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The Pearl river delta: a special report

Hospitals of the future

Jacob Zuma must go

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Contents The Economist April 8th 2017 3

5 The world this week The Americas 34 Venezuela Leaders Undo that coup 7 Computer security 35 Ecuador The myth of cyber-security Correísmo hangs on 8 Chemical weapons in Syria 35 Paraguay Russia’s poisonous client Of arson and re-election 8 America and China 36 Bello The valley and the delta Fear ebbs in Mexico 9 South Africa Pearl river delta To see the Dump Jacob Zuma Middle East and Africa merits of openness, the 10 Parking 37 South Africa American and Chinese Aparkalypse now The president v the people presidents need only look On the cover 38 Chemical weapons in Syria inwards: leader, page 8. Our Computers will never be Letters Assad unleashes horror special report on China’s most secure. To manage the risks, dynamic region, after page 40 12 On Brexit and the 39 The insurgency in Sinai look to economics rather European Union Terror and counter-terror than technology: leader, 40 The United Arab Emirates page 7. Cyber-security is The Gulf’s little Sparta broken from top to bottom. Briefing As the consequences pile up, 16 Parking though, things are starting Sacred spaces Special report: The Pearl to improve, page 66 river delta Jewel in the crown Asia After page 40 The Economist online 19 North Korea The land of lousy options Daily analysis and opinion to Europe supplement the print edition, plus 20 Pacific secession 41 Terror in St Petersburg audio and video, and a daily chart Palm-fringed indecision Underground man Britain after Brexit Smooth Economist.com 21 Islami Bank Bangladesh 42 Anti-gay violence in trading with Europe will be E-mail: newsletters and Cheques and imbalances Chechnya disrupted unless Britain mobile edition 22 Official caprice in India Republic of fear drastically overhauls its Economist.com/email Bar wars customs operation, page 46. 42 France’s left Print edition: available online by 24 Banyan The lesson of Gibraltar, page 47. The crack-up 7pm London time each Thursday An Australia that can say no Striking deals around the Economist.com/print 43 Hungarian universities world cannot replace the EU Audio edition: available online Orban v intellectuals market, page 47. The shadow China to download each Friday 44 Turkey’s president of Enoch Powell looms Economist.com/audioedition 25 Xi Jinping The Kurdish card ever-larger over British All must swear loyalty 45 Charlemagne politics: Bagehot, page 48 26 A new megacity Descending Mount Brexit Relief for Beijing? Britain United States Volume 423 Number 9035 46 Brexit and the borders 27 The economy The customs crunch Published since September 1843 Eyes bigger than their 47 The lesson of Gibraltar to take part in "a severe contest between wallets intelligence, which presses forward, and Rocky grievances an unworthy, timid ignorance obstructing 28 Trump and the unions our progress." 47 The search for trade deals A riveting relationship Editorial offices in London and also: Shared values Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, 29 The Gorsuch nomination 48 Bagehot Lima, Mexico City, Moscow, Mumbai, Nairobi, Going nuclear New Delhi, New York, Paris, San Francisco, Enoch Powell, the third man São Paulo, Seoul, Shanghai, Singapore, Tokyo, 30 Failing jails South Africa The markets and Washington DC Cruel and usual punishment the trade unions agree that 30 Steve Bannon and the NSC it’s time for a new president: Axis of adults leader, page 9. Jacob Zuma 31 Biology in Alaska faces a revolt after replacing a Climate refugees scrupulous finance minister with a crony, page 37 32 Lexington America’s forgotten war

1 Contents continues overleaf 4 Contents The Economist April 8th 2017

International 64 Short-term lending Payday squeeze 49 Health-care reform Prescription for the future 64 A Fed resignation Lacking judgment 65 Free exchange Business Venezuela’s problems 53 Indian e-commerce Delayed delivery Science and technology 54 Fox News The $13m factor 66 Computer security Everything is hackable 55 Opioids in America North Korea Why Donald Hospitals How they could be A world of pain Trump will find it hard to curb Books and arts rebuilt, better than before, Kim Jong Un’s nuclear 55 Entrepreneurs in Africa page 49 programme, page 19 Hurdles for hubs 69 Religion in America 56 Clothing companies The good-news bearers Green is the new black 70 Markets Subscription service Evolving ideas For our full range of subscription offers, 57 Oil and technology including digital only or print and digital Data drilling 71 Cognitive science combined visit Mind meld Economist.com/offers 57 De La Rue You can subscribe or renew your subscription Swapping notes 71 Political manifestos by mail, telephone or fax at the details below: Time to smash the system Telephone: +65 6534 5166 58 Tesla Facsimile: +65 6534 5066 Revving up, a bit 72 French fiction Web: Economist.com/offers Yearning in the sandstorm E-mail: [email protected] 59 Schumpeter Post: The Economist Jeff Bewkes’s season finale 72 Art festivals Subscription Centre, at Time Warner Athens on display Tanjong Pagar Post Office PO Box 671 Singapore 910817 Venezuela How its leaders are Finance and economics 76 Economic and financial Subscription for 1 year (51 issues)Print only betraying democracy, page 34. indicators Australia A$465 The economics of Venezuela’s 60 Japan’s labour market China CNY 2,300 Statistics on 42 economies, Hong Kong & Macau HK$2,300 catastrophe: Free exchange, Wanted: stroppier India 10,000 employees plus our monthly poll of Japan Yen 44,300 page 65 forecasters Korea KRW 375,000 61 Buttonwood Malaysia RM 780 New Zealand NZ$530 Top-heavy America Singapore & Brunei S$425 Obituary Taiwan NT$9,000 62 Trade Thailand US$300 Back to the 1980s 78 David Rockefeller Other countries Contact us as above 63 Brexit and Ireland Tunnels of influence From farm to pharma Principal commercial offices: 63 Economic development 25 St James’s Street, London sw1a 1hg Why recessions matter Tel: +44 20 7830 7000 Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: +4122 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: +1212 5410500 Parking The average car 1301Cityplaza Four, moves just 5% of the time. To 12 Taikoo Wan Road, Taikoo Shing, Hong Kong improve transport and cities, Tel: +852 2585 3888 focus on the other 95%: Other commercial offices: leader, page 10. Never mind Chicago, Dubai, Frankfurt, Los Angeles, public transport, bicycle lanes Paris, San Francisco and Singapore or elegant architecture. What determines how cities look and move is their parking rules, pages 16-18

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amid clashes between the 2014. But the ruling junta has Trump in January, were re- Politics army and a rebel group. yet to set a date for elections. stored as full participants.

Just another day in Venezuela Japan said its ambassador to North Carolina’s legislature Venezuela’s supreme court South Korea would return to repealed a controversial law tookover the powers ofthe Seoul. He had been recalled that required transgender legislature, which is controlled three months ago amid a row people to use public lavato- by the opposition to the social- about statues commemorating ries according to the sex stated ist regime, and then reversed Korean women forced into on their birth certificate. The its decision. The national prostitution by Japan during repeal didn’t go farenough for assembly remains neutered by the second world war. some. A new bill forbids towns the court’s earlier rulings; the and cities from enacting simi- Organisation ofAmerican North Korea tested a ballistic lar statutes, but leaves an States called on Venezuela to missile on the eve ofa summit option open forthe state Capi- restore its full powers. Security between Donald Trump and tol to do so. forces fought protesters in his Chinese counterpart, Xi A chemical-weapons attackon Caracas with tear-gas, water Jinping, at which the two were Republicans in the Senate a rebel-held town near the cannons and pepper spray. expected to discuss how to vowed to force a vote over the Syrian city ofIdlib killed at curb North Korea’s nuclear confirmation ofNeil Gorsuch least 85 civilians, the deadliest Close to 300 people died in programme. to the Supreme Court. Demo- such assault in Syria’s long and landslides in the town of crats said they had enough bloody civil war since August Mocoa in south-western A Chinese academic was votes to blockhis appointment 2013. Bashar al-Assad’s regime Colombia. At least 400 people allowed to return home to by a filibuster. denied responsibility: only the are still missing. Australia after being barred Russians said they believed it. from leaving China formore Terror on the train International condemnation than a week. His treatment cast came thickand fast, including a shadow over a visit to Austra- at the UN Security Council. lia by China’s prime minister, Donald Trump said Syria had Li Keqiang. crossed “many, many lines”, but did not say what, ifany- A court in China sentenced thing, he would do. two Chinese dissidents to prison for“inciting subver- Israel authorised the construc- sion” through their activism, tion ofthe first new settlement which included expressing in the West Bankformore than support forpro-democracy 20 years, following the earlier protests in Hong Kong. dismantling ofa settlement Lenín Moreno narrowly won site at Amona that was illegal Ecuador’s presidential elec- China announced plans to A bomb in the St Petersburg under Israeli law. tion, defeating Guillermo build a city in Hebei, the prov- metro killed at least14 people Lasso, a conservative former ince surrounding Beijing, to and injured more than 50 Standard & Poor’s cut South banker. Mr Moreno, a former ease pressure on the capital others. Russian authorities Africa’s debt to junkstatus for vice-president, is the political caused by its surging pop- said it was a terrorist attack, the first time since 2000 after heir ofthe current left-wing ulation. Businesses and uni- and that a 22-year-old man President Jacob Zuma sacked president, Rafael Correa, who versities will be encouraged to from Kyrgyzstan had been the the respected finance minister, greatly expanded social-wel- move to the “Xiongan New suicide-bomber. Pravin Gordhan, and replaced fare spending, and restricted Area”, the proposed name of him with a loyalist. The rand press freedoms and the in- the development. Officials say Aleksandar Vucicwon Ser- slumped. dependence ofthe judiciary. it will be a “special zone”, of bia’s presidential election Mr Lasso said the vote count similar importance to the with 55% ofthe vote. Mr Vucic, An investigation into Mozam- was fraudulent. economic powerhouses of who has been prime minister bique’s irregular borrowing of Pudong and Shenzhen. since 2014, is a former millions ofdollars has wid- Protesters set fire to Paraguay’s nationalist hardliner who is ened, with banks asked to congress after the ruling All about Steve now an enthusiastic propo- provide information on ac- Colorado Party set up a Donald Trump removed Steve nent ofSerbia’s candidacy for counts held by the former separate senate to enact laws Bannon, his chiefpolitical the EU. president, Armando Guebuza. that would allow the presi- adviser, from the National Last year it emerged that the dent, Horacio Cartes, to run for Security Council, two Hungary’s government government had concealed re-election. One person was months after appointing him. passed legislation that threat- nearly $1.4bn in borrowing. killed by police. Lieutenant-General H.R. ens to shut down the Central McMaster, the new national European University. It com- More mass graves were discov- Open to suggestions security adviser, was said to be plains that the university, ered in the Democratic The king ofThailand promul- unhappy with the appoint- founded by George Soros, a Republic of Congo’s central gated the country’s 20th con- ment. The director ofnational philanthropist, offers degrees Kasai province. The UN says stitution since 1932. In theory, intelligence and the chairman that are recognised abroad. they contain the bodies ofas this paves the way forthe ofthe joint chiefsofstaff on This is apparently a bad thing. many as 400 people, including restoration ofcivilian govern- the NSC, both ofwhom had Thousands marched in Buda- women and children, killed ment after the military coup of their roles reduced by Mr pest to oppose the law. 1 6 The world this week The Economist April 8th 2017

Spain recorded the highest women. The gaps in each Fool’s advert that got entan- Business rates, at 23.1% and 18%. quartile ofthe pay scale are gled in Turkey’s febrile politics. also to be reported. Some say The ad featured bizarre pranks, In a highly unusual move, one The $43bn takeover ofSyn- the measure will do little to ending with the announce- ofthe presidents ofthe Feder- genta by ChemChina was tackle the issue. Iceland has ment that “now is the day of al Reserve’s12 regional banks cleared by the EU’s antitrust taken a tougher approach, reckoning”, which govern- resigned abruptly following an regulator, which said it was unveiling a bill that would ment supporters, many of investigation into information satisfied that the pair’s promise force firms to demonstrate that whom are suspicious of that was leaked to a financial to sell some assets allayed they provide equal pay to men Ulker’s boss, interpreted as an analyst five years ago. Jeffrey concerns that the deal could and women, the first such attempt to stir tensions that Lacker had headed the Federal reduce competition in the stipulation in the world. have been simmering since Reserve BankofRichmond agribusiness industry. Ameri- last July’s coup attempt. since 2004, a role that gave him ca’s Federal Trade Commission India’s Supreme Court a place on the Fed’s monetary also approved the acquisition, banned the sale ofalcohol Driven by success policymaking committee. the largest foreign takeover by within 500 metres ofmotor- a Chinese firm to date. ways, a shockto the country’s Market capitalisation On the never-never again hospitality industry. The court $bn Fox News came under more wants to clamp down on 60 Ford Consumer credit pressure after it was reported drink-driving, but its decision 50 Britain that one ofits top stars, Bill has affected tens ofthousands 40 % change on O’Reilly, and the networkpaid ofbusinesses, including res- 30 a year earlier Outstanding, £bn Tesla 20 15 225 $13m to five women to settle taurants and five-star resorts. allegations ofharassment. 10 10 200 Some big advertisers, includ- JAB Holding added to its 0 5 175 2016 2017 + ing BMW and Mitsubishi, American food-and-drink 0 150 Source: Thomson Reuters – pulled their business from his brand assets by agreeing to buy 5 show. Last year the station’s Panera Bread, a fast-growing Tesla’s share price soared after 2005 10 15 17 CEO, Roger Ailes, resigned bakery and coffee chain, for it published bumper first- Source: Bank of England over similar complaints. Fox $7.5bn. JAB already owns quarter sales figures forits A warning was issued by the also faces lawsuits over claims Krispy Kreme Doughnuts and electric cars. The company’s BankofEngland about the ofracial discrimination. Peet’s Coffee & Tea in America market capitalisation overtook expansion ofconsumer credit as well as the Senseo and that of114-year-old Ford forthe in Britain, notably the growth Britain introduced a manda- Douwe Egberts coffee brands first time. Last year Tesla deliv- ofunsecured loans and zero- tory rule requiring private in Europe, but Panera is the ered 76,000 cars and Ford sold interest offers. The central bank companies with more than 250 icing on the cake forits expan- 6.7m vehicles, but it is Tesla cautioned that although con- employees to report on their sion plans. that is racing ahead ofDetroit sumer credit makes up only gender pay gap. Firms are in developing the cars ofthe 10% ofbanklending, whereas now required to collect and The share price ofUlker future. mortgages account for70%, the disclose data on differences Biskuvi, a Turkish producer of losses forbanks in a downturn between the median and biscuits and chocolate, fell Other economic data and news from consumer credit would mean salaries ofmen and sharply after it ran an April can be found on pages 76-77 be significantly greater. Last year’s stress tests found that banks were exposed to £18.5bn ($23.1bn) ofrisky consumer credit compared with £11.8bn formortgages.

Scotland’s economy shrank by 0.2% in the last quarter of 2016, a blow to the nation’s independence-minded government given that the United Kingdom as a whole grew by 0.7%. Scottish GDP rose by just 0.4% forthe whole year; the UK recorded a 1.8% increase. Scot- land’s ﬁnance minister blamed last June’s UK-wide referendum on leaving the European Union.

The euro zone’s unemployment rate dropped to 9.5% in February, the lowest since May 2009. The Czech Republic and Germany had the lowest rates at 3.4% and 3.9%. Greece and Leaders The Economist April 8th 2017 7 The myth of cyber-security

Computers will neverbe secure. To manage the risks, lookto economics ratherthan technology OMPUTER security is a con- ofexpertise will alwayshamperthe abilityofusersof comput- C tradiction in terms. Consid- ers to protect themselves. So governments should promote er the past year alone: cyber- “public health” for computing. They could insist that internet- thieves stole $81m from the connected gizmos be updated with fixes when flaws are central bank of Bangladesh; the found. They could force users to change default usernames $4.8bn takeover of Yahoo, an in- and passwords. Reporting laws, already in force in some ternet firm, by Verizon, a tele- American states, can oblige companies to disclose when they coms firm, was nearly derailed ortheirproducts are hacked. That encourages them to fixa pro- by two enormous data breaches; and Russian hackers inter- blem instead ofburying it. fered in the American presidential election. Away from the headlines, a black market in computerised Go a bit slower and fix things extortion, hacking-for-hire and stolen digital goods is boom- But setting minimum standards still gets you only so far. Users’ ing. The problem is about to get worse. Computers increasing- failure to protect themselves is just one instance of the general ly deal not just with abstract data like credit-card details and problem with computer security—that the incentives to take it databases, but also with the real world ofphysical objects and seriously are too weak. Often, the harm from hackers is not to vulnerable human bodies. A modern car is a computer on the owner of a compromised device. Think of botnets, net- wheels; an aeroplane is a computer with wings. The arrival of works of computers, from desktops to routers to “smart” light the “Internet of Things” will see computers baked into every- bulbs, that are infected with malware and attackother targets. thing from road signs and MRI scanners to prosthetics and in- Most important, the software industry has for decades dis- sulin pumps. There is little evidence that these gadgets will be claimed liability for the harm when its products go wrong. any more trustworthy than their desktop counterparts. Hack- Such an approach has its benefits. Silicon Valley’s fruitful “go ers have already proved that they can take remote control of fast and break things” style of innovation is possible only if connected cars and pacemakers. firms have relatively free rein to put out new products while It is tempting to believe that the security problem can be they still need perfecting. But this point will soon be moot. As solved with yet more technical wizardry and a call for height- computers spread to products covered by established liability ened vigilance. And it is certainly true that many firms still fail arrangements, such as cars or domestic goods, the industry’s to take security seriously enough. That requires a kind of culti- disclaimers will increasingly butt up against existing laws. vated paranoia which does not come naturally to non-tech Firms should recognise that, if the courts do not force the li- firms. Companies of all stripes should embrace initiatives like ability issue, public opinion will. Many computer-security ex- “bug bounty” programmes, whereby firms reward ethical perts draw comparisons to the American car industry in the hackers for discovering flaws so that they can be fixed before 1960s, which had ignored safety fordecades. In 1965 Ralph Na- they are taken advantage of. der published “Unsafe at Any Speed”, a bestselling book that But there is no way to make computers completely safe. exposed and excoriated the industry’s laxattitude. The follow- Software is hugely complex. Across its products, Google must ing year the government came down hard with rules on seat manage around 2bn linesofsource code—errorsare inevitable. belts, headrests and the like. Now imagine the clamour for leg- The average program has 14 separate vulnerabilities, each of islation afterthe first child fatality involving self-driving cars. them a potential point of illicit entry. Such weaknesses are Fortunately, the small but growing market in cyber-security compounded by the history of the internet, in which security insurance offers a way to protect consumers while preserving was an afterthought (see page 66). the computing industry’s ability to innovate. A firm whose products do not work properly, orare repeatedly hacked, will Leaving the windows open find its premiums rising, prodding it to solve the problem. A This is not a counsel of despair. The risk from fraud, car acci- firm that takes reasonable steps to make things safe, but which dents and the weather can never be eliminated completely ei- is compromised nevertheless, will have recourse to an insur- ther. But societies have developed ways of managing such ance payout that will stop it from goingbankrupt. It is here that risk—from government regulation to the use of legal liability some carve-outs from liability could perhaps be negotiated. and insurance to create incentives forsaferbehaviour. Once again, there are precedents: when excessive claims Start with regulation. Governments’ first priority is to re- against American light-aircraft firms threatened to bankrupt frain from making the situation worse. Terrorist attacks, like the industry in the 1980s, the government changed the law, the recent ones in St Petersburg and London, often spark calls limiting their liability for old products. for encryption to be weakened so that the security services One reason computer security is so bad today is that few can better monitor what individuals are up to. But it is impos- people were taking it seriously yesterday. When the internet sible to weaken encryption for terrorists alone. The same pro- was new, that was forgivable. Now that the consequences are tection that guards messaging programs like WhatsApp also known, and the risks posed by bugs and hacking are large and guards bank transactions and online identities. Computer se- growing, there is no excuse for repeating the mistake. But curity is best served by encryption that is strong for everyone. changingattitudes and behaviourwill require economic tools, The next priority is setting basic product regulations. A lack not just technical ones. 7 8 Leaders The Economist April 8th 2017

Chemical weapons in Syria Russia’s poisonous client

VladimirPutin saved the Syrian regime. He now shares its guilt HE horror in Syria is never- against civilians, who have nowhere to hide. Tending. Its civil war, now en- The taboo on poison gas should not obscure Mr Assad’s tering a seventh year, has many other crimes—forwhich he deserves one day to face jus- claimed about half a million tice. And thisisnotthe firsttime he hasbeen accused ofgassing lives, pushed 5m refugees out of his people. But the attack on Khan Sheikhoun crosses a line the country and displaced mil- that Mr Assad himself has promised to respect. When it killed lions more within it. Yet the 1,400 people with sarin in 2013 in al-Ghouta, outside Damas- chemical attack that killed at cus, his regime breached the “red line” set by Barack Obama. least 85 people in the rebel-held town of Khan Sheikhoun (see Mr Obama failed to order punitive strikes, and instead accept- page 38) stands out as an act ofinfamy. In a murky conflict with ed a Russian deal whereby Syria would adopt the chemical few angels, it casts the spotlight on the worst perpetrator: the weapons convention and surrender its stockofpoison. regime ofBashar al-Assad, backed by Russia and Iran. At the time, that seemed a grave misjudgment—just how The footage of choking children suggests the use of a nerve grave is now clear. The use of sarin in Khan Sheikhoun sug- agent, probably sarin. Its manufacture, storage and use as a gests that Syria hid some nerve agents, or produced them weapon usually requires the wherewithal ofa state. No militia anew, violating its commitments. By using nerve gas again, Mr in Syria—not even the jihadists of Islamic State (IS), who have Assad is flouting a norm that the whole world accepts. used chlorine and mustard gas—is credibly reported to have With its deployment of air power to Syria in 2015, Russia used nerve agents on the battlefield. Israeli newspapers cite in- saved Mr Assad, helped him to recover lost territory and telligence that the chemical airstrike was ordered by the “high- scored a tactical victory over America. The West cannot now est levels” in Syria. Russia’s claim that the gas was released bomb Mr Assad without risking a clash with Russia. Donald when a rebel arms dump was bombed is almost certainly a lie. Trump is right, but disingenuous, to blame the mess on Mr As Mr Assad’s protector-in-chief, Russia’s president, Vladimir Obama’s weakness. Mr Trump himself opposed military ac- Putin, deserves to be singled out for opprobrium. tion in 2013. As a candidate, he said that America should join Russia in bombing IS. As president, he says that he has now A permanent stigma changed his mind on Syria; he should start by joining his am- Often defied, the prohibition against chemical weapons is one bassador to the UN in denouncing Russia. Right now, MrPutin of the oldest global agreements to make war less ugly. Even is no ally against jihadism, but a provoker of it. Russia, lately contemptuous ofinternational norms, has every Perhaps Mr Assad is acting to demonstrate his impunity. Or interest in preserving the anathema against such weapons. perhaps he fears an imposed diplomatic deal. Either way Rus- Imagine the terrorist bombing on the St Petersburg subway on sia is permanently tainted by his war crimes. So is Iran, despite April 3rd if it had involved poison gas. Chemical weapons are, the fact that many Iranians still live with the effects of poison by theirnature, indiscriminate. They are ofquestionable value gases used on them by Iraq in the war of 1980-88. The longer in warfare; organised armies can protect themselves from poi- Russia and Iran keep Mr Assad in power, the more they will son gases. But they are unparalleled instruments of terror share in his guilt. It is time forthem to ditch their toxic ally. 7

America and China The valley and the delta

To see the merits ofopenness, the American and Chinese presidents need only lookinwards T USED to be much easier to This is partly a matterofstyle. Both MrTrump and MrXi ad- Ispot the difference between here to a personalised, “strongman” view of leadership. The the presidents of America and American president is literally a brand; the Chinese are being China. One would argue forfree encouraged to pledge personal fealty to MrXi (see page 25). But markets and economic liberal- it is also a question ofsubstance. Both men claim to be suppor- ism, the other for centralised ters of free trade but subscribe to a doctrine of economic na- control. One would endorse de- tionalism. Chinese regulators use tariffs, antitrust laws and mocracy and the rule of law, the state media to target foreign firms; officials shovel subsidies at other freedom from outside interference. As Donald Trump national champions; uncompetitive state-owned enterprises geared up to meet Xi Jinping for the first time this week, in a refuse to die. For his part, Mr Trump vows to get tough on Chi- summit in Florida that was due to start after The Economist nese imports and threatens blanket tariffs. He sees the world went to press, those differences have narrowed (and in some as a series of zero-sum games, in which countries with trade areas, such as climate change, the positions have flipped). deficits lose and those with surpluses win (see page 62). 1 The Economist April 8th 2017 Leaders 9

2 Both leaders are suspicious of openness. Under Mr Xi, Chi- the PRD by Deng Xiaoping from 1980 onwards, a sliver of land na is one of the most closed big societies on Earth. The Great with less than 1% of the mainland’s territory and 5% of its pop- Firewall censors the internet. Capital controls are designed to ulation produces10% ofits GDP. stop money flowing out. Investment restrictions impede the The PRD owes much of its success to the fact that it is over- path of money coming in. America is built on different pre- whelmingly private: of more than 100 centrally controlled cepts entirely. But Mr Trump has isolationist instincts. He SOEs in China, only four are in this region. But its transforma- wants jobs, supply chains and technologies to be located with- tion also owes much to an embrace offoreign ideas and invest- in America. He sees migration as a threat to be managed, not ment. The sleepy town of Shenzhen was designated a special an opportunity to be encouraged—this week he began to tight- economic zone in 1980; foreigners were actively encouraged to en up the processes for workvisas. He, too, likes walls. put money in. Shenzhen is now the Silicon Valley of global hardware startups, attracting investment from around the Principles forreform design world; the delta accounts fora fifth ofChina’s foreign direct in- Such attitudes serve neither country well. For evidence of the vestment. There is little corruption or red tape involved in ex- merits of openness, both leaders need only look to the most porting goods or importing components; local officials toast dynamic parts of their economies. Silicon Valley is envied foreign businessmen rather than try to shake them down. around the world for its agglomeration of talent, capital and Hong Kong’s democracy in being stifled by the mainland gov- ideas. It is also a hymn to cosmopolitanism. According to a ernment, but its economy is a conduit for global expertise and study in 2016, immigrants founded or co-founded more than capital: mainland companies make up around halfofthe mar- half of America’s unicorns—privately owned startups valued ket capitalisation ofthe Hong Kong stockexchange. at more than $1bn. More than a third ofthe valley’s population There is no equivalence between the American and Chi- is foreign-born, compared with a national average of13%. nese economies. Capital, people and ideas still flow freely into But inside China, too, the case for openness has powerful and out of America; China’s relationships with the outside backing. Exhibit A is the Pearl river delta (PRD), a megalopolis world are semi-permeable at best. But where once it was obvi- in southern China that comprises nine cities in Guangdong, as ous that the leaders of America and China would embody well as Hong Kong and Macau. As this week’s special report these differences, nowneithertrulybelievesin openness. Mar- lays out, the PRD has been the beating heart of the China mir- a-Lago may be where Mr Xi and Mr Trump meet, but they acle. Thanks to the liberal economic reforms introduced into should not forget the lessons ofthe valley and the delta. 7

South Africa Dump Jacob Zuma

The markets and the trade unions agree: it’s time fora new president MANDLA” (“power” in chord. Yet it has fooled hardly anyone. In a stunning move, the “A Zulu and Xhosa), comes ruling party’s two main allies, the South African Communist the cry from the podium. “Nga- Party and the Congress of South African Trade Unions, have wethu” (“to us”), the crowd called on Mr Zuma to resign. Both suspect him of wanting to roars back. The old chants that loosen the controls that have kept the Treasury honest, even as once rumbled from South Afri- corruption has flourished elsewhere in the government. ca’s townships are again ringing Without Mr Gordhan’s vigilance, they fear that it will be out. But this time they are direct- easier for bigwigs to hand contracts to chums. An anti-corrup- ed not at apartheid but against a reckless attempt by Jacob tion ombudsman found that this is exactly what happened at Zuma, a president who faces 783 charges of fraud and corrup- the state-owned commuter-rail company when its chairman tion, to tighten his grip on power and install a pliant successor. was one Sfiso Buthelezi—who is the new deputy finance min- The protests were sparked by a cabinet reshuffle last week. ister. Mr Gigaba’s record hardly inspires confidence either. As Mr Zuma fired Pravin Gordhan and Mcebisi Jonas, the finance the minister for state enterprises, he told the electricity mo- minister and his deputy. Both are well-regarded by investors nopoly to buy coal only from black-owned firms; a process so and economists. They are credited with putting a lid on public mismanaged that it contributed to power cuts which knocked debt and resisting the biggest ofthe president’s boondoggles, a 1-2 percentage points offthe national growth rate. plan to spend as much as 1trn rand ($73bn) building nuclear power plants that South Africa does not need and cannot af- Mandela weeps ford (see page 37). This is not the first time Mr Zuma has tried to Another shock is looming. Standard & Poor’s has downgraded mount a hostile takeover of the Treasury. Last time, in 2015, the the government’s credit rating to junk for the first time since markets forced him to backtrack. On this occasion he seems 2000. Ifanother big credit-rating agency follows suit, its bonds determined to see it through. may be removed from the main international indices. Inves- The new finance minister is a Zuma protégé. Malusi Gigaba tors such as pension funds that track these or are barred from plans “radical economic transformation” and to take back the owningjunkwould be obliged to sell. Interestrateswould soar Treasury from “orthodox economists [and] international in- (they are already higher than those of Russian debt). The rand vestors”. In a country where, even by the narrowest definition, would plummet still further. South Africa’s tentative eco- 27% of the workforce are jobless that might have struck a nomic recovery would stall, depressing growth from its fore-1 10 Leaders The Economist April 8th 2017

2 cast level ofabout1% this year and 2% in 2018. in parliament on a motion ofno conﬁdence in Mr Zuma called Mr Zuma is promoting loyalists to cement his grip on the by the opposition. They have rejected similar motions before, ruling African National Congress (ANC), ahead of a party con- in the name of party unity, and could do so again. But they ference at the end of the year. Among other things, he wants it should ask themselves: is Mr Zuma really the best torchbearer to picka successor who will protect him from prosecution. His for the party of liberation? By ignoring court orders, he under- favoured candidate is his ex-wife, Nkosazana Dlamini-Zuma. mines the constitutional democracy for which ANC members The opposition Democratic Alliance (DA) would love to face once fought and died. His patronage machine, by deterring in- her. They thinkanother Zuma at the helm would cost the ANC vestment, impoverishes all South Africans, bar the well-con- millions of votes in national elections in 2019, accelerating its nected. He is not just leading the country into an economic decline afterthe loss ofthree big cities last year. ditch, but also his party to electoral defeat. The ANC should do So ANC MPs should take heed. They will soon have to vote the rainbow nation a favour and dump Mr Zuma. 7

Parking Aparkalypse now

The average carmoves just 5% ofthe time. To improve transport and cities, focus on the other95% N IRELAND people ask St An- £4.90 ($6.10) an hour—with the result that most of us cycle or Ithony to help them find park- join the public-transport crush. Locals, who are not obviously ing spaces. In Chicago, if you in need of charity, pay just £145 a year to park in the same shovel the snow from a space, it streets. A public resource is being allocated highly inefficiently. belongs to you. In Shanghai That everybody is used to these arrangements does not people beg their parents to re- mean they make sense. Flooding cities with parking works, in serve spaces by sitting in them. thatfindinga space becomeseasier. Butthe overall cost isenor- Everywhere parking is a big rea- mous. Because parkingis so plentiful, it is free, and because it is son law-abiding people pay fines to the government and a free, people invariably overuse it. One study of Washington, cause of screaming rows between strangers. More important, DC, found that the availability of free parking is associated it profoundly shapes cities—usually for the worse. with a 97% chance somebody will drive to work alone. Gener- Parking spaces seem innocuous, just a couple oflines paint- ous parkingrequirements create asphalt deserts, sapping cities ed on asphalt. Multiplied and mismanaged, though, they can ofvigourand beauty. The moneyand land wasted on car parks create traffic jams, worsen air pollution and force cities to make life costlier for everyone, even those who do not drive. sprawl. The cost and availability of parking affects people’s Parking adds 67% to the cost of building a shopping centre in commuting habits more than the rapid buses and light-rail Los Angeles—and a lot more ifthe spaces are underground. lines that cities are so keen to build (see pages 16-18). Next to Cities should stop trying to increase the supply of parking other worthy policies like congestion-charging and road-toll- and riggingthe market in favourofhomeowners. Instead, they ing, parking is also easy to change. The fast-growing metropo- should raise prices until the streets and the carparks are nearly, lises of Africa and Asia, especially, need to get it right, before but not quite, full—and charge everybody. Residents will com- they repeat the West’s debilitating mistakes. plain about the loss of their privileges. But if they live in an In many cities people can parkon the street fornothing, ora area of high demand, the revenues from the streets will be pittance. In Boston most parking meters charge just $1.25 an enormous. Local governments could spend the money on hour; in Chennai the rate is 20 rupees (30 cents) a day. Because whatever they like, from beautiful gardens to security guards. the number of people who would take advantage of such ter- rific deals, rather than pay a market rate to park in a garage, ex- Lovely Rita, meter maid ceeds supply, drivers end up circling the block. Researchers Another reason to charge fully forparking is that it will speed a have found that much traffic consists of drivers looking for welcome transportrevolution. Ifself-drivingcarsare eventual- spaces. The record is held by the German city of Freiburg—in ly allowed to trundle around by themselves, picking up and one study 74% ofcars were on the prowl. dropping off person after person, they might render many car Havingconcluded thatthe chaoson theirstreetsis the result parks unnecessary. That would be wonderful. But this future ofa shortage ofparking spaces, many cities have set about cre- will arrive more quickly ifgovernments raise the price ofpark- ating more. Countries including Australia, China, India and ing. Autonomous vehicles will be nice for everyone, because the Philippines require developers to create parking spaces they will let people get on with something worthwhile as they whenevertheyputup a newbuilding. In America these sched- travel. But another big advantage is that they need not be ules have become ludicrously exact. St Paul, in Minnesota, de- parked—which is only a boon where parking costs money. mands four spaces for every hole on a golf course and one Many Western cities have already been bent out of shape space for every three nuns in a convent. It is because of these by excessive, poorly priced parking. But it is not too late for the requirements that, in many office developments and shopping African and Asian cities that could be this century’s great me- centres, more space is given over to cars than to people. tropolises. In most, driving is not yet so widespread that mo- Europeans often take a different approach to scarce parking, torists can dictate planning rules, and residents are not used to by reserving many spaces for residents who pay almost noth- free parking. So roll out the meters and the wardens. Cities ing. Around the Economist tower in London, parking costs should be forpeople, not forstationary metal boxes. 7 BM&FBOVESPA AND CETIP. TOGETHER, WE’RE NOW B3.

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Is Brexit unavoidable? probable. outcome ofthe Brexit talks. mously from selling its pro- None ofthis may happen. There is, therefore, a serious ducts and services to the rest of But ifit does, Leave voters riskthat Britain will be denied Europe at an artificially low might decide that this was not a major source oflong-term, exchange rate. what they voted for. A major low-cost investment financing. The real solution is for change in the public mood Over the past eight years the European politicians to swal- might well spur into action the EIB has committed €40bn low their pride and breakthe 80% ofMPs who voted for ($43bn) to projects in the UK. At euro, not backinto its former Remain last June because they a time when Britain will constituent parts, but via a step believed Brexit would be a desperately need to retain the whereby a German-led bloc disaster, but voted for Article confidence ofexternal in- adopts a new currency, the 50 in March because they felt vestors to promote economic super-euro. Two currency tiers they had to obey the people’s growth and employment and in Europe would re-establish will. They could well change to help finance its alarming some ofthe past flexibility of Nearly everyone, including their minds backagain and current-account deficit, the loss floating exchange rates, The Economist, seems to regard force the government to give ofEIB finance could be anoth- interest rates and fiscal policy Brexit as inevitable (Special the final say to the people. er unintended but damaging on which all European coun- report on the future ofthe In this time ofunparalleled consequence ofthe govern- tries, with their inherent differ- European Union, March 25th). uncertainties, Brexit might not ment’s hard Brexit policy. ent cultures, prospered side by The process that leads to Brexit be inevitable after all. BRIAN UNWIN side for50 years prior to the has now been set in motion DICK TAVERNE President of the European adoption ofthe euro. and the government insists House of Lords Investment Bank, 1993-2000 JAMES HENRY that this is the point ofno London Dorking, Surrey Finance director return. It assures us that it will Zennor Petroleum negotiate a new relationship With nauseating pomposity, Yousay that “the decision of a Guildford, Surrey with the EU that gives us most The Economist dedicates an majority ofvoters in a large ofthe benefits ofthe single entire special report to offer member country to leave is a There is a simple solution to market. Ifthere is no deal, the solemn sensible British advice huge indictment” ofthe EU. the Brexit conundrum, one government promises a on how to “save Europe” from Had it been Germany or that will allow Britain to have bonanza offree-trade deals tearing itselfapart, as if Jean- France, that may indeed be the its trade cake and eat it too: the with the rest ofthe world. Claude Juncker and Donald case. But Britain never had its UK need only become the 11th Parliament will be allowed a Tuskare supposed to sit atten- heart in the EU. It joined the province ofCanada. Canada vote only to accept or reject the tively and take notes. Speak for European Economic Commu- and the EU recently concluded deal that is eventually negoti- yourselves. Most ofthe British nity in 1973, simply because the a trade agreement and the UK ated. That choice is nothing but press has salivated over the original six member countries would accede to it as a Canadi- a sham. The real choices EU’s demise fordecades, yet it were growing much faster an province. It would also join should be to accept the deal or is still here. It is in fact the UK when the UK was the sickman NAFTA and enjoy liberal trade withdraw the Notice to Leave, that has just voted to tear itself ofEurope. Since then it has terms with the United States. (but this has been ruled out). apart. Get your own house in tried to disrupt the club on Adjustments would be few However, the divorce settle- order before lecturing others. several occasions. and easy. Canada’s provinces ment may prove highly con- The EU is doing just fine, thank ALI EL-AGRAA have wide powers and by tentious and might even lead you very much. London treaty the UK’s could be even to a break-up before the main ADAM JAN SADOWSKI broader. The queen would negotiations have begun. The London In regard to the democratic remain head ofstate. As a 27 seem likely to refuse us the deficit, one cause forthe Brexit provincial flag, the Union flag benefits ofthe single market. I was surprised that your vote may have been the invisi- would still be flown, with the Our exporters will then face otherwise comprehensive bility ofour representatives in Canadian flag a discreet pres- tariffand non-tariffbarriers survey made no reference to the European Parliament. At ence on government buildings. and costly delays through the European Investment no time have our MEPsat- As Hong Kong and Macau kept border checks. Service in- Bank, the world’s largest multi- tempted to discuss issues with the dollar and pataca, so Brit- dustries will not have pass- lateral lending institution. If our Chamber ofTrade. As our ain could keep the pound. ports, or rights through equiv- Britain leaves the EU it will representatives they should English would be an official alence, to operate in the EU. If cease to be a member and have tried to keep in touch. language (though so would there is no deal, a free-trade shareholder ofthe EIB. Since JEREMY MARTINEAU French). Such a move wouldn’t bonanza will be a pipe-dream. the EIB is limited to financing Secretary be unprecedented. Newfound- Furthermore, what ifstrict- projects in the territory of its Fishguard and Goodwick land left the UK and joined er immigration curbs deprive member states, Britain will Chamber of Trade and Tourism Canada in 1949. Time to think the National Health Service of cease to be eligible for EIB Goodwick, Pembrokeshire outside the box. the nurses and doctors it needs finance unless there is either a TED STROLL and create a devastating short- treaty change in its favour to Yourproposed, flexible multi- San Jose, California 7 age ofworkers in the building enable it to maintain member- tier system forthe EU is and hospitality trades? Ifa ship, or the bank’s governors spot-on. It should be extended hard Brexit looms or, worse, if agree unanimously to con- to the euro. Younger people in Letters are welcome and should be addressed to the Editor at there is no deal, a further fall in tinue financing projects in southern Europe have suffered The Economist, 25 St James’s Street, the pound, increased inflation, Britain. A treaty change seems from high unemployment and London sw1A 1hg a flood offirms emigrating and unlikely; a governors’ decision increasing austerity, while E-mail: [email protected] a serious reduction in our to allow continued lending in super-efficient German More letters are available at: living standards are only too Britain would depend on the industry has benefited enor- Economist.com/letters Executive Focus 13

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The Economist April 8th 2017 14 Executive Focus

The Economist April 8th 2017 Executive Focus 15

The Economist April 8th 2017 16 Brieﬁng Parking The Economist April 8th 2017

produced its first Model T. But the most im- Sacred spaces portant innovation came in 1923, when Co- lumbus, in Ohio, began to insist that builders of flats create parking spaces for the people who would live in them. “Parking AMSTERDAM, BEIJING AND TOKYO minimums”, as these are known, gradual- ly spread across America. Now, as the Nevermind public transport, bicycle lanes orelegant architecture. What really number of cars on the world’s roads con- determines how cities lookand move is theirparking rules tinues to grow (see chart on next page), VEN ifthe new headquarters that Apple two parking spaces per apartment, one of they are spreading around the world. Eis creating in California does not prove which must be covered. For a fast-food res- The codes that tell developers how to be “the best office building in the taurant, the city demands one space for ev- much parking they must provide can be world”, as Steve Jobs boasted shortly be- ery three seats; for a bowling alley, seven wonderfully revealing of local mores. In fore his death in 2011, it will be an astound- spaces per lane plus one for every worker. Las Vegas, “sex novelty shops” must have ing sight. The main building resembles a Cupertino’s neighbours have similarrules. at least three spaces per 1,000 square feet flying saucer with a hole in the middle. With such a surfeit of parking, most of it (93 square metres) of floor space but “adult Through its large, gently curving windows, free, it is little wonder that most people get entertainment cabarets” at least ten for the workers will eventually look out on a around Silicon Valley by car, or that the same area. Singapore insists on one space wood containing some 7,000 carefully area has such appalling traffic jams. for every 500 niches in a columbarium—a chosen trees. It is as though a race of high- Parking can seem like the most hum- place where funerary urns are stored. tech beingshaslanded on a pristine planet. drum concern in the world. Even planners, Chennai’s city plan calls for one parking And then, unfortunately, there’s the car who thrill to things like zoning and floor- space for every 20 square metres of mar- park. For14,000 workers, Apple is building area ratios, find it unglamorous. But park- riage hall. Perhaps unwisely, the city of almost 11,000 parking spaces. Many cars inginfluences the way cities look, and how Swan, in Australia, has parking minimums will be tucked under the main building, people travel around them, more power- fortaverns and wineries. but most will cram into two enormous ga- fully than almost anything else. Many cit- rages to the south. Tot up all the parking ies try to make themselves more appealing Might as well do the white line spaces and the lanes and ramps that will by building cycle paths and tram lines or Some developers are happy to supply allow cars to reach them, and it is clear that by erecting swaggering buildings by fam- parking spaces. Ryan Shear of Property Apple is allocating a vast area to stationary ous architects. If they do not also change Markets Group builds expensive flats in vehicles. In all, the new headquarters will their parking policies, such efforts amount Miami, which are often bought by Latin contain 318,000 square metres of offices to little more than window-dressing. There Americans. He sometimes creates more and laboratories. The carparkswill occupy is a one-word answer to why the streets of spaces than the city requires, because his 325,000 square metres. Los Angeles look so different from those of customers desire a safe place for their pre- Apple is building 11,000 parking spaces London, and why neither city resembles cious motors. But most developers create not because it wants to but because Cuper- Tokyo: parking. the number of parking spaces they are tino, the suburban city where the new For as long as there have been cars, compelled to build and no more. In 2004 headquarters is located, demands it. Cu- there has been a need to store them when London abolished minimum parking re- pertino has a requirement for every build- they are not moving—which, these days, is quirements. Research byZhan Guo ofNew ing. A developer who wants to put up a about 95% of the time. Washington, DC, York University shows that the amount of block of flats, for example, must provide had a parking garage in 1907, before Ford parking in new residential blocks1 The Economist April 8th 2017 Briefing Parking 17

2 promptly plunged, from an average of 1.1 parking economics, estimates that creating Downtown Kansas City, Missouri, 2016 100 m spaces per flat to 0.6 spaces. The parking the minimum number of spaces adds 67% To come?? Parking Buildings Green space Roads minimum had boosted supply far beyond to the cost of a new shopping centre in Los what the market demanded. Angeles ifthe carparkis above ground and Water companies are not obliged to 93% if it is underground. Parking require- supply all the water that people would use ments can also make redevelopment im- ifit were free, norare powercompanies ex- possible. Converting an old office building pected to provide all the free electricity into flats generally means providing the City that customers might want. But many cit- parking spaces required for a new block of Hall ies try to provide enough spaces to meet flats, which is likely to be difficult. The big- the demand for free parking, even at peak gest cost of parking minimums may be the times. Some base their parking minimums economic activity they prevent. on the “Parking Generation Handbook”, a Free parkingis not, ofcourse, really free. tome produced by the Institute of Tran- The costs of building the car parks, as well sportation Engineers. This reports how as cleaning, lighting, repairing and secur- many cars are found in the free car parks of ing them, are passed on to the people who Sprint synagogues, waterslide parks and so on use the buildings to which they are at- Centre when they are busiest. tached. Restaurant meals and cinema tick- The harm caused begins with the obvi- ets are more pricey; flats are more expen- Source: Google Earth ous fact that parking takes up a lot of room. sive; office workers are presumably paid A typical space is 12-15 square metres; add less. Everybody pays, whether or not they the necessary access lanes and the space drive. And that has an unfortunate distri- cy, a think-tank. One reason, she suggests, per car roughly doubles. For comparison, butional effect, because young people is that so many of them studied at Ameri- this summer The Economist will move into drive a little less than the middle-aged and can universities. a building in central London where it is as- the poor drive less than the rich. In Ameri- Whether in America or Asia, oceans of sumed each employee will have ten ca, 17% of blacks and 12% of Hispanics who free parking might delay a transport revo- square metres of space. In cities, such as lived in big cities usually took public tran- lution. When autonomous cars that are al- Kansas City (see map), where land is sport to workin 2013, whereas 7% ofwhites lowed to move with nobody inside them cheap, and surface parking the norm, cen- did. Free parking represents a subsidy for become widespread, demand for private tral areas resemble asphalt oceans dotted older people that is paid disproportion- carscould fall sharply. Startingin the morn- with buildings. ately by the young and a subsidy for the ing, one car could take a child to school, a wealthy that is paid by the poor. city worker to his office, a student to her Kerb your enthusiasm A few crowded American cities, includ- lecture, partypeople to a club, and a securi- The more spread out and car-oriented a ing San Francisco, have abolished their ty guard to his night shift, all more cheaply city, as a result of enormous car parks, the parking minimums. So has one shrinking than taxis. Cars that now sit idle could be- less appealing walking and cycling be- city—Buffalo, in New York state. But most come much more active, which would come. Besides, if you know you can park of the country seems to be stuck with a drastically change parking needs. free wherever you go, why not drive? The hugelycostlyand damagingsolution to the Parking garages would still be needed ever-growing supply of free parking in parking problem. And the American ap- in a driverless world, predicts Sean Behr, a America is one reason why investments in proach to parking is spreading to some of Silicon Valley entrepreneur. Instead of public transport have coaxed so few peo- the world’s fastest-growing cities. storingvehicles forhours at a time, though, ple out of cars, says David King of Arizona In China, cars park everywhere—in garages might become service centres State University. In 1990, 73% of Americans marked spaces, in places where parking is where shared battery-powered cars could got to work by driving alone, according to specifically banned, in bicycle lanes, on be cleaned, repaired and recharged before the census. In 2014, after a ballyhooed ur- pavements. In some cities, the fight for being sent back on the road. “We will need ban revival and many expensive tram and parking spaces has become so intense that better facilities for a smaller number of ve- rapid-bus projects, 76% drove. people install metal barriers to which only hicles,” he suggests. These garages need The rule of thumb in America is that they have the key, or persuade their par- not be in city centres. In the slow hours of multi-storey car parks cost about $25,000 ents to reserve spaces by sitting in them. mid-morning and early afternoon, driver- per space and underground parking costs Beijing’s streets are patrolled by orange- less cars could trundle to industrial estates $35,000. Donald Shoup, an authority on jacketed workers who, in theory, put slips in suburbia. Much of the area now allocat- ofpaperon carwindowsto markwhen the ed to cars in city centres could be turned vehicles arrive, and then collect money into homes, offices or parks. The grand tour from drivers when they leave (they also as- Mr Shear is already building flats with Vehicles in use, 2005=100 sist novice drivers in the tricky art of paral- drop-off and pick-up areas, to accommo- lel parking). In practice, the parking war- date people who travel by Uber cars. In a 102 China 450 dens give discounts to drivers who forgo radically driverless future, he could per- Vehicles per 400 receipts, then pocket the money. Some also haps do away with many of his parking 1,000 people, 2014 350 make cash from illegal parking spaces. spaces. But only ifconsumers decide to for- 300 Beijing’s parking minimums were laid go car ownership—and whether they do is 22 India down in 2003, before driving took off, and connected to parking. Where spaces are ex- 83 Indonesia 250 are modest: just 0.3 spaces per flat in the pensive, shared vehicles that need not be 20 Nigeria 200 207 Brazil city centre and 0.5 outside it. They are ex- parked are highly attractive. They are less 61 Egypt 150 pected to rise in response to the growing attractive in cities where parking is plenti- 808 chaos on the streets. Most Indian planners ful and free, such as Miami. US 100 578 Germany concur that the best way of ameliorating a Unlike Africa and Asia, European 50 shortage is to require more off-street park- streets are for the most part well-policed. 2005 07 09 11 14 ing, says Shreya Gadepalli of the Institute Although some cities have parking re- Source: OICA for Transportation and Development Poli- quirements, these are seldom as extrava-1 18 Briefing Parking The Economist April 8th 2017

2 gant as American ones, and have been pro- Even more than in America’s sprawling pollute the air. This is a widespread hidden gressively weakened. Several cities even cities, carparkingin Amsterdam is unsight- cost of under-priced street parking. Mr have parking maximums, which restrict ly. “The canals are beautiful, and cars are Shoup has estimated that cruising for the amount of spaces. Huge buildings rise parked along them all the time,” laments spaces in Westwood village, in Los Ange- with hardly any provision for cars: the Mr Litjens. The city would love to sweep les, amounts to 950,000 excess vehicle Shard in London has 95 storeys but just 48 them away, but that would be unpopular. miles travelled per year. Westwood is tiny, spaces. Yet European cities are much kin- So in one district, De Pijp, a bold (and ex- with only 470 metered spaces. der to cars than they usually admit. pensive) remedy is under way. Engineers There is, however, one exception to the To ride in one of Amsterdam’s “scan have drained a canal and are digging an rule that residential parking must never be cars” is to witness the epitome of Western underground garage with 600 parking subjected to market forces. In the 1950s, parking enforcement. As it moves through spaces into the marshy ground beneath. when it was still farfrom rich, Japan began the streets, clicking noises confirm that When the car park is finished and sealed, to require city-dwellers who did not have roof-mounted cameras are snapping the the canal will be refilled with water. The parking spaces in their buildings to pur- number plates of every parked car. If any citywill then abolish 273 parkingspaceson chase them. These days anybody who vehicle has overstayed—which the system the streets above. wishes to buy a car must first show a re- knows because Amsterdam’s parking me- Other cities lauded for their excellent ceipt fora space. He orshe had better use it: ters are connected to a database, and driv- public transport and enthusiasm for mar- any vehicle without one left on the road- ers are required to enter their number ket-based solutions to traffic problems also side will be removed by the police in the plates when they pay—a second officer is have a blind spot when it comes to resi- middle ofthe night. alerted. He rides to the scene on a moped dents’ parking. Much of inner London, for and issuesa digital fine. Amsterdam’spark- example, is covered with residents’ park- Parking brake ing officers describe their system as fair. ing zones. The permits are often even Freed ofcars, the narrow residential streets They mean it is so ruthlessly efficient that it cheaper than in Amsterdam: Kensington ofTokyo are quieterthan in otherbig cities. cannot be beaten. and Chelsea charges between £80 ($100) Every so often a courtyard or spare patch and £219 a year for the right to park any- of land has been turned into a car park— Just the ticket where in the borough and on the fringe of some more expensive than others. Ta- Amsterdam charges up to €5 ($5.30) an nearby Westminster. Visitors, on the other kaomi Kondoh, who works for a firm that hour for parking on the street. Visitors can hand, must pay between £1.20 and £4.60 manages buildings and car parks, explains also park underneath office buildings or in an hour. Given that the average home in that prices are usually higher close to tran- large, clean park-and-ride garages run by Kensington and Chelsea sold for £1.9m last sport hubs, because commuters compete the city. Drivers thus have many choices year, residents’ parking represents a gift to forthose spaces. Near the central station in and the city raises a lot of money—€190m some ofBritain’s richest people. Tama, a suburb, the going rate is ¥17,000 in 2015. Yet this diverse, market-based sys- Despite being the home of Lyft and per month ($150). Ten minutes’ walk away tem covers only a small slice of parking in Uber, two car-sharing services, San Fran- it drops to ¥10,000. Amsterdam. Three-quarters of spaces on cisco is similarly generous. It charges just Once you become accustomed to the the streets of the city centre are occupied $127 a year for residents’ permits. Unlike idea that city streets are only for driving not by visitors or commuters but by resi- Amsterdam, though, San Francisco does and walking, and not for parking, it is diffi- dents. And the people ofAmsterdam, who not cap the number, and in some neigh- cult to imagine how it could possibly be are so keen on pricing parking for others, bourhoodsone and a halfare issued for ev- otherwise. Mr Kondoh is so perplexed by would not dream of exposing themselves ery parking space. The result is a perpetual an account of a British suburb, with its to market forces. scrap for empty kerb. A survey in 2015 kerbside commons, that he asks for a dia- Anybody who lives in a home without found that 53% of permit-holders had gram. Yourcorrespondent tries to draw his a dedicated space is entitled to buy a per- spent at least five minutes looking for a own street, with large rectangles for mit to park nearby for between €30 and space at the end of their most recent trip, houses, a line representing the kerb and €535 a year. Thisisa good deal and, not sur- and 7% more than halfan hour. small rectangles showing all the parked prisingly, the numberoftakersin many dis- As San Francisco’s infuriated drivers cars. The small rectangles take up a surpris- tricts exceeds the number of spaces. So cruise around, they crowd the roads and ing amount ofroom. 7 Amsterdam has waiting lists for permits. The longest, in the Westerpark area, is 232 months long. To free more spaces, the city has begun to reimburse permit-holders part ofthe annual fee ifthey keep their cars in suburban garages. Take-up is encouraging—which suggests that, despite the long queues, many people do not prize the opportunity to parkclose to their homes. A more obvious solution would be to charge more for permits. But that is politically fraught. Amsterdammers believe they have a right to park near their homes, explains Pieter Litjens, the deputy mayor in charge of transport. (They also believe they should be able to leave their bicycles absolutely anywhere fornothing, which is another headache.) So the queues for permits are likely to grow. Amsterdam expects to build 50,000 more homes before 2025, which will mean between 20,000 and 30,000 more cars. It’s a sign of the times in Kolkata Asia The Economist April 8th 2017 19

Also in this section 20 Paciﬁc secession movements 21 Islami Bank Bangladesh 22 Bar wars in India 24 Banyan: Can Australia say no to China?

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

North Korea well as up to 50 warheads. On a trip to East Asia last month, Rex The land of lousy options Tillerson, America’s new secretary ofstate, declared that the time forstrategic patience was over. In response to Mr Kim’s ICBM boast, Mr Trump boasted back in a tweet: “It won’t happen!” In the past, Mr Trump, who regards himself as a good negotiator, has suggested that he would be happy to Donald Trump will find it hard to curb North Korea’s nuclearprogramme eat hamburgers with Mr Kim in the White T WAS with trademark braggadocio that months after North Korea’s fifth nuclear House, if that was what was needed to get IDonald Trump told the Financial Times, test, its second of 2016. China has enforced a deal done to curb North Korea’s missile just days before meeting his Chinese coun- them by restricting coal imports from its programme. Mr Trump has swung be- terpart, Xi Jinping, that if China failed to troublesome neighbour this year. As well tween sabre-rattling and talk of a grand “solve” the problem of North Korea’s nuc- asthe nucleartests, North Korea conducted bargain in part because neither is likely to lear programme, it was “totally” possible 24 missile tests last year, including one suc- be successful. that America would do so alone. “China cessfully launched from a submarine. The The first option is a pre-emptive strike. will either help us with North Korea, or tempo of testing has been maintained this An attack that targeted nuclear facilities they won’t,” said Mr Trump. “If they do, year, with the latest launch on April 4th. only, assuming that they could all be that will be very good for China, and if Preparations also appear to be under way found, would still leave intact North Ko- they don’t, it won’t be very good for any- for a sixth nuclear test. Other demonstra- rea’s 20,000 conventional rocket launch- one.” Mr Trump’s remarks came after the tionshave suggested rapid progressin mas- ers, artillery pieces and heavy mortars. conclusion of a White House review of all tering important technologies, such as sol- North Korea claims to be able to obliterate the optionsavailable fordealingwith what id-fuel rocket motors (allowing quick Seoul, the South Korean capital, with con- Barack Obama had warned would be the launches); miniaturisation ofwarheads (to ventional weapons, turning it into a “sea most urgent threat to national security un- fit on top of a missile); and re-entry vehi- offire”. That is an exaggeration. Only a part der the new administration. cles (to protect a warhead as it plummets of its formidable arsenal is in range of The review, led by Mr Trump’snational through the earth’s atmosphere). Seoul, a metropolis with more than 20m security adviser, H.R. McMaster, has inhabitants. But by conservative estimates, looked at everything from pre-emptive How do you solve a problem like Korea? about130,000 people would die in the first military action at one end of the scale to a North Korea already has missiles that can two hours of a bombardment, with the fa- continuation of Mr Obama’s policy of hit targets anywhere in South Korea or Ja- tality rate declining thereafter as batteries “strategic patience”. The latter amounted pan. Soon it will also be able to reach the malfunctioned or were destroyed. to some discreet disruption of North Ko- big American base on Guam. Kim Jong Un, However, if the attack and North Ko- rea’s missile launches through cyber-at- North Korea’s dictator, claimed in his new rea’s response escalated into full-scale war tacks and gentle cajoling of the Chinese to year address to be in the “final stages” of on the peninsula, as would be likely, mil- be a bit tougher over the implementation preparation for a test launch of an inter- lions could lose their lives. America would of various UN sanctions. Mr Obama does continental ballistic missile (ICBM). John also probably have to provide a large occu- not claim to have had much success in Schilling, a missile expert who writes for pation force in the war’saftermath. This as- changing North Korea’s behaviour. Victor the website 38 North, reckons that with a sumes that China would be prepared to sit Cha, a formerAmerican official now at the warhead weighing around 400kg the on its hands while all this was going on, by Centre forStrategicand International Stud- North’s prototype KN-08 missile may be no means a certainty. ies, once dubbed it “the land of lousy op- capable of reaching most of America’s If a different military approach was tions”. It remains so. West Coast. Most analysts think that at its adopted, in which the plan was to assem- The most recent addition to the UN’s present rate of progress, North Korea will ble a force sufficiently overwhelming to sanctionswasagreed on in November, two have a working ICBM within four years, as destroy Mr Kim’s war machine within a 1 20 Asia The Economist April 8th 2017

2 few days, the risks might be even greater. patrick, should be to get Mr Kim to agree to that he damaged the wider economic and North Korea, seeing what was happening, a moratorium on missile testing and a diplomatic relationship between America would lash out, perhaps with its nuclear freeze on plutonium and uranium enrich- and China. That may be a prospect that weapons, before the assault was ready to ment at known nuclear sites, which could troubles his successor rather less. start. Mr Kim will have learned from the be verified through surveillance by satel- But for all Mr Trump’s apparent confi- first Gulfwarthe risks ofallowingAmerica lites. In return, there might be some relax- dence in unilateral American action, a to attackat a time ofits own choosing. ation ofsanctions. Another possible carrot strategy that enlists China rather than re- The military option thus has nothing to would be negotiations on a peace treaty to pels it is likely to be more effective. China, recommend it as a means of resolving the end the Korean war formally. Mr Fitzpat- after all, still accounts for about 85% of problem, although it should stay on the ta- rick argues that a proposal by the Chinese North Korea’s trade with the outside ble as a deterrent. The regime must know to end joint American-South Korean mili- world. It could cause Mr Kim’s regime ex- that to use, or even seriously threaten to tary exercises should not yet be consid- traordinary difficulties by shutting off the use, its nuclear weapons would be an act ered, much less the withdrawal of Ameri- pipeline that supplies North Korea with of suicide. But the flipside is that Mr Kim can forces from the peninsula. But the oil, albeit with unpredictable and perhaps also knowsthatmilitarythreatsasa means hope would be that a little bargain, which chaotic consequences. China also hosts of forcing him to give up his nuclear weap- would put on hold the development of an many migrant workers from North Korea. ons programme are largely hollow. He cor- ICBM or, worse, submarine-launched mis- Which is not to say that Mr Xi can bring rectly sees the bombs he is building as the siles that would let North Korea retaliate MrKim to heel with a snap ofhis fingers, as best guarantee of the survival of his re- even afteran attackon its terrestrial missile Mr Trump seems to believe. He probably gime, along with its slave-labour camps launchers, could turn into a grander bar- would if he could do so without triggering and torture chambers. gain leading to de-nuclearisation. a collapse of the regime. If some combina- Jonathan Pollack, a Korea specialist at tion of pressure and engagement contin- The heel’s still alive the Brookings Institution, is sceptical. ues to fail, containment and deterrence are The same calculation renders the current “What would talks achieve?” he asks. He all that is left. MrFitzpatricksays there is no sanctions ineffective. North Korea has thinks that all the evidence indicates that reason to suppose that Mr Kim, who ap- known much greater hardship—hundreds Mr Kim is set on his current path and has pears rational if exceedingly callous and of thousands of people starved to death in no interestin enteringinto negotiations—at violent, would invite the destruction ofhis the 1990s—and there is no sign ofsanctions least not until North Korea gains recogni- regime by launching a nuclear attack. But fomenting enough discontent in elite cir- tion as a de facto nuclear power. That accepting North Korea as a nuclear-armed cles to encourage a palace coup. Indeed, leaves only increased pressure from China state might drive South Korea to seek its having purged anyone who could threaten as a way to raise the costs of the nuclear own nuclear weapons, spurring further his power, Mr Kim looks more secure than programme and, with luck, slow it down. proliferation across the region. And North ever. (His uncle, for example, was executed What Mr Trump appears to have in Korea is so opaque that the risk of a cata- with an anti-aircraft gun.) mind is demanding that China halt all fi- strophic miscalculation is high. 7 There are only two other ways of de- nancial transactionswith North Korea. An- flecting Mr Kim from his present course. thony Ruggiero, a former Treasury official One is to press China to make life so un- who advised American negotiators the Pacific secession movements comfortable for the regime that it fears for last time there were talks with North Korea its survival (the likely intention of Mr in 2005, argues that the new administra- Palm-fringed Trump’s talk of dealing with North Korea tion should target banks and other firms alone if necessary). The other is to offer Mr that help North Korea evade sanctions. Mr indecision Kim some sort ofdeal. Ruggiero believes that America could levy MarkFitzpatrick ofthe International In- swingeing fines on Chinese banks that fa- WELLINGTON stitute for Strategic Studies, a think-tank, cilitate trade with North Korea, just as it Votes loom on the future ofNew says that the chances of getting anywhere punished European banks that helped cus- Caledonia and Bougainville are low, but “we have to keep the door tomers get around sanctions on Cuba, Iran open for engagement,” if only because it and Sudan. The ultimate threat would be THASbeen sixyearssince the birth ofthe may be the best way of winning Chinese “secondary sanctions” that deny access to Iworld’s youngest country, South Sudan, support for tougher measures. South Ko- the American banking system, making it in 2011. It may soon have some younger rea’s probable new president, Moon Jae-in, impossible to handle transactions denom- siblings. The Pacific island of New Caledo- will also need to show his supporters that inated in dollars. nia is due to hold a referendum on inde- the diplomatic trackis still alive. MrObama made little use ofsecondary pendence from France by November next The initial objective, says Mr Fitz- sanctions, for fear of provoking such ire year; Bougainville, 1,200 miles to the north (see map on next page), is supposed to vote on separation from Papua New Guinea in 2019. The timing of the two referendums was fixed decades ago, to defuse long-fes- tering conflicts. But the approach of the appointed time is raising tricky questions about how to word the question on the ballot, who should have the right to vote and what to do once the results are in. New Caledonia’s secessionist uprising ended in 1988 when leaders of the indigenous Kanaks and French loyalist politicians agreed to hold a vote on independence a decade later. When that deadline arrived, the two sides approved a further Four more reasons to worry delay of 15-20 years. They also agreed to 1 The Economist April 8th 2017 Asia 21

Islami Bank Bangladesh Cheques and imbalances

DHAKA The government arranges a change of leadership at the country’s biggest bank T WAS an odd job for a spy agency. On Ithe morning of January 5th military intelligence operatives phoned the chairman, a vice-chairman and the managing director of Islami Bank Bangladesh, picked them up from their homes and brought them to the agency’s headquarters, in Dhaka’s military cantonment. Polite officers presented the bankers with letters of resignation and asked them to sign. They did so. A few hours later the bank’s board, Bougainville’s economy has run aground meeting under the noses of intelligence officers at a hotel owned by the army, select- 2 share power in the local government and Papua New Guinea’s prime minister, ed their replacements. to try to bring about an economic ré-équili- Peter O’Neill, is adamant that he will not Islami Bank has been of interest to the brage (rebalancing) to lift predominantly allow Bougainville to break away, and in- government chiefly forits association with Kanakregions. sists that the referendum will be non-bind- the Jamaat-e-Islami, Bangladesh’s biggest New Caledonia has a population of ing. Yet in January his government collabo- Islamist party. The bank is the country’s 269,000. Kanaks account for 39%; Euro- rated with the ABG to set up a Bougainville biggest (see chart on next page), and oper- peans for27%; otherPacificorAsian ethnic- Referendum Commission. Both sides have ates in accordance with Islamic principles. ities and people ofmixed race make up the also agreed to hold the vote in June 2019. Although the party only holds a minority remainder. Most Kanaks are thought to The ABG had been counting on reopen- stake in the bank, quiescent shareholders lean towards independence; most Euro- ing the closed copper mine to fund its fu- from Saudi Arabia and Kuwait had al- peans, towards the status quo. The elector- ture state, but Rio Tinto demurred last year. lowed it to appoint the top management. al roll for the referendum will not include Other investors are wary, too, fearing re- The Jamaat advocates an austere, Ara- those who arrived in the territory after newed conflict. Without the mine, the ABG bian form of Islam, which has never had 1998. That excludes many of the European is reliant on the central government for the much of a following in relatively liberal métros who come and go from mainland bulkofits revenue. But Papua New Guinea Bangladesh. It has never won more than France on short-term contracts. is facing a fiscal crisis and, despite the im- 12% in a national election. It does not help Even so, French nationalists such as Ma- pending ballot, has trimmed spending on that the party opposed Bangladesh’s sepa- rine Le Pen, a leading contender in France’s Bougainville. If, as expected, Bougainvil- ration from Pakistan in 1971. Its student presidential election, are keen for a quick leans vote for independence, the island’s wing was the main source of recruits for a vote and a straightforward question, in ex- future is unlikely to be prosperous. notorious pro-Pakistani paramilitary body. pectation of an emphatic defeat for the in- Peace agreements that depend on de- A special court set up by the ruling Awami dependence movement, which has never layed referendums enable both sides to League party in 2010 convicted most of the won a majority in elections for the local imagine the future of their dreams, but Jamaat’s senior leadership of war crimes. parliament. But some loyalist politicians, only by putting off the day of reckoning. Those found guilty were jailed or hanged. such as Pierre Frogier, a former “president” When that comes, as both Bougainville The trials destroyed the Jamaat as a po- of the local government, would prefer a and New Caledonia are discovering, the litical force, but its economic clout en- new accord deferring a vote again, for fear advantages of an ambiguous status quo dured. Islami Bank accounts for a third of that Kanaks might resort to violence in the may seem greatly preferable to the dangers the assets of the Islamic banking industry. event ofa “no”. Unrest in St Louis, a largely ofa clear decision. 7 Ithas12m depositors, 12,000 staffand a bal- Kanak suburb to the east of the capital, ance-sheet of $10bn. It handled more than Nouméa, has served to heighten those a quarter of the $14bn Bangladeshi work- fears, and led to a bolstering of the police PACIFIC OCEAN ers abroad sent home last year. Much lend- force in November. NAURU ing in Bangladesh goes to those who know Bougainville’s population is similar in BOUGAINVILLE K bankers or bribe them; Islami Bank ap- size to New Caledonia’s, but far poorer. PAPUA NEW pears to use more prudent criteria. The separatist war that ran from 1988 to The Awami League seems to have wor- GUINEA SOLOMON 1997 claimed about 5,000 lives and led to INDONESIA ISLANDS ried thatthe resourcesofthe bankmight be the closure ofa big copper mine run by Rio Port Honiara used to help revive the Jamaat. A charity Tinto, an international mining group. A Moresby tied to the Jamaat, Ibn Sina Trust, which is peace agreement in 2001 established an Coral VANUATU also a shareholder in the bank, has a staff Cairns Autonomous Bougainville Government Sea Éfaté of 6,000. It runs 19 hospitals, and many (ABG) and included a provision for a refer- schools and professional colleges. The endum to “include a choice of separate in- Mackay bank also has a charitable arm of its own; NEW dependence” by 2020. Some rebels CALEDONIA Nouméa its bosses were also replaced in January. spurned the peace talks, however, and AUSTRALIA (to France) In recent months companies with ties held on to their guns. 500 km to S Alam Group, a conglomerate based in 1 22 Asia The Economist April 8th 2017

Government caprice in India To India’s liquor and hospitality indus- An obvious target tries, the shock has been cataclysmic. “Na- Bangladesh, biggest banks by total assets Bar wars tionwide we are talking about closing September 2016, $bn 100,000 outlets and losing a million jobs,” 0246810 says Dilip Datwani, a Mumbai hotel-owner and top executive in both regional and Islami DELHI national hotel and restaurant associations. Rupali In the state of Maharashtra alone some New rules on alcohol drive thousands 16,000 out of 26,000 licensed premises lie AB ofbusinesses into a ditch within 500 metres of a highway. This in- United Commercial HAT is a bigger threat than war, civil cludes not just roadside booze shacks but Pubali Wunrest or natural disaster? For Indian some of India’s poshest hotels. Not only businesses there is an obvious answer: can they no longer sell alcohol; they must Source: Bloomberg government. Consider the past few forfeit all the liquor they had in stock. months. In November the central govern- “Being on the main road was a big plus, 2 Chittagong, Bangladesh’s second city, have ment scrapped 86% of paper currency, and now suddenly it’s a liability,” protests builtstakesin the bank, although the group pitching citizens into a mad scramble to the owner of a resort south of Mumbai denies any role in the shake-up. Senior find alternative ways to buy, sell and get who reckons that alcohol sales make up staff from other banks in which the group paid. In March it slipped a new rule into around 10% of her revenues. “It’s not that holds stakes have been appointed to Is- the annual budget bill that frees taxmen to drinking is the epicentre of the experience lami Bank. The new chairman, Arastoo raid or seize any property at any time with we offer, but if you can’t offer it clients will Khan, is seen as one of the country’s most no need to explain why. just go elsewhere.” Gallingly she, like effective bureaucrats, but has only recently Sometimes it is particular industries many others in Maharashtra, had renewed turned his hand to banking. He declined to that get bashed. Politicians keen to impress her very costly annual alcohol licence comment on the changes at the bank. But voters with their devotion to cows, for in- hours before the court ruling rendered it Ahsanul Alam, the new vice-chairman, stance, are making life hard for producers void. Mr Datwani, for his part, notes that says there is a risk that the management of meat (meaning mostly buffalo), includ- the highway by which one of his hotels may open the “sluice gate” to political ing exporters who earn India around $4bn stands was not designated “national” until lending. Another board member says a year. Some state governments turn a a decade after he built it. there have been changes in who is getting blind eye to vigilantes such as those who This time, however, business owners loans and how these loans are approved, beat a (licensed) Muslim dairy farmer to have an unexpected ally: state govern- with many of them going to borrowers death in Rajasthan last week; others have ments. Many rely on liquor taxes for a big from Chittagong. The central bank has encouraged hyper-zealous “inspections”, chunkofrevenue. Estimates oftheirpoten- chided the new management for violating followed by closures, ofslaughterhouses. tial loss this year alone range from $15bn to proper procedures forloan disbursement. This week two bigger industries have $30bn. And so, while some liquor outlets The shareholders from Saudi Arabia found themselves hit by another bit of the are applying the ancient Indian science of and Kuwait were kept in the darkabout the government, India’s Supreme Court. Its jugaad (work-around), such as by diverting boardroom coup, and complained bitterly judges not only upheld an earlier decision motorists to a rear entrance that happens about it. One ofthem, the Islamic Develop- to deny licences to sell alcohol within 500 to be more than 500 metres from the high- ment Bank, based in Saudi Arabia, pointed metres of a state or national highway; they way, governments are proving ingenious out that it was only given three days’ notice also extended it from retail outlets to em- too. The favoured trick so far has been to ofthe board meeting in January, and there- brace any place serving alcohol, be it a bar, change the signposts, so that state high- fore was not able to send anyone to attend restaurant, hotel or club. In a country that ways magically become district or munici- it. It has questioned the rationale behind suffers 400 traffic deaths a day, the need to pal roads. Rajasthan, for instance, has al- the changes, and pointed out that there curb drunk driving is clear. But this step by ready “denotified” 125km of state highway. was no proper recruitment process for the the court into the realm of rule-making, As one tweet quipped, perhaps the rules new managing director. It has also up- which in most countries is the job of legis- should now read, “No road shall be classi- braided the government for suggesting lators, has had jarring effects. fied as a highway within 500m ofa bar.” 7 that the foreign shareholders had endorsed the change of management, when in fact important decisions were being taken without their “knowledge or consent”. The governmenthasassured foreign shareholders that it will not let politicians loot the bank. The nominally secular Awami League has built a formidable one-party state since it came to power in 2009. Western diplomats are jittery after recent suicide attacks. They fear that the repression of competitive politics is undermining the country’s long history of secularism and tolerance. No one expects the government to permit a meaningful electoral contest in 2019. The sense in the capital is that Sheikh Hasina, the prime minister, will do whatever it takes to remain in office. Like the former bosses of Islami Bank, Bangladeshis are being presented with a fait accompli. 7 Supreme injustice

24 Asia The Economist April 8th 2017 Banyan An Australia that can say no

China is Australia’s biggest trading partner. That does not mean it has to kowtow tional order: “While non-democracies such as China can thrive when participating in the present system, an essential pillar of our preferred order is democratic community.” Yet Geoff Raby, a former ambassador to Beijing, condemned the speech as “pecu- liar” and “odd” coming just before a visit to Australia by China’s prime minister, Li Keqiang. On occasion, the government itselfseems equally eager not to offend. During Mr Li’s visit, authorities in China detained Feng Chongyi, a Chinese academicwho livesin Australia and has criti- cised China’s persecution of human-rights lawyers. In public, at least, Mr Turnbull was shamefully silent over the case, even though the Australian media was in uproar. In fact, Mr Turnbull even tried to push ahead with a parliamentary vote to ratify an extradition treaty with China. A previous conservative government had concluded the treaty ten years ago. Chinese authorities had been piling on the pressure to ratify it. Ms Bishop kept de- fending the treaty doughtily, even as the predicament of Mr Feng drew attention to the glaring flaws in China’s legal system. But even if the government was keen to ingratiate itself with China by ratifying the treaty, Australia’s parliament was having none of it. A loose alliance of opposition parties and rebellious F THERE’S anything worse than running a huge trade deficit MPs from the ruling coalition indicated they would vote it down, Iwith China, it is, to judge by Australia’s incessant fretting, run- forcing the government to call off the vote days after Mr Li’s de- ninga huge surplus. Australia’swasA$22bn ($17bn) lastyear—1.3% parture. That is not the only time Australia has tied itself in knots of GDP. China’s industrial revolution has long been fuelled by over its dealings with China. Every time a Chinese firm tries to coal from Queensland and iron ore from Western Australia. But buy a big Australian business, be it a power company or a cattle China wants ever more from Oz. Education, for instance: nearly station, the government hums and haws over whether the pur- 160,000 Chinese are studying in Australia. Food and drink is the chase should be blocked, with little consistency. next boom. Annual exports of beef will soon exceed A$1bn. Res- China, of course, has few qualms about pushing Australia taurants in Beijing and Shanghai can’t get enough Australian lob- around. Some of those Chinese students, for instance, jump to ster. And sales of Australian wine to China were nearly A$500m the orders ofthe Chinese embassy when shows ofpatriotism are in 2016, and growing by 50% a year. required. On university campuses they vociferously oppose any- So what are Australians worried about? Their country has es- thingdeemed critical ofthe Communist Party. Rent-a-crowds ma- caped recession for an astonishing 25 years, thanks chiefly to Chi- terialise to denounce the Dalai Lama. Patriotic Chinese business- nese demand. And Australia never had a big manufacturing sec- es have made donations to Australian politicians, apparently in tor to be hollowed out by Chinese competition. Yet nervousness the hope of securing a friendlier diplomatic stance. And China is is growing that Australia is somehow beholden to China, a feel- not above using its commercial clout to punish countries that an- ing exacerbated by China’s testy reaction whenever Australia gerit, even ifitrarelymakesthe threatexplicit. South Korean firms does anything that displeases it. doing business in China are currently suffering boycotts and bu- The testiness is especially acute when Australia appears to reaucratic persecution because their government had the cheek side with America, its closest ally since the second world war. to allow the deployment ofan American anti-missile system that Last July an international tribunal ruled against China’s sweep- the Chinese government is unhappy about. ing territorial claims in the South China Sea. In response, Austra- Standing up to China is made all the harder by doubts about lia issued a bland statement emphasising the importance of a the strength of America’s commitment to Australia in particular rules-based maritime order and expressing opposition to any ac- and Asia more broadly: Donald Trump is both unpredictable and tion that might increase tensions. China reacted furiously. Global sceptical of alliances (and he famously hung up testily during a Times, a state newspaper, described Australia as an American recent call with Mr Turnbull). More than at any time since at least toady “with an inglorious history”, not even a paper tiger but “a the second world war, Australia feels vulnerable. papercatatbest”. “Australia’spower,” itthundered, “meansnoth- ing compared to the security of China.” If Australia meddled, it Too bloody wrong would be “an ideal target forChina to warn and strike”. Yet just as it makes little sense any longer to subordinate Austra- Some Australian commentators seem to thinkthat the best re- lian policy unquestioningly to America, it makes even less sense sponse to such bluster would be to take even greater care to avoid to fall in with all Chinese demands. Giving way to bullying, after riling China. When Australian officials make anodyne state- all, only tends to encourage it. Allan Gyngell, a former intelli- ments of support for America or mild criticisms of China, they gence chief and author of a new book on Australian foreign poli- sometimes still earn worried rebukes at home. When the foreign cy, “Fear of Abandonment”, does not think dealing with China minister, Julie Bishop, called last month for America to remain needs to be “all that difficult”, so long as Australia is prepared to “the indispensable strategic power” in the region, it was gentle approach China “with clear eyes”. Wouldn’tit be nice, adds a for- stuff—a reiteration ofseven decades ofsettled policy. Hardly con- mercolleague ofhis, ifAustralia just said “no” to China from time troversial, either, were her remarks in favour of a liberal interna- to time, and made it clear that it was prepared to bear the cost? 7 China The Economist April 8th 2017 25

Also in this section 26 Building a megacity from scratch

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

Xi Jinping did the names of his predecessors during the equivalent periods oftheir rule. The loyal family MrXi may see some benefit in demanding loyalty at this juncture. He is widely seen as the most powerful Chinese leader since Mao. But he wants to make sure that his allies get the most important jobs in a BEIJING reshuffle late this year after a five-yearly party congress. Demanding that party offi- Why Xi Jinping puts so much emphasis on allegiance to himself cials swear loyalty to him is a way of being LL politicians demand loyalty, but cers have usually involved expressions of doubly sure that he gets his way. Asome politicians demand more loyal- allegiance by those newly elevated. But that is not all there is to it. There has ty than others. Xi Jinping, China’s presi- The displays of obsequiousness are dif- been an increase in demands for obedi- dent, is in the Napoleon class—Napoleon ferent from those during a mini-cult of Xi ence not only to Mr Xi himself but also to the pig, that is, who taught the creatures of early last year, when songs in praise of the the party. In 2014 the president said loyalty George Orwell’s “Animal Farm” the slo- president circulated widely online and to the organisation was the first require- gan: “Comrade Napoleon is always right.” state-controlled media began gushing ment for national leaders. As Qiushi, the Over the past few months a parade of about “Papa Xi” and his glamorous wife, party’s main theoretical journal, put it: dignitaries has professed undying alle- Peng Liyuan (“Mama Peng”). On that occa- “There isno 99.9%. Itis100% pure and abso- giance to Mr Xi and the Communist Party sion it was unclear whether Mr Xi himself lute loyalty and nothing less.” Such rheto- he leads. The trigger was a party decision approved. Within a few weeks, the media ric reflects Mr Xi’s worries about the in October to anoint Mr Xi as the “core” of began toning down their Xi-loving lan- party’s authority and cohesion at a time of the leadership. Soon afterwards, his six guage (though signs ofpublic devotion still wrenching social and economic change. colleagues in the Politburo’s Standing surface, such as during an international Even more than his predecessors, Mr Xi Committee began laying on the flattery football match in January in the southern believes that a strong party is vital. When with a trowel. In March one ofthe commit- province ofGuangxi—see picture). he took over, party discipline was slack: tee’s members, Yu Zhengsheng, said Mr corruption was rife and officials routinely Xi’s status as core reflected “the fundamen- Hail, Xi flouted orders. As recently as November tal interests of the party and people”. Such Now that the subservience is being direct- Mr Xi said that, even among senior offi- statements remind many observers of the ed by the party’s highest institutions, it is cials, “there are those whose conviction is adulation once accorded to Mao Zedong. evident Mr Xi is directly involved. The loy- not strongenough and who are not loyal to Given that Mr Xi and many other leaders alty-swearing campaign is also different the party.” He argues that the Soviet Union are “princelings” (sons of the first genera- from past practice. In the late 1970s Deng collapsed because its rulers lost faith in tion of Communist leaders), they also Xiaoping, after taking over as China’s themselves. Mr Xi is determined not to let seem like the swearing of fealty to the king leader, forbade personality cults and that happen in China. by medieval courtiers. sought to build up China’s institutions, Cracking down on disloyalty is partly The list of vociferously loyal subjects is emphasising “collective” decision-making. aimed at turning the party into a more dis- long. Since the start of the year the coun- So did his successors, Jiang Zemin and Hu ciplined and effective instrument of con- try’s chief corruption investigators, the Jintao. Mr Xi’s less diffident approach was trol. This has involved suppressing intra- bosses of the state-security and cyber-se- evident soon afterhe came to powerin No- party debate. Last year the party reminded curity agencies and representatives of vember 2012. His name appeared in the members that they must not criticise the state-run media have all pledged “absolute party’s flagship newspaper, People’s Daily, central leadership’s decisions. MrXi has re- loyalty” to Mr Xi. The president’s numer- more than twice as often during his first 18 vived the practice of holding what are ous promotions of high-ranking army offi- months as the party’s general secretary as called “democratic life meetings”. At these, 1 26 China The Economist April 8th 2017

2 officials are supposed to reflect on how onerous though it sometimes is. In Febru- Xiongan is the first entirely new city to fea- they can work more closely with national arythe foreign minister, WangYi, indicated ture in the effort. It is named after Xiong leaders. “Intensified central power will he would skip a meeting of the Group of and Anxin, two counties in Hebei that will doubtless help the enforcement of re- 20 largest economies in order to attend a form the bulk of its territory along with a forms,” said Deng Maosheng, who runs party session on loyalty. He decided to go third county, Rongcheng—see map. the party’s central policy-research office. to the G20 at the last minute, but only after Beijing will still serve as the capital. But There is even a new drive to ensure that receiving dispensation not to attend the businesses and universities unrelated to the party’s 88m members pay their dues, party event. At around the same time, offi- that function will be urged to move to which range from 0.5% to 2% ofpost-taxsal- cials postponed a meeting of Japan’s and Xiongan. Mr Xi wants the new city to have ary (evasion is widespread). Mr Xi is insist- China’s ruling parties, apparently to avoid a “beautiful environment”, with high-tech ing that such fees be handed over on time a clash with the loyalty gathering. industries and efficient transport. By the every month, and in person. This is, in ef- Ever since the Communists tookover in end of its first phase (time unspecified), it fect, another loyalty test. Paying your dues 1949, they have debated what kind ofparty will cover 100 square kilometres, almost “is a process of alerting yourself to the they want. Mao distinguished between double the size ofManhattan. party’sspirit,” said an article in February in “reds” (good Communists) and “experts” In China bedlam often ensues in the a newspaper published by the Central (people who knew what they were talking rush to build. There has already been a Commission for Discipline Inspection, the about). Mao said he wanted reds. Deng put taste of this in Xiongan. Within hours of agency in charge of enforcing party rules. more faith in experts. Mr Xi seems to be the announcement about the new city, The party boss of Yunnan province berat- shifting back. In January the party’s Cen- speculators were flocking to the area’s ex- ed his fellow Communists for failing to tral Organisation Department, which is in isting property developments to buy up hand over the money as required. “Some charge of personnel, told five government whatever was available. Highways leading people ask their secretaries to do it for ministries to put “good political quality” at to it were clogged with cars. Its housing them,” he said disgustedly. “It’s all wrong.” the top of the list of requirements for se- prices tripled. To rein in the exuberance, Afteryears ofrule-bending, some find it nior officials. It was much the same when the government ordered a halt to all prop- difficult to snap to attention. Officials in Napoleon’s propagandist, Squealer, re- erty transactions in the new area. Beijing still bemoan a widespread tenden- buked farmyard animals for praising the Jokes abound on social media about cy among party members to ignore its reg- courage of Boxer, a cart horse. “Bravery is the wealth that Xiongan’s rural residents ulations. But there has been no open sign not enough,” said Squealer. “Loyalty and will soon enjoy (ifofficials forgo their com- of resistance to the loyalty campaign— obedience are more important.” 7 mon practice of seizing land for little compensation). One was a spoofad, written as ifbysomeone from the countryside whose Regional development marriage prospects now look bright: “Male, 53, two acres in Xiongan, seeking Building a megacity from scratch woman, 25 or younger, beautiful, prefera- bly with study-abroad experience”. It would be unwise to bet all on Xiong- an’s rise. Over the years China has tried to build numerous new cities, several of SHANGHAI which have been costly failures. More than a decade ago the governmentdeclared that Xi Jinping has plans fora metropolis that will dwarfNew York the Binhai New Area, a vast development HROUGHOUT Chinese history, the The point of Xiongan is to tame Bei- in Tianjin, would be north China’s answer Tdawn of new dynasties often involved jing’s surging population, which has to Shenzhen and Pudong. It has never tak- moving the entire capital, imperial palace caused gridlock on its streets and exacer- en off. Another stillborn project was Cao- and all, to a new city. By those dynastic bated a chronic shortage ofwater. The cap- feidian, an “eco-city” in the Bohai Gulf. In- standards, Xi Jinping’s ambitions are mod- ital has been trying for several years to en- ternet censors have been deleting any est. He simply wants to shift some of Bei- courage people to move out of its core doubts that netizens have been raising jing an hour’s drive to the south. But by the districts. To make commuting easier, it has about Xiongan. An article asking whether standards of modern urban development, been improving transport links with near- the new city would be the second Shen- his vision is grand indeed. All going well, by cities. By the end of 2017 the municipal zhen or the second Caofeidian disap- the new area, known as Xiongan, will cov- governmentisdue to relocate from the cen- peared soon afterit was published online. er 2,000 square kilometres, nearly three tre to Tongzhou, a suburb to the east. But But Xiongan has a big thing going for it: times the size of New York City or Sing- the full backing of Mr Xi. News broadcasts apore. A “first-class international city”, as showed the president touring the area and the planners put it, will rise from land that chairing a meeting about its development. is home today to scrubby fields, a large lake BEIJING CHINA So long as Mr Xi remains China’s Shanghai and a series ofdrab towns. Shenzhen leader—ie, at least for the next five years— China, which sometimes opts for mod- Hong Kong building Xiongan will be a priority. esty in unveiling plans lest they fall flat, did Beijing Whether this is a good idea is another not hold back on April 1st when it revealed Caofeidian question. Taking Beijing as it exists to- TIANJIN those forthe “Xiongan New Area” in Hebei day—a city of more than 20m people with Tianjin province. An official statement described Rongcheng 19 subway lines, dozens of universities, a Xiongan’s development as a “strategy cru- large cluster of high-tech firms and ump- cial for the next millennium”. It compared Xiong teen road and rail connections to other the project to the creation of China’s two Xiongan Bohai Gulf large cities—and trying to make it work bet- most spectacular built-from-scratch urban New Area ter might be more sensible. Yet given all of Anxin Binhai expanses: Shenzhen, a metropolis next to New Area the capital’s urban maladies, the tempta- Hong Kong, and Pudong, Shanghai’s glit- HEBEI tion to start with a clean slate is hard for 50km tering financial district. SHANDONG planners to resist. 7 United States The Economist April 8th 2017 27

Also in this section 28 Donald Trump and the unions 29 Gorsuch splits the Senate 30 Los Angeles’s failing jails 30 Steve Bannon and the NSC 31 Biology in Alaska 32 Lexington: America’s forgotten war

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

The economy Most important, no tax cut or serious de- regulation has happened yet. Instead the Eyes bigger than their wallets Republicans have failed to pass a promised health-care reform, which contained large tax cuts for the rich, on their first attempt. (It may soon reappear, but ifit does, its pas- sage, especially through the Senate, is far WASHINGTON, DC from certain.) There is reason to wonder whether the party is capable of overcom- Consumers and firms thinkthe economy is booming. Most forecasters disagree ing the political squabbles that will inev- S AMERICA’S economy booming? Con- the New YorkFed put the rate at 2.9%. itably accompany tax reform. Isumers seem to think so. Their confi- It is tempting to discount strongly up- Yet even if Mr Trump fails to overhaul dence, as measured by the Conference beat surveys as driven by politics. Owners the tax code completely, few doubt that Board, a research group, is at its highest of small businesses lean heavily Republi- Congress will pass a simple cut in rates for since December 2000, when the dotcom can. Consumer confidence is up most him to sign. And confidence in the econ- bubble had not fully burst. Yet in both Jan- among over-55s, who are also likely to omy may still prove self-fulfilling. Republi- uary and February this year, personal con- have voted for Mr Trump. Most econo- cans have long held that replacing Barack sumption fell. The signals from firms are mists’ forecasts are closer to the number Obama’s chilliness towards business with no less mixed. Small-business confidence from Atlanta than the one from New York. a warm embrace of commerce would lead is so high that relying on this alone to pred- Many of them are mindful of the fact that to an investmentboom (on this, theymight ictannualised GDP growth in the first quar- the economy has often seemed to sag in cite the support of John Maynard Keynes, ter leads to a staggering forecast of 7.1%, ac- the first quarter ofrecent years. An attempt who wrote that businesses are “pathetical- cording to Goldman Sachs, a bank. Order by government statisticians in 2015 to ly responsive to a kind word”). Although books are swelling and jobs are plentiful, purge the growth data of seasonal factors there was no sign of a recovery in invest- firms say. Yet industrial production has may not have been a complete success. ment in the fourth quarter of 2016, sales of been flat since December, and banks have capital goods, such as machinery, have slowed business lending dramatically. picked up a bit this year. Americansseem wildlyenthusiasticabout Cognitive dissonance Whether that trend continues will re- the economy, but it is not clear why. United States, economic-surprise index* veal whether confidence is crystallising or The surge in the so-called “soft” eco- based on: dissipating. Some conservatives, impa- nomic data, drawn from surveys, began Soft data survey and business-cycle indicators tient to trigger what they see as an inevita- when Donald Trump won the presidential Hard data non-survey data ble surge in investment, want tax cuts, election in November (see chart). It coin- 2 whenever they happen, to be backdated to cided with a boom in the stockmarket, up the beginning of2017. 10% since then, as investors began to sali- 1 Retrospective tax changes are rarely a vate over the prospect of tax cuts and de- + good idea. For the moment, Republicans regulation. Yet the “hard” economic data, 0 should be encouraged that two sectors of which measure actual economic activity, – the economy—housebuilding and manu- have trundled along much as expected. 1 facturing—have accelerated tangibly. That The disparity has caused growth forecasts should please some of Mr Trump’s blue- to fall outofsync. AsThe Economist went to 2 collar supporters (see next article). In Feb- 201213 14 15 16 17 press, a model at the Atlanta Federal Re- ruary the trade deficit, which Mr Trump Sources: Bloomberg; *Positive values mean data serve put annualised growth in the year’s Morgan Stanley Research are better than expected views, strangely, as a barometer for eco- first quarter at1.2%. A competing forecast at nomic strength, was 4.5% lower than it was 1 28 United States The Economist April 8th 2017

2 a year ago. A worldwide economic accel- been enough to eat up much ofthe slack in the campaigns,” Sean McGarvey, head of eration has helped this trade and manufac- the economy, as rising inflation shows. the building trades, told reporters after be- turing revival. The dollar has fallen backal- Much more productivity-boosting busi- ingsummoned to the White House. “It was most to where it was on the eve of Mr ness investment would certainly be wel- by far the best meeting I’ve had [in Wash- Trump’selection, making American goods come, not least because Americans pro- ington].” If Mr Trump can sustain that en- cheaper in other countries. duced barely any more per hour worked in thusiasm, he could profoundly reorder 2016 than they did a year earlier. But Mr American politics, not least because of the You’re up, then you’re down Trump’spromise of 3.5-4% growth has nev- traditional importance of union activists What if the surge in confidence proves er been a realistic goal, because America’s and cash to his Democratic opponents. fleeting? The stockmarket would surely greying workforce imposes a lower speed The federation of unions that includes the sink. ButitisnotasifAmerica was in a funk limit on the economy than in the past. building trades, the AFL-CIO, donated before Mr Trump won in November. The As that becomes more apparent, the around $16m to Democraticcampaigns last world economy—and financial markets— economic elation may subside. If so, those year. The cautious support which some of have been firming up since mid-2016, who have been sceptical about soft data as its most powerful members are nonethe- partly because of fiscal stimulus in China. they have heated up should remember to less giving Mr Trump’s economic agenda America’s recent growth of about 2% has be equally unmoved as they cool down. 7 is, in addition, an intriguing way to measure its progress. Mr Trump’s success is built on a long- standing fissure within the labour movement—broadly speaking, between industrial and construction unions, whose members tend to be conservative and white, and the services and public-sector unions, whose members are more diverse. Reagan, and before him Richard Nixon, profited from the same division. Yet Mr Trump, unlike his Republican predecessors, is attempting this at a time when the electorate is feverishly polarised and the unions both depleted and assailed by his own party, all ofwhich might be expected to make them more resistant to his charms. In 1980 20% of American workers be- longed to a union; now 11% do. The slide is mostly forstructural reasons, including the outsourcing and automation of unionised jobs in manufacturing. Yet it has been exacerbated by Republican efforts to reduce the unions’ power of collective bargaining, which in many states has been restricted to modest wage negotiations, and by the Donald Trump and the unions “right-to-work” laws introduced by Repub- lican law-makers in 28 states. These allow A riveting relationship non-unionised workers to enjoy union-negotiated benefits, creating an obvious free- rider problem. Such measures are intended to deprive the Democrats of support, and they are WASHINGTON, DC working. Forthcoming research by Alex- ander Hertel-Fernandez of Columbia Uni- The president has changed union politics, though maybe not as he thinks versity suggests that limits on collective ID you ever think you’d see a presi- ry Clinton, and most ofits bosses voted for bargaining, which are mainly aimed at “Ddent who knows how much con- her. (“It’s arrogant of him to say we voted public-sector unions, made government crete and rebar you can lay down in a sin- for him,” muttered a delegate from Ohio. workers in Indiana and Wisconsin less gle day?” Addressing an annual gathering “We didn’t.”) Yet Mr Trump had been invit- likely to take part in political campaigns, or of North America’s Building Trades Un- ed in part because many oftheir members, to vote. In a study of 111 border counties in ions, in Washington, DC, on April 4th, Do- charmed by his talk of protectionism, new Indiana, Michigan and Wisconsin, he also nald Trump felt at home. The assembled infrastructure and jobs, did vote for him. calculates that the right-to-work laws they union bosses, mostly burly white men Exit polls suggest he won 43% of voters introduced between 2012 and 2016 could squeezed into business suits but plumbers from union households, the best result for account for two percentage points of Mrs and pipe-fitters at heart, were like the men a Republican since Ronald Reagan in 1984. Clinton’s underperformance in those he learned his world view from, working And in a few midwestern states, he did states compared with Barack Obama in on his father’s construction sites in Brook- even better: union voters in Ohio picked 2012. Given that Mr Trump’s victory in the lyn and Queens. “I had the support”, he him by a 9% margin. electoral college was based on a combined supposed, harking back to last year’s elec- Mr Trump has since tried buttering up total of 70,000 votes across Michigan, tion, “ofalmost everybody in this room.” some ofthe main union bosses, by inviting Pennsylvania and Wisconsin, that could Manly guffaws and boos rippled them to meetings at which he has reiterat- have cost her the presidency. around the auditorium. The building ed his campaign pledges. “He intends to do By attempting to woo union voters trades endorsed the president’s rival, Hilla- the workon the issues he discussed during even as his party is attempting to smash 1 The Economist April 8th 2017 United States 29

2 the unions, Mr Trump, by design or other- tradition. But he suggested his party had wise, is placing an extraordinary burden no choice but to ﬁght Mr Gorsuch’s nomi- Polarising on hispopulistagenda. Ifitdoesnot live up nation tooth and nail. United States Supreme Court nominations to the hopes of union voters, they would The ill-fated tactic on everyone’s lips is 1967-2017, number of votes against/for have good reason to turn tail fast. Yet it is the ﬁlibuster, a manoeuvre dating back to Nomination rejected AGAINST FOR unclear, three months into his administra- the 19th century whereby senators hold 100 50 0 50 100

tion, whether Mr Trump’s economic poli- forth in debate for as long as they like to JOHNSON Thurgood Marshall cieswill amountto much ofwhathe prom- thwart a vote they expect to lose. In 1917, the Abe Fortas withdrawn before vote ised. A draft outline ofhis administration’s body adopted a rule permitting filibusters Homer Thornberry withdrawn before vote plans for the North American Free-Trade to continue until two-thirds of senators NIXON Warren Burger Agreement, leaked to the Wall Street Jour- opted to end debate and hold a vote; in Clement Haynsworth Jr nal, suggests it may envisage only modest 1975, following delays that almost derailed G. Harrold Carswell changes to a pact he describes as “the the Civil Rights Act of1964, the Senate low- Harry Blackmun worst trade deal, maybe ever”. His ambi- ered the threshold to 60 votes. The gradual Lewis Powell Jr tion to slash corporate taxes has been com- demise of the tradition continued in 2013, William Rehnquist plicated byRepublican opposition to a pro- when, in the face ofa Republican refusal to FORD John Paul Stevens REAGAN Sandra Day O’Connor posed border-adjustment tax that had act on dozens of Barack Obama’s appoint- Antonin Scalia been expected to pay for it. The spectre of ments, Democrats resorted to the so-called Robert Bork an unfunded tax cut this conjures up “nuclear option” to scrap the filibuster for Anthony Kennedy makes it even harder to imagine the ad- executive branch and lower-court judicial BUSH SR David Souter ministration splurging hundreds of bil- nominations. Four years later the Republi- Clarence Thomas lions ofdollars on new bridges and roads— can majority leader, Mitch McConnell, is CLINTON Ruth Bader Ginsburg the main hope ofthe building unions. now signalling his willingness to end fili- Stephen Breyer Yet even if Mr Trump’sprospect of pull- busters for Supreme Court nominations, BUSH JR John Roberts Jr ing off an enduring realignment are in too. Mr Gorsuch, he promised, “will be Harriet Miers withdrawn before vote doubt, his success with union voters has confirmed” by April 7th. Samuel Alito Jr OBAMA Sonia Sotomayor already forced their leaders to reconsider MrMcConnell’simplicitthreatto go nu- Elena Kagan their political methods. A few minutes clear again would make Supreme Court Merrick Garland No action taken after the president concluded his speech to confirmations subject to a simple majority TRUMP Neil Gorsuch Awaiting confirmation the builders, Richard Trumka, the AFL- vote, leaving the filibuster intact (for the Source: United States Senate CIO’s trenchant boss, with whom the pres- time being) only for legislation. At least 50 ident shares little more than a syllable, de- senators would need to go along with the livered a more revealing address in Wash- rule change; in the event of a 50-50 split, Rather, it is the result of “the end of an era ington. It was in part an attack on Mr Mike Pence, the vice-president, would of bipartisan co-operation over nomina- Trump: “If you say you are with us and break the tie. The majority leader is likely tions”. In the past, justices were often con- then attack us, you will fail.” But Mr to get those votes, since the Republicans firmed overwhelmingly (see chart). Aban- Trumka also signalled that henceforth the have a 52-48 edge and are eager to see Mr doning the principle that Supreme Court Democrats would have to work much Gorsuch, a staunchly conservative, well- justices should attract a supermajority of harder to win the unions’ support: “We qualified appellate judge, in the late Anto- Senate support, though, entails consider- will not be an ATM for any political party.” nin Scalia’s seat. But many in his party are able risks forboth parties. The shrinkage of organised labour may be uneasyaboutabandoningthe filibuster. As Democrats, furious with the Republi- terminal; but it will go down fighting. 7 one Republican member put it, “The Sen- cans’ unprecedented move to deny Mr ate is getting ready to do a lot of damage to Garland a hearing and unhappy with Mr itself.” He added that Harry Reid “broke Gorsuch’s performance over his 20 hours The Gorsuch nomination the rules” when, as Senate majority leader, ofquestioning, feel they are bound to force he led the Democrats’ bid to curtail the fili- a nuclear showdown over Mr Trump’s bid Going nuclear buster in 2013. “Now we are moving to the to fill the “stolen seat”. But with three liber- McConnell era, where we breakthe rules.” al and moderate justices gettingon in years The fallout, apart from a precipitous de- (Stephen Breyer is 78; Anthony Kennedy is cline in Senate comity, could be greater po- 80; Ruth Bader Ginsburg is 84), there is a NEW YORK larisation of the Supreme Court. Both Mr good chance Mr Trump will have at least Gorsuch and Merrick Garland, Barack one more seat to fill in the comingyears. In- Senate Republicans prepare to kill the Obama’s pick for Scalia’s seat, whom Re- viting Mr McConnell to go nuclear now filibuster publicanstestilyblocked for293 days, were means no chance of blocking his next can- N APRIL 3rd, when the Senate Judicia- “boy-scout” nominees, according to that didate, and perhaps encouraging Mr Ory Committee approved Neil Gor- same Republican member: well-qualified Trump to go for an ideological firebrand such’s Supreme Court nomination by 11-9 picks deserving bipartisan support. With a lacking Mr Gorsuch’s Ivy League résumé. along party lines, the proceedings took on new 51-vote threshold, he believes, “It The worry for Republicans looms a bit far- an oddly funereal flavour. “It breaks my won’t be a boy scout next time”: whichev- ther down the road. If they end up as the heart to find us in this position,” said Rich- er party controls the White House will minority party after the midterm elections ard Durbin, a Democrat. A Republican, have every reason to tap a significantly in 2018, Trump nomineescould emerge be- Lindsey Graham, said the Senate would be more ideological nominee. ing blocked by Democrats. haunted by it, and that future court nomi- Jeffrey Rosen, president of the National For now, both parties are consumed by nees would be “more ideological, not Constitution Centre in Philadelphia (a mu- the politics of the moment. The Senate is less”. In preparing to blockMr Trump’sfirst seum devoted to the study and celebration poised to complete itstransformation from Supreme Court nominee, Patrick Leahy, a of America’s founding document), does a chamber of heightened reflection and Democratic senator for 42 years, acknowl- not see the impending demise of the fili- statesmanship to a scaled-down version of edged that his party’smove might push the buster for Supreme Court justices as a rad- the House of Representatives. Time will Republicans to upend a time-worn Senate ical move heralding “a new beginning”. tell what this myopia brings. 7 30 United States The Economist April 8th 2017

Failing jails Steve Bannon and the NSC Cruel and usual Axis of adults

punishment WASHINGTON, DC Donald Trump’s government turns slightly more ordinary LOS ANGELES T HAS been a rough few months for himself, in a statement, downplayed his LA County’s jails are still overcrowded, conventional wisdom in Washington, new, invitation-only access to the NSC, a and sometimes brutal I DC, but one old saw never lost its force: powerful body charged with co-ordinat- HE Los Angeles Sheriff’s Department “Personnel is policy”. That being so, ing policies between the Pentagon, State Tpatrols 4,000 square miles, oversees politicians and officials tooknote when a Department, spy agencies and other the largest jail system in America—and is in memorandum revealed that Steve Ban- arms ofgovernment, to ensure the presi- trouble. In February its eight “jail facilities” non, chiefstrategist to Donald Trump and dent’s priorities are followed and deliv- held an average of17,362 men and women: an unblushing nationalist, has lost his ered. Mr Bannon said that after losing its more than the 15,300 inmates held in all 63 guaranteed seat on the principals com- way during the Obama era, the NSC has county jails in New York state. All but one mittee ofthe National Security Council been returned to its “proper function” by of Los Angeles County’s facilities are over- (NSC), while two pillars ofthe foreign its boss since February, the national crowded, and the system as a whole has policy establishment—the chairman of security adviser Lieutenant-General H.R. 38% more prisoners than it is meant to the joint chiefsofstaffand the director of McMaster. house. In contrast, according to a report by national intelligence—were restored as Unnamed officials offered a further the Bureau of Justice Statistics, in 2014 the permanent members. gloss when briefing the press, murmur- average local American jail had room for The capital has seethed forweeks ing that Mr Bannon was put on the NSC 17% more prisoners. with talkofpalace intrigues at the White “as a check” on Mr Trump’sfirst national The words “jail” and “prison” are often House, pitting Mr Bannon and his popu- security adviser, Michael Flynn, a former used interchangeably, but they are differ- list allies against a more polished, less three-star general sacked forfailing to ent. Prisons are long-term facilities run by hardline faction led by Mr Trump’s disclose contacts with the Russian am- the state or the federal government. Jails daughter Ivanka and her husband Jared bassador in Washington. With General are locally operated, and hold people serv- Kushner, both ofwhom hold senior McMaster in charge, Mr Bannon’s work ing short sentences or deemed too danger- advisers’ posts. Insiders see something on the NSC is done, it was suggested. ous to release while they await trial. Over- simpler and worth applauding. David Rothkopf, who has written two crowding in Los Angeles County’s jails has It was abnormal forMr Bannon, a books on the NSC, argues that General long been a problem. It peaked in 1990, political strategist, to enjoy better NSC McMaster has in fact “outmanoeuvred” when high crime rates and longer sen- access than the country’s senior uni- Mr Bannon, in a way that speaks ofhis tences for drug offenders pushed the aver- formed commander and top spook. Now growing clout. In a White House made age daily inmate population to 22,000. that has been corrected. Mr Bannon soggy by poisonous leaking, it matters Thingswere so chaoticthatthe sheriff’sde- that the NSC shake-up was signed offby partmentonce tookmore than three weeks Mr Trump and enacted without fuss. Mr to notice that a murderer had escaped. Trump has “empowered” his national The state prison population also security adviser, MrRothkopfconcludes, swelled, partly because of tough laws. The forinstance by allowing General McMas- infamous “three strikes” law, approved by ter, a brainy war hero, to bring such Californian voters in 1994, gave sentences “mainstream professionals” onto the of 25 years to life to third-time felons. From NSC staffas Fiona Hill, a tough, highly 1982 to 2000 the state prison population in- respected Russia expert. creased fivefold. Although California On Capitol Hill, senior figures already scrambled to adapt, building 23 new pri- detect a more conventional bent to poli- sons, in 2011 the Supreme Court upheld a cy. Not long ago, when bigwigs met Team lower-court ruling that state facilities were Trump, they heard alarming talkofgrand so crowded theyconstituted “cruel and un- bargains with Russia, perhaps exchang- usual” punishment, in violation of the ing concessions over Ukraine forhelp Eighth Amendment. The state was ordered containing Iran and battling Islamic to slash its prisoner population from 200% extremists in Syria. Such ideas have not of its capacity, at the time of the lower- survived Mr Flynn’s ejection, they say. court ruling, to 137.5%. Listen carefully, and people who want In response Jerry Brown, the governor, America to have a functioning NSC are passed a law to divert those convicted of Down but not out giving two cautious cheers. non-serious, non-violent and non-sex-related offences to county jails instead of state prison. The Los Angeles County jail verning body for the Los Angeles County, on empirical analysis of each defendant’s population jumped by 20% between 2011 announced that it would review the coun- case to determine whether they should be and 2012. It has since fallen slightly, partly ty’sbail and pre-trial release policies. In the released. Similar policies are already in because voters in 2014 approved a proposi- fourth quarter of 2016, 40% of inmates in place in Washington, DC. According to a re- tion which reduced the penalties for cer- county jails were awaiting trial. Some 21% port published in 2015 by the Public Policy tain drug and property crimes. But the of those had bail set between $500,000 Institute of California, a think-tank, Cali- county is still under pressure. and $1m—an unthinkable amount formost fornia’s median monetary bail amount is One way to reduce overcrowding prisoners. At the state level, two Democrat- five times the national figure. would be to reform the state’s bail system. ic lawmakers are pushing legislation to Eradicating the culture of brutality in In March the Board of Supervisors, the go- eliminate most cash bail, instead relying the jails will be another formidable chal-1 The Economist April 8th 2017 United States 31

Biology in Alaska Climate refugees

SOLDOTNA Move species to protect them from climate change, argues one scientist OHN MORTON, head biologist at the more suitable forsome species that do Jenormous Kenai National Wildlife not yet live there. Mr Morton believes in Refuge in Alaska, recently drove a picking and choosing new flora and mechanical auger through two feet of fauna to colonise the changed landscape. lake ice, looking for an aquatic invader “We’re expecting and wanting more called elodea. To his dismay, he found it. species to move in,” he says. Elodea is a popular aquarium plant that The Kenai refuge sits on a peninsula probably escaped into the wild when that is almost an island. It is connected to people dumped their fish tanks into mainland Alaska in the north by a nar- Baca had to go lakes. It seems to spread on the floats of row strip ofland and surrounded in sea planes. Mr Morton’s agency recently every other direction by the Gulfof 2 lenge. On March 15th Lee Baca, who led the spent more than halfa million dollars Alaska. That geographical isolation sheriff’s department from 1998 to 2014, was eradicating the damaging weed in three makes it hard fornew species to find their convicted of obstructing a federal investi- ofthe Kenai refuge’s roughly 4,000 lakes. way there, at least at the speed required gation into inmate abuse at Los Angeles Biologists spend a good deal oftime by rapid climate change. Mr Morton County jails. Testifying in court in 2016, and money trying to knockbackor exter- suggests that bison, deer and lodgepole Paulino Juarez, a chaplain at the Men’s minate invasive species. Britons bash pine might be helped along—and might Central Jail in downtown Los Angeles, re- rhododendrons; New Zealanders drop provide new hunting and Christmas called walking the halls one day in 2009 to rat poison from helicopters; Americans tree-cutting opportunities forresidents of find three wardens kicking, kneeing and and Canadians are trying (and mostly the small towns bordering the refuge. punching an inmate who appeared to be failing) to stop Asian carp from spread- America has an unhappy history with handcuffed. The battered man begged ing. But global warming is confusing deliberately transplanted species. Star- them to stop, but they continued until they matters. Mr Morton now thinks that lings, which were introduced from Eu- noticed that Mr Juarez was there. In a citi- some plants and animals should be rope by Shakespeare-lovers because they zens’ commission report produced in 2012 encouraged to move to new territory. are mentioned in “Henry IV, Part1”, by the Board of Supervisors, the former In the past 60 years Alaska has proved much too successful. So did mon- captain of the Men’s Central Jail said that warmed by1.7°C—twice as much as the gooses and Asian carp. Mr Morton, who he began to worry about excessive force rest ofthe United States. In the Kenai is gathering data to inform decisions when he noticed thatthree guardshad bro- National Wildlife Refuge, an 8,000- about new introductions, is proposing to ken hands. It turned out that all had been square-kilometre swathe ofmountains, move species only within the American hitting inmates, though one had hit the forests and lakes, the landscape is being continent. Still, his fellow biologists are wall instead. transformed. Lakes are drying out, bogs dubious. Jim McDonnell, MrBaca’s replacement, are turning into forests and forests seem Whether assisted colonisation works has worked hard to increase transparency likely to give way to grassland. Entire will be known only ifit is tried, and in the jail system. On his watch, the depart- habitats are moving northwards and whether to try is really a philosophical ment has installed hundreds of cameras towards higher altitudes. question. Some biologists worry about throughout its jails. Perhaps as a result, the That is bad news forsome animals, introducing another destructive invader, use of violence inside the lockups has de- such as the mountain goat, whose alpine and argue that people should avoid clined, says MarkAnthony Johnson ofDig- habitat is being invaded by trees. For meddling with nature. Mr Morton’s nity and Power Now, a prisoner advocacy others, it may be an opportunity. Kenai response is that they already are: “The group. Recently Mr McDonnell tried to de- and other parts ofAlaska are becoming very climate isn’t natural any more.” liver a list of300 officers accused of“moral turpitude”, such as tampering with evidence, usingforce unnecessarily ordomes- tic violence, to the district attorney’s office, so that criminal defendants would be aware of it. He was blocked when the As- sociation for Los Angeles Deputy Sheriffs, a union, sued over violation of privacy. The same thing happened when Mr Mc- Donnell tried to provide in-depth data about shootings by officers. It is clear that the biggest obstacle to his reforms may be winning over his own department. “My hope is that Baca’s conviction was the last gasp of the old guard,” says Sharon Dolovich, a prison-law professor at the University of California, Los Angeles. “There couldn’t be a stronger rejection of the old way of doing things.” But when it comes to the sheriff’s department of Los Development opportunity for bison, deer and lodgepole pine Angeles County, hope is in short supply. 7 32 United States The Economist April 8th 2017 Lexington America’s forgotten war victory

A century ago, America entered the first world war. Why that still matters treds gripped Europe once more, seeming to mock President Woodrow Wilson’s plea, as he braced his country for conflict in 1917, that America had to make the world “safe for democracy”. Wilson’s dying wish forAmerica to join and lead a League ofNa- tions was rejected by the Senate. Writing in 1935, Ernest Heming- way growled that: “We were fools to be sucked in once on a Euro- pean war, and we should never be sucked in again.” Isolationist politicians and newspaper editors claimed that Britain had col- luded with east-coast bankers and barons of industry to trick Americans into crossing the ocean, leaving the providential safety of the New World. The echoes in present-day politics are loud, down to the scorn forelitesand the re-emergence ofthe isolationist battle-cry, “America First”. President Donald Trump is not a true isolationist. As the earlier America First movement gathered strength in 1939, Charles Lindbergh, a pilot-turned-demagogue, used national radio to urge Americans to harden their hearts against tales of Old World suffering and to shun war in Europe, judging national interests as coldly “as a surgeon with his knife”. Mr Trump is no tender-heart, but he is proving more willing than expected to project power. Hisgeneralshave sentmore troopsto Iraq and Syria. He hasmade HENCalvin Coolidge dedicated a national memorial to the stern, if vague, threats that if China does not rein in North Korea, Wfirst world war—a 217-foot column flanked by stone sphinx- “We will.” What Mr Trump scorns is not war so much as altruism es, towering above Kansas City, Missouri—newspapers called the and talk of American exceptionalism. Asked about state-spon- crowd the largestaddressed byan American president. The Liber- sored murdersin Russia, he shotback: “Youthinkourcountry’sso ty Memorial had much to teach the world about America, Coo- innocent?” After Syrian warplanes dropped chemical weapons lidge told the throng, eight years after the war’s end. Privately on children this week, Mr Trump blamed the slaughter on Barack built with donations from ordinary midwestern citizens, the Obama’s past “weakness and irresolution”—before saying that sombre monument revealed a country unashamed of its grow- the attack “crosses…many many lines”. Pressed on whether ing wealth and global influence, but at the same time “not infatu- America still thinks President Bashar al-Assad of Syria should ated with any vision of empire”, the president declared. Soldiers leave office, the White House has dodged, calling it “silly” to ig- of many races, tongues and homelands had come together as an nore “political realities”. American army, offeringthe world a great“lesson in democracy”, Coolidge wenton. The nation’s“main responsibility is forAmeri- No selfish ends to serve ca,” the Republican was careful to add. But alongside that ambiv- After 16 years of war without clear victories, Mr Trump sensed, alence towardsforeign entanglements, he offered a message ofal- correctly, that the next Republican president would do well to dis- truism and exceptionalism. As the youngest and most vigorous tance himselffrom Bush-era campaignsin Iraq and Afghanistan— ofthe great powers, it was, he suggested, America’s calling to pro- though without seeming to tell voters from the conservative mote peace and the settling of disputes by reason, shunning the heartlands that their sons and daughters fought and died in vain. “primal” and “ruinous” hatreds of the Old World. “If the Ameri- Mr Trump’sbleakgenius was to tell America that it lost because it can spirit fails, what hope has the world?” he asked. was too good: that troops were sent by foolish elites to create de- A century after America declared war on Germany on April mocracies in the Muslim world, when they should merely have 6th 1917, eventually sending 2m men and women overseas, the killed terrorists, “taken the oil” and sought victory at all costs. Liberty Memorial remains a revealing place. It does not brag of That was clever politics, but a bad reading of history. Mr victory. Astone frieze shows advancing riflemen but also depicts Trump is not the first president to lead a divided America. Once a soldier’s funeral—53,000 Americans died in combat, half dur- they had arrived in Europe in 1917, Irish-Americans from the ing a few weeks ofslaughter in 1918. It ends with men returning to “Fighting Sixty-Ninth”, a legendary National Guard regiment farms and industry, their proper place. Today the memorial, like from New York, were so incensed to be issued with tunics sport- the war it remembers, is unknown to many Americans (though a ing British brass buttons that they tore them “to ribbons”, accord- fine museum there drew 206,000 visitors last year). Edwin Foun- ing to their chaplain, Francis Duffy. But Duffy later wrote that he tain, vice-chairman of a 12-member Centennial Commission es- and his fellow “Fighting Irish” went to war alongside the British tablished by Congress to counter that amnesia, suggests that the as volunteers against “the tyranny ofthe strong”, fighting for“the revolutionary war is America’s creation story, while the civil war oppressed peoples of the Earth”. That was the voice of their offers a saga of sin and redemption and the second world war adopted country. was a heroic quest. But for Americans, Mr Fountain says: “There What Mr Trump misses is that, in past crises, altruism has isn’t a myth ofworld war one.” The commission’s chairman, Col- helped to unite America and to make it strong, not weak. Today, it onel RobertDalessandro, drilyaddsthatthe second world warof- is true that public opinion has swung against nation-building fers “better villains and bigger explosions”. abroad. It is also the case that an exceptional power was born in It does not help that opinion soon soured against the first 1917, capable ofgreat acts when convinced ofthe cause. Mr Trump world war, notably as the Great Depression bit and primal ha- can try to forget that history. He cannot erase it. 7 Property 33

The Economist April 8th 2017 34 The Americas The Economist April 8th 2017

Also in this section 35 Why Julian Assange can breathe easy 35 Arson and re-election in Paraguay 36 Bello: Fear ebbs in Mexico

Venezuela government and the opposition. Ms Orte- ga is no softie; she is loathed by the opposi- Undo that coup tion for jailing politicians. But she may have been trying to distance herself from factions in the regime that are even more extreme than she is, says Luis Vicente León, CARACAS a pollster. The “Taliban”, as some chavistas refer to South Americans are accusing theirleaders ofbetraying democracy. The first of hardliners, include Diosdado Cabello, a three stories is about Venezuela, where the grievances are greatest former president of the national assembly, HE world knows this is a dictator- joined in the condemnation. Delivering and Tareck El Aissami, Mr Maduro’s vice- “Tship,” jeered masked students con- her annual address to government law- president, who has been named a drug fronting a rank of national guardsmen on yers, an event carried live on television, “kingpin” by the United States Treasury April 4th in Caracas. With tear-gas swirling she described the court’s decision as a Department (an accusation he denies). Mr around Avenida Libertador, one ofthe cap- “rupture” of the constitutional order. “We Cabello reportedly helped to draft the su- ital’s main streets, what had begun as a call for reflection so that the democratic preme-court ruling, and announced it on march to parliament became a stand-off path can be retaken,” she said. Hours later, his television programme minutes after it between youths with stones and soldiers Venezuela’s president, Nicolás Maduro, was published. MsOrtega’sdissentmaybe with machineguns. One placard bore the summoned the national defence council a sign that not all members of the regime image of a military boot trampling a map and ordered the supreme court to reverse are prepared to break irrevocably with de- ofVenezuela. the most contentious parts of its earlier an- mocracy. According to the Wall Street Jour- Protests against the authoritarian re- nouncement (exposing the court’s inde- nal, the chief of the armed forces, Vladimir gime, which has ruled since 1999, are no pendence forthe fiction it is). Padrino, also urged Mr Maduro to revise rarity. In 2014, 43 people died on both sides Both the public rift at the top, and the the supreme court’s ruling. in massive demonstrations. But this government’s ratchet away from dictator- If the regime cracks, the wretched state week’s confrontation felt both angrier and ship rather than towards it, are unprece- ofthe economy will be one cause (see page more hopeful than recent ones have been. dented. Some detect an elaborate ruse. In- 65). Its economic mismanagement has led That is because ofa series ofextraordinary ternational pressure on the regime had to severe shortages of food and medicine. events, which began on March 29th. been mounting. The OAS held a debate on Earnings from oil, almost the only source Venezuela’s supreme court, which Venezuela’s deteriorating democracy earli- of hard currency, have been falling. The obeys the regime, started things off with a er in March, over the objections of the gov- government dare not default on the coun- ruling that claimed for itself the powers of ernment. What better way to shut up crit- try’s $110bn debt, lest creditors seize oil the opposition-controlled legislature. That ics than to have the supreme court do shipments. was only the latest in a series of measures something anti-democratic and then order The need to pay debt spurred the su- to kneecap the assembly after the opposi- it to change its mind? Ifthat was the plan, it preme court’s power grab. This month the tion won elections in 2015. But the formal didn’t work. The OAS held a second debate government and PDVSA, the state oil com- usurpation of its rightful powers provoked after the U-turn. pany, are due to make bond repayments of new outrage. Chile, Colombia and Peru $2.8bn, which is more than a quarter of in- withdrew their ambassadors. Luis Alma- Taking on the Taliban ternational reserves. The regime has been gro, the secretary-general of the Organisa- More interesting, and more likely, is the trying to raise cash through joint ventures, tion of American States (OAS), denounced possibility that the rifts within chavismo, asset sales and other deals with foreign in- what he called a “self-inflicted coup”. the left-wing movement founded by the vestors and governments, especially Rus- The second surprise occurred on March late Hugo Chávez, are real. They could sia’s. The national assembly has warned 31st, when Venezuela’s attorney-general, eventually provide an opening for good- that such deals will be invalid without its Luisa Ortega Díaz, a stalwart of the regime, faith negotiationsbetween elementsof the approval. Thatthreatheld up a $440m loan1 The Economist April 8th 2017 The Americas 35

2 from CAF, an international development taxes and red tape. Mr Moreno, who was pany, between 2007 and 2016, Mr Moreno bank based in Caracas, last month. Hence Mr Correa’s vice-president from 2007 to promised to carry out “major surgery” to the supreme court’s assault on parliament, 2013, said he would continue his “21st-cen- stop corruption with the help of the UN. which gives Mr Maduro broad power to tury socialism”, under which social-wel- That implicitly challenges Mr Correa in approve joint ventures in the hydrocarbon fare spending doubled as a share of GDP two ways: the president curbed the inde- sector. That part of the ruling stands, between 2006 and 2012. Mr Moreno says pendence of the judiciary and denied that though investors may not feel reassured. he will treble a cash transferto poor house- corruption was a serious problem. Encouraged by fissures in the regime, holds, raise pensions, provide 100,000 Mr Moreno’s promise to be a more lib- the opposition and some of Venezuela’s subsidised houses a year and build 40 eral, corruption-fighting version ofMr Cor- neighbours are pressing it to restore parlia- technical universities. Julian Assange, the rea faces obstacles. One is his running ment’spowersin full, hold overdue region- founder of WikiLeaks, will remain a guest mate, Jorge Glas, the current vice-presi- al elections and bring forward a presiden- at Ecuador’s embassy in London for the dent. He has been the target of numerous tial election scheduled for December 2018. foreseeable future. (Mr Lasso would have allegations ofcorruption, which he denies. The chavistas are not ready for that. If they made him face rape charges in Sweden.) He and his allies in congress are likely to re- lose, the opposition will “destroy them, Hosting Mr Assange is easy, if perhaps sist a crackdown on graft. Anotherworry is and their families and their money”, says trying; keeping the rest of Mr Moreno’s about Mr Moreno’s health; he has refused Mr León. Hardliners may need safe pas- promises will be hard. A drop in oil prices to release his medical records. To carry on sage out of the country if democracy is to since 2014 haspushed the economyinto re- the popular bits of correísmo while dis- return. They would sooner destroy Vene- cession. Mr Correa compensated for lower carding the bad ones, the new president zuela than face destruction themselves. 7 government revenue by borrowing more. will need plenty ofenergy. 7 The cost of servicing Ecuador’s debt last yearwas12.1% ofGDP, up from 7.2% in 2007, Ecuador the yearMrCorrea tookoffice. The country The burning of congress in Paraguay uses the dollar as its currency, which has Correísmo barely hurt its competitiveness. Although Alianza Re-election row PAIS, Mr Moreno’s party, has kept its ma- hangs on jority in congress, its margin is smaller. Despite his alarming first name and his QUITO pledge to continue MrCorrea’spolicies, Mr ASUNCIÓN Moreno has a reputation as a pragmatist. The new president has made a lot of The president wants the right to run Born in Nuevo Rocafuerte, a hamlet in the promises, but will struggle to keep them again. Citizens violently disagree Amazon forest accessible only from the T WAS hardly a ringing endorsement. Napo river, he grew up in Quito, the capi- T SHOULD have been a public-relations IWith nearly all the votes counted, Lenín tal, where he began his career in the tourist Itriumph. The annual meeting of the In- Moreno, the political heir of Ecuador’s left- industry. He has been in a wheelchair ter-American Development Bank (IADB), wing president, Rafael Correa, won the since 1998, when muggers shot him. But his held in Asunción from March 30th to April presidential election by barely more than personality is sunny. He set up a founda- 2nd, was a chance to boast of landlocked two percentage points. That victory brings tion to promote “humour and happiness” Paraguay’s economic achievements. It is to an end a series of defeats for left-wing and has published a book called “The the world’s fourth-biggest exporter of governments in Latin America. Mr More- World’s Best Jokes”. soyabeans and number seven in beef. On no will try to continue Mr Correa’s free- As Mr Correa’s vice-president, he por- the opening night the president, Horacio spending populism, but he will have less trayed himself as more tolerant and less Cartes, unveiled the results of a national money and will exercise less power than power-hungry than his boss. He expressed branding exercise: a logo of flora, lorries his predecessor did during more than a de- misgivings about Mr Correa’s assaults on and silos in soothing blues and greens. cade in office. press freedom. After the United States Jus- A day later, Paraguay’s congress was in Mr Moreno’s narrow victory on April tice Department disclosed that Ecuador- flames. Protesters were battling police and 2nd came after an ugly fight with Guil- ean officials had taken at least $33.5m in an opposition activist, Rodrigo Quintana, lermo Lasso, a conservative formerbanker. bribes from Odebrecht, a Brazilian com- lay dead. Police had shot him in the back at Mr Moreno’s party, Alianza PAIS, unjustly the headquarters ofthe Liberal Party. attacked his rival as one of the authors of The violence was triggered by Mr Ecuador’s financial crisis in 1999-2000. (Mr Cartes’s desire to run for re-election in Lasso was briefly finance and economy 2018. The constitution of1992 forbids presi- minister at the time, but quit because he dents from serving more than one five- opposed Ecuador’s decision to default on year term, a safeguard against dictatorship, its bonds.) Mr Lasso’s connection to Opus under which Paraguay suffered from 1954 Dei, a conservative Catholic organisation, to 1989. Allies ofMr Cartes, a rich business- probably counted against him. man, argue that Paraguay’s democracy no One respected exit poll gave the edge to longerneedssuch swaddling. Besides, he is Mr Lasso, who has so far refused to con- the only plausible presidential candidate cede. His supporters have been holding from his right-wing Colorado Party, which large demonstrations to demand a re- hasheld powerforall butfive ofthe past70 count. But Mr Moreno’s victory seems like- years (including during the dictatorship). ly to stand. Luis Almagro, secretary-general On March 28th 25 senators from his of the Organisation of American States, party and others, including the left-wing which had sent election monitors to Ecua- Frente Guasú coalition ofFernando Lugo, a dor, acknowledged him as president-elect. former president who may run again, pro- Mr Moreno probably won in part be- posed a constitutional amendment to al- cause voters preferred his promises of ex- low re-election. When the senate’s speaker panded welfare to Mr Lasso’s offer to cut The laughing Latin Lenín objected they, in effect, formed their own 1 36 The Americas The Economist April 8th 2017

2 senate and passed the measure. ed foreigners to invest in agribusiness and interior minister and chief of police, and This enraged many Paraguayans. They bid for public works. Some fear that the convened a dialogue with opposition par- are offended less by re-election itself than beneficiary of re-election will be Mr Lugo, ties (which the Liberals refuse to attend). by the attempt to evade the rules for who was impeached in 2012, rather than The government will accept the supreme amending that part of the constitution, Mr Cartes. The president has offended a court’s ruling on a legal challenge to the which require a constituent assembly. The once-friendly media mogul by buying up senate vote, promises Gustavo Leite, the government thinks it is enough to ram the much ofthe press himself. trade and industry minister. change through congress and hold a refer- Soon after the senate vote, protesters MrCartesislikelyto win in the end. The endum. “We’re living in a dictatorship converged on congress, with rioters join- supreme court is packed with his allies. with the name ofa democracy,” said Rocío ing as night fell. A police cordon gave way, Barely 12 hours after congress burned, the Vera, an actress, at a vigil outside congress. surrendering congress to arsonists. Mount- finance ministry tweeted images ofSantia- On her side are less high-minded foes ed officers fired tear-gas. Police arrested 211 go Peña, the minister, tangoing at the IADB of Mr Cartes’s scheme. They include a cro- people, allegedly torturing some. meeting. The country’s leaders know how ny-capitalist faction of the Colorado Party, Mr Cartes’s government is now trying to charm foreign investors. Now they must which is angry that the president has invit- to rescue its reputation. He has sacked the regain the trust ofParaguayans. 7 Bello Not so bad, perhaps

The threat from Donald Trump may be diminishing. That does not mean Mexico can relax N THE anxious days before Donald in the White House, is thought to support ITrump was inaugurated in January the the idea. It is little comfort to Mexico that outlook for Mexico seemed bleak indeed. the taxwould hurt all exporters to the Un- Mexicansworried thatthe president-elect ited States, not just Mexicans. would do what he said: tear up or drasti- The fact is that Mexico remains un- cally revise the North American Free- comfortably exposed to Mr Trump’s Trade Agreement (NAFTA), build a wall whimsand MrRyan’staxplans. Although on the United States’ southern borderand theymaynotcarryouttheirworstthreats, deport millions of their countrymen. Be- they have already done damage. Foreign tween election day in November and investment is likely to be lower this year mid-January the peso lost 15% of its value than in 2016. Higher inflation, the result of against the dollar. the peso’s slump and a rise in fuel prices Now, 11 weeks into Mr Trump’s sham- ordered by the government, has hurt con- bolic administration, the mood has light- sumer spending, the main source of ened somewhat. Mexicans watch with growth lastyear. GDP growth in 2017 isun- mounting glee as judges block his execu- likely to match last year’s 2.3%. tive orders. They are encouraged, too, by The government of Enrique Peña the impression that he cannot get bills cently lifted its forecast forgrowth in Mexi- Nieto must not let down its guard, in part through Congress and is hobbled by co this year from 1.3% to 2%. Outside the because the Trump scare is a spur to do probes into connections between some theatre of Mr Trump’s threats, real-world things Mexico should be doing anyway. It of his advisers and Russia. trade is doing well. Strong manufacturing is improving trade ties with more-distant Now they have reason to hope that Mr growth in the United States is helping Mex- partners, including China and the Euro- Trump’sprotectionism will be less calam- ican factories: Mexico’s non-oil exports pean Union. Minus the United States, the itous than feared. Wilbur Ross, the United grew 5.5% year-on-year in February. The TPP could become a hub of future trade States’ commerce secretary, talks of mak- boss of a maquiladora factory on the bor- agreements. Mexico is making a case for ing a “very sensible” agreement with der says: “2017 is looking good.” NAFTA among Americans who would be Mexico. A leaked draft letter to Congress It is still too early to conclude that some hurt by Mr Trump’s protectionism, from by the acting trade representative, Ste- combination of Mr Trump’sincompetence maize growers in Iowa to consumers phen Vaughn, proposes updating NAFTA and reasonableness among his trade nego- across the country. to make it more like the Trans-Pacific Part- tiators will shield Mexico’s economy from Most important, the Mexican govern- nership (TPP), an 11-country trade agree- his aggression. Congress has yet to confirm ment needs to do more to spread prosper- ment from which Mr Trump withdrew. the United States’ trade representative, ity, raise productivity and strengthen the Peter Navarro, Mr Trump’s trade adviser, though here, too, the signals are mildly en- rule of law. Excessive red tape encourages wants to create a “mutually beneficial re- couraging. Mr Trump’s nominee, Robert many businesses to remain informal. The gional powerhouse”, though his way of Lighthizer, is more likely to be a vigorous economy is still hobbled by poor infra- doing that could be disruptive. He would enforcer of trade rules than a shredder of structure and criminality. This week the tighten rules of origin, which might make the rule book. editor of El Norte, a newspaper in the bor- it hard for Mexico to get car parts from der town of Juárez, said it would close China to sell within NAFTA, forexample. Stay scared down because journalism had become All this better-than-expected news More worrying, perhaps, is what the Un- too dangerous. A reporter who had con- from Washington has pushed the peso, ited States might do on tax. Paul Ryan, the tributed to the paper was recently mur- which functions as a national mood ring, Speaker of the House of Representatives, dered in the nearby city of Chihuahua. If nearly back to its pre-election levels. That wants a 20% “border-adjustment tax” to Mexico wants to be strongenough to cope reduces the riskofhigher inflation and in- pay for a cut in corporate-tax rates. Steve with the Trump era, it must do something terest rates. JPMorgan Chase, a bank, re- Bannon, the leading economic nationalist about such lawlessness. Middle East and Africa The Economist April 8th 2017 37

Also in this section 38 Chemical weapons in Syria 39 The insurgency in Sinai 40 The “little Sparta” of the Gulf

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South Africa for him to step down. Some of the ANC’s most senior leaders are now speaking out The president v the people against Mr Zuma, albeit cautiously. Among them is Cyril Ramaphosa, the deputy president, who wants to succeed Mr Zuma as president. Mr Ramaphosa, who had remained silent until now, condemned Mr JOHANNESBURG Zuma’s flimflam excuse for the firing: an “intelligence report” allegingthat MrGord- Jacob Zuma faces a revolt afterreplacing a scrupulous finance ministerwith a crony han’s unremarkable investor road trip was HE death ofa struggle hero brought the Zuma had ordered Mr Gordhan to return part ofa “plot” to overthrow the president. Tgreat and good ofSouth Africa together from Britain, where he was drumming up Mr Zuma has also angered other ANC in mourning. Ahmed Kathrada, who was investment, to face the axe. The rand duly leaders over his failure to consult with sentenced to life on Robben Island along- fell, and within days of the reshuffle S&P, a them on the reshuffle, as party pratice dic- side Nelson Mandela, died on March 28th. credit-rating agency, had cut South African tates. Gwede Mantashe, the party’s secre- His funeral at a Johannesburg cemetery debt to junk. Ministers with disastrous re- tary-general, worried that the list of new drew former presidents, sitting cabinet cords, meanwhile, kept their jobs. ministers had been compiled “somewhere ministers, the chief justice of the highest Mr Zuma has crossed a line. For the first else”. His concerns are reasonable: South court and the leaders of the African Na- time, he is facing an open rebellion from Africa’s anti-corruption ombudsman last tional Congress (ANC). There was one con- within the ranks of the ANC as well as its year called for a judicial inquiry into alle- spicuous absence: Jacob Zuma. Instead, official partners, the South African Com- gations that the Gupta brothers, tycoons the man who had preceded him as South munist Party (SACP) and the Congress of and close friends of Mr Zuma, had exerted African president read from a letter in South African Trade Unions (COSATU). undue influence on cabinet appointments which Mr Kathrada, in a final act of resis- The SACP and COSATU have joined calls and government contracts. tance, called on Mr Zuma to resign. The If the ANC fails to remove Mr Zuma, he crowd ofmourners erupted in cheers. may continue to control the party’s future. Such is the tenor of opposition to Mr The president’s record In December the ANC will choose its new Zuma, who has an approval rating of just South Africa leaders at a five-yearly elective conference. 20% among urban South Africans (though GDP, % change on a year earlier The winner is likely to become South Afri- higher among rural ones). Even those who ca’s next president in 2019 (after a parlia- 6 backed him through countless scandals Jacob Zuma elected mentary election; MPs then choose the are now calling for him to quit. Their pleas 4 president). With a pliant new cabinet in 2 have fallen on deafears, with the president + place, Mr Zuma hopes to be in a stronger 0 growing ever more defiant. A day after the – position than ever to ensure that his pre- 2 funeral, MrZuma reshuffled hiscabinet, fir- 2003 05 07 09 11 13 15 17* ferred successor, his ex-wife Nkosazana ing the respected finance minister, Pravin Dlamini-Zuma, takes over from him. Gordhan, and his deputy, and replacing General government gross debt, % of GDP Getting rid of Mr Zuma any earlier than them with cronies. In doing so, Mr Zuma 60 that does not lookeasy. Ashrewd operator, defied warnings from his own party and 40 he has installed loyalists in key positions the markets. Mr Gordhan had kept a tight within South Africa’s police, prosecuting rein on spending and stood firm against 20 authority and state security apparatus. Mr corruption, while working doggedly to 0 Zuma was in charge of intelligence-gather- 2003 05 07 09 11 13 15 17* keep South Africa’s debt from being downing for the ANC while it was in exile, and Source: IMF *Forecast graded. As if to mock these concerns, Mr hasa longmemory. Hismostvocal suppor-1 38 Middle East and Africa The Economist April 8th 2017

2 ters have been the ANC women’s league, Syria deadly chemicals into the air. Leaders in and its youth league, which he neutered by the West condemned the regime, but little ousting its rabble-rousing former head, Ju- Assad unleashes more. Donald Trump declared that his lius Malema. In a show of support, the view of Syria and its dictator had changed, youth league held a stadium rally to cele- horror again but declined to say what he would do brate the reshuffle. Susan Booysen, a poli- about it. tics professor at the University of the Wit- If the West ends up doing little, it ought watersrand and the author of several BEIRUT not to come as a surprise. When the Syrian books about the ANC, expects Mr Zuma to government gassed to death more than A chemical-weapons attackkills scores dig his heels in hard. “He will be pulled 1,400 people on the outskirts of Damascus down kicking and screaming,” she said. N APRIL 4th a chemical attack struck in August 2013 it seemed inevitable that “This is a battle now for the soul of the Othe town of Khan Sheikhoun in Idlib, America would respond by launching air party.” a province in northern Syria controlled by strikes against the regime. One week after Civil-society groups have planned an alliance of rebel groups, including a the attack—the deadliest use of chemical marches in protest through the streets of powerful faction linked to al-Qaeda. At weapons since Saddam Hussein gassed Johannesburg and Pretoria. Opposition least 85 people, including20 children, died, Iraqi Kurds in 1988—John Kerry delivered parties are vowing to work together to re- according to doctors and a Syrian monitor- one ofhis most bellicose speeches as secre- move Mr Zuma from office. Their best shot ing group. The World Health Organisation tary of state, arguing the case forAmerican is through a no-confidence motion in par- said victims appeared to display symp- military action in Syria. “It matters if the liament. Forthis to succeed, at least 50 ANC toms that tally with the use of a deadly world speaks out…and then nothing hap- MPs would need to cross the floor. Many nerve agent such as sarin (as opposed to, pens,” Mr Kerry said. doubt that ANC members would support say, a less powerful one such as chlorine). Yet nothing, at least militarily, is just an opposition motion, even though the One boy was filmed suffocating on the what happened. Instead, workingwith the ruling party’s chief whip, Jackson ground, his chest heaving and his mouth Americans, the Russians brokered a deal Mthembu, is a critic of Mr Zuma. The presi- openingand closinglike a fish out of water. that saw the Syrian regime supposedly dis- dent has easily survived several such Photographs show dead children lined up mantle its chemical-weapons programme. votes, including one a year ago after South in rows on the floor or piled in heaps in the The Organisation for the Prohibition of Africa’s highest court found that he had vi- back of a vehicle, their clothes ripped from Chemical Weapons (OPCW) destroyed olated the constitution. them by rescuers who used hoses to try to about 1,200 tonnes of Syria’s chemical Other observers, though, think the tip- wash the chemicals from their bodies. stockpile. BarackObama hailed the deal as ping point may be near. Parliament is on a Other images show victims foaming from a triumph fordiplomacy over force. break until the second week of May, and their mouths or writhing on the ground as Yet chemical attacks by regime forces the delay may allow outrage over Mr they struggle for air. Hours after the attack continued, experts believe. Last year Zuma’s shenanigans to subside. But oppo- began, witnesses say, regime warplanes American and European officials began to sition parties have written to the speaker, a circled back over the area and dropped voice growing fears that Damascus might Zuma loyalist, asking that she hold an ur- bombs on a clinic treating survivors. have held onto nerve agents and other le- gent sitting; this is now set forApril 18th. After six years of war, international re- thal toxins, in defiance of the deal cooked The other road to a Zuma exit seems action to the attack followed a predictable up by Mr Obama and Mr Putin. “Syria has even rockier. Under the ANC’s constitu- pattern. The Syrian governmentswiftly de- engaged in a calculated campaign of in- tion, he could be made to step down by his nied dropping chemical weapons. Russia, transigence and obfuscation, of deception, party’s 104-member national executive its ally, said a Syrian air strike had hit a re- and of defiance,” Kenneth Ward, Ameri- committee. Such an internal “recall” felled bel-held weapons stockpile, releasing ca’s representative to the OPCW, said in 1 a previous president, Thabo Mbeki, in 2008. But the ANC’s current national executive is said to be evenly divided between those allied to Mr Zuma and those opposed. The party is trying to keep the fight behind closed doors. With decisions taken by consensus, a move against Mr Zuma seems unlikely fornow. Whether he stays or is forced out, Mr Zuma could split the party. This divide would be lessfactional than opportunistic, pittingthose who are beholden to the president against those seeking to preserve the ANC’s old reputation for idealism. During the struggle days, people joined the party because of principles (such as non-racial democracy), regardless ofpersonal cost, laments Sipho Pityana, an ANC stalwart who is now the chairman of AngloGold Ashanti, a mining firm. Mr Pityana has launched an anti-Zuma campaign called “Save South Africa”. He despairs that the ANC has become “open to opportunists” and that too many people use its power to gain “access to riches in society”. That is indeed why the ANC is losing popularity. It is unlikely to recover under Mr Zuma. 7 Not me, says Assad The Economist April 8th 2017 Middle East and Africa 39

Jebel Halal, a mountainous area. Israel Not gone yet USE OF CHEMICAL WEAPONS warns that IS has put up roadblocks in cen- (estimated fatalities) 1995 2017 tral Sinai to capture soldiers and tourists. WWI Aum Shinrikyo cult Assad regime launches sarin attack kills at least The insurgents still sow fear in the WWII 85* in attack on 1915-18 on Tokyo metro north amongMuslims, whom they force to 1962-71 (13) Idlib province Gas deployed by with gas obey Islamic strictures, and Christians, 1915 both German and America uses Germany first Allied Forces herbicides who suffered a series of murders in Febru- and tear-gas 1980-88 2013 to use poison (90,000) ary and March. IS has vowed to kill more 1935 in Vietnam, Iraq uses Assad regime gas during 1937-45 gas against uses sarin second battle Italy uses seen by some Christians, leading many to flee the area. Japan uses as a breach Iran and gas on own of Ypres mustard gas various gases Critics of the government say it has failed in Ethiopia of the Geneva Kurds citizens in (6,000) in China Syria (1,400) (15,000) protocol (50,000) to protect them. In December the Coptic cathedral in Cairo was bombed by IS. 19001910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 17 Given the choice to evacuate northern Sinai three years ago, Mr Sisi says he in- CONSTRAINTS ON CHEMICAL WEAPONS 1899 Hague stead chose to “act like a surgeon who uses Convention bans the 1925 1992 2013 his scalpel to extract the tumour without use of “asphyxiating Geneva protocol reaffirms Chemical Weapons Russia-brokered deal harming the rest of the body”. But resi- or deleterious gases” ban on asphyxiating, Convention presented to ”eliminate” Syrian launched in projectiles poisonous or other gases to UN, enacted in 1997 chemical weapons dents describe scorched-earth tactics. Source: The Economist *To 6th April 2017 “Once militants are in the area, the area must be razed,” says an Egyptian NGO worker in Sinai, describing the army’s 2 July. “We…remain very concerned that likely to fuel further extremism in Syria, as mindset. It demolished thousands of [chemical warfare agents]…have been il- other jihadist groups sought to take advan- homes in Rafah in 2015 to stop the smug- licitly retained by Syria.” tage ofthe vacuum that America’s political gling ofweapons and fighters from Gaza. All these fears seem to have been borne disengagement presented them with. It The government has banned reporters out. Aspartofthe deal in 2013 to end Syria’s would also mean that, with Mr Assad at from the region, butitsactionsare still scru- chemical-weapons programme, both the helm, the Syrian regime continued to tinised. Take its release of a video purport- America and Russia promised to punish drop gas on its own people. There would ing to show a raid in January in which sol- the Syrian regime should it use chemical be nothing to stop it. 7 diers killed ten militants. Locals say the weapons again. Despite evidence ofthe re- men, some of whom had been arrested gime’s repeated use of chlorine gas since months earlier, were shot in cold blood. then, neither side has honoured this pro- The insurgency in Sinai The raid, they say, was staged. mise, at least until now. In February Russia The government has long questioned once again blocked efforts at the UN Secu- Terror and the loyalty of Sinai’s residents, many of rity Council to sanction military and intel- whom are Bedouin. They cannot join the ligence chiefs connected to the country’s counter-terror army or police, or hold senior government chemical-weapons programme. A similar posts. The region is poor. The insurgency fate doubtless awaits the latest attempt by CAIRO was originally fuelled by such grievances. Britain, France and America at the Security Now there is widespread contempt for The otherfront in the waragainst Council. Hours after the attack, the three both the government and the militants. Islamic State countries demanded a resolution ordering The situation poses a challenge for Mr the Syrian government to hand over all NLY nine days in, the Egyptian army Sisi, who hopes to lure foreign investors flight logs, flight plansand the names ofair- Oclaimed to have killed 415 militants in and tourists back to Egypt. IS scared many force commanders to international inspec- Operation “Right of the Martyr”, its cam- of them away when it bombed a Russian tors. Russia, however, called the resolution paign against jihadists in the Sinai penin- airliner departing from the resort of Sharm “unacceptable”. sula that began in September 2015. Since el-Sheikh in 2015. Officials say the jihadists Barring a significant shift in American then it has often boasted of killing dozens are linked to the Muslim Brotherhood, the policy towards military action, the latest more in attacks; sometimes over100. But in avowedly peaceful Islamist group that Mr use of chemical weapons is unlikely to al- February the chief of military intelligence Sisi booted from power. They also claim ter the war’s trajectory much. The rebels said the army had killed only around 500 that the situation is under control. 7 are weakening. They lost their enclave in in total since the operation began. the city of Aleppo, the opposition’s last big The body-count is often cited by the SYRSY IA M editerranean Gaza urban stronghold, in December. Pockets of armed forces as evidence of their success S ea Strip resistance remain around Damascus, against the long-running insurgency, Jerusalem Rafah north ofHoms city, and alongthe southern which flared up in 2013 after Abdel-Fattah ISRAAELAEAEL al-Arish border with Jordan; but these areas grow al-Sisi, then a general, now president, top- JOJORDAN ever more isolated. In Idlib an alliance led pled a democratically elected Islamist gov- Cairo Jebel Halal by a group linked to al-Qaeda has gained ernment. But the militants, many ofwhom Sinaii strength, allowing America to argue that pledged allegiance to Islamic State (IS), there are few appropriate rebel partners continue to torment the region. They have EGYPT SAUDI left to workwith on the ground. killed hundredsofsoldiersand policemen, Sharm ARABIA NNile el-Sheikh Indeed, now that Donald Trump is in fired rockets into Israel and targeted Chris- le charge, removing Mr Assad from power is tian civilians.

no longer a stated aim of American policy More and more, the army is fighting the Red in Syria. In recent weeks senior American militants outside their stronghold in the 200 km Se officials said for the first time in public that north. In February and March it conducted they could live with Mr Assad as they con- raids on hideouts in the desert ofcentral Si- a centrate on defeating Islamic State. Ironi- nai. This month, after several failed at- cally, this approach would in fact be more tempts, itsaysittookthe insurgents’ base in 40 Middle East and Africa The Economist April 8th 2017

The United Arab Emirates amphibious landing to seize Aden from the Houthis. The Gulf’s little Sparta With the help of American SEALs, Emi- rati soldiershave since then taken the ports of Mukalla and Shihr, 500km (300 miles) east, and two Yemeni islands in the Bab al- Mandab strait, past which 4m barrels ofoil BERBERA pass every day. The crown prince has seen off Qatari interest in Socotra, a strategic Ye- Driven by an energetic prince, the UAE is building bases farbeyond its borders meni island, by sending aid (after a hurri- UCKED away behind rows of tin Arabia all pose a challenge. cane) and then construction companies, Tshacks and unkempt acacia trees, a But as the expansion accelerates, ob- which a Western diplomat fancies may cluster of tumbledown villas, mosques servers are asking whether the UAE is bent build an Emirati version of Diego Garcia, and a synagogue conjures up the grandeur on “the pursuit of regional influence”, as the Indian Ocean atoll where America has ofa port that once marked the southern tip Ms al-Ketbi puts it, for its own sake. Most a large military base. While Saudi Arabia of the Ottoman Empire. “Berbera is the analysts ascribe this push to Abu Dhabi’s struggles to make gains in Yemen, Emirati- true key of the Red Sea, the centre of east 56-year-old crown prince, Muhammad bin led troops earlier this year marched into African traffic, and the only safe place for Zayed. He is the deputy commander of the Mokha port and are setting their sights on shipping upon the western Erythraean UAE’s armed forces, and the younger Hodeidah, Yemen’s largest port and the shore,” wrote Richard Burton, a British brother of the emir of Abu Dhabi, who is last major one outside Emirati control. traveller, in 1855. “Occupation [by the Brit- also the president ofthe UAE. The prince has also backed separatists ish]…has been advised formany reasons.” On the prince’s watch, the UAE has in Somalia, helping to stand up both Punt- After the British came the Russians and gone from being a haven mindful of its land, by funding its Maritime Police Force, in the 1980s NASA, America’s space agency, own business into the Arab world’s most and Somaliland. And in Libya, he has sent which wanted its runway, one of Africa’s interventionist regime. Flush with petro- military support to Field-Marshal Khalifa longest, as an emergency stop for its space dollars, he has turned the tiny country, Haftar’s Libyan National Army, an autono- shuttle. Now the United Arab Emirates whose seven component emirates have a mous force in the east of the country. To (UAE) is Berbera’s latest arriviste. On combined population of almost 10m (only Turkey’s fury, the UAE opened an embassy March 1st DP World, a port operator based about 1m of whom are citizens), into the in Cyprus last year and is involved in mili- in Dubai, began working from Berbera’s world’s third-largest importer of arms. He tary exercises with Greece and Israel. beachside hotel. Officials put little Emirati has recruited hundreds of mercenaries, But sceptics worry about the dangers of flags on their desks, and refined plans to and has even talked ofcolonising Mars. overreach and the potential for clashing turn a harbour serving the breakaway re- with greater powers crowding into the Red public of Somaliland into a gateway to the Hurricane Muhammad Sea. On its western shores Israel, France 100m people of one of Africa’s fastest- In 2014 he imposed military conscription and the United States already have big growingeconomies, Ethiopia. Three weeks on his pampered citizens, and sent dozens bases. China is building a port in Djibouti. later the UAE unveiled another deal for a to their deaths in the Saudi-led campaign Iranian generals look to establish their 25-year lease of air and naval bases along- against Houthi rebels in Yemen. Before be- own naval bases on Yemen’s rebel-held side. The agreement, rejoiced a Somaliland coming America’s defence secretary, Gen- coast. And though formally part of the minister in the hotel café, amounted to the eral James Mattis dubbed the UAE “little same coalition in Yemen, some Saudi first economic recognition of his tiny re- Sparta”. Join the dots of the ports it con- princes are looking askance at their ambi- public. It would fill the government’s cof- trols, and some even see the old Sultanate tious junior partners. In February Saudi- fers, and bolster its fledgling army. Busi- of Oman and Zanzibar, from which the and Emirati-backed forces fought each oth- nessmen sat at his table discussing solar emirates sprang, arising afresh. er over control of Aden’s airport. Saudi power stations, rocketing land prices and The UAE has won Berbera and Eritrea’s Arabia’s princes have also hosted Soma- plans fora Kempinski hotel. Asaab base by agreement, but elsewhere it lia’s president, who criticises the Emirates’ Berbera is but the latest of a string of applies force. In July 2015 it defied doub- Berbera base as “unconstitutional”. Some ports the UAE is acquiring along some of ters, including the Saudis, by capturing wonder what the prince’s father and the the world’s busiest shipping routes. From Aden, once the British Empire’s busiest UAE’s founder, Sheikh Zayed Al Nahayan, Dubai’s Jebel Ali, the Middle East’s largest port. “They have the only [Arab] expedi- would have made of it all. “Be obedient to port, it is extending its reach along the tionary capability in the region,” oozes a Allah and use your intelligence instead of southern rim of Arabia, up the Horn of Af- Western diplomat, fulsome in his praise of resorting to arms,” he used to counsel rica to Eritrea (from where the UAE’S cor- the UAE’s special forces, who mounted an when fellow Arabs went to war. 7 vettes and a squadron of Mirage bombers wage war in Yemen), and on to Limassol King Abdullah Ports and Benghazi in the Mediterranean. Fears SUDAN Economic City that Iran or Sunni jihadists might get there IRAN SOUTH SAUDI ARABIA first—particularly as the region’s Arab SUDAN ERITREA

The Gulf Red Sea QATAR heavyweights, Saudi Arabia and Egypt, AFGHANISTAN seem to ﬂounder—propel the advance. Jebel ETHIOPIA Abu Dhabi Ali Dubai “Ifwe waited to prevent these threats at Hodeidah Assab our borders, we might be overrun,” ex- Mokha UAE Chabahar plains Ebtesam al-Ketbi, who heads a DJIBOUTI Aden YEMEN PAKISTAN Gulf think-tank in Abu Dhabi. The UAE also Bab al-MandibMukalla Str Berbera Shihr OMAN of Oman worries that rivals might tempt trade away Somaliland Duqm from Jebel Ali, awkwardly situated deep KENYA ait N Socotra inside the Gulf. Rapid port expansion at (to Yemen) Arabian Chabahar in Iran, Duqm in Oman and Sea 500 km Puntland King Abdullah Economic City in Saudi SOMALIA SPECIAL REPORT THE PEARL RIVER DELTA April 8th 2017

Jewel in the crown

SPECIAL REPORT THE PEARL RIVER DELTA

Jewel in the crown

The Pearl river delta is China’s most dynamic, open and innovative region, says Vijay Vaitheeswaran. Can it show the way for the rest of the country? LIBERAL ECONOMICS MAY have gone out of fashion, but not before CONTENTS workingmiracles in some parts ofthe world. To witness one of them, visit the Luohu immigration-control point on Shenzhen’s border with Hong 5 Diversification Kong, where some 80m crossings are made every year. Since Deng Xiao- Asia makes, China takes ping designated the mainland Chinese city as a special economic zone in 6 Infrastructure 1980, putting out the welcome mat for foreign investment and encourag- Come closer ing private enterprise, trillions of dollars of trade and investment have flowed across this border. 7 Hengqin Forty years ago Shenzhen was a rural backwater. Today it is the Macau writ large most dynamic city ofthe Pearl river delta (PRD), China’s most innovative 7 Automation region. Rem Koolhaas, a Dutch architect who teaches at Harvard, called it Robots in the rustbelt the ultimate “generic city”—a place without legacy that can swiftly adapt and grow with the times. It is still doing that, but is now old enough to 9 Innovation have a memory. Welcome to Silicon Delta Not far from the border crossing is Hubei, one of the city’s original ACKNOWLEDGMENTS 11 Hong Kong and the communities. Old buildingsin the neighbourhood are beingdemolished In addition to those cited in the mainland to make way for modern structures. “If we all get involved in this trans- text, the author would like to thank The dragon head’s dilemma the following for their help with this formation, every family will benefit!” declares a giant banner. The au- report: Nick Allen, Nicholas Brooke, thorities are offeringcompensation to villagers and local homeowners. 12 The lessons Liam Casey, Patrick Cheung, Jona- “Many people consider this place a slum,” explains Mary Ann A China that works than Choi, Mark Clifford, Steve Dickinson, Michael Enright, Merle O’Donnell, an American expert on Shenzhen’s urban villages. It is in- Hinrich, Peter Helis, Parag Khanna, deed shabby compared with Nanshan, a wealthy high-tech neighbour- Robert Lai, Herman Lam, Patrick hood nearby with an average income per person of over $50,000 a year. Low, Glenn McCartney, Mark Yet even this humble place has benefited from globalisation. The homes Michelson, Alberto Moel, Sarah Monks, Gordon Orr, Pan Nongfei, Pan here have properwallsand roofs, aswell aselectricity, running waterand Weichao, Elaine Pickering, Jill Rigg, sewerage. Hubei is not heaven, but any slum-dwellerin Caracas or Mum- Jeremy Sargent, Andrew Seaton, bai would love to live like this. Harley Seyedin, Ben Simpfendorfer, The PRD is home to nine mainland cities in the province of Guang- Edward Tse, Alberto Vettoretti, Richard Vuylsteke, Wang Junyang, dong, notably Shenzhen and Guangzhou (formerly Canton), as well as to Jonathan Woetzel, Brian Yen, Jack China’s special administrative regions of Hong Kong and Macau (see A list of sources is at Yeung, Eric Yim and Daniel Yip. map, next page). The World Bank recently declared the PRD the world’s 1 Economist.com/specialreports

The Economist April 8th 2017 3 SPECIAL REPORT THE PEARL RIVER DELTA

2 biggest megacity, surpassing Tokyo. With over66m residents, it is make the delta fit for the future: diversification, integration, auto- more populous than Italy or, just, Britain. mation and innovation. This modest-sized triangle of land and water near China’s Diversification isnecessaryfortwo reasons. Asalready not- southern fringe has one of the world’s most successful econo- ed, the cheap labour that once kept the delta’s manufacturing mies. Its GDP, at more than $1.2trn, is bigger than that of Indone- plantsgoingisrunningoutand wagesare rocketing, so bossesare sia, which has fourtimes as many people. It has been growing at shifting some factories to places with lower labour costs. At the an average of 12% a year for the past decade. As a global trading same time exporting to the West has become harder. Rich-world power the region is outranked only by America and Germany. economies have grown little since the financial crisis nearly a de- For China itself, the PRD is crucial. Though it accounts for cade ago, and both America and Europe are becoming more re- less than 1% of the country’s territory and 5% of its population, it sistant to trade, so the delta’s manufacturers are redirecting some generates more than a tenth of its GDP and a quarter of its ex- oftheir exports to the Chinese market instead. ports. It soaks up a fifth ofChina’s total foreign direct investment Governments and firms are also trying harder to integrate and has attracted over a trillion dollars-worth of FDI since 1980. markets, investing in infrastructure that will make it easier to do Above all, it is a shining example ofthe China that works. business in the region. Unlike the Yangzi river delta cluster None of this would have happened without free enterprise. For centuries this trading post was the country’s most glo- Though the delta accounts for less than 1% of China’s balised corner. The economic liberalisation of the 1980s and 1990s transformed territory and 5% of its population, it generates more the delta into China’s leading manufac- than a tenth of its GDP and a quarter of its exports turing and export hub. Now it is rapidly becoming one of the world’s most innovative clusters. around Shanghai, which focuses on the domestic market, the Even so, this great workshop to the world is now facing a PRD serves the world, so its infrastructure was designed mainly number of challenges. Rival economies in South-East Asia and forexports. Its supply-chain firms are now developingnew logis- elsewhere are becomingmore competitive. FDI inflowsare slow- tics systems to serve domestic demand. Automation plays a big ing. And as the whole of China is getting older and its labour part in this adjustment process. force is shrinking, the flow of migrants into the region is drying up. The net inflow of migrants into Guangdong has fallen by Alpha delta nearly half since 2008, from 1.1m to just 600,000 last year. Over Most remarkably, a region once known for copycat pro- the same period the net outflow of workers from Hunan, a poor ducts is emerging as a world-class cluster for innovation. Shen- neighbouring province, dropped from 286,000 to barely 30,000. zhen, a city of migrants, has rapidly moved from sweatshops to Rising competition and a shrinking workforce are national pro- advanced manufacturing, robotics and genomics. It is home to blems—but as the most open and market-oriented part of China, Huawei and Tencent, two of China’s most valuable and inven- the delta is feeling the pain more than the rest ofthe country. tive multinationals. Even Apple, an American technology giant, This special report will ask whether the PRD can adapt to is building a research and development centre there. these harsh newrealitiesand once again lead the restof China by Hong Kong, which this summer marks the 20th anniversa- example. It will point to four powerful trends that should help ry of its handover from Britain to China, is the perfect comple- mentto innovative Shenzhen. Itscommitmentto free speech, the rule oflaw and international standards has made it a vibrant global financial centre. Cross-border financial flows between Guangdongand HongKongare an explicit part ofthe Closer Eco- CHINA nomic Partnership Arrangement, an accord between the main- Guangzhou 13.5 land and Hong Kong that liberalises trade and investment in manygoodsand services. HongKong’sbankingsystem and capi- 4.1 Dongguan tal markets are in private hands, whereas their counterparts on Zhaoqing Huizhou 4.8 the mainland are tightly controlled by the state. Hong Kong is 8.3 also the leading offshore centre fortrading the yuan and the conduit formuch ofthe foreign investment by mainland firms. 7. 4 Foshan When the mainland’s economy emerged from the devasta- PRD Shenzhen 11.4 tion wroughtbyMao Zedong’spolicies, itwasthe thatpoint- 4.5 Jiangmen ed the wayto the future. Shenzhen’sentrepreneursdefied central 3.2 Zhongshan planners and demonstrated the power ofmarket forces. Zhuhai Hong Kong 7. 4 The mainland is now in difficulty again, with double-digit 1.6 growth a distant memory. It is struggling with excessive public debt. Too much investment has gone into white-elephant pro- Macau South China Sea jects and ghost cities. Failure to reform or kill bloated state- SOE 0.6 50 km owned enterprises ( s) has created zombie companies. In contrast, the PRD’seconomyismade up mostlyofprivate Infrastructure, March 2017 Population density SOE 2015*, ’000 per km2 companies. Of the more than 100 giant s controlled directly Airports High-speed railway by the central government, only four are based in this market- Ports Hong Kong-Zhuhai- Intercity railways: Under 1 Over 5 minded region. The delta’s nimble firms have longbeen exposed Macau Bridge Operational Population to brutal competition in global markets. Some have succumbed (under construction) Under construction 2015, m or moved to cheaper places, but many of those that remain are Sources: European Commission; Harvard University; InvestHK; CEIC; Wind Info *Estimate world class. The question is, can the delta continue to lead? 7

4 The Economist April 8th 2017 SPECIAL REPORT THE PEARL RIVER DELTA

Diversification It’s all relative 2005 2015 Asia makes, China Manufacturing labour costs* GDP per worker†, $’000 Per hour, $ 2005 prices takes 01020304050 020406080100 20 United 10 Germany States United 26 Germany 2 States The delta’s factories are doing a U-turn Japan -5 Japan 5 “THE GREAT CONVERGENCE”, a recent book by Richard China 371 China 137 Baldwin, argues that throughout most of the industrial era the know-how and culture essential forhigh-end manufacturing India 89 Indonesia 40 remained cloistered in the factories of the rich world. That led to a divergence between the fortunes of the West and the rest. But Indonesia % change 67 India % increase 90 once the cost of communications started plunging, after 1990, Sources: Deloitte; International Labour Organisation *2015 estimated †All figures estimated such knowledge flowed more freely. Western multinationals built world-class factories in remote places, unpacking and outsourcing their manufacturing operations and supply chains. tories in places like northern Vietnam from which goods can China was one great beneficiary of this process. The devel- reach the delta within about a day. oped world’s industrial knowledge and the PRD’s low wages The PRD’s pragmatic diversification has created a resilient created an unbeatable combination. Vast quantities of well- regional network of production, known as Factory Asia, which made but affordable goods were shipped from the delta’s fac- reinforces rather than undermines the region’s importance. The tories to meet the seemingly insatiable appetites of the rich delta contains many industrial clusters, ranging from cars to world. So the othergreatbeneficiaryofthisaxisofefficiency was lighting to electronics. The complex webs of suppliers, middle- the consumer in the West. men and skilled workers on which these ecosystems rely are un- Now the axis is looking wonky at both ends. Labour short- likely to disappear from it in the foreseeable future. ages and increases in minimum wages have pushed up manu- Tommi Laine-Ylijoki, who manages the supply chain for facturing salaries by a factor of four in the past ten years (see the consumer business at Huawei, a Chinese multinational chart). They are now considerably higherin China than in South- based in Shenzhen, emphatically rejects the idea that rising costs East Asia or India. At the same time the rich world’s appetite for might force him to shiftmanufacturingout ofthe PRD. He says he imports from China has been kept in check by years of stagna- did look into moving inland, but found that the cost differential tion, and there are now fears that its enthusiasm for free trade was only 20-30%—and his entire supplier base is in the delta. He may be waning. also wants his factories and suppliers to be close to his R&D team This problem faces industrial exporters across the main- because he believes that “collaborative manufacturing” pro- land, but it is most acute in the delta. Hourly wages in Guang- motes innovation. Huawei outsources the production of most zhou are about a third higher than the national average. In re- smartphones, but keeps about a tenth in-house to maintain the sponse, the PRD’s resilient manufacturers are performing a neat “touch and feel” of mass manufacturing. Given the PRD’s out- pivot. They are shifting some of their manufacturing to cheaper standing logistics, manufacturing and supply chain, he says, “I regions nearby, and they are redirecting exports to the huge and can’t thinkofa better place to be in the world to do this.” growing mainland market. “China 2.0 has emerged,” declares Marshall Fisher of the Wharton Business School. Until about A treasure at home 2010, the region’s labour-intensive factories (which he dubs Chi- The grand pedestrian promenade at the heart of Guang- na 1.0) operated on labour-cost arbitrage. When wages shot up, zhou feels like a modern homage to Barcelona’s Rambla. On one many pundits predicted a bleak future for the delta, with fac- side rises a beautiful opera house designed by Zaha Hadid, on tories decamping en masse to cheaper places in Asia. Instead, the otheris a fine museum set in a buildingresembling a Chinese says Mr Fisher, the PRD’s companies diversified and adapted. treasure box. A rainbow of lights on the elegant Canton Tower It is worth noting that despite the recent difficulties, China casts a shimmering reflection on the Pearl river nearby. Inc remains king of global manufacturing. Deloitte, a consultan- It does not look like a grubby industrial city. Decades of cy, quizzesover 500 chiefexecutives round the globe every three growth have made this region wealthy. The delta owes its dyna- years to rank countries on their manufacturing prowess. In the mism to legions of private companies, so this wealth has been latest report, published last year, China came top, beating Ameri- widely spread. Guangdong has a huge middle class of avid con- ca, Germany and Japan, just as it had done in 2013 and 2010. sumers. Annual total retail sales in Guangzhou and Shenzhen Moreover, the delta has not been hollowed out, as some are far bigger than in Hong Kong. The world’s highest-grossing had predicted. Many firms have considered leaving, and those in outlet ofSam’s Club, an American retailer, is in Shenzhen. highly labour-intensive industries (such as low-end textiles or Alibaba, China’s biggest e-commerce firm, holds a giant on- shoes) have indeed left. But most firms have stayed, keeping the line-shopping extravaganza, known as Singles’ Day, on Novem- bulk of their operations in the delta but hedging their bets by in- ber11th every year. Last year customers spent a whopping 120bn vesting in cheaper regions. Some have set up factories in cities in yuan ($17bn) on its shopping sites during those 24 hours, more China’s interior, others in South-East Asia. than Americans spend on their Black Friday and Cyber Monday Such investments typically form the spokes of a wheel still shopping sprees combined. Usually Alibaba hosts the event in radiating from the PRD. George Yeo has his finger on the region’s its home town of Hangzhou, but last year it moved the Singles’ pulse. He runs Hong Kong’s Kerry Logistics, a warehousing and Daygala (featuringKobe Bryant, a basketball star, and lingerie su- transport firm with a big presence in the region. There is no evi- permodels from Victoria’s Secret) to Shenzhen. dence of a wholesale exodus, he says. His clients are adding fac- Guangdong spends more than any other province on Sin-1

The Economist April 8th 2017 5 SPECIAL REPORT THE PEARL RIVER DELTA

2 gles’ Day, but there was another reason to hold the event in the handle more containers than does Shanghai, the world’s busiest province, says Chris Tung, Alibaba’s chief marketing officer: his container port. Hong Kong has the world’s busiest cargo airport firm embraces globalisation and innovation, and Shenzhen “has (see chart, next page). always been at the forefront of China’s opening up to the world In many parts of China, politicised infrastructure spending and represents the spirit offorward-looking innovation”. has led to a number of white-elephant projects, but not in the The pivot to domestic consumption may seem an obvious PRD. Bureaucrats in the rest of the country should learn from the move for the delta’s factories, but foreign firms operating in the delta’s sensible, market-oriented planners. The PRD is not over- PRD, long fixated on export markets, were slow to respond to the built, so there is a good case forcontinuing such investment. rise of China’s middle classes. Now they are cottoning on. Fac- tories in the delta with owners in Hong Kong are also switching Keep building from exports to the mainland market. The latest five-year plan for Guangdong, released in 2016, Edwin Keh, an academic who previously worked as a se- calls for the creation of a “one-hour transport circle” to link the nior procurement manager at America’s Walmart, offers an ex- main citiesofthe delta. The province isaddingthousands ofkilo- planation: “We’ve created this global supply chain that is very ef- metresofnewexpressways. Abigexpansion ofthe intercity train ficient at making stuff in the East and consuming in the networkwill add 1,350km oftrack. Guangdong’sofficialshave in- West…but now it’s pointed in the wrong direction.” The PRD’s creased rail density from roughly 1km per100 square kilometres shipping, transport and logistics are designed for the speedy de- in 2008 to 2.2km, but are aiming much higher. The subway sys- liveryofmanufactured goodsfrom Shenzhen to LosAngeles, not tems in Guangzhou and Shenzhen, already among the world’s Shenzhen to Xi’an. Fortunately, thatis changing fast. 7 longest, are being expanded further. Guangzhou, the provincial capital, is particularly keen on more infrastructure investment. In an effort to make itself more Infrastructure attractive as a transit point for inland goods and grain, it has invested heavily to expand its deepwater port. It is also building a giant “aerotropolis”, a supply-chain hub and special economic Come closer zone around its airport, which will occupy over100 square kilometres. A forthcoming high-speed rail link from Hong Kong to Guangzhou will cut the travel time by half, to 48 minutes. Every three years a group led by the Urban China Initiative UCI Heavy spending on infrastructure is helping to ( ), a think-tank, preparesa detailed reporton the country’sur- banisation. It measures progress on 23 indicators, ranging from integrate the region social welfare (employment, health care) and pollution (air, wa- THE VIEW FROM Lovers’ Road in Zhuhai, a seaside prome- ter, waste) to the built environment (public transport, green nade in a bigcityon the PRD’slessdeveloped western flank, spaces) and resource utilisation (energy and water efficiency). In is breathtaking. A gentle mist rolls in, delighting mainland visi- its latest assessment of urban sustainability, published in March, tors more accustomed to toxic coal haze. The most expensive the PRD once again stood out. Shenzhen emerged as the clear flats in town are now going up on the boulevard, but the pre- winner out of185 mainland Chinese cities, and Guangzhou and mium price reflects more than just the ocean panorama. Zhuhai also made the top six. Ifyou take a ferryto HongKongfrom the terminus nearby, a Another sign that the PRD is leading China in making smart spectacular sight will soon come into view: the soaring pillars of infrastructure investments came with the publication in March the world’s longest sea-crossing bridge (pictured). It is part ofa Y- of the “Chinese Cities of Opportunity” report by the China De- 1 shaped bridge-and-tunnel combination stretching over 40km (25 miles). Despite numerous technical and political snags, the Hong Kong-Zhuhai-Macau (HKZM) bridge is nearingcompletion. It will turn a four-hour car journey into a 45-minute jaunt. Its most transformative effect may be on tiny Macau, which has lacked the infrastructure needed to attract global mass-market tourism (see box, next page). On a map of China the PRD looks small, but the delta’s land and wateroccu- py over 40,000 square kilometres. It can take a long time to get from one side to the other. Planners now want to knit the region together more tightly. To be fair, the PRD already has better infrastructure than most developing countries (see map at the start of this report). Its cities are better built, more connected and greener than those elsewhere on the mainland, with an extensive road network and excellent harbours and airports. Taken together, the seaports in neighbouring Shenzhen and Hong Kong Bridge to somewhere very useful

6 The Economist April 8th 2017 SPECIAL REPORT THE PEARL RIVER DELTA

Automation World infrastructure champions Busiest airports Busiest container ports Robots in the rustbelt By freight and mail, tonnes m, 2015 TEUs*, m, 2015

012345 010203040 Hong Kong Shanghai Memphis Singapore Factories are upgrading, but still lag far behind the Shanghai Shenzhen rich world Incheon Ningbo- Zhoushan WONG CHAP WING, a native ofHong Kong, runs a factory Anchorage Hong Kong in Dongguan, an industrial city north ofShenzhen. Hip Fai, Dubai Busan his privately held firm, stamps metal parts forthings like printers Louisville Guangzhou and copiers. The energetic septuagenarian started dye- and Frankfurt Qingdao mould-making in 1966, and recalls a time when migrants were Tokyo Dubai grateful fora job. “There are not enough technical workers now,” Taipei Tianjin he complains. Young people turn up their noses at factory work. Sources: Airports Council International; He used to pay 600 yuan a month, but now they demand 5,000. Marine Department of Hong Kong *20-foot standard container equivalent The future is not bright forworkshops that cannot upgrade. MrWonglooked into shiftingto a cheaperlocation inland butde- cided thatthe savingswere too small. He saysthatmany low-end 2 velopment Research Foundation (CDRF), an official research subcontractors in his area are closing down. Looking at the anti- body, and PwC, a consultancy. Using a different methodology quated equipment and the throngs of workers in his factory, it from UCI to scrutinise 28 bigChinese cities, the authors conclude seems this greasy and noisy place, too, may face extinction. that Guangzhou and Shenzhen are the best mainland cities for Turn a corner, though, and you spot the future: a hybrid as- “technological innovation and balanced development”. sembly line where shiny Japanese robots are mingling with hu- The mostimportantinvestmentsin infrastructure today are man workers. PeterGuarraia ofBain, a consultancy, explains that going into transforming supply chains so that the delta’s erst- the big global trend in factory automation is “co-bots”: robots de- while exporters can redirect theirmanufactures to the mainland. signed to collaborate safely with workers. They will look out for The Chinese term for logistics, translated literally, means “the people and can be programmed by line workers. flow of things”. Unfortunately, though exports from the PRD Mr Wong spent 200,000 yuan on each robot but expects to move extremely efficiently, the same is not true for the flow of get his money back within three years because his reconfigured goods inside China. The country spends over 14% of GDP on lo- assembly line is much more productive. Looking back, “I could gistics, nearly twice as much as many advanced economies. Li not imagine my factory full of robots,” he reflects. “I came here 1 Keqiang, China’s prime minister, has complained that it can cost more to ship goods within the mainland than from China to America. Macau writ large To Wuhan, not Washington William Fung, chairman of Li & A plan for the territory to attract many more tourists Fung, a pioneering supply-chain firm based in Hong Kong, notes that factories CAN MACAU KICK its addiction to gambling? will come from the private sector. Chimelong throughout the delta that had been send- The former Portuguese colony’s economy is Ocean Kingdom, a big theme park, has ingexportsto the Westforthe past two de- dominated by casinos. Officials now want to opened on Hengqin. A water-sports park is in cades are rearranging supply chains, rejig- diversify its business model to include enter- the works. International schools, hospitals, ging logistics and tweaking product de- tainment and family attractions, as Las Vegas restaurants and shows are being wooed. To signs to cater to customers on the has done. The snag is that Macau has about attract more investment, officials have cut mainland. Local supply-chain firms are 30 square kilometres of land. But a solution red tape. Visas will be offered on demand. investing furiously in such things as last- is, literally, within reach. Macau residents can drive to Hengqin with- mile distribution and fulfilment capabili- Hengqin, an underdeveloped island out mainland licence plates, and Hong Kong ties to help manufacturers sell at home. about three times the size of Macau, is just residents can work on the island and still pay One example isShenzhen’sSF Express, an 200 metres away. Part of the city of Zhuhai, it the territory’s low income taxes. ambitious delivery firm that pulled off a has been made into a special economic zone Best of all, there is the Underground successful public flotation in February. It to help Macau diversify, offering more liberal Great Wall—the local moniker for a massive has outgrown its command centre at investment rules and tax breaks. Money is tunnel, over 33km long, which contains all Shenzhen’s airport and is now building also going into infrastructure such as direct the utility pipes and cables needed for devel- Asia’s largest air-freight hub in Ezhou, a access to the HKZM bridge. opment. Electricity, heat, water, communica- city in the middle ofChina. Niu Jing, a high-ranking party official tions and waste from the entire island flow The results are beginning to show. in Hengqin, wants to see Macau and Hengqin through it and are controlled centrally. Three Exports as a share of Guangdong’s indus- develop together into a top-flight entertain- cables (helpfully labelled “Public Security”, trial output fell from 38% in 2000 to 27% in ment, culture and services cluster. He says “Military Police” and “Island Surveillance”) 2015. Mr Fung sums it up: “The next 30- that investments of 800bn-1trn yuan are carry the signals needed for the security year trend is consumption in China, and planned over the next 20 years, of which 70% forces to keep an eye on everything. we’re jumping in.” 7

The Economist April 8th 2017 7 SPECIAL REPORT THE PEARL RIVER DELTA

Dongguan has an oﬃcial policy of encouraging automation, part of a national strategy to upgrade manufacturing

2 forthe cheap labour.” risen by an average of 8.5% a year, but in the past three years this Dongguan has an official policy of encouraging automa- growth has slowed to less than 7% a year, and the absolute level tion, and has set aside 200m yuan a year to help its factories remains low, at only15-30% ofthat in OECD countries. eliminate jobs. This is part of a national strategy to upgrade Yet automation should be market-driven, not subsidy-in- manufacturing through automation. The governments of the duced, and there are signs ofa bubble. Thanksto the official push PRD are leading the charge. Guangdong has pledged to spend for “indigenous innovation”, Chinese automation firms are of- 943bn yuan to boost the manufacture and adoption of robotics ten subsidised even iftheir technology is not up to scratch. in the province. Guangzhou optimistically hopes to automate In an era ofrapid growth and cheap labour, Chinese bosses the jobs offour-fifths ofthe city’s industrial workforce by 2020. setup factorieswithoutmuch concern forefficiencyor qualityof tooling. If a problem arose, they would throw more men at the The productivity imperative job rather than invest even in simple automation. Now many of The sprawling headquarters ofMidea in Foshan, a city near them are uncritically replacing humans with hardware. Alix- Guangzhou, look as though that day has already come. The firm Partners, a consultancy, warnsthatChina risksbeing“leftbehind was started in 1968 with 5,000 yuan, operating from a workshop as a failed low-cost-country-model economy”. measuring just 20 square metres. He Xiangjian, the founder, and Karel Eloot of McKinsey, a consultancy, reckons that most his team scrounged what they could from Mao’s tattered econ- Chinese firms are not even bothering to adopt such global best omy to make plastic bottle caps, glass bottles and rubber balls. practices as Six Sigma, which uses statistical methods to ensure Today Midea is a Fortune 500 company and one of the world’s quality, and lean manufacturing, which emphasises efficiency biggest white-goods manufacturers, selling everything from in- and waste reduction. By one estimate, such tools could boost ternet-controlled kitchen appliances to smart washing ma- productivity by15-30%. Instead, many firms are deploying robots chines. Mr He, who retains a controlling stake in the firm, is a to automate their current inefficient ways of working. Mr Eloot multi-billionaire. Last year Midea gobbled up Kuka, a German would like to see more data, measurement and analysis on the robotics firm, in a deal worth nearly $5bn. It also has a joint ven- shop floor, with the lessons integrated into workroutines. 1 ture with Yaskawa, a Japanese robotics outfit. It is spending 10bn yuan to develop robots, both to use in its own factories and to sell to others. There are two main reasons to think the delta’s factories Acquisition phase need to upgrade. First, the level of automation in China remains Sales of industrial robots, ’000 2011 2015 2019* low compared with some of its competitors. In 2015 the average 200 for the country as a whole was fewer than 50 robots per 10,000 Number of industrial robots 49 per 10,000 employees in factory workers, compared with about 300 in Germany and Ja- manufacturing, 2015 pan and more than 500 in South Korea (see chart). 150 Second, China’s supply of cheap labour is running out, which ispushingup wagessteeply. China’slowbirth rate, exacer- 100 531 bated by its one-child policy (now revoked), has meant that the 305 working-age population has already peaked and is set to shrink 176 301 significantlyin the nextfewdecades. The mass migration ofpoor 50 rural dwellers from interior provinces to the PRD is slowing, and without that influx oflabour, growth targets will be harder to hit. 0 As a consequence, China urgently needs to beef up its pro- China United States Germany Japan South Korea ductivity. Over the two decades to 2016, labour productivity has Sources: International Federation of Robotics; The Economist *Forecast

8 The Economist April 8th 2017 SPECIAL REPORT THE PEARL RIVER DELTA

2 That may sound too sophisticated, but the PRD’s firms are share is over 6%. Most of the money comes from private firms. alreadyshowingthe restofChina howto leapfrogon smart auto- Companies in Shenzhen file more international patents (which mation. Consider Ash Cloud’s factory in Shenzhen. This private are mostly high quality, unlike many of the domestic Chinese company makes cheap plastic cases for mobile phones, each ones) than those in France or Britain (see chart, next page). costing a few yuan. It sells about 35m of them a year, earning it The official story attributes Shenzhen’s success to brave about $35m in revenues. Although this is a brutally competitive party leaders and far-sighted policies. Deng Xiaoping is lauded niche, the firm’s profit margin is10%. for liberalising the region’s economy. Later political leaders re- Fred Chen, its general manager, reveals his secret: “Most ceive praise for investments in infrastructure that enabled rapid Chinese firms suffer from production losses, mistakes, scrap, growth. That is an incomplete version ofhistory. communications and production errors, warehouse misman- An incisive new book, “Learning from Shenzhen”, edited agement and so on…our success is due to very good controls.” by Mary Ann O’Donnell, Winnie Wong and Jonathan Bach, re- The firm’s genius is in its manufacturing management system. veals that many of the advances seen since the city was opened Every employee has access to it from scores of iPads found all up in 1980 came disruptively from below. For example, early re- overthe factory. There are cameras and sensors everywhere. The formers pushed ahead with unauthorised investment deals iPads display in large type how much net revenue has been with non-mainland companies and retroactively developed the earned from each product during a given shift. legal frameworkneeded to protect foreign firms. Time and again, A manager explains the advantages: “We have no informa- grassroots innovators hit on better ways of doing things, even tion islands…radical transparency means no secrets, no turf bat- though strictly speaking they were not permitted. When their tles.” Since everybody sees the data in real time, all can change risk-taking proved successful, communist leaders typically took planson the fly. ForMrChen the conclusion is obvious: “Itistime the credit. So the best way to study innovation in Shenzhen is to for Chinese factories to change their management habits.” 7 examine it through the eyes ofits entrepreneurial firms. The common perception that China is incapable ofinnovation needs re-examining. According to a widely quoted study Innovation published earlier this decade, the value added on the mainland to Apple’s iPods (nearly all of which are assembled there) represents less than 5% of the total, reinforcing the stereotype of Chi- Welcome to Silicon nese factories as low-end sweatshops. However, a more recent study by Britain’s University of Sussex and others for the Euro- Delta pean Commission concludes that the iPod example “is far from representative”. These researchers calculate that the average value China adds to its exports is 76% (the EU’s is 87%). The World Copycats are out, innovators are in Bankreaches similar conclusions. The PRD’s companies, which account for a huge chunk of ON A RECENT weekend several hundred academics and China’s innovation, have been moving up the value chain. Local lawyers gathered in a hotel ballroom in Shenzhen for a dis- firms that used to rely entirely on imported know-how and parts cussion on “Innovation, inclusion and order”, an event jointly have started to work on their own inventions and methods. For- organised by the law schools at Peking, Oxford and Stanford uni- eign firms that used to come to the delta to harness its brawn are versities. Legal conferences can be soporific, especially in China, now tapping into its brains as well. Today, Shenzhen is attracting and a scholar from Beijing duly set the tone by asserting that “or- many entrepreneurs keen to develop new ways of making der is important in the market.” But one of the local speakers liv- things. The innovators are transforming the entire delta into an ened things up by delivering a surprisingly stout defence of dis- advanced manufacturing cluster. Many multinationals have a ruptive innovation. Xu Youjun, vice-chairman of the Shenzhen listening post in the city to stay close to the latest trends. division of the Chinese People’s Political Consultative Confer- ence, a government advisory body, said Shenzhen owed its suc- Making it, better cess not to the government or the Communist Party but to its Foxconn, a Taiwanese contract manufacturer which em- policy ofallowing people to go “beyond the planned economy”. ploys over1m workers on the mainland, is sometimes represent- The city imposes few limits on freedom of movement ed as a low-tech sweatshop; in fact, it holds international patents (though only a minority of its population has an official hukou, in areas ranging from electrical machinery to computing to au- or household-registration certificate), is relaxed about employ- dio-video technology. It is expandingits Shenzhen facility to sup- ment contracts and does not discriminate against outsiders. port rapid prototyping by Apple’s new R&D centre in the city. Its “People are the greatest source ofour growth,” Mr Xu concluded. joint venture with Japan’s Sharp is investing $8.8bn in Guang- The contrasting views of the boffin from Beijing and the local zhou to make advanced liquid-crystal displays. It is also develop- apparatchik help explain how disruptive entrepreneurs turned ing industrial robotics in Shenzhen. Shenzhen into one ofthe world’s most innovative cities. BGI, formerly known as the Beijing Genomics Institute, Between 1980 and 2016 Shenzhen’s GDP in real terms grew moved to Shenzhen to get away from northern bureaucrats. Sev- at an average annual rate of 22% and today stands at 2trn yuan. en years ago it was declared a “DNA superpower” by Nature, a The city’s Nanshan district, home to about125 listed firms with a science journal, afterit bought so many genome-sequencing ma- combined market value of nearly $400bn, has a higher income chines that it ended up owning more than half the world’s total. perperson than HongKong. Unlike Beijing, which has many top- It is due to go public shortly. flight universities, Shenzhen has only a handful of lacklustre in- Mindray, a devices firm with $1bn in global sales, is devel- stitutions ofhigherlearning; but so many graduates from all over oping new technologies for ventilators, digital operating rooms China flock to the city that they make up a greater share of its and surgical robots. The firm’s experience of managing both population than do graduates in Beijing. American and Chinese researchers is revealing. Its researchers in Shenzhen spends over 4% ofits GDP on research and devel- Silicon Valley are not just tutoring their counterparts in Shen- opment (R&D), double the mainland average; in Nanshan the zhen, it turns out, but also learning from them. Cheng Minghe, 1

The Economist April 8th 2017 9 SPECIAL REPORT THE PEARL RIVER DELTA

ing its output of an extraordinary product: the world’s thinnest Doing their own thing foldable full-colourtouchscreen display. Liu Zihong, a mainland- International patent applications China’s international patent er, earned his doctorate in electrical engineering at Stanford Uni- ’000 applications by city, %, 2016 versity, where he dreamt of radical new ways for machines and humans to interact. When he started Royole, he says, he knew it 100 70 had to be based in Shenzhen. Gettingfrom early-stage research to 60 Others United States 80 manufactured product would require a massive amount ofwhat 50 he calls integrated innovation: “Materials, process, device de- Shanghai 40 60 sign, circuit design—all needed to be innovated…if you changed Japan Beijing one material, you had to change the process.” His team had to de- 30 Guangzhou China 40 velop entirely new materials and factory tools, including cus- 20 tom-built robots, to make his screens, accumulating over 600 France Britain Shenzhen 10 20 patents along the way. He insists this could not have been done 0 even in Silicon Valley, because California cannot match Shen- 2000 02 04 06 08 10 12 14 16 0 zhen’s ecosystem of“makers”. Sources: WIPO; SIPO With $280m in venture-capital investment, Royole is valued at $3bn. It is investing $1.8bn to build a heavily automated factory and integrated R&D complex which should propel sales 2 the firm’s president, observes that Westerners produce high- past $3bn. But Mr Liu has even grander ambitions. He thinks his quality research but take a long time over it, whereas the locals screens could be deployed more widely, in places such as cups, are better at speedy development ofnew kit. clothes, desks, even walls. “Last year the display industry was Huawei spendsmore on R&D than Apple does. The private- worth $150bn,” he says, “but flexible displays will double that.” ly held Shenzhen firm made its name as a telecoms-equipment vendor, butisnowa bigforce in smartphonesand cloud comput- Hacking the future ing too. Its revenues for 2016 are estimated at 520bn yuan, a 32% Shenzhen has become the world capital for hardware en- increase on a year earlier. It devotes an impressive 15% of its rev- trepreneurs. Navi Cohen is the co-founder ofRevols, a Canadian enues and 82,000 ofits180,000 employees to R&D. startup developing affordable, custom-fitted headphones. His Huawei is innovating as it is globalising. Dieter Ernst of the firm raised a fortune on Kickstarter, a crowdfunding site. When it East-West Centre, an American think-tank, praises the company tried to develop its product in Montreal, it found things slow and for creating a “global innovation network” of the sort that only expensive, so it moved to Shenzhen, where supplies were cheap Western multinational companies used to have, with more than and factories made prototypes quickly. It is now in production. two dozen R&D centres the world over and a number of collab- Another promising startup that moved to Shenzhen is orative hubs run with leading multinationals and universities. Wazer, an American firm. Aconventional metal-cuttingmachine This has paid dividends. Huawei is one ofthe world’s most on a factory floorcosts $100,000 ormore. Shenzhen’s know-how prolific generators of high-quality international patents. Along helped Wazer perfect a way to cut any material precisely with with Sweden’s Ericsson it is at the forefront of 5G, which will re- pressurised water. Its desktop cutter costs about $5,000 and will place the current 4G networks for mobile telephony. Its narrow- disrupt the industry when it comes to market later this year. band internet-of-things protocol, a cheap and low-energy way to Revols and Wazer are among dozens of startups that have connect machines to the cloud, was recently approved as a glo- gone through a manufacturing boot camp run by Hax, a hard- bal standard. ware “accelerator” based in Shenzhen’s Huaqiangbei, the Another way Shenzhen is rewriting the rules is by embrac- world’s largest electronics-supplies market. Benjamin Joffe, a ing open innovation. In the West, corporate innovation has gen- partner at Hax, reckons that Silicon Valley’s experience of hard- erallybeen a secretive, top-down affair. Manyfactories in the city ware is “six to seven years out of date”. Big firms ranging from started by making clever imitations of Western goods, which led Johnson & Johnson, an American health-care firm, to Michelin, a foreigners to dismiss the locals as mere copycats. That was a mis- French tyremaker, have entered into partnerships with Hax to take. David Li of Shenzhen’s Open Innovation Lab argues that get closer to these bright sparks. the copycats have since morphed into a powerful ecosystem of The most successful of Shenzhen’s recent startups is Da- collaborative, fast-learning suppliers and factories. “Anybody Jiang Innovations (DJI), reportedly worth over $8bn, which can come to Shenzhen with an idea and get it prototyped, tested, makes affordable commercial drones. Frank Wang, the founder, made and put on the market at a decent price,” he says. Silicon and his1,500-strongR&D team had to invent vital bits ofthe tech- Valley is obsessed with rich-world problems, he thinks, but Chi- nology needed for its flying robotic cameras. The privately held na’s open innovators work on affordable solutions for the firm commands over half of the global market for small civilian masses on everything from health care to pollution to banking. drones, and is purportedly planning to go public soon. It is now Mr Li says the already frenetic pace of Chinese innovation diversifying its offerings. Paul Xu, the head of DJI Enterprise Sol- is speeding up further. Dealmaking used to involve long ban- utions, says it is aiming for business clients in fields ranging from quets and vast quantities of baijiu, a local firewater. Now intro- agriculture and energy to public security. It is also considering a ductions are made at the flick of a finger on WeChat, a remark- services-business model where users can rent airtime. able messaging and payments app with more than 800m users. Shenzhen has done more than any place on the mainland As soon as a WeChat group is formed, there is little need for to debunk the outdated myth of “copycat China”, becoming the phone callsormeetings. Tencent, the internetand online-gaming global hub ofinnovation in hardware and manufacturing. Its en- giant that invented WeChat, is also based in Shenzhen. Worth trepreneurs are coming up with entirely new industries. It has some $250bn, it is one of Asia’s most valuable firms. Its snazzy been the drivingforce behind the upgradingthat should help the and green new headquarters in Nanshan towers over a modern PRD withstand competition. But what does its rise mean for neighbourhood ofstartups, incubators and funky coffee shops. Hong Kong, which has been the catalyst of investment and One ofShenzhen’s most daring startups, Royole, is expand- growth in the delta fordecades? 7

10 The Economist April 8th 2017 SPECIAL REPORT THE PEARL RIVER DELTA

Hong Kong and the mainland trade minister of Singapore. “China doesn’t want to harmonise with the world completely, because it makes domestic gover- nance difficult.” That is why Hong Kong remains vital to the fu- The dragon head’s ture ofboth the PRD and China. Forall the local anguish, it is worth rememberingthat Hong dilemma Kong is the freest economy on Earth. In February the Heritage Foundation, an American think-tank, published itslatest ranking Hong Kong’s best future is to remain China’s of economic freedom, based on factors ranging from property rights and absence of corruption to mobility of labour and capi- superconnector tal. Hong Kong once again came top. ON THE OBSERVATION deck atop the Diwang building in The city’s commitment to international legal and account- Shenzhen youcan see two large waxfiguresdepicting Deng ing norms has made it a global financial centre. Its lawyers, ac- Xiaoping and Margaret Thatcher enjoying cups of tea. The two countants and investment bankers are able easily to connect for- leaders negotiated the handover of Hong Kong to China, which eigners with mainlanders. Mainland companies make up eventually took place in 1997. At the time, Mrs Thatcher was criti- perhaps halfthe market capitalisation ofthe HongKong stockex- cised by some at home for relinquishing the empire’s last great change. The city is the leading offshore centre for trading the colony to the communists (Prince Charles reportedly described yuan and the conduit formuch of the foreign investment under- China’sleadersas“appallingold waxworks”). The more obvious taken by mainland firms. worry was that HongKong’s rule oflaw and its free-market economy would be crushed by the hard men in Beijing. Say it with culture The critics underestimated the Iron Lady. She got a deal that Cultural offerings are not controlled by the Communist preserved much of what was good about old Hong Kong, and Party. That is a good thing in itself, but when combined with the which has served the entire PRD well. Though China gained city’s knack for making markets, it is also an economic asset. The sovereignty over the territory, it promised to respect its gover- territory is now a global trading hub for wine and art, even host- nance for 50 years, a system that was dubbed “one country, two ing its own version ofthe influential Art Basel show. systems”. This has held up far better than The West Kowloon Cultural District, had been predicted. a massive arts centre nowunderconstruc- But as the 20th anniversary of the tion, may be the world’s most ambitious handover on July 1st approaches, Hong cultural undertaking since the Centre Kong is wondering about its future. Many Pompidou was built in Paris 40 years ago. locals are unhappy about being ruled by It complements a design-focused com- the mainland, with some activists even plex being built in Shenzhen, which will calling for independence. Economic house a collection curated by London’s growth is sluggish. Twenty years ago Victoria & Albert Museum. “I see the PRD Hong Kong’s economy accounted for 16% emerging as an art destination,” says the of the Chinese total, dwarfing the rest of V&A’s Luisa Mengoni. the delta. Now it makes up barely 3% of This cultural dynamism makes China’s GDP and less than half of the Hong Kong attractive to global talent. PRD’s economic output. Nicholas Yang, Hong Kong’s innovation Anthony Yeh of the University of secretary, notes that of the city’s nearly Hong Kong once described the city as the 2,000 startups, perhaps half were founded by foreigners. Visas are easy to get, Eng- lish is widely spoken, there is little red Atop the Diwang building in Shenzhen you can see two tape and halfthe world’s population lives within no more than five hours’ flying large wax figures depicting Deng Xiaoping and Margaret time from the city’s airport. Thatcher enjoying cups of tea Still, pessimists and pettifoggers abound. Forsuch folk, the dramatic rise of DJI, the drone multinational mentioned PRD’s roaring “dragon head”. As the delta’s main source of capi- earlierin this special report, confirms that Shenzhen has eclipsed tal and provider of manufacturing and commercial services, the their city. Yet a closer look reveals a reassuring symbiosis. Frank city was responsible for much of the region’s division of labour Wang, DJI’s mainland-born founder, studied at the Hong Kong and globalisation. Now he worries that Hong Kong may become University of Science and Technology. Li Zexiang, his robotics as irrelevant to the global economy as England’s once-mighty professor there, was an early investor and now serves as the Liverpool. firm’s chairman. And when DJI wanted to let global travellers try Decline is not inevitable, but Hong Kong is constrained by its drones, it decided to open an “experience zone” at Hong its political situation. It has no prospect of becoming indepen- Kong’s airport. dent, though its efforts to strengthen democracy and protect lo- The battle for freedom in Hong Kong could prove a bell- cal laws and institutions from mainland interference have been weather ofpolitical change in China. Economic freedom has not well worthwhile. On the economic front, its role is that of a glo- so farbrought political freedom on the mainland, but if it did, the bal connector for the delta, adapting and upgrading links to re- PRD would in all probability be in the vanguard. Until the distant flect the changing times. daywhen China unchainsitseconomy, freesitscurrency and un- Hong Kong is a “highly complex, semi-permeable mem- gags its people, the two-way flow of people, capital and ideas brane” that modulates the impact of globalisation on the main- through this semi-permeable membrane will continue to play land, argues George Yeo, the boss ofKerry Logistics and a former an essential part in the delta’s future. 7

The Economist April 8th 2017 11 SPECIAL REPORT THE PEARL RIVER DELTA

The lessons less than 14%. And the delta alone generates nearly half of Offer to readers the mainland’s high-quality in- Reprints of this special report are available. A China that works A minimum order of five copies is required. ternational patent filings, lead- Please contact: Jill Kaletha at Foster ing China on innovation. Printing Tel: +1 866 879 9144 Ext: 168 e-mail: [email protected] Dragon, unshackled Corporate offer To catch a glimpse of the The delta shows what the country could achieve by PRD Corporate orders of 100 copies or more are future of the , head to the available. We also offer a customisation setting entrepreneurs free Lok Ma Chau Loop. This valu- service. Please contact us to discuss your “THE PRD WAS always the first mover in China,” explains able parcel ofland, at the border requirements. William FungofLi & Fung. HongKong’s success, he reckons, between Shenzhen and Hong Tel: +44 (0)20 7576 8148 e-mail: [email protected] owes much to its tendency to ignore Beijing’s diktats. And Shen- Kong, was left undeveloped for For more information on how to order special zhen’s special economic zone did well because it operated as a years because the two cities reports, reprints or any copyright queries freewheeling hub. By embracing globalisation and eschewing were fighting over its owner- you may have, please contact: PRD central planning, the cities of the led the way for the coun- ship. In January they agreed to The Rights and Syndication Department try’s economic opening. develop it jointly as an innova- 20 Cabot Square As this special report has argued, the next economic revolution and technology park. London E14 4QW tion is now under way. New infrastructure, including high-speed The best chance for the Tel: +44 (0)20 7576 8148 PRD Fax: +44 (0)20 7576 8492 rail links and the world’s longest sea bridge, is helping to stitch ’s economy of upgrading for e-mail: [email protected] the region ever more closely together. Whereas some parts of the future liesin co-operation be- www.economist.com/rights China are dominated by state-owned enterprises, this region’s tween the governments of the economy is made up almost entirely of private-sector firms. region. Xu Qin, Shenzhen’s for- Future special reports Slowing growth in world trade threatens all ofChina Inc, but the mer Communist Party secretary, Asian geopolitics April 22nd PRD’s nimble private firms tend to be more resilient than protect- sees the Loop deal as part of his International banking May 6th Israel May 20th ed state-owned enterprises elsewhere on the mainland. city’s effort to strengthen co-op- Since these firms operate in competitive global markets, eration with Hong Kong so it can they are currently undergoing the unnerving process of become an international hub. Previous special reports and a list of forthcoming ones can be found online: Schumpeterian creative destruction. Some are moving away or Nicholas Yang, Hong Kong’s in- economist.com/specialreports closing down, but those that remain are growing stronger. They novation secretary, reckons that are scrambling to upgrade, investing in automation, robotics and since both cities have advanced advanced manufacturing techniques. A region once infamous economies based on services, for its copycats is producing some world-class innovators. they must worktogether “to get value from knowledge”. The PRD is more open to the world and to the private sector The Global Entrepreneurship Monitor, a respected annual than any other place on the mainland. Zhejiang, the province report, pointed out in its latest issue in February that both cities that is home to globally minded Alibaba, has about 33,000 for- have seen explosive growth in entrepreneurship in recent years eign-invested firms, and Shanghai about 75,000, but Guangdong even as it is declining elsewhere in China. The report argued that hasover110,000. In Liaoning, an industrial province in the north- the two cities should build on their complementary strengths. east, SOEs account for about 31% of total industrial revenues, and Shenzhen has many swashbuckling startups and plenty of risk in Shanghai for more than 36%, but in Guangdong the share is capital to back them, but they often lack global sophistication and management skills. Hong Kong is more conservative, but its cosmopolitan entrepreneurs are better at scaling, branding and going global. With more such collaboration between the two cities, they might form the nucleus of a new regional technology cluster, as recently proposed by Ma Hua- teng, Tencent’s influential boss (an idea subsequently endorsed by Li Keqiang, China’s prime minister). The creation of such a hub, said Mr Ma, would help Chi- na “preside over the global tech revolution ofthe future”. The delta can weather today’s storms ifits pragmatic officials work more closely together across the board and continue to respect market forces. Earlier reforms in the region demonstrated the benefits of capitalism to the rest of China and exposed the folly ofcentral planning. The remarkable entrepreneurs who built the delta’s economy can propel it forward. All that governments have to do is Ready for a technological Loop stay out ofthe way. 7

12 The Economist April 8th 2017 Europe The Economist April 8th 2017 41

Also in this section 42 An anti-gay pogrom in Chechnya 42 France’s disintegrating left 43 Academic freedom in Hungary 44 Turkey’s presidential power grab 45 Charlemagne: Descending Mount Brexit

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

A terrorist hits St Petersburg believed to have joined the so-called Is- lamic State (IS). (Thousands more IS volun- Underground man teers come from Russia itself, mostly from the northern Caucasus.) They include the American-trained former head of Tajiki- stan’s OMON, an elite interior-ministry police unit. Central Asian nationals have MOSCOW been implicated in attacks on Istanbul’s airport in 2016 and a nightclub in the same A savage bombing could lead to even tightergovernment control city on New Year’s Eve. Many are reported- HE oldest victim was 71 years old, the gators say that Mr Jalilov, an ethnic Uzbek, ly radicalised while working at construc- Tyoungest just 18. One was a third-year was spotted on security cameras and that tion sites in Russia. Two days after the St university student described by a teacher his DNA was found on the second unex- Petersburg attack, Russian investigators as “pretty, smart, sweet and intelligent”. ploded device. Body fragments found at said theyhad arrested sixCentral Asians in Another was a middle-aged mother the scene suggest that it was a suicide at- St Petersburg on suspicion of acting as re- known for sewing and selling elaborate tack. Mr Jalilov’s parents arrived in St Pet- cruiters for IS and Jabhat Fateh al-Sham, a dolls. They all entered the St Petersburg un- ersburg on April 5th to speak to investiga- jihadist group linked to al-Qaeda. derground on the afternoon ofApril 3rd ex- tors and identify the body. As The Economist went to press, no pecting to return home. The suspect’soriginshighlightthe terro- group had claimed responsibility. But al- An attacker had other plans. A bomb rist threats percolatingin Central Asia. Pov- though the killer’s motives are unknown, ripped through the third carriage of a train erty, autocracy and restrictions on reli- the attack underlines the risks posed by travellingbeneath the city centre at around gious freedom have made citizens of the Russian interventions in the Middle East. 2.40pm, leaving14 dead and some 50 more former Soviet republics susceptible to rad- Since entering the Syrian war in support of wounded. “There was a bang, and dust,” icalisation. Thousands from Uzbekistan, President Bashar al-Assad, Russia has be- said the train’s driver, Alexander Kaverin. Kyrgyzstan, Tajikistan and Kazakhstan are come a prime target for terrorist groups. IS1 Russian security oﬃcials say that the attacker left a second, larger explosive device at another station, though it did not deto- Rate of attack nate. That the bombing came as President Russia, deaths from terrorist incidents Selected events

Vladimir Putin (pictured) was visiting St Apartment bombings in Moscow, Volgodonsk, Buinaksk Petersburg enhanced the symbolic signifi- 289Suicide bombings on 354 cance of the first terrorist attack on a major two Russian airliners 100 Russian city in more than three years. Znamenskoye suicide bombing Previous terrorist attacks on Russian 80 Chechnya Beslan Moscow metro Domodedovo St Petersburg transport infrastructure, such as the bomb- suicide school siege bombings airport bombing metro bombing 60 ings of Moscow’s metro in 2004 and 2010, bombings Volgograd bombings and its international airport in 2011, have 40 been linked to insurgencies in the restive North Caucasus region. But this week’s 20 tragedy appears to fit a different profile. 0 Russian authorities say the chief suspect is 19992000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*

Akbarzhon Jalilov, a 22-year-old from the 29 88 85 56 50 31 38 31 15 91 84 155 107 101 83 28 city of Osh in southern Kyrgyzstan who 5 21 Number of bombings had obtained Russian citizenship and lived in the countryforthe pastsixyears. Investi- Sources: Global Terrorism Database, University of Maryland; press reports *To April 5th 2017 42 Europe The Economist April 8th 2017

2 has declared a holy war on Russia and pro- claiming that authorities had been detain- nounced the northern Caucasus a proving dozens of men in a secret prison “in ince of its would-be caliphate. In late 2015, connection with theirnontraditional sexu- shortly after claiming responsibility for the al orientation, or suspicion of such.” The downing of a Russian airliner over Egypt’s paper wrote that two recent waves of Sinai peninsula, IS-affiliated propaganda crackdowns have seen more than 100 men outlets threatened a “sea of blood” inside arrested and at least three killed. Russia itself. “When the [electric] current is flowing Regardless of who was responsible, the and your body begins to shake, you stop bombing is unlikely to influence foreign thinking and begin to scream,” one survi- policy. The foreign minister, Sergei Lavrov, vor said. “Yousit there the whole time and called the notion that the attack was re- hear the cries ofpeople being tortured.” venge for Russia’s actions in Syria “cynical The atrocities described in the articles and despicable”. The long list of terror at- have not been independently verified, but tacks carried out in Russia over the past groups with experience in the region agree two decades have not dissuaded Moscow that something is happening. Human from pursuing ruthless policies in the Rights Watch says the story is consistent northern Caucasus or the Middle East. with whattheyhave heard from trusted in- Rather than raising questions about such formants. “The number of sources and the policies, terror attacks are perceived as a consistency ofthe stories leaves us with no demonstration of their righteousness, not- doubt that these devastating develop- France’s disintegrating left ed an editorial in Vedomosti, an influential ments have indeed occurred,” writes Ta- business daily. On April 4th, the day after nya Lokshina, the group’s Russian pro- The crack-up the St Petersburgbombing, reports of an at- gramme director. Ekaterina Sokirianskaia tack with chemical weapons emerged in ofthe International CrisisGroup, an expert Syria, yetMoscowremained steadfastin its on the North Caucasus, has heard similar support for Mr Assad. reports from her sources. A hotline set up PARIS Government critics fret that the fight for Chechens by the Russian LGBT-Net- A dreamer, a revolutionary and a against terrorism may be exploited to re- work, a rights group, received more than centrist split the Socialists strict civil liberties just weeks after the larg- ten calls in the two days following the first est anti-government protests in years. Mr publication in Novaya Gazeta. ACK in 2002, the French Socialists suf- Putin, whose popularity is based on pro- The brazenness of the repression high- B fered such a stinging defeat at a presi- viding stability, has said little about the at- lights the extent to which Chechnya has dential election that it gave birth to a new tack beyond offering condolences to the become a fiefdom unto itself under its noun. Un 21 avril, referring to the date that victims and promising a full investigation. leader, Ramzan Kadyrov. Mr Kadyrov’s their candidate, Lionel Jospin, was evicted But in the past, fighting terrorism has been spokesman, Alvi Karimov, responded to in the first round, became a term used for used as an excuse to strengthen controls Novaya Gazeta’s claims by denying that any shock political elimination. Today, over online content and expand the power there are gay people in Chechnya at all: “If ahead of the first round of this year’s presi- ofthe secretservices. Italso serves asa way there were such people in Chechnya, the dential election on April 23rd, the Socialists to rally people around the flag. Pro-govern- law-enforcement organs would not need are bracingthemselvesnotjustforelimina- ment forces across Russia have made plans to do anythingwith them because their rel- tion from the run-off, but for a far greater for mass anti-terror marches. 7 atives would have sent them to a place humiliation, one which could call into from which they could never return.” question the party’s very survival. An intervention by VladimirPutin, Rus- Current polls put Benoît Hamon, the Anti-gay violence in Chechnya sia’s president, might be the only thing that Socialist candidate, in a dismal fifth place. could sway the Chechen authorities to put He trails not only the nationalist Marine Le Republic of fear a stop to the anti-gay violence. Yet the Pen, the liberal Emmanuel Macron, and Kremlin depends on Mr Kadyrov to pre- the traditional right’s François Fillon. In the serve stability in the volatile republic, and past fortnight, Mr Hamon has also been managing the Chechen leader has become overtaken by a far-left firebrand, Jean-Luc 1 MOSCOW a challenge in recent years. He commands his own security forces, numbering about The Chechen government is reportedly 20,000 men. His republic follows its own Languishing left rounding up and killing gay people hyper-traditional religious and social France, presidential election polling, first round HE youngest one was 16 years old, codes, largely beyond the reach of Russian Selected candidates, % “The’s from our village,” reads a post law; Mr Kadyrov has voiced support for Le Pen (National Front) Macron (En Marche!) Fillon (Republicans) Hamon (Socialist Party) on VKontakte, a Russian social-network- polygamy and honour killings. Discussion Mélenchon (La France insoumise) ing site. “They recently brought him back, of homosexuality is taboo and most gay 30 all beat up, just a bag of bones. They people remain deeply closeted. dumped him in the courtyard and said to This makes reaching victims and docu- 25 kill him.” menting the crackdown especially diffi- 20 The post was by an anonymous user cult. “Information gets through with a de- 15 from Chechnya, on a group for closeted lay,” says Igor Kochetkov of the Russian 10 gay people from the Caucasus. It was one LGBT-Network, which has also begun or- of the clearer indications of a brutal anti- ganising evacuations from the region. The 5 gay campaign believed to be unfolding true extent of the brutality may go deeper 0 across the Chechen Republic. Earlier this than Novaya Gazeta describes. As Ms So- January February March April 2017 week Novaya Gazeta, a Russian opposition kirianskaia says, “We’ve only seen the tip Sources: National polls; The Economist newspaper, published a series of reports ofthe iceberg.” 7 The Economist April 8th 2017 Europe 43

2 Mélenchon (pictured), who promises a he has refused to say anything nice about Balas, a member of the Hamon team, im- “citizens’ revolution”. A one-time Socialist the past five years of Socialist government, plies “the death of the Socialist Party as now backed by the Communist Party, the dismaying ministers. Mr Valls and Jean- conceived by (François) Mitterrand”. The fist-clenching65-year-old has surged to 15%, Yves Le Drian, the Socialist defence minis- party, which has supplied French presi- against just 10% for Mr Hamon. This puts ter, have both thrown their support to Mr dents for half of the past 36 years, has long him only a couple of points behind Mr Fil- Macron. The upshot is a bitterly divided tried to bridge the differences between its lon, and in a position—just possibly—to party. The Hamon camp called Mr Valls’s moderates and its left wing. In the 1970s, overtake the Gaullist candidate too. defection “pathetic” and “shameful”. It is a Mitterrand managed to unify the left; he In the campaign’s second televised de- “very strange campaign”, says a Socialist went on to serve as president for 14 years. bate on April 4th, it was the wisecracking parliamentarian loyal to Mr Hamon; party Now, under the joint pressure of Mr Mac- Mr Mélenchon who delivered the memo- activists “don’t feel connected”. ron and Mr Mélenchon, old fractures are rable lines. When Mr Fillon argued that in- Mr Valls’s defection, says Guillaume pulling it backapart. 7 dustrial relations should be decentralised to firms, MrMélenchon snapped: “I am not in favour of one labour code per firm, just as I am not in favour of one highway code per road.” It was a difficult debate at which to shine. All 11official candidates took part: the five front-runners plus six others, including a Ford factory worker, a Trotskyist high-school teacher, and a former shep- herd. Each had a total of 17 minutes to speak, spread over three hours. In a poll, voters judged MrMélenchon the most convincing, followed by Mr Macron. In some ways, Mr Hamon’s disastrous campaign is surprising. An outsider, he seized the party’s primary in January with a handsome 59% of the vote, easing out a moderate former prime minister, Manuel Valls. His recent rally in Paris was packed. Backed by Thomas Piketty, an economist who worries about inequality, he has a programme which—though its finances do not add up—is based on creative thinking about the future of work and society in an Academic freedom in Hungary era of automation. Mr Hamon promises, forinstance, to bringin a universal basic in- Orban v intellectuals come, which in time would pay out €750 ($800) a month to everyone, partly fi- nanced by a tax on robots. He promises a “desirable future”, in which consumerism, production and working hours are curbed, BUDAPEST greenery flourishes and happiness, long An illiberal prime ministergoes aftera liberal university scarce in France, breaks out everywhere. Yet as Matthieu Croissandeau of L’Obs, ITH just 1,440 students, the Central cials say would be onerous and prohibi- a left-wing magazine, put it, since Socialist WEuropean University (CEU) is one of tively expensive. They have asked Janos primary voters “were convinced they Hungary’s smallest institutions of higher Ader, the president of Hungary, to veto the would lose the presidential election…they education, but it may be its most presti- law, which they argue violates the consti- chose an ideal rather than a programme of gious. Housed in a mix of grand historic tutional guarantee ofacademic freedom. government.” The closer voting day gets, and ultramodern buildings in central Bu- Fidesz has long viewed CEU as a stalk- the less workable Mr Hamon’s ideas seem, dapest, it draws visiting professors from ing horse for the opposition (though its even to some of his white-collar constitu- across Europe and America, and its gradu- government has repeatedly recertified it). ents. A poll suggested that only 7% of vot- ates include many members of Hungary’s “The antipathy is not new,” says Eva Ba- ers think Mr Hamon has “presidential stat- business and political elite. It was founded logh of Hungarian Spectrum, an opposi- ure”. Gilles Finchelstein of the Fondation in 1991 by George Soros, a Hungarian-born tion blog. Mr Orban, who himselfreceived Jean-Jaurès, a think-tank, argues that So- billionaire, as part of his philanthropic ef- a scholarship from Mr Soros to study in cialist support has not collapsed: it is just fort to promote liberal democratic values Britain in 1989, has accused CEU of “cheat- notbehind the party’scandidate. Fully42% in formerly communist countries. This an- ing” by offering degrees that are valid back Mr Macron; 15% support Mr Mélen- noys Viktor Orban, Hungary’s prime min- abroad (because heaven forbid thatforeign chon. By positioning himself on the left of ister, and his ruling Fidesz party. On April countries should recognise a Hungarian his party, MrHamon has scared offcentrist 4th Mr Orban fast-tracked a law through degree). Zoltan Balog, the minister of hu- voters, while failing to sound combative parliament that could force CEU to close. man resources, said it was not in Hunga- enough forthose on the farleft. The legislation requires foreign-accred- ry’s interest to “host experiments” which Mr Hamon has lost the loyalty not just ited universities in Hungary to have a base “aim at undermining the lawfully elected of Socialist voters, but of Socialist politi- in their home country. CEU, which is ac- government”. cians. His protracted (and failed) efforts to credited in Hungary and the United States, Mr Orban, who vowed in 2014 to make do a deal with Mr Mélenchon exasperated would have to open an American campus Hungary an “illiberal state”, feels empow- the moderates. A former backbench rebel, by February 2018, which university offi- ered both by the impotence of his domes-1 44 Europe The Economist April 8th 2017

2 tic opposition and by the victory of Do- ban’s actions have infuriated academics ing that it incited “hatred and enmity”. nald Trump. Fidesz is also preparing a around the world, and drew condemna- Some KurdsthinkMrErdogan, who pre- crackdown on foreign-funded NGOs. “CEU tion from Frank-Walter Steinmeier, the sided over negotiations with the PKK be- is not an issue for the average Hungarian, president of Germany. Members of the fore abandoning them in 2015, will restart but symbolically it’s very important,” says Hungarian Academy of Sciences have ex- the peace process if he gets what he wants. Tamas Boros of Policy Solutions, a think- pressed their support for CEU. So has Tibor “Erdogan is our only hope,” says Hamza, a tankin Budapest. “It shows that Orban can Navracsics, the EU’s education commis- cardealerand “Yes” voter. Most Diyarbakir control everything in the country.” Gov- sioner, who once served as Mr Orban’s residents seem to think otherwise. “A vote ernment officials deny that the law targets minister of justice. for this constitution is a vote for yet more CEU. It simply levels the playingfield forall Mr Orban may also have misjudged repression,” says one shopkeeper. But universities, said Zoltan Kovacs, a govern- America’s mood. Although Donald Trump gauging the mood in the southeast is near- ment spokesman (and CEU graduate). An- has sometimes embraced illiberal nation- ly impossible. Abdurrahman Kurt, a forother graduate, Ferenc Kumin, Hungary’s alism, the arbitrary closure of an Ameri- mer MP from the ruling Justice and Devel- consul in New York, hosted a reception for can-accredited university will not be wel- opment (AK) party, expects 60% of the the university as recently as March 16th. comed in Washington. David Kostelancik, region to vote for the new constitution. A Two marches in Budapest this week the top-ranking American diplomat in Bu- recent poll puts the figure at just over 30%. drew tens of thousands of supporters of dapest, said his government was “disap- Mr Erdogan has other reasons to be un- the university, who echoed its call for Mr pointed” by the legislation. Some compro- easy. The grand alliance of Islamists and Ader to veto the law. The university’s rec- mise may yet be found, says another nationalists that he knitted together after tor, Michael Ignatieff, a former leader of Western diplomat: “There is not unanim- the coup seems to be fraying. The leader- Canada’s Liberal party, vows that it will re- ity in the Hungarian government that this ship of the main nationalist party, the main open one way or another. Mr Or- is a great idea.” 7 MHP, has backed Mr Erdogan’s constitution. But many of its supporters have not. Durmus Yilmaz, a former central bank Turkey’s presidential power grab chairman and one ofa packofMHP parlia- mentarians who broke with the party last The Kurdish card year, estimates that four out of five nationalist voters will vote “no” in the referendum. “The MHP grassroots have always favoured the parliamentary system,” he says. “And these amendments put all DIYARBAKIR power in the hands ofone man.” One thing that unites Kurds and nation- To win a referendum, President Erdogan needs the votes ofold enemies alists, other than opposition to the new ITH justovera weekbefore a referen- headquarters, the police take them down,” constitution, is anxiety about the after- Wdum on constitutional changes that says Ziya Pir, an MP from the pro-Kurdish math of the vote. Some in the southeast would give him practically unchecked Peoples’ Democratic Party (HDP). More hope a “Yes” might get Mr Erdogan to stop powers, Turkey’s president, Recep Tayyip than campaign materials, the HDP is miss- hounding opponents. Others fear it would Erdogan, ought to be coasting to victory. ing campaigners. Some 5,000 party offi- give him licence to do so more ruthlessly. A The media have been defanged. Critics, in- cials, including 85 mayors and 13 parlia- “No” vote also entails risks. Denied the cluding members of his own party, are mentarians, are jailed on terror charges. powers he craves, Mr Erdogan may resort afraid to speak up. The secular opposition The crackdown went into overdrive since to the tactics he used to win back a parlia- is tripping over its own shoelaces. Yet Mr last July’s coup attempt against Mr Erdo- mentary majority in 2015: an onslaught Erdogan is not assured of a win on April gan. Under emergency law, the authorities against PKK strongholds, a war of words 16th. Most polls show the “no” and “yes” shut down many Kurdish radio stations with Western countries and an early elec- sides too close to call. The outcome now and TV channels. More recently, they tion. “No matter what happens,” says Ser- hinges largely on two groups that have banned the Kurdish-language version of kar, a student in Diyarbakir, “the Kurds will long been at each other’s throats: Kurds the HDP’s campaign song, “Say No”, claim- probably end up paying the price.” 7 and nationalists. In Diyarbakir, the heart of the Kurdish southeast, battered over the past two years by fighting between insurgents from the Kurdistan Workers’ Party(PKK) and Turkish security forces, the referendum is not a burning question. “Kurds have no rights in the current constitution, and they have no rights in the new one,” says Sah Ismail Be- dirhanoglu, a businessman. “People here lost homes, family members and jobs,” says Vahap Coskun, a professor at Dicle University. “There is no article in this constitution that will bring them peace.” Across Turkey, the “No” campaign has been hamstrungby restrictions and intimi- dation. In Diyarbakir, “Yes” billboards and banners depicting Mr Erdogan, who held a rally here on April 1st, crowd the avenues. “No” banners are nowhere to be seen. “When we put them up in front of our Blessings for everyone, provided he gets more power The Economist April 8th 2017 Europe 45 Charlemagne Descending Mount Brexit

Reality has started to bite in London Mrs May has hinted that Britain could accept the rules of the single market, including the free movement ofEU workers. This massacre of sacred cows has reassured Europe. Britain may have spent the nine months since the referendum strutting about and making a fool ofitself. But better to get the peacocking out of the way before the actual negotiations open. EU officials are still preparing fora complete breakdown in talks, and forBrit- ain to crash out of the EU in two years without a deal. But as they observe British rhetoric yielding to reality, some now proclaim themselves a little more optimistic. Indeed, talk to negotiators in Brussels, Berlin or Paris—still notably united—and you find concerns not so much about British perfidy or delusion, but over its readiness to conduct what David Davis, the Brexit minister, calls “the most complicated negotia- tion ofmodern times”. Take the rights ofEU citizens living in Brit- ain and vice versa. Here, there is no reason for a row: both sides want to minimise disruption for their immigrants. But the issue is extremely complex, from pension rules to the rights of third- country spouses to the enforceability of whatever rules are agreed on. One EU negotiator says that in normal times it would take a decade to untangle the threads. Work your way down the UGO YOUNG, an author, alighted on Hobbesian metaphors Brexit to-do list, and two years looks dauntingly brief. Hto describe Britain’s negotiations, in the early 1970s, to join Hardest of all will be working out how to marry Britain’s de- the then European Economic Community. But if accession was mands for sovereignty with its trading needs. On this, the Euro- “nasty”, “occasionally brutish” and “indisputably long”, leaving peans fear, the penny has not yet dropped in London. Mrs May the club may prove harder still. Last week Theresa May, Britain’s now calls for a “deep and special partnership” with the EU. That prime minister, praised the European Union effusively even as implies a trade relationship that extends beyond goods to the ser- she triggered the process to leave it, beginning two years of with- vices Britain likes to export, particularly the financial sort, and a drawal negotiations. But Donald Tusk, president of the European means of ensuring that its standards and rules do not deviate Council, captured the mood better, predicting “difficult, complex from Europe’s. The deeper the trade deal, therefore, the more Brit- and sometimes even confrontational” talks. ain must play by the EU’s rulebook and, perhaps, accept the de This week’s contretemps over Gibraltar was a depressing re- facto supervision ofits courts. minderthatthe strain ofBritish jingoism unearthed by the vote to leave the EU last June remains alive. It will no doubt find fresh You don’t know what you’ve got ’til it’s gone modes of expression as the Brexit talks unfold (see page 47). Ex- The Europeans also stand to lose from a shallow trade deal. Their pect other battles, too: the debate over Britain’s outstanding fi- hope is that Britain will seek to converge with EU rules once the nancial obligations to the EU seems almost guaranteed to end in regulatory trade-offs become apparent. Should the talks proceed tears. But none of this should obscure the broader trajectory of relatively smoothly, in time the two sides may find themselves the past few weeks. Having marched her troops to the top of building, law by law, institution by institution, a regime not dis- Mount Brexit since the referendum, Mrs May has begun quietly similar from the one they are preparing to dismantle. There are trotting them backdown again. signs of this already. It is an “absurd” exercise, says an EU official. European negotiators note that a mood of realism has slowly “We are reinventing many ofthe instruments we already have.” settled on London as the remorseless logic of Brexit has taken But Eurocrats also worry that a sensible posture abroad may hold. Mrs May’s insistence on imposing immigration controls force Mrs May into a showdown with hardliners at home. For after Brexit, for example, led inexorably to her acceptance that now, she is riding high; her stout conversion to the Brexit cause Britain would have to quitthe EU’ssingle marketand lose any say (and the feebleness ofher political foes) leaves her with plenty of in making its laws. That has broadly neutralised an issue some political capital. But is she prepared to enter the next election, in had thought might be central to the negotiations. “We don’t want 2020, accepting free movement from the EU, paying large sums to write their [migration] rules,” says one Eurocrat. The draft ne- into itsbudgetand operatingunderthe purviewofitscourts? Can gotiatingguidelines circulated by MrTuskto Europe’s capitals last she negotiate and defend a final deal that preserves so much of week make only passing mention of the single market’s “four what the Leave campaign fought to destroy? freedoms”, and then simply to welcome Mrs May’s acknowledg- Perhaps she can: ersatz sovereignty can be repackaged as the ment that they are not available à la carte. real thing, and immigration maydecline helpfullyasthe EU econ- Reality has left other toothmarks. Gone are the empty threats omy recovers. The prime minister can argue that although Brexit to turn Britain into an offshore tax haven should the EU fail to of- will lose Britain any say over the rules that govern its commerce fer satisfactory divorce terms. Mrs May now accepts that a trade with the EU, it wins Britain the right to renegotiate its trade with deal with the EU cannot enter into force before Britain leaves the restofthe world. Itishard forEuropeansto judge whetherthis (even ifshe clingsto the fantasythatitsfull details maybe worked will pacify the Brexiteers. Then again, it has always been hard for out in advance). That means some sort of bridging arrangement Europeans to see why Britain’s tortured attitude towards the EU will be needed, perhaps lasting two or three years, during which should be their problem to solve. 7 46 Britain The Economist April 8th 2017

Also in this section 47 The lesson of Gibraltar 47 Old friends and new allies 48 Bagehot: Enoch Powell, the third man

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

Brexit and the borders der World Trade Organisation rules only, the process could take much longer. Omi- The customs crunch nously, the Motis office has a TV lounge, launderette and restaurant in case the drivers have to lie up fora bit. This glimpse into the future is the stuff DOVER of nightmares for British business. Just-in- time manufacturing windows could be Smooth trading with Europe will be disrupted unless Britain drastically overhauls just-missed; food importers and exporters its customs operation could see their perishables wilt with the O MOST Britons, the white cliffs of Do- a fourfold increase in the numberoflorries wait, especially as customs procedures Tver are symbols of independence and coming in and out of Britain via Kent since might have to be repeated on the French defiance, especially against any prospect customs barriers within the EU were abol- side. Irish hauliers are particularly anx- of invasion from the continent. But the ished in 1992. Another is that British indus- ious, as 80% of Ireland’s road freight to Eu- clifftops also afford an excellent view of try has used this reliable, round-the-clock rope goes through the British mainland. one of the great success stories of Britain’s delivery system to exploit “just-in-time Post-Brexit, they might have to clear cus- more recent integration with Europe: Do- manufacturing”, which allows carmakers, toms fourtimes. ver’s eastern docks. forinstance, to dispense with expensive in- There is another headache. By coinci- This is the centre of Britain’s seamless ventories and warehousing. Take the Mini, dence, CHIEF is due to be replaced by a trade with the European Union. Along line manufactured by BMW. Minis are essen- new system in March 2019, the due date for oflorries snakes slowly but uninterrupted- tially built to order, as each customer se- Brexit. Designed to cope with 60m cus- ly around concrete concourses and onto lects options for the trim and interior. The toms declarations a year this will now the roll-on, roll-off ferries that make the company plans production a week in ad- have to cope with about 300m. The project short crossing to Calais. So smooth is the vance, to the very hour that the different already seems to be in trouble. In Novem- process that the port can handle 10,500 lor- parts are scheduled to arrive. berthe governmentcustoms service gave it ries a day. About £120bn ($150bn) of traded To see how things might work after a “green” rating, meaning all was tickety- goods comes through Dover each year, 17% Brexit, visit Dover’s western docks. This is boo. Yet in January it was rated “amber/ of Britain’s total. A few miles away at the where trucks from non-EU countries arrive red”, meaning it was “in doubt”, with “ma- Channel Tunnel, up to 6,000 more lorries to clear customs. About 500 come here jor risks”. Andrew Tyrie, the chairman of arrive daily. Yet delays are rare because daily, from the Dover ferries and the Chan- the House of Commons Treasury select Britain’s membership of the EU’s single nel Tunnel, and their clearance is rather committee, is ringing alarm bells. “The market and customs union mean there is less seamless. Drivers have to park and fill consequences of this project failing, or almost no paperworkto hold things up. in a form at the freight clearance office. A even being delayed, could be serious,” he Soon that will change. In two years Brit- computerised system known as the Cus- warns. “Much trade could be lost.” ain is due to leave the EU—including its sin- toms Handling of Import and Export Even if the new system does work, it gle market and customs union, Theresa Freight (CHIEF) logs details automatically, will still require companies to input com- May has said. The prime minister’s vision indicating what the goods are and what plex data, and often quickly. Businesses of a “hard Brexit” will mean the return of the import duty might be, but it has to be could outsource this sort ofworkto profes- customs barriers in some form, and thus checked. Even for lorries from countries sionals, but whereas there were 125 such hold-ups at the ports. with close trading relationships, like Swit- customs agents at Dover before 1992, there There are many benefits to the current, zerland, all this “can take anything from 20 are only 24 left. All this will add to costs; “frictionless” system, as Mrs May has accu- minutes to an hour” from disembarking, even if Britain were to negotiate a good rately described it. One is that the ease of says Tim Dixon ofMotis, the firm that runs free-trade agreement with the EU, any deal trade generates more trade: there has been the operation. For countries operating un- would require customs formalities, says 1 The Economist April 8th 2017 Britain 47

2 Michael Lux, who used to work on cus- western docks, and so heavy the weight of held this job, the most senior military posi- toms for the European Commission. The traffic, thatthe slightestglitch can cause lor- tion not occupied by an American, since number of customs officials may have to ries to stack up on the approach roads to 1951. But Malcolm Chalmers, deputy direc- double, he says. It might be possible to de- Dover. And when French ferry operators tor of the RUSI think-tank in London, revise a system whereby lorries from went on strike during the summer of 2015, ports that as the EU’s role in security and “trusted trader” companies are waved the M20 motorway turned into a lorry defence has grown, some EU members are through, but this does not take account of park, losing businesses £21m worth of now arguing that, post-Brexit, the deputy the factthatmanywill be carryingconsign- stock that was ruined by the wait, accord- post should go to one of their nationals, ments from different sources. Further- ingto the Road Haulage Association. If Mrs most likely a Frenchman. more, no fewer than 34 government agen- May continues her pursuit of a hard Brexit And then there are fish. Those will be a cies have the right to interdict traffic, a and the upgrade of Britain’s customs oper- legitimate issue for multilateral Brexit ne- splendid recipe forbureaucratic hold-ups. ation maintains its leisurely pace, the sum- gotiations. But fish can also become a big So finely tuned is the operation at the mer of2019 could be more chaotic still. 7 bilateral grievance, not least because they have a habit of not always staying within designated territorial waters. Mrs May has Britain and the European Union made clear that Britain will take back control of its fisheries. But several countries, Rocky grievances notably Spain and France, have historical rights to fish in British waters, which they want to retain. Disputes over fisheries can become poisonous (remember Britain’s “cod wars” with Iceland in the 1970s). Brit- ish fishermen also need full access to EU markets. The only place that has ever The lesson ofGibraltar: this is a time forEU countries to airgrievances with Britain walked out of the European project before HAT only days after Theresa May nel Tunnel to setup camp in Doverinstead. is Greenland, which voted to leave in 1982. Tkicked off Brexit negotiations a previ- Another border row could come up in It took three years to negotiate trading ous Toryleader, Michael Howard, invoked Ireland. In this case there is no bilateral dis- terms forits only export, fish. the Falklands war to save Gibraltar from pute. Both London and Dublin say they are The list could be almost endless. Anglo- Spain may have been a shock. That the fu- determined not to re-create a hard border French rivalries have a long history. Some ture of Gibraltar would come up during between the Irish Republic and Northern Cypriots and Maltese might recall colonial Brexit should not have been. Spain always Ireland, complete with customs controls. injustices. And Tina Fordham, a political said it would raise the issue. More pointed- Yet the border is not just a bilateral matter: analyst at Citi, is not alone in predicting ly, Britain’s need to strike a new trade deal it will exist between a post-Brexit Britain thatGreece will bringup the Elgin marbles, that is subject to unanimous approval and the EU. If all EU members must agree which all Greeks believe should be re- gives other EU countries a chance to bring to bend the rules to avoid customs con- turned from the British Museum in Lon- to the table any grievance they wish to air. trols, any one ofthem may object. don to the Acropolis Museum in Athens. The spat began when Donald Tusk, the A third grievance may be Britain’s grip BrexitgivesotherEU countriesthe bestbar- president ofthe European Council, clumsi- on the NATO position of deputy supreme gaining chip they may ever have. Not sur- ly put in his draft Brexit guidelines a provi- allied commander in Europe. Britons have prisingly, many will play it. 7 sion that any future trade deal would apply to Gibraltar only if Madrid agreed. Brexiteers squealed at what they saw as a Spanish bid to question Britain’s sovereignty—and Lord Howard brought up the Falklands. It is true that Spain has objected to British sovereignty over Gibraltar ever since it was conceded in the Treaty of Utrecht in 1713. It also has a gripe over Gi- braltar airport, which is partly built on re- claimed land. Yet Madrid’s concerns now are not about sovereignty but about competition from Gibraltar’s low tax regime— concerns that other EU countries share because of fears that post-Brexit Britain could follow Gibraltar’s example. Rather than rage over the Rock, Brexi- teers should prepare for other grievances to emerge. One is the 2003 Le Touquet treaty with France that puts British border controls in Calais. Charles Grant of the Old friends and new allies Centre for European Reform, a think-tank, notes that all three leading candidates in Ahead of Brexit, ministers are out hunting trade deals. Theresa May has just been to the French presidential election are pro- Jordan and Saudi Arabia, Philip Hammond to India, and Liam Fox to Indonesia, Malaysia mising to withdraw from this treaty, which and the Philippines, whose “shared values” with Britain he celebrated. President is blamed in France for the migrant camps Rodrigo Duterte has encouraged his citizens to murder drug-dealers, something that is that have sprouted around Calais. That generally frowned upon in Britain. But Dr Fox is eager to improve the terms of trade with threatens to revert to the time when asy- the Philippines, which accounts for fully 0.1% of British exports. Meanwhile exit lum-seekers were sent through the Chan- negotiations continue with the EU, which takes 45%. 48 Britain The Economist April 8th 2017 Bagehot The third man

The shadow ofEnoch Powell looms ever-largeroverBritish politics Yet Brexit is soaked in the blood of Powellism. Some of the leading Brexiteers acknowledge their debt to Powell: Nigel Farage regardshim asa political hero and saysthatthe countrywould be better today if his words had been heeded. Powell lit the fire of Euroscepticism in 1970 and kept it burning, often alone, for decade upon decade. He provided the Eurosceptics with their favourite arguments: that Europe was a mortal threat to British sovereignty; that Britain’s future lay in going it alone, “her face towards the oceans and the continents ofthe world”; that the establishment had betrayed the British people into joining Europe, by selling a political project as an economic one, and would betray them again. History has also been on his side. David Shiels, of Wolfson College, Cambridge, pointsoutthat, in Powell’stime, the questions ofimmigration and Europe were distinct (the immigration that worried him was from the Commonwealth). Europe’s commitment to the free movement of people drove the two things together and gave Powellism its renewed power. Just as important as his arguments was his style. Powell was the first ofthe new generation ofpopulists cropping up across the West, a worshipper of Nietzsche in his youth, a professor of clas- sics by the age of 25 who nevertheless considered himself a true F THE history of the world is but the biography of great men, as voice of the people. He believed that the British establishment IThomas Carlyle put it, the history of Britain since the 1960s is had become fatally out of touch on the biggest questions facing but the biography of two great men and one woman. As Labour the country and used his formidable charisma—insistent voice home secretary from 1965-67, Roy Jenkins took the government tinged with Brummie, hypnotic stare—to seduce his audiences. out of the bedroom with a series of liberalising laws on divorce, Powell’s errors were legion. He regarded British nationhood homosexuality and censorship. As Tory prime minister from as a fixed entity rather than something that was constantly being 1979-90 Margaret Thatcher unleashed the power of markets. The reinvented. He underestimated the country’s ability to absorb main job oftheirsuccessorswasto come to termswith these twin foreigners. Some prominent Brexiteers, such as Priti Patel, who is revolutions: Tony Blair converted Labour to Thatcherism and Da- now a cabinet minister, were the children ofimmigrants, and the vid Cameron converted the Toriesto Jenkinsism. mostrecentToryto hold Powell’sold seat, Wolverhampton South Before Brexit it looked as ifthat was it: the party that could pro- West, was a Sikh, Paul Uppal. He combined a high-flown love of duce the best synthesis of Thatcher and Jenkins would win. But his own nation with a chilly indifference to other people’s na- today a third figure hovers over British politics: a man who was tions. He didn’t pay enough attention to the fact that nationalism born in 1912—eight years before Jenkins and 13 before Thatcher— can easily turn rancid: on March 31st a 17-year-old asylum-seeker but whose influence seems to grow by the day. One of Enoch was beaten almost to death in London by a gang of youths. Nor Powell’s most famous observations was that “all political lives, did he recognise thatitcan easilybecome ridiculous: on April 2nd unless they are cut off in midstream at some happy juncture, end a former leader of the Conservative Party, Michael Howard, in failure.” His political life is enjoying a posthumous success. talked about going to war with Spain over Gibraltar. Powell puttwo issuesatthe heartofhispolitics: migration and Europe. He convulsed the country in 1968 when he declared in a Filled with foreboding speech in his native Birmingham that mass immigration would But he did recognise one big thing: that the prophets of globalisa- produce social breakdown—that “like the Roman, I seem to see tion and European integration erred badlyiftheythought thatna- the River Tiber foaming with much blood.” And he campaigned tional loyalties would either melt away or become so anodyne tirelessly against the European Economic Community. These two that they didn’t matter. Britain’s political parties now need to passions were united by his belief in the nation state. He thought come to terms with the Powell question of national identity in thatnationswere the buildingblocksofsocietyand thatattempts much the same way that they once had to come to terms with the to subvert them, through supranational engineering or global Jenkins question (social liberalism) and the Thatcher question flows of people, would end in disaster. (economic liberalism). Those who fail to make the adjustment Powell didn’t have the same direct influence as Thatcher or will be doomed to marginalisation. So farthe Torieshave taken to Jenkins. Thatcher was prime minister for 11 tumultuous years. this more easily than Labour. Whereas Theresa May’s Toryism is Jenkins lived his life at the centre of the establishment. Powell rooted in provincial England, Labour’s two core constituencies— spent only 15 months of his 37-year political career in office, as liberal intellectuals and manual workers—are at war with each minister for health; nothing of substance bears his name on the other on national identity. statute books. In his new book, “The Road to Somewhere”, David The established partiesneed to deal with this problem notjust Goodhart, a liberal critic of multiculturalism who has been ac- because their success depends upon it but also because, if left to cused of “liberal Powellism”, thinks that his “rivers of blood” fester, untamed nationalism can be a powerfully destructive speech was doubly counter-productive: it toxified the discussion force. Powell was restrained by the power ofthe old British estab- of immigration for a generation and set the bar to successful im- lishment and by his reverence for Parliament. Today’s pound- migration too low (no rivers foaming with blood, no problem). shop Powellites don’t sufferfrom any such restraints. 7 International The Economist April 8th 2017 49

Health-care reform lation-wide efforts to keep people well. Hospitals have alreadybeen reinvented Prescription for the future several times. Duringthe Middle Ages they were run by religious institutions and offered little more than shelter and palliative care for the poor, and a place to die. After the advent ofmodern medicine during the Enlightenment, ambitious institutions such as Westminsterand Guy’s, in London, How hospitals could be rebuilt, betterthan before developed into complexorganisationsthat N A nondescript part of Cleveland, in a all that. In the coming years a big chunk of combined care, treatment, research and Iroom known asthe bunker, a doctor, nur- those activities—and nearly all the moni- education. Poor-relief moved elsewhere; ses and medical technicians gather to keep toring and care—could move elsewhere. smaller institutions closed or merged; doc- watch over 150 patients in special-care un- Plenty ofother institutions are trying to tors specialised and clustered in big cities; its and intensive-care beds. Their patients grab some of the work—and profits—that and nursing was professionalised under are scattered around the region, in clinics will be displaced, including primary-care Florence Nightingale and her successors. that have no specialists covering the night groups, insurers and health-management shift. On a wall ofbeepingscreens the bun- organisations. And technology firms are Temples to healing ker team members tracktheir charges’ vital already playing a bigger part in health care The transformation in the coming decades signs. They can zoom in on any patient via as phones become more powerful and pa- will be as wrenching as any hospitals have a camera at the foot of each bed. “These tients take control of their own diagnosis yet seen. And health-care reform is always here are PVCs [premature ventricular con- and treatment. But the more far-sighted difficult, as is clearfrom a glance at Britain’s tractions]; they’re bad things,” says Jim hospitals are hopingto remain at the centre creaking National Health Service, France’s Goldstein, a cardiac technician, pointing to of the health-care ecosystem, even as their near-bankrupt system—or the intermina- a graph of a patient’s heartbeat. The PVCs role changes. ble battles in America over the future of are gettingworse, warnsa flashinglight. It’s “When I think of the hospital of the fu- Obamacare. Fast-ageing populations and time to alert a nurse on the ground. ture, I thinkofa bunch ofpeople sitting in a the rising cost of new treatments will fur- Health-care providers such as the room full of screens and phones,” says thercomplicate the transition. Butthe need Cleveland Clinic, the big American hospi- Toby Cosgrove, the Cleveland Clinic’s for change is pressing. In the past half-cen- tal group that runs this remote intensive- head. In such a vision, a hospital would re- tury the burden of disease in all but the care unit (ICU), are rethinking the way hos- semble an air-traffic control tower, from poorest countries has shifted. Communi- pitals work. Today, hospitals are where pa- which medical teams would monitor pa- cable diseases are no longer the big pro- tients go for consultations with specialists, tients near and far to a standard until re- blem; now it is chronic ones related to un- and where specialists, with the help of cently only possible in an ICU. The institu- healthy lifestyles and longer lifespans. The medical technicians and pricey machin- tion itself would house only emergency gap between populations’ health needs ery, diagnose their ills. They are also the cases and the priciest equipment. The only and the care offered by systems organised main setting forsurgery and medical inter- in-hospital consultations would be those around hospitals has grown ever wider. ventions such as chemotherapy; and requiring the expertise of several special- Picturing what hospitals could be, ifthe where sick people go for monitoring and ists working in a team. Patients inside the various obstacles are overcome, means care. But high-speed internet, remote-mon- buildingwould be cared forbetter. But few- abandoning long-held assumptions about itoring technology and the crunching of er people would be admitted, as hospitals the delivery of care, the role of the patient vast amounts of data are about to change co-ordinated care remotely and led popu- and what makes a good doctor. The first is1 50 International The Economist April 8th 2017

2 what should happen where. “A hospital spired “command centre” to manage its pa- can also be at home,” says Lord Ara Darzi, a Cash injection tient flows. Surrounded by 22 beeping flat- surgeon and professor at Imperial College Health spending as % of GDP, 2014 screens, live video-streams and lots of London, a university that runs teaching Hospital Non-hospital phones, staff members wearing headsets hospitals. Just as online banking made life 0369121518 orchestrate the 1,100-bed institution more convenient for consumers and freed around the clock. GE Healthcare, a medi- 9.02 up branch staffforcomplexqueries, online United States cal-technology firm, helped mix, filter and health care could mean fewer people need Sweden 5.07 present data streams in new ways—even to come to hospitals to be cared for by France 4.37 includinginformation such asthe weather. them. Last year half of consultations of- Germany 5.12 Bed-planning has gone from an art to a sci- fered by Kaiser Permanente, an integrated Netherlands 5.28 ence with the help ofprogramsthatpredict American health-care firm that runs many demand with great precision and warn Canada 4.49 hospitals, were virtual, with medical pro- when a crunch is approaching. The centre 3.97 fessionals communicating with patients Britain stays in touch with nearby institutions by phone, e-mail or videoconference. Italy 3.21 whose patients require its specialists’ in- The main limitations today, says Kari Australia 4.21 put, but not to be physically present. The 2.22 Gali, a paediatric nurse-practitioner forthe Greece Total aim is to “maximise the number of pa- Cleveland Clinic who takes such video- spending 1.80 tients with access to Hopkins’ expertise”, Hungary per person, calls, are that she cannot look into chil- South Korea 2014, $’000* 2.36 says Jim Scheulen, the director. dren’s ears or listen to their chests. As these In future, rather than checking patients’ Source: OECD *At purchasing-power parity and more sophisticated diagnostics, in- vital signs only at intervals, orparking ICU- cluding blood tests and virtual imaging, nurses next to beds, live data-streams from become available remotely, more patients and can “beam in” by video to talkto a doc- medical machines and wearable devices could receive hospital-quality care with- tor or nurse at any time of day. After a pilot could flow straight to such command cen- out leaving home. Gupta Strategists, a study with Philips, Banner Health thinks tres, where supercomputers could screen Dutch research company, reckons that this telehealth programme could reduce them foranythingworth bringingto the at- around 45% of care now given in Dutch admissions by nearly half, and cut costs by tention of medical staff. Doctors in the hospitals could be done better at home. a third. command centre, or even in their own Shifting almost all dialysis and chemo- For patients who must still be admitted homes, could be at patients’ bedsides vir- therapy out ofhospitals is further off, but is to hospital, the experience could be much tually with a swipe of a touchscreen. All on the way. And with better remote moni- more convenient and pleasant. Hospitals this would not only make the hospital saf- toring some chronically ill patients who could operate more like a cross between a er and more efficient; it would also give now need to be in hospitals will be able to modern airport and a swish hotel, with medical staffa more complete record of pa- stay at home, only coming in when their mobile check-in, self-service kiosks for tients’ progress. conditions deteriorate. Moving care out- blood and urine tests and the like, and up- In Kaiser’s Oakland Medical Centre, the side institutions will both save money and dates on patients’ and relatives’ phones. nurses in the neonatal unit, among the raise standards, by making patients more For pre-planned visits an algorithm could most sensitive departments in any hospi- comfortable and reducing infection rates. decide which tests are needed before a pa- tal, do not need to watch the babies as tient leaves home. Some of these could be closely as they used to, because algorithms Each to their own done in advance and the results streamed ping an alarm to their phones whenever For all this to happen, primary care and directly to patients’ electronic records. there is something to worry about. The home support will need to improve. Kaiser Health-care managers are already wak- unit automatically goes into lockdown if shows what such “integrated care” might ing up to the fact that a patient’s environ- anyone takes an infant, tagged with a bar look like. It offers a host of alternatives to a ment affects outcomes such as recovery code, to the exit. Soon Karolinska hospital hospital visit, from its website to kiosks to times and success rates. Some are aiming will equip every patient with a vital-signs urgent-care centres, which are cheaper, of- for pristine, white and clinical; others for tracker. In the Cleveland Clinic’s recently ten more convenient for minor ailments pastels, seashells and classical music. The opened Avon Hospital, sensors track and equipped to deal with disease man- latter can all be found in Kaiser’s Manhat- whether staffhave washed their hands be- agement and prevention, and the social is- tan Beach Medical Office, in Los Angeles, fore entering a patient room: lights flash on sues that increase ill-health. “If we get a which is also planning yoga and cooking their badges ifnot. hospitalisation of a diabetic patient in a classes for patients. The new Karolinska coma, that’s a failure of our system,” says University Hospital, in Stockholm, has Cleared forlanding Bernard Tyson, Kaiser’s boss. He blames SKr118m ($13.2m) worth of art and lots of A command centre could watch over pa- skewed financial incentivesto have “heads glass to maximise light, both intended to tients not only in hospitals, but also at in beds” for much over-hospitalisation. aid healing. It will be much quieterand cal- home. Wearable devices that track vital BannerHealth, a large non-profit Amer- mer than a typical city hospital, says An- signs, contact lenses that monitor blood- ican health system, runs 28 hospitals and nika Tibell, the medical director; instead of sugar levels and smart-stitches that mea- several specialised facilities across six flashing alarms and loudspeakers, staff sure the pH level offluid in wounds would states. Its Tele-ICU programme, for which will have discreet personal buzzers. Kaiser all mean fewer patients in hospital for Philips, a Dutch health technology firm, has switched from neonatal wards to priv- monitoring. When he speaks of how such provides equipment, programming and ate rooms in its new hospitals. All these remote monitoring could improve care for software support, has its headquarters in may seem like luxuries, but patients who his leukaemia patients, the eyes of Mat- Phoenix. It manages care for critically ill cannot sleep recover more slowly. Some thew Kalaycio, an oncologist at the Cleve- patients who may be thousands of miles hospitals have had acoustic levels at night land Clinic, light up. If his phone warned away. Under its “intensive ambulatory of over 70 decibels, the equivalent of a him of a worrying change in a patient’s care programme”, patients are helped to nearby vacuum-cleaner. temperature, he could wake the patient leave hospital earlier than is usual for their Butthe biggestupgradesto hospitals are with a call even before he feltanything and conditions. They remain under constant needed behind the scenes. Johns Hopkins tell him to come to hospital or, ifcaught ear- monitoring and care in their own homes, Hospital, in Baltimore, has built a NASA-in- ly enough, to take medication to resolve 1 The Economist April 8th 2017 International 51

2 the problem at home. ting things started and the robot doing the labour shortage. Without a big leap in pro- All this monitoring would bring two rest. With more complex operations, a ductivity America alone will lack up to new risks: mass hypochondria, as patients supercomputer linked to a real-time virtu- 90,000 doctors by 2025. And worldwide obsessed over their data and flooded hos- al-reality (VR) machine could help walk demand for health care is growing as pitals with requests for consultations; and surgeons through their operations. It lives—and that part of them lived in poor alarm fatigue, in both patients and medics. could, for example, highlight where a tu- health—grow longer. The World Bank esti- The antidote would be an intelligent mon- mour sits in the liver and warn a surgeon mates that by 2030 the number of health- itoring system combining all the different about impinging on an artery, just as a sat- care workers will need to double, com- data-streams, filteringoutthe least relevant nav warns oftraffic jams ahead. pared with 2013—an extra 40m workers and alerting staff only when needed. A Sricharan Chalikonda, a surgeon at the globally. High rates of stress and burnout computer taught to recognise deviations Cleveland Clinic, says he can imagine are already a problem in health care; if from standard recovery would be able to scrubbing up “full Robocop-style”, with a workloads continue to increase they will alert medical staff to aberrations. For ex- helmet with built-in VR goggles giving him only rise further. But if medical staff are ample, a pneumonia patient who does not fighter-pilot “super-vision” and gloves that made more productive with the help of shake off a fever after two days of antibiot- give him “super-hands”. His team has al- computers, monitoring devices and ro- ics needs attention. Most others simply ready worked with 3D prints of patients’ bots, they can be freed up to do the work need to complete the course of drugs, and organs; the next big leap would be to pro- that only humans can do, and helped to do get some rest. ject live images, showing the blood flow- it better and more happily. ing through them. Microsoft HoloLens, If full advantage is to be taken of new Physician, heal thyself clever virtual-reality goggles, is already be- medical technologies, not only medical As well as enabling doctors to monitor pa- ing used to teach students about anatomy; professionals, but patients, too, will have tients more effectively, technology could cadavers can be cut up, which is useful, but to take on a new role: more like co-pilot also improve their skills, increase their to observe biological processes such as cir- than passenger. Illegible charts at the end reach—and, sometimes, take their jobs. Al- culation in action only a live or VR body of the bed—literally out of patients’ reach— though hospital managers insist that tech- will do. In the future, every big hospital would be replaced by a constantly updat- nology would not replace staff, this is of could have a Star Trek-style holodeck ed electronic health record accessible on course nonsense. Basic tasks, such as cart- where surgeons could plan and rehearse any device, by doctor, nurse or patient. The ing laundry around, are already being tak- complex operations on a 3D projection of Cleveland Clinic already streams patient en over by robots. Everyday care, such as the patient. Advances in minuscule robotic records, including test results, to “My- keepingpatients clean, could be next. Radi- tools could correct for the imperfections of Chart”, a site and app through which pa- ologists and pathologists, whose skills are the shaky, too-large human hand, allowing tients can also contact their physicians. primarily visual, are at risk of being el- fewer and smaller cuts than keyhole sur- In many Kaiser hospitals, a flat-screen bowed aside by machines. gery as it is currently practised. television on the wall gives patients infor- Engineers at Imperial College London With quicker and less invasive treat- mation about their recovery and what recently developed Deep Medic, a comput- ments, recovery times would fall. Medical they must do before they can go home. It er program that assesses scans of patients errors would become less frequent, as may not be long before patients can be giv- with head injuries for signs of brain would the need for repeat operations. Sur- en access to the same sights and sounds as trauma. Today, these are diagnosed by a geons in the control tower might, eventual- theirdoctors, forexample by streaming the doctor who pores over MRI scans. Deep ly, operate on patients all round the world. sound of a stethoscope to a headset or the Medic can do the job in seconds. Brain tu- “I can totally see myself sitting here at my view from an otoscope to a screen. Mr Ty- mours could be next. Such diagnoses desk, guiding three operations in three dif- son wants people to become as interested would be cheaper and more accurate than ferent locations,” says Mr Chalikonda, as and engaged in their bodies as they are (or, possible with the human eye. he leans backin his chair. at least, as he is) in their cars. He thinks that But mostly such technological ad- As technology amplified the reach of with the right technological and medical vances would make doctors better, not re- each health-care professional, one useful support they would be able to spot, and replace them. The Cleveland Clinic is putting consequence would be to ease a looming spond to, raised cholesterol as quickly as Watson, IBM’s robot that learns to reason they would to low tyre pressure. as it is fed data, through medical school. It The modern hospital is a great achieve- could soon join doctors on their rounds. ment. And, in some form, it is sure to sur- University Hospital Marburg, in Germany, vive. “There will always be hospitals recently began using Watson to improve where patients with complex needs go for the diagnosis and treatment of rare dis- multidisciplinary diagnosis and treatment eases (one early success was to help trace by teams of specialists,” says John Deverill mysterious stomach symptoms to water of GE. He predicts that separate facilities snails in a patient’s aquarium, leading to a will spring up to provide common surgical diagnosis of bilharzia, a tropical disease). interventions, such as joint replacements The smartphonesin doctors’ pocketscould or cataract removals, to benefit from scale. replace the stethoscopes around their And hospitals will also continue to be necks. Machines do not get emotional or needed to treat emergency cases. tired, nor do they struggle to distinguish whether a newborn baby is blue (and thus Beam me better, Scotty in need ofurgent intervention) or pink. The next iteration ofthe hospital, however, The surgeon’s job, too, could be trans- is tantalisingly within reach—and it is more formed. Today, the use of robots in the op- the co-ordinating node in a networkthan a erating room is limited because they must self-contained institution. “We have be steered manually with a joystick. In fu- reached the peakofbringingpatients to the ture robots might be able to carry out some healing centres—our hospitals,” says Sam- standard procedures such as hip replace- uel Smits ofGupta. “We are on the brinkof ments autonomously, with a surgeon get- bringing the healing to patients.” 7 FINANCE DISRUPTED: ASIA

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Indian e-commerce big companies and selling it on nearer its full price, pocketing the difference. But a Delayed delivery deluge offundingin 2015 turned to drought in 2016. Firms ceased subsidising unprofit- able sales and concentrated on limiting their losses, which dented overall sales. MUMBAI The authorities also put a dampener on the market, by reiterating a year ago that e- Once darlings ofthe global startup scene, the sheen has come offIndian consumer commerce firms have to act mostly as internet firms matchmakers between buyers and sellers HE promise of virgin commercial terri- er firms, Paytm and ShopClues. A long tail (as eBay does in most countries), not sell Ttory up for grabs, startups vying to lure of niche firms peddles everything from their own inventory. Companies already investors’ money even faster than they taxi rides to cinema tickets. skirt the rule using subsidiaries, but it be- burn through it, and Amazon trying to cap- They all hope that 2016 will prove to came harder to do so. The sudden “demo- ture all the spoils: the recent scramble for have been a blip. Some factors that slowed netisation” of large bank notes in Novem- the Indian online consumer has had more sales growth may have been one-offs; ber hurt online sales (around two-thirds of than a whiff of the late-90s dotcom boom some changes were in fact welcome. An Indian buyers of goods online are paid about it. The exuberance seemed justified. unhealthy cycle had developed, whereby with cash upon delivery). India is the world’s fastest-growing large investors backed e-commerce firms that Not all online firms have been equally economy, its consumers increasingly showed strong sales growth, which then affected by the slowdown. By all accounts clutching smartphones and fattening wal- used the cash to fund discounts needed to Amazon continued to grow; it now claims lets. Online shopping, worth just $1bn five attract more customers, who were unprof- to be the market leader. Flipkart, which years ago, seemed to be growing so fast itable but boosted sales growth, attracting also claims to be the biggest Indian e-com- that it would exceed $100bn by 2020. new investors, and so on. merce firm, struggled in early 2016 amid The boom has ended not with a pop, as According to RedSeer, a consultancy, by mass departures of senior staff; it appears in 2000, but a whimper. Online sales, after 2015 some 20-30% of all e-commerce sales to have recovered somewhat since. Snap- more than doubling in 2014 and nearly tre- were to middlemen who were buying deal, formerly beloved ofinvestors, is now bling in 2015, were nearly flat in 2016 (see heavily discounted merchandise from the a distant third. SoftBank, a Japanese inves- chart). Analysts are scrambling to lower tor with a one-third stake, is reportedly their forecasts. Given that total retail con- seeking to sell it to Flipkart, even if that sumption in India grows by around 18% a All over the shop means investors getting less money back year, and internet penetration went up by India, online sales* than the nearly $2bn they put in. two-fifths last year, e-commerce if any- % increase on a year earlier Some observers are questioning thing looks to be losing ground. 200 whether the long-term promise of Indian Thatissoberingnewsformany. In the 18 e-commerce still holds. Increasingly, execu- months to December 2015, investors put 150 tives hint in private that the market is far $9bn into Indian startups, often at eye- 100 smaller than their former marketing mate- popping valuations. Forrester, a research rial suggested. “Most people talk about In- group, now reckons that the market will 50 dia being a 1.2bn consumer market. It’s grow to $48bn by 2020. That may not be 0 not,” Ashish Hemrajani, founder of Book- enough to sustain the five big general on- 2011 12 13 14 15 16† MyShow, a ticketing site, told a conference line retailers—Flipkart and Snapdeal, two *Gross merchandise recently. Though smartphone usage is ris- established Indian firms that are trying to Sources: Company reports; IAMAI; value of goods sold ing quickly, there are perhaps 200m-250m Euromonitor; Credit Suisse †Estimate fend offAmazon, as well as a pair of small- Indians with internet access and credit or1 54 Business The Economist April 8th 2017

2 debit cards, most of them in big cities. But Fox News onlya proportion ofthistotal isactually inclined to shop online. The number of ac- The $13m factor tive online shoppers reached 35m-40m in 2015, and has not grown much since then, says Arya Sen ofJefferies, a bank. The funding drought of 2016 seems to NEW YORK be easing. But so-called “down rounds”, in More allegations about goings on at which companies accept investment Rupert Murdoch’s FoxNews based on valuations significantly below their peaks, are now the norm. Both Flip- VEN forRupert Murdoch and Fox News, kart and Ola, a ride-hailingfirm, are having Eno strangers to controversy, the allega- to endure them. tions against Bill O’Reilly present an ex- This duo have been at the vanguard of treme test. On April 1st the New York Times calls for protection from foreign competi- published an investigative report that de- tion. Sachin Bansal, a co-founder of Flip- scribed accusations of sexual harassment kart, has complained about unfair “capital and otherinappropriate behaviourfrom at dumping”, notably by Amazon, which has least seven women against the presenter. pledged $5bn to its Indian subsidiary. Both He and the network, the paper said, have Amazon and Uber failed to crack China, paid about $13m to five women since 2002 and are hoping for redemption in India. to settle cases where they alleged such be- They can deploy oodles of capital generat- haviour. Mr O’Reilly denied the merits of ed by non-Indian operations. Along with the claims. the top brass at Ola, Mr Bansal has pleaded The news came less than nine months with the government to follow the Chi- after Roger Ailes, the network’s founding nese model of restricting foreign compa- boss, stepped down following multiple nies from operating in India. sexual-harassment claims against him. Such tactics are little more than “crying This week around 50 advertisers left Mr foul after playing the game”, says Radhika O’Reilly’s programme, “The O’Reilly Fac- Lights, camera, where’s the action? Aggarwal, ShopClues’ co-founder. Fears tor”, among them several car brands, in- that Alibaba, a deep-pocketed Chinese ri- cluding Mercedes-Benz and Toyota’s is advertising the biggest source of Fox val, could gatecrash the market in earnest Lexus, as well as GlaxoSmithKline, a drugs News revenue. SNL Kagan, a research firm, (it is currently a large investor in Paytm’s company. The National Organisation for estimates that Fox News will collect more parent company) are rising. Rakuten, an ag- Women has called forhim to be fired. than $900m in advertising revenue this gressive Japanese e-commerce firm, is also All eyes are on Mr Murdoch, who has year, but close to double that—$1.7bn—from said to be preparing to enter the market, been running Fox News himself since he feespaid by cable and satellite providers to which is still big enough to tempt. pushed out his friend, Mr Ailes. Mr carry the channel to 89m homes. An initial O’Reillyhasprobably been just as valuable statement from 21st Century Fox, the par- Cart game to him. Long the most-watched presenter ent company of Fox News, was supportive Needless to say, Flipkart and Ola still wel- in cable news, his audience has surged of Mr O’Reilly. The network recently re- come foreign capital that goes into their higher still since the election of Donald newed his contract. In a statement, Mr own coffers. They certainly need it. The big Trump. Hisshowisaveraging4m viewersa O’Reilly also stated that he is a vulnerable Indian e-commerce firms are probably los- night this year (see chart), helping make target of lawsuits seeking to harm him and ing $2bn-2.5bn a year in total. Optimists Fox News the most-watched cable channel Fox News. hope the end ofthe fundingfroth will have in America. Mr Trump this week spoke out Yet the scandal is probing the limits of kiboshed only firms with bad business in Mr O’Reilly’s defence. Mr O’Reilly’s worth. One executive with a plans. Even the large players are focusing An advertiser revolt will hurt, but on its big ad-buying agency in New York was at on niches, such as fashion orgroceries, that own it is unlikely to make Mr O’Reilly’s first sceptical of the impact of the scandal have fatter margins than gizmos such as ouster inevitable. Buyers place ads across when there was no initial concern from cli- smartphones (roughly half of all sales multiple programmes on a network; many ents, but noted a herd effect developing lat- now), which are barely profitable. Amazon adswill shiftto otherFoxNewsshows. Nor er to leave the programme (though not the aside, the focus is on finding ways of mak- network). Whether Mr Murdoch buckles ing more money from existing customers underthe pressure may also depend on his rather than finding new ones. The life of O’Reilly potential replacements for Mr O’Reilly. He It also bodes well that founders have United States, 8pm weekday programming has already replaced another departing pointedly shifted their focus from sales to Viewers, m star, Megyn Kelly (one of Mr Ailes’s accus- (The O’Reilly Factor) profits. The question is whether customers Fox News ers, and a target of Mr Trump), with Tucker CNN (Anderson Cooper 360°) will buy as much online if they no longer MSNBC (All in with Chris Hayes) Carlson, a conservative commentatorwho receive a subsidy from venture capitalists 4 is doing very well. every time they checkout. The assumption Any decision will involve Mr Mur- used to be that the Indian e-commerce 3 doch’s sons—Lachlan, a co-executive chair- market had room for all firms to thrive. man of the parent company with his fa- Now the consensus is that only the implo- 2 ther, and James, the CEO. They reportedly sion of the weakest can lift returns so that played a part in ousting Mr Ailes. But they investors become willing to pour in more 1 have said nothing publicly this week and money, allowing the Indian champions to their views remain unclear. Much as the take on the likes of Amazon. And if this 0 scandal isgaugingthe worth ofMrO’Reilly 2015 16 17* year is no better than last, even that will be to Fox, it may also be a test of forces within Source: Nielsen *To April 4th called into question. 7 the Murdoch family. 7 The Economist April 8th 2017 Business 55

Pharmaceuticals the riskofaddiction. meaning efforts to implement procedures This is not the first time such questions to make sure that pain was not under- A world of pain have been raised. In a case in 2007, the par- treated in hospitals. Direct-to-consumer ent company of Purdue Pharma and three advertising of opioids may also have en- current and former executives there plead- couraged overuse. Only America and New ed guilty to criminal charges that they mis- Zealand allow pharma firms to advertise WASHINGTON, DC led regulators, doctors and patients about drugs directly to patients. OxyContin’s risk of addiction and poten- The scrutiny on the industry is none- Makers and distributors ofopioid tial for abuse. Purdue promoted the drug, theless intensifying. The number ofopioid painkillers are underscrutiny which is long-acting, as posing a lower risk prescriptions being given is no longer ris- ETWEEN 1999 and 2014 sales of pre- ofabuse and addiction than shorter-acting ing, and may be falling. The same cannot B scription opioid drugs almost quadru- painkillers—such as Percocet and Vicodin. be said fordrugs firms’ legal woes. 7 pled in America, an increase that came not The firm admitted it had made statements simply in response to patient suffering but about its drug that were “inconsistent” because more ofthe population are addict- with approved prescribing information. In Entrepreneurs in Africa ed to these powerful drugs. Such is the de- other words, the firm had incorrectly told mand for them, Americans now consume doctors that OxyContin was less prone to Hurdles for hubs four-fifths ofthe global supply. abuse than other opioid medicines. The Growth on this scale has been profit- firm agreed to pay $600m and the three ex- able for some: OxyContin, a popular ecutives paid $34.5m in fines. opioid made by Purdue Pharma, a drug Ms McCaskill’s inquiry is not the only ADDIS ABABA company in Stamford, Connecticut, has one drug firms face. The Department of The going is tough forAfrican tech hubs made its manufacturer tens of billions of Justice (DoJ) has alleged that kickbacks and startup incubators dollars (see chart). But more broadly it has were offered to encourage drug prescrip- spelled tragedy. Deaths from opioid use in tions and also that, as a result, health insur- OU are either part of the solution or America quadrupled over the same per- ers were defrauded. In December the DoJ “Ypart of the problem,” it says in paint- iod. About 90 people die every day, accord- arrested former senior staff at Insys Thera- ed letters on a wall. “Stay hungry, stay fool- ing to the Centres for Disease Control and peutics on charges that they led a conspira- ish,” says the wall opposite. An old rick- Prevention. cy to bribe doctors to unnecessarily pre- shaw sits among beanbags and a vase of That dissonance between corporate scribe patients a pain medication based on flowers rests on an ancient oil barrel in the success and private pain has become a fentanyl (an opioid that is up to 50 times as corner. “We wanted the space to feel like matter of public interest. On March 28th powerful as heroin), defrauding the insur- Google,” says Eleni Gabre-Madhin, the Senator Claire McCaskill, a Democrat from ers who had to cover the drug’s cost. The founder of blueMoon, a new agribusiness Missouri, said that she would investigate DrugEnforcementAdministration hasalso incubator that opened in Addis Ababa in the role that pharma firms played in creat- taken action against firms forfailing to con- February, without a trace ofirony. ing the opioid crisis. Through a committee trol the “diversion” ofprescription drugs to Incubators and their cousins, accelera- that oversees issues of homeland security illicit uses. Earlier this year McKesson, a tors, provide hands-on training and men- and government affairs, she has written to San Francisco-based pharma distributor, toring, and often a physical space, to help five makers of prescription painkillers— agreed to pay $150m for failing to report early-stage business ideas develop. In Sili- Purdue Pharma, Depomed, Janssen/John- suspiciously large orders ofdrugs. con Valleytheyfind capital forstartups and son & Johnson, InsysTherapeuticsand My- Increasingly, too, counties and cities are take a slice of equity in return for their ser- lan. She is demanding internal corporate filing lawsuits against manufacturers for vices. Ms Gabre-Madhin says that blue- documents stretching backover five years. their role in the opioid epidemic. There Moon draws inspiration from Y Combina- Ms McCaskill wants to know exactly may be further legal action against the tor, an American accelerator founded in how firms marketed their drugs and what firms that distribute opioid medicines, act- 2005 whose investees include Dropbox they knew about the risks ofaddiction and ing as intermediaries between pharma and Airbnb. The new firm’s first cohort of abuse. In particular, she wants to find out if firms and pharmacies. Some have been startups will train at the office for four companies used calculated sales-and-mar- named in lawsuits. months, and it will give each a small cash ketingstrategies that involved encouraging Nora Volkow, director of the National injection in exchange fora 10% stake. doctorsto prescribe opioidsfora wider cat- Institute on Drug Abuse, says that pharma That is a rarity in Africa’s startup scene. egory of causes of pain than they would companies are not the only ones to blame A simpler and more common model is for otherwise have done and downplaying for the opioid crisis. She points to well- “tech hubs” to provide office space, some networking events and fast broadband internet. A recent survey counted over 300 Jagged little pills such facilities on the continent. One of the United States, OxyContin sales, $bn first hubs was iHub in Nairobi, launched in 2010, which has an incubation arm fo- 4 cused on mobile technology, called m:lab. But m:lab, like many ofits kind, is not a real 3 incubator: it was founded with grant support from the World Bank and takes fees 2 from, but not equity in, the companies that it nurtures. Becoming a proper incubator has 1 proved tricky. Hypercube Hub in Zim- babwe closed in 2015 after operating for 0 less than two years, having failed to find a 1996 2000 05 10 16 sustainable business model. A seed fund Source: QuintilesIMS and incubator based in Nairobi called 1 56 Business The Economist April 8th 2017

2 88mph closed in 2015 after struggling along forfouryears; itsNigerian spin-off, 440.NG, was discontinued after the first cohort graduated—the return on capital to the founder was insufficient. Only one genu- ine incubator, Raizcorp in South Africa, is profitable without grant funding. Almost all are waiting fortheir first big payout. Many incubators lack experienced mentors to guide young businesses. In a country like Ethiopia, home to few internationally successful businesses, finding qualified staff is a headache. Even in more sophisticated Nigeria, mentors can be sub- standard. Some actively harm young startups by, for example, pushing them into raising capital too early. Just as entrepreneurs need decent mentors, incubators need good entrepreneurs if they are to make any money. In Africa, says Nicolas Friederici of Oxford Universi- ty, incubators have disappointed because Living in the garb age they are a supply-side solution: there are still too few promising startups in need of The latest worry is shoppers in the devel- waterproof). Nike’s Flyknit method of their services. Many of the best entrepre- oping world, who have yet to buy as many weaving items, including trainers, reduces neurs have already left forother places. clothes as rich-world consumers but are waste by 60% in comparison with cutting When Michael Oluwagbemi set up fast catching up (see chart). and sewing. Flyknit products have a large Wennovation Hub in Lagos in 2011, he Most apparel companies know that following: revenues from the line came to found he had to teach wannabe entrepre- sooner or later, consumers’ awareness of more than $1bn in the last fiscal year. neurs how to write applications and de- this subject will rise. That is a worry. Va- But for many firms, research and devel- sign websites before he could even launch rious furores in the 1990s and afterwards opmentinto newmaterialsand methods is the formal incubation programme. “The over the working conditions of people not a priority. Plenty do not measure their incubator in Africa is basically a finishing making goods for firms such as Nike, Wal- overall environmental impact. And intro- school and four months of it is not mart and Primark badly damaged brands. ducing green collections can even carry a enough,” he says. 7 The clothing industry cannot afford to ap- risk for brands, reckons Steven Swartz of pear so ugly again. McKinsey. It is possible that a shopper will One obvious way in which firms can move on from wearinga consciouslygreen Clothing companies answer environmental concerns is to use T-shirt to viewing other kinds of clothing renewable energy to power their facilities. as the trappings ofplanetary destruction. Green is the new Beyond that, they can cut back sharply on A handful ofbrands encourage custom- water and chemical use; and they can de- ers to recycle old clothes by returning them black velop new materials and manufacturing to stores. But almost all apparel today is processes that reduce inputs. made of a mix of materials—very often in- The record in this regard is mixed. H&M cluding polyester. Separating them out is was the largest buyer in the world of “bet- difficult and mechanical methods of recy- Looking good can be extremely bad for ter cotton” last year—that is, cotton pro- cling degrade fibres. Chemical methods the planet duced under a scheme to eliminate the are too expensive to be viable. Shipping TYLE is supposedly for ever. But the gar- nastiest pesticides and encourage strict second-hand clothes off to countries in Af- Sments needed to conjure up eternal chic water management. It grows in 24 coun- rica and Asia is also a bust. Even if local are spendinglesstime on shop racksand in tries and represents about 12% of the 25m markets are large enough to absorb them, homes than ever before. Global clothing tonnes of cotton produced each year glob- the poorer quality of polyester-mixed production doubled between 2000 and ally. Kirsten Brodde of Greenpeace also garbs means they do not survive long. 2014, as apparel firms’ operations became notes that H&M has eliminated toxic per- More durable apparel could help. Tom more efficient, their production cycles be- and polyfluorinated chemicals from its Cridland, a British designer, creates men’s came quickerand fashionistas got more for lines (which are used to make garments clothing that is designed to last three de- their money. From just a few collections a cades thanks to strong seams and special year, fast-fashion brands such as Zara, treatments to prevent shrinking. He ex- owned by Spain’s Inditex, now offer more Wardrobe malfunction pects revenues of $1m this year, but admits than 20; Sweden’s H&M manages up to 16. Environmental impact if 80% of emerging markets that his model will be hard to scale. Patago- Dressing to impress has an environ- achieve Western levels* of clothes shopping nia, a maker of climbing and hiking gear, mental cost as well as a financial one. From % increase per person 2015-25, forecast sends vans to campuses to help students the pesticides poured on cotton fields to 0 20406080 patch up jackets and trousers. It helps oth- the washes in which denim is dunked, ers with greenery, too. After discovering a making 1kg of fabric generates 23kg of CO2 emissions type of material for wetsuits that, unlike greenhouse gases on average, according to Water use neoprene, requires no oil to make, Patago- estimates by McKinsey, a consultancy. Be- nia shared the find with surfing brands cause consumers keep almost every type Land use such as Quiksilver. Such innovation is bad- of apparel only half as long as they did 15 ly needed. Style may be forever but today’s years ago, these inputs quickly go to waste. Source: McKinsey *Assumes levels stay constant model ofclothing production is not. 7 The Economist April 8th 2017 Business 57

Oil and technology duction in America a decade ago. But this is an industry that embraces new technol- Data drilling ogies only in fits and starts. Once, Big Oil was at the forefront ofdig- itisation, pioneering the use of 3-D seismic data and supercomputers to help find resources. But priorities changed, especially duringthe pastdecade when oil prices rose The oil industry struggles to enterthe above $100 a barrel and the primary goal digital age was to find more of it, whatever the cost. T SOUNDS like a spectacular feat of engi- Whizzy new technology took second Ineering. Employees of Royal Dutch Shell place. Ulrich Spiesshofer, chief executive located in Calgary, Canada, recently of ABB, a Swedish-Swiss automation-tech- drilled a well 6,200 miles(10,000km) away nology company, says the oil industry puts in Vaca Muerta, Argentina. In fact, the engi- to use in exploration activities barely 5% of neers of the Anglo-Dutch oil major were the seismic data it has collected. During using computers to perform what they call production of oil, less than 1% of data from “virtual drilling”, based on their knowl- an oil rig reaches the people making deci- edge of Fox Creek, a shale bed in Alberta, sions, reckons McKinsey, a consultancy. which hassimilargeological features to Ar- It is the process of extracting oil and gas gentina’s biggest shale deposit. They used that is considered most ripe for digitisation real-time data sent from a rig in Vaca and automation. Drilling often takes place Muerta to design the well and control the miles below the surface in rockformations speed and pressure ofthe drilling. On their where drill bits and pipes can be broken or De La Rue second try, they completed the well for snagged, which halts activity for long peri- $5.4m, down from $15m a few years ago. ods. BakerHughes, an oil-servicesfirm, has Swapping notes “It’s the cheapest well we’ve drilled in Ar- recently developed what it calls the first gentina,” says Ben van Beurden, Shell’s automated drill bit, capable of self-adjust- chiefexecutive. ing depending on the nature of the rock. Shell is not alone in deploying comput- McKinsey says undersea robots are also er wizards alongside geologists in an at- being deployed to fix problems. tempt to lower costs in an era of moderate Above the surface, efforts are under A money printer’s plans forthe future oil prices. The industry as a whole is wak- way to reduce the amount of people and ing up to the fact that digitisation and auto- plant on oil rigs, helping improve safety in HOMAS DE LA RUE set up shop more mation have transformed other industries, a dangerous industry. James Aday, a veter- Tthan 200 years ago, printing newspa- such as commerce and manufacturing, an oil driller now at Wood Mackenzie, a pers, then playing cards and stamps. In and that they have been left behind. Tech- consultancy, says that on the drilling plat- 1860 a contract to print banknotes for Mau- nology firms and consultancies are knock- form itself, automation is not new. Others ritius started a transformation. Today De ing on their doors peddling alluring con- say that more rigs are being controlled La Rue is the largest commercial banknote cepts like the “digital oil rig” and the semi-remotely; in the GulfofMexico, engi- and passport printer, involved in aspects “oilfield ofthe future”. Some argue that the neers in Houston use real-time data from of the production of currencies for 140 embrace of digital technologies could be oil rigs to make decisions, reducingthe cost countries, and passports forover 40. the next big thing after the shale revolution ofshuttlingthem byhelicopterto rigs. “The The British firm’s chief executive, Mar- that started to transform oil and gas pro- aim is to bring the data to the expert, not tin Sutherland, is relatively relaxed about the expert to the data,” says Peter Zornio of the much-heralded death of cash. Despite Emerson, an automation firm. “There’s a advances in payments technology, and a huge incentive to get the people and the shift to cards in Europe, the total demand choppers offthe platform.” for cash has proven remarkably resilient. Wider use ofdata, sensors and automa- Transaction values are rising rapidly in tion will produce new challenges for the emerging economies, where hard curren- industry. It will have to learn about cyber- cy is still the norm. De La Rue expects security—oil rigs are critical infrastruc- world demand for banknotes to grow by ture—and invest in ways to prevent theft of 3-4% a year forthe foreseeable future. data. But digitisation may also attract mil- But there are problems nonetheless. lennials to replace an ageing workforce, Even at the best of times, note production, where mass retirement is a looming threat. which accounts for over 70% of the com- As to whether the workforce could pany’s revenues, is a volatile business. shrinkacrossthe industryin the digital age, Contracts are lumpy. State-owned printers ultimately geologists and engineers be- often call in commercial printers at short lieve technology will not put them out ofa notice to manage spikes in demand, which job, because producing oil is art as well as are unpredictable. On top of that, national science. Nor will tech startups be likely to authorities are demanding better value. overcome the barriers to entry—such as They are running cut-throat tendering pro- high capital requirements—that protect in- cesses rather than relying on existing rela- cumbents. But they add to a sense, born tionships. Some are sourcing individual outofthe shale revolution, thatinnovation components—such as design, paper or se- will make oil and gas more accessible and curity features—from multiple suppliers, that the days when oil was considered a rather than buying the entire package from Off to new platforms scarce resource are long gone. 7 a single provider. Others have gone still 1 58 Business The Economist April 8th 2017

2 further: thanks to the Indian government’s Tesla “Make in India” campaign, for example, a former big customer of banknote paper is now making its own. Revving up, a bit The consequence of such trends has been falling prices and a build-up of excess The electric-carmanufacturerincreases deliveries capacity in the industry. De La Rue had to warn investors about its profits repeatedly LON MUSK, a Silicon Valley entrepre- including GM, Nissan and BMW. in the years leading up to 2015 (since then, Eneur, has had two bits ofgood news Bringing any new car to market burns profits have exceeded expectations). recently about his various bets on new cash, and Tesla has been busy raising The company’s answer has been to try technology. SpaceX, his privately-held funds. On March 24th Tencent, a Chinese to expand its offerings of technology-led launch company, last month became the internet giant that owns WeChat, a pop- security products. Cash itself is getting first successfully to reuse a rocket to put a ular messaging service, paid $1.8bn fora more secure: polymer banknotes use com- satellite into orbit. And this week Tesla, 5% stake in Tesla. Tencent could help plex holographic images to guard against his electric-car manufacturer, at last hit its accelerate Tesla’s drive into the vast forgers. They are longer lasting, so need to production targets. Chinese market, where some 28m cars be replaced less frequently, but command Some analysts doubted Tesla would were sold last year. With Donald Trump a higher price. In 2012 De La Rue became meet its goals after a series ofproduction trying to dismantle some environmental the second of only two companies to pro- difficulties. But the carmaker said first- standards in America, China seems duce the plastic (Innovia, based in Britain, quarter deliveries were just over 25,000 likelier to push green technologies. It is is the other) and has printed notes for sev- vehicles, a record forthe firm and a 69% already the world’s biggest market for eral authorities, including, most recently, increase over the same period in 2016. electric cars; some 700,000 plug-in cars the BankofEngland. Demand forthe mate- Some 13,450 were its sleekModel S sa- are expected to be sold there this year. But rial is forecast to rise by 10% a year in the loons and about11,550 were the firm’s to compete against low-cost local brands, near future (a kerfuffle over traces of ani- new SUV, the Model X. This puts Tesla on Tesla urgently needs to start churning out mal fat in the new notes seems likely to be trackto produce the 50,000 vehicles it its cheaper car. resolved by using palm oil instead). has promised to make in the first half of Many investors are betting that Tesla De La Rue also expects demand for this year. That is good progress. But Tesla can become a mass producer. This has passports and for other security identifica- is going to have to crankproduction up by pushed up the value ofthe firm’s shares, tion to grow. Asignificantproportion ofthe an awful lot more to make the 500,000 which have increased by 38% since the world’s population remains unrecorded— cars a year which Mr Muskwants to see start of2017. On April 3rd Tesla’s market UNICEF estimates that a quarter of the pouring offthe production line by 2018, capitalisation exceeded $48bn, overtak- world’s children under the age of five are let alone the 1m intended for just two ing Ford (at $45bn). Ford may not be as unregistered, for example. But the market years later. technologically glamorous but it is well- for physical tokens, broadly speaking, To reach those volumes, Tesla is count- versed in mass-producing cars, having could consolidate over time, says John Nel- ing on its forthcoming Model 3. Priced at made 6.7m last year. An awful lot will be son of Smithers Pira, a market-research around $35,000, the new car will cost riding on the Model 3. IfTesla fails to hit firm. Driving licences, social-security doc- around halfthat ofthe other two models. future targets then a cashflow crisis may uments and passports may be merged into Due to begin production later this year, loom. Investors, though, will have an a single ID. The market could even disap- the Model 3 is supposed to take Tesla into exit: the company’s brand and whizzy pear altogether: from 2019 onwards the the mass market, where it will face stiff technology are easily valuable enough to Australian government, for example, competition from plug-in vehicles pro- drive the firm into the arms ofa bigger wants to speed up border checks by replac- duced by existing mass manufacturers, manufacturer that can hit its numbers. ing passport control with biometric scans. De La Rue is responding to such threats by selling end-to-end services, not just physical products. It has new software packages that allow governments to manage the entire passport-issuing process, for example. It wants to help governments manage civil-registration data on births, marriages and deaths. The last prong of Mr Sutherland’s strat- egyisto applythe company’santi-counter- feiting expertise to product authentication. The OECD estimates that the market for counterfeit goods was worth $461bn in 2013, with luxurygoods, electronicsand to- bacco most likely to be faked. De La Rue currently sells secure stamps that help governments verify that the appropriate tax on, say, cigarettes, has been paid. Its labels are also used byMicrosoftto trackand verify software products. There should be room to expand. Mr Sutherland reckons thatluxurybrands, especially, will become good customers; some already authenti- cate theirproducts. Ifso, money will not be Why on Earth did you park here? the firm’s only cash cow. 7 The Economist April 8th 2017 Business 59 Schumpeter The anti-mogul

Time Warner’s boss calls the top ofthe television business firms are a cross between artists and merchants, who buy or create content and resell it with a large markup. Time Warner’s sales are 2.3 times the size of its content budget. It has no direct relationship with viewers, so cannot collect the customer data that are becoming central to most businesses. The bulk of its sales are from traditional sources: advertising and fees from pipe companies and cinema chains. Internet-based services, such as Netflix and Amazon Prime, are exploiting this shortcoming, bypassing the middlemen and selling content directly to customers. Netflix costs about $10 a month, compared with up to $100 for a cable-TV package. It col- lects copious data on its viewers in order to serve them better. A war is raging to make the best TV: over 400 original shows are made a year, about double the number half a decade ago. Mean- while, people are spending more and more time on social media and YouTube. Americans aged 18-24 spend around half as much time watching live TV as they did in 2010. Youmight think that a firm such as Time Warnerwould have had its innards ripped out by now. But its share of the free cashflow that the content industry (defined broadly to include pipe firms, media groups and internet-platform firms such as Google HERE is a hawk in Central Park that sometimes dismembers and Amazon) generates has risen from 3% to 4% in the past five Tits prey on the balcony outside Jeff Bewkes’s office. Guts are years. Mr Bewkes’s defence has had several elements. He has splattered around in the kind of Darwinian spectacle that any spent heavily on content, ploughing $12.5bn a year into shows self-respecting media baron should appreciate as he plots plans such as “True Detective”. He has cranked up the prices he charges for future world domination. Mr Bewkes, however, only man- the pipe firms—fees paid by them rose by12% last year—while images a laconic shrug when he mentions the feathered predator. proving the bundles of shows sold and making more films avail- The boss of Time Warneris an anti-mogul in more ways than able on demand. Time Warnerhas been willing to sell content to one. In an industry long-dominated by imperious tycoons intent the internet firms. And it has copied Netflix with a new internet on amassing power—thinkofRupert Murdoch, or Viacom’s Sum- service called HBO Now. It only has 2m users but is growing fast. nerRedstone in his heyday—MrBewkes has shrunka content em- Yet Mr Bewkes must know that, like the best shows, the TV pire, not expanded it. He is about to sell it to AT&T for $109bn in business cannot carryon forever—at least, notwhile maintaining the fifth-biggest takeover of all time. If the deal goes through its plump margins. The new entrants have deep pockets. And shareholders will have made a 341% return during his tenure (in- when Time Warner and other media firms raise the fees they cludingspin-offsand dividends), makingTime Warnerone ofthe charge the pipe firms, the latter pass this on to consumers. At best-performing big firms in America during that time. some point the tolerance of American TV-watchers for being Beneath his laid-back surfer persona, Mr Bewkes has been gouged by their cable firms must end. ruthless but in the rational pursuit ofhis owners’ interests, not his own vanity. His tenure can be split into three parts—culling, de- Time Warning fending and preparing to exit on a high. AT&T has offered a stonking price, halfofit in cash, far more than Back in 2000 Time Warner had become a corporate catastro- the lowball bid that Fox, Mr Murdoch’s firm, offered in 2014 and phe afterbeingboughtbyAOL, a web firm pumped up bythe dot- which Mr Bewkes sensibly rejected. It can give Time Warner a di- com bubble. Upon taking charge in 2008 Mr Bewkes dusted off rect relationship with viewers. A mobile user watching a Warner the lessonsfrom the MBA he had picked up atStanford University film could be tracked and the data used to sell smart advertising. and his time spent at HBO, the group’s subscription video-on-de- Antitrust regulators may insist that these data are made available mand service, where he was known for giving creative types to other content companies, lowering their value. Even so, the space to invent hits such as “The Sopranos” and “Sex and the two firms argue that being under common ownership will still City”. He restructured the firm to focus it on its competitive ad- make sense because they can launch new services faster. Before vantage—visual content. In 2009 he spun off AOL. That year he the election Donald Trump, who regards CNN as “fake news”, also offloaded the cable distribution business, which hooked up slammed the deal as bad for consumers. But the signals from the too few homes to be able to compete. It was later bought by Char- government are more favourable of late. Wall Street’s arbitra- ter, a rival. In 2014 he got rid ofTime Inc, a magazine group. geurs reckon the odds ofit being approved this year are over 75%. The core business that is left is one ofthe two greatest agglom- For Mr Bewkes that will be a poignant moment. A creative erations of video content in the world, together with Disney’s li- powerhouse will pass into the hands of a regulated monolith brary. HBO has 134m subscribers—in America they buy the ser- that lays copper in the ground and has a quarter ofa million staff, vice via pipes that are supplied by cable, telecommunications none ofwhom gets paid to discuss plot twists and dolly shots. Yet and satellite firms. Turner, another subsidiary, sells bundles of the truth is that traditional media moguls who cling on to their sports and TV shows to the pipe firms—its channels include CNN. empires have yet to show that their business models can survive WarnerBrothers is Hollywood’s second-biggest studio. the internet. Inside Mr Bewkes’s office, as well as outside on its But the business model is deeply flawed. Conventional media balcony, there is no room forsyrupy sentimentality. 7 60 Finance and economics The Economist April 8th 2017

Also in this section 61 Buttonwood: Top-heavy America 62 Trade: back to the 1980s 63 Brexit and the Irish economy 63 Rethinking economic history 64 The squeeze on payday lending 64 Jeﬀrey Lacker resigns 65 Free exchange: Venezuela’s tragedy

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Japan’s labour market gression that the Sagawa delivery man inflicted on his parcels. Although base pay Wanted: stroppier employees (excluding bonuses and overtime) has stopped falling in the past two years, it increased by only 0.2% in 2016. That has left inflation well below the 2% target pursued by the BankofJapan (BoJ). Tokyo Japan’s wages remain flat partly because strong demand has resulted in an in- Japan’s workers are hugely in demand but strangely undemanding crease in the supply of labour rather than RIMLY DRESSED deliverymen, polite mark on Japan’s labour market. The num- itsprice. Japan nowhostsmore than 1m for- Tand punctual, are ubiquitous in Japan. ber of people of working age (15-64 years eign workers, up from 680,000 in late 2012. So it was shocking to see one of them kick- old) has fallen by about 3.8m since Decem- More importantly, the number of women ing his parcels and hurling his trolley out- ber 2012, when Shinzo Abe, Japan’s prime and elderly men in work has increased by side a block of Tokyo flats after apparently minister, returned to power. But the num- more than 2m over that period. Some of finding no one at home. Captured on a ber of people actually working has in- these extra hands have been pushed into camera phone last December, this incident creased by 2.2m. Almost everybody seek- work by financial anxieties. But others are of “parcel rage” went viral, forcing Sagawa ing a job has one: unemployment fell to pulled byeconomicopportunity. MrAkira, Express, one of Japan’s biggest delivery just 2.8% in February, the lowest rate since who guides traffic with an illuminated ba- companies, to say sorry to its customers. 1994. Demographic decline has collided ton outside a Burger King in Tokyo, is one Many Japanese will have felt sympathy, with an upswing in labour demand. of the latter. Aged 73, he prefers to stay though, for the video’s frazzled star. This combination should be highly in- physically active by earning money from a Over 10% of the country’s firms admit flationary. Scarce workers should be de- job rather than paying money to a gym. that some workers frequently put in more manding higher wages, forcing firms to With the extra yen, he can afford to take his than 100 hours of overtime in a month. A charge their customers higher prices. But wife on bus trips to hot springs in Nikko manager at a nuclear plant in Fukui prefec- pay and prices remain subdued. In their and Kusatsu. ture worked twice that long in February negotiations with employers, Japan’s la- The rising share of part-timers in Ja- 2016 before killing himselftwo months lat- bour unions have shown none of the ag- pan’sworkforce hasalso dragged down aver. The problem is especially acute in low- erage pay gains. The aggregate compensa- skilled service industries. Over the past tion of all employees combined (which two decades, e-commerce has vastly in- They work hard for their money reflects employment gains and pay gains) creased the number of parcels handled by Japan, labour compensation increased by 2.3% in nominal terms last firms like Sagawa. Last year, one employee Nominal % change on a year earlier year, the fastest rate this century(see chart). committed suicide after being violently Market forces do not affect large 4 bullied by his boss. swathes of Japan’s workforce. The pay of In a survey in 2015 by the Japan Institute 2 full-time workers in big firms is not respon- of Labour Policy and Training, some work- + sive to labour-market tightness, according ers blamed their own lack of ability for 0 to a study published by the BoJ. These ben- why they put in so many extra hours. Oth- – eficiaries of life-time employment do not 2 ers dutifully replied that overtime was nec- fear layoffs in hard times and cannot ex- essary to achieve satisfactory results. But 4 pect pay rises in good. But these workers the two most common responses were do demand higher pay to offset past infla- straightforward economics: lack of staff 6 tion. So, if peripheral workers’ pay rises by and extreme fluctuations in demand. 2000 02 04 06 08 10 12 14 16 enough to lift consumer prices a little, that Both of these forces are leaving their Source: Government statistics will eventually result in stronger core 1 The Economist April 8th 2017 Finance and economics 61

2 wages, adding to inflationary momentum. other times). The cap may be enshrined in send a signal that the old ways will no lon- To attract and retain workers, some legislation due later this year. gerwork, says Toko Shirakawa, a journalist firms are offering perks other than pay. Obstacles to a shorter workweek re- who sat on a council appointed by the gov- They are allowing employees to settle in main. An online survey suggested that ernment to propose workplace reforms. one place, rather than yanking them from fewer than 4% of Tokyo workers left work Some parcel-delivery companies have one branch to another at short notice. The early on the first “Premium Friday” at the reached the same conclusion. Yamato government is also encouraging people to end of February. Legal overtime limits will Transport, which runs a door-to-door ser- clock off at 3pm on the last Friday of each also be hard to enforce. Matsuri Takahashi, vice, said last month that it is slashing over- month (so-called “Premium Friday”). a 24-year-old employee at Dentsu, an ad- time and raising basic charges for the first Many unions are also bargaining for shor- vertising company, leapt from the third time in 27 years. It is also setting up thou- ter workweeks. Last month Rengo, Japan’s floor of her dorm on Christmas Day 2015. sands of lockers at places like train stations leading union federation, reached a deal She had put in more than 100 hours of where deliverymen can leave parcels if no with the country’s largest business lobby overtime in a month, but her managers one is at home. That should spare employ- to limit overtime to less than 100 hours a had encouraged her to fake her timesheets. ees the hassle of a repeat visit, and save month in “busy” periods (and 45 hours at Any new legislation might, however, their packages from a good kicking. 7 Buttonwood Top-heavy

America has a worryingly heftyweight in the global stockmarket HE aims of a stockmarket index are out worrying about short-term profits. stockmarket is not an exact replica of its Tthreefold. First, to reflect what is actu- The American stockmarket’s index domestic economy; only around half of ally going on in the market; second, to weight is also more than double the coun- the profits made by S&P 500 companies create a benchmark against which profes- try’s share of global GDP. The gap has wid- are earned at home. sional fund managers can be judged; and ened since the start of the millennium, be- Still, investors may grant a higher valu- third, to allow investors to assemble well- cause America’s share of world GDP has ation to a country’s stockmarket because diversified, low-cost portfolios. On all been on a downward trend. Today’s inves- they perceive it to have attractive funda- three counts there are reasons to worry tors are wildly enthusiastic about Ameri- mentals. The American market is nothing about the MSCI All-World Country Index, ca’s all-conquering technology groups, like as highly valued as Japan’s was in the one ofthe most widely used gauges of the such as Google, Facebook and Amazon. late 1980s, when sceptics were told that global stockmarket. They, too, are either shielded from the Western valuation methods did not work That is because the American market threat of takeover by special shareholder in Tokyo. But American companies trade has a weighting of 54% in the index, as structures or, in the case of Amazon, have on a multiple of 21 times last year’s earn- high as it has ever been (it reached the persuaded investors that long-term ings, compared with 18 for Europe, 17 for same level in 2002). In other words, any- growth is more important than short-term Japan and 14 for emerging markets. On a one usingthe indexto monitorthe market profits. Other countries only wish they cyclicallyadjusted basis(averaging profits is seeing a picture heavily distorted by could create technology giants with the over ten years), the ratio of the American Wall Street. The relative performance of same reach as one ofAmerica’s titans. market to earnings is as high as it was in international fund managers against the Do such parallels mean that America is the bubble periods of the late 1920s and index will largely depend on how much doomed to follow the same path as Japan, 1990s. And it is worth remembering that exposure to America they are willing to whose stockmarket weight steadily dwin- those corporate profits are still very high, take on. Anyone buyinga trackingfund is, dled until it fell back in line with its contri- relative to GDP, by historical standards. in effect, making a big bet on the Ameri- bution to global GDP? Not necessarily. Chi- Perhaps all these things can be justi- can market. Things are worse if investors na’s stockmarket weight is much smaller fied. America may have better prospects trackthe MSCI World Index, which covers than its GDP share because its A-shares, for economic growth than the rest of the only developed markets. In that bench- mainly owned by domestic investors, are developed world, not least because of its mark, America’s weight is 60.5%. excluded by MSCI. In any case a country’s favourable demography. Its technology There is nothing wrong with the way giants may be less vulnerable to competi- that MSCI calculates its indices; the tion than the Japanese multinationals of Carry that weight weights reflect how America dominates Japan US the late 1980s because they benefit from global markets. And with world index MSCI All-Country World Index, “network effects”, or natural monopolies. funds having fees as low as 0.3% a year, weight, % And profits may have shifted to a higher they look a tempting option. But there are GDP*, % of world total level in a world where trade unions are worrying parallels with the way that Ja- 60 weak, the cost of capital is low and busi- United States pan dominated the indexin the late 1980s. 50 ness is very mobile. At its peak, the Japanese market was Nevertheless, an investment in the 44% of the MSCI index. That was farmore 40 MSCI indices is an implicit bet on three than double the Asian economy’s share 30 things: the importance of the American of global GDP (see chart). Investors were market; the valuation placed on Ameri- enthusiastic about Japanese multination- 20 can companies; and the robustness of als like Toyota and Sony; the talkthen was 10 profits’ share ofAmerican GDP. Thisis not of the rest of the world needing to learn Japan the kind of lower-risk option those buy- from the Japanese model. Japan’s compa- 0 ing an index fund probably have in mind. 1988 95 2000 05 10 17 nies were free from the threat of takeover Sources: MSCI; IMF *2017 forecast and able to pursue long-term plans with- Economist.com/blogs/buttonwood 62 Finance and economics The Economist April 8th 2017

Japanese promise in 1981 to restrict car exports to America did lead to a temporary halt in their increase. But they too had unintended consequences: the restrictions boosted car prices by almost 40% in 1984, according to calculations by Robert Cran- dall at the Brookings Institution, a think- tank. Japanese exporters enjoyed fatter profit margins, too—hardly the intention. Export restraints are now illegal under the rules of the World Trade Organisation (WTO). In any case, for an internationally- traded commodity like steel, a bilateral deal would do nothing to help American producers if steel flows to other markets, depressing world prices. Reagan’s trade team negotiated with both Japan and the EU. Today, a bilateral deal with China alone might work politically but would probably falter economically. Squashing a trade deficit can involve curbing imports or boosting exports. Peter Navarro, director of the White House Na- Trade tional Trade Council, appears to think that trade deals might involve persuading the Back to the 1980s other country to buy more American goods. Mr Ross has said that his first emphasis will be boosting American exports by removing trade barriers. The experience of the semiconductor industry could provide a guide. The 1980s disputes had more to do with how supply Donald Trump’s review oftrade deficits is a blast from the past chains were set up than tariffs or regula- E are in a trade war,” said Wilbur demic economists agree that Chinese im- tions. Without a specific barrier to remove, “WRoss, Donald Trump’s commerce ports have cut the number of American the Reagan government negotiated a target secretary, on March 31st. That day Mr manufacturing jobs. But it is still unclear of 20% for the foreign market share in the Trump duly loosed offa couple ofwarning what exactly the Trump administration Japanese semiconductor market. shots, announcing two trade-related exec- will do about any abuses it finds. Indeed, The policy drew sharp criticism from utive orders. (He forgot to sign them in the until Robert Lighthizer, Mr Trump’schosen economists who worried that this restric- ceremony itself.) As tactics go, this was trade representative, is confirmed, keeping tion on domestic Japanese companies hardly shock and awe. Rather, it was sup- Congress friendly means holding fire. would lower competition and raise prices. posed to suggest that nastier weaponry is For clues as to what might eventually They worried too about the kinds ofcrony- on the way. transpire, however, note that Mr Lighthizer ism it might encourage if American indus- The first executive order was aimed at and Mr Ross are both veterans oftrade bat- tries worked out that they could lobby for making trade rulebreakers “face the conse- tles with Japan in the 1980s. Then, surging other governments to be pushed into buy- quences”. Some bits were vague: officials car imports prompted union members to ing more oftheir stuff. have 90 days to develop and implement a stage sledgehammer smashings of Japa- In the event, foreign market share rose plan to combat customs violations. Others nese cars. American steelmakers com- and even Douglas Irwin, a vocal critic of seemed trivial. The government has lost plained about cheap steel imports, and the the policy, admits that in practice it was not $2.3bn of revenue over 14 years from im- semiconductor industry moaned about an the disaster he had feared. Ultimately, porters going bankrupt before paying du- unfairly closed Japanese market. though, the policy ended, partly because ties; almost halfofthis relates to imports of Then, as now, industry-wide tariffs and the Japanese government hated poking fresh garlic and preserved mushrooms. quotas fell foul ofinternational trade com- small companies into buying more Ameri- The second executive order seemed mitments but safeguards, including anti- can semiconductors (some newspapers re- more in keeping with Mr Trump’s (trade) dumping and countervailing duties, were ported that Japanese companies dumped warmongering. Officials have 90 days to allowed ifdomestic industry could show it the semiconductors into Tokyo Bay), and produce an “omnibus” report, naming the was being injured. The Trump administra- partly because of the hypocrisy of Ameri- trading partners with which America had tion seems keen to follow the latter course. ca simultaneously pushing for economic a “significant” trade deficit in goods in 2016 On March 28th it announced an investiga- liberalisation and managed trade. and shaming them if the reasons for that tion into imports of Chinese aluminium A deal to buy more American corn, deficit are “unfair”. Based on what it finds, foil. But there can be side-effects. In 1984 wheat or planes might appeal to the Chi- Mr Trump promised to “take necessary Ronald Reagan rejected a request from cop- nese. But the 1980s has one final lesson. and lawful action”. perproducersforprotective dutiesbecause During the first half of the decade, despite Top of the naughty list will be China, ofthe effect on producers ofpots and pans. tough trade measures, the deficit surged which accounts for almost half of Ameri- The Reagan administration favoured because of loose fiscal policy and tight ca’s trade deficit in goods. Mr Ross already “voluntary export restraints”, whereby the monetary policy. Amid talk of a fiscal has his eyes on its state-owned enterprises, Japanese government would promise to splurge and the Federal Reserve raising excess supply of steel and aluminium, and curb exports. These were politically easier rates, MrTrump should take note. Winning its barriers to American car exports. Aca- than a duty, and more legal than a quota. A a war means picking the right battles. 7 The Economist April 8th 2017 Finance and economics 63

Brexit and the Irish economy Kerry Group. Observers speak of a dual economy: a “modern” capital-intensive Land of milk and chips From farm to part, powered by foreign direct investment Ireland, exports of goods and services (FDI), usually from America; and a “tradi- 2015, % of €234bn total pharma tional” jobs-intensive food business, 0102030 which still looks to the British market. The Britain DUBLIN prospect ofBrexit is pullingthese two parts ofthe economy in opposing directions. Germany Why at least one EU memberoutside Fordecades Ireland has appealed to for- Britain is praying fora softBrexit France eign companies as a low-tax, English- N 1962 Tony O’Reilly, head of the Irish speaking entry point to Europe’s single Rest of EU IDairy Board, had an idea that would market. Brexit, in effect, removes a big rival United States help transform Ireland’s economy. He forsuch mobile capital. Since Britain voted Rest of world wanted to create a premium brand forIrish to leave the EU, there has been a “signifi- Source: Central Statistics Office butter to break into the growing British cant increase in inquiries” from firms con- market. The new product, named Kerry- sidering a move to Ireland, says Martin gold and backed with a large marketing Shanahan, boss of IDA Ireland, the state Ireland’s indigenous industries have budget, was sold in half-pound packs in a development agency. Much interest comes correspondingly shrunk in importance. parchment wrapping so shoppers could from banks and insurance companies, When sales of Kerrygold took off in the inspect the butter’s quality. Its success was worried that London-based subsidiaries 1960s, almost three-quarters of Irish goods an inspiration to other exporters and will lose the right to sell financial services exports went to Britain. Now just 13% do, a changed perceptions ofIrish business. in other EU countries. But the IDA’s phone share that rises to 17% including services Half a century on, the Irish economy lines were already busy. Many tech firms (see chart). Yet many analysts reckon that has been transformed into a global trading have chosen Ireland for their European the damage from Brexit to Ireland’s food hub. Some 90% of its exports are shipped headquarters. LinkedIn, a professional- exporters will swamp any positive impact by multinational companies. Many of network site, has built an office for 1,500 on high-tech FDI. Ireland is just one link in these are American giants such as Intel, a staff, having started with three people in a global-tech supply chain: only a fraction chipmaker, and Pfizer, a drugs firm. But 2010. Huawei, a Chinese telecoms firm, al- of the value added to exports originates some are home-grown food firms, such as ready has three centres in Ireland. there. In contrast, the local content of Ire- land’s food exports to Britain is high: weighted by Irish jobs, Britain’s export Economic development share would be around a quarter, according to John FitzGerald and Patrick Hono- Shrink wrap han of Trinity College, Dublin. Half of Ire- land’s farm exports go to Britain and some would face tariffs of almost 60% in the Why the history ofeconomic growth should be all about recessions event ofa “cliff-edge” Brexit, in which trade HROUGHOUT history, poverty is Instead, shorter and shallower reverts to WTO rules. Ireland’s exporters to “Tthe normal condition ofman,” slumps led to rising long-term growth. Europe rely on Britain as a land-bridge, be- wrote Robert Heinlein, a science-fiction Output fell in a third ofyears between cause shipping goods to the continent is writer. Until the 18th century, global GDP 1820 and 1870 but in only12% ofthose more troublesome than carrying them by per person was stuckbetween $725 and since 1950. The rate ofdecline per reces- lorry. A quarter of Ireland’s imports come $1,100, around the same income level as sion year has fallen too, from 3% to 1.2%. from Britain, partly because British chains the World Bank’s current poverty line of So why have these “growth reversals” own supermarkets in Ireland. $1.90 a day. But global income levels per decreased in length and depth? In anoth- Brexit could thus be devastating to rural person have since accelerated, from er paper** Messrs Broadberry and Wallis Ireland while boosting the sort of FDI that around $1,100 in 1800 to $3,600 in 1950, find that conventional explanations— benefits its bigger cities, notably Dublin. and over $10,000 today. such as demographic change or a sectoral Ireland is already so geared to the global Economists have long tried to explain shift from volatile agriculture to the more business cycle that a country which a few this sudden surge in output. Most theo- stable services sector—do not fully ex- years ago was suffering a brutal housing ries have focused on the factors driving plain the shift. bust now faces housing shortages, as FDI long-term economic growth such as the More important is the rise ofthe rule and migrants flood back. quantity and productivity oflabour and oflaw, enabling disputes to be settled by Yet a soft Brexit would be welcome in capital. But a new paper* takes a different impartial courts. Before the modern era, both parts ofIreland’s dual economy. Dub- tack: fastergrowth is not due to bigger elites would fight between themselves lin has always been more ofa complement booms, but to less shrinking in reces- forthe spoils ofgrowth and send the than a rival to the City of London, so it sions. Stephen Broadberry ofOxford economy backto square one through benefits from the latter’s global status. A University and John Wallis ofthe Univer- wars, corruption and the like. Respect for gentler Brexit that allows for a continua- sity ofMaryland have taken data for 18 courts to resolve disputes prevents this tion of tariff-free flows for a time after Brit- countries in Europe and the New World, from happening. With populist poli- ain leaves the EU will give time for Irish some from as farbackas the 13th century. ticians challenging the authority of food producers to reorient to other Euro- To theirsurprise, they found that growth judges once again across the world, that pean markets. That won’t be easy. Ireland during years ofeconomic expansion has is food forthought. would need to create a more distinctive fallen in the recent era—from 3.88% be- ...... brand forits beef, notes Dan O’Brien, ofthe tween 1820 and 1870 to 3.06% since 1950— * “Growing, Shrinking and Long Run Economic Institute ofInternational and European Af- even though average growth across all Performance: Historical Perspectives on Economic fairs, and “try flogging Irish Cheddar Development” by S. Broadberry and J. Wallis years in those two periods increased ** “Shrink Theory: The Nature of Long Run and Short cheese to the French”. The reassuring les- from 1.4% to 2.55%. Run Economic Performance” son of Kerrygold butter is that Ireland has adapted well in the past. 7 64 Finance and economics The Economist April 8th 2017

Short-term lending A Fed resignation Principles and Lacking judgment

interest WASHINGTON, DC The president ofthe Richmond Fed resigns OR almost five years inquiries have the promise did later happen.) According America’s payday-lending industry is sought to establish how Medley Glo- to Mr Lacker, who was the meeting’s sole being squeezed F bal Advisors, a research firm, revealed dissenter, when Medley mentioned N MAY2013 Gloria James borrowed $200 details ofFederal Reserve minutes a day confidential information on the call he Ifrom Loan Till Payday, a lender near her before they were publicly released in “did not refuse or express his inability to home in Wilmington, Delaware. Rather October 2012. On April 4th the saga took comment and the interview continued”. than take out a one- or two-month loan for a sudden twist when Jeffrey Lacker, This, he said, “could have been taken...as a $100 fee, as she had done several times president ofthe Richmond Fed (and an acknowledgment or confirmation of before, she was offered a one-year loan hence a member ofthe committee that the information.” that would set her back $1,620 in interest, sets interest rates), quit over the leak. During an internal review into the equivalent to an annual rate of 838%. Ms Mr Lacker spoke to Medley the day leakin 2012 Mr Lacker kept mum about James, a housekeeper making $12 an hour, before it published its note, in which it the fact that Medley had raised confiden- agreed to the high-interest loan but quickly revealed that there was “intense debate” tial information on the call. He revealed fell behind on her payments. After filing a within the Fed over the third stage ofits all only in 2015, during an investigation lawsuit in federal court, a Delaware judge quantitative-easing programme, that the by external bodies including the FBI. His ruled that the loan in question was not central bankwas poised to buy more resignation comes six months before he only illegal but “unconscionable”. Treasury bonds at a later date, and that was due to retire anyway. His lawyer told Her story is remarkably common. the Fed had mulled a promise not to raise the New York Times that “no charges will Americans who live pay cheque to pay interest rates until unemployment fell be brought and the investigation as to cheque have few places to turn when they below 6.5%. (Both the bond-buying and him is complete.” are in financial distress. Many rely on high- Because he ran a regional Fed, Mr interest payday loans to stay afloat. But Lacker’s exit does not add to the list of government efforts to crack down on the vacancies at the central bankwhich $40bn industry may be having an effect. President Donald Trump has to fill. This Roughly 2.5m American households, includes one left by Daniel Tarullo, the de about one in 50, use payday loans each facto vice-chairman forbanksupervi- year, according to government statistics. sion, who departed as planned on April The typical loan is $350, lasts two weeks, 5th. Like all regional-bankpresidents, Mr and costs $15 for each $100 borrowed. Al- Lacker’s successor will be chosen by a though payday loans are marketed as a board ofdirectors, some ofwhom are source of short-term cash to be used in fi- appointed by private banks. (Campaign- nancial emergencies, they are often used ers have long said that this is one ofsever- to meet chronic budget shortfalls—in 2015 al ways in which the Fed is too cosy with more borrowers in California took out ten the financial industry.) payday loans than tookout one. Critics say The affair has been an embarrassment the industry dupes its vulnerable custom- for the central bank, which has puzzled ers into paying high fees and interest rates. over how to reconcile its desire to talkto And yet surveys show its customers are market participants with the need not to mostly satisfied, because payday loans are reveal confidential information. In 2011it easy and convenient. issued guidance urging rate-setters to Regulation ofpayday lending in Ameri- avoid conversations that might appear to ca has historically been the responsibility give any firm an inside edge. This seems of states. Over a dozen use interest-rate to suggest that Mr Lacker should not have caps to, in effect, ban payday loans. But been on the phone with Medley in the lenders can get around these laws by regis- Lacker has sad finish first place. tering as “credit service organisations”, re- locating to other states, or even working with Native American tribes to claim otherrestrictionsdesigned to keep borrow- ment loans, which give borrowers more sovereign immunity. ers out of debt; the CFPB estimates that time to get backon their feet. At the federal level, Congress passed they could reduce payday-loan volumes It would be premature to celebrate the the Military Lending Act in 2006, capping by more than 80%. demise of payday lenders. The Trump ad- loan rates to service members at 36%. More The threat of regulation may already ministration is likely to block the CFPB’s recently, the Department of Justice have had an effect. The Centre for Finan- new regulations. And even if the rules are launched “Operation Choke Point”, an ef- cial Services Innovation, a non-profit pushed through, consumers may not be fort to press banks into severing ties with group, reckons that payday-loan volumes better off. Academic research on payday- businesses at risk of money-laundering, have fallen by 18% since 2014; revenues lending regulation is mixed, with some payday lenders among them. But the real have dropped by 30%. During the first nine studies showing benefits, others showing crackdown on payday lending could come months of 2016, lenders shut more than costs, and still others finding no consumer- if the Consumer Finance Protection Bu- 500 stores and total employment in the in- welfare effects at all. A forthcoming paper reau (CFPB), a watchdog, implements new dustry fell by 3,600, or 3.5%. To avoid the bytwo economists at West Point concludes regulations on high-interest loans. The new rules, lenders are shifting away from that the Military Lending Act yielded “no rules include underwriting standards and lump-sum payday loans toward instal- significantbenefitsto service members”. 7 The Economist April 8th 2017 Finance and economics 65 Free exchange Self-inflicted wounds

The political recklessness behind Venezuela’s economic catastrophe T IS hard to convey the severity of Venezuela’s unfolding crisis. might have opted to cut spending and broaden the tax base. But IIts extent is astounding: the economy shrank by 10% last year, such measures must have looked like political poison to a freshly and will be 23% smaller than in 2013 by the end of this year, ac- anointed president. Instead, Venezuela turned to the printing cording to IMF forecasts. Inflation may exceed 1,600% this year. press to cover its bills. Devastatingly high inflation is further un- The human details are more poignant: over the past year around dermining the workings ofthe economy. three-quarters of Venezuelans have lost weight, averaging 8.7kg So oil is merely a scapegoat in Venezuela’s tragedy. Economic per person, because of a scarcity of food. No war, foreign or civil, dependence on oil is always fraught. Soaring oil prices place up- isto blame forthiscatastrophe. Venezuela did thisto itself. And its ward pressure on the exchange rate, leaving other, non-oil indus- woes are deepening, as the regime of President Nicolás Maduro tries at a competitive disadvantage. That deepens an oil-export- lurches towards dictatorship. Fifty years ago, Venezuela was an ing economy’s dependence on crude, worsening the pain when example to the rest ofLatin America, a relatively stable democra- prices eventually fall. Governments of oil-exporting countries cy and not much poorerthan Britain. How did this tragedy occur? know this, and often try to mitigate the risk. When times are Venezuela’s economy is built on oil—its leaders boast it has the good, some use inflows of hard currency to build up foreign-ex- world’s largest proven reserves—and it is temptingto blame fickle change reserves, which can be drawn down later to cover for- crude prices forits woes. Oil accounts formore than 90% ofVene- eign-currency obligationsand import bills; Saudi Arabia holds re- zuelan exports. It helps to fund the government budget and pro- serves worth more than $500bn, for example. Others use oil vides the foreign exchange that the country needs to import con- profits to fill sovereign-wealth funds, which invest in a diversified sumer goods. Nearly everything ofconsequence in the economy, portfolio in order to reduce the economy’s long-run exposure to from toilet paper to trousers, is imported from abroad. petroleum. Norway’s fund, which is intended to help pay for As oil prices soared in the 2000s, Venezuela found itself state pensions, is worth nearly $900bn. awash in cash. In 2014 the boom ended. The volume of dollars Chávez had the good fortune to take office at the tail end of a flowing into the country tumbled, presenting the new govern- two-decade swoon in oil prices, and to preside over a price surge. ment of Nicolás Maduro, who had taken over after Hugo Chá- The money that came to Chávez, he spent. From 2000 to 2013, vez’s death, with an unappetising menu of options. He could spending as a share of GDP rose from 28% to 40%: a much bigger have allowed the currency, the bolívar, to tumble in value. Yet rise than in Latin America’s other large economies. Spending prices forimported goods would have soared as a result, the mar- crowded out growth in foreign-exchange reserves. In 2000 Vene- ket’s way ofcurtailing Venezuelan demand forproducts it no lon- zuela had enough reserves to cover more than seven months of ger had the dollars to afford. Soaring prices would have violated imports; that dropped to under three months by 2013 (over the the egalitarian spirit ofVenezuela’s Bolivarian government. same period Russia’s reserves grew from five months of import More important, it would have made the new president un- cover to ten, and Saudi Arabia’s from fourmonths to 37). popular. Instead, Mr Maduro kept the wildly overvalued official Why did Chávez not leave Venezuela better prepared for the exchange rate and rationed imports by tightening the govern- inevitable crash? In his version of events, Venezuelans fared ment’s control over access to hard currency. From early in the poorly during the long oil bust from 1979 to his ascent in 1999 not Chávez era, the government controlled the flow ofdollars earned because crude was cheap but because capitalists robbed the peo- by the oil industry; importers had to prove they were trying to ple of their due. During his rule, Chávez increased public spend- bring in something of value before being allowed to swap bolí- ing on social programmes and expanded subsidies for food and vars forgreenbacks. Mr Maduro tightened the screws. energy. Venezuelans felt the results, in higher incomes and im- The effect was not as intended. As the flow of imports dried proved standards ofliving. Chávez delivered, fora time. up, prices rose. Mr Maduro tried price controls; supply either Yet this narrative was always false. Those in power always evaporated or moved to the black market in response. The gov- have a greater incentive to buy off political threats than to invest ernment’s fiscal troubles added to the mess. With oil revenues in projects that will only bear fruit over time, possibly after they slashed by half and the government deficit soaring, Mr Maduro have gone. In oil-rich economies, they also have the means. Chá- vez expropriated and redistributed wealth to weaken enemies and woo allies. In his careless economic management, he under- Going nuts in Caracas cut the oil wealth that funded Venezuelan socialism. His assaults Budget balance, % of GDP Total foreign-exchange reserves on private firms left the country short ofthe expertise and capital in months of imports, 2015 needed to develop its resources. In recent years it has produced 30 less oil than China and a quarter of the output of Saudi Arabia. Saudi Arabia 0102030 20 Venezuela ate its seed corn despite record harvests. Norway Saudi Arabia 10 Darkness drops again + Venezuela was once the envy of Latin America, until a long stag- 0 Russia nation in living standards brought a populist strongman to pow- Russia – 10 er. But popularity is hard to maintain. The greaterthe desperation Venezuela* Norway of the populist, the greater the willingness to accept long-run 20 risks in exchange forshort-run pay-offs. Whetherornot the populist survives to see it, the day ofreckoningeventually arrives. And 30 Venezuela it is always the people that suffermost. 7 2000 05 10 15 Sources: IMF; World Bank *Estimates from 2010 Economist.com/blogs/freeexchange 66 Science and technology The Economist April 8th 2017

Computer security one’s guess (most small attacks, and many big ones, go unreported). But all agree it is Why everything is hackable likely to rise, because the scope for malice is about to expand remarkably. “We are building a world-sized robot,” says Bruce Schneier, a security analyst, in the shape of the “Internet of Things”. The IoT is a buzz- phrase used to describe the computerisa- Computer security is broken from top to bottom. As the consequences pile up, tion ofeverything from cars and electricity though, things are starting to improve meters to children’s toys, medical devices VERa couple ofdaysin February, hun- ingless traffic that websites such as Twitter and light bulbs. In 2015 a group of comput- Odreds of thousands of point-of-sale and Reddit were made inaccessible to er-security researchers demonstrated that printers in restaurants around the world many users. And the hacking ofthe Demo- it was possible to take remote control of began behaving strangely. Some churned cratic National Committee’s e-mail servers certain Jeep cars. When the Mirai malware out bizarre pictures ofcomputers and giant and the subsequent leaking of embarrass- isused to build a botnetitseeksout devices robots signed, “with love from the hacker ing communications seems to have been such as video recorders and webcams; the God himself”. Some informed their own- part of an attempt to influence the out- botnet forfridges is just around the corner. ers that, “YOUR PRINTER HAS BEEN come ofthe American elections. PWND’D”. Some told them, “For the love Away from matters of great scale and Not OK, computer of God, please close this port”. When the grand strategy, most hacking is either “The default assumption is that everything hacker God gave an interview to Mother- show-off vandalism or simply criminal. It is vulnerable,” says Robert Watson, a com- board, a technology website, he claimed to is also increasingly easy. Obscure forums puter scientist at the University of Cam- be a British secondary-school pupil by the oil the trade in stolen credit-card details, bridge. The reasons for this run deep. The name of “Stackoverflowin”. Annoyed by sold in batches of thousands at a time. vulnerabilities ofcomputers stem from the the parlous state of computer security, he Data-dealers hawk “exploits”: flaws in basics of information technology, the cul- had, he claimed, decided to perform a pub- code that allow malicious attackers to sub- ture of software development, the break- lic service by demonstrating just how easy vert systems. You can also buy “ransom- neck pace of online business growth, the it was to seize control. ware”, with which to encrypt photos and economic incentives faced by computer Not all hackers are so public-spirited, documents on victims’ computers before firms and the divided interests of govern- and 2016 was a bonanza for those who are charging them for the key that will un- ments. The rising damage caused by com- not. In February of that year cyber-crooks scramble the data. So sophisticated are puter insecurity is, however, beginning to stole $81m directly from the central bank of these facilitating markets that coding skills spur companies, academics and govern- Bangladesh—and would have got away are now entirely optional. Botnets—flocks ments into action. with more were it not for a crucial typo. In of compromised computers created by Modern computer chips are typically August America’s National Security Agen- software like Mirai, which can then be designed by one company, manufactured cy (NSA) saw its own hacking tools leaked used to flood websites with traffic, knock- by another and then mounted on circuit all over the internet by a group calling ingthem offline until a ransom is paid—can boards built by third parties next to other themselves the Shadow Brokers. (The CIA be rented by the hour. Just like a legitimate chips from yet more firms. A further firm suffered a similar indignity this March.) In business, the bot-herders will, for a few writes the lowest-level software necessary October a piece of software called Mirai dollars extra, provide technical support if for the computer to function at all. The op- was used to flood Dyn, an internet infra- anything goes wrong. erating system that lets the machine run structure company, with so much mean- The total cost of all this hacking is any- particular programs comes from someone 1 The Economist April 8th 2017 Science and technology 67

2 else. The programs themselves from some- cluding ones they don’t know about.” New vulnerabilities and weaknesses in one else again. A mistake at any stage, or in All that is needed is a way to get the that layer are reported every year. the links between any two stages, can computer to accept a set ofcommands that The innocent foundations of many leave the entire system faulty—or vulner- it should not. A mistake may mean there computer systems remain a source forcon- able to attack. are outcomes of a particular command or cern. So does the innocence ofmany users. It is not always easy to tell the differ- sequence of commands that no one has Send enough people an innocuous-look- ence. Peter Singer, a fellow at New Ameri- foreseen. There may be ways of getting the ing e-mail that asks for passwords or con- ca, a think-tank, tells the story of a manu- computer to treat data as instructions—for tains what look like data, but is in fact a facturing defect discovered in 2011 in some both are represented inside the machine in crafty set of instructions, and you have a of the transistors which made up a chip the same form, as strings of digits. “Stack- good chance that someone will click on used on American naval helicopters. Had overflowin”, the sobriquet chosen by the somethingthat they should not have done. the bug gone unspotted, it would have restaurant-printer hacker, refers to such a Try as network administrators might to in- stopped those helicopters firing their mis- technique. If data “overflow” from a part stil good habits in their charges, if there are siles. The chips in question were, like most of the system allocated for memory into a enough people to probe, the chances of chips, made in China. The navy eventually part where the machine expects instruc- trust, laziness or error letting a malefactor concluded thatthe defecthad been an acci- tions, theywill be treated asa setof newin- get in are pretty high. dent, but not without giving serious structions. (It is also possible to reverse the Good security cultures, both within thought to the idea it had been deliberate. process and turn instructions into unex- software developers and between firms Most hackers lackthe resources to mess pected streams of data. In February re- and their clients, take time to develop. This around with chip design and manufacture. searchers at Ben-Gurion University, in Isra- is one ofthe reasons to worry about the In- But they do not need them. Software offers el, showed that they could get data out of a ternet of Things. “Some of the companies opportunities for subversion in profusion. compromised computer by using the light making smart light bulbs, say, orelectricity In 2015 Rachel Potvin, an engineer at Goo- that shows whetherthe hard drive is work- meters, are not computing companies, cul- gle, said that the company as a whole man- ingto send those data to a watchingdrone.) turally speaking,” says Graham Steel, who aged around 2bn lines ofcode across its va- Shutting down every risk of abuse in runs Cryptosense, a firm that carries out rious products. Those programs, in turn, millionsoflinesofcode before people start automated cryptographic analysis. A data- must run on operating systems that are to use that code is nigh-on impossible. base belonging to Spiral Toys, a firm that themselves ever more complicated. Linux, America’s Department of Defence (DoD), sells internet-connected teddy bears a widely used operating system, clocked in Mr Singer says, has found significant vul- through which toddlers can send mes- at 20.3m lines in 2015. The latest version of nerabilities in every weapon system it ex- sages to their parents, lay unprotected on- Microsoft’s Windows operating system is amined. Things are no better on civvie line for several days towards the end of thought to be around 50m lines long. An- street. According to Trustwave, a security- 2016, allowing personal details and tod- droid, the most popular smartphone oper- research firm, in 2015 the average phone dlers’ messages to be retrieved. ating system, is12m. app had 14 vulnerabilities. Even in firms that are aware of the is- Getting each of those lines to interact sues, such as car companies, nailing down properly with the rest of the program they Karma police security can be hard. “The big firms whose are in, and with whatever other pieces of All these programs sit on top of older tech- logos are on the cars you buy, they don’t software and hardware that program nologies that are often based on ways of really make cars,” points out Dr Fisher. might need to talk to, is a task that no one thinking which date back to a time when “They assemble lots of components from can getrightfirsttime. An oft-cited estimate security was barely a concern at all. This is smaller suppliers, and increasingly, each of made by Steve McConnell, a programming particularly true of the internet, originally those has code in it. It’s really hard for the guru, is that people writing source code— a tool whereby academics shared research carcompanies to get an overview ofevery- the instructions that are compiled, inside a data. The first versions ofthe internet were thing that’s going in.” machine, into executable programs—make policed mostly by consensus and eti- On top of the effects of technology and between ten and 50 errors in every 1,000 quette, including a strong presumption culture there is a third fundamental cause lines. Careful checking at big software against use forcommercial gain. of insecurity: the economic incentives of companies, he says, can push that down to When Vint Cerf, one of the internet’s the computer business. Internet business- 0.5 per 1,000 or so. But even this error rate pioneers, talked about building encryp- es, in particular, value growth above al- implies thousands of bugs in a modern tion into it in the 1970s he says his efforts most everything else, and time spent try- program, any one of which could offer the were blocked by America’s spies, who saw ing to write secure code is time not spent possibility of exploitation. “The attackers cryptography as a weapon for nation- adding customers. “Ship it on Tuesday, fix only have to find one weakness,” says states. Thus, rather than being secure from the security problems next week—maybe” Kathleen Fisher, a computer scientist at the beginning, the net needs a layer of ad- is the attitude, according to Ross Anderson, TuftsUniversityin Massachusetts. “The de- ditional software half a million lines long another computer-security expert at the fenders have to plug every single hole, in- to keep things like credit-card details safe. University of Cambridge. 1

To infinity and beyond Lines of text/source code, m Log scale 0.010.1 1.0 10 100 1,000 2,000

† rover (1985) (1992) (2016) Android Facebook Boeing 787 (all products) Space shuttle Simple iOS app War And Peace Curiosity Mac OS X 10.4 Google Chrome* Heart pacemaker F-35 fighter plane Ford F-150 Mars Windows 3.1 Google Large Hadron Collider Super Mario Bros. Sources: Company reports; press reports; The Economist *Minimum estimate †Upper estimate 68 Science and technology The Economist April 8th 2017

2 The long licence agreements that users ternet. At the University of Cambridge, Dr the drone’s source code, proved unable to of software must accept (almost always Watson has been using this agency’s mon- find their way in. without reading them) typically disclaim ey to design CHERI, a new kind ofchip that “It will be a long time before we’re us- any liability on the part of a software firm attempts to bake security into hardware, ing this stuff on something as complicated if things go wrong—even when the soft- rather than software. One feature, he says, as a fully fledged operating system,” says ware involved is specifically designed to is that the chip manages its memory in a Dr Fisher. But she points out that many of protect computers against viruses and the way that ensures data cannot be mistaken the riskiest computing applications need like. Such disclaimers are not always en- for instructions, thus defanging an entire only simple programs. “Things like insulin forceable everywhere. Butcourtsin Ameri- category of vulnerabilities. CHERI also lets pumps, car components, all kinds of IoT ca, the world’s biggest software market, individual programs, and even bits of pro- devices—those are things we could look at have generally been sympathetic. This im- grams, run inside secure “sandboxes”, applying this to.” punity is one reason why the computing which limit their ability to affect other Most fundamental of all, though, is the industry is so innovative and fast-moving. parts of the machine. So even if attackers way in which markets are changing. The But the lack of legal recourse when a pro- obtain access to one part of the system, ubiquity ofcyber-attacks, and the seeming duct proves vulnerable represents a signif- they cannot breakout into the rest. impossibility of preventing them, is per- icant cost to users. Sandboxing is already used by operat- suading big companies to turn to an old If customers find it hard to exert pres- ing systems, web browsers and so on. But remedy for such unavoidable risks: insur- sure on companies through the courts, you writing sandboxing into software imposes ance. “The cyber-insurance market is might expect governments to step in. But performance penalties. Having a chip that worth something like $3bn-4bn a year,” Dr Anderson points out that they suffer instantiates the idea in hardware gets says Jeremiah Grossman ofSentinelOne, a from contradictory incentives. Sometimes company which sells protection against they want computer security to be strong, hacking (and which, unusually, offers a because hacking endangers both their citi- guarantee that its solutions work). “And it’s zens and their own operations. On the oth- growing at 60% a year.” er hand, computers are espionage and sur- As the costs of insurance mount, com- veillance tools, and easier to use as such if panies may start to demand more from the they are not completely secure. To this end, software they are using to protect them- the NSA iswidelybelieved to have built de- selves, and aspayoutsrise, insurers will deliberate weaknesses into some of its fa- mand the software be used properly. That voured encryption technologies. could be a virtuous alignment of interests. A report published in 2015 by PwC, a man- Increasingly paranoid android agement consultancy, found that a third of The risk is that anyone else who discovers American businesses have cyber-insur- these weaknesses can do the same. In ance cover ofsome kind, though itoften of- 2004 someone (no authority has said fers only limited protection. who) spentmonthslisteningto the mobile- But it is the issue of software-makers’ li- phone calls of the upper echelons of the ability for their products that will prove Greek government—including the prime most contentious. The precedents that lie minister, Costas Karamanlis—by subvert- behind it belong to an age when software ing surveillance capabilities built into the was a business novelty—and when com- kit Ericsson had supplied to Vodafone, the puters dealt mostly with abstract things pertinent networkoperator. like spreadsheets. In those days, the issue Some big companies, and also some was less pressing. But in a world where governments, are now tryingto solve secu- software is everywhere, and computerised rity problems in a systematic way. Free- cars or medical devices can kill people di- lance bug-hunters can often claim boun- around that. “We can have a web browser rectly, it cannot be ducked forever. ties from firms whose software they find where every part of a page—every image, “The industry will fight any attempt to fault with. Microsoft vigorously nags cus- every ad, the text, and so on—all run in impose liabilityabsolutelytooth and nail,” tomers to ditch outdated, less-secure ver- their own little secure enclaves,” says Dr says Mr Grossman. On top of the usual re- sions ofWindows in favour ofnewer ones, Watson. His team’s innovations, he be- sistance to regulations that impose costs, though with only limited success. In an at- lieves, could be added fairly easily to the Silicon Valley’scompaniesoften have a lib- tempt to squash as many bugs as possible, chips designed by ARM and Intel that pow- ertarian streak that goes with roots in the Google and Amazon are developing their er phones and laptops. counterculture of the 1960s, bolstered by a own versions of standard encryption pro- Another DARPA project focuses on a self-serving belief that anything which tocols, rewriting from top to bottom the technique called “formal methods”. This slows innovation—defined rather narrow- code that keeps credit-card details and oth- reduces computer programs to gigantic ly—isan attackon the publicgood. Kenneth er tempting items secure. Amazon’s ver- statements in formal logic. Mathematical White, a cryptography researcher in Wash- sion has been released on an “open- theorem-provingtools can then be applied ington, DC, warns that if the government source” basis, letting all comers look at the to show that a program behaves exactly as comes down too hard, the software busi- source code and suggest improvements. its designers want it to. Computer scien- ness may end up looking like the pharma- Open-source projects provide, in principle, tists have been exploring such approaches ceutical industry, where tough, ubiquitous a broad base of criticism and improve- for years, says Dr Fisher, but it is only re- regulation is one reason why the cost ofde- ment. The approach only works well, cently that cheap computing power and veloping a new drug is now close to a bil- though, if it attracts and retains a commit- usable tools have let the results be applied lion dollars. There is, then, a powerful in- ted community ofdevelopers. to pieces of software big enough to be of centive for the industry to clean up its act More fundamental is work paid for by practical interest. In 2013 Dr Fisher’s team before the government cleans up forit. Too the Defence Advanced Research Projects developed formally verified flight-control many more years like 2016, and that oppor- Agency (DARPA), a bit of the DoD that was software fora hobbyistdrone. Ateam ofat- tunity will vanish like the contents of a instrumental in the development ofthe in- tackers, despite being given full access to hacked bankaccount. 7 Books and arts The Economist April 8th 2017 69

Also in this section 70 Of markets and men 71 Cognitive illusions 71 Douglas Carswell’s manifesto 72 French ﬁction 72 The Documenta art festival

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

Religion in America Fundamentalism, she says, seemed to have been routed at the Scopes monkey The good-news bearers trial of1925, when William Jennings Bryan failed to defend the Bible’s literal truth, or so many bystanders reckoned. But it recovered in the general religious boom after the second world war, energised by celebrity revivalists, above all Billy Graham, and by America’s evangelicals have not always been allied with politicians. And they may the dizzying social advances of the follow- not always be ing decades, which many pastors vehe- ISIT an evangelical church in America mently resisted. The Evangelicals: The Struggle to Shape on a Sunday morning, and you are like- The presidential campaign of1980, star- V America. By Frances FitzGerald. Simon & ly to be embraced, perhaps literally, by fel- ring “a divorced former Hollywood actor Schuster; 740 pages; $35 low worshippers, then impressed by the who rarely attended church”, saw an alli- pastor’s scriptural exegesis. Depending on ance emerge between Jerry Falwell’s Mor- his text, and on the news, he may remind shared salvation and, aftera born-again ex- al Majority and the Republican Party; the his flock that the devil walks among them, perience, a direct relationship with God. relationship between the party and the and of the risk—a perennial one for white Spread, often, by untutored preachers Christian right has since wavered between evangelicals, as Frances FitzGerald’s timely using vernacular storytelling, this was an passion and wariness, taking a toll on both and enlightening book makes clear—that insurgent faith suited to the frontier. Today sides. Falwell may be the book’s single depravity may turn God away from their its adherents seem sceptical of religious most important character. He not only led country. Yetin Novemberfouroutoffive of tolerance, but initially they advocated it, so white evangelicals into mainstream poli- these decorous, Bible-loving Christians as to compete with established churches. tics, Ms FitzGerald writes, but injected the voted for an adulterous reality-television Rival attitudes to that kind of activism— evangelical mode of thinking with them. star who has said he has never sought di- whether to withdraw from the secular Waging“holy war” against secularhuman- vine forgiveness. world and patiently await the Rapture, or ism, he “introduced the fundamentalist White evangelicals make up around a to engage in the hope ofspeeding it along— sense of perpetual crisis, and of war be- fifth of America’s population, yet four de- form one ofthe axesaround which MsFitz- tween the forces ofgood and evil”. cadesaftertheybecame a central feature of Gerald’s narrative turns. The others in- Falwell is also a good example of Ms public life they continue to baffle their clude the tensions between the North and FitzGerald’smethod, and itssuccess. This is compatriots. “The Evangelicals” was writ- the evangelical heartland of the South, the a monumental study. Some of its detail— ten before Donald Trump’svictory, but it il- argument over the fundamentalist belief such as the varieties of religious experi- luminates these contradictions. Ms Fitz- in biblical inerrancy and the ongoing dis- ence that evangelical churches encompass, Gerald, a Pulitzer prizewinning historian, pute over whether America should be a from Pentecostal charismatics and snake- shows how the rise of evangelical creeds, light unto the nations or an isolated refuge handlers to the prosperity gospel—is grip- during the Great Awakenings of the 18th of piety. ping. Some of the theological rows, for ex- and 19th centuries, was itself a sort of pop- Ms FitzGerald explains how, along with ample over the precise sequencing of the ulistrevolt, by“a folkreligion characterised these internal conflicts, urbanisation, war Apocalypse and the Second Coming, may by disdain for authority and tradition”. It and immigration shaped the evangelical weary lay readers. But the engines of her was not only anti-elitist but anti-intellectu- world, just as evangelicals, “the most book, as of its subject, are the lives of lead- al, “a religion of the heart, as opposed to American of religious groups”, helped to ers such as Falwell. His hard-living father, the head”, in which puritanical harangues shape the nation. She concentrates, topi- Carey Falwell, once killed an employee’s were leavened by the promise of a widely cally, on the rise of the evangelical right. cat and fed it to him as squirrel stew, and 1 70 Books and arts The Economist April 8th 2017

2 threw a drunkard into a cage with a bear. Markets ness to take losses and a tendency to make Circuit-riding preachers, megachurch patterns out of random data. These traits pastors, millionaire televangelists who Evolving ideas may once have been useful in evolution- traded on their audiences’ willingness to ary terms (that rustle in the bushes might suspend disbelief: she sketches her charac- not be a predator, but better safe than sor- ters in gory technicolour. She is droll about ry) but are less helpful when makingfinan- theirchicaneryand non-judgmental about cial decisions. their conspiracy theories, prophecies and Research has also shown what hap- Adaptive Markets: Financial Evolution at prejudices. There are fanaticsand entrepre- pens inside our brains when we make de- the Speed of Thought. By Andrew Lo. neurs, like Pat Robertson, a broadcasting cisions. Winning money has the same ef- Princeton; 483 pages; $37.50 and £31.95 impresario who ran for president in 1988 fect on a brain as a cocaine addict getting a underthe half-familiarslogan, “Restore the CONOMISTS have been accused of fix, while losing money has the same effect Greatness of America Through Moral E“physics envy”, an obsession with con- on risk-averse people as a nasty smell or Strength”. There are charlatans who take to structing precise mathematical models in- pictures of bodily mutilation. Further- extreme lengths the presumption of for- stead of studying the real, messy, world. more, it seems that emotion plays a signif- giveness that is central to their faith’s struc- But a new book suggests that economists icantpartin gaugingrisks, and notalways a ture and appeal. These are mercurial, self- have been looking at the wrong science; negative one, acting as a “reward-and-pun- invented, quintessentially American lives. they should have focused on biology. ishment system that allows the brain to se- The idea stems from the school of “be- lect an advantageous behaviour”. If we do False idols havioural economics” which observes not fear the consequences of failure, we By the administration of George W. Bush, that humans are not the kind of hyper-ra- may act irresponsibly, just as small chil- white evangelicals’ favourite president, tional calculating machines that some dren need to learn to be waryofcars before their political agenda had narrowed. models rely on them to be. As a result, mar- crossing the road. Studies of people with (Abortion, Ms FitzGerald notes, became a kets are not always “efficient”—accurately brain damage show that “when the ability preoccupation only in the 1980s.) Partisan- pricing all the available information. to experience emotions is removed, hu- ship intensified such that “Bill and Hillary When Andrew Lo was a young aca- man behaviour becomes less rational.” Clinton were the Antichrist.” Many evan- demic, he presented a paper at a confer- When we apply ourbehavioural quirks gelicals have become wedded to a seem- ence which showed that one of the key as- to the markets, the result is a kind of fast- ingly un-Christian social policy that “ele- sumptions of the efficient market track evolution in which investment strat- vated opposition to higher taxes and hypothesis was not borne out by the data. egies are tested in a fast-changing environ- [Barack] Obama’shealth-care reform to the He was instantly told that he must have ment. Mr Lo describes the hedge-fund in- status of biblical absolutes”. The Supreme made a programming error; his results dustry as the “Galapagos islands of Court’s legalisation of gay marriage in 2015 could not possibly be right. finance”; many thousands have been set was, for them, a calamity. Meanwhile, de- Mr Lo, who is now a professor at MIT, up but the extinction rate is very high. spite their egalitarian impulses, these con- has spent much of his career battling to The theory may also explain why the gregations always had an authoritarian, steer economics away from such narrow- economy can see long periods of stability patriarchal bent, the chain of command minded thinking. His grand idea is the followed by sudden crisis. Mr Lo writes running from God to husbands and fa- “adaptive markets hypothesis”. The ac- that “Economic expansions and contrac- thers. And so they, and America, arrived at tions of individuals are driven by intellec- tions are the consequences of individuals Mr Trump. tual short cuts—rules of thumb that they and institutions adapting to changing fi- It is a shame that Ms FitzGerald ex- use to make decisions. If those decisions nancial environments, and bubbles and cludes black evangelical churches, with all turn out badly, they adapt their behaviour crashes are the result when the change oc- their struggles and heroism. As she says, and come up with a new rule to follow. curs too quickly.” “theirs is a different story,” but the two are The theory is bolstered by experiments The same process of adaptation occurs intertwined—not only in the history of that show how humans make decisions. between the finance industry and its regu- slavery and segregation, both defended by Psychological quirks include an unwilling- lators, with the regulators always one evo- the Southern Baptists, the country’s big- lutionary step behind the regulated. One gest Protestant denomination (and proba- answer, suggests Mr Lo, is to create a finan- bly most outsiders’ paradigmatic evangeli- cial equivalent of America’s National cal church). White and black evangelicals Transportation Safety Board (NTSB). Be- will converge in future as well: as she ob- cause the NTSB is not itself a regulator, it serves, white congregations are greying, so feelsable to criticise both transport compa- that, despite the nativism rife in many, nies and regulations; that makes its conclu- their vitality will increasingly depend on sions genuinely independent. attracting blackand Hispanic members. Mr Lo makes a convincing argument She does examine the quieter, but bur- and he also uses the book to lay out some geoning, Christian left, a movement that interesting ideas—such as a huge, diversi- emerged in the 1960s, aiming to recapture fied fund that would invest in a range of the spirt of reform that marked earlier potential cancer treatments. But while evangelical eras. Likewise she refers to the readers may nod their heads in agreement growing subset of thinkers and activists with the author, it is not clear what they who are orthodox in theology but re- should do next. The adaptive-markets the- nounce the bankrupting compact with the ory does not really produce any testable Republican Party and the fixation on sexu- propositions, or market-beating strategies. al morality. These groups, who care as And regulators might benefit from his sug- much about life after birth as before it, and gestions on monitoring financial risk but value justice in the sublunary world as might still struggle to know what to do in well as salvation in the next, are evangeli- response. Perhaps that is the point; evolu- cals too. 7 tion doesn’t have an end game in mind. 7 The Economist April 8th 2017 Books and arts 71

Cognitive science come more extreme. It is hard to reason with someone under the illusion that their Mind meld beliefs are thought through, and simply presenting facts is unlikely to change beliefs when those beliefs are rooted in the values and groupthinkofa community. The authors tentatively suggest that making people confront the illusion of un- The Knowledge Illusion: Why We Never derstanding will temper their opinions, Think Alone. By Steven Sloman and Philip but this could have the opposite effect— Fernbach. Riverhead; 296 pages; $28. people respond badly to feeling foolish. Macmillan; £18.99 Messrs Sloman and Fernbach show how O YOU know how a toilet works? deep the problem runs, but are short on DWhat about a bicycle, or a zipper? ideas to fix it. Most people can provide half answers at “The Knowledge Illusion” is at once best. They struggle to explain basic inven- both obvious and profound: the limitations, let alone more complex and abstract tions of the mind are no surprise, but the ones. Yet somehow, in spite of people’s ig- problem is that people so rarely think norance, they created and navigate the about them. However, while the illusion modern world. A new book, “The Knowl- certainly exists, its significance is overstat- edge Illusion” sets out to tackle this appar- ed. The authors are Ptolemaic in their ef- ent paradox: how can human thinking be forts to make it central to human psycholo- so powerful, yet so shallow? gy, when really the answer to their first Carswell, party of one Steven Sloman and Philip Fernbach, question—how can human thought be so two cognitive scientists, draw on evolu- powerful, yet so shallow?—is the hive panies offer jobs to ex-politicians. Journal- tionary theory and psychology. They ar- mind. Human ignorance is more funda- ists snobbishly dismiss populism as proof gue that the mind has evolved to do the mental and more consequential than the that their fellow citizens are bigots rather bare minimum that improves the fitness of illusion of understanding. But still, the than as evidence that they are waking up its host. Because humans are a social spe- book profits from its timing. In the context to the fact that the system is rigged. cies and evolved in the context of collabo- of partisan bubbles and fake news, the au- Yet Mr Carswell has no time forthe left- ration, wherever possible, abilities have thorsbringa necessaryshotofhumility: be ist solution—enlisting the state to regulate been outsourced. As a result, people are in- sceptical of your own knowledge, and the capitalism and redistribute wealth. This dividually rather limited thinkers and wisdom ofyour crowd. 7 will make the problem worse by killing store little information in their own heads. markets (which are the source of human Much knowledge is instead spread progress) and entrenching political elites through the community—whose members Political manifestos (who are the source ofdecay). He argues in- do not often realise that this is the case. stead that crony capitalism needs to be re- The authors call this the illusion of un- Time to smash the placed by real capitalism and rigged mar- derstanding, and they demonstrate it with kets by real markets. The best way to stop a simple experiment. Subjects are asked to system bankers from privatising profits and socia- rate their understanding of something, lising losses is to force them to risk their then to write a detailed accountofit, and fi- own capital, perhaps by turning invest- nallyto rate theirunderstandingagain. The ment banks back into partnerships. The Rebel: How to Overthrow the Emerging self-assessments almost invariably drop. best way to prevent super-companies from Oligarchy. By Douglas Carswell. Head of The authors see this effect everywhere, consolidating their grip on society is to Zeus; 386 pages; £18.99 from toilets and bicycles to complex policy make it easier for new companies to grow issues. The illusion exists, they argue, be- OUGLAS CARSWELL is not playing (for example by reducing the length and cause humans evolved as part of a hive Daround when he calls his book “Re- scope of patents). Mr Carswell is particu- mind, and are so intuitively adept at co-op- bel”, with a clenched fist on the cover. An larly impassioned about breaking up what eration that the lines between minds be- MP who abandoned the Conservatives for he sees as political cartels. In his view, es- come blurred. Economists and psycholo- UKIP and has now left UKIP to become an tablished political parties serve the inter- gists talk about the “curse of knowledge”: independent, Mr Carswell is as angry with ests ofthe oligarchy ratherthan the people. people who know something have a hard the ruling class as any street-fighting leftist. Thankfully modern technology makes it time imagining someone else who does He is fond of quoting Thomas Piketty, and easier for insurgents to start parties from not. The illusion of knowledge works the even admits to cheering when Jeremy Cor- nowhere: Mr Carswell likes to boast of do- other way round: people think they know byn, a hard-line leftist, was elected leader ing for himself, often on his laptop, what something because others know it. ofthe Labour Party. the established parties spend millions of The hive mind, with its seamless inter- Mr Carswell thinks that a new oligar- dollars failing to do. One video that he dependence and expertise-sharing, once chy is the biggest threat to the welfare of made, on the case for Brexit, has been seen helped humanshuntmammothsand now mankind. The MP for Clacton is best by over1.4m people. sends them into space. But in politics it known as one of the leaders of the cam- Mr Carswell concedes that many of the causes problems. Using a toilet without paign to take Britain out of the European new radicals who have appeared in reac- understanding it is harmless, but changing Union. But he regards the EU as simply one tion to the oligarchy are a rum bunch: “the the health-care system without under- manifestation of a much bigger problem. anti-oligarchs—and the chaos, confusion standing it is not. Yet people often have Big companies are tightening their hold and redistribution of resources that they strong opinions about issues they under- over the global economy. Established par- bring—will make the case forrule bya few.” stand little about. And on social media, ties are rigging the political system in their The electronicrevolution needsto be a per- surrounded by like-minded friends and own favour. And business and politics are manent one not only to overthrow the sta- followers, opinions are reinforced and be- becoming ever more intertwined as com- tus quo but to keep the new radicals from 1 72 Books and arts The Economist April 8th 2017

2 wrecking the revolution. Art festivals Mr Carswell makes his case well. He is right that capitalism is going through a worrying period ofconcentration: the tech Athens on display oligarchs now enjoy market shares not The Greekcapital will co-host the Documenta art exhibition, sparking seen since the days of the robber barons. excitement and criticism He is also right that today’s meritocratic elite is hard to stomach, convinced that it HE confluence ofcutting-edge Euro- cities. Marta Minujín, an Argentine artist, deserves everything it has, because it owes Tpean art shows that take place in the has gathered once-banned books in both its position to merit, and is addicted to self- same year only once every decade kicks Kassel and Athens to rebuild her “Parthe- righteous posturing. He sees many of the offthis month with the opening ofthe non ofBooks” (pictured), a workfrom new radicals as little better: one reason he five-yearly Documenta exhibition. Usual- 1983, in Kassel. A Greekairline will run joined UKIP was to keep Brexit from being ly sited only in Kassel, Documenta this regular flights between the two cities. But dominated in the public mind by the year will start offon April 8th in Athens— despite the best intentions, Documenta clownish Nigel Farage. But he is wrong to the grimy but resilient survivor of an stirs mixed emotions in Athens. Yanis think that people-power is the answer. economic crisis that has already lasted Varoufakis, the controversial former There is a good reason that America’s nearly as long as America’s Great Depres- finance minister, calls it “disaster tou- Founding Fathers, whom Mr Carswell so sion—and get going in the German city rism”. Athenians complain of“colonial admires, built up checks and balances to only later, in June. (The other two big attitudes” shown by the organisers. “It’s the will of the people: the people are often shows ofthe year are the Venice Bien- hard to avoid the feeling Greece’s misery moved by short-term passions, swayed by nale, which opens in May, and an exhibi- is being exploited by Documenta,” says a demagogues, deceived by rumours. tion ofsculpture that will be unveiled in gallery owner. Fraught relations between Crowds are often mad rather than wise. 7 Münster in June.) Greece and Germany add to the tension. Documenta will bring plenty ofwell- Alexis Tsipras, the left-wing prime min- heeled tourists to Greece. It should also ister, has moderated his anti-European French fiction help the new state museum ofcontem- rhetoric but to many Greeks, Germany is porary art, known as EMST, the show’s on a mission to throw the country out of Yearning in the main venue, carve out a space on Eu- the euro, however hard it tries to imple- rope’s arts map. Other cash-strapped ment tough reforms demanded by credi- sandstorm Greekmuseums will also get a boost tors. Documenta’s advance guard says from hosting Documenta’s works. And there will be plenty ofgood art on dis- Katerina Koskina, EMST’s director, hopes play, but only ifit helps visitors reimagine that the attention will also bring atten- the world around them will it have truly Compass. By Mathias Enard. Translated by tion to Greece’s contemporary-art scene. succeeded. Charlotte Mandell. New Directions; 464 pages George Kaminis, the mayor ofAthens, $26.95. Fitzcarraldo Editions; £14.99 has made several public spaces available HE East is a career,” wrote Disraeli in forperformance-art pieces, which will “This novel “Tancred”. Lately, the West- dominate the first weekofthe exhibition, ern devotion to that compass-point has a nod at the growing popularity through- fallen into intellectual disrepute. Critics out the art world ofaudience participa- such as Edward Said (who took Disraeli’s tion. In Kotzia Square, flanked by elegant axiom as an epigraph to his influential 19th-century buildings, Rasheed Araeen, study, “Orientalism”) have indicted schol- a Pakistani artist, will invite people to ars and travellers as the outriders of a pred- share a meal under canopies inspired by atory imperialism in Asia and the Middle a traditional Pakistani wedding tent. It East. “Compass”, Mathias Enard’s epic will attract not only art-lovers but some wrangle overthe meanings ofa passion for ofthe more than 20,000 hard-pressed the East, won the Prix Goncourt in 2015, Athenians who eat at soup kitchens has been long-listed forthe Man Booker In- every day. And Mary Zygouri, a Greek ternational prize, and has just been pub- artist, will show a film and stage a perfor- lished in English. The novel offers both a mance in Kokkinia, a left-wing industrial celebration and interrogation ofthe Orien- neighbourhood associated with Nazi talist imagination. With its torrential erudi- executions ofGreekresistance fighters. tion, Mr Enard’s insomniac monologue Ms Zygouri’s film will draw on one pro- has inspired plaudits—and perplexity. “De- vocatively put on in 1979 by Maria Kara- sire for the Orient”, admits Mr Enard’s nar- vela at a memorial to the resistance. rator, after citing Flaubert’s erotic esca- Some artists have tried to linkthe host Soon to re-appear pades in Egypt, “is also a carnal desire.” Mr Enard, an Arabic and Persian specialist, makes his lover of the East, Franz and Lady Hester Stanhope. And he evokes quence by Charlotte Mandell, “Compass” Ritter, a thwarted musicologist in Vienna. Orientalism as “reverie”, as “lament”; as “a aches with that simple yearning. “Only Over one delirious night, struckdown by a forever disappointing exploration”. love” of a person or a culture, thinks Franz mysterious ailment, Franz remembers per- Above all, Franz pines forhis lost Sarah, underthe stars ofSyria, “opens us up to the ilous research trips to Aleppo and Palmyra a scholar from Paris who has adopted Bud- other”. The narrator, whose wit sparkles (today, his beloved sites are “burning or dhism and fled to Borneo. Like him, Sarah beneath a burden of learning and loneli- burnt” by civil war), and to revolutionary believes not in an archetypal West and ness, also tells us what happens when Tehran. He re-imagines the lives of Orient- East but in a two-way traffic of “sharing Said’s name crops up among his prickly struck writers such as Goethe and Heine, and continuity”. For all its sandstorm of band of Orientalists: “It was like invoking or intrepid voyagers such as Jane Digby scholarship, translated with tireless elo- the Devil in a Carmelite convent.” 7 Courses 73

The Economist April 8th 2017 74 Courses

The Economist April 8th 2017 Appointments 75

As part of its “Young Graduates Program”, the West African Development Bank (BOAD) is recruiting young graduates from prestigious diaspora universities and schools. AREAS OF SKILLS Financial analysis (corporate development and investment projects); specialization in fi nancial engineering and risk management. ELIGIBILITY APPLICATION FORM The following are the minimum requirements Each application form must contain the to be eligible for the “Young Graduates following documents: Program”: - Curriculum vitae (CV); - A Master’s or post-graduate degree - Certifi ed true copy of the birth (high school diploma + 5 fi ve years of certifi cate; - Copy of ID document (national ID Card higher studies); or passport); - Citizenship of a WAEMU member - Certifi ed true copy of the degree country or certifi cate of achievement for a degree completed in 5 years of higher - Fluency in French and English. education; - Relevant working experience of 0-2 - Certifi ed true copy of the transcript of years at most. the latest degree. Applications from women and citizens of Guinea Bissau are highly encouraged. Applications must be sent not later than 30 April 2017 to: Monsieur le Directeur des Ressources Humaines (DRH) Banque Ouest Africaine de Développement (BOAD) 68 Avenue de la Libération, BP: 1172, Lomé (TOGO) Applications can also be transmitted to BOAD headquarters by email at: [email protected]. This recruitment notice as well as a job application form (to be completed and transmitted by email) can be found on our website at http://www.boad.org. Tenders

DEMOCRATIC REPUBLIC OF THE CONGO Société Congolaise de Fibre Optique Central African Backbone 5 Project Notice of an international invitation to tender relating to the construction of sections of the national telecommunication backbone (Kinshasa – Muanda), specifi cally the performance of civil engineering work, the supply and installation of fi bre-optic cables, and the construction of passive shelters. The Democratic Republic of the Congo has obtained a grant from the International Development Association / World Bank to fund the Central Africa Backbone 5 Project. It is intended that part of that fi nancing will be used to build the section of the National Telecoms Backbone between Kinshasa and Muanda, hereinafter referred to as the “National Telecommunication Backbone Muanda-Kinshasa”. For that purpose, the “Société Congolaise de Fibre Optique” SOCOF SA hereby extends an invitation to interested companies (the “Bidders”) to tender for work to build the National Telecoms Backbone Muanda-Kinshasa. Bidders will be able to obtain the Tender Document from the 10th, April 2017 from: SOCIETE CONGOLAISE DE FIBRE OPTIQUE SA (« SOCOF ») N°03, Avenue Bas-Congo, 2ème étage, Gare Centrale, Kinshasa-Gombe, Democratic Republic of the Congo. Tel: +243 125 103 599 Email address: [email protected] , copy to [email protected] The Tender Document must be requested by mail, email, or in person from the SOCOF offi ce, and the request must specify that it is a request for the Tender Document relating to the construction of sections of the National Telecoms Backbone ((Kinshasa – Muanda), specifi cally the performance of civil engineering work, the supply and installation of fi bre-optic cables, the construction of technical centres (“Demande du Dossier d’appel d’offres relatif à la construction du tronçon Kinshasa – Muanda du Backbone National de Télécommunications incluant les travaux de génie civil, la fourniture et la pose de câbles à fi bres optiques avec shelters passifs ” in French). When the request is received and on payment of a non-refundable sum of USD 400, the Tender Document will be provided immediately or, if desired, sent in a sealed letter by SOCOF, which shall in no event be liable for any delays or losses suffered in its delivery. Bids made by the Bidders, presented in accordance with the terms set out in the Tender Document, must be submitted by 11.00 am, Kinshasa Local Time on the 13th, June 2017 at the address stated in the Tender Document. The SOCOF SA will refuse any application received after the aforementioned deadline. Bidders will be informed about whether or not their application was successful according to the terms and conditions set out in the Tender Document. Bidders may obtain additional information from SOCOF between the hours of 9am and 3.30pm, Monday to Friday.

Readers are recommended to make appropriate enquiries and take appropriate advice before sending money, incurring any expense or entering into a binding commitment in relation to an advertisement. The Economist Newspaper Limited shall not be liable to any person for loss or damage incurred or suffered as a result of his/her accepting or offering to accept an invitation contained in any advertisement published in The Economist. The Economist April 8th 2017 76 Economic and ﬁnancial indicators The Economist April 8th 2017

Economic data % change on year ago Budget Interest Industrial Current-account balance balance rates, % Economic Gross domestic data product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2017† latest latest 2017† rate, % months, $bn 2017† 2017† bonds, latest Apr 5th year ago United StatesStatistics +2.0 Q4 on +2.142 economies,+2.3 +0.5 Feb +2.7 Feb +2.4 4.7 Feb -481.2 Q4 -2.8 -3.5 2.34 - - China plus our+6.8 monthlyQ4 +7.0 poll+6.5 of fore- +6.3 Feb +0.8 Feb +2.3 4.0 Q4§ +196.4 Q4 +1.7 -4.1 3.12§§ 6.90 6.47 Japan casters+1.6 Q4 +1.2 +1.2 +4.8 Feb +0.2 Feb +0.7 2.8 Feb +186.5 Jan +3.5 -5.3 0.07 111 110 Britain +1.9 Q4 +2.7 +1.7 +3.2 Jan +2.3 Feb +2.7 4.7 Dec†† -115.7 Q4 -4.0 -4.0 1.06 0.80 0.71 Canada +1.9 Q4 +2.6 +2.0 +3.5 Jan +2.0 Feb +1.9 6.6 Feb -51.2 Q4 -2.7 -2.6 1.56 1.34 1.32 Euro area +1.7 Q4 +1.6 +1.6 +0.6 Jan +1.5 Mar +1.6 9.5 Feb +392.3 Jan +3.0 -1.6 0.25 0.94 0.88 Austria +1.7 Q4 +2.0 +1.6 -1.1 Jan +2.2 Feb +1.7 5.7 Feb +6.6 Q4 +2.4 -0.9 0.50 0.94 0.88 Belgium +1.2 Q4 +2.0 +1.4 -1.6 Jan +2.3 Mar +2.0 7.0 Feb -2.0 Dec +1.1 -2.7 0.75 0.94 0.88 France +1.1 Q4 +1.7 +1.3 -0.4 Jan +1.1 Mar +1.3 10.0 Feb -34.5 Jan -1.0 -3.1 0.95 0.94 0.88 Germany +1.8 Q4 +1.7 +1.6 nil Jan +1.6 Mar +1.8 3.9 Feb‡ +287.1 Jan +8.2 +0.5 0.25 0.94 0.88 Greece -1.4 Q4 -4.8 +1.2 +7.3 Jan +1.3 Feb +0.8 23.1 Dec -0.6 Jan -1.2 -6.4 7.10 0.94 0.88 Italy +1.0 Q4 +0.7 +0.9 -0.5 Jan +1.4 Mar +1.4 11.5 Feb +47.5 Jan +2.5 -2.4 2.28 0.94 0.88 Netherlands +2.5 Q4 +2.5 +2.0 +1.5 Jan +1.1 Mar +1.2 6.3 Feb +64.8 Q4 +8.5 +0.5 0.49 0.94 0.88 Spain +3.0 Q4 +2.8 +2.6 +7.2 Jan +2.3 Mar +2.2 18.0 Feb +24.9 Jan +1.5 -3.3 1.64 0.94 0.88 Czech Republic +2.0 Q4 +1.6 +2.5 +9.6 Jan +2.5 Feb +2.4 3.5 Feb‡ +2.3 Q4 +0.7 -0.5 0.92 25.4 23.8 Denmark +2.3 Q4 +1.9 +1.4 +2.5 Jan +1.0 Feb +1.2 4.3 Feb +25.3 Jan +7.1 -1.4 0.55 6.97 6.54 Norway +1.8 Q4 +4.5 +1.8 +0.6 Jan +2.5 Feb +2.4 4.2 Jan‡‡ +18.1 Q4 +5.3 +2.8 1.62 8.60 8.35 Poland +3.2 Q4 +7.0 +3.2 +1.2 Feb +2.0 Mar +1.8 8.5 Feb§ +0.5 Jan -1.3 -3.2 3.44 3.96 3.75 Russia +0.3 Q4 na +1.4 -2.7 Feb +4.2 Mar +4.5 5.6 Feb§ +25.0 Q4 +2.8 -2.9 8.13 56.2 69.3 Sweden +2.3 Q4 +4.2 +2.6 +4.1 Feb +1.8 Feb +1.6 7.4 Feb§ +23.7 Q4 +4.8 -0.4 0.57 8.97 8.15 Switzerland +0.6 Q4 +0.3 +1.4 -1.2 Q4 +0.6 Feb +0.5 3.3 Feb +70.6 Q4 +9.7 +0.2 -0.13 1.00 0.96 Turkey +3.5 Q4 na +2.6 +4.2 Jan +11.3 Mar +9.7 12.7 Dec§ -33.2 Jan -4.4 -2.1 10.95 3.69 2.83 Australia +2.4 Q4 +4.4 +2.7 +1.0 Q4 +1.5 Q4 +2.1 5.9 Feb -33.1 Q4 -1.3 -1.8 2.61 1.32 1.33 Hong Kong +3.1 Q4 +4.8 +2.6 -0.7 Q4 -0.1 Feb +1.7 3.3 Feb‡‡ +14.5 Q4 +5.9 +1.5 1.61 7.77 7.76 India +7.0 Q4 +5.1 +7.2 +2.7 Jan +3.7 Feb +4.6 5.0 2015 -11.9 Q4 -1.0 -3.2 6.65 64.9 66.5 Indonesia +4.9 Q4 na +5.2 +4.5 Jan +3.6 Mar +4.3 5.6 Q3§ -16.3 Q4 -2.0 -2.1 7.07 13,321 13,219 Malaysia +4.5 Q4 na +4.4 +3.5 Jan +4.5 Feb +3.2 3.5 Jan§ +6.0 Q4 +3.1 -3.1 4.12 4.43 3.92 Pakistan +5.7 2016** na +5.2 +0.8 Jan +4.9 Mar +4.9 5.9 2015 -4.9 Q4 -1.7 -4.8 8.07††† 105 105 Philippines +6.6 Q4 +7.0 +6.4 +9.3 Jan +3.4 Mar +3.3 6.6 Q1§ +0.6 Dec +0.8 -2.6 5.16 50.1 46.2 Singapore +2.9 Q4 +12.3 +2.1 +12.6 Feb +0.7 Feb +1.1 2.2 Q4 +56.7 Q4 +19.3 -1.0 2.22 1.40 1.36 South Korea +2.4 Q4 +2.0 +2.5 +6.6 Feb +2.2 Mar +1.8 5.0 Feb§ +97.6 Feb +6.4 -1.0 2.14 1,124 1,155 Taiwan +2.9 Q4 +1.8 +1.8 +10.6 Feb +0.2 Mar +2.1 3.8 Feb +70.9 Q4 +11.5 -0.7 1.11 30.4 32.3 Thailand +3.0 Q4 +1.7 +3.4 -1.5 Feb +0.8 Mar +1.3 1.1 Feb§ +46.8 Q4 +11.6 -2.0 2.59 34.5 35.3 Argentina -2.1 Q4 +1.9 +2.7 -2.5 Oct — *** — 7.6 Q4§ -15.0 Q4 -2.7 -4.1 na 15.4 14.7 Brazil -2.5 Q4 -3.4 +0.6 -0.8 Feb +4.8 Feb +4.5 13.2 Feb§ -22.8 Feb -1.6 -7.7 9.83 3.09 3.67 Chile +0.5 Q4 -1.4 +1.8 -7.6 Feb +2.7 Feb +3.0 6.4 Feb§‡‡ -3.6 Q4 -1.2 -2.1 3.98 657 675 Colombia +1.6 Q4 +4.0 +2.4 -0.2 Jan +4.7 Mar +4.0 10.5 Feb§ -12.5 Q4 -3.6 -2.8 6.56 2,857 3,091 Mexico +2.4 Q4 +2.9 +1.5 -0.1 Jan +4.9 Feb +5.0 3.5 Feb -27.9 Q4 -2.6 -2.5 7.06 18.7 17.7 Venezuela -8.8 Q4~ -6.2 -5.5 na na +562 7.3 Apr§ -17.8 Q3~ -1.5 -19.6 10.43 9.99 9.99 Egypt +3.4 Q3 na +3.9 +16.0 Jan +30.2 Feb +19.2 12.4 Q4§ -20.1 Q4 -6.2 -10.8 na 18.0 8.88 Israel +4.3 Q4 +6.5 +3.9 +3.2 Jan +0.4 Feb +0.6 4.3 Feb +12.4 Q4 +4.4 -2.3 2.17 3.65 3.82 Saudi Arabia +1.4 2016 na +0.8 na -0.1 Feb +2.0 5.6 2015 -24.9 Q4 -2.1 -7.3 3.68 3.75 3.75 South Africa +0.7 Q4 -0.3 +1.1 +0.5 Jan +6.3 Feb +5.7 26.5 Q4§ -9.5 Q4 -3.6 -3.1 8.99 13.8 15.0 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Jan 29.53%; year ago 30.79% †††Dollar-denominated bonds. The Economist April 8th 2017 Economic and ﬁnancial indicators 77

Markets % change on The Economist poll of forecasters, April averages (previous month’s, if changed) Dec 30th 2016 Real GDP, % change Consumer prices Current account Index one in local in $ Low/high range average % change % of GDP week Markets Apr 5th currency terms 2017 2018 2017 2018 2017 2018 2017 2018 United States (DJIA) 20,648.2 -0.1 +4.5 +4.5 Australia 2.2 / 2.8 2.4 / 3.2 2.7 (2.6) 2.9 2.1 2.3 -1.3 (-1.4) -1.7 (-1.9) China (SSEA) 3,424.6 +0.9 +5.4 +6.2 Brazil 0.1 / 1.3 1.5 / 4.0 0.6 (0.7) 2.4 (2.2) 4.5 4.6 -1.6 -2.0 Japan (Nikkei 225) 18,861.3 -1.9 -1.3 +3.5 Britain 1.1 / 2.0 0.7 / 1.7 1.7 (1.6) 1.2 2.7 (2.6) 2.7 -4.0 (-4.4) -3.4 (-3.8) Britain (FTSE 100) 7,331.7 -0.6 +2.6 +3.6 Canada 1.5 / 2.6 1.5 / 2.7 2.0 (1.9) 2.0 1.9 (1.8) 1.9 -2.7 (-2.8) -2.3 (-2.5) Canada (S&P TSX) 15,643.0 -0.1 +2.3 +2.3 China 6.2 / 6.8 4.2 / 7.0 6.5 6.2 (6.3) 2.3 2.4 1.7 (2.0) 1.7 (1.8) Euro area (FTSE Euro 100) 1,177.6 +0.1 +5.9 +7.1 France 1.1 / 1.6 1.1 / 1.8 1.3 1.5 1.3 1.3 -1.0 (-0.9) -1.0 Euro area (EURO STOXX 50) 3,472.6 -0.1 +5.5 +6.7 Germany 1.1 / 1.8 1.3 / 2.0 1.6 1.6 1.8 1.6 8.2 (8.3) 7.9 (8.0) Austria (ATX) 2,885.1 +1.7 +10.2 +11.4 India 6.3 / 7.6 6.5 / 8.0 7.2 7.5 (7.6) 4.6 (4.8) 4.9 (5.0) -1.0 (-1.1) -1.4 Belgium (Bel 20) 3,808.8 +0.6 +5.6 +6.8 Italy 0.6 / 1.1 0.6 / 1.1 0.9 (0.8) 0.9 1.4 (1.2) 1.2 2.5 (2.4) 2.3 (2.2) France (CAC 40) 5,091.9 +0.4 +4.7 +5.9 Japan 0.3 / 1.6 0.3 / 1.7 1.2 (1.1) 1.0 0.7 (0.8) 1.0 3.5 (3.6) 3.6 Germany (DAX)* 12,217.5 +0.1 +6.4 +7.6 Greece (Athex Comp) 670.0 +0.2 +4.1 +5.2 Russia 0.8 / 2.6 0.9 / 3.0 1.4 1.7 (1.8) 4.5 (4.7) 4.4 (4.3) 2.8 2.5 (2.6) Italy (FTSE/MIB) 20,253.4 -0.1 +5.3 +6.4 Spain 2.3 / 2.9 1.6 / 2.8 2.6 (2.5) 2.2 (2.1) 2.2 1.5 (1.4) 1.5 1.5 Netherlands (AEX) 514.9 +0.3 +6.6 +7.7 United States 2.0 / 2.6 1.8 / 3.6 2.3 2.5 (2.4) 2.4 (2.3) 2.3 -2.8 -3.0 (-2.9) Spain (Madrid SE) 1,047.7 +0.1 +11.0 +12.3 Euro area 1.3 / 1.8 1.2 / 1.7 1.6 1.5 (1.6) 1.6 1.4 3.0 (2.9) 2.9 (2.8) Czech Republic (PX) 980.8 -0.2 +6.4 +7.5 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank, Denmark (OMXCB) 837.6 +1.9 +4.9 +6.0 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders, Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets Hungary (BUX) 32,405.1 +0.5 +1.3 +2.0 Norway (OSEAX) 765.0 +1.2 nil +0.2 Poland (WIG) 59,369.7 +1.1 +14.7 +20.8 Other markets The Economist commodity-price index Russia (RTS, $ terms) 1,152.5 +2.5 nil nil 2005=100 Othermarkets % change on % change on Sweden (OMXS30) 1,558.6 -1.6 +2.7 +4.0 Dec 30th 2016 The Economist commodity-priceone index one Switzerland (SMI) 8,640.5 -0.2 +5.1 +6.4 Index one in local in $ Mar 28th Apr 4th* month year Turkey (BIST) 89,037.4 -0.3 +13.9 +8.5 Apr 5th week currency terms Dollar Index Australia (All Ord.) 5,915.9 +0.1 +3.4 +8.5 United States (S&P 500) 2,353.0 -0.3 +5.1 +5.1 All Items 144.5 142.6 -2.1 +10.0 Hong Kong (Hang Seng) 24,400.8 nil +10.9 +10.7 United States (NAScomp) 5,864.5 -0.6 +8.9 +8.9 Food 153.7 150.9 -2.9 +0.7 India (BSE) 29,974.2 +1.5 +12.6 +17.7 China (SSEB, $ terms) 345.3 +1.7 +1.0 +1.0 Indonesia (JSX) 5,677.0 +1.5 +7.2 +8.4 Japan (Topix) 1,504.7 -2.4 -0.9 +3.9 Industrials Malaysia (KLSE) 1,744.7 -0.3 +6.3 +7.6 Europe (FTSEurofirst 300) 1,497.6 +0.3 +4.8 +6.0 All 134.8 134.0 -1.2 +23.4 Pakistan (KSE) 47,577.3 -1.7 -0.5 -0.9 World, dev'd (MSCI) 1,845.9 -0.6 +5.4 +5.4 Nfa† 141.7 139.5 -4.7 +18.1 Singapore (STI) 3,176.6 -0.3 +10.3 +13.7 Emerging markets (MSCI) 969.2 -0.3 +12.4 +12.4 Metals 131.9 131.6 +0.5 +26.0 South Korea (KOSPI) 2,160.9 -0.3 +6.6 +14.5 World, all (MSCI) 447.8 -0.5 +6.1 +6.1 Sterling Index Taiwan (TWI) 9,949.5 +0.9 +7.5 +14.2 World bonds (Citigroup) 898.7 -0.2 +1.7 +1.7 All items 209.6 208.4 -3.6 +24.9 Thailand (SET) 1,582.1 +0.5 +2.5 +6.3 EMBI+ (JPMorgan) 804.1 -0.1 +4.1 +4.1 Argentina (MERV) 20,683.0 +2.4 +22.3 +26.0 Hedge funds (HFRX) 1,221.7§ -0.1 +1.5 +1.5 Euro Index Brazil (BVSP) 64,774.8 -1.1 +7.6 +13.1 Volatility, US (VIX) 12.9 +11.4 +14.0 (levels) All items 165.3 166.3 -2.7 +17.4 Chile (IGPA) 24,376.5 +0.4 +17.6 +19.8 CDSs, Eur (iTRAXX)† 75.1 +0.8 +4.1 +5.2 Gold Colombia (IGBC) 10,194.4 +0.4 +0.9 +6.0 CDSs, N Am (CDX)† 65.9 -2.4 -2.8 -2.8 $ per oz 1,255.3 1,256.8 +3.1 +2.2 Mexico (IPC) 49,207.6 +0.3 +7.8 +18.6 Carbon trading (EU ETS) € 4.8 -1.8 -26.6 -25.8 West Texas Intermediate Venezuela (IBC) 45,494.9 +7.4 +43.5 na Sources: IHS Markit; Thomson Reuters. *Total return index. $ per barrel 48.4 51.0 -4.0 +41.8 Egypt (EGX 30) 13,290.0 +2.3 +7.7 +8.1 †Credit-default-swap spreads, basis points. §Apr 4th. Israel (TA-100) 1,268.2 +1.2 -0.7 +4.7 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) 7,050.9 +1.5 -2.6 -2.5 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional South Africa (JSE AS) 52,990.1 +1.0 +4.6 +3.9 series, go to: Economist.com/indicators †Non-food agriculturals. 78 Obituary David Rockefeller The Economist April 8th 2017

$16m, were taught that great wealth con- ferred responsibility. He began by taking Thanksgiving baskets to the poor of New York, toiling up cabbage-reeking stairways with his liveried chauﬀeurby his side.

Old-money manners He was often offered jobs in public service: treasury secretary, head of the Fed, ambassador to here and there. Both Republican and Democratic presidents asked him; as a moderate Republican of the old (now van- ished) style, hating profligacy but with a social conscience, he might have served either. Yet his east-coast old-money manners, and his natural reserve, inclined him to be useful in the private sector. His discreet gathering of contacts had started in the war, when he was sent to Algiers to work for army intelligence: though of junior rank, he soon assembled a list of people who knew what was really going on. He also collected 131beetles in his jars. At Chase, which he headed from 1969 to 1981, he continued the habit of covert operations. His early years there were difficult; he was not considered a “real banker”, had not been through their credit training pro- Tunnels of influence gramme and did not speak their language. Stymied at first in his efforts to expand overseas, but wishing to preserve civility and avoid confrontation, he setup semi-secret planning groups to steer the bank in that direction. A stumble in the mid-1970s saw a steep fall in earnings and a fat portfo- David Rockefeller, bankerand philanthropist, died on March 20th, aged 101 lio of non-performing loans. This was HEREVERhe wentin the world—and His gaze went much further, however. blamed on his internationalism; but for Win his 35 years at Chase Manhattan As an international banker, he strove to that he would never apologise. Bank, from 1946 to 1981, he ran up 5m air give Chase a presence in every corner of Far from it. He was proud to be part of miles—David Rockefeller carried a small the world. Some regimes were risky, to be the so-called “secret cabal” that wanted a jar in his pocket. It was in case he found a sure. Some were bloodstained. Butifa loan more integrated global structure, with beetle on the way. From the age of seven, could be carefully crafted and secured, it America at the head of it. This was both in partly from his own solitary, careful catch- should be offered. At times, his dogged di- the country’s interest, and its moral obliga- ing, partly from expeditions he sponsored, plomacy made openings where State De- tion. At the Council on Foreign Relations, he built up a collection of 90,000 speci- partmentofficialshardlydared to tread. He at Bilderberg meetings, or on the Trilateral mens from 2,000 species, carefully la- forged banking deals with Leonid Brezh- Commission which he founded in 1973, he belled and stored in airtight hardwood nev in the Soviet Union and Zhou Enlai in relished discussing world affairs with peo- boxes at the 3,400-acre family place in Po- China, as well as with more amenable ple of equal quality and influence from cantico Hills. His preference was for wood- leaders in every continent except Antarcti- North America, Europe and Asia. Their ex- borers, leaf-cutters and tunnellers, whose ca. For the sake of “balance” for Chase in clusiveness led many people to thinkthese industrious activity changed the world in the Middle East, he buttered up both Israel talking shops sinister, or an undisclosed ways few people saw. and the Arabs. Fidel Castro once bounded tunnel to power. He found them just an in- Networks, part-public, part hidden, across a room, to his embarrassment, to valuable way oflinking the likeminded. were his speciality. As a Rockefeller, whose shake his hand. In all these efforts, he hoped the Rocke- millions had bolstered Rockefeller Univer- Capitalism, American-style, was in his feller name would push matters forward. sity and the Rockefeller Centre and whose view a gift to the world as well as the He never thought it a hindrance, though he Picassos, Matisses and Cézannes filled the grease of his career. The lure of profit was sad to note that for a time his children Museum of Modern Art, he was a fixture created jobs and wealth, and empowered disowned it. With that name he was more on the New York social, cultural and politi- people, as no other system could. No one, apt to get through to people on the tele- cal scene. He did great things for the city, therefore, should feel guilty about making phone. And in order to make his calls, he helping to revive Lower Manhattan and to money. Certainly “Senior” had not. The had amassed a second collection after the build the World Trade Centre; while also grand old man, John D., who sometimes Coleoptera at Pocantico Hills: a Rolodex holding its feet to the fire, during its bank- shared his breakfast oatmeal with him, containing 150,000 names, eventually ruptcyin the mid-1970s, bydemandingsav- had felt no remorse about dominating the electronic, but originally on cards with age budget cuts and the sacking of thou- market when he ran Standard Oil. He handwritten notes ofdate and place. It was sands of workers. From his first job, as made his millions but, as a good Baptist, so large thatithad itsown office, beside his, secretary to Fiorello La Guardia, every gave away a tenth of it. Young David and in the Rockefeller Centre. From that room, mayor ofNew Yorkwas drawn into his net. his siblings, each heir to a trust containing his networks crept out to span the world. 7 The calm during the storm.

Political change, economic uncertainty, shifting centres of power—the world is in a state of ﬂ ux. Rise above the bluster with clear thinking on global a airs.

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