Into the Brexit Endgame Coping with a 100-Year-Life Society America's

Into the Brexit endgame Coping with a 100-year-life society America’s latest tax boondoggle China’s plan for stimulus

NOVEMBER 17TH–23RD 201

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The world this week United States 9 A round-up of political 29 Fire in California and business news 30 Water in California 31 The new attorney-general Leaders 32 Florida recounts 13 Competition The next capitalist 34 Opportunity zones revolution 36 Lexington Adam Schiff 14 Britain and the EU Into the endgame The Americas 16 Japanese demography 37 Gun control in Canada Coping with the 38 Corruption in Colombia 100-year-life society 38 Culling green iguanas 16 Opportunity zones On the cover 40 Bello A fight to spend Oh, the places you’ll grow public money better To rebuild public faith in 18 Ed-tech markets, restore competition: Click to download teacher leader, page 13. Across the Asia West powerful, profitable Letters 41 Ageing in Japan firms are becoming even more powerful and profitable. See 20 On Australia, shipping, 42 Sri Lanka’s chaotic our special report, after aliens, Napoleon, politics page 46. Technology has metaphors 44 Jihadists in Indonesia eroded union power. 44 India’s nuclear subs Harnessing it may help Briefing 45 Banyan Renaming India organised labour to stage a 23 Trade unions and revival, page 23 technology 46 Fiji’s rival strongmen Workers of the world, 46 Imelda Marcos is • Into the Brexit endgame How log on! convicted Parliament should weigh up the Brexit deal: leader, page 14. The chances of approval look small, Special report: China page 59. The case for having Competition 47 World-class universities another vote on Brexit is gaining Trustbusting in the 48 Against political vetting 21st century strength: Bagehot, page 61 49 Chaguan Dreaming of After page 46 • Coping with a 100-year-life online fame society Shinzo Abe must be bolder if a fast-ageing Japan is to stay solvent: leader, page 16. The prime minister outlines his Middle East & Africa plans, page 41 51 An Israeli election looms • America’s latest tax 52 Plastic surgery in Lebanon boondoggle A scheme to draw 52 Struggling Dubai capital to deprived areas looks more like a massive giveaway: 53 Nigeria’s mysterious Shias leader, page 16. Superstar cities 54 Looking back in the sweep all before them. How can Charlemagne Europe’s Gambia the understudies get a lucky populist wave is stirring 54 The economics of break? Free exchange, page 77 up tensions between chocolate national minorities and • China’s plan for stimulus The their neighbours, page 58 scale of debt limits the country’s options today, page 71

1 Contents continues overleaf 6 Contents The Economist November 17th 2018

Europe Finance & economics 55 Macron and Europe 71 China plans its stimulus 56 Migrants and politics 72 Buttonwood America in Sweden ﬁrst 57 EU budget rules and Italy 73 Oil’s ups and downs 58 Charlemagne Resurgent 73 America and Europe regionalism talk trade 74 Financial inclusion Britain 75 The Philippine economy 59 At last, a Brexit deal 76 Stock exchanges turn to 61 Bagehot The case for a blockchain second referendum 76 Italy’s pharmacies 77 Free exchange Superstar cities

Science & technology International 78 Redeﬁning the kilogram 62 How technology can 79 Responsibility for climate improve education in change poor countries 80 A caﬀeine-free tea plant 81 Reinventing the watch spring

Books & arts Business 82 Austria’s history wars 65 The backlash against Michelle Obama’s memoir chemicals 83 84 Rediscovering Lucia Berlin 66 Bartleby Nokia’s saga 84 Warhol’s prophetic art 67 MTN’s trouble spots 85 Johnson Translating in a 68 Juul and the FDA crisis 68 Indian supermarkets 69 CP Group’s winning Economic & financial indicators business model 88 Statistics on 42 economies 70 Schumpeter China v America Graphic detail 89 Global wildfires fizzle out

Obituary 90 Ruth Gates, champion of corals

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The world this week Politics The Economist November 17th 2018 9

Last week Mr Acosta asked too choice between peace and country’s alleged support for many follow-up questions for disorder. Mr Trump boycotted armed groups in Somalia. Mr Trump’s liking (the presi- a meeting of the Paris Peace Eritrea’s rapprochement with dent called him a “terrible Forum after the ceremony. Ethiopia earlier this year and person”). Other networks, improved relations with Dji- including the Republican- Mrs Merkel followed Mr Mac- bouti have raised hopes for a leaning Fox News, also rallied ron in calling for the creation more stable Horn of Africa. in cnn’s support. of a “real, true European army”. It is not clear what that would mean in practice. Who overcomes Darkness visible Sri Lanka’s Supreme Court The trial of Joaquín Guzmán, A deadline set by the European overturned the president’s After an “impassioned” five- the alleged head of Mexico’s Commission for Italy to revise order to dissolve parliament, hour meeting Theresa May, Sinaloa drug gang, began in its budget to deal with what are which, in turn, voted to reject Britain’s prime minister, said Brooklyn, New York. Mr Guz- termed excessive deficits the prime minister the presi- her cabinet had approved a mán, also known as El Chapo, passed without Italy com- dent had only just appointed, provisional withdrawal deal faces17 charges related to drug plying. A formal infringement Mahinda Rajapaksa. It is not from the European Union. trafficking, money laundering procedure now looks likely. clear who is now in charge. After the meeting Mrs May said and violations of firearms she believed the draft deal was laws. His lawyer contended Voters in Fiji chose between “the best that could be negoti- that the real leader of the gang All hell broke loose parties led by two former coup ated”.She now needs Parlia- is Ismael Zambada, who re- Avigdor Lieberman resigned as leaders in a general election. ment to back it, but may strug- mains free because he has Israel’s defence minister and They plumped for the incum- gle to find enough votes to get bribed “the entire government called for an election to be held bent FijiFirst party, led by it passed. Several of her min- of Mexico”.El Chapo “con- as soon as possible. Mr Lieber- Frank Bainimarama, who has isters, including the Brexit trolled nothing” that Mr Zam- man clashed with Binyamin presided over relative political secretary, resigned over the bada did, the lawyer claimed. Netanyahu, the prime min- and economic stability for the deal. Mrs May herself could yet ister, over the government’s past four years. be toppled. A judge in Chile convicted Juan pursuit of a truce with mil- Emilio Cheyre, a former chief itants in Gaza. Violence erupt- A court in the Philippines of the army, of participating in ed earlier, when a secret oper- sentenced Imelda Marcos, a Paradise lost the “caravan of death”,which ation by Israeli special forces politician and widow of Ferdi- Wildfires continued to rage in murdered leftists after a mil- inside Gaza was exposed, nand Marcos, the country’s California. At least 50 people itary coup led by Augusto leading to the death of seven strongman of 20 years, up to 77 are confirmed to have died in Pinochet in1973. Mr Cheyre, Palestinian militants and an years in prison for corruption. the blazes, many from the who led the army from 2002 to Israeli officer. Militants then She will remain free until she devastated town of Paradise in 2006, condemned its earlier fired more than 460 rockets at has exhausted her appeals. the north of the state. More human-rights abuses. He is the Israel, while Israeli aircraft hit than 100 people are still miss- most senior official to be con- 160 targets inside Gaza. ing. Around 300,000 Califor- victed of a crime under the First disobedience nians are thought to have fled military regime. Local forces backed by Saudi their homes. President Donald Arabia and the United Arab Trump blamed poor forest Emirates pushed into Hodei- management for the fires. Macron Agonistes da, Yemen’s main port city. More than 100 people died in Florida’s Republican secretary the fighting. David Beasley, of state ordered recounts for head of the World Food Pro- both its governor’s race and its gramme, says the country is contested seat in the Senate. facing its “worst humanitarian Preliminary results put Bill disaster in 100 years”. Nelson, the Democratic incumbent senator, around President Recep Tayyip Erdo- 12,000 votes behind Rick Scott, gan of Turkey shared an audio More than a dozen activists his Republican challenger. The recording of the killing of a were arrested by police in margin of 0.15% was thin Saudi dissident, Jamal Khash- several Chinese cities in an enough to trigger an automatic oggi, with five countries. Mr apparent effort by China’s machine-count. Meanwhile a Leaders from much of the Khashoggi was killed in the Communist Party to crush a Democrat, Kyrsten Sinema, world, including President Saudi Consulate in Istanbul left-wing labour-rights move- was declared the victor of a seat Emmanuel Macron of France, last month. Saudi Arabia is ment led by young people in Arizona by a margin of 1.7 America’s Mr Trump, Vladimir seeking the death penalty for describing themselves as percentage points. Putin of Russia and Germany’s five people it has charged with Marxists. Those detained chancellor, Angela Merkel, met his murder, but is shielding its belong to a group formed in cnn, a broadcaster, sued to in Paris on November 11th to crown prince from any blame. support of workers trying to set restore the White House ac- commemorate the 100th anni- up a union at a factory in the creditation of Jim Acosta, a versary of the armistice that The un Security Council lifted southern city of Shenzhen. reporter who tussles with Mr ended the first world war. Mr sanctions on Eritrea, which About 40 others were arrested Trump at press conferences. Macron spoke of a historic were imposed in 2009 over the during the summer. 1 10 The world this week Business The Economist November 17th 2018

The oil price plunged on fears years. The company has per- sharing firm at around $45bn. val. The event racked up of slower global demand in formed poorly, with its share SoftBank had already pumped $30.8bn in sales (measured by 2019. The American oil price price falling by almost 30% this $4.4bn into the startup gross merchandise volume), suffered its longest losing year. Mr Genish’s departure through the Vision Fund, an compared with $25.3bn in 2017. streak—12 straight days—since may have been a result of a row investment fund led by the But sales rose at the slowest 1984. The price of the global between tim’s largest share- telecom firm’s chief executive, pace in ten years. benchmark, Brent crude, fell by holders—Vivendi, a French Masayoshi Son. 7% on November13th to just media conglomerate, and below $65 a barrel. Prices Elliott, a hedge fund—over the Tencent, a Chinese internet Putting out the fire stabilised the next day on direction of the company. firm, reported an expectations- Juul, an e-cigarette maker, said reports that producers were busting 30% increase in profits it would suspend the sale of planning to discuss cutting Binny Bansal, the chief exec- in the third quarter, compared most of its flavoured e-ciga- output. utive and co-founder of Flip- with a year ago. Revenues rose rette pods in shops and delete kart, an Indian e-commerce by 24%, thanks to a jump in its social-media accounts. The firm, resigned after an in- advertising earnings. Tencent’s firm has a market share of over Emergency stop vestigation into alleged mis- video-game business, its big- 70% in America. Its announce- Japan’s economy contracted conduct revealed “lapses of gest source of income, has ment followed demands from in the third quarter, with gdp judgment”.Walmart, an Ameri- been hit by regulatory hurdles the Food and Drug Administra- falling at an annualised rate of can retail giant, bought a 77% in China. Revenues from tion that companies address 1.2%. The contraction had been stake in Flipkart in May. smartphone games rose by 7% the rise in youth vaping. Scott widely expected after severe in the third quarter, but those Gottlieb, the regulator’s chief, flooding hit the west of the from computer games fell by hinted that he would soon country in July and an earth- Multiple choice 15%. unveil measures to curb e- quake affected the north in Amazon plumped for two new cigarette use by teenagers. September. second headquarters. The e-commerce behemoth settled Italy’s banks and some private German gdp also fell in the on Long Island City in Queens, investors agreed to underwrite third quarter, its first contrac- New York and Arlington, Vir- up to €400m ($450m) of subor- tion since 2015. That was partly ginia as the locations for its dinated bonds issued by Banca driven by new emissions- offices, which will each hold Carige, a midsized Italian testing regulations, which 25,000 people. Its search began lender. The issuance will help slammed the brakes on car in September 2017 and the bank meet a deadline from production during the sum- prompted cities across Ameri- the European Central Bank to mer. Exports also took a tum- ca to offer financial incentives boost its capital buffers by the ble, thanks to a souring global in the hope of luring jobs and end of the year. The bank, trade environment. investment. already limping because of shareholder infighting and an Apple’s share price sank on SoftBank, a Japanese telecoms Alibaba, a Chinese e-com- accounting scandal two years concerns that demand for its firm, committed $3bn to We- merce titan, reported a record- ago, had struggled to raise smartphones may have Work. The latest round of breaking “Singles’ Day”, its capital on the markets this peaked. Four of its suppliers funding values the office- annual online-shopping festi- year. lowered their revenue expectations. The company’s share price has fallen by nearly 20% since early October. Led by falls in the technology and financial sectors, the s&p 500 slid for the fifth consecutive day on November 14th.

Cecilia Malmström, the Euro- pean Union’s trade negotiator, met with Robert Lighthizer, America’s trade representative, in Washington, dc. The talks were meant to push forward negotiations on a trade deal, but the two sides disagreed over its scope. America wants to include agricultural products; the eu prefers a deal limited to industrial goods.

Amos Genish became the third chief executive of tim, the ﬁrm previously called Telecom Italia, to be booted out in three A Thousand Years of Craftsmanship.

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To rebuild public faith in markets, restore competition apitalism has suffered a series of mighty blows to its repu- Despite low interest rates, firms have reinvested a stingy share of Ctation over the past decade. The sense of a system rigged to their bumper profits. This could be because barriers to competi- benefit the owners of capital at the expense of workers is pro- tion keep out even well-funded newcomers. Next, since the turn found. In 2016 a survey found that more than half of young Amer- of the millennium, and particularly in America, labour’s share of icans no longer support capitalism. This loss of faith is danger- gdp has been falling. Monopolistic prices may have allowed ous, but is also warranted. Today’s capitalism does have a real powerful firms to eat away at the purchasing power of wages. The problem, just not the one that protectionists and populists like labour share has fallen fastest in industries with growing con- to talk about. Life has become far too comfortable for some firms centration. A third puzzle is that the number of new entrants has in the old economy, while, in the new economy, tech firms have been falling and productivity growth has been weak. This may rapidly built market power. A revolution is indeed needed—one also be explained by a lack of competitive pressure to innovate. that unleashes competition, forcing down abnormally high pro- Some argue that the solution to capital’s excesses is to beef up fits today and ensuring that innovation can thrive tomorrow. labour. Elizabeth Warren, a possible American presidential can- Countries have acted to fuel competition before. At the start didate, wants to put more workers on boards. Britain’s Labour of the 20th century America broke up monopolies in railways Party promises compulsory employee share-ownership. And al- and energy. After the second world war West Germany put the most everyone on the left wants to reinvigorate the declining creation of competitive markets at the centre of its nation-build- power of unions (see Briefing). There is a role for trade unions in ing project. The establishment of the European single market, a a modern economy. But a return to 1960s-style capitalism, in project championed by Margaret Thatcher, prised open stale do- which bloated oligopolies earn fat margins but dole cash out to mestic markets to dynamic foreign firms. Ronald Reagan fos- workers under the threat of strikes is something to be avoided. tered competition across much of the American economy. Tolerating abnormal profits so long as they are distributed in a A similar transformation is needed today. Since 1997 market way that satisfies those with power is a recipe for cronyism. Fa- concentration has risen in two-thirds of American industries. A voured insiders might do well—witness the gap between cod- tenth of the economy is made up of industries in which four dled workers and neglected outsiders in Italy. But an economy firms control more than two-thirds of the mar- composed of cosy incumbents will eventually ket. In a healthy economy you would expect pro- see a collapse in innovation and hence a stagna- fits to be competed down, but the free cashflow tion in living standards. of companies is 76% above its 50-year average, Far better to get rid of rents themselves. Mar- relative to gdp. In Europe the trend is similar, if ket power should be attacked in three ways. less extreme. The average market share of the First, data and intellectual-property regimes biggest four firms in each industry has risen by should be used to fuel innovation, not protect three percentage points since 2000. On both incumbents. That means liberating individual continents, dominant firms have become hard- users of tech services to take their information er to dislodge. elsewhere. It also entails requiring big platforms to license ano- Incumbents scoff at the idea that they have it easy. However nymised bulk data to rivals. Patents should be rarer, shorter and consolidated markets become domestically, they argue, globali- easier to challenge in court. sation keeps heating the furnace of competition. But in indus- Second, governments should tear down barriers to entry, tries that are less exposed to trade, firms are making huge re- such as non-compete clauses, occupational licensing require- turns. We calculate the global pool of abnormal profits to be ments and complex regulations written by industry lobbyists. $660bn, more than two-thirds of which is made in America, one- More than 20% of American workers must hold licences in order third of that in technology firms (see Special report). to do their jobs, up from just 5% in 1950. Not all these rents are obvious. Google and Facebook provide Third, antitrust laws must be made fit for the 21st century. popular services at no cost to consumers. But through their grip There is nothing wrong with trustbusters’ remit to promote con- on advertising, they subtly push up the costs of other firms. Sev- sumer welfare. But regulators need to pay more attention to the eral old-economy industries with high prices and fat profits lurk overall competitive health of markets and to returns on capital. beneath the surface of commerce: credit cards, pharmaceutical America’s regulators should have more powers, as Britain’s do, to distribution and credit-checking. When the public deals with investigate markets that are becoming dysfunctional. Big tech oligopolists more directly, the problem is clearer. America’s firms should find it much harder to neutralise potential long- sheltered airlines charge more than European peers and deliver term rivals, as Facebook did when it acquired Instagram in 2012 worse service. Cable-tv firms are notorious for high prices: the and WhatsApp in 2014. average pay-tv customer in America is estimated to spend 44% These changes will not solve every ill. But if they drove profits more today than in 2011. In some cases public ire opens the door in America to historically normal levels, and private-sector to newcomers, such as Netflix. Too often, however, it does not. workers got the benefits, real wages would rise by 6%. Consum- Stockmarkets value even consumer-friendly entrants such as ers would have greater choice. Productivity would rise. That Netflix and Amazon as if they too will become monopolies. might not halt the rise of populism. But a competition revolu- Rising market power helps solve several economic puzzles. tion would do much to restore the public’s faith in capitalism. 7 14 Leaders The Economist November 17th 2018

Britain and the European Union Into the endgame

How Parliament should weigh up the Brexit deal t last, britain’s game of three-dimensional chess with the union Britain will not even get the consolation prize of signing AEuropean Union is entering its closing phase. On November trade deals with other countries, something by which many 14th the two parties published a draft divorce agreement, 585 Brexiteers have come to set enormous (and unwarranted) store. pages in length. Nearly two-and-a-half years after the British The deal also has implications for the integrity of the United shocked their own government by voting to leave the eu, they are Kingdom. It would keep open the Irish border, but create a deep- about to discover what Brexit really means. er regulatory divide between Northern Ireland and mainland The game is by no means over. The deal still has to be agreed Britain. The sad truth is that most English voters do not care by the eu and, harder still, by the British Parliament. Several much about Northern Ireland. But mps, particularly those from ministers, including the Brexit secretary, resigned in protest; what is formally called the Conservative and Unionist Party, Theresa May could yet be toppled. mps must grapple with multi- should ask themselves whether it is right that an accidental by- ple loyalties: to their constituents, their parties and their own product of Brexit should be a step towards Irish unification. beliefs, all of which are likely to have shifted since the referen- Hanging over this debate about the pros and cons of the deal dum. Within weeks they will have to make the biggest decision is the question of what overturning it would do to the health of facing Britain, and one of the biggest for Europe, in generations. Britain’s democracy. Parliament has the legal right to ignore the If the country has learned anything since 2016, it is to look be- referendum. But after a record number of people voted (to “take fore it leaps. Yet, in what well summed up the level of debate on back control”, no less), it could be catastrophic for trust in main- Brexit, hardline Leavers and Remainers alike trashed the deal be- stream parties if it were to do so. fore they had read a word of it. This makes no sense. The terms of In truth, the democratic argument is more complicated. The the divorce will take time for mps and those they represent to di- vote to leave was an expression not just of Euroscepticism but of gest—and they may well be amended by European leaders before a wider frustration. It exposed divisions by age, region and class Parliament has its vote. Nor is it clear what would happen in the that the old left-right party divide had covered up. Far from event that the deal were voted down: more negotiating, a second bridging those divides, the bitter arguments since the referen- referendum or crashing out without a deal? But as the crunch dum have if anything caused the two sides to move even further vote nears, mps must consider how to approach apart. Overturning the vote would risk making this fateful question. them irreconcilable. But adopting a Brexit deal First, forget the past. The cheating that went like the one on offer would be unlikely to heal on during the campaign, the premature trigger- those wounds. Indeed, to the extent that the ref- ing of Article 50 and the thin preparations are erendum was a howl by the left-behind against maddening. But they are questions for the in- rule by remote and uncaring elites, this form of quiry that will surely one day dissect this na- Brexit could make those problems worse. Anger tional fiasco. The task before Parliament is to de- at unaccountable rulers would not be assuaged cide in a cool-headed way whether adopting the by a deal in which Britain followed orders from terms on offer is better for the country than rejecting them. people it could not elect. And those keen just to get the whole Those who backed Remain—a group that includes this news- thing over with might find that Brexit marked only the beginning paper, as well as most mps—will find little in the deal to make of national argument about the relationship with the behemoth them think they were wrong. Although it legally sets out only a next door. temporary framework, its terms are clearly worse than the status Nor is it clear that the democratic thing to do is to hold people quo (see Britain section). Yet if they are to respect the referen- to the result of a two-year-old, narrowly won referendum, when dum, mps should also judge the deal against what voters were the consequence of the vote has turned out to be quite different promised. The Leave campaign had no formal manifesto, and from what many voters expected. Polls suggest that a small ma- most of those behind it have since fled the government. But the jority now prefers Remain to Leave; more might prefer Remain to animating idea was to “take back control”. In some ways the deal a compromise like the deal on offer. Almost all mps want to re- does this, notably in immigration, where Britain would reclaim spect the will of the people. The question is whether the people’s the right to limit migration from Europe. The price of this is be- will found its perfect and enduring expression in 2016, or wheth- ing kicked out of the single market, which would hit the econ- er it might have changed. omy. mps must decide whether the government is right that the There is no simple way out of this endgame. Whether the public accepts this trade-off. Brexit deal is accepted or rejected, it will scar Britain for years. In other ways Britain will unequivocally forfeit control. It will And yet too many politicians are still grandstanding. Some Brex- stay aligned with many of the single market’s current and future iteers still pretend there is a Plan b that would deliver a painless rules, to keep trade flowing and the Irish border open, something exit. Labour is mainly concerned with forcing a general election. the eu has made a condition of any deal. Once outside the eu, That needs to change, and fast. This momentous decision must Britain will have no say in setting these rules. European judges be made in the most reasoned way possible and with the maxi- will still arbitrate on such matters, even though Britain will no mum information available. Politicians of all stripes have spent longer be able to nominate them. This is not taking back control the past two years talking about the national interest. In the but giving it up. Meanwhile, as long as it remains in a customs coming weeks they must weigh up where they think it lies. 7

16 Leaders The Economist November 17th 2018

Japanese demography Coping with the 100-year-life society

Shinzo Abe must be bolder if a fast-ageing Japan is to stay solvent ore than half of Japanese babies can expect to live to 100. are going to live to100 they will have to retire much later than 70. MThis prospect would have horrified Yukio Mishima, a writ- Women are too often stuck in part-time or badly paid jobs. Near- er who thought it so important to die young and handsome that ly 70,000 immigrants a year may sound like a lot, but Japan’s he ritually disembowelled himself after staging a pantomime population is declining by almost 400,000 a year and there are a “coup” attempt in 1970. It horrifies today’s pessimists, too. They stunning 1.6 vacancies for every jobseeker. worry that, as the country ages and its population shrinks, health Mr Abe should let more migrants in. Some fret that foreigners bills will soar, the pension system will go bust, villages will emp- will make Japan less safe and harmonious, but there is no evi- ty and there will be too few youngsters to care for the elderly. dence of this. Others fear that they might become a burden, but Yet for most people, not dying young is a blessing. Those extra with few exceptions the law lets them come only if they have years can be spent learning new skills, enjoying the company of jobs. Given Japan’s low fertility, importing young workers is the loved ones or reading blood-spattered Mishima novels. Japan’s only way to fill potholes and change sheets in nursing homes. prime minister, Shinzo Abe, says he wants his Mr Abe should also create more incentives country to be a model of how to make ultra-long for locals to work longer, with a formula that lives fulfilling—and affordable (see Asia sec- automatically adjusts the timing and generosity tion). He talks of “designing the 100-year-life of public pensions to reflect rising life expec- society”. But to achieve that Mr Abe, in his last tancy and contributions. This is politically diffi- three years in office, will have to adopt reforms cult anywhere, but the alternative is an inevita- that are far bolder than he currently envisages. ble debt crunch. The key is to have enough people working to Last, private firms should scrap the seniority support those who no longer can. There are system, whereby pay increases with years of three ways to achieve this: persuade current workers to labour service and staff are forced to quit at around 60. This survives be- longer, encourage more women to enter the workforce and let in cause the people who could change it—senior managers at large more immigrants. Japan has made progress on all three. The companies—benefit from it. The government can help by ban- share of over-65s in work is the highest in the g7; the share of ning mandatory retirement ages, which would force firms to women in the labour force has recently overtaken that in Ameri- change seniority-based pay. Companies would have to reward ca; and the Diet (parliament) is debating a bill that would allow merit instead, which would be good for productivity and for up to 345,000 foreign workers (called “trainees”, not immi- women, who lose out on promotions when they have babies. grants) to enter Japan by 2025. Companies are eagerly investing An ageing society need not be a decrepit one. As Mr Abe notes, in robots to raise productivity. Mr Abe vows to reform the public today’s elderly Japanese walk as fast as those ten years younger pension system to encourage even later retirement. once did. But for Japan to stay solvent as it turns silver, he too All this is welcome, but it is not enough. If Japanese people must move faster than he has done thus far. 7

Opportunity zones Oh, the places you’ll grow

A scheme to draw capital to deprived parts of America looks more like a massive giveaway laces matter. The probability that a baby born in the bottom Plenty of countries, including America itself, offer goodies to P20% of the income scale in Detroit will make it to the top 20% investors with this goal in mind. The evidence on how effective as an adult is half that of a similar child in San Francisco. One an- they are is inconclusive, which makes the new scheme even swer is to get people to move. Even a short distance can make a more striking for its potential scale and generosity. The pot of big difference. In America a child in a low-income family who unrealised gains held by American households and firms is moves from a neighbourhood with less social mobility than av- thought to be as much as $6trn. An opportunity-zone invest- erage, to one in the same county that has more mobility than av- ment held for more than a decade can avoid capital-gains tax al- erage, can expect to earn $200,000 more over their lifetime. together. The number of places that qualify is bigger than any- The problem is that Americans are less inclined and able to thing that has gone before: the Treasury has certified 8,761zones, move than in the past. So policymakers are, rightly, trying to im- 12% of America’s census tracts. Nearly 35m Americans are esti- prove the fortunes of left-behind places. That is the ostensible mated to live within them. Whereas past schemes have imposed motivation behind the creation of “opportunity zones”, a little- lots of conditions, the new one is deliberately undemanding (see noticed bit of President Donald Trump’s tax-cutting law in 2017. United States section). Suck in as much capital as possible, the The scheme lures money into deprived places by dangling a big thinking runs, and stand back. tax break on unrealised capital gains invested in them. The first bit of that plan seems to be working. Banks, private- 1

18 Leaders The Economist November 17th 2018

2 equity firms and property developers are scrambling to set up of long-term economic development: the state of local infra- the funds through which capital is deployed. Sales of property- structure, the connections between businesses and universities, development sites within the zones are estimated to have the availability of skilled workers. Amazon has just handed out a jumped by 80% in the first nine months of this year. The real very public lesson in the importance of such factors. Its choice of question is: how much will this help distressed communities? New York and the suburbs of Washington, dc, for two new offices Here, there are two reasons for concern. First, although op- shows how hard it is for aspiring places to compete with estab- portunity zones had to meet income criteria in order to be desig- lished ones (see Free exchange). nated as such, that does not mean they are the places most in need. An analysis by the Brookings Institution, a think-tank, has Boon, meet doggle found that of the eligible census tracts, those selected were more The idea of opportunity zones is not bad. The desire to stream- likely to be already gentrifying than those that were passed over. line approvals processes for deploying capital is reasonable. And Loopholes inevitably exist. Students may not be high earners, it is not too late for improvements: one obvious thing to do is to but that does not mean that neighbourhoods close to Stanford force better disclosure by opportunity funds, so that they have to and Harvard deserved to be chosen as zones. It is easy to imagine report not just on total assets, but also on their location and type. capital flooding into projects and places that the market would The big test will be whether this scheme draws cash into left-behave served anyway. hind regions. The danger is that it becomes a giant giveaway, Second, the programme has nothing to say about the staples benefiting only people and places that do not need help. 7

Ed-tech Click to download teacher

Technology can help solve the problem of bad, absent teachers in poor-country schools ooks will soon be obsolete in schools,” Thomas Edison teachers in distant villages. And in many countries, teachers’ un- “Bannounced in 1913: they would, he believed, soon be re- ions are powerful and governments fear their wrath, so mem- placed by silent films. Each new wave of information technol- bers’ jobs are safe. ogy—radio, television, computers—has led to similar predic- Several recent studies suggest ed-tech can help (see Interna- tions. And each time, the old technologies of books, classrooms tional section). It seems to bring about bigger improvements in and teachers have proved startlingly resilient. poor countries than in rich ones. In a study of a range of inter- Like teachers, digital educational technology comes in many ventions in poor countries—including smaller class sizes, nutri- forms, from wonderful to appalling. But, used properly, it now tional supplements, deworming and incentives for teachers and deserves more prominence in schools—especially in poor coun- pupils—tech had the biggest effect. tries where human teachers are often ignorant, absent or both. Some of the scarce resources being spent on teachers could therefore be better spent on ed-tech. That does not mean dump- Truant teachers ing computers on schools in the hope that children will under- The un’s Millennium Development Goals included the ambition stand how to use them, a folly on which plenty of money has that by 2015 all the world’s children would complete primary been wasted. Instead, it means providing schools with software school. This has largely been achieved: nine out of ten children that children can use with minimal help from an adult, that gets are now enrolled. Alas, the figure is not as impressive as it things right more often than the teachers do, that adjusts itself to sounds. Even though most of the world’s children go to school, the child’s ability, that sends teachers prompts about what they an awful lot of them learn pretty much nothing there. According are supposed to be teaching and that allows the authorities to to a recent World Bank study of seven sub-Saharan African coun- check on whether the teacher is in the classroom. tries, half of nine-year-olds cannot read a simple word and three- Sceptics may wonder whether the poorest places have the quarters cannot read a simple sentence. The reason is terrible necessary infrastructure. But Africa is electrifying apace—in teaching. The same study found that only 7% of teachers had the Kenya, electricity coverage has gone up from 27% to 55% of minimum knowledge needed to teach reading and writing effec- households in three years. Where the grid is not available, solar tively. When classrooms were inspected to see whether a teacher chargers can work. Schools do not need internet access. Devices was present, half the time the answer was no. can be taken to where there is a connection to upload or down- Paying teachers more, in the hope of recruiting better ones, is load the necessary information. Cost does not have to be a huge not the answer. In poor countries, teachers are well paid by local problem either. Tusome (“let’s read” in Kiswahili), one of the standards—annual salaries are four times gdp per person in In- most successful schemes, costs around $4 per child per year in dia and five times in Kenya and Nigeria. (In oecd countries, Kenya, where it is being rolled out across public primary schools. teachers are paid between 75% and 150% of gdp per person.) Nor The biggest issue is the government’s commitment: where it is does raising or reducing pay seem to make much difference: nei- enthusiastic, the chances of success are good. ther a sharp cut in Pakistan in the late 1990s nor a sharp increase Technology is no panacea. Good traditional teachers are not in Indonesia after 2005 had any impact on learning outcomes. obsolete, and are never likely to be. And authorities need to hold As for absenteeism, if expensive teachers do not turn up to teachers to account. But ed-tech can help greatly—by monitor- class, governments would, surely, sack them? Easier said than ing pupils and teachers alike, assisting the best teachers and, done. Poor governments often lack the wherewithal to check on most important, making up for the failings of the worst. 7

20 Letters The Economist November 17th 2018

an house prices rose from 3.3 to imagine that should the The great-barrier grief times the average disposable Shipping and climate change same civilisation look our way Your special report on household income in 1981to I was disappointed by your again 1,000 years hence, they Australia (October 27th) noted over 7 times in 2015. The rea- interpretation of the latest will again see nothing. When that the number of boat-people sons for this are up for debate, developments in international we factor in time and distance arrivals is tiny relative to from a lack of supply, foreign shipping (“Spoiling shipping to heroically optimistic as- Australia’s total migrant investors, mass immigration, for a ha’p’orth of tar”,October sumptions about intelligent intake. This is thanks to the government tax policy which 27th). The International toolmaking life evolving else- government’s stringent encourages speculation, and Maritime Organisation, an where, we can calculate that immigration policy, which so on. But the result is clear. An organisation that moves even the probability of two techno- involves the offshore process- increase in homelessness, more slowly than the famous logical civilisations existing ing of potential asylum-seek- younger generations and Panamax ships of its members, contemporaneously within a ers. Otherwise, the numbers middle-class workers locked should be commended for few hundred light-years of would be much larger. In the 12 out of home ownership and taking action to reduce air each other is, in effect, zero. So months to June 2013, when one of the world’s highest pollution. The fact that your the Fermi Paradox can be better Australia had the type of less- household-debt ratios because article sought to present this as restated as, when is everybody? restrictive system that you of large mortgages. a defeat for action to tackle allan lees want, more than 25,000 asy- A further 25 years of pros- climate change suggests that Novato, California lum-seekers arrived by boat, perity will require the lucky next week you will be lament- accounting for 10% of net country to be more than lucky ing the lack of volcanic activity migration that year. and its political leaders to at Mount Vesuvius, because Little big man The journey to Australia is enact bold reforms. that, too, would reduce global I’d like to give short shrift to perilous. Over that same 12 david reiling warming. the common misconception months, almost 350 asylum- Woy Woy, Australia We know that, in some that Napoleon’s stature was seekers, including many chil- instances, difficult choices modest (“All he surveyed”, dren, died at sea trying to reach Australia’s foreign policy need to be made about envi- November 3rd). One source, this country. The proportion of matters most to the tiny island ronmental priorities. Some- based on his autopsy, recorded asylum-seekers who perished nations that make up the rest times reducing one form of a height of 5 feet 2 inches. was even higher in previous of Oceania. An Australian pollution results in increasing However, these were French years. As well as stopping the government minister another form of pollution. feet and inches. In Britain he boats, Australia has also remarked recently that “for the However, in almost all cases, would have been 5 feet 7 inch- stopped the drownings. Pacific it’s always about cash”. including shipping, these es, just above the average Australia still admits a large In fact there is much that trade-offs are very much at the height for a man of his era. number of asylum-seekers and Pacific islanders desire from margin. It is wrong to suggest There are various other sources ensures that they arrive in an Australia besides aid, if only that shipping, or other about his size, but few point to orderly and safe manner. they would listen. Australia’s industries, cannot take action him being particularly short. Critics of this policy, including tiny neighbours depend on it that reduces the risks from The reasons why we think The Economist it seems, pro- for such things as combating climate change and tackle air, of Napoleon as diminutive are pose a free-for-all that would climate change—an existential water and ground pollution. his nickname (le petit caporal), oblige those seeking asylum to threat to some Pacific coun- Such action may involve costs the towering Imperial Guard risk their lives on rickety boats. tries—and freedom to travel. which is why, rightly, there is that protected him, and a daniel rees Australia requires advance debate. number of British caricatures Sydney visas from almost any visitor Nobody was counting on that portrayed him as a child- travelling from almost any- the “cooling effects” of ship- ish toddler. This has been To describe Australia’s migrant where, which is a cruel nui- ping’s sulphur emissions to reinforced in popular culture camps on Papua New Guinea sance for citizens of peaceful slow global warming. It is a through references to the and Nauru as “dismal” is an countries next door who need shame you think they were. Napoleon complex. insufficient representation of to pass through Australia matthew bell ben thuriaux-alemán what the un Human Rights simply in order to reach the Director London Committee has described as rest of the world. By lowering Frontier Economics unlawful and a humanitarian this barrier, Australia could do London emergency. You also said that other countries a great favour Was it good for you? Australia has been trying to at negligible cost. That it de- An anthropologist friend of make deals with other coun- clines to do so says a lot about Worlds apart mine, seeing metaphors as a tries to take the refugees in. its attitude to the wider world. Your article on the Fermi language game (Johnson, This is an overstatement, andrew gray Paradox, which explains why November 3rd), used to refer to considering that an offer made Pentecost Island, Vanuatu we haven’t found aliens, did them as “metaphorplay”. by New Zealand in 2013 has yet not account for the variable of philip cerny to be taken up. Thank you for the positive time (“Where is everybody?”, York gabrielle beran report on Australia. When we October 13th). Without time, London travel overseas virtually the any statistical projection is only news we get about Austra- meaningless. Any technologi- Letters are welcome and should be One of Australia’s greatest lia is if someone has been cally sophisticated alien civili- addressed to the Editor at The Economist, The Adelphi Building, challenges is that its housing is eaten by a crocodile or bitten sation casting a radio-tele- 1-11John Adam Street, London WC2N 6HT among the most expensive in by a snake. scope glance our way a mere Email: [email protected] the world. According to the guy hallowes 200 years ago would have seen More letters are available at: Economist.com/letters Parliament of Australia, medi- Sydney nothing. It is not implausible Executive focus 21 22 Executive focus

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membership rate in the oecd is about 18%, Workers of the world, log on! down from a peak of more than 50% in the early 1980s. There are many explanations for the rise and fall of unions. Some theories stress the role of restrictive laws. The earliest legal judgments on unions in America followed English law in holding them to be Technology has eroded union power. Harnessing it may help organised labour to criminal conspiracies, whose intent was to stage a revival raise prices and to inhibit trade. The legal f they stall, we will hit them where it interplay between technological progress environment for unions gradually became “Ihurts.” Jörg Sprave is a jovial German and union power. Unions have been in friendlier until, towards the end of the 20th with a winning smile but he leaves no long-term decline across the rich world for century, the law turned again. In the 1980s, doubt that he is serious. If Google, You- decades—not least because of technologi- following the lead of Margaret Thatcher in Tube’s owner, does not budge, he will call a cal change. Now tech, from social media to Britain and Ronald Reagan in America, strike. Mr Sprave runs “The Slingshot artificial intelligence (ai), may help organ- governments sought to combat strikes, re- Channel”, dedicated to rubber-powered ised labour make a comeback. strictive working practices and inflation- weapons, which boasts over 2m subscrib- ary wage demands with laws that greatly ers. He is also the founder of the YouTubers Union gap restricted union powers. Union, which counts over 16,000 mem- A revival of trade unionism would seem But robust research that shows a strong bers. He launched the organisation in unlikely. Before the mid-19th century, al- link between legal changes and member- March after YouTube stopped showing ad- most no workers were unionised. Then in- ship is scarce. A paper by William Brown of verts alongside many of his and others’ dustrialisation and urbanisation brought Cambridge University, and his colleagues, clips, following pressure from advertisers. workers into closer proximity, providing which looked at the period between 1979 It caused his income to drop from $6,500 to both an opportunity to organise and a rea- and 1997, supported the notion that “British $1,500 a month. The group’s main demand son—to negotiate pay and conditions. legislative change has not exerted a major is to stop such “demonetisation”. America’s union-membership rate hit 10% influence on union membership.” Indeed It is easy to dismiss Mr Sprave as a crank. of employees by 1915 before peaking at 30% unions only started to flourish decades His channel walks a fine line between by about 1950. Sweden reached around after they were decriminalised. And their pranksterism and gun-nuttery. Member- 40% in 1930 as did Britain by the 1950s, power began to wither long before the ship of his union is simply a matter of sign- when 10m workers belonged to a union. stricter laws of the 1980s. ing up to a Facebook group and it is unlike- The rapid decline which set in took almost A flowering and fading of “class con- ly that other members would follow his call everyone by surprise. Across rich countries sciousness” is another explanation offered to take their content off YouTube if it failed unionisation has fallen sharply (see chart 1 by historians for unionism’s ups and to bend to his wishes. But the YouTubers on next page). Only one in ten American downs, though this is hard to measure. A Union does symbolise a new stage in the employees is in a union today. The median more convincing theory, for which there is 1 24 Briefing Trade unions and technology The Economist November 17th 2018

2 some empirical support, is that the state tion has fallen, making it easier to assess has obviated the need for unions by doing the output of individual workers. In Ameri- The making of the working class 2 their job for them. Most rich countries now ca the share of jobs with some element of Britain have guaranteed minimum wages. In many performance-related pay rose from 30% in Unionisation rate* Capital stock places workers’ rights have been enshrined the late 1970s to more than 40% in the % % of GDP in law and extended to include things such 1990s. If pay corresponds to personal out- 60 300 as parental leave and sick pay. What is left put, employees may feel that their energies for unions to bargain over? are better directed towards working harder 50 250 Yet the rise and fall of union member- than to organising with others. 40 200 ship has followed such a similar pattern in In the rich world capital-intensive in- so many countries that a structural expla- dustries such as manufacturing and min- 30 150 nation, with technological change at its ing, the base of unionisation, have shrunk. heart, is the most compelling of all. This in- They have been replaced by the services 20 100 terpretation also shows why a resuscita- sector, which is intrinsically less welcom- 10 50 tion of unionisation will be difficult. ing to unions. Rich economies now rely Technology drove the ascent of indus- more on “intangibles”, such as software 0 0 trial capitalism in the mid-19th century and and patents. It is easier to move a call-cen- 1855 80 1900 20 40 60 80 2000 15 changed patterns of employment. Under tre to a different location, including to a *Years beginning the “putting out” system of pre-industrial new country, than a shipyard. Workers who Sources: Bank of England; ONS April since 1999 capitalism, workers were often sole traders are happy that their jobs exist at all are un- who laboured at home. That made organis- likely to bargain for more. new features of its app on a small group of ing impractical. As a more formal system of The decline of unions has revived argu- drivers—without telling them what is go- employment in factories or mines became ments over the benefits they offer to working on. Online communications are an at- the norm, workers were lumped together, ers and to the economy as a whole. The tempt to overcome this “information dis- making it easier to organise. It also became number of working days lost to strikes in advantage”, says Alex Rosenblat, author of more obvious to workers who was exploit- the rich world has been dropping alongside “Uberland”, a new book about the firm. ed and who was doing the exploiting. declining union power. That boosts annual Comparing notes is also widespread output. No longer is there much risk of among users of global crowdsourcing plat- Factors of production runaway inflation as unions and employ- forms such as Mechanical Turk and Free- Changing patterns of investment during ers battle over wage rises. Weaker unions lancer, where digital labour is traded. Of the Industrial Revolution handed more can lower entry barriers to a labour market, 658 online workers in sub-Saharan Africa power to organised labour, helping unions making it easier for the young, women and and South-East Asia interviewed by Mark to grow. In the 19th century bosses began to ethnic minorities to find employment. Graham and his colleagues at Oxford Uni- spend vast sums on factories, mines and Left-leaning wonks counter that the de- versity, 58% said that they are in digital railways (see chart 2). As the amount of cline of unions is responsible for the drop contact with other workers at least once a fixed capital grew, workers could exert in the “labour share”—the proportion of week, mostly on social media. They usually greater power. Tim Mitchell argues in his gdp accruing to workers in the form of pay talk about how to build a career online and book, “Carbon Democracy”, that coalmin- and benefits. The evidence is mixed. Re- avoid scams, but also about prices for jobs ers could exploit new choke-points in an search on the British economy from Andy and how to divvy them up. economy. Getting coal out of the ground re- Haldane, the chief economist of the Bank quired small groups of workers at the pit of England, finds that a rise of ten percent- The logic of connective action face who were not easy to replace. This gave age points in the rate of unionisation raises As for the second objective, co-ordination, them huge leverage because such was the wage growth by around 0.25 percentage without digital tools teachers’ strikes in dependence on coal throughout the econ- points a year. But a paper for the Brookings West Virginia and other American states omy, from power stations to railways, that Institution, a think-tank, that looks at earlier this year would not have been as a strike could soon bring a country to a American data finds a “statistically impre- successful as they were, explains Jane Mc- grinding halt. cise relation between cross-industry Alevey, a longtime organiser and author of Over the past 30 years technological changes in unionisation rates and sectoral several books on unions in America. In change has caused unions to fall away. The declines in payroll shares”. West Virginia teachers set up a Facebook cost of collecting and processing informa- Even if the advantages to workers are group that was open only to invited col- not clear cut, support for organised labour leagues. Nearly 70% of the state’s 35,000 is rising again (see chart 3 on next page). teachers joined. The group became the hub Disunited we stand 1 And technology may again play a central of discussions on what to demand and how Unionisation rate, % of employees role in helping a revival—particularly in to organise protests. America, where activists are trying inven- The West Virginia strike is a good exam- 60 tive new ways to organise workers. ple of the third objective: getting the word Britain Use of social media is taking the place of out. The Facebook group turned into a fac- Germany Canada the shopfloor meeting in what is called tory for hashtags and “memes”, memorable 40 “connective action”. Facebook, Reddit and images or video clips that spread virally on- Italy WhatsApp, as well as tools such as Hustle, a line. The same sort of thing happened texting service, allow labour groups to do when Starbucks, a chain of coffee shops, Japan 20 three things: collect information, co-ordi- refused to let baristas show their tattoos. nate workers and get the word on cam- Management caved in after employees United States paigns out to the wider world. took pictures of their body art and 0 Start with information. Although they uploaded them to social media. work independently, many Uber drivers However, services such as Facebook and 1960 70 80 90 2000 10 17 are active in chat groups and other online WhatsApp are not designed for mass activ- Source: OECD forums. The ride-hailing firm often tests ism. That means they have limitations. 1 Actual investors emphasise what might go right. Not wrong.

SEARCH FOR ACTUAL INVESTORS 26 Brieﬁng Trade unions and technology The Economist November 17th 2018

2 They lack tools to move beyond discussion Al-Ani of the Alexander von Humboldt In- to more involved forms of organising. Put up or shut up 3 stitute for Internet and Society. Unions WhatsApp, which is used by many Uber United States, “Do you approve or disapprove could become service providers for self-or- drivers, limits the size of texting groups. of labour unions”, % responding ganising groups, helping them with things They are also prone to misinformation and 75 such as legal advice and lobbying. trolling. “On Facebook, if you ask about The digital world has been embraced by your rights when you are pregnant, only a Approve some unions. Worried about the rise of few comments may be helpful,” says An- 50 crowd-working, Germany’s ig Metall, the drea Dehlendorf of the Organisation Un- country’s largest union, now allows self- ited for Respect (our), which supports re- employed workers to join. In 2015 it also tail workers at Walmart and elsewhere. 25 launched a site to compare conditions on As a result, activists have started to de- Disapprove different crowdworking platforms, called velop digital services specifically for labour Fair Crowd Work. groups. Coworker.org is an early instance. 0 Some unions have even set up innova- Founded in 2013, the website helps workers tion units. One is hk Lab, created a year ago condense their demands in a petition and 1936 50 60 70 80 90 2000 10 18 by the National Union of Commercial and Source: Gallup spread them on social media. Starbucks Clerical Employees, Denmark’s biggest un- employees have launched several succession. Experiments include a chatbot for ful campaigns, and not only about tattoos. Workit, which licenses its system to other member inquiries and a service centre for They pushed the firm to minimise “clopen- labour organisations, has six takers, in- freelancers. America’s National Domestic ing”, for example—where the same person cluding the Pilipino Workers Centre in Los Workers Alliance operates Fair Care Labs, a closes a store late in the evening and opens Angeles and United Voice, an Australian service to improve the lot of nannies, it at the crack of dawn the next day. union. Coworker.org has been used by em- carers and house cleaners. It will soon ployees from more than 50 companies. For launch Alia, a portable-benefits service. Reorganised labour Starbucks it has become a union of sorts. Clients make voluntary payments of $5 per Coworker.org was long an isolated exam- Over 42,000 people in 30 countries are con- job, which allows cleaners to get some in- ple. Recently similar services have flour- nected via the service. surance coverage and paid time off. ished by mimicking the startup approach Yet, as any startup will confirm, launch- and “unbundling” the roles of official un- ing a new service is much easier than ex- Labour’s lost ions. These startups are parcelling the va- panding one. Most of the fledgling labour- However promising such projects, they are rious functions of unions into a series of tech projects rely on donations from phi- unlikely to help labour regain its erstwhile discrete digital alternatives. In this way a lanthropists, socially minded investment bargaining power soon. But if the digital la- new breed of activists is changing the way funds and similar sources. It is not clear bour movement has proven anything so that workers can organise. where the capital would come from to al- far, it is that information and data are ever Some startups aim to fulfil the role of low them to grow. In addition, these ser- more powerful. Coworker.org used online informing workers and recruiting mem- vices lack the legal standing and political polls to confirm that Uber had again cut bers. Two years ago our launched Workit, power of conventional unions, points out fares across the country, thus also reducing a smartphone app for Walmart workers. David Rolf of America’s Service Employees drivers’ pay. Bad publicity is the digital After signing up, users are presented with a International Union. equivalent of the picket line, says Michelle simple chat interface where they can ask Labour startups may need the support Miller, co-founder of Coworker.org. questions about the retail chain’s complex of existing unions if they are to turn into a Obtaining more and better data could workplace regulations. Volunteers, often force to be reckoned with. The best out- give rise to what Fredrik Soderqvist of Un- Walmart employees themselves, answer. come would be if grassroots groups and ionen, a Swedish union, refers to as “pre- Others concentrate on helping workers conventional unions teamed up, says Ayad dictive unionism”. His organisation is voice their opinions. Union bosses have of- building a system that could mine infor- ten been criticised for not paying much mation it has about its members as well as heed to the rank-and-file’s demands. Work- data from other sources. The idea is to offer ership is a platform that attempts to bring services such as telling workers when they structure to often freewheeling discus- should ask for a raise. Algorithms could sions online and to enable employees to also predict the likelihood of lay-offs, if say pipe up without fear of repercussions a new chief executive takes over, and hence (posts are anonymous). Collective-bar- the need to get members ready to act. gaining agreements, for instance, are bro- Perhaps the best example for the power ken down into small segments which of data so far is Mystro, an app for drivers members can discuss. for ride-hailing services such as Lyft and Then comes finding ways to make mon- Uber. It allows them to switch easily be- ey to finance activities. The Independent tween services, evaluates trip requests, re- Workers Union of Great Britain has resort- jects unprofitable ones and keeps track of ed to crowdfunding its legal actions all kinds of information that helps drivers against Deliveroo, an online-delivery firm, make better decisions. which it accuses of having denied employ- For now, unions still look weak. Mem- ment rights to its riders. TurkerView, an bership continues to decline. But their his- American website that collects and shows tory shows that the relative power of labour for free reviews of clients who post jobs on and capital is constantly in flux. Recent de- Mechanical Turk, is toying with the idea of cades have been tough on labour, largely as a premium service that charges users who a consequence of technological change. want fast automated access to its data. But technology may also be the thing that Some of these projects are spreading. Online to the picket line helps turn their fortunes around. 7

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olin.wustl.edu United States The Economist November 17th 2018 29

Wildfires in California wildfire. Power lines can fall or make contact with trees; people can also cause the The new abnormal first spark. City and county governments, hungry for the tax revenue that comes from new developments, often wave through new buildings in areas that are fire-prone. Although Californian state law requires people to manage flammable vegetation SAN FRANCISCO within 100 feet of their home in order to California faces the most destructive fire in its history create a buffer, local officials often fail to s the flames moved toward Helltown, Yet the majority of forests in California are enforce it and opt for relatively lax con- Aa former gold-mining settlement, the under federal control, and much of the area struction standards for new homes. “We headlines wrote themselves. Part of north- burning in Southern California consists know how to make our houses and build- ern California had become an inferno. A not of forest but of grassland and shrubs. ings safer in an urban environment,” says nearby town, Paradise, which a week be- There are three reasons why California Mr Rasker. “Somehow if you live in the fore had 26,000 residents, was incinerated has been besieged by flames. First, the cli- woods, these things don’t apply.” and reduced to ash. Nearly 50 people are mate is becoming warmer. This has led to A third reason for the more frequent confirmed dead and over 200 missing, snow melting earlier, drier landscapes and and intense fires is that there is more fuel. making “Camp Fire” (named after the road a longer season when fires are likely to ig- Fires today burn twice as many acres and where it began) the deadliest in the state’s nite. In western states the average fire sea- for twice as long as they did in the 1990s. history. About 130,000 acres, an area nearly son is 84 days longer than it was in the Before western settlers arrived, fires used the size of Chicago, has already burned. 1970s. “This is not the new normal. This is to happen often and naturally, which The scent of destruction spread even the new abnormal,” Jerry Brown, the state’s helped forests regenerate and also made further. In San Francisco, 150 miles away, governor, said recently. less fuel available for future fires. For the the smell of smoke has been so strong that A second reason is that more people live past century fires have tended to be quickly many wear masks when they step out- in combustible places. Since 1990 60% of suppressed. This has led to a build-up of doors. Meanwhile, in southern California’s new homes in California, Washington and dry brush, and makes the average wildfire coastal mountains, two other fires have Oregon have been built in spaces abutting much likelier to turn into a raging mega- claimed lives and livelihoods. Six of the ten nature, says Ray Rasker of Headwaters Eco- fire. There have been efforts to make the most destructive fires in California’s his- nomics, a research firm. These areas, forests safer, through thinning them and tory have occurred in the past decade. In which environmentalists call the “wild- controlled burns. But they have been sty- that time the California Department of For- land-urban interface”, are at higher risk of mied by a lack of resources—which the for- estry and Fire Protection (called Cal Fire) ests service has tended to use up fighting has spent over $3.8bn fighting fires in the wildfires—and complaints about smoke state, more than it spent in the previous 30 Also in this section from planned burns. years combined. Last year was the most de- Despite Mr Trump’s rabble-rousing, for- structive year on record, until this year. 30 Water in California ests are one area where the parties have Why is the Golden State so flammable? 31 The new attorney-general come together and made progress. In President Donald Trump offered his March Congress passed a fix for the way the own answer, blaming California for “gross 32 Florida recounts, again us Forest Service is funded, so that its bud- mismanagement of the forests” and threat- 34 Boondocks and boondoggles get is not restrained by the need to fight ening to withhold federal aid (he later au- mega-fires, leaving more funds for preven- thorised emergency funds to help victims). 36 Lexington: Adam Schif tion, maintenance and restoration. “The 1 30 United States The Economist November 17th 2018

2 need is big, but the good news is that the pot is growing,” says Lynn Scarlett of the Nature Conservancy, a non-profit group. Putting out the blazes is the most immediate task for California, but not the last. Many survivors will want to rebuild their homes exactly where they were. “Politi- cians, in an attempt to be loving and com- passionate, tend to reduce or eliminate building rules,” says Chris Dicus, a fire expert who teaches at California Polytechnic State University. In the Oakland hills, near San Francisco, which witnessed a confla- gration in 1991, houses have been rebuilt; but they are larger and closer together and streets more narrow, which will restrict the ability of firefighters to tackle fires when they next break out, says Char Miller, a pro- fessor at Pomona College. Cities and counties should question whether to allow redevelopment and how to reduce risks. San Diego, which experi- enced a severe wildfire in 2003, has identified over 40,000 houses that are at high risk of fire and requires property owners to Water in California maintain a “defensible space” clearance around their home. If they don’t clear flam- Source of discord mable brush themselves, the city will do it for them and add it to their tax bill. Local governments could also consider buying out property owners in especially flammable areas, much as some have done with those who own property on flood plains, LOS ANGELES The president wades into California’s water wars says Mr Miller. Californians will also want to ensure he federal government and the state agencies may pump out of the delta formed that utility companies are acting and in- Tof California seem to love suing each by the Sacramento and San Joaquin rivers. vesting responsibly. Investigations into other, and have done so dozens of times in The California delta is the largest estuary what caused the Camp Fire are still going the past two years without causing anyone on America’s Pacific coast and the source of on, but some reports suggest it may have much damage. But President Donald water for 25m people. All this seemed begun with sparks from lines owned by Trump is now threatening to sue the state straight out of Mr Trump’s playbook: blus- pg&e, an electricity company. In June Cal over control of water. This could harm a lot ter, threaten to rip up an old treaty and try Fire determined that pg&e’s lines and of people, because water is the source of the to impose a new one. equipment were culpable in sparking at most contentious and enduring battles in This example might seem doomed to least 12 fires last year, including the deadly America’s largest state. fail for legal reasons. Normally in federal blazes in wine country. The company is In October, Mr Trump ordered his ad- matters, federal law outranks state law. But facing multiple individual and class-ac- ministration to speed up (meaning, relax) water is different. An act of 1902 (the Feder- tion lawsuits as a result. 7 environmental reviews of Californian wa- al Reclamation Act) says that state law pre- ter projects and to suspend or dilute rules cedes federal law on disputes about water, that prevent water being siphoned-off for even regarding dams and levees run by the Firing line farmers. The timing of the memo was an federal government. A federal law concern- United States, California wildfires election gimmick. It aimed to please Re- ing California, the Central Valley Improve- Structures burned, ’000 Deaths publican voters in farming districts on the ment Act of 1992, reasserted the primacy of eve of the mid-term elections. But this was state law and was confirmed by the Su- Fire name 0246 810 not the first action of its kind. preme Court. Whatever Mr Trump’s admin- Camp, 2018* 48 In July the Bureau of Reclamation, the istration may think, the feds must abide by Tubbs, 2017 22 federal agency that oversees water man- Californian law, not the other way around. Tunnel, 1991 25 agement, threatened to sue California’s But in practice, says Rick Frank of the water board, arguing that its plan to keep University of California (uc), Davis, “there Cedar, 2003 15 more water in the state’s two largest rivers is a lot of play in the system.” The federal Valley, 2015 4 would unfairly reduce the amount diverted authorities can do a lot of harm if they stop Witch, 2007 2 away for agricultural and urban use. The talking to state managers. To understand secretary of the interior then threatened to why, you must go back to first principles. Carr, 2018 7 break off relations between the federal gov- Three-quarters of the state’s water falls Nuns, 2017 3 ernment and state water managers unless as rain and snow north of the California Thomas, 2017 2 the state dropped its plan. At the same delta. Three-quarters of the water is con- Old, 2003 6 time, the bureau said it wanted to renegoti- sumed south of it. A vast network of dams, ate a landmark agreement of 1986 which canals and pumps shifts water from north Source: Cal Fire *At November 14th, 12pm GMT governs how much water federal and state to south. The system is an integrated one, 1 The Economist November 17th 2018 United States 31

2 but when it was planned in the 1930s (dur- Third, the state is trying to build two break off relations with California referred ing the Depression), the state could not af- new tunnels in the Delta as a more reliable only to the management of water within ford to finance the whole project. The fed- and, its proponents claim, less environ- the state, not to the Colorado. But once dis- eral government stepped in and built (and mentally damaging way of pumping water putes start, they are not easy to contain. still manages) many of the dams and out. The $15bn project, called Water Fix, has Optimists argue that brinkmanship has pumps. Operationally, the two sides need been in the works for decades and is prob- always been part of California’s water wars to work together. ably nearer to getting the go-ahead now and no one has ever careened over the edge. Over the years demands on the system than at any time since 1980. But this too is And as Jay Lund of uc, Davis says, “water have increased. There is not enough water vulnerable to a state-federal bust-up be- users all know they have to get along after to satisfy farmers, city dwellers, fisher- cause the state may not be able to finance Trump has gone.” men, environmentalists, and so on—and the project on its own. Adding to the uncer- The trouble is that they are also feeling conflicts have to be resolved by two groups tainty, the project’s main supporter, Mr more aggrieved than usual. Farmers are be- of managers, not one. To make matters Brown, is retiring and it is not clear that the ing encouraged by the administration to worse, climate change and a six-year new governor, Gavin Newsom, will throw demand more water. Urban users have drought that ended in 2017 have increased his weight behind the scheme. made large efficiency gains and think it is the stress on the hydrology of the state, Lastly, the third giant river feeding time for others to do the same. Fishermen forcing a further squeeze on users and southern California, the Colorado, is in the fear that the fish, and their livelihoods, are ever-tougher choices. middle of an unprecedented 19-year on the verge of extinction. The ppic’s Brian The next two years will be exceptionally drought. Of its two reservoirs, Lake Powell Gray says “it’s in everyone’s interest to important because, in addition to the usual is half full and Lake Mead barely a third full. reach a settlement voluntarily, rather than conflicts, the state’s water managers face In early October, the seven states (includ- through lawsuits or solutions imposed by big decisions in four areas. A breakdown in ing California) that share its waters issued the state or water boards.” That is why the relations with the federal government, drafts of new agreements to stop water lev- administration’s threat to turn its back on worries Leon Szeptycki, a water expert at els falling further and to forestall ration- the state is so dangerous. It would make vo- Stanford University, could make agree- ing. The Trump administration’s threat to luntary deals harder to achieve. 7 ment on each of these matters harder. The first task is to replenish groundwater depleted by farmers during the drought Presidential appointments of 2011-17. Normally, groundwater (in aqui- fers) accounts for about 30% of urban and Lukewarm marks for Matthew agricultural water use. During the recent drought, however, the share rose to over 50%. Worse, according to the Public Policy Institute of California (ppic), a think tank, groundwater reserves have been depleted more during each successive recent WASHINGTON, DC Assessing the president’s choice to replace Jeff Sessions drought. A new law called the State Groundwater Management Act (sgma) he president has never accepted that Times by Neal Katyal, a deputy solicitor- tries to deal with over-use by requiring wa- TAmerica’s attorney-general is supposed general under Mr Obama, and George Con- ter users to organise themselves into to be the nation’s top law-enforcement of- way, a conservative lawyer whose wife, Kel- groups and asking each group to show how ficer, rather than his own personal lawyer lyanne, spins for Mr Trump—is that the it will stop depleting groundwater in 20 and protector. Jeff Sessions, whatever his constitution’s appointments clause dic- years’ time. The plans, which constitute other faults, understood that well. As a re- tates that all principal officers, meaning one of the most ambitious water-conserva- sult, he was unceremoniously booted out a people who report to nobody but the presi-1 tion projects ever, must all be approved by day after the mid-term elections. To re- 2022. They are vulnerable to disruption. place him on an acting basis, President Do- Any breakdown in relations between the nald Trump picked Matthew Whitaker, state and federal authorities could under- who served as chief-of-staff to Mr Sessions. mine sgma if, for example, the two sides is- Critics from both parties have questioned sued different instructions on how much the legality of his appointment and his fit- water may be pumped out of the system. ness for the job. Second, the state’s water-control board At the heart of the first controversy lies is trying to increase the flow of water in the an undeniable fact: Mr Whitaker has not main rivers of the delta. Early in 2018 it re- been confirmed by the Senate in his cur- affirmed that it wants to increase the rent role. The Justice Department (doj) ar- amount in the San Joaquin river from its gued, in a memo issued on November 14th, current level of 20% of its natural flow to that the Federal Vacancies Reform Act of 40%. The measure is long overdue. Some of 1998 allows the president to appoint some- the river fish, including the Delta smelt, are one not confirmed by the Senate to fill a on the verge of extinction. Water-users are cabinet post temporarily, which the Act de- divided about the plan, with fishermen pit- fines as no longer than 210 days. The memo ted against farmers, and both fearing for cites precedent dating back to 1792, and their livelihoods. The state governor, Jerry notes that both George W. Bush and Barack Brown, has set up a process for settling Obama designated people who had not these disputes. As with the groundwater been confirmed by the Senate to head agen- plan, the threatened rupture between state cies temporarily. and federal authorities could wreck the set- There are two principal counter-argu- tlement process. ments. The first—advanced in the New York America’s next top sherif 32 United States The Economist November 17th 2018

2 dent, must be confirmed by the Senate. Florida recounts, again Clarence Thomas, perhaps the Supreme Court’s most conservative justice, endorsed that view in an opinion in 2017. Bitter orange The state of Maryland endorsed a similar view in a lawsuit filed in federal court WASHINGTON, DC Why Florida is a serial ofender at election time on November 13th. The state is seeking an injunction barring the doj from filing mo- or democracy to work, the winners tions under Mr Whitaker’s name in a sepa- Fand losers must accept the result was rate suit the state has filed against the fair. A quick, accurate count helps with Trump administration. Maryland con- that. America’s mid-term elections took tends that his appointment violates not place more than a week ago but in several just the appointments clause, but also that states the results are still not final. Flori- custom and statute dictate that Rod Rosen- da is, once again, the worst offender. It stein, the deputy attorney-general, should took the state four days to carry out a be named attorney-general. A hearing is preliminary tally. The results were close expected shortly. enough to prompt recounts, which could His appointment’s constitutionality take weeks. In the meantime, it is spring- aside, Mr Whitaker has unconventional time for conspiracy theories. The Repub- views for an attorney-general. He believes lican candidate in the Senate race, Rick that Marbury v Madison, a case from 1803 Scott, has alleged without evidence that that established the Supreme Court’s au- there was “rampant fraud” in two of thority as constitutional arbiter and under- Florida’s largest counties. The president girds two centuries of jurisprudence, was joined in, saying “large numbers of new wrongly decided (though, in a nifty bit of ballots showed up out of nowhere, and reasoning, he also condemned the court many ballots are missing or forged.” for upholding the Affordable Care Act). In Though claims of fraud are unsub- Broward beaters 2014, while running for Iowa’s Senate seat, stantiated, the brouhaha over the elec- he implied that only Christians should tion in Florida is real. Florida has form after polling day. This points to yet an- serve as judges. here. The presidential-election count of other problem in Florida. Election su- Mr Whitaker’s résumé is equally uncon- 2000 dragged on for more than a month pervisors are elected, but few voters ventional. Before he went to work for the as administrators, lawmakers, and the know anything about the candidates for administration, he sat on the board of a state’s Supreme Court decided how to the office or bother to turn up and vote. company which the government accused count and recount votes. In the Sunshine Ms Snipes says that her county re- of scamming customers, and fined $26m. State’s defence, there is no other big state ceived a pile of ballots by mail just before The company’s founder reportedly enlisted where the winning margins are so slim. the deadline, lengthening the count. Mr Whitaker, a former federal prosecutor, Yet more than 100m people voted in Other states also had problems certifying to dissuade customers who had asked for Brazil’s recent presidential election and election returns. Arizona was slow to their money back. the results took less than a day to count. count, something its secretary of state, This is a minor fault compared with the As in most states, Florida’s election Michele Reagan, attributes to the large prospect of Mr Whitaker overseeing the in- management is decentralised. The state number of early votes: 320,000 ballots vestigation run by Robert Mueller, the spe- delegates election-administration pow- were unsealed on election day. Each one cial counsel, into Russian interference in ers to counties. Each of the state’s 67 needed its signature checked, and then the 2016 election. It is not just that Mr Whi- counties can design its own ballot paper. to be checked against the election-day taker has repeatedly derided the investiga- County officials are then responsible for ballots, to eliminate any double voting. tion; he has denied that Russia interfered counting votes within their jurisdiction. Most of the states that have certified at all. Yet even if Mr Whitaker were to de- Broward County, which leans Demo- results are smaller: Delaware and Ver- fund or undermine Mr Mueller’s team, cratic, produced a ballot paper so confus- mont were among the first to fully re- New York’s attorney-general could contin- ing that lots of voters appear not to have port. Florida, by contrast, must count ue digging, as could the House, when it re- noticed that there was a Senate election more than 8m ballots. convenes with a Democratic majority in taking place in Florida. Broward County Having a fragmented, low-tech elec- January (see Lexington). cast an abnormally low number of votes tion administration has some advan- Mr Sessions’s original appointment set in the senate race, prompting specu- tages. Though foreign powers might up a trade-off. The outgoing attorney-gen- lation that roughly 25,000 “under interfere with election campaigns, an- eral held unreconstructed views on crimi- votes”—where people cast votes for other cient voting machines are hard to med- nal justice but took the rule of law serious- races but did not vote in the Senate con- dle with. The gru’s hackers did not alter ly. Mr Whitaker seems to offer that test—would have tipped the race to the any vote tallies. Yet badly designed bal- dilemma in reverse. He is more of a lackey Democratic incumbent. lots and interminable recounts corrode than Mr Sessions was. And yet he is less Unfortunately for Democrats, this confidence in other ways. For a relatively likely to stand in the way of the criminal- own-goal will stand. “You don’t get a meagre investment, states could buy justice reform that America badly needs, do-over for poor ballot design,” says voting machines that are not connected and which Mr Trump has endorsed. 7 Michael McDonald of the University of to a network, and therefore cannot be Florida. Brenda Snipes, the county’s hacked remotely, and that spit out paper Correction: When last week’s issue went to press it elections supervisor, has a dreadful receipts, so results can be audited later. appeared that the Republican candidate, Martha record on supervising elections. In 2004 Failure to do so will invite claims of fraud McSally, had won the Senate race in Arizona. Once her county lost 58,000 ballots; in 2012 in 2020 from more candidates, probably all the votes were counted, Kyrsten Sinema was the victor. Our apologies, and congratulations, to 1,000 uncounted votes turned up a week starting with the president. Senator-elect Sinema. ASK VANGUARD WHY THEY CHARGE MORE #31 THAN TWICE AS MUCH TO INVEST IN AMERICA’S LARGEST 1000 STOCKS.

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Tax breaks sage parlours are out. Real-estate developers must make “substantial improvement” Boondocks and boondoggles to a property within 30 months of buying it, equivalent to doubling the value of any pre- existing buildings. The law is not supposed to be for investment in mega-corporations either. To qualify, companies that receive investment must have at least 50% of their PORTLAND, MAINE activity and 70% of their physical capital in A new place-based policy takes shape a zone. But relative to comparable schemes ensus tract three in Cumberland fered a lot of emigration. This appears to there are very few strings attached. CCounty, Maine covers part of the city of have raised employment and wages in One concern is that investors will Portland, named America’s top food desti- these places. More recently, the New Mar- pocket tax rewards for investments that nation by Bon Appétit magazine. Its dock is kets Tax Credit has handed tax credits to in- they would have made anyway. The benefit the landing spot for an expected 200,000 vestors in certain areas. One study pub- to locals may not be worth the cost of the tourists this year. Yet Census Tract Three lished in 2012 found the scheme raised forgone federal tax revenue, which could has also been designated as an opportunity employment and lowered poverty a bit in otherwise be used for different things. zone, America’s favourite new policy for the affected places. Vetting was stringent: Then there is the matter of creating a new, increasing investment in poor places. only 16% of applications for the credit be- open-ended tax break for investors, who These zones are part of last year’s tax tween 2003 and 2017 were successful. are usually the wealthiest Americans. cut. The policy tempts investors to put The other evidence is mixed. Enterprise their money into poor areas with generous Zones in Britain and France, for example, The Maine chance tax incentives. It allows investors to defer offered tax breaks to businesses operating Portland’s Census Tract Three, and other tax on any unrealised capital gains they re- in certain areas and appear to have raised places like it, offer a warning. Ideally tax invest in the zones. If the resulting invest- employment, but at the expense of areas credits would do the most good in areas ment is held for seven years, 15% of that nearby. The European Union doles out that were not showing signs of revival on original capital-gains liability is written “structural funds” for investment in poorer their own. A study by Hilary Gelfond and off. And if the investment is held for more regions, which seem to raise local output Adam Looney of the Brookings Institution, than ten years, any associated capital gains and employment, but there are questions a think-tank, found that 89% of selected tax due on gains during that decade is over how lasting their effects are. In Ameri- opportunity zones do have poverty rates waived. The scope of the policy, as well as ca state and local governments compete higher than the national average. But when its cost in foregone tax revenue, is vast: with each other to attract business by offer- selecting census tracts to be opportunity nearly 35m Americans live in places desig- ing packages of tax cuts, and it seems that zones, most states picked places that were nated as opportunity zones. successful bids do deliver benefits to the more likely to show signs of gentrification Investors are salivating. On November local community. But there is little evi- than eligible ones that were passed over. In 10th Anthony Scaramucci, President Do- dence to suggest that this is much more such cases, it seems right to ask how much nald Trump’s one-time adviser, announced than a zero-sum game between places. investment taking advantage of the tax he would be starting a real-estate fund to Opportunity zones differ from these break might have happened anyway. invest in the zones. Boosters point to the earlier attempts, in that they come with Doug Ray, who helped Maine’s gover- trillions of dollars of unrealised capital very few conditions. Investors will be free nor, Paul LePage, to draw up that state’s list gains ready to be unlocked, and Steven of any kind of approval process. There are of places, explains that to be picked as one Mnuchin, the treasury secretary, has spec- some restrictions on what counts as a qual- of the opportunity zones, it helped to have ulated that as much as $100bn could flow in ifying investment. Golf courses and mas- sites ready for investment, as well as an ad- to the 8,761 zones. The Joint Committee on equate supply of workers and housing. “A Taxation has estimated that it will cost lot of areas that are eligible are where in- $1.6bn over their ten-year forecasting win- vestors would not probably want to put dow. But as the scheme is uncapped, the fi- money,” he says. nal amount could be much larger than that. Perhaps the most worrying element of Plenty of policy wonks like place-based the policy is that it will be fiendishly diffi- policies in theory, because they worry that cult ever to know whether it has succeeded poor parts of America now find it harder or has just been a gigantic waste of money. and harder to catch up with rich ones. In So far it is unclear whether the government theory, geographically targeted tax cuts or will track how opportunity-zone funds are subsidies could encourage new clusters of used. If state and local governments simply economic activity to form, thereby lifting use them to turbocharge existing develop- depressed places. ment policies, or are forced to harness the But getting good results, or good evi- incoming investment by offering even dence, is not so straightforward. Earlier more tax incentives, then isolating their place-based policies have been difficult to impact will be even harder. evaluate, in part because some were tried The scheme is still in its infancy. The in areas that would probably have recov- first batch of Treasury regulations was re- ered without them. They also have tended leased on October 19th, and another is due to be multi-pronged, making it difficult to later this year. John Lettieri of the Eco- know what precisely has generated any nomic Innovation Group, a think-tank and success. In 1994 Congress created a number advocate of the zones, says that “there’s a of Empowerment Zones, offering both failure of imagination about what this grants and tax breaks for employers, in could be if it’s done well.” For the moment, places with high poverty or which had suf- Alas, poor Portland though, scepticism is in order. 7 “The more we understand epilepsy the closer we get to wiping it out.”

Loretta / Epilepsy Patient Henrik / Epilepsy Researcher

How far have we come with epilepsy research? Scientists are uncovering more about the nervous system at the molecular and genetic levels, driving innovative treatments for several neurological disorders. And with every new treatment we discover, we’re that much closer to the cure. This is the future of medicine. For all of us. GoBoldly.com 36 United States The Economist November 17th 2018 Lexington Hollywood’s unlikeliest star

Adam Schiff hopes to fight Donald Trump with facts, not fury watchdogs will simply have too much to grapple with. The tempta- tion will be to spread themselves too thinly and lose focus on what matters most. That would also turn off ordinary Americans. Hav- ing little interest in the details of 47 different Trump scandals, many would view the Democratic onslaught, however justified, as over-egged and needlessly partisan. Mr Trump, by fulminating against witch-hunts and firing off fictitious accusations against his accusers, would encourage and be strengthened by that. By the same token, Mr Schiff’s effort to reinvigorate the House investigation, despite Mr Mueller’s ongoing investigation, could look gratuitous to a public that has little interest in the Russian plot. That would be wrong, given the seriousness of Russia’s attack, and worrying, given the likelihood of a repeat. Yet it could happen, and in that case Mr Schiff would end up politicising the special counsel’s more high-powered investigation even more than it already has been. Mr Trump would waste no time in fram- ing Mr Schiff and Mr Mueller as conspirators in a liberal vendetta. He acknowledges some of these risks: “The president is going to fight oversight tooth and nail, which means we must pick and choose our fights.” He says he will focus his investigation on allegations surrounding Russian payments to Mr Trump’s company before he was elected. Neither the House nor Senate probes looked nly a partisan Republican could describe the congressman at this, though many believe it could help explain Mr Trump’s cra- Ofor Tinseltown as a “Hollywood liberal”. Though socially liber- venness towards Vladimir Putin. Mr Schiff says the allegations al, Adam Schiff, a 58-year-old former federal prosecutor, is a fiscal- may turn out “more compromising than any salacious videotape”. ly sensible moderate with national-security chops. He is also, de- He believes the special counsel has not looked at them either, spite being the likely next chairman of the House intelligence but even if he has, he says there is little danger he will muddy the committee, hardly anyone’s idea of box office. water between his probe and Mr Mueller’s. Congressional over- As the ranking Democrat on a committee that has degenerated sight, tarnished by House Republicans, is both important in itself to dog-eat-dog partisanship and conspiracy-mongering under De- and fundamentally different from the special counsel’s brief, he vin Nunes, Mr Schiff has been much provoked in the past 18 says. Mr Mueller has a mandate to investigate crimes. Having done months. He remains relentlessly measured and low-key. A look of so, he could choose not to release his findings. Congressional pained consternation, over his Republican colleagues’ latest at- oversight, by contrast, is as much about bringing the truth to light tack or intelligence leak, is as animated as he gets. “I think they will as miscreants to book: “The public deserves an accounting.” have a lot to answer for when this chapter of history is written,” he Mr Schiff’s eagerness to prioritise also suggests he has taken a says, more in sorrow than rage. Yet Mr Schiff, though neither char- lesson from his Republican tormentors. He is a veteran of one of ismatic nor fiery, qualities that some Democrats think indispens- the eight Republican investigations into Hillary Clinton’s alleged able to resisting the president, will soon lead that effort. culpability for the deaths of American diplomatic staff in Benghazi He will be responsible for holding Donald Trump to account on in 2012. It was a bogus charge: she had no direct responsibility. Yet the president’s main vulnerability: his dealings with Russia. In in the process of devoting hours of airtime and millions of dollars part this will mean backing Robert Mueller’s investigation into to it, the Republicans raised doubts about Mrs Clinton’s integrity Russia’s effort to get Mr Trump elected. Mr Nunes has tried to ob- which helped deny her the presidency. With so many real scandals struct and discredit the special counsel. Mr Schiff will provide him to choose from, the Democrats need to focus not only on the most with testimonies gathered by the committee’s own Russia investi- serious but also, as the Republicans did, on what seems most in- gation, which Mr Nunes has refused to release. dicative of their opponent’s character. Mr Trump’s alleged malfea- He also means to continue the committee’s probe. Indeed, sance fits that bill. though its Republican contingent prematurely declared the inquiry over, he and his Democratic colleagues never stopped investi- You say subpoena gating. With control of the committee’s staff and subpoena power, Sticking it to him in this way might placate Democratic activists which House committees, unlike the more collegial Senate, re- who want to impeach the president, which the party’s leadership, serve for the majority party, their effort will soon be more impos- including Mr Schiff, does not want: “There’s only one thing worse ing. “The highest priority will be not to reinvent the wheel but to than putting the country through the wrenching experience of an look at investigating threads the Republicans stopped us looking impeachment, and that’s a failed impeachment”. It would also in- at,” he says. “There are any number that were in the category of dicate that Mr Trump is better opposed with fact and reason, the conspiracy or collusion that we were not able to pursue.” grounds he cannot compete on, than fire and nonsense. This points to the main danger for House Democrats bent on This is why Mr Schiff, calm and rigorous, looks like an effective applying oversight to the administration. It has generated such a opponent for Mr Trump. It is also why the president’s effort to tar lot of sleaze and intrigue—also including the conflicts of Ryan him as “Sleazy Adam Schiff” fell flat. The only association with sin Zinke and Wilbur Ross, the policy blunders at the borders and in that clings to Mr Schiff, a marathon-running vegan, relates to the Puerto Rico, the president’s attacks on governing norms—that the fact that his wife is called Eve. 7 The Americas The Economist November 17th 2018 37

Also in this section 38 Corruption in Colombia 38 Culling iguanas 40 Bello: The captured state

Gun control in Canada coming more American. Horrors like the killings on November 7th of 13 people in Drop it! Thousand Oaks, California, and of 11people at a synagogue in Pittsburgh on October 27th receive saturation coverage. Pro-gun Canadians use arguments honed in the Un- ited States, including, increasingly, the need to own them for self-defence. Anti- OTTAWA gun activists point to American shootings An argument about firearms will help to shape next year’s election as an argument for enacting a ban. hen a man with a rifle charged into ans. At the same time, Parliament is con- Groups representing Canada’s 2.2m li- WCanada’s parliament in 2014, Mi- sidering a bill, c-71, that would tighten censed gun owners say regulations on buy- chelle Rempel, a Conservative politician, background checks and record-keeping. ing, storing and transporting firearms are was among the people who fled from a cau- The argument over these proposals will tight enough. Further restrictions would cus room as gunfire rang out around them. help to shape the parliamentary election not make the public safer, says Tracey Wil- Security guards killed the intruder, who due in October 2019. son of the Canadian Coalition for Firearms had shot a sentry outside. Canada’s gun debate differs from that in Rights, the only registered gun lobbyist Deeply unsettled by the attack, Ms Rem- the United States. Canadians, unlike Amer- (the United States has more than 11,000). pel pondered a friend’s claim that a ban on icans, have no constitutional right to bear Ms Rempel, who was minister in charge of guns could have prevented it. She delved arms. Sales and possession of firearms are economic diversification in western Cana- into regulations, studied crime data and permitted but tightly restricted. Buyers da when Parliament was attacked, has said came to an unexpected conclusion. The must undergo background checks, take that the police background check required young politician from Alberta bought a safety courses and get a separate permit to for her to obtain a licence was more thor- handgun, joined a sports-shooting club transport firearms. The process often takes ough than the vetting she underwent to and became Canada’s most prominent pro- months. The purchase of a gun for self-de- join the cabinet. She waited a year for ap- ponent of gun ownership—as a responsi- fence is allowed only if buyers can show proval. “You can ban my sports-shooting ble pastime, she says. that the police cannot protect them. Cana- equipment, but that is not going to take the Ms Rempel is at the forefront of a debate da has issued just two such permits. handguns being used in violent crime off that has gained urgency. In July a gunman Despite these obstacles, Canada has the the street,” says Ms Rempel. killed an 18-year-old woman and a ten- fifth-highest rate of gun ownership among Some law-enforcement officials agree. year-old girl, and wounded 13 other people, 56 countries: 34.7 per 100 people, according Brenda Lucki, who as commissioner of the on a shopping street in Toronto. In 2017 a to the Small Arms Survey, based in Geneva. Royal Canadian Mounted Police is the bigot killed six worshippers and injured 19 That is far behind the United States’ rate of country’s top cop, is not sure a ban is the at a mosque in Quebec City. 120.5 but higher than that of Germany, answer. The head of the Toronto police un- City councils in Toronto and Montreal France and Mexico. Ranked by the number ion says a handgun ban would have little have asked the federal government, which of deaths from firearms as a share of the impact on criminals. Canada has no na- regulates firearms, to ban all handguns and population, Canada is 107th among 195 tional data on the origin of guns used to assault rifles. Justin Trudeau, the Liberal countries, according to the Institute for commit crimes. So police cannot tell how prime minister, instructed Bill Blair, a se- Health Metrics and Evaluation in Seattle. many are smuggled in from the United curity minister, to examine a “full ban”. The (The United States is 20th.) States and how many are bought or stolen former police chief is consulting Canadi- Yet Canada’s discussion of guns is be- within Canada. 1 38 The Americas The Economist November 17th 2018

2 Gun owners say it is they who are being Corruption in Colombia zano’s documents and recordings seem to treated like criminals. Farmers, who use ri- show that the consortium made some sort fles to shoot pests and predators, are espe- The plot thickens of shady payments and that Aval at least cially aggrieved. Although the proposed knew about them. ban would probably apply just to handguns In 2017 Mr Martinez’s office ordered the and assault rifles, farmers fear it would house arrest of Luis Fernando Andrade, a lead to more restrictions. They see the anti- former partner at McKinsey, a manage- gun campaign as an example of “down- BOGOTÁ ment consultancy, who was then the direc- The magnate, the attorney general and town elites lecturing them”, says Darrell tor of the government’s infrastructure two strange deaths Bricker of ipsos, a pollster. agency, arguing that he illegally awarded When Canadians see a gun in a film, on n the night of November 8th, Jorge an addendum to the contract to extend television or in the news it is usually being OEnrique Pizano’s wife found him lying Ruta del Sol. Mr Andrade denies any used to commit a crime, frets Nicolas John- on the bathroom floor in their house north wrongdoing. As Aval’s lawyer, Mr Martínez son, a hunter who writes TheGunBlog. “We of Bogotá, the capital, wrapped in a towel reviewed that addendum and approved it. as a community have done a really bad job and breathing heavily. He died on his way Whatever the truth of Mr Pizano’s alle- in terms of communicating this is a legiti- to hospital. The cause was a heart attack, gations, Mr Martínez, who has powerful mate, safe, common activity,” he says. Gun- said forensic experts. Three days later, his political backers, is clearly in no position to owners are trying to improve their image. son, Alejandro, who had returned from conduct an impartial investigation into Ms Wilson’s group publishes a Gunnie Girl Spain for his father’s funeral, took a sip them, as he may have a case to answer him- calendar showing women hunting and from a water bottle on Mr Pizano’s desk. He self. Yet he cannot be sacked as attorney- shooting for sport. complained of a foul taste, fainted and died general. He has recused himself from two That does not impress prohibitionists. moments later. Doctors said he had been of many related cases, placing a subordi- Wendy Cukier, president of the Coalition poisoned with cyanide. His stomach, they nate in charge. Many Colombians want for Gun Control, says arguments in favour said, was destroyed by the toxin. Alejan- him to step aside entirely, or resign. 7 of gun rights are American imports with no dro’s apparent poisoning raises questions basis in Canadian law. Canadians can buy about whether his father was the victim of the ar-15, a semi-automatic rifle used by foul play, too. Caribbean fauna mass murderers in the United States, she The death of the Pizanos is the most dra- points out. Her group, created after a gun- matic twist yet in Colombia’s biggest cor- From tax shelters man killed 14 female students in Montreal ruption scandal. The case involves Ode- in 1989, is lobbying to make the proposed brecht, a Brazilian construction firm that to tree chicken c-71 bill more restrictive as well as to im- has bribed officials in a dozen Latin Ameri- pose a ban. She has received death threats, can countries, and Grupo Aval, Colombia’s including a picture of her face with a target biggest financial group. The two firms were An island is overrun with the wrong superimposed on it. partners in a $1.6bn contract to build Ruta sort of iguana Like Republicans in the United States, del Sol, a motorway linking the capital re- Canada’s opposition Conservative Party gion and the Caribbean coast. he cayman islands, a British territory, gets strong support from rural districts. Documents and recordings made pub- Tdoes not tax companies. So Grand Cay- The last Conservative government, which lic show that Mr Pizano, an auditor for man, its largest part, has more companies left office in 2015, ended a firearms registry Grupo Aval, detected more than $30m in (106,000) than people (61,000). Its popula- set up by a Liberal one. Ms Rempel spon- payments by the consortium for non-exis- tion of green iguanas greatly outnumbers sored an electronic petition on October tent consultancies. Some of the money both. There are perhaps 1.3m of them, more 11th calling on the government to scrap c-71 may have been bribes to politicians. than 6,000 per square kilometre. The liz- and the proposed ban, and to respect “law- Grupo Aval is owned by Luis Carlos Sar- ards, which can be up to 1.5 metres (five abiding” Canadians. More than 28,000 miento, Colombia’s richest man. Its legal feet) long, are a nuisance. They defecate on people have signed it. adviser for many years was Néstor Hum- cars, chomp up crops and gardens, eat the The two parties are already testing anti- berto Martínez. Since 2016 he has been Co- eggs of wild birds and short-circuit elec-1 crime arguments for next year’s vote. On lombia’s attorney-general. Odebrecht has November 8th the Liberal government an- admitted in a plea bargain with the United nounced C$86m ($65m) of extra spending States’ Department of Justice that it paid on border security and intelligence to fight $11m in bribes to Colombian politicians in gangs and gun crime. The Conservatives order to obtain the Ruta del Sol contract. want to lengthen jail terms for gang mem- Both Grupo Aval and Mr Martínez denied bers and make it harder for them to be re- prior knowledge of these payments, and of leased on bail or obtain parole. any subsequent ones. The Liberals’ clampdown on gun own- But earlier this year, Mr Pizano gave ership may give them an edge. A poll con- Noticias Uno, a television programme, re- ducted this year, before the shooting in To- cordings he made secretly of conversations ronto, found that most Canadians support he had with Mr Martínez in 2015 regarding a handgun ban. An even bigger group the payments for consultancies. Noticias wants to outlaw assault rifles like the ar-15. Uno aired them after Mr Pizano’s death. In Mr Blair plans to continue his consulta- them, Mr Martínez can be heard promising tions until the end of 2018, which means to inform Mr Sarmiento of the murky pay- that Parliament will debate the ban next ments. In a statement, Mr Martínez said year. So Canadians are likely to be talking that Mr Pizano could not confirm that about guns as they prepare to vote. Mr Tru- those payments were bribes. As matters deau, who hopes to be re-elected, will prob- stand, Aval is blaming Odebrecht for pay- ably welcome that. 7 ing the bribes behind its back. But Mr Pi- Blue is the new green “Our broker at First Republic knows us and understands us – and that is extremely valuable.”

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2 tricity transformers. The burrows in which hunters. Each is expected to kill hundreds a eggs a year, compared with up to 70 for they lay eggs damage roads and golf month (humanely, the government in- greens. By 2004 a dozen or so blue iguanas courses. sists). By mid-November they had dis- were left. A breeding programme increased The pests arrived on the island about 25 patched more than 100,000. Although the their numbers and has released 1,000 into years ago as pets. In their native habitats in rate of culling will decline as beasts be- nature reserves with few predators. South and Central America, snakes and come harder to find, the green-iguana pop- The unloved green sort could bring the birds of prey feast on iguana eggs and ba- ulation is likely to fall significantly. island extra cash. “Tree chicken” is a deli- bies. In Grand Cayman they face few At the same time the government is try- cacy in some of the iguanas’ native coun- threats besides cars; iguana roadkill is a ing to bring back native blue iguanas, tries. Spinion, a local firm, already exports frequent sight. So the Cayman Islands’ en- which were nearly wiped out by loss of hab- lionfish, another invasive species. Now it vironment department has intervened. On itat and by predators such as rats and cats. plans to sell iguana meat to North America. October 29th it began a cull of green igua- (Adult green iguanas defend themselves Grand Cayman, known mainly as a tax ha- nas, paying $6 per dead lizard to a few hun- from these with spines, claws and whip- ven, could become a leading supplier of dred people who have registered as bounty like tails.) Female blues lay from one to 20 tree chicken. 7 Bello The captured state

A vital political battle to spend money on citizens rather than insiders n costa rica’s rainy season, bright opment is the inefficiency of the state Imornings yield with deceptive sudden- and its costs,” says Ottón Solís, an adviser ness to tropical downpours. So it was on to Mr Alvarado in Costa Rica. September 10th, when the country’s civil Behind every inefficiency are benefi- servants went on strike. They oppose a ciaries who tend to be organised, while fiscal reform that raises some taxes and losers are not. That is Mr Alvarado’s limits automatic wage increases. Univer- battle in Costa Rica. His fiscal reform is sities and public offices were deserted. modest. It might reduce the deficit After blocking roads and a railway, many slightly, by 1.5% of gdp, mostly by replac- went home before the afternoon shower. ing a sales tax with a value-added tax, Two months later, some are back at work. which would apply to staple items and to But teachers are still on strike and many untaxed services, such as university state schools remain shut. With reform education. It would also curb some civil stalled, the currency is under pressure servants’ entitlements. That is what has and investors have pushed up the cost of riled the trade unions. servicing the public debt. Unless Carlos They say the government should fight Alvarado, a social democrat elected as against tax evasion instead (it should, president in April, wins this trial of but that does not make the reforms strength, Costa Rica may follow Argenti- of the (temporary) extra revenues fur- unnecessary). They present the strike not na into the arms of the imf. nished by the commodity boom. The days as a defence of their privileges but as a This is in a country that, like its of easy public money are now over. Faced fight against the value-added tax, which weather, in many ways sparkles. Its with more demanding electorates, which will hurt ordinary Costa Ricans. (In fact, long-established democracy and new want better public services, governments the tax on staple items is just 2%, and industries, such as ecotourism and must learn both to spend more efficiently will help in combating evasion.) The medical instruments, make it a model and to change their priorities. unions have appealed to the supreme for Latin America. But its fiscal clouds There is scope to do so, as the idb ar- court’s constitutional chamber, which may represent the region’s future, too. gues in a recent report (“Better spending must rule by November 26th on whether Costa Rica spends badly. And it finds it for better lives”). Its authors say that, on the reform requires a two-thirds majority hard to raise the taxes necessary to pay average, 16% of government spending (or in congress. The judges benefit from the its bills. The fiscal deficit stands at 7% of 4.4% of gdp) in Latin America is wasted. status quo, so the government may have gdp. Past governments ramped up public The reasons include inefficiency or cor- to round up the extra votes. It probably employment. Costa Rican civil servants ruption in procurement, as well as paying can, but that is no certainty. are unusually well rewarded. The public low-ranking civil servants more than Latin American leaders will have to wage bill is 12% of gdp. That is above the private-sector workers in similar jobs. fight similar battles on equally pressing Latin American average of 8.4%, which is Spending on payrolls and pensions issues, for example boosting the region’s itself high by international standards, squeezes out public investment, especially lacklustre productivity. That will require according to data from the Inter-Ameri- in the region’s missing or crumbling tran- reforming archaic labour laws. can Development Bank (idb). sport infrastructure. Big pension outlays To tackle vested interests political The question at stake in Costa Rica is a discriminate against the young. On aver- leaders require “moral authority”, argues crucial one for Latin America: is the main age, governments spend $4,000 a year per Mr Solís. Mr Alvarado probably still has purpose of the state to benefit citizens, or person on people who are over 65 and that. But most of Latin America’s other its own workers? This matters because, $1,500 on under-tens. Brazil, a country democratic politicians have rarely been although there are big variations, on crying out for better health care and polic- less trusted than today. Better states average public spending rose sharply in ing, spends half of the federal budget on require better-regarded politicians. That the region in this century, partly because pensions. “The bottleneck for our devel- is the really hard part. Asia The Economist November 17th 2018 41

Also in this section 42 Sri Lanka’s chaotic politics 44 Jihadists in Indonesian prisons 44 India’s nuclear submarines 45 Banyan: Renaming Indian cities 46 Fiji’s strongman election 46 Imelda Marcos is convicted

Ageing in Japan is at pains to stress that the new arrivals are not permanent immigrants, but guest Demographic warrior workers. Moreover, he portrays foreign workers as a last resort, to fill gaps while the government tries to get more Japanese to work. During his six-year tenure, 2m more women have joined the workforce, TOKYO lifting the female participation rate above Shinzo Abe outlines his plans to boost the workforce and trim spending on the America’s. He has increased the number of elderly. But will they be enough? nurseries and made big companies docu- he decline of the birth rate and the compared with 17% in America. But the ment their efforts to promote female work- “Tageing of Japanese society is acceler- government has been surreptitiously ad- ers. From next year nurseries will be free. ating at unprecedented speed,” warns mitting more foreign workers, mostly in Over half of women return to work after Shinzo Abe, Japan’s prime minister. Given the guise of students and trainees. The plan having a child, compared with 38% in 2010. the scale of the problem, he told The Econo- before the Diet aims to attract blue-collar “We have tried to make a society that en- mist this week, the government must push workers in 14 industries, including con- ables more women to be active, advanced for “impactful policies” to tackle it right struction, shipbuilding and caring for the and empowered,” he says. away. He mentions a series of reforms, in- elderly. They will receive visas of no more Mr Abe also wants people to “remain ac- tended to boost the workforce and reduce than five years, at least initially, and will tive without retirement throughout their the cost of supporting the elderly. The Diet not be able to bring their families. All must lives”. His government is likely to raise the is currently debating a government pro- have some proficiency in Japanese. retirement age for civil servants from 60 to posal to admit 345,000 foreign workers Mr Abe plays down the idea that he is 65, and to encourage companies to do the over five years, for instance. doing anything momentous. In debates he same. As it is, many companies have raised That sounds dramatic, but the demo- their retirement ages or taken to rehiring graphic decline is even bigger. There are retired workers, often on a part-time basis. 400,000 more deaths than births each Setting sun Fully 23% of over-65s work; they constitute year. Life expectancy is 84 years—the high- Over-65s in employment, 2017 a much bigger share of the workforce than est in the world. Over 28% of the popula- % of workforce in other rich countries (see chart). Mr Abe tion is older than 65, compared with 21% in plans to bolster this trend by increasing the 024681012 Germany, 15% in America and 6% in India. public pension for those who agree to start The country has 69,785 centenarians, a sev- Japan drawing it later than they are currently en- en-fold increase on two decades ago. United States titled to. In the long run, the prime minis- The welfare state has become unafford- ter hopes, robots and artificial intelligence able. Public debt is 250% of gdp. And Japan Britain will help ease the labour shortage. “I do is suffering from an acute labour shortage. Germany think that we will need fewer jobs because There are already 1.6 jobs for every job- of higher productivity.” seeker, and the workforce is predicted to Italy Getting older people to work for longer shrink from 67m last year to 58m in 2030. France is especially beneficial to the government’s One obvious solution is immigration. finances, since it leads both to higher tax Only 2% of the workforce is foreign-born, Sources: Eurostat; national statistics revenue and lower spending on pensions. 1 42 Asia The Economist November 17th 2018

2 Mr Abe’s tweaks are the latest in a series of Politics in Sri Lanka 2014, before allying with Mr Wickremes- changes intended to make the pension sys- inghe to defeat Mr Rajapaksa in the presi- tem more affordable. But the government Putsch-tush dential election the following year. Mr Sir- is always playing catch-up, as the ageing of isena later accused Mr Rajapaksa of the population and shrinking of the work- corruption and even of plotting to kill him. force accelerate. It reckons social-welfare Mr Sirisena now insists that Mr Raja- costs will rise by more than half by 2040, paksa is the best candidate for prime min- from ¥121trn ($1.06trn) to ¥190trn. ister. To avoid learning parliament’s view, Mr Abe appears to be planning sweep- COLOMBO he suspended it for three weeks. Mean- A bloodless coup goes awry ing changes to put the welfare state on a while, he swore in a new cabinet. But Mr firmer footing. “There will be an overall so- he schemes of Maithripala Sirisena, Wickremesinghe refused to give way, call- cial-security reform, including health and Tthe president of Sri Lanka, are blowing ing his sacking illegal. The bureaucracy fell medicine, pension and others,” he says. up in his face. On November 13th the Su- into near paralysis. “We are trying to create a society and com- preme Court suspended his order dissolv- In response to growing pressure, Mr Sir- munity where people can remain healthy ing parliament and calling a snap general isena grudgingly called for the legislature and active…and find meaning in staying election. The next day the reinstated par- to convene on November 14th. He gambled alive and living long.” liament raucously approved a motion of no on gaining the required 113 votes in the 225- Yet in practice Mr Abe is being cautious. confidence against the government that seat parliament to validate Mr Rajapaksa’s Even after the retirement age increases, it the president had only just installed. It was appointment. mps claim they were offered will still be lower than in many other rich a stinging rebuke to Mr Sirisena, who had cabinet portfolios and millions of dollars countries. Moreover, the current system stretched the constitution in his attempt to to support the new order. Even so the num- discourages those over 65 from working replace a supposed ally, Ranil Wickreme- bers looked to be falling well short. So on more than part-time since their pension is singhe (pictured, sitting), with a supposed November 9th Mr Sirisena dissolved par- reduced if their income from it and their enemy, Mahinda Rajapaksa. liament altogether and announced a snap salary exceeds 460,000 yen ($4,039) a The president has put Sri Lanka in a election—again, a move that appeared to month. It is not clear whether this will constitutional quandary. It now has no exceed his constitutional authority. change. The government has modified but clear government. Mr Rajapaksa’s team Mr Wickremesinghe’s backers com- not eliminated a tax quirk that discourages have occupied all the ministries, but Mr plained to the Supreme Court. After two married women from earning more than a Wickremesinghe’s insists that it remains days of hearings, the three-judge bench— relatively lowly amount. By the same to- the legitimate cabinet. “We went from one including the chief justice recently ap- ken, the share of medical expenses that pa- prime minister to two prime ministers to pointed by Mr Sirisena—suspended the tients must pay under the public health- no prime minister in a span of 20 days,” presidential decree dissolving parliament. care system falls as they get older, impos- says Thishya Weragoda, a bemused lawyer. The ruling applies until December 7th, ing a big burden on the state. There are The crisis began on October 26th, when when the court will take up the case again. various ways the government could reduce Mr Sirisena abruptly sacked Mr Wickre- That led to chaotic scenes in parlia- its health-care bill, including increasing mesinghe’s government—a power the con- ment. Mr Sirisena did not turn up to deliver premiums for the public insurance stitution reserves for parliament, under an the president’s customary statement at a scheme, raising patients’ co-payments for amendment Mr Sirisena himself ushered re-opening. Mr Rajapaksa took the seat al- treatments and excluding some expensive into law. The president denounced Mr lotted to the prime minister. His suppor- procedures from the scheme. Wickremesinghe as arrogant and stub- ters disrupted attempts to vote on the no- Yet Mr Abe only hints at the need for any born. He replaced him with Mr Rajapaksa, a confidence motion with a show of hands, of this. “We are not thinking about imme- populist former president in whose cabi- so 122 mps signed a letter saying they had diately raising the co-payment for medical net Mr Sirisena had served from 2005 to voted for it. The speaker notified Mr Siri- and health services,” he says. “But there sena, who declared the vote irrelevant. must be a careful review of the balance be- Mr Rajapaksa’s supporters are defiant. tween the contribution and benefit.” Those Dinesh Gunawardena, an mp, tweeted that who take action to prevent illness, such as they would not accept the decision as regular exercise, could be rewarded. “We “there was no vote taken”. They argue the would like to think about the incentives— speaker is biased. But in a triumphant what should be done to the contributions press conference, Mr Wickremesinghe that have to be paid by the people who warned police and public officials not to adopt habits to prevent diseases,” he says. follow “illegal orders from the purported This caution is excessive. Pushing back government that has failed to demonstrate the retirement age is not as controversial in the confidence of the people”. He invited Japan as elsewhere. A government poll Mr Rajapaksa to propose a fresh vote if he conducted in 2017 found that 42% of peo- had difficulty accepting the legitimacy of ple aged 60 or more who work want to con- the one that had already taken place. Mr tinue to do so. Although some politicians Wickremesinghe said his administration fret about foreigners bringing crime and will take steps to ensure the government in disturbing social harmony, the majority of place before October 26th will continue. the population approves of Mr Abe’s plans How he will do that remains to be seen. Mr to admit more foreign workers. Sirisena, angry and defiant, retains nomi- Mr Abe wants Japan to be a model for nal control of the army and police while Mr other ageing societies. He has done more Rajapaksa, sullen and chagrined, enjoys than his predecessors to prepare for a widespread public support. That is the smaller, older population. The danger is crowning irony: had he simply waited for that Japan will become an example of a elections in two years’ time, he would country that has done too little, too late. 7 Black sashes for democracy probably have walked into the job. 7

44 Asia The Economist November 17th 2018

India’s nuclear weapons Sub ordination

A long-awaited nuclear-armed submarine goes on its first patrol hen, in early November, INS A second hitch is that the k-15 mis- WArihant surfaced off India’s east siles aboard the Arihant can only fly a coast, its submariners breathed in the puny 750km, which means that the claggy air of the Bay of Bengal for the first submarine would have to park itself time in almost three weeks. They may dangerously close to China’s coastline to also have breathed a sigh of relief. Al- have a hope of striking big cities. Longer- though the Indian authorities are under- range missiles, which could be fired from standably cagey about the details, the the safety of Indian waters, are in the sub is believed to have carried as many as works. But bigger missiles, and more of a dozen nuclear missiles through the them, necessitate a bigger hull. That, in Indian Ocean, in all probability around turn, requires that the nuclear-powered the southern tip of India and into the subs be fitted with bigger reactors—a shallower waters of the Arabian Sea close fiendish technical challenge. to Pakistan. A third problem is keeping the Ari- The Arihant’s inaugural voyage was a hant safe. Nuclear submarines can only triumphal step forward in India’s long, do their job if they can slip silently out of often tortuous quest to deploy atomic port and into the oceans. They are typi- weapons at sea. Until now India has cally chaperoned by leaner attack sub- Terrorism in Indonesia relied on aircraft armed with nuclear marines. But admirals complain that the bombs, which might struggle to break navy, whose share of the defence budget Jail sheikh through air defences, or land-based has dwindled to 15%, has just 13 of these. missiles, which are at risk of being spot- The delivery of new French attack subs ted by gimlet-eyed satellites. Hiding has been delayed. missiles in the ocean solves these pro- Meanwhile India’s nuclear arsenal is blems, giving India more confidence that swelling. A recent report by the Bulletin JAKARTA its forces could survive a nuclear attack of the Atomic Scientists, a research orga- Prisons, already recruitment centres from China or Pakistan, and hit back. nisation, estimates that it has 130-140 for jihadists, are getting more radical But managing such weapons is not nuclear warheads, with enough fissile man abdurrahman was first arrested easy. One difficulty is ensuring that a material for 60-70 more. The stockpile, Ain 2004 following an accidental explo- submarine can receive orders without though smaller than Pakistan’s and half sion during a bomb-making class near Ja- giving away its location. India has been the size of China’s, has roughly doubled karta. But his career as a jihadist really got building low-frequency radio stations, since 2010. Many of the new warheads going in prison, where he has spent 12 of which use large antennas to propel sig- will go to sea. A second nuclear sub- the subsequent 14 years. Until recently Mr nals underwater, for this purpose. Yet marine, the Arighant, is nearing comple- Aman was able to run a militant propagan- these are also vulnerable to attack, which tion, and a third is in the works. Others da campaign from his cell. He translated is why some nuclear-armed states use are expected to follow. Indian sailors some 115 articles from Islamic State publi- airborne transmitters as well. should enjoy the fresh air while they can. cations into Indonesian and uploaded them online. He also recruited volunteers to go fight in Syria—all from behind bars. vealed cells with air-conditioning, flat- is supporters controlled certain parts of He became is’s “most important ideologi- screen televisions and private bathrooms. the maximum-security prison in which he cal promoter” in Indonesia, according to Even the kpk could not get into several used to be held: “This included the kitchen Sidney Jones of the Institute for Policy cells, because the keys were kept by their at one point.” Mr Maulana received an invi- Analysis of Conflict (ipac), a think-tank in occupants. tation for a meal with Abu Husna, who Jakarta. Abu Bakar Basyir (pictured), a rad- Small wonder, then, that jihadists have wanted Mr Maulana to work for him. “I ical cleric on death row for masterminding been able to recruit and organise freely couldn’t refuse at that point, so I left it bombings in Bali in 2002 that killed more from prison. Authorities were shocked to open-ended—surviving in prison was al- than 200 people, first befriended Mr Aman discover that a gunman involved in an at- ready tough as it was without rejecting in prison and then distanced himself from tack on civilians in Jakarta in 2016 was a their offer,” Mr Maulana says. him because he was “too hardline”. former prisoner who had served as perso- Terrorist inmates sit atop a “moral hier- Indonesia’s 477 prisons were built to nal masseur to Mr Aman while in jail. He archy” in prison and are often regarded by house 125,000 prisoners. They are cur- had been granted an early release just other inmates as enlightened, at least in rently crammed with more than 254,000. months before for “good behaviour”. comparison with drug offenders and petty One facility, in the province of South Kali- Abu Husna is another man who organ- criminals, says Taufik Andrie of the Insti- mantan, holds 2,459 in a space meant for ised terrorism from jail. He leads one of the tute for International Peace-Building, 366. An officer at a high-security prison in two main Indonesian factions supporting which helps released extremists reinte- Jakarta says it is not uncommon for 15 in- is (Mr Aman leads the other) and is a for- grate. “They act like pesantren (Islamic mates to be placed in a cell of nine square mer cellmate of Mr Basyir. Baim Maulana, a school) leaders,” he says, “and are given a metres intended for three people. former weapons-procurer for jihadist lot of privileges in jail amongst inmates”. Graft flourishes. Earlier this year a raid groups and separatists in the province of Amir Abdillah, who helped build the by the kpk, an anti-corruption agency, re- Aceh, describes how Abu Husna and fellow bombs used in an attack in Jakarta in 2009, 1 The Economist November 17th 2018 Asia 45

2 says, “Radicals offer fellow inmates a ceive visits from admirers. Some of his visas much as 290 days). A spike in arrests has chance to atone for their sins and pray to- itors went on to commit a series of bomb- followed; there are only 466 people con- gether.” Mr Amir says that when he was ar- ings of churches and police posts in victed under terrorism laws in Indonesia’s rested, he was convinced he “was doing the Surabaya in May. The same month Mr jails, but since June some 350 suspected work of God and would be respected even Aman reportedly mediated between police terrorists have been arrested. in prison”. and pro-is inmates at another prison after In the absence of reforms to the prison The key to stemming the spread of rad- they seized control of part of the building system, however, this campaign is likely to ical ideology among inmates, argues Mr and slit the throats of five police officers. make things worse, not better. “It is not Andrie, is segregating the hardliners. “This Since the bombings in May the authori- clear how already overburdened detention unfortunately does not happen in ‘medi- ties have been trying hard to disrupt terro- centres, prosecutors, courts and prisons um-security’ prisons or in centres where rist networks. A revision to the anti-terro- are going to cope,” writes Ms Jones in a re- detainees await trial,” he explains. Until rism law allows suspects to be arrested cent ipac report. In all likelihood, thrust- 2016, when Mr Aman was transferred to a pre-emptively and held for up to three ing so many radicals among other prison- maximum-security prison, he could re- weeks (a judge can extend the detention to ers will simply create more terrorists. 7 Banyan Welcome to Hindustan

The ruling party’s penchant for renaming things is un-Indian or generations the high-collared that is Uttar Pradesh’s most iconic monu- Alas, dreams of blending faiths seem Fwaistcoats beloved of Indian poli- ment, as Ram Mahal, after the Hindu god. very out of fashion now. Inspired by Mr ticians have looked much the same. But Mr Adityanath has not gone that far, Adityanath, other right-wing politicians are they Nehru jackets or, as salesmen yet. As chief minister the biggest thing he are calling for Ahmedabad (population now label them, Modi jackets? The ones has renamed is the district of Faizabad, 6m) to become Karnavati, Hyderabad popularised by India’s first prime min- which used to be named after its biggest (population 7m) to become Bhagyanagar ister, Jawaharlal Nehru, tended to come city. It is now called Ayodhya, after a small- and even for Delhi, India’s capital, to in plain charcoal, ivory or, at a daring er town that happens to be the legendary “revert” to Indraprastha, the name of one limit, a rusty maroon. Narendra Modi, birthplace of Lord Ram, and the focus of an of the many cities that have flourished the current prime minister, inclines ugly dispute since a right-wing mob tore and died near the same site. instead to vigorous patterns or solid, down an old mosque in 1992 in order to The aim is clear: to erase traces of the bright pastels. The particular hue he “rebuild” a Hindu temple that it claimed nearly thousand-year stretch when favours, the one that appears in count- had once stood there. Mr Adityanath has Muslim dynasties ruled large parts of the less posters touting every official project also, without consulting its inhabitants, country. If there were any doubt, Sambit from e-government to subsidised cook- turned the city of Allahabad (population Patra, official national spokesman for the ing gas, is orange. The message is unsub- 1.2m) into Prayagraj. bjp, put things plainly in an appearance tle. Orange is not only a stripe on India’s For centuries, it is true, a great Hindu on a talk show. After explaining how tricolour flag; it also evokes the saffron festival has been held at a place on the Muslims had long oppressed Hindus, he robes of Hindu priests, and so symbol- outskirts of Allahabad called Prayag, in the barked at a protesting Muslim politician ises a renaissance of India’s ancient flood plain where the Yamuna and Ganges to shut up, “or else I will rename a faith. In effect, Mr Modi has rebranded a rivers meet. But historians say that Allah- mosque after Lord Vishnu.” standard item of apparel in keeping with abad itself rose around a fort built by the The name-changing fervour has his Hindu-nationalist political project. ecumenical emperor Akbar in the 16th provoked pride in some and anger in With just months to go before what century. He called it Ilahabas, meaning others, as well as lots of mockery. After looks set to be a suspenseful general “Abode of the God,” in reference to his Mr Adityanath renamed Mughalsarai, a election, his Bharatiya Janata Party (bjp) dream of blending Hinduism and Islam busy railway station, as Deen Dayal seems keen on stamping its brand on into a syncretic din-i-ilahi or Godly Faith. Upadhyaya Junction, one wit asked other things. One way is by simply whether Mughlai chicken, a creamy changing the names of places, from curry, would also have to be named after streets and stadiums to towns and dis- the bjp ideologue. But the renaming tricts. As might be expected of a poli- binge has serious implications. This is tician who actually wears a saffron robe, not just because it suggests that, in the Yogi Adityanath, a Hindu holy man coming election, the bjp will revert to its chosen last year by Mr Modi as chief tried and tested strategy of stirring re- minister of India’s most populous state, sentment among the 80% Hindu major- Uttar Pradesh, is an enthusiast. ity while blaming opponents for “ap- Even as a mere mp, the monk-turned- peasing” the 14% Muslim minority. In the politician liked to redub places in his longer term, the “Sanskritising” of geo- district, Gorakhpur, with names more to graphy threatens to change the very his liking. Urdu Bazaar, a shopping nature of India. Since partition in 1947, street, became Hindi Bazaar. Ali Nagar its identity as a secular and inclusive morphed into Arya Nagar, Islampur into country has made an inspiring contrast Ishwarpur. If he had a chance, he said, he to the enforced uniformity of all-Muslim would even rename the Taj Mahal, the Pakistan. With that difference disappear- 17th-century tomb of a Mughal queen ing, the pair look more and more alike. 46 Asia The Economist November 17th 2018

Elections in Fiji Justice in the Philippines Strongman v Wigs v heels strongman MANILA Imelda Marcos is found guilty of corruption, but not imprisoned urvivors of the tyrannical and Two former coup leaders both insist rapacious regime of Ferdinand Mar- that they are perfect democrats S cos, strongman of the Philippines from erpetrators of coups tend to do badly 1965 to1986, are rejoicing at the prospect Pat the polls. Those who start their politi- of his widow, Imelda—famous for her cal careers as soldiers seldom adjust easily vast shoe collection—soon having to don to life as elected politicians. Frank Baini- prison-issue plastic sandals. On Novem- marama seems to be an exception. A for- ber 9th the special court that tries cases mer head of the armed forces who seized of official corruption found Mrs Marcos power in a coup in 2006, he won a general guilty of spiriting $200m to Switzerland election on November 14th, for the second while she was a congresswoman and time in a row, with 52% of the vote, accord- then governor of Manila under her hus- ing to partial results released the next day. band. The court sentenced her to 77 He may have been helped by the fact that years’ imprisonment, and ordered her his main opponent was another former arrest. But the joy among those who coup leader and army commander, Sitiveni joined the People Power revolution of Rabuka, who started Fiji’s cycle of coups 1986, which overthrew what they called and counter-coups back in 1987. the conjugal dictatorship of Marcos and Despite his civilian clothing, Mr Baini- the former beauty queen, is premature. marama has not entirely shed his authori- Mrs Marcos has said she will appeal tarian instincts. He bullies journalists and against the conviction. While that appeal uses an anti-corruption agency to hound is pending, she cannot be arrested. Since Her accounting was slipshod rivals. Before the election he said he hoped the wheels of Philippine justice grind for a parliament devoid of opposition. On slowly, she will be a free woman for a back as mayor of Manila. that, at least, he will be disappointed. good while yet, even if the verdict is The current president, Rodrigo Du- Mr Bainimarama can boast of some gen- eventually upheld. It was in1991that the terte, has already shown some sympathy uine successes. He and his powerful attor- court first began hearing the charges on for the deceased dictator’s family, allow- ney-general, Aiyaz Sayed-Khaiyum, have which she has at last been convicted. A ing the burial of Marcos’s remains in sought to modernise Fiji and defuse ten- final decision may still be years away. Manila’s “Heroes’ Cemetery” despite sions between indigenous Fijians and The former First Lady is 89. Even opposition from victims of his regime. those of Indian descent. They have built assuming that she lives long enough to When Mr Duterte was elected president, roads and bridges, declared Fiji a secular exhaust her appeals, she would have Mrs Marcos’s son, Ferdinand Marcos state and abolished the powerful Great good reason to hope for a presidential junior, aka Bongbong, came within a Council of Chiefs. They have declared all pardon. Gloria Arroyo, a former presi- whisker of winning the vice-presidency citizens to be Fijian, a term not previously dent, backed the prosecution of her (voters cast separate ballots for the two used for ethnic Indians. predecessor, Joseph Estrada, but par- posts in the Philippines). Mr Duterte has Mr Rabuka says he accepts some of doned him soon after, when he was just spoken of Bongbong as presidential those changes. But he accuses Mr Bainima- 70. Mr Estrada had been overthrown, just material. He may not want to get on the rama of bias against their fellow i-Taukei, like Marcos, by a “people power” upris- wrong side of the family, in case he ever “the people of the land” (ie, indigenous Fi- ing that centred on complaints about needs help from them. Or he may just be jians), and gives voice to their sense of vic- corruption. He spent less than seven heeding Mrs Marcos’s frequent warning: timhood. Before the election he brought years in detention, mostly under house “Hell has a special place for persecutors together the often quarrelsome heads of arrest, and later made a political come- of widows and orphans.” Fiji’s three traditional confederacies in an unusual display of indigenous unity. Indigenous Fijians make up nearly two- a 5% threshold to win a seat. Few indepen- the same year. On both occasions he was thirds of the population, and so dominate dents bother to run. A sudoku-style ballot accused of seeking to usurp Mr Bainima- at the ballot box. At the time of the coup in paper features only numbers, each repre- rama as head of the armed forces. Pander- 1987, Fijians of Indian descent made up senting a candidate. Political parties are in- ing to indigenous voters, the two rivals up- nearly half the population. But since then visible. The system rewards Mr Bainima- braided each other for having sold off many have emigrated to New Zealand, Aus- rama’s national popularity, while hurting indigenous land to develop tourist resorts tralia and North America. They now proba- opposition parties with regional bases. and for incurring too much debt to China. bly number less than a third. At the previ- Mr Rabuka is a divisive figure, disliked The risk of yet another coup is always ous poll, in 2014, Mr Bainimarama romped not only by the victims of his coup, but also lurking, although the current commander home with 59% of the vote, strongly backed by many in his own party. In a televised de- has promised not to intervene. Mr Rabuka by Fijian Indians and by about half of the bate with Mr Bainimarama just before the challenged Mr Bainimarama to swear that, indigenous people. This time, his indige- election, he struggled to defend his record if he lost the election, he would not insti- nous support has slipped a bit but his Indi- as prime minister in the 1990s, when the gate a coup. On that score Mr Bainimarama an base has stayed solid. National Bank of Fiji collapsed. He was also was cagey and evasive. Now that he has The electoral law also helped. The coun- interrogated on his role in a shambolic won, Mr Bainimarama’s sincerity as a try is treated as a single constituency, with coup in 2000 and during a mutiny later in democrat will not have to be tested. 7 SPECIAL REPORT: Competition

→ November 17th 2018 3 An age of giants 4 America v Europe 6 Big tech: friend and foe 8 Shaking up the regulators Who's the problem? 11 America's courts 11 Dynamism rules Trustbusting in the 21st century Don’t just watch TV, experience it in stunning 4K and captivating color. samsung.com/tv QLED TV See nothing else Special report Competition The Economist November 17th 2018 3

An age of giants

Across the West powerful, profitable firms are becoming even more powerful and profitable. That could undermine public faith in capitalism, says Patrick Foulis ne bright morning earlier this year your correspondent trav- creased digitisation may make things worse. The stakes are high. Oelled from New York to the University of Chicago to attend a Competition is an elixir. It spreads wealth today by lowering conference on the threat to prosperity posed by monopolies. The consumer prices and giving workers more choice of jobs, reducing journey began with an alarm beeping on a handset made by Apple firms’ monopsony power over them. It boosts productivity tomor- (which has a 62% market share in America), then a bumpy taxi ride row by pushing firms to create better products for less. If profits in to the airport paid for using a piece of plastic issued by one of the America fell to historically normal levels thanks to more competi- three firms, American Express, MasterCard and Visa, that control tion, and private-sector workers got the benefits, real wages would 95% of the credit-card market. In the terminal, breakfast was rise by 6%. If competition also revived productivity growth, wages scoffed from a supersized fast-food chain, while emails were could rise a lot further. Without competition, capitalism is torpid checked using Google, which has 60% of the browser market. and favours the few, not the many. The mobile signal was transmitted on one of the three net- This special report will examine the claim that big firms are too works that control 78% of the telecoms market. The flight was with powerful and that they are stifling competition. It will look at Eu- one of the four airlines that control 69% of journeys within Ameri- rope and America, arguing that competition has faded and that a ca. In Chicago your correspondent checked into the LondonHouse carefully calibrated response is needed. Next, it will consider the hotel, which looks like a boutique but turns out to be part of Hil- tech sector—simultaneously a source of dynamism and monopoly ton, which controls 12% of all rooms in America, and 25% of the power. Finally it will examine the intellectual decay of the anti- new rooms being built. The booking was made on Expedia, which trust establishment and explain why inaction is dangerous. has 27% of the North American online travel market. The firms involved in the journey made profits of $151bn and A wake-up call had a median return on capital of 29% last year. An equally weight- The view that competition might be in peril extends beyond those ed basket of their shares—call it the monopoly money portfolio— travelling from New York to Chicago. It feeds into the public’s beat global stockmarkets by 484% over the past decade. Collective- sense that the economy is rigged. Pension funds are making huge ly, 17% of the companies’ shares are owned by just three invest- bets that the likes of Facebook and Hilton can crank out vast profits ment mega-managers, BlackRock, Vanguard and State Street. in perpetuity. Economists worry that powerful firms could distort Described this way, America’s economy has become a capitalist interest rates; central-bank bosses debated this in August at their dystopia; a system of extraction by entrenched giants. Europe gathering at Jackson Hole. In Europe regulators are angry with Sil- shows signs of the same sickness. Growing protectionism and in- icon Valley. America’s antitrust agencies are waking up from a de-1 4 Special report Competition The Economist November 17th 2018

Monopoly money

Free cashflows of domestic non-financial firms New firms as a share of all firms* Big firms’ share of total sales† As % of GDP Cumulative change, percentage points % 8 1 40 United States new entrants N. America top 8 EU top 8 Europe 6 0 30 4 -1 EU top 4 20 United States 2 European -2 new entrants N. America top 4 10 0 -3

-2 -4 0 1970 75 80 85 90 95 2000 05 10 16 2000 02 04 06 08 10 12 14 15 2000 02 04 06 08 10 12 14 Sources: OECD and Economist estimates; “Declining business dynamism; evidence and causes”, by F. Calvino, C. Criscuolo, R. Verlhac; *Average of countries and industries “Industry concentration in Europe and North America”, by M. Bajgar, G. Berlingieri, S. Calligaris, C. Criscuolo, J. Timmis †Average of all industries

2 cades-long slumber, rather like financial regulators after the shock able investment vehicle by betting on mature oligopolies in Amer- of 2008. Into the vacuum has stepped a radical new antitrust ica. Clever firms found new ways to constrict competition. A fifth movement that believes the ideal economy is made up of lots of of all American workers are covered by non-compete clauses. Pat- smaller firms with fragmented economic power. It wants to smash ents are “evergreened”. Arbitration clauses and complex contracts concentrations of capital in the name of liberty. are used to hobble competitors. A few fund managers own big But the story is more complex than big business unfairly crush- chunks of most firms. They do not conspire but they do set the tone ing all before it. Powerful firms are often efficient and pass the at the top, doing little to encourage price wars. gains to consumers; think of Walmart selling mountains of baked The good reason for more powerful firms is the rise of an inno- beans for peanuts. They are often innovative, too. Netflix is burn- vative elite that is an engine of efficiency. Its members are compa- ing cash to entertain 130m binge watchers. Populists often claim nies that have mastered digital technologies and enjoy network ef- that the West has been ravaged by Chinese competition and is full fects that help them fend off slower competitors, says John Van of lazy incumbents, but can both be true? If monopolies are caus- Reenen of mit. In the tech sector this is clear. In old-fashioned in- ing prices to rise, why is inflation low? Go back to that journey to dustries, however, particularly regulated ones, digital wizardry is Chicago. Your correspondent chose to switch from Samsung to Ap- less likely to explain powerful firms’ clout. Whether they were ple. The breakfast was cheap. Three of America’s four big airlines created by cronyism or genius, if extraordinary profits are main- have spent time in Chapter 11protection from creditors since 2005, tained for many years with no sign of new entrants, it is a clue that while its three biggest telecoms firms invest $45bn a year. Expe- competition may not be working. In America and Europe there is a dia’s margins are falling. It is hard to prove that big investors col- growing body of evidence that this is the case. 7 lude. And the LondonHouse is elegant and keenly priced. “Competition is for losers,” writes Peter Thiel, an American venture capitalist, in his book, “Zero to One”. Monopoly is the goal, America v Europe he says. But society benefits if successful entrepreneurs are constantly toppled by others. The levelling effect of competition means a constant struggle with vested interests that has played out for hundreds of years. The big picture Adam Smith, a Scottish economist, attacked the guilds that sti- fled 18th-century Britain. As America boomed in the 19th century industrial empires were created that trustbusters later broke up. Cartels were instrumental in 20th-century totalitarianism. In 1946 Has dynamism declined across the economy? American administrators dissolved Japan’s zaibatsu (large industrial and banking conglomerates), and Germany’s Christian Demo- big problem when attempting to tell if competition has weak- crats made competition their first priority in their economic man- Aened is that experts have stopped trying to answer the ques- ifesto in 1949. Margaret Thatcher used competition to revive tion. In the 1930s industrial economists viewed an uncompetitive Britain’s economy in the 1980s. In the 1990s the European Union industry as one in which a few firms had a large share of output used the single market to prise open stuffy industries. But after and prices were high or quality low. Roll forward 80 years and com- 2000 the West became complacent. Globalisation was assumed to petition regulators take refuge behind legal definitions of types of guarantee competition. Over-mighty firms were judged to be a risk misconduct, such as price-fixing. If you ask them whether econ- for corrupt emerging countries like Russia and the Philippines but omy-wide dynamism has ebbed, they often insist that there are no not the rich world. analytical concepts or satisfactory data that allow that question to In fact powerful firms were gaining more clout in the West, for be answered, rather like medieval geographers who refuse to con- bad and good reasons. The bad reasons involve muffling competi- sider any evidence that the world is round unless it is written by tion. Some $44trn of takeovers have taken place since 1998, many members of the church in ecclesiastical Latin. aimed at creating pricing power or efficiency gains whose benefits This learned helplessness reflects the tricky legacy of Robert are not passed to consumers. It has become fashionable for man- Bork, an American scholar and judge who wrote “The Antitrust agers to build “moats”, or barriers to entry. That is reflected in the Paradox”, a deeply influential book published in 1978. It correctly philosophy of Warren Buffett, who has built the world’s most valu- criticised blundering state intervention in the 1960s and 1970s, and1 The Economist November 17th 2018 Special report Competition 5

2 pointed out that many big firms were efficient and many concen- opening up to the world has stalled, with trated industries competitive. But Bork went further and argued trade to gdp falling steadily since 2011 and there was no logical or empirical link between competition, pro- America’s opening the output of foreign firms’ subsidiaries in fits and concentration. He also wrote that, when assessing take- up to the world America stagnating. overs, it did not matter if consumers were damaged by higher America became a unitary market more prices and less supply, as long as firms captured enough profits has stalled than 100 years ago. Europe has not finished from efficiencies, so that in aggregate both were better off. the job. The typical big European firm is Bork’s view of real firms has aged badly. He described the dyna- smaller than its American rival, reflecting a punier domestic mar- mism of Detroit’s carmakers just before Japanese rivals exposed ket, with more global spread, showing the need to escape that mar- them as lazy and dangerous, and criticised at&t’s break-up, which ket. There are few big tech firms. The largest generators of excess became a triumph for consumers. Forty years later the economy profits include Unilever and Nestlé, drugs firms, and luxury-goods has changed. A battery of new studies link concentration, profits stars such as lvmh that dress Crazy Rich Asians, not locals. and falling wages. Intellectual property, not physical objects, is Nonetheless, there are grounds for concern. Europe relies on where the action is, and tech has created networked business American tech firms. Concentration is creeping up. A forthcoming models. Since 1978 total profits (that is corporate free cashflows, or study by Chiara Criscuolo and colleagues at the oecd, a club of the money that firms make after paying for investment) have risen mainly rich countries, shows that the average market share of the from 1.9% of gdp to 4.5%. It is sensible to ask why competition is top four firms in each industry has risen by three percentage not bringing earnings down to earth and what might be done to points since 2000, roughly half of the rise in North America. The boost it. The alternatives are to do nothing about inequality, or to free cashflow of non-financial firms as a share of gdp is 18% above introduce draconian taxes or regulation to redistribute income. its 20-year average. A very profitable listed firm in 1997 had a 46% A working definition is that an industry may be uncompetitive chance of still being very profitable in 2017. Like America, Europe if there is a concentration of sales, employees, intellectual proper- has suffered a decline in the number of new firms. It is weak on in- ty or data, and if returns on capital are abnormally high for long pe- novation, spending half as much on r&d in absolute terms as riods of time, with little sign of churn or new entrants. If you want America. It scores better on trade, however, which has risen slight- a sense of the global hotspots, follow the money. It points you to- ly relative to gdp since 2007. wards America, tech and others sectors not exposed to trade. Joseph Schumpeter, an Austrian economist, distinguished be- Consider the global pool of abnormal profits, or all the earnings tween two kinds of competition. There is the daily battle of wits 1 that companies make above a hurdle rate for their cost of capital. This exercise assumes an 8% cost of capital excluding goodwill and includes the world’s top 5,000 non-financial firms. In order to capture intangible assets, these figures capitalise research and development (r&d) spending as an asset with a ten-year life. Global “excess” profits are $660bn. Some 72% of that is made by American firms, split between tech, health care and sectors that are not exposed to trade, such as airlines and defence (see chart on next page). Other industries that are exposed to trade, including manufacturing, are less important. Europe accounts for 26% of the global pool of excess profits. Firms in the rest of the world capture 2%, with Chinese firms earning less than the hurdle rate.

Three tests At the national level, America and Europe can be examined using three tests: concentration, abnormal profits and openness. Ameri- ca scores badly (see charts on previous page). Take concentration first. The numbers need to be treated with caution, but between 1997 and 2012 it rose in two-thirds of 900-odd census industries, with the weighted average market share of the top four firms growing from 26% to 32%. It continued to rise in 2012-14. A tenth of the economy is made up of industries where four firms have more than two-thirds of the market. Profits are indeed abnormally high. A good measure is the free cashflow of corporate firms. This is 76% above its 50-year average, relative to gdp. There are pockets where profits and prices are high compared with other countries, including airlines, credit cards, telecoms, pharmaceutical distribution and credit checking. As anyone who has squeezed into an old economy-class seat or signed fiddly receipts at the check-out knows, these industries clearly lag behind the rest of the world. They also involve thickets of regulation. As for openness, America is still the world’s largest centre of innovation. It spends $450bn a year on r&d, 20% more than China and more than Europe, Japan and South Korea combined. But business churn is subdued: of the listed firms that made a very high return in 1997, 50% still did in 2017 (using a hurdle of 15% and excluding goodwill). Fewer new firms are being started. And America’s 6 Special report Competition The Economist November 17th 2018

for the defence. It is surprisingly easy to make. Consumers love Dividing the spoils their products. Between them the big Silicon Valley platform firms Global pool of abnormally high profits*, breakdown, % have 8bn customers. They have increased choice for consumers. If you want to watch the greatest hits of Scottish curling or Arnold 0 20406080100Schwarzenegger you no longer have to dig around car-boot sales. Health Other non- Other Amazon has 353m products on sale, 3500 times more than the typ- Oct Technology Europe 2018 care tradeable tradeable† ical supermarket. In one poll Americans said they would have to be paid an average of $17,500 a year to forfeit the use of their search United States Rest of world engine, which if true means that total search revenues could be 83 *Taxed operating profit above an 8% cost of capital, excluding goodwill, top 5,000 times higher than the sales of Google’s parent, Alphabet, last year. Source: Bloomberg listed firms. Treats R&D as an asset with a ten-year life †Sectors open to trade Despite the ubiquitous use of the term “giant”, today’s tech firms are not unprecedentedly large. Ranked by domestic sales Ap- ple is14th in America, Amazon is 15th, Alphabet 37th and Facebook 2 between two apple sellers. And then there are breakthroughs by 107th. Uber and Airbnb are minnows that don’t even make the top entrepreneurs that transform how industries operate. These leaps 300. The tech firms are accused of extracting giant rents from soci- are unpredictable. In 1920 America’s cutting-edge giants included ety. But the largest five have lower earnings relative to the econ- the Central Leather Company and Baldwin Locomotive, but they omy than the mightiest monopolists of the past did, with a median were soon overtaken by a new generation of consumer-goods profit of 0.16% of gdp. That compares with a median of 0.24% of firms. Perhaps today giant profits will stimulate a new leap in com- gdp for four historical goliaths in the year that antitrust regulators petition amid the fears of decline. hit them: Standard Oil and us Steel (1911), ibm (1969) and at&t There are some green shoots. Investment among listed firms in (1974). For Amazon and Netflix the rents flow in the other direction America is rising at an annual rate of 18% as the Trump boom mo- because their prices are low today: in total they subsidise their tors along. A giddy mood should lead to more start-ups. Retail, me- combined 240m paying subscribers to the tune of about $50 per dia and health-care firms live in terror of digital competitors. person per year, based on the amount of additional free cashflow Some investors think that artificial intelligence could create the they would have needed to cover their cost of capital in 2017. next Schumpeterian revolution. Masayoshi Son, a Japanese investor, is betting $100bn on the Singularity, the moment when com- Thanks for everything puters become more intelligent than humans. Their effect on the economy has been positive in many ways. On- Other signs point towards entrenched power. The high stock- line inflation is running at one percentage point below official in- market values of profitable firms show that investors think their flation, reflecting the bargains available on the web. Economists advantages will endure. Protectionism will reduce competition. have criticised the firms for employing only a few tech bros and There are few new entrants in, say, internet search or American creating no assets apart from executive Koi carp aquariums. But airlines or telecoms. And powerful firms intend to stay powerful this view is out of date. The big five tech firms have almost 1m staff, tomorrow. Of the total capital spending and r&d done by Ameri- not far off the 1.5m Walmart has in America. They are investing at a ca’s leading 500 companies, the top 20 firms account for 38%. Big massive pace: some $137bn in 2017. As a result their combined firms are buying innovative start-ups. And data may bind custom- hoarding rate (their free cashflow) actually fell from a peak of ers to incumbent firms. At the heart of this is the modern world’s 0.66% of gdp in 2015 to 0.61% last year. greatest creation and biggest source of fear—the tech industry. 7 The tech firms can be a powerful source of competition. Think of Amazon threatening to take on America’s rotten drug-distribution industry, or Netflix’s detonation of the cable-tv racket in America. The danger of digital disrupters is forcing comfortable Big tech incumbents to raise their game, from Germany’s car firms to Wal- mart. Meanwhile, the perception that big tech is entrenched is itself new. Facebook almost missed the mobile revolution: in 2012 it The tech antitrust paradox had fewer than 20 staff working on its core mobile team. Today Ap- ple, Facebook and Google still depend on one main source of revenue. If they ever face a serious threat they could crumble. Finally, tech firms are belatedly improving their conduct in response to the public outcry. Next year their collective tax rate is Technology firms are both the friend and the foe of competition likely to be in line with the national average in America. On Octo- ne of the few things that most people in the West agree on is ber 2nd Jeff Bezos at Amazon said that it would raise the minimum Othat there is some kind of problem with the big tech firms. wage it pays its workers to $15 (twice the national minimum). Face- Here is a list of common complaints. They have high market shares book has hired an army of people to clean up its content. As they and concentrated ownership so that tycoons mainly benefit from are getting older they are getting nicer. What’s not to like? their growth, cause addiction, censor free speech, do not censor To see why tech platforms might be a threat, you have to think free speech, are infiltrated by Russian spies, suck up to Chinese au- about a different kind of corporate concentration: the market tocrats, do not pay customers for their data, give private data to share of the mind. Typical Britons spend 24 hours a week online. third parties, refuse to give data to third parties, don’t invest much, Some 77% use social media, 89% say they compare prices online, bully their critics, underpay workers, poach too many experts and 57% use their phone as a ticket or boarding pass. A majority from universities, pay too little tax and corrupt politics. Some of shop and bank on the web. All of these figures are higher for young these are directly about competition. In other cases the link is tan- adults, suggesting that usage will rise over time. Only 30% of gential. For example, if customers had good alternatives perhaps Britons are fully aware of all the ways in which their personal data they would switch from today’s firms when the companies behave are being harvested. badly. Often there is no link to competition at all. Seen in this light, tech firms are becoming the conduit through Tech firms get so much flak that it is worth considering the case which people interact with the world. Their business model is to 1 The Economist November 17th 2018 Special report Competition 7

2 impose a levy, either by charging users subscriptions and commis- points as price battles and new investments weigh. For the five sions, or by manipulating their buying decisions, or by charging American firms margins will stay roughly flat. other firms that want to access the platforms’ captive customers Meanwhile the development of new technologies could cause through advertising. The tech sector becomes a layer that sits the tech firms’ manipulative capabilities to rise. Personal assis- across the entire consumer economy. Network effects mean that tants could spy on and deceive their users. So far the practice of big firms are hard to dislodge. As they accumulate data on their us- price discrimination, or charging different customers different ers they become more enmeshed in their lives, making it expen- prices for identical products, does not seem to be widespread. Al- sive for customers to switch. And as artificial intelligence and data berto Cavallo, a scholar at Harvard University, has analysed Ama- mining get cleverer, the platforms will manipulate their users zon’s prices and found that they are identical across different geog- even more, until eventually it is not clear who is in charge. raphies 91 times out of 100. Still, it is easy to see how this could change. Imagine that Alexa, Amazon’s voice assistant, were to Disrupters keep disrupting study your shopping habits and charge you a “surge” price when This future may sound abstract, but it is implicitly what Wall Street you run out of milk. Or what if Siri, Apple’s equivalent, were to expects to happen. Politicians and regulators rarely consider track your email conversations with friends, conclude that you are stockmarket valuations, but they imply that tech firms will ac- keen to visit them and direct you to expensive flights, taking a cut quire an alarming amount of clout. To justify its valuation, Face- from the airline? As data analysis and platform spying become book’s rate of “monetisation” will have to surge, suggesting that it more sophisticated, every price could be bespoke and opaque. Per- extracts a bigger fee from other firms who want to reach consum- haps in the future, machines will even col- ers. To justify its $820bn market value, Amazon will have to in- lude with each other to rig prices without crease its share of American retail to 12% (Walmart’s share today is humans knowing. 7%). Likewise Netflix will have to roughly double its nominal fee Perhaps in the It would help if consumers had the ca- per user over the next ten years. Though tech firms’ profits as a future, machines pacity to switch away from technology net- share of gdp today are not extraordinarily large, Wall Street is pre- works that gradually start to exploit them. dicting they will be in a decade’s time, with the median ratio for the will even collude In the first half of the 20th century food five firms rising to 0.28%. That is above the 0.24% median level of with each other brands competed on safety: the comforting Standard Oil, us Steel, at&t and ibm when they were each clob- to rig prices knowledge that you would not find a dead bered by antitrust regulators. The tech firms are expected to have without humans mouse in your Kellogg’s cornflakes is why higher returns on capital than the oligopolies of old, suggesting such firms did so well. Today’s tech mar- that they are better at extracting income per dollar of assets. knowing kets seem stable but could flip suddenly if As they expand, the West’s tech firms have the capacity to dis- the powerful network effects that created rupt new industries. But one test of their limited appetite for com- them were to go into reverse. There could be a sudden surge of cus- petition is to compare them with China’s two big tech platforms. tomers towards a new search engine or social-media firm that Alibaba and Tencent are pouring money into a wild, economy- promised to guarantee users’ privacy or pay them for their data. wide price war that has escalated to include digital payments, vid- All this has become less likely because the big tech firms are eo, retail, games, travel, home delivery, cloud computing and mu- ruthless about buying up nascent competitors. Facebook’s pur- sic. Most of these areas are also contested by speculative upstarts chase in 2012 of Instagram, a rising social platform, for $1bn is per- that are losing billions of dollars a year subsidising customers. haps the most famous example. The following year it tried to buy Compared with this violent scrum, America’s tech sector looks like Snap, another potential rival, and when it could not, replicated a genteel game of badminton. During 2018 the two Chinese firms’ many of its features. In 2014 it bought WhatsApp. Alphabet has in- combined operating margin is forecast to fall by eight percentage vested in over 300 start-ups since 2013. The fear among start-ups of1 8 Special report Competition The Economist November 17th 2018

2 being bought or being crushed has led to talk of a “kill zone” surrounding the big ﬁrms which no new ﬁrm can survive. The tech platforms therefore present the ultimate dilemma. They are the superstars of the Western world, and yet their business models have the potential to become malign, their market values imply they will become more powerful and their conduct suggests that they will avoid major confrontations with each other and wipe out potential competitors. The list of possible solutions is shorter than the list of grumbles. There are four main categories.

Come in like a wrecking ball The first is to break the firms up. In some cases this could be done without huge damage. For example aws, Amazon’s cloud division, could survive happily as an independent company, eliminating the danger of data about third parties gathered from it being used to influence Amazon’s e-commerce arm. But for many firms break- ups would also eliminate the benefit that customers say they get from participating in a network. It is possible that one of the dis- membered parts of Facebook or Google would grow quickly to become as dominant as the erstwhile parent. For governments in all but two countries in the world, America and China, break-up would be hard since the big firms are not headquartered there. The second approach would be to turn platform firms such as Facebook, Alphabet, Uber and Twitter into regulated utilities. Their prices and return on capital would be capped (causing profits to fall by about 65% and 81% for Alphabet and Facebook, respectively). Economic regulation would sit alongside a broader attempt to police the firms’ behaviour, just as utilities have to promise to provide clean water and reach every home. But state supervision would douse these firms’ innovative spirit. America’s two 20th-century experiments with price regulation were disas- The regulators ters. The airlines between 1938 and 1978, and at&t until 1982, were inefficient empires that did not care about customers. Because of the politicisation of America’s institutions and the rise of lobbying, the risk of cronyism today would be high. Who you gonna call? The third approach would be to counter the platforms’ power with people power. Users might team up to form large “customer unions” that bargained collectively with the tech firms, demanding better privacy terms or even payments for users in return for their data. Or new “digital concierge firms” might be set up to act as Not the trustbusters, who are a long way behind the curve trusted intermediaries with the tech firms, ensuring that privacy hen you come into contact with the competition establish- terms were met and search results were fair, and arranging any Wment in the rich world—regulators, academics, lawyers flow of payments in return for the use of data. This could work —the cruellest comparison is with financial watchdogs before the well, though it is not clear that consumers can be bothered. 2008-09 crash. They are the proud custodians of an internally logi- That leaves the last category: creating competition by force. The cal set of rules, developed over years, that do not seem to be pro- idea is not as strange as it sounds. Across the world governments ducing good results and cannot easily be communicated to anyone have opened up consumer markets for energy and telecoms. In the outside the priesthood. Most competition authorities are unwill- case of tech the big firms could be prohibited from buying smaller ing to be held accountable for the level of competition in the econ- ones. They could be forced to share their data and intellectual omy; indeed they go further and insist that it is impossible to mea- property with new entrants on reasonable terms. In 1956 regula- sure. Given the profound consequences of a rise in corporate tors forced ibm to give other firms access to its patents in return for power, that is an unsustainable position and will have to change. a fair fee, a decision that helped new tech firms emerge. And even if The regulatory regimes on either side of the Atlantic have a lot the agglomerated systems and databases of the tech firms re- in common. In America, the Federal Trade Commission (ftc, an- mained intact, they could be forced to give customers ownership swerable to Congress) and the Department of Justice (doj, a crea- of their own data and pay them for their use (in the case of Face- ture of the executive) look at firms and bring cases to court. In Eu- book and Google this could amount to roughly $8 per customer per rope the European Commission and national regulators divide the year). Customers would capture a bigger slice of the pie and have load. The commission can punish firms, which can then go to the an incentive to switch to firms offering better terms. courts to appeal. The original laws are short and vague: America’s Entrepreneurs are starting to experiment. For example, Sir Tim Sherman act of 1890 has 769 words, and the pertinent passages in Berners-Lee, the inventor of the web, has launched a firm called In- the Treaty of Rome of 1957 contain 396 words. At any moment the rupt that offers a virtual “pod” where users can keep their data. courts interpret these fastidiously, but over time they have been It took years of trial and error before markets for gas and power highly inconsistent. took off around the world. As well as requiring entrepreneurs, The apparatus says its purpose is consumer welfare. Its actions such a change needs deft regulators operating in strong institu- fall into three categories: punishing cartels, policing mergers and tional frameworks. At the moment those do not exist. 7 dealing with dominant firms that abuse their position (Europe 1 The Economist November 17th 2018 Special report Competition 9

2 sometimes looks at state aid, too). The offences that firms are tors have been aware of this for at least 15 years, and the best ones booked for are technical, such as “foreclosing”—refusing to supply have profited hugely from it. The world of macroeconomics woke another firm—and “tying”—forcing people to buy particular bun- up in 2015 after a landmark paper by Jason Furman and Peter Ors- dles. Judged by cartel decisions and abuse of dominance cases, ac- zag on the link between companies and inequality, and there has tivity by regulators has fallen since the 1970s in America and been been a surge of studies since. steady in Europe (see chart on next page). Between them, those In America the doj and ftc have been woefully behind. They regulators employ 6,000 people and keep lots of lawyers in silk. seem to lack basic knowledge about the economy, although both They suffer from three main problems. The first is a lack of curi- bodies have newish bosses who may change that. Europe’s trust- osity. The big economic trends are high profits, high and persistent busters have a better record. They began to examine digitisation returns on capital, takeovers, tech platforms, some spread of tech several years ago. They have also been strict with telecoms and air- through older sectors, a decline in new entrants and the use of lines, two of America’s problem areas. “moats” such as patents to protect them from competition. Inves- The second problem is a lack of clarity. There is no definition of 1

Highly moativated

Mapping the problem in America ow can you identify the hotspots in whether companies are highly innovative means action is needed to open the market. Hthe economy where competition or not. Schumpeter would, correctly, argue An orange one means a watching brief. A might be a problem? The Economist has that firms which innovate deserve a win- green light means there is nothing to tried to answer this question with a series dow of competitive advantage. The third worry about. Apple gets a green light: it has of filters which we have applied to the top filter is the size of firms’ rents, or the free a large market share and high profits but is 500 firms in America. The process is de- cashflow generated above a hurdle rate, innovative and faces two credible new signed to narrow down where trustbusters which could reflect either innovation or a entrants from China. Google and Facebook may want to look more closely. Existing lack of competition (we assume a 12% are similar, but there is no sign of new competition doctrine is not helpful in this hurdle rate, exclude goodwill and treat entrants. That gets a red light. Amazon has exercise, since it lacks any clear sense of r&d as an asset with a ten-year life). a large market share and is innovative, but what competition is. Instead the inspira- Then we consider openness, or whether has low free cashflow (after adjusting for tion is Warren Buffett, an investor. He market shares and returns on capital shift leases), indicating consumers get a good argues that some firms have “moats” that around, and whether new entrants exist. deal. The fear that it has enough power to protect them from competition. Often Finally, in a nod to worries about Amazon claw back huge rents in the future earns it these are deserved, being the result of and Netflix, we consider the capacity for an orange light: it should be watched. investment, innovation or excellence. In firms with keen prices and low rents to The exercise suggests that 24% of the some cases they are not. engage in long-term “clawback” by eventu- market value of the s&p 500 is in firms that The first question is whether a moat ally cranking up prices in the future. It is a get a red light and 14% in firms that get an exists. We include firms in concentrated bad idea to punish firms that are a source of orange. That points to the need for precise markets, or ones that are heavily regulated disruption, but worth keeping an eye on interventions to spur competition in these or reliant on patents, or whose customer is what they may do in future. limited parts of the economy, not a sprawl- the state. The next point to decide is We use a traffic light system. A red light ing campaign to bash big business.

Ready, steady, compete How to identify where there is a competition problem Top 500 US ﬁrms’ market capitalisation, $24.8trn, October 8th 208, % Ease of new entry or No moat 24% Action should be taken risk of clawback

Entry 22% Examples: Apple, pharmaceuticals Watching brief Profitability Innovation No entry 6% Google, Facebook No problem High Yes No clawback 2% Smaller struggling tech firms Firms with Low “moats” that Clawback 4% Amazon, Netflix may protect them from Entry Food, household goods, advertising % competition High No No entry Credit cards, airlines, defence, drug distribution 18% Low No clawback Banks, cars, industrials, utilities 14%

Clawback Pipelines 1%

Sources: Bloomberg; The Economist 10 Special report Competition The Economist November 17th 2018

tant since a takeover boom has already been waved through. All quiet on the western front The European Commission’s competition arm is an example of Number of cases brought by competition regulators against what happens when well-meaning energy is used to contort eco- firms abusing dominance nomic worries into a flawed legal framework. It has scrambled to 20 find ways in which tech firms might be deemed to offend existing doctrine. It has examined whether, from the mid-2000s, Google 15 forced manufacturers to pre-install its browser (technically “ty- United States ing”), fining it $5bn this year. Last year it fined Google $3bn for fa- 10 vouring its own shopping site in its search results. In 2016 it found Apple guilty of receiving state aid through tax breaks from Ireland. The impression is of a scattergun approach, with long delays and European Union 5 fines that are a tolerable cost of doing business for tech firms. The mismatch in clout was highlighted by Facebook’s takeover of 0 WhatsApp in 2014. The commission permitted it on the basis that 1970 75 80 85 90 95 2000 05 10 15 17 the two firms would not link their data. They then did. On Septem- Source: “How EU markets became more competitive than US markets”, by G. Gutiérrez & T. Philippon, 2018 ber 26th Brian Acton, a founder of WhatsApp, indicated to Forbes magazine that this had been the plan all along. Facebook has been fined $125m—a rounding error for such a firm—for misleading the 2 what competition, or its absence, looks like, other than the near- regulator. The deal will not be reversed. tautology that it is whatever is good for consumers. Instead there The legal frameworks need to be updated. One source of opti- are technical offences. Many of the measures used to gauge these mism is Germany. In 2017, at the behest of the Bundeskartellamt, look strange. Lots of emphasis is placed on whether prices rise. But the competition watchdog, it made several tweaks to the law to consumers can suffer even while prices fall: the cost of a long-dis- modernise it for the digital age. Among other things, these con- tance call was dropping even when telecoms was a monopoly but firmed that a market can exist even if money does not change collapsed after deregulation. In many modern markets there is no hands, with payments made in data, for example. They also price. Payment is in kind, for example in the form of data, not cash. changed the threshold for looking at takeovers in order to capture Competition authorities sometimes look at profitability, but expensive purchases of small firms with few revenues, which typi- choose some odd definitions. They consider whether prices ex- cally happen when big firms buy putative competitors. Germany ceed marginal cost, which is undetectable in the real world. They also has more legal flexibility to scrutinise powerful firms that look at gross margins, but these are not statutorily defined by treat customers unfairly, which it has used American or European accounting regulators and are arbitrarily to investigate Facebook’s approach to cus- computed by each firm at its discretion. Sometimes experts dis- tomers’ data. Andreas Mundt, the Bundes- cuss absolute profits, but rarely the capital used to create them. In If reform does not kartellamt’s president, says: “We cannot this last respect the system has regressed over the past century. happen, the risk pretend that nothing has happened in the The fact that Standard Oil made large profits relative to its capital economy and we are living in the 1990s. We base was viewed as important during the court case which raged in is that something need to adapt our instruments and tools the early 1900s. Today that would be viewed as risqué. uglier will fill the and proceed into the digital world.” The third problem is that competition regulators have been vacuum In America the chance of turning sensi- captured. Financial regulators were swayed by theories about the ble economic analysis about competition efficiency of financial markets and by a revolving door between into action appears small. Part of the reason is the rickety architec- the public sector and the firms they were supervising. That led to ture. The two agencies, the ftc and the doj, have retreated from a denial about the build-up of risk before 2008. Competition regula- swathe of the economy that does not work well. A legal doctrine es- tors have a dated view of the economy and, in official forums about tablished in 2004, in a case known as Trinko, states that the bene- how to reform competition policy, lawyers acting for private firms fits of antitrust action in regulated sectors, “will tend to be small”. are given undue weight. Academics are paid as witnesses or are That may have led trustbusters to steer clear of industries with ab- sponsored by firms without disclosing it. Officials rotate between normally high returns, including telecoms, health care and air- the agencies and law firms which defend big companies. Consum- lines. The sectoral regulators may have been captured, and the ers rarely have a voice. In America things have slipped so badly that economy-wide trustbusters look away. a material conflict of interest is not considered a disqualifying Compounding all of this are the courts in America. In Europe condition, or even a relevant consideration, for someone to pro- the commission has the benefit of the doubt: it makes decisions nounce on antitrust policy and be taken seriously. and then firms can appeal. In America the courts must decide, giving them enormous clout. Their reluctance to act has intensified Hot stuf since the 1980s, partly as a result of an ideological shift (see box on Imagine disregarding the existing apparatus and starting again following page). Some experts, and even senior officials, talk about from scratch. The first step would be to identify the hotspots in the starting over and redrawing the entire antitrust architecture, economy where competition might be a problem (see box on pre- much as America did in 1890 when it passed the Sherman act, and vious page for a crack at that). The next step is translating this eco- again in 1914 when the ftc was formed. nomic and financial analysis into a legal one. This is like working One option would be for Congress to write a completely new rock into flints. In both Europe and America a body of case law and law, and create a new enforcer and even a new court system to han- rules has defined narrow kinds of misdemeanour, but these apply dle competition. A watered-down option would be to pass a new to old industries and have to be adapted to present circumstances. law that gave the courts specific guidance about how to interpret Prosecutors have been creative over the 128 years since the Sher- existing competition law. At the moment competition policy is not man act, but recently they have struggled to fit the modern world a political priority for mainstream politicians, in America or else- into the doctrines of old law. A particular weakness is dealing with where in the rich world. But if reform does not happen, the risk is firms that are already powerful, which has become more impor- that something uglier will fill the vacuum. 7 The Economist November 17th 2018 Special report Competition 11

utive pay, businesses have forgotten how far the pendulum can Solutions swing in democracies. History shows that those swings can be surprisingly large. America saw a backlash against big business in the 1910s and 1930s. Even in the 1970s President Richard Nixon accused Dynamism rules supermarkets of profiteering and introduced price controls. In Eu- rope state ownership became popular after the second world war, and France under President François Mitterrand nationalised banks and industrial firms in the 1980s. Today the world’s most dynamic large economy, China, likes to have a few giants in strategic A plan for reinstating efective competition industries that it can control. Across the emerging world, coun- ver since the financial crash of 2008-09, capitalism has not tries are as inclined to follow China as they are the West. Ebeen working well. Ordinary people sense it and so do the America and Europe have three main sources of ideas on how to elites, who have prospered through the West’s lost decade. The make business work better for everyone: the left, the right, and in- symptoms are lower growth, less dynamism and greater inequali- cumbent firms with their self-interested agenda. Each is bad in its ty. Damagingly, this has led to a widespread belief, particularly own way. Start with the left. In August Elizabeth Warren, a Demo- among young people, that the system is gamed and that things will cratic senator and a likely presidential candidate in 2020, not improve, even in the long run, Public anger has so far bounced launched the Accountable Capitalism Act, which would put work- back and forth among bankers, politicians, “experts”, remote bu- ers on boards, create federal licences for firms that can be revoked reaucrats, foreigners, China and the European Union, but sooner for bad conduct, and require boards to balance the interests of or later attention may turn to companies. After all, they employ shareholders, workers and local communities. In September Brit- lots of people, invest more than states or households and make all ain’s Labour Party floated plans to seize 10% of every firm and place the profits. If you think that the economy is misfiring, it is per- it in “workers’ trusts” which would hand most of their income to fectly logical to ask whether companies are misfiring, too. the state, not to employees. It has since backtracked a little. After 30 years of globalisation, growing profits and rising exec- Clever activists on the left have already spotted how antitrust 1

Judge dread

The troubling lesson from the American Express and AT&T Time Warner cases wo court cases this summer illustrate at&t has re-assembled part of the empire Tthe decay of America’s machine for broken up in 1982 and controls 30% of the policing competition. Telecoms and credit wireless market, in which by global stan- cards are problematic industries: concen- dards prices are high and the industry tration, prices and profits are high, and, regulator is feeble. at&t behaves a lot like despite the firms’ rhetoric about innova- an old-school monopoly, running with tion, the sophistication of the technol- high debt (indicating it does not expect its ogies being used is no better and some- margins to fall in the near future) and times worse than in the rest of the world. using lobbyists. In May it admitted paying Antitrust regulators and the courts had an money to Michael Cohen, President opportunity to review the evidence that Trump’s former lawyer. consumers are getting a bad deal, and to The only logical motive for the $107bn consider remedies, but they fluffed it. deal is that at&t plans to direct its wireless In the first case the government lost a customers to Time Warner content, disad- case against American Express, which it vantaging other content firms, and using argued unfairly imposes contractual limits data to lock customers in. The company tween 2005 and 2010. It argues that these on merchants such as shopkeepers, by denies this. It is an argument that needs gains have been passed on to cardholders, prohibiting them from telling shoppers scrutiny. But the case became a fiasco after but contains no empirical evidence of this. that there are cheaper ways to pay. Amex President Trump criticised cnn, a channel It uses a book published in 2004 to support operates a two-sided market, bringing owned by Time Warner, raising worries of the claim that the credit card market is together merchants and consumers who political interference. The doj’s case was competitive and ignores the payments use credit cards. America’s payment mar- narrow, focusing on two peripheral assets, revolution taking place outside America. ket is concentrated and backward. Con- at&t’s satellite tv business and a group of The ruling may help tech firms that run tactless card readers are rare. Cabbage channels known as Turner Networks. The two-sided networks, such as Facebook and vendors in China use digital-payment judgment shows little interest in how Google, since it suggests that they can hike systems that have yet to reach Fifth Avenue inadequate competition in the mobile prices for one group of customers who stores. Visa, MasterCard and Amex control market could infect the content market, depend on them without passing the gain 95% of the market and make a combined and treats AT&T with deference. It ends to customers on the other side. 174% return on equity, excluding goodwill. with a call for the rights of a specific group In the second case the Department of The Supreme Court ruling notes that of shareholders, not all consumers. There Justice failed to block the acquisition by Amex has a 26% market share and has is nothing better to illustrate all of Ameri- at&t of Time Warner, a content provider. raised prices for merchants 20 times be- ca’s antitrust problems in one place. 12 Special report Competition The Economist November 17th 2018

the problem is that they are not powerful enough. What the West needs is dynamism and openness, not happier incumbents. The alternative to this unappetising menu is a calibrated competition agenda. The problem industries amount to perhaps 20% of the American economy, and less in Europe. In the non-tech economy in America they are mostly not exposed to trade and involve lots of interaction with the state. Opening them up is an obvious move that transcends the political divide, and its attractions can be easily explained: lower prices, a wider choice of products, more potential employers and an economy in which upstarts have a chance. Competition has credentials as a remedy for the rich world’s problems. It can help spread wealth by making goods cheaper and reducing the monopsony power that firms can have over workers. It creates wealth by pushing firms to innovate. A pro-market initiative would see governments set a broad agenda based on commonsense proposals to deal with problems that have emerged. It should be communicated to the public. Ex- isting legal doctrine should be a tool of the policy, and a potential constraint on it, but not its master. A screening process could identify industries where this might cause difficulties. Next the institutional architecture would be reformed. What is worrying from a consumer’s point of view must have a corre- sponding concept in competition law so that action can be taken in a way that is limited and predictable. That means updating laws for the 21st century. Markets can exist even when no money 2 could be another lever. The trick would be to change the objective changes hands; concentration can include intangible assets; dom- of competition policy from consumer welfare to a broader set of inant firms can kill competitors by buying them. Europe’s compe- goals such as reducing inequality, increasing minority rights or tition bodies can improve the way they are run; the European Com- saving small firms. In America, a bill known as the Merger Retro- mission takes too long to investigate cases. In America the entire spective act, promoted by a group of Democratic politicians, pro- system may need to be redesigned. A far stricter attitude is needed poses that the competition authorities review past deals for their towards conflicts of interest among officials and lawyers. impact on factory closures, inequality and r&d. Neither the War- Finally, remedies need to be established that make a difference ren bill nor the Merger act will be passed, but both are indicators of to consumers. Levying modest fines years after offences were the policies that have become mainstream among left-leaning par- committed makes little difference to the public. Wrapping compa- ties. The intention is to make big business work better for ordinary nies in regulations and systems of supervision is counterproduc- people, but the result would be clumsy government intervention, tive; indeed the ability of incumbents to take advantage of red tape a dilution of property rights and the spectre of heavily regulated is part of the problem. Instead the priority should be systematical- firms under politicised supervision. ly to open up markets that appear to be closed or rigged. That means removing legal or regulatory impediments for new Boot camp needed, not cheerleading firms, and untying knots of data and patents controlled by one The right, meanwhile, argues that business can work for all if only firm so that they are available, on commercial terms, to everyone. it is freed from its constraints. This is the present line of the Re- It means replacing industry regulators who are too chummy with publican party, and of some right-leaning politicians in Europe. incumbents, and preventing powerful companies from taking out Some of the proposals being put forward, such as simplifying reg- emerging rivals. It also means creating digital markets that em- ulations and tax codes, make sense. But the approach as a whole power individuals rather than tycoons. will not work. The current boom is likely to prove temporary, and All this may seem a tall order. Yet protectionism makes it even when it runs out of steam, investment levels and the formation of more crucial to prevent domestic markets from becoming cosy. new businesses will probably fade again. Meanwhile the lobbying After the next recession strikes, and perhaps after America’s presi- power of incumbent firms has increased further, with summits at dential election in 2020, the West may look for new ways to make the White House, perks buried in the new tax code and exemptions the economy work better for all. Competition should be top of the from the tariff lists. The government has pepped up usa Inc with list. It could help save capitalism from itself. 7 some backslapping, but has not made it fitter. The last of the terrible trio is the self-interested voice of big incumbent businesses. It holds that the executives in charge need acknowledgments A list of acknowledgments and sources is included in the online version more power: to help frame government policy, to retain more proof this special report

fits and to disregard shareholders. Often this is packaged as “long- offer to readers Reprints of this special report are available, with a minimum order termism”, corporate responsibility or patriotism. Yet the compa- of five copies. For academic institutions the minimum order is 50 and for companies 100. nies that support this agenda—JP Morgan, Berkshire Hathaway, We also offer a customisation service. To order, contact Foster Printing Service: BlackRock, McKinsey and Unilever—are clearly part of the estab- Tel: +1 866 879 9144; email: [email protected] lishment. They want a world in which incumbent firms are under For information on reusing the articles featured in this special report, or for copyright queries, less pressure to plough abnormally high profits back into the capi- contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000; tal markets, giving them a licence to invest the money so they can email: [email protected]; Online: Economist.com/rights/reprints+and+permissions.html grow ever larger, while enjoying tacit co-operation with the gov- more special reports Previous special reports, and a list of forthcoming ones, ernment to pursue industrial and social goals. It is a soft corpora- can be found at: Economist.com/specialreports tism, dreamed up after a long boom, by powerful people who think China The Economist November 17th 2018 47

Also in this section 48 A row over political vetting 49 Chaguan: The meaning of fame

Academic research wider range of institutions. Money is the lever. The funding system Looking to beat the world motivates universities to produce top- class research. Universities, in turn, give their academics an incentive to do so. A study by three Chinese researchers, published last year, noted that payments for getting a paper published had risen steadi- Tsinghua University may soon surpass America’s institutions in science and ly from the $25 that was offered nearly 30 technology subjects. In China, its rapid rise is not unique years ago by Nanjing University, the first singhua university was born out of versity is the home of poets, philosophers university to give such rewards. Now such Tnational humiliation. It was founded in and rebels; Mao Zedong worked in the li- bonuses range up to $165,000—20 times the aftermath of the Boxer Rebellion—an brary, and the university was at the fore- the annual salary of an average academic— anti-foreign uprising in 1900—and paid for front of the Tiananmen Square protests of for a paper in Nature, depending on the in- with the reparations exacted from China by 1989. Like other Chinese universities, the stitution. The system has responded. Chi- America. Now Tsinghua is a major source two foremost ones all but ceased to func- na’s share of stem papers in Scopus, the of Chinese pride as it contends for acco- tion during Mao’s Cultural Revolution of world’s biggest catalogue of abstracts and lades for research in science, technology, the 1960s and 1970s; rival Red Guard fac- citations, rose from 4% in 2000 to 19% in engineering and maths (stem). In 2013-16 it tions waged bloody struggles for control of 2016, more than America’s contribution. produced more of the top 1% most highly Tsinghua. But both quickly rebounded. Tsinghua creams off the best research- cited papers in maths and computing, and Tsinghua retained its scientific bent and ers. And, like China itself, when it comes to more of the 10% most highly cited papers in became the principal beneficiary of the scoring, it benefits from its size. phd stu- stem, than any other university in the country’s boom in stem research. dents are the workforce of the research world, reckons Simon Marginson of Oxford business. In 2017 the university awarded University (see chart, next page). The Mass- Seizing the laurels 1,385 doctorates (some recipients are pic- achusetts Institute of Technology (mit) Since 1995 the central government has tured), compared with 645 conferred by still leads in the top 1% of stem papers, but mounted a series of efforts, involving bil- mit. But numbers are not the main reason Mr Marginson says Tsinghua is on track to lions of dollars in spending, to turn China’s for Tsinghua’s success. Yang Bin, its vice- be “number one in five years or less”. best universities into world-class ones. president, says “the most important mo- Tsinghua and Peking University are First came Project 211, which aimed to im- ment in the development of Tsinghua” was modelled on Western research universi- prove around 100 institutions to make in 1978, when Deng Xiaoping said China ties. The two are also neighbours and ri- them fit for the 21st century. The latest in- would send larger numbers of students vals, China’s Oxford and Cambridge. Tsing- carnation of this scheme is the Double First abroad. “We need to send tens of thou- hua is the conventional, practical one—the Class Plan, which was launched in 2015. Its sands,” Deng said. “This is one of the key alma mater of many of the country’s lead- goal is to foster world standards in two ways of…improving our level of scientific ers, including the current one, Xi Jinping, groups, one consisting of leading universi- education.” Officials worried that few of and Hu Jintao, his predecessor. Peking Uni- ties and the other of select departments in a them would return, but Deng insisted that 1 48 China The Economist November 17th 2018

were hired permanently or shown the door. Ideological screening Paper tigers This approach then spread through the Number of papers in the top 1% most highly cited university. The result, says Mr Yang, is that No place for the ones in maths and computing “people work terribly hard here: the lights By university, papers published 2013-1 are on all night, people work all weekend”, disloyal hoping to get papers into leading journals. Tsinghua University 1 (China) 42 The speed with which their efforts have dragged Tsinghua up the rankings is aston- HONG KONG Political screening of university Harbin Institute of ishing. In 2006-09 the university was 66th 2= Technology (China) 38 entrants causes an online furore in the maths-and-computing-research Stanford University re they retarded or just plain evil?” 2= (US) 38 league table. Now it is top. But there are worries about Tsinghua’s So asked a scathing commentary that Massachusetts “A 4 Institute of Technology 35 direction—particularly among engineers, was circulated recently through China’s so- (US) who used to dominate the university. Their cial media. The author was referring to offi- Nanyang Technological applied skills have played a crucial role in cials at the education bureau in Chong- 5 University (Singapore) 32 China’s modernisation, but because they qing, a south-western region. On University of California, produce relatively little cutting-edge theo- November 2nd they had published a docu- 6 Berkeley (US) 30 retical research, they have been losing out ment saying that students wishing to take National University 7= of Singapore 29 under the new regime. Engineers complain the university-entrance exam must that they struggle to get funding or promo- undergo zhengshen, or political vetting. University of Electronic 7= Science and Technology 29 tion, and that the focus on research ne- Those who failed this screening would be of China glects their contribution to society. barred from taking the test. City University = Hong Kong 28 Others worry that the university is still What was striking was not so much Chongqing’s reminder that students must Huazhong University not cutting-edge enough. “Many Japanese = of Science and 28 people have won Nobel prizes,” says Mr toe the Communist Party’s line, but the out- Technology (China) Yang. “People are saying: ‘Why not the Chi- cry this triggered in spite of strenuous ef- University of Texas, nese?’” Mainland China has only one Nobel forts by China’s leader, Xi Jinping, to keep = Austin (US) 28 prize in science, awarded to Tu Youyou for dissent in check. Parents in Chongqing and South East University discovering an anti-malarial drug in the farther afield expressed incredulity. The 12 (China) 27 1970s. Japan has 23; America has 282. Mr term zhengshen briefly lit up Weibo, Chi- University of California, Yang reckons that the pressure to publish is na’s equivalent of Twitter, before refer- 13= Los Angeles (US) 24 problematic. “It’s good for short-term re- ences to it were scrubbed by censors. Princeton University Zhengshen has a long history. During 13= (US) 24 sults, but not for really big things, for unor- thodox thinking. Too many people have the Mao’s rule, those sitting the exams were Zhejiang University attitude of followers. They’re not entrepre- disqualified even for having relatives with 13= (China) 24 neurial enough. I say: Start some new field. dodgy views or wealthy class backgrounds. Source: “Bigger than you thought: China’s contribution to Don’t care too much about recognition In the late 1970s Deng Xiaoping decreed scientific publications”, by Q. Xie and R. Freeman, NBER, 2018 from peers. Risk your whole career.” Per- that family ties should no longer be an im- suading researchers to think radically in- pediment to university entry. Milder forms 2 enough would. He was right. stead of incrementally would mean chang- of vetting have continued. But in practice Forty years on, Tsinghua and the coun- ing the way the system incentivises them. the screening of school-leavers has usually try’s other top universities are reaping the And while China’s universities forge been “just a formality”, says Zeng Xiaodong rewards. The return flow of highly trained ahead in the hard-science league table, of Beijing Normal University. Ms Zeng says people is gathering pace. The government they seem less likely to triumph in the so- she cannot recall a single case in China of a has provided extra resources to attract cial sciences. One problem is language. All student flunking the political test (though them. Tsinghua cannot match the best the world’s leading journals are published it is unlikely that such cases would be re- American packages, but it can offer six-fig- in English. That matters less for hard scien- ported in the state-controlled media or ure dollar salaries—and the opportunity tists, who communicate mostly in sym- publicised by family members). for young parents to bring up their children bols, than for social scientists, who use So why the outcry? One reason is that in their own culture. Qian Yingyi (Colum- many more words. An academic in Tsing- the word is associated with the totalitarian bia, Yale, Harvard, Stanford, Berkeley and hua’s education department says Chinese controls of the Mao era. In the post-Mao subsequently dean of Tsinghua’s school of social scientists complain that their best period it has been largely replaced in offi- economics and management) and Shi Yi- ideas are difficult to translate. “Writing pa- cial parlance by euphemisms such as test- gong (dean of Tsinghua’s school of life sci- pers for English-language journals is like ing a candidate’s “political and ideological ences; previously at Johns Hopkins and competing in an exam that is set by the qualities”. On November 8th officials in Princeton) are among the star returnees West,” she quotes them as lamenting. Chongqing issued an apology. They said who have transformed the university. The constraints on free speech, increas- using the word zhengshen had been a mis- “Those intellectuals played a very impor- ingly felt in universities, are another rea- take. All that was meant was that candi- tant role, changing the whole climate, rais- son why China’s stem triumph may not dates for the entrance exam must undergo ing standards,” says Mr Yang. spread to other disciplines. In 2013 the gov- ideological screening as long ago ordered Reforms in staff management have ernment told universities that seven top- by the central government. helped, too. In 2012, in the school of which ics, including universal values, judicial in- A newspaper in the capital, Beijing he was dean, Mr Qian replaced a personnel dependence and the past mistakes of the News, went further—attacking zhengshen system dominated by personal contacts Communist Party, were off-limits. “At a itself. It called on the government to abol- and political clout with an American-style great university,” says William Kirby, pro- ish all “unreasonable and unnecessary” tenure track: six years of research, then a fessor of China studies at Harvard, “there conditions for university admission. The review of performance, mainly based on isn’t one thing that can’t be talked about, screening of journalists may not be going published work, after which academics let alone seven.” 7 quite as well as the party would like. 7 The Economist November 17th 2018 China 49 Chaguan The meaning of fame

A small-town boy, trying to make it big on China’s internet made by playing games,” his mother reports. Parental disapproval helps explain why few livestreaming stars come from so-called first- or second-tier cities, such as Beijing or provincial capitals, admits Dai Qianwen, Boss Cai’s real-life boss at Chuxin. Big cities supply much of the livestreaming audience. Take a subway or grab lunch in Chongqing or Guangzhou, and a startling number of those around will be gazing at a smartphone. Many young men will be watching livestreamers playing such games as “Honour of Kings” or “PlayerUnknown’s Battlegrounds”. There are female gamers, though livestream firms mostly try to attract female viewers with video of young women singing, dancing and cracking jokes in winsome simulacra of teenage bedrooms. For that homelike feel, Chuxin’s female stars broadcast from company apartments. (Creepily, a female livestreamer’s income can come mainly from two or three big-spending male fans.) But after measured doses of online fun, big-city kids are expected to hit the books and cram for college. Many livestreamers come from fourth- or fifth-tier cities with few opportunities, says Ms Dai. In addition to placing recruitment advertisements online, Chuxin sends scouts to schools and internet bars to find talent as young as 16. The firm prefers to recruit un- knowns who can be moulded into stars, she says. Lank-haired and efore Hu Jinzhou began his climb into the foothills of fame, slumped in padded swivel-chairs, young performers at Chuxin’s Bas a professional player of computer games in China’s multi- studios in Shanghai are kept supplied with witty lines, snacks and billion-dollar livestream industry, he was a schoolboy tearaway. energy drinks. Some take naps on narrow beds in a corner. A re- He got into playground fights, tried to sell his textbooks to class- gional link can be a crowd-pleaser. Girls from Sichuan are famous- mates and sneaked out after dark for some online gaming. ly pretty, says Ms Dai; north-easterners are funny; and the mangled Back then, Mr Hu’s reluctance to conform was a drama played vowels of the Hunan and Fujian accents are cute. out on a small stage. “Our hair went white trying to straighten him out,” sighs his stepfather, Cai Hongbo, recalling nights spent hunt- Only room for one party host round here ing for the boy in the internet cafés of Dangyang, a factory town in There are greater risks with online fame than the disapproval of Hubei, a central province. Quick-witted and popular, if not with neighbours. In October Yang Kaili, a livestreamer with tens of mil- teachers, Mr Hu shrugged off efforts to control him. “We’d get him lions of followers, was detained for five days for singing a few bars to kneel...” recalls his mother, Zhao Aiying. “...To write letters of of China’s national anthem in a “disrespectful” manner online, a apology,” chips in her husband at their foot-massage parlour on a criminal offence. She apologised and promised to embark on a busy market street, where traders sell roasted nuts, vegetables of course of patriotic education. To China’s rulers, it is useful when the brightest green and fish from the nearby Yangzi river. Their son citizens are distracted from stressful lives by smartphones show- embarked on a life of menial, migrant jobs. ing larky videos or wholesome livestreams. But those seeking Today he is 20 and his roguish charm is a marketable commod- prominence of any sort—including producers of real-world or vir- ity, offering substantial rewards but also risks on a national stage. tual content—must know their place. Chuxin reminds its stable of At its most commercial, China’s internet can look like online life young performers that big stars have been ruined by online com- elsewhere. It is not. Behind China’s Great Firewall of internet cen- ments made when they were small fry, but which were unearthed sorship, even online entertainment must bow to political diktats. years later. The big Chinese livestream platforms warn Chuxin “Boss Cai”, as Mr Hu is known on online, has for the past year when sensitive topics are trending online, and will shut down per- played computer games in a glass-walled studio in Shanghai for formers who stray. Even a newcomer like Boss Cai feels pressure. eight hours a day, six days a week, showing off his virtual fighting “The minute you get famous, all eyes are on you,” he says carefully. skills and wisecracking to fans, 140,000 of whom follow him on The result is a heavily policed version of non-conformism. social media. Add together Boss Cai’s salary from Chuxin, the Whenever Boss Cai is playing, his audience includes Chuxin staff agency that employs him, payments from internet platforms that assigned to manage him, monitors from the livestream platform broadcast his performances and his share of the online gifts that that hosts him, unknown agents of the government, and his moth- followers send him (the equivalent of tips thrown into a busker’s er back in Dangyang (at least once a day, she admits). Asked why hat), and he can make 50,000 yuan ($7,190) in a month—more than she watches her son on her smartphone while he engages in virtu- many former classmates earn in a year. His parents are proud of his al combat, Ms Zhao quietly explains: “I just miss him.” earning power—though his father needed assuring that his son Boss Cai calls his life both painfully tiring and fun. Is it lonely, had not become an exotic dancer. “He thought it was the type of he is asked? His bravado fades for a moment. “Exceptionally lone- livestream where you dance and shake your bum,” explains Boss ly,” he answers. In China, individualism has a cost. 7 Cai. “I said there were boys who livestream, too.” Still, it is not a conventional career. Some children in Dangyang In last week’s column, “Respecting their elders”, we identified the boss of have seen Boss Cai online and are wide-eyed at his celebrity. Their Medical Care Service’s operations in China as Grace Meng. In fact her surname is parents can be sniffier. “They’ll say, there aren’t a lot of geniuses Wang. Sorry. 50 Property

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http://www.lemesnildo.fr/ Contact: Guillaume +447532003972 [email protected] Middle East & Africa The Economist November 17th 2018 51

Also in this section 52 Designer vaginas in Lebanon 52 Struggling Dubai 53 Nigeria’s mysterious Shia 54 Looking back in the Gambia 54 The economics of cocoa

From ceasefire to crisis in Israel pressure to make concessions to the Pales- tinians, which he has spent his career try- An election looms ing to avoid. On November 11th, while visiting Paris for Armistice Day, Mr Netanyahu said the deal would prevent “unnecessary war” and a humanitarian crisis in Gaza. The calm lasted only a few hours. That evening a squad of Israeli soldiers in civil- CAIRO AND JERUSALEM ian clothes, some dressed as women, ran Instead of bringing calm, a deal with Hamas may bring Israel’s government down into gunmen from Hamas, the Islamist hen avigdor lieberman became Is- launched from Gaza have burned thou- movement that rules Gaza, during an intel- Wrael’s defence minister in 2016, he sands of acres of Israeli land. Frequent ex- ligence mission there. A firefight ensued, vowed to eliminate the leader of Hamas changes of rockets and air strikes threaten with a car chase to the border. The com- within 48 hours. Two years later Ismail Ha- to turn into a full-scale war. In the past de- mandos called in air strikes and helicop- niyeh is still alive—and may have just cade there have been three. ters to extract them. Seven Palestinian mil- helped eliminate Israel’s government. On Mr Netanyahu has sought a deal to pre- itants and an Israeli officer were killed. November 14th Mr Lieberman (above, left) vent a fourth war. On November 8th Israel Hamas and its allies fired 460 rockets and resigned, withdrawing his party from the let a Qatari envoy into Gaza carrying three mortars at Israel; Israel struck 160 build- ruling coalition over its supposed meek- suitcases stuffed with $15m in notes. The ings in Gaza. Eight more Palestinians were ness in the latest flare-up in the Gaza Strip. cash was distributed to civil servants. reported killed in Gaza, and one in Israel. That leaves the prime minister, Binya- Many had not been paid since the summer. Egypt soon brokered a truce. Neither min Netanyahu (above, right), with a one- Israel also allowed lorries laden with diesel side wanted a war. Mr Netanyahu was bent seat majority in the Knesset. He may lose oil, also donated by Qatar, to enter the fuel- on the deal, as was Hamas, which hopes that if other right-wing parties follow Mr starved strip, letting its sole power plant re- better conditions in Gaza will sustain its Lieberman’s example. The general election start a second turbine. Gazans now get at unpopular rule. But Mr Netanyahu’s allies scheduled for November next year is likely least eight hours of electricity a day. That is were furious. They wanted a stronger reac- to be brought forward to the spring. A week an improvement, given that they endured tion. In Sderot, a town close to the border that began with efforts to bring calm to barely four hours in the summer. In return with Gaza, hundreds of residents came out Gaza has sparked a coalition crisis in Israel. for these meagre comforts, Hamas agreed in protest, burning tyres. Mr Lieberman After more than a decade under an Is- to limit the protests. claims to have advocated a much tougher raeli and Egyptian blockade, Gaza seems as line on Gaza, one opposed by Mr Netanya- intractable as ever. Conditions for its 2m Blood money disdained hu and Israel’s generals. Announcing his people are dire. Poverty is widespread; in- Many Israelis disliked the deal, seeing it as resignation, he accused his boss of a “sur- frastructure is crumbling. Since March akin to paying protection money to the render to terror”. The truce, he said, would large crowds have been protesting every militants. But Mr Netanyahu believed he bring short-term quiet at the expense of Is- week at the border fence. Scores have been could withstand the criticism. Keeping rael’s real security. killed by Israeli snipers. Flaming kites Gaza out of the headlines would reduce the The leader of the right-wing Jewish 1 52 Middle East & Africa The Economist November 17th 2018

2 Home party, Naftali Bennett, covets the de- But Mr Lieberman will not have an easy Dubai fence ministry. But the prime minister is time either. As defence minister, he en- loth to elevate one of his chief rivals. In- dorsed many of the decisions he now criti- Up a creek stead Mr Netanyahu will take over the post cises. Mr Bennett has attacked his record himself, adding it to his jobs as foreign for months. All three will compete for the minister and head of government. As a re- same right-wing vote. Mr Lieberman’s Yis- sult, Mr Bennett seems likely to quit the co- rael Beiteinu party, which draws support alition and force an election. from an ageing crop of Russian émigrés, is The Middle East’s business hub is Mr Netanyahu had hoped to start the polling poorly. His attack on Mr Netanya- hurting election campaign on his own terms. In hu’s policy in Gaza, although well timed, July the Knesset passed a law declaring Is- feels like a desperate bid for survival. ubai is unlike most of the Gulf’s rael the nation-state of the Jewish people. After a decade in power, Mr Netanyahu Dsheikhdoms. Its economy thrives not Though largely symbolic, it alienated Isra- could soon surpass David Ben-Gurion’s re- on oil, but on tourism, trade and finance. el’s non-Jewish minorities and drew scorn cord as Israel’s longest-serving leader. Its patch of desert hosts one of the world’s abroad. But it pleased his base. Last month With a divided field and an uninspired op- busiest airports, its tallest skyscraper and the prime minister visited Oman, which position, he may still win the next election. the region’s biggest port at Jebel Ali. The has no official relations with Israel, and But corruption charges have cast a shadow pace of construction is dizzying. The emir- met its sultan. He hoped to campaign as a over his administration. His list of chal- ate’s gdp is projected to grow by 3.3% in statesman and staunch nationalist who lengers is long and growing. For years they 2018, up from 2.8% last year. has brought peace and quiet to southern Is- avoided attacking him directly, thinking Below the rosy top-line figures, though, rael. Instead he is having to fend off attacks they would lose. But Mr Netanyahu may no there are growing signs that Dubai is run- on his security record. longer have that weapon of deterrence. 7 ning into trouble. Rising oil prices created momentum in the short term, but “trends are downwards” over the long term, says Plastic surgery in Lebanon Ehsan Khoman of mufg, a bank. He and other analysts say an oversaturated proper- A new type of nip and tuck ty market and regional conflict are the biggest causes for concern. BEIRUT Dubai’s stockmarket has slumped by Designer vaginas are all the rage 20% year-on-year and is the worst-per- n the gulf the ladies want a big butt former in the Middle East. The recent col- “Iand a big vagina. Not the Lebanese. lapse of Abraaj Group, the largest firm in They want smaller vaginas. They are the Dubai International Financial Centre, more like the Europeans: they want the has jolted confidence. New business li- labia inside.” So says Dr Hussein Hashim, censes are far fewer and employment is a plastic surgeon in Beirut, as he sits shrinking for the first time on record. The behind a desk scattered with buttock emirate withholds statistics needed for a implants. He and his colleagues perform sovereign-credit rating, but state-owned surgeries with names like “The Barbie companies provide a bellwether. In Sep- Look” or “The Beverly Hills Rejuvena- tember S&P, a credit-rating agency, down- tion”—operations that trim the inner graded two, citing a weakening economy. labia, tighten the vagina or reduce the Foreigners make up more than 90% of fold of skin covering the clitoris. the population, but schools for expatriates Labiaplasty is the fastest-growing are closing. Removal companies say depar- cosmetic surgery in the world. Lebanese tures far outstrip arrivals. Real-estate women, who have a penchant for biolog- agents bemoan a rash of empty flats, even ical improvement, are particularly keen as developers build more. Falling rents on it. Only Spain and Brazil do more made Dubai’s property market the world’s vaginal procedures per head. “Beauty In Lebanon women are often influ- second-worst performer in 2017. Shares in used to be all about the face. Now it’s enced by magazines featuring slim yet Emaar Properties, the emirate’s biggest de- about the body. Buttocks and vaginas are voluptuous women. A nip and tuck is veloper, have sunk by 38% in a year. the big thing,” says Elie Abdel Hak of relatively cheap (a labiaplasty costs Banks learnt to be more prudent after a Lebanon’s plastic-surgery society. about $1,500). Girls as young as 14 have debt-driven crisis in 2009, when Dubai The rise in women who want so- nose jobs, often brought to the clinic by needed a $20bn bail-out (equal to about a called designer vaginas has confounded their mothers. But a labiaplasty carries quarter of its gdp at the time) from Abu researchers. Some say the Brazilian risks. America’s Food and Drug Adminis- Dhabi, the richest fellow member of the bikini wax has made women more con- tration has warned that some of the tools United Arab Emirates (uae). Analysts do scious of their vulvae. Others blame used to destroy and reshape vaginal not expect another such crisis, but they online pornography for idealising the tissue are dangerous. Lasers used to still worry about the exposure of regional vagina and depressing women who think “rejuvenate the vagina” may cause burns, banks to property. Some would have gone their genitals are abnormal. They don’t scarring or pain during sex. bankrupt were it not for help from the cen- want their vaginas showing through More study is needed, but in general tral bank, says an asset manager. their shorts or bikinis, says Mr Hak. the satisfaction rate is high and the Rising oil prices (until recent weeks), a “They’ve become ashamed.” Tighter complication rate low. Lebanese women recovery in Saudi Arabia, the Gulf’s biggest clothes, childbirth, irritation during who have undergone the procedure economy, and construction related to the exercise and insults from men also play a certainly seem happy. “It’s amazing,” next World Expo, which Dubai will host in role, studies suggest. says one. “I’m like a baby now.” 2020, help explain why firms say they are optimistic. But they also worry about pro-1 The Economist November 17th 2018 Middle East & Africa 53

three years ago. He preaches non-violence, but the army is testing the imn’s restraint. Some fear the government is creating a new Boko Haram, the Sunni jihadists waging a bloody insurgency in the north. There were few Shias in Nigeria 40 years ago. Mr Zakzaky is almost single-handedly responsible for changing that. Entranced by the Iranian revolution, he converted from Sunni Islam to Shiism in 1979, then went about converting others. Today analysts think Nigeria has up to 3m Shias; nearly all are in the imn. They form a small minority of Nigeria’s roughly 180m population, split between Muslims (mostly Sun- nis), who dominate the north, and Chris- tians, who dominate in the south. Mr Zakzaky has amassed followers in the impoverished north by railing against Stormy times ahead the government’s ineffectiveness and corruption (while extolling the virtues of 2 tracted conflicts in the Gulf. Dubai, long a veloping the Omani port of Duqm, which Iran). Many are drawn to the imn’s schools haven in the volatile region, has lately been could allow ships to bypass Jebel Ali. and welfare schemes. But it has evolved caught up in the trouble. In August officials Optimists point to opportunities result- into something of a messianic cult, centred were forced to deny claims made by Yeme- ing from the uae’s foreign adventures. The around Mr Zakzaky. Similar groups have a ni rebels to have hit Dubai’s airport with capture of ports in Yemen has opened new long history of stirring up trouble in the armed drones. lines of commerce and might eventually north. The imn’s rise coincided with that of Dubai is moored to the bellicose poli- benefit dp World, a port operator owned by the Yan Tatsine cult, which followed a cies of Muhammad bin Zayed, the crown Dubai. An alliance with General Khalifa preacher called Maitatsine and clashed prince of Abu Dhabi and de facto ruler of Haftar, a Libyan warlord, could provide with the government in the 1970s and 80s. the uae. He and Muhammad bin Salman, similar prospects on the Mediterranean. Now Boko Haram, which is much smaller the crown prince of Saudi Arabia, have not Emirati footholds in Somaliland could lead than the imn, torments the state. only led the war in Yemen but also a 17- to more business in Ethiopia’s landlocked For most of its existence, the imn was month-old blockade of Qatar. As a result, market. Quiet ties to the regime of Bashar largely ignored by the government. That Dubai lost a trading partner. Flights con- al-Assad in Syria could lead to reconstruc- changed when members blocked the Nige- necting the busy airport in Doha, Qatar’s tion contracts. But as the uae becomes rian army chief’s convoy in the state of Ka- capital, to Dubai have been grounded. Qa- more entangled in the region’s political duna in 2015. At least 300 of them were tar’s imports, once routed through Jebel fights, so does Dubai. The emirate long killed when soldiers cleared the road, say Ali, now go direct (or via Oman). Rather benefited from the region’s distress. Now it human-rights groups. (It is not clear if the than share the business generated by Qa- risks becoming a victim of it. 7 soldiers were attacked.) Mr Zakzaky and his tar’s hosting of the World Cup in 2022, the wife were injured, then arrested. For two uae is trying to scuttle the tournament. years they were held without charge, de- Dubai’s profitable relationship with Nigeria spite a court order in 2016 to release them. Iran has been similarly disrupted. The In April they were charged, implausibly, emirate earned big port fees from the $17bn Making a militant with conspiracy to kill the army chief. The trade in re-exports to Iran. But America’s imn, now banned in Kaduna, has vowed to re-imposition of sanctions, with the sup- keep protesting until Mr Zakzaky and his port of the two belligerent princes, has wife are released. On November 7th they scared away business. The dhows that were denied bail by Kaduna’s high court. shipped goods across the Persian Gulf ev- The government’s response is starting A mysterious Shia movement has ery week now go once a month. Dubai has to resemble its tactics against the Yan Tat- Nigeria worried become less attractive as a back door to sine and the forerunner to Boko Haram, Iran. In May American and Emirati moni- he streets are quiet and the tear gas which caused both groups to become more tors dismantled a currency-exchange net- Thas dissipated, but no one knows for violent. “The state is going about this in the work in Dubai used by the Quds Force, the sure how many protesters were killed in wrong way,” says John Campbell, a former foreign wing of Iran’s Revolutionary Guard Abuja, Nigeria’s capital, at the end of Octo- American ambassador to Nigeria. He fears Corps. America has added Dubai to its anti- ber. The army claims six people died when the imn will abandon non-violence. money-laundering watch-list. soldiers stopped demonstrators from over- Others worry that the stand-off could With Muhammad bin Zayed calling the running a checkpoint. Human-rights descend into a proxy war. The imn report- shots abroad, Dubai’s emir, Muhammad groups say at least 45 were killed—and that edly receives cash from Iran. The group de- bin Rashid, has introduced stimulus mea- the demonstrations were peaceful. nies this—and accuses the government of sures at home. Over the summer he froze More mystery surrounds the group that being in thrall to Saudi Arabia. private-school fees and cut levies. In order organised the protests, the Islamic Move- Things may be coming to a head. “We to keep more foreigners from leaving, he ment in Nigeria (imn). It is known to be don’t want to use violence,” says Ibrahim introduced longer-term work visas and made up mostly of Shia Muslims. Analysts Musa, a spokesman for the imn. “But if loosened restrictions on business owner- count millions of members. Many gath- they keep being violent against us, I don’t ship. There is hope that Chinese investors ered in Abuja to demand the release of their know what will happen. Already some will start piling in. China, for its part, is de- leader, Ibrahim Zakzaky, who was jailed members are saying enough is enough.” 7 54 Middle East & Africa The Economist November 17th 2018

Truth and reconciliation president, Adama Barrow, has raised hopes als, they add value,” sighs Owusu Afriyie in the country. But as the trrc moves Akoto, Ghana’s agriculture minister. Bringing Jammeh ahead with its business, some worry about Ghana and Ivory Coast are trying to claw Mr Barrow’s judgment. He has the power to up the value chain. Ghana is close to fina- to justice pardon criminals—and, for reasons that lising a $600m loan from the African De- are unclear, recently tried to use it to free a velopment Bank, some of which is expect- Norwegian paedophile convicted of abus- ed to support cocoa processing. It is also BANJUL ing six children in the Gambia. (The pardon seeking Chinese help to build a state-run The Gambia grapples with the legacy of was withdrawn after a public outcry.) “His processing plant. Observers see cocoa as a its former dictator government is still groping in the dark and test-case for African industrialisation. But hen jeneba heard that Yahya Jam- working things out on a day-to-day basis,” it is not a very useful model. Cocoa is un- Wmeh, then president of the Gambia, says Demba Jawo, a former communica- likely to bring much revenue or many jobs. had found a cure for aids, she tossed away tions minister. Granted, there have been some success- her medicines and signed up for his treat- Jeneba, meanwhile, is struggling. Dur- es. About 21% of the world’s cocoa is ground ment programme. Every morning she and ing her ordeal at Mr Jammeh’s clinic, her in Africa, up from 15% a decade ago. Ivory hundreds of others went to his private clin- husband left her. She is bringing up four Coast grinds nearly a third of its beans and ic. The president, dressed in white and of- children alone. One has hiv. She does not rivals the Netherlands as the world leader ten waving a Koran, would massage creams have much to say about the trrc—but she by volume. In Ghana’s Tema “free zone”, the into her face. Nurses gave her a foul-tasting wants to live long enough to see Mr Jam- smell of cocoa is in the air. Niche Cocoa, concoction. Soon patients began disap- meh punished for his crimes. 7 one of several processors there, ships cocoa pearing from their hospital beds. “We all butter, liquor and cake abroad, while sell- suffered from terrible sickness and diar- ing chocolate at home. Customers cannot rhoea,” says Jeneba (not her real name). “At believe it is made in Ghana, chuckles Lloyd least 20 of my friends died that way.” Ashiley, the plant manager. Mr Jammeh committed less bizarre Most of the processing in the region is crimes. His henchmen, known as “the done by the same multinationals that were junglers”, routinely killed and tortured already grinding cocoa in Europe or else- those who spoke out against the regime. where. In Ghana, firms in free zones get tax But the big man lost an election in 2016 and, breaks. The government, which dominates after trying to hold on to power, was forced the cocoa industry, gives a discount on out by the country’s neighbours. Now smaller, “light-crop” beans to encourage Gambians are coming to grips with his 22- local processing. But when the cheap beans year rule. An 11-member Truth, Reparations run out, machines sit idle. Nearly half of and Reconciliation Commission (trrc) capacity is unused. was launched in October, tasked with lay- Gone are the days when George Cadbury ing bare the old regime’s crimes, recom- built model villages for his British workers. mending prosecutions and paying com- A modern cocoa factory is a labyrinth of pensation to victims. With a mandate juddering metal, supervised from behind lasting two years, its staff is already travel- computer screens. The entire Ghanaian ling up and down the country, which has processing industry employs just a few over 2m people, collecting testimonies. The economics of chocolate thousand people. The capital investment The trrc faces big difficulties. Its chair- required to create one job grinding cocoa in man, Baba Jallow, says that, even with cash Sweet dreams Ivory Coast could create over 300 jobs pro- coming from the UN and Qatar, it will cessing cashew nuts, said the World Bank struggle to pay reparations to all deserving in 2012. victims. Another issue is the Gambia’s un- The biggest problem is geography. Most derstaffed and ill-equipped judiciary, of the value in chocolate comes from mar- which is meant to hear cases recommend- ACCRA keting and branding. And it is a big step up Cocoa processing is not a golden ticket ed by the trrc. The courts are already over- from grinding to chocolate-making. Con- for west Africa loaded. They do not have audio-visual sumers are mostly in Europe or North equipment, which would allow witnesses n 1876 tetteh quarshie, a blacksmith, America. Transporting chocolate through living abroad to testify. Ismuggled the first cocoa beans into Gha- tropical climates is a logistical headache. Still, Mr Jallow hopes to change the way na, hidden beneath his box of tools. He is Chocolate consumption in Africa is low. Gambians view their government. The now celebrated as a national hero; his Some artisanal confectioners are break- word for president in the country’s three trees, planted in the hills outside Accra, are ing the mould. Instant Chocolat, an Ivorian main tribal languages translates as “king”, a tourist attraction. But did cocoa make firm, sells posh chocs in flavours including he says. Mr Jammeh’s face still adorns him rich? “No,” says a guide. “He harvested baobab and hibiscus. A Ghanaian brand banknotes. Until last year, most Gambians for the first time, and then he died.” named 57 Chocolate—for the year of the lived their entire lives under his dictator- West Africans have been seeking for- country’s independence—stamps its bars ship. So the trrc has launched a “Never tunes in cocoa ever since. Like Mr Quar- with the Adinkra symbols more commonly Again” campaign to teach young people shie, they have been short of luck. Ghana found on Ashanti fabrics. Kimberly and about democracy and prevent a repeat. It and Ivory Coast produce about 60% of the Priscilla Addison, the sisters who founded also wants to put Mr Jammeh on trial. But world’s cocoa. Yet they mostly sell unpro- it, hit upon the idea while living in choco- the odds are against that happening, at cessed beans. Their cocoa-export earnings holic Switzerland. “Why not try to produce least in the short term. He lives in Equatori- are equivalent to less than a tenth of world a chocolate brand that is uniquely Afri- al Guinea under the protection of that chocolate sales. Power lies with a small can?” asks Kimberly. But these firms oper- country’s dictator, Teodoro Obiang. group of trading firms and chocolate-mak- ate on a tiny scale. For wannabe chocolate- The Gambia’s new and inexperienced ers in rich countries. “We send raw materi- makers, alas, there is no golden ticket. 7 Europe The Economist November 17th 2018 55

France and Europe “Our objective is to create a new political group that can bring together different Macron’s long march parties and end the domination of the epp,” says Pieyre-Alexandre Anglade, the En Marche deputy who co-ordinates Euro- pean party recruiting, referring to the broad centre-right group. Home to Mrs Merkel’s Christian Democrats, the epp is PARIS the biggest in the European Parliament. A The president’s ambitions are huge but necessary. Achieving them will be hard new group, insists En Marche, will be longside dozens of their peers, to- dent is to do anything about it, he needs founded only after next May’s elections, Aday’s leaders of France and Germany— two things: first, a solid centrist political since Mr Macron currently lacks any Euro- Emmanuel Macron and Angela Merkel— base at the European level, like the one he mps. No polls suggest that a new centrist walked in moving spectacle to the Arc de forged last year in France with En Marche. group could supplant the epp. But it might Triomphe on November 11th, a century Then, he needs to win support for his Euro- just become a decisive second force. after their countries’ murderous guns fell pean reform agenda from other countries, silent. “Will this be the resounding symbol especially Germany. The ambiguous plan of a lasting peace between nations?” asked A year ago, there were high hopes with- The contours of En Marche’s strategy to Mr Macron of the assembled potentates, in Mr Macron’s team that La République en achieve this are beginning to emerge. At including Donald Trump and Vladimir Pu- Marche (to give the party its full name) their congress in Madrid on November tin; or “a last moment of unity before the could repeat his feat and up-end the Euro- 10th, the Alliance of Liberals and Demo- world darkens into a new disorder?” pean party balance, too. The French presi- crats for Europe (alde), which reaches Mr Macron’s grave words frame what is dent was the poster boy for pro-European from Nordic and Dutch liberals to Spanish set to become a polarising debate in Europe centrists, as popular at home as he was centrists, announced that it will hook up over the coming months: between the de- courted abroad. Today, despite a record of with Mr Macron’s party to campaign next fenders of the liberal order and post-war domestic reforms, the president’s star has May. En Marche hopes to agree on cam- institutions, and the rising forces of na- waned. His poll ratings have tumbled. He paign issues and assumes (perhaps wrong- tionalism. Ahead of elections next May to now faces a revolt by motorists, who are ly) that Mr Macron will be its figurehead. the European Parliament, the French presi- planning a huge protest on November 17th What remains unclear, though, is the dent has boldly (some might say hubristi- over green fuel taxes. And En Marche is nature of this partnership. Viewed from cally) cast himself as the guardian of the struggling to raise its profile in Europe. Paris, it is a non-exclusive “collaboration”, continent’s democratic values, and loses which will allow En Marche to keep seek- no opportunity to underscore what is at ing other friends and maintain its inde- stake. “Old demons are rising again, ready Also in this section pendence from a group perceived in France to complete their task of chaos,” he de- as too “liberal”. There is still talk of trying to 56 Sweden’s political crisis clared, to a scowling Mr Trump and a pok- peel away potential allies, such as Italy’s er-faced Mr Putin in Paris. Mr Macron does 57 Rome v Brussels Democratic Party from the Socialists and a fine job of laying out the battle of values Democrats or even German Greens on the 58 Charlemagne: Resurgent regionalism confronting Europe. Yet if the French presi- left, or Greece’s New Democracy from the 1 56 Europe The Economist November 17th 2018

will bankrupt Sweden’s welfare state. The Fishing in a diverse pool sd won 17.5% of the vote in a general elec- MEPs in the European Parliament by political grouping, 2018 tion in September, up from 13% in 2014 and 0.4% 20 years ago. The traditional centre- right and centre-left alliances each have GUE/ Greens/ S&D ALDE EPP ECR EFDD ENF NI roughly 40%. So a party with neo-Nazi NGL 187EFA 68 218 72 4 4 2 52 52 roots holds the balance of power. This creates a dilemma. The govern- Source: European Parliament ment has already made it much harder for new asylum-seekers to enter Sweden. But 2 epp on the right. The hope is that Mr Mac- tional approach to Mr Trump, who was the mainstream parties hesitate to em- ron’s political clout, combined with En treated in Paris to a French lecture on the brace the sd itself. To do a deal with the na- Marche’s seats, will enable them to impose difference between nationalism and patri- tionalists would lend them respectability. a new group and bring alde on board. otism, and responded with an anti-Macron But if the mainstream parties form a grand Yet at most Mr Macron can hope to win tweetstorm. Perhaps the best hope is that coalition to exclude the sd, it would be- around 20 seats, whereas alde expects 70- such aggression, which Mr Macron chose come the only serious opposition, and odd. If he comes in behind Marine Le Pen, not to dignify with a response, will unify protest voters would have nowhere else to his Euro-star will be tarnished. En Marche the continent’s liberal-minded leaders and go. Either way, the sd stands to gain. hopes its French candidate line-up will jolt them into getting on with fixing things How worrying is that? As it has grown, reach from the Greens to the centre-right rather than just making speeches about the sd has expelled its most openly racist around Alain Juppé, a former prime minis- how they want to do so. 7 members, and its more virulent youth ter. But it has yet to secure a suitably promi- wing has split away. But it remains a mag- nent figure, such as Pascal Canfin, a Green net for those who dislike Muslims, railing and head of France’s World Wide Fund for Immigration and politics against polygamy and crimes committed Nature, to head its party list. Moreover, Mr by immigrants. Macron has so far made no progress in win- Talking rubbish On November 14th Ulf Kristersson, the ning new recruits. Unless he can do so, En leader of the Moderate party, the largest in Marche will end up being swallowed by the centre-right Alliance, failed to form a alde, not the other way round. One source government. Parliament rejected his at- calls En Marche’s strategy a “classic case of tempt, after his own allies deserted him Macronist constructive ambiguity”. when it became clear that the sd would All this manoeuvring matters because STOCKHOLM vote to allow hin to form a minority gov- Sweden fails to form a government Mr Macron wants to secure influence in the ernment—not, it appeared, as part of any European Parliament in order to shape the o understand Swedish politics, con- explicit deal he had reached with them. next European Commission, and therefore Tsider the trash in Stockholm. Busy “This is the most serious crisis I’ve been in- the union’s agenda. Unlike the epp and the Stockholmers who want their clutter volved in all the years I’ve been in politics,” Socialists, which have each named a candi- lugged to distant recycling centres can Mr Kristersson said. If after four formal date to run the commission, Mr Macron download an app that connects them to ca- votes there is still no government, a fresh wants to keep his options open on this sual workers who will do it cheaply and election will have to be held. point, too. His underlying aim is to secure straight away. Tiptapp, the “Uber for trash”, It is unclear what the Sweden Demo- an extra push for his European ambitions, is popular not only among time-poor pro- crats are after. Mostly, they just want main- first laid out in a speech at the Sorbonne fessionals but also among the legions of stream politicians to sit down with them. over a year ago. refugees who cannot find jobs. Tens of Some pundits even argue that a share of On this front, the frustration in Paris is thousands have offered their services. power might force them to become more clear. During 18 months in office, Mr Mac- Stockholm has responded by banning responsible, as has happened in Norway. ron has visited 19 eu countries. On some Tiptapp. The city argues that rubbish col- Others, though, predict that they would matters, such as the setting up of Europe- lection is a government monopoly—which play the centre-right and centre-left off wide universities, or a co-ordinating de- perhaps explains why the official contrac- against each other, threatening to support fence framework known as the European tors are so unhelpful. When Johan Nor- the other side’s budget if their demands for Intervention Initiative, he has made pro- berg, a local columnist, tried to get a Tip- ever-more-draconian migration curbs are gress. His recent call for a “real European tapp-like service from one, he was told it not met. army”—which so irked Mr Trump, who would cost roughly 20 times as much, take Support for the sd has grown “on the wrongly claimed that Mr Macron wants it up to five days and only happen during of- back of unsolved problems the big parties in order to protect Europe from America— fice hours, when he is not at home. have not addressed”, says Mr Kristersson. was a way of referring in popular terminol- Between 2013 and 2017 Sweden let in Getting migrants into work will be “diffi- ogy to such efforts. Mrs Merkel this week 353,000 refugees, equivalent to 3.5% of its cult but not rocket science”, he says; it will backed the French idea, using the same population. It has failed woefully to inte- require a mix of better education and new phrase. But Mr Macron’s calls for substan- grate them. Red tape makes it hard for them types of jobs for the unskilled. tial euro-zone reform, to protect the cur- to find jobs. After five years in the country He is right. Refugees are typically less rency area from future shocks, have gone only 40% of male refugees and 20% of fe- educated than Swedes, and just starting to largely unheeded. An enfeebled Mrs Mer- male ones are working. For native-born learn Swedish. Many are not worth hiring kel, now on her way out, is unlikely to be- Swedes of either sex, the figure is nearly at prevailing wages, which unions can en- come any more obliging, especially if Mr 80%. Combined with large handouts, this force with intimidating tactics such as or- Macron is trying to poach her group’s meps. means that refugees tend to drain the pub- ganising workers at an errant firm’s suppli- The stakes are high for Europe as well as lic purse. And this avoidable policy error ers to shut down deliveries. All this makes for Mr Macron. Leadership on the conti- has helped to poison Swedish politics. it hard for unskilled workers to price them- nent is one way for him to regain authority The Sweden Democrats (sd), an anti- selves into a job. Such problems can hardly at home. So, arguably, is a more confronta- immigrant party, warns that newcomers be tackled without a government. 7 The Economist November 17th 2018 Europe 57

Rome v Brussels reforms. The current one, which has un- done structural reforms, eg, to pensions, Working to rule can make less of an argument for special treatment. Nor has it tried to plead its case. Indeed, its rulers see confrontation with Brussels as a vote-winner. Once an edp has been approved by the European Council of heads of state, which could happen at their summit in Decem- A defiant Italy is putting Europe’s fiscal rules to the test ber, a programme of recommendations he next bout in the fight between Italy sion to be flat during 2018-2020. and deadlines will follow. Italy’s progress Tand the European Union has begun. Ita- Italy’s proposed fiscal deficit, though will be monitored every three or six ly’s deadline to resubmit its budget plans to larger than the commission would like, months. If the commission thinks Italy has the European Commission, on November does not breach the 3% ceiling. But the not done its homework, it can impose a 13th, lapsed without its government flinch- commission reckons it could come peril- fine of 0.2% of gdp, and suspend payments ing. To have given in, said Luigi Di Maio, the ously close. In its forecasts published on from eu funds. Further cycles of home- leader of the Five Star Movement (m5s), one November 8th it was more pessimistic than work and fines may follow until Italy is of the two governing parties, would have the government about Italy’s economic deemed compliant. been “to commit suicide”. In turn, the com- growth. It thinks the resulting lower re- So far, though, the commission has mission is said to be planning to launch an ceipts and higher spending will push the been reluctant to whack countries with excessive-deficit procedure (edp)—a disci- deficit to 2.9%, rather than the govern- penalties. The nearest it came was in 2016, plinary process that could lead to financial ment’s estimate of 2.4%. when Portugal and Spain were “fined” the penalties—as early as next week. Breaking the rules is necessary for an sum of €0.The commission backed down The confrontation is the first test of the edp to be invoked, but is not sufficient. for fear of worsening their fiscal problems eu’s fiscal compact, agreed on at the height Starting the procedure is also a sign that It- and, perhaps, of stoking Euroscepticism. of the euro-zone debt crisis. It beefs up the aly has exhausted the commission’s flexi- Some northern states are also uncom- commission’s oversight over countries’ bility. As the rules have proliferated, so fortable with the eu’s intrusion into na- budgets and its power to impose sanctions have exceptions to them, says Philippe tional fiscal affairs, preferring that finan- if they transgress. The commission has so Martin, from France’s Council of Economic cial markets do the dirty work of far shied away from imposing sanctions on Analysis. Allowances are granted to coun- disciplining profligacy instead. In October euro-zone members, but they now seem a tries struck by unforeseen events, such as Giovanni Tria, the Italian finance minister, distinct possibility. an economic downturn, earthquake or in- said that the government would reconsider The fiscal rules are intended to keep flux of refugees, all of which can push up its plans if the spread (ie, the difference) macroeconomic imbalances in check. But government spending. Those implement- between Italian and German government sovereign-debt crises exposed flaws in the ing costly structural reforms, or expecting borrowing costs were to rise to 400 basis original framework. The rules that existed a temporary deviation from the rules, points. (On November 13th it stood at just before 2011—that fiscal deficits not exceed might also be let off the hook. over 300.) The danger, though, is that in- 3%, and public debt 60%, of gdp—had not Critics say that such exemptions have vestors could overreact. Market reactions taken prevailing economic conditions into contributed to the opacity and unpopulari- can be both untimely and disorderly. account. The result was too little prudence ty of the rule book. But Italy has tended to The political and economic costs of im- during good times, with transgressors go- benefit from the flexibility. It has been let posing fines could yet stay the commis- ing unpunished. Nor was there enough off despite breaking the debt rule before. sion’s hand. But the latest violation of the stimulus during bad ones. Much-needed The commission estimates that Italy was rules is particularly brazen, says Mr Claeys. state spending during the crisis was granted €30bn ($34bn, or 1.8% of gdp) Ignoring it risks undermining the commis- frowned upon: 23 out of 27 countries were worth of exceptions to its deficit commit- sion’s credibility. That could well compel it judged to have excessive deficits in 2012. ments as previous governments undertook to hurl its hefty rule book at Italy. 7 Reforms to the system in 2011-13 tried to take better account of the economic cycle, while tightening enforcement. New rules seek to calculate “structural”, ie, cyclically adjusted, deficits. Debt stocks must be brought down at a prescribed pace. The commission assesses draft budgets every year. Its decision to impose sanctions can only be overturned if a qualified majority of member states vote to do so. That is meant to make it harder for rule-breakers to sway the vote, as Germany and France did in 2003. If an edp is launched against Italy, it would be the first time the procedure has been used because of a breach of the debt, rather than the deficit, rule, says Gregory Claeys from Bruegel, a think-tank. Instead of declining by the required average of 3.5 percentage points a year in order to get it down to the targeted 60%, Italy’s debt ratio of 131% of gdp is forecast by the commis- 58 Europe The Economist November 17th 2018 Charlemagne Where borders are the migrants

Europe’s populist wave is stirring up tensions between national minorities and their neighbours German-speakers from Bolzano could shop in Innsbruck using the common euro. Kosovars and Serbians would treat eu membership as a common goal. As the passport debate in the South Tyrol shows, the route to settled, Europeanised relations between national minorities and the majorities with whom they rub shoulders is getting rocky once more. Old tensions never quite die. When a coalition of the centre- right People’s Party and hard-right Freedom Party (fpö) came to power in Austria last year, issuing passports for South Tyrolers was one of its aims—one particularly promoted by Heinz-Christian Strache, the fpö vice-chancellor. Barrelling into a beer cellar in Bolzano to the “Radetsky March” last month, he addressed a cheer- ing crowd wearing dirndls and felt-collared Tyrolean jackets: “There is an Austrian minority here that we can’t forget! We want a Europe of national identities!” The rise of populism across Europe has been accompanied by a surge in tensions between autonomists and centralisers. A new them-versus-us style of politics, the rise of social-media echo chambers and demagogues’ disregard for old political norms is in- flaming them. Rightists in the poor eastern regions of Saxony in Germany increasingly rail against Sorbs, a Slavic group. A proposed land-swap between Serbia and Kosovo—trading Serbian- century after its collapse, Austria-Hungary lives on in the dominated parts of Kosovo’s north for the fertile Presevo valley in Atidy Alpine town of Bolzano in northern Italy (Bozen to Ger- Serbia—could reignite Balkan conflicts. The recent referendum in man-speakers). Viennese coffee houses and beer halls clatter and Macedonia on a name-change to settle grievances with Greece chatter with life. Streets have names like Bahnhofsallee. “Under failed partly because voters there noticed the populist swerve by Austria, life here was very plural. There were equal rights. People Greek rightists, who are now stirring up anti-Macedonian senti- could speak what language they wanted,” notes Sven Knoll. Then, ment in regions close to the border. Viktor Orban, the autocratic he adds, came Mussolini, who tried to Italianise the region by im- prime minister of Hungary, wants to give passports to ethnic Hun- posing language restrictions and encouraging migration from the garians in Romania and Slovakia. south. Mr Knoll’s South Tyrol Freedom Party wants Austrian pass- This trend is more than a reaction to economic woes. In fact it is ports for German-speaking locals and eventually secession for the most pronounced in Europe’s most successful regions. The South region, which was awarded to Italy after the first world war for its Tyrol is one of the wealthiest on the continent. Northern Italy, the support of the Allies. The current right-wing government in Vien- richest part of the country, has long flirted with the idea of floating na is planning a new citizenship law, so the first goal is within off to form a country called Padania. In booming Denmark, the reach. Mr Knoll hopes the second is only a matter of time. right-populist Danish People’s Party has called for the annexation Europe is a mixed and mingled continent, so maintaining bor- of Schleswig from Germany. A party representing the Russian mi- ders that reflect where people feel they belong has never been easy. nority in Latvia, which has become much richer since joining the Today’s Catalonia (then Aragon) formed a union with Castile in eu, won the most votes in an election there last month. Catalonia 1479, but later became subordinate to it. In 1866 Prussia seized is the most productive part of Spain, but has been fighting for in- Schleswig from Denmark, putting many Danes on the German side dependence from Spain to cut its payments to poor Andalusians. of the line. In 1913 a dying Ottoman empire ceded majority-Muslim Kosovo to Serbia. The Trianon Treaty of 1920 gave Hungarian areas Guten Tag, arrivederci to Romania and created the new state of Czechoslovakia. Such de- Autonomists in the South Tyrol reject the charge of populism, ar- liberations were not always very thorough. In his diary entry for guing that their goal is to be more European, not merely Austrian. February 7th 1919 Harold Nicolson, a British diplomat at the Paris Catalonian separatists portray themselves (though it is a stretch, peace conference, wrote breezily: “Spend most of the day tracing given Spain’s modern democratic nature) as the freedom-seeking Rumanian and Czech frontiers with the us delegation. There are victims of a still-Francoist state. In Corsica separatists won a sur- only a few points at which we differ.” prise 57% of the vote in an election in December, but their demand The result of this slapdash border-design is that Europe’s map was reasonable rather than emotional: fair recognition within is speckled with “national minorities”—the minorities who did France. Scotland’s nationalism is if anything leftist, secessionists not migrate, but saw borders migrate over their heads. They in- insisting that an independent Scottish state would be more, not clude once-independent states incorporated into larger ones (like less, welcoming to immigrant “new Scots”. Catalonia or Scotland) but also groups who do not live in the coun- All of which should trouble Europe’s leaders. The continent’s try with whose dominant culture they most identify (like the Aus- integration was meant to solve such questions. But they are once trian-Italians of the South Tyrol). In recent decades it seemed more surfacing. A resurgence of old communal hatreds, even vio- European integration would be the answer. Conflicts between au- lence, in places like Northern Ireland or Kosovo is no longer as un- tonomists and centralisers seemed to be dissolving into a patch- thinkable as it was a few years ago. Populism sets people against work of mutually understanding European regions. Catalonia people. And in a continent with as many peoples mixing and min- would remain in Spain, but would be autonomous and European. gling as Europe, that is dangerous. 7 Britain The Economist November 17th 2018 59

Britain and the European Union two documents, on the basis that nothing is agreed until everything is agreed, will be Exit music difficult. That is a problem for those who believed payment of the exit bill would create useful bargaining leverage for a future trade agreement. The main cause of delay in reaching a Brexit deal was Northern Ireland. The idea Theresa May’s draft Brexit deal has provoked resignations from the cabinet. of a backstop plan that would avoid a hard Getting the agreement through Parliament is looking ever harder border in Ireland in all circumstances was fter what had seemed an endless per- first will become a legally binding treaty accepted by both sides last December. But Aiod of delay and crunches evaded, this that covers such matters as Britain’s exit Mrs May rejected the eu’s interpretation of week Theresa May at last presented a draft bill and eu citizens’ rights, as well as the so- the agreement, which was to keep North- Brexit deal agreed by negotiators in Brus- called Northern Irish backstop. It will also ern Ireland in a customs union and in regu- sels. The prime minister steered it through create a standstill transition period after latory alignment with its single market. a lengthy cabinet meeting on November Brexit day on March 29th 2019, which will She was partly driven by her government’s 14th. Yet the following morning her own last until at least December 2020. dependence on the Northern Irish Demo- Brexit secretary, Dominic Raab, quit in The much shorter second document cratic Unionist Party (dup), but also by her protest. Others followed. As Conservative will guide the future talks but be aspira- own revulsion at the notion of a customs mps condemned the deal, talk of a leader- tional in nature. This may upset anyone border in the Irish Sea. The backstop in the ship challenge to the prime minister grew. who hoped Mrs May’s Brexit deal would be withdrawal agreement is to keep the whole Many more dangers lie ahead. The deal the end of the process. In fact, negotiations United Kingdom in a customs union with requires the consent of all 27 eu countries, on almost every aspect of the future rela- the eu until an alternative is found. with a special summit of leaders booked for tionship, from security to trade, will begin Yet two politically awkward tweaks November 25th. The European Parliament only after Britain leaves the eu in March. were needed even for this to get through. must approve it. Hardest of all, the agree- Moreover, establishing a link between the The first concerns the question of how long ment must pass the Westminster Parlia- the backstop lasts. Brexiteers hate the cus- ment. With Leaver and Remainer mps from toms union because it precludes trade all parties falling over each other to de- Also in this section deals with third countries. So they wanted nounce the deal even before it was pub- it to be time-limited (impossible, since this 61 Bagehot: How to escape a hurricane lished, that hurdle looks very high. would negate the very purpose of a back- The deal comes in two parts. The first is stop) or at least for Britain to have the uni- a draft withdrawal agreement that runs to lateral right to walk away from it. The com- 585 pages, including a protocol on North- promise is an arbitration mechanism that ern Ireland. The second is a seven-page po- will decide if the backstop, once invoked, is Read more from this week’s Britain section: litical declaration about the future rela- Economist.com/Britain no longer needed. But that falls far short of tionship between Britain and the eu. The a unilateral right of exit. mps will want to 1 60 Britain The Economist November 17th 2018

2 see the legal advice on this point from the must pass a mass of legislation, starting impossible-to-meet set of six tests. If the attorney-general, Geoffrey Cox, now a cru- with a bill to give the deal legal effect and deal is defeated, he wants a general elec- cial pro-Brexit voice in the cabinet. set a framework for transition. But there tion. And if that is not obtainable, Labour is The second tweak was the determina- are serious doubts about whether mps will open to other options, including a public tion of other eu countries to attach condi- approve the deal. Tory whips express confi- vote with staying in the eu as an option. tions to a uk-wide customs union. These dence that the vote will be won. They hope Despite this, Mr Corbyn recently said that have become known as “level playing- that pressure from ministers, businesses Brexit could not be stopped—only to be field” requirements. They include commit- and the eu itself will tell, as will fear of al- corrected by his shadow Brexit secretary. ments to observe not just most single-mar- ternatives, notably of a no-deal Brexit. Yet The lure of defeating the government ket rules but also all eu environmental, la- the parliamentary arithmetic looks and, just possibly, precipitating an elec- bour and other standards. The fear of the stacked against them. tion, will surely drive most Labour mps to eu 27 is of a Britain that benefits from fric- vote no. Even the hard-core few that have tionless trade in the customs union but is Rebels with a cause previously backed Mrs May in Brexit votes able to undercut continental competitors Start with the Tories. Steve Baker, who cannot be relied on this time. But Tory with laxer regulation. The eu wants to helps to manage the erg, says over 50 hard- whips believe that they might win over as make clear that post-Brexit Britain is a rule- line Brexiteers will vote against the deal. many as 20-30 Labour mps who are both taker, not a rule-maker. By applying even Mr Baker says he does not want a no-deal hostile to Mr Corbyn’s leadership and anx- more single-market rules to Northern Ire- Brexit, but cheerfully admits that parlia- ious to avoid the risk of a no-deal Brexit. land, the eu’s backstop also clearly envis- mentary rejection of the deal would pro- After all, it took a rebellion by pro-Euro- ages greater regulatory (but not customs) duce “chaos”. The odds of thishave been in- pean Labour mps to get Britain into the checks in the Irish Sea. creased by the anti-Brexit wing of the party. European project against hardline Tory op- It is easy in the Westminster bubble to Jo Johnson resigned as transport minister position in the early 1970s. forget that other eu countries have politics on November 9th to fight for a second ref- Mrs May and her whips will mount a too. Indeed, their approval of the Brexit erendum (see Bagehot). Along with Do- strong campaign to force through her deal, deal cannot be taken for granted. As Muj- minic Grieve, a former attorney-general, which she insists is in the national inter- taba Rahman of the Eurasia group, a con- and others he may form part of a group of est. Hardline Brexiteers will be told that de- sultancy, says, eu leaders may make fur- perhaps a dozen pro-European Tories vot- feat risks a reversal of Brexit. Softer mps ther amendments to the level playing-field ing against Mrs May. The 13 Scottish Tory will hear that defeat could lead to Brexit conditions or add new demands over ac- mps could be another problem, especially with no deal. Others will be frightened by cess to British fisheries. Any such changes if they detect a sell-out on fisheries. the prospect of a new prime minister, as are likely to make the deal even less palat- Tory opposition means that Mrs May the numbers of mps’ letters calling for a able in Westminster. And the eu’s determi- will have to look to other parties to get her Tory leadership contest approaches the 48 nation to show that Britain will be worse deal through. The dup seems implacably needed to force one. And others will fear off as a result of Brexit is likely to be sup- opposed. Despite its official support of her even the remote possibility of an early elec- ported by the economic-impact analysis government, it says it cannot accept any of tion that might put Mr Corbyn in power. the government has promised to give mps. the regulatory barriers in the Irish Sea im- Yet it is hard to see these arguments Their already gloomy reaction to the plied by the deal. The Scottish Nationalists swaying enough mps to swing the vote in withdrawal deal will only darken when and Liberal Democrats are certain to vote favour of the deal. Nicky Morgan, a former they consider the accompanying political no. That leaves the official Labour opposi- Tory minister and chair of the Treasury se- declaration. This has the benefit of being tion as the only possible party in which to lect committee, puts the odds of success at compatible with anyone’s preferred out- fish for favourable votes. 50-50. That they are so low is largely Mrs come, from a Norway-style relationship to Labour’s position on Brexit has been May’s fault. Had she been more honest ear- a deal modelled on Switzerland or Canada. consistent only in its ambiguity. Jeremy lier about the basic trade-off between se- But in truth the eu 27 will be in control, Corbyn, the party leader, is a lifelong Eu- curing better access to the eu’s market at with Britain having few cards to play. And rosceptic. His policy was in theory set by the cost of being bound by most of its rules, the process is likely not just to be miserable Labour’s latest party conference. It is to op- she might have made her compromise but interminable. The Canadian free-trade pose any deal that does not deliver on an more appealing. 7 deal took nine years; the two packages of Swiss bilateral deals 13. The process of rati- fying any trade deal with Britain by all na- The Brexit deal tional and some regional parliaments will Wins and losses for Theresa May, November 14th 2018 be tortuous. These considerations chime with the What she wanted What she got view that Mrs May has failed to win most of Trade An independent trade policy A customs union will mean no the Brexit aims she set out to achieve (see allowing free-trade deals trade deals until 2021 at least table). Most mps are disenchanted with the European No jurisdiction for the European The ECJ has exclusive right to interpret deal. The language used by some was ven- Union laws Court of Justice single-market rules that still apply omous. Jacob Rees-Mogg, chairman of the European Research Group (erg) of Euro- Money No more “huge” annual contributions An exit bill of around £40bn, and to the EU budget some future payments likely sceptic Tory mps, said the deal would make Britain a “slave state”. Boris Johnson, who Borders and An end to free movement of An end to free movement, but maybe quit as foreign secretary over Mrs May’s migration EU citizens privileged rights for EU citizens Chequers plan in July, called it “vassal-state Northern No hard border in Ireland or No hard border in Ireland, but some stuff” that should be chucked out. Ireland controls in the Irish Sea regulatory checks in the Irish Sea If all goes well, the parliamentary vote Future A deep and comprehensive A political declaration promising a on the Brexit deal is likely to be held in mid- relationship free-trade deal by March 2019 free-trade deal in the future December. Even if it goes through there may be problems ahead, as Parliament Source: The Economist The Economist November 17th 2018 Britain 61 Bagehot How to escape a hurricane

The case for having another vote on Brexit is gaining strength Northern Ireland. But in the end it was down to logic. The Brexi- teers had promised the impossible—all the advantages of eu membership with none of the disadvantages—and disillusionment was inevitably going to follow. This remorseless logic has had the peculiar effect of turning the People’s Vote’s weaknesses into strengths. The campaign has always lacked the normal requirements for political success: a char- ismatic leader, a clear organisational structure and a common identity. It consists of nine different organisations that bear a striking resemblance to Monty Python’s People’s Front of Judea and its challengers. But having hobbled it at first, these weaknesses are now helping it. Because it is not associated with any political party or grandee, it can reach across the political spectrum. And because it is driven by young volunteers whom nobody has ever heard of, it can challenge the idea that it is a front for Blairite cen- trism. Ironically, the movement that the People’s Vote most resem- bles is the campaign to leave the eu, a movement that began as a collection of no-hopers, ran on a combination of adrenalin and passion, and then broke all the conventional rules of politics. There are strong arguments against having another vote. Doing so would once again bitterly divide the country and might even lead to civil unrest. David Cameron’s government promised that year ago the case for a second vote on eu membership looked the referendum in 2016 would decide whether Britain left or Alike the definition of a lost cause. At the general election in stayed. About 2.8m people who had given up the habit of voting on 2017 both major parties promised to “deliver Brexit”. The only party the grounds that the establishment rigs the system turned up to that wanted to hold another referendum, the Liberal Democrats, vote (almost all of them for Leave). A second referendum might got 8% of the vote. Support for a so-called People’s Vote on the produce another close result or another victory for Leave. There terms of Britain’s exit from the eu was confined to a motley group are also practical problems: how do you go about throwing another of die-hards, no-hopers and eccentrics who spent more time feud- vote into the political mix? And what would the question be? ing over technicalities (should 16-year-olds be given a say this time round?) than they did making their case to the people. Blow me down Today there is a significant chance that Britain will end up hav- But the question at the heart of British politics is not whether this ing a vote on whether to accept the Brexit deal that Theresa May or that option is difficult and painful but whether it is more or less presented to the cabinet on November 14th. Over the past few difficult and painful than the alternatives. The politics of having months the no-hopers have racked up a succession of victories. In your cake and eating it have long since given way to the politics of October the People’s Vote campaign organised a march of 670,000 choosing between gruel or bread and water. A second vote would people in London. On November 9th Jo Johnson, a transport min- divide the country and infuriate Leavers. But the country is already ister and brother of Boris, resigned from the government and ar- divided and Remainers (who include the vast majority of younger gued that, given Britain now faced a choice between “vassalage” voters) are in a fury. Another vote would mean going back on Mr and “chaos”—that is, remaining tied to the eu without a say on its Cameron’s promise to the voters. But as David Davis, the former rules or leaving without a deal—the only reasonable choice was Brexit secretary and an ardent Leaver, pointed out before the refer- another vote. On November 12th Gordon Brown became the third endum of 2016, “If a democracy cannot change its mind, it ceases to former prime minister to call for another vote. And Mrs May her- be a democracy.” Opinion polls already suggest that a small major- self admitted this week that Britain faced a three-way choice: her ity of voters supports staying in the eu. That majority might easily deal, no deal, “or no Brexit at all.” be much bigger if the voters are confronted with a choice between The mood in the People’s Vote headquarters in Millbank Tower the existing arrangements and a deal which, as both Remainers is understandably upbeat. Serried rows of millennials and youn- and Leavers now recognise, would force Britain to abide by many ger-than-millennials examine battle charts of target audiences of the eu’s rules while depriving it of any say over those rules. The and chat excitedly into their mobile phones (there is nothing so practicalities of holding a vote would be complicated—and would old-fashioned here as a landline). People’s Voters have even been undoubtedly involve calling for an extension of the deadline for honoured with their own version of Watergate: some miscreants withdrawal under Article 50—but Lord Kerr (who wrote the article (“undoubtedly Brexiteers”) broke into the headquarters and uri- in question) has identified six paths to another referendum. nated into the sweet bowl on the reception desk (unfortunately Britain is now entering into a political hurricane the likes of Bagehot was told about this transgression only after he had helped which it has not seen for decades. How the hurricane will blow it- himself to a generous portion of sweets from said bowl). self out is anybody’s guess. It is possible that Mrs May will get her Why has such a lost cause become such a powerful force in po- deal. There is no shortage of people who will accept any compro- litical life? Luck clearly played its part. Mrs May made a succession mise to finish the whole thing. It is equally possible that her deal of errors, including triggering Article 50 before she had worked out will unravel and that Britain will face chaos. The fact that the result her demands and calling an election that destroyed her majority. of the chaos could be another vote on eu membership is one of the The eu played its hand brilliantly, particularly when it came to most extraordinary stories of these extraordinary times. 7 62 International The Economist November 17th 2018

Technology and schools But in many of those schools children are learning next to nothing. Research by the Teacher’s little helper World Bank in seven sub-Saharan African countries, for instance, has found that half of Grade 4 students cannot read a simple word; almost three-quarters cannot read all the words in a simple sentence; 12% can- NAIROBI AND GHANGHU not recognise numbers; 24% cannot add In poor countries teachers are often ignorant or absent. Technology can mitigate single digits; and 70% cannot subtract dou- some of the damage this does to children’s prospects ble digits. It is not just Africa. A recent t kicoshep school in Kibera, a vast signed and 23m books distributed, along study in India shows that 38% of Grade 3 ANairobi slum, Grade 3 is learning Eng- with detailed lesson plans to make life eas- children in government schools cannot lish. The teacher, Jacinter Atieno, asks ier for teachers. But the technology is cru- read simple words, and only 27% can do questions about a story on the exploitation cial to supporting them and providing their double-digit subtraction. of children as domestic servants. At the bosses with data about their performance. The big problem is teachers: often too back of the class, a coach logs information Mrs Atieno is surprisingly enthusiastic: “I few, too ignorant—or simply not there. Un- about Mrs Atieno’s performance into a tab- love the coach. When I have a problem I can announced visits to classes across seven let. Halfway through the class, the coach tell her and she comes to help me.” sub-Saharan African countries by the summons three children and tests their World Bank found that in nearly half of reading. The scores go into the tablet, Cheap and cheerful them, the teacher was absent. Many teach- which then makes suggestions—that, say, The costs are low—around $4 a child a ers who do turn up are startlingly under- Mrs Atieno might watch one of its instruc- year—and the results impressive. In the qualified. In Bihar in northern India, for in- tional videos, or improve her English pro- first year of Tusome’s operation, the pro- stance, only 11% of government-school nunciation with its letter-sound tool. The portion of Grade 2 pupils who could read at teachers could solve a three-digit by one- information is uploaded to the county of- 30 words per minute (wpm) rose from digit division problem, and show the steps fice that runs the local schools, and can be around a third to two-thirds. Yet by rich- by which to do it. reviewed by the teachers’ bosses there. world standards these levels are poor: Paying teachers more is not likely to im- This is Tusome—“let’s read”, in Kiswa- Americans are expected to read at 60wpm prove the situation. As research by Justin hili—in action. A huge programme, funded by the beginning of Grade 2 and 90wpm by Sandefur of the Centre for Global Develop- by usaid to the tune of $74m over five the end. Even accounting for the difficulty ment shows, poor-country teachers tend to years, it has been adopted by the Kenyan of using a second language, the gap in at- be remarkably well-paid, by local stan- government and is used by 3.4m children tainment in rich and poor countries, even dards (see chart on next page). And evi- in 23,000 government primary schools and at the earliest stages, is staggering. dence from countries as diverse as Indone- 1,500 private schools. The coach-and-tablet Thanks in part to the challenge set by sia and Pakistan suggests that teachers’ pay element is just one part. A curriculum the Millennium Development Goals, al- levels have little impact on learning. Ideal- based on synthetic phonics (widely used in most all primary-age children almost ly, governments would invest in training developed-country schools) has been de- everywhere in the world are now in school. teachers properly and promote or fire them1 The Economist November 17th 2018 International 63

2 on the basis of their performance. But the software developed in India, has been ical sentence and offer a wide range of in- first of these ambitions requires levels of shown to make a big difference. It sets stu- formation through videos. Rich-country governance lacking in many developing dents work suitable to their level. The parents might tut at their children being countries, and a time-horizon beyond that weakest children benefited most. If soft- taught by computers. But if the alternative of many elected governments. The second ware can help stop children from dropping is an ill-educated teacher, well-designed is often politically unrealistic: teachers’ through the net, that is a massive gain. software may be a better option. Pranav unions can be exceedingly powerful outfits Tech can also ease the burden of over- Kothari of Mindspark says ed-tech is much for a range of reasons—including that poll- loaded teachers. Interactive software pro- more useful in India than in, say, Singa- ing stations are often located in schools duced by onebillion, a British non-profit pore: “In India, we need 9m teachers, but and run by teachers. group, has been tested in Malawi, where we don’t have 9m people who can teach.” Tech is not a substitute for well-quali- the average primary-school class has 76 pu- fied, motivated teachers, but—used appro- pils in it. Andrew Ashe, onebillion’s co- Tusome’s company priately—can mitigate the problems. The founder, says he has seen a class of 250. For But designing the right software gets you qualifier is important. In 2006 Nicholas the onebillion trial, children were taken only so far. One of the lessons from Tusome Negroponte, founder of the mit media lab, out of their huge classes, put in groups of 25 is that in order to make a big difference, launched the One Laptop Per Child (olpc) and given tablets loaded with maths soft- tech innovations need the acceptance of initiative to put computers in the hands of ware; similar-sized groups were given tab- teachers and administrators. rti Interna- the world’s poor children, saying: “We will lets without the maths software, to control tional, the American non-profit group that literally take tablets and drop them out of for the possibility that children might ben- devised Tusome, worked for years within helicopters.” They did not, literally; but efit from any instruction given in smaller the education system, testing different ver- even when cheap laptops were delivered groups. Those with the maths software sions, and even got the approval of the local (by road) to poor-country schools, they did made significant gains. teachers’ union. That is how it got into not improve learning levels. In Uruguay, Onebillion’s software is among five sys- 23,000 public schools, not the usual hand- for instance, 1m were distributed, but they tems undergoing the toughest test of all: ful in a short-lived pilot project. had no impact on test scores. teaching children in the absence of any This year Mindspark is being tried in teachers. They are finalists in the Global government schools in the northern Indi- Anti-dumping duties Learning XPrize, sponsored by Elon Musk, an state of Rajasthan. At the primary school olpc illustrates what Michael Trucano, ed- a Silicon Valley mogul. They are being test- in Ghanghu, a village in a desert landscape tech specialist at the World Bank, regards ed in 150 remote villages in Tanzania that where camels nibble loftily at thorn-tree as a basic law of tech interventions: “If you have no schools. A “solar mama” in each branches, children sit in the “Mindspark dump hardware in schools, and expect village is given a charger, and hands tablets lab”—a bare room with tablets on desks something magical to happen as a re- to the children every morning and collects around the walls—doing sums, playing sult—it won’t.” But he also believes that them every evening. The $10m prize will go learning games and watching videos. They “successful systems are the ones that fail, to the software that most successfully en- are not familiar with tech—none reported learn quickly from failure and make im- ables children to read, write and do simple having been on the internet—but seem to provements based on what’s been learned.” maths problems in the absence of a teach- like it. “In every story I learn new words and Recent studies suggest that some places er. The data on learning will be collected in their meaning,” says 12-year-old Chanda. are at last getting it right—and that tech March. In the meantime the behaviour of Mohit, 14, reckons, “It’s good because the helps most in poor countries. A survey of the 3,000 children in the trial is being stud- teacher isn’t there, so you’re not scared of ed-tech initiatives around the world by ied. Emily Church of the XPrize Foundation getting the wrong answer.” A Mindspark George Bulman and Robert Fairlie of the says they are showing more respect, obedi- assistant is always present, so the children University of California, Santa Cruz, pub- ence and confidence, and are “bathing be- get on with their work even without teach- lished by America’s National Bureau of fore using the tablets, and dressing as ers. “It’s a normal school,” says one of the Economic Research, a think-tank, found though they were going to school.” Mindspark staff. “The teachers are there that “evidence of positive effects appears to Systems such as Mindspark’s and one- three or four days out of six.” be the strongest in developing countries”. billion’s can also help overcome basic Ravindra Sharma, the head teacher, is They suggested this might be because “the teacher ignorance. Good software, unlike enthusiastic. The children like the tablets, instruction that is being substituted for is many poor-country teachers, can do its the villagers are interested, and Mindspark not as of high quality in these countries.” sums correctly, spell, compose a grammat- has made his school more popular. Enrol- Tech can help solve many of the pro- ment at most government schools in Raja- blems that developing-country education sthan is falling, as more and more parents systems face. Take teacher absenteeism. The moneyed classes send their children to private schools. But The data the Tusome coach logs into her Primary-school teacher salaries as a his rolls have increased from 130 to 143 this tablet, combined with gps, tell the county multiple of GDP per person year. He hopes that Mindspark is there to education director whether the teacher Selected countries, latest available stay. Since the costs—$15 per child per and the coach were on duty. Some counties 01234567 year—are not enormous, the studies sug- do nothing with the data; some use it to C A R gest it is effective and the state government hold educators accountable. (Teachers are Ethiopia seems to be determined to improve learn- not fired—their union is too powerful—but Kenya ing outcomes, he may be in luck. some coaches have been.) South Africa On a shelf above his head, however, sits Technology can also help teachers man- Nigeria a memento mori for an ed-tech project: a age a wide range of abilities in a class. In In- India* computer monitor still in its box, covered dia, for instance, more than half of those in Tanzania in dust and detritus. Mr Sharma consults Grade 5 cannot read at Grade 2 level. If chil- Germany his staff about how long it has been there. dren never learn to read properly, they are Britain They think it was part of a government ini- doomed economically. In a big test among United States tiative around ten years ago. But memories randomly selected children in government of the programme, and of what happened Source: Centre for Global Development *Rural Andhra Pradesh schools in Delhi, Mindspark, an interactive to it, have faded into the mists of time. 7 PURE INGENUITY

One state has leveraged its unrivaled success in the automotive world to become a leader in the aerospace industry. Michigan. Home to nine of the top 10 largest aerospace/defense R&D i rms, Michigan also boasts the nation’s most robust tool and die manufacturing infrastructure. Which makes our state the perfect place for your business to land and take off.

michiganbusiness.org/pure-aerospace Business The Economist November 17th 2018 65

Also in this section 66 Bartleby: Crossed lines at Nokia 67 MTN’s Nigerian woes 68 Juul faces a regulatory crackdown 68 Retail in India 69 CP Group, a Thai success story 70 Schumpeter: China v America

The chemicals industry The verdicts have spread disquiet through the sector. Other big pesticide- Hazard signs makers, such as basf of Germany and Dow- DuPont of America, have been hit almost as hard as Bayer (see chart), despite being less reliant on glyphosate. Investors are increasingly nervous of a backlash against chemicals products, both in agrichemicals, Chemicals firms are facing a regulatory and consumer backlash against some of an industry with annual sales of $380bn, their best-selling products and in petrochemicals, which is worth merican juries are well known for mann, says it will defend the cases “with all around $800bn. Athe generosity of their awards in civil means”. But Mr Johnson’s lawyer, Robert F. The past two decades increasingly look cases. In 2002 a Californian jury fined Phil- Kennedy Jr, is sure that he will keep win- like a golden era. Between 2000 and 2015, ip Morris, a tobacco company, a whopping ning. “We’re going to win enough of these listed chemical firms produced total re- $28bn for causing a heavy smoker’s cancer, to be a problem for Monsanto and a poison turns to shareholders of 300%, three times only for the amount to be slashed to $28m pill for Bayer.” Monsanto makes 70% of its higher than firms across all sectors. Surg- by a judge on appeal. So Bayer, a German operating profits from Roundup-related ing consumption in China helped demand chemicals giant, told shareholders not to products. Bayer has lost over €27bn ($31bn) for their products rise faster than gdp worry when a Californian jury in August in market value since the first ruling. growth. Several rounds of mergers have re- ruled that Monsanto, an American firm it duced price competition in the industry, bought two months before, had to pay particularly in agrichemicals. Falling trade $289m to Dewayne Johnson, a former Toxic reaction barriers let firms move production to low- school caretaker. Mr Johnson alleged that Share prices, January 1st 2018=100, $ terms cost places. These trends have reversed, notes Flor- Roundup, a glyphosate-based weedkiller, 110 had caused his terminal cancer. The jury S&P 500 ian Budde of McKinsey, a consultancy. De- made a judgment based on “junk science”, 100 mand from China is likely to slow, because Monsanto said. It would surely be over- consumers are buying fancier goods, such turned on appeal. 90 as posher cars, as well as services, both of Last month a judge reaffirmed the ver- DowDuPont which require less plastic. State-owned dict; the damages were trimmed, but to a BASF 80 Chinese enterprises are muscling onto the still-hefty $78.5m. With Bayer’s admission MSCI US chemicals global stage, encouraged by the govern- on November 13th that the number of simi- 70 ment’s emphasis on self-sufficiency in Bayer lar lawsuits had reached 9,300, it is clear 60 chemicals, which exerts downward pres- that the bill for compensation could reach sure on prices. Last year ChemChina Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov tens of billions of dollars. bought Syngenta, a Swiss agrichemicals 2018 Bayer still denies any link between firm, for $43bn, for example. It is now grab- Source: Datastream from Refinitiv Roundup and cancer. Its boss, Werner Bau- bing market share from the Western giants 1 66 Business The Economist November 17th 2018

2 in Africa and Latin America. Trade wars be- clared in 2015 that the compound was Also in regulators’ sights are hormone-dis- tween America and China will hit the in- “probably carcinogenic”, regulatory pres- rupting chemicals such as bisphenol a, dustry’s global supply chains, lifting costs. sure on its use has increased. Last year found in many plastic household items. But the sense that something deeper is President Emmanuel Macron promised to Regulators are not the only source of wrong also troubles the industry. For the ban it in France by 2021. Germany also an- concern. Consumers in many places are first time since the advent of industrial nounced plans to limit its use earlier this showing themselves ready to pay more for chemicals in the 19th century, bosses are month. Health Canada, a regulator, is re- food involving little or no use of pesticides. worried about the long-term prospects of viewing its approval because of claims Farmers in turn are switching to “preci- some of their best-selling wares, from the from environmental groups that Monsanto sion” methods, entailing more targeted use pesticides farmers spray on crops to the secretly influenced the scientific studies it of chemicals or robots to do weeding. Bayer plastics used in millions of products. used (Monsanto has denied any such executives fear this shift could hit demand The glyphosate saga symbolises one of thing). Many firms are bracing themselves for its pesticides by as much as 20-30% these worries—a regulatory crackdown. for the European Union to decide not to re- over the next decade, says Markus Mayer, Since the World Health Organisation de- new its licence for glyphosate after 2022. an analyst at Baader Bank, an investment 1 Bartleby Crossed lines

Nokia’s saga is a tale of management hubris and a weak board tisatale that might have been written enjoyed the benefit of being able to design sharply during his last years in charge, Iby Shakespeare. It features hubris, a system from scratch. and nothing he did was able to stop it. nemesis and partial redemption, as well Increasingly concerned about these The company did team up with Microsoft as clashing personalities and losses in problems, Mr Siilasmaa wrote a strategy to launch a Windows-based phone, the the billions of dollars. And it all takes document suggesting that the company Lumia. But by 2012, when Mr Ollila left place in the most unlikely of dramatic should consider embracing the Android the board, Nokia’s market value had settings: a Finnish boardroom. operating system for phones, which was fallen by 92% since Apple’s iPhone was Risto Siilasmaa is the chairman of rapidly gaining market share. He sent it launched and the firm was making a loss. Nokia, which is today a very different straight to Nokia’s chairman, Jorma Ollila. The mutineer was then obliged to and much smaller company than in 2008 Every good play needs a villain, and this move to centre-stage. Mr Siilasmaa came when he joined its board as a non-exec- book casts Mr Ollila in that role. Before in as the new chairman when the com- utive director. His book* recounts the becoming chairman, he had been Nokia’s pany’s fortunes seemed to be at rock- gripping saga of how Nokia was driven chief executive from1992 to 2006, the bottom. Instead, the news got worse: the out of the mobile-phone business it years of its rise to dominance. He did not Lumia phone received good reviews but dominated, and had to reinvent itself. seem to appreciate a non-executive direc- failed to gain market share. When Apple launched the iPhone in tor putting his oar in. Mr Siilasmaa writes So Mr Siilasmaa acted. In 2013 Nokia 2007, Nokia at first seemed to view it as a that “with a sharp-tongued and thin- sold the phone business to Microsoft and niche competitor with a high price-tag skinned chairman at the helm, intent on struck out in a different direction. The that would capture only a small slice of maintaining iron authority, raising ques- company bought out the share of Sie- the market. After all, Nokia’s phones tions can be close to mutiny”.He tried mens in a joint venture called nsn and appeared to have all the bells and whis- again, this time sending his memo to the acquired Alcatel-Lucent. Now Nokia tles needed to succeed. Users could chief executive and other board members, offers “end-to-end” digital infrastruc- download music and listen to the radio; but says his concerns were never ad- ture, supplying network equipment and they could use their phones to take pho- dressed in board meetings. software to telecoms operators. It is tos and videos; they could send and Mr Ollila, now 68, has described Mr profitable, but its share price has barely receive email; and even use maps. Siilasmaa’s claims as exaggerated or not moved in the past five years and future Mr Siilasmaa had a front-row seat for true. But Nokia’s performance deteriorated success is dependent on a wave of spend- the drama that ensued when he first ing on 5g telecoms networks, which may joined the firm, but very little real influ- come slowly. ence. As he explains, board members Nokia was already a classic example have limited access to limited quantities of the perils of disruptive innovation for of important company information. industry leaders. Mr Siilasmaa’s account With his software background, however, underlines how little influence board he quickly perceived the firm’s big pro- members often have when faced with an blem. Its devices could rival the iPhone entrenched management team. He in- mechanically, but the operating system sists that a board’s role must be to chal- could not compete. Nokia’s Symbian lenge management. Bosses must have an system was cumbersome for users, who attitude of “paranoid optimism”,always had to send confirmations whenever any on the lookout for potential threats. function was added to the phone. Nokia’s story shows why. Nokia also had a wide range of devices with different operating requirements, ...... * “Transforming Nokia: The Power of Paranoid making it difficult for app developers to Optimism to Lead Through Colossal Change” customise their offerings. Apple, by contrast, had only one platform and Economist.com/blogs/bartleby The Economist November 17th 2018 Business 67

2 bank near Munich. South Africa’s central bank recently Precision farming “will change how we warned about risks to the financial system think about farming”, says Sam Watson if mtn were forced to pay up soon. Jones of the Small Robot Company, a Brit- That is unlikely. mtn has gone to court ish startup. It is developing three small au- in Nigeria to challenge the claims, which tonomous robots—called Tom, Dick and relate to transactions stretching back a de- Harry—which will only feed and spray the cade. The governor of Nigeria’s central specific plants that need it rather than bank has said he expects the sum to be re- dusting an entire field with chemicals from duced. As The Economist went to press, re- a tractor or plane. He claims that his com- ports circulated of a deal over the $8.1bn. It pany’s system will cut chemical use, and is in both sides’ interests to reach a resolu- carbon emissions, by up to 95%. tion, says David Ferguson of Renaissance Agrichemical salespeople are not alone Capital, not least since mtn is one of only in anticipating disruption. The petro- two firms in Nigeria with resources to chemicals industry is experiencing a back- make big investments in telecoms infra- lash against single-use plastics, a key structure (the other is Airtel, a local firm). source of demand for its product. Spencer There is a precedent for compromise. In Dale, chief economist of bp, an oil giant, 2015 a Nigerian regulator fined mtn 1trn has estimated that more regulation of plas- naira (then worth $5.2bn) for failing to dis- tic could lower global demand for petro- connect unregistered sim cards: some of chemicals by around a sixth by 2040. Chi- them, it said, were being used by Boko Ha- na’s crackdown on waste will have a ram, a violent Islamist group. The amount particularly big impact on demand for was reduced to 330bn naira. As part of the plastic. In January it banned imports of deal, mtn promised to list its local unit on plastic rubbish from other countries; it is Doing business in emerging markets Nigeria’s stock exchange. That move, tightening up compliance with its rules planned for this year, may be delayed. and taxes on plastic bags. Tough call The spat has also hurt Nigeria’s reputa- Chemicals bosses are well aware of tion. The political landscape is “hard to these pressures. Responding to them may navigate with all of these landmines”, says be easiest in agrichemicals. Here at least, Bright Khumalo of Vestact, a South African digitisation has scope to answer consum- asset manager which holds mtn shares. ers’ concerns about indiscriminate use of KAMPALA The case is symbolic, because mtn is one of MTN faces Nigerian regulators, chemicals, and also to generate a new the few South African firms which has suc- sanctions on Iran and civil wars stream of profits. Many firms are racing to ceeded in Nigeria. Many others, including offer digital-farming tools, which can pro- ew firms know the promise and the pit- a hotel group, a retailer and a food manu- vide advice to farmers using big data, satel- Ffalls of doing business in Africa better facturer, have pulled out in recent years. lite pictures and weather information. than mtn, a telecoms giant. Connecting its But mtn has learned to live with the un- The market leader in this field in Ameri- first calls in 1994, the year that Nelson Man- expected. After Nigeria, its second-largest ca is Monsanto-Bayer’s FieldView plat- dela came to power, the firm became an subscriber base is in Iran, which it entered form, produced by a subsidiary called Cli- emblem of the new South Africa and an ear- in 2006. It holds a 49% stake in mtn Iran- mate; in Europe it is basf’s Xarvio app. ly vehicle for black investment. At the time cell, a joint venture with a consortium Some of Bayer’s executives think that, how- there were just 6m landlines in sub-Saha- linked to the Iranian government. Re- ever much grief Roundup causes, its pur- ran Africa, one for every 100 people. Today newed American sanctions could trap cash chase of Monsanto was worthwhile just to mtn alone boasts 225m mobile subscribers in the country: by the end of September, get its hands on Climate’s technology, in 21countries across Africa and the Middle mtn’s outstanding balances there were which farmers already pay to use on 60m East. A former chairman, Cyril Ramaphosa, worth €143m ($161m). In its cashflow fore- acres of fields in America. When regulation is now South Africa’s president. casts, the group assumes it will not be able of glyphosate hits in Europe, Bayer can po- One reason for mtn’s rapid growth is its to get any cash out for the next three years. tentially replace revenues from chemicals focus on emerging markets, where young, Elsewhere mtn wrestles with volatile with revenues from data, says Mike Stern, fast-growing populations are eager to con- economies and hyperinflation. It works in the company’s head of digital farming. nect. But it can be tough to operate in such war zones in Syria, Afghanistan, Yemen But there are still doubts over whether places. A degree of risk comes with the ter- and South Sudan (those countries contrib- digital husbandry can make up for the rev- ritory, says Rob Shuter, mtn’s phlegmatic uted less than 5% of revenues in the first enues that are at risk. Five years after Mon- boss. “There’s going to be good patches and half of the year). In Uganda, its data centre santo bought Climate for nearly $1bn, it bad patches.” That is putting it mildly: his was recently raided by government spies. still produces only a tiny slice of overall current headaches include Nigerian regu- A review of where the firm operates is revenues. Mr Stern says that this is be- lators demanding billions of dollars, sanc- under way. It has already sold a tiny unit in cause, like any young tech firm, it is focus- tions against Iran and some civil wars. Cyprus; small west African units, in places ing on market share rather than profit. But The biggest worry is Nigeria, which con- like Liberia, could go next. But the changes it is also possible that tractor-makers, such tributes 27% of mtn’s revenues. In August mark consolidation rather than retreat. as John Deere of America, turn out to be its central bank ordered the group to return The group is eyeing new markets in Angola better at selling digital tools for precision $8.1bn, which it said had been taken out of and, perhaps, in Ethiopia, where the state farming than chemical firms, says Oliver the country illegally. Then the attorney- is tentatively loosening its grip on the tele- Lofink of PA Consulting. general weighed in, chasing $2bn in back coms sector. It hopes to ride on rapid de- “This case is way bigger than me,” said taxes (the two sums add up to roughly mand growth: in Africa as a whole, there Mr Johnson, who is dying of non-Hodgkin mtn’s market value). The double whammy are projected to be 440m more smart- lymphoma, after the first verdict came in. knocked a third off mtn’s share price in a phones by 2025. There are pitfalls aplenty, He wasn’t wrong. 7 week on the Johannesburg Stock Exchange. but the promise remains. 7 68 Business The Economist November 17th 2018

Juul and the FDA Flavours are also an appealing part of ty is good,” says Shekhar Raman, who the product for adult smokers as well as ad- works at a bank, as he joins a long queue of Vaping vaped? olescent ones—it is not only under-age bag-laden people waiting for rickshaws. consumers who enjoy the taste of mango or Even with only 163 stores, in less than fruit vape fluid. A study published earlier half of India’s states, dMart is making its this year in a scientific journal, Harm Re- mark. In the six months to the end of Sep- duction, concluded that restricting access tember its revenue reached 94bn rupees to e-cigarette flavours might discourage ($1.3bn), up by 33% compared with the America’s teenage e-cigarette craze adult smokers from attempting to switch same period last year. Profits, of 7.4bn ru- attracts a regulatory backlash to vaping products. pees, were healthy. dMart’s revenue per merica’s flourishing e-cigarette in- That puts regulators in a difficult spot. shop is four times higher than its nearest Adustry is braced. Scott Gottlieb, head of On the one hand, innovation in e-ciga- competitor, partly because of its packed the Food and Drug Administration (fda), a rettes has created a product that is good floor space. The firm seems to have cracked regulatory agency, has made it clear that he enough to wean smokers from far more selling to the new Indian middle class, holds the sector responsible for an “epi- toxic products. But an e-cigarette can also which is intensely price-conscious, rather demic” of youthful vaping. Manufacturers, be used to hook an entirely new generation than only to the rich in big cities. Its shops he tweeted not long ago, have no idea how of consumers on nicotine. Juul is not the are mostly in fast-growing “second-tier” much they sell to teenagers: “We’re finding only one with hard choices to make. 7 cities and in the suburbs. out for them.” As The Economist went to It has two types of customers, says Nev- press, the fda was expected to announce ille Noronha, chief executive of Avenue Su- restrictions on the sale of vaping products permarts, dMart’s parent company. The in an effort to combat under-age use. first are lower-middle-class people, who One company in particular is in its are proud to shop at a more upmarket es- cross-hairs: Juul, based in San Francisco. tablishment. The second are upper-mid- fda staff even turned up unannounced at dle-class folk, who “may not necessarily its headquarters in September and carted identify with their fellow shoppers”, he off more than 1,000 pages of documents on says, but cannot resist the bargains. the firm’s sales and marketing practices. Its No other chain has enjoyed such suc- growth has been spectacular. Sales in- cess. Across the street from the Thane creased from 2.2m devices in 2016 to 16.2m dMart is a new branch of Star Bazaar, a last year. It has captured the largest share of brand run by a partnership of Tesco, a big America’s e-cigarette market—around British retailer, and Tata, a huge Indian 75%—and in its last round of fundraising conglomerate. Instead of chaotically piled was valued at $15bn. Its sleek products are bags of grains, fresh fruit and vegetables popular with teenagers: youngsters often are arranged neatly. But whereas dMart has pose with them on social media. kids in the halls, Star Bazaar is silent and Juul this week tried to get ahead of a lonely. Moreover, Star Bazaar had to close crackdown. Its chief executive, Kevin 20 smaller shops in shopping malls in Burns, on November 13th admitted that un- Retail in India April, because rents were too high. dMart, der-age use had become a serious problem by contrast, owns most of its buildings. for the company. He said it would pull its Lost in the Other giants have also retreated. In 2014 flavoured nicotine liquids off shop shelves Carrefour, the world’s second-biggest re- and restrict its own use of social media in supermarket tailer, closed down its operations in India America. Juul still plans to sell its flavours after four years. Walmart continues to op- online, but with age restrictions. It also erate a number of wholesale stores, but wants to continue to offer menthol flavour MUMBAI since its purchase of Flipkart, an Amazon- The chain that may at last have cracked in shops. It remains to be seen whether the style delivery firm, in August, its focus the Indian consumer fda will judge these actions to be suffi- seems to be on delivering pricier products cient. The agency could ban Juul from sell- o find a crowd on a Sunday, in many to relatively wealthier customers, rather ing any fruit flavours, even online. Tparts of the world you go to a than running supermarkets. The risks to Juul, and to its peers such as church—or perhaps a football match. In dMart has sky-high investor expecta- Vuse, MarkTen, blu e-cigs and Logic, of Thane, a suburb of Mumbai, the place to tions to fulfil. On the Mumbai stock ex- much more stringent rules go beyond the find hordes of people on the Sabbath is at change its shares boast a price-earnings ra- hit from selling fewer products to minors the local branch of dMart, a supermarket tio of around 100, about the same as in America. The fda is watched around the chain. Hundreds of people argue and jostle Amazon’s. Rapid expansion to live up to its world. A severe crackdown may serve as a in the aisles over bargains. As bags of sugar, lofty valuation could conceivably spoil warning to other countries of the potential lentils and rice are picked off the lower things, some analysts say. Sanjay Badhe, a for misuse of their devices by the young, shelves by shoppers, men carrying ladders retail consultant, worries that as more and as an encouragement to follow suit. push through and clamber up to the higher stores have opened of late, the firm has That could spell trouble for Juul’s expan- ones where boxes of fresh supplies are changed some of its best policies. When it sion plans. It opened offices in London in stored. In the walls a few air-conditioners had fewer shops, for example, dMart left July, and wants outposts in France, Israel struggle against the intense heat. most decisions about what items to stock and Singapore. Israel has already said it is Supermarkets in India are rare, ac- to local managers. Now more are made not welcome because the high levels of nic- counting for just 2% of food sales; most centrally. Suppliers who used to favour the otine in its e-cigarettes pose a “grave dan- people shop at open-air markets or in tiny firm because it paid them on time com- ger to public health” (an odd decision for local shops. dmart is giving many Indians plain more about delays. But if it does not any country that allows the sales of con- their first-ever feeling of shopping at one botch its roll-out, dMart could be the firm ventional tobacco cigarettes). big store. “The prices are low and the quali- to get Indians all lost in its aisles. 7 The Economist November 17th 2018 Business 69

CP Group world’s fastest-growing region of internet users, cp also boasts e-commerce plat- A chicken in every pot forms in Thailand such as wemall and we- loveshopping.com. But these two are tri- fles in a market dominated by Chinese-linked giants such as Lazada, owned by Alibaba, and jd.com. cp’s future hopes may lie instead in grocery delivery BANGKOK from its network of 7-Eleven stores, reck- Thailand’s largest private company outdoes its peers ons one venture capitalist. mysterious thai tycoon recently pur- for 54% of revenues. Its vertically integrat- Nimble, single-business firms increas- Achased Fortune, a business magazine ed poultry empire, one of the world’s big- ingly have the edge over giant conglomer- that was formerly part of the Time Inc sta- gest, requires farmers to fatten chickens ates in the region, according to analysis by ble, for $150m. The publication’s title suits with cp’s feed until they are large enough to Bain, a consultancy. Yet cp bucks the trend. Chatchaval Jiaravanon, a member of the enter one of its processing centres, often Several of its flagship firms are listed in Chearavanont family, among Thailand’s leaving as nuggets. Thailand, including cp Food, cp All and richest. The clan’s wealth comes from the At cp Foods’ Korat poultry-processing True, its big telecommunications firm, and Charoen Pokphand Group (cp), a conglom- site, a few hours’ drive north of Bangkok, the group’s average annualised total share- erate it largely owns, which in turn pre- vast quantities of birds a year are stunned, holder returns, of 40% between 2007 and sides over an agribusiness giant. killed and then chopped up by machines. 2016, have been the best among South-East From a small seed shop opened in 1921 Korat produces about 36,000 tonnes of Asian and Indian conglomerates. on the Song Wat Road in Bangkok, cp has fresh meat each year and more than 65,000 Yet while cp reaps rewards from its vast grown to become one of Thailand’s most tonnes of cooked products. Among other reach, it also runs risks. Proper oversight of enormous private firms, with holdings in destinations, bread-crumbed chunks of its wide-ranging operations remains diffi- more than 200 subsidiaries around the chicken from the facility appear in British cult, and a series of recent scandals have world, employing 300,000 people. Last outlets of kfc, a fast-food chain. The birds’ damaged the group’s reputation. Four year its revenues reached 1.8trn baht wings often go to Japan. years ago it emerged that suppliers provid- ($54bn). It offers consumers everything Chicken products also arrive in Thai- ing cp Food with fishmeal for its prawn- from insurance contracts to juicy pork land’s 7-Eleven stores, part of an exclusive farming operations used slaves on their steaks, business flights to cars, and cloud- franchise in the country run by cp All, the boats. The firm now buys pricier, certified computing services to fancy property. group’s retail wing (retail and distribution fishmeal from Vietnam. cp claims to embrace modern manage- make up another 31% of cp’s sales). The In 2015 an insider-trading furore at cp ment methods, setting up a leadership in- franchise has more than 10,000 outlets and All erupted, leading to the creation of new stitute and welcoming outsiders into its se- controls 64% of the market for conve- governance structures. Internal investiga- nior ranks. But there is no question where nience shops, according to the Thai Retail- tions are going on into whether outside re- the power lies. At the company’s pinnacle ers Association. As the proportion of mod- cruitment agents working for cp Food sits Dhanin Chearavanont, the patriarch, ern grocery retail outlets, compared with wrongly extracted fees from workers com- who started at the conglomerate over five informal markets and street-selling, is ing to the firm from Myanmar. “The extent decades ago. After a reshuffle last year he roughly two-thirds that of Singapore, thou- of compliance with ethical recruitment became cp’s senior chairman; his eldest sands more 7-Eleven stores will appear in principles across the different companies son became chairman and his youngest the future. The group also runs cp Lotus, a large within the group remains inconsistent,” chief executive. supermarket chain in China, as well as says Andy Hall, a migrant-rights activist in The enormous empire underneath wholesale shops under the Makro brand in Nepal. Mr Noppadol says cp’s vast size them has long enjoyed good relations with Thailand and Cambodia. New opportuni- helps to make it an easy target for criticism. the public sector. There is an old joke in the ties in India and Vietnam may be next. “If you ring the biggest bell, it makes the Thai civil service, where levels of seniority Not wanting to be left behind in the loudest noise,” he explains. 7 were once graded from c1 to c11, that the next stage was cp. Given the country’s unpredictable politics, former government officials and diplomats have proved to be desirable employees. Work with governments in Thailand, China (where cp was the first foreign investor after China opened up in 1978) and elsewhere has often helped push the firm into new areas. Noppadol Dej-Udom, who oversees cp’s sustainability and governance, notes that it got into telecoms in the first place because the Thai government needed help to install telephone lines to meet demand in the 1990s. On November 12th a consortium involving cpsubmitted a bid to build a $6.8bn high-speed railway to link three of Thailand’s busiest airports, part of a government plan to boost infrastructure. Railways are certainly a far cry from cp’s biggest business, food, which, together with its agri-industry business, accounts CP keeps the plates spinning 70 Business The Economist November 17th 2018 Schumpeter China v America

The careers of Hank Paulson and Wang Qishan illustrate the tensions in superpower relations man, the head of Blackstone, a private-equity firm, sold 9% of it to a Chinese state fund in 2007 (it sold out in March of this year). Mul- tinationals such as General Electric had close contact with China’s leaders. One boss recalls his board huddling round Jiang Zemin, China’s party chief between 1989 and 2002, for a group photograph. A commercial edifice was then built on these relationships, although not the one that might have been expected. China has not opened up its financial industry—Goldman makes less money from Asia now than in Mr Paulson’s last year in charge and has only 1% of its balance-sheet exposed to China. Still, in total usa Inc made $450bn-500bn of sales from China last year. An elite of a dozen or so firms, including Apple and Boeing, make over $1bn a year in profits. China exported $500bn of goods to America. Mea- sured this way the relationship is roughly in balance. In private many American executives still view China as the world’s most important market after their own. In public they have turned hawkish. This may reflect an intimidating political climate at home. On November 9th Peter Navarro, a White House trade adviser, said that Wall Street bankers were acting as China’s “unpaid foreign agents”. But there is real disillusion among executives, too. They persuaded themselves that Chinese soes might metamor- phose into private-sector firms, and the country would become a f you want to understand the commercial relationship between market economy with property rights and a level playing-field for IAmerica and China, it is worth tracking the paths of two power- foreign companies. It has disappointed on both counts. Mr Paul- ful people who have dedicated their careers to it: Henry Paulson, a son says that American business has gone from “advocate, to scep- tough-as-nails former head of Goldman Sachs and former Ameri- tic and even opponent” of past American policies towards China. can treasury secretary, and Wang Qishan, a well-read banker and A decade ago, whenever tensions arose they were defused with bureaucrat who is China’s vice-president. Since the 1990s they flurries of phone calls and red-eye flights. But the habit of fre- have worked together, episodically, on reforming state-owned en- quent, intimate discussions has atrophied and trust has faded. In terprises (soes), boosting trade and fighting the 2007-08 financial Singapore Mr Wang insisted that China is open for talks on trade, crisis. Now they are trying to bridge a deep divide. which may resume ahead of the g20 meetings on November 30th The two appeared on November 6th and 7th in Singapore at the and December 1st. He is known as the Chinese leader with a deft New Economy Forum—a gathering of business royalty organised touch with foreigners—unlike most of them, he talks off the cuff by Michael Bloomberg, New York City’s former mayor, designed to and makes jokes. Yet this time his punchlines did not raise a laugh. air trade tensions and look for a response to populism. With Henry One American involved in the face-to-face negotiations says that Kissinger sitting in the front row, Mr Wang warned that the “polar- for a year China has refused to budge on intellectual-property theft isation of right-leaning populism” in the West was stoking anger and state intervention. Mr Wang’s visit was a “waste of jet fuel”. and destabilising the global order. A day later Mr Paulson stood up Just as business responded to China’s opening up in the 1990s, and complained about China’s misconduct and warned of a new so it is adjusting to a new, de facto cold war. Charles Li, the head of “economic Iron Curtain” falling between China and America. Hong Kong’s exchanges, says the two economies are like saltwater Messrs Wang and Paulson first worked together in 1996. Mr and freshwater systems that meet but do not mix well. America’s Wang was a high-flying reformer in charge of the giant China Con- tariffs on Chinese goods are due to rise from 10% to 25% on January struction Bank and was orchestrating the flotation of China Tele- 1st. Multinationals are stockpiling inventories inside America. Lo- com, the first huge soe to list in New York. Goldman was the un- gistics companies have plans to reconfigure aircraft fleets. Specu- derwriter. By 1997 he was an official in Guangdong province and lation swirls around the firms with the most global supply chains. asked Mr Paulson to help restructure Guangdong Enterprises, a On November 5th Apple revealed that it has bought 2,450 acres of crippled soe. The two men ascended in parallel. In 2001when Chi- land in America in the past year, prompting chatter that it might na joined the World Trade Organisation, Mr Paulson was running bring more production home. Goldman; Mr Wang guided China’s economic-reform agency. By the time Mr Paulson became treasury secretary in 2006 he A long march, not a sprint had visited China 70 times. He led a new “strategic economic dia- If, in 1996, Mr Paulson and Mr Wang could have seen the world to- logue”—an almost continual bilateral discussion that covered day, they would have been awed by the scale of the commercial everything from currency movements to pirated dvds. Mr Wang links between China and America, but worried by their fragility. became vice-president three days after Bear Stearns was rescued in Their personal instincts now sit uneasily with domestic politics. March 2008. When Lehman Brothers failed in September, the Mr Paulson is a Sinophile in a more nationalist America; Mr Wang mesh of friendships and institutional links between the countries’ is an economic reformer at the heart of an autocracy. But as they leaders helped contain the crisis. China refused to dump Treasury survey the dismantling of their 20-year project, these two masters bonds and stimulated its economy to offset America’s slump. of the long game might console themselves that the political tides In this golden era of superpower relations other executives can shift again, and that, in time, the attempt to find an accommo- formed strong relationships with China, too. Stephen Schwarz- dation between America and China may resume. 7 Finance & economics The Economist November 17th 2018 71

The Chinese economy from 2008 constrain it today. China knows it cannot afford another binge. Ten-year hangover That caution reflects a change. Officials were almost uniformly positive in their initial verdict on the stimulus. Exports had plunged but growth was back to double digits within a year. In 2011 Wen Jiabao, the prime minister, said that not only had Chi- SHANGHAI na been first in the world to recover from Excesses remaining from its 2008 stimulus limit the country’s options today the crisis, but it had also laid a foundation he career of China’s biggest property also a dividing line. Growth rebounded, for long-term growth. Now there is wide- Ttycoon can be divided into two stages. while it sputtered elsewhere. Before the spread recognition that the foundation Xu Jiayin started slowly, focusing on crisis China had a 6% share of global gdp; was less solid than it appeared. Guangzhou, a southern city. Then came the today it is closer to 16%. Yet there was a big China’s steep rise in total debt, from global financial crisis and the govern- downside. The economy became much 150% of gdp in 2008 to more than 250% to- ment’s response, a giant economic stimu- more reliant on debt. day, is the most obvious problem. Such in- lus, launched a decade ago this month. For On the tenth anniversary of its big stim- creases in other countries have often pre- Mr Xu it was a signal to become far bolder. ulus, China is again confronted by flagging saged trouble. Much of the debt was His company, Evergrande, now has pro- growth, as Mr Xu can see from a recent channelled through institutions outside jects in 228 cities. Last year it completed slowdown in housing sales. The govern- the formal banking system, which are less enough floor space for 450,000 homes, up ment has started dropping hints that a new transparent and more lightly regulated. from 10,000 the year the stimulus began. It stimulus is on the way. But the excesses Though some borrowers, such as Ever- has bought a football club, built theme grande, profited from easy money, many parks and entered the insurance business. others struggled. Dozens of industries, Also in this section Yet expansion has come at a cost. Ever- from solar power to steel, are grappling grande’s debt has soared to nearly $100bn. 72 Buttonwood: Playing the field with overcapacity. Bai Chong’en, a former Short-sellers regularly target its stock. So adviser to the Chinese central bank, has ar- 73 Oil’s ups and downs far Mr Xu has defied the naysayers. But the gued that one consequence has been a per- market bears are taking another run at him. 73 America and Europe talk trade manent decline in productivity. Evergrande’s stock is down by more than a As a result, stimulus has almost become 74 The risks of financial inclusion third this year. Last month it struggled to a dirty word in policy circles. Li Keqiang, sell new bonds, until Mr Xu bought $1bn 75 The economy of the Philippines Mr Wen’s successor, has sworn off what he worth with his own cash. As one of the calls “flood-irrigation stimulus”, a refer- 76 Blockchain and stock exchanges richest people in China, a billionaire many ence to the farming practice of soaking all times over, at least he can afford it. 76 Italy’s uncompetitive pharmacies the soil, not just the crops. Over the past For China as a whole, the government’s couple of years the government has tried to 77 Free exchange: Superstar cities decision in 2008 to rev up investment was mop up the mess. It has aimed to slow the 1 72 Finance & economics The Economist November 17th 2018

2 rise in debt, closing shadow banks and cur- cord. Markets are braced for worse: bor- on October 31st, the Politburo omitted a pri- tailing excess capacity. rowing rates for China’s high-yield issuers or pledge to reduce debt. But the resolve to tackle financial risks of dollar bonds have almost doubled, to Simply describing this as a shift to stim- was easier to summon when growth was 11%. Evergrande was forced to offer 13.75% ulus is too crude. Larry Hu, an economist strong. In recent months it has sagged. on its bond in October. with Macquarie Securities, separates Chi- With investment sluggish and the trade It is against this jittery backdrop that in- na’s policy easing into three. First, fine- war rumbling on, headwinds are getting vestors are speculating about a new stimu- tuning, including doveish language. Sec- stronger. Many analysts think growth will lus. The government, despite its vows to be ond, more direct measures, such as inter- dip towards 6% next year, which would be prudent, has form: besides the massive est-rate cuts. Third, all-out support, with China’s weakest since 1990. For firms that stimulus in 2008, it also propped up the infrastructure spending cranked up. Mr Hu had based their plans on sustained high- economy when growth softened in 2012 reckons that China is now between the first speed growth, even a mild slowdown and 2015. As a first step officials appear to and second, good for the stockmarket but hurts. Corporate-bond defaults in China be relaxing their campaign to clean up the not enough to stop the economy’s slide. have reached nearly $10bn this year, a re- financial system. After a quarterly meeting Can China find a way to shore up growth1 Buttonwood Playing the field

Investors are biased in favour of America n the mid-1980s Carol Goland spent ing economy. Of course, many firms listed all markets get trampled. In October 1987, Itwo years in the Andes. The subsis- in America have substantial foreign earn- when American stocks fell by 21.4%, a tence farmers she studied in Cuyo Cuyo, ings. But the risk-diversification they offer global portfolio of 22 equally weighted in Peru, planted as many as 20 fields is still limited. Home bias, it seems, is equity markets fell by 21%. scattered around the mountain. They mostly a quirk of behaviour. Investors Over time, however, returns are dri- used up precious calories going back and think of foreign stocks as more risky than ven by fundamentals in each economy, forth between each field. Yet on closer they really are. and the global portfolio performs better inspection, this pattern had a logic to it. In any event, it is not so easy to follow a than the worst-hit individual market. A Crop yields varied widely from field to spread-your-bets approach. msci’s global portfolio that is weighted by market field, because of erratic microclimates. index is weighted by the market value of capitalisation, like the msci index, is a By spreading their bets the farmers re- its constituents. America looms large in it. less potent diversifier. But it is still far duced their risk of starvation. This is in part because the world’s most better than being over-exposed to one The farmers knew the penalty for valuable stocks are listed there. But it also bad market. failing to diversify. That lesson ought to reflects the nature of business ownership. Those seeking the ideal balance of be heeded in investing, too. But it isn’t. In America big companies tend to be pub- risk and reward should prefer to own Three-quarters of equity funds in Ameri- lic. In other places many are family- shares of firms in proportion to their ca are held in shares listed there, accord- owned. How open a country is to investors importance to the world economy. But ing to Morningstar, a data-tracking firm. must also be allowed for. China’s weight is ordinary investors should also like to American stocks have beaten a broad tiny because its market is less accessible. keep things fairly simple. A good in- index of other rich-world stocks in seven And the same question invited by those vestment rule, then, might be to allocate of the past ten years. Even so, it is a lot of field-scattering Peruvian farmers also a third of an equity portfolio to American eggs to have in one basket. Those who arises. Why bother? After all, it is Ameri- stocks, a third to an index of stocks listed seek to diversify by buying a global index ca’s stockmarket that makes the global in other rich countries and a third to find they are still heavily exposed to weather. Were it to crash, it would take emerging-market shares. Such a port- America. American-listed stocks account down other markets, too. Research by Cliff folio would better reflect the make-up of for 55% of the value of the msci All- Asness, Roni Israelov and John Liew of aqr global gdp. It would cap exposure to any Country World Index, a widely used Capital Management finds that in a panic, one bloc. And it would anticipate a sec- benchmark. ular shift. As more emerging-market When the harvest in one place has stocks are added to the global index, says been consistently good, people are reluc- Victor Haghani, of Elm Partners, Ameri- tant to look elsewhere. But wiser in- ca’s weight will diminish. vestors follow the practice of Peru’s Investors following such a rule must mountain farmers and spread their bets sacrifice some of the ease of buying and far and wide. America’s stockmarket selling American equities for somewhat cannot outperform forever. When the less liquid markets. The other big draw- investment climate changes, a heavy tilt back is that when American stocks do towards a single country can be costly. especially well, a more diversified port- In principle, investors would be best folio has lower returns than the global off holding a broad range of equities benchmark. Peruvian farmers would be from many countries. In practice, they prepared to live with that. By spreading have a tendency to favour their domestic their bets, they suffered lower yields market. This “home bias” is a puzzle. than they would have had they only Domestic equities are a poor hedge planted in the best field. But they could against one of the biggest hazards to never have been sure in advance which wealth—the loss of a job due to a falter- was the right field to pick. The Economist November 17th 2018 Finance & economics 73

2 without falling back on debt-fuelled stim- ing partners, a strain that further weakens ulus? It does have options, though they are Pump ’n dump emerging economies. The growth in air likely to provide less of an immediate West Texas freight and shipping has fallen by about boost. The central bank could reduce US, crude oil production Intermediate half in the past year, says Edward Morse of m b/d $ per barrel benchmark interest rates, which have Citigroup, depressing demand for diesel 12 120 stayed unchanged since 2015. The finance fuel. Mr Trump’s trade war with China is ministry has scope to cut taxes more ag- 10 100 particularly important for oil markets, as gressively, especially for companies. China accounted for about 40% of the Where borrowing is the only option, it is 8 80 growth in demand for oil last year. On No- trying to make it safer. It is making it easier 6 60 vember 13th opec lowered its forecast for for officials to pay for infrastructure via global oil demand next year. bonds rather than shadow banks. Xi Jin- 4 40 But even as oil prices fall, there is reason ping, the president, could also take long- to think they could spike again soon. More delayed steps to lessen the clout of state- 2 20 production cuts may come next month, owned companies, giving private firms 0 0 after opec and its partners meet in Vienna. more leeway to invest in sectors such as en- On top of uncertainty in Iran, disruption in 2014 15 16 17 18 ergy and finance. Venezuela, Libya, Nigeria or Iraq could One thing China is likely to avoid is a squeeze global supply. These “fragile five”, significant change to its property policies, sive in weakening local currencies. But the as some investors call them, accounted for a crucial part of the stimulus in 2008. Mr Xi oil market’s recent volatility also reflects 12% of global oil production from July to has repeatedly said that homes are for liv- new forces, including the limits of conven- September, more than Saudi Arabia. ing in, not for speculating on. A thicket of tional producers and the peculiar impact of Then there is always the possibility that restrictions has cooled the market, slowing America’s president, Donald Trump. Mr Trump could reverse course—striking a purchases and choking off loans to devel- The Organisation of Petroleum Export- trade deal with China, for instance, or opers. If Mr Xu of Evergrande is upset, he is ing Countries (opec), led by Saudi Arabia, tightening restrictions on Iran once more. not showing it. In a speech published this aspires to cosy stability. Prices should be Or he might simply write a tweet. On No- year he credited his firm’s success to gov- high enough to sustain its members’ bud- vember 12th he took to Twitter to call on ernment policies. Long a beneficiary, he gets and low enough to support global de- opec to refrain from cutting production. has the sense not to turn critic. 7 mand. But its grip has slipped. There are The oil price fell. 7 now three dominant oil producers: Ameri- ca, Saudi Arabia and Russia, only one of Oil prices which is a member. As America’s shale in- EU-US trade talks dustry has boomed, Saudi Arabia has Trumpsy turvy turned to Russia to help co-ordinate pro- Warning shots duction. Their interests are not perfectly aligned. Saudi Arabia’s oil minister, Khalid al-Falih, this week said the kingdom would lower output by 500,000 barrels a day in DALLAS December; Russia’s oil minister doubted WASHINGTON, DC American policy helps explain the America’s trade relations with its allies that there would be oversupply. dramatic swings in the oil market are extremely fragile But it is America that has had the great- he oil price was supposed to be soaring est destabilising effect. This year it became fter a trip to France for the centenary Taround now. With American sanctions the world’s top producer of crude. Its shale Aof the end of the first world war, Presi- against Iran taking effect earlier this companies are pumping out oil at a phe- dent Donald Trump quickly turned his month, exports from that country, the nomenal rate. Output in August was 23% Twitter feed over to trade-related tirades. world’s fourth-largest producer of crude oil above the level 12 months earlier. But the On November 12th he opined that “Trade last year, were expected to shrink to close shale industry is beholden to investors, not must be free and fair!” The next day he to zero. In anticipation the price of Brent an oil minister, and production may taper complained about French tariffs on Ameri- crude, the international benchmark, went if oil prices continue to slide and investors can wine, concluding “Not fair, must above $86 in early October, a four-year- demand higher returns. On top of that change!” A day later came another remind- high, and some warned of prices above come Mr Trump’s policies, which are helper of the brittleness of transatlantic trade $100 a barrel. ing to shove oil markets this way and that. relations, when reports emerged that Mr Instead, by November 8th oil had en- After he announced sanctions on Iran Trump was meeting his officials to discuss tered a bear market. The price of Brent in May, opec and its allies agreed to in- an investigation launched in May into crude stood at $66.53 on November 14th. crease output. Production from Saudi Ara- whether imported cars and car parts West Texas Intermediate, the American oil bia and Russia has climbed to record highs. threaten America’s national security. If it benchmark, dropped for 12 straight trading Then, on November 5th, America an- concludes that they do, he can impose sessions, until November 14th, when it at nounced that it would grant 180-day waiv- whatever trade restrictions he wants. last ticked up (see chart). That was the lon- ers to China, India and six other countries The idea that importing cars from close gest uninterrupted decline in over three to continue to import from Iran—countries allies threatens America is barely plausi- decades. American crude futures have that together account for more than 75% of ble. In reality the investigation is intended plunged by 20% from their recent peak. Iranian exports, according to Sanford C. to strong-arm trading partners into con- Some of the reasons for the slump are Bernstein, a research firm. cessions. The tactic met with some early standard fare. In October the imf lowered Mr Trump’s trade policies are also de- success. In July Jean-Claude Juncker, the its forecast for global economic growth. pressing demand for oil. The imf’s lower president of the European Commission, Trouble in emerging markets has an out- forecast for growth is due in part to a slow- and Mr Trump agreed to work towards a size effect on their demand for dollar-de- down in emerging markets, but also to ris- world with no tariffs, non-tariff barriers or nominated oil, as it becomes more expen- ing tensions between America and its trad- subsidies for non-auto industrial goods. 1 74 Finance & economics The Economist November 17th 2018

2 But the hostilities have been post- Financial inclusion of data from over 20m digital loans. It poned, not called off. There are warning found that 35% of respondents in Kenya signs that they may soon resume. A meet- Not so fast and 21% in Tanzania had taken out digital ing on November 14th between Cecilia loans. Of these, 47% in Kenya and 56% in Malmström, the European Union’s trade Tanzania reported having made late repay- commissioner, and Robert Lighthizer, the ments, and 12% and 31%, respectively, had United States Trade Representative, was defaulted. Less than 40% said they were supposed to secure an “early harvest” from borrowing for business needs. Few admit- New forms of lending bring old July’s agreement, on areas of regulatory co- ted to gambling. But, as with the default problems operation. It ended with no joint state- and late-payment numbers, self-reporting ment. Next is supposed to come a formal obile money, which offers the equiv- may make this an understatement. Late- trade deal. That will be much harder. Malent of a basic bank account to al- night borrowers are more likely to default. The first problem is what will be includ- most anyone with any sort of phone, has The second survey is the seventh in a seed. This was supposedly settled in June. long been seen as a boon for financial in- ries started in 2008 by the Centre for the “President Juncker was crystal-clear, say- clusion. So recent evidence that it is leav- Study of Financial Innovation (csfi), a Lon- ing that agriculture would not be in the ing problems in its wake is causing dismay. don-based think-tank. It asks microcredit- deal,” said Ms Malmström on November Digital credit through mobile phones is lenders and the like around the world 13th. The Europeans may fear that Ameri- leading in some places to overborrowing, about their main worries. This year, for the ca’s hormone-injected, genetically modi- hardship and—horror of horrors—even first time, the number-one risk was “tech- fied foodstuffs will drive their small farm- more financial exclusion. nology”. This, the csfi concluded, “is facili- ers out of business. But America also has a The starkest evidence is in east Africa. tating growth but making excessive risk- powerful agricultural lobby. It has been Thanks to m-pesa, its largest mobile-mon- taking more likely, particularly by encour- more than usually ravenous for new export ey service, with over 20m users, Kenya has aging people to overborrow.” opportunities since China put tariffs on been a pioneer in both mobile money and Certainly, the appeal of new digital American farm produce in retaliation for mobile financial services, such as lending. lenders is that they make it easy to borrow. American tariffs on Chinese industrialised Anecdotal evidence is mounting of “No paperwork or collateral required” goods. Not only is that lobby well repre- abuses—most notoriously of young Ken- boasts, for example, the website of Mother sented on the congressional committees yans borrowing to splurge on online bet- Finance in Myanmar. SimSim, a digital that Mr Lighthizer must consult, but there ting sites. The number of Kenyans black- wallet in Pakistan run by a fintech com- is a case that excluding agriculture from listed by the country’s credit bureaus, and pany, finja, and a microcredit provider, of- the talks would break the terms of the legis- so unable to borrow, has risen to more than fers “nanoloans” that can get bigger as the lation on which Mr Lighthizer’s authority 500,000, up from 150,000 three years ago. borrower establishes a repayment history. rests. Add that to Mr Trump’s tweets about The proliferation of mobile credit, offered The fear is that the problems seen in French wine, and it is likely that agricul- by over 50 competing lenders, is blamed east Africa herald similar ones in other ture will reappear on the agenda. for the increase. The loans are mostly a few markets, where mobile money has not yet If that happens, trade relations are like- dollars and the maturities a matter of days made such inroads. Two factors could help ly to deteriorate. A month ago Mr Light- or weeks. But the damage could be lasting. prevent this. One is better regulation. “Fin- hizer notified Congress of his plans to start Two recent surveys, one of borrowers, tech”, says Deborah Drake of the Centre for negotiations, and he has until mid-Decem- one of lenders, suggest the scale of the pro- Financial Inclusion at Accion, a think- ber to tell them what the objectives will be. blem. One, by the Consultative Group to tank, “is evolving quicker than regulation If they include agriculture, said Ms Malm- Assist the Poor (cgap), a consortium of do- can keep up.” Much digital lending in east ström on November 14th, she would not nors affiliated to the World Bank, used tele- Africa, for example, is in effect unregulat- start scoping a deal. And if talks end, tariffs phone calls to thousands of mobile-phone ed. But in Pakistan SimSim’s nanoloans on cars and car parts could soon follow. users in Kenya and Tanzania and analysis were halted for a while, since the funds Even without agriculture, any deal came from a microfinance firm not autho- could be hard for European governments to rised to lend for consumption. sell to voters. When the eu and the Obama The second measure is better credit as- administration were negotiating the sessment. By analysing payments and oth- Transatlantic Trade and Investment Part- er data on a client’s phone, algorithms can nership, a deal since put on hold, thou- be used to lend to borrowers to whom sands of protesters took to European banks would never lend. As data pile up, streets. At the time, 86% of Germans and microlenders’ judgments should im- 84% of French people told Pew, a pollster, prove—and if they have to give credit bu- that they had confidence in Barack Obama reaus good news as well as bad (often, now, to do the right thing on world affairs. Just they are not so obliged), they should stop 10% of Germans and 9% of French respon- being vehicles for new financial exclusion. dents now say the same of Mr Trump. In the meantime, the annualised inter- European negotiators dearly wish to est rate on many microloans in Kenya is avoid higher tariffs on their auto exports. several hundred percent, suggesting that But their spines may be stiffened by the ex- lenders are, in effect, pricing in high rates ample of America’s reworked trade deal of default. And that highlights a tension in with Canada and Mexico. Even though new the financial-inclusion business. Many of terms were agreed on last month, the its pioneers have a social mission, namely American administration has not yet lifted to alleviate poverty. But they also rely on tariffs on imports of steel and aluminium commercial lenders to carry it out. Digital from its neighbours. The appeal of bowing platforms offer new opportunities for do- to pressure palls if it is unlikely to make the gooding microfinanciers, but also for cut- pressure stop. 7 Mobile money’s too tight to mention throat payday lenders. 7 The Economist November 17th 2018 Finance & economics 75

The economy of the Philippines inflows to sustain its economic ambitions. Meanwhile inflationary pressure con- Building to last tinues to build, build, build. The problem has been exacerbated by policy blunders that have caused the cost of rice to soar. The Philippines is the only country in the world that limits the volume of rice imports. An agreement at the World Trade Organisation MANILA that permitted those restrictions for more The government wants to tame inflation and boost infrastructure than two decades expired last year. Rather or decades economists wondered why than seize an opportunity to use cheap im- Fthe Philippines was doing so badly com- ports to keep prices down, Congress has pared with its less gifted, more tigerish tarried for months over a planned liberal- neighbours. In recent years, they have isation. Meanwhile the National Food Au- wondered how it was doing so well. The thority (nfa), a government agency that economy has grown briskly, without intol- oversees rice imports and is supposed to erable inflation or too much borrowing ensure the stability of food prices, has de- from abroad. And it has done so despite layed rice imports at the border. stagnant investment, lousy infrastructure More expensive food, especially rice, is and a narrow manufacturing base. Econo- hardest on the poorest Filipinos. Accord- mists have long urged it to “walk on two ing to a government survey in 2015, the legs”, expanding industry rather than plac- poorest fifth of households spend 20% of ing all its weight on services. Instead it has their total budgets on rice; the richest fifth kept hopping—but with impressive speed spend just 5%. Higher food bills further and balance. fuel inflation by pushing up wage settle- Now, however, that balance is at risk. ments: Manila’s minimum wage is due to Inflation hit 6.7% in September, close to its rise by 4.9% to 537 pesos ($10) a day. highest rate in a decade and far above the In recent weeks Mr Duterte has ha- central bank’s target of 2-4%. The current- rangued food-hoarders and smugglers for account balance (which remained in sur- pushing up prices—though they are incen- plus for 13 years in a row, thanks to strong tivised by the current corrupt system, un- remittances from emigrant cleaners, car- der which the nfa doles out import li- ers, nurses and the like) posted a narrow Marching rations cences and acts as both regulator and deficit in 2016 that has grown since. The market participant. More to the point, he stockmarket has lost over a fifth of its value congested, airports overcrowded and cities has ordered the nfa to ease limits on food since its January peak. And though growth choked with traffic. To help diversify the imports, lift non-tariff barriers and allow remains impressive by international stan- economy away from services, the govern- private traders to bring in more rice. Mean- dards (6.1% in the third quarter, compared ment has embarked on an ambitious infra- while, the central bank has also sought to with a year earlier), it is at a three-year low. structure drive. Dubbed “Build, build, tamp down price pressures. This week it The government is seeking to get the econ- build”, it aims to raise spending on roads, raised its benchmark interest rate to 4.75%, omy back on track ahead of mid-term elec- bridges, railways and ports from less than up from 3% at the beginning of 2018. tions in May. The popularity of the presi- 5% of gdp to more than 7% by 2022. To woo newly nervous foreign inves- dent, Rodrigo Duterte, depends on it. To make room for this extra spending, tors, Mr Duterte has eased some limits on It is tempting to blame the country’s the technocrats began a series of tax re- inward investment. Firms with up to 40% economic wobble on its volatile and reck- forms. The first lifted the income-tax foreign ownership can now bid to work on less leader. Mr Duterte has, after all, desta- threshold and raised the top rate from 30% locally funded infrastructure. The previous bilised much else in the Philippines. With to 35%, as well as increasing consumption limit was 25%. And he has continued to his encouragement, police and vigilantes taxes on a range of goods, including petrol court aid and investment from foreign gov- have slaughtered drug-dealers and addicts and sugar. But the early signs are that rev- ernments. In particular, since taking office with impunity. When he became president enues will fall short of what was hoped for, he has cosied up to China, saying little in 2016, business types were spooked. But says Ramon Clarete, an economist at the about the two countries’ rival territorial Mr Duterte’s iron fist is not chiefly to blame University of the Philippines Diliman. And claims in the South China Sea. In return, for the country’s economic trouble. Inter- the government’s loss of popularity means China has promised $9bn in infrastructure national investors have largely turned a that further reforms, planned for cor- investment. But few of these promises blind eye to his excesses. For them his porate, property and mining taxes, may be have been fulfilled. Projects have been de- bloody focus on crime has had a welcome postponed or even abandoned. layed by technical constraints, uncertainty side-effect: economic matters have been As a result, the economy has started to over their viability and a lack of corporate left largely to well-trained technocrats. live beyond its means, with national interest. Of the $9bn pledged, only one irri- It is these technocrats, however, who spending exceeding production, imports gation project and two bridges, worth less bear some of the responsibility for the increasing and prices rising. In principle, it than $200m in total, have broken ground. country’s current pickle. They have strived makes sense for a developing country to Mr Duterte must hope that a visit this week to find a second leg for the economy, be- borrow from abroad to invest in infrastruc- by China’s president, Xi Jinping, will help yond services. That has contributed to the ture that will eventually improve produc- unlock funds. country’s momentary loss of poise. tivity and diversify exports. But with inter- The economy of the Philippines does They recognise, rightly, that the Philip- est rates rising in America and contagion not yet walk on two legs. But, by curbing in- pines lacks the infrastructure needed to at- spreading across emerging markets, the flation and courting foreign capital, the tract export-oriented manufacturing. Philippines has chosen a bad time to be- government is at least fighting the current Years of underinvestment have left ports come a deficit country, relying on capital bout of instability with two fists. 7 76 Finance & economics The Economist November 17th 2018

Blockchain and stock exchanges Italian pharmacies Settling for more A remedy for high prices

A study measures the cost to new parents of insuicient competition hat competition keeps prices down to keep the quality of services high). They Stock exchanges find novel uses for is well known. But it is hard to mea- compared prices in places with pop- blockchain T sure by just how much, because prices ulations just below this threshold, and lockchain, the technology underly- vary for all sorts of reasons, from differ- just above. Bing bitcoin and other cryptocurrencies, ences in labour costs and rents to taxes. The products studied included some was designed with an ideological aim: to Rising to the challenge is a new paper in 3,000 varieties of shampoos, bath foams, sidestep central authorities and govern- The Economic Journal by Giacomo Cal- baby wipes, creams and so on. Many are ments. But many people have become in- zolari, Andrea Ichino, Francesco Mana- also used by adults on themselves. Some trigued by its practical uses, such as updat- resi and Viki Nellas, economists at the people, for example, prefer sun-cream ing back-office processes. And few institut- European University Institute, Bologna labelled “for children” because of its high ions have shown more interest in such University and the Italian central bank. level of protection. When raising prices applications than financial exchanges. They looked at pharmacies and specifi- for these products, even a pharmacist Although stock trades are often made in cally at customers who may be particu- with a monopoly must consider the risk milliseconds by algorithms, completing larly easy to rip off: new parents. that adult users will switch to products them involves co-ordinating payment and Using data for 2007 to 2010 covering that are not aimed at children. But a rise delivery among a mess of databases and about a fifth of pharmacies in Italy, the in the number of babies, and hence in the then reconciling the records. In big finan- researchers measured the way in which fraction of buyers who are parents, could cial centres trades take two full days to set- prices of hygiene products for babies tip the scales towards price increases. By tle. Some stock exchanges wonder whether changed as the number of babies varied. contrast, the pharmacist should already blockchain’s distributed, tamper-proof They took advantage of a peculiar law be charging as much as parents are will- ledgers and immutable and transparent from the1960s, according to which mu- ing to pay for products without adult transaction records could speed up and nicipalities with at most 7,500 people are users, such as nappies. simplify the process. allowed just one pharmacy (supposedly The scholars found that pharmacists Exchanges from America and Australia raised prices when there were more new to Switzerland and Singapore are studying parents—but only in municipalities with the concept. Australia’s stock exchange, the a single pharmacy, and not for nappies. asx, has moved furthest towards using In monopoly areas a doubling of the blockchain to replace its main clearing and number of babies from one month to the settlement platform. It has been testing next (not unusual in a small population) technology from Digital Asset, an Ameri- coincided with a 5% increase in the price can firm, and will go live in mid-2021. And of the basket of baby-hygiene products. on November 11th sgx, Singapore’s stock The study is timely. Italy’s govern- exchange, and the Monetary Authority of ment has started to loosen some of the Singapore (mas), its central bank, an- many restrictions that stifle competition nounced a prototype using blockchain for in the pharmacy sector (though not yet delivery, payment and settlement of assets. the one that the researchers relied on). These projects are strikingly unlike the But such regulations are plentiful in vision of blockchain enthusiasts. asx’s, for many other lines of business, and not example, uses ledgers but remains quite just in Italy. The consumers who pay the centralised. A single counterparty, asx it- price are often those who find it hardest self, must approve participants (which re- to travel to shop around—for example, moves the need for energy-intensive verifi- What’s Italian for sticker shock? people with crying babies on their hands. cation and updating of records, as with bitcoin). Though open to all, only some banks and brokers will opt for direct ac- And settlement will not be in real time. much wider range of assets tradable. Mr cess. Everyone else must trade through Why, then, bother? Kelly Mathieson of Zeeb has already been approached by a mu- them. In contrast to the complete transpa- Digital Asset says her firm’s purpose-built seum that wants to tokenise its art collec- rency of the bitcoin ledger, market partici- programming language, daml, which en- tion, as a novel source of funding. Inves- pants will not have access to the whole ables financial contracts to be automated, tors would gain exposure to the value of the dataset (for legal reasons, but also so they will make further innovation easy. The te- art going up or down through such tokens, do not have to give away their positions). dious processes of reconciliation, she says, which they could trade. will be drastically simplified. All these projects have, or plan to ob- As soon as next year investors will be tain, official blessing; after all, exchanges Applications are invited for a Marjorie Deane able to see the result of another, smaller ex- are highly regulated. But the Singaporean internship in our New York bureau. The award is periment. six, the owner of the Swiss stock project shows the value of seeking more designed to provide work experience for a promising journalist or would-be journalist, who will spend three exchange, will launch a separate digital than a nod of approval. mas’s involvement to six months at The Economist writing about platform for trading assets, such as stocks meant the prototype did not limit itself to economics, business and finance. Applicants are asked and bonds, in “tokenised” form—that is, in stock trading or settlement, but also looked to write a covering letter and an article of no more a format blockchain can handle. Token- at digital currency issued by the central than 500 words, suitable for publication in the Finance & economics section. Applications should be sent by ising will eliminate minimum trade sizes, bank. Quite a turnaround for a technology December 14th to [email protected]. says Thomas Zeeb of six. It will also make a designed to circumvent governments. 7 The Economist November 17th 2018 Finance & economics 77 Free exchange Capitalising on competition

Superstar cities sweep all before them. How can the understudies get a lucky break? work Chang-Tai Hsieh of the University of Chicago and Enrico Mo- retti of the University of California, Berkeley, estimate that looser zoning rules in elite cities could increase gdp growth by a third. Other attractions probably drew Amazon and Google. The interests of tech giants are different from those of startups. Entrenched technological leaders have little reason to love places that encourage entrepreneurship and the transfer of knowledge. They can gain access to rivals’ innovations by buying them and would prefer their own proprietary technology to remain proprietary. It is possible that Amazon wants hqs 2 and 3 enmeshed in local tech eco- systems. But it is more likely to have had other benefits in mind. Access to labour, for instance. Amazon cited the advantages of New York and Washington for its drive to attract “world-class talent”; each employs more knowledge workers than any other Amer- ican metropolitan area. Large labour markets improve the quality of matches between workers with rare skills and the firms that need them, and cut the cost of economic disruptions (a sacked worker will more easily find a new job in a town with thousands of employers than one with just a handful). Amazon could probably attract applicants no matter where it is located. But some workers are hard to find outside superstar cities. Only there can households with two high-powered earners be certain that both will n the end, Amazon disappointed everyone. A year ago the e- have access to a wide range of lucrative jobs. Siting its offices in Icommerce giant said it would open a second headquarters, and such places may be the only sure way for Amazon to fish in an elite solicited bids from cities keen on the 50,000 new jobs and $5bn in labour pool. Moreover, it is households with two high incomes investment it would bring. The gambit might have produced a fas- that can best cope with expensive housing. For them, and the elite cinating experiment in urban development, and a departure from firms that want to employ them, other places are a poor substitute. the concentration of top tech firms in a few favoured places. It did New York and Washington also offer proximity to important not. Though local governments wooed the firm with juicy incen- customers. Though Amazon and Google look like consumer-fac- tives, no city nabbed the promised co-headquarters. On November ing businesses, their growing range of cloud-computing services 13th Amazon said it would split its new office between New York means they are increasingly participants in business-service sup- City and Arlington, a suburb of Washington, dc. ply chains. Close contact between different supply chains helped The decision to bring tens of thousands of high-paying jobs to produce the growth of cities during the Industrial Revolution; the two of America’s richest metropolitan areas is a notable example high cost of moving bulky goods pushed manufacturers to cluster. of a broader trend. Another came a few days earlier, when the Wall Building and maintaining products in the cloud for multinational Street Journal reported that Google planned a dramatic increase in firms (and for the American government) might similarly require hiring in New York City. Politicians interested in boosting the for- tech firms to operate cheek-by-jowl with business partners. tunes of places other than superstar cities have their work cut out. That, too, is disconcerting. Productivity growth across the de- Once, poor places caught up with richer ones. From 1940 to 1980 veloped world has been disappointingly weak in recent decades. the gap between wages in rich cities and in poor ones closed at a Dan Andrews, Chiara Criscuolo and Peter Gal of the oecd, a rich- rate of about 1.4% per year, according to recent work by Elisa Gian- country think-tank, put the blame on the slow diffusion of produc- none of the University of Chicago. Then convergence halted. Be- tivity-boosting techniques from top firms to the rest of the econ- hind cities’ diverging fortunes is a change in the return to educa- omy. As long as realising the benefits of new technologies requires tion. Wage convergence did not end for all workers after 1980, says close co-operation with leading tech firms, this is unlikely to Ms Giannone, but only for those with a college degree. That is be- change. The payoff to developing bespoke ai solutions for a major cause well-educated workers have done best in places where there multinational with headquarters in New York might be big enough are lots of them. The share of workers with a college education has to attract an Amazon or Google to site an office there. When the risen most in cities where the population of graduates was already customer is a local bank in Topeka, Kansas, it is not. large. This clustering has helped push incomes in different locations apart. Regional inequality has been worsened by restrictive Prime donna development rules in thriving places. The resulting competition Small cities are at a disadvantage, then. But co-operation might for pricey living space favours people with higher incomes and fil- level the playing-field. Cities could collectively agree to stop com- ters those of modest means out of superstar cities. peting to lure firms with piles of taxpayer cash—which could be Those cities are vehicles for transmitting knowledge. Edward better spent on productivity-enhancing public goods such as in- Glaeser and Matthew Resseger of Harvard University argue that frastructure and education. Experimentation with promising but higher pay in skilled cities is not merely a matter of sorting educat- untested development strategies is badly needed, as a forthcom- ed and uneducated people into different locations; rather, cities ing paper from the Brookings Institution argues. Cities could work facilitate learning and boost the productivity of entrepreneurs. together to run pilots for such programmes and to share best prac- When access to them is rationed by dear housing, some workers tices. Then, if talented and ambitious workers grow weary of life in and employers lose out. The economy as a whole suffers. In recent superstar cities, smaller ones might be ready to capitalise. 7 78 Science & technology The Economist November 17th 2018

Metric units 16th, the world’s measurement bodies are almost certain to approve a resolution that Weighty matters will mean four out of the seven base si units, including the kilogram, will follow the other three, including the metre, in being redefined in terms of the values of physical constants. Each of the chosen constants has been measured incredibly precisely. Furthermore, they represent fundamental The kilogram and three other units of measurement are about to be revamped characteristics of the universe that are not hroughout much of human history, tional level, the situation was particularly expected to change (at least on the sorts of Tman has been the measure of many, if dire. The lieue (league), for example, varied earthly timescales likely to concern the hu- not all, things. Lengths were divided up from just over 3km in the north to nearly man race). This would mean that from May into feet, palms, spans and smaller units 6km in the south. 20th 2019 the constants will themselves be derived from the human hand. Other mea- Although John Wilkins, an Englishman, fixed at their current values for ever. Any sures were equally idiosyncratic. Mediter- first proposed a decimal system of mea- laboratory in the world will then be able to ranean traders for centuries used the surement in 1668, it was the French, full of measure, for example, the mass of an ob- weight of grains of wheat or barley to de- revolutionary zeal, who in 1799 made it law. ject as precisely as the accuracy of their fine their units of mass. The Roman libra, Standards for the metre and kilogram were equipment will allow. forerunner of the pound, was 1,728 siliqua duly cast in solid platinum, and while Na- (carats), each the weight of a carob seed poleon lampooned the new units, the Sys- Plus ça change (possibly because they were thought, erro- tème international d’unités (si, or the met- In 1967 the redefinition of time, in the form neously, to be less variable in mass than the ric system, as it is better known) descended of the second, led to the current overhaul. seeds of other species). from them and became the official mea- Rather than pegging the second to the rota- The sizes of similarly named units surement in all countries except Myanmar, tion of the Earth about its axis, the second could also differ. The pied du roi (king’s Liberia and the United States. Now the In- is now defined by the ticking of a caesium foot), used in France for nearly 1,000 years ternational Bureau of Weights and Mea- atomic clock. This neither loses nor gains after its introduction by Charlemagne in sures (bipm) in Paris is set to give the met- more than a second in 1.4m years. This around 790ad, was, at 32.5cm, around a ric system its biggest shake-up yet. clock relies on microwaves, which at a fre- centimetre shorter than the Belgic foot, At a meeting in Versailles on November quency of 9,192,631,770Hz are known to used in England until 1300. The talent was make electrons jump between two particu- the mass of water required to fill an am- lar energy levels, known as the hyperfine phora (approximately 28kg), but Greek, Also in this section ground states of caesium. The microwaves Egyptian and Babylonian versions varied are tuned to this frequency and the pulses 79 Climate and human rights from one another by a few kilos. Nor was used to measure out a second of time, just there agreement on such things within 80 A cafeine-free tea plant as the regular oscillations of quartz crystals countries. In France, where there was no are used to calibrate electronic watches. 81 Reinventing the watch spring unified measurement system at the na- The candela, a unit of luminosity origi-1 The Economist November 17th 2018 Science & technology 79

2 nally based on the brightness of a candle Climate change flame, was redefined in 1979 to be based on Piling on the micrograms the brightness of a source emitting light at Change in mass of six oicial copies of the kilogram The blame game a specific frequency in the green part of the compared with the international prototype spectrum, to which the human eye is most Micrograms, 1889=0 sensitive. In 1983 it was the turn of the me- 80 tre, which by virtue of the fact that light tra- 60 vels at a fixed speed (299,792,458 metres 40 The Philippines asks if industry should per second) through a vacuum, was rede- take responsibility for extreme weather fined that way. Now it is the turn of the un- 20 its of mass (kilogram), current (ampere), 0 agonise waiting for the word for the * temperature (kelvin) and the amount of a -20 “Ifate of my very own relatives… I speak chemical substance (mole) to be redefined for the countless people who will no longer so that they too can, in theory, be repro- -40 be able to speak for themselves after per- duced at any time and in any place. 1889 1920 40 60 80 2000 14 ishing from the storm.” With these words, The change is most significant for the Source: International Bureau of Yeb Sano, the Philippines’ representative Weights and Measures *First calibrated in 194 kilogram, physically defined by a cylinder to the 2013 UN climate summit in Warsaw, of platinum-iridium alloy housed under Poland, became the unexpected figurehead nested bell jars in a vault at the bipm in Par- magnetic field, which interacts with the of those talks. Three days earlier, on No- is. Known as the International Prototype of ambient field to produce a force upwards vember 8th, supertyphoon Haiyan had bar- the Kilogram, or Le Grand K, this was made that exactly balances the weight of the relled into his country, cutting off all com- in 1889 to be of about the same mass as the mass. The current flowing through the munication with the outside world. More original Napoleonic-era ingot. The pro- wire is easy to determine accurately, but than 6,000 people died in the storm. blem is that the masses of the six official the strength of the ambient magnetic field Mr Sano’s emotional appeal to his fel- copies have drifted a little from that of Le is not. Measuring that involves removing low delegates drew a direct line between Grand K over the years (see chart). Why that the mass, turning the current off and mov- climate change and Haiyan. Whether the is so is not known, but since the copies ing the coil at a fixed velocity through the damage caused by extreme weather events have changed, it is likely that the mass of ambient field. This movement induces a can be linked to human emissions of the original has, too. Because Le Grand K is voltage across the wire that is directly relat- greenhouse gases is one of the hottest top- the standard against which the copies are ed to the strength of the ambient magnetic ics in climate science. And that debate measured, it is meaningless to ask whether field. This voltage, like the current, can be leads directly to another: if this link can be it has gained or lost weight. And despite all measured stringently. As both are related established, who bears the responsibility? the security, there is an outside chance that by the Planck constant, it will allow scien- Both of these questions are at the centre should the prototype ever be stolen or de- tists to come up with an agreed value for it. of an inquiry by the Philippine Commis- stroyed, as the Imperial Standard Pound That value is set to be fixed on May 20th sion on Human Rights, whose latest hear- was when the Palace of Westminster in 2019, after which any lab with a Kibble bal- ings took place in London earlier this London burnt down in 1834, there would be ance handy will be able to determine the month. It is the first time a human-rights no official measure. mass of an object without recourse to Le commission has heard evidence on wheth- Grand K or its near-clones. There is a cer- er large emitters violate basic human rights How to Kibble it tain irony that a constant arising from by causing climate change. 1 The new definition of the kilo will turn Le quantum mechanics, famous for its uncer- Grand K into a museum relic. The role will tainty principle, will thenceforth bring instead fall to a piece of kit called the Kibble more certainty to measurements of mass. balance, formerly known as the Watt bal- Similar efforts with the ampere, kelvin ance, but renamed in 2016 after its inven- and mole will link them, respectively, to tor, Bryan Kibble of the National Physical the elementary charge, e; the Boltzmann Laboratory in Britain. constant, k; and the Avogadro constant, NA. The Kibble balance measures a mass by Like the Planck constant, their values will looking at the amount of energy it takes to be fixed next year if the vote in Versailles balance its weight using electromagnetic goes as planned. Those who need to deter- forces. The amount of energy required to mine such things can then measure a cur- measure 1kg will depend on a value known rent by counting single electrons (each as the Planck constant, which is depicted bearing a charge, e) passing a point in a cir- by the letter h. The constant is a number cuit; temperature by measuring the aver- from the weird world of quantum physics age speed (and thus the heat energy) of an that, for example, links the energy of a pho- assembly of molecules; and the amount of ton of light to its frequency. stuff by determining the number of parti- To calibrate all the Kibble balances in cles (usually atoms or molecules) compos- the world, it is necessary to first measure ing it. For those with the expertise and the Planck constant using a known refer- cash, the apparatus for making such mea- ence mass, such as Le Grand K. Scientists surements is available. around the world have been doing that in a Those hoping, however, to effortlessly series of elaborate tests. These involve shed some weight before the festive season placing a mass in a pan suspended on a as a result of these changes will be disap- length of wire within what is known as an pointed. As the determinations of the ambient magnetic field. When an appro- Planck constant used the prototype kilo- priate current is run through a coil of wire gram, there will be no difference between attached to the pan, it generates another the new and old kilo. 7 Picking up the pieces 80 Science & technology The Economist November 17th 2018

2 Addressing the hearing from Geneva, According to Dr Allen, who also gave ev- Benjamin Schachter, who acts for the Of- idence in a case earlier this year in which fice of the UN High Commissioner for Hu- seven Californian cities and counties sued man Rights on such matters, said that the big oil and gas firms for damage resulting impacts of climate change “directly and in- from rising sea levels, one issue is whether directly threaten the full and effective en- the companies could have taken another joyment of a range of human rights, in- course of action. In other words, did they cluding the rights to life, water and know the damage that their activities were sanitation, food, health, housing, self-de- causing and, given the need for energy to termination and development.” Certain run modern societies, what options were studies support this. Felix Pretis of the Uni- available at the time to mitigate emissions? versity of Oxford has shown that even 1.5°C Both questions are hotly contested. Last of warming (relative to pre-industrial year, for example, Geoffrey Supran and Na- times) will reduce economic growth in omi Oreskes of Harvard University pub- some regions, and that the tropics will feel lished a study of documents from Exxon this impact more than other parts of the and Mobil, which merged in 1999 to form world. Some studies predict that a rise in ExxonMobil. Their review concluded that the number of heat-related deaths in many more than 80% of peer-reviewed studies parts of the world, South-East Asia among written by the firm’s own researchers ac- them, will outweigh any reduction in the knowledged that climate change was hap- number of cold-related deaths. pening. ExxonMobil described the study, which accused the company of misleading Storm force the public about climate science, as “inac- And then there are the impacts of extreme curate and preposterous”. weather events, which have the potential As for whether companies could have Botany to kill thousands. Myles Allen, a climate taken action to avoid their emissions at a modeller at the University of Oxford, who time when oil, coal and natural gas were Of all the tea in has led research into whether specific the primary sources of energy, Dr Allen es- weather events can be attributed to broader timates that had emissions ceased entirely China climate trends and who testified at the in the 1980s, roughly 40% of the warming hearings, cited a 2015 study led by Izuru Ta- being seen today relative to pre-industrial kayabu of Japan’s Meteorological Research times could have been averted. That pre- A naturally caffeine-free tea plant is Institute. This used climate models to sim- supposes that alternative sources of energy discovered ulate supertyphoon Haiyan with and with- were available. They were not. out human greenhouse-gas emissions. The Some, including Dr Allen, have argued he world loves a cuppa. Even though it former accurately reproduced the actual that fossil-fuel companies could have cap- Ttakes just a few grams for a brew-up, events, in terms of the weather patterns, tured CO2 and stored it before it reached the some 3m tonnes of tea are consumed every wind speeds and storm surge. By compari- atmosphere. The processes for stripping year. And tea can be good for you, as it con- son, in 15 out of 16 simulations without in- CO2 from a mixture of gases and then tains compounds that help to lower choles- dustrial emissions, the storm was weaker. pumping it underground were known terol and reduce the risk of cardiovascular The study suggests human emissions about well before the 1980s. Some compa- disease. But there is a downside. Tea con- are likely to have increased wind speeds, nies used them to enhance oil recovery. But tains caffeine which, although it improves which resulted in a storm surge that was it was not until the 1990s that the first car- mental alertness, can also cause anxiety, 20% higher than it might have been in the bon capture and storage (ccs) project for insomnia and other problems. absence of climate change. It was this the explicit use of avoiding CO2 emissions Sipping decaffeinated tea can help, but storm surge that proved particularly devas- took off. That was in the North Sea, in re- there are drawbacks to this, too. Stripping tating. “It’s not true that but for human in- sponse to a Norwegian carbon tax. “In my away caffeine from tea involves either im- fluence this event could never have hap- opinion, oil companies could have had car- mersing the leaves in carbon dioxide at ex- pened,” Dr Allen told the hearings. “But bon capture and storage operating in the tremely high pressure or treating the leaves through this study you can see that human 1980s, easily,” says Stuart Hazeldine of the with searing hot water. Although this will influence has exacerbated [the events].” University of Edinburgh, who leads a re- get rid of most of the caffeine, it can cause Conclusions such as these are relatively search initiative on ccs. But that is not collateral damage to some of the fragile familiar. Where the hearings become more quite the same question as whether the compounds that give tea its benefits. And, unusual is in investigating the link be- companies should have done so, given as with decaf coffee, which is treated in tween the damage caused by climate their responsibilities to their investors and similar ways, many people argue that it change and the behaviour of large industri- the absence of regulatory pressure. also spoils the flavour. al companies. This is predicated on recent The Philippine hearings will come to a What would be agreeable is a tea plant efforts to trace greenhouse-gas emissions close in December in Manila. The commis- that provides all the taste and goodness but back to large corporate and state-owned sion does not have the power to compen- with little or none of the caffeine. Liang producers of fossil fuels and cement, sate victims of typhoons or to sanction Chen and Ji-Qiang Jin of the Tea Research dubbed the “carbon majors”. The latest emitters of carbon dioxide. According to Institute of the Chinese Academy of Agri- analysis by CDP (formerly the Carbon Dis- Roberto Cadiz, one of the commissioners, cultural Sciences think they have found closure Project), a non-governmental orga- that isn’t even the point. His wish is to open just such a plant growing wild in a remote nisation that works with companies, cities a dialogue about possible solutions to cli- area in Fujian province, southern China. As and states to measure their environmental mate change that includes the industrial they report in the Journal of Agricultural and impact, published in 2017, found that 100 of emitters. So far, however, only one side of Food Chemistry, not only is the tea plant them had produced just over half of emis- the story is being heard. The emitters have naturally caffeine-free but it also contains sions since the Industrial Revolution. declined to participate. 7 a number of unique medicinal compounds 1 The Economist November 17th 2018 Science & technology 81

2 that, the locals believe, offer considerable Horology stitute for materials science. health benefits. Instead of the traditional method of This is not the first such find. In 2011 a Wind-up finely transforming a metal wire into a thin tea plant discovered in neighbouring spring, the process can produce new types Guangdong province was found to contain merchants of spring that open up novel design pos- little or no caffeine. That plant, known as sibilities for watchmakers. The Empa team Camellia ptilophylla, contains compounds use a form of electroplating to “grow” that look promising for the treatment of mainsprings and hairsprings. The process obesity, although research is still continu- begins with a wafer of silicon, similar to The Swiss reinvent the watch spring ing. That discovery spurred Chinese bota- those used to make computer chips. The nists to look for others that might be hiding igital electronics has transformed wafer is coated with an electrically conduc- in the rugged vastness of the country, and Dmany consumer-goods industries, but tive layer of gold, on top of which is added a the latest find is one result. analogue niches survive and even thrive. layer of light-sensitive paint. Light is then Known locally as Hongyacha, the newly Vinyl records have staged a comeback, projected onto the surface; a mask keeps discovered plant grows only between 700 sales of printed books have been growing only the required shape of the coiled spring and 1,000 metres above sea level around a faster than e-books in some markets, and in the shade. The illuminated area reacts handful of Chinese alpine villages. Al- cameras that use old-fashioned film have with the paint, causing it and the gold be- though Hongyacha has never been formal- seen a bit of a revival. The Swiss are also neath to be etched away with chemicals. ly studied in a laboratory, people in the re- still happily making mechanical watches, The shape of the spring is left behind, out- gion have been experimenting with its particularly the high-end sort, and last year lined in gold. The wafer is then placed into properties for generations and claim it pro- exported more than 7m of them worth a bath containing dissolved metallic com- vides medical benefits ranging from curing some SFr15bn ($15bn). pounds and an electric current is applied, colds and lowering fevers to soothing Whereas an electronic watch uses a bat- causing metal to be deposited onto the gold stomach pains. tery as its power source and a quartz oscil- outline to build up the spring. Dr Chen and his colleagues confirmed lator to measure time, a mechanical watch A few other processes are required to that Hongyacha does indeed lack caffeine. relies on a set of gears and springs. A coiled check, clean and finish the springs before Using a variety of procedures, including mainspring stores the energy needed to they are sent off to the watchmaker for test- liquid chromatography and mass spec- turn the gears, and the movement is regu- ing in prototype timepieces. The lab is also trometry, they found it also contains an in- lated by an oscillating balance wheel con- working on variations in the process, in- triguing array of other compounds in its trolled by a tiny hairspring. Mainsprings cluding a form of 3d printing, to manufac- buds and leaves. Of particular interest was and hairsprings have to be made of special ture springs in different shapes and to pro- a compound in the plant’s leaves that is alloys that retain their physical character- duce other minute structures which might known to hamper the growth of tumours as istics as much as possible in different tem- be used in mechanical watches. they attempt to improve their access to nu- peratures, so that the watch maintains its There is some way still to go in refining trients by growing new blood vessels. accuracy wherever its wearer ventures. the process, says Laetitia Philippe, one of Upon closer inspection of Hongyacha’s Most mechanical Swiss watches use the Empa researchers. The materials which genetics, the researchers discovered that springs made from an iron-nickel alloy can be used should provide watch springs the absence of caffeine was the result of a called Nivarox, produced by a company of with good temperature stability, she adds. mutation in the gene that codes for the pro- the same name that is part of the Swatch Moreover, the springs could be made duction of an enzyme known as caffeine Group. But the dominance of Nivarox may lighter and, as they are built up layer by lay- synthase. Somewhat surprisingly, this mu- about to be unwound. A different sort of er, have specific features incorporated into tation is different from the one found in C. spring has started undergoing tests with an their structure for different types of watch ptilophylla and suggests that the two plants unnamed Swiss watchmaker. This new mechanisms. Dr Philippe believes the made their evolutionary journey towards spring is the result of a process developed springs could also be used in other devices, losing caffeine independently. by researchers at the Laboratory for Me- such as electronic and mechanical sensors. Precisely why caffeine—which, being chanics of Materials and Nanostructures, All of which suggests the analogue world lethal to many insects, functions as a pesti- part of Empa, the Swiss federal research in- still has plenty of time on its side. 7 cide in some plants—was selected against by evolution remains an open question. It is possible that the metabolic cost of producing caffeine was high and that other compounds that were easier for the plant to make were as effective. It is also possible that threats from insects were reduced at some point in the history of these two plants, and that led to the selection of individuals that lacked the insecticide. The researchers are now exploring methods to protect Hongyacha in its natural habitat while further studies are carried out. It can take time—and sometimes it does not work—for new plant varieties to be bred for commercial use. A pair of naturally caffeine-free coffee plants were discovered in 2003, but little progress has been reported. Tea enthusiasts will be watching Hongyacha with interest. And others will wonder what else is out there. 7 The mechanical side of time 82 Books & arts The Economist November 17th 2018

Also in this section 83 Michelle Obama’s memoir 84 A rediscovered author 84 Andy Warhol’s prophetic art 85 Johnson: Translating in a crisis

History wars its port on the Adriatic and the industry of Bohemia; the Allies denied their wish to The story of a horse join a “greater Germany”. These problems of national identity were compounded by severe economic difficulties, and were ultimately followed by the Anschluss of 1938, in which Austria’s own authoritarian government was over- VIENNA run by Nazi Germany, to the jubilation of A new history museum strives to capture Austria’s ambivalence about its past millions of its people. Despite the horrors odern austria turned 100 on No- it took 20 years for the idea of a national that this greater Germany then inflicted on Mvember 12th and, as a present, gave it- history museum to come to fruition. (This its neighbours and the world, the Allies in self a history museum. Its first exhibition was just the most recent incarnation of the 1943 declared Austria the “first free country includes a towering wooden horse that scheme: the first push for a museum began to fall victim” to the Nazis. Their hope was sports the brown cap of Hitler’s Sturmab- in 1946.) Austria’s Social Democrats se- to stoke resistance to Hitler, but the revi- teilung (sa). The Waldheim-Pferd, or Wald- cured the founding of the institution in sionism also led to what the post-war Aus- heim Horse, was first seen at demonstra- 2016, while in coalition with the centre- trian left called the “victim myth”. tions in 1986, when Kurt Waldheim ran for right People’s Party. The latter, now in gov- “Austria successfully defended this ‘vic- the country’s presidency, playing down his ernment with the far-right Freedom Party, timhood narrative’ when dealing with the role in the Wehrmacht during the second honoured this commitment, albeit on a Allies after 1945,” says Anton Pelinka, a po- world war and claiming he had never temporary basis. State funding is guaran- litical scientist. Victim status enabled the joined any Nazi organisation. His oppo- teed only until the end of next year (though country to differentiate itself from Ger- nents joked that only his horse had been a Austria’s parliament has suggested that it many—but it also made it easier for gov- member of the sa. may stump up some cash beyond that). ernments to allow former Nazis to take part Waldheim won the election, but Austria In a sense, then, the House of Austrian in the new democracy. “That was the foun- was changed for ever. “It was the end of the History is its own best exhibit, and the dation of revelations like those about era in which Austria only saw itself as a vic- most fitting 100th-birthday present the Waldheim years later,” says Mr Pelinka. tim of Hitler’s aggression,” says Georg Hoff- country could receive: a project almost as All Austrians were victims; all Austrians mann, a curator at the House of Austrian vexed as the story it tells, and as precarious were Nazis: these competing simplifica- History, the new museum, which occupies as the statehood it commemorates has tions are at the root of Austria’s ambiva- a set of rooms in Vienna’s imperial Hofburg sometimes been. lence about its past. The museum acknowl- palace. “It was the first time Austria openly edges that tension frankly. What, for debated its co-responsibility for Nazi The myth of victimhood instance, to call the authoritarian era of En- crimes.” Wehrmacht records are on display Like several other European countries, the gelbert Dollfuss and Kurt Schuschnigg near the horse, which show that Waldheim Austrian Republic was born as the first from 1933 to 1938? The country’s left for had indeed been a member of the same out- world war ended, formed from the rump of years referred to it as Austro-Fascism, the fit as his mount. the 600-year-old Habsburg empire that right as the Corporate State. The museum Austria may have changed in the Wald- Czechs, Hungarians, Poles and Slovenes displays these and other terms, and heim era, but not every Austrian changed had not claimed for their own nation- plumps for the “Dollfuss-Schuschnigg Dic- with it. Views on the country’s past re- states. Most Austrians saw Austria as an ab- tatorship”, at least for now. mained divided, which helps explain why erration, cut off from its wheat in the east, “We see ourselves as a forum for de-1 The Economist November 17th 2018 Books & arts 83

2 bate,” says Monika Sommer, the director. provision for the war-wounded, adumbra- the curtains around their lives in a way she “We are quite comfortable with showing ting modern Austria’s munificent welfare could not while Mr Obama was in office. that there isn’t always one view on history.” state. Parts of the constitution of 1920 were She describes the pain of a miscarriage and She hopes that exhibits like the Waldheim- incorporated into the current version. the benefits of couples counselling, guided Pferd will prove to be “friction points” that A recent preview at the museum was at- by a therapist who “separat[ed] out our galvanise discussion. There are bound to tended by members of Vienna’s Jewish weapons from our wounds”. Besides her be controversies, she acknowledges. The community. One of them, Awi Blumenfeld, lovely turn of phrase, she is a gifted and museum’s aim is to provide a stage on a teacher whose parents survived Ausch- empathetic observer. The portrait of Fraser which to air them, perhaps even to forge a witz, enjoyed the Waldheim-Pferd, which Robinson, her loving and stoical father, new consensus. he saw as a symbol of Austria’s divisions, who died long before she became First Lady As the House of Austrian History docu- and a reminder that lies are unsustainable. and retained his gentle good humour as his ments, the distortions go all the way back (The liberal political group that owns the body failed, is particularly moving. to the beginning. The museum shows how horse has the right to reclaim it if it dis- She is unsparing, though, about the cur- “the state nobody wanted”, as Hellmut An- agrees with the curators’ approach.) Mr rent occupant of the White House, who dics, a well-known writer, described the re- Blumenfeld was sure the museum will se- surfaced in politics at the end of Mr public of 1918, deserved more esteem and, cure long-term funding. After all, even the Obama’s first term “to offer yammering, in- after the disgrace of Nazism and Austria’s present right-wing government “under- expert critiques of Barack’s foreign-policy post-war recovery, eventually got it. Some stands that we need a national narrative decisions and openly questioning whether of the republic’s first laws made generous that goes beyond Mozart.” 7 he was an American citizen.” She worried that Donald Trump’s stirring of xenopho- bic bigotry put her family at risk, “and for The life of a First Lady this, I’d never forgive him.” She attended his inauguration but, as pictures of that They go low day show, “I stopped even trying to smile.” Above all, the book brings home how fundamentally opposed her and her husband’s vision of America is to Mr Trump’s. His is angrily revanchist, intent on stoking A window into a recent era that nevertheless feels remote fear and exploiting division. He is a dema- eing a first Lady, writes Michelle gogically gifted campaigner but appears to BObama in her candid, engaging mem- Becoming. By Michelle Obama. Crown have little interest in governing or policy. oir, is “not technically a job, nor is it an offi- Publishing Group; 448 pages; $32.50. Mrs Obama, by contrast, is a wary cam- cial government title. It comes with no sal- Viking; £25 paigner, easily stung by the wilful distor- ary and no spelled-out set of obligations.” tions of the right-wing press, who called Many of the women who held that title be- career. The future president initially failed her “Obama’s Baby Mama” and mistook her fore her had already been conditioned to to impress her, arriving late for his first day serious expression for anger. the odd role of political spouse. But her at the law firm where she was his mentor, Yet she found her voice during the cam- husband had been a senator for just four then lighting a cigarette after their first paign of 2008, among rural Iowans “who years before he won the presidency in lunch together. Others at the firm despite the difference in skin colour re- 2008. And there had never been a First Lady swooned, but, she writes wryly, “in my ex- minded me of my family”—blue-collar who looked like Mrs Obama. perience, you put a suit on any half-intelli- strivers who wanted better lives for their “Not for one second”,she writes, reflect- gent black man and white people tended to children. They may since have voted for Mr ing on the interlude between Barack go bonkers.” But he was charming, and Trump, but Mrs Obama’s memoir is a re- Obama’s victory and inauguration, “did I “oddly free from doubt”; in a sure sign of minder that Democrats can and should try think I’d be sliding into some glamorous, compatibility, both loathed “Les Miséra- to win such voters back. “Let’s invite one easy role. Nobody who has the words ‘first’ bles” enough to leave early. another in,” she writes. “There’s grace in and ‘black’ attached to them ever would.” In “Becoming”, Mrs Obama pulls back being willing to know and hear others.” 7 Yet she performed her duties with dignity and compassion. To read her reflections is to recall and hope for a better America. Mrs Obama is a product of the South Side of Chicago. Her father worked for the city, tending boilers at a water-filtration plant; her mother stayed at home while Mrs Obama and her brother were young. Her family was stable and rooted; by contrast, her husband barely knew his father and was brought up in Hawaii by his white Kansan grandparents while his mother was in Indonesia. She is frank about the impact of that difference on their relationship; the way it first threatened to destabilise, but has ultimately enriched, their marriage and family. She depicts the hard task of being an intelligent, ambitious, private woman married to an intelligent man, whose own ambition leads him to the world’s most public Girl from the South Side 84 Books & arts The Economist November 17th 2018

Rediscovered fiction emotional world is volatile. Her first husband leaves her when she is pregnant with Where the heart is their second child. Her third marriage pro- ceeds “with him on and off heroin, with us all in and out of happiness”.She writes can- didly about what she enjoyed and endured; when her narrative peters out in mid-sentence, she leaves her reader wanting more. The other new book, “Evening in Para- Welcome Home. By Lucia Berlin. Edited by dise”,is a batch of 22 fresh stories, in which Jef Berlin. Farrar, Straus and Giroux; 176 Berlin once again makes original art from pages; $25. Picador; £16.99 her chequered life. The longest and most Evening in Paradise. By Lucia Berlin. Farrar, disturbing, “Andado: A Gothic Romance”, Straus and Giroux; 256 pages; $26. Picador; focuses on an American girl in Chile and £14.99 her rough sexual awakening. In “Itinerary”, n 2015, 11 years after her death, Lucia Ber- a young woman leaves Chile for college in Ilin was rediscovered. The posthumous New Mexico; during stopovers in Peru, publication of “A Manual for Cleaning Panama and Miami, she learns new truths Women”, a collection of finely crafted short about her father. Elsewhere Berlin taps into stories about everyday trials, won wide- a childhood spell in El Paso and revisits spread acclaim for a writer who had been past addresses and upheavals. Several sto- largely overlooked during her lifetime. ries draw on dark material: “La Barca de la That life was eventful. Born in Alaska in Ilusión” alludes to her husband’s drug ad- 1936, she spent her early childhood in a suc- diction, “Rainy Day” to her boozing. “I cession of mining camps and towns in Ida- drink”, the narrator soberly explains, “just From 15 minutes to eternity ho, Kentucky and Montana, and her teen- to shut off the words.” age years in Chile. This nomadic lifestyle When the words flowed, Berlin man- well as the underside of the American suc- continued into adulthood. She studied in aged to perform small miracles with them. cess story (race riots and violent death). He Albuquerque, moved to New York, and in Whether describing lucky breaks or hard never judged or editorialised, churning out 1960 eloped to Mexico. She wrote fitfully knocks, her prose is intense and intimate, the good and the bad, glitz and grunge, with throughout the following decades in Cali- at once disconcerting and entrancing. the market’s undiscriminating alacrity. fornia and Colorado while juggling a series These two books should ensure that she is In this way he became the foremost of jobs, bringing up four sons, battling al- back for good. 7 chronicler of a revolution in conscious- coholism and contending with disability. ness enacted as a world dominated by In the tales that appeared in a range of things morphed into one glutted by im- publications she mined the rich seam of Art and consumerism ages. He was famously obsessed with fame, her biography, drawing on her travels and yet one of his insights was that in an econ- struggles, her friendships and romances. Living the dream omy propelled by Madison Avenue hype Her fiction plays out in the many places she and Hollywood, fame was priceless but called home (18 in total); it features female also value-free and fleeting. protagonists who make the same choices In a marketplace of images, visibility and mistakes as she did, and do the same was the only thing that mattered: the im- kinds of jobs (high-school teacher, emer- perative was to have your face splashed on gency-room nurse, switchboard operator, NEW YORK a magazine cover, to be a presence on the The prophetic art of Andy Warhol cleaner). Berlin expertly balances beauty scene, to be available like a product on the and bleakness, and finds drama, joy or rev- e died more than 30 years ago, but shelf, ready for sale and easy to acquire. elation in humdrum experiences. HAndy Warhol has never seemed more Though Warhol’s vision can seem dysto- Two new works will help sustain the re- relevant. That is the persuasive case made pian, it also implies a kind of perverse de- vival. The first, “Welcome Home”, is a by a new retrospective of his work at the mocracy, since everything (and everyone) short, unfinished memoir of her first 29 Whitney Museum of American Art. When is interchangeable. Reduced to mere com- years. Augmented with photographs and the line between celebrity and genuine modities, Chairman Mao and Mick Jagger letters, the book provides both an illumi- achievement has been nearly obliterated, trade on the same exchange, and the Mona nating portrait of the artist and an insight when hosting a reality television show can Lisa is just another corporate logo. All these into Berlin’s documentary fiction. Begin- serve as the launching pad for political of- faces feature in “Andy Warhol—From A to B ning with impressions of Alaska and cul- fice, and when status is measured in clicks, and Back Again” (which next year will minating with chronic misfortune in Mex- likes and followers, Warhol—a pale, oracu- transfer from the Whitney to the San Fran- ico, she evokes the people and places that lar ghost—looms as a spiritual father of cisco Museum of Modern Art and there- shaped her. She recalls episodes from her this media-saturated age. after to the Art Institute of Chicago). sunny youth, including the time she deco- Beginning in the early 1960s, he and his rated the walls of an old prospector’s cabin Pop Art colleagues rejected Abstract Ex- The age of schmaltz with magazine pages: “I believe this was pressionism—an introspective mode that One of the quirks of Warhol’s career is that my first lesson in literature, in the infinite probed the psychological depths of the in- the artist who invented the concept of “15 possibilities of creativity.” The levity ebbs dividual—in favour of art that portrayed minutes of fame” has had a staying power when her father goes off to war and, later, the experience of consumerism. Using the few of his peers can match. The longevity when she is diagnosed with scoliosis, a spi- photo-mechanical techniques of the mass rests on his studied neutrality, which has nal condition that would plague her until media, Warhol depicted commercial pro- allowed him to be appreciated by both her death at 68. ducts (Coca-Cola and Campbell’s soup) and Marxists and capitalists. To some, his iron- After a blissful account of first love, her pop-culture icons (Elvis and Marilyn), as ic detachment seems to render its own 1 The Economist November 17th 2018 Books & arts 85

2 damning verdict; but it is impossible to ist predecessors, he dismissed the search custom-made dream was liberating, offer- know for sure whether he is a satirist of for an “authentic” self as a fool’s errand. ing a chance for constant reinvention. He consumerism or a fan, a critic or a booster, From his perspective, people seemed to was attuned to the mass media’s ability to since he presented himself as a passive re- have no fixed centre; they were merely break down barriers and flatten hierar- ceiver of the ambient culture. He was the bundles of urges that changed in response chies: between high art and commerce, be- blankest of blank slates, forcing viewers to to the latest come-on, their appetites al- tween public and private. fill in the gaps based on their own biases—a ways primed but never sated. They were The processes he made visible have only process he made explicit when, in 1984, he defined by what they bought, the shows accelerated in the age of the internet, when began his Rorschach series, mimicking the they watched, the clothes they wore—all of lives are largely virtual and identity is con- ink blots of the renowned personality test. which were disposable. structed by browsing history and credit- Warhol took the American myth of the “You live in your own dream America,” card purchases and charted in complex al- self-made man to a logical extreme. Con- he said, “that you’ve custom-made from art gorithms. Dream or nightmare, this is a re- sumers, in his view, did not have stable and schmaltz and emotions.” As an openly ality Warhol saw before anyone else—and identities. Unlike his Abstract Expression- gay man in a conformist age, for Warhol the helped bring into being. 7 Johnson Lost without translation

Language problems bedevil the international response to crises itting on a muddy floor beneath a Rohingyas’ conservative Muslim culture, might be educated people who speak Starpaulin roof, Nabila, a 19-year-old women are not supposed to talk about sex only English and Hausa, one of the coun- Bangladeshi, fiddles with her shoelaces or their bodies at all. They employ euphe- try’s biggest languages. But Hausa may be as she listens to Tosmida, a Rohingya misms, using different words to describe of little use in Borno state, where the woman in her mid-30s. Both are crying. sex permissible by religion, or illegal sex insurgency of Boko Haram rages. If aid Nabila, a student-turned-interpreter, and sex out of wedlock. Most of these workers are lucky, they may find people says awkwardly: “She had it from all of terms are deliberately vague; they refer to who know Kanuri, a kind of lingua franca them in her secret place.” “shameful spaces” and “secret places”. For in Borno. But even that might not help in The struggle to tell the story of Tos- rape, they might use a word that means a state where 28 languages are spoken. mida’s gang-rape is not just an emotional forceful torture. This has legal conse- Higher-status people—often pow- but a linguistic one. Since some 700,000 quences. “I cannot imagine a Rohingya erful men—may know several languages Rohingyas escaped persecution in Myan- woman standing up in court and saying, ‘I and act as a bridge. But aid workers are mar and fled to Bangladesh over a year was raped’,” says Mr Rahim. Interpreters typically trying to reach the most vulner- ago, many Bangladeshis like Nabila have must be cautioned not to fill in gaps or able. Ms Kemp notes that in the last Ebola suddenly found themselves with new encourage their subjects to say particular outbreak in west Africa, women were jobs, as interpreters. Tosmida’s Rohingya things; that could weaken a prosecution. affected worst, because most interna- and Nabila’s Chittagonian are related but These problems are far from unique to tional advice on prevention came in not identical. Interpreters, quickly the Rohingyas. Ellie Kemp of twb adduces English and French, which they were less trained, must try their best to understand the situation in north-eastern Nigeria. For likely to speak. another language, and fill in the gaps left many of the women there, the word for Some of these problems are intrac- by cultural differences—including ta- “widow” is taboo. Instead they must be table. But some are not. Downloadable boos about what victims can say. asked: “Do you have a husband? Did you glossaries (say, between a national and a The biggest practical issues concern have one? Is he dead now?” regional language) can help an aid work- health, says A.K. Rahim, a linguistics Ms Kemp says crisis-responders often er with a smartphone render technical researcher working with Translators don’t know what language expertise they terms in a way locals will understand. In Without Borders (twb), a group that will need. They hire “local” workers, as- future, automated translation tools such helps humanitarian agencies. In Chitta- suming that is enough. In Nigeria, these as Google Translate might extend to gonian, health terms come from Bengali lesser-known languages. That will be and English; scientific knowledge and difficult: translation software must be vocabulary have trickled down from trained with a lot of parallel text that has educated elites. But among the relatively already been translated by humans. So few educated Rohingyas, health terms twb is giving some of its language data to come from Burmese. Most—especially companies such as Google and Microsoft women, who tend to be cut off from the for that purpose. outside world and denied education— Outsiders often think an alien lan- have not been touched by that learning. guage has “no word for” a concept that is Instead they have developed their own taken for granted in English. These pro- lexicon. They avoid haiz (menstruation) blems are better thought of as cultural and say gusol (shower). Diarrhoea, a rather than linguistic: the words exist, common camp ailment, was routinely but it is vital to have interpreters who misdiagnosed in the first few months. know which can be used and when. In a Many Rohingyas reported, “My body is crisis, aid agencies must work quickly; falling apart” (“Gaa-lamani biaram”), often they can spare their staff for only a baffling health-care workers. day or two’s language training. That is Sex is the trickiest minefield. In the time well spent. 86 Courses

Appointments Appointments 87

Executive Director, Institute for Quantum Computing (IQC)

www.uwaterloo.ca

The Institute for Quantum Computing (IQC) The Institute for Quantum Computing (IQC) seeks to appoint a new Executive Director. This is a unique opportunity to shape the global future of quantum information science and engineering. Quantum information is an established strategic priority of both the University of Waterloo and the government of Canada. The Executive Director of IQC plays a critical role in the leadership of the Institute by setting its overall strategic direction, cultivating key external relationships, and ensuring that it delivers against its mandate. The Executive Director of IQC reports to the Vice President, University Research.

IQC is a multidisciplinary research center at the University of Waterloo, dedicated to the development and advancement of quantum information science and technology. Established in 2002, it spans the Faculties of Mathematics, Science, and Engineering, and today has an annual budget of approximately $25 million and includes 30 faculty members and 40 postdoctoral fellows. IQC is exceptionally well outﬁ tted for advancing quantum science and as a welcoming meeting place for researchers. It has 58,000 square feet of laboratory space in three facilities, including purpose- built laboratories for nano-fabrication, metrology, and ultralow vibration experiments. IQC’s headquarters, the Lazaridis Quantum-Nano Centre, was designed to facilitate interactions and includes ample space for discussions and collaborative research. IQC offers a unique interdisciplinary graduate program in Quantum Information to approximately 150 students. It also runs outreach programs, including the USEQIP summer school for undergraduates and the Quantum Innovators workshop for aspiring faculty candidates.

IQC sits within the Quantum Valley ecosystem, with partners including the Perimeter Institute for Theoretical Physics and Quantum Valley Ideas Laboratory; more than 250 researchers work within 1km of IQC to advance the science, technology and commercial impact of quantum information. Investment in the Quantum Valley (governmental, industrial, philanthropic, and academic) now totals $1.8 billion CAD, including the recent $76 million CAD award by the Canada First Research Excellence Fund.

Attractive factors include stable funding, including an endowment of more than $100 million CAD, the potential for signiﬁ cant faculty hiring (growth to 39 faculty members), and the established, internationally recognized excellence of IQC’s comprehensive and multidisciplinary approach to quantum information. In addition, the Executive Director will have signiﬁ cant start-up funding to establish their research program.

Exceptional candidates The successful candidate will share the Institute’s core values for excellence in teaching and research; will have a bold strategic vision for the future of quantum information science and engineering; and will continue to build IQC through shared enthusiasm with faculty, staff, students, government, and industrial partners. The successful candidate will be able to recognize excellence broadly across the disciplines that comprise quantum information, and will lead the Institute’s academic program, maintain a vision for research, strengthen the Institute’s research infrastructure, and lead its hiring of exceptional new faculty. In addition, the successful candidate will promote collaborative efforts, support faculty led initiatives, and advance the Institute’s commitment to faculty, student, and staff member inclusion, openness of processes, and equitable hiring and research practices.

Candidates for the position of Executive Director of IQC are PhD- level senior scholars in quantum information with leadership practice and at least 10 years’ experience in an academic setting. They must be a leading authority in quantum information broadly, and have a demonstrated ability to maintain a research program of the highest calibre. IQC offers an internationally competitive salary.

The term of the appointment is ﬁ ve years, with the potential for one-time renewal. The successful candidate will hold a professorial appointment in an appropriate discipline within the Faculty of Mathematics, Science, or Engineering and will retain that position at the conclusion of their directorship. It is anticipated that the Executive Director will also be appointed to a position of Associate Faculty at the Perimeter Institute for Theoretical Physics.

Three reasons to apply: https://uwaterloo.ca/faculty-association/why-waterloo.

The review of applications will begin November 15, 2018 and will continue until the position is ﬁ lled.

The University of Waterloo regards diversity as an integral part of academic excellence and is committed to employment equity and accessibility for all employees. As such, we encourage applications from women, Indigenous (First Nations,Métis and Inuit) peoples, persons with disabilities, members of diverse gender identities, and others who may contribute to the further diversiﬁ cation of ideas. At Waterloo, you will have the opportunity to work across disciplines and collaborate with an international community of scholars and a diverse student body, situated in a rapidly growing community that has been termed a “hub of innovation”. All qualiﬁ ed candidates are encouraged to apply; however, Canadians and permanent residents will receive priority in the recruitment process.

To Apply: Please send a curriculum vitae and a statement of interest in the position, in conﬁ dence, to Dr. Charmaine Dean, Vice- President University Research, at [email protected]

If you have any questions regarding the position, the application process, assessment process, eligibility, or a request for accommodation during the hiring process, please contact Dr. Charmaine Dean, Vice-President University Research, at [email protected] 88 Economic & ﬁnancial indicators The Economist November 17th 2018

Economic data

Gross domestic product Consumer prices Unemployment Current-account Interest rates Currency units % change on year ago % change on year ago rate balance 10-yr gov't bonds change on per $ % change latest quarter* 2018† latest 2018† % % of GDP, 2018† latest,% year ago, bp Nov 14th on year ago United States 3.0 Q3 3.5 2.9 2.5 Oct 2.5 3.7 Oct -2.6 3.16 75.0 - China 6.5 Q3 6.6 6.6 2.5 Oct 2.1 3.8 Q3§ 0.5 3.24§§ -70.0 6.95 -4.5 Japan 0.3 Q3 -1.2 1.1 1.2 Sep 0.9 2.3 Sep 3.8 0.14 9.0 114 -0.4 Britain 1.5 Q3 2.5 1.3 2.4 Oct 2.4 4.1 Aug†† -3.4 1.44 5.0 0.77 -1.3 Canada 1.9 Q2 2.9 2.3 2.2 Sep 2.3 5.8 Oct -2.6 2.44 49.0 1.32 -3.0 Euro area 1.7 Q3 0.7 2.1 2.2 Oct 1.7 8.1 Sep 3.4 0.39 nil 0.88 -3.4 Austria 2.3 Q2 -4.0 2.9 2.0 Sep 2.1 4.9 Sep 2.2 0.57 -5.0 0.88 -3.4 Belgium 1.7 Q3 1.6 1.5 2.8 Oct 2.2 6.3 Sep -0.3 0.87 21.0 0.88 -3.4 France 1.5 Q3 1.7 1.7 2.2 Oct 2.1 9.3 Sep -0.9 0.77 -1.0 0.88 -3.4 Germany 1.2 Q3 -0.8 1.9 2.5 Oct 1.8 3.4 Sep‡ 7.9 0.39 nil 0.88 -3.4 Greece 1.8 Q2 0.9 2.0 1.8 Oct 0.8 18.9 Aug -1.3 4.51 -59.0 0.88 -3.4 Italy 0.8 Q3 0.1 1.1 1.6 Oct 1.4 10.1 Sep 2.4 3.47 165 0.88 -3.4 Netherlands 2.4 Q3 0.8 2.8 2.1 Oct 1.7 4.7 Sep 10.1 0.53 2.0 0.88 -3.4 Spain 2.5 Q3 2.4 2.7 2.3 Oct 1.8 14.9 Sep 1.1 1.59 6.0 0.88 -3.4 Czech Republic 2.7 Q2 1.6 3.0 2.2 Oct 2.3 2.2 Sep‡ 0.8 2.10 35.0 23.0 -5.3 Denmark 1.5 Q2 2.8 1.3 0.8 Oct 1.1 3.9 Sep 7.2 0.36 -12.0 6.60 -4.1 Norway 1.1 Q3 2.3 1.6 3.1 Oct 2.9 4.0 Aug‡‡ 8.5 1.99 35.0 8.50 -3.3 Poland 5.1 Q2 7.0 4.6 1.8 Oct 1.8 5.7 Sep§ -0.6 3.25 -20.0 3.80 -5.0 Russia 1.3 Q3 na 1.6 3.5 Oct 2.9 4.5 Sep§ 5.1 8.81 104 67.1 -10.3 Sweden 2.4 Q2 3.1 2.7 2.3 Oct 2.0 6.0 Sep§ 3.8 0.64 -19.0 9.09 -7.2 Switzerland 3.4 Q2 2.9 2.7 1.1 Oct 1.0 2.5 Oct 9.9 0.07 10.0 1.01 -2.0 Turkey 5.2 Q2 na 3.8 25.2 Oct 15.3 10.8 Jul§ -5.7 17.0 464 5.46 -28.6 Australia 3.4 Q2 3.5 3.2 1.9 Q3 2.1 5.0 Oct -2.6 2.70 4.0 1.39 -5.8 Hong Kong 3.5 Q2 -0.9 3.4 2.7 Sep 2.2 2.8 Sep‡‡ 3.7 2.37 61.0 7.83 -0.4 India 8.2 Q2 7.8 7.4 3.3 Oct 4.6 6.9 Oct -2.4 7.73 68.0 72.3 -9.5 Indonesia 5.2 Q3 na 5.2 3.2 Oct 3.4 5.3 Q3§ -2.6 8.08 147 14,787 -8.3 Malaysia 4.5 Q2 na 5.0 0.3 Sep 0.9 3.3 Sep§ 2.6 4.16 6.0 4.20 -0.2 Pakistan 5.4 2018** na 5.4 7.0 Oct 5.4 5.9 2015 -5.8 12.2††† 427 134 -21.3 Philippines 6.1 Q3 5.7 6.2 6.7 Oct 5.2 5.4 Q3§ -1.5 7.46 213 53.1 -3.6 Singapore 2.6 Q3 4.7 3.5 0.7 Sep 0.6 2.1 Q3 17.4 2.48 30.0 1.38 -1.5 South Korea 2.0 Q3 2.3 2.8 2.0 Oct 1.6 3.5 Oct§ 4.5 2.19 -42.0 1,134 -1.4 Taiwan 2.3 Q3 1.9 2.6 1.2 Oct 1.7 3.7 Sep 12.9 0.92 -11.0 30.9 -2.4 Thailand 4.6 Q2 4.1 4.1 1.2 Oct 1.2 1.0 Sep§ 8.1 2.59 20.0 33.0 0.3 Argentina -4.2 Q2 -15.2 -2.3 40.3 Sep 33.6 9.6 Q2§ -4.3 11.3 562 36.1 -51.6 Brazil 1.0 Q2 0.7 1.5 4.6 Oct 3.8 11.9 Sep§ -1.0 8.03 -127 3.79 -12.9 Chile 5.3 Q2 2.8 3.9 2.9 Oct 2.5 7.1 Sep§‡‡ -2.0 4.51 6.0 685 -7.7 Colombia 2.5 Q2 2.3 2.7 3.3 Oct 3.3 9.5 Sep§ -2.7 7.12 33.0 3,190 -5.3 Mexico 2.6 Q3 3.6 2.1 4.9 Oct 4.8 3.3 Sep -1.8 9.07 176 20.4 -5.8 Peru 5.4 Q2 12.5 4.1 1.8 Oct 1.4 6.1 Sep§ -1.8 5.82 83.0 3.38 -4.1 Egypt 5.4 Q2 na 5.3 17.7 Oct 17.0 9.9 Q2§ -2.0 na nil 17.9 -1.4 Israel 3.9 Q2 1.8 3.6 1.2 Sep 0.8 4.0 Sep 1.7 2.42 68.0 3.69 -4.1 Saudi Arabia -0.9 2017 na 1.5 2.1 Sep 2.6 6.0 Q2 8.0 na nil 3.75 nil South Africa 0.4 Q2 -0.7 0.7 4.9 Sep 4.8 27.5 Q3§ -3.5 9.17 -27.0 14.4 0.6 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

Markets Commodities % change on: % change on: The Economist Index one Dec 29th index one Dec 29th commodity-price index % change on Nov 14th week 2017 Nov 14th week 2017 2005=100 Nov 6th Nov 13th* month year United States DJIA 25,080.5 -4.2 1.5 Pakistan KSE 40,994.1 -1.3 1.3 Dollar Index United States NAScomp 7,136.4 -5.7 3.4 Singapore STI 3,043.2 -0.7 -10.6 All Items 138.7 131.4 -7.0 -10.9 China Shanghai Comp 2,632.2 -0.3 -20.4 South Korea KOSPI 2,068.1 -0.5 -16.2 Food 145.2 133.1 -9.4 -11.3 China Shenzhen Comp 1,378.4 2.8 -27.4 Taiwan TWI 9,791.9 -1.2 -8.0 Industrials Japan Nikkei 225 21,846.5 -1.1 -4.0 Thailand SET 1,652.3 -1.4 -5.8 All 132.0 129.6 -4.2 -10.5 Japan Topix 1,641.3 -0.7 -9.7 Argentina MERV 29,372.5 -6.5 -2.3 Non-food agriculturals 122.3 118.3 -5.7 -11.2 Britain FTSE 100 7,033.8 -1.2 -8.5 Brazil BVSP 85,973.0 -2.0 12.5 Metals 136.2 134.4 -3.6 -10.2 Canada S&P TSX 15,133.1 -1.5 -6.6 Mexico IPC 42,344.0 -9.7 -14.2 Sterling Index Euro area EURO STOXX 50 3,205.4 -1.3 -8.5 Egypt EGX 30 13,487.2 -0.9 -10.2 All items 192.9 183.9 -5.4 -10.1 France CAC 40 5,068.9 -1.3 -4.6 Israel TA-125 1,474.5 -0.9 8.1 Germany DAX* 11,412.5 -1.4 -11.7 Saudi Arabia Tadawul 7,659.9 -1.7 6.0 Euro Index Italy FTSE/MIB 19,077.5 -2.4 -12.7 South Africa JSE AS 51,999.5 -4.9 -12.6 All items 151.1 144.8 -4.5 -7.2 Netherlands AEX 527.1 -0.3 -3.2 World, dev'd MSCI 2,015.1 -3.3 -4.2 Gold Spain IBEX 35 9,106.6 -0.7 -9.3 Emerging markets MSCI 968.1 -3.0 -16.4 $ per oz 1,228.0 1,204.3 -1.9 -5.9 Poland WIG 56,865.2 -1.6 -10.8 West Texas Intermediate Russia RTS, $ terms 1,117.3 -4.0 -3.2 $ per barrel 62.2 55.7 -22.6 nil Switzerland SMI 8,931.2 -1.3 -4.8 US corporate bonds, spread over Treasuries Turkey BIST 93,287.1 -2.3 -19.1 Dec 29th Sources: CME Group; Cotlook; Darmenn & Curl; Datastream from Australia All Ord. 5,822.3 -2.7 -5.6 Basis points latest 2017 Reﬁnitiv; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional. Hong Kong Hang Seng 25,654.4 -1.9 -14.3 Investment grade 158 137 India BSE 35,142.0 -0.3 3.2 High-yield 432 404 Indonesia IDX 5,858.3 -1.4 -7.8 Sources: Datastream from Reﬁnitiv; Standard & Poor's Global Fixed For more countries and additional data, visit Malaysia KLSE 1,688.4 -1.5 -6.0 Income Research. *Total return index. Economist.com/indicators Graphic detail The Economist November 17th 2018 89

Wildﬁres → A warmer climate has made wildres in America more severe

Burning out Forest area burned v climate conditions 2 Western United States, 1984-2017 Area burned, ’000 km 12 ↑ Years with worse wildfires 2012 10 2017 Climate change makes fires worse, but 8 agricultural development limits them 2015 aradise, a small Californian town, Plooks like hell. Some 80-90% of its 2013 homes have been incinerated by the state’s 4 2014 deadliest-ever wildfire, which so far has 2016 killed 48 people and left over 200 missing 2 (see United States section). Measured by Warmer and drier years → area burned, nine of California’s ten worst 0 recorded fires have occurred since 2000. -1 0 1 2 President Donald Trump says that poor Temperature and dryness of forest forest management is the sole cause of the Standard deviations of “fuel-aridity” index, relative to 1981-2010 average blaze. Scientists beg to differ. John Abatzo- glou and Park Williams, two academics, have shown that temperature and dryness → But most of the world’s wildres happeninpoorerregions exacerbate wildfires in the western United States. Without global warming, they reck- Percentage of area burned on, only half as much woodland would Area burned*, % Annual average, 2001-17 have burned between 1984 and 2015. 0131030100 America is not the only rich country in danger. Since 2016 Portugal and Greece have suffered their most lethal wildfires in history, killing over 200 people. One study found that if global temperatures reach 3°C above pre-industrial levels, the area % of the world’s land burned burned in southern Europe would double. by wildfire is in Yet despite the attention paid to such North America disasters, their rising frequency in parts of the West is an exception to the global trend. Most wildfires occur in developing countries, where they are declining. According 67% of the world’s to Niels Andela of nasa, the world’s total land burned by wildfire is in Africa area on fire fell by 24% from 1998 to 2015. Two main reasons are agriculture and stronger property rights. Two-thirds of the world’s burned area is in Africa, a dry, hot continent where pastoralists have often used fire to clear land. Slash-and-burn → Despite global warming, changing land use is reducing re damage methods remain common in parts of Asia as well. The growth of modern farming is Global area burned helping to put blazes out: dividing land Area burned, Using moderate scenarios for climate change and population growth† million km2 into pastures and fields breaks up terrain 4.5 and makes it harder for infernos to spread. Simulations based on Settled people who have things to lose the efects of global 4.0 prefer fighting fires to starting them. warming alone This trend is so robust that fire is expected to keep fizzling out. Across various 3.5 scenarios of global warming and population growth, Wolfgang Knorr of Sweden’s The total area burned 3.0 Lund University finds that the fire-reduc- per year has fallen steadily. ing impact of changing land use generally Rural development has 2.5 outweighs the effect of rising temperature. made fires less pervasive in poor countries the efects of This will save lives. Wildfires cause global warming plus 2.0 330,000 premature deaths a year by spew- changing land use ing smoke, far more than by trapping victims. People moving onto fire-prone land put themselves at risk. But by keeping 1900 1950 2000 2050 2100 flames in check, they make the air more Sources: Louis Giglio, University of Maryland; Niels Andela, NASA; *In 28km2 blocks †Representative concentration breathable for everyone else. 7 Park Williams, Columbia University; Wolfgang Knorr, Lund University pathway 4.5 and shared socioeconomic pathway 2 90 Obituary Ruth Gates The Economist November 17th 2018

where she saw reefs she had once loved full of white ghosts, like a battlefield. Off the north shore of Jamaica, where she had done her doctoral work in 1985 on a reef with a sudden, sheer wall of massive and beautiful corals, developers killed it in two weeks. She could never go back to places that humans—“we”, she always said, not ex- empting herself—had so recklessly destroyed. Ardent voices were speaking up for the giant panda and the rainforest; not many spoke for corals. She strode right in. A third- degree black belt in karate and an explosive technique on a boxing punchbag made her pretty well-formed to fight. It was horrible, though, to state the facts. Over 90% of global warming in the past 50 years had occurred in the oceans. About half of the world’s reefs had been lost since 1990. By 2050 they could either all be gone, or damaged beyond recovery. And a quarter of marine species, the main food source for half a billion people, depended on them. She had a plan, however. She laid it out in 2013 in an essay that won a prize of $10,000 from the Paul G. Allen Foundation and then, with Madeleine van Oppen, a grant of $4m, after which she was made director of the institute, among the palms of Coconut Island. That was a joy: a campus big enough to deploy her battered golf- cart, and freedom to pick colleagues properly mixed by race, gender and sexuality, not tediously white male. (“You rock!” was her cry of encouragement to them.) Out in the bay, fortified with coffee and sometimes buzzed by turtles, she did her almost daily diving, feet-first off the boat when she was really eager. Back in her lab, in a “gym” (or possibly a spa) for corals, she put the strongest little beasties in vats and doused them with warming water. Her purpose was not to kill them but to create “super corals”, by giving them an experience of stress they might remember and prepare for. For corals had good memories. She had found, too, that their algae came in many varieties, some more helpful against stress than others, so she persuaded less choosy, “entrepreneurial” corals to host heat-tolerant algae, to see how they got on. Those that did best would be returned to the reef, and weaklings rejected. She also played matchmaker, collecting sperm and eggs from healthy individuals in their weirdly brief breeding season to produce in vitro offspring that might prove hardy sorts. Where corals lie This drew plenty of criticism. She was accused of tinkering with nature, speeding up evolution, narrowing diversity. Besides (said the critics), the money should be spent on slowing climate change. Though she was friendliness and niceness itself, still carrying her Englishness in her accent and in a tendency to go pink in the heat, she sharply rebutted those remarks. Tinkering with nature was nothing new; dogs had been selectively bred for the longest time. Ruth Gates, marine biologist, died on October 25th, aged 56 As for narrowing diversity, climate change was forcing the most rather large number of people thought that corals were obscene genetic-narrowing experiment that had ever been done. Arocks. And certainly, in Ruth Gates’s almost-bare office at the She was doing what she could to help nature resist. Ideally, she Hawaiian Institute of Marine Biology, where Kaneohe Bay filled would not have to. But this was a desperate situation. the window, the only object on her desk was a lovely ivory-pinkish What frustrated her most, as a scientist, was that fellow-scien- stone coral, branched like a tree. But it would have been much tists stayed in their own silos, producing lengthy papers to be peer- more beautiful alive, a colony of tiny polyps bustling and busy as a reviewed, arguing endlessly with each other, while corals were dy- three-dimensional city. It would have been much more stunning ing. She had the data. Everyone did. She told the public the story in when the algae lodged in every cell of every polyp were feeding blunt, simple words. And she had to act now, not wait for permis- them sugars built from sunlight and colouring them so crazily that sion. Her work might be only small-bore, not scalable; she accept- she could only gasp “Wow!”, and laugh, when she swam past them. ed that. But if some coral colonies survived, there was hope, and But then she also said “Wow! That’s gorgeous!” when she saw, un- she lived on that. What idiots they would be if, after all their talk- der the laser scanning confocal microscope, just one daring indi- ing, there was no coral left for anyone to see, and the underwater vidual flex its muscular mouth or shoot out its sting-tipped tenta- films of Jacques Cousteau which had so amazed her as a child, even cles to catch food from the water. Her single-minded mission was in black and white, turned out to be a record of a lost world. to keep these beauties going. Co-operation was the key. She wanted scientists and others in It was hard work. It got all the harder as the oceans warmed and every field to say, “I have this piece of special knowledge; how can I acidified and the corals, stressed and angry (for they had feelings), help?” For planet Earth was like a jigsaw puzzle in which corals and spat out their algae and began to bleach and die. In 1998, 2010, 2015 giant pandas, savannah and rain forest, were all pieces that must and 2016, increasingly close together, mass bleachings occurred all fit together. If one piece was lost, what would be the consequences round the world. She was the first to show that it happened more in for the others? What would happen to human beings? She did not warmer waters. Diving in Kaneohe Bay, where most healthy corals know. But the corals, which in easier times lived in such happy were an elegant dark brown, she found a muddy olive mess. Else- symbiosis with the algae inside them—maybe the corals knew. 7 The new Economist app.

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