Cuba after Fidel

India’s botched rupee plan

What Trump means for school reform

Getting ketchup out of a bottle DECEMBER 3RD–9TH 2016 The mighty dollar

America’s currency, the world’s problem Contents The Economist December 3rd 2016 5

8 The world this week 32 Divorce Disruptive innovation 33 Louisiana’s Senate race Leaders Alamo on the bayou 11 World economy 34 Lexington The mighty dollar The impresario-elect 12 India’s demonetisation Modi’s bungle The Americas 13 Education in America DeVos woman 35 Haiti’s presidential election 13 South Korean politics The banana man School reform in America Park somewhere else 36 Brazil Donald Trump’s education 14 Latin America Trouble for Temer secretary deserves a cautious After Fidel 36 A Brazilian tragedy welcome: leader, page 13. On the cover The crash in Medellín Betsy DeVos’s appointment Why a strengthening dollar is Letters has given the school-reform bad for the world economy: movement a shot in the arm. 16 On Italy, procurements, leader, page 11. Why Middle East and Africa Yet she may end up splitting it, the electoral college, America’s currency has page 29. A science teacher millennials, Trump 37 Israel’s prime minister rallied so hard and what its discovers a blueprint for supporters Sitting pretty strength might portend, page 38 Kuwait educational reform, page 72 58. It is too early to say the Bypassed by Dubai era of low yields is over: Briefing Buttonwood, page 59. A strong 39 HIV in Africa 18 Fidel Castro Many battles won, but not dollar exposes the yuan’s The will to power vulnerabilities, page 60 the war 39 Syria Asia Aleppo falls apart The Economist online 21 South Korea’s political 40 Sudan Tribulations, but no trial Daily analysis and opinion to crisis supplement the print edition, plus A long goodbye audio and video, and a daily chart 22 Royal politics in Thailand Europe Economist.com Better late than never 41 The French presidential E-mail: newsletters and 23 India’s demonetisation campaign Cuba after Fidel The transition mobile edition The ropy rupee recall Liberté, autorité, dignité to a better Cuba will not be Economist.com/email 24 Politics in Afghanistan 42 Greek politics easy. Mr Trump could make it Print edition: available online by The vice-president runs Orthodox measures harder: leader, page 14. What amok 7pm London time each Thursday 43 Turkey and Europe did Cuba’s communist leader Economist.com/print 25 Banyan End of the affair achieve? Pages 18-20 Audio edition: available online Gay marriage in Taiwan 43 Corruption in Slovakia to download each Friday Economist.com/audioedition Tart response China 44 Italy’s referendum 27 Internal migrants Just trust me More children, more 45 Charlemagne grandparents Wobbly on Russia 28 Marriage The divorce whisperer Volume 421Number 9018 Britain Published since September 1843 46 UKIP to take part in "a severe contest between United States intelligence, which presses forward, and The battle for Brexit voters an unworthy, timid ignorance obstructing 29 Education 47 Trade with the EU our progress." Long-haul charters Customs of the country South Korea’s president Editorial offices in London and also: 30 The next treasury 48 Bagehot To spare her country months of Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, drift, Park Geun-hye should Lima, Mexico City, Moscow, Mumbai, Nairobi, secretary Keir Starmer, noble New Delhi, New York, Paris, San Francisco, Mnuchin v Manchuria Lilliputian resign now: leader, page 13. São Paulo, Seoul, Shanghai, Singapore, Tokyo, The president has undercut Washington DC 31 Capital punishment moves to impeach her by Novel justice suggesting she might resign, 31 Midwestern recounting page 21 Catharsis

1 Contents continues overleaf 6 Contents The Economist December 3rd 2016

International Science and technology 49 Abortion 65 Smart weapons How to make it rarer The vision thing 51 Abortion in El Salvador 66 Super-slippery surfaces Miscarriage of justice The last drop 67 Ocean acidification Business Unbalanced 52 Siemens and General 67 Liver cancer Electric Zoned out Machines learning 68 Artificial intelligence Abortion In many countries Ultra-slippery surfaces From 53 American business Eyes at the border abortion is the main form of boosting the output of power The small fly birth control. The easiest, plants to pouring ketchup, least controversial way to 54 The sharing economy (1) Books and arts new fluid-repellent surfaces reduce it is often neglected, Airbnb in China 69 Populist politics (1) will help, page 66 page 49. Where miscarrying 55 The sharing economy (2) They want their countries can mean a life in jail, page 51 Out of the doghouse back 55 French energy 70 Populist politics (2) Subscription service Turmoil at EDF Further reading For our full range of subscription offers, including digital only or print and digital 56 Golf in Japan 70 America and China combined visit Economist.com/offers Recovery shot Careful what you wish for You can subscribe or renew your subscription 57 Schumpeter 71 Why Europe became rich by mail, telephone or fax at the details below: Telephone: +65 6534 5166 King customer Ideas matter Facsimile: +65 6534 5066 72 Global education Web: Economist.com/offers The learning power of PISA E-mail: [email protected] Finance and economics Post: The Economist 58 The world economy 72 New fiction Subscription Centre, Dollar squeeze Bearing up under the Tanjong Pagar Post Office spotlight PO Box 671 59 Buttonwood Singapore 910817 Bond yields Subscription for 1 year (51 issues)Print only India’s rupee plan Narendra Australia A$425 Modi’s monetary reform had 60 China’s falling currency 74 Economic and financial China CNY 2,300 worthy aims. What a pity that A harder call indicators Hong Kong & Macau HK$2,300 Statistics on 42 economies, India INR 7,500 it was so disastrously botched: 60 Oil prices Japan Yen 41,000 plus a closer look at fiscal Korea KRW 344,000 leader, page 12. Ordinary An OPEC deal Malaysia RM 780 Indians are suffering from a balances New Zealand NZ$460 61 African stockmarkets Singapore & Brunei S$425 desperate shortage of cash, Short of stock Taiwan NT$8,625 page 23. India’s clumsy Obituary Thailand US$288 demonetisation puts its 62 Cyber-insurance Other countries Contact us as above economy and institutions at Hack work 76 William Trevor Mystery and mastery risk: Free exchange, page 64 62 Bank supervision Principal commercial offices: A new Basel agreement 25 St James’s Street, London sw1a 1hg 63 Analyst forecasts Tel: +44 20 7830 7000 Discounting the bull Rue de l’Athénée 32 1206 Geneva, Switzerland 64 Free exchange Tel: +4122 566 2470 India’s debauched rupee 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

OPEC makes a deal Could an agreement to cut supply mark the beginning of the end of PEFC certified cheap oil? Page 60 This copy of The Economist is printed on paper sourced from sustainably managed forests, recycled and controlled sources certified by PEFC PEFC/01-31-162 www.pefc.org

© 2016 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Publisher: The Economist. Printed by Times Printers (in Singapore). M.C.I. (P) No.030/09/2016 PPS 677/11/2012(022861) 8 The world this week The Economist December 3rd 2016

from Alberta’s tar sands to the National Congress by party nearly 20 seats that Labour Politics west coast. Green groups say dissidents amid an influence- won in the 2015 election. A the decision will encourage peddling scandal. similar swing against the production ofan especially government would see UKIP dirty form ofpetroleum. Scores ofpeople were killed in take nearly as many seats from Uganda in clashes between the Tories. Even ifit managed On borrowed time the army and supporters ofa such a feat, that would not ParkGeun-hye, the embattled regional king, Charles Mum- make formuch ofan opposi- president ofSouth Korea, bere, who is accused ofstarting tion party. suggested she was willing to a secessionist movement. leave office, saying that parlia- Top Trumps ment should decide her fate. Syrian government forces, Donald Trump chose Steven Her opponents have been backed by Russian bombing, Mnuchin to be his treasury clamouring to impeach her made large gains in rebel-held secretary. MrMnuchin is the over her involvement in an eastern Aleppo. The rebels’ founder ofa film-financing alleged extortion scandal. last big redoubt has now been firm that has helped fund Fidel Castro, who led a revolu- cut almost in half; many civil- dozens ofHollywood hits, tion in Cuba and ruled as a The UN Security Council ian casualties have been including “Fantastic Beasts and communist dictator for47 imposed new sanctions on reported. Where to Find Them”. He will years, died at the age of90. He North Korea in an attempt to have to conjure up some magic was an unyielding antagonist force it to abandon its nuclear Israel fired two rockets towards at the Treasury ifhe is to ac- ofthe United States, which weapons. The latest measure Damascus, Syria’s capital, complish Mr Trump’sagenda tried many times to assassi- restricts its exports ofcoal, a possibly in an operation de- oftax cuts and big spending nate him. In 1962 Mr Castro big source offoreign currency. signed to disrupt flows of without blowing a hole in the helped bring the world to the weapons toward Hizbullah, budget deficit. brinkofnuclear war by in- Thailand’s rubber-stamp which is operating there in viting the Soviet Union to parliament acclaimed Crown support ofthe Assad regime. Mr Trump filled some other station missiles in Cuba. His Prince Maha Vajiralongkorn as cabinet positions. Tom Price, brother, Raúl, formally re- king, ending an unexpected The could-be president a critic ofObamacare, was placed him as president in interregnum following the In France François Fillon, a selected as health secretary. 2008, but he was the symbolic death ofhis father, King Bhu- socially conservative former leader ofthe Latin American mibol Adulyadej, in October. prime minister, won the nomi- Nancy Pelosi was re-elected as farleft until his death. nation ofthe centre-right the Democrats’ leader in the Nawaz Sharif, the prime min- Republicans fornext year’s House, seeing offa challenge Colombia’s congress ratified a ister ofPakistan, appointed a presidential election. He wants from a congressman who has revised peace agreement with new army chiefon the retire- to shrinkthe state, a radical said the party’s defeat at the the FARC, an insurgent group ment ofthe incumbent. It was stance in France. Polls suggest election should set offa “fire with which the government the first time an army chief in he would beat the National alarm because the house is has been at war for52 years. Pakistan has retired at the end Front’s Marine Le Pen, but he burning down”. Legislators opposed to the deal ofhis allotted term in 20 years. will need to convince the left walked out before the vote. to vote forhim. Black and white Colombians rejected the origi- Three human-rights advocates nal agreement in a plebiscite in disappeared in China, appar- An employee ofGermany’s October. To avoid a second ently arrested by the authori- domestic intelligence agency vote, President Juan Manuel ties. Peng Ming, a veteran was arrested on suspicion of Santos submitted the new deal pro-democracy campaigner passing information to Islamic to congress forratification. who was kidnapped by Chi- fundamentalists. nese officials from Myanmar, A plane carrying 77 people, was said to have died in jail. Theresa May, Britain’s prime including members ofa Brazil- minister, held talks with her ian football team, crashed near Living to fight another day opposite number from Poland, Medellín in Colombia. Beata Szydlo. The issue of allowing the hundreds of Jovenel Moïse won Haiti’s thousands ofPolish people presidential election in the first who live in Britain to stay after Norway’s Magnus Carlsen round with 56% ofthe vote, Brexit dominated the agenda. defeated Sergey Karjakin of according to preliminary Negotiating the rights ofEU Russia in a tie-breaker match to results. Mr Moïse belongs to migrants in the UK and British retain his title as world chess the Haitian Shaved-Head expats in the EU will be central champion. Mr Carlsen’s Party, with which the former to the Brexit talks. queen-sacrificing gambit president, Michel Martelly, is stopped Mr Karjakin from also linked. The UK Independence Party becoming the first Russian got its third leader ofthe year. world champion since 2007. Canada’s prime minister, Paul Nuttall wants UKIP to The match had taken on Justin Trudeau, approved the South Africa’s president, replace Labour as the voice of geopolitical significance in expansion ofthe Kinder Mor- Jacob Zuma, survived an the working class. A swing of part because Mr Karjakin was gan Trans Mountain pipeline, attempt to remove him as less than 15 percentage points born in Crimea, which Russia which carries oil forexport leader ofthe ruling African would reward UKIP with annexed in 2014 1 The Economist December 3rd 2016 The world this week 9

initial estimate of2.9%. Con- case has been taken to the EU’s Banca Monte dei Paschi di Business sumer spending was stronger highest court by Barcelona’s Siena, a distressed Italian than had been thought. Rising established taxi drivers, who, bank, tookthe first step in its After months ofhaggling workers’ incomes also helped. like taxi drivers the world over, recapitalisation plan by of- OPEC members agreed to the complain that Uber has mus- fering to swap €4.3bn ($4.6bn) first cut in oil production in MarkCarney, the governor of cled into their market by cir- in subordinated bonds for eight years. Non-OPEC mem- the BankofEngland, warned cumventing local transport equity. The bankis trying to bers are expected to chip in about the increasing level of regulations. Uber says it is an raise capital amid uncertainty with a cut oftheir own. Iran, household debt in Britain. The “information-society services about the outcome ofItaly’s which had been reluctant to debt-to-income ratio is the provider”. constitutional referendum on reduce output so soon after highest since 2013. Unsecured December 4th. Ifthe returning to international debt accounts for a bigger Pilots at Lufthansa went on government loses the vote, markets, agreed to a token chunkofthis. The share of strike again, causing the Ger- Italy’s banks are likely to be hit increase. The deal will reduce high loan-to-value mortgages man airline to cancel thou- hard in the markets. global production by almost (those greater than 90%) has sands offlights. A dispute 2%. Oil prices jumped in nearly doubled since 2012. between management and Must do better response. Over that same four-year cockpit and cabin crews over The BankofEngland’s latest period outstanding credit-card pay and conditions has stress tests forBritish banks Property bubbling loans rose by £10bn ($15bn), dragged on foryears. The found that Barclays, Royal hitting £66bn in October. strikes cost Lufthansa up to BankofScotland and Standard S&P Case-Shiller national €15m ($16m) each day they are Chartered had “some capital home-price index A suspected cyber-attack held. Siemens, an engineering inadequacies”, but that all January 2000=100 caused almost1m customers of company, this weekcalled on three now have “plans in place 200 Deutsche Telekom to lose both sides to reach an agree- to build furtherresilience”. 180 their broadband connection. ment because the strife was RBS’s new plan was submitted

160 Hackers are thought to have damaging Germany’s image. at the last minute and includes targeted households’ internet adding another £2bn ($2.5bn) 140 routers with a software virus In a surprise move, India’s to its capital cushion. The 120 that disrupted their service. central bankordered the coun- government still owns a 2006 08 10 12 14 16 The code forthe virus has been try’s banks to transferwhat majority stake in the bank Source: S&P Dow Jones used before in other attacks on amounts to halfthe cash de- eight years after bailing it out. The Case-Shiller national devices that retain the same posited with them since the The stress tests judged wheth- index ofhome prices in Amer- passwords issued by their withdrawal of500- and 1,000- er banks could withstand five ica rose to a new peakin Sep- manufacturers. rupee banknotes to its re- years offinancial turbulence. tember, climbing 0.1% above serves. As people rush to beat Conducted in March, they did the previous peakreached in Split personalities a year-end deadline to deposit not weigh up the scenario of July 2006, before the bust in The European Court ofJustice the notes in accounts, the Britain leaving the European the housing market (adjusted began hearing legal arguments banks have used their new- Union. forinflation, the index is still about whether Uber is a tran- found wealth to buy bonds, 16% below that mark). The sportation firm or a digital unsettling the central bank’s Other economic data and news index increased by 5.5% in the service. The closely watched inflation hawks. can be found on pages 74-75 12 months to September, helped by buoyant markets in Dallas, Denver, Portland and Seattle. But house prices in cities in the forefront ofthe previous boom, such as Las Vegas, Miami and Phoenix, remain well below their all- time highs.

The OECD gave the thumbs up to Donald Trump’s plan to boost infrastructure spending, saying it would boost Ameri- ca’s economy, which is project- ed to grow by 2.3% next year, well above the 1.5% forecast for this year. But the organisation also warned that “an increase in protectionism could risk impairing already weak growth in global trade”.

Meanwhile, America’s eco- nomic growth rate in the third quarter was revised to an annualised 3.2%, up from an Leaders The Economist December 3rd 2016 11 The mighty dollar

Why a strengthening greenbackis bad forthe world economy HE world’s most important borrow in dollars at lower rates than prevailed at home. By last Tcurrency is flexing its mus- yearthis kind ofdollardebt amounted to almost $10trn, a third cles. In the three weeks follow- of it in emerging markets, according to the Bank for Interna- ing Donald Trump’s victory in tional Settlements, a forum for central bankers. America’s presidential elec- When the dollar rises, so does the cost of servicing those tions, the dollar had one of its debts. But the pain caused by a stronger greenback stretches sharpest rises ever against a bas- well beyond its direct effect on dollar borrowers. That is be- ket of rich-country peers. It is cause cheap offshore borrowing has in many cases caused an now 40% above its lows in 2011. It has strengthened relative to increased supply of local credit. Capital inflows push up local emerging-market currencies, too. The yuan has fallen to its asset prices, encouraging further borrowing. Not every dollar lowest level against the dollar since 2008; anxious Chinese of- borrowed by emerging-market firms has been used to invest; ficials are said to be pondering tighter restrictions on foreign some ofthe moneyended up in bankaccounts(where it can be takeovers by domestic firms to stem the downward pressure. lent out again) or financed other firms. India, which has troubles of its own making (see separate A strengthening dollar sends this cycle into reverse. As the leader), has seen its currency reach an all-time low against the greenback rises, borrowers husband cash to service the in- greenback. Other Asian currencies have plunged to depths not creasing cost of their own debts. As capital flows out, asset seen since the financial crisis of1997-98. prices fall. The upshot is that credit conditions in lots of places The dollar has been gradually gaining strength for years. outside America are bound evermore tightly to the fortunes of But the prompt for this latest surge is the prospect of a shift in the dollar. It is no coincidence that some of the biggest losers the economic-policy mix in America. The weight of investors’ against the dollar recently have been currencies in countries, money has bet that Mr Trump will cut taxes and spend more such as Brazil, Chile and Turkey, with lots ofdollar debts. public funds on fixing America’s crumbling infrastructure. A big fiscal boost would lead the Federal Reserve to raise interest The eye of providence rates at a fasterrate to checkinflation. America’s ten-year bond There are lurking dangers in a stronger dollar forAmerica, too. yield hasrisen to 2.3%, from almost1.7% on election night. High- The trade deficit will widen as a strong currency squeezes ex- er yields are a magnet forcapital flows (see page 58). ports and sucks in imports. In the Reagan era a soaring deficit Zippier growth in the world’s largest economy sounds like stoked protectionism. This time America starts with a big def- something to welcome. A widely cited precedent is Ronald icit and one that has already been politicised, not least by Mr Reagan’s first term as president, a time ofwideningbudget def- Trump, who sees it as evidence that the rules of international icits and high interest rates, during which the dollar surged. commerce are rigged in othercountries’ favour. Abigger deficit That episode caused trouble abroad and this time could be raises the chances that he act on his threats to impose steep ta- more complicated still. Although America’s economy makes riffs on imports from China and Mexico in an attempt to bring up a smaller share of the world economy, global financial and trade into balance. If Mr Trump succumbs to his protectionist credit markets have exploded in size. The greenback has be- instincts, the consequences would be disastrous forall. come more pivotal. That makes a stronger dollar more danger- Much naturally depends on where the dollar goes from ous forthe world and forAmerica. here. Many investors are sanguine. The greenbackis starting to look dear against its peers. The Fed has a record of backing Novus ordo seclorum away from rate rises ifthere is trouble in emerging markets. Yet America’s relative clout as a trading power has been in steady currencies often move far away from fundamental values for decline: the number of countries for which it is the biggest ex- long periods. Nor is it obvious where investors fleeing Ameri- port market dropped from 44 in 1994 to 32 two decades later. ca’s currency might run to. The euro and the yuan, the two pre- But the dollar’s supremacy as a means ofexchange and a store tenders to the dollar’s crown, have deep-seated problems of of value remains unchallenged. Some aspects of the green- theirown. The Fed, whose nextrate-settingmeetingcomes this back’s power are clear to see. By one estimate in 2014 a de facto month, may find it harderthan before to avoid tightening in an dollar zone, comprising America and countries whose curren- economy that is heating up. cies move in line with the greenback, encompassed perhaps Ifthe dollarstays strong, might protectionist pressure be de- 60% ofthe world’s population and 60% ofits GDP. fused by co-ordinated international action? Nascent talk of a Other elements are less visible. The amount of dollar fi- new pact to rival the Plaza Accord, an agreement in 1985 be- nancing that takes place beyond America’s shores has surged tween America, Japan, Britain, France and West Germany to in recent years. As emerging markets grow richer and hungrier push the dollar down again, looks misplaced. Japan and Eu- for finance, so does their demand for dollars. Since the finan- rope are battling low inflation and are none too keen on stron- cial crisis, low interest rates in America have led pension funds ger currencies, let alone on the tighter monetary policies that to look for decent yields elsewhere. They have rushed to buy would be needed to secure them (see Buttonwood). dollar-denominated bonds issued in unlikely places, such as Stockmarkets in America have rallied on the prospect of Mozambique and Zambia, as well as those issued by biggish stronger growth. They are being too cavalier. The global econ- emerging-market firms. These issuers were all too happy to omy is weakand the dollar’s muscle will enfeeble it further. 7 12 Leaders The Economist December 3rd 2016

India’s demonetisation Modi’s bungle

Narendra Modi’s monetary reform had worthy aims. What a pity that it was so disastrously botched NDIA is not the first country to drawal could shave two percentage points off annual GDP Cash transactions introduce abrupt, drastic re- growth (running at 7.1% in the three months to September). By volume, latest year available I % of total form ofitscurrency. Butthe prec- With a bit of forethought, much of the mayhem could have edents—includingBurma in 1987, been avoided. It turns out that the new notes are smaller and India 98 ATM China 90 the former Soviet Union in 1991 require all the country’s s to be reconfigured, which takes Brazil 85 and North Korea in 2009—are 45 days. Some 22bn notes are affected, but printing capacity is United 55 not encouraging. Burma erupt- said by the previous finance minister to amount to only 3bn a States ed in revolt, the Soviet Union month. So even iffewer notes are needed, because more mon- disintegrated and North Koreans went hungry. All the more ey will be in banks, printing them will take some time. The reason for Narendra Modi, India’s prime minister, to prepare banks were ill-prepared to handle about 8.5trn rupees in new the ground before the surprise announcement on November deposits in the three weeks after demonetisation. After they 8th that he would withdraw the two highest-denomination used the deposits to buy bonds, lowering interest rates, the banknotes (the 500-rupee and 1,000-rupee, worth about $7.30 central bankhad to order them to parkthe new money with it, and $14.60). Yet he did not and the result is a bungle that, even in zero-interest accounts. ifit does achieve its stated aims, will cause unnecessary harm. If Mr Modi’s plea for patience for a 50-day period until the Shops stopped accepting the old notes at once. Holders end ofthe yearlooks optimistic, so does the promise of“the In- have until the end ofthe yearto deposit them in banks orswap dia ofyour dreams”, purged ofthe corrupt and their loot. In In- them, either for smaller-denomination notes or for new 500- dia’s black economy of undeclared, untaxed income, all sorts and 2,000-rupee ones. That 86.4% by value ofthe cash in circu- of transactions, from medical bills to house purchases, are lation is suddenly no longer legal tender has already caused sometimes settled with suitcase-loads of banknotes. Yet even predictable and needless hardship. It is too late—and political- if the hoarders will be wary of another confiscation in the fu- ly unthinkable—to start again (see page 23), but Mr Modi ture, they will be tempted to make use ofthe new 2,000-rupee should do more to limit the damage; and he should abandon note just as they used the old 1,000-rupee one. the flawed leadership style that caused the mess. Moreover, Mr Modi was wrong when he said that the rich now need sleeping pills, while the poor sleep peacefully. In Not the way to do it past seizures of illegal wealth, only between 3.75% and 7.3% The plan has laudable aims. Its initial popularity was based on was found to be kept in cash. The sleepless are those who need the idea that the greedy rich, with their ill-gotten “black mon- cash to get by; the truly rich are laughing all the way to their ey” stored in stacks of banknotes, will get their comeuppance. flats in London. The punitive taxes levied on blackmoney that Those who cannot justify the sources of their wealth will face is deposited will feel like flea-bites. As for the counterfeiters, punitive taxes. It also accords with Mr Modi’s manifesto most estimates of the value of fake rupees are in the tens of pledge to normalise India’s black economy, estimated by the millions ofdollars, out of$250bn in circulation. World Bankin 2010 to be worth about one-fifth ofofficial GDP. Both for the sake of Indians and for his premiership, Mr The idea is that India will become more efficient, as more peo- Modi needs to mitigate some of the harm he has caused. He ple and more money enter the banking system; counterfeit should find ways of printing the new money more quickly. currency will become worthless; India’s woefully low tax More important, he should also lengthen the period over base will expand; and government coffers will enjoy a wind- which notes may be exchanged ordeposited and allow the old fall ofcash expropriated from the corrupt. notes to remain valid as payments fora range ofgoods and ser- It is a pity, then, that Mr Modi’s scheme to achieve these vices (tax payments, say, would seem logical). aims is so flawed. Banknotes are not just a way for the rich to store theirwealth; they are also how the unbanked survive. As Somewhat too sensational so often, the burden of this reform has fallen most heavily on Much in India needs reform—abolishing restrictive labour the poor(see page 64). Overfour-fifths ofIndia’s workers are in rules, for example. In the past such reform has often been sty- the “informal” sector, paid in cash. Untold numbers have been mied by a system that favours government by committee. Mr laid offbecause their employers cannot pay them. Tens ofmil- Modi has lurched to the other extreme. The perceived need for lions have queued for hours at cash machines and bank secrecy (to take cash-hoarders by surprise) fed into the innate branches, to get rid of the useless notes and get hold of some sense he has of his own infallibility and his misplaced faith in spending money. A new business has sprung up in laundering his technocratic skills. By designing a scheme that was need- cash for a fee for those without the time or inclination to lessly callous and which is becoming increasingly unpopular, queue, or with more notes than they can account for. he has squandered political capital. In future he needs to con- Cash is used for 98% by volume of all consumer transac- sult more widely, centralise less decision-making in his own tions in India. With factories idle, small shops struggling and a hands and acknowledge that not all criticism is partisan or shortage ofcash to pay farmers fortheir produce, the economy special pleading from the corrupt rich. India, fortunately, is not is stuttering. There are reports that sales of farm staples have North Korea, and is aware that leaders are fallible. Its federal, fallen byhalfand those ofconsumerdurablesby70%. Guesses democraticsystem will give votersplentyofchancesto letitbe atthe effecton national outputvarywildly, butthe rupee with- known how badly MrModi has messed up his rupee rescue. 7 The Economist December 3rd 2016 Leaders 13

Education in America DeVos woman

Donald Trump’s education secretary deserves a cautious welcome OR those looking for encour- school. So is Massachusetts, which has some of the best char- Faging signs about what a ters in the country. Michigan, in contrast, has favoured quanti- Trump administration might ac- ty over quality: the state is home to three of the ten school dis- complish, the nomination of tricts with the highest share ofcharter students in America. Betsy DeVos as education secre- Asecond principle isthatoversightremainsnecessary even tary deserves a cautious wel- when vouchersand chartersare up and running. Although the come. The welcome is because absence of bureaucracy is one of the biggest advantages of giving parents choice over such schools, light-touch regulation is not the same as no regu- where their children are educated is a good thing. The caution lation. As Milton Friedman, patron saint of the school-choice because there have been enough failures in school reform to movement, put it, schools must meet “certain minimum stan- suggest that promising ideas can be discredited ifdone badly. dards laid down by the appropriate governmental unit”. In Both Republicansand Democratssufferfrom blind spots on New Orleans, which has a successful charter-school scheme, education reform. On the left there is a tendency to ignore bad the school district is ruthless about weeding out poorly per- public schools, pander to unions and indulge underperform- forming schools. Worryingly, Mrs DeVos led a campaign ingteachers. On the rightthe assumption isoften that private is against preventing underperforming charters in Michigan always better and that, once a voucher scheme has been set from expanding. up, the work of school reform is done. The evidence suggests As Friedman also knew, markets work well only if buyers that what happens in the classroom is at least as important as have the data with which to make an informed choice. That the structure of the school system. This means recruiting and leads to the third principle: schools receiving public money training teachers who give rigorous lessons and have high ex- should publish facts and figures about their performance. The pectations oftheir pupils (see page 29). best gauges are based on pupil improvement and other mea- Mrs DeVos has put money and effort behind vouchers, sures of value-added, rather than raw test scores. Alas, Michi- which parents can spend at private schools, and charter gan’s charters are among the country’s least transparent. schools—public schools operating autonomously. In Michi- gan, her home state, the results have been poor. In a state Put your hands up forDetroit where test scores have declined over the past decade, 80% of America’s education system is decentralised: federal money charters are below the state average in readingand maths. This makes up just under 9% of funding for secondary schools. But is partly because Michigan ignored lessons from elsewhere. Mrs DeVos can still make a big difference. Federal dollars The firstofthese isto exercise oversight. Milwaukee, the city change behaviour at the margins: witness the impact of the in Wisconsin where school-choice was pioneered, began by Obama administration’s Race to the Top programme, which allowing virtually anyone to open a school. This invited chan- gives extra money to successful states. Ifstates take the encour- cers, including a convicted rapist and a man who used taxpay- agement offered by the Trump administration to expand ers’ money to buy himself a pair of Mercedes-Benz cars. As a school choice, they should thank Mrs DeVos—then study how result, Milwaukee is now more careful about who can start a her home state could have done better. 7

South Korean politics Park somewhere else

To spare hercountry months ofdrift, ParkGeun-hye should resign now ANYmembersofthe party her speeches. Ms Choi, prosecutors say, went on to use her MofSouth Korea’spresident, clout with the president to extort money and favours from big Park Geun-hye, want it. So does companies and other organisations. Ms Park, the prosecutors the opposition, which controls allege, was an active participant in this racket, ordering her South Korea’s parliament. So do aides to help Ms Choi extract her payouts. most ordinary Koreans: they The response of Ms Park to the allegations has been mud- have been marching forit by the dled. She says the notion that she took part in influence-ped- millions. Even Ms Park says she dling is a politically motivated fabrication—even though the is ready to do it. So why has she not yet resigned? prosecutors behind the claim workfor her administration. She Ms Park is hopelessly mired in an ever-deepening influ- has said that she will co-operate with the investigation into the ence-peddling scandal (see page 21). She admits that she scandal, but is refusing to speak to prosecutors. This week she shared too much information aboutaffairsofstate with a close said she had committed a “huge fault” and is willing to leave confidante, Choi Soon-sil, includingadvance drafts of many of office, but that parliament should decide how and when. 1 14 Leaders The Economist December 3rd 2016

2 Just what she meant by this is anyone’s guess. Parliament approval rating is 4%—as bad as François Hollande’s in France. had been about to impeach her, but Ms Park’s offer is prompt- Protests against her have attracted 1m people or more. A pro- ing second thoughts. Impeachment is a long and cumbersome vincial governor and a parliamentarian deserted her party process in South Korea. Once parliament has approved a set of this week; ministers are resigning. Even the man who man- charges, the constitutional court reviews them. It has six aged her election campaign says she should go. monthsto decide whetherto turfthe presidentout, triggering a new election. While it reflects, and during any ensuing elec- Heir today, Geun tomorrow tion campaign, the prime minister serves as acting president. Ms Park, the daughter of a previous president, has always Such protracted flux would do South Korea unnecessary seemed out of touch. She has given only one press conference harm. The economy is falteringbecause ofa slowdown in Chi- each year, and none since the allegations surfaced. She seems na and feeble export growth in world markets. National secu- hapless in the face of the scandal, proposing a series of com- rity is parlous, with North Korea increasing the tempo of mis- promises that parliament has batted away. She has given no sile launches and nuclear tests just as Donald Trump, fewerthan three televised speechesto apologise, each one sug- America’s president-elect, threatens vaguely that he will with- gesting new remedies. One ofher contrite gestures was to sack draw American troops from the South. A distracted leader most ofher closest aides, leaving herselfeven more isolated. with an evaporating mandate would struggle to navigate such There can be no recovery from such a fiasco. But Ms Park daunting waters, as would a temporary stand-in. If Ms Park could salvage a little dignity by ending the circus now. Herres- truly wants what is best for the country, she should resign im- ignation would pave the way for an election within 60 days, mediately, withoutany more fuss. Askingparliament to set the drawing a line under the crisis. It would also help by putting terms ofher departure looks suspiciously like a delaying tactic paid to the idea that has so enraged her opponents: that the that will end up only prolonging the agony. elites of South Korea can get away with anything, whereas or- South Koreans are fed up with Ms Park, guilty or not. Her dinary people feel the system is stacked against them. 7

Latin America After Fidel

The transition to a betterCuba will not be easy. Donald Trump could make it harder IDEL CASTRO was many this year. Unlike Fidel, Raúl is keen on the “market socialism” Fthings to many people (see of Vietnam and China. He should allow more types of private pages 18-20). As Cuba mourns enterprise (for example, in professional services) and free him, hisfansofferpraise for how wholesale markets. A crucial reform is to unify the two forms he stood up to the United States of peso currency,and devalue, which would create incentives in the name of Cuban indepen- for exports and investment. Raúl has repeatedly postponed dence and provided world-class this, because he fears that it would create losers before it health care and education to creates winners. That is especially so because the American poorer Cubans. But his achievements were outweighed by his economic embargo remains in place, despite Barack Obama’s drab legacy. Much of that human capital was wasted by his removal ofsome curbs on tourism and business dealings with one-party system, police state and the stagnant, centrally the island. planned economy. Cubans say MrCastro was “like a father“ to Much therefore depends on Donald Trump. The president- them. They are right: he infantilised a nation. Anyone with ini- elect hints that he may reverse Mr Obama’s opening. This tiative found ways to leave forexile abroad. would be a mistake on two counts. Renewed isolation would This is the baleful legacy that Raúl Castro, Fidel’s younger cut Cuba offfrom the trade and investment it needs to smooth brother and successor as president since 2008, must deal with. the way for economic reforms. And history shows that isola- He has been trying to reform the economy, allowing small tion causes the regime to dig in, making political reform more businesses, promoting private farming and welcoming some difficult. If Mr Trump is wise, he will build on Mr Obama’s foreign investment. But he has been as determined as his policy and support the furtheropening ofCuban society. brother to keep Cuba’s one-party system intact. And his cau- tious economic progress has now almost ground to a halt. That A tale of Havana and have-nots coincided with the thawingofthe cold warbetween Cuba and Raúl, who is 85, plans to step down as president in 2018. He is the United States, with the restoration of diplomatic ties after less popular than Fidel; his successors are even less likely to be 54 years in 2015. The big question, then, is whether Fidel’s able to build a personality cult like that of El Commandante. death means that reform in Cuba will resume. The answer is The budding private sector means that fewer people depend probably yes, but not immediately. And the fate of Cuba, as on the state. Cubans, especially the young, yearn for change. ever, will be shaped partly by what happens in Washington. The alternative is that a post-Castro Cuba would become The main reason forexpecting economic reform to revive is more like Vladimir Putin’s Russia, with a few political and mil- necessity. Cuba has been propped up by petrodollars from itary bigwigs looting their way to untold riches. Throwing up Venezuela, another failed neo-Stalinist state in Latin America. walls around Cuba would prepare forthat wretched outcome, But Venezuela is now almost broke, and aid has therefore been by giving the regime an excuse for its failure to improve living trimmed. Cuba’s economy grew by only 1% in the first half of standards. Long-suffering Cubans deserve better. 7 16 Letters The Economist December 3rd 2016

Italy’s referendum to modify it in order to assuage forms. The metaphor is insipid, electoral college is indirectly concerns, from the opposition, but the argument is not. linked to each state’s but also his own party, about a FABRIZIO COLIMBERTI population size. supposed excessive concentra- Brussels STEVE HATCH tion ofpower in the hands of Albuquerque, New Mexico the prime minister. State procurements Given the habit ofItalian Millennials’ bugbear MPs to change party and often “Rigging the bids” described vote against their own leaders, how tendering forgovernment Youclaim that people between a 54% majority is by no means contracts in Europe has the ages of18 and 30 in Britain a guarantee ofa steady govern- become less competitive “are doing better than most ment, let alone a strongman. (November19th). Govern- people think” (“Generation Mr Renzi is no Mussolini. He is ments often raise the selection Screwed or Generation Snow- just an embattled prime min- criteria forinclusion in the flake?”, November19th). Al- ister trying to survive the next bidding for contracts to unre- though we are on similar Youcriticised the proposed government crisis. alistic levels, forexample salaries to those ofour parents constitutional reform in Italy MARCO DEL CIELLO requiring a minimum of15 when they were our age, we and urged voters to say No in Vercelli, Italy years, experience in providing are paying in effect an extra tax the referendum on December a service, in order to receive of9% on our earnings because 4th (“Aregretful No”, Novem- Whatever way the referendum only “qualified bids”. But this ofstudent-loan repayments. I ber 26th). Part ofyour reason- goes, Italy’s fundamental flaw limits competition to a few big was fortunate enough to grad- ing was that new members of is that the free market is re- companies. A preference for uate in 2012, so had a mere the senate would be “picked strained in too many ways, “reliable” suppliers often £20,000 in debt ($25,000), but from regional lawmakers and crowded out by an inefficient makes it impossible for smaller anyone graduating now will mayors by regional assem- public sector, high taxes, pro- companies to win contracts. have almost double that (tak- blies”, and as these regions tection ofinefficient private Moreover, the specifica- ing into account both tuition and municipalities form “the industries and overregulation, tions to submit a tender are feesand maintenance). most corrupt layers ofgovern- not to mention corruption. often overloaded with detailed As a higher-rate taxpayer, I ment”, the consequence will Though they realise their requirements instead ofstating can therefore expect to have be that the new senators “will public sector is inefficient, fundamental needs. Big ten- what amounts to a 49% mar- enjoy immunity from prosecu- many Italians still believe it is ders are often supposed to be ginal tax rate until at least my tion”. That is not exactly true. the state’s job to carry out fulfilled entirely by a single 30s. That, combined with the Since 1993, members ofparlia- what should be the business supplier, which locks the rental market in London, ment no longer enjoy immuni- ofthe private sector. Unfortu- government into only one makes me significantly worse ty from prosecution, that is, a nately, publicmanagement is provider and makes compari- offthan my parents’ gener- criminal investigation, but often inefficient and unman- sons impossible over the ation. They also will benefit they cannot be put in jail with- ageable all over the world. course ofthe contract. How- from generous final-salary out an authorisation from Italy is no different. ever, laws do allow tenders to pension schemes that were parliament. ROSS SHULMAN be divided into lots that can be available to them when they Youalso came out against Ithaca, New York provided by several contrac- started work. the constitutional amendment tors. The benefits are increased This is not generation because it “fails to deal with Coming from a publication competition over time and snowflake, but generation cold the main problem, which is based in a country that voted better quality evaluations. reality. Italy’s unwillingness to re- to leave one ofthe greatest Governments could im- DAVID LAMBERT form”. The Italian Constitu- geopolitical projects in history prove their practices, assuming London tional Court recently rejected a forno compelling rational that they can procure the right central issue ofreform, that of reason, your advice that Italy is consultants to overhaul the A political cocktail public administration. This “worryingly vulnerable to tender process. But don’t keep decision was justified under populism” is a bit like Jamie your fingers crossed. I was astonished to learn of a the rules ofthe existing consti- Oliver telling my mother how TOMAS JONSSON correlation between heavy tution that give large powers to to cookRagù Bolognese. Stockholm drinkers and Donald Trump’s the regions, which Matteo For the good ofmy country, victory (“Illness as an indica- Renzi’s referendum would let’s hope that your endorse- Proportional votes tor”, November19th). To win eliminate. Is The Economist ment ofthe No vote will be future elections, Democrats really sure the prime minister paid as much heed as your Charlemagne (November12th) must immediately propose a is “pushing forthe wrong sort” backing ofthe Remain cam- wrote that America’s electoral return to Prohibition (with an ofreform? paign before Brexit and your college “is a peculiar institu- exception for wine, in consid- LUIGI CAPOGROSSI COLOGNESI support forHillary Clinton tion” because Hillary Clinton eration ofthe coastal elites). Professor emeritus of law during America’s presidential won the popular vote. Yet the NEIL O’KEEFE Sapienza University of Rome election. electoral college is possibly a Lowell, Indiana 7 OLIVER LARCHER fairer method than the one The electoral law, the Italicum, Bolzano, Italy used to select Europe’s com- is an ordinary law, it is not part missioners. One commission- Letters are welcome and should be addressed to the Editor at ofthe constitution and not on Mr Renzi once compared the er is selected from each of the The Economist, 25 St James’s Street, the ballot on December 4th. Italian referendum to the pin EU’s 28 countries, regardless of London sw1A 1hg Indeed, pending a judgment code ofa mobile phone, as a that state’s population. Lithua- E-mail: [email protected] from the constitutional court, means to switch Italy on and nia gets equal representation More letters are available at: Mr Renzi has already pledged unlockthe path to more re- with Germany. At least the Economist.com/letters

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18 Briefing Fidel Castro The Economist December 3rd 2016

tro’s regime to survive the fall ofthe Berlin The will to power Wall despite the bankruptcy of his revolu- tion. As it was, the most serious attempt to unseat him, the ill-fated Bay ofPigs expedi- tion organised by the CIA in 1961, became his crowning triumph: submachinegun in hand, he directed the operation that saw Cuba’s communist leader, who outlasted ten presidents ofthe United States, has his revolutionary forces kill or imprison died at the age of90 the invaders, deprived ofairsupport bythe O MEET Fidel Castro was to notice, first ing armies to Africa and brazenly shelter- hesitation ofPresident John F. Kennedy, be- Tof all, his sheer physical presence. He ing fugitives, political and criminal, from fore they could leave the beach. was tall, erect and had a high, domed fore- the United States. That was not the Americans’ only mis- head that made him looknaturally imperi- Fidel—he was one of the few world take. In 1952 Batista, a former army ser- ous. He was strong: as a youth he was leaders widely referred to by his first geant, staged a coup which ended Cuba’s awarded a prize as the best all-round name—was lucky, too. He might have been sole experiment with democracy after just sportsman in Cuba. He was brave to the killed many times: as an aspiring leader in a dozen years. The Eisenhoweradministra- point of recklessness: as a boy, he once the gangsterish ambience of Havana stu- tion, obsessed with an all but non-existent rode a bicycle straight into a wall to prove dent politics; in his quixotic assault on the communist threat in the Caribbean, his mettle. And he was determined, con- Moncada barracks in 1953, where some of backed what would be a deeply corrupt vinced of his own rightness, intolerant of his followers died; orin the desperate early and brutal regime. Batista’s coup thwarted contradiction and immune to compro- weeks after the botched landing of the Mr Castro’s certain election to Congress mise. These characteristics he had inherit- Granma, the overloaded pleasure boat that and a promising career in democratic poli- ed from his father, a Spanish migrant who transported his tiny force of 82 rebels from tics. Instead, by skilled propaganda and brought with him to Cuba the innate stub- Mexico three years later. Then there were force ofwill, he turned himselfinto the un- bornness of the gallego and who became a the hundreds of attempts by the CIA to as- disputed leader not just of a ragtag band of prosperous landowner. sassinate him, ranging from the farci- armed guerrillas in the Sierra Maestra but The son, who was born illegitimate in cal—an exploding cigar—to near-misses: a ofa broad and politicallyvariegated move- Birán, in rural eastern Cuba, in 1926, added dose of botulism that burst before it could ment for the restoration of democracy and a prodigious ambition for power. Even the be added to a milkshake by a barman at the 1940 constitution. Jesuitswho taughthim sawdangercoming the Habana Libre (ex-Hilton) hotel. in the big, headstrong boy, whose country Had it not been for a fortuitous amnes- A Marxist of convenience slang from the cane fields of Oriente ty for political prisoners decreed by Ful- The guerrillas in the mountains, together marked him out among his urban class- gencio Batista, the dictator he went on to with sabotage and strikesacrossthe island, mates. The Cuban revolution as it turned overthrow, he might have rotted for de- broke the spirit of Batista’s army and gov- out—though not as many of its supporters cades in prison. Then there was Cuba’s is- ernment. Batista himself fled, on New had originally hoped—was above all an ex- land condition, protected from continental Year’s Eve 1958, taking most of the Central pression of Mr Castro’s will and the unbri- armies of liberation (except, as it turned Bank’s reserves of dollars and gold. On ar- dled exercise of his massive ego. In his out, Mr Castro’s own). This had allowed riving in Havana with his band of bearded cold-war heyday, he turned his small is- Spain to hang on to its “ever-faithful isle” revolutionaries in January 1959, Mr Castro land into a pocket superpower, fomenting for seven decades after it lost its mainland installed a provisional government head- revolution across Latin America, dispatch- American empire. It would allow Mr Cas- ed by a liberal judge. Its initial programme 1 The Economist December 3rd 2016 Briefing Fidel Castro 19

2 was populist: big wage increases, rent re- in American caudillo by vocation. His hero Many believe that he allowed Guevara ductions and a radical land reform. But this was José Martí, a Cuban patriot who to perish in Bolivia, or could have done was merely to buy time, while he built up fought against Spain but was wisely wary more to try to save him, turning an awk- the armed forces and security services—in- of American covetousness towards Cuba. ward and unbiddable subordinate into a cluding the powerful political police, the In the Spanish-American war of 1898, the useful myth. Mr Castro was a troublesome G2—and cemented an alliance, begun in United States hijacked the independence ally for the Soviets. He took their money secret in the sierra, with the Cuban Com- rebellion Martí had started and turned but not always their advice. He first em- munist Party. Before the revolution was Cuba into a neo-colony. Under the notori- braced crash industrialisation, then even a year old, the “bourgeois elements” ous Platt amendment, America reserved dropped it in favour of the drive for a 10m- in the government were ousted, or re- the right to intervene in the island at any tonne sugar harvest. Both failed. Though signed; over the next few months, critical time. That was revoked in the 1930s, but sometimes persuaded to decentralise eco- media outlets were silenced one by one. American domination of the economy nomic decision-making (which usually Within six years, all private property, and the vital sugar industry continued un- boosted output) he always ended up con- down to corner shops, was expropriated. til the revolution. It brought develop- centrating power in his own hands again. By then, most ofthe middle class had been ment—a large middle class lived well—but He gave Cubans first-world education alienated and many of its members had also deep inequality. and health services, and did not care about fled to Miami. Fidel embraced Martí’s nationalism the cost of these to the economy. But he of- and anti-imperialism, but not his belief in fered neither opportunity nor prosperity, A caudillo by vocation social democracy. He turned to commu- least of all freedom. Dissenters faced an Mr Castro did not always hate the United nism because it was a useful tool of abso- awful choice: the risky crossing to Florida States. He had gone on honeymoon there, lute power of a kind enjoyed by no run-of- or the grim jails of Cuba’s gulag. Most buying a white Lincoln Continental and the-mill strongman, coming, as it did, with chose silence. Eventually Mr Castro would feasting on T-bone steaks. A few weeks the shield of Soviet protection (plus Soviet open a safety valve, letting those who after coming to power he visited America weapons and oil) for the duration of the might stir up trouble go abroad. again, this time in combat fatigues, but eat- cold war. America’s trade embargo was al- ing hot-dogs like a native and offering to be most as useful: it allowed him to blame the He never listened friends. President Eisenhower preferred to imperialist enemy for the woeful eco- Fidel was the inspirational leader, the man play golf, leaving his vice-president, Rich- nomic failures ofhis own central planning. of action, the master strategist, the obses- ard Nixon, to meet Mr Castro and to identi- It was his brother, Raúl (younger by five sive control-freak who micromanaged fy in him “those indefinable qualities that years), who was the orthodox communist, everything from hurricane preparedness make him a leader ofmen”. as well as the quiet organiser who turned a to the potato crop. He was, above all, tire- By then neitherside had illusions about tiny rebel army into a disciplined force of less. In marathon sessions, often begin- the other. In 1958 in the sierra, having 300,000 in the two years after the revolu- ningaftermidnightand endingafterdawn, watched Batista’s air force drop American- tion. It was Ernesto “Che” Guevara, Mr he would interrogate visitors about every supplied bombs, he wrote to Celia Sán- Castro’s Argentine companion in arms, facet ofthe political situation in their coun- chez, his closest companion, “I swore that who was the Marxist theoretician. try. He loved details—the statistics of food the Americans are going to pay dearly for In the early days, at least 550 (and per- production in every Cuban province or the what they are doing. When this waris over, haps 2,000 or more) opponents of the rev- properties of Chinese electric rice-cookers. I’ll start a much longer and bigger war of olution were executed. Manyofthem were He kept them in his head and would recite my own: the war I’m going to fight against Batista henchmen whose demise was pop- them in those interminable speeches. them.” For its part, the Eisenhower govern- ular. Once the revolution was secure, Mr He was careful to discourage an overt ment was quick to set in train measures Castro’s rule was repressive though not es- personality cult. He kept his private life— aimed at overthrowing him. Nixon pecially bloody. Nothing and nobody was nine children and Dalia Soto del Valle, his thought Mr Castro “either incredibly na- allowed to diminish his power. “There are second wife whom he married in 1980— ive” or “under communist discipline”. no neutrals,” he declared. “There are only largely hidden from public view. He pro- Fidel was a Marxist of convenience, a partisans of the revolution or enemies of moted younger men only to discard them Cuban nationalist by conviction and a Lat- it.” The revolution, ofcourse, was Fidel. if they aspired openly to succeed him. His wasthe overwhelmingpresence, brooding like a weather system over Cuba’s dilapi- Life and times Havana dated streets; and his was the voice, dron- Santa Clara ing on in televised speeches for hour after 1926 1956 Castro and 82 rebels, Bay of Pigs hour, alternately rising to a peak of righ- Birán Fidel Castro born including Che Guevara, land in teous indignation and falling to a whisper August 13th, Birán eastern Cuba and launch guerrilla war Santiago de Cuba of injured innocence. He never listened, 1955 Castro is 1958 Santa Clara falls after said his sister, Juanita, who left for Miami. granted amnesty. attack led by Che Guevara 2016 Fidel dies Mr Castro operated on the world stage Starts plotting invasion November 25th as no other Latin American leader had 1959 Fulgencio Batista, Cuba’s dictator, 2008 since the days ofFrancisco Miranda and Si- flees and the rebels take over Fidel resigns as món Bolívar, the South American indepen- 1953 Leads unsuccessful president; Raúl assault on a military replaces him dence heroes of two centuries before. He 1961 Bay of Pigs invasion barracks. Sentenced to turned himself into an important player in 15 years in jail 2006 1962 Cuban missile crisis; Fidel is taken ill; the global conflict between the United US imposes full trade embargo his brother, Raúl, States and the Soviet Union, between capi- takes over talist democracy and communist dictator- 1967 Che Guevara ship. In seeking the protection of Soviet is killed in Bolivia missiles he came closer than anyone else 1930 40 50 60 70 80 90 2000 10 to turning that ideological confrontation into nuclear war. Under his leadership, Cuba, an island 1 20 Briefing Fidel Castro The Economist December 3rd 2016

2 of just 11m people, became a “Latin Ameri- grants who hijacked a ferry in a desperate work for us any more”. Fidel kept his criti- can Sparta” (in the words of Jorge Casta- attempt to get to Florida. Two years later he cisms largely private. He wrote a column in ñeda, a Mexican critic ofthe revolution). In declared the Special Period over. Granma, the official organ, for a while, but the 1960s he aided a generation of idealis- One evening in July 2006 Cuban state its main subject matter was his increasing- tic young Latin Americans who perished television broadcasta terse statement from ly incoherent ramblings about what he in doomed guerrilla ventures. Their main Mr Castro saying that he had to undergo saw as the apocalyptic problems facing the achievement was to help trigger takeovers emergency abdominal surgery and was world. He became a spectral presence in by bloodstained anti-communist military temporarily handing over his powers to a his compound in Siboney, a leafy enclave dictatorships. A decade later Mr Castro dis- collective leadership headed by Raúl, his in the west ofHavana ofmansions built by patched his armies to Africa, to combat deputy. In 2008 Raúl formally replaced Fi- the sugar barons he had expropriated. He apartheid but also to prop up corrupt or re- del as Cuba’s president and three years lat- was occasionally photographed with visit- pressive (but anti-American) regimes in er as first secretary of the Cuban Commu- ing leaders looking increasing frail and places like Ethiopia and Angola. In the nist Party. He pushed out Fidel’s protégés doddery. But he had outlasted ten Ameri- 1980s he armed and aided leftist revolu- and would-be successors, including Carlos can presidents and all his enemies. tionaries in Central America. With the end Lage, the de facto prime minister. And he of the cold war, over the past two decades, proceeded, quietly but methodically, to A despot departs it has been Cuban doctors rather than sol- prepare Cuba for the time when a Castro True, he lived longenough to watch his rev- diers that have been sent abroad, first as would no longer be in charge. olution start to be dismantled. He even missionaries for Fidel’s revolution and Raúl is temperamentally Fidel’s oppo- saw Cuba restore diplomatic relations then as earners ofscarce foreign currency. site, a tidy, practical man, lacking his broth- with the United States in 2015 and an er’smessianicstreak. He isSancho Panza to American president, Barack Obama, visit Half-life in Havana Fidel’s Don Quixote. They even looked the Havana and broadcast a call for the Cuban The fall of the Berlin Wall and collapse of parts (Raúl is said to keep statues of Cer- people “to choose their government in free the Soviet Union brought great privation to vantes’s heroes at his house). There were elections”. Of course he did not approve. Cuba. The economy contracted by a third. no more late-night meetings. Raúl an- “Cuba’s president has taken steps in accor- Many forecast the imminent demise of Mr nounced economic reforms that abolished dance with his prerogatives and powers,” Castro and his revolution. He responded many of the petty restrictions suffered by he wrote stiffly in a letter published in 2015. by declaring a “Special Period in Peace- Cubans, who could once again buy and But, he added, “I don’t trust the policy of time”, cover for some limited and prag- sell houses and cars, stay in tourist hotels the United States, nor have I exchanged matic reforms. He reluctantly allowed Cu- and have access to mobile phones and the any words with them,” he growled. bans to set up small businesses, such as internet. He cautiously began to dismantle No other man in the 20th century ruled restaurants, repair shops and farmers’ mar- Fidel’s centrally planned economy: more as long while, through a mixture of charis- kets. He also legalised the use of the dollar than 500,000 Cubans now work in a bud- ma and tyranny, dominating his country and sought foreign investment, especially ding private sector ofsmall businesses and so completely. On one hot summer night in developing a mass tourism industry. farms. The island began to move inexora- during the days of penury that followed Again, as under Batista, Havana’s hotels bly towards a mixed economy. Some of the collapse of the Soviet Union, a crowd became a venue for sex tourism, as young Raúl’s advisers talked enthusiastically of ofdisgruntled youngsters on Havana’sma- black women sold their bodies to escape the Chinese and Vietnamese models. lecón, its seafront drive, threatened to over- the revolution’s hardships. Fidel didn’t think much of that. China whelm the police and start a riot. Fidel ap- Remittances from Cuban-Americans, was a decadent consumerist society that peared out of the night, and talked them tourism and nickel mines, run bya Canadi- had lost its values and its commitment to out of it. Even many of those Cubans who an firm, replaced sugar as the mainstay of preserving equality, he thought. But he ad- abhorred him were in awe of him. That the economy. The health-care and educa- mitted to a foreign visitor, in an unguarded will not apply to any of his successors, not tion systems were tapped for hard-curren- moment, “the Cuban model doesn’t even even Raúl. 7 cy earnings, too, with the development of biotechnology and medical tourism. State companies were given more autonomy to manage their budgets and to trade. All these measures helped Cubans to get by, but they introduced new inequalities and resentments, and loosened the regime’s control over daily life. Then, unexpectedly, new benefactors appeared, in the form ofVenezuela’s Hugo Chávez and, to a lesser extent, a booming China. Venezuelan subsidies grew to match the old Soviet largesse. With the economy growing again, Mr Castro re- versed or reined in many of the reforms and became far more selective about for- eign investment. As he had several times since 1959, he veered backtowards Jacobin- ism, recruiting lumpen youth as “social workers” to wage war against corruption. In 2003, with the world distracted by the American invasion of Iraq, he launched a new political crackdown, arrestingand im- posinglongjail sentenceson 78 democracy activists and executing three would-be mi- Either you were with Fidel or you rotted in jail Asia The Economist December 3rd 2016 21

Also in this section 22 Royal politics in Thailand 23 India’s ropy rupee recall 24 A vice-president runs amok 25 Banyan: Taiwan debates gay marriage

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

South Korea’s political crisis urged sympathisers in Saenuri not to back- track. Yet a member of Minju says a vote is A long goodbye now “too risky given the cracks”, including in its own ranks. Those who saw impeach- ment as a protest against Ms Park’s stub- born refusal to step down find the pos- SEOUL sibility ofa negotiated exit tantalising. The divisions and delays are likely to The president seems certain to leave office early, but how and when she will go fuel the anger of the hundreds of thou- remain in dispute sands who have rallied for weeks in Seoul T WAS her reputation for integrity that aides to press Hyundai, a South Korean and other cities demanding that Ms Park Ihelped bring Park Geun-hye to power. carmaker, into hiringMsChoi’sadvertising quit. Four-fifths ofSouth Koreans now sup- Unmarried, childless and estranged from agency and engaging a parts supplier port her impeachment, twice as many as a her siblings, Ms Park said shortly before owned by an associate ofhers. month ago. They are incensed by the idea she was elected president in 2012 that the The authorities have named Ms Park as that Ms Choi—who was privy to presiden- South Korean people were her family: not a suspect—a first for a sitting South Korean tial files on ministerial appointments and for her the household corruption scandals president. Her office has rejected the char- state visits even though she held no official that had dogged every previous president. ges as “fantasy”. Ms Parksays she did noth- position—might have pulled the strings of Yet four years on Ms Park’s image is in ing worse than let down her guard with Ms Park’s administration for her personal tatters. And it is a friendship that she people close to her. Yet in her third tele- profit. Reports have surfaced of officials formed as a result of her “lonely life”, as vised apology for the scandal, on Novem- who were dismissed after raising concerns she put it, in the presidential Blue House ber29th, she seemed to accept the idea that about Ms Choi’s behaviour and influence, that looks set to be her undoing. Choi she may not serve the remaining15 months including a police detective who spent Soon-sil, a confidante of Ms Park, was in- of her term, saying she would leave a deci- more than a year in prison after he was ac- dicted on November 20th on charges of at- sion on her fate to the National Assembly. cused ofleaking documents. tempted fraud and abuse of power, and For years rumours had swirled about will face trial this month. Prosecutors say Resign on the dotted line ties between Ms Park and Choi Tae-min, she used her connections to coerce 50-odd This woolly offer has created confusion the father of Ms Choi and a six-times-mar- conglomerates to funnel 80bn won ($70m) among parliamentarians, who had looked ried cultleader. He befriended herafter her to two cultural foundations, K-Sports and almost certain to impeach her. Only 28 mother was killed in an assassination at- Mir, that she controlled. MPs from her conservative Saenuri party tempt on her father (a former military dic- The prosecutors have accused Ms Park need to break ranks to reach the necessary tator). Ms Park’s predecessor, Lee Myung- oforderingaides to assist Ms Choi in the al- two-thirds majority for an impeachment bak, said while campaigning against her leged shakedowns. One aide, Ahn Chong- motion to pass, and considerably more for the presidential nomination in 2007 bum, has been indicted for abuse ofpower than that had expressed their support for thatifshe became president, “itisChoi Tae- and coercion; another, Chung Ho-sung, for one. But Ms Park’s hint at resignation has min’s family who seize power.” Ms Choi’s divulging state secrets. In documents re- strengthened the hand ofSaenuri loyalists, then-husband was suspected of running garding the arraignment ofCha Eun-taek, a who say that Ms Parkshould be persuaded Ms Park’s campaign behind the scenes. pop-video director indicted on November to leave office voluntarily, and caused the Many feel that Ms Park is incapable of 27th for using his ties to Ms Choi to secure rebels to vacillate: on December 1st the reading the public mood. She said in her favours, prosecutors allege that Ms Park in- party proposed that she resign in April. third address that she was “heartbroken” structed staff to contact the bosses of KT Minju, the main opposition party, that her apologies had not eased resent- and POSCO, two conglomerates, on his be- wants her to go much sooner, and says it is ment, yet she has refused to take questions half. In 2014, they say, she also instructed pressing ahead with impeachment. It has from the press. Even her staunchest sup-1 22 Asia The Economist December 3rd 2016

2 porters have turned their backs on her: in Royal politics in Thailand effort to block local and foreign websites Daegu, once her political stronghold, her that carry criticism of him, a grave crime approval rating, 3%, is even more minus- Better late than under Thailand’s lèse-majesté laws. cule than the 4% she polls nationwide. Her The assumption fornow is that the new ineffectual leadership has been com- never king—whose powers are only loosely de- pounded by her scripted style; among her fined by law—will continue to spend much critics she was derided early on as “the of his time in Germany, near Munich, notebook princess”. Many are concerned BANGKOK where he maintains a court of around 200 that she has relied for advice mainly on people and to which he has retreated sev- A stalled succession is at last under way trusted allies of her father. Kim Ki-choon, eral times in the weeks since his father’s her formerchiefofstaff, helped to draft the OR two centuries a hoary prophecy death. Such an arrangement might not martial law that kept her father in power. Fheld that Thailand’s Chakri dynasty bother Thais much: they grew accustomed Ms Park’s government is in disarray. She would produce no more than nine kings. to an inactive monarch during the years has already lost eight close aides, and this That curse looks to have been lifted in King Bhumibol was ill. At some point the week accepted the resignation of her jus- Bangkokon November 29th, when the rul- appointment of a new Privy Council will tice minister. She bowed outofthe Asia-Pa- ing junta’s rubber-stamp parliament invit- give observers a better indication of how cific Economic Co-operation summit last ed Crown Prince Maha Vajiralongkorn— Prince Vajiralongkorn intends to reign. So month; some reports say an imminent soon to be KingRama X—to take the throne. might a soon-expected reshuffle at the meeting of the leaders of China, Japan and As The Economist went to press Thais were Crown Property Bureau, an institution South Korea may be postponed until next awaiting the completion of the last legal which manages the royal family’s invest- year. The budgetfor2017 mustbe passed by formalities required before the succession ments and which is thought to command December 2nd. But MPs are preoccupied can be officially proclaimed. more than $50bn. with politicking. The parliament’s five-minute meeting Thailand is still only at the start of a IfMs Parkwere to resign, an election for ended an odd interregnum following the long period of national mourning, which a successor would be held within 60 days, death of King Bhumibol Adulyadej on Oc- will continue until King Bhumibol’s cre- with the prime ministeractingas president tober 13th. That evening the government mation next October. Officials are plan- in the meantime. Thatwould notleave par- reported that the prince had chosen to de- ning an ornate pyre on a parade ground in ties much time to pick or prepare candi- lay takingthe throne, to allow more time to the capital, topped by a 50-metre spire. dates. Impeachment takes much longer grieve. This breached the palace’s own Prince Vajiralongkorn’s coronation cere- (one reason why it is favoured by some in rules and surprised the junta, igniting fears mony will follow, perhaps in 2018. Having Saenuri, which has no strong candidate among outsiders that the succession was insisted that all this will not impede a gen- yet). After the assembly passes an im- being contested behind the scenes. The eral election scheduled for the end of next peachment motion, the constitutional high-living prince is unpopular among year—the first since a coup two-and-a-half court has six months to review it. Six ofthe Thais and loathed by the elites, many of years ago—members of the junta are now nine justices must approve it for the presi- whom would have preferred his younger hinting that the vote may get pushed back. dent to lose office. sister, Princess Sirindhorn, as monarch. The only certainty is that Thailand’s The court has a conservative bent: five As it turns out, the seven-week hiatus leaders will continue to rely heavily on the justices were picked by either Ms Park or may have slightly improved Prince Vajira- late king’s prestige. Since his death his por- Mr Lee, or by supreme-court justices ap- longkorn’s standing among Thai royalists. traits have multiplied around the capital. pointed by them. They would have far At least some of them have accepted his Officials say his birthday, December 5th, more to chew over than in the only previ- foot-dragging as a mark of respect for the will remain a public holiday; this year’s ous impeachment, in 2004, against Roh late king. The grieving prince has made no celebrationswill include the auspicious as- Moo-hyun, the president of the day, which public statements but has managed to look semblyof999 monks. GlorifyingKingBhu- theyrejected within two months. That was regal at a series ofprocessions and ceremo- mibol has helped Bangkok’s elites hang on for minor violations of election laws, to nies (unlike in July, when paparazzi spot- to a dusty political culture which reveres which Roh had already admitted. The ted him at a German airport sportinga too- rank, rewards status and devalues electoral charges against Ms Park are far more seri- small vest that revealed lurid temporary democracy. They will not want to let the ous, and the investigation into the scandal tattoos). Censorshave embarked on a fresh succession breakthe spell. 7 is not yet complete. Later this month the prosecution service will hand its findings to a special prosecutorchosen thisweek by Ms Park from two candidates nominated by the assembly. Ms Park’s unloved prime minister, Hwang Kyo-ahn, would take over for the duration of the court’s deliberation if MPs impeach her. That is awkward, given that Ms Park had moved to replace him in No- vember, before retreating when MPsre- fused to consider the candidate she had nominated to succeed him. The head of the Justice Party, a minor opposition party, has said that the prime minister’s role must be kept to a minimum if he takes over, and all important decisions discussed with the assembly—“Otherwise he too will be im- peached.” There are sure to be many more twists and turns, but Ms Park’s days in of- fice are clearly numbered. 7 A seven-week switcheroo The Economist December 3rd 2016 Asia 23

ern state, the ratio is more like a fifth. Such was the case with Nuxalbari’s lo- cal branch; it could meet some needs but not those of big planters. “Thanks to this so-called business-friendly government we are being made beggars for our own money,” storms one ofthe estate’s owners. “I feel like I’m in the middle ofsome Soviet- era nightmare.” The parched branches of big banks are still fortunate. Forunexplained reasons the RBI has supplied almost no new cash at all to India’s hundreds of smaller rural co-op- erative banks or to its 93,000 agricultural credit unions, so keeping millions of farm- ers from deposits that total some $46bn. It has also banned these institutions from competing with “pukkah” banks in ex- changing old bills for new. With no cash flowing, farmers cannot even seek help from informal networks that in normal times account formore credit in rural areas than formal institutions. And although In- dia’s 641,000 villages house two-thirds of its people, they contain fewer than a fifth India’s demonetisation of its ATMs. These are being slowly modi- fied to supply the new notes, which un- The ropy rupee recall helpfully are smaller than old ones; for now most stand idle. Starved of cash, India’s rural economy is seizing up. A study by two economists at Delhi’s Indira Gandhi Institute ofDevelop- DELHI ment Research found that in the second weekofthe drought, deliveriesofrice to ru- A botched reform brings pain to ordinary Indians, but not yet to Narendra Modi ral wholesale markets were 61% below pri- OR the Nuxalbari Estate in the lush hills presses can be speeded up, or bills quickly or levels. Soyabeans were 77% down and Fof India’s north-east, relief came in the imported, experts reckon it could take five maize 29%. Prices have also collapsed. In nick of time. With winter pruning of its tea or six months before the money removed Bihar, Scroll’s reporters found desperate plantations at hand, 600 workers were from circulation is fully replaced. farmers selling cauliflower for 1 rupee threatening to strike. They could scarcely According to J.P. Morgan, an investment ($0.01) a kilo, a twelfth ofthe prior price. be blamed: the estate had not paid them in bank, Indians were making do at the end It is not only farm incomes that are mid-November and now owed another of November with a little more than a pinched. An investigation by Business fortnight’s wages. This was not for lack of quarterofthe cash thathad been in circula- Standard, a financial daily, found that vir- funds. Nuxalbari’s account showed a tion at the beginning of the month—and tually none of the estimated 8m piece healthy balance. But day after day its bank this in a country where cash represented workerswho hand-roll bidis, a kind ofciga- repeated the same refrain: yes, the govern- 98% of all transactions by volume and 68% rette, has been paid since the cash ban. An- ment says it has a plan to help tea estates, by value. The RBI has in effect been forced other Indian daily, the Hindu, reports that but our local branch has no rupees. At his to ration new cash, most in the form of more than half of the 600-odd ceramics wits’ end, the estate managermarched into 2,000-rupee notes that are, owing to the factories in the town of Morbi, a centre of the branch, along with bosses of trade un- lack of 1,000s and 500s, exceedingly diffi- the tile industry in the state of Gujarat, ionsand a tea planters’ group, even asNux- cult to break for change. with a combined output worth some albari’s owners barraged the bank’s head- In such a vast country, the impact has $3.5bn a year, have temporarily closed be- quarters with pleas. The bank at last naturally been variable. Employees of the cause they cannot pay workers. In Agra, relented, dispatching a courier weighted finance ministry in Delhi, the capital, re- the hub ofIndian shoemaking, some firms with sacks of cash from its vault on a night ceived a plump advance on their Novem- are paying workers with supermarket cou- flight from Kolkata. The workers got their ber salaries in crisp new bills, whereas the pons to keep them on the job. money in the morning. state governments of Kerala in the south India’s wealthy few have servants to Nuxalbari is lucky. Its owners enjoy and Bengal in the east say they have only a take their place in the still dismally long sound finances and influence. As India en- small fraction of the cash needed to pay queues snaking outside banks, but the ters its fourth week since Narendra Modi, bureaucrats’ wages. Cheques won’t do be- pain reaches even to the top. A dentist in a the prime minister, abruptly voided 86% of cause banksdo nothave enough moneyei- posh part of Delhi is shocked by a 70% fall the country’s paper currency, many of its ther: reports in the Indian press reveal that in trade since the cash ban. “All mypatients 1.3bn people have had no such luck. The whereas banks in the centre of Mumbai, can pay with plastic so I assumed I was Reserve Bank of India (RBI), the central the country’s financial capital, are getting safe, but I guess people are just being care- bank, has been unable to print money any- as much as three-quarters of the cash they ful about spending in general.” This does where near fast enough to replace the need to meet demand, branches in the seem to be the case. A brokerage that sur- $207bn in 500- and 1,000-rupee notes that city’s suburbs are getting less than half. veys consumer-goods firms says Novem- were outlawed overnight on November Scroll, an online news site, reports that for ber sales have fallen by 20-30% across the 8th. Unless India’s four existing money one country branch in Bihar, a poor north- board. Property sales, which traditionally 1 24 Asia The Economist December 3rd 2016

2 are made wholly or partly in cash, have Politics in Afghanistan plummeted even more. Small wonder that Fitch, a ratings agen- cy, on November 29th cut its forecast for In- Vice president GDP dia’s growth forthe yearto March 2017 KABUL from 7.4% to 6.9%. That is in line with most The clue is in the name financial institutions’ trimmed estimates, although some economists think the dam- HE vice-president ofAfghanistan, in the third person. He is a warlord first, age could be even worse. “There will be no TAbdul Rashid Dostum, spent Novem- politician second. He is known to West- or negative growth for the next two quar- ber 25th watching a game ofbuzkashi, a erners chiefly forthe time his henchmen ters,” predicts one Delhi economist who traditional version ofpolo in which the packed hundreds ofTaliban prisoners prefers anonymity. “Consumer spending carcass ofa goat serves as the ball. With into shipping containers, leading to mass was the one thing really driving this econ- his boss abroad, Mr Dostum was acting suffocation. It was startling, then, when omy, and now we are looking at a negative president. But his behaviour allegedly AshrafGhani, a technocratic reformist, wealth-effect where people feel poorer became downright unpresidential when picked him as his running mate in 2014, and spend less.” he encountered Ahmad Ishchi, a political probably to secure votes among Mr Perhaps more embarrassingly for Mr rival, amid the crowd. Mr Dostum is said Dostum’s fellow Uzbeks. That plan suc- Modi’s government, there are few signs to have punched Mr Ishchi in the face ceeded, but Mr Ghani has had to put up thatitsharsh economicmedicine isachiev- and then pinned him to the ground with with the erratic warlord ever since. He ing the declared goal of flushing out vast his boot. His bodyguards administered a divides his time between Kabul, where hoards of undeclared wealth or “black” furtherbeating before carting the injured he grumbles in public, tearfully, about money. Officials had predicted that per- Mr Ishchi away in an armoured vehicle. being marginalised, and his home territo- haps 20% ofthe pre-ban cash would not be He has not been seen since. Protesters ry in the north, where he mobilises unau- deposited in banks, for fear ofdisclosure to demanding his release were turned away thorised militias to fight the Taliban. the taxman. Yet within three weeks of the when they visited Mr Dostum’s palace, a Mr Dostum (pictured) is perhaps the “demonetisation”—well before the dead- sprawling pinkand baby blue compound most glaring example ofthe immunity line to dispose of old bills, December plastered with large posters ofits owner. many Afghan warlords enjoy. Most re- 30th—about two-thirds of the money had Mr Dostum likes to talkabout himself cently, the Afghan government signed a already found its way into “white” chan- peace agreement with Gulbuddin Hik- nels. Some of this is doubtless illicit: in- matyar, a blood-spattered Islamist, grant- spectors of Delhi’s bus system have found ing him immunity from prosecution for that the bulk of daily takings now mysteri- past war crimes. The UN hailed the deal ously appears in the form of the banned as a necessary step towards national bills, which public-sector firms can still de- reconciliation, but Human Rights Watch posit, rather than the usual small change. complained that Mr Hikmatyar’s return Reports from Maharashtra, in the centre of to national politics “will compound the the country, suggest that brokers are offer- culture ofimpunity”. ing to buy old notes with a face value of The dilemma divides Afghans, too. 10m rupees for 8.4m, suggesting that they The Solidarity Party ofAfghanistan, or have found ways oflaundering them. Hambastagi, is one ofthe fiercest critics India’s economy will eventually recov- ofthe commanders who deal in both er and may even gain strength: the forced ballots and bullets. Its spokeswoman, primingofbankaccountsand the switch to Selay Ghaffar, regularly hectors warlords. electronic payments will mobilise more Others in Kabul, however, accept grim money for lending and taxes. But there compromises in the quest forpeace. may be lasting damage to institutions, Hamidullah, a 19-year-old doing most notably the RBI itself. It failed, among pull-ups in a public park, was appalled to other things, to warn the impatient Mr watch the vice-president turn kidnapper. Modi that there were not enough new But he blamed all the leading politicians, notes to replace old ones. It has issued a be- including the president, forsurrounding wildering blitz of complex and sometimes themselves with people oftheir own contradictory instructions to banks. Its go- ethnicity, compounding decades of vernor, Urjit Patel, has been perplexingly ethnic strife. “We need leaders who silent. Its reputation for probity, compe- In his element represent the whole country,” he says. tence and independence is in tatters. In another country, such a fiasco would spell disaster for the government in power. to debate its merits, to no avail so far. November his party even gained ground. Particularly so, one would think, for a Mr Modi has painted his critics as Some analysts in Delhi predict that party that sailed into office on promises to whiny profiteers who are running scared once enough cash isprinted to getthe econ- boost growth, provide jobs and encourage of his crusade. In stark contrast to the fissi- omymovingagain, MrModi’sgovernment investment. Mr Modi’s opponents have parous opposition, which lacks any leader may simply insert cash into some bank ac- blasted his policy as obtuse, destructive who combines charisma with national counts, such as those created under a gov- and downright criminal; some insinuate stature, the BJP has maintained rigid disci- ernment programme to bring banking to that his Bharatiya Janata Party (BJP) was pline. Mr Modi has also shifted the goal- the poor, and declare this to be revenue tipped off about the ban. Opposition par- posts, notes Mihir Sharma, a writer and from the black-money sweep. Afterall, piv- ties have held rallies and marches across business columnist: “What started as a otal elections in India’s largest state, Uttar the country and brought India’s parlia- ‘surgical strike’ on black money is now Pradesh, loom early next year. But if more ment to a standstill with demands for a called the dawn of a cashless society.” In cash does not soon appear, Mr Modi’s fu- vote on the ban, and for Mr Modi himself local elections in two states at the end of ture may lookvery different. 7 The Economist December 3rd 2016 Asia 25 Banyan Asian values

One ofthe legacies ofTaiwan’s democracy movement is a growing openness to gay marriage education act in 2004 opened the way for tolerance to be taught even in primary school. Around the same time a push was made to legalise gay mar- riage. That failed. But this year members from both the ruling Democratic Progressive Party ofPresident Tsai Ing-wen (herself a longtime promoterofgay rights) and the more conservative KMT, now in opposition, have very similar gay-marriage bills before the national legislature. They would give same-sex couples the same rights as any others, including to adopt. That would make Taiwan the only country in Asia to permit gay marriage, unless you consider New Zealand part of the con- tinent. In contrast, in 2014 Singapore’s Supreme Court upheld a law mandating a two-year jail term for men engaging in acts of “gross indecency”—ie, gay sex. Malaysia sends “effete” youths to boot camp. Aceh province in Indonesia punishes gay sex with 100 lashes. Thailand, one of Taiwan’s few rivals in tolerance, has decriminalised gay sex, opened the army to gay recruits and banned most forms of discrimination based on sexual orienta- tion—but legalising gay marriage remains a distant prospect. Ne- pal is also unusually liberal. It is still possible that Taiwan’s gay-rights movement will be a NTHE eighth floorin a gritty suburb ofthe capital, Taipei, sits victim of its own success. In mid-November, as the legislature Othe ten-year-old Wei-ming temple, a Taoist house of wor- was reviewing the draft gay-marriage laws, some 10,000 protes- ship—but an unusual one. Nearly all the visitors buying bundles ters converged outside; some broke through the gates to stage a of prayers or bringing handwritten ones of their own to be burnt sit-in in the courtyard. Mainly Christians, they knelt and prayed, by the priest at the altar are gay. The deity receiving the prayers, warning that the proposed laws were not only an affront to reli- and to whom the shrine is dedicated, is the Rabbit Spirit, a 17th- gion but would also promote promiscuity. century folk deity from Fujian province in mainland China who More Taiwanese support gay marriage than oppose it, accord- protects men who have sex with men. In late imperial China, ing to polls. In response to the protests, Ms Tsai declared that “rabbit” became a derogatory term for homosexual. In this tem- “everyone is equal before love.” But the president has otherprior- ple the rabbits are reclaiming the label. ities, not least the economic issues that are of greatest concern to ordinary Taiwanese. How much political capital her government Warren peace will expend on gay marriage is unclear. The legislature has called Taiwan’s open tolerance ofhomosexuality and its liberal view of public hearings on the subject—a concession to the protesters. sexual minorities generally is unique within Asia. Taipei’s annu- Jason Hsu, a KMT politician who backs gay marriage, says al gay-pride parade is a lively celebration that draws 80,000 peo- pressure from constituents not to legalise it is growing fast. To ple or so a year, including gay people from all over Asia. Perhaps drum up greater support, however, opponents are having to soft- religion has something to do with it: Taoism and Buddhism, the en their tone. Many are suddenly calling for a law that would re- country’s most widespread faiths, have less doctrinal objection cognise gay partnerships but not marriages. “Protect homosex- to homosexuality than many religions. Some in Taiwan ascribe uals. Set up separate legislation,” run the new banners. its tolerance to the island’s long history of influences from the Mr Hsu argues that that would be discriminatory, in that it outside—centuries of settlement by mainland Chinese; Dutch would single out gay people for different treatment. Moreover, it and Japanese colonial rule; American popular culture—mingling is far from certain that adoption would be allowed under such a with the island’s aboriginal traditions to create a uniquely open, law. Even if, as elsewhere, such partnerships become a way-sta- hybrid society. Butthat explanation only goes so far and, as else- tion on the road to gay marriage, Mr Hsu is against dawdling. “Tai- where in Asia, older generations are much more conservative wan”, he says, “isa decade behind…We have to showthe world it about gay issues than younger ones. is still a progressive country.” So the chieffactor has to be Taiwan’s modern political history, Huge rival demonstrations are promised for this weekend. and in particular the struggle to throw off the thuggish dictator- Many Asians admire Taiwan’s lively popular democracy, in ship ofChiangKai-shek’s Nationalist PartyorKuomintang(KMT). which spirited debates in parliament often reverberate in the Gay rights, feminism, environmental awareness and demands streets. The young leaders of Hong Kong’s pro-democracy “um- for political freedom: all emerged in the grassroots protest move- brella” movement of 2014, which brought central Hong Kong to a ment that led to the end of martial law in 1987 and culminated in standstill with mass protests, were following the lead of the envi- full democracy. ronmental activists who brought Taiwan’s nuclear-power pro- Issues like gay rights thus became a badge of the island’s de- gramme to a halt, and from the “sunflower” demonstrators who mocratisation, championed by a rowdy media. Chiang had once invaded Taiwan’s legislature to block a free-trade deal with Chi- ruled that people with “sexual-orientation impairments”—ie, ho- na. The fact that Taiwan is debating same-sex nuptials is encour- mosexuals—were mentally unfit to serve in the armed forces. But aging. It would be even better if the country that hardly any oth- in 2002 the army began admitting gay and bisexual recruits. Dis- ers recognise became the first in Asia to recognise that gay people crimination wasoutlawed in hiringand atwork. And a landmark deserve equality. 7 China The Economist December 3rd 2016 27

Also in this section 28 Fighting divorce, couple by couple

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

Internal migrants workers’ generation. By2015, accordingto a new survey by the health and family-plan- More children, more grandparents ning commission, the share had fallen to 29% (see chart). Over the same period, the proportion of migrants over 50 rose from 11% to 18%. To some extent this reflects the BEIJING AND XIAMEN ageing of migrants who have lived in cities for years. But that cannot be the whole ex- Migrant workers are reuniting theirfractured families and demanding better planation. The number of migrants over public services 60 more than doubled, to 19m, in just seven IU HENGQING is 66. In 2007, after more cially, it was profoundly disruptive. years. Many, like Mrs Liu, have moved to Lthan 30 years of marriage, she and her “Previously,” says WangQian ofthe Na- cities after a lifetime in the countryside. husband left Jian’ou, the town in Fujian tional Health and Family Planning Com- These changes have benefited families. province in southern China where they mission, partofthe government, “migrants Mrs Liu says herson would struggle to look had lived until then, and followed in their were mostly young workers.” In 2000 afterher grandson without her: “I just feel I children’s footsteps—she to the provincial about two-thirds were in their 20s or 30s. need to help out while I can.” But the shifts capital, Fuzhou, to take care of a newborn The hukou system largely prevents their have happened so fast that government grandson, he to Xiamen, 250km (150 miles) children from gettingpublic education and services are not keeping pace. Hukou re- away, to look after a granddaughter. “It health care in the cities where the parents strictions mean that migrant children usu- takes a toll on you,” she says, “especially work, so most migrants left their children allygo to unofficial schoolsthatare notreg- being apart, but it’s worth it.” She launches behind with grandparents or other rela- istered with the municipal government into “The Pensioners’ Marching Song”, a tives. Familieswere broken up. Left-behind and which frequently have low standards. popular parody ofa classic military march: children did not see their parents for In Beijing a study of 300 migrant schools months or years on end. Cities were full of found that only 63 were licensed. Some mi- We are the kids’ logistics force, adult workers and villages were relin- grant children miss out on school entirely. We are their quartermasters. quished to the very young and very old. The health and family-planning commis-1 Listen, the kids are calling, We run to the market. But the social strains were huge, and Stuckin the kitchen, we care forthem. over the past few years migrant families have quietly started to put the three gener- Weary travellers The march ends “Forwards! Forwards to- ations back together again. Helped by China, migrant workers by age, % of total wards our last fight.” The fight on the hori- modest reforms to the hukou system 40 zon is over China’s social services and the (which have made it easier to change your hukou (household registration) system status in some cities), the children and par- 21- 30-years old that restricts them. For Mrs Liu is part of a ents of migrants are leaving the villages to 30 new wave of urban migration that is re- join the urban breadwinners. In 2000 uniting families, but putting extra strain on there were 14m children of migrants living 20 schools, hospitals and the government’s with their parents. By 2010 that number social controls. had more than doubled, to 29m (the total 50 years and over 10 In the 1990sChina saw the biggest mass number of migrants was flat). More than migration in history. Hundreds of millions halfofall children ofmigrants are now liv- of underemployed peasants moved from ing with their parents. 0 the countryside to find work in cities. Eco- In 2008, 35% of migrants were aged be- 2008 09 10 11 12 13 14 15 nomically, this was hugely beneficial. So- tween 21 and 30; they were the young Source: National Bureau of Statistics of China 28 China The Economist December 3rd 2016

2 sion found that 4% ofchild migrants in Bei- Adultery jing and 5% in Shanghai were not enrolled in 2012. Another survey found that 86% of migrant children said they had no friends The divorce whisperer among the local children; 7% had no CHONGQING friends at all. As more left-behind children Saving marriages is quite a business join their parents, such problems are likely to get worse and more schools will need to ITH his slicknavy suit, silver watch clearly continue to wander after mar- be built. Wand non-stop smoking, YuFeng is riage. Some 20% ofmarried men and At the other end ofthe age spectrum, el- an unlikely ambassador for Chinese women are unfaithful, according to a derly migrants face three main difficulties: family values. The office from which he survey of80,000 people in 2015 by re- inadequate pensions, tough working con- operates, in Chongqing in western China, searchers at Peking University. ditions and gaps in the medical-insurance looks more like a sitting room, with grey In many respects growing infidelity is system. Only a third of them have pen- sofas, cream curtains and large windows a predictable consequence ofeconomic sions and, of those, most have so-called looking out on the city’s skyscrapers. development. People are increasingly “rural pensions”, which assume the recipi- Women visit him here and plead for help. willing to put their own desires above ent will be living in villages where the cost They want him to persuade their hus- familial obligations or reputation. Im- oflivingislow. Atroughly600 yuan ($90) a bands to dump their mistresses. proved education and living standards month, these stipends are not enough to Mr Yuworked in family law and then mean they have more financial freedom live on in a city. Villagerswith a rural hukou marriage counselling before starting his to do so. Most Chinese couples previous- who have never been employed by a com- business in 2007. He charges scorned ly had few chances to meet members of pany often have no pension at all. The up- wives100,000-500,000 yuan ($15,000- the opposite sex in social situations after shot is that more than half of elderly mi- 75,000); cases usually take 7-8 months. marriage, but migration means that grants either depend on their children for He befriends both the two-timing hus- many couples live apart. Even ifthey live money, or must work. band and the mistress, encouraging them together, the pool oftemptation has The survey by the health and family- to find fault with each other, and gradual- grown larger and easier to dip into, planning commission found that 22% of ly reveals that he has messed up his own thanks partly to social media. migrants over 50 have jobs. Almost 60% of life by being unfaithful. Most clients are Businesses like Mr Yu’sindicate that older migrants, and 70% of older migrant in their 30s and early 40s. “This is the not all spouses see affairs as an unpar- women, never went to school or only to want, buy, get generation,” he says; sex is donable offence. But surveys also suggest primary school. They cannot do skilled a part ofChina’s new materialism. But that infidelity is the “number one mar- jobs: 70% of those in employment work in changing sexual mores and a rocketing riage killer”. Last year 3.8m couples split, services, often as cleaners, with long hours divorce rate have prompted soul-search- more than double the number a decade and low pay. The survey found that half ing about the decline offamily ties. Mr Yu earlier. China’s annual divorce rate is 2.8 workmore than 56 hours a week, while av- claims a 90% success rate. per1,000 people (also double that a erage earnings for migrants over 50 are The ernai, literally meaning “second decade ago). That is not quite as high as only 2,500 yuan a month—1,000 yuan less wife”, is increasingly common. So many America’s 3.2, but higher than in most of than the average for all migrants. One old- rich men indulge that Chinese media Europe. That may be partly because er migrant in the capital explains how she sometimes blame extramarital relation- Chinese people are more likely to get used to make window frames on construc- ships forhelping to inflate property hitched in the first place: the law strongly tion sites in Shandong province. “It be- prices: some city apartment complexes discourages people from having children came harder to get jobs, so I went to Beijing are notorious forhousing clusters of outside marriage. Even so, Chinese fam- and became an hourly cleaner. We were mistresses, paid forby their lovers, who ilies are fraying fast. still able to work. There was no point just often provide a living allowance too. sitting at home,” she says. It is not just businessmen who keep She counts herself lucky in being mistresses: President Xi Jinping’s anti- healthy. Medical care for China’s retired corruption campaign has revealed that migrants is patchy to non-existent. Over many government officials do too. Ac- 90% have some form ofmedical insurance. cording to news reports Zhou Yongkang, But those who are part of locally based the most senior person toppled by the plans can get medical attention only in the current anti-graft crusade, had multiple place where they joined—usually the vil- paramours; formerrailways minister Liu lage they left. Many therefore say they will Zhijun is rumoured to have kept18. have to leave the city when they can no China has a long history ofadultery. longer look after themselves. A few local In imperial times wealthy men kept hospitals and clinics offer care to people multiple concubines as well as a wife; from other areas. For example, the medical prostitution was mostly tolerated, both system in Sanya, a tourist resort in the far by the state and by wives (who had little south, has an arrangement to treat people choice). Married women, in contrast, from the city of Harbin in the north-east. were expected to be chaste. After1950 But such provisions are rare. concubines were outlawed and infidelity Duan Chenrong of Renmin University deemed a bourgeois vice. Even in the in Beijing told China Daily, a state-run 1980s few people had sex with anyone newspaper, that “society has not paid other than their spouse or spouse-to-be. enough attention to this group and govern- Over the past 30 years, however, ments should do more to improve services sexual mores have loosened and more for them.” As so often in China, social young Chinese are having sex with more change is outstripping the government’s partners and at a younger age. Some ability to respond. 7 United States The Economist December 3rd 2016 29

Also in this section 30 The next treasury secretary 31 Capital punishment and intelligence 31 Recounting Midwestern votes 32 Cheaper divorces 33 Louisiana’s Senate race 34 Lexington: The impresario-elect

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

Education placed on local governments. Since thatlawpassed justlastyear, Con- Long-haul charters gress will be reluctant to consider a new bill on education reform. Mr Trump’s pro- posal that $20bn in federal education funding should be diverted towards voucher schemes would struggle to win enough support in the Senate, says Rick Betsy DeVos’s appointment has given the school-reform movement a shot in the Hess of the American Enterprise Institute, arm. Yet she may end up splitting it a think-tank. Most Democrats would op- N 1983 the Reagan administration pub- to pay for the cost of places at private pose it, he notes. So too might Republicans Ilished “ANation At Risk”, an apocalyptic schools. Though Michigan voted against sceptical of another big federal pro- report into the state ofAmerican schools. It adopting vouchers in 2000, Mrs DeVoshas gramme. They would preferstates to make ushered in 33 years ofuneven yet enduring helped to elect more than 120 Republicans their own decisions about vouchers. bipartisan support forpresidents’ efforts to across the country who are in favour. But Mrs DeVos will still have clout. Her raise school standards. George W. Bush’s Education secretaries are among the department can interpret federal rules in No Child Left Behind Act and its successor, least powerful cabinet members. The fed- ways that make it easier for states to spend the Every Student Succeeds Act (ESSA), eral government spends only about ten federal money as they like. She could also share more than quixotic names. Both cents of every dollar that goes toward pub- use the bully pulpit and her influence with were backed by majorities of both parties lic schools. States and the more than 13,500 conservative foundations to cajole gover- in Congress. Unfamiliar with such harmo- school districts matter more, especially nors to embrace vouchers. ny, Barack Obama called ESSA, signed into after ESSA, which loosened the regulations Here she may find a receptive audience. law last December, a “Christmas miracle”. Roughly half of states and Washington, That sort of collaboration could soon DC, have some form of school-choice become a rarity. On November 23rd Do- Top marks scheme. And though less than 1% of all pu- nald Trump, the president-elect, nominat- United States, reading and maths test *performance pils in America attend school on state- ed Betsy DeVos, a philanthropist, as the Results converted into the implied extra months of learning funded vouchers, this number is growing next secretary of education. For three de- Raw scores Adjusted for demographic rapidly: from 61,700 in 2008-09 to more cades Mrs DeVos has used her family foun- differences (rank out of 50) than 153,000 in 2015-16, according to the dation and her leadership of conservative American Federation for Children, a 15 10 5– 0+ 5 10 15 groups to lobby for “school choice”, a school-choice group whose outgoing Massachusetts (1) broad term that can divide Republicans chairman is, as it happens, Mrs DeVos. New Jersey (2) even from moderate Democrats. Would more vouchers help children? In Texas (3) For Mrs DeVos this has meant support theorytheywould, bymore closelymatch- Florida (4) for two causes. The first is the rapid expan- ing pupils to schools, encouraging new Colorado (19) sion of charter schools, fee-free schools schools and fostering competition. But the New York (22) that are publicly subsidised but indepen- evidence is mixed. A review last year led Ohio (23) dently run. Her activism is one reason why by Dennis Epple of Carnegie Mellon Uni- Louisiana (25) charters in Michigan, her home state, have versity concluded that vouchers are not “a Tennessee (38) less oversight than almost any of the 43 systematically reliable way to improve Mississippi (39) states that allow them. And about 80% of their educational outcomes.” In cities such California (44) Michigan’s charters are run for profit, com- as Milwaukee, New York and Washington, Michigan (47) pared with 13% nationwide. The second pupils using vouchers tend to have higher Hawaii (50) cause is school-voucher schemes, which graduation rates than peers at public Source: Urban Institute *2015 NAEP typically give public funds to poor parents schools. There is also evidence from these 1 30 United States The Economist December 3rd 2016

2 cities, and from Sweden and Chile, that the in 2015 than in 2003. The Urban Institute, a ofthe need to reform the tax code. competition brought by vouchers makes think-tank, has analysed the National As- Yet in other ways Mr Mnuchin is a rath- other schools improve their performance. sessment of Educational Progress, a na- er unconventional nominee. In recent However, once at private school, there tionwide test of maths and reading. After years he has mostly swapped finance for islittle evidence thatpupilsusingvouchers accounting for demographics, Michigan is films. His entertainment company, in part- perform better in exams than if they had 47th out of all the states (see chart). Massa- nership first with Fox and later with War- stayed put. They may in fact do worse. chusetts is top—and is the only state with ner Bros, has produced blockbusters in- Studies published this year into schemes maths results near those of high-perform- cluding “Avatar” and “Gravity”. In his latest in Ohio and Indianapolis suggested ing East Asian countries. effort, a romanticdrama about1950sHolly- vouchersreduced achievementamongpu- Sadly, in one ofthe less-noticed ballots wood, Mr Mnuchin even makes a cameo pils who used them. Research published on November 8th, Massachusetts voted appearance—though that was not enough last year into vouchers in Louisiana was against lifting its cap on charters—a victory to stop it flopping over the Thanksgiving even more troubling. A study led by Atila for teachers’ unions and their sympa- weekend. Earlier in 2016, Mr Mnuchin’s Abdulkadiroglu of Duke University found thisers. After three decades of progress, fiancée, a British actress, drew some noto- thatpupilswho used vouchersto attend el- pragmatic reformers are thus in a bind. Led riety for writing a book, now withdrawn igible private schools were 50% more likely by teaching unions, the left is out to curb from sale, about her gap year in Zambia. In to have “failing” grades than peers who some of the country’s best schools. Mean- it, she told tales of rebel conflicts, the mon- stayed in public school. while, the riskofa Trump administration is soon season and 12-inch spiders. Zambia An “evidence-based policymaker” that it is about to subsidise some of the contains none ofthese things. would conclude that there are more pro- worst. That would be some choice. 7 Mr Mnuchin has made some time for fi- mising areas for reform, says Joshua Co- nance on the west coast. In 2009 he and wen ofMichigan State University, who has others bought IndyMac, a failed Califor- studied the Milwaukee voucher pro- The next treasury secretary nian bank. Renamed OneWest, the bank gramme. Charter schools, for example. He foreclosed on defaultingmortgage borrow- notes that charters in cities such as Boston, You’re hired ers too zealously, according to its critics, New Orleans and New York have brought leading to several lawsuits. more choice forpoorparents, while pupils’ Ifthe Senate confirms his appointment, results are consistently higher than those Mr Mnuchin will face three main chal- oftheir peers in traditional schools. WASHINGTON, DC lenges in office. The first will be to get Mr These charters have done this by focus- Trump’s fiscal policy straight. During the Three main challenges await the next ing on ends rather than means. The best campaign Mr Trump proposed tax cuts treasury secretary succeed because they are well-managed that would, according to the Tax Founda- organisations with skilful teachers, high N SOME respects, Steve Mnuchin is a typ- tion, a right-leaningthink-tank, give the top standards and high expectations. Areas Iical nominee for the post of treasury sec- 1% of earners a tax cut worth, on average, with successful charters also tend to strike retary. Like two of his last seven predeces- 12-20% of their incomes. But Mr Mnuchin the right balance between autonomy for sors—and his father and brother—he told CNBC that there would be no net tax schools and accountability, says Susan Dy- climbed the ranks at Goldman Sachs, a cut for the highest earners. Before the elec- narski of the University of Michigan. In bank. In the 2000s he briefly worked for tion Mr Trump criticised his opponent’s Massachusetts, for example, the state de- George Soros, an investor. (On the eve of plan for an infrastructure bank “controlled cides who can set up charters, which can the election, Mr Soros featured alongside by politicians and bureaucrats” and pro- be shut down if their intakes do not keep Lloyd Blankfein, Goldman’s CEO, as a tar- posed using tax credits to encourage priv- up decent grades. get of a Donald Trump attack on the “glo- ate investment instead. Yet Mr Mnuchin In contrast, partly as a result of Mrs De- bal power structure”.) As the news of Mr suggested in mid-November that the in- Vos’s lobbying, Michigan is the wild (Mid) Mnuchin’s nomination broke, he spoke so- coming administration is looking at start- westofcharterschools. Dozensofdifferent berly on CNBC, a business news channel, ing an infrastructure bankafter all. 1 outfits, including public universities, can authorise charters in exchange for a cut of the revenue going to those schools. Opera- tors can therefore shop around until some- one letsthem setup a school. There are few rigorous, transparent and standard mea- sures that allow parents to play an easy part in this market. Some schools in Detroit compete for pupils by offering them raffle tickets for iPads, rather than impressing their parents with academic results. No one holds the authorisers accountable, though they oversee $1bn in taxpayers’ money every year. Disruption is a feature of the Michigan system, not a bug, argues Mr Hess. Results at Michigan’s charter schools improved fasterthan at traditional public schools be- tween 2005-06 and 2010-11. But many are still awful. Most of their results remain be- low the state average—and overall, Michi- gan’s schools are woeful. Michigan is one of just five states whose reading results amongnine- and ten-year-oldswere worse Steve Mnuchin: gold-man hired The Economist December 3rd 2016 United States 31

2 The second challenge will be to live up they should be geared not to clinical stan- to Mr Trump’spromises on trade. Mr Mnu- dards but to the “level and degree of men- chin is thought to share his boss’s protec- tal retardation at which a consensus of Tex- tionist instincts. He will determine trade as citizens would agree that a person policy alongside Wilbur Ross, Mr Trump’s should be exempted from the death penal- nominee for commerce secretary. Mr Ross, ty.” This idea alarmed Mr Breyer. The will a billionaire investorin bankrupt firms, is a of the people of Texas, he said, “has noth- vocal critic of recent trade deals. At the ing to do with it.” Standards forintellectual commerce department, he will oversee disability should be fashioned from the trade enforcement, such as the imposition views of medical professionals, he im- of tariffs. At the Treasury, MrMnuchin will plied, even if a rule that works for all 50 have such responsibilities as declaring states is hard to come by. China a currency manipulator. Ms Sotomayor pressed Mr Keller to de- The final, overarching challenge will be fend the CCA’s reliance on Steinbeck’s to champion Mr Trump’s growth agenda. character to define who counts as intellec- Announcing the nominations, the transi- tually disabled. One problem with fash- tion team reiterated a promise to create ioning standards after Lennie, Ms Soto- more than 25m jobs over the next de- mayor pointed out, is that the character cade—18m more than is forecast today. seems just as capable as Mr Moore, who, as Arithmetic suggests this pledge is fanciful: a teenager, made money cutting grass. even if the labour-force participation of 25- “Lennie was working on a farm. How is to 54-year-olds returns to its record high, Smart enough to execute? thatdifferentfrom mowinga lawn?” And if only 4.3m new workers will appear by MrMoore’s ability to hide weapons and lie 2024. To achieve consistently their eco- nor the months ofthe year, nor distinguish disqualifies him from being intellectually nomic growth target of 3.5-4%, Mr Trump’s between addition and subtraction—is too disabled, why should Lennie be included? new team must instead hope for an un- clever to qualify foran exemption. He sought to “hide the death of the rabbit precedented surge in productivity, driven, Clifford Sloan, Mr Moore’s lawyer, ar- he killed”, Ms Sotomayor recalled, and yet perhaps, by deregulation. More sober gued that Texas’s “unique approach” to he was held up by the Texas court as “not voices say growth of 2.5%, or, at a stretch, measuring intellectual disability relies on just mildly, but severely disabled”. 3%, should be the goal. Assuming Mr Mnu- “harmful and inappropriate lay stereo- Mr Keller tried to explain away the Len- chin can achieve that, he will have to find a types” which are “anti-clinical” and con- nie reference as a mere “aside” in a ruling way to sell it as a promise fulfilled. 7 tradict the “core holding” in Atkins. In re- that was otherwise consistent with both sponse, Scott Keller, the Texas solicitor- Atkins and Hall. But a majority of the jus- general, noted that the justices largely leftit tices seem sceptical that Texas’s standards Capital punishment and intelligence to the states to decide who qualifies as for measuring intellectual disability jibe mentally retarded, or, in today’s parlance, with their precedents. Word on Mr Novel justice “intellectually disabled”. The CCA, Mr Kel- Moore’s fate should arrive in the spring. 7 ler maintained, dutifully applied the three- part test endorsed in Atkins: low IQ, defi- cits in “adaptive functioning” and onset Recounting Midwestern votes WASHINGTON, DC before the age of 18. The Texas court could not be faulted, he said, for turning to one The Supreme Court considers the Catharsis psychological manual rather than another execution ofprisoners with low IQs to flesh out the first two parts. ANS of “Of Mice and Men”, the 1937 no- Mr Sloan’s rejoinder to this claim was Fvella by John Steinbeck, will recall the embraced by the fourliberal justices and, it CHICAGO character of Lennie Small, an oafish, dim- seems, by Justice Anthony Kennedy, the Recounts are tedious, expensive—and witted man whose physical strength is ill- fifth vote Mr Moore needs to avoid execu- useful matched to his love of rabbits. On Novem- tion. In Hall v Florida, a case from 2014, the ber 29th, in a remarkable example of law Supreme Court ruled that standards for in- OST voters yearn for closure after an imitating art, a hearing at the Supreme tellectual disability must be “informed by Munusually bitter election campaign, Court put Lennie back in the spotlight. The the medical community’s diagnostic but three of the four candidates for the question is whether the fictional man’s in- framework”, and may not disregard estab- presidency now claim that the election tellectual profile should help determine lished medical practice. But in evaluating may not have been free and fair. The loud- the fate of Bobby Moore, a real-life Texan MrMoore’s case, MrSloan noted, the Texas est is Donald Trump. The president-elect awaiting execution. appeals court bashed the district court for frequentlyalleged thatthe election process Mr Moore, a man with an IQ in the 70s, relyingon the current manual ofthe Amer- was rigged and voter fraud common in the was sentenced to die 36 years ago for kill- ican Association on Intellectual and De- run-up to the election. On November 27th ing a store clerk during a robbery. In 2014 velopmental Disabilities. Instead, the CCA he tweeted that he had won the popular Mr Moore had his death sentence revoked flipped back to an old standard from 1992, vote, “if you deduct the millions of people after successfully making a claim under At- plus a list ofseven factors springing, appar- who voted illegally.” Jill Stein, the Green kins v Virginia, a rulingof2002 banningthe ently, from the minds of the judges. None Party’s candidate, raised millions of dol- execution of intellectually disabled peo- of the factors (including whether the per- lars for a recount of votes in Wisconsin, ple. But a year later the Texas Court of son “can lie effectively” or “formulate Pennsylvania and Michigan, where Mr Criminal Appeals (CCA) sent him back to plans”) included a single citation. Trump’smargins ofvictory were thin. And death row. The quarrel in Moore v Texas is Justices Stephen Breyer, Elena Kagan after initial hesitations, Hillary Clinton’s whether the CCA used the right standard and Sonia Sotomayor zeroed in on the campaign joined the drive for a recount in when it decided that Mr Moore—who at 13 CCA’scommentthat as intellectual disabil- the three Midwestern states which, togeth- could name neither the days of the week ity standards are “exceedingly subjective”, er, handed Mr Trump his victory. 1 32 United States The Economist December 3rd 2016

2 Ms Stein denies that she is pushing for a Divorce vorce, that statistic no longer holds true. recount to overturn the election result. She According to the National Centre for Fam- says she is spurred by worries about the Disruptive ily and Marriage Research (NCFMR), a “hackability” of voting systems in the think-tank, the divorce rate in America has wake of the hacking of the Democratic Na- innovation fallen by 25% from 1980, reaching a 40-year tional Committee’s network, voter-regis- low. In 2015 there were 16.9 divorces per tration databases in Illinois and Arizona DENVER 1,000 married women, down from 22.6 in and the e-mail account of John Podesta, 1980. This dip is in part because of Ameri- A spate ofstart-ups offeralternatives to Mrs Clinton’s campaign manager. Some ca’s ageing population. Older couples are traditional divorce suspectthatMsStein ispartlydriven bythe farless likely to divorce than younger ones. publicity generated by her initiative and OST of the employees at the Centre Another factor is that far fewer Americans the inflow of funds (and donors’ contact Mfor Out-of-Court Divorce in Denver are getting married in the first place, partly details) to finance the recount. The initia- are trained in mediation or social work, because not being married carries less stig- tive has given her more airtime than ever but they also pay close attention to interior ma than before, says Susan Brown of the before and brought in about $7m, more design. The centre, on the ground floor ofa NCFMR. But divorce is still common—more than she received in the whole year for her nondescript office block, is decorated with than 800,000 marriages were annulled in presidential run. photos of smiling children and stocked 2014—and it is often costly and protracted. Recounts are unlikely to overturn the with dolls’ houses, stuffed animals and A survey by Nolo, a legal publisher, sug- result. The election was decided, in effect, board games. It has three exits in case ten- gests the average American couple spends by slightly more than 100,000 people in sions flare and the separating partners $15,000 and 10.7 months untying the knot. three Midwestern states. Mr Trump won need personal space. They have been used The legal system often adds insult to Wisconsin with a margin of 0.8% (or a few times since 2013, when the centre be- cost and time. Rebecca Love Kourlis, direc- 22,000 votes), Michigan with a margin of gan helping to dissolve marriages, says Su- tor of the Institute for the Advancement of 0.2% (11,000 votes) and Pennsylvania with san Carparelli, the centre’s executive direc- the American Legal System, which helped 71,000 votes, a margin of 1.2%. But these tor; but not many. create the Centre forOut-of-Court Divorce, margins are bigger than any overturned The centre is one of several new enter- explains that America’s adversarial ap- before in a recount. prises that seek to make divorce cheaper proach to divorce “fans the flames of con- Merle King, of the Centre for Election and more amicable. Another, Wevorce, troversy”. Most divorces are handled Systems at Kennesaw State University, ar- uses mostly online methods to guide cou- through litigation. Even if the decision to gues that the hacking incidents during the ples through the process. Based on their part ways is mutual, that litigation always campaign do notmean thatvotingsystems answers to a survey, potential divorcees involves a plaintiff, or the person who pro- can easily be infiltrated. Voting technology are assigned one of 18 “archetypes” and posed the divorce, and a defendant. Con- differs between states and even county by walked through the legal, financial and flict-of-interest rules generally bar the county, with some counties using paper emotional processes of ending a marriage. same lawyer from representing both par- ballots, others paperless technology, mak- Its website promises to help couples di- ties in a divorce proceeding. Only a hand- ing a large-scale hack very tricky. Around vorce in less time, for less money, with less ful of divorce cases are actually settled in 75% of all votes are cast on paper, which is conflict. Separate.us, which began opera- court, but traditional litigation inherently safer than those cast on electronic voting tions in 2015, offers online legal guidance promotes the idea that the couple’s inter- machines, some of which provide no pa- fordivorcing pairs from $99. ests are at odds. per trail as backup and can be hacked, as Although parents who disapprove of The Centre forOut-of-Court Divorce of- researchers have shown. Nearly all states their children’s partners may be quick to fers a more collaborative approach. For a use federally certified technologies, such warn that half of all marriages end in di- flat fee of$4,500 partners who wish to un- as encrypting results several times before couple are provided with a customised they are transmitted to a central repository. package of mediation, counselling, and as- Philip Stark, a statistician at the Univer- sistance with financial planningand custo- sity of California, Berkeley argues that dy schedules. In a windowless conference elections never work perfectly because of room, aspiring divorcees sit at a table human error. Recounts usually produce a topped with multiple calculators and two different result. Ballots can be torn when separate boxes of tissues. On a white- they are put through a scanner and a sensi- board, they can work out school pick-up tive scannercan counta markwhere a pen- schedules and holiday budgets. Across the cil just rested as a vote. The goal, says Mr hall in the playroom, a therapist might King, is to get a reasonable approximation watch how their child responds to various ofthe result. toys. Does he or she gravitate towards the The recounters are on a tight deadline: miniature green bottlesin the dolls’ house? the electoral college must do its work by That prompts the therapist to find out December 13th. However costly and tire- whetherone ofthe parentshasbeen drink- some, argue Mr Stark and Ronald Rivest of ing to dull their pain. Divorces at the centre the Massachusetts Institute of Technology, normally take 40 hours spread over six elections should be audited regularly, not months, but there is no set time cap if a only when margins are slim. If the results split turns out to be particularly complex. are confirmed, they will bolster voters’ be- Ms Carparelli recognises that the ser- lief in the system. If the process goes badly, vice will not be right forall couples. Where as was the case with the chaotic recount in there is abuse or when the couple has a lot Florida after the presidential election in of trouble communicating, litigation may 2000, it will trigger reforms, such as the be more appropriate. But for a large share famous banishment of hanging chads ofseparating couples it may well be the fu- (partly-punched paper cards). Either way, ture, like “introducing a cell-phone into a voters will be able to move on. 7 It’s a bargain world oflandlines”. 7 The Economist December 3rd 2016 United States 33

Louisiana’s Senate race farmer, self-declared populist, former state senator and now public service commis- Alamo on the bayou sioner—Huey Long, the legendary gover- nor, once held the same post—he has al- ways opposed abortion and owns 37 guns. His go-to anecdote tells of an uncle who lost both hands in a dynamite accident; BATON ROUGE AND METAIRIE sifting through shotgun shells with his hookto buythem individually(he couldn’t Democrats struggle to salvage some honourin this year’s electoral finale afford a box), the uncle told young Foster, OSTER CAMPBELL, the Democratic to hope that, in the rightcircumstance, they the son of a shopkeeper, that “Not every- Fcandidate in Louisiana’s unfinished could still compete in statewide elections. body’s daddy owns a store.” “That Senate race, is thrilled by the influx of sup- Mr Campbell’s team is striving to asso- changed my life,” he says, inspiring him to port from beyond the state. “Send it on!”, ciate Mr Kennedy with both Mr Vitter and champion the little guy against payday he says of the donations from Hollywood Bobby Jindal, an unpopular former gover- loan and petrochemical firms. Poverty and stars and others in the wake of Hillary nor. They also emphasise he used to be a environmental damage are among Louisi- Clinton’s defeat. For some, his campaign Democrat. In a role-reversal that looks odd ana’s main problems: he wants a higher hasbecome a laststand againstRepublican from a national perspective but makes minimum wage, more federal subsidies hegemony, a political Alamo on the bayou. sense in Louisiana, they say, in particular, and corporate aid to fight coastal erosion. “Hallelujah!”, he exclaimed at an event that he formerly supported abortion. To His team reckons he can snatch the this weekin Baton Rouge. the sound ofa beatingheart, a newad from third of white votes which, in the state’s In a parallel universe, the outcome of backersofMrCampbell openswith the fig- stark electoral calculus, he needs to win, the run-off on December 10th might have ure 22,581,040 emblazoned on screen, sup- along with the Democrats’ reliable black determined control of the Senate. In that posedly the tally of abortions during the constituency. It helps, they think, that Do- case, chuckles Senator Roger Wicker, chair- years Mr Kennedy was pro-choice. nald Trump, who thrashed Mrs Clinton in man ofthe National Republican Senatorial Louisiana, will no longer be on the ballot. Committee, “there would probably be Jambalaya politics Anyway, Mr Campbell’s populism over- $10bn” pouring in. Still, he says at a gather- He never was, Mr Kennedy maintains in laps with the president-elect’s more than ing of Republican volunteers in Metairie, Metairie. As forhis defection, it was his old does his opponent’s doctrinaire conserva- on the outskirts of New Orleans, “a one- party that changed, not his convictions. tism. “I don’t agree with everything Mr vote majority”, his party’s current advan- “Youcan’t be a conservative Democrat any Trump said or did,” concedes Mr Kennedy, tage in the incoming Senate, “is pretty pre- more,” he laments. After all, lots of South- a fiscal hawk, of Mr Trump’s spending carious.” Extending it is important enough ern politicians have made the same plans. Mr Campbell says he could co-oper- for Mike Pence to visit on December 3rd. switch, including Louisiana’s other Sena- ate with Mr Trump over trade deals, term He may be too late—because, as Robert tor, Bill Cassidy. These days, says Mr Mann, limits and other shared bugbears: “There Mann of Louisiana State University says, “nobody doubts that [Mr Kennedy] is a ain’t no wrong way to do the right thing.” the “real race” may have been among the conservative.” Disciplined if uninspiring— The combined Republican vote in the Republican candidates in the primary on this John Kennedy is no Jack Kennedy—he primary was 61%. If Mr Campbell were November 8th. The non-partisan, 24- hammers home the usual Tea Party de- running as one himself, he might well win. strong field included David Duke, a former mands for more freedom, fewer handouts As it is, his chances are slim, which might grand wizard of the Ku Klux Klan; in a tele- and immigrants. He can do folksiness, too, explain why, despite the generosity of vised debate he bickered with the modera- backslapping and comparing Thanksgiv- those far-flung sympathisers, the national torand said Mrs Clinton “should be getting ing hunting hauls with his canvassers. Democratic Party is, as he puts it, “missing the electric chair”. In an election format He “wouldn’t know the difference be- in action”. One local insider likens the con- that encourages candidates to attack their tween a bulldog and a billy goat,” grum- tenders to a knife and a fork. “You need a party colleagues to solidify their vote, a fel- bles Mr Campbell, who in some ways fork more,” he says, “but in Louisiana, the low Democrat tried to tie Mr Campbell to seems a better fit with the voters. A cattle knife is gonna win.” 7 Mr Duke. John Kennedy, the Republican front-runner, disavowed his side’s mud- slinging in memorably expansive terms: “mycampaign played absolutely no role in creating this story alleging…sexual rela- tionships with prostitutes that were later murdered,” he insisted, adding that his family was praying for the traduced man. (His rival sued the author and publisher of a bookin which the slurs originated.) The trouble, for Mr Campbell, is that precious little mud has stuck to Mr Kenne- dy, a long-term state treasurer who came firstin the primarywith 25% ofthe vote; Mr Campbell got 17%. And sleaze was vital to the long-shot Democratic victory in last year’s governor’s race: an infamous ad charged that the Republican contender, Senator David Vitter, “chose prostitutes over patriots” (Mr Vitter’s retirement from the Senate opened up the current contest). The upset allowed Louisiana’s Democrats John Kennedy, in pursuit of voters 34 United States The Economist December 3rd 2016 Lexington The impresario-elect

Washington is becoming more comfortable with Donald Trump These folks are probably deluding themselves. All candidates worry about pleasing their supporters or building coalitions, even as they craft policies that reflect their core beliefs. But it is striking how often public acclaim is Mr Trump’s first and last con- cern. Explaining in an interview with the New York Times why it would be “nice” for America and Russia to fight Islamic State to- gether, he imagined how, ifhis plan succeeded: “The people will stand up and give me a massive hand.” Over Thanksgiving week- end aides publicly questioned giving the State Department to Mr Romney—who had, after all, called Mr Trump a “fraud” during the election. The president-elect reportedly argued that Mr Rom- ney “looks the part” of a world statesman—sounding more like a casting agent than a man assembling a government. Those parsingMrTrump’s“Drain the Swamp” slogan forclues to his opinions about government reform should have been with Lexington at a rally in Kinston, North Carolina, on October 26th. Freshly disembarked from his Boeing 757, Mr Trump had just be- gun a thunderous attack on Hillary Clinton’s health policies when he was distracted by a “Drain the Swamp” sign. “Look at that,” he marvelled. When his team had coined the phrase three daysearlierhe had disliked it, he confided. Butthen he used itand HE elites of Washington are starting to feel better about Do- “the place went crazy.” Now, he beamed, “It’s the hottest, it’s like, Tnald Trump. A sense of relief is creeping over them after the trending all over the world…So we like that expression.” president-elect ditched several impossible campaign promises Many note how Mr Trump was helped by reality television, and named conventional conservatives, including a former which made him an icon of success. But his rise recalls an older Goldman Sachs banker, for some big jobs, offsetting the hard- American tradition: vaudeville shows. In theirheyday, just over a right nationalists and populists given posts in his inner circle. For century ago, chains ofvaudeville theatres spanned the continent, a moment they thought America might have elected a true dema- with big impresarios claiming to entertain 5m patrons a year. gogue, beholden to a pitchfork-wielding mob. They wondered if Showsofa dozen ormore actswould make audiencesgasp, weep the businessman meant it when he roared “Drain the swamp in and laugh in rapid succession—speed was a vaudeville obses- Washington!” at pre-election rallies, and vowed to ban lobbyists sion, as it is with Mr Trump, who promises to bring change “so from his government. Now they think they see a cynic like so fast”. A history of the genre, “Vaudeville Wars” by Arthur Frank many others in politics, who ran as an outsider but will govern as Wertheim, records how workingmen in cheap seats were wooed an insider. He seems more manageable than they had feared. with turns like the “Two Skull-Crackers”, whose mock combat Mr Trump is not an ideologue, the lobbying, business, dip- ended with an axe-blow to a performer’s head (beneath a cork- lomatic and political classes murmur approvingly. Just you wait, and steel-lined wig), or the “Diving Venus”, a beauty in a tight they predict, he will ditch his most crazily populist ideas, from bathing-suit who plunged into a glass tank. Respectable matrons starting a trade war with China to mass deportations, while al- were lured with such “dignity acts” as opera singers from Europe. lowing Republicans in Congress to cut taxes and slash business Theatre-managers were told to ignore their expert tastes when regulations. True, ifhe increases spendingon infrastructure orde- judging performers: what counted was audience reactions. fence then deficits might explode. But with luckthe economy will boom, keeping Mr Trump’sfieriest supporters happy. The skull-crackers They draw comfort from the array of conservative bigwigs, America has elected an impresario-president. Imagine him peer- pillars ofCongress and retired generals he has summoned forjob ing past theatre footlights through clouds of cigar smoke, check- interviews. Take foreign policy. Candidate Trump alarmed gran- ing that every row is full and each face rapt. There is no guarantee dees from both parties with his cooing praise forPresident Vladi- that will make him a pragmatist: indeed, perhaps because he has mir Putin of Russia. Their fears ebbed once his search for a secre- so few fixed beliefs (beyond protectionism), he has appointed tary of state led him to interview figures with more orthodox ideologues to key positions, like a vaudeville boss crafting a play- views, including Mitt Romney, who as the Republican nominee bill to sell everylast seat. His team so farincludeshardline nation- in 2012 called Russia America’s “No. 1 geopolitical foe”, and a for- alists alongside conservative technocrats like his chosen tran- mer general, David Petraeus, who in 2015 claimed Mr Putin want- sport secretary, Elaine Chao, the wife of the Senate majority ed to “resurrectthe Russian empire”. The MrTrump ofTV debates leader, Mitch McConnell of Kentucky. Nor are grassroots suppor- appalled conservatives by praising government-run universal ters forgotten. He has claimed credit for strong-arming Carrier, a health care in placeslike Scotland. President-electTrump soothed maker of air-conditioners, into keeping 1,000 jobs in Indiana, Republicans by naming as his health secretary Representative rather than sending them to Mexico. He has fired off tweets pro- Tom Price of Georgia, a surgeon-congressman who seems to posing, in breach ofthe constitution, that those who burn Ameri- viewgovernment-run medicine assomethinglike gangrene. Pon- can flags should lose citizenship. If Washington grandees are dering so many mixed signals, Trump apologists cross their fin- shocked, they misunderstand Mr Trump. He has a knack for sen- gers, squint a bit, and declare that they see a political pragmatist sation. Applause is his drug. Elites are naive to imagine that this who may yet preside over a rather normal administration. will make him more manageable. It is his show now. 7 The Americas The Economist December 3rd 2016 35

Also in this section 36 Trouble for Temer 36 A Brazilian tragedy

Haiti’s presidential election Bannann nan (“the banana man”), giving his campaign an appealing folksiness. The banana man cometh Though plugged into Haiti’s economic elite, he marketed himself as an outsider. Voters overlooked the millions of dollars in loans that Agritrans received from Mr Martelly’s government. What sort of president Mr Moïse will turn out to be is a mystery. Like his rivals, The probable new leaderis a little-known businessman with unclearpolicies he talked a lot about boosting agriculture OLLOWING the example of the United liminary results. Mr Célestin and the two and manufacturing, and promised to clean FStates, Haiti has elected as its new presi- candidates who finished behind him say up corruption, which was rife in Mr Mar- dent a businessman with no experience in they will challenge them. Violence has telly’s administration. He offered few seri- government. Jovenel Moïse, the smooth- broken out sporadically since the election. ous policy proposals. He may follow Mr domed nominee of the Haitian Shaved- But Mr Moïse’s margin of victory is so Martelly in welcomingforeign investment. Head Party (this is where the parallel with massive—he polled 36 percentage points Some analysts thinkMrMoïse, who comes the American election breaks down), won ahead of Mr Célestin—that his victory is from northern Haiti, will try to rebalance outrightin the firstround ofvoting, held on likely to be confirmed when the final result the economy away from Port-au-Prince, November 20th. His plans for governing is published in late December. He owes his which produces two-thirds of the coun- his impoverished country are fuzzy. If Mr triumph in part to the failure of politicians try’s GDP. Moïse simply brings political stability, linked to Fanmi Lavalas, the party of Jean- Economists hope that MrMoïse will en- many Haitians will be grateful. Bertrand Aristide, a popular two-time for- courage investment in rural areas, where That is no certainty. Last month’s elec- merpresident, to unite around a single can- more than half of Haitians work, and fight tion was a re-run of a vote in October 2015, didate. Mr Célestin had to share left-lean- deforestation, which exacerbates the ef- the results of which were annulled after ing voters with two rivals. fects ofhurricanes and other natural disas- several candidates alleged electoral mal- ters. Other priorities are improving infra- practice. They included Jude Célestin, a Sweet Micky’s friend structure, strengthening land-ownership leftist, who had come second to Mr Moïse. Mr Moïse was lucky in his mentor. He is a rights and reforming the judiciary. He fared no better in the re-run. Mr Moïse protégé of a former president, Michel Mar- But the new president’s first job on tak- beat the field decisively, taking 56% of the telly, who sports an equally shiny pate ing office in February, assuming that his vote, according to preliminary results. Hai- (hence the name ofthe party that supports victoryisconfirmed, will be to bring backa tian and international observers said the them). Mr Martelly governed without a semblance ofpolitical stability. The vote in election was conducted fairly. functioning congress for nearly a year be- November continued the process, which But there are problems. Turnout was a fore stepping down last February. A care- began in August 2015, ofelecting new dep- miserable 21%. It was held down by the taker has been in charge since. Mr Martelly uties and senators to Haiti’s congress. Mr devastation caused by Hurricane Mat- is not loved, except as “Sweet Micky”, a Moïse should appoint members of the op- thew, which struck Haiti’s south-west in singer of Haitian merengue, his profession position to his government, says Robert October, and by voters’ disillusionment before he became a politician. But he has Fatton, a political scientistatthe University with politics and elections. Around a tenth the backing ofbusinesses, which provided of Virginia. A rapprochement with Mr Cél- of the ballots were deemed invalid by money forMr Moïse’s presidential run. estin would help soothe supporters of La- vote-counters. Mr Moïse was elected with Mr Moïse advertised widely and cam- valas, who are likely to continue their pro- just 595,000 votes in a country of more paigned across the country, looking presi- tests at least until the election results are than 10m people. dential as he stepped out of his helicopter. made official. If Mr Moïse fails to win over Three of the nine members of the elec- The former boss of Agritrans, an organic- some of his foes, warns Mr Fatton, “we’ll toral council refused to approve the pre- banana plantation, he styled himself Nèg have a bumpy ride.” 7 36 The Americas The Economist December 3rd 2016

Brazil bunal will annul the results of the presi- to 13.75%. dential election in 2014, in which he was The prospect of much lower rates, and Trouble for Temer re-elected as vice-president, on the thus of a revival of business confidence, grounds that his campaign and that of Ms depends on a second big reform, to Brazil’s Rousseffwere financed illegally. budget-busting pension system. That is News that GDP shrank by 0.8% in the needed to carry out the spending freeze. It SÃO PAULO third quarter of this year confirms that the will provoke opposition from Brazilians economy was still in deep trouble. Tempo- who will have to worklongerand retire lat- But the president will probably survive rary factors caused some of the decline. A er. Mr Temer has promised to send a draft stormy times dispute between Volkswagen and a suppli- reform bill to congress this year. ICHEL TEMER, Brazil’s president, was er halted car production at some factories, Ironically, the fussoverMrVieira Lima’s Mas shocked as all his countrymen by and a drought cut coffee and maize har- flat may help get it through, argues Ricardo the crash of an aeroplane in Colombia in vests. Consumption, under pressure from Mendes of Prospectiva, a political consul- which 71 people died, including most high unemployment and household debt, tancy. The minister’s departure opens up a members of a popular Brazilian football fell along with investment. GDP will prob- job that Mr Temer can offer to a congress- team (see next article). The tragedy also ably grow next year, but not by much. man who helps enact pension reform. Vot- had the effect of removing from the head- Despite these storms, Mr Temer has ers’ anti-corruption vigilance has killed at lines other bad news that affects the presi- kept Brazil heading in the right direction. least one dubious law: an amnestyfor poli- dent more directly. Data published on No- His most important policy is a constitu- ticians who had accepted illegal campaign vember 30th suggest that the economy tional amendment to freeze federal spend- contributions. Mr Temer threatened to will recover more slowly from a severe re- ing in real terms for 20 years, which ought veto it, and legislators backed off. The low- cession than many analysts had expected. to reduce debt and interest rates and spur er house of congress has passed a worse A fresh scandal has forced yet another private investment. It passed the first of measure, to give the appeals courts greater member of the cabinet to resign, the sixth two tests in the senate on November 29th; power to discipline zealous judges and in the six months since Mr Temer took a final vote is expected later this month. prosecutors for “abuse of authority”. If the charge. His efforts to reform Brazil’s econ- ThisweekMrTemersigned a lawthatgives senate approves it, voters will demand omy are making progress, but his govern- foreign firms more access to deep-sea oil- that Mr Temerveto that, too. ment is in turmoil. fields; and the federal government invited The odds are that he will spend the rest The latest scandal looks more like an private firms to bid for the right to manage of his presidency, which ends at the end of embarrassment than a threat. Geddel four airports. The central bank gave Mr 2018, battling scandals and grinding out Vieira Lima, who was in charge ofthe pres- Temer’s economic policy a vote of confi- legislative victories. As long as the scan- ident’s relations with congress, quit after dence on November 30th by cutting its dals do not prevent the victories, Brazil the former culture minister, Marcelo Cal- benchmarkinterest rate by a quarter-point, should slowly recover. 7 ero, accused him of demanding that an arm of the ministry unblock construction of a high-rise building in Salvador, in which MrVieira Lima had bought a flat. Mr Calero, who had resigned earlier, claimed that Mr Temer had insisted that he patch things up with Mr Vieira Lima. To many Brazilians, already enraged by the massive corruption scandal surround- ing Petrobras, the state-controlled oil com- pany, that looked like Mr Temerpressuring Mr Calero to help his long-time friend. A tape of the conversation, which was leaked to the press, confirms that Mr Temer did askMrCalero to bringthe solicitor-gen- eral into the dispute. The president says he was merely suggesting him as an arbiter. Many Brazilians do not believe him. Once again, Mr Temer took too long to get rid of an errant minister, they complain. The controversy suggests that scandal will continue to plague Mr Temer’s presi- dency, which began in May with the im- A Brazilian tragedy peachment of his predecessor, Dilma Rousseff, for manipulating federal ac- Brazil’s wretched year got worse on November 28th when a chartered plane crashed into counts. The Petrobras affair will continue muddy slopes near Medellín, Colombia’s second-biggest city. Most of the 77 people on to shorten political lives. Aplea bargain be- board were Brazilians; all but six were killed. Among the passengers were 22 players tween prosecutors and executives of Ode- from Chapecoense, an unglamorous football team from southern Brazil. It had been brecht, a construction firm at the centre of enjoying a run of success that reminded people of Leicester City’s unlikely conquest of the Petrobras scandal, could lead to char- England’s Premier League last season. The team was on its way to play its biggest-ever ges against 150-odd congressmen and sev- game, the final of the Copa Sudamericana, a continental club competition, against eral ministers, or so it is rumoured. “It Atlético Nacional, a team from Medellín. Investigators have not established the cause of would be disingenuous to say it doesn’t the crash. A leaked audio tape captures a pilot telling air-traffic controllers that the worry me,” Mr Temer admitted at a press plane was running out of fuel and suffering from electrical failure. Brazil’s president conference on November 27th. Then there declared three days of national mourning. Several players from Atlético Nacional asked is the (slim) possibility that the electoral tri- that the Copa Sudamericana be given to the grief-stricken Brazilian football club. Middle East and Africa The Economist December 3rd 2016 37

Also in this section 38 Kuwait’s quasi-democracy 39 HIV recedes in Africa 39 Aleppo falls apart 40 Sudan’s failing dictatorship

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

Israel that products from Israeli settlements in the West Bank be labelled as such. And for Sitting pretty the firsttime MrNetanyahuisaboutto deal with a Republican in the White House. Throughouthistime in office, Mr Netan- yahu has had a difficult relationship with Washington—during his first term with Bill JERUSALEM Clinton and over the past eight years with Barack Obama. Pro-Israel statements from Binyamin Netanyahu is in a commanding position Donald Trump and his advisers, who HESE should be the best of times for closely with its neighbours Egypt and Jor- made sure to omit all mention of a Pales- TBinyamin Netanyahu. At no point in dan to counter Islamic State. Farther afield, tinian state from the Republican Party the Israeli prime minister’s almost 11 years there is barely concealed close co-opera- manifesto, raise the prospect of an admin- in office has he enjoyed such supremacy at tion with the Sunni Gulf states on resisting istration which will no longergive him any home, coupled with an absence of any se- Iran’s influence in the region. In recent grief over settlement-building in East Jeru- rious difficulties or pressure from abroad. months a rapprochement has also been salem and the West Bank. In the past few months he has expanded brokered with the prickly President Recep Happy times for Mr Netanyahu, then? his coalition’s majority from only one to Tayyip Erdogan of Turkey. China is keen to Yes, but there are a few storm clouds. In the six; tamed his most ferocious critic, Avig- do ever more business with Israel. absence ofa challenge from the feeble cen- dor Lieberman, by giving him responsibil- No progress is being made on the peace tre-left opposition, his troubles, such as ity forthe defence ministry; and purged his process with the Palestinians, but no one they are, come from within his own co- own Likud party of several rivals. The seems to care very much. Israel’s relation- alition. The right wing is keen to pass a law Knesset(parliament) isaboutto pass a two- ship with Hamas, which rules the Gaza legalising the status of Amona, a settler year budget which should ensure political Strip, has shifted to one of cautious coexis- outpost of 42 families built 20 years ago in stability until 2019. The economy is grow- tence; the West Bank is mostly quiescent, the West Bank on privately owned Pales- ing at a sprightly 3.2% a year. with last year’s “knife intifada” having fiz- tinian land. Israel’s high court has ruled The opposition is in tatters. The main zled out. Not longago, MrNetanyahu’s crit- that the settlers must leave the outpost by opposition grouping is the Zionist Union; ics were predicting a diplomatic assault if December 25th. Defying the prime minis- its hapless leader, Yitzhak Herzog, has seen Israel didn’t start talking to the Palestin- ter, his cabinet’s legislative committee vot- his credibility with his colleagues, and ac- ians. Instead, the supposedly furious Euro- ed on November 13th in favour of the law. cording to the polls with many of his vot- peans seem consumed by their own pro- Caught between the right wing and the ers, seep away towards Yair Lapid’s small blems and have little appetite for Middle court, Mr Netanyahu now faces open re- Yesh Atid party. Eastern diplomacy; the most they have bellion from some ofhis own ministers. These are sunny days, too, for Israel’s been able to manage is a weedy insistence Mr Netanyahu has been playing a dou-1 foreign relations. Boosted by trade in tech- nology and arms, ties with African and Asian nations are flourishing. Mr Netanya- How he does it 120 seats Coalition 66 seats hu has met Russia’s president Vladimir Pu- Israel’s Knesset, , November 2016 Yisrael tin four times in the past 14 months, reach- Meretz Zionist Union 24 Habayit Hayehudi Beitenu* Yesh Atid Joint List Labour Likud Kulanu Shas ing quiet arrangements safeguarding 54 856 Israel’s interests in Syria, while continuing 11 13 19 30 10 7 to insulate it from the bloody war across its Green 1 Hatnuah United Torah Judaism border. Beneath the radar, Israel is working Source: Knesset *One party member declined to join the coalition 38 Middle East and Africa The Economist December 3rd 2016

2 ble game. To the world he expresses will- use the new occupant of the White House assemblyholdsKuwaitbackfrom develop- ingness to negotiate with the Palestinians, to further their expansionist agenda in the ingas fast as otherGulfstates, where ruling if only they were prepared to do so with- West Bank, Mr Netanyahu is now much families need not gain approval for their out preconditions. Meanwhile, he assures more hopeful that President Trump will plans. Indeed, the Kuwaiti assembly often his right-wing constituency that a strategy make America Iran’s Great Satan again. blocks big projects. Voters are concerned of neither moving towards a Palestinian There are other nuisances bothering with keeping their government jobs and state, nor annexing the West Bankoutright, the prime minister. Nearly every other cheap public services. is the only way to withstand international week a new scandal erupts, often involv- But it is wrong to blame the assembly pressure while keeping the settlements. ing an aide or a family member. In the past for Kuwait’s stagnation. For the past three- Critics, at home and abroad, thought that few days it has been the case of his perso- and-a-half years it has simply done the ultimately the international community nal lawyerand adviser, who also works for government’s bidding. Changes to the would call his bluff. Instead, the arrival of the local representatives of the German electoral law in 2012 led opposition groups President Trump may bring about the op- shipyard building submarines for the Is- to boycott two rounds of elections (but not posite outcome—his bluffis beingcalled by raeli navy. MrNetanyahu has been fending the most recent one). In that time the gov- the hawks at home. off accusations that his support for buying ernment has made progress in building But Iran these days looms much larger more subs is connected to this link. Now new houses and hospitals. But it has not in Mr Netanyahu’s calculations than any the attorney-general has ordered a probe. putforward the type ofbroad economic vi- of this. For the past year, since Mr Obama Mr Netanyahu’s response has been to sion that animates other Gulfstates. secured the necessary Senate votes to go on a bit of a crusade against the Israeli Innovative Dubai is the comparison block a Republican veto of the nuclear media. His office has begun issuing fero- that most frustrates Kuwaitis. That is in part agreementwith Iran, the countryhaslarge- cious responses to exposés, attacking re- because Kuwait was once the Gulf’s trail- ly disappeared from the prime minister’s porters for being “radical leftists”. Some blazer. It set up the world’s first sovereign- rhetoric. On November13th it suddenly re- see a plan behind this. Hoping to win a wealth fund in 1953 and was a leader in turned; in a speech Mr Netanyahu men- fifth election, Mr Netanyahu, like Presi- health care. It started one of the first air- tioned Iran no fewer than ten times. While dent-elect Trump, may feel that vilifying lines in the region. But the decline of Ku- his right-wing coalition colleagues want to the media is the way to success. 7 wait Airways is instructive. As its fleet aged and losses piled up, carriers from Qatar and the UAE began offering better service Kuwait and more routes. Politicians have talked of privatisation. But parliament, reluctant to Bypassed by Dubai mess with one ofthe country’s biggest em- ployers, has frustrated these efforts. Let Dubai keep its bikini-clad beachgo- ers and cocktail-sipping tourists, say most Kuwaitis, who viewsuch thingswith pious KUWAIT CITY distaste. What they envy is Dubai’s energy and efficiency. The UAE (of which Dubai is As Kuwait falls behind, some blame democracy a part) ranks 26th in the World Bank’s ease- UWAITIS often compare their country subsidised commodities. This was neces- of-doing-business index; Kuwait is 102nd. Kwith the other states of the Gulf, lead- sary, said ministers, to close a deficit that The ruling Al-Maktoum family of Dubai ing to something ofan inferiority complex. reached $15bn last year owing to the low encourages development through a suite Yes, it has the second highest GDP per per- price of oil, which supplies 90% of govern- ofcompaniesknown as“Dubai Inc”. In Ku- son in the region (and the fourth-highest in mentrevenues. Voterssawitasa harbinger wait, the government owns most of the the world), thanks to its large oil reserves of future cuts to Kuwait’s sumptuous wel- land and hampers its use by the private and small population. But it has fallen be- fare state. They want the assembly to put sector, says Michael Herb of Georgia State hind countries like Qatar and the United up more ofa fight. University. “There is no Kuwait Inc.” Arab Emirates (UAE) in terms ofdynamism Pro-government types argue that the The government’s failings extend to 1 and international appeal. Nowadays even Saudi Arabia looks more freewheeling, economically speaking. Still, Kuwait distinguishes itself in one respect. It is the closest thing to a democra- cy in the Gulf. The rulingAl Sabah family is firmly in charge—it limits speech and ap- points the most important figures in gov- ernment, including the prime minister (who selects the rest). But a 50-memberNa- tional Assembly is elected by the people (including women) and is often truculent. Indeed, in an election on November 26th voters kicked out over halfthe incumbents in favour of candidates who promised to confront the government over recent aus- terity measures. The emir, Sheikh Sabah al-Ahmad al- Sabah, cited “security challenges” as a rea- son for calling the snap election. But the public focused on decisions earlier this year to raise the price of petrol and other Trouble in the family business The Economist December 3rd 2016 Middle East and Africa 39

2 publicservices. Ithas neglected public hos- Syria forces backed by Russian bombers finally pitals and schools. Low electricity prices punched through rebel lines in the east of and a sweltering climate make Kuwait one Aleppo falls apart Aleppo. The breakthrough came two ofthe world’s biggest consumers ofenergy weeks after pro-regime forces launched an per person. But the government, which is operation to recapture the rebels’ last big the sole provider of electricity, has invest- urban stronghold. With the regime now in ed little in infrastructure. Parliament has BEIRUT control of at least a third of the city’s east, delayed efforts to boost the supply.In 2014 the fall ofAleppo looks almost certain. The rebels face the collapse oftheir last a power outage shut down all three of the For months the regime has sought to big urban stronghold country’s oil refineries, crippling fuel pro- strangle the city’s rebel-held east into sub- duction for a week. Endemic corruption HEN Russia dispatched its war- mission. A siege has slowly sapped the completes the dismal picture. Wplanes to prop up the dictatorship of strength and morale of its defenders. As So Kuwaitis have responded to the gov- Bashar al-Assad, Barack Obama warned the blockade tightened, Russian and Syri- ernment’s call for austerity by telling it to Moscow that its Syrian adventure was an warplanes relentlessly bombed civilian put its own house in order. But beyond op- doomed to fail. Russia will get “stuck in a infrastructure, destroying hospitals, posing cuts, few of the new MPs have a vi- quagmire and it won’t work”, Mr Obama schools and bakeries in a bid to drain sup- sion for the country. More stagnation confidently predicted in October 2015. Rus- port for opposition fighters by making life seems likely and perhaps more elections; sia’s air force has since proven the Ameri- unbearable for the east’s 250,000 or so re- there have been four in the past five years. can president profoundly wrong. maining civilians. These tactics, which Quasi-democracy is seldom satisfying. 7 On November 28th pro-government have forced rebels to surrender in other parts of the country, have crippled eastern Aleppo. Food rations have almost run out HIV in Africa and medical supplies are low. With the city’s hospitals destroyed, doctors now Many battles won, but not the war treat patients in the basements ofhomes. Spearheaded by thousands of Hizbul- JOHANNESBURG lah and Iraqi militiamen, this week’s swift HIV is in retreat in many African countries, but not among the young advance of pro-regime forces has driven OOTPRINTS painted in bright colours portion ofthe population who carry the thousands of terrified civilians from their Fon the floor pass through the bustle of virus) has also fallen sharply, though it homes. They face a grim choice: stay in the the Themba Lethu clinic in Johannes- remains horribly high. east and face the bombs, or flee into areas burg. They lead to a room where every The number ofinfants infected by controlled by a government that has arrest- weekdozens ofmen are circumcised. their mothers in the womb or via breast- ed and tortured its opponents since the Heterosexual men who get the snip cut feeding fell by halfbetween 2010 and start ofthe war in 2011. their chances ofcontracting HIV by more 2015. In South Africa infected mothers Most have chosen the former. As a re- than half, since the foreskin is delicate now pass on the virus in only 2% ofcases, sult, residents in the east say apartment and tears easily. In South Africa, the compared with 45% among infected blocks that once housed five families now country that has the world’s largest num- mothers who don’t get the drugs. house as many as 20. So Russian and Syri- ber ofHIV-infected people, such initia- Yet farless progress has been made an air strikes, which have killed hundreds tives can save a lot oflives. among the young—and halfofsub-Saha- of civilians in recent weeks, will prove Even more important has been a huge ran Africans are younger than 19. With even more lethal as the shrinking rebel en- expansion in the number ofinfected such a large cohort ofyouths starting to clave becomes more crowded. people receiving antiretroviral drugs. have sex, the total number ofpeople with The regime’s advance elicited the usual These not only keep people alive but also HIV is likely to rise even ifthe rate ofnew flurry of empty statements from Western suppress the virus, making its carriers infections falls. Worryingly, efforts to officials. Boris Johnson, Britain’s foreign less contagious. In September South reduce the spread ofHIV are failing secretary, tweeted: “Devastating assault on Africa became one ofthe first African among young people and, in particular, eastern Aleppo—immediate ceasefire states to adopt a “test and treat” protocol among young women. needed. Russia & Iran must use influence whereby anyone infected with the virus PEPFAR surveys show that, whereas on Assad regime to end violence now.” He 1 can get the drugs immediately, instead of three-quarters ofZimbabweans know waiting until the immunological symp- whether or not they are infected (and toms offull-blown AIDS appear. By this almost 90% ofthose who know they are time the patient may have infected other ill are being treated), only halfof those people. under 24 know their HIV status. Girls and Some researchers predict that several young women, many ofwhom have African countries will soon achieve unsafe sex with richer, older men, are 14 “epidemic control”, meaning that fewer times likelier to contract HIV than young people are newly infected each year than men are. Girls who drop out ofschool are Aleppo die ofthe disease. New data from the even more likely to become infected. Citadel of Aleppo American President’s Emergency Plan The new data suggest that Africa is on For AIDS Relief(PEPFAR), a programme the cusp ofbeating backHIV. But to do so International airport launched by George W. Bush in 2003 it will have to redouble its efforts to edu- Aleppo SYRIA under which more than 11m people now cate, test and treat more people. It would IDLIB Homs get treatment, suggests just how close also help ifmore girls stayed in school, Damascus that goal may be. In hard-hit countries, and iffaster economic growth gave more 5 km such as Zimbabwe and Zambia, the rate young women the jobs and indepen- ofnew infections has more than halved. dence that might make sugar daddies’ Areas of control, November 30th 2016

The prevalence ofHIV (ie, the total pro- offers less tempting. Syrian government Rebels Kurds IS Source: Liveuamap 40 Middle East and Africa The Economist December 3rd 2016

2 appeared to have forgotten that both Rus- political will among their leaders makes America’s position is unlikely to change sia and Iran are directly involved in the both options improbable. given the record of Sudan’s Arab-domin- bombardment ofAleppo. Mr Assad’s government says it wants to ated Islamist government of slaughtering America, its allies and the UN have all take Aleppo, once Syria’s largest city, be- black African Muslims in Darfur, and repeatedly failed to stop the slaughter oral- fore Donald Trump takes office. Once it Christians and animists in the south of the leviate the suffering in Aleppo. Ceasefires falls, Mr Assad will control all the coun- country (although most ofthese have now have broken down and peace talks have try’s main urban centres. Pro-regime forces seceded). For nine months this year gov- collapsed. Russia and Syria continue to will then be able to turn their guns on the ernment forces attacked the Jebel Marra, a block UN requests to allow aid into the be- pockets of resistance around Damascus, massif in central Darfur where the Sudan sieged east. Out-manoeuvred, Western the main highway from Homs to Aleppo Liberation Army-Abdel Wahid (SLA-AW) diplomats have discussed lifting the siege and the rebel-held province of Idlib. With are holed up. As many as 205,000 locals bydiggingtunnelsorsendingdronesto air- rebel forces in no shape to regroup, there is fled their homes; there are now perhaps drop food and medical supplies. A lack of little to stop them. 7 2.6m displaced people in Darfur, a region the size of Spain. Amnesty International claims to have evidence that the govern- Sudan ment used chemical weapons. It denies this, but restricts access to the area. Tribulations, but no trial The SLA-AW, whose eponymous leader directs proceedings from Paris, has been re- duced to harrying the Sudanese army. The other two main rebel groups, the Justice and Equality Movement (JEM) and SLA- KHARTOUM Minni Minnawi, are in peace talks with the government. This is a sign of weakness, A rump state run by an alleged warcriminal struggles to make ends meet says Magnus Taylor of the International R MUNA ABDU, an ophthalmologist, EGYPT SAUDI Crisis Group, a Brussels-based think-tank. Dis worried. “I am afraid of leaving my LIBYA ARABIA The government seems to think it is close country fora long time,” she says, her back to victory after 13 years. But elsewhere in Port Sudan to the Blue Nile, dark but for the lights of a Nile Red Darfur violence flares sporadically, partic- few riverside restaurants as it flows to- Sea ularlybetween Arab groupsthatused to be CHAD wards its embrace with the White Nile in SUDAN part of the Janjaweed, a state-sponsored Khartoum. But she still plans to move to horseback militia responsible for much of Khartoum ERITREA Saudi Arabia, where she will earn $6,000 a BLUE the killing and raping during the genocide. DARFUR SOUTH month—a sum that would take her three KORDOFAN NILE “There are weapons everywhere and a years to make in Sudan. limited capacity or willingness to do any- Blue On some measures Sudan’s economy is Nile thing about it,” says Mr Taylor. recovering, after the southern part of the Meanwhile, negotiations with the Su- ETHIOPIA country broke away to form South Sudan Oilfields White dan People’s Liberation Movement-North in 2011, takingwith it75% ofthe old nation’s C A R Nile (SPLM-N), previously part of the South Su- oil revenues. GDP has grown at around 3% SOUTH SUDAN danese rebel movement and now fighting a year since 2013. Inflation is in double dig- roposed Juba in the border states of South Kordofan and l pipeline its, but well below its level in 2012-14, when CONGO KENYA Blue Nile, have broken down. Although 500 km UGANDA it averaged almost 40%. However, on the A Omar al-Bashir, Sudan’s president, has ex- blackmarket the Sudanese pound trades at tended the traditional rainy-season cease- only a third of its official value against the $48.2bn debt, 86% of which was in arrears fire, neither side is budging. dollar. There are just $800m of foreign ex- at the end of 2015. One boost has come Back in Khartoum, the president was change reserves left in the central bank, ac- since September 2014, when Sudan ex- forced to start a “National Dialogue” after cording to the IMF—enough to cover only a pelled a number of Iranian diplomats and 170 people were killed in protests over fuel- month ofimports. cosied up to Saudi Arabia. It has sent hun- subsidy cuts in September 2013. But the Businessmen are quick to blame Amer- dreds ofsoldiers to fight alongside the Sau- talks, which concluded in October, were ican sanctions. These have been in place dis and against Iranian-backed Houthi re- largely cosmetic and left the powerful se- since 1997 (Khartoum harboured terrorists bels in Yemen. Since then, at least $2.1bn curity forces under Mr Bashir’s thumb. Su- including Osama bin Laden in the has been deposited in its central bank by dan Call, a coalition ofpolitical parties and mid-1990s) and were extended in 2007 be- Saudi Arabia and other friendly states. rebels that refused to join in, has failed to cause of the genocide in Darfur. But it is However, billions of dollars of Saudi in- create a coherent opposition. Demonstra- only in the past few years that internation- vestment and military aid that were re- tions against more cuts to subsidies in No- al banks have started refusing to deal with portedly promised have not materialised. vember have so farbeen suppressed. Sudan, after America cracked down on Nonetheless, the switch into the Sau- So when middle-class Khartoumites sanctions-busters. One formerchiefexecu- dis’ orbit suggests that the Sudanese gov- gather to drink sugary coffee and sweet tea tive tells of a $10m debt repayment for his ernment wants to shed its pariah status. It beside the Nile at night, they talk, not of re- company having to be made with a suit- is also co-operating with the EU to reduce placing the president, but of leaving Su- case ofcash. illegal migration into Europe, cracking dan, like Dr Abdu. The remittances of the Nervous banks have not, however, down on people-traffickingand improving hundreds ofthousands who have gone be- made trading with Sudan impossible. Arti- its border security. fore them keep the economy alive. Mean- sanal gold mining is booming and the But the sanctions were renewed again while, Mr Bashir, whose arrest on charges country exports plenty of livestock to the on October 31st and still have strong bipar- of orchestrating the genocide was ordered Gulf. But these do not make up for the lost tisan support in America’s Congress. Wa- by the International Criminal Court in oil revenues. Meanwhile, sanctions mean lid Phares, an adviser to Donald Trump on 2009, looks unlikely to step down, let Sudan is mostly ineligible for relief on its the Middle East, says they should remain. alone stand trial. 7 Europe The Economist December 3rd 2016 41

Also in this section 42 Greece sours on populism 43 Turkey’s anti-Europe turn 43 Corruption in Slovakia 44 Italy’s high-risk referendum 45 Charlemagne: Europe goes wobbly on Russia

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

The French presidential campaign Mr Fillon could provoke a similar revolt againsthiseconomicpolicy, too. In order to Liberté, autorité, dignité free the economy and encourage job cre- ation, he has drawn up a liberal pro- gramme, vowing to curb the unions; shrink the labour code from over 3,000 pages to just150; end the 35-hourweek; and LA FERTÉ-BERNARD trim the public sector, which accounts for a hefty 57% of GDP, by cutting 500,000 civil- François Fillon blends rural conservatism and Thatcherism to fend offthe far right service jobs. “I like being compared to Ma- ENTLY sloping hills and medieval next spring. dame Thatcher,” he declares. Thatcherism Gchurches: the charms of La Sarthe in In some ways, Mr Fillon is a flawed can- is usually a term ofinsult in France. rural western France are as discreet as its didate. Prime minister for five years under This may be what the French economy people. There is nothing quite grand Mr Sarkozy, the 62-year-old can claim to needs. But it is not a clear vote-winner. It enough to catch the eye, nor grimy enough represent neithernovelty norrenewal, and cuts against France’s lingering distrust of to avoid. In the little town of La Ferté-Ber- is defenceless before Ms Le Pen’s charge free markets and reverence for the state, as nard, there is an active parish and scout that the same faces always govern France. well as the tide of anti-globalisation senti- group. Rabbit is on the menu du jour at Le The son ofa notary, he has the tweedy look ment. It will make Mr Fillon an easy target Dauphin restaurant. Yet local talk is about of a country squire, and a Catholic-hued for irate trade unions and fearful civil ser- the new discount grocer, Lidl. And 70 vol- social conservatism to match. Although vants. One Socialist deputy calls his policy unteers at Secours Catholique, a charity, Mr Fillon does not propose to change the “violent and dangerous”. It will also en- help with warm clothes, tinned food and law, he voted against gay marriage (and is courage Ms Le Pen to use her protectionist weekly homework for families in difficul- privately against abortion). His family val- politics to court the working-class vote, ty. “We ask for a small contribution to pre- ues chime with the country’s strong anti- particularly in the French rustbelt of the serve people’s dignity,” explains Monique gay marriage constituency, but make him north and east. Already the preferred can- Bouché, who runs the charity in the town. toxic for the left. Were Mr Fillon to face Ms didate among working-class voters, she Dignity and respect are words that re- Le Pen in the second round nextMay, many has begun to warn that Mr Fillon is out to cur often in La Ferté-Bernard. And they on the left could abstain. “destroy” the French social safety-net. help explain why, in this provincial town, Yet in deepest Fillon country the politi- François Fillon secured a colossal 89% of cal dynamics look somewhat different. the vote at the primary run-off to become Could be close “People here say that they know things the presidential candidate for the centre- France, support for politicians, % polled have to change, and thatitwill be difficult,” right Republican party on November 27th. argues Jean-Carles Grelier, the centre-right He beat Alain Juppé, his rival and fellow 35 mayor in La Ferté-Bernard: “They are fed ex-prime minister. Mr Fillon, who comes François Fillon up with being sold dreams, and then being 30 from La Sarthe, is in tune with a conserva- disappointed.” Localsin the café talk about tive Catholic part of the electorate that 25 Mr Fillon’s “common sense” and “hones- feels that the French presidency has been ty”. Theyare readierto accepttough spend- damaged over the past decade, by Nicolas 20 ing measures than politicians in Paris Sarkozy on the right and by François Hol- Marine Le Pen imagine, claims Mr Grelier, if it is part of a lande on the left. The question now is 15 coherent plan to revive the economy—and whether Mr Fillon can build on this mass a sense of pride in France. Mr Fillon, who support to head off the challenge by the J FMAMJ JASON warned back in 2007 that the French state far-right’s Marine Le Pen, leader of the Na- 2016 was “bankrupt”, has long argued that the tional Front (FN), forthe French presidency Source: Kantar TNS French “are ready to hear the truth”. Pre-1 42 Europe The Economist December 3rd 2016

2 tending that nothing needs to be done, just mainstream leaders can find an electable to win power, he argues, amounts to “a hy- alternative to populism within the bound- Changing places pocrisy…at the heart of the political and aries of liberal-democratic politics. In a Greece, party popularity, % polled moral crisis” in France. bookhe wrote lastyearhe arrivesat a liber- ELECTION RESULTS Mr Fillon’s social conservatism, mixed alising ideology through observation— 40 with his close ties to Russia’s Vladimir Pu- statist policies have not worked in France— 35 Syriza New Democracy tin (see Charlemagne), makes liberals and from a belief that prosperity is a pre- 30 deeply uneasy. But itcould help to damage condition for preserving national sover- Ms Le Pen in conservative parts of rural eignty. To do so, Mr Fillon is trying to 25 France. In southern France, in particular, he incarnate the leader who restored France’s 20 could siphon away many of the voters national pride, affirmed its independence, 15 who might otherwise be drawn to Marion and earned its respect, and whose image Maréchal-Le Pen, an FN deputy (and Ms Le he kept on his bedroom wall as a child: 10 Pen’sniece) who promotestraditional fam- Charles de Gaulle. In La Ferté-Bernard, the ily values and is close to the Catholic right. reference resonates. The last French presi- 2015 2016 During his campaign, Mr Fillon declared dent to visit the town was de Gaulle in Source: University of Macedonia *Election result that “the enemy is Islamic totalitarianism” 1965; the only otherpolitical leader to do so and called for “strict” immigration con- since was Mr Fillon. Polls suggest it may be A deal struck in March by the European trols. He secured 77% of the vote on the what the French want: he now tops voting Union and Turkey stemmed last year’s Côte d’Azur, home to Ms Maréchal-Le in the first round, and beats Ms Le Pen in surge of migrants through Greece to north- Pen’s constituency. the second. Yet the FN leader is quietly ern Europe, butleft60,000 ofthem stuck in Over the next six months Mr Fillon’s waiting her turn, and has scarcely begun Greece in conditions that are often grim. candidacy will be a test case for whether her campaign. She is not defeated yet. 7 Yet this is the least ofthe government’s pro- blems. In May, after much squabbling, it pushed through €1.8bn of tax increases Greek politics needed to qualify for the next chunk of cash in its current bail-out package from Orthodox measures the EU, the third since the euro crisis began in 2010. In November Mr Tsipras reshuffled his cabinet, replacing hardline leftists with younger, pragmatic folk, seemingly in or- der to placate Greece’s creditors, who will ATHENS meet on December 5th to tweak the latest bail-out programme. As populism fails, a mainstream party makes a comeback Many of the government’s reforms HE headquarters of New Democracy, a symbolic. As the opposition party has have been widely hated. Business owners Tcentre-right political party, is in an un- moved to a cheaper part of town, so too grumble at Scandinavian-level VAT rates expected part of Athens. The building, sur- does it hope that it can present itself to the of24% and a series ofnew taxes. From next rounded by warehouses, housed a branch public as a new, improved alternative to year self-employed professionals, such as of a Japanese technology firm before the Greek government. With Alexis Tsi- lawyers and doctors, earning over standing derelict foryears. Few other polit- pras, the prime minister (pictured, on the €40,000 a year are being asked to pay tax ical types are nearby. The rent, at €9,800 left), growing less popular, New Democra- in advance forthe coming year, while their ($10,400) a month, is a tenth of what the cy may well have a chance. average pension contributions have tri- party’s old office used to cost. Yet the relo- It has been a miserable year for Mr Tsi- pled, says Constantine Michalos, the head cation, which happened in August, is also pras and his left-wing Syriza government. of the Athens Chamber of Commerce and Industry. Many will be unable to bear the burden, and some have already moved their businesses to Cyprus or Bulgaria, he adds. “Uncertainty about taxes is the worst thing,” says Tina, who owns a betting shop in central Athens. “You don’t know what they’ll hit you with next.” This is hardly what Mr Tsipras prom- ised when he took power in 2015, vowing to end austerity and renegotiate Greece’s deal with its creditors. Syriza’s popularity hasbeen slidingwhile thatofNewDemoc- racy, which led a coalition government in 2012-15, has risen. It has led in the polls since December2015, accordingto pollsters at the University of Macedonia. This month it was ahead of Syriza by a whop- ping15 percentage points (see chart). Kyria- kos Mitsotakis, who was elected head of New Democracy in January (pictured, on the right), now leads Mr Tsipras on the question of who would make a better prime minister. Raise your hand if you want to run this place This is surprising. New Democracy is a 1 The Economist December 3rd 2016 Europe 43

2 long-established political party in Greece, Corruption in Slovakia rather than a rabble-rousing upstart. Mr Mitsotakis’s father Konstantinos was prime minister in 1990-1993, and the family Tart response name is a turn-offforvoters on the left. The BRATISLAVA youngerMrMitsotakisishardlya rebel: be- A populist PM’s salty tongue fore going into politics he worked for McKinsey, a consultancy, and Chase, a N FEBRUARYZuzana Hlavkova, then an Smer is drifting right to hold on to its bank. “When you look at my résumé, [it is] Iemployee at Slovakia’s foreign min- socially conservative voters. One of its as close to the establishment as you can istry, came to believe that inflated con- coalition partners, the nationalist Slovak get,” Mr Mitsotakis admits. Still, he argues tracts tied to the country’s presidency of National Party, has grown more popular that he is the “anti-establishment” candi- the European Council were being award- since the elections. Further to the right, date in his party. More convincingly, Mr ed to firms allied with the governing the People’s Party Our Slovakia openly Mitsotakis thinks that Greeks have had Smer party. The 26-year-old Ms Hlavkova defends the Nazi collaborationist regime enough of chaos. If there were a snap elec- did something unusual: she reported it to that governed the country during the tion next year, a New Democracy offering her bosses, including the foreign minister, second world war. It won 8% ofthe vote realistic policy promises might persuade Miroslav Lajcak. When nothing hap- in March under the slogan “With courage, voters to abandon the hotheads of Syriza pened, she quit her job and tookher against the system”. and embrace a more technocratic govern- evidence to the local branch ofTranspa- Having been in power so long, Smer ment. “Greece may be the first to beat pop- rency International, a watchdog, and at can hardly claim to be against the system. ulists at their own game,” he says. 7 the end ofNovember they went public. Instead Mr Fico attacks the independent Local media picked up the allegations, press and whistleblowers like Ms Hlav- forcing the prime minister, Robert Fico, to kova: “a new political culture where a Turkey and Europe respond. In a press conference on No- young person spoke out”, says Beata vember 23rd he called the reporters Balogova, editor-in-chiefofSme, a liberal End of the affair “dirty, anti-Slovakprostitutes”. daily. They have angered Mr Fico not by The pugnacious Mr Fico, who has selling their honour, but by refusing to. been in power fornine ofthe past eleven years, has a habit ofinsulting journalists. ISTANBUL In August he compared one to a “toilet spider”. But ifhe seems nervous, one Turkey’s decades-long romance with reason may be his sliding popularity. In the EU is fading fast 2014 he tried to move from prime min- UST before the Gulf war in 1990 (which ister to president, but lost in a landslide to Jhe backed despite popular opposition), Andrej Kiska, an entrepreneur. In parlia- Turgut Ozal, then president of Turkey, mentary elections in March Smer bet that squeezed into an army tank, posed for the a xenophobic anti-refugee campaign cameras and proclaimed: “I am taking the would preserve its majority. Instead it shortcut to the European Community.” A lost 41% ofits seats. quarter-century later Turkey’s dream of Smer now governs as part ofa three- joining the European Union is all but dead. party coalition. In the spring, Mr Fico had Denouncing the purges that followed double bypass surgery. His heir apparent, July’s brutal coup attempt, on November Robert Kalinak, the interior minister 24th the European Parliament called on EU (nicknamed “the Handsome Fixer”), has leaders to freeze accession talks, which been hurt by bribery allegations, and Mr have been dragging on since 2005. Lajcak, who recently was a candidate for Turkey’s current president, Recep Tay- UN Secretary-General, has been tainted yip Erdogan, responded the next day by by this latest incident. (Both Mr Kalinak threatening to open the route to Europe to and Mr Lajcakdeny wrongdoing.) the 3m refugees living on his side ofthe Ae- Mr Fico calls Ms Hlavkova’s charges “a gean. “You have betrayed your promises,” targeted attackon the Slovakpresidency” he said, referring to a deal with the EU that ofthe council. Though nominally leftist, No questions, you dirty anti-Slovak commitsTurkeyto harbouringthe refugees in exchange for billions of euros in aid and a promise of visa-free travel to Europe for Yet the current relationship is not sus- Today his government is openly flouting Turkish citizens. tainable. European support for Turkey’s ac- the EU’s rules. Of the 37,000 people arrest- Leaders of EU states, who will discuss cession has plummeted. The membership ed since the July coup, including over 100 Turkey at a summit on December 15th, are talks are going nowhere. In over a decade, journalists and a dozen MPs from a pro- unlikely to take the parliament’s advice. the two sides have opened only16 out of35 Kurdish party, only a handful have been Mr Erdogan is very unpopular in Europe, negotiating chapters. Eight chapters are formally charged. Some 120,000 others, in- and mainstream politicians in France, Ger- blocked over Turkey’s refusal to recognise cluding nearly 16,000 in the past week, many and Holland, all facing elections Cyprus, and are likely to remain so: reunifi- have been sacked or suspended. Allega- next year, are wary of indulging him. Yet cation talks between the island’s Turkish- tions of detainee torture are mounting, they fear another refugee crisis even more. occupied north and its south broke down though Turkish officials deny them. Many are also reluctant to jeopardise in- on November 22nd. MrErdogan has backed calls to reinstate vestments in Turkey. “If you rock the boat Mr Erdogan views accession to the EU the death penalty, a red line forboth the EU too much,” says Marc Pierini, a former EU as Turkey’s right because of its strategic im- and the Council of Europe. On November ambassador to Turkey, “you are putting portance. If there were ever a shortcut to 20th he suggested that Turkey consider the your own economic interests at stake.” membership, however, he has not found it. Shanghai Co-operation Organisation, a 1 44 Europe The Economist December 3rd 2016

2 group that includes Uzbekistan, Russia and gan accuses the West of siding with the comes out Yes. Were the bank to collapse it China, as an alternative to the EU. He has outlawed Kurdistan Workers’ Party (PKK)— could ignite a full-blown banking crisis. also threatened to putthe accession talks to and even with Islamic State. His foreign Under new EU rules, holders of failing a referendum in 2017. minister brags about refusing to take banks’ bonds would have to absorb some Turkish officials have been accusing the phone calls from his German counterpart. of the losses. And there are a lot of them in EU of double standards for years, with Pro-government newspapers claim, with- Italy: households own about €170bn some reason. Many European leaders, out evidence, that Western officials are worth of bank bonds, or 49% of the total. A from France’s ex-president, Nicolas Sar- plotting against Turkey. European dip- financial crisis would rapidly increase the kozy, to Germany’s chancellor, Angela lomats warn that the damage may be hard borrowing costs of a country whose debt Merkel, saw no place in the EU for a Mus- to undo. “The longerthislasts, the more the comes to 133% of GDP. The situation could lim country of 80m even when its democ- EU will close itselfoff,” says one. “The only look alarmingly reminiscent of 2011, when racy was in better shape. None rushed to way Turkey can prevent this is to turn Italy’s soaring bond yields threatened to Ankara to denounce the coup or offer sup- down the volume and put a stop to the blow up the euro. port forcivilian government. crackdown.” Yet at this rate, an acrimoni- Another worry is that Mr Renzi’s defeat Yet the language coming out of Ankara ous break-up between Turkey and the EU would open the doorto governmentbythe has become gratuitously hostile. Mr Erdo- appears to be just a matter oftime. 7 maverick Five Star Movement (M5S), a populist group which, though less radical than France’s National Front or Spain’s Po- Italy’s referendum demos, is woefully unprepared to govern. The M5S is close behind Mr Renzi’s Demo- Just trust me cratic Party in the polls. But the fall of an Italian government does not lead automat- ically to a general election. It hands the ini- tiative to the president, who generally tries to avoid calling an election. The incum- ROME bent, Sergio Mattarella, could appoint a caretaker prime minister at the head of ei- Matteo Renzi asks forthe powerto change Italy ther a cross-party government or one TREMOR of magnitude 4.5 shook cen- Polls conducted before a ban on publi- made up of technocrats. Mr Renzi has Atral Italy on November29th, rattlingar- cation took effect, two weeks before the ruled out stayingin office, but some thinkit eas that had been devastated by heavier end ofthe campaign, showed the No camp is possible he might be persuaded. quakes weeks earlier. It was a reminder ahead by almost 4 percentage points. But That, however, points to a third anxiety that there is much to fear in the bel paese: they also showed that between 40% and underlying the markets’ nervousness: that seismic shocks, organised crime and, most 60% ofvoters were still undecided or plan- a No vote would prolong Italy’s political urgently, the outcome of a constitutional ning to abstain. And they did not reflect the and economic stagnation. Any new gov- referendum on December 4th. impact of an issue that surfaced fully only ernment would immediately have to re- The referendum will endorse or reject in the last days of the campaign: the fear vise the electoral law, which currently ap- changes that include drastically reducing that a No vote could unleash a devastating plies only to the lower chamber, not the the powers of the Senate. And future Ital- financial chain reaction. Senate. That could take a year. In the mean- ian governments would have a much firm- That risk centres on trouble at Italy’s time structural reforms would be put off er grip on parliament since a new electoral third-biggest bank, Monte dei Paschi di Si- while Italy’s lawmakers haggle overvoting law engineers for the leading party—even ena. The government is hoping investors systems. Such government inertia is noth- one that secures only a modest plural- will recapitalise it, but they are reluctant to ing new in Italy. But the country may no ity—an assured majority in the lower commit their money unless the vote longer be able to afford it. 7 house (the Chamber of Deputies). The prime minister, Matteo Renzi, argues that this streamlined legislature is essential in orderto pass the structural reforms that Ita- ly’s sluggish economy needs. Many fear the changes remove needed checks and balances, granting the govern- ment too much power. They would make it easier for the prime minister to deter- mine who becomes president, and thus in- fluence who sitsin the constitutional court. (Most of its judges are chosen by either the president or parliament.) In the days be- fore the vote, campaigners for the No side concentrated on attacking Mr Renzi for de- manding excessive authority. The leader of the centre-right Forza Italia party, Silvio Berlusconi, who initially backed the re- form, warned it would make the prime minister “master of Italy and the Italians”. Asubtlerconcern voiced bysome constitu- tional lawyers was that, while Mr Renzi might be trusted with additional powers, they could one day be wielded by a leader with a shakier attachment to democracy. Voting with his Fiat The Economist December 3rd 2016 Europe 45 Charlemagne Bear cave

François Fillon is a harbingerofEurope’s ebbing will to resist Russia Italy’s prime minister, may earn points at home by railing against sanctions, but at EU summits in Brussels they listen to Mrs Merkel and Mr Hollande and fall into line. In October, immediately be- fore the latest such gathering, the pair met Mr Putin in Berlin and were shocked to hear him threaten to visit upon Aleppo the fate ofGrozny, the Chechen capital pulverised byRussian forces in the 1990s. Mr Hollande’s tough response impressed the Germans; and, in Brussels, MrRenzi’scall fora “strategicdiscussion” on Rus- sia policy backfired. It is hard to imagine MrFillon acting this way. The picture is further complicated by the election of Donald Trump. A German senior official says America’s president-elect appears to have a set of“emotions and reflexes” rather than a for- eign policy. Yet admiration forMrPutin has been a constant ofhis otherwise flip-flopping worldview. His calls for détente with the Kremlin in the name of tackling IS are enthusiastically endorsed by Mr Fillon. The EU has held together on Russia partly because of transatlantic unity, including the occasional prod from Barack Obama. Should Mr Trump quietly let America’s sanctions on Russia die, perhaps as part ofa bigger deal on co-operation in Syr- ia, Mrs Merkel’s job will become near-impossible. At first, this might not make much difference. Sanctions have LADIMIR PUTIN must wonder what he did right. From the failed to deter Mr Putin, who now relies on bellicose nationalism Vrefugee crisis to Brexit, Europe’s troubles have allowed the to drum up domestic support, since he no longer has an oil wind- Russian president to portray himself as a bulwark of stability in a fall to spend. Maintaining the EU’s unity is not much of a prize, region ofchaos. America’s election brought an apparent Kremlin say some, next to the costs ofconfrontation with a nuclear-armed sympathiser to the White House. And now France is on the same neighbourwith whom European firmsseekto trade. Norwould a track. François Fillon’s victory over Alain Juppé in the presiden- winkfrom the WestasMrPutin’sbombersraze Syrian citiesdiffer tial primary of the centre-right Republican Party leaves an much in practice from the current approach. avowed friend of Mr Putin as the favourite to occupy the Élysée Moreover, if his hand is forced, Mr Fillon is unlikely to place after next spring’s election. (Mr Fillon’s most serious rival, the Moscow before Berlin. President Fillon would surely devote his nationalist Marine Le Pen, has a yet more marked Moscow tilt.) energies to reforming the French state (see page 41), not shattering Mr Fillon’s Russophilia is born of conviction rather than ex- EU unity. On the traditional post-inauguration visit to Berlin he pediency, and he does not hide his views. During last week’s de- can expect to receive an earful from Mrs Merkel (as Mr Hollande bate with Mr Juppé he compared the Russian annexation of Cri- did in 2012, over his campaign remarks on Greece’s bail-out). The mea to Kosovo’s declaration of independence from Serbia, an Franco-German relationship remains at Europe’s heart; Mr Fillon argument he could have lifted directly from the Kremlin. The ex- is not the sort ofloose cannon who might demolish it. pansion ofNATO to Russia’s borders in the 1990s, he muses, was a provocation bound to generate blowback. Little wonderMr Putin Grin and bear it singled out the “upstanding” Mr Fillon forpraise before the vote. The problem is not that MrFillon will become a Kremlin stooge at Historical revisionism is one thing. More worryingly for Ger- the heart of the EU. It is that he may make it harder for Europe to many, France’s partner in the four-party “Normandy format” set manage Mr Putin’s caprices. What if one of the frequent incur- up to negotiate with Russia and Ukraine, Mr Fillon wants to scrap sions by Russian jets into NATO airspace triggers an incident? the economic sanctions that the European Union imposed on What if the Kremlin’s disinformation machine attempts to turn a Russia over Crimea and its incursions in eastern Ukraine. Opin- European election, as German spooks fear? What if Mr Putin ions in the EU are divided on Russia, from hawks like the Balts makesa playforBelarus? Notbreakingrankson sanctionsmerely and Poland to doves like Italy and Hungary. So farAngela Merkel, means sticking to the status quo; a fresh crisis will require a fresh Germany’s chancellor, has held the club together, ensuring a reg- response, and Mrs Merkel will not want to act without France. ular rollover ofthe toughest measures. But the consensus is slow- Still, these are unpredictable times. Mr Fillon is not a shoo-in ly fraying; to lose the French would be a shock. for election. The effects of Mr Trump’svictory are hard to divine. Like other EU countries, France blows hot and cold on Russia. Officials in both Paris and Berlin wonder whether an American Few voters sympathise with Mr Putin. But energy firms and agri- rapprochement with the Kremlin might encourage Mr Putin, free cultural exporters chafe at the loss ofbusiness. The Kremlin’s mil- from fears ofAmerican-sponsored “colour” revolutions at home, itary playgrounds, real and potential, feel a long way from Paris. to stand down abroad—and perhaps even to become a more con- And a nation savaged by attacks sponsored by Islamic State (IS) is structive partner on multilateral issues such as arms control. open to the idea ofworkingwith MrPutin in Syria, over the heads And should Mr Putin not let up, Mr Fillon may undergo the of anxious eastern Europeans if necessary. In 2014 François Hol- same journey as Mrs Merkel, who turned decisively against the lande, France’s current president, hesitated for months before Russian president when he lied to her about his mischief-making cancelling a €1.2bn ($1.3bn) warship deal with Russia, even as the in Crimea. (Such is the hope in Germany.) MrPutin, as ever, is un- EU’s sanctions started to bite. predictable and his plans unclear. The worry is that the election But France matters more than most. Leaders like Matteo Renzi, ofMr Fillon may render the EU unpredictable and unclear, too. 7 46 Britain The Economist December 3rd 2016

Also in this section 47 Trade with the European Union 48 Bagehot: Keir Starmer, noble Lilliputian

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

The UK Independence Party on the return ofcapital punishment. That could prove an attractive combi- The battle for Brexit voters nation, for these issues unite unhappy La- bour voters and Kippers (just 9% of whom consider themselves left-wing, according to YouGov, a pollster). Indeed, some re- search suggests that there may be more ap- petite for populist causes than UKIP has Paul Nuttall, UKIP’s new leader, hopes his party can replace Labouras the voice of been able to tap into. One analysis, by the the working class British Election Study, found that 67% of Y AMBITION is not insignificant,” opening. His calculation is that white Leave voters had “at least dabbled” with “M grinned Paul Nuttall after taking working-class voters in the old industrial voting UKIP. YouGov calculates that17% of over from Nigel Farage as leader of the UK heartlands no longer have much in com- Labour voters hold “authoritarian popu- Independence Party (UKIP) on November mon with Labour, the party they have tra- list” views that chime with things that 28th (pictured above, left, with Mr Farage). ditionally backed. Mr Nuttall gave a taste UKIP promotes. The party’s populist coun- “I want to replace the Labour Party and ofthe attacksto come in hisvictory speech. terparts in France and the Netherlands poll make UKIP the patriotic voice of working “[Labour] have a leader that will not sing considerably higher. Rancorous Brexit ne- people.” For a man elected with just 9,622 the national anthem. Ashadow chancellor gotiations, stagnant real wages and cuts to votes it was a bold statement. Jeremy Cor- who seems to admire the IRA more than public services could fuel public discon- byn was returned as Labour leader with he does the British army. A shadow foreign tent with mainstream politics. 313,209 votes in September. Yet Corbynis- secretary who sneers at the English flag. Yet several barriers stand in MrNuttall’s tas need only look to Scotland, where the And a shadow home secretary who advo- way. First, his party. Since its referendum Labour vote crumbled in the 2015 general cates unlimited immigration.” Evidence of success UKIP has not just lost its main pur- election after decades of political domi- a disconnect between Labour and its vot- pose but also descended into farce. Diane nance, as a warning of what could happen ers is not hard to find. Perhaps most reveal- James, who was elected as Mr Farage’s suc- in northern England and Wales. ing, two-thirds of the party’s MPs voted a cessor on September16th, resigned 18 days UKIP seems an unlikely home forwork- different way from the majority of their later, complaining that she lacked the sup- ing-class voters. The party’s route to politi- constituents in the referendum. port of her colleagues. She later left the cal influence began at the London School Can second- and third-generation La- party. Steven Woolfe, a member of the of Economics, where Alan Sked, a histori- bour voters, who have a congenital dislike European Parliament who had long been an, established the Anti-Federalist League for the Tories, be persuaded to vote for talked of as a future leader, also quit, al- in 1991 (this week he called for UKIP to be UKIP? If it is possible, says Caitlin Milazzo though only after being hospitalised fol- dissolved after the referendum vote for of Nottingham University, Mr Nuttall is lowing a fight with a fellow UKIP MEP. Brexit). It then wound its way through the clearly the “man for the job”. The 40-year- Mr Nuttall has been conciliatory. He home counties, collecting support from old grew up in Bootle, a hardscrabble town has said he will lead neither a “Faragista disaffected middle-class Tories won over just outside Liverpool. In his speech he UKIP” focused on immigration nora “Cars- by Mr Farage, a pinstriped former City combined emphasis on traditional UKIP wellite UKIP” talking up the benefits of trader. Today, the party membership in- causes like immigration and Brexit with Brexit. He has appointed Suzanne Evans, cludes more free-market libertarians than talk of greater social mobility, English de- hismain rival forthe leadership, as hisdep- trade unionists. volution and more cash for the National uty and policy chief. Yet to have any suc- Yet Mr Nuttall has spotted a political Health Service. He proposes a referendum cess, he will also have to improve the 1 The Economist December 3rd 2016 Britain 47

2 party’s organisation. Candidates for the Trade with the European Union 2015 election were selected late in the day, notes Ms Milazzo, which meant that most Customs of the failed to build local reputations and there was no time to weed out cranks (one de- country scribed Islam as an “evil cult”). A lack of money may hinder such ef- forts. With Brexit achieved, donors are less It may make sense to stay in a customs willing to open their chequebooks. Ac- union with the EU, at least fora while cordingto the Electoral Commission, an of- ficial watchdog, UKIP raised just £43,000 RGUMENTS rage over whether post- ($53,000) between June and September. ABrexit Britain should try to stay in the Even the British National Party, a racist far- EU’ssingle market, perhapsbyjoining Nor- right outfit, attracted more money. Arron way in the European Economic Area (EEA). Banks, a prominent donor, has said that he This week a report for Open Britain, a may now focus on a new movement seek- pro-EU lobby group, by the Centre for Eco- ing to oust career MPs. Leadership ballots nomics and Business Research gave warn- were sent to just 32,757 Kippers, suggesting ing of the high costs of leaving the single the party’s membership has fallen from market. Theresa May is keen not to rule around 46,000 at the 2015 election. With- anything out. But the prime minister also out Mr Farage’s pulling-power, UKIP may knows that EEA members have to accept struggle to turn the situation around. free movement of people, rulings by the Another barrier is the electoral system. European Court of Justice (ECJ) and pay- UKIP’s vote is dispersed across the country, ments to the EU budget, all of which are which makes winning seats tricky in Brit- anathema to Brexiteers. Whose rules, what origin? ain’s first-past-the-post elections. UKIP will Boris Johnson, the foreign secretary, have to challenge the Tories as well as La- and Liam Fox, the international-trade sec- deals are increasingly hard to strike and bour if it is to win more than a handful of retary, have suggested that Britain must even harder to ratify. And Dr Fox is widely seats (see chart). As it stands, that looks un- leave the customs union as well as the EEA. seen as the most dispensable of Mrs May’s likely. With tough noises on Brexit and im- Turkey, Andorra, Monaco and San Marino Brexiteer ministers. migration, and support for selective gram- are outside the EEA but in a customs union Then there is the Nissan case. The gov- mar schools, Mrs May has made the with the EU. The Turkish model has clear ernment has given the carmaker unspeci- Conservative Party more appealing to Kip- drawbacks. It is meant as a move towards fied assurances about keeping barrier-free pers than it has been for a decade. “We EU membership, not away from it. It covers accessto the EU market. These mayinclude have a watching-and-proddingbriefon Eu- industrial goods only, not agriculture or, a promise to stay in the customs union, at rope at the moment,” admits a UKIP crucially, services, which account for al- least for cars, which would explain why spokesman. Difficult negotiations or hints most 80% of Britain’s GDP. It has its own Mrs May said in Parliament recently that thatthere maybe a softBrexitcould change obstacles, such as testing and certification the customs union was not a “binary that. checks on exports. And, perhaps most up- choice”. Yet the idea of sector-by-sector Until then, MrNuttall’sfocuson Labour setting to Brexiteers, it means applying the membership is problematic. The EU has makes sense. Nevertheless, the scale of the EU’s common external tariffs without hav- made plain its dislike of cherry-picking. task should not be underestimated. Even a ing any say in them, and it precludes free- And Jim Rollo of the UK Trade Policy Ob- 10% swing from Labour to UKIP would see trade deals with third countries. servatory (UKTPO) at Sussex University the party pick up just five seats. Yet, asoth- Yet there may be political advantages to notes that it may be against the rules of the er countries have found out, populist beingin the customs union and notthe sin- World Trade Organisation (WTO), which uprisings often come with little warning. gle market. In particular, it does not require requiresfree-trade dealsorcustoms unions UKIP may be in a terrible mess. But Mr Cor- acceptance of free movement of people, to cover “substantially all the trade” byn ought to be worried. 7 budget contributions or being subject to among contracting parties. the ECJ (though dispute settlement with Turkey would welcome Britain as a fel- Turkey is a controversial issue). It also low member of its customs union, be- Second wave avoids rules-of-origin checks on exports to cause, with its own hopes ofjoiningthe EU Britain, top ten constituencies where UKIP came ensure that they do not include parts from fast evaporating, it wants to renegotiate 2nd in 2015 election, swing needed to take seat, % third countries. These impose heavy costs terms. The two countries could, for exam- Seat holder: Conservative Labour on Norway and other EEA members, ple, demand greater say in future EU trade 0246810 which are not in the customs union. One negotiations that affect their interests. It trade lawyer says rules of origin can be so might even be possible to add services South Thanet burdensome that sometimes companies trade in some form. Hartlepool preferto pay export tariffs. The customs union may not be a suit- Boston & Skegness The customs union offers trade benefits able long-term home after Brexit. But it Heywood and Middleton as well. Remainingin it might allow Britain could offer a transitional one that min- EU Dagenham & Rainham to stay in the ’s free-trade agreements imises the risk of falling off a cliff into trad- with 53 third countries, which it will other- ing on WTO terms alone at the end of the Rochester & Strood wise have to renegotiate. It would avoid two-year time limit for Brexit set by Article Rother Valley the risk of a hard border and customs con- 50 of the EU treaty. The UKTPO reckons it Stoke-on-Trent Central trols with Ireland, which Mrs May is keen would take at least five years to negotiate Basildon South & not to impose. Blocking separate free-trade and ratify a comprehensive free-trade deal Thurrock East EU Isle of Wight deals would certainly annoy Dr Fox, be- with the after Brexit. Staying in the cus- cause it would largely do him out of a job. toms union during that time might not be Source: Electoral Commission Yet in today’s political climate, free-trade such a bad idea. 7 48 Britain The Economist December 3rd 2016 Bagehot Keir Starmer, noble Lilliputian

Labour’s forensic spokesman cannot tame the forces Brexit has unleashed pounds. In an anti-expert, anti-liberal, anti-London age he is a red rag to populist bulls. Yet in practice he is an excellent choice for the job. Three de- cades at the Bar have made him a crisp communicator, free ofthe abstract nouns and management jargon that infect the speech of other Labour moderates. Asked about the meaning of Donald Trump he echoes Zhou Enlai’s supposed take on the French Revo- lution: “it’s too early to tell.” In an age of braggarts and posers, he is content to deal in modest thruths. Despite his name—his par- ents chose it in tribute to Keir Hardie, Labour’s founder—he es- chews tribalism and is close to liberal Tories like Andrew Tyrie and Dominic Grieve. Moreover, where others would use the job as a platform for scoring points, Sir Keir considers himself a sort of national om- budsman. Brexit should not divide the 52% of Leavers from the 48% of Remainers, he says, but unite the 100% through a prag- maticdeal in the middle ofthe spectrum. Hence histalk ofusinga parliamentary vote on Article 50 to “put grit in the machine” and his concern that the government’s Great Repeal Bill, which will transferEU laws wholesale to the British statute book, may not be sufficiently scrutinised in Parliament. His one-nation instincts IR KEIR STARMERdraws a horizontal line. He labels its leftend also explain his quest to calm expectations of Brexit—“the sover- Sthe World Trade Organisation and its right end the European eignty that we gain will be for a millisecond between the signa- Union’s single market. “We want to be as close to that as possi- ture that ends the major treaty and the signatures that enter the ble,” he says, circling the second. “Trade and services without im- new treaties”—and to act as an interlocutor between London and pediment, common regulation.” Immediately to the left of the other capitals (from Berlin, Sir Keir went on to Brussels). circle he draws a box with swift, straight strokes. “That’s where we want to be,” he says. But what does it mean? Three horizontal Brobdingnagian hopes, human reality lines shoot across the page. He labels the top one “peace and se- Though impressed, your columnist has two concerns. The first is curity”, the next “jobs and growth” and the lowest “immigration SirKeir’s party politics. He may claim that Labouris “more united controls”. “This is the public’s order of priorities”, he replies, on Brexit than on any issue in recent history”, but its far-left lead- squaring his notepad with the edge of table. Striking out the sec- ership still seesthe EU asa malign, capitalistplot. Aftertheir meet- ond two labels and reversing them, he adds: “but I worry the gov- ing in Berlin, Bagehot received a call from an aide to Sir Keirinsist- ernment thinks this.” ing that subsequent pro-Brexit comments by John McDonnell, Taking coffee with Sir Keir in the Berlin headquarters of the the shadow chancellor, did not reflect his boss’s views. This gap BDI, Germany’s main business association, Bagehot was im- between the shadow Brexit secretary and his front-bench col- pressed. Whatever the subject, Labour’s shadow Brexit secretary, leagues surely hints at the tensions that will explode during next opposing a cagey Tory government, will identify the factual bed- year’s negotiations. rock, grind it into dust, shape it into bricks, enumerate them and The second caveatisthe sheerscale ofBrexit. ManyRemainers carefully erect a neat, logical, impenetrable wall ofargument. Lit- vest outsized hopes in Sir Keir. “He’s what stands between the tle more than a month into the job, he has already put a list of170 government and a hard Brexit,” says one colleague. “Britain’s last questions about Brexit to ministers. If the Supreme Court rejects Remaining hope”, bellows a headline on the Politico website. But the government’s Article 50 appeal and insists that Parliament that speaks to a delusion which should have died by now: that must have a say before Britain’s two-year Brexit talks are trig- Brexit is a car with an accelerator, a brake and a steering wheel—a gered, he will become a big name in European politics. road-safe vehicle that individual politicians can control. On paper Sir Keir is poorly suited to the job. He became MP for In fact the vote on June 23rd produced an intemperate, un- Holborn and St Pancras only in May 2015, at 52. His prospects tameable animal. That much is evident in Sir Keir’s haunted air. looked bright. A good friend of Ed Miliband (the former Labour He sports the demeanour of a man who has looked the giant in leader, who joined him in Berlin), he would nowbe foreign orjus- the eye and seen its size. It is also evident in the jitters of Brexi- tice secretary had his party won. But now he is on the wrong side teers, whose disgust at the slightest suggestion of parliamentary of most prevailing trends. As a human-rights lawyer, he has de- scrutiny and whose perma-fury at unconvinced Remainer com- fended alleged terrorists and David Shayler, a whistleblowing mentators reveals more than they would care to admit. Deep spook; advocated an easing of right-to-die laws; and spoken out down, such politicos know the truth. Brexit is not a machine but a forjudges. As directorofpublic prosecutions, he oversaw trials of voluble beast. It combines a vague mandate from voters, a furi- journalists accused ofbribingpublic officialsforstories. Asan MP ous purism among diehards, a mind-achingly complicated bu- he represents a metropolitan finger of London that begins in the reaucratic exercise and a volatile international political and trad- West End, takes in Bloomsbury, King’s Cross and St Pancras and ing environment. Anyone who claims to know how the coming ends with Kentish Town and Highgate—a seat where council es- years will turn out is therefore talking rubbish. Sir Keir’s greatest tates are interspersed with grand Victorian streets in which La- virtue is that he seems to understand this. His keenest acolytes bour posters dot the windows of houses worth millions of should follow suit. 7 International The Economist December 3rd 2016 49

Abortion Also in this section How to make it rarer 51 El Salvador’s awful law

ATHENS AND SEOUL In many countries abortion is the main form ofbirth control. The easiest, least controversial way to reduce it is often neglected BORTION, says Theodora, a Greek civil out each year worldwide, ending a quarter bans and restrictions do little to cut the Aservant, was “an absolute necessity” of all pregnancies. The annual rate, of 3.5 numberofabortions. Most women will do when she became pregnant last year. Her abortions per 100 women of childbearing what it takes to end an unwanted pregnan- husband had lost his job and money was age, is only slightly lower than it was in the cy, even to the point of risking their lives. too tight for a third child. The procedure, at early1990s. According to the Lancet study, abortion is a private clinic, was “efficient”; she was in Although the abortion rate is stable or as common in countries where it is illegal and out in three hours. Hers was a typical falling in most rich countries, it is rising in or allowed only to save a woman’s life as it experience for a middle-class Athenian Latin America and some parts of Africa is in those where it is provided on demand. woman. It is not uncommon for one to and Asia (see chart 1 on next page). Former In manycountriesthe authorities turn a have four or five abortions, says a gynae- communist countries have some of the blind eye when the rules are broken. Most cologist in Athens. In Greece abortion is world’s highest rates. During Soviet times of Latin America has strict laws, but a seen as an ordinary form ofbirth control. abortion was the only method of birth woman able to afford high fees can get a Most modern contraceptives, however, control, and in some countries the average safe illegal abortion in a private clinic. are not viewed that way. More than half of woman would have five to eight abortions (Poor women go to backstreet abortionists, married Greek women use none at all. during her lifetime. By the time the Soviet and are sometimes seriously injured or Withdrawal and condomsare the methods Union fell apart it was spendingabout half even killed.) In South Korea abortion is le- of choice for most couples who are trying of its reproductive-health budget on abor- gal only in cases ofrape, incest or severe fe- not to have a baby—even medical students, tions and associated complications. tal abnormalities, or to save a woman’s who should know that these fail about a life. Still, a study for the government in fifth of couples who rely on them for a Zero tolerance, zero result 2005 estimated that 44% of pregnancies year. Greeks commonly believe that the Formany pro-life politicians, the answer to were aborted. A 35-year-old housewife in pill and other hormonal contraceptives high abortion rates is to make abortion ille- Seoul who had an abortion in 2011says she cause infertility and cancer. They also dis- gal orharderto get. Donald Trump, a recent simply went to the doctor who had deliv- trust intrauterine devices (IUDs), possibly convert to the pro-life cause, has vowed to ered her two children and said she did not because they have been taught that tam- appoint a conservative to America’s Su- want the baby. Women who call clinics in pons are unhealthy. preme Court. Many religious leaders ful- Seoul to seek an abortion are told that the The same sort of nonsense keeps abor- minate against abortion, although Pope procedure is not provided but are often in- tion rates high in many other countries. Francis softened the Catholic church’s line vited to come fora “consultation”. Statistics are patchy, especially in places slightly on November 20th. Abortion re- Where the authorities are more vigi- where many abortions are done in private mains a grave sin, but penitent women can lant, women often go abroad or buy abor- clinics or the procedure is illegal. But a re- now be forgiven by parish priests and do tion pills on the black market. Women cent study in the Lancet, a medical journal, not have to go to a bishop. from Ireland, Poland and Malta can easily estimated that 56m abortions are carried International comparisons show that get abortions elsewhere in Europe. In 2015 1 50 International The Economist December 3rd 2016

2 nearly 3,500 women who gave Irish home addresses had abortions in public clinics Falling behind Bangladesh 2 in England. The internet has made it easier Contraceptive use* and GDP per person, 2015 Condoms as % of all contraceptive use*, 2015 to arrange a safe abortion. Women on Asia North & west Europe South & east Europe Web, a Dutch pro-choice group, offers on- Middle East Americas Africa Oceania 020406080100

line consultations on how to use misopros- † 90 China Thailand Japan Costa Rica Nicaragua Brazil Britain Hong Kong Uruguay FinlandFrance Switzerland Bangladesh Colombia Norway tol and mifepristone, a drug combination South Korea Canada Portugal Czech Republic United States Dominican Republic Puerto Rico JamaicaParaguay Hungary Mexico New Zealand Belgium Bhutan Denmark Vietnam AustriaAustralia Netherlands Greece Zimbabwe El Salvador Bahamas South Africa Venezuela approved by the World Health Organisa- 75 Honduras Slovenia Spain Germany SwazilandSt. Vincent and the Grenadines Chile Sweden Uzbekistan Ecuador Grenada Dominica Islamic Republic of Iran AntiguaLatvia and Barbuda Malta Lesotho Indonesia EstoniaSlovak Republic Cabo VerdeMorocco Egypt Panama Singapore Namibia Barbados Malawi Kenya Sri Lanka Russia tion for abortions during the first 12 weeks Botswana St. Kitts and Nevis St. Lucia Belarus Romania Serbia Belize Tunisia Mauritius Lithuania Israel India Peru Kazakhstan Mongolia Ireland Algeria Ukraine SurinameTurkmenistan

Myanmar 60 Nepal Guatemala BulgariaTurkey Rwanda of pregnancy. It ships them all over the Laos Zambia Moldova Kuwait Trinidad and Tobago GuyanaFiji Japan Bahrain Jordan Armenia Croatia Malaysia Cambodia Bolivia Lebanon world. In many Latin American countries Kyrgyzstan Philippines Vanuatu Iraq Madagascar Georgia EthiopiaS‹o Tom_ and Pr’ncipe MaldivesPalau 45 Haiti Tanzania Solomon Islands Russia Samoa Saudi Arabia misoprostol is available as a treatment for Tajikistan Tonga Armenia Papua New Guinea Italy Libya Yemen Pakistan UgandaTuvalu Timor-Leste

Afghanistan Oman Burundi GreeceArgentina Republic of Congo UAE Djibouti Poland Kiribati stomach ulcers. To avoid suspicion, a AzerbaijanGabon Ghana Ireland Liberia 30 Togo Burkina Faso Cameroon ComorosSenegal Bosnia and Herzegovina Mozambique Eritrea Serbia Sierra LeoneC™te d'Ivoire woman might ask an elderly relative to Sudan CentralGuinea-Bissau African RepublicMauritania Angola Mali Benin Nigeria Equatorial Guinea NigerThe Gambia Montenegro South Korea buy the drugs forher. Democratic Republic of the Congo 15 Guinea SouthChad Sudan Women using modern contraception Women Albania United Anti-abortion groups have grown loud- States as % of all women needing contraception as % of all women er in many countries in recent years. But 0 Britain theystruggle to enactbans. In October con- 0 102030405060708090 WORLD servative politicians in Poland, where GDP per person at purchasing-power parity, $’000 Bangladesh AVERAGE abortion is available only in rare circum- *Excluding traditional methods such as withdrawal and rhythm Sources: IMF; UN †15-44 year-old women wishing to avoid pregnancy who are married or are in a union stances, backed away from a plan to ban it entirely, following large street protests. Women marched waving coat-hangers, maternal feelings”, convince the woman obtain the morning-after pill without which are sometimes used in do-it-your- of “the immorality and cruelty” of abor- much difficulty and that abortions are a selfabortions. tion and lead her to conclude that the possibility. Professional advice is scarce. A When the patriarch of the Russian Or- means to raise the baby can be found. Evi- gynaecologist who gave a lecture about thodox Church called for a ban in Russia, dence of success is thin. Abortions de- sex and contraception at a nursing college the country’s minister of health explained clined slightly when the state of Mississip- was told afterwards that it had made the that this had been tried for a time under pi insisted on counselling and a waiting students “feel uncomfortable”. Stalin. It resulted in many deaths from ille- period, but the proportion carried out after gal abortions but no change in the birth the first trimester rose and more women A fetish for latex rate. MrTrump’sSupreme Courtappointee travelled to other states. The head of one HIV clinic in Athens says will make little difference to America’s Studies of Western countries suggest Greek hospitals often recommend con- abortion law in the short term. The court that few women who have had an abor- doms as the most reliable method for has a solid majority forkeeping it legal. tion regret their choice. Although women avoiding pregnancy. In fact, of every 100 Pro-life campaigners have succeeded in with pre-existing mental-health problems couples who rely on condoms for a year making abortions harder to get. In some can see them worsen following an abor- 18% will conceive, compared with 9% for American states a woman who seeks one tion, such problems also tend to worsen if the pill and under 1% for the IUD. Roula, a must be told that it might cause cancer—a they carry an unwanted baby to term. But 30-year-old architect from Crete who stud- claim unsupported by scientific evidence. in poor countries, where sterile rooms and ied in England, where four-fifths of wom- In recentyearsRussia and several other for- well-trained doctors are in short supply, en use contraceptives and hardly any rely mer communist countries have brought in even legal surgical abortions can be risky. on condoms to prevent pregnancy (as op- mandatory counselling and “reflection pe- In the West less than 1% of abortions car- posed to sexually transmitted diseases), riods” of several days before an abortion ried out by manual vacuum aspiration are describes the counselling on the range of can be carried out. Russia’s guidelines de- followed by complications. In Bangladesh contraceptives at her university’s clinic as scribe abortion as the “murder of a living the share is12%. “enlightening”. In Macedonia, where less child” and instruct counsellors to “awaken Much the best way to make abortion than a fifth of women use contraceptives, rarer is to prevent unwanted pregnancies. some doctors view the IUD as a “foreign What works is well known: campaigns to body” akin to a surgical tool accidentally The north-south divide 1 educate couples about the various meth- left inside a patient. Others are averse to Abortions per 1,000 women aged 15-44 ods; training for doctors and nurses in prescribing the pill to young women, be- 1990s 2000s 2010-15 birth-control counselling; and making con- lieving that it will harm their physical de- Increase Decrease traceptives easy to get. Even in rich coun- velopment. (It won’t.) tries, however, some or all of these are In former communist countries, few 0 102030405060 missing. Bangladeshis and Malawians are older doctors are trained to prescribe mod- Pakistan keener users ofcontraceptives than Greeks ern contraceptives. Luybov Erofeeva of the Colombia or Italians (see chart 2). In plenty of coun- Russian Association ofPopulation and De- Mexico tries, including Ireland and Russia, more velopment, an advocacy group, says Rus- Bangladesh than a third of married couples who use sian women prefer condoms or with- Nigeria contraceptives rely on condoms. In Japan drawal because they have heard from their Estonia that share is an astonishing 90%. mothers and aunts about the complica- Sweden The Catholicchurch continuesto frown tions and side effects from contraceptive France on contraception. And many couples fear pills with high doses of hormones and United States social stigma and mythical side effects. In primitive IUDs used in Soviet times. Britain* South Korea fewer than 5% of women use In many countries, sex education in Spain the pill because they think it is harmful to schools is woeful. A review of16 European Germany ingest artificial hormones. Even so, unmar- countriesbythe International Planned Par- Sources: Guttmacher ried couples often forgo condoms to signal enthood Federation (IPPF), a campaign Institute; ONS *England and Wales commitment; men know that women can group, found that the subject was compul-1 The Economist December 3rd 2016 International 51

2 sory in only halfofthem and rarely includ- Abortion in El Salvador ed scientific information about contracep- tives. The main message of a recent pamphlet offering guidance to South Kore- Miscarriage of justice an teachers is to make the case that stu- SAN SALVADOR dents should not have sex. One of the sug- Where miscarrying can mean a life in jail gestions is to ask pupils to write letters to their imaginary future spouses, to focus N AUGUST11th Sandra, a 19-year-old such as sex education and access to con- their minds on remaining chaste. OSalvadorean, went to her school’s traception. With no opposition, pro-life Simply getting hold of contraceptives nurse with stomach pains and a fever. groups decided to continue campaigning, can be such a hassle that women give up. She dashed to the toilet. What happened this time to see the new law enforced. Russian women who want the pill often next is disputed. Her lawyer, Bertha Clandestine abortions are tricky to undergo an unnecessary pelvic exam by a Deleon, says she felt a spasm, looked prosecute. Unless a woman becomes gynaecologist. Some Greek doctors are un- down to see a dead fetus, fainted and unwell afterwards, the procedure is easy willing to write a prescription for the pill woke up in hospital. Police said she gave to keep secret. So women arriving in that covers more than six months. Doctors birth and murdered her baby. According hospital after obstetric emergencies have in eastern Europe routinely order all sorts to Ms Deleon, a doctor later concluded become the main targets. Doctors seeking of unnecessary tests before prescribing that Sandra had been at most five months to avoid charges ofassisting a crime contraceptives, contravening official medi- pregnant and had an infection known to report them on suspicion ofabortion. cal guidelines. cause miscarriage. Yet she was charged Prosecutors sometimes substitute char- Cost is often an even bigger deterrent. A with infanticide. ges ofinfanticide. “They arrive at the Russian woman who wants an IUD has to In most countries where abortion is doors ofthe hospital bleeding and in pay forthe device and forthe appointment illegal, only doctors who carry it out are pain,” says Sara García ofthe Citizens’ to have it inserted. Abortions in state hos- punished. But El Salvador is one of a Association. “And instead ofreceiving pitals, by contrast, are free. Half of the 16 handful ofcountries that prosecute medical attention they are handcuffed European countries in the IPPF review pro- women forhaving them. Between 2000 and accused ofmurder.” vide no reimbursement forcontraceptives; and 2014 at least149 Salvadorean women The campaign to free the 17 women— none fully covers all methods. Even in faced related charges; 23 were convicted nearly all poor, uneducated and from some countries with generous social wel- forabortion and 19 foraggravated homi- rural areas—has sparked debate in a fare systems, including Germany and Italy, cide. In 2014 the Citizens’ Association for broadly anti-abortion country. Last women have to pay for contraceptives, no the Decriminalisation ofAbortion, a month the governing left-wing FMLN matter how low their income. campaign group, petitioned the Supreme party proposed decriminalising abortion This is despite contraception being Court to free 17 women jailed following in cases ofrape and statutory rape, or cheap for governments to provide. Eng- reported stillbirths or other complica- when pregnancy threatens a woman’s land’sNational Health Service (NHS) offers tions ofpregnancy. (Protesters demand- life orthe fetus has no chance ofsurviv- every type of contraceptive free to every- ing their release are pictured below.) ing outside the womb. But reform of the one (better-off people must pay part of the Three have been freed, though one faces law looks unlikely. In July the conserva- cost for other prescriptions). Its buying an appeal that could return her to jail. tive opposition ARENA party argued for power means it can pay less than £10 In 1998 El Salvador banned abortion increasing the minimum sentence for ($12.50) for a year’s supply of the pill and in all circumstances. On paper, Nicara- abortion to 30 years. just £18 for an IUD that prevents pregnancy gua’s law is as sweeping—but the authori- The official autopsy ofSandra’s baby for five years. England has one of the ties do not actually prosecute women. El was released on September 23rd. Doctors world’s highest rates ofcontraceptive use. Salvador’s greater zeal followed the determined that it had no brain. Prosecu- Contraception also offers an excellent campaign forthe 1998 law and a sub- tors dismissed murder charges against return on public investment. An abortion sequent constitutional amendment that the teenager, who was facing 40 years in coststhe NHS 13 timesthe amountitspends defined life as beginning at conception, jail. Nevertheless, says Ms Deleon, her on the average contraceptive user per year. says Jocelyn Viterna, a sociologist at school’s head teacher has refused to let The Copenhagen Consensus, a think-tank, Harvard. Feminists decided not to fight her attend graduation because she “set a estimates that making contraception and the law, she says, but to focus on issues bad example”. sexual-health advice universally available would bring returns worth $120 for every $1spent, mostlybyreducingdeathsin preg- nancy and childbirth in poor countries.

Many miles to go Even in England, with its well-run sexual- health clinics and policy of providing con- traceptives free, about a fifth of pregnan- ciesend in abortion. And a third ofwomen who have abortions have had at least one before. It cannot be abolished, no matter how enlightened a government’s policy. But the English have more-or-less the right attitude. A high abortion rate is best viewed as a public-health problem that can be cheaply addressed—not through pointless bans or restrictions, but by pro- viding the means to avoid unwanted preg- Demanding mercy for the mothers of the stillborn nancies in the first place. 7 52 Business The Economist December 3rd 2016

Also in this section 53 The Trump effect on small business 54 Home sharing in China 55 Airbnb for dogs 55 The trials of EDF 56 Golf sputters in Japan 57 Schumpeter: King customer

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

Siemens and General Electric equipment. The second typically comes in horizontal, widely used layers, such as Machines learning computer operating systems. Bringing it all together could go badly wrong. Data have long been crucial for manu- facturing and industrial goods. Siemens digitises its customers’ factories; a typical GE MUNICH AND SAN RAMON jet engine contains hundreds of sen- sors. But now the data are no longer The world’s two biggest industrial conglomerates differon how best to go digital binned when the widget comes out of the T DOESN’T take long to walk from Sie- al conglomerates. About 70% of their mar- factory or the plane has landed. Thanks to Imens’s old headquarters in Munich to its kets overlap with each other, reckons J.P. faster internet connections, cloud comput- new one, inaugurated in June: the German Morgan, a bank. ing and clever algorithms, information can industrial conglomerate has built it right But the similarities only go so far. GE now be easily collected, stored in huge next door. The design is cutting-edge, as are mostly sells big, stand-alone products, “data lakes” and sifted for insights. the building’s environmental features. It is such as jet engines and locomotives. It may That technology allows manufacturers packed with energy-saving sensors; chan- look like a collection of distinct divisions, to create what David Gelernter, a pioneer- nelled rainwater is used to flush the toilets. but it has a strong centre and can move ing computer scientist at Yale University, General Electric, Siemens’s big Ameri- swiftly. It is also greatly influenced by over two decades ago imagined as “mirror can rival, will soon have a new base, too. America’s technology giants. worlds”. GE wants to build a similar, “vir- But it takes three hours to drive from the Siemens, in contrast, excels in product tual twin” ofevery category ofphysical as- old site in Fairfield, a Connecticut suburb, design and factory automation. It already setitsells, from locomotivesto wind farms. to the new one in Boston. Its building will has experience in digitising the entire life This would allow engineers to test pro- also boastplentyofgreen technology, such cycle of an industrial product, from design ducts before they are built and also let as a huge canopy made of solar panels, as to fabrication, so it is in some ways already them feed the virtual model with real- well as spaces that the public can enter, in- more of an IT firm than GE (though it still world data to improve performance. “A cluding co-working areas and lounges. has a very long way to go). The German digital twin is not just a generic model but There will be laboratories both forinternal firm is more decentralised, featuring com- based on the exact conditions in the real startups and some from outside. peting centres of power. Its top managers world,” explains Ganesh Bell, chief digital The two industrial giants aren’t so prefer to weigh options carefully, not al- officer at GE Power. much showing off as signalling transfor- ways with great results: Siemens is about mation. Both firms are going through the halfas profitable as the American firm. Not so byte-sized most profound change in their corporate It is no surprise, then, that the two firms Although the efficiency gains for a single histories, attempting to switch from being are also takingverydifferentpathstowards product may be relatively small, they can makers of machines into fully digital busi- digitisation. GE is completely reinventing add up to billions of dollars in savings for nesses. GE’s chief executive, Jeff Immelt, itself, whereas Siemens is staying close to customers over the lifetime of equipment. says the plan is to join the world’s top ten its roots. What works best will be closely More broadly, linking the physical and the software firms with sales of programs and watched by other companies in all sorts of digital worlds via the “internet of things” services worth $15bn as early as 2020. industries. They want to know what hap- (IoT) could create up to $11trn in economic Itistemptingto bracketthe firms togeth- pens when operating technology, as repre- value annually by 2025, estimates the er for other reasons, too. The basic num- sented by GE and Siemens, properly meets McKinsey Global Institute, a think-tank. A bers make them look alike. With annual information technology. The first tends to third ofthat could be in manufacturing. revenues of around $100bn each, they are be organised in vertical, industry-specific It is not just the promise of such gains, the world’s two largest diversified industri- silos, such as machine tools and medical however, that has prompted Siemens and 1 The Economist December 3rd 2016 Business 53

2 GE to overhaul themselves. Digitisation is across the world. Particular industries and also a threat. If they do not satisfy custom- On the grid companies, on the other hand, often have ers’ demands to replace machines less of- Internet-connectable devices specific requirements that call for custo- ten and to spend less money on mainte- Global installed base, bn mised products—not for a platform that is nance, others will. Big IT firms such as Communications Computers trying to be all things to all machines. That Google and IBM might come to control the Consumer Industrial Other* may help Siemens’s more tailored, cus- 70 virtual part of manufacturing by develop- FORECAST tomer-centric approach. ing software and services to optimise fac- 60 Siemens’s attitude to its industrial cus- tories and supply chains. That would slice 50 tomers’ data may also work better than GE offa big chunkofmanufacturers’ profits. 40 ’s. Whereas individual consumers are GE’s answer has been to invest billions by and large willing to give up personal in- 30 since 2011 in a data platform called Predix. formation to one platform, such as Google It wants the system to become for ma- 20 or Facebook, most companies try to avoid chines what Android is for smartphones: 10 such lock-in. Whether they are makers of the dominant host of industrial “apps” to 0 machine tools or operators of a factory, manage, for example, clusters of wind tur- 2011 12 13 16 19 22 25 they jealously guard their data because bines and fleets of locomotives. GE has set *Automotive, medical, they know how much they are worth. Source: IHS military and aerospace up Predix to be “open”, meaning that it Both GE and Siemens say their customers doesn’t only work with its own machines will keep control of their data in the new or its own apps. For example, Pitney an important group of customers: mach- digitised world, but the real question is Bowes, a maker ofheavy-duty mailing sys- ine-tool makers that use components from who will own the algorithms that are gen- tems and products, uses the platform to an- Siemens. They want to maintain direct re- erated using these data. GE claims owner- alyse data from its machines in order to lationships with their own industrial cus- ship, Siemens is much less categorical. manage them better. tomers, not have them interacting through It is thus unlikely that a single platform GE is also usingPredixas a way to shake a platform like MindSphere. will come to dominate the industrial inter- up its internal organisation. It set up a sep- Because MindSphere is less important net. There will be plenty of room for Pre- arate software unit in San Ramon, near Sil- inside Siemens than Predix within GE, the dix, MindSphere and other services, con- icon Valley, to develop it. “We incubated German firm’s organisational changes cludes Andreas Willi of J.P. Morgan. the unit separately because it would other- have so farbeen less radical. But it is trying Nonetheless GE seems better prepared for wise have been killed by the main organi- to open itself up to ideas from outside. In- a digital future. The firm now has a flexible sation,” explains Bill Ruh, who heads GE ternal startupsused to be atthe mercy ofits organisation that can change course quick- Digital. Only in September last year did it budgeting process, which often meant that ly. Siemens, by contrast, is still living in a merge the startup with the company’s oth- they were the first to lose funding. In June more closed vertical world. Both new er digital activities, including its entire IT the firm created a separate home for such headquarters feature small museums dis- department, to form Mr Ruh’s unit. It inter- projects, called next47 (Siemens was playing the firms’ roots. No prize for guess- acts with all other GE businesses, making founded in 1847 in a Berlin courtyard), ing which one you can visit strictly by ap- sure that an algorithm to control electric which is part-incubator, part-investment pointment only. 7 motors in a locomotive, say, can also be firm. It has hired an American to run it, but used for similar devices in a wind turbine rather than basing it in the German capital, or a power plant. which boasts a thriving startup ecosystem, American business GE is changing its culture in other ways, it will remain in Munich. too. As an industrial conglomerate, the Siemenshasalso started sendingsenior The small fly firm was known for its near-obsession employees on so-called “learning expedi- with the Six Sigma management method. tions” to startups to see how things can be This uses statistics and incremental im- done differently. Its employees are now en- provements to drive everything a com- couraged to communicate across organisa- NEW YORK pany does close to perfection. Now GE tional boundaries and directly with Corporate tiddlers are among the wantsworkersto take a leaffrom the world bosses. The company would have to do winners in the new America of startups and start making mistakes—an much of this regardless of its priorities in approach it is calling“FastWorks”. The idea the digital sphere; a reputation for being HERE have been plenty of swings in fi- is to experiment more and to develop so- risk-averse and overly hierarchical is not Tnancial markets since America’s elec- called minimum viable products that can the best way to attract young talent as Ger- tion on November 8th. The Mexican peso be discarded quickly ifthey fail to take off. many’s population ages. has fallen against the dollar, reflecting wor- In other IT markets, one firm has quick- ries about Donald Trump’s protectionist Change your Weltanschauung ly come to dominate, whether in online tendencies. Ten-year bond prices have Siemens’s digital transformation appears search (Google), computer operating sys- tumbled as investors factor in the likeli- to be going more slowly (although that tems (Microsoft) or corporate databases hood ofmuch higher government borrow- may be partly because its managers are (Oracle). That seems to argue in favour of a ing. One particularly striking move has less vocal about the firm’s achievements). gung-ho approach. GE is already well on its been a surge in the share prices of small Its primary focus is still on software tai- way to creating an “ecosystem” for Predix, firms. The Russell 2000 index of American lored to industry verticals, such as health says Nicholas Heymann of William Blair, midgets has leapt by12%, compared with a care and manufacturing, rather than on a an investment bank. It has agreed partner- 3% rise for the S&P 500 index of multina- horizontal platform to fit all sectors. Only ships with big telecoms operators, consul- tional leviathans (see chart on next page). recently did it begin marketing MindSph- tancies and IT-services companies, not Small companies are the backbone of ere, its equivalent to Predix, more inten- least to gain access to outside data sources. America’s economy, employing about half sively. “Our customers live in worlds that Yet the consumer world and that of of the private-sector workforce. But they are very different from each other,” ex- business differ. Online search and social- have had a rotten decade. The Russell in- plainsHorstKayser, the firm’shead ofstrat- networking services are easy to scale, be- dex had lagged the stockmarket until the egy. Siemens is also keen not to displease cause human beings’ needs are similar election. The country’s 28m small firms—1 54 Business The Economist December 3rd 2016

The sharing economy (1) ternet firms which struggled to localise. Mom and…pop! This year Uber, a ride-hailing firm, had to Share prices, January 1st 2016=100 Four walls in retreat after spending a fortune trying to US PRESIDENTIAL ELECTION compete against Didi Chuxing, a well- 120 China funded and inventive local rival. Even ifforeign firmsmanage to hire sav- Russell 2000 110 SHANGHAI vy mainlanders, they are held backby hav- ing to report to faraway bosses with patchy S&P 500 Airbnb comes late to the Middle knowledge ofthe market. “Theyend up be- 100 Kingdom having like rabbits, while we are a pack of 90 E HAVE not focused on building wolves,” saysMrChen (in an interview be- “Wour community in China,” reads a fore the news of Airbnb’s interest in 80 peculiar announcement posted recently Xiaozhu). One Xiaozhu customer says he JFMAMJJASON by Airbnb on its official blog. Despite the farprefers its cheaper prices and greater ar- 2016 firm’s apparent lack of enthusiasm for the ray of listings to Airbnb’s offering. With Source: Thomson Reuters Chinese, the world’s biggest group of trav- over 100,000 listings in about 300 cities ellers, intrepid locals have still discovered across the country (Airbnb has around 2 most ofthem unlisted—have neverfully re- the American home-sharing site. Tourists 70,000 in fewer places), it would be a use- covered from the financial crisis of 2008. from the mainland have used the platform ful addition to Airbnb’s empire. As of October, confidence had yet to rise more than 3.5m times; Airbnb members in A combined firm would still have to back to the level of 2006, according to an China have hosted nearly1m visitors. contend with regulatory confusion. Tujia’s index ofoptimism that is based on surveys Perhaps abashed by this show of grass- boss, Luo Jun, laments that there is “no bythe National Federation ofIndependent roots support, Airbnb is now making a big clear national law supervising this indus- Business, a lobbying group. Giant firms, push in China. From December 7th a new try.” The requirements for special licences, meanwhile, have been playing a bigger legal entity (Airbnb China) will cater to all police checks and identity verification role: two-thirds of all industries have be- those neglected hosts and guests. To satisfy vary widely by region. Doing business of- come more concentrated since the 1990s. Chinese regulators the unit will store their ten means lengthy one-offnegotiations. Mr Trump knows a thing or two about data on local servers. The firm has also Airbnb may reckon it is in the clear with struggling small firms—he runs one. The struck new agreements with the govern- its deals with four cities, but Tujia has Trump Organisation would rank about ments of Shanghai, Shenzhen, Chongqing made over 200 agreements with local au- midway in the Russell 2000 for the size of and Guangzhou, which suggests that these thorities across the country. One business- its revenues if it were listed. But there are big cities welcome its formal arrival. In ad- woman who rents out eight grand flats in three more substantial reasons why his ad- dition to these developments, there are ru- Shanghai’s old French Concession from ministration could help small companies. mours that Airbnb is about to take over landlords, and re-lets them on home-shar- First, tax. Profitable firms in the Russell Xiaozhu, a mid-sized local rival that recent- ing sites, says that the police fine landlords 2000 pay a rate of 28% on their aggregate ly raised $65m ofventure funding. as a matter ofcourse every once in a while. income, according to Barclays, a bank. The mainland is certainly an attractive Astrongrelationship with the government Large multinationals are skilled at paying prize, with a big sharing economy that is is a must for any sharing site, whether local lowerrates, mainlybystashingtheirprofits projected to grow by 40% a year foreach of or foreign, she says. It would also help to abroad. Mr Trump’s plan to cut the cor- the next five years. Local travellers made avoid being dismissive oflocal companies. porate rate from the current headline rate fourbillion trips inside China last year. The Airbnb is still a long way off building its of 35% to 15% would help small firms dis- market for individual leisure lodgings in- Chinese home from home. 7 proportionately. (Big companies, mean- side the country could reach 10.3bn yuan while, may record lower foreign sales be- ($1.7bn) next year, up from 6.8bn yuan this cause ofthe strong dollar.) year, reckons iResearch, a market-research Second, the plan to abolish Barack firm. Airbnb seesitsrivalsin China asparo- Obama’s Affordable Care Act and to light- chial outfits. None of them have a global en regulation across the board is likely to network or the means to build one, says please the owners of small firms. They Nick Papas, the firm’s spokesman in Wash- rank health insurance and red tape as their ington, DC. two most pressing concerns. Last, the But the American firm is late to the Trump administration is also likely to ease party, and local rivals are by now estab- regulations on the local banks that typical- lished. The strongest is Tujia, a venture- ly supply credit to smaller firms. backed firm that is valued at more than A revival of animal spirits among the $1bn and offers some 440,000 homes in millions of small companies that already over 300 cities. Unlike Airbnb’s model, exist would boost America greatly. But the which connects homeowners with travel- real test is whether more new firms are lers, Tujia’s also helps developers let out started. The rate of net company creation vacant properties—taking advantage of has gradually slumped to its lowest level China’s property glut—and also offers ser- since the 1970s. Among the reasons are a vices to potential buyers ofhomes. mountingburden ofregulation and the dif- Other foreign tech firms have stumbled ficulty of matching the purchasing clout in China in the recent past. “The past de- and pricing power of giants such as Wal- cade has shown that it’s very hard for mart. Ifover the next fouryears the admin- American companies to use their own ap- istration manages to reverse this trend, it proach to do businessin China,” saysChen will have made a big step towards restor- Chi, Xiaozhu’s chief executive officer. He ing the dynamism that made America’s previously worked at the local divisions of economy great. 7 Yahoo and TripAdvisor, two American in- Beware of the wolves The Economist December 3rd 2016 Business 55

The sharing economy (2) Airbnb for canines

SAN FRANCISCO Putting a woofovertheirheads HE majority ofAmericans see their The other big selling-point is that pets Tpets as family members, surveys by and large receive better treatment. show. Those with dogs are more likely to There are ways, apparently, to vet dog call themselves pet “parents” than canine hosts to find the real pet lovers: only “owners”. There are more ofthese par- around 15% ofthose who apply to serve ents than ever. In big cities such as San as sitters are approved. Besides offering Francisco and Seattle, (owned) dogs pooches more attention and room to outnumber children. roam, the platforms try to offerextra The ways in which companies are add-ons that appeal to helicopter parents. profiting from the trend are also multi- Rover has launched a feature that enables plying. Not only is there organic dog food customers to see how far their dog has on offer, but packaged, raw food for dogs been walked via the GPS in the host’s so they can follow a “paleo” diet reminis- phone. Like Airbnb, both DogVacay and cent ofwhat their ancestors ate in the Rover insure stays against accidents. wild. A different sort ofindulgence is Another advantage ofthe model is orthopaedic pet mattresses. This year that, unlike other platforms that match Americans spent more than $400m on consumers with workers, like handymen Under pressure Halloween costumes forpets. or masseuses, for one-offvisits, consum- Overall, annual spending on pet food ers often use dog-sitting services many auditing thousands of files stretching back and products in America has risen by times a year, and they tend to be loyal. over decades. More faults are likely to around 40% over the past ten years, to That has helped DogVacay and Rover emerge, the regulator reckons. $43bn—a remarkable rate ofgrowth for attract a lot ofventure-capital money— The cost for EDF is rising. As well as lost an already large industry, says Jared around $140m between them. earnings from shuttered plants, switching Koerten ofEuromonitor, a research firm. But firms that connect pets with hosts one generator (a reactor can have three) Now a packofstartups has sniffed a fresh will face daunting competition as they can take six months and cost €150m opportunity. Much as Airbnb has offered try to go global. Companies offering ($159m). And its decision in November fi- travellers an alternative to staying in a home-stays for dogs are now cropping up nallyto stump up €2.5bn forAreva Nuclear hotel, two firms, Rover and DogVacay, in many different countries, including Power (most of Areva, including Creusot want to give pet owners an alternative to Australia, Brazil and Britain. And unlike Forge) now seems rather like paying to kennels when away from home. Airbnb, which pulls in customers thanks swallow a highly radioactive dinner. Customers search fora nearby sitter to its presence in lots ofmarkets that The two firms have one important joint and pay fortheir dog to stay in that per- people want to travel to, the network project: a new European Pressurised Reac- son’s home. The cost is around $30 a effect forservices like DogVacay is local. tor (EPR), built by Areva and mostly run by night, with the majority ofthat going to Despite having anticipated the trend EDF. Here too, forging faults are a problem: the sitter and around a fifth to the com- early, such firms may never achieve the they were first found last year on the in- pany—much less than you would spend same scale as an Airbnb. But then no one stalled reactor vessel at Flamanville 3, a to checkyour dog into a kennel. ever said it was easy to be top dog. new EPR near Cherbourg. Another serious source ofconcern is safety-valve design. The regulator will rule on Flamanville’s French energy 1980s. As electricity imports and prices future in mid-2017. More tests or design soar, officials are having to deny that a cold changes may mean putting off its opening Bad reactions snap could bring blackouts. far beyond 2018.That would also deliver The cause of the crisis—possibly faulty anotherblowto France’sreputation in nuc- reactor parts throughout EDF’s fleet—sug- lear power. The only other EPR in Europe, gests it may not be easily contained. that at Olkiluoto, Finland, is years overdue France’s nuclear regulator, the Autorité de and three times over budget. ASN EDF PARIS Sûreté Nucléaire ( ), this summer or- Delays might also hinder in its plan dered urgent tests of reactor parts, mostly to build two EPRs at Hinkley Point, in Brit- Electricité de France is in turmoil bases of cylindrical steam generators. In- ain, for£24.5bn ($30.7bn). British loan guar- HESE are difficult times for Electricité spectors are worried about high carbon antees need certain conditions to be met, Tde France (EDF), the country’s quasi- levels found in steel forged by Creusot and these reportedly include seeing Fla- monopolistic electricity provider, serving Forge, which is owned by Areva, another manville operate by 2020. Steve Thomas, 88% of homes. Outages at no fewer than 18 French firm, and by Japan Casting & Forg- an energy expert in London, concurs with of the 58 EDF-owned nuclear reactors that ing Corporation, a Japanese supplier. In the opinion of many in the nuclear-power provide three-quarters of France’s electric- some pieces carbon deposits are over 50% industry when he calls the EPR a dud. EDF ity have meant a slump in production: the above permitted levels, risking fracture in is pushing on regardless, but the financial company says annual nuclear output case of a sudden change in the tempera- strain is mounting. In March, EDF’s then could fall to 378 terawatt hours (TWH), ture ofthe steel. chief financial officer, Thomas Piquemal, from 417 TWH last year. Eight reactors are The extent of faulty forge work is as yet quit, calling Hinkley Point unaffordable. currently lying idle and several may not re- unknown, as is whether Areva employees The sense of crisis looks likely to grow. start for weeks or months. Power stations falsified data. ASN is clearly surprised that Yves Marignac, a nuclear-energy expert in are burning coal at a rate not seen since the Areva failed to spot the problem. It is now Paris, calls EDF “already financially crip-1 56 Business The Economist December 3rd 2016

2 pled”. Only state backing prevents EDF’s ASN may hesitate after the forging pro- account for half of all Japan’s players. Ohi- credit rating falling steeply, analysts say. blems, or impose higher costs. Cyrille Cor- torisama, or “one-person”, golf, where old- And itisnotonlythe ASN that has EDF in its mier, a nuclear engineer who is now at erplayers show up alone to meet other sin- sights. On November 22nd French compe- Greenpeace, a campaign group that op- gletons for a round, is catching on. tition officials raided its offices, seekingevi- poses nuclearpower, says a total refit could But declining demand from companies dence that its dominant position is squeez- cost EDF an extra €60bn-200bn. and disinterest from the next generation ing rivals and sending prices higher than Closing plants permanently would be more than offsets all this. Seishiro Eto, an they should be (even though lower elec- extremely costly, too. France has never MP who chairs a golf group inside the rul- tricitypricesin recentyearshave sapped its closed a large one. EDF may be under-pro- ing Liberal Democratic Party, says that revenues). Its share price has halved in two visioning the costs of decommissioning young players can’t afford steep green fees years. plants. It has set aside €36bn, less than the of around ¥20,000 ($180) for an 18-hole The future looks bleak. Some four-fifths €45bn that Germany has allowed, even round. A chunk of that is an entertainment of French nuclear plants were built in a de- though France’s neighbour has a smaller tax that Mr Eto wants abolished (which the cade from the late 1970s. The plants have a nuclear fleet. Then there is nuclear waste. over-70s do not pay). In 1989 it was 40-year lifespan, meaning that several a The five pools storing spent fuel at La scrapped on most forms of fun, including year face retirement over the next decade. Hague, Areva’s central reprocessing plant, billiards, mah-jong and pachinko, but not Energy planners have assumed there will are nearly full, says Mr Marignac. When golf, considered a corporate luxury. be extensions to 50 years or more. But the sorrows come, they come in battalions. 7 Slow economic growth has also squeezed businesses’ entertainment bud- gets. At Kanuma Country Club in Tochigi Golf in Japan prefecture, north of Tokyo, just a tenth of the golfplayed is the settai sort, down from Recovery shot over half in the early 2000s. Back then companies lavished expensive lunches and club souvenirs on their clients. Even today, big deals between executives regu- larlyhappen onlyaftera round, says a pub- KANUMA, TOCHIGI PREFECTURE lic-relations manager at a large Japanese technology firm. But business relation- As more businessmen hang up theirdrivers, some golfclubs take a new course ships are struck up more easily now, and HE gold-coloured golf club priced at kers, the most exclusive fetching up to $2m. young employees tend to shun Saturdays T$4,700 that Japan’s prime minister, Fresh corporate recruits were expected to spent small-talking on the greens. Shinzo Abe, gave to Donald Trump, Ameri- take up the game. Satoshi Tomita, who used to be a bank- ca’s president-elect, in their first meeting Many bubble-era players are by now in er but who now advises startups, says the last month may have been a piece of pol- or nearing retirement. But in a way, Japan’s mood turned on settai golfsoon afterthe fi- ished diplomacy. But it is unlikely to revive ageing population should be a boon for nancial crisis of 2008 struck. As cash- its posh Japanese maker, Honma, which golf, as demand rises from pensioners strapped banks shed flashy golf-club mem- calls itself “golf’s aristocracy”, presumably with time on their hands (courses take a berships, other firms followed suit. (In because it crafts the world’s most expen- few hours to reach by train from Tokyo, neighbouring South Korea, where busi- sive clubs. It went bankrupt after Japan’s and play tends to be slow even by the nessand birdiesalso go hand-in-hand, a re- bubble-era splurge on new golf courses. sport’s global standards, punctuated by cent anti-corruption law that sets mone- Seven years ago a businessman from Chi- lunches, beers and baths in onsen hot tary limits on gift-giving has meant a na bought the firm, hoping foran upswing. springs). Golfers in their 60s and 70s now similar decline in expensive golfoutings.) Golf, longassociated with extravagance Some clubs are trying to shed their in Japan, is flagging. Clubs have trimmed stuffy image. Only 6% of Japanese men in green fees as the level of golf-playing their 20s play, and less than 1% of women. among Japanese has fallen by over 40% Last year Rakuten, an e-commerce giant, since a high in the early 1990s. As else- launched RakuGolf to pep up the market. where, courses are in oversupply: Japan The site offers discounts, lessons, free rent- has over 2,300—halfofAsia’s total. als and trials to players in their 20s at More than 120 have closed since 2010. partnerclubs, as well asshort-course deals. Entrepreneurial types have converted A resort in Chiba prefecture, south-east of about 70 into solar-panel plants, encour- Tokyo, trialled a drone-delivery service by aged by state subsidies for alternative-en- Rakuten in May and June, sending balls ergy production following the disaster in and snacks to golfers on the course. Ka- March 2011at the Fukushima Dai-ichi nuc- numa Country Club wants to entice local lear-power plant. A few others have been youngsters with “The Land ofthe Wind”, a turned backinto farmland. Junichi Oishi of manga, or Japanese cartoon, about a the Japan Golf Club Employers’ Associa- young champion golferset at the club. tion in Tokyo thinks at least 500 more will A few are relaxing stiff dress codes (one need to shut within the decade. in Chiba bans shoes with more than three The golf industry’s health has long mir- colours). A resort in the prefecture of Oki- rored that of the economy, says Yuki Mor- nawa lets golfers play in swimsuits. Some ita of the Japan Golf Association, which hold “jeans days”. Others offer faster ver- supports players and clubs. That is because sions of the game, such as a “pay-by-hole” of the importance of settai, or business-in- system, and even a new international var- vitation, golf. In the late 1980s golf-club iant: footgolf, played with a football and memberships were so valuable that they huge holes. Traditionalists everywhere were traded like securities through bro- Slow fade will shudder. But the game is flagging. 7 The Economist December 3rd 2016 Business 57 Schumpeter King customer

Companies should be as obsessed with theirmost loyal consumers as theirfans are with them But the most important role of super-fans is to force compa- nies to focus on their core business. Managers love to immerse themselves in the side-disciplines of business—analysing big data or re-engineering supply chains. Super-consumers remind them that these are just a means to an end. Executives need to make sure that they often spend time with them—sitting in on product tests, joining chat rooms and hanging out at customer conventions. Blockbuster kept its accountants happy but alienat- ed its core customers by charging late fees. Netflix, by contrast, keepsitsdiscipleson board with constantbinge-watching fodder. How can companies strengthen their connection with super- consumers? The first thing to do is to discover them. Given all the data that companies are spewing out, they are not that hard to spot: they are the people who keep buying your stuff through thick and thin. The priority is to identify members of the all-im- portant category of young, up-and-coming super-consumers. Companies can learn a lot about these people by studying their Twitter feeds or by reading those letters of complaint that show an emotional connection to the product. Some firms go further still: Nike and Adidas, for example, employ ethnographers to study their users “in the field”. HE hero of Nick Hornby’s novel, “High Fidelity”, cannot get The second taskis to reward super-consumers fortheir loyalty. Tenough of vinyl records. By day Rob Fleming runs a record Fans adore beingrecognised by the objects oftheiraffections. Air- shop where he spends his time sampling the stockand construct- lines have excelled in this by creating a ladder of rewards for fre- ingfantasy compilations with his equally obsessive assistants. By quent flyers. Spotify identifies fans of particular musicians by night he moons over his favourite songs. “Is it so wrong, wanting studyingtheirlistening habits and then sends them offers fortick- to be at home with your record collection?” he asks himself. ets when they are in town. Two American political magazines, “There’sa whole world in here, a nicer, dirtier, more violent, more The Nation on the left and the National Review on the right, both peaceful, more colourful, sleazier, more dangerous, more loving put on cruises that allow theirmost dedicated readers to hangout world than the world I live in.” (fora price) with their star writers. Rob is an example of what management gurus dub “super- The main danger with taking super-consumers seriously is consumers”, “lead consumers” or “high-passion fans”. Only a that companies may get trapped in their existing business model. tenth of customers are super-consumers but they account for Clayton Christensen of Harvard Business School pointed out in 30-70% of sales, an even greater share of profits and almost 100% his book “The Innovator’s Dilemma” that a big threat to estab- of “customer insights”, says a new book, “Super-Consumers”, lished firms is that they focus obsessively on their most loyal cus- written by Eddie Yoon ofthe Cambridge Group, a consultancy. tomers at the same time as insurgents reinvent entire business These people are not defined simply by the amount of stuff categories. IBM, forexample, waslisteningto people who wanted they buy (though they tend to be heavy users), but by their atti- marginally better mainframe computers when Microsoft was tude to the product. Like Rob, they regard the things that they con- pushing ahead into PCs. sume as answers to powerful emotional needs. Super-consum- ers exist in every imaginable consumer category, from the Super-customers are always right glamorous to the staggeringly mundane. There are people who Yet the most successful interlocutors with super-fans are in fact wax lyrical about the serial numbers inside toilet rolls or who the very high-tech companies that are most disruptive of old worship at the altar of Kraft’s Velveeta processed cheese, which business models. The likes of Google and Facebook routinely they call “liquid gold”. provide their most passionate users with special access to their Often, Mr Yoon points out, companies treat super-consumers latest products and ask them to recommend improvements. The as weird obsessives to be dismissed or ignored. That is a mistake, customers get the psychological satisfaction of being taken seri- forthey can, when treated well, propel growth. As well as buying ously by brand-name enterprises. The tech companies benefit large quantities themselves, they infect their social circle with en- from lots of free workers who debug their software and provide thusiasm. American Girl, a maker of upmarket dolls, discovered ideas for new products. that typical consumers spend a fifth more in markets where su- There are, moreover, plenty of super-consumers who are as per-consumers are clustered. obsessed with solving problems as they are with the products High-passion fans often come up with ideas for improving themselves. Eric von Hippel of MIT’s Sloan School of Manage- products. They can also reveal interesting patterns in consumer ment has found that about 80% of breakthroughs in scientific in- markets: Generac, a producer of standby generators, discovered struments came from “lead-users” rather than the manufactur- that people who buy lots of their generators are also more likely ers. Even super-consumers who are fixated on old or existing to be enthusiastic consumers of fridges (they often have several products (such as fans of vinyl records in an age of digital music) stocked up with food), multivitamins and life insurance. These can provide companies with lots of valuable advice and insights are customers, in other words, who wish to be prepared for all on stuffthat makes money. Analysingbigdata is all very well. But eventualities. nothing beats hanging out with your biggest fans. 7 58 Finance and economics The Economist December 3rd 2016

Also in this section 59 Buttonwood: Bond yields 60 China’s falling currency 60 OPEC cuts a deal 61 African stockmarkets 62 Cyber-insurance 62 Bank supervision 63 Analyst forecasts 64 Free exchange: India’s experiment

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

The world economy Monetary policy in the euro zone will stay easy. The European Central Bankis ex- The dollar squeeze pected to extend its bond-buying pro- gramme at its next big policy meeting, on December 8th. And Mr Trump’selection is a “present” to the Bank of Japan, says Paul Sheard ofS&P Global. In Septemberit com- mitted to overshoot its 2% inflation target. A weaker yen helps; in the weeks after Mr Why the greenbackhas rallied so hard and what its strength might portend Trump’selection, it fell by 7%. HEN economic historians look back countries with foreign-currency debts, the If a strong dollar is cheered in Tokyo Won the years following the global fi- exchange rate acts as a financial amplifier. and Frankfurt, it is rather less welcome in nancial crisis, they might ponder the exact A stock of dollar debt is like a short posi- emerging markets—for three reasons. First, moment at which the boom in offshore tion. When a shock hits, the scramble to sharp falls in currencies put pressure on dollar-lending reached its zenith. Was it short-cover drives up the dollar. central banks to raise interest rates, both to September 2012, when Zambia issued its The latest leg-up in the dollar has a prevent further depreciation and to con- debut Eurobond (dollar-denominated proximate cause. Investors expect Mr tain the resulting inflation. Turkey’s central bond), at a yield of 5.4%, and received Trump to find common ground with Con- bank raised interest rates on November $12bn of orders? Perhaps it was a year later, gress on cuts to corporate taxes and in- 24th in response to a fall in the lira to an all- when investors gobbled up an $850m Eu- creases in infrastructure spending. A fiscal time low against the dollar, forexample. robond issue by a state-backed tuna-fish- splurge may push the Federal Reserve to Second, a stronger dollar also has an in- ing venture in Mozambique. In between raise interest rates more quickly, drawing direct impact on credit conditions in Petrobras, Brazil’s state oil company, was capital back to America and lifting the dol- emerging markets. A study by Valentina able to issue $11bn of ten-year bonds in lar. Ifcorporate-taxcuts spurmultinational Bruno of the American University in May 2013, a record for an emerging-market companies to repatriate the pile of earn- Washington and Hyun Song Shin, of the firm, at a generously low yield of4.35%. ingstheyhave hitherto keptoffshore, itwill BIS, found that those emerging-market Investors had reason to regret those furtherbuoy the greenback. companies able to borrow in dollars act 1 purchases even before the dollar’s latest surge. Between November 9th, when Do- nald Trump won the presidential election A crisis of currency in America, and the Thanksgiving holiday, Trade-weighted US dollar index against Three-month cross-currency basis the dollar rose by 3% against a basket of major currencies, March 1973=100 against US dollar, basis points rich-world currencies. Such a jump in so short a time is rare. The dollar-borrowing 160 20 + binge during these years helps explain 140 0 why the greenbackbounced so sharply. Euro – 20 By the end of last year, governments 120 and businesses outside America had 100 40 racked up $9.7trn of debts denominated in 80 60 dollars, according to the Bank for Interna- Yen 60 80 tional Settlements (BIS), a clearer for cen- tral banks. Of this, $3.3trn was owed by 40 100 borrowers in emerging markets, much of it 1973 80 85 90 95 2000 05 10 16 2013 14 15 16 sitting on company balance-sheets. In Sources: Federal Reserve; Bloomberg *Not available before 2011 The Economist December 3rd 2016 Finance and economics 59

2 like surrogate financial firms, lending on a which says the forward rate should reflect lar’s ascent. chunk of borrowed funds at home. When the current (or “spot”) rate and the gap be- Parallels have been drawn with an ear- the dollar was weak, such firms borrowed tween interest rates on each currency. Oth- lier period of sustained dollar strength. freely in global markets. A strengthening erwise an arbitrager could simply buy a The dollar’s 50% increase between 1980 dollar, in contrast, causes a general tighten- currency today, lock in the forward price, and 1985 was brutal for America’s export- ing ofcredit in emerging markets. pocket the interest and still take a profit ers. The pressure for higher trade barriers A third effect comes from the legacy of when the forward contract is settled. The was only defused by the Plaza Accord of past dollar borrowing. As firms rush to pay interest-rate gap implicit in forward mar- 1985, a rich-country pact to weaken the dol- offtheirdollardebts, which loom ever larg- kets should be zero. For dollar-yen con- lar. The biggest concern about the latest er in home-currency terms, they are likely tracts in three months’ time it has blown dollar rally is that it will spur not agree- to cut backon investment and jobs. out to almost 0.9%. That means firms and ment but conflict. Mr Trump seems all-too The impact of a stronger dollar is evi- banks are paying far more than is normal eager to resort to protectionism in a mis- dent in rich-world finance, too. A shibbo- to buy dollars with the currency risk guided attemptto balance America’strade. leth of finance is that foreign-exchange hedged (see charts on previous page). The A stronger dollar might be the trigger for markets follow “covered-interest parity”, cost of hedging seems to rise with the dol- such a disastrous move. 7 Buttonwood Exaggerated reports

It is too early to say the era oflow yields is over HE death of the long bull market in mation,” says David Lloyd of M&G, a Tbonds has been called many times in A year of shocks fund-management group. recent years. Such a consummation is de- Ten-year government-bond yields, % In addition, a rise in bond yields may voutly wished forby those who think the BREXIT VOTE BoJ TARGETS US ELECTION play a part in choking off economic NEAR-ZERO global economy will never get back to YIELDS 2.5 growth. The ratio of total debt (govern- US health until short- and long-term interest 2.0 ments and private sector combined) to rates return to more normal levels. GDP has risen in both developed and de- Following the election of Donald 1.5 veloping economies since the 2008 crisis. Britain Trump as American president, the funeral 1.0 “A large stock of debt needs a low interest rites are beingread again. The yield on the Germany rate to make it tolerable,” says Mike Amey 0.5 PIMCO ten-year Treasury bond jumped from + of , a fund-management group. 1.73% (while the votes were being count- 0 And if 2016 has taught investors any- Japan – ed) to 2.36% at one stage; the yield on the 0.5 thing, it is to take account of political risk. two-year bond rose from 0.78% to 1.12%. JFMAMJJASON In the past, this was a factor that bond in- (Bond prices fall as yields rise.) 2016 vestors in developed countries rarely had The rationale for the shift is the belief Source: Thomson Reuters to worry about. “For a long time, politi- that Mr Trump will push through a fiscal cians in the Western world have been stimulus, in the form oftax cuts and infra- programme, the ten-year yield reached 3%. dancing round the same handbag,” says structure spending. Not only will that It was as high as 2.47% in June last year. Mr Lloyd. “The policy differences have boost the American economy but it will Moreover, otherbond markets have not been largely rhetorical.” allowthe Federal Reserve to return mone- been as seriously affected by Mr Trump’s The rise of extremist politicians brings tary policy to more “normal” levels by election (see chart). In Germany, ten-year with it the risk of extreme outcomes. The pushing up rates from the current 0.5%. It yields may no longer be negative but they problem for investors is that the implica- could also lead to higher inflation in the are still just 0.2%. Indeed, the gap between tions of such shocks are not uniform. The medium term. Forecasts for American in- German and American ten-yearyields is at Brexit vote was followed by a fall in bond flation in the early 2020s can be derived its widest since the 1980s. British yields are yields (as cautious investors opted for the from the bond market. In July, they point- around where they were at the time of the safety of bonds), but the election of Mr ed to 1.4%; now they imply 2.1%. All three Brexit vote but well below their level in Trump caused yields to rise. Had the pres- factors—faster growth, rising short-term January. In Japan the yield on the ten-year ident-elect made a swift promise to pur- rates and higher inflation—are usually bond is still close to the central bank’s tar- sue his protectionist agenda, however, drivers ofhigher bond yields. get of zero. bond yields might have fallen, since a ta- In the course of 2016, moreover, fears Continued bond purchases by central riff war would hurt economic growth. of deflation and a sharp slowdown in the banks are one reason why yields may not The election of Marine Le Pen as French Chinese economy have steadily faded. As rise that far in Europe and Japan. What is president would probably cause Euro- a result, itseemslessand lesslikely thatin- more, pension funds and insurance com- pean government bonds to sell off; yields vestors would want to own government panies will continue to be ready bond buy- in America and Japan might fall. bonds, especially as trillions of dollars- ers—at almost any yield level—as they seek The biggest problem for investors is worth have been offering negative yields. to meet regulatory requirements or to that ultra-low yields leave so little margin Nevertheless, this bond-market sell- match their long-term liabilities. forerror—the likelyannual return on most off needs to be set in context. During the Furthermore, it is not clear how much long-dated bonds can be wiped out in an “taper tantrum” of2013, when the Fed sig- of Mr Trump’s programme will be imple- afternoon’s trading. Government bonds nalled a slowing ofits quantitative-easing mented, nor indeed whether economic maystill find readybuyers, butthey won’t growth or inflation will actually rebound. sleep as soundly as they used to. The chart in last week’s Buttonwood was incomplete. “The factors affecting inflation are long- The correct version appears with the column online. term: globalisation, deregulation and auto- Economist.com/blogs/buttonwood 60 Finance and economics The Economist December 3rd 2016

China’s falling currency A harder call

Shanghai A strong dollarexposes the yuan’s vulnerabilities UAN forecasters have had it easy for serves. The yuan’s future pivots around Ythe past decade. But for a few isolated this question: will China be able to restrain days, China’scurrencyhasbeen a one-way market forces and guide the currency to a bet for years on end, whether appreciating soft landing, or will the dam break and against the dollar, pegged to it or, more re- mild depreciation turn into a rout? cently, depreciating. The pace at which it Investorsare so farmore cautious about has risen and fallen has also been predict- betting against China than at the start of able: the central bank always made it gra- 2016, when some built up big yuan short dual. So Guan Qingyou, of Minsheng Se- positions in the offshore market. The gov- curities, thought himself on solid ground ernmentmade life painful forthem, raising when he predicted in early November that the cost of borrowing yuan offshore and the yuan would stay above 6.82 per dollar stepping up capital controls to support the forthe rest ofthe year. Less than a weeklat- currency onshore. A prominent hedge Oil prices erhe was proved wrong: the yuan fell to an fund owned by Carlyle, a private-equity eight-year low. Mr Guan published an firm, was among those to sufferbig losses. Viennese waltz apology: the art of knowing the yuan’s fu- But if foreign investors are wary of an- ture with any precision, he conceded, had other tilt at the yuan, sentiment inside Chi- become rather tricky. na is turning more bearish. The currency Most analysts, investors and compa- has fallen 6% this year, and it will soon take VIENNA nies believe that the Chinese currency has more than seven yuan to buy a dollar, a Could an OPEC deal markthe further to fall against the dollar, but can psychologically important level. In real-ef- beginning ofthe end ofcheap oil? only guess as to how far and how quickly. fective terms (that is, against a trade- Theiruncertaintyreflectsa newreality. The weighted set of currencies, controlling for XACTLY two years after Saudi Arabia government, long able to exercise tremen- inflation), the yuan is merely at a two-year Ecoaxed its fellow OPEC members into dous control over the yuan, has started to low. But it is on the dollar exchange rate letting market forces set the oil price, it has lose its grip. A new exchange-rate mecha- that most people still focus. Legions of en- performed a nifty half-pirouette. On No- nism, introduced last year, has made the trepreneurs and ordinary households, vember 30th it led members of the oil pro- currency more flexible but also more re- who collectively have accumulated vast ducers’ cartel in a pledge to remove 1.2m sponsive to global market trends. Dollar wealth, want to diversify their savings into barrels a day (b/d) from global oil produc- strength over the past two months has other currencies. tion, if non-OPEC countries such as Russia meant that the yuan, like just about every The government has been fighting on a chip in with a further 600,000 b/d. That other currency in the world, has steadily number of fronts to slow the tide of cash would amount to almost 2% of global pro- lost ground against the greenback. outflows. It has ratcheted up capital con- duction, farmore than markets expected. It The central bank wants depreciation to trols to limit investments in financial mar- showed that OPEC is not dead yet. be orderly. Indeed, compared with most kets abroad. This month it drafted rules to The size of the proposed cut, the first other currencies, the yuan has outper- make it harder for companies to acquire since 2008, caused a surge in Brent oil formed since the start of October: it has entities abroad. Regulators have conclud- prices to above $50 a barrel. Some specula- stayed stable againsta basketofcurrencies, ed that at least some foreign acquisitions tors thinkit may markthe beginning of the which the central bank says is its primary are being used to mask capital outflows. end of a two-year glut in the world’s oil target (see chart). But curbing declines The central bankhas also dipped into its re- markets, during which prices have fallen against the dollar comes at a cost, eating serves of foreign exchange—still the by half and producers such as Venezuela into hard-earned foreign-exchange re- world’s biggest at more than $3trn—to prop have come close to collapse. As long as up the yuan. Officially, ithasused up about prices continue to recover, Saudi Arabia $10bn a month since January. But Logan can probably shrug off the fact that its pre- Redback blues Wright of Rhodium, an advisory group, vious strategy damaged OPEC at least as Chinese yuan against: says a spike in trading volumes in the on- badly as non-members, and that this August 31st 2016=100 shore market hints at much more aggres- week’s deal gave more breathing space to 106 Yen sive, ifconcealed, intervention. its arch-rival Iran than it would have liked. 104 None of China’s currency options is The rally’s continuation, however, de- South Korean won Euro palatable. Faster depreciation would only pends on non-OPEC members such as Rus- 102 spur greater outflows. A big one-off deval- sia reliably committing to cut output at a uation would be extremely risky, and meetingon December9th. Italso hinges on Currency 100 threaten financial stability. Ever-stronger the speed at which American shale pro- basket 98 capital controls would hurt the economy, ducers step up production, and on Donald Dollar closing it offfrom the rest ofthe world. The Trump’sdream ofoil self-reliance. 96 one thing that would buy the yuan a bit of Since the end of September, when Aug Sep Oct Nov breathing-space would be a weaker dollar. OPEC sketched out a deal in Algiers to cut 2016 But that is most definitely beyond China’s production, Saudi Arabia’s oil minister, Sources: Wind Info; Thomson Reuters ability to control. 7 Khalid al-Falih (pictured), and his Iranian 1 The Economist December 3rd 2016 Finance and economics 61

2 counterpart, Bijan Zanganeh, had engaged rel within weeks. He notes that speculators in Nigeria, part of a settlement with au- in a game of brinkmanship that at times were mostly betting on an OPEC failure, thoritiesafterbreakingSIM-card rules. Tan- seemed likely to doom this meeting. Oil and that bigoil consumers may need swift- zania has ordered eight telecoms opera- prices have staged frenetic swings since ly to protect themselves against rising tors, including three with international then (see chart). Days before the Vienna prices. Airlines, for example, could scram- backing, to float 25% oftheir shares in 2016. gathering, some analysts gave it a mere ble to hedge against soaring fuel costs. Liquidity is an even bigger challenge. 30% chance of success. The betting was If oil prices continue to rise, American Shares rarely change hands: outside South that failure would push prices well below shale producers will ramp up output, in ef- Africa, annual turnover is typically less $40 a barrel, and possibly bring about the fectcappingthe oil price. Thismaynot hap- than 10% ofmarket capitalisation. In Nairo- collapse ofOPEC. pen as swiftly as some think. After all, bi, which relaxed rules on foreign owner- But Saudi Arabia, OPEC’s biggest pro- there are suspicions that, to coax Wall ship last year, foreign investors accounted ducer, realised that pragmatism was its Streetinvestment, shale producershave ex- for three-quarters of trading in the three best option. Its promised 4.6% cut in pro- aggerated their ability to produce low-cost months to September. duction is mirrored by many other OPEC oil. But many of them are still standing, de- Some hope to stir up interest with new members, though Iran was permitted a to- spite OPEC’s best efforts to kill them off. products. Nigeria has eight exchange- ken increase as it recovers from nuclear-re- The cartel cannot declare even Pyrrhic vic- traded funds (ETFs), which track market lated sanctions. That may be galling for tory from the past two years. 7 benchmarks. Nairobi will roll out a host of Saudi Arabia, but it is likely to benefit far derivatives next year. Even little Swaziland more than Iran from the rise in oil prices, if has its eye on ETF trades. sustained, than it will lose from lopping African stockmarkets Regional integration can also help, 486,000 b/d offits total output. It promises pooling listings and liquidity into larger to cut to 10.05m b/d, which is not farbelow Short of stock markets. Eight west African countries, its level in the first quarter of2016. which already share a common currency, Moreover, the government’s plans to list shares on the Bourse Régionale des Va- modernise the economy and partly priva- leurs Mobilières (BRVM) in Ivory Coast. tise Saudi Aramco, the state oil company, KIGALI East African exchanges are working on a depend to some extent on higheroil prices, common trading platform. But govern- Many African stockexchanges are too says Bhushan Bahree of IHS Markit, a con- ments view stockmarkets as national sym- small to prosper sultancy. Counter-intuitively, he says that bols. New regional exchanges are unlikely. the kingdom needs higher oil revenues as S THE trading bell rings, a handful of “It’s like having an airline,” sighs Geoffrey “a bridge” to becoming a less oil-depen- Abrokers, in crisp scarlet jackets, gather Odundo, boss ofthe Nairobi exchange. dent economy. OPEC argues that a modest around a whiteboard at the Rwanda Stock Nigeria and Kenya have the heftto forge cut now will spur investment in new Exchange in Kigali. There are only seven ahead, but smaller exchanges could strug- sources of crude that will prevent harmful listed companies, and it takes just a couple gle. In a new paper, economists from Eras- oil shortages in the future. of minutes to write up the day’s bids. But mus University, Rotterdam, and City Uni- The cuts take effectfrom January 1st and Celestin Rwabukumba, its chief executive, versity, London, examine 59 nascent stock will last for six months. During that time, is excited for the future. “If it works else- exchanges around the world. They find traders will monitor oil-tanker traffic to as- where, then why not here?” he asks. that those which start out small, with few certain whether fewer are leaving port. Why not indeed? Johannesburg, with a listings and low turnover, tend to remain They cannot monitor Russia’s pledge to cut market capitalisation of nearly $1trn, is in a so. Strong banks and growing savings in- 300,000 b/d of production, because much league of its own. But sub-Saharan Africa crease the chances ofsuccess. of its production moves by pipeline, says has many small exchanges, lots of them In short, exchanges must wait for econ- Abhishek Deshpande of Natixis, a bank. created in the 1990s to help privatise state omies developed enough to sustain them. But he believes that even so the agreement enterprises. Most struggle to attract new is- In the meantime private equity, which be- will start to cut global oil inventories next sues. Seven of the eight domestic listings tween 2010 and June this year made deals year. Non-OPEC output has fallen this year, on the Uganda Securities Exchange came worth $23bn in Africa, will offeran alterna- adding impetus to the cartel’s efforts. from government divestments. Older ex- tive to a public listing. Eventually investors Some speculators were bullish even be- changes, in Kenya and Nigeria, are domin- may see the stockmarket as an exit strategy. fore the deal. Pierre Andurand of Andu- ated by big firms: a third of Nigeria’s mar- Back at the Rwanda Stock Exchange, Mr rand Capital, a hedge fund, says the OPEC ket is the Dangote Group, a conglomerate Rwabukumba is playing the long game: agreement could push oil above $60 a bar- with interests from cement to salt. “Youhave to start somewhere.” 7 Stock-exchange leaders were in Kigali this week for the annual conference of the The OPEC effect African Securities Exchanges Association. Starting small Brent crude oil price, $ per barrel Much of the talk was about coaxing small- Number of companies listed on stock exchanges er, family-owned businesses to list. But October 2016 55 many owners are loth to cede control or Domestic Foreign open their books to scrutiny, notleast from 0 100 200 300 400 the taxman. An initiative by Nairobi’s Johannesburg 943 50 bourse to ease listing requirements for small and medium-sized enterprises has Nigeria 29.3 45 attracted just five companies since it Mauritius 6.2 launched in 2013. So privatisation remains the staple. Nairobi 19.9

40 Botswana sold off its national telecoms Namibia Market 2.3 companythisyear, the biggest-evernew of- capitalisation BRVM* $bn 11.6 October November feringthere. Anothersource oflistings islo- 2016 cal units of multinationals. MTN, a South Source: World Federation *West African Source: Thomson Reuters African telecoms giant, is preparing to list of Exchanges regional exchange 62 Finance and economics The Economist December 3rd 2016

Cyber-insurance Bank supervision Hack work Small overdraft in Chile

Revisions to the Basel 3 standards remain incomplete NEW YORK STEEP climb awaited the Basel Com- (such as the probability ofdefault). A Insurers grapple with hacking that goes mittee on Banking Supervision in “standardised” approach will replace beyond data breaches A Santiago on November 28th and 29th. alternatives based on banks’ models for S HACKERS wreak havoc with depress- The central bankers and regulators hoped estimating operational risk(big fines, say, Aing regularity, the insurance industry to agree on revisions to Basel 3, the post- or cyber-security breaches). finds itself forced to contemplate a whole crisis version ofbank-capital standards. Not surprisingly, the thorniest topic new set of risks. They range from the theft On November 30th Stefan Ingves, the remains open. The committee had pro- of millions of credit-card numbers from group’s chairman and head ofSweden’s posed an “output floor”, a lower bound American retailers to the disabling of the central bank, said that “the contours ofan forthe risk-weighted sum ofa bank’s power grid, as happened in Ukraine last agreement are now clear”. But the climb- assets, of60-90% ofthe answer yielded December. The dedicated “cyber-insur- ers are still short ofthe summit. by a standardised method. Mr Ingves ance” policies that companies offeragainst The committee had proposed re- said that he “expected” a floor to be in the data breaches have become relatively rou- stricting the use ofbanks’ internal mod- final deal. But there is still work to do, and tine. But the risks they insure under other els forcalculating risk-weighted assets— what happens next isn’t yet clear. (The policies are also affected by cyber-risks— which in turn help determine how much committee had set itselfa deadline ofthe and they are still struggling to understand capital banks must have at hand. Models end ofthe year.) Central-bankgovernors this so-called “silent” cyber-exposure. varied too much, it said; low risk-weights and chiefsupervisors must endorse the Insurance thatprotectsfirmswho suffer were flattering some banks’ ratios. But new rules, once they are agreed on. data breaches has been on offerforaround European bankers and officials had Overall, capital requirements may not 15 years. It is much harder to put a precise complained formonths that the propos- change much. But some banks will face value on, for example, stolen health re- als would penalise banks that have lots extra demands, albeit with a long period cords than on a property or car. Insurers of(low-risk) corporate loans or mort- ofadjustment. Stragglers are still catching sidestep the problem by covering only the gages (eg, in Germany or Sweden). They up with existing rules: this weekthe Bank direct costs that a company incurs from a sniffed an American plot: American ofEngland said that the Royal Bank of hack. Typically, these include hiring a spe- banks, holding fewer such assets, would Scotland had fallen short in a “stress test” cialised forensics firm to work out exactly be untouched. and had put forward new plans forre- what was stolen, notifying affected cus- Mr Ingves gave few details, but said stuffing its capital cushion. More than tomers (which 47 American states cur- that the new set-up would “largely re- eight years after the crisis, wrangling over rently require), short-term business inter- tain” internal models, though with mini- how to make banks safe continues. It’ll ruption and fines. mum values forimportant parameters last a little longer. The industry will be shaken up by new EU data-protection rules, which come into force in 2018 and will impose stricternotifi- ance market. triggering other policies, such as life, home cation requirements and stiffer fines for Data breaches are, however, for the or commercial-property insurance. Often, data breaches than firms have so far faced most part a manageable nuisance rather such policies, though not designed with in America. Partly because ofthis, the mar- than a disaster. Despite the hundreds that cyber-risks in mind, do not specifically ex- ket forcyber-insurance, which represented take place annually, only 90 since 2010 clude them either. In some cases the differ- only $2.5bn in global premium revenue in have been reported by American compa- ence may be minor; a burglar who enters a 2014 (90% of which came from American nies to regulators as having had a “materi- house by hacking a “smart” lock will not companies), is expected to treble by 2020, al” impact on their business. necessarily steal more than one who according to PwC, a consultancy. That The bigger concern is the “silent” expo- breaks a window. But cases such as the would still leave it tiny in comparison sure: cyber-attacks that cause physical massive damage caused to a steelworks in with, say, the $670bn global motor-insur- damage or bodily injury and can end up Germany in 2014 by hackers who messed with a blast furnace, or the hacking of the Ukrainian power grid (blamed by many on Russia), give insurers pause. They have added urgency to efforts to understand, measure and calibrate their exposures to these new threats. With real-world precedents still too rare to form the basis of any reliable estimates, the industryhas turned to usinghypotheti- cal scenarios. At the end oflast year, forthe first time, Lloyd’s of London, an insurance marketthatspecialisesin niche and emerg- ing risks, asked its syndicates (groups ofin- surers and brokers) to come up with “plau- sible but extreme” cyber-attack scenarios, and report back their estimated total expo- sure, in what is to be an annual require- ment. The exercise follows a cyber-scenar- io report in May 2015 from the manage1 The Economist December 3rd 2016 Finance and economics 63

2 ment of Lloyd’s itself on a hypothetical cyberterrorism and “normal” hacking. centive to issue ever-so-slightly pessimistic hacker-caused blackout of the entire pow- Cyber-crime knows no geographical forecasts, so companies can “beat” expec- er grid of the American north-east. It esti- bounds, unlike, say, a Florida hurricane. tations. Since the financial crisis, company mated this would cause direct losses to Mr Webb reckons that insurance policies profits have exceeded short-term analyst business revenues of $222bn, and a total will at a minimum need explicitly to recog- forecasts around 70% ofthe time. dent in GDP ofover $1trn over five years. nise that cyber-risks are covered or to ex- So are forecasts are useless? Simply tak- Many insurers are turningto outside ex- clude them—just as many policies already ing the market’s earnings figures from the pertise. Matt Webb of Hiscox, a specialist include exemptions forterrorism or war. previous year and multiplying by1.07 (cor- insurer, describes an “arms race” between Although insurers are already helping responding with the stockmarket’s long- analytics firms such as RMS and Symantec, companies with more humdrum data run growth rate) can be expected to yield a offering their long-standing modelling pro- breaches, the industry still lacks a clearly more accurate forecast ofprofits more than wess (RMS is already well-trusted on hurri- formulated response to a larger-scale a year in the future. cane modelling, forexample) to help insur- cyber-calamity. Inga Beale, CEO of Lloyd’s, Yet the very predictability of the errors ers understand their cyber-liabilities. is optimistic that the market, thanks to its in analysts’ forecasts suggests they could But even if exposures are better under- exacting modelling exercises and its un- be informative, if they are properly inter- stood, limiting them may prove tricky. Ke- ique risk-sharing structure, is better preted. Taking forecasts of S&P 500 earn- vin Kalinich of Aon, an insurance-broker, equipped than most. But only a devastat- ingsfrom 1985-2015, The Economist has built pointsto the near-impossibilityofdrawing ing, real-life cyber-attack would test how a simple statistical model to try to take out a line, for example, between cyber-war or effective its preparations have been. 7 the bias that taints Wall Street’s prognosti- cations. After controlling for the forecasts’ lead time and whether or not they were Analyst forecasts made during a recession, we find that even our relatively crude model can improve Discounting the bull upon the Wall Street consensus for fore- casts made more than a quarter in advance (see chart 2). Adjusting for bias in short-term fore- casts is harder. It is tempting simply to ac- cept the errors—after all, they tend to be off by just a little. Data from Bloomberg show Stockanalysts’ forecasts tend to be wrong in reassuringly predictable ways that the 320 S&P 500 companies that beat ELL-SIDE” analysts, whose firms Profits forecasts made more than a few earnings expectations in 2015 did so only “S make money from trading and in- months ahead have a dismal record of in- by a median of 1.4%. An alternative is to vestment banking, are notoriously bullish. accuracy. According to Morgan Stanley, a lookat crowdsourcing websites such as Es- As one joke goes, stock analysts rated En- bank, forecasts for American firms’ total timize. There punters—some amateur, and ron asa “can’tmiss” until itgotinto trouble, annual earnings per share made in the first some professional—are shown Wall Street at which point it was lowered to a “sure half of the year had to be revised down in consensus estimates and asked to make thing”. Only when the company filed for 34 of the past 40 years. Studying their fore- their own forecasts. Estimize users beat bankruptcy did a few bold analysts dare to casts over time reveals a predictable pat- Wall Street estimates two-thirds oftime. downgrade it to a “hot buy”. tern (see chart1). To some extent, judging Wall Street by Economic research shows that there is In theory, a diligent share analyst its ability to make accurate predictions is some truth to the ribbing. The latest figures should do his own analysis—that is, by pro- silly. Harrison Hong, an economist at Co- from FactSet, a financial-data provider, jecting a firm’s future revenue and ex- lumbia University, reckons that stock an- show that 49% of firms in the S&P 500 in- penses, and discounting them to the pre- alysts should be viewed “more like me- dex ofleading companies are currently rat- sent. Such models, however, are extremely dia”. The latest forecasts aggregated by ed as “buy”, 45% are rated as “hold”, and sensitive to different assumptions of Thomson Reuters suggest that the S&P 500 just 6% are rated as “sell”. In the past year, growth rates. Since no one can know the will yield earnings per share of $130.83 in 30% of S&P 500 companies yielded nega- future, analysts cheat. 2017 and $146.33 in 2018. According to our tive returns. Three statistical sins are common. An- model, that would imply that they believe alysts can look at comparable companies the actual numbers will be closer to $127.85 to glean reasonable profits estimates, and and $134.30. Share analysts want to tell the In the long run... 1 then work backwards from their conclu- truth. They just like making it difficult. 7 Wall Street consensus forecasts and subsequent sions. Or they can simply echo what their revisions of S&P 500 annual earnings per share peers are saying, and follow the herd. Or, Start of forecast period=100 most important, they can simply ask the …we are all misled 2 Recessions companies they are following what their Mean absolute error of S&P 500 forecasts 120 First actual earnings numbers are. 1985-2015, % forecast Surveysconducted byLawrence Brown 12 Wall Street consensus 100 of Temple University found that two- 10 thirds of sell-side analysts found private Multiplying by 8 calls with company managements to be long-run growth rate 80 “very useful” in making their estimates. 6 Final revision Analysts’ need to maintain relationships three years later 4 60 with the companies they cover must col- The Economist adjusted model our their projections. They are judged pri- 2 marily on the accuracy of their short-term 0 40 forecasts, so there is little riskin issuing flat- 35 30 25 20 15 10 5 0 Months before final earnings release 1985 90 95 2000 05 10 16 tering, if unrealistic, long-term projections. The Economist Sources: Thomson Reuters IBES; The Economist Sources: Thomson Reuters IBES; In the short run, however, they have an in- 64 Finance and economics The Economist December 3rd 2016 Free exchange Paper pains

India’s clumsy monetary reform puts its economy and institutions at risk book-keepers’ notice. Economists reckon that India’s black econ- omy accounts forat least 20% ofGDP. Such off-the-books activity shields fortunes from taxation and allows corruption to flourish. Past efforts to attract blackmoney into the light—using tax amnes- ties, forexample—have had little effect. Demonetisation forces the issue. Indians can swap their hoards of useless bills for useful ones, but those that cannot pre- sent paperwork accounting for their cash piles will receive un- wanted attention, and tax bills, from the government. Demoneti- sation also increases use of electronic and bank-based payment systems, which will make record-keeping easier and more com- mon, allowing government better to trackand tax the proceeds. Yet the government also reckons it can profit from bills that are not turned in. In economic textbooks, money is considered a li- ability of the central bank—a debt. In most modern economies that debt sits on its balance-sheet, and is offset, on the asset side, by holdings ofsecurities like government bonds. The old and un- returned notes, if they are recognised as cancelled liabilities, would therefore create a huge positive asset position on the cen- tral bank’s balance-sheet. The Reserve Bank of India could, if it chose, create new currency liabilities (that is, print money) and UPPOSE that one day the government ofa large and fast-grow- transfer that money to the government to spend. Some econo- Singeconomy became convinced that its highest priority was to mists hope the money will be recycled back into the economy purge the country of black-economy millionaires hoarding piles through a fiscal stimulus, which might help soothe some of the ofillicit cash. Seeking popular approval, it sent the printing press- pain caused by demonetisation. es into overdrive, hoping to inflate away the value of these secret The status of this would-be windfall is uncertain. If the gov- piles of wealth. It worked: rising prices struck a blow against the ernment allows Indians to redeem dead notes forlive ones indef- undeservingrich, and by eggingon others to deposit their money initely, it is not clear when or if the RBI might recognise cancelled in banks (where it could at least earn interest), the shadow econ- liabilities on its balance-sheet. So far, Indians are depositing their omy shrank. The government could plough the newly created money in the banking system with impressive haste. Ofthe 14trn money into tax breaks and public-works schemes. rupees ($207bn) invalidated by demonetisation, an estimated Critics, rightly, would stand aghast. Inflation would affect 8.5trn has already been deposited. Still, as much as 3trn rupees everyone who held cash, law-abiding or not. Much of the wealth could remain in the wild as a potential government windfall, of those enriched by the black economy would be insulated, be- reckons a recent analysis by Credit Suisse, a bank. cause lots of their lucre is held not in cash but in property, gold or jewellery. Such heavy-handed measures could undermine the The other rupee drops credibility of important government institutions. Fear that they However clever the plan looked on paper, it is both extraordinari- mightbe used again in future could weaken confidence in the cur- ly blunt and risky. Demonetisation will probably make only lim- rency as a store of value—paving the way for some broader insti- ited strides in shrinking the black economy while affecting all of tutional failure, like hyperinflation. Long-run trust in the judg- India’s1.3bn citizens, the poorest most ofall. ment ofthe state might be threatened. In much ofthe Indian economy, and especially outside big cit- On November 8th India’s prime minister, Narendra Modi, an- ies, where cash transactions are most common and financial in- nounced a course ofaction justasradical asthatdescribed above, frastructure least developed, the sudden invalidation of a vast if the converse of it. He declared that all 500- and 1,000-rupee amount of outstanding currency represents a significant mone- notes—making up 86% of the cash in circulation in India—could tary shock. Not all of India’s shadow economy—which provides no longer be used in shops. More financially mature economies real employment and income, if not real tax revenues—can mi- than India would struggle to cope with such a scheme, but this grate quickly and easily above board. Whatever cannot easily be one floundered at once. Though Indians have until the end ofthe shifted representsa potential lossofeconomicactivity, and a drag year to swap their defunct bills, the roll-out ofnew ones has been on broader Indian economic growth. Similarly, if a cash crunch bungled. Abroad cash crunch and broken supply chains threaten forces small firms without access to credit to shut down, the even- a sharp economic slowdown—albeit one that will abate, at least tual alleviation ofthe cash shortage might not lead to an immedi- in part, as the cash squeeze is alleviated. India’s “demonetisa- ate and complete revival ofeconomic activity. tion” is a cautionary tale ofthe reckless misuse ofone of the most Managing an economy’s money is among the most important potent ofpolicy tools: control over an economy’s money. tasks of the government. Clumsy use of monetary instruments Unlike most currency reforms, designed to boost confidence comes with high risk. John Maynard Keynes, an economist, was in the currency, Mr Modi’s motivation is different. The primary echoing Lenin when he wrote in 1919: “There is no subtler, no aim of demonetisation is reasonable enough: the government surer means of overturning the existing basis of society than to hopes to improve the functioning of the economy and boost its debauch the currency.” Trust is fragile, and precious. 7 tax take by cracking down on the shadow economy. The vast ma- jority of transactions in India take place in cash; many escape Economist.com/blogs/freeexchange Science and technology The Economist December 3rd 2016 65

Also in this section 66 Super-slippery surfaces 67 The effects of ocean acidification 67 Jet lag and liver cancer 68 Searching containers with AI

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

Smart weapons into service this month. Spice contains an “electro-optical scene The vision thing matching system” that resembles DSMAC’s in as much as its memory is load- ed with pictures of the target area, taken beforehand by aircraft (piloted or unpilot- ed) or by satellite. Spice’s pictures, though, are of much higher resolution than those Bombs that can recognise theirtargets, ratherthan relying on satellites to steer of DSMAC. On top of this the cameras that them, are backin fashion generate the real-time images with which T IS easy to forget, given the ubiquity of than map-based guidance, that has subse- those pictures are compared as the bomb Isatellite-navigation devices in cars and quently dominated the business of auto- falls towards its target workboth in the vis- mobile phones, that the Global Positioning matic navigation. Until now, that is. For the ible and the infra-red parts of the spec- System (GPS) of orbiting satellites on world’s armed forces are looking again at trum. That means Spice can operate in which they rely was originally—and, in- giving their bombs and missiles map-read- darkness, and can penetrate smoke and deed, remains—a military technology. The ing capabilities. fog. Moreover, unlike DSMAC, Spice stores system is, for instance, relied upon by the enough data to cover the entire route to a JDAM (joint direct-attack munition) kits Where the hell are we? target. It has no need of an accompanying that America’s air force attaches to its free- America’s original map-based cruise-mis- system similarto TERCOM. Instead, it picks fall bombs to turn them into smart weap- sile guidance system came in two parts. out and compares, en route, features like ons that can be guided with precision to The first, Terrain Contour Matching or TER- roads and buildings to find its way. their targets. COM, took a missile to the general area of Spice’s claimed performance is impres- But JDAM and similar systems work its target using a radar altimeter and a se- sive. Rafael says it can guide a bomb re- only when they can receive signals from ries of digital maps that showed the eleva- leased 100km from a target to a strike point GPS satellites. And such signals are weak— tion of the ground under sections of the within two metres of that target. The firm approximately as powerful as a standard planned route. By comparing the missile’s says, too, that its device is not confused by television transmission would be if the actual altitude above this terrain with its minor changes in the scenery around a tar- transmitter were five times as far away as expected altitude, TERCOM could follow get, which it can find even if some nearby the Moon is. They are thus easily jammed. contours and find its way. Once it was close areas have been obscured—say, by camou- Forobviousreasons, detailsofthe capabili- to the target, a second system, the Digital flage. Spice also has the advantage over ties of jammers are hard to come by, but a Scene Matching Area Correlator (DSMAC), GPS-guided weapons of working when a Russian system called Pole-21, for instance, compared the view from a video camera target’s exact position is unknown, or ifthe may be able to suppress GPS signals as with a set of stored images, in order to lo- co-ordinates have been misreported. All much as 80km (50 miles) away. cate the bullseye. you need is a picture of what is to be hit, One way to get around this—and to Such a combined system was awkward and an approximate location, for Spice to guide weapons automatically to their tar- and expensive, but at least it was the best find and hit it. gets without relying on satellites—is to give available before GPS. Now, though, huge Other countries, in particular America, weapons a map. That has been done in the improvements in electronics have turned are following Israel’s lead. In January of past. The cruise-missile guidance systems the tables. Israel is in the forefront, with a this year, America’s air force signed a con- which came to publicattention in 1991, dur- system which it calls Spice. Like JDAM, tract with Scientific Systems, a firm in Wo- ing the first Gulf war, worked in this way. Spice is an add-on kit that turns unguided burn, Massachusetts, to develop what that But it was the Gulf war that also saw the bombs into smart ones. It is designed and company calls its Image-Based Navigation first large-scale use of GPS by ground built by Rafael Advanced Defense Systems, and Precision Targeting (ImageNav) sys- troops, and it is GPS, cheaper and simpler an Israeli weapons company, and comes tem. Like Spice, this is a bolt-on system that 1 66 Science and technology The Economist December 3rd 2016

2 worksbycomparingimagesfrom a camera in light of information about how fast the that, the researchers replace the air with with those in a database on board. If all vehicle carrying the camera was travelling. liquids such as oils. The resulting surfaces goes well, development and testingshould Though this is a trick which has been man- are, in effect, self-lubricating—so that even be completed by January 2018 and the re- aged in the past, Hydra can do it on the fly, the stickiest substances flow across them sult will, its makers hope, be able to strike on a laptop computer. Previous systems easily. The trick, says Dr Varanasi, is to have within three metres of its intended target. have required hours ofprocessing on high- the right combination of surface structure The initial plan is to fit ImageNav to the air end machines. and lubricating fluid, so that the oiling liq- force’s Small Diameter Bomb, a free-fall Once an area has been mapped, North- uid does not get swept away by what is weapon at present guided by GPS. If this is star provides precise navigation informa- flowing over it. successful, deployment on cruise missiles tion for bombs or missiles (or, indeed, for To create a completely emptyable con- and drones will follow. manned or unmanned aircraft). Crucially, tainer for a substance, be it ketchup, tooth- Meanwhile Lockheed Martin, the the intelligence can be fresh because ofthe paste, shampoo or face cream, means world’s biggest aerospace firm, is working system’s rapid processing time. matching that substance to a specific sur- on an optical-navigation system called Fitting bombs and missiles with vision face structure and a bespoke lubrication Northstar. This is based on a piece of non- in this way thus looks like the future. That fluid. The best way to do this, says Dr Vara- military software called Hydra Fusion, does not mean GPS will not be used as nasi, is to design the texture of the surface which was developed by Lockheed Mar- well—a belt-and-braces approach is often to trap a lubricant which is itself derived tin’s Canadian subsidiary. Hydra Fusion wise in war. But bombs that can see their from the substance with which the con- creates a high-resolution, three-dimen- targets, rather than blindly following their tainer will be filled. That also has the bene- sional terrain map from ordinary video, by noses to a set of co-ordinates, are always fitofnotcontaminatingthe productshould comparing successive frames of that video likely to have the edge. 7 some of the fluid escape. A lubricant for a food product, for instance, might be de- rived from a natural oil which it contains. Super-slippery surfaces Dr Varanasi’s team have developed a database of recipes that can be used to lu- The last drop bricate containers for a wide range of ma- terials. In 2012 he and one of his students, Dave Smith, founded a company called Li- quiGlide, which is working with a number of consumer-goods firms such as Elmer’s, an American gluemaker, to create easy-to- From boosting the output ofpowerplants to pouring ketchup, new fluid-repellent pour, squeeze and shake containers for surfaces will help their products. OR anyone (and that is almost every- sible to speed up the shedding of water LiquiGlide has also devised a variant of Fone) who has shaken and thumped a droplets. That would boost efficiency and, the system that can be applied to the vast bottle ofketchup to squeeze the last dollop asmostofthe world’selectricityisstill gen- number of vessels and pipes in factories. out of it, or flattened and then rolled up a erated by coal, gas and nuclear plants that This, the company claims, could reduce tube of toothpaste to eject one final squirt rely on steam turbines, it would also save production losses considerably. At the mo- onto their brush, help may soon be at an awful lot ofmoney. ment, the tendency of things like paints to hand. For more than a decade Kripa Vara- The same idea has since been adapted stick to piping, mixing tanks and so on nasi and his colleagues at the Massachu- to help move other substances, such as means that as much as 30% of the material setts Institute of Technology (MIT) have toothpaste, paint and ketchup. These have may be lost, especially during clean-ups in been creating and studying slippery sur- a gooeyness that means they can get into batch production, as when switching to a faces for use in industrial equipment such the air pockets and take a grip. To counter different colour ofpaint. as steam turbines and desalination plants. One feature of Dr Varanasi’s liquid-im- More recently, they have found ways to pregnated surfaces is that droplets forming apply their ideas to create internal coatings upon them tend to have a large area of con- for containers so that their contents will tact. It increases the effects of the surface’s flow out easily and completely, with no temperature on a droplet. And that got Dr shaking, thumping or squeezing. And now Varanasi and David Quéré of ESPCI, a re- they think they have discovered a way to search university in Paris, and their col- adapt these super-slippery coatings to leagues thinking about how to exploit one steer liquids across flat surfaces, opening ofthose effects, known as thermocapillary up the possibility of pumping fluids motion. A change in temperature can alter around without the need forpipes. the surface tension of a droplet, causing it to move. Usually, very large temperature The lotus position differences are needed even fora droplet to Dr Varanasi’s work started with what are move slowly. Out ofcuriosity they devised known as super-hydrophobic water-shed- an experiment using a surface texture im- ding surfaces, a classic natural example of pregnated with oil. As they report in Physi- which isa lotusleaf. Itrepelswater so effec- cal Review Fluids, the researchers applied a tively that droplets simply tumble off. The temperature gradient and recorded the reason is that the leaf’s surface is covered movement of water droplets. Even with with microscopic structures which contain low changes in temperature the droplets air pockets. This reduces the surface ten- skipped along their slippery surfaces. The sion that would otherwise cause a water group have subsequently upped the speed droplet to cling on. By coating the condens- at which they can propel water droplets to ing areas used in steam turbines with simi- a heady ten millimetres a second. That is lar surfaces his team believes it will be pos- Open sauce operating system ten times quicker than has been reported 1 The Economist December 3rd 2016 Science and technology 67

2 on conventional surfaces. Dr Varanasi and Dr Quéré have several ideas for making use of this discovery by selectivelyheatingand coolingdifferent ar- eas of the surface to steer the droplets around. One is to create new types of mi- crofluidic devices—or labs-on-a-chip, as they are known colloquially. These one- shot machines, about a centimetre across, are being increasingly used for things like analysing blood. To work, they have to be able to move reagents around inside them- selves through tiny pipes and valves. This movement is hampered by surface ten- sion, the effects ofwhich increase as the di- mensionsofthe pipeworkdiminish. Dr Va- ranasi and Dr Quéré think that by selectivelyheatingand coolingdifferent ar- Tough but vulnerable eas of a liquid-impregnated surface, they could move and mix fluids without such widespread marine species are thinner And that was not the only surprise. Dr intricate plumbing. and weaker now than they were a few de- Lamare also found that larvae whose par- Steering fluids around might also help cades ago. What there has not been, ents had come from the vent grew larger with the group’s work in developing more though, isa controlled studyin the wild—at than those whose parents had not, regard- powerful condensers. It may even solve least, not until now. lessofthe site where theywere raised. That one of the problems of space flight. Much The gap has been plugged by Miles La- does hint at genetic differences between conventional equipment depends on grav- mare of the University of Otago, in New vent-dwellingand non-vent-dwellingEchi- ity to move liquids around inside it. That Zealand, and his colleagues, who have just nometra—just not the one, namely acid re- does not work in orbit. But thermocapil- published their study in the Proceedings of sistance, that might have been expected. lary motion would. the Royal Society. Dr Lamare observed that As these somewhat confusing results Meanwhile, backon Earth, most people there are several places in the sea where show, a single experiment like this can might settle for saving even a little of what acidification is happening naturally, be- yield only limited information. But what every year amounts to a massive lake of cause low-level volcanic activity is releas- really counts is that scientists have now wasted condiments, bathroom products, ing carbon dioxide from submarine vents. discovered an important natural laborato- creams and just about anything else that Two such vents are located off the coast of ry in which to investigate the effects of comes in bottles, containers or tubes. If Dr Papua New Guinea. These, he thought, ocean acidification further and, hopefully, Varanasi has his way the days ofshake and would be a good place foran experiment. find more definitive answers about what thump are numbered. 7 Marine biologists suspect that the many see as a worrying problem. 7 threat of acidification is most serious to an animal when it is a small, planktonic larva. Ocean acidification Dr Lamare and his colleagues therefore Liver cancer carried out their experiment on the larvae Unbalanced of Echinometra, a type of sea urchin. They Zoned out hung cages containing these larvae, newly hatched from freshly collected adult ur- chins, in the water above the vents, and also in nearbywaterofnormal pH, to actas a control. They then left the cages for a day Experiments on acidification’s effects Why upsetting body clocks triggers or two, to let the larvae grow, before exam- on animals move into the wild tumours ining their charges under the microscope. LOBAL warming is not the only envi- At the first vent site, the differences RINKING too much and eating too Gronmental change that is being were startling. In this case all of the larvae Dmuch are both good ways of getting wrought by rising emissions of carbon di- came from adults collected in the control liver cancer. But there is a third. The dis- oxide. This gas, acidic when dissolved in area, ie, living in water of normal pH. rupted circadian rhythms caused by work- water, is also lowering the pH of the Those raised in the cages over the vent ing shifts or crossing time zones also seem world’s sea water—a phenomenon known grew much more slowly than those in the to induce the disease. Precisely how and as ocean acidification. control area. They were also more prone to why meddling with day and night cycles How much to worry about this acidifi- develop asymmetrically. has such a dire effect on the liver remains cation (or, strictly, reduction in alkalinity, At the second site, the picture was more an enigma, but a study just published in for there is no risk of the sea actually be- complicated. In this case Dr Lamare car- Cancer Cell by Loning Fu and David Moore coming acidic) is a matter of debate. The ried out a more sophisticated experiment at the Baylor College ofMedicine, in Texas, threat most talked of is to creatures that on larvae collected from adults that dwell- sheds some light on the matter. make shells out of calcium carbonate. As ed in the vents as well as from the control Among the liver’s many jobs is making school chemistry experiments with chalk area. It tested both sorts of larvae in both bile, a substance secreted into the intestine and vinegar demonstrate, calcium carbon- locations, to see if the young of adults that to break down the fats and oils in food. ate dissolves in acid, so an ocean less alka- had been living in the vent were inured to One ofbile’s main components is bile acid, line than it used to be might make life hard- less alkaline water. Surprisingly, in light of a derivative of cholesterol. Dr Fu and Dr er for shell-forming animals. Numerous the earlier result, pH made no difference to Moore knew from their previous research laboratory experiments agree. There is the growth rates of either sort of larva, that disrupting the circadian rhythms of also evidence that the shells of several though it still affected rates ofasymmetry. mice causes the rodents’ livers to overpro-1 68 Science and technology The Economist December 3rd 2016

2 duce this substance. They also knew that Artificial intelligence livercancercommonly appears in mice en- gineered to lack certain genes required for Eyes at the border the management of day-night cycles. This led them to suspect a link between liver cancer and too much bile acid. To take a closer look, they set up an experiment. Working with a team of colleagues, the two researchers studied mice that had had Machines are learning to find concealed weapons in x-ray scans their day-night cycles disrupted. A group of 80 of the animals which had previously VERY day more than 8,000 containers ence in Madrid last week showed that in lived on a cycle of 12 hours in light and 12 Eflow through the Port of Rotterdam. But tests, the system spotted nine out of ten hours in darkness had the lights kept on, only a fraction are selected to pass through hidden metallic objects. Only six in every on one occasion, for 20 hours, instead. a giant x-ray machine to check for illicit hundred readings flagged a weapon when Three days later they were again subjected contents. The machine, made by Rapiscan, there was nothing. Dr Griffin says this false to four hours of darkness rather than 12. an American firm, can capture images as positive rate has been reduced to one in ev- This alternation, at three-day intervals, the containers move along a track at 15kph ery 200 since the paper was written in Au- was then kept up for 30 weeks. A group of (9.3mph). But it takes time for a human to gust. The group’s software has also been 110 mice, meanwhile, were maintained on inspecteach scan foranythingsuspicious— trained to detect concealed cars. a constant12-hour cycle as a control. and in particular for small metallic objects The UCL team hopes to test its software After 12 weeks, and again after 30 that might be weapons. (Imagine search- shortly on real containers, some with weeks, the team killed some ofthe rodents ing an image of a room three metres by 14 small weapons deliberately hidden inside. in order to look at their livers. They found metrescrammed to the ceilingwith goods.) Assuming that works, Dr Griffin plans to that the livers of animals on the disrupted To increase this inspection rate would re- integrate the artificial-intelligence system schedule had accumulated fat and showed quire a small army ofpeople. into Rapiscan’s scanning systems over the evidence of damage. In particular, they A group of computer scientists at Uni- next few months. The team is also aiming overproduced bile acid. Eventually, after versityCollege London (UCL), led byLewis to train the system to detect “anomalies”— 90 weeks, they killed and examined the re- Griffin, may soon speed up the process by the machine-learning equivalent of a hu- maining animals. Just under 9% of the cy- employing artificial intelligence. Dr Griffin man hunch that something is not quite cle-disrupted mice, they discovered, had is being sponsored by Rapiscan to create right about a scan. That could, for instance, developed livercancer. None ofthe control software that uses machine-learning tech- be something unusual in the way things mice had done so. niques to scan the x-ray images. Thomas are positioned inside the container. Given Rogers, a member of the UCL team, esti- enough data, the scientists reckon comput- In need of regeneration mates that it takes a human operator about ers can train themselves to identify dis- The probable cause of these differences ten minutes to examine each X-ray. The crepancies like this. emerged when the researchers ran two UCL system can do it in 3.5 seconds. It is not just in ports where machine similar follow-up experiments using ge- Dr Griffin’s team trained its system on learning could speed up scanning. Weary netically engineered mice. Some of the hundreds of thousands of container scans travellers dragging themselves through the mice lacked the gene needed to make the provided by Rapiscan. The scans were slow crawl of airport security could also constitutive androstane receptor (CAR), a missing concealed metallic objects that benefit. Suitcases are smaller than contain- molecule involved in clearing away bile might pose a threat, so the UCL team tooka ers, and their contents are more predict- acid. This gene is activated when levels of separate database ofx-rayed weapons and able, so humans are able to inspect their X- bile acid get too high. CAR molecules help hid them in the container images. A paper rays quickly and thoroughly (although reg- liver tissue to regenerate, since excess acid the group presented at the Imaging for ular rest breaks are still needed). damages tissue, inhibiting regeneration. Crime Detection and Prevention confer- Toby Breckon of Durham University is However, the cellular proliferation associ- working on automated x-ray analysis to ated with regeneration is the sort of thing detect small items of the sort that might be that can sometimes get out of hand and contained in passengers’ cabin and hold lead to cancer. bags. He says his group has already had an Other mice Dr Fu and Dr Moore looked algorithm installed in commercial scan- at lacked a different gene, for a receptor ning systems. Dr Breckon thinks intelligent molecule called FXR. This keeps bile-acid scanning systems will at first operate in the production under control in the first place. background at airports, for instance re- In their experiment the researchers checking bags in case human inspectors found that in mice lacking the gene for have missed something. They might also CAR, neither those with disrupted day- be used to flag bags that could be worth a night cycles nor those used as controls de- manual inspection. veloped liver cancer. In contrast, even if In time, however, automated screening their day-night cycles were uninterrupted systems may go from being useful tools for almost 30% ofmice lacking FXR developed human operators to outperforming them. liver cancer. Among those with interrupt- If his team can get its hands on the large ed cycles the figure was above 60%. On the amounts of security imagery it needs to basis of these results Dr Fu and Dr Moore feed into its software, DrGriffin thinks con- suggest that developing either a drug that tainer scanning, at least, might be entirely blocks the activity of CAR, to stop cell pro- automated. Perhaps bag-scanning at air- liferation, or one that activates FXR, to de- ports might go the same way. But there will crease bile-acid production, could save still be a need for people. Someone has to shift workers and frequent flyers from the be around to check inside containers and threat ofliver cancer. 7 Prettier than an x-ray bags with suspicious contents. 7 Books and arts The Economist December 3rd 2016 69

Also in this section 70 Further reading on populism 70 America’s relations with China 71 Why Europe became rich 72 Global education 72 If polar bears could talk

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

Political trends against “malefactors ofgreat wealth”. Populism profoundly shaped the 1920s They want their countries back and 1930s: not just in Germany and Italy (where dictators ruled in the name of the people) but also in America (where Frank- lin Roosevelt moved decisively to the left to head off a challenge from Huey Long, a Louisiana populist who promised “every Politicians and pundits had betterstart understanding populism. It is not man a king” and “a chicken in every pot”). a passing trend The tendency retreated to a few islands of OPULISM has already upended the rage during the long post-war prosperity: The Populist Explosion: How the Great politics of the West. Americans have France’s National Front drew its support P Recession Transformed American and elected a president who has described from marginalised groups such as the European Politics. By John Judis. NATO as “obsolete” and accused China of pieds-noirs forced from Algeria after deco- Columbia Global Reports; 182 pages; ripping off their country. Europe’s second- lonisation, and small shopkeepers who $12.99 and £8.99 largest economy, Britain, is preparing to hated paying taxes. leave the European Union (EU). But the But populism began to revive during populist revolution still has a long way to sify Beppe Grillo rails against “three de- the stagnant 1970s: in 1976 Donald Warren, go. The far-right Sweden Democrats have stroyers—journalists, industrialists and an American sociologist, announced his been near the top of polls in a country that politicians”. Populists are united in suspi- discovery of a group of Middle American is synonymous with bland consensus. Ma- cion of traditional institutions, on the Radicals (MARs) who believed that the rine Le Pen, the leader of France’s National grounds that they have been either cor- American system was rigged in favour of Front, a party that wants to take France out rupted by the elites or left behind by tech- the rich and the poor against the middle of the euro and hold a referendum on nological change. class. And it continued to grow during the France’s membership of the EU, is a But they differ in all sorts of ways that long reign of pro-globalist orthodoxy: for shoo-in for the final round of the presiden- make a populist front across political orna- example, Ross Perot doomed George Bush tial election. tional boundaries difficult. Right-wing senior’s bid for a second term with a presi- The Western intelligentsia, snug in its populism is typically triadic, portraying dential campaign that prefigured many of echo-chamber, has done a dismal job of the middle classes as squeezed between the themes that Donald Trump has understanding what is going on, either dis- two outgroups, such as foreigners and wel- sounded more recently. missing populists as cranks or demonising fare “spongers”. Left-wing populism is Mr Judis argues that the populist explo- them as racists. John Judis, an American dyadic—it champions the masses against sion is unlikely to be a mere temporary ab- author and journalist, is an admirable ex- plutocratic elites or, as with Scottish na- erration: particular parties such as UKIP ception. “The Populist Explosion” is an ex- tionalism, a foreign elite. may implode, but the tendency draws on a tended think-tankreportratherthan an air- Populism wasborn in the prairies ofthe deep well of discontent with the status port bestseller. It’s also an excellent read: American Midwest: farmers, hit by falling quo. Technocratic elites lost much of their well-written and well-researched, power- grain prices and exploited by local railway credibility in the global financial crisis in fully argued and perfectly timed. monopolists, raged against “the money 2008. The EU has damaged its claim to be a Populism comesin a wide varietyof fla- power” and organised new parties such as guardian of democracy against populist vours, left-wing as well as right-wing and the People’s Party. The rural populists extremists by repeatedly ignoring referen- smiley-faced as well as snarling. But popu- forged alliances with urban workers and dums in which voters rejected new trea- lists are united in pitting the people against middle-class progressives. They found ties. The populists have shown a genius for the powerful. Spain’s left-wing Podemos champions in mainstream politics such as taking worries that contain a nugget of bashes “la casta”, Britain’s right-wing UK Williams Jennings Bryan, who warned truth—such as that unrestricted immigra- Independence Party (UKIP) demonises the against crucifying the people on a “cross of tion is destabilising—and turning them liberal elite, and Italy’s impossible-to-clas- gold”, and Teddy Roosevelt, who railed into vote-winning platforms. And they 1 70 Books and arts The Economist December 3rd 2016

2 have relentlessly broadened and deep- America’s relations with China ened their appeal as establishment politi- cians have marginalised the issues that Careful what you give them life, forexample treatingworries about migration as nothing but racism. wish for France’s National Front, the most mature of all the populist parties, has already ex- tended its constituency from small busi- The Beautiful Country and the Middle nesses to blue-collar workers, pocketing Kingdom: America and China, 1776 to the districts that were once dominated by the Present. By John Pomfret. Henry Holt; 693 leftand nowextendingitsappeal to public- pages; $40 sector workers. Some blinkered commentators still see N1943 Fei Xiaotong, China’s most famous populism as no more than a protest move- Ianthropologist, visited America and pro- ment: dangerous and disruptive but ulti- claimed it “paradise”, arguing that his own mately doomed by the advance of globali- country needed to embrace the American sation and multiculturalism, which are in spirit. Americans created things, he said. turn driven by irreversible technological They didn’t dwell in the past. They had Su- and demographic forces. A glance at his- perman. America was a land “without tory suggests that this view is question- ghosts”. Fei was typical of many Chinese able. Globalisation went into rapid reverse before and since: an intellectual who loved in the 1920s and 1930s despite the spread of the bottom-up, can-do character of Ameri- aeroplanes and telephones. The propor- ca and wanted some ofit forhis own coun- Wang and Paulson: who’s teaching whom? tion of Americans born abroad was 13.4% try, with its top-down traditions. in 1920, but after the Immigration Act of China has long tried to work out how out importing with them the virus ofpolit- 1924 that fell, reaching 4.7% in 1970. The much of America it really wants. In 1881, ical rebellion.” Chinese leaders know the Western elite may be as wrong about the the New York Times predicted that “China same is true today. long-term impact of populism as it has cannot borrow our learning, our science, The two huge nations, each with their been about its short-term prospects. 7 and our material forms of industry with- own distinct sense oftheir exceptionalism, have long been locked in a love-hate em- brace. Americans, mesmerised by China, Further reading have held the upper hand, obsessively try- ing to reshape China in their own image Popular works and draw it out into the world. They first came to China in the 18th century to trade. The tea that was thrown into Boston har- Otherclassic works on the rise ofangerat the elites bourin 1773 had come from Xiamen. Profits The Managerial Revolution (1941) by ic the more they have given themselves from the China trade bankrolled the Amer- James Burnham. Burnham, a Trotskyite permission to engage in a class war ican Industrial Revolution. Labour from turned conservative, identified a new against people who embrace these val- China built the American West. Missionar- group at the heart ofWestern society: a ues, either marginalising them or deleg- ies and businessmen poured the other managerial elite that was engaged in a itimising them completely. way across the Pacific Ocean. ruthless drive fordominance not only The Chinese, for their part, once saw against the traditional business elite Who We Are: A History of Popular America as different from the European (which it accused ofbeing selfish) but Nationalism (2002) by Robert Wiebe. powers. “The Americans are pure-minded also against the unwashed masses Wiebe, who was a historian at North- and honest,” said Prince Gong, a 19th-cen- (which it accused ofbeing the slaves of western University, tries to explain why tury leader. But China’s aim was always atavistic emotions such as nationalism). educated Westerners have made an utilitarian. “The problem is how to control enemy ofpopular nationalism. In the them to make them exploitable by us,” The Rise of the Meritocracy (1958) by 19th century educated liberals regarded he added. Michael Young. Written by the author of nationalism as an expression ofpopular This ebb and flow is the subject of John the 1945 Labour manifesto this idiosyn- sovereignty against transnational aristo- Pomfret’s absorbing new book, “The Beau- cratic book—part sociology, part history, cratic elites. Today they are more likely to tiful Country and the Middle Kingdom”. part science fiction—predicts that the identify nationalism with xenophobia The question woven throughout is what masses will rise up in rage against the and atavism—leaving this elemental force will happen now that China has adopted credentialled elite not just because the to be captured by right-wing populists. some American ways and is challenging elite hogs all the top jobs but also because America’sstrength. Ithasreceived an injec- it can’t conceal its conviction that people Who Are We? (2004) By Samuel Hun- tion of urgency from the election of Do- who don’t make it into the elite are tington. Huntington, who was a Harvard nald Trump, who, if he follows through on worthless. political scientist, argues that the defining his anti-China rhetoric, threatens to throw division in American politics is not eco- relations into one oftheir periodic troughs. The Revolt of the Elites and the Betray- nomic but cultural, between people who Mr Pomfret is a veteran China corre- al of Democracy (1995) by Christopher give different answers to the question of spondent. Having first gone there as a stu- Lasch argues that America’s elites have national identity: cosmopolitans who dent in 1980, he was expelled forhis report- engaged in a concerted revolt against argue that America is defined by its uni- ing during Tiananmen in 1989, before traditional American values such as versal values and middle-class national- returning later for the Washington Post. He patriotism and religion. But the more ists who argue that it is defined by flag, weaves a lively tale, peppered with a cast they have defined these values as barbar- family and American exceptionalism. of adventurers, spies, preachers, commu- nists and McCarthyites who have boosted 1 The Economist December 3rd 2016 Books and arts 71

2 and sabotaged the relationship in turn Why Europe became rich Wren to Robert Boyle battled over ideas. Its over the years. motto was “nullius in verba”—roughly, After Mao died, the dream of opening Ideas matter “take nobody’s word for it”. A transna- up China returned, and America poured in tional community known as the “Republic resources almost recklessly. “To do busi- ofLetters” sprang up. Many ofits members ness [American companies] have been never met in person, but with the printing forced to hand their technology to the Chi- press and improved postal networks, they nese and essentially train Chinese compa- could create knowledge more efficiently A Culture of Growth: The Origins of the nies to become their competitors,” writes than ever before. Modern Economy. By Joel Mokyr. Princeton Mr Pomfret. American officials believed There were no sacred cows. When University Press; 403 pages; $35 and £24.95 that it was worth it because, in time, Chi- Leonhard Euler, a mathematician, thought nese interests would align with America’s. N THE year 1000 the average person in that Isaac Newton had erred, the Royal That has not yet happened, says Mr Iwestern Europe was slightly poorer than Society asked a self-taught optician to see Pomfret, and many experts fear it never their counterparts in China or India. By who was right. The greatest mathematical will. Personal friendships have continued 1900, things were very different. Western mind of his age, challenged by a nobody: but America now understands Prince Europe was five times richer. Explaining what better example of what Mr Mokyr Gong’s words: that China may not be inter- the reasons behind this “great divergence” calls the “principle ofcontestability”? ested in the kind ofpartnership that Amer- has occupied many an economic histori- This went along with a reassessment of ica wants. Richard Nixon saw China’s po- an. In a new book, Joel Mokyr of North- what science was. Mr Mokyr sees the new tential in 1971 (“Put 800m Chinese to work western University offers his own take. approach encapsulated in the work of under a decent system—and they will be It is not a conventional economic his- Francis Bacon (1561-1626). Bacon was a poor the leaders of the world”). But, before he tory. The book contains few numbers, let scientist and knew no mathematics, says died in 1994, he came to fear that “we may alone regressions. This is because Mr Mo- MrMokyr. But he pushed scientific inquiry have created a Frankenstein.” kyr focuses on culture—something not eas- away from the mindless piling up of facts America has helped China change. But ily quantified. For Mr Mokyr, “culture” and towards making a difference to peo- the change, so far, is superficial. Under- means beliefs, values and preferences. ple’s lives. “The true and legitimate goal of neath, Mr Pomfret makes clear, Chinese And he argues that all three changed fun- the sciences is to endow human life with leaders have not laid new foundations on damentally in Europe after1500. new discoveries and resources,” Bacon which to build a modern country. Despite To structure his argument, Mr Mokyr said. With this sort of science, useful, the effortsofitsnewstrongman, Xi Jinping, speaks of a “market for ideas”, a system in wealth-creating things were invented. China cannot develop fully without great- which people “try to persuade an audi- Why Europe, and not anywhere else, er freedoms. The would-be “Beijing con- ence of the correctness of their beliefs”. developed in this way is tricky to answer. sensus”, the idea thateconomicreform can Like any market, it can “fail”—and, formost Luck is surely part of it. Another explana- continue without political reform, is illu- of history, it did. People in power stopped tion concerns Europe’s geography. With sory. Yet China’s leaders persist, and with upstarts from challenging received wis- Europe fragmented into lotsofstates, an in- broadening ambitions, too. In 2014, Mr Xi dom. Manipulating nature was considered tellectual who challenged received wis- said it was time for the people of Asia to akin to defying God’s will. For potential in- dom, and thus incurred the wrath of the run Asia, presaging a push to dominate the tellectual innovators, the fear of being authorities, could move elsewhere. Thom- South China Sea. called a heretic (or worse) created a disin- as Hobbes wrote “Leviathan” in Paris; for The financial crisis has shown up the centive to thinkbig. years René Descartes lived in the Nether- incumbent superpower’s flaws. Mr Pom- Then, almost by accident, Europe stum- lands. Rulers eventually came round to the fret quotes Wang Qishan, a senior leader, bled into an arrangement whereby the idea that “progress” could not be stopped. talking to Hank Paulson, America’s trea- “market for ideas” flourished. The Royal By contrast, in China, says Mr Mokyr, free sury secretary, after the crash: “You were Society, a club for scientific exchange thinkers had few escape routes. my teacher, but…we aren’t sure we should founded in London in 1660, started a jour- This book is not for someone looking be learningfrom you any more.” Suddenly, nal in which everyone from Christopher for a general introduction to the “great di- it is China that is exorcising its ghosts, vergence”. Mr Mokyr barely considers oth- while America finds it has a few ofits own, er theories of why Europe grew first—that after all. its people were relatively immune from Mr Pomfret is not a classic optimist. He disease; or that it was the first region sys- has spent years as a war reporter and seen tematically to colonise others. And his ar- too much of China’s dark underbelly for guments are often highly abstract. that. He describes all the ways in which Those familiar with the historiography American engagement is failing: China re- will have their own grumbles. Mr Mokyr’s fusingto shouldermore global responsibil- theory is, ironically, untestable. When he ity; widespread Chinese cyber-espionage; asserts that Bacon “was of unique impor- a continued crackdown on intellectual tance to the development of the West”, it is freedoms at home. He quotes one senior impossible to prove otherwise. He assigns academic saying that America’s fears are monumental importance to the “Republic “nearer to outweighing our hopes” than at of Letters” but offers frustratingly little de- any time since 1979. tail on how it actually worked. Yet, in spite of all this, he does not fore- The sheer elegance of Mr Mokyr’s the- see a confrontation, believing that a mix- ory, however, has much to commend it. ture ofAmerican engagementand contain- And itisrefreshingthatan economist istak- ment will maintain stability. The re- ing seriously the idea that ideas and cul- lationship is not as dysfunctional as it ture make a difference to economic seems, he says. And China is not as danger- growth. Mr Mokyr has not fully explained ous as it sometimes looks. The world must the “great divergence”, but he has offered hope Mr Pomfret is right. 7 You, sir, are quite wrong some tantalising insights. 7 72 Books and arts The Economist December 3rd 2016

Global education countries, children do not start school until skills and a love of learning. She shows they are at least six or seven years old. that schools can delay selection without The learning Aside from Singapore, all the places she harmingbrighterpupils. Thisisfortwo rea- visits wait until children are in their mid- sons. First, intelligence is not fixed: slow power of PISA teens before diverting some to less aca- starters can catch up, at least a bit. Second, demic tracks. Teachers are given time to expectations matter: in delaying selection, practise and they receive feedback from top-performing countries suggest to all pu- peers. Pupils are expected to learn both pils that they can achieve high standards. Cleverlands: The Secrets Behind the facts and skills. Theresa May, Britain’s prime minister, who Success of the World’s Education Other authors have gone on peripatetic is intent on increasing the number of Superpowers. By Lucy Crehan. Unbound; 304 school tours. In “The Smartest Kids in the schools selecting the ablest pupils as early pages; £16.99 World” (2013) Amanda Ripley follows as age 11, should take note. ROM 2000 to 2002, about a third of a American exchange students in Finland, Too much writing about education is Fmillion 15-year-olds from 43 countries Poland and South Korea. Her book is an polemical and ill-informed. “Cleverlands” tooksimilar tests in maths, reading and sci- easier read, while covering some of the is neither. Ms Crehan is refreshingly fair- ence. The results of the first Programme for same ground that “Cleverlands” does. minded, acknowledges the limits of re- International Student Assessment (PISA) But Ms Crehan’s work has the edge in search and does not idolise highly stressful were a pleasant surprise in countries relating reporting to research. Studies school systems. And yet her bookis a pow- whose kids aced the exams—such as Cana- show that academic workcan wait, she ex- erful defence ofthe idea thatthere is a lot to da, Finland and Japan. But for the laggards, plains, because otherwise it can go over learn from how other countries learn. It is the PISA results led to a sense of crisis. “Are the heads of kids while hindering social time to swot up. 7 German Students Stupid?” asked Der Spie- gel, a magazine. New fiction The tests’ influence has since grown. Teenagers from 72 countries or regions are part of the latest triennial analysis, which Bearing up under the spotlight will be published on December 6th. Mi- chael Gove, a formerBritish education sec- retary, is just one politician hoping to see the success of his reforms reflected in fu- Memoirs of a Polar Bear. By Yoko Tawada. her little beast. Knut became a furry ture PISA scores. Translated by Susan Bernofsky. New emblem ofthe dangers ofglobal warm- PISA has its opponents. Some query the Directions; 288 pages; $16.95. Published in ing and the “struggle for conservation”. methodology. Others complain about re- Britain by Portobello Books in March 2017 Ms Tawada gives three separate ducingthe purpose ofschool to passing ex- “memoirs” from a talented dynasty of ams. Still more critics add that policymak- N 2006, a baby polar bear named Knut bears. They perform first in the circus and ers who seek to ape high-achieving Iwas rejected by his mother, and raised then (a satirical point shrewdly made) countries neglect the unique cultural rea- by a keeper at the Berlin zoo in the spot- amid the modern showbiz ofenviron- sons behind success. This debate forms the light ofthe global media. Knut’s besotted mental activism. Their Soviet-born matri- backdrop to what Lucy Crehan calls her fans often asked how a parent could arch masters the “spooky activity” of “geeky gap year”. As a science teacher in forsake such a cute cub. Yoko Tawada, a writing, and pens a famous memoir of London she had read about countries that Japanese-born author who has lived in stardom in the ring. Her daughter Tosca scored higher in PISA than England, and Germany since 1982, gives a startling evokes the free-spirited “island” ofcircus wanted to see theirschoolsup close. So she answer in this funny, subtle and strangely life in post-war East Germany—by writing taught in Canada, Finland, Japan, Singa- moving fable about the bonds that unite, in the voice ofher human trainer, Barba- pore and Shanghai. “Cleverlands”, her first and the gulfsthat divide, humans and ra. At last, sensitive Knut takes centre- book, is her account ofthat odyssey. other animals. Leaving her son “wasn’t stage. Poster-bear for climate change, he At each stop Ms Crehan discovers idio- an easy decision”, writes Knut’s mother endures celebrity as the frail focus of syncratic reasons for the area’s results. Fin- Tosca, “but because ofmy literary work I “billions ofworried eyes”. land’s schools were a storehouse of na- didn’t have enough time forhim.” Be- Ms Tawada respects the actual behav- tional pride during Swedish and Russian sides, “historical greatness” beckoned iour ofbears even as her ursine authors rule. Teaching remains a respected and inspect the vanity ofhumankind through sought-after job. In Helsinki ten times as an outsider’s—or a migrant’s—eyes. Al- many students apply for education de- though Barbara’s boyfriend thinks that grees as there are places. “the circus is nothing more than a meta- Across East Asia she finds a culture that phor,” Ms Tawada brings her fine-nosed, celebrates effort. In China graduation cards soft-furred beasts credibly to life. The praise recipients’ hard work—nothowclev- eerie tales told by Kafka’s animal narra- er they are, as in America. In Singapore, ex- tors have left deep claw-marks on this tra tuition is so common that parents hire book. Ms Tawada, though, has a deadpan tutors to help their kids pass entrance ex- wit and disorienting mischiefall her ams forthe best tuition centres. In Japan, as own, nimbly translated from the German a mark of shared sacrifice, some mothers by Susan Bernofsky. At a party where he give up their favourite food during their scorns the tiny canapés (“as puny as half children’s punishing exam terms. a dead mouse”), Knut hears a guest la- But dismissing the success of top per- ment that “so many people are block- formers as a result of culture alone is a heads, impervious to irony, humour and “grave mistake”, writes Ms Crehan. Policy innuendo.” Those people may not enjoy matters, too, and laggards who change this novel; everyone else should. their ways can catch up. In top-performing 74 Economic and financial indicators The Economist December 3rd 2016

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicGross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2016† latest latest 2016† rate, % months, $bn 2016† 2016† bonds, latest Nov 30th year ago United States +1.6 Q3 +3.2 +1.5 -0.9 Oct +1.6 Oct +1.3 4.9 Oct -488.2 Q2 -2.6 -3.2 2.32 -- China +6.7 Q3 +7.4 +6.7 +6.1 Oct +2.1 Oct +2.0 4.0 Q3§ +266.6 Q3 +2.7 -3.8 2.77§§ 6.89 6.40 Japan +0.9 Q3 +2.2 +0.6 -1.3 Oct +0.2 Oct -0.2 3.0 Oct +179.4 Sep +3.6 -5.1 0.02 114 123 Britain +2.3 Q3 +2.0 +2.0Statistics +0.3 Sep +0.9on Oct42 economies,+0.6 4.8 plus Aug†† a closer-161.2 Q2 -5.7 -3.9 1.42 0.80 0.66 Canada +1.3 Q3 +3.5 +1.2look +2.8 atSep fiscal+1.5 Octbalances +1.6 7.0 Oct -53.6 Q3 -3.4 -2.7 1.58 1.34 1.33 Euro area +1.6 Q3 +1.4 +1.5 +1.2 Sep +0.6 Nov +0.2 10.0 Sep +376.3 Sep +3.2 -1.7 0.27 0.94 0.95 Austria +1.2 Q3 +2.4 +1.3 +2.6 Sep +1.3 Oct +0.9 6.3 Sep +8.2 Q2 +2.6 -1.4 0.53 0.94 0.95 Belgium +1.3 Q3 +0.7 +1.3 +4.4 Sep +1.8 Nov +1.8 8.0 Sep +4.8 Jun +1.2 -2.8 0.66 0.94 0.95 France +1.1 Q3 +1.0 +1.3 -1.1 Sep +0.5 Nov +0.3 10.2 Sep -34.1 Sep‡ -0.6 -3.3 0.71 0.94 0.95 Germany +1.7 Q3 +0.8 +1.7 +1.1 Sep +0.8 Nov +0.4 6.0 Nov +300.3 Sep +8.6 +1.1 0.27 0.94 0.95 Greece +1.6 Q3 +3.1 +0.2 +0.1 Sep -0.5 Oct nil 23.4 Aug -0.2 Sep nil -5.1 6.58 0.94 0.95 Italy +0.9 Q3 +1.3 +0.8 +1.8 Sep +0.1 Nov nil 11.7 Sep +47.8 Sep +2.4 -2.6 1.99 0.94 0.95 Netherlands +2.4 Q3 +3.0 +1.6 +2.4 Sep +0.4 Oct +0.2 6.8 Oct +59.7 Q2 +8.5 -1.1 0.40 0.94 0.95 Spain +3.2 Q3 +2.9 +3.1 +1.2 Sep +0.6 Nov -0.4 19.3 Sep +23.5 Sep +1.4 -4.6 1.54 0.94 0.95 Czech Republic +3.6 Q2 +1.2 +2.4 +2.7 Sep +0.8 Oct +0.6 5.0 Oct§ +3.7 Q2 +1.5 nil 0.54 25.5 25.6 Denmark +1.1 Q3 +1.7 +1.0 -4.6 Sep +0.3 Oct +0.3 4.2 Oct +23.6 Sep +7.3 -1.0 0.40 7.01 7.06 Norway -0.9 Q3 -1.9 +0.7 -13.7 Sep +3.7 Oct +3.5 4.8 Sep‡‡ +23.6 Q2 +4.9 +3.0 1.64 8.51 8.68 Poland +2.0 Q3 +0.8 +3.0 -1.3 Oct nil Nov -0.8 8.2 Oct§ -3.1 Sep -0.4 -2.7 3.65 4.19 4.04 Russia -0.4 Q3 na -0.8 -0.3 Oct +6.1 Oct +7.0 5.4 Oct§ +30.2 Q3 +2.7 -3.7 8.86 64.6 66.0 Sweden +2.8 Q3 +2.0 +3.2 +1.5 Sep +1.2 Oct +1.0 6.4 Oct§ +25.4 Q2 +5.0 -0.3 0.49 9.23 8.72 Switzerland +2.0 Q2 +2.5 +1.4 +0.4 Q3 -0.2 Oct -0.4 3.3 Oct +66.1 Q2 +8.9 +0.2 -0.13 1.02 1.03 Turkey +3.1 Q2 na +3.1 -4.1 Sep +7.2 Oct +7.9 11.3 Aug§ -32.4 Sep -4.8 -1.8 11.09 3.43 2.91 Australia +3.3 Q2 +2.1 +2.8 +3.7 Q2 +1.3 Q3 +1.3 5.6 Oct -52.8 Q2 -3.7 -2.1 2.67 1.35 1.38 Hong Kong +1.9 Q3 +2.5 +1.6 -0.4 Q2 +1.2 Oct +2.8 3.4 Oct‡‡ +13.6 Q2 +2.6 +0.6 1.40 7.76 7.75 India +7.3 Q3 +8.3 +7.6 +0.7 Sep +4.2 Oct +5.0 5.0 2015 -16.2 Q2 -0.9 -3.8 6.25 68.5 66.7 Indonesia +5.0 Q3 na +5.0 +0.5 Sep +3.3 Oct +3.6 5.6 Q3§ -19.2 Q3 -2.2 -2.6 8.00 13,553 13,835 Malaysia +4.3 Q3 na +4.3 +3.2 Sep +1.4 Oct +1.9 3.5 Sep§ +5.6 Q3 +1.0 -3.4 4.42 4.47 4.26 Pakistan +5.7 2016** na +5.7 +1.9 Sep +4.2 Oct +3.9 5.9 2015 -4.1 Q3 -0.9 -4.6 8.03††† 105 105 Philippines +7.1 Q3 +4.9 +6.4 +9.9 Sep +2.3 Oct +1.7 5.4 Q3§ +3.2 Jun +0.7 -1.0 4.52 49.7 47.1 Singapore +1.1 Q3 -2.0 +1.3 +1.2 Oct -0.1 Oct -0.6 2.1 Q3 +63.0 Q3 +21.5 +0.7 2.30 1.43 1.41 South Korea +2.7 Q3 +2.8 +2.7 -1.6 Oct +1.3 Nov +1.0 3.4 Oct§ +99.9 Oct +7.2 -1.3 2.15 1,169 1,158 Taiwan +2.0 Q3 +3.9 +1.0 +3.7 Oct +1.7 Oct +1.3 3.9 Oct +74.7 Q3 +13.7 -0.5 1.13 31.9 32.6 Thailand +3.2 Q3 +2.2 +3.0 +0.1 Oct +0.3 Oct +0.2 1.2 Oct§ +47.4 Q3 +5.9 -2.5 2.47 35.7 35.8 Argentina -3.4 Q2 -8.0 -1.7 -2.5 Oct — *** — 8.5 Q3§ -15.4 Q2 -2.4 -5.0 na 15.9 9.68 Brazil -2.9 Q3 -3.3 -3.2 -4.9 Sep +7.9 Oct +8.2 11.8 Oct§ -22.3 Oct -1.1 -6.4 11.70 3.38 3.92 Chile +1.6 Q3 +2.5 +1.8 -7.4 Oct +2.8 Oct +3.8 6.4 Oct§‡‡ -4.8 Q3 -1.9 -2.7 4.57 673 711 Colombia +1.2 Q3 +1.3 +2.0 +4.0 Sep +6.5 Oct +7.6 8.3 Oct§ -15.7 Q2 -5.1 -3.7 7.31 3,056 3,148 Mexico +2.0 Q3 +4.0 +2.1 -1.3 Sep +3.1 Oct +2.9 3.6 Oct -30.6 Q3 -2.9 -3.0 7.28 20.5 16.6 Venezuela -8.8 Q4~ -6.2 -13.5 na na +423 7.3 Apr§ -17.8 Q3~ -3.0 -24.4 10.57 10.0 6.31 Egypt +4.5 Q2 na +4.3 -11.7 Sep +13.6 Oct +13.1 12.6 Q3§ -18.7 Q2 -7.0 -12.4 na 17.9 7.83 Israel +5.0 Q3 +3.2 +3.2 +2.6 Sep -0.3 Oct -0.5 4.5 Oct +12.1 Q2 +2.9 -2.4 2.18 3.83 3.87 Saudi Arabia +3.5 2015 na +1.1 na +2.6 Oct +3.8 5.6 2015 -61.5 Q2 -5.6 -11.7 na 3.75 3.75 South Africa +0.6 Q2 +3.3 +0.4 -0.1 Sep +6.4 Oct +6.1 27.1 Q3§ -12.9 Q2 -4.1 -3.4 9.05 14.0 14.4 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Sept 35.92%; year ago 26.47% †††Dollar-denominated bonds. The Economist December 3rd 2016 Economic and financial indicators 75

Markets % change on Fiscal balances Forecast change in government primary balance* Dec 31st 2015 Many countries will carry out fiscal easing 2015-18, % of projected GDP Increase, 2010-15, Index one in local in $ over the next few years, according to the percentage points Nov 30th week currency terms Markets OECD, a think-tank. If the incoming Amer- 4321012+– United States (DJIA) 19,123.6 +0.2 +9.7 +9.7 ican administration fulfils its promises to China (SSEA) 3,403.2 +0.3 -8.1 -13.4 Greece 12.1 increase spending and cut taxes, the OECD Japan (Nikkei 225) 18,308.5 +0.8 -3.8 +1.6 Britain 2.0 Britain (FTSE 100) 6,783.8 -0.5 +8.7 -7.9 reckons this alone could add 0.3 percent- Japan 1.5 Canada (S&P TSX) 15,082.9 nil +15.9 +19.8 age points to global growth in 2018. In Euro area (FTSE Euro 100) 1,035.6 +0.7 -5.4 -7.6 Britain there will be slower fiscal consoli- Ireland 6.9 Euro area (EURO STOXX 50) 3,051.6 +0.6 -6.6 -8.8 dation than before: the government has France 3.0 Austria (ATX) 2,519.6 +0.2 +5.1 +2.6 abandoned its target of a budget surplus Switzerland 1.2 Belgium (Bel 20) 3,478.6 +0.3 -6.0 -8.2 by the end of the decade. Ireland has Portugal 8.6 France (CAC 40) 4,578.3 +1.1 -1.3 -3.6 curtailed public spending in the years 1.6 Germany (DAX)* 10,640.3 -0.2 -1.0 -3.3 since the financial crisis, but austerity Germany Greece (Athex Comp) 628.8 -0.6 -0.4 -2.7 Canada 2.5 Italy (FTSE/MIB) 16,930.4 +2.4 -21.0 -22.8 will ease off with a six-year plan for infra- 5.8 Netherlands (AEX) 457.2 +0.2 +3.5 +1.1 structure spending and a 2017 tax cut for United States Spain (Madrid SE) 874.6 +0.6 -9.4 -11.5 low-paid households. In Italy the 2017 Italy 2.9 Czech Republic (PX) 881.2 -0.8 -7.9 -10.1 budget aims to boost investment and Iceland 4.5 Denmark (OMXCB) 757.3 +2.3 -16.5 -18.2 lower corporate income tax. Source: OECD *Budget balance excluding interest payments Hungary (BUX) 30,014.0 -0.5 +25.5 +23.6 Norway (OSEAX) 728.1 +0.3 +12.2 +16.6 Poland (WIG) 48,618.6 +0.2 +4.6 -1.4 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,029.1 +1.2 +20.2 +35.9 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,481.1 -0.1 +2.4 -6.5 Dec 31st 2015 The Economist commodity-priceone index one Switzerland (SMI) 7,875.2 +1.6 -10.7 -12.2 Index one in local in $ Nov 22nd Nov 29th* month year Turkey (BIST) 73,995.2 -1.4 +3.2 -12.2 Nov 30th week currency terms Dollar Index Australia (All Ord.) 5,502.4 -0.9 +3.0 +5.8 United States (S&P 500) 2,198.8 -0.3 +7.6 +7.6 All Items 143.4 145.8 +5.1 +15.5 Hong Kong (Hang Seng) 22,789.8 +0.5 +4.0 +3.9 United States (NAScomp) 5,323.7 -1.1 +6.3 +6.3 Food 157.3 157.4 +0.8 +5.7 India (BSE) 26,652.8 +2.3 +2.0 -1.4 China (SSEB, $ terms) 348.4 -1.6 -13.3 -18.3 Indonesia (JSX) 5,148.9 -1.2 +12.1 +14.0 Japan (Topix) 1,469.4 +1.5 -5.0 +0.3 Industrials Malaysia (KLSE) 1,619.1 -0.7 -4.3 -8.0 Europe (FTSEurofirst 300) 1,350.9 +0.5 -6.0 -8.2 All 129.0 133.7 +10.9 +30.2 Pakistan (KSE) 42,622.4 -0.6 +29.9 +29.8 World, dev'd (MSCI) 1,715.4 +0.3 +3.2 +3.2 Nfa† 133.2 135.1 +6.7 +24.0 Singapore (STI) 2,904.0 +2.3 +0.7 -0.2 Emerging markets (MSCI) 858.5 +0.3 +8.1 +8.1 Metals 127.2 133.1 +12.9 +33.1 South Korea (KOSPI) 1,983.5 -0.2 +1.1 +1.4 World, all (MSCI) 413.9 +0.3 +3.6 +3.6 Sterling Index Taiwan (TWI) 9,240.7 +0.7 +10.8 +14.2 World bonds (Citigroup) 893.7 +0.8 +2.7 +2.7 All items 210.0 213.6 +3.5 +40.1 Thailand (SET) 1,510.2 +0.9 +17.3 +18.3 EMBI+ (JPMorgan) 763.3 +0.2 +8.4 +8.4 Argentina (MERV) 17,442.4 +0.4 +49.4 +21.9 Hedge funds (HFRX) 1,190.4§ -0.1 +1.4 +1.4 Euro Index Brazil (BVSP) 61,906.4 -0.1 +42.8 +67.0 Volatility, US (VIX) 12.7 +12.4 +18.2 (levels) All items 168.4 171.3 +9.7 +16.0 Chile (IGPA) 21,020.3 -0.2 +15.8 +21.9 CDSs, Eur (iTRAXX)† 79.8 -2.4 +3.5 +1.1 Gold Colombia (IGBC) 9,572.3 -1.5 +12.0 +16.3 CDSs, N Am (CDX)† 73.5 -0.6 -16.8 -16.8 $ per oz 1,209.7 1,185.9 -8.0 +11.2 Mexico (IPC) 45,316.0 +0.3 +5.4 -11.0 Carbon trading (EU ETS) € 4.6 -15.2 -44.9 -46.2 West Texas Intermediate Venezuela (IBC) 33,200.7 +30.1 +128 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 46.7 45.2 -3.1 +8.8 Israel (TA-100) 1,263.8 -0.2 -3.9 -2.5 †Credit-default-swap spreads, basis points. §Nov 28th. Saudi Arabia (Tadawul) 7,000.2 +3.0 +1.3 +1.4 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & South Africa (JSE AS) 50,209.4 -0.8 -1.0 +9.4 Indicators for more countries and additional series, go to: Economist.com/indicators Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional Sources: Markit; Thomson Reuters. *Total return index. †Non-food agriculturals. 76 Obituary William Trevor The Economist December 3rd 2016

neath Roy’s spectacles. And when the vampish Mrs Faraday, between cigarettes and cocktails, tried to chat up a fellow guest in the Albergo San Lorenzo (“Did you mind my wondering if you were mar- ried?”), he alone could anticipate the hor- ror-twist that followed. He did not analyse the mystery of these creations. Havinginvaded theirlives as mi- nutely as possible, he would dismiss them withouta second thoughtora second read. He had no ideas or philosophy to impart, he insisted. The people had come and gone, inexplicably. Their stories were sharp glimpses of a hidden truth, and he liked that; by contrast, a novel was a sprawling thing, full ofbyways and excres- cences from which the exit was unclear.

Stout and soft rain Interviewers did their best to find more in his art than that. His own history surely ex- plained a lot. The fact that he had been brought up Protestant in the Catholic south ofIreland, had gone to 11schools and had been forced to leave Ireland for Eng- land to make a living, must have endowed him with an outsider’s soul and eye. He Mystery and mastery confessed, as Joyce had, that exile was ben- eficial. His England was a drably post-war foreign land. Ireland he evoked from his study in Devon, a canvas of whitewashed houses, lilting brogues, stout and soft rain that seemed ancient, rather than modern. William Trevor(born William TrevorCox), Irish novelist and short-story writer, Mentions of the Troubles were rare; he died on November21st, aged 88 wrote with the same intensity, he admit- ETWEEN1989 and 2009 onlythree jour- ing string from his pocket—for what pur- ted, about a housewife’sfeelings as she put B nalists interviewed William Trevor at pose? That couple on the table behind, ar- on lipstick. For him, politics and heroics length. That was quite enough. He met guing—were they married, or not? Thus he faded beside the simple struggles of ordin- them punctually, at Exeter station or in found his characters, and their encounters. ary people to come to terms with fate. Dublin, his tall slim figure bulked out with To these he could add from his constant The melancholy of his writing suggest- a tweed coat and floppy tweed hat. In his nibblings and gnawings of tiny details: a ed a well of sadness in himself. It was not half-thatched Devon farmhouse he would creaking iron bed, a Georgian decanter, there. His marriage was long and happy settle into cushions and ply his guest with mounds of autumn leaves, a plate of sar- and his life had been largely fun ever since, sherry. In the craggy face, the eyes were dine-and-eggsandwiches, a window stuck in 1964, “The Old Boys” had launched him kind. But they also queried, silently, why with paint, one high-heeled shoe. Gradual- as a writer. He wrote from minute observa- anyone should find him interesting. ly the people formed, lodged in his head, tion but also from outside his experience, The interviewers came because he had acquired histories. He became acquainted and thought it would be very dull to do written 19 novels and novellas and 13 col- with their schooling, their marriages, the otherwise. He was not what he wrote. lections of short stories, and had three day when they had done such and such a Where then, he was asked, did his mas- times won the Whitbread prize. In literary thing, their way of dreaming, their favour- tery come from? What was the secret of it? circles, which he avoided, his exquisitely ite drinks. Once there, theythronged round His disposition was to say nothing. But he crafted stories were mentioned in the his writing deskand would not go away. would willingly describe the practicalities same breath as Maupassant, Chekhov and They were full of secrets, disappoint- of writing: swift longhand on blue paper, Joyce. Had he cared about the critics, ments and shame, these characters: with- then an Olympia typewriter, forfive hours which he did not, he would have been flat- held from each other, but not from him. He or so each morning, starting early. As the tered by the comparison: especially with knew why Ariadne, the beautiful daughter pages accumulated, so he cutand cut, often Joyce, whose “Dubliners” had done much of a Dublin landlady, with hands “as deli- determinedly with scissors. The unneces- to set him on his path. As it was, he pre- cate as the porcelain she attended to”, sary sentence, the extraneous word, the re- ferred to keep the conversation well away could neverlove Barney Prenderville, who peated description, were pared to the thin from himself. loved her. He knew why Kitty and Davy, bone. Before becoming a writer he had It was other people he found interest- on honeymoon, visited the back-street been a woodcarver, chipping and chisel- ing. He observed them with the unstinting chemist’s in Tramore, and that Kitty would ling away to create forms. He might not curiosity of a man dropped in the world never after all go through with it. He knew have managed in wood the delicacy of forthe firsttime. That girl adjusting herhair more than either Roy or Henrietta, a mid- Grinling Gibbons’s lace and leaves, but he in a shop window—for whom? That youth dle-aged couple, when Roy half-explained could do it in prose. His secret lay in what gobbling chips from a paper bag—where and Henrietta half-grasped hisaffair with a he left out—particularly that least penetra- did he live? Afarmer, seen from the car, tak- mousy student; the tears oozed from be- ble or important thing, himself. 7