a dull moment, Sir.” pages; $27. Chatto & Windus; £20 ed for only 5% of local killings; black mur- The final years of the marriage are the der rates have held steady no matter what UEEN VICTORIA once thought her most touchingpart ofthis rich and detailed the motive. A root cause of the violence, Q“very vulgar”; she was inclined to say book. Disraeli wedded Mary Anne soon she says, is the state’s “inability to catch “odd and startling things”; she might after Lewis’s death in 1838 from a heart at- and punish even a bare majority of mur- turn up “like the savages” in “a wreath of tack, frankly forhermoney. His political ca- derers”. Indifference to blackdeaths has re- red feathers”. Mary Anne Disraeli, wife of reer required it. But what began in calcula- sulted in a parallel culture of rough justice the prime minister, Benjamin Disraeli, and tion grew into mutual love. By the end the that operates independently of the legal 12 years his senior, was roundly ridiculed queen herself, mourning her Albert, was system, like other “vengeance cultures” asunworthyofhercleverhusband. But not hardly more devoted. In 1868, at Disraeli’s from Northern Ireland to South Africa, Ms by their friends. Yes, they rolled their eyes, suggestion, she made Mary Anne Vis- Leovy argues. Witnesses will not talk, so yet they also saw her shrewdness and her countess Beaconsfield—her prize, perhaps, bringing suspects to justice is hard. warm heart. One even thought she for at last looking something like an ideal Detectiveslike MrSkaggs, with his near- matched him: “equally clever in her way”. Victorian wife. 7 88 Books and arts The Economist March 7th 2015

Alexander McQueen and John Galliano the industry just four years after his disgrace. Cate Blanchett, an Australian ac- Two butterflies, tress, wore his designs to the recent Oscars ceremony, ensuring further acclaim—and one wheel sales. This is a good time, then, for the publication of Dana Thomas’s new book about the pair, and Andrew Wilson’s new McQueen biography. Gods and Kings: The Rise and Fall of “Gods and Kings” benefits immensely Alexander McQueen and John Galliano. By from both Ms Thomas’s insider’s view and Dana Thomas. Penguin Press; 420 pages; the knowledge she brings as a longtime $29.95. Allen Lane; £25 fashion journalist. Woven through this tale Alexander McQueen: Blood Beneath the of the careers of two of fashion’s enfants Skin. By Andrew Wilson. Simon & Schuster; terribles is another: the rise and the subsequent battles of two French luxury con- 369 pages; £25. To be published in America LVMH by Scribner in September glomerates, (run by Bernard Ar- nault) and PPR (now Kering, run by AVAGE BEAUTY”, a glitzy retrospec- François-Henri Pinault). When McQueen “S tive of the designs of Alexander and Mr Galliano worked at Givenchy and McQueen, will open at the Victoria & Al- Dior respectively, Mr Arnault was their bert Museum in London later this month, boss. But in 2001 Mr Pinault spirited both McQueen’s crown of horns just over five years after his suicide. This is McQueen and his namesake label away being advertised as something of a home- from LVMH when he bought a controlling tycoons, particularly Mr Arnault, was pub- coming for a London-born designer, and a interest in a deal worth a reported $25m. licity, and plenty of it, which was some- commercial coup for the museum: the The era most closely associated with thing show-pony designers like McQueen show attracted 661,000 visitors to the Met- the two designers—the 1990s and 2000s— and Mr Galliano could certainly generate. ropolitan Museum in New York in 2011, were the luxury industry’s gold-rush days. Theirshows might cost $1m to produce, but making it the eighth-most-viewed exhibi- Some of the figures are staggering: at the they could make 25 times that in advertis- tion in the Met’s history. time ofhis death, aged 40, McQueen had a ing. Even if not a single couture garment John Galliano, another British designer, £20m ($28m) fortune. A ten-minute Dior was sold, the hype would shift millions of has also been in the news recently. Few show staged by the extravagant Mr Gal- bottles of perfume, handbags and shoes— would have been willing to predict a suc- liano is said to have cost $2m. In 2002 products with the largest markups. cessful rehabilitation after footage Dior’s sales rose by 41% to $536m, while The books are critical of this publicity- emerged of him yelling anti-Semitic abuse sales at Mr Galliano’s own label totalled and profit-hungry new model. Mr Gal- at a woman in a Parisian café. But earlier $30m. Even the brands’ couture shows, liano began his career producing two col- this year Mr Galliano’s comebackshow for which had been in decline foryears, began lections a year; the need for constant me- Maison Margiela couture was praised by to flourish. The mantra of the new luxury dia coverage meant that by 2011 he was overseeing 32. “The go-go pace was unsustainable”, Ms Thomas writes, “and the wreckage it caused astounding.” She and Mr Wilson present McQueen and Mr Galliano as troubled, bombastic and sometimes cruel, but hugely talented nonetheless. Gay men from humble back- grounds, both were bullied at school, but their talents were recognised while they were young and their careers took off. Some of the anecdotes relating to their private lives—particularly in Mr Wilson’s close-up of McQueen—are excruciating. The turn of the millennium found Mr Gal- liano so removed from reality that he was unable to send an e-mail or use an ATM. McQueen, who was apparently abused by hisbrother-in-lawasa child, had rapacious appetites for sex and drugs and took huge risks with his health. When Sarah Burton, the creative director of his eponymous label, arrived as a young intern she was warned her duties could be unorthodox: “You could be washing up a shitty dildo.” At points, the narratives are so sordid and the pair so dislikeable that readers might The man who made the Impressionists struggle to believe they were simulta- When Paul Durand-Ruel, a French art dealer, fell for the works of the Impressionists in neously creating clothes filled with drama the early 1870s, they were reviled, almost unsellable. He bought some 12,000 paintings, and élan. But what will surprise no one, including 1,000 by Monet (above, “The Artist’s Garden in Argenteuil”) and eventually given the huge strains of their professional created a market for their work. A superb new exhibition at the National Gallery in careers, is how poorly they coped in their London tells his story. See Economist.com/durandruel for a full review turbulent private lives. 7 Courses 89

The Economist March 7th 2015 90 Courses

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To advertise within the classified section, contact: Business & Personal United Kingdom United States Martin Cheng - Tel: (44-20) 7576 8408 Sabrina Feldman - Tel: (212) 698-9754 Professional ﬁ nancial writer, Offshore Companies [email protected] [email protected] +500 public companies served. New Citizenships in 90 Days Europe Middle East & Africa Online Gaming Licenses Releases, marketing reports, stock Sandra Huot - Tel: (33) 153 9366 14 Mirasol Galindo - Tel: (971) 4433 4202 analysis, presentations, websites. Prepaid Debit Cards [email protected] [email protected] Writing in English, based in LA, Financial Service Providers Asia Online Payments contact George at David E. Smith - Tel: (852) 2585 3232 [email protected] [email protected] www.GLOBAL-MONEY.com Or at 818-257-3545. The Economist March 7th 2015 92 Economic and ﬁnancial indicators The Economist March 7th 2015

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* 2015† latest latest 2015† rate, % months, $bn 2015† 2015† bonds, latest Mar 4th year ago United States +2.4 Q4 +2.2 +3.2 +4.8 Jan -0.1 Jan +0.3 5.7 Jan -388.1 Q3 -2.2 -2.5 2.09 - - China +7.3 Q4 +6.1 +7.2 +7.9 Dec +0.8 Jan +1.5 4.1 Q4§ +213.8 Q4 +2.1 -2.9 3.30§§ 6.27 6.14 Japan -0.5 Q4 +2.2 +1.1 -2.6 Jan +2.4 Jan +1.0 3.6 Jan +24.3 Dec +1.7 -7.2 0.38 120 102 Britain +2.7 Q4 +2.2 +2.6 +0.5 Dec +0.3 Jan +0.5 5.7 Nov†† -163.0 Q3 -4.3 -4.6 1.88 0.66 0.60 Canada +2.6 Q4 +2.4 +2.1 +4.3 Dec +1.0 Jan +1.1 6.6 Jan -39.3 Q4 -2.5 -1.5 1.51 1.24 1.11 Euro area +0.9 Q4 +1.4 +1.3 -0.2 Dec -0.3 Feb nil 11.2 Jan +309.1 Dec +2.4 -2.2 0.38 0.90 0.73 Austria -0.2 Q4 nil +1.3 -2.6 Dec +0.6 Jan +1.3 4.8 Jan +2.4 Q3 +2.4 -2.3 0.48 0.90 0.73 Belgium +1.0 Q4 +0.7 +1.2 -2.4 Dec -0.4 Feb +0.4 8.5 Jan +8.0 Sep -0.1 -2.4 0.56 0.90 0.73 France +0.2 Q4 +0.3 +0.9 -0.1 Dec -0.4 Jan +0.1 10.2 Jan -30.5 Dec‡ -1.1 -4.3 0.67 0.90 0.73 Germany +1.5 Q4 +2.8 +1.6 -0.4 Dec nil Feb +0.2 6.5 Feb +284.5 Dec +7.1 +0.7 0.38 0.90 0.73 Greece +1.2 Q4 -1.5 +2.0 -3.9 Dec -2.8 Jan -0.8 25.8 Nov +2.3 Dec +2.6 -3.2 9.74 0.90 0.73 Italy -0.3 Q4 -0.1 +0.5 +0.1 Dec -0.2 Feb nil 12.6 Jan +38.6 Dec +1.6 -3.0 1.41 0.90 0.73 Netherlands +1.0 Q4 +1.8 +1.3 -2.8 Dec nil Jan +0.5 8.9 Jan +91.5 Q3 +9.1 -2.0 0.43 0.90 0.73 Spain +2.0 Q4 +2.7 +2.0 +2.2 Dec -1.1 Feb -0.7 23.4 Jan +0.7 Dec +0.5 -4.5 1.37 0.90 0.73 Czech Republic +1.2 Q4 +1.5 +2.9 +7.3 Dec +0.1 Jan +0.3 7.7 Jan§ +0.2 Q3 -0.4 -1.7 0.64 24.8 19.9 Denmark +1.3 Q4 +1.7 +1.6 +4.7 Dec -0.1 Jan +0.7 5.0 Dec +21.2 Dec +5.8 -3.0 0.42 6.73 5.43 Hungary +3.4 Q4 +3.6 +2.4 +4.8 Dec -1.4 Jan +1.2 7.4 Jan§†† +5.7 Q3 +4.8 -2.6 2.99 277 226 Norway +3.2 Q4 +3.7 +1.0 +3.1 Dec +2.0 Jan +1.4 3.7 Dec‡‡ +42.5 Q4 +11.3 +7.5 1.54 7.78 6.01 Poland +2.8 Q4 +2.8 +3.2 +1.7 Jan -1.3 Jan +0.8 12.0 Jan§ -7.1 Dec -2.4 -1.4 2.23 3.75 3.04 Russia -0.3 Q4 na -3.5 +1.0 Jan +15.0 Jan +12.5 5.5 Jan§ +56.6 Q4 +4.6 -1.5 12.19 61.9 36.1 Sweden +2.6 Q4 +4.6 +2.3 -1.6 Dec -0.2 Jan +0.2 8.4 Jan§ +35.7 Q4 +5.6 -1.6 0.76 8.33 6.45 Switzerland +1.9 Q4 +2.4 +1.0 +2.7 Q4 -0.5 Jan -0.7 3.1 Jan +45.7 Q3 +7.6 +0.3 -0.01 0.96 0.89 Turkey +1.7 Q3 na +4.2 +4.6 Dec +7.5 Feb +6.7 10.7 Nov§ -45.8 Dec -4.1 -1.7 8.27 2.56 2.21 Australia +2.5 Q4 +2.2 +2.6 +3.3 Q4 +1.7 Q4 +1.7 6.4 Jan -40.1 Q4 -2.8 -2.2 2.64 1.28 1.12 Hong Kong +2.2 Q4 +1.5 +2.5 -1.7 Q3 +4.1 Jan +3.3 3.3 Jan‡‡ +7.7 Q3 +2.3 +0.1 1.68 7.76 7.76 India +7.5 Q4 +4.0 +6.6 +1.7 Dec +5.1 Jan +6.0 8.8 2013 -23.4 Q3 -1.6 -4.1 7.69 62.3 61.9 Indonesia +5.0 Q4 na +5.5 +5.2 Dec +6.3 Feb +5.2 5.9 Q3§ -26.2 Q4 -2.6 -1.8 7.10 13,037 11,575 Malaysia +5.8 Q4 na +5.5 +7.4 Dec +1.0 Jan +3.2 3.0 Dec§ +15.2 Q4 +3.8 -4.7 3.91 3.66 3.27 Pakistan +5.4 2014** na +5.6 +2.4 Dec +3.2 Feb +4.6 6.2 2013 -3.3 Q4 -0.8 -5.2 9.20††† 102 105 Singapore +2.1 Q4 +4.9 +3.1 +0.9 Jan -0.4 Jan +0.5 1.9 Q4 +58.8 Q4 +23.8 +1.1 2.33 1.37 1.27 South Korea +2.8 Q4 +1.5 +3.7 +1.8 Jan +0.5 Feb +1.5 3.8 Jan§ +92.8 Jan +5.7 +0.5 2.36 1,102 1,071 Taiwan +3.3 Q4 +4.8 +3.7 +8.1 Jan -0.9 Jan +1.0 3.8 Jan +65.3 Q4 +12.0 -1.2 1.64 31.4 30.4 Thailand +2.2 Q4 +7.1 +4.2 -1.3 Jan -0.5 Feb +1.8 1.1 Jan§ +14.2 Q4 +2.6 -1.6 2.63 32.4 32.3 Argentina -0.8 Q3 -2.1 +0.5 -2.1 Jan — *** — 6.9 Q4§ -5.0 Q3 -0.9 -2.8 na 8.74 7.88 Brazil -0.2 Q3 +0.3 nil -5.2 Jan +7.1 Jan +7.0 5.3 Jan§ -90.4 Jan -4.0 -4.8 12.77 2.98 2.34 Chile +0.8 Q3 +1.5 +3.0 +5.8 Jan +4.5 Jan +3.6 6.2 Jan§‡‡ -5.0 Q3 -1.6 -1.9 4.26 619 560 Colombia +4.2 Q3 +2.6 +3.9 +2.2 Dec +3.8 Jan +3.6 10.8 Jan§ -16.2 Q3 -5.8 -2.1 6.70 2,541 2,048 Mexico +2.6 Q4 +2.7 +2.9 +3.0 Dec +3.1 Jan +3.9 4.4 Jan -26.5 Q4 -1.8 -3.4 5.81 15.1 13.3 Venezuela -2.3 Q3 +10.0 -3.2 +0.8 Sep +68.5 Dec +65.9 5.5 Dec§ +10.3 Q3 -1.8 -15.1 16.71 6.29 6.35 Egypt +6.8 Q3 na +3.9 +6.4 Dec +9.7 Jan +9.7 12.9 Q4§ -4.4 Q3 -1.4 -10.7 na 7.63 6.96 Israel +3.6 Q4 +7.2 +3.5 +1.2 Dec -0.5 Jan nil 5.6 Jan +11.2 Q3 +4.6 -3.1 1.68 3.99 3.49 Saudi Arabia +3.6 2014 na +2.5 na +2.2 Jan +2.8 6.0 2014 +120.1 Q3 -1.1 -9.7 na 3.75 3.75 South Africa +1.3 Q4 +4.1 +2.4 +0.5 Dec +4.4 Jan +5.6 24.3 Q4§ -19.7 Q3 -4.8 -3.6 7.76 11.8 10.8 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. ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, Jan 35.9%; year ago 26.04% †††Dollar-denominated bonds. The Economist March 7th 2015 Economic and ﬁnancial indicators 93

Markets % change on The Economist poll of forecasters, March averages (previous month’s, if changed) Dec 31st 2014 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP r Ma 4th week currency terms 2015 2016 2015 2016 2015 2016 2015 2016 United States (DJIA) 18,096.9 -0.7 +1.5 +1.5 Australia 1.9 / 2.9 2.3 / 3.5 2.6 3.1 1.7 (1.8) 2.7 -2.8 (-3.2) -2.4 China (SSEA) 3,436.4 +1.6 +1.4 +0.3 Belgium 0.7 / 1.6 0.7 / 1.9 1.2 (1.3) 1.5 0.4 1.5 -0.1 0.2 Japan (Nikkei 225) 18,703.6 +0.6 +7.2 +7.4 Britain 2.4 / 3.0 1.7 / 3.0 2.6 2.4 0.5 (0.6) 1.8 -4.3 (-4.0) -3.6 Britain (FTSE 100) 6,919.2 -0.2 +5.4 +3.2 Canada 1.6 / 2.9 1.5 / 2.9 2.1 (2.2) 2.3 1.1 (1.0) 2.1 -2.5 (-2.4) -2.1 Canada (S&P TSX) 15,082.8 -1.0 +3.1 -4.2 France 0.3 / 1.3 0.5 / 2.1 0.9 1.4 0.1 1.2 -1.1 (-1.2) -1.0 Euro area (FTSE Euro 100) 1,184.2 +1.2 +14.2 +4.5 Germany 1.0 / 2.0 1.3 / 2.5 1.6 (1.4) 1.8 0.2 1.6 7.1 6.7 Euro area (EURO STOXX 50) 3,583.4 +1.2 +13.9 +4.2 Italy -0.2 / 0.8 0.3 / 1.5 0.5 (0.4) 1.1 nil 1.0 1.6 1.6 Austria (ATX) 2,465.5 -0.8 +14.1 +4.4 Japan 0.4 / 2.3 0.8 / 2.5 1.1 1.7 1.0 (1.1) 1.4 1.7 (1.2) 1.6 Belgium (Bel 20) 3,702.2 +0.8 +12.7 +3.1 Netherlands 0.5 / 1.7 1.1 / 1.9 1.3 1.6 0.5 (0.4) 1.3 9.1 8.9 France (CAC 40) 4,917.4 +0.7 +15.1 +5.3 Spain 1.4 / 2.5 1.4 / 2.5 2.0 2.0 -0.7 (-0.8) 1.1 0.5 0.6 Germany (DAX)* 11,390.4 +1.6 +16.2 +6.2 Greece (Athex Comp) 849.2 -8.0 +2.8 -6.0 Sweden 1.6 / 3.2 2.0 / 3.6 2.3 2.7 0.2 (0.3) 1.4 5.6 (5.5) 5.4 i r Italy (FTSE/MIB) 22,131.1 +0.9 +16.4 +6.5 Sw tze land nil / 2.1 0.5 / 2.3 1.0 (1.5) 1.4 -0.7 (-0.4) 0.3 7.6 (9.6) 7.6 i Netherlands (AEX) 483.6 +1.1 +13.9 +4.2 Un ted States 2.8 / 3.7 2.4 / 3.5 3.2 (3.3) 2.9 0.3 (0.4) 2.3 -2.2 -2.3 r r Spain (Madrid SE) 1,120.5 +0.1 +7.5 -1.7 Eu o a ea 0.7 / 1.6 0.8 / 2.2 1.3 (1.2) 1.6 nil 1.2 2.4 (2.5) 2.4 Czech Republic (PX) 1,014.2 -1.4 +7.1 -1.2 Sources: Bank of America, BNP Paribas, Citigroup, Commerzbank, Decision Economics, Deutsche Bank, Economist Intelligence Denmark (OMXCB) 790.0 +0.7 +17.0 +6.9 Unit, Goldman Sachs, HSBC Securities, ING, JPMorgan Chase, KBC Bank, Morgan Stanley, RBC, RBS, Schroders, Scotia Capital, Société Générale, Standard Chartered, UBS Hungary (BUX) 17,824.3 -4.0 +7.2 +1.0 Norway (OSEAX) 656.2 -1.2 +5.9 +1.6 Poland (WIG) 53,161.9 +0.5 +3.4 -2.0 Other markets The Economist commodity-price index Russia (RTS, $ terms) 889.7 +0.7 +16.7 +12.5 2005=100 % change on % change on Sweden (OMXS30) 1,664.5 -0.8 +13.7 +6.5 Dec 31st 2014 one one i r r r Sw tze land (SMI) 8,992.5 +0.2 +0.1 +3.4 Index in local in $ Feb 24th Ma 3 d* month year r one Tu key (BIST) 82,067.2 -5.4 -4.3 -12.7 Mar 4th week currency terms Dollar Index Australia (All Ord.) 5,871.5 -0.6 +9.0 +4.3 i Un ted States (S&P 500) 2,098.5 -0.7 +1.9 +1.9 All Items 144.8 144.4 -0.7 -16.5 Hong Kong (Hang Seng) 24,465.4 -1.3 +3.6 +3.6 United States (NAScomp) 4,967.1 nil +4.9 +4.9 Food 164.0 162.9 -0.6 -18.6 India (BSE) 29,380.7 +1.3 +6.8 +8.5 China (SSEB, $ terms) 295.2 +0.9 +2.6 +1.5 Indonesia (JSX) 5,448.1 +0.1 +4.2 -0.6 Japan (Topix) 1,517.0 +0.6 +7.8 +8.0 Industrials Malaysia (KLSE) 1,825.5 +0.5 +3.7 -0.6 Europe (FTSEurofirst 300) 1,557.0 +1.0 +13.8 +4.1 All 124.8 125.3 -1.0 -13.4 Pakistan (KSE) 33,243.0 -1.8 +3.5 +2.1 World, dev'd (MSCI) 1,760.9 -0.9 +3.0 +3.0 Nfa† 121.0 122.3 +2.6 -21.1 Singapore (STI) 3,415.5 -0.7 +1.5 -1.6 Emerging markets (MSCI) 976.3 -1.7 +2.1 +2.1 Metals 126.4 126.6 -2.4 -9.7 South Korea (KOSPI) 1,998.3 +0.4 +4.3 +4.5 r Wo ld, all (MSCI) 429.2 -1.0 +2.9 +2.9 Sterling Index Taiwan (TWI) 9,621.7 -0.8 +3.4 +4.0 World bonds (Citigroup) 879.7 -1.7 -2.5 -2.5 All items 170.6 170.9 -2.4 -9.4 Thailand (SET) 1,562.8 -1.7 +4.4 +6.2 EMBI+ (JPMorgan) 698.6 -0.2 +1.0 +1.0 r Argentina (MERV) 9,668.4 +1.1 +12.7 +9.1 Hedge funds (HFRX) 1,240.9§ +0.5 +1.8 +1.8 Eu o Index Brazil (BVSP) 50,468.1 -2.6 +0.9 -10.3 Volatility, US (VIX) 14.2 +13.8 +19.2 (levels) All items 158.8 160.6 +1.6 +2.6 Chile (IGPA) 19,284.3 -0.5 +2.2 -0.1 CDSs, Eur (iTRAXX)† 50.2 -1.7 -18.8 -25.8 Gold i Colomb a (IGBC) 10,151.9 -2.8 -12.7 -19.3 CDSs, N Am (CDX)† 61.7 -0.1 -6.6 -6.6 $ per oz 1,198.3 1,023.2 -18.7 -23.5 Mexico (IPC) 43,296.6 -1.2 +0.3 -2.0 r r i Ca bon t ad ng (EU ETS) € 7.1 -4.8 -2.9 -11.2 West Texas Intermediate Venezuela (IBC) 3,889.9 +8.7 +0.8 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 48.5 50.4 -4.5 -51.2 Egypt (Case 30) 9,461.1 -0.1 +6.0 -0.7 †Credit-default-swap spreads, basis points. §Mar 3rd. Israel (TA-100) 1,356.9 +1.6 +5.3 +2.6 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; i r i Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saud A ab a (Tadawul) 9,462.6 +1.6 +13.6 +13.6 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,891.3 -0.6 +6.3 +3.9 series, go to: Economist.com/indicators †Non-food agriculturals. 94 Obituary Boris Nemtsov The Economist March 7th 2015

world-view was crystal clear. Stealing, be- traying and killing were wrong. Thinking, loving and living were good. Such moral clarity became almost unimaginable in Vladimir Putin’s Russia. The tag “oligarch”, for Russia’s tycoons, was his coining. He took them on. In his dream of a “normal Russia” such men had no place. But nor did he fit into their world; and they were much more powerful. On the TV channels they controlled, prosti- tutes were hired to gossip about him and his gaffes were dramatised. At last Yeltsin dropped him, and in 1999 Mr Putin got the job he had been meant to have. Mr Nemtsov’s opposition struggled. In 2003 his party, the Union of Right Forces, came nowhere in the elections. Suddenly, he had nothing to do. He had made no money while in government, a fact that seemed both irritating and eccentric to those who milked their time in office. With the oil price going up and the economy booming, the country no longer needed him, his ideas or his values. A passionate wind surfer, he knew there was no wave to ride—until, a year later, the first Orange revolution broke out on the Maidan in Kiev. The ruler who never was At once he became a target for groups mobilised bythe Kremlin to forestall contagion from Ukraine. With his broad shoul- ders and casual air, he shrugged them offat first. He carried on writing reports about Mr Putin’s kleptocracy and, in December 2011, joined the protests in Moscow. A year Boris Nemtsov, leaderofRussia’s reformers, was shot dead on February 27th, aged 55 before, the same thinghad earned him two E COULD have been president of Rus- Nizhny Novgorod (previously Gorky), he weeks in jail. He had wondered then how Hsia. So Boris Nemtsov’s supporters persuaded the president to make that job farhe could go down this path. He was pre- thought, and so Boris Yeltsin hoped when an elected office also. If Russians were al- pared to sacrifice the high life and making he groomed him as his successor. But that lowed to vote freely they would, he be- money. But he was not prepared to die. would need to have been the sort ofRussia lieved, choose sensibly; and he would talk Mr Nemtsov dreamed of: free, enterpris- sense, and truth, backto them. In fascism’s face ing, hard-working, proud, slightly disor- He remained Yeltsin’s golden boy. The Grassroots politics seemed the best course ganised, and open to the world. In such a president took him round the world, of action. In 2013 he got elected into a local country, he would have fitted right in. parading him as his successor, testing how parliament in Yaroslavl, not far from Nizh- Ideology puzzled him. In the 1980s he well he could hold his drink, and even try- ny Novgorod, where he handed out leaf- was a physicist in Gorky, where Andrei Sa- ing to marry him into the royal house of lets on the streets. After Russia’s annex- kharov was exiled, but no dissident him- Sweden. At a reception in Stockholm Mr ation of Crimea, however, he found self. Nor was he a communist. He could Nemtsov was seated, on Yeltsin’s orders, himselfin a different country. Suddenly he never understand why people clung so next to the 20-year-old Princess Victoria. was dealing not just with corrupt govern- fiercely to political dogma. The values of As the dinner wore on, the tipsy order ment, but also with millions of people his adored Jewish mother, a skilled and came down that he should kiss her. whipped into a state of patriotic frenzy. caring paediatrician who struggled to In 1997 he was persuaded to leave Nizh- Russia, he fretted, was turning into a fascist bringhim up, with his sister, in a tiny apart- ny Novgorod, where he was hugely popu- state, complete with Nazi-style propagan- ment, were good enough forhim. lar, to go to Moscow as Yeltsin’s deputy da and assault brigades. Nor did he understand why people prime minister. He held the job with Ana- When he spoke out now against the needed the suffocating help of the party or toly Chubais, another reformer, and to- warin Ukraine, he wasalmosta lone voice. the state. He could always live on his wits, gether they dazzled Yeltsin with the pros- A vast banner-portrait calling him a traitor as he did by tutoring schoolchildren. There pect of a new country. As a state official, hung outside a bookshop in Moscow. were jobs if you looked, as there were although, Mr Nemtsov gave himself no airs. Cheerfully determined, he went on distri- ways pretty women happy to be seen on Gone was all that balderdash about the sa- buting his leaflets, most recently for a rally his strong, chivalrous arm. Self-reliance cred mystique ofthe Russian state; journal- that became his memorial procession. was another quality the reformers, like ists had his mobile number and called him He was not born for hatred or heroics. him, were counting on when they started. Boris, without his patronymic. He used He had dreams, but had never intended to It was needed in politics, too. He won simple words, often so simple that he become a fighter against state-sponsored election in 1990 as a member of Russia’s seemed naive and, with his bubbly frivol- fascism. He was simply a good man: too first democratic parliament; and when ity, unserious. But this was a man who had good, in the end, for the country and the Yeltsin later appointed him governor of done research on “acoustic lasers”; his times he lived in. 7

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