The World Economy's Surprising Rise

Is the pope Catholic?

Why Modi’s win matters

The remaking of Microsoft

A message from outer space MARCH 18TH–24TH 2017 On the up The world economy’s surprising rise Contents The Economist March 18th 2017 3

6 The world this week United States 29 Welfare Leaders American exceptionalism 9 The world economy 30 Counter-terrorism On the rise Loosening the rules 10 Modi triumphs 31 Prison labour Uttar hegemony A $1bn industry 10 Dutch elections 32 Chuck’s gun shop Domino theory Anything you want 11 Brexit and Scotland 32 Missing servicemen Scoxit Scots should read Leave one union, lose Raiders of the lost barks Brexit as an argument for another 34 Lexington remaining in Britain, not 12 Aid to fragile states Health care: a presidential deal breaker leaving it: leader, page 11. On the cover The Central African Scotland’s first minister A synchronised upturn in the conundrum demands a new referendum, world economy is under way. The Americas page 57 Thank stimulus, not the Letters 35 Mexico populists: leader, page 9. 14 On Brexit, the news, The rise of a populist What lies behind the Chile, Singapore, 36 Bello improvement, pages 18-20. diamonds Mauricio Macri’s gradualism As Janet Yellen’s Fed raises rates, political uncertainty 38 Guatemala hangs over the central bank, Briefing Deaths foretold page 69 18 The world economy From deprivation to Middle East and Africa daffodils 39 Central African Republic The Economist online Another CAR crash Daily analysis and opinion to Asia 40 South Sudan supplement the print edition, plus Death spiral Dutch elections Geert audio and video, and a daily chart 21 South Korea Economist.com Park impeached 40 Libya’s war Wilders’s poor showing does Coastal retreats not necessarily mean that E-mail: newsletters and 22 Gambling in Australia 41 South Africa and Russia Marine Le Pen will lose: leader, mobile edition The biggest losers Say my name page 10. The Netherlands Economist.com/email 23 Indian state elections breathes a sigh of relief. Now 42 Saudi Arabia Print edition: available online by A lotus in full flower comes the hard part, page 51. Farewell, my guardian 7pm London time each Thursday 24 Property rights in India Identity politics is not the Economist.com/print An obsession with preserve of the far right, as Audio edition: available online expropriation Europe the Dutch election shows: to download each Friday 24 Post-war Sri Lanka 51 Dutch elections Charlemagne, page 56 Economist.com/audioedition Still riven The centre holds 25 Sri Lanka’s disappeared 52 The EU-Turkey deal No closure Out of sight 26 Banyan 53 Poland and Brussels A war on street food Pyromaniac politics

Volume 422 Number 9032 54 Ireland’s lame duck China Jaded isle Published since September 1843 to take part in "a severe contest between 27 China and South Korea 56 Charlemagne intelligence, which presses forward, and Nationalism unleashed A new identity politics an unworthy, timid ignorance obstructing our progress." 28 Legal reform Editorial oﬃces in London and also: Striving for a civil code Britain Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, 28 Football 57 Scottish independence Helping fragile states New Delhi, New York, Paris, San Francisco, New rules, new dodges Sturgeon the brave Providing foreign aid to São Paulo, Seoul, Shanghai, Singapore, Tokyo, chaotic countries is both Washington DC 58 Article 50 Scotched necessary and hazardous. It can be done better: leader, page 12. The World Bank used to shun war zones. Now it is trying to help before the shooting stops, page 39

1 Contents continues overleaf 4 Contents The Economist March 18th 2017

International Science and technology 59 The pope’s travails 79 Yellow fever in Brazil Is he Catholic? Monkey business 60 The Vatican bank 80 Optics Man of God v Mammon The bug-eyed view 81 Astronomy Business Flashes of inspiration 61 Microsoft 82 Subterranean maps Head in the cloud DNA goes underground 62 Intel buys Mobileye 82 Animal behaviour Microsoft under Nadella The Aliens A batch of strange The road ahead Spider bites world’s biggest software firm signals from the sky might, has overhauled its culture. But 63 Disneyland Paris just possibly, be evidence of getting cloud computing right Taking the Mickey? Books and arts extra-terrestrial life, page 81 is hard, page 61 64 Elon Musk and batteries 83 Elizabeth Bishop Megawatts and tweets The art of losing Subscription service 66 The pharma business 84 Hit makers For our full range of subscription offers, A better pill from China Recipes for success including digital only or print and digital combined visit 66 The cannabis industry 84 Mohsin Hamid’s fiction Economist.com/offers Weed killer? Black door You can subscribe or renew your subscription by mail, telephone or fax at the details below: 67 The Olympics 85 The creative spark Telephone: +65 6534 5166 Gamesmanship Inside your head Facsimile: +65 6534 5066 Web: Economist.com/offers 68 Schumpeter 85 Syrian music E-mail: [email protected] Citigroup’s agonies High notes Post: The Economist 86 Johnson Subscription Centre, Tanjong Pagar Post Office Finance and economics Subversive facts PO Box 671 Singapore 910817 69 The Federal Reserve The pope Francis is facing Subscription for 1 year (51 issues)Print only down opposition from Up, up and away 88 Economic and financial Australia A$465 indicators China CNY 2,300 traditionalists and Vatican 70 The Fed and banks Hong Kong & Macau HK$2,300 bureaucrats. But on clerical The public’s interest Statistics on 42 economies, India 10,000 plus a closer look at Japan Yen 44,300 sex-abuse, he seems weak, 72 African wealth funds Korea KRW 375,000 page 59 employment Malaysia RM 780 Buried treasure New Zealand NZ$530 Singapore & Brunei S$425 72 Trade deals Taiwan NT$9,000 KORUS of disapproval Obituary Thailand US$300 Other countries Contact us as above 74 Buttonwood 90 Gustav Metzger Building a beta mousetrap Art as weapon 75 Oil prices Principal commercial offices: Full tank 25 St James’s Street, London sw1a 1hg Tel: +44 20 7830 7000 75 Iceland’s capital controls Rue de l’Athénée 32 Hope springs eternal 1206 Geneva, Switzerland 76 Free exchange Tel: +4122 566 2470 In praise of immigration 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 1301Cityplaza Four, Citigroup A decade of agony 12 Taikoo Wan Road, Taikoo Shing, Hong Kong is almost over. But the bank Tel: +852 2585 3888 needs a bolder plan for what Other commercial offices: happens next: Schumpeter, Chicago, Dubai, Frankfurt, Los Angeles, page 68 Paris, San Francisco and Singapore

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News reports say the list in- ing five-months ofdeadlock firmed that the two countries Politics cludes at least five ministers in since an election that was won were discussing a possible the federal government. by the Islamist Party for Justice meeting between presidents Xi and Development (PJD) but Jinping and Donald Trump. Colombia’s production of with no majority ofseats. coca, the raw material for cocaine, has reached record If at first you don’t succeed levels, according to a report by A federal judge in Hawaii the White House. The increase overturned the Trump admin- is in part a consequence of a istration’s revised travel ban peace agreement between on citizens from six mainly Colombia’s government and Muslim countries. The sticking the FARC guerrilla group. point again was that any “rea- Farmers who grow the crop are sonable” person would in- to receive incentives to stop. terpret the ban as being based on religion. The government A general election in the Neth- Pirates ahoy! may turn afresh to the appeals erlands saw MarkRutte re- Hijackers seized an oil tanker court to get its ban reinstated. The Bharatiya Janata Party of turned to office as prime min- offthe coast ofSomalia. An prime minister Narendra Modi ister. His centre-right party earlier spate ofsnatching ships The Congressional Budget routed the opposition in an handily defeated an insurgent ended in 2012 after the world’s Office provided its assessment election in the most populous campaign from the anti-im- big naval powers deployed ofa Republican bill to replace state in India, Uttar Pradesh, migration party led by Geert regular patrols to the waters Obamacare, which it said winning 312 ofthe state assem- Wilders. Mr Rutte said the around the Horn ofAfrica. would increase the number of bly’s 403 seats. Dutch had rejected the “bad those without health insur- sort ofpopulism”. A few days ance by 24m and reduce the Time Lords before the election the Dutch deficit by $337bn. House Re- In Britain, Theresa May’s government barred Turkey’s publicans say their plan will government succeeded in foreign minister from speaking reduce costs and premiums for passing legislation to trigger at a rally ofTurkish expats in the vast majority ofpeople. the formal process to start talks Rotterdam that was being held on leaving the EU. Two amend- in support ofthe Turkish presi- Park and regulations ments added by the House of dent, Recep Tayyip Erdogan. In South Korea’s constitutional Lords, where record numbers the ensuing diplomatic row, court confirmed the National ofmembers turned out to vote, Mr Erdogan accused the Dutch Assembly’s impeachment threatened Mrs May’s time- ofacting like “Nazi remnants”. motion, removing ParkGeun- table. Despite the best efforts hye from the presidency. An ofthe Lords’ galvanised grey The European Court ofJustice Muhammadu Buhari, election fora new president brigade, the amendments ruled, in two cases in France Nigeria’s president, returned will be held on May 9th. were vetoed by the Commons. and Belgium where Muslim home after receiving medical women had been fired for treatment in London fortwo Prosecutors in Ta iwa n indict- Just as Mrs May overcame the wearing headscarves by their months. His absence had ed Ma Ying-jeou, the country’s final obstacle to the Brexit bill, employers, that in certain contributed to the growing president until last year, in Nicola Sturgeon, Scotland’s circumstances it is permissible sense ofunease in the country. connection with the illegal first minister demanded a to limit visible religious sym- disclosure ofwiretapped second referendum on in- bols and dress at work. Scores ofpeople were killed in conversations during his time dependence for Scotland, to Ethiopia when a mountain of in office. He denies the charges. take place in either late 2018 or A gruesome find garbage in the capital, Addis early 2019. Scotland has voted Investigators found more than Ababa, collapsed and crushed China’s rubber-stamp parlia- to remain in the EU. Allowing 250 skulls ofpeople murdered makeshift homes. ment, the National People’s the Scots a second say on by drug gangs in the Mexican Congress, adopted a set of breaking away from Britain state ofVeracruz. The burial Doctors in Kenya ended a principles that will govern the would complicate Mrs May’s ground is still being excavated. three-month strike over pay drafting ofthe country’s first Brexit priorities. The state’s prosecutor expects that had paralysed the public- civil code—a supreme law more mass graves to be found. health system. governing legal disputes other The British government made than those involving crimes. an embarrassing U-turn on a Brazil’s chiefprosecutor asked Iraqi troops fighting Islamic Officials hope it will remove proposal to increase national courts to open 83 investiga- State in Mosul seized a bridge numerous inconsistencies and insurance contributions (a tions into possible wrong- in the centre ofthe city, and ambiguities in Chinese law. form oftax) forself-employed doing by current and former were close to the mosque at people, just days after the politicians. Their names were which the jihadists’ leader, At the congress, China’s prime measure was announced. The disclosed in plea-bargain Abu Bakr al-Baghdadi, de- minister, Li Keqiang said Amer- ensuing furore rekindled mem- testimony by formerexec- clared his “caliphate” in 2014. ican companies would “bear ories ofthe Tories’ “omni- utives ofOdebrecht, a firm at the brunt” in any trade war shambles” budget of2012, the centre ofa scheme to si- In an unusual intervention between his country and the when the government had to phon money from Petrobras, Morocco’s king said he would United States. But he also said eat its words and reverse a tax the state-controlled oil com- choose a new prime minister the relationship was “crucial” on hot takeaway-food, a con- pany, to parties and politicians. to form a government, follow- forglobal peace, and controversy known as pastygate. 1 The Economist March 18th 2017 The world this week 7

certain aspects ofthe law and failed to engineer a merger of associated with spinning off its Business has opposed tighter regu- his mining group with Anglo. fossil-fuel assets and funding lations forhigh-frequency He insists his latest move is just the storage ofnuclear waste. Following heavy hints that it trading firms. a family investment. EON noted that the loss meant would do so, the Federal it was “freed from past bur- Reserve lifted the range for its Hancock’s last hour Last year’s rally in commodity dens”, leaving it to focus on its benchmarkinterest rate by a American International prices helped to push Antofa- business in networks, consum- quarter ofa percentage point Group started the search for a gasta’s annual headline profit er retail and renewables. to between 0.75% and 1%, and new chiefexecutive—its sev- up by 79%, to $1.6bn. The Chil- said there would be more rises enth since 2005—following the ean copper-mining group With its core chipmaking to come this year. Solid jobs resignation ofPeter Hancock in reckons that a rebound in business slowing down, Intel data sealed the decision for the wake ofa bigger-than- demand from China and accelerated its drive into the Fed officials. Employers expected quarterly loss. tighter supply because ofthe market forautonomous cars created 235,000 jobs last scarcity ofnew supplies will by agreeing to pay $15.3bn for month; wages were up by 2.8%. keep copper prices buoyant. Mobileye, an Israeli company. Oil price Mobileye’s systems enable Super Mario West Texas Intermediate, $ per barrel The scandal in South Korea autonomous cars to recognise The European Central Bank OPEC deal to cut production that has led to the removal of pedestrians, traffic and road tinkered with the guidance it 55.0 the country’s president and signs, though last year it had a issues at its policy meeting, 52.5 charges being laid against the very public falling out with which markets interpreted as a 50.0 de facto head ofSamsung Tesla after one ofthe electric- signal that it was pondering a 47.5 spread to SK Group, as prose- carmaker’s vehicles was in- 45.0 pull-backon quantitative cutors questioned three people volved in a fatal crash. easing. Mario Draghi, the ECB’s Nov Dec Jan Feb Mar with links to the chaebol. president, said the bankno 2016 2017 Iceland withdrew the last of Source: Thomson Reuters longer had a “sense ofurgen- The Musk challenge the capital controls it imposed cy” to take more action on Oil prices fell by10% over a Elon Musk offered to solve an when its banking industry stimulus because the battle week, dropping to where they energy crisis in South Austra- imploded during the financial against deflation had been were before OPEC agreed to lia that has led to blackouts. crash in 2008. The krona re- won. But any increase in curtail production (in order to Prior to talks with the govern- corded its biggest one-day interest rates is not likely to boost prices) late last year. A ment, the founder ofTesla and decline in eight years after the happen until next year. build-up ofAmerican crude SpaceX said he could install a lifting ofcapital controls was supplies fed concerns that the battery-storage system that announced. A surge in tourism After just two weeks in the job, oil glut will not ease soon. connects to the grid within 100 has bolstered GDP, which Charlotte Hogg resigned as a days, and would not charge for grew by11.3% in the fourth deputy governor ofthe Bank Anil Agarwal, an Indian min- the project ifhe failed to meet quarter of2016, prompting of England fornot revealing ing tycoon, revealed plans to his deadline. some to fret that Iceland’s that her brother is a senior buy shares worth $2.4bn in economy is now overheating. executive at Barclays, a poten- Anglo American, making him EON, a German utility, regis- tial conflict ofinterest. An its second-biggest shareholder. tered an annual net loss of Other economic data and news initial offerto step down by Ms Last year Mr Agarwal tried and €16bn ($18bn) because ofcosts can be found on pages 88-89 Hogg was rejected by the governor, MarkCarney, but a damning report on the matter by a committee in Parliament made her position untenable.

Four men were charged in America with hacking 500m Yahoo accounts in 2014, one of the biggest breaches ofinternet security to date. Two ofthe men are agents ofRussia’s intelligence service. They are accused ofconspiring with the other two men, one ofwhom is on the list ofthe FBI’s most- wanted cyber-criminals.

Donald Trump nominated Chris Giancarlo as chairman ofthe Commodity Futures Trading Commission. The CFTC regulates the $700trn derivatives market. Mr Gian- carlo supports the broad thrust ofthe Dodd-Frankreforms, though he has been critical of Leaders The Economist March 18th 2017 9 On the rise

A synchronised global upturn is underway. Thankstimulus, not the populists CONOMIC and political cy- prices fell by10% in the weekto March 15th on renewed fears of Ecles have a habit of being out oversupply; a sustained fall would hurt the economies of pro- of sync. Just ask George Bush se- ducers more than it would benefit consumers. China’s nior, who lost the presidential build-up of debt is of enduring concern. Productivity growth election in 1992 because voters in the rich world remains weak. Outside America, wages are blamed him for the recent reces- still growing slowly. And in America, surging business confi- sion. Or Chancellor Gerhard dence has yet to translate into surging investment. Schröder, booted out by Ger- Entrenching the recovery calls for a delicate balancing-act. man voters in 2005 after imposing painful reforms, only to see As inflation expectations rise, central banks will have to weigh Angela Merkel reap the rewards. the pressure to tighten policy against the riskthat, ifthey go too Today, almost ten years after the most severe financial crisis fast, bond markets and borrowers will suffer. Europe is espe- since the Depression, a broad-based economic upswing is at cially vulnerable, because the European Central Bankis reach- last under way (see pages 18-20). In America, Europe, Asia and ing the legal limits of the bond-buying programme it has used the emergingmarkets, for the first time since a brief rebound in to keep money cheap in weakeconomies. 2010, all the burners are firing at once. The biggest risk, though, is the lessons politicians draw. But the political mood is sour. A populist rebellion, nur- Donald Trump is singing his own praises after good job and tured by years of sluggish growth, is still spreading. Globalisa- confidence numbers. It is true that the stockmarket and busi- tion is out of favour. An economic nationalist sits in the White ness sentiment have been fired up by promises of deregula- House. This week all eyes were on Dutch elections featuring tion and a fiscal boost. But Mr Trump’sclaims to have magical- Geert Wilders, a Dutch Islamophobic ideologue (see our ly jump-started job creation are sheer braggadocio. The leader overleaf), just one ofmany European malcontents. American economy has added jobs for77 months in a row. This dissonance is dangerous. If populist politicians win credit fora more buoyant economy, theirpolicies will gain cre- No Keynes, no gains dence, with potentially devastating effects. As a long-awaited Most important, the upswing has nothing to do with Mr upswing lifts spirits and spreads confidence, the big question Trump’s “America First” economic nationalism. If anything, is: what lies behind it? the global upswing vindicates the experts that today’s populists often decry. Economists have long argued that recoveries All together now from financial crashes take a long time: research into 100 bank- The past decade has been marked by false dawns, in which oping crises by Carmen Reinhart and Kenneth Rogoff of Harvard timism at the start of a year has been undone—whether by the University suggests that, on average, incomes get back to pre- euro crisis, wobbles in emerging markets, the collapse of the crisis levels only after eight long years. Most economists also oil price or fears of a meltdown in China. America’s economy argue that the best way to recover after a debt crisis is to clean has kept growing, but always into a headwind (see page 69). A up balance-sheetsquickly, keep monetarypolicyloose and ap- year ago, the Federal Reserve had expected to raise interest ply fiscal stimulus wherever prudently possible. rates fourtimes in 2016. Global frailties put paid to that. Today’s recovery validates that prescription. The Fed Now things are different. This week the Fed raised rates for pinned interest rates to the floor until full employment was in the second time in three months—thanks partly to the vigour sight. The ECB’s bond-buying programme has kept borrowing of the American economy, but also because of growth every- costs in crisis-prone countries tolerable, though Europe’s mis- where else. Fears about Chinese overcapacity, and of a yuan placed emphasis on austerity, recently relaxed, made the job devaluation, have receded. In February factory-gate inflation harder. In Japan rises in VAT have scuppered previous recover- was close to a nine-year high. In Japan in the fourth quarter ies; this time the government wisely deferred an increase until capital expenditure grew at its fastest rate in three years. The at least 2019. euro area has been gathering speed since 2015. The European The tussle over who created the recovery is about more Commission’s economic-sentiment indexis at its highest since than bragging rights. An endorsement for populist economics 2011; euro-zone unemployment is at its lowest since 2009. would favour insurgent parties in countries like France, where The bellwethers ofglobal activity looksprightly, too. In Feb- the far-right Marine Le Pen is standing for president. It would ruary South Korea, a proxy for world trade, notched up export also favour the wrong policies. Mr Trump’s proposed tax cuts growth above 20%. Taiwanese manufacturers have posted 12 would pump up the economy that now least needs support— consecutive months of expansion. Even in places inured to re- and complicate the Fed’s task. Fortified by misplaced belief in cession the worst is over. The Brazilian economy has been their own world view, the administration’s protectionists shrinking for eight quarters but, with inflation expectations might urge Mr Trump to rip up the infrastructure of globalisa- tamed, interest rates are now falling. Brazil and Russia are like- tion (bypassing the World Trade Organisation in pursuing ly to add to global GDP this year, not subtract from it. The Insti- grievances against China, say), risking a trade war. A fiscal tute ofInternational Finance reckonsthatin January the devel- splurge at home and a stronger dollar would widen America’s oping world hit its fastestmonthly rate ofgrowth since 2011. trade deficit, which may strengthen their hand. Populists de- This is not to say the world economy is back to normal. Oil serve no creditforthe upsurge. Buttheycould yetsnuff itout.7 10 Leaders The Economist March 18th 2017

Narendra Modi in the ascendant Uttar hegemony

The prime ministerdominates Indian politics. He should put his authority to betteruse HREE years ago Narendra count, too. The BJP’s appetite for power is matched only by the TModi led his Bharatiya Ja- opposition’s deficiencies. In this week’s elections Congress nata Party (BJP) to the most re- won most seats in Goa and Manipur, two tiny states. But the sounding victory in a national BJP, quicker to woo allies, won the right to form governments. election in India since the 1980s. In some ways this dominance is alarming. Although Mr This week, in India’s most popu- Modi himselfis careful about what he says, his party harbours lous state, Uttar Pradesh, the BJP many chauvinistic Hindus, who view India’s 180m-odd Mus- capped that by chalking up the lims with suspicion and disdain. It did not field a single Mus- biggest majority in the state assembly since 1977 (see page 23). lim candidate in Uttar Pradesh, where 19% ofthe population is The resultleavesMrModi and hispartyutterlydominant—and Muslim. It also took advantage of the elections to pass legisla- almost certain to win the national elections in 2019. It is also a tion that had been blocked by the upper house of the national test. Mr Modi could use his growing power to reignite India’s parliament on the ground that it was unfair to Muslims (see culture wars, as some ofhis supporters wish. Instead, he ought page 24). Mr Modi has done nothing to stifle a growing culture to use it to unshackle India’s economy. of intolerance in India, not just towards Muslims, but towards all critics ofthe prickly nationalism that the BJP espouses. Lucknow and fora long time to come Yet he has also pressed ahead with economic reforms. He Until the 1970s India was virtually a one-party state, with Con- has won parliamentary approval for a nationwide sales tax to gress, the party of independence, ruling over politics—includ- replace a confusing array of local ones. The government is im- ing in Uttar Pradesh. Today the country seems to be heading proving the administration of India’s bewildering bunch of that way again, but this time with the BJP in the ascendant. welfare schemes for the poor. And demonetisation, for all its Congress came out on top this week in elections in Punjab, a failings, at least shows that Mr Modi is willing to take bold middling state. In places such as West Bengal and Tamil Nadu, steps in his eagerness to overhaul the Indian economy. local parties rule the roost. And the BJP’s adversaries can still He should put that eagerness, and his thumping electoral win byteamingup. But in a countryofunfathomable diversity, mandate, to better use. The complexity of buying and selling the BJP is as close to pre-eminence as any party is likely to get. land strangles development. State-owned firms, including In Uttar Pradesh the BJP’s victory was all the more remark- huge, badly run banks, should be in private hands. The econ- able for the turmoil Mr Modi unleashed late last year by void- omy, which is growing by about 7% a year, will one day hit the ing most of India’s banknotes. “Demonetisation” was meant buffers unless India’s education system is overhauled. to hurt crooks and bring the “black” economy onto the books. The BJP’s defenders argue that none of this is feasible, be- Instead it caused chaos forordinary Indians. Yet somehow, the cause the upper house of the national parliament is in opposi- BJP turned the straw ofdemonetisation into electoral gold. tion hands. That is a feeble excuse and, in any case, will change The charisma and drive of Mr Modi is part of the explana- as state assemblies, which elect the upperhouse, fall to the BJP. tion. The son of a chai-wallah, he embodies the aspirations of Mr Modi has an extraordinary opportunity to act boldly for India’s strivers. But the energy and organisation of his party the good ofall India. He should grasp it. 7

Dutch elections Domino theory

Geert Wilders’s poorshowing does not necessarily mean Marine Le Pen will lose N THE run-up to its election on for populism right across Europe. IMarch 15th the international On the night, Mr Wilders came a poor second, winning just media descended on the Neth- 13% ofthe vote and 20 seats—farbehind the Liberals, led by the erlands, speculating that the prime minister, Mark Rutte, who won 21% of the vote and 33 country might become the third seats (see page 51). Understandably, Mr Rutte was jubilant, pro- “domino” to fall to nationalist claiming that his country had “said ‘whoa’ to the bad sort of populism, following the vote for populism”. Jesse Klaver of the GreenLeft party, which had its Brexit and the election of Do- best result ever, eclipsing Labour (see Charlemagne), with 9% nald Trump in America. The Dutch themselves, excited by the of the vote, said that the Dutch message to the rest of Europe unaccustomed attention, seem to have taken the idea to heart. was that “populism did not breakthrough.” The performance of Geert Wilders and his far-right Freedom Mr Wilders’s bad showing is welcome. The less he can im- Party (PVV), it was said, would be a portent of Marine Le Pen’s pose his version of xenophobia and Euroscepticism on the chances in France’s presidential election and of the prospects Netherlands the better. Unfortunately, however, it is too soon 1 The Economist March 18th 2017 Leaders 11

2 to celebrate the roll-backofpopulism. out of nearly all levels of government for years, despite rising The very idea of a populist “domino theory” is misleading. popular support, the prospect of a sudden breakthrough is The term derives from the war in Vietnam, where it was used greater. France’s presidential run-off will pit two candidates to justify American intervention to stop the spread of commu- head to head. One ofthem will almost certainly be Ms Le Pen. nism. In a military context it made sense. North Vietnam’s con- Another reason to thinkthat this may not be the high-water quest of Saigon let it move on to Cambodia. But in democratic mark for populism is that Mr Wilders has shown how to drag elections, nothing similar happens. When Britain voted to politics in your own direction even without winning power. leave the European Union, the UK Independence Partydid not Mr Rutte has held him off in part by adopting some of his lan- suddenly take control of the economy and establish coastal guage. In the Netherlands, traditionally a tolerant country, itis bases from which to launch raids on Scheveningen. now common to speak of Islam as a threat; the discussion of Even if Mr Wilders had prevailed this week, he would not asylum-seekers focuses entirely on how to keep them out, and have won power—in the Netherlands governments are the idea of leaving the EU is now taken seriously. Mr Wilders formed from coalitions, and virtually all the other parties had has also put forward legitimate arguments about the welfare vowed not to work with him. The boost his triumph would of working-class Dutch left behind by globalisation. If a new have given Ms Le Pen, who the polls suggest is unlikely to be- government dominated by the centre-right Liberals and the come president, would have been insignificant next to the ebb liberal D66 party ignores these issues, it will find its triumph and flow of the campaign within France. So, too, his defeat is a over populism short-lived. setback but hardly decisive. Political movements sometimes leap in inspirational Here’s to Ponypark Slagharen waves from one country to another, but local circumstances All of these anxieties, over Islam, refugees, the EU and global- make all the difference. Mr Trump’s win could not have hap- isation, are as pressing for European voters today as they were pened without the peculiarities of America’s electoral college. yesterday. As it turned out, they did not lead to a win for Mr By the same token, the fact that Mr Wilders did not win does Wilders in the Netherlands, but they might yet forMs Le Pen in not translate on to Ms Le Pen. The Dutch political system is France. The international rise of populism is not so much a open and diffuse, with over a dozen parties in parliament and row of dominoes, as a wave bearing down on a line of sand low barriers for new ones to make it in. The French system is castles. Some will fall and othersstand. Celebrate Mr Wilders’s more rigid. Because it has shut Ms Le Pen’s National Front (FN) disappointment, but the wave rolls on. 7

Brexit and Scotland Leave one union, lose another

Scots should read Brexit as an argument forremaining in Britain, not leaving it HIS was meant to be the The Scottish independence referendum of 2014 was billed Tweek when a proud, sover- by nationalists as a “once-in-a-generation opportunity”. But eign nation served notice that it they are right to demand another. Ms Sturgeon’s Scottish Na- wanted to leave the overbear- tional Party(SNP) won an election last yearon the promise ofa ing, unrepresentative union to new referendum in the event ofa “material change” in circum- which it had long been shack- stances. Brexit is as material as it gets. Mrs May and Britain’s led. And so it was—but not in Parliament, the consent ofwhich is needed for another plebis- quite the way that Theresa May cite, must not deny the Scottish people a second vote. had imagined. Britain’s prime minister had planned to trigger Article 50 of the European Union treaty, beginning the two- If at first you don’t secede... year process ofBritain’s exit from the EU. But she was forced to But Mrs May has the power to delay it—and on March 16th she delay her plans when Scotland’s first minister, Nicola Stur- said that there should be no referendum before Britain’s rela- geon, upstaged her by announcing that she would seek a new tions with the EU are clear. Ms Sturgeon wants the vote to take referendum on Scottish independence. place at some point between autumn 2018 and spring 2019, The threat of a second constitutional earthquake in as when Brexit negotiations will be entering their final, fraught manyyearsisthe latest reminderofBrexit’sunintended conse- phase. She suggested this week that this would allow an inde- quences (see page 57). The English-led move to leave a 40-year- pendent Scotland speedily to rejoin the EU. That is mistaken. old union with Europe is pulling at the seams of its 300-year- There is no prospect of Scotland completing “Scoxit” before old union with Scotland. Mrs May’s fundamentalist interpre- Britain leaves the EU (at the time of the referendum in 2014, an tation ofthe Brexitreferendum—thatitrequiresdeparture from exit period for Scotland of 18 months was pencilled in). Euro- the EU’s single market and an end to free movement to and pean officials have made clear that there would be no “fast from the continent—ignores the concerns of Scots, who voted track” entry process fora country that was previously part of a to remain, and creates an intractable problem forNorthern Ire- member state. land, which shares a land border with the EU. But the lesson What holding a referendum during Brexit negotiations for Scots from Brexit is more complex than Ms Sturgeon sug- would achieve, as Ms Sturgeon surely knows, is maximum gests. The arguments she puts forward for remaining in the EU pressure on the British government, which would be incapa- highlight the weaknesses in their case forindependence. ble of fighting on a second front in Scotland. And it would1 12 Leaders The Economist March 18th 2017

2 damage Scotland’s own interests: first by muddying the Brexit you send the lion’s share of your exports. For Scotland, that talks, in which Scotland has a stake, whether it ends up as part means Britain. She laments the hardening of Britain’s borders ofBritain or not; and second by forcing Scots to vote before it is with Europe. Yet an independent Scotland might well mean a clear what sort ofdeal Britain is going to get with the EU. harder border with England, particularly if Scotland rejoined Whenever the second referendum campaign begins, Brexit the EU. Pro-Europeans have noted that the sovereignty you re- will make life trickier forthe unionist side. Already Mrs May is gain by leaving a union is illusory when it also means losing findingthatherposition on the European Union makes ithard- the clout you get as a member of a more powerful group. So it er to defend the British union. Ms Sturgeon says she wants would be if Scotland left Britain: it would indeed be more Scots “to be in control of events and not just at the mercy of sovereign in a pure sense, but at the cost of its seat on the UN them”. How can British ministers disagree, when so many of Security Council, nuclear weapons, G7 membership and them urged Britons to “vote Leave, take control” last summer? much else that aids true self-determination in the world. Yet Brexit creates problems forthe nationalists, too. Just as it The Scots are in a wretched position. But they should be in sounds unconvincing for Brexiteers now to argue for the un- no doubt: exit from Britain would compound the mistake Brit- ion, it is difficult for Ms Sturgeon to beat the drum both for ain is making by leaving the EU. Though Brexit is the main mo- membership of the EU and for exit from Britain. As she has tive for Ms Sturgeon’s renewed independence push, it is also a pointed out, it is a bad idea to leave the single market to which warning ofthe perils ofgoing it alone. 7

Aid to fragile states The Central African conundrum

Providing foreign aid to chaotic countries is both necessary and hazardous. It can be done better AVID CAMERON lost his tial candidate in 1964) you ought to hunt where the ducks are, Finance to fragile states Djob as prime minister be- more aid should flow to the worst places. Moreover, fragile World Bank IDA commitments, $bn cause he could not reconcile states are a regional menace. The calamity that is the Demo- 10 Britons to Europe. He might cratic Republic of Congo is a threat to its neighbours, many of 5 have sulked on the backbench- which are themselves fragile. If basket-cases can be stabilised, es. Instead, Mr Cameron has a many will benefit. 0 2011 12 13 14 15 16 17* new (unpaid) job as the chair- It will not be easy. Corruption and mismanagement are rife. *Estimate man of a commission on fragile In many of these countries Big Men are above the law, politics states. Havingfailed to persuade Britons to stickwith countries is a form of licensed theft and the police are little more than where they like to holiday, whose wine they happily imbibe bandits. Money spent on rebuilding bridges or offices may be and where many own homes, he will now try to convince wasted iffightingresumes and the new infrastructure is blown them to send more money to some of the world’s poorest, up. Donors can undermine fragile states by setting up parallel most corrupt and most violent places. welfare systems and by pinching their best bureaucrats. Rich IfMrCameron has lost his mind, he is not the only one. Brit- countries often hold back until things get really bad, then rush ain’s Department forInternational Development (DfID) plans in with bags of food—as Britain is now doing in South Sudan to spend half its budget on fragile states and regions. It is nag- and Somalia. gingothersto do the same, with some success. The World Bank Deft aid schemes need to avoid these pitfalls. Food aid plans to double to $14bn the money it allocates to fragile states looksgood on television, butit isimmenselywasteful. Itcosts a over the next three years. The war-scorched Central African lot of money to get food to warring regions, and the recipients Republic (CAR) will get as much as a third of its GDP in assis- frequently sell it to raise money for whatever they really need. tance from the World Bank over the next three years (see page Far better just to give people cash. 39). This raises two questions. Is sending more money to rick- Another good idea is to pay for a hefty peacekeeping force, ety countries wise? And is it being done well? which can provide the security needed for all else to develop. (The CAR has13,000 blue helmets.) Young men can be hired to More bread forbasket cases build roads. This would not only connect farmers with urban The answer to the first question is a qualified yes. It is true that, consumers, makingboth groups betteroff, but would also give as development economists have argued foryears, the ideal re- those young men a reason not to take up arms. Paul Collier, a cipients of foreign largesse are poor, well-governed countries. leading light in Mr Cameron’s commission, offers two other Places like Bangladesh and Senegal still need help, and are not suggestions. Donors could provide risk insurance or subsidies so atrociously mismanaged that the aid is bound to be stolen to help private firms enter terrifying markets. And they could or wasted. These days, though, there are not many such coun- let the government set spending priorities but, given its ex- tries. China, India, Indonesia, Vietnam and others are all pull- treme lack of capacity, channel the spending through whatev- ing their people out ofdeep poverty, thankgoodness. er organisations work in any given village, from NGOsto The most acute need is now in fragile states, where govern- churches. An independent agency would be needed to over- ment barely functions. Such places are home to half the see how the money is spent. world’s very poor people, up from a third in 2010, on the Fixing places like the CAR will be hard, and many of these OECD’s rather broad definition offragile. On the principle that new ideas may yet fail. But with luck, donors will learn from (to misquote Barry Goldwater, the failed Republican presiden- them. Given the stakes, there is no excuse fornot trying. 7 14 Letters The Economist March 18th 2017

You, too, might like an EU2 Reversing Brexit is now the money out ofpolitics. With big A kiss on the hand… longest oflong shots. But if it is companies at the centre of Bagehot, in his list oftasks for ever to be achieved Tony Blair, most scandals, this is crucial those who reject the inevitabil- a discredited political huckster, both to restore citizens’ trust in ity ofBritain withdrawing is the very last man the public political leaders and to prevent from the EU, omitted one of would turn to. Europhiles future corruption. the most important (February must find a new face to lead EDUARDO ENGEL 25th). Even pro-Europeans, as them to the promised land. Former president of the Presi- we used to be called, might be ROBIN AITKEN dential Advisory Council on reluctant to remain in an EU in Oxford Conflicts of Interest, Influence its present outdated form. We Peddling and Corruption EU2 should become ists, active- Huxley, Orwell and facts Santiago, Chile ly planning and advocating a deeply reformed union. Hub- Regarding “The Trump bump” Free speech in Singapore ert Védrine, a formerFrench enjoyed by America’s media foreign minister, has eloquent- (February18th), Neil Postman, “Grumble and be damned” Youreferred to the “admen” ly expressed the view ofmany in “Amusing Ourselves to (March 11th) alleged a lackof who composed the slogan “A on the continent that a source Death”, envisaged this danger- free speech in Singapore. Yet diamond is forever” (“Agirl’s ofthe widespread antipathy to ously fractured moment in Singaporeans have free access new best friend”, February the EU is not merely that it has modern history. George to information and the 25th). In fact, advertising firms lost the vision that inspired it. Orwell was afraid ofoverseers internet, including to The in the 1940s employed women It is simply not an appropriate depriving us ofinformation. Economist and the BBC. We do as copywriters to create ads for form ofpan-European polity Aldous Huxley, on the other not stifle criticism ofthe gov- women’s products. Frances forthe 21st century. hand, warned ofan onslaught ernment. But we will not allow Gerety, a young copywriter PHILIP ALLOTT ofnews, real or fabricated, that our judiciary to be denigrated assigned to the DeBeers Professor emeritus of reduced its consumers to under the cover of free speech, account, came up with “A international public law passivity and egotism. Orwell nor will we protect hate or diamond is forever” late one Cambridge University feared that the truth would be libellous speech. People can go night while at the point of concealed from us. Huxley to court to defend their integri- exhaustion. Gerety worked on Wistful daydreaming that the contended that when truth is ty and correct falsehoods the DeBeers account success- decision to leave the EU might drowned in a sea ofirrele- purveyed against them. Oppo- fully for25 years and her catch- one day be reversed might vance, we would become a sition politicians have done line was described as the bring some comfortto be- trivial culture. this, successfully. slogan ofthe century by reaved Remainers. They are Both dystopian views have Youcited the case ofthree Advertising Age. It has ap- delusional. Askthis question: proven presciently true. Real protesters convicted for peared in every engagement- ifBritain had never joined the facts are submerged into the creating a public nuisance at ring ad forDeBeers since 1948. EU would we now vote to do swamp bottom oflies and Speakers’ Corner. They were PAULA HERRING so? Looking at the wasteful, manipulation (Orwellian) by not charged forcriticising the Professor of business sclerotic and undemocratic the sea tides oftheir manufac- government, but forloutishly DeVry University grouping that it has become, tured alternative cousins. But barging into a performance by Downers Grove, Illinois only a Euro-enthusiast ofthe the media, both print and a group ofspecial-education- deepest hue could thinkthat social, need to take care that needs children, frightening Please stop suggesting new we would. this moment-by-moment them and denying them the ways to demonstrate my mar- It is worth remembering accounting doesn’t drown us right to be heard. ital fitness, such as tattoos, or that when Britain joined in the in its thought-extinguishing In no country is the right to self-mutilation. My economi- 1970s the country’s fortunes momentum (Huxleyan). free speech absolute. When cally savvy wife notes these as were at their lowest ebb. Na- JOSEPH TING this right is extended to fake sunkcosts (“what have you tional morale was at rock- Brisbane, Australia news, defamation or hate done for me lately?”). She also bottom and there were serious speech, society pays a price. notes that my encroaching people who questioned Chile’s institutions Witness the Brexit campaign, rotundness and retreating hair whether Britain was actually and elections in America and downwardly shift the demand governable, such was the Trust in political institutions Europe. Trust in leaders and curve fora husband, thus dysfunctional nature ofindus- has fallen to the single digits in institutions, including journal- requiring a larger and, she trial relations. Across the many countries in Latin Amer- ists and the media, has been hopes, refundable subsidy for Channel the EEC offered a ica, as corruption scandals gravely undermined, as have continued marital fealty to me. vision ofa better world with involving corporate money in these democracies. In contrast, The accumulated externalities Germany still in the Wirt- politics are uncovered by the international polls show that ofmy subscription just over- schaftswunder era and France month (Bello, March 4th). Singaporeans trust their gov- whelmed its price. enjoying les trente glorieuses. However, in his effort to pro- ernment, judiciary, police and TED LADD Britain’s decision to join the EU vide balanced reporting on even media. Singapore does Jackson Hole, Wyoming 7 was akin to that ofa drowning different views and approach- not claim to be an example for man who decides to grab a es to campaign reform, Bello’s others, but we do askto be lifebelt. Today the situation is citation ofme—“a role for allowed to workout a system Letters are welcome and should be addressed to the Editor at very different: the European corporate money might be that is best forourselves. The Economist, 25 St James’s Street, economic model is no longer acceptable in Chile in the FOO CHI HSIA London sw1A 1hg one that Britain envies and it is future”— gives a misleading High commissioner for E-mail: [email protected] Britain which is the magnet for impression ofthe importance I Singapore More letters are available at: energetic migrants. attach to keeping corporate London Economist.com/letters 18 Briefing The world economy The Economist March 18th 2017

suggests that worldwide equipment From deprivation to daffodils spending grew at an annualised rate of 5.25% in the last quarter of2016. The good news goes beyond manufacturing, too. American employers, excluding farms, added 235,000 workers to their payrolls in February, well above the recent average. The European Commission’s eco- All around the world, the economy is picking up nomic-sentiment index, based on surveys F WINTER comes,” the poet Shelley that tracks the economy’s strength: blue is of service industries, manufacturers, “Iasked, “can Spring be farbehind?” For sluggish, green is stable and red is over- builders and consumers, is as high as it has the best part of a decade the answer as far heating. The overall economy has been been since 2011. After a strong fourth quar- as the world economy has been concerned flashing green lights for seven months and ter, the BankofJapan revised up its forecast has been an increasingly weary “Yes it is pushing up towards the red zone. forgrowth in the currentfiscal year from 1% can”. Now, though, after testing the faith of This reflects, among other things, de- to 1.4%. Such optimism raises two big ques- the most patient souls with glimmers that mand for semiconductors around the tions: what is behind this nascent recovery came to nothing, things seem to be warm- world; this February exports from Taiwan and will it take hold? ing up. It looks likely that this year, for the were up by 28% compared with 2016. Al- first time since 2010, rich-world and devel- though that is the most striking example, Lilacs from the dead land opingeconomies will put on synchronised exports are up elsewhere in the region, too. The revival’s roots can be traced to the ear- growth spurts. South Korea’s rose by 20% in February ly months of last year, when a possible ca- There are still plenty of reasons to fret: compared with a year earlier. In yuan lamity was averted. At the end of 2015 China’s debt mountain; the flaws in the terms, China’s were 11% higher in the first stockmarkets tumbled in response to re- foundations of the euro; Donald Trump’s two months of2017 than in 2016. newed anxiety about China’s economy. protectionist tendencies; and so on. But This apparent vigour is in part just a re- Prices at the factory gate, which had been amid these anxieties are real green shoots. flection of how bad things looked 12 falling steadily for several years, had start- For six months or so there has been grow- months ago; suppliers who overdid the ed to plunge. There were fears that China ing evidence of increased activity. It has gloom in early 2016 are restocking. Asia’s would be forced to devalue its currency been clearest in the export-oriented econo- taut supply chains also owe something to sharply: a cheaper yuan might spur Chi- mies of Asia. But it is visible in Europe, in the two-to-three-year life-cycle of consum- na’s oversupplied industries to export America and even, just, in hard-hit emerg- er gadgetry. On March 10th LG Electronics more, fatten profits and service their growing markets like Russia and Brazil. launched its new G6 smartphone. Its larger ing debts. The signals are strongest from the more rival, Samsung, is due to unveil its Galaxy Such a desperate measure would, in ef- cyclical parts of the global economy, nota- S8 phone by the end of the month; a new fect, have exported its manufacturing de- bly manufacturing. Surveys of purchasing iPhone will be out later this year. flation to the rest of the world, forcing ri- managers in America, the euro zone and But the signs oflife run deeper than just vals to cut prices or to devalue in turn. The Asia show factories getting a lot busier (see those specifics would allow. Business expectation that China’s economy was chart 1 on next page). Global trading hubs spending on machinery and equipment is weakening pushed raw-material prices to such as Taiwan and South Korea are bus- picking up. A proxy measure based on their lowest level since 2009. The oil price tling. Taiwan’s National Development shipments of capital goods constructed by briefly sunkbelow $30 a barrel. That wors- Council publishes a composite indicator economists at JPMorgan Chase, a bank, ened the plight of Brazil and Russia, al-1 The Economist March 18th 2017 Briefing The world economy 19

2 ready mired in deep recessions. It also in- His reliefwas a recognition that, though tensified the pressure to cut investment in a surge in inflation will flood the econ- Reflating 2 America’s shale-oil industry. omy’s engine, a gentle dose can serve as a Producer prices To stabilise the yuan in the face ofrapid helpful lubricant. At a global level, a bit % change on a year earlier outflows of capital, China spent $300bn of more factory-gate inflation lifts profits, 10 its foreign-currency reserves between No- since a lot of manufacturers’ production India China vember2015 and January2016. Capital con- costs are largely fixed. Fatter profits not 5 trols were tightened to stop money leaking only make corporate debt less burden- + abroad. Banks juiced up the economy with some, they also free cash forcapital spend- Japan faster credit growth. With capital now ing, which createsfurtherdemand for busi- 0 boxed in, much ofit flowed into local prop- nesses in a virtuous circle. – erty: house prices soared, first in the big cit- Since worries about China and defla- ies and then beyond. Sales taxes on small tion receded, spendingon thingsthat show 5 cars were reduced by half. Between them, some faith in future income has indeed be- South Korea these controls and stimuli did the trick. gun to stir. A revival in producer prices and Taiwan 10 Soon stocks of raw materials that had thus profits is leading to business invest- been hurriedly run down started to look ment around the world. In the last quarter skimpy. Iron-ore prices jumped by 19% in of 2016 business spending in Japan rose at 15 just one day last March. Curbs on Chinese an annualised rate of 8%, according to offi- 2012 13 14 15 16 17 coal production underpinned a mini-reviv- cial GDP figures. Gartner, a tech consultan- China, GDP al in global prices. Steel prices rose sharply, cy, predicted in December that consumers % increase on a year earlier helped by the closure of a few high-cost and companies would increase their 12 mills as well as more construction spend- spendingon IT by2.7% in 2017, up from 0.5% Nominal GDP ing. Oil climbed back above $50 a barrel in 2016. John Lovelock, a research analyst 10 (though it has slipped backa bit recently). at Gartner, says the biggest jump in spend- By the end of the year producer-price ing is forecast for the Asia-Pacific region. 8 inflation in China—and across Asia—was Real GDP positive again. And China’s nominal GDP, Continuous as the stars that shine? 6 which had slowed more than real GDP, In America imports of both consumer sped up again (see chart 2). Central bank- goods and capital goods are up. There has 2012 13 14 15 16 17 ers, who had been employing various been speculation that the “animal spirits” Sources: Haver Analytics; US Bureau measuresto forestall global deflation, were of business folk have been lifted by Mr of Labour Statistics; NDRC mightily relieved. On March 9th Mario Trump’s election in November, and that Draghi, boss of the European Central Bank cuts in tax and regulations, and a subse- was made worse in 2014 when the oil price (ECB), proudly declared that the risk of de- quent return of the estimated $1trn of un- fell from over $100 a barrel to half that in flation had “largely disappeared”. taxed cash held abroad by companies just a fewmonths. The price ofotherindus- based in America, will fuel a big boom in trial raw materials, which had settled onto business investment. a plateauafterpeakingin 2011, began to fall. Expanding 1 But James Stettler, a capital-goods ana- The subsequent slump in investment was Manufacturing purchasing-managers’ index* lyst at Barclays Capital, notes that “no enough to drag big commodity exporters, one’s really pushing the button on capex such as Brazil and Russia, into recession. 58 United States yet”. And companies which might benefit Even so, by the end of 2015 the Fed was 56 from an investment boom are not getting sufficiently confident about the outlook to Taiwan carried away. In a recent profits statement raise its benchmark interest rate by a quar- 54 Caterpillar, a makerofbulldozers and exca- ter of a percentage point, the first such in- Euro area vators, said that, while tax reform and increase in a decade. More increases were ex- 52 frastructure spending would be good for pected in relatively short order. But the

EXPANDING its businesses, it would not expect to see jitters about China, and then Brexit, meant China 50 large benefits until at least 2018. So far the that it was a full year before the next. It has recovery in global capital spending is in now followed up with another increase in 48 line with what you would expect from the much shorter order (see page 69). 1 Japan South Korea recovery in global profits, says Joseph Lup- 46 CONTRACTING ton ofJPMorgan Chase (see chart 3). The signs of recovery are encouraging. A context for profits 3 44 2015 16 17 But can they be trusted? The last few bursts Global, % change on previous quarter Annualised of optimism about the global economy all 60.5 Taiwan, overall economy index score petered out. In 2010 the rebound from a 30 30 deep rich-world recession was pulled back Profits* STABLE to earth by the sovereign-debt crisis in the 20 25 euro area. As soon as Europe gingerly 10 + TRANSITIONAL emerged from recession in mid-2013, hints 20 0 from America’s Federal Reserve that its – 10 bond-buying programme would soon tail 15 Capital 20 SLUGGISH off prompted a stampede out of emerging expenditures † 30 JFMAMJJASONDJ markets. This “taper tantrum” blew over in proxy measure 2016 2017 a few months, but it had repercussions. 40 200103050709111316 Sources: IHS Markit; Caixin; *Above/below 50 is The prospect of tighter monetary policy in Nikkei; ISM; Taiwan National expanding/contracting America, however distant, hit the supply Source: JP *GDP-weighted, % change on previous year Morgan Chase †Based on shipments of capital goods Development Council compared with previous month of credit in emerging markets. The squeeze 20 Briefing The world economy The Economist March 18th 2017

able to match even that dismal rate. It Room to boost demand 4 would take an astonishing shift in productivity for America’s economy to manage Current-account balance Real interest rates* GDP Change since Q2 2013, percentage points of GDP 2016, % the 4% growth promised by Mr 10123456– + 10123456– + Trump. A less fanciful view is that Ameri- can GDP growth might top 2% this year, a India India bit better than is expected for Europe. Con- Brazil Brazil tinued investment, and possibly deregula- South Africa South Africa tion, could improve productivity some- Turkey Turkey what; but they will not provide a step change. Without one, rich-world interest Indonesia Indonesia rates are likely to stay well below the levels China China that were considered normal before 2007. Russia Russia It is not hard to imagine things that Mexico Mexico might yet derail the recovery. Though there is a cast-iron consensus that nothing bad Source: Thomson Reuters *Policy interest rate minus headline inflation will be allowed to happen before the big Communist Party congress in the autumn, 2 False dawns were perhaps to be expect- nal months of2016, but with inflation tum- China’s growing debt pile could still bring ed: recoveries from debt crises are painful- bling towards the 4.5% target, its central markets tumbling down. Populist victories ly slow. Spending suffers as borrowers bankhascutitsbenchmarkrate bytwo per- in Europe’s various elections could bring whittle away their debts. Banks are reluc- centage points, to 12.25%, since October. about a crisis for the euro. Even if they do tant to write off old, souring loans and so Further cuts are again likely. Other com- not, an end to the ECB’s bond-buying pro- are unable to make fresh new ones. And modity-producers in Latin America (bar gramme, which has kept government-bor- the world has had to shake offnot one debt Mexico, where the peso has weakened rowingcosts at tolerable levelsand even al- crisis, but three: the subprime crisis in since MrTrump was elected) are also relax- lowed a bit of fiscal stimulus to lift the America; the sovereign-debt crunch in Eu- ing monetary policy. economy, will lay bare the euro’s still-un- rope; then the bust in corporate borrowing fixed structural problems. in emerging markets. The recent buds relax and spread The Fed might tighten policy too quick- But the initial and most painful stage of That is the bull case. What ofthe risks? One ly, driving up the value of the dollar and economic adjustment in emergingmarkets is that tighter commodity markets will sty- draining capital (and thus momentum) is coming to an end. Current-account defi- mie consumer spending in the rich world from a recovery in emerging markets. Or cits have narrowed, leavingmost countries by raising prices. But core measures of in- Mr Trump might make good on the repeat- less reliant on foreign borrowing. Their flation that strip out volatile things like ed threats he made in his campaign to raise currencies are a lot more competitive. And food and energy costs remain low: no- import tariffs on countries he considers interest rates are high, so there is scope to where in the rich world have they reached guilty ofunfairtrade, thus taking a decisive relax monetary policy to boost demand the 2% rate that is the goal of central banks, step away from globalisation just as the (see chart 4). Business spending is already the rate seen as necessary for a “normal” world’s main economic blocs are at last rising in response. cyclical recovery. America is closest to that starting to get into sync. The breadth of the improvement—from target; the index preferred by the Fed puts These risks are not new or surprising. Asia to Europe and America—makes for America’s inflation at 1.9%, with the core What brings a freshness to the air is that a greater confidence that a pick-up is in train. rate at 1.7%. In Europe the core rate is stuck cyclical recovery has managed to over- A broad trend is a good proxy for an estab- below 1%, with wage growth of around come them. There may actually be some lished trend, notes Manoj Pradhan of Talk- 1.3% last year; but oil prices have pushed rosebuds to gather, for a while. 7 ing Heads Macro, a research firm. Never- headline inflation backto 2%. theless, some countries are in better shape There is also the risk of expecting too than others. India and Indonesia recov- much. A pick-up in global aggregate de- ered quickly from the taper tantrum; their mand is good news. But growth rates will GDP growth has been fairly strong and always be constrained by how fast the steady. At the other end of the spectrum, workforce can expand and how much ex- Turkey and (to a lesser extent) South Africa tra output can be squeezed from each lookunlikely to see a big revival soon. worker. In lots of places there is scope for In the middle, there are signs that brutal jobs growth; but in America, Japan, Ger- recessions in two of the largest emerging many and Britain the labour market is al- markets, Russia and Brazil, are slowly com- ready quite tight. With America close to ing to an end. Inflation in both countries is full employment, wage growth has picked receding, restoring spending power to con- up to 2.8%, which is consistent with 2% un- sumers. In Russia inflation fell to 4.6% in derlying inflation if productivity growth February, down from a peak of 16.9% two stays around 1%. Pay is growing fastest in years ago. In the three months ending in less well-paid industries, such as construc- September, GDP growth probably turned tion, retailing, hospitality and haulage, ac- positive, according to the central bank, cording to Morgan Stanley, a bank. which has cut its main interest rate from Wages might perk up yet more if pro- 17% in January 2015 to 10% today; more cuts ductivity improved. But the post-crisis are likely. Manufacturing activity grew in slump in productivity growth that has af- each of the seven months to February, ac- fected both rich and developing countries cording to a survey of purchasing manag- shows no sign of ending. In America out- ers published by Markit, a data provider. put per hour rose by 1.3% in the year to the Brazil’s economy shrank again in the fi- final quarter of 2016. Europe has not been Asia The Economist March 18th 2017 21

Also in this section 22 Australia’s gambling habit 23 A BJP triumph in state polls in India 24 Conﬁscating property in India, again 24 Post-war reconciliation in Sri Lanka 25 Sri Lanka’s disappeared 26 Banyan: A foolish war on street food

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

Impeachment in South Korea clashing. A vocal, mostly older minority feels that Ms Park has been the victim of a Rule of eight left-wing witch hunt: on hearing the verdict outside the constitutional court, many wept and blared out the national anthem in defiance. Cheers rose from the jubilant anti-Park camp, as they struck gongs and SEOUL danced to chants of“We won!” The court was unanimous in its verdict, ParkGeun-hye is forced from office, prompting a snap election even though five of the eight judges had a HE blocked investigators from entering after nearly a decade ofconservative rule. conservative bent and two had been ap- Sthe Blue House, the presidential resi- But Mr Moon remains divisive. Many pointed by Ms Park. The charges fell into dence where she had holed up after the associate him with “old-school leftism”, five broad categories: abuse ofauthority in National Assembly asked the constitution- according to Choi Jin of the Institute of the appointment of government officials; al court to remove her from office in De- Presidential Leadership, a think-tank in failure to protect citizens’ lives; violation of cember. She refused to be questioned, and Seoul—cooler on South Korea’s alliance press freedom; receiving bribes; and extor- attended none of the 20 hearings at which with America, warmer on talking to North tion in conjunction with Choi Soon-sil, a the court heard evidence against her. Three Korea. That puts off older voters, who see friend ofmany years. The justices conclud- weeks ago she demanded the ejection of his approach as a threat to the country’s se- ed that there was not enough evidence to one ofthe justices hearing the case. curity (many carried the American flag at prove the first three claims, and did not It all did Park Geun-hye more harm rallies protesting against Ms Park’s im- even address the allegations ofbribery. But than good. On March 10th she became the peachment). Others among the millions of Ms Park could not be trusted to uphold the first president of South Korea to be re- South Koreans who agitated for Ms Park’s constitution, they said, since she had di- moved from office by the court, which up- removal from office expect the next presi- vulged state secrets to Ms Choi (who held held the assembly’simpeachmentmotion. dent to satisfy their demands for a fairer no official position) and colluded with her It determined that she had not only con- political system. to coerce conglomerates to funnel dona- spired with a confidante to extort money Three partieshave formed a coalition to tions to two cultural organisations that Ms from big firms, but had also attempted to call for a separate referendum to be held Choi controlled. conceal her wrongdoing. Ms Park was per- alongside the vote on May 9th, to limit the The court also said that Ms Park’s at- manently removed from office, cutting presidential term to four years with the tempts to hide the truth had hindered a short her five-year term by11months. possibility of a single re-election, as in parallel investigation by a special prosecu- For the time being Hwang Kyo-ahn, the America. Mr Moon says he supports some tor, whom she herself had appointed in prime minister at the time of Ms Park’s im- such reform in principle, butdoesnot want December after accusing the state prosecu- peachment, will stay on as acting presi- to rush the decision or muddy the election tors ofbias. The justices noted that she had dent. But the court’s decision means that campaign with it. Mr Choi says the ques- repeatedly pooh-poohed the accusations an election for a replacement must be held tion of whether there should be institu- against her, “damaging the rule of law and within 60 days; itwassetthisweekfor May tional checks on the head ofstate will be at representative democracy”. The aloof and 9th. Moon Jae-in, a former head of the op- the heart ofthe election. imperious style that characterised Ms position Minju party, who ran against Ms For Ms Park’s successor, building con- Park’s presidency also cut it short; Choi Park in 2012, is the favourite to win. His ap- sensus will be crucial, says ParkHyung-jun Jong-kun of Yonsei University says she proval ratings hover around 32%, a full 15 of Sungkyunkwan University (no rela- “looked down on the entire legal process”. percentage points ahead of the next-most- tion). Hard generational divides have sur- Three-quarters of South Koreans ap- popularcontender, Ahn Hee-jung, another faced in the scandal: in recent weeks police proved of Ms Park’s impeachment—an ex- progressive. Mr Moon says he can bring have set up barricades at large demonstra- traordinary reversal for a dynast whose as- jaejosanha: a rebuilding of the country, tions to stop Ms Park’s friends and foes cent to the presidency had long seemed 1 22 Asia The Economist March 18th 2017

2 inevitable. She herself believed she owed while beingtried forbribery. Samsung was neurotransmitter, explains Charles Living- it to her parents: Park Chung-hee, who the biggest donor to Ms Choi’s founda- stone, of Monash University in Mel- served aspresidentfor18 yearsafterseizing tions—handing over 43bn won ($38m)—in bourne—“similarto the pattern occasioned power in a coup, and YukYoung-soo. Both return, prosecutors allege, for government by a cocaine addiction”. were assassinated in separate incidents in support for a controversial corporate re- Most Aussies dabble sensibly enough, the 1970s. Ms Park became an MP in 1998, structuring in 2015. Samsung admits it gave but almost halfofthe money sunkinto the and the leader of the main conservative the funds, but says the donations were not pokies is spent by problem gamblers, often party in 2004. Much of her support in return for any favours. Ms Choi (who, from poor areas. It is not difficult to make stemmed from a stubborn reverence for the special prosecutor revealed, owns 36 the case for change. In 2010 a government her father felt by older voters. properties and whose personal wealth advisory body estimated that the social On March 15th state prosecutors sum- stands at 23bn won) is also on trial. costs of gambling are at least A$4.7bn a moned Ms Park, who has lost her immuni- South Koreans will expect to see swift year. Among other measures, it recom- ty from criminal investigation along with progress on these momentous trials, and mended reducing the amount a player can her job, as a suspect in the months-long in- due punishment. Every president since the spend per spin to A$1 (the current maxi- vestigation into her alleged abuse of pow- country’s democratic transition in the mum is A$10), and introducing mecha- er and the sordid collusion between politi- 1980s has been ensnared by corruption nisms to allow gamblers to set limits on cal and corporate elites. High-ups in the scandals. The shift to a fresh political their losses. chaebol, family-owned conglomerates set-up fit for a modern, vibrant democracy Politicians have little appetite to see which prospered under Ms Park’s father, has been too long delayed, says Mr Park of such measures through, however. State have routinely been convicted of criminal Sungkyunkwan University. In the early and territorial governments are responsi- wrongdoing, then offered presidential par- days of the scandal protesters, outraged by ble for regulating most forms of gambling. dons. Ms Park herself granted dozens, de- what they saw as a complete institutional They rake in A$5.7bn a year in taxes from spite a campaign pledge to limit a practice breakdown, held placards asking, “Is this a the industry—income that has been espe- that “undermined the rule oflaw”. country?” The day after the verdict, hun- cially welcome as royalties from mining This time Lee Jae-yong, heir to the Sam- dreds brandished new ones: “This is a have fallen. The federal government could, sung empire, has been put behind bars country. This is justice.” 7 in theory, intervene. But the gambling lobby derailed the most recent such attempt, in 2012, when it caricatured a proposal to Gambling in Australia oblige gamblers to set limits on their losses as requiring Australians to obtain a “li- The biggest losers cence to punt”. The gambling industry says that it generates thousands of jobs and makes huge “social contributions”, including sponsor- ing sports teams and providing subsidised SYDNEY food in clubs such as the Revesby. “They do a hell ofa lot ofgood workin places where No country wagers more the government is slow to act,” says one BILLBOARD promotinghuge cash jack- ageing punters sip beer and smoke ciga- former MP. Yet the industry does not leave Apots hangs over the highway ap- rettes as they await a payout from the “po- regulation to chance: it donates lavishly to proachingRevesby Workers’ Club, in a run- kies”, as the machines are known. Most both big political parties and to indepen- down suburb in western Sydney. Cafés, will leave disappointed: gamblers lose dent politicians. “This corrupts gover- restaurants, a hairdresser and a gym are all A$330m ($255m) a year at clubs in Canter- nance,” argues Andrew Wilkie, an inde- housed inside the refurbished block. Yet bury-Bankstown, the local municipality. pendent MP who instigated the attempt at the rooms full of electronic slot machines This is no anomaly. Australia fritters federal regulation in 2012. “No different are among its chief attractions. Rows of away more money per person gambling from a bribe.” 7 than any other country. According to H2 Gambling Capital, a consultancy, the aver- Losing streak age adult lost $990 in 2016; 49% more than Biggest gamblers, loss* per resident adult, $ Singaporeans, the next-biggest losers. Ac- 2016 estimate cordingto an old saying, theywould bet on Gaming machines (non-casino) Casino two flies walking up a wall. The pokies are Betting Lotteries Online Other farand awaythe mostpopularform of flut- 0 200 400 600 800 1,000 ter, accounting for over half of annual Australia 18.3 losses (spending on gambling minus the payouts from it) of$18bn (see chart). Singapore 5.9 That is partly because of the prolifera- Ireland 2.2 tion of pokies: after decades of liberalisa- Finland 2.1 tion, the country is peppered with some United 116.9 197,000 machines—one for every 114 peo- States ple. Most states allow them in pubs as well New 1.6 Zealand as clubs like the Revesby; only Western Canada 12.4 Australia restricts them to casinos. Punters Norway 1.6 can betbigand often, incurringlosses ofup to A$1,200 an hour. Critics say the pokies Italy Total losses 19.0 by country, are designed to get players hooked. Their Britain $bn 18.0 many potential combinations, “near *Stakes minus payouts, misses” and promises ofbig payouts cause Source: H2 Gambling Capital excluding expenses the body to release dopamine, a feel-good Electronic cocaine The Economist March 18th 2017 Asia 23

plex mechanism, which is why opposition parties still hold a majority. But with the BJP now running 13 of India’s 29 states, including several of the biggest ones, it is a matter of time before the Rajya Sabha, too, turns the party’s trademarkorange. The chattering classes in Delhi, India’s capital, had largely discounted a big win for the BJP. The conventional wisdom was that the party had peaked in the 2014 general election that brought Mr Modi to power; since then it had deflated under pressure from resurgent smaller parties, and been punctured outright by the folly of “demonetisation”—Mr Modi’s decision last November to scrap most of India’s paper currency. But though India’s poorest were also the worst hit by the shocking move, many nevertheless appeared to trust the prime minister’s assertion that it was all for their own good. So Mr Modi, quipped one wry tweet, has in effect de- monetised elite opinion, too. Along with Uttar Pradesh and its 220m people, the BJP captured three smaller states. In a particular humiliation for Con- State elections in India gress, which was the main force behind In- dia’s independence movement and has A lotus in full flower dominated national politicsformostof the past 70 years, Mr Modi’s party actually captured fewer seats than its rival in Mani- pur and Goa (see chart), yet still managed to form the government in both states VARANASI while Congress dithered. Nitin Gadkari, a heavyweight minister known for his bar- The party ofNarendra Modi drubs the opposition in UttarPradesh gaining skill, rushed to Goa as soon as re- NDIAN media called it a watershed, a pointofthe national parliament’sfive-year sultswere called and haggled into the early Itsunami, the dawn ofa new political era. term. With no opponent remotely ap- hours to forge a coalition. In the north-east- But one cartoonist painted a humbler pic- proachinghisstature likelyto emerge soon, ern state ofManipur, Congress needed just ture of the elections in five states, the re- the general election in 2019 should prove a three more seats to gain a majority. The BJP sults of which were announced on March low hurdle. needed an extra ten, yet still mustered the 11th. His drawing of a crumpled bicycle, a The tally of 312 out of Uttar Pradesh’s numbers first. bandaged hand and a dying elephant 403 state legislators will begin to count Better-run at the top, the BJP is also for- poked fun at the symbols of three parties sooner than that. State MPs vote in indirect midable on the ground. At a modest party that fared poorly in the most important elections for both the Rajya Sabha, India’s headquarters in the Hindu pilgrimage city vote, in Uttar Pradesh, India’s most popu- upper house of parliament, and for India’s of Varanasi a day after the election results lous state. The Bahujan Samaj Party (the el- presidency, a position that will fall vacant were announced, local party officials de- ephant) and an alliance between the Sa- in July. Although Indian heads ofstate play ferred to a younger man described as the majwadi party (the bicycle) and Congress a largely ceremonial role, the post carries overall commander of their campaign in (the hand) had both assumed they would importantprivileges; MrModi isnow, in ef- this part ofUP. He turned out to be a prach- match or outdo the Bharatiya Janata Party fect, able to choose who holds it. The Rajya arak or devotee of the Rashtriya Swayam- (BJP) of Narendra Modi, the prime minis- Sabha, meanwhile, has been a check on sevak Sangh (RSS), a right-wing Hindu vol- ter. Neither the BJP’s own pundits, nor the the BJP’scontrol ofthe central government. unteer group with a membership thought most enthusiastic pre-election polls, nor Its membership changes slowly by a com- to top 5m. Taking no salary, he slept on a 1 even illegal betting rackets had thought the party could capture much more than half of Uttar Pradesh’s seats. Yet in the end the Tangerine dream BJP, whose symbol is an orange lotus, saw Indian state-assembly elections, February-March 2017 BJP Congress Other its 40% ofthe vote magicallyboosted by In- Seats won as % of total, by party BJP ally Congress ally Population, m 2017 estimate dia’s first-past-the-post system into 77% of the seats in the state assembly. 0 20406080100 Despite the hyperbole, this was a stun- Uttar Pradesh 221 ning win. One in six Indians lives in Uttar Punjab 29 Pradesh (often shortened to UP), a state Uttarakhand 11 that straddles the Hindi-speaking heartland that tends to set the national agenda. Manipur 3 Its capture gives a powerful boost to Mr Goa 2 Modi, who had appeared to lose momen- The Economist tum in recentmonthsashe passed the mid- Sources: Election Commission of India; Census of India; 24 Asia The Economist March 18th 2017

2 camp bed in the building for nine months propertyoutofgovernmentcustodianship Post-war reconciliation in Sri Lanka in the lead-up to the voting. after the 1968 act will be retroactively re- While other party men ascribed their voked. And civil courts will be barred from Still riven victory to the BJP’s openness to many hearing any disputes over such property castes, in contrast to the narrow bases of from now on. several other parties, or to its record of de- Whatthe legal mumbo-jumbo meansis velopment, or to Mr Modi’s personal cha- that some 2,100 properties seized in the COLOMBO AND JAFFNA risma, the pracharak has no doubt as to the wake of wars with Pakistan and China in Measures to placate disenchanted secret. “Itis100% organisation,” he says, de- the 1960s will forever remain the property Tamils are advancing at a snail’s pace scribing how his team recruited some of the Indian government. There is, of 5,000 volunteers for each of the 71 voting course, also a subtext: nearlyall the proper- E ARE like dogs in the street, while districts in his purview, and spent a full ty concerned belonged to wealthy Mus- “Wyour men occupy our homes,” year canvassing voters to choose candi- lims, and the need to “tighten” the law re- read one ofthe banners strung up by Tamil dates likely to win. Asked why rival parties flects the fact that several of them or their protesters, mostly women in saris and rag- had not repeated a winning strategy used heirs have successfully fought in Indian ged children. They had been camping for in the neighbouring state of Bihar, where a courts to reclaim it. more than a month in a jumble of make- broad coalition defeated the BJP in 2015, his In 2005 India’s supreme court ordered shift tents on a baking, dusty roadside near answer is indirect. “We learn from our mis- the government to hand over most of the a Sri Lankan air-force base in the country’s takes,” he says with a quiet smile. The oth- property of the former Rajah of Mahmud- remote north-east. They said that the ers, apparently, do not. 7 abad, once one ofthe wealthiest landown- armed forces, consisting almost entirely of ers in Uttar Pradesh, to his sole heir, Mu- Sinhalese from the island’s south, nabbed hammad AmirMuhammad Khan. The late their land at the end ofa long-running civil Parliamentary trickery in India rajah lived briefly in Pakistan, and fool- war nearly eight years ago and have re- ishly took its nationality before retiring to fused to give it back, despite the promises An obsession with London, where he died in 1973. But his son of a kindlier reformist government elected grew up in India and never lost Indian citi- two years ago. The government recently expropriation zenship. Armed, after 32 years of legal bat- said it would return some of the disputed tles, with the supreme court’s ruling, Mr property, but the protesters are unas- DELHI Khan did manage to secure some of the suaged. It is just one of the many griev- seized propertiesfora spell. Butfor the past ances of Sri Lanka’s disaffected Tamils, The government goes to great lengths to decade successive governments have who feel that reconciliation between them avoid returning confiscated property found ways to obstruct repossession. and the Sinhalese majority is stalling. T WASpassed on a hasty voice vote, with He is, understandably, affronted by the Hopes of harmony rose two years ago Ionly31ofthe Rajya Sabha’s244 members government’s apparent obsession with when Maithripala Sirisena, who is Sinha- present. All were from the ruling party and preventing the return of property to a law- lese, was elected president with the over- ten, oddly enough, were cabinet minis- abiding Indian citizen, to the point of pass- whelming support of the Tamils, who ters—an exceedingly rare sight on a quiet ing laws that are very likely to be over- make up 15% of Sri Lanka’s population of Friday afternoon, reserved by tradition for turned as unconstitutional. “I suspect 21m or so. The island’s Tamil-speaking private members’ bills. The few opposition there is a desire on the part of the present Muslims, who are treated as a separate eth- MPs at hand had walked out in protest. dispensation not to allow any Muslim to nic group and often feel done down by Their ire was warranted: the government go beyond a certain limit,” muses MrKhan. both sides, make up a further 10%—and had promised that this particular bill, “The message is that we must do menial also largely backed MrSirisena. The Tamils which the Upper House had already work, and study in madrassas so then they were particularly delighted by the shock blocked both on the floor and in commit- can blame us forbeing anti-modern.” 7 defeat ofMrSirisena’s chauvinistic and au- tee, would not be tabled. tocratic predecessor, Mahinda Rajapaksa, Mr Modi’s government has shown a who had exulted in the crushing ofthe Lib- strange determination to pass the bill. Five eration Tigers ofTamil Eelam, a Tamil sepa- times—a first for India—since coming to ratist group, in 2009, despite the devastat- power in 2014 it has imposed the law as a ing loss oflife and property in Tamil areas. presidential “ordinance”, a legal sleight of Mr Sirisena duly set about a raft of re- hand left over from the British Raj that al- forms. He aims to present a new constitu- lows governments to impose laws by de- tion to parliament soon, and to the public cree as long as they are confirmed by par- in a nationwide referendum before the liament within six months. end of the year. Presidential powers are to The ponderous title of the stealth legis- be clipped in favour ofparliament. Greater lation is the Enemy Property (Amendment devolution to the provinces, including and Validation) Act. It revises an already powers overpolice and land registration, is controversial law, passed in 1968, which al- intended to satisfy Tamil demands for self- lowed the Indian state to seize properties rule without resorting to full federalism, owned by its “enemies”, which was to say which is a dirty word formost Sinhalese. people of Pakistani or Chinese nationality. Other legislative proposals are intend- The new law redefines the word “enemy”, ed to tackle the vexed question of “transi- so that those designated as enemies will tional justice”: creating an office for miss- remain so even if India and the country ing persons to chronicle the thousands of concerned start getting on famously. It also people abducted or killed in the war (see decreesthatall the heirsofthe original “en- next article); replacing the Prevention of emy” should also be considered enemies, Terrorism Act, which has allowed suspects in perpetuity, even if they hold Indian citi- to be held without trial forup to 18 months; zenship. Furthermore, any transfer of such Enemies keep out! providing for compensation for property 1 The Economist March 18th 2017 Asia 25

2 seized or destroyed in the war; setting up a Sri Lanka’s disappeared truth-and-reconciliation commission; and, separately and most controversially, creating a hybrid court involving foreign judges No closure and lawyers, where those accused of per- VISUAMADU petrating the worst atrocities may be tried. The wounds ofcivil warremain raw On March 22nd the UN’s Human Rights Council in Geneva, which issued a remark- STILL believe he’s alive,” says Thar- as they are known, have re-emerged from ably tough resolution in 2015 that lam- “Isini Santhirabose with a glazed, government “rehabilitation” camps. basted the previous government and pro- fixed smile. She last saw her husband, a Many Tamils believe that secret deten- posed most of the measures listed above, fellow guerrilla forthe Liberation Tigers tion camps still exist. Others claim, bi- will assess progress towards reconcilia- ofTamil Eelam, in the final days of the zarrely, that the government has sent tion. It will probably issue a “rollover” res- civil war that ended with the Tigers’ thousands ofdefeated fighters to undis- olution co-sponsored by Sri Lanka’s gov- obliteration in 2009. Up to 40,000 civil- closed destinations abroad. Many also ernment, which will reiterate its promise ians were killed, according to the UN, say that the Sri Lankan army’s reluctance to do all these things. The Tamils want to along with most ofthe remnants ofthe to give backland now used as army bases keep up international pressure. The gov- 10,000-strong separatist army and per- is because they do not want mass graves ernment wants the world to stop chiding it. haps 5,000 hangers-on. The chances that to be discovered. The trouble is that on most of these Ms Santhirabose’s husband will reap- One of12 children ofa poor fish- fronts the Sri Lankan authorities have pear are virtually nil. erman, Ms Santhirabose, now 34, says been, at best, marking time. Mr Sirisena’s No one knows precisely how many she volunteered to join the Liberation government is a coalition of two normally died or disappeared in the war. A fervent- Tigers ofTamil Eelam when she was15, adversarial parties, one of which was for- ly Tamil-nationalist Catholic bishop along with three ofher siblings, and merly in thrall to Mr Rajapaksa. His many claims that, afterthe 26 years offighting, married another fighter when she was Sinhalese-nationalist admirers care little 147,000 people, civilians and fighters, 20. Her parents now live in Canada; forreconciliation and resentpandering—as remain unaccounted for. The foreign several siblings are in France. As a regis- they see it—to the sensitivities of the tire- ministry says that more than 65,000 tered ex-combatant scratching a living some Tamils. The possibility of foreigners queries about missing people have been from farming, she says she is watched by judging Mr Rajapaksa’s triumphant gener- received since 1994. the authorities and discriminated als war criminals enrages most Sinhalese. A few thousand formerTiger “cadres”, against. She still has shrapnel in her head Mr Sirisena has let it be known that he from an old wound. cannot achieve both the tricky constitu- Her loyalty to the Tigers’ cause and to tional reforms and the even touchier busi- its leader, Velupillai Prabhakaran, who ness of transitional justice at the same was killed in the final battle, is unshaken. time. He wants to be allowed to do them She says she has no regrets about joining one by one. “Transitional justice will fail if up, despite Prabhakaran’s record ofbru- war crimes becomes the pivot,” warns Je- tality: the Tigers suicide-bombed buses han Perera, a prominent human-rights ac- and banks, forcibly recruited children tivist. Mangala Samaraweera, the foreign and routinely assassinated any perceived minister, admits that “people with the old foes, Tamil and Sinhalese alike. “The war Rajapaksa mindset in key positions are ob- was lost only because he was betrayed,” structing key reforms”, but pleads for pa- she laments, citing a close lieutenant tience, insisting that reform is still broadly who defected with several thousand on track. “The same torturers are still fighters in 2004. there,” laments a veteran of the UN’s Hu- “In those days life was good. We slept man Rights Council. safely. No crime. We had our own econ- The Tamils are increasingly frustrated. omy.” Like many Tamils, she suggests that The north and east, where Tamilspredom- foreign governments should intervene. inate, are poorer than most of the south “Does the world thinkit is right for the and depend largely on remittances from There are thousands of candles to light Tamils to be treated as slaves?” the diaspora ofseveral million in Australia, Britain, Canada, Malaysia and the Middle East, many of them fugitives from the civil ils’ demoralisation and loss of a work eth- Mr Rajapaksa’s supporters claim that war. Few have returned to invest. There are ic. A bigwig in Jaffna’s chamber of the disaffected Tamils are about to regroup no international flights from Jaffna, the commerce bemoans the lack of support and plot a bloody new rebellion. That is main city ofthe Tamil region, even to near- from the central government: “It wants to improbable, since the Tigers’ military de- by Chennai, the capital of the Indian state enslave us, colonise us, get us to send our feat in 2009 was so total. Indeed, in the of Tamil Nadu. The local airport is run by young men away abroad.” short run the Tamils have few levers of any the air force. The government has built Tamils pour scorn on the Tamil Nation- kind to secure better treatment, as wit- new roads but spent little on social or agri- al Alliance (TNA), their main representa- nessed by their straw-clutching hope that cultural development. Fishing, once a big tive in the Tigers’ absence, which won international pressure may somehow source ofemployment, has slumped. most parliamentary seats in Tamil areas come to their rescue. But in the longer run Indebtedness, especially among the two years ago. Though technicallyin oppo- Sri Lanka needs Tamil acquiescence. “Ifwe disproportionately large number of fam- sition to the coalition government in Co- fail to address transitional justice and Tam- ilies headed by single mothers, is rife. So lombo, the national capital, the alliance il youth feels that the Sinhalese south will are drugs—heroin as well as cannabis— nonetheless seeks to co-operate with Mr never address Tamil grievances, there’s smuggled across the narrow channel from Sirisena in his quest for constitutional re- nothing to stop the next generation being India. An international banker, who has reform and transitional justice. As the presi- pushed towards a new terrorism,” warns turned to retire in Jaffna, laments the Tam- dent falters, the alliance looks feeble, too. Mr Samaraweera. 7 26 Asia The Economist March 18th 2017 Banyan Vanishing pork shanks

South-East Asian cities are waging waron street food. Big mistake at midnight. Luung Pan, who sells pork-noodle soup and dump- lings with his son just up the street from Ms Jae Deh, starts cooking at 4am and rarely makes it home before 9.30pm. But he takes tremendous satisfaction in having fed the same people for a decade. He prides himself on how few of his customers feel the need to season their meal with the condiments he sets out on each table: “I know my soup is number one.” Says Mr Su Kit: “We are happy. We can workas a family and we have our own place.” But trouble looms. Unless there is a sudden and unlikely re- prieve, vendors will no longer be able to sell food on Soi Thong Lo’s pavements afterApril 17th. Local officials have decided to bar them from the footpath, on the grounds that they impede pedestrians, make a mess and attract vermin. The displaced vendors can at least find company in their misery: over the past two years Bangkok’s municipal government has evicted almost 15,000 hawkers from the city’s pavements. Previous governments threatened to crack down; this one, obsessed as it is with public order, is actually doing it. Other vendors have lost their space to landlords cashing in on Bangkok’s booming property market, particularly in the area around Thong Lo. Bangkok’s government is not the only one seekingto “tidy up” HE taxi-driver parks in the way a drunkard falls asleep: sud- its streets. Authorities in Ho Chi Minh City are moving vendors Tdenly, with little regard forhissurroundings. He leaps from his away from congested areas, and “advising them on more stable cab, eyes alight with anticipation, striding toward Jae Deh. She ways to make a living”. A similar drive is under way in Jakarta. shouts at him, pointing at the bucket of bones at her feet: “You’re Soi Thong Lo’s hawkers are scrambling to secure their liveli- late! All finished!” The cabbie, who has the gelled hair, tinted avi- hoods. MrSu Kit points to his hair, which is shorn on the sides but ator glasses and raspy voice of a low-level mafioso from New Jer- sprouts, turnip-like, into a topknot on his crown: “Thinkingabout sey, staggers backwards as though he’s been shot: “I’ve been com- what to do has turned my hairwhite.” He found a shop one street ing here for ten years! Youdidn’t save any for me?” Ms Jae Deh’s away, but that would cost him 30,000 baht a month to rent—com- mock-stern look collapses into merriment. She points him to- pared with his current 1,000-baht fee to the district—as well as a wards the nearest table, handing him a plate ofrice and a bowl of 100,000-baht deposit. Mr Luung Pan wonders whether a nearby braised pork. He helps himselfto a couple ofchilies and a corian- bank might rent him part of its outside space. Jane says she may der frond, keeping up a steady patter with Ms Jae Deh and her just go back home to Chiang Mai, a northern city. husband, Su Kit. For the most part, Bangkok’s hawkers have proved to be adept The couple has been selling khao kha moo (rice with stewed improvisers. Thrown off the streets, they have recongregated in pork shanks) on Soi Thong Lo, a side street off one of Bangkok’s basements and courtyards. As long as a demand exists for cheap, main roads, since 1987, when they were just 16. Now their adult quickfood, supply will follow. daughter works alongside them. The family is not rich, but Mr Su Singapore faced this problem years ago, and moved its hawk- Kit says that on a good day they clear around 4,000 baht ($113). ers off the streets into dedicated, convenient “hawker centres”, Like manyofBangkok’sstreet-food vendors, theycame to the city with running water and regular hygiene inspections. That may from Isaan—Thailand’s poor and dusty north-east—in search of a be feasible for a small rich country, but not for big poor ones such better life. And they have built one, shankby shank. as Indonesia or Myanmar. Even ifit were feasible, it would not be So have millions of familieslike theirs across South-East Asia. desirable. Street stalls may cause a bit ofcongestion and disorder, As the young and ambitious have moved from fields to factories, but they also make urban life more vibrant. makingthe region amongthe world’s fastest-growingand fastest- urbanising, others have moved to feed them. In cities, time is Hawkish on hawkers scarce and dwellings are small: people need something cheap, Banyan hopes that Bangkok’s government—and the authorities filling and convenient. Rickety plastic tables spread across pave- in the region’s other megacities—look beyond the superficial in- ments all over South-East Asia, offeringa quickmeal of pho (noo- conveniences caused by street-food vendors, and think harder dle soup) in Saigon, khao kha moo in Bangkok, mie bakso (meat- about their role in the city’s fabric. There is a reason food trucks ball and noodles) in Jakarta and mohinga (fish soup) in Yangon. have begun to populate the streetsofAmerican and European cit- Office workers in pressed shirts and builders in orange jumpsuits ies: not everyone wants the formality of a restaurant, much less sit cheek by jowl. According to the UN’s Food and Agriculture Or- the anomie ofa sandwich at a desk. ganisation, 2.5bn people eat street food daily. The most recent Asia’s hawkers do not just provide cheap, delicious food for study available, from 2007, found that Bangkok’s 20,000 vendors the masses. They also embody the beatingheart ofa national cui- provided residents with 40% of their food; two-thirds of house- sine. Perhaps most important, they create a community: the holds ate at least one meal a day on the street. chance for citizens of all classes to rub shoulders over a bowl of Providing those meals is not an easy life. Jane, a no-nonsense noodles swimming in fish broth. Move the vendors along, and woman who does a brisklate-night business in papaya salad and people will still find places to fill their bellies. But they will have a hotpots, begins setting up around 3pm; her tables are still packed harder time finding each other. 7 China The Economist March 18th 2017 27

Also in this section 28 At last, a civil code takes shape 28 Grumbling in the football stands

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

China and South Korea ders). Others have been warning customers that it is dangerous to go. Airlines from Nationalism unleashed both countries have been reducing services. On March 11th about 3,000 Chinese tourists refused to leave their ship when it docked at the South Korean resort of Jeju, apparently in protest against THAAD. BEIJING The Chinese government may be rel- ishing the opportunity that THAAD has Officials are whipping up angeragainst South Korea, but are wary ofunrest provided to push back against what offi- HE aisles at Lotte Mart in Beijing’s “erroneous decision”. The Global Times, a cials sometimes call South Korea’s “cultur- TWangjing district were strangely quiet jingoistic newspaper in Beijing, has en- al infiltration”: its popular music (“K-pop”) early this week. A few elderly shoppers couraged Chinese consumers to “become and television dramas have huge Chinese pushed trolleys; shop assistants tidied the the main force in teaching Seoul a lesson”. followings. No South Korean artist has supermarket’s shelves. Customers have It said they should “make it hurt”. been granted approval to perform in China been scarce since “somethinghappened” a Censors often try to rein in online dis- since September. Appearances by a fam- few weeks ago, says one cashier. That cussion when it threatens to boil over into ous South Korean soprano, a concert pia- event was a deal signed on February 28th real-world protests. But they are allowing nist and a popular boy-band, EXO, have all by Lotte, a South Korean firm, allowing netizens to vent rage at South Korea. One been cancelled. Companies and TV sta- America to build an anti-missile system on group of online nationalists called on “all tions have been urged to “fine-tune” per- land the company owns in South Korea. patriots to unite and show South Korea formances by South Koreans: a K-pop star China’s government has responded by en- what we can do”. Afamous beauty blogger had his face blurred on a reality show. Chi- couraging an outpouring of public anger exhorted the 2.7m followers of her micro- nese streaming platforms have removed directed not just at Lotte, whose shops in blog to boycott goods from the country some South Korean programmes. South China are now being boycotted, but al- and not to travel to it. A patriotic pop-song Korean celebrities now find it hard to re- most anything South Korean. has been played more than 3.5m times new advertising contracts in China. Nationalism is a familiar weapon in since its release on March 8th. It includes China’s diplomatic armoury. The last time the lyrics: “Chinese sons and daughters Careful calibration the government made such a sustained ef- must stand up; everybody, stop buying But China’s leaders worry about any pop- fort to whip it up was in 2012, shortly be- Lotte; make them get out ofChina fast.” ular movement that does not involve the fore Xi Jinping came to power, when offi- Lotte owns about 100 supermarkets in Communist Party—even one that is led by cials encouraged protests against Japan’s China, as well as other businesses. They nationalists who profess to be on the gov- nationalisation of islands it controls in the have been badly hit. The company has ernment’s side. Mr Xi, despite his own East China Sea that are also claimed by been subjected to sudden and simulta- nationalist rhetoric, has been wary of let- China. South Korea isnota usual target. But neous tax and safety inspections. Ten ofits ting passions flare too high. Officials tried China is furious at its decision to deploy shops have been shut for violating fire to dampen them last year when a tribunal the missile-defence system, known as codes. The website of Lotte Duty Free in The Hague rejected China’s claims in the THAAD (the first components of which ar- crashed aftera cyber-attack. Several e-com- South China Sea. Only a few small protests rived in South Korea on March 6th). Ameri- merce sites have stopped selling Lotte’s erupted. The party’s main mouthpiece, the ca says THAAD will help defend the penin- goods and some suppliers have ceased do- People’s Daily, praised the public’s low-key sula against North Korea. China says ing business with the company. response at the time as evidence of a America will use the system’s powerful ra- The tourism industry has also been dis- “brand-new level ofpatriotism”. dar to “snoop” on its missiles too, reducing rupted. South Korea is normally a popular In the case of THAAD, the government their potency as a deterrent. destination, butmanyChinese travel agen- clearly believes that a more heated public In recent weeks state media have been cies have recently reduced or halted trips response may persuade South Korea’s next publishing daily attacks on South Korea’s there (seemingly on the government’s or- president, who is due to be chosen in May, 1 28 China The Economist March 18th 2017

2 to reconsider its deployment (see page 21). Football But officials are still anxious. There were more police outside Wangjing’s Lotte Mart this week than customers inside. Some New rules, new dodges dozed in vans, waiting in case oftrouble. A protest against South Korea on March Chinese football clubs are struggling with new curbs on foreign players 5th in the north-eastern city of Jilin con- veyed a hint ofwhat the government fears: UCH grumbling accompanied the this is part ofan economy-wide clamp- that protesters may use displays of patrio- Mstart on March 4th ofthis year’s down on currency outflows. But it also tism to vent other grievances. Some de- season ofthe Chinese Super League wants to make the point that foreign monstrators in Jilin carried portraits of (CSL), the uppermost tier ofprofessional talent won’t necessarily help China’s. Mao Zedong (pictured, previous page). De- football in China. Managers ofits16 clubs The government has recently scuppered spite appearances, these do notnecessarily have been gnashing their teeth at a several investment deals. A Chinese suggest agreement with the party line. Peo- change ofrules which was suddenly consortium bought AC Milan, an Italian ple sometimes use them to poke at the cur- announced just a few weeks before the club, for $825m in August, but has been rent leadership—Mao symbolises an era first matches. Teams are now allowed to unable to move money out ofChina to that was, as some Chinese remember it, a field a maximum ofthree foreigners. complete the purchase. better one for the underprivileged. Mr Xi The clubs would have preferred more Rather than simply moaning about worries about THAAD, but trouble at notice. Many ofthem have only just the new rules, clubs have been devising home disturbs him more. 7 acquired even more foreign players. All ways ofdodging them. Teams must now now have at least four, the previous field at least one Chinese player under 23 maximum per side in any CSL game. each week. Some coaches simply replace Civil law (One ofthem, a Brazilian called Oscar, is them early in the game with older hands. pictured in a CSL match—he was trans- Code red ferred to Shanghai SIPG from Chelsea, an English club, for£60m, or about $75m, in December.) Last year China spent more than $450m on footballers, the fifth- BEIJING largest such outlay by any country. But all this money has not improved China finally starts to organise its legal the dismal state ofChinese football. The principles men’s national team ranks 82nd in the HE National People’s Congress (NPC), world. In October an embarrassing1-0 TChina’s rubber-stamp parliament, defeat to war-torn Syria triggered protests wrapped up its annual session on March by hundreds offans in the city ofXi’an 15th. Usually its business is unremarkable. where the match was played. Local me- This year, however, a piece of legislation dia say the Chinese Football Association that was passed on the final day may prove announced its new rules on orders “from unusually important. It is known by the above”. They impose a levy on big trans- unlovely name of the General Principles fers and demand that one-sixth ofclubs’ of Civil Law. It sets the stage for China to spending must be on youth training. pass its first civil code, an overarching law Officials have also been trying to curb governing legal disputes other than those the buying ofstakes in foreign clubs— involving crimes. Chinese investors shelled out about $2bn China has a civil-law system, which on them last year. The government says Is he worth it? means that statutes are essential reference forjudges. (In common-law countries such as Britain and America, verdicts are also ciples is the first fruit. It covers everything are in the tort bill of 2009. But their inclu- decided according to precedent: ie, previ- from individual rights and the statute of sion in the revised preamble gives them ous rulings by courts.) But under Commu- limitations to whether fetuses can own more authority. nist rule, China has muddled through property (they can). Not all the changes are for the better. In without a unified civil code. It has bits of The preamble updates and expands a section on protecting personal reputa- one. It passed an inheritance law in 1985, a one that was adopted in 1986, when the le- tions, the new preamble makes it an of- contract law in 1999 and a property law in gal system still looked much like the Soviet fence to defame “heroes and martyrs”. 2007. But there are big gaps and inconsis- Union’s. In defining a company, for exam- That is likely to have a chilling effect on his- tencies. The Supreme People’s Court, the ple, the old principles talked only about torical inquiry. Qiao Xiaoyang, the head of highest judicial authority, issues directives state-owned or collective enterprises, as the NPC’s law committee, says the civil in an attempt to sort these out. well as joint ventures with foreign firms. code “upholds private rights”. But the ones The country has been trying to write a The new preamble has a more useful defi- mentioned in the law, such as the rights to civil code since 1954. But China’s then ruler, nition: “a legal entity established for the life, health, and reputation, do not cover Mao Zedong, was lukewarm about it—he purposes of making profits”. The old ver- the full range. did not want any law that might restrict his sion did not mention privacy. The new one A civil code—embracing laws ofproper- power. China’s current leaders are far says citizens have a right to it. The old prin- ty, contract, inheritance, family and mar- keener to have one. They hope it will pro- ciples said that “where there is no provi- riage—will not guarantee fairness. The vide a stable legal framework for a rapidly sion of law, activities must be in accor- Communist Party will continue to ignore evolving society racked by increasingly dance with state policy.” Strikingly, that the law when it wants to. But for all the le- complex disputes. In 2014 they decided to clause has been deleted. gal system’s flaws, many people still use it. try again, aimingto write one by 2020. This Some of the new principles have been The code may make it less opaque and out- week’s approval ofthe code’s general prin- set out before. Privacy rights, for example, dated, and judges’ lives easier. 7 United States The Economist March 18th 2017 29

Also in this section 30 Rules for drone strikes 31 The incarcerated workforce 32 Biography of a gun shop 32 America’s missing servicemen 34 Lexington: Deal breaker

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

Exceptionalism ple make their own luck than people in countries with more developed welfare Wagner vs Wagner states. According to a Pew global attitudes survey, 31% of Germans think that success is determined by forces within their control, whereas 57% of Americans say the same. It follows from this that those who do not have insurance could get it if they only worked a bit harder. Warfare helps explain why American health care is different But it is also a question of history and, HE House Republicans’ health-care have health insurance, and are not covered more specifically, ofhow welfare states in Tplan, the American Health Care Act, by government programmes for the elder- the rest of the world developed alongside may, if enacted, leave 24m Americans ly or the poor, fell from 16% before the law warfare. European welfare states began in without coverage, in the judgment of the was passed to 8.8% now, according to the Prussia at the end ofthe 19th century, when Congressional Budget Office. But for those Kaiser Family Foundation. It would have war with France required the mobilisation determined to shrinkthe government, that fallen further had more Republican state of a large number of civilians. Britain’s may not be enough. Americans for Pros- governors chosen to take federal funds to welfare state has its origins in the discov- perity, an influential campaign group, calls expand Medicaid, which finances some ery that many of the men who presented it Obamacare 2.0; FreedomWorks, an anti- care forpoorAmericans. That convergence themselves to recruiting offices during the taxgroup, Obamacare-lite. The Republican may now be reversed. Boer war were not healthy enough to fight. Study Committee, which consists of 170 The American difference on health care Before the second world war, British liber- House Republicans, describes it as “a Re- is partly a question of philosophy. Ameri- als would have seen the creation of a gov- publican welfare entitlement”. When cans are more inclined to believe that peo- ernment-run national health service as an Obamacare became law, Democrats unwarranted intrusion ofgovernmentinto crowed that it would prove impossible to private life. After 1945 it seemed a just re- take health insurance away from people Wagner’s law ward fora population that had suffered. once they had it. For those on the drown- General government spending, as % of GDP In America this relationship between the-government wing of the Republican 80 warfare and health care has evolved differ- Party, the fight over repealing the law is an ently. The moment when the highest pro- existence-threatening event. If a Republi- Sweden portion of men of fighting age were at war, can president with majorities in both France 60 during the civil war (when 13% of the pop- houses of Congress cannot succeed in tak- Germany ulation was mobilised), came too early to ing away an entitlement, then they might spur the creation of a national health sys- as well give up. 40 tem. Instead, the federal governmentbroke Viewed from the rest of the world, this the putative link between war and univer- United States debate has an unreal quality. America is Britain sal health care by treating ex-servicemen alone among rich countries in not arrang- 20 differently from everyone else. In 1930 the ing for its government to provide some Japan Veterans Administration was set up to care form ofhealth care forall its people. When forthose who had served in the first world 0 Obamacare became law in 2010, America 1960 70 80 90 2000 10 15 war. It has since become a single-payer sys- seemed to be converging with the rest of tem of government-run hospitals of the Sources: Vito Tanzi and Ludger Schuknecht; OECD the world. The share of people who do not kind that many Americans associate with 1 30 United States The Economist March 18th 2017

of the 20th century. In the 1950s, immigra- that the target had been identified with Twilight tion to America averaged 250,000 people a near-certainty and represented a threat United States, preference for national year; in the 1990s, it reached 1m a year. that could not be dealt with in any other health-insurance funding, by age group Inverted If true, this tendency (which could be way. The third was proper oversight and Prefers: 1=Government 7=Private scale called Richard Wagner’s law, after the com- chain-of-command accountability—a rea- 3.2 poser who understood how powerful the son for moving responsibility for drone 3.4 urge to root for your own tribe can be) is as strikes from the CIA to the Pentagon. The Over 65 3.6 alarming for America’s liberals as Adolph fourth was that any strikes had to advance 3.8 Wagner’s law of ever-increasing spending broader American strategic interests—for is for its conservatives. For it seems to sug- example, theyshould notundermine intel- 4.0 65 and under gest that by embracing the causes of immi- ligence-sharing with a host country or be a 4.2 gration and diversity, they may have acci- recruiting agent fornew terrorists. 4.4 dentally weakened support for the Sensible though these rules were, they economic policies they favour. reduced the speed and nimbleness that is 1972 80 85 90 952000 05 12 Take Donald Trump, Paul Ryan and Ba- sometimes required when a target is fleet- The Economist Sources: American National Election Studies; rackObama out ofAmerica’s current argu- ing. Under the loosening of the rules now ment about health care, and it could be underway, avoidingcivilian deathswill no 2 socialised medicine in Europe. America seen as a clash between these two Wag- longer be an overriding priority. A place did come close to introducing something ner’s laws: Richard versus Adolph. Wheth- that fails to qualify as a war zone may be like universal health care during the Viet- erAmerican welfare continues to converge designated “an area of active hostilities” nam war, when once again large numbers gradually with the rest ofthe rich world, or where rules ofengagement can be eased. of men were being drafted. Richard Nixon stays distinctively flinty, depends on Mr Obama used this label to authorise proposed a comprehensive health-insur- which Wagner comes out on top. 7 strikes against IS in its Libyan base, Sirte. ance plan to Congress in 1974. But for Wa- Mr Trump has already agreed to a Penta- tergate, he might have succeeded. gon request to apply the description to Still, though slow to get going on wel- Counter-terrorism three provincesofYemen, which have sub- fare, the direction of travel in America has sequently been heavily pounded. One at- been unmistakable. Beginning in the 1930s Loosening the tack on March 2nd against the Yemeni al- during the Depression, Congress gradually Qaeda affiliate comprised 25 strikes by added federal entitlements. They multi- rules manned and unmanned aircraft (nearly as plied again in the 1960s and have grown many as in the whole oflast year). steadily since. The last time the country A further change is that the CIA will had a Republican president, a new entitle- once again be allowed to carry out lethal The president wants to make it easier to ment, Medicare part D, was created. Rather strikes, as opposed to using its drones only orderlethal drone strikes than oppose this, many Republicans rea- to gather intelligence. Indeed, it has al- soned that if anyone was going to create a HROUGH a mixture ofleaks and semi- ready done so, killing Abu al-Khayr al- new social programme, it might as well be Tofficial confirmations, a picture is be- Masri, a son-in-law ofOsama bin Laden, in them. This creepinggrowth ofgovernment ginning to emerge of how the Trump ad- northern Syria in late February. Because provision has leftthose conservatives who ministration will loosen the rules for coun- the CIA operates under covert authorities, really do want to cut social programmes to ter-terrorism operations laid down by its it is not subject to the same legal con- try and starve the federal government of predecessor. Some of the changes form straints and transparency as the Pentagon. revenue, in the hope that one day they will part of the preliminary plan for accelerat- Meanwhile, without any previous an-1 collapse under the weight of their own ing the destruction ofIslamic State (IS) that contradictions. The reckoning is yet to James Mattis, the defence secretary, was or- come. Wagner’s law, named after Adolph dered by Mr Trump to conclude within 30 Wagner, a German economist, states that days. Mr Mattis has to tread a delicate path as societies grow richer, government con- between the bombast of Mr Trump’s cam- sumption tends to take up a greater share paign promise to “bomb the shit” out of of GDP. The pattern holds for America, too ISIS and the operational constraints im- (see chart). Hence the distress on the right posed by BarackObama, which many mil- over the American Health Care Act. itary and intelligence officers thought un- PushingagainstAdolph Wagner’slawis duly restrictive. another, newer tendency. Americans who Among the changes that are in the pipe- recalled the Depression and the second line (or are already being quietly imple- world war tended to lookmore favourably mented) isa looseningofthe guidelines Mr on the redistribution of income. Ilyana Ku- Obama set for drone strikes and targeted ziemko of Princeton and Vivekinan Ashok killings in places that are not counted as and Ebonya Washington, both of Yale, war zones, such as Yemen, Somalia and have found that support for redistribution Libya. Although Mr Obama authorised ex- has dropped among retired people over tensive use of drones to kill terrorists, par- the past few decades (see chart). One ex- ticularly al-Qaeda groups in Pakistan’s planation for this is that people retiring North Waziristan, he became uncomfort- now have no memory of the two big, uni- able about the ease with which America fying events of the 20th century. It may be could kill its enemies, wherever they were. no coincidence thatthisreluctance to redis- Mr Obama’s playbook for drone use tribute, which comes out particularly had fourmain principles. The first was that strongly in the opposition among current strikes outside war zones could occur only pensioners to extending health insurance, if there was near-certainty that civilians followed a surge in immigration at the end would not be harmed. The second was Copy that, Langley The Economist March 18th 2017 United States 31

2 nouncement, a further 400 troops—from Asked about the deployment to Syria, his $232m in sales this year, much of it from the Army Rangers and the Marine Corps— press secretary, Sean Spicer, said only that construction and textiles, though $10m is have turned up in northern Syria, both to “the president was made aware of that.” also expected from meat-cutting. In Idaho, help the Kurdish-Arab Syrian Democratic After the recent ill-fated special forces raid prisoners roast potatoes. In Kentucky, they Forces (SDF) in their coming assault on the in Yemen that left a Navy SEAL and at least sell $1m worth of cattle. IS stronghold ofRaqqa, and to deterTurkey, 25 civilians dead, Mr Trump tried to evade Critics have spent years directing their a NATO ally, from attacking the SDF. That responsibility for what happened, saying anger towards private prisons, by pointing brings American ground forces in Syria to it was just something the generals had out the moral hazard created when profit- 900. Another 2,500 troops will soon be on wanted to do. The complaint those same ing from punishment. Jeff Sessions, the at- their way to Kuwait to join the fight. generals made against Mr Obama was that torney-general, caused a stir last month One of Mr Trump’s aims appears to be he micro-managed. By contrast, under Mr when he cancelled an Obama-era direc- to delegate much more of the decision- Trump, it seems that if anything should go tive to phase out federal contracting with making to the Pentagon and the spooks. wrong, it will not be his fault. 7 private prison companies, which expect bumper earnings under Donald Trump. The share price for CoreCivic, the re- branded name ofthe Corrections Corpora- tion of America, shot up by 43% in a single day after Mr Trump was elected, in anticipation of lucrative contracts to run immigration detention centres. Butthose who attackthe newprison-industrial complex might be surprised to learn that America’s publicly run prisons have been providing labour for private companies since 1979. More than 5,000 inmates take part in the scheme, known as “Prison Industry Enhancement”. “Orange isthe NewBlack”, a television showset in a women’s prison, recently lampooned a private-prison takeover, afterwhich the inmates are forced to sew lingerie for $1 an hour. But this gets the history only half right. Female inmates did indeed make lingerie for brands like Victoria’s Secret in the 1990s—but only through a deal between South Carolina’s public prisons and a private manufacturer. Prisons America’s prison-labour industry is wrapped in euphemism. Federal Prison In- The incarcerated workforce dustries does business under the more pal- atable name ofUNICOR, and government- run prison production schemes are called “correctional industries”. Some slogansare better than others; UNICOR has an unfor- LEXINGTON, KENTUCKY tunate habit of calling its facilities “factories with fences” in reports. Prison labouris a billion-dollarindustry, with uncertain returns forinmates Employment upon release is perhaps ILICON VALLEY mavens seldom stum- work for nothing or for pennies at menial the best defence against recidivism. The Sble into San Quentin, a notorious Cali- tasks that seem unlikely to boost their job chief justification for prison labour is that fornian prison. But when Chris Redlitz, a prospects. At the federal level, the Bureau it both defeats idleness and gives inmates venture capitalist, visited seven years ago, of Prisons operates a programme known marketable skills. Whether it actually does he found that many of the inmates were as Federal Prison Industries that pays in- so is unclear. “The vast majority of prison keen and savvy businessmen. The trip mates roughly $0.90 an hour to produce labour is not even cloaked in the idea ofre- spurred him to create The Last Mile, a char- everything from mattresses, spectacles, habilitation,” says Heather Thompson of ity that teaches San Quentin inmates road signs and body armour for other gov- the University of Michigan. Simple manu- how to start businesses and code web- ernment agencies, earning $500m in sales facturing jobs, like the ones done cheaply sites, for which they can earn up to $17 an in fiscal 2016. Prisoners have produced offi- by most inmates, have already left the hour. One of the first people it helped was cial seals for the Department of Defence country. The study pushed by the Bureau Tulio Cardozo, who served a five-year sen- and Department of State, a bureau spokes- of Prisons, showing drops in reoffending, tence after a botched attempt at cooking man confirmed. In manyprisons, the hour- was published in 1996. More recent com- hashish, which also left him with severe ly wage is less than the cost of a chocolate parison statistics often ignore bias in how burns across half his body. Two years after bar at the commissary, yet the waiting list those being studied are chosen. Rigorous he was released, he got a job as a lead de- remains long—the programme still pays academic work on the subject is almost veloper in a San Francisco startup. much more than the $0.12-0.40 earned non-existent. Such redemptive stories are the model for an hourofkitchen work. Still, such programmes are undoubt- for what the prison system could be. But Similar schemes exist at the state level edly legal. The Thirteenth Amendment to they are exceptions—the rule is much drea- as well, making the market of 61,000 cap- the constitution prohibits slavery and in- rier. Prison labour is legally required in tive labourers worth well over $1bn. Cali- dentured servitude—“except as a punish- America. Most convicted inmates either fornia’s programme expects to generate ment forcrime”. 7 32 United States The Economist March 18th 2017

Chuck’s gun shop (Chuck’s has been a family business for 50 rogue gun-dealers. Current rules on back- years.) Mr Riggio has also argued that he ground checks apply only to licensed gun- Anything you cannot control what happens when some- dealers, but up to 22% of gun sales take one leaves the shop, especially ifthe buyer place at gun fairs or over the internet, want is a straw man. “We don’t buy that argu- which do not require such checks. The Bu- ment,” says Dan Gross of the Brady Cam- reau of Alcohol, Tobacco, Firearms and Ex- CHICAGO paign. If shops follow the Brady code of plosives, he argues, needs money and or- conduct, drawn up to prevent dangerous ders to go effectively aftergun-dealers who Shopping at the nation’s most people from getting guns, argues Mr Gross, overlookfishy sales. contentious gun-dealer they won’t sell to straw buyers or gun-traf- It would also help if straw purchasers IGHT next to Travis Funeral Home & fickers. The code includes looking out for were punished more harshly. According to RCremation Services, a dignified-look- tell-tale signs of straw purchases, such as a Harold Pollack at the University of Chica- ing canopied establishment offering funer- clueless buyer of a gun (likely to be under go, who conducted interviews with in- als for $3,995, sits Chuck’s Gun Shop, a re- instruction), or someone waiting in the car mates of Cook County jail, the country’s tailer of shotguns, rifles, pistols and outside while a purchase is being made. It biggest, fora studyhe co-wrote on the prov- semi-automatic guns, as well as ammuni- also suggestslimitingsalesto one handgun enance of their weapons, most got their tion, knives and holsters. The store in Riv- per civilian every 30 days, and keeping an guns through a family member or a friend, erdale, a suburb of Chicago, advertises it- electronic inventory of all sales that is rather than stealing them or buying them self as “your friendly neighbourhood gun backed up regularly. directly. Many admitted they thought they shop”, but in recent years Chuck’s has ac- The two most effective reforms to re- needed a gun because they feared others quired national notoriety as possibly the duce gun violence, according to Adam with guns. “I would rather be judged by 12 worst ofthe “bad apple” shops that supply Winkleratthe UniversityofCalifornia, Los than carried by six,” they said. It may not a high percentage of guns recovered at Angeles, would be a federal universal be a coincidence, after all, that a funeral crime scenes. “Criminals will always get background check and a crackdown on parlour set up shop next to Chuck’s. 7 guns because Chuck’s sells to the criminals,” is a frequent saying of Father Mi- chael Pfleger, a pugnacious Catholic priest, America’s missing servicemen who has led several demonstrations in front ofChuck’s. Raiders of the lost barks On a wintry day in March, Chuck’s is businesslike and friendly. Asked whether a foreignercan buy a gun (most cannot), Ted, an avuncular, moustachioed salesman, re- plies: “This is America, you can get any- JOINT BASE PEARL HARBOUR-HICKAM, HAWAII thing you want,” before offering a quick A crackmilitary unit whose quarry is not foreign enemies but long-dead Americans tour of the shop’s shooting range, a low-lit room with four50-feet lanes and a rubbish WO hundred and eight boxes were cally challenging and emotionally bin riddled with bullet holes. He explains Thanded over by the North Koreans, but wrenching, expensive but priceless, quix- that all buyers must apply for a Firearms American scientists quickly realised that otic but quietly heroic. Owners Identification (FOID) card from the remains inside them belonged to many To illustrate the environment’s effecton the Illinois state police, who will check the more lost servicemen. The consignment of a corpse, John Byrd, the lab director, points applicant’s criminal background, a process bones, acquired in the early 1990s, was to the skeletons of two marines known to which can take up to ten weeks. Anyone augmented by 33 American expeditions, have died on the same day in the Battle of with a FOID card can buy a gun, though spread overa decade. Although those were Tarawa (now in Kiribati) in 1943. One, 1 once a purchase is made Chuck’s will hold tightly escorted, recalls Johnie Webb, who on to the gun for 24 hours, during which went on some of them, the North Koreans the shop’s personnel are required to check were “very receptive”. Too receptive, per- whether the card is still valid. The cooling- haps: some of the specimens the Ameri- off period is meant to prevent impulsive cans dug up had been freshly reburied for acts ofviolence. them to find. The visitors brought hard cur- Why has Chuck’s become the favourite rency; their hosts wanted them to succeed. whipping boy of gun-control campaign- The North Korean haul—altogethercon- ers? According to the Brady Campaign To taining the remnants of over 600 individ- Prevent Gun Violence, more guns used in uals—has its own section in the Defence crimes between 1996 and 2000 were POW/MIA Accounting Agency’s new lab- traced to Chuck’s than to any other gun- oratory at Joint Base Pearl Harbour- dealer in the country—2,370. And from Hickam, on the outskirts of Honolulu. The 2009 to 2013 more than 1,500 guns found at scenes inside the lab and beyond its win- Chicago crime scenes were traced to dows are grimly contrasting. Outside stand Chuck’s, more than the next two dealers monkey-pod trees and the mountains of combined. The average number of crime Oahu; inside are rows of tables on which guns traced back to other gun-dealers in rest skeletons, individual skulls or hip the area during the same period was three. bones, and grisly scraps. The Korean pro- John Riggio, the owner of the shop, ject exemplifies some of the challenges of does not give interviews nowadays. In the the agency’s mission to account for all past, he has said that he follows Illinois’s missing American servicemen from the relatively strict gun laws meticulously. Nei- second world war onwards—a taskthat en- ther he nor a member of his family has compasses the edges of forensic science ever been charged with wrongdoing. and the delicaciesofdiplomacy. Itis logisti- The bones surrender their secrets The Economist March 18th 2017 United States 33

2 which was buried in a coffin, is recognisa- bly human; the other, which was left in the sand, has disintegrated. In South-East Asia there are monsoons, humidity, lots of wild animals: “horrible for preservation,” says Mr Byrd. Many of the missing from the Vietnam war were shot-down pilots, says Brigadier-General MarkSpindler, the agency’s deputy director, so “you’re looking for teeth, you’re looking for slivers of bone.” Jumbles of fragments are brought in from battlefield sites or mass graves, such as a pile retrieved from Cabanatuan, a camp that was a terminus ofa POW death march in the Philippines. “The first question”, Mr Byrd says, “is, is it even human?” Then his colleagues must determine how many individuals are represented and whether they were Ameri- can. Recent advances in the science of bone DNA make that easier; its insights are combined with biographies, dental re- cords and rib-cage data from tuberculosis tests, plus circumstantial clues such as aircraft serial-numbers. The sleuthing can take years—and that is just the lab work. Searching in the waters of Vietnam Before they can be identified, the remains must be recovered. Some come from named after Daniel Inouye, the senator ous, and the agency has to enlist genealo- American military cemeteries, in Hawaii who lobbied for it, cost $85m; previously gists to find relatives who can supply DNA itself, Manila and elsewhere, in which the relics were housed in an old barracks at samples for comparison. But often, ob- around 8,000 unknowns are thought to risk of flooding. There is another lab in serves Wil Hylton—author of “Vanished”, lie. But others are unearthed by teams dis- Omaha, an HQ in Washington, DC and a book about the long search for a bomber patched to dig in jungles and beaches permanent detachments in Germany, crew lost over Palau in 1944—the unan- around the Pacific or to sift through Euro- Laos, Thailand and Vietnam. A total of 700 swered questions inflict “hereditary dam- pean mud, highly skilled units whose people work for the agency; its annual age”. Children “grow up not knowing quarry is not live enemies but long-dead budget is around $115m. whether their father is dead or alive”; compatriots, and whose role is more hu- According to various audits and reports wives are haunted by a hybrid hope and manitarian than military. They include ofa few years ago, not all those funds have fear that their husbands survived and photographers, forensic archaeologists always been well spent. The bureaucracy “might walkbackthrough the door”. It is “a and anthropologists, aircraft experts and was found to be ramshackle; there was talk wound that never heals”, Mr Hylton says. (depending on the terrain) divers and of “military tourism” and luxury hotel Unless the agency provides a salve. Mr mountaineers. stays in Rome. A Senate subcommittee Byrd recallsa woman who, before entering weighed in. The structure has since been the family viewing room at the heart of the Strange meetings consolidated and—says General Spindler— building in Hawaii, fixed her hair to en- Fifty missions went out last year. Given its inefficiencies addressed. Yet the implied counterwhat was leftofthe fathershe nev- reach, the agency inevitably faces political cost of each ID continues to be eyebrow- er met. “It’s still very real, raw pain,” he hurdles as well as practical ones. The raising. Last year’s total was164, a bump on says, “like it happened a week ago.” The North Korean visits, for example, stopped previous tallies but short of a congressio- protocol after an ID is the same as after a in 2005 because of security worries. Still, nal target of 200. The overall caseload is new fatality: a visit from an officer, a formal while authoritarian regimes may impose around 83,000, including 73,000 from the service at Arlington National Cemetery or restrictions, says General Spindler, useful- second world war. Even discounting more in the no-longer missing’s home state. ly theirofficials “workall the access”. In de- than 40,000 lost at sea, at today’s pace it Deanna Klenda’s brother, Major Dean mocracies the constraints are subtler: there would take a couple of centuries to clear Klenda of Marion, Kansas, was shot down is “a greater awareness that you’re on per- the backlog. (Itwould help ifthe rules were over North Vietnam in 1965. His parachute sonal property” and more room forprivate changed, so thatphysical evidence was not failed to open, Ms Klenda says, and his objections. Moreover, “Archaeology is a always required foran accounting.) family knew he had died, but she longed to damaging science.” On a recent trip to the While the dividends may seem intangi- bury him, “even a knuckle”. They “never Solomon Islands, in pursuit often marines ble, though, they are real. “You cannot as- thought they would ever find anything of interred close to where they fell in 1942, a sociate a dollar value with this national him”; but after a Vietnamese villager team dismantled a local’s kitchen, rebuild- imperative,” says General Spindler. Over- chanced on a jawbone, and after years of ing it after the dig. seas missions “publicly demonstrate our prompting by Ms Klenda and excavations The risks are not just to property. There values” of loyalty and honour; sometimes by researchers, his remains were finally are tropical diseases, landmines—unex- the agency can repatriate other countries’ flown back to Kansas from Hawaii last ploded-ordnance officers are deployed casualties (South Korea is said to be keen to year. “When they put that little piece of too—and accidents. Seven Americanswere take them, the North less so). The effort as- dental work in my hand,” Ms Klenda says, killed in a helicopter crash in Vietnam in sures current servicemen that, should the “that was the biggest hug I’d gotten in 51 2001. “There is nothing easy about this,” worst befall them, they won’t be forgotten. years.” There was a fly-over in his honour says General Spindler. Nor is the quest Then there are the families. Sometimes at the funeral, and “I cried my heart out be- cheap. The custom-built facility in Hawaii, the missing’s links to the living are tenu- cause he was finally home.” 7 34 United States The Economist March 18th 2017 Lexington Deal breaker

Why fixing American health care is a challenge like no otherDonald Trump has faced complex (“value engineering”, he calls such penny-pinching in “The Artofthe Deal”), theyharm the value oftheirown asset. Un- happy students of Trump University extracted $25m from the businessman, as he settled class-action lawsuits without admit- ting wrongdoing. Their satisfaction was hard-won: the world now knows their “qualifications” are worthless. Mr Trump has worked to forge similar bonds of complicity with voters. His pledges to put America First, to deport “criminal aliens” orto bringbackmillions ofmanufacturingjobs make supporters feel empowered, heeded, safe and hopeful. Critics question such pledges at their peril: millions of Americans have invested a good deal in believing this president. So much for Mr Trump’s success. Now, not two months into his presidency, he faces the hardest test of his political life to date, as he and Republicans in Congress wrangle over how to repeal and replace the Obamacare health law, more formally known as the Affordable Care Act (ACA). On the campaign trail Mr Trump pledged to abolish what he called the “disaster” that is the ACA, and to “come up with a new plan that’s going to be better health care formore people at a less- ercost.” He promised to scrap thingsthatthe publicdislikes about SKWashington grandeesto explain PresidentDonald Trump’s Obamacare, starting with its government mandate to buy health Arise, and they often recommend reading “The Art of the insurance or pay a penalty, while keeping things that are popular, Deal”. One piece of advice from that I-got-rich-quick book, pub- such as protections forpeople with pre-existing conditions. lished in 1987, is cited more than any other: Mr Trump’sboast that As a candidate Mr Trump proudly broke with Republican or- he built a property empire on “truthful hyperbole”, playing on thodoxy and said that—unlike other rival conservatives with the public’s desire “to believe that something is the biggest and White House ambitions—he would preserve “without cuts” the the greatest and the most spectacular”. It is a striking passage to Medicare and Social Security safety-nets that mostly serve the el- choose, but also a misleading one—implying that Trumpian suc- derly, as well as the Medicaid system of health insurance for the cess, in essence, rests on a talent forbamboozling rubes. poor and disabled. The ACA offered federal funding to states that Actually, at the heart of“The Art ofthe Deal” lies a more subtle agreed to expand Medicaid, adding12m people to its rolls. point about human nature: that some of the most profitable bar- gains are struck not with passive dupes, but with partners who Repeal, replace and reap what follows are complicit in their own manipulation. A revealing episode de- On March 13th the Congressional Budget Office (CBO), which scribes Mr Trump tricking investors into thinking that a casino in “scores” new laws forprobable costs and impacts, concluded that Atlantic City is almost half-built by cramming the site with bull- underan ACA replacement proposed by House Republicans, 14m dozers under orders to look busy. Despite an awkward moment more Americans will be uninsured in 2018 compared with cur- when an investor asks why one builder is refilling a hole that he rent law, while by 2026 the ranks of those without health cover has just dug, the gambit works. The investors had already been will swell by 24m as Medicaid is cut back. This will hit some core burned once by a project that ran over-budget so now needed a Trump supporters: the CBO estimates that while the young quick success, Mr Trump explains: “My leverage came from con- would gain from the Republican plan, those in their early 60s on firmingan impression theywere alreadypredisposed to believe.” low incomes, as well as rural folk, would see costs rocket. Thatvarietyofleverage hasbeen keyto MrTrump’ssuccess, in Republican responses have been cacophonous. Party leaders business and now in politics. He is an unusual sort of tycoon. He like Paul Ryan, the Speaker of the House of Representatives, de- has no life-changing invention to his name. He did not build a fend the new health plan for cutting spending and call the cover globally significant corporation (worth about $4bn, the Trump offered by Medicaid so skimpy as to be worthless. Conservative Organisation would be America’s 833rd-largest firm ifit were list- House members call the new plan Obamacare-lite, saying its sys- ed). Instead he turned himself into a brand. He is a salesman tem of tax credits is too generous. Some Senate Republicans, es- whose greatest product is himself, slapping his name on every- pecially those from states which expanded Medicaid, call the thing from skyscrapers to hotels, casinos, golf courses or the se- new plan too harsh. White House aides have rubbished the CBO ries of high-priced, hard-sell property seminars dubbed Trump and promise that Mr Trump’sdealmaking skills will save the day. University. He boasts of how many deals involve other people’s But even forAmericans predisposed to believe that Mr Trump money, whether that involves picking up distressed assets for a is their champion and that his critics are lying, the question of songorluringgamblers to his casinos—“I’ve nevergambled in my whether they can or cannot afford health insurance is starkly bi- life,” he bragged back in 1987, adding: “I prefer to own slot ma- nary. Being unable to buy treatment for a loved one is not em- chines. It’s a very good business being the house.” powering, it is frightening. Health care is an area in which voters Mr Trump’s business model offers him an unusual advantage. have little incentive to forgive broken promises: even if their first Whenevercustomersbuyinto hisbrand, theyhave a vested inter- instinct may be to blame those around the president, not Mr est in his continued success. When buyers complain about cor- Trump. The president is in perilous territory. He needs a product ner-cutting in the construction of a Trump-branded apartment that does an almost impossible job. Sales patter will not do. 7 The Americas The Economist March 18th 2017 35

Also in this section 36 Bello: Mauricio Macri’s gradualism 38 Deaths foretold in Guatemala

Andrés Manuel López Obrador the former governor of Veracruz, now fac- ingcorruption chargesand on the run from Mexico City, we have a problem the police. He slams the PRI, the fugitive’s party, as“corruptand cynical” and the PAN as “corrupt and hypocritical”. The message strikes home. “Mexico is rich, but those who govern us rob us,” says a supporter. JILOTEPEC Mr López Obrador has taken his campaign to the United States, where he pre- A fiery populist could become the next president sents himself as the only politician who HEN Andrés Manuel López Obrador prosecutor in Veracruz reported that 250 can stand up to Mr Trump. In New York on Wwindsup a stump speech in the main skulls, belonging to victims of drug gangs, March 13th he denounced Mr Peña for al- square of Jilotepec, a small town in the had been found in pits near the state capi- lowing his American counterpart to rain eastern state of Veracruz, the crowd surges tal. Many Mexicans have stopped believ- “insolence and insults” upon millions of forward. It takes him 15 minutes to pass ing that either of the parties that have gov- Mexicans living in the United States. A through the commotion of backslapping, erned Mexico this century, the President López Obrador would mean “al- selfies and jabbing microphones to reach Institutional Revolutionary Party (PRI) of pha males either side of the border”, says the car parked outside the tent where he President Enrique Peña Nieto or the oppo- Juan Pardinas of IMCO, a think-tank. Vot- spoke. The point of the rally is to promote sition National Action Party (PAN), will do ers may like that idea. Mr López Obrador’s party, Morena, in mu- much about such horrors. And now they MrLópezObradoristhe earlyfront-run- nicipal elections to be held in Veracruz in face a confrontation with an American ner for next year’s election (Mr Peña can- June. But his main goal is much bigger: to president who wants to end free trade, de- not run again). In a one-round election, he win Mexico’s presidency on his third at- port millions ofMexicans, build a wall and could win with as little as 30% of the vote tempt, in 2018. force Mexico to pay forit. (see chart). If that happens, Mexico will That is a prospect that thrills some Mex- AMLO proposes to answer graft with embarkon a perilous political experiment. icans and terrifies others. A figure of na- his own incorruptibility, and Donald He began his political career in the tional consequence formore than 20 years, Trump’snationalism with a fiery national- southern state of Tabasco as an operative AMLO, ashe isoften called, hasfulminated ism of his own. In Jilotepec he rails against of the PRI, which monopolised political against privilege, corruption and the politi- power at the national level from 1929 to cal establishment. Sweep away all that, he 2000. Hisrenegade streakshowed up early. tells poorMexicans, and theirlives will im- Pop goes the populist As an official of the National Indigenous prove. Many others hear in that message Mexico, voting intention in presidential election Institute he spent five years living with the the menace of a charismatic populist who % Chontal, an Indian community. Hence his would punish enterprise, weaken institu- 50 preoccupation with the poorest Mexicans, Donald Trump elected tions and roll back reforms. The biggest PRI US president says Lorenzo Meyer, a historian. Mr López 40 PRI worriers view him as a Mexican version of Morena Obrador became the ’s state chief, but the late Hugo Chávez, an autocrat who was squeezed out ofthe job by priistas sus- 30 wrecked Venezuela’s economy and under- PAN picious ofhis grassroots organising. mined its democracy. 20 His rise to national prominence came But Mexico, like some richer countries, Others after he lost a race to be governor of Tabas- may now want more drastic politics. Vot- 10 co in 1994 as the candidate of what is now ers are enraged by corruption, crime, PRD the Party of the Democratic Revolution which is rising again after a drop, and fee- 0 (PRD), a left-wing group that had broken 2015 16 17 ble economic growth. Not longafterMr Ló- away from the PRI. At a sit-in in the Zócalo, Source: Parametría pez Obrador spoke in Jilotepec, the state Mexico City’s main square, Mr López1 36 The Americas The Economist March 18th 2017

2 Obrador theatrically presented 14 boxes of States and Canada, which took effect in introduced a small universal pension. documents proving, he said, that the PRI 1994, to the opening up of the energy mar- Debt rose by a modest 9% in real terms dur- had stolen the election. ket to private investors under Mr Peña in ing his mayoralty. “He got on well with His talent for political showmanship 2014. If elected, Mr López Obrador prom- businesses and with developers,” says helped make him mayor of Mexico City ises to hold a referendum on energy re- Agustín Barrios Gómez of the Mexican from 2000 to 2005. He ran twice for the form. A chapter in his most recent book is Council on Foreign Relations, who is a for- presidency, in 2006 and 2012, losing to Mr called “privatisation is a synonym for rob- mer PRD congressman. He left office with Peña in the second contest. In 2014 he split bery”. He has sided with a radical and dis- an approval rating of 84%. But he preferred from the PRD over its support forMr Peña’s ruptive teachers’ union in resisting an edu- popular policies to good ones. The pen- economic reforms and founded Morena, cation reform promoted by Mr Peña, sionsdid notrequire future beneficiaries to the Movement ofNational Regeneration. which would require teachers in the abys- contribute. The investment in roads would Mr López Obrador has been an unre- mal state schools to take evaluation tests. have been betterspent on public transport. mitting opponent of measures to modern- As Mexico City’s mayor, Mr López He did not work to professionalise the po- ise the economy, from the North American Obrador caused less mayhem than his im- lice or the judiciary. In short, “he was not Free Trade Agreement with the United age suggested he might. He built roads and an institution builder”, says Mr Pardinas. 1 Bello The pros and cons of Macri’s gradualism

The new Argentina prepares foran electoral test O THE deafening beat of big bass bling: a now-cancelled write-down of a Tdrums and the occasional firecracker, disputed debt owed to the state by a firm tensofthousandsofbanner-wavingtrade owned by Mr Macri’s father. Critics also unionists marched through the heart of complain of micromanagement by the Buenos Aires on March 7th, in protest at Casa Rosada, the presidential palace. job losses and inflation. “We’re up to Marcos Peña, Mr Macri’s cabinet chief, here,” said Silvia Blanchoux, a hospital insists that the errors are minor compared cleaner, gesturing with a hand across her with those of the Kirchners. The biggest throat. “My rent has gone up, and my problem, he adds, is the pain that the daughter is unemployed.” squeeze is producing in the lower-middle The protest coincided with a strike by class, “who voted for us”. In response, the teachers. This stirring of opposition government is slowing down the with- comes at a delicate time for Argentina’s drawal of subsidies (which had caused president, Mauricio Macri, and his efforts big rises in electricity and water bills, al- to repair the damage inflicted by the pop- beitfrom almostnothing). Ithaslaunched ulism of his Peronist predecessors, Cris- a $33bn, four-year infrastructure plan to tina Fernández de Kirchner and her late try to speed the economy along. husband, Néstor. In October Mr Macri’s subject to the Kirchners’ barriers. Mr Macri still has much going for him. centre-right Cambiemos (“Let’s change”) This caution stems from circum- Mario Blejer, a formercentral-bank gover- coalition faces a mid-term election for al- stance—Mr Macri lacks a majority in con- nor, thinks GDP will grow by 4% this year. most half of congress. This will be a sym- gress—but also from his preference for con- Deficit-cutting is easier because spending bolic referendum on the government. sensus-building, honed during eight years under the Kirchners was corrupt and In fact, it is surprising that Mr Macri, a as mayor of Buenos Aires. It may mitigate wasteful: contracts for new roads are be- former businessman, remains as popular the social impact ofstabilisation in a coun- ing signed for up to 40% less than previ- as he is (his approval rating is around try still traumatised by an economic col- ously budgeted, says Guillermo Dietrich, 50%). His victory in November 2015 was lapse in 2001-02. the transport minister. The Peronists are unexpected. He inherited a country Yet gradualism is no panacea. Business- divided. Many Argentines have tired of whose future was mortgaged: interna- es worry that the use of dollar loans to fi- the permanentconfrontation engendered tional reserves were negligible; a dispute nance the fiscal deficit, although non-infla- by Ms Fernández, who is defending her- with bondholders had cut Argentina off tionary, is again leading to an overvalued selffrom corruption charges. from credit markets; inflation was around peso. Although Nicolas Dujovne, the trea- “Our biggest asset is that we are under- 30%; and the fiscal deficit was 5.4% ofGDP sury minister, says that inflation is falling estimated,” says Mr Peña. “Without that, in 2015, swollen by indiscriminate subsi- and output and employment are growing, we wouldn’t be here.” It is all but impossi- dies to consumers and crony companies many Argentines do not yet feel the bene- ble for the government to win a congres- and financed by printing money. fits. “We were going OK and now we’re sional majority in October. But it must Mr Macri’s team moved swiftly to dis- poorer,” said Ms Blanchoux. Despite an in- avoid the perception of defeat, which mantle exchange controls, devalue the crease in social assistance, a survey by the would make Mr Macri’s government peso and settle with the bondholders. It Catholic University found that the urban seem like a parenthesis in a populist raised interest rates to stop inflation from poverty rate edged up last year from 29% to country rather than the start of a new era. getting out of control, which pushed the 33%. Since December opinion polls show a The election comes before the full benefit economy into a short recession. It has oth- sharp dip in optimism. of more rational policies becomes clear. erwise moved cautiously. Official targets That coincides with a series of what Even so, many Argentines seem to recog- call for single-digit inflation to be reached pundits call “unforced errors” by the gov- nise that Mr Macri is Argentina’s best only in 2019, when the deficit should be ernment. Theyrange from the trivial (a row chance in a generation of breaking out of 2.2% of GDP. Some 15% ofimports are still over moving a public holiday) to the trou- its vicious circle ofpopulism and decline. 38 The Americas The Economist March 18th 2017

2 That failure points to his most worrying Guatemala The victims of the Hogar Seguro fire are trait: a contempt for norms, separation of among the 7,000 children who live in pub- powersand the rule oflaw. Afterhe lost the Deaths foretold lic and private institutions in Guatemala. election in 2006, his supporters threatened Most are not orphans. They come from a revolution and blocked Reforma, one of violent homes orfrom familiesthat cannot the capital’s main roads, for six weeks. In afford to take care of them. The Guatema- 2001 he responded feebly to the lynching lan government spends the equivalent of ofa man suspected ofstealingreligious im- 3.2% of GDP directly on children and ado- A tragic fire draws attention to a broken ages near Mexico City, saying, “We do not lescents, including on education. That is social-services system interfere with the beliefs of the people.” the lowest rate in Central America. The Though personally honest, Mr López N MARCH 7th a team from an interna- child-protection agency has a budget of Obrador lacks the respect for institutions Otional human-rights group arrived in just $2.5m to pay for state-run facilities, that would make him an effective corrup- Guatemala to evaluate state-run institu- which house around 1,000 children, and tion-fighter. tions for disabled people. One stop on for monitoring scores of privately run As the date for the 63-year-old’s third their itinerary was the Hogar Seguro (Safe homes. These hold the bulk of children (and probably final) run forthe presidency Home) Virgen de la Asunción, a shelter for and vary greatly in quality. Even the best approaches, he is trying to be less divisive. indigent children, which had been the do not provide a healthy environment for He endorsed Mr Peña’s plan to visit Mr subject of reports about sexual abuse, vio- children to growup in, saychildren’s-rights Trump in January. (The trip was cancelled lence and overcrowding. The team arrived advocates. They have long urged Guate- after the American president posted an in- too late. That night, a fire engulfed a girls’ mala to replace them with a system of fos- sulting tweet.) He has been friendlier to dormitory, killing at least 40 adolescents ter care like that in other countries. business. Disappointed by the perfor- and severely injuring a dozen. This will not be easy to arrange. Amove mance ofthe economy underthe reformist A tragedy at Hogar Seguro was pre- away from institutionalisation would re- Mr Peña, some entrepreneurs are “more ordained. In interviews with survivors, quire payingstipendsto poorfamilies who willing to give Mr López Obrador a the team from Disability Rights Interna- take their children back; monitoring par- chance”, says Gerardo Esquivel, an econo- tional (DRI) discovered that 800 children ents who have been violent but can learn mist at the Colegio de México, a university. were crammed into a home built for 500. not to be; and expanding a foster-care sys- For now, MrLópez Obrador has the po- At least two staff members have been jai- tem that now comprises just 40 families. litical field to himself. Morena is basically a led for sexually abusing residents. Last Paraguay, which is nearly as poor as Guate- one-man party, which means its quota of year, 142 children ran away. Survivors said mala, is an example. It began a shift to- party-propaganda broadcasts can focus on staff had locked around 60 girls in a room wards “community placement” after the promoting him. Other parties have to dias punishment fora recent escape attempt; Inter-American Commission ordered the vide their resources among various politi- when the girls set mattresses ablaze to pro- governmentto reduce the numberof men- cians; none has yet selected its presidential test against their confinement, they were tal-health patients in institutions. candidate for 2018. This “has had an enor- unable to get out. Human-rights advocates hope the Ho- mous effect” on AMLO’s chances of win- Hogar Seguro is not an isolated case. gar Seguro calamity will spur reform. ning, says Mr Aguilar. The fire is “an indictment of the whole so- “There’s finally growing awareness that The PRI’s nominee for president, who- cial-service system in Guatemala”, says things must change,” says Mariko Kagoshi- ever it is, will be tainted by association Eric Rosenthal, DRI’s director. The group ma of UNICEF’s Guatemala office. Thou- with the current government. The likeliest found violence, neglect and forced prosti- sands of people demonstrated on March PAN candidate, Margarita Zavala, is popu- tution at several state-run institutions, in- 11th to demand a governmentinvestigation lar, but she is the wife of a former presi- cluding Federico Mora, a psychiatric insti- into the malpractice that led to the fire. dent, Felipe Calderón, who is widely tution foradults. The Inter-American Com- The government’s first response to the blamed for an upsurge of violence pro- mission on Human Rights has ordered that fire was inept. It wrongly claimed that the voked by his inept crackdown on crime. institution to improve conditions. girls were juvenile offenders who had The PRD has little support. Inflamed rela- “sharp objects hidden in their hair” and tions with the United States and an econ- that they had protested because they omy weakened by the onslaught from the didn’t like the food. It sent 700 survivors to Trump administration would also play other institutions, placing some of them into Mr López Obrador’s hands. with gang members and adult psychiatric Hisvictoryisno sure thing. His momen- patients. Some rock back and forth, hit and tum would be slowed if Morena does bad- bite themselves, and cry through the night ly in the governor’s election in the State of as they relive their trauma. Mexico in June. Anybody-but-AMLO vot- The government has since taken the ers could unite behind one candidate; tragedy more seriously. It has arrested the nearly half of voters have a negative view director of Hogar Seguro and the social- of him, a much higher share than for any services secretary, promised changes and other potential candidate. He has a talent asked UNICEF for help. But the resolve to for self-destruction. In 2006 his 16-point reform must outlast the shock of the fire, lead vanished after he refused to partici- which will soon be replaced by other trau- pate in the first televised debate and called mas. Improvements to child protection the president, Vicente Fox, chachalaca, a will require “gigantic and sustained social bird noted forits loud cackle. pressure, and a majorityofcongressmen in Much of Mexico’s elite prays that such favour of change”, says Iduvina Hernán- buffoonery will again prove his undoing. dez, the director of a Guatemalan human- But he has become smoother and more rights group and a columnist for Plaza Pú- disciplined. The danger is that, even ifhe is blica, a news site. Despite the tragedy at shrewder about obtaining power, he may Hogar Seguro, she fears that “the indigna- be no wiser about how to exercise it. 7 How protesters showed the horror tion hasn’t yet reached that level”. 7 Middle East and Africa The Economist March 18th 2017 39

Also in this section 40 Hyperinﬂation in South Sudan 40 Libya’s battle for oil ports 41 South Africa and Russia 42 Saudi Arabia’s women

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

Central African Republic It was this narrowly averted genocide that made the world sit up, send peace- Averting another CAR crash keepers and promise to pump large sums of money into a country that for years had received verylittle help. Before the mostre- cent crisis the CAR used to get about $50 in KAGO-BANDORO aid per head each year, between a third and an eighth as much as was given to bet- The World Bankused to shun warzones. Now it is trying to help before the ter-governed darlings of the donor com- shooting stops munity such as Seychelles or Mauritius. OOPS of razor wire overlooked by another market town. And in the capital, Since the crisis, the CAR has become an Hguard towers mark the border be- Bangui, killings and retaliations boil over example of how donors are changing their tween order and chaos in Kaga-Bandoro, a every few months. Yet even amid this sim- focus: from giving money mostly to well- market town in the middle of the Central mering conflict a bold experiment is taking run places, to putting more of it into the African Republic (CAR). On one side are place that may change the future of state- basket-casesthataccountforan ever-grow- the ordered rows of white tents and shel- building and peacekeeping across the ing share of the world’s poor. The World ters of the UN’s “Multidimensional Inte- world. It is to test a big, and still relatively Bank, for instance, has pledged to spend as grated Stabilisation Mission in the Central new, idea about how to deal with fragile or much as $500m, or about a third of the African Republic” (MINUSCA), a 13,000- post-conflict states: whether a big injection CAR’s current GDP, over the next three strong peacekeeping force. On the other, of aid into countries that have not yet fully years, ten times its previous commitments. huddling under the guns of the Pakistani emerged from conflict can revive their Globally, the World Bank plans to double battalion billeted here, are the tarpaulins economies and reduce the risk of them to $14bn the amount of money it allocates that shelter some 12,000-15,000 people in sliding backinto full-blown civil war. to fragile states over the next three years. one ofthe world’s newest refugee camps. Few countries have been dealt a worse “The CAR is a test case,” says Jean-Chris- They have fled not once, but at least hand by geography and history than the tophe Carret, the World Bank’s country twice. Many had already sought safety in a CAR. It is not just landlocked; it is farther manager. “Fragile states are the new fron- nearby camp after their homes were de- from the coast than anywhere else in Afri- tier ofdevelopment.” stroyed. In October, however, the refugee ca. Moreoveritisin an unstable neighbour- Others are also shifting focus. Britain’s camp was attacked and burned down by hood, sharing borders with the Democrat- Department for International Develop- members of Seleka, the remnants of most- ic Republic of Congo, Sudan and South ment plans to spend half of its budget in ly Muslim militias which had toppled the Sudan. The diamonds under its soil are fragile states and its private investment government in 2013. “Six men were threat- valuable enough to be worth fighting over arm, the Commonwealth Development ening me with knives,” says Paul Fradjala, and portable enough to fund militias. Ithas Corporation, is making 44% of its new in- the head of the local government in town, mostly been ruled by dictators since inde- vestments in such places. twisting and turning his shoulders to dem- pendence in 1960. An example of what this money is be- onstrate how he wriggled free and ran. Yet The most recent crisis started in 2013 ing spent on can be found about an hour’s even under the guns of the peacekeepers, after Seleka militias ousted the govern- drive east from Kago-Bandoro, where a security is illusory. “Ifsomeone kills some- ment and installed the country’s first Mus- group of villagers in orange high-visibility one in front of you, there is nothing you lim president, Michel Djotodia, before vests and red hard hats swingpickaxes and can do,” says Mr Fradjala of the crowded burning villages and massacring civilians. shovels as they repair a stretch of dirt road. new camp that encircles the UN base. The militia that formed to oppose them The project is partly about connecting Nerves are even more frayed in other was itself soon going door-to-door, killing towns with farmers to boost growth. But parts of the country. In February the UN Muslims, until a French military interven- the more immediate goal is to give young conducted air strikes on a faction of Seleka tion—some reckon its seventh in the coun- men jobs in the hope that this will make that was preparing to overrun Bambari, try—put a lid on the fighting. them less eager to take up arms. “The crisis 1 40 Middle East and Africa The Economist March 18th 2017

2 has idled many young people,” says Faus- provided 99.8% ofthe country’s export rev- productive capacity left,” says Mr Ajak. tin-Archange Touadéra, a former maths enues. At independence in 2011, when pro- Inflation has slightly decelerated in the professor who is now the country’s presi- duction was high and oil fetched over $100 past few months, taking South Sudan out dent. “If we give them work, we give them a barrel, petrodollars flowed freely and fu- of technical hyperinflation. Yet the funda- a vision, a hope.” Other infrastructure be- elled colossal political patronage. But a mental problems remain. The government ing built or refurbished includes a hydro- shutdown in 2012 followed by civil war, is still overspending, despite having no power plant that provides electricity to the which broke out in 2013, has slashed out- new sources of revenue. There are still al- capital and small pumping stations to pro- put. South Sudan now produces around most no non-oil exports. With peace, a vide clean drinking water. 120,000 barrels of oil a month; half as bail-outmightcome from international do- The harder challenge, of promoting much as it did at its peak, and the price per nors. But South Sudan’s leaders keep fight- private investment in a country that has al- barrel is only half what it was in 2011. The ing. Their latest revenue-raising proposal, most none, is evident at Bangui’s only in- government has printed fresh banknotes announced just a few weeks after famine dustrial plant of note, a brewery. It pro- to try to cover this gigantic shortfall, with was declared in parts of the country, is to duces Mocaf, a light lager so popular that, predictable results. raise the cost of work permits for foreign when Islamist militias took over the capi- An NGO workerin Juba shows offa pic- aid workers from $100 per person to tal, they stole the entire stock but took care ture ofboxesand boxesofcurrencyloaded $10,000. Feast on that. 7 not to destroy the plant. Pascal Berenger, onto a small plane: to pay local staff, the who runs the business, guffaws when NGO must first pay a hefty extra baggage asked if he buys raw materials locally. fee. Taxi drivers, a prominent source of Libya’s war “Normally brewers use some maize, some black-market currency, tie up bricks of pre- rice, but we don’t find any maize or rice. counted banknotes with elastic bands to Coastal retreats Everything is imported.” Yet adversity save people from having to count them out creates opportunity, he says, noting that themselves. beer sales rise during conflicts. After three Government salaries, when they are profitable years, his shareholders have giv- paid, are now worth almost nothing. And CAIRO en him the money formodern equipment. food, which is mostly imported from The battle forLibya’s oil ports Few think fixing the CAR will be quick Uganda and Kenya, has soared in price, complicates an already chaotic civil war or easy. “We may soon be—but are not adding to the near-famine situation in there yet—at a turning point in this country much of the country. At Gumbo market, a EW places exemplify the chaos that has to bend the arc of history,” says Parfait litter-swept patch of dirt near where the Fenveloped Libya better than the oil Onanga-Anyanga, who heads the UN mis- tarmac road to Uganda starts, Grace Asio, a ports of Sidra and Ras Lanuf, which have sion. “It will take sweat, tears and faith.” Ugandan trader, laments the state of her changed hands twice in March. First the That may well be true, but it will also take business. “The dollar costs more and Benghazi Defence Brigade (BDB), an Islam- money and a great deal of patience from more,” but the price in South Sudanese ist militia, captured them from the forces of those providing it. 7 pounds that her customers can pay stays Khalifa Haftar, the head of the self-styled the same. “Ifthis carries on, then definitely Libyan National Army (LNA). Then, as the I will have to close,” she says. BDB handed control of the ports to forces South Sudan A normal economy would adjust to the aligned with the Government of National worse terms of trade, says Peter Ajak, a Accord (GNA) in the capital, Tripoli, MrHaf- Death spiral South Sudanese economist. Indeed, faced tar, who issupported bya rival authority in with a worse exchange rate, in 2015 farmers the east, grabbed them back. in Equatoria, an area of rich soil south of For nearly three years Libya has been Juba, began selling their produce to Ugan- mired in a civil war that at first pitted east JUBA da—reversing the normal trade flow. Con- against west. Now there are so many flict, however, has stopped this. In July, a groupsfightingthatitisdifficultto drawthe To fight soaring inflation amid a famine, barely respected ceasefire broke down in battle lines. An attempt by the UN to stitch South Sudan taxes aid workers Juba; since then the civil war, which had the country together, by creating the GNA VEN in the posher restaurants in Juba, previously been confined to the north, has in 2015, hasall butfailed forlackof support. Ethe capital of South Sudan, the world’s spread to Equatoria. The number of South Even Tripoli is beset with violence. Oil pro- newest country, the menus are printed on Sudanese refugees in Uganda has more duction, Libya’s economic lifeline, is cheap paper. It is not worth having more than tripled to above 700,000, while farm- threatened bythe fighting, which may spur expensive ones when they have to be up- ing has all but stopped. “There is really no deeper involvement by Russia. It says it dated every few weeks. Thanks to an infla- wants stability, but it supports Mr Haftar. tion rate that touched more than 50% a Though he has, at least for now, come month at one point last year (the conven- The price of war out the winner, the battle for the ports ex- tional definition of hyperinflation, though South Sudan, consumer prices posed Mr Haftar, who believes he is the price riseshave since eased offa bit), even a % change on a year earlier only one who can unite the country and modest meal costs a brick-sized bundle of 800 defeat the terrorists in its midst. “He be- currency. Over the past year, the value of haves like a strongman, but he does not the South Sudanese pound has collapsed. 600 have the capabilities of a strongman,” says It used to take 30 to buy a dollar; now it Mattia Toaldo of the European Council on takes 120. The biggest banknote in circula- 400 Foreign Relations, a think-tank. His nation- tion, the SSP100, is now the world’s least al army is more a coalition of ragtag mili- 200 valuable highest-denomination national + tias from the east, stretched thin by fighting note. 0 in Benghazi and Derna. Indeed, it was This nasty bout of inflation has two – forces aligned with the GNA, not Mr Haf- causes: money-printing and economic col- 200 tar’s army, that kicked the jihadists of Is- lapse. South Sudan’s economy is among 2014 15 16 17 lamic State out of their stronghold in Sirte the leastdiversified in the world. In 2014 oil Source: National Bureau of Statistics last year. 1 The Economist March 18th 2017 Middle East and Africa 41

Mediterranean Sea South Africa and Russia Tripoli Derna TUNISIA Tobruk Ras Benghazi Misrata Sirte Lanuf Saymyname Sidra JOHANNESBURG Old ties from the days ofstruggle are being renewed EGYPT

ALGERIA LADIMIR PUTIN may frighten some from the two countries pledged to work LIBYA Vcountries, but Russia gives many on “collaborative media activities”. South Africans a warm and fuzzy feeling. The countries have grown closer S PARSELY PO PULATED They remember support in decades past: within the BRICS (Brazil, Russia, India, during apartheid the Soviet Union pro- China and South Africa) grouping, an NIGER CHAD 250 km vided military training and arms to the economic club that has developed into a Areas200 of km control/presence (March 2017) African National Congress (ANC), as well broader, more political alliance. For Mr Government of Libyan National Army as to other liberation movements on the Zuma, and foran anti-Western strain National Accord (Haftar) and local allies continent. Some surprisingly common within the ANC, Russia and China offer Benghazi Defence Brigade Oil pipeline/field Sources: American Enterprise Institute; South African first names—such as Sovi- an ideological alternative. Sanctions-hit Petroleum Economist et, Moscow and Lenin—are living tributes Russia sees Africa as a source ofpolitical to these old ties. SputnikRatau, born support and business opportunities. 2 Russia, nevertheless, seems to view Mr shortly after the first satellite’s launch, is a South Africa has laid out the welcome Haftar as a stabilising force worth backing. spokesman forthe water and sanitation mat, inviting Mr Putin to visit this year. It is said to have deployed special forces to department. A high school in KwaZulu- Gerrit Olivier, a formerSouth African an air base in western Egypt, near the bor- Natal is named after Eric Mtshali, a stal- ambassador to Russia, says visa-free der with Libya. Both Egypt and Russia wart ofthe struggle who spent decades in travel symbolises this “special relation- deny this. “Excessive intervention…is exile and goes by the nickname “Stalin”. ship”. But he doubts it will boost travel, hardly possible and is hardly advisable,” Recently, Russia and South Africa since there are few South African-Russian says Dmitry Peskov, a spokesman for the have sought to renew these cold-war-era business deals, and no direct air links. Kremlin. But American officials see paral- ties. The two countries are scrapping visa “Cultural incompatibility” is also a pro- lels with Russia’s actions in war-torn Syria, requirements from March 30th, allowing blem, he reckons. Perhaps this is the where it supports Bashar al-Assad, the up to 90 days oftrouble-free travel. South secret to the two countries’ friendship: blood-soaked president. Russia has hosted Africa’s president, Jacob Zuma, has al- personal interactions remain rare. Mr Haftar three times since the start of last ready developed a taste for Russian holi- year—on one occasion, aboard an aircraft- days. In 2014, after a tiring election cam- carrier in January, when he was greeted paign, he tooka six-day trip with his state with a full-dress parade. security minister that included several The Russians have also hosted the days of“rest”. A few weeks later South GNA’s prime minister, Fayez al-Serraj, in Africa signed an agreement with Ros- Moscow. But many blame Mr Haftar’s in- atom, Russia’s state-owned nuclear transigence forthe lackofprogress towards power company, to buy several nuclear- peace. Egypt, which backsthe LNA, wasan- power stations. Though the deal appears gry at his refusal to hold direct talks with to have stalled because ofcontroversy Mr Serraj at a summit in Cairo last month. over the 1trillion-rand ($76bn) price tag, Now MrHaftar’s team is tryingto rally sup- there has been other co-operation in port at home and abroad by sayingthat the intelligence and defence, with South BDB is affiliated with al-Qaeda. The charge African spies and air-force pilots said to is rejected by the group, though some of its have received Russian training. On fighters have ties to extremists. One target March 6th communications officials ofthe propaganda isthe newAmerican administration, which has yet to take a position on Libya. The GNA, for its part, is both weak and divided. Mr Serraj probably did not know about the BDB’s plan to attack the ports, which his government condemned. But his defence minister, Al-Mahdi al-Bargh- athi, probably supported the effort. Back in Tripoli, rival militias are shooting it out in the streets, as a previous Islamist government tries to reclaim power. Mr Serraj himself survived an assassination attempt on spot had been oil production, which al- collapse,” says Mr Toaldo. his motorcade in February. He is losing most doubled, reaching 700,000 barrels That is not impossible. Before the revo- support even among the militias of Mis- perday (bpd), afterMrHaftarfirst captured lution that toppled Muammar Qaddafi’s rata, which have fought on the side of the the portsin September. Ithassince fallen to regime in 2011, Libya produced 1.6m bpd. GNA. Ironically, his weakness may also be about 600,000 bpd. Libya, which has the Russia seems hopeful. Its state-owned oil an asset—some militias back him precisely largest oil reserves in Africa, needs the rev- giant, Rosneft, signed a co-operation agree- because he cannot challenge their power. enue, which goes to the central bankand fi- ment with Libya’s National Oil Corpora- Suffering Libyans just want the fighting nances both halves ofthe country. “Unless tion last month. But much depends on to stop. The GNA has failed to provide ser- it can get to 900,000 or 1m bpd by the end how Mr Haftar and his allies handle their vices. Cash is in short supply. One bright ofthe year, it has no hope ofavoiding fiscal recovered treasure. 7 42 Middle East and Africa The Economist March 18th 2017

Saudi Arabia been influenced by the “misuse of social media, copying other cultures and weak Farewell my guardian beliefs”. Economists note that the guardianship system makes Saudi Arabia poorer. More than a quarter of the 150,000 students the kingdom sends abroad every year are women. Given that many defer their return or choose to remain in more liberal Chafing at being treated like children, some Saudi women are leaving the country places like Dubai, much of the $5bn the AN Saudi Arabia keep its women? Last scared ofsocial housing”. government spends on their studies each C month’s appointment of women to Estimates of the number of “runaway year is going to waste. “Saudi Arabia is los- head two big banks and Tadawul, the king- girls”, to use the Saudi term, are imprecise, ing the battle to keep its talent,” says Najah dom’s stock exchange, offers hope that the but, says Mansour al-Askar, a sociologist at al-Osaimi, a female Saudi academic who path to a fulfilling career is not completely Imam Muhammad ibn Saud University in has settled in Britain. blocked. Butthe restrictionsofSaudi life re- Riyadh, the rate is rising. By his estimates, Awkwardly for reformers, some of the main so irksome that covertly, silently, over a thousand flee the kingdom every most tenacious advocates ofthe wilaya are many women are finding ways out. year, while more escape Riyadh for Jed- women, particularlyin obscurantistsouth- On family trips abroad, some jump dah, the kingdom’s more liberal coastal ern provinces like Asir. Despite such be- ship. Some, having been sent to Western metropolis. guiling hashtags as #StopEnslavingSaudi- universities at the government’s expense, Dissenting Saudi scholars insist that the Women and #IAmMyOwnGuardian, a postpone their return indefinitely. Others guardianship laws stem not from Islam, social-media campaign to end the wilaya avail themselves of clandestine online ser- but the Bedouin customs that still hold system attracted just14,000 signatures. vices offering marriages of convenience to sway in much of Arabia’s hinterland. Kha- men willing to whisk them abroad. Iman, dija, the Prophet Muhammad’s first wife, Use them or lose them an administrator at a private hospital in Ri- was a merchant who sponsored her hus- Saudi Arabia’s leaders acknowledge the yadh, has found a package deal for $4,000 band. His subsequent wives moved be- need to make the kingdom more women- offering an Australian honeymoon during tween Medina and Mecca without him. friendly. Already, more women attend Sau- which she plans to scarper. “Islam freed women from the wilaya,” di universities than men. And although Propellingthe flightisthe kingdom’swi- says Hassan al-Maliki, a theologian in Ri- some men still send their own photo- laya, or guardianship, law. Although it has yadh who has sometimes been jailed for graphs when they apply for jobs for their received less publicity than the world’s free-thinking. “A woman can choose wives (and even attend their interviews), only sex-specific driving ban, it imposes whom she marries.” But the clerics who in 2012 the kingdom waived the need for harshercurbson female mobility. To travel, man the judiciary maintain that guardians women to have their guardians’ approval work or study abroad, receive hospital protect the vulnerable and keep families for four types of work, including clothes- treatment or an ID card, or even leave pri- and, by extension, society together. Last shop assistants, chefs and amusement- son once a sentence is served, women December the courts sentenced a man park attendants. need the consent of a male wali, or guard- caught denouncing the wilaya on social In upmarket malls, women can be seen ian. From birth to death, they are handed media to a year in jail. Another Saudi selling aftershave, boldly spraying sam- from one wali to the next—father, husband study, at a university in Mecca, acknowl- ples onto male hands. Broadminded men and, if both of those die, the nearest male edged that some runaways might be flee- can give their female wards five-year per- relative. Sometimes that might be a teen- ing physical abuse, but said that most had mits to move unaccompanied (though age son or brother, because although boys they get updates by text message whenev- are treated as adults from puberty, women er their charges travel abroad). Country- are treated as minors all their lives. wide, the dress code has relaxed a bit. In Iman, a divorcee, is subject to the guard- big cities, women have added streaks of ianship of her brother, who at 17 is barely colour and patterns to the black abayas or half her age. He lets her work as a manager cloaks that the state requires them to wear. at a hospital, but pockets her earnings. She Even in Burayda, the bastion of Saudi Ara- says she is kept like a chattel, while he bia’s puritanical rite, women have cut slits spends hermoney on drugs and weekends fortheireyesin veilsthathitherto fullycov- in massage parlours in neighbouring Bah- ered their faces, and let their abayas slip rain. Her ex-husband refuses to let her see from their heads to their shoulders. their children. Her brother prevents her Nonetheless many women seethe with from completing her studies in Europe. If frustration. On social media, footage of she protests, he threatens to beat her. women riding motorbikes has gone viral. She tried going to court to have the So too has a female silhouette, whisky bot- guardianship transferred to a more sympa- tle in hand, dancing on her car roof. A fe- thetic elder brother, but the judge dis- male pop group, clad in black, sings songs missed the case, she says, while talking on of protest from dodgems, toy cars, skate- his phone. Though she dressed demurely boards, roller-skates and other wheeled in a full veil, she suspects the judge object- vehicles that they can legally drive. Unless ed to her presenting her own case. Social the system adapts, warns Mr al-Askar, the services offer poor refuge, since hostels for sociologist, it risks crumbling. Judges and abused women resemble prisons where the police should worktogetherto strip op- the windows are barred and visitors pressive men of their right to be walis, he banned. When she hearsotherwomen say says. But for Iman, the hospital manager, that their brothers don’t beat them, Iman reform can’t come soon enough. An Aus- assumes they are lying “because they are I’m leaving on a jet plane tralian honeymoon awaits. 7 Europe The Economist March 18th 2017 51

Also in this section 52 A year on from the EU-Turkey deal 53 Polish diplomatic squabbles 54 Ireland’s lame duck 56 Charlemagne: Identity politics

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

Dutch elections sues of national identity and crime in response to Mr Wilders, will be a natural The centre holds partner. But most of the mid-sized groups are to the VVD’s left: the liberal, pro-Euro- pean D66 party, the GreenLeft party, the far-left Socialists, and behind them micro- outfits like the Christian Union, 50Plus (a AMSTERDAM AND THE HAGUE pensioners’ party), the Party for the Ani- mals and Denk, a new ethnic-minority The Netherlands breathes a sigh ofrelief party. The centre-left Labour Party, the ju- T WAS supposed to be the kick-off of Eu- tory as “a feast for democracy”. At a VVD nior partner in Mr Rutte’s grand coalition, Irope’s year of populism. For months, an- party in Amsterdam young men and lost three-quarters of its seats. (Its voters alysts had speculated that Geert Wilders, women cheered; the result was a “beauti- blamed it for abetting Liberal austerity.) the platinum-blond rabble-rouser who ful victory for the liberals”, one ex-banker The Netherlands now faces lengthy calls for the Netherlands to shutter its enthused. Pieter Veldhuizen, a VVD cam- haggling before a government based on mosques and quit the European Union, paigner, said the result showed that the dozens of compromises can take shape. In might come first in the Dutch election, por- Dutch prefer those who “do things” rather other words, Dutch politics as usual—just tending smashing wins for anti-Muslim than “tweet on the sofa” (presumably in what Mr Wilders and his followers de- Eurosceptics across the continent. contrast to Americans). spise. The anti-immigrant right had hoped It did not happen. On March 15th the Mr Wilders’s anti-immigration PVV, the row with Turkey would help them re- Dutch delivered a vote ofconfidence in the which over the past year looked as if it frame the election as a battle between the competent centre—despite a last-minute might win the most seats, now looks likely Netherlands and Islam. Instead, it handed diplomatic clash with Turkey that featured to come second, with 20. Both the Liberals Mr Rutte control ofthe agenda. riots in Rotterdam and wild allegations and every other sizeable party have ruled from Recep Tayyip Erdogan, Turkey’s presi- out collaborating with the PVV, and reneg- Raging Istanbul dent. After the Netherlands blocked Turk- ing seems neither possible nor desirable. The row with Turkey erupted when the ish ministers from visiting to campaign for Mr Rutte will have to negotiate with a Turkish foreign minister, Mevlut Cavuso- a Turkish referendum among Turkish- handful of parties that emerged from the glu, attempted to visit Rotterdam to drum Dutch dual citizens, Mr Erdogan called the election much stronger. The Christian up support fora referendum on a new con- Netherlands a “Nazi remnant”, barred its Democrats (CDA), who shifted right on is- stitution, scheduled for mid-April, that 1 ambassador and bizarrely accused the Dutch of the massacres of Bosnian Mus- lims in Srebrenica in 1995. Splintered, but still centrist Mark Rutte (pictured, third from right), Dutch parliamentary election results, total seats: 150 who has been prime minister since 2010, 2017* Denk GreenLeft Christian Christian was always the likeliest candidate to form Socialists PvdA D66 Democrats VVD Union PVV Others the country’s next government. With 95% of votes counted when The Economist 314 14 9 19 19 33 5 20 14 went to press, his Liberal (VVD) party is set 2012 to remain the largest, with 33 seats, though 15 4 38 12 13 41 5 15 7 it lost eight. In a speech after the exit polls were announced, Mr Rutte hailed the vic- Sources: Netherlands electoral council; NOS *Preliminary results 52 Europe The Economist March 18th 2017

2 would give Mr Erdogan almost complete Mr Rutte looked uncomfortable was when energy and the VVD cheap petrol and fast control ofthe government. About 400,000 MrWilderssavaged him over conditionsin roads. Dutch have Turkish backgrounds, and care homes, and claimed that prisoners And yet here lies the irony ofDutch pol- their loyalty is a sensitive issue. Most who were cared forbetter than the elderly. itics. Partiesshout at each other for months vote in Turkey back Mr Erdogan and his Is- As in other countries, the broad right- and then govern together for years. Form- lamist AK party—a stance that non-Muslim left ideological confrontations that once ing a majority government will take Dutch find incomprehensible. Mr Wilders structured Dutch politics are breaking weeks, more likely months. In 2012 the fi- often exploits these tensions, calling Mus- down, and voters are moving in many di- nancial crisis added urgency to the pro- lim Dutch a “fifth column”. rections at once. Some 13 parties made it cess; now, the lack of a deadline may be a Seeking to avoid pro-Erdogan demon- into parliament, up from 11in the previous problem, makingitharderforpartyleaders strations, the Dutch government denied election. After their final pre-election de- to sell concessions to theirmembers. In the Mr Cavusoglu permission for a rally. After bate, the party leaders could barely coming weeks an official “informer” will he threatened sanctions if he were not al- squeeze in tight enough fora portrait. be charged with exploring which co- lowed to come, his landing rights were re- But the mid-sized parties that will prob- alitions might work and which horses dif- voked. Hundreds of Turkish-Dutch staged ably be needed to form a coalition are di- ferent parties are willing to trade. The most a protest, and the Turkish minister of fam- vided, on classic left-right lines, over how likely combinations are a centre-right gov- ily affairs drove to Rotterdam to speak to wealth should be shared. Jesse Klaver, the ernment involving VVD, CDA and D66, them. Dutch police dispersed the crowd handsome 30-year-old leader of Green- propped up either by the Greens or the with truncheons, dogs and water-can- Left, demanded in the debates that janitors smaller Christian parties. nons, and forcibly returned the minister to should earn more and bankers less, fram- In the meantime Mr Rutte’s caretaker Germany. The reaction in Turkey was furi- ing the CDA and VVD as bankers’ friends. cabinet will continue to run the country. It ous. Turks declared boycotts, staged prot- On climate change the parties are miles is supposed to refrain from controversy. ests and vowed sanctions. apart, with the Greens prioritising green That may be hard. 7 The clash, many feared, would play into Mr Wilders’s hands. Instead, it allowed Mr Rutte to show backbone and The EU-Turkey deal widen his lead. Nonetheless, it may have helped the PVV to pull Dutch votersyet fur- Out of sight ther to the right. Already, according to Peil, a pollster, 71% of Dutch want to pull out of the EU’s association agreement with Tur- key, which prevents the government from forcing Dutch of Turkish origin to take inte- BELGRADE AND ISTANBUL gration courses. A yearon from a deal with Turkey, Europe still struggles with migration But in the end, domestic issues seem to have trumped international ones. The OUNGING in a smoky café in Aksaray, a Netherlands took longer to recover from Lrundown part of Istanbul, Ahmed, a 23- Mr Erdogan’s leverage the euro crisis than some neighbours. Mr year-old Palestinian people-smuggler, ex- Countries hosting the largest numbers Rutte had cut social spending, raised the re- presses confidence in the future of his in- June 2016 or latest available, m tirement age and reduced mortgage tax de- dustry. “People come here, they have sold Refugees Asylum applicants* ductions. Populistsand moderatesalike ac- everything, they will find a way to get 0 0.5 1.0 1.5 2.0 2.5 3.0 cused the government of neglecting the smuggled,” he shrugs. Business has got Turkey elderly and making health care unafford- harder since March 18th 2016, when the Pakistan able. In a debate this week, the only time European Union struck a deal with Recep South Africa† Tayyip Erdogan, Turkey’s president, to Lebanon send asylum-seekers back from Europe. Germany But people are still trying to make the jour- Iran ney. Indeed, Ahmed boasts, before the deal Ethiopia smuggling was “too easy”. Jordan Ahmed’s bravado contradicts Euro- United States pean politicians’ claims that the deal with Kenya Turkey has broken the smugglers’ business Uganda model. Going purely by the numbers, the Chad Europeans would seem to be right. Before *Asylum seekers may be registered in the deal was struck around 50,000 people more than one European country † crossed the Aegean to Greece on flimsy Source: UNHCR Asylum cases cannot be withdrawn boats each month. Between December 2016 and February this year, only about med (not his real name), a 37-year-old Pal- 3,500 made the journey. estinian who claims to have given up But on a closer look, the deal deserves smuggling after he was caught and jailed criticism. Although it has been a political for four months, estimates that around 100 success, seemingly demonstrating that the smugglers are still operating in Istanbul. EU can control its borders, its humanitar- Their tactics have changed: some asylum- ian impact has been far murkier. And it seekers fly to Europe from Turkey using leaves the EU uncomfortably dependent passports—bought or stolen—belonging to on less-than-fully democratic govern- similar-looking EU citizens. A few have ments elsewhere to manage migration. been sent from Kas, farther south on the In Turkey it is not hard to find people- Turkish coast, to Kastellorizo, a tiny Greek When life gives you oranges smugglers still plying their trade. Moham- island. Others are smuggled from Syria to 1 The Economist March 18th 2017 Europe 53

ever, the deal has been far less successful. EU’s record on shifting refugees from With the flow of migrants halted, Greece Greece to other members: only 7,280 were and EU countries were supposed to pro- moved between September 2015 and Janu- cess those who had already arrived. “To- ary 2017. The target set in 2015 was to relo- day there should not be more than a hand- cate more than 63,000 in two years. Intran- ful of asylum seekers on the Greek sigent politicians have been a problem, islands,” says Gerald Knaus of the Euro- particularly in eastern Europe. Bureaucrat- pean Stability Initiative, a think-tank. In- ic backlogs have done the rest. stead 62,000 are still in Greece, with around 13,000 on the islands in over- The saving face that stopped 1,000 ships crowded, squalid camps. Once the num- Meanwhile, the deal has left Europe de- bers of new arrivals fell, EU politicians be- pendent on Mr Erdogan’s goodwill. Offi- came complacent, thinks Mr Knaus. cials in Turkey have repeatedly vowed to Emergencyassistance to Greece was boost- cancel it if Europe does not fulfil the pro- ed by €357m, of which €70m directly sup- mise ofvisa-free travel forits citizens. Euro- ports the EU-Turkey agreement. Yet peans accuse their governments of down- Greece’s asylum system remains sluggish. playing Mr Erdogan’s growing authoritar- The rate at which rejected applicants are ianism for fear that he might “open the sent back to Turkey has actually fallen gates”, as he threatened to, in November. since the agreement came into place. The threat is mostly rhetoric: with borders Similar problems occur up through the closed across Europe, it has become far Western Balkans. Around 7,000 asylum- harder formigrants to make the journey. Learning the hard way seekers are stranded in Serbia, with about Yet the EU is vulnerable to worsening 1,000 staying in abandoned warehouses relations with Turkey and political chaos 2 Sudan, then up through Libya to Italy, Mo- next to Belgrade’s main railway station. in Greece. Many politicians are just pleas- hammed claims. These makeshift camps have no running ed the deal turned the migrant crisis from a As the numbers show, however, since water or electricity; to escape the cold, mi- situation of“intolerable dysfunction to tol- the deal many more migrants are staying grantsburn leftoverrailwaysleepers, creat- erable dysfunction”, says Elizabeth Collett put in Turkey. Some 2.9m Syrians and hun- ing a suffocating stink of oil. Some sleep in of the Migration Policy Institute, a think- dreds of thousands of Afghans and Iraqis derelictcarsstuffed full ofblankets instead. tankin Brussels. It would not take much for live there. Around 10% are in camps; the Such conditions are shameful. So is the it to become intolerable once more. 7 majority live in Istanbul or towns in the south-east, near the border with Syria. Tur- key has the largest refugee population Polish diplomatic squabbles globally (see chart on previous page). The fortunes of these migrants are Pyromaniac politics mixed. Many are attempting to make a life in Turkey. Because ofa quirkin Turkey’s accession to the UN refugee convention of 1951, only Europeans fleeing war or perse- cution are considered “refugees”; instead, BRUSSELS AND WARSAW the 2.9m have been offered temporary pro- At home and abroad, the Polish government is evermore difficult tection. Since January 2016 it has supposedly become easier for Syrians to get work ONALD TUSK’S appointment as presi- she wrote. (This may refer to a speech Mr permits, but only around 10,000 have suc- Ddent of the European Council in 2014 Tuskmade in Wroclaw last year calling on ceeded. Many migrants’ houses are over- seemed to complete Poland’s journey to the government to respect the constitu- crowded, says Metin Corabatir, the presi- the heart ofthe European Union. A decade tion.) Ms Szydlo nominated Jacek Saryusz- dent of the Research Centre on Asylum after Poland led the accession of eight for- Wolski, an obscure member of the Euro- and Migration, a think-tank in Ankara. Al- mer Soviet-bloc countries, its prime minis- pean Parliament, to replace Mr Tusk. though around half a million refugee chil- ter was elevated to one of the most senior In the end the matter came to a vote, an dren have been sent to school, nearly as posts in Brussels. The job involves chairing unusual development in a forum that pref- many remain out of it. Child labour is not summits of European leaders and forging ers to settle such matters by acclamation. unheard-of, norare child brides. compromise from their debates. At first Despite speculation that Hungary, which Yet in some ways refugees are faring some thoughtMrTuskoperated more like a often sides with Poland, might support the better in Turkey than in other parts of Eu- Polish prime minister than a consensus- gambit, Mr Tusk was re-elected by 27 votes rope. Each Syrian refugee is given a tempo- seeking European. But most came round as to one. Ms Szydlo responded by sulkily rary guest card and free access to public he coolly shepherded the EU through the blockingthe summit’s conclusions on mat- health care. Since the deal came into place Greek bail-out, the refugee crisis and Brit- ters such as trade and defence, an act with- €3bn ($3.2bn) in aid from the EU has been ain’s Brexit vote. His election to a second out legal significance. agreed, with €750m already disbursed. two-and-a-half-year term at an EU summit Animosity between Mr Tusk and Jaros- Another €3bn has been promised. Along on March 9th looked like a formality. law Kaczynski, who as head of the ruling with a food programme, a cash-card Instead, MrTuskfound his own country Law and Justice (PiS) party is the true scheme has been set up; by February over blocking his path, and a Polish political leader of Poland, has been brewing for 200,000 people were being helped by it. psychodrama imported to Brussels. Beata over a decade. Mr Kaczynski absurdly The EU has also increased legal resettle- Szydlo, Poland’s prime minister, circulated blames Mr Tusk for a plane crash in Smo- ment: since the deal came into force 3,565 a letter to her fellow heads of government lensk in 2010 that killed his twin brother Syrian refugees have gone to a dozen EU that more or less accused Mr Tusk of trea- Lech, then Poland’s president. By smearing member states. son. “He used his EU function to engage his arch-enemy as a traitor, Mr Kaczynski On the other side of the Aegean, how- personallyin a political dispute in Poland,” may hope to reduce Mr Tusk’s chances of1 54 Europe The Economist March 18th 2017

2 ever returning to domestic politics. Ireland’s lame duck In the eyes of PiS and its supporters, Mr Tusk and his centre-right Civic Platform party exemplify a post-communist elite Jaded isle that sold out Polish interests after 1989. A DUBLIN histrionic video published by PiS this Forvoters, Enda Kenny has lost his twinkle month blames Mr Tusk for destroying Po- land’s shipbuilding industry. The strong re- RISH-AMERICANS, who celebrate St without the medicine.) Unemployment lationship Mr Tusk forged with Germany IPatrick’s Day with a frenzy ofpublic in February was at a nine-year low of as prime minister has been turned against drunkenness, dyed-green beer and lepre- 6.6%, and the EU forecasts GDP growth of him. Witold Waszczykowski, the foreign chaun costumes, might be disappointed 3.4% this year. But in an election last year minister, said the vote in Brussels proved at how the Irish themselves markthe Mr Kenny’s coalition lost 42 ofits 99 seats; that the EU is “under Berlin’s diktat”. holiday. Most preferto watch the parades he now runs a minority government. A similar level of paranoia could be on television rather than brave the In February Mr Kenny mishandled traced behind the Polish government’s de- changeable spring weather, perhaps the latest twist in the saga ofa police cision, on March 14th, to approve an hoisting an evening toast to Saint Paddy whistle-blower, Maurice McCabe. In amendment to the law on the foreign ser- (never “Saint Patty”, as it is often ren- 2014, after Sergeant McCabe exposed vice. Ostensibly the new law will remove dered in America). And they never put systematic corruption in the Garda Sio- those who co-operated with the commu- dye in their beer. Those in search of chana, the national police force, senior nist-era security apparatus; according to emerald ale must go abroad, as indeed officers tried to smear him with false the draft, some diplomatic posts abroad re- nearly the entire cabinet does every year, charges ofsexual abuse. Asked by parlia- semble skanseny (open-air museums) of fanningout to visit the global Irish dias- ment when he had learned ofthe smear, the communist era, while some diplomats pora. In no other country do the upper Mr Kenny contradicted himself. are accused of having “insufficiently ranks ofgovernment markthe national Should Mr Kenny resign, he will strong bonds with the Polish state”. holiday by flocking overseas. probably be replaced by a younger party In reality, ifthe law is adopted by parlia- The most high-profile ritual takes colleague. IfFine Gael loses office, the ment, the effect will be much broader: all place in Washington, where the taoiseach next taoiseach will almost certainly be foreign-ministry employees’ contracts will (prime minister) presents America’s Micheal Martin, the leader ofIreland’s be terminated in six months. Only those president with a bowl offresh shamrock. other big centre-right party, Fianna Fail. offered new ones, according to unspecified For the current taoiseach, Enda Kenny, Between them, the two parties have criteria, will stay on. It could thus become this year’s visit to the White House will governed Ireland ever since the founding far easier for PiS to stuff the foreign service be his sixth. It is likely to be his last. Fac- ofthe modern state. A poll last month by with loyalists or those keen on its more ing a mutiny in his centre-right Fine Gael the Irish Times put their combined sup- confrontational foreign policy. The amend- party last month, Mr Kenny said that port at 57%. A constellation ofsmall ed law states that the service’s role is to after meeting Donald Trump he would left-wing parties managed about ten “protect Poland’s sovereignty”, which ech- make an announcement about his fu- points between them. As forthe hard oes Ms Szydlo’s calls to stand up to Brus- ture—presumably, that he will step down. right, in Ireland there is none. sels. Even if the foreign service does not Mr Kenny’s departure would alarm This is not to say that ordinary Irish end up exclusively staffed by PiS cronies, some in Brussels, who see him as a faith- people are content. Many complain of the change would permanentlypoliticise a ful implementer ofthe austerity policies disintegrating health services, precarious fairly neutral institution. that the European Union imposed after jobs, mass emigration, a housing crisis PiS has pursued a worrying policy of the Irish property crash of2008. The EU and a cost ofliving that approaches polarisation since winning the election in regards Ireland’s strong recent economic Nordic levels. But this disaffection has yet 2015. Mr Kaczynski’s government portrays performance as proofthat its prescrip- to trouble the political calm. As with its political opponents as enemies of the tions worked. (Some economists think Saint Patrick’s Day, few Irish are ready to state. Its purges of official institutions aim the patient might have recovered faster take to the streets. to cement PiS’s own vision ofthe post-1989 revolution, and have turned state media into a mouthpiece of the regime. The tactics appear to be working: the government dominates opinion polls. Poland is drifting ever further from the European mainstream. From energy to climate to the preparations for a big EU summit in Rome this month, diplomats and officials describe a government that is becoming increasingly hard to work with. Some urge the commission to trigger Arti- cle 7 ofthe EU treaty, the as-yet unused “nuclear option” that could see Poland’s EU voting rights suspended. The government will be the first victim of the futile diplomatic to-do it provoked; it can hardly expect generous treatment in the forthcom- ing negotiations over the EU budget, for example. After his re-election, Mr Tusk warned that burned bridges cannot be crossed again. But MrKaczynski appears to The usual paddywackery be in the grip offull-blown pyromania. 7 56 Europe The Economist March 18th 2017 Charlemagne Open up

Identity politics is not the preserve ofthe farright, as the Dutch election shows his performance the best of the night. “It’s a new kind of patrio- tism,” says Marjolein Meijer, the GreenLeft chair. As for D66, no other party has so strongly stood up to Mr Wilders’s calumnies. Dutch politics is too complex and fragmented to provide straightforward lessons. Thirteen partieswon seatsthis week; the coalition that eventually emerges may well resemble the centrist governments that have run the Netherlands for decades (although with fouror five parties it will struggle forcoherence). Ifa cosmopolitan-nationalist divide has emerged, it has not so much supplanted the old left-right axis as complemented it, suggests Cas Mudde, a political scientist at the University ofGeorgia. Yet the Dutch have often served as political bellwethers for other parts of Europe. Without the roadblocks of parliamentary thresholds or complex voting systems, social changes can find political expression quicker than in other countries. GreenLeft and D66 have exploited the political space opened up by the collapse ofthe traditional centre-left—the LabourParty, the juniorco- alition partner, lost three-quarters of its seats this week—and the right’s failure to resist the populist temptation. Brexit and Mr Trump presented them with cautionary tales almost as potent as the threat from Mr Wilders. ILL no one stand up for the Dutch cosmopolitan elite? For The Dutch may have avoided a serious rupture. But the poli- Wmany observers of this week’s election in the Netherlands tics of identity still has the power to divide. Two years ago “Sep- there was only one story: the fate of Geert Wilders, the bottle- arate Worlds”, a report by two government think-tanks, warned blond nativist who wants to ban the Koran and exit the European of a drift to American-style polarisation between an educated Union. Rare wasthe barin Limburg, MrWilders’shome province, elite that is enthusiastic over globalisation and a remaining class leftunmolested by journalists expecting Dutch voters to deliver a of poorer Dutch rooted in place and tradition. Those parties that populist hat-trick, following the triumphs of Brexit and Donald sit firmly inside one orotherofthese bubbles were among the big Trump. The young, educated urbanites of Amsterdam’s Canal winners this week (only 14% of those with little education went District or Haarlem barely got a look-in. And yet in an election for D66 orGreenLeft; MrWilders hoovered up this group’s votes). with many subplots, theirs was among the more arresting. And Dutch identity politics has found a third, more worrying Though Mr Wilders disappointed on election day, he remains dimension in the emergence ofDenk, a partycateringspecifically more than an irritant. With 20 seats in the new 150-seat parlia- to Dutch Muslims. Karina, a young Moroccan Dutchwoman but- ment, he may well lead the opposition to whatever government tonholed by Charlemagne as she emerged from a mosque serv- emerges from the electoral mélange produced on March 15th. His ing as a polling station in Amsterdam, explained that she used to vicious brand ofanti-Islam populism is no less shocking for its fa- vote Labour before Messrs Wilders and Trump left her fearing for miliarity (Mr Wilders founded his Freedom Party in 2006, and he her freedom to don the headscarf. Thanks to her vote, and many is not the first peddler ofxenophobia to Dutch voters). And oppo- thousands more, Denknetted three seats. sition presents no impediment to his influence. Before the election Mr Wilders told an interviewer that by tugging other parties That’s not me in his direction, he had already won. In a way, he was right. An electoral landscape increasingly marked by identity politics is But his influence extends in other directions. Until now, the a recipe for national unease. For the parties that are on the rise, politics of identity across Europe has been largely ceded to the one response is to explore fresh policy terrain vacated by the ex- likes of Mr Wilders. Mainstream parties of left and right often haustion of the traditional left. Changing labour markets and job struggle to find the vocabulary to discuss culture, nation, race and insecurity provide an obvious example: unemployment is low in immigration; some change the subject, others meekly ape the far the Netherlands, but it has Europe’s highest share of temporary right. But in the Netherlands the two parties that performed most workers. Crafting asylum rules that combine generosity for out- strongly compared to the 2012 election—D66, a collection of ear- siders with reassurance on borders for anxious Dutch is another. nest pro-European liberals, and GreenLeft, a once-fringe amal- D66 may have given some thought to these issues; it is less clear gam of radicals and environmentalists—succeeded by taking Mr that GreenLefthas. MrKlaver’s critics charge that his speeches are Wilders on directly. GreenLeft at least tripled its number of seats. often heavier on inspiration than insight. If his party signs up to D66 won 19 seats and runs strong in every Dutch city. government, he has a chance to prove them wrong. One of the campaign’s most telling moments came during a If so, like-minded parties elsewhere in Europe will take heart. debate ofparty leaders on March 5th. Asked whetherthey agreed Last year Alexander van der Bellen, a former Green, defeated a that the Netherlands was failingto “protect its own culture”, most far-right challenger for the Austrian presidency on an avowedly muttered about the decline ofvalues or the national anthem. But pro-European platform. The untested Emmanuel Macron is seek- Jesse Klaver, the 30-year-old GreenLeftleader, said he agreed with ing to do the same against the far-right Marine Le Pen in France. the proposition, and went on to describe a vision of national Liberalshave started to win votesin such unlikelyplaces asSpain identity centred on tolerance, openness and internationalism and Poland. This is hardly the beginning of the end for the anti- that he claimed was under siege from the right. Viewers declared immigrant, identity-politicking right. But it is worth watching. 7 Britain The Economist March 18th 2017 57

Also in this section 58 Article 50 is scotched Bagehot is on holiday

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

Scottish independence fewer of the elderly unionists are around) could boost the nationalists’ chances. And Sturgeon the brave the adverse effects of Brexit forecast by most economists—which would make Scoxit more appealing—could take time to kickin. EDINBURGH More worrying for Ms Sturgeon, Euro- scepticism is on the rise among Scots. Two- Scotland’s first ministerdemands a new referendum, hoping that Brexit might help thirds either want Britain to leave the EU or bring about Scoxit would like the EU’s powers to be reduced, AMBLING on a referendum whose the Brexit talks are finished, or even later. up from just over half in 2014. Even among Goutcome is unsure is a risky business. Ms Sturgeon is keen to take advantage the 62% of Scots who voted to Remain last Ask David Cameron, who resigned as of growing support for independence. At year, more than half think that Brussels’s prime minister hours after losing the Brexit 46%, according to a survey carried out in authority should be curbed. And of those ballot last June. But Nicola Sturgeon is pre- the second half of last year by ScotCen So- who plumped for independence in 2014, a pared to take her chances. On March 13th cial Research, it is twice as high as in 2012, third voted to leave the EU. Stephen Geth- Scotland’s first minister said she would when the previous campaign for indepen- ins, the spokesman on Europe for Ms Stur- seek permission from Westminster for a dence began (see chart). Holding the poll geon’s Scottish National Party (SNP) in second referendum on Scotland’s inde- before the divorce with the EU is finalised Westminster, describes support for the EU pendence from the United Kingdom, less would allow the nationalists to paint as being in the party’s “DNA”. But it was than three years after a plebiscite in which Brexit in the worst possible light: their ver- not always so: in the 1975 referendum, Scots voted by 55% to 45% to stay put. sion of the “Project Fear” employed by Re- when Britons decided to stay in the Euro- The Conservative government’s remainers during the Brexit campaign. pean project, the SNP wanted to leave. Ty- sponse was swift and stinging. Theresa Even so, there are arguments for delay. ingthe case forindependence too tightly to May denounced Ms Sturgeon for “playing Support for independence is strongest and continuing membership ofthe EU is risky. politics” and creating “uncertainty and di- growing fastest among the young. Waiting And rejoining the EU might not be easy. vision”. But Westminster is unlikely to re- a few years until more are able to vote (and Alfonso Dastis, the Spanish foreign minis- fuse the request. It would add to the al- ter, says that Scotland would have to “join ready-damaging perception of an the backofthe queue” forEU membership. English-dominated government that ig- EU’ll take the high road Spain worries that Scottish independence nores Scotland. Once again a Conservative Scotland, support for independence would embolden separatists in Catalonia. and Euroscepticism, % EU prime ministerfaces the prospect ofpresid- EU referendum Like all members, it can veto applica- ing over the break-up of the union. And 70 tions. Perhaps partly for that reason, the this time it is against the backdrop of per- Scottish independence referendum SNP is said to be examining the alternative 60 hapsthe mostcomplexinternational nego- of the European Free Trade Association 50 EFTA tiations Britain has ever undertaken, as it Euroscepticism ( ), whose members include Norway leaves the European Union. 40 and Iceland. That could allow Scotland Ms Sturgeon wants a referendum be- greater access to the EU’s single market, tween autumn 2018 and spring 2019, well 30 while lessening the threat of a Spanish into the Brexit negotiations but before they Independence 20 veto. It might also avoid annoying Scots are complete. Last time Scotland held such 10 who voted forBrexit. a vote, Westminster left it to Holyrood to At home, Scottish nationalists face a di- decide when it should take place. This time 0 vided opposition. Labour’s position on Eu- 1999 2005 10 16 Mrs May could insist on setting the date, rope and Scotland is muddled. Jeremy Cor- Source: ScotCen which would enable her to put it off until byn, Labour’s leader in London, was1 58 Britain The Economist March 18th 2017

2 slammed bycolleaguesin Scotland for say- Article 50 March 15th might have bolstered the faring it was “absolutely fine” to hold a sec- rightanti-EU partyofGeertWilders. Acting ond independence vote. The most promi- Scotched too close to the 60th anniversary celebra- nent unionist is Ruth Davidson, under tion of the Treaty of Rome on March 25th whose leadership the Tories became the might have seemed provocative. French main opposition in the Scottish Parliament and, later, German elections also loom in last year. Conservatism is a less toxic brand the near future. than it was, but Scots still care little for the The truth seems to be that Mrs May’s Theresa May holds backfrom triggering Tories. That makes Labour’s shambolic plans were upset by Scotland’s first minis- the Brexit process state doubly harmful, since the Conserva- ter, Nicola Sturgeon, who chose to an- tives’ unchallenged position in Westmin- FTER protracted parliamentary debate, nounce on March 13th thathergovernment ster makes Britain even less appealing. Athe bill authorising the prime minister would ask for a second independence ref- “This is what the SNP dreamed of in the to invoke Article 50, the legal basis for leav- erendum (see previous story). She cited 1980s,” says James Mitchell of Edinburgh ing the European Union, finally became Brexit as the “material change” to justify University. law this week. Late on March 13th the this demand. And she attacked Mrs May But ifthe politics lookfavourable forMs House of Commons rejected two amend- for choosing to pursue a hard Brexit that Sturgeon, the economics do not. Weak last ments that had been proposed by the will take Britain out of the EU’s single mar- time, the economic case for independence Lords. As expected, the upper house then ket, when a majority of Scots had voted to is even more feeble today. Ms Sturgeon in- backed down. The government had been stay in the EU last June. sists that free trade between Scotland and hintingbroadlythatthe lettertriggering Ar- The reality is that Brexit is unwelcome the rest of Britain will continue, whatever ticle 50 would be sent to Brussels immedi- not just to Ms Sturgeon but to all of Brit- the result of the independence referen- ately. On March 14th Mrs May duly hailed ain’s European partners. Even as they hold dum. But this would be trickier if Scotland the bill’s passage into law as “a defining their 60th birthday party—which Mrs May rejoined the EU or became part ofEFTA. So moment forour whole country”. will not attend—they know that the club is would be maintaining the open border But then came anticlimax: Downing in deep trouble, not least because so many with England. And regulatory standards Street said the invocation of Article 50 countries besides Britain have seen an up- between Scotland as an EU member and would actually happen only in the week surge of populist anti-EU parties. To most Britain might soon diverge, complicating of March 27th. Before then, Mrs May plans other EU countries, indeed, Brexit is just trade between the Scots and their biggest to visit Scotland, Wales and Northern Ire- one more ingredient in a cocktail of often market. Scotland sends two-thirds ofits ex- land. All being well, she will still fulfil the more pressing problems that afflict them. ports to the rest of Britain, compared with promise she made last October of starting In this context, indeed, some may take less than a fifth to the rest of the EU. Edin- the Brexit process by the end ofMarch. quiet satisfaction from seeing the Scots burgh-based financial firms are already co- A delay of two weeks in a negotiation ruin Mrs May’s plan to trigger Article 50. A vertly installing brass plates in London, due to last two years may sound trivial. Yet few may even see the rising risk of a which would allow them quickly to shift a plan in Brussels to hold a special EU sum- break-up of the United Kingdom as suit- operations out ofScotland. mit on April 6th to discuss Mrs May’s letter able punishment for Brexiteers. Yet no- Worries over trade would pale in com- had to be hastily junked. The meeting will body will much enjoy the Article 50 nego- parison with concerns over Scotland’s now take place in early May, losing almost tiations when they eventually start. public finances. A greying population and four weeks out of what is already an ex- At the same time few are convinced by relatively weak tax base make it hard to tremely tight timetable. Mrs May’s repeated mantra that no deal is balance the books. In the past these struc- So whydid MrsMaypull backatthe last better than a bad deal, which they see as tural problems were partly offset by taxes minute? After all, there was never going to just an attempt to bolster Britain’s weak on North Sea oil. A decade ago, when oil be a perfect moment to invoke Article 50. bargaining position. On March 15th David prices were high, such taxes were equiva- Doing so just before the Dutch election on Davis, the Brexit secretary, admitted to the lent to 6-7% of Scottish GDP. But in the lat- Commons Brexit committee that since the est financial year they accounted for less referendum the government had made no than 0.1%. Curtailed investment in the oil forecasts ofthe economic consequences of and gas sector has contributed to a wider leaving the EU without a deal and revert- slowdown. In the year to September Scot- ing to trade under World Trade Organisa- land’s GDP grew by 0.7%; the rest of the tion rules. That makes it even harder to see country grew by 2.4%. Scotland’s budget how Mrs May can justify her claim. deficit is now nearing 10% of GDP, more Nor are the parliamentary manoeuvres than twice Britain’s. over Brexit finished. This week it emerged That is not sustainable for a small coun- that at least seven bills besides the planned try. Scotland would have to bring the bud- “Great Repeal Bill” will be needed to give get closer towards balance. Sharply raising effect to Brexit. MrDavis has also conceded taxes might cause rich Scots to packup and that any deal negotiated under Article 50 move south. So spendingwould have to be would require parliamentary approval. slashed. For Scots who have already en- And although Lord Bridges, a Brexit minis- dured six years of Westminster-imposed ter, said in the Lords that he found it hard to cuts, this would be a rude awakening. see how Parliament could hold a vote if Still, the economic arguments were not there were no deal, even that could be decisive last time, contends Michael Keat- open to question. Lord Hope has declared ing, an analyst of Scottish politics at Aber- that the Supreme Court judgment which deen University. The question was which forced the government to bring forward side looked riskier. Scots did not want to the Article 50 bill may require further take a leap in the dark voting for indepen- primary legislation before Brexit actually dence. “This time,” he says, “they’ll be of- happens. And he should know—for he is a fered two leaps in the dark.” 7 formerSupreme Court justice. 7 International The Economist March 18th 2017 59

Also in this section 60 Cleaning up the Vatican’s murky ﬁnances

The pope’s travails which Catholics believe is the very body of Christ. Polls suggest that the faithful in Is the pope Catholic? Europe and the Americas strongly back the change. But critics see it as legitimising adultery. They will scarcely have been re- assured when Francis last month encour- ROME aged a gathering of priests to show understanding for parishioners who were living Francis is facing down opposition from traditionalists and Vatican bureaucrats. But together before marriage. On March 10th on clerical sex-abuse, he seems weak he again shocked traditionalists, sugges- HE Pacific island of Guam is more than Amoris Laetitia (The Joy of Love), conform ting that the church might ordain married T12,000km from Vatican City. Yet it was with established doctrine. In the fake- men to help lessen an acute shortage of in this far-flungAmerican territory that last news Osservatore, all fourreplieswere “Yes priests. month the two most contentious issues and No”. Less than a week earlier, posters A second, much smaller band of critics facing Pope Francis—the scandal of clerical had appeared in Rome calling on the is made up ofVatican-based clerics, whose sex abuse and a rebellion by traditional- pope—disrespectfully addressed in Roman objection is to the pope’s treatment of his ists—intertwined. Cardinal Raymond dialect as Francé (“Frankie”)—to say how officials. Itisno secretthathe has little sym- Burke spent two days on Guam presiding his vaunted advocacy of mercy squared pathy with the Vatican. As archbishop of at the church trial of Archbishop Anthony with his forthright treatment of Catholic Buenos Aires, he was repeatedly frustrated Apuron, who is accused of molesting altar institutions including the Roman Curia, in his dealings with its bureaucrats. Soon boys. The archbishop is the highest-rank- the church’s central administration. afterhiselection aspope, he formed a team ing Catholic cleric to be tried on sex-abuse of cardinals to advise him on how to re- charges. The proceedings could last years. Rock of ages form the Roman Curia, pointedlychoosing Cardinal Burke, an arch-conservative, is As the protests showed, discontent within most of them from among pastoral leaders the pope’s most outspoken critic. the church comes from two sources and beyond the Vatican’s high walls. Acting on The defiance ofpapal authorityby a mi- two overlapping camps. The first is the its recommendations, he set up two new nority of senior Catholic clergy has be- most obviously conservative. It includes “super-ministries”, or secretariats, one for come more brazen in recent months than those, inside and outside the Vatican, who the Vatican’s finances and the other for its at any time since the 1970s, when the late seek clarity and certainty from their reli- media operations, and merged six smaller Archbishop Marcel François Lefebvre region and think the rules cannot be altered “ministries” into two. fused to disband his arch-traditionalist without forsaking the essence of Catholi- That alone would have earned Francis Society of St Pius X. Last month Vatican of- cism. They are appalled by what they see enemies in an organisation as notoriously ficials received in their e-mail what ap- as Francis’s lackofinterest in theology, and resistant to change as the Roman Curia. But peared to be a digital version of the Vati- his abandonment of principle in the name it is style as much as substance that has ran- can’s newspaper, L’Osservatore Romano. ofa nebulous requirement formercy. kled. A Jesuit, Francis comes from an order On opening it they found a perfect facsimi- Last year Anna Silvas, an Australian founded by an ex-soldier, St Ignatius of le ridiculing the man Catholics are told is scholar, charged the pope with writing Loyola, which supplied the Counter-Refor- God’s representative on Earth. The head- “tracts of homespun, avuncular advice mation with its shock troops. The Jesuits’ line was “He’s Replied!”—a sarcastic refer- that could be given by any secular journal- first pope is a humble and humorous ence to the pope’s refusal to answer a letter ist without the faith—the sort of thing to be man—but also a blunt and ruthless one. from four cardinals, including Cardinal found in the pages of Readers Digest”. The “The Holy Father is not a person who Burke, last September (and, most unusu- conservatives’ biggest gripe is with Amoris works easily with an institution,” remarks ally, made public by them in November). Laetitia, which in a footnote opened the someone who has witnessed his uncom- The letter challenges Francis to state that way for some remarried Catholics to re- promising decisiveness at close quarters. passages in his apostolic exhortation, ceive the sacrament of the Eucharist, During the year after Francis’s election, 1 60 International The Economist March 18th 2017

2 he appalled the Vatican’s highest-ranking The Vatican bank officials by listing 15 faults to be found in their ranks. One, he told his ageing listen- ers, was “spiritual Alzheimer’s”. Most re- Man of God v Mammon cently, the pope intervened in a dispute ROME among the leaders of the Knights of Malta, Pope Francis presses ahead with tackling the Vatican’s murky finances an ancient military and religious order. Though they no longer govern territory (or NE area where Francis has managed Vatican’s most senior official. Two defen- take up arms to defend Christians in ma- Oto make progress is in cleaning up dants, not including the cardinal, are jority-Muslim countries), and largely de- the Vatican’s largely secret financial charged with using the project to launder vote themselves to good works, the order machinery. Most ofthe accounts at the cash. Six cases have been shelved. Of the still wields the sovereignty it enjoyed Institute forthe Works ofReligion (IOR), others, one is said to have included a when it ruled the island of Malta. It has or Vatican bank, that belong to people fraud perpetrated on the IOR requiring many of the trappings of a state, maintain- not directly associated with the church investigation in several countries. ing diplomatic relations with more than have been closed. The Vatican has invited That points to a question familiar in 100 countries and holding observer status scrutiny by Moneyval, an international other micro-states: whether the Vatican at the UN. It is legally separate from the financial watchdog. It has acquired an has the resources to handle complex Holy See. Yet on January 24th Francis de- auditor-general. And by the end oflast financial crime. It certainly enjoys some manded its grand master’s obedience and year the Holy See’s regulatory body, the advantages. At least one Catholic country resignation. He later named a trusted asso- Financial Information Authority (AIF), that normally refuses to co-operate with ciate to sort out the dispute from inside. had found 23 cases ofsuspected financial foreign investigators swiftly supplied When Francis expects resistance from hanky-panky and sent them to the Pro- vital information to the AIF. Last year the Vatican diehards, he sidesteps it. He or- moter ofJustice, the Vatican’s prosecutor. Vatican’s deputy prosecutor was put in dered outsiders to draft changes to the Until last year none had led to a prose- charge ofa new section to deal with rules on marital annulment (a declaration cution. But according to the Promoter of financial offences. The Vatican police, the that a marriage was never valid; not to be Justice’s annual report, submitted last Gendarmeria, has hired officers with confused with divorce, which the church month, the first two cases went to court experience in the field. But that still does not sanction). He is said to have set up in 2016. According to a Vatican source leaves the judges, most ofwhom are a commission to review new translations (Vatican justice is not exactly transpar- experts in church law, who may struggle of liturgical texts, cutting out the relevant ent), one ofthe trials concerns the reno- to follow intricate financial dealings. Vatican department, which is headed by vation ofa penthouse apartment for Another question is how farthe Cardinal Robert Sarah, a conservative. Cardinal Tarcisio Bertone, formerly the clean-up will reach into the Vatican administration, which handles large Unto the least of these my brethren volumes ofcash. Last month Italian The biggest mystery surrounding this man, police froze assets worth €2.5m ($2.7m) who combines toughness and compas- belonging to Giampietro Nattino, an sion, is why he has not applied his rough- Italian banker who is alleged to have house tactics to the issue that most cries ramped up the price ofshares in his own out for action: clerical sex abuse. It is more bank, Banca Finnat Euramerica, by secret- than just a moral matter. The priority of all ly routing purchases through a Vatican the church’s recent leaders has been to halt department. He denies wrongdoing. the secularisation that began in its Euro- Much will depend on whether the pean heartland and is spreading through Secretariat forthe Economy, which Fran- the Americas. Top of the list of reasons cis set up in 2014 to bring discipline to the why many Catholics have abandoned Vatican’s finances, seeks to do so vigor- their faith is disgust at the ever-mounting ously. But the standing ofits head, Cardi- evidence of rape and molestation of mi- nal George Pell, has been eroded by a nors by priests, which has been repeatedly police investigation into allegations that overlooked, indeed covered up, by the of- he molested children in the 1970s and fenders’ superiors. The Vatican continues 1980s in his native Australia (he denies all not to require bishops to report allegations wrongdoing). The church’s historical of abuse to the police, unless doing so is indifference to the suffering ofchildren compulsory under civil law (which in Cardinal Pell: financial enforcer under its care casts a long shadow. many countries, including Italy, it is not). In 2014 Francis set up a Pontifical Com- mission for the Protection of Minors. commission being “hindered and blocked met Ms Collins. Doubts about its efficacy have circulated by members ofthe Curia”. Pope Francis has battled to force his ever since. One member complained that Two of the commission’s most impor- church to reckon with a world in which it was under-funded. And last month it suf- tant recommendations have come to noth- many Catholics break church teaching by fered a blow to its credibility with the resig- ing. A tribunal to handle cases of bishops using artificial methods of contraception nation of the lone remaining abuse victim accused of failing to act on abuse claims and cohabiting before marriage. A shrink- on the panel, Marie Collins from Ireland was buried, and guidelines fordioceses on ing proportion share their religious lead- (the other victim, Peter Saunders, a Briton, how to prevent, detect and respond to ers’ view ofhomosexual activity as sinful. was suspended without his knowledge abuse have not been distributed. Cardinal But there is a growing danger that this pon- last year). Ms Collins said that what decid- Gerhard Müller, who heads the Congrega- tiffmay be remembered less as a valiant re- ed her was the failure of the responsible tion forthe Doctrine ofthe Faith, protested former and moderniser than as a pope Vatican department, the Congregation for that obstruction by the Vatican ofefforts to who shrank from being as tough on preda- the Doctrine of the Faith, to reply to vic- curb child sex-abuse was merely a “cliché”. tory paedophiles and complicit bishops as tims’ letters. She has also spoken of the But he also remarked that he had never he was with fogeys in the Vatican. 7 Business The Economist March 18th 2017 61

Also in this section 62 Intel buys Mobileye 63 Euro Disney 64 Elon Musk in Australia 66 China’s expanding drug ﬁrms 66 Cannabis and Donald Trump 67 The Olympics: Faster, higher, broken 68 Schumpeter: Citigroup

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Microsoft easier for Mr Nadella to change the firm’s culture—which is so important, he believes Head in the cloud (along with Peter Drucker), that it “eats strategy for breakfast”. Technologies come and go, he says, so “we need a culture that allows you to constantly renew yourself”. REDMOND Whereas Mr Ballmer was known for run- ningacrossthe stage and yelling“I love this The world’s biggest software firm has overhauled its culture. But getting cloud company”, Mr Nadella can often be seen computing right is hard sitting in the audience, listening. When, in DECADE ago, visitingMicrosoft’shead- a global computing cloud. It is formed of 2016, internet trolls manipulated Tay, one Aquarters near Seattle was like a trip more than 100 data centres around the of Microsoft’s AI-powered online bots, into enemy territory.Executives would not world, dishingup web-based applications, into spewing racist comments, people so much talk with visitors as fire words at bringing mobile devices to life and crunch- waited for heads to roll. Mr Nadella sent them (one of this newspaper’s correspon- ing data for artificial-intelligence (AI) ser- around an e-mail saying “Keep pushing, dents has yet to recover from two harrow- vices. Along with this shift in strategy has and know that I am with you…(the) key is ing days spent in the company of a Micro- come a less abrasive, more open culture. to keep learning and improving.” soft “brand evangelist”). If challenged on Microsoft’s transformation is far from Employees are no longer assessed on a the corporate message, their body lan- complete. Windows, Office—the once curve, with those ending up at the lower guage would betray what they were think- equally dominant package of applications end often getting no bonus or promotion. ing and what Bill Gates, the firm’s founder, for personal computers—and other PC-re- For the firm’s annual executive retreat in used often to say: “That’s the stupidest lated products together still generate about 2015, Mr Nadella included the heads of fucking thing I’ve ever heard.” two-fifths of its revenues and three-quar- companies Microsoft had recently ac- Today the mood at Microsoft’s campus, ters of its profits. But even those who have quired, such asMojang, the makerofMine- a sprawling collection of more than 100 watched Mr Nadella’s actions with a high craft, a video game, and Acompli, an e-mail buildings, is strikingly different. The word- degree of scepticism reckon the firm is app, breaking with the tradition that only count per minute is much lower. Ques- moving on from its cash-cows. longtime executives can attend. tions, however ignorant or critical, are an- The firm’s transformation did not begin swered patiently. The firm’sboss, Satya Na- with Mr Nadella. It launched Azure and The book of Nadella della (pictured), strikes a different and started to rewrite its software for the cloud Sending such signals matters more than gentler tone from Mr Gates and Steve Ball- under Mr Ballmer. But Mr Nadella has giv- ever in the tech industry. Well-regarded mer, his immediate predecessor (although en Microsoft a new Gestalt, or personality, firms find it easier to recruit top-notch tal- he, too, has a highly competitive side). that investors appear to like. The firm’s ent, which is highly mobile and has its pick Both these descriptions are caricatures. share price has nearly doubled since he of employers. A reputation for aggression But they point to an underlying truth: how tookover (see chart on next page). can attract the attention of regulators and radically the world’s biggest software firm Dethroning Windows was the first task. lead to a public backlash, as Microsoft ithas changed in the short time since Mr Na- Previously, new products were held back self knows from experience and Uber, a della took charge in early 2014. Back then or shorn of certain features if these were ride-hailing unicorn, is finding out. everything at Microsoft revolved around thought to hurt the program (something MrNadella has changed the firm’s orga- Windows, the operating system that pow- known internally as the “strategy tax”). nisation as well as its culture. It is now ered most computers. It was a franchise the One ofMr Nadella’s early decisions was to more of a vertically integrated technology company believed needed to be extended allow Office to run on mobile devices that firm—“full stack”, in the jargon. It not only and defended at almost any price. use competingoperatingsystems. He went writes all kinds of software, but builds its Windows has since retreated into a sup- so far as to use a slide that read “Microsoft own data centres and designs its own hard- porting role; sometimes it is little more loves Linux”. Mr Ballmer had called the ware. Mr Nadella points out that it now than a loss-leader to push other products. open-source operating system a “cancer”. even develops some of the chips for its At the heart of the new Microsoft is Azure, The downgrading of Windows made it data centres. 1 62 Business The Economist March 18th 2017

2 His imprint can be seen on three busi- manage energy systems, for instance, uses nesses in particular: the cloud, hardware Excelling some of Microsoft’s AI services to monitor and AI. Microsoft does not break out by Share prices its equipment. how much it has increased investment in January 1st 2014=100, $ terms It is easy to be impressed by what Mr the cloud, but building data centres is ex- 200 Nadella has achieved in only three years. pensive and its capital expenditure is soon Microsoft But it is farfrom certain that his technology expected nearly to double, to $9bn a year, betswill playoutasplanned. To run a com- from when Mr Nadella took over. If you 150 puting cloud profitably you need hyper-ef- take only basic services, such as data stor- ficient operations; something that Ama- age and computing, Microsoft’s cloud is Cisco zon, in contrast to Microsoft, has grown up much smaller than Amazon Web Services, with. Although Microsoft has expertise in 100 the leader in cloud computing, which is AI, others, such as Google and IBM, got a owned by Amazon, an e-commerce giant. SAP far earlier start. Nor is designing integrated But if you add Microsoft’s web-based ser- Oracle IBM devices part of Microsoft’s DNA in the way vices, such as Office 365 and otherbusiness 50 it is for Apple. Augmented reality is an ex- 2014 15 16 17 applications, which are only a negligible tremely promising field but HoloLens may Source: Thomson Reuters part of AWS’s portfolio, the two firms are turn out to be no more than an expensive ofcomparable size. Both AWS’s and Micro- toy fordevelopers. soft’s cloud businesses boast an annual ness. Designers can test ideas more quickly Success or failure in the new areas will run rate (the latest quarterly revenues mul- in pursuit ofthe firm’s goal to develop new of course continue to be cushioned for tiplied by four) of $14bn. Microsoft hopes categories of product. Hardware, software some time by the revenues and profits to reach $20bn by its 2018 financial year, a and online services are meant to be bun- from Windows and Office. Yet there, too, fifth oftotal expected revenues. dled into a single product to create what lie risks. If the PC market, whose secular In terms of scale, then, there has been the firm gratingly calls an “experience”. decline has slowed since last year, take an- much progress. Yet in stark contrast to One example is the Surface Book, a other turn for the worse, the company’s fi- AWS, which suppliesthe bulkofAmazon’s high-end laptop. It features a detachable nances would suffer badly, warns John Di- profits, Azure is still loss-making. Some an- screen which doubles as a computing tab- Fucci ofJefferies, an investment bank. alysts are optimistic that this could change. let—a combination that has already found Mr Nadella doesn’t seem to be worried Mark Moerdler of Sanford C. Bernstein, a a following, and according to some, offers bysuch unknowns, which are to be expect- research firm, thinks that once Microsoft better value than comparable laptops from ed in a fast-changing industry. Instead, he tapers its investments in data centres and Apple. More daring still is HoloLens, an frets about too much success. “When you their utilisation goes up, it could approach augmented-reality device in the form of a have a core that’s growing at more than the margins enjoyed by AWS, which wireless head-mounted display. It is capa- 20%, that is when the rot really sets in,” he reached more than 30% in the last quarter. ble of mixing “real” and virtual reality for says. It remains to be seen whether or not Scott Guthrie, who heads Azure, admits business purposes—for example, by pro- the firm can ever again achieve such veloc- that the margins for cloud-based services jecting new parts on a motorcycle frame so ity. Fornow, though, its share price is show- will probably be lower than for conven- a designer can easily see what works. (It is ing plenty ofspeed. 7 tional software. But when applications are currently only available fordevelopers.) delivered online, he points out, Microsoft HoloLens, its designers hope, will also can capture a bigger slice of the overall pie. be a device where people use artificial-in- Intel buys Mobileye As well as offering its existing software as telligence services—Mr Nadella’s third big services in the cloud, it also takes care of bet. In September Microsoft formed a new The road ahead components of IT systems, such as storage AI unit, combining all its efforts in the field, and networking, that used to be provided including its basic-research group of more by other vendors. The firm’s addressable than 1,000 people and the engineering market is far bigger, he says. team behind Bing, its search engine. JERUSALEM Perhaps. But however well Microsoft Every single business application is go- An Israeli firm and a tech giant join performs, life in the cloud will always be ingto be disrupted byAI, saysHarryShum, forces to shape the future ofcars far tougher than it was in the realm of per- who is in charge of the new unit. Algo- sonal computers, argues David Mitchell rithms trained by reams of data could tell ARMAKING in Israel has amounted to Smith of Gartner, a consultancy. Microsoft sales staff which leads to spend most time C little more than some unstylish mod- will not only have to compete with Ama- on, and help identify risky deals where, for els put together in the latter half of the last zon, but with Google, which intends to go instance, the customer might not fulfil con- century and a few rugged off-roaders still after business customers. tract terms. This, he explains, is also a big assembled for the country’s security Although the cloud is the core of the reason why Microsoft spent a whopping forces. A reluctance to make them, how- new Microsoft, hardware is another im- $26bn to buy LinkedIn, a professional so- ever, has not stopped Israel from becoming portantbet. The firm hasshed itsailing mo- cial network that has 467m users. The deal a thriving centre for the high-tech kit with bile-phone division, which it had bought adds to the data the firm needs to train its which cars now bristle, and also formobil- from Nokia, but on its campus in Redmond new AI applications. ity services such as ride-hailing. hundreds of employees are busy develop- AI is a growing part of Azure, too. In re- The latest evidence of Israel’s pre-emi- ing new devices. Its prototyping lab offers cent months Microsoft has introduced two nence in the field came on March 13th, all that a designer of mobile gadgets could dozen “cognitive services” to Azure. Some when Intel, a giant American chipmaker, want, such as3D printersto churn outover- understand language and can identify in- paid $15.3bn for Mobileye, a Jerusalem- night new models of a hinge, for example, dividual speakers, others recognise faces based firm that is at the forefront of auton- or machines to cut the housing of a new and can tap into academic knowledge. The omous-car technology. With the acquisi- laptop from a blockofaluminium. idea isforotherfirmsto be able to use these tion, Intel joins the ranks of technology “Failing faster” is the purpose of the offerings to make their own products companies that are trying to outmanoeu- new equipment, says Panos Panay, who is smarter, thus “democratising AI”. vre carmakers and auto-parts suppliers to in charge of Microsoft’s hardware busi- Schneider Electric, which makes gear to develop the brainsofvehiclesofthe future.1 The Economist March 18th 2017 Business 63

heats up. The priority for tech companies such as Intel and Google is to get their hands on the prodigious amounts of data that cars generate. Data are a vital commodity for perfecting the algorithms that underpin autonomy. Established car firms already have access to data from billions of miles of driving. Google’s self-driving ve- hiclesthrowoffdata oftheirown. ForIntel, too, Mobileye’s value will be as a source of data as well as revenue and profit. Tech firms have also tried striking alli- ances with carmakers to secure more data. Last year, in fact, both Intel and Mobileye teamed up with BMW to develop self-driving cars. Carmakers have at last caught on to the value of data and know that they should guard it jealously. The problem they face is that they are also under pres- Data trafficking sure to share their data in return for the new technology they badly need. Intel and 2 Mobileye is an attractive target because ter known forchips used by the gaming in- Mobileye have recognised that becoming of what it does now and what it will soon dustry, is developing them forcars, too. large and powerful gives technology firms be capable of. Its EyeQ software is already Setting price aside, marrying Mobi- more leverage in this relationship. As the used by most of the world’s carmakers to leye’s camera and mapping expertise with battle for data heats up it would be no sur- help their vehicles stay in their lanes and Intel’s chip and computing skills makes prise if both tech and automotive compa- brake in emergencies, precisely what will sense as the battle to establish predomi- nies were to come shopping for more of Is- also be required in autonomous vehicles. nance in the field of autonomous vehicles rael’s car-tech wizardry. 7 This system, which is currently fitted in over 15m vehicles but is set to be used by many millions more, can also collect infor- Disneyland Paris mation from installed cameras to continu- ously update the incredibly detailed maps Taking the Mickey? that self-driving cars will require. Israeli politicians are cock-a-hoop that the country’s prowess in technology had made headlines around the world. Yigal Erlich, a former chief scientist of the Israeli PARIS government, called it “a great achievement A quarterofa century ofbroad smiles and financial losses that a company like Intel is building its future on Israeli technology”. There was fur- F YOU judge only by the volume of ter, and photo-ops with Disney characters. ther delight that Intel will relocate its exist- Iscreams and the beaming faces of those To mark these anniversaries the firm is ing car-technology business, which is taking rides at Europe’s most-visited, pri- making bold claims for the park’s eco- sizeable, to the country. vately-owned tourist destination, then it is nomic and social benefits. Nearly €8bn Mobileye is not the first Israeli car-tech- clearthat Disneyland Paris has much to cel- ($8.6bn) has been invested in or near the nology firm to attract a foreign buyer. ebrate. In the three decades since Disney, site, which includes a second Disney stu- Waze, a driving-navigation app, was an American media firm, agreed to put its dio-themed park, 8,500 hotel rooms, con- snapped up by Google in 2013 for $1.1bn. European theme parkon a site east of Paris, vention centres and a golf course. France’s Last year Volkswagen paid $300m for a and the 25 years since its doors swung economy has supposedly seen gains share ofGett, a ride-hailingstartup. Butthis open, in 1992, 320m customers have worth €68bn and the creation of 56,000 is by far the biggest deal. queued for attractions such as “Space jobs. Politicians pay it heed: François Hol- Though not a vast sum by technology- Mountain”, a stomach-twisting rollercoas- lande, the retiring president, made an end- industry standards, some analysts reckon of-term visit late last month. that Intel has overpaid. The firm is under But investors tell a different story. pressure. Its main business, of providing No magic Shares in Euro Disney (the French parent chipsforPCs, ispastitspeak. Itsrecord with Euro Disney share price, € company) have performed like a rafton the deals to make up for that is unenviable. In- “Pirates of the Caribbean” log-flume ride: tel has proved willing to write enormous 250 the price on the opening day in 1989 was cheques to chase growth. Last year it sold the equivalent of €97 and they reached McAfee, a cyber-security business, for 200 €221 three years later, but have languished some $4.2bn, around half what it had paid 150 for more than a decade since (see chart). forit six years earlier. Disney repeatedly reinvested capital to Having largely missed out on the transi- 100 avoid bankruptcy at Euro Disney, in the tion to mobile devices, Intel may fear do- process diluting others’ holdings. In 1989 it ingthe same in autonomous cars. Compet- 50 owned 49%; it is now the majority-owner. itors are beefing up. Last year Qualcomm, Last month it restated its wish to take another big chipmaker, announced a deal 0 Euro Disney wholly private, and agreed to worth $47bn for NXP Semiconductors, a 1989 95 2000 05 10 17 swap some of its own stock for a 9% stake firm that makes chips for cars. Nvidia, bet- Source: Thomson Reuters in the European firm that was held by 1 64 Business The Economist March 18th 2017

2 Prince Alwaleed bin Talal of Saudi Arabia. The dispute could quickly end ifDisney As for Euro Disney, its theme park has Disney now holds nearly 86% of Euro Dis- increases its offer. CIAM notes that since it high running costs. It is woefully behind ney. It is offering—for a limited period—to began asking questions, Disney has al- on digital efforts: it lacks Wi-Fi for visitors. buy out remaining investors for€2 a share, ready raised its bid to minority holders, But it is popular, and France’s economy is roughly the current price. from €1.25, which implies that the earlier perking up a bit. A plan to develop new A senior executive at Euro Disney sug- valuation was too low. CIAM is emerging railway lines in the greater Paris region gests that the smallest investors are unlike- as a rare French activist fund that gets re- should increase demand for the commer- ly to grumble about that price, even if they sults: it profited by intervening in the take- cial land that it has rights to. How irksome are out of pocket. They may have bought overofClub Med, a tourist firm, by China’s it would be for some if it delivered steady into the projectasmuch foremotional asfi- Fosun International two years ago. profits under Disney’s full ownership. 7 nancial reasons, caring about the brand and perks, such as preferential entry to the Elon Musk and batteries park. In any case, he says, the firm always risked “financial failure” right from the startbecause ofhigh debt, held by64 differ- Megawatts and mega tweets ent lenders. Had Disney not recapitalised and reduced those borrowings, no busi- Amid blackouts, Australia supercharges progress on energy storage ness would even exist to be taken private. Yet investors clearly have reasons to la- OW much power does a tweetstorm ment the firm’s performance. Disneyland Hinvolving two tech tycoons, the Paris has failed to deliver more than a prime minister ofAustralia and 8.5m handful of profitable years—it last did so in Twitter followers generate? Enough, at 2008. Visitor numbers have slipped. Some least, to supercharge a debate about the 13m came last year, 1m-2m fewer than a de- future role ofbatteries in the world’s cade ago; hotel occupancy rates that were energy mix. at nearly 90% early in this decade are be- Elon Musk, a Silicon Valley entrepre- low 80%; spending per visitor is up only neur (pictured), may be best known for modestly, despite new restaurants. A his gravity-defying ambition, but his core spokesman, FrançoisBanon, blames“mac- product is the battery: whether forhis roeconomic conditions and difficulties”, Tesla cars, forthe home or forgrid-scale noting years ofstagnation in France and its electricity storage. He gave the last of neighbours, plus fears about terrorism. these an unexpected jolt ofpublicity on Others say that Disney itself may be at March 10th, by responding to a blackout- fault. CIAM, a French activist fund, took a inspired challenge on Twitter from an stake in Euro Disney in 2015. It reckons its Australian software billionaire, Mike shares were badly undervalued, and has Cannon-Brookes. Mr Musksaid he could decided to resist Disney’s effort to take it install 100 megawatt hours (MWh) of private. It has asked a judge to investigate if battery storage in the state ofSouth Aus- Disney’s description of Euro Disney’s val- tralia in 100 days to help solve an energy Storage salesman ue was fair. CIAM points to Euro Disney’s crisis it faces, or it would be free ofcharge. rights until 2035 to develop 2,200 hectares “That serious enough foryou?” he asked. True, battery prices have plummeted of prime commercial land close to Paris, In response, Malcolm Turnbull, the and Mr Musk’s price, ofabout $250 per around the theme park, at a remarkably prime minister, communicated with Mr kilowatt hour (kWh), is relatively cheap. low purchase cost, it says, of €1.69 per Muskand appeared to turn from pro-coal But the total cost (including building the square metre (rights which it has only sceptic into battery believer. On March plant, forexample) would be about $500 partly exercised). The judge may yet dis- 14th Jay Weatherill, the premier ofSouth per kWh to hookthe batteries up to the miss the case. But Anne-Sophie d’Andlau, Australia, went further. Declaring that the grid. A100MWh facility would cost of CIAM, says a surveyor commissioned national electricity market was “broken”, $50m. Only when power prices reach byherfund concluded the value ofcontrol- he said the state would launch its own stratospheric levels would that invest- ling the land was €1.9bn alone—far above A$550m ($415m) plan to build a 100MW ment make sense fora utility. That’s why Euro Disney’s market capitalisation. battery system, as well as a gas-fired the government ofSouth Australia is CIAM also alleges a “darkerside” to Dis- power station, with public funds. Mr having to stump up instead. Eventually, ney’s behaviour, suggesting the American Muskmay have got what he wanted. He practitioners hope that changes to the firm should reimburse over €900m in fees is “good at bringing nerdy subjects to a power market will make battery storage and royalties for the Disney brand that broad audience”, says Julia Attwood of viable without public funding. “This is a were charged to its European outfit over Bloomberg New Energy Finance. short-term Band-Aid until the regulatory the years. Although these are occasionally Are batteries now cheap enough to be process catches up,” Mr Ottaviano says. waived by Disney, CIAM claims that they a cost-effective way ofsolving energy But it has all sparked a discussion are excessive and that they help to explain crises like that in southern Australia, about batteries that will keep going (and Euro Disney’s lack ofprofits. brought on since July by storms, heat- going). On March 13th GTM, a consultan- Mr Banon calls these allegations “false waves, the intermittency ofsolar and cy, and the Energy Storage Association, a and unfounded”. The property business wind power and the closure ofcoal- and trade body, said that battery installations earns Euro Disney just €10m annually, he gas-fired power stations? The answer, in America, led by utility-scale storage, points out, and CIAM’s calculation “gross- says Michael Ottaviano ofCarnegie doubled to 336MWh by the end of2016. ly exaggerates the value ofthese real-estate Clean Energy, which is hoping to sell its Much was in California, reacting to the rights”. As for Disney’s various fees, he own grid-scale battery systems to the blowout ofthe Aliso Canyon gas plant in says royalties are unexceptional at 6% or state, is “no”—especially under current 2015. At least crises aren’t going to waste: less of total revenues, and that a manage- market structures. an industry is emerging. ment fee is1% ofrevenues. 66 Business The Economist March 18th 2017

The pharma business Cannabis and Donald Trump A better pill from China Weed killer?

SHANGHAI America’s pot industry shrugs offthe Chinese pharma firms are starting to develop new drugs forthe global market government’s harderline on legal drugs ALK into the Shanghai laboratories founded in 2000, has eight drugs in clinical HESE are high times for America’s Wof Chi-Med, a biotech firm, and you development and listed on the NASDAQ Tmarijuana industrial complex. More encounterthe sort ofshiny, cutting-edge fa- stock exchange in 2016—used to work at than half the country’s states have legal- cilities common in any major pharma Procter & Gamble, a global consumer- ised medical cannabis, often ratherloosely company in America, Europe or Japan. goods firm. Samantha Du, the firm’s very defined. Eight have voted to legalise the Chi-Med has just had positive results in a first scientific officer, was formerly an exec- drug for recreational purposes. The indus- late-stage trial of its drug forcolorectal can- utive at Pfizer, an American pharma giant. try was worth about $6bn last year, a figure cer, which is called Fruquintinib. If the Now known as the godmother of Chinese that is likely to rise sharply in 2018 when drug is approved both in China and in biopharma, she used to manage health- recreational sales begin in California. Western markets it could be the very first care investments for Sequoia Capital, a Sil- Yet in Washington, DC, the mellow prescription drug to be designed and de- icon Valleyventure-capital firm. In 2013 she mood has soured. Donald Trump said in veloped entirely in China that will be on a helped found Zai Lab, which licenses late- 1990 that “Youhave to legalise drugs to win path to global commercialisation. stage drugs from Western pharma compa- that war”, but in politics he became more Given China’s ageing population, high- nies to develop and sell in China. Zai Lab conservative. Campaigning for the presi- er incomes and rising demand for health also aims to develop innovative medicines dency he called Colorado’s legal cannabis care it is clear why innovation in drugs is a in immuno-oncology. market a “real problem”. His press secre- priority forthe country. Its national market Another firm attracting attention is Bei- tary, Sean Spicer, recently said he expected fordrugs has grown rapidly in recent years Gene, an oncology firm based in Beijing, to see “greater enforcement” of the laws to become the world’s second-largest. It which has four clinical-stage drug candi- that still ban cannabis at the federal level. could grow from $108bn in 2015 to around dates and which raised $158m in an IPO That worries pot-pedlars. The fact that $167bn by 2020, according to an estimate last year. Chi-Med’s Fruquintinib may they are in breach of federal law means from America’s Department of Com- even be beaten in the race to approval in that in theory their profits are criminal pro- merce. By comparison, America spends America and Japan by a cancer drug called ceeds, subject to forfeiture. In 2013 the dep- about $400bn a year on drugs. Epidaza from Chipscreen Biosciences of uty attorney-general of the day, James Chinese firms mainly sell cheap, gener- Shenzhen. China approved it in 2015. Cole, published a memo reassuring states ic medicines that earn only razor-thin mar- It is too early to say whether these inno- that had legalised cannabis that federal gins. The pharma industry is extremely vative firms will remain rarities. Only a agents would not interfere unless the fragmented, with thousands oftiny manu- few large ones have emerged, since the in- states allowed the industry to cross certain facturers and distributors. That helps ex- dustry is resisting consolidation. But the red lines, such as sellingto minors, funding plain the limited amount of finance that is size of the local market will itself help the crime or leaking their product into jurisdic- available for investment in new medi- industry grow. And developing a drug in tions that had not chosen to legalise. cines. Most Chinese pharma firms devote China is farcheaper than it is in America or Mr Trump’s attorney-general, Jeff Ses- less than 5% of sales to R&D, according to a Europe. Given the outrage at the high cost sions, has made clear that he sees things report last year from the World Health Or- of drugs in America, in particular, there is differently. In his confirmation hearings ganisation (big global drug firms typically every incentive for Chinese firms to devel- before the Senate he refused to endorse the spend 14%-18% of sales on R&D). And the op medicines forthe global market. 7 Cole memo, saying: “I won’t commit to bulk of that spending goes to research into never enforcing federal law.” A letter from generics. the Department of Justice is all it takes to But things are changing quickly. The shut any cannabis firm. government is encouraging the industry to This has given some investors an attack consolidate, chiefly by raising standards of paranoia. An index of 50 cannabis for the quality of new medicines. It is also stocks kept by Viridian Capital Advisors, a improving the country’s regulatory infra- pot-industry consultancy, slid by about a structure, which should make it more effi- tenth in the weekafter Mr Spicer issued his cient, and faster, to develop drugs. The val- warning on February 23rd. The worst-hit ue of deals in the health-care sector has were those companies dealing directly been increasing as a result. ChinaBio, a re- with the drug, which are on shakier legal search firm, reckons that over $40bn offor- ground than those providingancillary pro- eign and local money went into the life sci- ducts and services, such as chemical-ex- ences in China in 2016. In the same year traction machinery or security. just three Chinese biotech firms—CStone, But most investors have kept calm. Vi- Innovent and Ascletis—together raised ridian’s index is still up by 18% this year. more than $500m offinancing. Medical marijuana, which accountsfor the Another boost is the arrival of talent bulk of the industry, is expressly protected from abroad, whether Chinese-born exec- by a federal law that bans federal agents utives returning with a Western education from interfering in states where it is legal. or Westerners with experience of multina- Mr Trump backs medical cannabis “100%”, tional pharmaceutical firms. Christian as do most Americans. And although only Hogg, the boss of Chi-Med—which was The way things were a smallish majority of people favour lega-1 The Economist March 18th 2017 Business 67

nal estimate. The IOC’s contract with host citiesincludesa taxpayerguarantee, which puts them on the hookfor overruns. There is no end of enthusiasm from sponsors or television broadcasters to pay fat sums to affiliate themselves with the Olympic brand. Broadcasters are still making the bet that live sports will continue to fascinate TV audiences. Comcast, the parent company of NBC Universal, an Ameri- can television company, paid a whopping $7.75bn for exclusive broadcast rights to the gamesfrom 2022-2032. Butthe IOC pockets an ever-greater share of these revenues: today it gives less than 30% of television revenues to the host city. In 1992, by contrast, it gave Barcelona 69% of the broadcast spoils (see chart). 2 lising recreational weed, a large one (in- of Denver. Some have bypassed rules out- Ifno cities wish to host the games, how- cluding most Republicans) support the lawing interstate commerce, for instance, ever, this model is unsustainable. The IOC right ofstates to set their policy on the mat- by trading as intellectual-property compa- has been here before. Interest in hosting ter, says a poll by Quinnipiac University. nies. That sort of thing looks a bit riskier the five-ringed circus waned in the 1970s Fornowthe main impactofMrTrump’s now. But cannabis backers are hardly after a series of games tainted by terrorist harder line may be to make entrepreneurs strangers to risk, Mr Kamin notes. “If attacks, crippling debt and boycotts. Los stick extra-carefully to state regulations, you’ve invested your personal fortune in a Angeles was the sole bidder for the 1984 rather than “pushing the boundaries” of product that’s prohibited by the federal event. Peter Ueberroth, the businessman the law, says Sam Kamin, a professor of government, you’re comfortable with a heading its bid, ripped up the taxpayer marijuana lawand policyatthe University certain amount ofuncertainty.” 7 guarantee and imposed spartan conditions, such as housing athletes in university dormitories. The games turned a profit Sporting mega-events forthe city, of$215m. Could similarly radical reform save the Gamesmanship day again? In 2014 the IOC passed Agenda 2020, changes that try to make the games more affordable. They have made little difference. After Budapest withdrew its bid, the IOC said in a statement that politics were to blame, before conceding that further adjustments to the bidding process The business model forthe Olympic Games is running out ofpuff would need to be made because “the cur- IERRE DE COUBERTIN, the French aris- rent procedure produces too many losers.” Ptocrat who founded the modern Olym- Winner takes most It could simply tinker with the existing pics, was seduced by the world’s fair. In Summer Olympics broadcast revenue, $bn model and give a larger share of its rev- 1900, 1904 and 1908 his games were em- International Olympic Committee enues to the host city, orpromise to cover a bedded within such exhibitions. He Local organising committee portion ofa city’s cost overruns. Some sug- soured on the arrangement eventually be- 0 0.5 1.0 1.5 2.0 2.5 gest a more decentralised hosting model, cause the games were overshadowed, “re- with different Olympic events taking place duced to the role of humiliated vassal”, as 1992 Barcelona in those cities around the world that have he put it. The Olympics still criss-crosses 1996 Atlanta the right sports infrastructure for them. the globe, but with city after city ditching This would spread the costs more widely ambitions to put on the world’s largest 2000 Sydney and decrease the probability of white ele- sporting event, the model is under threat. 2004 Athens phants. But broadcasters would bear the The latest blow comes courtesy of Bu- cost ofsetting up teams around the world. dapest, which on March 1st withdrew its 2008 Beijing The really radical answer would be to bid to host the 2024 summer games after 2012 London designate one or a few permanent host cit- public opposition. Its retreat comes on the ies so that the Olympics sports infrastruc- Source: International Olympic Committee heels of Boston, Rome and Hamburg can- ture has a life beyond the extinguishing of ning their bids within the past two years, the Olympic flame. Christine Lagarde, whittling a once-crowded pool of candi- pect of having no bidders for future managing director of the International date cities down to only two: Los Angeles— events—or of having a bidding contest be- Monetary Fund, has spoken favourably of itself a replacement for the torpedoed Bos- tween autocrats eager to host a vanity pro- this idea. The proposal is not new. In 1896 ton bid—and Paris. ject—seems likelier than it once did. Greece’s King George pleaded with de The situation ought to feel familiar by A study in 2016 from the University of Coubertin to make the country the perma- now to the International Olympic Com- Oxford’s Saïd Business School found that nent host. The Frenchman would not have mittee (IOC), the governing body of the from 1960-2016 (when data were available), it. “I decided to act as if I were stupid, pre- games. After lots of cities bowed out of the the average cost overrun of hosting the tending not to understand,” he wrote. competition for the 2022 winter games it games was 156%, the highest of any mega- Thomas Bach, the IOC’s president, may was again left with two options: Almaty, project. Tokyo has already seen its costs not have the luxury of ignoring reality for Kazakhstan and Beijing, China. The pros- rise to ¥3trn ($26bn), four times the origi- much longer. 7 68 Business The Economist March 18th 2017 Schumpeter To hell and back

Citigroup’s decade ofagony is almost over. It needs a bolderplan forwhat happens next which has disposed of $650bn of toxic exposures—think of steaming piles ofsubprime bonds and Greekmortgages. The second goal is profitability. The bank has made relatively slow progress here, but its headline figures understate returns. An accounting rule means that its balance-sheet appears bloated by taxbreaks relatingto its losses duringthe crisis. Its return on tangi- ble equity, a measure which adjusts for this, was 9% in 2016. If the last dregs of its legacy assets are sold this year, the ratio should reach 10%. That is below JPMorgan, at13%, but acceptable. With its capital base restored, Citi can meet its third goal, ofre- turning cash to shareholders. Its share price has fallen by 88% over the past decade, so they could do with some payback. The bank is producing especially strong cashflows because its former losses can be set against tax bills. It should be able to pay out $17bn-18bn in dividends and share buybacks a year, which would make it one of the seven most generous American firms for the absolute amount ofcash returned. Citi shareholders should soon receive a dollar ofcash a year foreach $10 ofstockthat they own. If life were fair, Citi’s bosses would each be given a Martini and a medal for years of gruelling work. But investors’ expectations are seldom static. By as soon as the end ofthis year, Citi will F YOU ask financial types in New York for their views on the be under pressure to show that it can grow again. Its revenues fell Iworld’s big banks, they usually come up with similar vignettes by 2% in 2016 (excluding the sales made by the bad bank). By con- for each one. They agree that JPMorgan Chase is an unstoppable trast, Wells Fargo and JPMorgan Chase expanded revenues at a force under its boss, Jamie Dimon. Goldman Sachs is on a roll, rate of 3-4%. With a third of its business in emerging markets, with its shares up by 36% since the election (even if some worry where growth is picking up, Citi should be doing better. that its Darwinian culture is going soft given all the regulation it The idea of the bank expanding again is not as mad as it may faces). Across the pond Deutsche Bank is struggling to keep its appear. It has room to grow without upsetting regulators (who head above water; its leader, John Cryan, embarked on a capital- still fret about banks being too big). Citi is 28% smaller than Bank raisingand cost-cuttingplan on March 5th. Yet one bigbankelicits of America and 27% smaller than JPMorgan Chase, measured by shrugs of bafflement: Citigroup. Its managers are anonymous the risk-adjusted assets ofits core business. Unlike European bas- and they get paid about a fifth less than their peers at other finan- ket-cases such as Deutsche and Royal BankofScotland (which re- cial groups. No one is quite sure what Citi is up to or what it exists cently reported its ninth consecutive annual loss), Citi’s interna- for. Once too big to fail, it is now too drab to mention. tional business is viable. It ships cash globally for big firms and is That Citi has become the world’s half-forgotten bank is sur- entrusted with $430bn of deposits abroad—more than in 2006 prising. It was America’s biggest firm before the financial crisis, and almost twice what JPMorgan Chase has. Citi’s bond-trading measured by size of assets; it is now the fourth-largest. After suf- unitisranked firstin the world. Ithasa powerful presence in Asia, fering huge losses on loans and subprime securities, in 2008-09 it the only region where it hasn’t lost money in the past decade. received the biggest bail-out of any American bank. Citi can still lay claim to being the most important firm in the global financial Nervous in 97 countries system. It operates in 97 countries, from Kenya to South Korea to So far, though, Citi’s managers have focused on modest projects. Kuwait. Soon it will confront its next strategic dilemma: when In 2016 the bank bought a credit-card portfolio in America. It is should it start growing again? bulking up in equities and is investing more in its Mexican busi- Citi’s roots go back to 1812, but it came of age in the 20th cen- ness. The risk is that excessive caution causes the bank’s global tury, organising loans and cross-border payments for American position to deteriorate. Citi’s main customer base, of American companies abroad. In the decade to 2007 it tripled in size as it multinationals, is probably mature. Their profits doubled be- tried to be a financial supermarket that offered everything to tween 2003 and 2013, but are now falling. Citi needs to find more everyone, everywhere. The government sold its last Citi shares in local corporate customers abroad, but its loan books in the two 2011. The men appointed in 2012 to clear up the mess, Michael biggest emerging economies, China and India, stagnated in 2016. O’Neill, its chairman, and Michael Corbat, its chief executive, As Citi has been recovering, China’s big banks, ICBC, CCB and were given three goals: to make Citi safe, to make it profitable and Bank of China, have built formidable networks across Asia. to return cash to shareholders. They have almost finished the job. It is easy to understand why Citi’s top brass are treading gin- Consider safety first. Since the nadir in 2009, the bank’s core gerly. The urge to make farmore ofthe bank’sglobal footprintwas capital has risen by 59%, and its cash reserves by 28%. Citi’s assets behind the disastrous expansion of1997-2007. Ofthe bank’s17 di- have fallen by3%, itsholdingsof“Level-3” (ie, hard-to-value) secu- rectors, 15 are American: a global bankshould have more of a mix rities by 80%, and its short-term debts by 78%. Mr Dimon likes to of nationalities. And the real sign that a company is recuperating say that JPMorgan’s balance-sheet is a fortress. Ifso, Citi’s is a nuc- is not that it is locked in a permanent state of contrition and aus- lear-bomb shelter. If another crisis hit, it has enough capital and terity. Rather it is that it can grow at a measured and rational pace earnings to absorb fourtimes the losses it suffered in 2008-09. Mr in its core areas. Over the next couple of years, that’s what Citi Corbat is shutting down the bad bank that was created in 2009, needs to become well-known for. 7 Finance and economics The Economist March 18th 2017 69

Also in this section 70 The interest the Fed pays to banks 72 African sovereign-wealth funds 72 US trade with South Korea 74 Buttonwood: Smart-beta funds 75 Oil prices sink again 75 The end of an Icelandic saga 76 Free exchange: In praise of immigration

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The Federal Reserve ing rates up by at least one percentage point over the year. But inflation remained Up, up and away strangely tepid (see chart). Cheap oil and a strong dollar were partly to blame. But wages also seemed stuck. Ms Yellen and her colleagues deduced that unemployment could safely fall a bit further. Washington, DC In the end, they raised rates once in 2015, in December. Again, they forecast As Janet Yellen’s Fed raises rates, political uncertainty hangs overthe central bank four rate rises for the next year. This time HIRD time lucky. In each of the past ment, when joblessness was high, she they were delayed by worries over the glo- Ttwo years, the Federal Reserve has pre- wanted the Fed to promise to keep rates bal economy (China wobbled early in dicted multiple interest-rate rises, only to low for longer than it then planned. Now 2016). Officials also began to see lower be thrown off-course by events. On March that unemployment is just 4.7%, she is rates as a permanent feature of the econ- 15th the central bank raised its benchmark keener to raise rates than those who worry omy. Today, the setters think rates will Federal Funds rate for the third time since about stubbornly low inflation. eventually stabilise at 3%, down from a the financial crisis, to a range of 0.75-1%. In March 2015 Ms Yellen argued that, forecast of4% when Ms Yellen tookoffice. This was, if anything, ahead of its forecast, were the Fed to ignore a tight labour mar- Ms Yellen’s Fed, then, has proved very which it reaffirmed, that rates would rise ket, inflation would eventually overshoot willing to change course. And this time the three times in 2017. “Lift-off” is at last an apt its 2% target. The Fed might then need to Fed isspeedingup, ratherthan postponing, metaphor formonetary policy. But as Janet raise rates sharply to bring it back down, rate rises. Three factors are at play. First, the Yellen, the Fed’s chairwoman, picks up risking a recession—and hence more un- global economy has been reflating since speed in terms ofpolicy, she must navigate employment. Better to lift rates in advance. the middle of 2016 (see Briefing, page 18). a cloudy political outlook. The next year Unemployment, however, was already Second, financial markets are booming, will define her legacy. down to 5.5%. So most rate-setters had boosting the economy by almost as much Ms Yellen took office in February 2014 started 2015 forecasting a rapid lift-off, tak- as three interest-rate cuts, by some esti-1 after dithering by the Obama administration over a choice between her and Larry Summers, a formertreasury secretary. Left- Attracting the hawks wingers preferred Ms Yellen, in part be- United States cause she seemed more likely to give jobs Personal consumption Employment rate expenditure price index 25- to 54-year-olds priority over stable prices. Indeed, Repub- % increase on a year earlier Yellen takes office as % of total licans in Congress worried that she would 3.0 80 be too soft on inflation. The Economist Oil slump Fed raises Yellen warns Fed begins rates about risks raises called herthe “firstacknowledged dove” to 2.5 from abroad rates 79 lead the central bank. Today Ms Yellen looks more hawkish— 2.0 78 certainly than Mr Summers, who regularly 1.5 77 urges the Fed to keep rates low. Headline inflation has risen to 1.9% a year; but ex- 1.0 76 Trump wins cluding volatile food and energy prices it is 0.5 election 75 a bit stuck, at around 1.7%. Yet Ms Yellen has not really changed her plumage. As expect- 0 ed, she has consistently given high weight 2012 13 14 15 16 17 to unemployment. Before her appoint- Source: Federal Reserve 70 Finance and economics The Economist March 18th 2017

2 mates. Third, a fiscal stimulus is looming. seen in April 2000, the jobs shortfall in the late 1990s, when Alan Greenspan, a According to the Fed’s model, a tax cut would looktwice as high. former Fed chairman, correctly predicted worth 1% of GDP would push up interest In October Ms Yellen wondered aloud that rising productivity would stop a rates by nearly half a percentage point. whethera “high-pressure economy”, and a booming labour market from stoking infla- Duringhiscampaign Donald Trump prom- resulting wage boom, might coax more tion. Jeffrey Lacker, chairman of the Rich- ised cuts worth nearly 3% of GDP, accord- people to seek work. This led to reports— mond Fed, recently offered another exam- ing to the TaxPolicy Centre, a think-tank. soon corrected—that she would let the ple. In 1965 unemployment fell to 4%, Doves insist that the Fed risks halting an economy overheat after all. In fact Ms Yel- while inflation was only 1.5%. Yet prices incomplete recovery. Before the crisis of len has long warned that many drivers of took off in the years that followed: by 1968, 2007-08, about 80% of 25-to 54-year-olds labour-force participation are beyond the inflation had reached 4.3%. (the “prime age” population) had jobs. To- central bank’s control. A gentle pickup in That is what Ms Yellen wants to avoid. day the proportion is 78%. The difference is wage growth since mid-2015 seems to sup- But the Fed has not often managed to tight- about 2.5m potential workers, mostly not port her view that unemployment is the en monetary policy without an ensuing re- counted as unemployed because they are best measure ofeconomic slack. cession. Should she manage it, her tenure not looking for work. Were the Fed to aim Rarely has unemployment been this will go down as a great success. for the nearly 82% prime-age employment low without inflation taking off. Once was That is, if she has time to finish the job. Her term ends in February 2018. If Mr Trump replaces her, she could stay on as a The Federal Reserve board member. But she would probably leave. So would Stanley Fischer, the Fed’s The public’s interest vice-chairman, whose term expires four months later. Two of the Fed’s seven seats are already vacant, and Daniel Tarullo, the A critical tool forsetting American monetary policy comes underfire de facto vice-chairman forregulation, goes VERYtime the Federal Reserve has in April. So Mr Trump may be able to ap- Eraised rates since the financial crisis, Excessive? point five governors, including the chair- as it did on March 15th, it has done so in Interest paid to banks on their excess reserves man, within 18 months oftaking office. part by increasing “Interest On Excess $bn What then for monetary policy, and for Reserves” (IOER). This obscure policy rate FORECAST Ms Yellen’s legacy? During his campaign, 50 is surprisingly controversial. Jeb Hensar- the president attacked the Fed for keeping ling, the Republican chair ofthe congres- 40 rates low and said he would replace Ms sional committee that oversees the Fed, Yellen with a Republican. Mooted succes- has called it a “subsidy” to some ofthe 30 sors include Glenn Hubbard, who advised largest banks in America. George W. Bush; Kevin Warsh, a former 20 To understand the argument, consider banker and Fed governor; and John Taylor, the Fed’s year-end financial statement. In 10 an academic and author of a rule, named 2016 it earned $111.1bn in interest income after him, forsetting interest rates. on its vast portfolio ofsecurities. But it 0 also paid JPMorgan Chase, Wells Fargo, 2008 10 12 14 16 18 20 22 25 A kettle of hawks and other mostly big banks $12bn in Source: Federal Reserve All these potential successors are mone- interest on excess cash deposited at re- tary-policy hawks. Some versions of the gional Federal Reserve banks. Such IOER ment is the government. The excess Taylor rule, for example, call for interest payments are both woefully unpopular reserves help finance the Fed’s $4.5trn rates more than three times as high as to- and critical to the Fed’s monetary policy. balance-sheet, which generated almost day’s. Mr Trump, who promises revival Over a decade ago, to give the Fed eight times more income forthe Treasury and 3.5-4% economic growth, might not better control ofshort-term interest rates, in 2016 than was paid out in interest. like the sound of that. If, like most popu- Congress authorised it to pay interest on This debate is likely to intensify. Amer- lists, he wants to avoid tight money, he funds in excess ofthose banks need to ican banks hold over $2.1trn in excess could appoint someone malleable to the meet reserve requirements. The policy reserves. As rates rise, the cost of paying Fed. But that would also be risky. One was first used during the financial crisis interest on them will climb—to $27bn this cause ofthe inflationary surge ofthe 1960s, in 2008. But today, IOER is the Fed’s prim- year, according to Fed projections and notes Mr Lacker, was political pressure to ary monetary-policy tool, essential to its $50bn by 2019 (see chart). That may be keep policy loose even after ill-timed tax setting ofthe Federal Funds rate. too much. MarkCalabria ofthe Cato cuts. On one occasion, President Lyndon IOER has drawn fierce flakfrom Con- Institute, a think-tank, says that anything Johnson summoned the Fed chairman, gress. Ifbanks can parktheir money at that can be tagged as “paying banks William McChesney Martin, to berate him the Fed, they seem to have less incentive $50bn a year not to lend” will be “politi- for raising interest rates (and to drive him to lend to firms and consumers. About cally unsustainable”. around his ranch at breakneckspeed). halfofall excess reserves are held by Meddling with the arrangement A simpler way to keep hawkish Repub- America’s 25 largest banks, with a third, might cost even more. Without IOER, licans at bay would be to reappoint Ms Yel- to Congress’s horror, held by foreign banks would try to lend their excess len. With Mr Tarullo out of the frame, Mr banks. The two groups earn roughly 85% reserves to each other, so short-term Trump would still be able to impose his de- ofthe Fed’s interest payment. interest rates would collapse. To keep regulatory agenda, yet keep faith with Ms Many analysts argue that these in- control ofmonetary policy—and avert a Yellen to set monetary policy. Senators terest payments—amounting to less than surge in inflation—the Fed would have to would struggle to come up with reasons 2% ofthe banks’ total income—are in fact sell assets rapidly to withdraw reserves not to reappoint a central-bank chairwom- trivial. They claim banks would rather from the system. The disruption, a recent an so close to achieving her goals. Bill Clin- earn higher returns elsewhere, and that analysis concluded, could prove “ex- ton and Barack Obama reappointed in- the real winner from the current arrange- tremely costly to taxpayers”. cumbent Republican chairmen. It might be in Mr Trump’s interest to reciprocate. 7 72 Finance and economics The Economist March 18th 2017

over 20 years. African countries should be Trade deals cheered when they save, says Uche Orji, its chiefexecutive (pictured), since they are of- KORUS of ten chastised as spendthrifts. But others saythatbuyingforeign equitiesmaynot be disapproval the best use of scarce capital when roads and electricity are needed at home. That explains why the NSIA allocates Yet America’s trade deal with South another 40% of its assets to domestic pro- Korea has not failed jects, givingpriorityto sectorssuch aspow- er, highways and farming. In August it T SHOULD have been a happy anniver- teamed up with Old Mutual, an invest- Isary. On March 15th 2012, KORUS, a trade ment group, to launch a $500m property deal between America and South Korea, vehicle. It is not the only fund to spend lo- came into effect. It slashed tariffs, tightened cally. In January the Angola Sovereign intellectual-property rights and opened up Wealth Fund (FSDEA, from the Portuguese) South Korea’s services market. When it announced a $180m investment in a deep- was signed, the head of an American sea port, adding to a portfolio including manufacturing lobby hailed it as meaning business hotels and 72,000 hectares of “jobs, jobs and jobs”. Wendy Cutler, its farmland. “Every investment has a private- American negotiator, calls it “the highest equity logic to it,” explains José Filomeno standard deal we have in force”. dos Santos, its chairman. Five years on, jubilation has given way A domestic strategy could bring jobs to anxiety. On the campaign trail, Donald and development. The riskisthatspending Trump referred to the deal as a “job-killer”. African sovereign-wealth funds is diverted from the normal budget pro- On March 1st his administration’s official cess, dodging political oversight. In Angola trade-strategy document singled it out for Buried treasure critics point to the appointment of Mr dos criticism. America’s trade deficit in goods Santos, who happens to be the president’s with South Korea has more than doubled son. One of his former business partners since 2011. “This is not the outcome the chairs the advisory board of the FSDEA’s American people expected,” it lamented. KAMPALA chosen asset manager, and also chairs the Trade between America and South Ko- company that is building the port. rea has indeed fallen short ofexpectations. African countries debate how to deploy Even the best-designed institutions are When the deal was signed, the United theirnest-eggs no guarantee against government profli- States International Trade Commission CRATCHING around for money to pay gacy. Ghana’s twin funds (for savings and predicted that it would boost American Sfor free secondary schools, a govern- stabilisation) are much admired, but their goods exports to South Korea by around ment minister in Ghana last month floated existence did not stop politicians from a $10bn. In fact they fell by $3bn between an idea: raid the Heritage Fund. At least 9% borrowing binge. For governments facing 2011 and 2016. The deal suffered teething of the country’s annual oil revenues are high interest costs, a better use of oil rev- problems. As tariffsfell, American carmak- stashed there for future generations. The enues may simply be to repay foreign debt. ers griped that South Korean regulators minister was rebuffed. But the row high- Andrew Bauer ofthe Natural Resource Go- were erecting other barriers. Most incendi- lighted a trade-off: saving for tomorrow’s vernance Institute, a non-profit group, says ary forthis administration, the South Kore- children makes it harder to help today’s. it is a “myth” that “ ifyou have oil you need an government was accused of devaluing Such dilemmas are acute in sub-Saha- a sovereign-wealth fund.” its currency forcompetitive advantage. ran Africa. The region has about a dozen African funds should focus on two But weak exports cannot be blamed on sovereign-wealth funds, most of them es- roles, argue Anthony Venables and Samu- KORUS. As it came into force global trade tablished in the past decade. They have el Wills ofthe Oxford Centre forthe Analy- slowed sharply; total South Korean im- few models to emulate. A Norwegian ap- sis of Resource-Rich Economies. A sudden ports have fallen steeply (see chart). With- proach—build a fund, invest abroad, and windfall can generate inefficient spending: out the deal, which slashed tariffs, Ameri- spend only the annual returns—works in it makes sense to “park” cash offshore until can goods exports would have been even places that are small, ageing and rich. Most capacity is built. And a stabilisation fund, lower. American exports of services rose African countries, unfortunately, are none invested in liquid assets, can bolster the by almost 30% between 2011and 2016. The 1 ofthose things. budget when oil prices fall. The oldest and largest African fund, Governments would dearly love such a Botswana’s $5.3bn Pula Fund, was created boost now. Funds such as Nigeria’s include Seoul traders in 1994 from diamond revenues. Angola stabilisation components, butmostare still South Korea, merchandise imports and Nigeria, the biggest oil exporters, have too small to have much effect. If sovereign 2011=100 140 both established funds in the past few wealth were shared out among citizens, European years; governments from Kenya to Zambia Batswana would geta chunky$2,400 each, Union 130 are talking of doing the same. Even Rwan- Norwegians a mammoth $170,000—and 120 da, with no great commodity riches, is so- Nigerians less than $7. Gulf state’ funds 110 liciting patriotic donations to build its own tookdecades to grow, notes Mr Orji. At cur- China (civil servants coughed up $2.5m last year). rent oil prices, the most valued asset of all 100 Many funds have savings mandates. is patience. 7 United 90 States World Botswana’s, like Norway’s, hoards its 80 wealth abroad. The Nigeria Sovereign In- Correction. We made a mistake in last week’s article on vestment Authority (NSIA) puts 40% of its green-shipping finance. The oxides of sulphur and 70 nitrogen emitted by shipping are very harmful; but they 2011 12 13 14 15 16 capital into a Future Generations Fund, in- are not, as we asserted, much worse for global warming Source: Korea International Trade Association vested in global assets with a horizon of than carbon dioxide. Sorry. 74 Finance and economics The Economist March 18th 2017

2 stockofSouth Korean investment in Amer- trade-deal veteran. Nine months before A sensible upgrade to the deal is possi- ica has more than doubled. KORUS came into force, a deal between the ble. A revised version might include new At least Philip Seng, chief executive of EU and South Korea gave European com- rules on digital trade and e-commerce, and the United States Meat Export Federation, panies a head start. more transparency over currency inter- a trade body, remainspleased with KORUS. In South Korea fears ofwhat an “Ameri- vention. But its terms would then look re- American exports of chilled beef to South ca first” agenda might mean are in the air. markably similar to the Trans-Pacific Part- Korea have risen by 152% over the past five Some potential candidates in the forth- nership (TPP), a 12-country trade deal that years. The tariff cuts have offset the strong coming South Korean presidential election the Trump administration has scrapped. dollar. “We are now the number-one sup- have suggested pre-emptively renegotiat- (South Korea was not in TPP, though it had plierofbeef,” he says proudly. And by 2026 ing the deal on their own terms. Mean- not ruled out joining, and took part in a the duty is due to be phased out entirely. while, the South Korean government is trade summit on March 14th-15th in Chile If American export performance over- playing down talkofa renegotiation. Since devoted to Pacific integration.) For now, all has been disappointing, then dawdling no tweak to KORUS could produce the though, the Trump administration’s ag- by its trade negotiators could also be to trade balance that the Trump administra- gressive bilateralism seems more likely to blame, says Jeff Schott, an economist and tion wants, this seems wise. promote rancour than trade. 7 Buttonwood Building a beta mousetrap

Investors are trying to find new ways to beat the market N THE world of investing, everyone is anomaly vanishes. One explanation may Ialways looking for a better mouse- Matters of momentum be that the effect can go sharply into re- trap—a way to beat the market. One ap- Returns over a six-month period of previously best- verse; in 2009 a broad-based momentum proach that is increasingly popular is to performing shares minus worst-performing shares* approach would have lost 46% in the Brit- select shares based on specific “factors”— 1975-2016, % per month, selected countries ish stockmarket and 53% in America. Any for example, the size of companies or 0.5– 0+ 0.5 1.0 1.5 2.0 hedge fund that used borrowed money to South Africa their dividend yield. The trend has been New Zealand exploit the momentum effect would have given the ugly name of“smart beta”. Britain been wiped out. A recent survey of institutional inves- Ireland Similarly, smaller companies and val- tors showed three-quarters were either Switzerland ue stocks have beaten the market over the Italy using or evaluating the approach. By the Netherlands long run. Nevertheless, there have been end ofJanuarysome $534bn wasinvested Germany times when such shares have been out of in smart-beta exchange-traded funds, ac- Average favour for years. The returns from such cording to ETFGI, a research firm. Com- France strategies have been much lower than pound annual growth in assets under Australia from momentum (2-4% a year): not United States management in the sector has been 30% Russia enough, perhaps, to induce a patient buy- over the past five years. China and-hold strategy among those willing to The best argument for smart-beta Japan ride out the bad times. funds is that they simply replicate, at low- Source: *Performance based on previous six months, The obvious answer is to select the er cost, what fund managers are doing al- Credit Suisse bought after a one-month interval right factors at the right moment. The ob- ready. For example, many fund managers vious question is how to do so. Relying on follow the “value” approach, seeking out the size, value and momentum effectshave past performance is risky. Astudy* by Re- shares that look cheap. A computer pro- worked across a wide range of markets search Affiliates, a fund-management gram can pickthese stocks more methodi- over many decades. The low-volatility ef- group, found that a factor’s most recent cally than an erratic human. A smart-beta fect (for which fewer data are available) five-year performance was negatively fund does what it says on the tin. has worked in America and Britain over an correlated with its subsequent return. But does it work? The danger here is extended period. This is probably a case of reversion to the “data mining”. Carry out enough statisti- In the case of momentum, the effect is mean. Stocks that perform well over five cal tests, and you will always find some very large. In a theoretical exercise (see years are probably overvalued by the end strategy that worked in the past. It may be chart), an investor identifies the best-per- of that period; those that perform badly that stocks beginning with the letter “M” forming stocks over the previous six forthe same period are probably cheap. have outperformed other letters of the al- months, buys the winners and sells short Indeed, the publicity given to smart phabet; that does not mean they will do the losers (ie, bets that their prices will fall). beta, and the money flowing into these so in future. According to Elroy Dimson of The exercise assumes it takes a month to funds, will lead to upward pressure on Cambridge University and Paul Marsh implement the strategy each time. In some shares exposed to the most popular fac- and Mike Staunton of the London Busi- countries, the return is more than 1% a tors. (Add an extra layer of irony when ness School, researchers have found 316 month; globally, it is 0.79% a month, or this applies to momentum stocks.) Inves- different factors that might form the basis nearly 10% a year. That is more than suffi- tors who believe in the beta mousetrap fora successful investment strategy. cient to make up for any transaction costs. may find that the rodents have already es- The best-known fall into four groups— Thisisa bitofa mystery. Even if markets caped with the cheese. are not completely efficient, it seems hard size, value (includingdividend yield), mo- ...... mentum (buying stocks that have risen in to understand how outsize returns can be *“Forecasting factor and smart beta returns” by Rob the recent past) and volatility (buying achieved by looking at something as sim- Arnott, Noah Beck and Vitali Kalesnik less-risky shares). Research by Messrs ple as recent price movements, without Dimson, Marsh and Staunton shows that clever traders taking advantage until the Economist.com/blogs/buttonwood The Economist March 18th 2017 Finance and economics 75

Oil prices and exports. After weeks of trans-Atlantic travel, this oil is showing up in higher Full tank American imports, put into storage when refineries were idled formaintenance. The third factoristhe shape ofthe curve offutures prices, which is closely related to the level of inventories. When OPEC or- HOUSTON chestrated the January cut, it hoped to re- balance supply and demand by mid-year, Why is so much oil sitting in storage? and push the futures market into “back- T SOUNDS like a scene from “The Big wardation”, meaning prices in the long IShort”, a film about financial specula- term were at a discount to short-term tion. Light aircraft fly photographers close prices. Backwardation reflects the market’s to America’s oil-storage facilities, using in- willingnessto buyoil and use itrather than fra-red imaging and photographs to gauge storing it. The strategy worked fora while. the rise and fall of levels of crude in 2,100 But since the release of bearish Ameri- storage tanks, in an attempt to work out can inventory data on March 8th, the mar- whether oil futures are overvalued or not. ket slipped backinto “contango”, the name In fact, it is less mischievous than that. for the discount at which near-term prices The intelligence-gatherers work for a com- trade to longer-term ones. Contango pany, Genscape, that sells the information makes it more worthwhile to buy oil and to traders everywhere, giving them a few store it. Hillary Stevenson of Genscape days’ jump before storage surveys are pub- notes that the storage costs in tanks in Hope springs eternal lished by the government. Cushing are about 41 cents per barrel of oil These data are particularly useful at a per month, compared with a one-month which at the time amounted to 40% of time when near-record levels of oil inven- contango ofabout 65 cents. GDP. Even the IMF, usually in favour of tories in America are weighing on oil Contango can be a self-fulfilling proph- more orthodox free-market policies, sup- prices and frustrating attempts by OPEC, ecy, because the more oil is stored, the low- ported the move. The country nonetheless the producers’ cartel, to prop up the mar- er short-term prices go. So OPEC’s chal- experienced a severe recession, with GDP ket. The high level of inventories is vital to lenge is to try and break the loop, possibly falling by more than 10% that year. an understanding ofwhy crude prices sud- by promising to extend its output cuts be- Eight years on, things look rosier. The denly plummeted this month, according to yond June. But in that case, the shale drill- IMF loan wasrepaid early, in 2015. GDP rose the International Energy Agency (IEA), a ers are likely to add yet more wells. And so by 7.2% in 2016, boosted by an explosion in forecaster. West Texas Intermediate is back the merry-go-round will continue. 7 tourism: visitor numbers are expected to below $50 a barrel, its level before OPEC in exceed 2m this year, seven times the popu- November agreed to cut output (see chart). lation. As the economy has recovered, cap- Three reasons explain why the tanks Iceland’s capital controls ital restrictions have been eased. It is are so full. Firstly, OPEC’s agreement with hoped the latest liberalisation will cool the non-members such as Russia to cut pro- The end of a saga economy a little, says Jon Danielsson of duction from January 1st set off a flurry of the London School of Economics. By stop- hedge-fund buying, pushing oil prices ping investment abroad, capital controls higher. American shale producers were may have inflated domestic asset prices; quick to take advantage of higher prices by house prices have climbed by around 16% pumping more oil. The number of Ameri- in a year. Outflows should also reduce Capital controls imposed at the height can oil rigs has risen to 617 from 386 a year pressure on the krona, which rose by 16% ofthe crisis have been lifted ago, producing400,000 barrelsa daymore against the euro in 2016, but has fallen by than at the lows in September. Much of T WAS one of the worst-hit casualties of 3.5% since the announcement. that has gone to storage terminals like Ithe financial crisis 0f 2007-08, but Ice- Iceland’s problem is that its economic Cushing, Oklahoma. land this week took steps that symbolised cycle is out of sync with other rich coun- Second, OPEC has been hoisted by its its recovery. The last remaining controls on tries, says Fridrik Mar Baldursson of Reyk- own petard. In the months before it started capital outflows were lifted, allowing pen- javik University. Before the crisis investors cuttingoutput, it sharply raised production sion and investment funds to invest their sought to profit from the gap between high money abroad. And the central bank Icelandic interest rates and lower rates struck another deal with offshore holders elsewhere, by borrowing abroad to invest Shale or return? of frozen krona-denominated assets—buy- in Iceland. With the krona interest rate Oil price, West Texas ing more ofthem backat a discount. now at 5%, that “carry trade” has resur- US crude oil stocks Intermediate Barrels, bn $ per barrel The country’s crisis experience was a faced. The central bank is hamstrung: if it cautionary tale of an over-exuberant fi- lowers rates to deter foreign money, it risks 1.25 60 nancial sector. Three of its banks, with as- stoking up the domestic economy further. 1.20 50 sets worth 14 times GDP, keeled over with- So though controls on capital outflows in a week; the krona fell by 70% on a were lifted this week, those on inflows 1.15 40 trade-weighted basis in a year; Iceland was were tightened. They try to dim the attrac- 1.10 30 the first rich country since Britain in 1976 to tion of investing in Iceland by making in- need an IMF rescue. vestors keep 40% oftheir money in non-in- 1.05 20 To stem capital outflows and further terest-bearing accounts for at least a year. falls in the krona, the government in 2008 Determined speculators, Mr Danielsson J FMAMJ JASONDJFM 2016 2017 slapped restrictions on money leaving the fears, will always find a way in. But the country. The measures also froze offshore measure is at least a step towards avoiding Sources: EIA; Thomson Reuters holdings of krona-denominated assets, a rerun ofthe 2008 saga. 7 76 Finance and economics The Economist March 18th 2017 Free exchange The best policy

Honest campaigns forimmigration would advocate much more ofit E CAN’T restore our civilisation with somebody else’s mated the “place premium” a foreign workercould earn in Amer- “Wbabies.” Steve King, a Republican congressman from ica relative to the income of an identical worker in his native Iowa, could hardly have been clearer in his meaning in a tweet country. The figures are eye-popping. A Mexican worker can ex- this weeksupporting Geert Wilders, a Dutch politician with anti- pect to earn more than 2.5 times her Mexican wage, in PPP-adjust- immigrant views. Across the rich world, those of a similar mind ed dollars, in America. The multiple for Haitian workers is over have been emboldened by a nativist turn in politics. Some do 10; forYemenis it is15 (see chart). push back: plenty of Americans rallied against Donald Trump’s No matter how hard a Haitian worker labours, he cannot plans to block refugees and migrants. Yet few rich-world politi- create around him the institutions, infrastructure and skilled cians are willing to make the case for immigration that it de- population within which American workers do their jobs. By serves: it is a good thing and there should be much more ofit. moving, he gains access to all that at a stroke, which massively Defenders of immigration often fight on nativist turf, citing boosts the value ofhis work, whetherhe is a software engineer or data to respond to claims about migrants’ damaging effects on a plumber. Defenders ofopen borders reckon that restrictions on wagesorpublicservices. Those data are indeed on migrants’ side. migration represent a “trillion dollarbills lefton the pavement”: a Though some research suggests that native workerswith skill lev- missed opportunity to raise the output ofhundreds ofmillions of els similar to those of arriving migrants take a hit to their wages people, and, in so doing, to boost their quality oflife. because of increased migration, most analyses find that they are not harmed, and that many eventually earn more as competition We shall come over; they shall be moved nudges them to specialise in more demanding occupations. But On what grounds do immigration opponents justify obstructing as a slogan, “The data say you’re wrong” lacks punch. More im- this happy outcome? Some suppose it would be better for poor portant, this narrow focus misses immigration’s biggest effects. countries to become rich themselves. Perhaps so. But achieving Appeal to self-interest is a more effective strategy. In countries rich-world incomes is the exception rather than the rule. The un- with acute demographic challenges, migration is a solution to the usual rapid expansion of emerging economies over the past two challenges posed by ageing: immigrants’ tax payments help fund decades is unlikely to be repeated. Growth in China and in global native pensions; they can help ease a shortage ofcare workers. In supply chains—the engines ofthe emerging-world miracle—is de- Britain, for example, voters worry that foreigners compete with celerating; so, too, is catch-up to American income levels (see natives forthe care ofthe National Health Service, but pay less at- chart). The fallingcost of automating manufacturing work is also tention to the migrants helping to staff the NHS. Recent research undermining the role of industry in development. The result is suggests that information campaigns in Japan which focused on “premature deindustrialisation”, a phenomenon identified by these issues managed to raise public support formigration (albeit Dani Rodrik, an economist, in which the role of industry in from very low levels). emerging markets peaks at progressively lower levels of income Natives enjoy otherbenefits, too. As migrants to rich countries over time. However desirable economic development is, insist- prosper and have children, they become better able to contribute ing upon it as the way forward traps billions in poverty. to science, the arts and entrepreneurial activity. This is the Steve An argument sometimes cited by critics ofimmigration is that Jobs case for immigration: the child of a Muslim man from Syria migrants might taint their new homes with a residue of the cul- might create a world-changing company in his new home. ture of their countries of origin. If they come in great enough Yet even this argument tiptoes around the most profound case numbers, this argument runs, the accumulated toxins could unfor immigration. Among economists, there is near-universal ac- dermine the institutions that make high incomes possible, leav- ceptance that immigration generates huge benefits. Inconve- ing everyone worse off. Michael Anton, a national-security ad- niently, from a rhetorical perspective, most go to the migrants viser to Donald Trump, for example, has warned that the culture themselves. Workers who migrate from poor countries to rich of “third-world foreigners” is antithetical to the liberal, Western ones typically earn vastly more than they could have in their values that support high incomes and a high quality oflife. country of origin. In a paper published in 2009, economists esti- This argument, too, fails to convince. At times in history Cath- olics and Jews faced similar slurs, which in hindsight look simply absurd. Research published last year by Michael Clemens and Coming to America LantPritchettofthe Centre forGlobal Development, a think-tank, Multiple by which a worker’s income* Emerging-market real GDP per person found that migration rules tend to be far more restrictive than is could increase by moving to America as % of US real GDP per person justified by worries about the “contagion” oflow productivity. Jan 2009 PPP† terms 0 x5 x10 x15 So the theory amounts to an attempt to provide an economic 20 basis for a cultural prejudice: what may be a natural human pro- Yemen clivity to feel more comfortable surrounded by people who look Nigeria 15 and talkthe same, and to be disconcerted byrapid change and the Haiti unfamiliar. But like other human tendencies, this is vulnerable to India 10 principled campaigns for change. Americans and Europeans are Ethiopia not more deserving of high incomes than Ethiopians or Haitians. 5 Philippines And the discomfort some feel at the strange dress or speech of a Turkey passer-by does not remotely justify trillions in economic losses 0 Mexico 1980 90 2000 10 15 foisted on the world’s poorest people. No one should be timid 7 Sources: “The place premium: wage *35-year-old urban male about saying so, loud and clear. differences for identical workers across with nine years of schooling the US border”, Harvard Kennedy School; IMF †Adjusted for purchasing-power parity Economist.com/blogs/freeexchange Science and technology The Economist March 18th 2017 79

Also in this section 80 A camera based on an insect’s eye 81 Alien radio ﬂashes? 82 Mapping the underworld with DNA 82 Spiders: global gourmands

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Yellow fever in Brazil time as the virus itself. In urban-cycle yellow fever Aedes bites an infected human Monkey business beingand then carries the virus to another, possibly uninfected, human. In essence, this is human-to-human transmission. As far as can be ascertained, all Brazil- ian cases since 1942 have been “wild-cycle” Santa Maria, Espírito Santo infections. These involve two other mosquito genera, Haemagogus and Sabethes, Yellow feveris bad forpeople. Forwild primates, though, it can be catastrophic which are native to the Americas. Normal- LL gone,” sighs Valmir Rossman as he cas, yellow fever was confined to the Old ly, these mosquitoes spend most of their “A scans the jungle surrounding his World. Animals there co-evolved with the time in tree canopies, supping on monkey holding outside Santa Maria, a village in virus that causes it, and thus developed a blood. From time to time, though, they bite the state ofEspírito Santo, north-east ofRio degree of inherited immunity. Their New a human instead—for example, when log- de Janeiro. Mr Rossman is a coffee farmer. World brethren had no such opportunity. gers bring those canopies crashing to the Afternoons at his plantation used to echo The outbreak now raging in Espírito Santo, forest floor. If the insects doing the biting to the calls of howler monkeys (pictured Minas Gerais and parts of other, adjoining are carrying the virus, such bites will pass above) proclaiming their territories to po- states is affecting both monkeys and peo- it on to those who are unvaccinated. But, tential interlopers. Since mid-February, ple. Butitismonkeyswho are, atleast atthe since Haemagogus and Sabethes do not live however, he says he has neither heard nor moment, suffering more. routinely in human habitats in the way seen a single one of them—except for two that Aedes does, and vaccination pro- fresh carcasses he stumbled across where Reality bites grammes now concentrate on areas where the coffee bushes give way to Atlantic rain- The idea that wild animals are reservoirs wild-cycle infection is a risk, these canopy- forest, in the hills that mark the planta- of pathogens which go on to infect hu- dwelling mosquitoes rarely transmit yel- tion’s edge. mans is well known, but not well studied. low fever from person to person. Espírito Santo’s howler-monkey popu- The Brazilian yellow-fever outbreak is an Those who are bitten and infected can, lation is crashing. Mr Rossman’s corpses opportunityto putthisright: to understand however, transmit it to other parts of the are two among 900 found this year by Ser- better the two-way pathogenic traffic in- country which, because they have been gio Mendes, a primatologist at the state’s volved, and also the factthatoutbreaks can free of the disease, may not have been federal university (UFES), and his team. In harm species other than Homo sapiens. heavily vaccinated. In 2000, for example, a typical year Dr Mendes would have ex- From a human point of view, Brazil has strains matching those from an outbreak in pected his searchers to come across per- dealt well with yellow fever. It kills about Pará, a state in northern Brazil, were found haps half a dozen such bodies during the halfa dozen people a year. By comparison, in areas as much as 2,000km (1,200 miles) same period. And something similar is dengue kills between 300 and 800. Cru- away. That, reckons Pedro Vasconcelos of happening in Minas Gerais, Espírito San- cially, after a big vaccination campaign in the Evandro Chagas Institute, a govern- to’s inland neighbour. Analysis of the re- the 1930s, the last recorded case in the mentlaboratoryin Pará, istoo farfor the vi- mains suggests the culprit is yellow fever. country of “urban-cycle” yellow fever was rus to have moved without help from me- It is easy to thinkofyellow fever, a mos- in 1942. The urban cycle is the usual mode chanised transport. quito-transmitted viral infection, as being of transmission in the Old World. It in- Occasionally, yellow fever alights in just a human disease, but other primates volves a mosquito called Aedes aegypti, this way in an area with a large monkey can catch it, too—and New World monkeys which is also responsible for transmitting population that has had no recent expo- suffer particularly badly. That is because, dengue, Zika and West Nile virus, and sure to it, and hastherefore acquired no im- until the European discovery ofthe Ameri- which arrived in the Americas at the same munity. The upshot can be devastating. 1 80 Science and technology The Economist March 18th 2017

2 Nine years ago 2,000 monkeys are thought Optics called ommatidia. Each ommatidium con- to have perished close to Brazil’s border sists of a tiny lens, called a facet, and a few with Uruguay. In 2000 a similar number The bug-eyed receptor cells. The eye itself is a bulbous may have died in the centre-west of the structure composed of many of these om- country, one ofthe places to which people view matidia arrayed together. Individual om- brought it from Pará. matidia detect points of light, which act as The flare-up in Espírito Santo and Mi- the pixels from which the creature’s brain nas Gerais seems fiercer. According to Dr weaves a complete image. Compound An insect’s eye inspires a new camera Mendes, yellowfevercan wipe out80-90% eyes generally have worse resolutions forsmartphones of a monkey population that lacks immu- than single-lens eyes, but their shape pro- nity—which the animals in these two ALES of a species called Xenos peckii vides a wider field of view, which is useful states do lack, since the disease has previ- Mhave an unusual eye for the ladies. X. for spotting food and predators. ously been absent, and their immune sys- peckii is a member of the Strepsiptera, a The eyes of X. peckii, however, are a tems have had no chance to learn how to group of insects that parasitise other in- compromise between these two extremes. respond. The body count, he reckons, sects. Its victim ofchoice is the paper wasp, They have a few, large facets and instead of could reach tens of thousands. And this inside the abdomen of which it develops detecting points of light the ommatidia time, people are dying as well. Since De- from larva to adult by eating its host from each create an actual image of part of the cember, 371 human cases, a third of them the inside. Females of the species are eye’s field of view. The resulting mosaic of fatal, have been recorded. The reason is blind—there is, after all, little to see in their slightlyoverlappingimagesisthen stitched similar to the cause of the toll in monkeys: abode. But males have a pair of eyes (see together by the insect’s brain. This unusual lack of an appropriate immune response. picture below) that are unique to the Strep- arrangement results in both high resolu- The absence of urban-cycle disease means siptera, and vital for one brief and impor- tion and a broad view ofthe world, using a that local vaccination campaigns have tant task. When he matures, a male X. pairofeyesthatdo nottake up much space. wound down. peckii must leave his host and find a mate The health authorities are now on high quickly, because he will die within a few Compound interest alert, though. They have dispatched vac- hours. A group of researchers working for That is great for finding a mate. It is also ex- cine to the affected areas with commend- the Fraunhofer Society, a German govern- actly what makers of smartphones want able speed. That should stop the revival of mentresearch organisation, have nowcop- for their cameras. At the moment, smart- urban-cycle transmission. Entomologists ied the way male X. peckii eyes work, and phones often have what is known as a from UFES are also setting traps to catch used the method as the basis ofa new min- “camera bump”—a bulge in the case to mosquitoes, to try to find out which spe- iature camera forsmartphones. house the optics. Build a camera that mim- cies are carrying the virus—forest insects or Many animals (human beings and oc- ics X. peckii’s eye and you could remove Aedes. The trapped mosquitoes are being topuses are good examples), have eyes that that bump. Which is what the Fraunhofer sent to the Evandro Chagas Institute for use a single lens to focus light onto a sheet team hope to do. identification—ofboth them and ofany vi- of receptor cells at the back of the eye, Fraunhofer is an organisation with in- ruses they may be harbouring. called a retina, to form an image. This is stitutes all over Germany. In this case the At the moment, researchers suspect similar to the way that a digital camera’s lead is being taken by the Institute for Ap- that the virus causing this outbreak origi- lens focuses such an image onto a retina- plied Optics and Precision Engineering, in nated from monkeys in either Amazonia like light-sensor made up of millions of in- Jena, though other sites are involved as or the cerrado, Brazil’s savannah area. If dividual detectors. Other creatures, well. So far, the project’s researchers have that is confirmed, it will be a textbook ex- though—insects among them—have com- succeeded in makinga camera with 135 fac- ample of disease in an animal reservoir pound eyes. These are composed of units ets that is only 2mm thick but has a resolu- spilling over to affect human beings. And it tion ofone megapixel. is a reservoir from which the disease is im- True, that resolution is dwarfed by the possible to eradicate. 12 megapixels available on the latest That leaves the authorities with two iPhone 7, but the iPhone’s camera still re- possible responses. The first is the one they quires a bump even to fit into the generous have adopted: to react to outbreaks when dimensions of the phone’s 7.1mm-thick they occur and accept the consequent ca- case. And one megapixel isonlya start. The sualties. The second is to return to mass, group believe that their facetVISION cam- pre-emptive vaccination, which would be era, as they call it, can be boosted to four costly and run the riskofpeople dying, as a megapixels. At that resolution it would be handful probably would, from reaction to good not only for leisure use, but also for a the vaccine. That second approach is un- number of industrial and medical applica- likely in the face of a lone outbreak, but if tions. Besides phones, it might be fitted to others follow as loggers push deeper into probes, to small sensors and even to ro- the rainforest, it might have to be consid- bots, to give them vision. ered. In the case ofthis particularoutbreak, The initial facetVISION camera was the authorities’ swift response means the made using a vapour-deposition process chances are that it will be contained and similar to the one employed to make com- then stamped out quickly—at least as far as puter chips. This has limitations, and is ex- people are concerned. How long it will be pensive for mass-production. For high-vol- before Mr Rossman hears his howler mon- ume applications, such as smartphones, keys again is anybody’s guess. 7 the researchers are therefore trying to adapt the process to the way cameras for Correction. In “A clever solution” (March 11th), we phones are made at the moment. This em- misnamed Riptide Autonomous Solutions as Riptide ploys injection moulding to form the Autonomous Systems, and also gave the wrong actual and hoped-for ranges for its underwater drones. These lenses; those lenses are then placed over are, respectively, 100 and 1,000 nautical miles. Ready for my close-up the light-sensors in a separate operation. 1 The Economist March 18th 2017 Science and technology 81

2 Using this production technology the have to run special software to combine motor must carry its fuel with it. Fuel has group think it will be possible to build a the images—much as X. peckii’s brain does. mass. That mass must be moved by more facetVISION camera that has several small But elaborate image-processing already fuel—which adds more mass to the craft, lenses placed next to each other. The result happens in such phones, so that should which thus needs still more fuel. And so would be around 3.5mm thick, so would fit not be hard. Moreover, since the multiple on. For this reason, 90% or more of a con- easily inside the case ofthe thinnest smart- lenses each capture slightly different as- ventional rocket’s launch mass is its fuel. phone—and, by being able to use more pects of the image being snapped, lots of It is possible, though, to separate the powerful sensors, would boast a resolu- other tricks might be possible, too. Watch fuel from the craft. That is the principle be- tion greater than ten megapixels. out, then, fora bug’seye viewon Facebook, hind a solar sail, which employs the gentle A smartphone using this camera would Snapchat or Instagram. 7 pressure exerted by sunlight to propel a vehicle. A nippier alternative is to use focused light beams to provide the pressure. Yuri Milner, a Russian billionaire with a long-standing interest in science, is paying for research into such a machine. He proposes to drive a tiny probe to Alpha Cen- tauri, one of Earth’s nearest stellar neighbours, using banks ofpowerful lasers. Dr Lingam and Dr Loeb suggest FRBs might be the result ofvastly bigger takes on the same principle, except that they employ the radio portions of the electromag- netic spectrum rather than visible light. The two researchers have worked out what would be needed if the transmitter behind such a burst were solar-powered. They calculate that the amount of sunlight fallingonto a planet about twice the size of Earth, and at the right distance from its star to have liquid water on its surface, would yield enough energy to accelerate a spaceship weighing a million tonnes or so to a speed close to that of light before the propulsion beam became too attenuated to propel it any faster. This would be perfect for ferrying large numbers of beings from Astronomy one star system to another, as long as there was an equivalent device at the other end Flashes of inspiration to slow the craft down again. To check whether such a machine is technologically plausible, the two researchers calculated that the necessary planet-sized array of radio transmitters could be kept cool by nothing more exotic than ordinary water. So, as far as they can A batch ofstrange signals from the sky might, just possibly, be signs ofaliens see, while building such a machine would N AUGUST 24th 2001 the Parkes Ob- a rotating, superdense star proves no lon- be a heroic feat of engineering, nothing in Oservatory, in Australia, picked up an ger adequate to the task of stopping that the laws ofphysics actually forbids it. unusual signal. It was a burst of radio star collapsing suddenly under its own Saying that the features ofFRBs are con- waves coming more or less from the direc- gravity. But, as Manasvi Lingam ofHarvard sistent with their being signs of an alien tion of the Small Magellanic Cloud, a min- University and Abraham Loeb of the Har- space-propulsion system is not, of course, iature galaxy that orbits the Milky Way. vard-Smithsonian Centre for Astrophysics the same as sayingthat this is what they ac- This burst was as brief as it was potent. It observe, there is at least one further pos- tually are. One early explanation of pul- lasted less than 5 milliseconds but, during sibility: alien spaceships. sars—regular cosmic radio signals first ob- that period, shone with the power of100m Specifically, the two researchers sug- served in 1967 was that they were alien suns. It was, though, noticed by astrono- gest, in a paper to be published in Astro- radio beacons. They later turned out to be mers only in 2007, when they were poking physical Journal Letters, that FRBs might be caused by fast-spinning neutron stars. For around in Parkes’s archived data. As far as generated by giant radio transmitters de- physicists, though, that explanation was they can tell, it has never been repeated. signed to push such spaceships around. almost as interesting. A neutron star is one Similar unrepeated signals have since With the rotation of the galaxies in which whose protons and electrons have merged been noted elsewhere in the heavens. So these transmitters are located, the trans- with each other to create neutrons. These, far, 17 such “fast radio bursts” (FRBs) have mitter-beams sweep across the heavens. together with the star’s pre-existing neu- been recognised. Theydo notlooklike any- Occasionally, one washes over Earth, pro- trons, result in an object that has no atoms thing observed before, and there is much ducing an FRB. in it. Since atoms are composed mostly of speculation about what causes them. One This idea is not completely mad. Hu- empty space a neutron star, instead of be- possibility is magnetars—highly magne- man rocket scientists have toyed with ing star size, is just a few kilometres across. tised, fast-rotating superdense stars. An- something similar, in order to overcome If FRBs turn out to be even a fraction as cu- other is a particularly exotic sort of black one of the biggest problems of spaceship rious as that, most astronomers would for- hole, formed when the centrifugal force of design: that a craft propelled by a rocket give them fornot being artificial. 7 82 Science and technology The Economist March 18th 2017

Mapping subterranean resources Animal behaviour DNA goes Spider bites underground The world’s spiders eat as much animal food as all ofthe humans on Earth RACHNOPHOBIA is a common and University ofBasel, in Switzerland, and A new job fornature’s favourite powerful fear. Spiders sit high in the Klaus BirkhoferofLund University, in information-carrying molecule A pantheon ofspecies that have an out- Sweden, attempt to put some numbers HAT lies beneath? It is a pressing sized terror-to-danger ratio. But, un- on spiders’ dining habits. Starting with Wquestion for those prospecting for settling though they may be, the eight- the available data on the mass ofspiders oil, planning shale-fracturing or seeking legged do excel at keeping six-limbed found per square metre in Earth’s main geothermal-energy sites. Underground pests in check. They prey upon insects in habitat types—forests, grasslands, fields reservoirs ofwater, oil and gas are connect- vast quantities, while, forthe most part, ofcrops and so on, they calculated the ed in extensive, circuitous networks that leaving people alone. Indeed, in 1957 amount ofprey required in each habitat can change with time or with drilling. William Bristowe, a British arachnologist, to support the weight ofspiders there, Knowing those networks’ particulars can wondered whether British spiders might based on spiders’ known food require- make a big difference to beliefs about how kill prey equivalent in mass to all ofthe ments per unit ofbody weight. That much can safely be extracted from them. people then living in Britain. done, they extrapolated their habitat- To acquire such knowledge, drillers of- In research published this weekin the based results to the whole planet, in light ten use tracers. These are materialsthat can Science of Nature, Martin Nyffelerofthe ofwhat is known about the total areas of be injected into the ground in small such habitats. amounts at one point and then detected re- Their conclusion was that there are liably if they turn up in other places—thus 25m tonnes ofspiders around the world showing that those places have subterra- and that, collectively, these arachnids nean links to the point of injection. The consume between 400m and 800m supply of decent tracers, however, is limit- tonnes ofanimal prey every year. This ed. About100, mostly dyes or mildly radio- puts spiders in the same predatory league active materials, are in routine use. This as humans as a species, and whales as a constrains the number of possible injec- group. Each ofthese consumes, on an tion points in a particular area, and thus annual basis, in the region of400m the amount oftracking that can actually be tonnes ofother animals. done. Yet in many cases—for example, a Somewhere between 400m and long well that runs horizontally through a 500m tonnes is also the total mass of particular rocky stratum—more than 100 human beings now alive on Earth. Ap- injection points might ideally be required. proximately speaking, then, Bristowe The numerical constraint on tracers ex- was right. Arachnophobes, meanwhile, tends, moreover, into time, as well as should consider this: without spiders, space, forinjecting one poisons the well, as there would be an awful lot more other it were, thus confusing future attempts to A light snack creepy-crawlies around. employ the same agent. The problem would go away, though, if a tracercould be found thatwasessentially structure can have numerous underlying damage DNA undergoes, if held in glass the same with every use, and would thus sequences, so there is plenty of room for particles that have had holes etched in behave in a predictable way, butwasdiffer- multiple tracer molecules that have the them, is a precise measure of the tempera- ent in detail on each occasion, so that both same properties of stability. BaseTrace has ture that those particles have encountered the time and the place ofits injection could used this to develop algorithms which in their underground journey. They have be known reliably when it turned up else- work out what sequences are best for the also gone on to show that such particles where. And such a substance exists. It is stresses a given application presents. It has can measure acidity, too. called DNA. The four types of chemical recently moved from courting the oil in- These results have caused interest in “letter” of which this molecule is com- dustry to nuclear energy, where conditions the oil and gas industries, which currently posed can be written in any order you like, ofwastewater are at their most extreme. lack means of taking readings of this sort giving infinite variety to individual batch- Another approach to protecting tracer beyond the limits of their boreholes, and es of the stuff. Unfortunately, DNA is a del- DNA is encapsulation. Well Genetics, a among geothermal-energy types, the suc- icate molecule, ill-equipped to survive the Norwegian firm, wraps the molecules in cess of whose ventures depends on ex- extreme temperatures and stresses found polymer coatings. The company has been ploiting the varying temperatures at a giv- inside boreholes. Attempts in the 1990s, by testing these tiny capsules, in collabora- en site. Last month, in partnership with Statoil, Norway’s state-owned fossil-fuel tion with oil- and gas-production compa- Clariant Oil Services, another Swiss firm, company, to use it as a tracer failed. But nies drilling in a North Sea oilfield and in a Haelixa started testing its technology in an technology has moved on, and others are shale-gas field in Texas. Tracesa, a British American oilfield. now trying again. company, is also developingpolymer-coat- Haelixa’s inventive approach—turning One such is BaseTrace, in North Caroli- ed DNA. And Haelixa, a firm spun out from tracers into sensors—opens a new avenue na. This firm’s engineers exploit the fact the Swiss Federal Institute of Technology, of research. Mapping what is going on un- that some DNA sequences are more stable in Zurich, is encapsulating DNA using a dif- derground has always been hard. Yet un- than others. Such relative stability comes ferent material: glass. derground is where most natural resources from the various ways that different DNA Haelixa is not, however, always aiming lie. A better understanding of the subterra- molecules fold up—their so-called second- for perfect protection. The company’s re- nean will help those resources to be ex- ary structures. But any given secondary searchers have shown that the amount of tracted more cheaply and cleanly. 7 Books and arts The Economist March 18th 2017 83

20th-century poetry Also in this section The art of losing 84 How to create a hit 84 Mohsin Hamid’s fiction 85 The human imagination 85 The spread of Syrian music 86 Johnson: Subversive facts A new biography sheds light on one ofAmerica’s finest poets LIZABETH BISHOP did not like to give she was also in love with); Bishop and her Elizabeth Bishop: A Miracle for much away about herself. While others lover were fine, but her friend, who had E Breakfast. By Megan Marshall. Houghton were writing confessional poetry, she en- been a painter, lost her arm and could not Mifflin Harcourt; 365 pages; $30 sured that she wrote at a distance. Poems paint again. Bishop often drank herself which in original drafts mentioned charac- into a stupor, starting “the hour before teristics ofa loverwere revised, sometimes childhood. When Bishop was just three dawn” and sometimes continuing even as many as17 times, in order to make the fi- her mother was hospitalised for mental ill- until she was hospitalised. Her partner of nal work as polished and as impersonal as ness. She was brought up by a series of rel- over a decade, Lota de Macedo Soares, a possible. She was a lesbian who never atives. One uncle molested her and was Brazilian self-taught landscape designer, publicly admitted to the term, even as violent, grabbing her by the hair and dan- overdosed after a breakdown partly younger gay poets in the 1970s embraced it gling her over of the railing of a second- caused by Bishop’s infidelity. (partners were friends or even a “secre- floor balcony. “Maybe lots of people have Ms Marshall’s skill prevents this narra- tary”). She was an alcoholic who was never known real sadists at first hand,” tive from becoming depressing. The Bish- ashamed ofher drinking, but never sought Bishop later wrote to her psychiatrist. “I got op that emerges from her telling may be at long-term treatment. Poetry was a way of to thinking that they [men] were all selfish times morose or ashamed of her drinking “thinking with one’s feelings”, but those and inconsiderate and would hurt you if (wishing, as she wrote to Methfessel, that feelingswere often obscured, hidden with- you gave them a chance.” she could be more like writers who “drink in a parenthesis or written from the per- Bishop’s adult life was no less tumultu- worse than I do, at least badly & all the spective of someone very different from ous. A man she briefly dated committed time, and don’t seem to have any regrets or herself. Thisiswhyshe makesa fascinating suicide a year after she rejected his mar- shame—just write poems about it”). But subject for a biographer. riage proposal. He sent her a postcard as a she also appears vivacious, attractive and “A Miracle for Breakfast”, the first full- suicide note: “Elizabeth, Go to hell.” One full of life. Even the worst heartbreak length biography in two decades, ably of her lovers managed to crash a car carry- brought out wonderful poetry, such as her manages to bring Bishop to life. Megan ing Bishop and one of her friends (whom most famous poem, “One Art”, which Marshall, who was taught by starts: “The art of losing isn’t the poet at Harvard in 1976, re- hard to master;/so many calls how she could seem prim things seem filled with the in- and aunt-like to her students: tent/to be lost that their loss is “a grimmer, grayer, possibly no disaster.” even smaller woman than I’d Three relationships in par- remembered…dressed smart- ticular illuminate a lighter side ly but uncomfortably.” to Bishop: her time with Yet beneath this prim Soares in Brazil, which in- veneer of control was a rich, spired some of her finest work turbulent personality. Bishop (“Hidden, oh hidden/in the herself was aware of the con- high fog/the house we live in,/ trast, writing to one lover beneath the magnetic while she was teaching at the rock…”); her later years with University of Washington in Methfessel; and her friendship 1966: “Everyone treats me with with Robert “Cal” Lowell, the such respect and calls me Miss one other writer with whom B—and every once in a while I she immediately felt at ease. feel a terrible laugh starting Bishop first met Lowell in down in my chest…how dif- 1947 at a dinner party in New ferent I am from what they York. They stayed in touch for think, I’m sure.” the rest of their lives, writing Bishop’s past was indeed over 400 letters to one anoth- more complicated than many er. Lowell supported her and knew, even those close to her. helped her find grants and Ms Marshall has had access to postings, and praised her a previously unknown trove work. He carried around a of letters that Bishop wrote to poem of hers in his wallet as a her psychiatrist and to various talisman. They were so differ- lovers, which became avail- ent; Lowell wrote hundreds of able after the death of her ex- confessional poems, often ecutor and last lover, Alice quoting from other people’s Methfessel, in 2009. These de- letters to him. pict an unsettled, unhappy Elizabeth Bishop and Robert Lowell: life’s a beach The relationship between 1 84 Books and arts The Economist March 18th 2017

2 the two is one of the joys of this book. As track to a notorious film called “Black- Fiction Ms Marshall puts it: “Elizabeth would al- board Jungle”, which helped it achieve ways remember the younger poet’s en- international renown. Black door dearingly ‘rumpled’ dark-blue suit and the Third, technology may evolve, but peo- ‘sad state of his shoes’ on the night of their ple’s longing for the popular does not. first meeting, how handsome he was de- Music labels used to bribe radio stations to spite needing a haircut, and, most of all, play their songs, thus ensuring their suc- ‘that it was the first time I had ever actually cess. This meant the labels could dictate Exit West. By Mohsin Hamid. Riverhead; 240 talked with someone about how one the hits. Today the internet offers a seem- pages; $26. Hamish Hamilton; £14.99 writes poetry’.” ingly infinite repertoire ofreadily available Ms Marshall intersperses chapters music, yet people tend to stickto songs that F THE history of human civilisation is of about Bishop with chapters of memoir, other people like. One study from Colum- Ithe collapse ofdistance—from walking to which touch upon hertime as Bishop’s stu- bia University found that a song at the top horses to carriages to motorised transport dent. This gives the biography a sense of ofthe chartsstayed there preciselybecause to jet engines—then what happens when authenticity, but it interrupts the flow of people assumed it was good. When the you take that thread to its logical conclu- the narrative. It also seems in sharp con- charts were inverted, those previously at sion, when it becomes possible to move trast with her intensely private subject. But the bottom achieved similar success. The from any one place on Earth to another this is a small price to pay for a biography quality ofthe songis not as important as its simply by walking through a door? This is which at last illuminates one of America’s perceived popularity. the central conceit of “Exit West”, Mohsin finest, and most elusive, poets. 7 Mr Thompson’s thesis might seem ob- Hamid’s fourth novel, which is set in a vious—a fact he readily admits. Exposure world wracked by war and poverty, a and connections are important. But the ex- world not unlike our own, in which myste- Popularity tent to which nearly all blockbusters and rious doors allow passage from London to pop sensations owe their success to this Namibia or from Amsterdam to Brazil. Recipe for success may be less clear-cut than is generally be- In an unnamed country at war with it- lieved. Mr Thompson’s knack for support- self live Saeed and Nadia, who in the span ing each point with colourful tales and ex- of a few short chapters see their world amples helps make the book worthwhile. transform, without fuss, into a barbarous He explains how “Bal du Moulin de la Ga- place of violence and brutality. When they lette” by Pierre-Auguste Renoir, which is hearabout secret blackdoors that will spir- Hit Makers: The Science of Popularity in an revered as one of the masterpieces of the it them away, they take their chance, arriv- Age of Distraction. By Derek Thompson. Impressionist movement, would not have ing first at a refugee camp on the Greek is- Penguin Press; 352 pages; $28. Allen Lane; £20 been so without Gustave Caillebotte, a fel- land of Mykonos, and later in London, HAT makes a hit? Many assume it low artist. Caillebotte died at 45 and left where they share a house with others flee- Whas to do with artistry or luck. Not so, nearly 70 of his friends’ paintings to the ing third-world problems. There is not says Derek Thompson, a writer and editor French state, including several by Renoir, much by way of plot except constant at the Atlantic. In his first book, “Hit Mak- thus helping ensure his exposure and movement and a tender—and, given the ers”, he analyses the psychology and eco- eventual critical acclaim. circumstances, surprisingly familiar—love nomics of pop culture and argues that Readers may despair at the injustice of story of coupling and conscious uncou- “hits”—the things that get everybody talk- publicity bearing more fruit than pure tal- pling. But plot, as has become a habit with ing—are based on three rules that rely on ent, but there are enough unlikely exam- Mr Hamid, is just scaffolding. more than creative genius alone. ples to foster hope. Indeed, in theory, It is temptingto characterise “Exit West” First, consumers crave “familiar sur- anyone with the right mix of “optimal as magic realism. But it is better read as a prises”. Studies show that people opt for newness”, wide reach and repeated expo- sharply pointed story of migration. No things they recognise over things they do sure can get their lucky break. Better still, it matter how long the coils of razor wire or not. Maybe there is an evolutionary expla- might just be a hit. 7 how beautiful the walls or how legion the nation for this: survival taught humans border guards, migrants will continue to that if they had seen an animal before, it move around the world, Mr Hamid seems had not killed them yet. This familiarity to be saying with his black doors. And no was comforting. The evidence for people’s matterhow persistent the effortsat integra- response to recognition is everywhere: the tion or how good the intentions of mi- Star Wars franchise, for example, is an grants or how recently settled the local amalgam of characters and themes from population, those who see themselves as older films. But it remains a fine balance, as natives will always see their homes and people enjoy thinking they have found their way of life as under threat. In one of something new—the “aha” moment, as Mr the book’s most elegant diversions, a Thompson calls it. woman is born and brought up, orphaned Second, going “viral” overnight is a and married and widowed in the same myth. Hits rely on a series of closely house in Palo Alto. But in the course of her connected events: a celebrity picking up a lifetime a new industry grows up around tweet and sharing it with countless follow- her, old neighbours move out and new ers, for example. Friends and family alone ones move in, and she becomes the outsid- are unlikelyto help youreach the scale you er, the migrant, without ever moving. Mi- need (unless, of course, they are extremely gration is not only a physical state or a influential). “Rock Around the Clock”, a voluntary one, but a universal experience. rock’n’roll classic, floundered when it was “Everyone migrates,” writes Mr Hamid, first released. Yet thanks to one music- “because we can’t help it.” Despite the obsessed teenager and his movie-star fa- black doors of “Exit West”, the world it ther, the song was picked as the opening Objects of adoration depicts it less magical than it is real. 7 The Economist March 18th 2017 Books and arts 85

The human imagination mans must have had a primitive under- many of its musicians have fled abroad standing of the laws of physics to throw a where they are propagating their musical Inside your head spear accurately. Yet no one ascribes scien- culture. The Morgenland festival in Osna- tific thinkingto archerfish because they are brück, in north-west Germany, has long able shoot down insects by spitting jets of been powered by Syrian stars such as Ki- water at them. Other examples ofearly sci- nan Azmeh, a clarinettist, Muslim Rahal, a entific thinking could better be described ney flautist, and a mesmerising singer as forms of engineering, a process of trial named Ibrahim Keivo. On March 16th they The Creative Spark: How Imagination Made and error that has altogether more ancient unveiled a three-day festival of Syrian mu- Humans Exceptional. By Agustín Fuentes. roots. The book’sfinal chapter, on what hu- sic at the new Elbphilharmonie concert Dutton; 340 pages; $28 mans today can learn from the species’ cre- hall in Hamburg. The city has a large popu- F THE millions of animal species on ative past, is also a little glib. Overall, its lation of Middle Eastern immigrants, and OEarth, only one has built a spaceship central thesis—that the power of the imagi- Christoph Lieben-Seutter, general director and flown to the Moon. In “The Creative nation alone is responsible for human suc- of the Elbphilharmonie, is determined to Spark”, Agustín Fuentes, an anthropologist cess—is not entirely convincing. make them feel welcome. at the University of Notre Dame in Indi- That said, “The Creative Spark” is strong The festival, entitled “Salaam Syria”, isa ana, argues that it is the power of imagina- on man’s imaginative accomplishments bold experiment in cross-cultural collabo- tion, more than anything, that has made and offers an important corrective to the ration. A German-Syrian choir specially humansunique amongthe planet’sbeasts. skewed debate on human nature. A spe- created for the event sang in an Arabic folk That is a controversial case to make. cies that, uniquely, ponders its own excep- style. The NDR Bigband, a famous brass en- Man’s distinctiveness has been attributed tionality will surely be fascinated by it. 7 semble, shared the stage for a jazz-fest with to an aptitude for violence, exceptional in- the Syrian Bigband, which combines West- telligence or a preternatural ability to co- ern brass with the oud lute, ney and qanun operate. Mr Fuentes contends that this fails Music from the Middle East zither. Meanwhile fusions of Western jazz to take into account the full range of evi- and Middle Eastern folkmusic have united dence available to researchers. Instead, he High notes leading instrumentalists such as Michel turns to niche construction, a relatively re- Godard, a French tuba-player, and Djivan cent idea in evolutionary science that Gasparyan, a master of the duduk oboe emerged in the 1980s, but one which, he whose mournful sound can be heard all says, can offerthe basis ofa more complete round the eastern Mediterranean. But the account of humanity’s ingenuity. The eco- Trump travel ban also had an effect: one How civil waris helping spread Syrian logical niche that an organism occupies is concert had to be cancelled because its Syr- music across the globe the sum total of all the interactions that it ian musicians, who are based in America, has with its environment. Altering that en- E LEFT our native land, complete- did not dare leave for fear of not being vironment, as beavers do when they build “Wly unaware of the biggest gift our allowed backinto the country. dams, for example, is niche construction. country had bestowed on us: the gift of “The Voice of Ancient Syria” concert in- Humans, Mr Fuentes says, are “niche con- music.” So said Basel Rajoub, a Syrian com- cluded Mr Keivo’s celebrated “Lamento” in structors extraordinaire”. poserand saxophone-player, when he and his own variant of maqam, the musical The author ranges across the creative his ensemble, Soriana, launched their first style that links Syria with the rest of the history of the human race to look at how CD in exile in 2013. A graceful meld of jazz Middle East. Maqam is microtonal music, the species has reshaped its surroundings and Middle Eastern improvisation, it was which allows the pitch to slide between to edge ahead ofits competitors. He begins posted online so that fans could stream it the Western intervals in a way that lends it- with ancient toolmaking: the slippery art free of charge. A neater expression of the self readily to surges of emotion. Mr Keivo of smashing particular kinds of rock to- truth that music lies at the heart of the Syri- isfrom an Armenian familythatleftTurkey gether to make sharp flakes of stone. That an psyche would be hard to find. in 1915, and he grew up in a part ofnorthern complex process gave humans access to Six years after pro-democracy demon- Syria where many cultures mingled. He new sources of food. But it must also have strations plunged Syria into civil war, trained in Aleppo, and only fled Syria in required extensive co-operation, so that 2014 when IS was approaching his village those noisily crafting the tools would not and his family were put in danger. Accom- be eaten by predators. panying himself on the lute, his singing For those who see “man, the hunter” pours out with ecstatic power in a mixture and “woman, the nurturer” when they ofArabic, Kurdish and Armenian. imagine life in the distant past, Mr Fuentes The other high point of this concert points out that there is no evidence from came when Dima Orsho, a Syrian compos- archaeology to support the idea that roles er-soprano, was joined by Kai Wessel, a were assigned according to gender or age. German countertenor, for a performance He also disputes a view, recently popular- of her deeply moving symphonic poem, ised in “The Better Angels of Our Nature” “Those Forgotten on the Banks of the Eu- by Steven Pinker, that mankind has a natu- phrates”, accompanied by musicians from ral lust for violence which has only recent- Hamburg with players from the Syrian Ex- ly been tamed. Proponents of that notion pat Philharmonic Orchestra. Created in have largely ignored evidence more than Germany in 2015, but drawing its players 14,000 years old, according to Mr Fuentes. from the Syrian diaspora throughout Eu- He concludes that, on the contrary, the inci- rope, the orchestra is further evidence of dence of murder and warfare has in- Syrian musicians’ adaptability. The same is creased over the past 5,000 years. true of “Refugees for Refugees”, a CD from Mr Fuentes’s discussion of the ancient the Belgian Muziekpublique label that origins of science is, perhaps, the weakest brings togethervirtuoso musicians in flight part of his book. He asserts that early hu- Louai Alhenawi and his ney from countries across the Middle East and 1 86 Books and arts The Economist March 18th 2017

2 Central Asia, halfofthem from Syria. Syrian instrumentalists who have been conductor, Missak Baghboudarian, it still Meanwhile, Tafahum, a Syrian “con- trained in the Western classical tradition flies the flag. Last month he presided over a temporary fusion” ensemble has been have one obvious escape route—they can weeklong organ festival in Damascus, fol- formed in London, under the direction of pick up orchestral jobs anywhere in the lowed by a choral festival of Western Louai Alhenawi, a composer and maestro Western world. And if they are soloists, music with choirs from five Syrian cities. of the ney. Conservatoire-trained on the like Syria’s star pianist Riyad Nicolas, they Syrian music, even at its best, was never Western flute as well as on its Oriental can give recitals; he is now championing one of the pre-eminent genres during the equivalent, he is making a point of marry- the music ofSyrian composers in America, “world music” CD boom of the 1990s. It ing the two traditions. His dazzling party and performing on behalfofrefugee chari- was always upstaged by flashier stuff from piece—now imitated by other virtuosi—is ties. And despite all the odds, Western clas- Mali and Cuba. But in maqam, its purest to play “Flight ofthe Bumblebee” by Nikol- sical music also lives on in Syria. Until 2011, form, it has a richness and integrity which ai Rimsky-Korsakov on the valveless, and Damascus was the most liberally multicul- sets it apart from other national styles, and much more difficult, ney. The flute’s icy tural city in the Middle East. The Syrian those same qualities are also to be found in purity is replaced by the richer timbre of National Symphony Orchestra has inev- Syrian performances of music in the West- the wooden ney. itably lost many ofits players, but under its ern classical tradition. 7 Johnson Subversive facts

Describing language objectively need not mean doing so dispassionately AMUEL JOHNSON, the lexicographer there would be no way of judging be- Safterwhom thiscolumn isnamed, fam- tween two editors who disagree, or ously defined his profession as being that knowing what to do when an old belief of “a harmless drudge”. In fact, he was runs against the evidence. neither harmless nor a drudge, but a wit Yet judgment has its place. Ms Stamper unafraid to provoke, debate and irritate in frequently makes online videos for Mer- the course of writing the first great dictio- riam-Webster’s “Ask the Editor” series. nary ofthe English language. One of these is about the plural of “octo- But Johnson’s fame has never dis- pus”. Many people will rush to show off pelled the idea that the lexicographer is a their Latin: it must be “octopi”. In fact, the humdrum, bookish type who reads for –us ending is misleading; “octopus” origi- precision and who dutifully approves the nally comes from Greek (pous is foot). If “right” meanings of “good” words while you really want to flaunt your classics preventing “wrong” definitions and training, you should call the eight-footed “bad” words from enteringthe dictionary. creatures “octopodes”. But the best bet is Lexicographers still struggle, largely in to use English’s own rules forcreating plu- vain, to dispel this myth about their role. rals, and call them “octopuses”, Ms They put the words that people actually Stamper rules, and don’t let anyone call use into the dictionary, good ones and you “an ignorant slob” fordoing so. bad ones, new ones and old ones. Ms Stamper has found the right com- In a new book, “Word by Word”, Kory pany to work for. Merriam-Webster’s Stamper, a lexicographer for Merriam- young social-media team has carried on a Webster, a reference-book publisher, duly sure thatitisstill one in the sentence “What kind of subversive empiricism. Its Twitter carries on the tradition, reminding read- can they do but try?” A colleague confi- account, which normally tweets out ran- ers that a lexicographer is a chronicler, not dently proclaims “but” to be a preposition domly chosen definitions, will occasion- a guardian. She says that a chronicler (like here. Senior editors sigh, ruling that defini- ally weigh in on the day’s news. When Johnson) need not be meek and dispas- tions are more important than grammar in Kellyanne Conway, a senior adviser to sionate. Foul-mouthed, opinionated and a dictionary, and (rightly) noting that the Donald Trump, explained in January that funny, Ms Stamper has for years written a eight parts of speech into which words are the president sometimes avails himself of witty blog called “Harmless Drudgery”. sorted in traditional grammars are not “alternative facts”, Merriam-Webster sly- “Word by Word” devotes chapters to each enough forEnglish. ly tweeted its definition of “fact”. When element of a lexicographer’s work, from Lexicography is hard. If it were easy, no Mr Trump tweeted first “I hear by de- defining politicised words (like “mar- one would need a dictionary: meaning mand”, then quickly changed that to “I riage”) to dealing with irate readers (who and use would be obvious to all. But even hearby demand”, Merriam-Webster sim- never tire of asking why this or that word after years of reading and defining—or as ply tweeted its definition of“hereby”. was let into the dictionary) to dealing Ms Stamper would put it, especially after Lauren Naturale, who runs Merriam- with vulgarity, in a chapter named after a years of reading and defining—the lexicog- Webster’s social-media accounts, says female dog. rapher finds out how slippery language that the newly popular Twitter feed re- What is clear is just how often lexicog- can be. It constantly confounds prejudices flects the tone ofthe office: “wildly enthu- raphers must make hard calls about un- (includingthe lexicographers’ own) and re- siastic about language; jokey, friendly, but clear facts. The reader expecting august fuses to be pinned down. All dictionary- nobody’s fool”. That is the best way to go authority will be disturbed to find that it writers can do, in the end, is work hard to about language punditry generally. Stick- is not always clear even what part of describe how a word is used out in the ing relentlessly to facts doesn’t make you speech a word belongs to. “But” is usually world. If they tried to let their own perso- a drudge; much less does it make you a conjunction, yet Ms Stamper is not fully nal sense of right and wrong come into it, harmless. Facts can be subversive things. 88 Economic and financial indicators The Economist March 18th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % EconomicGross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ † † † † Statisticslatest on qtr*42 2017economies,latest latest 2017 rate, % months, $bn 2017 2017 bonds, latest Mar 15th year ago United Statesplus +1.9a closer Q4 +1.8look +2.3at employ- nil Jan +2.7 Feb +2.3 4.7 Feb -476.5 Q3 -2.8 -3.5 2.59 -- China +6.8 Q4 +7.0 +6.5 +6.3 Feb +0.8 Feb +2.3 4.0 Q4§ +210.3 Q4 +2.0 -4.1 3.06§§ 6.91 6.51 Japan ment+1.6 Q4 +1.2 +1.1 +3.7 Jan +0.5 Jan +0.8 3.0 Jan +186.5 Jan +3.6 -5.4 0.08 115 113 Britain +2.0 Q4 +2.9 +1.6 +3.2 Jan +1.8 Jan +2.6 4.7 Dec†† -138.1 Q3 -4.4 -4.0 1.24 0.82 0.71 Canada +1.9 Q4 +2.6 +1.9 +2.6 Dec +2.1 Jan +1.8 6.6 Feb -51.2 Q4 -2.8 -2.9 1.76 1.35 1.34 Euro area +1.7 Q4 +1.6 +1.6 +0.6 Jan +2.0 Feb +1.6 9.6 Jan +399.5 Dec +2.9 -1.7 0.41 0.94 0.90 Austria +1.7 Q4 +2.0 +1.5 +2.1 Dec +2.0 Jan +1.7 5.7 Jan +8.0 Q3 +2.6 -0.9 0.66 0.94 0.90 Belgium +1.2 Q4 +2.0 +1.3 +9.5 Dec +3.0 Feb +2.0 7.7 Jan +3.4 Sep +0.9 -2.7 0.89 0.94 0.90 France +1.2 Q4 +1.7 +1.3 -0.4 Jan +1.2 Feb +1.3 10.0 Jan -34.5 Jan‡ -0.9 -3.1 1.10 0.94 0.90 Germany +1.8 Q4 +1.7 +1.6 nil Jan +2.2 Feb +1.8 5.9 Feb +287.1 Jan +8.3 +0.5 0.41 0.94 0.90 Greece -1.4 Q4 -4.8 +1.2 +7.3 Jan +1.3 Feb +0.8 23.1 Dec -1.1 Dec -1.2 -6.4 7.33 0.94 0.90 Italy +1.0 Q4 +0.7 +0.8 -0.5 Jan +1.6 Feb +1.2 11.9 Jan +50.7 Dec +2.4 -2.4 2.30 0.94 0.90 Netherlands +2.3 Q4 +2.0 +1.9 +1.5 Jan +1.8 Feb +1.1 6.4 Jan +57.1 Q3 +8.4 -0.9 0.55 0.94 0.90 Spain +3.0 Q4 +2.8 +2.5 +7.2 Jan +3.0 Feb +2.2 18.2 Jan +24.6 Dec +1.5 -3.3 1.87 0.94 0.90 Czech Republic +1.9 Q4 +1.6 +2.5 +9.6 Jan +2.5 Feb +2.3 5.1 Feb§ +2.3 Q4 +0.7 -0.5 0.87 25.4 24.3 Denmark +1.9 Q4 +0.9 +1.3 +2.5 Jan +1.0 Feb +1.2 4.2 Jan +25.3 Jan +6.8 -1.9 0.71 6.99 6.71 Norway +1.8 Q4 +4.5 +1.8 +0.6 Jan +2.5 Feb +2.4 4.4 Dec‡‡ +18.1 Q4 +5.3 +2.8 1.81 8.60 8.55 Poland +3.2 Q4 +7.0 +3.2 +9.0 Jan +2.2 Feb +1.8 8.5 Feb§ -2.5 Dec -1.3 -3.2 3.75 4.06 3.87 Russia -0.4 Q3 na +1.4 +2.3 Jan +4.6 Feb +4.7 5.6 Jan§ +22.2 Q4 +2.8 -3.0 8.18 59.1 71.0 Sweden +2.3 Q4 +4.2 +2.4 +1.3 Jan +1.8 Feb +1.6 7.3 Jan§ +23.7 Q4 +4.9 -0.4 0.76 8.96 8.31 Switzerland +0.6 Q4 +0.3 +1.4 -1.2 Q4 +0.6 Feb +0.2 3.3 Feb +68.2 Q3 +9.6 +0.2 nil 1.01 0.99 Turkey -1.8 Q3 na +2.4 +4.2 Jan +10.1 Feb +8.8 12.7 Dec§ -33.2 Jan -3.4 -2.2 11.30 3.72 2.90 Australia +2.4 Q4 +4.4 +2.6 +1.0 Q4 +1.5 Q4 +2.1 5.9 Feb -33.1 Q4 -1.4 -1.8 2.92 1.32 1.34 Hong Kong +3.1 Q4 +4.8 +1.7 -0.7 Q4 +1.3 Jan +1.8 3.3 Jan‡‡ +13.6 Q3 +4.2 +0.9 1.94 7.77 7.76 India +7.0 Q4 +5.1 +7.2 +2.7 Jan +3.7 Feb +4.8 5.0 2015 -11.1 Q3 -1.1 -3.2 6.83 65.7 67.4 Indonesia +4.9 Q4 na +5.2 +4.5 Jan +3.8 Feb +4.2 5.6 Q3§ -16.3 Q4 -2.0 -2.1 7.28 13,364 13,178 Malaysia +4.5 Q4 na +4.4 +3.5 Jan +3.2 Jan +3.2 3.5 Dec§ +6.0 Q4 +3.1 -3.1 4.15 4.45 4.13 Pakistan +5.7 2016** na +5.2 +7.0 Dec +4.2 Feb +4.9 5.9 2015 -4.9 Q4 -1.7 -4.8 7.59††† 105 105 Philippines +6.6 Q4 +7.0 +6.4 +9.3 Jan +3.3 Feb +3.3 6.6 Q1§ +3.1 Sep +0.8 -2.6 5.10 50.4 46.8 Singapore +2.9 Q4 +12.3 +2.1 +2.2 Jan +0.6 Jan +1.1 2.2 Q4 +56.7 Q4 +19.3 -1.0 2.43 1.41 1.38 South Korea +2.3 Q4 +1.6 +2.5 +1.7 Jan +1.9 Feb +1.7 5.0 Feb§ +96.8 Jan +6.2 -1.0 2.27 1,144 1,188 Taiwan +2.9 Q4 +1.8 +1.8 +2.8 Jan nil Feb +2.1 3.8 Jan +70.9 Q4 +11.5 -0.7 1.20 30.9 32.8 Thailand +3.0 Q4 +1.7 +3.4 +1.3 Jan +1.4 Feb +1.3 1.2 Jan§ +46.4 Q4 +11.6 -2.0 2.73 35.2 35.1 Argentina -3.8 Q3 -0.9 +2.7 -2.5 Oct — *** — 8.5 Q3§ -15.7 Q3 -2.9 -4.1 na 15.6 14.6 Brazil -2.5 Q4 -3.4 +0.7 +1.4 Jan +4.8 Feb +4.5 12.6 Jan§ -23.8 Jan -1.6 -7.7 9.95 3.16 3.73 Chile +1.6 Q3 +2.5 +1.8 -0.9 Jan +2.7 Feb +3.0 6.2 Jan§‡‡ -4.8 Q3 -1.2 -2.1 4.33 668 686 Colombia +1.6 Q4 +4.0 +2.4 -0.2 Jan +5.2 Feb +4.2 11.7 Jan§ -12.5 Q4 -4.0 -2.8 6.99 2,971 3,178 Mexico +2.4 Q4 +2.9 +1.6 -0.1 Jan +4.9 Feb +4.9 3.6 Jan -27.9 Q4 -2.6 -2.5 7.33 19.4 17.9 Venezuela -8.8 Q4~ -6.2 -5.8 na na +652 7.3 Apr§ -17.8 Q3~ -1.3 -19.5 10.43 9.99 6.31 Egypt +4.5 Q2 na +3.8 +16.0 Jan +30.2 Feb +19.2 12.4 Q4§ -20.1 Q4 -4.7 -10.9 na 18.1 8.95 Israel +4.3 Q4 +6.5 +4.2 -1.2 Dec +0.4 Feb +0.7 4.3 Jan +12.4 Q4 +3.7 -2.4 2.30 3.65 3.90 Saudi Arabia +1.4 2016 na +0.8 na -0.4 Jan +2.0 5.6 2015 -46.8 Q3 -2.1 -7.3 na 3.75 3.75 South Africa +0.7 Q4 -0.3 +1.2 +0.5 Jan +6.6 Jan +5.7 26.5 Q4§ -12.3 Q3 -3.4 -3.1 8.66 13.0 15.9 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Jan 29.53%; year ago 30.79% †††Dollar-denominated bonds. The Economist March 18th 2017 Economic and ﬁnancial indicators 89

Markets % change on Employment outlook Balance of employers expecting an increase Dec 30th 2016 A survey from Manpower, an employ- or decrease in employment, percentage points Index in local in $ one ment-services ﬁrm, showed that in most 100+– 10203040 Markets Mar 15th week currency terms countries payrolls are expected to in- Taiwan United States (DJIA) 20,950.1 +0.5 +6.0 +6.0 crease in the second quarter of this year. China (SSEA) 3,394.6 nil +4.5 +5.0 Japan Japan (Nikkei 225) 19,577.4 +1.7 +2.4 +4.2 Taiwan’s labour market looks buoyant: Britain (FTSE 100) 7,368.6 +0.5 +3.2 +2.0 almost a third of employers surveyed say India Canada (S&P TSX) 15,520.9 +0.2 +1.5 +1.2 they expect to hire more people. Al- United States Euro area (FTSE Euro 100) 1,154.2 +0.8 +3.8 +4.6 though hiring expectations in India are Euro area (EURO STOXX 50) 3,409.3 +0.6 +3.6 +4.4 at their lowest since the third quarter of Australia Austria (ATX) 2,816.8 +0.1 +7.6 +8.4 2005, conﬁdence remains high relative to Germany Belgium (Bel 20) 3,759.8 +1.6 +4.3 +5.1 many other countries. A sense of uncer- France (CAC 40) 4,985.5 +0.5 +2.5 +3.3 tainty prevails among employers in Britain Germany (DAX)* 12,009.9 +0.4 +4.6 +5.4 China—nearly two-thirds say they don’t China Greece (Athex Comp) 633.0 -2.5 -1.7 -0.9 Italy (FTSE/MIB) 19,774.0 +1.5 +2.8 +3.6 know how their payrolls will change in the next quarter. Employers in recession-hit France Netherlands (AEX) 511.7 +1.8 +5.9 +6.7 nil Spain (Madrid SE) 1,006.2 +1.2 +6.6 +7.5 Brazil expect to shed more workers in the Italy Q2 2016 Czech Republic (PX) 979.2 +0.7 +6.2 +7.1 second quarter, but the labour market is Brazil Q2 2017 Denmark (OMXCB) 824.3 +1.4 +3.2 +4.1 stronger than it was a year ago. Source: Manpower Hungary (BUX) 32,636.2 +0.3 +2.0 +2.3 Norway (OSEAX) 769.0 +0.5 +0.6 +0.6 Poland (WIG) 59,109.2 +0.9 +14.2 +17.5 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,062.6 -3.2 -7.8 -7.8 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,588.9 +0.7 +4.7 +6.2 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 8,688.9 +0.7 +5.7 +6.6 Index one in local in $ Mar 7th Mar 14th* month year Turkey (BIST) 89,445.5 nil +14.5 +8.1 Mar 15th week currency terms Dollar Index Australia (All Ord.) 5,813.7 +0.2 +1.7 +8.6 United States (S&P 500) 2,385.3 +0.9 +6.5 +6.5 All Items 145.7 143.6 -4.7 +10.6 Hong Kong (Hang Seng) 23,792.9 nil +8.1 +7.9 United States (NAScomp) 5,900.1 +1.1 +9.6 +9.6 Food 155.5 153.3 -4.3 +1.8 India (BSE) 29,398.1 +1.7 +10.4 +14.1 China (SSEB, $ terms) 346.3 -0.2 +1.3 +1.3 Indonesia (JSX) 5,432.4 +0.7 +2.6 +3.4 Japan (Topix) 1,571.3 +1.4 +3.5 +5.2 Industrials Malaysia (KLSE) 1,717.4 -0.5 +4.6 +5.5 Europe (FTSEurofirst 300) 1,478.3 +0.6 +3.5 +4.3 All 135.6 133.5 -5.3 +23.5 Pakistan (KSE) 48,305.8 -2.9 +1.0 +0.6 World, dev'd (MSCI) 1,854.1 +1.1 +5.9 +5.9 Nfa† 146.4 142.4 -5.7 +26.7 Singapore (STI) 3,137.4 -0.2 +8.9 +11.4 Emerging markets (MSCI) 943.5 +0.9 +9.4 +9.4 Metals 130.9 129.7 -5.1 +22.0 South Korea (KOSPI) 2,133.0 +1.8 +5.3 +11.2 World, all (MSCI) 448.2 +1.0 +6.2 +6.2 Sterling Index Taiwan (TWI) 9,740.3 -0.1 +5.3 +9.9 World bonds (Citigroup) 883.5 +0.4 nil nil All items 216.3 214.6 -2.4 +28.8 Thailand (SET) 1,540.8 -0.7 -0.1 +1.5 EMBI+ (JPMorgan) 791.1 -0.2 +2.5 +2.5 Argentina (MERV) 19,368.4 +0.7 +14.5 +16.5 Hedge funds (HFRX) 1,219.8§ -0.2 +1.4 +1.4 Euro Index Brazil (BVSP) 66,234.8 +2.3 +10.0 +13.3 Volatility, US (VIX) 11.6 +11.9 +14.0 (levels) All items 171.0 167.7 -5.5 +15.5 Chile (IGPA) 22,850.0 +1.8 +10.2 +10.4 CDSs, Eur (iTRAXX)† 72.3 +0.7 +0.2 +1.0 Gold Colombia (IGBC) 9,886.9 +0.5 -2.2 -1.2 CDSs, N Am (CDX)† 63.0 -1.2 -7.0 -7.0 $ per oz 1,218.9 1,206.6 -1.6 -3.7 Mexico (IPC) 47,470.3 -0.1 +4.0 +10.1 Carbon trading (EU ETS) € 5.2 +1.0 -21.0 -20.4 West Texas Intermediate Venezuela (IBC) 37,640.5 +0.1 +18.7 na Sources: Markit; Thomson Reuters. *Total return index. $ per barrel 53.1 47.7 -10.3 +30.7 Egypt (EGX 30) 12,745.5 +0.1 +3.2 +3.1 †Credit-default-swap spreads, basis points. §Mar 14th. Israel (TA-100) 1,279.8 -0.1 +0.2 +5.8 Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Saudi Arabia (Tadawul) 6,835.8 -1.9 -5.6 -5.5 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 51,701.6 +0.8 +2.1 +7.1 series, go to: Economist.com/indicators †Non-food agriculturals. 90 Obituary Gustav Metzger The Economist March 18th 2017

ually morphing into a mushroom cloud. The roots of all this lay in his first 12 years. He had spent them as a Jewish boy in Nuremberg, the city of Nazi rallies, where the polished parading grew more menacing each year. As his rejection of militarism grew, he found refuge in the forests round the city: Nature against the forces of destruction. Spirited away in the Kindertransport in 1939, while most of his family were killed in Buchenwald, he became a stateless person, wandering round England while filling his brain with Trot- sky. He would be a roving revolutionary, he thought. The thought persisted; he remained stateless, never married, tended to vanish, had no telephone, carted round carrier bags full of papers, and with his straggly beard and bald head could well be taken for an anarchist, or a Bolshevik. The art establishment largely ignored him until the mid-1990s, when hisworkbe- gan to seem influential. To him the art market was the sworn enemy, a place where modernism was manipulated for profit. In 1974 he called for an artists’ strike, and in 1977 stopped working or promoting his workforthree years. No one joined him. In Art as weapon 2007 he demanded that artists should stop flying to biennales abroad. Though he had often depended on private shows and supporters himself, it was uncomfortable. As a last-minute, desperate, subversive act against human stupidity and cruelty, art had to be public. Everyone had to see it. Gustav Metzger, inventorofauto-destructive art, died on March 1st, aged 90 He was one of the first to try art with N A puffy bomber-jacket and a gas mask, he insisted, whatever the many scoffers computers, but soon fell out with them. IGustav Metzger started on his workof art said, that it was not just about destruction. Cybernetics interested him more. One of on London’s South Bank in 1961. He had It was also about creating ideas beyond the his last works involved a robot taking in- written out his own terse orders: “Acid ac- chaosof“the obscene present”. Hisacid ac- structions from electrical readings in his tion painting. Height 7ft. Length 12ft. 6in. tion painting, for example, had revealed brain; the robotbored a neathole in a block Depth 6ft. Materials: nylon, hydrochloric through the shredded canvases (in anar- of stone. This intrigued him, because he acid, metal. Technique. 3 nylon canvasses chy’scolours) newviewsofStPaul’s. “Con- was increasingly concerned by the void, coloured white black red are arranged be- struction with glass” had made new pat- physical and mental, that could follow de- hind each other, in this order. Acid is paint- terns from random breakages. Through the struction. He fretted that, because of pollu- ed, flung and sprayed onto the nylon 1960s and 1970s he worked with heat-sen- tion and development, children and artists which corrodes at point of contact within sitive liquid crystals and compressed air, of the future would not know forests as he 15 seconds.” That was it. The small curious showinghow dissolution and fresh forma- had done. They would not even have the crowd then dispersed, reminded—he tions existed side by side. memory to comfort or inspire them. hoped—of the transience of art and the That said, there was a lot of anger in mindless violence ofman. him. His soft German accent did not sug- Memory and shock Even simpler was “Construction with gest it, but his eyes burned. He was furious To battle this not-knowing he produced glass”. “Materials: glass, metal, adhesive at consumerism, capitalism, governments, two particular works. “Flailing Trees” fea- tape. Technique. The glass sheets suspend- scientists, economists and all war-makers. tured 21 willows stuck in concrete upside ed by adhesive tape fall on to the concrete He hated man’s despoiling of the planet down, their dead roots screaming ecologi- ground in a pre-arranged sequence.” (hence much work with cardboard, rub- cal disaster. “Historic Photographs” was a Crash, the end. His dreams were longer- bish and found objects) and despaired at series ofover-familiar images ofdeath and term, though. He would get large, thin steel the threat of nuclear obliteration. Against war, each one hidden behind a curtain, sheetsmade in a factory, then installed out- all this he had tried civil disobedience, wooden slats ora steel plate. One image, of side where, over ten years, they would rust joining the anti-nuclear movement in the Jewson theirkneesscrubbingthe streets of away. Or he would build a structure of late 1950s and going to prison for it, but at Vienna, could be seen only by crawling 10,000 geometric forms from which, con- the same time—influenced by his artist- over it. Another, of the ramp at Auschwitz, tinuously, one form would be removed… teacher David Bomberg—he was realising was so enlarged that the viewer was left, Art that consumed itself, auto-destruc- thatartitselfcould be a social force. Itcould like the new arrivals, fearful and confused. tive as he called it, was his own idea. It led be a way of fighting, perhaps now the only He meant the images to shock and chal- on to an outbreak of performance art that one dissenting humans had. The last paint- lenge all over again: as if the public, like is still lively, as well as to the briefer punk ings he did, before he turned to sharper him, had passed through pain themselves, fashion for smashing guitars onstage. But materials, were of a household table grad- rather than through art. 7