The Economist June 24Th 2017 5

Saudi Arabia’s risky succession

Is the Fed bad for productivity?

Hong Kong: 20 years of coping with China

Fire-proofing tower blocks JUNE 24TH–30TH 2017Modi’s India The illusion of reform Always one step ahead of the game.

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8 The world this week Asia 33 Free speech in India Leaders Falling into line 11 Modi’s India 34 Mongolian politics The illusion of reform Herd it all before 12 Divided Britain 35 North Korea The tower and the anger Another victim 12 American health care 35 Smoking in Japan Sunlight needed Passive obsessive 13 The Saudi monarchy 36 Banyan The new crown A shake-up in Riyadh Gay rights in Asia Saudi Arabia prince should curb his 14 Human rights in Hungary impetuousness abroad and Stop spoiling Viktor Orban China pursue reform at home: leader, India Narendra Modi is not as 37 Hong Kong under China page13. King Salman’s choice much of a reformer as he Letters Twenty years on of a new successor was both seems: leader, page11. As shocking and predictable, 16 On Japan, Chinese prime minister, he has done page 41. The world’s biggest oil officials, MPs, tax, tech Middle East and Africa a decent job administering company cannot be seen in unicorns and punctuation the Indian economy but not 41 Saudi succession isolation from the kingdom enough to reform it, page 20. The new number two that it bankrolls, page 55 India’s normally raucous Briefing 42 Escalation in Syria democracy is becoming more 20 India’s economy The Iranian envelopment subdued, page 33. The The constant tinkerer 42 Israel’s culture wars billion-dollar meat industry A horse walks into a bar is in limbo, page 58 fight United States 43 Zambia 23 Privatisation Road-rage rules The Economist online The art of the deal 43 African travellers Daily analysis and opinion to 24 Gerrymandering No papers, no passage supplement the print edition, plus Boundary police 44 Democracy in Africa audio and video, and a daily chart 24 Government waste First we take Nairobi Economist.com An improper mess E-mail: newsletters and 25 Children’s welfare Health care For Senate mobile edition Foster the people Europe Republicans to rush through a Economist.com/email 26 Policing and race 45 Hungary’s young liberals sweeping health-care reform Print edition: available online by Measuring bias Magyars en marche! without scrutiny would be 7pm London time each Thursday 28 Georgia’s sixth district 46 France gets a government reckless and undemocratic: Economist.com/print A kick in the Ossoff Macron mixes ministers leader, page12 Audio edition: available online 29 Lexington 47 Dutch refugee policy to download each Friday America First Keep them away Economist.com/audioedition 47 Romania yanks its leader A good man is hard to find The Americas 48 Naples’ baby gangs 30 Cuba and Trump Young blood Looking backwards 49 Charlemagne 31 Bello Volume 423 Number 9046 Germany’s pipeline to Who governs Peru? Russia Published since September1843 32 Canada to take part in "a severe contest between intelligence, which presses forward, and Lassoing icebergs an unworthy, timid ignorance obstructing 32 Mexico our progress." Hacking the hacks Hungary When a country’s Editorial offices in London and also: prime minister erodes Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Lima, Mexico City, Moscow, Mumbai, Nairobi, democracy, Europe should New Delhi, New York, Paris, San Francisco, punish him: leader, page 14. São Paulo, Seoul, Shanghai, Singapore, Tokyo, Inspired by Emmanuel Macron, Washington DC a new party challenges Viktor Orban, page 45

1 Contents continues overleaf 6 Contents The Economist June 24th 2017

Britain 69 Basic incomes in Finland Northern pilot 50 After Grenfell Tower Embers still glowing 69 Argentina’s 100-year bond 51 Terrorism in London Bully-beef bulls Attacked at prayer 70 Free exchange 52 Bagehot The Fed and productivity Philip Hammond, the designated adult Science and technology International 71 Exoplanets Hong Kong Since its return to Sorting the sky The Fed Janet Yellen’s doubts 53 Fire safety China 20 years ago this week, about America’s poor Death in the city 72 Zoonotic disease the territory has seen its Unknown unknowns productivity could prove economy go sideways. Blame 73 Political morality self-fulfilling: Free exchange, politics, page 37. Now that Business Talk is not cheap page 70 Chinese stocks and bonds have 55 Saudi Aramco’s IPO 73 Antibiotics been included in global A king-to-be’s ransom indices, investors will have to The enemy of my enemy Subscription service 56 Amazon buy them, page 65 74 Agriculture For our latest subscription offers, visit Whole hog Silence, please Economist.com/offers For subscription service, please contact by 58 Uber telephone, fax, web or mail at the details Gear change provided below: Books and arts 58 India’s meat business North America The Economist Subscription Center Meatpacking district 75 Classical music In pursuit of perfection P.O. Box 46978, St. Louis, MO 63146-6978 59 Retailing in Pyongyang Telephone: +1 800 456 6086 76 Johnson Facsimile: +1 866 856 8075 Minisocialist E-mail: [email protected] Chatty Cathy and Taciturn 60 General Motors Latin America & Mexico Tom The Economist Subscription Center Shrink to fit P.O. Box 46979, St. Louis, MO 63146-6979 77 Democracy’s discontent Telephone: +1 636 449 5702 60 Artificial intelligence Where do we go from here? Facsimile: +1 636 449 5703 Deep minds for hire E-mail: [email protected] 77 South Korean fiction 61 Cisco Dark before the dawn Subscription for 1 year (51 issues) Tower blocks and fires As the Flicking the switch United States US $158.25 (plus tax) 78 Performance art planet urbanises, life in tall 62 Schumpeter Canada CA $158.25 (plus tax) Body talk Latin America US $289 (plus tax) buildings is becoming more Semper Fidelity common. It need not be dangerous, pages 53. 80 Economic and financial Principal commercial offices: A horrific fire in London raises Finance and economics indicators 25 St James’s Street, London sw1a 1hg more questions for Theresa 65 Global indices Statistics on 42 economies, Tel: +44 20 7830 7000 May’s embattled government: Made in China plus a closer look at drug Rue de l’Athénée 32 leader, page12. Anger grows use 1206 Geneva, Switzerland 66 Hong Kong Tel: +4122 566 2470 over a catastrophe and the Down market? government’s slow response, 750 3rd Avenue, 5th Floor, New York, NY 10017 page 50 66 Aircraft finance Obituary Tel: +1212 5410500 Maximum altitude 82 Helmut Kohl 1301Cityplaza Four, 67 Buttonwood 12 Taikoo Wan Road, Taikoo Shing, Hong Kong Germany’s helmsman Tel: +852 2585 3888 Fund management Other commercial offices: 68 Barclays and the SFO Chicago, Dubai, Frankfurt, Los Angeles, Capital charges Paris, San Francisco and Singapore 68 Financial technology Licence to bill

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Cuba. New rules will make it infected with the Pegasus being released. He was arrest- Politics harder for American tourists to software are Carmen Ariste- ed in January 2016 forstealing visit by obliging some to join gui, a journalist who has been a propaganda placard while group tours rather than letting critical ofMexico’s president, visiting Pyongyang as a tourist. them travel as individuals. Enrique Peña Nieto, and em- In March 2016 he fell into a American citizens and firms ployees ofCentro Prodh, a coma for reasons that remain will not be allowed to do group that worked with fam- unclear, and was returned to business with Cuban en- ilies of43 students who dis- America earlier this month “on terprises controlled by the appeared in 2014. humanitarian grounds”. Three army, including many hotels. American citizens are still in Family fortunes North Korean jails. Donald In Atlanta’s suburbs, the most Saudi Arabia’s monarch, King Trump said it was a “total expensive race ever for Ameri- Salman, named his son Mu- disgrace” that Mr Warmbier ca’s House ofRepresentatives hammed bin Salman as crown was not released sooner. resulted in a victory forthe prince, putting him next in line Republicans’ Karen Handel, to the throne. The move Islamic terrorists on the island Theresa May launched her who defeated the Democrats’ marked a sharp breakwith ofMindanao in the southern minority Conservative govern- Jon Ossoff, a 30-year-old film- Saudi tradition. The new Philippines attacked an army ment’s slimmed-down pro- maker. Ms Handel takes the crown prince is known for post and then briefly seized a gramme forgoverning Britain seat vacated by Donald impetuousness abroad (he nearby school. The attacktook over the next two years. The Trump’ssecretary ofhealth, backed a military intervention place about 80km south ofthe speech, as usual, was read out Tom Price. Republicans have in Yemen). At home he favours city ofMarawi, where the by the queen, but without held the seat since 1979; a loss bold economic reforms, such army has been battling Mus- much ofthe normal ceremony. would have been a great blow as selling shares in the national lim militants forweeks. The prime minister also used forthe party. oil firm. the speech as an opportunity A prominent pro-democracy to dump controversial mani- A blast in Bogotá An American fighter jet shot politician in Hong Kong, festo promises on social care, An explosion at a shopping down a Syrian warplane that Cheung Man-kwong, was selective education and cor- centre in Bogotá, Colombia’s had been preparing to bomb allowed to cross the border porate governance. capital, killed three women American-backed rebels who into mainland China forthe and injured 11people. The are fighting Islamic State. first time in nearly 30 years. A van driven by an anti-Mus- attackhappened on a busy After the crushing ofthe Tia- lim extremist rammed wor- weekend when many people Fighting resumed in the town nanmen Square protests in shippers leaving a mosque in were shopping for Fathers’ ofBria in the Central African 1989, China blocked visits by London’s Finsbury Parkneigh- Day. The government called it Republic, leaving as many as some people in Hong Kong, bourhood. Several people a “terrorist act”. Investigators 100 people dead. This is de- such as Mr Cheung, who had were injured and one subse- have not named any suspects. spite the signing ofa peace supported the unrest. In recent quently died. The assault is the agreement by almost all ofthe months it seems to have eased latest in a string ofattacks in The ELN, a guerrilla group, country’s armed militias. restrictions on some ofthem. Britain’s capital. kidnapped two Dutch journalists near Colombia’s border Islamic State (IS) fighters blew How much is that doggie? Forest fires in Portugal killed at with Venezuela. They were up the Great Mosque ofal-Nuri least 64 people and burned looking forthe Colombian in Mosul, Iraq, as government more than 26,000 hectares of mother ofa child adopted in forces advanced on it. The land as temperatures topped the Netherlands. mosque became a powerful 40°C. More than 2,000 fire- symbol for IS in 2014 when its fighters were deployed to fight leader, Abu Bakr al-Baghdadi, the blazes. used its pulpit to announce the formation ofhis caliphate. Emmanuel Macron’s party, La République En Marche! and its The Catholic church released a allies, won a majority of350 report saying that at least 3,383 seats in France’s 577-seat people have been killed since National Assembly. The oppo- October in the central Kasai sition Republicans and their region ofthe Democratic A controversial dog-meat allies took136, while the Social- Republic of Congo in fighting festival began in the southern ists and theirs ended with just between the government and Chinese city ofYulin. The 45. Three days later, the presi- rebel forces. The church’s annual event has triggered dent reshuffled his cabinet Spyware sold to Mexico’s research on the violence pro- widespread protests by ani- after fourministers resigned in government forsnooping on vides the most authoritative mal-rights groups in China connection with financial criminals has been found on estimate so far ofthe number and elsewhere because ofthe inquiries. the mobile phones ofpromi- ofcasualties. brutal way in which dogs are nent journalists and human- sometimes slaughtered for Edit undo rights activists, according to An outrageous death their meat. Despite reports that Donald Trump, America’s investigations by the New York Otto Warmbier, an American the authorities would tone president, said he would par- Times and other organisations. student jailed by North Korea, down this year’s event, dead tially reverse his predecessor Among the 15 people identified died on Monday in his home dogs were reportedly dis- BarackObama’s opening to so farwhose phones were state ofOhio, a few days after played forsale on hooks. 1 The Economist June 24th 2017 The world this week 9

nies listed in mainland China shares fell by more than 60% in earlier offerfor$100m less Business in its widely followed emerg- April when Apple, its largest from Yancoal, the Australian ing-markets equity index, customer, announced it would subsidiary ofa Chinese coal Travis Kalanickresigned as which is tracked by managers no longer use the firm’s tech- firm, offered greater “transac- Uber’s chiefexecutive. The with $1.6trn in assets. The nology in its new phones. tion security” to shareholders. ride-hailing firm has come firms’ shares will account for under fire forits abrasive cor- 0.73% ofthe total index, adding Britain’s Serious Fraud Office Lofty expectations porate culture and a series of to the 28% already made up of charged Barclays, a bank, its Vice Media secured a $450m sexism scandals, among other Chinese shares listed else- formerhead, and three other investment from TPG, a priv- things. Mr Kalanickhad al- where. MSCI held offon up- formerexecutives with fraud ate-equity firm. The deal val- ready announced an indefinite grading Argentina from a over deals with Qatar in 2008 ues the media upstart, which leave ofabsence. That was not frontier market to an emerging that helped keep the bank also counts Disney and Rupert enough forfive ofthe firm’s big market, contrary to the expec- afloat. The bankraised a total Murdoch’s 21st Century Fox shareholders, who signed a tations ofsome. of£11.8bn ($21.4bn) in capital among its shareholders, at a letter demanding his depar- that year, much ofit from the whopping $5.7bn. ture. He will continue to serve Argentina nonetheless sold Qatari sovereign-wealth fund on Uber’s board. $2.75bn in 100-year dollar- and a fund representing the denominated bonds, joining country’s then prime minister; In its prime the likes ofMexico, Ireland and the bankgranted the Qatari Amazon, an American in- Belgium in issuing such “cen- government a $3bn loan facili- ternet giant, announced that it tury bonds”. Argentina is the ty that November. The case would acquire Whole Foods, first to do so without the bene- marks the first criminal char- a fancy supermarket chain fit ofan investment-grade ges to be filed against the head specialising in organic food, for rating, having only recently ofa big international bank as a $13.7bn. Share prices ofother returned to international result ofthe financial crisis. grocery stores plunged in the capital markets. Demand from expectation that Amazon will investors was strong, although Frackers unite change not just Whole Foods, the country has defaulted eight EQT Corporation, an Ameri- but the whole sector. times on its sovereign debt can natural-gas firm, agreed to Boeing unveiled a new, larger since 1824. acquire its competitor, Rice version ofits 737 narrow-body The Bank of England voted to Energy, in a $6.7bn deal. Both aeroplane at the Paris Air keep interest rates at 0.25% in Russia also sold more than firms are based in Pennsylva- Show. The 737 Max10 can fit light ofBritain’s weakecon- $3bn in sovereign debt, much nia and focus on fracking. The up to 230 passengers and has omy, despite higher-than- ofit to Western investors, in new firm will be America’s already won 240 orders. Air- expected inflation of2.9%. The only its third issue after the largest natural-gas producer. bus revealed new fuel-efficien- bankreckons inflation could imposition ofsanctions over cy improvements forits A380 rise above 3% in the autumn, the conflict in Ukraine in 2014. Rio Tinto, an energy giant, superjumbo, which received and remain above its 2% target rejected a $2.6bn bid forits no new orders last year. foran extended period, due to Imagination Technologies, a Australian coal assets from a weakening pound. The bank British chip designer, put itself Glencore, a Swiss commod- Other economic data and news also appointed Silvana Ten- up forsale. The company’s ities firm. Rio’s boss said an can be found on pages 80-81 reyro, a professor at the Lon- don School ofEconomics and a critic ofBrexit, to its mone- tary-policy committee.

America’s current-account deﬁcit widened to $117bn in the ﬁrst quarter ofthis year, up by 2.4% from the last quarter of 2016. That was still less than analysts had expected.

Klarna, a Swedish payments firm, gained a banking licence. The firm, which has 60m customers across Europe and processed €13bn ($14.7bn) in transactions last year, is the largest European financial- technology firm so farto become a fully fledged bank.

The integration ofChina into the world’s ﬁnancial markets tookanother step as MSCI, an index provider, decided to include shares of222 compa- Slackiswhereworkhappens,formillionsofpeople around the world, every day. Find out why at slack.com. Leaders The Economist June 24th 2017 11 Modi’s India

The prime ministeris not as much ofa reformeras he seems HEN Narendra Modi be- deterring companies from hiring them formally. Property pur- Wcame prime ministerofIn- chases are a forbidding quagmire; the government, at a mini- dia in 2014, opinion was divided mum, should try to improve the quality of registers to reduce as to whether he was a Hindu the scope for disputes. zealot disguised as an economic Political conditions are about as propitious for reform as reformer, or the other way they are ever likely to be. Mr Modi’s government is the stron- round. The past three years ap- gest in decades. It has a big majority in the lower house of par- pear to have settled the matter. liament and is edging closer to control of the upper house, as Yes, Mr Modi has pandered to religious sentiment at times, well. It runs most big states. The opposition is hopeless. most notably by appointing a rabble-rousing Hindu prelate as There are economic tailwinds, too. India is a bigimporter of chief minister of India’s most-populous state, Uttar Pradesh. oil; the low price of late has been boosting growth by perhaps But he has also presided over an acceleration in economic two percentage points a year. Ageing has long weighed on growth, from 6.4% in 2013 to a high of7.9% in 2015—which made Western economies and is starting to sap China’s. India, by India the fastest-growing big economy in the world. He has contrast, is still young. Over a quarter ofthe people joining the pushed through reforms that had stalled for years, including world’s workforce between now and 2025 will be Indian. And an overhaul of bankruptcy law and the adoption of a nation- there is enormous scope forcatch-up growth: India is the poor- wide sales tax (GST) to replace a confusing array of local and est of the world’s 20 biggest economies. By rights, it should be national levies. Foreign investment has soared, albeit from a surpassing others’ growth rates for years. low base. India, cabinet ministers insist, is at last becoming the Mr Modi, in short, is squandering a golden opportunity. tiger Mr Modi promised. Some apologists claim that he is waiting until he wins a major- Alas, these appearances are deceiving (see page 20). The ity in the upper house before taking on bigger reforms. Ifso, he GST, although welcome, is unnecessarily complicated and bu- has given no inkling of what he is planning. In fact, he has not reaucratic, greatly reducing its efficiency. The new bankruptcy even made clear that economic reform is his priority. law is a step in the right direction, but it will take much more to revive the financial system, which is dominated by state- More a chauvinist than an economist owned banks weighed down by dud loans. The central gov- As prime minister, Mr Modi has been just as careful to court ernment’s response to a host of pressing economic problems, militant Hindus as jet-setting businessmen. His government from the difficulty of buying land to the reform ofrigid labour recently created havoc in the booming beef-export business laws, hasbeen to passthem to the states. And atleast one ofthe with onerous new rules on purchases of cattle, in deference to big reforms it has undertaken—the overnight cancellation of Hindus’ reverence for cows (see page 58). Yogi Adityanath, the most of India’s banknotes in an effort to curb the black econ- man he selected to run UttarPradesh, isunderinvestigation for omy—was counterproductive, hamstringing legitimate busi- inciting religious hatred and rioting, among other offences. nesses without doing much harm to illicit ones. No wonder The fear is that, if the economy falters, Mr Modi will try to the economy is starting to drag. In the first three months of the maintain his popularity by stirring up communal tensions. year it grew at an annualised rate of 6.1%, more slowly than That, after all, is how his Bharatiya Janata Party first propelled when Mr Modi came to power. itself to government in the 1990s. Mr Modi himself was chief minister of Gujarat in 2002 when rioting there killed at least More an administrator than a reformer 1,000 people, most of them Muslims. To this day, he has never India’s prime minister, in short, is not the radical reformer he is categorically condemned the massacre or apologised for fail- cracked up to be. He is more energetic than his predecessor, the ing to prevent it. statelyManmohan Singh, launchingglitzyinitiativeson every- Under Mr Modi, debate about public policy, and especially thing from manufacturing to toilet-construction. But he has about communal relations, has atrophied (see page 33). Hindu not come up with many big new ideas ofhis own (the GST and nationalist thugs intimidate those who chide the government the bankruptcy reforms date back long before his time). His for straying from India’s secular tradition, or who advocate a reputation as a friend to business rests on his vigorous efforts less repressive approach to protests in Kashmir, India’s only to help firms out of fixes—finding land for a particular factory, state with a Muslim majority. One of the few media compan- say, orexpediting the construction ofa power station. But he is ies that dares to criticise the government has been raided by not so good at working systematically to sort out the underly- police on groundsthatwould notnormallyattractsuch heavy- ing problems holding the economy back. handedness. MrModi himselfhasbecome the objectofa syco- India does not just need power stations and parcels of land phantic personality cult. The prime minister may intend all for development. It needs functioning markets for electricity this as a way to keep winning elections. But it is not hard to and land—and capital and labour, for that matter. Lending to imagine it going disastrously wrong. industry is contracting, for the first time in 20 years; Mr Modi Mr Modi’s admirers paint him as the man who at last un- should recapitalise state-owned banks and sell them off, to get leashed India’s potential. In fact, he may go down in history loans flowing again. He should be working to simplify the for fluffing India’s best shot at rapid, sustained development. over-exacting labour law, which perversely harms workers by And the worries about a still darker outcome are growing. 7 12 Leaders The Economist June 24th 2017

Divided Britain The tower and the anger

A horrific London fire raises more questions forTheresa May’s embattled government T FEELS as if Britain has been plaints that hit home most deeply after Grenfell Tower were Ivisited by a battalion of sor- that the building had been clad on the cheap, that the local rows. Deadly attacks by,and this council hadno capacityto respond to the disasterand thataus- week against, Muslims have terity has been imposed for longer and more harshly on the shattered the belief that the se- poor—the very people who lived in the tower. curity services can shield Britain That has two implications. The first is how a focus on pay- from the terrorism afflicting the ing for public services will affect the issue that will dominate continent. A minority govern- this parliament. In setting out her aims for the Brexit negotia- ment has taken office under a prime minister who has no au- tions, which got under way this week, Theresa May made con- thority,usheringin chronicinstability.And, asifto symbolise it trolling immigration a priority.Everything flowed from her in- all, an inferno at the Grenfell Tower in London’s richest bor- sistence that Britain had to get immigration down to 100,000 ough claimed at least 79 lives of its poorest residents. Britons or fewer, ideally within the next five years. Yet, if limiting aus- are searching fora moral that measures up to the catastrophe. terity is now the aim, immigration must fallright down the list. Many possible morals have been overblown, sometimes to Instead, Brexit should be about doing the best for the econ- the point of exploitation. Capitalism has not failed. Britain’s omy—as the chancellor, Philip Hammond, said this week (see tall buildings should not, as some say,be branded unfit forhu- Bagehot). Being open to immigration makes a compromise man habitation—but be made safer instead (see page 53). The over access to EU markets easier and boosts growth directly. fire at Grenfell Tower was not the fault of European Union regulation: other countries ban the exterior cladding that is A time forhonesty thought to have spread it, as Britain claims to for tall buildings. The second implication isthatBritain needsa debate aboutthe This was not an indictment of private property or a justifica- balance between public services and taxes. At the moment, tion forexpropriating nearby houses, however rich their own- voters demand standards of health care, education and local ers. It was a moment for people to take care of grieving neigh- government forwhich they seem unwilling to pay. MrCorbyn bours made homeless. Nor was it an argument against promised that someone else will do so: the very rich and com- deregulation. Having too many rules leads to a culture of non- panies. But the very rich will leave the country and companies compliance that is every bit as lethal as having too few.And it will pass taxes on to citizens. An honest debate would focus does not mean that public works should never be put out to not only on tax rates but also on value for money. It might in- tender. Run well, contracts use competition to raise standards. volve more efficient regulation and outsourcing services that The most important lesson of the past few weeks is less far- can be better supplied by private firms—the things the rushers- reaching. Britons are tired ofausterity (see page 50). In the elec- to-judgment condemned after Grenfell. tion campaign, Labour’s promise of greatly increased public Do not imagine that this debate will be easy or civilised. It spending appealed to voters who have felt Tory cuts begin to will be fought on the picket line and in the street as well as in bite. When Jeremy Corbyn, Labour’s leader, blamed terrorism Parliament. But it must take place, and its outcome will deter- on police cuts, many people agreed with him. And the com- mine Britain’s path foryears to come. 7

American health care Sunlight needed

Rushing through sweeping health-care reform without scrutiny would be reckless and undemocratic ITCH McCONNELL, the Why the hush, hurry and hypocrisy? Mr McConnell wants American health insurance Mleader of the Republican to minimise the opportunity forcritics to campaign against his Number of people without cover, m majority in the Senate, once proposals. When the House of Representatives considered its House plan 60 Actual complained that President Ba- bill this year, the schedule was unusually tight. But there was 40 rack Obama’s health-care bill still enough time for angry protests to spook some Republican Current law 20 was thrown together in a back congressmen. The bill wasdelayed. Eventually it passed after a FORECAST 0 room and then dropped on the minor amendment made a small concession to its critics. Re- 200005 10 15 20 26 Senate ﬂoor “with a stopwatch publican senators, eager to move on to tax reform, do not want running”. Now he has made the tactic his own. Mr McConnell more delays before they “repeal and replace” Obamacare. If hopes to call a vote on a health-care bill that will have barely theypassa bill before a recess, neitherconstituents noranyone left the printer’s. A week before a vote that could remake a else will have much ofa chance to rally opposition to it. sixth of the economy, even many Republican senators claim The Senate may only tweak the House bill. If so, Republi- not to know what the bill contains. cans will argue that their ideas have already received plenty of 1 The Economist June 24th 2017 Leaders 13

2 public attention—except that their ideas have not withstood have access to champagne, so long as they can afford it. Tom scrutiny. Just ask President Donald Trump who, having cele- Price, the health secretary,has even denied that the House bill brated the House bill’s passage in the Rose Garden, now says will reduce Medicaid coverage, perhaps because the president thatitistoomean.Thebillwouldgraduallyunwind the expan- promised to leave Medicaid alone during his campaign. sion of Medicaid, health insurance for the poor, which is re- Republicans say that federal regulations unfairly restrict sponsible for providing an additional 12m Americans with consumer choice. But the reality of insurance markets is that, cover. It would repeal tax increases, mostly for the rich, that when possible, firms will design policies so as to attract only paid forthisexpansion. And itwould give statesthe rightto opt low-risk customers. Obamacare’s regulations stop those with out of some of Obamacare’s regulations. For instance, states chronic conditions, such as HIV or diabetes, from being priced could let insurers cap the amount ofcare they will fund during out of the market. Like the goal of universal coverage, these any one patient’s lifetime, a practice that is banned today. protections are popular. It is bad enough that states may be al- The justification for this is rooted in sound federalism: the lowed to gut them. Republicans maylaterdecide to let insurers idea that states, not Washington, should write policy when in deregulated states sell policies nationwide—meaning that possible. Republicans point to real problems with Medicaid, firms in states that kept to the rules would quickly lose healthy which is structured to encourage wasteful spending. They also customers to cheaper, deregulated providers. Many states identify trouble with Obamacare’s insurance markets, which would be without a functioning market forhealth care. have been plagued by rising premiums and the departure of The Senate should rewrite the House bill. Rethinking dereg- insurers (though the Trump administration is to blame for the ulation would be a start. It is possible to come up with well- latest palpitations, because it has threatened to cut off pay- funded mechanisms to improve on Obamacare without strip- ments to insurers that are crucial to Obamacare’s design). ping health coverage from millions ofAmericans. But in fragile Yet more federalism in health care would lead to many insurance markets the details matter. All the more reason to states leaving the poor and sick without decent coverage. give the public, the press and the opposition time to scrutinise Americans rightly think that would be intolerable in a rich the bill—time that they are entitled to in any event. As things country. Six in ten say that the federal government should stand, Senate Republicans seem more interested in passing a make sure everyone is covered. Republicans choose not to con- bill than winning the argument. They are unwilling to defend test the point. Instead, they promise vaguely that everyone their ideas, even when dealing with the lives and deaths of will have “access to” insurance—a bit like saying everyone can their voters. 7

Succession in Saudi Arabia A shake-up in Riyadh

The newcrown prince should curb his impetuousness abroad and pursue reform at home HEN King Salman acced- gion are tearing at the region, and many Arab states have col- Wed to the Saudi throne in lapsed into civil war. Yet rule by a callow, hot-headed prince 2015, it was plain that his son, could be just as dangerous as stagnation under a gerontocracy. Muhammad, wielded the real Intelligent, ambitious and willing to entertain new ideas, power. He may formally have MBS shows much promise, but a worrying tendency to act been second in the line of suc- rashly. Abroad, he pushed his country to intervene in Yemen’s cession, but Muhammad bin civil war. This is now in its third year and has reached a grim Salman (known as MBS) ran stalemate; Yemenis, already the poorest Arab nation, have be- most ofthe things that mattered: the plan to transform the Sau- come even more wretched through bloodshed, hunger and di state and wean the economy away from oil; the war in Ye- disease. MBS isalso thoughtto be behind the recentdiplomatic men and the widercontestagainstShia Iran; and much else be- assault on Qatar. Saudi Arabia and several Arab countries sides. When he gave his first on-the-record interview, to The have cut land, sea and air links with the emirate, on vague ac- Economist in January 2016, MBS spoke about Saudi Arabia in cusations that it supports terrorism (a charge often levelled at the first person—talking of“my borders”. the Saudis, too). On the face of it, the elevation of MBS to crown prince, re- At home, MBS presides over a country still too dependent placing his older cousin, Muhammad bin Nayef, means only on hydrocarbons. His gamble of allowing oil prices to fall to that his job title has caught up with reality (see page 41). Yet it drive out high-cost producers failed. More recently, an attempt rewrites the kingdom’s strange rules of succession. Whereas to support prices by co-ordinated production cuts has not power once passed along the line ofageing sons ofKing Abdel worked either. Now the Saudis face the worst of all worlds: Aziz Al Saud, the state’s founder, it now goes down the blood low oil prices and a falling market share fortheir crude. line of King Salman. No one would be surprised if Salman, This will make it harder for the prince to remake the Saudi who is 81, were to abdicate in favour ofhis 31-year-old heir. state and economy. His plan, known as Saudi Vision 2030, is a That the old brothers are no longerup to the taskof running radical programme of privatisation (cuts in subsidies and in- the kingdom is not in doubt. Saudi Arabia must prepare its vestments in non-oil industries). The first really big step is sup- youthful population (70% of Saudis are under 30) for a fast- posed to be the sale of 5% of the shares in Saudi Aramco, the changing world in which they will have to work for a living. world’s largest oil company (see page 55). This would be the Oil is likely to remain cheap for a long time, the politics of reli- world’s biggest listing—even if Aramco is worth less than the 1 14 Leaders The Economist June 24th 2017

2 $2trn that MBS places on it. The company is streamlining itself ica with Saudi interests, as defined by MBS, supporting the iso- to lookmore like a public company.Tax rates on Aramco’s pro- lation of Qatar against the better judgment of Rex Tillerson fits have been slashed from 85% to 50%, closer to international and James Mattis, the secretaries ofstate and defence. norms. But the prince’s tendency to micromanage and play Saudi Arabia matters immensely, both as a swing producer politics with the listing worries investors. of oil and as the birthplace of Islam. It has avoided the bloody upheaval that has rocked the Arab world of late, but its stabil- A young prince in a hurry ity is far from assured. So reform is urgent. MBS should share Saudis largely agree that theirsystem ofbountiful benefits and some power with modernising princes, while checking the ex- do-nothing public-sector jobs needs to change. But few wel- cessesofreligiousreactionariesand the sprawlingroyal family. come austerity.Faced with a backlash, the prince has revoked He should relax strict social controls, particularly on women, cuts in allowances and bonuses for civil servants; soldiers and encourage more debate and dissent. He should halt the fighting in Yemen were given a two-month pay bonus. Some pointless row with Qatar, and seek a political deal to end the princes now mockingly call MBS al-walad (the boy). Despite war in Yemen.That way he can focus on his biggest task: turn- these difficulties, or perhaps because ofthem, MBS is hurrying ing his country’s rentier economy into something more dy- to consolidate his power. He may feel encouraged by the namic. Having created a huge job for himself, MBS will be gung-ho way that President Donald Trump has aligned Amer- judged on whether he creates lots ofjobs foryoung Saudis. 7

Human rights in Hungary Stop spoiling Viktor Orban

When Hungary’s prime ministererodes democracy, Europe should punish him N 1989, during the dying days spurious respectability by Fidesz’s membership of the Euro- Iof the Soviet Union, a long- pean People’s Party (EPP), a big group of centre-right parties in haired 26-year-old dissident the European Parliament. Belatedly, the EPP’s leaders are pub- called Viktor Orban addressed a licly criticising Mr Orban; they should go further and kick Fi- crowd in Budapest’s Heroes’ desz out oftheir club. Square. The charismatic young The EU should use upcoming budget negotiations to apply liberal told the Russians to with- fiscal pressure, too. Hungary is a big recipient ofthe aid dished draw from Hungary. He rejected out to its poorer members, receiving nearly €6bn ($6.7bn) a “the dictatorship ofa single party”. He called forfree elections. year. More than 95% of public investment projects in Hungary How things change. Today Mr Orban, Hungary’s prime are co-financed by the EU. In general the EU should stay out of minister, is one of Vladimir Putin’s closest friends in Europe. members’ internal affairs, but governments that flagrantly vio- His country is increasingly dominated by one party, his own. late democratic norms should face sanctions, such as receiving Elections may be free, but they are not fair. Mr Orban has re- fewer handouts from EU structural funds. (German politicians written the constitution, dismantled checks and balances (“a favour similar sanctions for those, like Hungary, that fail to ac- US invention” unsuited to Europe, he says), muzzled the press cept their share ofrefugees.) At the very least, the EU should do and empowered oligarchs. Refugees, who supposedly threat- more to stop European taxpayers’ money from being stolen. en Hungary’s Christian identity, are beaten by police and The European Anti Fraud Office uncovered “fraud and possi- mauled by police dogs. Debates over values, Mr Orban thinks, ble corruption” amounting to €300m in the construction of “unnecessarilygenerate social problems”. He wantsto fashion just one subway line in Budapest (Fidesz blames the previous an “illiberal state” modelled on China, Russia and Turkey. government). Hungary refuses to join the European Public Mr Orban has recently escalated his attackon Hungary’s re- Prosecutor’sOffice, a newanti-graftbody. Doingso should be a maining independent institutions (see page 45). In April his Fi- condition forreceiving any more EU cash. desz party passed a law that threatens to close the respected Central European University in Budapest, which was founded Hungary forjustice by George Soros, a Hungarian-American philanthropist Some fret that if the EU confronts Mr Orban, he will try to turn whom Mr Orban detests. Last week the government passed a Hungarians against it. But that would be a perilous strategy for law to force NGOs to disclose whether they receive foreign him, and one he has already tried, with little success. Mr Or- funds. Mr Orban’s creeping authoritarianism is not just a pro- ban has spent the past two years attackingEurope over its refu- blem for Hungary. It is a direct challenge to the “fundamental gee policy, and has erected billboards across the country pro- values” of the European project—values that Hungary accept- claiming “Let’s Stop Brussels!” Yet the EU remains popular. ed when it ratified the Lisbon treaty. Where Hungary leads, Three-quarters ofHungarians want to remain members of the others may follow; Poland already has. “We were black sheep, union. More trust the EU than their own national government. but now we are a success story,” MrOrban crowed after the in- A huge majority of Hungarians say it is “very important” to auguration ofDonald Trump, whose nationalism he admires. live in a place where democratic principles are respected, and Fortoo long, the EU has turned a blind eye to MrOrban’s ex- while some do not think Mr Orban is violating them, others cesses. Happily, thatmay at last be changing. There is talkin the do. The memory of Soviet tanks on Hungarian streets still lin- European Parliament of stripping Hungary of its voting rights gers; formany in Hungary, Europe represents freedom. The EU in ministerial discussions. For years Mr Orban has been lent a should not let them, or itself, down. 7 PERFECTLY REFLECTING A NAME OF LEGEND

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Japan and UN rapporteurs grand political schemes, such or, forthat matter, journalists. rates have been under1% since as the effortto limit Beijing’s “Smarts” generally lacknous, 2008. Institutional investors The Japanese government population to 23m people. But and all too often lackintegrity, starved ofreturns have flocked fully co-operates with the UN’s it also foments disdain to- as the past decade has deci- in droves to riskier asset class- special rapporteurs (“Bristling wards public servants, who sively shown. es, such as private startups. with indignation”, June10th). seem to be aloofmost ofthe ANDREW MITCHELL This has ballooned their However, like any other coun- time and turn oppressive London valuations within the private try,we may refute inaccurate when pressed from above. market. comments ifthey make unilat- Obsessed with his fight Taxpoint But all that must and will eral assertions. In 2015the against corruption in the past eventually come to an end, rapporteur on the sale ofchil- fouryears, President Xi Jinping “AnORSome wheeze” (May and the many retail and less dren admitted that there were should take a moment to recall 27th) painted a highly jaun- sophisticated investors who no objective data supporting a lesson from his teenage diced portrait ofHong Kong’s tend to get caught up in the her estimate, after Japan chal- years. It’s not always the venal Occupational Retirement glitzy hype ofunicorn initial lenged the figures. The report governors who plague the Scheme, suggesting it is used public offerings on the stock- by a special rapporteur on nation: the callous ones do as by the “rich and tax-shy”. market should not be left violence against women con- well. However, Hong Kong has holding the empty bag. tained evidence that later LIU YIKE taken a robust approach to the Companies such as Zynga, turned out to be a fabrication. Yueyang, China Common Reporting Standard Twitter, Groupon and GoPro Recently,we complained on tax evasion. The real con- have been epic failures post- IPO about a letter written by a The best and the brightest cern is about the appalling , their share prices trading rapporteur on privacy,as the standards ofdata protection of 75% below their all-time highs. Japanese government had taxpayer-information among Many less visible unicorns been given no opportunity to many ofthe CRS’s nearly100 have had a similar fate, albeit explain its position before he signatories. only after seed investors have publicised the letter. Wepoint- Ifyou are a wealthy person reaped the benefits. ed out that the draft bill to fulfil living in a developing country There was once a time the obligations ofthe UN (and yes, there are many) then when only the owners and Convention against Transna- you have a legitimate worry founders ofprivate businesses tional Organised Crime is that your private data—for that had established consistent restrained in comparison with example the account numbers, profits and practised good the domestic laws ofthe sort codes and current bal- governance were rewarded treaty’s187 parties. ances ofyour foreign bank with the successes ofan IPO. On the recent report by the accounts—will end up in the Perhaps we should all return to rapporteur forfreedom of hands ofcorrupt civil servants, those times ofaccountability expression, with whom we Bagehot is right that we need thieves or kidnappers. This is rather than expect the public have already been in touch, let higher-calibre MPs in Parlia- the real reason the “rich” are markets to teach the unicorns me emphasise that the Japa- ment (June 10th). However, his frequently seeking out coun- common sense. nese government has been beliefthat academic achieve- tries with sensible CRS-imple- ALEJANDRO PERELLÓN and will remain fully commitment is the best indicator of mentation policies. New York ted to freedom ofexpression leadership talent is misplaced. Toconflate an understand- and freedom ofthe press. Harold Wilson’s cabinet in the able desire to preserve confi- I must dash NORIO MARUYAMA mid-1960s had seven first-class dentiality with an intention to Press secretary degrees from Oxbridge, but evade tax is simplistic and Johnson’s welcome article Ministry of Foreign Affairs of collapsed into chaos by1970. misleading. Life, as always, is about hyphens (June 10th), Japan Neither ofour two great war- farmore complex. leads me to suggest that you Tokyo leaders, David Lloyd George JAMES QUARMBY follow up with a piece about and Winston Churchill, nor Partner commas, which your newspa- China’s unfeeling officials the finest foreign secretary of Stephenson Harwood per does not use enough of, in the 20th century, Ernest Bevin, London my opinion. Just as bricking up Salary Alley attended university. RICK GREER in Beijing is a microcosm of Diversity is important, but Alice in IPO-land Morristown, New Jersey changes in China’s urban let us broaden the definition of planning, so the careless, if not “those who have already Most tech unicorns, which are Johnson’s ruminations over ruthless, manner in which it succeeded in their profes- individually worth at least punctuation reminded me of was done also reflects the sions” to include head teach- $1bn, do not generate a profit, the pedantic editor who ago- usual official haughty stance in ers, police and army officers, instead focusing on revenue nised over whether to use a handling domestic matters health professionals, entrepre- growth at all costs (“Not the hyphen in “anal-retentive”. (“Hollowed-out hutong”, May neurs, regional leaders, the enemy”, May 27th). As the red GEORGE KOVAC 20th). heads ofvoluntary organisa- inkflows some investors hope Miami 7 Such attitudes are only to tions, sportsmen and women they will one day rein in costs, be expected when local gov- and those from the creative while others believe they have ernments are bound by targets, industries. tapped into providing a service Letters are welcome and should be addressed to the Editor at deadlines and appraisal rat- What we definitely do not to customers who are accus- The Economist, 25 St James’s Street, ings set by senior policymak- need are more Oxbridge- tomed to receiving things free. London sw1A 1hg ers, instead ofbeing answer- educated special political Tech unicorns have sur- E-mail: [email protected] able to the public. It brings advisers, ambitious alumni of vived in this twilight zone of More letters are available at: about a blind obedience to Goldman Sachs and McKinsey, capitalism because interest Economist.com/letters

18 Executive Focus

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The Economist June 24th 2017 Executive Focus 19

PRESIDENT Narxoz University

Founded in 1963, Narxoz University is a distinguished private institution of higher education in Almaty, Kazakhstan’s business and banking centre. Narxoz was the first elite school established for the study of Economics in Kazakhstan and one of Eurasia’s education legacies. Narxoz graduates rank among Kazakhstan’s most successful leaders in government, business and banking. The University continues to focus on teaching Economics but includes multidisciplinary faculties devoted to teaching Economics, Finance, Management, Marketing, Law, International Affairs, Hotel Management, Tourism, Catering, Information Systems and Environmental Studies -- at the undergraduate and graduate level. In addition, the University hosts the International Business School (IBS), a dynamic business incubator centre, a satellite campus in Astana, the nation’s capital, as well as internship programs with the National Bank of Kazakhstan, the Ritz Carlton Hotels, among others. In recent years, Narxoz has undergone highly successful systemic reform and transformation of its management, academic curriculum, and facilities to align University practices with international education standards, accreditations and partnerships to position the University as a leader in innovation and research in Kazakhstan and the Central Asian region. For further information, see www.narxoz.kz. The Management Board of Narxoz University and the University’s patron, Verny Capital, seek outstanding candidates to serve as the next President of the University, beginning January 2018. The new President will report to the Supervisory Board of the University and will lead strategic development; assume direct control of the educational, academic, operational and fi nancial activities of the University; ensure sustainability of operations and use of University resources; and oversee effective interaction with state authorities and relevant institutions in Kazakhstan. The qualities that Narxoz seeks in its next President include strong institutional leadership, distinguished academic credentials, managerial abilities and an ability to relate to and inspire students of diverse nationalities. Required Qualifications: Doctorate degree in Economics or Business. Fluency in Russian and English. Established track record in academic administration with at least five years experience in senior academic administration. Ten years teaching experience and recognition among international higher education community. Experience in developing policy-reforms and relevant research initiatives. Ability to interact with students, colleagues and international business community members of diverse cultural backgrounds. Successful fundraising experience. Experience in international accreditations (e.g., EPAS, EQUIS and AACSB). Narxoz University’s Supervisory Board has retained Ward Howell International to assist in the international search effort. For further information on the position and additional details on qualifications, requirements please email Alexander Davydov, Partner, Ward Howell International at [email protected] and Lyndsay Howard at [email protected]. The closing date for applications is Friday, July 7.

Director, Migration Health Division Investigator (Geneva, Switzerland) - D1 Level (Manila, Philippines) – P4 Level The International Organization for Migration is inviting applications for the post of Director Migration Health Division at Headquarters in Geneva, The International Organization for Migration is inviting applications for the Switzerland. The Director’s responsibility is to oversee and coordinate global post of Investigator based at the Manila (Global) Administrative Centre activities of the Migration Health Division (MHD). in Manila, Philippines. The Investigator’s responsibility is to conduct investigations into alleged violations of IOM’s regulations, rules and MHD is a Division within the Department of Migration Management (DMM), relevant administrative instructions, such as but not limited to, fraud, theft with considerable thematic autonomy, responsible for the development of and embezzlement, corruption, sexual exploitation and sexual abuse, migration and health related policy guidance to the Field, the formulation of abuse of privileges and immunities or of authority, workplace harassment, global strategies, standard setting and quality control as well as for knowledge bullying, whistle-blower retaliation or other acts or omissions in con ict management with relation to issues pertaining migration and health. Dealing with the general obligations of IOM personnel. with cross-cutting subject matter, MHD deals with migration and health issues in both emergency and non-emergency contexts. Qualifications and Core Competencies: Master’s degree in Law, Qualifications and Core Competencies: Master’s degree in a health related Human Resources, Criminology, Accounting or a related i eld from an i eld (such as: Medicine, Health Sciences, Public Health Administration), accredited academic institution with seven years of relevant professional preferably at the PhD level from an accredited academic institution with i fteen experience; or University degree in the above i elds with nine years of years of relevant professional experience. Postgraduate degree in Public relevant professional experience. At least seven years of progressively Health or degree related to Migration Studies, obtained from an accredited responsible professional experience related to investigations, with a academic institution is highly desirable. Relevant professional experience in proven track record in planning, leading and executing investigations. both a health domain and with migration health at national and international Previous experience in conducting investigations and inspections of an levels. Experience in providing expert advice, support to governments as well administrative nature with a UN organization, international i nancing as in liaising with governmental and diplomatic authorities and international institution or similar, and working in developing countries is a distinct institutions; Experience in communication of migration heath issues in the advantage. framework of international fora. Sound knowledge of project cycle management, in particular in health programme management as well as of monitoring and Salary: IOM offers an attractive salary package based on the United evaluation. Nations system at the P4 level. Salary: IOM offers an attractive salary package based on the United Nations system at the D1 level. A full term of reference is available at the IOM website: www.iom.int. A full term of reference is available at the IOM website: www.iom.int. Candidates may apply before 17 July 2017 using the IOM online Candidates may apply before 17 July 2017 using the IOM online e-recruitment facility: e-recruitment facility: http://www.iom.int/how-apply. http://www.iom.int/how-apply. The Economist June 24th 2017 20 Brieﬁng India’s economy The Economist June 24th 2017

appetite for the reforms which would The constant tinkerer bring sustained growth of the sort that could transform the lives of India’s 1.3bn citizens. The few Mr Modi has carried out must be weighed against those he has botched, the areas that have gone without MUMBAI reform, and the sticking plasters that cover Narendra Modi has done a passable job administering the Indian economy but not up the effectsofbad policyratherthan deal enough to reform it with their causes. EW countries would see a tax requiring would have ensured businesses focus on Mr Modi does deserve credit for bring- Fsome businesses to file over 1,000 re- goods and services that consumers want ing macroeconomic stability. Perennial turns a year as an improvement. But India rather than those favoured by the tax code, scourges such as double-digit inflation and might. A nationwide Goods and Services might have added two percentage points ballooning current-account deficits have Ta x ( GST) is set to come into force on July to GDP growth. The complicated version been absent. India has until recently 1st. It will replace such a tangle of national will probably yield less than half that and grown faster than all other big emerging and local levies and duties that even the only after a painful transition. economies (see chart 1 on next page), prospectof37 annual filings(three a month When Mr Modi was elected many busi- though plenty question the veracity of its plus an annual return) for each of India’s ness leaders (and this newspaper) winced GDP figures. The sporadic liberalisation of 29 states in which a business operates is a at the sectarian and polarising bent of his investment rules has helped to attract re- reliefby comparison. Bharatiya Janata Party(BJP). However, they cord amounts of foreign cash, albeit from By replacing domestic tariffs, the new also saw him as a reformer promising an abysmally low level. The stockmarket tax should rid India of checkposts at inter- “minimum government, maximum gover- has boomed. Tech giants such as Apple nal borders, where lorries carrying goods nance”. Three years on, those hopes are and Amazon see India as the next frontier. typically languish for hours. Less red tape, fading. His supporters had hoped he however, comes with complications. Most would reshape the economy. Theythought Luck and judgment countries with a value-added tax settle on he was the leader to rekindle the short- This is down to a mix of good fortune and a single rate for many goods and services. lived enthusiasm for liberalisation of 1991, good sense. The luck is oil. India is a huge India hasopted forsix, rangingfrom zero to when India faced bankruptcy. They hoped importer and prices have tumbled from 28%. Officialdom decrees, forexample, that that the state apparatus would be aimed well over $100 a barrel in May 2014 to less shampoo, wallpaper and fizzy water are away from trying to do everything (often than half that now. Analysts estimate that luxuries to be taxed at 28%; eyeliner, curry badly) and towards providing basic ser- this alone has boosted GDP by 1-2%. Mr paste and plain water will attract an 18% vices, such as education, health care, a Modi also benefited from the tenure of levy. Restaurants will pay 12%, unless they functioning market for land and labour, a Raghuram Rajan, a respected central-bank are small (5%) or air-conditioned (18%). workingjudiciary, and a stable and predict- governor appointed by the previous prime Hopes that liberalising reforms would able regulatory environment in which the minister, whose inflation-targeting regime breathe new life into India’s economy private sector could create jobs. has helped keep prices in check. (Mr Rajan have permeated the air since Narendra Mr Modi has shown that he is an astute was, in effect, sacked by Mr Modi in 2016.) Modi swept to power as prime minister in administrator of the economic machinery Mr Modi should also receive credit for May 2014. But the GST is perhaps the most he inherited. Corruption seems to have sensibly using the oil windfall to pare fuel obvious example of an opportunity wast- abated, at least at the highest levels of gov- subsidies and keep the budget deficit most- ed. Economists think a simple GST, which ernment. But he has demonstrated little lyin check. Growth of7% orso isnothing to1 The Economist June 24th 2017 Briefing India’s economy 21

2 scoff at. But Mr Modi’s ministers speak of tories with more than 200 employees, an economy expanding by 8-10% a year, if On top of the pack 1 compared with over half in China. “La- not more—the sort ofrates necessary to ab- GDP, % change on a year earlier bouris India’s most abundant resource but sorb the 1m Indians who enter the labour the organised sector, which should be the 10.0 market every month. Achieving this India engine for creating good jobs, has been would require deep and broad reforms. 7.5 heavily biased against using it,” says Vijay China A couple of initiatives show some pro- 5.0 Joshi of Oxford University in “India’s Long mise. Anewbankruptcylaw, introduced in 2.5 Road”, a new book. Russia + Staff cutbacks in some industries need May 2016, may enable the enforcement of 0 lending contracts. India’s judicial system is – the approval ofthe authorities. It is seldom broken: more than 24m cases are pending, 2.5 granted; again, only a few states have 5.0 nearly 10% of them for over a decade. As a Brazil picked up the baton that the centre has result even basic legal procedures, such as 7.5 dropped. The costs ofinaction are obvious. a bankseizing the assets ofa company that Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Around a third of young Indians are not in has defaulted on its loans, have proven all 2015 16 17 education, employment or training. La- Source: Bloomberg but impossible to apply. Many lenders are bour-participation rates are low, especially waiting to see how the new law works in forwomen. Meanwhile, only a tiny minor- practice before hailing it as a success. State-owned banks account for 70% of all ity of staff who are formally employed by Mr Modi has also championed a na- loans but are in dire straits after having ex- registered firms actually benefit from the tionwide biometric scheme known as tended credit to large industrial groups proffered workers’ rights. Aadhaar, which has made many Indians which went on to finance projects that More fundamentally, India lacks the ca- visible to the state for the first time. Linking failed to pay off. Around 20% of loans are pable and healthy workforce it needs to digital identities to mobile phones and either not being repaid or are likely to re- thrive. Educational standards are woeful bank accounts has made it possible to get quire restructuring. The government has but the government has done little to subsidies straight to the needy, cutting out known about the problem for years but change a system where teachers bribe venal intermediaries, who in the past pil- has done little to resolve it. their way into jobs from which they can fered up to three-quarters of the money in never be fired. Health care is largely in the the system. The gains made from Aadhaar Delhi-dallying hands of the private sector, not out of ide- could end up being sizeable. The upshot is that lending to industry, ology but because the government has Add in the GST, along with its many which once grew at a crackingrate of 30% a long done such a lousy job ofproviding it. drawbacks, and in terms of big reforms year, is now shrinking for the first time in Capital is still viewed with a measure since Mr Modi took office, that has been it. two decades (see chart 2). Infrastructure of suspicion and regulated accordingly. The problem is not that the prime minister projects are stalled forlack of cash and cor- Gone are the days when ministers could lacks boldness. The most eye-catching eco- porate India is in the doldrums. A compre- press bankers into lendingto theirindustri- nomic initiative of the past three years, the hensive solution would be to let the public alistchums. Butthe heavyhand ofthe state surprise “demonetisation” of large-value shareholding of banks fall below 50%, so lives on in the obligation of banks to make banknotes in November, which at a stroke they can be run as private companies. In- atleast40% ofall loansto “prioritysectors” withdrew 86% of all currency in circula- stead, the quasi-bureaucrats running them such as farmsand small businesses. This is tion, was certainly brave. But that did not are reluctant to restructure loans that are on top of about 20% of banks’ lending ca- make it sound policy. A lack of planning heading for default, lest they be accused of pacity that the government commandeers and unclear objectives mean the exercise using public funds to aid tycoons. forits own borrowing. has damaged the economy; its potential More broadly, the state has remained Such resolve asMrModi hasshown has benefits remain hard to judge. front and centre in the economy, a position proved the exception rather than rule. To Despite an ensuing cash vacuum that it shows no intention of giving up. There the surprise of his supporters and critics caused distress, particularly in rural areas, has been no reform of dysfunctional mar- alike, Mr Modi’s searing rhetoric has been it seems to have paid offpolitically. The BJP kets forland, labourorcapital. Ifa business translated into incrementalism. “We elect- thumped opponents in local elections in needs land, it must woo a state governed a radical, we got a tinkerer,” ruesa bank- February in Uttar Pradesh, India’s most ment which controls some, lest legal chal- ing boss. populous state. Poor Indians queued for lenges on private-land purchases keep it Where Mr Modi has acted it is often to days on end to exchange old banknotes tangled up in court for decades. State chief tackle the symptoms of bigger problems but were apparently consoled by claims ministers allocate land in much the same rather than the problems themselves. His that the rich were suffering far more (they way the “licence raj” of old doled out pro- economic credibility was built during his1 were not). duction quotas. The problem is that Mr Modi has Such opacity and discretion in areas of shown little bravery elsewhere. Too often, great importance to the private sector is a Lent down 2 he ducks essential reforms. When courting recipe for politicians to “pick winners”—or India, bank loans to industry voters he talked tantalisingly about relin- demand bribes. Liberalising land laws was % change on a year earlier quishing the commanding heights of the briefly a priority forMr Modi’s administra- 30 economy to the private sector. “I believe tion. But progress stalled and the tricky that government has no business to be in task was handed down to states, which 20 business,” he proclaimed. But the much- share responsibility for land regulation. discussed privatisation of state-owned Only a handful have enacted reforms. 10 firms has yet to take place. The state still On the labourmarket, plans are afoot to + makes everything from prefabricated consolidate over 40 central laws into four housing and condoms to fighter jets that codes but not to repeal rules that have 0 even its own armed forces refuse to buy. made companies reluctant to expand. – Mr Modi’s cautious approach has most Larger firms face stricter regulations, with 10 2010 11 12 13 14 15 16 17 obviously been found wanting in his deal- predictable consequences. Only a tenth of Source: Reserve Bank of India ings with India’s ailing financial system. manufacturing workers in India toil in fac- 22 Briefing India’s economy The Economist June 24th 2017

2 12-year stint as chief minister in Gujarat. was to bring more ofIndia into the open. If cures a second term in May 2019. With His pet projects yielded tangible returns: it has achieved that, it is only by clobbering even senior ministers relegated to the electricity provision was improved, new the informal sector rather than helping the edges of a policymaking machine run by a roads laid, foreign investors glad-handed formal one. tight group around him, few people know and bureaucrats kept honest. Firms prefer to remain small because what Mr Modi has in mind. But most con- As prime minister, Mr Modi has kept scale makes them vulnerable to corrupt of- clude thathiscore beliefsare already in evi- the focus on smaller projects at the ex- ficials squeezing them for bribes (or liable dence. And with the economy ticking pense of broad reforms. The government to filling out yet more tax returns). The along nicely thanks to the oil dividend, has proved adept at dealing with the con- country has only 270 companies with overhauling it has not required, or re- sequences ofbad policy rather than recast- sales over $125m, compared with 1,295 in ceived, much attention. ing policy itself. Power is a telling example. Brazil, 3,430 in Russia and 7,680 in China, One government scheme put forward by according to McKinsey,a consultancy. Sub-continental drift Mr Modi bailed out state-owned electric- That is not surprising, as India still That may have to change. GDP growth unity-distribution firms at vast expense, be- throws up the kind of regulatory surprises expectedly faltered in the latest quarter. cause their weak financial position was businesses loathe. The threat ofretroactive The sag seems to have begun before demo- hampering efforts to electrify rural India. tax rulings that claw back foreign compa- netisation but has surely been aggravated The electricity firms remain fundamen- nies’ gains, a frequent occurrence under by it. Statistics showingthe creation ofever tally unprofitable, however, because au- previous regimes, is not entirely gone. fewer jobs in the formal sector have added thoritiesrefuse to end the practice of giving Companies deemed to earn excessive pro- to a recent sense of economic malaise. Po- farmers free power or to crack down on fits are hounded: makers of stents, phar- litical attacks on the government’s job-cre- widespread theft by consumers (whose maceuticals and seeds have been forced to ation record are common. votes politicians crave). To avoid depend- cut prices recently. The response so farhas not been a new ing on the state grid, 40% of Indian firms Mr Modi’s allies are adamant that their resolve to reform India permanently but a therefore go to the bother and expense of many schemes add up to a substantial swerve to economic populism. Rules is- generating their own electricity—building change of direction for the country. But sued in May to protect cows (which are power plants and even sourcing coal. afterthe headlines are printed, many come considered sacred by Hindus and champi- Railways are receiving more invest- to nothing. A plan to improve the skills of oned by the BJP’s Hindu-nationalist back- ment, but fares remain absurdly cheap for 500m Indians by 2022 has been hastily ers) have put in jeopardy a large and grow- political reasons. This means freight prices dropped. A 400bn-rupee ($6.2bn) public- ing buffalo-meat export industry (see page are pushed up, which then nudges compa- private fund unveiled in December 2015 to 58), as well as dairy and leather producers. nies to use roads instead. As a result, logis- finance infrastructure is reportedly yet to State governments are caving in to de- tics costs in India are three to four times in- find a single investor or project. “This gov- mands for farmers’ loans to be forgiven, a ternational norms (and often bigger than ernment moves from decision to decision, policy that will bring short-term relief but wage bills), hurting exports. without checking performance or compli- make it harder for farmers to borrow in fu- ance,” says a retired bureaucrat. ture. It could also add two percentage Modi’s operandi Arun Jaitley, India’s finance minister, points to the fiscal deficit, single-handedly The prime minister’s approach is not begs to differ. “No government in India has nullifying the hard-won consolidation of sweeping reform but the endless unveiling reformed as much as this one,” he says. Al- recent years. of small-bore government schemes. By lowances must be made for the limited re- Even MrModi’s backers fearmore errat- one count there have been nearly 100 in sources of the state and India’s vast popu- ic decision-making as the government the first halfofhis five-year term. These are lation, argues Mr Jaitley. But what of aims to prove it is “doing something”. That hard to miss. Each is accompanied by a reformsto land, labour,taxand so on? “The would be an expensive way to conceal an public-relations blitz and billboard adverts Economist does not need to win votes. The absence of reform. Time is running out to inevitably featuring Mr Modi. From en- BJP does.” enact genuine change. If he continues in couraging more housebuilding to irriga- The answer will cheer those who think this vein, Mr Modi will leave India a little tion schemes, improving tourism infra- that MrModi is a reformerat heart and that better offbut otherwise not much different structure or providing subsidised loans to he is simply biding his time until he se- from how he found it. 7 women to buy vans, many probably do more good than harm. But they are often aimed at providing a quick fix to a symp- tom ofeconomic malaise, rather than tackling a thorny underlying cause. The glitzy “Make in India” campaign, designed to lure foreign manufacturers, is a good example. It has loudly proclaimed the country open for business, organising conferences and photo-opportunities for Mr Modi and foreign bosses. This signal- ling is no doubt useful, but little has been done to tackle the shortcomings that dis- courage foreigners from building factories in India in the first place. Progress on making it simpler for firms to operate has been slow. India places a lowly 130th out of 189 in the World Bank’s ease-of-doing-business ranking. Most economic activity takes place in the shadows: around nine in ten workers toil in informal jobs. One of the aims of demonetisation Are more reforms in the pipeline, Mr Modi? United States The Economist June 24th 2017 23

Also in this section 24 Gerrymandering 24 Government waste 25 Adoptions and foster care 26 Driving while black 28 A kick in the Ossoﬀ 29 Lexington: The costs of “America First”

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

Privatisation interstate highway system to private toll- ing companies, raising vast sums for new The art of the deal investment. This has not happened much before, partlybecause a lawfrom 1956 bans tolls on many interstate roads. But much of the system is now at the end ofits intended lifespan and politicians are mostly unwilling to raise petrol taxes sufficiently to re- WASHINGTON, DC place or upgrade it. So lifting the ban on The promise and pitfalls ofprivatising publicassets tolls seems appealing. ONALD TRUMP ran for office promis- are privatelyowned, itsnational passenger Whether asset recycling works de- Ding to spur the private sector to rebuild services are all run by one lumbering state- pends on the details of any given deal. It America’s roads, bridges and airports. But owned firm, Amtrak. And air-traffic con- has a mixed record. In 2006 Indiana sold a it seems that Republicans want to start trol is choked of investment by the annual 75-year lease on a 157-mile (253km) toll road their modernisation in the sky. On June budget process. Countries like Canada in the north of the state for $3.8bn. The 21st House Republicans unveiled a bill that have turned their systems over to self- funds were invested in other roads. The would privatise air-traffic control, a policy funding, non-profit bodies, which are in- state built 413 milesofnew highway and re- the president announced earlier this vesting in technology. Tracking aircraft surfaced another 4,000. The firm that month. If the administration is to be be- with satellites rather than radar may soon bought the toll rights overpaid and went lieved, this is just one of many privatisa- allow planes to fly closer together on some bankrupt in 2014. But other investors have tions that could increase efficiency and en- routes. America is already five-to-ten years since taken over the lease, with no notice- courage infrastructure investment. Could behind, says Bob Poole of the Reason able downsides for drivers, according to such a national sell-offwork? Foundation, a free-market think-tank. Aaron Renn of the Manhattan Institute, a Unlike much ofthe world, America has Privatisation works when firms can run think-tank. In fact, the public purse benefit- never seen a big push to privatise. That is assets or services more efficiently than the ed from the overpayment. partly because America did not see a wave government can, or when competition be- But it is equally easy for the taxpayer to of nationalisations after the second world tween firms can bring down costs over end up on the bad side ofa deal, and foran war, as countries like Britain did. As a re- time. Sometimes it is easier for private unwieldy monopoly to be created. In 2008 sult, it has few public assets, like airlines or companies to set prices properly. For exam- Chicago leased its parking meters to a con- telephone companies, that are obvious ple, America’s airports charge planes to sortium for 75 years for $1.2bn, a price that candidates to be sold. An exception is land land in proportion to their weight; were was almost $1bn too low, according to a re- owned by the federal government, which they privately owned, they would proba- port by the city’s inspector-general. Big covers 28% of the country. Another is the bly base price on runway congestion, rises in parking charges caused a public Tennessee Valley Authority, a public elec- which small planes are prone to cause. backlash, while the city lost the right to trical utility established as an economic Privatisation can also provide a cosmet- change parking policies without compen- development project after the Great De- ic accounting benefit, by keeping costly in- sating investors. Worst of all, rather than pression. (President Obama entertained frastructure investment from pushing up being invested in new assets, the money privatisingthe TVA duringhissecond term, deficits. This may lie behind the adminis- raised was used to plug the city’s short- but did not get round to it.) tration’s wish to encourage “asset recy- term deficits. Yet America is hardly at the forefront of cling”, a term coined in Australia. The idea Avoiding the temptation to squander private infrastructure ownership, either. Its is to lease one piece of infrastructure, such the proceeds is the first challenge for any airports, for example, are mostly publicly as a toll road, to investors, and spend the privatisation. It is also important to get the run, whereas in European cities such as money raised on something new. length of the lease right. Very long-term London multiple privately owned airports Cheerleaders for asset recycling envis- deals are likely to have to be renegotiated, compete. Though America’s railway tracks age states leasingstretches ofthe sprawling says José Gomez-Ibanez, of Harvard Ken-1 24 United States The Economist June 24th 2017

2 nedy School, because circumstances each of the liberals’ proposals but refused Columbia County change. The public must also be won over. to give up hope that one day, in another The ideal model for roads would be to im- case, a red line might be found. pose tolls only once they have been re- WISCONSIN Eric McGhee, a political scientist, and paired, says Mr Poole. Dane County Nicholas Stephanopoulos, a law professor It would be up to the states to get such who is advising the plaintiffs, think they ASSEMBLY DISTRICT 79 details right. They own most of the rele- Waunakee have found what Justice Kennedy wanted: vant assets, like the interstate highways Cross a way of measuring the extent of the parti- (though these are regulated in Washing- Plains san imbalance. In all elections, the losing Middleton Lake ton). The federal government’s role would Mendota candidate gets some votes and the win- be to help, or just to get out ofthe way.Dur- Madison ning candidate gets more votes than he ing his campaign, Mr Trump promised to needs to win; these are all so-called “wast- provide $167bn in tax credits to the private ed votes”. Subtract one party’s wasted sector to encourage investment. His ad- WISCONSIN votesfrom the other’s, and then divide that ministration also recently promised to al- difference by the total number of votes low more private infrastructure projects to Source: Wisconsin cast. This yields an “efficiency gap”. If it is 10 km issue tax-free debt, much as cities can State Legislature large enough (7% or higher, they say), one while they are in charge. party can be said to hold a “systematic ad- The problem, though, is not a lack of with party advantage rather than race in vantage” over the other. In Wisconsin, the willinginvestors, says MrPoole. Infrastruc- mind. Partisan gerrymandering may be efficiency gap has been as high as13%. ture funds will jump at the chance to invest “unsavoury”, as Justice Samuel Alito puts Will Justice Kennedy, who lamented in in American projects, as will pension it, but it has not yet been held to offend 2004 that legislators were “in the business funds seeking long-lived assets. The pro- against the constitution. of rigging elections”, find a way to curb blem is a lack of opportunities. The logical Gill v Whitford, one of the most impor- them in Gill? In an early possible sign to the place to start, then, would be to expand ex- tant cases the justices will hear next term, contrary, he joined the four conservative isting pilot programmes. In 1996 Congress calls Justice Alito’s view into question. The justices on June 19th in putting the lower set up such a scheme for privatising air- timing is key. With the 2020 census round court’s ruling on hold pending the Su- ports. Only one, in San Juan, Puerto Rico, the corner, new electoral maps will soon preme Court’s ultimate decision. But his has so far taken advantage of it. Similarly be on the draughtsman’s table. If the chal- earlier opinion inspires another view. If small pilots exist for putting tolls on inter- lenge to hyper-partisan line-drawing suc- “workable standards” for unrigging elec- state highways. The White House has also ceeds, itcould tighten the linkbetween vot- tions were to surface, he wrote, “courts said that it is considering encouraging er preferences and who gets elected. should be prepared to order relief”. 7 states to privatise assets by paying them a America has strayed further from this bonus fordoing so. ideal in recent years, and it is mainly The privatisation push may not suc- Democrats who have suffered as a result. Government waste ceed; it will certainly spark political oppo- After an electoral surge in 2010, Republi- sition. (The air-traffic control proposal is cans used their new-found control of state An improper mess said to have too little support to get out of legislatures and governor’s mansions to re- committee in the Senate.) If it does go draw district boundaries. In races for the ahead, America’s infrastructure will prob- House ofRepresentativesin 2012, well over ably benefit. But do not expect every deal 1m more voters opted for Democrats, but to go well. 7 Republicans wound up with a 234-201 ma- Why cutting even wasteful spending is jority. The phenomenon was even more so hard pronounced in state elections. In Wiscon- Gerrymandering sin 51% of voters picked Democrats in the E WAS known as “Mr Social Security”. 2012 state legislative contests, but Republi- HEric Conn, a disability lawyer from Boundary police cans took 60 of the 99 Assembly seats. Pikeville, Kentucky, gained notoriety in his Democrats tend to bunch together in cities impoverished part of Appalachia for his anyway, but partisan gerrymanders can ubiquitous billboards and flashy TV com- make their under-representation worse. mercials, which featured Rolls-Royces, The plaintiffs in Gill say these skewed beauty queens and a 19-foot replica of the outcomes stem from “pinpoint-precision Lincoln Memorial. But what earned Mr A Supreme Court case could rejig technology that sliced-and-diced Ameri- Conn his nickname was his uncanny abili- electoral lines for2020 can communities.” REDMAP, as the Repub- ty to secure Social Security payouts for HE Supreme Court will hear a case in lican redistricting programme was called, nearly 100% of his clients. Mr Conn’s luck Tthe autumn that puts a new spin on an did not conceal its goal to “maintain a Re- has since run out. In March, the 56-year-old old scourge: partisan gerrymandering. In publican stronghold in the US House of lawyer pleaded guilty to defrauding the recent years the justices have cracked Representatives for the next decade”. Until government of $550m in federal disability down on electoral districts drawn by poli- now, this strategy has been constitution- benefits, the largest case of Social Security ticians along racial lines. A ruling in 2015 ally kosher. In 1986, the Supreme Court fraud in the country’s history. held that Alabama had violated the 14th turned back a challenge to partisan line- Although scams like these outrage law- Amendment’s equal-protection guarantee drawing. Eighteen years later, four justices makers and taxpayers alike, they represent by packingtoo many blackvoters into state insisted it was impossible to determine just a small fraction ofthe billions in exces- electoral districts, diluting their influence when politically motivated district-draw- sive, unnecessary and illegal payments in neighbouring areas. Last month, in Coo- ing crossed a constitutional line, while the made by the federal government. In the per v Harris, the court reprimanded North fourliberal justices each floated a standard past decade these improper payments Carolina for doing the same in two legisla- for doing just that. The decisive vote came have increased by more than 250% (see tive districts. But the justices have looked from Justice Anthony Kennedy, to this day chart). Donald Trump has vowed to cut the other way when districts are drawn the court’s centre of gravity, who rejected them in halfoverten years. Past efforts sug-1 The Economist June 24th 2017 United States 25

2 gest that doing so will not be easy. In 2010, ble to fraud and waste. In 2016 the earned- Barack Obama vowed to reduce wasteful, income tax credit (EITC), a wage subsidy fraudulent and abusive payments by for low-income workers, paid out $67bn in $50bn. Nine years earlier George W. Bush refunds to 27m taxpayers. Whereas EITC set a goal of eliminating them entirely. Nei- benefits come out of the Treasury’s coffers, ther president succeeded. eligibility for the tax benefit—which is The federal government doles out based on income and a number of other $3.1trn every year, not far short of Ger- variables—is determined by taxpayers many’s annual GDP. Most of these funds themselves and cannot easily be verified. are disbursed without a hitch. But when The IRS is not allowed to correct erroneous payments are made to the wrong person, EITC claims automatically and it lacks the in the wrong amount, or with invalid doc- resources to audit more than a small frac- umentation, they are deemed “improper”. tion ofhouseholds that receive the benefit. According to the Government Account- As a result, the IRS estimates that in 2016 ability Office (GAO), a congressional nearly a quarter of all EITC payments, to- watchdog, such payments totalled $144bn talling $17bn, were issued improperly. in 2016, nearlyfourcentsoutofevery feder- Many ofthe incentives that dictate how al dollar spent. Many of these payments the government spends federal tax dollars are legitimate: missing paperwork does tend not to prevent fraud and waste but to not necessarily denote an undeserving re- encourage it. The private contractors em- cipient, and underpayments as well as ployed to pay the government’s health- overpayments can be deemed improper. care bills are under pressure to process But a portion is fraudulent. Deloitte, a con- claims as quickly and inexpensively as sulting firm, reckons it could be as much as possible. As Malcolm Sparrow of Har- a third. vard’s Kennedy School of Government Agenciesthatspend large sumsof mon- points out, “The cheapest way to process a ey with little scrutiny are particularly vul- claim is to pay it without question.” Law- nerable. Medicare, the public-health pro- makers are reluctant to boost spending on gramme for the elderly, processes 1.2bn fraud investigation and enforcement—de- Children’s welfare medical claims each year, collectively spite returns on investment as high as worth over $600bn. Medicaid, the health- 500%—for fear that such measures might Foster the people insurance scheme for the poor, pays out delay legitimate payments to providers or another $350bn. To ensure patients receive beneficiaries. “They want to get benefits treatment in a timely fashion, both pro- out the door,” says Beryl Davis, the GAO’s grammes are required to pay doctors, hos- director offinancial management. CHICAGO pitals and other health-care providers Officials say they are getting cleverer at Adoptions are declining, but more within 30 days. Handling such an enor- reducing wasteful spending, and are mov- children need fostercare mous volume of transactions requires ingawayfrom a “pay-and-chase” model, in automated systems designed for speed which auditors scramble to recover money HOULD state-funded adoption agen- and efficiency, not accuracy. Fraudulent spent on fraudulent claims, towards one Scies be able, forreligious reasons, to turn claims often go undetected. In 2016, 10% of that prevents such payments from being down prospective parents? An increasing Medicare and Medicaid outlays, equal to made in the first place (which is what cred- numberofstatessaytheyshould, orare be- $96bn, were spent on services that were it-card issuers do). In 2012 the Centres for ginning to consider it. South Dakota has not delivered, were unnecessary or were Medicare and Medicaid Services (CMS), had such a law since March; Alabama’s go- otherwise erroneous. the agency that administers America’s two vernor signed a version in May; the gover- Programmes that rely on self-reported, public health-care schemes, spent $40m nor of Texas, Greg Abbott, has a bill on his unverified information are also suscepti- on software that screens and verifies desk awaiting signature. Opponents argue health-care providers, using thousands of that such laws discriminate against cou- private and public databases. The year be- ples who are non-Christian, gay or unmar- How not to spend it fore the agency shelled out another $77m ried. These proposed laws also reflect a United States, improper payments by the on a fraud-detection system that scans mismatch in the supply of infants and de- federal government, fiscal years* real-time claims data for suspicious billing mand for adoptions. $bn % of total outlays patterns, and flags those most likely to be As the teenage pregnancy rate has fall- 200 4 fraudulent. The Office ofManagement and en and the stigma attached to single moth- Budget has a “Do Not Pay List” to help erhood has faded, the number of babies 150 3 agencies verify the eligibility of firms and placed for adoption has declined. In 1971, individuals before sending them money. 90,000 children were placed. By 1975 the 100 2 The results have been underwhelming. numberhad fallen by half, mainly because The new CMS screening tool was sup- of the legalisation of abortion in 1973. In 50 1 posed to keep illegitimate providers out of 2014, only 18,000 infants under the age of the system, but the GAO estimates that two were placed for adoption. 0 0 more than one in five Medicare providers Meanwhile, adopting from abroad has 2003 05 07 09 11 13 16 lacks a valid address; nearly one in ten is also become harder. According to the State based out ofthe equivalent ofa UPS store. Department, almost 23,000 children were By programme, 2016, $bn As for Mr Conn, the lawyer, he slipped adopted from abroad in 2004; last year, Medicare Medicaid EITC† Other away from house arrest on June 2nd; his only 5,400 were. Unicef, Save the Children 59.7 36.3 16.8 31.7 ankle tag was found in a backpack by the and other international charities consider Source: US Government *Ending September 30th Interstate 75 near Lexington, Kentucky. He such adoptions a last resort; relatives and Accountability Office †Earned-income tax credit remains at large. 7 local adoptive parentsare preferred. Russia1 26 United States The Economist June 24th 2017

2 has closed all international adoptions to Policing and race American citizensasa response to Western sanctions, and corruption or child-traffick- Ticket to ride ing scandals have ended adoptions from several countries, such as Guatemala. The GERMANTOWN, MARYLAND federal government has also become more Is driving while blackreally an offence? hostile. The result, says Elizabeth Bartholet of the child-advocacy programme at Har- N HIS14 years policing the streets of vard University, is that thousands of chil- IMontgomery County, Maryland, Ser- Five-0 dren linger in grim institutions. geant Robert Sheehan has witnessed United States, searches yielding contraband The increased difficulty of adopting deadly shootings and stopped big-mon- during police traffic stops, 2011-15, % of total from abroad might have resulted in more ey cannabis deals. But on a sunny after- By race Hispanic Black White parents adopting children from the domes- noon it is the windows of a passing car 0 10203040506070 tic foster system. But foster-care adoptions that raise his suspicion. Maryland law levelled off at around 50,000 annually a dictates that car windows should be no Colorado few years ago. At the same time, after more than 65% opaque. He stops the Wisconsin steadily declining between 2005 and 2012, blackChevrolet, whose driver is female the number of children in need of foster and black, and by using a special meter Rhode Island care is increasing in most states. In 2015, the he proves that the car breaks that law. Texas most recent year for which statistics are Debate on racial bias in policing tends Connecticut available, 428,000 children were in foster to be dominated by the shootings of Nine-state average care, compared with 397,000 in 2012. unarmed blackmen by police officers. “The main reason for the alarming rise Though terrible, such shootings are not Illinois of children in foster care is the opioid epi- common enough to allow the crunchers South Carolina demic,” says John DeGarmo, who with his ofbig data sets to get to work. Routine North Carolina wife has fostered over 50 children. Misuse traffic stops, on the other hand, occur Washington of drugs, especially painkillers, and use of about 50,000 times a day across Ameri- heroin have become, between them, the ca. They are the most common form of Source: Open Policing Project, Stanford University second-most-common cause for a child’s contact with the police: one in eight removal from parental care, after neglect drivers was stopped in 2011. rate was 26%. That suggests a significant (often made worse by drug use). The deep- Until recently these data have mostly amount ofbias. Delve deeper, though, ly religious DeGarmos, who have three been kept under lockand key. But a team and the difference is caused by a small children of their own, adopted three of ofacademics from Stanford University’s number ofbad counties. Among the 496 their foster children, all offspring of drug Open Policing project has spent two counties forwhich the Stanford research- addicts. The goal of fostering is reunifica- years amassing a trove of130m traffic ers have complete data, just 30 had a gap tion with birth parentsonce theyget better. stops from 31state police agencies. Their ofmore than 25 percentage points sep- Sadly, only about a quarter ofaddicts do. data, released this week, find that be- arating whites from minorities. Remove a One reason for the shortage of foster tween 2011and 2015 blackdrivers were hundred ofthe worst counties, and racial parentsisthe reluctance ofprospective par- stopped by the police twice as often as bias narrows from six to three percentage ents to deal with the often needlessly bu- white drivers, suggesting that there is points. That tallies with other research on reaucratic public foster agencies. And indeed something to the idea that “driv- police bias. A recent working paper from around 80% of those who try to foster a ing while black” is an offence. graduate students at Princeton found that child give up within two years. “Fostering Higher rates ofstopping and searching bias in leniency among Florida’s police is very hard for all involved,” admits Mr are not sufficient to demonstrate that officers could be explained by decisions DeGarmo. On average, foster children stay racial bias exists, though. The pool of made by one fifth ofall officers. for only 14 months at foster parents’ drivers that the police might stop could A different way to perform Becker’s homes. One ofthe girls he and his wife fos- be unrepresentative in all sorts of ways. test is to lookat whether drivers receive tered fora year and a halfwas subsequent- Some ethnic groups might drive more the same treatment from police when ly adopted by an aunt and uncle, who than others, or perhaps there is some they commit the same motoring offence. raped and abandoned her. She is now in a mysterious racial difference in driving An analysis by The Economist of1m traffic mental-health clinic. style that leads to more police stops. To stops in Montgomery County in Mary- For the approximately 20,000 children answer the question properly the late land since 2012 suggests that Hispanics who every year “age out” of the foster sys- Gary Becker, a Nobel-prizewinning econ- are significantly more likely to receive tem, which means that states fail to reunite omist, devised a simple measure for tickets than whites or African-Americans. them with their families or place them in racial bias in 1957. Becker argued that tests When stopped for running a traffic light, permanent homes, the outlook is bleak. forracial discrimination should focus on white and blackfemales got a ticket 30% They are farless likely to finish high school the outcome alone: in this case whether ofthe time. Hispanic men received tickets or go to college. Around 60% of the boys police searches ofvehicles yield contra- 40% ofthe time forthe same offence. This and half the girls end up in jail at some band, such as drugs or illegal weapons. If finding tallies with data from North stage, says Chuck Johnson, boss of the Na- blackmotorists were stopped more often, Carolina, where police stops recorded tional Council for Adoption, an advocacy even though they were actually less since 2000 show persistent bias against group. About 120,000 children in foster likely to have something illegal in the Hispanics. care are currently waiting to be adopted. glove compartment, that would provide Backin Maryland, Sergeant Sheehan State legislators should not put another ob- solid proofofracial bias. smells cannabis in the blacked-out Chev- stacle in their way by worrying about the The Stanford data show that searches rolet. A search yields a jar ofit in the glove religious beliefs of their would-be adopt- ofwhite drivers yield contraband 32% of compartment. He gives a warning to the ers. Instead, statehouses should be think- the time. By contrast, when the driver driver, then lets her young son honk the ing hard about how to find loving homes was blackor Hispanic, the contraband hit horn ofhis patrol car. formore ofthese children. 7 OVER 90% OF FORTUNE 500 COMPANIES STAND WITH US

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Georgia’s sixth district ifpressed, but not to emphasise him. “It is not about what’s going on around A kick in the Ossoff the rest of the country,” she declared at her election-eve rally. That also featured a gee-up from Nathan Deal, who beat her in Georgia’s governor’s election in 2010; an electoral veteran, Ms Handel previously ROSWELL lost a Senate race, too. (Her attacks on Mr Deal, his spokesman once sniffed, were Disappointment forthe Democrats in a fiercely foughtcongressional race “sadder than the end of “Old Yeller”,” a OWARDS the end of the marathon Cook Political Report notes that Hillary sappy film.) A man in an Uncle Sam suit Telection in Georgia’s sixth congressio- Clinton scored better in only 26 seats held roared his approval for the counter-slogan, nal district, Jon Ossoff was in Cobb Coun- by Republicans. The Democrats’ target in “Keep your Ossoffmy lawn”. ty for a “Juneteenth” celebration—com- 2018 is 24 seats. “This is right at the tipping Ms Handel won the run-off on June memorating the abolition of slavery—in point,” Mr Wasserman says. 20th by fourpoints, confounding polls that the company of John Lewis, a fellow Mr Ossoff scouted out one possible, predicted a closer result. In retrospect the Democrat who represents much of nearby delicate path to that goal. Initially he fired first round, in which 11 Republicans split Atlanta. The Economist asked Mr Lewis if up the Democratic base, and appealed to their party’s vote, was Mr Ossoff’s best the race was worth the more than $50m young voters, by vowing to “Make Trump chance. Despite the apposite demography, spent on it, making it easily the costliest in Furious”. He recruited thousands ofvolun- that unusual format, plus the manic atten- congressional history. “It’s worth every- teers, many of whom had never been in- tion and spending—a bonanza for local thing,” Mr Lewis said. “We’re talking about volved in politics. During the campaign, broadcasters—makes the outcome only a the future of America.” The moment cap- one devotee waving a “Vote your Ossoff” muted bellwether for the mid-terms. But tured the oddityand excitementofthe con- placard said she previously feared that ad- that will not stop it being seen as one. test, and previewed what, for Democrats, mitting left-leaning views in Georgia Even though both candidates implied was ultimately bitter disappointment. would mean “your kids will never have a thatMrTrump wasnoton the ballot, every- To begin with, compare the two men. play date”. But, especially after he fell just one else thought he was, and Ms Handel’s Mr Lewis is a revered civil-rights leader. short ofa majority in the first round ofvot- strategy oftacit loyalty will be emulated in Composed and eerily disciplined, Mr Os- ingin April, MrOssoffrecalibrated his tone other tight races. The president’s acolytes soffis a 30-year-old political novice: an un- to draw in the sliver of moderate Republi- were duly jubilant. Given that health care likely champion of his party’s hopes, cans he needed, leaving the Trump-bash- was probably the campaign’s pre-eminent though that is what he became, in a vote ingto outsidegroups. He offered himself as issue, with Ms Handel supporting the re- that came to be seen as a referendum on a centrist, almost non-partisan figure and placement of Obamacare, some congres- Donald Trump and the Republican agen- hammer ofwasteful spending. sional Republicans may be reassured da. Judging by the volume of lacerating about the consequences ofrepeal. tweets he dispatched, Mr Trump himself Great, again In truth Mr Ossoff’s performance, like tookit personally,even ifhe misspelled the Ms Handel and her backing PACs, which those of Democrats in special elections in name of Karen Handel, the eventual Re- helped herkeep pace with MrOssoff’s fun- Kansas, Montana and South Carolina, was publican winner. He, Mike Pence and Paul draising, were having none of it. They re- encouraging forhis party, given the terrain. Ryan went to Georgia to stump forher. lentlessly tied him to Nancy Pelosi, the But some Democrats have seen in his de- Next, consider the district itself.The bits House minority leader, and her “San Fran- feat further evidence that centrism is de- ofCobb and two neighbouring counties of cisco values”. (One group lowered the tone funct and a more radical brand of opposi- which it is comprised are replete with from testy to combustible by linking Mr tion necessary, even if that is unlikely to smart housing developments and pristine Ossoff to “unhinged leftists” who alleged- succeed in the South. “The fight goes on,” lawns. It ought to be safe Republican terri- ly cheered the recent shooting of a Repub- he vowed at his election-night party, as Mr tory—not least because it has been gerry- lican politician.) Ms Handel faced a dilem- Lewis consoled the crowd and elation gave mandered to make it so. “These lines were ma over her own orientation towards Mr way to deflation, with an afterburn of de- notdrawn to getHankJohnson’sprotégé to Trump. Her approach was to support him fiance. Quite how remains to be seen. 7 be my representative,” one local Republi- can confessed, referring to a congressman for whom Mr Ossoff formerly worked. And, until very recently, it was safe: Tom Price, whose appointment as health secretary set offthe race, won it by 23 percentage points in November. John McCain and Mitt Romney tookthe district easily. Mr Trump only squeaked it. That is partlybecause the area ischanging. Whites are still a majority in what were classic white-flight places, but a smaller one: Cobb, once a reactionary bastion, will soon be “majority-minority”. The sixth is now the best-educated Republican-held seat in the country.It is, in other words, the sort of relatively cosmopolitan suburb the Democrats ought to conquer—in Califor- nia, Texas, Virginia and elsewhere—if they are to regain control of the House in next year’s midterms. David Wasserman of the She could Handel it The Economist June 24th 2017 United States 29 Lexington The costs of “America First”

Donald Trump, a skilled populist, is oddly unworried by global unpopularity Many European countries are free-riders when it comes to defence. Indeed, though Barack Obama never used the phrase “America First”, he was vocal about prodding allies to take more responsibility for their own security, so that America could wind down costly overseas wars and start nation-building at home. Where the current president breaks new ground is in his willingness to offend foreign publics, and bet everything on deal- makingwith national leaders. MrTrump and close aides concede that it was once shrewd public policy to help war-ravaged nations, from Europe to Japan, rebuild and prosperasallies, markets and bulwarks against communism. But Mr Trump believes that foreign governments have abused that generosity, aided and abetted by stupid, weak and feckless American leaders, so that it is time to become more ruthless and selfish. The German Marshall Fund, a think-tank, this month gath- ered American, Chinese and European diplomats, officials, politicians and analysts for the “Stockholm China Forum”, a bian- nual conference. Among other questions, the forum considered whether Europe or China might come forward to lead the liberal, international world order ifAmerica tires ofthat task. Since Mr Trump came to power, optimists have suggested that ATIONALIST politicians come in many varieties, from blus- his boldest America First moves, such as withdrawing from the Ntering to downright scary, but most share a common flaw. Paris climate-change accords, or abandoning the planned Trans- They forget, or do not care enough, that foreigners have politics, Pacific Partnership, a trade pact with 11Asia-Pacific nations, might too. The marrow-deep hopes, fears and grievances of their own prompt other powers to unite and promote global goods without citizens fascinate them. But all too often, nationalist and populist him. The most starry-eyed watched a speech defending globali- leaders behave as if other countries are bloodless technocracies, sation given by Xi Jinping, China’s president, to the World Eco- guided by coolly weighed interests. nomic Forum, and saw a new global leader emerge. President Donald Trump is guilty of just this error whenever he predicts that other governments will bend to his will because Uncorking the nationalist genie theyknowwhatisgood forthem. Whetherdemandingthat allies Not so fast, was the gloomy message from the Stockholm forum, pay more for their own security, browbeating commercial rivals, which Lexington attended. Without American leadership, or menacing geopolitical adversaries, Mr Trump seems sure that squabbling self-interest remains the rule. At a summit this month once foreign rulers realise he is serious about putting America with the European Union, Chinese envoys made clear that their first, and calculate the costs of defying him, they will swallow country is more interested in the trappings of global leadership their pride and obey. He isoddly incurious about foreign publics. than in the responsibilities that go with it. Asked to help on cli- A European ambassador recently told Lexington an instruc- mate change, China reverted to arguments about being a devel- tive tale. On November 9th, a day after Mr Trump won the presi- oping country that can only do so much. Warm talk about trade dency, top officials held a crisis meeting in the envoy’s capital to cannot conceal the barriers that shield China’s domestic markets. discuss their country’s defence spending, which fallsshort of the At a summit in April with Mr Xi, Mr Trump thought he had se- target agreed to by NATO members, which is 2% of GDP. We’re cured personal assurances to put unprecedented pressure on screwed, the officials concluded, or words to that effect. We want North Korea to stop developing nuclear weapons and missiles this alarming new president to stand by NATO, so we are going to that could carry them to American soil. Alas, Mr Xi appears to have to find more money fortanks, planes and bombs. fear the collapse of North Korea on his border more than he fears Then came the NATO summit in Brussels on May 25th. On the displeasing Mr Trump—especially given the need for domestic eve of the summit American diplomats briefed the envoy’s gov- stability ahead ofa reshuffle ofChinese leaders later this year. ernment that Mr Trump would, after months of equivocation, Mr Trump seems to have over-estimated his personal bond formally commit himself to Article 5, the mutual-defence clause with Mr Xi, telephoning him so often to ask about Korea co-oper- that anchors the alliance. But to the dismay of the assembled ation that Chinese officials grumbled to American contacts that leaders Mr Trump left that line out of his speech, instead scolding their president is “not our North Korean desk officer”. On June them forowing “massive” sums to NATO (he finally endorsed Ar- 20th MrTrump tweeted somethingbetween an admission offail- ticle 5 in a press conference on June 9th). ure and a warning that he is losing patience: “While I greatly ap- Soon after that Brussels summit, the same group of govern- preciate the effortsofPresident Xi & China to help with North Ko- ment mandarins convened in their European capital again, and rea, it has not worked out. At least I know China tried!” this time their political calculations had changed. Screw Trump, As forthe EU, it failed to reach a common position on Chinese we’re not going to spend another cent on defence, they agreed, or human-rights abuses at a UN meeting this month. EU unity was words to that effect. Our voters despise this American president. blocked by Greece, a recipient of hefty Chinese investment and As for the biggest European leaders, Angela Merkel distrusts him run bypopulistssworn to putGreeksfirst. AloomingAmerica-EU and Emmanuel Macron dislikes him. So we’re offthe hook. trade row over steel could turn nasty. AsMr Trump isfinding out, Americans may be forgiven for finding this tale frustrating. America has no monopoly on nationalist grievances. 7 30 The Americas The Economist June 24th 2017

Also in this section 31 Bello: Who governs Peru? 32 Canada’s frozen rodeo 32 Snooping in Mexico

Cuba and the United States ment. Visits from the United States jumped by a third in 2016 (see chart). Future visitors Looking backwards face more complexity and confusion. Even if they avoid army-owned hotels, they might unknowingly enrich the soldiers by renting a car, taking a boat trip or even swimming with dolphins. Military enterprises offer all these services. It is not clear whether Americans will be able to stay in Donald Trump and Raúl Castro team up to punish Cuban entrepreneurs such popular(though overpriced) hotels as T WAS typical Trumpian pageantry. On a people visitors will have to join organised the Hotel Nacional and the Parque Central. Ibunting-trimmed stage at the Manuel Ar- tours. He also intends to ban transactions These are owned by the tourism ministry, time theatre in Miami’s Little Havana by individuals and firms with companies whose head is an army-reserve colonel. neighbourhood, the president of the Un- linked to Cuba’s army and intelligence ser- Tour organisers will no doubt steer ited States declared on June 16th that he vices. This could have bigger conse- their clients away from army-owned busi- was “cancelling” the “completely one-sid- quences. GAESA, a conglomerate run by nesses. Independent travellers will have to ed deal with Cuba” made by his predeces- the armed forces, is thought to control up do their own due diligence. Mr Trump’sor- sor, Barack Obama. There is much less to to 60% ofthe economy. Itsholdingsinclude der will dissuade some from going in the thisthan Donald Trump’spugnaciousrhet- petrol stations, supermarkets and ports. first place. oric suggests. But the new policy will still One of its companies, Gaviota, owns Cuba’s entrepreneurial class, which hurt Cuba’s fledgling private sector, dis- 29,000 hotel rooms, some of which are owesitsexistence to the country’scautious courage economic reform and damage Un- managed by foreign chains like Kempinski, economicreformsand much ofitsprosper- cle Sam’s prestige in Latin America. Meliá and Starwood, an American firm. ity to the rise in tourism, is worried. Mr The deal struck in 2014 by Mr Obama What all this will mean in practice will Trump “is undermining the very private and Cuba’spresident, Raúl Castro, restored depend on rules issued by the US Treasury sector he claims to support”, laments the diplomatic relations after an interruption and Commerce departments. But the new owner of a paladar (a family-owned res- of 54 years, softened the United States’ policy could end the upsurge in American taurant) in the Vedado district of Havana. trade embargo, eased travel between the tourism started by Mr Obama’s rapproche- On paper, the changes announced by Mr countries and removed Cuba from the list Trump are “subtle, but in practice they will ofstate sponsorsofterrorism. Much of that have huge consequences”, predicts an en- will not change. Mr Trump’s main innova- Havana good time trepreneur who runs a small consultancy. tion is to make tourism harder, supposedly Cuba, visitor arrivals, m Although Americans are just 7% of for- to deny income to Cuba’s armed forces. eign touristsin Cuba, theyare generous tip- Americans 4 Commercial flights and cruises, though, pers and patronise private businesses. Cu- Cuban expats* will continue. He thus hopes to satisfy a bans who let out their homes through diehard pro-embargo minority without Others 3 Airbnb have collected nearly $40m in revenue since April 2015. On average they get rupturing relations. Canadians Under Mr Obama’s rules, Americans 2 $2,700 a year, nearly ten times the typical eager to sample mojitos in their country of salary. Tour organisers have tended to origin merely had to declare that they 1 booktheir clients into hotels. would engage in “people-to-people” ex- Europeans Ironically, Cuba’s government has changes in order to travel independently. joined Mr Trump in cracking down on the 0 Under Mr Trump’s, independent travellers 2010 11 12 13 14 15 16† country’s emergent capitalism. Shortly be- will have to declare that they have some Sources: National *Excluded from country totals. fore his announcement, with talk of other mission, like supporting civil society, Office of Statistics; Mainly living in the United States tougherAmerican policyin the air, the gov- The Economist †Estimate unless they are of Cuban origin. People-to- ernment restricted the opening ofnew res-1 The Economist June 24th 2017 The Americas 31

2 taurants and licences to rent out rooms in concession to Mr Trump, says José Jasán Cuba kept its cool. The government criti- Havana’s old city. It has stopped allowing Nieves Cárdenas, a journalist in Havana. cised his “hostile rhetoric” but said it will self-employed entrepreneurs to form com- The hardening of attitudes may persist continue “respectful dialogue and co-oper- pany-like “co-operatives”. A recent session after Mr Castro steps down as president, ation”. Ajoint fight against drug-trafficking, ofthe legislature reaffirmed the state’s con- which he plans to do next February,proba- for example, may continue. The new poli- trol overthe economy and its opposition to bly in favour of Miguel Díaz-Canel, Cuba’s cy may damage the United States’ dealings concentration ofprivate property. “first vice-president”. That will end nearly with other Latin American countries, This is not surprising. Half a century of 60 years of rule by the Castro family (Mr which have long seen the embargo as bul- American sanctions did not promote liber- Castro’s brother, Fidel, led the country’s lying. That may make it harder to fashion ty.In fact, they gave Cuba’s government an revolution in 1959 and governed until regional responses to such issues as the excuse not to open the economy or hold 2006). It might have been an opportunity economic and political crisis in Venezuela. free elections. Although Mr Trump por- to liberalise,but, saysMrNieves, Mr Trump Before an adoring crowd in the Manuel trays his toughness as a way to spur de- has given conservatives “a perfect instru- Artime theatre, Mr Trump proclaimed the mocracy, it may do the opposite. The gov- ment to manage the speed ofchange”. United States a “symbol of hope”. It was ernment will do nothing that looks like a After Mr Trump turned up the heat, one formore people before he spoke. 7 Bello Who governs Peru?

The president must face down the fujimorista congress O LOSE a minister to congressional reckons the president, reduced annual Tcensure is a normal hazard of demo- economic growth by a percentage point, cratic life. For a government to lose fourin to 3%. Reconstruction will take two years its first year, including the ministers of fi- and cost $6.5bn, he says. The climate of nance and the interior, on spurious grounds suspicion in congress slows new govern- smacks of a parliamentary conspiracy. That ment contracts, while political uncertain- is the drama that may soon face Pedro Pablo ty discourages private investment. Plans Kuczynski, Peru’s president. to reform Peru’s corrupt and inefficient ju- A year ago Mr Kuczynski, a former in- diciary have been stymied, a case of “big vestment banker, narrowly won a run-off stuff” being blocked by the opposition. election because slightly more Peruvians Mr Kuczynski faces a choice. He could abhorred his opponent, Keiko Fujimori, seek a grand bargain, for example by par- than supported her. In an election for con- doning Ms Fujimori’s father, Alberto, an gress two months before, his political autocratic former president jailed for group had won just 18 of the 130 seats abuses of power. But that would alienate while Ms Fujimori’s PopularForce won 73 the anti-fujimoristas whose votes won (partly because less populated regions are him the presidency. A better strategy over-represented). But it is Mr Alarcón, not Mr Thorne, who is would be to call his opponents’ bluff. Popular Force, helped by opportunis- ethicallychallenged. The comptroller, who Peru’sconstitution allowsthe president to tic allies, has made its majority felt with has aligned himself with the fujimoristas, turn a ministerial censure into a matter of spoiling operations. In December con- is being investigated for illicitly dealing in confidence in the government as a whole. gress censured Jaime Saavedra, the capa- cars and using public money to pay off a If two successive cabinets are rejected by ble education minister, who was formermistress (which he denies). congress, the president can call a fresh leg- promptly hired to run the World Bank’s The differences between the govern- islative election, in which the fujimoristas global education division. Last month the ment and the fujimoristas are not ideologi- would probably lose seats. transport minister resigned rather than cal, according to Mr Kuczynski. “Here we Mr Kuczynski seems to be following face censure over a (justified) revision to a have a group that resents my being the both tracks. He says he is looking at the contract for a new airport for Cusco, the president,” he told Bello. “They have col- possibility of pardoning Mr Fujimori: former Inca capital. On June 21st congress laborated on the big stuffbut they like little “The time to do it is about now.” But he voted to sack Alfredo Thorne, the finance gestures that show their dissatisfaction also says that he will “definitely” make minister; itispoised to do the same to Car- with not being in the palace.” Ms Fujimori Mr Basombrío’s permanence a matter of los Basombrío, the interior minister. has taken defeat hard. She has barely ap- confidence. Do that, and “they are unlike- Mr Basombrío’s sins include not ar- peared in public in the past year. She has ly to censure anyone”, he declared. resting a few peaceful demonstrators car- had only one conversation with Mr Ku- Some of his travails are his fault. Al- rying pictures of Abimael Guzmán, the czynski, and that had to be arranged by though he has government experience, jailed leader of the Shining Path terrorist Lima’s Catholic archbishop. MrKuczynski is not a political animal. His group. Mr Thorne’s troubles began after Mr Kuczynski inherited a slowing econ- cabinet consists of technocrats and busi- he received the comptroller-general, Ed- omy. He wanted to speed up public invest- ness people. The result is an administra- gar Alarcón. The encounter was surrepti- ment and move forward stalled mining tion that lacks a political strategy and dis- tiously taped, apparently by Mr Alarcón. projects. He and the country suffered a cipline in the way it communicates. Find During it, Mr Thorne mentioned the double dose of bad luck. An admission of them, and Mr Kuczynski—and Peru—can comptroller’s budget and urged him to corruption by Odebrecht, a Brazilian con- win this battle against pique and obstruc- approve the contract for the Cusco air- tractor, forced the suspension ofseveral big tion. The alternative is to drift on, like a port. It was politically maladroit to dis- infrastructure projects in Peru. Then floods rudderless boat whose occupants are cuss the two issues in the same meeting. killed 147 people, washed away roads and, picked offby sniper fire. 32 The Americas The Economist June 24th 2017

Canada would ground on the Grand Banks sail Mexico through on stronger currents. The frozen rodeo Captain Durnford’s berg-towing opera- Hacking the hacks tion is the low-tech end of an increasingly high-tech enterprise. Satellites are the first scouts, spotting objects that might pose a threat. Ascatteringofwhite pixels could be ST JOHN’S, NEWFOUNDLAND AND LABRADOR a ship, a pod of whales or even a range of Toprotect offshore oil platformsfrom MEXICO CITY high waves, says Desmond Power, head of roaming icebergs, it is best to lasso them Is the government spying on its critics? remote sensing at C-CORE, which devel- ICK DURNFORD lassoes icebergs for a oped software to interpret satellite scans. EXICANS do not trust their govern- Rliving. The ship he captains, the Maersk Based on facial-recognition technology, it Mment. Just 29% have some confidence Detector, unspools thick polypropylene can distinguish bergs from belugas. in the institution, according to Latinobaró- rope, circles around a floating island of ice To get a closer look, Beechcraft King Air metro, a polling firm. A report in the New to form a loop, tows the berg away and re- prop planes operated by PAL Aerospace York Times on June 19th, widely broadcast leasesitonto a newcourse. Itisa tricky pro- survey as far north as the Davis Strait dur- by the Mexican media, must have reduced cess. In the patch of the North Atlantic ing iceberg season, from April to the end of that number. It said that software sold to where Captain Durnford operates, not far June. Craig Trickett, a sensor operator fresh the government to spy on suspected crimi- from where the Titanic sank, waves can from a flight that spotted100 icebergs ofin- nals had turned up on the mobile phones reach 30 metres (100 feet) in height and fog terest, thinks he has the “the coolest job on of journalists and human-rights cam- blinds him 40% of the time in the clearest the planet”. paignerswho criticise the government per- months. Icebergs can break apart or roll The closer they come to the platforms, fectly legally. without warning. But the biggest risk is the more their operators want to know. Investigations by the Times, Citizen Lab that the rope will get entangled in the Software from Rutter, a Canadian firm, (a research centre in Toronto) and three ship’s propellers in high seas. “There is a lit- uses ordinary radardata from supply ships NGOs named 15 people, most of them crit- tle bit ofskill involved,” he says. like the Maersk Detector to help judge ics ofthe government ofPresident Enrique The Detector mainly diverts icebergs whether an iceberg is on a collision course Peña Nieto, whose phones were found to not to protect shipping but to shield five with an oil platform.The SeaDragon, a pro- have the spyware. They include Carmen offshore oil platforms on the Grand Banks, totype vessel, uses lasers above the water Aristegui, a journalistwho helped uncover 300km (200 miles) east of the Canadian and sonar below to provide three-dimen- a controversial purchase of a house by Mr province of Newfoundland and Labrador. sional pictures, which can help predict an Peña’s wife from a government contractor. The threat can come from icebergs that rise iceberg’s path. Another target was employees of Centro above the water to the height of office The firms behind the iceberg-deflecting Prodh, a human-rights group that repre- blocks, one ofwhich ran aground offFerry- technology are finding other uses for it. C- sents the families of 43 students who dis- land in April, or from growlers, the size of CORE is using satellite imagery to watch appeared in 2014. ManyMexicansexcoriat- cars above the water’s surface. These can how buildings respond to tunnelling for ed Mr Peña for what they saw as his limp be blasted with a water cannon. Ottawa’s public-transport system. Rutter response to this crime, which reportedly When the Hibernia oilfield was discov- helps spot drug-smugglers in the Caribbe- involved local police and drug gangsters. ered in 1979 on the Grand Banks, a plateau an. Brad de Young, who developed the Sea- The software, called Pegasus, is sold by in shallow waters, many doubted that pe- Dragon, says its successor, the SeaDuck, an Israeli firm, NSO Group, to govern- troleum could be pumped safely. The area could surveysubmerged structureslike the ments that agree to use it only to fight lies in the path of the Labrador Current, a bases ofoffshore wind turbines. crime. Itisactivated when an unsuspecting conveyor belt for icebergs calved off The technology does not replace the person clicks on a link in a text message. Greenland’s glaciers. Anything bigger than work of Captain Durnford, who is tempo- Pegasus then gets access to all the data on a medium-sized berg (with a submerged rarily in command of the Maersk Detector the phone, including calls, texts and pho- portion that extends down 80 metres) can until he rejoins his usual ship. Despite its tos. No one knows who authorised the tar- run aground if it is not carried east or west dangers, “I’ve never missed a night’s getingofjournalistsand activists. The Mex- bythecurrent.Thisyearmorethan900ice- sleep,” he says. As oil platforms move far- ican army, the attorney-general’s office and bergs, double the average number, have ther into Iceberg Alley, he and other ice- the intelligence services have all bought drifted below 48°N, the latitude south of wranglers will cheerfully follow. 7 the software. To snoop legally, any govern- which they pose a danger to shipping. ment agency would need warrants from a Most went nowhere near the oilfields. But Davis court; there is no evidence that any were is- it takes just one to mangle pipes bringing Strait sued. The government denies that it target- oil to the surface. Even growlers are a threat Greenland ed non-criminals and notes that the report to floatingplatforms and ships on the open (to DENMARK) provides no information on who autho- ocean. Since Hibernia’s crude oil started rised the eavesdropping attempts. flowing in 1997 no platform has been seri- Labrador This will not lessen the outrage. The ously damaged, though floating platforms Sea spying on journalists victimises a profes- have had to suspend production to move NORTH sion already under assault by criminal out of the path of an iceberg that abruptly CANADA Labrador ATLANTIC gangs. More than 125 have been killed or changed course. Current OCEAN disappeared in Mexico since 2000; at least Iceberg avoidance may soon get harder. five have been murdered so far this year. On June 14th the 750,000-tonne Hebron Orphan On June 21st the opposition National Ac- platform was set down on the seabed of Basin 48°N tion Party claimed that attempts had been St. John’s the Grand Banks, providing icebergs with Flemish Pass made to hackthe phones offourofits lead- Ferryland another target. Oil firms are eyeing oppor- Oil platforms ers. The government has so far not said it Grand tunitiesin the deeperwatersofthe Orphan Hebron will investigate why the phones of law- Banks Basin and in the Flemish Pass, popularly abiding citizens have been tapped. If anger called Iceberg Alley. There, bergs that 500 km Titanic wreck site grows, it may have no choice. 7 Asia The Economist June 24th 2017 33

Also in this section 34 Jaded Mongolians go to the polls 35 Another victim of North Korea 35 Japan’s smoking dilemma 36 Banyan: Asia’s gay-rights race

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

Free speech in India voters abandoned the upstart in favour of a party that faces less resistance in getting Falling into line things done. In early June the CBI raided properties belonging to the owners of NDTV, a television channel thattriesto give equal airtime Delhi to the government and its critics (and whose boss is a distant relative of a senior UnderNarendra Modi’s government, India’s normally raucous democracy is editor at The Economist). The agency said it becoming more subdued was investigating an old loan that the HE candidate that India’s ruling Bhara- ant on the government’s favour. There are channel had taken out nine years ago. It Ttiya Janata Party (BJP) has put forward few legal limits and little oversight of gov- was repaid within months and the bank forthe largely ceremonial post ofpresident ernment spending on advertising. Mr had no complaint, but the gumshoes insist looks like a canny choice: Ram Nath Ko- Modi’s image is everywhere: on giant bill- that the bank should have earned more in- vind, a longtime devotee of a Hindu group boards trumpeting new roads and bridges, terest. To many observers it does not seem allied with the party, but also a dalit—the in full-page newspaper spreads for BJP coincidental that only days before the raid, bottom rung in India’s caste system. He election campaigns, in television spots an NDTV presenter had engaged in a testy should appeal both to the party’s religious- touting myriad government programmes. exchange with a spokesman for the BJP, ly motivated base, but also to other dalits, During the first week of June, state-spon- who accused the channel of pursuing an who make up close to 20% of the popula- sored projects accounted for three of the anti-government agenda. tion. Given the strength of the BJP and its top five brands advertised on television, NDTV faces a separate investigation by allies in Parliament, which elects the presi- amounting to some 30,000 “insertions”. the Enforcement Directorate. A decade ago dent, his ascent is all but assured. The risk of losing such revenue hangs GE, a giant multinational, bought a $150m The BJP is always looking for ways to heavily over editorial decisions. stake in a new venture with the channel. shore up its support, but not all ofthem are The projectwasnota successand GE, in the so positive. When Mr Kovind’s nomina- Checks and imbalances wake of the global financial crisis, bailed tion was announced, Rana Ayyub, a jour- It is not only the media that are largely out with a significant loss. India’s financial nalist critical of the party, lambasted the tame. Agencies such as India’s Central Bu- watchdog sees this business failure as a choice on Twitter. It took a spokesman for reau of Investigation (CBI), the Enforce- case of international money laundering. It the partylessthan eighthoursto file a comment Directorate of the finance ministry, intends to press criminal charges. plaint with the police, claiming that she the tax authorities and even local police Law-enforcement agencies have not was stirring up hatred on the basis of forces are often accused of doing the gov- shown similar zeal against friends of the caste—an offence in India—even though ernment’s bidding. Since the upstart Aam government, or against Hindu-nationalist the tweet had made no mention ofcaste. Aadmi Party won control of the local as- vigilantes who have, in recent months, Under the leadership of Narendra sembly in Delhi, India’s capital, from the shown increasing boldness in enforcing Modi, the prime minister, the BJP has won BJP in 2015, its leaders have been hit by a theiragenda. Theirvictims usually happen a string of impressive electoral victories, at barrage of investigations. Their impressive to be from India’s 14% Muslim minority, both the national and state level. The op- reforms to health and education have won whether these are cattle-traders beaten position is in disarray; another BJP tri- widespread praise, but Delhi’s govern- up—and in one recent case, killed—by self- umph seems likely in 2019. Yet the BJP is ex- ment has trouble filling administrative appointed protectors of the sacred cow, or tremely sensitive to criticism. posts because career bureaucrats refuse its cricket enthusiasts cheering the wrong Mr Modi has a very easy time with the vacancies for fear of harassment. Not sur- team. Following India’s loss to Pakistan in press. India’s big media conglomerates are prisingly, the BJP trounced Aam Aadmi in an international match on June 18th, 21 either owned by fans ofthe BJP, or else reli- municipal pollsin Delhi earlierthis year, as men were denounced by neighbours for1 34 Asia The Economist June 24th 2017

2 celebrating. Theyhave been charged under ture”—presumably because the 17th-cen- sell off a roster of government jobs for India’s colonial-sedition laws, and re- tury tomb was built by a Muslim king for 60bn togrog ($25m). Individual prices manded in custody. his Muslim wife. Minority groups as well ranged from 10m togrog to become a clerk Mr Modi cannot be blamed for the as secular-minded Hindus are increasingly in a ministry to 1bn to become a minister. over-enthusiasm of righteous citizen-proc- fearful that the country’s diversity is under Law-enforcement agencies said they could tors. But his government has created an en- threat. “We are turning into Pakistan,” says not be sure the recording was authentic abling environment. At state and national a society hostess in Delhi. and so declined to pursue the matter. In level, the BJP has passed laws, such as one One reason for Mr Modi’s apparent in- private, a former MPP minister says that that sharply restricts cattle-trading on “hu- difference to such worries is that he faces even if the recording is authentic, it was all mane” grounds, or taken actions that pro- growing pressure from his own Hindu- just talkthat never came to anything. mote the dominance of a conservative nationalist base. For decades, a network of Voters seem unbothered. The recording brand of Hinduism. Its leaders have either conservative religious groups have quietly notwithstanding, the MPP won a huge ma- maintained a disturbing silence in the face built their strength, struggling, as they see jority—65 out of76 seats—in the parliamen- of mounting disquiet, or added to the unit, against the long-dominant, secular, left- tary vote. It stands a solid chance of taking ease. Yogi Adityanath, the saffron-robed leaning establishment in Delhi. It is these the presidency too, which has been in the new chief minister of India’s most popu- groups which, at the street level, have lent hands of the DP since 2009. In a survey lous state, Uttar Pradesh, recently said that their vast numbers and organisational ge- conducted in late March by the Sant Maral its most famous monument, the TajMahal, nius to Mr Modi’s electoral machine. Now Foundation, a Mongolian polling outfit, does not represent “authentic Indian cul- they want their pound offlesh. 7 the MPP came out well ahead, with 24% of respondents naming it as the party best able to solve the country’s problems, compared with 11% forthe DP. But 35% answered “no party”. That reflects growingdisillusionment with the democracy that was so jubilantly welcomed in 1990, when 70 years of Soviet-style (and Soviet-imposed) communism came to a peaceful end. The sudden switch to a free- market economy and freewheeling multiparty democracy has produced patronage politics, abrupt policy pivots and much dirty dealing when it comes to the licensing and regulation of mining projects, property deals and other business. For the MPP, the reformed heir to the Communist Party, winning the presidency would deliver full control over the government, in which powers are split between parliament and the president. According to Batsaihan Jamichoi of Mongolia Opportu- nities Partners, a private-equity firm, business would preferundivided government. Since last yearprices forMongolia’s biggest exports, copper and coal, have re- Mongolian politics bounded. This, together with a levelling off of the economic slowdown in China Herd it all before (which buys 84% of them) has helped the country recover from a balance-of-payments crisis. An IMF-led assistance package worth $5.5bn now seems to be moving ahead despite opposition to some of the Ulaanbaatar terms, which include a gradual increase in the retirement age from 60 to 65. As Speak- Jaded voters prepare to elect a new president er of parliament, Mr Enkhbold helped to DDRESSING more than 3,000 suppor- His time as a sportsman and a subse- arrange the bail-out. Aters in a packed arena five days before quent career as a businessman position A third candidate, Sainkhuugiin Gan- the first round of Mongolia’s presidential the 54-year-old Mr Battulga well for his baatar of the Mongolian People’s Revolu- election on June 26th, Khaltmaa Battulga, third calling, politics. Outside the arena, an tionary Party, is critical both ofthe IMF and the Democratic Party (DP) nominee, prom- enthusiastic DP supporter called Byamba of China’s dominant role in the economy. ised the things candidates everywhere says what he likes best about Mr Battulga He is thought to be unlikely to win, but if tend to promise: modern infrastructure, (pictured above, on the pennant) is his suc- he defies expectations it would prompt better jobs and restored national pride. cessin business. The othermain candidate, fears that Mongolia might yet again rene- Other pledges were more specific to Mon- Miyegombyn Enkhbold of the Mongolian gotiate the terms of big mining projects. golia, such as one to secure a fairer shake People’s Party (MPP), is, he says, “not a That would put off international investors for nomadic herders. His voice was rough businessman, but an oligarch”. at a time when the country is in urgent as rawhide, but not because of frenetic Shortly before parliamentary elections need of foreign capital. However disillu- speechmaking. It has been rough ever a year ago, a 90-minute tape was released sioned Mongolians may be with their poli- since he sustained throat injuries during a that purportedly captured Mr Enkhbold ticians, Mr Batsaihan observes, “unfortu- previous career as a judo champion. and other MPP leaders discussing a plan to nately the politics matter”. 7 The Economist June 24th 2017 Asia 35

North Korea Foreign travellers are typically held either on espionage charges or for “hostile acts” Throat-clearing Another victim against the North Korean state—bilingual Adult males who smoke, % Bibles left in bathrooms, for example. These prisoners are mainly kept as bar- 60 Japan gaining chips in the hope ofnegotiations. 50 Mr Warmbier’s case will fuel growing Seoul Germany calls in America for a ban on travel to 40 The tragicdeath ofOtto Warmbier North Korea. About 1,000 Americans visit sharpens a diplomatic debate 30 each year, roughly one-fifth of all tourists Britain 20 OW safe is it? Extremely safe!” So to North Korea. Backers of a ban say that United States “Hread the guidance for North Korea such tours do “nothing but provide funds 10 on the website of a Chinese travel com- to a tyrannical regime”. Yet revenue from pany when Otto Warmbier, a 21-year-old tourism, estimated at $30m-40m a year, is 0 American student, signed up for a five-day only a small sliver of even the North’s 2000 02 04 06 08 10 12 14 15 trip in December 2015. Mr Warmbier was backward economy. Opponents of a ban Source: World Bank arrested the next month at the airport in say it would simply help North Korea shut Pyongyang, ashe wasleaving, and accused out the outside world. belongs, have joined a group that opposes of attempting to steal a propaganda plac- Even if travel restrictions are put in the ban. Egging them on are a small but in- ard. He was tried in March 2016, and sen- place, talks like those that secured Mr fluential group of tobacco farmers, and the tenced to 15 years’ hard labour. “I have Warmbier’srelease maystill continue, says huge catering industry, which frets that the been very impressed by the Korean gov- Scott Snyder of the Council on Foreign Re- measure would force thousands of small ernment’s humanitarian treatment of se- lations, an American think-tank. China, bars, restaurants and izakayas—Japan’s be- vere criminals like myself,” he said during with which America held security talks loved and ubiquitous gastropubs—out of a televised confession. this week, is keen to promote dialogue business. Most passive smoking, responsi- The North Korean authorities denied over North Korea’s quest to build nuclear ble for at least 15,000 deaths a year, occurs accessto MrWarmbierafterhistrial. Buton missiles capable of hitting America. In- in such premises, the health ministry says. June 13th they released him, in a vegetative deed, it will argue that growing tensions Health bureaucrats have fought a series state, “on compassionate grounds”, after make talks more necessary than ever. 7 ofskirmishes with the industry, with some talks between the North’s ambassador to effect: smoking rates among men have fall- the UN and America’s point-man on the en by 17 percentage points since the early country. He was flown home to Ohio, Public health in Japan 2000s (see chart); about 18% of adults where he died six days later. Doctors said smoke. Tokyo and some other cities pro- he was suffering from a catastrophic brain Passive obsessive hibit smoking on the street. But the only injury, probably sustained shortly after his passive-smoking law is non-binding, trial. But the cause of the injury is unclear. merelyrequiringpropertyownersand em- The doctors could find no evidence either ployers to “endeavour” to protect custom- of the North Korean explanation—botu- Tokyo ers and workers from exposure. Among lism, a food-borne disease—or of the obvi- the odd consequences is that Japanese The government is at odds with itself ous alternative, a severe beating. smokers must often nip indoors fora puff. about smoking On past precedent, it seems likely that Both sides have dug in, stalling legisla- the harm done to Mr Warmbier was unin- ARO ASO, Japan’s finance minister, is a tion that was supposed to have been tended. Although 18 American citizens Tseasoned champion of the political passed before the Diet shut up shop for the have been detained by North Korea over gaffe. Among his most notorious observa- summer on June 18th. The health ministry the past two decades (and ten since Kim tions was that health costs could be cut if fears that the proposed ban may now go Jong Un, its leader, took power five-and-a- elderly people would just hurry up and up in smoke. The LDP wants smoking to re- half years ago), they have rarely been hurt. die. Even by that standard, however, the main widely permitted, with bars and res- doubts he has expressed about the link be- taurants required only to post a sign at the tween cigarettes and lung cancer have entrance to indicate whether it is allowed raised eyebrows. Mr Aso’s scepticism or not. That would still lead to many need- might just be wishful thinking: he is, after less deaths, says Tokuaki Shobayashi of all, a lifelong smoker. But his ministry also the health ministry. Instead, it suggests an rakes in more than ¥2trn ($18bn) a year exemption only forsmall establishments. from tobacco taxes and owns about a third Mark Levin of the University of Hawaii of Japan Tobacco, the world’s fourth-larg- argues that the catering lobby’s fears are est cigarette-maker. groundless: laws requiring smoke-free pre- Campaigners have railed for years mises do not reduce business at most ven- against the anomaly of a government that ues, and sometimes even increase it. After simultaneously sells cigarettes and dis- all, he says, “most customers appreciate courages smoking. One likens it to acceler- clean air”. A noted bon viveur, Mr Aso is ating a car with the brakes on. The debate known to love a cigar after a good meal. has come to a head overa proposed ban on But he and his colleagues do at least seem smoking inside most buildings other than ready to concede a tightening of the rules private residences, to protect people from in places other than bars and restaurants. passive smoking. The health ministry Every man should enjoy his pleasures, wants it in force before millions of tourists says Mr Shobayashi, but elected officials arrive in Tokyo forthe Olympics in 2020. should decide policy based on science and Nearly 70% of MPs from the Liberal the public good, not because they fear North Korea’s idea of humanitarianism Democratic Party (LDP), to which Mr Aso they’ll run out ofplaces to light up. 7 36 Asia The Economist June 24th 2017 Banyan Pride on the march

One countryin Asia has embraced same-sexmarriage. Which will be the next? most vibrant, and social acceptance of gays has grown rapidly in recent years. In 2001nearly three-fifths ofTaiwanese were against same-sex marriage. Today, polls suggest that half support it, and another quarter do not have strong views. Yet even in Taiwan, ac- knowledging same-sex relationships faced resistance. Christian groups helped to stall a bill by threatening to turf out any legisla- tor who favoured gay marriage. Taiwan’s president, Tsai Ing-wen, was an advocate of gay rights on the campaign trail but is timid on the subject in office. Even stronger Christian conservatism colours another ex-dictatorship with a vigorous civil society: South Korea. There, national security is used to justify some illiberal impulses. Civilian law protects gays from discrimination, but in the armed forces, where there is conscription, sexual relations between men are deemed to be “reciprocal rape” and subject to up to two years in prison. Last month a captain broke down in the dock after being given a suspended six-month sentence. Human-rights groups accuse the army of “hunting down” gay soldiers—more than 30 have been investigated this year. Almost three-quarters of South Koreans in their 20s see gay issues as a matter of human rights, and many have protested against the army’s actions. But their el- ET’S hear it for Taiwan. Late last month its highest court ruled ders remain conservative. South Korea’s new president, Moon Lthat the law allowing marriage only between a man and a Jae-in, although a progressive in otherrespects, said in a presiden- woman was invalid. Sexual orientation, it said, is “an immutable tial debate that he “opposed” homosexuality. characteristic that is resistant to change”—rebutting a widespread Some think Singapore may be number two. In nine years at- view across Asia that homosexuality is a curable disease. Barring tendance at its annual “PinkDot” event has swollen from 2,500 to same-sex couples from marrying violated the right to be treated perhaps 30,000. Gay Singaporeans bring relatives along, and the equally, the court concluded. It gave parliament two years to involvement of non-gay groups, says Paerin Choa, a lawyer and change the law. If it fails to do so, gay couples will be able to go one of the organisers, does a lot for the cause. Singaporean busi- ahead and register as married anyway. nesses are increasingly open-minded. After the government For Chi Chia-wei, the case’s most ardent backer, it has been a ruled that foreign firms could not sponsor political rallies, 120 lo- long fight. He was a teenager when he came out to his family in cal ones replaced the donations that multinationals had previ- 1975. When he made a public declaration ofhis homosexuality in ously made. Yet sex between men remains illegal under section 1986, Taiwan was still under martial law; he was arrested and 377A of the penal code. Counting as “outrages on decency”, it is jailed. Nineteen years after the Netherlands became the first sandwiched between “sexual penetration of a corpse” and “sex- country to legalise same-sex marriage, Taiwan has become the ual penetration with living animal”. What is more, religious con- first in Asia. Which will be second? servatives agitate against a review of the code. Disapproving Certainly not Afghanistan, where sexual acts between men Christians and Muslims meet on a Facebook page called “We are are punishable by death. Indonesia does not have a national law Against PinkDot in Singapore”—an unusual union in itself. against sodomy. But that did not help two young men caught by India, the biggest democracy, will win no prizes, having a con- vigilantes having sex in Aceh province, which was allowed to servative society, a Hindu-nationalist party in power and a colo- adopt sharia law in 2001 as part of a deal to end an insurgency. nial-era lawagainstgaysexalmostidentical to Singapore’s. China They were whipped in public, as a crowd jeered and filmed the does a bit better. In 1997 it decriminalised “hooliganism”, which spectacle on their smartphones. A member of the Acehnese cler- was a euphemism for gay sex. But television is banned from ics’ council told the crowd that the canings were thoughtful, edu- showing “abnormal” relationships. In late May China’s biggest cational and “do not violate human rights”. lesbian dating app, with 5m users, was suddenly shut down. The way gay people are treated in Asia is confusingly diverse. Three main factors affect it. The first is the degree of civic freedom Special permissive region a jurisdiction enjoys, in the form of a thriving democracy and a What about Hong Kong? Homosexuality was decriminalised in strong civil society. The second is the degree of social open- 1991, though same-sex couples are recognised only in the territo- ness—ie, how accepting is society of sexual minorities? Last ry’s domestic-violence ordinance. An anti-discrimination law comes religious tolerance: how aggressively do religious institu- applies only to government employees, with some multination- tions object to deviation from sexual norms? als adopting their own codes. Yet Hong Kong does pretty well in It is not hard, therefore, to understand why Afghanistan is all three areas. Homosexuality is not taboo among the young. such an awful place to be gay. Civil society remains fragile or, in Civil society is vibrant. And though a striking number of politi- Taliban-controlled areas, non-existent. Society is largely gov- cians are Christian, they tend to be in the territory’s democratic erned by traditional norms. And Afghan clerics are fiercely con- camp. Joshua Wong, a devout 20-year-old who rose to promi- servative. Bycontrast, Thailand maybe sociallyaccepting, butthe nence in the “umbrella protests” of 2014 in favour of universal generals have hollowed out politics and pinioned civil society. suffrage, is a good example. One of the people whose ideas he Taiwan scores strongly in two areas. Its civil society is Asia’s campaigns against is his father, a prominent anti-gay activist. 7 China The Economist June 24th 2017 37

Politics in Hong Kong Leung’s five years in office has been the growing sway and visibility of the central Still on borrowed time government’s organ in Hong Kong. Known as the Liaison Office, it was once low-key. Some now divine a parallel government operating in the territory. HONG KONG Just as they will be on July 1st, the people of Hong Kong were mere extras 20 Twentyyears aftertaking overHong Kong, China is behaving more harshly years ago. They had not been consulted towards the territory. Its new leaderwill need to defend it more loudly about the terms ofthe handover, including WO decades ago a media circus de- side over the swearing-in of Carrie Lam the drafting of the territory’s new mini- Tscended on Hong Kong to witness its (pictured, next page) as Hong Kong’s chief constitution, the Basic Law, which prom- transfer, after a century and a half as a Brit- executive in place of “C.Y.” Leung Chun- ised a “high degree of autonomy” and a ish colony, to Chinese rule. The handover ying. Mrs Lam, who previously served as way of life that would remain unchanged on July 1st 1997 was an extraordinary, and head of the civil service, will be the first for 50 years. A lack of confidence in Hong for many, a poignant moment—not least woman to lead the territory. Kong’s future had prompted a rush to ob- for the people of Hong Kong, who had Mr Xi is certain to praise the success of tain full British or other Western passports created a phenomenal economic success “one country, two systems”, the formula and to find boltholes abroad. and who were now being placed in the China prescribed for Hong Kong. But he Yet as the handover date approached, a care ofa Leninist one-party state. will be uneasy. Many people in Hong Kong generally positive mood prevailed among Britain’s acquisition of the “barren are bitterly frustrated by their lack ofsay in ordinary citizens. Opinion polling by rock” ofHong Kong in 1842 after a brief, un- how they are governed. And the growth of Hong Kong University showed twice as equal war marked the rise not just of a a “localist” movement in Hong Kong over many people satisfied with their lives as small, aggressive, mercantile, maritime the past five years, demanding self-deter- not. After all, China’s economy was begin- power but the ascent, in general, of the mination or even independence, has great- ning to take off. Indeed the whole region West. Equally, it marked the decline of a ly angered a Communist Party for which was booming. Hong Kong seemed extraor- once-great civilisation. Hong Kong’s return absolute sovereignty—ie, the regime’s se- dinarily well-placed to benefit. Early im- brought the narrative full circle. For all the curity—is the bottom line. pressions of Chinese rule reinforced opti- pomp, it was clear that Britain was just an- mism. When the People’s Liberation Army other so-so power, and China a fast-rising Two systems, converging crossed the border into Hong Kong, they one that might one day eclipse the West. China’s formula was intended to reassure disappeared into barracks. The goosestep- For the government in Beijing it was a mo- Hong Kong that it could keep its capitalist ping was confined largely to the conven- ment oftriumph: China was back. economy, its independent courts and its tion centre (most people have yet to see a On July1st, in the same convention cen- politicallyliberal (ifundemocratic) culture. Chinese soldier on the streets). tre in which the handover ceremony was Yet it will be lost on no one that Mrs Lam, Hong Kong remains distinct—not only held, the country’s president, Xi Jinping, like her predecessors, was chosen not by the most prosperous part ofChina but also will join celebrations to mark the 20th an- ordinary Hong Kong people but by 777 the freest. Hong Kong’s courts are still re- niversary of the handover—his first visit to votes in a nominating process tightly con- spected globally for their professionalism the territory as China’s leader. He will pre- trolled by the party. Astrikingfeature ofMr and unbiased rulings. The press still airs1 38 China The Economist June 24th 2017

2 vigorous criticism of the local government bourses in Shanghai and Shenzhen do far and of China’s leaders. Political debate is more trade and are strengthening their vibrant and protest is permitted, including links with global markets (see page 65). by organisations such as Falun Gong that The rise of an economically powerful are banned on the mainland. Hong Kong’s China—one less bashful about asserting its way of doing business has not noticeably authority in Hong Kong—has coincided eroded, despite an influx of Chinese “red- with growing gloom in the territory about chip” companies raising capital in Hong its own economy. When measured by GDP Kong (its stock exchange is vying to attract per head, Hong Kong’s performance over them, see page 66). the past two decades has been respectable. But since the handover, and especially It is worse than other Asian tigers (and Ire- in the past five years, anxieties have land, the Celtic tiger), but better than al- grown. They have been fuelled by subtle most everyone else. Yet its boom days are changes in Hong Kong’s political culture over. In the 1970s Hong Kong’s annual GDP (“mainlandisation”, as some describe it) growth averaged 9%; in the 1980s, 7.4%. But and intrusions by the Chinese state. In 2015 from 1998 to 2016 it averaged just 3.3%. And Chinese secret police abducted a booksell- during Mr Leung’s tenure, the figure was er to the mainland; earlier this year they 2.3% (for annual rates, see chart). Even the did the same to a Chinese tycoon. Carrie Lam faces tough times ahead one notable growth area, tourism, contrib- Democrats complain about ever-more- utes mainly low-payingjobs and a huge in- blatant attempts by China to manipulate ecutive, Tung Chee-hwa, says that not once flux of mainlanders whom many Hong elections, journalistsaboutself-censorship in four years did she have contact with the Kongers resent. They call them “locusts” in the media and university staffabout po- Liaison Office as part ofher work. forthe frenetic way they shop. litically driven appointments. Lawyers But China no longer feels so beholden A slowdown is inevitable as any fast- fear an erosion of judicial independence to Hong Kong forits economic welfare. The growing economy matures. Yet many peo- caused by China’s efforts to make sure that territory’s GDP is now less than 3% of the ple are disgruntled. Inequality is rising, the Basic Law is interpreted to suit the faster-growing mainland’s. And as China’s soaring property prices make it hard to af- party’s political needs. Its latest constitu- economy rapidly becomes more integrat- ford a flat (nearly halfofHong Kongers live tional pronouncement, in November, ed with the rest of the world, Hong Kong’s in publichousing), and general satisfaction aimed to prevent two localist legislators no longer looks so special to officials in is sharply lower than it was a decade ago. from taking up their posts on the ground Beijing. In his book, “A System Apart”, Si- The economy has longbeen dominated that they had deliberately garbled their mon Cartledge (formerly of the Economist by the same conglomerates and increas- oaths when they were sworn in. A court in Intelligence Unit, a sister firm of this news- ingly elderly tycoons. Property develop- Hong Kong was already considering the le- paper) argues that Hong Kong’s economy ment is the most conspicuous example. A gality of their oaths; China wanted to stop is “stuck, with remarkably little change to few giants are allowed a lockon a lucrative it reaching the wrong decision. show for the last two decades”. Trade and market because property is the govern- logistics, which are exemplified by Hong ment’s chief source of taxation. But other Dashed hopes Kong’s container port, make up nearly a industries, often related to the developers, At the time of the handover, The Economist quarter of GDP, little different from the also operate as monopolies, duopolies or expressed hope that Hong Kong would mid-2000s. Finance accounts for17%—little cartels. They include supermarkets, power, serve as a laboratory for political change changed either. ports and aviation. From nothing, Shen- on the mainland. “What if”, we asked, China, however, has changed a lot. In zhen has given birth to such tech giants as “Hong Kong takes over China?” Instead, manywaysitisnowa rival. Portsin the city Tencent, Huawei and ZTE; entrepreneurs in over the past two decades, and especially of Shenzhen just across the border now do Silicon Valley salivate over the Chinese under Mr Xi, the party has shut down dis- more business than Hong Kong. And Hong city’s prospects. Hong Kong has no such sent on the mainland. Politics there has Kong’s role as a financial hub is no longer energy. Preserving wealth trumps creating grown only more illiberal. Protecting Hong as important to China as it once was. The it. A seventh of Hong Kongers are poor. On Kong from this trend will require consider- the streets at night old women collect card- ably greater vigilance by its government board to make ends meet. and people. The greatest risk, as one for- HK, OK? With pinched prospects and inequality merseniorofficial says, is that political and Hong Kong on the rise, it is hardly surprisingthat many business elites in Hong Kong, rather than feel the government is out of touch. There strongly making the case for Hong Kong’s GDP, % change on a year earlier was an underappreciated economic di- autonomy, fawningly cede it to the Liaison 10 mension to the dissatisfaction expressed in Office, or to the party in Beijing. 5 the “Umbrella” protests in favour of free + In the past it was easier to argue that 0 elections that blocked several major roads – China risked damaging itselfby interfering 5 formore than 11weeks in 2014. Similar sen- in Hong Kong. At the time of the handover, timent was evident in elections forthe Leg- 10 the colony, with a population of6.5m (now 1997 2000 05 10 16 islative Council (Legco) in September, in 7.3m), had an economy equivalent to a fifth which localists secured a fifth of the popu- of that of the mainland, with its popula- Ratio of house prices to median income lar vote, as well as in the underwhelming tion of over 1bn. This may partly explain 1997=100 public reception ofMrs Lam’s elevation. why, for the first few years after the han- 140 In Beijing, Hong Kong’s political mood 120 dover, China let Hong Kong’s government 100 is interpreted as rank ingratitude at best, rule much as it wished, as long as it did not 80 treason at worst. Both the central govern- challenge the mainland politically. Anson 60 ment and Hong Kong’s pro-Beijing elites Chan, who represented continuity as civil- 40 long to turn Hong Kong back to what they 1997 2000 05 10 17* service chief under both the last British go- like to call an “economic” city, putting poli- vernor, Chris Patten, and the first chief ex- Sources: Haver Analytics; government statistics *Q1 tics back in the bottle. That is wholly to 1

40 China The Economist June 24th 2017

2 miss the point. China’s efforts to keep British rule, Hong Kong was often referred Hong Kong’s economy running as it did in to as a borrowed place on borrowed time colonial days have compounded the local (a description inspired by the title of a clas- government’s political problems today. sic book about the territory by Richard Under the British, the government was Hughes). Time still haunts it. Nathan Law, pro-business but not of business. Since an advocate of self-determination who at 1997 business interests have been baked 23 is Legco’s youngest member, points out into the political system (Mr Tung, the first that 20 years since the handoveris also just chief executive, was a shipping magnate). 30 years until July1st 2047, when all formal Conflicts of interest have multiplied. Cro- promises about Hong Kong’s autonomy nyism has grown. Todate, the tenures ofall are void. In May last year, protesters dis- chief executives have ended in ignominy played a countdown in seconds to that or failure. The government has been reluc- date on Hong Kong’s tallest skyscraper; see tant to foster change. It could have tried to picture below. To Mr Law’s generation, he broaden the tax base so as to reduce its de- says, 2047 is not faraway; he will still be in pendence on property. To broaden its ap- his prime. It is why, he argues, there is all to peal, it could have sought to let political play fornow. parties be represented in government. It The Communist Party and its Hong has done neither. Kong backers are clear about how to play In office, Mrs Lam will struggle to break the game: restrain democracy and try to ex- with this legacy. Though a hard-working One of these characters wields great power clude from elections any candidate they bureaucrat, hercosy relations with the cen- deem to be sympathetic to independence. tral government undermine her credibility Office, Hong Kong’s “second team”, as a Chinese officials have been making it clear locally. She is prone to curious gaffes, such breach ofChina’s promises to HongKong— to Mrs Lam that they want the shelved as admitting she did not know where to and a possible conduit for mainland-style anti-subversion bill to be revived; as they buy lavatory paper. Above all, she is strug- corruption. see it, such a law would be a useful weap- gling to bring together a competent admin- For those Hong Kongers with the terri- on against separatists. istration. As a gulf of legitimacy grows be- tory’sinterestsatheart, the past20 yearsof- tween the government and the governed, fer some lessons. One is that for all the A better approach able people from outside the bureaucracy Communist Party’s might, and a want of So Hong Kong needs a new form ofpolitics are less willing to take cabinet positions. democratic representation, popular opin- that involves playing a long game cannily. Mrs Lam can always recruit members of ion—strongly expressed—counts for some- Mrs Lam does not seem the kind of person the civil service into political posts, but thing. Mr Tung’s attempt to pass an anti- to argue doggedly in defence of Hong that drains a respected service of compe- subversion law demanded by the central Kong’s rule of law, its way of life or its right tent and experienced administrators. government led to huge protests in 2003, to have free elections. But both she and her the bill’s shelving, and Mr Tung’s eventual critics must find the confidence to seek Shadowy government resignation. Protests in 2012 stopped a new ways of co-operating with China eco- One unwelcome consequence of the mess move to foist on schools a programme of nomically. That will stick in the craw of is that the baneful presence of the Liaison Communist-inspired patriotic education. people keen to safeguard Hong Kong’s dis- Office is even more likely to grow. As it is, And even though Mr Leung patiently wore tinctiveness. Yet dogged opposition to the central government’s outpost has down the Umbrella protests by refusing to everythingChina does will make the party abandoned any pretence at remaining low make concessions, his actions fostered a all the more inclined to tighten control. Let key. It provides loans to businesses. It has younger generation of political activists, the game begin. 7 bought up Hong Kong’s largest publishing many of them teenagers. That generation house and book-chain owner. (Titles criti- identifies far less with the mainland than cal of the party have, of course, been re- do those who witnessed the handover. moved.) It openly lobbied for Mrs Lam to Localism may help to preserve some of be endorsed by Hong Kong’s tame election what makes Hong Kong distinct, but its rise committee. Some analysts believe it influ- is creating fractures in the pro-democracy enced her decision to choose Hong Kong’s camp. Under pressure from localist radi- immigration chief—whose relations in that cals, moderates are finding it more difficult capacity with mainland authorities had to compromise with the government. been central to his work—as her future Hence their rejection of a political-reform chief secretary, despite his lack of adminis- package in 2014 that would have allowed trative experience. universal suffrage in choosing the chief ex- The office’s representatives get pride of ecutive, but with only vetted candidates place at civic functions. And it backs candi- running. Localism has also encouraged dates sympathetic to the Communist Party hardliners in Beijing to treat the territory as in elections to district councils and Legco. a potential political threat. Mrs Lam will Last year the office’s chief, Zhang Xiaom- take over an administration that feels over- ing, allowed his calligraphy extolling mor- whelmed by such conflicting pressures. al strength to be auctioned to raise funds Once a gung-ho place, Hong Kong these for the main pro-Beijing party, the DAB (he days struggles even to put in place sensible is pictured above at the event, wearing a rubbish-recycling policies or push forward blue tie). A businessman with mainland oft-stalled plans for a world-class cultural interests bid HK$18.8m ($2.4m) for the art. district. The quotidian falls victim to “And it was really bad calligraphy,” says a broader ideological struggles. former official. Many in the democratic For all the current protest-fatigue, those camp see the creeping arm of the Liaison struggles are bound to continue. Under Counting down to the next big date Middle East and Africa The Economist June 24th 2017 41

Also in this section 42 Syria’s multi-sided war 42 Prize and prejudice in Israel 43 Zambia’s bad turn 43 Africans without passports 44 Urban democracy in Africa

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

Succession in Saudi Arabia and he seems to have learned little from it. On June 5th Saudi Arabia led other Arab The new number two countries in blockading Qatar, alleging that the tiny gas-rich monarchy supports terrorism and is too cozy with Iran—charges it denies. No one knows what MBS’s endgame might be. Some fear that, in at- CAIRO tempting to assert the kingdom’s primacy in the region, he risks destabilising it. Even King Salman’s choice ofa new successorwas both shocking and predictable the prospectofthisunnervesforeign inves- ROM the moment he was named depu- other limbs see the new crown prince as a tors, whom MBS is trying to woo. Fty crown prince in April 2015, Muham- man in a hurry—too much of one. Con- It is possible that the king had hoped to mad bin Salman seemed destined for the cerns abound overhis ambitious agenda at consolidate his succession before his throne. The favourite son of King Salman, home and his rash interventions abroad. health failed him. (It is not unusual for the aged only 29 at the time, was handed con- Muhammad bin Salman (or MBS, as he fortunes of Saudi royal offspring to take a trol of the kingdom’s economy and made is called) hopes to wean the economy off turn for the worse on the death of their fa- responsible for its defence. His youthful oil and bring down vast budget deficits. ther.) Some put the timing down to Presi- face was plastered on billboards around Economists have welcomed his plan, dent Donald Trump’s visit to Riyadh, the the kingdom—but with him, always, was known as Saudi Vision 2030. But its imple- Saudi capital, in May. MBS curried favour the image of his older cousin, Muhammad mentation seems precarious. When civil with Mr Trump by buying $110bn worth of bin Nayef, who as crown prince stood be- servants howled about plans to cut their American weapons, cynics say. tween the king and his favoured successor. ample pay, the government backed down A number of important positions That is no longer the case. On June 21st in April. As the king announced MBS’s pro- changed hands on June 21st, and even King Salman dismissed the crown prince motion, he also promised to reinstate bo- more in the past several months. All the re- and replaced him with Muhammad bin nuses and benefits that MBS had cut. That cent moves seemed aimed at consolidat- Salman, who sealed the changeover by will add billions to this year’s budget defi- ing power around MBS. He has, for exam- kissing his cousin’s hand as the former cit, already projected to reach 12% of GDP. ple, won the loyalty of royal uncles by crown prince left the Safa palace in Mecca The government says its finances are im- givingtheirsons prominent posts. His own (see picture). “I pledge allegiance to you proving, but businessmen question its fig- brother, Prince Khalid, was appointed am- through the best and the worst,” said the ures and the oil price is tumbling again. bassador to the United States in April. A demoted prince. Video of the exchange young and little-known prince called Abd- went viral. The authorities are keen to give The happy prince ulaziz bin Saud bin Nayef was named inte- the impression of an orderly transition. Analysts fear that MBS’s personal ambi- rior minister, thus ending Muhammad bin State media reported that 31 of the 34 tion makes him a less effective reformer. Nayef’s long involvement in the king- princes in charge of succession approved His recent economic manoeuvring, which dom’s security. His efforts to defeat terro- the change. also included promises of free housing, rists were generally considered successful. But the move will surely irk some roy- may have been aimed at shoring up sup- Allies saw him as a reliable partner. His als. King Salman is the sixth son of Saudi port ahead of his promotion. Similarly, ministry was perhaps the best-run govern- Arabia’s founding monarch to reign. He after taking the kingdom to war in neigh- ment office in the kingdom. shook things up in 2015, when he passed bouring Yemen in 2015, he was happy for a The defence ministry run by MBS has, over his remaining brothers and named while to pose as a dashing military leader. however, not done at all well in prosecut- Muhammad bin Nayef, his nephew, as But as the conflict turned into a quagmire, ing the war in Yemen. After kissing his old- crown prince. The elevation ofhis son is an he has stepped back from the limelight, ercousin’shand on hiswayoutofthe door, even more striking break with tradition. and the decision to go to war has been re- MBS told him, “We are always in need of Power is now concentrated in a single cast as a collective one. your direction and guidance.” Many Sau- branch of the family tree. Royals on the Even so, the war has hurt his credibility, dis hope he means it. 7 42 Middle East and Africa The Economist June 24th 2017

A new chapter in a multi-sided war increase its already substantial shipments Culture wars in Israel of arms to its Lebanese ally, Hizbullah, a The Iranian militia and political party.It will also make A horse walks into it easier for the Syrian regime and Iran to envelopment co-ordinate with Iraq’s Shia militias as the a controversy regime’s forces push deeper into the oil- BEIRUT rich province of Deir Ezzor. This is one of JERUSALEM IS’s last strongholds and was a bedrock of Iran is making gains in the scramble for Israel’s artists are celebrated abroad. the Syrian economy before the war. eastern Syria Less so at home Iran’s gambit in the east will worry N JUNE 18th the unexpected hap- hawks in President Donald Trump’s ad- T WAS a red-letter day for Hebrew litera- Opened. For the first time since Ameri- ministration, who argue that Iranian influ- Iture. On June 14th David Grossman, one ca’s involvement in the skies over Kosovo ence in Syria and the wider Middle East of Israel’s most celebrated authors, won 18 years ago, an American fighter plane needs to be resisted. It also may stymie an the Man Booker International Prize for “A shot down a hostile jet. America targeted attempt by American-backed Syrian rebels Horse Walks Into a Bar”. Also on the shor- the Syrian plane after it bombed Ameri- to push into Deir Ezzor from the south. tlist of six was another Israeli, Amos Oz. can-backed forces battling to drive the jiha- So far, America has shown little appe- For a small country whose politicians nor- dists of Islamic State (IS) from their capital tite for countering Iran’s desert manoeu- mally gush over any international acco- in the Syrian city ofRaqqa. vres. American warplanes have bombed lade, the response was uncharacteristical- The downing of the Syrian plane and a Iranian-backed militias twice since May ly terse. It took Binyamin Netanyahu, the string of recent air strikes and skirmishes 18th and shot down two Iranian-made prime minister, nearly 24 hours to post a between ground forces backed by America drones close to a remote garrison at Al Tanf single sentence ofcongratulation. and Iran, have opened a newchapterin the used by American and British special Mr Netanyahu’s reticence is indicative multi-sided Syrian war. This raises con- forces. But, aswith the downingofthe Syri- ofa cold war between right-wing national- cerns offurther escalation in a conflict that an air force jet, America says it carried out ists and the country’s left-leaning cultural has already sucked in neighbours and re- the strikes in self-defence and that they do elite, epitomised byMrGrossman. The two gional powers. Russia, enraged by the at- not signal a broader strategy to confront men clashed in 2015 when Mr Grossman tack on the regime it supports, threatened Iran, the Syrian regime or Russia. was among a group of writers who rein retaliation to track American warplanes Yet there is also little Washington can nounced their candidacy for the Israel with its missile systems should their pilots do to push back Iran or the regime without Prize for Literature after Mr Netanyahu stray west of the Euphrates river. And Iran, inflaming the conflict and hindering the tried to remove some judges whom he which already supports the regime of fight against IS. Iran’s presence in Syria is claimed were “anti-Zionist”. Bashar al-Assad, Syria’s dictator, with formidable. It has poured in thousands of Mr Grossman received the Booker for ground troops, escalated its involvement militiamen from Iraq, Afghanistan and one of his least political books. But for on June 18th by firing a volley of ballistic Pakistan, and propped up the regime with more than three decades he has been an el- missiles into a city in eastern Syria con- billions of dollars in loans. Iranian firms oquent critic of Israel’s policies in the terri- trolled by IS. have won fat contracts in telecoms, min- tories it occupied in 1967. “Yellow Wind”, a Behind these shows offorce is a desper- ing, agriculture, oil and gas. collection ofessays on the condition ofPal- ate race between an emboldened Syrian America’s plan to contain Iran thus estinians under Israeli rule published in regime (and its Russian and Iranian allies) hinges on enlisting the help of Russia. It 1987, is still considered one of the sharpest and American-backed forces to grab the hopes to establish a buffer zone in south- depictions of the 50-year-old occupation rump of territory controlled by a faltering ern Syria along the border with Israel and ofthe West Bank. IS along Syria’s border with Iraq. It is a race Jordan that is free ofIranian-backed forces. Jessica Cohen, who shared in Mr Gross- that America and its allies may lose. That may partly be to avert yet another man’s prize for translating the book into On June 9th the Syrian army and Irani- possible cross-border conflict. Israel has re- English from Hebrew, said she would do- an-backed militiamen reached the border peatedly said it will not tolerate Iranian- nate half of her award to B’Tselem, an Is- with Iraq forthe first time since 2015.Mean- backed militias on the Golan Heights, part raeli human-rights group. It was a pointed while, in Iraq, yet more Iranian-backed of which was captured by Israel in 1967. It rebuke to Mr Netanyahu, who had recently fighters are pushingsouth alongthe border has reinforced this unofficial red line with said he would support a law that would through IS territory to linkup with their al- air strikes on Syrian and Iranian-backed prevent such groups receivingmoney from lies in Syria. If they succeed, Iran will have forces in the area. foreign governments. secured a major objective: control over a As Syria’s border regions become ever Some ofMr Netanyahu’s cabinet minis- land corridor that runs from Tehran to Bei- more congested with combatants, the risk ters offered more generous praise, even if rut, via Iraq and Syria (see map). of an unintentional escalation is increas- they remain eager culture warriors. Gaining a land bridge will allow Iran to ing. Peace is nowhere in sight. 7 Among them is Naftali Bennett, the education minister, whose ministry removed from the state curriculum a novel featuring TURKEY 200 km Caspian I Sea KKURDKRDKUD ISTAISITASTA AN a romance between an Israeli and Palestin- ian. Another is Miri Regev, the culture min- Raqqa Mosul Aleppo Erbil ister, who has backed the exclusion of a Thhraa play from a theatre festival because it was SYRIA IRAN Deir Ezzor IRAQ about Palestinian prisoners. Ms Regev, a T i DEIR g formerarmy censor, has also threatened to

Mediterranean Sea Areas of control, June 2017 Eu r p i EZZOR h s ra Palmyra t Syrian government Rebels withdraw state funding from a cultural fes- LEBANON e s tival forstaginga playfeaturingnudity, say- Beirut Al Tanf Islamic Kurds Contested base State ing it would harm Israel’s Jewish values. Damascus June 9th Baghdad Golan Syrian troops Iraqi Security Forces/tribal fighters Still, at least she tolerates terrible puns. Heights and allied militia and militias ISRAEL reach the Iraqi border Source: Institute for the Study of War “Grossman is deﬁnitely a winning horse,” JORDAN she said ofhis book’s award. 7 The Economist June 24th 2017 Middle East and Africa 43

Zambia Road-rage rules

LUSAKA Treason charges forobstructing the presidential motorcade RAFFIC offences rarely undermine de- Tmocracy. In Zambia, however, the government’s pursuit of a high-profile traffic offender has done just that. On April 8th a convoy of cars carrying Hakainde Hichi- lema, the main opposition leader, did not stop on the side of the road to make way for a motorcade carrying Edgar Lungu, the Failure to park lands a man in the dock president. Two days later police raided Mr Hichilema’s home and whisked him to pri- ed by “hatred” and “political competition”. Hichilema was thrown out on a technical- son. On June 8th a magistrate sent the case In politics, as on the road, MrHichilema ity, but he continues to press his case. to the High Court, where Mr Hichilema has not been giving way to his rival. He Mr Hichilema’s arrest underscores a (pictured) and five others face charges of continues to dispute the results of a presi- broader attack on democratic institutions treason for allegedly putting the presidential election held last August. Official takingplace underMrLungu. Afeisty inde- dent’s life atrisk. MrHichilema, a business- tallies gave him 47.6% of the vote and Mr pendent newspaper, the Post, was closed man, deniesthe charge, sayingitismotivat- Lungu 50.4%. A court challenge from Mr last year, ostensibly because it had not paid its taxes. This month 48 opposition MPs were suspended from the legislature after African travellers they refused to attend a speech by Mr Lungu. The Catholic Archbishop of Lusaka No papers, no passage has said the country is now a “dictator- NAIROBI ship” in all but name. Mutale Nalumango, the chairwoman of the opposition United Nevermind visas, some African countries make it hard to get a passport Party for National Development (UPND), FRICANS who want to travel have arrive with the wrong names. says the ruling Patriotic Front (PF) is “work- Along endured gigantic hassles when Perhaps those with the biggest cause ing towards a one-party state”. trying to obtain visas, not just to rich to complain are citizens ofthe Democrat- Zambia has seen worse. For 27 years countries but also to other African ones. ic Republic ofCongo. Its passports cost after independence, it endured incompe- Ugandans now face an extra hurdle $185, making them some ofthe most tent single-party socialist rule under Presi- before they even reach a foreign embassy. expensive in the world. The average dent Kenneth Kaunda. But the country On June12th the government said it was income in Congo is only $680, so this is opened up to multiparty democracy in running out ofnew passports and would utterly out ofreach formost Congolese. 1991, after the cold war ended, and for ration them. They will be issued only to Unsurprisingly,there is a thriving much ofthe time since then it has been rea- people suffering medical emergencies, or blackmarket in fake passports in Africa. sonably democratic. Power has changed needing to travel for government busi- Britain and New Zealand have ended hands twice at the ballot box. Until recent- ness or to study.Everyone else will have visa-free travel arrangements with South ly political violence was unusual, but sev- to wait, possibly for months. Africa because ofthe large numbers of eral people were killed during last year’s Uganda says the shortage is because “counterfeit or fraudulently obtained” election and the police sometimes beat up ofa surge in demand. It is not the only documents coming from that country. opposition supporters. country where getting identity docu- And last year America shut down a fake Against this backdrop, MrLungu is gear- ments has proved difficult. Until last year embassy,complete with the Stars and ing up fora third term in 2021. The constitu- Zimbabweans would spend nights sleep- Stripes and a photo ofPresident Barack tion allows only two, but Mr Lungu’s sup- ing outside the passport office to avoid Obama, that had been operating in Gha- porters insist that his first term does not losing their place in the queue. At one na fora decade. It had been selling fake count because it was not a full one: he point, no more were issued because the visas to America for $6,000 each. came to power in 2015 after the death of a inkran out. Nigerians, too, faced a pass- Most Africans who can afford one can predecessor. The constitution is conve- port drought when the company printing at least get a passport, ifthey are patient. niently ambiguous on that point. them slowed supplies as it haggled with But forEritreans, this is not enough. It is Even if Mr Lungu does run again, he the government over the price. one ofthe few countries which, like the may struggle to win. His government has The shortage is particularly acute for old Soviet Union, insist that citizens must to make spendingcuts to pluga budget def- Africans who live abroad. Queues of obtain an exit visa to leave. It grants them icit of 7% of GDP, the result of low (though frustrated people demanding passports only grudgingly,but this has not stopped improving) prices forcopper, the country’s form most days outside Nigeria’s high Eritreans from escaping. By one UN esti- main export. It is in talks with the IMF and commission in London. Processing appli- mate, some 400,000 have fled the dicta- is already raising fuel and electricity prices cations can take months, says Feyi Fawe- torial regime over the past decade, almost in anticipation ofa deal. hinmi, a Nigerian living in London. A a tenth ofthe population. When you Zambian democracy has survived set- friend ofhis waited three months for his have no intention ofgoing back, why backs and cheap copper before. But right children’s passports, only forthem to bother with the right papers? now the hands on the steering wheel seem rather reckless. 7 44 Middle East and Africa The Economist June 24th 2017

Democracy in Africa glasses) a candidate for the ruling Jubilee party. Mr Sonko’s adopted name means First we take Nairobi “the boss” in Sheng, the Swahili-English creole used in Nairobi slums, and it reflects his colourful style. Mr Sonko was once ordered out of Kenya’s parliament for refusing to remove his earrings and sunglasses; NAIROBI he often wears huge gold chains, and drives a gold-plated SUV. In African politics the action is in the cities, where ethnic ties are weaker Mr Sonko also has a controversial past. T A street corner in Kangemi, a neigh- its strongholds. If it governs better than the In 2010 he was named in Parliament by Abourhood of tin-roofed shacks and ANC, it stands a chance of using cities as a Kenya’s then interior minister as being sus- new brick tenements in the west of Nairo- springboard to winning more provinces (it pected of dealing drugs. (Mr Sonko could bi, men huddle into what are called street already governs the Western Cape) oreven not be reached for comment despite re- parliaments. Standing several deep, they to challenging the ANC’s majority in par- peated attempts by The Economist.) More debate politics, each man speaking in turn, liament in 2019. than that, though, he is a populist. Part of with a moderator at the centre. “We are Similarstrategieshave been pursued by his appeal among the poor is that he show- done with these thieves,” says Jeremiah opposition parties elsewhere. In Nigeria, ers his own money on local services such Mukaiti, a 53-year-old caretaker. “We need for instance, the Lagos state government as free ambulances (called the “Sonko Res- change.” Others pipe up with similar com- was run for close to two decades by an op- cue Team”); he has promised to upgrade plaints. “The government is doing nothing. position party, the All Progressives Con- slums and cut taxes paid by market traders. They steal money, and their promises gress (APC). The APC’s record in Lagos, If Mr Sonko were to win it would be a come to nothing,” says Cyrus Injiloa, a 36- which raises much of its own revenue and blow to the various opposition parties that year-old security guard. provides better services than many other had hoped to use their grip over cities such Much of the talk is about the general states, helped it win the presidency in 2015. as Nairobi and Mombasa to build up their elections, which are scheduled for August. (Thatwasthe firsttime an incumbent Nige- share ofthe national vote. Yet it would also Voters will pick from candidates running rian president had been peacefully re- reflect a slow change in how Kenyan poli- for president right down to those standing moved at the ballot box.) tics works. For the most part Kenyans vote as municipal councillors. Uhuru Kenyatta, If city politics can sway the national along ethnic lines. To win a national elec- the president, will probably win a second sort, that bodes well forthe future. Africa is tion politicians have to build ethnic co- term; no incumbent Kenyan president has urbanising faster than any other region: alitions, bringing in enough small groups ever lost an election. half of Africans will live in cities by 2035, to win the “tribal mathematics”. But in cit- Go down a level, however, and politics according to the UN,upfromarounda ies such as Nairobi people seem to be mov- is far more competitive, especially in Nai- third now. Yet Mr Cheeseman frets that ing away from voting along tribal lines. robi county, which includes the capital. competition in local politics could equally That may favour Mr Sonko, who—with an The incumbent governor is Evans Kidero, a lead to the rise of“ethno-populism”. Enter- adopted name—hides his ethnic back- former businessman and a member of the prising rabble-rousers, he fears, could use a ground and tries to appeal to all of the opposition National Super Alliance. This mix of vote-buying and ethnic mobilisa- city’s dwellers. year, Mr Kidero is fighting for his political tion to win control oflocal resources. Simon Musyoka, a motorbike taxi future. It is a similar story in Mombasa, the driver who lives in Mathare, is from the second biggest city, where Governor Has- Specs and the city Kamba tribe, and shares his name with a san Joho, a majoropposition leader, faces a One place where a new kind of politics is prominent opposition politician. None- tight reelection campaign. erupting is Nairobi. The governor’s race is theless, he is voting for Mr Sonko. “He is a This pattern, in which opposition par- thrilling this year thanks to the arrival of rich man, but he knows what life is like for ties control big cities, is mirrored in many Mike Sonko (pictured, in patriotic sun- slum people,” he says. 7 African states. Across the continent 85% of incumbent presidents who stand again win re-election. And ruling parties often dominate national assembliesfordecades. Yet competition is thriving in the cities. In Dar es Salaam, Tanzania’s commercial capital, the opposition won the mayoralty last year for the first time ever. In Kampala, Uganda’s capital, opposition parties dominate the city council, much to the chagrin of Yoweri Museveni, who has been presi- dentsince1986. In South Africa, the opposition Democratic Alliance (DA) won Johan- nesburg, Port Elizabeth and Pretoria last year, and has governed Cape Town since 2006. OfSouth Africa’s bigcities, only Dur- ban is in the hands of the ruling African National Congress. Such competition forcities and states in Africa can sometimes drive reform, says Nicholas Cheeseman of Oxford Universi- ty.In South Africa the DA faces a huge challenge living up to voters’ expectations. If it fails to improve people’s lives, it could lose Who’s the boss? Europe The Economist June 24th 2017 45

Also in this section 46 France gets a government 47 Dutch refugee policy 47 Romania yanks its prime minister 48 The baby gangs of Naples 49 Charlemagne: Germany’s Russian pipeline

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

Hungary’s young liberals cialists, Hungary’s biggest left-wing party, who are polling below 15%. They remain Magyars en marche! tainted by years of mismanagement and perceived graft. Before Mr Orban swept to power, the Socialists led the country to the brink of bankruptcy. The then prime minister, Ferenc Gyurcsany, once hailed as a BUDAPEST moderniser in the mould of Tony Blair, was recorded delivering an expletive-lad- Inspired by Emmanuel Macron, a new partychallenges ViktorOrban en secret speech. To win election, he told N A smoky open-air bar at the back of a kete-Gyor says. “We are open.” party members, the party had “lied morn- Iyouth hostel in Budapest, one of Eu- But Hungary is not France. Since 2010, ing, noon and night” about the country’s ﬁ- rope’s youngest political parties is hatch- when he secured a crushing supermajor- nances. The speech leaked, prompting ing plans for a democratic revolution. Its ity in parliament, Viktor Orban, Hungary’s mass protests. Like Mr Blair, Mr Gyurcsany leader, Andras Fekete-Gyor (pictured), a prime minister, has launched a systematic is charismatic and divisive. Unlike Mr bearded, focused 28-year-old, jabs his right assault on the country’s checks and bal- Blair, he remains important in domestic hand for emphasis as he lays out his plans ances. Government-friendly oligarchs con- politics: the Socialists split, and Mr Gyurc- for the party, Momentum. An audience of trol much of the media. Mr Orban has sany formed a new party, the Democratic about 70 people, most of them young, are overhauled the electoral system to beneﬁt Coalition. Some ofthe otherliberal parties, perched on stools and reclining on sofas, Fidesz. In 2014 the party won a two-thirds including Momentum, despise him almost drinking beer and listening intently. For majority in parliament with less than half as much as they do Mr Orban. some Hungarian dreamers, this scene rep- the vote. In the best of circumstances, for a resents one of the most promising political new political party to do well in an elec- Toning down the neo-fascism developments in years. tion within a year or two would be a re- As the liberal parties squabble, the largest Momentum burst onto the scene with a markable achievement. In Hungary it opposition group remains Jobbik, an ultra- petition drive last winter, when it collected would be miraculous. nationalistparty. Once openlyanti-Semitic more than 250,000 signatures and forced The emergence of Momentum may and anti-Roma, Jobbik is trying to rebrand the governmentto abandon itsextravagant worsen the divisions among Hungary’s itself. Gone is a paramilitary unit, the Hun- bid to host the 2024 Olympics. The games opposition. More than half a dozen left- garian Guard, which marched around Bu- would simply provide an opportunity for wing and liberal parties are competing, dapest wearing fascist insignia and black corruption, Momentum argued. The group and several will probably fail to meet the vests. Jobbik MPs no longer give speeches has since turned itselfinto a political party, 5% threshold to enter parliament. To have in parliament, as they once did, discussing ahead of elections in early 2018. Most of its any hope of defeating Mr Orban, Hunga- whether the blood libel (the myth that leaders were born as communism col- ry’sliberal partiesmustworktogether, says Jews kill Christian children fortheir blood) lapsed. Many have studied abroad. They Andras Biro-Nagy of Policy Solutions, a was based in fact. Instead, they talk about lookto Emmanuel Macron, France’s young think-tankin Budapest. their commitment to the EU and the pro- president, for inspiration (although Mr Fe- But the leaders of Momentum, which blem oflow wages. kete-Gyor is quick to point out that he is polls below 5%, appear to believe they can Marton Gyongyosi, a well-dressed Job- younger). Like Mr Macron’s party, La Répu- manage on their own. They regard almost bik MP and former tax adviser, says that blique En Marche!, Momentum seeks to all Hungary’s olderpoliticians, on both left the party has grown up. In 2012 Mr Gyon- transcend old divisions between left and and right, as corrupt; they want to kick out gyosi called on the government to draw up right. “Whether we are closed or open, the entire political elite. lists ofHungarian Jews who pose a nation- right now, that’s the big question,” Mr Fe- Much of their ire is directed at the So- al-security threat. Today he acknowledges 1 46 Europe The Economist June 24th 2017

2 that the party has, in the past, not been “so- Hungary a €10bn ($11.2bn) loan to expand competence. Itlooked clumsy, forexample, phisticated enough in its wording”. As Job- a nuclear power plant. when Mr Philippe implied that Mr Bayrou bik inches towards the centre, it may strug- Mr Orban dismissed the protests: “It al- would stayin office, justhoursbefore news gle to take its more extreme voters along. ways makes one smile when one sees broke that he was going. On June 21st Mr Mr Orban, meanwhile, looks more vul- masses of people demonstrating because Macron reshuffled his cabinet, taking care nerable than he has for years. After he of a supposed lack of democracy,” he to preserve the balance between left- and passed a law that threatens to close Central scoffed in a radio interview in April. “This right-leaningministers. That is essential for European University, one of Hungary’s is rather funny.” But between January and a president whose popularity is not partic- best, some 80,000 youngHungarians prot- April, support for his party fell from 37% to ularly high and could slide if he veers in ei- ested in Budapest and other cities. There is 31%. Hungary’s liberals cannot afford to ther direction, says Laurent Bouvet, a polit- widespread anger at corruption, lackof ac- waste this opportunity. As Mr Orban esca- ical scientist at Versailles University. countability and Vladimir Putin’s increas- lates his repression of civil society, they The centre-right Republicans and their ing influence in Hungary. Russia has given may not get another one. 7 allies will form the main opposition, with 136 deputies, far fewer than they had expected early in the campaign. Worse for them, they are split over how to handle a government containing many of their former colleagues: the prime minister, Mr Philippe, finance minister, Bruno Le Maire, and budget minister, Gérald Darmanin, all hail from the Republicans. Ideological lines may be hard to maintain, too. The Re- publicans favour much of Mr Macron’s programme, which includes labour and pension reform, taxcuts and a reduced role forthe state in some areas. On June 21st Thierry Solère, a Republi- can, announced that a splinter group of some 40 MPsfrom variouscentre-right parties would offer “constructive” support for Mr Macron’s reforms. That leaves the Re- publican rump more isolated. Its only con- solation is that the former incumbent, the Socialist Party, is even more downcast. The Socialists and their allies have only 45 deputies, their worst result in modern history. Their departing leader, Jean-Christophe The new French government Cambadélis, who lost his own seat, says the “collapse of the Socialist Party is be- Getting his feet wet yond doubt”. The noisiest opposition to Mr Macron’s administration may come from the ex- tremes. Marine Le Pen, whose hard-right National Front has eight deputies, won her PARIS race in a former coal-mining region in A less than sure-footed start forEmmanuel Macron’s cabinet northern France. Jean-Luc Mélenchon, whose far-left Unsubmissive France party T SHOULD have been a triumphant mo- Dem, a centrist ally, also resigned. Investi- won 17 seats, was elected in Marseille. Nei- Iment. Together with its allies, La Répu- gators are looking into whether they mis- ther politician had been an MP before; blique en Marche! (LRM), the movementof used European parliamentary funds. both arrived in parliament this week to President Emmanuel Macron, won 350 of The loss of Sylvie Goulard as defence much media attention, and both will use the 577 seats in the National Assembly in minister is a blow. She had proved capable their seats as a platform to rouse protests the election on June 18th. Even on its own, in her brief stint. In contrast, the exit of the against Mr Macron’s reforms. LRM won 308 seats, a clearmajority. That is sometimes hot-headed François Bayrou Mr Mélenchon claimed this week that a remarkable outcome for a political outfit (pictured left), the justice minister and the historically low turnout in the legisla- launched only last year. Even a couple of leaderofMoDem, mightprove a relief. This tive vote constituted a “civic general strike” months ago few, otherthan the supremely month he harangued a radio journalist, against Mr Macron. Few French would confident Mr Macron, dared suggest it was provoking the prime minister, Edouard agree. Turnoutwasindeed lowat43%, with possible. Philippe, to tell him to be more ministerial. the young, the poor and the working-class Yet he had little chance to savour the Mr Bayrou, who was leading the govern- least likely to take part. But since the early moment or prepare for the legislative ses- ment’s push to clean up politics by setting 2000s, when the electoral calendar shifted sion that begins on June 27th. His govern- stricter rules on the use of public money, to holding legislative polls shortly after ment faced days of awkward scrutiny as wasunderpressure to prove himselfabove presidential ones, declining turnout has four ministers quit. On June 19th Richard suspicion. He remains a political force: his been the norm. Many voters assumed vic- Ferrand, an LRM minister close to Mr Mac- 42 deputies will support Mr Macron, who tory for LRM was a done deal. Despite Mr ron who has been caught up in a financial owes Mr Bayrou forhis early endorsement Macron’s troubles this week, this aura of scandal, stepped down. (He will become in the presidential campaign. inevitability has not dissipated. The bal- the party’s leader in parliament.) Over the Still, the resignations have raised ance of power in parliament gives him the following days three ministers from Mo- doubts about the new administration’s means to push ahead. 7 The Economist June 24th 2017 Europe 47

Dutch refugee policy ment to 14, its best showing ever. On elec- lum-seekers would need to apply from tion night Mr Klaver declared that by en- abroad rather than coming to the Nether- Keep them away suring that “the populist breakthrough did lands and landing in centres like the one in not happen”, the Netherlands had shown Rijswijk. Any who found their way to the the way forEurope. Netherlands could be sent back. Many EU The centre-right Liberals (VVD), who countries are pursuing a similar agenda. THE HAGUE won the most seats with 33, entered co- Rights groups think such plans would alition negotiations with GreenLeft and violate the international Convention on Split overmigration, the Dutch fail to two other outfits, the Christian Democrats Refugees. The proposal would mean “an form a government and the left-liberal D66 party. But the talks end to the individual right to asylum in the IKE most things Dutch, the asylum-seek- exposed deep divisions, first over climate Netherlands”, says Eduard Nazarski, head Lers’ centre in Rijswijk, a suburb of The policy and then over refugees. The Liber- of Amnesty International’s Dutch branch. Hague, is clean, rectilinear and well-organ- als, Christian Democrats and D66 agreed Mr Klaver agreed, and in early May he ised. The housing units’ aluminium exteri- that the Netherlands should try to dupli- broke off talks with Mark Rutte, the Liberal ors are as shiny and elegant as a VanMoof cate the Turkey deal with countries in prime minister, and the other two parties. bicycle. Pupils from Syria and Afghanistan north Africa to stem the flow ofrefugees in Negotiations later resumed, but broke up march cheerfully down the pavement, es- the central Mediterranean. Ultimately, asy- again on June 12th. 1 corted by blonde teachers. The centre has room for up to 500 residents, but the actual Romania votes no-confidence number is lower. Since March 2016, when an agreement between the European Un- ion and Turkey closed off the migration Agoodmanishardtofind route across the Aegean, the stream of asy- BUCHAREST lum-seekers arriving in the Netherlands Aftersixmonths the Social Democrats yanktheirown prime minister has slowed to a trickle. Some of the reception centres set up at the height of the mi- N ORDINARY politics, it is opposition grant crisis have never been used. Iparties who attempt to bring govern- With the number ofrefugees shrinking, ments down. But politics in Romania is one would thinkasylum mightdrop off the rarely ordinary.For the past weekthe political agenda. Instead, it is the issue that country’s governing Social Democratic will not die. In mid-June a clash over mi- Party (PSD) has been trying to unseat its gration policy torpedoed coalition negoti- own prime minister and his cabinet. The ations that have dragged on since an elec- prime minister, Sorin Grindeanu, refused tion in March. At the time, that election to go. On June 21st the PSD succeeded at was hailed across Europe as a rejection of last, winning a no-confidence vote and anti-immigrant populists such as Geert kicking Mr Grindeanu out ofpower, less Wilders. Yet three months later the Nether- than six months after it had installed him. landsstill hasno government, and the elec- One ofMr Grindeanu’s few allies, Victor tion’s meaning seems less clear. Ponta, a formerprime minister, called the The party that sank the talks, the envi- vote an “atomic war between the Social ronmentalist group GreenLeft, was the one Democrats and the Social Democrats”. most strengthened by the election. Its The PSD claimed it was removing Mr leader, 31-year-old Jesse Klaver, reinvigorat- Grindeanu over his failure to pass most ed his party with a campaign that drew ofthe party’s legislative programme, Grindeanu, hard to get rid of thousands of supporters to local “meet- which includes crowd-pleasing measures ups”. (His curly locks and Justin Trudeau like tax cuts, salary increases for public passed a decree that would have decrimi- smile did not hurt.) GreenLeft jumped servants and a €10bn ($11.2bn) sovereign- nalised some corruption cases, possibly from fourseats in the 150-seat Dutch parlia- wealth fund to promote infrastructure including Mr Dragnea’s. The proposal investment. In fact it had more to do with brought hundreds ofthousands ofprot- his falling-out with the party’s leader, esters into the streets, and the govern- Combination frustration Liviu Dragnea. The PSD came first in the ment backed down. Netherlands, parliamentary election results 2017 parliamentary election last December The PSD should be enjoying its turn in Total seats: 150 with 46% ofthe vote. But Mr Dragnea was power. Romania’s GDP grew at an annual Seats short of a majority barred from becoming prime minister rate of5.6% in the first quarter, the highest Coalition core because ofa felony conviction forelector- in the European Union. Instead it has got Christian itselfinto a politically costly mess. Ap- VVD 33 Democrats D66 19 5 al fraud. The little-known Mr Grindeanu 19 was appointed instead. pointing a new prime minister will be Mr Grindeanu quickly moved to risky,too. Mr Grindeanu was Mr Drag- Negotiations address one ofhis MPs’ top priorities: nea’s second choice; an earlier candidate attempted Incompatible indemnifying them from prosecution. was rejected by the president, Klaus Green PVV Socialists PvdA Left 5 Romania’s independent National Anti- Iohannis, who hails from the opposition 14 20 14 9 Corruption Directorate has been putting National Liberals and is no fanofthe PSD Christian Union hundreds ofpoliticians in jail every year. leader. He must decide on whomever Mr One ofthose at riskis Mr Dragnea, who is Dragnea picks next. On June 20th Mr Others on trial for abuse ofpower and faces jail Iohannis said he would only designate a PvdD Denk time ifconvicted. (For his electoral-fraud “person ofintegrity” forthe job. It will be 54332 50+ FvD conviction, he received a suspended up to Mr Dragnea to find one; in Roma- SGP sentence.) In January the government nian politics, they are rare. Sources: Netherlands electoral council; NOS 48 Europe The Economist June 24th 2017

2 The three core partiesnowhave few op- party. It will enter coalition negotiations themselves in fear oftheir lives. tions for forming a majority (see chart). this week. But it may be too environmen- In a piazza in the Sanità area, a monu- The Labour Party (PvdA) agrees with their talistforthe Liberalsand too culturally con- ment has been erected to another young migration policies. But Labour lost three- servative for D66. Neapolitan. Genny Cesarano, aged 17, was quarters of its seats in the election, after The politics are complicated, but the fatally shot during a stesa in the piazza in spending the past five years as the junior gist is simple. Mr Wilders did worse than 2015. After a recent spate of such shooting partner of the Liberals. The party’s leader, expected in the election, but his party is parties, the police blanketed the district Lodewijk Asscher, insists it will stay in op- still big enough to force mainstream par- with patrols and roadblocks. But there position while it rebuilds. Asked on June ties to contort themselves in order to form have been three more since. 20th what might convince him to join a coalitions. More important, the other par- Carmela Manco, a volunteer social government, Mr Asscher used an old ties stopped Mr Wilders partly by moving worker since the 1980s, recalls with a wist- Dutch expression: als de pleuris uitbreekt in his direction. Most Dutch parties now ful smile the days when the Camorra (“if there is an outbreak of pleurisy”). agree thatthe chiefaim ofmigration policy would alert her in time to get children off Meanwhile, the far-left Socialists have is to keep asylum-seekers out. Mr Klaver the streets: “They rang us. A voice would ruled out governing with the Liberals. And may have proclaimed victory over popu- say, ‘Attenzione, che piove’ [‘Watch out. It’s everyone rules out Mr Wilders. lism on election night, but on the issue of going to rain’].” Ms Manco runs L’Oasi, a That leaves the leftist Christian Union refugees the populists had already won. 7 sports and cultural centre in the San Gio- vanni a Teduccio district intended for children of camorristi and others close to the Naples’ baby gangs underworld. “We have kids here who can’t read or write, but sing Stravinsky,” she Young blood says. The aim is to keep the children offthe streets so they do not drift into theft, drug- peddling or other routes to jail or an early death. The families are not always helpful. At one point the father of one of her char- NAPLES ges murdered the father ofanother. San Giovanni a Teduccio has so far The Camorra turns to teenage enforcers to maintain its rule been free of baby gangs. But Father Gae- ESS than a hundred yards away, Via San As the head of the Italian state police, tano Romano, the parish priest, wonders LBiagio dei Librai in the centre of Naples Franco Gabrielli, acknowledged, the baby for how long. The dominant local clan has bustles with activity. Tourists buy souve- gangs are a perverse result of successful lately clashed with the Sibillo crew and its nirs and munch pizza, oblivious to the policing. The courts have locked up so allies. “My fear is that there will be reper- meaningofthe coded graffiti on the street’s many veteran clan bosses in recent years cussions here,” he says. Underpinning the peeling walls. But in a side alley, all is sol- that the task of holding Naples in thrall to Camorra’s grip on the young is its ability to emn hush. Beyond a door, in a courtyard, the Camorra has fallen to ever-younger, offer extremely lucrative work in a region stands a tall metal cabinet displaying a ce- more reckless affiliates. (If they are under where the employment rate among 15- to ramic bust of a young man, surrounded by 14, they cannot be held criminally liable for 24-year-olds is under 12%. A frequent com- fresh white roses. If not for his hipster their misdeeds.) plaint is that the Camorra provides the beard and haircut, it could be the shrine of Their favourite technique for asserting jobs that the state fails to. But, argues Fran- a long-dead saint. dominance is the stesa, a term that comes cesco Grillo, a Neapolitan economist, Ital- The building that surrounds the court- from stendere (“to stretch out”): the baby ian governments have invested heavily in yard isthe redoubtofone ofthe many war- gang erupts into a crowded square, riding Naples over the years. The only effect has ring clans of Italy’s oldest yet least-cohe- mopeds and firing at random, usually in been to sustain a ruling class all too often sive mafia, the Camorra. The youngman to the air. People dive for cover or prostrate complicit with the Camorra. 7 whom the shrine is dedicated is Emanuele Sibillo, the archetype of a new breed of Neapolitan gangster. He was murdered in 2015 at the age of 19 in a nearby street that forms part ofthe territory ofa rival crew. Naples has seldom been free of turf wars. But recent months have seen a surge in violence. In 11 days, between May 25th and June 4th, eight people were shot dead in the city and its surrounding province. The police sent reinforcements to the area, even though the army had already been deployed. Much of the recent violence is the workofclans like the one led by Eman- uele Sibillo and his brother. Some of these so-called “baby gangs” have members as young as 12. On May 24th the Carabinieri, Italy’s semi-militarised police, arrested an alleged “babyboss” who isonly16. The son of a jailed Camorra chief, the boy is accused of killing two of his subordinates last year. They had reportedly demanded a biggershare ofthe proceedsfrom drug-trafficking, which is the Camorra’s lifeblood. Cleaning up after the kids The Economist June 24th 2017 Europe 49 Charlemagne Put that in your pipe

A proposed Russian-German gas deal smells funny to America politics. Earlierthismonth the Senate passed a bipartisan bill that would, among other things, allow the Treasury to slap sanctions on foreign companies that invest in Russian pipelines. (The bill is not yet law: it awaits debate in the House of Representatives, and Donald Trump has yet to opine on its merits.) The move spooked Europe’s firms and enraged some of its politicians. “Europe’s energy supply is Europe’s business, not that of the United States of America,” thundered Germany’s foreign minister, Sigmar Gabri- el, and Austria’s chancellor, Christian Kern, in a joint statement. The pair were particularly incensed that the bill included a call to increase American exports ofliquefied natural gas, implying that blocking Russian gas was partly an effort to help American energy companies. Angela Merkel, Germany’s chancellor, let it be known that she supported her minister. The timing ofthe Senate bill is awful. On June 26th the EU’s 28 governments will begin debating whether to allow the European Commission to negotiate the terms of NS2 directly with Russia. Mrs Merkel argues that EU institutions have no business intrud- ing in a purely commercial enterprise. But countries like Sweden and Denmark, which must grant environmental permits if the project is to proceed, want the commission to get involved so that IKE vinyl records and popped collars, rows between the United they are not leftalone to stare down the Kremlin. Foes ofNS2, like LStates and Europe over Russian energy are making a come- Poland, thinkbringing in the commission might be a way to slow back. In the early 1980s Ronald Reagan’s attempts to thwart a So- the project down. The discussion will be a fascinating test ofGer- viet pipeline that would bring Siberian gas to Europe irritated the many’s ability to sway opinion inside the European club. West Germans and drove the French to proclaim the end of the transatlantic alliance. The cast of characters has shifted a little to- Don’t lookback to Angie day, but many of the arguments are the same. In Nord Stream 2 Forobservers who see Mrs Merkel as VladimirPutin’s main Euro- (NS2), a proposed Russian gas pipeline, Germany sees a respect- pean adversary, her stance is perhaps the biggest puzzle. The able project that will cut energy costs and lock in secure supplies. chancellor helps broker negotiations between Russia and Uk- American politicians (and the ex-communist countries of eastern raine. Against domestic and foreign opposition, she has held the Europe) detect a Kremlin plot to deepen Europe’s addiction to line on the EU’s sanctions against Russia over its land grabs. Her cheap Russian gas. They decry German spinelessness. strategy looked like a textbookcase ofEuropean leadership, plac- NS2, which its backers hope will come online at the end of ing German interests to one side forthe greater cause of EU unity 2019, would supply gas directly from Russia’s Baltic coast to the and resistance to outside aggressors. German port of Greifswald, doubling the capacity of Nord But the chancellor’s tacit yet clear support for NS2 suggests Stream 1, an existing line. Its defenders, including a consortium of that a correction may be in order. Her commitment to Ukraine is five European firms that will cover half its cost of €9.5bn not in doubt, and she is infuriated by Mr Putin’s lies. But Ger- ($10.6bn), say that it will help plug a projected gap between Eu- many has never accepted the mantle of European or global lead- rope’s stable demand for gas and declining production in the ership that so many would like to thrust upon it, especially when Netherlands and North Sea. Germany’s government, especially it comes to the politics of energy. Outsiders should not be sur- the Social Democratic Party (SPD), the junior coalition partner, prised to see it behave like any otherEuropean country favouring shares this view. (Gerhard Schröder, a former SPD chancellor of its own consumers and firms (two of the five companies invest- Germany, chairs NS2’s board.) Some Germans quietly hope that ing in NS2 are German). American intervention may only NS2 could transform theircountry into a European energy hub. strengthen Germany’s resolve to protect its commercial interests. Such arguments strike sceptics—countries like Poland and the Those hoping to slow NS2 would do better to lookto Brussels. Baltic states, energy experts at the European Commission, for- The commission will be happy to smother the pipeline in bu- eign-policy hawks and a handful ofGerman renegades—as myo- reaucracy, should the EU’s governments give it a chance. Its legal pic. NS2, they say, might lower fees for Germans but raises them brains say that EU energy law does not apply to offshore pipe- for eastern Europeans further down the chain. It undermines the lines outside the internal market. But the commission dislikes European Union’s stated aim to diversify its sources of energy NS2 and distrusts Gazprom, which it thinks abuses market domi- (Russia accounts for 34% of the EU’s overall gas market, but far nance. “If Gazprom was Statoil [Norway’s national energy firm], more in some countries). It allows Gazprom, the Kremlin-backed we wouldn’t have a problem,” says one official. energy giant, to bypass existing pipelines in Ukraine, depriving So NS2 may yet be asked to obey parts of EU law, including the Ukrainians oflucrative transit fees. By squeezing existing sup- third-party access to the pipeline and transparency on pricing. ply routes, NS2 might also leave Ukraine obliged to negotiate cap- Ukrainian anxieties might be allayed by insisting that Gazprom in-hand with its arch-enemy (Kiev has not imported gas directly commit to maintaining supply through existing pipelines after from Gazprom since 2015). Gazprom has proved willing to wage 2019, when the current contract expires. This might ease fears that energy wars before. Why contribute to its arsenal? NS2 will leave parts ofEurope in hockto the Russians for decades To this fiery brew has now been added America’s toxic Russia to come. But before then a thousand things can go wrong. 7 50 Britain The Economist June 24th 2017

Also in this section 51 Terrorism in Finsbury Park 52 Bagehot: Philip Hammond, the designated adult

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

After the Grenfell Tower fire Centre, the main help point. Mr Chowd- hury arrived in the early morning, a little Embers still glowing after the fire began. Yet until later that day, “there was absolutely no presence from the council at all,” he says. Survivors struggled to discover if friends or family had made it out alive. The local authority was slow to find temporary accommodation. The situation began to improve only when Angergrows overa terrible fire and a slow government response a task force made up of neighbouring LY over the capital and many tower shops stand 200 or so metres from the re- councilsand charitiestookcharge. On June Fblocks thrust up from ground below. mains of the building. Over the past five 22nd the chiefexecutive ofKensington and One stands out from the rest. If the black- decades, towers have sprung up all over Chelsea council was forced to resign. ened hulkofthe Grenfell Tower serves as a London. Yet the worst accidents have been Some have asked why there was not a reminder of the tragedy on June 14th, in in those used forsocial housing. faster response from central government, which at least 79 lives were lost, there are It is not yet clear what started the fire, as there surely would have been in a simi- many more on the ground. Handmade cir- nor why it was able to spread so fast. But lar-scale terrorist attack. Kensington and culars are taped to bus stations, lamp posts the details could scarcely be worse for the Chelsea is among the smallest boroughs in and shop windows across Kensington. government. For years, a local residents’ London. Its day-to-day budget was cut by One lists the job titles and salaries of those group complained, their warnings about 38% between 2009-10 and 2016-17. As Colin with questions to answer. But most con- fire safety were not taken seriously by the Brown, head of disaster response at the cern missing loved ones; smiling photo- company which ran the building. A recent British Red Cross, a charity, notes, “this was graphs alongside pleas forinformation. refurbishment of Grenfell Tower wrapped one of the biggest domestic incidents The fallout from Grenfell has led to feel- it in a cladding which is banned on tall we’ve seen in a very long time.” ings of anger. Indeed, it has contributed to buildings in Germany and the United Theresa May, the prime minister, has a febrile atmosphere across Britain. It was States. The Times hasreported thata fire-re- provided few answers. Although she visit- preceded by two terrorist attacks within a sistant version would have added a mere ed the site the dayafterthe fire, she failed to month, and followed five days later by an- £5,000 ($6,300) to the cost. meet local residents; her team cited securi- other near the Finsbury Park mosque (see Meanwhile, successive housing minis- ty risks as an excuse. After criticism of her next story). An election called to bring sta- ters ignored appeals by experts to update lack of empathy, she visited those in hospi- bility has ended up sowing discord and di- fire-safety regulations. Since 2010 the gov- tal on June 16th and offered £5m for food, vision. Senior ministers have put out con- ernment has tried to cut red tape in the clothes and emergency handouts to vic- tradictory statements about what they hope of encouraging private developers to tims, of which there was no shortage. But want from Brexit. It is little wonder that, build more housing partly because the she dodged questions about her govern- one week on, protests over the fire have capital suffers from a pressing shortage of ment’s response. In the Queen’s Speech taken on a deeper significance about the it. All this has given succour to critics who debate on June 21st she apologised for the state ofthe entire country. argue that the government’s approach to failure ofthe state, both local and national, It now seems possible that the Grenfell regulation betrays a lack of concern for to help people when they needed it most. fire could become a big contributor to a those living in social housing. Jeremy Corbyn, Labour’s leader, did more broader shift in British attitudes, particu- A quicker response might have pacified to embrace people’s anger, calling foremp- larly towards public spending. That is some ofthe anger. Instead, Kensington and ty properties to be requisitioned to provide partly because of the building’s location. Chelsea council floundered. The scale of houses for those now homeless. David Kensington and Chelsea is among the rich- the tragedy was immediately obvious, Lammy, a Labour MP, labelled the disaster est and most unequal areas in the country. says Abraham Chowdhury, who co-ordi- “corporate manslaughter” and demanded Grand town houses and swish coffee nated volunteers at the Westway Sports arrests. 1 The Economist June 24th 2017 Britain 51

2 The political ramificationsofthe fire are Organisation, itwasorganised on a not-for- They agree on little. Common to all, how- still developing. Yet worries that the anger profit basis, undermining arguments that ever, is a hostility towards Muslims, even could lead to violence appear overblown. avaricious profit-making was to blame. more than hatred of Jews, says Matthew Protests organised as part ofa “day ofrage” The idea that public services are under Feldman of Teesside University. As the on June 21st were calmer and smaller than unprecedented strain will be harder to FinsburyParkattackshows, the riskof viol- expected. Calls for the expropriation of shake. Corners may have been cut in the ent extremism is rising. The numbers re- property have the support of the majority refurbishment ofthe building, the enforce- ferred to Channel are growing. Last year of the public, according to a YouGov sur- ment of regulations, or both. A slimline lo- the governmentbanned National Action, a vey,buthave even so led nowhere. Instead, cal council struggled to cope with the di- group that supported Thomas Mair, the the City of London is buying flats for survi- saster. The firefighters, doctors and police murdererofJo Cox, a LabourMP. It was the vors in Kensington. who worked through the night to save first far-right group to be banned in Britain Much will nowdepend on a more rigor- lives were widely praised. Yet, like all pub- since the second world war. In the Queen’s ous analysis ofthe causes ofthe fire, which lic-sectorworkers, theyface the prospect of Speech the government announced a new will take time. Early reports that few other further pay cuts in real terms thanks to the commission forcountering extremism. buildings have been clad in the flammable government’s pay cap. In an early sign of a The farright’s ideology differs from that material that exacerbated the fire may change of atmosphere, Jeremy Hunt, the of Islamist extremists, but the process of calm fears. Similarly, although the local health secretary,signalled a willingness to radicalisation is almost identical, says Wil- council outsourced the running of the consider higher wages. That is unlikely to liam Baldet, a Prevent co-ordinator in building to a separate company, the Ken- be the last change that the Grenfell disaster Leicestershire. Those most at risk are often sington and Chelsea Tenant Management brings about. 7 vulnerable, perhaps because of mental- health or drug problems. A sudden event, such as a bereavement, can lead them to Terrorism in Finsbury Park contact far-right groups whose extremist ideology they then espouse. Attacked at prayer The response is accordingly similar. Po- lice and other agencies try to identify the underlying causes of an individual’s radicalisation before challenging the ideology. But it is hard to spot those at risk on the far right. When it comes to Islamist extremism, there are institutions, such as A terrorist attackon Muslims could set offa worrying new cycle ofviolence mosques and schools, to work through, T COULD have been London Bridge, Yorkshire,itmaybe50-50,reckonsSean Ar- and Muslimsare often concentrated in par- IWestminster, Berlin or Nice. A man in a buthnot, a Prevent co-ordinator. ticular areas. One way to find the far-right van, mowing down pedestrians, spewing The political threat from far-right ex- kind is to look for spikes in hate crime. But hate: the ritual is sadly familiar. But this tremists has never been weaker, says Vid- for some ethnic minorities, hate crime is time the victims were Muslims, worship- hya Ramalingam, founder of Moonshot, now so common that many do not bother pers who had been at prayer after breaking an organisation that combats online viol- to report it, says Mr Baldet. their Ramadan fast. Just after midnight on ent extremism. Support for the far-right The big fear is that Finsbury Park, itself June 19th a van mounted the pavement British National Party, which won more possibly a response to earlier attacks, may outside the Muslim Welfare House near than 560,000 votes in the general election trigger a cycle of “tit-for-tat terrorism”. Far- the Finsbury Park mosque in north Lon- of 2010, has collapsed. In 2017 it took just right extremism and the Islamist sort are don. One man, already receiving first aid 4,642. Its short-lived political success may two sides of the same coin. Still, some after slipping over, was killed. Nine others have contributed to its downfall; activists hope can be found in the response of Mo- were injured. Witnesses say the attacker may have chafed at the party’s attempts to hammed Mahmoud, an imam from the leapt from the vehicle shouting “Kill all become a legitimate political movement. Muslim Welfare Centre. He and others pro- Muslims!” and “Youdeserve it!” before be- Far-right extremists are a disparate tected the driver from an angry crowd, being overpowered by onlookers. bunch. Much activity happens online. fore handing him over to the police. 7 Darren Osborne, a middle-aged man from Cardiff, was arrested at the scene. The police and government are clear in de- scribing the attack as terrorism. Theresa May convened an emergency COBRA meeting. It is not known if the attacker had links to extremist groups or was a “lone wolf”. But his actions have turned attention to the threat ofthe farright. Prevent, part ofthe government’s counter-terrorism strategy, is often criticised for focusing unfairly on Muslims. In fact it deals with all forms of extremism. In 2015 around 15% of all referrals to Channel, a Prevent programme that offers those identified as at risk of radicalisation a mix of education, counselling and support, were related to the far right, against 70% for Is- lamist extremism. In Leicestershire about a quarterare forfar-right extremism and half for the Islamist sort. In south Wales and Aftermath of a night killing 52 Britain The Economist June 24th 2017 Bagehot The designated adult

Philip Hammond is the Toryparty’s most impressive leader-in-waiting years after Oxford as a businessman, not a bag-carrier to some politician, running companies in property and medical devices, and he has been assiduous in consulting business over Brexit. His tweet on keeping his job as chancellor captured his priorities: “Pleased to be reappointed so we can now get on and negotiate a Brexit deal that supports British jobs, business and prosperity.” Mr Hammond is a grown-up in a political playpen that is stuffed with children. The chief claimant to the throne, Boris Johnson, is the most childish of all. Bumptious and bungling, he wants to grab the shiniest prize for himself for no other reason than thatitisshiny. Otherclaimantsalso have problems with ma- turity. David Davis, the Brexit secretary, is a vainglorious contrar- ian who has spent much of his career on the backbenches and who habitually underestimates the damage a bad Brexit might cause. Amber Rudd is a neophyte. Ruth Davidson, the woman who single-handedly revived Scottish Toryism, doesn’t have a Westminsterseat. On the otherside, MrCorbyn is an extreme case of arrested development. He is a man-child leading an army of disgruntled youths, a professional protester who has reached his late 60s without ever having to make adult decisions about allo- cating limited resources, let alone creating them in the first place. RITISH politics is dominated by the sound of two ticking MrHammond understandsthatwealth mustbe generated be- B clocks. The predictable one reaches zero on March 29th 2019, fore it can be redistributed, or indeed requisitioned. He knows when Britain leaves the European Union. The unpredictable one that prosperity is a fragile creation which can be destroyed by reaches zero wheneverthe burghers ofthe Conservative Party of- foolish policies. The sobriquet “spreadsheet Phil” ignores a fer Theresa May a revolver and a glass of whisky. It had looked as shrewd political sense. Worried that patience was running out, ifthat moment might be put offforsome time. But the prime min- he started unwinding austerity even before the election, putting ister’s lamentable handling of the Grenfell Tower fire now sug- offthe target forbalancing the budget until the mid-2020s and ar- gests it could come any day. The Conservative Party is just one guing formore freedom to raise taxes. more mess-up away from a leadership contest. Even if Mrs May survives as prime minister, Mr Hammond’s Philip Hammond is emerging as the most impressive candi- newfound power is a blessing. Previously, she had sidelined him date to replace Mrs May: a serious man for serious times. He un- forthe sin ofseeing the economy as more important than her im- derstands that Britain faces two threats which could immiserate migration targets. Duringthe election herco-chiefsof staff, Nicho- the country for years to come. One is a badly handled Brexit that las Timothy and Fiona Hill, briefed that he would not survive a could disrupt British trade; the other is a Labour victory that post-election reshuffle. With the co-chiefs sacked and Mrs May could plunge Britain back into the 1970s. He recognises the need wounded, he is now more powerful than ever. He rightly criti- for as much time as possible to adjust to Brexit—he wants to “get cises Mrs May for dodging the economic debate during the elec- there” via a “slope not a cliff-edge”. He also recognises that the tion. Making the case for pro-market policies may be harder at a ConservativesmustfightLabourand JeremyCorbyn on the econ- time of stagnant wages, but that is all the more reason to do it. He omy. Try to out-emote them and you will lose. Persuade voters is now busily reshaping the Brexit debate. While avoiding riling that you can’t spend money that you don’t have and the logic of the right with talkofa “soft Brexit”, he argues for a long transition Corbynism collapses. in which Britain might stay in the customs union, “to avoid un- Mr Hammond is not a perfect candidate. Born a year before necessary disruption and dangerous cliff-edges”. Mrs May and a Conservative since his teenage years, he has manyofthe flawsthathave broughtthe prime ministerto hercur- A welcome Treasury comeback rent sorry pass. He is emotionally buttoned up. He belongs to MrHammond’srise isalso producinga positive change in the dis- deep Tory England. He has a thumping majority of18,000 in his tribution of power. In Mrs May’s brief time as prime minister it Runnymede and Weybridge constituency. He was uncomfort- shifted from the Treasury to the Home Office. Business was al- able with David Cameron’s policy of supporting gay marriage. If most frozen out of decision-making. This year’s Conservative Mrs May is the “Maybot”, Mr Hammond is “spreadsheet Phil”. manifesto competed with Labour’s in its anti-business rhetoric. Both are equally uncomfortable in a country of quivering lips Now the Treasury is revving up again and business is rediscover- and ubiquitous tattoos. ing its voice. Plans forrigid immigration targets are being shelved Yet if he is cast from the same mould as Mrs May, he is a supe- alongwith plansforputtingworkerson boardsand micromanag- rior version. He is cleverer. In interviews he answers questions, ing executive pay. rather than trotting out trite formulae, and presents admirably Mr Hammond is not one of those politicians who ignites fires nuanced arguments. He can be amusing in private, which is sel- in people’s hearts. But he has the ability to keep the carriage of dom said of Mrs May. He has a broader range of experience than state trundlingalong, oratleastfrom fallinginto a ditch. Given the anybody who has reached the top of British politics in recent quality of people in British politics and the gravity of the threats years—he has been defence and foreign secretary as well as chan- that confront the country, that is about as much as you can rea- cellor. Above all, he understands business. He spent his first 20 sonably hope for. 7 International The Economist June 24th 2017 53

Fire safety ings each flat is a single compartment, and building regulations state how long the Death in the city compartmentation should hold before a fire spreads to adjacent flats or adjacent floors (usually an hour). In office buildings, compartmentation is usually by floor. Most of the time, compartmentation works. Of the hundreds of fires in London As the planet urbanises, life in tall buildings is becoming more common. It need not flats every year, few spread. Fires in Ameri- be dangerous can high-rise apartment buildings spread LITTLE after midnight on June 14th, Asia, eastern Europe and the Americas, it is beyond the room they start in only 4% of ALondon’s fire brigade was called to a common (see map on next page). And it the time, compared with 10% in other flats. fire at Grenfell Tower, a 24-storey apart- will only become more common else- But when compartmentation fails, the ment block built in the 1970s. Before long, where, as urbanisation and growing result can be catastrophic. It can happen in 250 firefighters were on the scene. But the wealth mean apartment and office blocks several ways. Pipes for heating and water, blaze was too fierce; hours later it had spring up. The UN thinks that by 2050 two- ducting for power and the like must pene- spread to three sides and gutted much of thirds of people will be urbanites. Many trate fire compartments, and those holes the interior. The upper floors continued to will live and work in towers, which make must be fire-proofed. Sloppy renovation burn into the afternoon. A week later, as the best use ofscarce, expensive land. can allow fire to pass. Older, much-altered The Economist went to press, the number buildings are at particular risk. confirmed dead, or missing and presumed Better than sorry It is too early to be sure what caused the dead, stood at 79. With proper precautions, says Daniel Nils- failure at Grenfell. But the chief suspect is Such a fast-spreading and lethal fire son of the University of Lund, in Sweden, external cladding made from blocks of should have been impossible. Because es- tall buildings can be at least as safe as any flammable plasticencased in sheets of alu- caping from tall buildings is inherently dif- other sort. In an average year Singapore, minium that was added in 2014. Fire-safety ficult, strict fire safety is supposed to be de- which has 5.6m inhabitants, most living in experts think it helped the fire to spread signed in. Even as investigators sought to high-rises, has a handful of deaths; Nor- rapidly across the façade, entering via the work out what had failed so catastrophi- way, with a similar population, mostly liv- windows and bypassing the compartmen- cally, many wondered if other tower resi- ing in low-rise buildings, has dozens. tation. Similar cladding has been implicat- dents were at risk, in Britain and else- Engineers and architects seek to make ed in devastating fires elsewhere. Some, where. Sadiq Khan, London’s mayor, said tall buildings safe in two ways. The first is like a pair in Dubai in 2015, and another in the capital’s entire stock of 1960s- and suppression—stopping fires from taking Melbourne in 2014, were casualty-free. But 1970s-vintage tower blocks might have to hold, orlimitingtheirspread ifthey do. The one in Shanghai in 2010 killed 58 people. be demolished. Commentators on news second is evacuation—ensuring that occu- According to Edwin Galea, who runs programmes wondered whether the fire pants can get out quickly and safely. the Fire Safety Engineering Group at the marked “the end ofhigh-rise living”. The most basic suppression tactic, used University of Greenwich, Britain’s fire- That is unlikely, even in Britain, where in almost all tall buildings, is compartmen- safety rules have, at least in the past, relied less than 2% of the population lives in pur- tation. The idea is to use thick walls and unusually heavily on compartmentation. pose-built blocks of at least six floors, and fire-resistant liners to divide a building into Sprinkler systems are another common where poor planning and neglect have giv- enclosed zones, so that even if a fire does method of fire suppression. Many coun- en high-rise living a bad reputation. In East start, it spreads slowly. In residential build- tries mandate their use, citing mounds of1 54 International The Economist June 24th 2017

2 evidence that they can help extinguish ings, says Dr Nilsson; the Gothia Towers in fires while they are still small, or slow their Cities in the sky Gothenburg are an example. Other places progression until help can arrive. Regula- Global, number of very tall buildings completed are considering more exotic ideas. India in- tions in most parts ofBritain are laxer. 700 sists that the tallest towers have helipads Faith in compartmentation is why Over 300 metres on their roofs, though Dr Nilsson is uncon- 600 many of Grenfell’s residents were advised Over 200 metres vinced. “Helicopters are small and slow,” to stay in their homes for some time after 500 he says. “And it can be very difficult to land the fire started. This strategy, called “de- 400 them in the face ofall the hotairrising from fend in place”, relies on the compartments a burning building.” holding, in which case staying put may 300 Giving engineers more options is valu- well be safer than fleeing through smoke 200 able, says Dr Galea. But none can solve all and heat. It also helps keep emergency 100 problems. Sprinklers help, but the 2014 stairsclear, meaningfirefighterscan reach a Melbourne fire started on a balcony and 0 contained blaze more quickly. For this rea- 1930s 40s 50s 60s 70s 80s 90s 2000s 10s only spread inside once it was established, son, says Dr Galea, many older British tow- Source: Council on Tall Buildings and Urban Habitat by which time the sprinklers could not er blocks were not constructed with build- stop it. Defend in place is usually a good ing-wide fire alarms, or intercom systems strategy, but when it fails, the conse- that enable firefighters to broadcast in- Psychology is as important as technol- quences can be deadly. More escape routes structions to residents. ogy. Studies Dr Nilsson has conducted us- are good, provided they do not put pan- In most other countries, such systems ing virtual reality suggest that, even when icked occupants in extra danger. The best are common. Other places also put greater they know they are in no real danger, peo- approach, he says, is“defence in depth”: in- weight on the second aspect of fire-safety ple are willing to wait only a few minutes cluding several safety features, each com- engineering: escape, usually by insisting for a fire-escape lift to arrive. One advan- pensating foranother’s vulnerabilities. that tall buildings have at least two stair- tage of such lifts is that they can be pro- But even the best fire-safety methods cases, placed farapart. (Grenfell, like many grammed to give priority to the floors near- and regulations will be useless if, because British tower blocks, had only one). That est the fire. But that can leave people on of corner-cutting or lack of vigilance, they logic is obvious. But, as with compartmen- other floors feeling stranded. Displaying are not translated into reality. After the tation, the strategy can occasionally fail, information such as an estimated time to Shanghai fire in 2010 Han Zheng, Shang- with horrific results. Staircases are de- the lift’s arrival can help quell panic. hai’s mayor at the time, blamed poor over- signed to be fireproof compartments in Refuge floors are another idea. These sightofthe city’sconstruction firms, imply- their own right, and to keep smoke out. But are essentially super-compartments—un- ing that building work had been done research published in 2013 by academics at inhabited floors designed to resist the improperly. Another fire in Beijing, at a the University of Edinburgh analysing spread offire formuch longerthan normal. building owned by China Central Televi- data from 50 building fires around the They are often open to the outside so that sion, is thought to have spread partly be- world found that significant amounts of smoke cannot build up. Disabled or in- cause a sprinkler system failed. Grenfell smoke very often made it into stairwells jured occupants, or those farthest from the residents had complained often about while people were still escaping by them. fire, whose evacuation is less urgent, can poor maintenance, power surges from In 1980 a fire at the MGM Grand hotel in Las shelter on them until congestion on the faulty wiring, and vehicles parked in areas Vegas killed 85 people. Most died in the stairs eases orhelp comes. Many countries, meant to be kept clear foremergencies. smoke-filled stairwell. includingHongKong, India, Singapore and Evacuating large numbers of people South Korea, already specify their inclu- The saddest words from a tall building is unavoidably diffi- sion in buildings over a certain height. Other countries, including Germany and cult. And the problem is getting worse, for “Sky bridges” linking two or more tall America, had banned the flammable clad- the world is not only building more of towers are another option. These enable ding used on Grenfell; Britain’s building them—it is building them higher, as well evacuees from above the bridge to cross regulations say it should only be used on (see chart). As floors are added, it takes lon- into a safe building. The sky bridge linking low-rise buildings. Preventing a fire is bet- ger to evacuate everyone by the stairs. In the twin Petronas Towers in Kuala Lumpur ter than having to put it out. If the regula- the tallest buildings, it can take an hour or forms part of their fire-escape plan. Such tions had been properly enforced, Grenfell more, comparable to the amount of time bridges can be retro-fitted to existing build- might not now be a charred shell. 7 the building can resist the spread of fire. A further complication is that the popula- tions of many rich countries are becoming High there Buildings over 250 metres tall older, fatterand less fit. Disabled people of- Cities with over 100 high-rise buildings*, 2017 012-910-20 35 ten cannot use stairs at all. Moscow

So engineers are studying other ways to Berlin evacuate buildings. One idea is to abandon Toronto Seoul decades of safety dogma and encourage Vancouver London Toyko Chicago New York residents of tall towers to evacuate by the Dubai Los Angeles Shanghai lifts. Studies suggest that could speed Miami Istanbul things up by as much as two-thirds. Engi- Mexico Hong kong Honolulu City neers know how to build ﬁre-resistant lifts. Caracas Abu Dhabi Panama City Mumbai They must install smoke-proof shafts so Singapore that the piston action of the lift does not draw in smoke. They must provide backup Number of high- São Paulo Rio de Janeiro rise buildings power and lips at every ﬂoor, to stop water 12,000 Santiago Sydney from sprinklers running in. A few tall 5,000 Buenos Aires Melbourne buildings, including the 828-metre Burj 1,000 Khalifa in Dubai, the world’s tallest, al- Sources: Council on Tall Buildings 100 ready have such lifts. and Urban Habitat; Emporis *35 metres and over Business The Economist June 24th 2017 55

Also in this section 56 Amazon and Whole Foods 58 Uber sans Travis 58 India’s meat business on the block 59 Retailing in Pyongyang 60 The slimming of General Motors 60 Artiﬁcial intelligence for all 61 Cisco and the cloud 62 Schumpeter: Alive and kicking

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

Saudi Aramco’s IPO lists, its advisers hope it will have a board structure similar to that of the superma- A king-to-be’s ransom jors, and will be comparable on a number of parameters, including dividend projec- tions, that will enable investors to value it accordingly. “The day this company goes public, it will look like one of the top blue- chip oil companies,” one says. The world’s biggest oil company cannot be seen in isolation from the kingdom that The trouble is, MBS has already stated it bankrolls what he thinks the valuation should be, HE proposed sale of 5% of Saudi and at $2trn, it is punchy enough to make TAramco is not just likely to be the big- It’s a NOC-out even a Silicon Valley boss look bashful. To gest initial public offering (IPO) of all time. Major listed national and private oil companies* achieve it, a 5% sliver would be worth “It’s like Gibraltar selling the rock,” as one Combined market value, $trn $100bn—four times the biggest IPO to date, expert on Saudi Arabia’s oil policy puts it. 1.5 that of China’s Alibaba, an e-commerce The world’s biggest oil company keeps the Private firm, in 2014. House of Saud in power, bankrolled 60% According to an analysis by Sanford C. of the national budget last year, and is a 1.0 Bernstein, a research firm, at $2trn its value paragon ofefficiencyin an economyother- per barrel of oil equivalent coming out of wise mired in bureaucracy. the ground would be about 60% higher The elevation on June 21st of Muham- 0.5 than that ofits blue-chip peers. Avaluation mad bin Salman, the 31-year-old architect National at or below $1.5trn would be closer to the of the IPO, to crown prince is likely to add 0 mark, but risks disappointing the new more momentum to a sale planned for the 2008 09 10 11 12 13 14 15 16 17 crown prince. “He may have to make a second half of 2018. The news will further Source: Thomson *Six government-controlled and six choice between selling cheap and pulling sideline domestic critics of the IPO, some Reuters non-government-controlled firms the plug on the process. Either case would ofwhom wonderwhetherit would be bet- be a loss offace,” says Steffen Hertog of the ter to borrow the money than sell the fam- ma associated with being a national oil London School of Economics, a writer on ily silver. But the success of the IPO is not company (NOC). Many NOCs, such as Pe- the state and oil in Saudi Arabia. guaranteed. The tendency of MBS, as the troChina and Brazil’s Petrobras, have come To get closer to his target, the kingdom prince is known, to micromanage the list- to market amid the sort of fanfare that recently slashed tax rates on Aramco, from ing runs counter to the spirit of openness Aramco is generating. In a decade, they 85% to 50%. That brings them nearer to in- and liberalisation that he says he wants for have destroyed more than $500bn-worth ternational norms foroil firms and will ap- Saudi Arabia. That could backfire on the ofvalue compared with their private peers peal to investors: lower taxes mean the IPO itself. The more he interferes, the less (see chart). company can pay out higher dividends. keen investors will be to buy shares. As an oil company, the selling-points The country also has a plan to wean its Aramco’s role underpinning the Saudi for Aramco are strong (provided the oil people off some of the world’s cheapest economy is an even bigger challenge in price is high enough). It has a concession energy by 2020, which would bolster valuing this IPO than the firm’s immense for 12 times more oil and gas than Exxon- Aramco’s profits. According to Jim Krane, size. On the one hand, advisers say, its low Mobil and 27 timesmore than Shell. Its pro- ofRice University’s Baker Institute for Pub- costs and lean workforce make it compara- duction levels are several times higher. It lic Policy, about a third of Aramco’s output ble to blue-chip oil supermajorssuch asEx- has fewer employees, higher debt-adjust- is sold for domestic purposes, with power xonMobil and Royal Dutch Shell. On the ed cashflowperbarrel, and decentmargins generation, for instance, enjoying dis- other, the risks of political interference in its refining and petrochemicals busi- counted prices of under $6 a barrel—a mean that it is likely to suffer from the stig- nesses as well as upstream. By the time it “massive opportunity cost”. 1 56 Business The Economist June 24th 2017

2 But investors would be wise not to sway the final consideration, investors acquisition Amazon has made so far, that view issues like taxes and subsidies in iso- might not thankhim forit. caused the bigger stir. lation. Some analysts express worry that Many will shrug. The chance to buy The deal’s precise impact is hard to dividends are unstable, and that the king- shares in one of the world’s most resilient gauge. Buying Whole Foods hardly gives dom would have to unwind the taxcuts on oil firms will be hard to resist. Moreover, Amazon a stranglehold on food and drink: Aramco ifthe state needed the money. The sovereign-wealth funds may well be keen the combined companies will account for introduction ofmore realisticpricing could to become “anchor tenants” of the IPO, to just 1.4% of America’s grocery market, ac- also have political and social ramifica- deepen their own countries’ relationships cording to GlobalData, a research firm. The tions, since Saudis are some of the world’s with Aramco and the new crown prince. people who shop at the chain are not the biggest consumers ofcheap energy. But MBS’s leapfrog towards the throne mass market. They are unusually wealthy Another worry for investors would be will not silence the questions that still and well-educated (see chart). Mr Bezos ifMBS continues to use Aramco as a tool of swirl. What will happen to the money has made no big announcements about global oil policy on behalf of OPEC, the raised? Will the listing plug a budget gap of changes at Whole Foods—drone-delivered producers’ cartel. The kingdom may be- 8% of GDP? Will it fund domestic indus- spelt grain is unlikely to become a reality lieve that OPEC serves as a stabilising force tries such as mining, defence and tourism? soon. Instead he simply praised its work in global oil markets, which benefits Or will it become a “magic money tree”, and said “we want that to continue.” Aramco. But its latest attempts to play pup- promisingall things to all people? The orig- Nevertheless, the news prompted the pet-master with the oil market have been inal goal ofthe IPO was to bring more tran- shares of a large group of rival grocery counter-productive. On June 21st global oil sparency and stronger market forces to firms, including Walmart and Kroger, to prices fell to their lowest level since Au- Saudi Arabia—creating a sort of Thatch- sink quickly. As with so much about Ama- gust, despite an agreement by OPEC and erite oasis in the Arabian desert. If that is zon, the Whole Foods deal is important not non-OPEC producers to cut output until truly what MBS wants, he should learn to forwhat it represents now but how it might next March. As a result, Aramco is not only leave well alone. 7 transform Amazon and up-end rivals— losingincome, it is losingmarket share to ri- most notably, Walmart—in future. vals not bound by the cuts. Up to now, grocery has been a tough Last, as his global stature grows, the Amazon buys Whole Foods nut for Amazon to crack. A growing share prince may be tempted to mix up geopoli- of office supplies and clothes are bought tics and commerce. Anecdotal evidence of Whole hog online, yet last year e-commerce account- this emerged during President Donald ed for just 2% of American spending on Trump’s visit to Riyadh in May. Even as food and drinks. Amazon Fresh, a ten-year- Aramco was supposedly disentangling it- old grocery-delivery service, is still in only self from the myriad noncore activities it NEW YORK 20-odd cities. Prime Now, a two-hour de- carries out on behalf of the state, the firm livery service introduced in 2014, is in 31. The deal intensifies Amazon’s battle was on extra-curricular duty. At breakneck That is because grocery’s margins are with the beast ofBentonville pace, it built the Global Centre forCombat- low and its goods devilishly hard to deliv- ing Extremist Ideology in Riyadh, where EFF BEZOS does not like sitting still. In his er. Peaches bruise. Meat rots. Many con- Mr Trump and MBS’s 81-year-old father, Jannual letter to Amazon’s shareholders sumers like to buy food in person: unlike King Salman bin Abdel Aziz Al Saud, per- this year, he warned of “stasis. Followed choosing a battery or book, selecting a ripe formed a weird inauguration ceremony in- by irrelevance. Followed by excruciating, tomato requires inspecting it or trusting volving a glowing globe. The reason for painful decline. Followed by death.” Com- someone who has. Aramco’s involvement: no other body in petitors are toiling to avoid the same fate Amazon has tried to solve these pro- the kingdom could do it halfas quickly. but it is hard to keep up. On June 16th Ama- blems—using machine learning, for exam- zon said it would pay $13.7bn for Whole ple, to distinguish ripe strawberries from Venue, vidi, vici Foods, an upscale grocer known for its or- mouldy ones. But the Whole Foods deal is Such strategic considerations may also be ganic produce. Lest be accused of sloth, the start of something new. To date Ama- influencing the decision on whether to list four days later Amazon announced a new zon has run only a handful of stores; the non-Saudi portion of the IPO in New service to let shoppers try clothes at home, Whole Foods will give it more than 450. York or London (a small slice will be listed forno fee, then return those they don’t like. Amazon knows a lot about customer be- on Tadawul, the local bourse). Aramco’s The news that Amazon would make haviour online; now it will be able to mar- lawyers are more comfortable with a Lon- clothes shopping even easier is a blow to ry that to data about habits in physical don Stock Exchange (LSE) listing, on the America’s apparel chains, many of which stores. Paul Beswick of Oliver Wyman, a ground that it would spare the company are already in the middle of that excruciat- consultancy, notes that Whole Foods will the real riskofclass-action lawsuits related, ing decline. Yet it was the Whole Foods provide a well-established supply chain, a forinstance, to the terrorattacksof Septem- deal, more than ten times bigger than any boon to Amazon Fresh, as well as a roster 1 ber 11th 2001, of litigation from tree-hug- ging attorneys-general, and ofother claims on its assets that it might face on the New Bright young things York Stock Exchange (NYSE). United States, grocery stores, demographic characteristics of surrounding neighbourhoods, 2015, % But MBS is believed to be leaning more Whole Foods Albertsons, Kroger, Publix, Safeway towards New York. This may be because of 0 510 152 2053 3054 40 5 Age liquidity: listed companies on the NYSE 25 to 34 have a combined market capitalisation of 65 and older about $20trn, versus $4trn on the LSE. The Education NYSE also has more prestige; the big peers Bachelor’s degree + Aramco wants to be judged against are list- Less than high school ed there. Yet he is also understood to have Household income been under pressure from the White Over $100,000 Less than $25,000 House fora New Yorklisting, and is keen to The Economist cement ties with Mr Trump. If that were to Sources: AggData; US Census Bureau; “First Republic really helped us navigate the inancial waters of a new business.” PELOTON John Foley, Co-Founder and CEO (seated let); Graham Stanton, Co-Founder (seated right); Tom Cortese, Co-Founder (standing let); Yony Feng, Co-Founder (standing right)

(855) 886-4824 | ŔTUVTGRWDNKEEQO | 0GY ;QTM 5VQEM 'ZEJCPIG U[ODQN (4% /'/$'4 (&+% #0& '37#. *175+0) .'0&'4 58 Business The Economist June 24th 2017

2 of store-brand goods, which might now be Uber sold online. It is all a huge headache for Walmart. Gear change The beast of Bentonville remains the world’s largest store and America’s biggest grocer, with revenues of$486bn compared with Amazon’s $136bn. It too is trying to avoid stasis. It paid $3bn last year to ac- A new era begins at Uberas Travis quire Jet.com, a challenger to Amazon, and Kalanicksteps down has invested in technology to help customers order groceries online and have them E HAVE a lot of attention as it is. I ready to pick up from its stores. Walmart is “Wdon’t even know how we could experimenting with other services: some get more,” Travis Kalanick, the boss of staffdeliver groceries on their way home. Uber, said last year. The ride-hailing giant “Walmart is testing, reading and react- found a way.Mr Kalanick failed to manage ing,” notes Oliver Chen of Cowen, a finan- the fallout from a series of high-profile cial-services firm. “That’s a new Walmart.” blunders and scandals. On June 20th he re- On the same day that Amazon said it signed as chief executive officer of the firm would buy Whole Foods, Walmart an- he co-founded in 2009. nounced the purchase of a menswear Uber is facing several crises, including brand called Bonobosfor$310m, which be- senior executive departures, a lawsuit over gan online and nowhasthree dozen stores. alleged intellectual-property theft, claims Scoot The deal, among other things, gives Wal- about sexual harassment and a federal mart new staff to help the company trans- probe into its use of potentially illegal soft- ers. Regulators may treat Ubermore kindly, form itselffurther. ware to track regulators. Mr Kalanick had too. Abroad, its scandals have barely regis- YetAmazon is playing a different, more previously said he would take a leave of tered. In the first quarter of this year it complex game. It is enmeshing itself in its absence, in part to deal with a personal notched up record revenues, of $3.4bn. Its customers’ lives: each new service, from tragedy—the death of his mother in a boat- losses, of around $700m, are still high but streaming video to its Alexa virtual assis- ing accident. That was not enough for in- diminishing. The next chief executive will tant, makes it more integral to a person’s vestors in Uber, who asked him to make need to decide whether to chase growth day. That gives it new data and revenue his leave permanent. and endure continued steep losses, or cut that help it improve services and offer ad- Uber will not change overnight. Mr Ka- back on international expansion in order ditional ones. Shoppers buy groceries of- lanick trained it to be unrelentingly com- to make more money. After watching Mr ten. If Amazon can become part of Ameri- petitive, aggressive and ready to break Kalanick push the pedal to the metal, cans’ ritual of buying milk and eggs, the rules. That culture helped make it the most Uber’s investors may hope that a more firm will understand its customers even prominent private American technology conservative era—in terms of finances as better. Shoppers will have fewerreasons to firm, with a valuation of nearly $70bn. But well as culture—is about to begin. 7 go elsewhere. the impact of Mr Kalanick’s self-styled “al- And Amazon is likely to integrate ways be hustlin’ ” approach has been stark. Whole Foods in ways that are not yet obvi- Uber’s controversies have dented its India’s meat business ous. Finding ways to get more value out of brand, hurt its ability to recruit the best en- its investments has been key to Amazon’s gineers and cost it customers in America, Meatpacking growth. The company’s warehouses, built who are defecting to its rival, Lyft. for its own goods, are now used by inde- The identity of Mr Kalanick’s replace- district pendent sellers. The same is true of its ment will be crucial. Uber’s board will cloud-computing power, which supports seekan experienced boss, perhaps a wom- not just Amazon’s own business but lean. He orshe will need experience running UTTAR PRADESH gions of other firms. Amazon may use its a multinational. Whether the board A billion-dollarindustryis in limbo infrastructure for Prime Now to deliver should hire someone with a background Whole Foods’ groceries. In future it may in transport (perhaps from an airline or lo- N A corner of the state of Uttar Pradesh develop new services for Whole Foods gistics firm) or a candidate from the tech- I(UP) stands a gleaming building dedicat- that are in turn deployed in new ways, sug- nology industry is unclear. Some have sug- ed to animal slaughter on an industrial gests Ben Thompson, a tech blogger. It gested thatSheryl Sandberg, who serves as scale. Neatly mown lawns lead the way to could, forexample, supply restaurants. number two at Facebook, would be a good a corral for hundreds of the curly-horned ForWalmart, and many otherrivals, the choice, but she may not be willing to jump. Murrah buffalo typical of the region. Near- best scenario would be if regulators were Investorsin Uberhave accepted that Mr by is a lorry-sized, stainless-steel machine to slow Amazon’s expansion. The com- Kalanick will stay on the company’s board in which the animals are killed. A Muslim pany accounts for about half of new (along with his co-founder and another cleric stands ready to oversee the incanta- spending online in America. It has reached early executive, he controls the majority of tion that ensures each carcass will be halal. into manypartsofthe economy, from retail super-voting shares) so he is likely to have Upstairs a microbiology lab monitors the to cloud computing and from entertain- a stronginfluence on the firm. He will need progress of each beast through stages of ment to advertising. Yet intervention is im- to exercise restraint. Twitter, an internet chilling, deboning and deglanding. Each probable. The Whole Foods deal gives Am- company that is struggling to attract more pile of disaggregated buffalo is then frozen azon less than one-fiftieth of the grocery users, found it hard to settle on a clear strat- solid and put into a loading chamber. market. Walmart, were it to make Whole egy in part because several co-founders Such facilities are common in UP, al- Foods a higher offer, by contrast, would be who once ran it continued to serve on the though they do not advertise their where- very likely to attract regulators’ wrath. In board and second-guessed the boss. abouts for fear of antagonising “cow vigi- such circumstances, Walmart could be for- Mr Kalanick’s departure should be lantes”, Hindu militants who harass and given a severe attackofsour grapes. 7 enough to placate some alienated custom- extort in the name of protecting cows, 1 The Economist June 24th 2017 Business 59

2 which a majority of Indians hold to be sa- Retailing in Pyongyang few pricey products cost no more than cred. India earns around $4bn a year from about $40. Its young fans see it as a cross exporting beef, and last year was the Minisocialist between three popular Japanese retailers: world’sbiggestexporterofthe product. But Daiso, a ¥100 chain, where everything nearly all ofit comes from buffalo, not cow. costs less than 90 cents; Uniqlo, a clothing A few dozen integrated meat compa- company with minimalist design; and nies have harnessed the potential of water SEOUL Muji, a lifestyle chain with a massive pro- buffalo over the past 15 years, developing duct range. Others gripe that it is mislead- A hip, cheap home-goods upstart from the meansto send herdsofbeastsfrom tiny ingly plugging its Japaneseness (it says it China sets up shop in North Korea farms through mechanised slaughter- was founded in Tokyo, though it has only houses and on to foreign markets. Firms HEN Miniso said in January that its four shops there and over 1,000 in China) such as Hind Agro, Allana and M.K. Over- Wstores would “bring the happiness of to appeal to Asian consumers keen on ka- seas, plus dozens more, most of them stress-free shopping to the Koreans”, you waii, or Japan’s brand ofcuteness. crowded into the west of UP, have helped would be forgiven for thinking they were Anecdotal evidence from Pyongyang raise the value of India’s beef exports 14- referring to emporium-loving Seoulites. In suggests that the city’s coterie ofprivileged fold within a decade—their worth is now fact, the home-goods store, co-founded by North Koreansisalreadyenthusiastic. On a equivalent to nearly a third of the coun- a Chinese entrepreneur and a Japanese de- recent visit a foreign resident saw mainly try’s monthly trade deficit. signer, was announcing that it would be toys, cosmetics and home-decor baubles But the environment ministry has put taking its capitalist trinkets into (ostensibly being bought forbetween $2 and $10. Price the business on the chopping block. In socialist) North Korea. In a joint-venture tags at Miniso are in North Korean won but May it ordered that cattle, including water deal with one ofthe country’sstate-owned customers must pay in dollars, euros or buffalo, may no longer be sold in open enterprises, it agreed to establish the first Chinese yuan—an embarrassment to the markets for the express purpose of slaugh- foreign-branded chain store in Pyongyang, regime, which knows its won are worth- ter. The ruling was issued with immediate the destitute country’s showcase capital. less. The store is in a lotus-flower-shaped effect, on the ground of preventing cruelty The first Miniso store opened there in building on Ryomyong Street, a cluster of to a class of animals that defines oxen and April, eight months after its first shop in high-rise apartments and shops (pictured) even camels, as well as water buffalo and South Korea began operating, and just be- opened in April to fanfare by Kim Jong Un, cows, as “cattle”. fore it launched in America. Its arrival is re- the North’s leader, who took power on the The ruling has prompted an outcry. markable in a place where displays of death ofhis father in 2011. Many note that the ban appears unconsti- branding are rare (the exception is a hand- The youngMrKim haspromised his op- tutional. India’s individual states, some of ful of billboards advertising a local car pressed people more leisure and consump- which allow cow slaughter, are objecting. firm, Pyeonghwa Motors). tion: shopping centres, renovated funfairs It also seems biased against the country’s Miniso’s coup in the secretive kingdom and a water park have in recent years been Muslims, who are heavily involved in the is part of a global advance. Since it opened unveiled in the capital. That helps to ex- meat and tannery trades both as workers its first store in Guangzhou in China in plain the entry of Miniso, which says it and owners. The Supreme Court heard a 2013, it has signed deals to expand into wants not only to “enrich people’s choices case against the ruling on June 15th. more than 50 countries, from Mexico to in North Korea, but also improve people’s The timing ofthe ban is particularly irk- Mongolia; it has more than 1,800 outlets in living standard”. Lim Eul-chul of Kyung- some for the industry, because it ought to total. Revenue amounted to 10bn yuan nam University in South Korea expects be enjoyinga golden period. Brazil, the sec- ($1.5bn) in 2016, almost double that of the Miniso will soon be stocked with locally ond-largest exporter, has been hobbled by previous year. produced goods too. Yet this is not a market a meat-contamination scandal affecting Ye Guofu, the Chinese entrepreneur for the faint-hearted. Egypt’s Orascom Te- JBS, the world’s biggest meatpacker. Ship- who co-founded Miniso with Junya Mi- lecom entered into a joint venture with the loads of Brazilian meat have been waiting yake, who runs its design team in Tokyo, state in 2008 to set up North Korea’s first 3G in the Pacific, as Asian buyers have had sec- sends out some 200 buyers around the cellularnetwork. Ithasyetto repatriate any ond thoughts. world in search of ideas. New household profits, and in 2015 it said that the North Ko- India’s industry is well-placed to take goods hit its shelves every week, from nail rean state had established a second carrier advantage. High standards, regulatory and polishes to bath mats and frying pans. Its to compete with its own network. 7 sanitary, have been enforced, partly because of local sensitivities about animal slaughter. Teams of foreign buyers considering the Indian market have brought extra scrutiny. Their inspectors are relentless: three teams of Malaysians spot-checked 32 plants in one fortnight in April, for example. Unlike the giant feedlot operations of the American Midwest, say, which tend to stink of manure and death from miles away, the high-tech UP abattoir sits near neighbours on other industrial estates, kept spotless and odour-free by an enormous workforce. Unless the government’s ruling is over- turned, however, such advantages are hypothetical. Farmers and traders have become even warier of transporting their animals within the UP plant’s 200km-radi- us catchment area. That is a reprieve for the buffalo, at least. 7 Shop till you pop 60 Business The Economist June 24th 2017

General Motors ofthe 3trn vehicle-miles driven in America on a stake in Lyft, as it recently did, and the last year, just 5bn, or 0.15% ofthe total, were same amount to buy Cruise Automation, a Shrink to fit undertaken in ride-hailing services such as self-driving startup, in addition to another Uber and Lyft. But investors are thinking $600m on other autonomous-vehicle far ahead, to a time when technology costs, is a relatively small sum to set against giants such as Apple and Google change an annual capital expenditure and re- the nature of personal transport. They fear search-and-development budget of$16bn. GM DETROIT that will get left behind. Yet still its shares languish. Old-fash- The firm’s difficulty lies in convincing ioned problems are not helping. Carmak- GM slims forthe sake offatterprofits them that it is spending enough to stay in ing is cyclical: the American market is at a HE headquarters of General Motors this race but not too much on businesses peak and China’s roaring growth may T(GM) tower over the other skyscrapers that, at present, bring no returns. (A similar slow. GM is expected to make a big an- in Detroit’s city centre, a reminder that the conundrum led to the ousting of Ford’s nouncement soon about its plans to reap carmaker still rules the American market. chief executive, Mark Fields, last month.) rewards from the future ofmobility. But ifit Ye t GM’s domestic might increasingly con- GM has sensibly stressed its future techno- comes just as the cycle appears to be turn- trasts with its position elsewhere in the logical capabilities and downplayed the ing downwards, the news may not give the world. Although most other carmakers see cost of developing them. Spending $500m firm’s shares the tune-up they deserve. 7 becoming ever bigger everywhere as the answer to the industry’s multiple chal- Artificial intelligence lenges, GM is in retreat. It, too, longvied with the world’slargest carmakers for the global crown. Along Deep minds for hire with Volkswagen, Toyota and Renault-Nis- san, it made around 10m cars last year. In- A hybrid startup wants to democratise access to AI vestors have been unimpressed. Although GM had record profits in 2015 and 2016 and OSSES are more likely to groan than has performed solidly this year, its share B feel giddy about advances in artificial price has barely budged since its IPO of intelligence (AI). They need a strategy,but 2010, after the financial crisis had forced it few companies can hope to own a unit into bankruptcy. like Google’s DeepMind, whose algo- Such is the frustration that Greenlight rithms not only beat the world’s best Go Capital, a hedge fund with a 3.6% stake in players but made a 40% improvement in GM, proposed splitting its shares into two the energy efficiency ofits parent’s data classes—one keeping the current dividend centres. A Canadian startup, Element AI, and the other benefiting from stock buy- wants to let all businesses tap into the backs and dividend increases. The plan world’s best AI minds. was roundly defeated at the firm’s annual The brain behind the new firm is shareholders meeting on June 6th, in a vic- YoshuaBengio, a pioneer in “deep learn- tory forMary Barra, the CEO since 2014. ing”, a branch ofAI. As firms such as GM reckons that handing back mem- Google and Facebooklured dozens of AI bership of the “10m club” is a better sol- academics, some in the field expressed ution. The downsizing began in 2015 when fears about a brain drain from academia. Bengio, neutral agent? it left two emerging markets, Russia and In- In 2015,forexample, Uber, a ride-hailing donesia, and shrank operations in Thai- startup, poached 40 researchers from want to use image-recognition to identify land. The boldest step came in March, with Carnegie Mellon University.Mr Bengio corrosion on its pipes. Element AI could the news that it would pull out of Europe meanwhile stayed at the University of develop a system to spot it and predict by selling Opel to France’s PSA Group. In Montreal (though in January he became the likelihood ofa leak, to rankwhich May GM also said it would stop selling ve- an adviser to Microsoft). pipes get fixed first. Ifthe client lacks hicles in India and leave South Africa. Element AI will let researchers stay in images to train the algorithm, Element Pegging GM back to making 8.5m cars a their university posts while working on AI’s workin an adjacent area—say,corro- year signals that profits are its priority. Jef- corporate projects. It plans, in effect, to sion on railway tracks—could be used. feries, an investment bank, reckons that build an AI platform on which a network Jean-François Gagné, Element AI’s revenues in 2017 will fall by a tenth but that ofmember firms (in which it may take boss, says that the company aims to profits before interest and taxes will rise by stakes) can serve other companies. These “democratise” AI by making state-of-the- 2-3%. Dan Ammann, GM’s president, says member firms will tap Element AI’s brain art technology available to companies that his firm can no longer strive to be “all trust and license its technical platform. well beyond the main technology giants. things to all people in all places”. It should This month the startup raised $102m of “We are a neutral player you can trust,” concentrate on areas where it is strong, capital from backers including Intel and he argues. But it is notoriously hard to could become strong or where there are Nvidia, two chip giants. move techniques from the research lab generous profits to be made, he says. Both Its system addresses a shortcoming of into real-life applications. North America and China fulfil his re- many AI applications. Individual firms IfAI does become the bedrockof quirements. GM may be losing money in are awash with data but may not have corporate technology,there should be Latin America at the moment, but it has a enough to train AI models. Element AI’s room forseveral models. Big consul- big market share there on which to build. networkwill be able to share algorithmic tancies are already believers and have Picking markets carefully should give learning from all the data they crunch, begun acquiring data-analytics firms GM a better chance of nurturing existing enabling better performance than they themselves. Element AI’s approach is businesses while preparing for a future of would achieve using only one client’s promising. But the McKinsey ofAI may autonomous vehicles and ride-sharing. data. For example, an oil major might yet turn out to be McKinsey itself. This upheaval is still in its very early stages: The Economist June 24th 2017 Business 61

Cisco ness and, to ensure more stable revenues, is making more of its products available as Flicking the switch a subscription. Earlier this year the firm bought AppDynamics, which makes software to monitor the performance of corporate applications, and Viptela, whose programs manage networks, for $3.7bn and $610m respectively. Subscriptions and other recurring income now make up a A technology titan shifts strategy to cope with the cloud tenth ofCisco’s revenues from products. HEN John Chambers ran Cisco, the Cisco’s bet is that computing will never Wworld’s biggest maker of networking The big squeeze be fully centralised in vast data centres (ie gear, his hyperactivity nearly matched that Selected major US technology companies clouds), but will live on many systems, big ofthe high-speed switchesand routers that Market value as % of combined total and small, says Rohit Mehra of IDC, a re- made the firm’s fortune. He pushed Cisco 100 search firm. Cisco thinks that trends such Sun eBay into dozens of new businesses, from set- as an explosion in the number of connect- top boxes to virtual health care. He trav- IBM ed devices, also known as the “internet of elled the world preaching the virtues of 80 things”, will almost certainly add to com- Facebook connectivity. In interviews it was hard to plexity, not reduce it. Cisco get a word in edgeways. Conversations in- Oracle Amazon The products introduced this week are 60 variably ended on a restless question: designed for this kind of environment. “What should we do differently?” They include software which lets engi- Chuck Robbins, who succeeded Mr 40 neerscontrol hundredsofthousandsof de- Chambers in July 2015, has two decades of Alphabet vices, programsto define who orwhat isal- experience selling Cisco gear and seems Microsoft lowed to access a network and services to more comfortable talking about its core 20 detect malware in encrypted traffic. For the business than about diversifications. He Apple first time, Cisco will sell new switches that avoids the limelight and comes across as come with subscriptions which unlock almost shy. But he, too, is aware ofthe need 0 these sorts of extra capabilities. Develop- to keep moving. “Networking is getting 2000 02 04 06 08 10 12 14 17 erswill getmore toolsto write applications Source: Thomson Reuters complex. We need intuitive networks that for Cisco’s platform. are secure and can learn and adapt.” Being the firm that makes ever more Different times require different bosses. meaning they are losing pricing power. complex networks safe and “intuitive”, to Mr Chambers led Cisco to the top during But Cisco’s franchise is facing two quote Mr Robbins’s new catchphrase, the dotcom boom; in the early 2000s it be- threats. First, the more computing is done seems a sensible goal. It is already one of came the world’s most valuable firm (see in the cloud, the lessfirmshave to buy their the biggest vendors of cyber-security pro- chart). Mr Robbins’s task is to keep it rele- own gear, including networking equip- ducts. It has enough money to pursue its vant as more and more computing moves ment. Instead of paying for an “end-to-end ambitions: more than $70bn in cash. into the cloud, which entails the provision network” from Cisco, big cloud operators But computing could yet become much of all kinds of services over the internet. such as Amazon and Microsoft prefer gear more centralised, leavingless space for Cis- On June 20th the firm announced a collec- that precisely fits their requirements. This co to knit things together. Big cloud provid- tion ofnew products which show how it is is why Cisco’s cloud sales have disappoint- ers will also try to get into the business of adapting: Cisco will focus on software and ed, while more specialised vendors such managing and automating networks. And services, particularly the sort that auto- as Arista have made inroads. The second Cisco has a mixed record of implementing mate the management ofdata networks. threat is that software is increasingly im- its strategy. However well it does, Cisco is Cisco is best known forits switches and portant to how networks are run: that unlikely to achieve a goal set by Mr Cham- routers (the former are the central building makesiteasierforrivalsto sidestep orover- bers back in 2013: to become the world’s blocks of networks, the latter connect take Cisco’s products. “number-one player” in corporate-infor- them with each other). Although it em- Under Mr Robbins, Cisco has respond- mation technology. The more realistic Mr braced the internet’s open standards, Cisco ed in several ways. Itis offeringtailor-made Robbins is unlikely to articulate such an came to dominate data networking for te- products to the big cloud providers. It has ambition—he would probably be happy if lecoms firms and otherenterprises. Its box- beefed up its software and services busi- Cisco remained among the top five. 7 es work well with each other and they can be centrally managed. Most firms’ network engineers know how to use Cisco’s boxes. Although its market share has declined in recent years, the firm still sells more than halfofall newswitchesand routers, which together generate more than half of its annual revenue ofabout $50bn. Owning the mightiest platform in networking, says Pierre Ferragu of Sanford C. Bernstein, a research firm, provides a defence against competitors, such as China’s Huawei and Arista Networks, based in California. It also makes Cisco less vulnerable to a problem bedevilling some makers of computing and storage gear, such as Dell, EMC or HPE: “commoditisation”, 62 Business The Economist June 24th 2017 Schumpeter Alive and kicking

Reports ofthe death oftraditional asset management are greatly exaggerated C. Johnson and is under a third generation of family control. Abi- gail Johnson, the founder’s granddaughter, has run it since 2014. Mr Johnson believed that following human intuition is the best way to navigate markets. The firm’s Magellan mutual fund was once the world’s largest; it was run in 1963-71 by Ms Johnson’s father, Ned, and then in 1977-90 by Peter Lynch, a stockpicker who said that his main tools were “yellow legal pads, two-and-a-half- inch pencils, and the clunky Sharp Compet calculator”. But that approach is now little more than a company legend. Fidelity has shifted from selling the magic of its star managers to beinga merchant helpingpeople and firms interact with the capital markets. Fidelity sells other firms’ funds, both the passive and active kind; these now make up 63% of the client funds that it administers. It has introduced its own ETFs and also sells its products directly to individuals and to firms, as well as indirectly through brokers. Attracting many more customers has helped to counteract lower margins. Fidelity has a quarter of the market for corporate 401(k) plans, a popular kind of employer-sponsored pension. It deals with a fifth of all investors in America in some way. Para- doxically, even as individual investors desire cheap passive CHUMPETER got a surprise on a recent visit to Boston to meet funds, a growing number ofthem want their affairs to be consoli- Speople at Fidelity, a family-controlled firm that is the world’s dated and supervised by advisers in “managed accounts”. A fourth-largest asset manager and its industry’s best-known rough outline of how the industry is likely to look in future is brand. The companyisnotdying, oreven in decline; the opposite, emerging. There will be a group of mega-managers offering a in fact. That is a shockbecause the conventional money-manage- range of products—active and passive, stand-alone and in bun- ment business is thought to face annihilation from technological dles—at massive scale and low cost. Even BlackRock, the emperor advance, along with other anachronisms such as shops, taxis, tra- ofpassive investing, is getting into the business ofactive funds. vel agents, car firms, watches, hotels and broadcast television. The passive attack will nevertheless continue. Only about The bigtrendsmustbe obviousto Fidelity’sstockpickers. They 15-20% of American shares are owned by passive funds, and the are being threatened by computer programs that run money in proportion is lower still for bonds. That portends a further price ways widely described as “passive”. There are funds that track in- squeeze. For every $100 that Fidelity administers for clients, its dices inexpensively and others, known as “smart beta” or “fac- sales (the sum total of the various kinds of fees it charges clients) tor” investments, that replicate elements of what humans do at a have dropped from 39 cents to 28 cents since 2006. Tight control fraction of the cost. Customers have removed about $2.5trn from of costs has offset some of that fall, so that operating profits have active funds since 2000 and placed a similar amount into passive fallen onlyslightly, from eightto sixcents. MsJohnson, who isshy ones. About two-fifths of the global industry’s equity assets are but thoughtful, is a realist who expects the industry’s margins to managed passively, up from close to zero in 2000, accordingto In- drop further still. If the top 20 asset managers’ margins fell to igo Fraser-Jenkins ofSanford C. Bernstein, a research firm. BlackRock’s level, their profits would drop by around half. This has been a huge jolt for the asset-management industry, Technology poses other threats. If the gig economy takes off, because feeson passive funds are up to 80% lower. The industry’s fewer people will save through employers using 401(k) plans. most valuable company is BlackRock, a titan in exchange-traded “Robo-advisers” could reduce financial advice to a mere com- funds (ETFs)—vehicles used mainly for passive investment— modity. And as digital products become pervasive, global scale whose intellectual capital consists chiefly of software. Conven- could become an advantage. This is a conundrum for Fidelity, tional managers are mergingin orderto lowercosts. Three combi- which spun offits international arm in 1980 (the family still owns nations have occurred in the past six months: Amundi and Pio- a big stake in it). Ms Johnson may have to reunite the two firms. neer (French and Italian, respectively); Aberdeen and Standard Life (both British); and Janus and Henderson (American and Brit- Asset managers are dead, long live asset managers! ish). The deals have prompted unkind jokes about pairs of Assuming these hurdles are surmounted, a world beckons in drunks propping each other up. which the mega-managers compete with other platform compa- Yet a glance at Fidelity’s figures over the past decade tells a nies to run consumers’ financial affairs. Some may be banks: more complex story. The firm’s assets under management have JPMorgan Chase, for example, boasts of being able to offer car risen by 52%, revenues by 42% and operating profits by 62%. Last loans in addition to Indian equity funds. Alphabet, Google, Face- year operating profits reached a record high, of $3.5bn; they grew book and Apple have been slow off the mark, but may enter the faster than BlackRock’s in the same period. Fidelity has done financial business. Amid technological change it is easy to as- slightly better than its peer group. For the 20 biggest listed asset sume that incumbent firms in most industries will be swept managers that have their roots in active funds, operating profits away. ButFidelity illustrates an important point: such groups can rose by 54% over the past decade. be more resilient than you might expect. History, culture and Fidelity may be synonymous with active management, but it brand, combined with openness to technology and the will to has adapted quickly to change. It was founded in 1946 by Edward adapt, are a powerful mix. 7 Property 63

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Also in this section 66 Hong Kong’s stockmarket ambitions 66 A bubble in aircraft finance? 67 Buttonwood: Fund management 68 Barclays, Qatar and the SFO 68 A fintech firm becomes a bank 69 Testing basic incomes in Finland 69 Argentina’s 100-year bond 70 Free exchange: The Fed’s self-fulfilling gloom

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

Global markets ers buy mainland stocks in Hong Kong. Foreign institutions already hold Chi- Financial assets, made in China nese shares but until now have mainly focused on firms listed in Hong Kong (see box on next page) and America. These overseas Chinese stocks form 28% of the MSCI emerging-markets index. But on- SHANGHAI shore Chinese stocks are collectively much more valuable. They also encompass a far Indexinclusions will force investors to buy Chinese stocks and bonds wider range of companies. The pensions ROM shoes to shirts and phones to ing is likely to increase in the coming years. and university endowments that follow Ffridges, made-in-China goods have It was a contentious decision, despite MSCI will now own shares in makers of blanketed the globe over the past three de- China’s size. The country accounts for 15% traditional Chinese medicine and distillers cades, entering every country and just of global GDP. Its stockmarket, housed in ofbaijiu, a fiery grain liquor—albeit only in about every home. But one kind of Chi- exchanges in Shanghai and Shenzhen, is tiny amounts invested passively through nese good few abroad dare touch: its finan- the world’s second-biggest (see chart). But index trackers. cial assets. Outsiders own less than 2% of for each of the past three years MSCI had Chinese fund managers hope that the its shares and bonds, far below the levels debated whether to add Chinese shares to MSCI seal ofapproval might also entice ac- of foreign ownership seen in other mar- its indices, only to back off each time be- tive investors. “If you like Chinese food, kets. Capital barriers and financial risks cause ofrestrictions on foreign investors. you should go to China and have the real have put investors off. This, however, is Gaining access to China’s markets food. It is so much more diverse and au- changing. The globalisation ofChina’scap- was—and is—hampered by formidable ob- thentic,” says Wang Qi, chief executive of ital markets is slowly gathering steam, as stacles. Because of China’s tightly man- MegaTrust Investment, a Shanghai-based symbolised by the inclusion of Chinese aged capital account, foreigners can only fund manager. But many foreigners still stocks and bonds in global indices. buy shares through a few quota-controlled shun the local fare. The stockmarket re- MSCI, a company that designs stock- channels. MSCI concluded that enough mains rife with insider trading and price market indices, announced on June 20th had been done to allay such concerns, manipulation. Memories of a debacle in that it will bring Chinese equities into two largely thanks to a scheme that lets foreign- 2015, when authorities intervened heavily of its benchmarks: one that covers emerg- aftera bubble burst, also remain fresh. Chi- ing markets; and another that follows nese regulators are betting that greater par- stocks around the world. To begin, it will Too big to ignore ticipation byinternational institutions will include a small number of shares, just 222 Domestic stockmarket value help bring order. of the more than 3,000 listed in China. But May 2017, $trn China’s bond market could prove just its decision matters to asset managers who 0 5 10 15 20 25 30 assignificantin integratingitsfinancial sys- MSCI track their performance against ’s in- NYSE & tem with the rest of the world. In May the dices or who invest in exchange-traded NASDAQ central bankannounced that foreign inves- funds linked to them. They will in effect be Shanghai & tors would be able to buy onshore bonds Shenzhen forced to allocate capital to China’s stock- Japan Exchange via the Hong Kong bond market. This pro- markets, many for the first time. Because Group gramme, which is expected to start in July, MSCI is giving Chinese stocks a limited Euronext will pave the way for bond indices to in- weighting (0.73% of its emerging-markets London Stock clude Chinese debt. Again, the gap is glar- index), the resulting cash inflows could Exchange ing: China’s bond market is the world’s add up to only about $10bn next year, HKEX third-biggest but is excluded from the main equivalent to less than one hour of trading global bond indices. Analysts with Gold- in China’s frenetic markets. Yet the weight- Source: World Federation of Exchanges man Sachs forecast that inclusion could 1 66 Finance and economics The Economist June 24th 2017

Aircraft ﬁnance Hong Kong Exchanges and Clearing Down market? Maximum altitude

A proposed new board, with laxerstandards, sparks controversy LE BOURGET OSSES at Hong Kong Exchanges and class shares. Cannily, HKEX is pushing for The aircraft-leasing business may be Clearing (HKEX) ought to be feeling “non-standard governance features” only B flying too high smug. In five ofthe past eight years it has on the new third board. The SFC appears been the world’s leading exchange for to be softening its stance on dual-class IR shows are where the aerospace busi- initial public offerings (IPOs). Chinese structures; bankers salivate over new Aness shows off. At this year’s Paris companies have swarmed to list on its moneymaking opportunities. show, the world’s largest, which opened at comparatively mature, open and trans- Ye t HKEX may not get approval. Go- Le Bourget airport on June 19th, the mili- parent capital market, generating over vernance hawks still oppose dual-class tary types are most ostentatious. Aeronau- 90% ofthe funds raised there in the past shares. “Wethinkit’s wrong to develop tical party tricks include helicopters that five years. Yet, launching a long-awaited the market by lowering standards,” says ascend into the sky tail-first and stealth consultation on reforms on June16th, Jamie Allen ofthe Asian Corporate Go- fighters that fly backwards. HKEX warned of“stagnation” ifit does vernance Association (ACGA), an in- But no one is keener to strut their stuff not change. It has one eye on its regional dependent advocacy group. Singapore’s than Airbus and Boeing, the world’s two rivals. Last year Singapore knocked it into consultation, he notes, has also biggest makers of airliners. At the 2015 fourth place in a prominent ranking of prompted strong adverse reactions. show the pair sold 752 planes worth financial centres. As Shenzhen and Proposed safeguards, such as stricter around $107bn. But the party atmosphere Shanghai, where trading volumes dwarf disclosure rules, do not convince sceptics. at that event—with copious food and wine Hong Kong’s, open up, they could eat And the fact that the new board’s main laid on for customers and journalists Hong Kong’s lunch. targets would be companies from China, alike—has given way this year to a more so- Besides tinkering with the rules on where business can have a whiffofthe ber mood, weaker sales and a bring-your- Hong Kong’s main board and its second Wild West, compounds the riskto its own-lunch policy. This should give pause one, the Growth Enterprise Market, the reputation. Some also question the com- to investors in one of the world’s fastest- proposed changes include, most conten- mercial benefits for HKEX: Graeme Lane, growing asset classes: aircraft. tiously,a third board. This would be a broker, points out that last year daily Airbus and Boeing still booked plenty designed to attract fizzy “new economy” turnover on its boards fell by 37%, despite of orders. But for the first time, most came technology firms. Stalwart property and the addition ofover100 companies. from lessors, which lease them to opera- finance stocks at present make up over tors, rather than from the airlines that use 40% ofthe market. them. This has fuelled fears that the surge Winning more Chinese listings is in investment going into aircraft finance is another goal. Alibaba, a Chinese e-com- pushing orders for new jets, and prices for merce giant, left a deep scar when it old ones, to unsustainable levels. “We’re in chose the New YorkStockExchange for a bubble that will burst,” says Adam Pilar- its blockbuster listing in 2014. It jilted ski of Avitas, a consultancy. “It is only a Hong Kong because ofits ban on dual- question oftiming and severity.” class shares, which grant some share- In the past airlines bought planes with holders outsize voting rights. Soon after, expensive unsecured bank loans or state HKEX tried to persuade Hong Kong’s handouts. But since the 1970s, the owner- Securities and Futures Commission (SFC) ship of aircraft has gradually been hived to allow such companies to list in Hong off to financial firms. This has benefits for Kong. But corporate-governance activists both airlines and investors, explains Alec and big fund managers such as BlackRock Burger, chief executive of GECAS, the lined up against it; so did the SFC. Propo- world’s biggest lessor. Leasing rather than nents say entrepreneurs can make good buying gives carriers the flexibility to ex- use ofdual structures (thinkGoogle). pand or shrink fleets quickly. It can cut tax Opponents argue that other shareholders bills. And as lessors are often bigger than lose out as a result. airlines, they can strike better deals with Since Alibaba, a slew ofChinese tech planemakers and borrow more cheaply. firms have slipped through Hong Kong’s Investors also find aircraft attractive as- grasp. And Singapore’s exchange has sets. International agreements make it launched its own consultation on dual- The big bored easy to repossess one when an airline de- faults on a payment. The market forplanes is more liquid than that for ships or trains. 2 spark inflows of up to $250bn by 2020. consultancy.Looked at narrowly,the index And unlike houses, planes are mobile. Over the past half year both Bloomberg inclusions might seem technicalities. They The doubts centre on whether there and Citigroup have started to add China to are simply judgments about the accessibil- reallyisenough demand forthe lessors’ lat- their emerging-market bond indices. ity of Chinese shares and bonds, not their est orders. Peak leasing may soon be For China-focused financiers, all this value or prospects. And with minimal reached, according to new research from serves as belated recognition. “I’m not say- weights assigned to China, the inclusions Toulouse BusinessSchool. Usingdata from ing institutions should have 15% exposure are symbolic. But symbols can be power- 73 carriers over 15 years, it calculates that to China. But they should certainly have ful, as these certainly are. Some ofthe lead- airline profits are maximised when 53% of somewhere north ofzero,” says Peter Alex- ing gatekeepers of global markets think fleets are leased—not far off the current fig- anderofZ-Ben Advisors, a Shanghai-based China is at last open for business. 7 ure ofaround halffornarrowbodied jets. 1 The Economist June 24th 2017 Finance and economics 67

2 Cheap debt and stronger balance- wisely.New leasing outfits with no experi- lot of money on the way up,” says Saj Ah- sheets have made it more attractive for car- ence of preparing for a downturn are ex- mad, an aviation expert. “They will also riers to buy planes directly, says Neil Sora- panding particularly recklessly. The num- lose a lot ifthings come down.” han, the finance director of Ryanair, Eu- ber of Chinese lessors alone has grown A full-blown crash in airliner values— rope’s biggest airline. In February it issued from almost none to over 50 in a decade. like the one since 2013 for ships which left €750m ($803m) in unsecured bonds at an Mr Pilarski detects signs that the bubble banks nursing $400bn in bad loans—is far annual rate ofjust1.2% to buy more jets. may be about to burst. Air-passenger num- from certain. With demand forairtravel ex- Airlines are not alone in using cheap bers are rising faster than the long-term av- pected to double every 15 years, as the money to go on a shopping spree; so are erage, but there is already severe overca- growing middle classes of Asia take to the lessors and banks. As the rate of return on pacity in Europe, the Middle East and Asia, sky,the long-term future ofaircraft asan as- other investments is so low, aircraft have and too many new planes are coming on set is still seen as solid. And given rapid become even more attractive investments, stream. Many lessors struggle to find new changes in travel patterns, the flexibility explains Michel Dembinski of MUFG,a operators for aircraft returned to them leasing offers will continue to be in de- bank, particularly for short-term “hot” when leases expire. Interest-rate rises may mand. Even so, aircraft investors should money. Many doubt this is being invested also threaten asset prices. “Lessors made a prepare fora bumpy ride. 7 Buttonwood The past is a foreign country

Why fundmanagers do not performconsistently HE biginvestment shiftofrecent years tors had a higher chance of picking a dud luting their best ideas. As the fund grows Tis from active to passive. Clients have than a winner. larger, it looks more like the overall mar- been buying index funds, which passive- The industry’s answer to this problem ket, and runs into the iron law ofcosts. ly track a benchmark like the S&P 500 in- is to launch a lot of funds. Some of them Asecond possibilityisthatactive man- dex, and shunning fund managers who are bound to be near the top of the charts agerstend to have a “style”, favouringpar- actively try to pickthe best shares. and can be trumpeted in adverts; the losers ticular types of shares. One style is the One reason for the shift is that passive can then be killed off. Almost 30% of the value approach, whereby investors seek managers charge lower fees than active worst-performing(bottom quartile) equity shares that look cheap compared with a funds. Many clients would be happy to funds over the five years to March 2012 had company’s profits, assets ordividend pay- pay more ifthat translated into better per- been merged or liquidated by March 2017. ments. But styles can go in and out offash- formance. However, it is very difficult for It should not be a surprise that the aver- ion as relative valuations change; value investors to select fund managers who age fund fails to beat the index. The “iron stocks can outperform for a while and can reliably beat their peers. Performance law of costs” is that, in aggregate, profes- then slump. So managers who follow that does not persist, as the latest data from sional fund managers own most of the style will beat their peers fora period and S&P Dow Jones Indices show clearly. stockmarket. Thus their performance is then drop to the backofthe pack. Suppose you had picked one of the highly likely to resemble that of an index The final possibility is that outperfor- best-performing 25% of American equity thattracksthe overall market. Butthe index mance (or underperformance) is simply mutual funds in the 12 months to March does not incur costs or fees; fund managers the result of luck. Picking shares is enor- 2013. In the subsequent 12 months, to do. Thus the average fund manager must mously difficult, given all the potential March 2014, only 25.6% of those funds underperform the market, after costs. factors involved. In the American stock- stayed in the top quartile (see chart). That Why doesn’t fund management con- market thousands of funds pore over the result is no better than chance. In the sub- form to the rules of professional sports, same information. Itisveryhard for an in- sequent 12-month periods, this elite where athletes such as Cristiano Ronaldo dividual investor to get an edge. bunch is winnowed down to 4.1%, 0.5% or Roger Federer consistently outperform Active fund management may have and 0.3%—all figures that are worse than their rivals? One reason could be that suc- more of a role to play in other places: chance would predict. Similar results ap- cessful managers attract more clients, and emerging markets, for example, where in- ply if you had picked one of the best-per- the size oftheirfund grows. So they have to formation about the prospects of individ- forming 50% of all funds; those in the up- expand the number of stocks they buy, di- ual companies is not so widely available; per halfofthe charts failedto stay there. or bond funds, where S&P did find some Perhaps this is an unfair comparison; evidence of persistent performance in ar- fund managerscannotbe expected to out- Wasting away eas such as mortgage-backed securities, perform every year. But clients do hope United States, best-performing actively managed municipal debt and investment-grade they can deliver superior returns over the funds* in year to 2013, % remaining in top quartile debt. In such areas, specialist knowledge long run. So S&P Dow Jones Indices ran 25 may prove an advantage. the numbers in a different way. Suppose But when it comes to American equi- you had picked a fund with a top-quartile 20 ties, it is a different story.The average fund performance in the five years to March 15 manager runs a portfolio for only around 2012. What proportion of those funds four-and-a-half years. So if you pick a would be in the top quartile over the sub- 10 fund based on its record, the chances are sequent five years (to March 2017)? that a new person is in charge. The old The answer is just 22.4%: again, less 5 saying that “past performance is no guide than chance would suggest. Indeed, 27.6% 0 to the future” is not a piece of compliance ofthe star funds in the five years to March 2014 15 16 17 jargon. It is the truth. Years to March 2012 were in the worst-performing quar- Source: S&P Dow Jones Indices *Domestic equity tile in the five years to March 2017. Inves- Economist.com/blogs/buttonwood 68 Finance and economics The Economist June 24th 2017

Barclays, Qatar and the SFO Financial technology Capital charges Licence to bill

A Swedish fintech firm’s move to become a bankis part ofa trend ANKS moan incessantly about over- from its new privileges. Many upstarts British authorities accuse the bankand regulation. Yet their banking licences struggle to overcome the advantages fourformerexecutives offraud B come with perks: in most places only banks enjoy because ofincumbency, N 2008, as banks cracked on both sides of licensed institutions can accept deposits notably large customer bases. But Klarna Ithe Atlantic, Britain’s government pre- and offercurrent accounts; within the EU, already has 60m customers across Eu- pared to shore up tottering lenders. It even- “passporting” means a banklicensed in rope who use it to pay foronline pur- tually poured £45bn ($71bn) into the Royal one country may operate across the chases from 70,000 merchants: last year, Bank of Scotland (RBS) and £20.3bn into single market. So some European fi- it processed €13bn ($14.7bn) in transac- Lloyds, which ministers coaxed into buy- nancial-technology (“fintech”) upstarts tions. The firm plans to use this customer ing the stricken HBOS. Barclays, however, have started to seekbanking licences. On base to launch a wider range ofretail- needed no such help: the bank raised June19th, Klarna, a Swedish payments banking offerings, like bankcards and enough equity from private investors, no- firm valued at $2.25bn, became the lat- payroll-linked accounts. tably in Qatar, to meet higher capital tar- est—and the largest so far—to get one. But not all aspire to banking licences, gets set by regulators as the crisis deep- European fintech firms have various which take time and effort: 20 months in ened, and thus escape a taxpayer rescue. reasons forseeking approval as a bank. Klarna’s case. Murray RaisbeckofKPMG, However, for five years Britain’s Serious Bunq, a Dutch firm and one ofthe first to an auditing firm, reckons that smaller Fraud Office (SFO) has been investigating get a licence, started out in payments, like and more specialised firms will wait for Barclays’ dealings with the Qataris. On Klarna, but expanded to deposit ac- simpler licensing regimes, or choose to June 20th those inquiries yielded criminal counts. Some, like N26 in Germany or workwith existing banks. From next charges. These include (remarkably, some Atom Bankin Britain, sought to be full- year, new EU rules will force banks to will say) the first such charges to be lev- service, online retail banks from the open up the accounts ofwilling custom- elled at the head of a big international outset. Others, such as ClearBank, a new ers to third parties, including unlicensed bankasa resultofthe crisis. John Varley isa British clearing and settlement bank, fintech firms. Squeezed by new competi- pillar of London’s financial establishment. want to offerservices to other firms. tion, incumbent banks may yet come to Save for one short break he spent 28 years Ofthose focused on the retail market, pine forthe days when their main com- at Barclays, more than sixin the top job, be- Klarna is better placed than most to profit plaint was about regulation. fore standing down at the end of 2010. His wife’s father was a director. Barclays took over J. and J.W. Pease, founded by his in- laws’ forebears, in 1902. The SFO has charged the bank, Mr Var- ley and Roger Jenkins, who headed Bar- clays’ investment-banking and investment-management business in the Middle East, with two counts of conspiracy to commit “fraud by false representation” and one of“unlawful financial assistance”. The charges are related to Barclays’ arrangements with the Qatari investors and a loan of $3bn made by the bank to the Gulf state in November 2008. Two other former executives, Tom Kalaris and Rich- ard Boath, face one of the fraud charges. The bank is “considering its position”. Messrs Boath and Jenkins have said they will contest the charges. Messrs Kalaris and Varley have made no comment. In June and October 2008 Barclays also yet that the crisis, a decade on, will not go That June Barclays raised £4.5bn from made agreements to pay £322m over five away. Debate still rages over how to super- investors including the Qatar Investment years to Qatar Holding for advisory ser- vise banks; America’s Republicans are ea- Authority (QIA), owned by the Gulf state, vices in the Middle East. The bank has said ger to ease post-crisis rules. Big European and Challenger, which represented Qa- that the first was disclosed at the time, but banks are still raising capital; this month a tar’s then prime minister. In October the that the second, and the fees, were not. The failing Spanish lender was rescued by a bank raised up to £7.3bn more (of which loan followed in November. The Financial bigger rival; one Italian bank is in line for a £3bn comprised warrants convertible to Conduct Authority (FCA), a British regula- state bail-out and two others are in desper- shares over the next five years). Qatar tor, and American authorities have looked ate straits. And regulators are still pursuing Holding, an arm of the QIA which still into the service agreements. The FCA fined the excesses of the go-go years. Barclays is owns just under 6% of Barclays, and Chal- Barclays £50m in 2013; the bank appealed. battling America’s Department of Justice, lenger pitched in. (Sheikh Mansour bin The FCA then put its inquiry on hold until which claims that it mis-sold residential Zayed Al Nahyan, a member of Abu the SFO’s investigation was complete. mortgage-backed securities (RMBSs). RBS— Dhabi’s royal family, and institutional in- The defendants are due in a magis- still publicly owned—has braced itself for vestors also took part.) No investors have trates’ court on July 3rd. However the case RMBS fines. Financial crises cast long shad- been accused ofdoing wrong. ends, it is merely the most spectacular sign ows, and lingering ones. 7 The Economist June 24th 2017 Finance and economics 69

Testing basic incomes in Finland Argentina’s 100-year bond Northern pilot Bully-beef bulls

A bet on the distant future HELSINKI NE hundred years ago, Argentina An experiment offers some early was not the country it is today. lessons O Thanks to a belle époque oflavish foreign UHA JARVINEN, an unemployed young investment, rapid inward migration and Jfather in a village near Jurva, in western bountiful agricultural exports, its GDP Finland, brims with ideas for earning a per person in 1917 was comparable to that living. He has just agreed to paint the roofs ofGermany and France. Although the of two neighbours’ houses. His old busi- first world war brutally interrupted ness, making decorative window frames, international trade and investment, the went bust a few years ago. Having paid off country profited from filling the bellies debts, he recently registered another, to ofsoldiers on the front with tinned produce videos forclients. corned beef. Mr Jarvinen says that for six years he No one knows how Argentina may hoped to start a new business but it was change over the next100 years. But impossible. The family got by on his wife’s many investors seem willing to bet on wages as a nurse, plus unemployment and one forecast: that its government will in child benefits. He had a few job offers from Mr Jarvinen, benched too long 2117 repay $2.75bn-worth ofdollar-de- local businesses, which are mainly in for- nominated, 100-year bonds, sold to estry, furniture and metalwork. But any- resent part-time service staff, such as enthusiastic investors on June 19th. thing less than a permanent, well-paid (mostly female) cleaners or retail workers. Since Argentina has defaulted six post made no sense, since it would jeopar- He says surveys show the widerpublic wa- times in the past100 years, that belief dise his welfare payments. To re-enroll for vering: 70% like the idea ofthe grant in the- seems brave. But instead oflooking benefits later would be painfully slow. ory, but that drops to 35% when respon- backwards, investors are looking from Mr Jarvinen’s luck turned in January, dents are told that income taxes—already side to side, at the miserable yields on when he was picked at random from Fin- high—would have to rise to pay forit. offerelsewhere. Argentina’s “century” land’s unemployed (10% of the workforce) The study’s design faced constraints. bonds yield almost 8%. That is compara- to take part in a two-year pilot study to see The constitution ordains equality for all, so ble to what investors can now earn on how getting a basic income, rather than getting permission to afford some welfare an equally long-dated bond issued in jobless benefits, might affect incentives in recipients special treatment was difficult. 2015 by Petrobras, Brazil’s state-owned oil the labour market. He gets €560 ($624) a Thatlimitation, and a budgetofonly €20m company. And it is several percentage month unconditionally, so he can add to (plus diverted welfare funds that would points more than the yield on Mexican his earnings without losing any ofit. have otherwise gone to the recipients), re- bonds due in 2110 or Russian paper due If Mr Jarvinen is making progress, it is stricted the sample size to just 2,000 peo- in 30 years’ time. too soon to draw overall conclusions. Kela, ple. Mr Kangas frets that might prove too Moreover, many investors will hope Finland’s national welfare body, which small to be statistically robust. And it limits to make a profit long before this belief in runs the pilot, will not contact participants the questions the study can investigate. Argentina’s 22nd-century creditworthi- directly before 2019, lest that influences He would like to try similar grants on ness is tested. Iftheir case merely be- outcomes. Instead it monitors remotely, us- those with low-income jobs, to see if such comes more plausible (or ifyields else- ing national registers of family incomes, recipients choose to work less, for exam- where prove disappointing), Argentina’s taxes paid and more. (Anonymised data ple. It would also have been instructive—if bond prices are likely to rise, allowing will be made available to researchers.) expensive and politically difficult—to give their holders to sell at a profit. And the Some lessons are emerging. Olli Kan- grants to residents of entire towns to see longer the life ofa bond, the more the gas, who helped to design the study and how local economies are affected. The price will move (in either direction). now runs it for Kela, says the process is far timescale is another limitation. Kate For Mauricio Macri, Argentina’s harder to implement than expected: “a McFarland, of the Basic Income Earth Net- president, the successful bond sale is a nightmare”. He decries politicians who work, which has promoted the idea of ba- timely endorsement ofhis reform ef- blowhotand cold, yetinsistthe study must sicincomessince the 1980s, saysa two-year forts. His team had hoped that MSCI, be wrapped up before an election in 2019. study is too short to learn how the psychol- which compiles stockmarket indices, He calls them “small boys with toy cars, ogy ofbeneficiaries changes. would decide this weekto readmit Ar- who become bored and move on”. Finnish Whatever its flaws, the pilot is a good gentina into its widely-followed emerg- politics is intricate: the Centre party, example ofthe Finnish penchant forsocial ing-market index, rescuing it from the Greens and a far-left party back the study. experiments. Participants will be followed lower tier of“frontier markets”. But on So does a libertarian wing ofthe conserva- for ten years to identify long-term effects. Argentina, unlike China, MSCI decided tives, hoping to pare the welfare state. International interest in the pilot pro- instead to wait. Investors, it said, are not Sceptics include traditional conservatives, gramme has been intense. This month tele- yet convinced Mr Macri’s reforms are many Social Democrats and big unions. vision crews from South Korea and Swe- “irreversible”. It is unusual for equity Such unions, with (mostly male) mem- den have been queuing up to see Mr investors to be more circumspect than bers in permanent jobs in heavy industry, Kangas; he regularly lectures abroad and bond buyers. But they have a point. At manage unemployment funds and do not advises others on similar studies. Just get- times over the past100 years, Argentina want to lose control, so they dislike the ting started counts as a success, he says. has shown that it can reform itself, re- idea of a basic income, says Mr Kangas. In “This is trial and error, and the door is now verse itself, and reverse those reversals. contrast the idea appeals to those who rep- open forbetter experiments.” 7 70 Finance and economics The Economist June 24th 2017 Free exchange Diminished expectations

Janet Yellen’sproductivityscepticism could prove self-fulfilling HEN it comes to inflation, the Federal Reserve sometimes when inflation begins to rise sharply. So longas inflation remains Wresembles a child freshly emerged from an age-inappropri- low and stable, it is possible that productivity-boosting steps are ate horror film. Toits members, runaway price increases seem to still being left on the table. lurk in every oddly shaped shadow.On June 14th America’s cen- Could this be happening now? Some evidence suggests so. tral bankraised its benchmarkinterest rate forthe third time in six Until the mid-1980s productivity grew faster when a boom gath- months, even as inflation lingered below its 2% target, as it has for ered pace; it slowed in recessions. Since then, the opposite has most of the past five years. Some critics reckon the Fed’s 2% infla- been true; productivity growth leaps in recessions and wheezes tion target is too constraining. Indeed, in recent comments on a during booms. Structural changes in the economy may help ac- letter from prominent economists calling for a higher target, Janet count for this change. Increased labour-market flexibility might Yellen, the chairman, signalled opennessto the idea. But the Fed’s make it easier forfirms to sack workers in bad times, boosting av- problem is less its target than an unforgiving pessimism about erage productivity; they can rehire low-skilled workers later. But American productivity.If its bleak view is wrong, the Fed itself is other factors probably matter at least as much, according to work partly to blame forslow growth. published last yearby John Fernald, ofthe San Francisco Fed, and Economists generally treat productivity growth as a “real” fac- Christina Wang, ofthe Boston Fed. In particular, technology may tor, outside central-bank control. Thus, it is thought to depend on be contributing to economic fluctuations in a new way. things such as technological progress, workers’ skill levels and the flexibility ofthe economy.But productivity growth is cyclical: Routine procedures it varies depending on whether an economy is booming or bust- Around the time productivity began to leap during recessions, ing. Central banks might therefore have more influence over it America also began suffering a rash of jobless recoveries (see than they are prepared to admit. chart). In a paper published in 2015, Nir Jaimovich, of the Univer- Economieshave a growth speed limit, determined bychanges sity of Zurich, and Henry Siu, of the University of British Colum- in population and productivity. When unemployment is high, bia, argue that this is because firms began responding to reces- the economy can grow fasterthan this speed limit without an ac- sions by eliminating routine jobs (like repetitive factory or celeration in inflation, since firms can expand by hiring unem- call-centre work) through reorganisation, outsourcing and auto- ployed workers. As the number of jobless workers shrinks, this mation. Firms used recessions to implement labour-saving struc- option disappears. Eventually, firms hoping to grow must raise tural changes that raised productivity and made it easier to ac- wages to poach the workers they need from other companies. As commodate rising demand in the early stages of a recovery wage costs rise, prices must go up to cover the bill, fuelling a cycle without hiring new workers. of accelerating inflation. “The risk would be that the economy The shift to a low-inflation world can help to explain this phe- would crash to a very, very low unemployment rate,” said Wil- nomenon. Firms tend not to cut their workers’ nominal wages liam Dudley,president ofthe New YorkFed, on June19th,describ- (the numbers on the pay cheque), and when inflation is low they ing a scenario most Americans may find less than horrifying. cannot achieve such large savings by keeping pay constant in the Yet before that point firms have other ways to manage in- face of rising prices. They therefore have little choice but to make creased demand. They might give their current workers more lay-offs—and to take additional steps to make the remaining, ex- hours, orpush them to workharder. Some have the option to out- pensive workers more productive. source work to foreign contractors or invest in robots. Even rising What is more, technological progress itselfis contractionary if wages need not translate into higher inflation. Firms may choose the central bank does not recognise it is occurring, according to a lower profits over higher prices and reduced market share. They seminal paper, published in 2006, by Susanto Basu, of Boston might also pair wage increases with investment in training and College, Mr Fernald and Miles Kimball, ofthe University ofColo- equipment in orderto raise workers’ productivity.In an economy rado. New technologies generally reduce labour demand and in- in which the central bank permits inflation to jump around, it flation in the short run. That would not be so if central banks ob- should be clear when these other opportunities are exhausted: served that this was happening and responded with more accommodative policy.They rarely do. The rare exception makes the point. In March 1997 the Ameri- The jobless noughties can economy seemed to be running at close to full tilt. Inflation United States, jobs per person, % change from recession trough was just a shade over 2%. The unemployment rate stood at 5.2%. 8 In the eyes of the Fed, then run by Alan Greenspan, it was very nearly time to pull away the punchbowl. Yet, though the Fed vot- 6 ed for a 0.25% interest-rate increase at that meeting, its plan for a 1982 series of rate rises was subsequently ditched when it changed its 4 collective mind. Unemployment eventually fell below 4%; since 1975 the early 1980s no other period has matched the late 1990s for 2 growth in labour productivity and real pay. 1970 0 The only way to know ifAmerica can manage a repeat perfor- 1991 2001 mance is to test the economy’s limits. The transition from a 2% tar- 2009 2 get to a higher one would offer a chance for such an experiment. Months before recession trough Months after recession trough As it is, a central bank hell-bent on keeping inflation low and sta- 4 ble risks cutting short a boom with room to run. 7 24 21 18 15 12 369 036 9 12 15 18 21 24 Source: Bureau of Labour Statistics Economist.com/blogs/freeexchange Science and technology The Economist June 24th 2017 71

Exoplanets Also in this section Sorting the sky 72 Animals, humans and viruses 73 The political risks of moral positions 73 A new antibiotic 74 Genetically modified weeds That planets come in different species is clear. Why they do so is now emerging HE starting-point of science is collect- dies, as opposed to the plethora of big, Because Neptune’s diameter is four times Ting: animals, plants, minerals, ele- heavy, Jupiter-like gas giants that formed Earth’s, however, that is a big gap to fill. ments, even stars. Then, once a collection is the bulkofprevious discoveries. At the top end of the range are so-called large enough, patterns begin to emerge. On June 19th Andrew Howard of the mini-Neptunes. These are mostly gas, but Animals and plants fall into phylogenetic California Institute of Technology and his are presumed to have cores made of rock trees, minerals into crystal groups, ele- colleagues announced the latest batch of and ice. At the bottom end are rocky ob- ments into the periodic table, stars into the Kepler’s discoveries, 219 of them, including jects with little or no atmosphere. These Hertzsprung-Russell diagram. Those patten that are about the size of Earth and are the largest of the terrestrial planets, terns both require and suggest explana- have similar surface temperatures, and similar in composition to the inner planets tion. Thus, the theory of evolution, the sci- might thus be capable of supporting life. of the Solar System, and are sometimes ence of crystallography, an understanding They also announced the result of an anal- known as super-Earths. But if and how the of the chemical bond and a description of ysis of all of Kepler’s haul, the thrust of two sortsoverlap hasneverbeen clear. Part how stars shine over their lifetimes have which is that small planets seem to come of the reason for this lack of clarity has all emerged from the classification of colin two distinct types. Which type a planet been a lack of accurate measurements of lections. Now, it appears, something simi- is depends on its exact size. But there is a exoplanetary diameters. lar is happening to planets. marked discontinuity between the smaller Kepler, which works by measuring the A quarter of a century ago only nine and the larger type, which seems to reflect dip in a star’s light caused by a planet pass- planets were known—those of the Solar the way that mass and chemical composi- ing in front of it, cannot determine the size System, a number subsequently reduced tion interact in the swirling clouds of gas of that planet directly. Rather, it measures to eight by the demotion of Pluto. These and dust that form planetary nurseries. the relative sizes of planet and star. A star’s nearby worlds have, however, now been size is deduced from its spectrum. Hot joined by thousands more that orbit stars Mind the gap stars, which shine white, are big and other than the sun. Many of those have One of Kepler’s early findings was that bright. Cool ones, which shine red, are been discovered or confirmed to exist by there is an abundance of objects interme- small and dim. There are exceptions—old Kepler, an American space telescope diate in size between Earth, the fifth-largest stars such as red giants and white dwarfs— launched in 2009 with the specific aim of planet in the Solar System, and Neptune, but these are easily recognised. finding small, potentially Earth-like bo- the fourth-largest (shown, to scale, above). That this relationship between lumi-1 72 Science and technology The Economist June 24th 2017

2 nosity (and therefore size) and tempera- Zoonotic disease viruses a particular animal species might ture is fundamental to stellar nature was be expected to carry, and then to compare recognised just over a century ago by Ejnar Unknown that with the number already known to be Hertzsprung and Henry Russell. Their dia- carried by it. They did this by asking how gram, which plotsitasa graph, isa good ex- unknowns closely related a species was to Homo sapi- ample of data collection producing pat- ens (on the assumption that viruses will terns for theoreticians to work on. It find the jump between related species eas- means, for instance, that a precise spec- ier), and how likely, given a species’ range, A prediction ofthe places from which trum will accurately indicate a star’s size habitat and behaviour, it would be for it to new illnesses are likely to emerge and thus, if that star is orbited by a Kepler- interact with people. They also estimated, detected planet, the planet’s diameter. OST new human viral infections and attempted to correct for, how much ef- Until recently, most of the stars around Mcome from other animals. Ebola fe- fort had been put into looking for viruses which Kepler has made such discoveries ver, SARS and AIDS all started in this way. in a given species. Samplingbias, for exam- had not had their spectra closely analysed. Animals are also the sources of influenza ple, almost certainly explains why so This has now changed thanks to the tele- epidemics. Keeping an eye on birds and many known viruses infect humans. scopes, among the largest in the world, of beasts, the viruses they carry, and which of All this work yielded an estimate of the the Keck observatory in Hawaii. Using those viruses are found in people is thus a number of unknown zoonotic virus spe- these, Dr Howard and his colleagues have prudent thing to do. And that is the self-ap- cies out there in the world’s mammals. It measured the spectra, and thus the sizes, of pointed task of the EcoHealth Alliance, a also enabled the team to draw up “heat 1,300 ofthese stars. charitable research organisation based in maps” showing places where the actual Adding the Keckand Kepler data togeth- New York. This weeksome ofthe alliance’s and predicted number of zoonotic viruses er shows the distinction between mini- scientists, led by Kevin Olival, published least resemble one another, and which Neptunes and super-Earths quite clearly. the results oftheir latest research in Nature. therefore have the highest riskofspringing The maximum diameter of rocky planets Among other things, they attempt to esti- a nasty surprise on the world. is 1.75 times that of Earth. The smallest mate what people do not know about The biggest threat comes from bats, mini-Neptunes are twice the diameter of these “zoonotic” viruses, as well as what which carry many more zoonotic viruses Earth. The gap between the two (a 50% dif- they do. per species than other mammalian orders ference in volume) suggests bodies of in- Dr Olival’s study is restricted to mam- do. The places most at risk of an unknown termediate size are unstable. mals. It does not, therefore, pertain to zoonotic bat virus emerging are the Ama- things like the sources of avian flu. But zonian and Orinoco rainforests and the Turn down the volume within that limit it is as comprehensive as Caribbean coast of South America. Ungu- Dr Howard and his colleagues suspect the the data allow. It looks at all 586 species of lates pose more of a threat to the east and gap is caused by the way planetary atmo- virus known to have been found in at least centre of Africa, and carnivores to the east spheres form. Their calculations suggest one mammal. Those mammals amount to and south of that continent. Primates (the that the jump between a rocky planet with 754 species (humans included) from 15 or- non-human variety) threaten equatorial little or no atmosphere and a mini-Nep- ders—groups such as primates, bats, carni- regions ofSouth America, Africa and Asia. tune with a large one requires the addition vores and even-toed ungulates (deer, cat- Having maps like these, rough and ofonly about1% ofthe planet’s mass, in the tle, sheep, antelopes, camels and so on). Of ready though they are, is important be- form of hydrogen and helium. Since these the viruses studied, 263 (ie, 45%) had been cause they can help researchers choose the are the two lightest elements, they provide detected in humans and 188 of those were most fruitful places to conduct studies into lots of volume for little weight. And, since zoonotic in the sense that they had also zoonotic transmission. They do need to be they are the most abundant elements, they been found at least once in another mam- used with care. The method Dr Olival and are readily available. mal species. This does not prove a virus his team adopted does not distinguish zoo- Being light, however, means they are passed from animal to human. It could noses with epidemic potential from those easily lost. This is crucial. Dr Howard and have travelled the other way. But it is a that might infect a mere handful of hu- his team reckon the lack of objects in the starting-point forresearch. mans. But the maps do increase the chance gap between the biggest rocky planets and The objectives Dr Olival and his col- that the next SARS or AIDS might be spot- the smallest mini-Neptunes is a conse- leagues set themselves were to build a ted, almost before it has emerged, and quence of the bodies that would other- model that predicted how many zoonotic many lives saved as a consequence. 7 wise fill it having insufficient gravity to hold onto their atmospheres. Instead, radi- ation from their parent stars strips those at- Future epidemics? mospheres away. Global distribution of the predicted number of missing zoonotic viruses, by mammalian order, 2017 The large number of mini-Neptunes Carnivores* 120 Bats around (almost every planetary system 1,000 100 found by Kepler has at least one) does raise 800 80 600 the question of why there are none in the 60 Solar System. That will require more study, 40 400 with better instruments. And the progress 20 200 of just such an instrument, called PLATO, 0 0 was announced by the European Space Agency on June 20th. Even- 100 Primates‡ 80 Lift-off is planned for 2026. PLATO will toed 70 ungulates† 80 60 look for planets around hundreds of thou- 60 50 40 sands of stars. Its main objective is to seek 40 30 ones that might be supporting life. Like 20 20 Kepler, though, it will add enormously to 10 0 0 astronomers’ planet collection, and thus to Nature † ‡ the developing science ofplanetology. 7 Source: *Members of order Carnivora Members of order Cetartiodactyla, the majority of hooved mammals Excluding humans The Economist June 24th 2017 Science and technology 73

Political morality the opposite direction. After totting up the responses, the re- Talk is not cheap searchers were left with ratings from more than 5,000 participants. The data showed strong support for the first hypothesis— moralisers who later changed their mind were indeed seen as more hypocritical and, therefore, less worthy of support. Ifyou are a politician, changing your There was no evidence for the idea that convictions could cost you changing one’s position on an ethical mat- YNICS may regard the phrase “politi- ter would be seen as morally courageous. C cal morality” as an oxymoron. Never- And there was only slight support for the theless, many politicians insist that their partisanship hypothesis—a result that sug- stated beliefs have a moral basis rather gests people are, perhaps, more fair-mind- than a merely pragmatic one. And perso- ed than is often assumed. nal convictions aside, moralising has These results held not only in the aggre- many benefits: past research suggests that gate, but also in most of the individual ex- leaders who make moral arguments are periments. This suggests the researchers seen as having better characters, and that have found a real pattern rather than being they are better at persuading waverers to misled by a quirk of the data. Those indi- Antibiotics their cause. vidual experiments covered putative poli- But all power comes at a price. As Ta- ticians and business tycoons, persons The enemy of my mar Kreps of the University of Utah and male and female, and the use of both writ- her colleagues report, in a paper to be pub- ten statements and television advertise- enemy lished soon in the Journal of Personality ments. Some leaders were described as de- and Social Psychology, those who claim pendent on popular support, others as moral rather than pragmatic reasons for uninterested in it, in case dependence A bug that infects people with cystic their policies may find themselves pun- made a change of mind seem like pander- fibrosis may yield a treatment forTB ished more harshly by voters if they later ing. The researchers covered issues from change their minds. gay marriage and the death penalty to im- UBERCULOSIS has plagued humanity Dr Kreps’s research involved15separate migration, environmental policyand sexu- Tfor thousands of years. The discovery experiments, conducted online through alised advertising. And they also looked at in the19th century ofits cause, a bacterium Amazon’s “Mechanical Turk” service, in their participants’ sexes and their personal (pictured above) called Mycobacterium tu- which people are paid commissions for moral stances. None of those factors made berculosis, and the consequent develop- completing odd jobs. Each experiment fol- much difference to the overall pattern. ment of better hygiene, helped bring that lowed a similar structure. Participants read plague under control. Then, in the a statement from a hypothetical politician Climbing down gracefully mid-20th century, what many hoped either supporting or opposing some con- The data did, however, suggest two tactics would be the final nail in its coffin ap- troversial policy—the death penalty,say,or that might soften the reputational impact peared: antibiotic drugs. same-sexmarriage. In some casesthe argu- of changing one’s mind on a moral issue. Unfortunately, TB is back. After a few ments were made pragmatically, by ap- The first was to attribute the change to a decades in which antibiotics did indeed pealing to economics. In others they were transformational personal experience. (“I seem to be working miracles, some strains made on moral grounds, citing reasons spent some time with a death-row inmate of M. tuberculosis have evolved resistance such as “justice” or “respect”. and saw what a truly unjust system we to them. In 20155% ofthe world’s10m cases The participants were then invited to have.”) Respondents seemed to appreciate failed to respond to treatment with isonia- rate the politician on his perceived hypoc- the apparent honesty inherent in such a zid and rifampicin, the drugs of first resort. risy,hiscourage, hisflexibility,his effective- confession. The other was simply to deny Half of those non-responders were infect- ness and his worthiness of support. Final- that a true change of opinion had taken ed by strains of the bacterium immune to ly, they read a second statement from the place, and instead explain the situation second-line treatments as well. Most mi- same politician saying that his or her posi- away by citing factors beyond one’s con- crobiologists regard these numbers as portion had now changed, and the rating exer- trol. (“My colleagues in the legislature have tents of worse to come. That is driving a cise was repeated. refused to put this issue on our agenda.”) search for new antibiotics against which Dr Kreps and her colleagues tested Moralising leaders who used such tactics M. tuberculosis has evolved no resistance. three ideas. First, they wondered ifa leader still seemed like hypocrites. But they were Eshwar Mahenthiralingam of Cardiff who had changed his mind after adopting rated as being slightly more courageous University and Greg Challis of the Univer- a moral position would seem more hypo- than those who did not. sity of Warwick, both in Britain, think they critical, and less effective, than one who There are, as ever, a few caveats. Hypo- have found one. As they and their col- had justified his initial position on purely thetical politicians may be judged differ- leagues describe in the Journal of the Amer- pragmatic grounds. Changing a moral ently from flesh-and-blood ones. And all ican Chemical Society, they have discov- view, after all, might seem like breaking a ofthe participants were American, and the ered a compound, produced by another promise. Second, and conversely, perhaps issues were framed in the context ofAmer- bacterial pathogen, that kills resistant changing one’s mind in such circum- ican politics. It may be that things work dif- strains ofM. tuberculosis. stances would be seen as morally coura- ferently in other countries. But aspiring This compound, which they call gladio- geous, and therefore boost support among politicians should take note. Morality is lin,iscreatedbyBurkholderia gladioli—a the public. Last, they investigated whether powerful stuff, and as such should be used bacterium, generally rare, that thrives in ratings depended on a participant’s own with care. Once a position has been staked the lungs of those suffering from cystic fi- beliefs. A leader coming around to one’s out on moral grounds, it is extremely hard brosis. It is able to gain a foothold there be- own view might be viewed with more in- to change it, no matter how good the rea- cause the respiratory tracts ofsuch patients dulgence than one who had travelled in sonsmaybe.7 are clogged with mucus that inhibits the1 74 Science and technology The Economist June 24th 2017

2 actions of immune-system cells which instability are not shared by gladiolin. That ofthe resulting seedlings. would otherwise destroy the invaders. suggestedgladiolin mightindeed berobust If a silencer-enhanced version does What interested Dr Mahenthiralingam enough for use against tuberculosis, and crossbreed with a weedy interloper, and Dr Challis about B. gladioli was that, encouraged them to test it further. though, the offspring will end up carrying once established in a patient’s lungs, it The new substance performed reason- the silencer, too. And that, Dr Lu hoped, seemsable to keep rival bacteria such asM. ably well against a strain of tuberculosis would damage them by stopping their tuberculosis at bay.This suggests it is engag- that had no resistance to antibiotics. A sol- seeds breaking off naturally, and thus pre- ing in chemical warfare. ution of 400 nanograms (billionths of a venting those seeds from spreading. To isolate the agent that inhibits B. gla- gram) per millilitre was enough to inhibit To test his idea, Dr Lu and his colleagues dioli’s competitors, the researchers culti- the growth of such bacteria. But isoniazid crossbred a weedy rice strain with a culti- vated samples from a patient with cystic fi- and rifampicin performed better. They var into which the silencer transgene had brosisandanalysed the chemicalssecreted needed only 40 nanograms and 1 nano- been introduced. They then allowed the bybacteria therein. Itwas thus they discov- gram per millilitre of solution respectively crossbred offspring to breed with one an- ered gladiolin, which shuts down bacterial to keep the non-resistant bugs under con- other, creating second-generation hybrids versions of the gene for an enzyme called trol. Where gladiolin did shine, though, of a sort that might emerge in the wild. RNA polymerase that is crucial forlife. was against a strain of tuberculosis known They found that the expression of SH4 in This was interesting. But it was also for its resistance to isoniazid and rifampi- those hybridsdropped sharply, to aslow as reminiscent of a false dawn involving an- cin. Even 10,000 nanograms per millilitre 10%. That is a level similar to the one found othersubstance, etnangien, which was dis- of either of those two drugs was insuffi- in cultivars. This reduction in SH4 expres- covered in 2007 and which also inhibits cient to harm it. However, a mere 1,700 sion was accompanied by a reduction in RNA polymerase. Unfortunately, etnan- nanograms per millilitre of gladiolin the hybrids’ seed-shattering index, a mea- gien proved chemically unstable and thus proved enough to knockit out. sure ofthe strength ofa plant strain’s stalks impossible to use as a drug. The first taskDr Whether gladiolin can be taken out of and the number of its seeds in the soil. In a Mahenthiralingam and Dr Challis under- the Petri dish and made into a useful drug rice-field, the consequence would be that took was therefore a detailed comparison will require manyclinical trialsto discover. the weedy grains get harvested along with of the two. They established that the parts But, in a world crying out for new antibiot- those of the cultivar, removing them from of etnangien molecules which cause their ics, it seems a useful lead. 7 circulation and thus suppressing the weedy population the following season. In the long term, that might make herbi- Agriculture cides obsolete. In the shorter term, however, DrLu hopes to make them more effec- Silence, please tive, by creating a cultivar in which silencers of SH4 and, perhaps, other seed- shattering genes are in close chromosomal proximity to the herbicide-resistance gene. That will mean any transfer of herbicide resistance automatically brings seed-shattering problems with it, stopping the How to get rid ofweeds by crossing them with GM crops spread of herbicide resistance within the NTRODUCING genes for herbicide resis- SH4 silencerto them will, ifanything, make weedy population. Itance into a crop permits it to be sprayed them better crops rather than worse ones. Moreover, what works with rice might with weedkiller that really does then kill Indeed, experiment shows that the silenc- reasonably be expected to work, too, with nothingbutweeds. Butthatworksonly un- er has no effect on the productivity of an other cereals, such as wheat and sorghum, til the weeds themselves develop resis- otherwise genetically un-engineered culti- which also have close relativesthatbehave tance to the poison. One way this can hap- var, as measured by such things as the as weeds. Dr Lu’s subtle approach of, in ef- pen is through crossbreeding with the crop number of seed grains per plant, the fect, domesticating weeds in order to de- originally protected—a risk if weed and weight of those grains, the percentage of stroy them, could therefore have a big in- crop are closely related. them that germinate, and the survival rates fluence on future crop yields. 7 That is the case for rice, where weedy, natural varieties are a perennial problem because of the competition they bring to the cultivars farmers actually want to raise. But, as he describes in Transgenic Research, Lu Baorong, an ecologist at Fudan Univer- sity in Shanghai, thinks he has found a solution. By adding a second transgene to the crop, he can sabotage any weed that cross- breeds with it. Dr Lu’s transgene encodes a genetic “silencer” that shuts down the expression of a natural gene called SH4.In wild grasses SH4 promotes a phenomenon called “seed shattering” that releases seeds from the stalkwhen they are ripe. Domestication selects against seed shattering because farmers want the seeds to stay attached to a plant as it is harvested. The best cereal crops are those which do not release their seeds until they are deliberately threshed. That means adding an Shattered Books and arts The Economist June 24th 2017 75

Also in this section 76 Johnson: Women and men speaking 77 Democracy’s discontent 77 Korean ﬁction 78 Performance art

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Classical music whom he became friends. “Down on your knees to Verdi!” he implored his mother as In pursuit of perfection a teenager. Yet more than anyone else, Richard Wagner (1813-83) casts a long shadow over the conductor’s life. Toscanini incorporated many of the musical ideas Wagner ad- vocated. He favoured dimming the lights in the opera house, forinstance, so that the A weighty,highly enjoyable account ofone ofthe greatest conductors ofall time audience would focus on the perfor- SK music-lovers to name a conductor, mance. This provoked fury among Italians Toscanini. By Harvey Sachs. W.W. Norton; and among the greats they are likely to who came to the opera house not to listen A 944 pages; $39.95. To be published in mention Arturo Toscanini. The Italian, but to flirt and eat ice cream. Like Wagner, Britain in July; £29.99 who died in1957,isperhapsbestknown for he wanted the orchestra in a pit below the leading the NBC Symphony Orchestra singers rather than on the stage, especially from the 1930s, which had a large follow- he knew the entire workfrom memory. important when performing the bombas- ing in America. Yet Toscanini was an elite Before long he was leading ensembles tic works of Verdi or Wagner, so as not to musician as well as a popular one. And he all over the world, usually to rave reviews. overpower the singers. La Scala’s first or- worked with the world’s most prestigious Critics praised Toscanini’s interpretations chestra pit was constructed in 1907. Tosca- orchestras, as the principal conductor ofLa for hewing closely to composers’ inten- nini celebrated by performing Wagner’s Scala in Milan and as a conductor at the tions. Ermanno Wolf-Ferrari, a now almost “Götterdämmerung”. Bayreuth Festival in Germany. Harvey unknown composer, sat in as Toscanini Alongside this lengthy examination of Sachs has written the definitive biography performed one of his pieces, gushing, “I Toscanini’s approach to music, Mr Sachs ofthis great, and colourful, character. come here to hear every single nuance, ev- treats the readerto a bit ofgossip. Toscanini Mr Sachs has already published a bio- ery bit of phrasing that I intended, ex- had a voracious sexual appetite and innu- graphy of Toscanini, in 1978. Yet this is not pressed by this marvellous man.” merable lovers. Mr Sachs has dug out let- merely a new edition of an old book. Mr The pursuit of perfection did not come ters which Toscanini exchanged with Sachs has drawn on a batch of Toscanini’s without costs, however. Toscanini slept women all over the world. Some drip with letters unearthed in the 1990s, as well as barely five hours a night and went for long sexual innuendo. the archives of many of the organisations stretches without seeing his children, to he worked with, including La Scala’s. The whom he did not think it worth his time to Ofhis time result is an entirely new study. impart his musical knowledge. And MrSachsalso usesToscanini’slife asa win- Drawing on an enormous range of evi- though Mr Sachs lays to rest a long-stand- dow onto a wider discussion of musical dence, Mr Sachs paints a vivid picture of ingmyth thatToscanini once blinded a vio- and historical themes. He documents Tos- the great conductor. His first job with the linist in a fit of rage, tantrums were certain- canini’s many performances in Argentina, baton came by accident, while he was on ly common. then one of the world’s richest countries. tour in Rio de Janeiro in 1886, after an audi- Toscanini had equally strong views on And his portrait ofthe music scene in turn- ence refused to listen to the scheduled the merits of different composers. As he of-the-century Italy is fascinating. Musi- maestro. The 19-year-old Toscanini, en- got older, he had little time forthe works of cians would compete to sit in the presti- gaged as a cellist, agreed to take charge only Arnold Schönberg or Bela Bartok (though giousseatsin the orchestra; the police were after a panicked subscriber ran in, shout- he did enjoy conducting Stravinsky). His sometimes needed to break up fights. Au- ing: “Isn’t there anyone in the orchestra oldestlove mayhave been Giuseppe Verdi, diences would aggressively demand en- who can conduct ‘Aida’?” As was his wont, Italy’s greatest opera composer, with cores of the entire performance if they had 1 76 Books and arts The Economist June 24th 2017

2 enjoyed it (Toscanini, however, did not like did not like. Before long, Mussolini’s re- America? Or the precise mountain that pandering to such extravagant requests). gime had amassed a massive police file on Toscanini climbed while on holiday? After And despite the myth to the contrary, op- the conductor. Things turned nasty at a seeing ten newspaper reviews heaping era singers worked just as hard back then concert in Bologna in 1931. On Toscanini’s praise on Toscanini, no one will doubt his as they do today. A production of “Götter- refusal to play the national anthem, a fas- greatness. By the umpteenth review over dämmerung” that opened in Turin in 1895 cist hit him in the face and others chanted 700 pages, the reader may wish to read was performed every other day for six “A morte!” (“Death!”). By 1937 he was in something else. weeks and only the roles of Brünnhilde America, with NBC broadcasting his work Yet this is a quibble. Mr Sachs’s writing and Gutrune were double-cast. to dozens of radio stations across North style is precise, fluent and gripping. And Unafraid ashe wasto courtcontroversy, America and Europe. one can dip in and out of the book, since it was inevitable that Toscanini would be Some readers may wish that Mr Sachs Mr Sachs helpfully offers reminders of im- caught up in politics. By the 1920s Benito offered more of these rich historical de- portant characters and explains basic con- Mussolini was tightening his grip on Italy. scriptions and less of the minutiae: how cepts. Asa studyofthe life and times ofone Fiercely anti-fascist, Toscanini refused to important are the names of the ships that of the greatest conductors of all time, this accept accolades from a government he carried Toscanini between Europe and bookwill not soon be bettered. 7 Johnson Chatty Cathy and Taciturn Tom

Western ideas about women’s and men’s speech is shot through with myths and biases BER was having a bad week: accusa- groups of university students (five in speaking turns, but men take longer ones. Utions of sexism in the ride-hailing America, one in Mexico) wearing devices In one study, women were more likely to company had turned it from a Silicon Val- thatwould randomlyswitch on and record offer reactions (“yeah” or “that’s right”) ley “unicorn” into something more of an them over the course of several days. The and men more likely to offeranswers. ogre. Matters were not helped by a board result? Members of both sexes spoke a sta- Some linguists, like Deborah Tannen meetingto discussthe mess. Arianna Huf- tistically indistinguishable average of of Georgetown University, argue that fington, a director, cited research showing around 16,000 words daily. This average women and men tend to have different that the likelihood of a board bringing on was dwarfed by differences within each goals when talking: men are more likely a woman is higher ifit already has at least sex, with some taciturn typesspeaking just to seek status and exchange information, one female member. David Bonderman, a few thousand words, and a few motor- whereas women are more likely to seek her colleague, quipped that this would mouths as many as 50,000. connection and exchange affirmation. just mean more talking. He later apolo- Yet people hear women talking more— This view has its detractors, but even its gised and quit. and clever researchers have proved that proponents insist that this generality Some might quietly grumble that, too. When they played scripted conversa- hardly applies to all men and women. rude or not, Mr Bonderman had a point. It tions in which male and female speakers If true, this would help explain events is widely thought in the West that women tookperfectly balanced speaking times, re- such as Mr Holt’s interruptions of Profes- talkmore than men. One popular-science spondents heard the woman taking 55% of sor Hubeny, often derided as “man- book called “The Female Brain” said they the speaking time (even when the male splaining”. If one partner in a conversa- use three times as many words per day as and female actors swapped scripts). tion is seeking dominance and the other men. Maybe that is why senators kept in- Why do people hear women talking is seeking co-operation, the status-seeker terrupting Kamala Harris, a Californian more? Perhaps because women and men will wind up hearing co-operative con- senator, during her questioning of Jeff speakdifferently. Forthis, there is some evi- versational turns as submissive. That Sessions, America’s attorney-general, at a dence. In some studies, women take more may explain why people think women hearing on June 13th. Or why Jim Holt, talk more: in the stereotype, it seems they hosting a panel on cosmology at a science are nattering on with no clear purpose. festival in New York, repeatedly talked Speakers of both sexes need the full overVeronika Hubeny, the one woman in suite of skills: explaining, problem-solv- the group. Women will talkforever ifyou ing, interrupting, supporting and more. don’t stop them. Some people think that women are just Except that there is not a whit of evi- biologically better at one kind, and men dence that they do. Abby Kaplan, a lin- at another. Culture, though, explains guist at the University of Utah, rounded plenty, too. It’s not everywhere that men up the facts in “Women Talk More Than are expected to be the blunt, competitive, Men...And Other Myths About Language problem-solving sex and women the Explained”, published last year. Research- comforters. In rural Madagascar, men are ers have given men and women in groups prized forkabary: flowery, indirectspeech a taskto complete, observed classroom in- that avoids putting other people on the teractions, required mixed-sex groups to spot, a mode that is thought to be beyond reach a joint political agreement, and re- women’s abilities. And in the village of corded romantic partners in their homes. Gapun in Papua New Guinea, women No study has shown women talking specialise in the kros, an elaborate tirade more, and some (like the romantic-coup- packed with sexual profanity delivered at les study) found them talking rather less. someone who has wronged her. Western In the best study of a large sample of men and women can learn plenty from natural speech, researchers recorded six these examples—and from each other. The Economist June 24th 2017 Books and arts 77

South Korean ﬁction Dark before the dawn

Familiar Things. By Hwang Sok-yong. ably asks, “what was the straight and Translated by Sora Kim-Russell. Scribe; 216 narrow when you lived in a garbage pages; £12.99 dump?” Still, he transcends the trash to pursue decency and dignity, thanks to The Impossible Fairy Tale. By Han Yujoo. ghostly visitations from the farming Translated by Janet Hong. Graywolf Press; familieswho once inhabited an idyllic 225 pages; $16. Tilted Axis; £8.99 village here, “thickwith bamboo”. Sora N THE mega-cities ofAsia and Africa, Kim-Russell’s translation moves graceful- Ifrom Cairo to Manila, urban sprawl ly between gritty, whiffy realism and throws up trash mountains where en- folk-tale spookiness. terprising slum-dwellers gather a bare In “The Impossible Fairy Tale”, Han living collecting recyclable junk. Seoul, Yujoo also casts an uncanny cloakof South Korea’s spruce high-rise capital, no dreams over a South Korean childhood. longer looks like such a place. However, This, for all its middle-class, apartment- Democracy’s discontent Hwang Sok-yong has to travel backjust blockmilieu, is the more unsettling nov- one generation, to the time ofSuper el. In the incantatory, sing-song prose of Where do we go Mario console games and early Star Wars an elementary-school bookor a bedtime films, to tell a story about the garbage- story, the first part introduces the name- from here? pickers ofthe so-called Flower Island. In less, abused “Child”, with her pitiable his novel “Familiar Things”, on a squalid “white, red, blackand blue body”. landfill site outside Seoul amid “towering Racked by an overwhelming sense of mounds” ofwaste, 6,000 people sift and pain, she graduates from classroom The Retreat of Western Liberalism. By sell the rubbish ferried from the booming pranks to the killing ofpampered Mia, Edward Luce. Grove Atlantic; 234 pages; $24. city in convoys oftrucks. the girl who “more or less has every- Little Brown; £16.99 Their life is seen through the adven- thing”. Accursed, “Child” then returns to EWdoubt that somethingbighappened tures ofBugeye, a boy who, with his haunt, perhaps even to become, the Fin Western politics during the past 12 resourceful mother, survives “every bad author, who explores the writer’s com- months but nobody is sure what. Turmoil odour in the world” to find solidarity plicity with the sins, and sufferings, of in Washington and London contrasts with among these human “discards and out- her creatures: “I didn’t kill you. I only centrist stability in Paris and Berlin. Ed- casts”. In their reeking shantytown, forced you to kill.” Janet Hong, the trans- ward Luce, a commentator for the Finan- “children were useless, worth less than lator, proves adept with both the skin- cial Times in Washington, is well placed to scrap metal.” Yet he thrives, and Mr prickling horror ofthe novel’s first half, observe the shifts and shocks. “The Retreat Hwang sweetens his escapades with and the second half’s darknight ofthe of Western Liberalism” offers a brisk, time- charm and compassion. Bugeye forgiv- literary soul. ly survey. “Fusion”, the longest of just four chap- ters, describes the successes of economic None of that hands China victory in Mr people want not a handout, even a com- globalisation, but also the costs borne by Luce’s view. Rather than a new Chinese- fortable handout, but meaningful work, the less well-off in rich countries, notably led world order to replace the American- the kind that gives a sense ofpurpose. Britain, America and France. Next, “Reac- led one, he thinks disorder is likelier. Mr Luce is a shrewd observer who has tion” attributes the recent “degeneration” A final brief chapter, “Half Life”, sug- worked in Asia as well as the West. As an of Western politics to slowing economic gests lines of defence and restoration for intern at the European Union in Brussels growth and to the rich taking an undue liberal democracy. People’s trust in politics and speechwriterforthe treasurysecretary share ofwhat little growth there is. and government must be recovered, he ar- in Washington duringBill Clinton’sadmin- “Fallout” moves to geopolitics and the gues. A combination of stagnant living istration, he has seen government from the decline of Western hegemony. America is standards for the broad middle of society inside. He believes in liberal democracy still unequalled in hard power. At $600bn and an accumulation of unusable extra and cares about its future. Despite its title, a year, its defence spending is more than wealth by the rich has pushed fairness to “The Retreat of Western Liberalism” is not the next seven biggest spenders combined. the top of public argument. Parties of the bleak or elegiac. Mr Luce is not suggesting But it must compete now with China over right should aim to rationalise and im- that liberalism is done for. He says sensibly which of them is to fix and police global prove, not slash, welfare. Parties of the left that liberal democracy cannot be shored norms of trade and finance. In soft power, should fuss less about identity politics or up without a “clear-eyed grasp ofwhat has the kind that convinces rather than co- “personal liberation” and return to their gone wrong”. A more analytical book erces, America has lost heavily in recent old position as defenders of those strug- might have spelled out further what exact- years. Far from a model to copy, American gling to make ends meet. Mr Luce likes the ly liberal democracy is, how to tell when it society is widely viewed by outsiders with idea of a “universal basic income”, paid to is going right and how it differs from capi- puzzlement if not suspicion. The latest De- all citizens with no strings attached, but talist competitors across the globe. At rapid mocracy Index (2016) from the Economist notes that governments would need to be pace and with telling statistics, Mr Luce Intelligence Unit, a sister company to The tough about not extending it to all comers nevertheless gives a knowledgeable tour Economist, demoted it from full to flawed from across the world, drawn by its prom- through the unmapped terrain in which democracy because the level of political ises. He notes, too, that despite the hostile Western politicians and governments distrust in the country has risen so high. caricature of the welfare scrounger, most must now operate. 7 78 Books and arts The Economist June 24th 2017

Performance art Historical parallels help explain the re- surgent interest in performance. The Futur- Body talk ists and Dadaists were preoccupied with machines, while today’s artists focus on computers. Some also see comparisonsbe- tween the turbulence of the 1970s and today’s instabilities. Documenta deals ex- plicitly with such political themes. In BASEL, KASSEL AND MÜNSTER A rich art formbecomes mainstream Kassel a small group of visitors was roped together and instructed to communicate N THE medieval town hall of the small schools teach performance. And the Shed, with a group in Athens while the rest IWestphalian city of Münster, Alexandra a centre for performance and other experi- looked on. Designed to make the partici- Pirici, a youngRomanian artist, prepares to mental art forms, will open in the Chelsea pants think about “them” and “us”, power tell a story. Word has gone out that she has district in New Yorkin 2019. relationships and the difficulty of commu- something special to say; people have Early modern performance art was po- nication, it proved unexpectedly stressful been queuing for hours to get in. As things litical—inspired by the Vietnam war, the forthose inside the cordons. get under way, her six performers give civil-rights movement, the 1968 riots and a short occasional statements: how long second wave of feminism. And many art- Into the now since the shooting of a man crossing the ists, especially those disillusioned with the As performance art becomes more popu- Berlin Wall, how far to the edge of our gal- art market, made it intentionally difficult. lar, it is changing. Many are embracing ele- axy. The actors use their bodies to create As Carolee Schneemann, an American mentsofdance, film, theatre and sculpture, shapes reminiscent of collapsing monu- feminist artist, wrote: “In 1963, to use my even street theatre and rap music. “Perfor- ments, commemorative sculptures and body as an extension of my painting-con- mance art was stuck in the 1970s: protest, famous posters, moving among the rooms structions was to threaten the psychic terri- people cutting themselves,” RoseLee Gold- of the Rathaus, singing all the while. The torial power lines by which women were berg, the founder of Performa, said last audience is mesmerised. This is a piece of admitted to the Art Stud Club.” year. “Some years ago I wondered: why performance art at Skulptur Projekte Mün- But the work that propelled perfor- don’t we have visually dazzling, emotional ster (SPM), a festival that takes place once a mance from minority to mainstream came and intellectually challenging perfor- decade, designed to present cutting-edge out of that difficult tradition. In 2010 Ms mance? Why does everything have to be a contemporary sculpture, though this is not Abramovic put on a piece called “The Art- single gesture performed on the Lower sculpture in the conventional sense. The ist is Present” at the Museum of Modern East Side?” artist describes the performers as “human Art (MoMA) in New York. She sat motion- Since then Shirin Neshat, Doug Aitken, search engines”. less in a chair forseven hours a day and in- Matthew Barney and Ms Abramovic have This year SPM coincides with a series of vited members ofthe public to sit opposite all produced lavish, powerful works. In other events that together provide a un- and gaze into her face. Fully 700 hours lat- 2011 Ragnar Kjartansson, an Icelandic art- ique snapshot of contemporary art. Docu- er, she had faced 1,400 people from min- ist, presented “Bliss” at Performa. A re- menta, considered by many to be the criti- utes to whole days, while 500,000 more enactment of the final aria of Mozart’s cal centre of the contemporary-art world, looked on. Millions have watched a video “Marriage ofFigaro” performed repeatedly takes place in Kassel every five years (this of the moment when her former lover, a by ten opera singers and a small orchestra yearitpresented an earlyversion in Athens performance artist named Ulay with for 12 hours, it cemented his reputation as in April). In 2017 art-lovers have also had whom she made many of her early works, an artist generating unusual excitement. the choice ofthe Venice Biennale as well as turned up unexpectedly. Both struggled to One ofthe highlights ofBasel this year was Art Basel in Switzerland, the most impor- contain their tears. a work (pictured) by Than Hussein Clark, tantmodern and contemporary-artfair. All an emerging artist. The performance five shows this year are placing an empha- mixed theatre, dance, sound and poetry in sis on performance. a 1930s modernist church. Some visitors, Performance art is over 100 years old. enchanted, stayed forthe full fourhours. Until recently,though, it was a niche activi- Collecting, showing and restaging per- ty.In the early decades of the 20th century, formance art is still difficult. Bob Rennie, a the Italian Futurists saw their work as a Canadian collector, needed 279 athletes to way to reach a mass audience directly.The show Martin Creed’s Work No. 850 (“Run- Dadaists borrowed heavily from popular ners”) for three months to the public in his culture, including cabaret and music-hall. private museum. But such art adds much- But performance art is most associated needed life and a social dimension to gal- with the conceptualism of the 1960s and leries and museums. Klaus Biesenbach, 1970s, in which the idea was more impor- the curator who staged Ms Abramovic’s tant than the execution. And New York has MoMA show, says that performance art been the centre of modern performance looks different to younger people used to since those grungy beginnings, when Vito filming the world around them, and con- Acconci notoriously masturbated, heard stantly posting and checking social media but unseen, for eight hours a day under a to see what else has happened. “It is one of wooden ramp at the Sonnabend Gallery. the reasons that even at art fairs, perfor- Performa, a biennial festival in New mance-, participation- and time-based art York devoted to performance art, is now has become part ofthe norm,” he believes. considered a must-see. Marina Abramovic, As artists explore the full range ofpossibili- probably the most famous living perfor- ties—from single gesture to Wagner-style mance artist after Ai Weiwei, hopes to set “total theatre”—a new, largely analogue up a permanent teaching institute in up- medium has emerged to speak to today’s state Hudson. It will fill a gap: few art Have you heard about the latest thing? digital age. 7 Courses 79

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The Hellenic Republic Asset Development Fund S.A. (“HRADF”) launches an international public tender (the “Tender”) for the sale of the ownership right of fi fteen (15) properties in the area of Aghios Stefanos, in the Municipal Unit of Kassiopi, Municipality of Corfu, Region of Ionian Business & Personal Islands (the “Property”). The Tender will be conducted in one stage, in accordance with the Requests for Proposals, FX & Gaming Licenses dated 01.06.2017 (the “RfP”). Swedish Trusts To advertise within the classified section, contact: Payment Processing Systems Interested parties who want to participate in the Tender, Offshore Banks UK/Europe must submit their Offers, in accordance with the terms and Agne Zurauskaite - Tel: (44-20) 7576 8152 19:00 hours (GMT +2) Instant Citizenships & [email protected] conditions of the RfP, no later than Residencies on 01.08.2017 at the offi ces of HRADF (Kolokotroni 1 & www.global-money.com United States Stadiou, 105 62 Athens). www.gmccitizenships.com Richard Dexter - Tel: (212) 554-0662 [email protected] The RfP will be available from 01.06.2017 at HRADF’s Asia website (www.hradf.com). Amendments to the RfP will Readers are recommended ShanShan Teo - Tel: (+65) 6428 2673 be posted on the abovementioned webpage of HRADF. to make appropriate enquiries and take appropriate advice before sending money, incurring any expense or entering [email protected] Interested parties may request clarifi cations with respect to into a binding commitment in relation to an advertisement. the RfP and the Tender in writing, in accordance with the The Economist Newspaper Limited shall not be liable to any Middle East & Africa person for loss or damage incurred or suffered as a result Philip Wrigley - Tel: (44-20) 7576 8091 terms and conditions referred to in the RfP, until 21.07.2017. of his/her accepting or offering to accept an invitation contained in any advertisement published in The Economist. [email protected] The Economist June 24th 2017 80 Economic and financial indicators The Economist June 24th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic 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 Jun 21st year ago United States +2.0 Q1 +1.2 +2.2 +2.2 May +1.9 May +2.2 4.3 May -449.3 Q1 -2.6 -3.5 2.16 - - China +6.9 Q1 +5.3 +6.7 +6.5 May +1.5 May +2.1 4.0 Q1§ +170.1 Q1 +1.6 -4.0 3.50§§ 6.83 6.58 Japan +1.3 Q1 +1.0 +1.4 +5.7 Apr +0.4 Apr +0.6 2.8 Apr +188.4 Apr +3.6 -5.1 0.04 112 105 Britain +2.0 Q1 +0.7 +1.6 -0.8 Apr +2.9 May +2.7 4.6 Mar†† -115.7 Q4 -3.4 -3.6 1.07 0.79 0.68 Canada +2.3 Q1 +3.7 +2.2 +5.4 Mar +1.6 Apr +1.9 6.6 May -48.4 Q1 -2.8 -2.7 1.49 1.33 1.28 Euro area +1.9 Q1 +2.3 +1.8 +1.4 Apr +1.4 May +1.6 9.3 Apr +384.8 Apr +3.0 -1.4 0.26 0.90 0.89 Austria +2.3 Q1 +5.7 +1.8 +3.3 Mar +1.9 May +1.9 5.5 Apr +6.6 Q4 +2.3 -1.3 0.50 0.90 0.89 Belgium +1.6 Q1 +2.6 +1.5 +2.6 Mar +1.9 May +2.2 6.8 Apr -2.0 Dec +1.0 -2.3 0.58 0.90 0.89 France +1.0 Q1 +1.8 +1.4 +0.6 Apr +0.8 May +1.3 9.5 Apr -27.1 Apr -1.2 -3.1 0.61 0.90 0.89 Germany +1.7 Q1 +2.4 +1.8 +2.8 Apr +1.5 May +1.7 3.9 Apr‡ +272.5 Apr +8.1 +0.5 0.26 0.90 0.89 Greece +0.8 Q1 +1.8 +1.0 +1.1 Apr +1.2 May +1.3 22.5 Mar -0.7 Apr -1.1 -1.3 5.61 0.90 0.89 Italy +1.2 Q1 +1.8 +1.0 +1.0 Apr +1.4 May +1.5 11.1 Apr +45.5 Apr +2.2 -2.3 1.90 0.90 0.89 Netherlands +3.4 Q1 +1.8 +2.2 +2.3 Apr +1.1 May +1.3 6.1 May +64.8 Q4 +8.8 +0.7 0.47 0.90 0.89 Spain +3.0 Q1 +3.3 +2.8 -10.2 Apr +1.9 May +2.1 17.8 Apr +26.2 Mar +1.6 -3.3 1.38 0.90 0.89 Czech Republic +3.9 Q1 +5.4 +3.0 -2.5 Apr +2.4 May +2.3 3.3 Apr‡ +1.4 Q1 +0.9 -0.5 0.90 23.6 24.0 Denmark +3.1 Q1 +2.4 +1.5 -5.6 Apr +0.8 May +1.1 4.3 Apr +25.2 Apr +7.8 -0.6 0.52 6.68 6.60 Norway +2.6 Q1 +0.9 +1.8 -5.1 Apr +2.1 May +2.4 4.6 Apr‡‡ +22.4 Q1 +5.5 +4.1 1.54 8.54 8.31 Poland +4.4 Q1 +4.5 +3.6 +9.1 May +1.9 May +2.0 7.5 May§ -1.2 Apr -0.8 -2.8 3.19 3.81 3.91 Russia +0.5 Q1 na +1.4 +5.7 May +4.1 May +4.2 5.2 May§ +34.9 Q1 +2.8 -2.2 8.13 59.5 64.1 Sweden +2.2 Q1 +1.7 +2.6 +0.8 Apr +1.7 May +1.6 7.2 May§ +22.0 Q1 +4.8 +0.3 0.45 8.77 8.25 Switzerland +1.1 Q1 +1.1 +1.4 -1.3 Q1 +0.5 May +0.5 3.2 May +70.6 Q4 +9.7 +0.2 -0.15 0.97 0.96 Turkey +5.0 Q1 na +2.9 +5.9 Apr +11.7 May +10.2 11.7 Mar§ -33.2 Apr -4.5 -2.4 10.44 3.53 2.90 Australia +1.7 Q1 +1.1 +2.6 -0.8 Q1 +2.1 Q1 +2.2 5.5 May -25.0 Q1 -1.5 -2.0 2.39 1.32 1.34 Hong Kong +4.3 Q1 +2.9 +3.0 +0.2 Q1 +2.0 May +1.6 3.2 May‡‡ +14.9 Q4 +6.6 +1.5 1.35 7.80 7.76 India +6.1 Q1 +7.2 +7.2 +3.1 Apr +2.2 May +4.6 5.0 2015 -15.2 Q1 -1.2 -3.2 6.43 64.5 67.5 Indonesia +5.0 Q1 na +5.2 +6.4 Apr +4.3 May +4.2 5.3 Q1§ -14.6 Q1 -1.7 -2.0 6.79 13,319 13,263 Malaysia +5.6 Q1 na +5.2 +4.1 Apr +3.9 May +4.0 3.4 Apr§ +6.6 Q1 +1.4 -3.0 3.90 4.29 4.03 Pakistan +5.7 2017** na +5.7 +9.8 Apr +5.0 May +4.8 5.9 2015 -7.2 Q1 -3.1 -4.5 8.20††† 105 105 Philippines +6.4 Q1 +4.5 +6.5 +5.9 Apr +3.1 May +3.1 5.7 Q2§ -0.4 Mar +0.4 -2.8 4.64 50.3 46.4 Singapore +2.7 Q1 -1.3 +2.6 +6.7 Apr +0.4 Apr +1.3 2.2 Q1 +59.0 Q1 +19.0 -1.0 1.99 1.39 1.34 South Korea +3.0 Q1 +4.3 +2.7 +1.7 Apr +2.0 May +1.9 3.6 May§ +93.0 Apr +6.0 +0.7 2.14 1,144 1,157 Taiwan +2.6 Q1 +3.8 +2.3 -0.6 Apr +0.6 May +0.5 3.8 May +69.1 Q1 +12.3 -0.8 1.08 30.5 32.3 Thailand +3.3 Q1 +5.2 +3.5 -1.7 Apr nil May +0.8 1.3 Apr§ +42.3 Q1 +11.8 -2.4 2.33 34.0 35.2 Argentina +0.3 Q1 +4.3 +2.5 -2.5 Oct +24.0 May‡ +24.3 9.2 Q1§ -15.0 Q4 -2.7 -5.7 na 16.4 13.9 Brazil -0.4 Q1 +4.3 +0.6 -4.5 Apr +3.6 May +4.1 13.6 Apr§ -19.8 Apr -1.3 -7.7 10.07 3.33 3.40 Chile +0.1 Q1 +0.7 +1.6 -4.2 Apr +2.6 May +2.8 6.7 Apr§‡‡ -5.0 Q1 -1.4 -2.2 4.03 664 676 Colombia +1.1 Q1 -0.9 +2.0 -6.8 Apr +4.4 May +4.2 8.9 Apr§ -11.9 Q1 -3.8 -3.2 6.50 3,053 2,980 Mexico +2.8 Q1 +2.7 +1.9 -4.4 Apr +6.2 May +5.5 3.6 Apr -22.0 Q1 -2.5 -2.3 6.96 18.1 18.6 Venezuela -8.8 Q4~ -6.2 -7.0 na na +591 7.3 Apr§ -17.8 Q3~ -0.6 -19.6 10.43 10.1 9.99 Egypt +3.8 Q4 na +3.5 +12.9 Apr +29.7 May +22.5 12.0 Q1§ -18.0 Q1 -5.8 -9.3 na 18.1 8.88 Israel +3.9 Q1 +1.2 +3.6 +4.2 Apr +0.8 May +1.0 4.4 Apr +11.7 Q1 +4.2 -2.5 2.06 3.54 3.86 Saudi Arabia +1.7 2016 na -0.5 na -0.7 May +2.2 5.6 2016 -24.9 Q4 +2.0 -7.3 3.68 3.75 3.75 South Africa +1.0 Q1 -0.7 +1.0 -0.2 Apr +5.4 May +5.7 27.7 Q1§ -7.9 Q1 -3.5 -3.2 8.58 13.1 14.7 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. The Economist June 24th 2017 Economic and ﬁnancial indicators 81

Markets % change on Drug use Adult population who used drug at least once in 2015 Dec 30th 2016 In 2015 some 255m people used drugs at Selected regions, % Index one in local in $ least once, according to the UN Office on North America Europe Asia Jun 21st week currency terms Drugs and Crime. Of these around 30m, or 02468101214 United States (DJIA) 21,410.0 +0.2 +8.3 +8.3 0.6% of the world’s adult population, China (SSEA) 3,305.5 +0.8 +1.7 +3.5 Cannabis 183.3 Japan (Nikkei 225) 20,138.8 +1.3 +5.4 +10.1 suffered from drug-use disorders such as Britain (FTSE 100) 7,447.8 -0.4 +4.3 +6.9 drug dependency. Opioids are used less Canada (S&P TSX) 15,148.5 -0.1 -0.9 nil than some other drugs (cannabis comes Amphetamines* 37.0 Euro area (FTSE Euro 100) 1,215.8 +0.1 +9.3 +15.5 top), but they are the most harmful, Euro area (EURO STOXX 50) 3,554.4 +0.2 +8.0 +14.1 accounting for 70% of global health Austria (ATX) 3,110.3 -0.7 +18.8 +25.5 problems attributed to drug-use dis- Opioids† 35.1 Belgium (Bel 20) 3,869.9 -0.8 +7.3 +13.4 orders. In America more people die from France (CAC 40) 5,274.3 +0.6 +8.5 +14.6 misuse of opioids than from road-traffic Germany (DAX)* 12,774.3 -0.2 +11.3 +17.5 accidents or violence. Cocaine use ap- 823.3 +2.8 +27.9 +35.1 Ecstasy 21.7 Greece (Athex Comp) pears to have increased in North America Italy (FTSE/MIB) 21,071.9 +0.5 +9.6 +15.7 Netherlands (AEX) 520.5 -0.2 +7.7 +13.8 and Europe, as has the quantity seized: Global 17.1 globally, 864 tonnes of cocaine were Cocaine users, m Spain (Madrid SE) 1,083.9 -0.2 +14.9 +21.4 0.04 Czech Republic (PX) 995.0 -0.5 +8.0 +17.1 impounded in 2015, the largest amount Denmark (OMXCB) 917.5 +0.2 +14.9 +21.3 on record. Source: *Includes misused prescription stimulants UNODC †Includes opiates and misused prescription opioids Hungary (BUX) 35,945.2 -0.1 +12.3 +18.5 Norway (OSEAX) 767.8 -1.6 +0.4 +1.2 Poland (WIG) 61,162.2 +1.3 +18.2 +29.4 Other markets The Economist commodity-price index Russia (RTS, $ terms) 973.3 -4.0 -15.5 -15.5 2005=100 % change on % change on Sweden (OMXS30) 1,641.7 +0.1 +8.2 +12.0 Dec 30th 2016 one one Switzerland (SMI) 8,985.6 +1.5 +9.3 +14.0 Index one in local in $ Jun 13th Jun 20th* month year Turkey (BIST) 99,390.1 -0.2 +27.2 +26.8 Jun 21st week currency terms Dollar Index Australia (All Ord.) 5,703.2 -2.7 -0.3 +4.4 United States (S&P 500) 2,435.6 -0.1 +8.8 +8.8 All Items 141.1 141.2 -1.4 +0.7 Hong Kong (Hang Seng) 25,694.6 -0.7 +16.8 +16.1 United States (NAScomp) 6,234.0 +0.6 +15.8 +15.8 Food 153.7 153.4 -0.6 -8.9 India (BSE) 31,283.6 +0.4 +17.5 +23.6 China (SSEB, $ terms) 324.1 +0.9 -5.2 -5.2 Indonesia (JSX) 5,818.5 +0.4 +9.9 +11.1 Japan (Topix) 1,611.6 +1.2 +6.1 +10.9 Industrials Malaysia (KLSE) 1,775.6 -0.9 +8.2 +13.1 Europe (FTSEurofirst 300) 1,527.2 +0.3 +6.9 +12.9 All 128.0 128.6 -2.4 +15.8 Pakistan (KSE) 45,474.5 -4.5 -4.9 -5.3 World, dev'd (MSCI) 1,920.0 -0.5 +9.6 +9.6 Nfa† 131.2 129.5 -4.7 +8.1 Singapore (STI) 3,201.8 -1.6 +11.1 +15.4 Emerging markets (MSCI) 1,006.5 -0.7 +16.7 +16.7 Metals 126.6 128.2 -1.3 +19.5 South Korea (KOSPI) 2,357.5 -0.6 +16.3 +22.8 World, all (MSCI) 465.6 -0.6 +10.4 +10.4 Sterling Index Taiwan (TWI) 10,349.7 +2.8 +11.8 +18.3 World bonds (Citigroup) 924.4 -1.0 +4.6 +4.6 All items 201.6 203.6 +1.5 +17.1 Thailand (SET) 1,577.0 nil +2.2 +7.7 EMBI+ (JPMorgan) 822.4 -0.9 +6.5 +6.5 Argentina (MERV) 20,614.4 -2.7 +21.8 +17.4 Hedge funds (HFRX) 1,234.7§ nil +2.6 +2.6 Euro Index Brazil (BVSP) 60,761.7 -1.9 +0.9 -1.3 Volatility, US (VIX) 10.8 +10.6 +14.0 (levels) All items 156.5 157.8 -0.5 +2.0 Chile (IGPA) 23,818.3 -2.5 +14.9 +15.8 CDSs, Eur (iTRAXX)† 55.5 -2.9 -23.1 -18.8 Gold Colombia (IGBC) 10,665.5 -1.4 +5.5 +3.8 CDSs, N Am (CDX)† 62.9 +7.0 -7.2 -7.2 $ per oz 1,263.7 1,242.8 -1.4 -2.2 Mexico (IPC) 48,983.5 -0.6 +7.3 +21.9 Carbon trading (EU ETS) € 4.9 -1.4 -25.7 -21.5 West Texas Intermediate Venezuela (IBC) 121,418.1 +12.0 +283 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 46.5 43.5 -15.5 -11.2 Egypt (EGX 30) 13,376.4 -0.9 +8.4 +8.5 †Credit-default-swap spreads, basis points. §June 20th. Israel (TA-100) 1,296.6 +0.3 +1.5 +10.3 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) 7,334.9 +7.0 +1.3 +1.4 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 51,402.7 -0.2 +1.5 +6.3 series, go to: Economist.com/indicators †Non-food agriculturals. 82 Obituary Helmut Kohl The Economist June 24th 2017

feat—clearing the way for Mr Kohl to take over as conservative leader. In 1982 he ex- pertly split Mr Schmidt’s coalition, winning the election which followed. His hold lasted for the next16 years. He took over a troubled country. The Baader-Meinhof terrorists had shattered West Germany’s self-image of tolerance and stability. Mr Kohl’s son Walter was an indirect victim: intrusive security meant he never had a normal childhood, he said in a miserable, caustic memoir. West Ger- many was divided over defence (whether to acceptAmerican medium-range nuclear missiles) and about nuclear power. Social changes, especially feminism, were shak- ing up society, while the division of Ger- many seemed eternal. But Mr Kohl exuded certainty. He bull- dozed his way through assorted scandals. Pursuing his own Ostpolitik, he shocked diehard anti-communists by inviting East Germany’s leader, Erich Honecker, to visit. European integration was his passion, marked by a notable bond with France’s president, François Mitterrand; the two men held hands at a commemoration of the slaughter at Verdun. Yet all such efforts Germany’s helmsman were framed by the central and unshak- able alliance with America. He invited Ronald Reagan to honour Germany’s war dead at a military cemetery—a step too far, many thought, when it turned out that some SS men were buried there too. Helmut Kohl, who piloted his countryand Europe through reunification, died on Only with Margaret Thatcher could he June 16th, aged 87 strike no chord. When she was holidaying E WASjust15when the warended. The al Berlin. Russian forces had pulled out of in his favourite lakeside resort he cut short Hfirst Americans he met gave him Europe and NATO had offered member- a meeting, pleading“unbreakable commit- sweets. Had the war gone on longer, he ship to Poland, the Czech Republic and ments”. Walkingdown the street later, Brit- would have been fighting them. Hungary. Europe’s single currency, the ain’s leader saw Mr Kohl in a café, busy Helmut Kohl was always conscious of euro, was a done deal. Only ten years earli- only with a large cream cake. Their rela- his good luck in having missed all that—die er, any of that would have seemed the tionship never recovered. Gnade der späten Geburt, the mercy of a wildest fantasy. And in every one of those late birth, was how he put it to the Israeli changes Mr Kohl played a decisive role. Too big a slice Knesset in 1984. In that sense he was Ger- His giant girth was much mocked: his His political skills were not always many’s first truly post-war politician. His nickname was die Birne (“the Pear”). But matched by judgment. Power politics with predecessors were all personally bur- people underestimated him at their peril. the Kremlin was his forte, not dealing with dened by its history: Konrad Adenauer His unabashed provincialism grated with dissidents. Many in the ex-communist was a political prisoner under Hitler; Lud- modern-minded Germans who expected world, perhaps unfairly, found him remote wig Erhard risked persecution; Kurt Kie- their politicians to be cerebral, cultured and unsympathetic. He insisted that East singer was a Nazi Party member; Willy and cosmopolitan. He spoke no foreign Germans’ worthless money should be Brandt was in Swedish exile, and Helmut language, and some said his German was swapped for Deutschmarks at a ratio of Schmidt fought on the eastern front. poor, too. He displayed only a token inter- one for one. That was popular at first, but The career politician from the Rhine- est in art, music and literature. His personal soon destroyed both the easterners’ com- land was anothermatter. His times pushed life was fraught: his long-suffering wife petitiveness and their jobs. The euro was a him neither to heroism nor to villainy. But Hannelore committed suicide in 2001. political masterstroke, but he ignored they offered plenty of scope for his ambi- Outside politics, his main interest was warnings, prescient in retrospect, that a tion, cunning and vision. His formative ex- food: solid German fare, and plenty of it. common currency needed common politi- perience was the post-war economic mir- Asked if anything interrupted his sleep, he cal foundations. Gerhard Schröder, his So- acle, the Wirtschaftswunder. West Ger- said it was night-time forays to the fridge. cial Democrat nemesis, inherited (and re- many went from ruins to riches, and from But none could match him on tactics, formed) an ossified German economy. beinga defeated pariah to a trusted ally. Mr whether inside his Christian Democratic Although he made Germany into Eu- Kohl’s task, when he took over the federal Union or on the wider political stage. An rope’s leader, he disliked the controversy it chancellery in 1982, was to finish the job. early flash of genius came in the run-up to provoked. He later disowned his protégée When he left office in 1998, Germany was the 1980 election, when he stepped aside Angela Merkel—das Mädchen (“the girl”), reunited, and friends—for the first time— from the contestto make wayforhisbrainy as he called her. “She is making my Europe with every neighbour. The capital was Bavarian rival, Franz-Joseph Strauss. The kaputt,” he complained, with unfeigned aboutto move from sleepyBonn to imperi- man from Munich suffered a thumping de- proprietorial anguish. 7

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