What It Is, and Why It Is Dangerous Trumponomics

Moonrise in South Korea

The firing of James Comey

Emmanuel Macron’s mission

The market for childbearing MAY 13TH–19TH 2017

What it is, and why it is dangerous Trumponomics

Contents The Economist May 13th 2017 3

5 The world this week United States 27 Trump and the FBI Leaders The hand that made him 7 The Trump presidency 28 Special prosecutors Courting trouble Starry night 8 Sacking James Comey 28 Opioids You’re fired! A selective scourge 8 India’s economy 30 Lexington State of disrepair Palace whispers 9 Surrogacy The sacking of James Comey The gift of life The Americas Links between the Trump 10 France’s president 31 Gangs in Mexico campaign and Russia should Macron’s mission Crime’s new geography be investigated by an On the cover 32 Bello independent commission: The impulsiveness and Letters Venezuela is not an island leader, page 8. Donald Trump’s shallowness of America’s move against the FBI director 12 On bonds, birds, sea 33 Cuba president threatens the was either incompetent or levels, central banks, Cash for clunkers economy as well as the rule of malign, page 27. Even quantum computing, 33 Argentina law: leader, page 7. The Republican senators look at Mr split infinitives Judging the dirty war administration’s economic Trump and despair: Lexington, strategy is good in parts, but page 30 unimaginative and Briefing Middle East and Africa incoherent, page 14. Donald 14 Trumponomics 35 Iran Trump promises expensive Home-cooked policies Rouhani under fire tax cuts, an investment 36 Egypt’s economy boom and a smaller trade 16 In his own words Opening for business deficit. He can’t have all What he wants three, page 16. Excerpts from 16 The Trump trilemma 37 Israeli politics our interview, page 16 You can’t always get what The generals make way you want 37 Egypt’s zoos 18 Reassessing global trade No place for animals The Economist online Make his day 38 Namibia and Germany Daily analysis and opinion to Salt in old wounds supplement the print edition, plus Asia Macron’s mission France’s audio and video, and a daily chart 19 South Korean politics Europe Economist.com new president promises From dissident to 39 President Macron reform from the centre. The E-mail: newsletters and president Marchons, marchons! challenge is immense, but he mobile edition 20 The war in Afghanistan deserves to succeed: leader, Economist.com/email 41 Polling errors About-face Undercounting centrists page 10. The improbable, Print edition: available online by inescapable quest to reform 21 Chinese Indonesians 42 Muckraking in Malta 7pm London time each Thursday Sent down France, page 39. Why did polls Economist.com/print Shady island sell Macron short? Page 41. 21 House prices in Australia Audio edition: available online 42 English in the EU Can he revive the Franco- Shuttered dreams to download each Friday Lingua franca German engine? Charlemagne, Economist.com/audioedition 22 Commemorating Shivaji 43 The new Europhiles page 44 The highest praise Who loves EU, baby 24 Banyan 44 Charlemagne Resisting the Philippines’ Germany and Macron-mania war on drugs

Volume 423 Number 9040 Britain China 45 Scotland Published since September 1843 25 Health care Uniting the clans to take part in "a severe contest between Wanted: family doctors intelligence, which presses forward, and 46 Welsh politics an unworthy, timid ignorance obstructing 26 Migrants’ woes Independents’ day our progress." A literary sensation Editorial oﬃces in London and also: 48 Bagehot Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Why Marx still matters Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, Why Marx still matters The São Paulo, Seoul, Shanghai, Singapore, Tokyo, Labour leadership is right— Washington DC Karl Marx has a lot to teach Britain: Bagehot, page 48

1 Contents continues overleaf 4 Contents The Economist May 13th 2017

International Science and technology 49 Surrogacy 66 Artificial intelligence Help wanted Shall we play a game? 68 New materials Business The lotus position 53 Middle Eastern airlines 68 Violins Missed connection Debranding 54 EB-5 visas Citizen Kushner Books and arts 55 Sinclair Broadcast 69 Fabled places The collapse of retailing The AI and video games Why A signal event The dream beyond the decline of established ways of researchers into artificial desert shopping is a threat to workers 55 Business advice intelligence are so keen on and investors, pages 58-60 A general’s wisdom 70 The maths of life video games, page 66 56 A tale of two tech hubs Mr Big Silicon Valley North 70 Memoirs 57 Schumpeter Neurosurgeon, reveal Subscription service Warding off activists thyself For our full range of subscription offers, including digital only or print and digital 72 Johnson combined visit Hit and misspeak Economist.com/offers Briefing You can subscribe or renew your subscription 73 Britain’s Olympic by mail, telephone or fax at the details below: 58 American retailing athletes Telephone: +65 6534 5166 Sorry, we’re closed Facsimile: +65 6534 5066 What price victory? Web: Economist.com/offers 73 Art and artists in Africa E-mail: [email protected] Finance and economics The next big thing Post: The Economist Subscription Centre, 61 India’s economy Tanjong Pagar Post Office India’s finances Unless it Spendthrift states PO Box 671 76 Economic and financial Singapore 910817 reins in spendthrift states, 62 Buttonwood indicators Subscription for 1 year (51 issues)Print only India will eventually suffer a Fund managers under Statistics on 42 economies, Australia A$465 fiscal crisis: leader, page 8. pressure China CNY 2,300 plus a closer look at Hong Kong & Macau HK$2,300 States are on a borrowing 63 Clearing-houses commodity prices India 10,000 spree of the kind that rarely Japan Yen 44,300 The Brexit effect Korea KRW 375,000 ends well, page 61 Malaysia RM 780 63 Africa’s economy Obituary New Zealand NZ$530 Dispensing with Singapore & Brunei S$425 78 Ueli Steck Taiwan NT$9,000 informalities Highest, fastest Thailand US$300 64 China’s economy Other countries Contact us as above In the name of GDP

64 Crowd-sourcing Principal commercial oﬃces: The wisdom of the herd 25 St James’s Street, London sw1a 1hg 65 Free exchange Tel: +44 20 7830 7000 William Baumol Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: +4122 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 Surrogacy Carrying a child for 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong someone else should be Tel: +852 2585 3888 celebrated—and paid for: leader, page 9. Even as Other commercial oﬃces: Chicago, Dubai, Frankfurt, Los Angeles, demand for surrogacy soars, Paris, San Francisco and Singapore more countries are trying to ban it, page 49

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offshoot ofthe Turkish Kurdish invoke the Koran to argue that home at the expense ofthe Politics party, the PKK, which both it Muslims should never vote for opposition Labour Party and and America regard as a terro- a Christian like him. In Aceh, a Liberal Democrats. Now that it rist organisation. semi-autonomous region, a has achieved its aim ofBrexit sharia court sentenced two gay the UK Independence Party A Russian plan for four men to 100 lashes. was almost wiped out, as its “de-escalation zones” in Syria supporters switched to the came into effect. Fighting has A Chinese human-rights Tories. It was a thumping result continued in the areas, but at a lawyer, Xie Yang, pleaded forthe party, but projections lower level. Rebels seeking to guilty to inciting subversion. At based on the results imply that topple the regime ofPresident his trial, he also denied reports the Tories’ current opinion- Bashar al-Assad refused to sign that he had been tortured by poll lead may be overstated the agreement. police. Mr Xie was arrested in when it comes to the general 2015 during a sweeping crack- election on June 8th. Tunisia’s president sent the down on legal activists. army to protect the country’s The youth of today James Comey was sacked as phosphate, gas and oil facilities Socialist realism director ofthe FBI by Donald after protests that threatened Venezuela’s health ministry Trump, taking Washington, to disrupt them broke out in reported that maternal mortal- and Mr Comey, completely by the south ofthe country. ity jumped by 65% in 2016 and surprise. Mr Trump acted on that the number ofinfant the advice ofthe attorney- deaths rose by 30%. It also said general, JeffSessions, who that the number ofcases of decided that Mr Comey had malaria was up by 76%. The botched the FBI’s probe into ministry had not reported Hillary Clinton’s private health data in two years. Vene- e-mails last year. At the time zuela is suffering from short- Mr Trump had praised Mr ages offood and medicines. Comey, but that was before he started investigating links The ELN, a guerrilla group, Emmanuel Macron won the between the Trump campaign kidnapped eight people in run-offin the French presi- and Russia. Democrats, and Chocó Department in western dential election with 66% of others, called forthe appoint- Colombia but later released the vote, beating the ment ofa special prosecutor. In Nigeria 82 ofthe 276 girls them. Juan Manuel Santos, the nationalist, Marine Le Pen. The kidnapped three years ago by president, attributed their 39-year-old formereconomy Sergey Lavrov, Russia’s foreign Boko Haram, a jihadist group, release to pressure from the minister had never run for minister, visited the White were released. Several impris- security forces. The govern- office before and was not House forthe first time since oned militants were handed ment has been negotiating a regarded as a contender a year Mr Trump’selection. Their over in exchange. More than 113 peace agreement with the ELN ago. His victory was a partic- meeting in the Oval Office was ofthe girls are still thought to since February. ular reliefto the EU. YetMsLe private, except forthe presence be missing. Pen nearly doubled the share ofa photographer from TASS, Perry Christie lost his bid for ofthe vote that her father the Russian news agency. Moon shines re-election as prime minister achieved in 2002. South Koreans elected Moon ofthe Bahamas in a surprising Mr Trump urged the Senate not Jae-in as president by a wide landslide victory for the oppo- More than 200 migrants to “let the American people margin in a crowded field. Mr sition Free National Move- drowned offthe coast ofLibya, down”, after the House of Moon, a formerleader ofthe ment party. Hubert Minnis, the adding to the 1,300 people Representatives passed a liberal Minjoo party, has prom- new prime minister, cam- who had already died or dis- health-care bill that disman- ised a more emollient ap- paigned against alleged cor- appeared in the Mediterra- tles large parts ofObamacare. proach to North Korea, putting ruption in Mr Christie’s nean this year. Meanwhile, the Fearful ofa potential public him at odds with America’s Progressive Liberals. European Court ofJustice backlash about the removal of policy under Donald Trump. began hearing a case brought some ofthe popular elements Christy Clarkwas re-elected as by Hungary and Slovakia ofObamacare, such as insur- Mr Trump’sadvisers sub- premier ofBritish Columbia, a against the EU’s relocation of ance forpre-existing condi- mitted a plan to deploy an province in western Canada, migrants based on quotas. tions, senators are in no hurry extra 5,000 soldiers in Afghan- but initial results suggest that to pass the bill and may end up istan. Afghan government her Liberal Party may not have Angela Merkel, the German draftingtheir own legislation. forces have been losing ground won a majority and will need chancellor, received a further, to Taliban insurgents since the support ofthe Green Party. and unexpected, boost, when Friends and enemies NATO began scaling backits her Christian Democratic America said it would send mission in the country in 2011. A harbinger Union party won decisively in arms to the YPG, a Kurdish Britain’s local elections, held a state election in Schleswig- militia group operating in A court in Indonesia sen- on May 4th, delivered a size- Holstein. It was the second northern Syria, so it could fight tenced Basuki Tjahaja able increase in the number of consecutive loss for Mrs Mer- more effectively against Purnama, the outgoing go- council seats held by the ruling kel’s current coalition partners, Islamic State. Turkey de- vernor ofJakarta, to two years’ Conservative Party. Gaining the Social Democrats, after nounced the move, because it imprisonment forblasphemy. 563 seats and taking control of another state, Saarland, voted considers the group to be an He had criticised people who 11councils, the Toriesromped forthe CDU in March. 1 6 The world this week The Economist May 13th 2017

to a national parliament by the which was introduced as a social networkmade a net loss Business president ofthe European result ofthe conflict in Ukraine of$2.2bn, but investors homed Central Bank. Along with their in 2014. The EBRD was created in on signs that the rate at AkzoNobel, a Dutch maker of German counterparts, Dutch in 1991to help post-Soviet which new users sign up is paints and coatings, rejected a politicians have been the most countries make the transition slowing: it had 166m daily third informal takeover offer, vocal critics ofthe ECB’s mone- to democracy. Russia claims users in the first quarter, up by worth €26.9bn ($28.8bn), from tary stimulus, which, they say, the ban on investment is affect- 5% from the previous quarter. PPG, an American rival. That helps profligate countries in ing the whole economy and prompted Elliott Advisors, a the euro zone at the expense of breaches EBRD rules. In a deal that consolidates its hedge fund with a 3% stake in banks and savers in more already tight grip on local Akzo, to start legal proceedings frugal ones. Oil prices recouped some of broadcasting in America, to force the company to call an their recent losses. After falling Sinclair, which owns173 extraordinary meeting of by 6% in the space ofa weekto television stations, agreed to shareholders, at which Elliott Greece a five-month low, Brent crude buy Tribune Media, which will try to oust Akzo’s chair- Ten-year government-bond yields, % rose to over $50 a barrel. Prices owns 42, including WGN man. Elliott wants Akzo at least 50 were boosted in part by com- America, a national network PPG to talkto , arguing that its 40 ments from the Russian and based in Chicago. The Federal decision not to is a “flagrant Saudi energy ministers about Communications Commis- 30 breach” ofits fiduciary duties. the possibility ofextending a sion recently relaxed the rules But Akzo is governed by a 20 deal that cuts oil production. on the ownership oflocal foundation that makes it al- 10 stations. Some thinkthe $3.9bn most impossible for share- 0 Appealing Apple deal will concentrate too much holders to turfout the board. 2012 13 14 15 16 17 Apple’s market capitalisation power in one broadcaster. Source: Thomson Reuters rose to over $800bn forthe first Whole Foods replaced its A rally in Greek government time. The company’s share You couldn’t make it up chairman and chieffinancial debt continued, with the yield price is up by 32% since the Bill Clinton is to make a foray officer, a month after an activ- on the benchmarkten-year start ofthe year, buoyed in part into fiction by writing a novel ist hedge-fund revealed that it bond falling to 5.5%, the lowest by renewed investor interest in with the help ofJames Pat- had accumulated a 9% stake in since its debt restructuring in the tech industry amid doubts terson, a bestselling author. the retailer and called for a 2012. The government recently that boosts to the banking and Unusually, the bookwill be shake-up in management. The agreed to a series ofreforms in manufacturing sectors prom- sold by the two publishers company named several new order to unlockthe latest ised by Donald Trump will that represent Messrs Clinton people to the board, including tranche ofloans under the come to fruition. The tech- and Patterson. Titled “The the founderofPanera Breads, a rescue package agreed with heavy NASDAQ stockmarket President is Missing” it is due in rising bakery chain. international creditors. index reached another high the shops next year. Whether it this week. will be as wild as the real-life Rapped on the knuckles The European Bank for intrigue in the White House Jes Staley, the chiefexecutive Reconstruction and Devel- The first quarterly earnings remains to be seen. ofBarclays, was confronted by opment flatly rejected a plea report from Snap since it be- angry shareholders at the by Russia to end its freeze on came a publicly listed com- Other economic data and news British bank’s annual general investment in the country, pany failed to impress. The can be found on pages 76-77 meeting over his attempt to unmaskan internal whistle- blower. Mr Staley has been reprimanded by the board over his lapse ofjudgment, but the chairman, John McFarlane, gave him his full support at the AGM, promising that Mr Staley has learned his lesson.

Commerzbank reported net income of€217m ($231m) for the ﬁrst quarter. That was better than the proﬁt it made in the equivalent period last year, mostly because ofan improvement in the division that handles unwanted assets. Ger- many’s second-biggest lender described Europe’s negative interest rates as a “burden” that hampers its fortunes.

Mario Draghi defended negative rates in a speech to the legislative assembly in the Netherlands. It was a rare trip Leaders The Economist May 13th 2017 7 Courting trouble

The impulsiveness and shallowness ofAmerica’s president threaten the economy as well as the rule oflaw ONALD TRUMP rules over sequences, fiscal indiscipline and potential cronyism. And it DWashington as if he were a makesclearwhybusinessmen and investorshave been enthu- king and the White House his siastic, seeing it as a shot in the arm for those who take risks court. His displays of dom- and seekprofits. Stockmarkets are close to record highs and in- inance, his need to be the centre dices ofbusiness confidence have soared. of attention and his impetuous- In the short term that confidence could prove self-fulfilling. ness have a whiff of Henry VIII America can bully Canada and Mexico, into renegotiating about them. Fortified by his be- NAFTA. For all their sermons about fiscal prudence, Republi- liefthat his extraordinary route to power is proofof the collec- cans in Congress are unlikely to deny MrTrump a taxcut. Stim- tive mediocrity of Congress, the bureaucracy and the media, ulus and rule-slashing may lead to faster growth. And with in- he attacks any person and any idea standing in his way. flation still quiescent, the Federal Reserve might not choke that Just how much trouble that can cause was on sensational growth with sharply higher interest rates. display this week, with his sacking of James Comey—only the Unleashing pent-up energy would be welcome, but Mr second director of the FBI to have been kicked out. Mr Comey Trump’s agenda comes with two dangers. The economic as- has made mistakes and Mr Trump was within his rights. But sumptions implicit in it are internally inconsistent. And they the president has succeeded only in drawingattention to ques- are based on a picture of America’s economy that is decades tions about his links to Russia and his contempt for the norms out of date. designed to hold would-be kings in check(see next leader). Contrary to the Trump team’s assertions, there is little evi- Justasdangerous, and no lessimportantto ordinary Ameri- dence that either the global trading system or individual trade cans, however, is Mr Trump’s plan forthe economy. It treats or- deals have been systematically biased against America (see thodoxy, accuracy and consistency as ifthey were simply to be page 18). Instead, America’s trade deficit—Mr Trump’s main negotiated away in a series ofearth-shatteringdeals. Although gauge of the unfairness of trade deals—is better understood as Trumponomics could stoke a mini-boom, it, too, poses dan- the gap between how much Americans save and how much gers to America and the world. they invest (see page 16). The fine print of trade deals is all but irrelevant. Textbooks predict that Mr Trump’s plans to boost Trumponomics 101 domestic investment will probably lead to largertrade deficits, In an interview with this newspaper, the president gave his as it did in the Reagan boom of the 1980s. If so, Mr Trump will most extensive description yet of what he wants for the econ- either need to abandon his measure offairtrade or, more dam- omy (see page 14). His target is to ensure that more Americans agingly, try to curb deficits by using protectionist tariffs that have well-paid jobs by raising the growth rate. His advisers will hurt growth and sow mistrust around the world. talk of 3% GDP growth—a full percentage point higher than A deeper problem is that Trumponomics draws on a blink- what most economists believe is today’s sustainable pace. ered view of America’s economy. Mr Trump and his advisers In Mr Trump’smind the most important path to better jobs are obsessed with the effect of trade on manufacturing jobs, and faster growth is through fairer trade deals. Though he even though manufacturing employs only 8.5% of America’s claimshe isa free-trader, provided the rulesare fair, hisoutlook workers and accounts for only 12% of GDP. Service industries is squarely that of an economic nationalist. Trade is fair when barely seem to register. This blinds Trumponomics to today’s trade flows are balanced. Firms should be rewarded for invest- biggest economic worry: the turbulence being created by new ing at home and punished forinvesting abroad. technologies. Yet technology, not trade, is ravaging American The second and third strands of Trumponomics, tax cuts retailing, an industry that employs more people than manu- and deregulation, will encourage that domestic investment. facturing (see page 58). And economic nationalism will speed Lowertaxes and fewerrules will fire up entrepreneurs, leading automation: firms unable to outsource jobs to Mexico will stay to faster growth and better jobs. This is standard supply-side competitive by investing in machines at home. Productivity economics, but to see Trumponomics as a rehash of Republi- and profits may rise, but this may not help the less-skilled fac- can orthodoxy is a mistake—and not only because its eco- tory workers who Mr Trump claims are his priority. nomic nationalism is a departure for a party that has champi- oned free trade. The bite behind the bark The real difference is that Trumponomics (unlike, say, Trumponomics is a poor recipe for long-term prosperity. Reaganomics) is not an economic doctrine at all. It is best seen America will end up more indebted and more unequal. It will as a set of proposals put together by businessmen courtiers for neglect the real issues, such as how to retrain hardworking their king. Mr Trump has listened to scores of executives, but people whose skills are becoming redundant. Worse, when there are barely any economists in the White House. His ap- the contradictions become apparent, Mr Trump’s economic proach to the economy is born of a mindset where deals have nationalism may become fiercer, leading to backlashes in oth- winners and losers and where canny negotiators confound er countries—further stoking anger in America. Even if it pro- abstract principles. Call it boardroom capitalism. duces a short-lived burst of growth, Trumponomics offers no That Trumponomics is a business wishlist helps explain lasting remedy forAmerica’s economic ills. It may yet pave the why critics on the lefthave laid into its poordistributional conway forsomething worse. 7 8 Leaders The Economist May 13th 2017

The sacking of James Comey You’re ﬁred!

Links between the Trump campaign and Russia should be investigated by an independent commission T MUST have seemed like a to do the bidding of the White House. The attorney-general, Igood idea at the time. Why not Jeff Sessions, who gave misleading testimony about his con- get rid of an irksomely indepen- tacts with Russia’s ambassador, has similarly recused himself. dent FBI director, who was mak- Mike Flynn had to quit as national security adviser after lying ing trouble for Donald Trump’s about his dealings with the Russians. Mr Comey’s defenestra- White House, by exploiting his tion just as he was asking Mr Rosenstein for more resources to mishandling of Hillary Clin- lookinto Russia only fuels suspicions ofa cover-up. ton’s e-mails? After all, Mrs Clin- IfMr Trump is lashing out at an uppity underling, that too is ton believes that James Comey cost her the presidency with a a bad sign. It suggests the president does not respect the vital letter informing Congress in October that he was reopening principle of an independent, non-political FBI—which, for all the investigation into her use of a private e-mail server. Surely his faults, MrComey represented. Taken with the contempt Mr Democrats would be glad to see the backofhim. Trump has shown for judges who challenge his executive or- Mr Trump has the power to sack Mr Comey. But nobody ders, America’s system ofchecks and balances is under stress. will be fooled by the quasi-prosecutorial memo drawn up by Some, including Chuck Schumer, the Senate’s top Demo- the deputy attorney-general, Rod Rosenstein, at the president’s crat, have called foran independentcounsel to continue the in- request. If the trouble were Mr Comey’s handling of Mrs Clin- vestigation. But there is a problem. It would be the now-com- ton’s e-mails, he could have been sacked four months ago. In- promised Mr Rosenstein who would be responsible for deed, Mr Trump had praised Mr Comey’s October letter, say- making the appointment and foroversight ofwhat followed. ing it had taken “a lot ofguts”. That leaves two interpretations (see page 27). Either Mr Co- Country first mey was dismissed in an effort to undermine an investigation Congress must now uphold constitutional norms. Any succes- into collusion between members of Mr Trump’s campaign sor to Mr Comey nominated by the president must face the and Russians trying to subvert the election. Or Mr Trump got most rigorous examination of their impartiality. But that will rid of him in a fit of pique. Maybe Mr Comey was just too big not be enough. What is needed is either an independent com- forhis boots, too unwillingto take the president’s paranoid no- mission, along the lines of the one set up to inquire into the tions seriously—say, by failing to credit his idea that Barack events leading up to September11th 2001, or a bipartisan select Obama had ordered a wiretap ofTrump Tower. Eitherway, the committee to investigate the Russia allegations. Neither would sacking ofMr Comey reflects terribly on Mr Trump. have prosecutorial powers, but they could have substantial in- There is as yet no proof that aides close to Mr Trump were vestigatory resources and be able to subpoena witnesses. conspiring with Russian intelligence agents. But officials and There is no reason why prosecutions could not follow once the president’s toadies in Congress, such as Devin Nunes, they had reported. Principled Senate Republicans, such as chairman ofthe House Intelligence Committee, have behaved Richard Burr, Ben Sasse and John McCain, are troubled by as if there was something to hide. Mr Nunes had to withdraw what the removal of Mr Comey portends. It is high time for from his committee’s investigation after appearing desperate them and others to put their country before their party. 7

India’s economy State of disrepair

Unless India reins in its spendthriftstates, it will eventually suffera fiscal crisis NY amount of parental invest their depositors’ money in them, it has unwittingly India, budget deficit Ascrimping and saving is fu- created the conditions for a future fiscal debacle (see page 61). % of GDP tile if the children run amok India can change course cheaply now—or expensively later. Central State 0 – with the family credit card. For India’s states used to be the epitome of fiscal rectitude. It 2 years, the government of India was the central government that wrecked India’s credit score— 4 6 has tightened its belt, cutting its its bonds are rated BBB-, one notch above “junk”. But stagnat- 8 annual budget deficit from 5% of ing revenues and higher spending have pushed the states’ 2013 14 15 16 17 est. GDP in 2013 to nearer 3% now. combined deficits to their highest in 13 years. They now spend But its parsimony has been matched by the profligacy of In- more than the central government—and not always wisely. dia’s 29 states. They have spent nearly all the money saved, Civil servantsare in line forwhoppingpay rises. The newchief leaving the country’s public finances no better off. minister of Uttar Pradesh, a state with some 220m people, The central government has only itself to blame. By implic- wants to waive the repayment of loans to farmers, a ruinous itly guaranteeing bonds issued by states, and forcing banks to policy, which if copied elsewhere, would increase the com-1 The Economist May 13th 2017 Leaders 9

2 bined federal and state deficit by 2% ofGDP. ever, persuading investors that it does not exist is never easy. Usually, politicians would be deterred from such largesse One option would be to say explicitly that state bond issues by bond-market vigilantes, who would make wild borrowing are not guaranteed. Unfortunately, the political costs of not unaffordable. But in India state bonds are issued by the central bailing out a struggling state are such that a promise never to bank and carry an implicit central-government guarantee. intervene lacks credibility. Anothertack would be to make the Much as Portugal orGreece overborrowed a decade ago, when guarantee explicit but limited, up to an authorised threshold; they were paying almost the same interest rate as Germany (it that might inject enough political plausibility to make any ad- did not end well), so Indian states have access to the same ditional borrowing more expensive. Simpler still, states could cheap financing regardless ofthe condition oftheir books. be forced to pay the central government for a guarantee, with Indian states are meant to keep their budget deficits below the least creditworthy paying most. 3% of GDP. But this rule is often trumped by political expedi- ency. Worse, states have a captive market for their debt: Indian Crowding out banks have to redirect a fifth of their deposits into buying cen- More fundamentally, India’s banks and pension funds should tral- or state-government bonds. Authorities also lean on pub- have much greater freedom to pickinvestments. As well as the licpension fundsand insurance companiesto buystate bonds. deposit requirements, the authorities routinely nudge public With financing so abundant, why balance the books? pension funds and insurers to invest in specific bonds. Giving Financial crises often start with borrowers who have over- investors more choice overwhere to put theircash, and forcing extended themselves because their lenders assume someone states to borrow on the strength of their own balance-sheets, will bail them out. India should act now to prevent a future would cause some fiscal tightening. But the reckoning will be crash by imposing more discipline on state borrowing, and by bigger and messier if states keep living beyond their means. It pressing markets to discriminate between states with sustain- is time to signal that they bear responsibility for their own bor- able finances and those on the path to bankruptcy. rowing, and to end the perverse incentives that encourage Once a central-government guarantee is assumed, how- them to dig themselves ever deeper into debt. 7

Surrogacy The gift of life

Carrying a child forsomeone else should be celebrated—and paid for HE earliest known descrip- to complete their newly recognised families. And just as more Ttion of surrogacy is an ugly women are becoming single parents with the help of sperm biblical story: in Genesis, the donation, more men are seeking to do so through surrogates. childless Sara sends her hus- The modern version of surrogacy is nothing like the tale of band to bed with her maid- Sara and Hagar. Nowadays, surrogatesrarelycarrybabies who servant, Hagar, and takes the are genetically related to them, instead using embryos created child as her own. It is this ex- in vitro with eggs and sperm from the commissioning parents, ploitative version of surrogacy or from donors. They almost never change their minds about that still shapes attitudes and laws today. Many countries ban handing over the baby. On the rare occasions that a deal fails, it it outright, convinced that the surrogate is bound to be is because the commissioning parents pull out. harmed, no matter whether she consents. Others allow it, but A modern surrogacy law should recognise those intending ban payment. Except in a few places, including Greece, Uk- to form a family as the legal parents. To protect the surrogate, it raine and a few American states, the commissioning parents should demand that she obtain a doctor’s all-clear and enjoy have no legal standing before the birth; even if the child is ge- good medical care. And to avoid disputes, both parties should netically theirs, the surrogate can change her mind and keep sign a detailed contract that can be enforced in the courts, set- the baby. Several developing countries popular with foreign- ting out in advance what they will do if the fetus is disabled, ers in need ofa surrogate have started to turn them away. the surrogate falls ill or the commissioning parents break up. These restrictions are harmful. By pushing surrogacy to the legal fringes, they make it both more dangerous and more cost- Emotional labour ly, and create legal uncertainty for all, especially the newborn Laws should also let the surrogate be paid. Women who be- baby who may be deemed parentless and taken into care. In- come surrogates generally take great satisfaction in helping stead, giving the gift of parenthood to those who cannot have someone become a parent. But plenty ofjobs oﬀerrewards be- it should be celebrated—and regulated sensibly. yond money, and no one suggests they should therefore be Getting surrogacy right matters more than ever, since de- done fornothing. The factthata surrogate in India or Nepal can mand is rising (see page 49). That is partly because fewer chil- earn the equivalent often years’ wages by carryinga child fora dren are available for adoption, and partly because ideas rich foreigner is a consequence of global inequality, not its about what constitutes a family have become more liberal. cause. Banning commercial surrogacy will not change that. Surrogatesused to be soughtoutonlybyheterosexual couples, Better to regulate it properly, and insist that parents return- and only when the woman had a medical problem that meant ing home with a child born to a surrogate abroad can prove she could not carry a baby. But the spread of gay marriage has that their babies have been obtained legally and fairly. Becom- been followed by a rise in male couples turning to surrogates ing a parent should be a joy, notan oﬀence. 7 10 Leaders The Economist May 13th 2017

Governing France Macron’s mission

The new president promises reform from the centre. The challenge is immense, but he deserves to succeed N MAY 14th, as Emmanuel France’s most potent source of resistance—street protests and OMacron takes up his duties strikes. That is what happened in 1995, when Jacques Chirac, at in the Elysée Palace, spare a the beginningofhisfirstterm aspresident, waged a battle to re- thought for what he has already form the economy. After he failed, Mr Chirac abandoned re- achieved. To become head of form for his remaining decade in office. France is still living state he created a new political with the consequences. movement and bested five for- If Mr Macron too has only one chance at reform, his focus mer prime ministers and presi- should be on the joblessness that has robbed the French of dents. His victory saved France and Europe from the catastro- hope and which feeds Ms Le Pen’s arguments that citizens are phe ofMarine Le Pen and herfar-right National Front. At a time being failed by a greedy, ineffectual elite. The unemployment when democraciesare beingdragged to the extremesby doubt rate is close to 10%; for those under 25, it has been above 20% and pessimism, he has argued from the centre that his country since 2009. Firms are reluctant to hire new employees because must be open to change, because change brings progress. firing them is time-consuming and expensive. The 35-hour But spare a thought also for the difficult road ahead (see week, a thick wedge of taxes on employment and union- page 39). Mr Macron has started well, with a sober acceptance dominated sectoral bargaining all put firms off creating jobs. speech that evoked unity rather than triumphalism. Yet this is Reform needs to loosen these knots. the first time he has been elected to public office. He begins However, although the economics is straightforward, the alone in the Elysée, without the backing of any of the estab- politics is toxic. Each reform, much as it benefits a jobseeker, lished parties. He trounced Ms Le Pen. But ifyou count absten- makes someone already in workless secure. tions, blank ballots and votes cast chiefly to keep her out, only Mr Macron therefore needs to be ambitious and swift. Am- a fifth of the electorate positively embraced his brand of new bitious because you can be sure that the left and the unions politics. Each ofthe past three French presidents has promised will fight even small reforms as hard as large ones: if Mr Mac- reform—and then crumpled in the face of popular resistance. ron is to rally ordinary citizens against organised labour, he Left-wing demonstrations against the new president in Paris needs to make the fight worthwhile. And swift because, if re- this weekhint at the struggle to come. form is to succeed, now is as good a time as he will ever get. He Much is at stake. The challenge from Ms Le Pen did not be- is flush with victory. His party will start with the benefit of gin with this election and it will not end with her defeat. If Mr novelty. He can offer stimulus through apprenticeships and Macron now presides overfive more years ofslow growth and tax cuts. Most of all, he will be acting at a point in the cycle high unemployment, it will strengthen the far right and the when France’seconomyisgrowing—faster, indeed, than at any hard left, which together got almost half the first-round vote. time since a brief post-crisis rebound in 2010. Labour-market To put France beyond their reach, he needs to carry through reform takes years to bear fruit. Growth will buy him time. vigorous economic reform. And for that, he needs first to im- Speed and ambition have the further advantage of chang- pose his vision on French politics. ingthe country’s position in Europe. France has lost the trust of Germany, which has taken to treating it as the junior partner in Best foot forward the EU. Germany is unwilling to relax further the fiscal rules The next few weeks will be crucial. As president, Mr Macron governing the single currency or to strengthen its governance can force through a certain amount ofchange by decree. But to because, understandably, it fears that it will end up paying the secure thoroughgoing, lasting and legitimate reform he needs bill (see Charlemagne). Yet failure in France would be a deeper the backingofthe legislature. Hence in the elections forthe Na- threat to Germany, and to Europe as a whole. France is hin- tional Assembly in a little over a month’s time his party, re- dered both by austerity and by the euro’s shaky foundations. named this week as La République en Marche! (LRM), or “The For Germany to begin to thinkdifferently, and cut France some Republic on the Move!”, needs to win a big blockofseats. slack, Mr Macron must first convince the government in Berlin That is a tall order. The party is just over a year old. This is its that he is in control and determined to reform his country. first election. Half its candidates for the assembly’s 577 seats have, like MrMacron, neverheld elected office. Its local knowl- Macron prudential edge and tactical nousare untested. There isonlya slim chance Over the past two decades, France has become used to being ofLRM winning an overall majority. the butt ofcriticism—forits economy, its racial divisions and its More probably, Mr Macron will have to preside over a mi- resistance to change. Suddenly, under Mr Macron, it is in the nority government, or form a coalition, dragging him and his limelight. And it is enjoying it. partyinto horse-trading. Havingsethimselfup asa new sortof There is a real danger that he fails—how could there not be leader, above party politics, this could tarnish him in the eyes when he is so untested? But, as the remarkable Mr Macron of his supporters, distort his priorities and limit his achieve- takes office, another future is visible: one in which he unleash- ments. To minimise that, this newspaper urges French voters es the creativity and ingenuity ofthe French, and sets an exam- to complete their rejection of Ms Le Pen by backing LRM and ple for drawbridge-down democrats across the EU and lays to giving Mr Macron a chance to put his programme into action. rest the drawbridge-up fears ofhis nativist opponents. That is a Even if he controls the assembly, Mr Macron will face future this newspaper would welcome. 7

12 Letters The Economist May 13th 2017

The SeLFIES model On a wing, and a prayer erty values. Around the world, tral banks. It is very hard for too many are failing to plan for the government to criticise a “Taking the ultra-long view” the foreseeable consequences. central bankforhaving policy (May 6th) overlooked other The sea is rising, at least a too tight ifinflation is within critical reasons forgovern- metre within the lifetime of the inflation target, and is ments to issue ultra-long debt today’s youth and perhaps projected to remain so. beyond locking-in their financ- over three metres ifclimate DON BRASH ing costs. With life expectancy mitigation is not pursued Governor of the Reserve Bank of increasing, pension funds and aggressively. After 5,000 years New Zealand from 1988 to 2002 annuity-writing insurance ofstability, we need to develop Auckland companies require longer- long-term pragmatic plans to maturing bonds to hedge their cope with the disruption. This Quantum leaps obligations. The looming crisis means investing to adapt our in defined-contribution pen- infrastructure, from bridge You attributed the theoretical sion plans, and the need to heights to water treatment idea ofa quantum computer to fund infrastructure, requires Banyan is right to bemoan the facilitiesto public transport. Richard Feynman and you novel alternatives to tradition- collapse in the numbers of The cold reality is that called David Deutsch the al debt models. migratory shorebirds using the adapting to a rising sea is now father ofquantum computing Currently, there is no truly East Asian-Australasian largely decoupled from reduc- (Technology Quarterly, March safe, low-cost, liquid instru- Flyway because ofreclama- ing greenhouse gases. Decreas- 11th). Both made very valuable ment tailored forretirees. But tion around the shores ofthe ing the heat input will eventu- fundamental contributions, governments could issue an Yellow Sea (April 22nd). But ally slow the ice melting and but the founder ofquantum innovative, “safe” ultra-long there have recently been some the sea rising, but even a computing is Paul Benioffof bond instrument, which we extremely positive signs. The switch to 100% renewable Argonne National Laboratory, call “SeLFIES” (Standard of Chinese government has energy won’t stop it. We have whom you did not mention. Living indexed, Forward- created several new reserves passed the tipping point. Starting in 1980, Dr Benioff starting, Income-only and has just started the process ROBERT CORELL published three papers which Securities). These proposed ofgetting the UN to declare 14 Chair showed that quantum com- bonds start paying investors important roosting areas along International Sea Level Institute puting is possible in principle upon retirement, and pay the Yellow Sea as World Heri- Berkeley, California and gave an example ofhow coupons-only fora period tage sites. South Korea is work- that could be done. Feynman’s equal to the average life expec- ing to do the same forthe tidal A pioneering central bank variant came later, and it ad- tancy at retirement (for flats ofits south-west region. vanced the field enormously example, American bonds And North Korea is also show- Yourleader on central bank because ofits greater simplic- would pay for20 years). Un- ing increased interest in con- independence referred to “the ity and practicality. Dr like Treasury-Inflation Protect- servation. In an age when British model, in which the Deutsch’s contribution in- ed Securities that are solely international co-operation is government sets an inflation troduced a way in which cer- focused on inflation, SeLFIES waning, it is worth celebrating target forthe central bank to tain problems could be solved are indexed to aggregate con- the fact that so many countries follow” (“The wars ofindepen- incomparably faster by a quan- sumption per person, covering are working together to save dence”, April 29th). It should tum computer than by a classi- both the riskofinflation and the amazing birds that link us. be more accurately termed cal one. But both were en- the riskofstandard-of-living By the way, bar-tailed “the New Zealand model”. hancements ofDr Benioff’s improvements. SeLFIES are godwits fly to New Zealand New Zealand’s central bank pioneering work. designed to pay people when directly from Alaska. That is a was not only the first to adopt MURRAY PESHKIN they need it and how they non-stop flight of12,000km in formally an inflation target in Emeritus senior physicist need it, and they greatly sim- around nine days, the longest 1988, it was also the first to Argonne National Laboratory plify retirement investing. recorded flight by any bird, combine explicit political Argonne, Illinois They also give governments a during which they lose half involvement in the choice of natural hedge ofrevenues their body-weight. That’s a feat the inflation target with com- Infinitive jest against the bonds (through that surely merits a bit of help. plete instrument indepen- VATs) and allow this to be a JIM EAGLES dence in delivering that target. The Economist seems increas- vehicle to fund infrastructure. Editor This model, ofexplicit ingly to preferactively to write The looming global retire- Pukorokoro Miranda Naturalists’ political involvement in set- in a way destined consistently ment crisis needs to be ad- Trust News ting the target with full in- to irritate and jar; presumably, dressed. The longer govern- Auckland dependence over the mone- so as clearly to demonstrate its ments wait, the higher the cost tary policy needed to deliver it, commitment consistently to to them and the taxpayer. Water, water everywhere was initiated in 1990 in New avoid splitting the infinitive SeLFIES ensure retirement Zealand, and subsequently (The Economist 2017, passim). security, and the government What happens in the Arctic copied in Canada, Australia, PAUL DOXEY is a natural issuer. doesn’t stay in the Arctic, as Sweden and Britain. London 7 ROBERT MERTON you recognise (“Polar bare”, Allowing explicit and Professor of finance April 29th). What we have public political involvement in MIT Sloan School of Management seen to date is just the tip ofthe the choice ofthe target in- Letters are welcome and should be addressed to the Editor at Cambridge, Massachusetts iceberg. The rising sea level, flation rate, while leaving the The Economist, 25 St James’s Street, ARUN MURALIDHAR centimetre by centimetre, is central banktotally indepen- London sw1A 1hg Adjunct professor of finance inexorably moving shorelines, dent about how to deliver it, E-mail: [email protected] George Washington University laying waste to infrastructure would reduce a lot ofthe strain More letters are available at: Washington, DC and wreaking havoc on prop- between politicians and cen- Economist.com/letters Executive Focus 13

Country Representative - Mali

The World Agroforestry Centre (ICRAF) is looking for a Country Representative for Mali to work under the overall guidance of the Regional Coordinator for West and Central Africa and in effective partnership with appropriate institutions in the Sahel. S/he will in general spend around 30% of time on research, 20% on project leadership and 50% of time on coordination. S/he will develop a clear agroforestry strategy for the Sahelian and Dry Savannas in collaboration with the Sahelian institutions and other partners/stakeholders. S/he will be a point of contact for national and international partners seeking to work with ICRAF in agroforestry R4D in the Sahel, including wide scale dissemination of agroforestry-based innovations. S/he will lead ICRAF’s Agroforestry research agenda in Mali and supervise the team of seconded, nationally and international -recruited staff based in Bamako and as appropriate. S/he will develop and promote use of assessment tools and models promoting the role of agroforestry in addressing agroforestry systems issues.

For the full Job description please visit: http://worldagroforestry.org/working-for-icraf/vacancies

Applications will be considered until 29 May 2017.

The Economist May 13th 2017 14 Brieﬁng Trumponomics The Economist May 13th 2017

Home-cooked policies Also in this section 16 In his own words 16 You can’t always get what you want

WASHINGTON, DC 18 Reassessing global trade The administration’s economic strategy is good in parts, but unimaginative, incoherent and insufficient F YOU want to test a man’s character, spect as a nation. It has to do with trade York’s outer boroughs long after he made it “Igive him power.” To those sitting deals that have to be fair.” in Manhattan, Mr Trump appears not across the Resolute desk from Donald That is an unusual priority for a Repub- merely to understand, but to share, the un- Trump, Abraham Lincoln’s dictum was lican president, but not for Mr Trump. The focused resentment of globalisation, and less than reassuring. In his first interview president has argued opposing sides of its hoity-toity champions, harboured by with The Economist since taking office, most issues over the years. But in his belief many working-class Americans. which was dedicated to economic policy that America’s trade arrangements favour The result is an emotional and self-re- and took place five days before the sacking the rest of the world he has shown rare gardingcritique ofAmerica’simperfectbut of FBI director James Comey (see page 27), constancy. That makes Mr Trump’s appar- precious trade architecture that appears Mr Trump already seemed altered by the entlackofinterestin the detailsof the trade largely waterproofed against economic re- world’s most powerful job. The easy arrangements he fulminates against all the ality. Having been recently persuaded not charm he displayed in his comfortable den more astonishing. At one point he ascribed to withdraw America from NAFTA—a on the 26th floor of Trump Tower when in- the faults he finds with the North Ameri- bombshell he had planned to drop on the terviewed during last year’s campaign had can Free-Trade Agreement (NAFTA) to 100th day of his presidency, April 29th—Mr acquired a harder edge. The contrast then American officials being in a perpetual mi- Trump now promises a dramatic renegoti- visible between solicitous private Trump nority on its five-member arbitration pan- ation of its terms: “Big isn’t a good enough and public Trump, the intolerant dema- el: “The judgesare three Canadian and two word. Massive!” gogue of his rallies, was a bit less dramatic. American. We always lose!” But an Ameri- Among Mr Trump’seconomic advisers, Perhaps his advisers—including Gary can majority on any given panel is as likely perhaps only Peter Navarro, an economist Cohn and Steve Mnuchin, both of whom as a Canadian one. with oddball views, and Stephen Bannon, were in attendance in the Oval Office, and His feelings about the failure of Ameri- the chief strategist, are outright protection- Jared Kushner, Reince Priebus, and Vice- ca’s trade regime (see subsequent article) ists. Most are nothing of the sort. Mr Mnu- President Mike Pence, who drifted in for show how opportunism and gut feeling chin, the treasury secretary, and Mr Cohn, parts of the interview—are succeeding in tend to guide Mr Trump’s thinking. For al- the chief economic adviser, are former in- their effort to keep the freewheeling presi- most half a century, he has sold himself a vestment bankers and members of a dent to a more precise schedule. When it master negotiator. Rubbishing the govern- White House faction led by Mr Kushner, comes to the president’s economic policy ment’s dealmaking record (which he, dis- the president’s son-in-law, known as the agenda, however, it seems only one voice dainful of geopolitics, reduces to the zero- globalists. So it is a sign of the issue’s im- counts: Mr Trump’s. sum terms of a property transaction) is portance to Mr Trump that all his advisers Is there such a thing, we asked the presi- part ofthat shtick. He is not merely cynical, nonetheless speak of trade in Trumpian dent at the outset, as “Trumponomics?” He however. An outsider who clungto memo- terms. “I used to be all for free trade and nodded. “It really has to do with self-re- ries of his father’s building sites in New globalisation,” says an ostensible globalist.1 The Economist May 13th 2017 Briefing Trumponomics 15

2 “I’ve undergone a metamorphosis.” Kafka, crats, and equally desirable. Mr Trump and gesting that investors believe his promises eat your heart out. his advisers have promised anywhere be- ofgrowth and discount his crazierrhetoric. Notwithstanding the president’s con- tween $550m and a trillion dollars to make In recentweekshe hasseemed to vindicate cern for national pride, the main aim of America’s “roads, bridges, airports, transit that confidence, preferring to moderate his Trumponomics is to boost economic systems and ports…the envy of the views than pay a price for them. He was growth. On the trail, Mr Trump sometimes world”. A fifth ambition, to enforce or re- persuaded not to withdraw from NAFTA promised an annual growth rate of 5%; his form immigration rules, is rarely spoken of after his agriculture secretary, Sonny Per- administration has embraced a more mod- by him or his team as an economic policy. due, presented him with a map showing est, though perhaps almost as unachiev- But if Mr Trump’s promises in this area are thatmanyofthe resultantjob losses would able, target of 3%. This makes Mr Trump’s credible, it should be. He has launched a be in states that voted forhim. Where once ambition to mess with America’s trade ar- crackdown on illegal border crossings and he railed against legal, as well as illegal, im- rangements all the more obviously self-de- also made it easier to deport undocu- migration, he appears to have been per- feating. A restrictive revision of NAFTA, an mented workers without criminal re- suaded of the economic damage restrict- agreement that has boosted trade between cords—a category that describes around ing the influx would do. Asked whether he America and Mexico tenfold, would dam- half of America’s farm workers. Again, Mr still meant to curb legal immigration, he pen growth. Trump’s economic nationalism and his protested: “No, no, no, no!...I want people promises ofredoubled growth are at odds. to come in legally...We also want farm Toothsome morsels Trumponomics, despite some tasty in- workers to be able to come in...We like Trumponomics’ other main elements are gredients, is guilty of worse than incoher- those people a lot.” familiar supply-side tools. The most im- ence. It also suggests a dismal lack of atten- portant, deregulation and tax reform, have tion to the real causes of the economic Bitter aftertaste been Republican staples since the Reagan disruption imposing itself on Mr Trump’s Yet this drift to pragmatism should not be era (see timeline). They are much needed; unhappy supporters. Automation has cost relied on. On trade, especially, Mr Trump but they also need to be done well. There many more manufacturing jobs than com- hasdeeplyheld views, sweepingpowers, a are reckoned to be 1.1m federal rules, up petition with China. The winds of change history of intemperance and a portfolio of from 400,000 in 1970. Mr Trump has blowing through retailing will remove far promises he thinks he should keep. The signed an order decreeing that federal more relatively low-skilled jobs than fact that he has not yet fired the self-styled agenciesmust scrap two foreverynew one threats aimed at Mexico could ever bring custodian of those campaign promises, Mr they issue, which is laudable. He has also back(see page 58). Bannon, who is at war with the president’s appointed as director of the Environmen- Mr Trump never mentions the retrain- treasured son-in-law, Mr Kushner, is em- tal Protection Agency a climate-change ing that millions of mid-career Americans blematic of that bind. sceptic, Scott Pruitt, who appears not to be- will soon need. He appears to have given Another reason for caution is that Mr lieve in regulating industrial pollution, no thought to which new industries might Trump is losing control over those parts of which is not. “I’ve cut massive regulations, replace those lost jobs. Nowhere in his pro- his economic agenda, including tax reform and we’ve just started,” Mr Trump says. gramme is there consideration of the and infrastructure spending, where he is The taxcode, similarly, isso tangled that changes to welfare that a more fitfully em- largely reliant on Congress. Given how lit- America has more tax preparers—over 1m, ployed workforce may require. Eyeing the tle of anything gets done on the Hill these according to a project at George Washing- past, not the future, he fetishises manufac- days, this looks like another check on the ton University—than it has police and fire- turing jobs, which employ only 8.5% of president—one for which his own behav- fighters combined. The president promises American workers, and coal mining, iour is additionally to blame. To pass ambi- to restore sanity by reducing income-tax though the solar industry employs two- tious tax or infrastructure bills would re- rates and cutting corporate-tax rates to 15% and-a-half times as many people. Growth quire support from the Democrats. Yet the while scrapping some of the myriad de- is good; but Trumponomics is otherwise a president rarely misses an opportunity to ductions to help pay for it. “We want to threadbare, retrograde and unbalanced re- insult the opposition party, including his keep it as simple as possible,” he says. sponse to America’s economic needs. predecessor, Barack Obama, whose A fourth element, infrastructure invest- Where is this heading? The S&P500 has health-care reform and regulatory legacy ment, is more associated with the Demo- gained 12% since Mr Trump’s election, sug- he is trying to dismantle. It is thus hard to 1

Presidents and precedents United States, % Highest marginal income-tax rate 80 Black Monday Savings and loans crisis Banking and Stimulus act financial crises Bush approves NAFTA 60 RECESSIONS Fed raises Budget Reconciliation Act Affordable Care Act; interest rate Dodd-FrankNeeds update Act Gold to 20% to 40 standard stop inflation First Reagan ends tax cuts Glass-Steagall repeal Tech bubble bursts “Fiscal cliff” 20 9/11 Sequester 0 196770 75 80 85 90 95 2000 05 10 15 17

QUANTITATIVE GDP by presidential term, % change at an average annualised rate EASING 5 4 3 2 1 0 Lyndon Richard Gerald Jimmy Ronald Reagan George H.W. Bill Clinton George W. Bush Barack Obama Johnson Nixon Ford Carter Bush Sources: Tax Policy Centre; “Presidents and the US Economy”, by A.S. Blinder and M.W. Watson; The Economist 16 Brieﬁng Trumponomics The Economist May 13th 2017

In his own words What he wants

WASHINGTON, DC Excerpts from ourinterview Trump: We have nations where…they’ll The Economist: The biggest winners get as much as100% ofa tax or a tariff for from this tax cut, right now, lookas a certain product and forthe same pro- though they will be the very wealthiest duct we get nothing, okay? It’s very Americans. unfair. *** Trump: Well, I don’t believe that. Because Trump: I have a very good relationship they’re losing all oftheir deductions, I can with Justin [Trudeau, the Canadian tell you. prime minister] and a very good relation- *** ship with the president ofMexico. And I The Economist: But beyond that it’s okay was going to terminate NAFTA last week, ifthe tax plan increases the deficit? I was all set, meaning the six-month termination. I was going to send them a Trump: It is okay, because it won’t in- letter, then after six months, it’s gone. But crease it forlong. Youmay have two years the word got out, they called [...] it was an where you’ll… you understand the ex- 2 imagine the Democrats voting for any- amazing thing. pression “prime the pump”? [...] We’re the thing in Mr Trump’sagenda—and there are *** highest-taxed nation in the world. Have limits, the president concedes, to his will- The Economist: It sounds like you’re you heard that expression before, for this ingness to persuade them to. Would he, for imagining a pretty big renegotiation of particular type ofan event? example, release his tax returns, as the NAFTA. What would a fair NAFTA look Democrats have demanded, if they made like? The Economist: “Priming the pump?” that the price of their support for tax reform? He would not: “I thinkthat would be Trump: “Big” isn’t a good enough word. Trump: Yeah, have you heard it? unfairto the deal. It would be disrespectful Massive. ofthe importance ofthis deal.” *** The Economist: Yes. The result looks likely to be no serious The Economist: What about legal im- infrastructure plan and tax cuts which will migration? Do you want to cut the num- Trump: Have you heard that expression be temporary and unfunded—the sort that ber ofimmigrants? used before? Because I haven’t heard it. I Republicans, when in power, tend to settle mean, I just…I came up with it a couple for, and to which Mr Trump already ap- Trump: [...] I want to go to a merit-based ofdays ago and I thought it was good. pears resigned. Where once he claimed to system. Actually two countries that *** see bubbles in the economy, he now says have very strong systems are Australia that a dose of stimulus is what it needs. If and Canada. And I like those systems MrTrump’spast brittleness underpressure very much. Full transcript at Economist.com/Trumptranscript is a guide, such setbacks, far from cowing him, could spur him to bolder action in fields where he sees less constraint. The Trump trilemma The extent of his rule-cutting already looksunprecedented. IfMrBannon has his You can’t always get what you want way, it will put paid not merely to outworn regulations, butto whole armsofthe federal bureaucracy, perhaps including the EPA. Whether he succeeds in that will probably WASHINGTON, DC be determined by the courts. How far the Donald Trump promises expensive taxcuts, an investment boom and a smaller administration acts on Mr Trump’s trade trade deficit. He can’t have all three agenda is harder to predict, though likelier to define it. HE currents of trade, President Donald lars of this new prosperity are incompati- Perhaps Mr Trump will continue to re- TTrump accepts, will ebb and flow: ble. When Americans import more than strain himself in this regard. As the pres- “Sometimes they can be up and some- they sell abroad, foreigners accumulate sures of office mount, so the reasons to times we can be up,” he said in an inter- dollars. Rather than sit on that cash, they avoid a damaging trade war will multiply. view with The Economist on May 4th. A invest it in dollar-denominated assets. It is China might offer more help against North long-term trade deficit, though—such as as if container ships arrived at American Korea; or Mexico some sort of face-saving that between America and Mexico, which ports to deliver furniture, computers and distraction from the border-wall Mr Trump ran to $56bn in 2016—is bad. Bad because it cars, and departed filled with American has promised but is struggling to build. shows that a poor trade deal has been stocks and bonds. Over time, those assets Don’t bet on it, though. Mr Trump is a made (see next story); bad because money yield returns in the form of interest, divi- showman as well as a pragmatist. His hos- is being thrown away. Achieving more bal- dends and capital gains. For instance, tility to trade is unfeigned. And his admin- anced trade, Mr Trump and his team say, American taxpayers must pay interest to istration, as the sacking of Mr Comey will, along with cutting taxes and encour- Japanese holders ofTreasury bonds. might suggest, could yet find itselfin such a aging more business investment, create To the extent that trade deficits thus rep- hole that a trade war looks like a welcome jobs and boost growth. resent borrowing from abroad, there is distraction. 7 Unfortunately the three proposed pil- some truth to the idea that they could 1 The Economist May 13th 2017 Briefing Trumponomics 17

2 erode American wealth. But that is to ig- and a booming stockmarket, running up nore a crucial point about the debt in- debts (see chart 1). In 2000 firms’ net bor- Hard target 2 curred: it comes cheap. America has run rowing reached almost 5% of GDP; house- United States, total factor productivity current-account deficits—which are sub- holds barely saved at all. Ten-year rolling average, % increase on a year earlier stantially driven by the balance of trade— Total net borrowing by the govern- Needed for 3% average annual GDP growth 2.5 almost every year since 1982. As a result, ment, firms and consumers will determine foreigners own American assets worth the current account under Mr Trump, too. 2.0 $8.1trn more than the assets Americans If the administration increases the budget own overseas, a difference equivalent to deficit or sparks more private investment— 1.5 GDP 43% ofAmerica’s . such as the $1trn spending on infrastruc- 1.0 Despite this, America still takes in more ture that it hopes to unleash—the trade def- income from its investments abroad than it icit will almost certainly rise. 0.5 pays out. In 2016 the balance totalled 1% of Who is lending to whom does not FORECAST GDP. This unlikely profit partly results much matter for long-term economic 0 from the “exorbitant privilege” that comes growth. Far more important is that the 1959 70 80 90 2000 10 20 27 with issuing the dollar, the world’s princi- funds are invested productively. To that Sources: Committee for a Responsible Budget; CBO pal reserve currency. Foreigners, particu- end, the administration wants to grease larly banks and governments, have a large the supply side ofthe economy, thereby in- tive than those elsewhere, foreign inves- appetite for dollar-denominated assets creasing the rate of productivity growth, tors would covet American assets even (they want those returning container ships which has been slow since the mid-2000s. more than they do today. Their purchases full). That in turn makes it cheaper for This is the motivation behind Mr Trump’s would push up the value of the dollar, en- Americans to raise funds. deregulatory agenda. couraging imports and squeezing exports. Viewing the trade deficit as cheap bor- The 3% economic growth targeted by If productivity gains were concentrated in rowing exposes the tension at the heart of Steve Mnuchin, the treasury secretary, sectors benefiting from deregulation, such Trumponomics. If they are to do without would be ambitious under any circum- as financial services or energy production, the foreign capital they currently import, stances. It is particularly so now because it the dollar appreciation would dispropor- thus closing the trade deficit, Americans must be achieved as the population ages tionately hurt manufacturing workers. must save more. Yet rather than squirrel- and growth in the labour force slows. Be- The second reason why productivity ling away its money, Mr Trump wants the tween 2014 and 2024, the adult population gains might widen the trade deficit is that private sector to go on a spending-and-in- will grow by nearly 9%, but the ranks of the consumers, anticipating strong wage vestment spree, spurred on by deficit-fi- over-65s will swell by almost 38%. growth, would probably reduce their sav- nanced tax cuts. “We have to prime the ing for a while, in effect spending some of pump,” he says, quite the Keynesian. A two-legged stool their fatter pay-packets before the relevant It is by no means certain that the thus- The Committee for a Responsible Federal paydays dawn. Such a drop in saving asso- primed pump will provide growth on the Budget, a think-tank, reckons that total-fac- ciated with an increase in productivity scale he wants. But history illustrates the tor-productivity growth of 2.3% is needed contributed to the current-account deficit likely effect on the trade deficit. In 1981Ron- for growth to hit 3% in the face of this de- in the late 1990s. ald Reagan’s tax cuts sent the federal gov- mographic headwind. Such rapid produc- There is a possible escape from the ernment’s deficit soaring, from 2.5% ofGDP tivity growth has not been achieved over Trump trilemma. American firms have an in 1981 to 4.9% in 1986. The current account any ten-year period since at least 1949 (see estimated $2.5trn of cash parked abroad— lurched into deficit almost simultaneously. chart 2). A productivity boom on this scale money that the president wants them to Following this experience, the notion of would also probably widen the trade defi- bring home and invest. One survey from “twin deficits”—in government borrowing cit, at least temporarily, fortwo reasons. 2011found that 54% ofthis cash was held in and trade—became popular. First, it would make America a stark foreign currencies. Repatriating it would The next decade showed that there was outlier, because the productivity slow- probably cause the dollar to rise, worsen- a third factor to consider: firms and house- down is global. From 2005 to 2015, GDP per ing the trade deficit. holds matter, too. As the economy grew hour worked grew by an average of just Yet if the president removes the under- rapidly in the late 1990s, the government 0.9% a year in the OECD, a group of mostly lying incentive to book profits overseas in budget approached balance, yet the cur- rich countries, compared with 1% in Ameri- the first place—America’s high corporate- rent-account deficit grew. This time, it was ca. Were American capital and workers tax rate—the deficit might appear to im- the private sector, giddy with fast growth suddenly to become much more produc- prove. Firmswould no longertryto make it seem as if production happened abroad through dodges like moving intellectual Zero-sum game 1 property around. With lower taxes in United States, net lending by sector, % of GDP America accountants might shift “production” back home, improving the trade bal- 15 Private sector ance. Economists at Bank of America Mer- 10 rill Lynch have calculated that this could Foreigners improve the reported trade deficit by as 5 much as half. Such an improvement, + though, would be mainly cosmetic. 0 – The world economy has endless mov- 5 ing parts, many of which could conspire to Government (all levels) make Trumponomics seem like a success 10 ora failure. But economic logic and past experience dictate that government deficits 15 and investment booms drive trade deficits 1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 14 16 up. Sooner or later, Mr Trump must con- Source: Bureau of Economic Analysis front this fact. 7 18 Briefing Trumponomics The Economist May 13th 2017

Reassessing global trade tem of settling disputes is slow; getting new rounds of tariff cuts through seems Make his day practically impossible. But these drawbacks are quite unlike the restraints it places on the sort of muscular reciproca- tion MrTrump’steam contemplates. Those restraints are not failures: they are part of the point ofthe pact. In the best case, the threat of a recipro- There could be a new art to America’s trade deals cal taxortariffmight force another country ONALD TRUMP claims to like free, fair same for all the other partners in the trade or countries to lower their tariffs. Perhaps Dand smart trade. It is precisely for that deal. The principle was supposed to make Mr Trump could squeeze the tariff on car reason, he says, that he doesn’t like the cutting deals easier: when signing a deal, imports to China, currently 25%, down to rules under which America trades: “I’m trade partners could feel safe that they the level on car imports in America, cur- not sure that we have any good trade were not about to be undercut by a slightly rently 2.5%, on the back of a credible threat deals.” The current dispensation allows lower tariffelsewhere. It was also meant to to abandon the WTO. It could work to imports to eviscerate American employ- avoid the resurgence of anything like Brit- clamp down on common gripes about, for ment and unfair barriers abroad to stymie ain’s exclusionary policy of“Imperial pref- example, China’s habit of dumping its ex- American exporters. Time to even things erence”, which had been used to carve out cess capacity on global markets. The up; time to move towards reciprocity. trade blocs in a way that kept America out. Trump administration is currently mulling Mr Trump is hardly the first president to When Roosevelt was crafting this poli- over whether imports of steel and alumi- complain about trade deals. Barack cy, tariffs were eye-wateringly high. In the nium are a threat to national security, for Obama criticised the North American second halfofthe 20th century, tariffswere example. Free-Trade Agreement (NAFTA) during his reduced with the aim of luring other coun- campaign to be president, then negotiated tries away from the influence of commu- Over the edge an upgrade while in office, the doomed nism. The most-favoured-nation principle But there is a limit to the stress that the Trans-Pacific Partnership. Mr Trump’s meant that, as the WTO expanded, some WTO can take. The system is designed to plans for a huge renegotiation of NAFTA new entrants could benefit from trade lib- put up with disputes; ifone country breaks are arguably an escalation rather than an eralisation without doing much tariff-cut- the rules, then otherscan retaliate, but only absolute departure. The depth ofhis suspi- ting themselves—what trade economists by enough to compensate them for the cions of the World Trade Organisation call the latecomer’s advantage. When Chi- damage. It is not designed to deal with dis- (WTO) looks like a fundamental shift. na formally entered the WTO in 2001, it regard for the norms on which it is based, The WTO is a pact with 163 other coun- could benefit from tariffs between the EU including the most-favoured-nation prin- tries, settingouttariffcommitments and of- and America that had been haggled down- ciple, spreading from one very big econ- fering a forum to settle trade disputes. wards fordecades. omyto the world atlarge. Ifothercountries There are three discernible reasons for the The WTO’s most-favoured-nation prin- interpret Mr Trump’s trade policy as aban- Trump administration’s dislike of it. The ciple means that America cannot raise its donment of the WTO, all hell could break first is that 77% of America’s trade deficit tariffs against countries that impose high loose. By trashing such norms, the world stems from trade with countries that trade tariffs on it, as Wilbur Ross, Mr Trump’s could descend into the sort of tit-for-tat with America under WTO rules. The sec- commerce secretary, has suggested it logi- trade war that Roosevelt was trying to fix. ond is that America’s tariff commitments cally should. And it does indeed leave If Mr Trump’s foreign relations degenerate under the WTO are indeed lower than oth- America with fewer concessions to offer into acrimonious protectionism, then er countries’. In 2015 America applied an when striking new deals. American shoppers and workers will lose. average tariff of 3.5%, compared with 4.0% There are real drawbacks to the current What constrains America now constrains for Japan, 5.1% for the EU and 9.9% for Chi- multilateral trading system. The WTO sys- other countries, too. 7 na. (The highest average, 34%, belongs to the Bahamas.) That sort of thing is pretty hard to square with Mr Trump’s vision of reciprocity. And the third isa suspicion that WTO rules prevent America from cutting “good” deals with other countries. America’s trade deficit is a poor indica- tor of the success of the WTO. In June 2016 the United StatesInternational Trade Com- mission, an independent American agency, assessed current and past research on the benefits of membership; the evidence suggested that it boosts trade flows between 50% and 100%. That means bigger markets for American exporters and cheaper stuff for shoppers, as well as healthy competition. The issue of non-reciprocal access is more complex. The WTO works according to the “most-favoured nation” principle introduced to American trade policy by Franklin Roosevelt in 1934. The idea is that if a country reduces a tariff imposed on goods from another country, it will do the Asia The Economist May 13th 2017 19

Also in this section 20 More American troops in Afghanistan 21 Pluralism under ﬁre in Indonesia 21 Australia’s irrepressible house prices 22 Commemorating Shivaji in Mumbai 24 Banyan: The church resists the war on drugs in the Philippines

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

South Korean politics human-rights cases. Mr Moon then ran for the presidency himself in 2012, and nar- From dissident to president rowly lost to Ms Parkin a two-way race. The challenges he faces are formidable. Donald Trump has stoked tensions with the North, even as he has said that the South should pay foran American missile- THAAD SEOUL defence system, known as , intended to thwart a northern attack. Mr Moon Moon Jae-in clinches an easy victory, butgoverning will be tough says he wants to review the deal that led to E WAS imprisoned for months for took his toddler to a polling station in cen- THAAD’s deployment. He has also said he Hprotesting, as a student, against the tral Seoul on May 9th, said that he was vot- would go to Pyongyang to seek better ties dictatorship of Park Chung-hee in the ing to create a better society for his daugh- with the North if the circumstances were 1970s. But it was mass demonstrations ter: one “where everyone begins at the right, suggesting that he will revive the old against the late strongman’s daughter, Park same line”, notwhere “the rich and power- liberal policy of “sunshine” towards the Geun-hye, that brought Moon Jae-in to the ful have a head start”. Expectations are North, which involved great emollience presidency. On May 9th South Koreans high for Mr Moon, who can serve only a and lashings ofaid. chose the former dissident as their new single five-year term, to see through the re- But since those days North Korea has president, after the constitutional court forms that he has promised. One is to root tested five nuclear devices and scores of prompted a snap election by removing Ms out the corruption that results from close missiles, while rampingup itsthreats. Scott Parkfrom office. MrMoon, who wassworn links between government and big busi- Snyder of the Council on Foreign Rela- in assoon asthe voteshad been counted, is ness, in order to make society fairer. That tions, an American think-tank, says that South Korea’s first left-of-centre president has struck a chord with disenchanted resolutions passed by the UN Security in almost a decade. He won 41% ofthe vote young people in particular: over half of Council prevent the sort ofeconomic deals in a field of13 candidates. His17 percentage- voters in their 20s and 30s cast their ballot struck when Mr Moon worked under Roh. point lead over the runner-up, a conserva- forhim, according to exit polls. Mr Moon has adopted a less doveish tone tive, is the biggest winningmargin ever in a than his liberal predecessors. And Mr South Korean presidential election. Committees to the rescue Trump hassaid that he too would consider Mr Moon’s victory was no surprise: he Mr Moon plans to set up a “truth commit- meetingKim JongUn, the North’sdictatori- had led the polls for four months. Support tee” on the presidential scandal. Another al leader. forhisliberal Minjoo partyhita record dur- promise is to help youngsters get jobs, Relations with China and Japan are ing the campaign, which reaped the bene- which many think are unobtainable with- also fraught. The Chinese government is fits of South Koreans’ bitter disappoint- out the right connections. He has estab- unhappy about the deployment of ment with Ms Park, a conservative, who lished a job-creation committee, and says THAAD, and has encouraged a boycott of was elected in 2012. Parliament impeached he will generate more than 800,000 jobs, South Korean goods. Japan, meanwhile, re- her in December, following revelations mainly in the public sector, a third of sents the apparent rekindling of anti-Japa- that she had divulged state secrets to a which will be reserved forthe young. nese protests tied to its conduct during the friend, let her meddle in policy and collud- The new president grew up poor. His second world war. But simply having a ed with her to extort bribes from big com- parents are refugees from Hungnam, a president at all, after five rudderless panies. Ms Park is now in jail, while a trial North Korean port evacuated in 1950 short- months, may help dampen these rows. related to those charges proceeds. Over ly after the start of the Korean war. He be- At home, Mr Moon also faces difficult 77% of citizens voted in the election, the gan his political career as chief-of-staff to negotiations: Minjoo does not hold a ma- highest turnout in 20 years. (Ms Park, in her the late Roh Moo-hyun, a liberal president jority in parliament, and the next elections cell, chose not to.) in office from 2003 to 2008, with whom he do not take place until 2020. It may rejoin Kim Hyung-jun, a young father who had set up a law firm in the 1980s to take on forces with the People’s Party, a centrist 1 20 Asia The Economist May 13th 2017

2 group that split from it last year. But the ning 24%. A “resentful pocket” ofconserva- Afghan allies. Mr Obama relaxed the rules splittists support THAAD and oppose Mr tives, says Shin Gi-wook of Stanford Uni- last year, but not enough to allow the use Moon’s plan to reopen the Kaesong indus- versity, has formed around Mr Hong. He of air power for offensive operations. One trial complex on the border with North Ko- hasreferred to civicorganisations, many of reason for the increase in special forces is rea, a sunshine initiative that Ms Park shut. which led protests against Ms Park, as that they will be needed to spot targets In his inaugural speech, Mr Moon said “thieving bastards”; his campaign slogan from forward positions. The new plan will that opposition parties were “his partners promised a South Korea free of “pro-North not set any deadlines for force reductions in running the country”. He wants every leftists”. This old-school conservatism still and may also give commanders some lati- region to be represented in his govern- resonates, particularly in Gyeongsang—an tude to call on additional resources if they ment, and says he will share more power eastern region that has long been a conser- prove necessary. with his cabinet. He also has woolly plans vative stronghold—and with the elderly: There is no doubt that the new plan is to set up an appointment system that takes halfofthose over 60 voted forMr Hong. needed to check the Taliban’s momentum. public opinion into account in some way. On his first day in office, Mr Moon Buton itsown, itisunlikelyto be enough to Nor are voters of one mind, despite Mr spoke to the heads of all four opposition force the Taliban to the negotiating table. Moon’s resounding win. Hong Joon-pyo, parties. In his victory speech, he promised Getting the divided and dysfunctional Af- the candidate of Ms Park’s former party, to be a “president for all”. Fulfilling that ghan government to do more to fight cor- had a remarkably strong showing, win- ambition is likely to be his hardest task. 7 ruption is another crucial step. Most important, argues Bruce Riedel, a former CIA officer now at the Brookings Institution, a The war in Afghanistan think-tank in Washington, will be a con- certed attempt to change neighbouring About-face Pakistan’s behaviour. As long as Pakistan’s “deep state” continues to see the Taliban as a strategicassetand to provide itwith sanctuary and material support, it will have no incentive to negotiate. Given the failure of Mr Obama’s policy of bribing and cajoling Pakistan into becoming more co-operative, America is on the verge ofsending more troops to fight the Taliban it would not be surprising if the new ad- N FEBRUARY the commander of the Mr Obama in 2013) know Afghanistan ministration tries something different. I15,000 American and NATO forces in Af- well. Neither would have been comfort- General McMaster has recruited Lisa ghanistan, General John Nicholson, asked able with MrObama’s habit ofsettingrigid Curtis from the Heritage Foundation, an- for reinforcements. Within a few days Do- timetables for troop withdrawals unrelat- other think-tank, to be the White House’s nald Trump is expected to provide them. ed to conditions on the ground, or with the adviser on South and Central Asia. In Feb- His military and foreign-policy advisers speed with which the NATO force, which ruary Ms Curtis co-wrote a report calling have come up with a plan to send up to had over130,000 troops in 2011, was cut. for a range of measures aimed at ending 5,000 more troops, both special forces and As well as calling for an increase in Pakistan’s ambivalence towards terrorism. trainersto advise the Afghan army. The rest troop levels, the review also recommends These would include ending its status as a of NATO, too, will be expected to come up allowing trainers to work at the sharp end “major non-NATO ally”; making military with additional troops. with Afghan combat troops, rather than at aid contingent on the strength of its action All this marks a reversal of Barack the command level. Such trainers are far against all terrorist groups and stepping up Obama’s policy, which was to pull nearly more useful than those restricted to bar- unilateral military action, such as drone all the remaining American troops out of racks, but the risk of casualties rises. The strikes, against the Taliban on Pakistani ter- Afghanistan. In the end, faced with a rapid- generals also want to give American com- ritory. It may not just be America’s policy ly deteriorating security situation, he manders in Afghanistan more flexibility in towards Afghanistan that is on the brink of backed off a bit, leaving 8,400 American the way they provide air support for their a big revision. 7 soldiers and around 6,500 from other NATO countries. It was not enough, Gen- eral Nicholson told Congress. The Taliban insurgency is making steady territorial gains and the Afghan army and police are suffering an unsustainable number of casualties. Sounding as upbeat as he could, he described it as a “stalemate”. That was generous. The proportion of the country reckoned to be under uncon- tested government control fell from 72% to 57% during the 12 months to November last year. Since then, as part of a review of the administration’s Afghan strategy, Mr Trump’s national security adviser, H.R. McMaster, and his defence secretary, Jim Mattis, have travelled to Afghanistan. So too, it is believed, has the director of the CIA, Mike Pompeo. Both General McMas- ter and Mr Mattis (a former general who served as head of the regional command encompassing both Afghanistan and Iraq until being pushed into early retirement by He needs backup The Economist May 13th 2017 Asia 21

Pluralism in Indonesia or Jokowi, who is now Indonesia’s president. (Ahok became governor without an Sent down election when Jokowi was elected president.) His rise seemed to suggest that being a Chinese Christian was not a political handicap in a country where 90% of the JAKARTA population is Muslim and 95% of indige- nous descent. An unfairtrial leaves Chinese But Ahok’s failed campaign for a fresh Indonesians feeling vulnerable term as governor tested that premise. It UTSIDE the courthouse there were was hard to detect any insult to Islam in the Ocriesof“Allahuakbar”. Inside, a panel speech forwhich he wastaken to task byIs- of five judges had just handed Basuki Tja- lamist agitators, yet prosecutors charged haja Purnama, the governor of Jakarta, a him and the court convicted him. Indeed, two-year prison sentence for blasphemy. the judges gave him a harsher sentence The verdict delighted the Muslim activists than prosecutors had requested. who have rallied against Mr Basuki for His political rivals, meanwhile, showed months, derailing his campaign for anoth- no compunction about taking advantage er term. But for his fellow Indonesians of of this travesty: the victorious candidate Chinese descent, it is an all too predictable for governor, Anies Baswedan, took to injustice. As Maggie Tiojakin, a 37-year-old campaigning in the white shirt and black Chinese-Indonesian writer, puts it, “For skullcap of a pious Javanese Muslim. On most of us minorities this was expected. election day two elderly Chinese voters in And it further confirms our fears that foras They’re not as keen on the lantern-makers Glodok, Jakarta’s Chinatown, admitted long as we live here, we will have to look that they feared once again becoming the over our shoulders.” ters, often in prominent economic jobs. target of rioters. Another prominent Chi- Chinese began settling in the islands And a few Chinese-Indonesian politicians nese-Indonesian said he worried that Mr that today make up Indonesia centuries have emerged. Mr Basuki, better known as Baswedan’s victory heralded the first step ago. Many worked as merchants or traders, Ahok, first won election in 2005 as regent toward imposing Islamic law. placingthem in a position similarto that of (district chief) in his home district of East Ahok’s sentence has reinforced such Jews in medieval Europe: necessary, but of- Belitung, where roughly a tenth ofthe pop- fears. Some worry Chinese will withdraw ten resented and persecuted. But others ulation is Chinese. He also served in Indo- again from politics. Ms Tiojakin says she were miners or indentured labourers. Su- nesia’s house of representatives before does not know “a single Chinese-Indone- harto, Indonesia’s longtime dictator, re- winning the post ofdeputy governor of Ja- sian who does not in some way believe portedly helped spread the canard that karta as the running-mate of Joko Widodo, that1998 [could] repeat itself”. 7 they comprised 3% of the country’s population, but controlled 70% of its economy—a wild overstatement on both House prices in Australia counts. A recent study estimates that Chi- nese-Indonesians rank 18th among Indo- Shuttered dreams nesia’s 600-odd ethnic groups, with 2.8m people; they make up around 1.2% of the population. And although theyaccount for a disproportionate share of the country’s billionaires, most Chinese-Indonesians SYDNEY are not rich. The budget offers little comfortforthe “smashed avocado” generation Chinese-Indonesians, suspected as a group of having communist sympathies, BOUT 100 people gathered recently for cal incomes, after Hong Kong. In Australia were the victims of pogroms in the 1960s. Athe auction of a semi-detached bunga- as a whole prices have quadrupled in Suharto, who rose to power at the time, low in Dulwich Hill, a formerly working- nominal terms over the past 20 years, and adopted a policy of forced assimilation, class suburb about10km from the centre of risen by two-and-a-half times after ac- obliging them to adopt Indonesian names, Sydney, Australia’s biggest city. The run- counting for inflation—on a par with Brit- withdrawingConfucianism’s status as one down property was 100 years old, with ain, and far more than in America. As a re- of the country’s officially recognised reli- two bedrooms, peelingpaint and no inside sult, the former Australian norm of gions and forbidding the teaching of Chi- toilet. Bidding started at A$1.1m ($810,000). home-ownership isfading. The share of 35- nese. Ironically, he also boosted Chinese- About seven minutes later, it sold for al- to 44-year-oldswho own a home hasfallen Indonesians’ economic standing by bar- most A$1.5m to a man who expects to from three-quarters 26 years ago to less ring them from government service, spend even more on it: one of his adult than two-thirds. thereby pushing them into the private sec- children will live in it “after improve- Pricesare risingin partbecause borrow- tor. The riots that triggered his resignation ments”. Shad Hassen, the auctioneer, calls ingisso cheap. The Reserve BankofAustra- in 1998 targeted Chinese-Indonesians, kill- the sale a “cracking result”. A few hours lia (RBA), the central bank, haskept itsinter- ing around 1,100 people and destroying earlierhe had sold a converted community est rate at 1.5%, a record low, since August. Chinese businesses. hall nearby with “work-live possibilities” But a bigger cause is the steady rise in Aus- Since Suharto’s downfall, things have foran even more eye-watering A$2.7m. tralia’s population, which is growing by improved. Confucianism’s status has been House prices in Sydney have soared by 350,000 a year. Immigration accounts for restored, teaching Chinese is now legal almost a fifth in the past year alone; the half of that. New dwellings are not being and Chinese New Year is a national holi- median is now about A$1.1m. One recent built fast enough to meet the extra de- day. The cabinets of successive presidents study ranks it the second-most expensive mand. The relentless price rises, in turn, have featured Chinese-Indonesian minis- housing market in the world relative to lo- have lured speculators, whose enthusiasm1 22 Asia The Economist May 13th 2017

Up, up and dismay Commemorating Shivaji Australia, ratio to household disposable income The highest praise 5 House prices MUMBAI 4 A swashbuckling prince gets a budget-busting memorial

3 T MAYhave named the airport, the first phase ofthe project (excluding an Imain railway station, a big road, a park, amphitheatre and a few other bits and 2 a museum, a theatre and at least six traffic bobs), with a projected budget of25bn Household debt intersections after him, but Mumbai has rupees, the lowest bid came in at 38bn. 1 not done enough to commemorate Shi- The state’s debt, meanwhile, is 3.7trn vaji, a swashbuckling warrior prince who rupees. The sum budgeted forthe statue 0 founded a local kingdom in the 17th is seven times what Maharashtra spends 1992 95 2000 05 10 16 century. The obvious solution, according on building and maintaining rural roads Source: Reserve Bank of Australia to all the big political parties in the state each year, or, for the historically minded, ofMaharashtra, ofwhich Mumbai is the enough to restore 300 forts around the 2 compounds the problem. About 40% of capital, is to build an absolutely enor- state, including several built by Shivaji, new mortgages go to investors, rather than mous statue ofhim on an artificial island according to IndiaSpend, a data-journal- owner-occupiers. Philip Lowe, the head of in the ocean near the city. ism website. Environmentalists and the RBA, calls such loans a “financial am- When this idea was first cooked up, in fishermen, meanwhile, complain that the plifier”, furtherboosting prices. 2004, the statue was planned to be 98 project will harm local fish stocks. Millennials are outraged by how unaf- metres tall, to top the Statue ofLiberty, But resisting a tribute to Shivaji in fordable houses have become. When Ber- which is a mere 93 metres. But then the Maharashtra is the political equivalent of nard Salt, a partner with KPMG, an ac- neighbouring state ofGujarat decided to spitting on babies. Ifthere are opponents counting firm, suggested in a newspaper build a 182-metre figure ofVallabhbhai ofthe scheme in the state assembly, they column last year that young buyers simply Patel, an independence hero. Maharash- are keeping quiet. Narendra Modi, the needed to cut back on breakfasts at fancy tra’s government resolved to make the prime minister, is a fan. He laid an under- cafés to afford their deposit, he was pillo- statue ofShivaji the tallest in the world, at water foundation stone in December. ried. Would-be homeowners, it was point- 192 metres. Alas, it turns out there is a Earlier this year he unveiled a giant statue ed out, would have to forgo 5,000 servings Buddha in China that is 208 metres high. ofthe god Shiva in the southern state of of “smashed avocado with crumbled feta So now Maharashtra’s government is Tamil Nadu. It was he, in fact, who broke on five-grain toasted bread”—48 years’ aiming for210 metres (see chart). ground forthe statue in Gujarat, when he worth of overpriced weekend breakfasts— The budget forthe project is growing, was chiefminister ofthe state. It may not simply to raise a 10% deposit on a typical too. It has risen from 1bn rupees ($16m) to be long before someone—a stonemason, house in Sydney. 36bn—or so the government hopes. But perhaps—decides to erect a gargantuan Malcolm Turnbull’s conservative feder- when it recently issued a tender for the statue ofhim. al government made “housing affordability” a feature of its budget on May 9th. It ignored calls to abolish “negative gearing”, a The height of folly tax break that allows investors to deduct Height, metres from their overall income any losses they make letting out a mortgaged property. 210 This makes investing in property in expec- 180 tation ofcapital gains all the more alluring. Nelson’s The Column 150 Fear of annoying such investors may have 52m Motherland Statue Calls of Liberty played a partin the government’sdecision, Britain 85m 93m Statue 120 but self-interest may have, too. A recent Russia US of Unity Christ the 182m* 90 analysis by the Australian Broadcasting Redeemer 38m India Corporation found that about half of Aus- Spring Temple 60 Brazil Buddha Shivaji Memorial† tralia’s 226 federal parliamentarians own 208m 210m 30 investment properties. China India Instead the governmentsaysitwill seek 0 Sources: Press reports; The Economist *Excluding pedestal, under construction †Proposed, artist’s impression to boost supply. It announced plans to work with the states to make more land available for housing, starting with some both the Treasuryin Canberra and the Aus- cipal to be repaid until the end of the bor- surplus army land in Melbourne. It will tralian Securities and Investments Com- rowing period. fine foreign investors who leave dwellings mission, a corporate regulator, have The central bank frets about an “envi- empty for more than six months. And it warned of a housing bubble. The Grattan ronment of heightened risks” caused by will spend billions on urban transport, ar- Institute, a think-tank, sayshousehold debt the surge in debt linked to housing. Mr guingthat this will put more homes within has reached a record 190% of annual after- Lowe worries that debt is rendering Aus- plausible reach of city-centre jobs. tax income, a rise of 12 percentage points tralia’s economy “less resilient to future In one respect, the property boom has since 2015 (see chart). The Australian Pru- shocks”. He is quick to note that there is lit- been a huge economic boon, helping to dential Regulation Authority, a financial tle sign of stress at the moment, and other perk up investment despite an abrupt supervisor, has sought to cool things economists maintain that Australians are crash in commodity prices which has down. It wants banks to make no more culturally averse to defaulting on their caused new oil and mining projects to dry than 10% of their housing loans to inves- mortgages. But a rise in interest rates or un- up. But the property market could suc- tors, and to cut back on “interest-only” employment, or a fall in housing prices, cumb to problems of its own. The heads of mortgages, which do not require any prin- could nonetheless prove disastrous. 7 FTSE?

Global Headquarters: 49 Charles Street . Mayfair . London . W1J 5EN . +44 (0)20 7290 9585 . WORLDWIDE . www.grayandfarrar.com 24 Asia The Economist May 13th 2017 Banyan The still small voice

Even the Catholic church offers only muted resistance to the Philippines’ violent waron drugs ident’s claim to govern on behalf of the poor. That is because the poor are more likely to be victims. In Pil-homes and Seaside Coast, fearhas replaced a previously reflexive optimism as families are shattered and communities feel under siege. Mr Suasin’s widow sent her children to relatives in the countryside before vanishing in search of work. Mr Ro- bante’s 12-year-old son watched the motorcyclists as they pulled up to his father. Now mute and emaciated, he is ill and trauma- tised—giving up his course of antibiotics for pneumonia because the family had no money. “I voted for Duterte,” says a resident, “but now it’s time forregrets.” A couple of miles north is the National Shrine of Our Mother ofPerpetual Help, a large and teemingCatholic church run by the Redemptorists, an order ministering to the poor. Father Bonifacio Flordeliza reads from John’s gospel, chapter10: “He that entereth not by the door into the sheepfold, but climbeth up some other way, the same is a thiefand a robber…” In his sermon he lays into Mr Duterte: “Do we see compassion, do we see respect? He has no concern forlife. ‘I will kill you ifyou do not do what I want’, he says…Do we see the good shepherd? That is the challenge for us all. What are we doing? What are we doing to protect? No more ORO SUASIN was cheerful and couldn’t hurt a fly, say his victims. No more extra-judicial killings.” Dneighbours in Pil-homes, a slum near Manila’s airport. He The Redemptorists have emerged as a point of opposition to also occasionally used shabu (methamphetamine). Late one Mr Duterte. One priest, Amado Picardal, has been trying to call night two masked men, presumably policemen, barged into his the president to account for extra-judicial killings since the 1990s, shackand shot Mr Suasin in the head in front ofhis wife and chil- during his long tenure as mayor of the city of Davao. During Lent dren. On another night men burst in on a single mother and the order mounted a photographic exhibition of recent murders, shabu-user living nearby as she breast-fed herbaby. They told her earning abuse from Mr Duterte. It gives sanctuary both to those to put the baby down. Then they shot her too. who fearthey might be the assassins’ next target, and to members In the neighbouring slum of Seaside Coast, in the shadow of of death squads who worry about the repercussions of bowing the elevated expressway to the airport (upscale property devel- out. The order also helps victims’ familiesto pay forfunerals. opers do not have the lock on boosterish names), Carlo Robante, The church hierarchy has been slowerto speakout, but is find- with his thick shock of hair, was a fixture at the jeepney stop out- ing its voice at last. In February the Catholic Bishops’ Conference side the KFC branch. He worked as a “barker”, loadingpassengers of the Philippines condemned Mr Duterte’s “reign of terror”. At on to the jeepneys, the Filipino answer to a minibus. He was also the end ofApril the Archbishop ofManila, Cardinal Luis Antonio a small-time shabu dealer. On a recent evening, two men on mo- Tagle, of whom the Redemptorist priests are critical, broke his si- torcycles pulled up. One of them shot Mr Robante in the head, lence about the violence. then both drove off. Crime-scene officers drew a chalk line A Catholic “Caravan for Life” is making its way from Mr Du- around the body, but no one bothered to interview his family. terte’s home turf, on the southern island ofMindanao, to Manila. President Rodrigo Duterte’s war on drugs has killed perhaps It aims to rally opposition not just to the killings, but also to the 9,000 Filipinos. About 2,000 were alleged drug users or dealers death penalty, which Mr Duterte wants to reintroduce. The shot while supposedly resisting arrest. Most ofthe rest were mur- church also opposes the president’s unconscionable bid to lower dered by unknown assailants, often assumed to be policemen or the legal age ofcriminal responsibility from 15 to nine. their lackeys, and rumoured to be paid $100 or more a hit. Extra- judicial killingsare so common theyare referred to by a jauntyac- There’s nothing like Cardinal Sin ronym—EJKs. Mr Duterte often appears to condone or even en- That is all admirable. Yet at a time when the political opposition is courage them, painting addicts and dealers as vermin. He lashes divided and self-serving, few expect the church to fill the breach. out at anyone who criticises his stance and sees no hypocrisy in Not even its own leaders thinkit has the moral authority it had in his admission that he himself has abused painkillers. To put 1986, during the People Power Revolution, when Cardinal Jaime things in context, extra-judicial killings during Mr Duterte’s ten Sin was able to call upon Filipinos to take to the streets to protect monthsin office have been three timesmore numerousthan they the leaders ofthe army, who had broken with Marcos. were during Ferdinand Marcos’s nine years ofmartial law. Catholic Filipinos still worship in droves. But the church is not Mr Duterte remains wildly popular. On the streets the strong their first stop for political or moral guidance. It is often at odds perception isthatdrugsare becomingmuch lessofa problem. But with ordinary folk, such as in its dogged opposition in 2012 to a Social Weather Stations, a research institute, reports that 78% of law which guaranteed universal access to contraception and sex Filipinos say they are “very worried” or “somewhat worried” education. And when Cardinal Tagle spoke out against vigilante that they or someone they know will fall victim to an extra-judi- killings, he took pains to say abortion was equally repugnant. As cial killing. A gap appears to be opening between the top of Phil- for Mr Duterte, he says the church is “full ofshit”, accusing priests ippine society and the hardscrabble bottom. The lower the social of womanising and leading indulgent lives. “He knows”, Father stratum, the greaterthe concern overthe killings, despite the pres- Picardal admits, “how to hit us below the belt.” 7 China The Economist May 13th 2017 25

Also in this section 26 A migrant’s literary hit

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

Health care share of medical cases involve chronic conditions ratherthan acute illnesses orin- Shod, but still shoddy juries. GPs are often better able to provide basic and regular treatment for chronic ail- ments. The country is also ageing rapidly. By 2030 nearly a quarter of the population BEIJING will be aged 60 orover, compared with less than one-seventh today. More family doc- China is trying to rebuild its shattered primary health-care system. Patients and torswill be needed to manage theirroutine doctors are putting up resistance needs and visit the housebound. UEUES at Chinese hospitals are leg- Chinese are enrolled in government-subsi- But setting up a GP system is proving a Qendary. The acutely sick jostle with dised schemes). They have also resulted in huge challenge, for two main reasons. The the elderly and frail even before gates greater funding for community health cen- first is the way the health-care system open, desperate fora coveted appointment tres.In 2015 there were around 189,000 gen- works financially. Hospitals and clinics to see a doctor. Scalpers hawk waiting tick- eral practitioners (GPs). The government rely heavily on revenue they generate from ets to those rich or desperate enough to aims to have 300,000 by 2020. But there patients through markups on medicine jump the line. The ordeal that patients of- would still be only 0.2 family doctors for and other treatments. The government has ten endure is partly the result of a shortage every1,000 people (compared with 0.14 to- curbed a once-common practice of over- of staff and medical facilities. But it is also day—see chart). That is far fewer than in charging patients for medicines. But doc- due to a biggerproblem. Many people who many Western countries. tors still commission needless scans and seek medical help in China bypass general It is not just long waiting-times at hospi- other tests in order to make more money. practitioners and go straight to hospital- tals that necessitate more clinics. People Community health centres are unable based specialists. In a country once famed are living far longer now than they did to offer the range of cash-generating treat- forits readily accessible “barefoot doctors”, when the Communists took over in 1949: ments that are available at hospitals. So primary care is in tatters. life expectancy at birth is 76 today, com- they struggle to make enough money to at- Even in its heyday under Mao Zedong, pared with 36 then. People from Shanghai tract and retain good staff. Most medical such care was rudimentary—the barefoot live as long as the average person in Japan students prefer jobs in hospitals, where a variety were not doctors at all, just farmers and Switzerland. Since 1991, maternal mor- doctorearnsabout80,000 yuan ($11,600) a with a modicum of training. Economic re- tality has fallen by over 70%. A growing yearon average—a paltrysum forsomeone formslaunched in the late 1970s caused the so qualified, but better than the 50,000 system to collapse. Money dried up for ru- yuan earned by the average GP. Hospital ral services. In the cities, many state- Who’s got a doctor? doctors have far more opportunities to owned enterprises were closed, and with General medical practitioners per 1,000 people earn substantial kickbacks—try seeing a them the medical services on which urban 2015 or latest available good specialist in China without offering a residents often relied forbasic treatment. It 0 0.5 1.0 1.5 2.0 fat “red envelope”. was not until 2009, amid rising public an- As a result, many of those who train as ger over the soaring cost of seeing a doctor Australia GPs never work as one. Most medical de- and the difficulty of arranging consulta- Britain grees do not even bother teaching general tions, that the government began sweep- practice. That leaves 650m Chinese with- ing reforms. Goals included making health South Korea out access to a GP, reckon Dan Wu and Tai care cheaper for patients, and reviving lo- Pong Lam of the University of Hong Kong. United States cal clinics as their first port ofcall. The shortage is particularly acute in poor The reforms succeeded in boosting the China and rural areas. The number offamily doc- amount that patients could claim on their torsper1,000 people isnearlytwice as high Sources: OECD; Wind Info medical-insurance policies (some 95% of on the wealthy coast as it is in western and 1 26 China The Economist May 13th 2017

2 central China. Internal migration The second main difficulty is that many ordinary Chinese are disdainful of primary-care facilities, even those with fully A sorry tale GP GP qualified s. This is partly because s PICUN are not authorised to prescribe as wide a A migrant worker’s account ofhertravails creates an unusual stir range of drugs as hospitals can, so patients prefer to go straight to what they regard as ATIVESofChina’s capital find it all literary passion and flair—migrants from the best source. There is also a deep mis- Ntoo easy to ignore the millions of the countryside are often regarded as trustoflocal clinics. The facilities often lack people who have moved to the city from uncultured bumpkins. Within days, her fully qualified physicians, reminding the countryside. The newcomers live on essay had been viewed millions oftimes. many people of barefoot-doctor days. Chi- building sites, or in windowless rooms in She has become such a celebrity in China nese prefer to see university-educated ex- the basements ofapartment blocks. that she appears to have gone into hiding perts in facilities with all the mod cons. Many ofthem rent cramped accommo- to escape local reporters who have been Patients have few financial incentives dation in ramshackle “migrant villages” searching forher. to consult GPs. Even those who have insur- on the city’s edges. Beijing-born residents As a girl, Ms Fan devoured Chinese ance still have to meet 30-40% of their out- often treat the outsiders with scorn, literature as well as novels in translation patient costs with their own money. Many blaming them formuch ofthe city’s such as “Oliver Twist” and “Robinson preferto pay fora single appointment with crime and its pockets ofsqualor. It is Crusoe”. For the past few years she has a specialistratherthan see a GP and riskbe- usually only when the “peasant work- lived in Picun, a migrant settlement on ing referred to a second person, doubling ers” flockbackto their home towns to the outskirts ofBeijing. There she has theirexpenditure. Since the cost ofhospital celebrate the lunar new year that Bei- used the little time offshe has from her appointments and procedures is similar to jingers grudgingly admit the migrants are job as a nanny to write essays and poetry. charges levied at community centres, see- essential—fora grim few weeks the city is The widely held stereotype has it that ing a GP offers little price advantage. bereft ofdelivery boys, street vendors China’s migrants leave their rural lives The government’s efforts to improve and domestic helpers. behind forone reason only: to earn more the system have been piecemeal and half- Recently, however, one such worker money than they could in their villages. hearted. Primary-care workers are now has caused a national stir with an auto- Readers ofMs Fan’s account discovered guaranteed a higher basic income, but are biographical workcirculated online. The that some have a bigger dream—ofintel- given less freedom to make extra money 7,000-character essay, titled “I am Fan lectual improvement. “I couldn’t bear to by charging patients for services and pre- Yusu”, describes the hardships ofMs Fan stay in the countryside viewing the sky scriptions. This has helped clinicians in (pictured): the deprivations ofher rural from the bottom ofa well, so I went to poor areas, but in richer ones, where pre- childhood; her hand-to-mouth urban Beijing,” wrote Ms Fan, who is 44. scribing treatments had been more lucra- existence after she left home at the age of That this could be a surprise is a sign tive, it has left many staffworse off—partic- 20; and her marriage to an abusive and ofpervasive urban snobbery. Tens of ularly when they have to see more patients alcoholic man whom she eventually thousands ofpeople have posted com- forno extra pay. abandoned. Since then, she has looked ments on Ms Fan’s essay, many express- It would help ifthe government were to aftertheir two daughters alone. ing sympathy with her travails and prais- further reduce the pay gap between GPs Few city-born Chinese would be ing her writing. Many others, however, and specialists. It is encouraging GPsto surprised by such a story. What has cap- have not been able to resist nitpicking earn more money by seeing more patients tured their imagination is Ms Fan’s ambi- over her style, as iftrying to prove that and thus increase revenue from consultation and determination, as well as her someone from the countryside who did tion fees. In big cities such as Beijing and not complete high school could ever Shanghai patients are being urged to sign write truly polished prose. One blogger contracts with their clinics in which they called the essay “a bowl ofcoarse rice”. pledge to use them for referrals to special- Urbanites’ usual disregard forrural ists. In April the capital’s government migrants is evident in Picun, which is raised consultation fees at hospitals, hop- home not only to Ms Fan and more than ing to encourage people to go to communi- 20,000 other people from the country- ty centres instead. Fearinga backlash, it has side, but also to the capital’s only muse- also pledged to reduce the cost to patients um that pays tribute to the migrants’ ofdrugs and tests. contributions to city life. The privately Despite the government’s reforms, un- run institution is small and receives very deruse of primary care has actually wors- few visitors—a pity, given how it rein- ened. In 2013, the latest year for which data forces Ms Fan’s story (she has taken part are available, GPs saw a third more pain a writers’ workshop there). The exhib- tients than in 2009. But use of health-care its make clear that the migrants routinely facilities increased so much during that sufferfrom dangerous workconditions, time that the share ofvisits to primary-care the withholding ofwages and state- doctors fell from 63% of cases to 59% (the imposed barriers in their access to hous- World Health Organisation says it should ing, education and health care. be higher than 80%, ideally). For poor rural Migrants from the countryside num- households, health care has become even bered 282m at the end oflast year, 4m less affordable. And public anger has more than in 2015 (an increase in just one shown no sign ofabating. Every year thou- year equivalent to the population of Los sands ofdoctors are attacked in China—de- Angeles). The hardships portrayed in the spite the police stations that have been museum and in Ms Fan’s writings are opened in 85% of large-scale hospitals. It is Migrants aren’t supposed to look like this shared by nearly all ofthem. not a healthy system. 7 United States The Economist May 13th 2017 27

Also in this section 28 Special prosecutors 28 The scourge of opioids 30 Lexington: Palace whispers

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

The sacking of James Comey failed to appreciate what a big deal sacking Mr Comey would be. Seemingly immune Biting the hand that made him to the norms that have constrained most of his predecessors—including Nixon, who took far greater pains to hide his ethical shortcomings—Mr Trump is steadily rede- fining the extent to which politics is the art WASHINGTON, DC of getting away with it. And Mr Comey, four years into a ten-year term, was so hat- Donald Trump’s move against the FBI directorwas eitherincompetent ormalign ed by Democrats that the president per- HEN the FBI director first learned of resources for the investigation. His firing haps banked on his removal stirring little Whis sacking by Donald Trump, after therefore “raises profound questions serious opposition. He had already fired as news of it flashed up on television screens about whether the White House is brazen- many senior figures as most presidents get at an event he happened to be attending in ly interfering in a criminal matter”, said through in a term, including the acting at- Los Angeles, he thought it was a joke. That Adam Schiff, a Democratic congressman torney-general, Sally Yates, and his first na- sentence can be confidentlybequeathed to and leading light in a separate investiga- tional security adviser, Mike Flynn. The future historians of the 45th president. It tion into the Russia allegations in the former, among several affronts to the ad- points to the central, crazy conundrum of House ofRepresentatives. ministration, had noted that Mr Flynn was Mr Trump’s administration, the answer to A handful of Republican senators, in- secretly in cahoots with the Russian am- which could determine either the future of cluding Richard Burr (who is leading a sep- bassador; the latter was sacked after jour- the republic, or something much less than arate Senate investigation into Russian nalists rumbled that story. that. Is the administration chaotic and un- meddling), John McCain and Ben Sasse, Mr Comey’s unpopularity on the left worthy of its place in a mighty tradition, appear to sympathise. Sacking Mr Co- stemmed from his decision to inform Con- but more farcical than corrupting—a mad- mey—who now has no party registration, gress, 11 days before the general election cap approximation of government by a re- butwasa Republican when BarackObama last November, that he was reopening an ality-television star? Or is Mr Trump, who appointed him—in the thick of such an im- investigation into an already raked-over has just become the first president since portant investigation seemed hard to justi- and, as it turned out, overblown scandal Richard Nixon to fire a man who was lead- fy, they said. Unless, they might have add- concerning Hillary Clinton’s e-mail ar- ing a formal investigation into his asso- ed, Mr Trump had something to hide from rangements as secretary of state. He did ciates, and perhaps himself, a threat to him. Mr Comey, noted Mr Burr, had been not, it later transpired, at the same time see American democracy? “more forthcoming with information” fit to inform Congress of the FBI’s concur- The Democrats naturally suspect the than any ofhis predecessors. rent counter-espionage investigation into worst. Even before Mr Comey’s sacking, If the president nominates one of his members ofthe Trump campaign. they were demanding that Congress’s Re- stooges, such as Rudy Giuliani or Chris This intervention may have cost Mrs publican leaders should launch a special Christie, to replace Mr Comey, that opposi- Clinton the presidency. Herfive-point lead investigation into the subject ofhis probe— tion will grow. Such a nominee would in the polls promptly tumbled to two Russia’s efforts to swing last year’s election struggle to win Senate confirmation. Alter- points—the margin of her eventual victory forMr Trump—to safeguard it against polit- natively, the president will have to name a in the popular vote. That did not to prevent ical meddling. It emerged that Mr Comey’s worthier replacement—and risk that new Mr Trump, thanks to electoral-college inquiries had led him to the peculiar close- director taking up where Mr Comey left off arithmetic, squeaking to victory. The un- ness to Russia of two of Mr Trump’s some- with redoubled gusto. Either way, if Mr convincing defence of his actions Mr Co- time advisers, Roger Stone, a libertarian Trump’s intention was to shut down the mey has since offered, including in testi- gadfly, and Paul Manafort, formerly the Russian intrigue, he has probably failed. mony to Congress on May 3rd, has only president’s campaign chief. The FBI direc- To give the president the benefit of the highlighted how misjudged they were. A tor was also said to have requested more doubt, it is just about conceivable that he recent admission that, despite his clear 1 28 United States The Economist May 13th 2017

2 conscience, a notion that he might have in- fluenced the election made him feel “mild- ly nauseous” was additionally irritating. Mr Trump claims to have axed Mr Co- mey in part because ofthis error. That is incredible. Never one to look a gift-horse in the mouth, the president had formerly praised Mr Comey’s “guts” in going after Mrs Clinton (though he criticised him for not pressing charges against her). The least- troubling alternative interpretation is that he had simply wearied of an FBI director whose independent-mindedness he has seemed increasingly to resent, including, but not only, over his dogged pursuit of the Russia investigation. Alternatively Mr Trump’s doubters are right, and he is in real fear of the FBI probe. His notice letter to Mr Comey—hand-delivered to the FBI director’s desk, in a nice Trumpian touch, by the president’s former bodyguard—strained to allay that impres- have short memories,” observes Josh a hearingofa Senate judiciary subcommit- sion. “While I greatly appreciate you in- Blackman, of South Texas College of Law, tee this week underscored the problem. forming me, on three separate occasions, ofthe yen fora similar fix today. Told that the White House ignored warn- that I am not under investigation, I never- The relevant law expired in 1999. The ings about the (now former) national secu- theless concur with the judgment of the option now is for a special counsel to be rity adviser, Mike Flynn, being vulnerable Department ofJustice that you are not able appointed by the attorney-general, or, in to blackmail, Ted Cruz chose to ask about to effectively lead the bureau,” Mr Trump this case, his deputy—since Jeff Sessions Hillary Clinton’s e-mails. wrote. It read almost like a cry forhelp. 7 has recused himselffrom all Russia-related Still, there are signs that some Republi- decisions after misleading senators about cans are coming round. A congressional his contacts with the Russian ambassador. panel would be fraughtand slowbut, espe- Special prosecutors Unhappily, Rod Rosenstein, Mr Sessions’s cially if the FBI’s work is now shelved, it deputy and so the man who would take might be the best way to unearth the truth. Starry night charge of such an appointment, was also Otherwise, hope rests on a combination of involved in Mr Comey’s removal. Having two things Mr Trump hates: a robust press, installed a special counsel, Mr Rosenstein and leaks. 7 could fire him. Moreover, afterMrComey’s ATLANTA dismissal, supposedly at Mr Sessions’s rec- ommendation, the attorney-general’s own Opioids There is no neat way ofinvestigating recusal seems less convincing. high-level misbehaviour John Barrett of St John’s University in A selective scourge OR many Americans, the term “special New York, who worked for the indepen- Fprosecutor” invokes the spectre of Ken- dentcounsel in the Iran-Contra affair ofthe neth Starr, whose long pursuit of the Clin- 1980s, points out that the terms of an ap- tons led eventually to Bill’s impeachment. pointment could give a prosecutor broad LOS ANGELES The analogy points to two big objections investigative clout. There would be an al- Opioid deaths say more about drug faced by those who urge the appointment mighty stink if he were dismissed without markets than about white despair ofa similar figure now. First, such inquiries good cause, as there was when Richard can seem interminable, punitive and bi- Nixon ordered the firing of Archibald Cox, HEY have America in a deadly grip. In ased; second, the office that Mr Starr once the special counsel looking into Watergate. T2015, the most recent year forwhich full occupied no longer exists. That said, Mr Trump’s brutal treatment of statistics are available, 33,091 Americans Even before the dismissal of James Co- Mr Comey suggests that the president died from opioid overdoses, according to mey, who oversaw the FBI’s probe into might be willing to hold his nose. the Centres for Disease Control—almost links between Donald Trump’s campaign The alternative is for Congress to estab- three times the number who perished in and Russia, many Democrats were dissat- lish either a bipartisan committee com- 2002. Nearly as many Americans were isfied with the various inquiries already in prised of its members—a variant favoured killed by opioids in 2015 as were killed by train. Since Mr Comey went, two solutions by Senator John McCain—or an indepen- guns (36,132) or in car crashes (35,092). In have been energetically pressed. One is a dent commission made up of outside ex- the state ofMaryland, which releases more special or independent prosecutor. Under perts. The Church Committee, which timely figures, drug-overdose deaths were a law passed after the Watergate scandal, looked into intelligence skulduggery in the 62% higher in the first nine months of 2016 to boost the credibility of those scrutinis- 1970s, was in the formercategory; the com- than a year earlier. ing the executive, appointments such as mission that examined the terrorist attacks The opioid epidemicisquite unlike past Mr Starr’s were made by a panel of judges; ofSeptember11th 2001fell into the latter. drug plagues. Deaths are highest in the the prosecutors had the authority to bring The danger is that partisanship might Midwest and north-east, among middle- charges. Quite often they did not. Never- forestall either idea entirely. It has already aged men, and among whites. Some of the theless, both political parties came to be- undermined the House Intelligence Com- worst-affected counties are rural. In 2013 a lieve that the arrangement invested too mittee’s inquiry, which was almost cap- 40-year-old woman walked into a chem- much power in one person, who could use sized by the antics of Devin Nunes, its ist’s shop in the tiny settlement of Pine- it to wage a remorseless campaign. “People chairman. He has recused himself too, but ville, West Virginia, pulled out a gun, and 1 The Economist May 13th 2017 United States 29

2 demanded pills. Don Cook, a captain in are east ofthe Mississippi river. the local sheriff’s department, says he con- “Once a drug gets into a population, it’s tinues to nab many people for illegally very hard to get it out,” explains Peter Reu- trading prescription painkillers. ter, a drugs specialist at the University of The epidemic is, in short, concentrated Maryland. “But if it doesn’t get started, it in Donald Trump’s America. (Commend- doesn’tgetstarted.” Itisneverentirely clear ably, Mr Trump raised the danger of why a drug catches on in one place but not opioids on the campaign trail; sadly, he has another. There is, however, a possible ex- done little since becoming president be- planation for why heroin and synthetic yond setting up a commission.) It has even opioids have not yet taken off in western been argued that the opioid epidemic and states: the heroin market is different. the Trump vote in 2016 are branches of the Although most heroin enters America same tree. Anne Case and Angus Deaton, from Mexico, there are really two traffick- both economists at Princeton University, ing routes. Addicts west of the Mississippi roll opioid deaths together with alcohol mostly use Mexican brown-powder or poisonings and suicides into a measure black-tar heroin, which is sticky and vis- they call “deaths of despair”. White work- cous, whereas eastern users favour Colom- ing-class folk feel particular anguish, they bian white-powder heroin. According to explain, having suffered wrenching eco- the DEA, in 2014 over 90% of samples clas- nomic and social change. sified as South American heroin were As an explanation for the broad trend, seized east of the Mississippi, while 97% of that might be right. Looked at more closely, Mexican heroin was purchased to the though, the terrifying rise in opioid deaths west. The line is blurring—Mexicans are in the past few years seems to have less to The cops can’t save everyone pushing into the white-powder trade, and do with white working-class despair and blacktar is creeping east—but it still exists. more to do with changing drug markets. ternet. Fentanyl is usually added to heroin White-powder heroin looks much like Distinct criminal networks and local drug to make it more potent oris made into pills, a crushed pain pill, making it comparative- cultures largely explain why some parts of which can resemble prescription painkill- ly easy to switch from one to the other. It is America are suffering more than others. ers. Because it is such a powerful drug—at also fairly easy to mix white-powder her- Opioidscan be divided into three broad least 50 times stronger than heroin—the oin with a powder such as fentanyl. Black groups. First, and mostnotorious, are legiti- smuggling is easy and the potential profits tar is more distinct and harder to lace with mate painkillers such as OxyContin. are huge. One DEA official has explained other substances because of its stickiness Heavily prescribed from the 1990s, some that a kilogram of fentanyl from China and colour; mixing in white powder can of these pills were abused by people who costs about $3,000-5,000 and can be put buyers off. “The lore on the street is: the defeated their slow-release mechanisms stretched into $1.5m in revenue in America. lighter in colour brown-powder or black- by crushing and then snorting or injecting By comparison, a kilogram of heroin pur- tar heroin is, the less heroin it has,” says them. The second group consists ofpower- chased for $6,000 translates to $80,000 on Jane Maxwell, a researcher at the Universi- ful synthetic opioids such as fentanyl and the street. ty ofTexas at Austin. carfentanil. These have legitimate medical Yet not all addicts make the switch from The West’s distinctive heroin market uses, but are often manufactured illicitly one kind of opioid to another. In West Vir- has probably deterred many painkiller ad- and smuggled into America. The third ginia, Mr Cookhardly ever encounters her- dicts from trying the drug, and has kept opioid is heroin, derived from opium pop- oin—perhaps, he suggests, because no ma- synthetic opioids at bay. Outbreaks have pies, almost all ofit illegally. jor highway runs through his patch. occurred, though. In just two weeks in Until about 2010 the rise in opioid Whereas the death rate from prescription 2016, 52 people overdosed and 14 ultimate- deaths was driven by the abuse of legiti- painkillers is more or less the same in ly died near Sacramento, in California, mate painkillers, which are sometimes America’s fourregions, deaths from heroin after taking counterfeit hydrocodone pills called “semi-synthetic” because they are and synthetic opioids are high in the Mid- laced with fentanyl. In New Mexico, fenta- derived from plants. In the past few years, west and north-east, middling in the South nyl disguised as black-market oxycodone though, heroin and synthetic opioids have and low in the West (see chart 2). All eight is thought to have killed 20 people last become bigger threats (see chart 1). Some states where police agencies reported 500 year. This is a rare case where one should addicts have moved from one class of or more encounters with fentanyl in 2015 pray that America stays divided. 7 opioid to another. The Drug Enforcement Administration (DEA) estimates that almost four out of five new heroin users pre- Quieter on the western front viously abused prescription drugs. United States, drug-overdose deaths Heroin Natural and semi-synthetic opioids Synthetic opioids* OxyContin pills can no longer be ’000 2015, per 100,000 population† crushed as easily, and doctors have be- 1 2 come more wary of prescribing powerful 14 7 painkillers. As a result, between 2012 and 12 6 2016 opioid prescriptions fell by 12%. Her- oin can be cheaperand easierto obtain. Ac- 10 5 cording to one narcotics officer in New 8 4 Hampshire, a 30-milligram prescription 6 3 pain pill sells for$30 on the street. A whole 4 2 gram ofheroin can be had for$60-80. 2 1 Fentanyl is cheaper still. It is often made in Chinese laboratories and smuggled into 0 0 2000 05 10 15 WestSouth Midwest Northeast US America; some traffickers obtain it through Source: Centres for Disease Control and Prevention *Including fentanyl and tramadol, excluding methadone †Age-adjusted the dark web, an obscure corner of the in- 30 United States The Economist May 13th 2017 Lexington Palace whispers

Even Republican senators lookat Donald Trump and despair cans is a mixture of incredulity and gloom, as each political success (the confirmation of Neil Gorsuch as a Supreme Court justice, deftly handled cruise-missile strikes on Syria) is followed by a momentum-killing outburst from the president. Some cast Mr Trump’s woes as a crisis of messaging and of White House staff discipline. At a recent lunch for Senate Repub- licans, SenatorMitch McConnell ofKentucky, the owl-like majority leader, scolded Mr Pence over a Trump tweet that suggested a government shutdown might be a nifty idea. You don’t believe that, we don’t believe that, and that sort of tweet only makes our lives harder, Mr McConnell reportedly told the vice-president. Prominent Republicans and Democrats have offered Mr Trump the same advice: find a chief of staff in the ferocious mould of James Baker, chief enforcer in the White Houses of Ronald Rea- gan and George H.W. Bush. Some senators have still more specific counsel to offer. They urge Mr Trump to create a domestic policy team that apes the professionalism of his national security team. They praise his second national security adviser, Lieutenant- General H.R. McMaster, for turning around a group left in chaos by his ill-starred predecessor, Mike Flynn, and hail the way that his defence secretary, James Mattis, works with the secretary of T IS too soon to know whether Donald Trump’s sudden, regal state, Rex Tillerson. Not only do the chieftains of the Pentagon Idismissal ofthe FBI director—“Offwith hishead!”—will trigger a and State Department meet on their own at least once a week for constitutional crisis. Much depends on who is appointed to suc- breakfast to share their thinking, when recommending policies ceed James Comey, and on the fate of FBI probes into Russian they try to present the president with a single option. meddling in the election of2016. In their darker moments, though, some grandees on Capitol It is not too soon to make a more general observation. Less Hill wonder if what ails this presidency goes beyond unwise than four months into the reign of King Donald, his impetuous tweeting or the lack of a gatekeeper who can shield Mr Trump ways are making it more likely that his presidency will be a fail- from what one Republican describes as “people filling his head ure, with few large achievements to its name. That is not journal- with stupid”. It has become a commonplace, especially on the istic snarkbut a statement offact, based on warnings from promi- right, to accuse the press of exaggerating palace intrigues in nent Republicans and Democrats, notably in the Senate. Trump World. If only that were true. In fact, powerful folk in The 100 members of the Senate have a touchy relationship Washington routinely describe Mr Trump in shockingly dismis- with every president. They are grandees, with a keen sense ofsu- sive terms. He is compared to an easily distracted child who must periority over the toiling hacks who serve in the House of Repre- be kept “on task”. Foreign allies talk of a president on a learning sentatives and the here-today-gone-tomorrow political appoin- curve. Senior Republicans call him out of his depth. Bigwigs call tees who run the executive branch. Senators are treated as the president a surprisingly good listener. But they also call him princes when they travel overseas, briefed by grizzled American easily flattered. They think him capable of doing “cheap deals” generals and treated to tea by local potentates. In their dreams, with such powers as China, after a summit at which President Xi election campaigns might still involve addressing crowds from Jinping dazzled Mr Trump with talk of how, to an ancient power the flag-draped caboose of a private train. Small wonder, then, like his, 1776 feels like yesterday. that senators often resent the still-grander life of a president. Yet their dismay over Mr Trump sounds different. The royal touch As the Trump era began, Democratic senators recalled how Official Washington is realising that the real problem is not that this populist president had scorned both parties on the campaign Mr Trump hears competing advice from warring White House trail, and wondered whether he might seek new, bipartisan co- factions—a fierily nationalist camp led by his chief strategist, Ste- alitions to help hard-pressed working Americans. Democrats phen Bannon, and a pragmatic group led by his son-in-law, Jared would muse, offthe record, about the terms they would demand Kushner. Those factions persist because they each represent an for supporting policies like a vast infrastructure programme. Per- authentic part of Mr Trump’s worldview. He is by deep convic- haps, for example, they might seek union wage rates for workers tion a nationalist with a grievance, convinced that America has building Mr Trump’s new airports and bridges. Republican sena- let others take advantage for too long. If he is sometimes more or tors worried, privately, about the same thing from the other side. less confrontational, it is a matter oftactics, not belief. They fretted that their new president would strike bargains with At the root of each fresh crisis lies Mr Trump’s character. If he the new Democratic leader in the Senate, the canny, deal-cutting were a king in velvet and ermine that would matter less. But he is Charles Schumer of New York. To comfort themselves, Republi- an American president. To get his appointees confirmed, budgets cans imagined Mr Trump as a sort of salesman-CEO, selling com- passed, and reformsagreed, MrTrump needsCongress, and nota- prehensive tax reform and deregulation to the masses while de- bly a Senate in which his party enjoys the slimmest ofmajorities, legating day-to-day government to conventional conservatives and he has ever-fewer admirers. Partyloyalty may save him from such as his vice-president, Mike Pence. a revolution. But, startlinglyearlyon, hisown colleagues are start- Not any more. Increasingly the mood among Senate Republi- ing to wonder what King Donald is for. 7 The Americas The Economist May 13th 2017 31

Also in this section 32 Bello: Venezuela is not an island 33 Cash for Cuban clunkers 33 Judging Argentina’s dirty war

Gangs in Mexico nacio Mier Bañuelos, a state congressman whose district has many petrol thefts. Crime’s new geography Fuel thievery is emblematic of a new pattern of crime. Mexico’s most violent year of recent times was 2011, at the height of a war on drugs waged by the then-president, Felipe Calderón. As drug gangs bat- SAN SALVADOR HUIXCOLOTLA tled security forces—and each other for control oftrafficking routes into the United Gangs are more fragmented, but no less lethal States—the northern states were Mexico’s N A Monday afternoon cars queue up The rise is caused in part by the govern- killing fields. That year Mexico had 22,852 Oto enter the wholesale market outside ment’s decision late last year to raise the murders. The number subsided under Mr San Salvador Huixcolotla, a town in the price ofpetrol, which had been subsidised. Calderón’s successor, Enrique Peña Nieto, state of Puebla, in south-central Mexico. It has transformed Puebla, where a quarter who de-escalated the drug war. Two shabbily dressed young men warily of the thefts took place, and Guanajuato But the killing is now back to its worst eye the number plates and drivers. When from relatively peaceful states into moder- levels. Ifthe year continues as it has begun, your correspondent identified himself as a ately violent ones (see map). In the first the number of murders in 2017 will be the journalist, they lifted their T-shirts over three months of 2017 Puebla had 185 mur- highest yet. There were 6% more homi- their faces and brusquely ordered him to ders, 50% more than during the same per- cides in the first three months of 2017 than leave. They do not want inquisitive outsid- iod in 2011, the last peakofkillings. On May during the same period in 2011. But the dis- ers. That is because, alongside produce 3rd this year at least ten people, including tribution ofviolence is changing. As north- from nearby farms, the market sells stolen four soldiers, died in the town of Palma- ern gang wars wind down, smaller-scale petrol. One ofthe sentries sported a length rito, 20km (12 miles) from San Salvador battles are erupting in the south. ofpetrol-siphoning hose as a hatband. Huixcolotla, in a clash between the army One reason for this is the change in the Fuel theft is increasing in Mexico, and and illegal tappers. Since then, more sol- way gangs operate, brought about by the Puebla is its focal point. Thieves drill into diers have arrived. “Today we have a pro- drugs war. Police targeted their bosses, of- the pipeline that passes through the state— blem that is out of control,” says Carlos Ig- ten successfully. Leaderless gangs do not1 where it is more accessible than in neighbouring states—install a tap and drain the liquid. They sell it offthe backs of trucks on Murder moves south roadsides and in markets like the one near Mexico, % change in murders Murder rate San Salvador Huixcolotla. The price is By state, January–March, 2011-2017 per 100,000 population around seven pesos (37 cents) a litre, less 100 50 25 - 0+ 25 50 100 250 500 80 than halfwhat it costs in petrol stations. This enterprise is the most important new form of organised crime in Mexico, 60 says Eduardo Guerrero, a security consultant. Though itdoesnotmatch drug-traffick- Guanajuato Mexico ing for violence and cashflow, it is growing 40 fast and unsettling investors in energy, one Mexico City Sinaloa ofthe country’smostimportantindustries. Puebla In 2006 the pipeline network operated by Jalisco 20 Pemex, the national oil company, had 213 il- Manzanillo United States legal taps. Lastyearthatnumberjumped to * San Salvador Huixcolotla 0 more than 6,800. The thefts cost the com- Palmarito 1930 40 50 60 70 80 90 2000 10 16 pany 30bn pesos in lost sales and repair Sources: Mexican Interior Ministry; INEGI; FBI; Manuel Aguirre Botello; Megan Sasinoski *Estimate bills last year. 32 The Americas The Economist May 13th 2017

2 disappear. Instead, lower-level gangsters tributing drugs locally and on such crimes its early stages it has freed many suspects fight for control or leave to form their own as kidnapping and extortion. Both have in- who should have been jailed, says Alejan- groups, leading to a violent reordering of creased by around 20% Mexico-wide be- dro Hope, a security analyst. The violence the organised-crime hierarchy. The re-ar- tween the first three months of 2016 and feeds on itself: killings lead to vendettas. rest last year of Joaquín “El Chapo” Guz- the same period this year. Fuel theft also The show ofmilitary force in Palmarito, mán, the boss of the Sinaloa gang, six suitsdownsized gangs. MrMiersaysthat in ordered by the federal government, sug- months after his escape from prison, trig- his area of Puebla the business is run by gests that neither the state nor the federal gered conflicts within the group. The gang three gangs in two towns just 20km apart. law-enforcement authorities know how to also clashed with rivals seeking to exploit Other reasons for the spike in murders deal with the new sort of violence. “The its weakness, notably the Jalisco New Gen- include a rise in opium production to feed army doesn’t act with intelligence or strat- eration gang, with which it fought in the growing American demand and the elec- egy,” says Mr Mier, “only violence.” It will port ofManzanillo and elsewhere. tion last year of 12 new state governors, soon leave, he predicts, lettingthe pipe-tap- The smaller gangs lack the manpower who brought in new and less experienced pers return to work. and management skills to run full-scale police chiefs. A new criminal-justice sys- The odds are that the upsurge of vio- drug operations. They concentrate on dis- tem is supposed to make trials fairer, but in lence will not soon be contained. The fed-1 Bello Venezuela is not an island

Latin America wakes up to its biggest headache OU find them driving taxis in Buenos This opens up scope—and a need—for YAires, workingas waiters in Panama or diplomacy to help broker a return to de- selling arepas (corn bread) in Madrid. The mocracy. But who could lead that effort? number of Venezuelans fleeing hunger, “Dialogue” became a dirty word for the repression and crime in their ruptured opposition after Mr Maduro last year ex- country grows by the day. For years, Latin ploited talks organised by the South American governments kept quiet as first American Union (Unasur) and the Vati- Hugo Chávez and then his successor, Ni- can to gain time. colás Maduro, hollowed out Venezuela’s Behind the scenes, several overlap- democracy. Now their economic bung- ping initiatives are under way. Argentina ling and Mr Maduro’s increasingly harsh has replaced Venezuela in chairing Un- rule are causing a humanitarian crisis that asur. The tenure ofErnesto Samper, a cha- the region can no longer ignore. At last, it vista sympathiser, as its secretary-general is not. has ended. At a meeting in Quito on May Colombia and Brazil bear the brunt of 23rd, Unasur’s foreign ministers may the Venezuelan exodus. By one unofficial choose as his replacement José Octavio estimate, more than 1m Venezuelans now Bordón, a well-connected Argentine dip- live in Colombia, though many have dual elections, the recognition of the legislature lomat and formerpolitician. nationality. Colombian mayors have and the freeing of political prisoners. On Several presidents are talking about started blaming the migrants for unem- April 26th, 19 of the 34 members of the Or- setting up an ad hoc group of countries of ployment and crime. Last year more than ganisation of American States (OAS), a re- the kind that negotiated an end to the 7,600 Venezuelans sought care at hospi- gional body, voted to convene a meeting of Central American civil wars of the 1980s. tals in the Brazilian state of Roraima, foreign ministers to discuss Venezuela. They would like to get the UN involved, straining facilities and supplies of medi- Getting his retaliation in first, Mr Maduro but António Guterres, its new secretary- cine, according to Human Rights Watch, a said that Venezuela would leave the OAS. general, has been cautious. The group pressure group. This week the mayor of He retains the support of 25% of the might have to include Cuba and the Unit- Manaus in the state of Amazonas de- population and of the security forces ed States, which both have interests in clared an emergency after hundreds of (some from ideological conviction, others Venezuela. Although Donald Trump’sad- Venezuelans turned up. because of perks or corruption). His recent ministration may impose unilateral sanc- The flood of refugees is one factor gal- actions suggest that he plans to turn Vene- tions on Venezuelan officials (it has al- vanising the region’s governments. The zuela into an autarkic dictatorship in the ready done so against the vice-president, other is Mr Maduro’s descent into dicta- mould ofFidel Castro’s Cuba. Tareck El Aissami), it would be wiser to torship. This accelerated in March when That would not be easy. Unlike Cuba, join a co-ordinated regional effort. the puppet supreme court decreed, in ef- Venezuela is not an impregnable island Any negotiation would have to in- fect, the abolition of the opposition-con- and it has a democratic culture. Mr Madu- volve an amnesty. That would be anathe- trolled legislature. Although partially re- ro’s actions are opening up fissures in his ma to many in the opposition, who want versed, this sparked continuing protests. chavista movement. Three army lieuten- to see the regime’sleaderson trial for mur- MrMaduro announced plansto arm a mi- ants have sought asylum in Colombia. The der and corruption. But the opposition litia and, this month, to convoke a hand- attorney-general, several retired generals lacks the strength to bring Mr Maduro picked assembly to rewrite Chávez’s con- and former ministers criticised the judicial down. Perhaps the army will do that job, stitution of 1999. He is using military coup against the legislature. “The govern- but this is neither certain nor necessarily courts against protesters. ment is losing control,” Miguel Rodríguez desirable. Sooner or later, both sides may In response, 14 governments, includ- Torres, who wasMrMaduro’sinteriormin- have to return to the negotiating table—or ing those of Argentina, Brazil and Mexico, ister, told the Wall Street Journal this week. watch as ever more Venezuelans take the have united to demand a timetable for He warned of“anarchy on the streets”. road to exile. The Economist May 13th 2017 The Americas 33

2 eral government has found no strategy to discount. Petrol was almost free. Argentina’s dirty war replace Mr Calderón’s discredited war on Cuba’s hesitant opening ofits economy drugs, apart from sporadic military de- allowed the carmarket a bit more freedom. Short sentences ployments. Many state and local police Since 2013 individuals have been able to forces lack the professionalism to curb buy and sell used cars without official per- violent crime. Municipal police, some of mission. New cars can only be sold in gov- whom collaborate with criminals, are not ernment-owned dealerships like Multi- BUENOS AIRES trusted. Law-enforcement officials at all marcas. The island’s spotty internet access A fight overhow to punish the servants levels need more data and a better under- makes it hard forbuyers to compare prices. ofa brutal dictatorship standing of why violence happens where Many find vehicles by word of mouth and it does, says Ernesto López Portillo of the through Revolico, used by individual sell- ORE than 40 years have passed since Institute for Security and Democracy, a ers and wildcat dealers. Cubans download MArgentina’s generals seized power. think-tank. it via the paquete, a portable hard drive de- They kidnapped, tortured and killed thou- With 18 months left in office, Mr Peña is livered by courier weekly to their houses. sands of Argentines whom they saw as a unlikely to begin any bold crime-fighting The rate of car ownership, 20 per threat to western civilisation. Democracy programmes. But petrol thievery is not the 1,000 people, is one of the world’s lowest. was restored in 1983, but many perpetra- hardest problem to solve. “Pemex knows The government keeps a lid on imports. It tors of those crimes have never been pun- where it is happening,” notes Mr Guerrero. has allowed in 2,000 cars a year for the ished. Of the 2,780 people who have been That gives the police a place to start. 7 past five years. But its cautious economic charged with human-rights violations liberalisation has stoked demand. A new since 2006, just750 have been found guilty. class ofentrepreneurs, called cuentapropis- Now, some Argentines fear, even that Cuba tas, is eager to buy, as are Cubans with cash incomplete justice is being weakened. On from relativesabroad. So in the market cars May3rd the country’ssupreme courtmade Cash for clunkers behave more like prime property, whose a decision that could free as many as 248 supply is restricted, than depreciating ma- prisoners. The case relates to Luis Muiña, chines. One dealer says he has bought and who in 2011 was sentenced to 13 years in sold two cars in the past year for a profit of prison for the kidnap and torture of five CUC CUC HAVANA 20,000 , far more than his 25 -a- people in 1976. The court ruled that, under month salary from the state. He prefers not Argentina’s “two-for-one” law, some ofthe Why the used-carmarket behaves like to know much about the buyers: they time he had spent on remand should re- the prime-property market probably do not declare their money. duce his sentence by double that amount ULTIMARCAS, a car dealership on A cuentapropista couple in Havana of time. This cut it by eight years. His re- Mthe outskirts of Havana, is not a con- bought a 2011-model European saloon for lease on parole in April was thus legal. ventional showroom. On a recent visit it 30,000 CUC four years ago and sold it for Since democracy was restored, politics contained one salesman and, despite the 45,000 CUC; they traded up to a used SUV has dictated how the crimes ofArgentina’s promise ofvariety in its name, just one car: for 100,000 CUC. “We could have got “dirty war” are treated. A truth commis- a 2014-model Kia Picanto with no miles on many BMWs for the same price in the Un- sion established that at least 8,960 people its odometer. The price would cause the ited States,” says the wife. Another haban- had been murdered. After military upris- most spendthrift American or European to ero sold a house to buy a 25-year-old VW ings against the democratic government of blanch: 68,000 Cuban convertible pesos Golf for 10,000 CUC. In ten years its value Raúl Alfonsín in the late 1980s, the govern- (or CUC, each of which is worth a dollar). has doubled. “I could sell it for a couple of ment introduced amnesty laws and par- That is seven times what a Kia Rio, a simi- thousand more if it had air conditioning,” dons to placate the army. Under the popular car, ofthat age would cost in the United he says. A retired engineer bought a 1980s- list presidencies ofNéstor Kirchner and his States, though you would be hard-pressed model Russian Lada from his state com- wife, Cristina Fernández de Kirchner, from to find one that had not been driven. pany in 2000 for 160 CUC, and sold it last 2003 to 2015, the state threw its weight be- It is not just virgin vehiclesthat are start- year fornearly100 times the price. hind trial and punishment. lingly expensive. A Chinese Geely, listed in Cubans realise how crazy the market is. The government of Mauricio Macri, Ar- Revolico, a Cuban version of Craigslist, Prices are so high, jokes Pánfilo, a comedi- gentina’s president since December 2015, with “only 93,000km” (58,000 miles) on an, on government-controlled television, says it is returning to the principle that in- the clock, goes for43,000 CUC. A used 2012 that the Peugeot lion “covers its face with dependent courts, not politicians, should Hyundai Accent costs 67,000 CUC. its paws”. 7 administer justice. Its critics doubt that. Cuba isfamousforclassic Cadillacs and They see the centre-right president as soft Chevys that whisktourists around, but Cu- on dictatorship. In December he suggested bans would rather drive such banal auto- thatRemembrance Day, which commemo- mobiles as Korean Kias and French Peu- rates the coup every March 24th, could be geots, which are more comfortable and observed on the nearest Monday to raise burn less fuel. Cuba may be the only coun- productivity. Human-rights activists point try where the value of ordinary cars rises out that Mr Macri appointed two of the overtime, even though they age quickly on three judges who set Mr Muiña free. the potholed roads. That is because de- Stung by the criticism, his coalition mand is soaring while the supply is not. joined forces with the opposition in the Cuba’s communists have a complicat- senate on May10th to pass, unanimously, a ed history with personal transport. After law stating that two-for-one should not ap- the revolution in 1959 they banned almost ply to crimes against humanity. That may all purchases of cars (but let existing own- prompt the supreme court to rule different- ers keep theirs). The government gave cars ly on similar cases. How it decides matters to artists, athletes and star workers. High- as much as what it decides. Judicial inde- ranking employees could use the official pendence is as important as punishing the fleet and buy vehicles upon retirement at a dictators’ henchmen. 7 FORTUNE FAVOURS THE PREPARED.

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Also in this section 36 Egypt’s new investment law 37 Israel’s changing political class 37 Egypt’s shoddy zoos 38 Namibia and Germany

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

Iran glomerate, and has turned a blind eye as Mr Raisi uses its funds on his campaign. Rouhani under fire The country’s main clerical body has en- dorsed him, though he has no ministerial experience. His black turban, betokening descent from the Prophet Muhammad, wins him traditionalist support. The conservatives have successfully at- A tightly controlled election is becoming a battle between the clergy’s isolationists tacked on the economy, too, where MrRou- and globalists hani has looked weak. Instead of the VERY four years, Iran’s theocracy plays Mir-Salim is a formerculture minister who $50bn of foreign investment Mr Rouhani Eat electing a president. Pre-approved never left much ofa mark. The third, a cler- promised it would arrive in the first year candidates take part in a process designed ic, Ebrahim Raisi, looks robotic in front of aftersigningIran’snucleardeal with global to give the system a mandate while, at the the cameras. powers, he has so far brought in next to same time, preventing anyone acquiring a But the month-long campaign is not nothing. Although he succeeded in lifting powerbase that might challenge Ayatollah running as expected. Although he has UN sanctions, American ones remain, in Ali Khamenei, Iran’s supreme leader for stopped short of an endorsement, Mr Kha- effect blocking any international bank that the past 28 years. At the most recent elec- menei increasingly voices the hardliners’ trades in dollars from financing business tion, in 2013, Mr Khamenei’s men barred agenda. In public addresses, he attacks Mr with Iran. The big oil firms still steer clear Akbar Hashemi Rafsanjani from compet- Rouhani’sgovernmentfordisregarding the ofa country with one ofthe world’s largest ing for a third term. This time, Mahmoud plight of the poor and seeking to build reserves of oil and gas combined. Without Ahmadinejad, another would-be third- bridges with the old enemy, America. Si- American waivers, explains Patrick Pouy- timer, was disqualified, along with 1,629 multaneously he has helped Mr Raisi, a anne, chief executive of Total, a French oil other candidates, including all 137 women. protégé, to build his base. Last year he ap- giant, “we’ll not be able to work in Iran.” That leaves six competing in the elec- pointed him to head the country’s largest Under President Donald Trump, these are tion, with the first round taking place on shrine and biggest bonyad, or clerical con- farfrom a given. May 19th. Hassan Rouhani, a clergyman Starved of foreign financing, Mr Rou- and the incumbent, is the predictable, if hani’s modernisation programme has plodding, front-runner. Since 1981 all Iran’s Tighter than it looks floundered. Unemployment has actually presidents have served two terms, and in Iran, presidential election, voting intention*, % risen since the nuclear deal. Almost twice last year’s parliamentary elections his al- Jahangiri Mir-Salim Hashemitaba as many students graduate from university lies did well. His rivals hardly look threat- 60 each year as the country has jobs to offer. ening. Eshaq Jahangiri, the vice-president, Rouhani Mr Rouhani can point to GDP growth last and Mostafa Hashemitaba, a former 50 year of 6.5%, as oil sales, freed from UN Olympic Committee head, are reckoned to 40 sanctions, almost doubled. But to balance be on the ballot only so that the reformists 30 past excesses he has been obliged to re- can have equal airtime with their three Qalibaf strict government cash subsidies. 20 conservative rivals. Both are expected to Raisi Capitalising on a popular longing for drop out before election day. 10 the years of plenty a decade ago, the hard- Of the conservatives, Muhammad liners mock Mr Rouhani’s neo-liberals as 0 Baqer Qalibafis a gruffformergeneral and 6789the government of the ashraf, or elite, current mayor of Tehran whom Mr Rou- May 2017 which, as under the former shah, lords it hani soundly defeated in 2013. Mostafa Source: IPPO *Six official candidates over the mostazafin, or downtrodden. De-1 36 Middle East and Africa The Economist May 13th 2017

2 spite his huge bonyad, Mr Raisi describes Egypt’s economy himselfas a fellow victim. Like the Prophet Muhammad, he was an orphan, and, he Opening for business says, “felt the pain of poverty”. His campaign video contrasts the squalor of Iran’s slums with the luxurious malls frequented by Mr Rouhani’s supporters. The hardliners promise the unemployed new CAIRO monthly benefits and mass public works A long-promised investment law is no cure-all foreconomic ills to create jobs. The election, say Iran’s commentators, is turning into a class war, pit- VERY week thousands of Egyptians ting pre-revolutionary values against revo- Ecram past a narrow, tightly guarded Slow road back lutionary ones. doorway at Uber’s offices a few blocks Egypt, foreign direct investment A bruised Mr Rouhani has finally start- from Tahrir Square and wait in a small Net inflows, $bn ed to fight back. He accuses hardliners of room. Nearly 2,000 of them are signing up 14 planning to segregate pavements, forcing as new drivers every week 40% of them 12 men to walk on one side, women on the previously unemployed. Nearby, Uber’s 10 other. He chastises Mr Raisi as an execu- growing customer-service centre employs 8 tioner, harking back to his past as a revolu- 250 locals. The company is earmarking tionary judge who sentenced hundreds to more than $50m to expand operations in 6 death. But his enemies’ attacks have taken Cairo alone. 4 their toll. In 2013 Mr Rouhani narrowly ForEgypt, whose economy relies on aid 2 avoided a run-off, scraping 50.7% of the to stay afloat, such influxes of foreign in- 0 vote. Thistime he could be forced into a hu- vestment ought to be welcomed. But it 2008 09 10 11 12 13 14 15 16* miliating second round on May 26th. The does not always seem so. It took six Fiscal years ending June 30th last time that happened, in 2005, hard- months for Uber’s licensing paperwork to Source: Central Bank of Egypt *Estimate liners united to bring Mr Ahmadinejad to come through, even with a lot of string- power. “If there’s a run-off,” says a sea- pulling. After a year of haggling with nine has been forced to impose spending cuts, soned foreign observerin Tehran, “MrRou- government ministries, a proper ride-shar- notably to fuel and bread subsidies. hani will lose.” ing law is unlikely to emerge from parlia- To be sure, Egypt is, in other ways, mak- His supporters say doomsday would ment any time soon. But Egypt, which ing the right noises to show it is open for result. Isolationists would celebrate by ranks a dismal 122nd place on the World business. The cabinet approved the coun- closing what investors had hyped as the Bank’s ease-of-doing-business index, try’s first-ever bankruptcy law in January. biggest market opening since the collapse hopes to reform its ways. On May 7th it fi- Recent improvements to industrial licens- of the Berlin Wall. The reformers who en- nally passed an investment law, more than ing are supposed to reduce waiting times tered Mr Rouhani’s administration would two yearsoverdue, designed to lure foreign from a lethargic average of 634 days to a be purged. MrQalibaf, who ashead of Teh- investors back. But don’t cheer too soon. briskmonth. ran’s police at the turn of the millennium The new law pledges to reduce red tape The most important reforms needed to crushed student protests, could lead the and offers enticing tax incentives. Instead attract investors were made six months charge. “Sanctions and confrontation”, ofa hellish process to obtain permits, often ago, when the government, as part of a says Mr Rouhani, “would come back.” requiring the blessing ofmore than 70 gov- $12bn deal with the IMF, finally floated the The hardliners are no less alarmist. A ernment agencies, a one-stop shop will pound. With Egypt released from artificial- victory by Mr Rouhani would unleash manage all the paperwork. Any requests ly inflated exchange rates, foreign cash is America’s economic power on Iran, to- not dealt with within 60 days will be auto- starting to come back. The relaxation of gether with its “defective, destructive, and matically approved. Companies setting up constraints on capital movement have as- corrupt Western lifestyle”, in Mr Khame- in underdeveloped areas or special sectors suaged the fears of companies looking to nei’s words. Mr Trump’s rhetoric helps can get between 30% and 70% off their tax repatriate profits. The riskoflarge-scale po- make the hardliners’ case. On the day Iran bills for seven years. The new law also litical unrest, which spooked investors goes to the polls, Mr Trump begins the first brings back private-sector “free zones”, ar- during the country’s tumultuous years, foreign trip of his presidency in Saudi Ara- eas exempt from taxes and customs duties. now appears much lower. bia, whose de facto leader, Muhammad But reform in Egypt tends to be easy to But until now, clogged-up bureaucracy bin Salman, this month vowed to start “the promise and much harder to deliver. Once has remained a significant problem for in- battle in Iran”. the bill becomes law, the administrative vestors keen to profit from Egypt’s cheap Both sides exaggerate. After all, the su- details are expected to take many more labour and large customer base. Big multi- preme leader has the final say on all gov- months to iron out. Duelling ministries national companies like AXA, a French in- ernment policy. And all candidates have will have to settle competing claims on the surance company, and Kellogg’s, an Ameri- vowed to honourthe nucleardeal. Though land that will be made available at dis- can food giant, have taken to sidestepping he may take issue with them, Mr Rouhani counted rates to investing firms. Low-level licensing requirements by buying domes- did nothing to reduce the clout of the bo- bureaucrats, eager to preserve both their tic firms and expanding them. nyads, the Revolutionary Guards or the importance and, sadly, their bribes, could Abdel-Fattah al-Sisi, the country’s presi- judges who recently ordered his campaign also gum up the works. Past incarnations dent, first announced his investment re- headquarters in Mashhad, Iran’s second of the one-stop shop issued only some of forms at a glitzy conference on economic city, to close. But Mr Khamenei would rath- the required permits, often leaving compa- development at Sharm el-Sheikh in March er avoid another showdown with an em- nies in a state of semi-legality, says Amr 2015. Little has gone well since then. Many boldened and combative man, as Iranian Adly of the Carnegie Middle East Centre, a of the deals pledged at the conference nev- presidents in their second term tend to be. think-tank. er materialised. An IMF bail-out was need- IfMrRouhani isto win, the supreme leader The bill’s lavish tax breaks may not ed to rescue the economy. Egypt hopes that would prefer him to emerge chastened play well politically when the government its new investment law will be something from a campaign pummelling. 7 is facing a budget deficit of 10% of GDP. It to shout about after all that hooplah. 7 The Economist May 13th 2017 Middle East and Africa 37

Israel Since then, 11ofthe 20 formerchiefsofstaff “The armyisstill an admired institution ofthe Israeli army have gone on to serve in in today’s Israeli society, but it’s no longer The generals the Knesset. Most reached senior cabinet immune from public scrutiny,” says Yagil positions; two, YitzhakRabin and Ehud Ba- Levy, an expert on Israel’s military-politi- retreat rak, became prime ministers. cal relationship at the Open University. But Israeli politics has changed dramat- “This has scratched the generals’ image,” JERUSALEM ically. The main parties’ leaders and candi- Mr Levy adds, “and the high-tech entrepre- date lists are no longer decided in smoke- neurs are now the shining Israeli success Might high-tech entrepreneurs be the filled rooms, but in party-wide primaries. story. It could be theirmoment.” They have new political heroes? Senior officers, used to commanding sol- independent sources of income to finance NDERthe slogan “The Leftists are com- diers who carry out their orders unques- glitzy primary campaigns. But they also Uing back”, Erel Margalit, a member of tioningly, are ill-equipped for the media have a lot to lose. “We succeeded in busi- parliament, last month launched his cam- circus and patient lobbying that these days ness by detaching ourselves from the old paign to lead Israel’s Labour Party. The accompany political advancement. A establishment and learning a new way of message focused on security: how Israel’s number of popular generals who have left doing things. Going into politics means “leftists” had builtthe Jewish state, its secu- military service in recent years and were taking on that establishment again,” says rity forces and its nuclear capabilities. expected to become political stars have re- Mr Margalit. Only a few have braved the But Mr Margalit is not a formermember mained outside the fray. For a year now, waters so far. If more did, it might promote of the security establishment, one of the and for the first time in nearly six decades, new thinking about economic problems, generations of retired Israeli generals who not a single ex-chiefofstaffsits in the Knes- such as poor labour-participation rates; once made the easy transition to politics. set. Only one retired general serves in cabi- and political problems, such as the dead- As the founder of Jerusalem Venture Part- net; just two more sit on the backbenches. lockover the occupied territories. 7 ners, he was a central figure in the Israeli venture-capital sector, which helped to fi- Egypt’s zoos nance the thousands of tech startups that have revolutionised the country’s economy over the past two decades. No place for animals He is one of a handful of high-tech en- GIZA ZOO trepreneurs now vying fornational leader- In the zoos and on the streets, animals in Egypt have it tough ship. The group includes Jerusalem’s mayor, Nir Barkat, who entered local poli- AN giraffescommit suicide? The Giza tics after a successful career as an investor C zoo found itselffacingthat unusual in technology companies and is planning question in 2013, when a baby giraffe his own bid forthe leadership ofthe ruling called Roqa reportedly tookits own life Likud Party. Anothertech man with prime- after being harassed by visitors. Officials ministerial ambitions is the leader of Jew- denied the story, claiming that Roqa ish Home, Naftali Bennett, who founded inadvertently hanged herselfafter getting one successful software firm and ran an- tangled in wire. Still, the state of Egyptian other before entering politics. zoos is such that reports ofsuicidal un- For over half a century, the Israel De- gulates do not seem too far-fetched. fence Forces’ high command was a breed- Shortly before Roqa died, three bears ing-ground forpolitical leaders. The first of were killed at the same zoo in what dozens of retired generals to enter politics officials called an ursine “riot”. It was was Moshe Dayan, less than two years out later discovered that the bears had been of uniform, in 1959: he went on to serve as sedated by keepers and had fallen to their defence minister and foreign minister. deaths. At Alexandria’s zoo, two men entered the monkey enclosure in 2015 and beat the animals with sticks, as a crowd ofonlookers laughed. The men space to roam. Poorly paid keepers poke then ate the monkeys’ bananas and left. them until they roar. Ifstill not enter- Such stories abound, but much ofthe tained, visitors can hold the cubs, for a bad press is nonsense, says Hamed Abd- small fee. Critics say the conditions at ul Dayem, a spokesman forthe ministry other Egyptian zoos are worse. “The good ofagriculture, which oversees the zoos. thing is that you will not find many ani- He claims that they have improved their mals there,” says Dina Zulfikar, a member infrastructure and increased their animal ofthe committee that supervises the populations by 40% in the past few years. zoos. Ms Zulfikar says officials do not To be sure, some improvements have know how to treat wild animals. She been made. But the zoos are underfund- notes that some have locked up migra- ed and often rely on private donations. tory birds, which are often fitted with Moreover, what Mr Dayem cites as pro- tracking devices, on suspicion ofspying. gress, others see as a problem. Critics Outside the zoos, the situation is little have long complained that there are too better. Stray cats and dogs roam the many animals in too little space at the streets and are often subject to abuse: the Giza zoo, considered world-class when it care ofanimals, it seems, is just not a opened in 1891. Some enclosures have priority. According to its website, the Giza hardly changed since then. Overbred zoo is meant to “stimulate love” for ani- lions sit in Victorian-era cages, with little mals. But there is little proofit is working. Dayan led the way 38 Middle East and Africa The Economist May 13th 2017

it’s the legal position,” he adds. Indeed, German officialdom still makes elaborate semantic contortions to avoid a flat-out acceptance ofthe G-word, presumably pend- ing a final accord between the two governments. Above all, Germany is determined to avert legal liability for reparations of the sort it accepted for the Jewish Holocaust in an agreement in 1952, while stressing that it isreadyto raise the level ofeverysort ofde- velopment aid to Namibia, to which it already gives far more per head than it does to any other country in the world.

Our African Heimat Meanwhile, Namibia’s ethnic Germans are keeping their heads down, wary of re- crimination over the distant past. “The German government does not represent us; we are Namibians,” says a local businessman. Very few of today’s German- speakers are, in any event, descended from Namibia and Germany the Schutztruppe (literally, “protection force”), the colonial soldiers who slaugh- Salt in old wounds tered the Herero and Nama in 1904-07. All the same, few are happy to use the G-word, let alone accept its accuracy. “We grew up with talk of the colonial wars, the Herero uprising,” says a veteran writer on OTAVI AND WINDHOEK the Allgemeine Zeitung, Namibia’s Ger- man-language daily. “We don’t use the Saying sorry foratrocities a century ago has so farmade matters worse blanket term genocide.” N OCTOBER 2nd 1904 General Lothar arately involved—and have embarked on a Namibian Germans often echo Hinrich Ovon Trotha issued what is now notori- class-action case in New York under the Schneider-Waterberg, an 85-year-old farm- ous as “the extermination order” to wipe Alien Tort Statute, which lets a person of erwho has made a second careeras a histo- out the Herero tribe in what was then Ger- any nationality sue in an American court rian bent on rejecting the genocide charge man South West Africa, now Namibia. for violations of international law, such as (and who owns the land where a crucial “Within the German borderseveryHerero, genocide and expropriation of property battle between the Germans and the Here- with or without a gun, with or without cat- without compensation. ro took place). He contends that the Herero tle, will be shot,” his edict read. During the The main force behind the New York started the killing; that German civilians next few months it was just about carried case, Vekuii Rukoro, a formerNamibian at- suffered atrocities, too; that the extermina- out. Probably four-fifths of the Herero peo- torney-general, demands that any com- tion order was soon rescinded in Berlin; ple, women and children included, per- pensation should go directly to the Herero that the number of Herero deaths is exag- ished one way or another, though the sur- and Nama peoples, whereasthe Namibian gerated; and that those of the Nama in pri- vivors’ descendants now number government, dominated by the far more son camps were not intentional, thus not 200,000-plus in a total Namibian popula- numerous Ovambo people in northern genocidal. These points are dismissed by tion, scattered across a vast and mainly Namibia, who were barely touched by the most historians in Germany as “denialist”. arid land, of 2.3m. The smaller Nama tribe, wars of 1904-07 and lost no land, says it Burgert Brand, the jovial bishop of the which also rose up against the Germans, should be handled by the government on branch of the Lutheran church to which was sorely afflicted too, losing perhaps a behalf of all Namibians. The Namibian most white Namibian German-speakers third ofitspeople, in prison campsor in the government’s amiable chiefnegotiator, Ze- belong, acknowledges a German burden desert into which they had been chased. dekia Ngavirue, himself a Nama, has been ofguilt but shrinks at comparison with the A variety of German politicians have castigated by some of Mr Rukoro’s team as Holocaust; some historians in Mr Zim- since acknowledged their country’s bur- a sell-out. “Tribalism is rearing its ugly merer’s camp trace a direct link back to the den of guilt, even uttering the dread word head,” says the finance minister, who hap- earlier crimes and racial attitudes of 1904. “genocide”, especially in the wake of the pens to be an ethnic German. “It is very frustrating forus bridge-builders, centenary in 2004. But recent negotiations The German government says it cannot who must start again from scratch,” says between the two countries’ governments be sued in court for crimes committed the bishop. over how to settle the matter, the wording more than a century ago because the UN’s Many Namibian Germans are nervous of an apology and material compensation genocide convention was signed only in lest the argument over reparations spill are becoming fraught. Namibia’s 16,000 or 1948. “Bullshit,” says Jürgen Zimmerer, a over into calls for their farms to be confis- so ethnicGermans, still prominentif notas Hamburg historian who backs the geno- cated, as Robert Mugabe has done in Zim- dominant as they once were in business cide claim and says the German govern- babwe. Werner von Maltzahn, a 69-year- and farming, are twitchy. ment is making a mess of things. “They old farmer, recalls how his grandfather, a The matter is becoming even more think only like lawyers, not about the mor- Prussian baron who settled in the same messy because, while the German and Na- al and political question.” arid spot in 1913, had to start all over again mibian governments set about negotia- “None of the then existing laws was when the British army requisitioned his tion, some prominent Herero and Nama broken,” says a senior German official. cattle in 1915. “Maybe I should ask the Eng- figures say they should be directly and sep- “Maybe that’s morally unsatisfactory but lish for compensation,” he jokes. 7 Europe The Economist May 13th 2017 39

Also in this section 41 Polling errors 42 Muckraking in Malta 42 English in Europe 43 Who loves EU, baby 44 Charlemagne: Germany and Macron-mania

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

President Macron tune with his party’s extreme than the centre, thus opening up space in between. The Marchons, marchons! Republicans’ nominee, François Fillon, who was at first favoured to win the presidency, tumbled in the polls after a parliamentary-payroll scandal broke. In some ways, Mr Macron’s audacious bid for the PARIS top job was in tune with de Gaulle, who conceived the directly elected presidency The improbable, inescapable quest to reform France in 1965 as a way to return politics from the HIRTEEN months ago, a young govern- to populism and nationalism, and win. parties to the people. Tment minister climbed on to a platform On election night, framed by an arch of YetMrMacron wasnotsimplylucky; he in a small meetinghall in hishome town of the historic Louvre Palace, Mr Macron took created his own opportunities. He quit Amiens, in northern France. There was no his first solitary steps as president-elect, ac- governmentlast summerin time to put dis- bass beat to pump up the audience, no companied by Beethoven’s “Ode to Joy”, tance between himself and the unpopular spotlights or flags. Alone with his micro- the European Union’sadopted anthem. He Mr Hollande. He announced his presiden- phone, Emmanuel Macron announced told a crowd offlag-wavingsupporters that tial bid before the sitting president had de- that he was launching a new political the taskwas “immense”, but that he would cided whether to seek re-election, thus movement, to be called En Marche! (“On restore “hope and confidence” to France. In squeezing Mr Hollande’s options. Mr Mac- the Move!”). He wanted it to put an end to a melancholic country, battered by recent ron displayed fearsome self-belief, a good the stale political divide between left and terrorist attacks, Mr Macron seemed to em- grasp ofthe prevailing mood ofdisillusion, right, repair confidence and unblock body the triumph of optimism. “Every- and a canny understanding ofboth the po- France. The idea was “a bit mad”, he admit- body told us it was impossible,” he de- litical forces in France and the disruptive ted: “I don’t know ifit will succeed.” clared. “But they didn’t know France.” possibilities of the internet. “There are mo- At the time, says an aide, the idea was To understand how Mr Macron might ments of great acceleration of history,” he mainly to shape public debate. No poll confrontthe challengesin hispath, it isuse- said earlier this year, “and I think that we then even tested Mr Macron’s presidential ful to trace his route to power and the ideas are living through one ofthem.” chances. He had never run for office. His that shaped him along the way. His ascent hopes ofbuildinga political movement ca- to the Elysée Palace has defied all the rules The thinking pable of taking on the existing party ma- of France’s Fifth Republic, established by Shortly before dawn on February15th 2015, chines looked like a fantasy. Two months Charles de Gaulle in 1958 after the chronic the National Assembly wrapped up an all- later, François Hollande, the Socialist presi- instability of the previous regime. Since night sitting. As economy minister, Mr dent, told two reporters dismissively that then, the French have preferred presidents Macron had spent the previous two weeks his economy minister’s project was “an ad- who bear serial electoral battle scars. Fran- in the chambertryingto convince deputies venture with no future”. çois Mitterrand, a Socialist, and Jacques of the merits of his draft bill to deregulate Yet on May 7th, a mere six months after Chirac, a Gaullist, were both elected at shopping hours and protected professions. Mr Macron formally declared that he their third try. Mr Hollande and his prede- In total, he devoted 18 hours to pleading his would run foroffice, the French elected the cessor, Nicolas Sarkozy, spent many years case. It might have worked, a number of 39-year-old liberal to be their next presi- as parliamentary deputies. deputies from both major parties told him, dent, with a resounding 66% of the vote. Mr Macron, by contrast, has bypassed had party bosses not tied their hands. This His victory over his run-off opponent, the all the usual routes, leaving former presi- was the moment, says Benjamin Griveaux, far-right nationalist Marine Le Pen, was un- dents and prime ministers in his wake. He a co-founder of En Marche!, that he real- ambiguous, and carried a message that res- was helped by a good dose of luck, decid- ised that “internal party tensions were un- onated well beyond France. It was an em- ing to run at a time when the Socialists and sustainable.” To get France moving, a polit- phatic demonstration that it is possible to Republicans both adopted party prima- ical realignment was needed. fashion a pro-European centrist response ries. Each threw up a candidate more in As Mr Macron was increasingly side-1 40 Europe The Economist May 13th 2017

2 lined within government for his outspo- an open, tolerant, pro-European society, kenness, he began to workout how to do it. based on supporting private enterprise “He doesn’t come to politics through pow- rather than crushing it, and creating paths er structures, but through ideas,” says out ofpoverty for globalisation’s victims. Jacques Delpla, an economist at the Tou- During the campaign, Mr Macron ham- louse School of Economics who worked mered this point home, refusing to make with him on an economic committee in facile promises he knew he could not keep. 2007. A philosophy graduate who spent At one tense point, the candidate took his much time as minister hanging out with argument to a hostile, FN-supporting pick- the tech startup crowd, MrMacron thought et line at a factory in Amiens. He achieved hard about how the state needs to adapt to the improbable exploit of getting suppor- the future world of work, and how the ters to wave European flags, as they did at party system needs to change to make this his last rally, in the medieval town of Albi, happen. in the south-west. “We don’t want France Mr Macron’s underlying thesis is that to be shut off,” said Pauline, a law student the European welfare state’s model of col- there: “We wantto be partofEurope.” In an lective rights, grounded in unions and per- explosive televised debate that exposed manent employees, is an anachronism in her weakness, Ms Le Pen accused Mr Mac- an increasingly freelance workplace. Such ron of being the candidate of “savage glo- rights apply to ever-fewer workers; those balisation”; he retorted that she was the who enjoy them tend to “job-squat” for “high priestess offear”. fear of losing benefits, and they discourage Nobody doubted Mr Macron’s intellec- companies from hiring. The model needs tual capacities. His penchant for theoreti- Joie de Louvre to shift to one based on individual rights, cal abstraction and erudite vocabulary so as to protect workers rather than jobs was mocked during the campaign; one sault was, all the same, not that of a pure and encourage job creation. The French phrase he used during the TV debate, outsider. After graduating from ENA, left, with its romanticised history of collec- poudre de perlimpinpin (“snake oil”), was which has trained three of the past five tive struggle, is particularly ill-suited to this comically remixed as a YouTube video. It presidents, he shed his provincialism and fight. But on both sides, party machines ex- was far less obvious, though, that Mr Mac- used his charm to gain access to the net- ist mainly to defend vested interests. “The ron would be able to convert his thinking works of the Paris elite. After a spell as an biggest challenges facing this country and into an electoral war machine able to tor- investment banker, he was a staffer to Mr Europe—geopolitical threats and terrorism, pedo French partypolitics. Hispresidential Hollande fortwo years. With little need for the digital economy, the environment—are bid resembled a political version of the sleep, and a habit oflingeringlate with din- not those that have structured the left and startups he got to know so well: high-risk, ner guests, he has an uncommon flair for the right,” he told The Economist last year. low-budget, capable oftotal disruption but making people feel he is interested in Tired confrontational politics, Mr Mac- also total failure. The chaotic culture at En them. “Macron”, says one former col- ron argued, was also hampering the pro- Marche! often felt like a startup, too. Out league, “is a networking machine.” ject ofshaping a “progressive” political bul- went the ministerial limousine, neckties Such links helped to open wallets as wark against populism. Born in a and French bureaucratese; in came sec- well as doors. With strict French rules cap- provincial family of doctors, the young Mr ond-class train travel, sweatshirts and irri- ping individual donations at €7,500 Macron was on an internship in Nigeria in tating Franglais terms like “un helper”. ($8,200) per donor, and no advance public 2002, while studying at the elite Ecole Na- subsidy, Mr Macron cast his net wide, col- tionale d’Administration (ENA), when Ms The doing lecting donations of €10 online as well as Le Pen’s father, Jean-Marie Le Pen, took the Many political veterans sneered. But En bigger cheques at parquet-floored dinner far-right National Front (FN) into the presi- Marche! benefited from an unusual combi- parties in Paris. Today, those backing him dential election’s run-off round (he lost to nation of a forceful personality at the top, come from overlapping circles. Many on Mr Chirac). French parties failed to draw around whom all decisions turned, and a Mr Macron’s campaign team are young the lessons from that shock, he wrote in decentralised and enthusiastic grass-roots former advisers from the economy minis- “Révolution”, a book published last year, organisation, trusted to dream up events, try. Thinkers include Jean Pisani-Ferry, an and have been “sleepwalking” ever since. and get on with leafleting and door-knock- economistwho co-ordinated hiscampaign Instead of trying to combat the FN’s ing. Sporting T-shirts emblazoned with the programme, and Marc Ferracci, a liberal la- ideas, Mr Macron concluded, politicians handwritten En Marche! logo, these volun- bour-market economist. Business suppor- had focused on shutting them out of pow- teers became the fresh local faces of a new ters include Xavier Niel, a start-up billion- er. In 2007 Mr Sarkozy kept Mr Le Pen out movement that nobody could quite be- aire, and Stéphane Boujnah, head of of the run-off, but only by seizing hold of lieve was taking off. In 13 months, it signed Euronext, a securities exchange. identity politics to court FN voters. For its up over 300,000 members, more than The incoming president has some par- part, the left resorted to scaremongering. twice as many as the entire Socialist Party. liamentary support, too, mostly from early Instead, the French needed to hear the un- If Mr Macron sought to blast apart the Socialistdefectorssuch asRichard Ferrand, fashionable case for something positive: political structures blocking France, his as- a deputy from Brittany, and Gérard Col- lomb, a senator and mayor of Lyon. He has also attracted centrists such as François Out of the blue Far left Republicans/Union National Front Bayrou, Jean-Louis Borloo and Sylvie Gou- Socialist/Green of Democrats and Independents/Others France, National Assembly En Marche! Independents Vacant seats lard, a member of the European Parlia- Seats per parliamentary group ment. The question is whether, at legisla- 0 100 200 300 400 500 577 tive elections in June, he can build this thin Current base into a stable governing majority. The Predicted French constitution grants the president 2017 result* huge power, but he still needs the backing Sources: Assemblée Nationale; Opinionway & SLPV analytics *Maximum number of seats, no data for Corsica or overseas regions ofparliament to pass laws. 1 The Economist May 13th 2017 Europe 41

2 This support is crucial to Mr Macron’s would have to take a huge political gamble, as an emblem of national identity. Philo- programme. Some of his plans are reform- but could unlock further defections from sophical doubt, and the impossibility of ist: lowering corporate tax over five years the centre-right. An alternative would be the ideal, form part of the national charac- from 33% to 25%; unifying the country’s 35 an existing supporter, such as Ms Goulard, ter. But in recent years pessimism and neg- public pension systems; cutting public a fluent English- and German-speakerwho ativity have taken on a destructive edge. spending from 57% of GDP to 52%; and has a reputation as a smart negotiator. An Michel Houellebecq, a French novelist trimming 120,000 civil-service jobs. Oth- announcement is expected on May 15th, known forhis own nihilism, put it well this ers are costly but uncontroversial, such as the day after Mr Macron’s inauguration. week when he said that Mr Macron repre- shrinkingprimary-school classesin under- In the coming days, Mr Macron will be- sented “group therapy” for the nation: a performingschools. Yethis flagship legisla- gin to take in what he has achieved, but sort of collective self-medicated optimism. tion, to loosen the labour market, could be also the burden of the task ahead. He has France, which is still living under a state of explosive. won a historic victory, but some voters on emergency, badly needs such a dose. The Its objective is to give firms far greater the farleft and the centre-right backed him task is demanding, and the chances of in- say in organising working time and pay, only to keep out Ms Le Pen. He will need to stant recovery do not look too promising. granting employees the right to hold a ref- speak to the 11m voters who backed her, as Then again, neither did the election of the erendum if their unions resist. He wants to well as the record 4m who cast blank or remarkable Mr Macron. 7 cap redundancy payments awarded in la- spoiled votes in protest at both. Many of bour courts. And he plans to take the un- these angry voters are from small towns Polling errors employment-benefit system and the and rural parts that have lost jobs and ser- €30bn training budget, both financed and vices, and see no benign side to the forces jointly run by unions and employers, out of globalisation that Mr Macron defends. Hitormiss of their hands. This would let the govern- Ms Le Pen’s FN currently has only two par- ment tighten benefit rules, and focus train- liamentary deputies, one of them her Why did polls sell Macron short? ing on those out of work rather than the niece, Marion Maréchal-Le Pen, who an- system’s insiders. Mr Macron knows that nounced this week that she was stepping ARINE LE PEN trailed Emmanuel with the unemployment rate at 10% (and down from politics; but it will have many MMacron in run-offpolls by around 25% for those under 25), the economy must more in June. The far-left party headed by 20 percentage points forthe entire cam- create jobs, or populism will prosper. Jean-LucMélenchon’swill also tryto make paign. Nonetheless, punters and pun- life difficult forthe president they regard as dits, humbled by populist surprises in Assembly needed the spokesman ofglobal finance. Britain and America, gave her a mean- Mr Macron’s team insists that the élan of The management of change in France, ingful chance ofwinning. At first glance, his presidential victory will help to secure though, is usually less about parliamenta- Mr Macron’s landslide seems a win for him a majority, and refuses to talk about ry arithmetic than public order. The street pollsters. In fact, they underestimated coalitions. En Marche! will field candidates is the theatre of choice for French protest, his support by fourpoints—a larger error in each of the 577 constituencies, under a and it has repeatedly defeated efforts by than in Britain’s Brexit vote or Donald new name, La République en Marche! (The governments of the left and the right to Trump’selection. Because the error Republic on the Move!). Halfofthese, to be loosen labour laws over the past 20 years. reinforced the expected result rather unveiled on May 11th, will be newcomers Only last year, Mr Valls had to force than upending it, it has drawn less atten- to politics: businessmen, teachers, sports through by decree an enfeebled version of tion. It may reflect voters who aban- organisers and the like. Other politicians his labour reforms, after trade unions, no- doned Ms Le Pen the day before the could defect to the new grouping. The So- tably the Confédération Générale du Tra- election, when polls were banned, cialist Party is starting to bleed deputies. vail (CGT), organised blockades of oil de- following her weakdebate and a plagia- Manuel Valls, until recently prime minis- pots, refineries and transport, and rism scandal. But the French run-off ter, described his party as “dead”, and an- demonstrators tookto the streets. furtherundermines the notion that nounced that he would stand instead for In Albi last week, outside a bottle fac- pollsters miss “shy populists”. Nate En Marche!—it would have him. One pro- tory, a muscular group of unionists loiter- Silver, a data journalist, notes that na- jection suggests the Socialists could lose ing in the car park awaiting Mr Macron’s tionalists have fallen shortofpolling 75% oftheir seats. visit were sceptical. “If he tries to bring in averages in the last six European elec- Matters are more complicated for the flexibility, we’ll be in the street,” declared tions. Shy globalists, anyone? Republicans. Many deputies feel that they Cyril Cereza, wearing the CGT’s red-and- were robbed oftheir“turn” atthe presiden- yellow jacket. These were supporters of cy, afterfive years undera Socialist, and are Mr Mélenchon, with no sympathy for the Miss underestimated in no mood to co-operate. “Macron was bankerfrom Paris. Butwhen MrMacron ar- Polling errors, percentage points primarily elected by default,” huffs one. rived and spoke with them, he was firm. France, presidential 012345 François Baroin, a former finance minister “It’s not the CGT that’s going to run the elections: leading the Republicans’ parliamentary country,” he declared afterwards. The pres- first-round average*† campaign, wants to build a strong opposi- ident-elect is “ready for his Thatcher mo- second-round average† tion in order to curb Mr Macron’s power. ment”, argues Mathieu Laine, a liberal in- 2017, first round* Others are less sure. Bruno Le Maire, a for- tellectual and businessman, and friend of 2017, second round mer Europe minister, says that he could Mr Macron’s. Mr Ferracci, who was best Austria, presidential election 2016: backa majority under Mr Macron. man at Mr Macron’s wedding, says that he first round* The greatest coup would be to peel has “an incredible capacity to resist, in- second round away a symbolic Republican figure as cluding physical”. Less generous pundits prime minister, as a way of balancing Mr worry that he is a novice with no idea of Netherlands, 2017* Macron’s big ex-Socialist contingent. Tar- what is about to hit him. Brexit, 2016 US presidential gets include Xavier Bertrand, a regional Mr Macron has already entered history. election, 2016 president, or even Edouard Philippe, a He inherits not only a divided country, but Sources: National polls; *Average of two young deputy close to Alain Juppé, a cen- the heavy weight of expectations. The Will Jennings and Christopher largest parties The Economist † tre-right former prime minister. Each French attimesseem to indulge their ennui Wlezien; 1969-2012 42 Europe The Economist May 13th 2017

Muckraking in Malta English in the EU Shady island Lingua franca

Britain is leaving. Its language is staying ROME LOWLYbut surely, English is losing ofthe EU since 2004 have decisively Corruption allegations in the EU’s importance,” quipped Jean-Claude shifted the balance in Brussels from smallest country “S Juncker, the president ofthe European French towards English. There is no con- VERY six months, one of the European Commission, before switching to French sensus for going back, still less for switch- EUnion’s member countries gets to take fora speech on May 5th. Is this true? Not ing to German. its turn as president of its council of minis- really, and it seems not to have been Besides, English is putting down deep ters, chairing meetings in Brussels, negoti- intended as seriously as easily offended roots among ordinary people on the ating with the European Parliament and so British headline-writers tookit. After all, continent. For all ofFrance’s notorious on. For the union’s smaller members, this Mr Juncker, who is known forgoing linguistic nationalism, it is telling that is both an honour and an onerous obliga- off-script in speeches, delivered his barb François Hollande, the outgoing presi- tion, requiring the government’s full atten- in English, and the audience laughed. dent, was mocked on Le Petit Journal, a tion. So it is surprising to find the EU’s tini- In any case, speakers ofla langue de news and entertainment show, forhis est state, Malta, which is in the middle ofits Shakespeare have little to worry about. ropey English. Emmanuel Macron, a stint as president, plunged into an early The European Union has 24 official lan- generation younger, is fluent. Fully 66% of election campaign. “Suddenly, it’s panic guages, three ofthem considered “work- EU citizens speakanother language, a stations and they seem to have completely ing languages”: French, German and number that is growing steadily. Eurostat, forgotten the European presidency,” says English. Eurocrats are polyglots, often the EU’s statistics agency, does not break Daphne Caruana Galizia, an anti-govern- able to speakall three tongues, plus those figures down by language spoken, ment blogger. another oftheir own. Mr Juncker may be but it is easy to extrapolate from what is Malta’s prime minister, Joseph Muscat, right that in the halls ofthe EU’s institu- studied in schools. Among students at has given his island steady economic tions, English will be heard somewhat lower secondary level outside Britain, growth (5% last year), record-low unem- less after Brexit, simply because of the 97% are learning English. Only 34% are ployment and its first budget surplus in 35 exodus ofa big group ofAnglophones. studying French and 23% German. In years. Small wonder that his Labour Party But English is not just British: it is also an primary school 79% ofstudents are al- is favoured to win. However, Mr Muscat official language in Ireland and Malta. ready learning English, against just 4% for called the vote, scheduled for June 3rd, More important, the three enlargements French. Some countries, such as Den- after a stream of corruption allegations mark, begin English in the very first year. stemming from the release last year of the A language increases in value with the so-called Panama Papers: more than 11m Does not decline number ofpeople able to speakit, so filesbelongingto one ofthe world’sbiggest European Union*, foreign languages studied tongues that are valuable tend to become offshore law firms, Mossack Fonseca. At lower-secondary level, % of pupils, 2015 more so over time. And language know- None of the claims—many of them 0 20406080100 ledge takes a long time to acquire; societ- made by Ms Caruana Galizia—directly in- ies do not quickly change the languages English volves Mr Muscat. But the most recent con- they speak. The trend ofEnglish in Eu- cerns his wife, Michelle Muscat, allegedly French rope began well before the vote for Brexit the beneficial owner of a company which German and is unlikely to dissipate, even “slowly was paid more than $1m by a firm belong- Spanish but surely”. Mr Juncker might better have ing to Leyla Aliyeva, the daughter of the Russian said that although Britain, unfortunately, president of Azerbaijan. Mr Muscat’s is exiting the EU, its formerpartners will Italian spokesman calls this “an outright lie”. always remember the linguistic gift it is Azerbaijan has important links to Malta, Source: Eurostat *Excludes Britain (insufficient data) leaving behind. including a long-term agreement to supply gas, and the Aliyev family is said to have used Malta forfinancial transactions. Azer- people close to it. withoutthe checksnormal in a democracy. baijan’s links to European institutions are The government’s reaction has argu- For example, only the police, who answer already under scrutiny in Milan, where a ably been every bit as worrying as the to political authorities, have the power to prosecutor is investigating allegations that claims made against it. In February, a min- initiate investigations, “so police investiga- it paid a €2m ($2.2m) bribe to an Italian ister secured a warrant to freeze Ms Ca- tionsagainstthe governmentorwithout its member ofthe parliamentary assembly of ruana Galizia’s bank account after she consent are impossible”. On May 7th, the the Council of Europe, which is a separate claimed that he had been seen in a Ger- Sunday Times of Malta reported that the is- body from the EU. man brothel. He denies it. Days later, the land’s financial watchdog had told the po- Mr Muscat has asked the courts to ap- government tabled a bill to force Maltese lice it had a “reasonable suspicion” that the point a magistrate to investigate the accu- news websites like Ms Caruana Galizia’s to prime minister’s right-hand man, Keith sation against his wife. “My duty, however, register with the authorities; after protests, Schembri, had been involved in money- is not just to protect myselfbut also to safe- that provision was withdrawn. laundering. Yet the claim, which Mr guard my country,” he said while an- Ken Mifsud Bonnici, a legal adviser to Schembri denies, was not investigated, the nouncing the election, “and I will not toler- the European Commission, wrote that paper said. ate a situation where jobs are lost because Malta was facing a “veritable collapse of Does any of this matter beyond little of uncertainty.” He also vowed to sue Ms the rule oflaw”. At the root ofthe problem, Malta? IfMrMifsud Bonnici is right, it does: Caruana Galizia, who says she has already he argued, was a constitution (bequeathed whichever party is in office, the island received more than 20 writs issued by by Britain, Malta’s former colonial ruler) could be used by dubious interests as a various members of the government or that hands vast powers to the executive, private backdoor into the EU. 7 The Economist May 13th 2017 Europe 43

The new Europhiles Third are extra-parliamentary campaign groups. Apart from Pulse of Europe, Who loves EU, baby other movements have brought flag-waving pro-Europeans into the streets: in protests against the forced closure of the Cen- tral European University in Hungary; in rallies against the Eurosceptic government BERLIN in Poland; and in the anti-Brexitmovement in Britain. Among young, well-educated urbanites, nationalism is provoking a backlash Who is gravitating to this sort of poli- UNOM de l’amitié” (“In the name of mainstream centre-right and centre-left tics? Supporters are often young, urban “A friendship”), proclaimed banners at candidates were knocked out, leaving a and well educated—the political wing of the weekly Pulse ofEurope demonstration nationalist (Marine Le Pen in France, Nor- the “Erasmus generation” of cross-border in a Berlin square, a week before France’s bert Hofer in Austria) to face a pro-Euro- European students. In Austria, for exam- presidential election. Edith Piaf songs bur- pean liberal. Neither Mr Macron nor Mr ple, 58% of those aged under 29 backed Mr bled from giant speakers. Amid a sea of Van derBellen won an unambiguousman- Van der Bellen. But Mr Macron’s vote was blue-and-yellow European Union flags, date; many of their voters simply opposed evenly spread across age groups, and the the 1,500 marchers gushed about the Euro- the far-right alternative. But both are part Pulse ofEurope crowds are similarly multi- pean project. “I love Europe, it’s my home,” of“a steadily buildingtrend ofelection vic- generational. Ciudadanos voters are more said Oli. “I want my children and grand- tories for the idea of Europe”, says Josef likely to have degrees than supporters of children to experience, study and travel in Lentsch, a political scientist in Vienna. any other Spanish party. In the Dutch elec- Europe,” added Sabine, who was attend- Second, in parliamentary systems pro- tion, if only university polling stations had ing her fifth Pulse of Europe event. Then European parties have been making gains. counted, D66 and GreenLeft would have they all belted out the “Ode to Joy”, the At the Dutch election in March the two big had a majority. EU’s official anthem. winners were the liberal-federalist D66 The new Europhilia is partly a backlash There is nothing novel about support party and GreenLeft, which rose from 8% against the wave ofnationalism evinced in for the EU. In most European countries the to 12% and 2% to 9% respectively. “Being the Brexit vote and Donald Trump’s vic- political mainstream backs the union and overtly pro-EU is no longer something to tory in America. There is also anger at spouts nice words about continental col- be ashamed of,” says Michiel van Hulten mainstream parties who adopt nationalist laboration. But lately something different ofthe London School ofEconomics. and populistpositions. In Sweden the Cen- has been going on: a surge, in certain quar- Finland’s most emphatically pro-EU tre Party has pointedly attacked the centre- ters, of emotional, flag-waving, integra- party, the Green League, rose from its usual right Moderates for flirting with the far tionist Europhilia. The Pulse of Europe, score of around 8% to 12% in local elections right. Mr Macron has attacked his own forwhich started in Frankfurt in November last month. In Sweden, the liberal Centre mer party, the Socialists, for caving in to and now holds regular rallies in some 120 Party, which has recently sharpened its nationalist proposals to revoke the French cities across the continent, is one manifes- anti-nationalist identity, is polling near citizenship ofdual citizensconvicted ofter- tation. Another is the success of a number 12%, double its result in the last election. In rorism. Jesse Klaver of GreenLeft urges fel- of emphatically pro-European political Britain the Liberal Democrats have en- low politicians: “Be pro-European…You outfits, the most striking example being joyed a modest revival as anti-Brexiteers, can stop populism.” Emmanuel Macron’s victory in France. movinginto double digits in polls. Both Po- Asked about their success, Guillaume Such political groupsfall into three cate- land and Spain have spawned new parties Liegey, one of the early brains behind Mr gories. The first consists of Mr Macron and that wear their pro-Europeanism on their Macron’s campaign, and Martin Radjaby, Alexander van der Bellen, the former sleeve: Nowoczesna, which soared last Mr Van derBellen’s campaign manager, of- Green leader who became Austria’s presi- year before being consumed by scandal; fer similar recipes: sophisticated targeting dent in January. Both triumphed in two- and Ciudadanos, which has hit new poll of voters, door-to-door campaigning and a round electoral systems in which the highs of17% in recent weeks. progressive sort of patriotism. Indeed, the Europhiles have learned some lessons from their populist nemeses. Like Ms Le Pen and Mr Hofer, they have adopted techniques from their counterparts in other countries, and ratcheted up pressure on mainstream parties to backtheir positions. Even if small Europhile groups do not win elections, they can influence bigger parties. In Poland the Civic Platform (PO) party has moved into space opened up by Nowoczesna, adopting the EU as a symbol of opposition to the government. When Donald Tusk, European Council president and former PO leader, arrived in Warsaw on April 19th he was greeted at the train station by crowds brandishing EU flags. Mar- tin Schulz, the centre-leftcandidate forGer- man chancellor, has aligned himself with the Pulse ofEurope movement. One lesson of Europe’s populist wave is that small but emphatic groups can change the agenda. Along with Mr Macron’s win, that should The EUth of today give Europhiles hope. 7 44 Europe The Economist May 13th 2017 Charlemagne Gathering steam

Can Emmanuel Macron revive the Franco-German engine? that emerges after next month’s legislative elections may not be eager to help the new president impose his will on France. It is just as well that Mr Macron will face distractions at home, for Germany is gearing up for its own election in September, and events in France have begun to colour the campaign. Senior figures in Mrs Merkel’s Christian Democratic Union (CDU), such as Wolfgang Schäuble, the flinty finance minister, have already dismissed Mr Macron’s euro-zone proposals. But their Social Demo- crat (SPD) coalition partners, backed by parts of the press, like Mr Macron’s ideas to boost Europe’s (and Germany’s) woeful investment rate. A strong SPD showing in September might mean Mr Macron’s proposals find friendlier ears in Berlin. But the hype surrounding Mr Macron’s extraordinary campaign has too quickly spilled into grand talk of a reinvention of the euro zone. There is little appetite anywhere in Europe for the treaty changes that a major currency revamp would require. In Berlin it is not only the coming election that stays politicians’ hands. Many Germans think their contributions to euro-zone bail-outs over the years have shown plenty of solidarity already. Mr Schäuble’s finance ministry bitterly resists anything that smacks ofa “transferunion” ordebt mutualisation. Itwill be hard IKE all the best clichés, the notion that the European Union is enough for France to win German support on smaller matters, Ldriven by a Franco-German “locomotive” is grounded in such as completing the EU’s banking union. “I’m sceptical about truth. From the founding of the European Coal and Steel Com- institutional proposals,” says Norbert Röttgen, a seniorMP forthe munity to the creation of the euro, almost all the signature pro- CDU . “I’d concentrate on practical steps that yield results.” jects ofpost-war Europe have emerged from Paris and Berlin. The Similar noises emerge from some voices close to Mr Macron. compromises forged between two former foes with competing “Our first priority is to be pragmatic,” says Sylvie Goulard, a political and economic visions have proved powerful enough to French MEP tipped for a top job when the new president names bring much of the rest of the continent along with them. Lately, his government next week. “Can you really explain to an unem- though, the French part of the engine has run out of steam, and ployed man that it’s time to change the euro-zone structure?” the European train has been idling. Can Emmanuel Macron, the Both Mr Röttgen and Ms Goulard speak of deepening co-opera- youngreformerwho won France’spresidencywrapped in the EU tion on security matters; some German officials acknowledge flag, shunt it backon to the rails? that broadening the conversation to defence might be the only The grandest of Mr Macron’s many ideas involve fixing what way for them to move, eventually, on economics. Expect also he calls the “half-pregnancy” of Europe’s single currency. He joint proposals on advancing the EU’s digital single market, one wants intra-euro-zone transfers and investment, funded from a ofMr Macron’s stated priorities forEurope. common budget and administered by fresh institutions like a finance ministry and parliament. But Germany has long looked All hail Emmangela askance at such gouvernement économique. As the two countries’ A renewed Franco-German partnership would leave Europe bet- economic performance has diverged, it has become ever harder ter placed to handle future crises. But it would also help relieve forFrench ideasto find an audience in Berlin. In 2012 MrMacron’s Germany ofthe burden ofhegemony. Its officials are weary ofex- newly minted predecessor (and former boss), François Hollande, plaining that they have no wish to lead alone (suggestions that took his anti-austerity campaign pledge to Angela Merkel and re- Donald Trump’s election left Mrs Merkel the ruler of the free turned to Paris with a flea in his ear. Soon enough he was execut- world elicit universal eye-rolls in Berlin). With Italy flailing, Brit- ingendlessU-turns. He leavesoffice on May14th with historically ain Brexitingand Poland in the grip ofilliberal democracy, a resto- low approval ratings, an example of what not to do. ration ofthe bond with France would come at an auspicious time Mr Macron can expect a better hearing on his own visit to Ber- for Germany. It would also weaken resistance in other EU coun- lin, due later this month. On two ground-softening trips to Ger- tries that have grown resentful ofits dominance. many earlier this year, he promised to tackle problems at home That is good news for Germany—but Mr Macron may in time before making demands of his neighbours. “I propose to restore call Berlin’s bluff. Germany has long said it will consent to reform the credibility of France in the eyes of the Germans,” he said in in the euro zone if other countries get their houses in order first. March. “We need it because the future of Europe is at stake.” His That is precisely what MrMacron has promised to do. In rejecting priorities chime with time-worn German gripes: reinvigorating the far-right, anti-EU Marine Le Pen in favour of a pro-European France’s hidebound labour market (joblessness stands at 10%, dedicated to restoring his country’s self-confidence and renew- well over twice the German rate) and shrinking its bloated state. ingtieswith Germany, French voterscould have been following a Mr Macron’s campaign vows to shake up the more torpid script written across the Rhine. That leaves Germany with a stake parts of France’s economy secured him a mandate to reform. But in Mr Macron’s success, but also the obligation to give his ideas a Germans have seen countless such French plans come and go. hearing. Some of them will be uncomfortable. But if a little Ger- For all Mr Macron’s fresh-faced appeal, he will have his work cut man self-examination is the price ofMr Macron’s victory, Europe out in a country that is in a decidedly surly mood. The parliament will be all the better forit. 7 Britain The Economist May 13th 2017 45

Also in this section 46 Wales’s independent politicians 48 Bagehot: Karl Marx was right

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Scotland was the main beneficiary of Conservative woes, winning the most Scottish votes in Uniting the clans every general election from 1964 to 2010. The independence referendum of 2014 changed all that. In the general election of 2015 Labour was reduced from 41 seats to STONEHAVEN only one, as supporters of independence coalesced around the SNP. Referendums on independence and Brexit have caused a realignment that benefits Now opponents of independence are the Conservatives coming together, in a few places to the ben- N THE High Street in Stonehaven, a Unionist Party and its allies won half the efit ofthe Lib Dems, but mostly around the Otown just south of Aberdeen, David vote. In October 1974 the Scottish Conser- Tories. Most of the party’s gains in polls Kelly checks no one can hear him. “What vatives won less than a quarter. have come from unionists fleeing Labour, do I think of the Conservatives?” whispers Margaret Thatcher lost the party more which also opposes independence but the 72-year-old. “I love them. They’re the votes, as most Scots felt they had not con- with less conviction. In this month’s local only option around these days.” sented to her economic policies. Support elections the Torieswon 25% offirst-prefer- In recent years even hushed ardour for fordevolution grew, pavingthe way for the ence votes, up from 13% in 2012; Labour the Torieshas been rare in Scotland. But on opening of the Scottish Parliament in 1999, dropped from 31% to 21%. In Stonehaven June 8th the party could win its highest which in turn expedited the rise ofthe SNP. Roy Skene, an oil engineer, explains that he share of the Scottish vote in a general elec- Conservative decline changed the elec- “doesn’t see what good independence tion since 1979. It more than doubled its toral geography. Forerunners of the Liberal would do”, adding that he can no longer tally of council seats in local elections on Democrats picked up seats in the High- trust Labour to resist the SNP. May 4th, finishing second to the Scottish lands and islands. In the north-east voters Ruth Davidson (pictured) has made it National Party (SNP). Polls suggest that swapped the Toriesforthe SNP. ButLabour easierforLabourémigrés. The leader ofthe next month up to 30% of Scottish voters Scottish Conservatives embodies her could opt forthe Conservatives. party’s traditions (she is a Christian, a Shetland It would be a triumph fora party that in Och aye the blue staunch unionist and served in the Territo- the general election of 2015 won a single Scotland, local elections, rial Army) and transcends them (she is gay, Scottish seat and just15% of the vote. But in May 4th 2017, party with socially liberal and does not own a castle). the aftermath of the referendum on inde- most first-preference votes The SNP remains pre-eminent but has pendence in 2014, seismic shifts are every- slipped in the polls. In the local elections it SNP Aberdeenshire day stuff. A Conservative resurgence is the Conservative did badlywhere itwill be vulnerable to the Moray latest effect of that plebiscite. It may yet de- Labour Tories on June 8th. In four areas of the termine whether there is a second one. Independent north-east—Aberdeenshire, Angus, Moray, The revival has been a long time com- Aberdeen and Perth and Kinross—the SNP’s share of ing. From the 1920s to the late 1950s, the City the vote fell by 8-12 percentage points. Unionist Party was the dominant force in Angus One likely reason for this pattern is the EU Scottish politics. It stood forEmpire, Protes- Perth and referendum. Scotland voted 62-38 to Re- tantism and the United Kingdom. But as Kinross main. In no council area wasthere a major- secularism spread and imperial Britain ity for Leave. But Moray came closest, with faded, support for the Scottish Conserva- 49.9%. Three ofthe five mostEurosceptic ar- tives, as the party became after it was ab- eas were in the north-east. Leave voters are sorbed into the British Tories in 1965, thought to account for most of the drop in Source: SNP shrank. Tabloidsportrayed Toriesaspheas- Elections Scotland support for the , which backed Re- ant-shooting, anglicised toffs. In 1955 the main. Most are defectingto the Tories. 1 46 Britain The Economist May 13th 2017

Welsh politics able political blocs, they do vote as co- Crossing the border alitions on some policies. Scotland, % Voting intention Independents’ day Independents have been given a recent Independence vote 2014 in proposed second boost by Labour’s unpopularity. Such is and EU referendum 2016 independence vote the loyalty to Labour in large swathes of Wales that even if people want to give it a and Remain MERTHYR TYDFIL bloody nose, they are “never quite desper- 28 ate enough to fall in love with another Why party men and women are losing party,” says Roger Scully, a political scien- NO NO out to free agents Yes-to-noYes-to-no 46 tist at Cardiff University. Instead, they vote and swingswing Leave BEAMING Tanya Skinner still can’t for candidates who belong to no party. 16 Aquite believe it. In local elections on Ms Skinner, who describes herself as a May 4th she scooped enough votes in her socialist, joined Labour to support its and Remain No-to-yes ward to topple the head of the Labour leader, Jeremy Corbyn, but was turned off 21 swing council in Merthyr Tydfil in south Wales. the Merthyr branch by what she calls the YES YES and 39 She has become an instant local celebrity. “old boys’ club” that runs it. Lisa Mytton, Leave The result was embarrassing for La- an independent who is now vying to lead 14 bour. Merthyr is virtually synonymous the Merthyr council, also testifies to her Did not Don’t with the party; Keir Hardie, Labour’s foun- strong Labour background. About half of vote in at know/ MP least one would der, was the local . Ms Skinner’s victory Merthyr’s independents are ex-Labour 21 not vote contributed to Labour’s losing control of supporters who were put offat one time or 14 Source: YouGov the council. another by its local machine. Her result also showed that indepen- The profusion of independents also dentpoliticscontinuesto flourish in Wales, owes something to the animosity towards 2 On the ground the SNP is nervous. Its in contrast to most ofBritain, where parties the Tories in Wales. The loss of jobs in the Aberdeenshire candidates have rushed dominate. Ms Skinnerand 15 othersuccess- local coalmining and steelmaking indus- out a plan to open a railway line. In Moray, ful independent candidates will run Mer- tries in the 1980s is intimately associated where Angus Robertson, the party’s leader thyr council, barring an upset in three with Margaret Thatcher. Thus, as one Tory in Westminster, is underthreat from the To- more seats that are due to be contested in official concedes, the party has an image ries, the pro-independence Greens have June. Independents also gained control of problem. Some independents in rural stood down to help his chances. the nearby council of Blaenau Gwent, an- Powys, forinstance, are conservative by in- The SNP’s support in Scotland’s central other former Labour stronghold, once rep- clination but won’t use the party label. belt means it will still have the vast major- resented in Parliament by Aneurin Bevan, The official Tory party put up a record ity ofseats after June 8th. But the shifts sug- the architect of the National Health Ser- 628 candidates in Wales on May 4th. But gest that Nicola Sturgeon, the party’s vice, and Michael Foot, a former Labour still, logistically the party barely operates leader, has misjudged the effects of the EU leader. In all, independents won 322 of the in many parts. Even this time, with the referendum. Expecting it to boost support 1,159 seats that were contested in Wales, party buoyant in the national polls, it did for independence, she has called for a sec- second only to Labour and well ahead of a not compete much in places like Merthyr. ond plebiscite on secession. In fact, the net resurgent Conservative Party, which won In some places the lack of competition effect of the EU vote has been nil (see 184. In England, where 2,370 seats were is unhealthy. Almost 100 candidates, 7% of chart). Some Remainers who voted No to contested, independents won just162. the total, were returned unopposed. The independence in 2014 would now vote Independents have historically done first-past-the-post voting system makes it Yes, seeing secession from Britain as a way well at a local level in Wales, especially in especially hard for challengers to break back into the EU. But a similar number of rural and western areas such as Pembroke- through (Scotland, by contrast, uses a form Leavers who voted Yes in 2014 have shire, where independents retained con- of proportional representation, which switched to No, in order to protect Brexit. trol of the council on May 4th. They cam- helps small parties). Wales’s many inde- One Aberdeenshire fisherman says he vot- paign squarely on local issues, and pendents enliven its democracy, but they ed for independence to get a better deal on although they rarely combine to form dur- are also a symptom ofits sickliness. 7 EU fishing quotas, but now prefers Brexit, which he hopes will mean no quotas at all. The SNP believes it has demography on its side; less than a third of Scots aged over 70 voted for independence. The party also expects frustration with the union to grow after Brexit actually happens, in 2019. And for all Ms Davidson’s ribald congeniality, she still has work to do to convince Scots that she could become first minister. Fortunately for her, that is a problem for the next Scottish election, in 2021. For now, after a decade of huge advances the SNP is set to take a small step back. Support forin- dependence remains steady. But the zeal of the past few years is abating. At the Water- front Café in Stonehaven, Patricia Speirs worries that “the timing for independence has been and gone”. The local economy is struggling. Her friends are voting Conser- vative. “It’s very sad,” she says. 7 The party’s over ADVERTISEMENT

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is a global event and content series produced by The Economist Events and The Economist Intelligence Unit and supported by Standard Chartered Bank. 48 Britain The Economist May 13th 2017 Bagehot The Marxist moment

The Labourleadership is right—Karl Marxhas a lot to teach today’s politicians cians routinely cash in on theirlife ofpublicservice bytransform- ing themselves from gamekeepers into poachers when they retire, lobbying departments they once ran, offering advice to companies they once regulated and producing platitudinous speeches for exorbitant amounts of money. Tony Blair became rich in his retirement by offering advice to bankers and third- world dictators. George Osborne, a former chancellor, is also cashingin: he makes more than £650,000 ($840,000) forworking forBlackRock investment managers one day a week, earns many tens of thousands for speeches and edits a London newspaper, the Evening Standard. Marx predicted that capitalism would become more concentrated as it advanced. The number of listed companies has declined at a time when profits are close to their highest levels ever. Concentration is particularly pronounced in the most advanced sectors of the economy. Google controls 85% of Britain’s search- engine traffic. Marx was also right that capitalism would be increasingly dominated by finance, which would become increasingly reckless and crisis-prone. What about his most famous prediction—that capitalism inevitably produces immiseration forthe poor even as it produces su- N UNOFFICIAL rule of British elections holds that you don’t per-profits forthe rich? “Immiseration” is too strong a word to de- Amention bigthinkers. On May7th John McDonnell, the shad- scribe the condition of the poor in a country with a welfare state ow chancellor, broke this rule by mentioning not just any old big and a minimum wage. Yet many trends are worrying. Average thinkerbut Karl Marx. “I believe there’s a lot to learn from reading wages are still below their level before the financial crisis in 2008 ‘Capital’,” he declared. The next day Jeremy Corbyn, the Labour and are not expected to exceed it for several years. The rise of the Party leader, described Marx as “a great economist”. Uber economy threatens to turn millions of people into casual This produced jubilation on the right. The Daily Telegraph dis- workers who eat only what they can kill. missed Messrs McDonnell and Corbyn as “the Marx brothers”. The Daily Mail reminded its readers of the murderous history of Full Marx communism. David Gauke, a Conservative minister, warned that The problem with Marx is not that his analysis is nonsensical, as “Labour’s Marxist leadership” was planning to turn Britain into a Mr Gauke maintains, but that his solution was farworse than the “hard-left experiment”. He added for good measure that Marx’s disease. And the problem with Messrs Corbyn and McDonnell is thinking is “nonsensical”. notthattheyhave learned somethingfrom Marxbutthey haven’t Yet Mr McDonnell is right: there is an enormous amount to learned anything from the past hundred years of history. MrMc- learn from Marx. Indeed, much of what Marx said seems to be- Donnell is a fan not just ofMarx but also ofLenin and Trotsky. Mr come more relevant by the day. The essence of his argument is Corbyn described Fidel Castro as a “champion of social justice”. that the capitalist class consists not of wealth creators but of rent Aleaked draftofthe Labourmanifesto resurrectsdefunct plansto seekers—people who are skilled at expropriating other people’s renationalise industries and extend collective bargaining. workand presentingitastheirown. Marxwasblind to the impor- The Toryparty is heading fora substantial victory in large part tance ofentrepreneurs in creatingsomethingfrom nothing. He ig- because Labour’s leaders are so unreconstructed. But it would be nored the role of managers in improving productivity. But a a mistake for the Conservatives to ignore the lessons of the mas- glance at British business confirms that there is a lot of rent seek- ter himself. As Trotsky once put it, “You may not be interested in ing going on. In 1980 the bosses of the 100 biggest listed firms the dialectic, but the dialectic is interested in you.” The financial earned 25 times more than a typical employee. In 2016 they crisis suggested that the economic system is worryingly fragile. earned 130 times more. Their swollen salaries come with fat pen- The vote for Brexit suggested that millions of people are pro- sions, private health-care and golden hellos and goodbyes. foundly unhappy with the status quo. The justification forthis bonanza is that you get what you pay The genius of the British system has always been to reform in for: companies claim they hire chief executives on the open mar- order to prevent social breakdown. This means doing more than ket and pay them according to their performance. But the evi- just engaging in silly gestures such as fixing energy prices, as the dence is brutal. Most CEOs are company men, who work their Conservatives proposed this week (silly because this will sup- way up through the ranks, rather than free agents. In 2000-08 the press investment and lead eventually to higher prices). It means FTSE all-share indexfell by30% butthe payforthe bossesrunning preventing monopolies from forming: Britain’s antitrust rules those firms rose 80%. J.K. Galbraith once said that “the salary of need to be updated for an age where information is the most the chief executive officer of the large corporation is not market valuable resource and networkeffects convey huge advantages. It reward for achievement. It is frequently in the nature of a warm means ending the CEO salary racket, not least by giving more personal gesture by the individual to himself.” Corporate Britain power to shareholders. It means thinking seriously about the ca- is more subtle: CEOs sit on each other’s boards and engage in an sualisation of work. And it means closing the revolving door be- elaborate exchange ofsuch gestures. tween politics and business. The best way to save yourself from The political system is no less rife with rent-seeking. Politi- being Marx’s next victim is to start taking him seriously. 7 International The Economist May 13th 2017 49

Surrogacy foreign clients, India had banned it for gay men. Indian agencies responded by relo- Help wanted cating to Nepal, Thailand and Cambodia, ﬂying out frozen embryos that were awaiting wombs, and women who were already pregnant to give birth. Now, in the wake of further bans, the business is shift- ing to Greece, Laos and Ukraine, says Sam Everingham of Families Through Surro- Even as demand forsurrogacy soars, more countries are trying to ban it gacy, an Australian charity. Several African ATALIE SMITH was born without a rife with complications and pitfalls. countries are becoming more popular; In- Nuterus. But her ovaries worknormally, Now many of the developing countries dian women seeking to be surrogates are which means that, with the help of in vitro whose low costs and lack of legal restric- going to Kenya. Far from their families and fertilisation (IVF) and a “gestational surro- tions had made them popular surrogacy friends, and unable to speak the local lan- gate”—a woman willing to carry a baby for destinations are trying to end the business. guage, they are more vulnerable to exploi- someone else—she and her husband were Thailand barred foreigners from paying for tation and abuse. able to have children genetically related to surrogacy in 2015. Nepal banned it, even both ofthem. In 2009 theybecame parents when unpaid, later that year. India, where Baby or bust to twins, carried by Jenny French, who has surrogacy had been a booming business The problem forthose who would regulate since had babies for two other couples. Ms for more than a decade, suddenly barred surrogacy out of existence is that demand French was motivated by her own experi- foreign clients a few months later. A bill be- is strong, and rising fast. Though the num- ence ofinfertilitybetween herﬁrst and sec- fore its parliament would allow only un- ber of children born globally each year ond children. The experience created a paid surrogacy by close relatives. through surrogacy is unknown, at least lasting link: she has stayed friends with the These new laws were intended to pro- 2,200 were born in America in 2014, more family she helped to complete and is god- tect surrogates from exploitation. These than twice as many as in 2007. Britain reg- mother to the twins. poor and often illiterate women could istered nearly 400 in 2016, eight times as Ms Smith was lucky to live in Britain, earn an amount equivalent to ten years’ many as in 2007. One large Indian clinic one ofjust a handful ofjurisdictions where wages for a single pregnancy. Govern- popular with foreigners claimed to have surrogacy is governed by clear (though re- ments feared that some did not under- delivered more than 1,000 babies between strictive) rules. In some other European stand the contracts they were signing. Un- 2004 and 2015. countries, it is illegal. American laws vary scrupulous clinics often placed multiple In times gone by a woman who, like Ms from state to state, all the way from com- embryos in their wombs with the aim of Smith, was unable to carry a baby might plete bans to granting parental rights to the making pregnancy more likely, without have adopted. But nowadays, fewer babies intended parents, rather than the woman making the risks clear. Some overused are put up for adoption. And gay couples, who carries the baby. In most of the rest of Caesarean sections and neglected post- who can marry in a growing number of the world, until recently, surrogacy has partum care. countries, are increasinglyturningto surro- been unregulated, leaving all concerned in But rather than ending the trade, tighter gacy. Some single men are also seeking sur- a legal vacuum. The variation in laws—and rules are simply moving it elsewhere. rogates, just as single women may turn to costs—has created a global surrogacy trade Three years before it ended surrogacy for sperm banks when Mr Right does not ap-1 50 International The Economist May 13th 2017

2 pear. Advances in fertility treatment make tive rules prompt many would-be parents ingthe newson social media and throwing all this possible, and mean that surrogates to go abroad. Britons travel to evade a ban baby showers. But her clients from France, are now rarely related to the babies they on surrogacy forsingle people, and for cou- Germany, Italy and Switzerland, where carry. Ifthe intended motherhasno eggs of ples who need both donor eggs and donor surrogacy is banned, keep quiet, terrified her own, or if the baby is going to a single sperm to conceive. (In a rare example of that they will face opprobrium or even man or a gay couple, IVF can be done with liberalisation, Britain’s government is con- have their babies taken away. donated eggs instead. sidering getting rid ofthese restrictions.) Is- Some babiesborn through cross-border The first formal surrogacy contract was rael and some parts of Australia allow it surrogacy have been stuck without any drawn up in 1976 in America. Ten years lat- only for heterosexual couples. Three-quar- citizenship, or without parents who are le- er “Baby M”, intended for a couple in New ters of the nearly 300 babies born to surro- gally recognised in the country where they York, made headlines when the surrogate gates in Nepal in 2014-15 were handed over are being raised. Courts across Europe are changed her mind and sued—unsuccess- to Israeli and Australian citizens. And near- increasingly being presented with cases fully—for custody ofthe child, who was ge- ly everywhere that it is legal, paying anywhere a strict interpretation of the law netically hers and had been conceived by thing more than pregnancy- and birth-re- would mean babies being taken from their artificial insemination using the commis- lated expenses is banned (a few American genetic parents and sent to an orphanage. sioning father’s sperm. The furore led to states, Ukraine and Georgia are excep- In 2015 an Italian court ruled that a child bans in New York and several other states. tions). That crimps supply. Some places, in- born to a surrogate in Ukraine and brought The popular image shaped then has stuck: cluding Britain, are so worried about any- to Italy should be put up for adoption. But surrogates are widely viewed as likely to thing akin to a market in babies that they judges are starting to grant parental rights form, and then struggle to break, a mater- ban advertising, meaning that would-be to commissioningparentsin such cases, on nal bond with the babies they carry, just parents and surrogates struggle to find the ground thatitisin the children’sbestin- like women whose difficult circumstances each other. terests. Decisions to the contrary have re- lead them to give up their newborns for Where payment is allowed, by contrast, cently been overturned by appeal courts adoption. agencies can arrange the whole business and the European Court ofHuman Rights. without delay—including for foreigners. All this has spurred debate about legal- Fertility rights Diane Hinson of Creative Family Connec- isation. In Sweden, which has no laws go- In fact, recent studies show that it is ex- tions, an agency in America, says that verning surrogacy, the National Council tremely rare for a surrogate to change her about a third of her clients come from Eu- on Medical Ethics said in 2013 that it should mind and seek to keep the baby. Surrogacy rope. And would-be parents willing to be permitted under certain conditions. UK, a British charity, says that there have look farther afield can often save a lot of These included a close relationship be- been no such cases among the nearly 180 money. Surrogacy in the American states tween the surrogate and the intended par- births it has helped to arrange since its where payment is allowed usually costs ents; no genetic linkbetween the surrogate founding in 2002. “You never think the more than $100,000; in Laos or Ukraine and the baby; counselling and vetting of baby is yours,” says Michelle Green, a Brit- the cost falls by two-thirds. the intended parents; and a guarantee that ish mother oftwo and a surrogate oftwins When they bring their babies home, the children would be told how they came born in 2015. She is now on to a second sur- though, they may find themselves in a le- into the world. rogacy, and says she is proud to have given gal tangle. Britain has drawn up guidelines But last year a commission charged children to someone who would other- for people who commission surrogacy with advising the Swedish government wise have been unable to be a parent. abroad. But even if all their documents are said that surrogacy should never be al- On the rare occasions when problems in order it will take at least six months for lowed. It recommended that Swedes do arise, it is almost always in the opposite them to be recognised as parents in Britain, should be discouraged from seeking it direction: commissioning parents who de- says Louisa Ghevaert, a lawyer in London. abroad, by publicising the legal complica- cide theyno longerwantthe baby. In Cana- Ms Rhoads-Heinrich says that heragency’s tions that might stop them bringing their da, which has regulated surrogacy since Canadian clients celebrate the arrival of children home. There were two main con- 2004, five such casesare known to have oc- their children like any other parents, shar- cerns, says Eva Wendel Rosberg, the author curred, says Sally Rhoads-Heinrich, who of the commission’s report. The first was runs Surrogacy in Canada Online, a refer- the lack of research on how those born ral and consultation service. The main rea- through surrogacy will feel about their ori- son for pulling out was divorce. But in no gins. The second was that it is impossible to case did the surrogate keep the child: they be sure that the surrogate has made a truly were all given up for adoption. uncoerced decision. Even those who carry Surrogacies in rich countries now usu- babies for relatives, she says, may be pres- ally involve mediators who pre-screen and sured by family expectations. counsel both sides to ensure they are well prepared and in agreement about what to Pregnant pause do if anything goes wrong. In Australia, In many places, a coalition of rarely both sides must receive professional coun- aligned religious conservatives and left- sellingand legal advice beforehand. In Brit- wing feminists fiercely opposes any relax- ain the intended parents are vetted by so- ation of the rules. The Catholic church de- cial workers before they can take the baby scribes surrogacy as a “failure to meet the home. Surrogacy UK encourages both par- obligations ofmaternal love, ofconjugal fi- ties to get to know each other for at least delity and of responsible motherhood”. three months before trying to conceive. Many feminists feel that it casts women as They are guided through 15 pages of ques- mere baby-vesselsforhire. In 2015 the Euro- tions, such as whether they would have pean Parliament described it as “reproduc- the pregnancy terminated if the fetus has tive exploitation” that “undermines the severe defects. Disagreement on anything human dignity” of women. But recent his- major serves as a warning not to go ahead. tory suggests that banning surrogacy will Even where surrogacy is legal, restric- not end it, merely move it elsewhere. 7 Property 51

The Economist May 13th 2017 52 Property

The Economist May 13th 2017 Business The Economist May 13th 2017 53

Also in this section 54 EB-5 visas under scrutiny 55 Worth watching: local TV in America 55 A former general’s business advice 56 A tale of two tech hubs 57 Schumpeter: Active measures

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

Aviation the wrong time.” A series of terror attacks in the region and a coup in Turkey last July Missed connection has prompted many passengers to shun airports in the Middle East and to go elsewhere to change planes. The latest figure (from March) for capacity utilisation for Middle Eastern airlines was just 73%, the lowest since 2006 and worse than at the height ofthe financial crisis in 2008-09. The super-connectors face a world oftroubles The third, and latest, blow has been a HEN a video of a passenger being ing power and sharply cut demand for air set of travel restrictions introduced by the Wdragged off a United Airlines flight travel from the Middle East itself. In partic- Trump administration. Since January Mr went viral last month, the American carri- ular, energy companies, responsible for Trump has made efforts to ban the citizens er’s Middle Eastern rivals were quick to 29% of GDP in the Gulf states, are slashing of several Middle Eastern countries from mock its customer service. Qatar Airways travel in business class, the most profitable entering America. Despite various legal updated its smartphone app to say it cabin in airlines’ fleets. challenges, those efforts have hit inbound “doesn’t support drag and drop”. The rib- Second, geography has turned sharply traffic. In March America also banned elec- bing was justified. Over a decade ofexpan- against them. When Sir Tim Clark, presi- tronic devices larger than a smartphone, sion, Qatar Airways, along with Emirates dent of Emirates, helped Dubai’s govern- chiefly laptops, from the cabins of planes of Dubai, the world’s largest airline by in- ment to set up the airline in 1985, he was flying between eight Middle Eastern coun- ternational passenger miles travelled, and quick to spot that a third of the world’s tries and its own airports (Britain also in- Etihad Airways of Abu Dhabi, wowed cus- population lives within four hours’ flight troduced similarrestrictions). The issuance tomers with superior service and better- of Dubai, and two-thirds within eight. of entry visas to America has been cut and value fares. “They were in the right place at the right security vetting increased. Passengers joined them in droves, time,” says Andrew Charlton of Aviation After the first travel ban, demand fell by abandoning hub airports in America and Advocacy, a consultancy. “But now 35% on Emirates’ American routes. The Europe as well as the airlines that use they’ve been caught in the wrong place at banning of laptops has had an even worse them. Over the past decade the big three effect on the Gulf carriers. Many passen- Gulf carriers and Turkish Airlines trebled gers, particularly accountants, consultants their passenger numbers, to 155m in 2015 Soft landing and lawyers who are paid by the hour, are (see chart). They went a long way to dom- Passengers carried, m now choosing to fly via European hubs on inating long-haul routes between Europe 70 other airlines, says Greeley Koch of the As- and Asia. Most international airlines rely Turkish Airlines sociation of Corporate Travel Executives, a on travellers going from or to their home Emirates* 60 trade group. The airlines have started lend- countries, but customers of the four “su- Qatar Airways* 50 ingtheirown devicesto business-class pas- Etihad Airways per-connectors”, as they are known, most- 40 sengers, but demand is still tumbling. In ly just change planes at the carriers’ hub 30 April Emirates cut flights to America by a airports en route to somewhere else. fifth, a severe reversal after three years of A slowing of this spectacular growth 20 rapid expansion there. For a network air- was at some point inevitable. But it has 10 line a drop in demand from one destina- been exacerbated by several things. First, 0 tion means falls on all the routes that con- the airlines have been deeply affected by 2003 05 07 09 11 13 15 16 nect with them. the halving of the oil price since 2014, Sources: Company *Financial years Even Sir Tim, normally upbeat, admits reports; Bloomberg beginning April which has reduced theircustomers’ spend- that it has been a “testing” time. Emirates1 54 Business The Economist May 13th 2017

2 said on May 11th that airline profits fell by Property investment Created in 1990 with the aim of stimu- 82% in the past year. Results for Etihad, ex- lating the economy, EB-5 visas allow a path pected this month, are likely to make grim- Citizen Kushner to citizenship for investors and their fam- mer reading. In March Turkish revealed its ilies if they can demonstrate that the de- first annual loss since its privatision in ployment of$1m oftheir capital creates ten 2004. Qatar, meanwhile, is still growing, full-time jobs. The threshold falls to partly because the government is able to NEW YORK $500,000 in “targeted employment areas” support it. Its alliance with IAG, owner of (TEAs) where the jobless rate is 50% above An esoteric visa scheme comes under British Airways, in which Qatar has a 20% the national average. The visas were little scrutiny stake, also means that it is still seeing in- used for years. That was until property de- creasesin passengersoriginatingfrom Lon- HE events seemed inconspicuous velopers, starved of capital during the fi- don and then flying on to Asian countries. Tenough: presentations in smart hotels nancial crisis, managed to convince the Etihad is worst-placed. It has pushed in Beijing and Shanghai seeking investors scheme’s regulator that they should in- out its CEO, James Hogan, and is in the for luxury American apartments. The de- clude “construction activity” jobs in their midst ofa strategy overhaul. Its move to in- tails might have gone unnoticed had not a employment calculations. vest in European airlines, including Italy’s journalist from the Washington Post heard Since then EB-5 visas have become a national carrier, Alitalia, and Germany’s about the event’s star attraction. But these cheap source offinance forproperty devel- Air Berlin, has been disastrous. Last week, days the surname “Kushner” is like a mag- opers. Investors, whose priority is usually Alitalia, of which it owns 49%, declared net. It quickly emerged that Nicole Meyer, citizenship rather than a financial reward, bankruptcy. The week before Air Berlin, in sister of Jared Kushner, Donald Trump’s have shown themselves willing to accept which it has a 30% stake, announced a re- son-in-law and senioradviser, spoke in her returns of less than 1%. After intermediar- cord loss of€667m ($739m) for2016. Etihad pitch on May 6th to prospective investors ies have taken their cut, the cost of capital failed to understand the differences be- about herpowerful brother. One slide (pic- to developers is typically 4-6%, about two tween doing business in the Middle East tured) that was shown to the audience in- thirds lower than conventional sources of and in Europe, where, for example, there cluded a photo ofMr Trump himself. finance for the industry, according to Gary are trade unions, says Gerald Wissel of Air- The affairunderlined potential conflicts Friedland, a real-estate expert at New York borne Consulting in Hamburg. of interest surrounding Mr Trump’s family University. Kushner Companies will save Abu Dhabi’s inability to afford more members and their businesses. Mr $30m-40m by financing 15% of its new subsidies, given a low oil price, means that Kushneris not directly involved in the fam- property with EB-5 visas, he estimates. radical options are on the table, including ily firm. But Kushner Companies later Much of the controversy around the closing down Etihad and even seeking a apologised if Ms Meyer’s name-dropping visas is about the designation of TEAs, merger with Emirates. But its rival is not “was in any way interpreted as an attempt which is done by states. By stretching the keen on such a course, because using two to lure investors”. definition of these areas, states are able to hub airports would be hugely complex. The episode also shone a spotlight on a designate nearly every investment as fall- Before such drastic moves become nec- controversial American visa programme ing within a TEA: the unemployment rate essary, it is possible that the commercial known as EB-5. The property firm, which is surrounding the proposed Kushner prop- pressure may ease. Airline passengers are based in New Jersey, wants to raise $150m erty, for example, is a mere 4%. This lowers starting to realise that recent terror attacks from foreigners to help fund the construc- the investment threshold and attracts are not actually occurring on board planes, tion of apartments in the same state. The more capital. Bills have been introduced to saysMehmetNane, CEO ofPegasus, a Turk- money is to be directed through intermedi- reform the programme but have failed. ish low-cost carrier. Many are returning to aries into the EB-5 programme. (Although Over the past three years 87% of the an- Middle Eastern airlines, he claims. Mr the investor pitch had been planned nual quota of 10,000 EB-5 visas has been Trump’stravel restrictions may not be per- months in advance, the presentation came snapped up by Chinese investors. Much of manent. Alternatively, if his administra- just a day after Mr Trump signed a law that the money has gone to just two states, New tion extends the laptop ban to include in- extended the programme until the end of York and California. The Chinese, who bound flights from Europe, a step it is September.) may not want a big return but do want 1 reportedly considering, the attractiveness of Gulf airlines relative to European carriers will improve. Yet the breakneck growth of the recent past is unlikely to resume. Two new air- craft—the Boeing787 and the Airbus A350— make it profitable to carry smaller numbers of passengers over long-haul routes. Secondary cities half a world away from each other can increasingly sustain direct connections. That eliminates the need to change planes in the Middle East. Big legacy carriers, in addition to long-haul, low- costpioneerssuch asNorwegian and AirA- sia X, are buyingthese planesin huge numbers. The fact that Airbus has 750 outstanding orders for its A350, compared with just 107 for the A380s that Emirates flies, shows where airlines think the future ofaviation is heading. But before they celebrate their diminished force, they should thank the super-connectors for showing them how to raise their game. 7 A family affair The Economist May 13th 2017 Business 55

2 their principal back, are attracted to big- Business advice name developers in big cities. This is the second occasion in as many months that the subject of EB-5 visas has Corporate insurgency arisen in connection with Kushner Com- HELSINKI panies. In March there were reports that it Management lessons from an American general was seeking investment from Anbang In- surance Group, a Chinese company that TANLEY MCCHRYSTAL’Svoice is sportswear brand; a large bank; and owns the Waldorf Astoria in Manhattan. Shoarse as he addresses a packed arena several hospitals. Any assignment begins Alongside Anbang’s equity investment, in Helsinki. His audience, mostly busi- with “discovery” by an intelligence ana- Kushner Companies was said to seek EB-5 nessmen in darksuits, is rapt. The Ameri- lyst who previously assessed the organi- financing that would have gone to the can formergeneral tells thrilling battle- sational structure ofal-Qaeda. She works property group’s flagship building on Fifth field stories ofleading the Joint Special out who takes decisions inside compa- Avenue. The deal was denied by Anbang Operations Command in Iraq, which nies. The reality usually differs from and fell through. captured Saddam Hussein and killed formal organisation charts. Others have already been done. One Abu Musab al-Zarqawi, al-Qaeda’s local “The management ideas I believe in New Jersey skyscraper was built by chief. He explains how his outfit adapted are not revolutionary, but I came at it Kushner Properties in 2016 with the help of against an unexpectedly difficult enemy. from a different experience,” says the around $50m of EB-5 financing. It is A change in management style let his ex-general. He says firms should break adorned with the president’s name. 7 group go from conducting a handful of apart “silos” and get employees talking. raids each month to hundreds, achieving Mr McChrystal’s advice on devolved better results against insurgents. power has its limits—no army, after all, Sinclair Broadcast Neither America’s occupation ofIraq has done away with hierarchies entirely, nor Mr McChrystal’s military career and even decentralised al-Qaeda was A signal event ended well. He went on to lead Western weakened by removing its leaders. It is forces in Afghanistan, but stood down in hard to know how much his big cor- 2010 after falling out with his political porate clients use the approach in pursu- bosses. He reinvented himselfas a man- ing sales and markets. But hearing an NEW YORK agement consultant. His McChrystal ex-general disparage hierarchies so force- Group employs 65 people. It draws on its fully thrills employees. Even as a Reaktor America’s media regulatorpaves the founder’s experience hunting insurgents stafferexplained in Helsinki that Finns way forTV-station consolidation to advise businesses, including on Wall rarely idolise heroes, the crowd sent Mr T A time when ever fewer people are Street, on corporate culture. McChrystal offwith an excited ovation. Awatching television, it may seem im- What insight does an old soldier offer? probable that the owners of local TV sta- Mr McChrystal is an apostle ofdevolved tions in America want to expand their em- responsibility, orletting junior employ- pires. It turns out that they can hardly wait. ees know and do more. One convert is On May 8th, just 18 days after a change in his host in Helsinki: Reaktor, a 17-year-old federal rules made the deal possible, Sin- firm of400 staff, mostly coders, with a clair Broadcast Group announced that it side-interest in launching satellites. An would buy Tribune Media in a transaction employee, Mikko Olkkonen, explains worth $6.6bn, beating out interest from that “we have no hierarchy, no bosses, no others including 21st Century Fox, which is targets, no quarters.” It heeds Mr owned by Rupert Murdoch. Sinclair will McChrystal’s approach: firms can adapt become America’s dominant owner of lo- in complex competitive environments, cal TV stations. he argues, only ifinformation is shared The deal signals a broaderinterest in ex- and teams ofcapable staff—not just the panding what has been a surprisingly de- boss—can take decisions. It also helps cent business in recent years. In America greatly with recruiting to say that junior local TV stations tend to affiliate them- staffwill have clout early in their careers. selves with a national broadcast network, A variety ofbig firms are listening. Mr transmitting its content, including live McChrystal sits on the board ofJetBlue sports. In exchange the stations make sub- Airways and ofan American subsidiary stantial payments. Despite falling viewer- ofSiemens, a German engineering com- ship of network TV, the economics of lo- pany. His firm advises BarrickGold, a cal-station ownership have remained Canadian miner; Under Armour, a After war war, jaw jaw robust for two reasons. First is the resilience of local TV advertising, especially in election years, says a decade ago, but Sinclair helped lead an to broadcast networks fortheir content. MarkFratrikofBIA/Kelsey, a media consul- industry charge to lift them. BIA/Kelsey es- The rule change on April 20th from the tancy. The ability of small TV stations to timates that stations collected $6.8bn in re- Federal Communications Commission reach specific areas for local political races transmission fees last year, or nearly a (FCC), led by Donald Trump’sappointee as has proved difficult to match. quarter oftheir $28bn ofrevenues. chairman, Ajit Pai, was crucial. For many Second, TV stations have tapped a new Bigger is better for TV-station groups. TV stations, a change to the FCC’s calcula- vein of cash: retransmission fees, the pay- Sinclair, which will have more than 200 tion method lowered the number of ments they command from cable- and sat- stations after the deal, will have even more households that they are deemed to reach. ellite-TV providers for their consent to re- leverage to extract high retransmission fees Even under the new rule, the combined transmit their local broadcast-signal feeds from pay-TV operators. It will also be in a Sinclairand Tribune business covers about to pay-TV subscribers. Such fees were tiny betterposition to demand lowerpayments 45% of households, which is over the cur-1 56 Business The Economist May 13th 2017

2 rent federal limit of 39%. Many believe Mr with the firm to broadcast interviews with come tax, why exhausted Valleyites flock Pai will raise that cap. the president on its affiliates (Sinclair de- north. “Youget betterquality oflife for half Sinclair’s acquisition raised concerns nied giving Mr Trump special treatment). the cost,” saysSimon Crosby, co-founder of among some media watchdogs and left- Liberals may not be the only ones with Bromium, a computer-security firm, who leaning commentators not just because of reason to worry. Sinclair’s deal gives it has made the move from California. Bro- worries over concentrated ownership— clout to push pay-TV operators to add an- mium isbased in Cupertino, also the home most other TV-station groups reach less other all-news channel, perhaps one of its of Apple, and he regularly takes the “nerd than 20% of American households—but own. It already owns a news channel in bird”, as flights between the two tech clus- also because of who the owner is. David Washington, DC. A new conservative ters are called (they are full of geeks who Smith, the group’s executive chairman, is a news channel would challenge Mr Mur- live in Seattle and work in the valley). Ven- conservative ally of Mr Trump who, critics doch’s Fox News, which is in turmoil after ture capitalists often make the two-hour say, puts his stations in the service of Re- a series of allegations about sexual harass- commute, too. Most money invested in Se- publican causes. In December Jared mentand racial discrimination. Even as Mr attle startups comes from California; the Kushner, Mr Trump’s son-in-law and ad- Smith’s empire grows, he could sense an- north-western city only has a handful of viser, boasted that he had struck a deal other opportunity to expand. 7 VC firms, such as Ignition Partners and the Madrona Venture Group. Another link between the two cities is A tale of two tech hubs cloud computing. Most startups in and around San Francisco run their business Silicon Valley North on Amazon Web Services, the e-commerce giant’s cloud-computing platform. Its momentum is such that some in Silicon Valley have started to fret that it will one day become as dominant as Windows, the oper- SEATTLE ating system made by Microsoft, once was. For now it is Seattle that is more wor- Two ofAmerica’s most inventive regions are growing closer ried about being dominated by its neigh- OULD your region care to be the of America’s best computer-science de- bour to the south. The city hosts nearly 90 Wnext Silicon Valley? In most of the partments but produces nowhere near as engineering offices that firms have opened world’s technology hubs, local leaders many new firms as Stanford University. to find new talent to hire. A third have a scramble to say “yes”. But ask the question Local politics differ, too. Seattleites Californian parent. John Cook, who co- in and around Seattle, the other big tech don’t want their city to become like San founded GeekWire, which covers the local cluster on America’s west coast, and more Francisco, which is dominated by affluent, tech industry, argued recently that, al- often than not the answer is “no”—fol- techie types. Their city council has just ap- though the new offices add to Seattle’s tech lowed by explanations ofwhy the city and proved a new programme requiring prop- scene, they had taken “a lot of oxygen” out its surrounds are different from the San erty developers to include cheap units in of the startup ecosystem by hoovering up Francisco Bay Area. The truth may be more their projects or to pay a fee. The aim is to highly qualified staff. That triggered a de- complex: in recent years the Seattle area ensure that Seattle remains America’s sec- bate about the disadvantages ofoutside in- has become a complement to the valley. ond-most economically integrated city (as vestment. Other effects of tech migration Some even argue that the two regions, defined by RedFin, a data provider). San are equally contentious: home values have though 800 miles (1,300km) apart, are be- Francisco ranks 14th. “In the playground increased by a tenth in the past 12 months, coming one. parents don’t just talk about the next big according to Zillow. They have similar roots, notes Margaret thing,” says Ed Lazowska, a professor of Complaints about being overrun by O’Mara, a historian at the University of computer science at UW. Californians have a long tradition in Seat- Washington (UW). Each grew rapidly dur- That is one reason, besides nature’s attle, but the risk that the area becomes a Sil- ing a gold rush in the 19th century. Later tractions, cheaper housing and no state in- icon Valley overflow zone preoccupies both benefited from military spending. Sil- many. “We have to choose to remain differ- icon Valley ultimately focused on produc- ent,” says Tren Griffin, a Microsoft veteran. ing small things, including microproces- Chris DeVore, an angel investor who runs sors, and Seattle on bigger ones, such as the Seattle branch of Techstars, a chain of aeroplanes (Boeing was for decades the accelerators, says more needs to be done to city’s economic anchor). This difference in grow local startups. “Microsoft and Ama- dimension persists. The valley has plenty zon were a bit ofan accident,” he says. of giant firms, but its focus is mainly on Regardless, Seattle and Silicon Valley startups and smartphones. In contrast, Se- are now joined at the hip. The best ap- attle is still more of a company town, with proach is to make that connection as effi- Amazon and Microsoft, both builders of cient as possible, says Rich Barton, a serial big data centres, looming large. entrepreneur. He not only started Zillow That, and the fact that Seattle and its and Expedia, a giant online travel site, suburbs are less than a fifth the size of Sili- among other Seattle firms, but is a partner con Valley, has created a different business at Benchmark, a leading VC firm in the val- culture. In Seattle, for example, job-hop- ley. Rather than relying on flights, which ping is less common, as is swapping full- are often delayed or cancelled due to bad time employment for the uncertain life of weather, he says, someone should build a an entrepreneur. Seattle has spawned high-speed rail line. Together, he quips, firms such as Avvo, an online marketplace that old west-coast dream, popular again for legal services, and Zillow, a real-estate after the election of Donald Trump, would site, but the startup scene is underdevel- be within reach: “We could form our own oped. UW is a good gauge: it now has one country and secede.” 7 The Economist May 13th 2017 Business 57 Schumpeter Active measures

A CEO’s guide to fending offan activist shareholderattack But often their proposals are banal demands forshare buy-backs, which do not alter a firm’s underlying value. Preparingforthe possibilityofan activistattackis essential. As well as running the firm properly, that means getting closer to your other shareholders. Even companies under no obvious threat do this. For example, in 2016 and early 2017 members of BankofAmerica’s board ofdirectors met or spoke by phone with investors representing 29% ofthe bank’s shareholder base. When activists make their move, CEOs must be seen to take them seriously. General Motors (GM) has just given a masterclass in the patient neutering of a flawed proposal. David Einhorn, of Greenlight Capital, wants it to create a new type of share paying high dividends. GM’stop managementspoke with him ten times, and its board discussed the proposal three times, before rejecting it on March 28th. Even the most powerful bosses engage. In 2013 Tim Cook, Apple’s CEO, endured a dinner with Carl Icahn, an irascible raider who made his name in the 1980s. “We had a com- monality, we know the technology world,” Mr Icahn graciously allowed. Apple ignored his call fora $50bn share buy-back. When the activist is partly right, however, this must be acknowledged. BHP Billiton, a giant mining firm, faces a triple- ODERN bosses are a resilient bunch who can handle every- pronged critique from Elliott. On April 12th BHP rightly dismissed Mthing from Twitter storms to takeovers. But one thing drives two of its demands—a call to alter its dual listing in Sydney and many of them berserk: activist hedge funds, which buy stakes in London and the usual demand fora share buy-back. But it may be companies and lobby forchange. Last month Klaus Kleinfeld, the more flexible about the third request, to spin off its shale-energy boss ofArconic, an industrial firm, succumbed to a bout of“activ- business, which hasfewsynergieswith the group. Byshowing an ist apoplexy”. He sent a confidential letter to Paul Singer, head of open mind the firm has removed the sting from the attack. Elliott Management, a fund that was trying to oust him. Its myste- If an agitator’s critique is broadly correct, a CEO must make rious references to parties during the 2006 football World Cup in concessions. Ideally this means flattering the activist’s ego while Germany and to a feather headdress seemed to be a threat to ex- not giving him much influence. When DuPont agreed to merge pose details about Mr Singer’s personal life. Mr Kleinfeld, who with Dow Chemical in 2015, it gave advance notice to Nelson had spent over a decade running big listed firms including Sie- Peltz, who runs Trian, an activist fund, and secured his blessing. mens and Alcoa, resigned when his board found out. On March 22nd General Electric, which is struggling to increase Bosses feel that they are being stalked by activists. Elliott is profits, said that after talks with Trian, it had set new targets for now in a confrontation with Akzo Nobel, a Dutch chemicals firm cost cuts and tweaked its bonus scheme for its boss, Jeff Immelt. that is using a poison pill to resist a takeover by PPG, an American The ultimate concession is to give activists representation on rival. Since 2010, on average, 8% of the firms in the S&P 500 index the board in return for keeping schtum. Letting Wall Street-sized have faced an attack each year, according to Activist Insight, a re- egos loose inside companies does not always go well. As a direc- search firm. And whereas they were once the gobby bad boys of tor of Blockbuster in 2005-10, for example, Mr Icahn refused to capital markets, activists have got cleverer and harder to ignore. honouran agreementon the CEO’scompensation and made con- Consider Daniel Loeb, of Third Point, a $16bn fund that on frontational late-night phone calls. When Mr Loeb was a director April 27th demanded a break-up of Honeywell, an industrial of Yahoo in 2012-13 he clashed with its chief executive, Marissa firm. In the 1990sand 2000s, he was known forleaving messages Mayer, in a way that did not help the company. Abetter approach in web chatrooms under the name “Mr Pink”. One of his “letters is to let activists appoint independent directors, who are sup- of mass destruction” advised a boss to retire to the Hamptons to posed to represent all shareholders, not just their own agenda. “hobnob with your fellow socialites”. Today Mr Loeb makes his case in a more sophisticated way, with detailed analysis offirms. Grin and bear it Instead of getting angry, CEOs need to get even. Schumpeter Adhering to the drill does not prevent all trouble. Mr Kleinfeld has put together a battle drill on how to cope with activists. It has made mistakes—he never met Mr Singer, for example. But in 2016 four elements: know the enemy; prepare for them to attack; his firm did appoint three independent directors with Elliott’s ap- smother them with sincerity; and make concessions if you have proval and that didn’t stop the hedge fund from resuming its at- to. Start with understanding activists, who play a useful role. As tacks later. What ultimately did forMrKleinfeld was that his com- money flows into low-cost index funds, the job of scrutinising pany had performed poorly fora long time. firmsisbeingoutsourced to a fewdozen specialistvehicles. These The converse is also true. Well-managed firms should be able analyse firms and seek the backing of the “lazy” money. A small to defend themselves; they may even benefit from the new age of fund with a good idea can win support to oust a big firm’s board. activism, which obliges managers to refine their strategies, Activist funds also have weaknesses. Their bosses are often boards to be on the ball and firms to stay close to all oftheirshare- vain and impatient. To impress their own investors, they need to holders. The main cost is that activists can chew up endless hours be seen to influence the running of big firms. They imagine they ofa CEO’stime. Still, thatisbetterthan blowingyour top and end- have superior strategic insights, articulated in long white papers. ing your career in a moment ofmadness. 7 58 Briefing American retailing The Economist May 13th 2017

from banks to life-insurance companies. Sorry, we’re closed The total amount of capital, both debt and equity, supporting American retailing (excluding Amazon) now exceeds $2.5trn, according to The Economist’s tally. The turmoil mayalso engulfmillions of New York workers. The retailing industry employs 15.9m people, accounting for one in nine The decline ofestablished ways ofshopping is a threat to workers and investors American jobs. The workforce has ex- T DOESN’T look like much but Staten Is- the mall will remain open or, if they shut panded by about1m since 2012, yet a rever- Iland Mall is optimism in a cement box. down, whether new tenants will replace sal looks inevitable. Since January the in- Like all such retail spaces the temperature them. The mall faces relentless competi- dustry has shed 50,000 jobs, with more is carefully calibrated. Bland pop music tion both from e-commerce and other lay-offs sure to come. Mr Mathrani reckons wafts down beige halls. Its biggest tenants shops nearby. An assistant sits patiently at that, for shopping centres to match de- are America’s unholy trinity of struggling a cash register, waiting forcustomers. “Day mand, 30% of space should close perma- retailers: Macy’s, J.C. Penney and Sears, all by day,” he sighs, “it gets worse.” nently. In one particularly gloomy scenar- ofwhich are closing stores. This mall, how- io, all retail property would shrink by as ever, is undergoing a rebirth. Mall adjustment much. Ifstaffdropped by the same propor- Gangs of builders are hard at work on a Therein lies the problem for America’s re- tion, 4.8m would be at risk of the sack— 235,000-square-foot expansion, adding tailers. Not every mall or shop is dying. For around half the number of American jobs nearly a fifth to the current floorspace. This now, store-occupancy rates are healthy. lost during the financial crisis. Eventually, will house more shops, a new cinema and Nor have consumers stopped shopping. even more may be laid off, as remaining restaurants. In the old part of the mall, But they are spending money in new ways stores cut costs through automation. struggling tenants are making way for new to the benefit of other businesses, such as Our examination ofproperty data from ones. Sears will soon occupy just a quarter restaurants, hotels and e-retailers, in partic- CBRE, a brokerage, suggests that some cit- of its former space; two European dis- ular Amazon. As a result, a giant estab- ies with fewer shops per person, such as counters, Primark and Lidl, are taking its lished industry is descending into crisis. New York and Seattle, may fare better, but place. GGP, a real estate investment trust Last year about 4,000 shops closed that few parts of the country will be un- (REIT) that owns the mall, reckons that the their doors for good. In 2017 more than touched. Retailing accounts for at least one $231m itispumpinginto the expansion will twice that number may shut, says Credit in ten jobs in every American state. Not bring healthy returns by 2019. “Good real Suisse, a bank. Consumer confidence is since the decline of manufacturing began estate wins,” says Sandeep Mathrani, strong and unemployment is at its lowest in the 1980s has an industry with so many GGP’sboss. Ithelpsthatthe mall is the only level in a decade, yet Standard & Poor’s, a workers faced such a profound shift. one on a populous island. ratingagency, expectsretailingdefaults this These trends are not confined to Ameri- Elsewhere, the future of American year to surpass those in 2009 when the ca. Department stores in Japan are closing shopping looks in much worse shape. The economy was in the depths ofa recession. their doors. The Japan Department Stores Shoppes at Buckland Hills near Hartford, The most important question is how far Association estimates that national sales Connecticut, is also owned by GGP but and how fast the industry might sink. This at such shops were worth ¥8.9trn ($63bn) there are no big plans to invest here. The has implications not only for retailers and in 2000, but fell to ¥6.2trn in 2015. Across car park is almost empty. It is unclear if the retail-property companies but also the fi- the world, 192m retailing jobs are threat- branches of J.C. Penney, Macy’s or Sears in nancial firms that have given them money, ened by automation, according to esti-1 The Economist May 13th 2017 Briefing American retailing 59

2 mates by the Eurasia Group, a consulting Penney said in March that it would shut firm. However the change is particularly Shopfloored 2 138. More closuresare sure to come. Depart- dramaticin America because, until very re- United States, department stores ment stores’ floor space has contracted by cently, the country’s retailing industry had Cumulative change, % 11.5% since 2006, but sales have shrunk enjoyed such astounding growth. 10 more than twice as fast, according to Green + Over the course of the 20th century re- Retail floor space Street Advisors, a real-estate research firm tailers first built glistening downtown em- 0 (see chart 2). To reach the inflation-adjust- poriums, and then expanded from main – ed sales productivity of 2006, at least an- streets and city centres to the suburbs. 10 other 800 department stores would need Mallswere conceived in the 1950sbyVictor to close, reckons D.J. Busch at Green Street. Gruen, an Austrian immigrant, as a new Sales Even that might not solve retailers’ pro- 20 enclosed version of a town square. Sam blems. Shutting unproductive stores is Walton builthisfirstWalmartin Rogers, Ar- fraught with peril: shops risk losing their kansas, in 1962 and would soon open big 30 customers to competitors, both online and 2006 08 10 12 14 16 box after big box, each store making up in off. Karen Hoguet, Macy’s chief financial Source: Green Street Advisors value forwhat it lacked in charm. The com- officer, has noted that when a chain closes pany’s annual revenues still outstrip those a store in a particular area, online sales in ofany other listed firm in the world. Although that has eaten away at sales that region often drop, too. The pace of development has ensured formany traditional retailers, it has helped Department stores are not alone in that America is now packed with stores. others such as Inditex’s Zara, a fast-fashion their woes. Private-equity firms were once The country has about five times as many behemoth, and TJ Maxx and Ross, which able to boost profits at a middling retailer shopping centres per person as Britain. Re- sell last season’s designer styles at a dis- by hiring new managers and untangling tailing accounts for 31% of all commercial count. Such shifts in fortune would not supply chains. The Shoppes at Buckland property, according to Cushman & Wake- have been enough to trouble the industry Hills features a parade of private-equity field, a brokerage, the equivalent of more in the past. Shoppers have always ensured bets: Claire’s, owned by Apollo, rue21 than 150,000 football fields. the survival ofthe fittest: ailing shops inev- (Apax) and Gymboree (Bain Capital). All The shop-building boom brought with itably made way for more popular ones have too few shoppers and too much debt. it plenty of jobs. As other sectors that had and consumers gained. But the rapid as- If that continues they may go the way of once thrived swiftly waned, retailing em- cent of e-commerce, on top of these other Payless Shoe Source, owned by Blum and ployment remained stable, at least until re- trends, changes the game. Golden Gate Capital, which declared cently. Foreign workers may make goods The share of retail shopping done on- bankruptcy last month. but American cashiers still sell them. Re- line jumped from 5.1% in 2011 to 8.3% last tailing jobs surpassed those in manufac- year. That figure disguises the damage e- Trouble in store turing 15 years ago and now exceed them commerce has done to specific parts of re- Taken together, these changes plague a by 28%. Wages may be low for salespeo- tailing (see chart 1). Two-thirds of books, growing number of retailing properties. ple—$13 an hour on average. Nevertheless, musicand filmsare nowpurchased online, Small strip malls—lines of stores united by a job in retailing is a reliable way for those as well as over two-fifths of office supplies a car park—have fared better, says Garrick with little training to earn money. Just 20% and toys, according to Cowen and Com- Brown ofCushman & Wakefield, thanks to ofshopworkers have a university degree. pany, a financial-services firm. Foryears re- their mix of shops and restaurants as well Americans’ changing shopping habits tailers assumed that Americans would still asdrycleaners, dentistsand otherservices. threaten all this. Consumers are spending prefer to buy clothes and shoes in a shop But high streets in towns and cities, malls more on eating out, holidays and, to their rather than from a website—consumers and larger strip malls, where chain stores chagrin, health care. They are spending would surely want to feel the texture of a proliferate, are under pressure. less on clothes, typically the main offering frock’s fabric, for example, and ensure a Malls, which account for 8% of Ameri- of department stores and malls. When good fit. But a growing number of shop- ca’s retailing space, are particularly vulner- shoppers do buy a dress or jacket, they pers are happy to do without and shop able. When a department store leaves a want a bargain, an attitude spawned in the from home. About a quarter ofclothes and mall, other tenants are often allowed to re- recession and ingrained in the years since. accessories are now bought online. negotiate or end their leases. So if a big Amazon has both benefited from this store closes, the prospect that fewer shop- shift and accelerated it, setting new stan- pers will visit makes it more likely that oth- Clickbait 1 dards for choice and service—in 30 Ameri- ers will abandon the mall, too. Ailing malls United States, share of online sales, forecast, % can cities, members of its subscription ser- might seem like good news for nearby 2017 2022 vice, Prime, can receive goods within two competitors but they should not feel too 0 20406080 hours, at no extra cost. The harder retailers smug. Struggling malls, in an effort to fill Books, films try to keep up, the less profitable they be- vacant spaces, are wooing businesses that and music come. Spending on shipping and digital in- nowoccupylargerstrip malls, such as groc- Office equipment frastructure chomps at margins even as re- ery chains and discounters. It is unclear if and supplies tailers’ online sales cannibalise those from there are enough ofthese to go round. Toys and hobby goods their stores. For every percentage-point in- The upheavals of the retailing industry Electronics crease in their share ofe-commerce sales, a give good reason for worry to a growing retailer’s margins shrink by about half a list of companies, investors and workers. Clothing and accessories point, according to estimates by Morgan The threat to retailers and the property Food and Stanley, a bank. And still Amazon races companies that serve them is clear. Ameri- beverages ahead. Last year it accounted for over half can retailers (excluding Amazon) have a Automotive ofall new online spending in America. market value of about $1.6trn. The best- The result is that America’s rich land- managed ones, such as Walmart and TJX, Garden and building materials scape of shops now looks like a dangerous which owns TJ Maxx, look robust. But glut. Since the start of 2016 Macy’s has an- some of that $1.6trn will vanish, despite ef- Source: Cowen and Company nounced that it is closing 140 shops. J.C. forts to close weak stores and improve 60 Briefing American retailing The Economist May 13th 2017

2 those that remain. ly suggest a positive trend: from 2014 to The share prices of the two biggest re- Online for the jobless line 3 2016 the total number ofvacancies in tradi- tailing REITs, Simon Property Group and United States, retail employment*, m tional retailing dropped, but this was offset GGP, have already plunged by about a At different levels of e-commerce penetration by postings for e-commerce, warehousing quarter since July. They are now investing F’CAST and tech jobs in retailing. Yet the skills re- 13 in their best malls, seeking to replace sickly quired for retailing’s new jobs differ from Actual Low retailers with popular new ones. “We actu- 12 those needed for old ones. Burning Glass ally view this to be the biggest upside in found that 78% of e-commerce postings Mid our business,” says Mr Mathrani. They 11 want applicants with a university degree, have also tried to protect themselves from High compared with just 12% in traditional re- the worst performers. Simon spun off its 10 tailing. Even warehouse positions demand weakest malls into a separate firm in 2014. more training: 53% of jobs in automated GGP did the same in 2012. Those spin-offs 9 warehouses also require a degree. are now discardingtheirmost rotten malls. 1990 95 2000 05 10 15 22 Couriers need less training to ferry Beyond retailers and REITs, it is less goods to customers’ doors. Their ranks The Economist clear where the brunt ofthe travails will be Sources: BLS; *Excluding automotive have grown to 655,000 workers last year. felt. The sale of bad malls has shifted that But that is a tiny sliver of the total retailing problem to a variety of private investors. pointed to Aldi, a German grocer, which workforce. Retailing workers might switch The ownership of strip malls and free- has taken simple steps such as requiring to the companies that are taking over emp- standing stores is fragmented, making it shoppers to pack their own bags. Kroger, ty stores, including restaurants, beauty sa- hard to work out who would be damaged an American supermarket chain, has in- lons and health clinics. But it is as improb- as the decline ofretailing quickens. vested in an automated system to regulate able that such firms will replace all of and report refrigerator temperatures, so America’s boarded-up shops as that they Talking shop staff do not have to track them manually. will offer jobs to every former shop work- The picture fordebtisequallymuddy. Bank Amazon is testing digital tools that allow er, particularly those without training. ofAmerica is unusual in that it discloses its shoppers to pick up goods in a store and exposure to retailing: about $50bn, equiva- leave without stopping at a cashier. Bye-bye buy, buy lent to more than a quarter of its core capi- The boom in e-commerce is sometimes Nowhere has escaped these changes. Even tal. No comprehensive tally of retailing- touted as an alternative for shop workers in Manhattan, rents have fallen in some property debt exists. According to Morgan facing the chop. Indeed, e-commerce and trendy shopping areas. But the shifts will Stanley, most loans last year came from re- warehouse jobs are a growing share of the be uneven. Mr Busch of Green Street notes gional banks, commercial mortgage- workforce: they are now equivalent to that malls and other stores in areas with backed securities (bonds backed by cash 10.1% of retailing employment, up from 8% wealthy, educated residents will perform flows from commercial property), national a decade ago. Amazon is hiring at a furious better. More vulnerable are places where banksand insurers. The Economist’sexami- pace. In January the firm said it would add the supply of shops overwhelms demand. nation of data from Bloomberg, the Mort- 100,000 workers in America by July 2018. Since 2000 the construction of strip malls gage Bankers Association and TreppAna- These cheery figures may not offer much has increased even as the population has lytics, a firm which tracks commercial comfort in the long term. At its current declined in several rustbelt cities, includ- mortgage-backed securities, suggests that pace, by July 2018 retailing will have shed ing Cleveland, Detroit and Pittsburgh. Just the combined debt of retailing companies three times as many jobs as Amazon is due asmanyfactoryworkersin those cities had and retailing property is roughly $1trn. to create. to find new jobs, so too will shop workers. However the market’s opacity means that Trends in job advertisements also offer Take Saginaw, an old industrial city in the impact ofany losses is hard to predict. only fleeting solace. Listings scoured by Michigan that has seen its population ebb. The effect on the 15.9m people who Burning Glass, a job-analytics firm, initial- It has the country’s sixth-highest concen- work in retailing is obvious, and already tration of retailing workers. That may visible. Clothing, office-supplies and de- change. A publicly traded REIT called CBL partment stores have seen some of the recently sold Saginaw’s Fashion Square heaviest job losses. Some jobs, such as sell- Mall to a private buyer. Morningstar, a rating groceries, are safer—slim margins and ingagency, thinksthe mall’sloan islikely to the logistical challenge of delivering per- default when it matures in 2022. Alder Hill, ishable, bruisable food means most shop- a hedge fund that has bet against mall pers still buy in stores. The Economist has loans, calls Fashion Square a “melting ice calculated what might happen to retailing cube that will likely be run to maximise workers (excluding those who work in car cashflow” before its owner walks away. and fuel sales), ife-commerce grows as Co- This slow melt has so far attracted little wen expects. Assuming that employment attention from politicians, despite jobs in in stores rises or falls with changes in those retailing outnumbering those in coal min- stores’ sales, and that labour productivity ing, which has caught the political eye, by a improves at historical rates, retailing jobs factor of 300. The most substantial policy could shrinkby12%, or1.5m jobs, by 2022. If idea that will affect retailing will probably e-commerce’s share of sales is 50% greater not become law. That’s just as well. Con- than what Cowen expects, employment gressional Republicans’ taxplans include a could fall by17% (see chart 3). border-adjustment tax, which retailers say Even these assumptions may be rosy. would raise the price of imports, thereby Retailing jobs are threatened not just as crunching margins or forcing price in- companies close shops but as the remain- creases. Any other intervention seems un- ing ones try to beef up their profitability. likely. Americans, so used to visiting shops Lowering labour costs can take many packed with enticing goods, may have to forms. In a recent study, LEK, a consultancy, Checking out for good get used to many more empty ones. 7 Finance and economics The Economist May 13th 2017 61

Also in this section 62 Buttonwood: Fund management 63 Clearing-houses and Brexit 63 Africa’s informal economy 64 China’s economy as television soap 64 Crowd-sourcing hedge funds 65 Free exchange: William Baumol

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

India’s economy cause of sagging revenues. A handful plan to copy Bihar’s prohibition, although Pumping the country dry booze brings in over a quarter of some states’ income. The sudden “demonetisa- tion” of the economy in November stalled construction, and so stamp-duty receipts. Increased central-government transfers MUMBAI have made up only part ofthe shortfall. Runaway expenditure has a bigger im- States are on a borrowing spree ofthe kind that rarely ends well pact. Notall the spendingiswasteful: states HICH Indian state sounds more like- ment tax revenue, state chief ministers have sensibly restructured the debts of Wlyto repaya loan: Bihar, the country’s have spent much of the saving. That has power-distribution companies, an expen- poorest, with a budget deficit of nearly 6% left the combined state- and central-gov- sive but worthwhile exercise. But much is of its state GDP last year and a hole in its fi- ernment budget shortfall at the same level politically indulgent. Most of the new out- nances after it banned alcohol sales; or Gu- (see chart)—and India’s credit-rating stuck lay is about current expenditure rather jarat, a relatively prosperous coastal region just one notch above “junk” territory. than on growth-enhancing capital invest- with a deficit nearer to 2%? According to Investors are lending money to all the ment, says Pranjul Bhandari of HSBC, a bond markets at least, both are equally states at the same rate for good reason: the bank. Apay rise to central-government civ- good credits, and so pay the same interest central government, through much nudg- il servants is expected to be matched by rate. As welcome as such mispricing might ing, winking and head-shaking, has indi- states. Some spending is outright populist, be to the Bihari authorities, it is brewing cated it will lookafter them ifthe states de- notably the waiver of repayment of loans trouble forthe rest ofthe Indian economy. fault. It also compels publicly owned to farmers recently enacted in Uttar Pra- The borrowing habits of Bihar, Gujarat, banks, pension funds and insurance com- desh, the biggest state, at a cost of over 2.5% and India’s27 otherstatesused to be below panies to pile in. So states’ chief ministers ofits GDP. Worryingly, otherstates are con- the radar of all but the pointiest financial have every incentive to binge on the artifi- templating this, raising the risk of what Ms eggheads. The indebtedness of India, and cially cheap debt; a 3% annual deficit cap is Bhandari calls “competitive populism”. its annual budget deficits—both high by waived as often as it is enforced. The states’ profligacy pushes up the in- emerging-market standards—could largely Some states are running deficits be- terest rates the central government has to 1 be blamed on the profligacy of the central government in Delhi. But an explosion in the net amounts borrowed by states over Altered states the past decade (see chart), from 154bn ru- India Budget deficit State governments’ net borrowing pees in 2006 ($3.5bn then) to an estimated Central State 3.9trn in the fiscal year just ended ($60.4bn % of GDP Rupees, trn 0 4 now), means they now require nearly as – much funding as the centre. 2 3 The shift in financial gravity from Delhi to the states is fraught with problems. For 4 2 one, there is a data vacuum: state-budget documents are compiled, if at all, by cen- 6 1 tral authorities after over a year’s delay. And though the central government has 8 0 2013 14 15 16 17* 2006 08 10 12 14 16* 17* done its utmost to pare the country’s bud- Fiscal years ending March 31st Fiscal years ending March 31st get deficit, mindful that interest payments Sources: Government statistics; Reserve Bank of India; JPMorgan Chase *Estimate guzzle up around a third of central-govern- 62 Finance and economics The Economist May 13th 2017

2 pay, because of the risk it will have to bail Tata or Reliance or to a homebuyer at 1% owns most ofthe banks that do most of the out a wayward state. But it has a wider im- over what the central government pays to lending, will have to inject more capital pact. In India capital is scarce, and foreign borrow, iflending to any state government into them, so worsening the deficit in yet inflows restricted, so states compete with yields the same and bears an implicit guar- another way. companies and consumers hoping to bor- antee from Delhi? Crunching data from disparate states, row from the same sources. Because states’ Companies rely predominantly on Mr Chinoy says state borrowing rose by a bonds are less liquid than the central gov- bank finance. But banks are undercapital- whopping 32% in the year to March 2017, ernment’s, they pay a slight premium to at- ised, their equity cushions wiped out by aftera 25% rise in the previous year. Even in tract investors. That used to be around 0.4 rash lending. By hogging the money inves- a fast-growing economy, that is enough to percentage points, but has swollen to just tors such as pension funds and insurance set nerves jangling. To convince states to under1percentage point recently. firms could be investing in companies, enacta nationwide goods-and-services tax Sajjid Chinoy of JPMorgan Chase, a states have made it harder for those com- from July, the central government has com- bank, says that increase has in turn affect- panies to move away from bank borrow- mitted to guarantee the revenues received ed how much it costs companies to issue ing to bond issuance. That in turn makes it by states for five years. If only it had struck bonds. Why lend to a company such as more likely that the government, which a deal to limit their spending instead. 7 Buttonwood The big squeeze

The fund-management industrylooks poised forfurtherconsolidation AKING money yourselffrom invest- of “robo-advisers”, which offer investors Ming other people’s has been a good low-cost, diversified portfolios based on business for over a century. Asset manag- theiraimsand riskprofiles. These are pop- ers established a key principle early on: ular with younger investors, who are they could charge an ad valorem fee on used to buying products online. the amount they oversee. So when mar- Another challenge for fund managers kets go up, their feesgo up. is a change in the corporate-pensions But as the title ofa recent London Busi- market. Fewer companies are offering de- ness School conference indicated, invest- fined-benefit (DB) pensions, which are ment management is “an industry in dis- linked to a worker’s salary; new employ- ruption”. Abhijit Rawal of PwC, a ees now have a defined-contribution consultancy, described the sector’s pro- (DC) pension, the benefits of which are blems as the “four Rs”: returns are low; not guaranteed. Employers offering DB revenues are being squeezed; regulations pensions need to generate a high return to are being tightened; and the robots are keep contributions down, so many tend coming to take away business. to use specialised “boutique” managers. Plenty of potential for growth re- But DC plans often offer a default fund, mains, as workers save forretirement. But company: those that look cheap on valua- chosen by most employees; these usually the industry faces the same sort of cut- tion measures such as asset value or divi- employ a more limited range of fund throat competition that technology has dend yield, say. But even here technology managers. The market tends to be concen- caused elsewhere. The oldest challenge is eroding the case for active management. trated in the hands of big fund-manage- comes from index trackers, funds that try Computer programs can select stocks on ment groups and insurance companies, simply to match the performance of a the basis of such criteria at low cost. These which can handle the administration of benchmarklike the S&P 500. It tookmany “smart beta” funds are gainingground. The the scheme as well as the investing. decades for such “passive” funds to be- result is that average feesare being dragged The result is that the industry seems come widely accepted, but they are rapid- down across the industry. According to the bound to consolidate. A spate of recent ly gaining market share. Vanguard, a big Investment Company Institute, a group mergers of big fund managers has includ- passive manager, received more than half that represents fund managers, the average ed one between Henderson, an Anglo- ofall global fund inflows last year. expense ratio of American equity mutual Australian firm, and Janus, an American Big tracker funds can drive down fees funds, weighted by assets, fell from 0.99% one. There is plenty ofscope forthe sector through economies of scale. The expense in 2000 to 0.68% in 2015. to thrive, ifitadapts. Itseemslikely thatre- ratio for Vanguard’s S&P tracker is just One reason why high-cost funds have tiring baby-boomers will rely more on 0.04% of its assets. The average active survived forso long is the way that savings their own resources, and less on the state, American equity fund, which tries to beat products are sold. Many retail investors and those assets will need managing. the index, charges 0.8%. Such fund man- rely on brokers to advise them; these bro- Many investors will opt for multi-asset agers may claim they can outperform the kers are often paid commissions or fees by funds, which own equities and bonds; market but in practice few do so consis- fund managers. These are then passed on these are lessvulnerable to index-tracking tently. Over the 15 years to the end of De- to clients in the form of higher manage- because there is no obvious benchmark. cember 2016, less than 8% of American ment fees. Passive funds do not offer such And plenty of people will want the reas- equity funds managed that feat. As an old inducements, so they used not to get re- surance of speaking to a human being, quip has it, “you make your money work- commended. But regulators have been rather than rely on robo-advice. The chal- ing in active management but invest the cracking down on such arrangements: Brit- lenge for fund managers will be to pro- proceeds passively.” ain stopped these payments in 2013. Track- vide it all at a reasonable cost. Some managers think they can beat ers have made strong gains since then. the market by backing certain types of A new disruptive element is the arrival Economist.com/blogs/buttonwood The Economist May 13th 2017 Finance and economics 63

Clearing-houses and Brexit rities and Markets Authority (ESMA) lets EU could do is to compel European banks European firms use clearing-houses only to use EU-based clearing-houses. Since Clearing out in countries it has deemed “equivalent”, ie, firms based in the EU outside Britain ac- America and a dozen others. count for only 7% of cleared euro-denomi- Brexit necessitates a new arrangement. nated interest-rate derivatives at LCH, the The City has mostly been focused on ob- impact could be modest for London. LCH taining “equivalence”. But the commission itself claims the result would be a larger argues the systemic importance of British euro-denominated market outside the EU New European proposals might force clearing-houses for the euro area may well and a smaller, less-liquid euro-area market. euro clearing out ofLondon require new, stricter oversight. So it is as- Since America tolerates 97% of dollar REXIT has thrust a mundane, if crucial, sessing two other options. “Enhanced su- interest-rate swaps being cleared in Lon- B bit of financial-market plumbing into pervision”—favoured by ESMA—would don, it seems perverse for the EU to shift the spotlight: the clearing of financial in- mean adopting the American model, in euro clearing. But Simon Puleston Jones of struments. Clearing-houses sit in the mid- which clearing-houses that deal directly FIA, an industry body, points out that dle of a securities or derivatives transac- with American clients, such as the LCH, are America is comfortable because its regime tion, and ensure that deals are honoured also supervised by the American regula- allows its regulators much greater over- even if one counterparty goes bust. In No- tor. But the other option—forced reloca- sight. If Brexit turns acrimonious and pre- vember a study commissioned by the Lon- tion—has gained the support of many se- cludes a moderate change such as en- don Stock Exchange (LSE) warned that if nior EU policymakers. Barney Reynolds of hanced supervision, Europeans may seek euro clearing was forced out of the City, Shearman & Sterling, a law firm, insists it blunter instruments. It is not just Brexiteers 83,000 British jobs could be lost, and a fur- would not amount to much: the most the who want to take backcontrol. 7 ther 232,000 affected. On May 4th the European Commission said it was looking Africa’s economy into new rules for euro-denominated clearing. One option is relocation from London, an idea greeted in the City with a Dispensing with informalities mixture ofincredulity, disdain and fear. In the wake of the financial crisis, the The continent’s economy turns a lightershade ofgrey G20 group of big economies made it man- datory to settle most simple derivatives OMMON to all men, according to trades through clearing-houses. By 2016, C Adam Smith, is “the propensity to In the shadows 62% of the notional $544trn global over- truck, barter and exchange”. Less com- The informal economy, % of GDP the-counter derivatives market was settled mon is a willingness to report all of this 1991-99 average 2010-14 average in this way. Globally, London handles 37% enterprise to the authorities (which have 0 1020304050 offoreign-exchange derivatives and 39% of a propensity to register, regulate and tax). OECD interest-rate derivatives, including three- South Africa’s spaza shops (convenience quarters of those in euros (see chart). So stores often run from people’s homes), East Asia unsurprisingly, it also dominates clearing. Kenya’s jua kali (a Swahili term referring Middle East and LCH, a clearing-house that is part of the to the “hot sun” under which craftsmen North Africa LSE , clears over 50% of all interest-rate traditionally made and sold their wares) Europe swaps across all currencies. Around 75% of or Senegal’s tight-knit networks ofMou- those in euros are cleared in London. ride street peddlers—all contribute to the South Asia But centralising clearing concentrates informal economy. This shadow econ- Sub-Saharan risk: the failure of a clearing-house would omy, which includes unregistered en- Africa be disastrous. So clearing-houses require terprises and off-the-books activity by Latin America collateral from the counterparties using registered firms, is difficult to measure, and the Caribbean them, and must submit to close supervi- almost by definition. But this week the Source: IMF sion. The European Central Bank has long IMF released new estimates ofits size. worried that it has no direct control over The fund’s economists inferred the may now be lower than Latin America’s. euro-denominated clearing outside the size ofthe informal economy indirectly, (The African average masks a wide range, euro area, yet any problems would em- based on more visible indicators that from under 25% ofGDP in Mauritius and broil banks and payment systems within either cause informality (heavy taxes, South Africa to about 65% in Nigeria.) it. In 2015 it lost a court case against Britain high unemployment and patchy rule of Some policymakers see informal over its attempt to force clearing to move. law) or follow from it. The consequences enterprises as parasitical, profiting at the Many jurisdictions, the EU included, limit include suspiciously low numbers of expense ofmore scrupulous rivals who their financial institutions’ access to for- people officially working or seeking heed regulations and pay taxes. Others eign clearing-houses. The European Secu- work, and a heightened demand for see them as aspirational, embodying the currency, since informal firms operate poor’s entrepreneurial spirit and ambi- mostly in cash. The IMF also tracks a tions forthe future. Often, these business- Britain clears up gauge ofactivity that is hard to conceal: es are neither. They are just the employer Over-the-counter euro interest-rate derivative the brightness ofa country’s lights at oflast resort for people with few other turnover, by country, April 2016, % night, as recorded by weather satellites. options. In sub-Saharan Africa, about a 0 20406080100 According to their results, the informal third ofthose starting a business are economy is equivalent to almost 40% of doing so out ofnecessity not inclination, GDP Britain France in the average country ofsub-Saha- a higher percentage than in other emerg- ran Africa. That is a big number, but not ing economies. Many join the shadow Rest of euro area as large as it was in the 1990s(almost economy to escape destitution, not regu- Other 45%). Indeed Africa’s rate ofinformality lation or proletarianisation. Source: BIS 64 Finance and economics The Economist May 13th 2017

China’s economy as television soap to bulldoze a factory sparks a protest in time employees. John Fawcett, Quanto- which more than 30 people are injured. pian’s CEO, says many sign up to learn In the name of This sorry record seems grounds to ob- how to apply algorithms to trading; they ject to Li. Instead, this flawed figure is by far usually already have experience in coding GDP the show’s most beloved, more so than the and modellingin domains outside finance. dedicated, upright officials who lead the Few will have their algorithms selected, an SHANGHAI party’s anti-graft battle. Online merchants, honour that comes with a licensing fee of a good bellwether of trends, have started 10% of net profits . The rest can at least use China’s pursuit ofgrowth still gets very selling versions of the sleeveless jumper their algorithms to trade their own money. high ratings and tea Thermos that he favours. The inter- Mr Fawcett plans both to allocate funds ARELY has a Chinese city boss had net memes doing the rounds—for instance, to more algorithms, and to increase alloca- Rmore fans than Li Dakang, the earnest, a pledge to “defend GDP” for Li’s sake—are tions to those already picked. There is no driven Communist PartychiefofJingzhou. partly in jest but do reveal support for pub- dearth of capital. Steve Cohen, a big-name “I want development, I want speed and I lic servants in his mould. investor who survived an insider-trading want GDP,” he recently intoned. “But I Why is Li Dakang so liked? In part be- scandal athisprevioushedge fund, provid- want it to be modern GDP, GDP that comes cause, warts and all, he is more believable ed some of Quantopian’s venture-capital without pollution.” Over the past month than the saintly officials seeking to snuff funding and has pledged up to $250m to tens of millions have tuned in to watch out corruption. But there is more to it. Even promising algorithms on the platform. The him strive to fulfil these promises. On their when Li makes mistakes, his obsession firm intends to launch a fund open to other smartphones, they share images of the with growth is very well received. Cau- investors this year. heavy-eyed man with an easy smile, quot- tious, clean officials who err on the side of Quantopian-like models have the po- ing his words and cheering him on. His inaction are seen in a much less flattering tential to bring the gig economy to high fi- policies have even been immortalised in a light. In recent years China has started to nance. Most people on its platform hold musical tribute, “The GDP Song”. emphasise policy goals other than GDP, full-time jobs or are students, earning Li Dakang is not real, nor is Jingzhou. from promoting culture to protecting the some income on the side. At least one They exist only on “In the Name ofthe Peo- environment. Li Dakang-mania shows quant hedge fund has already bet on the ple”, a wildly popular 55-part television se- there are limits to this shift, and not just be- trend. WorldQuant’s WebSim platform, ries about China’s battle against graft. cause of the government. Fast growth is like Quantopian’s, offers access to finan- Since its first broadcast in March, the show still immensely popular. 7 cial data and a wayto testideas, though itis has attracted attention for its depiction of geared towards more basic research. The official corruption, unusual in the context best performers on WebSim can become ofChinese censorship. Less noted is the in- Crowd-sourcing hedge funds paid part-time research consultants, of sight it has offered into a range of China’s whom there are now close to 500, nearly economic problems—not just in its story- The wisdom of the as many as WorldQuant’s full-time staff. line but in the viewing public’s reaction. It is still early to judge Quantopian’s al- The show touches on economic topics herd locations (ranging from $100,000 to $3m often too hot forthe Chinese media to han- per algorithm) by their financial return. As dle. Factory workers clash with police after a pioneer, it has no obvious comparators. a bankruptcy wipes out their company Some algorithms at Quantiacs, a competi- A new sort ofhedge fund bets on the shares. A senior leader’s child amasses big tor with only around 6,000 members on expertise ofamateurs stakes in local firms for his family. Asmall- its platform, have generated up to 40% re- business owner ends up in hock to loan UANT” hedge funds have long turns in the past year, but that is with small sharks. Local bankers demand “consulting “Qbeen seen asthe nerdyvanguard of allocations of capital (Quantiacs has yet to fees” when extending loans, pocketing the finance. Firms such as Renaissance manage outside assets). So the real test for cash. (So realistic is this portrayal that the Technologies, Two Sigma and Man AHL, the crowd-sourcers lies ahead: will a deep- Chinese press reports that Guo Shuqing, each of which manages tens of billions of er talent pool mean better performance, the country’s most senior banking regula- dollars, hire talented mathematicians and even when serious money is involved? 7 tor, pointed to the show in a warning to physicists to sit in their airy offices and de- banks at a recent meeting.) velop trading algorithms. But what if such The most consistent economic story- talent could be harnessed without the has- line is Li’s relentless pursuit of growth and sle of an expensive and time-consuming the problems this narrow focus brings. He recruitment process? That is the proposi- himself seems clean, but turns a blind eye tion Quantopian, a hedge fund and online to corruption around him. His insistence crowd-sourcing platform founded in 2011, on moving quickly causes real harm. As a is testing. Anyone can learn to build trad- young official, a frenzied drive to build a ing algorithms on its platform. The most country road leads to a village chief’s successful are then picked to manage mon- death. Laterin hiscareer, his hasty decision ey. Last month the firm announced it had made its first allocations offunds to 15 algorithms it had selected. Internship The Economist invites applications for the Quantopian would appear to have one 2017 Marjorie Deane internship. Paid for by the Marjorie Deane Financial Journalism Foundation, the award is striking advantage over its competitors: designed to provide work experience for a promising sheer weight of numbers. The difficulty of journalist or would-be journalist, who will spend three hiring and a desire for secrecy limit even months at The Economist writing about economics and finance. Applicants are asked to write a covering letter big quant funds to a full-time research staff and an original article of no more than 500 words in the low hundreds (Man AHL, for in- suitable for publication in the Finance and economics stance, has 120). Quantopian boasts section. Applications should be sent to [email protected] by June 2nd. For more 120,000 members on its platform. information, please visit www.marjoriedeane.com. These are amateurs, however, not full- The Economist May 13th 2017 Finance and economics 65 Free exchange Embrace the contradictions

William Baumol, originatorofthe idea of“cost disease”, dies at 95 not preaching the Panglossian infallibility of markets. Rather, he helped economists understand why some industries might be more concentrated than others—and when oligopoly is a consequence ofcorporate chicanery rather than market efficiencies. Yet Mr Baumol will be remembered best for his cost disease. Itsorigin wasunlikely: a commission to help those promoting the arts understand the financial struggles that cultural organisations faced. Areportco-written with William Bowen closed with a simple but striking observation. Workers in the arts compete in the same national labour market as those in factories. As rising productivity in manufacturinglifts the wages offactory workers, arts organisations must pay their staff more to keep them from quit- tingto make widgets. But risingwages in the arts are not matched, as in manufacturing, by corresponding productivity growth: per- forming a piece by Schubert took the same time and the same numberofmusiciansin the 20th centuryasitdid in the 19th. Thus rising costs and stagnant productivity create increasing pressure over time to raise ticket prices, or take in more donations, or produce less art. The analysis bore relevance outside the arts, he quickly realised. Technological progress in some industries im- plies that in services with relatively low rates of productivity N MAY 4th William Baumol, one of the great economists of growth—like health care, education and government—swelling Othe 20th century, died. Mr Baumol, who kept working into costs will outstrip growth in productivity. Costlierpublic services his 90s, published more than 500 papers across a dazzling array are a necessary side-effect oflong-run growth. oftopics; his best-known work, describing “cost disease”, was es- Cost disease is a powerful but frequently misunderstood con- sentially a side-project. He was a scholar whose stray thought on cept. Sectors in the low-productivity bucket are not necessarily a sleepless night could change how people see the world. doomed to remain there. In future, new technologies could allow Mr Baumol was born in the South Bronx, attended New York fewer teachers or doctors to serve many more students and pa- public schools and took an undergraduate degree at the College tients. Nor must cost disease always entail a crisis of affordability. ofthe CityofNewYork. Shaped byhisfamily’sleft-wingviews, in The wage increases driving it are a side-effect of productivity high school he read Karl Marx, which kindled an interest in eco- gains elsewhere, which make the economy richer. Trouble re- nomics. He did his PhD at the London School of Economics; he sults, Mr Baumol pointed out, when rising spending creates polit- defended hisdissertation “overwhiskiesand sodasatthe Reform ical pressure forcutbacks, leading to needless deterioration in the Club”. He spent most of his long career at Princeton University. quality ofservices. Whereas cost-savingefficiencies are both pos- He had long been on the shortlist for a Nobel prize; sadly, death sible and welcome, budget cuts premised on the notion that the means he cannot receive one. share of spending on, say, education should remain flat hinder Hiscontributionswill endure, however. Mr Baumol’sprimary rather than help the economy. Indeed, if stagnant services com- intellectual focuswasthe entrepreneur, whose role was badlyne- plement an economy’s high-flying sectors (plying tech firms with glected by prevailing economic theories. This, he reckoned, was educated workers, for example), then rising employment in stag- an intolerable omission. The difference between rich countries nant areas raises rather than lowers overall productivity growth. and poor ones rests on differences in their use of technology, he Cost disease also provides a vision of a world of large-scale argued, and it is through enterprising individuals and firms that automation. As machines become better at doing things, the hu- innovations go from the drawing-board to active use across an man role in generating faster productivity growth will converge economy. Business theories, he lamented, inevitably treated peo- towards zero. At that point, so long as society expects everyone to ple as automatons, rather than potential revolutionaries. work, all spending in the economy will go towards services for Mr Baumol did better, casting entrepreneurs as crafty strivers which it is crucial that productivity not grow, in order to provide dedicated to raisingtheirpersonal status, who plot their course in jobs foreveryone. Society could seemingly be both characterised life based on the incentives they face. Policy determines whether by technological abundance and paralysed by cost disease. that means climbing the bureaucracy or founding Microsoft. He helped move economics beyond the narrow ideal of per- Practising theorist fect competition by introducing the idea of contestable markets, Mr Baumol revelled in such contradictions. In the 1990s he tack- in which competitive pressure comes from the worry that rivals led trade, and found that in the presence of economies of scale, will swoop in to vie fora marketifincumbentsare anything other production could get stuck in the “wrong” place—a country with than ruthlessly efficient. Perfectly contestable markets should be an underlying comparative advantage might still fail to dislodge just as efficient as perfectly competitive ones, even if only a hand- production from incumbent exporters. He relished hard ques- ful offirms dominate a business. His frameworkgave economists tions, and was happy to find that a hunch ofhis proved mistaken a wayto model whattheypreviouslycould not: whysome indus- on closer scrutiny. Probing, pragmatic and humble intellects are tries have lots of firms and others have just a few. Firms should all too rare in economics. They are now scarcer still. 7 enter the market until all are operating at the most efficient scale (so they cannot cut costs by selling more or fewer units). He was Economist.com/blogs/freeexchange 66 Science and technology The Economist May 13th 2017

Also in this section 68 Lotus-like materials 68 New violins v old ones

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Artificial intelligence “world-building” game called “Minecraft” that it had recently purchased. In Novem- Shall we play a game? ber 2016 Activision Blizzard, owners of “Starcraft II”, a science-fiction strategy game in which players build and command human and alien armies, announced something similar in collaboration with DeepMind, an AI firm owned by Alphabet, Google’s holding company. Why AI researchers are so keen on video games The following month, with the permis- AST year Artur Filipowicz, a computer ficial intelligence (AI, ofwhich machine vision of the owners involved, a privately fi- Lscientist at Princeton University, had a sion is an example) have for video games. nanced research group in San Francisco, stop-sign problem. Dr Filipowicz is teach- There are several reasons for this populari- called OpenAI, released “Universe”. This is ingcars how to see and interpret the world, ty. Some people, such as Dr Filipowicz, use a piece ofsoftware, free forall to use, which with a view to them being able to drive games as training grounds for the real features hundreds of games presented in themselves around unaided. One quality world. Others, observing that different waysthatmean theycan be played directly they will need is an ability to recognise games require different cognitive skills, by appropriate programs. The offerings in stop signs. To that end, he was trying to think games can help them understand “Universe” range from bestselling, big- train an appropriate algorithm. Such train- how the problem of intelligence may be budget titles such as “Portal 2” (a physics- ing meant showing this algorithm (or, rath- broken down into smaller, more manage- based puzzle game) to cheap-and-cheerful er, the computer running it) lots of pictures able chunks. Others still, building on these web games like “Bubble Hit Pony Parade” of lots of stop signs in lots of different cir- two observations, think games can help and “James the Space Zebra”. cumstances: old signs and new signs; clean them develop a proper theory of artificial One of Microsoft’s hopes in starting signs and dirty signs; signs partly obscured (and perhaps even natural) intelligence. Project Malmo was to teach AI software to by lorries or buildings; signs in sunny collaborate with people. To this end, Katja places, in rainy places and in foggy ones; Learner driver Hofman, the project’s head, is trying to use signs in the day, at duskand at night. Forall ofthis to happen, though, the games “Minecraft” to create an advanced perso- Obtaining all these images from photo themselves have first to be tweaked so that nal assistant. Her goal is software that can libraries would have been hard. Going out they can be played directly by another anticipate what its human operator wants, into the world and shooting them in per- computer program, rather than by a hu- and help him achieve it. “Minecraft”, son would have been tedious. Instead, Dr man being watching the action on a which is simpler than the real world but Filipowicz turned to “Grand TheftAuto V”, screen. “Grand Theft Auto V”, for instance, still complicated enough to be interesting, the mostrecentrelease ofa well-known se- can be turned from a source of pictures of makes the perfect testing-ground. Dr Hof- ries of video games. “Grand Theft Auto V” road signs into a driving simulator for au- man and her colleagues are, for instance, is controversial because of its realistic por- tonomous vehicles by bolting onto it a using it to try to teach a computer to work trayal of crime and violence—but from Dr piece ofsoftware called “Deep Drive”. This out that it must co-operate with a human Filipowicz’s point of view it was ideal, be- lets the driving and navigation programs player in order to catch a virtual pig. Since cause it also features realistic stop signs. By of such vehicles take control—a cheaper the machine is incapable ofunderstanding tinkering with the game’s software, he per- and safer way of testing driving software written instructions, it must learn co-oper- suaded it to spit out thousands of pictures than letting it loose on roads. ation purely by watching the actions of its of these signs, in all sorts of situations, for Games companies are beginning to un- human confrères in the game. his algorithm to digest. derstand this. In June 2015, forinstance, Mi- Acting as training wheels for the real Dr Filipowicz’s stop signs are one in- crosoft started Project Malmo, an AI-devel- world is not, however, the only thing video stance ofthe fondness that students of arti- opment platform based on a popular games can do for AI. The fact that different 1 The Economist May 13th 2017 Science and technology 67

2 games require different talents helps re- stand “Breakout”, for example, it would called embodied cognition, argues that, in- searchers chop up the problem of intelli- have to forget everything it knew about stead of trying to design intelligence into a gence. In 2015 DeepMind released a paper “Space Invaders”. Such amnesia is in the program from the beginning, it needs to be describing how its researchers had trained nature of artificial neural networks—and is learned entirely from experience. an artificial neural network—a program something that distinguishes them from Dr Hofman, in particular, backs this ap- based loosely on the structure of a biologi- real brains. They learn by system-wide ad- proach. She reckons video games are per- cal brain—to play dozens of different justments of the strengths of the connec- fect platforms on which to explore the games released in the 1970s and 1980s by tions between the virtual neurons of idea. Previous attempts to study embodied Atari, a pioneering video-games company. which they are composed. Change the task cognition, carried out in the 1980s, in- Some games proved harder than others to be learned, and the old web of connec- volved fitting robots with sensors and let- for the network to master. “Breakout”, tions will gradually be overwritten. Now, ting them learn, by running around and which is a bit like a single-player version of however, as they describe in a paper pub- bumping into things, how the real world tennis, was easy. The objective is to smash lished in March, DeepMind’s program- works. Researchers back then did have floating blocks by hitting them with a mers have worked out how to overcome some success with this approach, but they bouncing ball. A player can do one of two this and let a network master many games ran into problems scaling their experi- things: move the “racket” left or move it at once, in the way that a real brain can. ments up. As David Silver, who works at right. Failure is punished instantly (missing That is a step towards transfer learning— DeepMind, observes: “Robots have gears the ball costs a life). Similarly, success is in- the ability to put to use in one context pat- and wheelsand motors, and all sortsof fid- stantly rewarded (each smashed block terns of behaviour learned in another— dly things like that. Youend up spending a adds to the score). This combination of which is a hot topic in AI research. lot oftime doing maintenance work.” simplicity and immediate feedback suited Like displaying curiosity and delaying DeepMind’s neural network, which learnt rewards, transferring learning from one Play up, play up and play the game to play “Breakout” so well that it reached taskto anotheris somethinghumans do ef- Video games can streamline this process. A scores more than ten times those a profes- fortlessly but machines struggle to man- virtual robot in a virtual world is weight- sional human games-tester can manage. age. Here again, games are playing an im- less. It has no moving parts, so needs no Other games were less straightforward. portant role in research. For example, maintenance. Adjusting it to change its In “Montezuma’s Revenge” the goal is to re- Julian Togelius ofNew YorkUniversity has specifications does not require breaking trieve treasure buried deep inside a dan- organised a challenge called the General out the spanners and taking it to bits. A few ger-filled pyramid. To do this players must Video Game AI Competition. Entrants strokes on a keyboard will suffice. first achieve lots of sub-goals, such as find- must create a single program that can play, Its environment can be altered easily, ing keys to open doors. Feedbackis less im- with reasonable competence, ten different too. Rerouting a maze no longer means mediate than in “Breakout”—forinstance, a video games that neitherit norits program- welding sheets of metal together or gluing key that turns up in one area might open a mers have come across. This requires the plastic walls. And a computer can run door in another, far away. And the ultimate software to master many skills—planning, thousandsofsuch simulationsata time, al- reward, reaching the treasure, is the conse- exploration, decision-making and so on— lowing legions ofvirtual robots to try tasks quence of thousands of previous actions. and apply them to problems it has not pre- again and again, learning with each at- This meant that the network found it hard viously encountered. tempt. That kind of large-scale testing, to connect cause and effect. In contrast to Even when transfer learning is mas- which permitsthe learningprocessitself to its virtuoso performance at “Breakout”, it tered, though, constructing useful artificial be monitored and understood, is simply was able to make almost no headway at all intelligence will remain a piecemeal activi- not practical using real machines. with “Montezuma’s Revenge”. ty. What researchers would really like is an The important thing, according to De- Since then, DeepMind’s researchers underlying theory of how to do so system- mis Hassabis, DeepMind’s founder, is to have tweaked their algorithms to make the atically. One candidate to be such a theory, make sure the virtual robot cannot cheat. It system more curious about things, by giv- must navigate using only the information ingitbiggerrewardsforexploration and ex- its virtual sensors can gather. There can be perimentation. This makes it more likely to no peeking behind the scenes of the simu- stumble across good strategies which have lation. Ifsuch a robotwantsto learn itsway payouts that are not immediately appar- around the danger-filled pyramid in “Mon- ent. That approach is not limit to mastering tezuma’s Revenge”, or the fictional city of skills in a virtual world—it can be applied Los Santos in “Grand Theft Auto”, it must to the real one, as well. DeepMind’s algo- workoutwhere itisand whatishappening rithmshave, forinstance, been putto use in from what it can “see”, not by asking the Google’s data centres, where they have de- computer which is running the game to veloped ways to cut energy use by 40%. In- give it co-ordinates. This is the approach deed, it is possible to view tasks like that as DeepMind takes when it teaches programs gamesin themselves. To cutenergyuse in a to play video games. data centre, a network can tweak things Studying embodied cognition in this like coolant-pump settings and load distri- way is a logical conclusion of the games- butions while keeping an eye on energy playing approach to AI. It seems an appro- use. The lower it can get the “score”, the priate one. Watch the young of any intelli- better it is doing. gent creature, from dogs to humans, and you will see them building up something Embodiments of truth that looks suspiciously like embodied cog- At the moment, repurposing a games-play- nition by playing. Evolution did not have ing program to run a data centre’s energy the assistance of computers when it ar- budget really is like teaching it a new game rived at this process. But the fundamental from scratch. That is because DeepMind’s point of such activity, in both the artificial original neural networkcould learn to play and the natural worlds, is to prepare play- only one game at a time. In order to under- ers forthe biggest game ofall—reality. 7 68 Science and technology The Economist May 13th 2017

Musical instruments Debranding

More evidence that modern violins are betterthan 300-year-old ones OR a workofart by a genius, $16m knowing what they were playing, and Fmight not seem an outrageous price. employed a special screen, transparent to And that is what is believed to have been sound, to hide player and instrument paid, in 2012, forthe Vieuxtemps Guarne- from the audience, which consisted of ri—a violin made in the 18th century, in musicians, critics, composers and so on. Cremona, Italy, which thus became the In both places these experts agreed most expensive fiddle in the world. The that the new violins projected sound Vieuxtemps’s owner remains anony- better than the old ones did. Moreover, mous, but he or she has made it available though only the New Yorkaudience was forlife to Anne Akiko Meyers, an Ameri- asked, its members preferred the music can violinist pictured playing it below. ofthe new violins to that ofthe old Violins crafted by members ofthe ones—even though, like the players, they Guarneri family and their Cremonese could not actually tell which was which. contemporaries, the Stradivari and the That any ofthis will persuade people New materials Amati, regularly fetch millions, because like Ms Meyers to abandon Cremona players like Ms Meyers value them so seems unlikely. For them it is part ofthe The lotus position highly. But a violin is not, by itself, a work brand. But foraspiring players who can- ofart. It is, rather, a means ofcreating not afford millions, Dr Fritz’s and Mr one—in other words, a piece oftech- Curtin’s workis surely food forthought. nology. An instrument. And foran instrument to be worth that much, it had better be the best in its class. A self-repairing surface that stays clean Unfortunately for the shades ofCre- and dry mona’s master luthiers, evidence is grow- HE repulsive powers oflotus leaves are ing that their wares, though once unques- Tthe stuff of legend. Water sprayed onto tionably the best, are so no longer. Past them forms instantly into silvery beads studies by Claudia Fritz ofthe University (see picture) and rollsrightoffagain—carry- ofParis VI, and Joseph Curtin, a violin- ing any dirt on the leaf’s surface with it. maker in Michigan, have shown that The physics behind this impressive and professional players wearing goggles to beautiful phenomenon is well under- stop them seeing their instruments clear- stood. Lotus leaves repel water because ly cannot tell between Cremonese and they are covered with minuscule waxy well-made modern violins—and general- nodules that stop water molecules bond- ly preferthe sound ofthe latter. The pair’s ing with a leaf’s surface tissues, meaning latest paper, just published in the Proceed- those molecules bond with each other in- ings of the National Academy of Sciences, stead. That arrangement has been replicat- suggests the same is true ofaudiences. ed in several man-made materials. Unfor- In experiments in concert halls in tunately, these are easily damaged by Paris and New York, Dr Fritz and Mr abrasion—and, not being alive, cannot re- Curtin matched pairs ofinstruments, one grow and repair themselves. They are thus old and one new, against each other in a hard to commercialise, which is a pity, be- series oftests, some solo and some with cause the self-cleaning, self-drying sur- orchestral accompaniment. They used faces they create could be of great value. A the goggle technique to stop players Goodbye to old times? technique just described in Langmuir by Jürgen Rühe of the University of Freiburg, in Germany, may, however, fix this pro- Lotus-like man-made materials belong do no harm. But enough would weaken blem bygivinglotus-like materialsthe abil- to a class known as nanograsses—so called the glue to the point where the uppermost ity to regenerate when damaged. because, under an electron microscope, nanograss lawn flaked off, and the next Dr Rühe’s approach is to mimic a sec- they resemble lawns. Dr Rühe’s nano- one down tookover. ond living organism—this time an animal, grasses have water-repellent “blades” at- Testing this idea out using an appropri- the lizard. As lizards grow, their scales do tached to thin sheets of silicon. The task he ate glue (a special water-soluble polymer), not grow with them. Instead, old scales are set himself was to create a stack of these he found that it worked. When he shed and replaced from below by new that could tell when the one at the top was scratched the top of such a stack with a ones. Dr Rühe theorised that it might like- compromised so badly that it needed to be scalpel and exposed it to water, it did, in- wise be possible to create a stack of lotus- replaced, and then replace it automatically. deed, come loose and fall off as the water like layers that would flake off when dam- He conceived ofdoingthisbygluing the seeped into the underlying glue. Such an aged, revealing a pristine surface beneath. layers of the stack together with a water- arrangement will not, of course, last for soluble material. He reasoned that, as the ever. Eventually, it will run out of layers. top layer got worn, and water began leak- But if the idea can be applied to industrial Correction: In “Skating on thin ice” (April 27th) we referred to Oystein Bo as Norway’s defence minister. In ing through it, this glue would start to dis- practice, then long-lived, self-cleaning sur- fact, he is state secretary in the Ministry of Defence. solve. A small amount of damage would faces may at last become routine. 7 Books and arts The Economist May 13th 2017 69

Also in this section 70 The maths of life 70 Memoirs of a neurosurgeon 72 Johnson: “Misspeaking” 73 Britain’s Olympic athletes 73 Art and artists in Africa

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

Fabled places dane. To be sure, an influential Moorish trading town had sat at the juncture of the The dream beyond the desert world’s largest desert and west Africa’s longest river since at least the 12th century. Until the discovery ofthe Americas it lay at the heart of a region that produced two- thirds of all the Mediterranean’s gold. The settlement was an important asset for a succession of empires: Mali, Songhai, Mo- The story ofTimbuktu remains clouded by fantasy rocco. It was an exceptionally (though not OMBUT. Tenbuch. Tombouctou. Tim- uniquely) sophisticated society from at The Storied City: The Quest for buktu. The names called to Europe least the mid-14th century, rich with litera- T Timbuktu and the Fantastic Mission to from out across the Sahara, neverquite cer- ture, madrasas and thousands of students. Save its Past. By Charlie English. tain. Was it a New Jerusalem? An African Timbuktu’s most distinctive feature, Riverhead; 416 pages; $28. Published in Carthage? A Moorish Florence? Nobody though, was its many private libraries, the Britain as The Book Smugglers of knew: explorer after explorer had tried to work of the city’s scholars, drawn from its Timbuktu; William Collins; £20 reach it, to send word backto Europe ofthis wealthiest families. It was in these libraries fabled city on the Niger river, but until well that the famous manuscripts—vast num- into the 19th century every attempt had ing kingdoms of west Africa. His mid-16th- bers ofmainly religious texts but also secu- ended in death or failure. Perched on the century portrait of a city of gold and en- lar works such as poetry, novellas and outer reaches of European knowledge, lightenment echoed down the centuries. works of science—were deposited, and Timbuktu powerfully captured what Ed- Mungo Park, a Scottish explorer, published carefully conserved, over the centuries. ward Said, a Palestinian-American scholar, “Travels in the Interior Districts of Africa” Running alongside Mr English’s lively called the “Orientalist” imagination. For in 1799. A bestseller, it made Timbuktu the telling of the quest for Timbuktu is a thrill- centuries, myth was piled upon myth. talk of literary Europe, but Park never ing account of a more recent story: the dar- In “The Storied City”, Charlie English, a reached the city. A little-known Scottish ing evacuation of hundreds of thousands veteran journalist for the Guardian, traces soldier, Major Alexander Gordon Laing, fi- ofTimbuktu’smanuscriptsbyitslibrarians how the European idea of Timbuktu took nally entered in 1826: he later left a cryptic during the jihadist occupation in 2012. The shape through the “West’s centuries-long note that revealed little, before disappear- threat that the jihadists posed to the city’s struggle to find, conquer and understand ing into the desert. René Caillié, a reclusive inheritance was often foreshadowed over the city”. Cut offfrom Christian Europe fol- Frenchman, proclaimed himself ready to the preceding centuries, from the Moroc- lowing the Muslim conquests in the sev- share Laing’s fate: “Dead or alive: it shall be can invasion in the late 16th century, which enth and eighth centuries, Timbuktu’s mine.” But Caillié went on to become the led to killings, expulsions and looting, to sheer remoteness at the far end of the Sa- first European explorer to return from the the French conquest at the end of the 19th. haran caravan trails meant that first-hand city alive, in 1828. The French and the jihadists, though utter- accounts were non-existent. Explorers Other detailed accounts began to ly different in every other way, both saw a dreamingofAfrica’s El Dorado, with prizes emerge, describing a city less fantastical once-great city that could be restored to and wealth for doing so waiting back than many Europeans had imagined. But glory only through their occupation. home, yearned to remedy this. the myth of Timbuktu proved resilient. Mr English tells the new and the older Leo Africanus, a north African traveller Into the 20th century it remained a source tales in parallel. The evacuation of Tim- of obscure origin, put Timbuktu on Eu- of fascination to scholars enraptured by buktu’s manuscripts has been recounted rope’s intellectual map with “Descriptions the gilded legend of its libraries and unri- by others in many newspaper articles and of Africa”, a florid account of his journey valled learning. another recent book. But the history of from what is now Tunisia to the gold-trad- The reality, inevitably, was more mun- European exploration is a compelling1 70 Books and arts The Economist May 13th 2017

2 enough subject in its own right, and much Many things that appear unrelated are ac- more crime). Just as an elephant is a more less well-known. The two stories illumi- tually linked, he says. The size ofan animal efficient animal than a cat, big cities are nate each other, butsomewhat obliquely. It is related to the speed of its metabolism more efficient than small ones. That is why is nonetheless a brilliant device. and its lifespan. If you know the popula- people are drawn to them. Thisisbecause MrEnglish concludes by tion of a city and what country it is in, you Having charted these patterns, Mr West casting a degree of doubt on the story of can predict fairly accurately how many is not quite sure what to make of them. He the evacuation. It is, he suggests, a “mod- petrol stations it has and how many pat- suggests that urban planners should think ern-day folktale”, the jihadi threat to the ents its citizens produce. Mr West even sug- of themselves as facilitators of fundamen- manuscripts slightly exaggerated, their gests that the mice and the metropolises tal natural processes. But how, exactly, number and value a tad inflated. But this, are linked. should they do that? Like many urbanists, he argues, is in keeping with a long tradi- To take an odd example: howmuch LSD Mr West admires Jane Jacobs, who be- tion. Timbuktu’s story has always been should you give to an elephant, should lieved that cities such as her beloved New told and re-told: a tapestry of half-truths you feel minded to do such an irresponsi- Yorkshould be leftto evolve naturally rath- and almost-truths shaped byoutsiders and ble thing? The answer is not the 297 milli- er than being tweaked by meddlesome Timbuktiens alike. The city’s history, he grams that was injected into a poor pachy- planners. In fact New York is one of the says, exists in “perpetual motion, swinging derm called Tusko in 1962, leading shortly world’s most rigorously planned cities. Its back and forth between competing poles to his death. The researchers came up with grid pattern was laid down when the city of myth and reality”. No wonder people that amount by extrapolating from re- was just a small settlement on Manhat- like Mr English keep writing about it. 7 search on cats. They had simply scaled up tan’s southern tip. a feline acid dose to account for the greater MrWest is an entertaining, chatty guide mass, without accounting for the fact that to the things that interest him. That is most- The maths of life safe dosages for drugs do not quite double lyto the good, although the chattiness does with a doubling in mass, and other factors mean that “Scale” suffers from a problem Mr Big also play a role. Extrapolate this over the of scale. A ruthless editor could have ex- many multiples of mass an elephant has cised at least a quarter of the words and over a cat, and Tusko should have had a created a tighter, more compelling book. few milligrams, not several hundred. Size is not always everything. 7 Non-linear scaling relationships such as these fascinate Mr West. “Underlying Scale: The Universal Laws of Growth, the daunting complexity of the natural Memoirs Innovation, Sustainability, and the Pace of world lies a surprising simplicity, regulari- Life, in Organisms, Cities, Economies, and ty and unity when viewed through the Companies. By Geoffrey West. Penguin Press; Neurosurgeon, coarse-grained lens of scale,” he writes. In 479 pages; $30. Weidenfeld & Nicholson; £25 other words: do not get too distracted by reveal thyself EOFFREY WEST is the restless sort. He what animals and plants look like, or how Ghas spent much ofhis career as a theo- they have evolved. Just look at fundamen- retical physicist, working at the Los Ala- tal properties like their size and weight. Admissions: A Life in Brain Surgery. By mos National Laboratory in New Mexico. These tend to obey mathematical laws. Henry Marsh. Weidenfeld & Nicolson; 271 Aftera while he became fascinated by biol- Cities, he suggests, are a little like giant pages; £16.99. To be published in America by ogy, then cities and companies. He is inter- organisms. Theyoften growin the same ex- Thomas Dunne in October; $26.99 ested in all sorts of things, from Isambard ponential way. A map of lorry journeys Kingdom Brunel’s ship designs to Ingmar looks a bit like a network of blood vessels. LLNESS, wrote Susan Sontag, is “the Bergman’s films. When he says that he Cities also scale non-linearly. A city that is Inight-side of life”. In his bestselling 2014 drives his wife nuts, you believe him. twice as populous as another does not memoir, “Do No Harm”, Henry Marsh, a On one level, “Scale” isa bookabout Mr have twice as much infrastructure and neurosurgeon, gave an elegant account of West’s peculiar career path. But on anoth- twice as much productivity. It has a bit less his role as a gatekeeper of this night-side, er, it is about the hidden mathematical pat- infrastructure than you would expect, and an “underworld of suffering”. In “Admis- terns underlying life, cities and commerce. a bit more productivity perhead (as well as sions” he returns to the same territory, but also covers his life before and after the heart ofhis career. The book starts at the ignominious end of Mr Marsh’s time in Britain’s National Health Service (NHS). Ground down, as he tells it, by bureaucrats and needless regulations, Mr Marsh sends his resignation letter. His final operation is tricky, but a success. The next day he finds his patient has had an unnecessary nasogastric tube in- serted. He asks the nurse to remove it but, without the paperwork, the nurse refuses. Mr Marsh snaps. He tweaks the nurse’s nose, shouts“I hate yourguts!”, and storms off. He later, sheepishly, returns to apolo- gise. The telling episode shows both Mr Marsh’s disarmingly frankstorytelling and his querulous, warty sort ofheroism. He is, in spite ofhimself, hugely likeable. After 40 years in the NHS, Mr Marsh Lagos certainly does scale fears falling idle and useless. So he keeps1

72 Books and arts The Economist May 13th 2017

2 busy, and he writes. In Nepal and Ukraine of a rather wayward Bildungsroman of his “Like all surgeons all I want to do is oper- he helps former colleagues in their clinics. path to becoming a neurosurgeon. ate.” As soon as he makes the first incision, Every day people appear with tumours It was the privileged insights into neu- he finds a “fierce and happy concentra- bigger than any he had ever seen in Britain. rosurgery which made “Do No Harm” tion”. His writing is at its vivid best in the The sufferingis overwhelming, the surgery such a remarkable book. “Admissions”, to “muted drama of the theatre”, with “the almost pointless. Here his reflections on some extent, offers more of the same. Mr bleeping of the anaesthetic monitors, the death and dying equal those in Atul Ga- Marsh describes neurosurgeons as a tribe, sighing of the ventilator” and “the sucker wande’s excellent “Being Mortal”. And ev- isolated by the terrible responsibility of slurping obscenely” as he removes a tu- ery few chapters he returns to Oxford, their job. There is the decision of whether mour from someone’s brain. where he has begun renovating a lock- to operate, which involves great uncertain- There are, though, fewer such moments keeper’s cottage near his childhood home. ty. And there is the risk of neurosurgery it- in Mr Marsh’s new book. Those expecting This brings him back to his youth, from self, where the smallest mistake can blind, a second “Do No Harm” will be surprised, swimming lessons to first loves, his time at paralyse or kill someone. But Mr Marsh de- but not disappointed. “Admissions” is Oxford University, and a brief stay as a pa- scribes it as a sort of addiction, where the more about the man than the surgeon, but tient in a psychiatric hospital. The effect is huge responsibility is part of the thrill. it is excellent in its own right. 7 Johnson Hit and misspeak

“I misspoke” is a bait-and-switch excuse when a public figure fouls up ORDAN EDWARDS, a black 15-year-old, could only be the product of a tired, Jwas in the passenger seat of a car at a stressed and hastily prepared politician house party in Balch Springs, near Dal- having a very bad moment. An honest, las, when he was shot and killed by a po- self-deprecating, account—“That was aw- liceman with a rifle. The policeman’sboss ful. Pourme a drink”—would have earned later told reporters that the car had been her a lot of credit. Everyone has terrible driving “aggressively” backwards to- days. But she insisted on pretending that wards the officer. But after reviewing the whole thing was akin to a mere typo. body-camera footage, it came to light that Kellyanne Conway, an adviser to Do- the car had been heading away from, not nald Trump, “misspoke one word” when towards the officer. The police chief’s re- she referred to a “Bowling Green massa- traction? “I misspoke.” cre”, a supposed terrorist attack. That one More recently Diane Abbott, the Brit- little misspoken word was “massacre”— ish shadow home secretary, was being in- nothing of the sort took place in Bowling terviewed about her Labour Party’s plans Green, Kentucky. Tarun Vijay, an Indian to add 10,000 new police officers to Brit- politician, said that Indians were not rac- ain’s streets. She first gave the interviewer ist, given that they live with “black” South a cost of “about £300,000” ($388,000). Indians; he, too, reached for “I misspoke”, Given a chance to correct this sum (£300 clarifying that he merely meant that India per officer), she changed it to £80m. Asked is a country of many colours. But at least if this figure wasn’t also rather low, she he, unlike MsAbbottorMsConway, deliv- went on to say that Labour would be re- ered a proper apology. cruiting 25,000 officers a year for four Ms Abbott went beyond thinkos. The Public figures’ claims of “misspeak- years, then 250,000, then 2,250, and ac- first—to give the most charitable possible ing” are inherently suspicious. Most peo- cused the host of producing the 250,000 explanation—was telling a nationwide ple don’t need to point out a mere typo: figure. It was an epic disaster. Her excuse? news audience, in the wake of a horrible these are usually obvious in the moment, “I misspoke.” tragedy, something he did not really know. and forgiven without explanation. It Geoffrey Nunberg, a linguist, distin- This was a time for prudence, for saying as seems far more common that claims of guishestwo kindsofspeech mistakes: “ty- little as possible until the facts were in. But misspeaking are a kind of bait-and- pos” and “thinkos”. Typos are ubiquitous it seems that he trusted an officer’s verbal switch, swapping a major sin—lying, be- and listeners hardly notice many of them. account of the story, and told that false ing indefensibly clueless or saying some- Thinkos go deeper; they betray that the story to the world. The true retraction thing offensive—for a minor one, a claim speaker might actually not know some- should have been not “I misspoke”, but “I of having tripped over the tongue as over thing. If someone says the capital of Italy told you all what I wanted to be true, on a carelessly tied shoelace. is Florence, that’s probably a true thinko, completely insufficient evidence. I In April, Mr Trump’s press secretary, unlessthe person isan expertin Italy who screwed up terribly, and I’m sorry.” Sean Spicer, said that not even Hitler had just happened to be thinking about a Ms Abbott’s explanation was that she used chemical weapons on his own peo- forthcoming holiday in Florence. But had done seven interviews that day, of ple. He later apologised—and in an article when people are caught in a thinko, they which the train-wreck was the last. She about the flap in The Hill, a reporter acci- are often tempted by the “misspoke” ex- genuinely misspoke when she said dentally misidentified Mr Spicer: “When planation—it’s hard to prove them wrong, £300,000, obviously—such a sum is trivial asked to clarify those comments, Hitler after all, if they say they knew the right in national budgeting. But the jumble of misspoke again by saying Hitler did not thing but just accidentally said the wrong numbers that followed, some of them use gas against his country’s people.” The one. It could happen to anybody. plausible, some of them ridiculous, and mistake was online for about 20 minutes But the Balch Springs police chief and her repeated stumbling and backtracking, before being corrected. Talkabout a typo. The Economist May 13th 2017 Books and arts 73

Britain’s Olympic athletes Art and artists in Africa What price The next big thing victory? PARIS Two fine exhibitions ofthe continent’s best contemporary art EFORE the first world war the most The Talent Lab: The Secret to Finding, exciting artists were French; in the Creating and Sustaining Success. By Owen B 1990sthey were Chinese. Now the hot Slot with Simon Timson and Chelsea Warr. new place forcontemporary art is Africa. Ebury Press; 304 pages; £20 Visitors to the opening ofthe Venice T SEEMS hardly an auspicious time to re- Biennale on May13th can go to a Nigerian Ilease a book on Britain’s Olympic suc- pavilion for the first time; three days later cess. Numerous scandals—accusations of Sotheby’s will inaugurate its first auction bullying, sexism and failure to keep proper ofAfrican contemporary art. At the end records of drugs—are engulfing British Cy- ofSeptember Jochen Zeitz, a German cling, a symbol of national glory. Yet the businessman, will open the long- transformation ofBritain’s performance in awaited Zeitz MOCAA, which Thom- the Olympicsremainsa remarkable tale. In as Heatherwick, a British designer, has 1996, Britain’s “team of shame” came 36th been creating forhim in a disused grain in the medal table, below Algeria, Ireland silo on the waterfront in Cape Town. and North Korea. At the London games of Those too impatient to wait should make 2012, Team GB (as the United Kingdom’s haste, meanwhile, to Paris, where the squad is officially known) won 65 medals, Fondation Louis Vuitton (FLV) in the Bois up from 15 in 1996. Britain performed even de Boulogne has unveiled two ofthe betterin Rio last year, winning27 golds and most vivid exhibitions ofAfrican artists 67 medals in all, finishing second, above that the city has ever seen. China, in the overall medal table, defying For the first exhibition, “Être Là” (“Be- the trend of host nations’ sliding down the ing There”), Suzanne Pagé, FLV’s artistic tables in the following games. director, has selected 16 artists from South Bright new faces These hauls have been a triumph for Africa. Much ofwhat they have made for detailed and ambitious planning, as Owen the show is creepy, frightening and ag- masks made from randomly collected Slot, a sports writer for the Times, explains gressive. That is not unexpected given domestic objects by Romuald Hazoumé in an engaging book. Huge spikes in cash that this is the workofa generation from Benin, an artist whose workDavid have helped. Across Olympic and Para- grown increasingly frustrated at the Bowie collected; sculptures ofbright, lympic sports, UK Sport, Britain’s funding country’s inability to live up to its post- idealised cities by Bodys IsekKingelez of body, spent £69m ($89m) on Sydney 2000 apartheid promise. the Democratic Republic ofCongo; magi- but almost £350m on Rio 2016. Yet cash The second show, “Les Initiés” (“The cal works made with porcupine quills by alone cannot explain all of Team GB’s suc- Insiders”), is more surprising. Drawn John Goba from Sierra Leone; and hilari- cess: for the 2012 games, South Korea and from a collection built up by Jean Pigozzi, ous face masks, such as “Oba 2007” Japan spent over three times more than heir to the Simca motoring fortune, it (pictured), made by Calixte Dakpogan, Britain and had worse returns. starts in 1989, when the communist proxy also from Benin, out ofbeads, pens, UK Sport adopts the mindset of an in- wars in Africa were coming to an end and nail-clippers and synthetic coloured hair vestor seeking the best returns wherever technology, in the form ofmobile phones which he has found on his walks through they can be found. The model has been un- and internet banking, was but a step his hometown ofPorto-Novo. Here, ashamedly ruthless, concentrating on dis- away from giving Africans greater control energy and adventurousness are ciplines with the best medal prospects over their daily lives. It blends humour matched only by imagination, belying while ditching also-rans. Even among the and inventiveness, in the form ofwitty any notion that Africa is a darkcontinent. sports that do receive funding, cash is di- verted to a tiny coterie of elite athletes: the £21m allocated to swimming before Rio to coach athletes of different sexes. Teams mance, who contribute a brief summary was focused on nine “Golden Children”. engaged parents about the best techniques of lessons after each chapter. Their input is Before Rio 2016, Liam Tancock, Britain’s for nurturing high-performance athletes. double-edged: it ensures that the book pro- bestmale swimmerofrecenttimes, lost his The British Olympic Association made its vides an unrivalled look inside UK Sport’s funding largely because he would turn 31 first reconnaissance mission to Brazil, to medal-factory, but may also keep Mr Slot before the games—past his prime. find ideal hotels and training facilities, six from tacklingsome subjects with complete Mr Slot’s attention to detail turns up years before Rio 2016. independence. some fascinating facts. East German-style UK Sport has borrowed from a wide ar- The increased investment in the Olym- national talent-scoutingprogrammes were ray of fields in pursuit of an edge. Music pics and the subsequent bonanza of med- created, producing Olympic medallists schools and military special forces were als, mayhave given Britain a reason to hold from those who had never previously asked foradvice on spottingtalent and per- its head high. But success for the elite has played the sport—in the processdebunking forming under pressure, and an expert in come at a time of falling sports participa- a widespread notion that10,000 hours are turning around flagging businesses, bor- tion in Britain, with the decline greatest needed to achieve excellence in a skill. rowed from a private-equity firm, helped among the poor. For all the successes, the Coaches were hooked up to heart-rate-var- improve British shooting’s meagre perfor- question lurking beneath this book is an iance monitors, to understand how to mance. Mr Slot’s book is written in con- uncomfortable one. In an era of austerity manage their stress levels better, and Team junction with Simon Timson and Chelsea and impoverished grassroots sport, has GB’s managers analysed the optimal way Warr, two of Team GB’s directors of perfor- the price ofthese medals been too great? 7 74 Courses

The Economist May 13th 2017 Tenders 75

Appointments INTERNATIONAL TRIBUNAL FOR THE LAW OF THE SEA TRIBUNAL INTERNATIONAL DU DROIT DE LA MER

The International Tribunal for the Law of the Sea (ITLOS), an international court with its seat in Hamburg, Germany, has the following vacancies:

Senior Legal Ofﬁ cer / Head of Legal Ofﬁ ce (P-5) French Translator/Reviser (P-4)

For qualiﬁ cations and experience required, as well as further details, please see the vacancy announcements on the Tribunal’s website (www.itlos.org). Travel

To advertise within the classified section, contact: UK/Europe United States Agne Zurauskaite Richard Dexter Tel: (44-20) 7576 8152 Tel: (212) 554-0662 [email protected] [email protected]

Asia Middle East & Africa ShanShan Teo Philip Wrigley Tel: (+65) 6428 2673 Tel: (44-20) 7576 8091 [email protected] [email protected] The Economist May 13th 2017 76 Economic and ﬁnancial indicators The Economist May 13th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Economic Gross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest May 10th year ago United States +1.9 Q1 +0.7 +2.2 +1.5 Mar +2.4 Mar +2.3 4.4 Apr -481.2 Q4 -2.7 -3.5 2.41 - - China +6.9 Q1 +5.3 +6.6 +7.6 Mar +1.2 Apr +2.3 4.0 Q1§ +170.1 Q1 +1.7 -4.0 3.62§§ 6.90 6.52 Japan +1.6 Q4 +1.2 +1.3 +3.3 Mar +0.2 Mar +0.7 2.8 Mar +187.3 Mar +3.5 -5.3 0.04 114 109 Britain +2.1To Q1 come +1.2 +1.6 +2.8 Feb +2.3 Mar +2.7 4.7 Jan†† -115.7 Q4 -3.3 -4.0 1.17 0.77 0.69 Canada +1.9 Q4 +2.6 +2.1 +3.9 Feb +1.6 Mar +1.9 6.5 Apr -51.2 Q4 -2.9 -2.7 1.64 1.37 1.29 Euro area +1.7 Q1 +1.8 +1.7 +1.2 Feb +1.9 Apr +1.6 9.5 Mar +398.9 Feb +3.1 -1.5 0.43 0.92 0.88 Austria +1.7 Q4 +2.0 +1.6 +3.1 Feb +2.0 Mar +1.8 5.9 Mar +6.6 Q4 +2.4 -1.1 0.68 0.92 0.88 Belgium +1.5 Q1 +2.1 +1.4 +4.0 Feb +2.3 Apr +2.1 6.9 Mar -2.0 Dec +1.0 -2.7 0.79 0.92 0.88 France +0.8 Q1 +1.0 +1.3 +2.0 Mar +1.2 Apr +1.3 10.1 Mar -30.4 Mar -1.1 -3.1 0.87 0.92 0.88 Germany +1.8 Q4 +1.7 +1.6 +1.8 Mar +2.0 Apr +1.8 3.9 Mar‡ +287.2 Mar +8.1 +0.5 0.43 0.92 0.88 Greece -1.4 Q4 -4.8 +1.2 +8.7 Mar +1.6 Apr +1.0 23.5 Jan -0.7 Feb -0.8 -4.2 5.67 0.92 0.88 Italy +1.0 Q4 +0.7 +0.8 +2.8 Mar +1.8 Apr +1.4 11.7 Mar +46.8 Feb +2.4 -2.3 2.27 0.92 0.88 Netherlands +2.5 Q4 +2.5 +2.2 +4.0 Mar +1.6 Apr +1.2 6.1 Mar +64.8 Q4 +8.7 +0.7 0.65 0.92 0.88 Spain +3.0 Q1 +3.2 +2.6 +8.9 Mar +2.6 Apr +2.1 18.2 Mar +25.9 Feb +1.6 -3.3 1.62 0.92 0.88 Czech Republic +2.0 Q4 +1.6 +2.5 +10.9 Mar +2.0 Apr +2.4 3.4 Mar‡ +2.3 Q4 +0.9 -0.5 0.83 24.4 23.7 Denmark +2.3 Q4 +1.9 +1.4 +10.7 Mar +1.1 Apr +1.4 4.3 Mar +26.5 Mar +7.1 -1.2 0.69 6.85 6.53 Norway +1.8 Q4 +4.5 +1.7 +3.3 Mar +2.2 Apr +2.4 4.3 Feb‡‡ +18.1 Q4 +4.9 +2.7 1.69 8.61 8.21 Poland +3.3 Q4 +6.6 +3.2 +11.1 Mar +2.0 Apr +2.0 7.7 Apr§ +0.4 Feb -1.2 -3.2 3.43 3.88 3.88 Russia +0.3 Q4 na +1.4 +0.8 Mar +4.1 Apr +4.3 5.4 Mar§ +34.9 Q1 +2.8 -2.8 8.13 57.6 66.3 Sweden +2.3 Q4 +4.2 +2.6 +3.8 Mar +1.3 Mar +1.7 6.8 Mar§ +23.7 Q4 +4.8 -0.4 0.65 8.91 8.15 Switzerland +0.6 Q4 +0.3 +1.3 -1.2 Q4 +0.6 Mar +0.5 3.3 Apr +70.6 Q4 +9.9 +0.2 -0.03 1.01 0.97 Turkey +3.5 Q4 na +2.8 +2.8 Mar +11.9 Apr +10.0 13.0 Jan§ -33.7 Feb -4.4 -2.0 10.63 3.59 2.94 Australia +2.4 Q4 +4.4 +2.7 +1.0 Q4 +2.1 Q1 +2.2 5.9 Mar -33.1 Q4 -1.3 -1.8 2.66 1.35 1.36 Hong Kong +3.1 Q4 +4.8 +2.8 -0.9 Q4 +0.5 Mar +1.6 3.2 Mar‡‡ +14.5 Q4 +6.5 +1.5 1.45 7.79 7.76 India +7.0 Q4 +5.1 +7.1 -1.2 Feb +3.8 Mar +4.6 5.0 2015 -11.9 Q4 -1.1 -3.2 6.94 64.7 66.6 Indonesia +5.0 Q1 na +5.2 +5.5 Mar +4.2 Apr +4.2 5.3 Q1§ -16.3 Q4 -1.9 -2.2 7.04 13,358 13,288 Malaysia +4.5 Q4 na +4.3 +4.7 Feb +5.1 Mar +4.0 3.5 Feb§ +6.0 Q4 +2.8 -3.1 3.96 4.35 4.05 Pakistan +5.7 2016** na +5.4 +8.1 Feb +4.8 Apr +4.6 5.9 2015 -7.2 Q1 -2.6 -4.8 8.98††† 105 105 Philippines +6.6 Q4 +7.0 +6.6 +11.1 Mar +3.4 Apr +3.3 6.6 Q1§ +0.6 Dec +0.3 -2.4 5.05 50.0 46.8 Singapore +2.9 Q4 -1.9 +2.1 +10.2 Mar +0.7 Mar +1.3 2.3 Q1 +56.7 Q4 +19.2 -1.0 2.20 1.41 1.37 South Korea +2.8 Q1 +3.6 +2.6 +3.0 Mar +1.9 Apr +1.8 4.2 Apr§ +92.9 Mar +6.3 -1.0 2.30 1,136 1,173 Taiwan +2.6 Q1 +2.9 +2.3 +3.2 Mar +0.1 Apr +0.5 3.8 Mar +70.9 Q4 +12.3 -0.8 1.10 30.3 32.5 Thailand +3.0 Q4 +1.7 +3.8 -0.5 Mar +0.4 Apr +0.8 1.3 Mar§ +42.3 Q1 +11.0 -2.3 2.54 34.8 35.2 Argentina -2.1 Q4 +1.9 +2.7 -2.5 Oct — *** — 7.6 Q4§ -15.0 Q4 -2.6 -4.2 na 15.6 14.2 Brazil -2.5 Q4 -3.4 +0.7 +1.1 Mar +4.1 Apr +4.3 13.7 Mar§ -20.6 Mar -1.4 -7.7 9.76 3.16 3.48 Chile +0.5 Q4 -1.4 +1.8 -8.3 Mar +2.7 Apr +3.0 6.6 Mar§‡‡ -3.6 Q4 -1.3 -2.2 4.02 672 677 Colombia +1.6 Q4 +4.0 +2.2 -3.2 Feb +4.7 Apr +4.1 9.7 Mar§ -12.5 Q4 -3.5 -3.1 6.31 2,943 2,981 Mexico +2.7 Q1 +2.4 +1.7 -1.7 Feb +5.8 Apr +5.2 3.5 Mar -27.9 Q4 -2.5 -2.4 7.28 18.9 18.0 Venezuela -8.8 Q4~ -6.2 -5.5 na na +562 7.3 Apr§ -17.8 Q3~ -1.5 -19.6 10.43 10.1 9.99 Egypt +3.8 Q4 na +3.5 +23.9 Feb +31.5 Apr +22.5 12.4 Q4§ -20.1 Q4 -5.6 -10.8 na 18.1 8.88 Israel +4.3 Q4 +6.3 +3.4 +0.3 Feb +0.9 Mar +1.0 4.2 Mar +12.4 Q4 +4.4 -2.6 2.20 3.61 3.77 Saudi Arabia +1.4 2016 na +0.8 na -0.4 Mar +2.0 5.6 2015 -24.9 Q4 -2.1 -7.4 3.68 3.75 3.75 South Africa +0.7 Q4 -0.3 +1.1 -2.4 Feb +6.1 Mar +5.8 26.5 Q4§ -9.5 Q4 -3.4 -3.1 8.75 13.4 15.1 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, Mar 25.42%; year ago 34.88% †††Dollar-denominated bonds. The Economist May 13th 2017 Economic and ﬁnancial indicators 77

Markets % change on Commodity prices January 5th 2016=100 Dec 30th 2016 The price of cocoa has plummeted by 36% 130 Index one in local in $ since the start of 2016, to just under $2 May 10th week currency terms Coffee Markets per kilogram. Oversupply is partly to 120 United States (DJIA) 20,943.1 -0.1 +6.0 +6.0 blame: farmers in Ivory Coast, which China (SSEA) 3,196.8 -2.6 -1.6 -1.0 Japan (Nikkei 225) 19,900.1 +2.3 +4.1 +6.5 accounts for around 40% of world supply, 110 Britain (FTSE 100) 7,385.2 +2.1 +3.4 +8.4 are forecast to increase production by Canada (S&P TSX) 15,633.2 +0.6 +2.3 +0.4 20% in the current crop year; in Nigeria 100 Euro area (FTSE Euro 100) 1,238.9 +1.8 +11.4 +14.8 production is likely to rise by 15%. Tea Euro area (EURO STOXX 50) 3,645.7 +1.7 +10.8 +14.2 prices have been volatile. A spike in 90 Tea Austria (ATX) 3,075.7 +2.6 +17.5 +21.0 January can partly be explained by a Belgium (Bel 20) 4,041.0 +2.8 +12.1 +15.5 drought in east Africa. Rising demand 80 France (CAC 40) 5,400.5 +1.9 +11.1 +14.5 Cocoa from countries in the Middle East should 70 Germany (DAX)* 12,757.5 +1.8 +11.1 +14.5 continue to support the market this year. Greece (Athex Comp) 792.0 +5.8 +23.0 +26.8 Italy (FTSE/MIB) 21,552.8 +3.8 +12.1 +15.5 Coﬀee prices have risen modestly since 60 Netherlands (AEX) 535.7 +2.0 +10.9 +14.2 the start of 2016. The value of robusta Spain (Madrid SE) 1,109.2 +1.7 +17.6 +21.1 beans in particular has been shored up by 50 JFMAMJJASONDJFMAM Czech Republic (PX) 1,010.0 +1.4 +9.6 +14.9 declining levels of production in Brazil 2016 2017 Denmark (OMXCB) 894.3 +0.7 +12.0 +15.3 and Vietnam. Source: The Economist Hungary (BUX) 33,666.3 +5.0 +5.2 +7.8 Norway (OSEAX) 790.5 +2.5 +3.4 +3.3 Poland (WIG) 61,839.9 -0.4 +19.5 +28.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,111.6 +1.4 -3.5 -3.5 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,649.7 +1.0 +8.7 +10.9 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 9,089.8 +2.2 +10.6 +11.5 Index one in local in $ May 2nd May 9th* month year Turkey (BIST) 96,194.2 +2.5 +23.1 +20.8 May 10th week currency terms Dollar Index Australia (All Ord.) 5,911.1 -0.1 +3.4 +5.5 United States (S&P 500) 2,399.6 +0.5 +7.2 +7.2 All Items 142.7 141.1 -0.8 +3.8 Hong Kong (Hang Seng) 25,015.4 +1.3 +13.7 +13.2 United States (NAScomp) 6,129.1 +0.9 +13.9 +13.9 Food 152.1 152.8 +0.9 -5.1 India (BSE) 30,248.2 +1.2 +13.6 +19.2 China (SSEB, $ terms) 322.6 -3.4 -5.6 -5.6 Indonesia (JSX) 5,653.0 +0.1 +6.7 +7.6 Japan (Topix) 1,585.2 +2.3 +4.4 +6.8 Industrials Malaysia (KLSE) 1,766.6 -0.3 +7.6 +11.0 Europe (FTSEurofirst 300) 1,556.9 +1.9 +9.0 +12.3 All 132.9 129.0 -2.9 +17.2 Pakistan (KSE) 51,103.5 +5.1 +6.9 +6.5 World, dev'd (MSCI) 1,895.9 +0.7 +8.3 +8.3 Nfa† 138.3 134.0 -3.0 +11.4 Singapore (STI) 3,250.0 +0.4 +12.8 +15.6 Emerging markets (MSCI) 995.1 +0.9 +15.4 +15.4 Metals 130.5 126.9 -2.9 +20.0 South Korea (KOSPI) 2,270.1 +2.3 +12.0 +19.1 World, all (MSCI) 459.9 +0.7 +9.0 +9.0 Sterling Index Taiwan (TWI) 9,968.3 +0.1 +7.7 +14.8 World bonds (Citigroup) 900.5 -0.8 +1.9 +1.9 All items 200.8 198.2 -4.4 +15.9 Thailand (SET) 1,560.3 -0.2 +1.1 +4.2 EMBI+ (JPMorgan) 815.7 -0.6 +5.6 +5.6 Argentina (MERV) 21,510.0 +1.4 +27.1 +29.4 Hedge funds (HFRX) 1,231.0§ +0.2 +2.3 +2.3 Euro Index Brazil (BVSP) 67,349.7 +1.9 +11.8 +15.2 Volatility, US (VIX) 10.2 +10.7 +14.0 (levels) All items 162.7 161.1 -3.2 +8.6 Chile (IGPA) 24,203.2 -0.6 +16.7 +16.4 CDSs, Eur (iTRAXX)† 62.2 -4.6 -13.8 -11.2 Gold Colombia (IGBC) 10,541.8 +3.3 +4.3 +6.4 CDSs, N Am (CDX)† 61.6 -1.7 -9.0 -9.0 $ per oz 1,254.6 1,217.8 -4.3 -3.4 Mexico (IPC) 49,930.5 +1.7 +9.4 +19.0 Carbon trading (EU ETS) € 4.5 -1.8 -32.4 -30.3 West Texas Intermediate Venezuela (IBC) 60,657.0 +4.0 +91.3 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 47.7 45.9 -14.1 +2.6 Egypt (EGX 30) 12,993.4 +3.1 +5.3 +5.4 †Credit-default-swap spreads, basis points. §May 9th. Israel (TA-100) 1,292.2 +1.6 +1.2 +8.0 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) 6,930.3 -0.5 -4.3 -4.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 54,254.4 +1.2 +7.1 +9.0 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Ueli Steck The Economist May 13th 2017

brotherhood ofthe rope”. Speed wasofthe essence. In his own Alps he had shattered records: the north face of the Eiger, a 1,800- metre ice-wall, climbed in 3:54 hours, then 2:47; the north face ofthe Grandes Jorasses, 1,200 metres, never climbed by him before, in 2:21; the north face of the Matterhorn in 1:56. He would set two stopwatches and race off, running when he could, or hurling in his ice-pickand hauling himselfup after. These feats earned him the nickname “the Swiss machine”, which he hated. He was not a robot, more a cat or a spider, moving easily and with absolute long-armed preci- sion on the sheerest, iciest rocks. He argued that it was simply safer to climb fast, not to linger on high mountains where the cold or the weather might kill you. But he also came to enjoy speed- climbing for its own sake. His training regime bordered on craziness: 1,200 work- outs a year, his routine run three laps up 2,000 vertical metres. Focus, focus, all the time. He had to make sure that every mus- cle was pulling; that way, he would know how long he could cling to an ice-nub, or work an overhang. On that first Everest climb he had seethed because, without ex- Highest, fastest tra oxygen, he was overtaken by alpinists who had it. His slowness was unbearable. He didn’t just need to be better than other people, but better than himself. Speed proved harder in the Himalayas than in the Alps. His best time, though the avalanche wrecked his attempt to record it, Ueli Steck, speed-soloing alpinist, died on April 30th, aged 40 was on Annapurna’s south face in 2013: HE mostterrifyingthingthathappened boots, a coiled rope for rappelling on de- 7,219 metres up and down alone in 28 Tto Ueli Steckwasnotthe momentan av- scents, and his own-brand titanium Swiss hours (the next party took the usual eight alanche caught him on Annapurna, the Army knife with a large file and bolthead days). He returned this April to plan anoth- tenth-highest mountain in the world, and wrench. To rely on any more gear was only er ascent of Everest with a traverse to Lho- almost knocked him off. Nor was it the half-doing the climb. He went up cleanly, tse, the world’s fourth-highest peak, by a time when—perhaps because, on the same leaving only his footprints. Supplemen- route not tried before. He fell to his death mountain, a rock hit his helmet—he found tary oxygen he scorned as “false air” and while climbing Nuptse first; he was going himself in an instant 300 metres below, “bottled doping”; he never used it. to go with Tenji Sherpa but, again, was concussed and bruised all over. Each event Naturally, he preferred to climb alone. alone. He felt “super-ready”; why wait? caused him to wonder whether he liked Trodden tracks deterred him, and he risky climbing too much. But as one of the would wait until fresh snow obscured a The endless challenge best alpinists of his generation, and often route in order to work out his own. After In his speed and daring, he was unusual the fastest, he did not wonder long. his marriage, he promised his wife he among climbers. In his attitude to high No, the most frightening episode oc- would not do solo climbs; but somehow mountains, he wasnot. There wasno rhap- curred in April 2013, when he found him- the right partnerdid not appear, orgave up, sodising. Atthe top ofEverestitwas hissuc- selfunder attackby a crowd ofrock-throw- and he had to go on by himself. On his first cess that was “beautiful”, not the view, ing sherpas at Base Camp II on Everest. expedition, at 12 above his home in Em- which he found “familiar”. Mountains That was the moment he thought he might mental with an old mountaineer, he was challenged him, so he took up the chal- die, a thought he had not had before. The given the lead from the start; consequently, lenge, again and again, to prove himself. sherpas were angry because, as they fixed he fretted to see anyone ahead ofhim. So too did Min Bahadur Sherchan, a the safety ropes above the camp, he and Nordid he want help. On his first ascent Nepalese who, on May 6th, died at the Ev- two others had ignored the rule to keep the of Everest in 2012 he insisted that his guide, erestbase camp. He was85, and planned to mountain clear of climbers and had come Tenji Sherpa, was a partner, not an assis- become the oldest person to reach the up past them. He had no wish to be disre- tant. He wanted to be called “Dai”, brother, summit. He had set the record in 2008, at spectful. Butsince he made no use of safety not “Sir”. He made the breakfast tea and 76; a Japanese had broken it five years later. ropes, why shouldn’t he go up? they ate together, cornflakes or barley This was his fourth attempt to regain it. Mr He had a problem with people on tsampa, as the sun came up. This was both Sherchan had several aims in mind, in- mountains. Off the slopes he could be gre- a courtesy and a statement of self-reliance. cluding promoting peace and inspiring the garious and funny; on them, he became so Pretty soon, as usual, he peeled off and old. But he had no ambition to break any- intensely focused that he could not bear made forthe summit alone. one else’s record, he said; just his own. This distraction. He climbed light, with just four The worst aspect of other climbers was was between the mountain, and him. It carabiners, an ice-pick, crampons on his that they held him back. Not for him “the might have been Ueli Steckspeaking. 7 FINANCE DISRUPTED: ASIA

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