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Is there the possibility of a better tomorrow?Will the investments I’ve made see me through? In aworld always shifting, can I be sure that my decisions willbe the correct ones? Or will these times remainthis unpredictable?

For some of life’s questions, you’re not alone. Together we can find an answer.

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As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC- registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that clients understand the ways in which we conduct business, that they carefully read the agreements and disclosures that we provide to them about the products or services we offer. For more information, please review the PDF document at ubs.com/relationshipsummary. © UBS 2020. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. Contents The Economist October 3rd 2020 3

The world this week United States 6 A summary of political 21 Upside down in Florida and business news 22 SCOTUS and the election 23 Voting in Georgia Leaders 24 Measuring poverty 9 America’s election Bidenomics 25 Priests and politics 26 Lexington The end of 10 Property The house party returns the debate 11 Famine in Yemen The Americas An avoidable tragedy 27 A test for Trudeau 11 Germany Growing up at last 28 Self-medication in Peru 28 Baby names in Tabasco On the cover 12 China’s countryside Mass destruction 29 Bello Why mayors Joe Biden should be more matter more decisive and ambitious about Letters America’s economy: leader, On working from home, page 9. The Democratic 14 land reform, scientific Asia presidential contender would management 30 India v Pakistan v covid-19 be a salve for America’s economy but not remake it: 31 Uzbekistan’s stranded gas briefing, page 16 Briefing 32 New Zealand’s election 16 Biden’s economic plan • The unhealthy house-price 32 Investing in Myanmar The pragmatist boom The sky-high cost of 33 Banyan Malaysia’s man residential-property spells of the future trouble for the social contract: Technology Quarterly: Virtual realities leader, page 10. Why prices China Into other worlds continue to rise, page 59 34 Destroying villages After page 40 • Parenting, the rug-rat race 35 The betel capital Working-class families are 36 Chaguan Lessons from coming to resemble middle-class the Korean war families in one crucial way, page 50 • Tata’s troubles The conglomerate that defined Middle East & Africa respectable Indian business is 37 How big firms rip under increasing pressure—both off Africans from within and without, page 53 38 Taiwan’s search for friends 39 Kuwait’s emir lamented • TQ: Virtual realities 39 Another crisis in Yemen Computer-generated worlds are becoming ubiquitous, no 40 Iraq battles covid-19 headset required, says Alok Jha, after page 40

Charlemagne When it comes to the economy, the eu has started We are working hard to speaking in French , ensure that there is no dis- page 46 ruption to print copies of The Economist as a result of the coronavirus. But if you have digital access as part of your subscription, then acti- vating it will ensure that you can always read the digital version of the newspaper as well as all of our daily jour- nalism. To do so, visit economist.com/activate 1 Contents continues overleaf 4 Contents The Economist October 3rd 2020

Europe Finance & economics 41 Germany at 30 59 Global house prices 42 The ﬁght between 60 Evergrande’s mighty woes Armenia and Azerbaijan 61 Faster digital payments 43 A by-election in Hungary 61 “Spooﬁng” at JPMorgan 43 Spain fumbles covid-19 62 Germany’s labour market 44 Albania’s diaspora singers 62 Foreign investors in India 46 Charlemagne On 63 Buttonwood The strategic yogurt endowment model 64 Free exchange Banning Britain gas-guzzlers 47 Mixed-race Britons 48 Fight for London’s streets Science & technology 49 Bagehot Boris’s 67 Hybrids and evolution culture war

International 50 Working-class parenting Books & arts 71 Mexican chronicles 72 The CIA and the cold war 73 The lure of islands 73 Sayaka Murata’s new novel Business 74 Johnson Battling racist language 53 Tata teeters 54 The Epic-Apple slugfest Economic & financial indicators 55 Shale sale 76 Statistics on 42 economies 56 LVMH spurns Tiffany 56 Unsustainable standards Graphic detail 57 Bartleby Office humour 77 Nationality, family income and students’ test scores 58 Schumpeter Assessing Trump Inc Obituary 78 Harold Evans, editor and campaigner

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6 The world this week Politics The Economist October 3rd 2020

Protests broke out across Vene- detention centres for ethnic zuela against power cuts and Uighurs in China’s Xinjiang Coronavirus briefs shortages of fuel and water. region, about 40% more than To 11pm GMT September 30th 2020 Among the demonstrators previous estimates. It found Cumulative total, log scale were teachers demanding that building work had been 100m higher pay and patients want- taking place in dozens of them Confirmed cases 10m ing better conditions in hospi- over the past two years, despite 1m tals. Security forces fired rub- official claims that all intern- 100,000 ber bullets and tear gas. ees had “graduated” by 2019. Confirmed deaths 10,000 1,000 West Africa’s regional bloc, Amnesty International, a 100 0 ecowas, said sanctions will human-rights watchdog, shut Fighting erupted in and around remain in place against Mali its offices in India, complain- SAJJMAMFJ Nagorno-Karabakh, a disput- until the leaders of a coup hand ing that the government had Confirmed deaths* ed enclave inside Azerbaijan, power to a civilian administra- made its work impossible by Per 100k Total This week mostly populated by ethnic tion. The appointment as closing its bank accounts, Peru 98 32,396 828 Armenians and backed by president of Bah Ndaw, a re- among other things. Belgium 86 10,016 57 Armenia. More than 100 peo- tired colonel, does not satisfy Bolivia 68 7,965 234 ple, mostly soldiers, are this demand, it said. Police in Pakistan arrested Spain 68 31,791 757 thought to have been killed. Shehbaz Sharif, the titular Brazil 68 143,952 5,847 Turkey’s president, Recep Doctors and others working for leader of the main opposition Chile 67 12,741 396 Ecuador 64 11,355 184 Tayyip Erdogan, Azerbaijan’s the World Health Organisation party and brother of its actual United States 62 206,202 4,991 main supporter, urged his and aid agencies fighting an leader, Nawaz Sharif, who is in Britain 62 42,143 281 fellow Muslims to wrest back Ebola outbreak in Congo were exile in London. A court had Mexico 60 77,646 2,697

control of the area, whose accused of sexually exploiting revoked Mr Sharif’s bail on Sources: Johns Hopkins University CSSE; UN; inhabitants are largely local women. Allegations corruption charges. A former The Economist *Definitions differ by country Christian. The fighting was the include rape and demanding president, Asif Zardari, was worst since a ceasefire in 1994. sex from job applicants. indicted for corruption in a The number of people world- The two countries, which were separate case. The two poli- wide who have died from both subjugated by the Red A French court agreed to ticians say the charges are covid-19 officially passed 1m. Army in the 1920s, fought each extradite Félicien Kabuga, a politically motivated. The true figure is much higher. other after the Soviet Union Rwandan businessman, to face collapsed. trial in Tanzania on charges North Korea unexpectedly The who announced a plan to that he financed militias that apologised for the killing of a provide 120m testing kits to On a trip to Lithuania France’s carried out the genocide in South Korean fisheries official poorer countries. The kits cost president, Emmanuel Macron, Rwanda in 1994. intercepted at sea by a North $5 and can provide a result in visited an exiled opposition Korean patrol. The victim was 15-30 minutes. leader, Svetlana Tikhanov- Lebanon’s prime minister- shot and his body burned, in skaya, who many people designate, Mustapha Adib, an apparent effort to prevent Russia reported its most daily believe won the recent presi- failed to form a government. the spread of covid-19. Kim infections since June. dential election in Belarus. He had reportedly met resis- Jong Un, the North’s dictator, Alexander Lukashenko, the tance from Shia parties who said he was “deeply sorry”. Kenya’s national curfew will Belarusian dictator who rigged want to control the finance last another two months, the vote, seems determined to ministry. Amy Coney Barrett, Donald though it won’t start now until stay in power despite huge Trump’s pick to fill the vacancy 11pm. Bars can start reopening, protests at home and gestures The emir of Kuwait, Sheikh on the Supreme Court left by but schools remain closed. like Mr Macron’s. Sabah al-Sabah, died after a the death of Ruth Bader long illness. He was 91. His Ginsburg, met Republican Authorities in Brussels an- El Salvador’s president, Nayib 83-year-old half-brother, leaders in the Senate, who nounced a ban on prostitution Bukele, announced an inquiry Nawaf al-Sabah, has been hope to confirm her in the job to limit the spread of covid-19. into whether El Faro, a digital named as his successor. before the election. A devout newspaper, had engaged in Catholic, Ms Barrett has said Hopes that the world’s longest- money-laundering. El Faro Israel’s parliament gave the that abortion is immoral, but running play, “The Mouse- recently reported that Mr government the power to ban also that Catholic judges trap”, could reopen soon were Bukele’s government secretly mass protests, one of a range of should not try to align the legal dashed. Agatha Christie’s asked imprisoned leaders of measures aimed at curbing the system with their faith. classic whodunnit had run ms-13, a big criminal gang, to spread of covid-19. Critics continuously in London’s West reduce violence in exchange accused the prime minister, “He’s a liar.” “You’re the liar.” End since 1952, until covid-19 for privileges. Binyamin Netanyahu, of trying “Will you shut up, man.” Joe closed theatres in March. to silence critics who have Biden and Donald Trump Clarification: Last week we said that called on him to resign over his sparred in the first presi- police burst into Breonna Taylor’s flat handling of the pandemic and dential debate. The atmo- For our latest coverage of the “without knocking” to search for alleged corruption. sphere was unedifying. The virus and its consequences drugs. The facts are disputed. rules may be changed for the please visit economist.com/ Kentucky’s attorney-general says the coronavirus or download the police announced themselves. Taylor’s The Australian Strategic Policy two remaining debates, to boyfriend says he heard no such Institute, a think-tank, said it make it harder for candidates Economist app. announcement. had identified 380 suspected to interrupt each other. Changemakers, do your thing

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Every business has its own vision of success and its own challenges in achieving it. We are here for those who believe progress is always possible. For those on a mission who have the courage and perseverance to build for the future, even in uncertain times. We are here for you, applying our deep sector knowledge and ﬁnancial expertise to help you look to the future. 8 The world this week Business The Economist October 3rd 2020

Disney decided to lay off founders—Peter Thiel, Alex Ramping up its ambition to 28,000 workers at its theme US family wealth Karp and Stephen Cohen—will overtake Tesla as the world’s parks. Last year the parks Median, by ethnic group retain control. premier maker of electric cars, 2019, $’000 accounted for more than a 500 200150100 Volkswagen said it was in- third of Disney’s profit, income vesting €15bn ($17bn) on White that vanished when they were The penalty is no spoof “e-mobility” in China with its ordered to close during the Hispanic American authorities slapped three Chinese joint-ventures. pandemic. Those that have JPMorgan Chase with a $920m reopened have seen visitor Black fine for placing hundreds of Caesars Entertainment, numbers plummet because of Other thousands of spoof orders in which owns casinos and hotels social distancing. Disney’s precious metals and other in Las Vegas, took a bet on Source: Federal Reserve Board parks in California remain contracts on three exchanges. expanding its sports-gambling shut, which one executive said Despite the gains of past Spoofing is the illegal practice ventures when it agreed to buy had “exacerbated” the situa- decades, the median wealth of of placing and cancelling William Hill for £2.9bn tion. Most of the jobs being black families in America was orders rapidly in order to fool ($3.7bn). Listed in London, shed are part-time. still some 85% below that of markets about the demand for William Hill’s business has white families last year, ac- an asset. The fine is the largest grown rapidly in America as Shell said it would cut 9,000 cording to the Federal Reserve’s ever for such a tactic. states loosened some restric- jobs, more pain for an oil in- Survey of Consumer Finances. tions on gambling; its British dustry beset by falling demand Conducted every three years, ntt, Japan’s legacy telecoms and other European operations and low prices. bp’s share price the survey listed the factors, company, announced a deal to are to be sold off by Caesars. dropped to a 25-year low, evi- such as intergenerational buy the remaining shares it dence that it is finding it hard transfers and homeownership, does not own in ntt DoCoMo, to convince investors that its that explain the gap. The medi- the country’s biggest mobile The streets of London ambitious switch to low-car- an wealth of black households operator, for ¥4.3trn ($41bn). Uber can continue operating in bon energy will be profitable. has risen by 33% in real terms The company dismissed re- London, after a judge upheld since 2016 (and by 65% for ports that the takeover is its appeal against the suspen- lvmh filed a lawsuit arguing Hispanic ones), compared with linked to pressure from the sion of its licence last year by that it was walking away from 3% for white families. But that new prime minister, Suga the city’s transport authority, the deal it struck last Novem- cannot make up for the loss of Yoshihide, to lower phone the latest battle in a long- ber to take over Tiffany be- wealth during the recession a charges, but said there “will be running saga between the cause the American jeweller’s decade ago, which hit blacks room to cut the fees”. ride-hailing giant and the performance has been disas- and Hispanics the hardest. regulator. The new licence is trous during the pandemic and The Tokyo stock exchange valid for 18 months. London is a its prospects are poor. Tiffany Palantir Technologies, a suspended trading for at least a very different place since the wants the French luxury-goods secretive software provider day because of a glitch in its outbreak of covid-19 and its company to complete the founded in the aftermath of the system for communicating famous black cabs have strug- $17bn agreement. 9/11terrorist attacks of 2001, market information. It was the gled because of absent custom- floated its shares in New York. worst disruption the Japanese ers. Uber drivers may be roam- A judge granted TikTok a re- A highly complex shareholder bourse has experienced since ing the streets of the capital, prieve from a ban by the Amer- structure means its three going fully electronic in 1999. but their passengers are not. ican government, hours before it was due to be imposed. Donald Trump had ordered a halt to downloads of the Chi- nese-owned video-sharing app. But the judge found that the act from the 1970s on which the president based his order does not cover “informational materials”, including film, photographs or artwork. Tik- Tok argued that 100m Ameri- cans use its platform to share those very materials.

Democrats in America’s House of Representatives unveiled a revised pandemic stimulus package with a lower price tag of $2.2trn, around $1trn less than the bill they presented in May that Republicans deemed too costly. Most of the savings in the new bill come from reductions in aid to state and local governments. Leaders Leaders 9 Bidenomics

Joe Biden should be more decisive and ambitious about America’s economy he two presidential contenders squared up this week in the The recovery bill would also aim to “build back better” by fo- Tfirst debate before America votes on November 3rd. Presi- cusing on some long-term problems for America that have also dent Donald Trump set out to make it a brawl, even throwing a been Biden priorities for many years. He is keen on a giant, cli- punch at the validity of the electoral process itself (see United mate-friendly infrastructure boom to correct decades of under- States section). Joe Biden spent the evening jabbing at Mr Trump investment: the average American bridge is 43 years old. Govern- for bringing the country to its knees. And the president went for ment research and development (r&d) has dropped from over what he hoped would be a knockout blow, accusing his opponent 1.5% of gdp in1960 to 0.7% today, just as China is mounting a se- of being a weak man who would succumb to the left’s plans to rious challenge to American science. Mr Biden would reverse dramatically expand government and cripple business. that, too, with more r&d in tech and renewable energy. He would Fear of just such a leftward lurch under Mr Biden is circulat- scrap Mr Trump’s harsh restrictions on immigration, which are a ing among some American business leaders. However, as we ex- threat to American competitiveness. And he wants to raise mid- plain (see Briefing), the charge is wide of the mark. Mr Biden has dle-class living standards and social mobility. That means more rejected the Utopian ideas of the left. His tax and spending pro- spending on education, health care and housing and a $15 mini- posals are reasonable. They imply only a modestly bigger state mum wage, helping17m workers who earn less than that today. and attempt to deal with genuine problems facing America, in- This is hardly the agenda of a socialist. Mr Biden has ignored cluding shoddy infrastructure, climate change and the travails of the Panglossian fantasies of the left, including Medicare For All, small business. In fact, the flaw in Mr Biden’s plans is that in a ban on nuclear energy and guaranteed jobs. His plans are mod- some areas they are not far-reaching enough. erate in size as well as scope, adding up to an annual increase in When Mr Trump took power in 2017 he hoped to unleash the public spending of 3% of gdp, assuming they could all pass the animal spirits of business by offering bosses a hotline to the Oval Senate. That compares with16-23% for those of Elizabeth Warren Office and slashing red tape and taxes. Before covid-19, bits of and Bernie Sanders. He would raise taxes to pay for about half of this plan were working, helped by loose policy at the Federal Re- the spending that is approved, with higher levies on firms and serve. Small-business confidence was near a 30-year high; stocks the rich. Even if all of his tax plan were enacted, which is highly were on a tear and the wages of the poorest quar- unlikely, studies suggest corporate profits after tile of workers were growing by 4.7% a year, the tax might drop by up to 12% and the income of fastest since 2008. Voters rank the economy as a the top1% of earners by up to14%. If you are rich priority and, were it not for the virus that record that would be an irritant, but not a catastrophe. may have been enough to re-elect him. The real risk of Bidenomics is that his prag- Yet, partly owing to the pandemic, Mr matism will lead him to be insufficiently bold. Trump’s shortcomings have also become clear. Sometimes he fails to resolve competing objec- Long-term problems have festered, including tives. For example, he rightly supports ladders crumbling infrastructure and a patchy social for social mobility as well as a better safety-net safety-net. The underlying dynamism of business remains for workers who lose their jobs; his plans range from more af- weak. Investment is muted and fewer firms have been created fordable housing to free public universities. But equipped with even as big ones gain clout. Mr Trump’s chaotic style, involving these safety buffers, he should be willing to welcome more cre- the public shaming of firms and attacks on the rule of law, is a tax ative destruction so as to raise long-run living standards. Instead on growth. Deregulation has turned into a careless bonfire of Mr Biden’s instinct is to protect firms, and he has too little to say rules. The confrontation with China has yielded few conces- on boosting competition, including prising open tech monopo- sions, while destabilising the global trading system. lies. Incumbent firms and insiders often exploit complex regula- As the 46th president, Mr Biden would alleviate some of these tions as a barrier to entry. His plans are wrapped in red tape. problems simply by being a competent administrator who believes in institutions, heeds advice and cares about outcomes. Making trade alliances great again Those qualities will be needed in 2021, as perhaps 5m face long- Mr Biden’s climate policy represents real progress. Building term unemployment and many small firms confront bankrupt- green-power grids and charging networks makes sense because cy. Mr Biden’s economic priority would be to pass a huge “recov- the private sector may hold back. But, again, its effect will be ery” bill, worth perhaps $2trn-3trn, depending on whether a blunted by the rule that 40% of spending must favour disadvan- stimulus plan passes Congress before the election. This would taged communities and by perks for domestic suppliers: a recipe include short-term money, boosting unemployment insurance for inefficiency. His plan to cut emissions involves targets, but and help for state and local governments, which face a budget shies away from a carbon tax which would harness the power of hole. Mr Biden would also extend grants or loans to small busi- capital markets to reallocate resources. That is a missed opportu- nesses which have not received as much aid as big firms. He nity. Just last month the Business Roundtable, representing cor- would ease tensions with China, soothing the markets. And if a porate America, said it supported carbon pricing. vaccine arrives, his co-operative rather than transactional ap- This lack of boldness also reflects the lack of a fully developed proach to foreign relations would make its global distribution strategy. Mr Biden has a record as a free trader, but he will not re- easier and allow borders to reopen and trade to recover faster. move tariffs quickly and his plan indulges in petty protection-1 10 Leaders The Economist October 3rd 2020

2 ism by, say, insisting that goods are shipped on American ves- benefit if the next president faced up to this long-term challenge. sels. That would complicate the daunting task ahead of him: to That would mean beginning to build a harder-nosed consensus create a new framework to govern the economic relationship on entitlement spending and a sustainable tax base. with China, which involves persuading America’s allies to sign Mr Biden still has to win in November, so his ambiguity is un- up even as they flirt with protectionism, too (see Charlemagne). derstandable. But there is a risk he assumes that victory and a re- It is the same with fiscal policy. To his credit, Mr Biden wants turn to growth and competence will be sufficient to set America to pay for some of his spending—a novelty these days. Nonethe- on the right track. If he wants to renew America’s economy and less, by 2050 public debt is on track to hit almost 200% of gdp. ensure it leads the rich world for decades to come, he will have to There is little reason to fret now, when interest rates are near zero be bolder than that. On the threshold of power, he must be more and the Fed is buying up government debt. But America would ruthless about his priorities and far-reaching in his vision. 7

Global housing The house party returns

Booming residential-property prices spell trouble for the social contract after the pandemic tockmarkets have not had a good September, but their about the growing riches of billionaires. Pricey houses make life Sstrength for the year as a whole remains a source of wonder- tangibly harder for swathes of would-be homebuyers who strug- ment. Less noticed has been the equally remarkable buoyancy of gle to raise the minimum down-payment necessary to get a another asset class: housing. Many rich countries are seeing mortgage and join the club that can benefit from low rates. The house prices surge even as their rate of infections is rising for a problem is most acute in countries that see home ownership as a second time. In the second quarter, although economies were rite of passage. In such places high prices drive young people to- under lockdown, house prices rose in eight out of ten high- and wards leftist populists and threaten the social contract. It is rea- middle-income countries. According to unofficial series— sonable to hope that the trend towards working from home will which are timelier though less accurate than government data— help ease the housing shortages around the most vibrant cities, America’s house prices are up 5% on a year ago. Germany’s are which have been most economically damaging. Yet so far this is 11% higher. Britain’s hit an all-time high, in nominal terms, in not apparent in prices. August. The boom shares some causes with the strength of stock- Perhaps the boom will cool as government support for the markets, but reveals more about the pandemic’s effect on econo- economy falls. However, the effect of the pandemic on long-term mies. It is also more consequential. interest rates is unlikely to change; nor is the desire for roomier Like stocks, house prices are being supported by loose mone- homes. Higher house prices could turn out to be an enduring leg- tary policy. In the past year the rate at which Americans can ob- acy of covid-19. If so, in the 2020s they will deepen the intergen- tain 30-year fixed-rate mortgages has fallen by roughly a quarter, erational tensions that were already emerging in the 2010s. The to about 2.9%. As well as making monthly mort- fact that the economic costs of fighting the dis- gage payments more affordable, low rates make Average house price ease are mostly being borne by the young mostly houses more attractive, because they depress United States, $’000 to protect the lives of the elderly makes the pro- 255 the returns on alternative safe investments. blem knottier still. Other economic policies are also helping. Mass 250 In the 2010s politicians failed to get to grips Covid-19 government support for household incomes, as pandemic 245 with high house prices. They often responded to well as mortgage-repayment holidays, have them by further subsidising home-buying. They saved jobless workers from having to sell their 2019 2020 should indeed cut stamp duty, which distorts homes, as they otherwise might. Britain has the market, as much as possible. But it is futile to temporarily suspended stamp duty, a tax on buying houses. fight long-term price rises caused by low rates and shifts in The house-price boom is not just a result of policy, however. households’ preferences. Rather, governments should cease to Structural forces are at work, too (see Finance section). Job losses indulge national obsessions with owning property. this year have been concentrated among low-paid service-sector That means creating a well-regulated rental sector which of- workers, who are more likely to rent than buy. Professionals who fers security of tenancy, removing subsidies for owner-occupa- have carried on working from home but cut back on their spend- tion and easing planning restrictions to the point where housing ing have accumulated cash to splash—and, with time spent at no longer looks like a magic money tree accessible only to those home rising, what better moment to buy a bigger pad? The un- fortunate enough to start out with pots of cash. Taxes on proper- equal effects of the pandemic have allowed prices to surge even ty values—and ideally on land values—should also rise. Such lev- as banks have curtailed their riskiest loans. In America the share ies are an efficient way of plugging budget shortfalls. They would of lending going to the most creditworthy borrowers has been also recoup some of the windfall gains that lucky homeowners growing. In Britain the boom seems to be being driven by a bid- have enjoyed. ding war among existing homeowners, rather than by first-time To the extent that robust house-price growth represents con- buyers who, because they are younger, are more exposed to the fidence in the prospects for an economic recovery, it is welcome. economic downturn. But in no other context would the contrast between asset prices Housing is a bigger asset class than equities and its owner- and the present condition of labour markets cause as much dis- ship is more dispersed. Booming stockmarkets lead to grumbles comfort for those who are missing the party. 7 The Economist October 3rd 2020 Leaders 11

Famine in Yemen An avoidable tragedy

To avert mass starvation, warring parties must let in aid he war in Yemen seems to play on an endless loop. Atrocity gave generously. As a result, countless lives were saved. Tfollows atrocity. The government is backed by a Saudi-led co- Lately the Saudis, Emiratis and Kuwaitis have had other prior- alition that bombs civilians; the Houthi rebels are backed by ities. Saudi Arabia hosted an international pledging conference Iran, and recruit children and fire shells indiscriminately into in June, after it vowed to give $500m this year (down from $750m cities. Efforts to make peace go nowhere. A swap of 1,081 prison- last year). The kingdom has since lowered its commitment to ers, agreed on at the end of September, raised only faint hopes. A $300m—better than the uae, which so far this year has pledged similar exchange, involving 15,000 detainees, was arranged in nothing. “It is particularly reprehensible to promise money, 2018 but never fully implemented. The loop is unbroken. which gives people hope that help may be on the way, and then to In the past six years the conflict has killed tens of thousands dash those hopes by simply failing to fulfil the promise,” says of people and gravely harmed millions more. Now it is escalating Mark Lowcock, the un’s emergency-relief co-ordinator. again. Civilians died in August in greater numbers than in any The resulting decline in Yemenis receiving food aid is being other month this year. The economy is collapsing, covid-19 is aggravated by the coalition, which has cut off fuel supplies to spreading unchecked and a rusting tanker off Houthi-controlled areas. Its blockade has the western coast, laden with roughly 1.1m bar- pushed up prices and shut down vital services rels of oil, risks causing an ecological catastro- for lack of fuel. Saudi Arabia deposited $2bn in phe (see Middle East & Africa section). Yemen’s central bank in 2018. Now it is nearly all Amid this litany of suffering, Yemen’s most gone and the currency is collapsing, making pressing problem is famine. About two-thirds of food, most of which is imported, even less af- its 30m people need food aid. Many millions, fordable. Neither do Saudi Arabia’s alleged air the un says, are on the brink of starvation. It strikes on farms help Yemen’s harvest. should be possible to feed them. International Saudi Arabia, desperate for a face-saving way bodies have sounded the alarm; relief groups know what to do. out of the war, may be turning the screws on the Houthis. Starv- The question is whether Yemen’s rich neighbours, who have sus- ing the north is unlikely to work. But the Houthis will not like the tained the fighting with arms and money, will have the decency loss of revenue—they themselves divert aid and sell it for profit. also to sustain the country’s people with food and medicine— They even tried to impose a 2% levy on aid shipments. To ensure and whether the war’s stubborn and self-interested combatants food reaches the right people, the un wants to introduce a bio- will allow the aid to get through. metric id system. The Houthis, though, are loth to cede control. Two years ago the un requested billions of dollars for the re- Neither the government nor the Houthis seem to care about lief effort. It was a good time to ask. The Saudis were eager to re- the people they hope to rule any more than their backers do. To pair their image, tarnished by the war and the killing of Jamal prevent famine would not take much—more money from the Khashoggi, a dissident journalist. The United Arab Emirates Gulf states, a lifting of the blockade and co-operation from the (uae), which led the coalition’s ground war in Yemen until last Houthis. Alas, if the belligerents were at all moved by the suffer- year, was also on a publicity drive. Along with Kuwait, they both ing of Yemenis, the war would have ended long ago. 7

Germany Growing up at last

Thirty years after reunification, Germany is starting to shoulder its responsibilities. It has a lot more to do argaret thatcher feared and openly opposed the reuni- enormities of Nazism, can it be trusted to lead at all? Mfication of East and West Germany. François Mitterrand Thirty years on, German reunification has been a resounding was said to have shared her worries, though he accepted it was success. East Germans were freed from the dull yoke of commu- inevitable. Giulio Andreotti repeated a popular quip: that he nism. With just three chancellors in three decades, the new, lib- loved Germany so much, he “preferred it when there were two of erated Germany has been steady and pragmatic. It has champi- them”. Yet despite the reservations of the British, French and oned the expansion of the European Union to the east and the Italian leaders in 1990, a new country came into being 30 years creation of the euro. It has powered solid if unspectacular ago on October 3rd. With 80m people, it was immediately the growth across a continent—at least until covid-19. Europe sur- most populous country and mightiest economy in a Europe that vived the economic crisis of 2007-08, the euro panic of 2010-12 until then had had four roughly equal principals. Ever since, and the migration surge of 2015-16. Germany has thrown its statesmen and scholars have grappled with the problem of how weight around less than sceptics feared, though indebted south- to deal with the reluctant hegemon at the heart of Europe. How ern Europeans are still sore about crisis-era austerity. should Germany lead without dominating? Indeed, after the Under its next chancellors, Germany needs more ambition. 1 12 Leaders The Economist October 3rd 2020

2 The need is most acute when it comes to security. Military bureaucratic hurdles in Germany than previously envisaged, spending is rising in Germany, but remains far below the 2% of and Mrs Merkel is showing doubts, albeit faint, about Nord gdp that nato members are supposed to contribute. Even within Stream 2. She increasingly accepts Emmanuel Macron’s argu- Chancellor Angela Merkel’s Christian Democrats this is a touchy ment that America is becoming an uncertain ally, and that Eu- issue; it is even more so for her coalition partners, the Social rope will have to do more to help itself no matter who wins No- Democrats, and for the Greens, who may help form the ruling co- vember’s presidential election. This does not yet add up to a alition after next year’s election. More important, Germany has more assertive Germany leading a more assertive Europe, but it been too cautious in its policy towards Russia and China, tend- is a shift in the right direction. ing to put commercial interests ahead of geopolitical ones. The Likewise, Germany needs to do more on the economic front. construction of Nord Stream 2, a gas pipeline connecting Russia The pandemic has accomplished what the euro crisis did not, and Germany, is a case in point. It undermines the interests of forcing the eu’s richer countries to show more solidarity with Ukraine, Poland and the Baltic states, but until now Mrs Merkel the poorer. The agreement over the summer to set up a €750bn has refused to cancel it, despite the outrageous behaviour of ($880bn) recovery fund to be ﬁnanced by common debt has been President Vladimir Putin. Nor has she listened much to those in a crucial shift that Germany until recently would not have al- her own party who warn that it is too risky to allow Huawei, a lowed. More than half of the fund will be given as grants rather Chinese ﬁrm, to supply Germany with 5g telecoms equipment. than adding yet more debt to the highly indebted. The fund may Still, there are signs of a shift. This week it emerged that Mrs yet be delayed; but it is a sign that Germany is at long last shoul- Merkel had gone to visit the Russian opposition leader Alexei Na- dering its responsibilities. More of this will be needed in the next valny in hospital in Berlin, where he was recovering from being 30 years if Europe’s currency union, and perhaps even the eu it- poisoned (by himself, Mr Putin claims). Huawei is to face steeper self, are to survive. But the Bundesrepublik is growing up. 7

China’s countryside Mass destruction

China is tearing down small villages to force residents into bigger ones. It should give villagers property rights instead n the past 30 years tens of millions of Chinese farmers have tres. The new housing is often cramped—no more the spacious Imoved to cities to work. While these have boomed, villages courtyards that even some poor villagers used to enjoy. What if have hollowed out. Often the elderly share them with the chil- they refuse to move? Along come officials and their thugs. In 2015 dren left in their care. Houses lie empty. With too few pupils, the fate of a villager who was burned to death when goons threw many rural schools have closed, forcing children to trek long dis- petrol bombs into his home (officials say he lit the fire himself) tances daily or attend often grim state-run boarding schools. caused a national outcry. But horrors persist. Reports of beatings Many provinces have devised a remedy for this malaise. It in- are common, as are accounts of people left with nowhere to live volves knocking down villages and building new, bigger ones, to but tents or shacks—which is especially hard on the elderly. accommodate the residents of several scattered hamlets. The Last year the eastern province of Shandong launched a vil- land where demolished houses stood can then be ploughed up lage-flattening programme that led to protests by residents and and sown with crops—a boon for a country that has one-fifth of outrage in the state-controlled press. China’s leader, Xi Jinping, the world’s population but less than one-tenth of its arable land. has long insisted that the “rural revival” must not involve “mass Many elderly villagers remember the famine demolition and mass building”, but local offi- in 1959-61 after Mao Zedong forced them onto cials have reason to push on. collective farms in his disastrous Great Leap Mr Xi could do more to stop the brutality by Forward. The merging of villages is causing an- giving people a genuine say in the running of other man-made calamity. It is rarely lethal, but their villages. His Communist Party claims it still causes vast suffering (see China section). has done much to build village-level democracy. Experiments with “village consolidation”, Yet most people in the country, as in the cities, conducted in many parts of China over the past are at the mercy of party bosses. If an official de- two decades, have shown that the scheme is cides they must move out, they have no choice. flawed. The officials who order it are often motivated by greed Mr Xi has made matters worse by demanding that the party must and a desire to impress their superiors. Local governments have take the lead. That gives officials all the authority they need. a financial incentive to destroy rural housing. By creating more Another problem is that rural residents, unlike their urban arable land, they can sell greenfield sites near cities to develop- counterparts, have only a vague assurance of rights to the prop- ers without reducing their province’s stock of farmland—an erty they live in. They can rarely sell it to people outside the vil- amount ordained by the central government. Urban expansion lage or mortgage it. The party calls their land “collectively promotes economic growth, which helps officials’ careers. And owned”. Many officials take that to mean they can seize it when when developers and officials are in cahoots, corruption breeds. they like. Farmers should be given clear rights to their homes and Powerless villagers become victims. Millions of them have be allowed to sell them freely, as city dwellers have been allowed been turfed out of their homes, or are due to be. They sometimes to since the 1990s. Governments could buy them if they wish, at a have to move before new accommodation is ready. Even when it price agreed on with the owners. The law should protect the is, new communities are far from the fields or main urban cen- weak from big men with bulldozers, not vice versa. 7

14 Letters The Economist October 3rd 2020

asked whether the respon- built through micromanage- The office dents thought co-workers who ment or surveillance. They are Helping women to buy land I enjoyed your briefing on the worked from home were taking built on a foundation of trust. Land reform is indeed difficult future of the office (“What a advantage and not fulfilling The future of work is about (“Parcels, plots and power,” way to make a living”, Septem- their responsibilities: 53% results, not time spent at a September 12th) but there are ber 12th). Running the world’s thought there was definitely desk, and this is true whether reasons to be encouraged largest provider of flexible some hookey being played. But that desk is in an office or in about changes in Africa and workspace, I have seen many of commenting on themselves, someone’s home. there are practical policy rec- the radical shifts in working 60% said they were working What began as an emergen- ommendations that can ad- behaviour that you explored. longer hours at home. Office cy has become an opportunity. dress some of the continuing The debate should focus less politics indeed. There is no one correct answer problems. For example, gov- on working from home versus richard letcher to the balance of remote and ernments should ensure that the office, and more on the Hong Kong in-office work. There are a women are aware of and able to shift to hybrid working, which wide range of choices that register claims for land, both was already taking place before Communication, both infor- require creative reflection. If jointly and as sole owners. the pandemic struck. mally across desks and in bosses approach it in this That would give them a sound People have enjoyed work- organised meetings, is far manner, and with a hard look foundation for farming, opening from home and the relative richer when conducted in at their work culture, their ing a business or providing a luxury of not having to com- person. Most ideas occur when company and their employees home and shelter. The digital mute. At the same time, com- you are not sitting at a comput- will be the better for it. gender divide makes it difficult panies still need offices that er screen. At home, the instant taso du val for many women to access employees can drop in to for you walk away from your Chief executive technologies and newer online social interaction, meetings computer you are surrounded Toptal land registries. We should also and business reviews. by your home life and your New York help women implement the It is also fair to say that very mind will be engaged with land rights they do hold by few people have the discipline family and domesticity. We should consider our social using legal professionals. to work from home all of the As a business owner, I am nature. In humans’ evolution- There are signs of progress. time. And we have seen the rise aiming for 100% efficiency and ary history, our survival de- In Liberia a land-reform bill in of “Zoom fatigue”. Video- effectiveness. Do you really pended on being able to live 2018 included provisions to conferencing can be more think I should accept less than together in groups. We needed strengthen marital property draining than in-person inter- this so my staff don’t have to to figure out how to keep track rights for women and to for- actions, as it requires a higher travel to work? That is a dan- of who is friends with whom, malise customary land rights degree of energy to process gerous concept for businesses what others are trying to for millions. And in Tanzania non-verbal cues such as facial to adopt and one I suspect you achieve, and when those paralegals are using a mobile expressions, voice tone and won’t find in places like China. around us are angry or happy. app to dispense legal advice pitch and body language. I worry about our work ethic We learned to pay attention to and help women settle What employees need is a and its impact on our output. how others move, where they disputes over land rights. hybrid workplace, where they However, we do need look, and how they react to karol boudreaux can split their working time creative solutions to reduce the what is going on around them. Chief programme officer between home, a local office cost of commuting. In Britain, This requires that we are Landesa and their company’s head- how about waiving stamp duty physically near each other. I Washington, dc quarters. As a result, more on homes less than 30 minutes cannot know if you are happy companies will have distri- travel from one’s place of work, or angry with me if I am not buted workforces. encouraging people to live sure if your facial expression is Taylor-made after all The pandemic won’t lead to closer to the office. triggered by what I said or by With all due respect to the the demise of the city-centre luke dashper an unexpected tap on your leg. correspondent who credited office, as companies still need London I cannot read your body lan- Louis Brandeis with coining somewhere that characterises guage if all that I see is your “scientific management” in corporate identity and a place The most important question facial expression on a screen. 1910 (Letters, September 19th), that allows people to congre- is this: is my corporate culture Because of this bio-social Frederick Taylor used the term gate, but it will mean greater strong enough to adapt to this psychological inheritance, in his paper “Shop Manage- economic opportunities in new way of working? A there is good reason to think ment”, presented at the meet- smaller towns, where local company with a clearly that, as the threat of infection ing of the American Society of businesses can grow supported articulated and effectively recedes, people will look to Mechanical Engineers in June by increasing numbers of deployed corporate culture can leave their home offices and 1903. So Bagehot was correct. home workers. The hybrid thrive in any configuration, be return to their real offices. andrew wyner office rather than the “optional it remote, office-based, or a armin schulz Northern Virginia Community office” is the future. blend of the two. In fact, orga- Professor of philosophy College mark dixon nisations that are longing for a University of Kansas Manassas, Virginia Chief executive return to the office are trying to Lawrence, Kansas IWG mask a weak corporate culture. Zug, Switzerland Too often, business leaders Many thanks for the issue on Letters are welcome and should be mistake presence for perfor- office politics. It makes a great addressed to the Editor at The Economist, The Adelphi Building, The executive-search firm I mance, which is why the use of mouse mat when working at 1-11John Adam Street, London WC2N 6HT work for recently carried out a productivity-tracking software the kitchen table. Email: [email protected] survey across Asia Pacific. One, has surged during the pandem- chris mijnssen More letters are available at: Economist.com/letters admittedly cheeky, question ic. Strong organisations aren’t Brisbane Executive focus 15

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At the same time Mr Biden will head up a party that has indeed shifted more to the left and that has a more radical wing that, while not dominant, is influential and thinks America’s economic model is broken and that the answer is a vastly bigger state. Combined with this, the public is bit- terly divided and many people are wary of globalisation. Under President Donald Trump, America’s standing in the world has slumped. Because of this chaotic backdrop and Mr Biden’s own lack of a fixed economic doctrine, the range of outcomes attributed to a Biden presidency is bewildering and not always benign. To some Republicans on Wall Street and in boardrooms he would enable a hostile takeover by the radical left. “The country is running the risk of structural changes under the guise of social justice which would take the us into a place where it won’t know how to function,” claims one. To the left Mr Biden is a timid figure whose moderation means he would be crushed by an obstructive Congress and conservative courts.

Born to run Neither view is especially convincing once you consider Mr Biden’s goals. He says he will seek to tilt the balance of American capitalism in favour of workers, not the rich. He will offer competent administration; he is no fan of social experiments or trampling on institutions. His priority would be a stimulus bill to revive growth, though he is likely to pull America somewhat further to the left than either of his Democratic predecessors, Barack Obama or Bill Clinton (see chart 1 on next page). He would leave the economy greener, with a more active industrial policy, somewhat higher public spending and borders open to skilled migrants. He would not reverse The pragmatist America’s new protectionism, nor does he have a plan to resolve the country’s long- term fiscal problems. Mr Biden’s long career does not exactly suggest much enthusiasm for economics. During his 36 years in the Senate his main passions were the justice system and for- The Democratic presidential contender would be a salve for America’s economy eign policy. By instinct he is an admirer of but would not remake it the middle-class more than the country’s ome leaders, when they come into of- about the prospect of Bidenomics. glittering plutocratic elite or its downtrod- Sfice, have a powerful economic vision Indeed, if Mr Biden wins the election in den. He grew up in, and later represented, for transforming how their country creates November and enters the Oval Office in Delaware, a diminutive state which relies wealth and distributes it. Others approach January 2021 he will confront an extraordi- on big business to make its crust. Over two- power as pragmatists whose goal is to sub- nary set of circumstances that will put a thirds of Fortune 500 firms are legally regis- tly shape the political and economic forces huge amount of pressure on him. The tered there thanks to its shareholder- they inherit. Joe Biden is firmly in the sec- economy is clawing its way back from the friendly laws and tax rules. The Diamond ond camp. He is a lifelong centrist whose sharpest slump in living memory follow- State is home to the headquarters of some most enduring economic belief is his ad- ing covid-19. The legacy of the pandemic icons of 20th-century industry, including miration for hard-working Americans and will include millions of long-term unem- DuPont, some of whose workers lived in who has shifted with the centre of gravity ployed, public debts that will soon exceed the suburb Mr Biden spent his teens in. His in his party. But Mr Biden’s ability to go their all-time high of 106% of gdp, more exposure to such folk may help explain his with the flow means that, at the moment, bankruptcies and accelerated digital dis- fondness for manufacturing and a more both the left and the right are anxious ruption in many industries. paternalistic capitalism. 1 The Economist October 3rd 2020 Briefing Joe Biden’s economic plans 17

meanwhile, are sky-high with the stock- pact on the deficit is neutral within ten Only a little lurch leftwards 1 market at its most expensive level since the years, either because the spending mea- US, selected presidential candidates’ dotcom bubble of 2000, based on its ratio sures expire or are balanced by tax rises. spending proposals*, as % of GDP of price to cyclically adjusted profits. But the Democrats could ditch procedural Democrat Republican As he grapples with this topsy-turvy rules over the filibuster so that they can 2520151050-5 economy, Mr Biden will have to deal with a pass major bills with only 50 votes (plus second force in the form of the left wing of one from the vice-president who can cast a Sanders 2020 his party. Over a third of voters in the deciding vote). This might also allow them Warren 2020 Democratic primaries supported Bernie to pursue other goals including expanding Biden 2020 Sanders or Elizabeth Warren, whose plans the number of Supreme Court judges. Obama 2008 involved a giant expansion in annual gov- Faced with these external influences, ernment spending. Since then Mr Biden what would Mr Biden do? He would have H. Clinton 2016 has skillfully flattered the more radical left three main ways to exercise power: Kerry 2004 while ignoring their more ambitious pro- through legislation, job appointments and G.W. Bush 2000 posals, such as nationalised health care executive action including regulation. B. Clinton 1992 and the “Green New Deal”, a package pro- Start with legislation, where Mr Biden has moted by Alexandria Ocasio-Cortez, a con- proposals that would raise spending by McCain 2008 gresswomen, among others, which in- $7trn over a decade. Congress will almost Romney 2012 cludes a guaranteed job for all. In July a certainly act as a constraint on this. The Sources: Moody’s; Progressive Policy *Estimate of average joint Biden-Sanders task force agreed on Democratic Party’s centre of gravity in the Institute; National Taxpayers Union; annual level over watered-down policy recommendations. House is still centrist: the largest caucus, UNF; The Economist horizon of proposals Some of these Mr Biden then further dilut- with over 100 members, is the moderate ed into his own proposals. Even so, the left New Democrat Coalition. Most new seats 2 As vice-president in 2009-17 Mr Biden will still demand jobs in any administra- won would probably be occupied by mod- helped implement the stimulus package of tion. And the centre of the party remains to erates, and they also hold key jobs, includ- 2009 and strike budget deals. But his the left of public opinion. Opinion polls ing the head of the Ways and Means com- strength was as a negotiator with Congress, suggest the typical American is more wor- mittee, which controls tax legislation. not as a visionary. Allies from his Senate ried about climate change and China than In the Senate, meanwhile, even if the and White House years make up a big share they used to be, and more relaxed about Democrats won a big enough majority to of his advisers and entourage now, with ad- government borrowing (see chart 2). But try to ditch the filibuster, which is unlikely ditional advice coming from centre-left 87% of them still believe in free enterprise. (a rough yardstick is they would need 55 economists such as Jared Bernstein, The final external force Mr Biden would seats), Mr Biden might well resist: his affec- Heather Boushey and Ben Harris. Unlike face is Congress. The Economist’s election tion for the institution is such that he kept Mr Obama, he has not appointed a domi- model gives the Democrats a 98% chance of a Senate gym locker when he was vice-pres- nant economic figure to his team so far. holding control of the House of Represen- ident, and any change in the filibuster rules tatives and 69% chance of winning the Sen- would be a dramatic constitutional escala- Jack of all trades ate, with any swing bringing new moderate tion in the war between the two parties. As a result, in order to understand where a Democrats in. Assuming the normal rules Any Democratic swing will see moderates Biden presidency might take the economy are in play the Senate will limit what can be win seats. it is necessary to consider the three exter- done. If Mr Biden’s party ends up with be- nal forces that he will have to deal with, tween 50 and 59 seats and sticks to normal Land of hope and dreams each of which could in theory push him Senate protocol over the use of the filibus- All this means Mr Biden will have to com- down a more radical path. The first is the ter, it will only be able to get through tax promise and might only get two big priori- covid-19-induced recession. America has and spending legislation that either has bi- ties passed through Congress. That sug- bounced back faster than was originally partisan support or can be passed using a gests that any increase in the size of the feared. gdp is now expected to shrink by process known as reconciliation. This typi- state would be limited. Ms Warren and Mr 4% this year; at one point a decline of 7% cally limits the number of bills to three a Sanders proposed spending increases had seemed likely. But the recovery could year (one each on spending, tax and debt- equivalent to 16-23% of gdp, taking it to- stumble, not least because Congress has so limits), does not permit changes to social wards Swedish levels seen in the 1970s. Mr far failed to agree on a further stimulus bill. security and normally requires that the im- Biden’s formal proposals amount to just a What is already clear, however, is that 3% increase and in all probability he might the slump has hit the poor worst, amplify- get only half of that passed: so a spending ing inequality. Many business figures warn Less of a worry 2 increase of $3trn-4trn over ten years, worth of a surge in defaults among small firms United States, “reducing the budget deficit should 1-2% of gdp. which have found it hard to secure govern- be a top priority for the president and Congress” The burning priority will be a jumbo ment help: less than 1% of the misfiring % agreeing “recovery” bill of perhaps $2trn-3trn aimed $600bn Main Street lending scheme 75 at revving up the economy and meeting a backed by the Federal Reserve and Treasury key strategic priority, more green-tinged has been dispersed. State and local govern- infrastructure spending (see chart 3 on ments face a funding crunch. The disrup- 50 next page). The latter could command tion is not simply a matter of a temporary some Republican support because it downturn. Whole industries, including creates jobs, while also pleasing Mr Biden’s travel and retail, will be transformed. 25 more climate-aware base. Short-term stim- And the normal laws of economics have ulus measures may include cash for state been upended. Interest rates are at rock- 0 and local governments, a boost to unem- bottom levels, making borrowing almost ployment benefits, a rise in the minimum 19161412100806042002 free for now. America will run a fiscal defi- wage to $15 an hour and further support for Source: Pew Research Centre cit of 16% of gdp this year. Asset prices, small companies. 1 18 Briefing Joe Biden’s economic plans The Economist October 3rd 2020

2 The green infrastructure element might include upgrades to electricity grids and charging stations for electric cars. In order to cut emissions Mr Biden’s plan aims for power generation to be carbon neutral by the mid-2030s. He is keen to spend tens of billions of dollars a year on research and development into renewable-energy technologies and other areas such as 5g, with the aim of establishing an American edge to rival China’s. If the jumbo recovery bill goes well, there may be room for a Biden administration to pursue one other big legislative priority. One possibility is immigration reform. Another candidate is boosting middle-class social mobility, where Mr Bi- den proposes universal pre-school education, tax-credits for child care and free public-university education for families earning less than $125,000 a year. In total spending on an ambitious social-mobility agenda might amount to another $1trn over a decade. band of income tax rise to up to 39.6%, and of his party by giving it lots of jobs in the Congress has only limited capacity so those earning more than $1m might have to regulatory apparatus where they would Mr Biden will also need to decide what not pay a capital-gains rate that is nearer the emit a cacophony of left-sounding signals. to do. He does not seem to have a burning one they pay on their income. The final tool Mr Biden has to get his appetite to reinvent Obamacare, which was A second way Mr Biden could influence way is executive orders, which Mr Trump not his first priority when vice-president the economy, and give licence to his party’s and Mr Obama both used. Yet here, too, Mr (although like most politicians he wants to more radical impulses, is through job ap- Biden will be restricted by the courts which push down drug prices). He will have to pointments. Yet it seems unlikely that he have become substantially more conserva- hope that the Supreme Court does not force will appoint Ms Warren as treasury secretive than they were in the Obama era. Mr Bi- his hand: on November 10th it will begin tary, or even attorney-general. That would den would try to use this power to reverse considering the legality of Obamacare, send an alarming signal to the business some of Mr Trump’s own executive orders. which could unwind a system millions of community when the economy is fragile. It Top of this list is probably the ban on some people use. Were this to happen Mr Biden would also trigger a special election to fill migrants and the president’s clampdown might be forced to try to legislate for a re- her Senate seat in Massachusetts. Instead on refugees and undocumented workers placement. A push to modernise America’s the front-runners to become treasury sec- that has intensified this year. The rules for decrepit antitrust apparatus, meanwhile, is retary are centrists. They include Lael Brai- visas for skilled workers would be eased. on the backburner. Without new legisla- nard, a centre-left member of the Federal Yet despite his support for immigration, tion, it will be hard to do much about the Reserve Board; Jeff Zients, a co-head of Mr his stance on protectionism is more am- rising concentration of business or the big Biden’s transition team; Sylvia Mathews biguous, and here the president has sway tech monopolies, given the courts are re- Burwell, a former Obama official and Sarah and discretion. Mr Biden has been a free luctant to take action. Kamala Harris, Mr Bloom Raskin, a former Fed governor and trader in the past and would certainly be Biden’s running-mate, was friendly to- treasury official. If a business figure is politer to China than Mr Trump has been. wards tech as California’s attorney-general needed then Ruth Porat, the finance chief He would rally America’s allies to put in in 2011-17. of Alphabet, a tech giant, is also thought to place a co-ordinated response to deal with be a contender. China’s economic model under Xi Jinping Tougher than the rest Based on Mr Biden’s own experience as in which even notionally private Chinese Mr Biden’s proposals suggest that roughly vice-president, in which he acted as a key firms are often acting under the strategic half of his spending might be covered by counsellor to Mr Obama, Ms Harris would direction of the Communist Party. tax rises. Once again the formal plan points have an important voice in his administra- But he will only go so far. This reflects a to tax hikes of $4trn, but as with spending, tion. She sits to the left of him on tax and shift in public opinion. According to the in reality a figure half that size or less, of spending, although she is within the main- Pew Research Centre, fully 73% of Ameri- $1.5trn-2trn, is more likely. Big changes to stream. And having rejected its signature cans now have an unfavourable view of social-security levies are probably off the policies and outmanoeuvred its star fig- China, a new high. Mr Biden would not cards since they are not eligible for the rec- ures, Mr Biden might try to placate the left quickly withdraw the tariffs that are now in onciliation process in the Senate. Many place (the average tariff on goods imported Democrats in Congress are wary of raising from China is about 19%). While he has capital-gains tax too high. So business-tax Not quite Sweden, yet 3 been critical of the Trump administration’s rises will do much of the work with a par- Joe Biden’s proposed new spending, by category botched effort to rein in TikTok, a Chinese tial reversal of the 2017 Trump tax cuts. 2021-30 cumulative, total $7.27trn social-media app, he would probably stick Mr Biden would raise the headline rate with the embargo on Huawei and be wary on corporate income from 21% to up to Infrastructure Education Social safety-net of high-tech trade with China. 28%, levy minimum taxes on foreign earn- 2.39 1.91 1.50 1.47 Similarly, new trade deals will not be a ings and remove tax perks for real-estate priority even though Mr Biden supported usmca and private-equity firms. Individuals earn- Source: Moody’s Analytics Health care the Trans-Pacific Partnership and , ing more than $400,000 would see the top the revised us-Mexico-Canada deal passed 1 The Economist October 3rd 2020 Briefing Joe Biden’s economic plans 19

2 in 2020. (Ms Harris was opposed to both.) The final risk is America’s long-term fis- Mr Biden’s industrial strategy is laced with The new normal 5 cal position (see chart 5). Even after the co- soft protectionism, including promises to United States, federal debt held by the public vid-19 stimulus fades, and before any defi- bring supply chains back to home, adopt a % of GDP cit-widening steps that the next president “buy American” government-procurement F’CAST 200 makes, America’s deficit was projected to policy, tighten rules on the labelling of pro- soar above 5% of gdp in perpetuity, with ducts, use American steel for transport public debt reaching about 200% of gdp by projects and singing the praises of the 150 2050. Today the Federal Reserve is buying Jones Act which requires that only Ameri- Second much of the net new debt issuance by the world war can-flagged ships carry goods between do- 100 government, as fiscal and monetary policy mestic ports. begin to merge. A Biden presidency therefore promises 50 For now this strange new fiscal regime moderately higher taxes and more spend- seems sustainable. But over time the risk of ing, especially on green infrastructure, 0 the politicisation of the Fed will increase. more industrial policy and not much And the economy and financial system will 1900 50 2000 20 50 change to trade policy. Who would benefit? become vulnerable to any eventual rise in Source: Congressional Budget Office In terms of individuals his policies are inflation. A debate over these risks looks aimed squarely at the middle classes and likely to occur when the first term of Jay lower paid who would benefit from a raft of the recession; hardly a sign of an imminent Powell, the Fed’s chairman, finishes in ear- measures such as cheaper education, perks lurch towards big-state socialism. ly 2022. But so far Mr Biden has no major to get on the housing ladder and a higher Even so, there would be risks to the plan for redesigning the macroeconomic minimum wage. Mr Biden’s tax rises are economy from a Biden presidency. One is architecture or for getting America’s long- squarely levied on the richest Americans: if that he loses control of the party and there term finances on a stable footing. fully enacted they would mean the income is a lurch even further to the left, spooking of the top 1% of earners would drop by 14%, the business world. Were the Democrats to Better days and the income of the top 0.1% by 18%, ac- abandon the Senate filibuster, a path might Mr Biden, a life-long pragmatist, looks like- cording to the Penn Wharton Budget Mod- be open to an expansion in the size of the ly to govern as one. Stylistically that means el. In reality these proposals will not be Supreme Court or, some bosses fear, more getting sensible advice, behaving consis- passed in their entirety. Either way, the im- radical legislation. But Mr Biden would tently and working with America’s institu- pact of the tax changes on the 99% would probably resist this. tions. While he may lack a formal eco- be minimal (see chart 4). More likely is that a regulatory appara- nomic doctrine, his goal will be to get the What about business? Which firms tus stuffed with left-wing appointees ends economy out of its covid-19 slump, im- would gain and which would suffer? One up damaging his relationship with busi- prove social mobility and build a better estimate suggests corporate profits would ness. Many of the Trump administration’s safety net. He will place his biggest bet on fall by about 12% because of the tax rises. most reckless regulatory decisions, for ex- giving a long-term boost in infrastructure Investors have already begun to discount ample its push since 2017 to stop the Envi- and climate policy, and then try to moder- this and to bid up the shares of renewable- ronmental Protection Agency from limit- ate the wilder forces swirling around energy firms and construction and infra- ing the use of coal, need to be reversed. The America’s electorate and polity, including structure companies which might benefit danger is that new rules are churned out in the more socialist ideas of the hard left, from a Biden presidency. The shares of fos- unco-ordinated fashion on unions, in- chauvinistic protectionism and the indif- sil-fuel energy firms which might suffer equality and the like, accompanied by vol- ference of the right towards America’s so- under a Biden presidency have dropped. leys of confrontational rhetoric. Demo- cial fabric. The claim that a Biden presiden- Tech stocks have soared this year even as crats tend to think that business is just cy would destroy American capitalism is the odds of a Biden win have risen, suggest- crying wolf. But small firms consistently silly. If he can restore competent manage- ing investors don’t worry about antitrust complain about regulation, and badly de- ment and make the economy work better action against Silicon Valley. The stock- signed rules after the financial crisis of for ordinary people Mr Biden’s last job in market has risen by 4.5% this year despite 2008-09 helped cause serious problems in politics will be done. 7 the mortgage market. The second danger is fading dynamism. Chasing dollars 4 Some of Mr Biden’s agenda, including in- United States, estimated change in after-tax frastructure and more research and devel- income as a result of Joe Biden’s tax plans, 2021 opment, will boost America’s long-term By income group, % decrease competitiveness. But a lack of antitrust -20 -15 -10 -5 0 policy and more red tape could continue to give too much power to large, incumbent Top 0.1% companies, which have seen their market 99-99.9 share rise in two-thirds of industries over 95-99 the past two decades, creating oligopolies in industries from mobile telecoms to 90-95 credit cards. The undercurrent of protec- 80-90 tionism in Mr Biden’s plans could insulate Fourth quintile the economy from competition abroad, sapping its vitality. Ultimately there exists Middle quintile a tension between Mr Biden’s desire to Second quintile build new infrastructure quickly and Bottom quintile cheaply and his plan to favour domestic workers and supply chains, that is likely to Source: Penn Wharton Budget Model, University of Pennsylvania become far more acute over time. “We share a client-focused philosophy with First Republic. They understand what we need to grow.” BLEND Nima Ghamsari, Founder and CEO

(855) 886-4824 | firstrepublic.com | New York Stock Exchange symbol: FRC MEMBER FDIC AND EQUAL HOUSING LENDER United States The Economist October 3rd 2020 21

Florida and the election offer more electoral votes and, unlike them, Florida swings. Barack Obama and Key largo George W. Bush each won it twice; Mr Trump beat Hillary Clinton by less than two points in 2016. Just once in the past 12 presidential elections (1992) has Florida voted for the loser. Should Mr Trump win his adopted home state, our model reckons he LAKE MARY AND WILDWOOD would be about 50:50 to win in the electoral Donald Trump will not win without Florida, which is on a knife edge college. Should he lose Florida, he has al- n a sweltering Saturday afternoon, been organising raucous parades of cars most no chance. The state will probably an- OJoe Gruters and Linda Trocine, Republi- decked out in Biden flags in south Florida. nounce its results on election night, so a can party chairmen respectively for Florida But his campaign relies on contacting vot- win for Mr Biden would make Mr Trump’s and for Seminole County, were hunting for ers virtually rather than in-person, reason- inevitable doubt-casting about the results votes the old-fashioned way: by knocking ing that during an epidemic people would that much hollower. Polls show a tight on doors. Armed with an app that aggre- rather be called or texted than visited. That race—much closer than the overall nation- gates masses of voter and consumer data, may change as election day approaches. Mr al picture. Between now and November they were targeting npas (no party affili- Biden has increased his spending in-state, 3rd, Floridians should prepare themselves ation) and persuadable Democrats in Lake and some of the $100m that Michael for an onslaught of ads, attention and Mary, a northern suburb of Orlando, and Bloomberg, entrepreneur, former mayor of hand-wringing from the two campaigns. they were hitting their targets. A rangy, New York and briefly a candidate in the Two groups hold the keys to Florida’s sandy-haired npa with a deep smoker’s Democratic presidential primary, plans to fortunes: Latinos and the elderly. Mr voice handed the flyers back: “Don’t waste spend in Florida on Mr Biden’s behalf will Trump is overperforming with the first ‘em on me. I’m voting Republican straight go towards the ground game. group and underperforming with the sec- down the ticket.” A Latino npa mowing his Only two states, California and Texas, ond. A recent Univision poll showed Mr Bi- lawn enthused about President Donald den winning 52% and Mr Trump 36% of Trump, as did a 50-ish Democrat watching Latino voters in Florida (other polls show a college football game in his garage. “We’re Also in this section narrower leads). By comparison, the poll out there pounding the pavement every showed Mr Biden winning 65% of Latino 22 SCOTUS and the election day,” says Mr Gruters. “We’ve knocked on voters in Arizona and 66% in Texas. more than 1.7m doors...while Joe Biden and 23 Voting in Georgia That partly reflects the difference be- his team are basically trying to win this tween Florida’s sizeable Latino popula- 24 Measuring poverty campaign from their basements.” tion—comprising one in four Floridians— That is not entirely true. Mr Biden visit- 25 Catholic priests and politics and Latinos in other states. Roughly one- ed central Florida on September 15th, and at third of Florida’s Hispanics are Cuban, a 26 Lexington: The end of the debate weekends his Hispanic supporters have group that traditionally votes Republican. 1 22 United States The Economist October 3rd 2020

2 It also has sizeable Venezuelan, Colombian cal picture, in which Democrats try to run Democratic candidate for governor, won and Nicaraguan communities—all groups up their numbers in diverse south Florida usually Republican Duval County, up more favourable to Republicans than Mex- to offset losses in the whiter north, Repub- north, but failed to carry the state. ican-Americans, who tend to vote more re- licans do the opposite, and both sides Florida’s demography—larger than av- liably for Democratic candidates. brawl over the i-4 corridor, which runs erage shares of African-Americans and Lat- But Hillary Clinton won 62% of Florida’s through Tampa and Orlando. inos—would seem to favour Democrats. Latino vote in 2016, and Mr Obama took Florida is protean, shaped by waves of Yet too often that has been a curse in dis- 60% in 2012. Republicans, taking a page immigration from inside and outside guise, leading Democrats to assume votes from Mr Obama’s playbook, have invested America. Conservative midwestern pen- rather than hustle for them. Republicans time and money in Latino-voter outreach. sioners who would otherwise have gone to are taking no such chances. Says Mr Gru- That was partly why, in 2018, Rick Scott and Arizona have moved to places such as The ters, “I was the Trump co-chairman in 2016 Ron DeSantis, both Republicans, won their Villages. An influx of Puerto Ricans into for the state, and at the very peak we had 62 Senate and governor’s races, fending off Orlando and Kissimmee has pushed cen- staffers. We have 190 on the ground right the Democratic wave that crested across tral Florida farther left than it was, and Mr now...Usually we have multiple events go- the rest of America that year. Mr Trump is Trump’s weakness with suburban voters ing on across the state on a daily basis.” Re- doing the same. Fernand Amandi, a poll- means the street-by-street brawl has publicans are fighting for Florida as though ster who heads a Miami-based market removed to the exurbs. Republican efforts Mr Trump’s presidency depends on it— search firm, says that the president has have made the south less of a vote-bank for which it probably does. He will be hard to been in “permanent campaign mode” in Democrats. In 2018, Andrew Gillum, the beat on his home ground. 7 Florida since 2016, whereas “the Democrat- ic strategy has been we’re going to para- chute in and see if we can win late”. Supreme Court and the election Many Democrats worry that when Mr Trump labels them as socialists that may Not so fast particularly deter Cuban-, Venezuelan- and Colombian-Americans, many of whom have experienced socialism first- hand. Carlos Odio, who worked in Mr Obama’s White House before co-founding Equis Labs, a political consultancy, notes NEW YORK Donald Trump’s wish may not be the justices’ command that Mr Trump, like Mr Scott, uses “targeted appeals to peel off votes” from various Lat- think [the election] will end up in the vember 3rd. But the president may find per- ino constituencies. He is unlikely to win “ISupreme Court”, Donald Trump said il in what he believes to be a safe harbour— the Latino vote in Florida, but those mes- on September 23rd, a forecast he reiterated even if his choice to succeed Ruth Bader sages could help hold down his losses, in- during his debate with Joe Biden on Sep- Ginsburg, Judge Amy Coney Barrett, dons creasing pressure on Mr Biden elsewhere. tember 29th. It is “very important that we her robes in time. To counter that weakness, Mr Biden can have nine justices” in place before the elec- There are a few reasons to doubt that a look at least partly toward grey-haired Flo- tion, Mr Trump said, and he is “counting” Supreme Court populated with three of Mr ridians. A recent aarp poll shows Mr on them to “look at the ballots”. With his Trump’s appointees would be a lock to ush- Trump narrowly leading Mr Biden, deficit in the polls stuck at about eight er him into the White House for four more 50%-47%, among all voters over 50, but Mr points nationally, Mr Trump has baselessly years. One is that Bush v Gore, the Supreme Biden leading 49%-48% among voters over impugned the integrity of mail-in voting Court ruling that in effect gave George W. 65, who comprise 21% of Florida’s popula- and refused to commit himself to a peace- Bush the nod over Al Gore 36 days after the tion, and a higher share of the state’s elec- ful transfer of power if he loses. He expects fraught 2000 election, may not be a good torate. No Democrat has won their support America’s high court to come to his rescue guide to 2020. The circumstances leading since Al Gore convinced them that George should he fail to win a clear victory on No- to that contest—the race coming down to a W. Bush was coming for their Social Securi- tight battle for Florida’s 25 electoral votes— ty in 2000. Mr Biden is unlikely to do so this are less likely to be repeated this year. The year, either in Florida or nationally. But he Economist’s model currently suggests Mr may limit his losses enough to balance a Biden would win 335 electoral votes, giving poor performance with Latinos. him a buffer. On Saturdays Chris Stanley, who heads Yet if Mr Trump appears to be losing on the Democratic Club in The Villages, a re- election day, or if he is winning before the tirement community in central Florida, expected deluge of postal ballots is count- waves Biden signs with other club mem- ed—“we might not know for months” who bers along the main drag in nearby Wild- wins, he lamented at the debate—the presi- wood. She cites Mr Trump’s “mishandling dent seems determined to continue his of the covid crisis” as the reason “we have a campaign in court. In order to challenge constant stream of Republicans coming in “fraud like you’ve never seen”, Mr Trump is and saying, ‘I’m a Republican, and I’m go- primed to line up lawyers to try to stop ing to stay a Republican, but what can I do vote-counting in states where he holds to help you get rid of that guy?’ ” provisional leads. It is a travesty, he sug- Mr Trump may also do worse than last gested during the debate, that rules in time among white Floridians. In 2016 Hilla- states “run by Democrats” allow absentee ry Clinton won a paltry 32% of them, while ballots to be counted “seven days after the a recent poll shows Mr Biden on 38%. Such election”. Some battles will be fought in shifting allegiances make Florida in 2020 federal court; others in state court. And if more complex than the traditional politi- Coney island he is dissatisfied with the results, he will 1 The Economist October 3rd 2020 United States 23

2 try his hand at the Supreme Court he has re- tices—imposed on jurisdictions with a his- shaped since 2016. tory of racially discriminatory voting But if his pleas get that far, Mr Trump practices. Since the Supreme Court invali- may be hampered by justices whose first fi- dated that requirement in a ruling in 2013, delity is to the law, not to him. A specific, Georgia’s counties have closed hundreds of credible charge of postal-ballot chicanery polling places; between 2012 and 2018, only may get a hearing. But general shouting Texas and Arizona closed more. about too much counting or unfounded ac- According to data-crunching by Georgia cusations of fraud—like his calls in 2018 to Public Broadcasting News, more than 10% stop tallies in two key Florida races when of Georgia’s polling places in the June 9th they began to narrow—will be difficult to primary had to remain open past official adapt into legal briefs. As steward of a court closing time to accommodate voters (any- he aims to insulate from charges of politi- one in line when polls officially close can cisation, Chief Justice John Roberts will still vote). Two-thirds of them were in ma- have no interest in handing Mr Trump a jority-minority precincts. Many black win on such weak grounds. Neither may Georgians have grown accustomed to wait- any of his colleagues. Mr Trump’s first two ing hours to vote. Wanda Mosley, Georgia’s appointees, Neil Gorsuch and Brett Kava- senior coordinator for Black Voters Matter, naugh, showed an independent streak in visited a precinct in a wealthy suburb north July when they largely sided with the New of Atlanta on June 9th. “When we pulled York district attorney in his quest to get ac- up,” she explained, “I thought we were in cess to years of Mr Trump’s financial re- Election troubles the wrong place. There were no lines. That’s cords. Displaying objectivity will also be a not something I’m used to seeing.” priority for Mr Trump’s pending nominee. Rashomon, with Georgia’s secretary of state’s office has a Ms Barrett would tarnish her reputation on benign explanation for this. First, the the court if—especially so early in her ten- ballots primary took place during a pandemic; vot- ure—she joined a party-line vote to abet the ers in other states also faced long waits be- re-election of the president who appointed cause of higher-than-expected turnout, her weeks earlier. And she may yet decide ATLANTA poll-worker shortages and a reduction in Two explanations for why so many to recuse herself from such cases. voting machines to maintain social dis- Georgians face hurdles to voting If the Supreme Court is to give Mr tancing. For November’s election, Georgia Trump a leg-up, it is more likely to come in ark tavern anchors the south-east cor- has recruited more poll workers. Many of the weeks before the election. The Republi- Pner of Atlanta’s charming Piedmont its counties have added polling places and can Party is fighting in a host of states to Park. It offers eclectic bar food, home- will have trained technicians on hand to rein in postal voting by—among other tac- brewed beer, abundant outdoor seating, help with voting-machine problems. Sec- tics—insisting on witness and postage re- and a warm welcome to dogs. Like most ond, in June’s primary, all Georgia’s coun- quirements, narrowing the window for bars, it usually comes to life in late after- ties used new voting machines for the first posting and receiving ballots, removing noon. But on June 9th this year the queue time. Some poll workers had problems op- ballot drop boxes and limiting curbside stretched out of the door and round the erating them, which led to delays. voting. The five Republican-appointed jus- building before 7am, and did not thin out All this may be true. But many Geor- tices do not have a robust record of stand- until well after the dinner rush ended. gians—particularly Democrats—view ing up for voting rights, or for blessing vot- Atlantans were lined up not for Cowboy them sceptically. They remember, for in- ing rules eased because of covid-19, to Rolls or (shudder) Unity Triple-Goddess stance, 2018, when the then secretary of make it safer for voters to exercise the fran- Ginger Kombucha Beer. They were lined up state, Brian Kemp, defeated Stacey Abrams chise. In April they blocked, by a 5-4 vote, a to vote. No polling place served more Geor- in an election plagued by irregularity that lower-court order that would have extend- gians in the June primary than Park Tavern, he oversaw. They may also remember Mr ed mail-in voting deadlines in the Wiscon- though the experience of waiting hours to Kemp’s devotion to a regulation that reject- sin primary. They have handled related cast a ballot was sadly common across the ed voter-registration applications because questions similarly in Alabama, though state. Whether this experience is repeated of discrepancies between names. A profes- not in Rhode Island. in November could matter a great deal. sor named Carlos del Rio, for instance, was A pair of Republican challenges to In Georgia the secretary of state’s office erroneously registered as “delRio,” and, accounting un-postmarked absentee ballots certifies candidate eligibility, oversees vot- cording to a lawsuit filed by Ms Abrams’s in Pennsylvania three days after November er registration and creates ballots, but group Fair Fight, had to “navigate a lengthy 3rd arrived at the Supreme Court on Sep- leaves electoral administration to the process” to be able to vote. This exact- tember 28th. How the justices handle these state’s 159 counties—more than any state match system tends not to affect voters applications may be a harbinger of their ap- except Texas. The state maintains voter with names like Brian Kemp. proach to the lawsuits Mr Trump’s team rolls, which many complain it does too rig- Perhaps the closures were a budgetary will continue to bring. But it is one thing to idly, rejecting registrations, for instance, matter, and measures such as exact signa- throw a wrench into judicially created vot- because, in the judgment of an election of- ture-matching are needed to prevent voter ing accommodations, and quite another to ficial, an applicant’s signature fails to pre- fraud. That is what Georgia’s Republicans dispute or halt vote counts after the fact. If cisely match a signature already on file. But would like their voters to believe. Perhaps he loses and the Supreme Court does not counties choose and staff polling places, the governor’s race was stolen, and Geor- resuscitate his presidency, the question set electoral budgets and tabulate results. gia’s electoral system is tainted by systemic becomes whether Mr Trump accepts the re- Georgia was one of just nine states racism. That is what Democrats would like sult without further drama. At this week’s wholly subject to the “pre-clearance” re- their voters to believe. The state’s two Sen- debate Mr Trump did not convey a reassur- quirement of the Voting Rights Act of ate races (one is a special election) are on a ing message. “This”, he said, “is not going 1965—meaning it had to seek federal ap- knife’s edge: a lot hangs on which story mo- to end well.” 7 proval for any changes to its voting prac- tivates more voters. 7 24 United States The Economist October 3rd 2020

Americans, workers without college degrees and children. The Census Bureau has a new, more frequent survey which is designed to measure food insecurity, housing instability and other forms of distress. Among households with children, 14.4% reported not having enough to eat sometimes or often in the preceding seven days. For black and His- panic households, this share rises to above 22%. Among those making less than $25,000 a year (and probably counting as officially poor), 35% report difficulty meeting this most basic need. These figures are high despite increased private and public attempts at relief. Food banks have reported operating at double capacity, and sometimes more. To compensate for children no longer receiving subsidised lunches at school, the federal government launched a programme to top up the nutrition-assistance benefits (“food stamps”, colloquially) for affected families. Though this amount- Measuring poverty ed to just $5.70 per day of school missed, a recent analysis of that policy, published by And the poor get poorer the Hamilton Project, found that it reduced food hardship among children by 30%. When food is difficult to afford, so is housing. Among renting families, 28% have little or no confidence in being able to pay next month’s rent (and some have al- WASHINGTON, DC ready deferred it). Among Hispanic house- After a temporary reprieve, poverty and hardship are increasing holds who are renting, the share is 40%. t first, a remarkable thing happened Poverty measurement is usually a staid This need not result in soaring homeless- Ain the midst of an epidemic and the and slow affair. The Census Bureau issues ness. Citing the risk to public health of lockdown-induced recession. Poverty dean official number once a year. Using data forced relocation during the pandemic, the clined in America. A gargantuan stimulus from the monthly unemployment survey, Centres for Disease Control and Prevention package, which sent most households one- however, economists have recently devel- (cdc) has announced a nationwide mora- off cheques worth $1,200 or more and oped a procedure for generating timelier torium on eviction. Many states and cities topped up unemployment benefits by estimates to give real-time feedback. “We have issued their own moratoria as well. $600 a week, buoyed millions of families can explain the entire decline in poverty But these are temporary salves. Under the above the official poverty line (set at from April to June by the stimulus pack- cdc scheme, rent missed is not forgiven. $21,720 for a family of three). Ariel Kalil, a age,” says Bruce Meyer of the University of developmental psychologist at the Univer- Chicago. His recent work, published with No federal rescue sity of Chicago, was conducting a long-run- James X. Sullivan of the University of Notre The picture from official government sur- ning study on parental behaviour among Dame and Jeehoon Han of Zhejiang Univer- veys matches that in self-reported ones. poor parents (mostly single mothers) of sity, shows a nearly 15% drop in the poverty More than 40% of black, Latino and Native- young children in the city before the pan- rate that then reversed after the stimulus American households said they had ex- demic struck. Surveying these parents lapsed (see chart 1). As before the pandemic hausted most or all of their savings (com- again when families were somewhat pro- struck, these rates are higher for African- pared with 25% of whites) in a poll released tected from the economic shock, she found by the Robert Wood Johnson Foundation. parents and children getting along better Robert Blendon of Harvard, who helped despite the added stress from job losses. Back to reality conduct the survey, likened the results to Those supports expired in July, even as United States, official poverty rate, 2020, % others he has conducted in the immediate the pandemic persisted. And the reprieve 20 aftermath of natural disasters like hurri- proved transient. By August, poverty levels canes. “I’m worried that there’s this false had nearly returned to their pre-pandemic Child poverty sense as the stockmarket does incredibly levels. Other measures of hardship—like 15 well that people’s lives are doing well,” says difficulties in affording food and hous- Richard Besser, the president of the foun- ing—are at eye-popping levels, especially 10 dation and former director of the cdc. “I’m for less-educated workers and non-Asian Total worried coming into colder weather that minorities. The consequences for poor 5 there are so many people in America who children might become apparent years have trouble paying for their utilities and from now in the form of reduced educa- putting food on the table.” tion, earnings and opportunity. With 0 Indeed, all this is happening even as the schooling, a theoretically equalising force, Jan Feb Mar Apr May JulJun Aug stockmarket, President Donald Trump’s still disrupted and no vaccine yet, how can Source: “Income and poverty in the covid-19 preferred economic barometer, has nearly pandemic”, by Bruce D. Meyer et al. the extent of the damage be assessed? recovered its yearly losses. The impact of 1 The Economist October 3rd 2020 United States 25

2 the pandemic on economic growth overall Catholic priests and politics is now expected to be more modest than once feared. These averages are encourag- Render unto Caesar ing, but a narrow focus on them ignores the serious problems for those at the bottom of the income distribution. “If we know anything about recessions, it’s that workers with low levels of education take a while to recover. And with kids out of school too, we WASHINGTON, DC Priestly guidance on voting is dividing the Catholic church can be sure that it will be bad for them too,” says Diane Schanzenbach, an economist at an a catholic vote for Joe Biden and cause—has become increasingly explicit. Northwestern University whose work has Cavoid damnation? Bishop Joseph That has led to rows. Though the church shown that government-nutrition pro- Strickland of Tyler, a diocese covering 33 teaches that abortion is unequivocally grammes for children lead to better health counties in east Texas, doesn’t think so. wrong, it does not elevate it above other is- and job-market opportunities later in life. Last month he endorsed a video made by a sues. It also has a strong tradition of em- What chance is there of the federal gov- priest in Lacrosse, Wisconsin, which urged phasising issues of social justice. In a re- ernment coming to the rescue? Talks be- Catholic Democrats to “repent of your sup- cent article in America magazine, a Catholic tween the House and the Treasury Secre- port of that party...or face the fires of hell”. weekly, John Carr, a former adviser to the tary continue, but Congress is even less In a tweet, Bishop Strickland thanked the bishops, described how a small group of likely to put through a compromise pack- priest for his courage and urged his follow- relatively progressive bishops argued age now that a Supreme Court battle looms. ers to “heed this message”. against the usccb’s plan to add a phrase to Even the programme to give boosted food America’s political polarisation is re- its voter-guidance document describing stamps for children missing school came flected in the leadership of the Catholic abortion as the “pre-eminent priority”. close to being scuppered during negotia- church, which constitutes the country’s They also wanted it to include a paragraph tions to fund the federal government. biggest single religious voting group. But by Pope Francis, explaining that “the lives States, cities and school districts are the nomination of a Catholic as the Demo- of the poor, those already born, the desti- trying to cushion the blow. And charities cratic candidate has accelerated the pro- tute, the abandoned” were “equally sacred” are doing much more. Robin Hood, a large cess. Although the church says clergy as those of the “innocent unborn”. The charity in New York City, has distributed should not tell the faithful how they should bishops dismissed both proposals. $50m in relief since the city was hammered or should not vote—such activity also im- The partisanship this policy has en- by the virus in March. Of that, $20m went perils churches’ exemption from certain couraged among conservative priests in- to direct cash assistance for the most vul- taxes—several prominent priests have cas- creasingly extends to issues beyond abor- nerable—such as families whose bread- tigated Mr Biden, claiming his pro-choice tion. A recent weekly newsletter at a winner had died and undocumented im- position on abortion means he is no Catho- church in Damascus, Maryland, rued the migrants, who don’t quality for aid. The lic. When Mr Biden announced his running spate of Black Lives Matter protests with- City University of New York had 50,000 or mate, Kamala Harris, Thomas Tobin, the out mentioning the cause of them. more students who lost their jobs “over- bishop of Providence tweeted: “First time night”, says Deb McCoy, who runs early in a while that the Democratic ticket hasn’t Sold into Egypt childhood and youth programmes for Rob- had a Catholic on it. Sad.” How might all this affect the election? in Hood. As extensive as these efforts are, In so doing they echo President Donald There is no homogenous Catholic vote: the they are little substitute for the fiscal fire- Trump’s efforts to play down his rival’s church’s members vote along a jumble of hose of the federal government. But those faith. The president has described Mr Bi- social and demographic lines. Yet they will spigots are likely to stay closed for a few den, a practising Catholic, as following play a decisive role in the election. White months more. 7 “the radical-left agenda…no religion, no Catholics are disproportionately repre- anything, hurt the Bible, hurt God”. Some sented in many battleground states, espe- clerics have endorsed Mr Biden and re- cially in the Midwest. Some 21% of the pop- buked Mr Trump, though they have been ulation is Catholic; in Wisconsin, which slapped down. When a priest in the archdi- Mr Trump won by around 20,000 votes, ocese of Boston said he backed the former that rises to 25%. In 2016 white Catholics vice-president, explaining that although voted for Mr Trump, though by a much he was pro-life he believed women had the smaller margin than white evangelicals right to choose (a position he believed Mr did. Recent polls suggest Mr Biden may be Biden held too), he was forced to apologise. stealing some of that support. It is not surprising that the church in That is why Cardinal Timothy Dolan, America has become infected by partisan the archbishop of New York, who has de- politicking. But the us Conference of Cath- scribed Mr Trump as “a great friend of olic Bishops (usccb) has played a role in mine”, was invited to say the opening pray- this. In 2009 many of the bishops signed er at the Republican convention in August. the Manhattan Declaration, an agreement The Democrats, meanwhile, showcased between socially conservative Catholics liberal Catholics: their convention fea- and Protestants that they would work to- tured a closing prayer by Father James Mar- gether for traditional family values, that is, tin, who lobbies to make the church more against gay marriage and abortion. Only welcoming to lgbt people (his appearance the latter remains a live issue, but the bish- at the convention earned him a particular ops’ insistence that it is more important mention in the hell video). He was not a than any other has meant that tacit approv- perfect fit: having prayed for the unem- al for Republican candidates—especially ployed, poverty-stricken and desperate, he More stimulating than Uncle Sam Mr Trump, who has embraced the pro-life added “the unborn child in the womb”. 7 26 United States The Economist October 3rd 2020 Lexington The end of the debate

The president turns a globally respected American institution into a national embarrassment Americans should be proud. But they can forget that for now. Debating Hillary Clinton in 2016, Mr Trump strained the rules to the limit; he interrupted and physically intimidated his opponent (and promised to jail her). In Cleveland he largely ignored them. He interrupted, contradicted and traduced Joe Biden, and sometimes also the moderator, Chris Wallace of Fox News. He cav- illed and scowled; he huffed and he ranted. The ferocity of his claimed grievances was formidable. It was also ludicrous. It might once even have seemed comical, were he not America’s president. His criticisms of his Democratic rival were familiar, mostly or wholly inaccurate, and often contradictory. He accused Mr Biden of being so tough on crime that he had alienated African-Ameri- cans and so weak on it that he refused even to utter the phrase “law and order”. He accused him of being so enslaved to the left that he was pushing the left-wing policies, such as Medicare for All and the Green New Deal, that belonged to the Democratic rivals he trounced in his party’s primaries. When Mr Biden pushed back, Mr Trump crowed that he had “just lost the left”. But many of his attacks were more personal. He suggested Mr Biden was unintelligent and levelled unsubstantiated corruption allegations at his surviving son. At times Mr Biden responded in intemperate kind—he called the president a racist, a liar, a clown mong the institutions Donald Trump has attacked in the past and enjoined him: “Will you shut up, man?” But this was not a two- Athree and a half years, the televised presidential debate might way fight. Mr Biden’s rehearsed chuckling forbearance was more not seem much. It does not guarantee the rule of law, protect the striking in the moment than his insults. And Mr Wallace’s increas- environment or defend the homeland. It has hardly ever been elec- ingly desperate remonstrations were almost exclusively aimed at torally significant. Maybe only the first televised duel, which pit- the president. ted a sweaty, shady looking Richard Nixon against a youthful, Mr Biden also tried to lay out the traditional policy case, includ- make-up wearing John Kennedy in 1960, materially affected a race. ing, by his flubby standards, with some half-decent answers on Yet at a time when some of the most basic assumptions about policing and climate-change policy. For his part, Mr Trump made a American democracy are being challenged by Mr Trump’s handful of disjointed, mostly defensive, claims for his administra- scorched-earth presidency, as he illustrated with a debate perfor- tion’s achievements: on the subject of insulin pricing, for exam- mance of stunning brutishness in Cleveland on September 29th, ple, he said “I’m getting it for so cheap it’s like water.” But he did not the merits of the format are worth recalling. describe any policy or future plan wholly or in detail. Before this week they were threefold. The president, setting Was there a strategy to this beyond his usual refusal to be con- aside the exalted status and electoral advantages of incumbency, strained by rules and need to dominate? Maybe not; those urges ex- must submit to the same pre-agreed rules as his challenger. (No plain most of what Mr Trump does. But the strategic implications president since Nixon, following his humiliation in 1960, has of his thuggery look no less dire for being, in all likelihood, un- ducked the format.) Second—and notwithstanding a mountain of planned. Ahead of an election he appears on course to lose, he is evidence that most people do not vote on the basis of such things— telling his supporters that Democrats are not merely hostile oppo- debates affirm the importance of plans and ideas. This projects a nents but somehow illegitimate. He also repeated in Cleveland his degree of seriousness that is otherwise largely absent from most unfounded claim that the election will “be a fraud like you’ve nev- political coverage. er seen”. Asked to condemn the violent white supremacists who The candidates’ competing proposals also underline the degree have already taken to the streets on his behalf, in Oregon and else- to which elections are a choice. And because they are essentially where, he failed to do so. None of this seemed likely to help his making their pitches to a vast television audience, the debates also electoral prospects. It is the kind of behaviour that has turned a underline how that the choice falls to ordinary Americans. Boost- small majority of Americans against him. And yet over 40% are ed by a paucity of campaigning because of covid-19, the 90-minute, still with him to the hilt. ad-free event in Cleveland was watched by an estimated 80m, over half the electorate. Millions more watched around the world— Flashing red which speaks to a third quality of the presidential debate. In “How Democracies Die”, published early in Mr Trump’s tenure, Combining democracy and mass culture, the format is arche- two Harvard scholars, Steven Levitsky and Daniel Ziblatt, de- typally American, yet has proved to be highly exportable. Even scribed a slippery slope that starts with a trampling of democratic more people likely watch their own pre-election debates abroad— norms—thereby ending the degree of mutual trust between rivals including, with encouragement from America’s non-partisan that democracy requires—and proceeds through damage to insti- Commission on Presidential Debates, in fledgling African and tutions, especially those related to elections, to lawlessness and Eastern European democracies—than tune in to America’s. These extremism. It is always possible to underestimate the shock ab- are not trivial accomplishments. Setting aside many moments of sorbers in America’s vigorous, multi-tiered system. Yet at the fed- dullness and inanity, the four-yearly televised event is an enact- eral level, it must be admitted, many of the warning lights they de- ment of American democracy and an advertisement for it of which scribed are already flashing. 7 The Americas The Economist October 3rd 2020 27

Canada The government has said nothing about how much this will cost. It has yet to pre- Justin’s timing sent a budget for the current fiscal year, which ends in March. Chrystia Freeland, the finance minister, has promised a bare- bones “fiscal update” before January. The parliamentary budget office (pbo) expects this year’s deficit to reach C$330bn OTTAWA ($250bn), or 15% of gdp. Public debt will The prime minister may be contemplating an early election rise by 17 percentage points to 48% of gdp. ustin trudeau, Canada’s prime minis- The speech from the throne outlining While the pandemic rages, the govern- Jter, can be sure of passing the next test he the government’s plans, delivered on Sep- ment will not encounter much resistance. faces. This month Parliament will hold a tember 23rd by the governor-general, Julie On September 30th Parliament unani- vote of confidence in his government. Al- Payette, was a programme for muddling mously passed legislation to give more aid though his Liberal Party is in a minority through the pandemic and winning an to workers. Mr O’Toole warns that “there is and Mr Trudeau has been weakened by election. It ignored or barely mentioned Mr not an unlimited pot of ever-increasing scandal, the left-leaning New Democratic Trudeau’s boldest ideas, such as a universal deficit spending” but is not calling for im- Party (ndp) will back the government. The basic income and extending unemploy- mediate cuts. It helps that much of the cur- prime minister has promised enough to ment insurance to the gig economy. rent rise in spending is temporary. The pbo families and businesses hurt by recession Even so, his plans are expensive. With expects the deficit to drop to C$40bn by to keep the legislature’s fourth-largest reported cases of covid-19 spiking since Au- 2024-25. Mr O’Toole proposes to eliminate party from voting against him. gust, Ms Payette said that the government it within a decade of taking office. After that, things will get harder. The would spend “whatever it takes” to support The battles will be about issues beyond Conservative Party picked a new leader on workers and businesses. It wants to create a economic life support. Mr Trudeau will August 23rd: Erin O’Toole, a former air- million new jobs, train more workers, set face opposition “in a host of ways from vir- force helicopter navigator and minister of standards for care homes (where 80% of tually all the provincial premiers”, says veterans’ affairs. He will give new energy to deaths from covid-19 have taken place), de- Graham Fox, president of the Institute for the parliamentary opposition. Seven of the velop an early-learning and child-care pro- Research on Public Policy, a think-tank in ten provincial premiers belong to his party gramme and launch a scheme to help peo- Montreal. Most of what the prime minister or lean towards it. They are at odds with Mr ple pay for drug prescriptions. proposes in such areas as child care and job Trudeau over spending priorities, the envi- training are mainly provincial responsibil- ronment and the role the federal govern- ities. Provinces are eager for more federal ment plays in provincial affairs. The ndp Also in this section money—they want the government to raise will push for more concessions from the its contribution to health-care spending to 28 Self-medication in Peru prime minister, for example higher taxes 35% of the total from 22%, for example— on the rich. He may be preparing for a na- 28 Baby names in Tabasco but not for more federal influence over tional election as early as spring 2021 in how it is spent. The throne speech ignored 29 Bello: Why mayors matter which he will hope to win a majority. such demands. 1 28 The Americas The Economist October 3rd 2020

2 The government promised to end net Mexico emissions of greenhouse gases by 2050. Ja- son Kenney, Alberta’s Conservative pre- Tabascan mier, complains that it is doing too little to support the oil and gas industry, on which onomastics the province depends. These tensions will worsen, warns Mr Fox, unless the federal government co-operates more closely with VILLAHERMOSA A state with a proud tradition of giving the premiers than it has done until now. odd names to children Shaping the protagonists’ plans is the knowledge that the average lifespan of mi- n a scorching Saturday in Jonuta, a nority governments is two years. Mr Tru- Opoor region of the tropical Mexican deau’s is about to celebrate its first birth- state of Tabasco, a woman sits in the shade day. Its ageing process was delayed by the by a river cradling her granddaughter. The pandemic. Senescence resumed over the child’s name is Sirse, a twist on Circe, a summer, with revelations that the families Greek sorceress who turned her enemies of Mr Trudeau and the then-finance minis- into animals. “I saw the name in a novel ter, Bill Morneau, had taken benefits from a and I liked it,” explains Sirse’s mother, Na- charity that got government contracts (Mr bil. The trend towards greater variety in Morneau resigned in August). It may speed names is a global one. In Tabasco, giving up if the economy worsens. Although babies unusual names, often based on growth bounced back during the summer, Greek ones, is a proud tradition. a second wave of covid-19 and a tapering off Peru’s heavy cross It impressed Amado Nervo, a Mexican of fiscal stimulus in the United States could poet. In every family “there is a Homer, a end the recovery, warns Douglas Porter, the show. Against a variety of maladies they Cornelia, a Brutus, a Shalmanasar and a chief economist of bmo, a bank. swallow antibiotics, steroids, anti-clotting Hera,” he wrote in “The Elysian Fields of Ta- As he contemplates when to call a new medicines and the veterinarian version of basco”, which was published in 1896. Rath- election, Mr Trudeau will watch closely the ivermectin, which is used against parasites er than scour the calendar for saints’ fate of the ndp-led minority government such as intestinal worms. Chlorine diox- names, he wrote, parents of newborns in the western province of British Colum- ide, a disinfectant, is also popular. “search for them in ‘The Iliad’, ‘The Aeneid’, bia. Its premier, John Horgan, triggered an More than half of Peruvians think iver- the Bible and in the history books”. Andrés election a year early, on October 24th, after mectin and chlorine dioxide are possible Iduarte, a Tabascan essayist of the 20th saying he would not. Like Mr Trudeau, he remedies for covid-19, according to a poll century, concurred. Tabasco is a place “of prepared the way by boosting spending. If by the Peruvian Studies Institute, a think- Greek names and African soul”, he wrote, Mr Horgan wins a majority, that may em- tank. In Sullana patients take steroids, endorsing the cliché that the state has sim- bolden Mr Trudeau to gamble on an elec- which suppress the immune system, wear ilarities with Africa. tion sooner rather than later. Until then, he a mask, “and think they are totally protect- Nearby Yucatán and Veracruz also have will have to check his ambitions. 7 ed”, says Dr Espinoza. “When I see them it is a fondness for unusual names. But it is usually too late.” In Iquitos at least half the strongest in Tabasco, the home state of 700 who died in the hospital where he Mexico’s president, Andrés Manuel López Peru worked could have been saved, had they Obrador. It may have originated as a cre- not taken steroids and ivermectin. ative way to resist pressure from the Catho- Patient, don’t heal Early in the pandemic many Peruvians, lic church to name children after saints. having heard that the coronavirus causes Tomás Garrido Canabal, an anticlerical go- thyself blood clots, gobbled anticoagulants. Some vernor in the 1920s and 1930s, christened bled to death, says Percy Mayta-Tristán, his farm animals Dios (God), Jesús and Ma- editor of Acta Medica, a magazine pub- ría. He named his son Lenin. Alejandro Ro- LIMA lished by the Peruvian medical associa- jas Díaz Durán, a candidate to lead Morena, In the pandemic, more Peruvians are tion. Some politicians push chlorine diox- the Mexican president’s political party, medicating themselves ide as a cure. Union for Peru, a populist proposes changing the name of the state it- uis espinoza has been battling covid-19 left-wing party, called for the formation of self to Tabasco de López Obrador. Lin Peru since March. A doctor specialis- a committee to study its effects. Some attribute the state’s inventiveness ing in tropical medicine and infectious dis- Peru has laws to prevent misuse of med- to the weather. As its climate boils, “so too eases, he was sent by the health ministry to icines, but they are hard to enforce. Carol it boils our tongues and drives us to talk up Iquitos, in the northern jungle, when the Avalos, a clerk at a pharmacy in Lima, the to our elbows. Otherwise, we would burst,” pandemic began, then moved to Sullana, a capital, says customers object to being told observes the introduction to a dictionary of sweltering northern city. Both cities have they need prescriptions. The pandemic has Tabascan slang, published in 2010. high numbers of deaths from covid-19. made them more aggressive, she says. Although Greek names are less popular Many, says Dr Espinoza, were avoidable. Some pharmacists are reluctant to argue. than they were, the taste for non-Spanish “Patients who should not be dying are dy- Alberto Tutaya, a paediatrician who ones continues. “I am not Arabic,” says Ab- ing because of complications caused by worked on a government plan to curb self- derraman Ortíz, a street seller in Villaher- self-medicating,” he says. That may help medication, says it is a response to a short- mosa, the state capital, “but once an Arab explain why Peru has had more deaths age of clinics and doctors. Peru has just 13 told me that my name means something1 from the disease as a share of its popula- doctors per 10,000 people, among the low- tion than all but one other country. est rates in South America. “Self-medica- Correction: Last week we wrote that Peru’s Self-medication is not a new problem. A tion shows the limits of our health system,” foreign-exchange reserves had been depleted by the cost of measures to limit the economy’s decline third to a half of Peruvians use medicines he says. “The desperation caused by the vi- (“Limping in Lima”, September 26th). In fact, it was that are not prescribed by a doctor, studies rus has only made it worse.” 7 the government’s rainy-day fund. Sorry. The Economist October 3rd 2020 The Americas 29

2 about a caliphate.” If so, it is probably a ref- Starbucks cups. One regular is called Uba, tion”). Should Tabasco follow suit? Even erence to Abd al-Rahman III, the first ca- “like the fruit uva [grape], but with a ‘b’”. Ms there, onomastic originality exacts a price. liph of Córdoba in Spain, who ruled a thou- Morales’s first name is a variation of Libni, “They bully the kids here in the school, sand years ago. “My name comes from the a son of Gershon, who is mentioned in Exo- from primary until university,” says Gerald Russian astronaut,” explains Aldrin Guada- dus. Geney Torruco, Villahermosa’s official Washington Herrera, a legislator in Tabas- lupe Díaz Castro, an insurance agent. “But chronicler (see Books and arts section), re- co. Last year he proposed a law that would my mother was a teacher. She had a pupil calls a friend, a “well-read traveller”, whose restrict what names parents could give named Aldrin in her class and she liked it.” daughter, Penicilina, was born ill but cured their children and make it easier for adults The pupil was probably named after the by a dose of antibiotics. with awkward names to change them. The American moonwalker Buzz Aldrin. Some Mexican states discourage “pejo- legislature did not debate his idea. Tabas- “People get offended when you get their rative” names that might hurt children in cans revel in marvellous monikers. The names wrong,” says Livny Isabel Morales Ji- later life. On Sonora’s blacklist are Burger more boys there are called Yonefequénedi ménez, who encounters plenty of odd ones King, Usnavy, Christmas Day and Aniv De (say it aloud) the less they will suffer in the as she scribbles them for coffee drinkers on La Rev (short for “anniversary of the revolu- playgrounds. 7 Bello The missing local links

The pandemic has helped to give new prominence to mayors hile’s presidential election is still Medellín, Daniel Quintero, used data and the flaws exposed by the pandemic— C14 months away. But it is striking that an app to distribute aid during lockdown such as inequality in access to services, the early front-runners in the opinion and trace the contacts of infected people. reliance on overcrowded public trans- polls are the mayors of three districts of Horacio Rodríguez Larreta, the mayor of port and lack of good housing—can be Santiago, the capital: Joaquín Lavín, a Buenos Aires, has steered a course be- alleviated by decentralisation. Carlos mildly populist conservative; Evelyn tween collaborating with Argentina’s Moreno, a Colombian urbanist at the Matthei, a more orthodox one; and Dan- Peronist president, Alberto Fernández, a Sorbonne, a university in Paris, has iel Jadue, a communist. Their promi- political foe, and cautiously reopening the promoted the idea of the “15-minute nence is a sign that in Chile, where dis- city. Mayors in Huancavelica, a depart- city”, in which everyone is within a quar- illusion with the political class was ment in Peru’s high Andes, have worked ter of an hour’s walk of services and behind a huge wave of protests a year with health officials and schools to set up leisure facilities. Even if only partly ago, mayors are less discredited than community-based contact tracing. In applied, this could transform Latin parliamentarians or ministers. Brazil’s municipal elections, due in No- American cities. And Latin Americans, With the exception of Brazil, long a vember, many big-city mayors are likely to like people elsewhere, want more influ- genuinely federal country, Latin Ameri- be re-elected because of their visibility ence over the natural environment in can government has been highly central- during the pandemic, according to several their area. ised. According to a database prepared by political consultants. Greater decentralisation is no pana- the oecd, an intergovernmental research The rise of mayors is a global trend. In cea. It can increase regional inequality group, spending by subnational govern- Latin America, as elsewhere, it owes much unless accompanied by redistribution of ments in Latin America is equal to only to their closeness to the populace. “People revenue. As the poor relation, the mu- 6% of gdp, compared with almost 10% in empathise with mayors,” says Carolina nicipality tends to lack good managers the Asia-Pacific region and 12% in Europe Tohá, a political scientist who was a cen- and is often corrupt. In Peru more than and North America. Mayors and go- tre-left mayor of central Santiago from 2,000 mayors have been charged with vernors are responsible for 18% of total 2012 to 2016. “They see them demanding graft since 2002. While Chile is generally government spending in Latin America, things [from central government] every cleaner than its neighbours, municipal- compared with more than 35% in the day, and trying to do their best in difficult ities there are more corrupt than other Asia-Pacific. Local governments in Latin circumstances.” She thinks that many of levels of government. Yet these problems America raise little of their own revenue, are themselves consequences of central- which means mayors are not fully ac- ism. Watchdogs are remote, and local countable for the money they spend. governments are unable to offer good This centralisation is rooted in his- career prospects for the ambitious. tory, in Spanish colonialism and in the At a time when many Latin Americans struggle of fledgling republics to impose are fed up with their democracies, more the authority of the state. But it is a poor decentralisation could be a way to re- fit for the present. Latin America is now fresh them. Chile is the country to watch. highly urbanised. Its megacities are This month it is set to vote to draw up a violent, unequal and have lousy infra- new constitution. This is likely to de- structure. The pandemic has highlighted volve more power and money to mayors. many of these problems. In many places, Both Mr Lavín and the left pay lip-service local as well as national governments to that. Across the political spectrum the were overwhelmed. But not everywhere. centralist instinct is strong. But “there is In Chile, mayors pushed for the a citizen demand for more decentral- schools to close, for lockdowns of their isation”, says Ms Tohá. The trick will be to districts and for the government to con- achieve it while making Latin America sult them. In Colombia the mayor of more, rather than even less, governable. 30 Asia The Economist October 3rd 2020

The coronavirus in South Asia by testing data could really be correct. Yet the proportion of tests coming back posi- India v Pakistan v covid-19 tive was also falling, as were the numbers of people being taken to hospital or being kept in intensive care. All this is puzzling, considering that, although both countries spend painfully little on public health, Pakistan’s health in- ISLAMABAD frastructure is considerably flimsier than Is Pakistan really doing a better job of suppressing the pandemic? India’s. Odder still is that whereas India’s n statistics if not in cricket, India tends the worst fallouts of the lockdown,” crowed covid policies have been sharp and strict, Ito trump its perennial rival Pakistan. It is Imran Khan, Pakistan’s prime minister, in a Pakistan’s have been relatively lax. In the four times larger in area, seven times in recent video address to the un General As- same week in March when Narendra Modi, population and ten times in gdp. Yet in the sembly. Meanwhile, ordinary Pakistanis India’s prime minister, won praise for seal- dismal realm of covid-19, bigger numbers are doffing masks and disregarding social- ing borders, stopping trains and slapping are nothing to boast of. According to both distance rules. “I didn’t fall sick and nei- his 1.3bn fellow citizens under a harsh lock- countries’ official tallies, every week of the ther did anyone I know,” declares Irfan- down that ended up lasting two months, past month has claimed more Indian lives ullah Khan, a grocer in Islamabad’s Najam Mr Khan attracted wagging fingers for ob- than the entire nine months of the pan- market. “Now it’s over.” jecting that many of his own countrymen demic have in Pakistan—some 6,500. Experts loudly chorus that such conclu- were too poor to endure such strictures. Whereas India’s burden is still rising by sions are wrong, yet they do concur that Rather than shut down the whole country, 70,000 new cases a day, Pakistan’s caseload Pakistan is enjoying an unexpected re- Pakistan adopted a piecemeal approach seems to have peaked three months ago. Its prieve. For weeks in late summer, interna- that focused on isolating areas where there daily total of new cases has remained in the tional health officials were reluctant to ac- were outbreaks and on providing cash mere hundreds since early August. India’s cept that the rapid fall in cases as revealed handouts to the poorest. economy has also fared far worse. The Mr Khan’s supporters say this policy’s Asian Development Bank predicts that its success was aided by the creation of a na- Also in this section gdp will shrink by fully 9% in the current tional command centre to co-ordinate re- fiscal year, compared with a contraction of 31 Using Uzbekistan’s stranded gas gional policies and by enlisting the army, 0.4% for Pakistan. including its tentacular security appara- 32 A lopsided election in New Zealand “We have not only managed to control tus, for contact-tracing efforts. Others say the virus, stabilise our economy, but most 32 Deterring investment in Myanmar efficient redeployment of a national polio- importantly, we have been able to protect eradication campaign provided more vital 33 Banyan: Malaysia’s man of the future the poorest segment of our society from boots on the ground to combat covid. 1 The Economist October 3rd 2020 Asia 31

2 There are less heroic reasons for Paki- Natural resources in Uzbekistan stan’s lower covid toll, too. Some, ironical- ly, stem from its relative backwardness. “Basically, it is undertesting on a massive Colourless, odourless, buyerless scale,” contends Ramanan Laxminarayan of Princeton University. He notes that Paki- QARSHI Unable to export its natural gas, the government decides to use it itself stan tests for covid at less than a quarter of India’s rate, per person, adding that the rel- zbekistan, as any pub-quiz regular is to end all gas exports by 2025, even as atively poor Indian state of Uttar Pradesh, Ucan attest, is doubly landlocked: production of gas grows. with a population equal to Pakistan’s and a landlocked itself, and surrounded by The global market for gas is volatile, similar failure to test widely, has also regis- landlocked countries. That is unfortu- complains Ulugbek Sayidov, chairman of tered similar numbers of cases and fatali- nate, given that one of its main exports, the state-owned company that runs the ties (see chart). “Test not, find not,” says Mr natural gas, is increasingly traded by sea. country’s pipelines: “It’s better for us to Laxminarayan. “It’s the same with authori- What is more, the trend to liquefy gas use this gas on the domestic market as tarian regimes the world over.” and ship it around the world in giant opposed to exporting it.” The govern- Demography is another factor. Both tankers has given importers much more ment reckons it can make more money Pakistan and India have a far smaller pro- choice about where to buy. The result has by processing the gas, as well as creating portion of old people than rich countries been more competition, lower prices and jobs and attracting investment. It be- do. Just 4% of Pakistanis are over 65, for ex- thus a much more difficult market for lieves manufacturing polythene, for ample, compared with 23% of Italians. Yet countries like Uzbekistan that export instance, should generate eight times the the median age in Pakistan, 23, is four years their gas the old-fashioned way, by pipe- value of simply selling the gas used to lower than India’s, and its average life ex- line. As if to underline the idea that make it. It wants plastic production to pectancy, 67, is two years shorter. This puts exporting gas by pipeline was an unreli- grow 20-fold by 2030. Gas is not the only a far smaller proportion of Pakistanis in the able way to earn a living, China cut its resource the government wants to put to age bracket most vulnerable to covid. imports of Uzbek gas by two-thirds this better use: it hopes to end the export of Although both countries remain largely year amid the coronavirus-induced raw cotton this year, as well. rural, Indians are much more mobile, both economic slowdown, and Russia shut But gas-to-liquids, at least, is a capi- domestically and internationally. Some them off altogether. Those two countries tal-intensive technology that is usually 160m Indians travel by air annually com- sucked up 80% of Uzbekistan’s $2.3bn of viable only when oil prices are high, pared with fewer than 10m Pakistanis; pas- gas exports last year, leaving Uzbekistan notes David Ramberg, a former academ- senger traffic on Indian railways is 130 with lots of gas it has no way of selling. ic. Only four other countries use it: Ma- times greater. Mr Modi’s lockdown, ironi- The government’s solution is to con- laysia, Nigeria, Qatar and South Africa. cally, first bottled tens of millions of mi- sume the gas itself. Near the industrial The government, however, insists that grant workers inside cities that were often city of Qarshi, it is pouring $3.6bn into a even with the oil price at the current $40 reservoirs of covid and then, as pressure plant that will turn Uzbekistan’s gas into or so a barrel, it will save $1bn a year on mounted to let them return to their vil- petrol and other liquid fuels, a process fuel imports. Oltin Yo’l (Golden Road), lages, distributed the epidemic more wide- called gas-to-liquids. It is also encourag- the gas-to-liquids plant, will be profit- ly. Pakistanis, by and large, have instead ing the construction of factories that use able when it opens next year, promises stayed put at home, which more often gas as a feedstock to make plastics and Bekhzot Normatov, a deputy energy means a family home in a village, and less other petrochemicals. A Chinese-owned minister. Even sceptics concede that its often the kind of crowded workers’ colo- pvc factory, for instance, opened late last output is more valuable than unsold gas, nies that ring Indian cities. The laxness of year about 140km from Qarshi. The plan stranded untouched below the steppe. Pakistan’s lockdown meant that most small businesses stayed open, whereas nearly all in India were forced to close. growth as carmakers and airlines. Paki- antibodies rather than active infections, In a further irony, relative prosperity stan, in contrast, has fewer industries to at- have in both countries suggested a vast gap has made not just India’s health but also its tract and then dismiss migrant labour, few- between actual and declared caseloads. A economy more vulnerable to covid. The er planes and trains to idle, fewer and less study in Islamabad in June estimated that pandemic has slammed not just the huge complex supply chains to sever. Not sur- 14.5% of the 2m people in Pakistan’s capital informal sector, but such big drivers of prisingly, the adb foresees India’s more had already been infected—as many as the sensitive economy springing back next official number for the entire country at year with 8% growth, whereas Pakistan’s is the time. A nationwide serological survey Unhealthy rivalry expected to grow just 2%. by India’s government, the results of which Cumulative confirmed covid-19 cases, 2020 Despite the starkly different trajectories were inexplicably delayed until Septem- Per 100,000 population covid has taken so far in India and Paki- ber, suggests that India had in fact already 500 stan, experts warn against drawing firm reached its current official covid tally of conclusions. “Our lockdown may have hurt some 6m cases by early May, well before of- India 400 India more than the disease itself, but in ficial numbers surged. The Lancet, a medi- other respects we are much like Pakistan,” cal journal, charged India with putting 300 says Jayaprakash Muliyil, an adviser to In- misleading “positive spin” on data. Health 200 dia’s National Institute of Epidemiology. professionals warn that Pakistan, like its None of the numbers coming from either other big neighbour Iran, could soon find Bangladesh 100 country is likely to present a true picture, itself experiencing a second wave. Zulfiqar Pakistan he suggests: “We both really cannot see Bhutta, a professor at Aga Khan University Uttar Pradesh 0 what is happening in villages, where most in Karachi, Pakistan’s biggest city, advises Mar Apr May JulJun Aug Sep people live, and we share the same disdain against complacency: “At this point in time Sources: Johns Hopkins University CSSE; for proper data.” nobody should be crowing, and nobody PRS India; United Nations; UIDAI Serological studies, which detect covid should be declaring game over.” 7 32 Asia The Economist October 3rd 2020

Elections in New Zealand “build a fairer, better New Zealand” by re- Labour than National to steer the economy. ducing child poverty, ending homeless- If things go well for Ms Ardern, it might Jacindarella ness and erecting 100,000 cheap houses— follow that she would pursue a more radi- none of which she has managed to do. She cal agenda. Some right-wing voters shud- is lauded overseas for her forthright de- der at the thought of what she could do if fence of immigrants after a massacre at two unshackled from a relatively conservative mosques in Christchurch in 2019, as well as partner. Yet Labour’s policies are far less SYDNEY for her upbeat, no-nonsense demeanour, ambitious than last time round. The most Polls suggest a fairy-tale outcome for especially regarding her pregnancy and contentious is a plan to increase income the incumbent prime minister maternity leave while in office. Many New taxes. It applies only to people earning acinda ardern’s staff ran into a pro- Zealanders, however, used to grumble that more than nz$180,000—the top 2%—and Jblem after she declared New Zealand free she had achieved little of substance. “On al- even then at a rate of 39%, much lower than of the coronavirus in June. It was impossi- most every front, this government has in many rich countries. This points to a po- ble to keep the prime minister on schedule, been a failure,” says Oliver Hartwich of the tential conundrum. Ms Ardern positioned they griped, because she was constantly New Zealand Initiative, a think-tank. herself as a transforming leader. But to win mobbed by supporters. Patrons jumped up New Zealand’s rebuffing of covid-19 has enough seats to bring about sweeping to applaud her when she went out for din- put paid to that complaint. It helps, too, change, she must secure votes from cen- ner. Passers-by hung out of car windows to that the opposition has been in turmoil. trists who are wary of grandiose ideas. The yell their thanks. At the convention of her National has churned through three lead- more successful she becomes, the less rad- party, Labour, one eulogiser declared her ers since May, and several of its senior mps ical she is likely to be. 7 “our nation’s saviour”. have resigned. Its latest boss, Judith Even after a modest resurgence of the “Crusher” Collins, is trying to look even disease, New Zealanders continued to tougher than Ms Ardern on the virus. She Investing in Myanmar commend Ms Ardern for averting the complains that the government allowed worst. She closed their borders to foreign- covid-19 back into New Zealand because it No time for details ers and rallied a “team of 5m” (ie, everyone did not test officials who came into contact in the country) to support one of the tough- with returning travellers. National would est lockdowns in the world. As a result, guard the borders more fiercely, she says. New Zealand has seen only 25 deaths from National typically relies on votes from covid-19. Many voters, says Ben Thomas, a people who worry about the economy, YANGON The government is making life difficult former government staffer under the oppo- which is in recession. To pep it up, Ms Col- for Western investors sition National Party, feel that Ms Ardern lins pledges to cut income tax temporarily, has “literally saved them”. returning nz$3,000 ($2,000) to middle-in- n a speech last year, Aung San Suu Kyi, All this puts the prime minister on track come earners. But she undermined her IMyanmar’s president in all but name, for a big victory in an election on October own credibility on the subject by releasing laid out the many reforms her government 17th. The latest polls suggest that Labour an “alternative budget” which was subse- had undertaken to attract foreign inves- may win 47% of the vote, which would give quently found to include accounting errors tors. In return, she went on, “we only ask it 59 seats in the unicameral parliament. It of as much as nz$8bn (2.5% of gdp). In con- our investors to ensure that their invest- needs 61 seats in the 120-seat chamber for trast, the finance minister, Grant Robert- ments are responsible, by incorporating an outright majority—a feat never son, has won acclaim by spending careful- environmental, social and governance fac- achieved since New Zealand adopted a pro- ly before the pandemic, and then creating a tors”. The subtext, although she did not portional voting system in 1996. popular wage-subsidy scheme. Polling mention it, was that the biggest source of Either way, Ms Ardern will be in a far suggests that Kiwis now have more faith in investment in Myanmar, Chinese firms, stronger parliamentary position than she have never paid much attention to such is now. Labour actually lost the most recent things and have stoked popular resent- election, in 2017, securing just 46 seats to ment as a result. When Ms Suu Kyi was still National’s 56. Ms Ardern was able to form a an opposition leader, she called for the government only with the support of New scrapping of the biggest Chinese invest- Zealand First, a populist party. Even then, ment in the country, a huge dam to be built she needed backing from the Greens, not on its main river, the Irrawaddy, precisely formally part of the coalition. because of misgivings about its environ- This time around, New Zealand First is mental and social impact and the murky unlikely to win any seats: it is polling well role of the Chinese state in the governance below the 5% minimum needed to guaran- of the project. Yet since she gave the tee a seat in parliament. Ms Ardern will not speech, Ms Suu Kyi’s government has been be losing any sleep about that. Winston Pe- making life difficult for the sorts of firms ters, New Zealand First’s leader, has ob- she says she wants to attract, often to the structed her plans on everything from benefit of their Chinese rivals. stronger hate-speech laws to a capital- The power industry is a good example. A gains tax. If Ms Ardern falls short of a ma- giant tender to build solar farms an- jority, she will find a more compliant co- nounced in May originally gave bidders alition partner in the Greens. Together, only a month to apply, even though most they might form the first wholly left-wing foreigners could not enter the country at coalition to run the country in 20 years. the time because of a coronavirus flight What makes such a prospect all the ban. After complaints, the energy ministry more striking is that, before the pandemic, extended the deadline by a month. Inves- Ms Ardern was on track to lose the election. tors worried that recent changes to the law She came into office with lofty plans to Basking in a covid-free glow on land ownership might end up classify-1 The Economist October 3rd 2020 Asia 33

2 ing as vacant and ripe for development to firms based in China. self from the shutdown by selling its stake land that in fact had been used by poor mi- Meanwhile, rules that are awkward for in Frontiir, a Burmese internet provider. A norities for generations. The short bidding investors who take seriously concerns group of European chambers of commerce period, coupled with covid-19, gave them about corporate conduct are proliferating. warns that the internet restrictions could no chance to resolve their concerns. As a For over a year Ms Suu Kyi’s government undermine foreigners’ view of Myanmar result, big Western firms shunned the ten- has limited internet access and blocked “as a responsible investment destination”. der. All but one of the 29 contracts went to critical websites in parts of the country af- Ms Suu Kyi does not want that. But poli- Chinese firms and local partners. flicted by an insurgency. Telenor, a Norwe- cy-making is overseen by ageing ministers Something similar happened last year, gian firm that runs one of Myanmar’s mo- who grew up under a socialist regime that when the ministry of energy awarded five bile providers, at first resisted the res- demonised the private sector. Senior bu- contracts for the speedy construction of trictions before acquiescing. Meanwhile, reaucrats are much the same. Optimists power plants, to alleviate a shortage of opposition politicians in Britain have hope for a new leaf after elections in No- electricity. Again, there was a one-month urged cdc Group, the British government’s vember—but if change comes, it will not be bidding period, and all the contracts went development-finance arm, to dissociate it- as quick as a government tender. 7 Banyan Always the man of the future

Anwar Ibrahim is in a familiar place, tantalisingly close to power hen anwar ibrahim declared in still popular among the ethnic-Malay umno cronies to drop the charges Wlate September he had a “strong, majority, could bring. Together, the two against Mr Najib, who has now been formidable majority” of mps ready to won an election in 2018, kicking umno convicted on several counts. He has also unseat the government of Muhyiddin from power for the first time. A week after just burnished his reputation by as- Yassin, some in Malaysia wondered the general election, Mr Anwar was out of sembling a winning coalition in state whether Mr Anwar’s moment had come jail with a royal pardon. elections in Sabah, part of the Malaysian at last. Others groaned. Mr Muhyiddin’s Yet as they had done in the 1990s, the bit of Borneo—denting Mr Anwar’s claim government, which itself came to power pair began to squabble over how soon Dr that his government is a spent force. in a parliamentary coup, is just seven Mahathir would give way to Mr Anwar. Dr Mr Anwar’s confidence that he can months old. How would more upheaval Mahathir set his sidekicks to work negoti- topple Mr Muhyiddin seems to derive help contain the pandemic, revive the ating a coalition of Malay parties, in- from the backing he has secured from battered economy, or improve the coun- cluding umno, so that he could sideline several members of umno who also face try’s dismal politics of patronage and Mr Anwar, whose own party is multiracial corruption proceedings, including the race? Mr Anwar had once cared about and whose coalition rests heavily on the party president, Ahmad Zahid Hamidi, policy. This seemed a naked power-grab. largely Chinese Democratic Action Party who is battling 87 charges. So much for Mr Anwar hates being called Asia’s (dap). In the event, Dr Mahathir was the Mr Anwar’s claim to the moral high eternal prime minister-in-waiting. In the biggest victim of the machinations, over- ground. Yet even such a pact may not win late 1990s, when financial crisis laid bare thrown by Mr Muhyiddin. him the votes he needs. umno aristocrats the cronyism over which Mahathir Mo- In turn, Mr Muhyiddin has ruled like with cut-glass English look down on the hamad, the prime minister at the time, the former umno guy he is, spreading rough-spoken Mr Zahid and calculate presided, it looked like Mr Anwar’s mo- patronage, pleasing Malay chauvinists by that, with Mr Najib gone, they can claim ment. The young high-flyer, already pursuing corruption charges against a the party has had a makeover. They look deputy prime minister, had long called former finance minister who is the coun- forward to an election, on the assump- for an end to the cosy ties between busi- try’s most prominent Chinese politician, tion that Dr Mahathir, Mr Anwar and Mr ness and politics under the United Ma- Lim Guan Eng of the dap, and employing Muhyiddin have feuded so grotesquely lays National Organisation (umno). In repressive laws to go after critics. To his that voters will turn back to umno. 1997 Time put him on the cover: “Anwar credit, he has resisted pressure from That leaves Malaysia in limbo, with and the Future of Asia”. Yet within a year, few believing Mr Anwar can topple the Dr Mahathir had fired his uppity protégé government but only one man able to and thrown him in jail on flimsy charges dispel his claim: the king, who can ap- of abuse of office and sodomy. point as prime minister anyone he be- Fast forward to 2018, when Dr Ma- lieves enjoys the support of a majority of hathir came out of retirement at the head mps. He has been undergoing such in- of a new party, Bersatu, with the aim of tensive treatment for sore knees and defeating umno and his successor-but- ankles in hospital for the past 11days, he one as prime minister, Najib Razak, who has not found time to receive Mr Anwar. had presided over stupendous corrup- Mr Muhyiddin has assiduously courted tion. Even more surprising than the the seven Malay sultans who take turns 93-year-old’s comeback was his choice of serving as Malaysia’s monarch, not just ally: Mr Anwar. Mr Najib, too, had thrown by defending Malay prerogatives, but him in jail on sodomy charges. From also by backing grand projects like a behind bars, Mr Anwar commanded an high-speed railway to Singapore from opposition coalition that included many which several of them may benefit as big from the Chinese and Indian minorities, landowners. Meanwhile, the prime but he needed the votes that Dr Mahathir, minister-in-waiting waits on. 34 China The Economist October 3rd 2020

Consolidating villages tryside into cities has left many villages with few people except the elderly and the On Harmony Road migrants’ children. Local officials want to convert the space occupied by empty houses into farmland so they can develop greenfield sites near cities without affecting their province’s overall stock of fields BINZHOU used for crops. The central government, To put idle land to use, Chinese officials are demolishing many villages. They are ever fearful of having too little arable land causing widespread suffering to feed the country’s 1.4bn people, requires here is a surprising amount of earth- Villages are being destroyed and their for- provinces to maintain specified areas of it. Tmoving equipment on the otherwise mer residents moved elsewhere, often into Pictured is Gongshan New Village in Shan- sleepy rural back roads of Binzhou prefec- clusters of houses or blocks of flats built by dong, to which the inhabitants of nearby ture in the eastern province of Shandong. local governments to accommodate the houses have been moved to form a much Some of it is being used to build an irriga- populations of what were once several tighter concentration, using far less land. tion channel to draw in water from the scattered hamlets. For some of those relocated, the new nearby Yellow river. But much of it is being Governments give several explanations settlements may have advantages. The hol- used for destruction. At a turning off a for carrying out what they call hecun bingju, lowing out of villages left many rural county highway, a sign points to Zhaibo vil- or “village consolidations”. Sometimes schools with hardly any students. Local lage. It no longer exists. The machines have they talk of promoting urbanisation (some governments responded by closing many already done their job of levelling Zhaibo of the new communities are on the edges of of them: between 2000 and 2015 more than and carrying away the debris. towns like Weiji), or of helping villagers 300,000 primary schools—nearly three- Before the end of May, the village was out of poverty. But a very common motive quarters of the countryside’s total—were home to about 70 households who made is to make more efficient use of rural land. shut. This forced many children to trudge their living growing maize and cotton and Over the past three decades the movement long distances to class, or attend state tending fruit trees. Now most of the former of tens of millions of people from the coun- boarding schools. The new consolidated residents are in newly built flats on the out- communities are in part intended to allow skirts of Weiji, a town about seven kilo- villagers to enjoy ready access to schooling Also in this section metres away. “We’re improving the soil and and other government services. a lot of them will be able to come back and 35 The peddle betel battle But villagers often have no choice but to work the same land,” says a worker. move into these settlements. Sometimes 36 Chaguan: When China fought Similar scenes have been common in officials use brutal tactics to force them, in- America rural areas across China in recent years. cluding sending in thugs to beat those who 1 The Economist October 3rd 2020 China 35

2 refuse to leave their houses. This year Betel nuts Shandong embarked on an unusually large-scale and aggressive campaign to consolidate one-fifth of the province’s Hard to crack 70,000 or so villages by the end of 2020. Citing local officials, state media say Shan- XIANGTAN A risky stimulant thrives in China’s capital of chewing dong (which is China’s second-most-populous province, with more than 100m peo- etel nuts assail the nostrils before become a “humanitarian catastrophe” in ple) ranks third in economic output, but Bthey thrill the tongue. At a shop in Hunan, rising from almost 25,000 in only 11th in its urbanisation rate. It is eager Xiangtan, a city in the central province of 2016 to 300,000 in 2030. Something to to move up the tables. Hunan, they are sold in a dried form— chew on, you would think. The zeal of local officials has caused dark and wrinkled in blue-and-white Yet demand for the nut is swelling. widespread suffering. Many homes were porcelain bowls, with flavourings of Sales at the largest firms are growing at a demolished before replacement apartment spice, mint, orange and cinnamon oil. yearly rate of 10%, according to the Hu- blocks were ready for occupancy. In nu- They sell for a few yuan apiece (under $1). nan Betel-Nut Association in Xiangtan, merous villages across northern Shan- A local song celebrates their ability to where the industry took off in the 1980s dong, villagers describe the same phenom- induce a bit of a buzz: “The more you (it was already well-established across enon: xianchai houjian, meaning “first chew the betel nut, the livelier you’ll the Asia-Pacific). The business employs demolish, then build”. The practice has left feel...Spit one out and pop another in.” over 2m of Hunan’s 41m working-age many scrambling to find relatives to stay People in Xiangtan exchange them in adults. Most of them are involved in with. Some have built simple shacks or greeting. From teenagers to elderly mah- processing the betel nuts, which are the erected tents near their fields. jong players, the city’s residents chomp berries of areca palm trees. These are In a widely read essay Lu Dewen, a rural- furiously to get their fix of the nut’s main mainly grown on Hainan, a tropical- affairs specialist at Wuhan University, de- stimulant, arecoline. island province 1,000km away (where a scribed the abuses suffered by villagers in In 2017 China’s regulators named peddler selling fresh nuts is pictured). Shandong. He said that unlike the corona- arecoline as a carcinogen (long after the In February, as cases of covid-19 virus pandemic—a “haze that will eventu- World Health Organisation had done so). soared in China, the National Health ally pass”—the village consolidation cam- Also that year doctors in Hunan pub- Commission even included betel nuts in paign has been a “man-made disaster” with lished findings that oral submucous a prescription based on traditional Chi- no regard for human emotions, and with fibrosis, a disease from chewing betel nese medicine for removing “dampness fearsome psychological effects that will nuts that often leads to cancer, was in the lung”. Firms in Hunan province last a lifetime. Remarkably, state-owned “widespread” in the province, with rates handed out mask-and-betel-nut care media joined the chorus of criticism. much higher than elsewhere in China. packages to taxi drivers and street clean- Local officials blocked your correspon- They predicted oral-cancer cases would ers. The head of a betel-nut association dent from approaching Weiji to speak to on Hainan island told state media a story villagers relocated from now-flattened often recounted in Xiangtan: a monk Zhaibo. But there have been numerous ac- there survived a plague in the 17th cen- counts, including in China’s press, of its tury by continuous chewing of the nut. residents having been beaten and intimi- The sector is adept at deflecting con- dated to make them leave their homes. cerns. In March 2019 the association in Some were threatened with dismissal from Xiangtan said it was banning advertise- their jobs and some were detained while ments by local betel-nut firms. That their houses were destroyed. seemed encouraging—until it emerged Shandong’s government has not ac- that, even under questioning by state knowledged such abuses. But it has tried to media about the purpose of the move, the sound emollient. In recent weeks, the group would not admit to health con- province’s Communist Party chief, Liu cerns. Compliance with the order was Jiayi, has toured several villages, admitting patchy. Since August a comedy show, that some residents had been treated “un- “Deyun Laugh Club”, has been watched fairly”. He has called on officials to “think 500m times. Among its sponsors is Wu Zi from others’ point of view” and to protect Zui (“Five Drunk Men”), one of Hunan’s farmers’ “legal rights”. biggest betel-nut producers. Opening ads Mr Liu may not have considered a pro- for its goji-flavoured betel nut promise blem with his plan. Building new villages is that chewing it will make watching the expensive. Theoretically his government Just say “bu” show “even more fun”. could offset the cost using proceeds derived from increasing the province’s stock of farmland: any area in excess of the man- them into smart-looking new settlements. eral kilometres away, is well advanced. dated amount can be sold to developers. But there are signs that the government is Huge billboards show drawings of planned But as Chinese media have pointed out, the proceeding more cautiously. Take Linjia blocks of flats. A showcase building is al- price depends on supply and demand. village in Dezhou prefecture. It is due for ready finished, as is a new thoroughfare Shandong’s massive village-demolition demolition but remains intact, for now. leading to it called Harmony Road. Back in scheme would create a glut of farmland Several residents say they have been prom- Linjia, Mr Lin describes its tight-knit com- that may prove hard to sell at the price the ised there will be no move until their new munity and worries that old friendships government had been hoping for. dwellings are ready. “No one is happy about will be disrupted. He wonders also about Mr Liu has not announced the abandon- it but we are being allowed to negotiate so what he will do after a lifetime spent farm- ment of his project to build “beautiful and far,” says Mr Lin, a resident. ing. “I’d rather just stay here if I could,” he liveable homes” for farmers—ie, move Work on the new accommodation, sev- says, “but I know it’s not possible.” 7 36 China The Economist October 3rd 2020 Chaguan When China fought America

China draws stark lessons from the 70th anniversary of its entry into the Korean war its anti-Americanism, eschewing the previous memorial’s state- ments about American imperialism being exposed as a “paper tiger”. But in its place is something that may prove just as disruptive: a deep disdain for the West, which is portrayed as unable to match the efficiency and order of Communist Party rule. Indeed, Ameri- ca’s germ-warfare campaign is called a military failure, thanks to clever Chinese and North Korean anti-epidemic work. The museum has reflected political trends since it first opened in 1958. Back then, its displays followed North Korea’s line that the war began with a surprise attack by South Korea—a reversal of the historical truth. Today, in 2020, the museum in Dandong says coy- ly that “On June 25th 1950 the Korean civil war broke out,” without assigning blame. The memorial closed in 1966 when the com- mander of Chinese forces in Korea, Peng Dehuai, purged for questioning Mao and later rehabilitated, came under renewed attack. It did not reopen until 1993, a year after China normalised relations with South Korea—a rapprochement that enraged the North and made it urgent for China to assert its version of history. The hall closed again in 2014, ostensibly for repairs, amid Chinese anger at missile tests and nuclear-weapons research by North Korea. The latest memorial has an intensely domestic focus. Its dio- ramas, enlivened with the bright lights of projected explosions n optimist might call it progress that China’s national me- and the boom of recorded gunfire, feature American soldiers in Amorial to the Korean war, newly reopened after years of reno- two roles: fleeing and dying. North Koreans are glimpsed mostly as vations, has reduced the space devoted to a Mao-era hoax—the helpless civilians, thanking Chinese troops for rescuing them. charge that America used the plague and cholera as bio-weapons Chinese students are taught that their country entered the war during that conflict, thereby committing a war crime. in self-defence against American invasion threats, sending “Chi- It is dismaying that the allegations remain on display at all in nese people’s volunteers” in canvas shoes and thin cotton uni- the memorial, a hilltop complex overlooking the Chinese border forms against swaggering Americans armed with tanks and war- city of Dandong and, across the Yalu river, the North Korean town planes. Textbooks describe these Chinese troops hurling rocks of Sinuiju. The memorial reopened in late September, ahead of the when ammunition ran out, teaching the world to respect the 70th anniversary of China’s entry into the conflict that laid waste young People’s Republic of China. In reality, the war was a blood- to the Korean peninsula from 1950 to 1953, and that Chinese leaders bath that ended where it started, with Korea divided along the 38th call “The War to Resist America and Aid Korea”. Still, hopeful sorts parallel, at a cost of perhaps 400,000 Chinese lives (the memorial might note that the hoax was once a much bigger deal. The allega- admits to less than half that number). In this 70th anniversary tions of germ warfare were worldwide news in the first months of year, those events have been distilled into a simple moral about 1952. Chinese and North Korean leaders saw a chance to challenge not fearing America’s strength. State media stress how weak and the legitimacy of the American superpower. In Europe, Soviet-bloc poor China was in 1950. They praise Communist pioneers for dar- governments and Western sympathisers staged protest marches ing to attack America, and for realising that, faced with such a bul- involving millions of people, accusing American warplanes of ly, they had to seek “peace through fighting”. dropping bombs packed with bacteria-laced insects on Korea and northern China. The party’s worldview: endless struggle The new memorial in Dandong charges America with crimes Chaguan did not hear nostalgia for war among the museum’s visi- against international law in a single display panel, offering few de- tors. He did find admiration for the willingness of previous gener- tails. A glass case offers supposed evidence: an old bomb casing, ations to accept hardship. A local man, Xiu Dexiang, had brought a and dusty test-tubes containing “bacteria-carrying insects scat- five-year-old son dressed in a miniature army uniform. “I want to tered by the us forces”. In reality the tale was long ago debunked, let him know that this life we have did not come easily, and he notably by documents that emerged from Soviet archives decades needs to cherish it,” he explained. after the war. The papers included a resolution by the Soviet gov- Li Quanxin, a 90-year-old Red Army veteran, drew lessons from ernment in 1953 that called reports of American germ warfare in the memorial about Chinese self-discipline. “Take this pandemic. Korea “fictitious”. A study by Milton Leitenberg for the Woodrow Two hundred thousand people died in America! What’s their Wilson Centre in Washington cites memoirs by Wu Zhili, a former leader doing? Look at how calm China is now,” he growled. “China’s head of China’s military medical service in Korea. Wu called talk of decision-making is really something. From the Korean war to co- germ warfare a “false alarm” that did not make sense: some alleged vid, the path we choose is sure, and the world is in awe.” drop-zones were just metres from American lines, and the winter Later in October China will award medals to surviving veterans weather was far too cold for bacteriological warfare. of Korea. Big-budget films about the conflict are heading to cine- Cheerful souls might conclude that modern China’s rulers are mas and television screens. Talk of resisting America can hardly be embarrassed by this old propaganda but cannot easily disown it, avoided: it is in China’s name for the war. Elaborate challenges to so are taking a middle path. Chaguan draws a different lesson from America’s legitimacy will not be needed. To China’s rulers, their a recent visit to the memorial. The new museum may tone down system’s superiority and the West’s decline are self-evident. 7

Middle East & Africa The Economist October 3rd 2020 37

Competition law nation address last year. Change has been slow. An imf working paper released in No contest September argued that South Africa could boost annual gdp growth by 2.5 percentage points by encouraging competition. Politics continues to stifle competition. Public contracts are not always won fairly: in 2012, for example, Zambian authorities KAMPALA accused two fertiliser companies of divid- Too many big firms rip off African consumers ing up the market and rigging tenders to oko mingi VIII, king of the Nembe peo- make markets more efficient, but also to supply a state subsidy scheme, costing tax- Kple, had a vigorous approach to trust- undo a history of economic exclusion. payers $21m. In other cases, governments busting. In 1895 he led a pre-dawn raid on Colonial economies were built around use protective regulations to cosset state the headquarters of the Royal Niger Com- European trading firms, with licensing firms, such as national airlines. Some 70% pany, a British firm that had monopolised rules that hindered the emergence of black of all air routes to, from or within sub-Sa- the palm-oil trade in the Niger delta. Koko African capitalists. That logic was taken to haran Africa have only one carrier flying captured 60 hostages and demanded to be extremes in South Africa, where just six them, according to Cirium, a data firm. allowed to trade freely. The British sent in conglomerates controlled 87% of the stock- New entrants are often kept out of the skies the gunboats instead, and monopolists market at the end of apartheid. “The struc- by regulatory barriers or are unable to com- have had the upper hand in Nigeria ever ture of our economy was designed to keep pete with subsidised incumbents. since: the country did not enact an over- assets in a few hands,” noted Cyril Rama- Economic factors are also at work. Most arching competition law until last year. phosa, the president, in his state-of-the- African markets are too small to sustain King Koko’s trust-busting heirs have more than a few competitors in heavy in- their work cut out, and not just in Nigeria. dustries such as steelmaking or cement Also in this section In much of Africa formal economies are (which is much more expensive in sub-Sa- dominated by large firms that rip off con- 38 Somaliland and Taiwan haran Africa than elsewhere). In emerging sumers. The imf reckons that firm mark- sectors such as telecommunications there 39 The death of Kuwait’s emir ups are about 11% larger in sub-Saharan Af- are network effects, as consumers opt for rica than in other developing regions, and 39 Another crisis in Yemen the same service as their friends. In Kenya that prices are 20% higher. The challenge one mobile phone firm, Safaricom, holds 40 Iraq struggles with covid-19 for African governments is not only to 99% of the market for mobile money 1 38 Middle East & Africa The Economist October 3rd 2020

2 through its m-Pesa service. firm, especially after it was amended in finance, Mr Zalk says. Policymakers acknowledge the pro- 2019 to increase the scope for ministerial There may even be a case for tolerating blem. Last year 31 countries in the region intervention. He argues that introducing temporary monopolies where they reward had competition laws, up from 12 in 2000. vague notions of fairness into the technical firms that have invested in new skills and But many competition agencies “just exist field of antitrust law makes court decisions capacity. The problem arises when incum- by name” and lack the resources to do their opaque and unpredictable. bents become entrenched. Aliko Dangote, a job, says Mor Bakhoum of the Max Planck Even those who favour an activist ap- Nigerian tycoon, has used nous and politi- Institute for Innovation and Competition. proach recognise that competition law has cal connections to build an industrial em- Those in South Africa and Kenya, the re- its limits. “It can help prise open markets,” pire, manufacturing products locally that gional leaders, investigate several hundred says Nimrod Zalk, who advises the South were once imported from abroad. But his cases a year; the average agency in Africa African government on industrial policy, cement business holds nearly two-thirds investigates just two. but “it can’t on its own stimulate firm cre- of the market and earns margins of 59%. There is debate about what competition ation and firm development.” If small firms Customers may grumble, but in the words law should do. African countries have bor- are to break the grip of incumbents they of Burna Boy, a Nigerian singer, “Dangote rowed from European and American mod- will need additional support and access to still dey find money o.” 7 els, which prioritise market efficiency. But they also try to promote development and Somaliland and Taiwan “make markets more inclusive”, says Grace Nsomba of the Centre for Competition, Regulation and Economic Development at Outcasts united the University of Johannesburg. South Af- rican authorities put unusual weight on Two unrecognised countries join hands public-interest criteria, such as how a merger will affect jobs or the growth of ne is a small, surprisingly successful black-owned enterprises. A landmark case Oand relatively democratic country ERITREA YEMEN was the takeover in 2012 by Walmart of bullied by a larger, dictatorial neighbour Massmart, a South African retailer. The which considers it to be part of its own Gulf of Aden deal was approved with conditions, includ- territory. The other is Taiwan. On Sep- DJIBOUTI ing the reinstatement of retrenched work- tember 9th Somaliland, a breakaway Berbera ers and the creation of a fund to support republic in the north of Somalia, opened Somaliland small businesses. a “representative office” in Taipei, the Hargeisa Other countries also consider public- capital of Taiwan. It followed the open- interest factors. Francis Kariuki, director- ing in August of a similar Taiwanese ETHIOPIA general of the Competition Authority of office in Hargeisa, Somaliland’s capital. Kenya, says he is mindful of the country’s The exchange of diplomatic relations SOMALIA “economic topography” including the like- is a coup for Somaliland, which declared ly effect on small businesses, whenever he independence in 1991after the fall of considers a merger. The authority is prob- Somalia’s last dictator, Siad Barre. Like 250 km Mogadishu ing supermarkets that pay their suppliers Taiwan, it is a country in all but name. It late. And it showed flexibility during the has a government, an army and borders.

covid-19 crisis, allowing airlines to club to- It holds elections and, unlike the rest of KENYA INDIAN gether for cargo flights to cope with a drop Somalia, has been mostly peaceful for OCEAN in volumes. “We didn’t need to change our the past 30 years. It issues passports. laws,” says Mr Kariuki. “We just employed Yet Somaliland has struggled for the public-interest criteria.” recognition. Barely a dozen countries formal relations may bring more such But some lawyers worry that competi- recognise its passports (a government benefits. At Berbera, Somaliland’s dusty tion policy is being asked to do too much. minister with dual British citizenship second city on the Gulf of Aden, dp In South Africa the law has become politi- confesses that he does not use his Soma- World, an Emirati company, is building a cised, says John Oxenham of Nortons, a law liland one: he has less explaining to do colossal new port. Mr Osman hopes that when presenting one issued by Her Taiwanese firms may open up there too, Majesty’s Passport Office). Not one con- perhaps to develop oil or mining. Cost continent siders it an independent country, and it Yet it is geopolitics, not economics, Average difference in prices between has no seat at the United Nations. In that drives the relationship. A few de- sub-Saharan Africa and other country groups Mogadishu, the bombed-out capital of cades ago Taiwan still had a handful of 2020, % Somalia, foreign diplomats studiously diplomatic relationships across the Emerging markets Developing economies* ignore Somaliland’s existence lest they continent, including with South Africa upset the squabbling local politicians under apartheid. Loans and aid projects → More expensive in sub-Saharan Africa who consider it part of their country. helped seal Taiwan’s ties to poor coun- 0 10 20 30 40 According to Liban Yusuf Osman, tries such as Niger, Burkina Faso and the Health services Somaliland’s deputy foreign minister, Gambia. But China insists that countries Taiwan can be a valuable ally for his choose relations either with Beijing or Food and drink country. “Taiwan…has economic ad- with Taipei. As its economic might has Clothes and vancement we can learn a lot from,” he grown, so even these holdouts have footwear says. He points out that Somaliland switched their recognition to China. By Individual doctors have been training in Taiwan for 2018 Eswatini (a tiny monarchy formerly consumption more than a decade, travelling on their known as Swaziland) was Taiwan’s last basket Somaliland passports. He hopes that friend in Africa. Now it has two. Source: IMF *Excluding sub-Saharan Africa The Economist October 3rd 2020 Middle East & Africa 39

Kuwait 2017, Kuwait refused to take part, and the Yemen emir tried to mediate in the dispute. A king of Perhaps the diplomacy was a welcome Unsafe Safer distraction: politics at home could be tu- co-operation multuous. Unique among the Gulf monar- chies, Kuwait has a raucous parliament with genuine power. Sheikh Sabah dis- BEIRUT solved it more than once because of dis- BEIRUT The death of Kuwait’s emir robs the A possible oil leak in the Red Sea adds putes with lawmakers. In recent years, as Gulf of an effective diplomat to Yemen’s long list of crises low oil prices blew a hole in Kuwait’s fi- is last role was as a monarch, but it nances, he has also had to grapple with or five years the Safer, a tanker, has Hwas his longest, as a diplomat, that de- budgetary problems. The treasury now has Fbeen slowly corroding in the Red Sea, a fined him. Before he ascended the throne only enough cash on hand to pay public- time-bomb waiting to go off. Or perhaps it in 2006, Sheikh Sabah al-Sabah (pictured) sector salaries until the end of October. already has. Built in 1976, sent to Yemen in spent decades as Kuwait’s foreign minister. The emir, however, remained a popular 1988, it has served ever since as a floating Rather than letting Kuwait slip into the un- figure. In 2015, when jihadists bombed a storage unit and export terminal. It sits off dertow of Saudi Arabia, its larger neigh- Shia mosque in Kuwait City and killed 27 the coast of Ras Issa at the terminus of a bour, he helped turn a small country—with people, he rushed to the scene to console 430km oil pipeline (see map). Since 2015 fewer than 5m people today, mostly mi- victims—a personal, emotional display the ship and its cargo, more than 1.1m bar- grant workers—into an influential player. rare among the region’s aloof rulers. rels of oil, have been in the hands of the On September 29th, after a long illness, The crown prince, Nawaf al-Sabah, a Houthis, a Shia rebel group fighting a Sheikh Sabah died at the age of 91. half-brother of the late emir, ascended the Saudi-led coalition in Yemen. On Septem- He was born in a different Kuwait, one throne hours after Sheikh Sabah’s death ber 24th the Saudi ambassador to the Un- that relied on a pearl trade soon to collapse. was announced. He is an untested leader, ited Nations warned that an “oil slick” had Oil discovered nine years later transformed and already 83; his time in office will be de- been spotted 50km west of the vessel. it into one of the world’s richest states. fined largely by his choice of a successor. Diplomats, shipping experts and envi- Sheikh Sabah became its foreign minister Aspirants have waged an unusually public ronmentalists had warned for years that in 1963 and held the post for 40 years, a per- struggle in recent years, some swapping al- the ship was a danger. Sea water is doing iod that included the loss of his country legations of corruption. Here, too, Kuwait’s what sea water does, eating away at its hull when Saddam Hussein, the Iraqi despot, parliament has a role: it may reject the new and tanks, a process that happens faster invaded in 1990. The occupation gave him emir’s chosen successor. (Sheikh Sabah than normal in the salty Red Sea. Photos an enduring appreciation for America, himself took power after his infirm prede- taken on board last year showed leaking which led the coalition that liberated Ku- cessor was voted out of office.) pipes and rusted seals; there are fears the wait. When he fell ill in July it was an Amer- Kuwait is the second Gulf country to whole thing may explode. ican air-force plane that ferried him to the change rulers this year. Sultan Qaboos of But the Houthis have blocked any main- Mayo Clinic in Minnesota for treatment. Oman died in January. Both men com- tenance work. The vessel, in their imagina- The war also reinforced a belief in mul- manded great respect in the region, which tion, is a useful obstacle to a Saudi-led tilateralism. Sheikh Sabah was one of the gave them the freedom to pursue indepen- assault on Hodeida, the nearby port that architects of the Gulf Co-operation Coun- dent foreign policies. Like his Omani coun- handles most of Yemen’s imports. Never cil, a six-member club founded in 1981. It terpart, Sheikh Sabah preferred diplomacy mind that a spill would be an environmen- never quite became the tight political and to belligerence in dealing with Iran. With tal disaster: the Safer’s cargo is four times economic union its founders intended. their passing, power in the Gulf will slip that of the Exxon Valdez, which blighted Still, it is more than a talking-shop, and further into the hands of Saudi Arabia and hundreds of miles of Alaskan coast when it Sheikh Sabah was keen to protect it. When the uae, led (in practice) by younger, head- ran aground in 1989. Such short-sighted three of its members—Saudi Arabia, the strong princes. The Gulf has lost its most thinking, from both the Houthis and their United Arab Emirates (uae) and Bahrain— effective diplomat at a time when diplo- foes, has turned the war into an intractable imposed a blockade on a fourth, Qatar, in macy is badly needed. 7 humanitarian catastrophe. More than 100,000 Yemenis have died as a result of the conflict since 2015, when the Saudis and their allies invaded to fight the Houthis, who had seized control of the capital, Sana’a. Famine and disease stalk the population; the economy has collapsed. A year ago, though, there was guarded optimism that the fighting was near an end. In the summer of 2019 the Un- ited Arab Emirates (uae) withdrew most of its troops, depriving Saudi Arabia of its most effective partner. The kingdom began indirect talks with the Houthis in Oman, a frequent mediator in Gulf disputes. But those talks (now virtual, because of covid-19) have not produced a deal. The fighting, meanwhile, has grown more complicated. This spring separatists in the south aligned with the uae began fighting the Saudi-backed government, pitting two A statesman leaves the scene ostensible members of the coalition 1 40 Middle East & Africa The Economist October 3rd 2020

SAUDI ARABIA 150 km Iraq and covid-19 province already has the country’s second- Red highest infection rate, probably because of Sea ed a pilgrimage in August. lat Out of control Saada popu Safer, Sparsely The government has tried to limit for- oil-storage Sana’a Refinery eign pilgrims by closing Iraq’s land borders vessel Ras Issa and restricting flights from Iran. But there Marib YEMEN is only so much it can do. “People believe Hodeida Oil pipeline visiting the tomb of Hussein [in Karbala] A country too broken to protect itself cures covid-19,” sighs a former government ERITREA from the coronavirus Gulf of Aden health adviser. Muqtada al-Sadr, a fire- Aden (controlled by STC*) ity the doctors of Iraq. Thousands are brand cleric, has led a campaign to keep the Areas of control, Sep 2020 Pthought to have contracted covid-19. If shrines open and defied a ban on Friday Houthi Coalition led by the disease doesn’t get them, local tribes- prayers. Lately Iraqis have been haphazard- rebels Saudi Arabia men might. “Every time a patient dies we ly digging up relatives who were buried in a *Southern Transitional Council all hold our breath,” says Dr Tariq al-Shei- special “coronavirus cemetery” so that they Source: Risk Intelligence bani, the director of a hospital in southern can be given proper funeral rites. Iraq. A month ago a young man from the Better medical care would help. Iraq 2 against each other. Then the Houthis began Hasnawi tribe died of covid-19 in his hospi- spends about half as much per person as its a push to seize Marib, a province that holds tal. That night, as Dr Sheibani left work, 20 poorer neighbour, Jordan, on health. A lot much of Yemen’s oil. It has been a place of ofthedeadman’srelativesbeat him uncon- of it is wasted—or stolen. The health min- relative stability, which has made it a hub scious. The doctor is trying to press charges istry is led by a technocrat, but it is full of for civilians displaced from other prov- (cctv cameras captured the scene), but of- Mr Sadr’s men, who stand in the way of re- inces. Its population has grown perhaps ficials told his family that they would be form. Just ask Alaa al-Alwan, who tried to tenfold since the war began, to an estimat- safer if he did not. clean it up. The former health minister re- ed 3m. The Houthis have lost thousands of Most Arab regimes have dealt with co- signed last year, citing excessive pressure fighters trying to seize it. Their offensive is vid-19 by tightening their grip. Not Iraq. It from within the ministry. Other officials getting in the way of peace talks. gave up on lockdowns long ago. The gov- persuaded him to stay on—but he resigned Even away from the front lines, life is ernment seems powerless to enforce social again months later, citing corruption, miserable. Fuel shortages are widespread distancing or the wearings of masks (some blackmail and defamation. in northern Yemen. Both sides are guilty of men see the coverings as an insult to their Today there are fewer hospital beds and exacerbating them: the coalition has virility). It has little money to spend on a doctors in Iraq than before the American barred fuel tankers from unloading at Ho- health service gutted by war and corrup- invasion in 2003, though the population deida, while the Houthis play up shortages tion. Clergymen still organise mass gather- has almost doubled. Some 20,000 doctors to boost a lucrative black market in fuel. Ye- ings. Officially the virus has infected more have fled abroad, says the Iraqi Medical As- men’s currency, the rial, has lost 70% of its than 350,000 Iraqis and killed more than sociation, the doctors’ syndicate. Many of pre-war value, including a 25% drop this 9,000. That is surely an undercount, yet it those who remain recently went on strike year. Prices have soared, leaving many ci- is still more than in any other Arab country. over poor working conditions (basic items, vilians unable to afford even food. Most Like Iraq’s tribes, the country’s Shia aya- such as masks, are lacking). Hospital direc- rely on aid, but aid agencies are short of tollahs set their own rules. They are going tors are so short-staffed that they are loth to cash. Since March the un’s World Food Pro- ahead with Arbaeen, an annual pilgrimage let infected doctors go into quarantine. gramme has been able to provide only half- to Karbala, a holy city. Thousands of Shia Meanwhile, falling revenues caused by a rations in Houthi-controlled areas. It esti- faithful have already begun walking the collapse in the price of oil mean the gov- mates that hunger rates have increased 500km from Basra, eating and bedding ernment has no money to hire thousands from 28% to 43%. It will need $500m in ex- down together in wayside huts. The risk of of medical graduates. The prime minister, tra funding just to continue that meagre as- transmission will increase further when Mustafa al-Kadhimi, suggests they volun- sistance for the next six months. hundreds of thousands more converge on teer. The least the government could do is Yemen has few sources of hard curren- Karbala on October 7th. The surrounding protect them from angry tribesmen. 7 cy: years of war have left little in the way of exports, tourism or investment. A $2bn de- posit in the central bank from Saudi Arabia in 2018 is almost depleted. The country’s last remaining lifeline is remittances, which totalled $3.8bn last year. About three-fifths of that comes from the 2m-odd Yemenis working in Saudi Arabia. But their numbers have thinned as the Saudi government tries to evict migrants to free up jobs for citizens. So remittances have dropped by an estimated 70-80% this year. Diplomats are still hopeful they can broker a truce in Yemen. They are working on a slate of trust-building measures, from a prisoner swap to reopening the airport in Sana’a and shipping lanes. Neither side will gain much from continued fighting: the war is ruinous for Yemenis and costly for Saudi Arabia, in both money and reputation. Yet neither seems ready to stop. 7 Bringing up the bodies → October 3rd 2020 3 No headset required 5 Simulation everywhere 7 Put your goggles on 9 Health-care benefits 11 Brain scan 12 The Metaverse is coming

The Economist Technology Quarterly: Virtual realities

Reaching into other worlds #ModernMBA

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Virtual realities Reaching into other worlds

Computer-generated realities are becoming ubiquitous, no headset required, says Alok Jha s other musicians were settling down on their sofas during effect, digital construction sets. Students at the University of Cali- Alockdown, Travis Scott was seizing the virtual moment. On fornia, Berkeley, recreated their campus within the game to stage April 23rd the American hip-hop star staged a concert that was at- the event, which included speeches from the chancellor and vice- tended live online by more than 12m people within the three-di- chancellor of the university, and ended with graduates tossing mensional world of “Fortnite”, a video game better known for its their virtual hats into the air. cartoonish violence. As the show began, the stage exploded and Mr People unversed in hip-hop or video games have been spending Scott appeared as a giant, stomping across a surreal game land- more time congregating in more minimal online environments, scape (pictured). He subsequently turned into a neon cyborg, and through endless work meetings on Zoom or family chats on Face- then a deep-sea diver, as the world filled with water and spectators Time—ways of linking up people virtually that were unthinkable swam around his giant figure. It was, in every sense, a truly immer- 25 years ago. These many not seem anything like virtual realities— sive experience. Mr Scott’s performance took place in a world, of but they are online spaces for interaction and the foundations sorts—not merely on a screen. around which more ambitious structures can be built. “Together” Meanwhile, as other betrothed couples lamented the cancella- mode, an addition to Teams, Microsoft’s video-calling and collabo- tion of their nuptials, Sharmin Asha and Nazmul Ahmed moved ration system, displays all the participants in a call together in a their wedding from a hip Brooklyn venue into the colourful world virtual space, rather than the usual grid of boxes, changing the so- of “Animal Crossing: New Horizons”, a video game set on a tropical cial dynamic by showing participants as members of a cohesive island in which people normally spend their time gardening or group. With virtual backgrounds, break-out rooms, collaboration fishing. The couple, and a handful of friends, took part in a torchlit tools and software that transforms how people look, video-calling beachside ceremony. Mr Ahmed wore an in-game recreation of the platforms are becoming places to get things done. suit he had bought for the wedding. Since then many other wed- Though all these technologies existed well before the pandem- dings, birthday parties and baby showers have been celebrated ic, their widespread adoption has been “accelerated in a way that within the game. only a crisis could achieve,” says Matthew Ball, a Silicon Valley me- Alternative venues for graduation ceremonies, many of which dia analyst (and occasional contributor to The Economist). “You were cancelled this year amid the pandemic, have been the virtual don’t go back from that.” worlds of “Roblox” and “Minecraft”, two popular games that are, in This is a remarkable shift. For decades, proponents of virtual1 4 Technology Quarterly | Virtual realities The Economist October 3rd 2020

2 reality (vr) have been experimenting with strange-looking, expen- phones, with their vivid colour screens and motion sensors, con- sive headsets that fill the wearer’s field of view with computer- tain everything needed for vr: indeed, a phone slotted into a card- generated imagery. Access to virtual worlds via a headset has long board viewer with a couple of lenses can serve as a rudimentary vr been depicted in books, such as “Ready Player One” by Ernest Cline headset. Dedicated systems use more advanced motion sensors, and “Snow Crash” by Neal Stephenson, as well as in films. Mark but can otherwise use many of the same components. Smart- Zuckerberg, Facebook’s boss, who spent more than $2bn to acquire phones can also deliver a hand-held form of ar, overlaying graph- Oculus, a vr startup, in 2014, has said that, as the technology gets ics and virtual items on images from the phone’s camera. cheaper and more capable, this will be “the next platform” for com- The most famous example of this is “Pokémon Go”, a game that puting after the smartphone. involves catching virtual monsters hidden around the real world. But the headset turns out to be optional. Computer-generated Other smartphone ar apps can identify passing aircraft by attach- realities are already everywhere, not just in obvious places like vid- ing labels to them, or provide walking directions by superimpos- eo games or property websites that offer virtual tours to prospec- ing floating arrows on a street view. And ar “filters” that change tive buyers. They appear behind the scenes in television and film the way people look, from adding make-up to more radical trans- production, simulating detailed worlds for business and training formations, are popular on social-media platforms such as Snap- purposes, and teaching autonomous cars how to drive. In sport the chat and Instagram. line between real and virtual worlds is blurring as graphics are On the software front, vr has benefited from a change in the super-imposed on television coverage of sporting events on the way video games are built. Games no longer involve pixelated one hand, and professional athletes and drivers compete in virtual monsters moving on two-dimensional grids, but are sophisticated contests on the other. Virtual worlds have become part of people’s simulations of the real world, or at least some version of it. Mil- lives, whether they realise it or not. lions of lines of code turn the player’s button-presses into cinematic imagery on screen. The software that does this—known as a Enter the Metaverse “game engine”—manages the rules and logic of the virtual world. It This is not to say that headsets do not help. Put on one of the best keeps characters from walking through walls or falling through and the immersive experience is extraordinary. Top-of-the-range floors, makes water flow in a natural way and ensures that interac- headsets completely replace the wearer’s field of vision with a tions between objects occur realistically and according to the laws computer-generated world, using tiny screens in front of each eye. of physics. The game engine also renders the graphics, taking into Sensors in the goggles detect head movements, and the imagery is account lighting, shadows, and the textures and reflectivity of dif- adjusted accordingly, providing the illusion of being immersed in ferent objects in the scene. And for multiplayer games, it handles another world. More advanced systems can monitor the position interactions with other players around the world. of the headset, not just its orientation, within a small area. Such In the early days of the video-games industry, programmers “room-scale vr” maintains the illusion even as the wearer moves would generally create a new engine every time they built a new or crouches down. game. That link was decisively broken in 1996 when id Software, Tech firms large and small have also been working on “aug- based in Texas, released a first-person-shooter game called mented reality” (ar) headsets that superimpose computer-gener- “Quake”. Set in a gothic, 3d world, it challenged players to navigate ated imagery onto the real world—a more difficult trick than fully a maze-like environment while fighting monsters. Crucially, play- immersive vr, because it requires fancy optics in the headset to ers could use the underlying Quake Engine to build new levels, mix the real and the virtual. ar systems must also take into ac- weapons and challenges within the game to play with friends. The count the positions and shapes of objects in the real world, so that engine was also licensed to other developers, who used it to build the resulting combination is convincing, and virtual objects sit- entirely new games. ting on surfaces, or floating in the air, stay put and do not jump Using an existing game engine to handle the job of simulating a around as the wearer moves. When virtual objects are able to inter- virtual world allowed game developers, large and small, to focus act with real environments, the result is sometimes known as instead on the creative elements of game design, such as narrative, mixed reality (xr). characters, assets and overall look. This is, of course, a familiar di- Despite several false dawns, there are now signs that, for some vision of labour in other creative industries. Studios do not design industries, these technologies could at last be reaching the right their own cameras, lights or editing software when making their price and capability to be useful. A report in 2019 by pwc, a consul- movies. They buy equipment and focus their energies instead on tancy, predicts that vr and ar have the potential to add $1.5trn to the creative side of their work: telling entertaining stories. the world economy by 2030, by spurring Once games and their engines had been productivity gains in areas including separated, others beyond the gaming world health care, engineering, product develop- realised that they, too, could use engines to ment, logistics, retail and entertainment. Augmented economies build interactive 3d experiences. It was a Because the display of information is Increase in GDP attributed to augmented-reality perfect fit for those who wanted to build ex- no longer confined by the size of a physical and virtual-reality technologies*, % periences in virtual or augmented reality. screen on a desktop or a mobile device, but Forecast: 2020 2030 Game engines were “absolutely indispens- can fill the entire field of vision, the use of able” to the growth of virtual worlds in oth- 0 1 2 3 vr and ar “creates a new and even more in- United States er fields, says Bob Stone of the University of tuitive way to interact with a computer,” Finland Birmingham in England. “The gaming notes Goldman Sachs, a bank, which ex- community really changed the tide of for- pects the market for such technology to be Germany tune for the virtual-reality community.” worth $95bn by 2025. And these predic- Britain Two game engines in particular tions were made before the pandemic- China emerged as the dominant platforms: Unity, induced surge of interest in doing things in Japan made by Unity Technologies, based in San virtual environments. Global Francisco, and Unreal Engine, made by Progress in developing virtual realities Epic Games, based in Cary, North Carolina. France is being driven by hardware from the Unity says its engine powers 60% of the *Expected increase above the baseline of technology-driven vr ar smartphone industry and software from GDP growth as a result of AR/VR technology world’s and experiences. Unreal En- the video-games industry. Modern smart- Source: PwC “Seeing is believing” report, 2019 gine underpins games including “Gears of 1 The Economist October 3rd 2020 Technology Quarterly | Virtual realities 5

Simulation Reality bytes

Virtual environments, objects and imagery are being adopted in a wide range of fields n an early scene from Disney’s new television series, “The Man- I dalorian”, a door opens to reveal a barren, icy landscape. The camera swoops outside to follow the titular character, a solitary gunslinger in silver armour, making his way across the vast ex- panse of ice. It is an impressive, expensive-looking shot, of the kind you might expect for a show set in the “Star Wars” universe. The “Star Wars” franchise has been pushing the limits of film- making technology for more than 40 years. Its creator, George Lu- cas, set up a now-iconic special-effects company, Industrial Light and Magic (ilm), specifically to serve the fantastical effects needs of his space opera. ilm went on to create special effects for dozens of films, including some of the earliest computer-generated 3d characters in “The Abyss”, “Terminator 2” and “Jurassic Park”, pio- neering a new industry in the process. Now ilm is at the forefront of using computer-generated reality to bring cinematic special effects to the small screen—and it is using game engines to do it. The shot of the Mandalorian walking across the ice was one of many created on a film set in Manhattan Beach, California, using its “StageCraft” technology (pictured overleaf). This is a facility (or a “volume”, as ilm calls it) in which a giant curved video wall is positioned behind the actors. The wall is 6 metres (20 feet) high by 55 metres wide, and composed of more than a thousand individual led screens. The photorealistic imagery that appears on the screen Game-engine power is generated from a 3d virtual world (Unreal Engine was used during the development process). As the camera moves, the view on the screen changes accordingly. The result is that the video wall, 2 War”, “Mass Effect” and “BioShock”. Epic also uses it to make games from the camera’s perspective, behaves exactly like a window look- of its own, most famously “Fortnite”, now one of the most popular ing onto a 3d environment. This approach also helpfully lights the and profitable games in the world, as well as the venue for elabo- actors realistically, with the scenery reflecting off the Mandalor- rate online events like that staged in conjunction with Mr Scott. ian’s silver armour, for example. That would not have been possi- Epic’s boss, Tim Sweeney, forecast in 2015 that there would be ble using conventional green-screen techniques, says ilm’s gen- convergence between different creative fields as they all adopted eral manager, Janet Lewin, who co-produced the show. similar tools. The ability to create photorealistic 3d objects in vir- “The Mandalorian” is filmed in a partially virtual world. tual worlds is not just attractive to game designers, but also to in- Though tested beforehand, producers had their doubts about the dustrial designers, architects and film-makers, not to mention set-up. “The Mandalorian was the first time that we had used real- hip-hop stars. Game engines, Mr Sweeney predicted, would be the time graphics at this scale to completely wrap around a set and common language powering the graphics and simulations across photograph it directly and put it right in the show,” says Rob Bre- all those previously separate professional and consumer worlds. dow, chief creative officer at ilm. “And to be honest, we weren’t That is now happening, as the tools of virtual-world-building sure that it was going to work when we started. [But] it really ex- spread into many areas. This Technology Quarterly will explore ceeded all of our expectations.” where computer-generated realities are already starting to make The techniques pioneered by “The Mandalorian” are now an impact—work, entertainment and health are all seeing spreading across the industry, because they allow for cinema- changes—and where the technology is heading. quality special effects within the tighter budgetary and time con- Building a complex, immersive, virtual social space, like the straints of television production. For the third season of hbo’s “Metaverse” depicted in “Snow Crash” is the goal for many serious “Westworld”, producers digitally recreated the City of Arts and Sci- minds in technology today. Mr Sweeney sees the Metaverse, or ences complex in Valencia, which stood in for the headquarters of something like it, as the next iteration of the web, where people one of the main companies in the series, using the Unreal Engine. can go to work, play games, shop or just pass the time. On set in Los Angeles, the digital images were rendered on an led Similarly, Mr Ball reckons game engines will become a base lay- wall, 15 metres by six, showing the view from the floor-to-ceiling er for digital 3d worlds, a standard upon which new industries will office windows of one of the lead characters. Look at a window and be built. Rather than predict specific future results of this move your head from side to side, and you will notice the scene standardisation, he cites the introduction of railways as a way to framed by the window changes slightly. Similarly, the images think about the many opportunities that lie ahead. “What happens shown on the led wall changed as the camera moved, perfectly when you layer the country with railroad infrastructure?” he asks. mimicking a window onto a 3d world. “What happens when you massively drop the friction to experi- ilm recently announced plans to build a second StageCraft vol- mentation and creation?” When it comes to virtual worlds, that is ume at Manhattan Beach and a third at Pinewood Studios in Brit- now a very real question. 7 ain. A fourth—in Sydney, Australia—will mark StageCraft’s arrival 1 6 Technology Quarterly | Virtual realities The Economist October 3rd 2020

2 into major feature films for Marvel’s upcoming “Thor: Love and Having 3d models of its entire product range to hand also Thunder”. Mr Bredow says there are more volumes in the pipeline. meant that it took ikea just seven weeks to build ikea Place, an “Our technology has just advanced so much from what everyone is augmented reality (ar) app that lets customers drop virtual furni- familiar with from the first season of ‘The Mandalorian’,” he says. ture into spaces in their homes and see whether they fit and how Watching a sci-fi series is one situation where you may not be they look on the screen of a smartphone. It was one of the first apps surprised to learn that the images you see have been conjured from to appear after Apple added support for ar to ios, the software that a virtual world. But the same thing is happening in more mundane powers the iPhone, in 2017. The app’s success prompted the com- situations. Open a catalogue from ikea, a giant furniture retailer, pany to add ar features (powered by the Unity engine) directly into and you will see images of kitchens, living rooms and other interi- the latest version of its main shopping app. ors. They look perfectly realistic, if spotlessly clean. The vast ma- The techniques and engines used to create realistic game jority of these photographs are in fact computer-generated from worlds can do more than just produce images, however. As video detailed 3d models, saving the company time and money. games have become more sophisticated, so their underlying world Photographing kitchens is particularly challenging because simulations have become more capable and realistic. “Right now, they look so different from one country to the next. Ensuring that the world is increasingly understanding that these game engines each country’s catalogue reflected local tastes meant bringing ap- aren’t toys,” says Matthew Ball, a media analyst. “They’re actually pliances from all over the world to a studio in Europe to create mul- hyper-capable.” tiple sets, and then sending everything back at the end. Assem- bling virtual kitchens using 3d digital models of furniture and Help from your twin other items is far easier. Software lets designers mimic the way Architects can use the technology to simulate, rather than simply lights reflect and scatter across surfaces, making the computer- render images of, the buildings they are working on. The operators generated scenes indistinguishable from the real thing. Different of Hong Kong International Airport, for example, have produced a versions of products, in different colours, can be easily swapped in “digital twin” of one of its terminals—a virtual replica of a physical and out. Images shot in a virtual world are also easier to fix if a asset—using Unity. On their computers, they can wander through piece of furniture gets redesigned or withdrawn from sale—its dig- a photorealistic 3d model that integrates real-time data from sen- ital version can simply be replaced or removed in the image, which sors all over the terminal, including information on passenger and is preferable to the expense and hassle of reassembling a roomful baggage flows, staff movements and equipment status. The model of furniture for a fresh photo shoot. displays the state of the terminal at any given time and can provide 3d product rendering has been adopted by other industries as a alerts for areas that need attention or maintenance. convenient way to produce flawless photorealistic images and vid- Such models can also be used to look into the future, by using eos for advertisements, websites or in-store displays, for every- the data collected about the real-world operation of the airport as thing from cars to industrial machinery to smartphones. Taking the basis of simulations. It is then possible to evaluate how a new pictures in the virtual world, rather than the real one, makes it pos- construction project might affect the operation of the airport, or sible to zoom in on tiny details, fly through a product, or show it in model people-flow in the event of a terrorist attack or the simulta- exploded form that then reassembles itself. neous arrival of several large aircraft. Engineering and rendering 1

This is the way The Economist October 3rd 2020 Technology Quarterly | Virtual realities 7

2 software is not designed to do that. What that everything from computer vision and natural- actually requires is simulation technology, “The next big thing language processing to industrial robots. which is precisely the type of situation that will start out looking Simulated worlds could help architects de- games have been focusing on. sign more user-friendly and liveable build- Virtual environments are also increasingly like a toy” ings. By populating proposed designs with in- used for simulation-based training. The us telligent virtual occupants, designers can Army uses immersive environments, includ- identify potential problems before having to ing vr helmets, for training in areas such as in- break ground, for example, by watching how fantry combat and the operation of weapons well the virtual inhabitants are able to navi- systems. Its spending on vr and ar simulation has increased from gate around the floors of the buildings. In future, these kinds of $1.6bn in 2015 to an expected $3bn in 2020, according to Bloomberg simulations could also help fundamental researchers. Chemists Government. Globally, the military training and simulation mar- might use virtual environments to carry out billions of experi- ket is worth over $9bn, says Frost & Sullivan, a market-research ments using virtual chemicals as a way of winnowing down inter- firm, and will be worth nearly $20bn by 2027, it predicts. The same esting leads for potential drugs or other industrial uses. technology also has peaceful uses. Network Rail, a British railway Anyone raising an eyebrow that such serious uses for simulat- operator, uses simulations built using Unreal Engine to plan ed worlds could come from not-so-serious gaming roots should maintenance and track-renewal operations. vr Perspectives, a perhaps bring to mind the words of Chris Dixon of Andreessen Ho- company based in Ohio, uses simulations of office environments rowitz, a venture-capital firm, who wrote a decade ago that “the for diversity and inclusion training, enabling trainees to experi- next big thing will start out looking like a toy”. Mr Ball points to a ence the same events from the perspectives of different people. few more examples. “Look at the Wright Flyer. It was dinky. It could Sometimes it is machines, not people, that are trained in virtual barely stay in the air, and it could only hold one person. It looks environments, as in the case of autonomous vehicles. For self- like a toy, in that regard. The early mobile phones, or even a Black- driving cars to become a reality, their software needs to under- Berry, to some extent. Snapchat felt like a toy.” 7 stand busy urban environments. They need to recognise street signs, traffic lights and road markings. They need to be able to deal with dozens or hundreds of moving objects (including people, cars, lorries, bikes, animals) at complex junctions. They need to be Hardware ready for emergencies such as a rogue driver barrelling down the wrong side of the road or a child suddenly jumping into the road. The promise and the reality All that needs training—billions of miles of it. Physically training autonomous cars on the streets is expensive and time-consuming—and dangerous, if things go wrong. Computer simulations and racing games have long been used to train autonomous cars’ vision systems, by testing them with high- Headset technology is cheaper and better than ever, ly realistic computer-generated streetscapes. But more advanced but has yet to go mainstream simulators can replicate the complexity of city driving, with its rules, intersections and pedestrians. One such system is carla, he cubes fly towards your correspondent slowly at first, then built by researchers at the Computer Vision Centre in Barcelona, Tquickly gather pace as the music speeds up. On his head he Spain, with support from Intel, a chipmaker, and the research arm wears a chunky set of goggles. In each hand, he holds an imaginary of Toyota, a Japanese car giant. To create test scenarios for their au- laser sword that can chop the cubes in half before they reach his tonomous-vehicle algorithms, carmakers can customise several body. Each cube is marked with an arrow (designating the direc- aspects of carla’s world, from vehicle and pedestrian density to tion in which it must be sliced) and a colour (for which hand has to weather conditions, time of day and illumination. It is now the do the slicing—blue for right, red for left). The more vigorously the leading open-source simulator for autonomous driving. cubes are sliced in time with the music, the more points are Oxbotica, an autonomous-vehicle startup created by engineers scored. Horizontal and vertical barriers, mixed in with the cubes, from Oxford University, built a virtual environment in Unity in must be avoided at all costs. A few minutes of swinging the imagi- which to test its algorithms. Software agents in the simulation per- nary swords around is tiring but oddly diverting. The simulation form tasks such as driving from one place to another, stepping out breaks down only when your correspondent gets too energetic onto zebra crossings and obeying (or disobeying) traffic lights. Ox- with his jabs and crashes into a nearby (non-virtual) bookshelf. botica’s autonomous vehicle is then placed in this virtual world Welcome to “Beat Saber”, one of the most popular games avail- and tricked into believing it is real. “Our gaming simulation helps able on the Oculus Quest, a virtual-reality headset. Though it is us to train the software to understand what it can do in difficult possible to experience and explore virtual worlds without having scenarios that are almost impossible to create in real life,” says to put on a headset, doing so provides a new level of immersion, as Todd Gibbs, the company’s head of simulation development. Al- screens in front of each eye, and sensors that map the movement most all development in the self-driving algorithm is now put of the wearer’s head, create the illusion of being inside a 3d envi- through the simulator first before being unleashed on a real road. ronment. It is magical—but the awkwardness and cost of vr head- Realistic simulated worlds have a promising future. In 2018 Un- sets is the main reason why there has always been a gulf between ity announced a partnership with DeepMind, an ai-research firm the promise of vr and the reality. owned by Google. Danny Lange, Unity’s vice-president of ai and Every few years a new headset comes along that is hailed as the machine learning, said at the time that the game engine would be- device that will finally bring vr into widespread use. The Oculus come “a primary research platform for creating complex virtual Quest headsets, the first of which was launched in 2019 at $399, are environments that will enable the development of algorithms ca- the latest. Compared with previous headsets it is cheap and light pable of learning to solve complex tasks”. Unity’s platform can and can detect the position of the wearer’s head, not just its orien- create simulated environments that are rich in sensory complex- tation. It is an impressive piece of kit, but has not broken through ity and contain multiple intelligent agents that can all interact with consumers. Facebook, which paid more than $2bn for Oculus with each other. These virtual worlds can set up the cognitive chal- in 2014, has just announced a cheaper and more powerful version. lenges that ai researchers need to improve their algorithms for The vr headset, also known as a head-mounted display (hmd), 1 8 Technology Quarterly | Virtual realities The Economist October 3rd 2020

2 traces its origins to a device called the quickly enough to create a realistic sense of Sword of Damocles. Developed in 1968 by Game engines of growth immersion, says Dr Steed. In the 1990s a vr Ivan Sutherland and Bob Sproull, two com- Global GDP, increase, $trn headset in Britain cost around £6,500 puter scientists who were working at the By type of technology (roughly $10,700 at the time) the system to time at Harvard University, it consisted of a 1.2 track the wearer’s position cost another pair of cathode-ray tubes, one for each eye, £5,000, and vr gloves could cost up to Forecast that were updated with images at 30 times 1.0 £13,000. The latest generation of vr head- per second. Users could move within a six- sets have been able to take advantage of 0.8 foot square and had a 40-degree field of powerful processors, vivid colour screens, view while wearing the headset, which was Augmented 0.6 cameras and sensors borrowed from the reality so heavy that it had to be suspended from smartphone industry, while game engines the ceiling, like the mythical sword. Me- 0.4 have made virtual environments and their chanical and ultrasonic sensors detected Virtual 0.2 contents much easier to construct. the position and orientation of the user’s reality Today consumer headsets range in price head in space. The cathode-ray tubes could 0 from $400 to $1,200, and the vr systems Dr display simple wireframe graphics, and 2019 2025 2030 Stone builds, for use in research and educa- could also superimpose them on real-time Source: PwC “Seeing is believing” report, 2019 tion, are driven by laptops that cost less video of the wearer’s surroundings. than $1,200. In some cases his students hmds have been steadily decreasing in have built vr systems in a few months, weight and improving in capability since the 1970s, and have been with no prior experience of the technology. “They’ve been produc- available commercially since the 1980s. “There are people that ing all kinds of fantastic demonstrations, industrial demonstra- have worked in the vr industry now for almost 40 years,” says An- tions, health care, you name it,” he says. “And that really is testa- thony Steed of University College London. But the technology has ment to the way in which these toolkits have matured.” still not moved far beyond academic labs and bespoke uses in A sense of immersion depends on more than just fancy graph- training, engineering and design. When Dr Steed entered the field ics. Another crucial factor is latency—the time delay between a in the 1990s a breakthrough seemed imminent, at least as far as the user’s head movement and the images shown on the headset’s media were concerned: “It was on front pages of national newspa- screens being updated accordingly. In the 1990s the latency was of- pers”. When the breakthrough did not come, Dr Steed says, the ten as high as 150 milliseconds. Today, even consumer headsets public concluded that the technology was terrible. “And to some have latency of less than 20 milliseconds, thanks to faster chips extent it was,” he admits, but “it was just way ahead of its time.” and improved sensors. That makes movements more natural and less likely to cause motion sickness (thought to be caused by a dis- Goggles box crepancy between what the user sees and expects to see). Industrial early-adopters kept plugging along. Jaguar Land Rover Even as consumer-grade vr headsets such as the Oculus Quest, used vr in the early 2000s to test and iterate the designs of its up- htc Vive and Sony PlayStation vr are improving in quality and coming vehicles. Rather than using hmds, though, its system re- falling in cost, a problem remains: a lack of content for them. The quired users to enter an immersive virtual environment in a small big video-games studios have been reluctant to invest in vr titles room whose walls and ceilings had high-definition, stereo dis- because, they argue, there are not enough headset owners to justi- plays. The technology, based on an idea known as the Cave Auto- fy it. Consumers, in turn, are reticent to buy technology that has no matic Virtual Environment (cave), allows several people to share associated games. Things may be starting to shift. A spokesperson the same virtual experience. The displays rapidly show a pair of for Oculus says that more than 20 of the titles in its store have now images, one for the right eye and another for the left. By wearing generated more than $1m. “Beat Saber” has surpassed 2m sales glasses that are synchronised with the displays, so that each eye across various vr devices and now has a new version, “Fitbeat”, to sees only the image meant for it, users in the cave see three-di- take advantage of the growing interest in fitness. Another big hope mensional objects apparently floating in the centre of the room. in the gaming world is the recent release of “Half-Life: Alyx” by This form of vr was very expensive to set up, and needed a doz- Valve, a new entry in a popular franchise, that has been made spe- en or more computers to drive the images on the walls. But it cifically for vr headsets. helped designers and engineers share ideas for the interior spaces “We are in a really nice place now, a place where vr is develop- of their vehicles, observe ergonomics (how easy was it for the ing nicely, with ecosystems forming, with successful vr headsets driver to reach for controls, for example, or interact with other pas- emerging,” says George Jijiashvili, an analyst at Omdia, a research sengers?), and judge the lines of sight out of the vehicle. In any en- outfit. But, he adds, “it will take time for this to become a mass gineering task where people need to share complicated 3d ideas market opportunity”. He predicts there could be around 55m users with others, says Dr Steed, it can help to have a vr visualisation. with the latest vr headsets by the end of 2024, up from around 13m But the cost was prohibitive except in rare situations. at the end of 2019. That is a big jump, but is still just a niche market. Bob Stone, a 33-year veteran of academic and industry vr at the University of Birmingham in England, has also been through mul- The eyes have it tiple cycles of hype around the technology. “I hope and pray after As consumer headsets have improved, the fancier models used in all these years, we’re on the cusp of something that’s really going to industry show where the technology is going next. Varjo, a Finnish make a difference,” he says. In 1992 he built a virtual model of a company, makes high-end headsets that claim to have “human- Rolls-Royce jet engine that users could explore using a vr headset. eye resolution”. Most vr headsets use the same kinds of screens “To do that jet engine, we had to have a piece of software that cost found in smartphones, with a typical resolution of 500 pixels per £75,000 ($132,000 at the time) and required at least £5,000 a year inch (pixels are the coloured picture elements that make up the on maintenance, and we were running it on a million-pound Sil- image). When such screens are placed close to the eye, individual icon Graphics supercomputer,” he recalls. pixels can be easily discerned. Varjo’s headsets have an extra set of In the past decade, smartphones and video games have made high-resolution screens, with a resolution of 3,000 pixels per inch, the hardware and software needed for vr much more cheaply and to cover the centre of each eye’s field of view, where most detail is widely available. A crucial moment a few years ago was when con- perceived. Specialist optics combine the images from both sets of sumer devices became capable of generating real-time graphics screens. The result is that images look much sharper. 1 The Economist October 3rd 2020 Technology Quarterly | Virtual realities 9

2 Varjo’s founder, Niko Eiden, says this makes it possible to ex- Health care amine fine details in the virtual environment, such as text labels, dials and buttons in a car interior or a flight simulator (Boeing uses Getting better the vr-2 when training astronauts to operate its Starliner space- craft). The headset also has a gaze tracker, so instructors can monitor whether or not the wearer has been looking in the right places during training. But it does not come cheap: it costs €5,995 and is intended for business and academic use, not gaming. And then there are the augmented-reality or mixed-reality How surgery and mental-health treatment can benefit headsets, which overlay virtual imagery onto the real world, a trick pioneered by the Sword of Damocles. One way to do this is to place soldier watches a car approaching a check-point on a hot, cameras on the front of a vr headset, and then augment their real- Adusty road. As the vehicle slows to a stop in front of him, he time video with extra graphics. But nobody wants to wear a vr asks the driver to get out and show his identification. Seconds lat- headset in public, and true believers in ar imagine a lightweight er, the rattle of gunfire pierces the air, followed by a bang and an in- headset, likea pairof glasses, thatoverlays informationandgraph- tense, searing flash. Knocked to the ground and scrambling to ics onthewearer’s field of vision,so that virtualobjects arerealisti- safety, the soldier turns to see a flaming wreck where the car had cally blended into the real world. been just moments before. One company pursuing this vision is Magic Leap, a secretive The scene pauses. A voice in the soldier’s ear says: “Let’s rewind startup based in Florida whose backers include Google, at&t and the simulation to the seconds just before the explosion—describe ntt DoCoMo. In 2018, after years of speculation and rumour, it fi- exactly what happened.” The voice is a therapist, speaking to a vet- nally released a headset, resembling a pumped-up set of sunglass- eran who is placed in a virtual environment. The simulation they es, which cost $2,295. But its capabilities fell short of the grand are watching has been modelled on the veteran’s own experiences claims that had been made about it, and only a few thousand units in a war zone, events that have led him to develop post-traumatic were sold, according to The Information, a tech-industry news site. stress disorder (ptsd). A less ambitious but more successful approach to ar is that taken This is the Bravemind system, developed in 2005 by Albert by Microsoft’s HoloLens 2, a $3,500 device that resembles a chunky “Skip” Rizzo and Arno Hartholt, experts in medical virtual reality set of skiing goggles, and is considered the most capable ar head- at the University of Southern California, to treat soldiers returning set on the market. Researchers use it in fields from military simu- home from the wars in Iraq and Afghanistan. Immersed in a virtual lation and medical training to education and gaming. But its high environment that mimics their traumatic experiences, veterans cost and limited field of view suggest that ar headsets with broad narrate the scene to a therapist, who can control how the events in appeal to consumers are still a distant prospect. 7 the simulation unfold. The sounds, time of day and number of people or vehicles on the scene can all be customised. Over several sessions, the veteran is exposed to increasingly intense scenarios that get closer to reliving the memory of the original trauma. The aim of the therapy is to steadily dampen the veteran’s negative re- actions to the memory. Bravemind is now used in around 60 treatment centres around the world. Bravemind builds on a well-established psychological technique known as exposure therapy, in which people are brought to face their fears in a controlled way. vr adds a way of creating detailed, carefully tuned scenarios that can elicit different levels of fear. It works because, even when people know they are watching computer graphics, their brains nonetheless react to virtual environments as if they were real. Someone who is afraid of heights will find that their heartbeat quickens and palms get clammy even if the precipitous drop they can see is clearly a computer graphic in a vr headset. This is because the brain’s limbic system, which controls the fight-or-flight response, activates within milliseconds in response to potential threats, long before the logical part of the brain—which knows the vr experience is not physically real—can intervene.

May contain graphic content Scientists have used vr systems to create and control complex, multi-sensory, 3d worlds for volunteers in their labs since the 1990s. Rather as an aircraft simulator can train and test pilots in a wide variety of settings, virtual worlds allow psychologists and neuroscientists to watch people’s cognitive and emotional responses in situations that are difficult to set up or control in the real world. But the technology has usually been too clunky and expensive for widespread clinical use. That has started to change, thanks to the falling costs of computing and the increasing capability of the new generation of vr systems. At the same time, the scientific evidence base for the clinical uses of vr has grown. The technology has been successfully applied to tackling schizophrenia, depression and phobias (in- Ready, headset, go cluding the fear of flight, arachnophobia, social anxiety and claus-1 10 Technology Quarterly | Virtual realities The Economist October 3rd 2020

to practise important procedures. Surgeons operate in high-pressure environments with a lot of cognitive demands. “You’ve got to learn very rapidly, and you’ve got to make decisions under time pressure, with millimetre precision,” says Faisal Mushtaq, a cognitive neuroscientist at the University of Leeds in England. Practising with computer simulations can help. In the Neurovr system, developed by a group of Canadian hospitals and universities, surgeons can use mri scans from their patients to rehearse removing brain tumours before going in with the knife for real. The surgeon gets a 3d view of the tumour on screens and practises cuts and movements by manipulating instruments attached to a ro- botic arm that responds with haptic feedback. This allows users to sense whether they are cutting through hard or soft material, or through a tumour versus healthy tissue. An advantage of such a system is that, once a doctor is trained, the technology can be used to perform remote surgery. Both virtual training and remote procedures for patients are useful at a time when covid-19 has forced health-care systems around the world to keep doctors and non- emergency patients apart.

In operation When surgeons try to reconstruct a limb, a key problem is identi- fying important blood vessels that need to be protected during the surgery. In the past a surgeon would try to identify those vessels using an ultrasound probe, but the process is lengthy and imprecise. So James Kinross, a consultant surgeon at Imperial College London, has been experimenting with Microsoft’s HoloLens, an When screen time is good for your health augmented-reality headset, which can overlay computer-generated text and images onto the real world. Dr Kinross has used a ct scan of a patient’s limb to highlight the 2 trophobia), and reducing pain in cancer patients undergoing che- most important blood vessels. He reconstructed that scan as a 3d motherapy. It can help train spatial-navigation skills in children model in Unity, a games engine. The HoloLens then overlaid that and adults with motor impairments and assist in rehabilitation simulation onto the patient’s real limb in the operating theatre after a stroke or traumatic brain injury. The kit can also be used to during treatment. “What it meant was that the surgeon could im- monitor people and identify medical problems: vr has been used mediately visualize, and very precisely map, the anatomy of these to diagnose attention-deficit hyperactivity disorder (adhd) and blood vessels, and very quickly identify them and protect them,” Parkinson’s and Alzheimer’s diseases. says Dr Kinross, who has also used this technique during cancer Though each condition is unique, researchers have found com- surgery to help surgeons identify and protect healthy tissue. The mon ground rules for designing virtual experiences that work: adoption of the technology has proceeded very smoothly, he adds, therapists need to be in control of the scene, deciding what a pa- because it is easy to learn and provides “an immediate and very ob- tient sees and hears in order to modify the strength of the fearful vious advantage to the clinician”. stimulus; the therapy works best when the patient is embodied He thinks the technology could be pushed much further and within an avatar, rather than floating, so that they feel present wants to try some real-time collaboration with his colleagues dur- within the scene; and the patient needs agency, so that they can ing a surgical procedure. “So if you’re running an operation that’s leave the scene if it gets too overwhelming for them. All this adds challenging, or you want to have a discussion with a peer, it’s very up to giving the patient the illusion of control and makes the vr ex- easy to do and they can have a first-person view of what you’re perience feel psychologically “real”. looking at,” he says. In some cases the therapeutic regime is so robust that, instead Medical uses for computer simulations are promising, but how of a real-life therapist guiding a patient through an anxiety-induc- useful they are will take time to evaluate. That will require robust ing simulation, an animated avatar can do the job instead. A clini- clinical trials and discussions of frameworks for data protection cal trial showed that such an automated system, designed by Dan- on technologies that could, if their potential is achieved, become a iel Freeman, a psychiatrist at the University of Oxford, helped new type of medical device. people reduce their fear of heights. In the simulation, a virtual “We don’t want to poison the well,” says Dr Mushtaq. “We don’t counsellor guided patients up a virtual ten-storey office complex, want to put out systems that are ineffective, that are going to cost where the upper floors overlooked a central atrium. At each floor, our health-care system, and that are going to negatively impact on 1 the counsellor set the patient tasks designed to test and help them manage their fear responses, such as walking to the edge of a bal- cony while the safety barrier was lowered or riding on a moving platform over the space above the atrium. Who’s using? Dr Freeman found that six sessions of virtual, automated thera- Spending on augmented and virtual reality by sector, % py over two weeks significantly reduced people’s fear of heights, Based on 2020 market share compared with people who had no therapy. A similar automated Infrastructure 4.1 virtual therapy for arachnophobia, developed by Philip Lindner at Consumer Distribution and Manufacturing Public Stockholm University, helped patients eventually touch spiders. 37.4 services and resources sector The reduction in fear was still apparent when the participants 23.4 19.3 13.9 were followed up a year later. Other 1.9 For doctors, virtual environments also provide a risk-free way Source: International Data Corporation The Economist October 3rd 2020 Technology Quarterly | Virtual realities 11

2 the growth of this sector.” His research focuses on closing some of published in 2019, they found that scores on the simulator predict- those knowledge gaps by examining how the lessons users learn ed someone’s performance in a clinic two years later. from practising on virtual simulators translate into skills in the Video-game engines have made face validity easier to achieve real world. Surprisingly, the fidelity of the images to real surgery is for simulators. The next step is to measure construct and predic- not so important. “Something can look very, very, flashy…it’s got all tive validity more robustly. Unfortunately, precious little of this the blood spewing everywhere and so on,” he says. “But it doesn’t kind of validation work is undertaken by academics or companies necessarily translate to better learning.” selling simulators. To help grease the wheels and encourage re- Defining the validity of a simulator can take several forms. The searchers to build a body of knowledge, Dr Mushtaq and his col- most basic is “face validity”, which reflects how well a simulation leagues recently created a set of tools and protocols that stream- looks like the task in the real world. “Construct validity” is a way of line human-behaviour research and make use of the Unity game comparing performance differences on the simulation between engine as a platform. This Unity Experiment Framework takes care experts and novices. Finally, “predictive validity” is most useful, of the tedious programming steps—downloading files that track because it measures how well a person’s performance on a simula- all of a user’s movements, for example, or anonymising partici- tor predicts their ability to do the same task in the real world. pants—needed to turn the game engine into an environment optimised for studying people. Just like real life Mark Mon-Williams, a cognitive psychologist at the University This can also be used to flag when learners are struggling, and proof Leeds who has worked with vr for more than two decades, reck- vide early intervention and support. Dr Mushtaq and his col- ons simulated worlds have huge potential for improving educa- leagues have demonstrated both construct and predictive validity tion and physical and mental health. “But if you’re going to make for the Nissin (formerly Moog) Simodont dental-surgery simula- the most of that powerful set of tools,” he says, “then use the scien- tor, used by the University of Leeds to train its students. In research tific process to ensure that it’s done properly.” 7

Brain scan Lord of the Metaverse

A novelist’s vision of the virtual world has inspired an industry n the late1980s, a young author as “chief futurist” for Magic Leap, a start- I named Neal Stephenson was working up making augmented-reality glasses. on a project to create a graphic novel. He Today it is Mr Stephenson’s vision—a typed in some code on his Apple Macin- social, persistent, virtual-reality 3d space tosh II and a pair of spherical mirrors accessible to anyone and which will one appeared on the screen, hanging in day be a successor to today’s internet— space. To make the images look more that many tech companies are seeking to realistic, the code he used calculated build. One of the biggest supporters of how light bounced off the objects in the Mr Stephenson’s idea of a Metaverse is frame, so each mirror featured on it a Tim Sweeney, boss of Epic Games and convincing reflection of the other. creator of Unreal, the game engine that “At the time it was unbelievable that powers “Fortnite” and many other pop- you could use code to generate that kind ular games. Mr Sweeney’s stated ambi- of an image,” he recalls. He remembers tion is to turn such games into some having two conflicting thoughts: 3d version of the persistent virtual world computer graphics presented a tremen- described in “Snow Crash”. dous opportunity to create a whole new “One thing I got wrong…was assuming medium, but they were too expensive a television model for the development and too difficult to make. of this medium,” says Mr Stephenson. “And so I got to thinking about what “What grew instead was games.” Still, he could make it cheap,” he says. Television reckons that what makes science fiction had started out as an expensive curiosity useful to people in the real tech world is and then became cheap and accessible by individuals via special goggles—in which plasticity—leaving some room for in- becoming a mass-broadcast medium. Mr people could meet, claim territory, build terpretation, so that people who try to Stephenson began to imagine what things, make money and more. implement it can incorporate their own might be necessary to bring about a The impact of Mr Stephenson’s idea on ideas and point of view. similar transition for 3d computer the real, non-fictional world has been “I think that where Tim and the Epic graphics. “I was trying to imagine what a profound. Ask anyone working to create folks are going with it, is based on an popular medium would look like, cen- interactive 3d virtual environments what understanding that you do have to start tred on the use of the 3d graphics tech- has inspired them, and “Snow Crash” will with a game engine if you’re going to nology. And the Metaverse was my best be somewhere on that list. build a Metaverse,” says Mr Stephenson. guess as to what something like that That explains why Mr Stephenson is “Because just having a game engine that might look like.” also a sought-after futurist in Silicon works, and that is sustainable as a busi- Introduced to the world in 1992 in his Valley. Over the years he has been tapped ness, is kind of the table stakes. If you novel, “Snow Crash”, the Metaverse was a by firms including Blue Origin, Jeff Bezos’s can’t do that, you can’t build a multi-user persistent virtual world—accessible to space-launch company, and most recently realistic 3d platform.” 12 Technology Quarterly | Virtual realities The Economist October 3rd 2020

The future lete or with somebody playing jazz piano”. And if that could be made more accessible, he believes, then it might get interesting. What is real, anyway? “Can you turn yourself into a mathematical equation…in order to gain the kind of rapid body intelligence that’s possible?” That is the future of extending human experience. Travis Scott’s concert in “Fortnite” hinted at some of the creative opportunities already available. His was not the first concert in that virtual world. In 2019 Marshmello, a dj and producer, performed a set in the game watched by more than 10m fans, but that was just a musician play- The Metaverse is coming ing a concert on a virtual stage in a game world. By contrast, Mr itness any videoconference call, and it is striking how awk- Scott’s event played with the idea of how a concert might look if it Wward it still is—everyone is in boxes, looking off in random did not have to take place in the real world. The audience could directions. Microsoft tried to fix this recently with “Together” therefore fly around beaches, in outer space and underwater. “You mode for its Teams application. Created by Jaron Lanier, a virtual- can think of this as, how would you tele-concert if you were God?” reality pioneer, it does away with boxes and puts everyone in a says Matthew Ball, a tech guru. “If you controlled physics.” shared virtual space such as an auditorium. All participants see the whole group at once, as if they were all being reflected in a huge Virtual mosh pit virtual mirror. Mr Lanier says this allows social and spatial aware- That the event took place during a pandemic, when this was the ness functions in the brain to work more naturally, and makes it only type of concert people could participate in, is important. Such harder to notice irregularities in eye contact. events might in the past have been dismissed as “video-game ex- For Mr Lanier, “Together” mode is a small contribution to a phi- periences”. But as interactions through Zoom and other services losophy he holds dear—that, as technology develops, it should come to be seen as “legitimate” meetings, parties and perfor- keep people in mind. Instead of asking “is videoconferencing good mances, so events such as Mr Scott’s should also be seen as legiti- or bad?” or “is vr good or bad?”, he says, the real question is “how mate concerts, says Mr Ball. “We can’t go to physical concerts,” he can we make this more human-centred?” He sees virtual realities says. “So, either we have to say it’s a concert or we have to accept as a path to that goal, by making computing more human-friendly. that there are no more concerts.” Take posture, for example. Sitting at a keyboard, locked in posi- There are still many technical hurdles to making the digital and tion for hours and focusing on a fixed screen is physical worlds work together. As fast and ca- a recipe for a range of physical complaints, pable as computer graphics have become, for from sore necks to tingling hands. “Humans “How would you example, vr focuses only on just two of the have not evolved to sit for long periods of time tele-concert if you senses through which people experience real- at a desk, staring at a screen whilst hammering ity: sight and sound. In the physical world, it away on a keyboard,” says Mark Mon-Williams were God?” would be difficult to imagine life without the of the University of Leeds. Humans evolved to other senses and, in particular, touch—grasp- walk around and use their hands to explore ing and manipulating objects is a fundamen- the world that is in front of them. Virtual and tal part of the way people experience and gath- augmented realities afford the option of using er information about their surroundings. more natural movements when interacting with computer-gener- If history is a guide, computing platforms and internet connec- ated environments—grasping and pointing at text or objects, for tivity will become faster and more widespread, latency will go example, and physically moving them around a workspace. down, input and output devices will improve and game engines Alex Kipman, a computer engineer at Microsoft and inventor of (and their successors) will be able to create customised virtual the company’s Kinect and HoloLens devices, poses a similar ques- worlds on the fly. At some point in the future, anyone who wants to tion: why are humans required to conform to the needs of comput- may be able to switch in and out of fully immersive virtual worlds, ers, rather than the other way around? “Why don’t we flip it?” he flitting in and out of whatever the real version of Neal Stephen- asks. “Why don’t we ask technology to understand our world? How son’s Metaverse turns out to look like. do we get digital technology to come out into our analogue space, What seems certain is that sophisticated 3d digital worlds will as opposed to trying to get us into the digital space?” His inven- appear on ever more of the screens of successive generations of de- tions are specifically aimed at tackling those challenges. The Ki- vices that people already use every day. As activities, particularly nect sensor’s microphones and infrared cameras let people use interactions between people, in virtual realities can generate prac- speech and gestures to control games and other functions on Mi- tical and aesthetic outcomes that have moral consequences and crosoft Xbox devices. The HoloLens extends that by mapping and personal meanings, the idea that the “real” world is limited to that understanding the user’s environment, too. Both devices bring which is physically present nearby will seem increasingly bizarre. technology out of screens and into the real world. What, after all, is real, anyway? 7 These sorts of ideas will bring increased ease and richness to interactions between humans and computers. The same technologies could also be used to push people beyond their own, or even acknowledgments A list of acknowledgments and sources is included in the online any, human experiences. Scientists know that, as long as an avatar version of this Technology Quarterly in a virtual world is programmed to respond in real time to a user’s offer to readers Reprints of this TQ are available, with a minimum order of five copies. actions, those users will often co-opt the avatars as almost-real ex- For academic institutions the minimum order is 50 and for companies 100. tensions of their own bodies. People can easily inhabit avatars of a We also offer a customisation service. To order, contact Foster Printing Service: different gender or ethnicity, for example. They can even easily Tel: +1 866 879 9144; email: [email protected] learn to control drastically different bodies, soaring over land- For information on reusing the articles featured in this TQ, or for copyright queries, scapes as virtual eagles or munching grass as virtual cows. contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000; This is more than just a curiosity. Mr Lanier wants to know what email: [email protected] would happen if inhabiting different bodies in virtual reality gave more technology quarterlies Previous TQs can be found at people access to new forms of human intelligence and under- www.economist.com/technology-quarterly standing—the kind that “peeks out once in a while with a great ath- Europe The Economist October 3rd 2020 41

Reunified Germany, 30 years on European interests were the same. These views committed Germany to the Waking Europe’s sleeping giant cause of eu integration, not only expansion to the east but working with France to deepen links among existing members. The goal of a “united Europe” was even in- serted into the constitution. A Bundeswehr BERLIN general said he hoped to see German troops Economic crises and geopolitics have forced Germany to take on a leadership role swear oaths of loyalty to a European flag. It it never wanted was from conviction, not to please the n unguarded moments, British and inaction than by German assertiveness. French, that Chancellor Helmut Kohl IFrench diplomats 30 years ago might qui- In an essay last year, Thomas Bagger, a agreed to ditch his country’s cherished etly admit that they could happily live with German government official, argued that Deutschmark for the euro. The currency, a divided Germany. Its partition, however post-reunification Germany adopted a na- however, was built on Teutonic founda- unjust, contained the problem of a country ive reading of Francis Fukuyama’s “end of tions: strict fiscal rules and a (Frankfurt- that, in Henry Kissinger’s words, was “too history” thesis. The end of the cold war based) central bank with a single mandate big for Europe, too small for the world”. seemed to vindicate the country’s commit- of price stability. The cost of absorbing the After the Berlin Wall fell in 1989, Margaret ment to a world in which national interests clapped-out former communist East Ger- Thatcher sought to recruit François Mitter- were a hangover from a brutish past and many, and Germany’s sclerotic labour mar- rand, France’s president, in a fruitless plot foreign policy would be subsumed into ket and high taxes, left the economy gasp- to block, or at least delay, reunification, multilateral institutions. German minis- ing for air by the end of the 1990s. But it fearing an enlarged Germany would upset ters took to suggesting that German and perked up in the 2000s thanks to labour re- Europe’s balance or even threaten its secu- forms and growing export markets. When rity. Among European leaders only Felipe the global credit crunch spawned the euro González, Spain’s then prime minister, un- Also in this section crisis in 2010, Germany’s economic might equivocally backed a united Germany. condemned it to lead Europe’s response. 42 Armenia and Azerbaijan fight Thirty years on—unified Germany Its answer seemed to be that the curren- marks its birthday on October 3rd—the 43 Hungary’s tricky by-election cy was being undermined by fiscally incon- darker fears of Germany’s European part- tinent governments. (Critics countered 43 Spain fumbles covid-19 ners have not come to pass. Indeed, as the that it had in fact been Germany’s huge sur- European Union has battled to hold itself 44 Albania’s diaspora singers pluses and suppressed domestic demand together through a cascade of crises, they that had stoked the crisis.) Germans started 46 Charlemagne: On strategic yogurt have been more often troubled by German to wonder about the wisdom of the enter-1 42 Europe The Economist October 3rd 2020

2 prise: a poll in 2010 found that 44% of them debt and distribute the proceeds, partly Armenia and Azerbaijan wanted the Deutschmark back. Angela through grants, to covid-stricken coun- Merkel, temperamentally ill-suited to big tries. The contrast with the reluctance of The cauldron leaps forward, had little room for manoeu- 2010-12 is striking. vre. The bail-outs she pushed through the Yet European sovereignty without bubbles again Bundestag were hugely controversial, yet America is a chimera, reckons Timothy by forcing austerity on debtor countries Garton Ash, a historian at Oxford Universi- they compounded the misery, merely de- ty, who fears Germans have lost interest in ISTANBUL War returns to Nagorno-Karabakh, and laying a reckoning. The resentment in the transatlantic idea. For optimists, a Joe regional powers threaten to stir the pot those southern countries was huge. The Biden victory in November could presage a single currency, designed to bind Germany new deal in which Europe repositions itself n one video, an Azerbaijani tank stands to Europe, seemed to be doing the reverse. as a partner to America, especially over Iin flames. In another, an Armenian one is Germany’s reluctance to act assertively China and security, in exchange for a re- pulverised by a drone. A hail of gunfire cuts in the face of a grave challenge triggered an newed American commitment to multilat- into troops scaling a hillside. One of the arcane debate over what sort of “hegemon” eral arrangements—such as the Paris cli- world’s most intractable conflicts, over the it was, or might hope to become. But it was mate deal and the Iran nuclear accord—so disputed region of Nagorno-Karabakh, has not a discussion the Germans sought cherished by Germany. (If Mr Trump wins blown up again, threatening to plunge Ar- themselves. “I was one of the first to use re-election, all bets are off.) menia and Azerbaijan into full-scale war. that term,” says Dominik Geppert, a histo- This will not be easy. “We need the Ger- By the time The Economist went to press on rian at the University of Potsdam, “and oth- mans to stop sitting on the fence, but they October 1st, more than 100 people had been er Germans told me, ‘Don’t say it, it will cost have a hard time because the world is not as killed in five days of fighting. us money!’” In 2011, with the euro crisis rag- they would like it to be,” says Jim Town- Both sides blame the other for the vio- ing, Radek Sikorski, Poland’s foreign min- send, a former top official on Europe at the lence, though it seems Azerbaijan had been ister, said he feared German inactivity Pentagon. Germany’s defence spending is preparing an offensive to recover at least more than its power. This extraordinary growing quickly but remains far from the part of Nagorno-Karabakh for some time. statement got him into hot water at home nato target of 2% of gdp, and parts of its The fighting has awakened memories of a but barely rippled in Germany. armed forces are not fit for purpose. Mr Si- war that devastated the region in the 1990s. In the end the euro-zone fire was korski, now a member of the European Par- Missiles have rained down on Armenian quelled not by Germany but the European liament, says his former criticism now ap- positions across the separatist enclave, in- Central Bank’s vow to do “whatever it takes” plies to foreign and defence policy, where cluding Stepanakert, its main city. Azerbai- to hold the currency together: a pledge her- “Germany always does too little too late”. jan said it had taken several villages. Both alding an activist monetary policy that Perhaps the hardest illusion for Ger- countries declared martial law and mobil- riled Germans further. Then came other many to shed is that trade and economics ised troops. Armenia accused Turkey, Azer- crises, each with Germany at their heart. can be insulated from geopolitics. As many baijan’s main ally, of shooting down one of After Russia’s assault on Ukraine in 2014 of its allies argue, gas pipelines from Rus- its warplanes; Turkish officials denied it. Mrs Merkel corralled other eu members sia and Chinese-built 5g networks are po- Nagorno-Karabakh was part of Azerbai- into backing sanctions and worked with litical projects, too. “The rest of Europe jan under the Soviet Union. As the empire America and France to counter Vladimir won’t become more sovereign if Germany crumbled, clashes broke out between its Putin. Yet in the migrant crisis of 2015-16 always takes the national way” on such Armenian majority, which sought union Germany twice irritated its European part- matters, says Franziska Brantner, a Green with Armenia or independence, and its ners: first by keeping its borders open, and mp. This will be an uncomfortable debate. Azerbaijani minority. This descended into then by unilaterally striking a deal with But the sands are shifting, and next year’s a war that saw atrocities on both sides. Turkey to keep them out. If this was leader- election, at which Mrs Merkel will stand Some 30,000 people were killed and about ship, it looked worryingly erratic. down, offers a chance to bring it to life. 7 1m displaced before a ceasefire in 1994. The Events chipped away further. Brexit, region has since been controlled by Arme- which was and remains a mystery to most nian forces, though it is still international- Germans, left the country with more Less gigantic ly recognised as part of Azerbaijan. The Ar- weight inside the eu but, oddly, less influ- Germany 1990 2020 menians also occupy surrounding areas, ence, as the club’s centre of gravity shifted connecting the enclave to Armenia. GDP, % of EU total southwards. Some “new” central European International mediation has failed to states took an authoritarian turn. Most im- 26.1* bring about a breakthrough. Nikol Pashi- portant was the unconcealed disdain of 22.6† nyan, Armenia’s prime minister since 2018, Donald Trump’s administration for the eu seemed open to talks when he came to of- and the implied threat of the withdrawal of Population, January 1st, % of EU total fice but has since reverted to a tougher po- its security guarantee, one of the historical 23.0 sition. In a speech last year he called for Na- conditions for European reconciliation. 18.6 gorno-Karabakh to be unified with France under President Emmanuel Armenia. Azerbaijan’s strongman presi- Macron adjusted to this more quickly than Votes in the Council of the European Union dent, Ilham Aliyev, has since ruled out ne- Germany. Yet German attitudes may be % of total gotiations. Skirmishes in the area occur shifting. Mr Macron’s notion of “European 13.2 regularly. At least 16 people, including an sovereignty” would once have inspired 8.2 Azerbaijani general, were killed in clashes smirks in Berlin, says an official, but today north of the enclave in July. it is rapidly finding adherents, as Germany The fear is that Azerbaijan is now bent Defence spending, % of NATO Europe’s total‡ grapples with American unpredictability, a on taking back the entire enclave. “This is a troubled European neighbourhood and a 22.7 more serious escalation, much better pre- growing Chinese threat. Mrs Merkel has 19.1§ pared, with more troops, and happening si- surprised many by agreeing that the eu Sources: IMF; Eurostat; Council *1991 †Forecast multaneously on all parts of the front line,” should issue €750bn ($880bn) in common of the European Union; NATO ‡Includes Turkey §2019 says Olesya Vartanyan, a Caucasus analyst 1 The Economist October 3rd 2020 Europe 43

Hungary of candidate. Fidesz chose a 30-year-old RUSSIA Armenian- controlled political novice, Zsofia Koncz, to defend Taking on the seat held by her father, who died in July in a car crash. Caspian GEORGIA Viktor Orban Borsod 6 illustrates the problems the Tbilisi Sea opposition faces. Its 77,000 voters are spread among four towns and several dozen villages. Fewer than 10,000 of them have ARMENIA AZERBAIJAN BORSOD Nagorno- degrees, well below the national average. Yerevan It isn’t easy Karabakh Baku Opposition gains in last October’s local Stepanakert orsod is a sweet spot in north-east elections were mainly in larger towns. The TURKEY A Z BHungary, whichever way you look at it. rural poor, dependent on government E R. It is home to a big chocolate factory (Sze- work schemes initiated by Fidesz, are easi- rencsi Bonbon), a caffeine-packed energy ly persuaded that only Mr Orban can im- IRAN 100 km drink (Hell), and a pudding wine tradition- prove their lot—one reason why a Jobbik ally favoured by kings and queens on their candidate, no matter how unpalatable, has wedding night (Tokay). It is also the place the best chance of taking the seat. But Fi- 2 at the International Crisis Group, a Brus- where the opposition to Viktor Orban, desz’s stranglehold over regional media is sels-based think-tank. “In addition to Hungary’s autocratic prime minister, is up almost total, and its influence through so- heavy weaponry, we see infantry, we see against a challenge. cial media is far greater than in 2018. many more helicopters, and masses of Opposition parties hope that a by-elec- Mr Biro has apologised for his racist drones,” she says. The clashes threaten to tion on October 11th will give a boost to comments, which included the word “Ju- spill over into civilian areas. Outright war their efforts to combine and defeat Mr Or- dapest”—a slur that originated in the early could put key pipelines at risk. The region ban’s Fidesz party at the general election 20th century, when perhaps a quarter of the sits close to ones that bring oil and gas from scheduled for 2022. Success in Borsod 6, people in Budapest were Jewish. Jobbik Azerbaijan to Turkey through Georgia. the constituency in question, would theo- makes other opposition voters uneasy, and One new factor is Turkey’s greater in- retically end Fidesz’s super-majority in the working together hard. Yet Hungary’s new volvement. Turkey has always backed Hungarian parliament, which allows it to electoral system means that only close co- Azerbaijan politically (Azeris are ethnically alter the constitution; it currently has 133 of operation will work in 2022. 7 close to Turks) but now seems keener than the 199 seats. “This would be above all a ever to back it militarily, says Thomas de symbolic victory,” says Peter Marki-Zay, a Waal of Carnegie Europe, a think-tank. Un- prominent critic of Mr Orban. “The result Spain like other outside powers, including the will determine the political mood of the eu, America and Russia, which have called next 18 months.” Dancing with for an end to the fighting, Turkey has urged The task will not be easy. The joint op- Azerbaijan to fight on. Its president, Recep position candidate is Laszlo Biro, a local death Tayyip Erdogan, said on September 28th entrepreneur from the formerly far-right, that peace would come to the region only though now centre-right, Jobbik party. Ear- once Armenia withdrew from Nagorno-Ka- ly in the campaign, openly anti-Semitic re- MADRID Poisonous politics have worsened the rabakh. His spokesperson added a day later marks surfaced from his Facebook page of pandemic and the economy that Turkey was “fully ready” to help Azer- two years ago. Since then, the campaign baijan recover the enclave. Turkey already against him in the government-sponsored he infanta leonor hospital, wedged supplies its ally with armed drones, which media has been relentless, while Hungary’s Tbetween a motorway and a suburban have been used in the fighting. Some re- few remaining independent outlets have railway, serves the dense working-class ports say Mr Erdogan’s government has professionally reported the agonising districts of south-eastern Madrid. Last sent Syrian mercenaries to help. among opposition parties over their choice month 402 of its 480 doctors signed a letter Azerbaijan may settle for only partial to the regional government warning that gains. But escalation or deeper Turkish in- the hospital was in a state of “pre-collapse”, volvement could spark a confrontation with 54% of its 361 beds and all 27 inten- with Russia, which also sells arms to Azer- sive-care spaces occupied by covid-19 pa- baijan but has a mutual-defence pact with tients. With 784 cases per 100,000 people Armenia. In theory, since Nagorno-Kara- in the past fortnight, Madrid is currently bakh is not formally part of Armenia, Azer- the worst-hit region in Europe. baijan can do “whatever it wants there” This is part of a broader national failure. without provoking a Russian response, On July 5th Spain’s prime minister, Pedro says Andrei Kortunov, head of the Russian Sánchez, proclaimed that “we have defeat- International Affairs Council. “But that ed the virus and controlled the pandemic.” does not mean Russia will sit on its hands.” Yet the country is once again Europe’s So far Russia has only asked Turkey to coronavirus black spot (see chart). back a ceasefire. “The Russians don’t want What went wrong? Health experts point to be involved and prefer to play a balanc- the finger at a failure of government for ing act and be a mediator,” says Mr de Waal. which both Mr Sánchez’s left-wing minor- “But if Armenian territory is under attack, ity coalition and the conservative opposi- they have no option but to defend Arme- tion People’s Party (pp), which runs Ma- nia.” Turkey and Russia are already tangled drid, carry the blame. up in two proxy wars, in Libya and Syria. After Europe’s strictest lockdown, Spain They run the danger of fighting a third one rushed its release. The pp joined Catalan in the Caucasus. 7 Crony media back Viktor. Funny, that and Basque nationalists in refusing to sup-1 44 Europe The Economist October 3rd 2020

Pop music Worst in class New daily confirmed covid-19 cases, 2020 Per 100,000 population, seven-day moving average The Albanian all-stars 25 Spain Singers with roots in a small corner of the Balkans are conquering the world 20 ntil recently the most famous tage except Ms Istrefi grew up in the 15 Uethnic Albanians were Mother Tere- diaspora. Ms Lipa, Ms Max, Ms Rexha and sa (a nun who cared for orphans and Ms Vitia were born, respectively, in 10 lepers in India) and Enver Hoxha (a London, Milwaukee, Brooklyn and near homicidal communist despot). Now to Stuttgart. Only Ms Max has roots in 5 the saint and the sinner must be added Albania itself; the rest are of Kosovar EU+Britain 0 the singers. descent, save Ms Rexha, whose family They are everywhere. Dua Lipa has come from North Macedonia. Feb Mar Apr May JulJun Aug Sep 55m monthly listeners on Spotify, a Throughout history, says Dukagjin Source: European Centre for Disease Prevention and Control music-streaming platform. Bebe Rexha Lipa, Ms Lipa’s father, Albanians have has 24m. Rita Ora (pictured) has had five been squashed, but the success of this 2 port the renewal of the state of emergency British number one singles and has been generation of musicians shows that under which the government could restrict a judge on “the x Factor”. Era Istrefi sang “given the chance, we excel.” The stars of activity. Rebuffed, Mr Sánchez handed con- at the football World Cup in 2018. Njomza the diaspora often perform back home, trol of the pandemic to the regions and Vitia, a singer-songwriter, and Labinot wrapping themselves in Kosovar or went on holiday. Several of the regions, es- Gashi, a rapper, have global followings. Albanian flags. pecially Madrid, failed to strengthen prim- Ava Max’s sexy single “Sweet but Psycho” Besa Luci, editor of Kosovo 2.0, a ary health care and contact-tracing. The is universally considered more fun than magazine, says they clearly feel a need to government failed to require them to do so, Hoxha’s literary offering, “Albania Chal- represent the nation and in return earn nor did it fix clear rules for handling out- lenges Khrushchev Revisionism”. an outpouring of love. “My heart bleeds breaks of the virus. The summer did the All these megastars of Albanian heri- Albanian blood,” said Ms Rexha on a visit rest: heeding Mr Sánchez’s triumphalism, to Albania. In July Ms Lipa courted con- Spaniards returned to their normal happy troversy by tweeting a map associated mingling in bars, nightclubs and at family with extreme Albanian nationalists gatherings. showing a vast Greater Albania. She later Isabel Díaz Ayuso, Madrid’s regional said her post had been “misinterpreted”. president, opposes stricter measures that The parents of the stars who grew up would hurt the economy. This week the abroad left the Balkans in the turbulent government thought it had secured her early1990s. But it was not always a story agreement to extend to the whole of the of refugee rags to riches. The Ora and Lipa capital restrictions on non-essential families were part of Kosovo’s elite. Both movement and gatherings she has placed girls attended a top performing-arts on its southern areas. New rules would re- school in London. quire all cities of more than 100,000 people The pop stars, along with a clutch of to follow suit when new cases rise above Albanian footballers in top teams across 500 per 100,000, and other criteria are met. Europe, play an “incredibly important But three other pp-governed regions op- role” in helping to change Albanians’ posed them, and as The Economist went to image from one of conflict, says Petrit press, the deal seemed to have fallen apart. Selimi, a former foreign minister of The failure to keep the pandemic under Kosovo. In 2016 an unusually demure Ms control has nipped the economic recovery Ora performed in Rome to celebrate in the bud. Forecasters now reckon the How they do Mother Teresa’s canonisation. economy will contract this year by up to 13%, the worst figure in Europe. A hoped- for restart of tourism was curbed by the re- fears may be a “cascade of bankruptcies”. endangering the constitution with his liai- newed outbreaks. Raymond Torres of Fun- Spain is trusting in eu aid, but most of sons: Pablo Iglesias, Podemos’s leader, cas, a think-tank, notes that the Spanish that will not arrive until 2022. It may be tied snipes at the monarchy and the judiciary. economy is particularly vulnerable be- to reforms of the labour market, pensions, With some delay, Mr Sánchez is likely to cause, all told, tourism and hospitality ac- education and training. These require po- get a budget approved. That should allow count for 26% of gdp—five points more litical consensus, which is in short supply. the government to survive for the rest of than the European average. Mr Sánchez has repeatedly called for na- the parliamentary term until 2023. But at a Some 60,000 of Spain’s 315,000 bars and tional unity, only for ministers to stick the cost. The private sector is rattled by Spain’s restaurants have shut down; another knife into the opposition. His relations political warfare and Podemos’s presence 40,000 are likely to do so by the end of the with Pablo Casado, the pp’s leader, are in government, although it has little influ- year, according to the sector’s lobby. The marked by mutual mistrust. ence over economic policy. “There’s a bull government this week extended until Jan- The coalition of Mr Sánchez’s Socialists market in pessimism,” says a normally up- uary 31st a furlough scheme which cur- and Podemos, a far-left party, was voted beat former minister with business ties. rently helps some 800,000 workers (down into office in January with the help of “I’ve never been so worried about the polit- from a peak of 3.2m). It has granted €85bn Basque and Catalan separatists. Officials ical situation.” The moderation of the ($100bn) in credit to businesses. More tools complain that the right denies its legitima- Spanish middle class and the constraints may be needed to prevent what Mr Torres cy. The opposition accuses Mr Sánchez of imposed by the eu are his only solace. 7 Big thinkers leave smaller carbon footprints.

By 2030, there could be 125 million electric cars on the road. That’s 125 million cars helping to reduce the amount of carbon dioxide in the air. And the big thinkers responsible for making them need copper, like the kind BHP supplies. To keep up with the growing demand, we’re always searching for more sustainable ways to mine it. So everyone who cares about the planet can breathe a little easier. For details, visit bhp.com/BigThinkers. 46 Europe The Economist October 3rd 2020 Charlemagne The revenge of strategic yogurt

How the EU has started speaking French when it comes to the economy sued a joint paper with the French, calling for strict enforcement of labour and environmental standards in such deals. Britain’s departure has deprived the economic liberals of clout. Even if Britain had stayed, the eu’s Frenchification might still have happened. Outside the bloc, Britain has spurned the idea of Singa- pore-on-Thames and is pursuing London-sur-Seine. Surprisingly, the British government’s right to pump businesses with taxpayers’ money without any eu constraint—historically a French dream— has emerged as an obstacle in trade talks. Brussels is determined not to allow Britain the chance to undercut the bloc with subsidies and is testing its newfound willingness to cut anyone who fails to abide by its wishes out of the single market. Charles Michel, the European Council president, turned to a French playwright to explain the eu’s hitherto unappreciated strength: “Just as Molière’s Monsieur Jourdain speaks in prose without realising it, Europeans have become a world power without realising it.” Naivety, long a favourite term of French trade negotiators, has become a watchword for how the eu has mishandled its economic relationship with trading partners. When it comes to China, even diplomats from the most forthright liberal countries admit as much. If a conservative is a liberal who has been mugged by reality, a neo-protectionist is a trade negotiator who has had to deal with anone is proud of its yogurts. The French company boasts China. It speaks to a wider shift in the eu’s outlook on the rest of Dthat 4bn patented bacteria go into every pot, with each batch the world. Before, the world was an opportunity, with blockbuster fermented for eight hours, or roughly a quarter of the French work- trade deals the order of the day. These days it is seen as a threat, ing week. France, understandably, is proud of Danone. When ru- with an assertive China and an erratic America causing trouble mours emerged in 2005 that Pepsi was considering a bid for the from which the eu must protect itself. company, the French political establishment howled. Dominique A brutal mix of economics and geopolitics leaves the eu with de Villepin, the then prime minister, pledged to defend the “inter- little choice but to take a more protectionist line, argues Hosuk ests of France”. Jacques Chirac, the president at the time, promised Lee-Makiyama, a director at the European Centre for International to be “vigilant and mobilised” against any potential predator of Political Economy, a free-trade think-tank. Export-led growth is French business. Anglo-Saxon capitalists guffawed. In Brussels, off the table, if countries such as China and India remain closed. European Commission officials rolled their eyes and delivered lec- America will still be a tricky partner even if Donald Trump leaves tures on the merits of red-blooded competition. “Strategic yogurt” the White House. This leaves import substitution as the only op- became a byword for the excesses of French protectionism. tion, even if eu leaders do not dare to admit it. After a decade of such jokes, French ideas are now the bedrock of the eu’s economic policy. In Brussels, industrial strategies for Ceci n’est pas un bloc protectionniste everything from hydrogen to car batteries have been developed. After all, protectionism is still a dirty word in Brussels. Even the (Incidentally, Thierry Breton, the French finance minister during French do not use it. And they have good reason to be coy. For start- the Danone row, is now the commissioner responsible.) A carbon ers, the eu likes to see itself as the last guardian of the multilateral border tax—first seriously floated by Chirac—is on the cards, order. But its newfound enthusiasm for unilateral methods—such which would involve duties on products entering the single mar- as stopping foreign buyers of European companies on subsidy ket from polluting countries. New rules are in the works to make it grounds—puts this reputation under strain. Given how dependent easier to block foreign takeovers—whether of yogurt manufactur- the eu is on exports, which are worth about half its gdp compared ers or not—if the buyer has benefited from unfair subsidies. Some with 12% in America and 18% in China, the bloc will probably come of the buzzwords have changed. Whereas Mr de Villepin and Co off worse from any protectionist fight. It is possible that merely de- spoke of “economic patriotism”, today’s economic Francophiles in veloping the tools will ensure the eu never has to use them, argues the eu speak of “strategic autonomy” and “sovereignty”, which Sam Lowe from the Centre for European Reform, a think-tank. But now litter the conclusions of European Council meetings. But the if the eu does end up using these tools as a stick, it may turn out to content is the same. How did the French worldview take over? be a boomerang that comes hurtling back at them. One reason is that the bloc’s usual band of free traders are in re- All this means that there are limits to the eu’s economic treat, cowed by a backlash against trade deals. This has taken place Francophilia. France’s quixotic quest to bring home the produc- in some unlikely spots. The year 2016 is remembered as when vot- tion of things like surgical masks is politely ignored by its new al- ers opted for Donald Trump and Brexit. But it was also the year that lies. At the moment, the eu imports cheap things, like pvc gloves, the Dutch in a referendum voted against a trade agreement with and sells expensive things, like hospital scanners. Jeopardising Ukraine and a band of Walloons threatened to bring down a similar this settlement would be unwise, particularly as the main problem one with Canada. Now politicians line up to criticise such deals. In at the start of the pandemic in the eu was de facto state-sanctioned June Dutch mps backed a motion against the ratification of a deal piracy, with governments snatching medical goods that passed between the eu and Mercosur, the South American trade bloc, as through their territory. French ideas may be in vogue in the eu. But have their usually liberal Irish counterparts. The Dutch even is- many are just strategic yogurt. 7 Britain The Economist October 3rd 2020 47

Also in this section 48 Fight for London’s streets 49 Bagehot: Boris’s culture war

Race Ford of Manchester University. Among the youngest cohort—under fives—6% had Not black and white one. The proportion of cohabiting couples that are interracial shot up from 2.6% in 2001 to 4.5% by 2011. Both patterns suggest that the next census, due next year, is almost certain to report an even larger number of mixed-race Britons. Britain’s large and growing mixed-race population may make the country less This demographic shift coincides with susceptible to divisive identity politics the resurgence of race as a central political eorge bernard shaw, a playwright right, mixed-race people constitute a larger theme. In Britain, as in America and conti- Gand activist, thought that the best way proportion of the population than any eth- nental Europe, this year will be remem- to bring about social equality was “to keep nic group. bered not only for covid-19 but also for a re- the entire community intermarriageable”. And that share is still growing. Fewer assessment of the state of race relations. As He was primarily concerned with relation- than 1% of Britons aged 50 or over in 2011 statues were felled and historic anthems ships across the class divide but, when he had a mixed-ethnic background, according reappraised, the idea of “white privilege” visited South Africa in 1935, he caused a stir to an analysis of official statistics by Rob leapt from the campus to the streets. Yet by suggesting the same idea for race. The much of the focus on symbolic and system- Daily Telegraph, for one, was taken aback. ic racism overlooks the growing signifi- “Marriages of white and black: Startling The middle way cance of mixed-race Britons, who often plan by Mr Shaw”, its headline read. Britain, public opinion on selected issues, % defy labels. The attitudes of this group will What was once startling is now com- August 2020 be crucial in determining the future direc- monplace. The number of Britons who say tion of identity politics. White Mixed-race Black they have a mixed-ethnic background al- This is truer of Britain than of other rich most doubled between the census of 2001 1007550250 countries. London appears to have a far Yes and 2011, to about 1.2m, or slightly more Support Black more ethnically mixed population than Lives Matter than 2% of the overall population. That fig- No Paris, Berlin or Rome, though since France, ure is probably an undercount, since not all Regard police Yes Germany and Italy do not collect data on children of mixed marriages will have as racist No race, it is impossible to be sure. Certainly, ticked one of the mixed categories, and the Are proud of Yes mixed-race people make up a greater share number is likely to have grown since the British empire No of all non-whites in Britain (16%) than in census. An analysis by Alita Nandi of Essex Regard Britain Yes America (11%). And the pattern of marriage University and Lucinda Platt of the London as racist No is different, too. Most Americans of mixed School of Economics suggests that the true parentage settle down with a partner from Source: Ipsos MORI figure could be three times as high. If that is a minority group, but 50% of Britons with 1 48 Britain The Economist October 3rd 2020

2 black African and white parents—and 75% It is not inevitable that, as ethnicities might be looking for trouble.” whose parents were white and black Carib- mix, identities get watered down. Mr Rees When covid-19 hit Britain in the spring, bean—marry a white partner. points out that, as people feel their connec- several London councils moved to head off A poll for The Economist by Ipsos mori tion to a particular identity weakening, an expected surge in driving as people tried suggests that mixed-race Britons are, in they may well seek to reassert it. “People to avoid public transport. New planning general, less wary of Britain’s institutions crave simplicity and certainty.” If that were rules allow them to close roads to cars and history than black Britons (see chart on to happen, the growth in intermarriage without holding lengthy consultations— previous page). They are marginally less could eventually make racial politics more, they can act first and then, over the next 18 likely to support Black Lives Matter (blm), not less, divided. months, ask people what they think of the less likely to agree with the proposition But our polling suggests the opposite is changes. Councils have duly blocked some that “Britain is a racist country” and much happening. Trevor Phillips, a former chair- roads with bollards and large wooden less likely to think most British cops are in- man of the Equality and Human Rights planters, and erected cameras on others to tentionally racist. Though a plurality of all Commission, argues that rather than being photograph and fine errant drivers. ethnic groups surveyed thought the British forced to choose one ethnic identity or an- This should not have been unexpected. Empire should be a source of neither other Britain’s mixed-race citizens are in- Driving in London has become ever more shame nor pride, considerably more creasingly claiming “both sides of their challenging, and in the 2018 local elections mixed-race than black Britons were proud heritage”. His children have Indian, French Labour Party councillors in some boroughs of it. Sunder Katwala of British Future, a and Caribbean ancestry, with cousins from pledged to deter it even further. But the think-tank, believes that blm will pursue each branch of the family. “Wherever they sudden changes have been too much for different policies in Britain than in Ameri- are at Christmas,” he says, “they know what some. Protests have been held, traffic signs ca in part because of the disparity in the to do.” And, as Mr Katwala has written, have been spray-painted over, bollards and rates of inter-ethnic relationships. “This “that is only a threat to those whose views planters have been vandalised and oil has policing of the boundaries requires a high of race depend on telling everybody else been tipped onto bike lanes. level of social distance between the how to think about who they are.” 7 Ostensibly, supporters and opponents groups,” he says. of the new low-traffic neighbourhoods, That is much rarer in Britain than it sometimes called “mini-Hollands”, dis- once was. Consider Marvin Rees, the Cars in the capital agree about facts. Does banning cars from mixed-race mayor of Bristol. He is proud of local streets discourage driving or merely his Jamaican ancestry and, growing up in Road warriors displace it to other roads? Does it slow the 1980s, he often faced racial abuse. Yet he down ambulances and fire engines or would return home each evening to his speed them up? But the dispute over road white mother, who left school at 14 to work closures is really about something bigger. as a hairdresser. “There is such a thing as “It’s social cleansing,” argues Moham- white privilege but my white family did not mad Rakib, who organised the protest in A battle over driving pits old London grow up with privilege,” he says. He re- Bethnal Green. He believes the car bans are against new members a school friend asking him dur- designed to create a village atmosphere ing one of the city’s race riots, when they n september 26th a few dozen people that will entice more young, bicycle-riding were both about 13, “‘in a war between black Ogathered in Bethnal Green in the East professionals to a mostly poor district. He and white whose side are you going to be End of London to protest against road clo- thinks it is revealing that advocates of low- on?’...The idea of going to war with white sures. Whistles blew and passing drivers traffic neighbourhoods laud cities such as people didn’t sit well with me. At the same honked as speakers railed against Tower Amsterdam and San Francisco: “Those time, I recognised the physical threat to my Hamlets council. Restrictions on driving places have already been gentrified.” safety was coming from white people.” (some planned, others already in place) The argument, which other protesters Mr Rees, whose wife is white, credits his were awful, they said. Banning cars from also make, that car bans disproportion- background for his nuanced approach to some roads merely increased traffic on oth- ately affect working-class Londoners is racial issues. His city made headlines ers; local businesses were dying for want of wrong. The wealthy drive cars (and ride bi- around the world in June when protesters customers; the disabled could not get cycles) more than the poorest, who tend to toppled a statue of a city father who was a about. It was all very harmonious, until a walk or take buses. What is true, however, notorious slave trader. But Mr Rees was suspicious group of men was spotted near- is that veteran Londoners drive. People wary of such direct action, arguing that by. “Cyclists!” hissed a protester. “They who moved to the capital several decades symbols were far less important than mea- ago are much more likely to own a car than sures to tackle entrenched inequality. “I new arrivals (see chart). The opponents of will talk about race and racism in all its full- Young and car-free low-traffic neighbourhoods are fighting to ness,” he says. “But I’m not going to go London, car access for households, % save the old, chaotic, dirty London. One home and give mum a hard time for being For residents born outside London group, in Hackney, has embraced the slur white or ask her to feel guilty.” that its supporters are “rat-runners”. No car One car Two or more cars Maya, a 30-year-old university teacher 100 The struggle between old and new, be- in London, also says her ancestry—mixed tween those defending their way of life and white and south Asian—makes her aware 75 those who want a greener city, is London’s that “identity is in part changing and con- version of the cultural divide that gave Brit- 50 textual”. That she can count ancestors on ain Brexit and propelled Boris Johnson to either side of Britain’s colonial history em- 25 power. Jody Graber, a leader of the protests phasises the complexity of racial politics against road closures in Islington, certain- and makes her ambivalent about “rigid 0 ly hopes the parallel holds. He plans to identity positions”. Another Londoner Pre 60 70 80 90 2000 10 stand as a councillor in that heavily Labour reckons his mixed-race parentage gives 1960 -69 -79 -89 -99 -09 -17 borough. “Boris smashed the red wall up Year arrived in London him “a sense of perspective on how arbi- north,” he says. “I’m going to smash it in Source: Transport for London trary identity politics is”. north London.” 7 The Economist October 3rd 2020 Britain 49 Bagehot We shall fight them on the airwaves

The Tories are launching a culture war the Tories well. Margaret Thatcher preached “Victorian values” only to be embarrassed when one of her favourite ministers, Cecil Parkinson, fathered a child by his mistress. John Major called for a return to basics only to see a succession of his colleagues, and eventually himself, damaged by sex scandals. “Family values” were a problem for the Tories not only because adulterers lived in fear that they would be exposed but also because closeted gays, of whom the party had many, bridled at their enforced hypocrisy. As the father of at least six children by three different women, Mr Johnson does not look like the ideal leader to rally conservative troops in a culture war. But the issues are different today. Marriage is a minority pursuit. Gays are no longer closeted. Identity politics has united the party against a cultural left that treats the term “white” as an accusation rather than a description and regards Britain’s past as one of unrelieved villainy. The Conservatives are much better prepared this time around, too. The parliamentary party is diverse enough to rebut the charge that it is just a bunch of reactionary white men: the likes of Kemi Badenoch and Kwasi Kwarteng would no doubt welcome the chance to go toe-to-toe with Black Lives Matter (blm) spokesmen. Many backbenchers are fired up. “Johnson should instruct a team of ministers to wage war on woke,” says Neil O’Brien, a cerebral mp for Harborough. And n the long-forgotten days of Cool Britannia, Downing Street right-of-centre think-tanks are ready to roll out materials on Iwas packed with left-leaning intellectuals scoffing prime minis- everything from the statue wars to bbc bias. terial canapés as Tony Blair sought to dominate not just the coun- This points to the biggest reason for the Tories’ confidence: the try’s politics but also its culture. David Cameron, like most Tories, left’s over-reach. It is partly a matter of taking reasonable ideas too was more interested in economics: he focused on squeezing pub- far. Acknowledging Britain’s role in the slave trade should not lic expenditure while hugging hoodies and huskies to blur the cul- stretch to removing the name of David Hume, a colossus of the En- tural distinction between Conservative and Labour parties. lightenment, from a building in Edinburgh University—a demand Now the parties’ positions are reversed. Sir Keir Starmer, the La- to which the university, to its shame, acceded. It is also a matter of bour leader, is copying the Tories’ cultural attitudes, not fighting style. The harassment of J.K. Rowling by trans-rights activists is an them. His recent address to his party conference was a paean to abomination. De-platforming has no role in universities. flag and family. The Conservatives, meanwhile, acknowledge that Yet launching a culture war may do the Tories less good than ceding culture to the left was a mistake: in the arts, broadcasting they think. The sure-footed Sir Keir has sidestepped traps they and higher education, Toryism is not just dead but damned. have laid for him, such as over the singing of patriotic songs, and Downing Street has let it be known that it is thinking of ap- some Tories worry that it will unleash the “crazies” on their side. pointing two right-of-centre journalists, Lord (Charles) Moore and America’s experience suggests Britain may not benefit either. Sir Paul Dacre, to the most powerful cultural thrones in the land: chairman of the bbc and head of the media regulator, Ofcom. Oli- America the angry ver Dowden, the culture secretary, has told museums and galleries A louder Conservative voice in cultural debates is all to the good. that they could lose grants if they take down controversial statues Cultural institutions decay if they are nothing more than echo and artefacts. The Department for Education is banning teaching chambers. Pressure groups such as blm drift into self-indulgent materials provided by “anti-capitalist groups”. This is part of a extremism unless subjected to rigorous debate. Taxpayers grow re- broader push from the right. Andrew Neil, a fearsome political in- bellious if they are forced to support institutions that know more terviewer, is helping found a new television channel, gb News, about New York than old York. But America’s experience offers a featuring American-style tv anchors “with a bit of edge”. Laurence warning. The booing and bellowing of its culture warriors has Fox, a rare anti-woke actor, is founding a new political party, Re- coarsened discourse and divided the polity so that Republicans claim, which he hopes will do for culture what ukip did for Brexit. and Democrats can no longer work together on practical matters Leadership is one reason for the new approach. The people who such as combating covid-19 or fixing the infrastructure. now run the Tory party are more interested in culture than eco- Britain has defences against such developments. Parliamenta- nomics: Boris Johnson, a former Daily Telegraph journalist (and ry government is less prone to paralysis. Broadcasting laws make it underling of Lord Moore) who specialised in tweaking liberal tails, more difficult to create highly partisan tv stations. But the Tories’ Michael Gove, a journalist influenced by America’s neo-conserva- urge to fight on this new front will test these defences. tive movement, and Dominic Cummings, a combative aide con- Culture is a legitimate area for political argument, but if it is to sumed by hatred of the metropolitan elite. Another is the shift in be constructive the government needs to bear two principles in economic strategy, which started with the mantra of “levelling up” mind. It should try to broaden the debate, not to disrupt it. The de- poorer areas of the country and has been completed by coronavi- cision to ban literature created by anti-capitalist groups from be- rus. The Tories, like Labour, are now a party of the big state, so eco- ing taught in schools is, thus, wrong. And the aim of reforming nomics no longer divides the parties so clearly. great cultural institutions should be to strengthen them, not to Fighting on the cultural battlefield has not, in the past, served punish them for past misdeeds, imagined or real. 7 50 International The Economist October 3rd 2020

Parenting answering children’s questions with other questions are easily mocked. They are also The rugrat race highly effective. Jill Gilkerson is the chief researcher at lena, an organisation that measures children’s and adult’s speech using small digital recorders. By controlling for social class, she finds that 14% of the NEW YORK variance in adolescents’ iq scores can be Working-class families are coming to resemble middle-class families explained by the frequency of “conversa- in one crucial way tional turns” in their speech at 18-24 ike many children around the age of the past, and treat them differently. Gradu- months—a measure of their interactions Ltwo, Madison has decided not to do ally, they have adopted child-raising habits with adults. The effect of toddler talk on ad- what her mother wants. She will not speak normally associated with middle-class olescents’ verbal comprehension was above a whisper. She does not want to read parents. That largely unheralded change stronger: it explained 27% of the variance. “Big Red Barn”. She will not identify her col- has probably mitigated the harm done to Fortunately, the ideal of concerted cul- ours or her shapes, even though she knows poorer children by covid-19 and the school tivation seems to have spread. In 2018 Pat- them. So, for half an hour, her mother pa- closures it prompted. Unfortunately, some rick Ishizuka of Cornell University pre- tiently cajoles, persuades, distracts and re- damage has been done anyway. sented American parents with domestic directs. “You want me to read to you? What In 2003 Annette Lareau, a sociologist at vignettes and asked what they thought of kind of sound does the cow make? Are you the University of Pennsylvania, published them. In one vignette, a girl who complains going to sing? What’s this?” an astonishing book about child-raising. about being bored after school is told to go It would be a familiar scene in a pushy, “Unequal Childhoods” showed that work- outside and play with her friends; in anoth- upper-middle-class home. But this is a ing-class parents—whether they were er, the bored girl is pushed into music les- working-class black family in a poor dis- white or black, poor and welfare-depen- sons and sport. Mr Ishizuka found that trict of Long Island, east of New York City. dent or with steady jobs—thought and be- highly educated and thinly educated par- The careful cultivation of Madison reflects haved differently from middle-class ones. ents differed hardly at all in their responses a change in her household. Her mother, Most assumed that their children would to these scenarios. Almost all thought the Joy, says that she did little to prepare her develop naturally, and that their job was to pushy parent was better. two older children for school, assuming keep them happy and safe. Middle-class Poorer parents are putting in more time, that they would be taught everything they parents, by contrast, engaged in what Ms too. Sociologists Giulia Maria Dotti Sani needed to know. She is determined not to Lareau called “concerted cultivation”, stim- and Judith Treas have data for 11 Western make the same mistake again. ulating, stretching and scheduling their countries. In all but one (France) mothers Across the rich world, working-class progeny to within an inch of their lives. without university educations are spend- parents have reached the same conclusion. Middle-class child-raising habits such ing more time caring for their children They expect more of their children than in as endlessly pointing out new things and than in the past. The Centre for Time Use 1 The Economist October 3rd 2020 International 51

2 Research has found a concertina pattern in dren did less work on a popular maths web- Britain. In the mid-1970s highly educated A mother’s work is never done site in March and April, with the biggest de- and thinly educated mothers alike spent Britain, average time mothers spend on childcare cline in poor areas. The National little time interacting with their children. Minutes per day Foundation for Educational Research sur- Over the following decade the highly edu- veyed British teachers in May, two months Mother’s level of education cated changed their behaviour, opening a Above secondary Secondary or lower after the lockdown began. More than half large lead over everyone else. The less-edu- 180 reported that poor children were less en- cated then closed the gap (see chart). gaged with their homework than others. Tomás Cano, a sociologist at the Univer- But if the teachers were right about 120 sity of Frankfurt, suggests that child-rais- poorer children doing less work during ing norms are trickling down the social lockdown (and they might not have been— scale, much as liberal attitudes to divorce 60 few kept close tabs on their charges), it was did in the second half of the 20th century. probably not because parents lacked dedi- He has found that working-class Spanish 0 cation or ambition. A British survey of al- parents are putting in more time on “devel- 1974 83 2000 15 most 3,700 people, known as Understand- opmental” child-care activities (such as Source: ESRC Centre for Time Use Research ing Society, found that 30% of parents with reading and playing). Fathers in particular no more than gcse qualifications spent at began to do more following the financial least two hours a day helping with home crisis, which hit Spain especially hard. children directly, these programmes could schooling during the lockdown. That pro- They may have had more time for playing be changing their parents’ behaviour. A portion is a little higher than the 28% of because so many had lost their jobs. large evaluation of Head Start, America’s parents with degrees who said the same. All this attention may be helping chil- programme for poor children, found that The parents might be exaggerating. But an- dren at school. Two scholars, Sean Reardon enrolling three-year-olds raised the pro- other survey, of children, found the same and Ximena Portilla, have shown that in portion who were read to at home. pattern. As in Spain after the financial cri- America the gap between the test scores of Another possible explanation for the sis, they may have had more time because the most privileged and least privileged change is that the working class is differ- so many were furloughed or laid off. children upon entry to nursery closed ent. Sarah Walzer, the chief executive of slightly between 1998 and 2010. In Britain ParentChild+, says that her outfit encoun- Can you tell me all I need to know? all children in year one of school—aged five ters many more immigrant families than it A likelier explanation for the widening gap or six—are doing better in phonics tests used to. Immigrant parents are often ambi- is that schools asked less of poorer chil- than they were a decade ago. Those who are tious for their offspring, enduring hard- dren. Another study of Britain by two soci- entitled to free school meals because of ship and loneliness to give them better ologists, Sait Bayrakdar and Ayse Guveli, their parents’ poverty have advanced more. lives. Dina, the mother of a three-year-old confirmed that the children of less-educat- boy, moved to America from El Salvador. ed parents did less work during lockdown. All they wanna do is go the distance She does not have a job, and her husband Bangladeshi and Pakistani children (who Working-class parents might have changed works in a pizza parlour, making the family are mostly working class) did especially lit- their behaviour in response to market squarely working class. But Dina, who tle. But the researchers found that the sin- forces. In America the wage premium for went to college in El Salvador, has the aspi- gle biggest influence on how much work completing a college degree has risen from rations of a middle-class parent. children did was not how educated their 29% to 45% since 1979. Not surprisingly, Just as working-class children were parents were but how much work their poorer parents have become more ambi- catching up, covid-19 hit. School-age chil- schools assigned. tious for their children. The proportion of dren were sent home to households where Working-class parents have learned to parents in the poorest quintile of America’s parents were already juggling pre-school bring up their children in a more stimulat- population who expect their children to get children and their own work. This has been ing way. The next thing they need to learn no further than high school fell from 24% hardest on the poor. Academics at Harvard from the middle classes is how to nag their in 1998-99 to just 11% in 2010-11. University discovered that American chil- children’s teachers. 7 Another possibility is that training has changed attitudes and behaviour. Joy is being assisted by an organisation called Par- entChild+, which has been sending books and toys to poor families, and guiding parents to play in more stimulating ways, since the 1960s. It now caters to 8,500 households in America each year and is expanding elsewhere. Evaluations of Parent- Child+ and similar programmes have mostly shown that they work. They are too small to have much of an impact nationally. But they may have helped change norms by spreading the idea that reading and playing with children are important. Day care, which usually happens outside children’s homes, is common enough to make a difference. It is becoming more so as governments promote it. In the oecd the proportion of three-year-olds enrolled in pre-primary education rose from 62% in 2005 to 70% in 2014. As well as affecting

Business The Economist October 3rd 2020 53

Also in this section 54 The Epic-Apple slugfest 55 Shale sale 56 LVMH spurns Tiffany 56 Unsustainable standards 57 Bartleby: Office humour 58 Schumpeter: All the president’s moolah

Tata Sons in a beloved brand, now faces problems of its own, from inside its corporate structure Endangered species and from stiffer competition beyond it. Start with the structure. Because for much of its history capital was in short supply in India, Tata Sons holds only partial stakes in big affiliates. In the 1980s the parent company reportedly let executives The conglomerate that defined respectable Indian business is under increasing create an affiliate, Titan, to take on the state pressure—both from within and without wristwatch monopoly on the condition n the panicky initial days of India’s co- denied a room at one of Bombay’s existing that they could find funding themselves Ivid-19 lockdown, the country could establishments because he was an Indian, (which they did). During another scramble count on one venerable institution. Tata, a not a European. Today Indian Hotels, for money in the volatile 1920s the roots 152-year-old conglomerate, bought mil- which owns the Taj Mahal, is South Asia’s were planted for what has turned into the lions of dollars’ worth of medical supplies biggest chain. Less apocryphally, Tata Pow- group’s biggest headache of late. for clinics and hospitals. Its shut business- er and Tata Steel were founded to cope with The details are fuzzy. But a loan secured es did not lay off a single worker. A new India’s chronic electricity shortages and at the time has evolved into an equity stake subsidiary was conjured up to develop a the paucity of heavy industry. It is a similar held by the Shapoorji Pallonji Group—a one-hour coronavirus test using gene-edit- story for Tata Chemicals (from soda ash to name that, like Tata’s, resonates in India ing technology, which was approved last hybrid seeds), Tata Motors (cars and lor- Inc. sp Group, as it is known for short, built month. Each of these was a feat in its own ries) and Tata Consumer Products (tea to many of Mumbai’s landmark buildings, in- right. Collectively, they look remarkable. turmeric). Tata Consultancy Services (tcs), cluding the central railway station and the That is what Indians have come to ex- India’s leading information-technology old reserve (central) bank. Its controlling pect from Tata since its founding in 1868. firm, was born in 1968 to manage payroll Mistry family is, like the Tatas, drawn from The group’s holding company, Tata Sons, and inventory for Tata’s burgeoning port- old Bombay’s Parsi elite. Close ties between and the seven charities which today own folio of businesses. the clans (including by marriage) meant 66% of its shares, have been a pillar of In- The Tata name thus pervades all aspects that when a Tata wanted to offload a stake, dia’s philanthropy, donating $156m last fi- of Indian life. An outside appraisal cited by the Mistrys were seen as friendly buyers. nancial year, as well as its industry. The Tata Sons values the brand, for the use of Today sp Group holds 18.4% of Tata Sons. group thrived by helping India through its which the parent charges affiliates a royal- In 2012 Ratan Tata, the current patri- challenges, accruing businesses as it went. ty, at $20bn. That makes it Tata Sons’ sec- arch, stepped down as chairman of Tata Legend has it that Jamsetji Tata, the ond-most-valuable asset behind only its Sons. He installed Cyrus Mistry, who then group’s progenitor, who died in 1904, built $89bn stake in tcs. But the lattice of busi- headed sp Group, as his successor. Mr Tata the magnificent Taj Mahal hotel after being ness, do-goodery and trust, all wrapped up owed the Mistrys a debt of gratitude from 1 54 Business The Economist October 3rd 2020

2 early in his tenure, when Mistry money Collateral included the Mistrys’ shares in helped ward off hostile bidders for Tata Full faith and credit 2 Tata Sons. Tata Sons sued to block the tran- businesses as India opened up its economy Tata Sons companies, debt-to-equity ratio saction, arguing it was not permitted under in the 1990s, after the interventionist de- Q2 2020 or latest the shareholding agreements. India’s Su- cades of the Licence Raj. But he left behind 0 2.52.01.51.00.5 preme Court has suspended the deal until a a mixed legacy, having used readier access Tata Power hearing on October 28th. to capital in the roaring 2000s, when In- sp Tata Motors Tata’s options are unappealing. dia’s economy looked on course for China- Tata Steel Group has offered to take direct stakes in like growth, to bankroll a shopping spree. Trent subsidiaries in proportion to its overall In 2007 he bought Britain’s Corus Steel for holdings. But that would dilute Tata Sons’ Indian Hotels Company $12bn. A year later he paid $2.3bn for Jaguar stakes just as Mr Chandrasekaran is trying Tata Coffee Land Rover (jlr), an iconic British carmak- to consolidate control by increasing hold- Tata Chemicals er. He splurged millions on telecoms net- ings. For the same reason he is reluctant to Titan Company works, power generation and chic hotels, buy the sp stake outright with money from Tata Consumer Products including the Pierre in New York. a sale of assets—the price of which would Tata Consultancy Services Many deals proved to be duds. Tata Steel anyway be depressed by the downturn. Rallis India is losing money. jlr has struggled to carve Tata Sons’ 30-odd direct holdings, includ- Tata Elxsi out a niche in the premium car market. A ing a financial-services arm, a home-build- Voltas vast coal-fired power project in the state of er and a biotech firm, are worth perhaps Source: S&P Capital IQ Gujarat, begun in 2006 with government $6bn all told. But most are tricky to value at encouragement, has generated mostly the best of times—which these are not. And losses. All this has fuelled a bonfire of value sekaran, tcs’s able boss, to right the ship. Mr Chandrasekaran is understandably loth destruction. Since 2007 the market capital- Mr Chandrasekaran continued Mr Mistry’s to reduce its ownership of tcs, and the ac- isation of Tata Steel (into which Corus was clean-up, writing off investments in a tele- companying juicy dividend. folded) has gone from $14.5bn to $5.4bn; coms operation, cutting steel capacity, re- A third option is to raise fresh capital. Tata Motors has declined from $7.3bn to capitalising subsidiaries and selling some For all its problems, Tata’s portfolio of as- $5.7bn; Tata Power from $7.4bn to $2.3bn; loss-making assets, including a chain of sets may look attractive to a private-equity and Indian Hotels from $2.4 to $1.5bn. To- car dealerships. giant or a sovereign-wealth fund. But out- day nearly 90% of Tata Sons’ worth is tied That is not the end of it for Mr Chandra- side investors may demand things unbe- up in its lucrative stake in tcs, India’s sec- sekaran. Out of Tata Sons’ 15 big publicly coming of Tata Sons, like redundancies or ond-most-valuable company (see chart 1). listed affiliates, only five have returns on divestments. It may be the price for pre- In 2016 Mr Mistry was ousted as chair- capital of over 10%. The debts of four sub- serving an Indian icon. 7 man, apparently at the urging of Mr Tata, sidiaries, including Tata Motors and Tata who did not think he was doing a good job. Steel, exceed their equity—by more than The Mumbai rumour mill has it that the twice in the case of Tata Power (see chart 2). Epic v Apple two fell out because Mr Tata declined to Although Tata Sons holds minority stakes loosen his grip through the controlling in many divisions, markets and bankers Storing up trouble trusts. (Mr Tata’s views on this matter are appear to assume that it stands entirely be- not known.) Whoever is right, Tata Sons hind all its operating companies, in effect handed the top job to Natarajan Chandra- taking on full risk for partial reward. Even if Mr Chandrasekaran’s restructur- ing plan succeeds, another problem looms Firm consulting 1 in the form of increased competition. Let the courtroom battle commence Tata’s corporate structure makes it hard for Tata Consultancy Services Titan Company ittingly, the Tata Consumer Products Tata Motors its various arms to collaborate—by linking legal deathmatch is hap- Tata Steel Other its hotels, airlines (Tata Sons holds stakes Fpening online. On September 28th a in two) and a coffee-shop joint-venture court in California heard arguments, via Public companies with investments by Tata Sons with Starbucks, say. That could increase ef- video call, in a case that pits Apple against Market capitalisation, $bn ficiency and help fend off global rivals that Epic Games, the maker of “Fortnite”, a hit 175 offer appealing products. The alternative to video game. At issue is whether the tight 150 the Taj Mahal is no longer some fusty control Apple exerts over the software that Mumbai lodge but the Four Seasons. Tata can run on its smartphones amounts to a 125 Motors must take on not just the rickety monopolistic abuse of power. The verdict, 100 Hindustan Ambassador but bmw. when it comes, may determine what other 75 In more ordinary times, Tata could tap a digital marketplaces can and cannot do. reservoir of goodwill, plus returns from Apple’s software practices have seen 50 tcs, to tackle these challenges patiently. challenges before (see table on next page). 25 But India’s growing financial strains, exac- But Epic’s is the most brazen. In August 0 erbated by covid-19, have opened up fis- Epic offered “Fortnite” players 20% off in- 20*1816141210082006 sures. sp Group, whose real-estate invest- game purchases on iPhones if they paid ments have been particularly hard-hit, is Epic directly, not via Apple’s App Store, Tata Sons, public holdings struggling to roll over debts. A default on which takes a 30% cut on most transac- September 25th 2020, $bn its obligations to a small listed subsidiary, tions made in apps. This violated App Store Sterling and Wilson Solar, raised concerns terms; “Fortnite” was booted from the plat- 120100806040200 about sp Group’s overall debt, estimated at form. Expecting this, Epic responded with $4.1bn. In response to the cash crunch it the lawsuit (and a cheeky pr campaign). reached an agreement with Brookfield, a The hearing concerned the narrow Source: S&P Capital IQ *To September 25th Canadian private-equity firm, for capital. question of whether Epic could force Apple 1 The Economist October 3rd 2020 Business 55

committee in America’s Congress that ex- Harvesting the walled garden amines antitrust issues, described Apple’s fees as “highway robbery” and lamented the lack of “real competition” on iPhones. Apple, services segment Selected actions While it battles Epic in the courts, Apple Revenues, $bn As % of total revenues 2005 RealNetworks antitrust lawsuit against iTunes may tweak its rules to placate some devel- 50 25 2012 US Department of Justice brings an antitrust case over opers. It has done so on occasion in the 40 20 e-book prices. Apple found guilty in 2013 past, for instance exempting Amazon from 2019 Apple v Pepper: similar issues to Epic Games case. the 30% commission on in-app purchases 30 15 US Supreme Court says plaintiffs have standing to sue for the e-commerce giant’s Prime Video 20 10 Spotify files EU complaint streaming app. On September 25th, follow- Group of app developers sues Apple on similar grounds ing criticism from Facebook, Apple an- 10 5 to Epic, represented by same law firm that won the nounced a temporary waiver on the 30% 2012 e-book case 0 0 fee on in-app purchases for companies that 2020 EU opens antitrust investigation had been forced by the covid-19 pandemic 20*1816142012 to switch to online-only events. Financial years ending September “Fortnite” booted from App Store. Epic launches lawsuit Such concessions may be as far as Apple Sources: Bloomberg; The Economist *October-June will go, at least willingly. When Steve Jobs launched the App Store in 2008, he didn’t 2 to return “Fortnite” to the App Store while odds that the losing party will appeal, the think it would ever make much money. He the case proceeds. But it offered a preview dispute may end up in the Supreme Court. was wrong. Although the company does of both sides’ arguments. Epic contends In the meantime, Apple is facing other not break out the platform’s financial re- that Apple’s “walled garden”—in which pressures. Epic is being cheered on by fel- sults, it probably makes up the bulk of its iPhone software can be downloaded only low members of the “Coalition for App services business, which accounts for via the App Store—stifles competition. In Fairness”, like Spotify, a music-streamer, nearly 20% of revenues—and rising (see 2018 Epic launched a pc games store, charg- and Match Group, owner of Tinder and oth- chart), as iPhone sales slow. Seeing what a ing a 12% commission. Steam, the domi- er dating apps. In June, at Spotify’s urging, promising profit engine it has turned into, nant store, then dropped its cut from 30% the eu opened an antitrust probe into the Apple’s late boss would doubtless have to 20% for top-selling games. Tim Swee- App Store, and David Cicilline, who chairs a fought tooth and nail to hang on to it. 7 ney, Epic’s feisty boss, argues that Apple prevents something similar on iPhones. Fracking Apple retorts that those who dislike its rules have plenty of alternatives. “Fortnite” is available on desktop pcs, games consoles Shelling out on shale’s sale and smartphones that run on Android, a rival operating system made by Google. In a NEW YORK Will consolidation come at last to the basins? statement, Apple accused Epic of forcing its hand and “putting customers in the o call 2020 tough for shalemen is to ley, a bank. So all eyes are on Devon middle of their fight”. It has countersued Tcall a monsoon a mist. Covid-19 has Energy’s $2.6bn offer to buy wpx Energy, Epic for breaching its App Store contract. halved the value of fracking firms this a smaller rival, announced this week. Mark Patterson of Fordham University year. Rig counts are down (see chart). A The merged entity will have 400,000 sees parallels with Microsoft’s run-in with perfect time for consolidation, then. Yet acres in the Delaware basin and, it is trustbusters in 2001. The software giant’s besides Chevron’s $5bn bid for Noble hoped, $575m in annual savings. Andrew bundling of a web browser with its Win- Energy in July, deals have been sparse. Dittmar of Enverus, an analytics firm, dows operating system was eventually Buyers fret that investors will punish says Devon will rely less on wells on found to be anticompetitive. Apple exerts them for overpaying. Targets fear selling federal land, where Joe Biden wants to more power over iPhones than Microsoft amid sinking oil prices. Many bosses’ curb drilling if he becomes president. did over Windows pcs, Mr Patterson says. yearly pay exceeds rewards from a sale, Devon’s share price jumped by 11% on the But its market share in smartphones is notes Devin McDermott of Morgan Stan- news. Fellow frackers will take note. smaller than Microsoft’s was in desktops. The Epic case may hinge on how the court defines the relevant market. In Ap- The Permian implosion ple’s eyes the App Store is part of a broader United States, active oil rigs, 2020 Landholdings in the Permian basin universe of digital platforms in which it By company, March 2020 900 UNITED STATES can reasonably claim not to be a monopo- Devon Energy list. Epic takes a narrower view, arguing 750 WPX Energy that iPhones are a market unto themselves. Chevron US total Most lawyers think Apple had the better 600 Apache New Mexico of the initial exchanges. The judge seemed EOG unconvinced by Apple’s attempts to stop 450 ExxonMobil Occidental Epic from updating the iPhone version of 300 the software behind “Fortnite”, which is li- Shell censed to other gamesmakers. But she re- 150 Delaware basin served her strongest words for Epic, which Midland basin she admonished for inviting trouble. 0 Delaware Texas Permian basin The case looks likely to go to a jury trial Jan Feb Mar Apr May JulJun Aug Sep basin MEXICO 100 km next year. With no clear precedent, big Source: Enverus ramifications for the tech industry and the 56 Business The Economist October 3rd 2020

Measuring sustainability In the soup

Time to pare the long, confusing list of esg accounting standards owhere is corporate do-goodery Nmore on show than in a firm’s sustainability report. Today 58% of companies in America’s s&p 500 index publish one, up from 37% in 2011, according to Datamaran, a software provider. Among the photos of blooming flowers and smiling children, firms sneak in environmental, social and governance (esg) data, such as their carbon footprint or the share of women on boards. A luxury tiff But the information differs wildly from firm to firm. Letting go lightly The Reporting Exchange, a website that helps corporations disclose sustainability data, tracks various esg-related guidelines, such as regulations and standards. Across the world the number grew from around 700 in 2009 to more than 1,700 in 2019. That PARIS includes more than 360 different esg ac- The love affair between Tiffany and lvmh may yet be consummated counting standards. he most ardent romances result in the longer worth buying. It called Tiffany’s per- Some observers, then, may have rolled Tmost acrimonious divorces. In the case formance since covid-19 broke out “cata- their eyes on September 22nd when the of Tiffany and lvmh, rancour preceded the strophic”. This, lvmh claimed, had left the World Economic Forum (wef) an- nuptials. In the amorous phase the French jeweller with “dismal” prospects. The pan- nounced—with the backing of the big four luxury giant behind Louis Vuitton had de- demic, it added, amounted to a “material accounting firms, Deloitte, ey, kpmg and scribed the American purveyor of engage- adverse effect” that gave the putative buyer pwc—a new set of esg metrics for firms to ment rings as a corporate jewel, agreeing to grounds for termination. report. Those involved are at pains to stress a $17bn takeover ten months ago. It used an Tiffany is having none of it. It respond- that this is not yet another new standard, altogether less romantic tone in a Delaware ed that lvmh was still legally committed to but instead a collection of useful measures court filing this week as it tried to break the walk down the corporate aisle. Though picked from other standards. The inten- match. Investors, meanwhile, are betting covid-19 has indeed dented profits, things tion, they claim, is to simplify esg report- on a happy ending. are already perking up, Tiffany says, what- ing, not to add to the confusion. Rumours had swirled since the start of ever its erstwhile admirer may claim. lvmh Simplification is sorely needed. Inves- the covid-19 pandemic in March that Ber- was dragging its feet before the foreign tors complain that the proliferation of nard Arnault, boss of lvmh, wanted to re- ministry’s intervention, for example by de- standards hinders comparability. Environ- negotiate the punchy price tag agreed on in laying notifying antitrust authorities. mental activists note that it lets companies November. On September 9th lvmh an- Delaware courts usually take a dim view cherry-pick flattering results. And cor- nounced it could not go ahead with the of buyer’s remorse. Only once before have porate bosses moan that they do not know deal, for an unexpected reason: a letter they agreed to a deal being broken off on what to disclose and that the array of op- from the French minister of foreign affairs, grounds of material adverse effect. That tions is confusing. Many want an esg Jean-Yves Le Drian, had asked it to defer the might explain Tiffany’s buoyant share equivalent to the Generally Accepted Ac- planned takeover of its American target to price. At around $116, it is well down on the counting Principles used in financial re- January 2021, beyond the agreed closing $135 lvmh agreed to pay, but comfortably porting. But these took years to agree on. date. The delay would apparently give above the $90 at which it traded before Mr Today, says the boss of a big pension fund France more cards in a festering trans- Arnault came along. with a large esg portfolio, “there is greater atlantic trade spat. The premium suggests Tiffany remains urgency” to coalesce around a set of com- Tiffany accused lvmh of engineering a takeover target. Indeed, the most likely mon standards. Even so, this is expected to the supposed block from the foreign min- suitor is still thought to be lvmh. Most in- take at least five to ten years, slowed by istry—which soon insisted its letter was vestors think the two sides will kiss and competing interests and disagreements merely a polite recommendation, not an make up before a trial planned in January, about what to measure. order. lvmh vehemently denied asking the perhaps arriving at a slightly lower price. Four standards dominate esg’s alphabet authorities to intervene. Unhelpfully, on There are few obvious rival buyers for the soup. The Global Reporting Initiative (gri) September 22nd Mr Le Drian told the jeweller, whose brand could use some of focuses on metrics that show the impact of French parliament he had indeed stepped Mr Arnault’s marketing nous. The luxury firms on society and the planet. By con- in only after lvmh had come to him. tycoon still craves legendary marques to trast, the Sustainability Accounting Stan- The American jeweller has thus sued add to the lvmh harem. Once the lawyers dards Board (sasb) includes only esg fac- lvmh to pony up. On September 28th lvmh exhaust themselves, expect love—not least tors that have a material effect on a firm’s countersued, saying that Tiffany was no of profits—to find a way. 7 performance. The Task Force on Climate-1 The Economist October 3rd 2020 Business 57

2 related Financial Disclosures (tcfd) and from one in 20 two years ago. tcfd has ex- coexist with the other. the Carbon Disclosure Project (cdp) are perienced a similar uptick. It is backed by How long such coexistence can last is chiefly concerned with climate change— the Financial Stability Board, a global unclear. As well as the wef, other global bo- specifically companies’ exposure to its group of regulators. Both sasb and tcfd dies are taking an interest. The Interna- physical effects and to potential regula- have risen partly thanks to support from tional Financial Reporting Standards tions to curb carbon emissions. large asset managers, including BlackRock Foundation, a global financial-accounting gri is the most popular of these, in part and State Street. standard-setter, is considering its own esg because it is the oldest, founded in 1997. It Further simplification may be afoot. In standard. Moreover, the eu is planning has been embraced by perhaps 6,000 firms September five big standard-setters an- rules that will force big companies to dis- worldwide. According to Datamaran, 40% nounced that they would try to co-operate close more esg information; it is still of s&p 500 companies cite gri in their sus- more and harmonise some measures. But thinking about which measures to use. If tainability reports. But sasb is gaining few observers expect the end result to be a the esg standard-setters cannot decide ground in America. One in four members single standard. Among the five are sasb which metrics matter most, others may de- of the s&p 500 makes reference to it, up and gri, each of which claims that it could cide for them. 7 Bartleby Why we need to laugh at work

The place that launched a thousand quips hen bartleby reflects on life’s as a disrespectful put-down. A better was known as “Quack” because his sur- Wlessons, he always remembers his source of humour are the shared gripes name was the French word for duck. grandfather’s last words: “A truck!” Bar- that most workers face. Everyone can A downside of remote working is that tleby’s uncle also suffered an early de- appreciate a quip about the cramped com- moments of shared humour are harder to mise, falling into a vat of polish at the muter trains, the officious security guard, create. Many a long meeting at The Econo- furniture factory. It was a terrible end but the sluggish lifts or the dodgy canteen mist has been enlivened by a subversive a lovely finish. food. In that sense, workers can feel they quip from a participant. These jokes only Whether you find such stories amus- are all (bar the security guard) “in it togeth- work when they are spontaneous and ing will depend on taste and whether you er”. This helps create team spirit and re- well-timed. Trying to make a joke during have heard them before. But a sense of lieve stress. a Zoom conference call is virtually im- humour is, by and large, a useful thing to Both soldiers and schoolchildren tend possible; by the time one has found the have in life. A study of undergraduates to create “in jokes” as a way of subtly sub- “raise hand” button and been recognised found that those with a strong sense of verting the hierarchy of their organisa- by the host, the moment has inevitably humour experienced less stress and tions. In the first world war, British sol- passed. This is a shame, as most of us anxiety than those without it. diers published a newspaper called the could do with a laugh now and again to Humour can be a particular source of Wipers Times. A typical poem began: “Real- get through the pandemic. comfort at work, where sometimes it can ising men must laugh/Some wise man Work is a serious matter but it cannot be the only healthy reaction to setbacks devised the staff.” Troops in the trenches be taken seriously all the time. Some- or irrational commands from the boss. dubbed themselves the pbi (poor bloody times things happen at work that are Classic examples can be found in both infantry). The tv comedies “Sergeant inherently ridiculous. Perhaps the tech- the British and American versions of the Bilko” and “Blackadder Goes Forth” both nology breaks down just as the boss is in tv sitcom “The Office”, where workers relied on wily soldiers finding ways of mid-oration, or a customer makes an have to deal with eccentric, egotistical subverting the orders of their clueless, or absurd request. (Remember the probably managers, played respectively by Ricky callous, commanding officers. Schoolchil- apocryphal story of a person who rang Gervais and Steve Carell. The comedy dren, for their part, give their teachers the equipment manufacturer and asked stems, in part, from the way that the nicknames which are only used out of them to fax through some more paper office hierarchy requires the employees earshot; at Bartleby’s school, Mr Canard when the machine ran out?) to put up with the appalling behaviour of There is also something deeply silly the manager. about management jargon. Most people And those programmes also illustrate will have sat through presentations by the double-edged nature of workplace executives who insist on calling a spade a humour. When the bosses try to make a “manual horticultural implement”. Too joke, they are often crass and insensitive, many managers use long words to dis- making the situation excruciating for guise the fact they have no coherent everyone else (these are shows best message to impart. Such language is ripe watched through the fingers). The for satire or at the very least a collective healthiest kind of workplace humour game of “buzzword bingo”. stems from the bottom up, not from the But satire should not just be applied top down. Often the most popular em- to other people. Perhaps the most impor- ployees at work are those who can light- tant thing is not to take one’s own work en the mood with a joke or two. too seriously. As the late, great gag-writer Of course, humour can be used, even and comic Bob Monkhouse recalled at by non-managers, in a cruel or conde- the height of his career, “They laughed scending way. What one man may mean when I said I wanted to be a comedian. as a laddish joke comes across to women Well, they’re not laughing now.” 58 Business The Economist October 3rd 2020 Schumpeter All the president’s moolah

How good a businessman is Donald Trump? To get the measure of the business, it helps to consider the Trump Organisation, Mr Trump’s main vehicle, as a relatively modest, America-centric enterprise. Its bedrock is property. Its biggest assets are two buildings in New York and San Francisco in which Mr Trump owns a minority stake, and his two Manhattan stalwarts, 40 Wall Street and Trump Tower. The Times says that these four have produced big profits—until the pandemic, that is. But if Mr Trump, like other property barons, uses the wear and tear on his buildings, known as depreciation, to generate tax deduc- tions, it is possible that they have done even better than the tax records make out. Then there is “The Apprentice”. According to the tax records, his appearance on the show generated $200m, which is a spectacular result. He also reported $230m of additional income from the licensing and endorsement deals that came out of it, on everything from Trump-branded hotels to Oreo cookies. Beyond that are some puny international branding endeavours on buildings in other countries, some of which are white elephants. The tax records in- dicate that his biggest losses have come from golf courses, into which he has poured money over the past decade. The Times says some of the biggest ones, including two in Scotland and one in Ire- land, are loss-making even before depreciation. he apprentice makes me $3m a day. Ker-ching. That’s the How solid the Trump business remains depends on four factors “Tmusic it makes. It sure beats bricks and mortar, hey?” So a about which the full picture is still unclear. The first is debt. The British businessman, imitating Donald Trump’s distinctive drawl, Times reports that he has $300m in loans coming due in the next recalls a conversation the two men had by telephone years before few years for which he is personally liable. It is not known whether Mr Trump became president. It was a high point of their relation- he mortgaged these borrowings against solid assets. If he did, they ship that the Brit still savours. are probably manageable. If not, the debt could become conta- Broadly speaking, Mr Trump was right. As the New York Times gious—but it doesn’t have to. Banks will nevertheless be jumpy. In reported on September 27th, after trawling through almost two de- a compliance-obsessed era, few are keen to engage with politi- cades of his long-concealed tax records, the president’s 50% stake cians of any stripe—particularly one with Mr Trump’s profile. in the reality-tv show, which helped craft his image as a successful There may be other liabilities. Mr Trump is the subject of an ongo- tycoon and catapult him to the White House, was the shrewdest ing federal tax audit for a $73m refund he claimed a decade ago— business move of his career. and which he may need to return. Of immediate concern is co- Yet the self-styled property Midas almost blew the windfall on vid-19. Many of his commercial tenants will be reeling from the bricks and mortar. Before becoming president Mr Trump spent pandemic. Hotels are suffering from low occupancy; high-density much of his money on golf courses, hotels and other trophy assets office buildings in New York could fall in value because of remote that the Times says have since racked up huge tax losses. Thanks to working; footfall has fallen among luxury retailers who occupy his that red ink, it said he paid a mere $750 in federal income taxes in buildings at street level. both 2016, the year he was elected, and his first year in office—and not a cent in ten of the previous 15 years. In the 18th hole? In the presidential debate on September 29th Mr Trump disput- Ultimately, the future will depend on the durability and value of ed the account, saying he had paid “millions” in income taxes. A the Trump brand. “The Apprentice” showed how lucrative it could lawyer for the Trump Organisation told the Times that “most, if not be. But whether he could get a similar television deal in America all, of the facts appear to be inaccurate” but only directly ques- whenever he leaves power may depend on his popularity at the tioned the amount of tax the president reportedly paid. In the past end, and the manner in which he leaves the White House. He could Mr Trump might have shrugged it all off. In 2016 he said minimis- look for tv opportunities abroad, where his recognition is far ing his taxes “makes me smart”. But even if the revelations hurt higher now than it ever was during “The Apprentice”. There are him politically, many businesspeople will see them in a kinder plenty of international media moguls who would be keen to profit light. For them, the most intriguing question is not whether Mr from another chapter in the Trump soap opera. Or he may simply Trump is a boy scout but whether he is a good businessman. retire, handing over the keys of the kingdom to his children to It is a hard question to answer. Mr Trump has never released his manage or to liquidate. tax returns, and his businesses are privately held. The financial That is unlikely. The best time to do so would have been before disclosures he made as president last year covered more than 100 taking office. In a new book about the president’s business inter- business entities, ranging from skyscrapers to books. He can in- ests, “White House, Inc”, Dan Alexander, a journalist at Forbes mag- flate assessments of his own wealth by billions of dollars just in azine, calculates that had Mr Trump done so back then and invest- the course of a conversation. The Times scoop provides another ed the proceeds in the s&p 500 stockmarket index, by March of this important piece of the jigsaw puzzle. But because it refers to tax ac- year he would have been richer by $415m—twice what he earned on counts, it probably represents what Mr Trump wants the taxman to “The Apprentice”. To a businessman that must rankle, whether he believe, rather than the full reality. is an astute one or not. 7 Finance & economics The Economist October 3rd 2020 59

Also in this section 60 Evergrande’s mighty woes 61 Faster digital payments 61 “Spooﬁng” at JPMorgan Chase 62 Germany’s east-west divide 62 Foreign investors in India 63 Buttonwood: The endowment model 64 Free exchange: Banning gas-guzzlers

Global housing markets the beginning of the year. Studies suggest a strong link between falling real interest The three pillars rates and higher house prices. Some borrowers can afford to take out bigger mortgages; others find it easier to manage their existing loans. Landlords are willing to pay more for property, because yields on other assets have dropped. In both America and Britain, mortgage lending is running at Why, despite the coronavirus pandemic, house prices continue to rise post-financial-crisis highs. uring the global recession a decade nancial crisis of 2007-09. Three factors ex- That is not to say that it has become eas- Dago, real house prices fell by an average plain this strength: monetary policy, fiscal ier for everyone to borrow. In fact, obtain- of 10%, wiping trillions of dollars off the policy and buyers’ changing preferences. ing a mortgage has become harder for world’s largest asset class. Though the Consider monetary policy first. Central many. Brokers, fearful of the long-term housing market has not been the trigger of bankers around the world have cut policy economic impact of covid-19, have pulled economic woes this time, investors and rates by two percentage points on average back on riskier lending. British banks, for homeowners still braced for the worst as it this year, reducing the cost of mortgage instance, are offering fewer high-loan-to- became clear that covid-19 would push the borrowing. Americans can take out a 30- income mortgages. In America few loan of- world economy into its deepest downturn year fixed-rate mortgage at an annual in- ficers at banks said they were tightening since the Depression of the 1930s. terest rate of just 2.9%, down from 3.7% at lending standards before the pandemic; 1 That pessimism now looks misplaced. House prices picked up in most middle- and high-income countries in the second A plague, but not on houses 1 quarter. In the rich world they rose at an annual rate of 5% (see chart 1). Share prices of G7 countries*, house prices Share-price index of global listed residential firms† developers and property-traders fell by a % change on a year earlier January 15th 2006=100, $ terms quarter in the early phase of the pandemic, 10 250 but have recovered much of the fall. Some markets are fizzing. In August 5 200 house prices in Germany were 11% higher 0 150 than the year before; rapid growth in South Korea and parts of China has prompted the -5 100 authorities to tighten restrictions on buyers. In America growth in the median price -10 50 per square foot accelerated more quickly in 201816141210082006 201816141210082006 the second quarter of 2020 than in any Sources: Knight Frank Research; ONS; World Bank; *GDP-weighted average, no data for Japan before Q2 2009 three-month period in the lead-up to the fi- EPRA; FTSE; Nareit; UBS; The Economist †Firms that build, own or trade residential properties 60 Finance & economics The Economist October 3rd 2020

2 now 60% do. In contrast with previous pe- investors 130bn yuan ($19bn) if its subsid- riods of strong house-price growth, there is Up the garden path? 2 iary failed to list on the Shenzhen stock ex- little evidence of lax lending standards. United States, house-value index, 2020 change, where it would obtain a higher val- Fiscal policy, the second factor, may % increase on a year earlier uation than it currently has in Hong Kong, therefore be more important in explaining 4.5 before the end of January. Evergrande has Urban buoyant prices. In a normal recession, as said that the letter, seen by reporters for people lose jobs and their incomes fall, 4.0 Bloomberg and Reuters, is a fabrication. foreclosures drag house prices down—not Suburban The part of the letter that attracted most only by adding to the supply of houses on 3.5 attention was its prediction that Ever- the market, but also by leaving ex-home- grande’s failure would lead to “systemic fi- Rural owners with a blemish on their credit his- 3.0 nancial risks”. Has it truly achieved too- tory, making it harder for them to borrow big-to-fail status? The letter, whether au- again. But this time governments in rich 2.5 thentic or not, made a straightforward countries have preserved households’ in- case. First, if Evergrande were to collapse, comes. Handouts through wage subsidies, Jan Feb Mar Apr May Jun the impact on the economy would be se- furlough schemes and expanded welfare Source: Zillow vere. The letter estimated that the devel- benefits amount to 5% of gdp. In the sec- oper, with projects in 229 cities, generates ond quarter of the year households’ dispos- more than 3m jobs. Second, the financial able incomes in the g7 group of large econ- ends. But lower demand for housing may fallout would be far-reaching. Evergrande omies were about $100bn higher than they run up against lower supply. High levels of reportedly owes money to 171 domestic were before the pandemic, even as jobs dis- economic uncertainty deter investment: in banks and 121 other financial firms, on top appeared by the millions. America housebuilding has fallen by 17% of all of its bondholders. The letter seemed Other measures directly support the since covid-19 struck. The experience of the calculated to elicit a helping hand from a housing market. Spain, for instance, has al- last recession suggests that even when the government that prizes stability, both so- lowed borrowers to suspend their mort- economy recovers, construction lags be- cial and financial. gage repayments. Japan’s regulators have hind. It may take more than the deepest The Chinese government regularly res- asked banks to defer principal repayments downturn since the Depression to shake cues ailing firms, especially its state- on mortgages, and the Netherlands tempo- the housing market’s foundations. 7 owned enterprises. But for a private-sector rarily banned foreclosures. In the second company, any bail-out is likely to involve at quarter the number of owner-occupied least partial nationalisation. Evergrande mortgaged properties that were repos- Evergrande may have thought it had one factor in its fa- sessed in Britain was 93% lower than in the vour: it was not asking for money, just ap- same period in 2019, the result of policies Not forever grand proval for a stock listing. that dissuade repossessions. In America Yet a listing is not simple—as Ever- foreclosures, as a share of all mortgages, grande knows, having sought approval for are at their lowest level since 1984. its Shenzhen share sale since 2016. And it The third factor behind the unlikely glo- has only become tougher in recent weeks. bal housing boom relates to changing con- SHANGHAI The central bank and the housing ministry Is China’s biggest property developer sumer preferences. In 2019 households in introduced a new policy to restrict funding truly too big to fail? the median oecd country devoted 19% of for developers, measuring them against spending to housing costs. With a fifth of arly in september Evergrande, Chi- three “red lines” for indebtedness, such as office workers continuing to work from Ena’s biggest home-builder, announced too heavy a reliance on short-term funding. home, many potential buyers may want to the kind of sale more commonly seen in Evergrande is one of a handful of develop- spend more on a nicer place to live. Already clothing stores: “30% off all properties, one ers that cross all three. there is evidence that people are upgrading month only!” Some debated whether it was The government is, in other words, try- their household appliances. a gimmick or a genuine discount. But its ing to limit, not facilitate, the growth of in- People also seem to be looking for more motivation was clear. Deep in debt, Ever- debted companies. Authorities have rea- space—which, all else being equal, raises grande needed cash—and quickly. Events son to think that Evergrande’s woes will house prices. Though the New York and since then have highlighted the urgency, have less systemic fallout than those of a San Francisco housing markets look weak, and also raised the question of whether its big overleveraged bank. Evergrande is there is little wider evidence to support the struggles threaten the wider economy. huge, but its debt nonetheless amounts to idea that people are fleeing cities for the Evergrande, after all, has more debt— just 0.5% of total Chinese bank loans. And suburbs, at least in America. Data from Zil- nearly $120bn—than any other non-finan- it is developing land worth about $170bn, low, a housing marketplace, suggest urban cial listed company in China. Having built 50% more than its debts, according to s&p and suburban property prices are rising at as many as 600,000 homes annually, it has Capital iq, a data provider. It could, in the- roughly the same pace; price growth in the amassed a debt load 56 times bigger than a ory, be wound down. truly get-away-from-it-all areas is actually decade ago. And it has strayed far from its In practice, though, it would still be slowing (see chart 2). It seems more likely core business, founding a colossal football messy. Far better to rein it in before it fails. that people are looking for bigger houses academy, a bottled-water brand (which it That, for the moment, seems to be the fo- near where they already live. In Britain later sold) and an electric-car company. cus. Evergrande has reached an agreement prices of detached houses are rising at an On September 24th a letter spread on- with most of its investors who expected the annual rate of 4%, compared with 0.9% for line suggesting that its giant edifice was Shenzhen listing, securing itself more flats, and the market for homes with gar- shaky. Written on Evergrande stationery, it time. It is likely to raise money by spinning dens is livelier than for those without. warned of a cash crunch and appealed to off its property-management arm. And Can house prices continue their upward the government of Guangdong, its home most crucially, the September sale has march? Governments are slowly winding province, to push through approval of a brought an influx of homebuyers to its down their economic-rescue plans, and no backdoor-listing plan. According to a pre- showrooms. For a change, China’s biggest one knows what will happen once support vious agreement, Evergrande would owe builder has to build down, not up. 7 The Economist October 3rd 2020 Finance & economics 61

Digital payments when it bought Vocalink, a software firm Investment banking that built and now runs Britain’s fast ach, If you can’t and also powers those in other countries. Spoof proof For its part, Visa has set up its own alterna- bill them tive to fast ach, called Visa Direct, and offers services, such as security tools, to help strengthen countries’ payment networks. For now national payment systems re- NEW YORK How the credit-card duopoly is JPMorgan Chase coughs up $920m to main just that—national. Though built crashing the faster-payments party settle market-rigging charges along similar principles, most cannot work he greatest accolade a payment sys- together (European systems are the excep- any of the big market-manipulation Ttem can aspire to is to be forgotten tion). That leaves space for others. Some Mscandals over the past decade have about. “People don’t want to make pay- specialist firms have built their own set of much in common: huge fines for the in- ments,” says Diana Layfield, an executive rails that help banks in one country con- vestment banks, criminal charges for the on Google’s payments team. “They want to nect to local payment networks in another. traders and an embarrassing paper trail re- do what a payment facilitates.” The indus- swift, which has long been criticised for vealing precisely what bank employees got try’s biggest battles therefore often happen its slow speed and high cost, is upping its up to. Interest-rate traders who manipulat- in the shadows. The latest struggle, which game. On September 17th it unveiled a ed the London Interbank Offered Rate sees card networks, tech firms and govern- strategy to “facilitate instant, seamless, se- (libor) messaged each other with pleas to ments vie to control the virtual pipes along cure payments” using cloud technology. put their fixes in low. Foreign-exchange which digital money flows, is no excep- That would be like leaping from the costly traders infamously called a chat room in tion. Recent manoeuvres by governments, and cumbersome process of sending a par- which they discussed rigging exchange card networks and even swift, the main cel abroad to the convenience of email. rates “the cartel”. interbank messaging service for cross-bor- swift’s plans could fast gain traction; The case against JPMorgan Chase for der payments, show how the battle lines the co-operative has more than 11,000 manipulating precious-metals and Trea- are shifting. members, most of which are banks. But the sury markets has many of the usual fea- An electronic-payment system used to card networks see an opening here too. Last tures. On September 29th it admitted to resemble a postal service for money. Many year both Mastercard and Visa acquired wrongdoing in relation to the actions of countries have a low-cost, national pay- firms that process bank-to-bank transfers employees who, authorities claim, fraudu- ment network, mandated by the govern- by connecting directly into local clearing lently rigged markets tens of thousands of ment, that transfers funds between banks. systems. Plastic is becoming less of a main- times in 2008-16. The bank agreed to pay Like post, the money could take days to ar- stay: this week Mastercard called itself a $920m to settle various probes by regula- rive; tracking it was tricky. So automated “global multi-rail payments technology tors and law enforcement; this includes a clearing-houses (ach), as the national sys- company”. Paul Stoddart, who is in charge $436.4m fine, $311.7m in restitution to par- tems are known, were mostly used to dis- of new payment platforms at the firm, de- ties harmed by the practices and $172m in burse recurring payments, such as payrolls scribes its forays as a way of offering cus- disgorgement (ie, paying back unlawfully or benefits, which do not need immediate tomers choice. With both card and fast ach earned profits). Some of the traders in- authorisation. For one-off transactions, payments growing at double-digit rates in volved face criminal charges. If convicted, like shopping, people used private card recent years, the boom in digital payments they are likely to spend time in jail. networks, which allow for instant checks should mean there are plenty of gains to go The traders are alleged to have used via technology embedded in terminals. around. Just in case, though, the card net- “spoofing”, a ruse where a marketmaker As the digital economy has boomed, works are betting on every horse. 7 seeking to buy or sell an asset, like gold or a however, many governments have upgrad- bond, places a series of phoney orders on ed the pipes so they can clear and settle on- the opposite side of the market in order to line transactions in seconds. Today 55 confuse other market participants and countries, from Canada to Singapore, have move the price in his favour. A trader trying “real-time” bank-to-bank payment sys- to sell gold, for instance, might place a se- tems. Half a dozen more are close to ries of buy orders, creating the illusion of launching theirs. In addition to money, demand. This dupes others into pushing “fast ach” also allows a lot of data to travel, prices higher, permitting the trader to sell so senders and recipients can keep tabs on at an elevated price. Once accomplished, the whole process, potentially preventing the trader cancels his fake orders. fraud. Central banks think they are reliable The practice was explicitly outlawed in and more resilient. Tech firms, like Google, America in 2010, but the rise of algorithmic have built their own payments apps on top traders—which rapidly analyse order of such “rails”. And users enjoy moving and books to work out where prices might tracking money seamlessly. move next—has made it more tempting for Credit-card firms, though, sense a human traders to spoof them. According to threat. So Mastercard and Visa, which to- prosecutors one JPMorgan trader described gether handle 90% of global card payments the tactic as “a little razzle-dazzle to juke outside China, have found a clever re- the algos”. In the past two years Deutsche sponse: to get in on the action. On Septem- Bank, hsbc, Merrill Lynch and ubs have all ber 29th Mastercard said it would collabo- paid penalties on spoofing charges. rate with aci Worldwide, which makes Though JPMorgan’s case shares similar- software for real-time payments systems, ities with past infringements, regulators to provide such services globally. That con- and prosecutors have also become tougher. tinues an attempt to shift away from plastic The penalty meted out to the bank is the that Mastercard embarked upon in 2016, largest ever for spoofing. The Department1 62 Finance & economics The Economist October 3rd 2020

2 of Justice (doj) said that when it considered Attitudes have also changed over time, the appropriate punishment it took into After the wall 1 though. Strikingly, women born after 1975 account the fact that JPMorgan had pleaded Germany, working mothers*, % in both the east and west are more likely to guilty to manipulating foreign-exchange By employment status disapprove of mothers in full-time work markets in 2015, suggesting that repeated than older ones, putting paid to the idea offences would be punished more severely. Full-time Part-time that younger women are keener on work. The penalties for the traders alleged to 50 50 Perhaps women’s views are shaped by the have run spoofing schemes are also likely policies they face. Katharina Wrohlich, one 40 West 40 to be harsher than usual. Four—including East of the report’s authors, also suspects that Michael Nowak, the bank’s former head of 30 30 the shift marks a rejection by younger precious-metals trading, and Gregg Smith, 20 East 20 women of both the dual-earner model of gdr a senior gold trader alleged to have intro- 10 10 the and the single-earner model of the frg duced the practice at JPMorgan—have been West . “Instead the younger generation indicted under the Racketeer Influenced 0 0 seems to be aspiring to the one-and-a-half and Corrupt Organisations (rico) Act. (Mr 1820001985 1820001985 jobs model,” she says—a preference that Nowak and Mr Smith have pleaded not Source: German Institute policy may need to respond to in turn. for Economic Research *Youngest child under 11 guilty to all charges.) The unification “experiment” hardly The rico statute was formulated to tar- took place in laboratory conditions. Many get organised crime, the core business changed? Two things stand out. First, be- women migrated from east to west. The re- practices of which are illegal. But in 2019 haviour has changed drastically since uni- gions differ in many other respects—in- Brian Benczkowski, then the head of the fication: the share of eastern women with comes per head are lower in the east, for in- doj’s criminal division, said that the law young children working full-time fell from stance—that also affect the number of had been used against JPMorgan because over half in 1990 to just under a third in 2018 hours women work. But the episode still spoofing was so “widespread” at its metals- (see chart 1). More women across Germany says something about the power of policy trading desk. That is a charge no one will are working part-time. Second, east-west and the endurance of attitudes, long after want repeated. 7 differences still exist. The share of eastern walls are torn down. 7 mums in full-time work is more than double that in the west. As a result, whereas Employment in Germany women in the east earn 7% less than men, Investment in India the gap in the west is 22%. The report ar- Nature v nurture gues that policy and attitudes together ex- Sticking plaster plain these trends. Policy seems to play a powerful role in explaining the collapse in full-time employment in the east. Despite some recent changes, the policies of unified Germany, Why east and west German women still A gush of overseas cash helps alleviate like those of the frg, still assume that work vastly different hours a credit drought at home women are wives and mothers first. Joint cholars are often greatly excited by taxation of married couples, free co-insur- ith the economy battered by coro- S“natural experiments”, events that end ance for spouses and tax breaks for “mini Wnavirus, risk capital has dried up in up separating two groups of people, allow- jobs”, or low-hours contracts, probably did India. In the past six months assets in cred- ing wonks to compare their subsequent be- little to encourage women in the west to up it-focused mutual funds, which play a cru- haviour. Much like the study of twins their hours, and put those in the east off cial role as buyers for aa- to a-rated bonds, adopted into different households, the full-time work. have declined from $13bn to $4bn. Lending postwar division and eventual reunifica- Attitudes, meanwhile, may help explain by commercial banks, burdened by dud tion of Germany could be seen as such an part of the lasting hours gap between east loans even before the pandemic, has with- experiment. A report by the German Insti- and west: 30 years after unification, east- ered. Thankfully, for some companies this tute for Economic Research on working ern women are still more likely to approve domestic dry spell is being offset by a mothers, published ahead of the 30th anni- of full-time working mums (see chart 2). stream of foreign capital. versary of reunification on October 3rd, re- This chimes with earlier findings that east Reliance, a telecoms and energy giant, veals the interplay between policy and atti- Germans are more likely to have an egali- is a glitzy example of overseas equity in- tudes that influences the decision to work. tarian view of the roles of the sexes. vestment made on the premise of growth. When the German Democratic Republic But a quieter wave of capital is seeking out (gdr) in the east united with the Federal different sorts of assets, serving to stabilise Republic of Germany (frg) in 1990, the Work stress 2 local companies while offering foreign in- mothers of young children led very differ- “A mother who works full-time can usually have vestors high returns. As a result, many of ent lives. Life expectancy and incomes just as meaningful a relationship with her the world’s largest insurers, private-equity were much lower in the east, but commu- toddler as one who does not work” (pe) firms and pension and sovereign- nism did at least seem to lead to greater 2016, % of women agreeing wealth funds have become influential. gender equality in labour-market out- Western Germany Eastern Germany Such inflows have been a boon for In- comes. Encouraged by state policies and dia’s financial institutions. Edelweiss, a big 1009080706050 party ideology, mothers were almost as Born before 1950 lender and asset manager, had already likely to work as fathers, and most worked been suffering after the collapse of one il&fs full-time. In the west, where state and Born 1950-75 non-bank, , tightened domestic cred- church encouraged mums to stay at home, it for the others. Covid-19 only made mat- less than half were in paid employment, Born after 1975 ters worse. But over the summer Edelweiss and most of those worked part-time. has struck a series of deals, selling, for in- Source: German Institute for Economic Research Three decades on, how has the picture stance, its corporate loans to Singaporean1 The Economist October 3rd 2020 Finance & economics 63

2 and American asset managers, and a ma- Foreign interest has also been piqued by The list goes on, and more transactions jority stake in its wealth-management di- operating assets that generate predictable are being negotiated. At a time when inter- vision to a Hong Kong-based pe firm. Its annual dividends, rendering them similar est income has all but disappeared in the share price has doubled since May. to fixed-income investments. In July a 49% rich world, India’s credit squeeze lets for- Banks have followed a roughly similar stake in gmr Airports, which controls air- eign investors buy assets that could pro- path. Several large private-sector lenders, ports in Delhi and Hyderabad, was sold to a duce annual returns nearing double digits. including Axis, Kotak Mahindra and icici, French operator. In August Brookfield, a For Indian firms the money provides des- along with hdfc, a non-bank mortgage Canadian pe firm, along with gic, agreed perately needed breathing room. It will not lender, have raised capital from foreign in- on a $3.4bn purchase of 135,000 mobile- solve the systemic problems of Indian fi- vestors. Sources of cash include: the Cana- phone towers from Reliance—India’s larg- nance. Nor will it fuel investment-led da Pension Plan Investment Board; two est-ever pe deal. Along with Ontario’s mu- growth; that would require foreigners to Singaporean funds, Temasek and gic; and nicipal-pension fund and Actis, a pe firm, plough cash into new, productive projects funds associated with banks such as Mor- Brookfield is bidding for SoftBank’s 80% instead of existing ones. But it does provide gan Stanley and Société Générale. stake in a large solar-power company. a welcome stop-gap at a difficult time. 7 Buttonwood Gifts that keep giving

There is more to the endowment model than buying alternatives n the weeks following the stockmark- on preserving capital. But since the start of Harvard, Princeton and, of course, Yale. Iet crash in October1987, the investment the 20th century the dozen wealthiest Such boldness is aided by a long-term committee of Yale University’s endow- endowments in America have done a lot focus. If you have few immediate claims ment fund convened two extraordinary more than that. The Cambridge study finds on your purse, you can afford to care less meetings. Just after the crash its newish that the elite posted an average annual real about the day-to-day price of your assets. chief investment officer, David Swensen, return of 5.6% between1900 and 2017. Only their long-term value really mat- had bought up stocks (which had become Harvard’s endowment, the largest, is now ters. So endowments should be prepared much cheaper) paid for by sales of bonds. worth a stonking $41.9bn. to buy risky assets when they are cheap. Though in line with the fund’s agreed A key to their success is asset alloca- And the Cambridge trio find this to be the policy, this rebalancing appeared rash in tion. Beginning in the1930s (for the Ivy case. In the aftermath of six major crises, the context of the market gloom—hence League) and the1940s (for the rest), they beginning with the panic of1907, endow- the meetings. One committee member shifted markedly from bonds into equi- ments added significantly to their equity said there would be “hell to pay” if Yale ties. By the1950s over half of American exposure. They also lightened their got it wrong. But the original decision endowment assets were in stocks, com- exposure in the run-up to the two big stood. And it paid off handsomely. pared with around a tenth half a century stockmarket busts of the 2000s. A lot of investors say they have a long earlier. This shift looks obvious in hind- The endowment approach might be horizon. A new study by David Cham- sight but was radical at the time. (An earli- reduced to two injunctions: hold alterna- bers, Elroy Dimson and Charikleia Kaffe, er paper by Messrs Chambers and Dimson tives and be contrarian. But there are of Cambridge University’s Judge Busi- shows that John Maynard Keynes, who other lessons. One is the importance of ness School, finds that America’s big managed the endowment of King’s Col- having the best people. It greatly helps endowment funds have lived up to the lege, Cambridge, was even further ahead of your returns if you happen to have some- claim.* They have been pioneers in the game, allocating well over half of one of Keynes’s calibre knocking about. allocating to riskier assets, most notably assets to equities in the1920s-40s.) A Mr Swensen was persuaded by James to “alternatives” such as private equity. second big shift in endowments’ asset Tobin, a Nobel-prize-winning Yale econ- When others flee risk, they have em- allocation, starting in the1980s, was from omist, to forgo a lucrative career on Wall braced it. They are supposed to see the equities to alternatives. That change was Street. Canada’s big public-pension farthest, after all: their goal is to meet the led by the big three Ivy League schools: funds have been able to implement many needs of beneficiaries for generations. of the tenets of the endowment model by Other investors seek to emulate the paying good salaries. Selecting the right success of Yale and the other Ivy League private-equity managers, for instance, endowments. Every other pension plan requires expertise. And expertise costs. says it wants to plough more money into The other big lesson is that, once an alternatives. Yet this is only one strut of investment policy is agreed upon, the the endowment model. It also requires smart people have to be allowed to exe- smart people to design and implement a cute it. This comes under the dry heading sound investment policy. And, as Mr of “governance”, but it is crucial. It is Swensen’s experience in1987 attests, it is emotionally taxing to buy risky assets vital that they are allowed to follow it when everyone else is gloomy or to sell without interference. them when others are giddy. And, as Mr University endowments are among Swensen’s tale from1987 shows, an in- the world’s longest-lived managed stitution with even the longest horizons funds. In the late Middle Ages, Britain’s can be tempted to think short-term. Oxbridge colleges received gifts of farm- ...... land intended to provide lasting finan- *“Seventy-five years of investing for future cial support. For centuries the focus was generations”, Financial Analysts Journal (2020). 64 Finance & economics The Economist October 3rd 2020 Free exchange Marching bans

Outright bans on dirty technology can be a costly way to fight climate change. But not always But the number of available electric models is growing, and performance gaps are closing. A recent analysis by Stephen Holland of the University of North Carolina at Greensboro, Erin Mansur of Dartmouth College and Andrew Yates of the University of North Carolina at Chapel Hill concludes that in such conditions—when electric vehicles are good but not perfect substitutes for petrol- guzzlers—a ban on the production of petrol-fuelled cars is a much less inefficient way to reduce emissions than you might think. If electric vehicles were in every way as satisfactory as alternatives, it would take little or no policy incentive to flip the market from petrol-powered cars to electric ones. If, on the other hand, electric cars were not a good substitute at all, the cost of pushing consumers towards battery-powered vehicles would not be worth the savings from reduced emissions. Somewhere in between those extremes, both electric and petrol-powered cars may continue to be produced in the absence of any emissions-reducing policy even though it would be preferable, given the costs of climate change, for the market to flip entirely from the old technology to the new. Ideally, the authors reckon, this inefficiency would be rectified by a carbon tax, which would induce a complete transition to electric vehicles. If a tax were politically impossible to implement, though, a production ban would achieve the same end only slight- hen set against the grave threat posed by climate change, ly less efficiently—at a loss of about 3% of the annual social cost of Wthe green policies favoured by economists can seem convo- petrol-vehicle emissions, or about $19bn over 70 years. luted. Carbon prices, beloved of wonks, require governments to In practice, the degree to which electric vehicles are good sub- estimate the social cost of carbon emissions, a nebulous concept. stitutes for petrol-fuelled ones changes over time, and depends on Green subsidies put politicians in the position of picking promis- more than just the capabilities of the cars themselves. This too ing innovators and praying that bets with taxpayers’ money pay may be a point in favour of sensibly structured bans on dirty tech- off. Faced with these fiddly alternatives, you might ask, would nologies. Drivers of petrol-powered cars know that when the low- simply banning the offending technologies be so bad? In fact a fuel warning light comes on, a filling station is probably nearby. growing number of governments are bowing to this logic. More The lack of a widespread network of charging points may put some than a dozen countries say they will prohibit sales of petrol-fuelled potential buyers off electric cars (although in practice they would cars by a certain date. On September 23rd Gavin Newsom, Califor- probably mostly charge their cars at home or at work). But charg- nia’s governor, pledged to end sales of non-electric cars by 2035. ing stations are subject to a chicken-and-egg problem: when there Such bans may look like window-dressing, and that could yet in are few electric cars on the road there is little incentive to build some instances prove to be the case. But in the right circum- new stations, which in turn depresses demand for the vehicles. stances, they can be both effective and efficient at cutting carbon. Without policy guidance, the market might grope its way to- It is easy to see why politicians are attracted to prospective wards balance. Shanjun Li and Lang Tong of Cornell University, bans. They sound tough and neither impose immediate hardship Jianwei Xing, now of Peking University, and Yiyi Zhou of Stony on consumers, as a carbon price would, nor drain the treasury, as Brook University estimate that a 10% rise in the availability of subsidies do. It is just as easy to see why economists might disap- charging stations boosts sales of electric vehicles by 8%, and a 10% prove. Carbon prices and green subsidies aim to redress markets’ increase in the number of electric cars on the roads raises the con- failure to take account of the global costs of climate change while struction of new charging points by 6%. A promise to ban sales of preserving choice for consumers. Bans are a far blunter instru- petrol-powered cars at a certain date stands to accelerate this pro- ment and—in the absence of good substitutes for the banned tech- cess and reduce its cost by co-ordinating the expectations of firms nology—can lead to economic losses, potentially offsetting the and consumers. Both firms and households would be less likely to benefits of reduced emissions. But a ban could also accomplish too waste money on capital goods the lifespan of which may be unex- little, if a government’s commitment does not seem credible. pectedly shortened by the disappearance of complementary tech- Manufacturers who suspect that future politicians may renege on nologies. Other scale economies might be realised: carmakers may a pledge will not bother to make the investments needed to com- feel more comfortable shifting the bulk of their r&d spending to- ply. A mandate introduced by Californian regulators in 1990, spec- wards electric vehicles, for instance, and mechanics might start ifying that zero-emission vehicles should account for 2% of annu- preparing to service electric cars. Meanwhile, the investment in al sales by 1998, rising to 10% by 2003, was revised substantially in services linked to petrol-powered vehicles would shrink rapidly. 1996 when it became clear that the cost and performance of batteries were not improving fast enough to meet the targets. Just what I needed Technology has advanced impressively since then. Fully elec- Conditions in markets vary, and politicians should think carefully tric vehicles are not yet a perfect substitute for petrol-consuming before applying the lessons from cars more widely. An announced alternatives. They are often more expensive, depreciate faster, and ban on fossil-fuel-powered aeroplanes, for example, would most have a lower range of travel and more limited supporting infra- likely backfire in the absence of alternative technologies. In some structure, like charging stations or properly equipped mechanics. cases, though, a shove may work as well as a nudge. 7 Property 65 Socially Responsible Investing Put new energy in your portfolio.

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1-"Corporate Sustainability: First Evidence on Materiality,” Harvard Business School, 2015, https://dash.harvard.edu 2-Advisory services are o ered for a fee by PCAC, a wholly owned subsidiary of Personal Capital Corporation, an Empower company. Personal Capital Advisors Corporation (“PCAC”) is a registered investment adviser with the Securities and Exchange Commission (“SEC”). SEC registration does not imply a certain level of skill or training. Investing involves risk. Past performance is not a guarantee nor indicative of future returns. The value of your investment will ﬂuctuate, and you may lose money. All charts, ﬁgures, and graphs are for illustrative purposes only and do not represent an actual client experience. Featured individuals are actors and not clients of PCAC. Personal Capital Corporation is a wholly owned subsidiary of Empower Holdings, LLC. © 2020 Personal Capital Corporation, an Empower Company. All rights reserved. Science & technology The Economist October 3rd 2020 67

Hybrids and evolution That knowledge is changing the way people think about evolution. The neat Match and mix family trees envisaged by Charles Darwin in one of his early notebooks (see following page) are turning into webs, and the pri- macy of mutation in generating the variation which natural selection then winnows is being challenged. The influx of genes ac- Species used to be seen as reproductive isolates. No longer. They breed with each companying hybridisation creates such va- other, often creating new ones. And that was once true of Homo sapiens, as well riation too—and the harder people look, n 1981 peter and Rosemary Grant, a hus- they have continued to do so ever since. the more important that seems to get. Hy- Iband-and-wife team of evolutionary bi- Despite this heavy inbreeding, the hybridisation also offers shortcuts on the ologists, spotted something odd on Daph- brids (two of which are pictured above) long march to speciation that do not de- ne Major. Every year for the previous have been successful. They have carved out pend on natural selection at all. As the ex- decade they had travelled from Princeton a niche in which they use their size and ample of the Big Bird lineage shows, in- University to this island in the Galápagos, their deep beaks to exploit the large woody stead of taking millennia to emerge, a new to study its three endemic tanager species, fruits of the Jamaican feverplant, which species can appear almost overnight. part of a group known colloquially as “Dar- grows locally. They have, to all intents and In truth, all this had already been recog- win’s finches”. On this occasion their eyes purposes, become another species of Dar- nised for simple organisms like bacteria. were drawn to an unusual male that win finch, of which 13 were previously re- These exchange genes promiscuously be- sported dark feathers and sang a unique cognised. Though they do not yet have a tween both more and less related individ- song. Genetic analysis later identified him Latinised scientific name, they are known uals. But bacteria were unknown when as a large cactus finch, probably blown in to all as the “Big Bird” lineage. Darwin came up with natural selection, from Española, another part of the archi- and, ever since then, the subject of specia- pelago that is over 100km away. Heretical thinking tion has been dominated by examples Intrigued, the Grants followed the cast- This story would once have been consid- drawn from animals and plants. To recog- away as he explored his new home. They ered deeply implausible. Evolution’s or- nise that what is true for bacteria is also watched him mate with a local female me- thodox narrative does not suggest that hy- true for these multicellular organisms has dium ground finch. That produced five fit, bridisation is how new animal species profound implications, not least for how healthy offspring. Those offspring were emerge. But, as genetic testing has prolifer- human beings understand their own ori- also surprisingly sexually selective. A sin- ated, biologists have been confronted with gins. It seems appropriate, then, that the gle male excepted, they and their descen- an unexpected fact. Hybrids are not an evo- birds whose diversity helped inspire Dar- dants mated only among themselves—and lutionary bug. They are a feature. win still have evolutionary tales to tell. 1 68 Science & technology The Economist October 3rd 2020

2 The conventional view of evolution is spare copies of genes for natural selection the bonnet of evolutionary history. This that mutations happen at random. Mal- to work on while other versions of them has uncovered a steady trickle of animals adaptive ones are then eliminated by com- continue with their original function. And breathed into life entirely by hybrid specia- petitive pressure while adaptive ones pro- if it is also the result of hybridisation, it tion. They include some familiar names. liferate. The result, over long periods of brings the additional possibilities of heter- The European bison, for instance, is the re- time and assisted by populations some- osis and transgressive segregation. sult of hybridisation, over 120,000 years times being split up by external circum- On top of this, by changing an organ- ago, between two now extinct species—the stances, is change which eventually crys- ism’s chromosome count polyploidy has ice-age steppe bison and the auroch. The tallises into new and separate species. another pertinent effect. It creates an in- latter were the wild antecedents of modern That process does leave the door open to stant barrier to breeding with either parent domestic cattle, and survived in Jaktorow hybrids. The genomes of closely related species. That gives a new, incipient species Forest, in Poland, until 1627. species may remain sufficiently similar to a chance to establish itself without being Something similar is true of the Atlantic produce viable offspring. But these genes reabsorbed into one of the parental popula- Clymene dolphin. Genetic analysis has re- often fit together less well than those of tions. The results can be spectacular. Re- vealed that this cetacean, which roams the parents from the same species. As a conse- cent evidence suggests, for example, that briny between west Africa, Brazil and the quence, even viable hybrids are frequently hybridisation between two plant species in Gulf of Mexico, owes its existence to a hy- infertile (think mules) and are also at high- the distant past, followed by a simple dou- bridisation that happened between two er risk of developmental and other types of bling of the number of chromosomes in globe-trotting others, the striped dolphin illnesses. In fact, infertility in male hybrids their offspring, may be responsible for and the spinner dolphin. is so common that it has a name—Hal- much of the extraordinary diversity in At least one hybrid animal, moreover, dane’s rule. This sort of thing was enough flowering plants that is seen today. traces its ancestry to three species. Genetic to persuade most of Darwin’s 20th-century Plants seem to be easy beneficiaries of analysis shows that Artibeus schwartzi, a disciples that the need to avoid hybridisa- hybridisation. For many animals, how- Caribbean fruit bat, is a result of hybridisation was actually a driving force which ever—and for mammals in particular—ex- tion, within the past 30,000 years, of the Ja- caused natural selection to erect reproduc- tra chromosomes serve not to enhance maican fruit bat (Artibeus jamaicensis), the tive barriers between incipient species, things, but to disrupt them. Why, is not South American flat-faced fruit-eating bat and thus encouraged speciation. completely clear. Cell division in animals (Artibeus planirostris) and a third, as yet un- There is, though, another way of look- seems more easily confounded by super- identified animal, which researchers spec- ing at hybridisation. Mixing the traits of fluous chromosomes than it is in plants, so ulate may now be extinct. two parent species might actually leave this may be a factor. Plants also have sim- their hybrid offspring better off. This is pler cells, which are more able to accom- A different kettle of fish called hybrid vigour, or heterosis. The in- modate extra chromosomes. Whatever the It also appears that, as in the case of flower- terplay of two species’ genes can even pro- details, animal hybrids appear to feel the ing plants, hybridisation can fuel explosive duce traits displayed by neither parent. effects of genetic incompatibility far more radiations of novel animals. The best- This is known as transgressive segregation acutely than do plants, and are therefore known example is the case of the cichlids and the resulting hybrid may be surpris- less able to benefit from heterosis. Evolu- of Africa’s Great Lakes—particularly Lake ingly well adapted to a completely new tionary biologists therefore assumed for a Victoria, Lake Tanganyika and Lake Mala- niche, as was the case with the Big Birds. long time that hybridisation played a negli- wi. Great Lake cichlids are a group of thou- Both the maleficent and beneficent ef- gible role in animal evolution—and there sands of closely related fish, famous for fects of hybridisation are real. The ques- was little evidence to suggest otherwise. their panoply of shapes, sizes and colours tion is, which wins out more often in prac- Advances in dna sequencing have (see picture on next page). Each is adapted tice? In plants, it is frequently the bene- changed that by letting people look under to a different depth and ecological niche. ficent. This is a consequence of plants’ Cichlids’ evolutionary history has long unusually malleable genetics. The nuclear puzzled biologists. Lake Victoria, in partic- genomes of complex organisms (animals, ular, comes and goes with the climate. Its plants, fungi and single-celled organisms current instantiation is less than 15,000 such as amoebae) are divided into bundles years old. In evolutionary terms this is the of dna called chromosomes. Such organ- blink of an eye, but in that time the lake’s isms are generally either haploid or dip- cichlids have diversified into more than loid, meaning that each cell nucleus con- 500 species. tains either one or two copies of every The reason is hybridisation. Using ge- chromosome. Human beings are diploid. netic analysis to place Lake Victoria’s cich- They have 23 chromosomal pairs, for a total lids within the broader cichlid family tree, of 46 individual chromosomes. But there researchers have discovered that they de- are exceptions. Plants, for instance, are fre- scend from a tryst between two distinct pa- quently polyploid—meaning that each nu- rental lineages, one that swam in the Con- cleus contains copies in greater multiples go and the other in the Nile. than two. To take one example, Californian The value of being such a genetic mosa- coastal redwoods have six copies. Since ic is apparent from the history of one of the redwood cell nuclei have 11distinct types of best-studied cichlid genes, which encodes chromosome, they host a total of 66 chro- a protein called long-wave-sensitive opsin mosomes altogether. that is found in the retina of the eye. This Sometimes, polyploidy is a result of an protein determines the eye’s sensitivity to organism’s genome spontaneously dou- red light. That matters because red-light bling. Often, though, it is a consequence of levels decline steeply in deeper water. Con- hybridisation, with the chromosomes of sequently, fish which live at different both parents ending up in a single nucleus. depths need eyes that are tuned differently However it arises, polyploidy provides As Darwin saw it from one another. 1 The Economist October 3rd 2020 Science & technology 69

colated between lions and tigers, lions and snow leopards, and lions and jaguars. There is also evidence that at least some of this gene flow has been adaptive. Three lion genes incorporated into jaguar genomes are known to have been strongly selected for. Two of these are involved in vision—specifically, they help guide the development of the optic nerve. Genetic analysis also reveals a long history of hybridisation between polar bears and grizzlies, the largest of their brown bear cousins. It is not yet clear whether this has had adaptive value—but it may soon have a chance to prove itself. As climate change warms the polar bear’s Arctic home, the species may have to adjust rapidly. A splash of grizzly, a group used to more tem- perate climes, might help that happen. The best-studied case of introgression in animals is, though, closer to home than wolves, big cats and bears. It is looking back at you from the mirror. The most up- to-date evidence suggests that Homo sapi- Gone fishing ens arose more than 315,000 years ago from gene flow between a series of interlinked 2 The cichlid lineage from the Congo had cal isolation from one and strong sexual se- population groups spread across Africa. eyes which were optimised for clear, shal- lection against the other. Whether these populations were different low water. Nile-lineage vision was more at- More commonly, an incipient hybrid enough to be considered distinct species is tuned to the deep and murky. Hybrids were population is reabsorbed by one or both pa- still debated. In the grasslands of the Afri- able to chop and change these genetic vari- rental species before it can properly estab- can Pleistocene, however, these ancestral ants to produce a range of sensitivities to lish itself. The result is a percolation of groups were not alone. Their world was in- light. This let them colonise the full depth genes from one species to another, rather terspersed with a menagerie of other homi- of the water column in Lake Victoria as it than a full hybrid. This is called introgres- nins. And interspecies mating seems to developed. The new lake, for its part, of- sive hybridisation—or, simply, introgres- have been rife. fered the cichlids a host of empty ecologi- sion. dna analysis of a long list of closely cal niches to fill. The result was a sudden related animals shows that this version of My family and other hominins and explosive process dubbed “combina- hybridisation is far more common than the Several members of this human menagerie torial speciation”. full form. It may even be ubiquitous. appear to have descended from Homo Elsewhere in the natural world, combi- The North American grey wolf, for ex- heidelbergensis, a species that spread natorial speciation seems to have contrib- ample, owes its gene for melanism—the through eastern and southern Africa uted to the striking diversity of Sporophila, deep black fur displayed by some around 700,000 years ago before crossing a genus of 41 Neotropical songbirds, and of wolves—to introgression from domesti- the Middle East into Europe and Asia. This the munias, mannikins and silverbills of cated dogs brought 14,000 years ago from species—a possible ancestor of the progen- the genus Lonchura, a group of 31 estrildid Asia by America’s first human settlers. In itor groups of Homo sapiens—also gave rise finches that ranges across Africa and wolves that inhabit forests this gene has to at least two others, the Neanderthals South-East Asia. Nor is it just in vertebrates undergone strong positive selection, sug- (Homo neanderthalensis) and the Deniso- that this phenomenon rears its head. Heli- gesting it is adaptive. The most obvious ex- vans (Homo denisova). The former survived conius, a genus of 39 flamboyant New World planation is that melanism provides better in Europe until 28,000 years ago, while the butterflies, also owes its eye-catching div- camouflage in the stygian depths of North latter, an Asiatic group, lasted until roughly ersity to combinatorial speciation. America’s woodlands. Alternatively, fe- 50,000 years ago. male wolves may simply prefer their males Other hominin species around at the Raining cats, dogs and bears tall, dark and handsome. time emerged directly from Homo erectus, a These findings muddy Darwin’s concept of Panthera—the genus to which most big more primitive creature that was also the speciation as a slow and gradual process. cats belong—is yet more impressive in the ancestor of Homo heidelbergensis and Biologists now know that in the right cir- scope of its introgressive entanglement. It which, a million years beforehand, had cumstances, and with the help of hybridi- has five members: lions, tigers, leopards, blazed a similar transcontinental expan- sation, new species can emerge and con- snow leopards and jaguars. These have sionary path to that of heidelbergensis. The solidate themselves in a mere handful of long been known to interbreed successful- local descendants of erectus were largely generations. That is an important amend- ly in captivity, yielding crosses called ligers displaced by heidelbergensis when it ar- ment to evolutionary theory. (lion x tiger), jaglions (jaguar x lion) and so rived. But some holdouts survived in cor- It is nevertheless true that, for animals, on. But recent analysis shows that this has ners of the Old World that heidelbergensis hybrid speciation in its full form remains also happened in the wild. Researchers never reached. These included the islands rare. It requires an unlikely congruence of have identified at least six past introgres- of Flores in Indonesia and Luzon in the factors to keep a new hybrid population re- sive episodes in the genus, with every Philippines. It was here that diminutive productively isolated from both parental member involved in at least one of them. Homo floresiensis and Homo luzonensis—the species. The survival of the Galápagos Big The most promiscuous of the five ap- island “hobbits”—lasted, like the Deniso- Bird lineage, for example, involved physi- pears to be the lion. Gene variants have per- vans, until 50,000 years ago. There were 1 70 Science & technology The Economist October 3rd 2020

2 probably isolated descendants of even old- As with Neanderthals, this inheritance er cousins too. At least one is known, Homo has brought advantages. The Denisovan naledi, which predated the emergence of version of a gene called epas1 modulates Homo erectus and still roamed southern Af- production of red blood cells, which carry rica around 230,000 years ago. oxygen. This helps modern Tibetans to sur- This grand hominin circus ultimately vive at high altitudes. Denisovan tbx15 and came to an abrupt end. The record in Africa wars2 similarly help Inuit survive the is opaque. But in Europe, Asia and Oceania harsh cold of the Arctic by regulating the it is clear that the arrival of modern hu- amount of metabolic heat they produce. mans coincided with a great vanishing of local hominins. Whether through disease, We contain multitudes competition for scarce resources or per- That the Denisovans could lurk in modern haps even genocide, a few thousand years human dna yet leave so little fossil trace of contact with Homo sapiens was enough has caused geneticists to wonder what oth- to snuff out every other hominin species. er ghosts they might find. The genomes of Even a few millennia, though, proved sub-Saharan Africans, in particular, reveal enough for Homo sapiens to get to know its evidence of at least one further entangle- cousins intimately. The record of these ro- ment. In 2012 a genomic analysis of mem- mantic entanglements remains in the dna bers of the Baka, Hadza and Sandawe, three of almost everyone alive today. In 2010 a groups of people of ancient lineage, sug- team led by Svante Pääbo of the Max Planck gested an archaic introgression. In 2016 a Institute’s campus in Leipzig published the deeper analysis focused on the Baka pin- first draft sequence of the Neanderthal ge- pointed this to within the past 30,000 nome. This led to the discovery that years. This February, a study of members of stretches of Neanderthal dna constitute Ghosts from a distant past two other groups, the Yoruba and Mende, 1-4% of the modern human genome in all confirmed that between 2% and 19% of populations outside sub-Saharan Africa. code proteins which interact with viruses. their genomes can be traced to an unidenti- That is consistent with a string of hybridis- The Denisovans, and their contribution fied archaic species. Whether this is the ing liaisons in Europe, the Middle East and to Homo sapiens, were another of Dr Pääbo’s same as the one which has contributed to Central Asia from around 65,000 years ago. discoveries. In 2009 one of his team se- the Baka, Hadza and Sandawe is unclear, Neanderthal inheritance helped Homo quenced dna from a fossil finger bone ex- but it appears to have diverged from the sapiens adapt to the demands of the envi- cavated from Denisova cave in the Altai line leading directly to Homo sapiens not ronments of these unfamiliar places. There Mountains of Siberia. This bone turned out long before the Neanderthals and Deniso- seems to have been strong selection, for ex- to belong to a previously unknown species vans—an African Neanderthal, if you will. ample, in favour of Neanderthal genes re- that was then named after the cave it was The same genetic tools have revealed lated to skin and hair growth. These in- found in. Physical specimens of this spe- deeper ghosts, too. Denisovans show signs clude bnc2, a gene linked to skin pigment cies remain rare. Examination of living of hybridisation with a “superarchaic” li- and freckling that is still present in two- people, however, reveals that stretches of neage—perhaps Homo erectus itself. This thirds of Europeans. There also appears to Denisovan dna make up 3-6% of the ge- makes up 1% of the species’ genome. About have been selection for Neanderthal- nome of contemporary Papuans, Aborigi- 15% of this superarchaic inheritance has, in derived genes that deal with pathogens. nal Australians and Melanesians. Many turn, been passed on to modern humans. Some govern the immune system’s ability Chinese and Japanese also carry Denisovan There is even evidence of a minute genetic to detect bacterial infections. Others en- dna, albeit at lower rates. contribution to African populations by a similarly superarchaic relative. To be human, then, is to be a multi- Kissing cousins Species species mongrel. As the example of the big Hominin phylogenetic tree Inter-species cats in particular shows, though, Homo gene transfers New species sapiens is not, in this, an exception. Hybri- Approximate dates Proposed source disation, once seen as a spear-carrier in Known source Homo naledi Homo erectus evolution’s grand theatre, is rapidly be- Southern Africa Africa, Eurasia Extinct coming a star of the show. Meanwhile, Dar- Millions of win’s idea of a simple, universal family tree years ago is relegated to the wings. Homo floresiensis Homo heidelbergensis In its place, some experts now prefer the East Indies Africa, Eurasia idea of a tangled bush of interconnected Hundreds of thousands of branches. But this, too, is an imperfect years ago comparison. A more fitting analogy is a Homo denisova Ghost species frayed rope. Species are braided from indi- Eastern Asia, Sub-Saharan vidual strands. Where evolution proceeds Oceania Homo Africa 100,000 neanderthalensis Homo sapiens in an orthodox Darwinian manner, braids years ago Europe, western Asia Africa, Eurasia, Oceania unravel, strands split and new species re- Altitude adaptation, sult. But the rope does not fray neatly. Fila- 50,000 cold adaptation ments of introgression criss-cross from Skin and hair, braid to braid and, occasionally, two tangle 25,000 immune response to form a new braid altogether. This is a more complex conception of evolutionary Today Modern humans history, but also a richer one. Few things in Sources: Current Biology; Nature; Science; Yearbook of Physical Anthropology life are simple—why should life itself be? 7 Books & arts The Economist October 3rd 2020 71

Also in this section 72 The CIA and the cold war 73 The lure of islands 73 Japanese ﬁction 74 Johnson: Battling racist language

Mexico’s chroniclers politicians out of office after a single term, but many cronistas retain their positions The other half of history until the day they die. In 20th-century Mex- ico City, when (unlike now) the mayor selected a single cronista for the whole capital, the street he lived on would be renamed after him. So influential was Carlos Monsi- váis, the city’s chronicler in the 1970s, that TONALÁ when a notable Mexican died, the director A classic literary genre is gradually receiving the attention it deserves of the Institute of Fine Arts would call him efore revolution swept Mexico in ernments now have an official cronista. to determine whether the deceased merit- B1910, the most tumultuous episode in Their job is to record noteworthy happened a public funeral inside the exalted Pala- the history of San José de Gracia, a tiny ings on their patch, in the way they see fit. cio de Bellas Artes. town in the state of Michoacán, was nei- Isn’t that, sceptics might ask, the job of Yet the chronicles themselves had a ther a battle nor a reform. It was a rumour historians and journalists? A good cronista narrow audience. “For most Mexican fam- that the world would come to an end on De- will indeed stray onto their turf, and that of ilies, buying a book is an impossible luxu- cember 31st 1900. Decades later Luis Gonzá- sociologists and poets. That flexibility is ry. Rich Mexicans do not read either,” Elena lez y González, a native son of San José, de- the point. Juan Villoro, a writer of chroni- Poniatowska, an author of chronicles as scribed the ensuing pandemonium: cles, calls the form “the platypus of prose”: well as essays and novels, has lamented. The church was filled with despairing peo- a mix of elements, but undeniably its own Often these municipal microhistorians are ple. No one wanted to be caught unshriven, creature. The best examples weave a narra- not only unread but unknown among lo- but the priest could not hear everyone’s con- tive, defer to the truth, appeal to emotions cals, never mind outsiders. Many are wiz- fession at once. He announced that he and—above all—evoke an intense sense of ened sages. Others are friends appointed would begin with mothers who had babes in place and time. by the mayor and “don’t know which year arms. There was uproar in the church when In Latin America the chronicle predates their town was founded”, sniffs Sofía Mi- it was discovered that one of the women had many of the genres with which it can over- reles Gavito, a cronista in Tonalá, on the been holding a pillow in her arms instead of lap. The first literature of New Spain was scorching southern coast of Chiapas. a child. the victory cry of the conquistador. Observ- “Pueblo en Vilo” (“Town on Edge”), the bio- ers such as Bernal Díaz del Castillo sent ac- Chronicle of a country untold graphy of San José from which this tale counts of indigenous societies to the king However big their readership, each faces comes, is one of Mexico’s greatest books. even as conquest disfigured them. Nine- the daunting task of deciding what to González, a historian by training, turned teenth-century politicians such as Guil- chronicle. In many small towns basic his- the town’s recollections and archival docu- lermo Prieto energetically chronicled daily tory books with dates and names remain ments into a story. “I have the feeling of be- life. Modern Latin American literature unwritten, giving the cronistas a blank ing the official chronicler of the people, the charmed the world by building on this tra- slate. In her most recent volume Ms Mi- compiler and constructor of collective dition, argues J.M. Servin in the preface to reles Gavito elected to focus on the “spiri- memory,” he said. Cities and villages across his latest chronicle of Mexico City. tual conquest” of coastal Chiapas in the Mexico have since appointed writers to be In some ways, the cronista’s role is a dis- 16th century. María de Jesús Real García, exactly that: hundreds of municipal gov- tinguished one. Mexicans frequently hurry cronista for the Benito Juárez municipality 1 72 Books & arts The Economist October 3rd 2020

2 in Mexico City, is writing about Mexican ra- dogs. But I will not stain these pages other spondent and novelist, weaves a beguiling dio ahead of its centenary in 2021. Some than to note their inconceivable existence.” if sometimes puzzling narrative from their choose to penetrate society’s upper crust, Cronistas find satisfaction in telling the criss-crossing careers. He takes in the Phil- as in Artemio de Valle Arizpe’s entertaining other half of history, the part missed by ippines, Vietnam and the cia’s early venal- account of “La Güera Rodríguez”, a red- sweeping national narratives of great men ity in Central America. He traipses along headed socialite who brought powerful and seismic events. More than that, their the Iron Curtain to unveil a string of early men to their knees at the turn of the 19th craft is at last enjoying global recognition. disasters in eastern Europe. His verdict is century. By contrast, Héctor Castillo Ber- The Nobel prize for literature, usually re- damning, yet also imprecise. thier has shown how the chronicle can en- served for novelists and poets, has recently All four agents had brave, brilliant starts noble the voiceless. He trudged through been won by two exponents of the chroni- in the Office of Strategic Services, the cia’s Mexico City’s rubbish dumps to speak to cle, Svetlana Alexievich of Belarus and Tur- forerunner, during the second world war, underlings of Rafael Gutiérrez Moreno, the key’s Orhan Pamuk. In 2013 Ms Poniatow- and were driven largely by principle. The powerful and monstrous boss of a trash- ska’s oeuvre earned her the Cervantes author shows how they were all laid low, in men’s union in the 1980s. prize, the Spanish-speaking world’s high- moral and career terms, by the wrong- “When” is as important a choice for the est literary honour. The spotlight may fade. headedness of their political overlords, chronicler as “who”. Monsiváis described But if anyone knows how to savour a mo- which they only occasionally resisted. The his work as “a critique of the present, with ment, it is cronistas. 7 villains include J. Edgar Hoover, the fbi one foot in the past”. But many writers boss who, jealous of the cia, stoked para- plunge headfirst into nostalgia. In 2016 the noia among allies as well as enemies, and National Congress of Cronistas released Senator Joseph McCarthy, who ruined hun- “Cultural Patrimony at Risk”, a tour of dreds of lives in his quest for reds under the threats to the country’s cultural riches— bed; but also, less predictably, the Dulles buildings in Durango, indigenous court- brothers, John Foster as secretary of state ship rituals in Chiapas and musical instru- and Allen as head of the cia. Presidents ments in Nuevo León. On a pleasant after- Harry Truman and Dwight Eisenhower are noon stroll in El Plateado de Joaquín castigated. Ronald Reagan, Richard Nixon Amaro, a hilly municipality in Zacatecas, and even Barack Obama take a few knocks. Eliezer Márquez Vela, the local cronista, Of the four spies, Lansdale and Burke ul- points wistfully to a large stone basin. timately left the cia in despair, “stricken by Women once gathered here to do laundry, the moral compromises they had been he says. But when washing machines ar- asked to make”. Wisner committed suicide. rived, a key network for gossip faded away. The agents whom he and Burke infiltrated Often, though, the allure of the cro- into Romania, Poland, the Baltic states and nista’s work lies in overlooked details of the East Germany all disappeared; most were present. One such jewel is a monologue probably killed. Worse, in Mr Anderson’s from a graffiti artist in Tuxtla Gutiérrez, the view, were the results of two early success- capital of Chiapas, which appears in a es, the coups against democracy in Iran and chronicle by José Luis Castro Aguilar. The Guatemala, which tarnished the cia for artist spent his life being chased by local ever in the eyes of many in the Middle East police, until the government asked him to and Latin America. spray legally. Teresa Zerón-Medina Laris’s The CIA and the cold war Telling this tale of woe through the four chronicle of a clandestine boxing bout in men is a clever device, and Mr Anderson is Mexico City “without gloves, bandages, Original sins a fine narrator. Each of the quartet had re- judges, rules, or rounds” is another. “Miss markable early achievements. Lansdale, a Narco” by Javier Valdez describes the lives former adman in California with a gift for of 23 Sinaloan women who were dragged empathy, almost single-handedly steered into organised crime. One of them, Yoselín, Ramon Magsaysay into the presidency of struggles to break away from narco boy- the Philippines in 1953 (he died in an air friends with gold chains and bottomless crash). Lansdale then became the most The Quiet Americans. By Scott Anderson. wallets when her high-school sweetheart trusted adviser to Vietnam’s president, Ngo Doubleday; 576 pages; $30. To be published returns from America. (Also a courageous Dinh Diem, who was ousted and killed in in Britain by Picador in February 2021; £20 journalist, Valdez was murdered in 2017.) 1963. Many of the cia’s failures stemmed For outsiders, the chronicle’s greatest his intriguing book is an indictment. from familiar shortcomings. “We all have joy may be an ingredient used sparingly in TFrom its first page it argues that the cia this tendency to look for information that Mexican literature: humour. The form is lost its way, in all senses, in the first decade confirms our beliefs and to ignore what often “a refuge for witty ideas that wouldn’t of the cold war. Its witnesses are four cou- conflicts with them,” explains Mr Sichel. seem serious enough in a drama or novel”, rageous and initially idealistic patriots. “It’s very hard to give somebody informa- says Mr Villoro. Take the deadpan opening Frank Wisner oversaw some of the earliest tion he doesn’t want to hear, and the more of a recent newspaper column by Armando efforts to “roll back” communism in Eu- senior they are, the worse it is.” Fuentes Aguirre, the cronista of Saltillo, rope. Michael Burke was a daredevil figure Early in his own career Mr Anderson headlined “History of a crash”: “Sabinas Hi- in the same game. Edward Lansdale (pic- witnessed the murderous brutality of a dalgo, Nuevo León, prides itself on being tured) was an éminence grise in the Far East. right-wing regime in El Salvador that was the only place in the world where a horse Peter Sichel, a German-born Jewish wine- backed by the cia. “The very phrase ‘anti- and a plane have collided.” After rhapsodis- merchant and Wunderkind—and the only communist’”, he writes, “took on a squalid ing for five pages over the local culinary de- one of the four still alive—held his nose as quality when I considered the crimes done lights whipped up at a street market in the he co-opted former Nazis into the agency, in its name.” He duly dismisses out of hand capital, Salvador Novo ends his chronicle an initiative cited as one of its original sins. the cold war strategy of Truman, Eisenhow- in a huff: “And, of course, there are hot Scott Anderson, a veteran foreign corre- er and their successors—based on the 1 The Economist October 3rd 2020 Books & arts 73

2 threat of “massive retaliation”, including communism collapsed. Oddly, he ignores en opportunity to dramatically alter the nuclear war, if the Soviets overstepped the the possibility that this outcome was pre- course of the cold war”. He even implicates mark, while the cia undertook a constant cipitated at least partly by relentless out- the cia in the suppression of the Hungar- lower-level pushback, including covert op- side pressure from the cia and others. ian revolt of 1956: by egging it on but back- erations. He lambasts George Kennan, a fa- More questionable still is his assertion ing away, Mr Anderson charges, the agency bled diplomat, for encouraging the cia’s that America’s over-zealous leaders and encouraged Moscow to crack down. Hun- policy of containment, which was “de- submissive spooks “undercut the moder- garian rebels may have picked up mixed signed to confront the Russians with unal- ate faction within the Kremlin and bol- signals from the Americans. But it is surely terable counterforce”. This “anti-commu- stered the militants”, and thus, especially fanciful to suggest that Nikita Khrushchev nist refrain”, he complains, lasted until after Stalin’s death in 1953, “missed a gold- was poised to “let Hungary go”, before the cia’s machinations changed his mind. Espionage, intelligence-gathering and Geography and imagination covert operations are by definition dodgy trades, whatever the motives of their prac- Water all around titioners. Mr Anderson vigorously argues that his quartet epitomised America’s slide into moral ambiguity and strategic mud- dle. Intelligence officers like them “provid- Island Dreams: Mapping an Obsession. chance to breathe, and to think. ed the fuel for the nuclear arms race” and By Gavin Francis. Canongate; 256 pages; Mr Francis is a doctor as well as a “drove nations into the orbits of East or $30 and £20 writer, and for him the quiet simplicity West”. Spies on both sides were “the cold of island living is a counterbalance to war’s first frontline soldiers”. s a child, Gavin Francis yearned for “the torrent of life through the clinic”. But then Mr Anderson switches his ani- Aislands. On caravan holidays to the His meditative book tries to unpick this mus back against the presidents and coast of Fife in Scotland, he was kept allure, combining as it does isolation, policymakers. “Virtually every major co- awake by the strobe of the lighthouse on independence and flight. vert mission undertaken by the cia from its the Isle of May (pictured). He pored over Do not expect a straight cultural inception until today”, he says, “has been sketches of the island’s wildlife, pictur- history. “Island Dreams” is stranger and done under the express, if unwritten, or- ing the far-flung journeys of its migrant richer than that. Composed of koan-like ders of presidents.” The agency is doomed birds. In its promise of isolation and snatches of prose, it wanders between to be “the ultimate fall-guy”. So were the self-fulfilment, the isle stood for the memoir and literature, steered by Mr flawed four both culprits and victims? A strange land of adulthood itself. Francis’s adventurous past and eclectic puzzling conundrum. 7 Islands are inseparable from stories. reading. It is illustrated with a gorgeous From Odysseus’s Ithaca to Prospero’s array of maps, pictures and diagrams. As place of exile, they are way-stations for with other experimental works of non- Japanese fiction the imagination. They represent fanta- fiction such as Edmund de Waal’s “The sies of wealth and are sites of political White Road” or Maggie Nelson’s “The I don’t belong here refuge or experiment. They have also Argonauts”, the reader’s eye navigates the been used to banish and maroon the ill, page as the text traverses the seas. At its unwanted or unlucky. Many island com- best, Mr Francis’s writing is a catechism munities are scarred by colonisation. of desire for remote spots. Like his be- Above all, Mr Francis notes, islands loved island maps, it leaves “room for the summon visions of separation and still- imagination, and for dreams”. Earthlings. By Sayaka Murata. Translated by ness, evoking “a sense of reverence, and Occasionally too much room: longer Ginny Tapley Takemori. Grove Press; 240 an absence of distraction”. They offer a sojourns in places he has visited would pages; $25. Granta; £12.99 sometimes have been welcome. They stretch from the South Sandwich Islands wo years ago Sayaka Murata won inter- off the Antarctic coast to Moffen Island Tnational acclaim after the English-lan- in the Svalbard archipelago, “a flat disc of guage publication of “Convenience Store shingle, the last spot before the North Woman”, in which a shopworker struggles Pole”. His literary references range from to escape society’s pressures. For 18 years the plight of Alexander Selkirk, the real- before Ms Murata wrote that book, she had life inspiration for “Robinson Crusoe”, to herself worked part-time in a convenience the psychoanalyst Donald Winnicott’s store in Tokyo. “Earthlings”, her second theory of isolation versus insulation in novel to be translated into English by Gin- childhood development. Winnicott’s ny Tapley Takemori, is another offbeat tale notion that “the preservation of personal about outsiders in Japan. This time, how- isolation is part of the search for identi- ever, her characters are not only low-sta- ty” informs Mr Francis’s sense of the role tus; they are completely ostracised. of islands in his own life. When the story begins, the narrator, But his book is too subtle to baldly Natsuki, is 11, and bullied by her mother equate isolation and self-knowledge. Mr and sister. “This child is so stupid and Francis eventually fulfilled his dream of slow,” her mother tells a neighbour. “What living on the Isle of May, taking a job as a a disgrace.” Natsuki replies: “Yes, it’s true.” nature warden. “A condition of tolerating A teacher sexually abuses her. She learns to island life”, he realised there, “might well detach herself from reality for protection, Sounds and sweet airs be the capacity to escape it.” conversing with a toy hedgehog called Piy- yut, who Natsuki thinks gives her “magical 1 74 Books & arts The Economist October 3rd 2020

Johnson Justice and just slips

The battle against racist language is too important to trivialise ack in 2002 The Economist mused that term is also an old anti-black insult. “blocklist” have proposed new terms for Babout the rise of Brazil’s left-wing The students are black (as, secretly, is he), “master” and “slave” in computing president-elect, Luiz Inácio Lula da Silva. and the fracas ends his career. (whereby one process or device controls “The meaning of Lula”, ran the cover line, Firestorms like the one at usc are set to another). This seems justifiable, too. The prompting a great deal of mail—much of become more frequent. America and other hunt for “masters” has ranged beyond it from amused South Asian readers who countries are wrestling with a history of power relationships, however. Harvard wrote to say that the meaning of “lula” in racism, and language is part of those reck- has dropped the name “house masters” Urdu is “penis”. onings. Some renamings and reframings for faculty members who live in student Amused—not outraged. It would have are justifiable, even overdue. Others hit the accommodation and have a pastoral role. been absurd not to cover a soon-to-be wrong target, but do little damage. In a few Some property salesmen are ditching president because his name is naughty in counter-productive cases, aspersions are “master bedroom” in favour of “main Urdu. Yet another complaint about a cast on well-intentioned people. bedroom”. These changes may be in- verbal coincidence, involving the trace of The problem runs deep. A host of nega- essential, but they are harmless. a graver kind of obscenity, recently had tive words and expressions in English The harm comes only when sensitiv- serious consequences at the business contain the modifier “black”; they are old, ity to offence goes so far that it under- school of the University of Southern and are probably related to a primeval fear mines the assumption of good faith to California (usc). Greg Patton, who teach- of darkness. Nonetheless the constant which people are generally entitled. At a es communication, was describing how equation of “black” with danger or evil can meeting of the Linguistic Society of repeating “erm, erm” can undermine a weary black human beings: consider black America in 2018, for instance, Itamar speaker’s effectiveness. He noted that magic, blackguard, black-hearted, black Francez of the University of Chicago other languages have similar pause- economy and so forth. Some, such as spoke on a panel about diversity in the fillers; Chinese people, he mentioned, blackmail, are unavoidable fixtures. But discipline. He decried “formalchismo”: use the equivalent of “that, that, that”, or not all: the computer types who are replac- older scholars’ dismissal of new perspec- in Mandarin, “nei ge, nei ge, nei ge”. ing “blacklist” (a list of e-mail addresses tives for being expressed without tradi- Then came the whirlwind. An anony- that cannot reach you) with “blocklist” are tional formality. Many in the audience mous complaint from an unknown making a small but symbolic effort. liked his coinage, but Mr Francez soon number of black students said that their The same tech wizards deploying found himself retracting it: a listener had “mental health has been affected”. The complained that it “creates a hostile dean of the business school removed Mr environment in linguistics for Spanish Patton from the class, excoriating him in speakers”. More and more academics say a leaked letter: “It is simply unacceptable they are afraid to discuss controversial for faculty to use words in class that can issues; that becomes harder still when marginalise, hurt and harm the psycho- even those trying to confront racism are logical safety of our students.” vulnerable to a “call-out” over a triviality. Veterans of these brouhahas will The losers could be those who need recall a case from 1999 in which a Wash- frank discussion most: minority stu- ington official was disciplined for using dents who should be able to decry the “niggardly” in a meeting. (The word real harms they face, in forms large and probably comes from medieval Scandi- small. One student at usc wrote on In- navia and is unrelated to the racial slur.) stagram that the “nei ge” flap “is going to Philip Roth turned a true story from 1985 be used to gaslight us when we try to into the crux of his book “The Human voice our actual grievances”. An ever- Stain” (2000). A professor inquires after growing list of things you cannot say two missing students, wondering aloud helps no one. Progress requires more if they are “spooks”, meaning ghosts. But open conversation, not less.

2 powers” to fend oﬀ violence. She is close kind of cocoon, dodging expectations by creasingly otherworldly. only to her cousin Yuu, who is also mis- marrying an asexual man. Eventually, in This is a novel about trauma—the treated by his mother and believes he is an the most disturbing scenes of this uncom- trauma of bullying, childhood sexual extraterrestrial. In the mountains of Akish- fortable yet unforgettable book, she at- abuse and of being blamed for that abuse. ina, where each year the family gathers for tempts to escape the existence of a “brain- Ms Murata admonishes Japan for its con- the Obon festival, Natsuki and Yuu search washed” earthling altogether, and live as an formism, as well as for the pressure put on for a spaceship, hoping it will ﬂy them to a alien instead. women and couples to have children, and planet where they belong. Throughout the story, her feelings of the way victims of sexual violence can be Natsuki’s experiences come to mirror being an outsider are manifest in the world regarded with suspicion (both problems in the life-cycle of the silkworms kept in a around her. From her perspective, shadows other countries, too). In her unique, dead- special room at her grandparents’ house. in forests and in the dark at bedtime are pan style, she shows how the treatment of As a child, she focuses on surviving (she “tinged with the colour of outer space”. As people on society’s fringes can itself be a and Yuu vow to “survive, whatever it Natsuki becomes more and more margin- form of violence, irreparably damaging takes”). As a young adult, she goes into a alised, the Japanese landscape grows in- their connection to the world. 7 Announcements Courses 75

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Free or Nominal Rate Outside-County Copies Included on Address – The Adelphi Bldg., 1-11 John Adam St., PS Form 3541: 502 London, England WC2N 6HT 2. Free or Nominal Rate In-County Copies Included on PS Shareholders Holding 1% or More of the Total Issued Form 3541: N/A Share Capital of The Economist Newspaper Limited 3. Free or Nominal Rate Copies Mailed at Other Classes The total issued share capital is 20,160,100 shares, Through the USPS: N/A 5,040,000 of which is held in Treasury, consisting of 4. Free or Nominal Rate Distribution Outside the Mail: ordinary, “A” Special, “B” Special and Trust Shares. 1,409 Shareholders with more than 1% of the total issued e. Total Free or Nominal Rate Distribution: 1,911 share capital (excluding shares held in Treasury) f. Total Distribution: 487,489 (i.e. more than 201,600) are listed below: g. Copies not Distributed: 41,360 Shareholder: EXOR NV h. Total: 528,849 The Netherlands i. Percent Paid: 99.61% Total Shareholding: 8,750,000 No. Copies of Single Issue Published Nearest to Filing % of Total Issued Capital: 43.40% Date Shareholder: Lady Lynn Forester de Rothschild a. Total number of copies: 451,069 USA b. Paid Circulation: Total Shareholding: 3,681,988 % of Total Issued Capital: 18.26% 1. Mailed Outside-County Paid Subscriptions Shareholder: Sir Evelyn de Rothschild, Lady Lynn de Stated on PS Form 3541: 350,790 Rothschild and Jessica de Rothschild 2. Mailed In-Country Paid Subscriptions as trustees of The Eranda Rothschild Stated on PS Form 3541: N/A Foundation 3. Paid Distribution Outside the Mails Including London England Sales Through Dealers and Carriers, Street Total Shareholding: 1,305,002 Vendors, Counter Sales, and other Paid % of Total Issued Capital: 6.47% Distribution Outside USPS: 67,290 Shareholder: The estate of Bruno Schroder 4. Paid Distribution by Other Classes of Mail (deceased) Through the USPS: N/A London England c. Total Paid Distribution: 418,080 Total Shareholding: 480,000 d. Free or Nominal Rate Outside Distribution: N/A % of Total Issued Capital: 2.38% 1. Free or Nominal Rate Outside-County Copies Included on PS Shareholder: ELR Investments LLC Form 3541: 482 USA 2. Free or Nominal Rate In-County Copies Included on PS Form Total Shareholding: 400,000 3541: N/A % of Total Issued Capital: 1.98% 3. Free or Nominal Rate Copies Mailed at Other Classes Shareholder: Roy Nominees Limited Through the USPS: N/A London England 4. Free or Nominal Rate Distribution Outside the Mail: 945 Total Shareholding: 373,455 e. Total Free or Nominal Rate Distribution: 1,427 % of Total Issued Capital: 1.85% f. Total Distribution: 419,507 Shareholder: Mrs. C B Mallinckrodt g. Copies not Distributed: 31,562 London England h. Total: 451,069 Total Shareholding: 240,000 i. Percent Paid: 99.66% % of Total Issued Capital: 1.19% 16. Publication of Statement of Ownership: October 03, 2020 Shareholder: Pauline Layton Surrey England 17. Signature and Title of Editor, Publisher, Business Manager, or Total Shareholding: 214,639 Owner and Date: % of Total Issued Capital: 1.06% Bob Cohn, President/Managing Director, The Economist Shareholder: The Economist Group Trustee Date signed: 09/28/2020 London England I certify that all information furnished on this form is true and Total Shareholding: 280,094 complete. I understand that anyone who furnishes false or % of Total Issued Capital: 1.39% misleading information on this form or who omits material or Shareholder: Smith & Williamson Nominees Limited, information requested on the form may be subject to criminal Glasgow sanctions (including fi nes and imprisonment) and/or civil sanctions Total Shareholding: 224,300 (including civil penalties). 76 Economic & financial indicators The Economist October 3rd 2020

Economic data

Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units % change on year ago % change on year ago rate balance balance 10-yr gov't bonds change on per $ % change latest quarter* 2020† latest 2020† % % of GDP, 2020† % of GDP, 2020† latest,% year ago, bp Sep 30th on year ago United States -9.0 Q2 -31.4 -5.3 1.3 Aug 0.7 8.4 Aug -1.8 -15.3 0.7 -99.0 - China 3.2 Q2 54.6 1.7 2.4 Aug 3.5 3.8 Q2§ 1.8 -5.6 3.0 §§ 4.0 6.81 4.8 Japan -9.9 Q2 -28.1 -6.4 0.2 Aug nil 2.9 Jul 2.5 -10.6 nil -8.0 106 2.4 Britain -21.5 Q2 -58.7 -9.5 0.2 Aug 0.8 4.1 Jun†† -1.7 -18.2 0.3 -28.0 0.77 5.2 Canada -13.0 Q2 -38.7 -5.8 0.1 Aug 0.7 10.2 Aug -2.1 -13.0 0.6 -79.0 1.34 -1.5 Euro area -14.7 Q2 -39.4 -8.4 -0.2 Aug 0.3 7.9 Jul 2.3 -9.2 -0.5 5.0 0.85 8.2 Austria -12.5 Q2 -34.5 -6.4 1.4 Aug 1.1 5.2 Jul 1.0 -7.4 -0.3 -4.0 0.85 8.2 Belgium -14.4 Q2 -40.2 -8.1 0.9 Sep 0.4 5.5 Jul -1.6 -9.6 -0.3 -6.0 0.85 8.2 France -18.9 Q2 -44.8 -10.2 0.1 Sep 0.7 6.9 Jul -1.0 -11.3 -0.3 3.0 0.85 8.2 Germany -11.3 Q2 -33.5 -5.9 -0.2 Sep 0.5 4.4 Jul 5.9 -7.2 -0.5 5.0 0.85 8.2 Greece -15.3 Q2 -45.4 -8.5 -1.9 Aug -1.0 18.3 Jun -2.9 -7.5 1.0 -36.0 0.85 8.2 Italy -17.7 Q2 -42.2 -10.4 -0.5 Sep nil 9.7 Jul 2.6 -11.6 0.9 4.0 0.85 8.2 Netherlands -9.4 Q2 -30.0 -6.0 0.7 Aug 0.9 3.8 Mar 5.3 -5.4 -0.5 -6.0 0.85 8.2 Spain -21.5 Q2 -54.3 -12.6 -0.3 Sep -0.1 15.8 Jul 0.5 -12.3 0.2 10.0 0.85 8.2 Czech Republic -10.9 Q2 -30.6 -6.6 3.3 Aug 2.8 2.7 Jul‡ -1.3 -6.6 0.9 -48.0 23.1 2.5 Denmark -7.6 Q2 -24.6 -4.0 0.5 Aug 0.4 4.9 Aug 9.1 -6.3 -0.4 14.0 6.35 7.9 Norway -4.7 Q2 -19.0 -3.5 1.7 Aug 1.2 5.2 Jul‡‡ 1.8 -0.9 0.6 -61.0 9.36 -2.9 Poland -8.0 Q2 -31.1 -4.1 2.9 Aug 3.1 6.1 Aug§ 0.5 -9.3 1.3 -69.0 3.87 3.6 Russia -8.0 Q2 na -5.7 3.6 Aug 3.4 6.4 Aug§ 1.8 -4.3 6.4 -73.0 77.6 -16.4 Sweden -7.7 Q2 -29.3 -3.8 0.8 Aug 0.4 8.8 Aug§ 4.7 -4.1 -0.1 16.0 8.95 9.8 Switzerland -8.3 Q2 -26.1 -4.6 -0.9 Aug -1.1 3.4 Aug 9.8 -4.9 -0.5 20.0 0.92 8.7 Turkey -9.9 Q2 na -4.9 11.8 Aug 11.9 13.4 Jun§ -3.2 -5.6 12.9 -27.0 7.70 -26.6 Australia -6.3 Q2 -25.2 -4.5 -0.3 Q2 0.5 6.8 Aug 1.3 -7.6 0.8 -17.0 1.40 5.7 Hong Kong -9.0 Q2 -0.5 -4.2 -0.5 Aug 0.9 6.1 Aug‡‡ 4.4 -5.8 0.5 -77.0 7.75 1.2 India -23.9 Q2 -69.4 -8.5 6.7 Aug 5.2 6.7 Sep 0.9 -7.9 6.0 -68.0 73.8 -3.9 Indonesia -5.3 Q2 na -1.6 1.3 Aug 2.2 5.0 Q1§ -1.1 -7.0 6.9 -35.0 14,880 -4.6 Malaysia -17.1 Q2 na -8.0 -1.4 Aug -1.1 4.7 Jul§ 0.8 -8.0 2.8 -57.0 4.16 0.7 Pakistan 0.5 2020** na -2.8 8.2 Aug 9.0 5.8 2018 -1.3 -8.0 9.7 ††† -304 166 -5.7 Philippines -16.5 Q2 -48.3 -6.1 2.4 Aug 2.4 10.0 Q3§ 0.9 -7.9 3.0 -170 48.5 6.9 Singapore -13.2 Q2 -42.9 -6.0 -0.4 Aug -0.2 2.8 Q2 18.9 -13.6 0.9 -87.0 1.37 0.7 South Korea -2.8 Q2 -12.0 -1.8 0.7 Aug 0.5 3.1 Aug§ 2.8 -6.0 1.4 -3.0 1,170 2.3 Taiwan -0.6 Q2 -5.5 -0.3 -0.3 Aug -0.3 3.8 Aug 11.5 -2.7 0.4 -31.0 29.0 7.1 Thailand -12.2 Q2 -33.4 -5.9 -0.5 Aug -0.7 1.9 Aug§ 3.1 -6.3 1.1 -30.0 31.7 -3.5 Argentina -19.1 Q2 -50.7 -11.0 40.7 Aug‡ 41.7 13.1 Q2§ 2.2 -10.0 na -464 76.2 -24.4 Brazil -11.4 Q2 -33.5 -5.2 2.4 Aug 2.8 13.8 Jul§‡‡ -0.7 -15.7 1.9 -305 5.64 -26.1 Chile -14.1 Q2 -43.3 -5.6 2.4 Aug 2.6 12.9 Aug§‡‡ 0.2 -10.0 2.7 -7.0 788 -7.6 Colombia -15.5 Q2 -47.6 -7.7 1.9 Aug 2.6 16.8 Aug§ -4.6 -8.8 5.1 -73.0 3,854 -9.8 Mexico -18.7 Q2 -52.7 -9.7 4.0 Aug 3.4 3.3 Mar nil -4.5 5.8 -109 22.1 -10.6 Peru -30.2 Q2 -72.1 -13.0 1.7 Aug 1.8 18.2 Aug§ -1.0 -8.5 3.5 -77.0 3.60 -6.1 Egypt 5.0 Q1 na 3.8 3.4 Aug 5.6 9.6 Q2§ -4.3 -9.3 na nil 15.8 3.3 Israel -6.8 Q2 -29.0 -5.0 -0.8 Aug -1.1 4.9 Aug 4.5 -10.2 0.7 -20.0 3.42 1.8 Saudi Arabia 0.3 2019 na -5.2 6.1 Aug 3.4 9.0 Q2 -4.7 -10.0 na nil 3.75 nil South Africa -17.1 Q2 -51.0 -8.0 3.0 Aug 3.3 23.3 Q2§ -2.3 -16.0 9.4 111 16.7 -9.1 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

Markets Commodities % change on: % change on: The Economist commodity-price index Index one Dec 31st index one Dec 31st % change on In local currency Sep 30th week 2019 Sep 30th week 2019 2015=100 Sep 22nd Sep 29th* month year United States S&P 500 3,363.0 3.9 4.1 Pakistan KSE 40,571.5 -3.1 -0.4 Dollar Index United States NAScomp 11,167.5 5.0 24.5 Singapore STI 2,466.6 -0.6 -23.5 All Items 125.5 124.6 -2.8 13.1 China Shanghai Comp 3,218.1 -1.9 5.5 South Korea KOSPI 2,327.9 -0.2 5.9 Food 102.4 101.2 1.5 7.2 China Shenzhen Comp 2,149.5 -2.4 24.8 Taiwan TWI 12,515.6 -0.5 4.3 Industrials Japan Nikkei 225 23,185.1 -0.7 -2.0 Thailand SET 1,237.0 -2.1 -21.7 All 147.0 146.4 -5.4 17.3 Japan Topix 1,625.5 -1.1 -5.6 Argentina MERV 41,260.9 0.7 -1.0 Non-food agriculturals 102.4 103.3 -9.1 11.6 Britain FTSE 100 5,866.1 -0.6 -22.2 Brazil BVSP 94,603.4 -1.2 -18.2 Metals 160.3 159.2 -4.7 18.5 Canada S&P TSX 16,121.4 1.9 -5.5 Mexico IPC 37,458.7 4.5 -14.0 Sterling Index Euro area EURO STOXX 50 3,193.6 0.4 -14.7 Egypt EGX 30 10,989.3 0.1 -21.3 All items 150.5 148.1 1.8 7.7 France CAC 40 4,803.4 nil -19.6 Israel TA-125 1,345.4 1.6 -16.8 Germany DAX* 12,760.7 0.9 -3.7 Saudi Arabia Tadawul 8,299.1 0.7 -1.1 Euro Index Italy FTSE/MIB 19,015.3 0.5 -19.1 South Africa JSE AS 54,265.0 nil -4.9 All items 118.9 117.8 -0.9 5.3 Netherlands AEX 547.7 0.4 -9.4 World, dev'd MSCI 2,367.3 2.7 0.4 Gold Spain IBEX 35 6,716.6 0.9 -29.7 Emerging markets MSCI 1,082.0 0.4 -2.9 $ per oz 1,903.6 1,886.2 -4.6 27.2 Poland WIG 49,411.5 1.9 -14.6 Brent Russia RTS, $ terms 1,178.5 -1.4 -23.9 $ per barrel 41.8 41.0 -10.1 -30.9 Switzerland SMI 10,187.0 -1.4 -4.0 US corporate bonds, spread over Treasuries Turkey BIST 1,145.2 3.9 0.1 Dec 31st Sources: Bloomberg; CME Group; Cotlook; Datastream from Reﬁnitiv; Australia All Ord. 6,009.3 -1.7 -11.7 Basis points latest 2019 Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional. Hong Kong Hang Seng 23,459.1 -1.2 -16.8 Investment grade 181 141 India BSE 38,067.9 1.1 -7.7 High-yield 593 449 Indonesia IDX 4,870.0 -1.0 -22.7 Sources: Datastream from Reﬁnitiv; Standard & Poor's Global Fixed For more countries and additional data, visit Malaysia KLSE 1,504.8 0.6 -5.3 Income Research. *Total return index. Economist.com/indicators Graphic detail Wealth and schooling The Economist October 3rd 2020 77

→ Poor students in rich countries have higher test scores than rich pupils in poor ones do

Household income and maths test scores* Predicted maths score* Between the 10th and 90th percentile of income in each country For annual household income and GDP, log scales

Maths score 650 Income, $† 100,000

Country income group Score of 500 South Korea High 10,000 600 Upper middle 400 Lower middle Japan 1,000 Germany Low 550 US 300 Russia 100 Russian students whose families earn $2,000 a year… 500 200 10 100 1,000 10,000 50,000 Thailand Brazil GDP per person, $‡ 450 Armenia Income inequality§ v strength of correlation Honduras between maths score* and income 400 Senegal 0.5

…score higher than students 0.4 in Morocco, a poorer country, 350 whose families earn $4,000 Thailand Brazil Chad Morocco Germany 0.3 US South Korea Honduras 300 0.2 Russia 90th percentile Yemen Yemen Chad 0.1 250 10th percentile Armenia 0 100 1,000 10,000 50,000 0.25 0.30 0.35 0.40 0.45 0.50 0.55 Annual household income, log scale, $† ← More equal Income inequality Less equal →

Sources: “A Rosetta Stone for Human Capital”, by D. Patel and J. Sandefur; World Bank; The Economist *Estimated TIMSS score equivalent, out of 1,000 †In 2005 dollars, at purchasing-power parity (PPP) ‡In 2015 dollars, at PPP §Gini coefficient, 1=perfect inequality

Development, a think-tank, offers strong country and family have similar impacts A rising tide evidence that the wealth of a country af- on test scores—meaning that big gaps in fects exam results just as much as the gdp per person matter more than small wealth of a pupil’s household does. ones in household income do. For exam- Evaluating test scores around the world ple, pupils from families that are very poor is harder than it sounds. Although pupils by rich-world standards—those earning in the rich world mostly take one of a few $5,000 a year (measured in 2005 dollars)— Country and family income are equally big international exams, many developing were expected to score around 500 out of important for predicting test scores countries rely on regional tests. This pre- 1,000 on the timss in America, and 560 in here are some things money can’t cludes apples-to-apples comparisons. Japan. In contrast, those whose parents Tbuy. Education, however, does not ap- The authors surmounted this obstacle make $10,000 a year in an upper-middle- pear to be among them—at least as mea- by fielding an exam in 2016 for 2,314 chil- income country, such as Costa Rica, still sured by performance on international ex- dren in Bihar, in northern India. It included manage only the equivalent of a 475. ams. On average, pupils in wealthy both questions from the leading tests and The study also found that the influence countries obtain vastly higher test scores ones taken from smaller exams. Using an- of parental earnings is not constant. In- than those in developing ones. In turn, swers from the same pupils on the same stead, an extra $1,000 in family income strong students tend to become productive day to questions from different tests, they “buys” a larger increase in test scores in workers, making the mostly rich econo- built a statistical model they called a “Ro- highly unequal countries than it does in mies they join richer still. setta Stone”. It can translate scores from a ones that split their economic pie more The exact mechanism by which knowl- range of exams—such as one used solely in evenly. One possible reason is that elites edge is bought remains unclear. Do stu- west Africa—into an equivalent mark on tend to educate their children privately in dents in the rich world fare better because other common international tests. places where wealth is concentrated, such their governments provide superior Messrs Patel and Sandefur then used as Brazil. In contrast, in countries with rel- schools? Or is the reason that they tend to these equations to estimate how pupils in atively flat income distributions, like Croa- have richer parents, and enjoy more educa- 80 different countries would fare on the tia or Armenia, pupils from different social tional resources at home? A new working benchmark Trends in International Mathe- classes are more likely to attend the same paper by Dev Patel of Harvard University matics and Science Study (timss). Their schools. This could reduce the impact of and Justin Sandefur of the Centre for Global data show that the wealth of a student’s family wealth on test scores. 7 78 Obituary Harold Evans The Economist October 3rd 2020

the back bench, poring over pictures and layout to get that vital impact. Many thought him the most powerful editor in Britain well before the Times. It was a pretty good outcome for a northern working-class boy, the product of a state school, who had felt ashamed for years of not speaking like the bbc. He was proud of his career as an editor, just as he was proud of his father’s rise from stoker to full-time train driver, and of the shop his mother ran from the front room. His parents had taught him to make the most of himself, so he had. Though he kept a certain working-class deference and friendli- ness, did not shout, was “Harry” to everyone and would quite kind- ly tell reporters their copy was hopeless, he had taken on almost every part of the establishment and made it quake. But a year to the day after going to the Times his power was dust, when Rupert Murdoch fired him. Mr Murdoch had bought both the Times and the Sunday Times and had given him the Times job, but presumably the Evans style was too anti-Thatcher. At first he had liked Mr Murdoch’s Australian brashness, perhaps the best way to deal with the Luddite print unions who had kept both titles off the news-stands for a year. But he soon learned that the bonhomie could turn to malice in a minute. First the two great papers lost their independence; then the stiletto slid between his ribs. People looked pityingly on him now. That was unbearable, so he left for the United States and a teaching job. His second wife, Tina Brown, soon joined him as editor of Vanity Fair, and he too took up the pen again, editing us News & World Report and founding Condé Nast Traveller before becoming, in 1990, president of Random Attacking the devil House. There the copy on his desk was by Gore Vidal and Norman Mailer, William Styron and Richard Nixon, as well as the business- men, artists and poets he added to the list. The glittering Manhat- tan literary scene revolved around their garden brownstone, en- joyably so. America performed its reinventing magic, and in 1993 he became a citizen. Yet the country’s deepest effect on him had Harold Evans, editor and publisher, died on September 23rd, happened years before, when he visited on a Harkness fellowship aged 92 in 1956. He was already in love with newspapers; with the smell of n that day in 1981 when he first sat at the pinnacle of British printer’s ink, and with Hollywood’s depiction of brave small-town Ojournalism, the editor’s desk at the Times, and wrote his first newspapermen standing up to crooks. Papers in America might be policy editorial, Harold Evans heard Abraham Lincoln’s voice in slackly edited and poorly designed, but they showed a crusading his ear. In 1861 the president had said he knew of nothing more desire for openness that was still rare in Britain. powerful than the Times, “except perhaps the Mississippi”. This was the way he meant to go. At the age of 12 he had found Now the legendary paper was his to do what he liked with. He out that papers lied: that the haggard, dejected soldiers he saw could remake it, relaunch it, liven it up, pouring all his wiry energy lying on Rhyl beach in Wales, back from Dunkirk, were far from the into it. No one was better suited or better placed. Over a 14-year gung-ho, battle-ready troops portrayed in the Daily Mirror. As a stint at the Sunday Times he had turned a staid, class-bound broad- young reporter, he was urged to seek the truth directly: not just to sheet into a compelling, dramatic newspaper with—a first for Brit- retail the lazy he-said-she-said, but to find out who was actually ain—a glossy colour magazine. He had also run bold, eye-catching, right. From his first days as an editor, at the Northern Echo in Dar- risky campaigns. The paper had unmasked Kim Philby as a Soviet lington, he put the paper on the map with dogged campaigns. One, spy, braving the fury of the intelligence services. After Bloody Sun- on inadequate detection of cervical cancer, led to national screen- day in Derry in 1972 he had sent his own team to Northern Ireland ing; another, to get a pardon for a man who had been wrongly to uncover abuses by British soldiers, second-guessing the govern- hanged, helped end the death penalty for murder. At the Sunday ment inquiry. He challenged the oil companies that illegally sup- Times he deployed a whole force, the Insight team, to disinter the plied the apartheid regime in Rhodesia, and in 1975 published the multiple aspects of a story. His motto was, “Keep digging”. diaries of Richard Crossman, a former Labour minister, in de- Truth also lay in photographs—often rawly so. But it depended fiance of the Official Secrets Act. Most famously, he fought for on words. He wrote several books attacking the obfuscation or eight years for proper compensation for children crippled in utero downright deception that lay like a fog over political discourse, by the drug thalidomide—thereby exposing a heartbreaking scan- government reports, court decisions, the internet, and over the dal and making the manufacturers, Distillers, face justice. everyday documents by which people were duped. Truth lived in Other editors hesitated to run these stories. He never did, what- clarity: a lesson he had first learned as he strived to fit his words ever headaches they gave the lawyers. If the legal route was barred into the iron chase of the page-planner, and went on applying as he by injunctions or contempt of court, he made his cause a moral marked up copy, day by day, excising the unnecessary. one. He ran the story over several pages under a banner headline, A newspaper editor’s job was like a searchlight. In the digital and week by week found a new human angle to keep it going. It be- age that power had dimmed; Lincoln’s words had a poignant ring came unignorable that way, and grew into a problem that had to be now, generally as well as personally. But he hoped he had still shed resolved. He would not stop until it was. Beside the text he ran pho- a little light into deliberately darkened places. And the remark of tographs that were equally powerful, daring the reader to look his great hero W.T. Stead, a campaigning Victorian editor of the away: Don McCullin’s unsparing portraits from war zones, or the Echo, seemed as valid as ever. Running a newspaper gave him “a dangling body-harness of a thalidomide child. He spent hours at glorious opportunity of attacking the devil”. 7 3-day virtual summit November 9th–11th 2020

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