America's Extraordinary Economic Gamble

The ascent of Elon Musk

Germany’s miserable coalition

Winter Olympics: slope-a-dope

Guerrilla drones FEBRUARY 10TH–16TH 2018 Running hot America’s extraordinary economic gamble Only 1 in 10 organizations can deliver all of their strategic initiatives successfully!

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Contents The Economist February 10th 2018 5

8 The world this week United States 33 The economy Leaders The great experiment 11 America’s economy 35 Politics and the FBI Running hot Against the law 12 Germany 35 Wildfire and fraud Reheating the GroKo Insult to injury 12 Philanthropy 36 Politics in South Dakota The billionaires and the Plains speaking Falcon Heavy 37 The Great Lakes German politics A new 13 Telecoms Mind-bending stuff government at long last. Next-generation thinking 38 Lexington Honest Injun Unfortunately, it will look very 14 Drugs in sport like the old one: leader, page On the cover Dope on the slopes 12. Germany’s main parties America is about to test the The Americas conclude a coalition deal, merits of running an economy Letters 39 Venezuala page 48 hot. Expect more bumpy 16 On Honduras, Italy, tech Lights out for democracy weeks: leader, page 11. The companies, walking, The 40 Ontario decision to stimulate an Darkness Double-wage trouble already pacy economy is less illogical than it seems, page 40 Americans in Mexico 33. After a long period of Briefing Trump supporters welcome calm, investors get a shock, 19 Elon Musk’s futures 42 Bello page 63. Recent market The impact investor Political decay ructions highlight the role of instruments that bet against 22 The Boring Company Middle East and Africa volatility, page 64. Central Tunnel vision banks must occasionally 43 Egypt’s economy gamble that faster Asia The price is wrong productivity growth is 25 Insurgency in the 44 Israel and its neighbours Egypt What fuel, bread and possible: Free exchange, Philippines The guns of February water reveal about how the page 68 Peace without dignity 45 Saudi Arabia’s nukes country is mismanaged, page 43 26 Digital spin in Asia An unenriching debate #TechSavvyPols 45 Ethiopia’s new railway The Economist online 26 Politics in Bangladesh Danger, camels crossing Daily analysis and opinion to Condemned 46 Africa’s energy drink supplement the print edition, plus Bacchus goes bananas audio and video, and a daily chart 27 Gangs in New Zealand Economist.com Bigger than the army 46 South African politics Long waltz to freedom E-mail: newsletters and 28 The Winter Olympics mobile edition Frosty South Koreans Economist.com/email 28 Bathing in Japan Europe Print edition: available online by Ink stink 47 Spanish politics 7pm London time each Thursday 30 Banyan Ciudadanos on the march Economist.com/printedition A tempest in the Maldives 48 The Berlin Wall Sports doping Performance- Audio edition: available online Still healing enhancing drugs are still to download each Friday China 48 Germany rampant in sports. There are Economist.com/audioedition A loveless marriage ways to reduce their use: 31 Population policy leader, page 14. Why no one Gilding the cradle 49 French education seems to want to do so, page 55 32 Hong Kong’s democrats Back to bac Three men and a vote 49 Russia’s opposition The approved challenger

Volume 426 Number 9078 50 Romania Nobbling the nobblers Published since September 1843 to take part in "a severe contest between 51 Charlemagne intelligence, which presses forward, and History wars an unworthy, timid ignorance obstructing our progress." Editorial oﬃces in London and also: Beijing, Berlin, Brussels, Cairo, Chicago, Madrid, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

1 Contents continues overleaf 6 Contents The Economist February 10th 2018

Britain Science and technology 52 The politics of trade deals 70 Guerrilla drones Not so global Britain Buzz, buzz, you’re dead 53 Brexit, trade and the EU 71 Fossil spiders The wheat and the chaff When doctors disagree 54 Bagehot 72 Diet and health Meritocracy and its Bitter fruits discontents 72 Satellite prospecting Lithium in Cornwall International 73 Amelia Earhart The ambition of Elon Musk French culture wars 55 Doping in sport Mystery solved? He is trying to change more Emmanuel Macron’s bid to Whatever it takes worlds than one. Despite his enlarge French culture has gifts, failure is most definitely Books and arts caused controversy—and not an option, page 19. The mega- Business 74 French culture wars as he might have expected, rich have grand plans to shape 57 Mobile telecoms The river and the sea page 74 humanity’s future. Should that The forces of 5G 75 A chilling Russian film be a cause for celebration or 58 Samsung Only disconnect concern? Leader, page 12 Subscription service Get out of jail free 76 Border patrol For our full range of subscription offers, Walking the line including digital only or print and digital 59 Airbus combined visit Changing the pilots 76 New American fiction Economist.com/offers Divas in New York You can subscribe or renew your subscription 60 Mining in Congo by mail, telephone or fax at the details below: They don’t dig it 77 The war in Afghanistan Telephone: +65 6534 5166 Digging a hole in the Facsimile: +65 6534 5066 60 The unwinding of HNA Web: Economist.com/offers Flight of fancy ocean E-mail: [email protected] Post: The Economist 61 Industrial property Subscription Centre, Bigger in Nevada 80 Economic and financial Tanjong Pagar Post Office 62 Schumpeter indicators PO Box 671 Singapore 910817 Tata’s next chapter Statistics on 42 economies, plus our monthly poll of Subscription for 1 year (51 issues)Print only Australia A$465 forecasters China CNY 2,300 5G Building a single, shared Finance and economics Hong Kong & Macau HK$2,300 wireless network is not such a India 10,000 63 Markets Japan Yen 44,300 stupid idea: leader, page 13. Obituary Boo! Korea KRW 375,000 Whizzy wireless technology 82 Ingvar Kamprad Malaysia RM 780 64 Betting on volatility New Zealand NZ$530 has everything going for Self-made man Singapore & Brunei S$425 it—except a strong business Vexed about Vix Taiwan NT$9,000 Thailand US$300 case, page 57 64 Digital currencies Other countries Contact us as above Crypto-correction 65 Buttonwood Principal commercial offices: Index-tracking The Adelphi Building, 1-11John Adam Street, 66 Insider trading London WC2N 6HT In the know Tel: +44 (0) 20 7830 7000 Rue de l’Athénée 32 67 Wells Fargo 1206 Geneva, Switzerland If the cap fits Tel: +4122 566 2470 67 South-to-South 750 3rd Avenue, 5th Floor, New York, NY 10017 investment Tel: +1212 5410500 Developing ties 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong 68 Free exchange Tel: +852 2585 3888 Central banks and Guerrilla drones Home-made productivity Other commercial offices: and home-modified drones are Chicago, Dubai, Frankfurt, Los Angeles, now a threat to conventional Paris, San Francisco and Singapore armies and navies, page 70

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© 2018 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Publisher: The Economist. Printed by Times Printers (in Singapore). M.C.I. (P) No.057/09/2017 PPS 677/11/2012(022861) Is there still opportunity in China? Where will growth come from? As China moves beyond manufacturing and becomes a leader in innovation, it creates new opportunities. And new risks. Identifying the businesses How would it affect my investments? and technologies that will flourish, isn’t easy.

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have been delivered by the cessful advance ofprivate The government of Politics president, Jacob Zuma. It was enterprise into space. Macedonia offered to add a the clearest sign yet that the qualifier to the country’s offi- ruling African National Con- Pre-wedding nerves cial name, after more than a gress party is trying to get Mr Fabricio Alvarado won the million people demonstrated Zuma to step down before the most votes in the first round of in Greece against their neigh- end ofhis second term in 2019. Costa Rica’s presidential bour’s disputed use of election. He rose in the polls “Macedonia”, which is also a Memogate after the Inter-American Court region in Greece. A row erupted in Washington ofHuman Rights, which is when Republicans in Congress based in Costa Rica’s capital, (More) trouble in paradise released a memo, written by said the country had to legalise Abdulla Yameen, the president the Republican chairman of gay marriage. Mr Alvarado, an ofthe Maldives, declared a the House intelligence com- evangelical Christian, has state ofemergency, suspended mittee, that purports to show promised to defy the ruling. much ofthe constitution and In Syria the regime ofBashar political bias in the FBI’s The run-offis on April 1st. arrested two ofthe five judges al-Assad pounded the rebel investigation into Russian ties on the supreme court. The enclave ofEastern Ghouta, to Donald Trump’saides. The Negotiations between Vene- remaining three judges then killing dozens ofpeople. More FBI had asked forthe docu- zuela’s authoritarian regime reversed a ruling that had than 100 fighters backing the ment not to be declassified. Mr and the opposition, which overturned the convictions of regime were killed by US-led Trump crowed that the memo would have set ground rules nine opposition leaders. forces in a thwarted attack on a vindicated him. The Demo- forthe forthcoming presi- rebel stronghold. Turkey suf- crats pushed forthe release of dential election, broke down. A court in Bangladesh sen- fered its worst losses since a memo they have penned Venezuela’s electoral commis- tenced Khaleda Zia, a former invading northern Syria last that tells a different story. sion, which the opposition prime minister and leader of month. A Russian warplane says acts at the behest ofthe the main opposition party, to was shot down over Idlib. And America’s Supreme Court government, set April 22nd as five years in prison forcorrup- Israeli warplanes fired missiles refused an emergency request the date for the election. tion. Mrs Zia claims the prose- at positions in Syria, probably by Republicans in Pennsylva- cution is politically motivated. to blockthe transferofarms to nia to reinstate the state’s In a referendum, Ecuadoreans Hizbullah, the Lebanese mili- current boundaries forcon- approved the introduction of Hong Kong’s final court of tia-cum-party backed by Iran. gressional districts. Pennsylva- term limits forelected officials. appeal overturned the prison nia’s highest state court had That will probably prevent sentences ofthree activists As women in Iran continued found that the districts had Rafael Correa, who was presi- who tookpart in pro-democra- to protest against having to been gerrymandered specifi- dent from 2007 to 2017, from cy protests in 2014. But the cover their heads in public, the cally to favour the party. The returning to office. The referen- court also said that the harsher office ofthe president, Hassan Supreme Court did, however, dum was organised by Mr sentencing guidelines called Rouhani, released a three-year- temporarily blocka similar Correa’s successor, Lenín forby the city’s government to old report showing that nearly order in North Carolina to Moreno, who has rejected deal with protesters will be halfofIranians wanted to end redraw its congressional map. authoritarian politics. Voters adhered to in future cases. the requirement. also endorsed a measure that allows Mr Moreno to sack Morgan Tsvangirai, the leader judges and other officials ofone ofthe main opposition appointed by a panel con- parties in Zimbabwe, was trolled by Mr Correa. reported to be critically ill in a hospital in South Africa. Mr Getting there Tsvangirai, who won a presi- More than fourmonths after a dential election in 2008 before general election, Germany’s the ruling party rigged the Christian Democrats, their result to keep Robert Mugabe Bavarian sister party and the in power, has been receiving Social Democrats (SPD) con- treatment forcancer. Elon Musk, the founderof cluded a new “grand coalition” An earthquake hit the Tai- SpaceX and co-founder of deal, similar to the one that has wanese town ofHualien. At The government in Kenya shut Tesla Motors, launched a ruled the country forthe past least ten people were killed television stations and arrest- Falcon Heavy rocket into fouryears. Martin Schulz said and dozens are still missing. ed politicians in an unconstitu- space from the Kennedy Space he would step down as SPD tional crackdown on free Centre in Florida. The payload leader; he is tipped to be for- South Korea announced that speech, after Raila Odinga, a was one ofMr Musk’s Tesla eign minister. The deal must be the sister ofNorth Korea’s leader ofthe main opposition cars, which was dispatched on ratified by the SPD’s members. dictator, Kim Jong Un, will alliance, declared himselfthe a trajectory towards Mars. The attend the Winter Olympics “people’s president”. Mr spectacular display included Poland’s president signed a in Pyeongchang, the first time Odinga lost last year’s disput- two booster rockets returning new law that criminalises that a member ofthe ruling ed presidential election. in synchronised formation to reference to “Polish death Kim dynasty will visit the land near the launch pad. The camps”. The government South. The South’s democrati- South Africa’s parliament central booster rocket missed insists that everyone call them cally elected president, Moon delayed an annual “state ofthe its rendezvous at sea, but that Nazi death camps that Jae-in, will have breakfast with nation” speech that was to did not detract from the suc- happened to be in Poland. the brutal god-king’s kin. 1 The Economist February 10th 2018 The world this week 9

German reinsurer estimates app on a daily basis, to 187m. Levandowski, an engineer Business that the industry’s claims from The company floated on the who worked at Waymo. natural catastrophes in 2017 stockmarket last March, but its Waymo contends the acquisi- will top $135bn, a record. share price has fallen farbelow tion was a ruse through which CBOE volatility index (Vix) its closing price at the time of Uber gained its technical Percentage points A South Korean appeals court its IPO. secrets. halved the five-year prison 40 sentence forbribery handed The Los Angeles Times has a Broadcom submitted its “best 30 down last year to Lee Jae- new owner. PatrickSoon- and final” offerto take over 20 yong, Samsung’s de facto boss, Shiong, a biotech entrepre- Qualcomm. The latest propos- and suspended his remaining neur, is buying the newspaper al is worth $146bn. Qual- 10 jail term, allowing him to walk along with the San Diego comm’s board has so farnot 0 free. The decision disappoint- Union-Tribune for$500m from engaged with its chipmaking 2017 2018 ed reformers who had hoped Tronc, which used to be part of rival, but the issue will surely Source: Thomson Reuters the sentence represented a the Tribune media empire. dominate its shareholders’ It was a turbulent weekon the breakfrom the leniency meeting on March 6th. world’s stockmarkets, a rude shown by judges towards Dalian Wanda, a Chinese awakening after a long period businessmen in corruption conglomerate, sold a stake in Roads to nowhere ofcalm during which share- cases. Mr Lee was not cleared its film business to a consor- Los Angeles was the most price indices have soared. The ofall charges. His father, Lee tium headed by Alibaba, Chi- congested city at peaktravel Dow Jones Industrial Average Kun-hee, was meanwhile na’s biggest e-commerce com- times in 2017, according to a plunged by1,175 points in a day, charged as a suspect in a tax- pany. Dalian Wanda is under report by INRIX, a transport- its biggest points decline to evasion case. pressure from the Chinese analytics firm. The city’s driv- date. The FTSE100 fell by 2.6%, government to pare back ers spent an average of102 the most since June 2016 when Wynn’s gambling loss assets in order to reduce debt. hours a year sitting in con- Britain voted to leave the EU. A Steve Wynn resigned as chair- gestion during rush hour, more measure ofmarket volatility, man and chiefexecutive of After months ofpre-trial hear- than ten hours longer than in the Vix, also known as “the Wynn Resorts, one ofthe ings, a court case got under Moscow, which ranked second fear index”, soared to its high- world’s largest casino compa- way in which Uber is accused in the study. Although America est level since China’s currency nies, following allegations by Waymo, a self-driving car overall was positioned joint crisis in 2015. Amongother stretching backdecades that he business owned by Alphabet, fifth with Russia out ofthe 38 things, markets are worried coerced employees into sex. Google’s parent company, of countries surveyed, five of its that the improving world He denies the accusations. stealing trade secrets. Travis cities made the list ofthe ten economy and pressures on Kalanick, who was ousted as most congested. Despite its inflation will cause central Despite a doubling ofits net Uber’s chiefexecutive last congestion charge, Londoners banks to ramp up interest rates. losses, Snap’s fourth-quarter year, tookthe stand. He de- still wasted 74 hours a year earnings delighted investors scribed how driverless cars snarled up in traffic, the worst Welcome to the office! when it reported higher-than- were a threat to Uber’s taxi- ofany city in western Europe. The market turmoil coincided expected revenues and an hailing business model, which with Jerome Powell’s first day increase in the number of impelled him to acquire Otto, a Other economic data and news on the job as chairman ofthe people who use its messaging startup created by Anthony can be found on pages 80-81 Federal Reserve.

Crypto-currencies also swung even more wildly than usual. Bitcoin dropped below $6,000 before jumping by 30% within 24 hours. A note by Goldman Sachs compared trading in digital currencies to the internet bubble ofthe 1990s.

America’s trade deﬁcit grew by12% last year, to $566bn, the highest it has been since 2008. Although American exports increased to $2.3trn, imports surged to $2.9trn. That helped push up the politically sensitive goods deﬁcit with China to a record $375bn.

Last year’s intense hurricane season, wildﬁres in California and earthquakes in Mexico all tooka toll on Munich Re’s annual proﬁt, which slumped by 85% to €392m ($442m). The

Leaders The Economist February 10th 2018 11 Running hot

The United States is taking an extraordinary economicgamble OLATILITY is back. A long ment spending, if a budget deal announced this week holds Vspell of calm, in which up. Democrats are to get more funds for child care and other America’s stockmarket rose goodies; hawks in both parties have won more money for the steadily without a big sell-off, defence budget. Mr Trump, meanwhile, still wants his border ended abruptly this week. The wall and an infrastructure plan. The mood of fiscal insouci- catalyst was a report released on ance in Washington, DC, is troubling. Add the extra spending February 2nd showing that to rising pension and health-care costs, and America is set to wage growth in America had ac- run deficits above 5% ofGDP forthe foreseeable future. Exclud- celerated. The S&P 500 fell by a bit that day, and by a lot on the ing the deep recessions ofthe early1980s and 2008, the United next trading day. The Vix, an index that reflects how change- States is being more profligate than at any time since 1945. able investors expect equity markets to be, spiked from a A cocktail of expensive stockmarkets, a maturing business sleepy 14 at the start of the month to an alarmed 37. In other cycle and fiscal largesse would testthe mettle ofthe mostexpe- parts ofthe world nerves frayed. rienced policymakers. Instead, American fiscal policy is being Markets later regained some of their composure (see page run by people who have bought into the mantra that deficits 63). But more adrenalin-fuelled sessions lie ahead. That is be- don’t matter. And the central bank has a brand new boss, Je- cause a transition is under way in which buoyant global rome Powell, who, unlike his recent predecessors, has no for- growth causes inflation to replace stagnation as investors’ big- mal expertise in monetary policy. gest fear. And that long-awaited shift is being complicated by an extraordinary gamble in the world’s biggest economy. Does Powell like fast cars? Thanks to the recently enacted tax cuts, America is adding a What will determine how this gamble turns out? In the medi- hefty fiscal boost to juice up an expansion that is already ma- um term, America will have to get to grips with its fiscal deficit. ture. Public borrowing is set to double to $1 trillion, or 5% of Otherwise interest rates will eventually soar, much as they did GDP, in the next fiscal year. What is more, the team that is steer- in the 1980s. But in the short term most hangs on Mr Powell, ing this experiment, both in the White House and the Federal who must steer between two opposite dangers. One is that he Reserve, isthe mostinexperienced in recentmemory. Whether is too doveish, backing away from the gradual (and fairly mod- the outcome is boom or bust, it is going to be a wild ride. est) tightening in the Fed’s current plans as a salve to jittery financial markets. In effect, he would be creating a “Powell put” Fire your engines which would in time lead to financial bubbles. The other dan- The recent equity-market gyrations by themselves give little geris that the Fed tightens too much too fast because it fears the cause for concern. The world economy remains in fine fettle, economy is overheating. buoyed by a synchronised acceleration in America, Europe On balance, hasty tightening is the greater risk. New to his and Asia. The violence of the repricing was because of new- role, Mr Powell may be tempted to establish his inflation-fight- fangled vehicles that had been caught out betting on low vola- ing chops—and his independence from the White House—by tility. However, even as they scrambled to react to its re-emer- pushing for higher rates faster. That would be a mistake, for gence, the collateral damage to other markets, such as three reasons. corporate bonds and foreign exchange, was limited. Despite First, it is far from clear that the economy is at full employ- the plunge, American stock prices have fallen back only to ment. Policymakers tend to consider those who have dropped where they were at the beginning ofthe year. out of the jobs market as lost to the economy for good. Yet Yet this episode does signal just what may lie ahead. After many have been returning to work, and plenty more may yet years in which investors could rely on central banks for sup- follow (see page 33). Second, the riskofa sudden burst of infla- port, the safety net ofextraordinarily loose monetary policy is tion is limited. Wage growth has picked up only gradually in slowly being dismantled. America’s Federal Reserve has America. There is little evidence of it in Germany and Japan, raised interest rates five times already since late 2015 and is set which also have low unemployment. The wage-bargaining ar- to do so again nextmonth. Ten-yearTreasury-bond yields have rangementsbehind the explosive wage-price spiral ofthe early risen from below 2.1% in September to 2.8%. Stockmarkets are 1970s are long gone. Third, there are sizeable benefits from let- in a tug-of-warbetween strongerprofits, which warrant higher ting the labour market tighten further. Wages are growing fast- share prices, and higher bond yields, which depress the pre- est at the bottom of the earnings scale. That not only helps the sent value of those earnings and make eye-watering valua- blue-collar workers who have been hit disproportionately tions harder to justify. hard by technological change and globalisation. It also This tension is an inevitable part of the return of monetary prompts firms to invest more in capital equipment, giving a policy to more normal conditions. What is not inevitable is the boost to productivity growth. scale of America’s impending fiscal bet. Economists reckon To be clear, this newspaper would not advise a fiscal stimu- that Mr Trump’s tax reform, which lowers bills for firms and lus of the scale that America is undertaking. It is poorly de- wealthy Americans—and to a lesser extent for ordinary work- signed and recklesslylarge. Itwill add to financial-market vola- ers—will jolt consumption and investment to boost growth by tility. Butnowthatthisexperimentisunderway, it iseven more around 0.3% this year. And Congress is about to boost govern- important that the Fed does not lose its head. 7 12 Leaders The Economist February 10th 2018

Germany Reheating the GroKo

Germany may at long last have a new government. Unfortunately, it will lookvery like the old one HE Berlin Wall stood for 28 make it into the programme. Tyears, two months and 27 The coalition deal has few fans, even among the people days; as of this week it has been who laboured for months to negotiate it. Angela Merkel, who down for longer. Just as Ger- will become chancellor for a fourth (and almost certainly last) many’s “post-Wall” era has time, spoke of “the painful compromises” that she had to come to an end, so the cosy poli- make. To seal the deal she was obliged to hand over the pow- tics of the past three decades erful finance, foreign and labour portfolios to her much-small- looks as if it is running out of in- er coalition partners. Yet those partners are unhappy, too. Car- spiration. On February 6th news came that the Christian sten Schneider, chief whip for the SPD, admitted that the deal Democrat alliance (CDU/CSU) and the Social Democrats was “no masterpiece”. (SPD), had agreed on yet another grand coalition. Germany is Voters will surely share their despondency. Having ham- desperate for political renewal, but all that its politicians have mered the “grand coalition” parties in last September’s incon- been able to come up with is a dreary sort of continuity that clusive elections, they have been telling pollsters that their has left everyone unhappy. supportforMrsMerkel’sCDU/CSU alliance and the SPD is slid- ing. One poll this week gave the coalition parties well under Falling short half the votes, not enough to form a government were a fresh The coalition agreement sets out some modest ambitions (see election to be held. page 48). There are spending pledges on infrastructure, where Which is really the only reason why a repeat ofthe unloved wealthy Germany is surprisingly deficient. The new govern- “GroKo” will now take power, so long as it wins the blessing of ment will increase child benefits, cut taxes modestly and limit the SPD’s 460,000 members, in a postal ballot that will be run immigration. It will tinker with the labour market and health over the next three weeks. Neither the CDU nor the SPD has care. In Europe it will aim to negotiate a permanent stabilisa- anyappetite foranotherelection. ForMrsMerkel, it would be a tion mechanism for the euro, together with increased com- humiliating end to her second attempt to form a government. mon investments in the shape of a possible euro-zone budget. Forthe SPD, anotherelection mightbe catastrophic. In one poll That, at least, is welcome—though the language is waffly. the party was only two points ahead ofthe anti-immigrant Al- Working out the details will be hard. The likely appoint- ternative for Germany. It’s uncharismatic leader, Martin mentofan SPD finance ministerfrom the more hawkish end of Schultz, announced his resignation on February 7th; even his the spectrum is one sign of that. Another is the absence from colleagues felt he has been out oftouch with voters’ concerns. the coalition agreement of any commitment to a vital missing Germany and Europe are better off without another six part of the euro construct, a bank-deposit protection scheme. months of drift. Britain, Spain and Italy all suffer from weak Other signals coming out of the coalition are also worrying. governments and it is in no one’s interest for Germany to join The overly pro-Russian SPD will continue to hold the foreign- them. Butthe country’scrop ofhumdrum centristpoliticos can affairs portfolio. And an undertaking to boost defence spend- barely totter on, even in loveless alliances. Watch out for the ingsignificantly towards the NATO target of2% ofGDP failed to younger, more extreme alternatives snapping at their heels. 7

Philanthropy The billionaires and the Falcon Heavy

The mega-rich have ambitious plans to improve the world. Should that be a cause forcelebration orconcern? OTHING declares world- all diseases by the end of the century. Bill Gates, having made Nchanging ambition like a his fortune at Microsoft, wants to eradicate polio and malaria, space rocket. This week’s spec- as part of a broader goal of improving health and alleviating tacular test confirmed the Fal- poverty. Both are among a number of philanthropists who con Heavy as the planet’s most plan to remake education—Mr Zuckerberg’s other goal is for powerful operational launch children to “learn 100 times more than we learn today”. vehicle. It also testified to the As the Falcon Heavy soared above the Kennedy Space Cen- outsized vision of Elon Musk, its tre in Florida, one question was over what Mr Musk’s dreams creator. To ensure humanity’s long-term survival he wants mean forbusiness (see page 19). The otherwas what to make of both to colonise Mars and to wean the Earth offfossil fuels. this desire to save humanity, in pursuit of which Mr Musk and MrMuskisnotthe onlybillionaire entrepreneurwith grand his fellow billionaires have been strikingly innovative. ambitionsto improve the future ofmankind. MarkZuckerberg, A century ago John D. Rockefeller, Andrew Carnegie and the founder of Facebook, wants to “cure, prevent or manage” Henry Ford ruthlessly made fortunes and then established 1 The Economist February 10th 2018 Leaders 13

2 foundations to enlighten the masses and ensure world peace Given that so many oftoday’s billionaires are geeks, there is long after their death. Mr Gates and others, having seen how also a dangeroftechno-solutionism. The idea that problems in foundations can eventually become cautious and conven- health, education and so on can be solved with whatever tech- tional, favour a “sunset philanthropy” model, aiming to spend nology is in vogue (today’s favourite is the blockchain) has their riches before they die. (Warren Buffett, now 87, is donat- usually proved naive. Deep change generally requires co-oper- ing most of his fortune to Mr Gates’s foundation, to dispense ation with governments and social mobilisation. Recognising on his behalf.) Such tycoons also pride themselves on measur- such thingsishard fortechiesused to seeingpoliticians asclue- ing impacts and outcomes, applying the same rigorous scruti- less and regulation as something to be innovated around. ny to their charitable activities as they did in their business. And yet these reservations are surely outweighed by the billionaires’ scope forgood. The would-be world-changers are From Rockefeller to Rocket-fella applyinginnovative and evidence-based approachesin clinics In the latest twist youngerbillionaires like MrZuckerberg, who and classrooms, where elected politicians are often too timid made their fortunes in their 20s or 30s, have switched from a to riskfailure, captured by entrenched interests or unwilling to serial model of philanthropy, in which you make money first spend public money on experimentation. For all their wealth, and then retire and give it away, to a parallel one, where you the billionaires would struggle to force change upon society. startgivingthe moneyawaywhile itisstill comingin. MrMusk Although today’s philanthropists are more visible than those has gone further still. Rather than using his business wealth to ofprevious generations, they account forless than a quarter of support philanthropy in an unrelated area, he runs two giant all charitable giving in America—which has remained roughly companies, Tesla (a clean-energy firm that sells electric cars) constant, at around 2% ofGDP, fordecades, according to David and SpaceX (which builds the Falcon rockets), that further his Callahan ofInside Philanthropy, a specialist website. ambitious goals directly. Both companies sell something that The billionaires’ most useful function, then, is not to bring people happen to want now—cars and satellite launches—as a about change themselves, but to explore and test new models way ofhastening Mr Musk’s dreams. and methods for others to emulate. Using their access to The grand schemes of the mega-rich provoke excitement in policymakers, they encourage the adoption of the ideas that some quarters and unease in others. One complaint involves work. Even an Avengers-style coalition of billionaires, like the accountability. Billionaire philanthropists do not answer to one assembled by Mr Gates and Mr Buffett under the “Giving voters. Their spending power gives them the ability to do great Pledge” banner, could not solve really big problems like infec- good, butwhatiftheypreferto actmore like Blofeld-style Bond tious diseases, colonising Mars and climate change without villains than Iron Man-style superheroes? Wealth also grants the co-operation ofgovernments, industry and voters. the mega-rich special access to policymakers and elected offi- So, as the Tesla car sent skywards by the Falcon Heavy be- cials. Shovelling your fortune into a charitable foundation has gins its trip around the sun, salute the billionaires for theiram- the happy side-effect of reducing tax bills, too—meaning that bition. Raise your eyebrows, in some cases, at their hubris and billionaires’ schemes can leave poorer taxpayers to fill in the political naivety. But applaud their role as public-policy trail- gaps in public spending. blazers, opening up paths to a better future. 7

Telecoms Next-generation thinking

Building a single, shared 5G wireless networkis not such a stupid idea OR more than three decades, reach by America’s own security agencies. Mobile network speeds Ftelecoms policy, at least in Yet the memo contains another idea that merits more dis- Theoretical maximum uplink, Mbps rich countries, has been a one- cussion, and not just in America but elsewhere too. This is the 3G 2 way street: more deregulation proposal that 5G be rolled out as a national wholesale net-

4G 1,000 and more privatisation in order work that can be used by several service providers, just as to foster more competition. This some rail networks and electricity grids are. 5G 10,000 direction was set by America in 1984, when it broke up AT&T, its High five telephone monopoly. So there was much surprise at a recent In the fixed part of the telecoms network—the cables that run memo, written for the White House by an official at the Na- underground, say—wholesale networks are already wide- tional Security Council, which argued that the next generation spread. Under this model, the owners and operators do not of mobile network, “5G” for short, should be built and run by also provide the services; these are supplied by separate firms, the American government. which share the network and compete with each other. Singa- The 30-page paper was widely criticised, and quickly dis- pore and New Zealand have this sort ofarrangement; so do cit- missed by experts and regulators. Protecting the networkfrom ies in Sweden. Mobile networks have conventionally been in- Chinese hacking, the main reason forthe proposal, does notre- tegrated affairs, with operators both managing the network quire the state to run the entire network. Huawei, a Chinese and also providing services (although they do sometimes sub- makeroftelecoms gear, is already all but barred from sellingits let capacity to others). But sharing does happen. Rwanda has wares to American operators. Government-run broadband had a wholesale mobile network for some time. Mexico’s Red would instead stifle competition and increase the risk of over- Compartida is expected to start up soon; it has been built by a 1 14 Leaders The Economist February 10th 2018

2 private consortium, with the government providing radio crease competition for the services on top of it. Next-genera- spectrum and fibre-optic links to connect the base stations. tion networks are supposed to become the connective tissue The obvious risk of a single wholesale network is that, forall sorts ofdevices, from sensors to medical equipment (see withoutthe cutand thrustofcompetition, itendsup actinglike page 57). If firms can lease capacity to create such networks the sluggish and underfunded telecoms monopolies of old. without having to build them, in much the same way as firms Criticspointoutthatthe average speed ofinternetconnections use smartphones and app stores to reach consumers, the “in- on Australia’s government-owned National Broadband Net- ternet of things” will be more vibrant. This kind of environ- work lags behind that of most rich countries. South Korea, by ment would also ease worries about the end of “net neutral- contrast, has a system of competing broadband networks and ity” in America. If one company discriminates against certain some ofthe zippiest speeds on the planet. online content, consumers can switch to another. But many people in South Korea live in clusters of residen- Governments do not have to go as far as mandating the cre- tial high-rise buildings, which are easily wired up. For farther- ation ofa wholesale network, as Mexico has done, to get some flung networks, particularly in rural areas, the costs are higher. ofthe benefits from sharing. Many states in America restrict or And 5G networks will anyway be more expensive to build even ban municipalities from building networks. Eliminating than their forebears. They will eventually use higher-frequen- such laws would be an obvious start. Regulators can also en- cy radio waves, which cannot penetrate buildings and other courage other forms of sharing, for instance of spectrum, obstacles; that means they will need more base stations and somethingAmerica hasstarted to experimentwith. The White antennae. If every provider has to build its own 5G network, House’s 5G memo is an unlikely milestone on the path to- costs will be unnecessarily high—sometimes prohibitively so. wards more sharing. But in questioning the need for a lot of A single shared network would be cheaper. It could also in- competing networks, it is sending the right signal. 7

Drugs in sport Dope on the slopes

Performance-enhancing drugs are still rampant in sports. There are ways to reduce theiruse ROFESSIONAL athletes pay “tamper-proof” sample bottles with dental instruments. Pa high price for their pursuit Athletes who take banned substances put their health at of excellence and glory. Training risk. Soviet athletes who were fed steroids suffered a host ofse- to the limit tears muscles and rious problems in later life. They were more likely to commit wears out joints. Gymnasts of- suicide, or to miscarry or have a disabled child. No one knows ten need hip replacements what risks those taking new “designer” versions are running. when barely into middle age. Blood-doping can cause heart attacks; more than a dozen cy- Few footballers make it to the clists’ deathshave been linked to it. Some unscrupulous coach- end oftheir careers with their knees intact. es dope promising teenagers, before they are ever subjected to But many also run a darker risk: doping. The Winter Olym- testing. The performance-enhancing benefits will last into pics in Pyeongchang, in South Korea, starts this week in its their future careers. So will the damage. shadow. Years after whistle-blowers first revealed wholesale The agencies that set out to stop doping are hugely out- doping in Russia, the International Olympic Committee (IOC) classed. As the backtracking and bickering over sanctions on at last decided to bar it from taking part. But it has allowed Russia illustrate, they are divided and weak. Most testing is many Russians to compete as individuals. And on the eve of done by national bodies, which may not try very hard to find the competition the Court of Arbitration for Sport said that 28 evidence that would get their own stars banned. The World othersshould receive a more lenientpenaltyfrom the IOC, fur- Anti-Doping Agency (WADA), which oversees them, is packed ther muffling the anti-doping message. with officials from national sports federations and the IOC. Russia’s doping is unusual only in its scale and institutional Their interests are likewise conflicted. Its budget is tiny. The nature. No country or sport is immune (see page 55). Studies, system seems to be designed to looktough but punish only the and an anonymous survey at the World Athletics Champion- occasional scapegoat. Honest athletes deserve better. shipsin 2011, suggest that a third ofathletespreparing forbigin- ternational competitions take banned substances. Yet just 1-2% Don’t throw in the towel fail a test each year. Lance Armstrong, a cyclist who won the Fixing doping means fixing incentives. WADA needs money, Tourde France seven times and lateradmitted to doping all the and to be independentofthe sportsofficialswho currently call while, was tested on 250 occasions. The few times he failed, he the shots. Then it could improve testing and carry out more in- avoided sanctions by claiming he had taken anti-inflammato- vestigations—Russian doping was proved after whistle-blow- ries for saddle-sores. ers raised the alarm. “Athlete biological passports”, which Doping is more sophisticated than when communist states monitor a range ofmarkers in blood, show promise. used steroids to bulkup athletes. New drugs are designed to be Above all, the punishment for doping should be severe and undetectable in a blood orurine sample. Manyathletes “blood certain. No Russians should be competing in Pyeongchang dope”, receiving transfusions or taking a drug that stimulates after their country is known to have attempted wholesale the production of red blood cells to improve their stamina. fraud. Athletes should not have to choose between risking Russian cheats “lost” test records in state-run labs and opened their health or being beaten by a cheat. 7 Evolved over billions of years... Protecting your enterprise in one hour.

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The election in Honduras cal instability and consequent and humane digital economy. operate as taxis. But the lackoflong-term vision, Mr But your example ofdata emphasis should be on Yourarticle on the contested Renzi’s reforms are actually portability between banks in walkers, cyclists and buses. inauguration ofthe president encouraging signs. Europe illustrates the problem. TERENCE BENDIXSON ofHonduras includes some ALBERTO BRIGHENTI It exists in principle but not in President interpretations that I feel com- London practice, in spite ofa gargan- Living Streets pelled to clarify (“Atarnished tuan legislative effort. Having London presidency”, January 27th). I Techlash backlash been passive data generators do appreciate your charac- forso long, it is also not obvi- Surely the vehicles ofthe terisation ofthe position of the “Taming the titans” (January ous that consumers have the future will be able to extract Organisation ofAmerican 20th) suggests that successful appetite to take control. real-time data from a transpor- States, which clearly explained American technology firms These challenges are not tation database and send it the irregularities and deficien- are alien forces that need to be insurmountable. They de- ahead to traffic lights. The data cies ofthe electoral process controlled. However, you mand a new kind ofregulation could direct the timing of and therefore the impossibility concede that “much ofthis and regulator: ambitious, traffic lights, helping the flow ofestablishing a clear winner. techlash is misguided” and uncompromising and at home oftraffic. How many times However, I disagree with note that Amazon, Apple, with technology. Rather like have we sat at a red light when the view that starting a negoti- Facebookand Google are the tech titans themselves. no cars crossed our horizon? ation with the government among the companies most CHRIS GORST How many times have we and all institutional actors admired by investors. They are Nesta Challenge Prize Centre slowed and stopped at a four- leaves democracy defenceless. also the companies most loved London way stop sign when no other In fact, I found this to be the by consumers. There is a dis- vehicles have been around? most useful way ahead in cussion to be had about the As a consumer, I would pay for DERRICK VANKAMPEN order to keep working on the power ofthe tech industry, but control over my data. But that Tampa strong recommendations of much ofthe techlash is in fact is probably the last thing these the three reports ofthe mission fuelled by complaints from companies will give up. There Southern man that observed the election. competitors whose business is a saying: ifyou’re not paying Defending democracy and models have been disrupted. fora service, you’re not the human rights doesn’t mean The tech ecosystem gener- customer. You’re the product. that the most forceful measure ates hundreds ofbillions of NIKOLAUS VAERST has to be the first one taken. dollars in consumer surplus Hamburg We all have clear obligations value each year. As a champi- arising from the Inter-Ameri- on ofstrong antitrust laws, I Get out of your car can Democratic Charter. am well aware ofthe costs of LUIS ALMAGRO misapplied competition law. Another way oflooking at the Secretary-general Antitrust remedies workfor future ofurban traffic (Free Organisation of American States consumers when they are exchange, January 20th) is to Washington, DC used to safeguard competition, consider that the ease oftravel not competitors. They should is largely determined by ques- Italy’s compromising politics be applied to misconduct, not tions ofspace. Cars need a lot speculation. Consumers do ofit, underground rail creates Having listened to The Dark- I disagree with your comments not benefit when regulators more ofit by burrowing tun- ness, I wasn’t surprised to read about Matteo Renzi being a pickwinners and losers from nels, buses use it efficiently about the despondency of “failed reformer” who “man- among businesses, especially (when full), but pedestrians commuters on Southern Rail aged only modest labour when goaded by parochial even more so. Walking is the (“Offthe rails”, January 6th). reforms before being ejected” special interests. invisible and essential form of Last year the band released from office as Italian prime ED BLACK city travel. In central London it “Southern Trains”, a song that minister (“Battle ofthe bene- President and CEO accounts for78% ofall trips, captures the misery endured fits”, January 27th). Most ofMr Computer and Communications 47% in inner London and 35% by the train company’s pas- Renzi’s draft reforms reflected Industry Association in the outer suburbs ofthe city. sengers. Among the more the principles you espouse, Washington, DC The logic ofthis is that in explicit lyrics, Justin Hawkins such as more labour-market busy districts walking should sings about the flexibility (the Jobs Act), boost- Transferring anonymised be given pre-eminence, as the ing investments in automation consumer data from estab- City ofLondon has recently Heaving carriages of indignation (the Industry 4.0 plan) and lished companies to their recognised at Bankstation. Grown men weeping in pure introducing a form ofuniver- challengers, which you pro- This junction, which used to frustration. sal basic income (Reddito di pose as one way to weaken the be a maze ofcrawling cars, is Inclusione, recently introduced market dominance oftech now peacefully devoted to ALEX DEW by the Gentiloni government). giants, is fiendishly difficult. buses, walkers and cyclists. Salt Lake City 7 Mr Renzi couldn’t count on Data that are anonymous This is the way ahead forcity a solid parliamentary majority today may no longer be when and suburb. Private cars do not and he had to compromise new data see the light ofday. workin cities. They take up too Letters are welcome and should be with other parties. That is a Sharing such information much room, whether on the addressed to the Editor at The Economist, The Adelphi Building, historical condition which has could create serious risks. move or parked (as they most- 1-11John Adam Street, doomed the reforming ambi- Youare rightto saythat ly are). Driverless vehicles, the London WC2N 6HT tions ofmany past Italian giving people ownership of focus ofyour article, could E-mail: [email protected] governments. When you their data could be the founda- play a vital part in getting cities More letters are available at: factor in Italy’s chronic politi- tion fora more competitive moving again, provided they Economist.com/letters Executive Focus 17

Post of Executive Director of the APEC Secretariat Asia-Paciﬁ c Economic Cooperation (APEC), with 21 Member Economies, is a unique cooperative, multilateral economic forum that has been successful in promoting regional economic growth through trade and investment liberalization and facilitation, and capacity building since its inception in 1989. It has achieved this through open dialogue, consensus building and voluntary commitments. The APEC Secretariat, based in Singapore, fulﬁ ls an important role in coordinating and supporting the APEC process, including policy, technical and communications services to an extensive range of stakeholders.

APEC is looking to recruit a dynamic Executive Director for a 3-year term (with the option for a 1-3 year extension) to lead the Secretariat from January 2019. The successful candidate should be from an APEC Member Economy and must possess strong leadership qualities, extensive public sector experience (in government and/ or semi-government organizations), senior management experience, proven public communication skills, high political acumen and multilateral work experience, preferably in trade or economic related areas. The ideal candidate should hold/ have held a leadership position equivalent to a senior public servant. Extensive travel is expected.

Details of the application process, qualities and qualiﬁ cations, key functions, job description, accountability and information on APEC are available at www. apec.org. A competitive expatriate package will be offered to the successful candidate.

Applications should reach us no later than 31 March 2018 via e-mail [email protected] or mailed to the Executive Director, APEC Secretariat, 35 Heng Mui Keng Terrace, Singapore 119616. Your application must indicate how your experience and qualiﬁ cations match those required.

Only shortlisted candidates will be notiﬁ ed

The Economist February 10th 2018 18 Executive Focus

The World Health Organization (WHO), Geneva, seeks a Director of Communications (Vacancy reference : 1702423)

The Director of Communications develops an effective communications strategy, and creates innovative new channels to increase visibility and get WHO’s message across to key stakeholders as well as the general public.

More specifi cally, the Director of Communications will:

• Innovate: Identify external challenges and emerging issues and design strategies to manage them, while anticipating and incorporating appropriate modern communications tools and channels into WHO’s work. • Partner: Provide strategic communication advice to the Director-General and senior WHO staff, drive internal communications, liaise with external partners and establish external networks to ensure support in driving WHO messaging and advocacy. • Lead: Direct the development, implementation and monitoring of a new WHO global communications strategy and promote WHO communications policies. • Manage: Direct the organization, management, operation and performance of the Department of Communications.

Salary: This position is classifi ed at the “D2” level in the United Nations common system. WHO offers an attractive expatriate package including health insurance, fi nancial support for schooling if children and relocation. For more information and to apply online please go to : https://goo.gl/Gqc1Wo

Deadline for applications is 28 February 2018. http://www.who.int/careers/en/

“Together for a healthier world” Dr Tedros Adhanom Ghebreyesus, Director General

The Economist February 10th 2018 Brieﬁng Elon Musk’s futures The Economist February 10th 2018 19

The impact investor Also in this section 22 The Boring Company

FREMONT AND SPARKS Elon Muskis trying to change more worlds than one. Despite his gifts, failure is most definitely an option T WAS not, in the end, the much antici- opportunities with which he thinks the best petrol car—better, according to many Ipated take-off that took your breath market would not trouble itself. The pur- owners—and, in so doing, very quickly es- away. It was the landings. Eight minutes pose of SpaceX is to make humanity an in- tablished a premium brand. Tesla’s Model after they had lifted the first SpaceX Falcon terplanetary species, and thus safe from S, which sells for$70,000 and up, has been Heavy off its pad at Cape Canaveral on global catastrophe, by providing it with the the bestselling electric car in America for February 6th, two of its three boosters re- means to build a civilisation on Mars. The the past three years. There have been more turned. Preceded by the flames of their purpose of Tesla, emblazoned on the wall than half a million orders for its new Mod- rockets, followed by their sonic booms, the of its factory in Fremont, California, is: “To el 3, an attempt to capture the mass market slender towers touched down on neigh- accelerate the world’s transition to sustain- that sells at halfthe price ofthe Model S. bouringlandingpadsa fraction ofa second able energy”. Both companies beat the incumbents apart. After such power, such delicacy. Creating either of these companies in their industries by combining a clear Up above the atmosphere, the rocket’s would be a signal achievement. That the view of how technology was changing the second stage opened its fairing to reveal its same person should have built and run scope ofthe possible with a fierce devotion cargo: a red roadster made by Tesla, a com- them in parallel is remarkable. It shows to pushing that technology even further. pany which, like SpaceX, is run by Elon that Mr Musk has special talents as a strat- That is familiar from other Silicon Valley Musk. The dummy sittingat its wheel wore egist, managerand source ofinspiration, as success stories. But the fact that the firms’ a SpaceX spacesuit, David Bowie played well as lofty ambitions. goals go beyond products and profit set the on the stereo, the motto from “The Hitch- Started in 2002, and with its first suc- two companies apart from, say, JeffBezos’s hiker’s Guide to the Galaxy”—“Don’t pan- cessful launch in 2008, SpaceXhas come to Amazon or Larry Page’s Alphabet. In “The ic!”—was displayed proudly on the dash- dominate the commercial-launch market Complacent Class”, which laments lost en- board. In the background, the great blue (see chart on next page). In 2017 it launched trepreneurial vigour, Tyler Cowen, an disk of the Earth receded. Down below, a 18 rockets—more than the rest of America economist, cites Mr Musk as a counter-ex- million geeks swooned. and Europe combined. Its Falcon 9 is easily ample, today’s “most visible and obvious Topping off an extraordinary technical the cheapest big launcher on the market, in representative of the idea of major pro- achievement with flamboyance and a part because it is the only one that can fly gress in the physical world.” The head of touch of silliness is typical of Mr Musk. It its boosters backto Earth for reuse. (Even at one of the biggest private-equity funds in should not be mistaken for a lack of seri- SpaceX there are glitches: the third of the the energy industry says that nobody else ousness. Mr Muskdoes not simply want to Falcon Heavy’s boosters hit the sea at is driving either clean technologies or new have fun buildingrockets and fast cars. Nor 500km an hour, rather than touching business models forward as much as Mr is he running two multi-billion-dollar down gently on the barge provided for it.) Musk: “The world needs Elon Musk!” companies just to become rich, or to beat Tesla, meanwhile, showed that an elec- But the achievements, the world-his- rivals. He wants to open up fundamental tric car could be every bit as good as the torical ambitions and the adulation they 1 20 Briefing Elon Musk’s futures The Economist February 10th 2018

2 have brought do not mean that Mr Musk stake in Tesla, founded the yearbefore, and can count his high-torque photovoltaic as- Hyperspace bypass became chairman; in 2008, when the com- tro-chickens just yet. The very next words Commercial launch market, % of total pany faced closure, he became CEO. It out of that fund manager’s mouth were SpaceX (US) Russia Europe China went public two years laterand quickly be- “Short Tesla.” Production of the crucial came the world’s leading electric-car com- Other US Sea Launch* Japan Model 3 remains badly behind schedule, pany; last year it produced over 100,000 and the company’s finances look 100 vehicles. At the Model 3’s launch Mr Musk stretched. Christian Hoffmann of Thorn- 80 claimed that, by the end of2017, itwould be burg, an investment firm, calls buying Tes- churning out 5,000 a week. la shares on the basis that Mr Musk will 60 It wasn’t. In fact it was nowhere near it. quickly solve its problems a “James Bond 40 It made just under2,500 Model 3s, halfthat trade”: “He needs to dodge the avalanche, promised week’s worth, in the entire avoid the gunfire, ski off the cliff, pull the 20 fourth quarter of2017. It now says it will hit ripcord and glide to safety so that he can 0 5,000 a week later this year; a previous save the world.” 2010 11 12 13 14 15 16 17 18† claim that it would go on to 10,000 a week Maybe he can. In 2008 both SpaceX *Russia, US, Norway and Ukraine by the end of the year has been dropped. † and Tesla were within days of bankruptcy. Source: SpaceX Forecast Meanwhile, it faces ever stiffer competi- Now they have a combined value of more tion. The world’s established carmakers than $80 billion. But the chronic problems its reusable Dragon spacecraft providing are getting into the electric game. Other at Tesla mean that this is Mr Musk’s high- supplies to the International Space Station. new entrants include Alphabet, which est-stakes year since then. To appreciate This business will expand when, probably owns Waymo, an autonomous-car firm the risk, look at what Mr Musk has, and some time next year, the Dragon is certified that began as part ofGoogle. hasn’t, achieved so far, and at the qualities to ferry astronauts up there, too. Given all this, many thinkTesla’s valua- that have allowed him to do so. The innovation is continuing—which is tion unsustainable. Mr Musk sometimes just as well, because within a few years it seems to see their point. “This market cap Lightly Seared on the Reality Grill may face serious competition from Blue is higher than we have any right to de- Of the two goals, colonising Mars and con- Origin, a rocket company owned by Mr Be- serve,” he said when speaking to an audi- tributing to the greening of the Earth, the zos which is likely to prove more sprightly, ence of state governors in July 2017, soon second sounds more plausible, not least and more ambitious than those SpaceX after the company’s valuation first topped because it is widely shared. But SpaceX is has faced to date. Treating the Falcon rock- that of Ford. To reassure shareholders of in much bettershape than Tesla. The firm is ets as cash cows, SpaceX is moving its de- Mr Musk’s commitment, in January Tesla privately held (Mr Musk, who has a con- velopmenteffortson to an even larger (and proposed a new pay plan that ties all his trollingstake, says it will remain so). In 2015 possibly also cheaper) launcher, known as earnings to strict milestones for revenues, Google and Fidelity invested $1bn, and the BFR, and a constellation of thousands annual profits (ofwhich, so far, it has made subsequent filings put the firm’s value at of communication satellites, an undertak- none at all) and market capitalisation. The over $21bn. ing that would exploit its ability to get last ofthese sets a target of$650bn by 2028. SpaceX has a commitment to modular things into space cheaply so as to provide That is roughly the current value of the design, vertical integration and continual high-speed internet access all around the world’s largest ten carmakers combined. improvement not previously seen in the world. Morgan Stanley, an investment To accomplish such rapid growth—all space business. The Falcon Heavy, for ex- bank, reckons that could bring the com- but unheard of in a company its size—Tesla ample, used 28 Merlin engines, all of them pany’svalue up to $50bn—though itwill re- has to become more than just the success- built from scratch at the company’s plant quire mastering a new manufacturing ful mass-market car company it still isn’t. It in California, all of them much more pow- challenge and facing new competitors. has to become an industry in and of itself, erful than the Merlins that powered the Tesla is already worth more than that: providing better, battery-powered alterna- first Falcon 9 in 2012. The firm’s achieve- roughly $60bn. That is more or less the tives to the internal-combustion engine ments have established it as a satellite same value as GM, which makes 80 times wherever it is found, from lawnmowers to launcher and as a logistics company, with as many cars. In 2004 Mr Musk took a big juggernauts, and also selling battery-stor-1

Elon’s just this guy, you know… PayPal sold to eBay for Unveils “Hyperloop” Announces Founds Selected events $1.5bn; Musk gets $165m transportation concept a mind-computer a not-for- interface company X.com merges with Confinity, profit Creates which owns money transfer service research Musk replaced as PayPal CEO company Musk founds Compaq acquires Zip2 for $341m; Musk gets $22m First Falcon 1 Fourth First Tesla car launch attempt fails Falcon 1 Falcon 9 sent into Founds X.com, an online First space payments business launch launch successful Founds succeeds succeeds landing of First Falcon 9 Falcon Moves to with two cousins first stage Heavy California launch He and his Falcon 9 succeeds bbrother start flight explodes

1989 90 91 92 9394 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Elon Musk Moves to America, Launches its first IPO Starts Issues Launches Cumulative sales moves from studies at University Roadster; Musk raises deliveries $2bn in Model X SUV reach 250,000 units South Africa of Pennsylvania becomes CEO $226m of Model bonds to to Canada Leads series A investment round in S sedan pay for Unveils Model 3. Announces it will Source: The Economist Tesla Motors; becomes chairman Gigafactory acquire SolarCity for $2.6bn in stock SEE hear TASTE SMELL TOUCH HUNDREDS OF DIFFERENT nothıng but what THE BEST FOOD ON AIR TRADITION WITH comfort WITH WORLDS WITH A WIDE RANGE you want wıth THE SERVED BY OUR freshly brewed SPECIALLY BUILT-IN OF MOVIES, DOCUMENTARIES noıse cancellıng FLYING CHEFS. TURKISH COFFEE. MASsAGING SEATS. AND MORE. denon headphones. 22 Brieﬁng Elon Musk’s futures The Economist February 10th 2018

2 age systems to consumers and utilities on a The Boring Company huge scale. Why should anyone believe such hubris? One argument is that electric vehi- Tunnel vision cles, designed and built the Tesla way, are HAWTHORNE both better and potentially much more Digging into Elon Musk’s newest project reveals his management style profitable than the alternatives. A recent tear-down analysis by McKinsey, a consul- LON MUSK can seem flakily up him- Chris Anderson, the curator ofTED, a tancy, concluded that electric cars de- Eself. Hisnewish tunnelling business non-profit organisation that spreads signed from scratch are much better(for ex- appears to be a case in point. The project ideas, says that Mr Muskis “uniquely ample, on range and interior room) than has a cute name (the Boring Company), a good at system-design thinking”. He those that are modified versions of petrol- wacky way ofraising money (an “Initial reduces thorny problems to what he sees fired cars and still made on existing pro- Hat Offering” raised almost $1m by sell- as their essence—typically expressed in duction lines. And by keeping a great deal ing baseball caps), a physicist-knows-best terms ofphysics—and then extends his ofits cars’ engineering in-house, as SpaceX approach to a social problem (putting analysis to technologies, business sys- does with its rockets, Tesla may stand to be private cars on high-speed underground tems, human psychology and design in much more profitable than its current com- trolleys to reduce urban congestion) and an attempt to solve the issue. petitors. Jeffrey Osborne of Cowen, an in- a quirky, memorable goal (to produce a In the case oftunnelling he found that vestment bank, calculates that 80% of the tunnelling machine that goes faster than current machines are much slower than value ofa Tesla iscreated in itsmanufactur- a snail, in this case a snail called Gary). physics suggested they could be. The ing plant in Fremont, some three to four But it also showcases the techniques that solution, he decided, was standardisa- times the share fora typical passenger car. have made Mr Muska success. tion and fixed prices, removing the op- What is more, electric-car factories tion forpassing extra costs up the chain. could be a lot more productive than those That is quite like the genesis ofSpaceX, for internal-combustion engines; whereas where he observed that launches were a conventional car has about 2,000 com- much more costly than physics required ponents in its drive chain, a Model S has and prescribed similar solutions. fewer than 20. Mr Musk says that these ad- He then created a culture that empha- vantages mean he can create a “machine sised experimentation, rapid learning that makes machines” qualitatively better and incremental improvements, along than anyone else’s. But the so-far-pitiful with a system ofsticks and carrots that production of the Model 3 suggests that, at pushed people to squeeze out ineffi- best, that machine is proving hard to bed ciencies. Thus pushed, managers at the in. It also means Tesla is not getting the rev- Boring Company have found a way to enues it based its spending plans on. convert the mucktunnelling leaves be- The “gigafactory”, a battery plant in hind into something like cinderblocks. which Tesla and Panasonic are investing City planning is the field in which the $5bn, also has its problems. The invest- idea ofa “wicked problem”—one resis- ment is based on the idea that Tesla needs tant to any definitive solution because of economies of scale in its battery business contradictory requirements—was first only achievable in a factory that is highly invented. Its practitioners are highly automated and utterly huge. Mr Musk says sceptical oftechnofixes. But Mr Musk’s the gigafactory—near the town of Sparks, employees are fired up, which is just the Nevada—will be, by footprint, the biggest Very Little Gravitas Indeed way he likes them. building in the world (see page 61). Romit Shah of Nomura/Instinet, a bank, estimates that in late 2014, when the bel, a co-founder ofTesla and now its chief cently denounced Tesla’s history of miss- gigafactory was announced, global battery technical officer, completely consumed ing deadlines and targets as meaning that demand for electric vehicles was about 12 with the automation efforts: “Ramping up “the equity is worthless.” gigawatt-hours a year. Nomura thinks the such a complicated machine,” he says, “on As yet, though, the shareholders do not gigafactory alone will have 40GWh of ca- this unprecedented timescale, has never seem to agree. Tesla’s stock price has held pacity by the end of this year. In 2016 Tesla been done before.” Last October Mr Musk fairly steady; people might even buy more, bought SolarCity, a solar-power and tweeted that the project was in “Produc- ifoffered. They invest because, as a SpaceX home-energy-storage firm that Mr Musk tion hell, ~8th circle”. insider puts it: “They believe in Elon.” had helped two of his cousins set up, for When he says, as he did on February 7th, $2.6bn. One of the reasons was to soak up A Series Of Unlikely Explanations “If we can send a roadster to the asteroid some of this huge supply of batteries. (An- While Mr Straubel struggles in hell, Tesla belt we can solve Model 3 production,” other was that SolarCity was drowning in burns money as the Falcon Heavy burns many happily accept the non sequitur. debt; the bail-out of the CEO’s side-gig was kerosene. Barclays, a bank, reckons that His powerto inspire is not limited to the controversial, but Tesla shareholders end- Tesla will consume $4.2bn this year. With public and his investors. It attracts bright ed up backing it by a large margin.) Storage, just $3.4bn in cash at the end of 2017 Mr people to his companies, where they work not cars, may be the biggest market for bat- Musk will almost certainly need another with a passion which matches his own teries long-term: it was not an accident that injection of funds by the middle of the (and maywell feel histemperall the same). the company changed its name from Tesla year—and maybe more later. Mr Osborne Mr Straubel insists that “the mission really Motors to just Tesla last year. of Cowen reckons Tesla’s capital expendi- matters—that’s why we’re working so Getting the gigafactory up to its prom- tures will amount to $20bn-$25bn be- hard.” Gwynne Shotwell, SpaceX’s chief ised speed and scale is vital to Mr Musk’s tween 2017 and 2020. Jim Chanos of Kyni- operating officer, says Mr Musk’s extreme plans. Ithasproved frustratinglydifficult. A kos Associates, a prominent short-seller goals for SpaceX are “incredibly invigorat- visit to Sparks late last year found J.B. Strau- who predicted the collapse of Enron, re- ing” and help herrecruitthe verybest pros-1

24 Brieﬁng Elon Musk’s futures The Economist February 10th 2018

2 pects: “We rarely lose a candidate.” Out- the organisation,” says Antonio Gracias of high-speed intercity travel (a scheme side observers agree. Vinod Khosla, a Valor, a venture capitalist who sits on the called “hyperloop” which he conceived of Silicon Valley venture capitalist, says boards of both Tesla and SpaceX. “Elon’s in 2013 and is now revisiting), novel tun- “Elon’smission is motivatingso many peo- view is that if you have it inside, you can nelling equipment to solve congestion on ple. This is common at small social enter- manage it better…and can build faster, the streets (see box on previous page) and prises, but very rare at scale.” cheaper and to higher specifications.” His mind-computer interfaces to keep hu- But Mr Musk’s companies rely on more approach echoes that ofAndy Grove, a leg- mans—or at least cyborgs—a step ahead of than just his ideas and allure. Two other at- endary former boss of Intel whose invest- the AI menace (a startup called Neuralink). tributes stand out: his approach to risk and mentsin integrated chipmakingturned the With Tesla seeming to need all the atten- his embrace ofcomplexity. firm into a global powerhouse. It elimi- tion itcould possiblyget, these tangents ap- His way with risk is unlike that of his nates the “margin stacking” enjoyed by pear self-indulgent. At the same time, for Silicon Valley peers, according to Amy Wil- layers of suppliers and allows a continu- many of the faithful the endless flow of kinson ofStanford. She says entrepreneurs ous improvement of what the companies ideas furtherburnishes his image. rarely take big risks on another venture offer. Understanding all the linkages and after they have scored a stonking success. dependencies in such a system is a huge So Much For Subtlety The few that become serial entrepreneurs challenge; so far, MrMuskhas met it. Another worry is that Mr Musk’s techno- typically stay within the same industry. This systems thinking can be strategic; logical insight might let him down. For ex- Mr Musk, having sold his first company, you can see it in the way SolarCity has pro- ample, he believes that cameras and ever Zip2, to Compaq for $341m in 1999, vided more in-house demand for the giga- smarter software will be good enough to ploughed the gains straight into X.com, an factory, or in SpaceX’s plans to use its make Teslas fully autonomous. This puts a online bank that later become PayPal. launch capability to create a vast new con- huge demand on the company’s AI team, Within 18 months ofselling that to eBay for stellation of satellites. But it figures in the and goes firmly against the technological $1.5bn he had invested almost all his gains smallest decisions as well as the biggest. grain. Other, currently more advanced, au- in Tesla and SpaceX. He takes on more risk Spurning the received opinion that micro- tonomous carmakers insist that lidar sen- with each new round offinancing. management is a bad trait in bosses, Mr sor systems are also vital. If they are right, A risk-taking boss does not mean a cav- Musk prides himself on being a “nano- Tesla will forthe first time find itself on the alier company. Ms Shotwell points to a di- manager”. “Unlike other CEOs he’ll really technological back foot, and might even chotomy in attitudes to risk at SpaceX. It is walk through the technology with you,” come to look unsafe (which would surely in many ways a very unified operation. says a veteran engineer at one of his firms. gall Mr Muskdeeply). Most of the managers and engineers have Mr Gracias says he is the best zoom-in And then there are the overly ambi- desks in the manufacturing facility, in manager he has seen: “Elon can be at the tious targets. Mr Musk routinely gets his among production experts and line work- macro, see everything that’s highly disrup- teams to do things no one else can do, but ers. People circulate easily, trying out new tive, and then can zoom all the way down they rarely pull it off by the date he origi- ideas and learningfrom colleagues who, in to the micro, down to the door handle.” nally set. Do not expect fleets of BFRsto a more traditional structure, they might One worryisthatsuch intense focus, di- head for Mars at any date he may suggest. never meet. But the designers and engi- vided between two companies, cannot Such dates are goads as much as targets. neers are encouraged to be mavericks, last—especiallyasMrMuskendlesslyplays They drive the enthusiasts—and him— whereas the operations and manufactur- around with yet more ideas, such as ultra- even harder. This has often proved forgiv- ing teams are most definitely not. A former able. “Even if he misses his deadline, we senior executive says that Mr Musk takes are betting that he will still get there first,” the risks he thinks he has to, but does not as one equities analyst puts it. The Falcon run extra ones just to cut corners. Another Heavy is a case in point. When Mr Musk insider describes him as “a risk taker for unveiled the design in 2011, he said it himself, but a risk mitigator for everyone would be on the pad in 2013. The task around him”. turned out to be a lot more difficult than Looked at like that, his risk-taking may that, and continual improvements to the fit with his greater purpose; a gamble, per- Falcon 9 made it rather less necessary. But haps a self-sacrifice, undertaken as part of SpaceX was making money. Tesla is not. his urge to fend off catastrophe. His faith in It may be that Mr Musk’s appeal will technological progress is, unusually for Sil- keep the company’s finances together. It icon Valley, explicitly tinged with dark- may also be that, even in failure, he ness: he is a paranoid optimist. Thus Tesla achieves his goals. Now there is one giga- offers amazing air filters on the basis that factory, others may see its merits and build they will help passengers “survive a mili- more. Now there is a market forhigh-quali- tary grade bio attack”. ty electric cars, others will expand it. In- As befits a paranoid optimist, his broad deed, if a truly big Silicon Valley fish want- hopes for the future are also tied up with ed to do so, and Tesla stumbled badly, fears. Some, such as climate catastrophe, buying it might be a good way in. are fairly widespread, some are more un- Asked about a new space race after the usual—the need for civilisation to be Falcon Heavy launch, Mr Muskwas enthu- backed up to another planet, just in case. siastic: “Races are exciting.” They also let He has been one of the loudest voices pacesetters guide the field. If you start a warning Silicon Valley and the world of race in the direction you think people the threats posed by out-of-control artifi- should be going, it may not, in the end, cial intelligence (AI) and has set up a not- matter ifyou win. for-profit outfit devoted to lessening it. And if Mr Musk does not personally Mr Musk’s second defining characteris- deal the death blow to the internal-com- tic is the willing embrace of complexity. bustion engine, he will always have a gor- “Complexity will happen inside oroutside The Ends of Invention geous car in space to console him. 7 Asia The Economist February 10th 2018 25

Also in this section 26 Politicians’ digital spin in Asia 26 A begum convicted in Bangladesh 27 New Zealand’s plague of gangs 28 South Korea’s lack of Olympic spirit 28 Bathing etiquette in Japan 30 Banyan: A tempest in the Maldives

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

Islamic insurgency in the Philippines conflict. The municipal building smells of fresh paint. He believes it will cost 49bn pe- Peace without dignity sos ($956m) to pay for reconstruction. Wa- ter and electricity are still unavailable in swathes of the city. He laments the war’s toll on the economy, especially because poverty helped drive youngsters to the ji- Marawi hadists’ cause in the first place, he says. (Some recruits received payments of The government is struggling to rebuild a city destroyed in a battle with extremists 300,000 pesos on joining and salaries of a HE silence is startling. The only sound with IS. Romeo Omet Brawner, a colonel sort.) Disputes over property, created by a Tis the slight creaking of the metal strips who helped lead operations to retake the lack of formal land titles, are preventing peeling off bombed buildings like ban- city, says the government’s victory re- familiesfrom returning to the city, too. “But dages. A fancy light fixture hangs askance quired its forces to advance on the insur- we cannot allow our enemies to use that in what might have been a dining room. gents from the rear. The offensive took against the government,” Mr Gandamra Elsewhere dirty toys lie in piles defecated months, because attempts to cross the insists. Local, regional and national offi- on by dogs. The animals are healthier here three bridges over the Agus river proved cials meet often to discuss what to do. than elsewhere in Marawi, says one local, deadly. He believes the “decisiveness” of Many doubt the politicians’ claims that because they ate the bodies of those killed Rodrigo Duterte, the president, and the re- the city can be rebuilt better than before. in the fighting last year. sulting declaration of martial law in July, Amid the piles ofrubble such pessimism is The conflict between fighters linked led to the army’s victory. understandable. Colonel Brawner says with Islamic State (IS) and the Philippine just clearing unexploded bombs and hid- armed forces ended in October, after five From tents to sheds den devices will take until August. One lo- months of destruction. More than 800 ji- Milesfrom the city, small clusters of yellow cal academic reckons it would be cheaper hadists died alongside 163 soldiers and at tents line the road. Some 200,000 people, to abandon efforts to revive the eastern least47 civilians. The rebuilding, especially almost the entirety of Marawi’s popula- side of the city altogether and just build of the heavily damaged eastern half of the tion, were displaced by the conflict. Fewer new homes elsewhere instead. But the na- city, has barely begun. than halfofthem have been able to return. tional government’s commitment to re- Marawi is a troubled spot on a troubled Felix Castro of the Task Force Bangon Ma- construction seems steadfast. A new mili- island. Mindanao is home to most of the rawi, which co-ordinates government tary camp is to be built where the ruined Philippines’ 6m or so Muslims, a minority agencies working in the area, worries town hall stands. Mr Duterte himself ap- that often feels discriminated against by about sanitation and how to move fam- peared, albeit briefly, at a ground-breaking the country’s 97m-odd Christians. Con- ilies into temporary, shed-like shelters ceremony on January 30th. flicts abound—between the state and newly built for them. The displaced say Other efforts to restore the city are less groups wanting autonomy, or religious they are tired of eating handouts of rice tangible. “Ifthere everis a rebuilding it also militants, orrestive clans, orcommunist in- and want to go home. One woman ex- has to involve a sense of rebuilding peo- surgents, or bandits and pirates. plainsthatwhen the fightingbroke out, she ple’s values,” says Datumanong Saran- Few realised the dangerwhen one crew told her mother to packonly three changes gani, a professor at Mindanao State Uni- of Muslim insurgents-cum-kidnappers, of clothes because they thought they versity. Muslim leaders are working with Abu Sayyaf, pledged allegiance to IS in would not be away forlong. different branches ofgovernment to devel- 2015. Abotched attempt to detain one ofits Financial and legal complications are op tactics fordiscouraging the spread ofex- leaders in May unleashed the violence in stalling homecomings. On Marawi’s west- tremism. The curriculum at local Islamic Marawi. The Maute group, another violent ern side the mayor, Majul Usman Gan- schools is being scrutinised. More practi- outfit that was once considered a mere lo- damra, sits in a meeting room just metres cally, almost 3,000 displaced residents cal mafia, joined the fray, too, after aligning from where a mortar landed during the have taken part in government-run train-1 26 Asia The Economist February 10th 2018

2 ingprogrammes, which offerinstruction in which has fought for independence for gence of IS in South-East Asia—first everything from baking to welding, in an Mindanao since the 1980s. This matters be- signalled in January 2016 by a bombing in effortto improve livelihoodsand so reduce cause any resumption of hostilities with Jakarta—has scared leaders already wres- the allure ofjihadists’ cash. MILF, which has thousands of fighters, tlingwith home-grown terrorism. Jihadists Mr Duterte, for decades the mayor of could lead to even greater destruction than seem to have converged on Marawi from Mindanao’s biggest city, Davao, made the rag-tag rebels in Marawi managed. Indonesia and Malaysia as well as Chech- bringing peace to the island a centrepiece The Philippines’ allies also want peace nya and Saudi Arabia, testifying to the of his election campaign. He is currently in the region. After the eruption of vio- strength and reach of IS’s propaganda. Se- pushing for changes to the constitution to lence in Marawi, Indonesia, Malaysia and curing, supporting and restoring Marawi allow greater autonomy for Muslim areas, Singapore all offered military assistance. could provide a more lasting victory over in keeping with a peace deal a previous America and Australia provided techno- such extremism in the Philippines. But it government signed with the Moro Islamic logical support. And international anti-pi- may prove even harder to achieve than the Liberation Front (MILF), an insurgency racy patrols stepped up a gear. The emer- military advance. 7

Digital spin in Asia Politics in Bangladesh #TechSavvyPols In the dock and on Singapore the ropes Asian leaders are in the vanguard ofsocial media HEN he is not lifting minuscule Joko Widodo, the president ofIn- weights or catering to the whims of donesia, is deft across many platforms, W A formerprime ministeris convicted, his cats, Najib Razaksomehow finds time but his true love is YouTube. His selfie- furtherhobbling the opposition to be Malaysia’s prime minister—or so his style “vlogging”, tagged #JKWVLOG, feed on Instagram, a photo-sharing app, delights hundreds ofthousands. At a HALEDAZIAhas been in and out of the implies. Hun Sen, Cambodia’s strong- recent summit in Germany, he got both Kcourts for over a decade. She has been man, apparently dedicates most ofhis Mr Trudeau and Mr Macron to record a charged in 37 different cases, most concern- time to posing forselfies with adoring quickhello to the people ofIndonesia, an ing corruption or abuse of power during young Cambodians, ifhis Facebookpage arm draped over his shoulder. her two stints as prime minister, in 1991-96 is to be believed. And then there is Na- It is hard to beat Mr Modi forinnova- and 2001-06. But the verdict reached on rendra Modi, India’s prime minister, who tion, however. He has created an app that February 8th was momentous. assures his followers on Instagram: “Ev- bundles all his social-media offerings. It It was Mrs Zia’s first conviction, for ery moment ofmy life is devoted to the can be downloaded in 12 Indian lan- stealing cash in 1991 from a trust for or- welfare ofIndia.” That cannot be quite guages and offers snazzy infographics on phans founded in memory of her late hus- true, as quite a lot ofit is devoted to social government policy as well as titillating band, Ziaur Rahman, a coup leader who media, most notably Twitter. He has articles on the prime minister’s fashion became president before being killed in a tweeted more than five times a day, on choices (“When simplicity becomes coup himself. Mrs Zia, who leads the Ban- average, since joining the microblogging style: the story behind the Modi Kurta”). gladesh Nationalist Party (BNP), currently service in 2009. He has more than 40m Ofcourse, all this sharing can backfire. in opposition, was sentenced to five years followers, just 7.5m behind Donald Hun Sen, who has run Cambodia for in jail. Although she may yet be freed Trump, and over 33m more than the more than 30 years, was mocked in 2016 pending appeals to the High Court and the combined following ofEmmanuel Mac- when it became obvious he was buying Supreme Court, her fate appears sealed. ron, France’s president, and Justin Tru- “likes” forhis Facebookpage. And not all The verdict formalises the collapse of deau, Canada’s prime minister. those who peruse Mr Najib’s Instagram Bangladesh’s two-party system and the Like Mr Trump, Asian leaders have account are converted. “Stupidest PM demise ofthe Zia dynasty. The BNP and the discovered that social-media platforms yet,” declares one commentator. “Fuck Awami League (AL), the party currently in are very useful forcommunicating with you fatty,” says another. power, used to alternate in government. voters and seizing the attention of the Mrs Zia and Sheikh Hasina Wajed, the press. As smartphones proliferate, so prime minister and leader of the AL, were does the potential audience. Thailand, known as the two begums—the two pow- with a population of69m, has 47m Face- erful women who towered over Bangla- bookusers. Malaysia, with 31m people, deshi politics. But Mrs Zia’s power has has 22m. been waning forthe past decade, as first an Different platforms suit different army-backed government and then two purposes. Facebookis the top choice for AL onesbombarded herwith lawsuits. The pushing policies, says Terrence Ngu of BNP’s boycott of the most recent election, StarNgage, a Singaporean company in 2014, in protest at the AL’s alteration of which runs social-media campaigns; the constitution to avoid handingpower to Instagram is now the main way “to pro- a politically neutral caretaker government mote personalities”. Singapore’s prime during the vote, left it without a single MP. minister, Lee Hsien Loong, shares dreamy The BNP’s slogan used to run, “Khaleda panoramic photos from his holidays on Zia is our leader. Ziaur Rahman is our phi- Instagram. His government recently got losophy. Tarique Rahman is our future.” locals with lots offollowers, such as But Mrs Zia is 72, is in ill health and, as a re- emcees and bloggers, to hype #SGBudget sult of the verdict, may not be able to con- in a desperate bid to sparkyouthful test future elections. And Tarique Rahman, excitement about its fiscal plans. Mr Najib lets the cat out of the bag her son and political heir, is in exile. He, too, faces multiple criminal charges related 1 The Economist February 10th 2018 Asia 27

2 to his mother’s second term, which saw crime to earn their stripes. When the econ- Bangladesh ranked as the world’s most omy slumped in the 1990s, mobsters sold corrupt country five years running. drugs from houses known as “tinnies” and The verdict comes just a week after demanded protection money from other Sheikh Hasina announced that a parlia- criminals. Today prison officers say that mentary election would be held in Decem- “ethnicgangs” workasmethamphetamine ber. No one imaginesshe hasanyintention distributors for more organised biker of losing. In 2014 she put Mrs Zia under groups and foreign syndicates. They keep house arrest and confined Mohammad Er- the prisons in business, fillingabout a third shad, an ageing former dictator and leader of cells and accounting for over 14% of all ofthe third-biggest party, to an army hospi- murder charges, according to police. tal. The courts barred Jamaat-e-Islami, a re- Locking gang members up has arguably ligious party allied to the BNP, from taking exacerbated the problem, by turning jails part since the constitution defines Bangla- into recruitment grounds. Gang colours desh as a secular state—another change the and insignia are banned behind bars, but AL had pushed through parliament. “nine times out of ten” inmates will “turn Yet the government would like the BNP to a gang just for protection”, explains to take partthistime to preventthe election Mane Adams, a heavilyinked bossofBlack from looking as farcical as that of 2014, Power, who hasserved two sentenceshim- when less than half the seats were con- self. Some leaders have taken to tattooing tested. The Election Commission says the the faces of prison recruits, to guarantee fe- BNP’s participation is needed to hold a Bygone begum alty when they are free. meaningful vote. Even the AL’s otherwise But if the authorities have not done silent backer, India, has publicly called for ment arrested more than 1,100 BNP leaders gangs much harm, methamphetamines “participatory” polls. and activiststhisweek. Italso putup check- have. Mr Adams began campaigning In theory Mrs Zia has no choice: the law points to keep opposition protesters out of against the drug after a comrade disem- stipulates that her party must participate the capital, Dhaka. BNP grandees have bowelled himself in meth-induced psy- or be deregistered. The ruling party can warned that the crackdown and convic- chosis. A smattering of gang leaders have also offer inducements such as plum gov- tion are weakening moderates in the party tried to ban members from using them, ernmentjobsand the droppingoflawsuits. and emboldening those who advocate vi- after seeing paranoid henchmen turn The BNP, or parts of it, Dhaka’s chattering olence against the government. against each other. Yet when officials con- classes assume, may prefer a respectable That won’t scare Sheikh Hasina much. duct tests in gang-members’ homes, they blockin parliament to political oblivion. She faced down bombings and arson at are still more likely to find traces of the sub- For the moment, however, the BNP is polling stations in 2014. And she has been stance than not. unyielding. On February 3rd its top brass careful to butter up the army, doubling its Reform-minded gangsters swear that affirmed that it will boycott the election size over the past ten years and building it they are cleaning up in other ways. Black unless it is held under a neutral govern- lots of new bases. It is hard to see how she Power prohibits the lurid gang rapes that ment. As ifto prove their point, the govern- might be dislodged. 7 once occurred on an almost weekly basis. Leaders say they now criticise, rather than joke about, domestic violence. Women Gangs in New Zealand linked to the gangs claim their lives are vastly improved. Street battles, too, have Bigger than the army grown less frequent. By almost every measure, life is still worse forMaoris than other New Zealand- ers, but gangsters insist that, thanks to a strong economy, criminality is no longer a HAWKES BAY prerequisite for survival. Many Maoris claim to join as much for whanau, or fam- But they say they are cleaning up theiract ily, as for money, power or thrills. “People HE picturesque wine country of suburb in Hawkes Bay, are said to be linked have this idea we are all rapists and mur- THawkes Bay is hardly a classic gang- to Black Power. derers and methamphetamine cooks. But land. Tourists come here to ogle art deco Bikers such as the Hell’s Angels have a not all gang members are criminals,” la- buildings or slurp merlot. But its less afflu- presence in New Zealand, but Black Power ments Eugene Ryder, a leaderofBlack Pow- ent suburbs are divided between bitter ri- and the Mongrel Mob have ruled the roost er in Wellington. He requires his under- vals: Black Power and the Mongrel Mob, for almost half a century. Their members lings to study or take full-time jobs. New Zealand’s biggest gangs. This under- “stick out like dogs’ balls”, one admits, be- Jarrod Gilbert, an academic, believes world occasionallyrearsitshead, with, say, cause they sew patches onto their clothes that gang life has “fundamentally changed gunfire at a rugby game, or an assault out- and brand themselves with dense tattoos. from what it was”. Neil Campbell, who side a winery. A clenched fist is the symbol of Black Pow- heads the Maori division of the Correc- Fora sleepycountry, NewZealand hasa er; a bulldog or the Nazi salute “Sieg Heil” tions Department, agrees that some “pro- peculiar problem with gangs. Police count are the marks of the Mongrels. Both gangs social” gang members really “do want bet- over 5,300 members or “prospects” lining are predominantly Maori. In all, police say ter for their children”. Perhaps the best up to join one of its 25 listed groups, which three-quarters of the country’s mobsters proof of the gangs’ rehabilitation is the rise together makes them a bigger force than are Maori (they make up just 15% of the of new, more destructive rivals. The bling- the army. Unlike counterparts in other population as a whole). obsessed teenage members of the new countries, they thrive in rural areas as well For decades the groups fought ruthless- outfits are unpredictable and violent—just as cities. Almost a quarter of people living ly for turf, beat and raped women, and as the mellowing members ofthe Mongrel in the shabby bungalows of Flaxmere, a pushed wannabe members into violent Mob and BlackPower used to be. 7 28 Asia The Economist February 10th 2018

The Winter Olympics Bathing etiquette in Japan On thin ice Ink stink

TOKYO Tattooed foreigners put bath houses in a quandary Seoul WARM aroma ofcitrus bath salts ers away, so many gyms, pools and onsen South Koreans want North Korea at the wafts through the lobby ofthe Ther- (hot springs) ban tattoos or at least insist games, but not on theirteam A mae-yu spa in Tokyo’s Kabukicho district. they be covered up. Japan’s growing HEN Moon Jae-in, South Korea’s The instructions at the entrance are chilli- army offoreign visitors has inadvertently Wpresident, agreed to allow North Ko- er: drunks and people with tattoos stumbled into this cultural minefield. rean athletes not only to attend the Winter should stay out. The sign, says Yuichi Nearly 29m tourists came to Japan last Olympics in Pyeongchang, but also to Ohama, the spa’s manager, is directed year—triple the number in 2013—drawn march alongside South Korea’s team at the mainly at the gangsters who haunt the partly by the cheaper yen and relaxed opening ceremony on February 9th, and to local area, a dense warren ofbrothels, visa rules. The government wants to form a unified women’s ice-hockey team cabaret bars and striptease clubs. Yet the reach 40m by the time Tokyo hosts the with the South, he knew not all South Ko- staffincreasingly find themselves turning Olympics in 2020. That has created a reans would be happy. The outcry from away tourists, too, he laments: “We’re dilemma for the industry, says Yuya Ota conservatives who see the northern re- surprised by how many have body art.” ofthe Japan Tourism Agency (JTA). More gime as an implacable foe was predictable. In Japan tattoos are associated with than a third oftourists take a dip in an Protesters set fire to North Korean flags criminals. Many yakuza mobsters spend onsen and a growing number ofthem are and photos of Kim Jong Un, the North’s hundreds ofhours under an inky gun tattooed. “Some businesses are at a loss blood-drenched despot. One conservative having their entire bodies painted, as a about what to do with all these foreign- MP accused the government ofhosting the sign ofgang membership and to show ers,” says Mr Ota. “Pyongyang Olympics”, single-handedly they can endure pain. It is hard to keep Onsen sometimes provide plasters to undermining South Korea’s long cam- these artworks out ofsight, naturally, cover up the offendingbits. But visitors paign to distinguish between the Olympic when wandering naked around a bath with more elaborate decorations have to city and the North Korean capital. The house. Yet the mere sight of a tattooed abstain. In 2013 a Maori woman taking hawks railed at the exemptions that had to thug is enough to frighten other custom- part in a conference on indigenous lan- be made to local and American laws to al- guages was barred from entering a bath low a plane from the South to take skiers to house in Hokkaido because ofher tradi- the North for training, and to permit a ship tional facial tattoo. The JTA has since from the North to ferry the 140-piece Sam- begun asking bathhouse owners to “give jiyon orchestra to the South. When it ran consideration” to tattooed foreigners, out of fuel on arrival, they fumed that get- with mixed results: a survey in 2015 ting it moving again would amount to a vi- found that over halfofhot springs still olation of UN sanctions. Not unreason- refuse them. ably, they questioned the propriety of Foreign tourists have helped offset the welcoming delegates such as Kim Yo Jong, long-term decline ofthe onsen industry, the younger sister ofKim JongUn, and Kim admits Masao Oyama ofthe Japan Spa Yong Nam, the North’s ceremonial head of Association. But government pleading state, especially afterMrMoon announced cannot remove the deep taboo on tattoos, that he would have breakfast with the pair he says. “There are still many more Japa- on February 9th. nese customers than foreigners and their What Mr Moon did not expect was the feelings must come first,” he says. hostile response of young, liberal voters, Mr Ohama says he is struggling to whose supporthad carried him to the pres- decide what to do. Bend the rules too far idency last year. Following the announce- forforeigners and the yakuza may comment of the Olympic rapprochement, his plain about discrimination, he frets. And approval ratingsslipped to theirlowest lev- choosing between unhappy foreigners el yet, with respondents in their 20s and A sight no Japanese bather wants to see and fuming mobsters is not hard. 30s especially negative. “I feel like sports has been manipulated for political ends,” grumbles Kim Ju-hee, a 23-year-old living ment in 2002, as an aide to the late presi- 130,000 South Koreans who registered as in Seoul. Almost four-fifths of South Kore- dentRoh Moo-hyun, over80% ofSouth Ko- having been separated from family mem- ans, including Ms Kim, support North Ko- reans supported a joint North-South bers in the North afterthe Korean war, only rea’s attendance at Pyeongchang as a way entrance to the Asian Games in the South 60,000 remain alive today—and 60% of to thaw the ice between the two countries. Korean city of Busan. The two countries them are over the age of80. More than 150,000 people have applied for were enjoying a detente, with Roh even The frosty reaction to the joint hockey tickets to see the Samjiyon orchestra per- visiting Pyongyang for a summit. All told, team is a reflection of these changes, ar- form during the games. But over 60% of northern and southern teams marched to- guesKangWon-taekofSeoul National Uni- people in their 20s draw the line at the idea gether at seven different events between versity. Studies show that young South Ko- of a joint ice-hockey team. Many on social 2000 and 2007. reans with no personal connection to the media tookissue with the “parachuting in” But South Koreans in their 20s and 30s North are less willing than older genera- of the 12 North Korean athletes at the last grew up at a time ofworsening relations as tions to contemplate personal sacrifices for minute. “It’s unfair for our players. They the North developed missiles and nuclear the sake of unification. As Mr Kang puts it, weren’t consulted,” Ms Kim insists. bombs. The generation that remembers an “North Koreans can come to the party, but When Mr Moon was last in govern- undivided Korea is dying out. Of the they should do their own thing.” 7

30 Asia The Economist February 10th 2018 Banyan A tropical tempest

The president ofthe Maldives has lost all legitimacy but kept his job tered the household as a maid. Mr Yameen intended the same constitutional change that elevated Mr Adeeb to bar Mr Gayoom from returningto power, bysettingan upperage limitof 65. Yetfar from retiring, the octogenarian Mr Gayoom has infuriatingly re- branded himselfas a liberal democrat. On the night the court was purged, Mr Gayoom was also arrested and dispatched to the prison island of Dhoonidhoo (even as his son was released). That the police arresting Mr Gayoom saluted him might, to a sensitive president, count as one more grievance. Apopulation ofabout400,000—a third crammed onto Malé’s sixsquare kilometres—makes the Maldives a tiny place, even ifits 1,200 islands are spread across a vast expanse of the Indian Ocean. All politics is personal, and odd combinations can form. Just one example is that one person calling for Mr Gayoom’s release from Dhoonidhoo is his nemesis in 2008, Mohamed Nasheed (whom the formerdictator had once had tortured in the very same place). Mr Nasheed’s tumultuous four years in power before a murky coup were, however imperfect, the Maldives’ first attempt at representative government. His conviction on trumped-up charges of terrorism was one of those that the Su- preme Court overturned. IRST soldiers and police surrounded the Supreme Court in From Sri Lanka, Mr Nasheed remains a thorn in Mr Yameen’s FMalé, the claustrophobic, sea-girt capital of the Maldives. side—though hopes a week ago of an early return were dashed Then, earlier this week, they hauled off the chief justice and two with the suspension of constitutional government. Mr Nasheed associates in the dead of night. Abdulla Yameen has racked up urges America to sanction Mr Yameen’s cronies. He has called many accomplishments since becoming president of the strate- upon India, for centuries the regional power, to intervene. So far, gic archipelago in 2013, from befriending China and Saudi Arabia both countries have merely deplored developments. to hounding both the opposition and leaders of his own co- For now Mr Yameen has the advantage. He looks determined alition, intimidating the remains of a free press and, earlier this to hang on through elections later this year—if he holds them at month, shutting parliament. Now he has suspended much of the all. Crucially, he holds the money. As the sun sets over Malé, the constitution and declared a 15-day state ofemergency. 1.5km bridge under construction between the capital and the air- Mr Yameen may have become a full-blown dictator, but he port island lights up with clear red lettering: “CHINA MALDIVES seems to see himself as the victim of a monstrous injustice. The EVERLASTING FRIENDSHIP”. It is the biggest of several Chinese court, he claims, was paving the way for a coup by nefarious projects, backed by Chinese loans, that include a hospital and a forces. How else to explain its actions on February1st, when it or- big expansion ofthe airport. There is no public tendering, and no dered the release of political prisoners and the reinstatement of budgets have been published. Diplomatsand NGOs suspect costs MPs who had crossed over to the opposition? The chief justice have been wildly inflated. must have been bribed, he says. To make matters worse, two po- Not even the monetary authority has any handle on the debts lice chiefs had to be fired before a third could be found who the Maldives is amassing, but thinks three-fifths are owed to Chi- would ignore the court’s orders. (He is said to be so unpopular na. Anydefault, and China can extractconcessions, such asa base that underlings shout at him in the canteen.) on the Indian Ocean. Meanwhile, everyone assumes Chinese Grievance and paranoia come naturally to the president. A cash is liningpoliticians’ pockets and payingforpolitical largesse. former ally, Ahmed Adeeb, is one of those whom the court or- dered released. Talk about ingratitude. Mr Yameen gave him his The isle is full ofnoises leg-up. He even changed the constitution to give him the vice- A tiny part of that largesse was going this week to young gang presidency, reducing the minimum age to hold the state’s top members being flown to Malé from distant atolls to add to the posts. MrAdeeb repaid him bygettingcaughtpilfering$79m from numbers showing support for Mr Yameen, even as he breaks up the tourism board. He was duly sacked—as a fall guy, the presi- opposition rallies. The gangs embody a strange confluence of dent’s critics say; as a lone bad apple, he insists. It must be galling street politics, criminality and Islamist fervour, the latter intro- thatfewbelieve MrYameen’sclaim thatan explosion on the pres- duced bySaudi Arabian charitiesin the wake ofthe Indian Ocean idential speedboat was an assassination attempt by Mr Adeeb. tsunami of 2004. They have brought dramatic change to islands It is also unfair that Mr Yameen—stiff, macho and prone to re- that have traditionally nurtured a very tolerant form of Islam. ferring to himself in the third person—lacks the charisma of the Mr Yameen is happy to identify with this new form, painting previous dictator, Maumoon Abdul Gayoom. He ruled for 30 his critics at home and abroad as enemies of Islam. He is thought years, duringwhich the Maldives won its image with tourists as a to be mulling “In the name ofGod” as a campaign slogan. But Mr coral-island Eden, but his wiliness failed him when he was Yameen knows he cannot rely on God alone. “Maldivian Idol”, a ousted in the islands’ first democratic election, in 2008. Later he hugely popular televised singing competition, was abruptly put backed Mr Yameen’srise to power. He is his half-brother, after all. on hold duringlast week’s political tensions. The rumouris that it In families, however, gratitude can taste like vinegar—espe- will soon be backon again—proofofnormality amid the swirling cially when the rest of the clan know that your mother first en- political currents ofthis most peculiar ofisland republics. 7 China The Economist February 10th 2018 31

Also in this section 32 Hong Kong’s embattled democrats

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

Population policy supposed to help. But figures released in January confirm that after briefly boosting Gilding the cradle birth rates, its effect is petering out (see chart). Chinese mothers bore 17.2m babies last year, more than before the rules were relaxed but 3.5% down on 2016. Wang Feng BEIJING ofthe University ofCalifornia, Irvine, says the number of births was 3m-5m lower China’s one-child policy was illiberal and unnecessary. Will its efforts to boost than the projections from the family-plan- births be more enlightened? ning agency when the authorities were de- HEN Li Dongxia was a baby, herpar- women still have lessthan two children on bating whether to change the policy, and Wents sent her to be raised by her average, meaning that the population will below even sceptical analysts’ estimates. grandparents and other family members soon begin to decline. The government The reason is that as China grows half an hour from their home in the north- predicts it will peak at a little over 1.4bn in wealthier—and after years of being told ern Chinese province of Shandong. That 2030, but many demographers thinkit will that one child is ideal—the population’s de- was not a choice but a necessity: they al- start shrinking sooner. The working-age sire for larger families has waned. ready had a daughter, and risked incurring population, defined as those between 16 Would-be parents frequently tell pollsters a fine or losing their jobs forbreaking a law and 59 years old, has been falling since thattheybalkatthe costofraising children. that prevented many couples from having 2012, and is projected to contract by 23% by Aswell asfrettingaboutrisinghouse prices more than one child. Hidden away from 2050. An ageing population will strain the and limited day care, many young couples the authorities, and at first kept in the dark social-security system and constrict the la- know that they may eventually have to herself, Ms Li says she was just starting bour market. James Liang of Peking Uni- find money to support all four of their par- primary school when she found out that versity argues that having an older work- entsin old age. Lotsconclude thatit iswiser the kindly aunt and uncle who often visit- force could also end up making Chinese to spend their time and income giving a ed were in fact her biological parents. She firms less innovative than those in places single sprog the best possible start in life was a young teenager before she was able such as America which have a more fa- than to spread their resources across two. to move backto her parents’ home. vourable demographic outlook. Meanwhile, more education and op- Ms Li is now 26 and runs her own priv- Unwinding the one-child policy was portunity are pushing up the average age ate tutoring business. The era that pro- ofmarriage (that is a dragon fertility every- duced her unconventional childhood feels where, but particularly so in societies such like a long time ago. The policy responsible Nappy valley as China’s where child-bearing outside for it is gone, swapped in late 2015 for a China, live births per 1,000 people wedlock is taboo). Women thinking about looser regulation that permits all families starting or expanding a family still have to 24 to have two kids. These days the worry All couples allowed weigh the risks of discrimination at work. among policymakers is not that babies are two children 22 Since the one-child policy was relaxed, too numerous, but that Chinese born in 20 Second child allowed many provinces have extended maternity the 1980s and 1990s are procreating too lit- if either of the parents 18 and paternity leave, but are not always is an only child tle. Last month state media applauded par- 16 ready to enforce the rules when employers ents in Shandong for producing more chil- 14 breakthem. dren than any other province in 2017. It The Communist Party appears to recog- 12 called their fecundity “daring”. nise that it needs to do more to lower these At the root of this reversal is growing 10 barriers. A population-planning docu- anxiety about China’s stark demographic ment released last year acknowledged that 1986 90 95 2000 05 10 17 transition. Although the birth rate has re- the low birth rate was problematic and re- Source: Haver Analytics covered slightly from a trough in 2010, ferred to a vague package of pronatalist 1 32 China The Economist February 10th 2018

2 measures that it would consider in re- effectual. Eagerness to raise birth rates is Concern that Hong Kong’s enthusiastic sponse. The following month China Daily probably one reason why party organs culture ofprotestmaybe dampened by the quoted a senior official who said that the seem everkeenerto talkup the joysof mar- court’s ruling is real. But activists espous- government might introduce “birth re- riage. The other reasons are creeping social ing looser ties with China face a more im- wards and subsidies” to overcome the re- conservatism among party leaders—due in mediate challenge. On March 11th by-elec- luctance ofmany couples to multiply. part to a desire to promote “traditional” tions will be fought to fill four seats left Yet the lacklustre performance of pro- Chinese culture over the insidious foreign vacant by the disqualification of members natalist policies elsewhere in the world kind—and the worry that a surfeit of un- of the territory’s Legislative Council, suggests that it would take vast invest- married men maypose a threatto social or- known as Legco, who had expressed such ments to raise fertility, and that making der. For some years the Communist Youth views. (Two more seats remain empty child care cheaper should be a priority. At League has been inviting patriotic single- while the ousted politicians appeal.) present it is difficult to imagine the party tons to matchmaking events. The three men’s custodial sentences doing enough to make a difference—not One big concern is that officials may would have made them ineligible to run least because it has yet to abandon its offi- end up trying to nudge busy and ambi- for public office for five years. Though cial position that some population-control tious women into accepting more domes- nominations for this round of elections measures remain essential. Leaders may tic roles. Leta Hong Fincher, an author and have closed, the overturning of the sen- be hesitating to ditch the two-child rule academic, argues that state media have tences should allow them to run in future completelywhile theyworkoutwhatto do helped popularise the concept of “leftover elections. (For Mr Wong, who was jailed with the army ofbureaucrats charged with women”—a pejorative term for unmarried and bailed for a different crime in January, keeping birth rates low. They are probably femalesin theirmid-20sand later—in an ef- the ban will stand.) Whether Mr Law, who also nervous that making too swift a U- fort to panic educated, urban Chinese into was elected as a legislator in 2016, would in turn will be seen as an admission that the settling down sooner than they otherwise practice be allowed to run again is unclear, party’s draconian policies, which led to would. She thinks such propaganda is since he was one ofthe six legislators elect- forced abortions and sterilisations, were growing more aggressive. If that is indeed ed in 2016 but disqualified in 2017. Prece- misguided. the kind ofsolution that is gestating within dent suggests he may be able to, since Ed- Without a clear strategy, efforts to push the bureaucracy, the hoped-forbaby boom ward Yiu, a legislator disqualified at the procreation will remain piecemeal and in- will be stillborn. 7 same time as Mr Law, has been cleared to stand again. But another ruling a few days earlier Hong Kong’s democrats may have a greater bearing. Agnes Chow, a 21-year-old member of Demosisto, the po- Three men and a vote litical party founded by Mr Wong and Mr Law, was nominated to contest the seat left empty by Mr Law. But on January 27th her nomination was found by a civil servant to be invalid, since her association with that HONG KONG party, which advocates “self-determination”, meant that she could not fulfil a re- A clutch ofseparatists struggle to be allowed to run foroffice quired promise to uphold the territory’s HEY have become a familiar sight the judges nonetheless said that they mini-constitution, known as the Basic Law, Tstanding on courtroom steps. Since agreed with the lower court’s stricter sen- which defines Hong Kong as an “inalien- their pro-democracy protests in 2014, the tencing guidelines in principle, even able part ofChina”. young leaders of the Umbrella Move- though they should not have been applied In the past, candidates calling for inde- ment—Joshua Wong, Nathan Law and retroactively. And they disagreed with the pendence have been disqualified, but Alex Chow—have bobbed in and out of defendants’ plea for leniency on the “self-determination” is a much woollier court, and sometimes into prison. This grounds of civil disobedience. Hence Mr concept that could involve China retaining week they appeared again, after an appeal Law’s despondency. sovereignty over Hong Kong. Both Hong overturned controversial custodial sen- Kong’s and China’s governments, how- tences handed down last year. But their ever, were furious in 2016 when pro-inde- mood was sombre. “Ourhearts are heavy,” pendence politicians were elected to said Mr Law. “We walk free but Hong Legco, and seem ill-inclined to delve into Kong’s democracy has lost a battle.” the nuance ofthe dissenters’ views. In July 2016 the trio was found guilty of Ms Chow’s disqualification drew criti- breaking into a government compound cism from Britain, Canada and the Euro- and of inciting others to follow suit. A pean Union. Most damningly, two heavy- magistrate sentenced Mr Wong and Mr weight backers of the government in Law to community service and Mr Chow Beijing ventured that the rules are unclear. to a three-week stint in prison, suspended One of them, Jasper Tsang Yok-sing, a for- for a year. The government objected that mer Legco president, said that by banning these punishments were too lenient to de- the candidates the returning officers may ter others. Last year, after a review, the Su- have “exceeded the expected scope oftheir preme Court upped the punishment to be- duties”, which are mainly administrative. tween six and eight months in prison and And Hong Kong’s chief executive, Carrie outlined stricter guidelines for such cases. Lam, a Beijing loyalist, said the govern- The men were jailed but then released on ment would clarifythe “very clear” rules if bail, awaiting appeal. necessary. Speculation about how unwel- On February 6th Hong Kong’s Court of come candidates may be disqualified in fu- Final Appeal found no precedent for custo- ture is rife, as ideology wrestles with con- dial sentences and so quashed them. But On the steps again stitutionality. 7 United States The Economist February 10th 2018 33

Also in this section 35 Politics and the FBI 35 Wildﬁre and fraud 36 A Democrat in South Dakota 37 Prozac in the Great Lakes 38 Lexington: Honest Injun

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

The economy nedy’s tax cuts had been signed into law in 1964. His successor, Lyndon Johnson, The great experiment raised spending to pay for his “Great Soci- ety” programmes and the war in Vietnam. The budget deficit rose from 0.2% ofGDP in 1965 to 2.7% of GDP in 1968. Inflation rose, WASHINGTON, DC too, to over 3% in 1968 and almost 5% in 1969. As the year ended, fiscal and mone- America is about to stimulate an already pacey economy. That is probably less tary tightening caused a mild recession. illogical than it seems The comparison is hardly perfect, OOD economic news is not always need of stimulus. Unemployment stands though. America’s economy was very dif- Ggood foreveryone. On February 2nd it at just 4.1%. Workers are in a seller’s market. ferent in the 1960s. Almost a third of work- was revealed that average hourly wages Wages are rising and in December 3.3m ers belonged to trade unions. Around one grew by 2.9% in the year to January—the Americans quit their jobs forpastures new, in four had wage agreements indexing fastest growth since 2009, at the end of the the second highest reading on record. In their pay to inflation. Today fewer than 11% recession. Stocks promptly tumbled 2017 the economy grew by 2.5%, above the of workers are unionised and wage index- around the world (see page 63). Investors roughly 2% trend that official forecasters ation is so rare that it is no longer closely fretted that inflation might rise, forcing the thinkis sustainable as the population ages. tracked. Meanwhile global competition Federal Reserve to raise interest rates fur- With the economy so strong, and stimulus and discounting by online retailers holds ther and faster than expected. Whether the on the way, it is natural to worry about down the pricesofgoods. Moreover, the la- jitters are justified, however, depends on overheating. That a new and untested Fed bourmarket was not the source ofthe truly how an extraordinary experiment in eco- chairman, Jerome Powell, took office on memorable inflationary episode of the nomic policy plays out. America is poised February 5th, as markets tumbled, only post-war era. That began in 1973, with the to stimulate an economy that is already makes people more anxious. first of two surges in the oil price, which growing strongly, at a time of historically Hawks point to the late 1960s for signs sent inflation soaring to 10%. low unemployment. of what is to come. In early1966, following In some ways today’s experiment looks Most ofthe stimulus will come from tax a long spell of low inflation, unemploy- more like the boom of the late 1990s (see cuts that President Donald Trump signed ment fell below 4%. President John F. Ken- Free Exchange). Alan Greenspan, then into law in December. These are worth chairman of the Federal Reserve, kept 0.7% of projected GDP in 2018 and 1.5% of monetary policy loose enough to push un- GDP in 2019. On February18th Senate lead- Deficit hawks, look away now 1 employment down to 3.8% by April 2000. ers sketched out a budget deal containing a United States, projected budget deficit, % of GDP Mr Greenspan had correctly anticipated further fiscal boost. If the proposal passes, Before tax cuts After tax cuts* that computerisation would increase the defence spending will rise by $80bn this 0 economy’s productive capacity and let year, pleasing Republicans. Democrats – some of the pressure out of the expansion. have been offered $63bn in spending on 1 Inflation stayed comfortably below 2% other programmes. The total increase in 2 even as wages soared. The boom eventual- outlays is worth another 0.7% of GDP. The 3 lycame to an end because a bubble in tech- White House also promises to unveil an in- nology stocks popped—and, perhaps, be- 4 frastructure investment plan on February cause Mr Greenspan was less alert to 12th. Higher spending will add to govern- 5 recessionary signals than he had been to ment borrowing that, after tax cuts, is al- 6 evidence oftechnological change. ready likely to reach almost $1trn, or 5% of 2016 18 20 22 24 26 27 As the stockmarkets wobble again, that GDP, by 2019 (see chart1). Sources: CBO; *Calculation assumes projected boost parallel may seem unnerving. Hawks have JCT; The Economist to GDP from tax cuts is immediate The economy does not look in obvious insisted for years that loose monetary poli-1 34 United States The Economist February 10th 2018

2 cy since the financial crisis would create another bubble—one that, they might say, has now begun to deflate. But unlike in the 1990s, no single major asset class is inspir- ing irrational exuberance. From bonds to buildings, a wide range ofassetsare expensive. High prices can be justified so long as low interest rates make future flows of income lookmore valuable. In theory, fiscal stimulus should force interest rates up, which explains investors’ worries. The Fed’s model predicts that a tax cut worth 1% of GDP will eventually raise rates by 0.4 percentage points. If the central bank tries to keep rates where they were before the stimulus, the theory goes, inflation will get out of hand. But there are three reasons to doubt that, in reality, not seeking jobs, it could be masking po- into the fold. Sure enough, since late 2015, enough inflation will appear to force the tential labour supply. In April 2000 nearly as the labour market has tightened, partici- Fed to change course. 82% of Americans aged between 25 and 54 pation amongprime-age workers has risen The first is the prospect of another pro- had jobs. Today, despite low unemploy- sharply. ductivity surge. Productivity growth has ment, the proportion is 79%. The difference The final reason not to fear an inflation- been feeble everywhere since the financial represents about 3.7m potential workers. It ary surge is the stability of wage and price crisis. Yet technological evangelists insist is the result ofa decline in labour-force par- growth in recent years. Although markets that a second industrial revolution is com- ticipation: many people are neither work- were spooked by a rise in hourly earnings, ing, in which machine learning and artifi- ing nor looking forwork. perhaps they should not have been. Pay is cial intelligence will allow firms to do growing almost exactly as quickly as one much more with fewer workers. Whether Get back to work would expect from looking at the overall they are right or not, rising wages should Official forecasters tend to assume that employment rate (see chart 2). Neither encourage firms to invest more in labour- participation trends are immutable, and wages nor prices are likely to accelerate saving technology. There are signs already do not respond much to economic condi- suddenly, as some economic models fore- that productivity is rebounding. In every tions. But evidence to the contrary is build- cast, because low inflation expectations quarter of 2017 it was more than 1% higher ing. In a recent working paper, Danny Ya- have become so firmly rooted. In a recent than a year before, the first such sustained gan of the University of California, paper for the Peterson Institute, a think- growth since 2010. Berkeley, compares places where unem- tank, Olivier Blanchard, who was until The trend seems to be continuing this ployment rose a lot during the recession, 2015 the IMF’s chief economist, concludes year. A real-time estimate of annualised such as Phoenix, in Arizona, to those that the current relationship between un- GDP growth in the first quarter of 2018 by where the increase was less severe, such as employment and inflation is “at odds with the Atlanta Fed stands at 4%. If this esti- San Antonio, in Texas. He finds that for ev- the accelerationist hypothesis”. mate is even close to correct, it points to ery one percentage-point rise in local un- Higher wages need not mean higher strong productivity growth. The alterna- employment during the recession, work- prices. In fact, economists have recently tive explanation is an unusual rise in em- ing-age people were 0.4 percentage points struggled to establish a causal link. Core in- ployment or average hours worked. But less likely to be employed in 2015. Unem- flation, excluding volatile food and energy job growth has in fact slowed in recent ployment rates in these places have largely prices, stands at 1.5%, just over half the rate years; in January it was barely above the converged again, whereas overall employ- ofwage growth. Apart from higherproduc- average for 2016, when the economy grew ment rates have not, suggesting that some tivity, one way the economy might absorb by just 1.8%. Average hours worked have workers were so deterred that they left the higher pay is iffirms’ profit margins shrink. fallen slightly. labour force altogether. Doves argue that Over recent decades, corporate profits The second reason to expect inflation to the lower unemployment falls, the greater have risen to record highs as a percentage remain subdued is the painful legacy of the chance of bringing such workers back of GDP. Meanwhile the share of national 1 the financial crisis. Economists have long speculated that recessions might damage the supply capacity ofthe economy. When Expect the expected people are thrown out of work for months United States or years, for example, their skills start to at- Wages and employment, quarterly 2 Weekly earnings, full-time employees 3 rophy. If so, the thinking goes, strong By income percentile, % increase on a year earlier 1990s* 2000s 2010s 2017 growth might arrest and even reverse this process—perhaps by encouraging labour- 5 6 starved firms to offer more training to new 4 25th 5 staff. That should raise productivity, limit- Q4 2017 percentile ing inflationary pressure. In 2016 Janet Yel- 3 4 len, then chair of the Fed, wondered if the Median 2 3 possibility of expanding supply might jus- 75th 2 tify running a “high-pressure economy” 1 percentile Private wages and salaries,Private wages % increase on a year earlier % increase on a year once the recovery was complete. 1 Evidence that recessions damage work- 0 7475 76 77 78 79 80 81 82 ers’ skills is patchy. But a related phenome- 0 Employment as % of population† non may be at work. Because the unem- 2010 11 12 13 14 15 16 17 † ployment rate excludes people who are Sources: Moody’s Analytics; Bureau of Labour Statistics *1994 onwards 25- to 54-year-olds The Economist February 10th 2018 United States 35

2 income flowing to workers has declined. A California’s fires hot labour market might reverse those trends. Lower profits can be bad for the stockmarket, but they are good for work- Insult to injury ers. Americans might even become less LOS ANGELES grumpy about globalisation as the econ- Where disasters strike, fraudsters follow omy heats up. After all, it is less painful to lose a job to trade or technology when va- HE past few months have been diffi- cancies are plentiful. Tcult forRacelle LaMar, a veterinarian Poorer households are especially likely who lives and works in the northern to benefit. Between 1996 and 1998 workers California town ofSanta Rosa. First her at the 10th wage percentile saw their infla- practice burned to the ground in one of tion-adjusted pay grow by 9% in real terms, several fires that scorched 245,000 acres according to one contemporaneous study. (99,000 hectares) ofhomes and vine- That happened despite an increase in the yards in the wine region north ofSan supply of labour. Other research found Francisco last October. Then, when she that young black workers reaped large requested aid from the Federal Emergen- gains from the hot economy. Similar trends cy Management Agency (FEMA), things may be playingout now. Since 2016 weekly tooka curious turn. Someone had al- wage growth has been strongest towards ready applied formoney using her name, the bottom of the income distribution (see address and Social Security number. chart 3). Mr Trump likes to boast about re- America suffered several natural centeconomicgainsforblacksand Hispan- disasters last year. Over the course ofa ics, and in this case he is right. few months, hurricanes devastated parts Continued stimulus at this stage in the ofTexas, Puerto Rico and Florida, which economic cycle is hardly riskless. The are home to 8% ofthe country’s pop- economy can behave in strange ways ulation. As the storms died down, wild- when policymakers break norms. And the fires ignited in the West. In October 43 debt incurred by tax cuts and spending people died and nearly 9,000 structures sprees will eventually weigh on growth. were destroyed in northern California. In But it seems likely that America could keep December the largest fire in modern state Heroes first, then zeroes growing while avoiding an inflationary history tore through southern California, surge. After decades ofweakwage growth, burning an area nearly twice as large as unclear ifthe scale ofthe fraud is related workers may well think the experiment is Chicago in affluent Santa Barbara County to the Equifaxdata breach, in which worth trying. 7 and agriculturally rich Ventura County. personal information on more than 143m Requests forfederal aid jumped tenfold Americans was exposed. But the incident from 2016 to 2017 as 4.7m Americans could have made such data more acces- Politics and the FBI registered forhelp. sible to criminals. Fraudsters tookadvantage ofthe In December the Federal Bureau of Against the law desperation. David Passey, a spokesper- Investigation launched a taskforce to son for FEMA, says that more than investigate wildfire fraud complaints in 200,000 applications forreliefrelated to northern California. Stacey Moy, the the hurricanes and northern California assistant special agent in charge of the FBI WASHINGTON, DC wildfires are suspected to be fraudulent. northern California task force, ex- In some cases, disaster victims found out pects other fraud schemes to crop up as Attacks on the Justice Department and they had been defrauded when applying people move to repair the damage and the FBI are harming America foraid. In other instances, people un- rebuild homes and businesses. Residents ONALD TRUMP seems to thinkhe can scathed by the storms and fires received ofMendocino County have received Dbest every challenge by insulting the letters from FEMA confirming they had false bills fordebris removal, a service the challenger. It worked splendidly during signed up forbenefits when they had not. government performs fornothing. Gov- the presidential campaign. But America’s Mr Passey suspects that sophisticated ernment officials in Napa, Sonoma, Santa institutions are not political foes. As an in- criminal organisations are involved. To Barbara and Ventura worry they might vestigation led by Robert Mueller into pos- swindle payments from their rightful soon see similar schemes. Mr Moy la- sible links between Russia and Mr Trump’s recipients, criminals had to match ments: “What you have is criminals keen presidential campaign grinds on, the presi- breached private information to address- to spin the misfortune ofothers into their dent has flung ever more insults in the dies within federal disaster zones. It is own fortune.” rection of law enforcement. His actions risk inflicting great damage on the country he leads. written by Republicans on the House intel- funded by Hillary Clinton’s campaign and On Twitter, Mr Trump calls the former ligence committee about the surveillance the Democratic National Committee. heads of the FBI and CIA, as well as an ex- of Carter Page, an oil-and-gas consultant The memo quotes Mr Steele saying he director of national intelligence and who became a foreign-policy adviser to was “desperate that Donald Trump notget Democratson Congress’sintelligence com- the Trump campaign. The memo claims elected and was passionate about him not mittees, “liars and leakers”. He also claims that the FBI and DOJ failed to disclose that being president” and alleges anti-Trump that “Investigators of the FBI and the Jus- “an essential part” of the evidence used, in bias elsewhere at the FBI. Mr Trump, who tice Department have politicised the sa- October 2016, to obtain the warrant allow- approved the release of the once-classified cred investigative process in favour of ing them to monitor Mr Page came from a memo on February 2nd, claims that it “to- Democrats and against Republicans.” dossier compiled by Christopher Steele, a tally vindicates” him. The trigger for this outburst is a memo former British spy, whose research was In truth Mr Page is just one part of a 1 36 United States The Economist February 10th 2018

2 sprawling, complex investigation, which Mueller would be extremely risky. It could geous, why tell America anything? “What began not with him but, three months be- even remind congressional Republicans the memo has done,” says Ms Rangappa, fore he fell under surveillance, with that they are members of an equal branch “is advertise that the FBI cannot protect George Papadopoulos, another lightly of government who took an oath to sup- you.” Israel is already reconsidering its in- qualified foreign-policy adviser, who has port and defend the constitution, not Mr formation-sharing after Mr Trump blithely since pled guilty to lying to federal investi- Trump and his family. Muddying the wa- revealed classified intelligence to Russian gators. The memo does not say that the FBI ters is probably a more effective strategy. If officials. Other countries may follow suit— and DOJ relied entirely on Mr Steele’s evi- anti-Trump bias pervades America’s feder- not immediately, of course, and not entire- dence in applying for a surveillance war- al law-enforcement bodies, why believe ly, because they still need America’s intelli- rant. It asserts that Andrew McCabe, a for- anything Mr Mueller says? gence and data-gathering. But when peo- mer deputy FBI director, told the House But that question has an obverse. If in- ple with vital information have to decide intelligence committee that “no surveil- telligence sources believe the president between goingto leaky America and going lance warrant would have been sought” might reveal confidential information elsewhere, elsewhere may lookincreasing- without Mr Steele’s dossier. Democrats on whenever he deems it politically advanta- ly appealing. 7 the committee say this is a distortion. The memo does a poor job of explaining why Mr Steele should not be trusted. He ran the Russia desk for Britain’s foreign- intelligence service and provided solid intelligence for the FBI before. His objection to Mr Trump seems to have stemmed from his beliefthat the candidate had been compromised by Russian intelligence. That is not the same as political bias. The same could be said for FBI agents investigating the Trump campaign’s alleged ties to Rus- sia. As for Mr Page, he had been on the FBI’s radar since 2013, when Russian intelligence tried to recruit him. The court found suffi- cient cause to renew the 90-day surveillance warrant three times. Congressional Republicans have nonetheless rallied around the memo. Matt Gaetz, perhaps Mr Trump’s strongest supporter in Congress, said it showed “a systemic pattern of abuse” in the FBI and Jus- tice Department. That is hardly surprising. As Asha Rangappa, a formerFBI agent who now teaches at Yale University, notes, “For the people who were already convinced, the memo could have said, ‘I’m Jesus’ in purple crayon 50 times, and it would have proved that Mueller is wrong.” A Democrat in South Dakota Democrats on the House intelligence committee claim that Republicans cherry- Plains speaking picked evidence. They have written a re- buttal memo, which the presidentmust de- classify before itcan be released to the public. Should Mr Trump do so, it probably will make little difference politically. BURKE Democrats will believe one version of the A formerrodeo champion tries to snap a Democratic losing streak truth, Republicans another. And the damage will have been done. NDER cover of darkness, in a small His quest seems the longest of shots. The Republican version of the story por- Utown between the Missouri River and South Dakota last elected a Democratic go- trays America’s chief law-enforcement the Nebraska border, 19 people met on Jan- vernor in 1974. Its delegation in Congress is agency—whose former director, James Co- uary 29th in a conference room to decide entirely Republican; Republicans hold mey, may have swung the election to Mr the presidency—of the Burke Riding Club. overwhelming majorities in both of the Trump when he publicly reopened an in- Nobody seemed to want the job. “There state legislative chambers; and Donald vestigation into Mrs Clinton just days be- are only two ways to get out of your re- Trump won nearly twice as many votes as fore the vote in 2016—as well as the DOJ, sponsibilities: you have to die or move, Hillary Clinton in 2016. Yet Mr Sutton has helmed by Mr Trump’sappointee, as nests and I don’t plan on doing either,” warned both a plausible path to victory and les- of devious liberals plotting to take down Todd Hoffman, a rangy, affable man. “Or sons to teach other Democrats about how the president. This untruth appears to have you can run for governor”, said Billie Sut- to compete in rural America. caught on. A Reuters poll released on Feb- ton, the club’s current president. “That’s He also has a compelling personal ruary 4th shows that 73% of Republicans not necessarily an out, Billie,” joked Mr story. Mr Sutton, a fifth-generation South now believe the FBI and Justice Depart- Hoffman. “Governors really don’t do that Dakotan, began rodeo riding when he was ment are “working to delegitimise Trump much.” Mr Sutton, who is in fact running four years old. He attended the University through politically biased investigations.” for governor, laughed harder than anyone of Wyoming on a rodeo scholarship, even- That suits Mr Trump perfectly. Firing Mr else in the room. tually becoming one of the top 30 riders in 1 The Economist February 10th 2018 United States 37

2 the world. In 2007, as he was preparing for The Great Lakes Lake Erie to Lake Ontario. the National Finals Rodeo—the year’s most According to national health surveys, prestigious competition—his horse flipped Mind-bending the proportion of Americans aged 12 and over, pinning him against the chute. He over who take antidepressants rose from was paralysed from the waist down. 7.7% to 12.7% between 1999-2002 and “I was very independent, and focused 2011-14. The drugs accumulate in fish. In on my rodeo career,” says Mr Sutton. “But I CHICAGO some cases the levels of antidepressants was raised to never give up, never quit, no within brain tissue are at least 20 times Antidepressants are finding theirway matter the situation.” Following rehabilita- higher than in the water. This does not into fish brains tion, Mr Sutton returned to Burke, first get- pose a danger to humans, who seldom eat ting a job at a local bank and then winning HE abundant fresh water of the Great fish brain, says Ms Aga. But it could well a state-senate seat in 2010, when he was 26 TLakes helped turn America’s Midwest damage the ecosystem ofthe lakes. years old. He is one ofjust six Democrats in into an industrial powerhouse. Carmakers Fish respond similarly to humans on the chamber. in Detroit, steelmakers in Cleveland, brew- antidepressants. They are less risk-averse Ryan Maher, a Republican senator, be- ers in Milwaukee and makers of furniture and, it appears, happier. That seems to lieves MrSutton will give Republicans “the in Grand Rapids used huge quantities of make them more likely to be eaten. Victo- biggest challenge they’ve had in 30 years.” water to produce their wares. They also ria Braithwaite, of Penn State University, The main divide in South Dakota politics, abused it. For almost a century they worries that these sorts of changes could he posits, is not between Democrats and poured wastewater contaminated with triggerthe collapse ofan entire fish popula- Republicans but between urban and rural metals, oils, paint and other toxins back tion, or even seriously disrupt the biodi- regions. That works to Mr Sutton’s advan- into the lakes. versity of the lakes—the largest freshwater tage. As a country politician, he under- Midwesterners woke up to the damage ecosystem in the world. stands rural issues and voters. As a Demo- done when the Chicago, Rouge and Detroit Anew study from McMasterUniversity crat, he stands to do well in the state’s more riverscaughtfire in the 1960s, fuelled bythe raises more concerns. It finds that bluegill liberal urban areas. His personal story oilysludge in the lakesand theirarteries. In sunfish, common in North America, have should resonate with South Dakotans of 2010 the Great Lakes Restoration Initiative to burn much more energy to cope with all stripes. was born to improve water quality, clean the array of toxins that they typically en- up shorelines and restore habitats and spe- counter. They have less energy left for Roping them in cies. These days, new factories on the growth, reproduction and survival. Efflu- In the general election MrSutton will prob- lakes’ shores are viewed with suspicion. ent from wastewatertreatment plants does ably face either Kristi Noem—who has On March 7th Wisconsin’s Department of not kill the fish immediately, butits effectis spent the last seven yearsin Washington as Natural Resources will stage a public hear- insidious, says Graham Scott, one of the the state’s sole House of Representatives ing about the controversial plans of Fox- authors ofthe study. member—or Marty Jackley, who has spent conn, a Taiwanese maker of electronics, to What can be done? The molecules of nearly a decade as the state’s attorney gen- draw 7m gallons ofwater a day out of Lake antidepressants and other contaminants eral. For someone running a campaign fo- Michigan. Yet those who live near the are too small for treatment plants to catch. cused on making government work for or- Great Lakes are also inadvertently pollut- Yet Ms Aga says that advanced oxidation dinary people, as Mr Sutton is, these are ing the water. processes can filter out many drugs and dream opponents, especially if their prim- When people take antidepressant beauty products. It would be hard to up- ary turns nasty. “If he can just get the state drugs or hormonal medicines such as the date or replace more than 1,400 wastewa- party to lay low,” says Mr Maher, “he has a contraceptive pill, or even use some ter treatment plants around the lakes. But fighting chance.” grooming products, traces end up in the pressure for change could grow, especially The Democratic brand is often toxic in Great Lakes. Diana Aga, a chemist at the if local industries begin to suffer. Last sum- rural America, where it is seen as a party of University at Buffalo, has found high con- mer tourists visiting Niagara Falls spotted a coastal elites. But Western voters seem centrations of the active ingredients of large amount of black sludge in the river. A willing to pull the lever forthe right kind of antidepressants such as Prozac, Zoloft, Ce- few months later, Andrew Cuomo, the go- Democratic candidate. Although Mr lexa and Sarafem in the brains offish taken vernor of New York state, proposed to in- Trump easily won Montana, for instance, from the Niagara river, which connects vest $20m in the wastewater system. 7 that state has a Democratic senator and governor. For a brief spell last decade, South Dakota’s two US senators were both Democrats, as was its sole congresswoman. South Dakotans recently voted to raise the minimum wage. They also approved some sweeping campaign-finance reforms, of the kind that liberals adore—although the legislature balked at that. Mr Sutton is a pro-life, pro-gun, church- going Democrat, just as Heidi Heitkamp—a Democratic senator from North Dakota— supports fracking and the Keystone oil pipeline. They are less prairie populists than prairie pragmatists, focused on kitch- en-table issues and connecting to individual voters rather than joining the partisan vanguard. Their positions may be anathe- ma in Brooklyn and San Francisco. But what works near the oceans does not always play in the plains. 7 Looking good. Feeling great! 38 United States The Economist February 10th 2018 Lexington Honest Injun

In a people theirpredecessors almost wiped out, Americans now see themselves ings with actual Indians. To dispossess them, argued Henry Knox, George Washington’s secretary of war, would be a “stain on the character ofthe nation.” But few agreed. In 1830 the government began removing Indians east of the Mississippi onto a shrinking territory in what is now Oklahoma. Farthernorth, on the plains ofMinnesota and the Dakotas, white settlers encroached on the hunting grounds of some of the last free tribes, the Sioux, leadingto violence thataccelerated theirde- mise. By the end of the century, America’s Indians had been reduced to a sickly population of 250,000, huddled on patches of marginal land. Having dispensed with the real Indians, America then began losing its heart to imaginary ones. Many North American Indians were settled cultivators. The nomadism of the plains was atypical and shaped by Europeans. The Sioux, formerly farmers, had shifted to hunting the herds of bison that grew in a land depopulated by imported diseases, using horses they got from the Spanish and guns from the French. Yet by the time of their futile last stand, they had come to represent all native Americans in the popularimagination. This was in some ways pernicious, a means to associate all Indians with viol- entresistance, justifyingtheireradication. Even so, Americans fell N EARLY 1924 the blue-bloods of Virginia found themselves in love with the myth ofthe warrior-like Sioux. Iwith a problem. To criminalise interracial marriage, the state With their eagle feathers and fiery expressions, Plains Indians had drafted a law that classified anyone possessing even “one became synonymous with the rugged individualism Americans drop” of non-white blood as “coloured”. Awkwardly, that would liked to see in themselves. That is evident in the many sports include many of the so-called First Families of Virginia, because teams with Indian-related names—the Cleveland Indians, Kan- they traced their descent to a native American woman, Pocahon- sas City Chiefs and so on. It is also apparent in the endless con- tas, who had been abducted and married by a member of the sumer and military goods, from butter to missiles, marketed with Jamestown colonythree centuriesbefore. Thisancestryhad been images of Indians—to suggest trustworthiness; durability; envi- considered far from shameful. It was a mark of American aristoc- ronmental soundness; efficacy at killing people. Any residual racy, the real-life Pocahontas having been reinvented (she proba- negative connotations are being scrubbed from that list: the racist bly did not save the life of a colonist called John Smith) as an caricature of Chief Wahoo, the Cleveland team’s emblem, is be- “American princess”. To fix matters, a clause known as the “Poca- ing phased out. The remaining Indian-related brand values share hontas exception” was added to the racist law, to exempt anyone a sense of authenticity. “Today, nothing is quite as American as with no more than one-sixteenth Indian blood. the American Indian,” writes one of the Smithsonian’s curators, This episode, documented in a new exhibition at the National Paul Chaat Smith, a Comanche scholar with a dry wit. Museum of the American Indian in Washington, DC, on Indian There are lessons here for understanding America’s latest myths and reality, helps explain a cultural puzzle. It has become spasm over who is, and who isn’t, a legitimate American (a word clear that the pre-Colombian Americas were much more densely used into the 19th century in England to refer exclusively to Indi- populated, by more sophisticated civilisations, than was previ- ans). One is that the racist enormities on which America was ouslythought. Byone estimate North America, the more sparsely founded, slavery and the dispossession of Indians, are so recent populated continent, had 18m people when Columbus sailed, and unresolved—as evidenced by protests on tribal land and at more than England and France combined. Yet in the popular Confederate monuments—that fights over national identity are imagination it remains a vast wilderness, peopled by a few buffa- inevitable. Another is that the nativist position espoused by lo-hunters. The reason for this gigantic misunderstanding, sug- many on the right is illogical. A Minnesotan nativist seeks, in ef- gest the Smithsonian’s curators, goes beyond bad schooling. fect, to bar Aztec migrants (lately called Mexicans) from a state his It is fuelled by the ways Americans use real and mythical Indi- grandparents tookfrom people who had had it formillennia. ans, such as Pocahontas, to express their own ideas ofcitizenship and national identity. At a time when those things are contested Siouxing forpeace by white nativists as well as natives, “Americans”, as the exhibi- A third, more hopeful, lesson lies in the way Americans have tion is called, lives up to its name: it is about all Americans. made national champions of their sometime victims, imbuing From their first flush of revolutionary zeal, Americans used them with all-American virtues. That is not merely chutzpah. It images of Indians to represent themselves. The exhibition’s old- stands for America’s relentless ability to synthesise its disparate estexample isa sketch byPaul Revere from 1766. Thiswasin part a parts in an uplifting national story. Even in the current quarrel- sardonic comment on British cartoonists doing likewise. It also some time, that contrary movement is evident—includingamong represented the revolutionaries’ self-identification as a new race real-life native Americans, who are, though still deprived, be- of men, free of European tyranny. An association between Indi- coming less impoverished and more confident. The admiration ans and liberty has been prominent in official iconography, in- of popular culture has played a part in that. “It’s the country say- cluding medals, stamps and friezes, ever since. Some officials ing to Indians, imaginary and real, past and present,” suggests Mr were also keen to bring Enlightenment principles to their deal- Smith, “without you there is no us.” 7 The Americas The Economist February 10th 2018 39

Also in this section 40 Ontario’s troublesome wage rise 40 Trump supporters in Mexico 42 Bello: The peril of political decay

Venezuela He can count on weak opposition. That is partly because he has dealt with anyone Lights out for democracy who might threaten him by putting them out of action. Some of the opposition’s most prominent leaders are under house arrest, barred from office or in exile. In Jan- CARACAS uary, the electoral authority banned the Democratic Unity roundtable, the co- Afterthe collapse oftalks with the opposition, Nicolás Maduro plans forvictory in alition of opposition parties, from nomi- a rigged election nating a candidate. It also declared that the N THE evening of February 6th the access to the media. two biggest opposition parties had failed Olights went out across most of Cara- Mr Rodríguez refused to lookat the doc- to register correctly, which disqualifies cas, Venezuela’s capital, just as the city’s ument. So there was no deal. The talks them from fielding candidates. rush hour was beginning. Unable to take were suspended indefinitely. Hours later Mr Maduro may nonetheless face a ri- the metro, tens of thousands of workers the electoral commission announced that val or two. Henry Ramos Allup, a veteran were forced to walk the crime-ridden a presidential election will be held on politician, and Henri Falcón, a former ally streets. Many tookthe power cut as a meta- April 22nd. Together, the breakdown ofthe of Chávez, have talked of running against phor for the country’s snuffed-out democ- talks and the setting of the date seem to the president. Mr Maduro might not mind. racy and lost prosperity. dash any lingering hope that the election Some show of opposition would give the At precisely the same time, Jorge Rodrí- will be anything other than a fraud. election a gloss of legitimacy. It would fur- guez, Venezuela’s expensively dressed Perhaps, as the government’s most rad- ther split the opposition, which has failed communications minister, was arriving at ical opponents have long argued, the talks to choose a single leader in 18 years of cha- a meeting in the Dominican Republic. He were doomed from the start. The govern- vista rule. If more than one rival takes Mr has been the chief negotiator for the coun- ment was never going to allow a fair presi- Maduro on, all the better. They would split try’s leftist regime in sporadic talks with dential election. This year the economy the anti-government vote, making it easier the opposition that have taken place over will be a third smaller than it was in 2013, forhim to win the one-round election. the past 16 months. Brandishing a bright the year Mr Maduro took over from Hugo He has rushed the election in part to yellow pen he declared that a deal had Chávez, the regime’s charismatic founder. deny the opposition time to prepare (it been reached. Signing it, he said, was a The IMF expects inflation to be 13,000%. need not be held before December). He mere “formality”. Food is scarce. The president blames this may also be calculating that the economy Anyone credulous enough to believe mess on malevolent outside powers, such will be in even worse shape by then. him was soon disabused. On February as the United States. Most Venezuelans Underinvestment and corruption have 7th the opposition delegation, led by Julio rightlyblame him and hisgovernment. His brought PDVSA, the state oil firm, which Borges, the formerhead ofVenezuela’spar- approval rating is around 25%. provides nearly all of Venezuela’s foreign liament, made a counter-proposal. It re- income, close to collapse. Its production is peated a long-standing demand that the With foes like these at its lowest level in nearly 30 years. Rating president, Nicolás Maduro, restore the MrMaduro nowplansto fightthe elections agencies have declared the company to be democratic institutions that he has sub- on the basis of the document his negotia- in technical default after it repeatedly paid verted since taking office in 2013. It called tors offered in the Dominican Republic. late interest on its bonds. Both PDVSA and for establishing an independent electoral That will allow forthe presence ofUN elec- Venezuela itself are scheduled to make council to replace the current one, which toral observers and a modest reform of the $9.5bn in principal and interest payments does the bidding of the “Bolivarian” re- electoral authority. He will then no doubt this year. An outright default would make gime. The opposition also sought the rein- proclaim that he has arranged for the elec- it farmore difficult to export oil, and thus to statement of banned political parties, the tion, which will give him a fresh six-year feed Venezuelans even at today’s subsis- freeingofsome 200 political prisoners and term in office, to be a fairone. tence level. 1 40 The Americas The Economist February 10th 2018

2 Outside powers may be on the point of minimum wage looked like a good way to inflictingdamage on the economyasa way lift her approval rating, which stood at 20% to push Mr Maduro out. Rex Tillerson, the in December. The pay boost has the sup- American secretary of state, has just com- portof60% ofvoters. Demand forlabour is pleted a six-day tourofseveral Latin Amer- strong, which makes it less risky. Ontario’s ican countries. He spent much of it trying unemployment rate, now 5.5%, has been to build a regional response to Venezuela’s lower than the national average for nearly crisis. He said that the United States had es- three years. Just 7% of the province’s work- tablished a working group with Canada ers earned the previous minimum wage. and Mexico to study the possibility of re- But the abrupt rise has hammered firms stricting its oil exports. The administra- with lots oflow-wage workers, such as res- tion’s aim is to bringthe disasterin Venezu- taurants, hotels and farms. Marijuana ela “to an end”, Mr Tillerson says. There is growers say they may raise prices (after the little doubt that it would welcome the stuffis legalised, which is supposed to hap- same fate for Mr Maduro’s rule. President pen by July 1st). Metro, a supermarket Donald Trump is said to be “energised” by chain, says it will replace more checkout the idea. But Mr Maduro has proven him- staff with machines. Ontario’s indepen- self to be wilier than many of his foes had dent “financial-accountability officer”, thought. A blackout in Caracas may not who reports to the Speaker of the legisla- portend a loss ofpower forthe regime. 7 ture, warned in September that the wage increase could cause a net loss of 50,000 jobs. Ontario is already an expensive place Ontario to do business, especially because of its They’re not sending their best people high energy costs, firms grumble. Toil and trouble The government should have helped teers at the Lake Chapala Society, which low-paid workers in other ways, says Julie helps expatriates find friends and hobbies. Kwiecinski of the Canadian Federation of He will go backto California “in a boxwith Independent Business. She suggests tax my feet first”, he says. credits, a higher personal income-tax ex- Mr Keane is one of 10,000 or so retired emption and more training. Butthe provin- Americans near Lake Chapala, perhaps A popularchain ofcoffee shops cial government would have to pay for the biggest non-urban cluster of expatriate mishandles a rise in the minimum wage these. Having promised to balance the Americans outside an army base. The IM HORTONS, Canada’s largest coffee- budget this year for the first time in a de- number doubles in winter. At1,500 metres Tand-doughnut chain, is so beloved that cade, it preferred to shift the burden to (5,000 feet) above sea level, Ajijic has Flori- politicians campaigning for office rarely businesses and workers who will lose da’s sunshine but not its humidity. Mr fail to visit one. Its “double-double”, a cof- their jobs. There is no such thing as a free Keane is glad to be far away from Califor- fee with two splashes of cream and two lunch, or even a free doughnut. nia’s hordes of skateboarding youngsters. sugars, has an entry in the Canadian Ox- Tim Hortons’ owner belatedly allowed “That’s what I like about the cobblestone ford Dictionary. Butin Januarytrade-union franchisees to raise prices, but not before streets around here,” he says. activists held demonstrations outside Tim blaming a “reckless few” for sullying the The village offers American comforts. Hortons restaurants in Ontario, the coun- brand’s image. On the campaign trail, Ms Clergymen preach in English. A supermar- try’s most populous province. Those have Wynne may skip the customary visit. 7 ket on the main street sells organic mine- died down, but angry letters and phone strone soup and gluten-free muesli. Prices calls keep coming. are lower than in the United States. The activists’ gripe is about the way the Pensioners in Mexico Lake Chapala has long attracted culti- chain handled a sharp increase in Ontar- vated foreigners. D.H. Lawrence wrote a io’s minimum wage. On January 1st the Trump supporters draft of his novel, “The Plumed Serpent”, province’s Liberal government raised it on its shores nearly a century ago. Ameri- from C$11.60 ($9.25) to C$14. That makes it welcome can intellectuals took refuge there from the highest in Canada. Another rise to C$15 McCarthyism during the 1950s. Nowadays is scheduled fornext year. AJIJIC blogs that promote Mexico as a cheap Tim Hortons’ workers have no com- place to retire are “attracting a different A haven forAmericans attracts a new plaint about that. But they are dismayed by type of person”, says David Truly, a socio- sort ofimmigrant many franchisees’ plans for covering the logist who lives in the area. cost. Barred from raisingprices by Tim Hor- N 1960 Tom Keane voted for John Kenne- The newcomers are neither as high- tons’ owner, a company controlled by 3G Idy in the United States’ presidential elec- brow nor as reliably liberal as earlier set- Capital, a Brazilian private-equity firm, tion (“because he was Irish and Catholic”). tlers, which causes tension. A Walmart some franchisees cut benefits, including The only candidate since then to fire him that opened in Ajijic a decade ago still up- paid breaks. From the brand’s point of up is Donald Trump, forwhom he voted in sets longtime residents, who think it de- view, such tacticsare “hall-of-fame stupid”, 2016. Mr Keane revels in Mr Trump’s mis- tracts from the village’s charm. Some re- tweeted Frank Graves, a pollster—though chief-making. What about Mr Trump’s no- cent arrivals have brought the United the money has to come from somewhere, torious assertion that some Mexican im- States’ polarised politics with them. Mr and price rises are seldom popular, either. migrants are rapists? He “shoots from the Truly detects “a real animosity” between Kathleen Wynne, Ontario’s premier, hip”, MrKeane responds. Such enthusiasm Mr Trump’sopponents and fans. faces a difficult election in June. Raising the is common among supporters of the No one knows how many American American president. But unlike most, Mr pensioners live in Mexico. In 2016 nearly Keane lives in Mexico. 29,000 received American social-security In Bello ("The friendly dragon") last week we said that China is financing a motorway to Buenaventura, a His home is in Ajijic, a village on Lake cheques there, a rise of 24% from 2005. Colombian port. This is not true. Apologies. Chapala, Mexico’s largest lake. He volun- That probably understates the number. A1 ADVERTISEMENT

EASE AND

FULFILMENTHOW MALAYSIA IS ENABLING THE GROWTH OF E-COMMERCE

One startling feature of development in the 21st century has “Malaysia, a developing nation with a been the way emerging markets are using electronic commerce huge appetite for internet use and government to leapfrog phases that richer countries went through long incentives, has all the factors to propel ago. In Asia and around the world, people who may previously an e-commerce leap,” says Shamsul Majid, have been in unskilled agrarian or manual labour, often in head of e-commerce at Pos Malaysia. geographical isolation, are embracing the possibilities brought by mobile telecommunications and selling products directly to local and overseas buyers. “We applaud the government of Malaysia for continuously underlining e-commerce as a primary driver for building a Malaysia is already well ahead in its growth trajectory, with digitised economy,” says Hans-Peter Ressel, the chief executive the goal of becoming a fully developed country by 2020. As of Lazada Malaysia. And through its #EveryoneCanSell initiative, such, it not only has a strong domestic e-commerce market, Lazada is trying to pay some of that support forward by offering but is a leader for countries in the region. With 15.3m online new sellers access to benefi ts including training and fi nancial shoppers—half the population—Malaysia has a broad base support. “We hope to boost SMEs’ capabilities so they remain of e-consumers ready to buy everything from clothes to books competitive online,” Mr Ressel says. and electronics online. The e-commerce industry is projected to grow by up to $27 billion by 2020, contributing 6.4% of GDP. With the growth of e-commerce, postal and logistics services are stepping up to the expectations that come with their increased “We applaud the government of Malaysia for importance to business. “Malaysia, a developing nation with a continuously underlining e-commerce as a huge appetite for internet use and government incentives, has primary driver for building a digitised economy,” all the factors to propel an e-commerce leap,” says Shamsul says Hans-Peter Ressel, the chief executive Majid, head of e-commerce at Pos Malaysia, a postal services of Lazada Malaysia. company. “Pos Malaysia was recently selected to operate the only e-fulfi lment hub in Malaysia’s Digital Free Trade Zone to benefi t This vigorous growth owes much to collaboration between international and local e-commerce players and customers.” government and the private sector, as well as to a strong postal With its network of 1,000 touchpoints countrywide, including self- and logistics network that enables e-fulfi lment and makes it service terminals, mobile outlets and postal agents, Pos Malaysia easier to do business. acts as the physical link between buyers and sellers, supporting e-commerce on a foundation of strong e-fulfi lment capabilities. One global fi rm fl ourishing in Malaysia is Lazada, part of a group founded by a German internet company and now World-leading innovators in e-commerce, supported controlled by Alibaba. An e-commerce pioneer in South-East by robust e-fulfi lment networks, are making Malaysia Asia, Lazada operates in Indonesia, Malaysia, the Philippines, their hub from which to embrace the myriad business Singapore and Vietnam, giving shoppers an effortless buying opportunities in Asia today. To fi nd out more about experience and connecting retailers with the region’s largest how you can join them, contact MIDA, the Malaysian Investment Development Authority. www.mida.gov.my online customer base. 42 The Americas The Economist February 10th 2018

2 lot of Americans are illegal immigrants, welcome the trade they bring. Francisco scheme for people over 65, does not pay having overstayed their visas, but the au- García, a farmer from Veracruz, drives 12 out south ofthe border. thorities usually turn a blind eye. hours a dozen times a year to Ajijic to sell Mexico’s government wants to attract With 10,000 Americans a day reaching coffee from the backofhis truck. Occasion- more American pensioners and their dol- the age of65, the influxislikelyto continue. ally, cultures confuse each other. An offer lars despite its tetchy relationship with Mr Membership of the Lake Chapala society by a local charity manned by American Trump. Although the constitution bizarre- surged last year. Ajijic is not the only desti- volunteers to neuter stray dogs in Ajijic ly bans foreigners from buying beachfront nation. In the nearbytown ofChapala sun- was boycotted by a church, which deems property, the government has left open a seeking seniors stroll through a renovated any contraception a sin. legal loophole that lets them do it. It has lakefront park. Puerto Vallarta teems with One deterrent to mass migration is streamlined the issuing of residency visas. aged foreigners. International Living, an health care. Ajijic is cluttered with adver- Javier Degollado, Chapala’s mayor, has American website, last year rated Mexico tisements for dentists and plastic surgeons. commissioned a 28-page plan for tennis the world’s best place to retire abroad. A check-up with an English-speaking doc- courts, golf courses and museums. Most Though some Mexicans grumble about tor costs 250 pesos ($13). But Medicare, the Mexicans loathe MrTrump. American visi- pensioners pushingup house prices, many United States’ publicly financed medical tors, ofall stripes, are another matter. 7 Bello The ills of Latin American democracy

Political decay is as big a threat as authoritarianism HIS year marks the 40th anniversary in the run-off election for the country’s Rica. “It’s a very easy explanation for very Tof the start of the democratic wave presidency, scheduled for April 1st. Rather, complex ills,” he says. that swept overLatin America and turned the contest will feature Fabricio Alvarado, Costa Rica is in many ways a success- military dictators into political flotsam. It an evangelical pastor and gospel singer ful country. It has opened up to globalisa- is an anniversary tinged with gloom. De- whose main proposal is opposition to gay tion, diversifying its economy with new mocracy is in retreat worldwide, with marriage, and Carlos Alvarado (no rela- industries, such as medical devices, eco- scholars identifyingmore than two dozen tion), whose Citizens’ Action Party (PAC) tourism and renewable power. But politi- countriesthathave reverted to authoritar- has been in power since 2014. It won only cians have failed to deal with rising crime, ianism in this century. Many worry for its ten of the 57 seats in the new legislative as- income inequality and poverty. That is future in Latin America, too. sembly in the elections on February 4th. partly because they have failed for many In fact, democracy has held up surpris- Fabricio, who was his party’s sole legis- years to approve an increase in tax rev- ingly well in the region. There are only latoruntil those elections, starts the run-off enues, which at14% ofGDP are lowforthe two clear cases of regress. Venezuela and as the favourite. His rise is circumstantial: it country’s level of development. And that Nicaragua have abolished term limits and oweseverythingto an opinion bythe Inter- in turn is because of the fragmentation of their elected presidents now rule as dicta- American Court of Human Rights last politics (there are now seven parties in tors. Two other countries are question- month that Costa Rica should legalise gay the assembly). There are simply too many marks. In both Honduras and Bolivia, in- marriage. Only 32% of Costa Ricans agree veto-wielders. cumbent presidents have got the courts to (though that is up from 17% in 2012), accord- In Latin America, even as the new is set aside term limits. Both rule as auto- ing to LAPOP, a regionwide poll based at born the old tends not to die. The social- crats. Even so, in Bolivia Evo Morales, a Vanderbilt University in Tennessee. democratic PAC wars with the PLN but successful president since 2006, may But the political malaise in Costa Rica hasfailed to kill itoff: with 17 seats, the PLN struggle to win an election due in 2019. goes much deeper. Support forthe political will be the largestpartyin the new assem- Ecuador, where Rafael Correa ruled in system, measured on a composite index bly. Costa Rica suffers a vicious circle in a similar fashion for a decade until 2017, drawn up by LAPOP, has fallen from 87% in which the voters seeknew political actors might have been on that list. Mr Correa’s 1983 to 62% in 2016. Corruption is one rea- who fare as badly as the old ones, says Mr successor, Lenín Moreno, seemed at first son. But this was farworse in the 1970s, ob- Casas. The current president, Luis Guil- to be a placeholder. But he has proved to serves Kevin Casas Zamora, a political sci- lermo Solís, was a once-fresh face who be his own man. On February 4th Ecua- entist and former vice-president of Costa failed to fix the budget or reform taxes. doreans approved in a referendum, by Costa Rica’s problems are a sign of the 64% to 36%, the reimposition of a two- times in the region. Evangelical Protest- term limit for all elected officials. This ants are a rising political force in several blocked Mr Correa’s future return. countries, as “culture wars” open up a A bigger worry than regress in Latin new policy cleavage. That applies in Bra- America is political decay—“when politi- zil, Guatemala and Peru and bodes ill for cal systems fail to adjust to changing cir- the rightsofwomen and gaypeople. Polit- cumstances” because of opposition from ical fragmentation is on the rise, especial- entrenched stakeholders, as Francis Fuku- ly in Brazil and Colombia. Old-style par- yama, a political scientist, puts it. Worry- ties have become empty shells but in ingly, that is the case in Costa Rica, the re- many countries have yet to be replaced. gion’s oldest and seemingly one of its Yet electorates are much more de- strongest democracies. manding because Latin American societ- Neither of the two parties that forged ies have changed dramatically. Political this democracy and ruled from 1948 until systems are struggling to evolve in tan- 2014—the National Liberation Party (PLN) dem. Democracyisverymuch alive in the and the Social Christians—has candidates region. But it is not wholly well. Middle East and Africa The Economist February 10th 2018 43

Also in this section 44 Talk of war in Israel 45 Saudi Arabia’s nuclear ambitions 45 Ethiopia’s camel train pain 46 Africa’s energy drink 46 Jacob Zuma’s last days

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

Egypt Similarly, bread subsidies are a waste of dough. Egyptians buy up to five loaves a The price is wrong day for a tenth of their cost. The state also subsidises sugar, cooking oil and other cal- orific staples. This is one reason why Egypt has one of the world’s highest rates of adult obesity. And despite the introduction CAIRO of smart cards to limit how much subsidised food an individual can take, the sub- What fuel, bread and waterreveal about how Egypt is mismanaged sidies are often stolen. ITH less than two months to go be- out subsidised bread,” he says. A simpler system would distort the Wfore Egypt’s presidential election, no This is a common belief in Egypt, and economy less while helping the poor far one is talking about the choice of candi- one reason why the economy is so hard to more. A study in 2013 by the Cato Institute, dates, because there is no choice. All seri- fix. People have grown used to price con- a free-market think-tankin Washington, es- ous rivals to President Abdel-Fattah al-Sisi, trols and subsidies, which have existed timated that if all food and energy subsi- who seized power in a coup in 2013, have since the 1920s. They are costly, inefficient dies were stopped and half of the savings been scared off. A single challenger, and have unintended consequences. used to pay forcash transfers to the poorest Moussa Mustafa Moussa, who until re- Three commodities—fuel, bread and 60% of households, each of those house- cently was an ardent fan of the president, water—illustrate the problem. Start with holds would receive $622 a year, more than announced his candidacy on January 28th fuel. Whereas greener countries slap hefty doubling incomes forthe bottom 25%. and registered it 15 minutes before the taxes on petrol and diesel, Egypt does the Spending on subsidies is so colossal deadline the next day, having somehow opposite. Motorists pay only 59% ofwhat it that the state has little left for health care gathered 47,000 signatures in record time. costs to fill theircars. Since driving ischeap, and education (see chart). The military Many suspect that Mr Moussa is only run- more people do it, aggravating congestion budget, which is secret, is probably unaf- ning to create the illusion ofa real contest. and making urban air eye-wateringly foul. fected. The government is also splurging Instead of talking about the joke elec- The World Bank estimates that traffic jams on a new capital city. The budget deficit is tion, Egyptians are talking about inflation, in Cairo alone cost Egypt 3.6% of GDP. expected to exceed 9% ofGDP this year. which they do not find funny. Since the Egyptian cities are the fifth dirtiest in the Pressed by the IMF, the Sisi government government allowed the overvalued world, says the World Health Organisa- is curbing some subsidies and shifting to- Egyptian pound to float in 2016, it has tion. And since the truly poor cannot af- wards cash transfers. Fuel subsidies were halved in value. Many imports are unaf- ford cars, most petrol subsidies are cap- 3.3% of GDP in the 2016/17 financial year, fordable. “Three years ago you could buy tured by the better-off. The top 20% of down from 5.9% when Mr Sisi took ofall the electric appliances you needed for urbanites receive eight times as much as fice—a big shift. But food subsidies are ex- 50,000 pounds. Now it costs150,000,” says the bottom fifth. pected to rise from 1.4% of GDP in the past 1 a waiter in Qaha, a city north ofCairo. People who criticise the regime are loth to give their names, especially since it mas- Sea of red sacred protesters in 2013. But voters are Egypt, budget, fiscal year 2016-17, % of GDP plainly disgruntled. One says he gave up 0 5 10 15 20 25 30 driving a tuk-tuk when the price of petrol Spending Interest Wages Energy Food Other Investment Other jumped last year. “I was fed up ofhaggling Subsidies over fares,” he recalls. He now works in a Revenue bakery, making flat bread to sell at heavily subsidised prices. “People can’t live with- Source: IMF 44 Middle East and Africa The Economist February 10th 2018

2 financial year to 1.9% in this one. On the Israel and its neighbours “The choice is yours, people ofLebanon.” plus side, the increase is mostly in cash for The Lebanese government opposes Is- foodstuffsthat are not price-controlled. The guns of raeli plans to build a wall along the border, Previous governments have tried to cut claimingitwill encroach on Lebanese terri- subsidies but backed down at the first February tory. It says it will pursue the issue in inter- bread riot. Gradual reforms are easier to re- national forums, but Hizbullah, which is verse, argues Dalibor Rohac, the author of GAZA AND THE GOLAN HEIGHTS part of the government, has reportedly the Cato study. He recommendsabolishing threatened to attack Israeli soldiers on the There is increasing talkofwarall all commodity subsidies quickly, along frontier. All of Lebanon will pay if Hizbul- around Israel with the bureaucracies that administer lah goes to war with Israel, warns Avigdor them, and replacing them with cash trans- HINGS are eerily quiet outside the Lieberman, the Israeli defence minister. fers. Mr Sisi will surely not do anything so Tcaged walkway that cuts through the The winds blowing across Mount Avi- radical before the election. Afterwards, his no-man’s-land separating Israel from tal, in the Golan Heights, carry yet more commitment to reform may depend partly Gaza. But there is increasing talk of war on talk of war. Israeli soldiers look down into on how much he needs IMF cash. both sides of the expanse, and elsewhere Syria, where Bashar al-Assad’s forces sit Water is probably the most sensitive around Israel. “Everyday there is aggres- one town away from rebels in old Qunei- commodity of all. Ever larger numbers of sion and terror[byIsrael],” saysDaoud Shi- tra. Bled byseven yearsoffighting, the Syri- Egyptians cluster around the Nile, tapping hab of Islamic Jihad, a Palestinian armed an army is not seen as a threat, but Israel is its waters for their crops, factories and group thathasfired rocketsinto Israel. “The concerned that the forces which propped homes. The country’s population is ex- situation could explode at any moment.” up the Assad regime are establishing pected to grow from 99m to 120m by 2030. Some of Gaza’s leaders believe Israel will strongholds in Syria. It has told Hizbullah Pricing water properly would encourage use a comingmilitary exercise with Ameri- and Iran to stay out of the area. On Febru- conservation. Instead, Egypt allows farm- ca as cover for an attack. They put the ary 6th Binyamin Netanyahu, the Israeli ers to take water for nothing, paying only chances of a new war at 95%, according to prime minister, toured Mount Avital, the cost of pumping it. Urbanites are sup- Al Hayat, an Arabic newspaper. warning Israel’s enemies “not to test us”. posed to pay small fees, but these often go The Israelis see things differently. Gadi Forall the bluster, no one seems eager to uncollected. As a result, Egyptians waste Eisenkot, the chief of staff of the Israel De- start shooting. Israel and Hamas have torrents of water growing rice, hosing fence Forces (IDF), reportedly told the cabi- fought three wars since the group took down pavements and failing to recycle. net that Hamas, the Islamist group that over Gaza in 2006. To avoid a fourth, Gen- “We have to dig deeper and deeper to get runs Gaza, might start a war if life in the eral Eisenkotissaid to have told the cabinet water,” says Abdel-Fattah, a farmer. “I’m coastal enclave does not improve. It has to do more to ease the suffering in Gaza. worried, and anyone who says he’s not been under siege by Israel and Egypt for Hamas may merely be usingits war talk worried about water is lying.” overa decade. Tensionsincreased after Do- to draw attention to Gaza’s misery. The nald Trump, America’s president, recog- siege and sanctions imposed by the Pales- More dam problems nised Jerusalem as Israel’s capital on De- tinian Authority (PA), which runs the West Climate change could make Egypt even cember 6th. The IDF has responded to Bank, has left the enclave short of electric- drier. More immediately, Ethiopia is build- rocket fire from Gaza with air strikes. ity, drinking water and food. A deal being a huge dam on the Blue Nile, upstream There is talk of impending conflicts on tween Hamas and the PA was meant to from Egypt. Ethiopia, Egypt and Sudan Israel’s northern borders, too. On January hand administrative control of Gaza to the have yet to agree how much water each 28th the IDF’s spokesman, Ronen Manelis, PA, which in turn would lift the sanctions. should take. Mr Sisi met the other two wrote an op-ed, published by Lebanese But officials in Gaza say Mahmoud Abbas, countries’ leaders on January 29th and in- websites, in which he warned Lebanon who heads the PA, is dragging his feet. (The sisted that there was no crisis. Others are not to allow Iran to produce precision mis- PA sees it the other way around.) not so sure. “There’s a real possibility Egypt siles in the country. Israel has repeatedly In the north Hizbullah would probably may seriously escalate over the dam,” says struck Iranian arms convoys bound for like to regroup, after nearly seven years of H.A. Hellyer of the Royal United Services Lebanon. The IDF has been training on the fighting in Syria. Lebanon was so badly Institute, a think-tank in London. He does northern front. “As we have proven in re- damaged during the group’s previous war not think military options are off the table. cent years...our security red lines are clear- with Israel, in 2006, that Hizbullah’s lead- Others doubt that Egypt would be so rash ly demarcated,” wrote General Manelis. ers regret provoking it. Hizbullah is not as to bomb the dam. Still, a strongman like ready for another conflict, but it is adding MrSisi cannot afford to appearweak, espe- to its arsenal of guided missiles. The IDF cially since it emerged this weekthat his re- LEBANON SYRIA may feel forced to forestall this build-up. gime has been relying on Israel to bomb ji- Mr Assad also seems more interested in hadists on Egyptian soil. Quneitra consolidating his position at home than Tough economic reforms might be easi- Gas fields Mount Avital GOLAN starting a new war (which he would lose). Haifa HEIGHTS er if the government enjoyed the legitima- Sea of And the Iranian public is already pressing cy ofhavingbeen freely elected. That clear- Galilee the regime in Tehran to end its foreign ad- ly will not happen this year. Although Mr ventures. Israel says it will hit Iranian Mediterranean Sisi deserves credit for floating the pound Sea bases ifIran tries to entrench itself in Syria. and starting to tackle subsidies, Egypt will However, with everyone on edge, it Tel Aviv WEST struggle to prosper so long as it is run by BANK may not take much to start a conflict. A soldiers. Their instinct is to give orders and Amman rocket from Gaza, an air strike by Israel, a expect market forces to salute. Some turn Jerusalem Dead bullet from Hizbullah—any of these could power into rents. For example: the army is Sea ignite the next one. Bismarckfamously pre- building lots of new roads, often without Gaza City JORDAN dicted that “some damned foolish thing in GAZA open tenders. For 21ofthem, it has claimed STRIP the Balkans” would start a European war the land for 2km on either side. Anyone (he was eventually proved right in 1914). In ISRAEL who wants to open a shop by a new high- EGYPT the Levant it may be some damned foolish way will have to pay the men in khaki. 7 50 km thing on the border. 7 The Economist February 10th 2018 Middle East and Africa 45

Nuclear power in the Middle East ties with the region’s resurgent power. King Salman spent fourdays in Moscow in An unenriching October, the first such visit by a Saudi ruler. Yet nuclearenergy does not make much debate economic sense for the kingdom. Saudi Arabia burns 465,000 barrels ofoil per day CAIRO for electricity, forgoing $11bn in annual revenue. But the last nuclear reactors will not How a Saudi nuclearreactorcould go online until the 2030s. They will gener- accelerate an arms race ate less than one-sixth of the 120 gigawatts N THE desert 220km (137 miles) from Abu needed during periods ofpeakdemand. In IDhabi, the capital of the United Arab a country with vast deserts, it would make Emirates (UAE), a South Korean firm is more sense to use gas and invest in solar close to finishing the Arab world’s first op- energy. Today the kingdom generates al- erational nuclear-power reactor. The pro- most none: its largest solar farm, at the ject started ten years ago in Washington, headquarters of the state oil company, where the Emiratis negotiated a “123 agree- powers an office building. ment”. Such deals, named after a clause in The government is building a solar- America’s export-control laws, impose panel factory near Riyadh, the capital. On tough safeguards in return for American February 6th ACWA Power, a Saudi firm, nuclear technology. When the UAE signed announced that it had won the contract for one in 2009, it also pledged not to enrich a new 300-megawatt solar farm in the uranium or reprocess spent fuel into pluto- northern desert. ACWA promises to pro- nium. Both can be used to make nuclear duce electricity for 2.3 cents per kilowatt- ways, which manages the locomotives. weapons. Arms-control wonks called it hour, a record-low tariff. Though costs for Camel herders in the arid scrubland the gold standard of123 deals. nuclear power vary with reactor design, east of Addis Ababa report many more Saudi Arabia only wants bronze. The even the most efficient ones are more ex- such incidents over the previous year of kingdom has its own ambitious nuclear pensive. And whereas nuclear is a mature trial operations. Nado, a 21-year-old nomad plans: 16 reactors, at a cost of up to $80bn. technology, costs for solar fall each year. on the outskirts of Adama, says his family But, unlike the UAE, it wants to do its own For the Saudis, though, a nuclear pro- lost 35 camels in an especially bloody colli- enrichment. Iran, its regional rival, is al- gramme is a way to keep pace with Iran. It sion. “Some of my brothers lost all the ready a step ahead. The most controversial is also a step towards nuclear proliferation camels they have,” he complains. And it is provision ofthe nuclear deal it signed with in the world’s most volatile region. 7 not just camels. Donkeys, cows, sheep and world powers in 2015 allows it to enrich goatshave also been hit, though itis the un- uranium. Iran did agree to mothball most gainly camels that are most at risk. “The ofthe centrifuges used forenrichment, and Ethiopia train never stops,” says Nado. “It just hits to process the stuffonly to a level far below and passes on.” whatisrequired fora bomb. Still, it keptthe Danger, camels For the Ethiopian government this is a technology. The Saudis want to have it, too. headache. The train, which is supposed to Lawmakers in Washington are wor- crossing slash transportation times to the coast ried. Granting the Saudis such a deal could from two days to ten hours, is operating at UAE prompt othercountries, such as the , to ADAMA around half speed. Mr Tilahun says his ask for similar terms. It may undermine company pays out 30,000 Ethiopian birr Camel trains are holding up Ethiopia’s global efforts at non-proliferation. Indeed, ($1,089) for each camel, twice the market new railway line critics of the Iran deal fear that a Saudi en- price. So a profit-maximising camel-owner richment programme would compromise ORE than any other technical de- would chivvy the whole herd onto the their effortto impose tighter restrictions on “M sign or social institution,” wrote tracks. This is perhaps why there have Iran. But Donald Trump, America’s presi- the late British historian, Tony Judt, “the been so many collisions. dent, is less concerned. He has close ties railway stands formodernity.” But the road The problem is also technical. It was with the Saudis. He has also pledged to re- to modernity can be a bumpy one. So it deemed too expensive to build an elevated vitalise America’s ailing nuclear industry. was at the opening of the world’s first track, such as the one that runs through Among the five firms bidding for the Saudi steam passenger railway in 1830, when a Tsavo National Park in neighbouring Ken- project is Westinghouse, an American dignitary in Liverpool was crushed by a ya, allowing wildlife to cross freely. Ethio- company that filed for bankruptcy last train. So too in Saudi Arabia today, where pia opted instead for level crossings and year. Itwould notbe able to join the project construction of a high-speed railway was some tunnels. But herders complain that without a 123 agreement. almost derailed by advancing sand dunes. there are too fewofthese, orthattheir cam- Even some critics of the proposed deal And also in Ethiopia, where Africa’s new- els refuse to use them. Some say they do concede that it may be the least bad option, est major railroad has been frustrated by not know where to go for compensation, because it would give America influence one of civilisation’s earliest forms of tran- and often do not get paid what is owed. over the Saudi programme. The kingdom sport, the camel. In most parts of the world fencing is has other suitors. One is Rosatom, Russia’s Since the start of commercial opera- used to prevent dangerous crossings. But state-owned nuclear-power company, tions last month, at least 50 animals have for eastern Ethiopia’s large nomadic popu- which is pursuing a frenetic sort of nuclear been killed crossing the new Chinese-built lation, mobility matters. Fences built along diplomacy in the Middle East. In Decem- line connecting Addis Ababa, the capital of some sections of track have been torn ber it signed a $21.3bn contract to build landlocked Ethiopia, with the port of down by nomads who regard distant offi- Egypt’s first power reactor. Jordan inked a neighbouring Djibouti. Of these, 15 were cials with suspicion. Mr Tilahun hopes all $10bn deal with the Russians in 2015. De- camels flattened in a single collision, ac- Ethiopians will eventually view the rail- spite their differences, particularly over cording to Tilahun Farka, the head of the wayasa “national resource”. Nomads may Syria, the Saudis are keen to have closer jointly state-owned Ethio-Djibouti Rail- be the last to feel this way. 7 46 Middle East and Africa The Economist February 10th 2018

wigs at the weekend, he said no. Africa’s energy drink If Mr Zuma does not step down volun- tarily, Mr Ramaphosa may try to increase Bacchus goes bananas the pressure by getting the party’s national MWANZA executive committee, its highest decision- making body, to “recall” him. Yet such a African businesses are putting traditional wines into new bottles declaration has no force under the consti- TRONG, smooth, with notes ofmelon in bars and supermarkets, with plans to tution and he can legally ignore it. Sand a hint ofa buttery aftertaste. Leo- export to America and Europe. “It’s the Moreover, Mr Ramaphosa seems un- pord Lema’s banana wine may not de- same drinkthat comes out ofthe tree,” willing to test his own support in a direct light the critics, but it is a hit in northern boasts Maraizu Uche, its boss. conflict with the president, particularly Tanzania, where it sells for500 shillings In Mr Lema’s factory women funnel given the deep divisionswithin the ANC. A ($0.23) a bottle. It’s cheaper than beer, amber wine into recycled bottles. He recent street fight outside Luthuli House, says Samuel Juma, a security guard, and employs more than 60 people. Mr Lema the ANC headquarters in downtown Jo- “brings more energy”. Locals glug their made 200m shillings ($90,000) in profit hannesburg, pitted supporters of Mr Ra- way through 12,000 litres a day. last year and is expanding into a new maphosa againsta group ofrival protesters “I come from a family where we used 8-acre site. His success shows that indus- supporting Mr Zuma. to brew,” says Mr Lema, his office thick trialisation is not just about vast sweat- Mr Ramaphosa was only narrowly with the pungent smell ofbaked ba- shops or belching chimneys. In much of elected leaderofthe ANC in Decemberand nanas. His wine keeps longer than home- Africa it is more likely to mean small is hemmed in by allies of Mr Zuma at the made mbege, a banana beer, and is safer businesses, processing agricultural pro- top of the party. These include powerful than local moonshine, which sometimes ducts forlocal tastes. Bananas can also be figures such as Ace Magashule, the premier contains methanol. He has also devised a turned into flour, crisps and jam. Yoweri of the Free State and recently appointed pineapple version, using up fruit which Museveni, the Ugandan president, wants secretary-general ofthe ANC. quickly rots after the harvest. to use oil revenues to finance banana- Even so, the tide seems to be turning in Mr Lema is not the first to bottle tradi- juice projects, among other things. Mr Ramaphosa’s favour as allies of the tional African booze. In the 1950sMax Mr Lema hopes to win middle-class president defect or see their influence di- Heinrich, a German, recorded the process customers with his pricier pineapple minish. In January an elite police unit raid- ofmaking sorghum beer in present-day drink. But the main buyers ofhis banana ed Mr Magashule’s office as part of a probe Zambia; his chibuku (“by the book”) is brew are poorer folk, unable to afford into allegations of corruption. As the com- now churned out by corporate brewers. branded lagers. “It helps you live more mission into “state capture” gets under Fruity firms are bubbling up elsewhere. days on this earth,” shouts one connois- way it is likely to sweep up people who Palm Nectar, in Nigeria, sells palm wine seur, staggering joyously in the street. have benefited from Mr Zuma’s rule (and who have fought to keep him in power). The clock is ticking. On February 22nd South African politics A commission of inquiry into allega- (and possibly sooner if opposition parties tions of “state capture” by the Gupta fam- have their way) Mr Zuma faces a vote of no Long waltz to ily, business associates ofMrZuma’s son, is confidence sponsored by the Economic about to start its probe. Separately, prose- Freedom Fighters, a firebrand party. The freedom cutors have identified some $4bn in assets ANC will not want to let it claim victory for that they believe are the proceeds of crime kicking out Mr Zuma, but it can hardly ask JOHANNESBURG and that they hope to recover. its members to vote against the motion Mr Ramaphosa is moving quickly on only to propose its own soon after. The end The delicate dance to depose President the economy too, installing a new board of ofthe Zuma era is nigh. 7 Jacob Zuma Eskom, the state power monopoly that HE new era began brightly. Since be- was run into the ground by Mr Zuma’s ap- Tcoming leader of the ruling African Na- pointees. At the World Economic Forum in tional Congress (ANC) in December, Cyril Davos, the business-savvy Mr Ramaphosa Ramaphosa has moved swiftly to stop Ja- won overinvestors with his market-friend- cob Zuma, South Africa’s president, from ly talk. The rand is the strongest it has been wrecking the place more than he already against the dollar in nearly three years. has. It is an immense task. Yet a burst of But if Mr Ramaphosa really wants to movement across several areas of govern- halt the rot he will have to push Mr Zuma ment suggests that Mr Ramaphosa is wast- from the presidency before the end of his ing no time in tackling the corruption that term next year. He (and many more in the has hollowed out South Africa. ANC) would like to do so, not least because Start with the police and prosecutor’s they fear that the party will fare badly in office, which were paralysed for the best national elections if it is not seen to have partofa decade underMrZuma, who faces made progress against corruption. This 783 charges ofcorruption. Within weeks of week the party delivered an unprecedent- Mr Ramaphosa’s elevation to president-in- ed humiliation when it postponed the an- waiting (parliament picks the president, nual state-of-the-nation address that Mr and the ANC controls parliament), police Zuma wasdue to have given atthe opening and prosecutors had opened investiga- of parliament on February 8th. Yet the tions into several ofMr Zuma’s friends. president has a thick skin. Unlike Thabo Mbeki, who resigned from the presidency Correction: In last week’s story on Mali we misquoted in 2008 when “recalled” by the party, Mr Andrew Lebovich as saying the government has little interest in quelling insecurity. In fact, he was speaking Zuma has refused to go quietly. When re- of its lack of commitment to a 2015 peace agreement. portedly asked to step down by party big- Zuma down, rand up. Discuss Europe The Economist February 10th 2018 47

Also in this section 48 Reﬂections on the Berlin Wall 48 Germany’s proposed grand coalition 49 Reforming the French bac 49 Ksenia Sobchak, Putin’s challenger 50 Nobbling Romania’s watchdogs 51 Charlemagne: History wars

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

Spanish politics soughtto join Ciudadanos, accordingto Mr Rivera. Not all are admitted. On the march The PP looks tired and old (most of its voters are over 55). Mr Rajoy has governed since 2011and has led his party for14 years. He can claim credit for an economic recovery which has seen three consecutive MADRID years of growth of over 3% and a big fall in unemployment (though at16.5% it remains A would-be Macron makes ground high). But his government has struggled HEN Albert Rivera gave a talk at a Mr Rivera (pictured) admits that his with Catalonia, where the separatist ad- Wregular breakfast meeting for busi- party’s success in Catalonia, where it won ministration of Carles Puigdemont unilat- ness folk at the Ritz Hotel in Madrid last 25% (the PP got just 4%) thanks to its reso- erally declared independence after an un- month, more than 600 people turned up, a lute opposition to separatism, helped its re- constitutional independence referendum record for the event. He has suddenly be- cent poll bounce. But he also thinks a struc- in October. Mr Rajoy, with the backing of come Spain’s hottest ticket, almost three tural political shift is under way. Many in the Socialists and Ciudadanos, deployed years after he leapt into national politics at Madrid’s political world agree. emergency powers to dismiss Mr Puigde- the head of Ciudadanos (“Citizens”), a Mr Rajoy does not have to call a fresh mont, but too late to prevent a crisis. newish liberal party. In December Ciuda- election until 2020, but there will be mu- The PP has also suffered from a string of danos became the biggest single force in nicipal and regional polls in May 2019. Ciu- corruption scandals. Many are fairly small- Catalonia at a regional election. Now it is dadanos now looks more likely than in scale and occurred years ago. Neverthe- jostling the ruling conservative People’s 2015 to displace the PP as the main party of less, corruption acts like “a fine rain that Party(PP) at the top ofthe national opinion the centre-right, just as Mr Rajoy’s party in could erode the capacityofthe PP to resist”, polls. That has made the government of the 1980s replaced the short-lived Union of saysSandra León, a Spanish political scien- Mariano Rajoy, the long-serving prime the Democratic Centre of Adolfo Suárez tist at York University. minister, palpably nervous. that presided over the transition from dic- By contrast, Ciudadanos looks young “The big question is whether it will be tatorship to democracy. Some PP activists and energetic. Mr Rivera is 38, a fast-talking like France,” Mr Rivera told The Economist (as well as some Socialists) have recently lawyer who already has a dozen years’ ex- this week. There Emmanuel Macron, to perience in politics. His party was formed whom he feels politically close, swept by disillusioned Catalan Socialists who aside an ossified two-party system last Catching up disliked temporising with nationalists. year. In Spain, Socialist and PP govern- Spain, voting intention, % Last yearMrRivera repositioned it as a cen- ments have alternated since the 1980s. This February 6th 2018* trist, progressive liberal party. “We have to cosy duopoly was weakened by the long 0 5 10 15 20 25 move away from the old left-right axis,” he recession that followed the bursting of says, echoingMrMacron. “The bigbattle of Spain’s housing bubble in 2007. At first the PP (Partido Popular) the 21st century is between liberalism and Socialist vote looked the more vulnerable PSOE (Partido Socialista the open society, and populism-national- to a takeover by Podemos, a far-leftupstart. Obrero Español) ism and the closed society.” Ciudadanos is Ciudadanos surged in the opinion polls in Ciudadanos (Cs) keen on fighting monopolies and on vigor- 2015 but managed only14% and 13% in elec- ous Scandinavian-style labour reforms to tions that yearand in 2016. The PP clung on, Podemos help the unemployed retrain and find jobs. albeit as a minority government. Ciudada- It wants to shake up the political and elec- Source: Electograph *Weighted average of past 30 days nos has facilitated this but has not joined it. toral systems, and education, to tackle 1 48 Europe The Economist February 10th 2018

2 Spain’s still-high rate of school dropouts. It hurting Podemos and becalming the So- Germany isfiercelypro-European. ButMrRivera says cialists. That leaves a broad space for MrRi- his party is part of a “worldwide move- vera, but it may also help Mr Rajoy. Mr Ri- A loveless ment”. As well as Mr Macron, he cites Ita- vera says that Ciudadanos is more ly’s Matteo Renzi, Canada’s Justin Trudeau prepared and betterorganised than in 2015. marriage and Liberal parties in Benelux countries But the PP is no pushover. It has the stron- and Scandinavia as soulmates. gest organisation of any party. “We have to BERLIN “For the first time PP voters have an al- get the message [ofthe polls] and act,” says Germany’s main parties conclude a ternative,” says Cayetana Álvarez de Tole- Pablo Casado, a PP official. coalition deal do, a former congresswoman for the party. The party is organising meetings to Since the separatists won a narrow major- brush up its policies and to try to fire up its RAND coalitions have the feel of ity of seats in the Catalan parliament, the base ahead of the local elections next year. “Gperverse sex acts,” Willy Brandt is next election is likely to be played out on Mr Casado says it will also push initiatives said to have opined. The great Social the question of Spanish unity. “That’s very in parliament even at the risk of having Democratic (SPD) chancellor’s point was favourable for Ciudadanos,” she adds. them voted down, starting with a measure that broad alliances of the centre-right and Mr Rivera argues robustly against sepa- to lengthen prison sentences for some centre-left are unnatural and best avoided. ratism. “Either we take nationalism seri- crimes. MrRajoy, who often ignoresCiuda- With one short exception, that is what ously as a threat to Europe or they carry on danos, recently seemed to acknowledge its post-war German politicians did until winning,” he says. He would notclawback challenge by criticising it for flip-flops on 2005. But since then, thanks to a fragment- powers from Catalonia but says he would this and other policies. If Luis de Guindos, ingparty landscape, Angela Merkel has led use the constitution to prevent indoctrina- the economy minister, wins his bid to join two grand coalitions. On February 7th her tion in schools and the promotion of inde- the board of the European Central Bank, centre-right Christian Democrats (CDU), pendence by Catalan public television. MrRajoymayuse hisdeparture fora wider their Bavarian allies, the Christian Social Beating separatists requires “a strong na- government reshuffle. Union (CSU), and the SPD announced that tional project” that “inspires”. This re- Mr Rajoy has often been underestimat- they had agreed to form yet another. quires constitutional reform—something ed. His stolid manner hides a quick brain It was not the chancellor’s first choice. the PP is cool about—but for its own sake, and sharp political instincts. He offers the All three parties lost ground in last Septem- not just to defeat separatism. voters stability and experience. Clearly, Mr ber’s election and the CDU/CSU had ini- The Catalan conflict seems to have Rivera still hasa lotofworkto do. Butbattle tially negotiated with the pro-business shifted Spanish public opinion to the right, has been joined. 7 Free Democrats and the Greens. But those talks collapsed in November. With some coaxing from Frank-Walter Steinmeier, Germany’s president, the SPD agreed to talks, though only reluctantly. The resulting 177-page agreement speaks to Brandt’s scepticism. It offers continuity, notrenewal. Chunks ofGermany’s budget surplus (€45bn, or $55bn) are par- celled out among favoured causes: child benefit, pensions, modest tax cuts and infrastructure investment. For the CDU/CSU it includes an annual (though still hefty) cap of 180,000 to 220,000 refugees to prevent a repeat of the surge in 2015. It limits family-reunification immigration to 1,000 per month, plus “hardship cases”. For the SPD there are restrictions on short-term job contracts and a review of disparities between public and private health insurance. Many were disappointed. Takingaim at Mrs Merkel, the editor of Bild, Germany’s most-read newspaper, called the deal “historically the worst negotiating result ever obtained by an election winner”. The Young Socialists, the youth wing of the SPD, called it “a hodgepodge of trial runs”. They will play a major role in the coming weeks, as the leading voice for a “no” vote Reflections on the Berlin Wall from SPD members in their upcoming vote For 10,315 days, from 1961to 1989, the wall splitting Berlin into communist east and on joining a new government, the result of capitalist west was a symbol of Germany’s and Europe’s division. February 6th marked which is expected on March 4th. If they the 10,316th day since its fall, the point when Germany’s post-wall period had lasted win—only slightly less than likely—Mrs longer than the wall itself. Germans on social media shared reflections of what their Merkel will be forced to form a minority lives would have been like #ohneMauerfall (without the fall of the wall): opportunities government or, if Mr Steinmeier approves, not taken, partners not met, freedoms not enjoyed. It was also a chance to reflect on the contest a new election. successes and failures of reunification. Germany is booming, the east has been The SPD leadership has two hopes. The expensively modernised. Yet at last September’s election populist parties of left and first is that members will be attracted by “A right took 40% of the vote in the “new”, eastern states, compared with 18% in the west. new departure for Europe!”, the deal’s Building new railways and autobahns is one thing; other fractures take longer to heal. opening chapter. It pledges close co-opera-1 The Economist February 10th 2018 Europe 49

2 tion with Emmanuel Macron on defence results. Between 2003 and 2012, perfor- and migration, an increased German con- mance in international maths tests fell tribution to the EU budget, progress to- compared with other countries. The real wards increased powers for the European shock was an international study of read- Parliament and the transformation of the ing known as PIRLS, published in 2017, in European Stability Mechanism (a crisis which French pupils lagged in 34th posi- firewall set up in 2012) into a permanent tion, behind those in Spain, Portugal and It- “European Monetary Fund”. Still, the text aly. Their level had dropped by 14 points is vague and misses out important subjects since 2001. The bac is an entrance ticket to like completing banking union. The pro- university, yet too many students drop out posals are an opening to Mr Macron, but at once they get there. Fully 70% of under- this stage little more. graduates, says the ministry, fail to com- The second overture to the SPD base is plete their degree in three years. the proposed distribution of cabinet jobs. On February 14th Jean-Michel Blan- The party takes both the powerful finance quer, the education minister and a former ministry—essential for influence over EU director of ESSEC, a top French business policy—and keeps the foreign and labour school, is due to unveil his reform plans for ministries. That is a big concession from the bac. The broad contours emerged in a the CDU, which also cedes the interior report he commissioned last month. The ministry to the CSU’s Horst Seehofer. But bac, itsaid, istoo complex, too focused on a anyone hoping to see a fiery federalist in single series of exams in the final school Wolfgang Schäuble’s old job will be disap- year, covers too many subjects and does pointed. Olaf Scholz, the mayor of Ham- not allow forenough specialisation. Pupils burg and the likely pick, is a cautious cen- must study an impressively wide range of Russia’s opposition trist close in instinct to Mrs Merkel. subjects: science buffs have to study Meanwhile Martin Schulz, who on Febru- French literature and philosophy, and even The approved ary 7th announced his resignation as SPD the most poetically minded must grapple leader, is tipped forthe foreign ministry. with science. The flipside is that this pre- challenger If the SPD votes “yes”, the new govern- cludes depth, of the sort that arguably bet- ment should be in place before Easter. But ter prepares pupils forhigher education. MOSCOW the sense of a transition will linger. There Instead, the diploma will be reorgan- Ksenia Sobchakis not giving Vladimir will be more open disagreement between ised around a “major” of four big exams in Putin a run forhis money the ruling parties and a review of progress the final year, down from between ten and two years in (perhaps the moment for an 15 currently. Two choices will be special- HE TOPIC was “A Future Russia”. The early election). The far-right Alternative for ismsthatgo into fargreaterdepth, counting Tlocation, a modest House of Youth in Germany will be the largest opposition for a quarter of the final bac grade, and to Vladimir, a provincial city some 190km party in the Bundestag. Ambitious rivals be examined earlier in the final year. Two east of Moscow. The lecturer was Ksenia are breathing down the necks of party other exams will remain compulsory for Sobchak, a 36-year-old presidential candi- leaders. As much as it points to Germany’s all: a written philosophy paper, naturally, date who made her fortune as an “it” girl next steps, the coalition deal is the artefact and—probably—an oral presentation of a and a TV reality-show star. Wearing a ofa passing political era. 7 school project. French literature will re- sharp suit and gold-heeled stilettos, Ms main a compulsory exam in the penulti- Sobchak presented a rich and glamorous mate year of the bac, as it is today. Fully model of that future. The local university, France 40% of the final grade is expected to de- she told the audience, was lagging behind pend on continuous assessment during even the lowliest in California. Russia Back to bac the last two years ofschool. should compete in biotech ratherthan mis- The new French bac, which will be siles. Slipping into management-speak, awarded for the first time in 2021, will look she said the government should be judged more like the school-leaving exam in other on “key performance indicators”. European countries, where continuous as- The audience seemed unconvinced, PARIS sessment represents a big chunk of the fi- but this is the role the Kremlin has scripted nal grade, and subject specialism, such as for Ms Sobchak as an approved sparring Reforms to the beloved baccalauréat for British A-levels, is common. In France, partner for Vladimir Putin, Russia’s presi- T WAS by imperial decree that Napoleon though, the shake-up may well create an dent, at the election due on March 18th. Ifounded the French baccalauréat, the uproar. Many in the teaching profession More importantly, she is a spoiler for country’s school-leaving exam, in 1808. To fear that continuous assessment will kill Alexei Navalny, the only viable challenger, this day, some 700,000 pupils still take the the prized national standard, and in effect but banned from the contest. Mr Navalny bac, the great majority of the annual age bring in a two-tier bac, with more presti- built his campaign on a personal and gen- cohort. It has become the badge of excel- gious grades being awarded by top teach- erational confrontation with Mr Putin and lence fora French lycée system that offers a ers in top schools, rather than by national has now called for a boycott of the elec- model of globally standardised education, markers. Teachers of subjects that may be- tion. Ms Sobchak’s campaign “against including to over 900 lycées with a total of come optional are worried about their fu- everyone” subverts his message and di- 330,000 pupils abroad. Yet President Em- ture. Unions are threatening strikes. So far, rects young people to the ballot box. manuel Macron is now about to announce Mr Macron has largely avoided big street As an opposition figure, she represents the most radical overhaul of the exam for protests as he has set about modernising no threat. Her recognition rating is 95% (be- over halfa century. Why? France. Education reform, not to mention a cause ofherstarring role in a raunchy reali- Despite spending as much on second- looming battle over civil-service numbers, ty show called Dom-2), but few view her ary schooling as other OECD countries, could be the beginning of a much trickier favourably. She seems to tick all the boxes France no longer achieves corresponding period forhim. 7 of popular prejudice about Russia’s liberal 1 50 Europe The Economist February 10th 2018

2 opposition—aloof, out of touch and posite effect. The hope that Ms Sobchak powerful National Anti-Corruption Direc- spoiled. Even her election headquarters in would boost the liberal agenda has so far torate (DNA) indicted him for forming an a fashionable loft behind Moscow’s Soho been in vain. Instead, she has simply “organised criminal group” with the aim Rooms, an exclusive nightclub of the created division. of stealing EU funds. Mr Dragnea says he is 2000s, fits the stereotype. By encouraging Ms Sobchak may be a genuine liberal, innocent, but if found guilty he is likely to Ms Sobchak to run, the Kremlin hoped to but by campaigning for unpopular causes, go to jail. That is, unless Ms Dancila can caricature the liberal opposition while such as being nice to gay people, reversing push through a proposed package of judi- making the election looklegitimate. the annexation of Crimea and evicting Le- cial reforms which would decriminalise Like any caricature, this contains some nin’s corpse from its mausoleum on Red certain categories of abuse of power and, truth. The daughter of the late Anatoly Square, she actually risks marginalising according to the weak and divided opposi- Sobchak, St Petersburg’s first democrati- liberalism. And by helpingthe Kremlin leg- tion, bring Romanian justice under politically elected mayor, who was once Mr Pu- itimise the election, the danger is that she cal control. tin’s mentor and boss, Ms Sobchakperson- may strengthen Mr Putin’s grip on power— “Romania is starting to look like Poland ifies the post-Soviet elite. As a child, she and make her version of Russia’s future and Hungary,” says Dan Barna, the leader played with Mr Putin’s daughters and was ever more fanciful. 7 ofthe Save Romania Union, an opposition guarded by Viktor Zolotov, later Mr Putin’s party. “It is not a matter of ideology, but a bodyguard and now the chief of the Rus- bunch ofguys with problems with the law, sian National Guard, an anti-riot force. Romania so they want to change the law for them- She published books on “how to marry selves.” Five of Ms Dancila’s cabinet have a millionaire” and turned her own life into Nobbling the been or are being investigated for corrup- a reality show called “A Blonde in Choco- tion. The former PSD mayor of Constanta, late” (ie, living in luxury). “We had a nobblers charged by the DNA with corruption, says chance to live as in the West, we had beau- he isapplyingforpolitical asylum in Mada- tiful cars, beautiful offices, good jobs. We BUCHAREST gascar. Mr Dragnea is one of a group of Ro- dressed like Europeans, spoke languages manian politicians and businessmen who Attempts to undermine an and travelled,” she says. Like many of the regularly holiday together in a Brazilian re- anti-corruption force Russian elite, she benefited from the slosh sort. In 2015 Costel Comana, another ofthe ofoil money, and voted forMr Putin. HO?” was the reaction of many group and a former business partner of Mr But in December 2011, as protests broke “WRomanians when Viorica Dancila Dragnea, committed suicide in an aero- out across Russia, she climbed onto a dif- became their third prime minister in just plane toilet when two of his associates ferent stage in Moscow. “I am Ksenia Sob- seven months, on January 29th. That she is were arrested. chak, and I have something to lose,” she the first woman to run the country’s gov- The EU backed the creation of indepen- said. Hard-core protesters booed her, but ernment might have been cause for cele- dent instruments to tackle Romania’s cor- she stayed the course, displaying brains bration, if anyone thought she would real- ruption problem. One result was the DNA. and guts. Her participation made protests ly be doing the job. Few do. As soon as she Few, though, expected that it would be so fashionable and broadened her appeal. had been elected, she vanished into the of- successful. It has dispatched hundreds of Losses were not long in coming. State fice of Liviu Dragnea, the leader of her high-profile people to jail. In the past five TV channels froze her out. Masked police party, the ruling Social Democrats (PSD). It years they have included a prime minister, burst into her flat in the small hours of the is Mr Dragnea who calls the shots. If Ms five ministers and 25 members of parlia- morning, seizing cash worth €1.5m. Mr Pu- Dancila proves unwilling or unable to do ment. Manymore are on trial. Butnow pro- tin soon turned his back on the Wester- what he wants, she will be dumped. posals for“justice reform” include banning nised elite. They cared about Ferraris and There is only one reason why Ms Dan- the use of recordings at trials, which holidays in Monaco; he gave Russia wars cila is prime minister. Aconviction for elec- would, says Vlad Voiculescu, a former and international isolation. toral fraud prevents Mr Dragnea from tak- minister, mean “the end of the DNA as we Now Ms Sobchak’s aim, she says, is not ing the job himself. He is on trial for abuse know it”. to win the election (she knows that is im- of office, and last November Romania’s Before he came to lead the PSD MrDrag- possible) but to use it as an entry point into nea was a local baron, in charge of his politics to push the boundaries from with- party in his native province of Teleorman. in. While the Kremlin is surely using her, Now he is king of the barons and must she is also using the Kremlin. Her access to keep them happy. In Alexandria, Teleor- state airwaves has allowed her to talk man’scapital, the PSD mayor, VictorDragu- about Mr Navalny, criticise Mr Putin’s for- sin, says his leader is doing a fine job. It is eign policy and speakup forhuman rights. just a shame, he thinks, that the party has On the day when Mr Navalny was de- made such a hash of explaining its pro- tained in Moscow for rallying supporters posed justice reforms. They will improve to boycott the elections, she was in Chech- the delivery of justice, he reckons—and nya, demanding the release ofOyub Titiev, points to the case of Adrian Nastase, a for- a human-rights activist who has been ar- mer prime minister jailed “without evi- rested on dubious drug charges. dence” to make an “example of him”. Poli- “In an authoritarian and repressive sys- ticians from the PSD frequently complain tem, you have to find a win-win situation that the DNA is politically motivated, and to get into politics,” she says. “A true politi- part of a “parallel state” that includes ele- cian needs to use any opportunity and in ments ofthe intelligence services. the short term can negotiate with the devil In Alexandria, Mr Dragusin shows off a himself.” But though Ms Sobchak’s partici- new sports hall and work on university pation in the protests of 2011 and 2012 buildings. He says he wants more money made them fashionable and helped ampli- from Bucharest and from the EU. Ms Dan- fy their message, her involvement in the cila needs to deliver, or she could swiftly comingelection seems to be havingthe op- follow her predecessors into oblivion. 7 The Economist February 10th 2018 Europe 51 Charlemagne History wars

Poland’s historical-memory law is divisive and hurtful. That’s the point troversial “decommunisation” laws enshrine one particular historical narrative in statute. ViktorOrban’spopulistnationalism in Hungary is undergirded by an old grudge against the treaty of Trianon, which dismembered Hungarian territory after the first world war. Russia and Lithuania have passed laws on the inter- pretation ofhistory. Noristhissolelyan ex-communist phenome- non. In Greece, politicians who should know better have been encouraging nationalists’ resistance to a resolution of the “name problem” of Macedonia, their former Yugoslav neighbour (they believe it implies territorial ambitions over an identically named province in northern Greece). This pointless row has held up Macedonia’s membership of the EU and NATO for years, though it could soon be resolved ifGreece permits. But disturbing the earth of history can exhume all manner of nasties. Fearful that MrDuda would veto the history law, a bunch ofthugs demonstrated outside the presidential palace urging him to “tear off his yarmulke” (he is not Jewish). Skinheads calling for a “Pure Poland” are a common sight on Polish marches, and there are even signs of xenophobia against the country’s 1m or so Uk- rainians. Relations with allies have suffered, too. If the Israeli attack on the Polish law grabbed headlines, the reaction from Uk- N FEBRUARY 6th 1943 Auschwitz received 2,000 Polish Jews raine was equally hostile. The Rada (parliament) called it Ofrom a ghetto in Bialystok, in north-east Poland. Almost all “distorted”, and a group of Ukrainian historians said they would of them were murdered in the death camp’s gas chambers; just no longer visit Poland to work. PiS seems to be legislating its way one grisly episode in the six-yearsaga ofNazi barbarity in Poland. towards the cynical definition of a nation offered by Karl Six million Poles were killed in the second world war, most of Deutsch, a Czech political scientist: “A group of people united by them victims of the Third Reich. This week, exactly 75 years after a mistaken viewaboutthe pastand a hatred oftheirneighbours”. that routine day in Auschwitz, Poland passed a law that threatens It need not be like this. In the 1990sPolish leaders were guided fines and imprisonment upon anyone who attributes those by the “Giedroyc doctrine” of friendly relations with ex-Soviet crimes to the “Polish nation”. neighbours. More recently Poland has championed Ukraine’s in- Poles have long railed against the phrase “Polish death tegration with the EU. Ukraine’s motives are more complicated; camps”, as Barack Obama learned when he thoughtlessly de- the mythologising of Bandera reflects a need for national heroes ployed itin 2012. Butthe term reflectsclumsiness, nothistorical re- at a time when the country has been undermined by Russian in- visionism: no one argues that Poles ran Auschwitz or any of the vasion and occupation. Few Ukrainians know about the atroc- other camps in Poland. As he prepared to sign the law Andrzej ities their forefathers visited upon Poles, though that might have Duda, Poland’s president, said no Holocaust survivor should feel changed in 2016 had the government not banned screenings of scared to give personal testimony. Academics and artists are ex- “Wolyn”, a Polish film that documented the 1943 massacres. empt from its provisions. But Polish teachers or journalists may now hesitate before bringing up, forinstance, the Jedwabne mas- No one likes us, we don’t care sacre of 1941, in which hundreds of Jews were locked in a barn IfPoland’s new law was designed to deflect attention from Polish and burned alive by Poles under Nazi occupation. wrongdoing, it backfired. For weeks foreign media have been re- In that case, why legislate? A closer reading of the law pro- counting the details of Polish wartime atrocities. An own goal, vides a clue. Its writ extends beyond the Holocaust to cover the then? Hardly. PiS thrives on this sort of opprobrium. Its political denial of crimes committed by “Ukrainian nationalists” against assault on Poland’s institutions, especially the judiciary, and its Poles duringthe war. Poles and Ukrainians are bound together by diplomatic missteps have left it ostracised inside Europe and a history ofoccupation, pogroms and deportation, sometimes as alienated from allies, including America. Yet while many voters allies, more often as foes. Poles shudder when Ukrainian towns hate this, a growing number do not: PiS commands almost 50% devote statues or streets to Stepan Bandera, a nationalist hero support in polls. The international reaction to the law cements whose independence movement spawned an insurgent army the government’s narrative that only it can be relied on to pre- that killed tens of thousands of Poles in Nazi-occupied regions in serve historical truth and defend the honour ofthe Polish nation. 1943. ButUkrainiansbelieve theiractionsare partofa broader his- Hours after Mr Duda signed the bill, Mateusz Morawiecki, the tory of Polish oppression and colonisation. Such disputes are prime minister, said Poland was only now beginning to emerge best litigated by academics, not politicians. Yet Poland’s govern- from the dependence on outsiders that had marked the decades ment, run since 2015 by the populist Law and Justice (PiS) party, after communism. His government’s law is less about correcting wants history pressed into partisan political service. the record than twisting Poland’s national story into one of his- Eastern Europe is criss-crossed by scars ofwar and occupation torical victimhood—and casting sceptics as traitors. Amid the re- to a degree that many westerners struggle to understand. In a recent burst of optimism surrounding Macedonia’s name, Nikola gion of competing narratives, latent grievances and weak states, Dimitrov, its foreign minister, says he spots an “opportunity to leaders with a taste for demagoguery will always be tempted to step out from the trenches of history”. With luck, it will be taken. draw from an ample arsenal ofhistorical memory. Ukraine’s con- But other countries are digging furtherin. 7 52 Britain The Economist February 10th 2018

Also in this section 53 Britain’s best trade deals 54 Bagehot: Meritocracy and its discontents

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

The politics of trade deals promised to veto TTIP if elected. Nor was John McDonnell, the shadow chancellor, a Not so global Britain fan. He said TTIP was aimed at “reinforc- ing...corporate global kleptocracy”. Rebel- lious Conservative MPs have backed La- bour-led amendments on trade policy. Outside Westminster, campaigners know how to raise mischief. In Britain, linking TTIP and the idea of American firms even- Britons love free trade, in theory. But they don’t necessarily love free-trade deals tually gaining access to the NHS was TANDING eight metres tall, the inflat- Leave voters. They tend not to like free enough to infuriate Middle Englanders, Sable Trojan horse outside the European trade: 50% of them think that Britain say campaigners. And that was before Do- Commission office a couple of years ago should limit imports to protect the British nald Trump arrived in the White House. was difficult to miss. It was erected by cam- economy, according to data from NatCen It was not pure anti-Americanism that paigners bearing 3m signatures from Euro- Social Research, which gauges public opin- drove protests. A deal with Canada—the peans who wanted to scupper the Trans- ion. Barely a fifth believe otherwise. “Bet- Comprehensive Economic and Trade atlantic Trade and Investment Partnership ter trade opportunities with the wider Agreement—attracted similar howls, due (TTIP), a sprawling free-trade deal between world” was chosen by only 9% of Leave to the inclusion of measures that let com- the European Union and America. For voters as the main reason for voting for panies sue governments. Campaigners Brexiteers, such a scene seems ideal to help Brexit, far behind legal independence and managed to fill town halls even when dis- explain why Britain has to strike out on its cutting immigration, according to ICM, a cussing such trade arcana, says Mark own; outside the EU, Britain would no lon- pollster. The buccaneering Brexit put for- Dearn from Waron Want, a charity. The re- ger be held back by continental trade ludd- ward by Liam Fox, the international-trade sult was stark: Britain delivered a third of ites. Except this anti-TTIP protest tookplace secretary, is opposed—orignored—by those the 150,000 responses to a European Com- outside the Commission’sLondon office. A who supposedly voted for it. In practice, mission consultation on these investor- full 500,000 signatories were British. Britons are amongEurope’s keenest wreck- state dispute-settlement clauses—more Britain’s attitude to free trade is more ers of free-trade deals. They were at the than any other EU country. complex than it seems. In a meeting of the forefront of scuppering the planned trade The worry for officials in the DIT is that Brexit “war cabinet” taking place as The deal with America. More people signed an negotiations this time round will be more Economist went to press, ministers were anti-TTIP campaign in supposedly free- visible, riskingbiggerpublic protests. In the due to thrash out a proposed customs rela- trade-loving Britain than in traditionally EU, negotiations tookplace in Washington, tionship with the EU. At stake is Britain’s protectionist France. Ottawa and Brussels, faraway lands of ability to strike free-trade deals across the For trade-deal boosters, this makes new which British voters knew little and cared globe. But amid the cabinet in-fighting, and awkward political alliances necessary. less. British trade deals will be hammered what voters thinkis often overlooked. Liberal Brexiteers must win over those out in Whitehall. “It’s Liam Fox, not some At first glance Brits love free trade, or at who voted Remain, who tend to be more faceless bureaucrat,” says a campaigner. least say they do. Given the choice, nearly open when it comes to trade. Only a quar- To his credit Mr Fox is aware of the po- half of voters would opt for the ability to ter of Remain voters support a protection- tential backlash. He wants to avoid a re- do free-trade deals globally—even if it ist approach, with 41% opposed, according peat of TTIP, “where a huge amount of meant customs controls between Britain to NatCen. But within the Department for work is done only to find the public won’t and the EU, according to YouGov. Jacob International Trade (DIT) officials worry accept it.” Plus, Mr Fox benefits from an Rees-Mogg, the leader of the Conserva- that Brexit and trade are mashed together ideological tailwind: overall Brits are in- tives’ hard-Brexit caucus, can be confident in minds of Remain voters, turning poten- creasingly liberal on trade. Although a plu- of the support of party members: 70% of tial allies into sceptics. “When you say rality (36%) still demand a protectionist ap- them want out of the customs union, ac- ‘trade’ they hear ‘Brexit’,” says one. proach, this number is down from over cording to research from Queen Mary Uni- In Westminster, Labour are well-armed half since 2003, according to NatCen’s re- versity ofLondon. to cause trouble. During the EU referen- search. Amending unpopular parts of But this zealotry is not shared by typical dum Jeremy Corbyn, the Labour leader, trade deals and guaranteeing stronger pro-1 The Economist February 10th 2018 Britain 53

2 tection for the NHS, for instance, would al- instead relying on their more militant con- and saw their exports to South Korea more lay concerns. tinental peers. But that may change if than triple in value in the five years after But there will be other flashpoints. A groups like the National Farmers’ Union the deal was applied in 2011. Chemicals ex- row last summer over the prospect of im- feel that farmers’ interests are being sacri- porters, which account for a little under porting chicken doused in chlorine from ficed in favour of industries that are more 10% of exports to the EU’s partners, are America was an aperitif. After 45 years valuable to the exchequer, such as bank- keen to keep Britain’s arrangements with without an independent British trade poli- ing. When it comes to trade, the govern- Switzerland and South Korea. cy, political price discovery must be done. ment is yet to understand fully what voters No process will be as straightforward as British farmers have not had to flex their and business will bear. It must look be- simply replacing references to the EU with political muscles domestically fordecades, yond its internal fight. 7 ones to Britain. The arrangements Britain wants to translate refer to European law and European content requirements. Ne- Brexit and the EU’s trade deals gotiating partners will justifiably grumble if they find themselves having to adhere to Sorting the wheat from the chaff two sets of standards, or if their car parts get hit with new tariffs because finished cars no longer contain enough content from the deal’s co-signatories. Britain’s trade negotiators may choose to prioritise deals that are easier to agree. OfBritain’s 40-odd trade agreements through the EU, which should the Brexiteers All will be difficult without knowing what prioritise? Britain’s final relationship with the EU will REXITEERS dream of freedom from the of standards; liberalisation of public probe. Depending on what that is, the trickiest B European Union’s shackles, imagining curement; rules on competition; and intel- set to inherit may be the ones with the EU’s plucky British negotiators forging new lectual-property rights. Based on that met- closest trading partners, like Switzerland trade dealswith America, China and India. ric, deeperdealswith Canada, South Korea and Norway. Their arrangements are “liv- Reality dictates a different set of priorities. and Vietnam would be worse to lose than ing deals”, which secure access to many ar- Britain already has around 40 free-trade shallower ones such as that with Turkey, eas of the EU’s market by sticking tightly to agreements through its membership ofthe whose deal with the EU excludes services. its rules. Keepingclose trade ties with them EU. None will survive Brexit automatically. If British businesses are not exactly will mean sticking close to the EU too. Deal preservation lacks the glamour of banging down the door to preserve these For now, the British government seems deal creation, but it is a more urgent task. deals, says Allie Renison of the Institute of confident that it will not have to choose. Together, these deals cover countries Directors, a business lobby group, it is On January 24th Greg Hands, the interna- that receive around 16% ofBritain’s exports partly because they think that the British tional-trade minister, reassured the trade and send 6% ofits imports. The British gov- government should prioritise its deal with select committee that of the 70 nations ernment wants to keep all of them, and in- the EU. Some sectors are concerned about with which the government had held dis- sists that doing so is no more than a techni- particular deals beyond that. Carmakers, cussions, none had any interest in erecting cal exercise. But rolling over deals that for example, rely on sending car parts to new trade barriers. But between now and together took more than 75 years to negoti- and from Turkey under the customs union, March 2019, plenty could go wrong. 7 ate will not be easy. As the clock ticks, the government may be forced to prioritise. Size matters, and after the EU, Britain’s It’s a deal top five export partners with which it has Britain, goods and services exports under current EU free-trade “Living trade deals” Deepest deals that trade deals are Switzerland, Japan, Cana- agreements (excluding Economic Partnership Agreements) include ongoing changes to align with EU rules da, Singapore and South Korea (see chart). Depth of trade deal* Exports 2.0 EEA Agreements with economic tiddlers like from 1.0 Liech- Britain 0.5 tenstein Algeria, Georgia or Tunisia might be of po- 1234567 0.1 Norway £bn, 2016 Switzerland 5.7 litical importance, but their lapsing would 21.0 EU-Central America Iceland only squeeze a few British exporters. Honduras Large trade flowscould be the result ofa Nicaragua El Salvador † deep, trade-boosting deal. Alternatively, Costa Rica Guatemala Canada Turkey they could arise from a shallow deal with a 8.3 5.7 United Panama Albania bigcountrythatwould trade a lotwith Brit- States Macedonia 99.6 Chile Ukraine Montenegro European ain even without it. Michael Gasiorek and No trade Union Colombia PeterHolmes ofthe UK Trade Policy Obser- deal with Mexico Serbia Faroe Is. 235.8 the EU Ecuador 1.9 vatory at Sussex University have calculat- Peru Bosnia San Marino Andorra ed that only four of Norway’s top 100 EU-Andean Moldova goodsimported from Britain would face ta- Community Americas Europe riffs in the absence of a deal, compared Africa & Middle East Asia Georgia with 67 ofTurkey’s. On thatcrude measure, the latter would seem more important. Algeria Egypt Israel However, researchers have constructed 1.9 2.1 Singapore 7.2 a broader measure of depth, as part of the Japan† 12.5 *How many of the Design of Trade Agreements project at- Jordan following are covered: tached to the World Trade Institute, based Morocco tariff cuts; services; investment; public in Bern. They tot up a maximum of seven Lebanon South procurement; standards; Sources: Korea competition; intellectual key features of a trade deal, including Vietnam Design of Trade Tunisia 6.1 property rights. Excludes whether it contains tariff cuts; services lib- Agreements ”living trade deals” Database; ONS †Not yet fully implemented eralisation; investment rules; recognition 54 Britain The Economist February 10th 2018 Bagehot Meritocracy and its discontents

A remarkable bookexposes the tensions that are tearing Britain apart about getting their children into the right schools and universities. The public sector is run by manager-despots who treat their workers as “human resources”. The number of MPs with working-classoriginshasshrunkto about30. The penaltyforfailing exams is rising inexorably. The proportion of working-age men without qualifications who are “not active in the labour force” is more than 40% today compared with 4% two decades ago. Some of the biggest changes in recent decades have made the meritocracy even more intolerable than it was in the glory days ofthe 11-plus. One isthe marriage ofmeritand money. The plutoc- racy has learned the importance of merit: British public schools have turned themselves into exam factories and the children of oligarchs study for MBAs. At the same time the meritocracy has acquired a voracious appetite for money. The cleverest computer scientists dream ofIPOs, and senior politicians and civil servants cash in when they retire with private-sector jobs. A second is su- persized smugness. Today’s meritocrats are not only smug because they think they are intellectually superior. They are smug because they also thinkthat they are morally superior, convinced that people who don’t share their cosmopolitan values are simple-minded bigots. The third is incompetence. The only reason FTER much searching, Bagehot has found a book that at last people tolerate the rule of swots is that they get results. But what Aexplains what is going on in British politics. This wonderful ifthey give you the invasion ofIraq and the financial crisis? volume notonlyrevealsthe deeperreasonsforall the bizarre con- vulsions. It also explains why things are not likely to get better The brains went to their heads any time soon. The bookis Michael Young’s “The Rise ofthe Mer- It is also impossible to read Young’sbookwithout being struck by itocracy”—and it was published 60 years ago this year. how prescient it is. This imagined revolution begins in the north Young argued that the most significant fact of modern society as people become sickofthe arrogance ofLondon and the south. is not the rise of democracy, orindeed capitalism, but the rise of The revolution isled by a “dissidentminority” from the elite who, the meritocracy, a term he invented. In a knowledge society the by striking up an alliance with the lower orders, rouse them from most important influence on your life-chances is not your rela- their traditional docility. The tension between the meritocrats tionship with the means of production but your relationship and the masses that Young described is driving almost all the with the machinery of educational and occupational selection. most important events in British politics. It drove Brexit: 75% of This is because such machinery determines not just how much those with no educational qualifications voted to leave while a youearn butalso yoursense ofself-worth. ForYoung, the greatest similar proportion ofthose with university degrees voted to stay. milestonesin recentBritish historywere notthe Great Reform Act It is driving Corbynism, which is, among other things, a protest of 1832 or the granting of votes to all women in 1928. They were against identikit politicians who promised to turn Britain into a the 1854 Northcote-Trevelyan report, which opened civil-service business-friendly technocracy and ended up with stagnant jobs to competitive examinations, and the Education Act of1944, wages. Older Brexiteers bristle at the cosmopolitan elites who which decreed that children should be educated according to sneer at traditional values. Young Corbynistas are frustrated by their “age, ability and aptitude”. the logic of meritocracy. They cannot join the knowledge econ- Young was a Labour Party grandee whose extraordinary CV omy unless they go to university and move to a big city, but uni- included co-writing his party’s 1945 election manifesto and co- versities cost money and big cities are expensive. founding the Open University. But he was only half-successful The tension also lies behind the growing culture wars. The when it came to launching the debate about “meritocracy”. most effective way to rile the meritocrats is to attack their faith in Young used the term pejoratively on the grounds that meritocra- expertise: Lord Turnbull, a formerCabinet secretary, has said that cy was dividing society into two polarised groups: exam-passers, Brexiteers’ willingness to question current Treasury forecasts of who would become intolerably smug because they knew that the impact of Brexit was reminiscent of pre-war Nazi Germany. they were the authors of their success, and exam-flunkers, who The easiest way to rile the populists is to imply that their attach- would become dangerously embittered because they had no- ment to symbols of national identity, such as blue passports or body to blame fortheir failure but themselves. The bookis as odd the Cross ofSt George, is a sign oflow intelligence. as it is brilliant. It purports to be a government report written by a The conflict between the meritocracy and the masses also ex- sociologist in 2033. It is also a product of its time. Young was pre- plains the most depressing fact about modern politics: why vot- occupied by the 11-plus exam which divided British state-school ing intentions over Brexit remain so fixed despite mounting evi- pupils on the basis of IQ tests. Today the 11-plus exam survives dence thatthe Brexitnegotiationsare a shamblesand that leaving only in pockets ofthe country. Youngbelieved that IQ would sup- the European Union will damage the economy. Changing your plant other determinants oflife chances like wealth. mind doesn’t just mean admittingthatyou’re wrong. Itmeansad- Today, the top 10% ofhouseholds own 44% ofthe wealth. That mittingthatthe otherside wasright. The likelihood that the losers said, however, it is impossible to look at the country without see- in the meritocraticrace are goingto give the otherside yetanother ing Young’s dystopian meritocracy everywhere. Parents agonise reason to feel smug is vanishingly small. 7 International The Economist February 10th 2018 55

Doping in sport repeated scandals. Sports less dependent on simple brawn and endurance, such as Whatever it takes baseball, cricket and football, were once thought to be at little risk from doping; no longer. Even animals are at it. Last year four dogs who ran in the Iditarod, an annual long-distance sled-dog race in Alaska, tested positive for a banned opioid painkiller. The use ofbanned performance-enhancing drugs is rife in sport. No one seems to The number of banned performance- want to do much about it enhancers, now around 300, rises when- KIERS, skaters, ice hockey players and decided to barRussia than it partially back- ever another is discovered to be in use. Sother snow-loving athletes have trav- tracked, inviting 169 of the country’s ath- They variously lessen pain, increase alert- elled to Pyeongchang forthis year’s Winter letes to Pyeongchang as “Olympic athletes ness, speed up recovery and encourage the Olympics to vie for supremacy. But the from Russia”. Then, a week before the production of muscle mass or oxygen-car- South Korean city is also the venue for an- games, a third international sporting body rying red blood cells. Anabolic steroids, other contest—one between the bodies re- stepped into the fray. The Court of Arbitra- synthetic versions of testosterone that sponsible for anti-doping rules. tion for Sport, to which some Russian ath- were the mainstay of state doping pro- Last year, after tip-offs and suspicious letes had appealed, overturned bans on 28 grammes in the Soviet bloc, remain popu- test results in previous events, the Interna- and shortened penalties for 11 others. The lar. A newer development is blood dop- tional Olympic Committee (IOC) banned IOC refused to accept its decision. As the ing—transfusing blood or taking a 43 Russian athletes from future Olympic opening ceremony approached, appeals synthetic version of erythropoietin (EPA), competitions, stripping ten of them of and counter-appeals continued. a hormone produced in the kidneys, to in- medals they had won in the 2014 Winter crease levels of red blood cells. Last week a Games in Sochi. In December, after an in- Banned practice database of more than 10,000 blood tests vestigation into drug-screening records The row is symptomatic of a wider pro- from 2,000 winter-sports athletes was leaked by the former head of the Moscow blem. As prize money and sponsorship leaked to the Sunday Times, a British news- Anti-Doping Laboratory, it accused Russia deals get bigger, so do the incentives for paper, and ARD, a German broadcaster. of state-sponsored doping. It barred the coaches and athletes to find ingenious Hundreds of skiers’ tests suggested they country from competing in Pyeongchang, ways to cheat. But the agencies charged had used EPA. Some had blood so thick condemning the “systematic manipula- with stopping doping lack independence that they should have been in hospital. tion ofthe anti-doping rules and system”. and money. The rules they are supposed to Much of the doper’s skill lies in judging That conspiracy’s existence could hard- enforce are riddled with loopholes. The re- quantities and timing. The “Duchess Cock- ly have come as a surprise to the IOC. The sult is a system that looks tough on doping, tail”, a mix of steroids created in Russia, is World Anti-Doping Agency (WADA), set without uncovering much ofit. absorbed by swilling it in the mouth with- up in 1999 to standardise rules across There would be a lot to find. Though out swallowing. That shortens the period sports and regions, had already investigat- Russia’s institutionalised doping is proba- during which it can be detected by a blood 1 ed Russia on suspicion ofwidespread dop- bly an outlier, individual doping is rife ing. It had called for Russia to be barred throughout elite sport. In 2015, the most re- Defence correspondent: We are looking for a senior from the Summer Olympics in Rio de Ja- cent year for which data are available, writer to cover global defence and security. Applicants neiro in 2016. But instead, the IOC disqual- WADA found nearly 2,000 violations, should send a CV and an original 600-word article, ified a third of the team and allowed the across 85 sports or disciplines and 122 na- suitable for publication in The Economist, to [email protected] by March 5th. No rest to compete under the Russian flag. tionalities. Athletics, cross-country skiing, journalistic experience is required, but a knowledge This time round, no soonerhad the IOC cycling and weightlifting have all suffered of military and geopolitical affairs is essential. 56 International The Economist February 10th 2018

2 or urine test. For some drugs micro-dos- al budget, worldwide, is around $300m. 1990, 20 Belgian and Dutch cyclists sus- ing—takingan amount too small to detect— For comparison, the total income of the pected of using EPA died of heart attacks. can still give an edge. Or doping may hap- world’s sporting federations and leagues is Eight more died of heart attacks across Eu- pen before an athlete’s career starts in ear- more than $50bn a year. WADA’s budget in rope in 2003-04. A study published in 2007 nest, and thus before she falls under 2016 was only $28.3m. “The answer is no, of 52 East German athletes who had been anti-doping rules. A study in 2013 by Kris- clearly no,” says Mr Niggli, when asked if given anabolic steroids in the 1970s and tian Gundersen of the University of Oslo WADA has enough cash. 1980s concluded they had suffered serious found that the performance-enhancing WADA does few tests itself, instead co- health problems as a result. A third report- benefits ofsome drugs can last a lifetime. ordinating national and regional anti-doped considering or attempting suicide. The The use ofdiuretics, which increase uri- ing agencies, and international federations women suffered miscarriages and still- nation and can mask performance-enhan- such as the IOC and FIFA, football’s go- births at a rate 32 times that of the national cers as a side-effect, is becoming more so- verning body. Their standards vary from population. Of their 69 surviving children, phisticated. The development of “designer excellent to hopelessly compromised. seven have physical deformities and four drugs”—compounds with similar effects to WADA’s investigation found that Russia’s are mentally handicapped. known performance-enhancers but unde- anti-doping authority colluded with gov- tectable in testing—means that the authori- ernment agencies—including the intelli- Cheat’s charter ties are constantly running to stay still. gence services—to “lose” dodgy results and Some hope that sponsors’ desire to stay Some athletes may already be using ex- substitute fake blood and urine samples clear of tainted names, and fans’ desire to perimental gene therapies, says Paul Di- for real, incriminating ones. It worked out see clean competition, could act as a check meo, one of the authors of a forthcoming how to open “tamper-proof” sample bot- on doping. And indeed a sport may be- book, “The Anti-Doping Crisis in Sport”. tles with the aid ofdentistry tools. come less popular after a scandal—at least On top ofall that, anti-doping rules and Even when governments or sports au- if broadcasters take fright. “Doping can enforcement are easy to get around. Ex- thorities are not corrupt, they may not be have a large negative impact on coverage emptions for medical purposes are be- keen to uncover wrongdoing, says Mr Nig- arrangements, and hence viewingfigures,” lieved to be widely abused. Some athletes gli. “There’s sometimes a lack of appetite says Kevin Alavy of Futures Sport + Enter- claim to be severely asthmatic, for exam- for scandals when it comes to their own tainment, a consultancy. German free-to- ple, to get permission to inject cortico- sport or their own country.” airtelevision stations stopped covering the steroids. Athletes can miss three tests in a WADA’s governance structure means scandal-hit Tour de France for several year before facing suspension. Sometimes that it struggles to act independently. Half years, in part because of allegations the testers seem incompetent or over- ofits funding comes from national govern- against PatrikSinkewitz, a German cyclist. whelmed. On some days during the 2016 ments, and half from the IOC. Its main Yet when fans do learn about doping, Summer Olympics in Rio de Janeiro, al- committees are split in the same way. Since they do not always seem to care much. most half of all drugs tests were aborted two-thirds majorities are required for deci- One study found that a publicised doping because they could not find the athletes. sions such as banning a country from violation in baseball led to a brieffall-off in events, either the IOC or a group of like- attendance, but had no impact a fortnight Medal peddling minded countries can stop it from setting a later. When doping is common but has not Occasionally, athletes may not know they tough line, whether out of national pride, yet come to light, it can make a sport more have doped. Last July ten blind Russian fear ofputting offfans or sponsors—or sim- exciting and thus more profitable. In 1998 powerlifters were banned for using meth- ply the wish fora quiet life. Mark McGwire broke baseball’s home-run andienone, a steroid, although WADA ac- With doping so common and so rarely record, boosting interest in the sport. He cepted they might have been given it with- punished, athletes face an unappealing later admitted he had been on steroids. out their knowledge. But most know full choice. They may not want to dope, but The risk of sponsors or broadcasters well what they are doing, says Olivier Nig- knowing that many of their competitors pulling out if doping is revealed can even gli, WADA’s director-general. do, they may feel that they must, too. Tim add an incentive to those with a financial Not a tenth are ever caught, estimates Montgomery, an American sprinter who interest in a sporting event to turn a blind Don Catlin, an anti-doping scientist. A broke the 100-metre world record in 2002 eye. “Potentially you have a conflict of in- study in 2014 estimated that 14-39% of elite in a time that was later ruled void because terest when policing sport and trying to get athletes were doping intentionally. But he had doped, described performance-en- sponsors at the same time,” says Mr Niggli. only1-2% ever test positive. At the Athletics hancing drugs as necessary “to secure a Dick Pound, a former president of WADA, World Championships in 2011, 0.5% of real contract” and “worth the risk”. puts it more bluntly. Doping in sport, he competitors failed tests. But in an anony- That riskcan be large. Between 1987 and says, is an “inconvenient truth that is de- mous survey by WADA, only recently pub- nied, ignored, tolerated or encouraged”. lished, 30% admitted to using illegal drugs Some pin their hopes on “athlete bio- in the year before the competition. logical passports”, which were launched The failings of the drug-testing system in 2008. These record physiological trends, mean whistleblowers are particularly establishing baselines for an athlete valuable. But they are taking a big risk. Two against which suspicious changes can be former employees of Russia’s national spotted, even iftesting picks up no banned anti-doping agency have died in suspi- substance. They could be far more effective cious circumstances, and two more are in than urine tests, says Andrea Petroczi of hiding in America. The former director of Kingston University in London. the Jamaican Anti-Doping Commission, But biological passports are expensive. who exposed weaknesses in the country’s So farthey are barely used outside cycling, anti-doping agency before the 2012 Olym- which has suffered a series of scandals. pics, said she was called a “traitor” and had Only 28,000 passport samples were ana- to move house after receiving threats. lysed across all sports in 2016. As long as Given the many difficulties, anti-dop- the risks of being caught are low and the ing authorities need formidable resources. potential rewards of doping high, athletes They do not receive them. Theirtotal annu- who stay clean riskbeing outclassed. 7 Business The Economist February 10th 2018 57

Also in this section 58 Samsung’s boss leaves prison 59 Airbus changes pilots 60 Mining in the DRC 60 The unwinding of HNA 61 Nevada’s giant industrial park 62 Schumpeter: Tata’s next chapter

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Mobile telecoms as a virtual sports stadium. Another piece of 5G ingenuity is on The forces of 5G view at Ericsson, a maker of network equipment. In what was once a factory building next to its headquarters near Stockholm, it is demonstrating “network slicing”, a technique to create bespoke net- SEOUL works. The antennae on display are able to create separate wireless networks, to serve Whizzy 5G technology has everything going forit barring a strong business case anything from smartphones and wireless ORTH KOREAN athletes will not be two seconds, respond to requests in less sensors to industrial robots and self-driv- Nthe only unusual participants at the than a hundredth of the time it takes to ing cars. “Each set of devices will get exact- winter Olympics in Pyeongchang in South blink an eye and effortlessly serve cities ly the connectivity they need,” says Nish- Korea, which begin on February 9th. Any- that are densely packed with connected ant Batra, who runs wireless-network one can take part, at least virtually. Many humans and devices. products at the Swedish firm. contestants will be watched by 360-degree When 5G is properly rolled out, wire- This versatility, along with the ITU re- video cameras, able to stream footage via a less bandwidth may seem infinite, says quirements, could make 5G the connective wireless network. At certain venues Alex Choi, until recently the chief technol- tissue for the internet of things (IoT), as around the country sports fans will be able ogy officer of SK Telecom, South Korea’s connected devices are collectively called, to don virtual-reality, head-mounted dis- second biggest carrier, who is now at Deut- says Pierre Ferragu of Bernstein Research. plays to get right into the action. Flying sche Telekom, a German operator. That Networks based on it could connect and alongside a ski jumper, forinstance, will of- will enable all kinds of data-ravenous ser- control robots, medical devices, industrial fer an adrenalin rush without any risk of a vices, which SK is testing at its “5G Play- equipment and agricultural machinery. hard landing. ground” near Seoul. One such is a virtual- They could also enable “edge computing”, These virtual experiences will be of- reality offering that allows people to beam the idea that more and more number- fered by KT, South Korea’s largest telecoms themselves into shared digital spaces such crunching will not happen in centralised firm. Theyare meantto showcase the latest data centres but at the fringe ofnetworks. generation of wireless technology, known The telecoms industry has a lot riding as “5G”. But just as ski jumpers never know Generation game on 5G. Mature network-equipmentmakers exactly how farthey will leap after leaving Mobile connections by network technology such as Ericsson and Nokia want it to re- the ramp, it is unclear where 5G will land. Worldwide, % of connections vive demand for their wares, which has FORECAST G On paper, the new technology should 70 declined markedly since investment in 4 go far. The International Telecommunica- peaked a couple of years ago. Makers of ra- 60 tion Union (ITU), a UN body which helps 4G dio chips, such as Qualcomm, are keen too. 50 G develop technical standards, hasagreed on 2G Countries are also boosters of 5 . Having an ambitious set of requirements for the 40 lagged in the previous wireless generation, 3G technology. It should offer download 30 Asian countries want to lead the way on speeds ofat least 20 gigabits per second, re- 20 the next one. Using the Olympic Games to sponse times or“latency” ofless than 1mil- showcase and launch 5G is not unique to 10 lisecond and the ability to connect at least 5G South Korea. Japan will do so in 2020, 1m devices in one square kilometre. So 5G 0 when Tokyo hosts the summer Olympics 2016 18 20 22 24 25 networks are supposed to be able to trans- and NTT DoCoMo, the country’s largest Source: GSMA Intelligence fer a full-length, high-resolution film in operator, wantsto startoffering5G services1 58 Business The Economist February 10th 2018

2 commercially. In China the government, tic cables to connect them. And before operators and local equipment makers firms can take full advantage of “network such as Huawei and ZTE are about to slicing”, for instance, they have to upgrade launch big 5G trials. the computers at the core of their net- In America, where competition be- works. “We will have to work harder to tween AT&T, Sprint, T-Mobile and Verizon give 5G a push,” admits Lauri Oksanen, has already speeded 5G development, in- who oversees networkresearch at Nokia, a dustrial policy may further accelerate its Finnish equipment maker. roll-out: a leaked memo written for the Operators are unlikely to ramp up their White House by an official of the National 5G investments quickly, predicts Bengt Security Council went so faras to call for a Nordstrom of Northstream, a telecoms nationalised 5G network. Such a project, it consultancy. Instead, he says, they will roll argued, would allow America “to leap it out gradually where the numbers add ahead of global competitors and provide up. Some will first use the technology to the American people with a secure and re- provide superfast “fixed” wireless links (ie, liable infrastructure”. The memo was dis- between two stationary antennae), which missed, but the idea could crop up again. is less tricky to do. Both AT&T and Verizon In spite of all this backing for 5G, hur- have said they will start offering such a ser- dles exist. One of these is radio spectrum, vice in America this year. Other carriers which is increasingly saturated in the low- mayuse 5G to getmore outofthe spectrum erfrequencybandsusuallyused bymobile they own. Others will weave 5G networks networks. Free spectrum abounds in the to serve densely populated cities, most higher bands—in particular where the probably in Asia. And some will launch He backed the wrong horse length of radio waves is counted in milli- private systems, for instance to provide metres. But the higher the frequency, the connectivity in mines and ports. into handing over the bribe. Prosecutors more difficultthingsget, explainsStéphane In other words, 5G’s trajectory is likely had charged him with paying 43bn won Téral of IHS Markit, a research firm. Milli- to differfrom that ofa ski jumper: it may fly ($38m), which included buying horses for metre waves provide a lot of bandwidth, low foryears before it takes off. If this is the Ms Choi’s daughter and various donations but even foliage can block them. They ei- case, it would develop much like 3G, a mo- to her sports foundations. In the end, only ther need direct line-of-sight to work or bile technology introduced in the early use of the horses was recognised as brib- must be bounced around obstacles, which 2000s. It disappointed until it found a “kill- ery, slashing the sum to 3.6bn won. Al- requires lots ofcomputing power. er application” with the smartphone late though Mr Lee had benefited generally Hardware is another headwind. Some in the decade. And it was only with 4G that from giving the money, the judge said, equipment vendors have been touting mobile networks lived up to the promises there was insufficient evidence to prove an their wares as “5G-ready”, needing only made of 3G, such as being able to watch exchange of favours. Mr Lee’s supporters software upgrades to work with the new video streams (see chart on previous page). say the public should consider the lack of standards. In fact, even ifequipment is eas- “The odd-numbered generations do not evidence, and note that those with means ily upgradeable, most operators will have seem to do too well,” quips Dean Bubley, a have no less right to fairtreatment. to rejig their networks. High-frequency ra- telecoms expert. “We may have to wait for Nevertheless, Korea-watchers say the dio waves do not travel far, so firms have to 6G to get what 5G promises.” 7 sentencing looks familiar. “It’s déjà-vu,” erect more base stations (computers that says Chung Sun-sup of Chaebul.com, a power a network’s antennae). As for mo- chaebol watchdog. Five-year prison terms bile devices, big changes must be made for Samsung that are reduced by appeal courts to a these to be able to use millimetre waves; roughly three-year suspended sentence with current technology, the computing Get out of jail free are so common in chaebol cases that they power to process the signals would drain are called the “3.5 rule”. Beneficiaries have batteries in a twinkling. included executives from Hyundai and Ko- But the biggest brake on 5G will be eco- rean Air, and Mr Lee’s father, Lee Kun-hee, GSMA nomic. When the , an industry SEOUL chairman of Samsung, who was incapaci- group, last year asked 750 telecoms bosses tated by a heart attack in 2014. In 2009 he Lee Jae-yong’s release from prison about the main risk to delivering 5G, over was pardoned while servingtime forevad- leaves South Koreans exasperated half cited the “lack of a clear business ing taxes and embezzlement. (This week case”. Some of this pessimism is tactical: if NNOCENT if rich, guilty if poor” is a South Korean police said the elder Lee operators were more enthusiastic, equip- “Iwell-known adage in South Korea. It would face new charges oftax evasion.) ment vendors would raise their prices. But has been trending anew on social media New sentencing guidelines had helped as things stand, 5G is unlikely to be a big since February 5th, when Lee Jae-yong, the to mitigate the courts’ seeming soft spot for moneymaker, says Chetan Sharma, a tele- vice-chairman of Samsung Electronics, the chaebol in recent years, notes Choi coms consultant. was released from prison. The 49-year-old Han-soo of the Korea Institute of Public Fi- That is because, although people want heir to South Korea’s biggest chaebol, or nance, a government-sponsored think- more bandwidth, they are often not will- family-run conglomerate, had been found tank. Like many others, he had hoped that ing to pay for it—an attitude even the fanci- guilty of bribing a former president, Park the Samsung trial would finally end the est virtual-reality offerings may not shift. Geun-hye, and her confidante, Choi Soon- “too big to jail” mentality. The suspended Revenue per gigabyte of data has already sil. But Mr Lee’s initial five-year prison sen- sentence surprised even some legal ex- plunged by over 50% between 2012 and tence was cut in half and suspended by an perts. “It’s definitely a lenient ruling,” says 2015, estimates Mr Sharma. Costs per giga- appeals court, allowing him to walk free Kim Kwang-bum of The Ssam, a South Ko- byte have not gone down nearly as much after 353 days in jail. Other executives were rean law firm. Mr Choi calculates that be- and building5G will not be cheap. Because also released on suspended sentences. tween 2010 and 2014, 77% of chaebol of the higher frequencies, 5G will require The rulinglargely upheld MrLee’s insis- plaintiffs were released on suspended sen- more antennae, base stations and fibre-op- tence that he had been coerced by Ms Park tences at the appeals stage, compared with 1 The Economist February 10th 2018 Business 59

2 only 64% ofordinary corporate criminals. ended up reporting itself to Britain’s Seri- A350 jets and cost overruns on its A400M In the past, kinder treatment has often ousFraud Office and to France’sequivalent military transporterare still hurting profits. been justified by pointing to the economic body for lying to export-credit agencies That will not help Airbus’s margins, might of the chaebol (Samsung alone ac- about bribes given by third-party consul- which have been lower than Boeing’s. In counts for one-fifth of South Korea’s ex- tants to secure sales. In October Airbus 2012-16 the American planemaker had an ports). That defence is wearing thin. Sam- said it may have violated American rules average margin of 7.5% and Airbus just sung has been thriving without Mr Lee. A on arms exports because of fees paid to 4.3%. Airbus’s shares have underper- global semiconductor boom led it to post sales agents to secure deals. Austrian and formed, too; in 2017 they rose by a third as record profits in 2017, and last month the German authorities are also investigating much as Boeing’s. The European group’s company announced its first stocksplit. bribery claims tied to the sale of $2.1bn- operational problems alone do not explain Outside the courts, the mood is unfor- worth of Eurofighter jets back in 2003 (Mr this, says Adam Pilarski, an economist giving. An online petition calling for an in- Leahy is not implicated in any scandals). who worked forMcDonnell-Douglas, now vestigation into the bias of the judge Analysts at Kepler Cheuvreux, a broker, part ofBoeing. The riskofpolitical interfer- gained 212,000 signatures in three days. estimate that Airbus may face fines of up to ence at Airbus—which can raise costs by That would threaten the independence of $3bn as a result of the investigations. That forcingit to keep unprofitable factories and the judiciary, says Mr Choi, “but you can is not so unusual in the aerospace busi- aircraft programmes—worries investors. see why citizens are angry”. They must ness. Last yearRolls-Royce, an engine-mak- With Mr Enders’s departure, that factor now trust Moon Jae-in, the left-leaning er, agreed to cough up £671m ($809m) to may loom larger. He fought in recent years president, who has vowed to stop collu- settle regulators’ allegations that it had to reduce governmental influence and sion between corporates and politicians. used third-party consultants to secure make Airbus more normal. As Allan McAr- A final judgment is still to be made at sales with bribes. In 2006 Boeing was tor, a former chairman of Airbus North the Supreme Court, where Mr Lee’s fate fined $615m for using corruption to win America, puts it, the firm no longer wants could take yet another turn. But his release military contracts from the Pentagon. to be seen as a European planemaker in leaves many convinced that the old ways Mr Enders reckons the answer is to em- America orChina but as a local one. In 2013 persist. In 2009 the elderLee gothispardon ulate Rolls’s response—co-operate with in- the French and German governments lost to help secure South Korea’s bid for the vestigators, excise corruption and oblige theirrightto appointdirectorsto the board. Winter Olympics. Less than a decade later, top bosses to take responsibility. In 2016 Mr Yet President Emmanuel Macron of France in the very week that the Games start, his Enders closed the sales unit in Paris that recently hinted that he sees Airbus as a son has also walked free. 7 had hired the external sales consultants European champion against the Ameri- who gotAirbusinto trouble, callingit “bull- cans and Chinese. shit castle”. He has tightened compliance So investors now want a strong new Airbus and is not seeking another term himself. boss, able to push back against national That has reportedly irked Airbus’s stakeholders. Many think the real test of Changing the French staff as well as some civil servants Mr Enders’s transformation of Airbus into at France’s defence ministry (the French a normal company is whether the board pilots and German governmentseach own 11% of can avoid appointing a Frenchman or Ger- the firm). They say Mr Enders is going too man to the top job. “As half their business SINGAPORE far in making cultural changes at its head- now comes from Asia, it should be natural quarters in Toulouse. A perception that Mr to look further afield,” says Sandy Morris Corruption probes could mean revived Brégier may have been connected with of Jefferies, a bank. The job of sales chief national rivalries at the aerospace giant those in the French business establish- used to be reserved for a Briton. In the HE success of Airbus is intimately ment making such complaints turned Air- 1990s Mr Leahy, an American import, “Tlinked to the success of John,” says bus’s board against his bid to succeed Mr broke that tradition, and did rather well. 7 Eric Schulz, successor to John Leahy, who Enders. Instead, the board is firmly behind has been chief salesman for the plane- Mr Enders’s approach. The firm needs to maker since 1994. Mr Leahy’s aggressive secure a settlement with investigators, for strategy to gain orders expanded Airbus’s which a sweeping change in management market share for civil jets from 18% in 1994 is needed. Prosecution, after all, could lead to over 50%. Salesmen at Boeing, Airbus’s to a ban on public contracts, damaging its rival, say they wish their bosses were as defence arm. good. But this year’s Singapore Airshow, The search is on fora new generation of which began on February 6th, will be Mr top executives. Investigations aside, they Leahy’s last before retirement. will inherit a mixed bag. Airbus’s A320neo That is in itself a big change for Airbus, short-haul aircraft are flying offthe shelves but staff turnover does not stop there. In and have a market share of 59% in the fight December the firm said Tom Enders, its against Boeing’s rival 737 MAX. Its acquisi- German-born chief executive, would step tion of half of Bombardier of Canada’s C- down in 2019; his French second-in-com- Series programme for one dollar last au- mand, Fabrice Brégier, will leave this tumn will strengthen its position in the month. These changes follow the news market for smaller jets. But Airbus is strug- that several countries, including Britain, gling to shift the rest of its range. Its larger France and America, are investigating alle- wide-bodies were outsold almost 4:1 by gations that in the past Airbus bribed offi- Boeing in 2017. It is also running out of or- cials to win contracts. That created divi- ders for the A380. Although Emirates or- sions between French and German dered a further 36 last month, keeping pro- executives over how to respond. duction going until 2030, some analysts The recent troubles began in 2014, think that producing a trickle of superjum- when an internal review of supplier pay- bos could lose Airbus up to €250m a year. ments at Airbus exposed irregularities. It Production problems on its A320neo and 60 Business The Economist February 10th 2018

Mining even afterHNA was amongthose firms sin- Treasure chest gled out for scrutiny by China’s banking They don’t dig it Congo’s mining output regulator last June for their risky debt-fu- HNA As % of world production, 2016 elled purchases—is over. In January told creditors that it would face a probable Cobalt 54 cash shortfall ofat least15bn yuan ($2.4bn) Industrial CAPE TOWN 19 in the first quarter ofthis year. diamonds HNA has assured investors that this is a Mining firms are dismayed by a new Refined 5 routine year-end squeeze. But more worry- Congolese mining law copper ing reports have trickled out, such as of OBERT Friedland, the boss of Ivanhoe As % of exports, 2015 banks briefly suspending unused credit HNA RMines, a large Canadian firm that digs Cobalt Refined copper Other lines to affiliates after missed pay- out copper and zinc in Africa, is not one for ments. In the past two months, nearly half pessimism. In hisspeech to an annual min- Sources: USGS; Observatory of Economic Complexity of HNA’s 16 units listed in China have sus- ing industry jamboree, Mining Indaba, in pended their shares from trading after Cape Town, his promises about the poten- ident finished in December2016 and yet he steep falls. In four cases, more than 50% of tial of the business were as copious as the remains in office. Protests since then have the shares are pledged to lenders. ore bodies his firm mines. But amid the hy- led to hundreds of deaths at the hands of The group has an estimated 43bn yuan perbole about electric cars, Chinese con- police; new armed rebellions have broken in bond repayments due this year and sumers and the “most disruptive copper out both in the east and south-west of the next. Partly to meet this obligation it is re- discovery in the world” there was a note of country. Squeezing miners may be Mr Ka- portedly hopingto sell around 100bn yuan panic. Money, he warned, is “a coward”, bila’s only chance of raising the funds he of assets over the next six months, includ- and may be about to flee. desperately needs to stay in power. ing offices in New Yorkand London and re- The cause of fear is a new mining code Perhaps the real worry should be that sorts in French Polynesia. It will list Swiss- that was passed by parliament in the he might fall. Although Congo’s wealth port, the world’s biggest airport-servicing Democratic Republic of Congo on January hasbeen exploited byWesternerssince the company, which it bought in 2015. But 24th. Congo is Africa’s biggest copper pro- Victorian era, most of the current industry shedding assets will not necessarily mean ducer; its reserves, mostly in the southern dates back only as far as 1997, when Mr Ka- a cash windfall. It snapped up many of its copper belt, are among the world’s richest. bila’s father, Laurent Desire, came to pow- assets abroad by pledging shares in target As important, it has emerged recently as er. Many of the most profitable mineral companies as collateral, meaning that the world’s leading producer of cobalt, a rightswere boughtthrough Dan Gertler, an most sale proceeds would go to creditors. by-product of copper smelting that is used Israeli billionaire who is a close friend of Analysts had foreseen an unravelling in batteries for electric cars. It also pro- the president. In December Mr Gertler was for some time, before even the regulatory duces gold, zinc, tin and diamonds. added by America’s Treasury to a sanc- wrist-slapping. A Chinese business expert The newlaw, which hasyetto be signed tions list; it said he had “amassed his for- calls HNA’s empire-building “a classic case by Joseph Kabila, the country’s embattled tune through hundreds of millions of dol- ofoverextending”. Forfive yearsithas only president, drastically raises royalty rates lars’ worth of opaque and corrupt mining been able to service its debts by taking on paid to the government on most of the and oil deals” in Congo. If Mr Kabila is renew ones. Returns on its investments have mineralsextracted in the country. Ifsigned, placed, everythingcould be up forgrabs. 7 not exceeded 2% in almost a decade, ac- it will, unlike most revisions to mining cording to calculations by Bloomberg, a codes, go into effect immediately. Such data provider. As a result, HNA’s ratio of rates will rise from around 2% to around The unwinding of HNA debt to earnings before interest, deprecia- 3.5% on most metals. But they could go up tion and amortisation is around a lofty ten, to as much as10% on cobalt, under a clause Flight of fancy estimates Standard & Poor’s, a ratings agen- allowing the government to designate cer- cy. Bond investors have grown nervous, tain metals as “strategic”. and the firm’s financing costs have soared. Minersare livid. “Thisisbad forthe con- HNA is not alone in facing severe head- tinent, as well as for the industry,” says HONG KONG winds. Several peers were also chastised Mark Bristow, boss of Randgold, a London- fortheir own spree offoreign purchases, as One ofChina’s most voracious overseas listed firm with a large gold mine in the regulatorsclamped down on outflows. Da- investors comes down to earth north-east of the country. He says higher lian Wanda, a property developer that is royalties and tax hikes could eat up his HE ascent of HNA, an aviation-to-fi- building an entertainment business, was firm’s profits and stifle future investment. Tnancing giant, began on six wings and forced to dispose ofmost ofits tourism and Yet Congo has had a new mining law in a prayer. It started out as Hainan Airlines, theme-park assets to rivals in a 63bn-yuan the works since 2012. The current code was set up on China’s southern palm-fringed fire sale, the biggest property deal in Chi- introduced in 2002, when large tracts of island in 1993 with three planes, in a joint na’s modern corporate history. This week the country were still occupied by rebels. venture between a Buddhist businessman, it agreed to sell shares worth 7.8bn yuan in Many analysts think it is too generous to Chen Feng, and the local government of its domestic cinema and film-production miners. Congo “has not done as well from Hainan. In 2000 the firm became HNA business to Alibaba. That swift divestment its minerals as it would have liked,” says Group and, from a Buddha-shaped head- has given it more of a cushion than HNA, Amir Shafaie of the Natural Resource Go- quarters, Mr Chen built his enterprise into which has so far announced only one big vernance Initiative, a London-based NGO. an empire with more than $150bn in assets. property sale in Australia, two months If there is a surprise, it ought to be that the Foreign trophies came next. The firm bor- after a promise to shed investments. royalty increases came only now. rowed heavily to finance deals worth Still, few think the firm will be left to Miners seem confident that the law $50bn since 2015 over six continents, in- flounder. Political connections are thought could yet change, but that may be wishful cluding a 25% stake in the Hilton hotel to help explain why HNA dodged the more thinking. The Congolese government faces group and 9.92% ofDeutsche Bank. severe restraints placed on its peers: its a growing crisis of legitimacy. Mr Kabila’s In recent weeks it has become clear that founder has not been called in for ques- second, and supposedly final, term as pres- its gorging—which had continued apace tioning, unlike those of both Fosun, an in-1 The Economist February 10th 2018 Business 61

2 dustrial conglomerate, and Anbang, an in- for Hainan province last week, alongside serve before the price of oil plummeted surance firm (whose boss has not China’s foreign minister. and such indulgences were judged inap- reappeared since his detention in June). Some muse on the possibility ofa more propriate. Mr Gilman’s idea was to pre-ap- Last year an allegation surfaced that one of profound restructuring—a government- prove the land for industrial uses and sell its shareholders was a relative of Wang sponsored decision to hand its aviation tracts ofit to firms wishing to build swiftly. Qishan, who led an anti-corruption cam- empire to one of China’s national carriers, He recalls looking out at the park after paign until last year (HNA denies this). perhaps. The most likely outcome for now the purchase, and thinking that it would As recently as December, eight big state- is that HNA is forced to sell a string of easy- take three generations to sell it all. He sold owned banks publicly pledged their sup- to-offload assets to domestic buyers, in ar- plots to small firms and some big ones, like port for HNA. A longtime observer of Chi- eas such as transport and logistics, as Wan- Walmart, butduringthe GreatRecession of na says that the lenders must trust that the da did last year. Mr Chen’s ambition, to 2007-09 sales dropped precipitously. Dur- company still has some worthwhile ties to propel HNA into the ten biggest firms in the ing the lean years TRI relied in part on cash the Communist Party to do so. Mr Chen rankingofFortune 500 companiesby2025, from another of Mr Gilman’s businesses: was invited to attend a promotional event seems a faint prospect. 7 the brothel, called Mustang Ranch, that houses the Wild Horse Saloon. “Without Mustang Ranch, there might not be TRI,” Industrial property Mr Gilman says from a red, faux crocodile- skin chair in an office at the bordello. Everything’s bigger in Nevada Things turned around in 2013. Repre- sentatives from Tesla flew in for a meeting. They had been scouring the country for a site for their battery plant but had not found anywhere that would allow them to RENO build fast enough. How long would it take to get a grading permit (required when to- How a brothel ownercreated the world’s biggest industrial park pography is significantly altered), they AST the neon lights of Reno and the Jones LangLaSalle (JLL), a commercial real- asked? In jest, Storey County’s community Pcookie-cutter homes of neighbouring estate firm. The proportion of industrial development director pushed a permit Sparks, the I-80 highway winds through a property in America that is vacant has across the table and told the visitors to fill it thinly populated expanse of arid hills and plunged from 10.2% atthe startof2010 to an out. The reality was not much slower: Tesla lunarvalleysin StoreyCounty. On one side all-time low of 5% at the end of 2017, notes got its permit within a few days. of the road flows the Truckee River; on the CraigMeyerofJLL. Almost all new space is That initial deal raised TRI’s profile. other bands of wild horses forage for being built in parks that are pre-planned Switch, Google and eBay soon followed. parched grass. Signs of civilisation are re- and pre-zoned, he says. Companies can get Not long afterwards Mr Gilman began restricted to electricity pylons and the odd up and running quickly—standalone sites ceiving cheques from companies wanting rundown farmhouse. The Wild Horse Sa- are rare. One of TRI’s anchor tenants calls to buy land in the park without even tour- loon, a darkand smoky room connected to TRI an “industrial wonderland” for the ing it. They are often technology firms; a a legal brothel, is the only sit-down restau- speed at which firms can move. quarter of leasing demand for American rant formiles. It is not an area that immedi- Yet the park might have served a rather industrial space comes from e-commerce ately seems conducive to hosting a busi- different purpose. Along with a partner, companies wanting to expand operations. ness park. Yet Storey County in Nevada is Lance Gilman, an affable businessman In January a firm deploying blockchain home to the world’s largest by some mea- whose uniform consists of cowboy hats, technology purchased 67,125 acres of TRI sures: the Reno Tahoe Industrial Centre crocodile-skin boots and turquoise jewel- land. Out of the 104,000 acres, only a few (TRI). The park spans 104,000 acres in to- lery, purchased the land that now forms hundred acres are still available. Gazing tal—three times the size ofSan Francisco. the TRI for$20m from Gulf Oil in 1998. The out at a cluster of busy warehouses from a Near its eastern border hulks Tesla’s oil company had planned to stuff it with hilltop in the park, Mr Gilman chuckles: “I “gigafactory”, a gargantuan white struc- big game and use it as a luxury hunting re- guess I sold myselfout ofa job.” 7 ture where the company hopes to produce batteries for 500,000 electric cars a year. It already has nearly 5m square feet ofopera- tional space; when complete, the firm’s founder, Elon Musk, expects it to be the world’s largest building. In February 2017 Switch, a provider of data centres, opened the biggest in existence on its “Citadel Campus” in TRI. A few months later, Goo- gle snapped up 1,210 acres ofland—enough to fit nearly 100 American football pitches. One executive whose company owns land in the park muses that no other bit of industrial America has a higher level of investment per square foot. Demand for industrial property is rising nationally thanks to the strength of the economy and the boom in e-commerce. Long the ugly duckling of commercial property, warehouses and distribution centres are now emerging as “beautiful swans”, according to a recent report by Lance Gilman, tech-titan whisperer 62 Business The Economist February 10th 2018 Schumpeter Tata’s next chapter

India’s largest business should be run as a profit-seeking holding company is not a state-owned firm or a charity, and outside shareholders have $85bn tied up in Tata firms. They expect profit, not glory. Alternatively, Tata could be run as a conglomerate, like General Electric in its prime. But it has legal control of only 62% of its empire, based on the value of firms in which it has a majority stake. Its gems—TCS, JLR and Titan, a jeweller—are largely autonomous. The best path is to be a holding company that makes strategic investments but does not normally exercise operational control, like Berkshire or Investor AB in Sweden. After all, Tata Sons does not have an equal interest in all Tata-branded firms. Chandra is a director of some operating firms but derives his authority from being chairman of Tata Sons. Once Ratan Tata retires, the trusts will probably be run by arm’s length boards focused on their fi- duciary duty to hold Tata Sons accountable forits performance. Viewed as a holding company, Tata Sons has a net asset value (the market or book value of its stakes, less its debts) of $84bn. Its NAV has risen by 547% since 2007, beating India’s stockmarket, which made a total return of151%–a strong performance but one mostly due to its 74% stake in TCS, which comprises 84% of NAV. OfTata Sons’ 289 affiliated businesses, 126 are lossmaking. Valued at book, 66% ofTata Sons’ investments overthe years sit in under- ACED with complexity humans often resort to a heuristic, a performing units with a return on capital ofless than 10%. Frough mental template that gets the job done. That could come Tata Sons should set clear targets. It should aim to continue to in handy at Tata Group, India’s largest business, whose dizzying grow its NAV faster than India’s stockmarket and its profits faster mix ofscale, palace politics and sense ofmoral purpose defy any than nominal GDP. By 2030 that would allow the trusts to have a categorisation. Tata’s boss, Natarajan Chandrasekaran, known as budget to match the present budget ofthe Gates Foundation. Chandra, has been in the job fora year. He spent 2017 pepping up It may sound easy, but there probably will not be another tri- morale and extinguishing fires. Now he must squeeze Tata into a umph like TCS to prop up performance. So Tata Sons must be new strategic frameworkthat clarifies its structure and purpose. ruthless. It must ensure that the stars, TCS, JLR and Titan, continue Is it a 150-year-old national monument, a philanthropic vehi- to thrive, which means leaving them alone. And it needs new cle or a conglomerate? In Schumpeter’s view Tata should instead growth businesses. Buried within it are promising operations, in- be positioned as a holding company—like Berkshire Hathaway cludingits retail, defence and financial-services arms. To grow big but minus the personality cult and with Indian characteristics. these will require piles of capital. For example, Tata’s financial Tata is a handful. It has 695,000 staff and is active in 17 indus- business, which should be a big beneficiary of its trusted brand, tries. Its family of firms has a market value of $155bn. It mixes vir- has a bookvalue of$2bn and ranks only 27th in India’s industry. tue with profits; Tata’s leaders are expected to exude decency and Dealing with the underperformers is critical. Surprisingly, probity. The group was an early supporter of Mahatma Gandhi, Chandra has given a second chance to two serial offenders. He led India’s industrialisation drive in the 1940s and played a big has approved a capacity expansion at Tata’s domestic steel oper- part in the IT-outsourcing revolution in the 1990s. ation. And he has supported a new strategy at Tata’s domestic A structure with three layers, largely an accident of history, trucks and cars unit, which has lost market share. Over 25 years magnifies the complexity. At the bottom are 289 operating com- these two have generated acceptable returns on equity only panies, a dozen of which are big and listed. In the middle is Tata about halfthe time. It is unlikely that they will do much better. Sons, a holdingfirm thatownsstakesofvaryingsize in the operating businesses (Chandra is chairman of Tata Sons). It is in turn Time forSons to grow up majority-owned by the Tata family trusts, charities led by Ratan Elsewhere, though, Chandra has shown backbone. He has sold Tata, the group’s 80-year-old-patriarch, who has no direct heirs. Tata’s toxic mobile-telecoms arm and is folding Corus into a joint The resultingambiguity has led Tata to be too tolerant ofweak venture with Germany’s ThyssenKrupp. Although these deals businesses and to a complicated succession. Mr Tata, who was eliminate the risk of giant losses, they have not released much chairman between 1991 and 2012, led a bold globalisation drive, capital. To do that Chandra should grit his teeth and sell offall the which included the acquisitions of Jaguar Land Rover (JLR) and peripheral stakes and businesses. That could raise $8bn, making Corus, a British steel firm. But he neglected profits and roamed Tata simpler to run and fortifying its balance-sheet. To succeed, over all three layers. His successor, Cyrus Mistry, tried to cull bad holdingcompaniesneed to be a source ofbrainsand money rath- businesses but suffered from paralysis-by-analysis and fell out er than dependents offirms they invest in. Tata Sons’ debt has ris- with MrTata (he wasousted in 2016 and isnowsuingTata Group). en to $10bn, shrinking its kitty. It may need to buy out Mr Mistry’s Chandra created $60bn of value when he was boss of TCS, family, which has an 18% stake in Tata Sons, worth $15bn. Tata’s IT services arm, in 2009-17, and is known for metronomic Under Chandra, Tata Sons should aim to be a muscular hold- consistency. His superb record gives him a licence to ask hard ing firm that invests in competitive businesses and produces questions and makes it hard for Mr Tata to object. strong returns for its owners. That description cannot possibly Afewromanticswantthe group to be a vehicle forbuilding up capture the epic scale of human endeavour within Tata. But as a the nation, a goal with which the trusts may sympathise. But Tata way to position the group forthe next150 years, it does the job. 7 Finance and economics The Economist February 10th 2018 63

Also in this section 64 Betting on volatility 64 The slide in digital currencies 65 Buttonwood: Index-tracking 66 Insider trading 67 Wells Fargo, capped 67 South-to-South investment 68 Free exchange: Central banks, technology and productivity

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

Markets nancial markets through low interest rates and quantitative easing (bond purchases Boo! with newly created money). There was much talkofan era of“secular stagnation”, in which growth, inflation and interest rates would stay permanently low. But the Federal Reserve and the Bank of England are now pushing up interest rates, and the European Central Bank is cutting Aftera long period ofcalm, investors get a shock its bond purchases. Future central-bank VERY good horror-film director knows placency was the unwillingness of inves- policy seems much less certain. A pickup Ethe secret of the “jump scare”. Just tors to pay for insurance against a market in global economic growth may naturally when the hero or heroine feels safe, the decline, something that showed up in the lead to fears of higher inflation. The World monster appears from nowhere to startle volatility, or Vix, index. Funds that bet on Bank warned last month that financial them. The latest stockmarket shock could the continuation of low volatility lost markets could be vulnerable on this front. have been directed by Alfred Hitchcock. heavily (see box on next page). Bond yields have been moving higher The sharp falls that tookplace on February The wobble may also reflect a decision since the autumn; the yield on the ten-year 2nd and 5th followed a long period where byinvestorsto rethinkthe economicand fi- Treasury bond, 2.05% on September 8th, the only direction for share prices ap- nancial outlook. Ever since 2009 central reached 2.84% on February 2nd. On that peared to be upwards. banks have been highly supportive of fi- day American employment numbers In fact the American market had risen were released, showing that the annual so far, so fast that the decline only took rate of wage growth had climbed to 2.9%. share prices backto where they were at the It’s behind you… That suggested inflation may be about to start ofthe year (see chart). And although a move higher. Furthermore, the recent tax- 1,175-point fall in the Dow Jones Industrial January 2nd 2017=100 cutting package means that the federal def- Average on February 5th was the biggest 160 icit may be over $1trn in the year ending ever in absolute terms, it was still smallish MSCI emerging markets index September 2019, according to the Commit- beer in proportionate terms, at just 4.6%. 140 tee for a Responsible Federal Budget, a bi- The 508-point fall in the Dow in October partisan group. Making such a large 1987 knocked nearly 23% offthe market. 120 amount of bonds attractive to buyers Still, surprise rippled round the world. S&P 500 might require higher yields. Between January 29th and early tradingon 100 Higher bond yields are a challenge to February 7th, the MSCI Emerging Markets the markets in a couple of ways. First, by Index dropped by 7.5%. The FTSE 100 index 80 raising the cost of borrowing for compa- fell by 8.2% from its record high, set in Janu- 2017 2018 nies and consumers, they may slow eco- ary. A late recovery on February 6th, in nomic growth. Second, American equity US ten-year Treasury-bond yield, % which the Dow rebounded by 2.3% (or 567 valuations are very high. The cyclically ad- points), restored some calm. 3.0 justed price-earnings ratio (which averages What explains the sudden turmoil? Per- profits over ten years) is 33.4, compared 2.5 haps investors had been used to good with the historical average of 16.8. Equity news for so long that they had become bulls have justified high stock valuations 2.0 complacent. In a recentsurveyinvestors re- on the ground that the returns on govern- ported theirhighest exposure to equities in ment bonds, the main alternative asset 2017 2018 two years and their lowest holdings of class, have been so low; higher yields Source: Thomson Reuters cash in five. Another sign ofpotential com- weaken that argument. 1 64 Finance and economics The Economist February 10th 2018

2 Most analysts seem to thinkthat the lat- alysts are right to be sanguine. The first is Digital currencies est equity decline is a temporary setback. whether the recent gyrations in the stock- BlackRock, the world’s largest asset-man- market were reactive, responding to the re- Crypto-correction agement group, has called it “an opportu- cent rise in bond yields, or predictive, in nity to add risk to portfolios”. Economic- the sense ofspotting future trouble. growth forecasts are still strong. Fourth- The second relatesto the theories ofHy- quarter results for companies in the S&P man Minsky, an economist who argued 500 index have so far shown profits up by that when growth has been strong for a Bitcoin and co turn out to offeranything 13% and sales 8% higher than the previous while, investorstend to take more risk. This but a shelterfrom the storm year. Tax cuts will give profits a further lift risk eventually rebounds on them, just as and companies may return cash to share- in 2007, when subprime mortgage loans HE “biggest bubble in human history holders via share buy-backs. All this will proved worthless. Perhaps the slump in Tcomes down crashing,” tweeted Nou- provide support forshare prices. volatility-based funds or even crypto-cur- riel Roubini, an economist, gleefully. After Meanwhile inflation worries seem pre- rencies could cause a crisis at some finan- an exhilarating ride skywards in 2017, in- mature. Core inflation in America (exclud- cial institution, inflicting a dent in confi- vestors in crypto-currencies have been ing food and energy) is just 1.5%. Despite a dence more generally. rudely reminded that prices can plunge higher oil price, Bloomberg’s commodity For the moment such dangers seem earthwards, too. In mid-December the index is nearly where it was a year ago. The possibilities rather than probabilities. But price of bitcoin was just shy of $20,000; by same goes for American inflation expecta- like a horror-movie audience, once inves- February6th, ithad fallen to $6,000, before tions, as measured in the bond market. tors have been scared once, they may recovering a little (see chart). Two issues will determine whether an- prove twitchy fora while. 7 And bitcoin is not the only digital currency to have fallen. Figures from Coin- MarketCap, a website, show that the total Betting on volatility market capitalisation of crypto-currencies has fallen by more than half this year, to Vexed about Vix under $400bn. This slide has taken place amid a flurry of hacks, fraud allegations and a growing regulatory backlash. The niche financial products that became central to the market turmoil Perhaps the most damaging allegations HE Cboe Volatility Index, or Vix, surround Tether, a company that issues a Tknown as the “fear gauge”, spikes Vix vapours virtual currency of the same name. Tether when markets are most jittery. When Exchange-traded products, price, $ allows users to move money across ex- Sandy Rattray, now at Man Group, an changes and crypto-currencies without 600 asset manager, worked on the Vix in the Largest “long” converting it back into “fiat” (central-bank- fund (VXX) early 2000s, he and his team considered 500 backed) money first. In theory, each Tether launching an exchange-traded product is worth one dollar, and the company has (ETP) linked to it, but concluded that it 400 enough greenbacks to redeem them all. would be a “horror show” because of 300 But critics allege that the currency may poor returns. Now, however, Vix-linked simply have been used to prop up bitcoin. ETPs are a big industry, with around $8bn 200 They say that suspiciously large quantities Largest “short” in assets. Formerly niche investments, fund (XIV) 100 of Tether were issued whenever the bit- they served vastly to exacerbate this coin price was low, and were allegedly week’s market turmoil, which saw the 0 traded for bitcoin on Bitfinex, a large cur- 2015 16 17 18 Vix’s largest ever one-day move, when it rency exchange. It is not known if Tether Source: Bloomberg more than doubled on February 5th. has the $2.2bn needed to back its outstand- The Vix was always intended as a ing tokens. Its relationship with its auditor basis for financial products as well as a funds were the largest holders, but retail appears to have ended in recent months. gauge. Vix futures were launched in 2004 investors may have bought some, too. The company itself has been silent (in- and options in 2006. “Long” Vix pro- As February 5th showed, however, cluding in responding to The Economist). ducts, which Mr Rattray looked into, seek short-Vix ETPs can collapse spectacularly Both Tetherand Bitfinex—which are report- to mirror the index . The problem is that when things go wrong (see chart). A ed to have the same boss—are under inves- this means buying futures contracts, with bearish twinge sent the index up; as tigation by regulators in America. Should 1 buyers having to pay a constant premium short-Vix funds lost money, they had over spot prices. So these ETPs tend to frantically to hedge their exposure in the lose money over time, punctuated (but futures markets. This led to a feedback Down a bit not fully made up for) by gains when the loop that drove up the Vix itselfand $ per bitcoin Vix spikes. The largest “long” fund, VXX, affected broader markets. Credit Suisse’s 20,000 issued by Barclays, has lost over 99.9% XIV lost over 92% ofits value on February since its launch in 2009. 6th. The bankpromptly said it would So other ETPs were developed to redeem the product and close the fund. 15,000 “short”—ie, bet against—the Vix index. That is unlikely to be the end of the Until this week, they were doing hand- saga. Mis-selling claims by private in- 10,000 somely. Amid a long spell ofsubdued vestors in short-Vix products are in pros- volatility, investors piled in. In January, pect. Yet ifsuch products fall out offash- 5,000 assets in short-Vix funds hit a record of ion, new ones are sure to take their place. $3.7bn. Credit Suisse issued the largest, Investors are, it seems, ever happy to pick cutely known as XIV (reverse-Vix), which up pennies in the road, unaware ofthe 0 2017 2018 alone held over $1.9bn. Banks and hedge approaching steamroller. Source: Bloomberg The Economist February 10th 2018 Finance and economics 65

2 the suspicions prove true, a further rush valued at around $2.5bn. change Commission, two regulators, testi- out ofcrypto-currencies might follow. Regulators continue to weigh in. Bitcoin fied to a Senate Committee this week; they Recent weeks have seen other bad “has become a combination of a bubble, a agreed on the need to protect investors, al- news. In Japan authorities raided the of- Ponzi scheme and an environmental disas- beit without stifling innovation. fices of Coincheck, a virtual-currency ex- ter”, Agustín Carstens, the head of the Banks, too, are alert to trouble—from change, after $530m was stolen in the larg- Bank for International Settlements, potential losses, particularly on unsecured est ever crypto-theft. In America regulators warned this week, calling for more over- lending, or from falling foul ofanti-money- shut down an “initial coin offering” (which sight. National authorities are obliging. laundering rules. Several, including Citi- raises funds by selling digital “tokens”) by Chinese regulators have banned crypto- group and JPMorgan Chase in America, AriseBank, alleging an investor scam. And currency tradingon both domestic and for- and Lloydsin Britain, tookthe unusual step BitConnect, a platform that borrowed cus- eign platforms, and the Indian finance of banning customers from buying crypto- tomers’ crypto-currency in exchange for minister has promised to crack down on currencies with their credit cards. monthly returns, folded in mid-January their use forillicit activities. In America the Diehard believers—dubbed “crypto- following allegations that it was running a heads ofthe Commodities Futures Trading crazies” by Mr Roubini, who is the oppo- Ponzi scheme. Atitspeakthe company was Commission and the Securities and Ex- site—see such restrictions as a typical back-1 Buttonwood Breaking the bonds

Passive funds tracking an indexlose out when its composition changes S THERE hope for fund managers after quently. That is because, whereas equities Iall? Conventional “active” managers, are permanent capital, bonds have shor- who try to pick stocks that will beat the ter maturities (and some issuers default). market, have been losing ground to “pas- For an investment-grade index, the turn- sive” funds, which simply own all assets over is 49% a year and for high-yield, or in a given sector in proportion to their “junk”, securities, it is 93%. So trading market value. The main advantage of the costs will be markedly higher. latter group is that they charge a lot less. Another flaw in tracking corporate- William Sharpe, a Nobel prize- bond indices, weighted by market value, winning economist, argued in 1991 that is that investors end up with the biggest the “arithmetic of active management” exposure to the most indebted compa- means that the average fund manager is nies. All this suggests that fund managers doomed to underperform. To understand might have more scope to beat bench- why, assume that there are equal num- marks in bond markets than they do in bers of active and passive managers and, equity markets. Another paper by Mr Pe- between them, they own all the market. dersen’s colleagues at AQR (“The illusion The market returns 10%. How much will of active fixed-income diversification”) the passive managers earn? The answer now own less than halfthe market. showsthatfixed-income managersdid in- must be 10%, before costs. The active man- So passive investors have to trade to deed outperform their benchmarks, after agers own that bit of the market the pas- keep their portfolios in line with the index. fees, over the 20 years from 1997 to 2017. sive managers don’t. But that proportion That gives active managers the chance to But there is a catch. AQR finds that the of the market must, thanks to simple outperform. Shares in new issues tend to reason active managers outperformed arithmetic, also return 10%, before costs. rise when they float. Ifpassive investors do the indices is that their holdings were Since the costs of active investors are not take part in the flotations (because the highly correlated with junk-bond returns. higher, the average active manager must stocks are not yet in the index), they will These performed very well over the per- underperform. These numbers hold true, miss out on those gains. But suppose they iod asa whole. Buttheyexposed the man- regardless ofthe proportion ofthe market do take part. A popular new issue will be agers to more risk. Their decision might owned by the two groups. oversubscribed and passive investors will not have turned out so well. But Lasse Heje Pedersen, in a new pa- getfewersharesthan theydesire. They will Indeed, if investors were buying bond per* in the Financial Analysts Journal, have to top up theirholdings afterthe flota- funds in order to diversify from equities, takes issue with Mr Sharpe’s argument. tion when the issue has risen in price. Con- then the managers were actually under- Mr Pedersen, who is an academic and a versely, passive investors will get their full cutting their strategy. Economic scenarios principal at AQR, a fund-management allocation of shares in unpopular flota- that are bad forequities (recessions, rising firm, says that MrSharpe’s reasoningonly tions, which will probably fall in price. interest rates, falling profits) tend to be holds true if the composition of the mar- These points are valid. But how signifi- bad forjunkbonds as well. ket remains unchanged. cant are they? The average annual change It is one thing to discover a theoretical In practice, new companies float on in the composition of securities in the S&P way for active managers to outperform. It the market; others are relegated from—or 500 index is around 7.6%. On that basis, the is another to identify individual manag- promoted to—indicessuch asthe S&P 500; annual trading costs for a passive investor ers who can reliably do so. and some firms buy back their own might be about a quarter of a percentage shares. The holdings of those investors point. Even including the index manager’s ...... *“Sharpening the arithmetic of active management”, that were truly passive (ie, did nothing at fee, the total cost is still well below the by Lasse Heje Pedersen, Financial Analysts Journal, all) would cease to resemble the market. charges made by most active managers. January 2018. Someone who bought all listed American When it comes to bond indices, how- stocks in 1986 and did nothing would by ever, the market changes a lot more fre- Economist.com/blogs/buttonwood 66 Finance and economics The Economist February 10th 2018

2 lash designed to sow fear about a disrup- fall of 85% between 2013 and 2015 after Mt critical details about what came to be tive technology. But more moderate Gox, then the largest virtual-currency ex- called the Troubled Asset Relief Pro- crypto-proponents concede that regula- change, was hacked and collapsed. gramme (TARP), notably how much mon- tion can help. Albert Wenger of Union The price falls, however, may have ey would be involved and how it would be Square Ventures, a venture-capital firm, scared off some investors. Sarit Markovich allocated. This mattered hugely. The very says that rules making it easier for inves- of Northwestern University’s Kellogg survival of some institutions was at stake; tors to distinguish between good and bad School of Management says that many rein the end, hundreds of billions of dollars projects will take time to design, but tail investors bought crypto-currencies not were pledged. Knowing the structure and should ultimately support the market. And out of rational calculations but for fear of scope of the bail-out in advance would greater regulatory certainty could con- missing out. They have learned they are have been a vitally important piece of in- vince even conservative institutional in- not a one-way bet. That stockmarkets and formation forinvestors during this period. vestors to dive in, argues Matthew Goetz crypto-currencies fell in tandem on Febru- The paper examines conduct at 497 fi- ofBlockTowerCapital, an investment firm. ary 5th may also have scotched another nancial institutions between 2005 and After all, concerns about exchanges and notion: that bitcoin, a sort of “digital gold”, 2011, paying particular attention to individ- scams are hardly new. Bitcoin weathered a would benefit from a flight to safety. 7 uals who had previously worked in the federal government, in institutions including the Federal Reserve. In the two years Insider trading prior to the TARP, these people’s trading gave no evidence ofunusual insight. But in In the know the nine months after the TARP was announced, they achieved particularly good results. The paper concludes that “politically connected insiders had a significant information advantage during the crisis NEW YORK and traded to exploit this advantage.” The other papers use data from 1999 to The well-connected really do fare better—even during a financial crisis 2014 from Abel Noser, a firm used by insti- NSIDER-TRADING prosecutions have bers may befuddle a jury unless they are tutional investors to track trading transac- Inetted plenty of small fry. But many leavened with a few spicy details—exotic tion costs. The data covered 300 brokers grumble that the big fish swim off un- code words, say, or (even better) suitcases but the papers focus on the 30 biggest, harmed. That nagging fear has some new filled with cash. through which 80-85% of the trading vol- academic backing, from three studies. One The papers make imaginative use of ume flowed. They find evidence that large argues that well-connected insiders profit- pattern analysis from data to find that in- investors tend to trade more in periods ed even from the financial crisis.* The oth- sidertradingis probably pervasive. The ap- ahead of important announcements, say, ers go further still, suggesting the entire proach reflects a new way of analysing which is hard to explain unless they have share-trading system is rigged.** conduct in the financial markets. It also access to unusually good information. What is known about insider trading raises questions about how to treat behav- They could acquire such information in tends to come from prosecutions. But these iour if it is systemic rather than limited to several ways. The most innocent is that require fortuitous tip-offs and extensive, the occasional rogue trader. brokers “spread the news” of a particular expensive investigations, involving the ex- The first paper starts from the private client’s desire to buy or sell large amounts amination of complex evidence from meetings American government officials of shares in order to create a market, much phone calls, e-mails or informants wired held duringthe crisis with financial institu- as an auction house might do for a paint- with recorders. The resulting haze of num- tions. Not made public at the time were ing. But it is also possible, the papers suggest, that they give this information to favoured clients to boost their own business. Strengthening this argument is the finding that large asset managers which use their own affiliated brokers do not lose out. Large institutions can be both beneficiaries and victims of this sort of information leakage. But in general they are net gainers. The real losers, the papers conclude, are retail customers and smaller asset managers. Common to all the papers is the recognition that the public markets are, as conspiracy theorists have long argued, not truly public at all. Changing the law to fix that may not even be feasible. But at least, in large-scale data-crunching, a new type ofcorporate sleuth is on the case. 7 ...... * “Political connections and the informativeness of insider trades”, by Alan D. Jagolinzer and others, Rock Centre for Corporate Governance at Stanford University, Working Paper 222. ** “Brokers and order-flow leakage: evidence from fire sales”, by Andrea Barbon and others, NBER Working Paper 24089, December 2017; and “The relevance of broker networks for information diffusion in the stockmarket”, by Marco Di Maggio and others, NBER The joy of knowledge Working Paper 23522, June 2017. The Economist February 10th 2018 Finance and economics 67

Wells Fargo South-to-South investment If the cap ﬁts Developing ties

Poorercountries’ firms are branching out abroad, often next door NEW YORK T A meeting in Namibia last month countries first, to cut their teeth in a rela- A banking giant keeps taking punches Zimbabwe’s finance minister, Patrick tively familiar foreign market. fora scandal in 2016 A Chinamasa, made a pitch to lure African The trend toward South-to-South N HER way out, Janet Yellen, who investors to an economy ruined by Rob- investment is particularly beneficial for Ostood down as the Federal Reserve’s ert Mugabe. That he did so first in Wind- the world’s poorest countries, and would chair on February 2nd, paused to add yet hoek, not London or New York, is telling. be even bigger ifgovernments got out of anothersanction to those alreadyimposed Although flows through tax havens the way. According to the World Bank, on Wells Fargo forfoistingunwanted insur- muddy the data, 28% ofnew foreign 60% ofpoor countries curb outward FDI, ance and banking products on clients. The direct investment (FDI) globally in 2016 through cumbersome reporting require- latest punishment is a highly unusual one. was from firms in emerging markets—up ments, foreign-exchange controls or Wells will be blocked from addingassets to from just 8% in 2000. ceilings forspecific destinations or in- the $2trn held on its balance-sheet at the Chinese FDI, a big chunkofthis, dustries. Restrictions on inward FDI are end of 2017. Two other regulators had al- shrankin 2017 as Beijing restricted out- also common. Foreign banks in the Phil- ready imposed fines and penalties soon flows and America and Europe screened ippines can open no more than six local after the shenanigans began emerging in acquisitions by foreigners more closely. branches. In Ethiopia foreigners cannot 2016. The bankhas gone through a big reor- But the trend ofoutbound investment is own bakeries, hair salons, travel agen- ganisation. The Fed’s belated response pre- widespread. Almost all developing coun- cies, sawmills or much else. In 2013 Gha- sumably took into account not only the er- tries have companies with overseas na more than tripled its capital require- rant conduct but also the political fallout. affiliates. Most oftheir investment goes to ments forforeign-owned trading The government, as well as the bank, had the West. But in two-fifths ofdeveloping companies, bowing to local retailers been embarrassed. countries they make up at least half of irked by a proliferation ofNigerian shops. At first glance, Wells is an odd target for incoming FDI. In 2015-16 the ten leading Still, there are reasons foroptimism. such treatment. During the financial crisis foreign investors in Africa, by number of Kevin Ibeh ofBirkbeckUniversity in it proved itself the best of the big banks, new projects, included China, India, London says that the rise ofAfrican with relatively high underwriting stan- Kenya and South Africa. multinationals is a sign ofthe maturing dards and manageable losses. The scandal A World Banksurvey ofmore than ofprivate enterprise in the region. Some was huge—millions of clients were pushed 750 firms with FDI in developing coun- employ hundreds ofthousands ofwork- into unwanted products. But the financial tries found that those from developing ers. So they have clout in lobbying for costs were small and the bank’s contrition countries themselves were more willing better regulation and infrastructure, or (and readiness to pay compensation) high. to set up shop in smaller and higher-risk fortheir governments to intervene when On the other hand, its malfeasance was countries. And they were just as likely as another country mulls protectionist blatant, which is rare in finance. Also, it rich-country firms to reinvest profits in rules. All ofthis, says Mr Ibeh, may even was able to bear tough sanctions. And the their foreign affiliates. Peter Kusek from usher in better implementation ofva- Fed needed to make a statement about the the banksays that globally ambitious rious regional free-trade agreements, sharpness of its regulatory steel. In doing firms often start affiliates in neighbouring which so farexist largely on paper. so, it has made Wells, not long ago the model of a well-run bank, a model for ex- perimental punishment. tions, the cap on growth, will continue for to maintain returns, it may well be forced One aspect of the bank’s punishment at least 60 days, while a new risk plan is into gruelling cost cuts. (although the bank plausibly denies this drawn up for the Fed. After that it will stay Wells reckons that its profits in 2018 will formed partofthe agreementwith the Fed) in place for an open-ended period, subject drop by less than $400m—just a blip com- involves managerial change. The Fed’s an- to reviews. Unable to expand its balance- pared with the $22bn it made in 2017. But nouncement noted that four Wells direc- sheet, Wells will be unable to take advan- the market seemed to differ. The Fed’s an- tors will leave by the end of2018. tage ofa growing economy that seems like- nouncement came just before the week- A purge of directors had long been ly to crave credit and investment. Instead, end. When trading reopened on February urged by the bank’s critics, such as Senator 5th, Wells’s share price dropped by 9%, Elizabeth Warren. The board has already slashing $30bn from its valuation, a bad re- seen heavy turnover and nearly 6,000 em- Fargone sult even on a terrible day for the stock- ployees have been laid off, including a for- Share prices, July 1st 2016=100 market more broadly. mer chief executive, John Stumpf, and the This suggests that the largest constraints head of the division where most of the 250 on Wells’s future activities may be behav- Bank of transgressions took place. Other depar- America ioural. The bank says it can continue to tures continue quietly; the long-serving Citigroup 200 serve its customers and maintain returns. head ofriskannounced his resignation last Butitsprioritieswill surelylie in notgetting JPMorgan month. The Fed is keen to avoid the im- Chase 150 into any more trouble. The only area in pression given by past efforts to punish which it is likely to embark on a hiring Wells Fargo banks—such as levying fines—that the per- spree will be in regulatory compliance, 100 petrators of misdeeds had been spared where it has already added more than and that shareholders had borne the cost. 2,000 people in the past two years. Since Wells’s travails are sending a blunt warn- 50 the crisis, banks have not needed an ex- 2016 17 18 ing to directors at other banks. cuse to be bureaucratic or timid. In Wells’s The explicit component of the sanc- Source: Thomson Reuters case, it may find it has little choice. 7 68 Finance and economics The Economist February 10th 2018 Free exchange Great good to come

Central banks must occasionally gamble that fasterproductivity growth is possible stoking levels might find that this overheating lures discouraged workers backinto the labour force, and pushes firms to give them the training and equipment they need to thrive. Demand, in such cases, might create its own supply. In fact, the role of a central bank in managing productivity is even more fundamental than these theories suggest. Good monetary policy is essential to capturing the full benefits ofnew technologies. Suppose, for example, that a tech firm creates a cheap, AI-powered, wearable doodah as good in monitoring health and diagnosing ailments as going to the GP. Deploying it takes some capital investment and hiring, but also leads to much larger re- ductions in spending on conventional practices. In other words, this magical innovation leads to a rise in the productivity of health services. Hurrah for that! But the need to shift resources around in response to this disruptive new technology creates some difficulties. Spending on health care is a reliable source of growth in employment and in demand. A sudden drop in such growth might push an economy into a slump. The cost savings that consumers, health insurers and governments enjoy thanks to the new technology would help; perhaps some people would plough their newly saved cash into elective procedures like plas- N 1996 Alan Greenspan began asking why the flashy informa- tic surgery, at clinics which might then have to expand and hire Ition technologyspreadingacrossAmerica seemed notto be lift- new workers. But there is no guarantee that lost spending on doc- ing productivity. He was not the first to wonder. A decade earlier tors and related equipment will be offset by increases elsewhere. Robert Solow, a Nobel prizewinner, famously remarked that Indeed, in a paper published in 2006, Susantu Basu, John Fer- computers were everywhere but in the statistics. But Mr Green- nald and Miles Kimball concluded that advances in technology span was uniquely positioned, as the chairman ofthe Federal Re- are usually contractionary, tending to nudge economies towards serve, to experiment on the American economy. As the unem- slump conditions. They estimated that technological improve- ployment rate dropped to levels that might normally trigger a ments tend to depress the use of capital and labour (think, in this phalanx of interest-rate rises, Mr Greenspan’s Fed moved cau- example, stethoscopes and doctors) and business investment tiously, betting that efficiencies from new IT would keep price (new clinics) forup to two years. To those living through such pe- pressures in check. The result was the longest period of rapid riods, this depressing effect would show up in lower inflation growth since the early 1960s. Despite his success, few central and wage rises. That, in turn, suggests that an alert central bank bankers seem eager to repeat the experiment and many remain with an inflation target ought to swing into action to provide blinkered to issues other than inflation and employment. That is more monetary stimulus and keep price and wage growth on unfortunate. A little faith in technology could go a long way. track. That stimulus should spur more investment in growing Central bankers are not known to be a visionary bunch. Turn- parts of the economy, helping them to absorb quickly the re- ingnewideasinto more efficientwaysofdoingthingsis the job of sources freed up by the new, doctor-displacing technology and firms. The capacity of an economy to produce—the supply thus averting a slump. side—is primarily shaped by things such as technological pro- Two obstacles usually get in the way of such a benign out- gress, population growth and the skill level of the workforce. come. First, these steps unfold with a lag. The slowdown in price Monetarypolicyistypicallythoughtnotto influence this process. and wage growth will be gradual, as displaced workers tighten Its responsibility is the demand side of the economy, or people’s their belts and compete with other jobseekers for new employ- willingnessto spend. Central bankerstypicallysee themselves as ment. Central banks might then wait to see whetherlow inflation drivers who press on a vehicle’s accelerator and brakes. The state reflects a genuine economic trend or is merely a statistical blip. ofthe engine is someone else’s bailiwick. Even after they act, their tools take time to have an effect. Not all economists have seen so sharp a delineation between supply and demand. In 1973 Arthur Okun mused that in an econ- What is not seen omy with very low unemployment firms would coax more out- The greater difficulty may be the trouble that central bankers putoutoftheirworkers. More efficientfirmswould outbid lessef- have in imagining that dizzying technological change is possible, ficient ones for scarce labour, boosting productivity. By letting let alone imminent. And the risks they face are asymmetric. Had spending grow rapidly and unemployment tumble, a central MrGreenspan been wrong, the high inflation thatresulted would bank might induce productivity to grow faster. In the 1980s Olivi- have been there forall to see; had he played it safe, no one would er Blanchard and Larry Summers further developed this notion have known that a boom had been achievable. Such possibilities in their work on “hysteresis”. They reasoned that, if weak de- can only be guessed at; they are not found in the data. Sober tech- mand led to a longperiod ofjoblessness, workersmight find their nocrats are not given to leaps of faith. But to risk a bit of inflation skills becoming obsolete and their connections to the labour for a chance at a productivity-powered windfall is a wager more market eroding. A short-run monetary failure could create a long- central bankers should make. 7 run drop in supply. Correspondingly, a central bankthat responded to recession by allowing unemployment to fall to inflation- Economist.com/blogs/freeexchange Property 69

The Economist February 10th 2018 70 Science and technology The Economist February 10th 2018

Also in this section 71 A strange fossil spider 72 How fructose damages livers 72 Prospecting for lithium 73 The search for Amelia Earhart

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

Drones and guerrilla warfare sembled for less than the cost of a single shoulder-fired missile, let alone a modern Buzz, buzz, you’re dead combat aircraft. America’s F-22 fighter, for example, costs over $300m. A B-2 bomber is even more expensive. Even a lone drone can do plenty of damage. In Ukraine last year, drones operated by Russian separatists (or perhaps by Home-made and home-modified drones are now a threat to conventional Russian special forces) attacked several armies and navies ammunition dumps with incendiary gre- N ATTACK on Russian forces in Syria on claim, were intercepted before they could nades. They destroyed a number of these AJanuary 5th by 13 home-made drones cause any damage. However, several Rus- dumps, in one case setting off explosions is a good example of “asymmetric” war- sian aircraft were apparently damaged in which blew up a staggering 70,000 tonnes fare. On one side, exquisite high-tech an attack in Syria four days earlier, which ofmunitions. weapons. On the other, cheap-as-chips dis- was also, according to some accounts, car- A growing appreciation of the threat posable robot aircraft. Ten ofthe drones in- ried out by drones. And there will certainly from small drones has led to a rush for pro- volved attacked a Russian airbase at be other assaults of this sort. Guerrillas tection. Lieutenant-General Stephen Khmeimim. The other three went for a have been using commercial drones since Townsend, a former commander of Oper- nearby naval base at Tartus. Rather than 2015. IslamicState (IS), one ofthe groups ac- ation Inherent Resolve, America’s anti-IS being quadcopters, the most popular de- tive in Syria, makes extensive use of quad- campaign, has called weaponised drones sign for commercial drones, the craft in- copters to drop grenades. In 2017 alone the “the number one threat facing soldiers volved in these attacks (some of which are group posted videos ofover 200 attacks. IS fighting IS”. An American navy budget pictured above) resembled hobbyists’ has also deployed fixed-wing aircraft document describes the navy as “scram- model aircraft. They had three-metre based on the popular Skywalker X8 hobby bling to improve defences against the rap- wingspans, were built crudely of wood drone. These have longer ranges than idly evolving capabilities of remote-con- and plastic, and were powered by lawn- quadcopters and can carry bigger pay- trolled devices”. Existing defences are not mower engines. Each carried ten home- loads. Other groups in Syria, and in Iraq as geared up to cope with small drones, made shrapnel grenades under its wings. well, employ similardevices. Theiruse has which are difficult to spot, identify and According to the Russian Ministry of spread, too, to non-politically-motivated track, and which may be too numerous to Defence, which has so far refused to say criminals. In October, four Mexicans alleg- stop. Jamming might be thought an obvi- who it thinks was responsible for the at- edly linked to a drug cartel were arrested ous solution. Breaking the radio links be- tack, the drones were guided by GPS and with a bomb-carrying drone. tween the operator and the drone, or con- had a range of 100km. The electronics in- fusing its GPS navigation, would make a volved were off-the-shelf components, Cheap shots drone crash or send it off course. Many and the total cost of each drone was per- Compared with military hardware, drone jammers, with names like Dedrone, haps a couple ofthousand dollars. The air- technology is both readily available and DroneDefender and DroneShield, have al- frames bore a resemblance to those of Rus- cheap. In 2014 a team at MITRE, a security ready been employed by various coun- sian Orlan-10 drones, several of which think-tank based in Virginia, made a mili- tries. Six of the drones in the Syrian attack have been shot down by rebel forces in tary-grade drone using commercial elec- were brought down by such jammers, the Syria. The craft may thus have been a tronics, a 3D-printed airframe and open- others by guns and missiles. cheap, garage-built copy ofcaptured kit. source software. It cost $2,000. A whole Drones are, however, becoming in- These particular drones, the Russians squadron of such craft could thus be as- creasingly autonomous. This means there 1 The Economist February 10th 2018 Science and technology 71

2 is no operator link to jam. The Syrian Phylogeny and palaeontology drones were vulnerable to jamming because they relied on GPS and so crashed when their link to it was blocked. But new When doctors disagree technologies such as optical navigation (which permits a drone to compare its sur- A strange fossil spider. Ormaybe not roundings with an on-board electronic map, and thus to know where it is) will HE picture below is ofone ofthe five different from spiders, called the Ur- make even GPS jammers useless. Hence Tknown specimens ofChimerarachne araneida, ofwhich tails are characteristic. the need for “kinetic solutions”, to shoot yingi, a newly discovered arthropod that Dr Wang points to the well-defined drones down. lived 100m years ago, during the Creta- spinnerets forhandling silkthat Chime- Small drones are surprisingly hard tar- ceous period. It is preserved in amber rarachne yingi possesses (a feature of gets, however. Iraqi forces in Mosul used to and was found in the Hukawng Valley spiders, but not ofUraraneids), and also joke that trying to deal with an IS drone at- amber mines in northern Myanmar. It, to certain ofits mouthparts, called pedi- tack was like being at a wedding celebra- and one ofthe other specimens, are palps. These have been modified in a tion: everyone fired their Kalashnikovs described in a paper that has just been way that makes them looklike the pedi- into the air with no effect. A recent Ameri- published in Nature Ecology and Evolu- palps ofmale spiders, which are used to can army manual describes small drones tion by Wang Bo ofthe Nanjing Institute transfersperm to a female’s genital orifice as “very difficult to defeat using direct fire ofGeology and Palaeontology, in China, during mating. This would imply that, by weapons”. A single rifle bullet is likely to and his colleagues. chance, all fourreported specimens are miss. A shotgun would work, but only at Dr Wang thinks Chimerarachne yingi male, an assumption that worried the close range, and would mean that squad- is a spider, albeit an unusual one in that it authors ofboth papers. But a fifth speci- dies had to carry around an extra weapon has a tail. Two furtherspecimens are men has now turned up, without the all the time on the off chance of a drone at- reported simultaneously in a different modified pedipalps, so presumably she is tack. Also, since drones are not of standard paper in the same journal, by a team led a female. sizes, the range to one is hard to estimate. by Huang Diying, a colleague ofDr Wang Dr Huang and Dr Giribet acknowl- The manual therefore suggests that rather in Nanjing, and Gonzalo Giribet ofHar- edge these spiderlike features, but think than aiming directly at a drone, the entire vard University. They thinkthe critter is that a wider statistical analysis, which squad should fire their weapons at a fixed part ofan extinct group, related to but takes account ofother body parts as well point ahead of it, hoping to bring the craft as spinnerets and pedipalps, shows that down with a curtain of fire. The manual Chimerarachne yingi is actually a Ur- also advises commanders that the best araneid. In their view the features Dr course of action may be “immediate relo- Wang sets store by must have evolved in cation ofthe unit to a saferlocation”. species not yet found, which predate the split between spiders and Uraraneids. A numbers game Whoever is right, Chimerarachne yingi Among other projects, the American army is clearly descended, more or less un- is hurriedly upgrading its shoulder- modified, from something that existed launched Stinger missiles, which are used near the point ofthat split, which hap- to attack low-flying aeroplanes and heli- pened more than 200m years before copters. Stingers were not designed to hit these specimens were alive, during the small drones, though, so the upgrade adds Carboniferous period. The fossil record a proximity fuse which detonates when ofthe Uraraneida peters out in rocks laid the missile is close enough to destroy a down 275m years ago, during the Perm- drone without actually having to make ian period, leaving a 175m-year gap before contact with it. Up to 600 “Manoeuvre the appearance ofChimerarachne yingi. Short Range Air Defence” teams equipped Whatever label modern palaeontologists with these upgraded missiles will join finally decide to apply to the species, that American infantryunitsaround the world. gap is a timely reminder ofjust how But the upgrades cost about $55,000 each patchy the fossil record is, and how hard (on top ofthe basic$120,000 costofa Sting- it is to reconstruct what was really going er), so only 1,147 are being purchased— Cretaceous flies beware on in the past. about two per team, which is hardly enough to tackle a swarm ofdrones. Another approach being tried out by element of Aegis is a Dalek-like, rapid-fire sures hope to overcome that by using laser the American army is a system called cannon called Phalanx, which spits out 75 weapons. Lasers hit their targets at the BLADE (Ballistic Low-Altitude Drone En- rounds a second and can shoot down in- speed oflight, have an unlimited supply of gagement). This fits armoured vehicles’ ex- coming cruise missiles. This will not cope ammunition and cost less than a dollar a istingmachine-gun turretswith radar guid- well with lots ofsmall drones, though. The shot. Though such weapons have yet to ance and computer control. That should navy is now upgrading Aegis’s software to achieve theirdesigners’ intentionsofbeing provide some protection, but may still be handle multiple simultaneous incoming able to shoot down crewed aircraft, they impotent against a mass attack. targets by scheduling bursts of fire to de- have been tested extensively and success- A similar problem applies at sea, where stroy as many members ofa swarm as pos- fully against target drones. Avariety ofspe- billion-dollar ships might have their de- sible. It is doubtful, however, whether one cifically anti-drone laser systems are now fences overwhelmed by squadrons of gun could account formore than a handful beingdeveloped, includingLockheed Mar- cheap, jerry-built drones. The mainstay of ofattackers comingin from all directions at tin’s Athena, Raytheon’s dune-buggy- American naval air defence is Aegis, an or- once. An unclassified study suggests that it mounted anti-drone laser, and LaWS, a cre- chestrated arrangement ofradars, comput- could be overwhelmed by as few as eight. ation ofthe American navy itself. ers, missiles and cannons. The short-range Developers of drone-countering mea- The crucial question is how rapidly 1 72 Science and technology The Economist February 10th 2018

2 such a laser system can spot, track and aim This week, however, the metabolic hy- Satellite prospecting at its target, and how long the beam must pothesis has received a boost from a study play on the target in order to destroy it. The published in Cell Metabolism by Josh Ra- There’s lithium in whole process is likely to take several sec- binowitz of Princeton University and his onds, and until it is complete, the laser can- colleagues. Specifically, Dr Rabinowitz’s them hills notmove on to repeatthe procedure on an- work suggests that fructose, when con- other target. As with Phalanx, a simple sumed in large enough quantities, over- calculation suggests individual anti-drone whelms the mechanism in the small intes- Searching from outerspace forminerals lasers would be able to deal with only a tine that has evolved to handle it. This on Earth small number of attackers. If even one enables it to get into the bloodstream along drone got through, the laser would proba- with other digested molecules and travel ORNWALL, a rugged peninsula that bly be the priority target—for destroying it to the liver, where some of it is converted C forms Britain’s south-western extrem- would leave the way open for a subse- into fat. And that is a process which has the ity, has a history of mining going back quent, unchallenged attack. potential to cause long-term damage. thousands of years. Its landscape is dotted An American army document from Dr Rabinowitz and his associates came with the ruins of long-closed tin and cop- 2016 thus emphasises the importance of to this conclusion by tracking fructose, and per mines, along with mountains of spoil stopping drones “left of launch”—that is, also glucose, the most common natural from the extraction of china clay (also before they can take off. IS drone work- sugar, through the bodies ofmice. They did known as kaolin), a business that still shops and operators have been attacked to this by making sugar molecules that in- clings to life today. Now, though, prospec- stop the drone threat. The Russians say cluded a rare but non-radioactive isotope tors are backon the ground. Or, rather, they they destroyed the unnamed group re- ofcarbon, 13C. Some animals were fed fruc- aren’t. Instead, they are peering down sponsible for the mass drone attack in Jan- tose doped with this isotope. Others were from space. And what they are searching uary, along with their drone-assembly and fed glucose doped with it. By looking at for is not tin, nor copper nor kaolin, but a storage facility in Idlib, using laser-guided where the 13C went in each case the re- material that has come into demand only artillery. But when there are no runways or searchers could follow the fates of the two recently: lithium. hangars, and drones can be operated from sorts ofsugar. The high-flying prospectors in question houses and garages, finding bases to attack The liver is the prime metabolic pro- are a group led by Cristian Rossi, an expert is far from easy. Until adequate defences cessingcentre in the body, so theyexpected on remote sensing, which has been organ- are in place, then, guerrilla drone swarms to see fructose dealt with there. But the iso- ised under the auspices of the curiously will be a real danger. 7 topes told a different story. When glucose named Satellite Applications Catapult, an was the doped sugar molecule, 13C was car- innovation centre backed by the British ried rapidly to the liver from the small in- government. The plan is to use satellites al- Diet and health testine through the hepatic portal vein. ready in orbit to detect and map geological This is a direct connection between the and botanical features that might betray Bitter fruits two organs that exists to make such trans- the presence of subterranean lithium. fers ofdigested food molecules. It was then Though satellite prospecting of this sort distributed to the rest of the body through has been employed before, to lookfor met- the general blood circulation. When fruc- als such as gold and copper, using it to tose was doped, though, and administered search forlithium is new. 1 in small quantities, the isotope gathered in How a sweetness enhancermay cause the small intestine instead of being tran- liver damage sported to the liver. It seems that the intes- RUCTOSE is the sweetest of the natural tine itself has the job of dealing with fruc- Fsugars. As its name suggests, it is found tose, thus making sure that this substance mainly in fruits. Its job seems to be to ap- never even reaches the liver. peal to the sweet tooths of the vertebrates Havingestablished that the two sorts of these fruit have evolved to be eaten by, the sugar are handled differently, Dr Rabino- better to scatter their seeds far and wide. witz and his colleagues then upped the Fructose is also, however, often added by doses. Their intention was to mimic in manufacturers offood and drink, to sweet- their mice the proportionate amount of en theirproducts and make them appeal to each sugar that a human being would in- one species of vertebrate in particular, gest when consuming a small fructose- namely Homo sapiens. And that may be a enhanced soft drink. As they expected, all problem, because too much fructose in the of the glucose in the dose was transported diet seems to be associated with liver dis- efficiently to the liver, whence it was re- ease and type 2 diabetes. leased into the wider bloodstream for use The nature of this association has been in the restofthe body. Also asexpected, the debated for years. Some argue that the ef- fructose remained in the small intestine for fect is indirect. They suggest that, because processing. But not forever. About 30% of it sweet tastes suppress the feeling of being escaped, and was carried unprocessed to full (the reason why desserts, which come the liver. Here, a part of it was converted at the end ofa meal, are sweet), consuming into fat. foods rich in fructose encourages over- That is not a problem in the short term. eating and the diseases consequent upon Livers can store a certain amount of fat that. Others think the effect is more direct. without fuss. And Dr Rabinowitz’s experi- They suspect that the cause is the way fruc- ments are only short-term trials. But in the tose is metabolised. Evidence clearly sup- longer term chronic fat production in the porting either hypothesis has, though, liver often leads to disease—and is some- been hard to come by. thing to be avoided, ifpossible. 7 Remember the past. Look to the future The Economist February 10th 2018 Science and technology 73

2 The searchers are not searching blind. in 1941. Without the bones themselves it is They know, from mining records dating hard to assess the reliability of the mea- from the mid-1800s, that there is lithium in surements. But Richard Jantz, a former di- Cornwall’s rocks. Those records tell of un- rector of the University of Tennessee’s Fo- derground springs containing salts of lithi- rensic Anthropology Centre, points out in um—at that time quite a recently discov- an article reviewingthe evidence, just pub- ered element. Backthen these springs were lished in Forensic Anthropology, how prim- seen, at best, as curiosities, and at worst as itive the discipline was at the time. flooding risks, because there was then no Hoodless used formulae developed by market forthe metal. Today, there is. In par- a19th-century statistician, Karl Pearson, for ticular, lithium is the eponymous compo- calculating stature from bone length, and nent of lithium-ion batteries. These power concluded that the castaway was five feet products ranging from smartphones to five-and-a-half inches (1.66 metres) tall. electric cars, and are being tested as a Pearson’s formulae are now, though, wide- means of grid-scale electricity storage ly acknowledged to underestimate height. which could make the spread of renew- Hoodless also used three indicators of sex: able energy much easier. No surprise, then, the ratio of the circumference of the femur that prices have been rising. In 2008 a to its length; the angle between the femur tonne of lithium carbonate cost around and the pelvis; and the subpubic angle, be- $6,000. Now it would set you back more tween two bones in the pelvis, which is than $12,000. larger in women than in men. This price is less a reflection of lithium’s Of those three indicators, only the sub- overall scarcity than of the rarity of good, pubic angle is still considered valid, and in mineable deposits of lithium compounds. hisnotesHoodlessdid notdivulge the rela- (Like mostmetals, itdoesnotoccurnatural- tive weight he gave to each. Even today, ly in its elemental form.) At the moment, Amelia Earhart says Dr Jantz, an experienced forensic an- the best workable supplies are in Australia, thropologist making a sex assessment on South America and China. But mining Mystery solved? the basis of this angle alone will not get it companies are eager to discover others. Dr right all of the time—and is obliged to ex- Rossi’s team intend to use satellite cam- press his conclusion in terms of probabili- eras, both optical and infra-red, and also ties. Hoodless observed that the bones satellite-borne radar, to look for mineral were “weather-beaten”, damage Dr Jantz formations caused by hot liquids reacting thinks was more likely to have been A skeleton found in 1940 may, afterall, with existing rock, and for rock fractures caused by scavenging crabs, and which have been that ofthe lost aviatrix that could act as channels forlithium-bear- might also have thrown Hoodless’s mea- ingbrine. They will, as well, record anoma- ULY 2nd of last year marked the 80th an- surements off. lies in vegetation that might be the result of Jniversary of the disappearance of Ame- If Hoodless was right, the remains lithium-rich soils, or of hot springs that lia Earhart, a pioneering aviatrix (pic- could not have been those of the slender might contain the element. tured above), and her navigator Fred Earhart, whose driving and pilot’s licences The acid test, though, will be to drill Noonan over the Pacific Ocean, as they at- gave her height as five foot seven and five where the map thus generated suggests. tempted a circumnavigation of the globe footeight respectively. Norcould they have One group member is ready for that. Cor- in a twin-engined Lockheed Electra mono- been Noonan’s, since he was a quarter of nish Lithium is a newly created firm that plane. The many theories about the pair’s an inch over six feet tall. But Dr Jantz con- has already secured various mineral rights demise, aired once more on that occasion, cludes that in 1941, with the tools at his dis- to explore forlithium, and to extract it. fall into two broad groups: they crashed posal, right is something Dr Hoodless was This extraction would not, however, be into the sea and drowned, or they crashed unlikely to have been. carried out in the way that it is in the Ataca- onto Nikumaroro, a remote island, where Dr Jantz also describes some new re- ma Desert of Chile, where one of the larg- they perished from hunger. An American search into the matter. Americans of that est lithium mines in the world prepares forensic anthropologist has new evidence era differed morphologically from their lithium salts by drying out vast lakes of that greatly increases the likelihood of modern counterparts, so he compared brine in the sun. As tourists to Cornwall their having suffered the second fate. Hoodless’s measurements to those of the knowall too well, the sun isnotto be relied Nikumaroro, one of the Phoenix Is- skeletons of 2,700 white Americans who on there. Instead, Cornish Lithium says it lands, is an inhospitable place and was un- died between the 19th and mid-20th centu- will use special filtration techniques called inhabited at the time of the Electra’s disap- ries. He included measurements of Ear- reverse osmosis and ion-exchange to ex- pearance in 1937. Three years later, though, hart’s own bones calculated from photo- tract and purify lithium compounds from a working party found a human skull and graphs of her. He concludes that her bones any brine that it finds. partial skeleton there. Nearby was a part of more closely resembled the castaway’s If the experiment in Cornwall proves a a shoe they judged to be a woman’s, and a than do 99% ofthe reference sample. success the system could, Dr Rossi reckons, box manufactured in around 1918 that was That finding might be enough to con- be used to search for lithium in other designed to contain a sextant. The bones vince those who have until now sup- places. One target would be Chile’s neigh- were removed to a medical school in Fiji ported Hoodless’s conclusion. But it is un- bour, Bolivia, which is reckoned to have where David Hoodless, a British doctor likely to silence the conspiracy theorists some of the biggest but still largely un- and anatomy teacher, measured them and who continue to circle Earhart’s disappear- tapped deposits of lithium in the world. concluded that they had belonged to a ance. The truth may never be known fully. Any find in Cornwall is likely to be tiny by stocky, middle-aged male. But even if those who claim she drowned comparison. But if such a find were made At some point the bones went missing, succeed in explaining away the resem- there would be a nice symmetry to it, as so the mystery of the Nikumaroro cast- blance Dr Jantz has unearthed, another one of the world’s oldest mining centres away rests on Hoodless’s measurements mystery awaits an answer. If the castaway became also one ofits newest. 7 and on the state of forensic anthropology was not Earhart, who was it? 7 74 Books and arts The Economist February 10th 2018

Also in this section 75 A chilling Russian ﬁlm 76 A border patrolman’s lament 76 Divas in New York 77 The war in Afghanistan

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French culture wars French-speakingcountries. The institution, he said, was merely “a continuation of The river and the sea French foreign policy towards its former colonies”, which props up African despots and treatsFrancophone writersasthe exotic “other”. Writing in Le Monde, Abdourah- PARIS man Waberi, a Djiboutian professor at Georgetown University, urged France to Emmanuel Macron’s bid to enlarge French culture has caused controversy—and not turn the page on an “outdated vision” as he might have expected based on an “artificial hierarchy” between PHILOSOPHY graduate and unpub- lish). He is unapologetic about breaking French and Francophone artists. Alished novelist, Emmanuel Macron into English, even on home soil. Nor does La Francophonie “cannot just be an in- treats French culture like a national trea- he side with purists in seeking to protect stitution for saving the French language; sure, and the French language as a jewel. the language from mutation. Cardinal that is not what Francophone countries are “French is the language of reason, it’s the Richelieu founded the Académie Fran- worried about,” explains Mr Mabanckou. language of light,” the president declared çaise in 1635 to render French “pure”; to this “Africans don’t need the French language when inaugurating the Louvre in Abu day it devises French neologisms for inva- to exist.” He asks how many universities in Dhabi, a silver-domed gallery on a sandy sive English terms, such as mot-dièse for France teach Francophone African litera- shore that he called a museum “of the des- hashtag or mégadonnées for big data. Mr ture, and complains that American stu- ert and light”. Mr Macron has vowed to Macron argues that “French is not a closed dents are more likely to study such writers make French the first language in Africa, language” and should be fluid. Read Rabe- than are French ones. The French literary and “perhaps” the world; he named a lais, he says, to see that French itself was world clings to a Paris-centric vision, Mr young bestselling Franco-Moroccan novel- built on patois and vernacular tongues. Mabanckou says, too often failing to con- ist, Leïla Slimani, to lead this mission. Yet He has no hang-ups about redefining sider writers from former colonies as part his campaign to rejuvenate French, and to French culture, either. While campaigning of mainstream literature, as British pub- open the country up to writers who share for the presidency, he appalled traditional- lishers and universities now do. the language around the world, has inad- ists by declaring that a single “French cul- The underlying grievance is that Paris- vertently revived a French culture war. ture does not exist”. It is not a rigid object, based publishers and academics, by treat- Todaymore people speakFrench in Kin- in his view, to be left to gather dust and dis- ing non-French writers as “Francophone”, shasa, capital of the Democratic Republic play in a glass cabinet. Rather, French cul- are perpetuating a form ofneo-colonial ar- of Congo, than in Paris. By 2050, thanks to ture is “a river nourished by numerous rogance towards them, and clinging to population growth in Africa, some 85% of confluences”, as much by Marie NDiaye, a ownership of the French language. Some the world’s French-speakers will live on part-Senegalese author, as by Victor Hugo. such writers cannot believe they are still the continent. Mr Macron has been pro- fighting the battle waged by Salman Rush- moting French on his recent travels to the Merci, mais non merci die 30 years ago against the concept of Gulf, China and, pointedly, Ghana, an Eng- It came as something of a surprise to fans “Commonwealth literature” in writing in lish-speaking west African country sur- of his capacious approach to find it reject- English. Mr Mabanckou, who prefers to rounded by French-speaking ones. Visiting ed by some of the very writers he seeks to consider his work part of “world litera- Tunisia, he said he wanted to double the embrace. In January Alain Mabanckou ture”, looksbackata figure such asLéopold number learning French there by 2020. (pictured), a Congolese writerwho in 2006 Senghor, the Senegalese poet who was Mr Macron, who is 40, does this in a de- won the Prix Renaudot, a literary prize, for elected to the Académie Française, as ulti- cidedly less defensive way than his prede- “Memoirs of a Porcupine”, said he would mately a defender of French interests. cessors (Jacques Chirac once walked out of not take part in the president’s project to For some African writers whose mater- a summitwhen a Frenchman spoke in Eng- renovate La Francophonie, a grouping of nal language is a local tongue, the very pro-1 The Economist February 10th 2018 Books and arts 75

2 cess of writing in French, the language of feels at ease in both cultures. She wants to cer seems a good man (he has the decency the former colonial power, still awakens correct the vision of “France at the centre to admit that the coppers won’t help). The complex feelings. They aim to assert an in- and, around it, in a sort of periphery, what volunteers fan out across a beautiful, ap- dependent claim to write in French. “Liter- one would call ‘the Francophone world’.” palling landscape that evokes the work of ature written in French does not need to The point, she says, is to “encourage move- Andrei Tarkovsky, one ofMr Zvyagintsev’s call itself French literature in order to ex- ment, sharing and to value diversity”. influences. But this is not a whodunnit. ist,” commented Véronique Tadjo, a Fran- Ms Slimani’s own writing—“Chanson Alyosha is not the real quarry, nor are his co-Ivorian writer. Douce”, published in Britain as “Lullaby” parentsthe onlyculprits. Ascene at the end Ms Slimani is mindful of the controver- and in America as “The Perfect Nanny”, hints at a wider scale. Wearing a Russian sy. She criticises publishers in Paris for not won the Prix Goncourt in 2016—may help Olympic sweatshirt, Zhenya runs on a investing enough in French-language writ- to break down such perceptions. So might treadmill outside her new lover’s apart- ing outside France. “Francophone litera- the emergence of other new, and often fe- ment, while inside he watches a report on ture is a world literature, but publishing is male, voices. For the moment, the best in- the war in the Donbas. very Parisian,” she says. “We need to de- tentions of a well-meaning French presi- centralise, to stop always going through dent are colliding with the radical critique To be orto show? Paris.” A dual citizen who grew up in Mo- of writers in French who seek neither the To viewers in the West, it might seem odd rocco, then moved to France to study, she consent nor the approbation ofFrance. 7 that the Russian authorities tolerate such an ultra-bleakviewoftheircountry. On the face of it Mr Zvyagintsev’s oeuvre is more Russian film subversive than “The Death of Stalin”, a British-made historical satire whose distri- Only disconnect bution licence was recently revoked. “Full- throttle censorship”, Mr Zvyagintsev comments, adding fatalistically that speaking out about politics “is not going to make a difference”. Despite receiving state funding, “Leviathan” was indeed denounced by posturing officials, especially for its por- In his latest film, an Oscar-nominated Russian directorwidens his lens trayal of the church. But, says Alexander N THE opening frames of “Loveless”, An- agree on how to dispose oftheirother joint Rodnyansky, Mr Zvyagintsev’s producer, Idrei Zvyagintsev’s new film, the camera asset: their 12-year-old son Alyosha, of the only censorship imposed on his films looks up at a denuded tree against a wintry whom neither wants custody. Alyosha has been the bleeping ofswear words. sky. After this barren view come shots of a overhears their bickering and runs away. It In Russia, though, his critiques are in lifeless, snow-bound park. Yet when the is a while before they notice. The searing some ways less risky than they seem in the action begins it is autumn, not winter; not sequence recalls “The Return”, Mr Zvya- West. The dysfunction he depicts is too on the outside, at least. gintsev’s first film, in which children ca- commonplace to deny—and nobody does, The freeze seems symbolic. In fact, says lamitously eavesdrop on the adult world. not even Vladimir Putin, though he vows MrZvyagintsev, itwasan accident. “Winter In “Loveless” the police do next to noth- to deal with it. Direct censorship of the arts played a tragic role in our film,” he says ing. Instead a search is launched by a group is rare; in any case Mr Zvyagintsev’s films impishly—because the snow fell earlier of volunteers. They are based on a real-life are not popular enough to be threatening. than expected, disrupting the production organisation, one of many that try to com- Russian audiences, says Mr Rodnyansky, schedule. As forthe chilling opening shots, pensate for the Russian state’s callousness; “don’t want you to tell them the truth”. He he took them on a whim, without know- MrZvyagintsevsaysthe leaderofthe chari- compares the director to a doctor bearing ing what to do with them. Still, he ac- ty told him that the film’s main police offi- unwanted bad news. knowledges, offering up interpretations In “Loveless” hisdiagnosisgoesbeyond even as he disavows them, others might in- Russia. Mr Zvyagintsev’s films each have fer that “political winter has dawned” or dominant visual motifs. “Leviathan” has a that the snows “cover over the traces” of skeleton of a beached whale. In “Elena”— wrongdoing. “We don’t just watch the which asks how fara grandmother will go films,” he says; “the films watch us.” to raise the cash needed to bribe her grand- “Loveless” has been nominated for an son out of military conscription—mirrors Academy Award for best foreign-language are the main image, suggesting a society in film, as was “Leviathan”, Mr Zvyagintsev’s which the onlyreal moral constraintis con- previous feature. Adapting the Book of Job science. In “Loveless” the motif is mobile to the Russian Arctic, “Leviathan” told the phones. People are constantly checking story of an ordinary man clinging to his them, or taking selfies to post online. “To home, in the face of a land-grab by corrupt show your life, or to live your life?” Mr local officials and the Orthodox church; re- Zvyagintsevsummarises. “That’sreallythe sistance only worsens his plight. The huge question.” Mobile phones, he thinks, church features in “Loveless”, too. Boris, have “revealed” human nature rather than one ofthe main characters, has a boss who changing it. is an Orthodox fundamentalist. Here, What emerges in “Loveless” is an emo- though, religion is a marginal theme. The tional void, an atomised desolation not state is more absent than corrupt. All the tritely attributable to MrPutin orthe Soviet same, “Loveless” is as much an exposé as legacy. The search for Alyosha leads to a its predecessor. crumbling Soviet sanatorium, the sort of Boris and his soon-to-be ex-wife, Zhe- Ozymandian ruin that litters the Russian nya, hate each other. They are selling their countryside, monuments to a dead civili- flat on the outskirts of Moscow, butcannot Instagram this sation. But the answer isn’t there. 7 76 Books and arts The Economist February 10th 2018

New American ﬁction Strike a pose

The House of Impossible Beauties: A In search oflove and acceptance, Mr Novel. By Joseph Cassara. Ecco; 416 pages; Cassara’s Boricua castaways make $26.99. Oneworld Publications; £14.99 homes with new cherry-picked families, live on rice and beans, learn how to sew, EFORE the High Line and the new and aspire one day to afford a Chanel suit B Whitney, the astronomical rents and at Saks. They strut their stuffat drag balls gastropubs, Chelsea was a playground in Harlem, where dark-skinned queens forqueer misfits. The Christopher Street parade like peacocks. Jennie Livingston Pier was where they gathered, sauntered chronicled this subculture in her ac- and made a quickbuck. Diva elders claimed documentary “Paris is Burning”, taught fresh-faced runaways the art of released in 1990. Mr Cassara takes some turning a trick: how to spot the white ofher real-life subjects and imagines men cruising for a taste; how to kneel on their fleshed-out stories, mapping their A border patrolman’s lament cement without cutting their knees; and, romances and addictions, their nightmar- most important, how, in extremis, to “just ish pasts and fantastical plans for the Walking the line bite it”—aftergetting the money up front. future. For example, one “pre-op trans- This is the New YorkofJoseph Cas- sexual woman” daydreams ofbeing sara’s vivid and engaging debut novel, whisked away by a rich, white husband “The House ofImpossible Beauties”. It is to a house in Westchester. a city ofhustlers and mad men, strip The novel feels like an anthropologi- clubs and graffiti, big rats and bigger cal plunge into another era, enhanced by The Line Becomes a River. By Francisco dreams. Gritty yet glamorous, Manhattan rhythmic, urban prose littered with slang Cantú. Riverhead Books; 256 pages; $26. from the late 1970s to the early1990swas and Spanglish. Some observations are Bodley Head; £14.99 a rare place where “even the most outra- unsubtle and the metaphors are occa- RANCISCO CANTÚ signed up for the geous people could have a home.” sionally overcooked. But these are forgiv- FUnited States Border Patrol hoping that That is what draws in Mr Cassara’s able blips in a bookwith the compassion his experiences would “unlock” the puzzle characters, “little flaco Boricua” (ie, skin- to capture the loneliness ofa trans wom- of the border. But policing the 2,000-mile ny Puerto Rican) boys fleeing abusive an with AIDS who rides the subway at Mexican frontier, scanning mountain trails single mothers in Jersey and the Bronx to rush hour to feel the warmth of“human for footprints and sniffing the air for rotten become the perfumed women they were bodies all against her”, and the sensuous- corpses, left him only with more ques- always meant to be, with marquee-ready ness to convey the beauty ofyoung gay tions. “I don’t know how to put it into con- names like Angel and Venus. But this is lovers mimicking Fred and Ginger on a text, I don’t know where I fit in it all,” he also a city haunted by death, where hot rooftop as the sun sets. The New York confides one day to a fellow agent. lifeless bums line the Bowery, murdered of“The House ofImpossible Beauties” “Damn,” says the other patrolman. “That “trannies” crop up in hotel rooms and a may not warrant much nostalgia, but it is shit is deep.” mysterious virus terrorises gay men. a moving place to visit. Mr Cantú’s four years on the border provide stories from this no-man’s-land that mix compassion with quiet anger at ing. A pair from Oaxaca share their packed Livingso close to violence sends people the cruelty of man and nature. It is wild, lunch of grasshoppers, dried fish and mez- mad, MrCantúwrites. He isreferring to the untamed country where by night agents cal with the agents. The migrants are the long-suffering citizens of Juárez. But as he douse cacti in hand sanitiser and set them subjects of the many moral dilemmas of immerses himself in the horror of the bor- alight forthe hell ofit. But there is beauty in the border. Makingitharderto cross means der, his own sanity frays. A wolf stalks his the desolation. Satellites drift across the fewer people will risk their lives to do it; dreams. The focusgraduallyshiftsfrom the clear, starry sky. Mr Cantú has an eye for agents slash bottles of water left out in the vastness of the desert to the claustropho- the flora and fauna of the desert, perhaps desert for the desperate. Yet this contrib- bia ofMr Cantú’s troubled mind. because his mother—a second-generation utes to unimaginable suffering. A man is This is really a book about many bor- Mexican-American who disapproves of discovered curled up, almost dead after ders. One is the line in the sand from the his work—was a parkranger. drinking his own urine forfourdays. Pacificto the GulfofMexico. Another isthe His time in the patrol exposes the futili- The narcotraficantes are a constant, sin- psychological divide that sees Americans ty of many of its rules. After discovering a ister presence. Mr Cantú finds their trucks screen out the carnage occurring a stone’s cache of drugs, Mr Cantú suggests follow- in the desert and hears their shots ring out throw from their own country, “just as one ing the tracks of the traffickers. “Hell no,” across the border by night. Although El sets aside images from a nightmare in or- comes the reply of his supervisor. “Sus- Paso, in Texas, is one ofAmerica’s safest cit- der to move steadily through a new day”. pects mean you have a smuggling case on ies, its neighbour Juárez has one of the Finally it is about the divide between your hands, and that’s a hell of a lot of pa- highest murder rates in the world. Border the people patrolling the border and those perwork.” Agents sit around smoking ciga- Patrol agents are shown images of the nar- trying to cross it. For Mr Cantú, this wall is rettes abandoned by migrants and urinate cos’ victims: beheaded, dismembered, broken down when an undocumented on their discarded belongings. faces peeled from skulls. Fortifyingthe bor- friend is detained by the Border Patrol and Most of the migrants just want to work. der has driven up smuggling fees, making subjected to its casual cruelties. His com- One asks to take out the rubbish at the sta- the business more attractive to organised pelling, tragic account may help to break tion when he is arrested, just to show will- crime, which now runs it. down the wall forothers, too. 7 The Economist February 10th 2018 Books and arts 77

The war in Afghanistan stan’s spies. Directorate S, equivalent to the CIA’s special-activities division, is a partic- Digging a hole in the ocean ularly dark corner of the notorious ISI. It overseesrelationswith the Taliban and un- dermines civilian politicians in Pakistan. More generally, the army promotes jihadi terror attacks in India and Afghanistan, stoking tension, the better to justify its outsized claims on state resources. American politicians have neverdecided whetherPakistan is an ally oran enemy Mr Coll points the finger at ISI officers OW to account forAmerica’s failure in for causing bloodshed and taking risks that Directorate S: The CIA and America’s its longest war? ForSteve Coll, the con- might provoke another war. He concludes, H Secret Wars in Afghanistan and Pakistan, flict in Afghanistan has proved to be a for example, that it was “fully evident that 2001-2016. By Steve Coll. Penguin Press; “humbling case study in the limits of ISI officers had cooked up” the horrific ter- 748 pages; $35. Allen Lane; £25 American power”. Sixteen years after the rorist attack in Mumbai in 2008, which did invasion, and despite military oraid efforts much to isolate Pakistan internationally from 59 countries, Afghanistan is unstable, never-ending war,” CIA officers lament. A and spurred betterrelationsbetween India violent and poor. Afghans remain vulner- Canadian commander complains that he and America. He is more cautious than able to a resurgent Taliban army. is “digging a hole in the ocean”. some writers, however, on whether the ISI Few writers are better placed than Mr Rightly, Mr Coll spreads the blame for also helped bin Laden find shelter in Ab- Coll, a journalist and former head of the all this disappointment. America’s spies bottabad, an army town. He calls the idea New America Foundation, a think-tank, to and soldiers failed to kill bin Laden early in “plausible” but not proven. explain why. In “GhostWars”, published in the Tora Bora mountains. Their use of tor- Oddly, for an otherwise exhaustive 2004, he assessed the years before the at- ture and excessive aggression strength- book, Mr Coll neglects some notable epi- tacks ofSeptember11th 2001; it won a Pulit- ened their opponents. American political sodes. He omits the murder of a Pakistani zer prize and is required reading on the re- leaders, allergic to “nation-building”, investigative journalist, Syed Saleem gion, especially on the foibles ofAmerica’s would not fund peace efforts and were dis- Shahzad (widely blamed on the ISI, spies. “Directorate S” is the sequel. In it Mr tracted by Iraq. Anyway, they could never though it denies involvement). Nor does Coll sets out an impressively detailed, styl- agree on exactly what they hoped to he mention al-Qaeda’s unnervingly suc- ishly crafted and authoritative chronicle of achieve in Afghanistan. Hamid Karzai, the cessful, large-scale attack in 2011 on Meh- America’s post-invasion efforts in Afghani- former Afghan president, proved unreli- ran, a military base in Karachi, which stan and Pakistan. able and too fond ofwarlord allies. Shahzad was investigating. That raid, and He has remarkably good sources and the killing ofbin Laden, humiliated the ISI. sprinkles his text with vivid descriptions. Friends like these Mr Coll also passes over al-Qaeda’s attack The Taliban leader, Mullah Omar, sits with Meanwhile American diplomats and spies on an American base in Khost, on the Af- his legs drawn up, picking at his bare toes were generally too slow to grasp how Paki- ghan-Pakistani border, which killed eight and chatting to a Pakistani spy chief. An stan backs the Taliban and promotes vio- CIA staff in 2009, the agency’s biggest hu- anxious Taliban negotiator vomits copi- lence over its border. Compounding that man loss in over a quarter ofa century. ously during talks at a safe house in Mu- problem, American politicians, above all These flaws are small. Mr Coll’s overall nich. Conveying the views of Pakistan’s Barack Obama, signalled that they would judgment is as gloomy as it is compelling. double-dealing generals and spooks, Mr withdraw early even as they boosted their The fighting since 2001 led directly to at Coll draws from private conversations re- forces in Afghanistan. That encouraged least 140,000 deaths, including 50,000 ci- corded by American eavesdroppers. Pakistan to plan for a new civil war, with vilians, but has achieved painfully little. These details enliven strong analysis. the Taliban as proxies. Mr Coll concludes Throughout, America lacked a “coherent America’s primary goals after 9/11, he ar- that there was “chronic triangular mis- geopolitical vision”. Mostglaringly, itcould gues, were twofold. Unfortunately they re- trust” between America and the two Asian never decide if Pakistan was an ally or an quired contradictory methods. Preventing countries. That persists. enemy. Despite recent, tough-sounding Pakistani nuclear weapons going astray The title suggests Mr Coll especially talk from President Donald Trump about depended on close co-operation with the blames the destructive behaviour of Paki- Pakistan, that fatal ambiguity endures. 7 Pakistani state, notably its army and spy service, the Inter-Services Intelligence (ISI). Butachievinga second goal—destroying al- Qaeda and other violent Islamist groups— has proved far harder. In that, Pakistan has more often been a hindrance than a help. Despite the killing of Osama bin Laden in 2011, al-Qaeda and its jihadist offshoots remain “active, lethal and adaptive”, notes Mr Coll. As for America’s lesser goals, his recurrent theme is failure (he uses the term over 100 times). Stable, civilian rule is a long way offin both countries. The Taliban are undefeated, despite negotiations, drone assassinations and conventional fighting. That is mostly because Pakistan gives them support and sanctuary. Afghan opium cultivation continues in place of legal crops. The author captures well a sense of futility among Western forces. “This is a The hunt for hearts and minds 78 Courses

The Economist February 10th 2018 Courses Appointments 79

British Virgin Islands Recovery and Development Agency (RDA)

Background

Are you interested in joining the newly established independent RDA to lead the recovery and development of the territory of the British Virgin Islands, following the disastrous impact of the 2017 hurricanes?

The disasters resulted in widespread destruction to infrastructure and human capital, with a total economic loss to the BVI of approximately $3bn. The RDA will utilise public, private and philanthropic investment to deliver innovative projects to build a stronger, better and greener BVI. It will report to the House of Assembly through the RDA Board. A focus on delivering results, in terms of ambitious returns on investment and value for money, will be key to success. Chief Executive Officer (CEO) and Chief Finance Officer (CFO) CEO: The CEO will be a full-time appointment to provide executive leadership to the RDA to deliver the BVI recovery and development plan. The CEO will need to demonstrate exceptional leadership skills, empowering and motivating their planning and operations teams to effect a transformation that is consistent with the RDA’s vision, long-term plans and annual goals. They will need to show the acumen to drive innovation, growth and demonstrable impact.

CFO: The CFO will be a full-time appointment to provide executive leadership to the RDA, responsible for all fi nancial management functions of the agency. The CFO will lead a small agile fi nance team to provide timely and authoritative fi nancial support to assist in the development and implementation of strategic and operational objectives of the BVI recovery and development plan.

A focus on delivering results, in terms of ambitious returns on investment and value for money, will be key to success.

Application Process

Further details on both roles can be found at: www.bvirecovery.vg

Interested candidates should submit an application letter and CV to express their interest in being considered for the role of CEO or CFO. The letter should include a full disclosure of interests, including ownership of all assets and personal and family connections relevant to the BVI and specifi cally to recovery.

Applications should to be submitted by 26th February, 2018 to: [email protected] Deputy Chairperson (Deputy Chair)

Deputy Chair: The Deputy Chair will be a part-time appointment that provides policy level support on disaster recovery to the Chairman and board members of the BVI RDA. This individual should possess the requisite acumen in large scale recovery efforts, with a proven track record of successful leadership skills, technical expertise in disaster recovery, innovation and strategy.

In their support role of the Chairman, the Deputy Chair must also be capable and willing to take on the responsibility of the Chair in their absence.

Application Process

Further details on both roles can be found at: www.bvirecovery.vg

Interested candidates should submit an application letter and CV to express their interest in the Deputy Chair role. They will be able to arrange a call to discuss the opportunity ahead of their submission. Calls can be scheduled by contacting [email protected]

Submissions must include a full disclosure of interests, including ownership of all assets and personal and family connections relevant to the BVI and specifi cally to recovery. Applications for role of Deputy Chair should be submitted by 26th February, 2018 to: [email protected] The Economist February 10th 2018 80 Economic and ﬁnancial indicators The Economist February 10th 2018

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 Feb 6th year ago United StatesStatistics +2.5 Q4 on +2.642 economies,+2.3 +3.6plus Dec +2.1 Dec +2.1 4.1 Jan -452.5 Q3 -2.4 -3.5 2.79 - - China our monthly+6.8 Q4 poll+6.6 of+6.8 forecasters +6.2 Dec +1.8 Dec +1.6 3.9 Q4§ +121.6 Q3 +1.2 -4.3 3.85§§ 6.28 6.86 Japan +2.1 Q3 +2.5 +1.7 +4.2 Dec +1.1 Dec +0.5 2.8 Dec +198.0 Nov +3.9 -4.4 0.07 109 112 Britain +1.5 Q4 +2.0 +1.7 +2.5 Nov +3.0 Dec +2.7 4.3 Oct†† -118.1 Q3 -4.5 -2.9 1.59 0.72 0.80 Canada +3.0 Q3 +1.7 +3.1 +4.7 Nov +1.9 Dec +1.6 5.8 Dec -45.8 Q3 -2.9 -1.7 2.36 1.25 1.31 Euro area +2.7 Q4 +2.3 +2.4 +3.2 Nov +1.3 Jan +1.5 8.7 Dec +438.7 Nov +3.2 -1.2 0.70 0.81 0.93 Austria +3.2 Q3 +1.4 +2.9 +3.4 Nov +2.2 Dec +2.2 5.3 Dec +8.5 Q3 +2.2 -1.0 0.84 0.81 0.93 Belgium +1.9 Q4 +2.0 +1.7 +6.2 Nov +1.7 Jan +2.2 6.6 Dec -3.9 Sep -0.7 -1.7 0.91 0.81 0.93 France +2.4 Q4 +2.5 +1.9 +2.5 Nov +1.4 Jan +1.1 9.2 Dec -28.5 Dec -1.3 -2.9 1.00 0.81 0.93 Germany +2.8 Q3 +3.3 +2.5 +6.7 Dec +1.6 Jan +1.7 3.6 Dec‡ +282.8 Nov +7.9 +0.6 0.70 0.81 0.93 Greece +1.3 Q3 +1.2 +1.3 +0.9 Nov +0.7 Dec +1.1 20.7 Oct -1.0 Nov -0.5 -0.7 3.73 0.81 0.93 Italy +1.7 Q3 +1.4 +1.5 +2.2 Nov +0.8 Jan +1.3 10.8 Dec +56.1 Nov +2.7 -2.3 1.99 0.81 0.93 Netherlands +3.0 Q3 +1.6 +3.2 +4.4 Nov +1.3 Dec +1.3 5.4 Dec +80.7 Q3 +9.6 +0.7 0.74 0.81 0.93 Spain +3.1 Q4 +2.8 +3.1 +4.7 Nov +0.6 Jan +2.0 16.4 Dec +23.0 Nov +1.6 -3.0 1.47 0.81 0.93 Czech Republic +4.7 Q3 +1.9 +4.5 +2.7 Dec +2.4 Dec +2.5 2.4 Dec‡ +0.9 Q3 +0.7 +0.7 1.77 20.4 25.2 Denmark +1.4 Q3 -1.9 +2.0 -3.1 Dec +1.0 Dec +1.1 4.2 Dec +26.2 Nov +8.3 -0.3 0.75 6.03 6.92 Norway +3.2 Q3 +3.0 +2.1 -3.2 Dec +1.6 Dec +1.9 4.1 Nov‡‡ +21.1 Q3 +4.9 +5.2 1.92 7.84 8.26 Poland +5.1 Q3 +4.9 +4.6 +2.7 Dec +2.1 Dec +2.0 6.9 Jan§ +1.5 Nov -0.1 -2.2 3.52 3.38 3.99 Russia +1.8 Q3 na +1.7 -1.6 Dec +2.2 Jan +3.5 5.1 Dec§ +40.2 Q4 +2.4 -1.5 8.13 57.1 58.9 Sweden +2.9 Q3 +3.1 +2.7 +8.1 Dec +1.7 Dec +1.8 6.0 Dec§ +21.1 Q3 +4.7 +1.0 0.94 7.97 8.83 Switzerland +1.2 Q3 +2.5 +1.0 +8.7 Q3 +0.8 Dec +0.5 3.0 Dec +66.4 Q3 +9.3 +0.8 0.15 0.94 0.99 Turkey +11.1 Q3 na +6.7 +6.9 Nov +10.3 Jan +11.1 10.3 Oct§ -43.8 Nov -5.0 -1.9 11.88 3.78 3.69 Australia +2.8 Q3 +2.4 +2.3 +3.5 Q3 +1.9 Q4 +1.9 5.5 Dec -22.2 Q3 -1.7 -1.5 2.82 1.27 1.31 Hong Kong +3.6 Q3 +2.0 +3.7 +0.4 Q3 +1.7 Dec +1.5 2.9 Dec‡‡ +14.8 Q3 +4.3 +4.2 2.02 7.82 7.76 India +6.3 Q3 +8.7 +6.4 +8.4 Nov +5.2 Dec +3.5 5.0 Jan -33.6 Q3 -1.6 -3.3 7.57 64.2 67.2 Indonesia +5.2 Q4 na +5.1 +5.0 Nov +3.3 Jan +3.8 5.5 Q3§ -13.3 Q3 -1.6 -2.8 6.34 13,555 13,323 Malaysia +6.2 Q3 na +5.8 +5.0 Nov +3.5 Dec +3.9 3.3 Nov§ +9.2 Q3 +2.6 -2.9 3.96 3.92 4.43 Pakistan +5.7 2017** na +5.7 -1.9 Nov +4.4 Jan +4.1 5.9 2015 -15.2 Q4 -4.8 -5.9 8.50††† 111 105 Philippines +6.6 Q4 +6.1 +6.7 -8.1 Nov +4.0 Jan +3.2 5.0 Q4§ -0.5 Sep -0.3 -2.1 6.20 51.5 49.7 Singapore +3.1 Q4 +2.8 +3.5 -3.9 Dec +0.4 Dec +0.6 2.1 Q4 +57.4 Q3 +18.5 -1.0 2.25 1.32 1.41 South Korea +3.0 Q4 -0.9 +3.1 -6.0 Dec +1.0 Jan +2.0 3.3 Dec§ +78.5 Dec +5.3 +0.9 2.75 1,092 1,138 Taiwan +3.3 Q4 +4.2 +2.4 +1.2 Dec +0.9 Jan +0.6 3.7 Dec +74.1 Q3 +13.2 -0.1 1.02 29.4 30.9 Thailand +4.3 Q3 +4.0 +3.6 +2.3 Dec +0.7 Jan +0.7 1.0 Dec§ +49.3 Q4 +11.7 -2.4 2.43 31.5 35.0 Argentina +4.2 Q3 +3.6 +2.9 +0.8 Nov +25.0 Dec +25.2 8.3 Q3§ -26.6 Q3 -4.2 -5.8 3.68 19.7 15.6 Brazil +1.4 Q3 +0.6 +1.0 +4.4 Dec +2.9 Dec +3.3 11.8 Dec§ -9.8 Dec -0.6 -8.0 8.74 3.26 3.12 Chile +2.2 Q3 +6.0 +1.4 +0.2 Dec +2.3 Dec +2.2 6.4 Dec§‡‡ -4.6 Q3 -1.3 -2.7 4.59 600 640 Colombia +2.0 Q3 +3.2 +1.6 +0.3 Nov +3.7 Jan +4.3 8.6 Dec§ -11.1 Q3 -3.4 -2.3 6.48 2,839 2,860 Mexico +1.8 Q4 +4.1 +2.1 -1.5 Nov +6.8 Dec +6.0 3.4 Dec -16.1 Q3 -1.7 -1.1 7.63 18.8 20.6 Peru +2.5 Q3 +5.5 +2.7 -2.5 Sep +1.3 Jan +2.8 6.9 Dec§ -1.8 Q3 -1.8 -3.0 na 3.25 3.28 Egypt na na +4.2 +27.1 Nov +21.9 Dec +26.8 11.9 Q3§ -12.2 Q3 -6.9 -10.9 na 17.6 18.4 Israel +1.9 Q3 +3.5 +3.0 +1.6 Nov +0.4 Dec +0.2 4.0 Dec +10.5 Q3 +3.4 -2.0 1.82 3.48 3.74 Saudi Arabia -0.7 2017 na -0.7 na +0.4 Dec -0.2 5.8 Q3 +12.4 Q3 +2.7 -8.9 na 3.75 3.75 South Africa +0.8 Q3 +2.0 +0.9 +2.1 Nov +4.7 Dec +5.3 27.7 Q3§ -7.3 Q3 -2.2 -3.9 8.48 12.1 13.4 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist February 10th 2018 Economic and ﬁnancial indicators 81

Markets % change on The Economist poll of forecasters, February averages (previous month’s, if changed) Dec 30th 2016 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP Markets Feb 7th week currency terms 2017 2018 2017 2018 2017 2018 2017 2018 United States (DJIA) 24,893.4 -4.8 +26.0 +26.0 Australia 2.2 / 2.5 2.2 / 3.2 2.3 2.8 1.9 (2.0) 2.2 (2.1) -1.7 -1.8 (-2.1) China (SSEA) 3,466.1 -4.9 +6.7 +18.4 Brazil 0.6 / 1.2 2.0 / 3.3 1.0 (0.9) 2.7 (2.6) 3.3 (3.4) 3.7 (3.6) -0.6 (-0.7) -1.3 (-1.6) Japan (Nikkei 225) 21,645.4 -6.3 +13.2 +20.9 Britain 1.5 / 1.8 1.2 / 2.0 1.7 (1.6) 1.5 (1.4) 2.7 2.6 (2.5) -4.5 -4.0 (-4.1) Britain (FTSE 100) 7,279.4 -3.4 +1.9 +14.5 Canada 2.9 / 3.6 1.9 / 3.2 3.1 2.3 (2.2) 1.6 (1.5) 1.9 -2.9 (-3.0) -2.7 Canada (S&P TSX) 15,330.6 -3.9 +0.3 +7.2 China 6.6 / 6.9 5.8 / 6.9 6.8 6.5 1.6 2.3 1.2 1.2 Euro area (FTSE Euro 100) 1,200.5 -4.0 +8.0 +25.8 France 1.8 / 1.9 1.7 / 2.5 1.9 (1.8) 2.1 (2.0) 1.1 (1.2) 1.5 (1.4) -1.3 (-1.4) -0.8 (-1.2) Euro area (EURO STOXX 50) 3,454.5 -4.3 +5.0 +22.4 Germany 2.2 / 2.6 2.2 / 3.0 2.5 2.6 (2.5) 1.7 1.8 (1.7) 7.9 7.8 Austria (ATX) 3,508.4 -2.4 +34.0 +56.2 India 6.2 / 6.7 6.6 / 7.7 6.4 (6.6) 7.2 (7.3) 3.5 4.9 (4.6) -1.6 (-1.5) -1.8 Belgium (Bel 20) 3,991.9 -2.9 +10.7 +29.0 Italy 1.5 / 1.6 1.1 / 1.9 1.5 1.5 1.3 1.2 (1.0) 2.7 2.4 France (CAC 40) 5,255.9 -4.1 +8.1 +26.0 Japan 1.5 / 1.8 1.1 / 1.8 1.7 1.5 0.5 1.0 (0.9) 3.9 (4.0) 3.9 Germany (DAX)* 12,590.4 -4.5 +9.7 +27.8 Greece (Athex Comp) 849.9 -3.3 +32.1 +53.9 Russia 1.4 / 2.1 1.5 / 3.3 1.7 (1.8) 2.0 (2.1) 3.5 (3.7) 3.4 (3.5) 2.4 (2.5) 2.8 (2.5) Italy (FTSE/MIB) 22,986.2 -2.2 +19.5 +39.3 Spain 2.9 / 3.1 2.3 / 3.2 3.1 2.7 (2.6) 2.0 (2.1) 1.6 (1.5) 1.6 (1.7) 1.6 (1.7) Netherlands (AEX) 536.4 -4.3 +11.0 +29.4 United States 2.1 / 2.6 2.3 / 3.1 2.3 2.7 (2.6) 2.1 2.2 (2.1) -2.4 -2.6 (-2.5) Spain (IBEX 35) 9,976.9 -4.5 +6.7 +24.3 Euro area 2.3 / 2.5 1.8 / 2.9 2.4 (2.3) 2.4 (2.3) 1.5 1.5 (1.4) 3.2 3.2 (3.1) Czech Republic (PX) 1,116.7 -1.3 +21.2 +51.2 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 879.6 -4.5 +10.1 +28.3 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 39,698.1 -1.2 +24.0 +44.0 Norway (OSEAX) 897.4 -1.3 +17.4 +28.5 Poland (WIG) 63,262.1 -4.2 +22.2 +50.7 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,242.5 -3.1 +7.8 +7.8 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,551.2 -2.6 +2.2 +15.7 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 8,975.0 -3.9 +9.2 +17.5 Index one in local in $ Jan 30th Feb 6th* month year Turkey (BIST) 115,570.2 -3.3 +47.9 +37.5 Feb 7th week currency terms Dollar Index Australia (All Ord.) 5,981.5 -2.7 +4.6 +13.4 United States (S&P 500) 2,681.7 -5.0 +19.8 +19.8 All Items 153.4 152.0 +1.6 +2.5 Hong Kong (Hang Seng) 30,323.2 -7.8 +37.8 +36.7 United States (NAScomp) 7,052.0 -4.9 +31.0 +31.0 Food 153.7 152.2 +2.1 -4.9 India (BSE) 34,082.7 -5.2 +28.0 +35.1 China (SSEB, $ terms) 326.7 -5.2 -4.4 -4.4 Indonesia (JSX) 6,534.9 -1.1 +23.4 +22.6 Japan (Topix) 1,749.9 -4.7 +15.2 +23.0 Industrials Malaysia (KLSE) 1,836.7 -1.7 +11.9 +28.4 Europe (FTSEurofirst 300) 1,492.2 -4.0 +4.5 +21.8 All 153.1 151.8 +1.0 +11.6 Pakistan (KSE) 44,096.5 +0.1 -7.8 -12.9 World, dev'd (MSCI) 2,101.1 -5.1 +20.0 +20.0 Nfa† 138.8 137.1 -1.1 -8.9 Singapore (STI) 3,383.8 -4.3 +17.5 +28.4 Emerging markets (MSCI) 1,173.4 -6.5 +36.1 +36.1 Metals 159.3 158.0 +1.8 +21.8 South Korea (KOSPI) 2,396.6 -6.6 +18.3 +31.5 World, all (MSCI) 513.3 -5.2 +21.7 +21.7 Sterling Index Taiwan (TWI) 10,551.5 -5.0 +14.0 +25.7 World bonds (Citigroup) 956.7 -0.9 +8.2 +8.2 All items 197.7 198.8 -1.2 -8.4 Thailand (SET) 1,785.4 -2.3 +15.7 +31.3 EMBI+ (JPMorgan) 823.0 -1.1 +6.6 +6.6 Argentina (MERV) 31,626.7 -9.5 +86.9 +50.7 Hedge funds (HFRX) 1,286.8§ -1.5 +6.9 +6.9 Euro Index Brazil (BVSP) 82,766.7 -2.5 +37.4 +37.3 Volatility, US (VIX) 27.7 +13.5 +14.0 (levels) All items 153.7 153.1 -1.8 -9.6 Chile (IGPA) 28,954.0 -1.6 +39.6 +57.3 CDSs, Eur (iTRAXX)† 47.6 +7.4 -34.0 -23.1 Gold Colombia (IGBC) 11,726.2 -3.2 +16.0 +22.9 CDSs, N Am (CDX)† 54.8 +15.8 -19.2 -19.2 $ per oz 1,340.4 1,327.4 +1.2 +7.6 Mexico (IPC) 48,976.5 -2.9 +7.3 +18.4 Carbon trading (EU ETS) € 9.0 -3.0 +36.0 +58.5 West Texas Intermediate Venezuela (IBC) 3,200.1 -12.8 9,992 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 64.5 63.4 +0.7 +21.5 Egypt (EGX 30) 15,037.1 nil +21.8 +25.2 †Credit-default-swap spreads, basis points. §Feb 6th. Israel (TA-125) 1,358.2 -3.6 +6.4 +17.2 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) 7,417.2 -3.0 +2.5 +2.5 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 56,886.5 -4.4 +12.3 +28.4 series, go to: Economist.com/indicators †Non-food agriculturals. 82 Obituary Ingvar Kamprad The Economist February 10th 2018

tries to save money. Even his tax exile in Switzerland was parsimonious. Visitors admired the views, butwere surprised that his villa was so run-down. He worked well into his eighties. His austerity and diligence set a good example to his194,000 “co-workers”, (never “employees”). But he was no skinflint. The point of cutting costs was to make goods affordable, not to compromise quality. The real enemies were arrogance, cow- ardice, distraction and above all waste. He urged his staffto reflect constantly on ways of saving money, time and space. A tweaked design that allows easier stacking means shipping less air—and more profit. Culture trumped strategy. He despised “exaggerated planning”, along with financial markets and banks. Betterto make mis- takes and learn from them. And use time wisely: “You can do so much in ten minutes. But ten minutes once gone are gone for good.” This did not apply to customers. The longer they tarried, the better. Mr Kamprad’s impact on modern life ri- valled that of Henry Ford and the mass- produced motor car. Furniture used to be costly, clunky, darkand heavy. Forthe cash- Self-made man strapped and newly nesting, fitting out a home could cost many months’ salary. IKEA made domesticity not just affordable and functional, but fun. Out went the hand-me-downs and junk-shop monstros- ities. In came the cool, tasteful, egalitarian look and feel of modern Sweden. Airy, IngvarKamprad, founderofthe IKEA furniture empire, died on January 27th, aged 91 sparse, uncluttered—a little bland, perhaps, IGHT and bright, cheap and cheerful: ed IKEA aged 17. Well before that, he spot- but hard to dislike. The mission was civili- LIKEA’s 400-plus outlets in 49 countries ted a principle which would make him sational, he felt, changing how people all run on the same central principle. Cus- one of the richest men in the world: that lived and thought, and boosting democra- tomers do as much ofthe workas possible, customers like buying retail goods at cy more than anything politicians did. in the belieftheyare havingfun and saving wholesale prices. First he bought matches Hisapproach drewsome fire. The inten- money. You drive to a distant warehouse, in bulkand sold them bythe box. Aged ten, sity of company values struck some as built on cheap out-of-town land. Inside, he plied the same trade with pens and trin- creepy. At IKEA’s Corporate Culture Cen- you enter a maze—no shortcuts allowed— kets, delivered by bicycle. tre, ubiquitous pictures of Mr Kamprad ac- where everytwistrevealsnewfurniture, in Setbacks inspired him. Facing a price company his mottos about humility, will- pale softwood or white chipboard, artfully war against his low-cost mail-order furni- power and renewal. Some parts of the arranged with cheerfully coloured acces- ture business, he flummoxed rivals by supply chain seemed whiffy; so did the sories to exude a chic, relaxed Scandina- opening a showroom. Dealers tried to empire’sextreme taxefficiency. The self-as- vian lifestyle. crush the upstart retailer, banningMr Kam- sembly, aided only by an Allen key and di- The low prices make other outlets seem prad from their trade fairs. He sneaked in, agrams, could be infuriating, but piecing extortionate, so you load up your trolley hiding in a friend’s car. When they tried to together IKEA’s accounts, this paper wrote with impulse buys—a clock, a bin, storage intimidate his suppliers, he turned to in- in 2006, was even more exasperating. boxes, tools, lampshades and more tea house design, and secretly outsourced pro- lights than you will ever use. Youlug card- duction to communistPoland. Decadeslat- Design flaw board boxes holding flat-packed shelves, er, east Europeans freed from the shoddy His greatest mistake was a youthful but lin- cupboards and tables into your car and re- scarcity of the planned economy drove gering flirtation with fascism. Though his ward yourselfforyourthriftand good taste hundreds ofmiles to newly opened outlets best friend for years was a Jewish refugee, with meatballs slathered with lingonberry in Moscow and Warsaw. MrKamprad neverdisavowed histieswith jam. Then you drive home and assemble His self-discipline was legendary. As a Sweden’s leading far-right politician, Per your prizes. You rejoice in the bargains. child, he removed the “off” button from his Engdahl, nor his Hitler-loving German IKEA rejoices in your money. alarm clock to stop himself oversleeping. grandmother. Drip-fed excuses fuelled crit- The company’s name was a do-it-your- He shunned first-class travel. The cham- ics’ suspicion. In response, IKEA made a co- self job, too. It stands for Ingvar Kamprad, pagne didn’t get you there any earlier, he lossal charitable donation. “Why did I not from Elmtaryd—his family’s farm—in sniffed; having lots of money was no rea- reveal this past foolishness myself?” Mr Agunnaryd. That village is in the Smaland son to waste it. He boughthisclothes in flea Kamprad explained. “Simple. I was afraid region of southern Sweden, known forthe markets, and for years drove an elderly it would hurt my business.” Frugality may resourcefulness, stinginess and stubborn- Volvo until he had to sell it on safety be admirable, butnotwhen itcomesto tell- ness of its inhabitants. Mr Kamprad found- grounds. He had his hair cut in poor coun- ing the truth. 7 The path to advocacy May 24th 2018 | Hong Kong

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