The next space race

Immigration’s poisonous politics

Something’s coming: Bernstein at 100

Our Big Mac index JANUARY 20TH–26TH 2018 The new titans And how to tame them

Contents The Economist January 20th 2018 5

8 The world this week 33 The Iran deal Trump card 34 Nuclear fears Leaders Thinking the unthinkable 11 Competition and tech 35 Lexington Taming the titans Stranger danger 12 Carillion’s collapse Britain’s hard bargains The Americas 13 Currency markets Playing ketchup with the 36 Argentina’s economy dollar Dismantling populism Carillion’s collapse Britain is 13 Democracy in Tunisia 37 Mexican radio the world’s leading privatiser The seven-year itch Burying the Hairy Hand of public services. It needs to 14 The new space race 38 Bello Violence in Venezuela get better at it: leader, page 12. On the cover In heaven as it is on Earth The mega-contractor’s demise Google, Facebook and Amazon reveals an outsourcing model are increasingly dominant. Letters Middle East and Africa in need of a revamp, page 48. How should they be tamed? Carillion could be the biggest 16 On nationalism, 39 Protests in Tunisia Leader, page 11. With the claim yet on Britain’s polygamy, sugar, Iceland, Democracy’s discontents political mood turning pensions-insurance scheme, conversation 40 Israel’s capital against digital giants, the Grants and absolution page 49 world’s largest tech bosses 40 The war in Syria are scrambling to understand Briefing Rebels on the slide what could be in store. A note 18 Coping with techlash 41 A plague in Africa from a strategist, page 18. Silicon Valley, we have a Hungry caterpillars Is the world’s largest online problem retailer underpaying its 42 Indebted South Africans employees? Page 32. Free to borrow Counting on too many Asia advertisements may be bad 23 Politics in Thailand Europe for your health: Schumpeter, Soldiers bribe voters 43 France’s En Marche! page 58 24 India’s Supreme Court What’s it for? Bench press 44 Germany’s coalition woes 25 Politics in Sri Lanka The dwarfs’ uprising Argentina Mauricio Macri’s The Economist online Coconuts and jolts 45 Human rights in Chechnya gamble on gradualism is Daily analysis and opinion to 25 Politics in Kyrgyzstan Pot shots working, so far, page 36 supplement the print edition, plus Kyrgyz autumn audio and video, and a daily chart 45 Polluted Poland 26 Japan and South Korea Economist.com Patriotic smog K-pop v history E-mail: newsletters and 45 The Czech Republic mobile edition Taking back the castle Economist.com/email China 46 Islam in Turkey Print edition: available online by 27 Space missions Checking up on the imams Hainan aims high 7pm London time each Thursday 47 Charlemagne Economist.com/print 28 Sexual harassment Money talks Audio edition: available online #ChinaToo to download each Friday 29 Banyan Britain Economist.com/audioedition Taiwan: tormented and torn 48 Carillion capsizes Cleaned out The new space race Events in United States 49 Pensions orbit reflect those back home: 30 The safety net A big hole leader, page 14. The biggest Working for it rocket in the world prepares 49 The Guardian for its maiden voyage, page 66. Volume 426 Number 9075 31 Coal Back in black China’s ambitions in space are Bob Murray Published since September 1843 50 Bagehot growing. America is keeping to take part in "a severe contest between 32 Amazon intelligence, which presses forward, and The special relationship its distance, page 27 an unworthy, timid ignorance obstructing Unfulfilled our progress." 33 Kansas and Missouri Editorial offices in London and also: In a state 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 January 20th 2018

International Science and technology 51 Ending civil war 66 Space flight When the shooting stops Size matters 67 Perception and language Business Scents and sensibility 53 Computing geography (1) 68 Evolution Life on the edge Shell game 54 Computing geography (2) 68 Computers and justice Great cloud of China Algorithm’s dilemma 55 Japan’s SoftBank 69 Drones in a box World economy High oil Leonard Bernstein More than Funding a Vision Ready for take off prices are mostly a reflection 2,000 events around the world of a healthy global economy, 55 Television sports rights will celebrate the centenary of not a threat to it, page 59. What goes up... Books and arts America’s greatest 20th- Whether a currency is cheap or 56 General Electric 70 The Vietnam war century composer, page 73 dear is not always a good guide Regrets are not enough Wishful thinking to its fortunes. It is now: 57 Bamboo in China 71 History of art leader, page 13. A decline in Watching grass grow The first artists’ biographer Subscription service the dollar against a range of For our full range of subscription offers, 58 Schumpeter 71 New fiction including digital only or print and digital currencies is a small victory for Digital advertising A river runs through it combined visit burgernomics, page 62 Economist.com/offers 72 Johnson You can subscribe or renew your subscription Pronouns on the move by mail, telephone or fax at the details below: Finance and economics Telephone: +65 6534 5166 59 The oil price 73 Leonard Bernstein at 100 Facsimile: +65 6534 5066 A man in full Web: Economist.com/offers Crude thinking E-mail: [email protected] 60 Buttonwood Post: The Economist Subscription Centre, The hedge-fund delusion 76 Economic and financial Tanjong Pagar Post Office 61 Digital currencies indicators PO Box 671 The crypto sun sets Statistics on 42 economies, Singapore 910817 plus a closer look at new Subscription for 1 year (51 issues)Print only 62 The Big Mac index passenger-car registrations Australia A$465 The burger strikes back China CNY 2,300 Hong Kong & Macau HK$2,300 62 The World Bank India 10,000 Japan Yen 44,300 Undoing business Obituary Korea KRW 375,000 Congestion Driverless cars Malaysia RM 780 63 Government venture 78 Fred Bass will not save cities from either New Zealand NZ$530 capital in Europe Browsing at the Strand Singapore & Brunei S$425 the cost of traffic or Taiwan NT$9,000 The worm’s turn Thailand US$300 infrastructure: Free exchange, Other countries Contact us as above page 64 64 Free exchange Driverless cars and congestion Principal commercial offices: The Adelphi Building, 1-11John Adam Street, London WC2N 6HT Tel: +44 (0) 20 7830 7000 Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: +4122 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 1301Cityplaza Four, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Tel: +852 2585 3888 Other commercial offices: After civil war Countries Chicago, Dubai, Frankfurt, Los Angeles, emerging from conflict have to Paris, San Francisco and Singapore strike grubby deals if peace is to hold, page 51

PEFC certified This copy of The Economist is printed on paper sourced from sustainably managed forests, recycled and controlled sources certified by PEFC PEFC/01-31-162 www.pefc.org

© 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) Evolved over billions of years... Protecting your enterprise in one hour.

The immune system has evolved over billions of years. But it takes just one hour to install one in your enterprise.

Using artifi cial intelligence, Darktrace can tell friend from foe, and catches threats that others miss. Even if they’ve never been seen before.

From quiet insider threats and zero-day attacks, to hacks of connected devices or industrial networks, our software sees it and responds.

Find out what’s lurking inside your systems. darktrace.com World-Leading Cyber AI 8 The world this week The Economist January 20th 2018

shots at the interior ministry in more refugees and do more more confusion, the govern- Politics and supreme court and called to help deal with those who ment’s immigration agency fora rebellion against the are in France. The British gov- said it would permit those authoritarian left-wing govern- ernment promised more mon- who are protected by DACA to ment ofNicolás Maduro. ey forsecurity along the Eng- renew their requests to stay During a nine-hour siege by lish Channel. following a court ruling, but police who had tracked him not accept new applicants. down, Mr Pérez said that he Oliver Ivanovic, a moderate was trying to surrender. Six of Kosovo Serb politician, was Negotiations over DACA were his companions and two murdered outside his party’s frustrated by Mr Trump report- policemen were also killed. offices in the ethnically divid- edly asking a meeting in the ed town ofMitrovica, as talks Oval Office why America had On a visit to Chile, Pope Fran- were set to resume between to take migrants from cis apologised forthe “irrepa- Serbia and Kosovo about “shithole” African countries rable harm” caused by clergy formalising their ties. He had and Haiti. In the ensuing furore who had sexually abused been convicted ofwar crimes Democrats declared him a Thousands ofTunisians took children, and met some ofthe in 2016 but was due to return to racist, but some Republicans to the streets to protest against victims. Revelations ofabuse court fora retrial. insist he did not make the lower subsidies and higher by Fernando Karadima, a remark. In a bad weekforMr taxes, which have led to a rise prominent priest, caused an The Olympic spirit Trump, the press was awash in the prices ofbasic goods. exodus from the Catholic South Korea and North Korea with rumours that his lawyers The government responded by church in Chile starting in agreed to field a joint women’s paid Stormy Daniels, a porn arresting more than 800 peo- 2010. Pope Francis did not bow ice-hockey team at the Winter star, hush money in October ple, before agreeing to increase to demands that he reconsider Olympics in the South next 2016 to keep quiet about an aid for the poor. Tunisia was the appointment ofJuan month. The two countries’ affaira decade earlier. the starting-point ofthe Arab Barros as bishop ofOsorno, teams will also march together spring that broke out in late who victims say tried to pro- in the opening ceremony. Stephen Bannon, Mr Trump’s 2010 and swept the region. tect Father Karadima (Bishop political strategist until they Barros denies this). Four ofthe 25 judges on India’s fell out, was reportedly sub- America withheld $65m in aid supreme court accused the poenaed to testify in the in- for Palestinian refugees, while Provoking the Spanish bull chiefjustice ofbias in assign- vestigation led by Robert demanding that the UN Relief At their regional parliament in ing controversial cases to Mueller, the Justice Depart- and Works Agency undertake Barcelona, Catalan MPs elect- particular colleagues. ment’s special counsel, into a “fundamental re-examina- ed a pro-independence speak- alleged Russian influence tion” ofits activities. Donald er at their first meeting since In a move seen by some as among Trump aides. Trump blames the Palestinians Spain dissolved the chamber politically motivated, regu- fora lackofprogress in peace in October. Their planned next lators in the Philippines or- After six decades in its old talks with Israel, which in turn step is to reinstate their exiled dered a website critical of home at Grosvenor Square, the says UNRWA is working president, Carles Puigdemont. President Rodrigo Duterte to American embassy’s new against the Jewish state. close, forviolating ownership building in London opened for rules. The website, Rappler, business at Nine Elms. Mr Trump extended sanctions vowed to fight the order. relieffor Iran again, but warned that this was the “last An Iranian oil tanker registered chance” forCongress and the in Panama exploded and sank big European powers to fix in the East China Sea. A colli- what he described as the sion a weekearlier with a “disastrously flawed” deal cargo ship is believed to have with Iran over its nuclear caused the deaths ofall 32 programme in 2015. The Euro- people on board the Iranian peans said they were working ship. An oil slickseveral miles hard to address Mr Trump’s long and wide spread at the concerns. Angela Merkel’s Christian scene. Democrats and the centre-left Ethiopia freed several hun- Social Democrats said they How low can you go? Hawaii’s emergency-manage- dred political prisoners. The had made enough progress to Republicans and Democrats ment service sent an errone- government arrested over launch formal talks on a new struggled to reach a deal that ous text message to the state’s 1,000 people a year ago when “grand coalition” in Germany. would stop the deportation of residents warning ofan it clamped down on protests. But party delegates still have to people who came to America impending missile attack. The approve the move. illegally as young children, islanders have felt particularly A one-man revolution known as “Dreamers”. Do- rattled by North Korea’s aggres- Oscar Pérez, a Venezuelan Speaking in Calais, France’s nald Trump has ordered that sive series ofmissile launches police pilot who had stolen a president, Emmanuel Macron, the Deferred Action forChild- and Hawaii has begun testing helicopter to attackgovern- said he would not permit the hood Arrivals (DACA) pro- a system ofnuclear-warning ment buildings in June 2017, re-establishment ofa sprawl- gramme should end soon, and sirens. The mistaken message was killed in a confrontation ing migrant camp like “The has tied any agreement that was apparently sent out by a with police. Last year he had Jungle”. The French head of prolonged it to more spending shift worker who pressed the thrown grenades and fired state also wants Britain to take for border security. Causing wrong button on a computer. 1 The Economist January 20th 2018 The world this week 9

papers fora stockmarket list- lead in orders since 2013, but which reduced the retrospec- Business ing, according to reports. was short on commitments for tive tax benefits on certain the A380. This weekthe com- assets. Goldman Sachs posted Having been blamed as one of Tiptoe through the tulips pany said it would no longer its first quarterly loss since 2011, the culprits forthe spread of The bitcoin bubble deflated, build the superjumbo without of$1.9bn, as it adjusted to the fake news, Facebook an- as the price fell below $10,000, orders from Emirates, the new rules. Citigroup booked a nounced that it is altering its half its peak of a month ago. A380’s biggest customer, pro- $22bn tax charge, which led to newsfeed algorithm so that Reports ofregulatory crack- voking the airline into order- an $18.3bn quarterly loss, users will see less content from downs on crypto-currencies in ing 36. bigger than any it endured sensation-seeking publishers China and South Korea have during the financial crisis. and websites and enjoy more contributed to the bust, as have Bouncing backfrom its emis- JPMorgan Chase, however, “meaningful” interactions worries about the security of sions-cheating scandal, Volks- was able to turn a net profit of with friends and family. The bitcoin transactions. wagen revealed that it sold $4.2bn, despite tax-adjustment social networkadmitted that 10.7m vehicles worldwide last costs, as did BankofAmerica, this could reduce the amount Britain’s annual inflation rate year (including its11subsidiary with net income of$2.4bn. oftime people spend on Face- slipped backto 3% in Decem- brands). That will make it the book, a measure closely ber from 3.1% in November, world’s biggest carmaker if Apple also adjusted to the watched by investors. Ques- easing the short-term pressure Toyota’s figure later this month new tax regime, announcing tions also remain about how on the BankofEngland to raise confirms an estimate of10.4m that it will pay $38bn in tax to Facebookwill deem which interest rates again. vehicles sold. repatriate money it holds publishers are trustworthy. overseas, taking advantage of a BP booked another $1.7bn new incentive forfirms to John Flannery, the chiefexec- Commercial aircraft charge related to the Deep- make a one-time payment on utive of General Electric, Net orders water Horizon explosion, foreign cash at a lower tax rate. touted the idea ofbreaking up Airbus Boeing which killed 11men in 2010 The tech giant also pledged to the struggling conglomerate 1,500 and caused the worst oil spill spend $30bn on new offices into separate businesses. GE in American history. The and data centres in America. has already sold offmany 1,000 charge arose from wrangling non-performing divisions and 500 about the economic costs of Sweet is restructuring around its the spill, though the energy In the first big divestment by three core operations ofpower, 0 company says this legal pro- the Swiss foods group under 2012 13 14 15 16 17 aviation and health care. But cess is now winding down. its new boss, Nestlé sold its Source: Company reports this weekthe company re- Still, BP raised the forecast of confectionery business in vealed a $9.5bn pre-tax charge Airbus and Boeing again how much it will have to pay America to Ferrero for$2.8bn. to cover reinsurance policies at jostled forthe title ofworld’s this year because ofthe disas- Based in Italy, Ferrero makes GE Capital, a business whose biggest planemaker. Boeing ter to $3bn. chocolate-wrapped hazelnut difficulties had been thought delivered more aircraft in sweets (very popular at ambas- to be in the past. 2017—763 to Airbus’s 718—but America’s big banks reported sadors’ parties, apparently). its European rival booked earnings forthe fourth quarter. Something rotten in the state more net orders: 1,109 to Boe- All were affected by the recent Other economic data and news Carillion, Britain’s second- ing’s 912. Airbus has held the changes to America’s tax laws, can be found on pages 76-77 biggest construction company, collapsed. Its troubles became apparent last year when it issued profit warnings. Caril- lion employed around 20,000 people in Britain, and a similar number abroad. The govern- ment is under pressure be- cause many public services, including in health care, de- pend on the company. Despite last year’s warning signs, Carillion was still awarded contracts forinfrastructure and defence programmes. The opposition claims the govern- ment was “feeding” the com- pany contracts to keep it afloat.

SoftBank was reportedly considering listing 30% ofits mobile-communications business. That could fetch ¥2trn ($18bn), making it one of the biggest IPOs in Japan. Also testing the waters foran IPO, Dropbox has quietly filed ALWAYS CURIOUS I AGINE THE NEXT 350 YEARS

Curiosity is in our DNA. Since 1668, it’s given us the confidence and optimism to explore uncharted territory in science and technology. As we look to the future, we can only imagine what the next 350 years have in store.

Can you?

Discover more: merckgroup.com/350 Leaders The Economist January 20th 2018 11 Taming the titans

Google, Facebookand Amazon are increasingly dominant. How should they be controlled? OT long ago, being the boss gest “social graph”—the list of its members and how they are Nof a big Western tech firm connected. Amazon has more pricing information than any was a dream job. As the billions other firm. Voice assistants, such as Amazon’s Alexa and Goo- rolled in, so did the plaudits: gle’s Assistant, will give them even more control over how Google, Facebook, Amazon and people experience the internet. China’s tech firms have the others were making the world a heft to compete, but are not about to get unfettered access to better place. Today these com- Western consumers. panies are accused of being Ifthistrend runsitscourse, consumerswill suffer asthe tech BAADD—big, anti-competitive, addictive and destructive to de- industry becomes less vibrant. Less money will go into start- mocracy. Regulators fine them, politicians grill them and one- ups, most good ideas will be bought up by the titans and, one time backers warn oftheir power to cause harm. way or another, the profits will be captured by the giants. Much of this techlash is misguided. The presumption that The early signs are already visible. The European Commis- big businesses must necessarily be wicked is plain wrong. Ap- sion has accused Google of using control of Android, its mo- ple is to be admired as the world’s most valuable listed com- bile operating system, to give its own apps a leg up. Facebook pany forthe simple reason that it makes things people want to keeps buying firms which could one day lure users away: first buy, even while facing fierce competition. Many online ser- Instagram, then WhatsApp and most recently tbh, an app that viceswould be worse iftheirproviderswere smaller. Evidence lets teenagers send each other compliments anonymously. Al- for the link between smartphones and unhappiness is weak. though Amazon is still increasing competition in aggregate, as Fake news is not only an online phenomenon. industries from groceries to television can attest, it can also But big tech platforms, particularly Facebook, Google and spot rivals and squeeze them from the market. Amazon, do indeed raise a worry about faircompetition. That is partly because they often benefit from legal exemptions. Un- The rivalry remedy like publishers, Facebook and Google are rarely held responsi- What to do? In the past, societies have tackled monopolies ei- ble for what users do on them; and for years most American therbybreakingthem up, aswith Standard Oil in 1911, orbyreg- buyers on Amazon did not pay sales tax. Nor do the titans sim- ulating them as a public utility, as with AT&T in 1913. Today ply compete in a market. Increasingly, they are the market it- both those approaches have big drawbacks. The traditional self, providing the infrastructure (or “platforms”) for much of tools of utilities regulation, such as price controls and profit the digital economy. Many of their services appear to be free, caps, are hard to apply, since most products are free and would but users “pay” for them by giving away their data. Powerful come at a high price in forgone investment and innovation. though they already are, their huge stockmarket valuations Likewise, a full-scale break-up would cripple the platforms’ suggest that investors are counting on them to double or even economies of scale, worsening the service they offer consum- triple in size in the next decade. ers. And even then, in all likelihood one of the Googlettes or There is thus a justified fearthat the tech titans will use their Facebabies would eventually sweep all before it as the inexo- powerto protectand extend theirdominance, to the detriment rable logic ofnetworkeffects reasserted itself. of consumers (see page 18). The tricky task for policymakers is The lack of a simple solution deprives politicians of easy to restrain them without unduly stifling innovation. slogans, but does not leave trustbusters impotent. Two broad changes of thinking would go a long way towards sensibly The less severe contest tamingthe titans. The firstisto make betteruse of existingcom- The platforms have become so dominant because they benefit petition law. Trustbusters should scrutinise mergers to gauge from “network effects”. Size begets size: the more sellers Ama- whether a deal is likely to neutralise a potential long-term zon, say, can attract, the more buyers will shop there, which at- threat, even if the target is small at the time. Such scrutiny tracts more sellers, and so on. By some estimates, Amazon cap- might have prevented Facebook’s acquisition of Instagram turesover40% ofonline shoppingin America. With more than and Google’s of Waze, which makes navigation software. To 2bn monthly users, Facebook holds sway over the media in- ensure that the platforms do not favour their own products, dustry. Firms cannot do without Google, which in some coun- oversight groups could be set up to deliberate on complaints tries processes more than 90% of web searches. Facebook and from rivals—a bit like the independent “technical committee” Google control two-thirds ofAmerica’s online ad revenues. created by the antitrust case against Microsoft in 2001. Immu- America’s trustbusters have given tech giants the benefit of nity to content liability must go, too. the doubt. They look for consumer harm, which is hard to es- Second, trustbusters need to think afresh about how tech tablish when prices are falling and services are “free”. The markets work. A central insight, one increasingly discussed firms themselves stress that a giant-killing startup is just a click amongeconomists and regulators, is that personal data are the away and that they could be toppled by a new technology, currency in which customers actually buy services. Through such as the blockchain. Before Google and Facebook, Alta Vis- that prism, the tech titans receive valuable information—on ta and MySpace were the bee’s knees. Who remembers them? their users’ behaviour, friends and purchasing habits—in re- However, the barriers to entry are rising. Facebook not only turn for their products. Just as America drew up sophisticated owns the world’s largest pool ofpersonal data, but also its big- rules about intellectual property in the 19th century, so it needs 1 12 Leaders The Economist January 20th 2018

2 a new set of laws to govern the ownership and exchange of are, the more they have to share. These mechanisms would data, with the aim ofgiving solid rights to individuals. turn data from something titans hoard, to suppress competi- In essence this means givingpeople more control over their tion, into something users share, to foster innovation. information. If a user so desires, key data should be made None of this will be simple, but it would tame the titans available in real time to other firms—as banks in Europe are without wrecking the gains they have brought. Users would now required to do with customers’ account information. Reg- find it easier to switch between services. Upstart competitors ulators could oblige platform firms to make anonymised bulk would have access to some of the data that larger firms hold data available to competitors, in return for a fee, a bit like the and thus be better equipped to grow to maturity without be- compulsory licensing of a patent. Such data-sharing require- inggobbled up. And shareholderscould no longerassume mo- ments could be calibrated to firms’ size: the bigger platforms nopoly profits fordecades to come. 7

Carillion’s collapse Britain’s hard bargains

The world’s leading privatiserofpublic services needs to get betterat it HAT do high-speed rail- in Britain, forinstance. A billion-pound contract to redevelop a Wways, school lunches and London hospital attracted only two bidders. The government army bases have in common? routinely commissions massive, long-term projects based on Perhaps not much, which may fewer quotes than voters would get forrefitting their kitchen. be one reason for the dramatic There is also the taint of private-sector greed. Carillion’s collapse of Carillion, a jack-of- board ensured that the bonuses of its managers cannot be all-trades contractor that did a clawed back. And this weekthe National Audit Office reported bewildering array of work for that the Private Finance Initiative (PFI), an accountinggimmick Britain’s public sector. On January 15th the firm went into liq- designed to get borrowingoffthe government’s balance-sheet, uidation, casting doubt on the prospects of its 43,000 employ- has led to billions in extra costs without clear benefit. ees, 30,000 subcontractors and the fulfilment of government How to fix all this? PFI, though flawed, is only part of the contracts stretching three decades into the future. problem. Its use has been falling. More broadly, the remedy for The company’s fall is a story of commercial overreach and bad management and weak competition in the private sector miscalculation (see page 48). Butitisalso the storyof a political is not, as Labour says, to revert to bad management and no philosophy. Carillion exemplified a way of running the state competition in the public sector. Britons may have forgotten that was pioneered under Margaret Thatcher and which went the 1970s, but one reason for contracting-out was that public- on to conquer the world. Where once governments provided sector roads, services and hospital-building were often shod- publicservices, theynowcommission them from private com- dy and wasteful. panies. The idea is to subject moribund state monopolies to Instead, Britain needs to make its private markets more effi- the competition and innovation of the market. Yet a string of cient, by improving commissioning and lowering barriers to failures in Britain, of which Carillion is the latest, means that entry. More standardised contracts would make the tendering the country which converted the world to “contracting out” process less burdensome, encouraging small and foreign firms risks becoming a cautionary tale. Voters are flirting with a La- to bid, despite lacking big English legal departments. That bour opposition that has already vowed to renationalise in- would increase the competition faced by firms like Carillion, dustries and now says it would bring many public contracts part of whose competitive advantage was its knowledge of backin-house. The Carillion affaircould markthe collapse not how to navigate the complex contracting process. just of a company, but of an idea. A couple of decades ago inexperienced civil servants were routinely diddled by armies of lawyers hired by private firms. The bigger they come Today’s commissioners are better, but still fall for false econo- In a sense, Carillion is a good example of how a failure of con- mies. They favour low bids, only for bidders to renegotiate tracting-out is betterthan a failure in the public sector. Its losses terms upwards later. Commissioning teams, and the bodies will be borne chiefly by shareholders and creditors, not tax- that audit them, have been squeezed by spending cuts, a small payers. Look closer, however, and the demise highlights how saving next to the size of the contracts. Overstretched bureau- contracting will not live up to its promises unless it changes. crats are also more likely to award contracts to known outfits, Even iftaxpayersare notbailingCarillion out, they maystill like Carillion, which offerto roll lotsofservicesinto one tempt- bear hundreds of millions of pounds in costs because of pro- ing bundle—giving the company the whip hand. ject delays, the transferofcontracts and the continuing need to Some quarters of government seem to believe that the effi- provide vital services. And Carillion could yet bring down ciency and innovation of the private sector happen by magic. thousands of subcontractors. The company had become al- In reality they come about only when contracting-out is sub- most too big to fail. Its fragility should have disqualified it from ject to the discipline of a real market. Without competition, HS2, a decades-long high-speed rail project. Instead, ministers private-sector managers are no more dynamic than the bu- seemed to see the £1.4bn ($1.9bn) contract as a lifeline. reaucrats they replaced. If the government cannot create a This moral hazard is aggravated by the market’s unhealthy market worthy of the name, voters may decide to throw out concentration. Only three companies operate private prisons the idea altogether. That would be costly indeed. 7 The Economist January 20th 2018 Leaders 13

Currency markets Playing ketchup with the dollar

Whethera currency is cheap ordearis not always a good guide to its fortunes. It is now N DECEMBER a new dollarbill rencies to surge against their peers, to their economy’s detri- US dollar came into circulation adorned ment. But now that global growth is buoyant, few countries Trade-weighted exchange rate I January 1st 2016=100 with the signature ofSteve Mnu- seem to mind much if their currency rises. Interest rates have 105 chin. Instead of his usual scrawl, been raised, not only in America but also in Canada and Brit- ECB 100 the treasury secretary opted to ain. The European Central Bank ( ) has reduced its bond- print his name. If he hoped that buying programme, as has Japan’s central bank. 95 his best handwritingwould give 2016 17 18 the greenback a fillip, he may An era of currency peace well be disappointed. The dollar reached a peak against a bas- As extraordinary monetary policy is slowly withdrawn, the ket of other currencies a year ago and has not threatened to re- fundamentals matter more. This is the third force pushing gain it. Gurus of the foreign-exchange markets agree that 2018 down the dollar: its price against other major currencies. is likely to be another year of modest decline. That is because Benchmarks such as The Economist’s Big Mac index, based on ofthree sources ofdownward pressure. the idea that goods and services (in this case a burger) should The first relates to the world economy. The dollar’s descent cost the same the world over, are useful guides to how farcur- is not so much a judgment on America’s fitness as a sign of the rency values are out of whack. According to the latest version burgeoninghealth ofotherplaces. So longas America was one of the index, only a handful of rich countries have dearer cur- of the only places that could be relied upon for economic rencies than America’s (see page 62). That is a big change from growth, there was a powerful logic to the dollar’s strength. A a decade ago. On the same benchmark in 2008, only two rich broad-based global upswing—evident in everything from countries had a cheaper currency than the greenback. booming stockmarkets to a surging oil price (see page 59)— Some currencies have already jumped against the dollar. In means that investors are now rushing into currencies other a matter of weeks last summer the euro moved from $1.11 to than the dollar. Thateffectisprovingstrongerthan the expecta- $1.20, in response to a hint from the ECB’s boss, Mario Draghi, tion that American firms will repatriate more profits thanks to that the tailing offofits bond-buying would begin soon. Other the recent tax cut. And it seems likely to continue. currencies are more likely to strengthen than in past years. It is The second source of downward pressure reflects a change easy to imagine the yen snapping backtowards its fair value in in policymakers’ attitudes. Until quite recently, no country the way the euro did last year. There are still cheap currencies seemed keen on a strong exchange rate. A cheap currency was in countrieswith close tiesto the euro area’sthrivingeconomy, prized. Curbing imports and boosting exports was a way to such as Poland and the Czech Republic. With the exception of grab a bigger share of scarce world demand. In 2010 Brazil’s fi- Brazil’s real, emerging-market currencies in general are still nance minister said that a “currency war” had broken out, very undervalued. Expect them to strengthen further. with countries vying to weaken their exchange rates using In the short term, a consensus on a currency’s fall can be a weapons such as quantitative easing (printing money to buy prelude to it going the other way. But for 2018 as a whole, fur- bonds) orcapital controls. Rich-world central banks feared that ther strength in the greenback seems unlikely, no matter even a hint of tighter monetary policy might cause their cur- whose autograph is on the bills. 7

Democracy in Tunisia The seven-year itch

Tunisia needs help ifit is to remain a model forthe Arab world READ, freedom, dignity.” Some even yearn for the return of Zine el-Abidine Ben Ali, the “B These were the demands despot whom they tossed out in 2011. According to today’s of Tunisian protesters who rose-tinted nostalgia, he at least ensured that Tunisians had threw offautocracy and sparked work. In fact, Mr Ben Ali left Tunisians feeling much as they do the Arab spring seven years ago today: as ifthey have no future. He also tortured dissidents, op- this month. Tunisians now have pressed workers and plundered the public coffers. more freedom and some dignity. The best hope for Tunisia is still democracy. But for democ- But bread is scarcer than ever. racy to arrive, the government needs to put bread on the ta- GDP perperson has barely budged since the revolution. That is ble—by beginning to fix Tunisia’s economy. why Tunisia has once again been mired in protests, this time There is much to do. The country is still haunted by the over higher taxes, lower subsidies and the lackofjobs. abuses of Mr Ben Ali and his cronies, who drove away foreign Nine governments in seven years have failed to revive the investors. In recent years a spate of terrorist attacks has scared economy(see page 39). Tunisians are losingfaith in democracy. off sun-loving tourists. At the first hint of cuts to the public sec-1 14 Leaders The Economist January 20th 2018

2 tor, the country’s powerful labour unions call people into the volumes fell by 29%. Poorly run companies stumble on be- streets or cripple the country with strikes. Repairing the econ- cause competitors face steep barriers to entry in most sectors omy will take time—and cause pain. But just when patience is of the economy. Revenues from the sale of oil, gas and phos- needed, mob rule has become the norm. phate are not invested in infrastructure that might encourage The government’s first task is macroeconomic stability. enterprise, especially in the neglected hinterland, where the Youssef Chahed, the prime minister, deserves credit for stick- commodities are extracted. ingto his guns overthe taxrises and subsidy cuts that led to the Rich countries could do more to help keep Tunisia on track. recent protests. (He had a nudge from the IMF, which has Yet President Donald Trump’s proposed budget would cut bi- agreed to lend Tunisia €2.4bn, or $2.9bn.) Even so, the govern- lateral aid to the country by two-thirds. France has given rela- ment, an unrulyalliance ofnationalists and Islamists, has only tively little to its former colony. More important, America and haltingly worked to bring down the budget deficit, which was Europe could open their markets to more Tunisian goods. In 6% ofGDP last year, and to hold down public debt. 2016 the European Union raised quotas for Tunisian olive oil, a significantexport, fortwo years. Such dealscould be extended, No pain, no gain and more thrashed out—on Tunisian dates, vegetables, clothes MrChahed must also do more to disentangle the state from the and machinery. economy. Some 20% ofworkers have jobs in the public sector; But the world can do only so much. The burden ultimately their wages consume almost 14% of GDP, among the highest falls on Tunisia’s leaders to mend the economy and make the proportions in the world. Yet firms run by the government are case for democracy. Their caution is prolonging the pain of re- stonkingly inefficient. The state oil company hired 14% more form. Tunisians acted boldly in choosing democracy. They workers over the past decade—during which time production must be just as bold in pursuing prosperity. 7

The new space race In heaven as it is on Earth

Events in space reflect those backhome ATER this month, if all has Yet in comparison with the 1960s, things are all quite slow- Lgone according to plan, a moving. Actual target dates were notably absent from Mr rocket called the Falcon Heavy Trump’s announcement, and China’s ambitions for men and will take offfrom Cape Canaver- women on the moon have a similarly lackadaisical feel to al, in Florida (see page 66). Its them. This greater relaxation about matters space-related is in mission is to put a sports car in part because the original race was seen as a crucial test of orbit around the sun. The Falcon whether capitalism or central planning was the better eco- Heavy is the latest product of nomic system (though NASA’s effort was probably the most SpaceX, a firm founded by Elon Musk, an American billion- centrally planned civilian operation in the history of the Un- aire. The car is Mr Musk’s own, made by Tesla, another of his ited States). The lackof intensity in space today reflects the cal- businesses. SpaceX has the explicit aim, besides making mon- mer nature ofsuperpower rivalry on Earth. ey, of enabling people to travel to and colonise Mars. Before It also reflects the diffusion of wealth and technology. The then, the Falcon Heavy may earn its keep lifting satellites and number of “spacefaring” countries has increased since the carrying tourists on “slingshot” trips around the moon. 1960s, when only America and the Soviet Union counted. MrMusk’sambition isto propel humanitybeyond its home Now—besides China and Russia—Europe, India and Japan also planet. But what is going on in space today also reflects the have space programmes that can, and do, reach the moon and shifting balance of power on Earth. In the days of the space other heavenly bodies with robot spacecraft. race between America and the Soviet Union, the heavens As for the idea that a private individual could run a space were a front in the cold war between two competing ideolo- programme, that would have been laughable back then. Now gies. Since then, power has not merely shifted between coun- several are. For Mr Musk has rivals, from Blue Origin (backed tries. Ithasalso shifted between governments and individuals. byJeffBezosofAmazon) atone end to a plucky, pint-sized start- up called Rocket Lab at the other. (It hopes to make its first Wa ck y ra ce s launch into orbit in the next few days.) Lifting satellites into or- International competition is not absent from outer space. Chi- bit is a proper business, and therefore properly the business of na, for instance, is making noises about Mars. Last year it businessfolk. The fact that a wealthy person is willing to spend deemed an expanse ofdesert in the country’s north-west to be his money on such a fanciful space project as going to Mars is, sufficiently Martian to be reserved as a training ground for though, an intriguing departure—and a good measure of just Mars-bound “taikonauts”. China is also moving its principal how rich some people have become. space port from the north to the south of the country, partly in For now, the world’s private space programmes, whether order to take advantage of the extra launch velocity imparted commercial orquixotic, are mostly American. But the model is nearer the equator by Earth’s spin (see page 27). In America, spreading. Even China sports nascent rocket firms. The incipi- meanwhile, President Donald Trump signed an order in De- ent race to Mars will include companies as well as countries. cember directing NASA, the country’s space agency, to prepare That will make it a better test of economic systems than the fora return ofAmerican astronauts to the moon. original space race ever was. 7

16 Letters The Economist January 20th 2018

The turn to nationalism Much as nationalism might be less oftheir lives in marriage Who settled Iceland? part ofthe Law and Justice than do females in these soci- Regarding the rise ofnation- party’s ideology in Poland, it is eties, they almost all marry at The claim that Iceland was alism (“Vladimir’s choice”, by no means its centrepiece. some point. Notably, Benin, unpopulated when settled by December 23rd), the middle What lies at its core is the Burkina Faso and Guinea, Norsemen in 874 (“An old class is not angry because it worldview ofits leader, Jaros- although impoverished and tongue’s new tricks”, Decem- demands respect, but because law Kaczynski, who perceives poorly governed, have yet to ber 23rd) is questioned by the liberal elite has run out of reality as a battle between experience civil war. some historians. The first ideas about how to create good good and evil. This is a reason Polygyny in these societies settlers may actually have jobs in the face ofrapidly why he and his acolytes dis- is no boon to women, but been Gaelic-speaking, seafar- increasing populations. For approve ofthe way Poland neither is it the driver of social ing Irish monks fleeing the many people, nationalism moved from communism and unrest that some have claimed Vikings in Ireland. According holds the promise ofa higher authoritarianism to capitalism it to be. to this theory, the monks morality compared with the and democracy. There was no BRUCE WHITEHOUSE moved on once the Norse debauchery ofthe elite, which revolution, no decisive final Associate professor of marauders showed up. Schol- is out oftouch with middle- battle. The transition to anthropology ars ofthe Sagas point to the class aspirations. The middle democracy was made possible Lehigh University impact ofGaelic writings and class in India latches on to by a business transaction to Bethlehem, Pennsylvania believe it is not coincidental nationalism as it promises wipe the slate clean. What was that Ireland and Iceland were better infrastructure and jobs. particularly outrageous for The sugar trade the only places in western Politicians on the right have them was to see leaders ofthe Europe where oral traditions channelled this anger by blam- opposition drinking vodka “Nearly sweet nothing” were written down this way. ing the liberal elite, migrants and fraternising with Commu- (December16th) misread the FEARGHAS O’BEARA (internal, in India’s case) and nist Party bosses during the reality ofinternational sugar Brussels religious minorities. negotiations. To them, 1989 politics. Countries and region- The global liberal order was an immoral deal as most al trade blocs apply substantial Uh-uh represents the status quo. The apparatchiks got offscot-free. tariffprotections on sugar rise ofnationalism gives it an Mr Kaczynski’s worldview imports to protect their own opportunity to set its house in explains Law and Justice’s producers. The European order, investing more to im- intransigence and authoritar- Union and the United States prove the lives ofthe masses. ian leanings. After all, democ- apply duties ofover100%, for Governments need to do all racy is a messy process that example. As such, Caribbean they can to end corruption and involves compromises, trade- countries agreed long ago to a deliver good governance. offsand concessions, for Common External Tariff(CET) Power has to be taken away which there is no place in Mr of40% on imports ofraw and from the tight networks ofold Kaczynski’s Manichean uni- refined sugar. In October 2017, money and elite schools, and verse. The instrumentality of the EU ended a policy that had given to those who are capable one-party rule in the crusade fordecades provided Caribbe- ofdelivering the goods. That against evil has great appeal. an sugar producers with a far might be the only way to stop PIOTR ZIENTARA higher price than was available Johnson wrote about the the angry slide towards aggres- Associate professor of anywhere else. As we turn to importance ofpauses in con- sive right-wing nationalism. economics our domestic and regional versation, such as the use of RUSHABH MEHTA University of Gdansk markets, we face widespread “mm-hmm” to show sympa- Mumbai dumping ofsubsidised sugar. thy as a listener (December Polygamy and civil war The Caribbean industry 16th). The screenwriters of Youreferred to Europe’s libera- simply wishes to exercise its “The Big Sleep” in 1946 knew tion from the “carapace” ofthe Youpointed to the high right to tariffprotection, which the importance ofthe pause. Austro-Hungarian empire. incidence ofpolygamy, and was originally negotiated Take this forexample, an This reminded me ofa visit to specifically polygyny, in which when CARICOM was estab- exchange between General Schloss Artstetten in Austria, one husband has multiple lished and is a widespread Sternwood and Philip the home and burial place of wives, forbeing in part respon- practice around the world. The Marlowe following a Archduke Franz Ferdinand, a sible forSouth Sudan’s civil Inter-American Development monologue by the general: notable victim ofnationalism. war (“The perils ofpolygamy”, Bankjudges the effect on con- Philip Marlowe: “Hmm.” In his study was a map ofthe December 23rd). In fact, the sumer prices to be negligible. General Sternwood: “What proposed United States of causal relationship between We want to see a genuine does that mean?” Greater Austria, a plan for a polygyny and conflict is un- regionally integrated sugar Philip Marlowe: “It means, democratic multinational clear. Societies with the high- market, providing security of hmm.” confederation that the arch- est polygyny rates, such as supply and quality to Caribbe- PAUL O’MALLEY duke’s advisers had urged in Benin, Burkina Faso and Guin- an manufacturers and con- Fort Wayne, Indiana 7 order to resolve social and ea, are also characterised by sumers. Proper application of ethnic tensions. Looking at this high rates ofpopulation the CET will create this, and beautiful map I reflected that it growth and by lengthy gaps importantly, will incentivise Letters are welcome and should be tooktwo world wars and between men’s and women’s investment. addressed to the Editor at KARL JAMES The Economist, The Adelphi Building, decades ofimperial Soviet average ages at first marriage, 1-11John Adam Street, control before those states with men marrying five to ten Chairman London WC2N 6HT were again united. years later than women. This Sugar Association of the E-mail: [email protected] JAMES DAWSON combination offactors means Caribbean More letters are available at: London that, even though males spend Couva, Trinidad Economist.com/letters Executive Focus 17

The Economist January 20th 2018 18 Briefing Coping with techlash The Economist January 20th 2018

With the political mood turning against digital giants, the world’s largest tech bosses are scrambling to understand what could be in store. A note from theirstrategist

Invisible Hand Strategies LLC Eve Smith

Silicon Valley, we have a problem 1 message

Eve Smith, Invisible Hand Strategies, LLC 19 January 2018 at 17:45 To: Jeff Bezos , Mark Zuckerberg , Sundar Pichai CC: Tim Cook , Reed Hastings , Satya Nadella

Dear Jeff, Mark and Sundar, if I may

I imagine your concern about the simmering tech backlash has grown 2020, whoever they are, are likely to run on an anti-tech platform of since we ran into each other in the desert in September. The heat some sort. Democrats have already pledged to “crack down on cor- directed at your firms has certainly risen. Attached to this e-mail you porate monopolies”. The Republicans—besides hating you for being will find the full report I promised, analysing the grave political and coastal liberals desperate to promote your politically correct world- business risks that your firms face. I hope you will read everything I view—have some business worries, too. Just look at how the Depart- am sending in full, and please do not distribute my work to your un- ment of Justice (DOJ) is trying to block AT&T’s acquisition of Time derlings, as none of us want this e-mail to leak to the press. Warner, a content company. I know they gutted net neutrality: but that had more to do with hating everything Obama did than valuing a The takeaway is that it is looking more likely that one of you could end light touch with the internet. up like the giant structure at Burning Man which the crowd torches, watching with rapt attention as it burns down to ash. Meanwhile a handful of state attorneys general, including Missouri’s, have launched probes into Google. Any of these could spark a fire. The Things have been rough in Europe for a while. They are getting worse. federal antitrust case against Microsoft started after states investi- Having levelled a fine of $2.7bn against Google in 2017, the European gated the company’s conduct; Texas played a pivotal role in handi- Commission’s Magrethe Vestager wants to go further. National gov- capping Standard Oil in the 1880s. The Sherman Act of 1890 followed ernments are also baring their teeth. In December Germany’s cartel and by 1911—before the Clayton Act was even passed—John D. Rocke- office accused Facebook of unfairly using its position to track internet feller’s pride and joy, the greatest company of its day, was lying on users. France has threatened to fine Facebook for sharing data be- the floor in 34 parts. Knowing that a consultant in Washington refers tween its various apps. Almost every day you get hammered for not to Amazon, Facebook and Google as “Standard Commerce, Standard properly policing the content, including extremists’ videos, revenge Social and Standard Data” should make you shudder. porn and fake news, that appears on your platforms. Rockefeller was once the richest man in the world. Don’t think that America is not the haven it was. Under Barack Obama tech was treated crown will help whichever of you is wearing it when the music stops. as a dazzling national asset; he had your back. The candidates in The fact that four of the five most valuable publicly traded firms in the 1 The Economist January 20th 2018 Briefing Coping with techlash 19

2 world are technology companies, with a combined market value of in 2012; WhatsApp, a messaging service, for which it paid a stunning $3trn, gives you muscle. So do the massive revenues which most of $22bn in 2014; and tbh, a social-polling app, which it acquired last you turn into profits. But the fact that all the figures associated with year. When Snapchat rebuffed it in 2013, it responded by cloning the your industry are huge—except for your tax bills—is one reason you app’s most successful features. There’s a potential lesson from his- have so many enemies. tory here. Microsoft tried to buy the nascent browser company Net- scape in the 1990s; when it failed, it put lots of the browser’s features There is one ray of light. Almost all your services remain wildly popular into its own product, making it freely available to all. That got it into a with consumers; they use your products to communicate, to navigate, lot of trouble. Some see the weak share price of Snap, Snapchat’s to search for stuff, to buy things and to socialise. They cannot imagine parent company, as proof that challenging Google’s and Facebook’s life without you. This is one reason investors have dismissed anti-tech online-ad duopoly has become nearly impossible. rhetoric as political grandstanding. But today’s market sentiment could change quickly. An analyst at RBC Capital, Mark Mahaney, re- A further charge is that tech firms’ products are addictive. People cently published a list of “top ten internet surprises for 2018”. “Mate- argue about this, but many feel that people who spend time on social rial regulatory action” against tech was number one; he rated the media, especially teens, are less happy than peers. Rates of teen probability as low but “higher than financial markets ascribe”. And depression and suicide have risen in some places; some adults have the impact could be huge. been shown to be more prone to insomnia, depression and anxiety due to online activities. Two of Apple’s shareholders—the California “Tech” is not yet a four-letter word, but it could soon become one. State Teachers’ Retirement System pension fund and Jana Partners, a hedge fund—recently demanded more be done to help youngsters’ BAADD to worse smartphone addiction. You know you are in trouble if a Wall Street You are an industry that embraces acronyms, so let me explain the firm is lecturing you about morality. situation with a new one: “BAADD”. You are thought to be too big, anti-competitive, addictive and destructive to democracy. In addition to harming mental health, your firms are charged with damaging democracy. Social-media firms create filter bubbles, Those who dislike you for being big draw on research from The Econo- where users are fed information confirming their existing beliefs; mist, think-tanks and academia pointing to the rising concentration they spread fake news that reinforces political polarisation. After last in American business, some of which links high corporate profits to year’s terror attacks in London, Theresa May and others pointed inequality. The value of your mountains of data is becoming obvious, fingers at YouTube, where jihadists promote extremist propaganda. especially as you continue to push into new areas that collect more Russia’s use of social media in America’s 2016 presidential race re- information about consumers while binding them closer to you, such flected particularly poorly on Facebook, which was seen as doing too as the home microphones you are careful to call home speakers. little to stamp out deceptive ads and fake news stories. As for nuclear Facebook and Google are responsible for nearly 80% of news publish- braggadocio on Twitter, let’s not even go there. ers’ referral traffic. In 2017 they claimed around 80% of every new online-ad dollar in America. Google dominates as much as 85% of Proposed actions online-search-ad revenue worldwide. When you combine the stuff Was it Sun Tzu who said: “Your most unhappy customers are your Amazon sells itself with the stuff others sell using it as a marketplace, greatest source of learning”? Actually, no. It was Bill Gates. Less good the company controls some 40% of America’s online commerce. on an ancient Chinese battlefield: wiser, through bitter experience, in the ways of antitrust. These days your unhappiest customers don’t Many also believe you to be anti-competitive. Amazon is a retailer just moan; they go online to discuss innovative regulatory schemes, which is also a marketplace. Google determines the position that some of them quite wacky: Joshua Wright, a professor at George publishers get in search results and which ads are served to their Mason University, calls this “hipster antitrust”. Hipsterish or not, patrons—as well as controlling the system that says if the ads were here are some of the ideas making the rounds, with the most damag- read and should be paid for. Ms Vestager fined it for hurting rival ing first: online-shopping services; it could face further charges for forcing smartphone makers using its Android operating system to include Break up various Google apps. This has several supporters, especially on the left. One is Barry Lynn of the Open Markets Institute (he was dismissed from the New Ameri- All three of your firms have used insights from the data you gather to ca Foundation last year, allegedly because Google’s Eric Schmidt spot incipient rivals and buy them up. Facebook’s little-known app disagreed with his take on tech). Tim Wu, who was influential in the Onavo, which tracks users’ smartphone activity, helped it spot several Obama White House—he coined the term “net neutrality”—was potential threats, including Instagram, a photo app, which it bought recently overheard telling an Economist journalist that he is in favour of a revival of “the big case tradition” of trustbusting. The DOJ or the European Commission could try and force Facebook to get rid of Instagram and WhatsApp (the deal European regulators really care Advalanche about), thus creating three rival social networks. Google could be United States, net digital advertising revenue, $bn split from YouTube (which, kind of remarkably, is itself the world’s 120 Google second-largest search engine) or be forced to spin off DoubleClick, Facebook 100 the technology it bought in 2007 that places ads across the web. Other companies 80 Such gambits might well fail; but that risk is not the deterrent you might expect. Mr Wu and others think such attempts serve a greater 60 good even if their subject survives. Before eventually breaking up 40 AT&T, which controlled America’s telephones, regulators forced it to license its technology. Neither IBM in the 1960s nor Microsoft in the 20 1990s was actually split up. But IBM had to open its platform to in- dependent software developers and Microsoft was obliged to disclose 0 details about the workings of its Windows operating system to rivals. * † 2008 09 10 11 12 13 14 15 16 17 18 19 Some scholars reckon this government-ordained disruption was as Source: eMarketer *Estimate †Forecast much of a boost to progress as any endogenous “creative destruc- 1 20 Briefing Coping with techlash The Economist January 20th 2018

a company with a market share of more than 3% by one with a share Monopoly is not a game higher than 15% should be challenged by the DOJ. There are no limits Mentions of “antitrust” in Democratic and Republican platforms like that any more. For the past four decades American antitrust 12 Democratic thinking has been in thrall to the argument which Robert Bork, a Republican 10 legal scholar, made in “The Antitrust Paradox”: consumer welfare is the thing antitrust should worry about most. In practice, this has 8 boiled down to thinking that if prices don’t go up no harm is done. 6 Around the same time economists of the Chicago School, devoted to the idea that markets are self-correcting, started to have a big influ- 4 ence on antitrust enforcement under President Ronald Reagan—or, 2 rather, lack of enforcement.

0 It is a sign of the times that the University of Chicago is today home to 1900 10 20 30 40 50 60 70 80 90 2000 10 16 several professors, such as Luigi Zingales and Guy Rolnik, calling Source: Guy Rolnik at the University of Chicago loudly for more scrutiny of tech firms. Many believe that looking simply at prices and market shares is too simplistic—especially when technology is often free to the user and constantly changing the 2 tion”. They may not be going too far when they trace the rise of your shape of the market. One reason that Britain’s Office of Fair Trading generation of tech firms to those antitrust cases. was relaxed about Facebook’s Instagram purchase was that it saw Instagram as a “camera and photo-editing app”, not a social net- Pre-emptive action might sometimes be an option. Some see your work, and thus unlikely to ever be “attractive to advertisers on a search for a second headquarters, Jeff, as a portent of such a strategy: stand-alone basis”. Clearly they lacked imagination. a step towards spinning off Amazon Web Services. (This would not allay concerns about Amazon being both a retailer and marketplace, Europe has always used a range of metrics, taking on board market but it could subdue and distract regulators.) The creation of Alphabet concentration and consumer welfare—which includes price, quality as a holding company in 2015 means that splitting, say, Google from and the diversity of products in the market—to evaluate fair competi- YouTube would be less hard than in years gone by. tion. And countries there clearly now want to police more deals. Last year Germany and Austria changed their merger-review policies to Self-severance might be preferable to waiting for regulators to arbi- assess deals based on the values, not revenues, of the acquired firms. trarily decide which limb to sever. But it is still a big step. An alterna- This will enable them to scrutinise the acquisition of startups that do tive is just lying low. Do not provoke regulators, as Mr Gates did (he not yet make money. Ms Vestager has suggested this could apply called one FTC commissioner a communist). Do spend some of your across Europe. Some would like to see it applied in America. money on influence. In 2017 the internet sector spent $50m on lob- bying in America, which is three times what it spent in 2009—but still Amy Klobuchar, a Democratic senator, has proposed two bills to only a quarter of what pharma firms spend. Your K-street battalions change the standard for big deals, requiring firms to prove that their should remind regulators that attacking deals which have already deal would be helpful to competition and to report data about a been done chills the market. And the antitrust hipsters need to know merger’s impact for five years. Those bills won’t pass, but a “potential that break-ups are not stable solutions. The network effects that make competition doctrine” which looks at what the small fry might be- bigger networks more attractive to new joiners give these markets a come, not at what they are today, could emerge through new prece- winner-takes-all quality. One of the Googlettes, or the Facebabies, dents. It is also possible that bodies of user data, as well as market will do better than all the rest, and a new giant will rise. shares, might get considered.

Utility regulation My advice? Don’t pursue any big deals in this current climate. Micro- That said, taking this winner-takes-all argument too far could back- soft misjudged the mood by trying to buy Intuit, a maker of financial fire. Mark, you and your peers may all come to rue the day you de- software, for $1.5bn in 1994; the episode drew attention to other scribed Facebook as a “utility”. You were trying to argue that Face- aspects of its market power. And, frankly, small deals may be out, too. book’s market-dominating social network could be as ubiquitous as Facebook’s acquisition of tbh is for a paltry $80m, but it has still electricity. In doing so you armed your critics. Utilities so big that sparked cries of foul from tech watchers such as Ben Thompson at everyone depends on them get regulated. Stratechery, a newsletter, who think that network effects mean no social networks should be allowed to merge. For the time being, your That could be really disastrous. Have a look at “Railroaded” by Richard shopping trolleys should be kept empty. White, a historian at Stanford. The Interstate Commerce Commission (ICC) was created in 1886 to stop train companies discriminating Data portability and interoperability against particular farmers by establishing set and transparent pric- There are two overlapping issues about customer data. One is that ing. It quickly overreached and ended up regulating trucking and the data bind users to you; the other is that data give you an anti-com- telegraph. It also proved chronically prone to regulatory capture— petitive edge. Remedies to the first problem seek to let customers which, I admit, might be an upside for you, but which in the case of the move their data elsewhere; remedies to the second seek to force you ICC was a disaster. to share their data with others.

Price regulation is hard for services that are basically free to the user. Google already voluntarily offers a “takeout service” which lets users It is possible, though, that a regulator could force prices up—for export a copy of their data. Europe’s General Data Protection Regu- example by insisting that you offer customers the chance to pay for an lation, which comes into effect this May, will extend the principle of ad-free service. A more likely approach, though, would be to cap data portability to other platforms. Observers compare it to how profits. On the basis of your third-quarter figures, a mandated 20% mobile-phone users can switch networks without losing their phone rate of return would represent a fall in profitability rates of 11% for number. This should not worry you too much. Most customers won’t Google and 56% for Facebook. Your share prices would plunge. care; very few people are up for the hassle of actually using Google’s takeout service. And your dominance means there is very little fund- Prevent new acquisitions ing for new search engines and social networks, and thus few alterna- In 1968 America’s merger guidelines suggested that any acquisition of tive services to which consumers can port their data.

22 Briefing Coping with techlash The Economist January 20th 2018

2 But that dominance has a downside. It is the reason why some people Though some of you have tasked your lobbyists with trying to weaken want to force firms to offer “API keys” which give competitors access to it, sensing the thin end of a wedge, an American bill that would hold particular data, such as Amazon’s sales figures or the “social graph” of you liable for online sex-trafficking is likely to pass. Germany can now Facebook’s users’ connections. You will probably want to fight sharing impose fat fines if flagged content is not taken down within 24 hours. data in such ways, because the critics have a point: newcomers are Laws of this nature are probably not the catastrophes you have de- hard put to compete. The days when Instagram was able to grow by nounced them to be. You will have to hire more “moderators”, but in using an API that allowed people to discover all the people they fol- time you will develop new technologies to screen out undesirable lowed on Twitter as soon as they joined are long gone. You may find content, as you already do with spam. Google’s ability to deal with that you have surprising allies in the fight, too. Some privacy ad- “right to be forgotten” claims, which enable people to request infor- vocates find the idea of data being forcibly shared pretty worrying. mation about them to be taken down, has become a well-oiled mach- ine, far from the tremendous burden some had feared. Losing that fight could be uncomfortable, but it would hardly be deadly. Indeed, while it would hit your share price, it could offer The way ahead long-term advantages. The way in which it opens you up to competi- In general, when you can get out ahead of the issue you should do so. tion reinforces your centrality to the ecosystem—and that ecosystem Embracing transparency about who pays for political ads before may, as a result, grow faster. The interoperability forced on Microsoft Congress got around to requiring it of you was a smart move. Look at at the turn of the century, which allowed rivals to make their products setting up your own technical committees, too. more compatible with Windows, had that sort of accelerating effect— and Microsoft has hardly gone away. It is worth more than three times Your new-year’s pledge to “fix Facebook”, Mark, looks like a bold as much now as it was then. effort in this direction. Have a care, though: some people may want more fixing than you are happy to offer. There are some who say you A new dispute-resolution group can never deliver what is needed without scrapping your ad-based Techlashers think one reason regulators have come up short is that business model, which will always value engagement over the quality they are overburdened policing too many industries. New groups to of the experience. And when fixes like changing the newsfeed algo- handle complaints and resolve disputes could make things faster and rithms have effects on lots of other companies, you may both harm simpler. If a retailer feels it has been unfairly squashed in Amazon’s your business and reinforce concerns about its immense power. search results, or a newspaper believes its ranking in Facebook’s feeds is too low, they could go to such outfits for redress. It is critical that you compete with each other. If you are waging war on various fronts, such as commerce and digital advertising, you look There are two potential models. Firms could start their own “technical a lot less monopolistic. This is probably an argument for keeping committees” made up of external experts with access to the relevant alive businesses that you might otherwise scale back, as Google has proprietary code, data and algorithms. They would be empowered to done with its social offering, Google+. Acting as if your rivals are too decide whether other firms are being fairly treated. Again, that is well-resourced and entrenched for even another giant to take on what happened in the Microsoft case. The alternative would be an lends credence to the arguments against you. independent external tribunal. America has panels for disputes about patents and about discrimination by cable-TV operators which might And there’s another lesson from the robber barons—one that some of serve as precedents. you and your peers have already embraced. Philanthropy can change people’s opinions and shape your legacies into the far future. In part You may not like the idea of creating a new tribunal (or the very word because you do not employ as many people as corporate giants of “tribunal”), but it is in your interest to see complaints resolved easily previous eras, it is critical to think about local initiatives that can and cost-effectively. In the meantime, start being more careful about woo public opinion around the world. Mark has made the biggest how you treat rival firms. It might have been different before, but strides in setting up a foundation. The rest of you could form perso- anti-competitive behaviour is suddenly being taken very seriously. nal or corporate foundations, too. Like sexual harassment accusations, it carries a reputational cost. “M”, for monopolist, is today’s scarlet letter. If you have any questions, please be in touch by encrypted app.

Content liability Very sincerely yours, The laws and precedents that free you from liability for the content that you host have been a boon; but they were not set up for a world in Eve Smith which your platforms have become essential media properties in their Invisible Hand Strategies, LLC own right. Your blanket protection is not going to last. Asia The Economist January 20th 2018 23

Also in this section 24 Acrimony on India’s Supreme Court 25 Sri Lanka’s embattled president 25 Kyrgyzstan’s ailing democracy 26 Japan and South Korea: frenemies

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

Politics in Thailand clude the 30-baht scheme, which allowed the poor and sick to consult a doctor for Home truths about $1. Across Isaan women working at looms and men tapping rubber also speak of their appreciation for Mr Thaksin’s bru- tal anti-drugs campaign (a model for the current one in the Philippines), his support Ubon Ratchathani forstudent loans and his glitzy internation- al connections. “Thaksin’s good for ex- The rice-growing heartland harbours unexpected support forthe military regime ports!” reckons one. E vote forpolicies, not fora party,” workers do overall). A surge in agricultural But the enthusiasm is not ubiquitous— “Wdeclares Jutamas Kamsomsri, a prices between 2001 and 2012 is remem- noteven in Nakam, where PT triumphed at housewife in a farming family in the vil- bered fondly. They have wobbled ever the most recent election. Titipol Phakdee- lage of Nakam. “We aren’t stupid, we since. Dogs and children thread through wanich, a professor of politics at Ubon watch the news on Facebook,” the bespec- the streets of forlorn villages while the el- Ratchathani University, reckons the party tacled matriarch adds. This in itself may be derly gossip. Almost everyone of working “can’t take Isaan for granted”. For one news to those who assume that voters in age is in Bangkok; the region has little in- thing, the rulingjunta has kept many ofthe Isaan, a poor region in north-east Thailand dustry of its own. A quarter of households Shinawatras’ most popular policies. Subsi- that is home to roughly a third of the coun- are headed by an old person, a much high- dies to rice farmers are still doled out: in try’s 69m people, are blindly loyal to Thak- er share than in the country as a whole. September the government approved sin Shinawatra, a former prime minister $2.2bn in loans and handouts to help sta- deposed in a coup in 2006, and to his sister Money can buy you love bilise prices ahead ofthe harvest. Yingluck Shinawatra, who ran the country The Shinawatras’ popularity was the result Critics say such policies encourage for almost three years until another coup of populist policies. Isaan’s love was dear- households to take on more and more ousted her in 2014. ly, and ingeniously, bought. Take rice subsi- debt. However, unlike under Ms Yingluck, Parties associated with the family have dies. Mr Thaksin introduced payments for the spending is curtailed. For example, if won every election since 2001, thanks to farmers which became more generous un- farmers register their land properly, they votes from Thailand’s north and north- der his sister. Six years ago Ms Yingluck’s can get 1,200 baht for each rai of land they east. Their supporters call themselves “red government began to buy the grain di- farm (one rai is equivalent to 1,600 square shirts” and are stalwarts of the Shinawa- rectly from farmers at roughly 50% more metres). But the payouts are only available tras’ currentpolitical vehicle, the Pheu Thai than the prevailing international price. to smallholders. A woman who farms a party (PT). Given that history, however, This hoarding was supposed to create scar- tiny plot believes that this arrangement is Isaan’s farmers are surprisingly ambiva- city abroad (Thailand was the world’s big- better than previous subsidies. Farmers lent about how they will vote if the mili- gest exporterat the time), allowingthe gov- benefited from PT’s generous prices for rice tary regime allows thrice-delayed parlia- ernment to offload its stock without big only if they had excess rice to sell. The mentary elections to be held in November, losses. But other exporters filled the gap. smallest, poorest farmers, who harvest the as promised. The scheme, fraught with corruption, end- few rai they own to feed their families, did Isaan is vast and carpeted in paddy- ed up costing the government $16bn. The not benefit at all, she says. fields. Hunks of cassava are spread out on army used the fiasco as an excuse to seize The junta also wants to move beyond the roads to dry. Locals grumble over the power. Ms Yingluck fled the country in Au- this kind of handout. In a popular step, prices they receive for their grains, sugar gust before the verdict was delivered in a newsocial welfare cardsappeared in Octo- cane and tapioca, as almost everyone related case against her fornegligence. ber. These provide 200-300 baht ($6.26- works on the land (just over a third of Thai Other beloved Shinawatra policies in- 9.39) a month to those who earn less than 1 24 Asia The Economist January 20th 2018

2 100,000 baht a year—some 11m people. ning support as a result. What is more, dis- women have held the post) can even with- They can spend it only on approved goods, enchantment with politicians persists draw a case from a bench after it has been such as rice and soap, and only in certain even though the army has squashed Thai- assigned, or reconstitute a bench at will. shops. The poorer people are, the more land’s democracy. A law banning political There is nothing new to charges that they receive. The government tookmonths gatherings ofmore than five people means chief justices abuse their power as “master to get the registration process right, to be that parties will struggle to create and pub- of the roster”. What is new is for com- sure it was including only the truly needy, licise policies zappy enough to entice vot- plaints to emerge from within the Vatican- saysNathporn Chatusripitakofthe deputy ers. Besides, under the constitution Thais like Supreme Court itself, a break with a prime minister’s office. Next month gov- approved in a referendum 18 months ago, collegial tradition that has typically seen ernment workers will start meeting those the army will select the entirety of Thai- judges close ranks to protect even garishly with cards to help them manage their fi- land’supperhouse and will need the back- corrupt colleagues. The four dissident nances and enroll in schemes to improve ing of just a quarter of elected lawmakers judges are not lightweights; they are the theirincomes, he says. Poorfarmerswill be to secure their choice of prime minister. next four in seniority to the chief justice taught to grow new, more lucrative crops, Many in Isaan assume that Prayuth Chan- himself. One oftheir complaints is that the better suited to the local environment. The ocha, the junta leader, will remain prime current chief justice, Dipak Misra, appears scheme aims to stop the “vicious cycle” of minister even if elections take place. One routinely to have assigned controversial dependence on crop-price subsidies, says village boss believes he will be tainted in cases to junior judges. Mr Nathporn. the process: “If he runs in the election he MrMisra, who tookoffice in August and In short, the generals have taken a leaf won’t be as strong as he is now. He will be- is due to retire in October, has not respond- from the Shinawatras’ book, and are win- come a politician.” 7 ed to the charges. Perhaps he expects this cloud to blow over, as others have in the past. The trouble is that there is not just one India’s Supreme Court recent case whose handling has raised eye- brows, but several. Bench press Two ofthese touch upon Mr Misra him- self. One involves the suicide note written by an ousted chief minister of the state of Arunachal Pradesh, detailing allegations that Supreme Court judges including Mr DELHI Misra (before he became chief justice) had demanded a bribe of some $13m to rule in Seniorjudges accuse theirboss ofmanipulating the system his favourin the case that ended up depriv- OR the biggest constitutional crisis in a group. Instead the chief justice, normally ing him of office—and driving him to hang Fgeneration, as some have labelled the the court’s longest-serving judge, has the himself. The other is a case against a medi- drama currently roiling India’s courts, the job of choosing when to hear cases and cal school thatlostitslicense, and allegedly setting and the action proved disingenu- then of assigning each to a “bench” of two tried to get it back by bribing the Supreme ously genteel. On January 12th four Su- or more justices. Court. Although Mr Misra himself sat on preme Court judges hosted an impromptu In theory, these powers help justice to the bench that investigators say was of- tea on the lawn of a grace-and-favour bun- be done, by allowing the court to hear fered the bribe, and which passed a string galow off a tree-lined New Delhi avenue. cases faster, and the chief justice to acceler- of rulings favourable to the school, rather Enthroned in plastic chairs, the solemn ate the most pressing ones and steer tech- than recuse himself from the subsequent judges revealed to puzzled reporters that nical subjects to judges with the relevant bribery case, the chief justice assigned it to two months earlier they had addressed a expertise. But they also allow the chief jus- a bench that he himselfchairs. The govern- letter to India’s chief justice. Having re- tice to ignore, speed or delay certain dos- ment, meanwhile, is counting on favour- ceived no satisfactory answer, they would siers for less edifying reasons, and to feed able rulings in a slew of brewing cases. It is now make its contents public. controversial cases to colleagues whose re- an awkward time for Mr Misra’s own col- In the manner of India’s often prolix cords suggest a particular outcome. He (no leagues to accuse him ofpartiality. 7 court rulings, their text meandered before reaching its point: “There have been in- stances where cases having far-reaching consequences for the nation and the insti- tution have been assigned by the chief jus- tices ofthis court selectively to the benches ‘of their preference’ without any rational basis for such assignment.” In short, the frumpish foursome were suggesting that holders of the top judicial office, current and former, tried to influence justice by shunting cases towards particular judges. That is indeed a serious charge. As in America, another large and tumultuous democracy, the Supreme Courtplaysan es- sential role not only as a final legal arbiter but also as a counterweight to the caprice of the executive and legislative branches. Yet unlike America’s nine Supreme Court justices, India’s 31(that is theirconstitution- ally ordained strength; the actual number varies and is currently 25) never sit as a Mr Misra is keeping mum The Economist January 20th 2018 Asia 25

Politics in Sri Lanka Politics in Kyrgyzstan Coconuts and jolts Kyrgyz autumn

COLOMBO Almaty The president is struggling to push Central Asia’s only democracy is sliding through promised reforms into authoritarianism T THE time, it was seen as an astonish- INY and turbulent, Kyrgyzstan likes to Aing victory. In retrospect, it was also Ttout itselfas a trailblazer fordemocracy something of a Pyrrhic one. Few expected in Central Asia, a region otherwise pre- Maithripala Sirisena to defeat the incum- sided over by autocrats. The former Soviet bent, Mahinda Rajapaksa, in the presiden- republic of 6m has “proven to the world tial election of2015. Afterall, MrRajapaksa, that it is a democratic country”, its new although increasingly authoritarian, had president, Sooronbay Jeyenbekov, trum- presided in 2009 over the defeat ofthe sep- peted triumphantly as he was sworn into aratist Tamil Tigers, ending Sri Lanka’s 26- office in November. But the unusually year civil war. Mr Sirisena was merely a re- competitive election that brought him to bellious member of the president’s own power may have been less an affirmation Sri Lanka Freedom Party (SLFP). To win ofdemocracy than its last gasp. and then to govern, Mr Sirisena relied on Inflation in a nutshell Mr Jeyenbekov was making history. In the support of the SLFP’s main rival, the the 26 years since the collapse ofthe Soviet United National Party (UNP). As Sri Lan- the final daysofthe war—have gone largely Union, his election marked Central Asia’s kans prepare to vote in local elections on unfulfilled. first peaceful handover of power from one February 10th, that alliance has come to The powers of the president have been democratically elected leader to another. haunt him. watered down, but not nearly as much as But the election was flawed. Mr Jeyenbe- In theory, the alliance between the UNP Mr Sirisena had pledged. A promised new kov, a dour59-year-old, has admitted that it and MrSirisena’s faction ofthe SLFP ended constitution which would strengthen the was marred by vote-buying. International in December. But this is a polite fiction ne- powers of the regions has never material- observers were also troubled by media cessitated bythe campaign. In practice, nei- ised, to the irritation of the Tamil National biasand the strong-armingofcivil servants ther group has sufficient numbers in par- Alliance, a party that supported Mr Siri- to vote for Mr Jeyenbekov, who was prime liament to govern without the other. Mr sena’s presidential bid. No members of the minister at the time and had been en- Rajapaksa, who is backing a new outfit former government have been prosecuted dorsed by the outgoing president. called the Sri Lanka People’s Front, has for corruption, nor have any wayward sol- Things have got worse since the elec- called on voters to treat the poll as a refer- diers been brought to book. Building pub- tion. On December 30th Mr Jeyenbekov’s endum on the government. lic trust in government was an important main rival forthe presidency, Omurbek Ba- The lackofa fixed political base has col- element of the government’s mandate, banov, announced that he was quitting oured Mr Sirisena’s three years in office. says Asoka Obeyesekere, the local head of politics and resigning his parliamentary The endless struggle to assert his authority Transparency International, an anti-cor- seat. That came as no surprise. Mr Baba- over the SLFP has taken up much of his ruption pressure group, but it has made no nov—whom Mr Jeyenbekov had perso- time and energy, while the alliance with progress at all. Instead, the UNP has be- nally threatened to lock up—had already the UNP has associated him with its un- come embroiled in a corruption scandal of fled the country afterthe election to escape popular economic policies. The presi- its own, and many observers worry that spurious charges of inciting ethnic unrest dent’s ambitious promises—to transfer ex- the investigating authorities are not inde- that could have led to a longspell in prison. ecutive authority from the president to pendent enough to untangle it. Kanatbek Isayev, an MP who endorsed Mr parliament; to devolve power to the re- Meanwhile, runaway borrowing for Babanov, did not escape so lightly. On Jan- gions; to crack down on corruption; and to vanity projects underMrRajapaksa left the uary 4th he was jailed for nine years for hold the army to account for the war new government with a balance-of-pay- corruption, in a case that had been dor- crimes it is alleged to have committed in ments crisis. It had to turn to the IMF in mant since 2011 but which the authorities 2016, and last year approved a tax overhaul suddenly decided to press ahead with last to help rein in the deficit. Rising taxes and year. He faces a separate, implausible Not what the voters ordered the fallingrupee, in turn, have helped push charge ofplotting a coup that could see an- Sri Lanka up inflation, which has jumped from 2% to other sentence slapped on top. Rupees per $ Consumer prices 8% during Mr Sirisena’s tenure (see chart). Jailing obstreperous politicians is be- Inverted scale % change on a year earlier A common gripe concerns the price of co- coming a habit. Last year the authorities conuts, which has doubled over the past abruptly accused Omurbek Tekebayev, an- 130 10 year—a blow given that coconut milk is a otheropposition leader, oftakinga bribe in 135 8 staple ingredient in local curries. 2010. He was subsequently imprisoned for 140 6 The local elections could deepen Mr eightyears, preventinghim from mounting Sirisena’s troubles. Politicians tend to fol- an electoral challenge to Mr Jeyenbekov. 145 4 low the wind; if the SLFP performs poorly, Kyrgyz journalists who fail to toe the 150 2 power will ebb away from the president in government line are also under pressure. + 155 0 anticipation of the presidential election in After the election a plucky website named – 2019 and a parliamentary one in 2020. It Kloop published allegations that Mr Jeyen- 160 2 does not help that Mr Sirisena pledged to bekov’s campaign team had got hold, and 2015 16 17 18 2015 16 17 18 serve only a single term—another reason made unfair use, of government data on Source: Thomson Reuters he may soon be viewed as a lame duck. 7 voters to swing the closely fought election. 1 26 Asia The Economist January 20th 2018

2 It was rewarded with threats of libel ac- similar grounds. Last year the government ans are emotional, renege on agreements tion. Mr Jeyenbekov has form when it also barred a campaigner from a respected and have made hostility to Japan part of comes to suing journalists. In October he Russian rights group, Memorial. Azimjon their national identity. South Koreans re- won a fierce libel suit against another me- Askarov, one of Kyrgyzstan’s most promi- tort that the Japanese are reluctant to face dia outlet. Police have also impounded the nent human-rights advocates, is serving a their wartime past, especially under Mr property of a television station belonging life sentence, also on flimsy charges of fo- Abe, who is seen as a revisionist. There is to Mr Babanov, ostensibly over a disputed menting ethnic unrest. some truth to both narratives, but the dip- payment to another business. As Mr Jeyenbekov recently noted, Kyr- lomaticbackand forth hasbecome petty. “I Foreign journalists and watchdogs gyzstan remains the first and only Central feel sold out by both,” says Lee Ok-seon, a have not fared well under Mr Jeyenbekov Asian country with a functioning, if 91-year-old formercomfortwoman. either. In December one of the few West- flawed, parliamentary democracy. Protes- America, the closest foreign ally ofboth ern reporters based in Kyrgyzstan, Chris ters have toppled wayward governments countries, is frustrated too. Closer co-oper- Rickleton, a correspondent for AFP, a news twice in recent years. Democracy, Mr ation is needed to counter China, whose agency, was summarily deported on Jeyenbekovsaid poeticallyin hisinaugura- regional hegemony is feared by both coun- claims that he had violated immigration tion speech, “has two friends: first free- tries, and to rein in North Korea, whose law, which he denies. The authorities have dom, second responsibility”. Alas, he does missiles threaten them both (and the prevented Mihra Rittmann, a researcher not seem to be taking his responsibility to American bases they host). In 2016 Japan forHuman Rights Watch, a pressure group, protect the country’s democratic freedoms and Korea agreed to share intelligence on from visiting the country for two years on at all seriously. 7 North Korea. Ties are deepening between their armed forces, too. But much more could be done, says an adviser to the Japan and South Korea American armed forces in Seoul. History matters to the young, too, but K-pop v history not as much as to the old. Youth in both countries have more favourable views of the other than older generations, polls say. Japanese of all ages feel more affinity with South Koreans than with Chinese; South SEOUL AND TOKYO Koreans in their 20s have warmer feelings towards the Japanese than the Chinese, Diplomatic rows notwithstanding, the two countries are growing closer unlike older people. Some are even trying U MYUNG-SU and his friends have and irreversibly” to have settled the thorni- to repair relations. In December young Ybeen fansofJapanese culture for aslong est dispute of all, over the “comfort wom- South Korean and Japanese students met ashe can remember. The 24-year-old South en”—South Koreans forced during the war in Seoul to discuss “the difference in ways Korean spent years watching Japanese car- to work in Japanese military brothels. The of thinking” about comfort women, says toons, films and dramas before moving government of Moon Jae-in, South Korea’s Kaho Okada, a Japanese participant. last year to the southern Japanese island of president, asked Japan for an apology (al- Meanwhile, cultural ties are growing. A Kyushu. There he has discovered new ready given) and implied that Japan had record 7.1m South Koreans visited Japan charms. “Japanese service culture is really not paid enough compensation by saying last year, while South Korea was the most the best,” he says. itwould match the ¥1bn ($8m) Japan ispro- popular tourist destination for Japanese. Mr Yu’s enthusiasm is reciprocated by viding to support the last surviving vic- Kim Ji-yoon of the Asan Institute for Policy young Japanese; many are into K-pop, for tims. In response, Shinzo Abe, Japan’s Studies, a research outfit in Seoul, reckons example. BTS, a South Korean boyband of prime minister, suggested that he would changing attitudes herald better relations seven mop-tops of varying degrees of skip the opening of the Winter Olympics in the future. (It helps that the 31 surviving bleaching, who re-record all their tracks in in South Korea next month. South Korean comfort women have an av- Japanese, was the highest-selling foreign Colonial history is the main cause of erage age of 91.) “When I talk to my Japa- act in Japan last year. (The acronym stands the bad blood between the governments. nese friends, we don’t argue over whose for the Korean for “Bulletproof Boy The Japanese grumble that the South Kore- land is whose,” laughs Mr Yu. 7 Scouts”). Japanese fans snapped up 270,000 copies ofone ofits offerings in just one day. Meanwhile, sparse, noir-ish detec- tive novels by Keigo Higashino, a Japanese crime writer, accounted forthree ofthe ten best-selling works offiction in South Korea last year. Several South Korean directors have made films based on his books. The cultural affinity ofyoung South Ko- reans and Japanese stands in stark contrast to the animosity between the two coun- tries’ politicians. The neighbours have much in common culturally, and share strategic interests in Asia. But since estab- lishing formal diplomatic ties in 1965, two decades after the end of Japan’s colonial rule of Korea, relations have oscillated be- tween bad and worse. Ties deteriorated again this month when South Korea undermined an agree- ment of 2015 that was supposed “finally Pelvic thrusts for mutual understanding China The Economist January 20th 2018 27

Also in this section 28 The party and #MeToo 29 Banyan: Taiwan, tormented and torn

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

Space launches tonnes into low orbit, roughly double the maximum load of China’s next most pow- Hainan aims high erful rocket. This is only a bit less than the biggest rocket currently used by America’s space agency, NASA, can carry—but far less than the Falcon Heavy, a behemoth being developed by SpaceX, a private American WENCHANG firm (see page 66). The Long March 5’s maiden launch, in 2016, was a success. But China’s ambitions in space are growing. America is keeping its distance the second one last summer failed a few ATTY yellow carts whizz tourists among the few visitors to the launch site. A minutes after lift-off. Wenchang’s two Naround Wenchang space port, a local says that people often come out feel- launch pads have stood empty ever since. sprawling launch site on the tropical island ing like they have had a lesson in patrio- That failure, and another one last year of Hainan. The brisk tour passes beneath tism, but not much fun. involving another type of Long March an enormous poster of Xi Jinping, China’s Perhaps this will change when Wen- rocket, slowed China’s space efforts. Offi- president, then disgorges passengers for chang gets up to speed. The base is crucial cials had hoped to launch around 30 rock- photographs not farfrom a skeletal launch to China’s extraterrestrial ambitions be- ets of one type or another in 2017 but only tower. Back at the visitor centre there is a cause it is the only site from which it can managed 18 (there were 29 launches in small exhibition featuring space suits, a launch its latest and largest rocket, the Long America and another 20 of Russian ones— model moon-rover and the charred husk March 5 (pictured). Narrow railway tun- see chart). But they promise to bounce of a re-entry capsule that brought Chinese nels limit the size of the components that backin 2018, with 40-or-so lift-offsplanned astronauts back from orbit. A gift shop at can be delivered to the three other bases. this year. These will probably include a the exit sells plastic rockets, branded bottle Rockets are anyway more efficient the clos- third outing for the Long March 5—assum- openers and cuddly alien mascots. er they are launched to the equator, where ing its flaws can be fixed in time—and mis- The base in a township of Wenchang the faster rotation of Earth provides extra sions that will greatly expand the number city is the newest of China’s four space- lift. Of China’s launch centres, Wenchang ofsatellitesservingBeiDou, China’shome- launch facilities. It is also by far the easiest is by farthe nearest to that sweet spot. grown satellite navigation system. to visit—thanks in part to the enthusiasm The Long March 5 can carry about 25 The next two years could see big pro- of officials in Hainan, a haven for tourists gress in China’s two highest-profile civil and rich retirees. Wenchang’s local govern- programmes in space: lunar exploration ment has adopted a logo for the city remi- Filling the void and building a space station. In 2013 China niscent of Starfleet badges in “Star Trek”. It Spacecraft launched by space agencies per year sent a rover to the moon’s surface, the first is building a space-themed tourist village By country soft landing there since Russia and Ameri- near the launch site, with attractions that United States USSR/Russia China Other* ca discontinued such efforts in the 1970s. include a field of vegetables grown from 200 Towards the end of this year China hopes seeds that have been carried in spaceships. to put a robot on the farside ofthe moon, a If the dream is to turn this palm-fringed 150 region never yet explored from the lunar corner ofHainan into a tourist trap compa- surface. That landing will help prepara- rable to Florida’s balmy space coast, there 100 tions for an attempt—tentatively planned is still a lot to do. Several idle building sites 50 for 2019—to collect rocks from the surface suggest that some investors have gambled and return them to Earth. rashly. Signs have been taken down from a 0 China talks oflaunchingthe main mod- patch ofscrub thatwasonce earmarked for 1957 70 80 90 2000 10 17 ule ofa permanentspace station assoon as an amusement centre. On a recent week- Sources: Spacecraft Encyclopedia; *Including Europe, 2019, and expanding it with two bolt-ons spaceflight101.com Japan and India day, pensioners wintering nearby were early in the following decade. It is going it1 28 China The Economist January 20th 2018

2 alone with this programme. America tween America and Russia have not pre- become “agents ofevil foreign forces”. passed a lawin 2011that forbidsNASA from vented those two countries’ space On January 1st Ms Luo went public on sharing knowledge or resources with its agencies from working together (since re- Weibo, a microblogging site. When Mr Chinese equivalent. This ensured that Chi- tiring the space shuttle, America has been Chen denied the claims, Ms Luo published na remained locked out of the Internation- dependent on Russian rockets to get astro- transcripts of him saying things like “Can’t al Space Station; America was never keen nauts into space). As many people in China I touch you?” and “Then can you touch me on letting it in because of the military uses see it, America’s behaviour is further con- a little?” On January 11th the university ofChina’s space programme. China has in- firmation of a long-held belief that Ameri- ruled that her accusations were true and stead experimented with two temporary ca wants to create impediments to China’s suspended Mr Chen. Three days later the orbiters of its own, the newest of which it rise. Jiao Weixin, a space expert at Peking Ministry of Education stripped him of a crewed for a month in 2016 (the older one University, says America is locked in “cold- prestigious scholarship and demanded he has reached the end of its mission and war thinking”. If American authorities do repay the stipend. Thus #MeToo finally ar- looks likely to tumble to the Earth some- notwish to workwith China, he says, there rived in China, claiming its first scalp and time in the next few months). are others who will. 7 establishing a new hashtag with the Chi- Eventually, China would like to send its nese characters for“me too”: #WoYeShi. taikonauts to the moon. There is no target China’s movement against sexual ha- date for achieving this, but in 2016 an offi- rassment is very different from those in the cial speculated thata Chinese citizen might West. So far, accusations have all come step on the lunar surface within 15 to 20 from universities, not the film business or years. The country has Mars in its sights, politics. No celebrities have tweeted too. It plans to land a rover there in 2020 or #WoYeShi. Almost all the accusations have shortly thereafter. It wants to retrieve rocks been made anonymously. Ms Luo’s story from Mars sometime in the 2030s. stuckout because she used her own name. China still lags farbehind America in its That was partly, she said, because she lived space accomplishments, but it does not ap- in America, where she had some protec- pear bent on a cold-war-style race. It tion from the retaliation she might have spends far less on its civil space pro- suffered were she in China. gramme than the $19.7bn that NASA was al- The movement there faces greater chal- located last year. China is doggedly pursu- lenges than elsewhere. Tian Dong, a law- ing its goals, however. Joan Johnson-Freese yer who specialises in gender-related ofthe US Naval WarCollege compares Chi- cases, says there is no legal definition of na to Aesop’s tortoise. sexual harassment in China. Chinese com- One of the Communist Party’s aims is panies often ignore harassment in their to boost national pride at home. In 2016 Mr terms of employment and training. Social Xi declared that April 24th would be cele- attitudes have changed profoundly in the brated annually as “space day”: it is the an- Sexual harassment past 30 years, but traditional sexual roles niversary ofChina’s first satellite launch in remain entrenched. Women are expected 1970. Even ifoutshiningAmerica remains a #ChinaToo to shut up and lookdemure. A study by the distant goal, China is mindful of the pro- Guangzhou Gender Centre, an NGO, gress being made by India, another big de- found that almost 70% of students said veloping country that dreams of the stars. they had been harassed. Fewer than 4% India is planning its first soft-landing on BEIJING said they had, or ever would, report as- the moon in March, more than four years saults to the police. The #MeToo movement has arrived in after China’s. Above all, #WoYeShi faces the Commu- China. The Communist Partyis worried Europe is keen to collaborate. Chinese nist Party—the most powerful organ of and European scientists launched their HENLuo Xixi wasstudyingfora PhD which, the Standing Committee of the Po- first joint satellite in 2003. Theyare nowco- Wat Beihang University in Beijing, her litburo, has never had a female member. operating in a study of solar wind. Astro- supervisor, Chen Xiaowu, asked her to go Given the party’s ingrained sexism and nauts from the European Space Agency with him to his sister’s house to look after hostility to any form of activism, the sur- (ESA) recently trained with Chinese coun- her plants. Women, she recalled him say- prising thing is not that #WoYeShi has had terpartsin survival skills. Karl Bergquist, an ing at the time, are innately better at do- lessimpactthan #MeToo. Itishowfar ithas ESA official, says a few European astro- mestic chores. Once in the house, she says, come in a short time. Universities face a nauts are learning Chinese to prepare for he demanded sex, lettinghergo onlywhen wave ofaccusations. There have been peti- possible joint missions. she pleaded she wasa virgin. Asshe left, he tions in 68 ofthem demanding systems for But America’s worries are growing warned her not to tell anyone, claiming he reporting and investigating harassment about the military aspects ofChina’s space had merelybeen testingherto see whether charges, says Feng Yuan of the Women’s programme. Marco Aliberti of the Euro- she was “a well-mannered student”. Study Centre at Shantou University. pean Space Policy Institute in Vienna says Thirteen years later, in October 2017, Ms In 2015 five activists were arrested for this has been particularly evident since Luo was working in Silicon Valley as news trying to campaign against sexual harass- 2013, when China showed it could launch spread of a social-media campaign by vic- ment on public transport. Recently, inter- projectiles into the lofty orbits traced by tims of sexual harassment using the hash- net censors have been busy deleting America’s most sensitive satellites, sug- tag #MeToo. With a handful of fellow Bei- #WoYeShi petitions. But the party appears gesting it was developing an ability to hang graduates, she formed a group on to have changed its tune. In an online com- knockthem out. Many American scientists WeChat, a messaging app, to discuss the mentary, its flagship People’s Daily praised favour a more relaxed approach. But in an abuse theyhad suffered. MsLuo decided to Ms Luo, saying “being brave is the best era of “America First”, the chances are slim take her case to the university. For three stance.” By sounding sympathetic, the ofNASA being allowed to befriend China. months, the college remained silent while party may hope that it can forestall de- All this rankles among Chinese offi- Mr Chen began his own campaign, warn- mands that could evolve into a broader cials. They note that tense relations be- ing possible accusers not to let themselves popular movement. 7 The Economist January 20th 2018 China 29 Banyan Hard prong, soft prong

China is getting tougheron Taiwan’s government. It is also luring its people law to allow plebiscites on matters of sovereignty, including on Taiwan’s official name (the Republic ofChina). But forChina none ofthis is good enough. It views the referen- dum lawasa step towardsa vote on independence. Ithas even at- tacked laudable new legislation aimed at redressing human- rights abuses that occurred during the years of KMT dictatorship. China sees the bill as an attempt to erase all sense of a Chinese identity among Taiwanese: in those days, the KMT was proud of its Chinese nationalism, even though it hated the Communists. Above all, China is furious with Ms Tsai for refusing to acknowl- edge the “1992 consensus” between the two sides: that both Tai- wan and the mainland belong to a single China, and that they agree to disagree what exactly China means. So Taiwan is in the doghouse. Some policymakers were re- lieved that China’s leader, Xi Jinping, did not suggest he would get even tougherwith itwhen he spoke ata bigpartygathering in Oc- tober. Even so, his uncompromising remarks about Taiwan drew the longest applause ofanythinghe said. Soon afterthat meeting, he told President Donald Trump that Taiwan (not North Korea’s nukes) was the most critical issue in Sino-American relations. Mr Xi talks of China’s “great rejuvenation” by 2049. That surely im- HEN is a country with its own territory, laws, elected gov- plies the return ofTaiwan to the fold by that date. Wernment and army not a country? Answer: when China The pressure continues, then. On the diplomatic front, the 20- deems it so. In recent days Chinese officials have ordered foreign strong band of countries that recognise Taiwan is bound to be businesses, including airlines operating flights to China, to “cor- whittled down further, following Panama’s switch to China last rect” websites that list Taiwan as a country, aswell as remove im- year—Honduras, Palau and St Lucia could be next. Earlier this ages of the island-state’s flag. Censors even shut down the Chi- month China reneged on an agreement with Taiwan by an- nese website of Marriott, one of the world’s biggest hotel chains, nouncing four new commercial air routes that run either close to fora week as punishment forcategorising Taiwan as a country in the median line dividing the Taiwan Strait or close to Taiwan’s a customer questionnaire (the firm caused additional offence by main offshore islands. Taiwan described this unilateral move as a putting Hong Kong, Macau and Tibet in the same category, threat to air safety and to the island’s security. But it is powerless. which—to be fairto China—they are not). Taiwan is not a member of the International Civil Aviation Orga- China’s rabidly nationalist netizens have even called for a nisation, whose Chinese head previously ran the civil-aviation boycott of Marriott. But more than losing business, foreign oper- authority that declared the opening ofthe air corridors. ators in China fear running foul of sweeping new cyber- and na- China hasbeen flexingmilitarymuscle, too. Since 2016 itswar- tional-security laws. Among much else, these prohibit anything planes have carried out “island-encircling” patrols. China’s state deemed to “damage national unity”. The apologies issued by media have published images ofthese, with Taiwan’s mountains some operators were party-speak. Marriott said, “We absolutely in the background. A recent exercise in northern China involved will not support any separatist organisation that will undermine storming a full-sized mock-up ofTaiwan’s presidential palace. China’s sovereignty and territorial integrity.” Delta airlines apol- ogised forhurtingthe feelings ofthe Chinese people. Zara, a Euro- Come on over sometime pean fashion chain, even promised a “self-examination”. All this is out of the old playbook. Mr Xi’s innovation is to single For Taiwanese, it is more proof that China is out to squeeze out young Taiwanese and to pile on the blandishments. Colleges them until the pips squeak. The Communist Party has never offer Taiwanese teachers better pay than they could get in Tai- ruled Taiwan, but considers it a sacred mission to bring the island wan. Chinese provinces are opening research centres aimed at under its control. China threatens force should Taiwan formally young Taiwanese. In the southern city of Dongguan, Taiwanese declare that it will remain independent for ever. The party views tech entrepreneurs can get free startup-money and subsidised even “peaceful separation” as an abomination. flats. Over 400,000 Taiwanese now work in China. The young in China mixes bullying with blandishments. The bullying, of particular are crossing the strait in droves. which the move against foreign websites is part, is meant to Lin Chong-pin, a Taiwanese scholarand formerseniorofficial, shrink Taiwan’s diplomatic space and exert psychological pres- calls this Mr Xi’s “soft prong”. In some respects it seems to be re- sure. Since Tsai Ing-wen became the island’s president in May shaping attitudes towards China. It does not help Ms Tsai that she 2016, China has shut down high-level contacts across the Taiwan has failed to make much progress on her promise to create more Strait that had burgeoned under her predecessor, Ma Ying-jeou. opportunities for the young. Taiwan’s economy remains slug- Unlike his Kuomintang (KMT) party, with its historical roots in gish. The young think older generations get the better deal. But China, Ms Tsai’s ruling Democratic Progressive Party aspires in its she gets the blame fortricky cross-strait relations more than MrXi charter to formal independence. The president herself, a pragma- does. A recent poll even shows Taiwanese feeling more warmly tist, has made plain hergoodwill, by promising from the start that towards Mr Xi than to Ms Tsai. They do not admire China’s politi- she will not rock the cross-strait boat. The independence clause cal culture. But Mr Xi may be nurturing a reluctance among lies dormant. She blocked attempts to expand a new referendum young Taiwanese to bite the hand that feeds them. 7 30 United States The Economist January 20th 2018

Also in this section 31 Bob Murray, coal man 32 What Amazon does to wages 33 Kansas and Missouri 33 The Iran nuclear agreement 34 Hawaii and nuclear fears 35 Lexington: Stranger danger

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

The safety net along with a time limit, on Temporary As- sistance for Needy Families (TANF), the re- Working for it branded government scheme. The theory was that TANF would serve the truly needy, while the lazy would progress into lives ofself-sufficiency. For about a decade this looked like a great success. The num- WASHINGTON, DC ber of claimants plunged by 50% in four years. Over the longer term, the results Some states will soon attach conditions to health insurance forthe poor looked less good. Short-term increases in ENTUCKY, a poor, rural state nostalgic experimental programmes“while preserv- employment did not seem to translate into Kforcoal, has never been quite sure ofits ing or enhancing the quality of care fur- marked improvements in income. politics. Forthree yearsitwasthe darling of nished”. YetKentuckyexpectsitsplan to re- Requiring work, volunteering or study Obamacare. Governor Steve Beshear, a duce the numberofMedicaid recipients by in exchange for Medicaid has never been rare Appalachian Democrat, complied 15%, suggesting that the administration is attempted before, though. And there is with the reform by creating a statewide bending the rules a little. some evidence that, rather than discourag- health-insurance exchange and expanding ing workas many Republicans claim, Med- Medicaid (government-subsidised cover- The third freedom icaid incentivises toil. After Ohio expand- age for the poor and disabled). Between When the reform comes into force in July, ed its Medicaid programme, three out of 2013 and 2015, uninsured rates for poor able-bodied adults enrolled in Medicaid every fourunemployed enrollees said that adults fell from 40% to 9%—the biggest im- risklosingtheirinsurance iftheydo notful- getting coverage had made it easier to seek provement in the country. But now that the fil a “community engagement” require- work. International comparisons do not state is under new management—the Re- ment—20 hours of work, job-seeking or support Republicans’ argument, either. publican governor, Matt Bevin (pictured volunteering each week. A thicket of regu- Many countries with universal access to above), is a Tea Party favourite—Kentucky lations will determine precisely who must health care have a higher proportion of may soon be notable in health-policy cir- comply; those in school or taking care of a working-age people in employment than cles for a new reason: it wants to become family member will be exempt. The state America does. (A likelier problem is that the first state in history to require some expects the new mandate to affect350,000 taking away benefits as people earn more Medicaid recipients to work. Kentuckians, half of whom already have disincentivises job advancement.) Other states with Republican gover- jobs, and estimates that it will shed 95,000 Republicans have sought to shrink wel- nors, including Indiana and Arkansas, from its Medicaid programme. The impact fare programmes for decades, often saying hope to follow. Before long, the health-care could be higher because prospective en- that they are unaffordable. But their rea- safety nets in these states may look very rollees will be deterred by the sheer com- sons for reforming Medicaid seem to be different from those in Democratic ones— plexity of the new rules, argues Sara Ro- more about morality than money. MrBev- and indeed from those in other rich coun- senbaum of George Washington in says that the savings made do not mat- tries, where the poorest citizens receive University. Already, people need a lot of ter. His office adds that the rationale be- health care with no strings attached. nudging to enroll. Of the 285,000 non-el- hind the plan was—confusingly—to The Trump administration approved derly Kentuckians who are still uninsured, promote “better health outcomes”. A Kentucky’s sweeping plan—which Mr Bev- 43% are actually eligible for Medicaid but spokesman for Rand Paul, Kentucky’s lib- in called “the most transformational enti- have not signed up. ertarian Republican senator, says that tlement reform...in a quarter of a cen- Adding work requirements to Ameri- “work should not be seen as a punish- tury”—on January 12th. The state will ca’s safety net is not a new idea. The previ- ment, but as an opportunity”. Paul Ryan, receive an exemption from federal rules ous overhaul of America’s cash-benefits the House Speaker, has warned ofthe dan- governing how Medicaid works. Such programme, in 1996 under President Bill gers of turning the safety-net into “a ham- waivers are supposed to allow states to test Clinton, instituted a work requirement, mock that lulls able-bodied people to lives 1 The Economist January 20th 2018 United States 31

designed to catch out the maximum num- #maga ber of recipients. The state will begin by United States, support for Donald Trump and collecting premiums, capped at $15 per Medicaid enrolment in Kentucky, by county month. This would seem minimal, except 100 that to qualify for Medicaid as a single per- son requires an annual income ofless than 75 $16,640. For Kentuckians who gained cov- erage under the Medicaid expansion, non- 50 payment of these premiums for two months results in a six-month lockout on 25 coverage—only to be restored after pay- ment and attendance ofa “health-literacy” class. When Indiana set up a similar pro- 0 Trump support, % of votes in 2016 election support, in 2016 % of votes Trump 02550 75 gramme, 55% of people had missed pay- Medicaid enrolment, Dec 2017, % of population ments within the first 21 months, leaving Sources: Kentucky Cabinet for Health them with inferior coverage or none at all. and Family Services; US Census Bureau Participants must also document their work on “at least” a monthly basis. Be- 2 ofdependency and complacency”. cause most working Medicaid recipients Yet it is not true that most, oreven many are in low-paying industries with erratic Medicaid claimants are shirkers. Just 36% scheduling, such as retailing, agriculture or are non-disabled adults, and 60% of that construction, they may not fulfil the 20- group already work. Those who are not hour requirement in a week. Someone working and not disabled do not seem to who temporarily makes too much mon- Mr Murray in his element be lying about in hammocks: 36% say they ey—more than $320 a week as a single per- are ill, 30% take care of a family member, son—may riskgetting the boot. idents has been a fondness for coal and 15% are in college, and so on. Atmost 10%, or Of the ten rural counties in the country steel, where brawny men do essential 1.4% of all enrollees, could be said to lack with the highest share ofadults enrolled in work and are threatened not by shifting any good reason for not working. “I don’t Medicaid, six are in Kentucky. These areas economics, but by greenies and weenies need added pressure to get a job, the pres- are also the Trumpiest. There is a remark- who want to shut them down. Mr Trump sure to survive is already enough,” says Ta- ably strong correlation in Kentucky be- and Mr Murray both want environmental jah McQueen, a caterer in Louisville who tween Medicaid enrolment and support rules rolled back—Mr Murray because it lost her job on December 28th and applied for Republicans (see chart). During the would be good for his bottom line, and Mr for Medicaid soon afterwards. She already 1990s, racial animus, especially the notion Trump because a second consistent aim of pays $400 a month for her student loans, that lazy blacks were crowding the welfare his presidency is to reverse anything done $2,000 forher mortgage and takes care ofa rolls, was shown to be especially powerful by Barack Obama. It is doubtful whether two-year-old daughter. in shaping attitudes to the safety net. Yet policy shifts alone could revive coal min- To weed out malingerers, Kentucky is the people most likely to suffer from these ing, but the attempt to do so says much proposing to build an unwieldy adminis- new efforts at reform are the poor whites about how vested interests operate in this trative apparatus. This bureaucratic levia- who helped send President Donald Trump administration. than will enforce regulations seemingly to the White House. 7 Mr Trump played a hard-nosed busi- nessman on TV, but Mr Murray is the real thing. When he was nine, his father was in- Coal jured in a mining accident and left para- lysed. Soon afterwards he began mowing Minding Grandma neighbours’ lawns to support his family, and then went down the mines himself several years later. He broke his neck, twice. Gradually he worked his way up the ladder of the North American Coal Corpo- ST CLAIRSVILLE, OHIO ration, becoming the company’s boss in 1983. Forced out in 1987, Mr Murray bought Bob Murray, the coal baron with the president’s ear a mine in eastern Ohio, and then spent the RADITION dictates that bad children cy requests, many of which the adminis- next two decades snapping up others. To- Tget coal in their Christmas stockings. tration is on track to fulfil. Mr Trump day Murray Energy owns 12 mines and But the elaborate Christmas display in the nominated Andrew Wheeler, a lobbyist manages another four, as well as transport headquarters of Murray Energy Corpora- for Murray Energy, to the number-two po- terminals, barges, oil-and-gas wells and tion, America’s biggest privately owned sition at the Environmental Protection factories that make mining equipment. coal firm, suggests otherwise. At its centre Agency (EPA). A few weeks after a meeting These days coal barons are like newspa- are two cherubic children pulling a wagon with Mr Murray, Rick Perry, the energy sec- per barons: however rich and successful, loaded with coal, and looking pleased retary, ordered a study that became the ba- they are shackled to a dying industry. Mr with their haul. The other distinctive fea- sis for his proposal to subsidise coal and Murray contends that the declining use of ture in the building’s lobby is a plethora of nuclear plants. coal—today it generates 30% of America’s pictures featuring Bob Murray, the com- Mr Murray’s clout may stem in part electricity, down from more than half in pany’s founder and boss, with President from the hundreds of thousands of dollars 2000—imperils energy security. Only coal Donald Trump. MrMurraywasa vocal and he has given to Mr Trump and his inaugu- and nuclear power, he argues, can provide generousbackerofMrTrump; todayhe has rations committee. But he was pushing on a “reliable, resilient, secure electric power the president’s ear. He sent the administra- an open door. Among the few consistent grid”. If coal falls below its current level of tion an “Action Plan” with 16 detailed poli- themesfrom thismostinconsistent of pres- 30%, he warns, “the lights will go out and 1 32 United States The Economist January 20th 2018

2 Grandma will freeze in the dark.” tre, local warehouse wages increase by an Mike Jacobs, an energy analyst at the Basket case 1 average of 8%. In the ten quarters after its Union of Concerned Scientists, says that United States, warehousing and storage industry arrival, they fall by 3%. will happen “onlyifgrid operatorsstop do- Lexington County, South Carolina Why would Amazon pay its employees ing their jobs”. Rather than simply buying Workers’ average Total employment less than other firms in the industry? Mi- weekly wage*, $ ’000 coal from companies like Murray Energy, AMAZON OPENS WAREHOUSE chael Mandel, an economist at the Progres- as they did for decades, grid operators to- 1,000 5 sive Policy Institute, a think-tank, says it day have more choices. Natural gas—the 800 4 may be because the company’s ware- most widely used fuel forelectricity gener- 600 3 houses are in areas that have been “left be- ation—and renewables have been snatch- hind”. But on most economic measures— 400 2 ing coal’s market share. Fracking has made including wages, unemployment and pov- American natural gas abundant and 200 1 erty—counties with Amazon warehouses cheap. The cost of renewables, especially 0 0 are no differentfrom the restofthe country. wind and solar, is also falling. These two 2004 06 08 10 12 14 17 In fact, they are generally better-off. Per- trends have caused coal’s decline. Source: Bureau of *Four-quarter haps, suggests David Autor, a labour econ- Labour Statistics moving average But Mr Murray principally blames “the omist at MIT, Amazon’s workers are young regulatory rampage of the Democrat and inexperienced. There is some evi- party”, driven by the party’s professed be- field, Virginia, warehouse wages in the re- dence for this. Amazon’s employees tend lief in climate change—which, like Mr gion have fallen by17%. In Tracy, California, to be younger—data from the Census Bu- Trump, he considers “a hoax”. It has been they have dropped by16%. Flat orfalling in- reau suggest that nearly half of its ware- perpetrated, he contends, by “developing dustry wages are common in the cities and house employees are under 35. Job tenure countries of the world to get American towns where Amazon opens distribution at the company is typically just one year, dollars…[by] radical environmentalists centres, according to an analysis by The according to PayScale, a research firm. …liberal elitists [and] Hollywood charac- Economist. Government figures show that Another possible explanation for Ama- ters. I don’t referto them as ‘people’.” Hilla- after Amazon opens a storage depot, local zon’s pay is its reliance on unskilled work- ry Clinton talked about climate change not wages forwarehouse workers fall by an av- ers with minimal qualifications. David out ofenvironmental concern, he says, but erage of 3%. In places where Amazon oper- Neumark of the University of California, because wind-turbine- and solar-panel- ates, such workersearn about10% lessthan Irvine, who has written about the impact makers gave “hundreds of millions [to] the similar workers employed elsewhere. of Walmart’s growth on retail wages, says Clinton campaign and Clinton Founda- About 44 cents out ofevery dollar spent Amazon’s highly automated warehouses tion.” All he wants, he says, is to “get the online in America flows to Amazon, ac- may not require as many workers who government out of picking winners and cording to eMarketer, a research firm. The can, say, operate a pallet jack. Staff benefits losers in the electric power grid”. Yet, by firm’s success can be attributed in part to may also play a role. Amazon offers its full- some amazing coincidence, his action speed and convenience. To get orders to time employees health care, retirement plan—in addition to cutting the EPA staffby customers as quickly as possible, the com- savings plans and company shares. Such half, repealing the Clean Power Plan (an pany relies on a vast network of ware- generous perks may explain why the com- Obama-era scheme to reduce greenhouse- houses the size of aircraft carriers where pany pays below-market wages. gas emissions from power plants), and the company stores its products and pro- New research offers yet another pos- ending other environmental rules—urged cesses orders. Amazon operates more than sibility. An NBER working paper by José the administration to fund clean-coal tech- 75 “fulfilment centres” and 35 sorting cen- Azarofthe IESE businessschool, Ioana Ma- nology and coalminers’ pensions. 7 tres in America, manned by 125,000 full- rinescu of the University of Pennsylvania time workers. and Marshall Steinbaum of the Roosevelt To keep costs in check, Amazon must Institute finds that a relatively small num- Amazon not only maintain dozens of warehouses, ber of employers account for a large share but run them efficiently. Whereas tradi- of job opportunities in many American Unfulfilled tional shop workers might remain idle for communities. In places where such la- hours at a time, Amazon’s workers—the bour-market concentration is highest, “stowers” that stock inventory, the “pick- wages tend to be lower. These findings sug- ers” that pluck items from shelves and the gest that if Amazon is the only major em- “packers” that box them up for shipment— ployer in the cities and towns where it op- are constantly moving. Pickers are erates, the company can offer wages that Is the world’s largest online retailer equipped with hand-held devices that are well below those ofits competitors. 7 underpaying its employees? show them what each item looks like, HEN Amazon announced in 2010 where it may be found, and how to get Wthatitwould build a distribution cen- there as quickly as possible. As they navi- One-click dropping 2 tre in Lexington County, South Carolina, gate row after row of shelves, timers count United States, warehousing and storage industry the decision was hailed as a victory for the down the seconds needed to retrieve each Workers’ average weekly wage*, $ Palmetto State. Today the e-commerce item. To meet performance targets, pickers 875 giant employs thousands ofworkers at the must collect as many as 1,000 items and Other counties 850 centre. Just 3.5% of the local workforce is walkup to 15 milesin a single shift. out ofwork. Alas, the influx ofjobs has not According to available data from the Bu- 825 BLS boosted wages forthe region’s forklift driv- reau of Labour Statistics ( ) for 35 coun- 800 ers and order-fillers. In the years since Am- ties, warehouse workers in counties where Counties with Amazon presence 775 azon opened its doors in Lexington Coun- Amazon operates a fulfilment centre earn in Dec 2017 ty, annual earnings forwarehouse workers about $41,000 per year, compared with 750 in the area have fallen from $47,000 to $45,000 per year in the rest of the country, $32,000, a decline ofover 30% (see chart1). a difference of nearly10% (see chart 2). The 2008 09 10 11 12 13 14 15 16 17 Lexington County is not alone. Since BLS data also show that in the ten quarters Sources: Bureau of Labour Statistics; *Four-quarter MWPVL; The Economist moving average Amazon opened a warehouse in Chester- before the opening of a new Amazon cen- The Economist January 20th 2018 United States 33

Kansas and Missouri the Kansas City Star, has called for Gover- nor Brownback’s resignation “for the good In a state of the good people of Kansas”. In anticipa- tion of his ambassadorial role Mr Brown- back started to hand responsibilities to his likely successor, Jeff Colyer, a plastic sur- CHICAGO geon who is lieutenant-governor. Mr Co- lyer announced a new cabinet appoint- Two midwestern governors have some ment and was widely expected to be in trouble governing charge at the start of this year. Yet Mr NE is struggling to stay in his job, the Brownback refuses to go. On January 9th Oother is scrambling to leave it. Eric the governor made his state-of-the-state Greitens, the Republican governor of Mis- address. Having already created a hole in souri, is fighting for his political life after a the state’s budget with huge tax cuts, he television station in St Louis revealed an called for an extra $600m in school fund- extramarital affair, as well as allegations of ing without explaining where the money blackmail and violence, less than three would come from. “Nobody knows who hoursafterhe gave hisstate-of-the-state ad- exactly is in charge of the state,” says Mr dress on January 10th. Sam Brownback, Miller ofthe University ofKansas. another Republican, announced six Few doubt that Mr Brownback, who months ago that he was stepping down as served in the Senate for 14 years and as governor of Kansas to become President state governor since 2011, will eventually Donald Trump’s ambassador-at-large for be confirmed as Mr Trump’s ambassador. religious freedom, but his nomination has Greitens, contritens All 75 senators nominated to ambassador- not yet been confirmed by the Senate and ships were subsequently confirmed by the so he has remained as governor. Both are ers,” says John Hancock, a former chair- Senate. As for Mr Greitens, opinions on in an embarrassing limbo. man of the GOP in Missouri. No Republi- whether he can stay in his job are divided. For Mr Greitens, the uncertainty over can in the legislature defended MrGreitens “If criminal evidence of blackmail his political future is more painful because the day after the news about his extramar- emerges, he is done,” says David Kensin- he was just starting out in politics. The 43- ital affair(which he admits) and the allega- ger, a former chief-of-staff to Mr Brown- year-old former Navy SEAL, Rhodes schol- tions of blackmail (which he denies) were back. If not, “I absolutely think he will sur- arand White House fellow, who had never aired on television. “Stick a fork in him,” vive it,” says Mr Hancock, the former before run for office, was the surprise win- tweeted Senator Schaaf. On January 16th chairman of Missouri’s Republican Party. ner of Missouri’s gubernatorial election in four Republican members of the state MarkSanford was able to remain governor 2016, trumping Chris Koster, the state’s at- house called for Mr Greitens’s resignation. of South Carolina after a very public reve- torney-general. Conservatives admired Mr “They have thrown him to the wolves,” lation of an extramarital affair. He is now a Greitensforhispromisesto clean up public says PatrickMiller at the University ofKan- humble congressman. Redemption is pos- life, and to pass right-to-work (RTW) legis- sas. A website called ericgreitensresign- sible, but until his private life became polit- lation that prevents unions from requiring .com is collecting signatories. ical, Mr Greitens seemed on course for workers to pay union fees. His vows to cut Meanwhile, in neighbouring Kansas, much more than that. 7 taxes, to protect fetuses and to defend gun rights were popular too (he is often pic- tured clad in military fatigues, shotgun in The Iran nuclear agreement hand). Governors in other states sought the support of this photogenic rising Re- Trump card publican star. Bruce Rauner, the governor of Illinois, featured Mr Greitens in one of his campaign ads. Kim Reynolds, the go- vernor of Iowa, invited him as a keynote speaker to a fund-raiser. In his home state, however, Mr Greitens Donald Trump gives his European allies 120 days to get a betterdeal has fewer political friends and allies. De- nouncing lawmakers in Missouri with his N JANUARY 12th President Donald normally required for commercial power attacks on “career politicians” who have OTrump declared that if the “disastrous production; a ban on ballistic-missile test- “turned Jefferson City into a corrupt, do- flaws” in the nuclear deal with Iran are not ing; and unconstrained access for Interna- nothing embarrassment” did not help. He fixed within 120 days, he will pull America tional Atomic Energy Agency inspectors to is known for berating state senators in priv- outofit. He renewed the presidential waiv- any military site, regardless of whether ate meetings and he publicly ridiculed two er that lifts nuclear-related sanctions on there has been any indication of nuclear Republican state senators who seemed to Iran, but signalled that this was a final re- activity there. stand in the way of his efforts to bring a prieve rather than a change ofheart. Mr Trump has now twice refused to re- steel mill to Missouri. His non-profit orga- Mr Trump says he wants a new agree- certify that Iran is in compliance with the nisation, A New Missouri, ran ads attack- mentto modifythe pactof2015 thatcurbed deal (a requirement every 90 days under ing Rob Schaaf, a Republican state senator Iran’s nuclear programme, known as the legislation passed under the Obama ad- who criticised Mr Greitens’s use of “dark Joint Comprehensive Plan of Action ministration), despite all the evidence sug- money”, or campaign donations from un- (JCPOA), in return for limited relief on gesting that it is. Without a desire on the disclosed sources. The ads even disclosed sanctions. Among Mr Trump’s demands part of Congress to get involved, and there Mr Schaaf’s mobile-phone number. are ending the expiry clauses in the agree- has been little sign ofthat, decertification is “There is real animosity between the ment that, for example, allow Iran after 15 more a gesture of defiance than a mortal governor and some Republican lawmak- years to enrich uranium beyond the 3.67% threat to the JCPOA. If, however, Mr Trump 1 34 United States The Economist January 20th 2018

2 unilaterally reimposes sanctions, Ameri- Nuclear fears ca, as one of six signatories to the deal along with Britain, France, Germany, Rus- sia and China, would be in clear breach of Thinking the unthinkable its commitments. This, in turn, would re- lease Iran from its obligations: allowing it How to increase yourchances ofsurviving an atomic blast to reinstate, if it chose, those nuclear activ- ities banned under the terms ofthe JCPOA. HE alerts mistakenly sent to residents It is also to avoid shattered glass and This is an unfolding nightmare for the TofHawaii, warning them that a mis- flying debris as a blast wave, with hurri- Europeans. They remain firmly committed sile was on the way, were a reminder of cane-strength winds, follows. to the painstakingly negotiated deal (as are an era when terror was measured in The energy from the fireball would Russia and China), convinced that its bene- kilotons. In the 1950s and 1960s public- draw a column ofdust and debris three fits vastly outweigh its flaws. The day be- service broadcasts informed Americans miles into the atmosphere for over ten fore Mr Trump’sannouncement, at a meet- about what to do in case ofa nuclear minutes; its top will flatten into the cap of ing in Brussels of the British, German and attack. Since then, with nuclear conflict the mushroom cloud. During that time, French foreign ministers that was attended seeming less likely, such knowledge has blast survivors need to find shelter. Ra- by their Iranian opposite number, Javad seemed esoteric, like taking an interest in dioactive fallout—highly contaminated Zarif, they reiterated theirunwavering sup- Brutalism or taxidermy. Here is a remind- debris that settles on surfaces—follows. It port for the JCPOA. They pointed out that er ofsomething we hope you will never is most lethal just after the blast. nobody opposed to the deal has produced need to know. The ideal shelter is below ground and a better alternative. They do not deny that, Ifa nuclear bomb exploded in an well-sealed. Ifyou are in a building in an ideal world, the things Mr Trump is airburst, around 90% ofpeople would above ground, go to its centre, preferably insisting on would be nice to have. But die instantly near the centre ofthe blast: a avoiding the ground or top floors. With they firmly reject the idea that a superior roughly1.9km (1.2-mile) radius fora 300- luckyour shelter has bottled water and deal would have been possible ifonly they kiloton (KT) device—the estimated force non-perishable food; a radio and batter- and the Obama administration had been ofthe weapon North Korea tested in ies foremergency information; wet- tougher on the Iranians. September. Within a 15-square-kilometre wipes and plastic bags for personal san- Even with an international sanctions area, at least halfthe population would itation; and your identification docu- regime throttling the life out of the Iranian die more slowly, from radiation and ments. Assume mobile phones do not economy and the possibility of war still burns. Those who make it through the work. Distance from the blast is a matter rumbling, the diplomats who were there blast or are fartheraway can take steps to ofluck. Surviving thereafter is mostly a believe that the Iranian negotiating team increase their chance ofsurvival. matter offinding shelter, says Alex Wel- could not have been pushed further with- An explosion would generate a fire- lerstein ofthe Stevens Institute of Tech- out being repudiated by hardliners at ball oflight many times brighter than the nology in New Jersey. After about two home, including the supreme leader, Ali sun. Do not lookat it or you may go par- days the worst ofthe radiation will have Khamenei. With no international support tially blind. Instead, do as the cold-war decayed. It may be safe to go outside. for the reimposition of nuclear-related safety film featuring Bert the Turtle ad- The best step, though, is not to have a sanctions, the Europeans regard it as fanta- vised: duckand cover. Lie down, ideally nuclear missile come your way at all. sy to suppose that the Iranians would now underneath something. This is to prevent Which is why some in the Trump admin- bow to demands from Mr Trump that re- serious burns from a thermal pulse, or istration argue fora strike on North Korea late more to rash campaign promises than heatwave, lasting several seconds that soon; and why most other people think real-world diplomacy. will sear through the area, setting offfires. that would be insane. The president has nonetheless made it clear that he expects America’s European allies to help him get what he wants. “If other nations fail to act during this time,” he declared, “I will terminate ourdeal with Iran.” Both the French and the British, ea- ger to show willing, say they too are keen to discuss follow-on agreements with Iran about missile development and regional interference. But they maintain that any such talks should be open-ended and not linked to the JCPOA, which is achieving ex- actly what it set out to do. It is farfrom clearhow this will play out. In particular, nobody knows whether Mr Trump’s national-security team, who also want to preserve the deal, can persuade the president to accept some face-saving compromise in which more sanctions are targeted on individuals connected to the missile programme and support for terro- ristgroups, while the Europeansundertake to try to tweak the nuclear deal over time. Or whether Mr Trump will be quite happy to blow the deal up, blaming the spineless Europeans for siding with Iran. The latter Toons you can use looks more likely. 7 The Economist January 20th 2018 United States 35 Lexington Stranger danger

Hostility to immigration used to be found in both parties. No longer tion, as “shitholes”. Moreover, in any event, the farrago will have sucked up vast amounts of congressional time, caused needless anxiety to those affected (including, Jennifer estimates, a third of herschool’s200 aircadets) and perhapsa governmentshutdown costing billions in lost economic activity. That America is in a fix over immigration is perhaps unsur- prising. Through its history, periods of high immigration have al- ways provoked a backlash—thus, the restrictive measures passed in the early 1920s after an influx from southern and eastern Eu- rope, and again in the early 1960s, to expel thousands of low- skilled Mexicans. It is a cycle as American as the opportunity the country otherwise affords immigrants. After another great in- wash of Hispanics, peaking during the late 1990s at around 750,000 arrivals a year, a repulse was inevitable. Only this time it is different. Anti-immigration movements have in the past been asmuch within the partiesasbetween them, the backlash having traditionally been led by left-wing unions and right-wing nativ- ists. Yet this row is partisan, making it symbolically important to the parties, liable to get personal, and correspondingly intracta- ble. For the same reasons, the political discussion ofimmigration has become increasingly removed from reality. Employment in NE moonlit night 13 years ago Jennifer crossed into Texas, low-skilled jobs will grow faster over the next decade than the Osqueezed into a carfootwell. Hermotherhad made the clan- numberofnative workers. By leavingmillions oflong-stay immi- destine journey from their native Guatemala, looking for workto grants in the shadows, America is inflicting a vast opportunity help pay for Jennifer’s leukaemia treatment, five years earlier. cost on itself. Moreover, perhaps in part as a response to Mr Havingestablished herselfin Maryland, cleaninghouses and car- Trump, immigration is becoming much less unpopular. ing for children, she wanted her son and two daughters—includ- In both parties, fundamental forces have shaped this political ing Jennifer, by then six and cancer-free—with her. “All I remem- change. Only a decade ago, Republican leaders such as George W. ber is staring at the moon,” Jenniferrecalls. “So long as I could see Bush enthused about immigration. Yet they were out of touch it, I thought we’d be OK.” with the nativism of many Republican voters. That sentiment, Now in herlast yearofhigh school in Maryland, Jennifer isthe which Mr Trump divined and has exacerbated, has now infected commander of her school’s air cadets and has been offered a the party to such a degree that hostility to immigration is the sur- place bysixcolleges. Whethershe will be able to join the airforce, est indicator of Republican support. The arrival of many Hispan- as she would like, or study fora degree, or even remain in Ameri- ics in Republican states which had previously seen little recent ca is unclear, however. She is one of the 700,000 beneficiaries of immigration, such as Alabama and Arkansas, is one reason for an Obama-era programme, known by its acronym DACA, that this. Another is the electoral migration of working-class whites shields illegal immigrants brought to America as children from from the Democrats—bringing with them the left’s traditional deportation; but which President Donald Trump has ended. The fear forthe effect ofimmigration on native workers’ wages. In ad- programme is due to lapse on March 5th, leaving its beneficiaries, dition, Republicans’ fears are driven, opinion polling and Mr known as “Dreamers”, liable for expulsion. This would be so ob- Trump’s rhetoric suggests, by ethnocultural anxiety which, in a viously counter-productive that only a seriously dysfunctional country turning rapidly browner, cannot easily be assuaged. government could countenance it. In other words, Jennifer is right to be worried. In with the out crowd Mr Trump says he is legally compelled to axe DACA, which Meanwhile, the Democrats, who until a decade or so ago were most Republicans regarded as an act of executive overreach, and similarly divided on immigration, are now all for it. In 2006, 40% wants Congress to pass a law to protect the Dreamers. Yet he also of Democrats were in favour of a border wall; now less than 10% sees that as an opportunity to extract support forhis restrictionist are. This is in part because the party has to some degree replaced agenda from the Democrats, who are dedicated to saving the its lost whites with Hispanic voters. It also represents a more pro- Dreamers and whose votes are needed to do so. So Mr Trump is found cultural shift, driven by a cosmopolitan relish for diversity demanding billions of dollars for his promised border wall, as and zeitgeisty aversion to chauvinism, such that even white well as changes to legal immigration, which he and other Repub- Democrats now feel markedly less chary towards immigration lican hawks want to cut by half. The Democrats say: no way. And than they did. To be pro-immigrant is becoming even more inher- with a rare moment ofleverage loomingforthe minority party, in ently Democratic than to be agin immigration is Republican. the form of a spending bill required to keep the federal govern- This is unhelpful foranyone who wants to improve America’s ment running beyond January19th, they are demanding that the immigration policies. And that includes the public at large, which fate of Dreamers should be secured first. That seems ambitious. is to the centre of both parties on the issue. Surveys suggest that Though the Dreamers will probably be saved eventually—be- Americanschieflywantbetterbordersecurity, a deal to legitimise cause around 85% of Americans want them to be—the stand-off undocumented immigrants and a more meritocratic visa re- has degenerated into an ugly row over Mr Trump’s reference to gime—an appealing mix, drawn from the left and the right. It is, Haiti and African countries, at a bipartisan meeting on immigra- for the same reason, almost unimaginable. 7 36 The Americas The Economist January 20th 2018

Also in this section 37 Mexico’s love for the macabre 38 Bello: The spectre of violence in Venezuela

Argentina’s economy promised to reduce their budget deficits (eventually). Despite the delivery-disrupt- Getting warmer ing demonstration in December, congress changed the way pensions are indexed to inflation to make them more affordable. It cut taxes to encourage companies to give formal jobs to the 30-40% of workers who BUENOS AIRES are paid offthe books. This month Mr Macri allowed the expi- Mauricio Macri’s gamble on gradualism is working, so far ration of a 16-year-old economic-emergen- T THE height of summer, workers bun- firing of tear gas and rubber bullets and cy law, which gave the president special Adled up in blue snowsuits are hauling tied up traffic in Buenos Aires on Decem- powers over debt, taxes and the exchange boxesofice lolliesin and outoffreezers ata ber 14th, delaying deliveries by two lolly- rate. Its demise is supposed to be a quiet small factory near Buenos Aires, Argenti- laden lorries. After a fast start, Mr Macri signal that the ruinous decades of popu- na’s capital. The lolly-maker, Guapaletas has slowed the pace of reforms. If he can- lism and instability are over, and that Ar- (“pretty popsicles”), is almost exactly the not finish the job, Mr Manzuoli fears, Ar- gentina means to reclaim the European- same age as the business-friendly govern- gentina’s economy will not prosper. level prosperity it enjoyed a century ago. ment of Argentina’s president, Mauricio After taking office in December 2015, Mr Macri, who was elected in 2015. His victory Macri floated the peso, scrapped most tax- A balancing act was a “relief” for the company’s founders, eson exportsand reduced energyand tran- With the government still knee-deep in the says Federico Manzuoli, who is one of sport subsidies in an effort to restrain a ris- mess made by the Kirchners and their pre- them. On a visit to the factory last March, ing budget deficit (see chart on next page). decessors, that goal seems far away. Mid- Mr Macri praised its franchise business He introduced targets for public borrow- way through his first term, Mr Macri has model and its pistachio-flavoured lollies. ing, settled a long-running dispute with barely begun to solve some of the biggest Mr Manzuoli has much to be grateful foreign creditors, which restored Argenti- problems that enterprises face, points out for. MrMacri promised to open up Argenti- na’s access to international capital mar- Gabriel Brener, the boss of Cher, a chain of na’s isolated economy and end controls kets, and gave his blessing to inflation tar- clothingshops. Decadesofprotection have imposed by his populist predecessors, geting by the central bank. sapped the competitive energies of Argen- Cristina Fernández de Kirchner and her The economy is now moving in the tine industries. Trade barriers are seven husband, Néstor Kirchner, who governed right direction. It has recovered from a re- times higher than the average foremerging for nearly 13 years between them. Under cession that began in 2015 and is expected markets, according to the IMF. Mr Macri’s Mr Macri, Guapaletas has better access to to grow 2.5% this year. Inflation has fallen government scrapped a system that sub- credit, says Mr Manzuoli. A new online by more than a third from its peak of jected all imports to licences, but left them platform, Export Easy, makes it simpler to around 40% in July 2016. The IMF predicts in place forabouta fifth ofimports. Despite get export licences. Guapaletas started sell- that the primary budget deficit (excluding the recent taxcut, high taxes on investment ing through three shops in Argentina and interest payments on debt) will shrink and labour and burdensome rules contin- hasnowexpanded to 69. Itplansto start ex- from 4.8% ofGDP in 2016 to 1.9% by 2020. ue to discourage firms from growing, con- porting to Chile, Colombia, Paraguay and Last October, Cambiemos, Mr Macri’s strain their productivity and keep workers Uruguay in March. party, won a decisive victory in legislative in low-paid informal jobs. Labour produc- But Mr Manzuoli’s confidence is tinged elections, giving the government the cour- tivity has hardly grown since 1980. with unease. Mr Macri’s reforms have run age to continue reforms, albeit at a cau- Courts are corrupt and schools are me- into resistance. A protest against his plans tious pace. In November it signed a deal diocre, Mr Brener complains. Unions are to reduce spending on pensions led to the with provincial governors in which they beholden to their bosses rather than to 1 The Economist January 20th 2018 The Americas 37

portion ofbenefits, argues the IMF. Mr Ma- Mexico Macri’s mid-term marks cri did not offset the corporate tax cut with Argentina revenues from other sources. Burying the Hairy GDP Budget deficit His reluctance to slam on the fiscal % change on a year earlier % of GDP brakes has shifted responsibility for con- Hand 5 5 trolling inflation, still a painful 25%, onto + + the central bank. Its high interest rates have MEXICO CITY 0 0 slowed economic growth and encouraged – – The macabre is as Mexican as foreign investors to buy Argentine bonds, 5 5 guacamole FORECAST drawing in capital that has pushed up the 10 10 value ofthe peso. Thatin turn hasmade ex- SMIDNIGHTneared, five nightsa week 2015 16 17 18 19 ports less competitive and widened the AMexicans with a taste for the macabre Consumer prices current-account deficit. A relatively strong would switch on their radios to hear the % increase on a year earlier currency has discouraged foreign investors latest spooky story, called in by their fel- 40 from risking money in job-creating enter- low listeners. There was the tale of the * 30 prises or the infrastructure that Argentina bloodied boots, which kept reappearing in 20 desperately needs. The IMF has urged the a family’s basement, driving the wife to Mauricio Macri assumes office 10 government to set a more ambitious fiscal seek psychiatric treatment. Once, the sta- 0 goal of eliminating the deficit before inter- tion that carried the show, XEDF-FM, mys- 2015 16 17 est payments by 2019. teriously went off the air during a devil- Sources: INDEC; IMF; State Street *Source of series Rather than do that, the government worshipper’s phone-in. Most famous ofall PriceStats Inflation Index changes to INDEC hasdecided to accepta higherinflation rate was the story told byJosué Velázquez, who than it had planned. On December 28th said he had suffocated his grandmother to 2 their members. (This month police arrest- the treasury announced that the central keep his end of a bargain with the devil ed Marcelo Balcedo, head of a union for bank’s inflation target in 2018 would be 15% (doctors said she had died of natural workers in education and child services, rather than 8-12%, which means that inter- causes). Juan Ramón Sáenz, the best- on suspicion ofmoney-laundering and tax est rates can be lower than they would known host of “La Mano Peluda” (“The evasion; at his mansion in Uruguay they have been. The peso quickly dropped by Hairy Hand”), listened with apparent cre- found a half-million dollars in cash and a 4% (though it has since recovered a bit). dulity to about half the yarns broadcast small zoo. He denies the allegations.) Mr The central bank’s original target was over its 22-year history; some were chill- Brener wants the president to say more too ambitious, so it makes sense to revise it ingly believable. about how he will deal with these issues. (even the new one may be hard to The show had a cult following, espe- But Mr Macri has put off some of the achieve). But there is a cost. Inflation hurts cially among late-shift workers and noc- hardest decisions for his second term, the poor most. Some economists worry turnal taxi drivers. But Grupo Formula, which he hopes to secure in elections to be that the government is teaching people to XEDF’s owner, decided to bury it; the last held in 2019. His advisers say that the re- expect higherinflation, which often causes episode aired on January 12th. After de- forms so far are just a “first draft” of the it to happen. The central bank shares that cades of success, the show “no longer had changes he will eventually bring about. worry. On January 9th it lowered rates by the same impact”, says a person familiar The labour reform that he plans to enact 0.75 percentage points, a bit less than mar- with the thinking that led to the decision. this year, which will make it easier to sack kets had anticipated, to 28%. People liked the stories, some of which workers and hire part-timers, is a timid ver- Although orthodox economists grum- could not possibly be real, because they sion of the overhaul Argentina needs. Im- ble about Mr Macri’s gradualism, Argen- came from the mouths of ordinary folk provements to education, more ambitious tine investorsseem to endorse it. Private in- who undeniably were, reckons Ricardo Fa- tax and pension reforms and a shake-up of vestment is recovering after a decline in rías, a film director. Listeners believed the the judiciary will also have to wait. 2016, though it is still lower than it should tales, or pretended to. When Sáenz died To give himself a chance to write the be. It rose 16% last year and is expected to suddenly in 2011, days after a reunion with second draft, Mr Macri is pursuing policies grow by 14% in 2018. Foreign investors of- Mr Velázquez for “Extranormal”, a televi- that seek to balance economic stability ten follow the lead oflocal ones, points out sion programme involving visits to haunt-1 with the need to placate groups that could Dante Sica ofAbeceb, an economic consul- disrupt his presidency and thwart his re- tancy. Before Cambiemos’s election vic- election. Argentina pays an economic tory in October, the rate ofreturn demand- price forthis caution in the form of high in- ed by foreign investors in Argentine terest rates, weak exports and a rising debt infrastructure and energy was double burden. IfMr Macri misjudges, and lets the what projects in other Latin American price rise too high, he could undermine the countries paid, Mr Sica says. It has since economic revival that he has promised to dropped to the same level. bring about. Investors are betting that Mr Macri and His main macroeconomic decision has his party can win again in national elec- been to reduce the budget deficit gradually tionsin 2019. There isa good chance of that, rather than abruptly. The word “adjust- in part because more voters still blame the ment” is taboo, says an official in the trea- Kirchners for Argentina’s economic plight sury department. The pension reform, than blame Mr Macri. He will then have a which provoked shoving on the floor of chance to use the final term he is allowed congress as well as clashes with police out- in office to modernise Argentina’s econ- side it, is expected to save the government omy. Mr Manzuoli, sitting beside menus the equivalent of 0.5% of GDP this year. that display Guapaletas’s 41 flavours, That is a good start, but the government sounds more optimistic than fearful. Mr has to go further, for example by making Macri “showed that it was possible to have sure that contributions cover a bigger pro- a normal country”. 7 What to wear when listening to the radio 38 The Americas The Economist January 20th 2018

2 ed houses, many pelumaniacos were con- “Extranormal” has nearly 4m viewers. graves of loved ones, remains as popular vinced that he had been cursed. Some people think the demise of “The as ever. Last year Mórbido Fest, a horror- The show’s popularity testifies to Mexi- Hairy Hand” shows that Mexicans are be- film festival, held its tenth and biggest edi- co’s love of all things supernatural. “Mexi- coming less interested in eerie entertain- tion, so the genre maynotbe dead after all. can culture is very mystical,” says Ricardo ment. Macabre movies have also entered a Some famous Mexican film directors, Vázquez, a director of programming at TV dead zone. More than 5m people thronged including the winners of two of the past Azteca, which broadcasts “Extranormal”. cinemas to see the four Mexican-made five Golden Globe awards fordirecting, be- That programme began airing in 2007 after horror films released in 2007, according to gan by working on “La Hora Marcada”, a Laura Rivas, a medium with a five-minute the Mexican Institute of Cinematography. horrorshow on television. Aftergetting his horoscope segment on a morning show in In 2017 the three scary flicks released at- Golden Globe on January 7th for “The Guadalajara, one day started interpreting tracted just 250,000 people. Shape of Water”, Guillermo del Toro was the dreams of those who called in. “We re- But other signs suggest that Mexicans’ asked why he has such an affinity for alised when she started talking about fondness for morbidity is alive and well. themes of fantasy and terror despite his ghosts, or dreams, or something paranor- The Day of the Dead, a holiday on which cheerful demeanour. He immediately re- mal, the ratings went up,” saysMrVázquez. they wear ghoulish costumes and visit the plied: “I’m Mexican.” 7 Bello The threat of violence in Venezuela

Armed action against the dictatorship is risky and ill-advised, but it has started HAT should be done when a re- sity, this month called for the parliament Wgime remains in power by dictatori- to appoint a new president who would al means while pitching its people into call for international military action to penury? That is the question that Venezu- overthrow the regime. ela’s opposition has been grappling with Thisisa bad idea, and unlikelyto come since it won a legislative election in 2015, about. No Latin American government only to see Nicolás Maduro’s government will back it. Nor, probably, will Donald use its puppet courts to strip power from Trump, though he has mused about it. the legitimate parliament. And it risks large-scale bloodshed: Vene- The opposition has tried two strat- zuela has a well-equipped army. At least egies. One was sustained protest. That some of its forces would fight, as would was met with violence: about 120 people pro-regime militias. died in protests last year, many at the More likely is guerrilla action by Vene- hands of the security forces. Despite the zuelans. In a small way, this has begun. protests, Mr Maduro created a new, hand- On January 15th the security forces cor- picked assembly to replace the parlia- nered Óscar Pérez, a dissident police cap- ment. (The opposition boycotted a vote in tain who last month led a raid on a Na- July that was intended to give this new entered hyperinflation. The central bank tional Guard armoury, making off with a body a figleafofrespectability.) has stopped publishing regular statistics. cache of weapons. Mr Pérez tried to sur- The second track has been to try to ne- According to an estimate by the finance render, but was summarily killed along gotiate with the regime for a free and fair committee ofthe national assembly, prices with six followers. This contrasts with the presidential election due later this year. In rose by 2,616% in 2017, and by 85% in the leniency shown to Chávez: the democrat- theory the two strategies are not incom- month of December alone, as the govern- ic government that he tried to overthrow patible, but in practice pursuit of both has ment finances itself by printing money. in 1992, in a coup attempt that left 67 peo- divided the opposition (which has paid a (Most economists define hyperinflation as ple dead, not only spared his life but par- high price for its failure to forge a single being50% ormore permonth.) Despite reg- doned him after just two years in jail. party with a single leader). Those splits ular increases, the minimum wage has lost Mr Maduro’s ruthlessness betrays in- and the regime’s refinement of fraud and most of its value. security. His regime may have crushed clientelism—votes for food and cash—al- In the 1970s Venezuela was the richest the opposition for now, but it is under lowed Mr Maduro to win the recent re- country in Latin America. Partly because strain. The country has seen another gional and municipal elections. of a fall in the oil price in 2014, but mainly round of looting and protests over food In talkswith partofthe opposition this because of the anti-market policies of Mr shortages. A fall in oil output is offsetting month in the Dominican Republic the Maduro and his predecessor and mentor, the recent increase in its price. Financial government has been uncompromising. Hugo Chávez, the economy this year will sanctions imposed by Mr Trump have It has barred the two most popular oppo- be a third smaller than it was in 2013. (In ac- made it hard for Mr Maduro to raise mon- sition leaders from running for president. knowledgment of that decline, and of the ey abroad. There are reports of sympathy It shows no sign of agreeing to a non-par- poorquality ofVenezuela’s data, this week forMr Pérez among the security forces. tisan electoral authority or to the interna- we have replaced the country in our statis- In one respect Mr Hausmann raises a tional election monitoring that the oppo- tics pages with Peru, whose economy will valid point. Latin America should not sition demands. In desperation, the soon be bigger. We will continue publish- stand idly by in the face of an unprece- opposition may settle formuch less. ing statistics on Venezuela on our website.) dented and entirely man-made calamity Venezuela is not standing still. Living Venezuela’s desperate plight is prompt- in Venezuela. The region could put more conditions continue to deteriorate. On ing some desperate thinking. Warning of diplomatic and financial pressure on the top of shortages of food and medicines impending famine, Ricardo Hausmann, a regime. There is no guarantee of success— and rampant crime, the country has now Venezuelan economist at Harvard Univer- but the alternatives are worse. Middle East and Africa The Economist January 20th 2018 39

Also in this section 40 Israel’s badly managed capital 40 A new front in Syria’s war 41 An army that marches on its stomach 42 Long walk to financial ruin

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

Protests in Tunisia rection (see chart). Asked whetherprosper- ity or democracy was more important, al- Democracy and its discontents most two-thirds chose the former. In interviews it is not uncommon to hear nostalgia—if not for Mr Ben Ali then for his predecessor, Habib Bourguiba, who ruled for 30 years until 1987. Many invoke ETTADHAMEN the memory of the bread riots in the 1980s, which were caused, like the recent prot- Tunisians are losing faith in the ballot box ests, by a cut in subsidies linked to talks ESPITE hisbestefforts, when President pension forme to feel comfortable.” with the IMF. The riots ended when Bour- DBeji Caid Essebsi visited Ettadhamen Although the concessions failed, coer- guiba reversed the cut. “The virtue ofdicta- (“solidarity”) on January 14th, he did not cion was effective. Police arrested more torship is that there’s an authority to the engender much harmony. Protests had than 800 people, among them bloggers state. It’s bad, but it works,” says Sihem broken out a week earlier across Tunisia, and activists, and the army was deployed Bensedrine, who heads the national truth many of them in places like Ettadhamen, a in some outlying areas. For now, at least, and dignity committee. “People think de- working-class suburb of Tunis, the capital. the protests have died out. Even at their mocracy equals chaos.” Though peaceful during the day, they peak they drew at most tens of thousands Tunisia held free and fairparliamentary turned ugly at night, with rioters burning of supporters. They were a farcry from the elections within a year of Mr Ben Ali flee- police stations and trashinga supermarket. enormous demonstrations that toppled ing. Ennahda, an Islamist party, won a plu- Hours after Mr Essebsi left Ettadhamen, ri- Zine el-Abidine Ben Ali, the longtime dicta- rality in the legislature and formed a co- ots erupted yet again, leaving the streets tor, in 2011. Still, the unrest is a symptom of alition. Then it did something more dotted with spent tear-gas canisters. a much deeper problem. important: it stepped down in 2014 after a The unrest was sparked by a package of Seven years after the revolution, many series of political assassinations plunged tax increases, affecting dozens of consum- Tunisians are losing faith in a democratic the country into crisis. When Nidaa er goods, that took effect on January 1st. transition that was meant to bring wider Tounes, a bloc of secular parties, placed Fuel prices, which are heavily subsidised, prosperity. A poll by the International Re- first in the subsequent election, Ennahda were also raised. The government argues publican Institute, an American pro-de- joined its coalition. Though Freedom that it needs to shrink the budget deficit of mocracy group, found that most Tunisians House downgraded Tunisia in itslatest sur- 6% of GDP, and that many of the austerity think the country is going in the wrong di- vey of world liberty, it is the only Arab measures are aimed at the rich—wine country to be rated as “free”. prices, forexample, rose sharply. But so did Rather than advance the democratic the prices of basic necessities, such as Something’s not right here transition, though, political elites are stall- bread and phone cards. Tunisia, “Which direction would you say things ingit. Fouryears afterit adopted a new con- Hoping to head off further unrest, the are going in our country overall these days?” stitution, parliament has yet to appoint a government announced that it would % responding constitutional court. Lawmakers cannot spend an extra 100m dinars ($40m) on 100 agree on which judges to name. Nor has Wrong welfare payments this year. Pensions are 80 Tunisia held local elections, originally also set to grow, along with health-care planned for 2016 and then postponed four benefits forthe unemployed. Poor families 60 times. They are now tentatively scheduled will receive at least a 20% increase in aid— for May. Nidaa Tounesfears a thumping by 40 though for many, that will mean just $13 Right the better-organised Ennahda. Both par- more per month. Even the larger stipends 20 ties have an eye on the national election in are still below the 240 dinars that econo- 2019. Yet good local governance is vital in a mists call a subsistence monthly wage. “It’s 0 country with deep disparities between the 2011 12 13 14 15 16 17 laughable,” saysSami Bechini, a retired civ- impoverished interior and the compara- Source: International Republican Institute il servant. “They would need to double my tively prosperous coast. 1 40 Middle East and Africa The Economist January 20th 2018

2 Mr Essebsi and Rachid Ghannouchi, Mr Ghannouchi but the young prime min- The war in Syria the head ofEnnahda, actasa kind of ruling ister, Youssef Chahed. He was a middling duo, with support from the powerful trade member of Nidaa Tounes before he was Rebels on the slide unions. Yet beneath those two ageing lead- catapulted to the premiership in 2016. Now ers, the political landscape is increasingly he is working on his own political move- fractious. Nidaa Tounes lost its plurality in ment ahead ofelections next year. MP 2016, when about two dozen of its s Until then, though, Mr Chahed will be BEIRUT broke away to form an anti-Islamist bloc. the public face of painful economic re- The government is closing in on one of Ennahda, for its part, has upset its largely forms. Public-sector wages chew up al- the rebels’ last strongholds working-class voters by sitting in a govern- most14% ofGDP; inefficient state-run firms ment that raised taxes, lowered subsidies have too many workers (and not enough N THE spring of2015 the rebel takeover of and froze public-sector recruitment. “It lost revenue). Both must shrink. The govern- IIdlib province in north-western Syria us votes,” says Mr Ghannouchi. “We’ve ment needs to do a better job of selling seemed to signal the beginning of the end placed all our bets on an alliance with our these changes. In the short term, handouts for President Bashar al-Assad. Yet Idlib’s adversaries from yesterday.” can help to blunt some ofthe backlash. But fall may have saved him. Fearful of losing A poorly attended by-election in De- eventually it needs to show progress, or his close ally, Russia’s president, Vladimir cember, for Tunisian expatriates in Ger- wider unrest looms. “We’ve had nine gov- Putin, decided to join the fray. Within many, saw a blogger with no party affili- ernments in seven years, and the eco- months of Idlib’s capture, Russian aircraft ation win a seat. In polls, the most trusted nomic results have been the same with were battering rebel lines. politician is often neither Mr Essebsi nor each one,” says Mr Ghannouchi. 7 Russia’s entry into the war proved a turning-point. Forces loyal to Mr Assad have since beaten back the rebels on every Israel’s mismanaged capital front, boxing them into ever-shrinking pockets of territory. In December Mr As- Grants and absolution sad’s men turned their guns on Idlib, the JERUSALEM last province undercomplete rebel control. It may now provide the backdrop for the A messy row overthe Holy City’s finances end ofthe uprising. ARLIER this year residents ofJerusa- For a time it had seemed as if Idlib, a Elem woke up to find piles ofrubbish province of 2.6m people, might escape the strewn across roads, markets and other fighting. It is dominated by rebels, includ- public spaces. Municipal workers strik- ing Hayat Tahrir al-Sham (HTS), a group ing against job cuts announced by the linked to al-Qaeda. But a ceasefire hashed city had not simply stopped collecting out in September between Turkey, which refuse; they dumped lorry-loads ofit. has backed the rebellion, and the regime’s Jerusalem has attracted a lot ofatten- allies, Iran and Russia, dampened the vio- tion since President Donald Trump an- lence. Turkey sent troops to the province in nounced in December that America October to monitor the truce, which ex- would recognise it as Israel’s capital and cluded HTS. Russian military police were move its embassy there. Yet forall the supposed to follow. Both countries had fuss over the holy city’s international agreed to curb HTS’s power in the province status, its management and finances are a (see map on next page). mess. Its streets are often filthy (even As part of the deal, Turkey was to have when city workers are not striking) and forced the rebels it backs to hand over parts its pavements are crumbling—visible ofeastern Idlib to the regime. In return, the indicators that it spends a quarter less per Turks won Russian approval to enter Idlib person on services forresidents than and to set up bases around the Kurdish-run Israel’s other large cities. enclave of Afrin, which lies near the Turk- Over the past fouryears the central the Palestinians, who live in cramped ish border. Turkey views the Kurds who government has tripled its grants to and run-down neighbourhoods in the rule that area, and who have seized a quar- Jerusalem. This year it proposes to give east (and get shoddier services), and the ter ofthe country since the start of the war, the city 800m shekels ($233m)—14% ofits ultra-Orthodox, many ofwhom live off as a branch ofthe Kurdistan Workers’ Party operating budget. But its mayor, Nir benefits and study the Torah instead of (PKK), a group it has fought fordecades and Barkat, wants1bn shekels. working. These communities make up calls terrorists. Turkey repeatedly says it The mayor’s critics say that his admin- two-thirds ofthe city’s 900,000 resi- will not allow the Kurds to form a “terror istration is bloated by cronyism. He has dents, and most ofits poor. corridor” on its border. failed to put Jerusalem’s finances on a The Jerusalem Institute forPolicy But the Syrian regime and its Russian sound footing. Taxcollection, already lax Research reckons that 56% ofchildren in backers have grown frustrated with Tur- in ultra-Orthodox and Palestinian neigh- Jerusalem are below the national pover- key’s failure to uphold its end of the bar- bourhoods, has not increased in six ty line, compared with 31% nationally; gain. HTS fighters refuse to leave eastern years. Although other local authorities in among Palestinians in Jerusalem the Idlib. So in December Mr Assad’s forces, Israel receive grants to balance their figure is 86%. with Russian air cover, pushed eastwards books, Jerusalem gets fourtimes more Israel calls Jerusalem its “eternal and along a railway line, shrinking the rebels’ than its share according to a formula undivided capital”. But nine years under enclave as they captured a string of vil- based on population and wealth. Mr Barkat have left it broke and its people lages. The regime is close to retaking a large To be sure, Jerusalem has structural divided, hardly a desirable record for a air base and may press on to seize a strate- problems that cannot be blamed on the politician who wants to stand forleader gic road running through Idlib and linking mayor. It is divided principally between ofthe ruling Likud party. some of Syria’s biggest cities. More than 200,000 people have fled the violence. 1 The Economist January 20th 2018 Middle East and Africa 41

An army that marches on its stomach TURKEY

Afrin The very hungry Aleppo Raqqa IDLIB caterpillars Deir Russian ez-Zor air base SYRIA

Med. Sea Homs Palmyra LEBANON Euphrates Sparsely Spodoptera frugiperda has taken Africa populated Beirut IRAQ FRICA has been invaded on quiet Damascus 100 km Awings. First they landed by ship in the ISRAEL west. Then they spread across the conti- JORDAN nent, wreaking havoc as they went. Now, two years later, the invaders are worrying Areas of control January 2018 officials in almost every sub-Saharan Syrian government Rebels Rebels/Turkish troops country. It’s not the French, British or even Islamic State Kurds the Chinese. This time it’s a simple Ameri- Source: Institute for the Study of War can moth, the voracious fall armyworm, that has marched through Africa’s fields 2 Turkey fears the fighting could drive many and is threatening to cause a food crisis. On Friday he ate a field of maize Syrians across its border to join the 3.4m When just a hungry caterpillar, the fall refugees it already harbours. armyworm will happily munch on more grates and reproduces much faster. After it The incursion could derail the rap- than 80 plant species. But its favourite is turns into a moth, it can fly as faras 100km prochement between Turkey and Russia, maize—the staple formore than 200m sub- (60 miles) a night. During her ten days of casting doubt on Russia’s ability to medi- Saharan Africans. The UN’s Food and Agri- adulthood, a female moth can lay up to ate an end to the war. Relations between culture Organisation (FAO) estimates that 1,000 eggs. the two countries, which back opposing sub-Saharan Africa has about 35m hect- The second isthatmostofAfrica’sfarm- sides in the war, had begun to warm. Tur- ares of maize grown by smallholders, and ing is done by smallholders who use out- key had agreed to cut back its support for that almost all ofit is now infested orat risk dated techniques and whose yields are al- the rebels in return for Russia’s assent to a ofinfestation. ready low. The worm “is coming on top of Turkish military operation in 2016 that split Ifthe pest is not controlled, it could gob- other constant threats faced by farmers, in- the Kurds’ territory in two. More recently, ble up as much as 20% of the region’s total cluding drought, new crop diseases, and the two countries had worked together to maize crop. Some countries may be partic- low soil fertility,” says Joe DeVries of the create four“de-escalation” zones where re- ularly hard hit. The Centre for Agriculture Alliance fora Green Revolution in Africa. bels and the regime’s troops were sup- and Biosciences International (CABI), an Yet labour-intensive farming also offers posed to stop killing each other. The agree- association ofagricultural research centres opportunity. Experts fret that iffarmers use ment was meant to pave the way for in 12 countries, thinks that big producers too much cheap pesticide to kill the Russian-led peace talks. such as Nigeria or Tanzania could lose worms, they may end up poisoning their Since Mr Assad’s forces entered Idlib, more than halftheir maize harvest. crops. Allan Hruska of the FAO hopes in- however, Turkey has sounded less happy Originally from the Americas, these stead to teach farmers to use some of the with Russia’s vision for post-war Syria. In worms were a plague there for hundreds techniquesthatsmallholdersin the Ameri- DecemberPresident Recep Tayyip Erdogan of years. Yet American farmers have beat- cas have long used. These include mixing called MrAssad a terrorist and said the Syr- en them back with the help of genetically crops, encouraging natural predators and ian presidenthad no role in Syria’sfuture, a modified plants and advanced pesticides. patrolling fields to crush the eggs by hand. view at odds with Russia’s. Mr Erdogan’s By contrast, the wormsare meetinglittle re- Better still would be to copy America’s comment implied a warning to Russia that sistance in Africa. They were first officially commercial farmers, who plant GM crops he could scuttle Russian-led peace talks, detected in Nigeria in January 2016. Now that are largely resistant to the worm. Al- should the Kurds be allowed to take part. theycan be found in 43 otherAfrican coun- most all African countries apart from On January13th Turkey raised the stakes by tries (see map). South Africa have formally or informally announcing that a ground operation to Two factors explain their rapid spread. banned GM crops, following iffy advice seize Afrin, where Russian troops are The first is biology. Africa already has its from ecowarriors. Lifting these restrictions based, would begin “in the coming days”. own variety of the worm, which farmers would lead to fewer hungry caterpillars This may mess up Russia’s plans to host can control. But the foreign species mi- and fewer hungry people. 7 a peace conference in the Black Sea resort of Sochi later this month. Russia has al- ready asked various Kurds to the talks, Jan 2016 Apr 2017 Dec 2017 which have been postponed twice, but has steered clear of asking any from the Kurd- ish party that runs the area that includes Afrin, in order to allay Turkish concerns. Western governments and Syria’s op- position leaders see the Sochi conference NIGERIA as Russia’s attempt to undermine UN- TANZANIA sponsored peace talks in Geneva that have gone nowhere, snagged on MrAssad’s fate. But the more territory he captures, the less Countries affected by fall armyworm willing he will be to negotiate an end to his Confirmed Suspected/awaiting confirmation own rule. 7 Sources: CABI; FAO 42 Middle East and Africa The Economist January 20th 2018

Long walk to financial ruin illegally hold electronic payment cards linked to the social security system. This Keeping up with the Khumalos lets them tap borrowers’ government wel- fare grants each month. Legal lenders sometimes misbehave, too. Shoprite, one of the country’s biggest retailers, was fined 1m rand in September JOHANNESBURG for “reckless lending”, after it failed to check properly whether consumers could Household debt is hobbling the blackmiddle class afford to repay their loans. Cash Paymaster OUTH AFRICANS have dubbed this Services, a private company controversial- Smonth “Janu-worry”. After Christmas ly given a government contract to manage and the summer holidays come the bills. A welfare payments, has been accused of popular classified-advertising website is pushingloansand otherfinancial products full of pleas for help. “Mashonisa [loan to welfare recipients and then deducting shark] urgently needed,” says a typical onerous repayments. post. “No scammers.” Radio call-in shows Lenders insist that they are righting one offercatharsis and survival tips. of the wrongs of apartheid, when black The rest of the year is tough on pocket- South Africans were not allowed to bor- books too. South Africans are the world’s row, by bringing people into the financial most avid borrowers, according to the system. They have a point. But little of the World Bank. A study published in 2014 money they lend is invested in a business showed that 86% had borrowed money in or in acquiring valuable skills. With inter- the previous year (see chart). est rates high and financial literacy low, Most borrow from friends or family, but many loans lead to financial ruin. They an astonishing 25m out of about 37m adult may even widen the gap between rich and South Africans owe money to financial in- poor, since people who besmirch their stitutions or other corporate lenders (such credit records by missing payments on as utilities or shops that allow them to buy small loans will then struggle to get mort- now and pay later). To put that in context, gages or business loans from banks. fewer than 10m people are formally em- Reckless lending also affects economic ployed (although many more work on growth. Absenteeism rises alongside fi- farms or in the informal economy, where Buy now, default later nancial distress, since employees who statistics are not reliable). Small wonder have to service big loans sometimes can- that barely half are keeping up with their The previous financial woes of Jacob not afford the minibus to work. Workplace repayments, according to the National Zuma, South Africa’s spendthrift presi- fraud and theft also tend to increase when Credit Regulator, a government agency. dent, have been well documented. When staff are indebted. Some debtors quit their Some of this overstretching stems from he was drowning in debt in 2005, and de- jobs so they can crack open their pension aspiration. Since the end of apartheid in pendent on benefactors, he even received potsto fend offcreditors—and then reapply 1994, a black middle class has rapidly help from Nelson Mandela, who gave him for the same position, says Mr Manyike. emerged. Many people are eager to show 1m rand ($148,000 at the time). Debt can even cause social instability. that they have arrived, by flaunting a car, a For those with fewer rich friends than The often violentstrikes at platinum mines new suit or a smartphone. But not all can Mr Zuma, there are illegal loan sharks. that broke out in 2014, which slowed the keep up with the Khumalos. Many of their customers have jobs, but get national economic growth rate, were Economic growth is slow, and unem- turned down by legal lenders because of partlyborn ofdebt. Miners’ take-home pay ployment is either 28% (by the official mea- their poor credit scores. This does not was falling because lenders were getting sure) or 37% (by a more realistic estimate). bother the mashonisas, who are adept at court orders instructing their employers to Black South Africans with jobs often have collecting bad debts. Not all use threats of deduct loan repayments directly from to support a huge number of unemployed violence. Some keep identification docu- their salaries. In Marikana, where in 2012 relatives. (Thisiscolloquiallyknown asthe ments and bank cards as collateral. Others police shot dead 34 miners after a lengthy “black tax”.) The first person in a family to strike, many workers had been caught in a attend university or get a good salary is ex- nasty cycle ofunsecured short-term loans. pected to pay for the schooling of younger Hey big borrower There are, however, some encouraging relatives, and to foot the bill for funerals People aged 15 and over who have borrowed signs of changes in consumer behaviour. and other wallet-draining events. Deduct money* in the past year, 2014, % of total The 2017 TransUnion Consumer Credit In- all this from a pay cheque and there may 0 20406080 dex, which measures borrowing and re- not be enough for groceries. “South Afri- payment, notes a “marginal” improve- South Africa cans are borrowing for everyday needs,” ment in the level of indebtedness. But it says John Manyike, head of financial edu- Kenya also warns that high unemployment and cation forOld Mutual, an insurer. United States stagnant wages will keep households un- Many South Africans are ignorant of Rwanda der pressure. Better regulations to clamp the basics of personal finance, a trait that India down on unscrupulous lending are being transcends income levels. Neil Roets, who drafted. A sprightlier economy would help World heads Debt Rescue, a debt-counselling even more. Growth is expected to limp in firm, says new clients are first asked for Britain at just1.1% this year, after a recession in 2017. their household budget. Most do not have China It needs to pick up quickly to help house- one. “We get people coming in who earn Euro area holds and the state itself—public debt has very big salaries...and have never learned climbed above 50% of GDP—pay down Source: World Bank *From any source how to work with money,” Mr Roets says. some oftheir crushing debt. 7 Europe The Economist January 20th 2018 43

Also in this section 44 Germany’s coalition woes 45 Chechnya tries to silence a critic 45 Poland’s patriotic smog 45 Czech liberals strike back 46 Turkey’s religious authority 47 Charlemagne: The EU’s hellish in-tray

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

France’s En Marche! shell. LRM now enjoys public subsidy, thanks to its electoral success last year, and What’s it for? has rented new premises in the capital’s heart. Yet it is groping about for a role. Poli- cy debates take place inside government ministries and at the presidency, orwithin the parliamentary group, not the party. En PARIS Marche! has no director of studies, nor a policypublication. Itdoesnotsee itself asa The political movement that Emmanuel Macron rode to powerneeds a new role think-tank, or generator ofideas. HEN Emmanuel Macron was elect- or business. This is partly deliberate. En Marche! is a Wed French president in May last year, At the same time, many of the enthusi- movement, not an old-style party. MrMac- the party he founded felt “orphaned”, says asts who set up local support committees ron “wanted to turn the structure upside Gilles Le Gendre, deputy leader of its par- for Mr Macron went on to stand for parlia- down, and have a headquarters lite,” ex- liamentary group. Those who had worked ment, under the banner of La République plainsAmélie de Montchalin, a 32-year-old tirelessly as volunteers for his improbable en Marche (LRM). The National Assembly LRM deputy. The president wants to focus political adventure were thrilled, to be is today packed with LRM deputies, who on keeping the promises in his manifesto, sure. But they also felt as if they had “lost a occupy 62% of all seats when combined not dreaming up new measures. Theori- father”. En Marche! began life less than with theirfriends from a centrist party, Mo- sing about the new alignment of French two years ago with a forceful leader but no Dem. Teachers, businesspeople, farmers: party politics, it seems, or the future role of money and no deputies. After Mr Macron many deputies had no experience of poli- the state, can be left to others. But if the stepped into the presidency, it secured tics, and had to bury themselves in the party has been drained ofits expertise and those, but lost its boss. rules of parliamentary procedure. Few ideas, an existential question arises: what The transformation of a political move- have time to worry about the party itself. is En Marche! now for? ment based on grass-roots volunteers into As a parliamentary party, LRM was ac- a formal political party has turned into a cused of arrogance by some, incompe- Many roles or none curiously difficult exercise. En Marche! tence by others. “At first, everybody want- Some see it as a megaphone forthe govern- campaign headquarters used to be a thriv- ed to do everything: join every group, ment. “We said it, we’re doing it,” for in- ing hub. Young people in hoodies huddled speak in every session,” says Hervé Ber- stance, is an initiative designed to publicise over laptops. Empty takeaway boxes were ville, a Rwandan-born deputy from Britta- the laws that have been passed, and match strewn in corners. But the moment Mr ny. “Now we’ve learned to prioritise.” Dep- them to promises made. Another job is to Macron was elected, members of his uties are better shepherded now that their act as talent scout for future campaigns. young campaign team disappeared to jobs parliamentary leader, Richard Ferrand, an Christophe Castaner, who became LRM’s in government or at the Elysée presidential old ally of Mr Macron’s, is properly back in leader late last year, this month launched a palace. Julien Denormandie, a co-founder the job after being cleared in a judicial in- mentoringservice forpeople in the regions ofEn Marche!, became a juniorminister. Is- vestigation. Above all, the former grass- with ideas about how to improve public maël Emelien, anotherco-founder, went to roots activists—or marcheurs, as they liked life. At the previous elections to local gov- advise the president. Benjamin Griveaux, to call themselves—have turned into a loy- ernment and the European Parliament, En the campaign spokesman, is now the gov- al legislative army forthe government. Marche! did not exist. Now it aims to build ernment’s spokesman. Others, passed As a result, though, the movement in a network of people it can train as future over for top jobs, drifted back to academia Paris has become something of an empty candidates, and topple the ossified parties, 1 44 Europe The Economist January 20th 2018

2 just as it did at the national level. fight. Perhaps En Marche!’s toughest job is It was an illustration of what some in Neither of these roles, though, quite to manage the tension between the needs the CDU/CSU have dubbed the’ “dwarfs’ meets the aspiration of those on the of policymakers in government and the rebellion”. As SPD leaders and MPshave ground who thought they were joining a hopes ofcivic activists on the ground. fanned outaround the countryto make the radical citizens’ movement which would En Marche! is trying to keep the found- case for a repeat of the grand coalition be “neither on the left nor the right” and ing spirit going. New ideas, says Ms de (Grosse Koalition, or “GroKo”) that gov- would conduct politics differently. These Montchalin, “should not just come from erned Germany from 2013 until the elec- were people drawn into politicsforthe first the Paris elite”. The party is experimenting tion, they have met resistance from mem- time, and who want to feel that their voice with servicesthatlooklike a crossbetween bersfed up with compromisesand defeats. still counts. The party is consulting grass- citizens’ advice and the collaborative econ- Three state branches, including that in Ber- roots supporters on policy matters, such as omy. It has set up online educational tools. lin, formally oppose the idea. So do the an upcoming reform of vocational-train- It runs a social platform to promote local Young Socialists, the party’s youth wing, ing schemes. But legislation is moving fast volunteering and community work. “En whose leader, Kevin Kühnert, has under- and the real decision-making takes place Marche! can’t just be a party like any oth- taken a rival tour of local groups, complete inside government. er,” insists Mr Berville. At a time of political with “No GroKo” placards. On January 21st In its short life, LRM has been through disillusion, it is an intriguing ambition. But delegates gather in Bonn to decide wheth- plenty of teething trouble. Not all its new the more the party settles into power, and er to endorse formal talks with the CDU/ deputies have turned out well. One had to the longer it stays in office, the harder this CSU. If they opt not to, it could spell a new leave the party after getting into a street may prove to be. 7 election—and even prompt Mrs Merkel to throw in the towel. The SPD has never been enthusiastic about another spin with the chancellor. Its leaders ruled it out within minutes of polls closing on September 24th, but were en- ticed back to the table in November when coalition talks between the CDU/CSU, the pro-business Free Democrats and the Greens collapsed. The outline of a new GroKo deal was relatively unambitious. The CDU/CSU gets new limits on immigra- tion. The SPD gets somewhat expanded child-care and, in a concession to its Euro- philia, commitments to euro-zone integra- tion richer in rhetoric than in substance. Nonetheless, the paper opens the door, albeit in vague terms, to a euro-zone bud- get and to a “European Monetary Fund” rooted in European law. That “signals a readiness to talk”, adds Lucas Guttenberg ofthe DelorsInstitute, a think-tank, provid- ing a basis for an agreement with Emman- uel Macron (particularly if the SPD takes the finance ministry). On January 17th a Germany group of 14 French and German econo- mists published proposals for such a deal, The dwarfs’ uprising including common deposit insurance and reformed fiscal rules. “We should not just wait until the next crisis,” said Marcel Fratzscher, one of the authors, cautiously deeming the preliminary coalition paper KASSEL “encouraging”. The SPD has no good options. Another SPD members could yet blockanothercoalition deal with Angela Merkel coalition with Mrs Merkel could see the UNDLED up in woolly jumpers and “Clearly, mistakes were made during the party lose yet more support. A minority B scarves, the mostly grey-haired crowd campaign,” he conceded; a nod to the CDU/CSU government would, in effect, filed into the civic centre in Schauenburg, a party’s record-low 20.5% score at the elec- give the SPD the responsibilityofnot bring- small central German town, toasted the tion in September. He also regretted the ing down the government but little influ- new year with foaming glasses ofbeer and meagre substance of a preliminary co- ence over it. And at the current rate—the exchanged genial gossip. It was hard to be- alition blueprint agreed on January 12th SPD fell to a record low of 18.5% in a poll lieve that they might hold the fate of the between SPD leaders, Angela Merkel’s cen- published on January 15th—a new election world’s most powerful woman in their tre-right Christian Democrats (CDU) and might cost it seats without changingthe ba- hands. But they might indeed. Like their their Christian Social Union (CSU) part- sic coalition arithmetic. comrades across the federal republic, these ners: “There are things missing from the Even if formal talks are approved, a fur- ordinary members of the centre-left Social discussion paper that I regret.” Heads be- ther barrier remains: any final agreement Democrats (SPD) have the final say on gan to shake, eyes to roll. Grimacing, Mr must be approved in a full ballot of mem- whether to give Angela Merkel a new ma- Gremmels ploughed on as disgruntled bers. SPD leaders are raising expectations jority to govern. And they were sceptical. murmurs took hold, spread across the thatthe deal would improve on the prelim- Timon Gremmels, the party’s local MP, room and then drowned him out. A soli- inary paper. But that looks doubtful. The took to the stage to try to sell the deal. tary listener clapped. dwarfsmay have their way yet. 7 The Economist January 20th 2018 Europe 45

Poland Patriotic smog

WARSAW Why 33 ofthe 50 most-polluted towns in Europe are Polish HE spa town ofRabka-Zdroj, in south- free smog mask. Tern Poland, has been known as a The governing Law and Justice (PiS) treatment centre forchildren since the party champions the coal industry, 19th century. These days it also has ter- which employs some 90,000 Poles. rible air. In January 2017 the level of “Coal is the foundation ofour energy benzo(a)pyrene, a carcinogenic com- sector and we cannot and do not want to pound, was found to be 28 times normal abandon it,” said Mateusz Morawiecki, limits. Ifthis goes on, Rabka-Zdroj could the prime minister, in his inaugural lose its spa-town status, which needs to speech to parliament on December12th. be renewed every ten years. Air pollution His new programme forSilesia, a densely is “our silent enemy”, says Zbigniew populated industrial region in south- Doniec ofthe town’s Institute ofTu- west Poland, includes two new coal berculosis and Lung Diseases. mines. As Warsaw seeks to wean itself Rabka-Zdroj is hardly alone; across offRussian gas, coal is presented as the swathes ofPoland, winter means smog. patriotic alternative. Russia An astonishing 33 ofEurope’s 50 most- Smog has become a household word, polluted towns are in Poland, as ranked and officials are starting to take it serious- Pot shots by the World Health Organisation in ly. Emissions standards forcoal heaters 2016. Among them is Katowice, which were tightened in October. Some regions will host the next UN climate summit in are going further—an “anti-smog” law December. Coal heating in houses is adopted in 2015 enables them to make MOSCOW largely to blame; to save money, people their own rules on household heating. burn waste coal and slurry. (Defying the On November 30th 2017 the regional A Chechen human-rights defender law, others simply burn rubbish.) In assembly in Wroclaw, a city in western faces implausible drug charges small towns, darkfumes rise from chim- Poland, voted to ban the most-polluting YUB TITIEV suspected the day would neys, giving the cold air a toasty edge. On types ofcoal. Some towns already offer Ocome. As head ofthe Chechen branch bad days, officials in Warsaw advise subsidies to help people swap their of Memorial, a Russian human-rights residents to stay indoors and keep their ageing coal burners forcleaner alterna- group, his activities angered the region’s windows closed. Gazeta Wyborcza, a tives. Yet without firm action in Warsaw, authorities. His predecessor, Natalia Este- newspaper, recently gave its readers a Poles are in formore smoggy winters. mirova, was kidnapped and murdered in 2009. No-one has been punished for the crime. Mr Titiev (pictured) received death that the 60-year-old Mr Titiev, a devout The Czech Republic threatshimself. He warned friendsand col- Muslim, neither dranknor smoked and be- leagues that he could be arrested any time. gan most days by running. Taking back the “They’ll plant drugs,” he told a friend. Russia’s federal authorities have limit- MrTitiev’sfearswere justified. On Janu- ed influence over Chechnya’s internal af- castle ary 9th Chechen police arrested him, fairs. The Kremlin depends on the Che- claiming to have found some 180 grams of chen leader, Ramzan Kadyrov, to preserve PRAGUE marijuana in a plastic bag inside his car. He stability in the turbulent republic. Mr Ka- A rare victory forliberals in central was charged with drug possession and dyrov, in turn, is allowed to run the repub- Europe faces up to ten years in prison. Mr Titiev re- lic as a private fiefdom, with his own army. ported that officers threatened reprisals Mr Kadyrov has been the target of par- S DEMOCRATIC checks and balances against his family ifhe did not plead guilty. ticular criticism in the West for alleged hu- Abuckle in Poland and Hungary, the The arrest looks like an attempt to force man-rights abuses. He was recently added Czech Republic has seemed to many like Memorial to cease its work in the region, to America’s “Magnitsky List” in connec- the next central European country in line where it has long documented torture and tion with his alleged involvement “in dis- to succumb. Andrej Babis, a billionaire disappearances. On January 17th the Me- appearances and extrajudicial killings”, in- businessman, became prime ministerafter morial office in neighbouring Ingushetia cluding an anti-gay purge that swept the winning October’s general election de- was burned down. republic in early 2017. That led to Mr Kady- spite facing fraud charges. He now collabo- The Chechen authorities have a history rov being banned from Western social net- rates closely with his country’s pro-Rus- of using fabricated drug cases to deal with works such as Facebook and Instagram, sian though largely ceremonial president, critics. Ruslan Kataev, another human- which he used to communicate with mil- Milos Zeman. Liberals fret that the pair rights activist, was arrested on drug char- lions of followers. The ban greatly irritated pose a growing challenge to the rule of law ges in 2014, and released only late last year. the Chechen leadership. The speaker of and to the Czech Republic’s pro-Western Some two years later, Zhalaudi Geriev, an parliament, Magomed Daudov, described orientation. But Czech voters and institu- independent journalist, was sentenced on human-rights activists as “enemies” with tions appear to be pushing back. similar grounds; he remains behind bars. “foreign bosses” and added: “Ifonly Russia Although Mr Zeman came top in the Both men were tortured in custody, says hadn’t had a moratorium [on the death first round of the country’s presidential Human Rights Watch. The charges against penalty], we could’ve just bid these ene- election, scoring 38.6% of the vote on Janu- Mr Titiev would be comical were they not mies of the people ‘salaam alaikum’ and ary 12th-13th, he fell well short of a major- so sinister. Friends and colleagues note been done with them.” 7 ity. The runner-up, Professor Jiri Drahos, a 1 46 Europe The Economist January 20th 2018

2 soft-spoken political novice who previous- Turkey tion. Designed as a check against political ly led the Czech Academy ofSciences, won Islam, the directorate hasbecome one ofits a larger-than-expected 26.6%, which puts Checking up on main platforms. him in a good position to displace the in- In constitutional terms, Turkeyis a secu- cumbent in the run-off at the end of the the imams larcountry. But whereas in most places this month. Three days later, on January 16th, impliesthe separation ofreligion and state, parliament rejected Mr Babis’s attempt to ISTANBUL in Turkey it means state control over reli- form a minoritygovernment. Asthe leader gion. Enter the Diyanet. The brainchild of A body once meant to keep an eye on of the largest party, he was invited to try to modern Turkey’s founding father, Kemal political Islam is boosting it do so by the president, though he controls Ataturk, and his supporters, the directorate just 78 of the 200 parliamentary seats, URKEY’s directorate ofreligious affairs, replaced the office of the Sheikh ul-Islam lacks a coalition partner and is accused of Tknown as the Diyanet, has a knack for as the country’s main religious authority fraud in connection with EU subsidies for a odd and outrageous pronouncements. The on March 3rd 1924, the day parliament development project. All told, the presi- body had already made it known that cele- abolished the Ottoman caliphate. A bu- dential second round, on January brating the new year, playing the lottery, reaucratic behemoth, the Diyanet employs 26th-27th, is shaping up as a referendum feeding dogs at home, and purchasing Bit- all of Turkey’s imams, organises Koran on the direction of the country, if not the coin were incompatible with the princi- courses for children, issues its own, non- entire region. ples of Islam; men should not dye their binding interpretations of Islamic norms, In September MPs voted by 123 to four moustaches, nor couples hold hands. (Di- and pens sermons to be read in the coun- to strip Mr Babis of his immunity from vorcing one’s spouse by text message, try’s 90,000 mosques. prosecution on the fraud charges, but be- however, is OK.) But when the Diyanet de- For most of its history, the Diyanet has cause parliament was then dissolved for clared, in a glossary entry spotted on its accommodated the politics of the secular the October election, they must now do so website at the start ofthis year, that accord- establishment, embracing a version of Is- again. In noticeable contrast to Mr Zeman, ing to Islamic law girls as young as nine lam at ease with modernity, and keeping Mr Drahos has called on Mr Babis to give were able to marry, the ensuingoutcry was fundamentalism atbay. (Supportforsharia up his immunity voluntarily, and prove his bigger than in recent memory. Some critics in Turkey is considerably lower than in innocence. On January 16th Mr Babis ob- called forthe institution to close. The Diya- most of the Muslim world.) Under AK, liged. With police and prosecutors pressing net protested that it was only cataloguing, however, it seems less bound by secular the case, the Hospodarske Noviny newspa- not endorsing, principles laid down by Is- norms than ever before. “The Diyanet of per recently leaked a report from EU inves- lamic jurists, and soundly condemned today has a more Islamist, more Arab tigators accusing Mr Babis of “numerous child marriage in a sermon. (The legal age worldview,” says Mustafa Cagrici, the muf- breaches ofnational and EU legislation”. in Turkey is18.) The offending post was tak- ti of Istanbul from 2003 to 2011. Much of Mr Drahos is poaching supporters from en down. this has to do with the influxofhardline in- Mr Zeman; exit polls found that 14% of Mr To critics of the Diyanet the incident, terpretations of Islam from abroad and Zeman’s voters from 2013 opted for Mr Dra- the latest in a series of controversies, of- Turkey’s budding relations with foreign Is- hos from a field of nine first-round candi- fered yetmore evidence ofthe directorate’s lamist groups. dates. “Incompetence, corruption and vul- transformation. Over the past decade, and Despite a few early signsto the contrary, garity have streamed from Prague Castle especially amid the purges that followed a the moderate, critical current within the for nearly five years,” Mr Drahos told The coup attempt in 2016, Turkey’s president Diyanet has folded under increasing pres- Economist duringthe campaign. MrZeman Recep Tayyip Erdogan and his Islamist- sure from hardliners. In 2004 the Diyanet is noted for his diatribes against the EU, rooted Justice and Development (AK) announced a project to verify and reinter- and for his love of Vladimir Putin (odd in a party have tightened their grip on state in- pret the hadith, or the collected words and country that Russian troops invaded in stitutions, restricting dissent within and acts of the Prophet Muhammad, in a mod- 1968 to crush local hopes ofliberty). without. The Diyanet has been no excep- ern light. Following grumblings by power- These days, Mr Zeman looks frail in his ful Islamic brotherhoods and conserva- rare public appearances. Confronted by a tives inside AK, the fruit of the Diyanet’s topless protester from Femen, a radical labours, a seven-volume study farless am- feministgroup, ashe casthisvote, a dishev- bitious than its designers intended, took a elled Mr Zeman had to steady himselfon a decade to appear, and did so to minimal nearby table. His election slogan, “Zeman fanfare. Asked if a similar project might Znovu” (Zeman Again), is hardly inspiring, even be started today, Mr Cagrici throws and there have been reports that he has backhis head. “No way,” he says. The Diya- cancer (which his office denies) to go with net is bigger (it employs 117,000 people) his diabetes. and wealthier (its budget has grown at This leads many voters to question least fourfold since 2006) than at any time whetherMrZeman still has the fortitude to in its history, but it is also more firmly un- guide the country and match wits with the der the government’s thumb. wily Mr Babis. Opinion polls have long For almost a century, the Diyanet has shown MrDrahosdefeatingMrZeman in a walked a fine line to help safeguard Tur- head-to-head contest, and the candidates key’sidentityasa countrythatisboth Mus- who finished third to sixth in the first lim and secular. By starting to endorse a round (with a combined 32.5% of the vote) reading of Islam that is at odds with what have all pledged to support the former are still the lawsofthe state itserves, itnow chemist in the run-off. While still too early appears to be veering off course. Turkey is to count out Mr Zeman, not to mention his not about to become a theocracy. But the allies in the media and in Moscow, victory heterodox, tolerant Islam that has set it for Mr Drahos would be a breath of fresh apart from much of the Middle East is un- air in a region where liberal values have der threat. Despite its original purpose, the more recently been stifled. 7 Let no man dye his moustache Diyanet is not helping. 7 The Economist January 20th 2018 Europe 47 Charlemagne Money talks

The EU’s budget may soon be weaponised countries to lessen the burden on front-line states like Italy and Greece, as well as the common destinations of Germany and Sweden. Many countries, particularly in eastern Europe, see refu- gee quotas as an attackon their sovereign right to determine who may live on their territory. This tiresome issue has consumed the EU for more than two years. It has brought forth legal proceed- ings, umpteen recalibrations of quota formulae and a string of bad-tempered summits (the most recent in December). Nothing hasworked. The threatto withdrawsubsidiesfrom countries that refuse to take in refugees has loomed since 2015; it is now in full view. The Dutch coalition agreement, signed in October, explicit- ly commits the new government to that goal. A second difficulty concerns the rule of law. Attacks on the ju- diciary and other independent institutions, especially in Poland and Hungary, have forced the EU to confront the impossible ques- tion ofhow to deal with governments that violate their EU treaty promises to uphold the independence of institutions. The com- mission, in its role as guardian of the EU treaties, has opened pro- ceedings against the Polish government under Article 7 ofthe Lis- bon treaty, which in extremis could see Poland stripped of its voting rights by the other governments. The political and legal H, THE European Union. The finest dispute-resolution mecha- obstacles to that look insurmountable. But Poland receives more Anism mankind has concocted. The ultimate triumph of bu- support from the EU budget than any other member. Why not hit reaucracy over the battlefield. Where else can dozens of govern- it in the pocket? ments of varying size, wealth and temper manage their disputes Both issues furrow brows, but the second poses the harder so effectively, quietly grinding out compromises that are greater questions. The migration row is a legacy of the crisis of 2015-16, a than the sum oftheir parts? For that is how it works, is it not? squabble over a relatively small number of refugees that govern- No, it is not. At least not when the EU’s budget is involved. In a ments may yet be able to resolve. The rule-of-law questions are few months the club’s governments will begin formal talks on trickier. The French and German governments have different vi- the next “multiannual financial framework” (MFF), a drab formu- sions for the EU, but on “values” the pair seem as one: commit- lation that conceals the diplomatic rancour its negotiation will ment to the rule of law is not up fornegotiation. Emmanuel Mac- spawn. The sumsare notlarge: thisyearthe EU will spend €145bn ron, France’s president, made the case as part of a speech ($177bn), about1% ofitsGDP. But the means ofthe MFF’s construc- expressing his vision for Europe in September. He has since at- tion guarantee that blood will be spilled. Within countries there tacked countries that use EU subsidies to fund tax cuts. (His target are prime ministers to mediate spending disputes among squab- appeared to be Hungary.) Germany treads more carefully where bling department heads, but the EU has no primus inter pares; the Poland is concerned, but last week’s preliminary coalition agree- budget must be approved unanimously by its leaders. It will cov- ment between its two largest political parties said delicately that er five, or perhaps seven, years, from 2021. Because the EU may the rule of law inside the EU should be “enforced more consis- not rackup deficits or raise substantial funds itself, every negotia- tently than has been the case”. tion becomes a zero-sum game between rich and poor member states. One former ambassador recalls the fierce atmosphere sur- In your head, they are fighting rounding EU budgetary negotiations. The friendly diplomats he It is hard to see what could do the enforcing except the budget. had got to know over trade and agricultural negotiations were Several European commissioners, including Günther Oettinger, transformed overnight into crazed money-grubbing vampires who oversees the MFF, have suggested linking payments to as- with euro signs foreyes. sessments of the rule of law. The idea has been discussed in capi- Every European budgetary negotiation is unhappy in its own tals across the EU, includingBerlin. To withhold funds from coun- way. This year’s, though, promises a singular pageant of misery, tries with compromised judiciaries or bent administrations is no for three reasons. First, the departure of Britain, one of the largest punishment, the argument runs; merely the prudent manage- contributors, will leave a €12bn hole in the annual budget. This ment oftaxpayers’ money. will have to be made whole by spending cuts, extra demands on That thesis clearly will not fly in those countries which stand wealthy countries or a mix of the two, as suggested by the Euro- to lose out. Some other governments are wary, too. None wishes pean Commission (which will issue a budgetary proposal for to find itselfnext in the line offire. It is hardly clear how such bud- governments to discuss in May). Second, new money must be getary sanctions would work, and who would police them. But found for areas in which the EU wants to do more, such as migra- in unguarded moments, some officials note that money has a tion and security—which could mean that less goes to “cohesion” way of reaching the parts that political pressure or legal threats funds for infrastructure in eastern Europe. Third, and knottiest of cannot. Either way, the stage is set for a bitter row. Last week Sig- all, some governments are warming to the idea of weaponising mar Gabriel, Germany’s foreign minister, said that there were no the budget to resolve some ofthe EU’s most intractable disputes. winners or losers from the EU budget, only “beneficiaries”. Com- One problem is how to manage what officials call the “inter- ing from the biggest contributor to the pot, the sentiment was nal dimension” of immigration: sharing refugees among EU laudable. The coming debate will show it to be nonsense. 7 48 Britain The Economist January 20th 2018

Also in this section 49 Carillion’s pensions 49 The tabloid Guardian 50 Bagehot: The special relationship

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

The collapse of Carillion the building trade. In Liverpool, for in- stance, workers found asbestos on site and Cleaned out cracks appeared in the new building. Un- der the terms of the deals, Carillion had to absorb the extra costs, on projects that were barely profitable in the first place. The company also ran into trouble in Qatar, where it got into a dispute over a payment of £200m that it was owed for work on the The mega-contractor’s demise reveals an outsourcing model in need ofa revamp 2022 World Cup. The result was a profit ABOURERS building the new Midland outsourced to subcontractors, who would warninglast July, afterthe company admit- LMetropolitan Hospital in Birmingham often sub-subcontract it in turn. ted to unexpected over-runs of £845m, got a rude shock when they arrived for The platoons of small firms that did which sent the share price tumbling. Caril- their morning shift on January 15th. They most of Carillion’s work will thus be most lion continued to win business, notably were told to go home; they had been laid affected by its demise. Rudi Klein, head of from the government, which awarded it a off. Meanwhile, in Oxfordshire, the county the Specialist Engineering Contractors’ contract for £1.4bn of work on the HS2 rail- council was putting the fire brigade on Group, representing thousands of engi- way even as investors bet on the firm’s col- standby to serve school meals. Such were neering firms, estimates that Carillion lapse. But after more profit warnings, the just a few of the immediate consequences owed about £2bn to 30,000 or so firms. banks refused to lend it any more. of the collapse that morning of Carillion, That does not include the unknown cost of Public-sector tenders are supposed to Britain’s second-largest construction firm, retentions, the cash that Carillion was consider the quality of bids as well as the with debts of about £1bn ($1.4bn) and pen- holding backuntil companies had finished price, but in practice contractors have sion liabilities ofalmost as much again. the job. Many will never get their money, found that “bidding at a low price is usual- The total cost in lost jobs and business damaging Britain’s slender supply chain. ly the best way to win,” says Peter Kitson, a has yet to be counted. But another casualty At least the government has stepped in to lawyer at Russell-Cooke. Companies bank of the company’s capsize may be the busi- protectthose doingpublic-sectorwork; Ca- the upfront payments and hope they can ness model that went so badly wrong rillion had about 450 government con- make money by charging for the extra there, and which plenty of other firms in tracts, constituting about a third of the work that nearly always comes with infra- the outsourcing industry share. company’s revenues in 2016. structure projects. If, as happened to Caril- Carillion employed 43,000 people But it was this work that contributed to lion, extra costs arise, the deal can quickly worldwide, almost half of them in Britain. Carillion’s undoing, highlighting the basic become loss-making. It began as a construction company, build- flaw in its business model. Construction is But Carillion’s management was also ing everything from the doughnut-shaped a perilously low-margin business to begin culpable. The firm expanded too fast, ac- headquarters of GCHQ, Britain’s signal-in- with. To expand the business and keep quiring businesses that it did not under- telligence agency, to hospitals and football enough cash rolling in to pay creditors and stand. Itpaid £306m forEaga, forinstance, a stadiums. It later began providing all man- shareholders, Carillion’s bosses bid ever supplier of green-energy products, only nerofservices forboth the public and priv- more aggressively for public-sector con- months before the government cut subsi- ate sectors, dishing up meals in schools, tracts, especially in the wake of the finan- dies that homeowners got forinstalling so- maintaining bases for the Ministry of De- cial crash in 2008, when such work was lar panels. As Carillion was failing and its fence, and much else. Many of its projects scarce. That is when three big deals were pension fund slipping into deficit (see next were commissioned under the Private Fi- signed that have gone sour: to build hospi- story), shareholders continued to receive nance Initiative (PFI), in which contractors tals in Liverpool and Birmingham, togeth- dividends and the firm’s boss trousered a foot the cost of building and are repaid by er worth £685m, and fora share in a £550m £1.5m pay package. Even the Institute of Di- the government over several decades. Al- roadbuilding contract in Aberdeen. rectors, a business lobby, condemned Ca- most all the work that Carillion won was All three projects hit snags common to rillion’s board forrewriting company rules1 The Economist January 20th 2018 Britain 49

2 to protect executives’ bonuses if the com- oftwo-and-a-halfyears, afteraccepting too Pensions pany failed. On January 17th the Insolven- much work at low margins. Construction cy Service said that it was stopping all fur- News, a trade paper, found that last year A big hole ther payments. Britain’s ten largest builders made a com- bined pre-tax loss of£53m; the average pre- Who wants to be a Carillion heir? tax profit margin was -0.5%. Shares in its rivals, such as Serco and Kier, And now there is intense pressure on rose after the firm imploded, on the expec- outsourcers to change their ways. The gov- Carillion could be the biggest claim yet tation that they would pickup some of Ca- ernment has launched an inquiry into the on the pensions-insurance scheme rillion’s business. Yet many of the pro- Carillion saga. It may also re-examine its blems that sankthe company are common procurement processes. On January 18th HE collapse of Britain’s second-biggest to the outsourcing industry. Interserve, the National Audit Office published evi- Tconstruction company may mean that which has an annual turnover of £3bn, is- dence that PFI is a pricey way to fund infra- many of the firm’s workers lose their jobs. sued two profit warnings last year, follow- structure, and that it does not reliably bring Butthe pension rightsofCarillion’s20,000 ing technical problems at a waste-to-ener- benefits. Carillion’s competitors may be Britain-based employees should largely be gy plant in Glasgow. Not long ago Balfour glad to have seen off a rival, but they are preserved, thanks to the Pension Protec- Beatty, Britain’s largest construction firm, operating in a troubled industry that is un- tion Fund (PPF), a private scheme funded issued seven profit warnings in the space der more scrutiny than ever before. 7 by a levy on member companies. When a firm with a salary-linked pension scheme goes to the wall without enough assets to The Guardian carry on paying pensioners, the PPF steps in to bail the workers out. Back in black Those already in retirement get their pensions met in full, although future in- creases may be lower than the inflation The relaunched newspaper’s bosses are bullish about breaking even rate. Those who have yet to reach retire- N JANUARY15th the Guardian ment age, meanwhile, receive 90% of their Oshowed offits new, trimmerlook, benefits, up to a cap of around £35,000 shifting from its idiosyncratic “Berliner” ($48,000) a year. None of this applies to format to a tabloid shape with a rede- workers with a defined contribution pen- signed logo in sober blacktype. But the sion, where benefits are not promised by more dramatic makeover is ofthe fi- the company; their pension pots will be nancial books ofGuardian Media Group completely untouched. (GMG), publisher ofthe Sunday Observer Carillion has a complex structure cov- and the daily Guardian, which may find ering14 different pension schemes. If all of its news operation in the blacknext them end up with the PPF, the fund may be financial year. A newspaper business on the hookforalmost £900m. That would that two years ago was beset with exis- be the biggest single claim yet on the tentially worrying losses appears on the scheme, which was set up in 2005. Fortu- verge ofbreaking even. nately the PPF’s most recent annual report The turnaround is partly due to steep says that it is122% funded, by its own calcu- cost-cutting, which is a dog-bites-man lations, with £6.1bn in reserves. story in journalism. But the Guardian Nevertheless, it still faces some tricky would manage the feat while still giving long-term questions. As ofNovember 2017, away news free online, and that is a story the schemes that it covers had a collective worth telling. No longer red all over deficit of £103.8bn. In its latest financial In January 2016 David Pemsel, the year, the PPF raised £585m from its levy, new chiefexecutive ofGMG, and Katha- 600,000 now do, with recurring pay- and paid out £661m in compensation. rine Viner, the new editor-in-chief ofthe ments or one-offamounts. American Modern companies in fast-growing indus- Guardian, informed staffthat GMG’s readers tend to choose the latter option, tries like technology tend not to offer endowment fund, meant to ensure the Ms Viner says (Donald Trump’sinaugura- schemes linked to a worker’s final salary; financial security ofthe paper in perpetu- tion was a big day fordonations). GMG the companies covered by the PPF tend to ity, had lost £100m ($140m) in just halfa says the total figure amounts to tens of be in older industries, some of which (re- year, taking it to £740m. Mr Pemsel was millions ofpounds per year. Ms Viner tailing, for example) are in decline. Over advised by industry peers to trim costs says revenue from readers (including time, the pool of contributing companies and put online news behind a paywall. 200,000 print subscribers) now exceeds will shrink. He and Ms Viner cut costs by 20%, or revenue from advertisers. There is no imminent problem. The more than £50m. Alan Rusbridger, Ms The result is steadily declining operat- scheme had accumulated £28.7bn in assets Viner’s predecessor, had led the newspa- ing losses: from £69m two years ago to as ofMarch 2017, and buoyant markets will per to global relevance with a large on- £45m last financial year and, Mr Pemsel have pushed that figure higher by now. But line readership. But he spent profligately. says, less than £25m in the year that ends a recession that drove a lot ofcompanies to In two years GMG has reduced its head- on April 1st. He predicts breaking even the wall and sent markets lower would count by 400, to about1,500. next year. Ditching its own printing make the PPF’s finances look less rosy. Ca- Yet unlike a growing number ofnews- presses and going tabloid will help, sav- rillion’s collapse, like the fall last year of papers, the Guardian has not put up a ing several million pounds a year. The BHS, a big retail chain, raises questions paywall. Instead it has pursued a mem- Guardian may now physically resemble about whether the pensions regulator bership model, asking online readers to more ofits peers, but its turnaround story should be tougher with companies and contribute whatever they like. About remains idiosyncratic. stop them from accumulating deficits on this scale. 7 50 Britain The Economist January 20th 2018 Bagehot Still special?

This is a bad time forthe Anglo-American relationship to be understrain ues that 75% ofBritons don’t trust his handling ofworld affairs. As forMr Corbyn, who hopes to lead Labour into office by the end of the year, his foreign policy might be summed up by the phrase: “Whatever America is for, I’m against it.” He has fulsome- ly supported anti-American leaders such as Venezuela’s Hugo Chávez and Cuba’s Castro brothers. He has made a habit of ap- pearing on anti-American television stations such as Russia To- day and Iran’s state news channel. His chief adviser, Seumas Milne, devoted much of his journalistic career at the Guardian to fulminating against American imperialism. What can be done to revive the special relationship in such difficult circumstances? Part of the answer lies in patience. How- ever large they loom today, Messrs Trump and Corbyn will even- tually be gone. Part of it lies in workarounds—that is, dealing di- rectly with sensible people like H.R. McMaster, America’s national security adviser. And part lies in opportunism. The rela- tionship’s friends need to seize on whatever shows it in a good light, in order to counteract the damage that is being done. But the most important answer lies in realism. One problem forthe special relationship is that people expect too much from it. Tony Blair was only the most recent prime min- HE opening ofthe new American embassy should have been isterwho persuaded himselfthathe could actasGreece to Ameri- Tthe highlight of London’s diplomatic season. The American ca’s Rome. He ended up acting not as a Platonic guardian but as a president himself had been lined up to cut the ribbon on the bil- rather tawdry cheerleader. Right-wing Tories such as Liam Fox, lion-dollar building. The media had been primed to produce arti- the secretary for international trade, want to use America as a cles about the embassy’s clever features (a reflective pool that counterbalance to Euro-socialism and to use a trade deal with doubles as a defensive moat!) and eye-catching design. But then America as a building blockforthe “Anglosphere”. But American Donald Trump pulled out of the ceremony on the grounds that trade negotiators are some of the toughest in the business. And the new embassy was in an “offlocation”, and, prompted by Em- the United States is a global power with an increasingly diverse manuel Macron’s offer to lend Britain the Bayeux tapestry, the population. America means a lot more to Britain than Britain media shifted its attention to the wonders ofthe entente cordiale. means to America. It is tempting to see the embassy fiasco as a metaphor for the state of Anglo-American relations. The special relationship is The specialest ever, I guarantee it more important now than it has been since the fall of the Berlin But it is also dangerous to expect too little. Since the Iraq debacle, Wall. The obvious reason forthis is Brexit: there would be no bet- it has been fashionable to argue that the special relationship is a ter way to get Britain’s post-European future off to a good start dangerous illusion sustained by Britain’s nostalgic desire to than to strike a trade deal with the world’s biggest economy. punch above its weight and America’s liking for yes-men. This is There isalso a subtlerreason. Britain and America are both liberal mistaken. The Anglo-American relationship is special because it champions that have been shaken by populism. Strengthening is both deeper and broader than almost any other bilateral one. their ties, which were forged in wars against Nazism and then Deeper because America has borrowed so much from Britain, communism, is a good way of reminding both countries of their from common law, to joint-stock companies, to a version of the common liberal heritage. English language. Broader because the countries have intimate But at the same time the special relationship has never been relations on every front, from economic, to cultural, to military. more imperilled. It was shaken by the Iraq war, which associated The intelligence relationship is particularly close, with the two the relationship notwith national liberation butwith lies, incom- countries sharingsensitive information and co-operating on new petence and strategic disaster. Now it is being rattled again by the threats such as cyber-terrorism. The flap over Mr Trump’s no- accidental axis ofDonald Trump and Jeremy Corbyn. show is actually proof of the closeness of the relationship. The Ever since Theresa May barged her way to the front of the president is upset about the delays to his visit because he is fixat- queue offoreign leaders waitingto pay court to the newly elected ed on a theme-parkviewofBritain asa land ofroyal pageants and president, holding his hand and promising a state visit with all golfclubs. The British public are adamant that he shouldn’t come the trimmings, Mr Trump has been nothing but trouble. He has because they see American politics as an extension oftheir own. promised to provide the prime minister with her all-important The proper way to deal with the special relationship is not to trade deal, but has done nothing to turn hot air into boring old romanticise or rubbish it, but to re-galvanise it. It has been repeat- policy. He has thrown a succession of verbal hand-grenades that edly reinvented as communism, and then terrorism, took over have forced Mrs May to put the state visit on the back burner, ret- from Nazism as the main threat to the world order. It needs to be weeting inflammatory videos endorsed by the far-right Britain updated once again. The British and Americans must recognise First and insulting everybody who lives south of the River that they share common histories and ideals that are far too deep Thames, which includes the author of this column. The special to be dislodged by a pair of popinjays. And they must realise that relationship makes sense only if it is undergirded by shared val- they have a common duty to cherish those ideas for a world in ues. Yet Mr Trump has made such a habit of trashing liberal val- which authoritarian populists are on the march. 7 International The Economist January 20th 2018 51

Ending civil war Wolo, manyworkerratically, in low-skilled jobs. Othersdo notworkatall. Groups con- When the shooting stops gregate to take drugs on the fringes of towns and Monrovia’s slums. William Teage, the chairman ofCongo Community on the outskirts of Ganta, where Mr Wolo lives, says its biggest problem is drugs. He BOGOTÁ, GANTA AND KILINOCHCHI estimates that a tenth of the 2,000 resi- dents are ex-combatants. “I have a very Countries emerging from conflict have to strike grubby deals ifpeace is to hold negative view concerning [the DDR pro- S A child soldier in Sierra Leone in the ered more than one year) came to $1.6bn. cess],” he says. “Itwasmeantto rehabilitate A1990s, Eric Wolo smoked a brown But the execution is fraught with diffi- people. But it did not go on that well.” powder that made him dizzy during the culty. Combatants can be hard to identify. A country that has just ended a civil day, and took cocaine that kept him awake They may be rejected by their families and war has a 40% chance of falling back into at night when he had to keep watch. When formerneighbours. Theirphysical and psy- conflict soon afterwards, says Paul Collier he returned to hishome country, Liberia, in chological scars may leave them in need of of Oxford University. The risk falls by 1999, asa rebel fighterin itssecond civil war long-term support. If militias are kept to- about a percentage point for each year of in ten years, he took up “Italian white”, a gether, with former commanders oversee- peace. Finding ways to lower that risk be- low-grade heroin. Fouryears laterhe hand- ing who takes part and handing out funds, came even more urgent with the upsurge ed in his AK-47 for$150 and training in how groups can more easily remobilise. But if in internal conflicts that followed the end to grow rice and vegetables. But he never groups are disbanded, and participation is of the cold war. When the Soviets and became a farmer. When asked, he starts by individual, they may splinter into gangs of Americans stopped funding client states, saying he gave all $150 to his girlfriend to drug-traffickers or mercenaries. many belligerents sought other revenue start a business. Then he admits he bought streams, for example smuggling diamonds drugs with the money. He now ekes out a Swords into ploughshares out of west African war-zones, says Sebas- living finding passengers for cars going That Liberia is at peace and able to hold a tian von Einsiedel of the University of the from Ganta, on Liberia’s borderwith Guin- credible election for president is impres- UN in Tokyo. Such groups were more likely ea, to the capital, Monrovia. sive. George Weah, a former footballer, to splinter, because subgroups could fund Since the late 1980s there have been takes office on January 22nd in its first themselves. The rise of jihadist groups has more than 60 “disarmament, demobilisa- democratic transition since 1944. Almost further complicated matters. Their ideo- tion and reintegration” (DDR) programmes 250,000 people were killed in its two civil logical motivations mean they are harder like Liberia’s, aimed at stopping civil wars wars. A DDR scheme after the first failed, to negotiate with, and less likely to disarm reigniting, in dozens of countries. The idea but one after the second has helped keep in return forcash or in-kind benefits. is simple. Part fighters from their weapons. the peace. A UN peacekeeping force with a But even as DDR has got harder, no less Discharge them from their militias. Help large Nigerian contingentdisarmed former is being asked of it. Some successes, and a them into civilian life with money and combatants and put their weapons be- lack of alternatives, meant it came to be training—or, in the case ofchildren, school. yond use. Liberians still appreciate the role used in circumstances where it was almost Aid donors have usually been willing DDR played. But their gratitude is fading, as bound to fail. The UN attempted a DDR to help payforthe schemes, often as partof its limitations become clear. scheme in Haiti in 2004 to disarm drug- a peace deal overseen by the UN. In 2008, Many ex-fighters are far from being up- traffickers rather than fighters; almost no the most recent year for which there are standing members of society. Plenty were weapons were handed in. In 2015, 1,775 comprehensive data, 15 DDR programmes unwilling, or perhaps unable, to return to child soldiers in South Sudan were demo- were under way. Their budgets (which cov- communities they left as children. Like Mr bilised, but after it spiralled back into civil 1 52 International The Economist January 20th 2018

2 war the following year, many rearmed. leaders. But the evidence suggests that, two-year government stipend of$5,400. Modern DDR programmes were de- when they are, the peace is more likely to In Sri Lanka, the biggest problem has signed in the 1980s and early 1990s for the hold. Conflict breaks out again in just 21% been that the government did not really aftermath of independence wars in south- of cases where peace deals contain provi- care much about reintegration. In 2009 its ern Africa and civil conflicts in Central sions for participation in elections, com- army defeated the Liberation Tigers of America. The belligerent groups were rela- pared with 56% where there are none, ac- Tamil Eelam (LTTE; also known as the Tam- tively disciplined and hierarchical. More cording to Aila Matanock of the University il Tigers). It was the brutal culmination of recentschemeshave often had to deal with ofBerkeley, California. 26 years of civil war. The Tigers were loosely structured outfits. That compli- One reason is that politicking may en- trapped in designated no-fire zones, where cates the most basic task: deciding who able mid-level commanders to find an in- they were bombed with the civilians they should be allowed to take part. fluential role. Individual DDR programmes had taken as human shields. The 11,000 Ifa weapon must be handed in, fighters often lump them in with the rank and file. surviving fighters, and another 1,000 or so who do not have their own will be exclud- (The top brass will have ensured special who had surrendered, were forced into re- ed. Ask only for small arms or some am- treatment for themselves.) In Liberia An- habilitation, beginning in 2010. munition, and chancers will try their luck. ders Themner of the Nordic Africa Insti- But the programme mainly consisted of Sometimes, leaders are called upon to tute, a think-tank based in Uppsala, Swe- a year of internment and indoctrination. identify their underlings. This does not den, met two ex-commanders with similar Still constantly monitored, the former necessarily help. “Nearly every command- backgrounds, both of whom had the fighters are isolated from their communi- er I’ve come across had an interest in mak- chance to mobilise their former fighters as ties and struggle to find work, since poten- ing the number bigger,” says Paul Jackson mercenaries in Ivory Coast in 2011. Only tial employers fear attracting attention ofBirmingham University. one did so. The other saw no need, having from the authorities. Though the army Only 150 rounds of small-arms ammu- become a political power-broker. claims it provided training and psycholog- nition were needed to take part in Liberia’s The FARC has set up a co-operative to ical help, formerTigers say that these most- second DDR programme. The UN had ex- handle the 8m pesos ($2,900) available to ly focused on attempts to end their devo- pected to demobilise 38,000 fighters. In the each member as startup capital. But its tion to the LTTE. “We were not treated like end the number was more than 100,000— leaders complain they need land to start normal human beings,” says one, who fourtimesasmanyasthe numberofweap- suitable projects, for example ecotourism lives in Kilinochchi, a formerstronghold of ons handed in. Men were bussed in from ventures, even as the government is confis- the Tigers in the north of Sri Lanka. “They Sierra Leone. Children who had not fought cating land that FARC leaders held illegally. tried to make us regret having been with were signed up, with commanders taking The impasse, and frustration with the slow the LTTE. But they couldn’t do it.” a cut ofthe $300 payout. Apolice ammuni- pace of reintegration, mean many former The training was often pointless or in- tion store in Freetown, Sierra Leone’s capi- guerrillas are leaving the transition camps. appropriate. “Someone [who] used to farm tal, was raided for ammunition to hand in According to some estimates only half of ten or 11 acres, they teach to make handi- in Liberia, says Desmond Molloy, who the former combatants once living in the crafts with coconut shells,” says Vettichelli, worked on Sierra Leone’s DDR scheme. Ri- camps in Antioquia province remain. who spent 18 years in the Tamil Tigers. She ots broke out when at least 12,000 people Many have moved to areas with avail- is now studying to become a counsellor demanding payment turned up at a centre able land to farm. Others have returned to and is scathing about the gender stereo- outside Monrovia. The programme had to their families. They may not be a problem: types in the Sri Lankan army’s vocational be suspended for four months and money research elsewhere shows that former programmes. “For a woman who has the flown in from a UN mission in Freetown. fighters who maintain links with their courage and stamina to keep a gun on her Though DDR is more likely to succeed if communities find it easier to reintegrate. shoulders and shoot enemies, they try to the fightinghas already stopped, in Colom- But around 1,000 have either refused to teach her beauty culture and make-up.” bia it was used with some success as a mil- disarm or abandoned DDR to join gangs, Many ex-fighters clearly require long- itary tactic. Alvaro Uribe, the president some of which reportedly offer triple the term support. But DDR schemes can rarely from 2002 to 2010, made a big push against give it. They are generally run by ex-mili- the FARC, a left-wing guerrilla army that tary types, not specialists in economic de- had been fighting state forces since 1964. velopment or counselling. And a long-run- His government encouraged deserters, re- ning programme risks turning into a alising they could provide valuable intelli- protection racket. In 2009 the Nigerian gov- gence. Captured fighters could choose be- ernment offered militants sabotaging oil tween prison and DDR. But the continuing production in the Niger Delta a monthly fightingcomplicated matters. Some former stipend of 60,000 naira (about $400 at the guerrillas returned to the FARC after failing time) to disarm. But when payments were to find jobs at the end oftheir programme. slashed in 2016 they returned to blowing A weakened FARC negotiated a peace up pipelines and other infrastructure. The deal, which took effect in December 2016. cut was reversed and attacks subsided. Last August FARC leaders stood with the president, Juan Manuel Santos, and UN Bribery or death representatives, underthe scorchingsun of At the heart of any DDR programme is a the arid north-eastern province of La Gua- bargain: disarm, cause no more trouble— jira, watching the last oftheirarsenal being and you will benefit. Sometimes combat- carted away. Under the terms of the agree- ants will pocket the cash and hold them- ment, the FARC was allowed to organise selves ready to remobilise at a moment’s the reintegration of its fighters collectively. notice. Those who do stand down may be Thathashelped ittransform into a political unfit to aid in their country’s reconstruc- party: it is putting forward candidates for tion. Civilians may resent the fighters at elections this year. whose hands they suffered being paid off. Many ordinary citizens resent seeing But even a very grubby deal is worth strik- former fighters transformed into political Surplus to requirements ing ifit helps secure lasting peace. 7 Business The Economist January 20th 2018 53

Also in this section 54 The Chinese cloud 55 SoftBank’s vision 55 European football rights 56 General Electric keeps fizzling 57 Bamboo in China 58 Schumpeter: Mad men

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

Computing geography (1) quire data to stay within their borders or even within the walls of a company. Firms Life on the edge wantto use data but, worryingaboutleaks, often prefer to keep their own information inhouse. Consumers, for their part, care about privacy, which Bragi hopes to ad- dress with its self-sufficient earplugs. The dominant narrative in the tech in- Computing is emerging from centralised clouds and moving to the “edge” oflocal dustry—that most data are best crunched networks and devices centrally in the cloud—is also undermined ONNECTED devices now regularly cial computing has oscillated between be- by the fact that many new applications C double as digital hoovers: equipped ing more centralised and more distributed. have to act fast. According to some esti- with a clutch of sensors, they suck in all Until the 1970s it was confined to main- mates, self-driving cars generate as much kinds of information and send it to their frames. When smaller machines emerged as 25 gigabytes per hour, nearly 30 times maker foranalysis. Not so the wireless ear- in the 1980s and 1990s, it became more more than a high-definition video stream. buds developed by Bragi, a startup from spread out: applications were accessed by Before so many data are uploaded, and Munich. They keep most of what they col- personal computers, but lived in driving instructions sent back, the vehicle lect, such as the wearers’ vital signs, and souped-up PCs in corporate data centres may well already have hit that pedestrian crunch the data locally. “The devices are (something called a “client-server” sys- suddenly crossing the street. getting smarter as they are used,” says Ni- tem). With the rise of the cloud in the Changing economics are another con- kolaj Hviid, its chiefexecutive. 2000s, things became more centralised sideration. The faster adjustments can be Bragi’s earplugs are at the forefront of a again. Each era saw a new group of firms made—for instance, to optimise the opera- bigshiftin the tech industry. In recent years rise to the top, with one leading the pack: tions of a machine in a factory—the bigger ever more computing has been pushed IBM in mainframes, Microsoft in personal revenue gains tend to be. That means data into the “cloud”, meaning networks of big computers and AWS in cloud computing. are often best analysed as they are cap- data centres. But the pendulum has al- Better technology is one reason why tured, which needs to be done locally. The ready started to swing: computing is mov- computing is again becoming more distri- costs of transferring, storing and process- ing back to the “edge” of local networks buted. Devices at the edge, from smart- ing data in the cloud can be avoided too. and intelligent devices. phones to machinery on the shop floor, are As with the rise ofthe cloud in the early becoming more intelligent. Equipped with Car-boot brains 2010s, the shift will cause upheaval. Many powerful processors, they can now tackle These constraints explain why services us- startups will try to ride the trend, as will in- computing problems that a few years ago ing artificial intelligence (AI) are increas- cumbents such as hardware makers. But needed a fully loaded server. As for soft- ingly split in two, much like client-server the real fight will be over who colonises ware, its increased flexibility means it can applications, explains Pierre Ferragu of the edge and, in particular, which firms function well on the edge. Many applica- Bernstein Research. The algorithms of au- will control the “internet of things” (IoT), tions are now “virtualised”, meaning they tonomous cars, for instance, are first as connected devices are collectively exist separately from any specific type of trained in the cloud with millions of miles called. Will Amazon Web Services (AWS), hardware: code can thus be packaged in of recorded driving data; only then are Microsoft and other large cloud providers digital “containers” and easily moved they deployed on powerful computers in manage to extend their reach? Or will the around within data centres—and, increas- the boot, where they steer the car by inter- edge be the remit of a different set of firms, ingly, closer to the edge. preting live data. Similarly, many video including makers of factory equipment Demand for computing at the edge is cameras used for surveillance now ship and other sorts ofgear? growing, too, often for non-technical rea- with face-recognition software trained in Since emerging in the 1950s, commer- sons. Many countries have laws that re- the cloud, as does Apple’s latest iPhone 1 54 Business The Economist January 20th 2018

2 model. In November, Google announced data, but also thousands of“points ofpres- as open-source software made it easier for an addition to TensorFlow, its AI technol- ence” foredge computing. them to get going. “That brought us to the ogy, which allows developers to deploy al- Whoever prevails, computing will be- same starting-line,” says Xilun Chen, the gorithms to mobile devices. come an increasingly movable feast, bits of chief executive of EasyStack, which builds But in many cases even the training of which can be found in even the smallest clouds formany Chinese firms. algorithms must happen locally for AI ap- devices. Processing will occur wherever it What varies is how the technology is plications to make commercial sense, ar- is best placed for any given application. used—a result of the respective roots of gues Simon Crosby, chief technology offi- Data experts have already started using an- cloud computing. In the West the first cus- cer of Swim, a startup. For instance, other term: “fog computing”. But the meta- tomers were startups and only later, bigger sending the four terabytes of data generat- phor is a bit, well, foggy. Better, and more firms. In China the cloud grew out of con- ed daily by traffic lights at intersections in poetic, would be “air computing”: it is sumer services, including Taobao, Ali- Palo Alto, in Silicon Valley, to a cloud pro- everywhere and gives things life. 7 baba’s e-commerce marketplace, and the vider for processing would cost thousands online games offered by Tencent, the sec- of dollars a month. Swim has built a sys- ond-biggest online firm. As a result, many tem that does the equivalent job for few Computing geography (2) cloud services are not yet ready for com- hundred dollars by learning from the data plex, mainstream corporate applications, on the fly as they are generated. Great cloud of says Evan Zeng ofGartner, a research firm. Although a shift to the edge is now gen- As these services develop, however, erally acknowledged to be under way, China there is huge potential. In the West almost opinions are divided over how it will all firms have long had sophisticated in- change the technology industry. Nobody SHANGHAI house information-technology systems, expects the “end of cloud computing”, to which many are hesitant to abandon. In Chinese tech companies plan to steal quote the provocative title of a podcast by contrast, the IT ofmostChinese companies American cloud giants’ thunder Peter Levine of Andreessen Horowitz, a is underdeveloped. “They can jump di- leading Silicon Valley venture-capital firm. HICH of the world’s tech giants rectly to the cloud,” says Ji Xinhua, the He himselfpredictsthat centralised clouds, Wboasts the fastest-growing comput- founder and chief executive of UCloud, a in particular those ofAmazon, Google and ing cloud? Many would guess either Ama- smaller but fast-growing cloud provider. Microsoft, will continue to grow. zon or Google, which operate the world’s Another divergence stems from regula- But smaller and more local data centres largest networks of data centres, but the tion. Whereas in the West organisations are springing up everywhere. Firms such correct answer is Alibaba. In 2016 the such asgovernmentagenciesand financial as EdgeConneX and vXchnge have built cloud-computing business of the Chinese firms often share data centres with other networks of urban data centres. Vapor IO, e-commerce behemoth grew by 126%, to customers, in China there are separate “in- a startup, has developed a data centre in a $675m. Growth is unlikely to slow soon. Si- dustry clouds”. Banks, for instance, are en- box that looks like a round fridge and can mon Hu, president of Alibaba Cloud, couraged to sign up for services provided be quickly put in any basement. Makers of wants it to “match or surpass” Amazon by outfits such as CIB FinTech, a spin-off telecoms equipment, including Ericsson Web Services (AWS) by 2019. from China’s Industrial Bank, because it re- and Nokia, as well as network operators, That is a stretch: AWS is estimated to flects the latest regulations and makes talk a lot about “mobile edge computing”, have generated revenues of about $17bn in things “more convenient” for regulators, in which amounts to putting computers next 2017. But Alibaba’s cloud (known locally as the words ofits boss, Chong Chen. to wireless base stations or in central Aliyun) is one of a thriving group: China’s And whereas AWS, Microsoft and Goo- switching offices. Some also speculate that cloud-computing industry as a whole is gle already rule the Western roost, the one reason why Amazon last year bought growingrapidly. Even more intriguing than eventual cloud leaders in China are as yet Whole Foods, a chain of grocery shops, for its speedy expansion is the fact that Chi- unknown. Alibaba, China Telecom and nearly $14bn, was to accumulate property na’s cloud is different to that of Western Tencent are ahead (see chart on next page), forlocal data centres. firms in important ways. but that could change, says Mr Zeng. Hua- Computer makers see the shift as a The technology that China’s cloud- wei, a maker of telecoms gear, has ambi- chance to regain lost territory. Dell EMC computing providers use is not so dissimi- tious plans. Smaller players, such as and HP both want to sell more gearto firms lar. Indeed, the fact that Western tech firms UCloud, may catch up. keen to crunch data locally. But they are have released much of the necessary code Whichever firm ends up leading, Chi- limited in how far they can move to the nese and Western cloud providers are edge, says George Gilbert of Wikibon, a bound to run into each other—though not consultancy. These firms know how to sell so much in their home countries as in such commodity hardware to IT departments, places as Europe and India. AWS and its but most IoT gear will be more custo- main rivals have been busy building data mised, requires special software and is centres abroad for some time, including in sold to people managing machinery. Cis- China. But Alibaba and Tencent are catch- co, which sells all kinds of internet equip- ing up. Alibaba, for example, operates a ment, seems well placed. dozen computing plants abroad and will Big cloud-computing providers are also open anotherone thismonth in India, near trying to colonise the periphery. In May Mumbai. “We have taken on Amazon on Microsoft changed its slogan from “mobile all fronts,” says Alibaba’s Mr Hu. first, cloud first” to “intelligent cloud and On the face ofit, Western clouds should intelligent edge”. It sells services that dis- be able to stay ahead. They are still far big- patch software containers with AI algo- ger and have a technological edge, for in- rithms to any device. AWS’s portfolio now stance in specialised chips to crunch reams includes a service called Greengrass, of data for artificial-intelligence services. which turns clusters of IoT devices into The reluctance to use Chinese technology mini-clouds. In buying the Weather Com- is growing, and not just in America. But the pany for$2bn in 2015, IBM wanted weather Chinese competitors have some advan-1 The Economist January 20th 2018 Business 55

most highly leveraged companies, with Television sports rights Sinostratus debt exceeding ¥15trn ($139bn), not least China, cloud services market share, % because ofits purchase in 2013 ofa control- Keepy uppy 2017 2018-20 forecast ling stake in Sprint, an American mobile- 010203040 networkoperator. Alibaba Cloud News reports this week suggest Soft- Bank is now hatching a plan to raise ¥2trn China Telecom by floating 30% of its Japanese telecoms A weakEuropean market forfootball business, SoftBank Corporation, on the Tencent Cloud rights suggests a lowervalue forsport Sinnet/Amazon stockmarket later this year. (The company Web Services says that listing is one of the options it is OR years the cost of rights to broadcast Huawei considering but no decision has yet been Fmajor sports in America and Europe made.) If the IPO went ahead, it would be hastrended in one direction—up. This grav- 21 Vianet/ Microsoft Azure nil Japan’s largest since SoftBank’s rival, NTT ity-defying law shapes the economics of Wanda/IBM DoCoMo, went public 20 years ago. modern sport: as television operators bid With 39m subscribers, SoftBankCorpo- ever more substantial sums, teams take in Sources: Alphawise; Morgan Stanley Research ration is the third-largest provider in Japan, more revenue and star-player salaries (and catering to a quarter ofthe market. It is past transfer fees) climb higher. In 2017 that tra- 2 tages of their own. They can rely on a huge the phase of straightforward growth. jectory continued as broadcasters splurged home market in which foreign rivals are Prices came under government scrutiny in on rights for Champions League football unlikely to make much headway, notleast 2015, squeezing profits across the industry. matches for 2018-21. because of regulation. Laws force foreign SoftBank’s subscriber numbers have been This year gravity is reasserting itself. cloud firms to have a Chinese-owned flat; a new competitor, in the form of an e- Top-flight football rights are out for tender partner to operate local data centres. This commerce company, Rakuten, will further in two major European leagues—England adds complexity and puts them at a disad- threaten market share. But the business and Italy—and are expected to be putup for vantage. What is more, many subsidiaries still accounts for over two-thirds of the sale this year in France and Spain, too. An- ofChinese firms in othercountries are like- group’s operating profits. alysts expect relatively small increases in ly to opt fora Chinese cloud. Investors appeared to approve of the pay-outs (though Spain’s La Liga boss pre- And then there is geopolitics. Alibaba, idea of a float, with SoftBank’s share price dicts a 30% rise)—and possibly a decline in in particular, will make a special effort, be- rising by 6% on the announcement. The Italy. “The happydaysare over,” saysClaire cause it sees its cloud as part ofChina’s Belt IPO offers a way to raise capital without Enders ofEnders Analysis, a research firm. and Road Initiative, President Xi Jinping’s further straining the firm’s balance-sheet. The chief problem is fundamental ambitious infrastructure plan to connect But few expect that Mr Son will use the weakness at the bidding companies. In his country with other parts of Asia, Eu- money actually to pay down much debt; England, where bids for televising the Pre- rope and Africa. Mr Hu recently said that it some will probably go into topping up the mier League for three years (from 2019) are is this initiative which made him confident Vision Fund, which has yet to close and due at the end ofFebruary, competition be- that his firm will be able to surpass AWS. which has raised $93bn of a planned tween BT and Sky Plc nearly trebled rights Perhaps, one day, the plan will be renamed $100bn. Mr Son has said before that he costs this decade to £1.7bn annually (see “One Belt, One Road, One Cloud”. 7 would like to run such a fund once every chart on next page). But since the end of few years. The aim, Mr Son says, is to own 2016 both have seen declines in subscrib- bits of companies that will power the glo- ersto theirhigh-priced packages, according Japan’s SoftBank bal race to develop ever more capable arti- to analyst estimates, as customers opt for ficial intelligence. He has poured money cheaper internet-video services like Sky Funding a Vision into everything from driverless-vehicle Now, Netflix and Amazon Prime. In De- technologies and e-commerce platforms to cember BT and Sky announced a cross- agricultural technology. platform wholesaling agreement that will MrSon mayalso be hopingthatfloating further depress bidding competition. (In- TV 1 TOKYO the telecoms business shrinks the discount ternational rights sales will help boost on SoftBank’s shares. Its market capitalisa- Masayoshi Son considers floating his tion is less than the sum of its holdings— telecom firm’s most reliable business notably its 30% stake, worth $140bn, in Ali- T AN investor briefing in 2015, baba, a Chinese e-commerce giant. An IPO AMasayoshi Son, chief executive of could make valuing the group easier, but it SoftBank, flashed up a picture of a goose. will remain a complicated structure. There The company is like the bird of legend that is also a risk for minority investors in Soft- produces golden eggs, he explained. In his Bank Corporation, who could find them- quest to encourage more laying, Mr Son selves at odds with the majority-owner. has taken SoftBank well beyond its tele- Even if investors in SoftBank approve coms business. The firm also manages the ofthe idea, they will worry about whether world’s largest tech-investment fund, the the money will be well spent. With the Vi- $100bn Vision Fund, which has a slew of sion Fund, Mr Son is piling into a crowded wealthy backers, including Saudi Arabia’s tech market where valuations are frothy. Public Investment Fund and Apple. And glittery though the investments may Using both the firm and the fund, Mr seem, not everything he touches turns to Son has acquired stakes in tech companies gold. His reputation as a dealmakermainly at a frenetic pace, by one count opening his rests on his early bet, in 1999, on Alibaba. chequebook once every four days on aver- Mr Son wants to plump the goose; share- age in 2017. Such shopping sprees do not holders can be forgiven for carefully come cheap. SoftBank is one of Japan’s inspecting the nest. 7 Might Paul’s wages fall? 56 Business The Economist January 20th 2018

2 the league’s coffers somewhat). General Electric In France, Ligue 1 bosses had hoped for a significant bid from SFR, Altice’s French Regrets are not telecom business, to challenge market leader Canal+, owned by Vivendi, when enough they call for bids. The current contracts, worth €727m ($889m) annually, run to 2020. But Altice’s share price has lately Aftera huge loss on old reinsurance plunged and the firm is selling assets; an contracts, GE contemplates a break-up expensive football bid looks unlikely. In Italy, Mediaset Premium, one of two ECISIONS made long ago, and often incumbent broadcasters (along with Sky), Dlong since forgotten, can come back to declined to bid for renewal last year, forc- haunt. General Electric (GE), an American ing Serie A to regroup for a new round of industrial conglomerate, has discovered bidding, due by January 22nd. Mediaset, that to its chagrin. On January 16th the controlled by the Berlusconi family, has company said it would have to take a pledged to reduce football costs. Enders $9.5bn charge (before tax) on old reinsur- Analysis reckons it may go for a smaller ance contracts in its financial arm, GE Capi- package ofgames; Sky knows the market is tal—despite exiting the insurance business soft. The league may struggle to match its in the mid-2000s. The firm also said it current take of€990m per year. would have to setaside up to $15bn ofaddi- In each market the value proposition of tional reserves for GE Capital over seven sport is in question. Football has been an years. The conglomerate had already been important way to get consumers to sign up struggling, with its share price down by Flannery kitchen-sinks it for TV bundles, yet high rights fees have over 40% in the past year. News of the lat- dragged down earnings. Fans can get foot- est hit, which the company’s chief execu- One Pennsylvania insurer, Penn Treaty, ball highlights—ie, the goals—at no charge tive, John Flannery, called “deeply disap- was liquidated in 2017 after being left with on social media, or watch pirated streams. pointing”, sent its shares plunging by a just $500m in assets to cover a projected Might all that also portend trouble for further3% on January16th alone. $4.6bn in claims. the biggest sports media market, America? The issue at hand concerns reinsurance Opportunities for GE to offload legacy Disney’s sports channel, ESPN, haslostmil- contracts in GE Capital’s American life- risks were plentiful. Ever more firms have lions of subscribers in recent years due to and health-insurance portfolio. Jack become willing to acquire legacy insur- cord-cutting (people dropping pay-TV). Welch, an idolised former GE boss, had ance liabilities at the right price—not just Viewership of pricey cable channels is in massively expanded the firm’s financial large reinsurers like Swiss Re, but other in- structural decline, as people spend more arm in the 1980s and 1990s, including into vestors, too. The Hartford, a large Ameri- time on services like Netflix (or gawping at insurance. Mr Welch’s successor, Jeff Im- can insurer, in December sold its legacy life their phones). Live sport is still seen as a melt, who took over at the company in and annuity unit to a consortium of half a linchpin of pay-TV, a way to draw and 2001, bought and sold a huge number of dozen investors, providingitwith a full exit keep customers, as it has been in Europe. businesses during his tenure. Even before and a lump sum ofmoney upfront, though The appetite for sport in America is the 2007-08 financial crisis, which it still had to take an overall (one-off) loss. more diverse, which allows networks to prompted the firm massively to pare back At GE, the scale of the problem seems to build fuller schedules of fixtures, improv- GE Capital, it had already spun out much have only been recognised after Mr Flan- ing the appeal of pay-TV. The demand ofits insurance business into Genworth Fi- nery, who started in the top job in August, from viewers has been sufficient to sustain nancial, an American insurance company commissioned a review involving outside multiple bidders for rights, and to attract which listed in 2004 in the biggest initial experts in the autumn. interest from new players such as Amazon. public offering of that year, and sold the The reinsurance charges, then, are best The contracts are longer, helping networks rest of it to Swiss Re, a reinsurer, in a deal viewed as the most serious revelation yet build long-term businesses (the next big worth $6.8bn, in 2006. to emerge from Mr Flannery’s houseclean- rights renewal, for American professional Mr Immelt conceded at the time of the ing at GE. That process may be a prelude to football, is not until 2022). Still, Europe’s insurance sale that the business had al- more radical reforms than those Mr Flan- auctions suggest the economics of tele- ways been a “tough strategic fit” for GE be- nery announced last year. Then he pro- vised sport may slowly be recalibrated. 7 cause ofits low returns, volatility and need posed refocusing the firm around three for capital. But a numberofsubstantial life- core business areas—aviation, power and and health-reinsurance liabilities, notably health care—and a divestment of $20bn in Goal driven those related to long-term care insurance assets (out of total assets of $365bn), along English Premier League football (which pays for products such as nursing- with other tweaks such as changes to the Cost of broadcasting rights, £bn per season home care for the elderly), were left out of board of directors. Now he is veering to- Sky BT Setanta ESPN both the 2004 listingand the Swiss Re deal, wards more dramatic moves, raising the 2.0 although GE Capital did at least stop issu- possibility on an investor call this week of ing new contracts. full orpartial spin-offs“in any one of[GE’s] 1.5 That in the 12 years since then the firm units”. GE executives reportedly consider 1.0 appears to have done little about this resid- some form of break-up probable, though ual portfolio seems an odd omission. The that would not prevent a large sum of capi- 0.5 risk, after all, was well known. Other firms tal being tied up at GE Capital for the fore- had problems with policyholders living seeable future. Stockmarketanalystsare di- 0 1992- 97- 2001- 04- 07- 10- 13- 16- longer and incurring higher medical costs vided over whether such spin-offs would 97 01 04 07 10 13 16 19 than insurers had built into their initial as- add much to GE’s total valuation. Come Years covered sumptions; the long-term care market as a what may, paying close attention to exist- Source: Enders Analysis whole in America has run into trouble. ing assets and liabilities would help. 7 The Economist January 20th 2018 Business 57

Bamboo in China dee, a fashionable bamboo-flooring and homeware store in Hong Kong. Watching grass grow Taohuajiang, one of a handful of big companies in the industry, wants to get more high-tech. Based in Hunan province, Taohuajiang was listed in June 2016 on the NEEQ, a Chinese startup exchange. Its net HONG KONG profit, of 4.6m yuan ($700,000) in 2016, came mainlyfrom sellingbamboo flooring Innovative materials made from bamboo are helping a new industry to sprout and beams. Recently it patented a carboni- ANNING out from the sodden delta of tres of it. The International Bamboo and sation process, done through successive Fthe Yangtze, and southward to the Rattan Organisation, an intergovernmen- heatings, that ensures bamboo cannot cor- flanks of the Nanling mountains, over 6m tal body based in Beijing, says the renew- rode. Peng Jian of Taohuajiang is confident hectares of emerald bamboo groves—one- able, low-carbon alternative to plastics that the “magic grass” could end up replac- fifth of the world’s reserves—flourish in and timber is now “part of China’s envi- ing steel, timber and plastic (though as yet China. Giant pandas nibble the softest ronmental leadership bid”. Bamboo re- hisneweco-friendlymaterial istwo-and-a- shoots. Around 40bn pairs of disposable leases lots of oxygen into the air, swallow- half times the price of steel, too heavy to chopsticks are made from bamboo twigs ing four times as much carbon as some substitute for wood in furniture and can- annually in China, for use with everyday trees. Since 2012, Chinese companies can not be bent like plastic). meals. Steel scaffolding is still often offset their carbon emissions by buying Mr Peng’s bamboo composites have, shunned for bamboo on skyscrapers un- credits in bamboo plantations. however, been used in everything from der construction in even the ritziest parts At a forum last May on President Xi railway sleepers to manhole covers. BMW of Hong Kong. The history of the grass is Jinping’s “Belt and Road” initiative for bet- and Lexus, both carmakers, are among his colourful, too. Before paper, Chinese wrote ter infrastructure, a private company from traders’ clients, as they consider replacing on bamboo slips; they used bamboo tubes Zhejiang province was invited to display plastic and wood in car interiors. A Ger- for irrigation, and later stuffed them with bamboo strong enough to build storm- man marine-floorings firm wants to apply gunpowder to ignite muskets. drainage pipes and shock-resistant exteri- his bamboo composites to cruise decks. A Yet for all its importance and abun- ors for bullet-train carriages. The Chinese Canadian company in the space industry dance bamboo is “China’s forgotten state is giving generous subsidies to farm- is using them in its telescopes. plant”, says Martin Tam, an expert in Hong ers. The annual value of the bamboo in- Other bits of the bamboo industry face Kong. To demonstrate its potential, he dustry has grown 500-fold since 1981, to harder times. As scaffolding, it has been greets visitors with a can of bamboo juice, $32bn; in three years China plans to boost phased out in much of mainland China as proffers a bamboo business card, and ges- this to $48bn, and to have 10m employed. a potential safety and fire hazard. Hong tures to a bamboo armchair near his desk. Kong still lashes together about 5m bam- He says the plant should be “green gold”, Heats shoots and leaves boo poles a year at its construction sites. forit is one of the world’s swiftest growers, Technology is also changing things. Bam- They are three times quicker to erect than gaining up to 1m a day, and can be harvest- boo is finding its way into a range of new steel rods and cost a fraction of the price. ed in under ten years, half the time it takes plywoods and plastics. Bamboo powder, But the number of workmen trained on for the softest woods to mature. Its tensile produced during manufacturing, has bamboo is dwindling. At WLS Holdings, strength is greater than that of mild steel. It mainly been used to fuel factories. Now it among the oldest bamboo-scaffolding withstands compression twice as well as is being combined with resins to make firms on the island, losses have grown. The concrete, and needs next to no watering, new materials. Leftover plastics recycled firm’s problems go deeper than bamboo, pesticides or fertilisers. from air-conditioning and suitcase fac- but its fading fortunes capture something. But the hard work begins after it is cut. tories are mixed with bamboo powder to As one part of the industry wilts, another Though it thrives in steamy, rain-drenched make outdoor decking for the likes of Ver- looks about to shoot up. 7 areas, bamboo products require a lot of treatment to withstand sunshine and moisture, as they still contain sugar and water. A string of lacquers, resins, waxes, bleaches and preservatives are required to stave off termites and decay. As a result, manufacturing has remained labour-in- tensive, crude and small-scale, says Mr Tam. Factories nestle in bamboo groves. Margins are low. Toothpicks, matchsticks, incense sticks, mats and baskets are still among the plant’s most common off- shoots. Selling “poor man’s timber” to Chi- nese is hard. In Shengzhou, among the most prolific regions in Zhejiang province in eastern China, about 95% of bamboo handicrafts are exported. But the material’s prospects are improv- ing. One reason is environmental aware- ness. Chinese firms account for 90% of the international export market for laminated bamboo flooring, the appeal of which has grown as Western consumers go green. In 2016 factories churned out116m square me- A bamboo spider rides high 58 Business The Economist January 20th 2018 Schumpeter Mad men

Warning: counting on too many advertisements may be bad foryourhealth 1980 the average has been 1.3%, according to Jonathan Barnard of Zenith, a media agency, and in the past few years the advertising market relative to GDP has been shrinking. There are reasons why it might go on a tear, points out Rob Norman of GroupM, another media agency. In the old days ad- vertsin Time magazine oron billboardsin TimesSquare were big- ticket items that only giant firms could afford. But tech platforms have done a brilliant job of persuading smaller companies to spend money targeting customers. Facebook has 6m advertisers, equivalent to a fifth ofall American small firms. Adverts could become even more effective at identifying cus- tomers and enticing them to spend money, using troves of data that have been gathered to anticipate their needs. As commerce shifts online, firms will cut back on conventional marketing (for example, the feesthatconsumergoodsand food firmspay to Wal- mart to ensure products are displayed prominently on its shelves), freeing up budgets to spend more on digital ads. Yet there are two logical limits to the size of the advertising market. First, the irritation factor, or how much consumers can absorb without being put off. In the analogue era the rule of thumb was that ads could comprise no more than 33-50% ofTV or MAGINE a world in which you are manipulated by intelligent radio programming, or of a magazine’s pages, says Rishad Tobac- Iadvertisements from dusk until dawn. Your phone and TV cowala, of Publicis, an advertising firm. The digital world is al- screens flash constantly with commercials that know your de- ready showing signs ofsaturation. siresbefore youimagine them. Driverlesscarsbombard you with More people are using ad-blocking software. Tech brands that personalised ads once their doors lockand ifyou try to escape by eschew bombarding customers with ads, such as Apple and Net- putting on a virtual-reality headset, all you see are synthetic bill- flix, are wildly popular. The drive to lift user “engagement” on so- boards. Yourdigital assistant chirps away non-stop, systematical- cial-media platforms by showing sensational content, in turn ly distorting the information it gives you in order to direct you to- boosting the number of ads that can be sold, has prompted a wards products that advertisers have paid it to promote. backlash. On January 11th Facebook said it would show users Jaron Lanier, a Silicon Valley thinker who was an adviser on fewerposts from “businesses, brands and media”. Time spent on- “Minority Report”, a bleak sci-fi film, worries that this could be line by the typical American is growing at about 10% a year, less the future. He calls it a world ofubiquitous “digital spying”. Afew than the 15-20% ad-sales growth that many digital firms expect. platform firms, he fears, will control what consumers see and The second limit on the size of the advertising market is how hear and other companies will have to bid away their profits (by much cash all other firms, in aggregate, have at their disposal to buying ads) to gain access to them. Advertising will be a tax that spend on ads. In theory they could spend more and more until strangles the rest ofthe economy, like medieval levies on land. their overall returns on capital drop below the cost of capital, It may sound outlandish, but this dystopia is increasingly compromising their financial viability. Remarkably, expectations what stockmarket investors are banking on. The total market val- for ad revenues are now so bullish that they imply that this ue of a basket of a dozen American firms that depend on ad rev- boundary will indeed be tested. enue, or are devising their strategies around it, has risen by 126% to $2.1trn over the past five years. The part of America’s economy Commercial breaking-point that is ad-centric has become systemically important, with a mar- Imagine if advertising spending really did rise to 1.8% of GDP in ket value that is larger than the banking industry. America by 2027. Most firms’ costs would have to rise, cutting to- The biggest firms are Facebook and Alphabet (Google’s par- tal corporate profits (excluding those of ad platforms) from about ent), which rely on advertising for, respectively, 97% and 88% of 6.5% to 5.7% of GDP, the kind of drop normally associated with a their sales. But the chunky valuations of America’s giant TV recession. Alternatively, imagine ifthe firms in the S&P 500 index broadcasters imply that their ad revenues will fall very slowly, or (excluding ad platforms) bore all the additional cost of the adver- not at all. Startups that rely on advertising, such Snap, are floating tising boom. Their combined return on capital would drop from their shares at prices that suggest huge growth. Large deals, too, the present10% to 8%, at or just below their cost ofcapital. Ameri- are beingjustified by potential ad revenues. Microsoft’s$26bn ac- ca Inc would go from being the world’s greatest profit machine to quisition of LinkedIn in 2016 was partly premised on “monetis- flirting with Japanese-style financial-zombie status. ing” its user base through adverts. The main reason AT&T says it That does not seem realistic. More probably, hopes for a new wants to buy Time Warnerfor $109bn is to create a digital ad plat- age ofadvertising nirvana are too optimistic. Perhaps the ad sales form linking AT&T’s data to Time Warner’s TV content. of conventional media firms (which are about half of the total, The immense sums being bet on advertising raise a question: with TV dominating) will drop fast rather than merely stagnate. how much of it can America take? A back-of-the-envelope calcu- Or perhaps digital firms will struggle to increase ad sales at com- lation by Schumpeter suggests that stock prices currently imply pound annual rates of15-20% or a decade, as their valuations im- that American advertising revenues will rise from 1% of GDP to- ply. Expectations forboth groups are surely too high. In the adver- day, to as much as 1.8% of GDP by 2027—a massive jump. Since tising world, and on Wall Street, something does not ad up. 7 Finance and economics The Economist January 20th 2018 59

Also in this section 60 Buttonwood: Hedge funds 61 Downward digital currencies 62 The Big Mac index 62 A wobble at the World Bank 63 State venture-capital in France 64 Free exchange: Driverless cars and congestion

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

The oil price Itisstill surprisingtheyhave risen so far. Higher prices are often blamed in part on Crude thinking the messy politics of the Middle East. The usual worries are there but “there has been no impact on physical supply,” says Mar- tijn Rats of Morgan Stanley. Shale was also seen as the oil industry’s flexible response to price signals. Too high, and the wildcat- ters in Texas would drill for fresh supply. High oil prices are mostly a reflection ofa healthy global economy, not a threat to it But small producers are showing a new re- ERHAPSthe mostvexingthingforthose the growth of the shale-oil industry in straint, because theirfinanciers want great- Pwatching the oil industry is not the North America. It would also stymie Iran, er focus on profits and less on output. And whipsawing price of a barrel. It is the con- its bitter rival, which was back in the mar- it takes several months from drilling wells stant updating of theories to explain what ket following the lifting ofsanctions. foroil to come on-stream. lies behind it. In March 2014, when the Yet demand recovered quickly. China The financial marketsshowlittle sign of price ofa barrel ofBrent crude was in three pepped up its economy with faster credit anxiety about the oil-price surge. Stock- figures, the then boss of Chevron, an oil growth and other fillips to spending. Com- markets remain buoyant, which is itself giant, observed that the scarcity of cheap modity prices surged. Within months clear another puzzle. Since the oil shocks of the oil meant “$100 per barrel is becoming the signs of a broad-based global economic 1970s, markets have associated a sudden new $20”. Two years later, when the oil upswing were palpable. And OPEC proved run-up in oil prices with economic calami- price slumped below $28, the talk was of a betterable to curb production than anyone ty. The world is both producer and con- global oil glut caused by the furious efforts had imagined. A deal reached in Novem- sumer of oil, so in principle the overall ef- of the OPEC cartel to regain market share. ber 2016 to restrict output had little imme- fect of oil-price increases is neutral. But in Now that oil prices have tested $70, an- diate effect but by late last year started to practice, the net impact had been to reduce alysts are again scratching their heads. pay off. Oil stocks fell, notably in America global demand, because oil exporters in In “1984”, George Orwell coined the (see left-hand chart). Demand was out- the Middle East tended to save a big chunk term “doublethink”, the ability to believe stripping supply. Prices duly rose. of the windfall income they gained at the 1 two contradictory things. Oil analysis seems to require similarcognitive gymnas- tics. Three big questions arise. First, why Stocks and shares has the oil price more than doubled in the Crude oil space oftwo years, against all expectation? United States, stocks, barrels, bn External breakeven price, 2016, $ per barrel Second, why has this surge been met with 0 20406080100 1.25 cheers from global stockmarkets and not Kazakhstan concern for the world economy? Lastly, 1.20 Libya where might the oil price eventually settle? 1.15 Algeria Start with the journey to $70. The Oman 1.10 slump in prices two years ago was in part a Saudi Arabia response to weakdemand—with the fragil- 1.05 Qatar ity of China’s economy a big concern—and Kuwait in part to abundant supply. Few believed 1.00 then that OPEC would, or even could, cut 0.95 Iraq output. Saudi Arabia, the world’s largest UAE oil exporter, appeared to have every rea- 2009 11 13 15 18 Iran son notto. Plentiful oil supplywould check Sources: IMF; EIA 60 Finance and economics The Economist January 20th 2018

2 expense ofoil consumers in the West. dle East but in Africa, too. For all the other prices; the peak in oil demand in America Over time, however, the rich world has trouble-spots, investors seem to find the and eventually elsewhere. These forces become less reliant on oil. Demand in world economy a safer place. And they will have a bigsay in where oil prices even- America peaked in 2005, for instance. have otherreasonsto feel cheery. The shale tually settle. Meanwhile, oil exporters became ever industry means that dearer oil is a shot in How they will play out is the subject of more dependent on high oil prices to pay the arm for investment in America, which a new paper by Spencer Dale, chief econo- forlavish governmentbudgetsand import- adds to GDP growth. And a rising oil price mist of BP, another oil giant. The critical ed consumer goods. Most ofthe big oil pro- is taken as a sign of healthy growth in Chi- change in the oil market, he argues, is from ducers in the Middle East need an oil price na, the world’s biggest oil importer. perceived scarcity to abundance. When oil above $40 to cover their import bill (see Beneath the dramaticupsand downs in was considered scarce and expensive to right-hand chart on previous page). the oil price and its changing influence on find, itseemed wise to ration it. It wasmore In this new arrangement, dearer oil is the world economy are some big themes: like an asset than a consumer good: oil in both far less damaging to rich-world con- the rise of the shale-oil industry and how the ground was like money in the bank. sumers and soothes the strained finances OPEC responds; the dependence of the big But new sources of supply, such as shale of the big oil exporters, not just in the Mid- oil exporters in the Middle East on high oil oil, and improved recovery rates of exist-1 Buttonwood The hedge-fund delusion

Hedge funds do not offerthe answerto pension-scheme deficits EDGE-FUND managers may be feel- Another justification for placing mon- Hing quietly smug about their perfor- Pruned hedges ey with hedge funds is that they are less mance in 2017. They returned 6.5% on av- Annual returns, % likelyto lose lotsofmoneyin a downturn. erage, according to Hedge Fund Research, Hedge funds, asset-weighted That argument was somewhat dented in a data provider, theirbest year since 2013. 60/40 equity/bond split* 2008, when the average hedge fund lost But those returns do not really suggest 20 19%. In any case, pension funds and en- that they are masters of the investing uni- 15 dowments are investingforthe long term; verse. The S&P 500 index, America’smain they ought not to be that bothered by equity benchmark, returned 21.8%, in- 10 short-term volatility. cluding dividends, last year. More telling- 5 The Centre for Retirement Research ly, a portfolio split 60-40 between the S&P + conducted a study* of the effect of invest- 500 and a mixture of government and 0 ing in alternative-asset categories on state – corporate bonds (an oft-used benchmark 5 and local-government pension-plan re- for institutional portfolios) would have 2013 14 15 16 17 turns in the 2005-15 period. It found that returned 14.8%. Last year was the fifth in a Source: Hedge *S&P 500 plus Barclays schemes that placed an extra 10% of their row when hedge funds underperformed Fund Research Government/Corporate-bond index portfolio in private equity and property the 60/40 split (see chart). had marginally increased the return on That ought to be a salutary lesson for The first two offera genuine alternative. theirportfolios(byaround a sixth ofa per- those institutions who think that backing Property generates a stream of rental in- centage point). But investing in commod- hedge fundsisthe answerto theirprayers. come and the hope that capital values will ities or hedge funds had reduced returns, Despite the highs recorded by stockmark- keep pace with inflation. Private equity is, with the latter knocking half a percentage ets, many employers are struggling to in part, a bet that unquoted firms can gen- point offthe total. fund their final-salary pension promises. erate higher returns than listed ones be- Some investors have seen the light. In 2016 the average American public-sec- cause they have more freedom to invest for CalPERS, a public-pension fund in Cali- tor plan was just 68%-funded, according the long term. fornia, announced that it was pulling out to the Centre for Retirement Research at But what about hedge funds? A lot of of hedge funds in 2014. But Preqin, an in- Boston College. In the private sector, funds specialise in equities or corporate formation provider, estimated last year multi-employer pension plans, covering bonds—the same assets that institutions that pension funds accounted for 42% of workers in industries like mining and own already. In some other categories, all money flowing into the global hedge- transport, have liabilities of $67.3bn and such as macro funds or merger arbitrage, fund industry. North America provided assets of just $2.2bn. Worse still, the insur- returnsare entirelydependenton the man- the bulk of the money, with 776 pension ance scheme established to back those ager’s skill. Recent years do not suggest that schemes investing from that region alone. schemes is on course to run out ofmoney hedge-fund managers display enough Who knows what those schemes are by 2025, according to the Pension Benefit skill, on average, to offset their high fees. trying to achieve? A few of them may be Guaranty Corporation. Clients may think they will be able to lucky enough to pick the best performers It is hard to cut workers’ benefits and pickthe best hedge-fund managers, not the in the industry. Butif they think, in aggre- painful to increase contributions. average ones. But one group of profession- gate, that their strategy will reduce their Schemes hope to square the circle by als—fund-of-fund managers—tries to do funding deficits, then they are suffering earning a high return from their assets; just that. They did manage to pip the aver- from a delusion. 7.5% is a common target. But bond yields age asset-weighted return of hedge funds are very low and equities are trading at in 2017, but failed to do so in any of the pre- ...... *“A First Look at Alternative Investments and Public very high valuations by historical stan- vious four years. If the experts cannot Pensions” by Jean-Pierre Aubry, Anqi Chen and Alicia dards. The temptation is to turn to “alter- manage to pick the winners, why should a Munnell, July 2017 native assets”—a category that includes pension fund or endowment be able to property, private equity and hedge funds. manage the feat? Economist.com/blogs/buttonwood The Economist January 20th 2018 Finance and economics 61

2 ing reserves, along with the emergence of plummet? Probably not, unless shale pro- currencies room to run. Its regulators mass-market electric vehicles, have ducers ramp up output again. The peak in know the dangers. One ofthe biggest scan- changed the reckoning. There is a fair global oil demand might be decades away, dals in bitcoin’s short history was the col- chance that much of the world’s recover- argues Mr Dale, and it will not tail off lapse of Mt. Gox, a Japan-based exchange, able oil will never be extracted, because it sharply. And for now, the big oil exporters in 2014. And officials have not minced their will not be needed. It thus makes sense for cannot sustain very low oil prices for long. words, with Haruhiko Kuroda, governor the five big producers in the Middle East Their “social cost” of production, taking in of the Bank of Japan, warning that the bit- (Saudi Arabia, UAE, Iran, Iraq and Kuwait), government spending reliant on oil rev- coin rally in late 2017 was “abnormal”. which can extract oil forless than $10 a bar- enue, is about $60 a barrel on average. Sus- But rather than throttle virtual curren- rel, to undercut high-cost producers and taining an oil price close to the cost of ex- cies and the innovations they might capture market share while the demand is traction will require reforms, which do not spawn, the government has let them de- there. The financial logic has changed to usually happen quickly. Translated into velop, within parameters. Last March it “better to have money in the bank than oil doublespeak: oil prices are too high; but passed the “virtual-currency act”, declar- in the ground,” notes Mr Dale. they may not fall, in large part because big ing that they are assets and can be used for Does that mean oil prices are poised to oil producers have got used to them. 7 payments. The financial-services author- ity has granted licences to 11 exchanges, to reduce the risk of fraud. Zennon Kapron, a Digital currencies Shanghai-based analyst of digital curren- cies, says that some of China’s leading The crypto sun sets in the East crypto-coders are now moving to Japan. South Korea was initially hands-off in its regulations. But alarm has mounted about the speculative fervour. So intense is the demand that South Koreans pay a SHANGHAI “kimchi premium” ofroughly 40% fortheir bitcoins (not easily arbitraged away be- The threat oftough regulation in Asia sends virtual currencies into a tailspin cause of capital controls). On January 11th T HAS been another week of vertiginous way crypto-currencies can evade govern- the justice minister said crypto-currency Iswings in the prices of bitcoin and other mentoversight, hastaken the harshest line. exchanges would be banned. Their devo- crypto-currencies. This time, the moves Last year it banned domestic exchanges; in tees responded with a petition urging le- have mostly been downwards, with some recent days it has taken aim at websites niency, which swiftly collected more than days seeing falls ofover 20%. Views on this flouting this ban. Officials have also called 200,000 signatures. were as divided as they were during the on local authorities to choke off the power Faced with this backlash, the govern- giddy climb: did it mark the definitive supply to bitcoin miners, computer net- mentappeared to soften itsstance, saying a bursting of a bubble as rapidly inflated as works that create new coins through mas- ban was just one idea. Other incoming any in history (see chart)? sively energy-intensive calculations. Chi- measures are less potent: investors will Asia provides both an explanation of na’s miners, still dominant in the global have to paytaxeson capital gainsand regis- thisweek’ssell-offand a glimpse ofcrypto- industry, are shifting to other countries. ter trading accounts under their real currencies’ future. The threat of a ban in The Chinese government admires the names. But just as crypto-markets had re- bitcoin-trading in South Korea was the technology that underpins virtual curren- covered their poise, South Korea’s finance proximate cause ofthe plunge. As to the fu- cies and wants to reap the benefits. It is minister said this week that the ban was ture, the question is which Asia? At one prodding its big financial firms to experi- still verymuch on the table, calling ita “live end of the spectrum is Japan, which has ment with blockchain, a system of distri- option”. The collapse resumed. embraced crypto-currencies. At the other buted ledgers popularised by bitcoin. But Virtual currencies have bounced back is China, which has all but banished them. officials believe they can do this without from past sell-offs, but this has been a big South Korea has been in the middle. having to tolerate the currencies them- one. At one point bitcoin was down about These countries have outsized roles in selves. As Pan Gongsheng, deputy gover- 50% from its highs in December. Believers the crypto universe. China’s exchanges nor of the central bank, quipped last year, in virtual currencies say that one of their hosted more than nine-tenths ofglobal bit- quoting a French economist: “The only selling points is freedom from government coin-trading until the government closed thing to do is to sit by the riverbank and meddling. In Asia, the cutting edge of the them last year. Japan now has the biggest wait for bitcoin’s corpse to float past.” crypto-world, it is governments that are share of virtual-currency markets. South Japan, by contrast, has given crypto- making—and breaking—their fortunes. 7 Korea makes up less than 2% ofglobal GDP but nearly a tenth of bitcoin-trading. North Asia has been fertile ground for Not forever blowing crypto-currencies for several reasons. Historical asset bubbles, multiple of starting price* on relevant exchange Partly it is the high-tech pedigree. A preva- 60 Bitcoin (2017) lence of smartphones, fast internet and 50 computer-science graduates makes people 40 receptive to the newfangled. The rigidity of Mississippi (1719) conventional finance has helped. Capital 30 controls boost the appeal ofcrypto-curren- 20 cies in China and South Korea, and in Ja- Dutch tulip bulbs† (1637) pan they are a beguiling alternative to low- South Sea (1720) 10 Dotcom (2000) yielding mainstream investments. A zest 0 for gambling has surely lured some to a 321 0 1 23 market that is driven by speculation. Years from (peak) Sources: “New Evidence on the First Financial Bubble”, Rik Frehen, William *Three years prior or earliest available price But the region’s regulators are going in † different directions. China, alarmed at the Goetzmann, Geert Rouwenhorst; “Famous First Bubbles”, Peter Garber; Thomson Reuters Post-peak data unavailable 62 Finance and economics The Economist January 20th 2018

The World Bank The Big Mac index The Mac strikes back Undoing business

The dollar’s decline is a small victory forburgernomics T IS usually considered quaint to predict The World Bankcasts doubt on one of foreign-exchange movements by refer- The Big Mac index I its most influential products ence to whether currencies are dear or Local currency under(-)/over(+) valuation cheap. Metrics such as The Economist’s against the dollar, % OWmany days does it take to correct a Big Mac price*, $ Big Mac index, a lighthearted guide to July 2017 January 2018 Hmisleading newspaper interview? exchange rates, hint at how farcurrency 60 40 20- 0+ 20 40 Four, in the case of Paul Romer, the World values are out ofwhack. But they are Switzerland 6.76 Bank’s chief economist. On January 12th a often driven furtherout ofkilter by capi- surprising article in the Wall Street Journal Norway 6.24 tal flows, by fear and greed, by the in- alleged that one of the bank’s signature re- terventions ofpolicymakers, and so on. Sweden 6.12 ports—on the ease of doing business Since our last lookat the index in July, United States† 5.28 around the world—may have been tainted cheap currencies have narrowed the Canada 5.26 by the political motivations of bank staff. valuation gap against the dollar—almost The story was based on an interview with Brazil 5.11 completely in case ofthe Canadian dol- Mr Romer, who pointed out that Chile’s lar (see chart). Fundamentals, such as fair Denmark 4.93 ranking in the yearly report had dropped value, seem (at last) to have greater sway Euro area‡ 4.84 sharply during the presidency of Michelle in the foreign-exchange market. Australia 4.71 Bachelet, a left-leaning politician who took The index is based on the idea of New Zealand 4.51 office for the second time in 2014. Chile purchasing-power parity, which says sank so heavily not because doing busi- exchange rates should move towards the Britain 4.41 ness had become harder, but because the level that would make the price ofa Czech Republic 3.81 bank had repeatedly changed its method basket ofgoods the same in different Japan 3.43 ofassessment. countries. Our basket contains only one China§ 3.17 That method mostly entails answering item, but it is found in around 120 coun- measurable questions, such as how many 2.97 tries: a Big Mac hamburger. Ifthe local Poland days does it take to start a business, register cost ofa Big Mac converted into dollars is Turkey 2.83 a property or file taxes. The answers deter- above $5.28, the average price in four South Africa 2.45 mine a country’s score (known as its “dis- American cities, a currency is dear; ifit is Russia 2.29 tance to the frontier”), and its score, relative below that yardstick, it is cheap. The *At market exchange rates (Jan17th 2018) to those of other countries, determines its average cost ofa Big Mac in the euro area †Average of four cities ‡Weighted average of global rankand bragging rights. (weighted by GDP) is €3.95, or$4.84 at the member countries §Average of five cities From 2014 to 2016, the bank made 12 big Sources: McDonald’s; The Economist current exchange rate. That implies the methodological changes, broadening euro is undervalued by 8.4% against the some indicatorsand addingothers. “Doing dollar, our benchmark. The last time we Brexit. But it might be harder forthe yen Business 2017” (published in late 2016) was, looked at burgernomics, it was almost to stay so cheap. The euro has shown that for example, the first in the series to ask 16% undervalued. The euro surged after the merest hint ofan end to easy mone- how easily companies can obtain a refund Mario Draghi, boss ofthe European tary policy can prompt a sharp rally. The or resolve an error after they have filed Central Bank, hinted at a conference in yen may have a similar “Sintra moment”, theirtaxes. In that report, Chile was ranked Sintra, Portugal, that the bank’s bond says Kit Juckes ofSociété Générale, a asthe 120th easiestplace to paytaxes, some purchases might soon be curtailed. It was bank. For those who feel they have 87 notches below its rank in the previous as ifthe foreign-exchange market sudden- missed out on the euro at bargain-base- year. No other country fell so dramatically. ly woke up to how cheap it was. ment prices, there are other ways to bet The data-gathering and analysis were Measured against a basket ofcur- on the burgeoning strength ofthe euro- overseen bya formerprofessorofeconom- rencies, the dollar still looks dear. Only in zone economy. Poland and the Czech ics at the University of Chile in Santiago, three countries (Switzerland, Norway Republic have strong links to the euro adding to the suspicion of skulduggery. and Sweden) do burgers cost more, based area and robust GDP growth. The Polish Supporters of Ms Bachelet, whose co- on current exchange rates. But that is not zloty is undervalued by 44% against the alition lost the recent presidential election, necessarily a sign that depreciation is dollar, and the Czech koruna by 28%. were apoplectic. Some even suggested that overdue in these countries. The cost ofa The caveat that applies to Switzerland, Chile’s slide in the rankings had hurt confi- burger depends partly on untradable Norway and Sweden applies in reverse dence, undermining investment and jeop- inputs, such as rent and wages, which are to emerging markets, where rents and ardising their political prospects. higher in the rich countries on the fringes wages are lower than in the rich world. In Four days later, Mr Romer clarified his ofthe euro zone. So the price ofa meal general, currency gauges based on pur- remarks on his blog, saying that he had not may not be a good guide to how compet- chasing-power parity workbest when seen any sign of political manipulation itive a country is in markets for tradable comparing countries with similar in- and had not meant to suggest he had. But goods. The Swiss and Norwegian cur- come. That said, many emerging-market that may not be the end of the matter. rencies lookdear, forinstance, but both currencies do lookcheap. The Russian Many people are predisposed to think the countries have big trade surpluses. rouble, forinstance, is still 57% underva- worst of the bank and its Doing Business Among rich countries, only Britain’s lued even after a big rally in the oil price. reports in particular. Because they rank and Japan’s currencies stand out as bar- South Africa’s rand is almost as cheap. countries against each other, they have gains. The pound is cheap fora reason— Eat hamburgers with Johannesburgers. been both unusually influential, spurring governments to cut red tape, and unusu-1 The Economist January 20th 2018 Finance and economics 63

Government venture capital in Europe and large companies. The government of Feeling the Chile? President Emmanuel Macron is to raise Chile, change in rank in the World Bank’s “Doing The worm’s turn €10bn from privatisations, such as of air- Business” reports*, by subtopic, places lost/gained ports in Paris. That will be deployed to fi- compared with previous report nance more startups and train 4,000 exist- 100 50– 0+ 50 ing firms in the better use ofdigital tools. Credit 2015 DOLE Bpifrance is also shifting how it invests Investors report in VC funds. As it tries to expand, it has The French state will funnel evermore Insolvency stakes in roughly half of France’s 200 or so venture capital to startups Construction funds. On average it invests in funds man- Electricity S A boy, Antoine Hubert used to catch aging €180m of capital, up from €80m in 2016 Property report Abutterflies. These days, the agro-engi- 2013. Mr Fournier says its role helps to ex- Trade neerhas eyes only formeal worms. In a de- plain why the VC industry is growing fast- Contracts monstration factory near Dole in eastern er in France than elsewhere in Europe; a France, he shows how trayfuls of plump, typical round of public financing of €10m Startups 2017 half-grown worms are fed, left to grow in a is enough, he suggests, for firms to get heft Property report darkened dormitory, and then—after two without crossing the Atlantic to tap deeper Tax months—slaughtered and cleaned with a capital markets. It remains tough, however, Contracts blast of steam. A machine divides the re- to raise bigger sums without going abroad. Sources: World Bank; *2015 report refers to “Doing sulting mush into oil and protein powder. Some argue it makes no sense fora gov- The Economist Business 2015”, published in 2014 Around 70% of a worm is protein, mak- ernment to place VC bets, directly or other- ingitideal foranimal feed. Demand is soar- wise. Mr Fournier says it happens every- 2 ally controversial. In some quarters, they ing, notably at fish and shrimp farms. Mr where. VC funds in Britain raise lots of are seen as scorecards for a deregulatory Hubert predicts aquaculture businesses public money from the EU, via the Euro- race to the bottom. Such critics may not ac- will need 70m tons of feed annually in ten pean Investment Fund. Post-Brexit, more cept Mr Romer’s apology at face value. years’ time, up from 40m now. The global of that could flow to France. Massimo Co- Other evidence may reassure them. market for animal feed, he reckons, is al- lombo, an academic who studies govern- First, the broadening of the tax indicators ready worth €500bn ($610bn). ment VC in Europe at the Polytechnic Uni- can be traced to an independent review of Ynsect, his firm, thus expects to grow versity of Milan, reckons government “Doing Business” published in 2013, before once it opens a new factory this year. He involvement can be beneficial, but admits Ms Bachelet’s election. Second, not all of dreams of annual output exceeding 1m that, when results are measured by jobs the methodological changes hurt Chile’s tonnes, hinting at a hunger for scale often created or productivity boosted, the priv- standing. After four of them, the country’s left unsatisfied in a French entrepreneur: ate sector is farbetter at deploying capital. sub-ranking improved (see chart). Third, local startups find it notoriously difficult to Studying 25,000 government VC in- Augusto Lopez-Claros, who oversaw the get beyond the pupa stage, partly because vestments in 28 countries, between 2000 report’s work from 2011-2017, is indeed a of a lack of capital. But Ynsect has so far and 2014, he and colleagues concluded former University of Chile professor. But raised a decent €22m, some of it from Bpi- that they worked only when they did not he is not Chilean and lived there for only france, a bankowned by the Caisse des Dé- compete directly with the private sector. If two years in the early1980s. pôts, a two-century-old investment arm of Bpifrance is typical, the most successful in- Moreover, the reports did little to high- the state. Bpifrance was set up in 2013 to vestments, in terms of drawing in private lightChile’spurported decline. On the con- channel venture capital (VC) to startups. money and boosting small businesses, are trary: theyplaydown changesin anycoun- The bank is “accelerating the startup in science-oriented and manufacturing ac- try’s relative standing. Each new edition ecosystem” in France, says Paul-François tivities (not, say, e-commerce), and in start- mostly avoids mentioning the previous Fournier, its head ofinnovation. It invested upsin remote spotssuch asYnsect’sbase in year’s rank. Instead, the first and most in 1,500 startups in 2013, rising to 4,000 last Dole. About half its funds go out of Paris. If prominent table in the report details three year. Over lunch (beef, not worms), he out- the insect business does grow fat, it will be things: the country’s current rank, current lines broader goals. Bpifrance already has an advertisement for incubation in more score and whetherthat score (not rank) has €20bn invested directly in various small ways than one. 7 improved since the previous year. This im- provement is calculated using the same, latest method of assessment for both years. This table showed an increase in Chile’s score in each of the past four re- ports, highlighting an improvement in the ease ofdoing business under Ms Bachelet. One final loose end does, however, need tying up: a previously unreported er- ror in one indicator. Chile’s “post-filing” in- dex (which reflects the ease of obtaining tax refunds and resolving errors) was re- corded as 5.58 out of 100 in “Doing Busi- ness 2017”. According to the bank’s online database, it should have been 57.67. Conse- quently, Chile’s rank on paying taxes should have been 65th not 120th. But the country need not feel too singled out. The bank’s online database contains over 1,000 revisions and corrections for that re- port. “Doing Business” is not easy. 7 Don’t be coy, carp about the food 64 Finance and economics The Economist January 20th 2018 Free exchange Jam tomorrow

Driverless cars will not save cities from eithertraffic orinfrastructure expense ployment centres. In a paper published in 2011, Gilles Duranton, of the University of Pennsylvania, and Matthew Turner, of Brown University, identified a “fundamental law of road conges- tion”: namely, that building more highways does not alleviate congestion. Rather, it attracts more residents, leads to more driv- ing by existing residents and boosts transport-intensive eco- nomic activity, until roads are once again crammed. Driverless cars should cut traffic, other things being equal. Lower accident rates will mean fewer crash-related hold-ups, while AIs that can pilot cars more closely togetherwill boost road capacity. But reductions in traffic will make living in currently congested areas more attractive and hence more populous. Miles travelled perperson might also rise, since self-driving technology frees passengers to use travel time for work or sleep. And just as newhighwaysprompta rise in transport-intensive business, driv- erless vehicles could generate lots of new road-using activity. Where now a worker might pop into the coffee shop before going to work, for example, a latte might soon be delivered in a driver- less vehicle. The technology of driverless cars may make us safer and more productive, but not necessarily less traffic-bound. It might, however, improve traffic by makingiteasier, political- HE most distractingly unrealistic feature of most science fic- ly, to impose tolls on roads. Jams occur because a scarce resource, Ttion—by some margin—is how the great soaring cities of the the road, is underpriced, so more people drive than it can accom- future never seem to struggle with traffic. Whatever dystopias lie modate. But tolls could favour use of the roadway by those who ahead, futurists seem confident we can sort out congestion. If value itmost. Some placesalreadyuse such charges—London and hope that technology will fix traffic springs eternal, history sug- Singapore are examples—but they are rarely popular. Some driv- gests something different. Transport innovation, from railways to ers balk at paying for what they once got for nothing, and others cars, reshaped cities and drove economic advance. But it also are uneasy about the tracking of private vehicles that efficient brought crowded commutes. Now, as tech firms and carmakers pricing requires. People seem not to object to paying by the mile aim to roll out fleets of driverless cars, it is worth asking: might when they are bring driven—by taxis and services like Uber and this time be different? Alas, artificial intelligence (AI) is unlikely to Lyft—and the driverless programmes now being tested by succeed where steel railsand internal-combustion engines failed. Waymo and GM follow this model. If a driverless world is one in More’s the pity. In America alone, traffic congestion brings which people generally buy rides rather than cars, then not only economic losses estimated in the hundreds of billions of dollars might fewer unnecessary journeys be made, but also political re- each year. Such costs will rise unless existing transport systems sistance to road-pricing could ease, and congestion with it. receive badly needed investment. Forexample, fixingNew York’s beleaguered, overcrowded subway will take at least $100bn, ac- Ok, commuter cording to one recent estimate. A driverless deus ex machina That might lead to a different kind of dystopia (also with histori- might seem to spare governments some difficult decisions. cal antecedents): one in which fast, functional transport is avail- But congestion is a near-inevitable side-effect of urban able only to those who can pay. Luckily, history also suggests a growth. Cities exist because being near to other people brings solution: mass transit. Ride-hailing services might introduce enormous advantages. Proximity allows people to find friends, multi-passenger vehicles and split travel costs across riders (they mates and business partners, to discuss ideas and generate new could call them “buses”). Or, as Daniel Rauch and David Schlei- ones, and to trade (and so to capture the benefits of specialisa- cher of Yale University argue, governments might instead co-opt tion). Regrettably, clumping leads to crowding: the more people the new transport ecosystem fortheir own purposes. They might an area houses, the greater the competition for its scarce re- subsidise the travel oflow-income workers, ortake over such sys- sources, from seats at a hot new restaurant to space on public tems entirely (a common fate for mass-transit systems which be- roadways. Each new arrival enhances a city’smagic but also adds gin life as private enterprises, including the New York subway). to congestion. Cities grow until costs outstrip benefits. Municipal networks of driverless cars might prove less efficient New transport technologies are not useless. Mass-transit rail- than private ones, particularly ifcars are rationed on a first-come- ways and highways allowed big cities to get bigger. But their con- first-served basis rather than by price. But in the past city govern- gestion-easing benefits inevitably proved temporary. When the ments have felt that providing equal-opportunity access to cen- New York subway extended into northern Manhattan, it became tres ofeconomic activity was worth the cost. practical to live farfrom the dirty, expensive, crowded downtown Should congestion prove ineradicable in a driverless world, area, while still enjoying access to the city’s social and economic people will continue to hope for technological solutions, like the benefits. So the city’s population rose—a lot—leaving New York- long-promised flyingcars. While we waitforthat—and the clotted ers once more cheekby jowl. A post-war highway-building boom skyways that would soon follow—governments would be wise in America yielded explosive growth in city suburbs. Cities once to keep their underground systems in good working order. 7 again found their equilibrium, however, as the suburban land- rush led to road congestion, raising the cost of living farfrom em- Economist.com/blogs/freeexchange Property 65

The Economist January 20th 2018 66 Science and technology The Economist January 20th 2018

Also in this section 67 Perception and language 68 Cuckoos’ eggs 68 Computers and criminal justice 69 Drones in a box

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

Space flight Lockheed Martin and Boeing that makes the Delta IV Heavy, announced that it Size matters would cut its workforce by a quarter, and the prices on a range of rockets called Atlas by a third. Conceptually at least, the Falcon Heavy is a simple machine. It consists ofthree Fal- con 9 rockets lashed together like a set of pan pipes. SpaceXhad originally pencilled The biggest rocket in the world prepares forits maiden voyage in its first launch for 2013. But Mr Musk has ECHNOLOGICAL progress is not al- urn V itself in its capacity to lift things into admitted that he had been “naive” about Tways straightforward. Before Con- orbit (see chart on next page). just how difficult things would prove. The corde’sfirstcommercial flightin 1976 super- A successful launch would be another middle of the trio needs to be fortified to sonic passenger-travel was science fiction. vindication for SpaceX’s founder, Elon deal with the stresses imposed by thrust Since that aircraft’s last hurrah, in 2003, it Musk, who started the firm to shake up the from its neighbours. The aerodynamics of has become historical fiction instead. Simi- rocketry business and to slash the cost of three linked rockets are different from larly with rockets, the most powerful built getting into orbit. After a rocky start, he has those affecting a single one. And Mr Musk (almost five times more powerful than succeeded admirably. The launch price of hopes to try to recover all of the Falcon anything flying today) was the Saturn V, the firm’s existing machine, the Falcon 9, is Heavy’s rockets at once—something that which carried human beings to the moon. thought to be around half of what some of has never been tried before. It last flew in 1973. its competitors charge. That has helped With all this in mind, MrMuskhas been These days, though, big rockets are SpaceX to win a big order book, launching careful to play down expectations. In July coming back. On a launching pad at Cape commercial satellites forcompanies, secret 2017 he told a space-flight conference in Canaveral, Florida, sits the Falcon Heavy, ones forAmerica’s armed forces, and mak- Texas that “I hope it [the Falcon Heavy] the latest offering from SpaceX, a private ing cargo runs to the International Space makesitfarenough awayfrom the pad that space-flight firm. It is 70 metres tall and Station on behalf of NASA, that country’s it does not cause pad damage [if it ex- sports 27 engines (see picture above). Col- space agency. plodes]. I would consider even that a win, lectively, these generate 22.8m newtons of to be honest.” But he cannot resist having thrust—about as much as eighteen 747 jet- Pile ’em high. Sell ’em cheap at least a bit of fun. Like all debutante rock- liners. That is enough oomph to put almost SpaceX’s prices can go even lower if cus- ets, the Falcon Heavy will carry a test pay- 64 tonnes of payload into low-Earth orbit. tomers are willing to fly on one of its re- load rather than a paying customer’s satel- This is, admittedly, still less than half of used rockets, a technologythatthe firm has lite. Usually, these are blocks of metal or what the Saturn V could once manage. But pioneered. It now routinely flies the first concrete. In April Mr Musk, who is also the it is more than twice as much as the Delta stage of a Falcon 9 back to Earth, landing it founder of Tesla Motors, an electric-car IV Heavy, the current champion. either near the original launch site or on a company, said he was looking for some- SpaceX’s engineers are now testing robotic ocean-going barge. In March one of thing more interesting. He eventually their machine, and—assuming those tests these recovered rocket stages was re- chose his own cherry-red Tesla Roadster do not blow the rocket up—at some point launched for the first time, hoisting a com- sports car. The mission calls for the car to in the next fortnight or so they hope to take munications satellite into orbit on behalf be blasted into orbitaround the sun, where the final step and actually try to launch the ofAirbus, a bigEuropean firm. All this adds it should remain forbillions ofyears. beast into orbit. If they succeed, the Falcon up to a serious squeeze on the industry’s Even ifthe first mission doesend up in a Heavy will become by farthe beefiest rock- incumbents. In April 2017 United Launch fireball, though, the Falcon Heavy’s extra et presently flying, second only to the Sat- Alliance (ULA), the joint venture between capacity and the savings from recyclability1 The Economist January 20th 2018 Science and technology 67

presented with cinnamon, for example, Fly-weight contest Launched successfully Launch scheduled Under development they described it variously as sweet, spicy, Selected rockets Dates of operation Payload to low-Earth orbit, tonnes wine, candy, edible and potpourri. When Vehicle Operator Country actual planned 0 50 100 150 200 250 presented with baby powder they offered Delta IV Heavy ULA US 2004- vanilla, wax, baby oil, toilet paper, dentist New Glenn Blue Origin US 2020 office, hand lotion, rose and bubble gum as Falcon Heavy* SpaceX US 2018 descriptions. Jahai answers, in contrast, SLS NASA US 2020 Block 1 Block 2† were in equal agreement about both Saturn V NASA US 1967-73 odours and colours. Long March 9 CNSA China 2028 When she published this result, Dr Ma- Energiya-5V Roscosmos Russia 2028 ‡ jid suggested that it might, in part, be be- BFR* SpaceX US 2022 cause the Jahai have a dozen words dedi- cated to describing different sorts of smells Sources: SpaceX; United Launch Alliance; press reports *Non-reusable configuration only †Planned for 2029 ‡Upper estimate in the abstract (the equivalent of colour- words such as red, blue, black and white, 2 mean thatifand when itworksreliably, the “Big Fucking Rocket”, whose name neatly ofwhich there are generallyreckoned to be costs of getting big objects into space could sums up its design goals. Capable of lifting 11in English). Forexample, the Jahai use the fall by an order ofmagnitude from those of up to 250 tonnesinto orbit, and intended to word “cxås” for stinging sorts of smells as- the Delta IV Heavy. Indeed, the new rocket enable Mr Musk’s oft-stated wish to colo- sociated with petrol, smoke and various already has customers lined up, including nise Mars, it would be far and away the insects, and “plxex” for bloody, fishy and Arabsat, a satellite-communications firm, most potent rocket ever built. SpaceX says meaty sorts of smells. According to Dr Ma- and America’s air force. The most eye- the BFR will be ready by 2022, though few jid, only “musty” is able to act in this way catching mission is to send two paying will be surprised if that date slips. Still, if it in English without drawing on analogy tourists on a jaunt around the moon and ever flies it would, after half a century, at (banana-like, gooseberry-noted, and even back. SpaceX says the daring duo have al- last bring the Saturn V’s reign to an end. 7 earthy and sweet-smelling, are all analo- ready paid a “significant” deposit. Their gies ofsome sort). trip is, perhaps ambitiously, scheduled for To test how important someone’s way some time this year. Perception and language of life is to his or her use of abstract words The Falcon Heavy is not the only big for smells, Dr Majid and Dr Kruspe looked rocket in development. China and Russia Scents and at how two other groups of people from are both working on craft—the Long March the Malay Peninsula used terms for col- 9 and the Energiya-5V—that will rival the sensibility ours and odours. These were the Semaq Saturn V’s lifting prowess. Mostly, the Beri, who also hunt and gather for a living, fledgling private space industry has con- and the Semelai, who cultivate rice. Cru- fined itself to smaller machines. A firm cially, although these two peoples make How well people can name sensations called Rocket Lab may soon become the their livings in different ways, their lan- depends on those sensations’ salience first startup since SpaceX to reach orbit. Its guages are closely related and they both diminutive Electron rocket can carry loads HE human sense ofsmell is weak. That live in the rainforest. of150kg. ButMrMuskhashigh-end compe- Tis well known, and is suspected by Dr Majid and Dr Kruspe asked 20 Se- tition in the form ofJeff Bezos, the founder many anthropologists of being the result maq Beri and 21 Semelai to name odours of Amazon, who runs his own rocketry ofa trade-offin the primate brain in favour and colours presented to them at random. firm called Blue Origin. This company is of visual processing power. In the specific The colours were on 80 differently hued building a lifter called the New Glenn case ofpeople, however, the relative weak- cards; the odours on 16 variously scented which it hopes will take off in 2020 and ness of smell compared with sight extends sticks. The sticks were daubed with smells will be able to carry 45 tonnes into orbit. to language, too. Humans have no difficul- like (to English-speaking sensibilities) ty putting names to colours but are notori- leather, orange, fish, garlic and turpentine. Mine’s bigger than yours ously bad at putting names to odours. The two researchers found that the Se- Mr Bezos may be pipped to the post by That might also be caused by how the maq Beri used abstract terms for odours America’s government, which is due to brain is wired. But some doubt this. They 86% of the time—about as often as they did launch Block1, the first version of its Space suggest it is more likely a consequence of for colours, which was 80%. The Semelai Launch System (SLS), in 2019 or 2020. This the tendency of languages to contain also used abstract colour descriptions at a rocket will be able to carry 70 tonnes into words useful to their speakers. Since similar rate, namely 78% of the time. But orbit. The final variant of the SLS, Block 2, smells matter little to most people, most when it came to describing odours they re- due in 2029, should manage double that. It languages have few abstract words for lied on abstraction on only 44% of occa- has been explicitly designed to enable them. A study just published in Current Bi- sions, while resorting to analogies, such as NASA to go backto the moon and, perhaps, ology, by Asifa Majid at Radboud Universi- “banana” and “chocolate”, 56% ofthe time. eventually on to Mars. ty in the Netherlands and Nicole Kruspe at Moreover, as with Dr Majid’s earlier study But the SLS is farfrom universally popu- Lund University in Sweden, supports this. with the Jahai, the Semaq Beri more fre- lar. Its critics see it as little more than a job- Dr Majid knew from previous workshe quently agreed with one another about creation programme for established aero- had done that the Jahai, a group of hunter- naming odours than did the Semelai. space companies, which are politically gatherers who live in western Malaysia, Given these findings, Dr Majid and Dr powerful. Nor is it cheap. NASA has esti- are remarkably good at naming odours. Kruspe argue that it is the hunting-and- mated it could cost $18bn. The progress be- For example, when she asked some Jahai, gathering way oflife, rather than the use of ingmade by America’s billionaires certain- and also a comparable group of American a particular language, that is crucial to the ly makes it harder to justify their volunteers, to name colours and odours use of abstract names for odours. Presum- government’s attempts to duplicate their they were presented with, the Americans ably, the business of surviving by eating efforts. And SpaceX will probably end up generally agreed with one another when it what the forest has to offerrequires a more taking the crown in any case. The planned came to naming colours but agreed much discriminating use of the nostrils than is sequel to the Falcon Heavy is the BFR, or less when putting names to odours. When needed forfarming. 7 68 Science and technology The Economist January 20th 2018

Computers and criminal justice Algorithm’s dilemma

Are programs betterthan people at predicting recidivism? N AMERICA, computers have been correctly predicted whether someone Iused to assist bail and sentencing deci- had been rearrested 62.1% ofthe time. sions formany years. Their proponents When the judgments ofthe 20 who argue that the rigorous logic ofan algo- examined a particular defendant’s case rithm, trained with a vast amount of were pooled, this rose to 67%. COMPAS data, can make judgments about wheth- had scored 65.2%—essentially the same as er a convict will reoffend that are un- the human volunteers. clouded by human bias. Two researchers To see whether mention ofa person’s have now put one such program, COM- race (a thorny issue in the American PAS, to the test. According to their study, criminal-justice system) would affect Evolution published in Science Advances, COMPAS such judgments, Ms Dressel and Dr Farid did neither better nor worse than people recruited 400 more volunteers and re- Shell game with no special expertise. peated their experiment, this time adding Julia Dressel and Hany Farid ofDart- each defendant’s race to the description. mouth College in New Hampshire select- It made no difference. Participants identi- ed 1,000 defendants at random from a fied those rearrested with 66.5% accuracy. database of7,214 people arrested in Bro- All this suggests that COMPAS, though ward County, Florida between 2013 and not perfect, is indeed as good as human An intriguing example ofconvergent 2014, who had been subject to COMPAS common sense at parsing pertinent facts evolution is explained analysis. They split their sample into 20 to predict who will and will not come to HE exhaustingchore ofraisingyoung is groups of50. For each defendant they the law’s attention again. That is encour- Tone a few birds manage to avoid. By created a short description that included aging. Whether it is good value, though, is laying their eggs in the nests ofothers, they sex, age and prior convictions, as well as a different question, forMs Dressel and dupe those others into feeding their nest- the criminal charge faced. Dr Farid have devised an algorithm of lings. Such brood parasitism has arisen in- They then turned to Amazon Mechan- their own that was as accurate as COM- dependently at least three times, in the ical Turk, a website which recruits volun- PAS in predicting rearrest when fed the groups known as cuckoos, cowbirds and teers to carry out small tasks in exchange Broward County data, but which in- honeyguides. That gives biologists a tool forcash. They asked 400 such volunteers volves only two inputs—the defendant’s with which to explore the phenomenon of to predict, on the basis ofthe descrip- age and number ofprior convictions. convergent evolution, in which unrelated tions, whether a particular defendant As Tim Brennan, chiefscientist at lines with similar ways of life evolve simi- would be arrested foranother crime Equivant, which makes COMPAS, points lar adaptations that help them to thrive. within two years ofhis arraignment out, the researchers’ algorithm, having One feature shared by cuckoos, cow- (excluding any jail time he might have been trained and tested on data from one birds and honeyguides is that the shells of served)—a fact now known because of and the same place, might prove less their eggs are all thicker than those of the the passage oftime. Each volunteer saw accurate iffaced with records from else- birds they parasitise—sometimes by as only one group of50 people, and each where. But so long as the algorithm be- much as 30%. This looks like a classic case group was seen by 20 volunteers. When hind COMPAS itselfremains proprietary, of convergent evolution, but no one has Ms Dressel and Dr Farid crunched the a detailed comparison ofthe virtues of been able to prove the point by demon- numbers, they found that the volunteers the two is not possible. stratinga benefitderived from itthat iscon- nected directly with brood parasitism. Li- ang Wei, of Hainan Normal University, in which the two sorts of egg lost heat, since Then, just before they put the eggs back, China, thinks he has now done so. His the ratio of surface area to volume is a cru- they tooka second set ofimages. work, just published in the Science of Na- cial variable in matters thermodynamic. The findings were clear. During the 20- ture, suggests that the greater thickness of The team searched the reserve for war- minute periodsoutside the incubatorthe 15 brood-parasites’ eggshells provides insula- bler nests. When they found one that also warblereggs lost 4.42°Con average, where- tion, which speedsup the eggs’ incubation. had a cuckoo egg, they removed that egg, as the 15 cuckoo eggs lost an average of This ensures they hatch before their hosts’ together with a warbler egg, and brought 4.15°C. This may not seem a huge differ- eggs do, thus granting the parasitic hatch- the pair to their laboratory, where they ence, but experience of incubating bird’s lings time to dispose of their incipient ri- placed them in an incubator at 37.5°C— eggs artificially shows that actually it is. vals by puncturing the eggs containing their natural incubation temperature. Given these findings, Dr Liang argues them or pushing those eggs out ofthe nest. On the first day of this process, and on that the thicker eggshells do indeed give To test this idea, Dr Liang and his col- three further occasions, spaced three days the embryos within the developmental leagues decamped from their home in Chi- apart, each of the 15 pairs of eggs the team edge they need to hatch first. As to why na’s southernmost province to Heilong- had collected was taken out of the incuba- warblers and other victims of brood para- jiang, its northernmost. Their destination tor for 20 minutes—the average amount of sitism fail to retaliate by themselves evolv- was Zhalong National Nature Reserve, time clutches are left unattended by war- ing thicker eggshells, and thus faster-hatch- where reed warblers are parasitised by bler mothers (the fathers having long de- ing young, that is unclear. Presumably the common cuckoos. They picked this pairing parted) when they go foraging. As soon as extra costofdoingso isnotworthwhile in a of host and parasite because the two spe- the eggs came out of the incubator, the world where a minority of nests are paras- cies’ eggs are, by chance, of similar sizes. team tookthermal images ofthem, permit- itised. Proving this, though, would require That made it easier to compare the rates at ting their temperatures to be estimated. a whole new research project. 7 The Economist January 20th 2018 Science and technology 69

Drones in a box las Dynamics, the firm’s first target market is security. Ifan alarm is tripped at a fence Ready for take off or gate, for example, a drone will launch it- selfautomatically from the Nest to provide a close-up view of the potential incursion point. Drones can also be programmed to carry out regular patrols, or sent on one-off human-controlled missions by means of a simple map-based app. Making robot helicopters easierto use will increase the numberin use A third company, Airmada, of Boston, MALL multicopter drones—souped-up over the heaps with survey tools. Now it is Massachusetts, has taken a slightly differ- Sversions of those sold by the million as done with 3D photography and computer ent approach from these other two firms. Christmas toys—have tremendous poten- modelling. The drone method is quicker Rather than go to the expense of develop- tial for use in industry and agriculture. and easier, and does not require the site to ing its own robot aircraft, it has designed a Rather than erecting scaffolding or bring- be closed to trucks for safety reasons. It is base station that can accommodate any ing in a mechanical platform to inspect also completely automated. The drone brand ofcommercial drone in line with the things like roofs and chimneys, the job can knows when to fly, what route to take, and customer’s desire. Again, this station be done instantly, and probably for less what to do en route. swaps out the drone’s battery and enables money, by sending up a drone-mounted Atlas Dynamics, another firm with Is- the remote operation ofwhatis, in essence, camera. Drones can also fly along pipe- raeli roots (though it is now based in Lat- a security and surveillance system for in- lines and power cables, checking for dam- via) is following swiftly in Airobotics’ dustrial plants. age faster than a ground-based operation wake. Its drone garage, which it refers to as Another Boston-based firm—Green- could manage. Similarly, they can survey a “Nest”, is smaller than that of its rival Sight Agronomics—has a different sort of fields for signs of pest or drought at a frac- (about the size of a fridge-freezer), is made plant in its sights, the sort that grows. It of- tion ofthe cost ofa manned flight. ofcarbon fibre, and can accommodate sev- fers a boxed drone forsurveying farms and Most existing drones do, however, need eral drones. Those drones, which itcalls At- golf courses. Its drone is fitted with a to be flown by an experienced operator. In- las Pros, are different, too. An Atlas Pro has “multispectral” camera tuned to be sensi- deed, the law often requires this. Drones three engines and unlike most helicopter tive to specific wavelengths oflight, includ- also need technical support and mainte- drones, which are regular polygons with a ing some in the infra-red. This permits it to nance. And the people operating them liftingpropellerat each vertex, it has a clear detect health-related changesin vegetation would be well advised to have an under- front and back. In its case, two propellers before they are visible to the naked eye. standing of the legal and safety implica- are mounted forward and one at the rear. tions of what they are up to. Hence the ap- The trick is that the struts holding the front Ruling the skies peal of the “drone-in-a-box”. This is a term propellers are also aerofoils that provide GreenSight is also tackling the question of being applied to the offerings of several lift during forward flight, meaning the how drones are regulated. At the moment, firms that aspire to sell the advantages of drone combines the characteristics of a he- American law requires someone who can drones without the associated worries. licopter with those of a fixed-wing aircraft. see the drone to be in ultimate charge of it. The box in question is a base station This provides stability, meaning the craft Moreover, that person must have passed that houses the drone, recharges it and can fly in winds that a conventional multi- an exam to qualify as a drone pilot. In De- transfers the data it has collected to the cus- copter could not handle. cember, though, the Federal Aviation Ad- tomer. The drone may fly autonomously, According to Guy Cherni, the boss ofAt- ministration gave GreenSight a waiver according to a preprogrammed schedule, from this law which permits a qualified pi- find its way automatically to a point it is or- lot to fly drones remotely, from Boston. dered to visit, or be piloted remotely by an At the moment, this waiver saves no operative ofthe company that supplies the manpower, for an observer on the ground system, from a control centre anywhere on must still follow the flight and be able to the planet. take control in an emergency. GreenSight hopes, though, that this will never need to Feel the buzz happen and that, by giving an extended One of the most advanced drone-in-a-box demonstration of the fact that remote fly- systems is produced by Airobotics, an Is- ing can be done safely, a further relaxation raeli company. In this case the box is made of the rules will eventually do away with of metal and is about the size of a garden the job ofobserver. shed. A hatch in the roof opens and In Israel, Airobotics has already gone through it a purpose-built quadcopter through a similar process: Optimus drones called Optimus lifts off to fly a prepro- are now able to fly unsupervised. In both grammed route. After each such tour it re- countries the authorities are being sensi- turns, and its part-used battery is swapped bly cautious, but the data suggest that auto- for a freshly charged one by a robot arm matic flights ofthe Optimus variety are saf- within the box. er than piloted ones, particularly during Airobotics’ first contract for this system take-off and landing, when most accidents is with Israel Chemicals (ICL). In this case happen. Whether this also applies to re- the drone’s job is stock control. It monitors mote piloting remains to be seen. But ICL’s phosphate-rock mining and process- GreenSight seems confident it will. Justin ing operation in the Negev desert, by mea- McClellan, the firm’s chief marketing offi- suring the dimensions of recently mined cer, hopes the strictures on observers will piles of the stuff—and thus the amount of change next year—indeed, he expects a rockthey contain. That taskwas previously general relaxation of the rules, not just for carried out by a human being scrambling GreenSight, but also forits competitors. 7 70 Books and arts The Economist January 20th 2018

Also in this section 71 Giorgio Vasari and art history 71 Esther Kinsky’s fiction 72 Johnson: Pronouns on the move 73 Leonard Bernstein at 100

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

The Vietnam war and paired military offensives with politi- cal campaigns to divide the communists Wishful thinking and buckup trust in the government. In 1954, Lansdale shifted his attention to Vietnam, where France was losing its war against Ho Chi Minh’s Viet Minh guerril- las. As a CIA liaison officer in Saigon, he developed a close relationship with Ngo Nearly halfa century afterthe conflict in South-East Asia ended, American writers Dinh Diem (pictured), the nationalist Cath- are still fighting the Vietnam war olicchosen to lead South Vietnam once the ECAUSE the Vietnam war was the first French left and the communists took over The Road Not Taken: Edward Lansdale that the United States unequivocally the north. Lansdale and his dozen-odd ad- B and the American Tragedy in Vietnam. lost, American treatments of it are often visers played a crucial role in stabilising By Max Boot. Liveright; 768 pages; $35. couched as might-have-beens. Liberals the rickety new state. They arranged for Head of Zeus; £30 look for moments when America might American ships to evacuate hundreds of have avoided the war; conservatives thousands of Catholics from the north to search for ways that it could have been and pioneer of counter-insurgency think- the south, and helped Diem win the sup- won. The latter temptation grew after the ing. As its title suggests, it is another entry portofsectarian militiasand crush a heavi- invasions of Afghanistan and Iraq, when in the Vietnam what-ifgenre. Yet Mr Boot’s ly armed mafia, the Binh Xuyen. By now America again became mired in guerrilla views have evolved. Once a staunch con- Lansdale was seen by the American public conflicts. In the late 2000s, neo-conserva- servative, his attitudes on social issues of as a wizard of democratic nation-building, tive authors began arguing that America race and gender have moved in a liberal di- lionised in “The Ugly American”, a politi- could have triumphed in Vietnam (and, by rection. One question hanging over his cal novel about American diplomacy that extension, could win in Afghanistan and book is whether his attitude towards mili- came out in 1958. (Contrary to rumour, he Iraq) by committing to so-called “counter- tary intervention has mellowed, too. was not the model for Graham Greene’s insurgency” strategies, which involve po- Lansdale was an advertising executive “Quiet American”.) litical nation-building rather than relying from California who joined the OSS (the Mr Boot argues that things soured in solely on firepower. Practitioners of coun- precursor of the CIA) during the second Vietnam after Lansdale returned to Ameri- ter-insurgency (including H.R. McMaster, world war. In the Philippines in the early ca in late 1956. He understood that fighting who later became Donald Trump’snation- 1950s he helped defeat a communist insur- insurgencies was fundamentally a politi- al-security adviser) rose to the top of gency by arranging for an honest Filipino cal task, one ofbuilding a coherent govern- America’s security hierarchy. congressman, Ramon Magsaysay, to be- ment that commands popular assent. Yet Max Boot, a journalist turned foreign- come defence secretary, and successfully as communist insurgents returned to policy scholar, supported winning both managing his campaign for president. He South Vietnam in the early1960s (aided by Iraq and Afghanistan with counter-insur- acquired a deep understanding of local Diem’s increasing authoritarianism), gency strategies. (In 2001he wrote that “Af- society by convening a team of creative American advisers grew frustrated, and ghanistan and other troubled lands” need- military officers and politicians (and by President John Kennedy approved a coup ed “the sort of enlightened foreign launching a long-term extramarital affair in November 1963. The coup leaders unex- administration once provided by self-con- with a Filipino widow, Pat Kelly, whom he pectedly killed Diem; Lansdale was aghast fident Englishmen in jodhpurs and pith would eventually marry). Lansdale per- (as was Kennedy). The government rapidly helmets”.) His new book is a biography of suaded the army to stop alienating peas- disintegrated in a series ofcoups by squab- Edward Lansdale, a legendary CIA officer ants with bloody, heavy-handed tactics, bling generals, and in 1965 America had to 1 The Economist January 20th 2018 Books and arts 71

2 send in combat troops. Lansdale returned well be the reason, the authors believe, for an ineffectual stint as an adviser from that Vasari championed the similarly 1965-68, but for Mr Boot, overthrowing plain-looking Giotto and Brunelleschi, re- Diem was the critical mistake that ended minding the reader that “lumps ofearth of- any chance of a viable South Vietnam— ten conceal veins ofgold.” one Lansdale would not have made. Ms Rowland and Mr Charney draw a Here, Mr Boot is wrong. Diem was a panoramic view of the art-world during genuine Vietnamese leader, but he was the Renaissance, placing Vasari at the cen- also rigid and vindictive, relying on a nar- tre. He went to great lengths to preserve row Catholic power base. By 1963 he was pieces of scrap paper. They contained pointlessly cracking down on Buddhists, sketches by Michelangelo, and he deemed whose monks set themselves on fire in them valuable. This was a time when art- protest. His own pilots tried to kill him by ists were traditionally anonymous, unedu- bombing the presidential palace. Few his- cated craftsmen of “pretty things”. By prio- torians think he could have saved the ritising the creators themselves over what south. As for Lansdale, while he grasped they created, championingtheirdeeds and the centrality of politics in fighting insur- elevating their status, Vasari helped lay the gencies, he was prone to wacky secret- foundations for art history as well for how agent schemes. A congressional investiga- Vasari made craftsmen into stars art is understood today. This is an impor- tion into CIA misconduct in 1975, after his tant book and long awaited. The authors retirement, uncovered a proposal he once with—in short, a man who conjured up the have done a commendable job of return- made to undermine Fidel Castro by having great masterpieces in Western art with ing to his rightful place the man who inflat- navy ships fire special shells to make Cu- minimal effort. ed the reputation of art and artists so suc- bans think that Christ had returned. It also That people can see behind this façade cessfully that he himself was squeezed out accused him ofcondoning assassination. isdue to the timelyintervention ofanother ofthe picture. 7 Mr Boot seems to have grown less influential figure of the Renaissance: Gior- gung-ho since 2001, and he acknowledges gio Vasari (1511-74), a painter, architect and that South Vietnam might have fallen no author, who saved many drawings from New fiction matter what America did. But his claim the artist’s purge. Safeguarding the legacy that Lansdale’s strategies represent a “road ofthose around him, aswell asthatof their A river runs not taken” is unconvincing. Counter-insur- predecessors, became Vasari’s obsession. gency was tried, by Lansdale and others in In 1550 he published his magnum opus, through it Vietnam—including figures such as John “Lives of the Most Excellent Painters, Paul Vann and Creighton Abrams, who Sculptors, and Architects”. In it he records have featured in their own what-if books. the many flaws, rivalries, vices and eccen- River. By Esther Kinsky. Translated by Iain It was tried again, in Afghanistan and Iraq, tricities that together create a family photo- Galbraith. Fitzcarraldo; 368 pages; £12.99. To by officers like General McMaster and Da- graph ofthe Quattrocento and Cinquecen- be published in America this autumn by vid Petraeus. The road has been taken. It is to. Vasari pulls his subjects down off their Transit Books tortuous and exhausting, and it is not clear artistic pedestals, and sketches in charac- that it leads anywhere. 7 teristics that are all too human. Masaccio N HER post-war childhood beside the was absent-minded. Filippo Lippi had an IRhine, the narrator of Esther Kinsky’s insatiable libido despite being a monk. third novel learns that “every river is a bor- Art history Paolo Uccello once fled from his work der.” Flowing water both divides and con- when served cheese. nects city and country, past and present. The first artists’ In “The CollectorofLives”, an insightful The “liminal habitat” that runs through and gripping new book about Vasari, In- “River” is the Lea: a tributary of the biographer grid Rowland and Noah Charney avoid Thamesthatsnakesitsmarshy, scruffy way the endless debate over which of the biog- through to north-east London. Tramping rapher’s stories are true or false. Instead, these post-industrial zones of makeshift 1 they focus on what has been included in The Collector of Lives: Giorgio Vasari and the biography as a way of learning more the Invention of Art. By Ingrid Rowland and about Vasari himself. Noah Charney. Norton; 432 pages; $29.95 Thus a suspiciously melodramatic and £23.99 story of Leonardo da Vinci dying in the OWARDS the end of his life Michelan- arms of King Francis I of France, bitterly la- Tgelo Buonarroti, the most famous artist mentinghisown lackofdevotion to his art, of the Italian Renaissance, began burning reveals more about Vasari’s attitude to his drawings. He did not consider them work than Leonardo’s. Vasari achieved works of art in their own right so much as contemporary fame and wealth by his rig- pictorial scaffolding. They aided the diffi- orous work ethic. His ability to stick to cult process of deciding what a painting or deadlines often exhausted him, but it en- sculpture would look like when it was fin- sured a steady stream of important com- ished and demonstrated his very real missions from the Medici and the papacy. struggles to achieve aesthetic perfection. Shrugging off taunts from jealous rivals By eliminating these drawings he wanted about his short stature, Vasari created work posterity, when thinking of the great Mi- across the Italian peninsula that was lau- chelangelo, to be confronted with a tower- ded by contemporaries and made him as ing figure of insurmountable genius, one celebrated as many of the artists he wrote as cold and stiff as the marble he worked about. His unattractive appearance may Esther Kinsky goes with history’s flow 72 Books and arts The Economist January 20th 2018

2 enterprise, neglect and dilapidation, atmosphere, “River” meanders like its liq- Yet the perpetual fluxofLondon, where “bashed and bedraggled by the times”, the uid locales. It also traces a path into the “Nothing began…and nothing ended”, solitary heroine summons other rivers past, which leads back to the narrator’s cannot lay the past to rest. Regret and relief from her atlas of memory. She revisits wa- much-travelled father, and the “post-war mingle as she packs again for another new terways not only in Germany but Canada, condition” ofhis ravaged continent. life in eastern Europe. From her enigmatic Croatia, Hungary, India and Israel. The woman who has fled her own hin- photographs, or the half-buried historical Although rooted in the author’s own terland forthe ragged fringe ofLondon dis- traumas that haunt these “landscapes of long residence in London, “River” is a nov- covers a dreamlike city of melancholy bereavement and implacable homeless- el, not a documentary expedition. Epi- magic. This spiritual nomad meets in this ness”, readers ofthe great W.G. Sebald—an- sodes of satire and fantasy, such as a stint “capital of chameleons” Hasidic Jewish, other self-exiled German—will suspect broadcastingfora Kafka-like version ofthe Croatian, Kurdish and African neighbours. that his shade has strolled with Ms Kinsky BBC World Service, push it towards eerie With these encounters, Ms Kinsky nods to by the Lea. Iain Galbraith, who has also German gothic fiction rather than the Lon- the waves of settlement that have stitched translated Sebald, gives “River”, and all its don-bred “psychogeography” of Iain Sin- a score of migrant narratives into east Lon- “lumber of cumbersome jetsam”, a special clair or Peter Ackroyd. Light on plot, rich in don’s tattered fabric. English poetry ofgrunge and grime. 7 Johnson Unlocking pronouns

Personal pronouns have been hard to alter. That is now changing fast OT so long ago a man could be jailed tury in English, and has appeared in fine Nin Texas forsex with another man. In literary sources continually ever since. 2015 a county clerkin Kentucky was jailed But this use of “they” is unusual: tradi- for refusing to certify the marriage of two tionally it can refer back only to an indefi- men. Gay rights in America proceeded at nite antecedent. “Astudent must have left an extraordinary rate between Lawrence their umbrella” is uncontroversial. But vTexas(2003), in which the Supreme “Steve must have left their umbrella” is Court struck down sodomy laws, and jarring. So is “my best friend must have Obergefell v Hodges (2015), which made left their umbrella”: even if the hearer gay marriage legal across the country. does not know if the friend is male or fe- Transgender rights came next into male, the speaker presumably does. So public view. “Transparent”, a successful those non-binary people asking to be television show, has put trans people at called “they”, as in “Taylor left their um- the heart of a complex universe. The case brella”, are up against the ingrained gram- of Caitlyn Jenner, who had been an mar ofmany listeners. Olympic gold medallist as Bruce Jenner, But just how ingrained is that gram- helped bring not just visibility but greater mar? Lauren Ackerman, a fellow at New- acceptance. In liberal circles, being open- castle University, conducted a small ly transphobic is becoming unacceptable, study. Forty people rated the “natural- proceeding along the same trajectory— ness” ofsentences like “Someone dressed but much faster—as attitudes towards ho- themselves” and “Chloe dressed them- mophobia or racism. selves”. (She also tested “themself”.) Few With mores around sex and gender al- at will. Tell a tiny child that a kind of bird is were bothered by “someone dressed ready on the move, it is little surprise that called a “wug”, and not only do they im- themselves”. Contrary to Ms Ackerman’s non-binary people are on the frontlines mediately accept the existence of the wug; prediction, responses were all over the ofa rights revolution. The grammar ofthe they work it into their grammar, knowing scale for “Chloe dressed themselves”. English language is part of the battlefield. that the plural must be “wugs”. Adults may Moreover, Ms Ackerman found that of Gay rights involved a small linguistic be more conservative, rejectingwords they the subset (nine) of the test-takers who shift—people getting used to saying do not like, but they still accept new nouns regularly interacted with someone trans- “Steve’s husband”. Treating people who and verbs all the time. Long-term changes gender, acceptability was higher on aver- have transitioned to another gender with in the meaning of nouns, verbs and adjec- age—and it increased with the frequency respect required another adjustment: tives are also routine. Few words mean ex- ofthe interaction with that person. swapping“he” and “she”, and often learn- actly what they did centuries ago: “bux- The study is far too small to be defini- ing a new name and avoiding the old one. om” once meant “obedient”, forexample. tive. As academics always say, more re- But non-binary people, who may But grammatical intuitions are more search is needed. But it is clear that some- identify as of no gender, both, fluid or deeply disturbed by the addition of new thing is afoot here. It goes hand-in-hand something else, ask for a change at the pronouns, which iswhyinvented ones like with a rising belief that the gender binary very guts of English. Many ask to be re- “ze” have failed to spread widely. Singular is a social construct. Most members of ferred to either by an invented pronoun, “they”, though, is different. “They” is an “Generation Z”, aged 13-20 in a poll taken such as “ey” or “ze”, or, more commonly, old English word. And contrary to the com- in 2016, agree with statements like “gen- as “they”. mon myth, it can have single antecedents, der doesn’t define a person as much as it This is hard for many others, because as in the case of “someone left their um- used to” (78%), and 56% know someone pronouns are a “closed” class of words, brella here.” This is not a concession to who uses a nontraditional pronoun, according to linguists. Adjectives, nouns modern feminism (avoiding“someone left against43% forthose 28-34. Pronounsmay and verbs are “open”: they can be coined his umbrella”). It goes back to the 14th cen- not be such a closed class afterall. The Economist January 20th 2018 Books and arts 73

Leonard Bernstein at 100 shining exceptions, such as Yehudi Menu- hin, Mstislav Rostropovich and Daniel Ba- A man in full renboim. Bernstein, a lifelong progres- sive—“liberal and proud of it”, he once said—was a pioneer in this way. The charitable and humanitarian causes he supported were legion. “All his life,” his daughter Jamie recalls, he “clung More than 2,000 events around the world will celebrate the centenary of hard to the belief that by creating beauty, America’s greatest 20th-century composer and by sharing it with as many people as FYOU were a well-heeled Massachusetts hearsal. Bernstein put on “the one good possible, artists had the power to tip the Ilady in the late 1920s and wanted your suit that I had” (a double-breasted shark- earthly balance in favour of brotherhood hair fixed like the movie stars, there was skin) and went to Carnegie Hall. “No signs and peace.” After the assassination ofJohn one man to turn to: Samuel Bernstein. In of strain or nervousness”, remarked a daz- Kennedy in 1963, he declared: “This will be 1927, this entrepreneurial immigrant, who zled New York Times the next day—on its our reply to violence: to make music more had arrived in New York from Tsarist Rus- front page. Whether it knew it or not, intensely, more beautifully, more devoted- sia aged 16, acquired the only local licence America was seeking a musical figure who ly than ever before.” At the fall ofthe Berlin to sell the Frederics Permanent Wave could harness the European classical tradi- Wall in 1989, “empowered by the moment” machine for curling hair. Like many busi- tion with a certain homegrown energy. as he later said, Bernstein conducted a con- nessmen of the times, he expected his el- They had found their man. cert of Beethoven’s ninth symphony and dest son to follow him into the family firm. Bernstein was curious about all sorts of was inspired to change a vital word in the But Louis Bernstein, born in August 1918 music, including jazz, folk, blues and Schiller poem which forms the final “Ode and known to everyone as Lenny (he offi- klezmer. His own daughter Jamie—one of to Joy” movement, replacing the word cially changed his name to Leonard as a three children Bernstein had with his wife, Freude (“joy”) with Freiheit (“freedom”). It teenager), had different ideas. The family Felicia Montealegre, a Chilean actress— became known indelibly as the “Berlin had no musical roots to speak of, but ten- tells of the joy of devouring Beatles LPs Freedom Concert”; Bernstein was ever the year-old Lenny found himself drawn ob- with him. (He was mad for them: “I showman. sessively to his aunt Clara’s piano. No mat- learned more about music by listening to Meanwhile, his own compositions at- ter that his father remained vehemently the Beatles with my dad than I think I did tempted to address the world around him. opposed to the notion thathe should make any other way.”) Bernstein’s own music, His “Symphony No. 2: The Age ofAnxiety” music his life, there was but one path whetherdestined forBroadway orthe con- explored the psychicdamage ofthe second ahead. cert hall, is helplessly eclectic—as well as world war. “Candide” was expressly con- For all his early misgivings, Samuel lat- unapologetically tonal when Schoenberg- ceived as a protest against1950sMcCarthy- er conceded that his son was a genius. In influenced serialism was all the rage. His ism. “West Side Story” tackled, with eter- his passport, Leonard Bernstein simply scores blithely, ingeniously united dispa- nal relevance, the tragedy of gang warfare called himselfa “musician”—characteristic rate musical elements and forged a path for and the evils ofbigotry and prejudice. humility from a man whose broad future musical mixologists that would Bernstein’s political side did not go un- achievements are unique in musical his- have been unthinkable without him. noticed. The FBI’s dossier on him included tory. Bernstein was a conductor whose in- Great classical artists trade in elevated some 1,000 items. Another cache of docu- terpretive gifts over the course of half a abstractions and are often given licence by ments, released in 2011, proves that the con- century shone light on the classics from the public to stay in ivory towers, seeming- flicts he exemplified in his career—be- Haydn to Mahler, Bartok to Stravinsky. He ly unconcerned about the messy realities tween classical purism and the Broadway was a composer not just of Broadway mas- of life as it is actually lived. There are some stage, between the public glory ofconduct- terpieces like “West Side Story”, but of bal- ing and the private isolation of compos- let, opera and chamber music; orchestral, ing—were a mirror to the internal tensions instrumental, choral and vocal works; and he battled as a gay man who genuinely even a film score (“On the Waterfront”, wanted to be a family man, loving hus- starring a young Marlon Brando). He was a band and father. In 1951 Felicia had told fine concert pianist and pioneering broad- him, in a letter: “Youare a homosexual and caster; an educator, Harvard lecturer, writ- may never change…I am willing to accept er and humanitarian; a husband, father, you as you are.” They remained happily lover—and a bona fide celebrity with the married until her death in 1978. good looks, charisma and hair (ironically) Bernstein died, aged 72, in 1990. There of a film star. Such a multifaceted life was have since been bold classical composers not without complexities, contradictions who straddle genres; charismatic conduc- and critics—but oh, what a life. tors who have the common touch; vision- The Bernstein legend was forged on No- ary teachers who practise joyous inclusiv- vember 14th 1943. Having been out party- ity and access. But Bernstein was ing after the premiere of his song cycle “I Bernstein. This year, more than 2,000 Hate Music”, the 25-year-old waswoken by eventswill attemptto honourthatsingular a phone call at 9am requesting that he re- legacy. From the American cities where he place the indisposed maestro Bruno Walt- was such a beloved fixture (New York, Bos- er in a major concert that afternoon. It was ton, Philadelphia, San Francisco, Washing- to be a live, nationwide radio broadcast ton and Chicago) to Europe east and west with the New York Philharmonic (where (London, Paris, Berlin, Vienna, Budapest) Bernstein was two months into a gig as as- to countries as culturally diverse as Japan, sistant conductor) featuring a fearsome China, India, Brazil, South Africa and Isra- programme including Schumann, Strauss el, 100 years since Bernstein’s birth, there and Wagner. There was no time for re- European tradition, American incarnation is, it seems, a place forhim everywhere. 7 74 Courses

The Economist January 20th 2018 Tenders 75

Courses

The Economist January 20th 2018 76 Economic and financial indicators The Economist January 20th 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 Jan 17th year ago United StatesStatistics +2.3 Q3 on 42+3.2 economies, +2.3 plus +3.6 Deca +2.1 Dec +2.1 4.1 Dec -452.5 Q3 -2.4 -3.5 2.55 - - China closer+6.8 look Q3 at+7.0 new +6.8passenger-car +6.1 Nov +1.8 Dec +1.6 4.0 Q3§ +121.6 Q3 +1.2 -4.3 3.90§§ 6.43 6.87 Japan registrations+2.1 Q3 +2.5 +1.7 +3.7 Nov +0.5 Nov +0.5 2.7 Nov +198.0 Nov +4.0 -4.5 0.06 111 113 Britain +1.7 Q3 +1.6 +1.6 +2.5 Nov +3.0 Dec +2.7 4.3 Sep†† -118.1 Q3 -4.5 -2.9 1.38 0.72 0.81 Canada +3.0 Q3 +1.7 +3.1 +4.6 Oct +2.1 Nov +1.5 5.7 Dec -45.8 Q3 -3.0 -1.8 2.20 1.25 1.31 Euro area +2.8 Q3 +2.9 +2.3 +3.2 Nov +1.4 Dec +1.5 8.7 Nov +435.2 Oct +3.2 -1.3 0.57 0.82 0.94 Austria +3.2 Q3 +1.4 +2.8 +4.4 Oct +2.2 Dec +2.1 5.4 Nov +8.5 Q3 +2.1 -1.0 0.68 0.82 0.94 Belgium +1.7 Q3 +1.0 +1.7 +6.7 Oct +2.1 Dec +2.2 6.7 Nov -3.9 Sep -0.3 -2.1 0.74 0.82 0.94 France +2.3 Q3 +2.3 +1.8 +2.5 Nov +1.2 Dec +1.2 9.2 Nov -28.7 Nov -1.4 -2.9 0.86 0.82 0.94 Germany +2.8 Q3 +3.3 +2.5 +5.7 Nov +1.7 Dec +1.7 3.6 Nov‡ +282.8 Nov +7.9 +0.6 0.57 0.82 0.94 Greece +1.3 Q3 +1.2 +1.3 +0.9 Nov +0.7 Dec +1.1 20.5 Sep -1.2 Oct -0.5 -0.7 3.76 0.82 0.94 Italy +1.7 Q3 +1.4 +1.5 +2.2 Nov +0.9 Dec +1.3 11.0 Nov +54.6 Oct +2.7 -2.3 2.00 0.82 0.94 Netherlands +3.0 Q3 +1.6 +3.2 +4.4 Nov +1.3 Dec +1.3 5.4 Nov +80.7 Q3 +9.6 +0.7 0.59 0.82 0.94 Spain +3.1 Q3 +3.1 +3.1 +4.7 Nov +1.1 Dec +2.1 16.7 Nov +23.0 Oct +1.7 -3.0 1.53 0.82 0.94 Czech Republic +4.7 Q3 +1.9 +4.5 +8.5 Nov +2.4 Dec +2.5 2.5 Nov‡ +0.9 Q3 +0.7 +0.7 1.77 20.8 25.3 Denmark +1.4 Q3 -1.9 +2.2 -1.1 Nov +1.0 Dec +1.1 4.3 Nov +26.2 Nov +8.4 -0.6 0.58 6.08 6.95 Norway +3.2 Q3 +3.0 +2.1 -4.1 Nov +1.6 Dec +1.9 4.0 Oct‡‡ +21.1 Q3 +4.9 +5.2 1.71 7.85 8.47 Poland +5.1 Q3 +4.9 +4.6 +9.0 Nov +2.1 Dec +2.0 6.5 Nov§ +1.5 Nov +0.1 -3.3 3.29 3.41 4.09 Russia +1.8 Q3 na +1.8 -3.8 Nov +2.5 Dec +3.7 5.1 Nov§ +40.2 Q4 +2.5 -2.1 8.13 56.8 59.4 Sweden +2.9 Q3 +3.1 +2.7 +6.5 Nov +1.7 Dec +1.9 5.8 Nov§ +21.1 Q3 +4.5 +1.0 0.83 8.02 8.92 Switzerland +1.2 Q3 +2.5 +0.9 +8.7 Q3 +0.8 Dec +0.5 3.0 Dec +66.4 Q3 +9.6 +0.8 -0.01 0.96 1.00 Turkey +11.1 Q3 na +6.3 +6.9 Nov +11.9 Dec +11.0 10.3 Oct§ -43.8 Nov -5.0 -1.9 12.12 3.80 3.78 Australia +2.8 Q3 +2.4 +2.3 +3.5 Q3 +1.8 Q3 +2.0 5.5 Dec -22.2 Q3 -1.7 -1.5 2.79 1.25 1.33 Hong Kong +3.6 Q3 +2.0 +3.7 +0.3 Q3 +1.5 Nov +1.5 3.0 Nov‡‡ +14.8 Q3 +6.1 +3.2 2.00 7.82 7.76 India +6.3 Q3 +8.7 +6.6 +8.4 Nov +5.2 Dec +3.5 4.9 Dec -33.6 Q3 -1.5 -3.1 7.42 63.9 68.0 Indonesia +5.1 Q3 na +5.1 +5.0 Nov +3.6 Dec +3.8 5.5 Q3§ -13.3 Q3 -1.6 -2.8 6.06 13,359 13,352 Malaysia +6.2 Q3 na +5.8 +5.0 Nov +3.4 Nov +3.9 3.3 Nov§ +9.2 Q3 +2.5 -3.0 3.87 3.95 4.46 Pakistan +5.7 2017** na +5.7 +8.7 Oct +4.6 Dec +4.1 5.9 2015 -14.5 Q3 -4.9 -5.9 7.93††† 111 105 Philippines +6.9 Q3 +5.3 +6.6 -8.1 Nov +3.3 Dec +3.2 5.0 Q4§ -0.5 Sep -0.3 -2.1 5.82 50.7 49.8 Singapore +3.1 Q4 +2.8 +3.1 +5.3 Nov +0.6 Nov +0.6 2.2 Q3 +57.4 Q3 +18.3 -1.0 2.09 1.32 1.42 South Korea +3.8 Q3 +6.3 +3.1 -1.6 Nov +1.5 Dec +2.0 3.3 Dec§ +81.3 Nov +5.5 +0.9 2.64 1,069 1,174 Taiwan +3.1 Q3 +6.8 +2.4 +0.9 Nov +1.2 Dec +0.6 3.7 Nov +74.1 Q3 +13.2 -0.1 1.10 29.6 31.6 Thailand +4.3 Q3 +4.0 +3.6 +4.2 Nov +0.8 Dec +0.7 1.1 Nov§ +47.4 Q3 +11.7 -2.4 2.30 31.9 35.3 Argentina +4.2 Q3 +3.6 +2.9 +0.8 Nov +25.0 Dec +25.2 8.3 Q3§ -26.6 Q3 -4.1 -6.1 3.31 18.9 15.9 Brazil +1.4 Q3 +0.6 +0.9 +4.7 Nov +2.9 Dec +3.4 12.0 Nov§ -11.3 Nov -0.7 -8.0 8.66 3.23 3.21 Chile +2.2 Q3 +6.0 +1.4 +2.3 Nov +2.3 Dec +2.2 6.5 Nov§‡‡ -4.6 Q3 -1.3 -2.7 4.56 606 657 Colombia +2.0 Q3 +3.2 +1.6 -0.3 Oct +4.1 Dec +4.3 8.4 Nov§ -11.1 Q3 -3.6 -3.3 6.43 2,844 2,926 Mexico +1.5 Q3 -1.2 +2.0 -1.5 Nov +6.8 Dec +6.0 3.5 Nov -16.1 Q3 -1.7 -1.9 7.54 18.7 21.6 Peru +2.5 Q3 +5.5 +2.7 -2.5 Sep +1.4 Dec +2.8 6.5 Nov§ -1.8 Q3 -1.8 -3.0 na 3.21 3.35 Egypt na na +4.2 +27.1 Nov +21.9 Dec +26.8 11.9 Q3§ -12.2 Q3 -6.4 -10.8 na 17.7 18.7 Israel +1.9 Q3 +3.5 +3.6 +2.5 Oct +0.4 Dec +0.3 4.3 Nov +10.5 Q3 +2.7 -1.8 1.62 3.44 3.81 Saudi Arabia -0.7 2017 na -0.7 na +0.1 Nov -0.3 5.8 Q3 +12.4 Q3 +3.3 -6.6 na 3.75 3.75 South Africa +0.8 Q3 +2.0 +0.8 +2.1 Nov +4.6 Nov +5.4 27.7 Q3§ -7.3 Q3 -2.5 -3.9 8.48 12.3 13.5 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 January 20th 2018 Economic and financial indicators 77

Markets % change on New passenger-car registrations 2017, % change on a year earlier Dec 30th 2016 Many of the world’s big car markets grew Total, m Index one in local in $ in 2017. In Brazil and Russia, where the 63036912– + Jan 17th week currency terms Markets industries have been plagued by eco- Brazil 1.9 United States (DJIA) 26,115.7 +2.9 +32.1 +32.1 nomic turmoil in recent years, car sales China (SSEA) 3,607.8 +0.7 +11.0 +20.0 Russia*† 1.6 rebounded. New registrations in the Japan (Nikkei 225) 23,868.3 +0.3 +24.9 +31.5 Italy 2.0 Britain (FTSE 100) 7,725.4 -0.3 +8.2 +21.1 European Union swelled by 3.4%. China, Spain 1.2 Canada (S&P TSX) 16,326.7 +0.5 +6.8 +15.0 the world’s largest car market, saw only Euro area (FTSE Euro 100) 1,251.3 nil +12.5 +30.6 moderate growth, as a tax cut which had Japan 4.4 Euro area (EURO STOXX 50) 3,612.8 +0.1 +9.8 +27.4 boosted sales in 2016 began to be phased India* 2.2 Austria (ATX) 3,628.1 +0.9 +38.6 +60.8 out. The picture was gloomier in America France 2.1 Belgium (Bel 20) 4,148.6 -0.2 +15.0 +33.5 and Britain. Light-vehicle sales in Ameri- European 15.1 France (CAC 40) 5,494.0 -0.2 +13.0 +31.1 ca recorded their first annual drop since Union 3.4 Germany (DAX)* 13,184.0 -0.7 +14.8 +33.3 2009, as a result of interest-rate rises and Germany Greece (Athex Comp) 841.5 +0.6 +30.7 +51.8 China* 24.7 Italy (FTSE/MIB) 23,514.7 +1.5 +22.3 +41.9 a growing inventory of secondhand United 17.2 Netherlands (AEX) 563.3 +0.5 +16.6 +35.3 vehicles. In Britain, new registrations fell States*‡ Spain (Madrid SE) 1,059.8 +0.5 +12.3 +30.4 by 5.7% because of weakening consumer Britain 2.5 Czech Republic (PX) 1,115.6 +1.3 +21.1 +49.5 confidence and uncertainty about poten- Sources: ACEA; AEB; *Sales †Includes light Denmark (OMXCB) 939.0 -0.7 +17.6 +36.3 tial new charges on diesel vehicles. ANFAVEA; Autodata; commercial vehicles JAMA; Thomson Reuters ‡Includes light vehicles Hungary (BUX) 39,543.3 -0.3 +23.6 +43.5 Norway (OSEAX) 935.2 -0.3 +22.3 +34.1 Poland (WIG) 66,685.3 +2.8 +28.9 +57.9 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,264.7 +2.4 +9.8 +9.8 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,622.9 -0.4 +7.0 +21.2 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 9,440.0 -0.9 +14.8 +21.5 Index one in local in $ Jan 9th Jan 16th* month year Turkey (BIST) 116,592.5 +2.6 +49.2 +38.0 Jan 17th week currency terms Dollar Index Australia (All Ord.) 6,134.3 -1.2 +7.3 +18.5 United States (S&P 500) 2,802.6 +2.0 +25.2 +25.2 All Items 149.6 149.8 +3.4 +1.2 Hong Kong (Hang Seng) 31,983.4 +2.9 +45.4 +44.2 United States (NAScomp) 7,298.3 +2.0 +35.6 +35.6 Food 149.1 148.5 +1.3 -7.8 India (BSE) 35,081.8 +1.9 +31.8 +40.0 China (SSEB, $ terms) 344.9 -0.2 +0.9 +0.9 Indonesia (JSX) 6,444.5 +1.2 +21.7 +22.7 Japan (Topix) 1,890.8 -0.1 +24.5 +31.2 Industrials Malaysia (KLSE) 1,828.6 +0.3 +11.4 +26.4 Europe (FTSEurofirst 300) 1,564.7 -0.2 +9.5 +27.1 All 150.2 151.1 +5.6 +12.2 Pakistan (KSE) 43,359.0 -0.6 -9.3 -14.3 World, dev'd (MSCI) 2,199.9 +1.7 +25.6 +25.6 Nfa† 138.7 141.7 +5.3 -3.1 Singapore (STI) 3,541.9 +0.6 +23.0 +34.3 Emerging markets (MSCI) 1,222.6 +2.1 +41.8 +41.8 Metals 155.2 155.2 +5.8 +19.7 South Korea (KOSPI) 2,515.4 +0.6 +24.1 +40.2 World, all (MSCI) 537.1 +1.8 +27.3 +27.3 Sterling Index Taiwan (TWI) 11,004.8 +1.6 +18.9 +29.7 World bonds (Citigroup) 958.4 +1.1 +8.4 +8.4 All items 201.3 197.8 -0.1 -11.4 Thailand (SET) 1,828.9 +1.9 +18.5 +32.9 EMBI+ (JPMorgan) 836.2 +0.5 +8.3 +8.3 Argentina (MERV) 33,598.2 +6.2 +98.6 +66.0 Hedge funds (HFRX) 1,298.5§ +0.5 +7.9 +7.9 Euro Index Brazil (BVSP) 81,189.1 +3.8 +34.8 +35.9 Volatility, US (VIX) 11.9 +9.8 +14.0 (levels) All items 156.0 152.3 -0.6 -12.3 Chile (IGPA) 29,076.7 +1.8 +40.2 +55.0 CDSs, Eur (iTRAXX)† 44.2 -1.5 -38.7 -28.8 Gold Colombia (IGBC) 11,832.4 +0.2 +17.1 +23.6 CDSs, N Am (CDX)† 48.0 +2.4 -29.2 -29.2 $ per oz 1,311.4 1,335.1 +6.4 +11.0 Mexico (IPC) 49,730.5 +1.9 +9.0 +20.3 Carbon trading (EU ETS) € 8.2 +4.9 +23.7 +43.6 West Texas Intermediate Venezuela (IBC) 2,327.0 +75.3 -92.7 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 63.0 63.7 +11.2 +21.4 Egypt (EGX 30) 15,198.5 nil +23.1 +26.1 †Credit-default-swap spreads, basis points. §Jan 16th. Israel (TA-125) 1,392.9 +0.9 +9.1 +22.2 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) 7,539.7 +3.3 +4.2 +4.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 60,924.5 +1.6 +20.3 +34.2 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary Fred Bass The Economist January 20th 2018

times yelled. Fred, when he assumed com- mand, was quieter. With his three-piece suits and neat beard, he looked more like an Ivy League professor. The workings of his mind, though, moved lightning-sharp through price-scales, stock numbers and prevailingtaste. And his decision was final. A biography of Hubert Humphrey? No- body wanted to read about has-beens. A canvas bag of hardbacks? At a glance, $15. He mostlywentby“feel”, losinghistemper only when he was offered books that were dirty, orhad no covers. “Are you really try- ing to sell this?” he would ask. And he tried to be fair, even to the down-and-outs. After all, beside the pawnshop, this was almost the only place in the city where you could just walkin and sell stuff. Towards staff he was also kind, though not foolishly so. Their $10.50 an hour, at lat- est rates, was hardly the New York living wage, but with 60 folk a week lining up to work at the Strand he could obviously name his price. In order to see what they knew about books (since “Without good people, you don’t have anything going”), he devised a quiz to match ten authors with ten works, from Homer onwards. Browsing at the Strand Hundreds failed. Equally testing was the lack, until his daughter and co-manager Nancy insisted on it 12 years ago, of central air-conditioning in the store. Having broiled by then in book-stacks through 70 New Yorksummers, Fred saw no problem. Fred Bass, who built New York’s Strand BookStore into the largest secondhand Modernity kept encroaching on his em- emporium in the world, died on January 3rd, aged 89 porium, but he was sanguine about most CROSS the buyingcounterat the Strand wooden floors, branching out even to sat- of it. Amazon did not seem to dent his ABook Store, which is as worn and bat- ellites at Central Park on Fifth Avenue and trade, especially since he had turned the tered as an old school desk, has flowed the Flatiron District and elsewhere, that shop into such an icon of New York that much ofthe secondhand-booktrade ofthe what he could see was but a tiny portion of 15% of the revenues now come from sales city of New York. Dog-eared tomes in col- the whole. Still, he could direct the flow. of Strand T-shirts, tote-bags, mugs, socks lege bags; shiny review copies dropped in His business was (and is) such a feature and scented candles. The store’s status in by critics; bland boxes of publishers’ re- atBroadwayand 12th, with its1950sred fas- the city reached a sort of apogee, for him, mainders, and tantalising parcels from cia, its lingering street browsers and its pa- on the night two officers from the Police private estates; leather-bound volumes rade of white-on-red signs—“Open Seven Department approached him as he was with uncut pages, and paperbacks rescued Days Until 10.30pm”, “Sell Your Books closing up and asked him, shyly, whether by vagrants from the trash. The whole mo- Here”, “ASK US”—that it seemed to have they might buy a T-shirt. mentum ofNew Yorkpublishing and read- been there always. But he moved it there ing seems to push towards that counter from Fourth Avenue, from the dereliction Living and dead where Fred Bass presided, building up his ofwhat had once been the BookDistrict, in One question often asked was why on stock from 70,000 in 1956 to 2.5m by the 1957, shortly after he took over from his fa- earth he needed more books, when those 1990s, and so rapidly exceeding his sales ther Benjamin. The secondhand sector he hadn’t yet sold were heaping up all space that many books also sit in a ware- was dying, and his father thought he over. He had asked his father the same house at Sunset Park, in Brooklyn. should try another trade. But by then Fred thing, but soon understood. You couldn’t To this plenitude ofbooks he was forev- had been thoroughly infected. The book- sell a book you didn’t have. Besides, the er adding more. Every day he approached dust he had been sweeping up since secondhand-booktrade wasnotaboutold, his counter like a small boy on a treasure- schooldays had got into his blood, and he inert, long-accumulated things. It was hunt. And treasure did turn up: a first edi- never got it out. Working with his father, an alive, and needed renewingall the time. As tion of James Joyce’s “Ulysses” (he paid immigrant from Lithuania who had bat- fast as he was taking in fresh, lively books $7,000; resale price, $38,000), and a second tled destitution by browsing and acquir- at his counter, staff would be clearing far folio Shakespeare (sold for $100,000). Yet ing, was sparky. But the pursuit of books shelves ofall the dead, which would never the vibrantlife ofthe shop pleased him just united them. He would lug the precious sell. And this philosophy seemed to ex- as much. From his counter he could survey bundles back on the subway, the rope dig- plain a second question that arose: how in the crazily overstuffed main floor, man the ging into his hands. He supposed later that one year, 2005, the store’s “8 Miles of ever-ringing phone, and keep an eye on their bookshop survived, when 50 or so Books” suddenly became “18”. Some Jew- people browsing the dollar carts outside others went under, because his father had ish patrons of the Strand pointed out that, (“We prosecute everybody”). Gradually taught him what he knew. in Hebrew, 18 is also the numerical value of the business covered so many creaky At the buying counter his father some- the word chai—meaning “life”. 7 THE BUSINESS CASE FOR OPENNESS Implementing January 23rd strategy in a 2018 drawbridge-up Davos world

Speakers include:

JONATHAN AUERBACH JEAN-PHILIPPE COURTOIS HUGH JOHNSTON MIKI TSUSAKA Executive vice-president, Executive vice-president Vice-chairman and Senior partner, chief strategy and president, Global Sales, chief financial officer managing director, and and growth officer Marketing and Operations, PepsiCo chief marketing officer PayPal Microsoft The Boston Consulting Group

There is a growing awareness among investors about The Business Case for Openness, a breakfast panel hosted the value of engaging constructively with big global by The Economist Events, will focus on how to implement issues and building agile alliances in a world flirting business strategy that reflects social values while also with protectionism. achieving return-on-investment goals during turbulent times.

@EconomistEvents businesscase.economist.com #EconBusinessCase

Supported by