The World in 2015

Hillary Clinton On women Mary Barra Cars that can talk David Blaine The future of magic Bill Gates Set goals, save lives Michelle Bachelet The politics of inclusion Carl Icahn We the activists

Contents

The World in

2015

EDITOR:

Daniel Franklin MANAGING EDITOR:

Yvonne Ryan

DEPUTY EDITORS:

Adam Barnes, Leo Abruzzese EDITORIAL ASSISTANT:

15 From the editor

Leaders 19 The West’s malaise Worries about democracy will grow 20 World disorder Get used to it 24 Parting of the ways A year of economic instability 27 Lessons of a plague Political attitudes to epidemics must change 28 Disruption from above and below A buffeting ahead for business 31 Splitting images Secessionists line up 34 Pride and prejudice The gay-rights divide 36 Mega Carta A Magna Carta for the internet age 37 Fantasy politics The government Britain should get

Faizah Malik

COUNTRIES EDITOR:

Alasdair Ross

INDUSTRIES EDITOR:

Martin Adams

DESIGN AND ART DIRECTION:

Mike Kenny, Bailey and Kenny ART DIRECTOR:

Anita Wright CHARTS:

Michael Robinson

40 Calendar for 2015

United States 43 All the president’s pens To veto, or not to veto?

44 Waiting for the big one The road to the White House

ILLUSTRATIONS:

Steve Carroll, Kevin (“KAL”) Kallaugher, Dave Simonds PICTURE EDITOR:

Juliet Brightmore RESEARCH:

Carol Howard, Jonny Williams EDITORIAL ASSISTANCE:

Ingrid Esling, Patsy Dryden

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46 Point of no return Obamacare is here to stay 48 Gently does it A modest rise in interest rates 50 Time to fly the nest Your children will leave home at last 50 All the tech that’s fit to wear Silicon Valley gets physical 51 A bumpy take-off Drones get ready to fly 54 Pivot back Ian Bremmer on the opportunities for a foreign-policy president

The Americas

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63 Indonesia’s fresh start Jokowi will struggle to get things done 64 A choice of sorts Myanmar goes to the polls

OPERATIONS DIRECTOR:

Jamie Credland PUBLISHER:

Nick Blunden

Asia

Foreign entanglements Barack Obama’s Asian opportunity, page 43. Vladimir Putin succeeds in uniting the European Union’s leaders, for now, page 97; the Russian question sits heavily in the EU intray, page 98. Germany reconsiders its own pacifist attitudes, page 100, as calls for intervention in the Middle East grow louder, page 79. But the return of nationalism is bad news for international co-operation, page 92.

China 75 Ever more muscle Slower growth, rising power 76 A hunger for better services The Magic Kingdom meets the Middle Kingdom 78 The number to watch Prepare for a lower growth target

Middle East and Africa 79 The state of jihadism Western intervention in the wake of the breakdown of Arab states 80 Kurdish calculus A many-sided equation 81 It’s not all bad The Middle East’s bright spots 82 High stakes in Iran Deal or no deal?

82 Ebola’s long legacy The cost won’t just be in lives 83 The coming African debt crisis A worrying build-up of borrowing 84 The rise of Africacapitalism Tony Elumelu on African entrepreneurs

Crisis response Ebola’s cost won’t just be in lives, page 82; politicians should overreact to the disease, page 27. China, where growth is slowing, page 76, and India, where Narendra Modi has work to do, page 65, should take leading roles in debates on a climate-change treaty, page 85. The UN sets new development goals, pages 87, and UNESCO decides if the Great Barrier Reef is in danger, page 72.

International 85 Opinion of climate A climate treaty of sorts will be signed 86 Twenty-fourteen hindsight Our best and worst predictions 87 Goals, goals, goals Setting new development targets 88 Unfinished business Hillary Rodham Clinton on closing the gender gap 89 Yoga stretches up Plentiful pranayama 89 A trio of World Cups Cricket, rugby and women’s football 90 Still on the eve of destruction Obama’s forlorn attempt at a nuclearweapons-free world 92 Nationalism is back Bad news for international co-operation 93 Great expectations Bill Gates on making progress against poverty

Vox populi

s

Editorial close: November 5th 2014

57 The hangover Latin America after the commodity boom 58 Seconds out, Round One Competition heats up for Mexican oil 59 Justin time Another Trudeau to lead Canada 60 The politics of inclusion Michelle Bachelet on development

65 Action man Can Narendra Modi keep his promises?

66 India’s university challenge Quantity without quality 68 Safety in numbers ASEAN’s new economic community 70 Coming to a crunch Time is running out for Abenomics 72 On Australia’s radar From Gallipoli to China 72 Great Barrier Grief Judgment day for the Reef 74 Getting down to business Joko Widodo on reforming Indonesia

9

Democracy is in trouble, page 19, as Britons go to the polls, page 105 (though they won’t get our dream government, page 37).

So do Canadians, page 59, and Burmese, page 64. Local elections in America offer hints about the 2016 presidential race, page 44. Hillary Clinton, a likely candidate, calls for a push on women’s rights, page 88.

Contents

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THE WORLD IN 2015

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Europe

Those were the days It has been 150 years since Alice fell down a rabbit hole, page 156, 100 since the Gallipoli landings, page 72, 50 since Singapore gained independence, page 136, and one since our last set of predictions, page 86. And it’s the last days for the Land Rover Defender, page 107, the population pyramid, page 96, and escapism, page 158.

change

Fasten your seat belts

2007

2008

2009

2010

2011

A bumpy ride ahead for business, page 28, as volatility returns to the financial markets, page 139. Three places that might set off panic, page 140. Monetary policy is heading in different directions, page 24. Expect more pressure from activist investors, page 146, but less pressure to stay late at the office, page 133.

2012

Britain2014

2013

2015

Source: Chicago Board Options Exchange 105 Coalition, the sequel Hung Parliament 106 After the referendum What happens next for Scotland 107 Italian lessons Friendly advice for 2015 107 Land Rover Defender, RIP The end of the line for the boneshaker 108 Plane thinking Where to fit London’s new airport 108 Keeping the lights on Britain will avoid a blackout—just 109 Entente frugale François Heisbourg on Britain’s relations with France

The world in numbers

Back to the future After 800 years, a second Magna Carta, for the internet age, page 36.

Silicon Valley rediscovers hardware, page 50. Phones become mindreaders, page 127, and virtual reality gets real, page 130. Technology transforms the way people drive, page 137. Hydrogen-powered cars hit the road, page 134, while planes, boats and cars seek new world records, page 147. And a space probe reaches Pluto, page 149.

133 The return of nine-to-five No more eight-till-late 134 Foot on the gas Hydrogen-powered cars hit the road 135 Adapter and verse Print books thrive 135 Lights, camera, fraction!

Hollywood tightens its belt 136 Happy birthday, Singapore The best place to do business 137 It’s time for cars to talk Mary Barra on the cars of the future

Finance 97 Living with a bear What Europe must do about Russia 98 Brussels in-tray Big tests for the new EU team 99 France’s political marathon And a belated dash for economic reform 100 Italy exposed Its delights—and difficulties—on show 100 Power v piffle Germany’s debate about its role in the world 101 Et tu, Berlin Property booms 102 Unfinished business The pain continues in Spain 104 The plan for Italy Matteo Renzi on getting growth

ndex (Vix)

2006

94 Landmarks of the year Charting a changing world 96 The world reshaped The end of the population pyramid

1 11 Forecasts for 81 countries 121 Forecasts for 14 industries

Business 127 When smart becomes spooky Phones turn into mind-readers 128 Mi too A Chinese superbrand goes global 129 Payback time Labour will cost more 130 Seeing and believing Virtual reality gets real 132 Property on the move Pete Flint on transforming the property industry

139 A stormier time Volatility is back 140 Crisis? What crisis?

Three places that could cause panic 141 A limited lift-off Where interest rates will rise—and where they won’t 142 Saints and sinners Bankers try to regain trust 143 Bank rupture Europeans should use capital markets more 144 Perfectly formed Small banks punch above their weight 144 Tanking The consequences of cheaper oil 145 Yield of dreams Investors will need to be creative 146 An activist manifesto Carl Icahn on making boards accountable

Science and technology 147 Going for it The quest for air, land and water records 148 Death in the far south South Georgia takes on its rats 149 Year of the dwarf Strange new worlds come into view 150 Genes, unzipped So many uses for genetic data 151 Small steps, big change Alastair Reynolds on science fiction becoming fact

Culture 153 The Louvre comes to the Gulf Welcome to a brand -new culture hub 154 Dedicated followers of fashion Museums turn to the catwalk 155 Paperless cartoons The drawing pen is mightier than the sword 156 Grins galore Alice’s 150th birthday party 157 The future of magic David Blaine on illusions and the mind

Obituary 158 Farewell to escapsim There will be no hiding place from technology

PHOTOGRAPHIC SOURCES © akg-images. © Alamy: AF Archive, Yao Dawei/ Xinhua, EPA/Alessandro Di Meo, EPA/Alexey Nikolsky, FLPA, Robert Fried, Susana Guzman, Tim Hill, Brian Jackson, Mark A Johnson, The Protected Art Archive, Walker Art Library, White House Photo, Paul Wishart/Zoonar GmbH. © AP/PA/Press Association Images: Nick Ansell, Saurabh Das, Danny Lawson, Vahid Salemi, Rebecca Vassie, Barbara Bella. © Matt Bors. © Corbis: Partha Sarkar/Xinhua Press. © General Motors. © Getty Images: Jason Alden/Bloomberg, H F Davis, Carl de Souza/AFP, Chris Jackson, Miguel Medina/ AFP, Cindy Ord, Jewel Samad/AFP, Lisa Maree Williams.© Louvre Abu Dhabi. © Mark Mawson. Nick Merrill. © Musée du Louvre/ RMN/Angèle Dequier. © QWSR Ltd. © Sabir Nazar. © The Picture Desk/Art Archive/CCI. Andreas Poupoutsis and Alexandra Wolf. Courtesy of Productions Vox Populi 1 inc. © Reuters: Akintunde Akinieye, Faisal Al Nasser, Carlo Allegri, Eloy Alonso, Martin Bureau, Andreea Campeanu, Remo Casilli, Neil Chatterjee, China Daily, Navesh Chitrakar, Kevork Djansezian, Fred Dufour, Regis Duvignau, Albert Gea, Yves Herman, Filip Klimaszewski, Stephen Lam, Jason Lee, Francois Lenoir, Maks Levin, Luke MacGregor, Raouf Mahmoud, Ueslei Marcelino, Toby Melville, Hadi Mizban, Anindito Mukherjee, Daniel Munoz, Gustau Nacarino, Rebecca Naden, Alexander Natruskin, Phil Noble, Michaela Rehle, Dan Riedlhuber, Maxim Shemetov, Yuya Shino, Edgar Su, US Air Force, Ander Wiklund. Rex Features: © Columbia Pictures/ Everett Collection, © IFC Films/Everett Collection. © Shutterstock: A-R-T, Francois Loubser, Madlen, Sergey Nivens. Siemens NX. © Solar Impulse/Revillard/ Rezo.ch. Angus Suparto.

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From the editor

15

The World in

2015

O

ptimism is in short supply as thoughts turn to 2015. Two grand gatherings towards the end of the year, the un’s meeting to set “sustainable development goals” and a get-together in Paris to combat climate change, will show whether countries can agree on ways to tackle some of the planet’s biggest issues. But for much of 2015 it will be the world’s divisions—economic, political and cultural—that will draw most attention.

The West’s economies are coming to a fork in the road. America and Britain, now moving ahead at a decent pace, are heading towards higher interest rates courtesy of the Federal Reserve and the Bank of England; the euro zone and Japan, in danger of slipping into recession and deflation, will take the

It will be the world’s divisions—economic, political and cultural— that draw most attention opposite path of more monetary stimulus. That will make for volatility in financial markets. Fed rate rises, the troubles of the euro zone’s laggards and worries about Chinese growth all have the potential to cause periods of panic.

In 2015 international co-operation on many issues will suffer from the strength of nationalism. The West will argue over how robustly to respond to a rising China and a rogue Russia. Within America, political divisions will be even more glaring than before as a Republican-controlled Congress confronts President Barack Obama.

Culturally, a particularly striking divide will be evident in attitudes to gays. Half the world will be more liberal than ever. Elsewhere, restrictions will spread.

The noise surrounding these divisions will stop many people noticing progress in all sorts of areas in 2015. The world economy should grow a bit faster than it did in 2014, led by America. The West’s belated

response to the outbreak of Ebola and the rise of Islamic State should begin to have an impact. A transPacific free-trade deal is within reach. So is a peace agreement between Colombia’s government and the farc guerrillas; with luck, that will end more than half a century of fighting.

At times the progress in technology will be almost spooky, as smartphones seem to read their owners’ minds, cheap sequencing reads genomes and cars accelerate towards intelligent communication. In Silicon Valley, wearable technology will be all the rage. The reach of technology prompts Ann Wroe, The Economist’s obituaries editor, to bid farewell to escapism. Yet Lucy Kellaway of the Financial Times cheerfully expects a return to nine-to-five at the office.

Not everyone can agree on what the future will hold or what will matter most; the range of voices in The World in 2015 helps to make it a rich read.

Politicians outline plans for reforms (Matteo Renzi for Italy, Joko Widodo for Indonesia). Others focus on hopes for human development (Hillary Clinton for women, Bill Gates for children and the world’s poorest). Carl Icahn offers thoughts for investors.

David Blaine reassures us that magic will still work in an age when the secret behind almost any trick is only a Google search away.

Indeed, there will be magic moments to suit all tastes in the year ahead. Plucky teams will prepare to break world records on land, on water and in the air.

Sports fans can look forward to a trio of World Cups (cricket, rugby and women’s football). Cinema-goers will flock to a new Bond movie, a Star Wars sequel and the film adaptation of “Fifty Shades of Grey”.

Film buffs will recall that 2015 was the year to which the heroes travelled forward in “Back to the Future Part II”. No time-travel will happen in the next 12 months, but an extraordinary space voyage will capture the imagination: after travelling for nearly nine years and across 3 billion miles, nasa’s New Horizons spacecraft will reach Pluto in July. For all its divisions, the world will have a chance to join together in wonder.

Daniel Franklin Editor, The World in 2015

19

The World in

2015

The West’s malaise Worries about democracy will resurface in 2015, says John Micklethwait

O

John Micklethwait: editor-in-chief, The Economist

s

f all the predictions to be made about 2015, none seems in May with fewer than 200,000. In 2015 François Hollande may safer than the idea that across the great democracies peo- well break his own record for French presidential unpopularity, ple will feel deeply let down by those who lead them. In with his 13% approval rating descending into single digits. MaBritain, Spain and Canada, elections will give voters a chance to rine Le Pen of the National Front will be a big gainer. unleash some of those frustrations—perhaps to the advantage Second, no matter how much moderate Western politicians of mavericks like Nigel Farage and his United Kingdom Inde- might scorn populists like Ms Le Pen and Mr Expect a pendence Party. America’s voters, having vented their fury in the Farage, the democratic establishment has 2014 mid-terms, now face still more gridlock, with a Republican proved unequal to the challenges of the day. lot of talk Congress at loggerheads with a Democratic president. At least This will seem especially clear in Europe in about a Americans will have an economic recovery to cheer about. In 2015, as the euro crisis enters its sixth year, failure of the recession-stalked European Union, where voters angrily de- the continent’s leaders having flunked endmanded change in the parliamentary elections of 2014 only to less opportunities to deal with it. You can ex- leadership get very little, the mood will be darker. And the same may be true pect a lot of talk about a failure of leadership in Japan, where 2015 could be the year when voters run out of in 2015, which will be the 50th anniversary of Winston Churchpatience with Abenomics. ill’s death and the 200th anniversary of Otto von “So what?” you might argue: Western politiBismarck’s birth. cians have always been unloved, and voters have America’s leaders have done less harm than rarely felt satisfied. But that ignores three things Europe’s but they still opt for partisan pointwhich will lead to a lot of soul-searching about scoring over sound policymaking. The 114th the state of democracy in 2015.

Congress, which will gather in Washington, dc, First, the levels of unpopularity and disenin January 2015, may well set a new record for gagement in the West have now risen to staglegislative inaction, with Republicans drafting gering levels. Since 2004 a clear majority of bills that they know Barack Obama will veto.

Americans have told Gallup that they are dissatThe dysfunction in Brussels and Washingisfied with the way they are governed, with the ton will be all the more noticeable because of numbers of those fed-up several times climbthe third worry about Western democracy: ing above 80% (higher than during Watergate). there is now an Asian alternative. China’s verBritain’s Conservative Party, one of the West’s sion of autocratic modernisation claims to be most successful political machines, had 3m better at long-term planning. The poor in China have surged forward much more quickly than members in the 1950s; it will fight the election Leadership personified

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their counterparts in democratic India; hence the enthusiasm of India’s prime minister, Narendra Modi, to learn from China.

China will certainly have problems in 2015—especially with an emerging middle class chafing at corruption, poor services and the lack of freedom. But even pro-democracy protesters in Hong Kong must look at the West and wonder whether democracy can deliver good government.

So the West’s malaise is dangerous. The failure of democracies to get things done will lead to questions about other features of an open society, such as freedom of the press, free markets and relatively open borders. Populists will keep on demanding easy answers to complicated questions. On the right, immigrants will be the scapegoats and politicians will play with nationalism.

For the left, the redistribution of wealth will be a big theme.

Summoning the spirit of Churchill

World disorder Don’t expect too much from a belated Western response, warns Edward Carr

“O

rder! Order!” Every Wednesday in Britain’s Parliament the thin, strangulated cry of the Speaker rises above the din of Prime Minister’s Questions. Rarely does this vocal stamping of the foot succeed in restoring mps to reasoned debate for long. In the same way, foreign-policy pundits have been pleading for something they call “world order”. The international fabric is fraying, they fear. Whether it is mayhem in the Middle East, Russia’s seizure of parts of Ukraine, China’s pushy tactics in its extended coastal waters or the epidemic of Ebola in west Africa, the world is coming apart at the seams. In 2015 the call for order will be partly met but, as with Mr Speaker’s exertions, the sense of impending chaos will endure.

Just now the world seems uncommonly hard to manage.

Citizens are fed up with the elites that govern them: Ukrainians rose up against their country’s kleptomaniac nomenklatura, students occupied Central district in Hong Kong and Europe’s populists, such as France’s National Front and the uk Independence Party, are plotting to overthrow the technocrats in Brussels. The jihadists of Islamic State (is) threaten to wreak havoc in the Middle East and beyond. Whereas democratic governments seem weak and vacillating, authoritarians are busy arresting their opponents, muzzling their media and invading their neighbours. You know something is wrong when Henry Kissinger, the gravel-voiced elder of foreign-policy pundits, writes a book called “World Order” warning that “chaos threatens”.

Part of the difficulty the world faces in reacting to these developments is that expectations of what governments can achieve in foreign policy run far ahead of what is feasible. After the collapse of the Soviet Union, American power was untrammelled. Far from declaring victory and going home, America became more involved than ever, across the globe. For a while, intervention seemed just a question of willpower and shrewd policies. But the past decade has shown up that view as naive.

The world is messy. As they say, success in politics is not perfection; it is going from failure to failure without loss of enthusiasm.

Look on the bright side Armed with more realistic expectations, optimists can point to three reasons for hoping for something better in 2015. The first is that democracies take time to respond to new threats and dangers, but when they do they tend to be committed to their new Edward Carr: foreign editor, The Economist

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Against this toxic background, two great debates should begin.

One is about the reform of the state. In terms of productivity and its use of technology, the public sector in the West looks a generation behind the private sector. Western governments have added over $13 trillion of debt since the credit crunch and with ever older populations demanding ever more health care and pensions, many are running out of money—and, as Churchill put it, “when we run out of money, we have to start thinking.”

As the debate about the public sector spreads even to countries like France in 2015, Western politicians may find an echo in Asia. Not only are some of the smallest, most efficient states, notably Singapore, to be found outside the West. The new emerging powers—China, Indonesia, India—are also looking to build up their welfare states. They are unlikely to want to copy the West’s bloated Leviathans.

The other debate is to do with democracy itself. Like an old fighter that got too used to winning contests, Western democracy has got a little bit paunchy. In America, there is nothing particularly democratic about the ascent of money politics, the arcane blocking procedures of Congress or the gerrymandering of district boundaries. Indeed, they are all reminiscent of the rotten boroughs of 18th-century England that infuriated the Founding Fathers. The elites in the European Union, always wary of popular opinion, have slipped into the habit of trying to push things through the back door; the tragicomedy of the European Parliament is more a mask than a solution.

Democracy is the worst system of government except for the others: that is another of the torrent of Churchillian quotations you can expect to hear in the year ahead. He was right: democracy is still more flexible and fair than any alternative. But that is not an excuse for failing to tackle its imperfections. And 2015 is a good year to start. n

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THE WORLD IN 2015

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No end of trouble s

policies. There is much to lament in the delay before the world took Ebola seriously—and many tens of thousands might die before the disease is brought under control. Disappointing, too, has been European reluctance to impose sanctions on Russia for its annexation of Crimea and trouble-making in parts of eastern Ukraine. But now that these tragedies have fought their way on to the agenda, governments are acting.

The second reason to temper pessimism is adaptation. In post-1945 Europe Germans were always supporters of engagement with Russia, but a newly assertive Germany has come to see Russia as a threat. Similarly, in 2015 China and Japan will begin to put aside their differences. Not because either is willing to give ground in their long- Just now the running territorial dispute over some rocky world seems outcrops in the East China Sea, but because both need the economic boost from sus- uncommonly hard to tained trade and investment between them.

And the third reason concerns Amermanage ica. Pundits have been critical of Barack Obama, with some saying that the president is weak and distracted, and others that the United States is falling into decline.

The charges distort Mr Obama’s thinking and vastly overstate America’s loss of power. The president who ordered special forces into Pakistan to seize Osama bin Laden is not a defeatist, and the armed forces that carried out the mission have not suddenly become weak. But in the past couple of years Mr Obama has put forward the argument that America cannot act alone as the world’s policeman: countries that benefit from the Pax

Americana, blessed by open trade and the rule of law (however imperfect), and that share a broadly Western view of human rights have a responsibility to help the United States keep order.

Analytically, that argument has much going for it. Yet politically it has failed. When Mr Obama advertises the limits to his country’s power, Americans hear defeatism, allies detect wavering American commitment to their security and America’s rivals, in Moscow and Beijing, spot a chance to meddle.

The lesson for Mr Obama is that, because foreign policy abhors a vacuum, he has to fill the role of leader. That is what he has begun to do in the Middle East, by forming a coalition against is—though even then his visible reluctance to use special forces to spot targets and train Iraqi troops and Syrian militias has undermined the mission. Coalition-building is hard work, but Mr Obama needs to pivot against his rhetoric of the past two years: America gets others to bear a greater burden not when it steps back, but when it engages with the world’s problems.

The lesson for other countries is harder still. Europeans are absorbed in the psychodrama of eu stagnation. Many of the larger emerging powers, such as India, Brazil and South Africa, both ride on the coat-tails of Uncle Sam and also sneer at him, if only because they see the diminishment of the global superpower as a boost to their own regional influence. But this combination of buck-passing and local ambition is highly destructive.

When global economic and political collaboration suffers— whether it is because of war, pestilence or simple neglect—all these countries suffer, too. If 2015 is to count as a big improvement, America must have help. n

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0.05

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THE WORLD IN 2015

Transatlantic gap The Fed’s main interest rate minus the ECB’s at year-end, percentage points 0.95 0.05

0

Parting of the ways Policy in the world’s main regions will head in different directions, forecasts Leo Abruzzese

C

entral banks have a long history of causing (and curing) recessions. In 2015 the world’s most important money masters will be on starkly different paths, which will make for an unsettled year. On balance, the global economy will grow slightly faster than it did in 2014 as businesses, especially in America and Asia, create more jobs and consumers step up spending. But with markets worried for much of the year about shifts in interest rates—courtesy of central bankers—the risk of a nasty shock is uncomfortably high.

Rarely have the world’s big central banks pursued such divergent policies. America’s Federal Reserve and the Bank of England will raise their main lending rates in 2015 despite worries in financial markets and fears of a slowdown elsewhere. The European Central Bank (ecb), by contrast, will be doling out cash to euro-zone banks and businesses in the hope of preventing another recession, and to fend off deflation. The Bank of Japan (boj) is in the midst of its own record-breaking stimulus plan, although the economy has been on something of a rollercoaster, leaving the bank unsure of its next steps. The People’s Bank of China, whose global influence is puny compared with that of the big four, is also in a quandary, caught between the urge to stimulate a slowing economy—it will inject more cash into China’s commercial banks—and the need to tame a debtfuelled financial sector.

The different paths reflect different fortunes. America’s economic recovery at last looks durable. Save for a wintry contraction in early 2014, the economy has been growing at an annual pace of more than 3% for the past 18 months, above its trend rate. American employers created more than 2.5m new jobs in 2014, the most in eight years, and should approach that level again in 2015. Housing has not completely bounced back from the 2008-09 crash, but more improvements are coming. America will lead the advanced economies in 2015, growing by around 3%, its best showing in a decade. Janet Yellen, the Fed’s doveish chief, will not boost interest rates much until wages rise faster.

That too will begin to happen in 2015.

Britain’s economy is also on the mend. Although the government remains committed to austerity, manufacturing and service industries have been doing well, especially—this is Britain, after all—the property and finance sectors. Consumers are still groaning with debt and vulnerable to higher borrowing costs, Leo Abruzzese: global forecasting director, Economist Intelligence Unit

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2012

2013

2014*

2015*

*Forecast Source: Economist Intelligence Unit

so the Bank of England will not want to raise rates too far or too fast. Spending will be helped by better job growth, more bank credit and the wealth effects (for some) of higher house prices.

Growth should reach 2.5%.

The euro zone’s goals are more modest: to avoid a third recession in seven years. It will succeed—just barely—but faces another disappointing year. The spectre of deflation hangs over Europe: consumer prices will rise by little more than 1%, if that. Germany, Europe’s bulwark, is looking surprisingly fragile as ructions in Russia depress business sentiment at home. The ecb is trapped between the splash-the-cash sentiment of Mario Draghi, its president, and the curmudgeonly Germans, who have never seen a stimulus plan they liked. Indeed, if Europe’s woes infect America and Britain, their central banks may yet decide to keep rates where they are.

Bumpier but brighter When interest rates eventually rise in America, money will flow back there, and away from developing economies that still need it. Periodic, though short-lived, panics are on the cards in 2015 as asset managers pull their money out of places like Turkey and South Africa and send it to America and Britain. As the Fed’s official interest rate rises and the ecb’s stays near zero, the investment gap in favour of American assets will widen. This will push the dollar higher, restoring some Emerging Asia more of the lustre it lost during the worst of the recent recession. will still be Asia’s giants will struggle to find the fastesta clear path in 2015. Japan’s battle growing region against deflation seems to be working, though most of the recent price rises have come from an increase in the consumption tax in April 2014. The tax rises—another is planned for October 2015—are a sign of Japan’s commitment to start bringing down its mountain of debt, but they pose a risk to the country’s fragile recovery. As China veers between stimulus and squeeze, India wants an acceleration of growth—though not of inflation.

Emerging Asia will still be the fastest-growing region, and many other countries will see a bit more growth than in 2014.

But the threat of contagion from Europe and interest-rate jitters will make for an unusually risky ride in 2015.n

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THE WORLD IN 2015

Lessons of a plague The Ebola outbreak should change political attitudes to epidemics, says Geoffrey Carr

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oliticians often talk of waging war on this or that disease.

The Ebola epidemic that emerged in west Africa in 2014 will ensure that 2015 is a year when they mean it. Besides dealing with Ebola directly, there will be lots of talk, and at least some action, about building a better system to detect emerging epidemics, and to suppress those that do break out. After a decade off the table, the idea that infectious diseases are a security threat, as well as a humanitarian one, will be back on it.

This idea comes and goes. The last time it came was with aids. Though detected first in America, the virus that causes it, hiv, was rapidly traced to Africa. At first, aids was a threat to rich world and poor world alike. That, and the fact that it cut a swathe through Africa’s professional classes and thus threatened the continent’s economic development, resulted in a wellfinanced and reasonably successful effort to deal with it.

Success, though, meant that aids dropped out of the headlines. Subsequent threats (sars and various strains of influenza) fizzled. So political attention turned away from infection. It has taken Ebola to bring it back again.

Fever pitch The first aim of rich-country politicians will be to keep Ebola contained in the relatively small part of west Africa it now infects. That, of course, is what most concerns those politicians’ electorates, but it also makes good epidemiological sense. Isolated cases in North America or Europe should be reasonably simple to contain. They will be stamped on by the full force of relatively well-organised health systems. But if the virus, which relies on physical contact between people to spread, were to take hold in a crowded country such as Nigeria, let alone India, the result could be catastrophic. More closed borders and checks on travellers are therefore a near-certainty.

So, to use a military metaphor, are boots on the ground—for dealing with the epidemic where it is already rampant means breaking the pattern of infection by isolating and treating the infected. Doctors and nurses from the outside world can help in the short term, as can non-medical pairs of hands (most probably foreign troops) to do the heavy lifting. The worse things get, the more of these will be needed, and the more like a real war the response will look. But once the enemy (ie, the virus) is defeated, politicians should pursue the military analogy a little further.

Geoffrey Carr: science editor, The Economist

27

As recent events in the Middle East have shown, it is often unwise at the end of a war just to declare victory and go home.

Building something lasting out of the rubble means you are less likely to have to return. In the case of Africa and disease, that means building better public-health systems and making sure the countries they are in have both the human and the financial wherewithal to keep them running. It is no coincidence that Ebola emerged in places—Guinea, Liberia and Sierra Leone— whose health systems are a joke.

Besides helping people in immediate need, health systems act as early-warning beacons for emerging epidemics. But for an early-warning system to work, people have to believe it. And here, perhaps, is the final thing that should More closed happen in 2015: a shift of attitude. Politiand also their electorates, need to borders and cians, examine their own behaviour more carechecks on fully, and to be willing to forgive well-intentioned judgments that turn out, with travellers to be wrong. are a near- hindsight, It is easy to tease people for crying certainty “wolf ” when no wolf turns up, as happened in Britain in the case of the human version of “mad cow” disease. Ebola and similar haemorrhagic fevers have arisen several times in the past few decades, provoking global worries while having only local consequences. But consider what would have happened if any of these had become rampant. Knowing when to press the alarm button is a perennial problem, but both public and politicians need to accept that until the nature of a threat is clear, over-reaction is a safer response than under-reaction. A few red faces are surely better than a host of graves. n

On the front line in Sierra Leone

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Leaders

Disruption from above and below Zanny Minton Beddoes predicts a year of instability for global business

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irtually every firm in every industry is being shaken up by the digital revolution. No chief executive can ignore the onslaught of mobile computing, big data, artificial intelligence and the like. These new technologies offer the promise of huge efficiency gains, but also the threat of being walloped by some upstart from Silicon Valley.

So far, this turbulence has taken place against an unusually placid backdrop. The world economy has been sluggish, but relatively stable: global gdp has grown at almost exactly the same (slow) pace of around 3% every year since 2012. Financial-market volatility has been low, and share prices have mostly marched upwards.

Slow growth is not normally good news for business. But, oddly, the broad economic stability has helped counter the turmoil from technology. Rather than make difficult decisions about new capital spending in fast-changing industries, ceos have ploughed their profits into buying back their own shares. In America, the pace of such buybacks hit a record annual rate of some $500 billion in mid-2014. Buoyant profits have also boosted mergers and acquisitions (m&a). The value of such deals is likely to have exceeded $3 trillion in 2014, as firms from media to health care try to protect their positions amid the tech tumult (and, in some American cases, cut their tax bills) by buying each other.

The double squeeze In 2015 this complementarity will come to an end. Bosses will no longer be able to count on financial-market stability as a buffer against disruption in their industries, because the macro-environment will become more volatile even as the microeconomic upheaval gets worse.

The digital revolution will gain pace. Some 4.5 billion people will have a smartphone by the end of 2016, up from 2.8 billion today. Half of all the money that firms spend on information Zanny Minton Beddoes: business affairs editor, The Economist

THE WORLD IN 2015

technology will be spent on cloud computing by 2016. Ever more jobs will be displaced, or remade. Uber, a San Francisco firm that is disrupting taxi services in cities across the globe, has 7,000 drivers in London today; by early 2016 it expects to have 42,000.

Meanwhile businesses will also face disruption of a more conventional kind in 2015, as share prices, interest rates and currencies all become more volatile. One source of instability will be the growth gap: America and Britain will enter 2015 with their economies in relatively good shape and their central bankers hoping to start raising interest rates. The euro area, Japan and much of the emerging world will start 2015 with growth slow or even negative. Both the European Central Bank and the Bank of Japan are likely to loosen monetary policy further in 2015. This growth and interest-rate gap will push the dollar higher against the yen and the euro. At some point in 2015 the dollar-euro exchange rate will hit parity.

A stronger dollar and slower growth in the emerging world will also hit share prices. (The firms in America’s s&p 500 make 40% of their profits abroad.) And as confidence falters, the pace of buybacks and m&a will slow. Financial markets will be jittery. Rather than shrug off shocks, as they have in recent years, investors will react strongly to bad news.

Not all firms will be affected equally. Those in emerging economies will have a particularly hard year, caught in the double vice of slower growth and a stronger dollar. They will also be squeezed by technology, as more and more tasks are automated, reducing the relative advantage of cheap labour.

Companies in the euro zone are in for a rough time, too. Politicians there will bicker and do little even as the economy flirts with recession and deflation. Regulators will hamper firms’ efforts to keep up with the digital revolution. There will be shamefully little progress towards creating a single market in digital services. Instead, The dollar-euro European competition authorities will exchange rate crack down on big technology firms will hit parity with heavy-handed investigations.

Businesses have not had an easy ride for the past few years. Steering companies through a technological revolution is testing, even when financial markets are kind. But steering them through simultaneous disruption from above and below is much harder still. Get ready for the toughest year for global business since the recession of 2008-09. n

Leaders

THE WORLD IN 2015

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Splitting images Plenty of countries have regions eager to secede. Discourage them, urges John Grimond

T

he centenary of the Sykes-Picot agreement, which carved up the non-Arabian-peninsular provinces of the Ottoman empire between Britain and France, does not fall until 2016, but anyone wanting to celebrate it would be wise to do so in 2015: it may be in tatters before it hits 100. Whether or not the Islamic State that Sunni jihadists want to establish in the Levant endures, a redrawing of borders in that part of the Arab world is surely on the cards. Elsewhere others are agitating for new countries: in eastern Ukraine, northern Spain, Western Sahara, Myanmar and so on. The Scots’ attempt at secession in 2014 may have failed, but it has not put an end to the vogue for the division and multiplication of new nation-states that has helped to swell the un’s membership from 51 countries in 1945 to 193 today.

True, the Scottish vote may have served to chill the ardour of separatists in some rich countries. But it won’t put off separatist Moro in the Philippines or Uighurs in China. It will not bother the would-be state-makers of eastern Ukraine and Islamic State.

These people do not take their cue from democrats like the Scots.

In the grand If altered borders and new states sweep of emerge in the Middle East (a shrunken Syria, a country for the Kurds?), the history, most changes may superficially resemble the countries are reordering in Africa and Asia when the transitory colonial powers upped sticks after the second world war. But the current turmoil in the Middle East is not simply a messy expression of self-determination: much of it is propelled by religious zeal. Whether the democratic impulses behind the Arab spring will predominate over the religious impulses of Islamism is far from clear.

The war in eastern Ukraine may also look like a run-of-themill attempt at a post-colonial redrawing of borders. It isn’t: the imperial power, Russia, is promoting the secession of a neighbouring state’s territory. Although Ukraine’s insubstantial statehood makes it particularly susceptible to outside interference, the main source of its troubles is the diminished superpower next door. If Russia thinks it can get away with its Ukrainian land-grabs, other ex-Soviet neighbours may be at risk in 2015.

Democratic countries that wish to preserve their unity would be wise to devolve and decentralise. Britain has been slow to learn this lesson. It, like Spain and some other multinational John Grimond: contributing editor, The Economist

polities, faces genuine difficulties in satisfying the demands of some groups for more autonomy without foisting on others less ardent a degree of self-government they do not want. Successful, though fissiparous, countries may have to master the art of providing asymmetric solutions, as well as making plain the conditions of any separation. Canada, which has passed a Clarity Act and given Quebec greater powers than other provinces (over immigration, for example), shows this can be done.

Breaking up is hard to do Divorce is nearly always painful, a fact that should be recognised by all parties in any separation. A region long oppressed by an autocratic central power may well owe nothing to that power.

But in a democracy, where secession is likely to be regretted even if tolerated, the abandoned citizens may feel hard done by, especially if their union is broken without their consent.

Even in Canada some fear that Quebec’s secession would lead to other provinces following suit, much as the departure of an amusing guest can lead to the break-up of a boring party.

A successful state is one in which the whole is greater than the sum of its parts, and the majority of its citizens may feel theirs is such a state, even if a minority want out. But let them go and the calculation may no longer work. Take Yugoslavia. Once Slovenia had secured its independence, the Yugoslav federation inevitably, and bloodily, fell apart.

States exist to serve their citizens, not vice versa, and sometimes an ethnic or national or other kind of group may have good reason to secede. It is a matter of judgment as to what entity has the right to do this, and how vigorously it may be resisted. Few people would argue that any self-styled nation, be it Long Island, the 16th arrondissement of Paris or mineral-rich Western Australia, should be able to set up as an independent state. Any part of China trying to abandon the Middle Kingdom would receive no mercy: Chinese nationalism does not allow it.

Nationalism, alas, is the most enduring of the -isms that begat so many wars in the 20th century. It is high time to dampen it, or at least to channel it into benign activities like ping-pong. In the sweep of history, most countries are transitory.

Fatherlands, motherlands, homelands—most tend in time to fade away. Both fugitives and stayers would do well to take note, and pay less attention to their national flags and folderols. n

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Pride and prejudice The West should step up efforts to defend gay rights abroad, argues Andrew Miller

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here has never been a better time to be gay. Dreams of equality that once seemed quixotic have been realised across much of the world—and in 2015 these gains will spread still further. In only a few years homophobia has been relegated from a legally buttressed norm to a widely condemned prejudice. At least, these are the best times to be gay if you live in London, Madrid, Auckland or San Francisco. In many other parts of the world the plight of homosexuals is dire, even deteriorating. These two contradictory trends are connected, and in 2015 Western leaders should confront the retrograde one as well as consolidating the achievements.

The two main regions in which gay rights have suffered renewed attacks are Africa and the former Soviet Union.

Uganda passed a law that stipulated life imprisonment for “aggravated” homosexuality; a court struck it down on a technicality, but some Ugandan parliamentarians have pledged to revive it.

Nigeria also passed a new anti-gay law in 2014; Kenya may follow suit. In all these places, homosexual sex is already a crime, as it is in much of the continent. Message to Museveni In Russia, Vladimir Putin approved a bill that outlaws the “promotion” of homosexuality, a stigmatising move that is being emulated in other ex-Soviet countries: Kyrgyzstan may be next. In both regions these punitive measures have incited a surge in violence, extortion and harassment. Meanwhile, in India, a court has in effect re-criminalPunitive ised homosexuality. In much of the Muslim world and parts of the Caribbean, too, the measures oppression of gays remains atrocious.

All this as same-sex marriage becomes have incited a surge in entrenched in the West, along with robust anti-discrimination laws. Colombia and harassment Australia may legalise same-sex marriage in 2015; Ireland is to hold a referendum on it; after its patchwork advance across the states, a successful challenge in America’s Sup­ reme Court looks increasingly unlikely. Yet it is not altogether a coincidence that, while gays are posing for wedding photos in

Andrew Miller: writer-at-large, The Economist

THE WORLD IN 2015

ever more countries, in others they are newly afraid for their freedom, even their lives. In some places politicians are combining homophobia with nationalism to create a noxious, hybrid populism—portraying gay rights as a Western imposition and themselves as bulwarks against encroaching foreign depravity.

In the former Soviet Union, this rhetoric draws on old, coldwar enmities; in Africa it enlists the mantras of anti-colonialism.

Propaganda warned the residents of war-torn eastern Ukraine that allying with the European Union would mean forcible mass conversions to homosexuality—a canard that would be risible were it not widely believed. Signing Uganda’s ghastly law, President Yoweri Museveni decried the “social imperialism” of Western lobbyists. This rhetoric wouldn’t wash, of course, if there were not indigenous currents of homophobia there. But cynical leaders have exploited Western reforms to stir up prejudice.

Follow the Magnitsky model As gay rights have come to be regarded as a fundamental question of justice, rather than merely a lifestyle issue, so Western governments are growing less tolerant of intolerance elsewhere—at least rhetorically. Barack Obama’s administration has been scathing about repressive laws such as Uganda’s. Yet efforts to coax such nations into a more enlightened stance face several problems.

One is that reprimands can be seized on as yet more evidence of a conspiracy to homosexualise the world—and of the demagogues’ bravery in resisting it. This is the win-win gambit of rabble-rousers everywhere: keeping quiet leaves their smears unchallenged, while criticism victimises them. That should not stop Westerners striving to protect imperilled minorities. Most gay activists in these countries would prefer them to speak up.

A bigger quandary is deciding what, beyond protests, to do.

Economic sanctions risk misfiring, by immiserating innocent people and boosting nationalists. Still, renouncing blunt economic tools need not mean doing nothing at all.

The West should adopt the model already in use for other types of human-rights abuses: that is to focus on individual perpetrators, as in the “Magnitsky Act”, which targets Russian officials implicated in offences for visa bans and asset freezes.

America has tried this approach with Uganda’s most egregious gay-haters, but in 2015 it should be used elsewhere, too, and by the European Union. That would show that the West sees the rights it upholds at home—all of them—as truly universal. n

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Leaders

June 15th 2015 is the 800th anniversary of the Magna Carta, which limited the powers of England’s king and inspired many a constitution. Ludwig Siegele adapts it to cyberspace This present charter confirms for us and our heirs in perpetuity, that the internet shall be free and open, and shall have its rights undiminished, and its liberties unimpaired. To all free people of our virtual realm we have also granted, for us and our heirs for ever, all the liberties written out below.

No “scutage” or “aid” on data and networks, even in Bitcoin or Dogecoin, may be levied in our realm without its general consent.

To obtain the general consent of the digital realm for the assessment of an “aid” or a “scutage”, we will cause the Cardinal of Cupertino, the Archbishop of Armonk, the elders of Herzliya, Tech City, Berlin Mitte and Block 71 as well as all greater tech barons, but not Kim Dotcom, to be summoned individually by encrypted electronic mail.

The business appointed for the day shall go forward in accordance with the resolution of those present, even if some have appeared via dodgy Skype connections and are wearing inappropriate t-shirts.

Inquests shall be taken only in their proper cybercourt. For a trivial offence, such as posting too many selfies or subtweeting, a free man shall be fined only in proportion to the degree of his offence, and for a serious offence, such as trolling or spamming, correspondingly, but not so heavily as to deprive him of his internet connection. In the same way, a bankrupt startup shall be spared the implements of its husbandry and its ping-pong table, if it falls upon the mercy of a court.

No town or person shall be forced to build networks except those with an ancient obligation to do so. All networks shall be neutral in perpetuity.

If a free man dies intestate, his Facebook profile, World of Warcraft characters and in-game items and currency, code in GitHub and other personal data are to be distributed to his next-of-kin and friends, under the supervision of a firm’s advisory council.

No cyber-tsar or any one of the Five Eyes (being the intelligence alliance of the West) shall take data or devices from any free man without his consent. No royal official shall take virtual goods for their castle without the consent of the owner.

All intercept devices shall be removed from undersea cables, communications satellites, data centres and routing Ludwig Siegele: technology editor, The Economist

THE WORLD IN 2015

equipment, except if that device has been approved by a proper court. Prism, Echelon, XKeyscore and other such projects shall be shut down.

There shall be standard measures of connection speed throughout the realm, to ensure smooth streaming of Netflix and lag-free access to online games.

There shall also be a standard for cables and wireless connections. In particular, USB connectors shall finally be reversible.

No free man shall be seized or imprisoned, or stripped of his rights or files, or outlawed or disconnected, or be deprived of his domain name, nor will we proceed with hacking against him, or send tabloid journalists to do so, except by the lawful judgment of his peers.

All entrepreneurs may enter or leave the realm unharmed and with their laptop, smartphone or other devices untouched, and may stay or move within it for purposes of trade, free from all illegal exactions. It shall be lawful for all software developers to leave and return to our realm unharmed and without fear, even if they talk at length about agile development and scrums.

All access fees that have been given to us unjustly and against the law of the land, and all fines that we have exacted unjustly, in particular for infringement of copyright and software patents, shall be entirely remitted or the matter decided by a majority judgment of the twenty-five barons referred to below.

If we have deprived or dispossessed any net knight of land or liberties, domain names, Twitter handles or document caches without the lawful judgment of their equals, these are at once to be returned to them.

Keepers of liberties The tech barons shall elect twenty-five of their number to keep, and cause to be observed with all their might, the peace and liberties granted and confirmed to them by this charter. If we, our chief justice, our chief yahoo, our officials, or any of our servants offend in any respect against any man or woman or 13-year-old wonderkid, or transgress any of the articles of the peace or of this security, and the offence is made known to four of the said twenty-five barons, they shall send a Tweet to declare it and claim immediate redress. If we make no redress within forty days, the twenty-five barons may distrain upon and assail us in every way possible, including denial-of-service attacks and spearphishing, with the support of the whole ecosystem of the land.

Both we and the tech barons have sworn that all this shall be observed in good faith and without deceit.

Given by our hand in the area that is called Redwood Shores, between San Francisco and San Jose, on the fifteenth day of June two thousand and fifteen.

Leaders

THE WORLD IN 2015

Fantasy politics The government Britain should get in 2015— but sadly won’t, laments Joel Budd

W

hen trying to woo their countrymen to the independence cause in 2014, Scottish nationalists often promised that a separate Scotland would always get the government it voted for. In a straightforward sense, this was true: there could be no more Tory rule foisted on the Scots by English voters. But, like much of the nationalist campaign, it was a hollow promise. Not once since the second world war has any political party won over 50% of the vote in Britain. And people never get precisely the government they want; they have to choose the least unattractive of three or four options.

A more liberal But what if we could have just what we want? immigration In an optimistic spirit, The World in 2015 would like to endorse a gov- policy than any existing party ernment for Britain’s general election in May. Yet it is not an option on offer. wants All the big parties have their virtues— and serious flaws. The Conservatives obsess over foreign phantoms such as immigrants and eu bureaucrats; Labour appears only occasionally to remember that the country has a large debt to pay off; the Liberal Democrats still do not know what they want, besides power; the uk Independence Party knows precisely what it wants, but it wants precisely the wrong things. It is not hard to do better.

This perfect government would pursue an economic policy similar to that of the ConservativeLiberal Democrat coalition that took power in 2010, but it would borrow a trick from Labour. It would continue to reduce the deficit on current spending, closing it altogether by 2020. It would, however, throw this plan out if the economy greatly deteriorates, just as George Osborne, the Conservative chancellor of the exchequer, quietly junked his deficit-reduction “Plan a” when the euro zone caught fire. Like the last Labour government, ours would tolerate higher capital spending, on schools, roads and the like, to improve the economy in the long run.

The government would speed up the best reforms launched by the coalition. That means, above all, greater independence for schools.

Many have already been cut free of local-­ In our dreams Joel Budd: Britain editor, The Economist

37

authority control; the rest should be freed, too. In a similar spirit, the national Department of Education would be barred from meddling so frequently with curricula and exams. Another reform trumpeted by the coalition, the crunching of welfare benefits into a single “universal credit”, is a good idea that has been mishandled by the minister in charge, Iain Duncan Smith.

We propose to sack him and get on with it. Our ideal government would also reform the police, but not in the way the coalition has tried to do. We would get rid of elected police overseers, for whom nobody votes, and merge police forces, turning 43 into ten or so.

A red card for green belts By the end of 2015 this government would come up with a firm plan to build another airport runway near London, preferably west of Heathrow. It would spend money on new roads and railways, and would scrap hs2, a fast passenger railway from London to Leeds and Manchester, pouring funds instead into railway capacity on the fringes of big cities, where the jams are worst. Even more boldly, it would face down the nimbys and abolish the huge green belts around London and other big cities. The nice bits should become parks; the gravel pits and pony paddocks can be turned into suburbs. This would help to bring down property prices from their present mad heights.

This government would run a more liberal immigration policy than any existing party wants to: it would make it easier for companies to import workers and would staple a long-term work visa to the back of every letter of admission to a decent university. It would hold a referendum on eu membership—but argue flatly for staying in. It would decentralise power, particularly to cities like London and Manchester. Recognising Whitehall’s limitless desire to meddle, it would cut half of the remaining civil servants.

Ours would be a government of all the talents.

We would keep socially liberal, reforming Conservatives like Mr Osborne and Michael Gove, and add tough-minded Labour and Liberal Democrat folk like Ed Balls, Tristram Hunt and David Laws.

We would invite gifted but neglected politicians like Margot James, David Willetts and Liam Byrne to take on big jobs.

We would also find a decent job for David Cameron, the current prime minister—but with a caveat. Mr Cameron, an otherwise good politician, has been a poor advocate for British interests in Europe.

To stop him causing more damage, we would confiscate his passport. n

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Calendar

2015

THE WORLD IN 2015

Our selection of events around the world

JANUARY

JULY

Lithuania joins the euro; Germany takes on the presidency of the G7; Latvia starts its first sixmonth stint as the EU’s president.

Luxembourg takes over the EU’s presidency.

Britons never, never, never give up thinking about Winston Churchill, on the 50th anniversary of his death.

The world embraces National Hugging Day.

FEBRUARY

New Horizons, a NASA space probe that has travelled more than 3 billion miles since its launch in 2006, becomes the first to visit Pluto.

Another intrepid voyager, Queen Mary 2, sails from Liverpool for Halifax and Boston, to recreate the first transatlantic crossing by a Cunard liner, Britannia, 175 years earlier.

The Chinese Year of the Goat begins. Those born in goat years are said to be calm, mildmannered, creative and pessimistic.

AUGUST

The best teams in American football face off in Phoenix, Arizona, in Super Bowl XLIX.

Sailors and music-lovers head for the port of Paimpol in Brittany for the Festival du Chant de Marin, a biennial sea-shanty jamboree.

Nigeria, Africa’s most populous country, holds elections for its president and parliament.

Take your pick for the hottest tickets: for the Sambadrome, where samba schools compete at the Rio Carnival; for the film premiere of “Fifty Shades of Grey”; or for the Cricket World Cup, which starts in Australia and New Zealand.

MARCH The total solar eclipse on March 20th is the last one visible in Europe until August 2026.

The slain King Richard III of England, whose remains were uncovered in a council car park in 2012 and identified through DNA testing, is reburied in Leicester Cathedral.

The UN tries to lift spirits on World Poetry Day.

APRIL Happy ironversary: Otto von Bismarck, first chancellor of the German Empire and creator of the first modern welfare state, was born 200 years ago in Prussia.

Americans remember the end of their civil war, with Robert E. Lee’s surrender 150 years ago, as well as the assassination six days later of Abraham Lincoln.

All the world’s a big top on World Circus Day. The seventh Summit of the Americas, a gathering of leaders from across the region, is held in Panama.

MAY The Chelsea Flower Show blooms, come rain or shine.

Expo 2015 opens in Milan. Contemporary-artlovers flock to Venice for its Biennale.

Britons vote in a general election.

JUNE Leaders of the world’s rich countries gather at Schloss Elmau in the Bavarian Alps, where Angela Merkel hosts the annual G8 summit—or the G7 summit, if Russia’s president, Vladimir Putin, is not invited.

The first European games, involving the 49 Olympic nations of Europe across 20 sports, open in Baku, Azerbaijan; and the seventh FIFA Women’s World Cup kicks off in Canada.

King John of England put his seal to the Magna Carta 800 years ago, at Runnymede Meadow.

Turkey holds a general election.

Ten years after being struck by Hurricane Katrina, New Orleans takes stock of its recovery.

The World Championships in Athletics, held every two years, are the largest sporting event in Beijing’s “bird’s nest” since the 2008 0lympics. In Mar del Plata, Argentina, athletes who have undergone a successful organ transplant compete in the 20th World Transplant games.

SEPTEMBER Longest to reign over us: Queen Elizabeth II overtakes Queen Victoria (who was on the throne for 63 years, seven months and three days) as the longest-reigning British monarch.

The Rugby World Cup, held every four years, scrums down in England and Wales.

World leaders gather in New York to measure progress in fighting extreme poverty as the end-of-2015 deadline nears for achieving eight Millennium Development Goals (MDGs) set in 2000—and to lay out post-MDG targets.

OCTOBER Canadians vote in a general election.

The latest James Bond film, the 24th in the series and starring Daniel Craig, opens, as does a movie of the musical “Wicked”.

The future arrives: October 21st is the day Marty travelled forward to in “Back to the Future Part II”.

The IMF and the World Bank head south to Lima, Peru, for their annual meetings.

NOVEMBER Twin peaks: Turkey hosts the tenth G20 summit, and leaders of the 21-member AsiaPacific Economic Co-operation assemble in Manila, in the Philippines.

The battle against global warming moves to Paris, where governments gather for the latest international conference on climate change.

Aviation types do deals in the desert at the Dubai airshow, the world’s fastest-growing.

DECEMBER The World Peace Caravan retraces the steps of the Queen of Sheba from Jordan to Jerusalem.

Spain has to hold a general election by now.

Americans commemorate the 150th anniversary of the outlawing of slavery: the 13th amendment entered into force when Georgia became the 27th state to ratify it.

The illustration for the 2015 Calendar is by Kevin (“KAL”) Kallaugher, The Economist’s editorial cartoonist With the help of contributions from www.foresightnews.co.uk

THE WORLD IN 2015

Calendar

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THE WORLD IN 2015

43

United States Also in this section: The 2016 race 44 Obamacare’s tipping-point 46 Just possibly… 46

What the Fed will do 48 Kids leave home, at last 50 Silicon Valley gets physical 50 Drones take off 51

Ian Bremmer: The foreign-policy president 54

All the president’s pens David Rennie WASHINGTON, DC

Government by decree and veto is in prospect

P

2015 IN BRIEF California becomes the first state to ban the provision of single-use plastic carrier bags in grocery stores

s

resident Barack Obama heads into 2015 at the mercy of a Congress controlled by the Republican Party, his opponents. After mid-term elections in November handed control of the Senate to the Republicans, and solidified the right’s majority in the House of Representatives, Mr Obama has been left with the (formidable) tools available to even lame-duck American presidents: his ability to convene debates and his power to sign executive or- Mr Obama will ders and take administrative acwant to leave tions. “I’ve got a pen, and I’ve got office with a a phone,” Mr Obama likes to say. legacy Democrats have high hopes for that pen. With just two years left in the White House, Mr Obama—they hope—will sign a barrage of orders in fields as varied as immigration, the environment and criminal-justice policy.

Though executive actions are easily reversed, compared with legislation passed by Congress, Mr Obama’s allies think that presidential orders can still nudge the country in a more progressive direction. They hope that some of the changes will stick. For instance, they believe that executive orders shielding illegal immigrants with deep roots in America from deportation will make it inevitable that some future government will have to

address the thorny question of legalising many of the 11m migrants now in the country without the right papers—even if comprehensive immigration reform is impossible for now. If other orders and actions are likely to prove short-lived, well, Democrats can live with that.

They want Mr Obama’s busy pen to craft policies designed to make the Republicans look extreme or out-oftouch ahead of the 2016 elections, helping Democrats to keep the White House and perhaps take back the Senate.

Republicans have ambitions for Mr Obama’s pen, too. Though the president has faced divided government since 2010, when Republicans took the House of Representatives, Democrats in the Senate used to provide him with an important firewall, blocking any number of laws drafted by conservatives. Now that Republicans control both halves of Congress, he will have to sign or veto every bill and budget they send him.

Optimists assert that this could be a surprisingly constructive moment. Mr Obama will want to leave office with a legacy, they argue, and Republicans cannot afford to head into the 2016 elections looking like a party that knows only how to say no. What is more, Republicans on their own do not have the super-majority of 60 votes needed to pass most business in the Senate, so the party will be forced to seek pragmatic, problem-solving measures that appeal to a few centrist Democrats. Optimists—notably among the pro-busi-

David Rennie: Washington bureau chief and Lexington columnist, The Economist

United States

2015 IN BRIEF

ness “governing” wing of the Republican Party—can reel off a list of measures, which they believe Mr Obama would find it hard not to sign into law. These include a bipartisan push to simplify the corporate-tax laws that currently entangle American businesses, tempting many bosses to hoard profits overseas or move their headquarters abroad. Other Republican priorities for 2015 include measures to promote oil- and gas-drilling and to build the Keystone xl pipeline to ship oil from Canada to America. Pro-business Republicans would like to see their party help Team Obama complete a pair of big free-trade pacts with Asia and Europe.

Gloomier souls think that two years of partisan stalemate are a likelier outcome, for two reasons. First, they reckon the Republican Party is not united enough to send Mr Obama constructive conservative policies, with Establishment Republicans thwarted by hardline Tea Party populists, notably in the House, who despise compromise and who are not that fussed about what big business wants. Second, pessimists fear that calls to

After more than 20 years David Letterman steps away from his desk and retires from “The Late Show”, to be replaced by Stephen Colbert

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44

THE WORLD IN 2015

make the Republican Party look good (by passing some laws with Mr Obama) will be drowned out by demands to make the president look bad (by denying him any successes, and thereby ramming home the idea that Democrats can never be trusted in government).

Republican leaders in Congress will attempt to bridge the gap between these constructive and nihilistic scenarios. They will send some modest conservative bills to Mr Obama’s desk, offering a glimpse of the policies that Republicans are sure would create jobs and spur growth, if only they controlled the White House as well as Congress. At the same time, Republicans will be tempted to use their powers over the budget and spending bills to starve some bits of Mr Obama’s agenda of funding (for instance in the field of environmental regulation).

The window for bipartisan co-operation will start to close towards the end of 2015, as prominent Republicans prepare for the presidential-primary season. Mr Obama’s penultimate year in office will be a bumpy one.

But it may be his last chance to get much done. n

Waiting for the big one John Prideaux WASHINGTON, DC

Elections taking place in 2015 will hold clues for the race in 2016

I

f a week is a long time in politics, then 22 months, a period sufficient for three trips to Mars, might best be called an era. Throughout 2015 the collective attention of America’s political class will be on the presidential election in November 2016. Much of what will happen in 2015 will turn out to be irrelevant to that race, but not all. One way of screening out the noise will be to pay attention to the elections actually taking place in 2015.

The year will see three governors’ races, in Kentucky, Louisiana and Mississippi.

The two states in the deep South are reliably Republican, with little predictive value for 2016. Kentucky is different. Though Virginia will it too is Republican provide some in presidential races, excitement it has a Democratic outgoing governor.

Up until the 1990s the state’s politics followed a pattern set in the civil war. The eastern, Union-supporting part voted Republican; the western part, once worked by slaves, backed the Democrats. Over the past few decades, though, Kentucky has veered towards the Republicans, a process accelerated recently by statewide resentment of federal regulations for coal-fired power stations: the east, where, wrote Leonard Pitts, the roads “twist like a snake having a nightmare”, is coal country.

Kentucky is likely to choose a Republican governor, then. But what sort? The

year’s biggest political story will be the saga that pits the governing wing of the Republicans against the party’s would-be revolutionaries. Voters choosing a governor tend to go for pragmatists over ideologues, so the governing wing will start with an advantage. But the Kentucky party’s internal strife will be closely watched for what it says about the party’s national mood.

There will be statehouse elections in Louisiana, Mississippi, New Jersey and Virginia. The two east-coast contests will have some bearing on 2016. New Jersey will be interesting because its Republican governor, Chris Christie, is one of the party’s many possible presidential candidates.

Mr Christie’s appeal lies in his ability to charm voters who would ordinarily vote for the other party, and in his willingness to pick battles with public-sector unions in the name of budgetary discipline.

The second part of this pitch has not gone well lately. Mr Christie’s administration has overestimated revenues from gambling in Atlantic City, with the result that the state’s rainy-day fund is dry and

ratings agencies have downgraded New Jersey’s debt. This will be an issue in the elections to the state legislature, and the attention it will bring to New Jersey’s finances will not flatter the governor.

In Virginia, a state whose proximity to the world’s largest agglomeration of political journalists guarantees it gets attention, the statehouse election will provide some excitement for those who just cannot wait until 2016. Virginia has backed the winner in all four presidential elections since 2000. Republicans have an unloseable majority in the lower house, but the state Senate is more finely poised. With turnout likely to be low, because there is neither a congressional nor a presidential vote to draw voters in, the Republicans ought to keep control of Virginia’s senate. Failure to do so would spell trouble for the party’s chances nationally in 2016.

While these contests play out, an unusually large number of prominent Republicans will be dropping hints about running for the party’s presidential nomination and examining the resulting ripples. The group includes seven governors or ex-governors (Mr Christie, Rick Perry, Jeb Bush, John Kasich, Scott Walker, Mike Pence and Bobby Jindal) and at least four senators (Ted Cruz, Rand Paul, Marco Rubio and Rob Portman). Since none of these will build up a decisive advantage in 2015, some will start to wonder about giving Mitt Romney a second chance.

This Republican frenzy will seem even more animated when contrasted with the stasis among Democrats. Barring some unforeseen health scare, Hillary Clinton’s progress towards her party’s nomination will continue unimpeded. n John Prideaux: Washington correspondent, The Economist

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United States

2015 IN BRIEF

Point of no return

Fifty years have passed since Lyndon Johnson signed Medicare into law at a time when half of all Americans over 65 had no medical insurance

Roger McShane WASHINGTON, DC

The more people encounter Obamacare, the harder it becomes to repeal

I

t has been nearly five years since Barack Obama signed the Affordable Care Act, better known as Obamacare, into law. The huge overhaul of the American health system was designed to widen access to care and reduce its cost. Since then Republicans have voted over 50 times to undo it, portions of it have been delayed and a disastrous roll-out of its website nearly sank it. It will face more challenges in 2015, but as in the past Obamacare will prove resilient.

First, though, will come a new round of complaints.

In the year to October 2014 over 7m people signed up for insurance through Obamacare, beating expectations.

Now they must re-enroll. Most will face higher premiums. Worse, many will not realise that the government’s

A helping hand

Roger McShane: public-policy correspondent, The Economist

share of paying these bills will have gone down. Those seeking a clearer picture of their new financial burden will have to brave Obamacare’s buggy websites again.

But premiums will not spike, despite the predictions of the law’s opponents, so most of those in the system will stay there. Luring the remaining hold-outs will prove a tougher task for the government, as this batch of uninsured Americans is more sceptical of Obamacare.

Some still complain about the “unconstitutional” mandate to buy insurance. Their principles will be put to

Just possibly…

New York joins the likes of Colorado and Washington state in legalising the use of marijuana for recreational purposes.

American ground troops see action in Iraq.

Barack Obama at last manages to clear Guantánamo Bay of its prisoners.

THE WORLD IN 2015

the test when the penalty for lacking coverage jumps in 2015. Still, the administration will find it hard to reach the Congressional Budget Office’s lofty projection of 13m people enrolled by mid-February.

Even as the pace of enrolment slows, the constituency tied to Obamacare will continue to grow. On top of the many millions of people covered under the law, doctors, hospitals and insurers are investing in the system.

Providers have set up Accountable Care Organisations (acos), which get bonuses for delivering care more efficiently. The number of acos will grow in 2015. So will the number of insurers selling plans on Obamacare’s exchanges. With more customers and stable risk pools, they will find that the law isn’t so bad for business.

Too big to undo The bigger Obamacare gets, the tougher it becomes to dismantle. That will not discourage congressional Republicans, whose goal is still repeal. The country has always been split on the law, with the divide falling along partisan lines. The opposition is more fervent. During the mid-term elections Republican candidates successfully used the law to attack their Democratic opponents.

But the politics of Obamacare is changing, and 2015 will mark a turning-point.

Republicans have been able to demonise the law because, unlike Medicare, it is not a coherent programme with a clear identity. Rather, it is a confusing collection of policies The burden and regulations. Many people do of fixing not realise that they are benefiting Obamacare’s from Obamacare, which is why it polls poorly, even though its flaws falls on component parts are quite popular. There is a huge disconnect the president between the reality of Obamacare and the public’s perception of it, says Jonathan Oberlander, a professor of health policy at the University of North Carolina.

The law has also become a proxy for bigger things, including Mr Obama’s presidency, the dysfunctional Congress and America’s welfare state. So even as more people come into contact with Obamacare, it will be a catalyst for criticism. Yet the law benefits so many people, in so many ways, that politicians will be afraid to dismantle it. Voters may never say “Hands off my Obamacare”, but they will fight for the parts of it they like.

Obamacare will therefore fade as an issue just as the 2016 presidential campaign begins. Still, the Republican candidates will pay lip service to the conservative dream of repeal, even if they dare not specify which parts of Obamacare (beyond the mandate to buy insurance) would go away. The Democratic candidates, on the other hand, will at last find it advantageous to promote and defend Mr Obama’s chief achievement—at least the parts of it that are popular.

Meanwhile, a gridlocked Congress will fail to improve the law, even though some changes—such as broader malpractice reform—would win support from both Democrats and Republicans. But by the end of 2015 too many patients, doctors, hospitals and insurers will have a stake in Obamacare for it to be revamped. It is a year that will mark the beginning of the end of the fight over the law. For better or worse, Obamacare is here to stay. n

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THE WORLD IN 2015

Togetherness 12

Nominal GDP, % growth*

12

9

9

6

6

3

Ten-year Treasury-bond yield, %

3

0

*Seasonally adjusted

Congressional Budget Office forecast for 2014 Sources: Bureau of Economic Analysis; Federal Reserve Board

Greg Ip WASHINGTON, DC

Prepare for a modest rise in interest rates The Who pinball their way around America on their 50th-anniversary tour, starting in Tampa, Florida

Greg Ip: United States economics editor, The Economist

-3

†

Gently does it 2015 IN BRIEF

2011 2012 2013 2014†

1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-3

0

A

fter seven years at zero, interest rates will begin the return to normal in 2015. The surprise will be how low normal turns out to be in this economic cycle. The federal-funds rate will not go above 3%, the lowest peak of any Federal Reserve tightening spell since the early 1950s. Bond yields will not go much higher.

To understand why rates will remain low, it helps to understand what drove them down in the first place.

The immediate cause was the Fed’s determination to learn the lessons of the 1930s, and of Japan’s experience in the 1990s, and inject as much monetary stimulus into the economy as it could. It slashed the federal-funds rate to zero in 2008 and then bought trillions of dollars of government bonds with newly created money (“quantitative easing”) to pull down bond yields.

Powerful headwinds still kept the recovery anaemic.

By 2015, however, those headwinds will have largely dissipated. Households, after several years of “deleveraging” (paying down their pre-crisis debts), are borrowing again. Flush with capital, banks are happy to do their part: by late 2014 their loans were growing at their fastest rate since 2008 and there is talk of bubbles in student and car loans. Europe’s sovereign-debt crisis has subsided, for now. No new federal austerity is on the cards, and state and local governments are hiring again.

Average monthly jobs growth gently accelerated from 186,000 in 2012 to 194,000 in 2013 to 225,000 in the first nine months of 2014. By late 2015 the unemployment rate will drop below 5.5%, the level widely considered consistent with full employment.

The new normal Such an economy no longer needs abnormally low interest rates. But nor can it tolerate rates once considered normal. Some of the forces at work in America in the 1930s and Japan in the 1990s are present today, exercising an outsize influence on interest rates.

Historically the Fed tightened, and bond yields rose, most often because inflation threatened to erupt. But in recent decades inflation has been much more stable and lately it has been too low more often than too high.

For 95% of the past six years it has been below the Fed’s

2% target, when measured by its preferred benchmark, the price index of personal consumption excluding food and energy. In late 2014 it was still only 1.5%. This will restrain the tempo and magnitude of rate rises.

Furthermore, the world has a glut of savings and a dearth of investment, and it is the job of interest rates to bring the two into balance. Before the crisis the oversupply of savings could be traced to emerging markets, in particular China. Domestic savings in emerging markets rose from 24% of gdp in the 1990s to above 33% by 2008—and stayed there. That is more than enough to meet the (steep) investment needs of those countries, so they ploughed the excess into rich-country bond markets, pushing down interest rates. China’s currentaccount surplus has since shrunk, but the euro zone, bludgeoned by austerity, tight credit and weak investment in Germany, has taken its place: its current-account surplus in 2015 will exceed China’s. The global savings glut will put a lid on interest rates.

The dearth of investment is more of a puzzle. Profit margins are near all-time highs and borrowing costs near all-time lows, yet capital spending has been subdued. This may be because business become less capital-intensive.

Headwinds has For example, startup companies can will have rent all the computing capacity they need in the cloud without having to largely buy big servers. dissipated More important, over time long-term interest rates are highly correlated to long-term growth (see chart), and growth looks likely to be much lower in the coming decade than in the recent past. Faster-growing economies generate higher returns on capital, which encourage companies to borrow. Higher productivity growth usually translates into higher wages and encourages consumers to borrow against their future income. A slower-growing economy needs fewer stores, factories and offices, depresses the return on capital and thus leads to lower investment. Slower-growing productivity holds back incomes and discourages consumer borrowing.

Productivity growth has slowed since the recession, and the working-age population will expand by just 0.4% a year in coming decades, less than half the rate of the past two. Long-term growth, which averaged 3.2% between 1993 and 2007, may average 2% or less in the coming decade. For all these reasons, the end of the Fed’s monetary morphine will not spell the end of low interest rates. n

50

United States

2015 IN BRIEF

Time to fly the nest

Apple joins Facebook in offering female employees up to $20,000 to help them freeze their eggs

THE WORLD IN 2015

Robert Guest

Young adults will finally leave home

I

Going physical Adrian Wooldridge

Silicon Valley returns to its roots

“A

ll that is solid melts into air…”

For the past decade this phrase from “The Communist Manifesto” has provided a perfect description of the evolution of Silicon Valley. The most fashionable companies have all focused on the airy world of search and social networks. The engineering companies that once defined the Valley have faded into the background. Over the next decade all this will go into reverse—the air will become solid. In 2015 the buzz (and the money that goes with it) will shift from social media to intelligent devices.

The most successful companies will focus on connecting the virtual and physical worlds. Google has already anticipated the trend with driverless cars, Google Glass, robots and, with its $3.2 billion purchase of Nest, domestic thermostats. The rest of the Valley will follow.

The year’s buzzword will be “wearables”: for example, medical gadgets that keep a constant watch on your blood pressure, glucose level and food intake, and tell you

if trouble is on the way.

“Wearables” will be the praetorian guard of a huge army of objects. Household items attached to the internet will act like servants in “Downton Abbey”—unobtrusively turning the thermostat up or down or politely suggesting that it is time to call the plumber. Cars will fill up with electronic devices that will make it easier and safer to drive and work on the road.

The rise of intelligent devices will allow the Valley to rediscover its roots as an engineering centre. This Valley was briefly sidelined by the social-networking Twitter and But Facebook will revolution. engineers are relook like old turning to reclaim their own. Tesla is dowagers making cars in Palo Alto. bmw, Mercedes, Samsung, Nissan and General Electric have all established research and design laboratories. Medicaldevice companies are flocking in.

Worn in the USA

The rise of intelligent devices will force San Francisco to share more of the limelight, which it has been basking in since the social-media boom, with San Jose.

But San Francisco is already home to

device companies such as Lemnos Labs, and it will have a chance to reinvent itself as a centre of wearable fashion rather than of social networking. The wearable revolution will not only see Silicon Valley tightening its links with old-fashioned engineering firms. It will also see it forming alliances with centres of fashion and design such as New York, Los Angeles and a particularly energetic pioneer of mixing technology and fashion, London.

The balance of Valley power will shift.

Social-media giants such as Twitter and Facebook will look like old dowagers.

New giants will emerge at speed to displace them in the public imagination.

The great survivors from the Obama era will be Apple, which has always focused on making devices (its Apple Watch hits the stores in 2015), and Google, which is moving swiftly into the new world.

Intelligent devices will provide the Valley with a new-found seriousness. Socialmedia companies essentially dealt with virtual candy-floss: nice to have but, for the most part, hardly essential. The new generation of entrepreneurs will deal in devices that can save lives. Truly, all that is airy will become solid. n Adrian Wooldridge: management editor and Schumpeter columnist, The Economist

s

Robert Guest: United States editor, The Economist

n the film “Tiny Furniture”, the heroine, played by Lena Dunham (slumped on the floor in the picture above), moves back in with her mother because, having earned “a useless film-theory degree”, she has no job and no choice. Mother and daughter argue constantly.

Ms Dunham’s character drinks all the wine in her mother’s neatly organised cabinets and gets a prison-style tattoo “out of sheer boredom”.

In real life, too, it is hard for young adults to live with their parents. It is humiliating, and repels potential romantic partners. For the parents, it is disappointing that

junior has failed to launch and annoying that he never empties the dishwasher.

But cheer up: in 2015 the unshaven slacker in your basement will at last move out. To understand why, it helps to know why he got stuck there in the first place.

First, the job market has been dire for several years, so many young people have not been able to rent or buy their own homes. Second, even graduates with useless degrees in film theory have often racked up vast student debts. Living rent-free with their parents has made it easier to service those debts and still have a bit left over for beer, iTunes and tattoos.

In 2012 a whopping 36% of Americans aged 18-31 were living in their parents’ homes, up from 32% in 2007.

Several things will prompt them to pack their bags in 2015.

First, the job market will improve. Unemployment has tumbled from around 10% after the financial crisis to 6% in 2014, and it will fall further in 2015. Youngsters In 2015 the with jobs are far more likely unshaven to find a place of their own. slacker in your Second, the cost of housing will remain reasonable basement will at in America, except in crazy last move out places like New York and San Francisco. The ratio of house prices to average incomes has crept up recently, but is far below its peak in 2006.

Whether you are buying or renting, space is far cheaper in America than in Europe.

Third, many young Americans who live with their parents will no longer be able to stand it any more. They

United States

THE WORLD IN 2015

A bumpy take-off Benjamin Sutherland SANTA BARBARA

Drones may take to the skies— eventually

F

lying lower and slower than manned aircraft, cropdusting drones create a swirling wake that applies pesticide even to the underside of leaves. The cost is “simply untouchable”, notes Ladd Sanger, an aeroplane and helicopter pilot who practises aviation law in Dallas. Drones also bring improvements and Model aircraft cost-cutting to are grounded film-making, news-gathering, search and rescue, forensic photography, firefighting, archaeological surveying, smokestack inspection and the monitoring of pipelines, volcanoes, pollution and wildlife. The benefits to an economy like America’s could be worth $27m a day, says the Association for Unmanned Vehicle Systems International (auvsi) in Arlington, Virginia.

America will not reap such a reward before September 30th 2015, however.

That is the deadline Congress gave the Federal Aviation Administration (faa) to produce rules for the safe integration of drones into airspace; at present, only recreational use is allowed. If the upcoming rules are not too restrictive, auvsi reckons that they will add 70,000 jobs and $13.6 billion to America’s economy within three years. The faa won’t say what is likely to be permitted. But some observers believe that potential benefits will be dampened by over-stringent rules.

The faa already grants some exceptions to its ban, which allow for severely restricted use, but getting one is so hard that a senior Customs and Border Patrol official says the process led to “a lot of gnashing of teeth”. (The agency now

flies nine unarmed Predator b drones.) That bodes ill for firms such as Amazon, which hopes to deliver parcels by drone. Moreover, in June the faa issued a “tremendously rigid” policy interpretation that even expands the definition of aircraft it has the authority to regulate to include boomerangs, frisbees and hand-tossed balsa gliders, says Paul Voss, an engineering professor at Smith College in Massachusetts.

Dozens of universities have duly begun to eliminate engineering lessons that involve flying objects over campus lawns. Mr Voss laments that his aerial-design class is pretty much worthless, now that the college’s model aircraft are grounded. In a petition, he and 28 professors and administrators at universities including Harvard and Stanford decry the faa’s “breathtaking” restrictions and note that the agency appears keen to protect special interests, including established aircraft manufacturers and pilot unions.

The faa has received more than 33,000 comments on the policy. Reading those that claim the agency is manoeuvring to reserve the

s

love them, of course. But Dad’s stories about Woodstock and Mom’s enquiries as to when they will meet someone nice and get married are driving them insane.

Because of tough economic times, many members of the millennial generation have put their lives on hold.

They have spent longer than they planned in college.

They have delayed getting married and having children, hoping that if they wait they will be able to afford it.

But they cannot wait for ever: for women, the biological clock is unforgiving. If they don’t do it now, they may never be able to.

Property-developers expect an explosion of pentup demand for new houses, as the young adults who

51

right to regulate even the flight of bullets and baseballs “sets me off”, says Les Dorr, an faa spokesman.

Even so, his agency has fined a man $10,000 for flying a small styrofoam drone around a University of Virginia campus for a promotional video.

In May a judge threw out the fine, saying that it rests on a “risible” premise. The faa immediately appealed.

All this suggests that the faa’s future rules will not bring America economic benefits on the scale some countries are starting to see, says Brendan Schulman of Kramer Levin Naftalis & Frankel. In August the New York law firm filed three suits against the faa for regulatory over-reach. The way things are heading, he says, the faa might require a drone to be flown by two licensed operators with medical certificates who keep it within sight. This would be costly, and might outlaw flights around a leafy tree. Until the autumn of 2015 the issue will remain, unlike the drones themselves, up in the air. n Benjamin Sutherland: freelance correspondent, The Economist

have put off forming families for so long at last decide that the time is ripe. Several years’ worth of nest-fleeing could be crammed into a much shorter period. Some of the nest-fugitives will shack up with a lover; others will actually tie the knot. Either way, they will be off your sofa and out of your hair.

Parents in Europe may not be so lucky, alas. Nearly half of European 18- to 30-year-olds still live with their parents, thanks to sky-high youth unemployment in some countries. In Italy four-fifths of young adults live at home. Many young Italian men like having mamma cooking and cleaning for them but cannot persuade a wife to sign up for the same arrangement. Funny, that. n

54

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THE WORLD IN 2015

Pivoting back

W

ho would have thought Barack Obama would become a foreignpolicy president? It’s not what he was elected for, but crises abroad and gridlock at home have forced him to focus on foreign policy—with mixed results.

This will endure in 2015. Russia will keep strangling Ukraine. Islamic State (is) will cement its foothold. While it may seem that these growing threats would reinvigorate nato with new purpose, they will actually expose and exacerbate its divisions. It may not be on the radar yet, but in 2015 the transatlantic relationship will erode.

The shortcomings of American leadership and the growing tensions with European partners will be clearest in dealings with Russia. In the long run, Vladimir Putin’s Ukraine policy will undermine his country’s economy and prompt Europeans to wean themselves off Russian energy. Yet in 2015, as Mr Obama puts extra pressure on Russia, America will haemorrhage support from European allies with much more to lose. Some nato members worry that America’s attention will drift to the next hotspot while they remain stuck with a bellicose neighbour.

Responding to is will be an increasingly uphill battle. The American-led coalition is large, which gives it staying power, but it makes the partnership unwieldy and progress piecemeal. The campaign against is has been largely Sunni from the air, with collaboration from the Gulf states for strikes. Yet any chance for lasting success on the ground will need Shia buy-in—which will only get harder to secure as sectarian tensions grow. In 2015, watch America edge back toward old authoritarian allies and the Arab-spring movement hit the scrapheap. The coalition will fragment as the best-funded terrorist group in history stays entrenched in Iraq and Syria.

Thankfully, Asia should be more benign.

Despite flare-ups in the South and East China Seas, geopolitics in Asia will be more bluster than searing conflict. Strong leaders in Asia’s three most powerful nations—Shinzo Abe in Japan, Xi Jinping in China and Narendra Modi in India—will be a stabilising force.

All three have staked their careers on monumental domestic reforms that will impel them to keep their focus at home and conflict to a minimum. As long as progress on their reforms continues, none of them is looking for trouble; danger will rise only if reforms go badly wrong, or if America mismanages its relationship with China.

That relationship has been warmer of late—but there is a diplomatic minefield ahead. Ructions between America and Mr Putin will push China closer to Russia. The two countries finalised a 30-year, $400 billion gas deal after Russia dropped its asking price due to tensions with the West. It’s not just transactional: China views a deeper relationship with Russia as a hedge against its own potential falling-out with America.

Xi Jinping has made sufficient progress with his anti-corruption crackdown and economic reforms for pushback from influential Chinese with vested interests to grow; more success will beget more backlash. If Mr Xi’s agenda runs into serious trouble, all bets are off with Chinese behaviour—China could lash out abroad to secure support at home.

America and its allies make an easy scapegoat, should Beijing want to punish foreign businesses or blame foreign agents for unrest (as was seen in Hong Kong).

Down the road, the Russia-China alignment could become a more formalised alliance, undermining America’s foreign-policy initiatives. Germany and China are tightening their economic partnership; ruptures between America and Europe could push Berlin closer to Beijing. In 2015 America must actively engage China to avoid steps in this direction.

TPPing-point What’s more, engagement in Asia could lock in a rare foreign-policy win for Washington.

The Trans-Pacific Partnership (tpp), which would bring 12 countries representing nearly 40% of global gdp into a free-trade pact, is the one big strategic achievement that American leadership could push over the finish line in 2015. It would create tighter Pacific-rim alliances at a time of rising concern about China’s ambitions. The deal would generate big trade gains, and offers Mr Abe an external justification for his economic reforms.

So what’s the hold-up? Progress has stalled owing to snags between Japan and America: Japan won’t compromise on protections for its farmers, nor will America on the car industry. But with distracting American mid-term elections out of the way, a concerted effort could get tpp over the goal line.

The irony is that Mr Obama has taken a lot of criticism for abandoning his “pivot” to Asia in the face of other concerns, yet it is still the region where he is having the most foreignpolicy success. With active attention, America should be able to expand on that in 2015. n

Despite troubles elsewhere, opportunity beckons for America in Asia, argues Ian Bremmer, president, Eurasia Group

It may not be on the radar yet, but in 2015 the transatlantic relationship will erode

THE WORLD IN 2015

57

The Americas Also in this section: Pemex faces competition 58 A new Trudeau for Canada 59

Just possibly… 59 Michelle Bachelet: The politics of inclusion 60

The hangover Michael Reid LIMA

Latin America after the commodity boom

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unite, the regime may face a choice between losing control of parliament and resorting to electoral manipulation.

In Mexico, the ruling Institutional Revolutionary Party (pri) of President Enrique Peña Nieto will hang on to its control of Congress in mid-term elections in July. It will be helped by an uptick in public investment and economic growth and the start of private investment in energy (see next story). But all this will not y­et pro­ vide a big boost to the popularity of Mr Peña; victory will owe more to the weakness of the opposition parties of right and left. Central America has seen a mild shift to the left over the past year, and that may continue i­n Guatemala, due to hold elections in September, after four years of rule by Otto Pérez Molina, a former general.

Latin America’s most important political devel­ opment of 2015 will be a peace agreement between Colombia’s government and the farc guerrillas—at last. This will end more than half a century of armed

2015 IN BRIEF South America’s largest aquarium, the Acquario Ceará, opens in Fortaleza, Brazil

s

elcome to the new normal in Latin America, a region that is struggling to replace the easy pick­ ings of the great commodity boom with the hard work of raising productivity. The result: the re­ gion’s economy will grow at well under 3% in 2015, after a disappointing 1.5% or so in 2014. The brighter spot will be Mexico, where growth may tick up towards 4%.

Brazil will face an overdue fiscal adjustment. But Dilma Rousseff, narrowly elected for a second term and leading a weakened government, will find it hard to revive growth and the confidence of investors. Ms Rous­s­ eff’s near-death experience in the presidential election of October 2014, provided evidence that slower growth and the frustrations of an expanded middle class are causing the political tide to turn. After a dozen years of domi­ nance by the left, South America is starting to move back towards the centre. But not uniformly so: the left looked set to win again in Uruguay in November 2014.

This trend will be at work in Argentina and per­ haps in Venezuela, the focus of political attention in the region in 2015. In a presidential election in October Argentina will elect a more moderate and pragmatic government, ending a dozen years of populist-nation­ alist rule, latterly under Cristina Fernández de Kirch­ ner. The election will be a three-way fight between two Peronists, Sergio Massa and Daniel Scioli, and Mauri­ cio Macri, the conservative mayor of Buenos Aires. Ms Fernández will float her own candidate (perhaps Flor­ encio Randazzo, the interior minister), but will probably end up striking a deal with one of the front-runners to preserve a quota of power. Whoever wins will move to settle the long-running dispute with a clutch of New York hedge funds over Argentina’s debt and start to withdraw subsidies and import controls.

In Venezuela a legislative election in September will revive the confrontation between the government, now a Cuban-backed largely military regime, and the opposition, di­ South America vided between the moderate is moving back former presidential candidate, towards the Henrique Capriles, and the rad­ icals who instigated the street centre protests of early 2014. The un­ popular government of Nicolás Maduro may try to raise cash by selling citgo, its big oil-refiner and distributor in the United States, to soothe popular irritation over stagflation and shortages. If the opposition manages to

Michael Reid: Bello columnist, The Economist

The Americas

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THE WORLD IN 2015

Seconds out, Round One Henry Tricks MEXICO CITY

For the first time, Pemex will face competition for Mexican oil

B

being streamlined, put under regulatory authority and given a new board of direc­ tors, its union is still there and old habits die hard.

The suspicion is that Pemex will have the advantage when it comes to the first tenders. Already, in the so-called Round Zero allocation in August 2014, it was as­ signed 83% of all proven and probable reserves in Mexico. In Round One, which is scheduled to start in February 2015 and

y any normal standards, Pemex would be a hard company to love.

For 77 years it has had a monopoly over Mexican oil. It frequently has cata­ strophic accidents. A former refinery turned Mexico City into a smog trap. Its union leaders live like kings. And it does a relatively lousy job—even if it provides the government with a third of its tax revenues. Production has fallen by almost a third since its peak in 2004. Mexico used to have the fifth-highest proven oil reserves in the world. Now they are 18th.

Yet love it many Mexicans do, much as Japanese love their rice and Americans love Hollywood.

Since Pemex’s founding in 1938, when Mexico took control of its oil industry, it has been a symbol of national pride. Even when the current president, Enrique Peña Nieto, changed the constitution in 2013 to allow foreign investment in Mexican oil for the first time since the original expropriation, he bent over backwards to assure Mexicans that Pemex would not be privatised.

As a result of that reform, in 2015 Pemex will, for the first time ever, face competition from inter­ national oil companies in Mexico.

It will be a wrenching change.

Unlike many state oil companies, Pemex has never taken part in ten­ ders to produce oil and gas in other countries. Though the company is There will be more to smile about s

2015 IN BRIEF The Amazon Tall Tower Observatory, the highest building in South America, begins gathering data on greenhouse gases and weather in the Amazon rainforest

conflict that has bedevilled the region’s third-mostpopulous country, and it will be followed by a similar accord with the eln, a smaller guerrilla outfit (though possibly not until 2016). To win a referendum on the peace process, which will probably be held in the second half of the year, the government will have to persuade the farc’s leaders to accept some form of punishment for their crimes; in return, it may grant a mini constitu­ ent assembly to debate political reforms.

All eyes on Castro Cuba will dominate the seventh Summit of the Ameri­ cas, to be held in Panama in April. Latin America has insisted that Raúl Castro, the Cuban president, is in­ vited to a gathering from which Cuba was previously excluded because it is not a democracy. This confronts

finish by September 2015, the government will tender 169 blocks covering 28,500 square kilometres (11,000 square miles).

In the Gulf of Mexico, adjacent to Ameri­ can waters where companies like Shell and Chevron have drilled for a long time, for­ eign and private companies are obliged to team up with Pemex.

Many companies It has been will want to ally them­ a symbol selves with the Mexi­ can company, but it of national would be a shame if pride there were a “home team” advantage. The real test of Mexico’s energy reform will be seen when a global oil major heads a syndicate to drill in Mexico without Pemex.

That would improve the govern­ ment’s chances of hitting its target of $50 billion in private energy in­ vestment by 2018.

Price differences at the pump

Hopes by left-wing parties that they can halt the energy reform with a referendum at the time of mid-term congressional elections in July 2015 are likely to be dashed.

Opinion polls suggest the public is growing used to the reforms, and Mr Peña’s Institutional Revolu­ tionary Party is tipped to do well.

Provided oil prices don’t continue to sink, a stronger economy will provide additional reassurance that the reforms are on the right track.

What’s more, in 2015 Pemex will allow its petrol stations to compete with each other on price for the first time. For most Mexi­ cans, that will be the clearest sign of change. n Henry Tricks: Mexico City bureau chief, The Economist

Barack Obama with a dilemma. With no more elections to face at home, he may opt to attend and talk to Mr Castro. More probably, he will send Vice-President Joe Biden. Further tension may arise from the election of Venezuela to one of Latin America’s two rotating seats on the United Nations Security Council for 2015-16.

Similar arguments about how best to deal with Latin America’s awkward squad of autocratic leftist regimes will dominate the contest to succeed José Miguel Isulza, who steps down in May as secretary-general of the Org­ anisation of American States. This pits Luis Alma­gro, Uruguay’s foreign minister, against Eduardo Stein, a former Guatemalan vice-president. It will be harder to restore the oas to political relevance in a region whose internal divisions will be sharpened in the short run by the turning of the political tide. n

The Americas

59

new spending and the smaller-government, lower-tax pledges of the Progressive Conservatives, who share many of the convictions of the federal Conservatives, they gave a majority to the Liberals’ candidate, Kathleen Wynne, the first openly gay political leader in Canada.

“If Ontario voters think government is the problem and greater acceptance of social diversity is a bad thing, they have a strange way of showing it,” concludes Michael Adams, a social commentator and head of Environics, a research company.

One province does not a federal Liberal victory make, not even a province with more than a third of Canada’s 36m people. But national polls paint a broadly similar picture. The number of people who identified with the Conservatives rose in the first part of their mandate, but began falling when ethics and money scandals involving Conservative senators came to light, says André Turcotte, a professor and pollster. The Con­ servative universe, defined as the pool of voters who could potentially vote for the party, is about where it was in 2005, according to Tom Flanagan, a political scientist who worked on Mr Harper’s earlier campaigns.

The economy, once thought to be the government’s strong suit, remains “lethargic”, according to the Confer­ ence Board of Canada, a business think-tank: growth of 2.3% or so is expected in the year ahead. The Liberals, led ineffectually in the 2008 and 2011 elections, have a new, popular leader in Mr Trudeau, son of the late Pierre Trudeau, who was Canada’s prime minister for 15 years. “I’m not a Justin Trudeau supporter,” says Mr Fla­ nagan. “But there’s no denying he excites Liberals. Their fundraising has gone up and he attracts big crowds.”

Demography does not favour the Conservatives.

“Canadian millennials are the most liberal, progressive and multicultural generation in our history,” says Mr Adams of the country’s younger cohort. The Liberals and the left-leaning New Democrats, led by Thomas Mulcair, are working hard to persuade this notoriously ballot-shy group to vote.

2015 IN BRIEF

THE WORLD IN 2015

Justin time Madelaine Drohan OTTAWA

Another Trudeau will probably lead Canada

N

othing enrages Canada’s ruling Conservatives more than to hear the third-party Liberals de­ scribed as the natural governing party of Canada.

The Liberals may have held office for much of the last century, but the Tories have held sway since early 2006.

For much of that time Stephen Harper, the prime min­ ister, has been on a crusade to persuade Canadians that they are Conservatives, not Liberals, at heart.

His tactics have ranged from the subtle (changing the background colour on government websites from Liberal red to Tory blue) to the blatant: trumpeting Ca­ Demography nadian military exploits while does not downplaying the Liberal peace­ favour the keeping tradition. Former prime ministers Conservatives Conservative and their accomplishments have been elevated; those of Liberal leaders ignored.

The general election scheduled for October 2015 is a test of whether Mr Harper and his party have changed the country’s default mindset. The prime minister is likely to be disappointed. It looks as if the best the Con­ servatives can hope for is a governing minority (they won such minorities in 2006 and 2008 and a major­ ity in 2011). More probably, the Liberals, led by Justin Trudeau (pictured), will return to power. Surveys show that despite the Conservatives’ effort to stamp their brand on Canada, public opinion has been moving fur­ ther to the left of centre.

Proof of this came in the surprising electoral vic­ tory of the Liberals in the province of Ontario last June.

Weighed down by scandal after a decade in power, the party was ripe for defeat. Yet when Ontarians were asked to choose between a leftish Liberal agenda full of

The 2016 temptation The situation is not hopeless for the Conservatives. The economy could conceivably rebound. The anticipated elimination of the budget deficit in 2015 gives them room to further shrink the government or buy votes. Se­ curity and terrorism, issues on which the Conservatives are perceived to be strong, could rise up the list of public priorities following the October shooting in Ottawa.

There remains the possibility that Mr Harper will play for time. In 2008 he ignored his own vaguely worded legislation fixing elections at four-year intervals, and he could do so again. The constitution still calls for elections every five years—May 2016, in this instance.

The political landscape may look different by then. n

Just possibly…

Máximo Kirchner, the son of the current and previous presidents of Argentina, wins his first public office.

A law decriminalising pot for religious and medical reasons allows Jamaican Rastafarians to smoke marijuana.

Barack Obama and Raúl Castro sit down and talk at the Summit of the Americas in Panama.

Lonesome George—Galápagos Islander, famous tortoise and dead since 2012—returns to Ecuador after getting some work done in New York

Madelaine Drohan: Canada correspondent, The Economist

60

The Americas

THE WORLD IN 2015

The politics of inclusion

T

he world will reach a turning-point in 2015. We have known this would be so since 2000, when 189 countries pledged to make progress on eight Mil­ lennium Development Goals (mdgs) over 15 years. There have been important improve­ ments in most of these. Progress has been greatest in the area of poverty and hunger: the aim of reducing extreme-poverty rates by 50% was reached in 2010. Nonetheless, one out of every eight people in the world still suffers from hunger and 1.2 billion people continue to live in misery.

Two big mdg shortfalls remain: the need to make progress in education worldwide and the need to ensure the sustainability of our environment. So 2015 will begin with mixed feelings: happiness for advances made in most of the mdgs and a sense of urgency to pick up the pace so that these objectives become reali­ ties as soon as possible.

This is why the post-2015 development agenda will be so important—especially at a time when many economies are beginning to get back to normal after a long period of pain.

In this new economic cycle we should draw on the lessons learned from our recent experi­ ence. The most important is that the market alone is not enough to guarantee progress or the stability of economic systems, much less the wellbeing of citizens worldwide.

Development is not defined solely by a high gdp per person. True development in­ volves sustainable growth, inclusion, social cohesion, governability and the broadening of democracy. It goes hand in hand with diversity, transparency and accountability. It requires freedom, but also social justice. It is synonymous with caring for the environment and respecting human rights. It needs mar­ kets that prosper thanks to productive inno­ vation and are not based on speculation.

The coming year will provide a test of countries’ willingness to commit themselves to these development demands. It will be a key year for confirming that in future we should strive for greater equality. This implies social policies that allow increased access to opportunities for everyone, and a renewed fight against inequality in all areas.

Chile has made this its priority. Among the inequalities that exist, the one that most negatively affects the destiny of each person is the gap in education. In 2015 Chile will undertake reform aimed at achieving highquality, free and integrated education at all levels. To be sure, this is a goal associated with

social, human and political development; but it is also a prerequisite for economic develop­ ment, as it places the knowledge and abili­ ties that people possess at the centre of our growth strategy. Chile will also begin a broad debate on our constitution and establish the principles of greater participation and better democracy for all.

All together, with a Chilean accent But the commitment to more inclusive and sustainable development cannot occur solely within each country. We Latin Americans know this well, as we fought for and consoli­ dated our independence collectively. Two centuries on, co-operation between nations remains fundamental, to create alliances in pursuit of our common needs.

The sustainability of our planet is one of these. Climate change deepens inequalities, both between countries and within them. It is our obligation to act before the consequences are irreversible. I know that the un’s XXI Conference of the Parties (cop21) on climate change in Paris will contribute to this, as will the Our Oceans conference in Chile.

Another common challenge is inequality between the sexes. Confronting inequality, discrimination and violence against women has been a personal commitment of mine; it is part of my government agenda and it was my mission when I was the director of un Women. I know that we have a long road ahead. In 2015 we can take steps forward on these issues at the fifth World Conference on Women, which will be held in Qatar, and at a un Women meeting in Chile.

In 2015 the world will continue efforts to strengthen democracy in the face of new challenges. It will move towards a democracy where votes alone are not enough and spaces for greater participation and citizen decisionmaking are required; a democracy stemming from social movements, many of them world­ wide, that demand to be heard and that today help to create a citizenry that is informed, engaged and has opinions.

In all this, I know that Latin America will establish a voice that is ever more its own, with distinct accents, but that knows how to contribute to human development using its richness and experience. In Chile our empha­ sis is clear for 2015: advance towards a society that is more equal and inclusive through bet­ ter education, more participation, improved infrastructure, greater investment and in­ creased innovation. n

A broader approach to development will be needed in 2015 and beyond, suggests Michelle Bachelet, president of Chile

The market alone is not enough to guarantee progress or the stability of economic systems, much less the wellbeing of citizens worldwide

THE WORLD IN 2015

63

Asia Also in this section: Myanmar’s choice 64 Modi the action man 65 Just possibly… 65

India’s universities 66 ASEAN’s offspring 68 Abenomics on notice 70 Australia looks abroad 72

Protecting the reef 72 Joko Widodo: Getting on with reform 74

Indonesia’s fresh start Jon Fasman JAKARTA

The pragmatic president will find it harder to get things done nationally than he did locally

T

Primary colour

Raw materials and primary commodities as % of all Indonesia’s goods exports

80

70

60

50

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Thomson Reuters

tician. But in order to get legislation passed, President Jokowi will have to work with and appeal to precisely those typical Indonesian politicians. He cannot rely on partisanship: members of his coalition hold a minority of seats in Indonesia’s parliament, and the much larger bloc of Prabowo-backers have made clear that they will use procedural manoeuvres and the institutions of Indonesia’s fragile democracy to block him at every turn.

And even within his own pdi-p party, his relative inexperience may put him at a disadvantage to both his party chair, Ms Megawati, and his vice-president, Jusuf Kalla, who has served as a legislator, a minister under Mr Wahid and vice-president during Mr Yudhoyono’s first term. Jokowi’s supporters point out that he had a minority in Jakarta’s city council, and still managed to compile an impressive record as governor.

They must hope he shows the same mettle as president. Jokowi has ambitious plans for universal health care and education, but unless he trims the country’s immense fuel subsidies he may find himself unable to pay for them. Those subsidies account for around onefifth of total government spending; worse, Indonesians have grown so used to them that simply getting rid of

2015 IN BRIEF Indonesians look back 200 years to the devastation caused by Mount Tambora and the largest volcanic eruption in recorded history

s

o appreciate just how unusual a figure Indonesia’s newly elected president, Joko Widodo (known as “Jokowi”), cuts in his country’s politics, compare his background with those of his four predecessors.

When Suharto resigned after holding the office for 31 years, he was replaced by the vice-president, B.J. Habibie, who had spent two decades in government. Mr Habibie was followed by Abdurrahman Wahid, who under Suharto’s rule headed Indonesia’s biggest Muslim organisation, which his grandfather founded. Then came Megawati Sukarnoputri, daughter of the president preceding Suharto, and a former legislator and party chair; she was followed by Susilo Bambang Yudhoyono, also a legislator as well as a general in Suharto’s army.

Jokowi, by contrast, served neither in the armed forces nor the legislature. He was one of four children born to a timber collector, and he was raised in a shack 40 on a flood-prone riverbank. He graduated from university with a forestry degree, then built up a successful furniture-export business before serving first as mayor of Solo, his hometown, and then as governor of Jakarta. In office he built a reputation for clean governance and frequent blusukan: impromptu neighbourhood visits with a minimal entourage, during which he spoke with—and, more unusually for Indonesian politicians, apparently actually listened to—his constituents. He improved the city’s tax receipts, put government services (including his budget, salary and public meetings) online and built markets for vendors to stop them blocking traffic.

Like Barack Obama six years earlier and half a world away, Jokowi’s campaign attracted waves of energetic young volunteers, eager to donate their time and socialmedia savvy. His approachability and modest background His relative appealed to Indonesia’s elecinexperience torate, and propelled him to a six-point victory over Prabowo may put him at Subianto (Suharto’s son-in-law, a disadvantage and a former commander of Indonesia’s Special Forces). His inauguration on October 20th marked the first handover of power from one directly elected Indonesian president to another.

But whether the traits that helped Candidate Jokowi will serve him equally well as president remains unclear. Candidate Jokowi won in large part because he convinced voters he was not a typical Indonesian poli-

Jon Fasman: South-East Asia bureau chief, The Economist

Asia

64

A choice of sorts Jon Fasman YANGON

Myanmar gets ready for elections

L

THE WORLD IN 2015

the result. In 2008 a new constitution was foisted on Myanmar in a “referendum” that claimed 93% support and 98% turnout in a vote held days after Cyclone Nargis had devastated the land.

Two years later the nld boycotted the first post-constitutional multiparty elections under the new constitution, allowing the Union Solidarity and Development Party (usdp), which grew out of the junta, to claim 75% of the contested seats. In 2012 the nld reversed course, taking part in byelections and winning 43 of the 45 seats it contested. Ms Suu Kyi went from dis-

ate in 2015, at a date not yet set, Myanmar’s voters head to the polls. All 664 seats in the bicameral legislature, except for the quarter held by military appointees, are at stake, as well as the indirectly elected presidency, held since 2010

by Thein Sein. More than 60 parties have registered to take part, most of them small and regional or ethnic-based.

A decade ago Myanmar was economically stagnant, isolated from the outside world and ruled by a military junta. But in 2004 Than Shwe, the “senior general”, released a “Roadmap to Democracy”, and the junta began loosening its grip. Today gdp is growing at 6-7% a year; investors are eyeing one of the last frontier markets; and Aung San Suu Kyi, the country’s most famous political prisoner, is a member of parliament.

So will 2015 be the year Myanmar becomes a vibrant democracy?

The country’s record gives scant reason for hope. In 1990 Miss Suu Kyi’s National League for Democracy (nld) won a multiparty election easily, but the junta ignored The flower power of Aung San Suu Kyi

Having entered Bolivia in 2014, Kentucky Fried Chicken opens a first outlet in Myanmar

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2015 IN BRIEF

them immediately and altogether may prove politically impossible. A likelier scenario is a multi-year taper, which is better than doing nothing, but still prevents more productive uses of government capital.

Indonesia is South-East Asia’s biggest country, both by population (256m) and size of its economy. But gdp growth has begun to slow—from an annual average of 6.3% between 2010 and 2012 to 5.8%, a four-year low, in 2013 and 5.2% in 2014—just as millions of young Indonesians are reaching working age. Slower growth in China and continued European sluggishness have dampened demand for the raw commodities that still comprise too large a share of Indonesia’s exports (see chart on previous page). Jokowi will have to find a way to shift the economy towards domestic consumption and value-added manufacturing.

That will be difficult without doing something about Indonesia’s appalling infrastructure. A World Economic Forum survey ranked Indonesia’s infrastructure 82nd in the world—behind Thailand, Mexico and Egypt, among other places—and just barely ahead of India and Tajikistan. The number of days containers spend between unloading and leaving the gates of Jakarta’s port, which handles most of Indonesia’s international trade, rose from 4.8 in 2010 to about six in 2014.

But improving infrastructure will take deft political

sident to parliamentarian, and then announced her wish to become president.

But for that to happen, given that the army reserves control of a quarter of the parliament, the nld would have to win Thein nearly two-thirds of all Sein has the seats that are actually contested. That is been coy a tall order, even for an about his unfractured opposiplans tion, which Myanmar’s is not—small ethnicbased parties will rack up votes. And a mooted move from a first-past-the-post voting system to proportional representation could further reduce the effect of a landslide loss on the usdp.

Then there is the difficulty posed by the constitution, which bars anyone with a foreign spouse or children from being president. Ms Suu Kyi’s two children are British subjects, as was her late husband.

The nld is, in effect, her vehicle; without her, its broad appeal would wither quickly.

Mr Thein Sein has been coy about his plans, and his health is said to be shaky, which could leave the top spot open for Shwe Mann, the current party boss and Speaker of parliament’s lower house. Min Aung Hlaing, the army chief, may also throw his hat into the ring. Myanmar’s voters will still have a choice—just not much of one. n Jon Fasman: South-East Asia bureau chief, The Economist

manoeuvring as well as huge capital outlays. Soon after Suharto’s resignation Indonesia began a programme of massive decentralisation, giving power not to the provinces (for fear of encouraging secessionism) but to districts and villages. This has made local government more autonomous and responsive—it is doubtful that Jokowi could have got quite as much accomplished in Solo and Jakarta as he did without the power granted to him under decentralisation. But it also means that ambitious national infrastructure projects require approvals from numerous politicians, not all of whom may share the president’s steadfast opposition to graft.

Mr Yudhoyono’s presidency was marked by Indonesia’s emergence onto the world stage: the country joined the g20, began the Bali Democracy Forum and took a prominent role in climate-change negotiations.

Jokowi begins his presidency with two high-profile ­international events—the East Asia summit and the g20 summit—in the same week, but foreign policy played little part in his campaign, and at least in the short term he will be a more inward-looking president than his predecessor. He was elected, after all, on his record as a problem-solver, and on the promise that he could do for all Indonesians what he accomplished for residents of Solo and Jakarta. In 2015 he needs to show that he really can. n

Asia

65

subsidised cooking gas will now get cash payments, using Aadhaar and their bank accounts. To his credit, Mr Modi has decided to push on with Aadhaar, which has already enrolled nearly 700m people. By the end of 2015 that figure should reach 1 billion. He has also freed diesel prices from government regulation. Progress on expanding the far-too-narrow tax net and cutting the fiscal deficit would be welcome, too.

A senior figure in the commerce ministry, Amitabh Kant, predicts that India’s dismal place on the World Bank’s ranking of countries according to the ease of doing business will rise dramatically. In the latest report, India slipped back to an ignominious 142nd position, but Mr Kant says technical and bureaucratic reforms, such as compiling into one online process the 64 different forms needed to open a business, will see India ranked in the top 50 within a few years.

Mr Modi has made some strikingly bold promises.

He vows, for example, that an extra 75m households will get bank accounts before the end of January. He says that by 2019 two enormous problems will be solved.

The days of open defecation will end thanks to a massive campaign to build toilets. And a failed effort to clean up the filthy River Ganges will at last get going after 30 years. If either is to have any chance of succeeding, 2015 should bring ample evidence of improvements. Not so important, but more entertaining, should be the early

2015 IN BRIEF

THE WORLD IN 2015

Action man Adam Roberts DELHI

India will find out whether Narendra Modi can keep his promises

S

ince he took the job in May 2014, Narendra Modi has emerged as India’s most dominant prime minister in living memory. Power is centralised in his office, his cabinet is deferential and the opposition looks crushed. He is popular and aims to modernise—and may further liberalise—the economy. Lacking funds to pay for a big new push on building infrastructure, he spent his first months in office in a whirl of diplomatic activity, drumming Progress on up foreign capital to give the economy a lift. Engaging expanding the Japan, China and America, far-too-narrow among others, he wants to see tax net would be foreigners building railways, ports, factories and “smart welcome cities”, starting in 2015.

However, that is also the year when the flush of excitement about the new leader, and his highly personalised style of governing, could start to fade. Early on, it has been enough for Mr Modi to announce bold plans to keep enthusiasm ticking over. Next, he needs to start delivering some substantial changes. It is his good fortune that only one big state—Bihar—is holding an assembly election in 2015. That means India, for once, can forget party politics and focus more on what needs fixing.

The biggest task is the economy. The moment to watch will be in February or March, when Arun Jaitley, the finance minister, delivers his first full budget. His first effort, an interim one in July, underwhelmed most observers. It lacked decisive reforms, only partially eased restrictions on foreigners investing in the insurance, defence and railways industries, and looked too cautious in the light of a huge election victory. Equally disappointing, in the same month India scuppered a World Trade Organisation deal to make global trading easier, for the sake of defending food subsidies at home.

Mr Jaitley has since set a target of 2016 for implementing a nationwide goods-and-services tax—a long-delayed measure to free internal trade by creating a single market. In the coming year he needs to make headway in preparing the ground for that. He needs, too, to set out how India’s prehistoric system of food subsidies, rations in kind, can be replaced with a cashbased welfare scheme, making use of Aadhaar, a bio­ metric system to identify recipients. People who receive

Just possibly…

Under covert pressure from China, Kim Jong Un is replaced as leader of North Korea, and the disintegration of the regime gathers pace.

Narendra Modi, the leader of India, who is due to visit China, strikes a deal on the countries’ Himalayan border.

Turkmenistan marks 20 gloriously impartial years with the Year of Neutrality and Peace. On December 12th 1995 the UN recognised the country’s “permanent neutrality”

s

The wreckage of Malaysian Airlines flight MH370 is found at the bottom of the Indian Ocean.

The wind in his sails

Adam Roberts: Delhi bureau chief, The Economist

Asia

2015 IN BRIEF

work on the world’s tallest statue, of Vallabhbhai Patel, a hero of independence whom Mr Modi venerates. It is to be twice the height of the Statue of Liberty, and is supposed to be finished by 2018, in Gujarat; $33m is budgeted for the first stages.

Mr Modi has been careful to sound statesmanlike, using speeches to urge an end to Hindu-Muslim violence. But more religious tension has been evident, at least before elections late in 2014. That Mr Modi’s ruling Bharatiya Janata Party (bjp) named a Hindu fringe leader to lead a by-election campaign in Uttar Pradesh was troubling. It is also disturbing that Mr Modi’s close acolyte, Amit Shah, is now the national president of the bjp. He has murder charges against him from his time in Gujarat. A recent inflammatory campaign by Hindu-­

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Pope Francis heads to Sri Lanka and the Philippines, respectively the third and fourth papal visits to the two countries

THE WORLD IN 2015

nationalist types claimed that Muslim men engage in “love jihad”, an effort to seduce and convert Hindu women. Thankfully Mr Shah avoided such efforts in more important state elections in October, an acknowledgment that voters care most about development.

As for opposition to the prime minister, don’t expect much. The Congress party failed doubly in 2014, first in its disastrous election, then in not daring to ask why it lost so badly. One answer is that its nominal leader, Rahul Gandhi, is not up to the job. He subsequently refused to take over party leadership in parliament, so is unlikely to become any more effective as a politician in the year ahead. In 2015 Mr Modi should have few distractions from the task of putting his promises into practice. n

India’s university challenge Adam Roberts DELHI

Big on quantity, short on quality

I

f your five-year-old starts school in India in 2015 she will be ready to enrol at university in 2028. That is also the year when India’s population should pass 1.45 billion and become the world’s largest. By then, will there be enough highquality graduates to ensure the country’s prosperity? No chance—unless a rotten education system is fixed first.

With some 240m children in school, India will make some gains in basic literacy. But most education remains poor.

College-level studies are especially weak, though the sector is booming. The share of school graduates going on to higher education leapt from 11% in 2004 to 23% in 2011. By 2015 India will have some 35,000 colleges, plus 700 universities, with more to come. Narendra Modi, the prime minister, has promised several new institutes of management and technology. His government plans to open 60 new universities, including medical and engineering colleges. But most expansion will be in the private sector, which already caters for 60% of students in higher education.

The problem is a lack of quality. In 2015 don’t expect any Indian university, private or public, to make the top 200 of any global ranking of universities (though India will do better in mba league tables).

Too few colleges care about teaching standards, let alone research. The worst private outfits serve, in effect, as moneylaunderers. Even honest ones emphasise marketing over teaching: glitzy ads lure students with swimming pools, marble foyers or guarantees of jobs. Colleges often devote over a fifth of revenue to acquiring new students, more than they pay faculty. Students care little for study, as

few are ever allowed to fail exams.

So outcomes will disappoint. Around a third of Indian graduates will remain unemployed, despite employers bemoaning a lack of skilled recruits.

Varun Aggarwal of Aspiring Minds, a company that surveys student capabiliToo few ties, estimates that if colleges university exams were run properly, 70% of care about students would fail. Of teaching 700,000 engineering standards graduates in India each year, he reckons only 3% are employable without many months of post-recruitment training. Only 15% of computer-engineering graduates could complete a basic task set in one assessment, he says. Language and other “soft”

No country for young minds

skills are often poor.

Some signs of quality may emerge.

Competition to attract students should eventually drive up standards. A few philanthropists are launching new institutions aspiring to excellence. Ashoka University, near Delhi, is one. It is intended as an Ivy League-standard liberalarts college. One founder, Ashish Dhawan, a former venture capitalist, says the first goal is quality, to “set the bar really high”.

It eschews marketing, has foreign partners (including the University of Pennsylvania), offers visiting faculty decent salaries and limits entry to relatively few bright students. It is a couple of years old, and applicants vastly outnumber available places. Other new private universities have similar goals. But still there is no serious funding for research. Only when that is in place will an Indian university make it into a global top 200. Not in 2015, but with luck before 2028. n Adam Roberts: Delhi bureau chief, The Economist

Asia

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THE WORLD IN 2015

Safety in numbers Simon Long SINGAPORE

ASEAN invites comparison with the EU

T

he ten-member Association of South-East Asian Nations (asean) is proud of its way of doing things, which to the outsider sometimes looks like doing very little at all, except for holding many meetings every year. The club has long billed 2015 as a transformational year, with the arrival of “the asean Community”. But it would be a mistake to expect dramatic change in an organisation whose hallmark is slow, consensual progress to a goal, regional integration, which often seems more attractive in theory than in practice.

Rather, 2015 will be another year in which the political rhetoric is a long way from economic reality.

Of the community’s three “pillars”—socio-cultural, political and economic—it is the asean Economic Community, the aec, that has generated most excitement. asean ministers like to boast that it will unite a regional economy of more than 600m people and a gdp of over $2.5 trillion into a single market and a single production base. That makes it sound as if an eu-style South-East Asian Union is in the offing. It is not. A study by the Asian Development Bank (adb) and the Institute of South-East Asian Studies (iseas), a think-tank in Singapore, concluded that asean “has no prospect of coming close to…[a] single market by the aec’s 2015 deadline—or even by 2020 or 2025.”

Countries in the region have no interest either in building the sort of central bureaucracy that sustains the eu, or in surrendering more than an absolute minimum of national sovereignty. asean has a small, understaffed and underfunded secretariat, whose functionaries have for years been trying to dampen expectations about what 2015 might mean. It is a milestone, they say, not

MYANMAR

2015 IN BRIEF Japan completes the installation of the world’s largest battery, for storing excess solar and wind power, in the northern island of Hokkaido

Simon Long: Banyan columnist, The Economist

LAOS VIETNAM

THAILAND

CAMBODIA

PHILIPPINES

BRUNEI MAL AY SIA SINGAPORE

INDONESIA

The measure of ASEAN* GDP, $bn Population, m GDP per head, $

ASEAN total EU28 total 2,756 18,160 630 510 4,370 35,620

China 11,628 1,360 8,550

India Myanmar 2,515 52 1,270 54 1,980 970

Thailand 422 67 6,260

Indonesia 990 256 3,870

a finishing-line. Even so, it was in effect moved back 12 months in 2012, when asean agreed that “2015” meant not January 1st of the year but December 31st.

Three big obstacles stand in the way of the aec. The first is the sheer diversity of asean’s members. When the organisation, founded in 1967, admitted Laos and Myanmar in 1997 and Cambodia the following year, it was condemning itself to slower integration for the sake of regional completeness. Cambodia in 2015 will have a gdp per head of about $1,260. Singapore is 47 times richer.

And asean includes countries with Buddhist, Muslim and Christian majorities; communist dictatorships; democracies; an Islamic sultanate and a military junta.

Second, private businesses in many asean countries compete fiercely with each other and often lobby against the market-opening measures the aec requires. And third, asean’s biggest country, Indonesia, is also among the most prone to economic nationalism. The election victory of the new president, Joko Widodo, in 2014 was cheered by Indonesia’s asean partners. At least he was not a tub-thumping protectionist like his rival, Prabowo Subianto. But he will struggle to cobble together winning votes in parliament. Another adb study found that the Indonesian workforce was among the worst placed in asean to benefit from the aec’s liberalisation of labour mobility: it lacks well-qualified workers.

Surrounded by giants That asean has integrated as far as it has is thus surprising. Virtually all categories of goods traded within the block are now tariff-free. The few exceptions are important, but still, by volume, some 70% of intra-regional trade incurs no tariffs and the average tariff rate is less than 5%. Yet the adb/iseas study concluded that “non-tariff barriers have replaced tariffs as protective measures for domestic industries.” asean’s tradition of “non-interference”, and the absence of penalties for non-compliance, make removing these difficult.

Pressure for faster integration, though, will come in 2015 from two sources. One is the domestic private sector. Many businesses in asean see other member countries not as competitors but That as their market, and the region’s governments and asean itself as ASEAN has getting in the way. AirAsia, for exintegrated as ample, a low-cost airline launched in Malaysia, has tried to be a flag- far as it has is carrier for asean integration. Its surprising boss, Tony Fernandes, complained in 2014 that it had taken him three years to secure agreement to have a ­ sean’s logo (a sheaf of ten rice stalks) emblazoned on one of his aeroplanes. “We must transcend nationalism and embrace regionalism,” he declared.

The other pressure is external. asean competes for investment and markets with China to the north, and, increasingly, with India. Both are far more integrated markets with twice as many people. In economics as in geopolitics, many in asean feel the countries of the region have no option but to cling together. n Laos Vietnam Cambodia Malaysia Singapore 14 204 20 371 336 7 91 16 31 6 1,950 2,230 1,260 12,090 58,910

Brunei Philippines 16 332 0.4 102 37,340 3,260

*2015 forecast Source: Economist Intelligence Unit

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Asia

Coming to a crunch Tamzin Booth TOKYO

Time is running out for Abenomics

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uring two lost decades, pundits have prophesied a string of new dawns and turning-points for Japan’s economy, and most have come to naught. Yet there is little doubt that 2015 will go on record as a crucial year. Three key events will test the three-part plan of Shinzo Abe, the prime minister, to restore some vim to the economy.

Land of the rising tax

2015 IN BRIEF South Korea launches the world’s secondbiggest carbonemissions trading scheme

Tamzin Booth: Tokyo bureau chief, The Economist

First, the Bank of Japan (boj) will confront a rough deadline for its pledge to banish deflation. Most thought it would certainly miss its target, but its extra dose of quantitative easing announced in Oct­ober 2014 gave more hope of reaching inflation of 2%. Second, a further rise in the consumption tax, Japan’s version of value-added tax (vat), is due in October, 18 months after one in 2014.

Given Japan’s parlous public finances, general wisdom holds that Mr Abe will have little choice but to go ahead.

Yet another punch to consumer spending could floor a slowly recovering economy. Third, Mr Abe, who remained politically unassailable in 2014, could face a trickier runup to the election for the presidency of the Liberal Democratic Party (ldp) in September. A less than stellar win in this contest, and for the ldp in a series of local elections in the spring, could erode his ability to get things done.

There is potential, indeed, for 2015 to be the year in which Abenomics, as Mr Abe’s programme is known, starts to unravel. He spent much of 2013 and 2014 basking in international acclaim for his radicalism. Markets hailed the boj’s monetary easing as a triumph and welcomed an expansion of it in the autumn of 2014. The second part of Mr Abe’s plan, a fat dollop of fiscal spending, mostly reached its target. Yet the third, a set of ambitious structural reforms designed to boost the supply side of the economy, is still in the making.

Mr Abe has to decide soon whether or not to proceed with the second tax increase. No other large coun-

THE WORLD IN 2015

try has doubled vat in just a year and a half, and for good reason. The Japanese public is opposing a second tax rise more vociferously than the first. Yet there is little scope to shirk the task of tackling the public debt, which now stands at over 240% of gdp. In 2015 Japan may only just meet a key target of reducing its primary deficit— the gap between government expenditure and receipts, excluding interest payments—to about 3.2% of gdp.

If Abenomics eventually fails, Mr Abe’s supporters will point to the tax rises of 2014 and 2015 (if the second rise goes ahead) as the chief reason. The increase in April 2014 caused gdp to slump by a much-worsethan-expected 7.1% on an annualised 2015 may basis in the subsequent quarter. Another seem like rise will certainly require yet more fiscal a re-run stimulus in additon to the boj’s second of 2014 round of monetary easing. Thus far, the boj has achieved inflation of no more than 1.5%, excluding the effect of the consumption-tax rise, and as the impact of a weak yen abated in the middle of the year, price indices started to head downwards again. If the expanded easing does not soon show an effect—and some of the boj’s transmission mechanisms, such as bank lending, are clearly not working as well as hoped—the first arrow will again come into question.

All the monetary largesse, if unaccompanied by structural reform, could eventually unnerve bond markets. The best sign of progress on the third arrow would be a ro­­b­ust deal on the Trans-Pacific Partnership, a freetrade agreement, yet a pact remains elusive. Another test will be whether or not the government is willing to tackle Japan’s inflexible, two-tier labour market. Yet many fear that 2015 may instead witness a return to oldfashioned pork-barrel spending in the countryside as part of a new scheme to boost regional economies—the opposite of future-minded reform.

Mounting inflation and the consumption-tax rise of 2014 have squeezed household spending power, as wages have failed to keep pace. In the spring voters will have ample opportunity to punish the ldp in nationwide local elections. Even so, Mr Abe may take advantage of the weakness of Japan’s opposition to call a snap election for the lower house of parliament in the summer, in preparation for the party-leadership poll later on.

Déjà vu with a difference Mr Abe’s national-security agenda will also make heavy claims on his political capital. In 2015 he wants to start passing a series of unpopular bills to allow Japan to come to the defence of allies if they are attacked. This will add to rumbling tensions with China and South Korea. In the year of the 50th anniversary of the normalisation of relations between Japan and South Korea, and the 70th of the end of the second world war, eyes will be on Mr Abe to see if he will, as previously hinted, issue a new “forward-looking statement” on Japan’s wartime record. It could further inflame regional tensions.

In many ways, 2015 may seem like a re-run of 2014.

In addition to the latest round of monetary easing, there will be more fiscal stimulus to offset a consumptiontax increase and further moves on structural reform— in short, more Abenomics. But this time, unless results are rapidly forthcoming, voters are unlikely to remain so tolerant. n

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2015 IN BRIEF

On Australia’s radar

Papua New Guinea hosts the four-yearly Pacific Games, with athletes from 24 countries competing in 28 sports

Robert Milliken: Australia correspondent, The Economist

Robert Milliken SYDNEY

Looking back to Gallipoli, and ahead to China

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ustralia will look backwards for one of its biggest events in 2015. On April 25th it will mark the centenary of the first landings of its troops on the Gallipoli peninsula in Turkey. This disastrous firstworld-war campaign cost the lives of 8,700 Australians and 2,700 New Zealanders, and the commemoration will show how strongly Gallipoli has marked Australia’s sense of nationhood. Only 13 years after its founding the young country went to war as a British dominion, but it came back more confident about its place in the world.

The centenary will resonate with Tony Abbott, the prime minister who led the conservative Liberal-National coalition to power in 2013. He is an ardent Anglophile: he restored British-style knights and dames to Australia’s honours system, 40 years after they were abolished. To many voters, this merely confirmed the idea that he was out of touch with modern Australia. His government’s failure to convince Australians of the merits of big spending cuts in its first budget in 2014 only worsened its fortunes. For much of its first year in power

Great Barrier Grief Robert Milliken SYDNEY

Judgment day for a natural icon

N

THE WORLD IN 2015

ature-lovers, divers and adventurers will flock to the Great Barrier Reef in 2015. What unesco calls “the world’s most complex expanse of coral reefs” is home to 400 types of coral, 1,500 fish species, whales, dolphins, seabirds and turtles. But the reef, which extends about 2,300km (1,500 miles) along Australia’s eastern state of Queensland, has never

it trailed the opposition Labor Party in opinion polls.

In 2015 a critical task will be to steer the economy through its transition from a dream run, after a resources boom linked to China. Growth will fall to 2.5% and unemployment will rise above 6%. If iron ore, Australia’s biggest export, does not recover from its 2014 price falls, the effects will be felt across the economy.

Mr Abbott has surprised his critics with more sure-footedness in his conduct of foreign policy than he has managed on the home front. His talks with the leaders of Japan and India strengthened relations with both countries. Australia will start naval exercises with India in 2015, and share defence know-how with Japan.

Broadening both relationships to include security will be a hedge against China’s rising military power.

Australia’s jostling between China, its biggest trading partner, and America, its main strategic partner, will come into play in the remote outback of Western Australia. America moved a radar system there from the Caribbean in 2014 because Australia’s biggest, emptiest state allows quicker detection of satellites launched from China. A second ground station may start operating in Western Australia in 2015. Australia’s space-monitoring task would draw it into any conflict between America and China. This will be a far cry from Western Australia’s role as the embarkation point for the first troops who sailed to war in Gallipoli a century ago. n

been more threatened. Australia will face a moment of truth over its management of this national icon. Thirty-four years after the un listed the reef as a World Heritage Site, it will decide in June whether to add it to the World Heritage in Danger list.

Over the past 29 years, the reef ’s coral has been disappearing. This has been “most severe” along the southern twothirds of the reef, says the Great Barrier Reef Marine Park Authority, the Australian body charged with protecting it.

Marine scientists largely blame rising sea temperatures and acidification, linked to climate change, and nutrients and pesti-

cides washing from farms into the Coral Sea and the Pacific Ocean.

A bigger threat now looms from coal. In 2014 the government approved the dumping of about 3m cubic metres of dredging spoil inside the reef ’s waters from a planned expansion of the port Australia at Abbot Point. This will face a would allow Adani and gvk, two Indian moment of companies, to ship coal truth from big new projects in Queensland’s Galilee Basin. Earlier, dredge spoil from Gladstone, a southern reef port, was dumped offshore to allow liquefied-natural-gas exports from 2015.

Some of the Abbot Point sludge could be dumped inland instead. Greens say the reef could still suffer from increased shipping, and the impact on oceans of carbon emissions from the exported coal.

The federal and Queensland governments produced a draft plan in late 2014 for “protecting and managing” the reef up to 2050. unesco wants an updated conservation report from Australia by February, before the decision in June. Two things could save the reef from more trauma. Its tourism industry, worth about A$5 billion ($4.6 billion) a year to Queensland alone, is outraged by the dumping plans. And if coal prices continue to fall in 2015, the Galilee Basin’s black stuff will probably stay in the ground. n

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Asia

THE WORLD IN 2015

Getting down to business in Indonesia

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or Indonesia 2015 will be a busy year.

Expectations are high. We are the world’s third-largest democracy. We are also the planet’s most-populous Muslim-majority nation, proving that Islam and democracy are not incompatible. Our adherence to our national motto, Bhinneka Tunggal Ika (Unity in Diversity), remains constant.

Still, there is a great deal to accomplish.

Some 16 years after the reformasi that ended the Suharto era, a better life remains elusive for many Indonesians. Although Indonesia has grown to be the world’s tenth-largest economy by purchasing-power parity, inequality has worsened. Some would argue that democracy has widened the gap between rich and poor.

I was elected to resolve these disparities.

Democracy must deliver greater prosperity to all. Managing a country of Indonesia’s size is not easy. We need a substantial break with tradition. We must also tackle a number of critical weaknesses.

The recent “resource boom” is over. Indonesia has to stop relying on natural resources and diversify its exports. We must invest more in infrastructure and manufacturing, as well as research and development.

I will do all I can to speed up the completion of projects like the 615km (380-mile) Trans-Java toll road. Indonesia must also improve its ports. We are an archipelagic nation.

A renewed focus on our maritime potential will unlock the enormous wealth of our seas.

Better ports will also improve efficiency in transport and logistics domestically. Thanks to new capacity, Indonesia’s container traffic is expected to grow significantly in 2015. But waiting times for document-processing have increased. This must change. If my intervention can help move things along—for example by speeding up land acquisition or cutting red tape—I will not hesitate to act.

More importantly, Indonesia must improve its human capital. The quality of our education and health care has to be upgraded.

According to the World Bank, Indonesia in 2012 spent just 3.6% of its gdp on public education, far less than our neighbours. We risk squandering our demographic boom. About 50% of our 250m-strong population is under the age of 30. The choice ahead is clear: we must turn the young into the drivers of our future economic growth. If we fail, they will become a massive, disaffected burden.

Indonesia’s fuel-subsidy regime is in desperate need of reform. The previous government’s final budget set aside 276 tril-

lion rupiah ($22.5 billion) for fuel subsidies alone. This is unsustainable. I will work to shift subsidies gradually from consumption to productive purposes. The savings will be channelled to where they are truly needed: public transport, social security and improving agricultural yields.

These reforms will not come easily or quickly. But we must get on with things.

Many are wary of the perceived corruption and inefficiency in Indonesia. Every country in the world faces these problems, but that is no excuse. I will defend and strengthen the independence of our Corruption Eradication Commission in stamping out such practices.

E-government initiatives will be implemented to foster transparency and efficiency.

Yes I blusukan I will also continue my practice—which I began as mayor of Solo and then as governor of Jakarta—of blusukan or impromptu visits.

When I go on such visits, I hit the ground, meet people, listen to their concerns and eventually figure out solutions for their problems. I am sure this will help win the public’s support for reform.

But ordinary Indonesians, too, must contribute to pushing the country forward. We need a “mental revolution”, a belief that we can improve our lives. The beginnings of this are visible. During the last election, people from all walks of life volunteered to support my campaign and take back politics for the masses. I want ordinary Indonesians to continue scrutinising government delivery and services at all levels—and that includes my own performance. The passion and commitment of my volunteers is a reminder that much is expected of my administration.

Some observers say Indonesia should assume a regional, even global leadership role.

We are willing to act as an honest broker in the South China Sea and on other global issues.

But we can make a difference abroad only if we have credibility, growth and renewal at home.

Fundamentally, the challenge for my government is to restore trust. Whether it is the private sector, foreign investors or even the Indonesian public, we must convince them that Indonesia’s potential is more than just hype. There is a lot to be done in 2015. Leaders like me must work night and day to retain the trust of the people as we seek to rebuild global faith in Indonesia’s future prospects. It is time for Indonesians to roll up our sleeves and get down to business. n

Joko Widodo, president of Indonesia, says his country must roll up its sleeves for reform

We can make a difference abroad only if we have credibility, growth and renewal at home

THE WORLD IN 2015

75

China Also in this section: A services boom 76 A lower growth target 78 Just possibly… 78

Ever more muscle James Miles

Slower growth, but rising power

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for deal with South Korea and Japan and another (known as the Regional Comprehensive Economic Partnership) with the ten members of the Association of South-East Asian Nations plus Australia, India, Japan, New Zealand and South Korea.

Even though China’s economic growth will slow further in 2015, the country will remain hugely attractive to others in the region and beyond as a source of demand and investment. For example, China in the coming year could well become the world’s largest spender on business travel (though most of the money will still go on domestic trips).

In 2015 outbound investment from China could well exceed, for the first time, the amount that foreign firms invest in China.

A slowing economy will not affect China’s extra-terrestrial ambitions, including plans to build a space station and, possibly in a decade or so, land an astronaut on the Moon.

Expect a Preparations are under tightening of way. In 2016 China will restrictions launch Tiangong-2, a space lab that will test on WeChat technologies for a space station. The following year a Chinese spacecraft will return to Earth after collecting lunar samples. China has just finished building a new spacelaunch facility on the island of Hainan. Officials hope the base will become a huge tourist attraction in the year ahead, with thousands of visitors flocking to see launches.

James Miles: China editor, The Economist

The mighty Xi Such displays of China’s rising power will help to boost Mr Xi’s status at home. In the year ahead it will become ever more evident that Mr Xi has abandoned the Communist Party’s once hallowed notion of “collective leadership” in favour of strongman rule by himself. But his power will not make him feel entirely secure. In 2015 the

s

resident Xi Jinping, having acquired more power than any other leader possibly since Mao Zedong, has just added another feather to his cap. China will enter 2015 as the world’s largest economy, in purchasing-power terms. Mr Xi will not trumpet this achievement. China’s leaders are acutely aware ­of how their country’s rise unsettles some in the West. But anxiety about China will nonetheless grow in the year ahead. Under Mr Xi’s leadership the country has been trying­ to reinforce maritime claims in the Western Pacific, thus fuelling tensions with neighbours as well as with America. In 2015 frictions will not subside.

China has said 2015 should be a year of “maritime co-operation” with South-East Asian nations.

Yet it shows little sign of willingness to scale down its efforts to stake out what it regards as its territory in the East and South China Seas. These include building structures on disputed islands and reefs, sending coast-guard vessels to patrol near them, and exploring for oil and gas in contested waters.

Some countries worry that China may declare an “air-defence identification zone” over the South China Sea, just as it did over the East China Sea in 2013 to the consternation of Japan and America. Such a zone would require planes travelling through it, even in international airspace, to report to the Chinese authorities. It would probably have little if any impact on air traffic, but other countries in the region would see it as a provocative gesture. By early 2016 it is possible that a un court will rule on a case lodged by the Philippines challenging China’s claims. China has said it will not accept the verdict.

Mr Xi hopes that China’s economic muscle will help deter other countries from responding to its assertiveness with anything more than verbal expressions of outrage. In 2015 China will push for progress on several free-trade negotiations. These include one hoped-

China

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THE WORLD IN 2015

A hunger for better services Vijay Vaitheeswaran SHANGHAI

The Middle Kingdom meets the Magic Kingdom

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is composed of services; in America, the figure is closer to four-fifths. Services still lag in China compared with advanced economies, but the sector has more than doubled in size since 1980. Its growth now outpaces that of manufacturing, and the day is coming soon when services will In Shanghai, account for more services than half of China’s already make total output. In up 60% of increasingly postindustrial Shangoutput hai, services already make up 60% of output.

Over the past three years, calculates Andy Rothman of Matthews Asia, an investment firm, average annual consumption growth in China has been around 9%. By contrast, it was 1% or less in Japan, America, Germany and Britain. Nominal

he most ambitious Disney theme park to be built outside Florida is due to open in China by the end of 2015. The park, which is likely to cost over $5 billion to construct and which will sprawl over a million square metres, will boast the biggest and most princess-filled Storybook Castle in the world. However, when Shanghai Disneyland throws open its gates, it will mark more than the mere arrival of the world’s best-marketed rodent to the Middle Kingdom. It will also herald the dramatic rise of the country’s long-suffering middle class.

China’s state-led model of economic development has favoured investment over consumption. Officials have practised “financial repression”, with banks offering working folk meagre or even negative real rates of interest on their deposits. The gains are then used to direct subsidised capital to favoured state-run firms and national champions in industry. In this and other ways, the system has repressed consumption.

Happily for punters, the country’s leaders have changed tack of late. They are now keen to boost consumption in their effort to shift the economy to a more sustainable path. That promises to lead to a surge in services catering to the needs of consumers. These range from retail and tourism to finance and health care, areas that have historically been dwarfed

by China’s formidable manufacturing industry.

In developed nations, perhaps two-thirds of gdp Gourmet enough?

Work finishes on the 42km Hong Kong-ZhuhaiMacau bridge

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2015 IN BRIEF

number of internet users in China will grow to 750m, double the combined number of those in America and Japan. Many of them will use social media to engage in irreverent discussion of current affairs; a few braver ones will be highly critical of the party and its leaders. A vast army of censors will step up efforts to keep them under control. Expect a tightening of restrictions on WeChat, a hugely popular social-networking service that has been operating more freely than the closely watched microblogs, known as weibo.

incomes have been rising at some 14% a year even in the bottom tenth of urban households. Now the next wave of consumption is on the horizon.

The coming services surge could be a bonanza for private firms—and, just possibly, for foreign ones too. Stephen Roach of Yale University forecasts that growth in services by 2025 could amount to $12 trillion. Depending on assumptions of how the country opens up and how many of those services are tradable, he reckons foreign firms could expect a new market worth $4 trillion-$6 trillion in China.

Recent liberalisation in the health sector, for example, means that 2015 could bring a flood of private capital into posh hospitals for the well-off. At the moment, such people often travel to Hong Kong or Singapore for medical care. Even faraway Cleveland Clinic in America has seen Chinese medical tourism double in recent years.

But, in a sign of the times, the clinic is now collaborating on improving brain health with a hospital in Beijing. Foreign investment in health care will accelerate in 2015, especially in higher-end services such as retirement homes for the agile elderly. According to the McKinsey Global Institute, Shanghai and Beijing will head the list of global cities with the highest number of wealthy oldies in future: five of the top ten cities will be in China.

China’s middle classes are becoming increasingly fed up with shoddy services.

Their pent-up demand for better ones points to a coming innovation boom in everything, from dry-cleaning to gourmet-food delivery to entertainment. Mickey would surely approve. n Vijay Vaitheeswaran: China business editor, The Economist

China’s internet users will have much to discuss in 2015. They will surely feast on details that are likely to emerge of investigations into Zhou Yongkang, a retired security chief who is the highest-ranking politician to be targeted for corruption since the party came to power in 1949. A key test of Mr Xi’s strength will be whether he decides to put the well-connected Mr Zhou on trial.

It is probable that he will. If so, the case will offer an extraordinary glimpse into wrongdoing at the very top of the party. n

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China

The number to watch

THE WORLD IN 2015

get will indicate that Mr Xi is ready (and confident he has enough political capital) to pay that cost.

Reforms will come on several fronts. A new budget law Simon Rabinovitch SHANGHAI And breathe... will allow provinces to issue bonds directly, a step towards China’s air putting their finances in order by making debts transparquality may Prepare for a lower growth target ent. Tentative moves so far to get state-owned enterprises improve as to sell assets to private investors will gather steam. Regulacertain types he more China tries to move away from focusing tors will order banks to bring more shadow loans back of poor-quality on economic growth, the more it is pulled back onto their balance-sheets, while still coal are banned that way. Environmental protection, scientific intolerating a roaring business in wealth- It will be a novation, health indicators—these are just a few of the management products—substitutes for turbulent criteria that the Communist Party has said ought to disnormal deposits that are ushering in de year for place gdp in assessing the performance of officials. But facto interest-rate liberalisation.

Chinese in March the eyes of officials, investors and corporate Two long-delayed reforms will see bosses will fix on the very thing that the government daylight. First, the government will infinance troduce a nationwide property tax, a wants to de-emphasise: the official growth target. new revenue source that will also impose costs on homeAt the start of China’s Target practice owners sitting on empty apartments. The tax will be low ersatz national parliament, China’s GDP, % change on previous year* at first—to avoid crashing the housing market. Second, Li Keqiang, the prime minister, will present a report 14.2 banks will at last agree to a deposit-insurance scheme, a 14.2 laying out priorities for the backstop for savers if a bank ever goes bust. That will coming months. Some bits open the door to the collapse of badly managed of this will be well-worn institutions, forcing investors to do a better slogans, repeated so often 11.6 job of pricing risk.

Actual growth as to be drained of meanAnd not a moment too soon. It 10.4 10.1 10 ing. Others will be worthy will be a turbulent year for Chinese 9.6 9.2 and admirably precise, such 8.9 finance. A property downturn will 8.3 as pledges to spend more deepen as a multitude of new 7.7 7.6 7.3 money on affordable houshomes are completed, add7.0 ing to a backlog that is already ing and on rural education. putting pressure on developYet it is the target for gdp, a 9.0 ers’ prices. Bills from China’s single number planted half8.5 way through the speech as if explosive credit growth will 8.0 8.0 8.0 7.5 7.5 3.8 it is an afterthought, that will also come due in greater vol7.0 7.0 umes: 200 billion yuan ($33 command by far the most Government target 6.0 attention. billion) of high-interest trust It was not always thus. The loans to property companies 4.5 tradition of shooting for an anwill mature, almost double nual growth rate dates back to the 2014 total. Nearly 40% the 1980s. For much of that time, of China’s $3 trillion in local-government debts were though, the target was set well meant to have been paid off below the economy’s real trajectory, making it irrelevant. Yet as 1986 88 90 92 94 96 98 2000 02 04 06 08 10 12 14*15 by now, but many were rolled *Forecast for actual growth Forecast China’s economy has slowed, the Sources: Economist Intelligence Unit; China’s government over—they will cast a shadow target has morphed into a hard over credit markets. In 2014 commitment that guides and, the first-ever corporate bond critics argue, distorts policy decisions (see chart). In both default in China’s domestic market caused a stir but its 2013 and 2014, at risk of falling far short of the 7.5% tarinvestors were eventually rescued; in 2015 defaults will get, the government deployed rounds of “mini” stimulus become more familiar, with bailouts less forthcoming. spending to push growth back towards it.

These problems stem from China’s economic distortions of the past five years. gdp was turbo-charged by Seven, seriously unsustainable lending pumped out by a financial system In 2015 the government will give itself more breathing lacking in transparency. It is high time for slower growth space: it will lower the growth target for the year to 7%. and faster reforms to stop the rot from spreading. n Many officials worry that even a slight reduction will spook Chinese companies and investors. But it will be Just possibly… the surest way for President Xi Jinping to signal that A state of emergency is declared in Hong Kong and the he is serious about reform. Wide-ranging changes— Chinese army is deployed on the streets. freeing interest rates, loosening the hold of state-run For the first time since the People’s Republic of China was monopolies, relaxing controls on the flow of money founded in 1949, the presidents of China and Taiwan meet. across borders—are needed to realise the economy’s long-term potential. In the short term, these will cause The Dalai Lama, Tibet’s spiritual leader, makes his first visit Rabinovitch: pain, wrenching China away from the government-led Simon to China since 1959 on a pilgrimage to Shanxi province.

Asia economics editor, investment that has fuelled its growth. A lower gdp tar- The Economist

2015 IN BRIEF

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THE WORLD IN 2015

79

Middle East and Africa Also in this section: Kurdish calculations 80 The bright spots 81 Getting ready for business with Iran 82 Ebola’s economic impact 82

Africa’s debt problems 83 Just possibly… 83 Tony Elumelu: Africapitalism 84

The march of jihadism Anton La Guardia

As instability spreads, calls for intervention will grow

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n their fantasies, the jihadists of Islamic State (is) do not quite know whether they are reliving the early glories of Islam, or are engaged in the final battles before the Day of Resurrection. Those who leave home to fight in Syria and Iraq think of themselves as muhajirun, or “emigrants”, like the followers of the Prophet Muhammad who forsook Mecca to set up in Medina. Their many setbacks are akin to the early tribulations of the Prophet. But now the true believers have burst forth, just as their seventh-century forebears surged out of Arabia and conquered all before them.

As it happens, the leader of is’s “caliphate”, Abu Bakr al-Baghdadi, goes by a nom-de-guerre inspired

by Abu Bakr, the first caliph or “successor” of the Prophet. What of the American-led air campaign against is? Rejoice! It is the great battle of the End of Time that will take place in Dabiq (in Syria), according to a prophecy recorded in a hadith, or saying of the Prophet: one-third of the Muslim warriors will flee; one- Into battle against the unbelievers third will die; and the remaining third shall conquer “Constantinopole” (ie, America).

Such is the nonsense peddled in is’s glossy online magazine, entitled Dabiq. In one respect, though, the jihadists’ fantasy has a telling parallel: the early Muslims defeated two empires, Persia and Byzantium, that were rotten and exhausted. The spectacular success of is, which secured a base in eastern Syria and then swept across the border to conquer much of northern and western Iraq in 2014, owes as much to the awfulness of rulers in Damascus and Baghdad as to the prowess of is’s fighters.

Both multi-ethnic states have been ruled by minorities espousing ultra-nat­ionalist Baathist ideology—­ totalitarian, brutal and, as a result, brittle. In Iraq, Saddam Hussein was overthrown by America, which Anton La Guardia: East and never found a way of putting the country back together Middle Africa editor, again. In Syria, Bashar Assad clings to power in a rump The Economist

of territory, partly because America shrank from taking military action against him, despite his use of chemical weapons, and partly because he is supported by both Russia and Iran. The jihadists have moved into these wrecked polities with a calculated savagery intended to stir sectarian hatred and establish themselves as protectors of the Sunnis.

In 2015 America and its allies will be confronted time and again by the dilemma they faced in Mesopotamia in 2014. Stand back from internal conflicts and let jihadists take root? Or intervene and risk getting sucked into the hatreds of Muslim countries where foreigners can scarcely influence the politics while providing targets for jihadists?

This is because the fragility of postcolonial states is apparent across the Arab world. Where there are chaotic regions in Muslim countries, virulent jihadism is always a danger.

The rifts in the Arab world are widening. Lebanon is at one combustible end of the Sunni-Shia divide that runs all the way to Bahrain, stoked by rivalry between Saudi Arabia and Iran. Another breach is between supporters and opponents of political Islamism, as embodied by the Muslim Brotherhood: Turkey and Qatar confront Egypt, Saudi Arabia and the United Arab Emirates in various proxy conflicts. A separate gulf is opening between rulers and the The danger is that, having lost its ruled, with a succession of popular revolts toppling hubris, the West leaders from Tunisia to will fall prey to Egypt but ending in apexcessive caution palling civil war in Syria.

Libya, like Iraq, has failed to create a stable government since the West helped to topple a tyrant; it may yet provoke external intervention, by neighbours if not by the West. Egypt flirted with democracy and the Muslim Brotherhood, but restored military rule is proving more brutal and

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Kurdish calculus Amberin Zaman ISTANBUL

A many-sided equation

M

any hailed 2014 as “the year of the Kurds”, as these long-persecuted and largely Sunni Muslim people pursued their dreams of self-rule in Iraq, Iran, Syria and Turkey. In Iraq some 5m Kurds, led by the tribal scion, Massoud Barzani, seemed closer than any of their cousins to achieving this goal. With the big oil companies developing the region’s vast oil reserves, the semi-independent Kurdistan Regional Government seemed ready to stand on its own feet. Next door in Syria the Kurds set up governments in three enclaves along the Turkish border, establishing separate governments in all three. Turkey’s Kurds continued to win greater political and cultural rights.

But the Kurds’ fortunes were devas-

THE WORLD IN 2015

tatingly reversed when jihadists calling themselves Islamic State (is) burst on to the scene. In Iraq they overran the city of Mosul and in nearby Sinjar they dealt the Iraqi Kurds a humiliating defeat. In Syria the jihadists kept up their onslaught against the most powerful Kurdish militia, the People’s Defence Units (ypg), despite American air strikes. Iran’s Kurds remain firmly under the clerical regime’s grip. Dozens have been executed for alleged separatism—though they have been spared jihadist atrocities.

In 2015 the threat posed by is will deepen the Iraqi Kurds’ dependence on America for their security. The Americans will, in turn, nag them to end their squabbles with the Shia-led government in Baghdad and to agree on a formula for sharing oil revenues. The Iraqi Kurds will also reassess their relations with Turkey, their biggest trading partner and ally.

Turkey’s failure to help when is attacked Sinjar came as a shock to Mr Bar-

One nation, many countries T

14.7

Adana

U

R

Kurdish-populated areas

K

E

Y

Population, m

Orumieh

Diyarbakir Kobane

66.9

Qamislo Sinjar

Sources: CIA; author’s estimates

Mosul Erbil

I R A Q

ra t

2.0

ph

Mediterranean Sea

Eu

S Y R I A

I R A N

e

s

Other 0.0 0.0 Kurdish

8.1

T i gr i

LEBANON

19.9

s

Beirut

Damascus

72.8 5.7

ISRAEL

Baghdad

26.9

J O R D A N

s

2015 IN BRIEF Saudi Arabian women are allowed to stand and vote in local elections

suffocating than it ever was under Hosni Mubarak. Even so, Sinai has become another jihadist haven. Yemen is in chronic turmoil.

Another band of interconnected conflicts runs south of the Sahara. At one end, in Mali, French intervention in 2013 prevented the capital, Bamako, from falling into the hands of jihadists. At the other, African troops and the un, with support from the West, are helping to wrest Somalia from the Shabab, another radical militia. But these gains are fragile and reversible. In between there are lots of worrying hot-spots—foremost among them Nigeria, where Boko Haram has established its own caliphate in swathes of Borno state. For the first time since the Biafran war of the 1960s, Western officials worry that Nigeria, Africa’s most populous nation, may break up.

America and Europe will thus face manifold appeals for military help. In Afghanistan and Iraq Western forces have shown they are supremely good at destroying targets, but bad at building or rebuilding states. Indirect help through local allies is usually better than direct intervention. But the danger is that, having lost its hubris,

200 km

zani. His nephew and would-be successor, Nechirvan Barzani, who is the enclave’s prime minister, will, however, lobby for close ties with Turkey’s pro-Islamic president, Recep Tayyip Erdogan. This will ignite tensions between the Barzanis in ways that will be exploited by Iran, whose intervention helped to stem the jihadist tide.

Turkey will get more involved in IraqiKurdish affairs, not least to avoid being overshadowed by the Americans. This will entail military co-operation, including security for a newish pipeline that bypasses an existing Iraqi grid to carry oil from Kurdish fields directly to Turkey.

In Syria the Kurds’ resilience against is fighters will lead to closer, if tacit, ties between the ypg and America, which will turn a deaf ear to Turkish objections. Turkey feels deeply threatened by the fledgling Syrian Kurdish entity and has sought to isolate it. This is because the ypg and its political arm, the Democratic Unity Party, are linked to another Kurdish group, the Kurdistan Workers’ Party (pkk), which has been waging a 30-year armed campaign for self-rule inside Turkey.

The pkk keeps threatening to end a ceasefire that underpins peace talks between its imprisoned leader, Abdullah Ocalan, and the Ankara government because of Turkey’s perceived hostility to their Syrian brethren. Peace with the Kurds is crucial to Mr Erdogan’s plans to win their backing for constitutional changes that would boost the presidency’s powers. In 2015 the Kurds will seek to unite against is, but a strongly ingrained tribalism will continue to be exploited by the regional powers. n Amberin Zaman: Turkey correspondent, The Economist

the West will fall prey to excessive caution. Earlier intervention in Syria to support mainstream rebels might have halted the rise of is’s unsavoury brand of jihadism.

America’s war to “degrade and ultimately destroy is” did not start well. The jihadists continued to advance despite aerial bombardment. Over time, American military action will probably halt is’s advance. But to do so, America will have to abandon its policy of no “boots on the ground” by deploying special forces to stiffen Iraqi combat units and call in more accurate air strikes (especially in close-quarters urban fighting). The alternative is to allow jihadists to win more battles that would enhance their appeal as invincible, divinely guided warriors.

If it is possible to degrade is, destroying it will be harder, requiring a transformation of the region’s politics and patient American leadership to manage its rivalries. A nuclear deal with Iran might ease tensions. But if America came to be seen as an ally of the Shia, it would do little to assuage the Sunni embitterment that feeds is’s appeal. And in 2015 the big question will remain: what to do about Syria’s president, Mr Assad? n

THE WORLD IN 2015

It’s not all bad Max Rodenbeck CAIRO

Some parts of the Middle East are actually doing all right

T

he Middle East had a grim time of it in 2014. Not only did violence intensify from Libya to Gaza, Yemen, Iraq, Syria and beyond. The flaunting of ever more shocking cruelties suggested a spreading sickness, a slide towards barbarism that bodes ill for the region’s future. Yet even in the Middle East things are rarely bad everywhere, all at once. Plenty of places are doing just fine, and look likely to keep on doing so.

In fact, the misery of others helps some to thrive. So it is with Dubai. Although the Gulf emirate’s rulers have worked long and hard to make the city-state a better place to live and work, the failure of other regional governments has also driven Dubai’s phenomenal success.

Whenever Saudi Arabia or Iran hurl more dissidents in jail, whenever India or Pakistan overtax business, whenever wars and revolutions erupt nearby, entrepreneurial talent and capital gush into Dubai.

Not surprisingly, the emirate is booming. House prices, which tanked when Dubai nearly went bankrupt during the global financial crisis, have practically doubled since mid-2011. Ultra-expensive infrastructure projects such as a spiffy metro The misery and gigantic new airport now look like wise investments, not of others Dubai’s resident populahelps some to hubris. tion, which stood at 2.2m in 2014 thrive. So it is (not including another 1m daily commuters, tourists and other with Dubai temporary visitors), is expected to grow by 50% by 2020.

The imf thinks the emirate’s gdp growth could average 5.5% in the same period. That seems sound. A tipping-point may have been reached, with so much regional business already relying on Dubai as a corporate base and service centre that future growth will come from internal energy rather than external push. Even so, 2015 could still bring another of those pushes. Dubai has long served as the back-office-cum-hypermarket to sanctions-strapped Iran. It stands to profit hugely if a long-sought nuclear deal frees the Islamic Republic to realise even a part of its immense potential.

The great wall of Israel Israel is another place that bucks the regional trend. But whereas Dubai sucks in the region’s money and skills, Israel prospers by walling itself in. Aside from nasty and brutish, but typically short, wars over the past decade (Lebanon 2006, Gaza 2009 and 2014), the Jewish state essentially ignores its surroundings: weather maps in Hebrew newspapers show London, Miami, Moscow and New York but not Cairo or Baghdad.

Since it joined the oecd in 2010, Israel has outperformed the rest of the rich-country club on many measures. gdp per person matched Italy’s in 2013. After decades of reliance on foreign aid, Israel now has a healthy trade balance as well as a stock of some $80 bil-

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lion in investment overseas. Energy dependence is also a thing of the past: Israel has been quick to exploit abundant offshore gas reserves, which already fuel most electricity generation. Meanwhile a virtuous circle involving high-quality universities, strong government backing and dynamic entrepreneurs generates continued innovation and success in the high-tech sector, exemplified in 2014 by Intel’s decision to expand its already large manufacturing presence with an additional $6 billion microchip factory.

There are less dramatic examples of success, too.

The sustained high oil prices of the past decade fuelled a long boom for infrastructure projects in countries such as Saudi Arabia, Qatar and Algeria. Morocco, far from the chaos, has hummed with steady growth. Even Egypt, where recent turbulence shrivelled investment, is

2015 IN BRIEF

likely to surge as stability returns: its stockmarket gave an indication of what lies ahead when it hit an all-time high in September 2014 after a steady 15-month climb.

But, this being the Middle East, caveats are in order.

Oil-dependent economies may face rougher times soon; the biggest of these, Saudi Arabia, might have to slash its budget if the price per barrel stays below $84. Dubai’s current balloon might pop, just as past ones did, if greed again blinds better judgment and the government fails to address concerns such as a harsh and arbitrary justice system. And Israel must beware of its own smugness. The surrounding mess has brought several years’ ­reprieve from pressure to address the elephant in its own room: its 6m happy Jews cannot indefinitely rule over an equal—­­or probably now greater—number of unhappy Palestinians. n

The 350km (220mile) TangierCasablanca highspeed rail line, the first of its sort in Africa, is due for completion

Max Rodenbeck: Middle East correspondent, The Economist

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THE WORLD IN 2015

High stakes in Iran Oliver August TEHRAN

Deal or no deal?

W

estern investors have been itching to return to Iran. In the second half of 2014 many visited Tehran, the capital, in anticipation of a breakthrough in the country’s talks with foreign powers about the future of its ostensibly civilian nuclear programme. Severe Western sanctions designed to discourage Iran from developing a nuclear bomb have hurt the economy and left it hungry for capital.

Unemployment and inflation have spun out of control. Wages and exchange rates have fallen by more than half since 2011. The American government estimates that gdp is a quarter lower than it would have been without sanctions. Iran is cut off not only from foreign markets but also from the international financial system. No Visa card has been swiped there in three years. Oil exports are down by about half.

If sanctions are lifted, the economy should improve markedly. Officials predict that oil exports could quickly double. Oil exports The automotive incould dustry should recover quickly fairly fast, too. It used to generate 10% of gdp, double but has shrunk by 70% in the past three years because it can no longer source foreign components. “I have to tell you,” Wendy Sherman, America’s

2015 IN BRIEF The United Arab Emirates’ space programme completes its first satellite-making facility

Jonathan Rosenthal: Africa editor, The Economist

chief negotiator, said in September, “as soon as we suspend our major sanctions, which will happen very early in the agreement, the world will flood into Iran.”

The countries involved in the talks—Iran, Germany and the five permanent members of the un Security Council—set themselves a deadline of November 24th 2014 to reach a deal that would lift the sanctions in return for tight limits on the suspect nuclear programme. If the Waiting for the stampede of customers talks collapse, the hopes of would-be investors will be dashed even years has waged a silent war on the country it calls the “Great Satan”. But if the nebefore 2015 begins.

Even if a deal is done, two things gotiations collapse, hardliners on all sides should give investors pause. First, not all would feel vindicated. Sanctions would sanctions can be lifted straight away, for be ramped up and a military attack on technical reasons, and they can be reim- Iran’s nuclear facilities—on hold for the posed if the Iranian government reneges duration of the talks—would once again on its commitments. Second, not all of be an option for policymakers. For its Iran’s economic problems stem from sanc- part, Iran would become more belligerent tions. Reforms are needed too, especially and unco-operative in regional affairs, at in finance and the labour market. Yet a lift- a time when Islamist militants in neighing of sanctions would relieve pressure on bouring Iraq and Syria threaten the inthe government to take such painful steps. terests of all the nations involved. A great Beyond the economy, a deal with opportunity would have been missed. n America and its allies would mark a seis- Oliver August: Middle East and Africa correspondent, mic shift for Iran, which for the past 35 The Economist

Ebola’s long legacy Jonathan Rosenthal

Lasting harm in three west African countries

I

t is no coincidence that the three countries where Ebola spiralled out of control in 2014 are among the world’s poorest. Liberia and Sierra Leone were still struggling to recover from civil wars that devastated their economies, destabilised Guinea and destroyed health systems. Before the Ebola outbreak Liberia had fewer than 200 doctors serving a population of more than 4m.

Models trying to forecast the spread of the disease vary widely depending on the assumptions plugged into them. Key variables, such as how many people are infected by each ill person, remain little more than guesses.

Even the number of people infected is unknown. Doctors reckon it may be two-and-a-half times the official counts.

This uncertainty is also reflected in forecasts for the range of possible economic damages. The World Bank bases its reckoning on two scenarios: a “low impact” one

in which the disease is rapidly contained, and a “high impact” one in which it is contained only slowly and spreads within the region. The cost to west Africa under these two scenarios ranges from $1.6 billion to $25 billion over time. By way of comparison, the economy of Liberia produces a little less than $2 billion a year and that of Sierra Leone under $5 billion a year.

These estimates assume that the disease does not spread much within west Africa. If it does, the cost could exceed $32 billion by the end of 2015, according to the World Bank.

Over the longer term the costs are likely to be far higher, and the impacts more insidious. Among the first casualties of Ebola are health-care workers. Many of those who do not fall ill flee. Within weeks of the disease breaking out in Liberia, it was estimated that fewer than 50 local doctors were still at their posts. By weakening already fragile health systems, Ebola will also kill tens of thousands indirectly through malaria, diarrhoea and hiv. Investors and skilled foreigners will shun affected countries, depriving them of skills and capital. Three of Africa’s poorest countries will be yet poorer. n

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issuer, South Africa.

Corporate debt is usually dollar-denominated, making it hostage to currency fluctuations, though several governments, including those of Mozambique and Ghana, have recently had to issue bonds denominated in dollars instead of in local currencies. But the bigger worry for Africa is the nature of private lending. If governments get into trouble and need to reschedule their debts or borrow more even while they pay less, official lenders typically oblige. Private lenders are less forgiving.

When interest rates and long-term bond yields in developed economies rise—as they surely will, starting in 2015 in some places—private lenders will look on Africa less benignly. They will probably demand yields much higher than those that new African government and private bonds are currently paying, if they don’t refuse to buy altogether.

Much will depend on how healthy African government finances are looking. The signs are not good: whereas sub-Saharan Africa actually ran a regional budget surplus during much of the past decade, that has

2015 IN BRIEF

THE WORLD IN 2015

The coming African debt crisis Richard Walker

A worrying build-up of borrowing

A

frica has the fastest-growing continental economy on the planet. And the thing that has been growing fastest of all is debt—personal, corporate and government. In 2015 Africa and its boosters will start to worry that the debt boom is getting out of hand.

Sovereign bonds issued by some of the world’s most far-out “frontier” economies, often denominated in local currencies, are snapped up by hungry investors from Omaha to Zurich. In 2014 countries like Senegal, Côte d’Ivoire (less than five years after a governmentdebt default) and Zambia placed bonds worth as much as $1 billion, with all the issues oversubscribed. Kenya’s record-breaking sale of $2 billion in debt was oversubscribed four times over.

These government borrowings are in essence massive bets that the African growth story will continue. More betting will follow before the party finally ends—even Ghana, already deep in debt and with the continent’s worst-performing Today most currency, had no difficulty raising another $1 billion in euro-deof Africa’s debt in late 2014. The borrowing is nominated African borrowing binge, which from private began in 2007 and has been driven by investors’ hunger for sources yield in the post-crisis economy, looks likely to carry on until interest rates and investment returns in the rest of the world start to normalise.

When that happens, Africa’s lenders may reflect on how history repeats itself—especially in a place with cyclical, resource-dependent economies—even if it is with a twist. The continent has been deep in debt before, and is in danger of a rerun. According to the imf, in 2009 the whole of sub-Saharan Africa raised less than $5 billion through bond issues, including both private and sovereign bonds. By 2013 that had grown to $14 billion, and the 2014 total will be around $20 billion. Africa’s total debt-to-gdp ratio, which had fallen to less than 30% by 2008 (thanks to debt forgiveness as well as booming commodity prices), remains low, because gdp has been growing fast. But in some countries debt is now heading back up towards 70% of gdp or beyond.

This time is different—and could be worse Africa used to borrow from official lenders: governments, the World Bank, the African Development Bank and the imf. Today most of its borrowing is from private sources (see chart). Government loans and “assistance” are out of fashion. Instead it is private investors that are betting on Africa’s future ability to pay, with bond funds, private-equity and individual investors (including African ones) buying government debt. Private debt issued by larger African companies is adding to the pile; there have been large corporate-bond issues from Ethiopia, Mozambique and Nigeria, as well as from the traditional

Ivory Coast braces itself for a first presidential election since the poll of 2010 that saw the country descend into chaos

Burdensome

Sub-Saharan Africa’s mediumand long-term debt, $bn 200

Owed to official creditors

150

100

50

Owed to private creditors

0 2000

01

02

03

04

05

06

07

08

09 10 11 12 13 14* 15* *Forecast Source: Economist Intelligence Unit

now turned to a regional deficit, as governments have spent heavily on salaries, subsidies and infrastructure even as commodity prices and tax revenues have fallen.

Some countries, such as Ghana and Tanzania, are now running deficits of over 10% of gdp.

The world’s debt investors are willing to tolerate such figures as long as investment opportunities elsewhere pay next to nothing. Perhaps that will not change in 2015. It is also possible that African government spending will suddenly shrink. And maybe the commodity prices that Africa depends upon will soon boom again. But don’t bank on any of those events. n

Just possibly…

Facilities for making chemical weapons in Syria are closed down, if a willing contractor can be found.

Some South African trade unions break a long-standing alliance with the ANC and form a rival “workers’ party”.

Work begins in Congo on the Grand Inga Dam, the biggest hydroelectric project in the world.

Richard Walker: freelance correspondent

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THE WORLD IN 2015

The rise of Africapitalism

I

n 2015 the African entrepreneur will emerge on to the global stage, as a new generation shows the world what those of us doing business in Africa have long known: that our continent is home to some of the most exciting and innovative entrepreneurial talent.

From advanced mobile-payment systems to new agricultural-insurance models, we are already seeing how entrepreneurship is transforming Africa. But in Africa, business growth alone is not the full story. It is perhaps not even the most important part. Entrepreneurship matters especially for its potential to transform society.

For centuries, the continent was impoverished by the extraction of raw materials by colonial powers. Africa was unable to generate or sustain its own wealth, as it was forced to buy finished goods created with African resources at premium prices. And it lacked basic infrastructure except for the roads and ports built to move exports. If Africa is to transcend that chapter of its history and realise its economic potential, it must first become self-sufficient—and the private sector is vital to this process.

Imagine the same continent filled with businesses that can process crude oil into petroleum, cocoa pods into chocolate and cotton lint into fabric, all while retaining the finished-goods premium instead of sending wealth overseas. The term “Africapitalism” describes the process of transforming private investment into social wealth. As homegrown businesses meet social and economic needs by creating goods and services with an innate understanding of the local environment, they can bring private capital to vital infrastructure like road transport and power generation. And they can create jobs for Africans, which will in turn create an African middle class—a new generation of African consumers.

Entrepreneurial energy and inventiveness also have the potential to tackle pressing social problems in new ways. In recognition of the far-reaching impact such new methods can have, we will be providing $100m to 10,000 entrepreneurs across Africa through the soon-to-be-launched Tony Elumelu Entre­preneurship Programme. By democratising access to opportunity, with an emphasis on tapping into the talent of Africa’s young people, this programme strives to “institutionalise luck”, which is a key factor in the success of any ­entrepreneur.

Young entrepreneurs and those they in-

spire are the lifeblood of Africa’s rise. Simdul Shagaya, a serial entrepreneur from Nigeria, built his first business monetising advertising space on toll roads in Lagos before selling that company to set up Konga, a leading Nigerian online retailer. Mr Shagaya has introduced innovations that surmount Nigeria’s limited capacity for online payments and door-to-door postal delivery service.

Mike Macharia, a Kenyan tech entrepreneur, has built Seven Seas Technology into a pan-African company with operations in east,­ west and southern Africa. He outcompetes vendors from more traditional global it markets, and last year bought a Portuguese technology company to gain access to their software and services.

And then there’s Funke Okpeke, who left a lucrative telecoms career in New York to assist the construction of 7,000km (4,350 miles) of fibre-optic submarine cables from Portugal to the coast of west Africa through her company, MainOne. The resulting increase in bandwidth has had a multiplying economic impact across the region.

Way beyond business The promise of entrepreneurs like these reaches much wider than the business arena.

They have the potential to transform leadership at home. Already, they are engaged in discussions with Africa’s political leaders ­on policy issues, pushing in particular for the streamlining of processes that will allow quicker business startups.

And their influence can reach beyond Africa. At the us-Africa Summit held in Washington, dc, in August, Takunda Chingonzo, a 21-year-old tech entrepreneur from Zimbabwe, elicited the promise of a review from President Barack Obama by challenging him about the negative impact of American sanctions on Zimbabwean entrepreneurs.

Mr Chin­gonzo proved the game-changing potential in the young African entrepreneur that day.

African entrepreneurs will play a central role in bringing together private wealth and public need. They will prove a key tenet of Africapitalism: that it is both necessary and possible for entrepreneurs and society to prosper simultaneously. The transformative impact of economic growth unleashed by a fully ­empowered, socially conscious entrepreneurial class will dwarf the results achieved ­ by the previous aid-driven approach to ­Africa’s development. n

Entrepreneurs will transform Africa, says Tony Elumelu, chairman, Heirs Holdings, and founder, the Tony Elumelu Foundation

Young entrepreneurs and those they inspire are the lifeblood of Africa’s rise

THE WORLD IN 2015

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International Also in this section: Our 2014 scorecard 86 Setting new development goals 87 Hillary Rodham Clinton: Closing the gender gap 88

The growth of yoga 89 A trio of World Cups 89 The spectre of nuclear war 90 Nationalism is back 92 Just possibly… 92

Bill Gates: Simple solutions to save lives 93 Charting a year of change 94 The population pyramid reshaped 96

Opinion of climate John Parker

Countries will approve a climate treaty in 2015. Sort of

A

2015 IN BRIEF The Parliament of the World’s Religions, the biggest global interfaith meeting, convenes in Salt Lake City

s

t the end of 2009 efforts to negotiate a global climate treaty crashed and burned in Copenhagen.

At the time, the head of one charity described the city as “a climate crime scene” with “the guilty men and women fleeing to the airport”.

Six years later governments will revisit the scene of the crime—metaphorically at least—when they gather in Paris to have another go at negotiating a climate treaty. This time they will bicker and squabble their way to a deal. Whether it will do much to rein in the growth of carbon emissions or satisfy any of the other hopes that were raised and dashed at Copenhagen is doubtful.

Much has changed since 2009. Most of it makes a deal somewhat more likely. A new generation of leaders has come to power. Indeed, only Barack Obama of the United States and Germany’s Angela Merkel remain as heads of the largest polluters.

The new generation leads a world in which greenhouse-gas emissions have risen remorselessly since 2009.

In 2015 annual average concentrations of carbon dioxide in the atmosphere will rise above 400 parts per million for the first time in over a million years. And even though global surface temperatures have not risen much

for a decade, the risks of severe and irreversible damage from rising greenhouse-gas emissions are, according to most climate scientists, growing. In most countries (though not in America) climate change is seen as a significant threat.

Outdoor air pollution has become the largest source of premature death in the world. Politicians are also coming under increasing pressure from business, finance and markets. Two big reports published in 2014 (one from an international group of ex-presidents, heads of international financial institutions and economists; the other from The new climate American chief executives and former treasury secretardeal will allow ies) demonstrated a substancountries to set tial change of mind among their own goals decision-makers that climate change needs to be tackled.

Some markets reflect these concerns. The corporate green-bond market, for example, which raises money from capital markets for companies to make environmentally friendly investments, is likely to hit $100 billion in 2015; in 2009 it barely existed. As a result, the politics of a climate treaty have changed. In 2009, none of the three biggest national polluters—the United States, China and India—was ready for such a step. Now, they may be.

John Parker: environment editor, The Economist

International

2015 IN BRIEF

America’s Senate will not ratify a treaty—these days, it never does—but executive actions by the Obama administration (such as limiting emissions from power stations) have ensured that the United States could abide by the terms of any likely climate treaty, rather as it conforms to the un Law of the Sea, which it has not ratified.

In China the president, Xi Jinping, has given fighting pollution a higher profile. He has done so for domestic reasons, but may be prepared to approve a treaty based on steps he was planning anyway. India has long been cautious on global climate matters and is likely to remain so. The main reason for thinking it too might move is that its prime minister, Narendra Modi, was something of a green pioneer when chief minister of Gujarat.

It is true that some things have not changed. The Copenhagen talks foundered mainly on disagreements between rich and poor countries. The poor argued that the rich caused more of the carbon accumulation in the first place, and should do more to reduce it by paying poor countries extra to cut back on greenhouse gases. Their demands will grow. The rich replied that they were doing a lot but that developing countries, as

To the sound of cracking ice, America takes over the chairmanship of the Arctic Council from Canada

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the sources of most new emissions, needed to do more themselves. There is little sign that this disagreement has narrowed. Moreover, the European Union, which likes to see itself as a leader of climate talks, has been backing away from some of its recent green ambitions.

Better than nothing A new climate treaty will reflect such difficulties. Instead of looking like a traditional treaty, in which countries sign up to common obligations and promise to meet common targets, the new deal will allow countries to set their own goals, agreeing merely to revisit them regularly (which would help to give global investors confidence that the market for green goods will expand) and perhaps to promise to make goals more, rather than less, stringent in future.

Such a deal would be extremely modest. In practice it might merely codify what America, China and a few others were doing anyway. It would not be able to push countries into promising anything they do not want to do. But at least it would be something, which is more than Copenhagen managed. n

Twenty-fourteen hindsight Daniel Franklin

Our best and worst predictions from last year

“T

he main battle in 2014 will unfold over Ukraine, which has been heading towards an association and free-trade agreement with the European Union,” said our article in The World in 2014. “Russia will do everything it can to stop it. Countering Russian pressure will require a vision and resolve from the West last displayed in the early 1980s.”

A triumph of prediction? Not exactly.

The passage above was tucked away at the end of our piece on Russia and, despite one or two broad hints elsewhere of potential trouble, readers of last year’s edition would hardly have been prepared for the prospect of Russia grabbing Crimea or stoking a small war in eastern Ukraine.

Our readers would have been even less prepared for the gruesome rise of Islamic State in Iraq and Syria, and the Americanled military response. Nor were they told to expect a bloody war in Gaza. In the Arab world, a misguided belief that things could hardly get worse persuaded us that there was “a modest chance that 2014 will bring a general improvement”. As for Africa, previous editions of this publication had warned of the spread of infectious diseases, but last year’s contained no mention of Ebola.

In short, we did a poor job at foreseeing things that flared up suddenly. Fortunately, we did better in other areas, such as

the economy, the ups and downs of politics, and the broad pattern of geopolitics if not specific crises.

We expected America’s economy to pick up and China’s to slow down. We thought Britain’s would grow to be bigger than ever, yet rightly reckoned low wages would keep Britons feeling dissatisfied.

We pointed to the revision of Nigeria’s gdp that would show the country to be the biggest economic power in Africa.

The global political scene would be more risky, Gideon Rachman presciently

warned, because of doubts about Amer­i­­­­ ca’s willingness to play the role of global policeman. In a big year for voting, we correctly predicted the outcome in many cases: the rise of populist parties in the elections for the European Parliament, No to Scottish independence in a referendum, wins at the polls for Dilma Rousseff in We did a Joko Widodo poor job at Brazil, in Indonesia, John foreseeing Key in New Zealand things that and Narendra Modi in India (though Mr flared up Modi’s victory was a good deal bigger than suddenly we ­expected).

What was our best prediction? Laza Kekic merits an honourable mention for flagging a rise in social unrest around the world. Sophie Pedder surely deserves a légion d’honneur for being right about France down to the last detail (well, almost: those details did not extend to President François Hollande’s love life). But the prize goes to Adrian Wooldridge for foretelling a “tech-lash”, a peasants’ revolt against the sovereigns of cyberspace. Sure enough, in 2014 Silicon titans have found themselves under growing attack for everything from dodging corporate taxes to scooping up vast amounts of people’s personal data.

The booby prize, on the other hand, goes to our prediction for the fastest-growing economy of 2014. We expected that country to be South Sudan, where gdp would rise by an eye-popping 35%, streets ahead of its nearest rival. Sadly, what grew instead was growth-destroying civil conflict. n Daniel Franklin: editor, The World in 2015

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stick to some sort of income measure of dollars per day, or adopt a more sophisticated yardstick that also takes into account factors such as health and education? The targets will need to be designed to make it hard for governments to pick and choose between them in claiming progress, so that countries can be meaningfully compared. Proposals will be made for new ways to hold to account the rich countries that will have to pay a significant part of the price of achieving the new goals.

The debate about how effective the mdgs have been will intensify as the announcement of the new goals gets nearer. Naysayers will point out that, though progress has been made on, say, bringing down the number of people living in extreme poverty, this has been due largely to the flourishing of capitalism in China rather than anything done by the un and its agencies or international aid. But where the mdgs can claim some credit, such as on reducing by millions the number of children under five dying each year, it is clear that mobilising large amounts of money in support of them was crucial.

2015 IN BRIEF

THE WORLD IN 2015

Goals, goals, goals Matthew Bishop NEW YORK

The world comes together to set itself some more development targets

U

nless you are a world leader, avoid New York in the last week of September. Manhattan traffic will be gridlocked as the United Nations holds its annual General Assembly, which in 2015 will be the most significant in at least a generation. It will include a big celebration of the progress that has been made towards achieving the Millennium Development Goals (mdgs) adopted in 2000—almost certainly a bigger celebration than the uneven results merit. And, with the mdgs expiring at the end of 2015, a new There is a real set of goals will be adopted to guide the world until 2030. danger that They will be called the Susall the effort tainable Development Goals will produce but, apart from their name, almost everything about them nothing of will be decided through a massive diplomatic free-for-all in substance the months, days and probably even hours before their unveiling at the General Assembly. The adoption of the mdgs was relatively straightforward in comparison, shepherded through by some un officials who focused on things that could make a big difference and had a reasonable chance of being implemented. The fight over the Sustainable Development Goals will pit not only rich-country politicians against developing-country ones, but also bring to the battleground multinational companies, philanthropic foundations, ngos and campaigns by the public. With so much noise, there is a real danger that all the effort will produce nothing of substance.

Eight mdgs were adopted in 2000, ranging from ending extreme hunger and poverty, and reducing child mortality, to forging a partnership between governments and the private sector to promote economic development. The starting-point for the next battle will be a much longer list of proposed goals that has already been trimmed to 17 (including ones on oceans, income inequality and renewable energy), accompanied by some 169 sub-targets.

Some attempts will be made to increase the number of goals (and targets). But the real battle in 2015 will be over whether to have fewer. A group of rich governments, including America and Britain, plus some business leaders and philanthropists such as Bill Gates, would prefer a smaller set of crunchier goals, with an emphasis on building on and completing the work of the mdgs. For them, trying to agree on a goal for, say, income inequality has the potential to be a massive distraction from the practical issues of helping the people now worst off. Developing countries, on the other hand, and in all likelihood the leaders of the un, will push for a broad package of goals and targets that has the potential to transform the workings of the international economic and political system.

One key question will be how to define poverty:

Another big UN global gathering, in the Japanese city of Sendai in March, sets a framework for disaster-risk reduction

Money, money, money The Sustainable Development Goals are more likely to be taken seriously if they come with some big pots of money to help countries pursue them. That will be the focus of an inter-governmental meeting in Addis Ababa in July, where there will be a push to get donor countries to move beyond vague promises to spend 0.7% of gdp

Education, education, education

on international aid to something focused on specific tasks. New approaches to financing the building of infrastructure in developing countries will be on the table, as will a new Global Fund for Education.

Events in Addis Ababa will play a large part in shaping the mood in New York in September. Similarly, the details of a climate-change deal due to be announced in Paris in December will determine the credibility of any claims that the new goals make about sustainability. All this will be a test of whether fresh life can be injected into the un system and the notion that countries can work together to tackle the world’s biggest problems, or whether the initial promise of the mdgs will be followed by a return to hot air and inaction. n

Matthew Bishop: globalisation editor, The Economist

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THE WORLD IN 2015

Unfinished business for the world’s women

H

ere are two numbers that could shape the future of a great nation: six and 1.7 trillion. The first is the average number of hours each day that women in India spend performing unpaid labour. The second, in dollars, is the amount India’s gross domestic product (gdp) would increase if women participated in the formal labour force at the same level as men.

Today, using new data and analytical tools, we know more than ever about the contributions of women and girls to security and prosperity around the world, as well as the obstacles that block them. In 2015 the Clinton Foundation’s No Ceilings initiative, working with the Gates Foundation, will release a global report that maps out both the gains that women have made over the past two decades and the notable gaps that remain.

Why 2015?

September marks the 20th anniversary of the United Nations Fourth World Conference on Women, which took place in Beijing in 1995.

The message of that gathering still rings true today: “Human rights are women’s rights and women’s rights are human rights, once and for all.” I was proud to join representatives of 189 nations in agreeing to an ambitious platform for action that called for the “full and equal participation of women in political, civil, economic, social and cultural life”.

The good news is that in the 20 years since the Beijing conference we have made real progress. Access to health and education for women has improved markedly. The rate of maternal mortality has been cut in half. The global gender gap in primary-school enrolment has virtually closed.

But other news is not so encouraging.

Progress has been slow in terms of economic opportunity for women. Globally, the gap between men’s and women’s labour-force parti­ cipation has not narrowed that much. Over 100 countries still have laws that limit women’s participation in the economy. Even where more women are entering the workforce, challenges persist. In the United States, four in ten primary breadwinners are now women.

Yet American women still earn less than men doing the same job. A lack of flexible and predictable scheduling, affordable child care, paid sick days and paid maternity leave­—the United States being one of very few countries that lack it—keeps too many women on the sidelines. A 20th-century economy just doesn’t work for 21st-century families.

What we believed to be true in 1995, we know for certain now: we cannot get ahead by leaving half the population behind. The evidence is clear that when women and girls have opportunities to participate, economies grow and nations prosper. When you present these data in a way that is accessible and compelling, heads start nodding.

I’ve seen it first-hand all over the world, including from sceptical heads of state. The more people are informed by good data, the more they can make good decisions and ultimately, the more results we will see. The Organisation for Economic Co-operation and Development has found that if we close the global gap in workforce participation between men and women, gdp worldwide would grow by nearly 12% by 2030.

As the world looks back on the lessons of Beijing and forward to agreement on new global development goals, we have the opportunity to make 2015 a year of action in a number of key areas.

Although more laws prohibit discrimination against women, implementation and enforcement lag and cultural norms remain hard to change. Nations need to commit the resources and political will to enforce the laws they have adopted to promote gender equity and act against the obstacles that still persist.

Advances in technology open up unprecedented opportunities for progress. Tools like mobile banking, online training and even Twitter can help more women access the services they need to get ahead and share their stories. But we must first close the large gap in mobile and internet connectivity between men and women in the developing world.

This isn’t just a fight for women. In 2015, if we leverage partnerships with a range of allies, particularly religious and private-sector leaders, we will drive broader and faster change.

Leaders in many spheres are starting to recognise that holding back women is not right and is not good for the bottom line either.

Twenty years ago, talking about the equality of women and girls was taboo in many places, including China, so pushing boundaries meant making a strong moral case. In 2015, a growing body of data allow us to do this using evidence as well.

Progress is possible. Just like our words in 1995, our actions in 2015 will echo into the future. Let’s ensure that when we turn the pages of this publication in 2035, the fight for the equality of women and girls will have been won. Once and for all. n

The anniversary of a landmark UN conference on women is an opportunity to renew its vision, says Hillary Rodham Clinton, former American secretary of state

What we believed to be true in 1995, we know for certain now: we cannot get ahead by leaving half the population behind

International

THE WORLD IN 2015

Yoga stretches up Anne McElvoy

Plentiful pranayama

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ver since Adinatha, a 15th-century Indian mystic, promised in the Khecarividya that yoga practitioners would become “ageless and undying in this world”, followers have been drawn to its bendy charms. According to Spafinder, a New York health-industry consultancy, some 22m Americans practised yoga in 2012—up 2m on 2010. American spending on yoga products, from trendy attire and mats to studio classes, rose from $4.7 billion in 2007 to $7 billion in 2012 and is predicted to exceed $8 billion by 2017.

Worldwide the number of people engaging in asanas (movements) and pranayamas

(breathing exercises) is expected to reach a new peak in 2015. The Wharton School at Pennsylvania University has tracked yoga in China and predicts a boom. Even theocracies, which often frown on yoga as a challenge to the state religion, seem to be relaxing. Iran now has an estimated 200 yoga centres, despite an edict from security chiefs that called the pursuit a threat to Islam.

Several factors are combining to promote the practice. It has shaken off a hippy-dippy reputation (even bankers chant their “Oms” and studios open early to catch industrious office workers). Insurance companies include regular yoga exercise among factors that can reduce premiums. Health benefits for the elderly have made “Grey yoga” popular. And yoga is nothing if not adaptable: the International Sports Yoga Federation, which, to the horror of purists, runs yogic tourna-

A trio of World Cups Adam Barnes

Just when you thought it was safe to move away from the television...

I

n between two invigorating displays of Brazilianbased sport—the football World Cup in 2014 and the 2016 Rio Olympics—2015 promises something of a lull. But what it lacks in samba-infused spectacle, it should make up in variety, thanks to three World Cups.

Cricket-mad Indians, in particular, will lap up the cricket World Cup, which takes place in Australia and New Zealand in February and March. Matches are of the “one-day” variety—less traditional than fiveday Test matches, more staid than hit-and-giggle Twenty20 cricket, which lasts about as long as a baseball game. Some have questioned a bloated format that means all 14 competing teams play at least six matches before the knockout stages: the eight best sides are practically certain of quarter-final berths. But one advantage for the broadcasters—and by implication the International Cricket Council, which sells the television rights—is that India should play at least seven games. In 2007 they went home after three matches and advertising revenues plummeted.

They are in the running to win the 2015 competition, but familiarity with local conditions means Australia should ride a wave of home support to victory.

Television audiences for these matches can be massive. Folklore holds that the semi-final in 2011 between Pakistan and India attracted more than 1 billion viewers. But, based on total attendance figures, it is the rugby World Cup that has a stronger claim to be the thirdbiggest international sports event, behind the Olympics and the football World Cup. Much as one-day cricket has been put on its guard by shorter, sexier Twenty20, the 15-a-side version of

Adam Barnes: deputy editor, The World in 2015

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ments, estimates that more than 5,000 people take part in such contests.

Social media and internet apps have also helped forms of yoga that were once deemed slightly bonkers to attract new followers. At the Third Space gym in central London one of the most heavily booked classes is anti­gravity yoga, in which participants are suspended from the ceiling by silk fabrics, enabling deeper stretching.

Elsewhere, there are yoga raves for the hedonistic and placid yin yoga for those who like to stay in one position until tedium numbs the soul.

Six centuries ago, Adinatha promised that his (relatively straightforward) hatha yoga would be useful for “finding buried treasure, entering subterranean realms (and) controlling the Earth”. Not a bad offer for off-duty corporate types. n Anne McElvoy: public-policy editor, The Economist

rugby (15s) that is played at the World Cup is starting to notice the impact of the seven-a-side version (sevens). From 2016 sevens becomes an Olympic sport, and countries with a small player base, not to mention governments bewitched by the prospect of Olympic medals, will start to concentrate on the shorter, less complicated version of the game. Kenya, for example, has a world ranking of 32nd for 15s, but came seventh in the most recent World Sevens Series.

This World Cup starts in England in September, and a decent, competitive tournament would remind new fans wowed by the speed and simplicity of sevens that 15s provides a different set of thrills. New Zealand, the cup-holders and the world’s best team, should win a first World Cup outside their homeland; South Africa and England will provide the strongest challenges.

Americans searching for a team to get behind should look to the women’s football World Cup in Canada in mid-summer. This is the seventh such tournament and, thanks in part to many years of investment, the Americans have won twice and have yet to finish outside the top three. They should win again in 2015.

The Canadian hosts have much to live up to after the success of the previous competition in Germany.

Their plan to use artificial grass in the six stadiums has attracted criticism, and a group of players threatened fifa, the game’s governing body, and the Canadian Soccer Association with legal action for gender discrimination. The men’s competition, they said, would never be played on such surfaces. Canada wants to host the 2026 men’s World Cup—it is the only one of the g7 group of rich nations not to have done so—and will hope for a smoothing over of all ruffled feathers.

So armchair fans in 2015 will have to make do without television backdrops of Copacabana Beach and colourful favelas. But with football’s Africa Cup of Nations in Morocco and the World Athletics Championships in Beijing in the mix as well, they still have plenty of reasons to invest in a bigger television. n

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Still on the eve of destruction Matthew Symonds

Barack Obama’s bid to rid the world of nuclear weapons looks more forlorn than ever

A

THE WORLD IN 2015

2015 IN BRIEF The UN celebrates both earth and sky with the International Year of Soil and the International Year of Light

ugust 2015 will mark the 70th anniversary of the dropping of two atomic bombs, on Hiroshima and Nagasaki. Although the world came close to disaster in 1962 during the Cuban missile crisis, and numerous accidents and false alarms could also have triggered catastrophe, the Japanese attacks marked both the first and so far the last time that a nuclear bomb has been used in war. The balance of terror between America and the Soviet Union evolved into a choreography of deterrence involving successive arms-control deals in which both sides understood that their own security depended upon respecting the security needs of the other.

The world today is both safer and more dangerous.

Despite Vladimir Putin’s best efforts to restore the adversarial relationship between Russia and the West, a nuclear exchange with America and Russia of a size that could end all life on the planet is hard to imagine. But it is also more dangerous because of new tensions, the increased number of nuclear decision-making centres and the growing risk of proliferation in volatile regions.

Those concerns will supposedly be addressed in May when the 189 state signatories of the nuclear Non-Proliferation Treaty (npt) meet in New York for the review conference, known as RevCon, which is held every five years. The npt, established in 1968 to restrict nuclear-weapons states to the five permanent members of the un Security Council (p5), America, Britain, France, Russia and China, while promoting nuclear energy, was a grand bargain that rested on three pillars: non-proliferation, the peaceful use of nuclear energy and eventual nuclear disarmament by the p5.

But although Russia and America have negotiated large cuts in their nuclear arsenals, arms control has stalled since the last (modest) agreement, New start, was signed on the eve of the 2010 RevCon. The p5 still have some 10,000 warheads between them. India, Pakistan and Israel, all nuclear-weapons states, The nightmare of Nagasaki are non-signatories; North Korea left the npt without much effective sanction after gaining nuclearweapons technology. Others, notably Iran, and in the past Libya, Iraq and Syria, have stayed within the npt while clearly cheating and undermining its purpose.

It was against this backdrop that Barack Obama made his famous Prague speech in 2009 (which won him his premature Nobel peace prize), arguing that the world must be shaken out of its complacency about weapons that could still destroy mankind. His ambition, he declared, was to set in train multilateral processes that within a generation could lead to the worldwide Symonds: renunciation of nuclear weapons—“global zero”, as it Matthew defence editor, The Economist became known.

After an unproductive affair in 2005, the 2010 RevCon was deemed a success, partly because of the hopes placed in Mr Obama and partly because of an agreement reached on an action plan aimed at reinforcing each of the npt’s three pillars. But Mr Obama promised far more than he could deliver and much of the plan remains incomplete, which does not bode well for the 2015 gathering. With Mr Putin’s belligerent Russia unwilling to enter into any new talks with America, and with China resistant to calls for more transparency about its arsenal, the p5 have made none of the progress towards the further disarmament they committed themselves to. Indeed, all the authorised weapons states are modernising their nuclear forces.

Signatories from the non-aligned movement (nam) are also grumpy, as they believe their agenda has been ignored. A pledge to hold a conference by 2012 on estabIf Ukraine had lishing the Middle East as a nuclear-weapons-free zone kept its nuclear has not been met. Given the arsenal, would turmoil of the Arab spring and Russia have Israel’s willingness only to take invaded its part in a process that deals with all aspects of security in the reterritory? gion, the prospects for such a meeting happening before the RevCon are poor. Failure will have a corrosive effect on the atmosphere with some countries, such as Egypt, threatening to walk out.

A new initiative on the “humanitarian consequences” of nuclear weapons, which challenges the incremental approach to disarmament by attempting to make them illegal under international humanitarian law, has grown in popularity and is backed by the likes of Norway, Austria and Ireland, as well as the nam.

However, the p5 have refused to engage with it; and, since Russia’s annexation of Crimea, the attitudes of many nato countries protected

by America’s nuclear umbrella have hardened against it further.

Chilly at the top The Ukraine crisis will affect the conference in other ways. Co-operation between America and Russia on nuclear issues is now in the deep freeze. Mr Putin sees Russia’s nuclear weapons as an essential symbol of its national virility.

But the gravest danger to the npt is the devaluing of security assurances of the kind provided to Ukraine by Russia, France and Britain under the 1994 Budapest Memorandum when it gave up nuclear weapons it had inherited after the dissolution of the Soviet Union. If Ukraine had kept its nuclear arsenal, would Russia have invaded its territory?

Oddly, the one bit of positive news could come from the negotiations between the p5 (plus Germany) and Iran over its nuclear programme. Large gaps remain, especially over the number of uranium-enrichment centrifuges Iran can keep. But enough progress was made in 2014 to warrant an extension of the talks. Russia has not broken ranks. The npt is under great strain, but it has not yet fractured. A deal with Iran that honoured its principles could give it the boost it desperately needs. n

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2015 IN BRIEF

Nationalism is back

The host city of the 2022 Winter Olympics is chosen. Almaty and Beijing are in the running

Gideon Rachman: chief foreign-affairs columnist, Financial Times

Gideon Rachman

Bad news for international co-operation

I

n recent years, any writer who predicted that nationalism was the wave of the future would have been regarded as eccentric—at best. All the most powerful forces in business, technology and finance seemed to be pushing towards deeper international integration. New supranational organisations such as the World Trade Organisation, the g20 and the International Criminal Court were set up to handle the cross-border issues that proliferated in a globalised world. Meanwhile the European Union, an organisation in which countries pool sovereignty and forswear nationalism, set itself up as the political model for the 21st century.

In 2015, however, it will become increasingly clear that nationalism is back.

From Europe to Asia to America, politicians who base their appeal on the idea that they are standing up for their own countries will grow in power and influence. The result will be an increase in international tensions and an unpromising background for efforts at multilateral co-operation, whether on climate, trade, taxation or development.

The resurgence of the nationalist style in politics became evident in 2014. In India Narendra Modi, who is often referred to as a Hindu nationalist, won a sweeping general-election victory. Nationalist parties made big gains in the elections to the European Parliament, with France’s National Front and Britain’s United Kingdom Independence Party (ukip) topping the polls.

Scottish nationalists came unnervingly close to winning a referendum on independence from the United Kingdom. Nationalist rhetoric also surged in Vladimir Putin’s Russia, as the Kremlin rallied domestic support for the annexation of Crimea by using the Russian media to portray the outside world as hostile, even fascist.

Fuel for the fire A widespread disillusion with political and business elites, after years of disappointing economic growth, is a common factor that underpins resurgent nationalism across the globe. In western Europe the added ingredient is anger at high levels of immigration. In Russia it is lingering humiliation about the collapse of the Soviet Union and nostalgia for great-power status. In Asia the extra spice is a shifting balance of power that has encouraged nations such as China and South Korea to focus on historical grievances, particularly against Japan. In America outrage at the growth of Islamic State has begun to stoke an appetite for a return to a more assertive and militarised foreign policy.

THE WORLD IN 2015

Many of these forces will strengthen in 2015. So the nationalist tone to global politics will be more marked.

In Europe key gauges of the strength of nationalism will be the general election in Britain and some local elections in Germany. A strong showing by ukip in Britain will stoke fears that the country may soon leave the European Union. Meanwhile, the Alternative for Germany party, which argues that In Asia the German interests have been subordinated to the eu’s, will push to extra spice establish itself as the country’s third is a shifting political force. The French political balance of class will nervously watch opinion polls for more evidence of the rise power of the National Front’s leader, Marine Le Pen, as a viable candidate for the presidency.

The most serious threat to the stability of Europe, however, remains Russian nationalism. The biggest security question facing Europe—and perhaps the world—will be whether President Putin rides the nationalist wave he has helped to create, and continues to threaten Ukraine and even the Baltic states.

The relationship between nationalist rhetoric and territorial disputes will also be critical to the future of Asia. Mr Modi of India, Shinzo Abe of Japan and Xi Jinping of China are all energetic nation-builders who have used nationalism as a spur to domestic reforms. But their nationalism also has an outward-looking face.

Asia’s big question in 2015 is whether the urge to get on with domestic reforms in China, India and Japan will trump international rivalries. There are grounds for optimism.

Though tensions remain high over issues such as the dispute between China and Japan over islands, political leaders are likely to try to manage their differences without conceding on basic issues of principle.

Overall, however, the resurgence of nationalist politics will make 2015 a bad year for international co-operation. The eu will struggle to agree on the measures needed to revive Europe’s economy and to deal with Russia. Russia itself will be increasingly marginalised.

That will make it hard to achieve agreement at the un on everything from the Middle East to climate-change negotiations. The globalised economic system will survive the revival of nationalism in 2015, but co-operation between nations will nosedive. n

Just possibly…

The world laments the passing of the last two male northern white rhinos.

FIFA finds that all parties acted with unimpeachable decorum in the bidding for the 2018 and 2022 World Cups.

More countries adopt the Swedish model of criminalising the purchase of sex

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THE WORLD IN 2015

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Great expectations

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n the history of successful social movements, there is always a flashpoint when the concerted strategy of a small group of people committed to a particular goal ignites a mass of people demanding change.

It happened with the American civil-rights movement in the mid-1950s, leading to historic legislation just a decade later. It happened with the response to apartheid in the 1980s, when global boycotts combined with a surging movement among black South Africans to end the oppressive system. And it happened in that same decade when the world began to turn on Soviet communism.

Successful movements share certain key features: the remarkable leadership of a few visionary individuals and organisations; a moment that jars the consciousness of the masses; and political evolutions that create the environment where change seems possible. But perhaps the most important prerequisite for a mass movement is a record of progress that convinces the majority that change can happen if they commit themselves to achieving it.

I believe 2015 can be the moment when the fight to save the lives of children around the world turns into a popular movement, because the world has built a record of progress that proves dramatic change is possible in our lifetimes. When children have the basic health care needed to live past their fifth birthdays, when they have access to food that keeps them well nourished and when they can go to school, whole societies are empowered.

Successes in the field of global development have been building for decades, but we still have a long way to go. One day it will become blindingly obvious to people in rich countries that children in poor countries are 10-25 times more likely to die just because of where they happen to be born; it will become clear that these deaths are preventable; and it will become morally unacceptable not to address the situation immediately.

In the arc of global development, I think we’re at a point where the world will pay attention because the progress we’ve made proves that disease and extreme poverty are not inevitable. In the past 25 years, the number of children who die has dropped by a half.

In 1990, 12.7m children died. If the rate of death had stayed the same, then the number of children who died last year would have been more than 17m, if you take population growth into account. Instead, it was just over 6m. The number of extremely poor people

has been going down at roughly the same rate, with the percentage of very poor people in the world cut by more than half since 1990.

The reasons for this progress are neither miraculous nor mysterious. We know precisely why children are surviving. More vaccines for more diseases are being delivered to more places. Bed nets treated with insecticide have saved millions from malaria.

Simple oral rehydration salts keep children suffering from diarrhoea alive. We also know why ­people are escaping poverty: it is thanks to more productive agriculture, better access to financial services, and the spread of functioning health systems that prevent expensive medical emergencies.

Another reason for all this progress is that we’ve become much better at understanding what works, how to measure it and how to know if we’re on track or not. In 2000 the countries of the world came together to agree a set of clear goals for development for the first time. They envisioned a world in 2015 with far fewer people in poverty, and they’ve succeeded in part because of that common set of expectations.

Everyone, grab the chance In 2015 leaders from every country in the world will come together to talk about how to build on that progress. In September they will meet at the United Nations to agree to the next set of goals in key areas of development, like saving children’s lives, reducing extreme poverty and providing access to clean water.

These goals can be the foundations of a world in which all individuals and nations have a real chance to be self-sufficient.

In the past, these sorts of conversations took place in meeting rooms where development professionals talked in a language that didn’t make sense to most people. In the year ahead we can broaden the conversation so that billions of people can take part in the discussion of what the world should look like and how to get there. And then they can hold their leaders accountable for meeting the goals that have been set.

I am an optimist. I believe that when people realise they can increase the chances that a child will stay alive by 10 or 20 times by ­focusing on easy-to-understand solutions, they will no longer tolerate any failure to ­deliver those solutions to the people who need them. People want a more equitable world. And, in a very practical way, that world is within our grasp. n

Dramatic advances in children’s health and in povertyreduction are within the world’s grasp, argues Bill Gates, co-chair, the Bill & Melinda Gates Foundation

The progress we’ve made over the past two-and-a-half decades proves that disease and extreme poverty are not inevitable

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THE WORLD IN 2015

The world in transition Kenneth Cukier

A whistlestop tour of a year of eye-catching statistical landmarks

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American takeover

according to Capgemini and rbc Wealth Management.

Danny Quah of the London School of Economics has calculated the world’s economic centre of gravity and reckons that, thanks to Asia’s rise, over the 70 years from 1980 to 2050 it will move eastwards from the mid-Atlantic all the way to somewhere between India and China. By 2015, the halfway point on this great journey, it will have reached the city of Bandar-e Mahshahr, in Iran, on the north-eastern tip of the Persian Gulf (chart 2).

China will pass two milestones. First, the country’s outward foreign direct investment is likely to exceed its inward flows (chart 3). This powerfully symbolises the degree to which China has matured as a global economic power. Second, China will for the first time in modern history begin the year as the world’s largest economy, surpassing America, at least in terms of

1

2

Going east

The world’s economic centre of gravity, 1980–2050

US v Saudi Arabia, oil* production, m barrels/day 12

1980

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2050 2015: Bandar-e Mahshahr Iran

Saudi Arabia

Source: Danny Quah

10

3

Ins and outs

China’s foreign direct investment, $bn

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90 60 30

Inflows *The Economist forecast

8

Outflows Source: UNCTAD

0

United States

1983 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15*

China v US, GDP at purchasing-power parity, $trn 15

6

Kenneth Cukier: data editor, The Economist

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4

Chinese takeover

7

United States

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*Crude/condensate/NGLs † Projected, based on 2014 year-on-year growth Source: IEA 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14

15†

China

5

0 00 01

02

03

04

05

06

07

08

09

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12

Source: IMF 13 14 15

s

he way people think about the world will undergo a radical change in 2015, as assumptions that have held steady for years are overturned. In the economy and technology, especially, the year will bring a series of statistical landmarks.

The most remarkable shifts are geo-economic.

America will overtake Saudi Arabia to become the world’s largest producer of oil, thanks to the shale-gas revolution (chart 1). Many aspects of international relations are built around American access to oil, and these will be viewed in a new light. The International Energy Agency forecasts that America’s oil preeminence will last until 2050 and beyond.

Yet Asia is still rising, and some striking numbers will reflect this. The combined wealth of Asian high-net-worth individuals (those holding at least $1m) will exceed those from North America in 2015,

International Charting change

THE WORLD IN 2015

Global mobile-phone subscriptions and people, bn

7.5

World population 7.0

6.5

6.0

Mobile subscriptions

5.5

Sources: Ericsson; UN 2011

5

Balance of power

8

Outnumbered

2012

2013

2014

9

Facebookland

Defence spending, $bn

Population of China v Facebook users, bn 1.4

275

EU

China

1.2

250

1.0 0.8

225

Asia-Pacific (excluding China)

200 2013

2014

2015

2016

2017

Facebook*

0.6 Source: IHS Jane’s

2010 2011 2012

2018 2019 2020

Sources: UN; Facebook 2010

2011

2012

2013

2014

2015

10

Game of thrones

Longest-reigning English monarchs, years on throne

Global sales of tablets v PCs, m 350

*Projected from Q2 2014 based on previous year’s growth of active monthly users

0.4

6

Tech transition

Desktop and laptop PCs*

300 250

63.6

63.9*

Victoria

Elizabeth II

59.4

200

56.1

150

Tablets/hybrids

100 50 0

2015

*End-2015, assuming still on throne

s

purchasing-power parity (chart 4). Though quibblers will say it is an imperfect measure, it nevertheless suggests that, as Dryden put it, “An old age is out/And time to begin a new.”

After wealth follows power. Defence spending in the Asia-Pacific region, excluding China, will match the European Union’s spending in 2015, according to ihs Jane’s, a research firm (chart 5).

Technology is forever in flux. In 2015, sales of tablets will overtake those of personal computers (chart 6).

Revenue from internet advertisements in America will surpass the combined value of ads from newspapers, magazines and billboards (chart 7). And, oddly, mobilephone subscriptions will exceed the world population (chart 8): some people hold many accounts, especially in countries with spotty connections.

In 2015 there will be more people active on Facebook than living in China (chart 9). If the social network were a country, it would be the world’s mostpopulous.

One 2015 milestone reflects continuity rather than change. Health and inclination permitting, Queen Elizabeth II will become England’s longest-serving monarch on September 11th (chart 10), when she passes her great-great grandmother, Queen Victoria. n

2011

2012

50.4 * Excludes ultra-lightweight laptops Source: Gartner 2016 2014 2015

2013

44.4

7

The age of the new media US advertising revenue, $bn 90 80 70 60 50 40 30 20 10 0 1990 92

Newspapers, magazines and outdoor

Internet Source: ZenithOptimedia 94

96

98 2000 02

04

06

08

10

12

14

16

Elizabeth I

Edward III

Henry III

George III

95

96

International Charting change

THE WORLD IN 2015

Dome truths and pillar talk Global population, % of total

8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8

8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8

8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8

Age 65 years

Age 15 years

Male Female

1970

Male Female

2015

The world reshaped John Parker

The end of the population pyramid

I

John Parker: environment editor, The Economist

n 2015 demographers, teachers and politicians will stop talking about the population pyramid and start referring to the population dome. The change in terminology will reflect a profound shift in the shape and structure of societies—a shift that has been going on for 50 years and is only half complete.

The pyramid is a traditional way of visualising and explaining the age structure of a society. If you draw a chart with each age group represented by a bar, and each bar ranged one above the other—youngest at the bottom, oldest at the top, and with the sexes separated—you get a simple shape. In 1970 that shape was a pyramid because the largest segment of the global population was the youngest (0-5 years old, comprising 14% of the total), followed by the next-youngest (6-10, with 13%), and so on in regular increments until, above 85 years, there were so few people that the shape vanished into a point (see left-hand chart).

The pyramid was characteristic of human populations since the day organised societies emerged.

With lifespans short and mortality rates high, children were always the most numerous group, and old people the least. A population chart of England in 1700 looks like a pyramid, as well.

But now look at the chart of the global population in 2015. It looks more like the dome of the Capitol building in Washington, dc (middle chart). Young children are still the largest group, but now make up only 10% of the population, and those above them are almost as big a cohort, with 9.5%. The age groups start to become markedly smaller only about the age of 40, so the incline starts much further up the chart than with the pyramid.

In 1970 the youngest had not only been the largest but also the fastest-growing section of the population. But between 1970 and 2015, the population aged 0-19 grew by only 42%, whereas the population aged 20-39 rose by 128%. This group added almost twice as many people to the overall numbers as the group aged below 20 did.

Male Female

Source: UN

2060 There are now also 50m people above 85, so the dome of 2015 has a spike.

In 1970-2015 the dominating influence on the global population was the fertility rate, the number of children a women would typically bear during her lifetime. It fell dramatically over the period, meaning that the world shifted from having larger to smaller families.

But in 2015-60 the biggest influence upon the population will be ageing. Small families are already becoming the norm, the fall in fertility is slowing down and now almost everyone is living longer than their parents— dramatically so in developing countries.

So, by 2060, the dome will have come and gone and now the shape of the population looks more like a column (or perhaps an old-fashioned beehive). It is a little fatter near the bottom and curves in at the top. But up to the age of about 50, the generations are of almost equal size and the shape Children has near-vertical sides. will be The size of the Earth’s population no more is still rising, from 7.2 billion in 2015 numerous to 9.5 billion in 2060. But, according calculations by Emi Suzuki and than any to Wolfgang Fengler of the World Bank, other age two-thirds of the extra 2.2 billion people in 2060 will be in the age group group between 40 and 79, not from younger people. The increase in the last, oldest segment is especially marked. Between 2015 and 2060, the number of 60- to 79-year-olds will increase by 1.1 billion, or 131%.

That is five times the increase in the number of children and teenagers, which will rise by only 220m, or 9%.

The numbers of the oldest people of all (those above 85, here lumped together in one bar) will rise at the fastest rate of all (by 281% in 2015-60), but from a much lower base, so they do not add as many people to the total.

For all of history, humans have lived in societies dominated (in numbers at least) by children. By 2060 children will be barely more numerous than any other age group up to 65. And looking after parents and grandparents will be as big a, or a bigger, social requirement a­ s bringing up children and grandchildren. The year 2015 is, roughly, the halfway point in this astounding transformation. n

THE WORLD IN 2015

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Europe Also in this section: Brussels in-tray 98 France’s political marathon 99 Italy exposed 100

Rethinking Germany’s pacifism 100 Germany’s property bubble 101 Spain votes 102

Just possibly… 102 Matteo Renzi: The plan for Italy 104

Living with a bear John Peet

West Europeans will stiffen their collective spine in response to a common threat

S

an autocratic and kleptocratic state so as to keep doing business with Russia. The events of 2014 have undone this understanding, even among the German centreleft (see the story “Power v piffle” in this section). The country’s chancellor, Angela Merkel, has emerged as one of Mr Putin’s fiercest critics in the West.

The transformation of Mr Putin from an uneasy business partner into today’s hostile neighbour has been

s

ince the financial crisis, Europe’s leaders have looked inwards more than outwards, struggling to improve their economies and keep their single currency together. Yet external issues are now barging their way to the top of the European Union’s agenda. The reason is Russia’s president, Vladimir Putin, and his land grab in Ukraine.

Three things will happen in 2015. First, the emergence of the new Russian threat will make most European countries raise their defence spending, after years of complacent cuts. Second, there will be a new push to diversify the European Union’s sources of energy away from Russian gas, and to reduce the eu’s economic dependence on Russia in general. Third, sanctions against Russia will be maintained and perhaps increased, although they are taking a toll not just on Russia but on shaky western European economies.

Given recent history, all three are surprising. Mr Putin has long played a game of divide and rule in Europe.

Against the enmity of the likes of Poland and the Baltics, he has played Putin’s balaclava brigade the trump card of friendliness with Italy and Germany. Hungary, Cyprus and Bulgaria have slow but steady. But since he returned to the Kremlin usually been pro-Russian. Many European businesses to replace the more pliant Dmitry Medvedev as Russia’s have traded and invested in Russia, and France has built president in March 2012, his anti-Western rhetoric has its military-transport Mistral ships. eu leaders such as become far stronger.

Italy’s Silvio Berlusconi and GerIt has been clear for some time that Mr Putin sees Mutual many’s Gerhard Schröder were nato as a threat. He regrets its expansion to take in to be considered close per- several central European countries and the three Baltic suspicion is happy sonal friends of Mr Putin’s. states which joined in 2004; his war on Georgia in 2008 now deeply Yet those days are now gone. was partly intended to stop the Georgians following suit. entrenched Mr Putin’s aggression in Ukraine But it was less clear that Mr Putin would be hostile to has not only led to sanctions but the eastward expansion of the eu too. The catalyst for also cost him most of his friends in Europe. France has this was Ukraine.

Mr Putin, who once called the collapse of the Sopostponed delivery of the Mistral ships. But the best example of the changing mood is Germany, Russia’s viet Union “a geopolitical disaster”, has long been loth biggest trading partner and source of investment. Ger- to accept the notion of Ukraine, the medieval cradle of many’s elites have long practised an “understanding”, Kievan Rus, as a truly independent country. The 2004 whereby they overlook Mr Putin’s entrenchment of Orange revolution was one of the biggest setbacks of his

John Peet: Europe editor, The Economist

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Brussels in-tray Tom Nuttall BRUSSELS

Tests for the new team

E

very few years, in a mêlée of backroom deals, the European Union’s heads of government work out who is to run the place; 2014 was one such year, and as it drew to a close the new team were getting their collective feet under the desk.

In 2015 Brussels-watchers will pay close attention to Jean-Claude Juncker, the new president of the European Commission (the eu’s executive arm), who has tried to counter those who doubt his reformist credentials by revamping the commission’s structure. Donald Tusk, the new head of the European Council (where heads of government gather), and Federica Mogherini, the foreign-policy chief, will also be in the spotlight.

Brussels will see a number of contentious policy debates in the coming year— notably over the Transatlantic Trade and Investment Partnership, an ambitious free-trade deal between the eu and America distrusted by the left on both sides.

But three big-picture issues are likely to dominate. First, the threat from a revanchist Russia. Second, the feeble European economy. Third, looming concern over a British departure from the eu.

The eu’s unity in response to Russia’s behaviour in Ukraine is fragile. If, as seems likely, the war in Ukraine’s east turns into a new “frozen conflict”, it is

s

2015 IN BRIEF Russia opens the biggest prison in Europe, a 4,000-inmate facility in St Petersburg

THE WORLD IN 2015

hard to see the eu summoning the appetite for fresh confrontation. With some exceptions, its members simply care less than Vladimir Putin does. To the south, meanwhile, troubles in north Africa and the Middle East will mean no end to the stream of migrants seeking to cross the Mediterranean into Europe, often with tragic consequences.

On the economic front, the existential fears ignited by the euro crisis of 2010-12 have waned. But in 2015 the euro zone may muster growth of a mere 1% or so.

Mr Juncker wants a three-year e300 billion ($380 billion) investment splurge, covering transport, internet infrastructure and energy, but no one knows quite where the money will come from.

Enter Mogherini and Tusk

first presidential term, and he was pleased when the proRussian Viktor Yanukovych became Ukraine’s president in 2010. This was the background against which the eu drew up a free-trade deal with Mr Yanukovych.

Mr Putin is strongly against such a deal because it seems to offer a path towards eventual eu membership for Ukraine. He also badly needs Ukraine, with 45m people, to join his planned Eurasian Union. So in late 2013 he used immense pressure to get Mr Yanukovych to reject the eu deal. But that prompted a new uprising

by Ukrainians furious to see their country’s European aspirations dashed, leading ultimately to Mr Yanukovych’s flight and his replacement by Petro Poroshenko.

Mr Putin took advantage of the chaos after Mr Yanukovych’s departure to invade and annex Crimea, a mostly Russian-speaking peninsula given to the Ukrainians by Khrushchev in 1954. Then the Russians fomented a revolt against Kiev in Ukraine’s Donbas region, sending undercover troops over the border. Mr Putin produced a new doctrine that he had the right to protect Russian-speakers wherever they were. For countries like Latvia or Estonia, with large Russian-speaking minorities and memories of Soviet occupation, this

The European Central Bank, under the wily Mario Draghi, urges a more expansionary fiscal stance across Europe—code for Germany to relax its domestic austerity. The bank may also belatedly embark upon a full-blown programme of “quantitative easing”. That would suit France Three bigand Italy, which are picture issues struggling to meet are likely to eu-agreed fiscal targets. But their dominate ostensibly reformist governments will need to start getting serious about tackling inefficiency. All the while, the red-robed judges of Germany’s Constitutional Court stand ready to step in if they think the ecb has exceeded its mandate.

If the British general election in May leads to a Conservative-led government, David Cameron, the prime minister, will have to make good on his pledge to seek a renegotiation of the terms of Britain’s eu membership ahead of an in-or-out referendum in 2017. He will push for a deepening of the single market and an end to the eu treaty’s symbolic aspiration to “ever-closer union”. But the most contentious issue will be the right of eu citizens to move to Britain, which some Tories want to weaken. Most of Britain’s fellow club members are keen to see Britain stay. Mr Juncker, whose appointment was loudly opposed by Mr Cameron, has extended an olive branch. But don’t count on peace breaking out. n Tom Nuttall: Charlemagne columnist, The Economist

doctrine is deeply threatening.

Although the fighting in eastern Ukraine has abated, all this has left Mr Putin and the eu in a stand-off that will endure throughout 2015. Mr Putin will not give up Crimea or abandon pro-Russian rebels in the Donbas, who will get a large degree of autonomy. The eu and Ukraine have signed a new version of the trade deal, but to avoid provoking Russia have postponed its implementation beyond 2015. Because the Europeans are not ready to fight over Ukraine, they only have the option of sanctions against individual Russians and Russian companies close to Mr Putin (even so, the West’s sanctions are hurting Russia’s economy, which stalled in 2014 and will barely recover in 2015). The Russians have retaliated with import bans of their own and threats of gas cutoffs. Mutual suspicion is now deeply entrenched.

For several years, many within and beyond the European Union have bemoaned its inability to co-ordinate and present a common foreign policy, citing divisions over Russia as the clearest example. Paradoxically, in 2015 the eu will come closer than ever before to achieving this goal. And for that thanks are due to one man: Mr Putin himself. n

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tential Waterloo) will not be other contenders so much as pending judicial investigations into his past.

French voters will twice have their say at the ballot box: at departmental elections in March, then at elections in December to 13 newly drawn regions, down from 22. Each result will be crushing for the left, comforting for the centre-right—and a chance for Ms Le Pen to demonstrate her rising electoral power. She could win the northern region, and possibly another, leaving France in shock. She will mock the renewed rivalry between Mr Hollande and Mr Sarkozy, arguing that the line-up of the cosy political elite never changes. With her canny ability to portray herself as the voice of ordinary voters, Ms Le Pen will thrive on pol­itical disillusion over unkept promises and joblessness.

Mr Hollande will try to use foreign policy to disguise his domestic weakness, lending French military air support to America’s campaign against Islamic State, and keeping French troops on the ground in Mali and the Central African Republic. He will welcome world leaders to a grand un world-climate conference in December 2015, hoping to secure a binding commitment to reducing greenhouse gases. But worries will persist about French jihadists leaving for Syria and Iraq, and the terrorist threat posed by those who return. And Franco-German ties will be strained by differences over economic stimulus and budgetary discipline.

In short, France will remain distrustful, despondent and doubtful. Some form of social revolt cannot be ruled out, whether in the heavily immigrant banlieues or in troubled rural parts. Tension may even provoke a political crisis, such as the resignation of Mr Valls if faced with an unmanageable Socialist rebellion, or, just possibly, the dissolution of parliament.

There is a paradox behind all this. The year when Mr Hollande at last junks most of the socialist economic policies he was elected to put in place will be marked by one of the most reformist-sounding governments France has seen for years. Yet the political headache of implementing reform against the instincts of a large swathe of the left, and the time it takes to secure economic results, mean that this policy u-turn will come too late to rescue the Hollande presidency. n

2015 IN BRIEF

THE WORLD IN 2015

France’s political marathon Sophie Pedder PARIS

And its belated dash for economic reform

T

he long race for the French presidency in 2017 will begin in earnest in the year ahead. François Hollande, the Socialist incumbent, will fail to lift his record-breaking low poll ratings, so eyes will increasingly turn to the battle to succeed him. Three figures will dominate: Manuel Valls, his prime minister, on the left; Nicolas Sarkozy, a former president, on the centre-right; and Marine Le Pen of the populist National Front.

Mr Hollande appointed Mr Some form Valls in the hope that the younger, pugnacious politician’s popularity of social would help revive the president’s too. But the longer Mr Valls re- revolt cannot be ruled out mains in the job, the more he will become tied to Mr Hollande, and the further his own poll ratings will tumble. This will make it all the harder for Mr Valls to put in place the economic reforms he has promised.

On the government’s to-do list are pledges to liberalise protected professions, such as notaries, bailiffs and pharmacies; ease works-council rules in companies; simplify labour law; loosen Sunday and evening trading hours; cut bureaucratic red tape; and liberalise planning regulations. Each will meet angry resistance from lobbies or unions, and some concessions will follow.

Mr Valls, a centre-left moderate, will tread a perilous line between a desire to establish his tough-guy, reformist credentials and a need to keep the restless left wing of his party from outright rebellion. Left-wingers are suspicious of what they consider a betrayal of taxand-spend socialism. They will denounce, for instance, a business payroll-tax cut that will come into full effect in January, part of a e40 billion ($51 billion) package to help revive private-sector investment. Socialist dissidents, including Arnaud Montebourg, a former industry minister, and Martine Aubry, the mayor of Lille, will also use the charge of “excessive austerity” to criticise e21 billion of planned public-sector budget savings in 2015—even as France, faced with weak growth, loosens its deficit target to 4.3% of gdp.

Nicolas Bonaparte In the year that marks the 200th anniversary of Napoleon’s escape from Elba and his return to Paris, one force that may help unify the left is the redoubtable Mr Sarkozy, who remains as loathed on the left as he is wildly popular among his party’s supporters. After securing the party leadership, he will try to build a new political movement, lending it a fresh name and recruiting younger faces, in preparation for 2017. He will not hesitate to steal the limelight from rivals for the presidential nomination, notably Alain Juppé and François Fillon, two former prime ministers. With polls suggesting that Mr Sarkozy is the preferred candidate of centre-right voters, however, his main obstacle (and po-

He’s back

Armenia mourns the 100th anniversary of the start of the still-controversial genocide conducted by Ottoman forces during and after the first world war

Sophie Pedder: Paris bureau chief, The Economist

100

Europe

Italy exposed Alexandra Fattal MILAN

The country’s delights, and its difficulties, will be on display

T

he World Expo—which takes place every five years and traces its history back to London’s Great Exhibition of 1851—comes to Milan in 2015. Despite corruption scandals and fears that the city will not be ready, and that some of the pavilions erected by the 144 countries taking part will not be finished by the opening in May, Italy should put on a good show.

But if Milan Expo will not be the catastrophe naysayers predict, neither will Italy has had it provide much of three prime a boost to Italy’s ministers in stagnant economy.

Shanghai 2010 as many years was, for the most part, an opportunity for Chinese people to see the world. Italy hopes, in contrast, to use Expo as a chance to put itself on display and increase tourism and exports in the future. Its short-term effects will be limited. An uptick in world demand and the depreciation of the euro should see

THE WORLD IN 2015

Italian exports grow by 5% in 2015, according to Italy’s export-credit agency. But the economy, which stagnated in 2014 and is barely bigger than it was when the euro was launched in 1999, will grow by less than 1%.

The government will nevertheless muddle through. Italy has had three prime ministers in as many years. Matteo Renzi, the centre-left former mayor of Florence who took the job in a party coup in February by pledging change, will cling on, even if fresh elections are held. His position was strengthened by an impressive showing for his party in the European elections in May. But Italy will get a new president if Giorgio Napolitano, who is 90 in June, steps down (he stayed on into a second term only to help his country through a political crisis). It could get its first female president, perhaps Emma Bonino, a ­former foreign minister, Roberta Pinotti, the defence minister, or Anna Finocchiaro, a senator, though front-runners often come unstuck.

Power v piffle Andreas Kluth BERLIN

Germans face a wrenching debate about what their diplomats and soldiers may do abroad

2015 IN BRIEF The Shroud of Turin, which supposedly covered the body of Jesus, goes on display in the city’s cathedral for the first time in five years

Alexandra Fattal: Milan correspondent, The Economist

Islamic State, the spread of Ebola in Africa: are such problems Germany’s to deal with? During the cold war the answer was no. Neither West nor East Germany had a genuinely independent foreign policy. In geopolitical matters, Bonn farmed out its defence and diplomacy to Washington. In European affairs, it rode shotgun next to Paris. East Berlin took its cues from Moscow. Being divided, the Germans were not even sure whether they properly belonged to “the West”.

On October 3rd 2015 Germans will celebrate the 25th anniversary of reunification, which ended that division and officially restored German sovereignty. In that quarter-century Germany has changed from an introverted country to a middle Germany’s diplomatic (and Preserving power.

Anglophone) elite took on board world order the nagging by Western peers to be more assertive abroad. But its peois their ple would have none of it. Every burden too small step forward caused bitter controversy at home, starting with the decision in the late 1990s to send troops to Kosovo— for humanitarian reasons, but in a break with Germany’s categorical pacifism. Often Germany slid backwards, as in 2011 when Angela Merkel, the chancellor, abstained (with Russia and China) from voting in the United Nations Security Council on whether to intervene in Libya.

Now the world’s conflicts are becoming too pressing for Germany to stay passive. It may defer to France in Africa and to America in Asia. But the stand-off between

s

Andreas Kluth: Berlin bureau chief, The Economist

F

uture historians will see the years between 2014 and 2017 as the period when Germany belatedly emerged from its post-war shell to become one of the leaders of the West. But a shift announced in 2014 will not be complete in 2015. Germans themselves must change their attitudes by means of what will be an acrimonious debate. They need to rethink their radical pacifism and their habit of letting America, France or Britain take the lead in international crises in order to harangue them later when something goes wrong. Eventually—but probably after 2015—they will realise that preserving world order is their burden too.

Germany’s president, Joachim Gauck, called for such a shift in a speech at the Munich Security Conference in January 2014. In co-ordination with the foreign and defence ministers, who were both in the audience, Mr Gauck said that Germany could no longer be “the shirker in the international community”. After nearly seven decades of good behaviour, Mr Gauck suggested, Germans should trust themselves as others already did to do good in the wider world.

Russia’s aggression in Ukraine, the new threat of

Business folk and foreign investors cautiously welcomed Mr Renzi, and his party secured 40% of the vote at the European Parliament elections. But the honeymoon is over. Though Mr Renzi stipulated 1,000 days for his reform agenda— which includes an overhaul of the Senate, a new electoral law, increased labour flexibility, a leaner bureaucracy and a speedier system of civil justice—he needs to show more tangible progress in 2015.

A plan of part-privatisations could get going in earnest, including the listing of 40% of Poste Italiane, which runs both the postal service and a retail bank; and Italy’s disparate banking sector could see some consolidation. But with a jobless rate of over 12%, Italy will struggle to boost employment. A trip to sample the delights at Milan Expo might be needed to lift the spirits. n

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keeping the dialogue going, America by showing that there is firepower if needed.

Meanwhile her foreign minister, Frank-Walter Steinmeier, will work Germany’s streets and talk-shows to educate the German public and win its support. This will be hard. The most telling moment of 2014, captured in a YouTube video that went viral, occurred when he spoke in a Berlin square about the Ukraine crisis. In the crowd were the habitual faux-pacifist protesters calling him (not Mr Putin) a “warmonger”. Usually controlled, Mr Steinmeier burst into a livid tirade about the demonstrators’ disingenuousness. Many more such episodes will follow in 2015. But before the next national election in 2017, Germany will have matured enough to help its allies keep the peace—by shooting if necessary. n

2015 IN BRIEF

THE WORLD IN 2015

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the West and Vladimir Putin in Ukraine falls squarely in a region where German leadership is needed. Those pleading with Germany the loudest are eastern neighbours such as Poland, today among Germany’s closest friends but repeatedly crushed between Germany and Russia in the past.

Sympathy for the bully And yet, to the consternation of Poles and Balts, many Germans show a surprising sympathy for Russian bullying. Supporters of The Left, a party that descends from East Germany’s communists, blame America and an allegedly expansionist nato for the crisis more than Mr Putin. Many centre-left Social Democrats, and even some on the political right, also mix anti-American reflexes with romantic piffle about a kinship between the Russian and German souls. And across the spectrum most Germans insist on never using their army, except perhaps to hand out nappies and water bottles.

Mrs Merkel, as is her wont, has not taken a public stand on the debate about German diplomacy that Mr Gauck (in his largely ceremonial office) started.

Instead, she navigates the domestic and international eddies as best she can. She is on the phone to Mr Putin more often than any other Western leader. She has also co-ordinated the European Union’s sanctions against him alongside America’s. In 2015 she will step up sanctions if necessary, but also keep playing good cop to America’s bad cop: she by Not in the mood for blinking

Et tu, Berlin Frederick Studemann BERLIN

Even Germany succumbs to a property boom

G

ermany’s property market used to be reassuringly boring. Just under half of the population lives in rented accommodation. When Germans do buy, they tend to save up for years to put down a hefty deposit. And once in, they tend to stay put.

Not any more. Since the financial crisis money has flowed into German property, driving up prices by 40-50% in six years.

Forecasters expect a further rise of more than 4% in 2015. All this may not be a patch on the likes of central London, but it does prompt questions about whether Germany is succumbing to the property affliction that has caused so much trouble elsewhere in Europe and in America.

The finance ministry has talked of “dangerous” price developments; eyebrows have been raised at the Bundesbank, with the custodians of Teutonic hard-money orthodoxy warning of a 25% over-valuation. The media have done their bit, too, serving up horror stories of rocketing prices and long-time tenants driven out onto the streets as new landEyebrows lords—some of them have been foreigners!—use the raised at the cover of a few “improvements” to jack Bundesbank up rents.

Why the shift? German savers have turned to bricks and mortar—or ­Betongold, concrete gold—as a sanctuary from the horror of ultra-low euro-zone interest rates. Der Euro ist nichts wert (the euro is worthless) is a common refrain around dinner-party tables from Berlin to Munich. Low interest rates also mean cheaper credit, and prices in desirable

Germany introduces a universal minimum wage of €8.50 ($11) an hour

places like Berlin still compare favourably with hot property markets abroad.

Unsurprisingly, international investors, some from euro-zone periphery countries hit badly by the financial crash, have joined the fray.

A cultural change is also at work, with a younger generation that is prepared to climb the property ladder rather than stay in the same place for good. In some circles Germans are starting to suffer the smug talk of bargains acquired and gains made that has long been the death knell of many an Anglo-Saxon social gathering.

Germans have not thrown financial caution to the winds, however. Borrowing money for property remains a fairly daunting business. Investors seeking a quick buck face robust tenant-protection laws and rent controls. Something is changing in German property, but in a very German way: slowly and cautiously. n Frederick Studemann: comment and analysis editor, Financial Times

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Europe

2015 IN BRIEF

Unfinished business

Ireland launches Eircode, at last addressing its status as the only EU country without postcodes

Merril Stevenson MADRID

Spain will find it hard to maintain the momentum of reforms in an election year

W

hen Europe badly needed a success story after the euro-area crisis of 2012, Spain provided it. Its government got a grip on the bust economy. It made labour markets more flexible, restructured and recapitalised the banks and cut the budget deficit. Exports surged as competitiveness improved. The economy began expanding again. Private-sector investors tiptoed back in and the government’s cost of borrowing plummeted. Unemployment at last began to fall. Spain started to be held up as a model to reform laggards such as Italy and France.

Catalan seeks place in the sun

Merril Stevenson: European business editor, The Economist

Success in 2015 will be more nuanced. The economy will grow again, a bit faster than in 2014. A cheaper euro will help both growth and the trade balance, by dampening domestic demand for imported goods. Spain is unlikely to meet its target of reducing the budget deficit to 4.2% of gdp, and the debt burden will increase to more than 100% of One in gdp. The real danger, though, is that two young 2014 will prove the high-water mark­ of reforms. Yet Spain needs more of people is them, especially to the tax system, unemployed the labour market, insolvency procedures and business regulation, to thrive in the longer term­. Complacency and election-year politics will get in t­ he way.

With more than 5m people still out of work, few ordinary folk believe the economy is improving. One in two young people is unemployed. All but the biggest firms complain that credit, though easier to get, is still

THE WORLD IN 2015

dear. More people are emigrating than immigrating. A series of corruption scandals have contributed to widespread disenchantment with the political system.

Local elections are due in May, and a general election by the end of the year. Support is draining from the two parties that have governed Spain almost since Franco’s death: the Socialists and the centre-right People’s Party (pp) that is now in power. A new populist movement of the left called, with Obama-like overtones, Podemos (“We can”) picked up five of 54 seats in the European Parliament elections in May 2014, just four months after its founding, and could do better in 2015. But apathy is also gaining ground.

No tough reform policies will be put in place before the elections; tax cuts are already planned, and the focus will be on active employment policies to get more people into work or training. The pp will probably emerge from the general election with the most votes, but not enough to govern effectively on its own. An alliance would need to emerge, on the left or on the right. This is territory uncharted in recent times.

Mas movement The other political date with destiny in 2015 concerns Catalan independence. During the crisis enthusiasm for secession has grown in the northeast in rich, industrial Catalonia. Polls show that Catalans are determined to have their say, though a plebiscite might well produce more votes for devolving greater powers from Madrid than for outright independence.

Less accommodating than the British towards the Scots, Mariano Rajoy, Spain’s prime minister, is denying Catalans the referendum on independence that their premier, Artur Mas, has promised. Mr Mas is expected to call snap regional elections and turn them into a de facto plebiscite if he can get the independence movement to unite behind him.

All the while, Catalan frustration is mounting. The issue will dominate politics at least through the first half of 2015.

With luck, a national government that has beenclever enough to nudge the economy towards the right path will be astute enough to open negotiations on a devolution deal for Catalonia. That will take money, no doubt, which it does not have. But then talks could take years. In the meantime, 2015 will be a bumpier ride ­politically than economically. n

Just possibly…

A surge in migrants arriving from north Africa prompts Italy to demand a bolder EU response.

A major computer hack reveals some surprising details about Vladimir Putin.

A total solar eclipse in March destabilises Germany’s power grid.

104

Europe

THE WORLD IN 2015

The plan for Italy

E

urope in 2015 is a continent that has yet to emerge from the economic crisis, in a world suffering from ongoing conflicts and new terrorism. But rather than let pessimism triumph, what is required is conviction and determination, the confidence that change is possible. This cannot be taken for granted. It is the role of politicians to lead the way. After years of an overwhelmingly technocratic approach, which did not yield positive results, a change of perspective is now needed. From the start, in February 2014, the new Italian government—half women and half men—has set itself this objective. We have a clear strategy and we know how to achieve results.

We will speed up the completion of the structural reforms that are already under way, beginning with the constitutional and institutional reforms that are essential to make Italy simpler, nimbler and more competitive, able to respond in a timely way to social change.

This includes an electoral law that produces a clear winner, a stable government and an undisputed majority; and a new constitutional architecture with a single legislative house together with a rebalancing of power between central and local authorities. In meetings with our international partners this is a priority which is often mentioned as helpful to economic growth.

At the same time we will press ahead with social and economic reforms. We know the structural difficulties that are holding Italy back: above all, a high public debt accumulated over decades and an administrative system that is both invasive and inefficient.

We have had years of recession. In 2014 we stopped the decline. But that is not enough; our goal is to grow again. To achieve this, our strategy stretches across several fronts.

We have started to design a new public administration which, thanks to digitisation, should help families and business save time and resources. We have taken urgent measures to speed up the civil-justice system and are focused on cutting trial times by half, which will also have an economic impact. We know this is of great interest to foreign investors. In 2014 we started to attract their capital again; in 2015, thanks in part to these reforms, Italy will be even more attractive.

As for the fiscal system, 30m citizens will receive their income-tax returns already filled in. Simpler taxes help those who create wealth and make it more likely that everyone will pay what they owe. We will continue to cut taxes

on workers and businesses. We are committed to providing a tax bonus of e80 ($102) a month to 11m workers and we will cut taxes more for businesses, having already lowered some by 10% in 2014. We are financing these measures with decisive and selective cuts in waste and unproductive public spending, without touching services, but redefining expenditure to make it an economic motor.

Creating jobs, especially for the young, is an urgent challenge for Italy and all of Europe. In Italy we have launched a thorough labour-market reform. It is based on a single permanent contract with increasing rights, on expanding safeguards for those who lose their jobs (especially women), and on incentives for companies to hire. For Italy this is a bold, fundamental change.

Last but not least, 2015 will bring an education revolution. At the start of the new academic year Italian schools will be profoundly different, following a public consultation that involved teachers, parents and students. This is an investment in the future: tomorrow’s Italy depends on today’s schools. To show the world that Italy is really changing, that it is healthy and can be an example, we have Expo 2015 in Milan. It is an extraordinary opportunity to bring Italy’s prowess to the world’s attention and to millions of visitors, but it will also be a chance to mobilise billions of euros in resources and to create tens of thousands of jobs.

Back to the European dream We want to return to growth and we will succeed. Europe, too, needs to focus on growth and jobs with conviction. Today it is stagnating. The new commission has declared that it will allocate e300 billion to change course. We will make sure this happens, and we will ask the banking system to help foster economic growth by channelling to businesses and families the e200 billion made available by the European Central Bank.

But Europe is much more than economics. It can and must go back to being what its founders dreamt of. The world needs a Europe that believes in its own values, in the principles on which it was established, starting with its vocation for peace; a Europe that, over and above its economic power, is a decisive player in the world order, during an extremely delicate period that requires everyone to assume greater responsibility. In Europe, in 2015, we will do this. We have 365 days. Let’s not waste a single one. n

Matteo Renzi, prime minister of Italy, explains how he aims to get his country growing again

Simpler taxes help those who create wealth and make it more likely that everyone pays what they owe

THE WORLD IN 2015

105

Britain Also in this section: Post-referendum Scotland 106 Friendly advice from Italy 107

Bye-bye, Land Rover Defender 107 The runway decision 108 Flirting with power cuts 108

Just possibly… 108 François Heisbourg: Entente frugale 109

Coalition, the sequel James Astill

No political party will attain a majority

I

a choice between Mr Cameron, whom Britons like more than his party, and Mr Miliband, whom they like less, most will plump for the Tory incumbent. A surge by the snp, which could cost Labour up to half its 41 seats in Scotland, and by the Greens, which could reduce its ­ex-Lib Dem windfall, would make that electoral verdict still more emphatic.

With its splintering vote and likelihood of coalitions, British politics is starting to feel rather north European.

Yet its culture remains viperous and confrontational.

The disdain Tory backbenchers show Nick Clegg’s Lib Dems, who have for the most part been a constructive partner, illustrates this. It is utterly self-defeating.

Having no tribal affiliation, most voters view these feuds as ineffectual squabbling between politicians more similar, especially in their social and educational background, than they are different. The experience of coalition rule—to which most feel neutral or positive—has exacerbated that impression, and in turn fed the nat­ ional disenchantment with politics. So have the linger-

2015 IN BRIEF Britain stops all financial aid to India and South Africa by the end of the year

s

n May 2015 Britain will hold a general election in which nothing is predictable so much as the strain it will put on the already creaking Westminster system. First-past-the-post, majoritarian and adversarial, it emerged to produce stable governments from a twoparty contest. Yet the coming fight will be crowded, with five national parties expecting at least 5% of the vote and the Scottish National Party (snp) enjoying a post-referendum bloom. The result will be Britain’s third hung parliaBritish politics ment since the war (the curis starting to rent one is the second). The feel rather north government that emerges will probably be the same as the European present one, a coalition of Conservatives and Liberal Democrats. Yet even if that transpires—something most bookmakers do not expect—its formation will be attended by great uncertainty, testing the basic logic of electoral reward, and in turn increasing the disaffection most Britons feel with politics.

Every general election in modern times has been won by the party most trusted with the economy or on the matter of leadership. Under David Cameron, the Tories are far ahead of the Labour Party on both counts.

Yet mitigating these advantages are two consequences of Britain’s fracturing vote. First, the right is split. Under the chirpy leadership of Nigel Farage, the uk Independence Party secured 3% of the vote in 2010; this time, it will get around 10%, mainly at the expense of the Tories.

Second, the left is more united, the Lib Dems’ decision to ally with the Tories having lost them around twothirds of their support, mostly to Labour.

Given also the unfairness of Britain’s constituency boundaries, which means Labour needs fewer votes than the Tories to win seats, it has a great opportunity to bounce back to power after one term in opposition.

Most bookies expect that—reasoning that Labour has only to turn out its core vote and retain most of its Lib Dem apostates to deliver Ed Miliband to 10 Downing Street. In a series of left-wing promises, he appears to have embraced this hypothesis as a “core strategy”.

Yet this plan is fraying at the edges, so thoroughly is the Labour leader reviled, even by his own voters, less than half of whom trust him to run the economy. Given

James Astill: political editor and Bagehot columnist, The Economist

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THE WORLD IN 2015

Snatching victories from defeat Jeremy Cliffe GLASGOW

to independence during the referendum Talk of Scottish secession will be hushed. The secessionists will not campaign, then joined the snp afterwards

I

n 2014 the Scots rejected independence. In 2015 separatists will dust themselves down and forge ahead ­regardless.

Spring will bring three big events. In April a batch of new powers, including control of taxes on property transactions and waste disposal, will be devolved from London to Edinburgh in keeping with the Scotland Act of 2012. Around the same time the main Westminster-based unionist parties will go into the general-election campaign offering yet more devolution, including housing benefit and further control over income tax, fulfilling panicky promises they made to persuade Scots to vote No to independence. Scotland’s drift from the rest of the United Kingdom, then, will continue.

Most important, the secessionist Scottish National Party (snp) will meet for its final conference before the general election in May. It will do so under its new Scotland’s leader, Nicola Sturdrift from geon, the former the rest of deputy first minister to Alex Salmond the United (who resigned after Kingdom will the referendum). It continue will do so as Britain’s third-largest party in terms of membership, with roughly 100,000 members—up from 25,000 before September’s vote and equivalent to 2% of Scotland’s population.

The membership surge comes from left-wing voters who became committed

Philately will get you anywhere on the 175th anniversary of the Penny Black, the world’s first adhesive postage stamp

s

2015 IN BRIEF

to continue the struggle. They are radical and mostly young, and will thus unsettle the snp’s traditionally conservative members (known as “Tartan Tories”). That difference will bubble to the surface at the party’s spring conference. New members will use their muscle to yank the snp’s policies, particularly those on public spending, to the left. They will agitate for the party to promise a wealth tax.

Wither Labour?

The snp will go into the general election with a starkly social-democratic prospectus. Combined with the ongoing collapse of the Labour Party in Scotland, this will enable it to win seats in working-class bastions like Glasgow and Dundee. Labour’s bout of soul-searching, triggered by the resignation of its leader in October 2014, will become yet more intense. Mr Salmond will lead the snp’s newly enlarged troupe of mps in Westminster, where he will secure as much power for Scotland as he can and will often outshine the main party leaders.

Two other parties will do well. The Scottish Greens, who also supported independence, will see their share of the vote rise (at the expense of Labour and the Liberal Democrats). So will the Conservatives, who in the 2010 election won just one of Scotland’s 59 seats at Westminster. Thanks to the party’s talented Scottish leader, Ruth Davidson, together with the growing constituency for fiscal conservatism as further tax-raising powers are devolved, it will win another couple of seats in former Tory strongholds such as Perthshire.

With a Scottish parliamentary elec-

ing effects of the downturn, including cuts and glacial wage growth, and a new record level of distrust of newspapers on the back of the phone-hacking scandal. Both are rare boons for Mr Miliband, who has campaigned against the high “cost of living”. Yet the cost to British democracy is similarly high; voter turnout will decline further in 2015.

Caveat victor The next government will have other things to worry about. If the Tories return, Mr Cameron has promised an “in-out” referendum on Britain’s eu membership in 2017, and the Lib Dems would not block this. It would be a sapping drain on government time and, though Mr Cameron does not want it, might easily lead to Britain quitting the eu. The Tory prime minister has also

Sturgeon marches on to the next battle

tion looming in 2016, the second half of the year will see tensions pull at the snp’s fabric. Some Tartan Tories will leave the party. Some of the new joiners will become disillusioned; they too will walk. The leftist Ms Sturgeon’s leadership style—cagey and reliant on a close circle of confidants—will rile. The growing possibility of Britain’s departure from the European Union will prompt some to call for the snp to push afresh for secession in the next parliamentary term.

Ms Sturgeon will resist these calls while upholding her party’s long-term commitment to the cause. Scotland will head into 2016 with no immediate prospect of a new independence referendum. Yet the nationalists will be on the march—carrying the ideal of a separate Scotland with them. n Jeremy Cliffe: political correspondent, The Economist

pledged to deliver more powers to English voters, to address a longstanding constitutional anomaly occasioned

by Scottish devolution. This is an overdue change, but only critics of the prime minister tend to care about it, which makes it, in political terms, a hiding to nothing.

Whoever forms the government, it will have to embark on a savage new round of austerity. If the Tories win, this will mean additional cuts worth £37 billion ($60 billion) over the first three years of the next parliament. If Labour sneaks in, there will be lesser, but still painful, belt-tightening. A bigger difference is that Mr Miliband, much like his erstwhile hero President François Hollande of France, has not prepared his supporters for this tough reality. That makes this an election Labour will be secretly glad to lose. The same might be true for the Tories. n

Britain

107

running a city, instead of just whingeing), protest movements and populism tend to dampen voters’ enthusiasm. Nigel Farage’s trajectory may well take a downward turn in 2015—provided the three major parties stop obsessing about him and don’t hit the panic button.

Second, Britain is fretting about immigration, which will be a big issue in the election campaign. But keeping the door open has its advantages. Many Europeans from many different countries bring their contribution to Britain. Take Italians. There are about half a million of us in Britain, two-thirds in London, which is now Italy’s eighth-largest city. Most Italians work: in the City and in industry, in universities and restaurants. Italians don’t exploit the nhs. If they’re in hospital, they’re more likely to be wearing white coats than taking up beds.

And third, Europe. The next government should concentrate on proposing new rules that benefit everyone in the club, not just Britain. Italy’s prime minister, Matteo Renzi, in his own boisterous way, is doing just that. And his negotiating position, considering the state of Italy’s public finances, is weaker than David Cameron’s. In Eur­ ope, getting involved is better than standing aloof. n

2015 IN BRIEF

THE WORLD IN 2015

Italian lessons Beppe Severgnini MILAN

A bit of friendly advice for 2015

F

or Britain, 2015 will be a 12-month-long session on the psychoanalyst’s couch. Coming from one referendum in Scotland and probably heading to another on Europe, by way of the May general election, the country will spend the year trying to work out what it wants. Italy may not seem the most obvious inspiration, but in three areas a consigliere can come in handy.

First, ukip’s rise came as a shock to many in Britain.

Populism and protest movements, mostly on the right, have had their moments in Italy, too. They didn’t last long. The Northern League didn’t get anywhere near the secession it was calling for. Beppe Grillo’s Five Star Movement has already lost a quarter of the support it won in the 2013 general election. When they are put to the test (when they actually have to do stuff, such as

Land Rover Defender, RIP John Grimond

End of the line for a lovable boneshaker

C

after the war, who used an American Jeep on his farm in Anglesey and saw the need for a similar vehicle for other British farmers. His creation—noisy, draughty, underpowered, unresponsive and uncomfortable—went on to establish itself as a cherished and peculiarly British product.

Unusually for a car, it has even found a

onceived on a beach in Wales in 1947, born in the West Midlands of England the following year, adopted later by Germans (bmw) and then Indians (Tata), the Land Rover Defender will die a much-mourned death in December 2015. Other Land Rovers—Discoveries and Range Rovers—will go on, but in the eyes of aficionados they are effete upstarts. And although a new Defender is promised, the diehards are sceptical. They never cared for the name, bestowed only in 1991, and consider their car to be the one true Land Rover. They fear it will die after less than three score years and ten.

Only production will end, not the vehicles themselves, and, far from disintegrating, most can be expected to live on for years. True, some are already losing detachable parts to thieves who foresee a dearth of spares, but the boast is made One lady owner that most of the 2m or more Defenders ever made are still going. Their place in the canon of English children’s simple design, sturdy chassis and alumin- literature (“Landy” and “Fender”), never ium body make for longevity. mind Tomb Raider and James Bond films.

The Land Rover was the idea of MauIn appearance it has changed little over rice Wilks, the chief engineer of Rover the years, though it developed a slight

A fleet of driverless cars will start running on special lanes in Milton Keynes

Beppe Severgnini: columnist, Corriere della Sera

bulge below the waistline in early middle age and was then elongated and adapted for countless different purposes. Some of its faults have been put right.

A cherished Bigger engines, and peculiarly better transmissions, wind-up British product w indows and other upgrades were introduced over the years, usually belatedly and in response to Japanese competition. But part of the Land Rover’s charm has always been its stubborn defiance of user-friendliness and customer comfort. It appeals to the sort of doughty people who revel in dust and cold, fuggedup windows, the jarring pain of every bump, and the need for the dexterity of a cardsharp combined with the strength of a poker-bender to engage the low ratio of the fourwheel-drive system.

That system, however, has been the other crucial part of the Land Rover’s success. It may be rubbish on the road, but off it has had few rivals. When confronted with a desert, a jungle or a perpendicular ascent, it just grinds on. And if it breaks down, its design is so basic that the fault isn’t usually too difficult to fix. The one obstacle that has proved insurmountable is modern legislation. Airbags, low emissions, all seats facing forward and pedestrians’ rights do not fit easily into the Land Rover ethos. They are blamed for delivering the coup de grâce. n John Grimond: contributing editor, The Economist

108

Britain

Plane thinking Emma Hogan

A decision over airport capacity will at last be reached

S

ince 2012 Sir Howard Davies, a former consultant and financial regulator, has been pondering where to put extra airport capacity in Britain. After narrowing the options to Gatwick and Heathrow, Britain’s two busiest airports, Sir Howard and his Airports Commission will deliver their final recommendation to the newly elected government in 2015.

They will plump for a third runway at Heathrow. In doing so they will put politicians from all parties in a pickle.

The case for adding airport capacity in south-east England is a strong one.

Heathrow, the world’s third-busiest airport by passenger numbers, is full, as is Gatwick at peak times. Sir Howard estimates that Gatwick will be full by 2020, with other southern airports following behind.

In making his recommendation, Sir Howard will place a bet on the future of travel. The argument for expanding

THE WORLD IN 2015

Heathrow rests on the idea that hub airports are still important to the British economy, and that offering flights to far-flung places in emerging markets is vital to creating trade links. In contrast, Gatwick’s boosters point to the rise of lowcost airlines and how it has changed aspects of the industry. More people are “self-connecting” between London’s wake-up call flights, reducing the need for a large transfer hub, they argue. And “barbarically contemptuous” of the city’s the expansion of Gatwick could create residents. Ed Miliband, the Labour leader, has previously opposed expansion there, genuine competition with Heathrow.

It would be easier for politicians if Sir though he seems to be wavering. And the Howard and his team were to suggest Gat- Liberal Democrats dislike it intensely. wick. Although some locals oppose it, far But Sir Howard will be swayed by fewer will be affected than at Heathrow, economics. Most airlines want to be at where several rich west-London constitu- Heathrow, as shown by the price of the encies are threatening to put up a fight. landing slots. Partly because of the airGatwick would also be far less likely to port, London is a financial powerhouse. split opinion within parties. Boris John- Once Sir Howard delivers his verdict, son, the Conservative mayor of London the new government should start getting who had his own vision of a new hub ready. Then discussions on where a fourth airport quashed by Sir Howard, has said runway might go can start. n another runway at Heathrow would be Emma Hogan: Britain correspondent, The Economist

Keeping the lights on Mark Johnson

Britain will avoid blackouts, at a cost

2015 IN BRIEF Drunk tanks: some London Underground lines start running a 24-hour service at weekends

Mark Johnson: UK energy correspondent, The Economist

P

ray for warm weather in 2015. For years Ofgem, Britain’s energy regulator, has warned that Britain is running out of power. Towards the end of 2015 the margin between average peak electricity demand and available supply will fall as low as 2%—down from 14% in 2012, and less than half the 5% buffer that many eggheads think is an acceptable minimum. A shortage of spare capacity multiplies the risk that lights will go out during a cold snap or if a big power station breaks down. If nothing is done about it, the chance of blackouts could reach one in four.

The problem has been a long time coming. Copious supplies of cheap coal have encouraged Britain’s coalfired power stations to burn through most of the operating hours left to them under a European regulation that limits the life of the dirtiest kinds of plant. Many will soon shut down. Yet many costlier gas-fired power stations have been closed or mothballed—and uncertainty caused by a long-winded overhaul of Britain’s environmental subsidies has discouraged firms from reinvesting in them. Though renewables now provide nearly 20% of Britain’s electricity, these cannot yet make up the difference; planned new nuclear reactors at Hinkley Point in Somerset will not light up until at least 2022.

Recently two things have made the situation worse.

First, Britain’s economy is growing at its fastest rate for

six years. That has pushed up consumption and hastened the crunch (as a general rule an increase in peak electricity demand of 0.5% accompanies each additional percentage point of economic growth). Second, Britain’s ageing power stations have started to look increasingly unreliable. In August a crack detected during routine maintenance disabled four of Britain’s 16 nuclear reactors. In July a fire toppled a tower at Ferrybridge c, a big power station in Yorkshire, hobbling it until the spring.

The National Grid, which manages the high-voltage power network on the government’s behalf, says two plans will help it fend off electricity shortages until new wind turbines and wood-burning generators start coming onstream in 2016. First, it will pay electricity firms to reopen mothballed gas stations, ready to fire up should chilly days require it. Second, it will vastly ramp up a programme that pays big factories to switch off when usage risks outstripping supply, probably between 4pm and 8pm on the coldest weekday evenings.

These prescriptions will probably keep all the lights on, but at a price. Consumers will have to contribute to the costs of both programmes, and regulators will learn to wield a meatier range of powers. Britain’s liberalised energy market appears to be powering down. n

Just possibly…

Nigel Farage, leader of the UK Independence Party, becomes deputy prime minister.

Conservative MPs in Scotland outnumber pandas once more. ”Downton Abbey” bows out after a farewell sixth series.

Britain

THE WORLD IN 2015

109

Entente frugale

A

s we approach the 600th anniversary in 2015 of the battle of Azincourt (which the English insist on calling “Agincourt”) and the 200th of Waterloo, not to mention the multi-commemorations of the two world wars, we are reminded that wars are the shared furniture of the French-British relationship. This helps explain why defence is the area in which France and Britain have established their most intimate ties. Even as Britain has drifted towards Europhobia and France has pressed for deeper integration within the euro zone, our countries have moved to ever-closer union in defence. The signing of the Lancaster House treaties in November 2010, with their military, defence-industrial and nuclear dimensions, was the crowning point of this process.

Until the end of the cold war, the British had no appetite for defence co-operation outside nato and the special relationship with America, while France emphasised national independence. The implosion of the Soviet empire, and the war in Bosnia (1992-96) in which France and Britain were prime movers, forced the recognition that military involvement in European conflicts was no longer going to be the default mode of American strategy. Having decided not to join the euro, a freshly elected Tony Blair found defence a way of putting Britain at the centre of Europe.

This was done through a Franco-British summit in St Malo (December 1998), with the two countries taking the lead in what eventually became the European Union’s common security and defence policy (csdp). csdp has been better at generating buzzwords (“headline goal”, “battle-groups”) than history-changing deployments. The prevention of genocide in Congo in 2003 and the ongoing anti-piracy patrols off the Horn of Africa have been its strongest contributions.

Some of the blame for this modest record goes to the Iraq crisis, which split the eu and nato down the middle while making British forces unavailable for csdp operations.

Beyond that event, the stalling of the eu integration process and the general rise of Euro-scepticism in the wake of the recession have ensured that csdp remains a limited enterprise in which eu members will sink little political and strategic capital. By default, this semi-failure of csdp created an opportunity for Britain and France as the two most important European military powers to set up a permanent alliance of their own, based on shared aims and motives.

The continued ambition to deserve their seats as permanent members of the un Security Council is essential. In a world in which the United States has its own priorities, there is also more cause for London and Paris to work together. That a strong French-American security relationship has been built up, including in nuclear and intelligence affairs, has helped to reassure the British. Mutual benchmarking is also of great importance.

This is particularly true in the nuclear arena, in which each country’s capabilities are to some extent a product of mutual emulation, on top of the need to deter unfriendly powers.

Herein lies a paradox. The nuclear part of the Lancaster House treaties contains a 50-year commitment to work together on nuclear-weapons stewardship, a highly sensitive area entailing exceptional levels of mutual trust. Yet this part is being implemented with no greater—and arguably with less—difficulty than the more mundane portions. This rests on a joint understanding that the vital interests of one country cannot be put at risk without also threatening those of the other.

In other words, disagreements on contingent interests (such as the war in Iraq) can impede conventional military co-operation, but nuclear co-operation is based on shared vital interests. This is an alliance in the full sense of the word. It may be frugale but it is more than an entente.

Another Waterloo?

What could go wrong? Politically, a “Brexit” (British exit from the eu) in combination with a step-change towards full-blown eu federalism, including foreign and security policy, would make it impossible to sustain a bilateral alliance between a non-eu Britain and a province of a federalising eu. Economically, a sustained divergence between a rapidly growing Britain and a stagnating France could make it impossible to sustain the mutual-benchmarking component of an alliance between equals; but this could take a very long time indeed, since defence capabilities evolve in a multi-decade framework.

The most immediate challenge may come from a reopening of the nuclear debate in Britain after the 2015 election. In the absence of big increases in defence spending, Britain will have to cut non-nuclear capital expenditure sharply in order to pay for the renewal of the Trident submarine force. The bonds of a 50-year treaty designed to guarantee a mutual nuclear future will be put to the test. n

François Heisbourg, special adviser, Fondation pour la Recherche Stratégique, asks what might upset the surprisingly close defence ties between Britain and France

Even as Britain has drifted towards Europhobia and France has pressed for deeper integration within the euro zone, our countries have moved to ever-closer union in defence

THE WORLD IN 2015 111

The world in numbers Countries Europe Austria 112 Belgium 112 Bulgaria 112 Croatia 112 Czech Republic 112 Denmark 112 Estonia 112 Finland 112 France 112 Germany 112 Greece 113 Hungary 113

Ireland 113 Italy 113 Latvia 113 Lithuania 113 Netherlands 113 Norway 113 Poland 113 Portugal 114 Romania 114 Russia 114 Slovakia 114 Slovenia 114 Spain 114

TOP GROWERS Rank Country 1

9.0

3

8.6

4 Turkmenistan

8.5

5 Eritrea

8.3

6 Mongolia

8.0

7 Laos

7.7

8 Mozambique

7.6

9

7.4

Congo (Brazzaville)

10= Bhutan

7.3

10= Cambodia

7.3

10= Tanzania 7.3 In a sign of tougher times for the world’s biggest emerging markets, none makes it into the list of top growers for 2015. BRICs, CIVETS, MINTs—all are absent from a ranking dominated by small markets banking on investment in a booming industry. Papua New Guinea leads the list, with a one-off boost from a large Exxon Mobil LNG project that started producing in 2014.

Macau will thrive on the flood of gamblers attracted by its licensed casinos.

Resource extraction underpins growth for most of the rest, including copper and gold mining in Eritrea, naturalgas development in Turkmenistan and Tanzania, and oil production in Congo (Brazzaville). Bhutan’s mountainous terrain gives it a natural advantage for producing and exporting hydro power, mainly to India. The non-resource producers are Laos, where tourism and a rebound in Thailand’s economy will help growth, and Cambodia, for which garment-making is a key industry.

2015 forecasts unless otherwise indicated.

Inflation: year-on-year annual average.

Dollar GDPs calculated using 2015 forecasts for dollar exchange rates (GDP at PPP, or purchasing-power parity, shown in brackets).

All figures simplified by rounding. london@eiu.com Source:

North America Canada 117 Mexico 117 United States 117

Paraguay 118 Peru 118 Uruguay 118 Venezuela 118

Latin America Argentina 117 Bolivia 117 Brazil 117 Chile 117 Colombia 117 Cuba 118 Ecuador 118

Middle East and Africa Algeria 118 Angola 118 Cameroon 118 Egypt 118 Ethiopia 118 Iran 119

Iraq 119 Israel 119 Jordan 119 Kenya 119 Lebanon 119 Libya 119 Morocco 119 Nigeria 119 Saudi Arabia 119 South Africa 119 Syria 119 Zimbabwe 119

%

Western Europe

Eastern Europe

1.4

14.8

2 Macau Congo (Dem. Rep.)

Asia Australia 115 Bangladesh 115 China 115 Hong Kong 115 India 115 Indonesia 115

Japan 115 Kazakhstan 115 Malaysia 116 New Zealand 116 Pakistan 116 Philippines 116 Singapore 116 South Korea 116 Sri Lanka 116 Taiwan 116 Thailand 116 Uzbekistan 116 Vietnam 116

World GDP* growth, 2015

GDP growth, %

Papua New Guinea

Sweden 114 Switzerland 114 Turkey 114 Ukraine 114 United Kingdom 114

North America

3.2

2.1

Japan

Middle East/ north Africa

1.6

4.1

Asia

>4% 2–4% <2%

(excl. Japan, Australia and New Zealand)

6.0

Latin America

2.8

Australasia

Sub-Saharan Africa

2.7

4.5

* At market exchange rates

A tale of two recoveries

BRIC breaker

Employment, US and euro zone, Q1 2008=100 US

Gross fixed investment, % of GDP, 2008=100 Euro zone

103

Brazil

China

India

Russia

115

102

110

101 105

100

100

99 98

95

97 90 96 85

95 94

2008

2009

2010

* Forecast from Q3 2014

2011

2012

2013

2014* 2015*

Sources: US Bureau of Labour Statistics; Eurostat

80

2008

2009

2010 * Forecast

2011

2012

2013

2014* 2015*

Sources: National statistics; Haver Analytics

112

Countries The world in numbers

THE WORLD IN 2015 also weighs heavily on the opposition, is a worrying rise in tensions with the Serb minority, and the rise of the far right. The elections offer no quick fix, but a new team may move ahead with long-delayed economic reforms.

Europe: northern exposure

Exports to Russia, % of total exports, 2015 20 18 16 14 12 10

CZECH REPUBLIC

8 6 4

LIT HU AN LA IA T ES VIA TO FI NIA NL A PO ND CZ S LAN EC LO D H VEN RE PU IA CR BLIC OA AU TIA GE STR RM IA HU AN N Y RO GAR M Y AN IA SL ITAL OV Y A BU K LG IA AR M IA A SW LTA DE EDE NM N A CY RK P NE F RUS TH RA ER NC LA E BE ND LG S I GR UM EE C L UN UX SP E IT EM AIN ED BO KI UR NG G D IR OM E PO LAN RT D UG AL

2 0

Source: IMF

EUROPE

GDP growth: 1.2% GDP per head: $47,810 (PPP: $44,890) Inflation: 1.2% Budget balance (% GDP): -1.9 Population: 10.7m

The country has spent almost as much of the past five years without an elected government as with one, a symptom of a fragmented social and political structure that flirts with disintegration along linguistic lines. A new four-party centre-right federal government with a reformist agenda took office in October 2014, but the exclusion of the Socialist Party means the new coalition is narrowly focused and will face powerful opposition. Lumbered with high debt and unemployment, the economy will only inch forward.

BULGARIA GDP growth: 2.5% GDP per head: $7,630 (PPP: $15,010) Inflation: 1.2% Budget balance (% GDP): -1.5 Population: 7.1m

Ruling parties all over Europe were knocked back in the 2014 elections to the European Parliament, but for the then prime minister, Plamen Oresharski,

4 3 2 1

The grand coalition under the prime minister, Bohuslav Sobotka of the leftist Czech Social Democratic Party (CSSD), is benefiting from an improved economy and a weak opposition. As well as pursuing a Brussels edict on keeping political influence out of the civil service, the government will make progress on reforms to labour markets, state pensions and the welfare and tax systems. Higher government and consumer spending, combined with a tepid recovery among EU trade partners, will give the economy a fillip.

To watch: ANO mirabilis. Andrej Babis, the charismatic finance minister, may rock the boat by seeking a more prominent role for his ANO 2011 party, the CSSD’s senior coalition partner.

0 -1 -2 -3 -4

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2016

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and his left-leaning coalition government it was the last nail in the coffin.

His resignation in August was followed by a snap election in October, which brought a plurality but no majority to the centre-right Citizens for European Development of Bulgaria under Boiko Borisov, whose first stint in office (2009-13) was also cut short by protest.

Whatever its make-up, the incoming government will prioritise growth over austerity to placate the public mood, and the economy will respond with a mild but sustained expansion.

To watch: Rising stars. Football’s next generation of pampered, playacting prima donnas will cut their teeth at the FIFA European Under-17 Championships in the summer.

DENMARK GDP growth: 1.3% GDP per head: $59,250 (PPP: $45,020) Inflation: 1.3% Budget balance (% GDP): -3.2 Population: 5.7m

A minority left-of-centre coalition government, weakened by scandals and thinned by defections, should survive until elections in September, but not beyond. The new team, probably to be a coalition from the centre-right, will pursue a similarly cautious mix of fiscal restraint and pro-growth policies. Consumer confidence is rising, but the debt overhang from the 2008 housing bust remains substantial, and consumer and business spending will recover slowly.

Denmark: red again

Budget balance, % of GDP

CROATIA GDP growth: 0.8% GDP per head: $13,230 (PPP: $21,690) Inflation: 1.7% Budget balance (% GDP): -4.4 Population: 4.2m

An unpopular coalition government led by the prime minister, Zoran Milanovic of the Social Democratic Party, will limp towards elections likely in December 2015. It must contend with austerity imposed from Brussels, allegations of corruption at the top of government and six straight years of recession.

Against this gloomy backdrop, which

5 4 3

GDP growth: 3.0% GDP per head: $20,110 (PPP: $28,790) Inflation: 2.7% Budget balance (% GDP): -0.2 Population: 1.3m

The range of outcomes from the March parliamentary elections is too broad to plot, but the subsequent direction of policy is a given: more austerity. After being hammered by the credit crunch and ensuing euro-zone crisis, the next government will stick to tight budgets mixed with the occasional splurge to mollify a weary public. Contrasting prospects in key export markets—positive in Sweden, negative in Russia—will amount to a modest economic stimulus.

FINLAND GDP growth: 1.2% GDP per head: $49,920 (PPP: $41,560) Inflation: 1.6% Budget balance (% GDP): -1.8 Population: 5.5m

The conservative National Coalition Party, which heads the government, is likely to keep its dominant position after April’s parliamentary election, but there may be some shift in the supporting cast. The prime minister, Alexander Stubb, veered away from austerity and towards growth in 2014 and will stick to this course. The economy will respond, but only modestly.

To watch: Fission coalition. Plans for a new nuclear reactor on the north-west coast, delayed by the previous administration, will be sent to parliament by the incoming coalition.

FRANCE GDP growth: 0.8% GDP per head: $43,550 (PPP: $40,380) Inflation: 0.8% Budget balance (% GDP): -3.9 Population: 65.0m

Tensions within the government reflect Europe’s debate over “budgetary discipline v growth promotion”, and proponents of discipline are to the fore after the president, François Hollande, quashed an outbreak of “growthism” in mid-2014. The prime minister, Manuel Valls, has wooed business and promised reforms designed to inject some Anglo-Saxon flexibility into the Gaullist economy, but is losing public support as quickly as the president. Still, the economy will show faint signs of life.

2

GERMANY

1

GDP growth: 1.6% GDP per head: $47,350 (PPP: $47,290) Inflation: 1.5% Budget balance (% GDP): 0.8 Population: 81.3m

0 -1 -2 -3 -4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

BELGIUM

6 5

2010

Rising government debt will prevent the ruling coalition of the centre-left Social Democratic Party and the centreright Austrian People’s Party from achieving much. An influential rump of Eurosceptic parties will limit its options further. Still, the government will press ahead with reforms to boost business competitiveness through entrepreneurship and education. Austria is one of the many Western countries trying to shift from traditional manufacturing to a higher-tech economy, but progress will be slow.

7

GDP, % change Budget balance, % of GDP

2009

GDP growth: 1.6% GDP per head: $49,870 (PPP: $46,460) Inflation: 1.9% Budget balance (% GDP): -2.1 Population: 8.6m

Bulgaria: onwards and upwards

2008

AUSTRIA

GDP growth: 2.7% GDP per head: $17,940 (PPP: $29,150) Inflation: 1.9% Budget balance (% GDP): -2.3 Population: 10.8m

ESTONIA

Forever encircled, Germany is confronting ill winds from a revanchist Russia and an economically enfeebled Europe.

Angela Merkel, the chancellor, in effect

The world in numbers Countries

Greece: the big dipper 350 340 330 320 310 300 290 280 270

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260

2009

ITALY GDP growth: 0.3% GDP per head: $33,600 (PPP: $34,840) Inflation: 0.4% Budget balance (% GDP): -3.0 Population: 61.1m

The economy is mired in debt and saddled with high unemployment. The prime minister, Matteo Renzi of the centre-left Partito Democratico, wants to tackle these issues but is unlikely to get the chance. Elections are not due until 2018, but will probably take place in 2015 as the coalition dissolves. Unless draft electoral reforms are approved, a vote is likely to produce another hung parliament. Amid a sluggish Europe, the economy will struggle to grow.

Nominal GDP, $bn at PPP

2008

HUNGARY GDP growth: 2.4% GDP per head: $13,680 (PPP: $21,840) Inflation: 2.8% Budget balance (% GDP): -2.8 Population: 9.9m

The government of the second-term prime minister, Viktor Orban of the Fidesz party, will use its supermajority to press ahead with a nationalist and socially conservative agenda, thumbing its nose at the European authorities when rules are bent. The focus will be on shifting taxes from labour to business, holding down prices and boosting employment, but

To watch: Spelling contest. If Mr Renzi needs to pull a rabbit out of a hat, he could get some tips at the World Championship of Magic, to be held in Rimini in July.

LATVIA GDP growth: 3.7% GDP per head: $16,610 (PPP: $21,340) Inflation: 1.9% Budget balance (% GDP): 0.1 Population: 2.0m

The prime minister, Laimdota Straujuma, installed as caretaker following the collapse of the previous government in January 2014, became a permanent fixture when her three-party centre-right coalition emerged from elections in late 2014 with a mandate.

Latvia’s economy is a conspicuous victim of the sanctions imposed by Russia

GDP, % change 10 5 0 -5 -10

NORWAY 2014

-20

2015

-15

2012

The government, a coalition of the centre-right Fine Gael and the centre-left Labour Party, enjoys a parliamentary majority that ought to see it comfortably to the next elections in 2016, but it has been haemorrhaging popular support and may be forced to call early elections. Ireland’s fall and redemption since the credit crunch has left voters reeling—so much so that the most likely of several improbable scenarios is a coalition between the historically antagonistic Fine Gael and Fianna Fail.

Politics aside, the economy is in the best shape in years.

an obstacle to economic reform. The coalition represents a return to broadly consensual government after a decade of disruptive fragmentation in Dutch politics. The Liberals will focus on business-promoting measures, and Labour on improving working conditions, but both within a strict budget. The economy will represent Europe in microcosm: slightly stronger growth and the slow erosion of unemployment.

Latvia: back!

2013

After years of economic Armageddon, 2015, at last, will be a time of recovery.

The economy will grow by around 2.3% and deflation will end. Otherwise, it will all look painfully familiar. The governing alliance between Pasok on the left and New Democracy on the right will collapse after failing to muster the supermajority needed to select a new president. Syriza, an insurgent party channelling popular anger, will win the most votes in early elections, but won’t have the partners to make it into government. Progress, though fitful, will be made on fiscal, financial and structural reforms.

GDP growth: 3.0% GDP per head: $50,450 (PPP: $49,720) Inflation: 0.6% Budget balance (% GDP): -3.0 Population: 4.7m

2011

GDP growth: 2.3% GDP per head: $21,440 (PPP: $27,090) Inflation: 0.2% Budget balance (% GDP): -2.4 Population: 11.1m

IRELAND

2010

GREECE

To watch: Russia ties. A gas contract with Russia, which supplies about 80% of Hungary’s needs, expires in 2015, and may prove hard to renew if tensions over Ukraine persist.

The main role in 2015 of Ahmet Davutoglu, Turkey’s prime minister, will be to prepare a handover of his executive powers to his predecessor, Recep Tayyip Erdogan, now the country’s president. This requires a constitutional reform, which will hinge on winning a two-thirds majority in elections in June. The ruling Justice and Development party will fall short, but a successful conclusion to peace talks with Abdullah Ocalan, imprisoned leader of the outlawed Kurdistan Workers’ Party, would lock in support from pro-Kurdish MPs, securing the required numbers.

2009

To watch: Clean sweep. The government may gain a majority in the Bundesrat (the upper house) thanks to state elections in Bremen and Hamburg.

all within the fiscal constraint imposed

by Brussels. Domestic consumption will support economic growth as Hungary’s European export markets struggle.

2008

the European Union’s interlocutor, is held back by an electorate unwilling to shoulder the cost of supporting the euro or standing up to Russia. A firm grip on power gives Mrs Merkel impressive authority, but she will be cautious on both fronts. Caution will also characterise economic policy at home, particularly in fiscal matters, and growth will be modest.

113

2015 IN PERSON

THE WORLD IN 2015

on European agricultural exports; Harmony Centre, which represents the Russian-speaking minority, lost votes in the election. Still, Russia’s boycott permitting (the fluidity of the crisis in Russian-EU relations means nothing is certain), Latvia’s recovery from the 2008/09 financial crash will continue.

LITHUANIA GDP growth: 2.7% GDP per head: $16,680 (PPP: $28,060) Inflation: 3.3% Budget balance (% GDP): -1.8 Population: 2.9m

Algirdas Butkevicius of the Social Democratic Party leads an ideologically diverse coalition, but all parties are agreed on the broad direction: an open economy, close alignment with Western powers in foreign policy and strong support for European integration.

Energy security will be a policy priority; Russia supplies 100% of the country’s gas at present. The economy will grow substantially faster than that of its European partners.

To watch: Exchanging notes. Lithuania will become the 19th member of the euro zone on January 1st as the litas gives way to the euro.

NETHERLANDS GDP growth: 1.0% GDP per head: $50,870 (PPP: $48,630) Inflation: 1.3% Budget balance (% GDP): -2.2 Population: 16.9m

Provincial elections in March may produce a clean sweep for the grand coalition of the centre-right Liberals and the centre-left Labour Party, removing

GDP growth: 2.5% GDP per head: $107,280 (PPP: $70,770) Inflation: 2.4% Budget balance (% GDP): 12 Population: 5.1m

The minority coalition rules with informal support from two centrist parties, which will restrain the more radical anti-immigration tendencies of the Progress Party, the junior coalition partner along with the Conservatives.

The government will make inroads into the country’s high-tax environment, reducing the burden on companies.

Consumer spending and the energy industry will drive economic growth at rates comfortably in excess of the European average, while the focus offshore will accelerate the shift from oil to gas.

POLAND GDP growth: 3.5% GDP per head: $14,450 (PPP: $25,770) Inflation: 1.2% Budget balance (% GDP): -1.5 Population: 38.4m

Although Russia’s retaliatory sanctions against European agricultural exports have hurt Poland’s economy, Russian aggression in Ukraine has boosted support for the centre-right Civic Platform (PO) and its coalition partner, the agrarian Polish Peasants’ Party. Nevertheless, seven years of power for the PO—most of it under the leadership of Donald Tusk, who leaves in November 2014 to become president of the European Council—will probably prove enough for voters when they go to the polls in late 2015. The Law and Justice party, whose own troubled period in power in 2005-07 has mostly faded from memory, is the favourite.

A disruptive Russia, a weak euro zone and tight budgets will shape economic prospects.

Countries The world in numbers

Romania: more cash

Budget revenue, % of GDP 34

33

2017

2016

2014

2015

2013

2011

2012

2010

2009

2008

32

SWEDEN

GDP growth: 2.5% GDP per head: $18,190 (PPP: $28,620) Inflation: 1.6% Budget balance (% GDP): -2.6 Population: 5.4m

GDP growth: 2.4% GDP per head: $57,930 (PPP: $46,380) Inflation: 1.7% Budget balance (% GDP): -1.3 Population: 9.8m

The Direction-Social Democracy government, the first single-party administration since independence in 1993, will head into its final year in 2015 with a comfortable grip on power. Robert Fico, the second-term prime minister, will concentrate on shifting from austerity to growth; this will win votes but put the country’s commitment to EU deficit rules at risk. The confrontation with Russia has the potential to hurt Slovakia’s economy, and Europe’s own modest prospects will cap growth, but it should still beat the EU average.

A centre-left coalition headed by the Social Democratic Party (SAP) emerged victorious from elections in September 2014, replacing a centre-right alliance.

The new coalition will be weaker than the previous one, suggesting a degree of instability and uncertainty. The government under the new prime minister, Stefan Lofven, the SAP leader, will tighten fiscal policy. Otherwise, policy will focus on labour and tax reforms aimed at reviving economic growth.

SLOVENIA GDP growth: 1.0% GDP per head: $22,560 (PPP: $29,030) Inflation: 1.5% Budget balance (% GDP): -3.0 Population: 2.1m

Once the poster child of post-Soviet stability, the country has been battered by scandal, corruption and economic malaise. The centre-left coalition government under the prime minister, Miro Cerar, is the fourth in as many years, and as fragile as its predecessors. However, Mr Cerar, an academic with a long history of advising politicians from the wings, may be just the non-confrontational figure the country needs to restore stability. While the politicians squabble, the economy will begin a slow climb back to growth.

RUSSIA

SPAIN

GDP growth: 1.0% GDP per head: $14,820 (PPP: $25,810) Inflation: 7.3% Budget balance (% GDP): -0.2 Population: 141.8m

GDP growth: 1.4% GDP per head: $28,560 (PPP: $33,770) Inflation: 0.5% Budget balance (% GDP): -4.5 Population: 47.2m

Recession, inflation and an investment drought are the likely costs of Russia’s land grab in Ukraine, and the president, Vladimir Putin, will see that as a price worth paying to ensure Russia’s place in the world and the defence of

With the economy out of the woods and most indicators edging in the right direction, the People’s Party government should make it safely to elections as 2015 comes to a close.

Given turmoil in the opposition Spanish

To watch: Case for defence. A crossparty consensus behind disarmament swung in favour of re-arming after Russia’s intervention in Ukraine.

Defence spending will increase.

SWITZERLAND GDP growth: 2.5% GDP per head: $82,050 (PPP: $57,360) Inflation: 0.8% Budget balance (% GDP): 0.3 Population: 8.2m

The government comprises a five-party coalition, in which centre-left parties dominate but the right-wing Swiss People’s Party (SVP) frequently plays an opposition role. The coalition is still dealing with the fallout from an SVPbacked referendum to limit immigration in contravention of Switzerland’s EU accords. It will work to overturn the narrow decision, though a second vote is unlikely before 2016. Elections scheduled for October will bring no change in the government.

TURKEY GDP growth: 4.0% GDP per head: $11,180 (PPP: $20,580) Inflation: 7.4% Budget balance (% GDP): -2.7 Population: 76.7m

Power will shift to the office of the president, now occupied by Recep Tayyip Erdogan, from that of the prime minister, which Mr Erdogan controlled

GDP growth: 1.2% GDP per head: $2,430 (PPP: $8,620) Inflation: 8.2% Budget balance (% GDP): -5.0 Population: 44.8m

Although the government of the president, Petro Poroshenko, along with a majority of Ukrainians, remains committed to aligning the country with its western European neighbours, Russia’s president, Vladimir Putin, will wreck its economy and political unity before allowing its departure from his sphere of influence—regardless of any cost an ambivalent and fragile West is likely to impose. While Russia and the West trade sanctions, Ukraine will stagnate.

Assuming some stasis in the conflict, there could be a modest economic bounce.

Ukraine: war economy Nominal GDP, $bn at PPP 400 380 360 340 320

2014

Victor Ponta seemed likely to move from prime minister to president in late 2014, as the centre-right opposition parties struggled to agree on a candidate. The position of Mr Ponta and his Social Democratic Party, which heads a three-party centre-left coalition, has been strengthened by an improving economy. The government will work to rebalance the tax burden, away from business and towards evaders. Progress against corruption, mandated by the EU, will be slow.

SLOVAKIA

UKRAINE

2015

GDP growth: 3.0% GDP per head: $9,180 (PPP: $14,620) Inflation: 2.4% Budget balance (% GDP): -1.8 Population: 21.6m

To watch: Can we? Support is coalescing around Podemos (“We can”), a protest party on the left that did well in the 2014 elections to the European Parliament. It will be a wild card in the national contest.

2013

ROMANIA

To watch: Unionised. The Eurasian Economic Union, joining Russia with Kazakhstan and Belarus, will come into being on January 1st, embracing 170m people and $2.4trn in annual output.

for almost 12 years until August 2014— even if it means stretching the constitution. The government will loosen fiscal policy and lean on the formally independent central bank to ease interest rates ahead of parliamentary elections in mid-2015. Mr Erdogan’s Justice and Development party will emerge the comfortable winner, and perhaps with the two-thirds majority needed to re-write the constitution. The economy will begin its recovery.

2011

The centre-right coalition of the Social Democratic Party and the People’s Party has manoeuvred the country through a painful sovereign bail-out. It is now overseeing a return to growth, though within a context of sustained austerity, banking-sector instability and high debt. It may even edge its way back into power in elections in October, though the opposition Socialist Party is the favourite. Although no longer under the tutelage of the EU and the IMF, the government will keep the focus on stabilising the debt and narrowing the budget gap. Modest growth, based on stronger exports and recovering domestic demand, is likely, but a fragile euro zone remains a threat.

Socialist Workers’ Party and fragmentation among smaller parties, the prime minister, Mariano Rajoy, may even win another term. Separatists in Catalonia and the Basque region will press their cases, but there will be no separation in 2015. Public and private indebtedness will restrain the economy for years, but Spain will move from Europe’s intensivecare unit to the outpatients’ clinic.

2012

GDP growth: 0.8% GDP per head: $22,730 (PPP: $27,140) Inflation: 0.5% Budget balance (% GDP): -8.8 Population: 10.5m

its “near abroad”. The Ukraine action propelled Mr Putin’s popularity ratings skywards. It remains to be seen if, as the West’s response to Russia’s incursions bites and living standards at home drop, the public remains as enthusiastic. Wavering support could tempt Mr Putin into further expansionism, in Ukraine or elsewhere. Either way, controls will tighten as dissent at home increases.

2010

PORTUGAL

THE WORLD IN 2015

2009

114

UNITED KINGDOM GDP growth: 2.5% GDP per head: $44,330 (PPP: $39,460) Inflation: 2.0% Budget balance (% GDP): -3.9 Population: 64.4m

An economy in the full blush of recovery will underpin the Conservative Party’s case for a sole mandate in general elections in May. The experience of coalition government with the smaller Liberal Democrats has been to the taste of neither. A Lib Dem coalition with the opposition Labour Party would be more ideologically harmonious, but would happen only if Labour wins a plurality of seats, which is unlikely. Household debt is high and the budget weak, but the Bank of England will raise interest rates in 2015 as the recovery gains ground.

The world in numbers Countries missing an opportunity to boost trade.

Investors will tread warily as they wait to see if rekindling India’s growth will be given higher priority than securing the government’s hold on power. These doubts aside, quicker approval of public projects and recovery among trade partners in the West should give the economy a fillip.

BANGLADESH GDP growth: 6.3% GDP per head: $1,090 (PPP: $2,910) Inflation: 7.3% Budget balance (% GDP): -5.2 Population: 161.0m

The Awami League government under the prime minister, Sheikh Hasina Wajed, will use its thumping legislative majority to dilute fuel subsidies while pressing on to meet its economicdevelopment goals. The government will use the country’s strategic position between India and China to seek favours from both, though the animosity towards India’s BJP government will set back the bilateral relationship.

Economic growth will miss the government’s target, but not by much.

CHINA GDP growth: 7.0% GDP per head: $8,550 (PPP: $14,460) Inflation: 2.9% Budget balance (% GDP): -2.8 Population: 1.36bn

The president, Xi Jinping, will maintain his assault on the inefficiency and corruption that threaten the legitimacy of the Chinese Communist Party, but will use the crackdown to neutralise rivals to his leadership at the same time.

Foreign relations will remain unsettled

HONG KONG GDP growth: 2.6% GDP per head: $41,990 (PPP: $58,320) Inflation: 3.3% Budget balance (% GDP): 0.2 Population: 7.1m

Tensions over mainland China’s overwhelming role in the territory’s affairs will fester, especially over the right of Hong Kong citizens, enshrined in the Basic Law, to elect their own government. Beijing’s view will prevail, but at the cost of agitation on the streets and an uncomfortable tenure for the chief executive, Leung Chun-ying. The government will eye a bubbly housing market with concern, particularly as interest rates begin to rise. Recovery in the West and more trade with the mainland will help economic growth.

To watch: Frontier market. Beijing’s policy of relaxing residency rules for mainlanders is stoking tensions in the territory, and could crimp inward tourism from over the border.

Japan: reflating

To watch: Fuel cap. The government will launch a fresh attack on fuel subsidies, to square the budget and fund public works.

Indonesia: pump priming

Budgeted fuel subsidies, trn rupiah 250 200

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2010

The freshly minted president, Joko Widodo, a relative outsider, must parlay his popular support into political clout if he is to succeed in delivering promised reforms. His priorities will be streamlining the state apparatus, turning the tide of corruption, and renewing basic infrastructure and public services. A pledge to encourage foreign investment is likely to be diluted to preserve political capital and local business control. Entrenched interests, a fragmented and largely hostile legislature and his own inexperience will further complicate the mission.

The prospect of reform will help lift the economy, justifying the country’s proto-BRIC status.

5 4

2009

To watch: Five more years. China will launch its 13th Five-Year Plan (201620), aimed at deepening reforms to get the country through its structural slowdown.

The government of Shinzo Abe, secure in power at least until elections in 2016, will pursue the twin goals of economic growth and a shift to a more active international role for the armed

2007

Tony Abbott, the prime minister, and his Liberal-National coalition government will focus on dismantling key policies of his Labor Party predecessor, including the unpopular carbon tax and other environmental legislation. The policy roll-back, the government’s weak position in the Senate, and the partisan mood in Australian politics will make for an uncertain 2015. A diminished but still buoyant mining sector will support economic growth, but crowd out manufacturing investment.

GDP growth: 1.8% GDP per head: $39,140 (PPP: $39,060) Inflation: 1.8% Budget balance (% GDP): -6.6 Population: 126.8m

2008

GDP growth: 2.5% GDP per head: $62,560 (PPP: $47,210) Inflation: 2.6% Budget balance (% GDP): -1.4 Population: 23.8m

as China puts on muscle, provoking a disruptive reordering of loyalties around the Pacific. The shift from an investment-for-export economy to a consumption-and-welfare one will be stepped up, and the economy will grow nicely, though just below 2014’s level.

GDP growth: 5.9% GDP per head: $3,870 (PPP: $10,780) Inflation: 5.6% Budget balance (% GDP): -2.3 Population: 255.8m

forces. The former rests on the success of the “Abenomics” growth agenda, with a cut in the corporate-tax rate and reforms to labour markets, agriculture and health care. The latter, opposed by supporters of the pacifist constitution, is viewed favourably by many—including in Washington, where a more muscular ally that can share the burden of Pacific security would be welcome.

Growth and inflation will hover within the 1-2% comfort zone.

To watch: Sea of troubles. Japan’s territorial stand-off with China over islands in the East China Sea is central to a nervy realignment of global power.

There will be sparks, but no fire.

KAZAKHSTAN

150

GDP growth: 5.5% GDP per head: $13,700 (PPP: $16,010) Inflation: 6.2% Budget balance (% GDP): -1.2 Population: 17.6m

100 50 0

The president, Nursultan Nazarbayev, enters the last year of his presidential term in 2015, but his tenure—24 years

INDIA GDP growth: 6.5% GDP per head: $1,980 (PPP: $6,220) Inflation: 7.7% Budget balance (% GDP): -4.9 Population: 1.27bn

Fears of sectarian bias by the Bharatiya Janata Party’s Narendra Modi have not materialised, but neither have hoped-for market reforms. The government has stuck with a costly subsidy regime, for instance, a perennial drag on growth, and has declined to ratify the WTO’s trade-facilitation agreement,

2015 IN PERSON

AUSTRALIA

JAPAN

2006

ASIA

115

GDP, % change Consumer prices, % change

INDONESIA

2014

IN DI A

JA PA N PA KI ST AN

CH IN A VI ET NA BA M NG LA DE SH TH AI LA ND IN DO NE SI A AU ST RA NE LIA W ZE AL AN SI D NG AP OR HO E NG KO SO NG UT H KO RE A SR IL AN KA M AL AY SI PH A ILI PP IN ES TA IW AN

-20

To watch: Bygones. The US will overlook Mr Modi’s Hindu-nationalist past to focus on rebuilding a relationship that is key to its overall Asia strategy.

2013

20 0

2011

80 60 40

2012

140 120 100

2010

160

2009

Change in real wages since 2005, %

2008

Asia: pay rise

2005

THE WORLD IN 2015

Supported by a hand-picked cadre of enforcers, Xi Jinping, China’s president, has achieved a grip on power not seen since the days of Chairman Mao. Wang Qishan, a long-time trouble-shooter for the Chinese Communist Party, is the most prominent of Mr Xi’s lieutenants, heading a high-profile anticorruption drive. In Mr Xi’s version of the rule of law, “rule” is the prerogative of a central authority, and “law” is its codification. The anti-corruption campaign, a means of addressing popular concern with bent officials and “princelings’”(children of party elders), is a stick with which to beat those who won’t toe Mr Xi’s line. Mr Wang, a princeling himself but childless, will wield it without compunction.

Countries The world in numbers

The Barisan Nasional (BN) coalition government will suffer more defections as a result of the poaching campaign by the opposition Pakatan Rakyat. BN’s narrowing legislative majority, and tensions between reformers and conservatives within UMNO, the leading coalition partner, will undermine policy.

The administration will press on with reforms designed to make Malaysia a high-income country by 2020. The next phase, the “11th Malaysian Plan”, will be unveiled in June 2015.

To watch: Tea party. Implementation of a goods-and-services tax, scheduled for 2015, may spark clashes despite strict limits on public assembly.

NEW ZEALAND GDP growth: 2.8% GDP per head: $41,280 (PPP: $37,820) Inflation: 2.0% Budget balance (% GDP): 0.3 Population: 4.4m

The prime minister, John Key, of the centre-right National Party, won a third term decisively in September 2014 elections. Goals for the new government include the ongoing reconstruction of Christchurch, extending paid parental leave and renewing efforts to get welfare recipients back to work. A focus on infrastructure and the offer of oil concessions will please investors. This will help offset the fall in reconstruction investment after the earthquake.

To watch: Ozealand. The government will strengthen co-operation with Australia, with a view to achieving a single economic market.

2014

2015

2012

security. Behind-the-scenes arbitration by the army is likely to lead to a peaceful resolution of the protests, but Mr Sharif’s ability to implement divisive energy and budget reforms will be compromised. Security will remain fragile in the separatist south-west and the jihadi north-east. Foreign policy will revolve around Pakistan’s strategic role in the West’s confrontation with Islamist terror groups. The government will work to entice investors through regulatory reform and privatisation.

PHILIPPINES GDP growth: 6.3% GDP per head: $3,260 (PPP: $7,410) Inflation: 4.1% Budget balance (% GDP): -1.4 Population: 101.8m

Entering the last full year of his term in 2015, the president, Benigno Aquino, faces a resurgent political opposition and lacks a comprehensive rebuilding plan for areas damaged by Typhoon Haiyan in late 2013. Lawmakers filed three impeachment motions against Mr Aquino, but they were dismissed by a congressional committee in September.

Urbanisation, rising consumer spending and a booming outsourcing sector, will help growth.

SINGAPORE GDP growth: 3.8% GDP per head: $58,910 (PPP: $83,340) Inflation: 2.2% Budget balance (% GDP): 1.1 Population: 5.7m

GDP growth: 4.2% GDP per head: $1,470 (PPP: $5,060) Inflation: 8.2% Budget balance (% GDP): -6.0 Population: 189.1m

With 60% of the votes but almost all the seats, the long-ruling People’s Action Party has a democratic deficit to overcome. Broader and deeper welfare spending will help, but social strains will rise, and spill on to the streets from time to time. Change has got to come, but not yet. With Singapore at the crossroads of world trade, growth will pick up as global demand accelerates.

The prime minister, Nawaz Sharif, has been weakened by big political protests and the ascendancy of the army, on whom his government depends for its

To watch: Get a room. The 7,000 athletes participating in the South-East Asian Games in June will stay at hotels, not in the traditional Athletes’ Village.

PAKISTAN

SRI LANKA GDP growth: 7.1% GDP per head: $3,790 (PPP: $11,010) Inflation: 4.8% Budget balance (% GDP): -5.7 Population: 21.6m

An election is due in 2016, but a comfortable legislative majority and strong approval ratings mean the United People’s Freedom Alliance government can keep early electioneering to a minimum. Its penchant for micromanaging the economy and shifting policy are a drag on business. Nevertheless, the end of the civil war in 2009, when the Tamil Tigers were defeated, has made the government popular, and will pay out an economic dividend, with growth of around 7%.

TAIWAN GDP growth: 3.3% GDP per head: $22,700 (PPP: $44,020) Inflation: 2.0% Budget balance (% GDP): -1.3 Population: 23.5m

The Kuomintang government led by the president, Ma Ying-jeou, enters 2015 beset by popular protests, mainly over its cross-Straits and nuclear-energy policies. It will limp to the 2016 election confronted by a hostile legislature and unable to make progress with preferred policies such as trade integration and closer ties with mainland China. The economy will be equally underpowered, as regional rivals eat into Taiwan’s global electronics market and the mainland blocks trade deals.

THAILAND GDP growth: 4.5% GDP per head: $6,260 (PPP: $11,060) Inflation: 4.0% Budget balance (% GDP): -1.7 Population: 67.4m

The ruling National Council for Peace and Order, which marched into power in a 2014 coup, has resolved the immediate problem of political insta-

2017

2016

2014

2015

6

2013

-10

2013

-8

9

2011

-6

The country’s first female leader, Park Geun-hye, has kept to the pro-business reform path of her predecessor, but with a focus on social equality—to the extent that a tight budget permits. She rode out the furore that followed the 2014 Sewol ferry-boat disaster, and the ruling Saenuri Party consolidated its legislative majority in subsequent elections. The government will use its hold on power to nudge the economy away from an export-oriented growth model to one that favours innovation aimed at the domestic market.

12

2012

-4

Inward direct investment, $bn 15

2010

-2

Thailand: invested

2009

GDP growth: 3.7% GDP per head: $30,110 (PPP: $36,520) Inflation: 2.3% Budget balance (% GDP): 0.8 Population: 50.8m

2008

0

2011

GDP growth: 5.4% GDP per head: $12,090 (PPP: $26,310) Inflation: 3.4% Budget balance (% GDP): -3.5 Population: 30.7m

SOUTH KOREA

Budget balance, % of GDP Current-account balance, % of GDP

2010

MALAYSIA

THE WORLD IN 2015

Pakistan: off balance

2009

and counting—will not be truncated by mere elections, and his hold on power, underwritten by the country’s oil wealth, is unlikely to be weakened by anything other than the natural consequences of the ageing process (he turns 75 in July). Economic stimulus, fuelled in part by a privatisation programme, and export revenue, buoyed by production at the Kashagan oilfield, will help allay headwinds blowing from a sanctions-hit Russia.

2008

116

bility but not its underlying cause, the chasm between the rural poor and the urban establishment—so confrontation will simmer. The junta will respond by constructing a political framework designed to prevent a return to power of the popular Thaksin Shinawatra or his proxies. Meanwhile, the government will try to revive a weak economy by splashing out on public works and priming the pumps of consumer spending.

UZBEKISTAN GDP growth: 6.4% GDP per head: $2,110 (PPP: $5,900) Inflation: 11.0% Budget balance (% GDP): -1.6 Population: 31.1m

The current presidential term of Islam Karimov, his fourth in a row since independence, ends in 2015, but he will be granted another in the subsequent election. Change is probably in sight, with a soap opera of rivalries raging behind the scenes as the patriarch’s grip loosens. But in a country that has yet to see free elections it won’t be the people’s choice. Revenue from commodities exports will drive the economy, supplemented by public investment in local projects.

VIETNAM GDP growth: 6.6% GDP per head: $2,230 (PPP: $6,090) Inflation: 6.1% Budget balance (% GDP): -3.9 Population: 91.4m

“Reformers”and “conservatives” vie for the upper hand in the Communist Party government, but there is little threat from outside to single-party rule. Although anti-government feeling is rising, a well-used array of repressive techniques will be more than enough to quell dissent. The economy will recover some of its vim, helped by more consumer spending and business investment.

To watch: Go West. China’s increasingly assertive stance in the region will encourage deeper ties between Vietnam and the US, despite the legacy of war between the two.

The world in numbers Countries

THE WORLD IN 2015

Latin America: crisis cushions

North America: industrial renaissance Industrial production (2005=100)

117

Mexico

US

Canada

International reserves, $bn

2000

2015

350

140

300

130

250 120

200

110

150 100

100

50

NORTH AMERICA GDP growth: 2.3% GDP per head: $54,150 (PPP: $45,830) Inflation: 2.3% Budget balance (% GDP): -1.9 Population: 36.0m

Stephen Harper, the prime minister, and his ruling Conservatives enjoy a majority in the parliament and have had a fairly free run against a divided opposition. However, the government has been undermined by scandals and the Liberal Party, third-placed behind the Conservatives and the New Democratic Party, is enjoying a renaissance ahead of federal elections due

by October 2015. Policy priorities will include removing inter-provincial trade barriers, which the government estimates cost $47bn a year in lost activity, and improving oil-transport links to the Alberta oil sands, the third-largest deposit of proven oil reserves in the world. The economy will piggy-back on the US recovery.

MEXICO GDP growth: 4.0% GDP per head: $12,080 (PPP: $19,430) Inflation: 3.3% Budget balance (% GDP): -3.1 Population: 118.8m

The president, Enrique Peña Nieto, pushed a series of fundamental reforms in energy, telecoms, education and banking onto the statutes in his first year in office, and will spend the remainder of his term on implementation—as well as performing the “day job” of boosting growth, creating jobs and fighting drugs-trafficking.

EC UA DO R

PA RA GU AY

BO LI VI A

UR UG UA Y

PE RU

LATIN AMERICA Opposition will be fierce, particularly in the run-up to mid-term elections in July, and the internal cohesion of the ruling Partido Revolucionario Institucional will be put to the test. The immediate focus will be on lifting the economy out of its recent doldrums; an increasingly competitive export sector will help.

To watch: Grand PRI. Mexico will welcome back Formula 1 motor racing in November, for the first time in 23 years.

UNITED STATES GDP growth: 3.2% GDP per head: $57,160 (PPP: $57,160) Inflation: 2.3% Budget balance (% GDP): -2.5 Population: 321.3m

Barack Obama will spend most of his time worrying about foreign terrorists and belligerent Russians, and not the economy—which will do reasonably well on its own. The recovery will finally stabilise, and job growth, already strong, will edge higher. Wages will begin to rise and consumers will spend the extra cash in the shops, but weakness overseas will limit export growth.

US election campaigns are interminably long, and the 2016 races for Congress and the presidency will take off in early 2015 when Hillary Clinton, the former secretary of state, senator and First Lady, will announce her candidacy.

To watch: Borrowing costs. The Federal Reserve will raise official interest rates some time in 2015. When, and by how much, will be topics of intense interest both to financial markets and ordinary homeowners.

2015 IN PERSON

CANADA

CH IL E AR GE NT IN A VE NE ZU EL A

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CO LO MB IA

80

BR AZ IL

0

90

Rodrigo Londoño Echeverri (also known as “Timochenko”) is only the third leader in over 50 years of the FARC, the Colombian guerrilla group, but he will also be the last if peace talks with the government succeed. Although a recent appointment (after his predecessor was shot by the Colombian army), he is a hardened guerrilla and the reputed mastermind of some of the group’s bloodiest operations. In other words, he has the military cachet required to lead the rebels into talks. Peace—not yet a foregone conclusion, given the complexity of the negotiations—would yield a big economic dividend.

ARGENTINA GDP growth: 1.9% GDP per head: $10,980 (PPP: $21,260) Inflation: 26.5% Budget balance (% GDP): -1.9 Population: 43.1m

The Peronist government of Cristina Fernández de Kirchner is at risk from runaway inflation, a balance-ofpayments crisis and popular revolt before it reaches the October election.

The measures needed to avoid this will be painful for the populace—and anathema to the government’s own ideologues. The next president is likely to be another Peronist, but will have little option other than to stabilise the economy and work towards renewed access to international capital markets, closed since the 2001 default.

BOLIVIA GDP growth: 4.0% GDP per head: $3,450 (PPP: $6,740) Inflation: 7.1% Budget balance (% GDP): 0.1 Population: 11.1m

Evo Morales secured a third successive presidential term in elections held in October 2014, aided by incumbency, an effective party machine and the economic benefits of a gas bonanza. But plans to draw marginalised people into the political sphere have proceeded slowly, and some groups will seethe.

The gas windfall, expanding consumer demand and buoyant construction will keep the growth rate healthy.

BRAZIL GDP growth: 1.8% GDP per head: $11,410 (PPP: $12,650) Inflation: 6.3% Budget balance (% GDP): -3.9 Population: 204.5m

The president, Dilma Rousseff, begins a second consecutive term—and a fourth for her Workers’ Party—following a narrow win in an October 2014 run-off, but she has moved policy a long way from the economic pragmatism of her predecessor, Luiz Inácio ‘Lula’ da Silva.

Interventionism, micro-management

and a lack of progress on reforming the state-heavy economy have shaken confidence abroad, and the economy is languishing after a decade of solid expansion. Her first task will be to win back sceptical investors and prepare the country for tougher times.

To watch: Go figure. Rio de Janeiro will host the 60th ISI World Statistics Congress in July.

CHILE GDP growth: 3.6% GDP per head: $14,380 (PPP: $24,310) Inflation: 3.4% Budget balance (% GDP): -1.1 Population: 17.9m

Michelle Bachelet began a second presidential term in 2014 with a flurry of reforms, including reforms of the education, electoral and tax systems.

She will resist pressure from the left of her centre-left Nueva Mayoría coalition, not least because she may also need support from the centre-right opposition. Strong demand for copper, the country’s main export, will bring a rally in economic growth.

To watch: Vamos China! Chile hosts the Copa América football championships in June-July. In a sign of the country’s growing reach, China will take part for the first time.

COLOMBIA GDP growth: 4.4% GDP per head: $8,620 (PPP: $12,010) Inflation: 3.4% Budget balance (% GDP): -0.7 Population: 50.1m

Juan Manuel Santos’s second term as president, which began in 2014, will look much like his first: an ambitious reform programme held back by tensions within his own coalition and obstruction by the right-wing opposition, punctuated by drawn-out peace negotiations with the FARC guerrillas.

That initiative, at least, promises to come to fruition in 2015, delivering a peace dividend and perhaps even a Nobel peace prize for Mr Santos. The economy will keep growing nicely.

Countries The world in numbers

PERU

3,000

GDP growth: 4.9% GDP per head: $7,310 (PPP: $12,330) Inflation: 2.7% Budget balance (% GDP): -0.2 Population: 31.2m

2,000

URUGUAY

3.0 2.5

GDP growth: 3.3% GDP per head: $16,540 (PPP: $21,620) Inflation: 7.2% Budget balance (% GDP): -2.9 Population: 3.4m

2.0 1.5 1.0

2015

2014

2013

2012

2011

2010

0.0

2009

0.5

ECUADOR GDP growth: 4.9% GDP per head: $7,070 (PPP: $12,610) Inflation: 4.1% Budget balance (% GDP): -4.7 Population: 15.5m

Rafael Correa, elected in 2007, set the record in 2014 for the country’s longest-serving president, and wants to remove term limits from the constitution so that he can stand again in 2017.

His tenure has brought unaccustomed stability to the country’s politics, which, combined with a hydrocarbons bonanza, has allowed a sustained period of economic expansion. There is little to threaten the power of Mr Correa and his Alianza PAIS government. As long as the oil price doesn’t fall too low, the economy will motor along.

PARAGUAY GDP growth: 4.1% GDP per head: $4,950 (PPP: $7,550) Inflation: 4.6% Budget balance (% GDP): -0.7 Population: 7.0m

Horacio Cartes, the president, faces an increasingly hostile legislature. An outsider and a moderniser, he represents the country’s long-established Partido Colorado, with deep traditions and myriad vested interests; it is from within his own party that the stiffest resistance will come. For this

The centre-left Frente Amplio coalition government will begin a new term in March, but under a new president following elections in late 2014. Tabaré Vázquez, who led the coalition, and the country, from 2005 to 2010 is likely to get the job, though perhaps without the congressional majority enjoyed

by José Mujica, the incumbent. The coalition’s left wing will push for redistributive reforms, but the government will press on with policies friendly to businesses and welcoming to foreign investment.

To watch: High hopes. The legalisation of cannabis cultivation and use, a bid to head off the emergence of drug-related crime, will begin in 2015.

VENEZUELA GDP growth: -0.5% GDP per head: $23,570 (PPP: $13,320) Inflation: 53.2% Budget balance (% GDP): -10.1 Population: 30.9m

The country suffers from violent protests, a shrinking economy, a rocky currency and declining international reserves, but Nicolás Maduro’s government can withstand the discontent because the opposition has found no formula for forcing a change before his presidential term ends in 2018.

Shortages of food and other goods will worsen as the government struggles to manage the flow of foreign exchange, and the economy will languish into recession. The fall in the oil price threatens to deepen the administration’s difficulties.

1,000 500 0

Source: African Development Bank

MIDDLE EAST AND AFRICA ALGERIA

EGYPT

GDP growth: 3.3% GDP per head: $6,170 (PPP: $14,370) Inflation: 3.6% Budget balance (% GDP): -1.7 Population: 40.0m

GDP growth: 3.3% GDP per head: $3,700 (PPP: $11,630) Inflation: 10.2% Budget balance (% GDP): -10.5 Population: 85.0m

Abdelaziz Bouteflika begins his 16th year in office in 2015 but faces no credible threat. High youth unemployment, gerontocracy and wide social divisions—elements that led to “Arab spring” uprisings elsewhere—are rife but contained by the firm grip of le pouvoir, the country’s long-standing power elite. Growth in the hydrocarbons-dependent economy will be modest. Diversification will creep ahead.

Abdel Fattah el-Sisi will tighten his hold on presidential power and press home the repression of the Muslim Brotherhood, whose government he helped depose before his election. A legislative vote due in late 2014 was unlikely to deliver a clear majority for any party. Aid from the Gulf states— grateful to see the back of the Muslim Brothers—and a drive to attract private investment will boost growth.

ANGOLA

ETHIOPIA

GDP growth: 5.5% GDP per head: $7,400 (PPP: $8,190) Inflation: 7.8% Budget balance (% GDP): -3.3 Population: 22.8m

GDP growth: 7.0% GDP per head: $485 (PPP: $1,520) Inflation: 8.7% Budget balance (% GDP): -2.8 Population: 98.9m

José Eduardo dos Santos has been president since 1979, but has dropped hints he may soon step down. It won’t happen in 2015, but the mere suggestion means the contest for succession will begin to take centre-stage. The potential for disruption is great, since Mr dos Santos has so far worked hard to prevent the emergence of rivals. Rising output from the oil sector will drive the economy.

The Ethiopian People’s Revolutionary Democratic Front dominates politics, but the prime minister, Hailemariam Desalegn, hasn’t matched the strong leadership of his predecessor, Meles Zenawi, who died in 2012. The party may replace Mr Desalegn ahead of elections due in 2015, but its candidate will win in any case. Ethnic tensions will spawn armed protest, but this will merely give the government a pretext to suppress dissident voices. The economy is storming ahead.

CAMEROON GDP growth: 5.2% GDP per head: $1,310 (PPP: $2,980) Inflation: 2.5% Budget balance (% GDP): -4.5 Population: 23.1m

Another example of a long-term president with nothing to challenge his position but his own advanced age, Paul Biya has been in charge for more than 30 years. The economy is doing well, reflecting rising oil production and a flourishing domestic market.

Growth could be quicker if a serious programme of pro-investment reforms were undertaken, but there is no likelihood of this for the moment.

Ethiopia: green shoots

Agricultural output, birr bn, 2011 prices 300 250 200 150 100 50 0 2014

3.5

1,500

2015

The presidency of Ollanta Humala is suffering the normal end-of-term attrition, and he will enter his final year in office confronted by a fractious coalition, a hostile congress and declining popularity. Careful fiscal management means there will be room for some preelection pump priming. The economy will be lifted by efforts to reduce administrative hurdles to investment and cut business overheads, but the rapid catch-up growth of recent years is no longer on the cards.

2,500

2013

4.0

3,500

2011

GDP, % growth

4,000

2012

Cuba: reform boost

Household spending, % increase from 2000 to 2013 4,500

2010

The slow shift away from the Castro brothers and towards a new generation of leaders means the uncertain tenor of recent years will not end soon. The possibility of instability in Venezuela, a key ally, adds further risk. Fundamental liberalising reforms are in train—for instance, the country will probably abandon price controls and tiered exchange rates early in 2015—but Raúl Castro, who turns 84 in June, will aim to engineer a smooth transition as he prepares to hand over power in 2018.

Middle East and Africa: African spenders

2009

GDP growth: 3.9% GDP per head: $6,360 (PPP: $12,580) Inflation: 4.4% Budget balance (% GDP): -3.3 Population: 11.2m

reason, his plan to shake up the inefficient public sector and open state enterprises to private participation will progress slowly.

2008

CUBA

THE WORLD IN 2015

AN GO CO C LA NG HA O, D SI N RE ER IG P EQ RA ER .

UA LE IA TO RI G ONE AL HA GU NA ET IN HI EA O BO MPIA TS A W LI A SU NA RW DA AN N GA DA B ZA ON M U MB OZ GA IA AM ND B A BU IQ RU UE N KE DI N BE YA N NI IN G T ER NA OG CE O NT S M RA CA EN IBIA L A M EG FR ERO AL IC O A TA N N N R GU SWA ZA EP. IN ZI NIA EA LA IV -B N OR IS D Y SA C U LE OA S ST DJ OTH IB O O GU UT CO I NG M INE O, ALA A DE W M I ,R EP .

118

GDP, % growth 6 5 4 3 2

Binyamin Netanyahu, the prime minister, emerged weakened but still in control after the 2014 conflict with the Palestinians. Unpopular internationally because of Israel’s tough stance, he has also lost support at home from hawkish colleagues. This will elicit gestures such as new settlements and an uncompromising negotiating stance with Hamas. The economic soft patch will end, boosted by rising gas output and improving global conditions.

2017

2016

2014

LEBANON GDP growth: 2.6% GDP per head: $9,660 (PPP: $15,370) Inflation: 4.2% Budget balance (% GDP): -9.3 Population: 5.4m

The focus in Lebanon will be on avoiding contagion from the Syrian upheaval next door. The prime minister, Tammam Salam, heads a coalition uniting pro-Syrians with strongly nationalist forces; though this may keep animosities in check, it is not fertile ground for good policymaking. Assuming some stabilisation in the region, the economy will improve, but from a low base.

JORDAN

LIBYA

GDP growth: 4.3% GDP per head: $4,870 (PPP: $10,900) Inflation: 3.0% Budget balance (% GDP): -6.1 Population: 7.9m

GDP growth: 5.4% GDP per head: $11,180 (PPP: $15,000) Inflation: 6.6% Budget balance (% GDP): -4.7 Population: 6.5m

King Abdullah II has kept a lid on the social forces that fuelled an “Arab spring’”elsewhere with a mix of promised reforms and effective state

MOROCCO GDP growth: 4.3% GDP per head: $3,250 (PPP: $7,890) Inflation: 1.7% Budget balance (% GDP): -5.0 Population: 34.0m

NIGERIA

0

ISRAEL GDP growth: 3.6% GDP per head: $40,620 (PPP: $34,590) Inflation: 1.5% Budget balance (% GDP): -3.0 Population: 8.3m

agendas. A referendum was due in late 2014 on new constitutional arrangements that offer hope of stabilisation.

The violence has disrupted, but not devastated, oil output. An oil-funded investment plan could boost growth.

1

2008

Having escaped break-up once before, Iraq is again coming apart at the seams as Sunnis, Shias and Kurds pursue their own claims. Much depends on the conciliatory capacity of Haider al-Abadi, the prime minister. Like a roaring contagion that burns itself out, Islamic State will eventually succumb, but the Sunni constituency it has championed will remain hostile without a shared stake in running the country.

Educated as a mechanical engineer at Manchester University during a 30-year exile in Britain, Haider al-Abadi, Iraq’s new prime minister, faces a challenge of rare complexity: preventing the collapse of the Iraqi state. The successor to Nouri al-Maliki, whose authoritarian style was a key driver of the Islamic State-led Sunni uprising, he must overcome Shia ambition, Sunni rebellion and Kurdish isolation to establish an inclusive administration. He doesn’t have much time. By the end of 2015, matters may have been decided if Kurds move for independence and Sunnis consolidate their grip on vast swathes of the country’s north-west. In his favour, he is supported by Iraq’s Western backers.

Modest reforms to the political system will make progress, but not enough to jeopardise the dominant position of King Mohammed VI. The lack of representation frustrates voters, but the regime appears broadly popular— though restrictions on critical opinion make this hard to judge. Subsidy and pension reforms will boost the fiscal position, but will work against attempts to lift incomes and consumption.

Kenya: flight path

2015

GDP growth: 6.8% GDP per head: $8,230 (PPP: $5,980) Inflation: 5.2% Budget balance (% GDP): 2.0 Population: 35.4m

The political system is becoming increasingly stable, with Uhuru Kenyatta leading a secure coalition government after a peaceful transition. Power will be devolved to 47 new county administrations, which could create conflicts. Security is also a challenge, with al-Shabab, a Somalia-based militant group, threatening to establish a full-blown insurgency alongside local malcontents.

2013

IRAQ

GDP growth: 5.7% GDP per head: $1,140 (PPP: $2,470) Inflation: 5.8% Budget balance (% GDP): -5.4 Population: 46.8m

2011

To watch: Supreme succession.

Ayatollah Ali Khamenei, revolutionary Iran’s supreme leader, had prostate surgery in 2014. Succession speculation will feature prominently in 2015.

KENYA

2012

Hassan Rohani, successor to the irascible Mahmoud Ahmadinejad, is charting a more conciliatory course. Success will be elusive. Relaxing internal repression risks provoking a conservative backlash, and negotiating the end of sanctions can look like capitulation.

The regime is being helped by progress, though halting, in the nuclear negotiations, and some relaxation of the economic blockade will help growth.

2010

GDP growth: 2.0% GDP per head: $6,070 (PPP: $14,160) Inflation: 15.5% Budget balance (% GDP): -1.3 Population: 79.5m

control, assisted by a loyal army. The reforms have not been delivered, however, and political resistance, street protests and possibly worse could erupt as the Islamic State insurgency in neighbouring Syria and Iraq inspires the disaffected. At the IMF’s urging, a modest liberalisation of the economy is under way, but progress will be slow.

2009

IRAN

The country is struggling to find agreement between secular liberals and Islamist conservatives, enflamed by armed militias with a host of regional

119

2015 IN PERSON

The world in numbers Countries

THE WORLD IN 2015

GDP growth: 5.8% GDP per head: $3,280 (PPP: $6,350) Inflation: 10.5% Budget balance (% GDP): -2.1 Population: 183.7m

Tradition dictates that the next presidential candidate from the ruling People’s Democratic Party should be from the north, but Goodluck Jonathan, the incumbent and a southerner, hopes to win re-election in the February vote.

Competition will come from the opposition All Progressives Congress. Islamist groups like Boko Haram will present a growing threat. Construction and services, rather than oil, will drive growth in Africa’s biggest economy.

SAUDI ARABIA GDP growth: 4.4% GDP per head: $26,510 (PPP: $56,880) Inflation: 4.0% Budget balance (% GDP): -0.3 Population: 30.6m

King Abdullah bin Abdel-Aziz al-Saud, 90, is frail, but has outlived a number of nominated successors. Crown Prince Salman turns 80 in late 2015, and a deputy crown prince was nominated for the first time in early 2014. The kingdom’s position as the oil market’s sup-

plier of last resort means that regional upheaval can fill coffers, allowing it to buy off dissent at home.

To watch: Foreign trade. The kingdom will open its stockmarket to foreign investors for the first time early in 2015 to raise funds for non-oil projects.

SOUTH AFRICA GDP growth: 3.4% GDP per head: $7,480 (PPP: $13,530) Inflation: 5.4% Budget balance (% GDP): -3.7 Population: 53.5m

Jacob Zuma’s re-election to a second presidential term in May 2014 guarantees continuity of policy—but also of the tensions between the African National Congress’s moderate and leftist blocs. The economy is rallying from a slow patch, thanks to both monetary and fiscal stimuli, but planned probusiness reforms will be resisted by unions and their political allies.

SYRIA GDP growth: 2.4% GDP per head: $2,050 (PPP: $3,870) Inflation: 16.2% Budget balance (% GDP): -7.5 Population: 20.0m

Stalemate and containment will define Syria’s highly destructive civil war.

The beleaguered president, Bashar al-Assad, will hold off attempts to overthrow his regime without achieving the overthrow of his enemies. Outsiders, including the US and Iran, on the same side for once, will provide sufficient aid to halt the advance of Islamic State, but not enough to dismantle it.

ZIMBABWE GDP growth: 3.4% GDP per head: $229(PPP: $211) Inflation: 5.8% Budget balance (% GDP): -4.4 Population: 13.1m

Robert Mugabe, the perpetual president, says he will remain in charge, but he is in poor health and turns 91 in 2015. His wife, Grace, could eventually succeed him. An IMF programme stabilised the economy after chaotic elections in 2013, but the reforms it asked for were largely neglected.

121

THE WORLD IN 2015

The world in numbers Industries Automotive 121 Defence and aerospace 121 Energy 121 Entertainment 122 Financial services 122

Food and farming 122 Health care 123 IT hardware 123 IT software and services 123 Media 123

BUSINESS ENVIRONMENT

Metals and mining 123 Retailing 124 Telecoms 124 Travel and tourism 124

neighbouring Mexico, Latin America’s raciest source of demand.

AUTOMOTIVE

World GDP and trade

2011

2012

2013

2014

3.8

3.2 3.4

3.0 2.7

2.9 2.6

3.8

5.0

6.6

World GDP growth (real terms, at PPP), % World trade growth ($ value), %

2015

Five years after the Great Recession, the global economy is in dispiriting shape. But 2015 holds hope of improvement. Developing countries will rediscover some missing momentum, to expand by 5.3%; rich-world nations, too, will speed up to 2.5% growth, thanks largely to a revitalised US. The era of easy money unleashed by the US Federal Reserve’s bond-buying programme will be over. Firms will watch keenly for signs of an American interest-rate rise: The Economist Intelligence Unit expects a first increase around mid-year. This will lure capital back to America, carrying risks for emerging markets. By and large, though, investors will find ample reason to chase still-high yields in the developing world. The biggest hazards for the global economy will lurk in debt-ridden Europe, where deflation will be a risk.

China sits at the other extreme: GDP growth of 7% will help sustain trading partners in Asia and elsewhere. But Chinese authorities will be caught in a difficult balancing act: restraining an indebted financial sector while keeping growth strong. The risk of a misstep is real. World trade will increase by 5%, and China’s yuan will be used more frequently in trade finance. The global trade picture will brighten further if Pacific Rim countries and, separately, Europe, sign free-trade pacts with the US; both are just conceivable in 2015.

2015 forecasts unless otherwise indicated.

World totals based on 60 countries accounting for over 95% of world GDP. london@eiu.com Source:

In 2015, cars will fly; certain electric models will even be capable of time travel. Alas, this is true only in the cinematic 2015 of “Back to the Future Part II”; back in reality, car firms will concentrate on polishing the performance of tarmac-bound, combustionpropelled vehicles. Consumer tastes and a desire to cut fuel bills explain the emphasis on efficiency gains; so, too, will stricter regulation. The EU is phasing in trend-setting, fleet-average carbon-emissions standards: carmakers’ new vehicles must comply by 2015.

Passenger-car registrations % change

Middle East and Africa Asia and Australasia Latin 3.8 America Western 3.5 Europe Eastern Europe and Russia 1.7

8.4 5.9

Oil-fuelled cars will be the focus, but Nissan and others have invested heavily in hybrids. Sales of purely electric vehicles (EVs) will lag, however, obstructed by high prices and a woeful lack of charging stations. Even China will miss a target of putting 500,000 new-energy vehicles on the roads by 2015. Demand in the world’s largest car market will be slowed by an anti-corruption campaign, but will be shunted along by increasingly affluent inland consumers: car registrations will grow by 6%, or 20m vehicles, in 2015. But cheap-andcheerful local makers are losing out to drivers’ affection for better foreign brands.

Asia will account for around 45% of the 73m new-car registrations worldwide: Indonesia will lead the region (expanding by 12%), while Japan—the secondbiggest Asian market—sleeps at the wheel (3%). America will keep pace with the global rate of expansion (5%), with 17m registrations. This will entice firms to build factories there and in

To watch: Step on the gas. Electric and hydrogen-powered vehicles have a purer green appeal, but those burning “clean” natural gas are picking up speed. Pollution-plagued China will stoke two-thirds of demand growth, according to the International Energy Agency, having already exceeded a target of having 1.5m such vehicles in use by 2015. Still, the role of gas in transport will be just 2% of oil’s.

DEFENCE AND AEROSPACE

Defence contractors are under fire. In America, home to the world’s mightiest military, fighters from Lockheed Martin’s troubled $400bn F-35 production line could enter service at last.

But spending there and in the world outside Russia and China will be flat.

Still, even this will be mildly moraleboosting for the industry after some dismal times.

As China seeks to project power, its military outlays will hit $160bn in 2015—outgunning the UK, France and Germany combined, according to IHS Jane’s, a defence consultancy. Other burgeoning Asian markets make a tempting target for Western defence firms. Old rivalries and renewed alliances will boost spending on submarines and other kit. Wary of China’s naval rise, Japan and Australia will share military technology. But big Asian markets are tough to conquer. India is the largest overseas target for American weaponsmakers and has a military budget of

$38bn in the 2014-15 fiscal year, up 12%. But foreign investors can take stakes no bigger than 49% in domestic defence contractors.

Commercial aeroplane sales will offer some salvation to diversified defence firms. Yet non-military demand is only one-third of total aerospace and defence revenue, which will rise by just 4% in 2015, to $1.2bn, according to MarketLine, a research outfit.

To watch: Boeing v Airbus. Boeing occupies the heights of the aerospace and defence, space and security business, but its $33bn defence division will shrink. Civilian skies offer brighter hopes: Boeing’s non-military division will grow by 10% in 2015, forecasts JPMorgan, a bank. In the lucrative market for wide-body, longhaul jets, European rival Airbus will harry Boeing: the first A350s will begin commercial flights in late 2014, with 17 forecast to follow in 2015.

Nonetheless, Boeing is on course to deliver around two-thirds of all widebody planes in 2015.

ENERGY

As the global economy ticks up in 2015, overall energy consumption will climb by about 3%, outpacing crude-oil demand, which will creep up by 2%, to 94m barrels a day. After years of splurging, most Western super-majors are aiming for better returns on smaller investments—though Chevron will outspend its far bigger rival, Exxon Mobil, investing $40bn. Big Oil’s success will depend partly on riding the boom in oil

2015 IN FOCUS Safety-conscious EU regulators will turbocharge the trend towards “connected cars”. By October 2015, all new cars in Europe must include the “eCall” system, which enables an embedded SIM card to disgorge data to the emergency services following an accident. Drivers will probably be more attracted by benefits such as hands-free texting, voice-activated entertainment, suggestions on nearby restaurants and automatic locking if the car seems to have been stolen. A car that calls the police if its driver appears drunk may prove less alluring. America’s AT&T is already working with carmakers, including General Motors and Audi, which will both offer 2015 models boasting 4G wireless connections. GSMA, a telecoms trade body, predicts 20% of vehicles sold globally in 2015 will include embedded connections.

Industries The world in numbers

112

2013

109

2014

104

2015

98

caught in American shale rock. Thanks to that, global supplies look very comfortable and the average annual oil price will fall, geopolitical ructions notwithstanding.

A parallel shale-gas “revolution” will spawn a batch of American plants for exporting liquefied natural gas (LNG): the first, Sabine Pass in Louisiana, should start up in 2015. Import terminals in Poland and Lithuania will also begin operations as eastern Europe seeks to slip the yoke of Russian supply.

Strong Asian demand, above all, will help gas producers, as dirty coal loses share to somewhat cleaner gas. China’s attempts to tap its own, vast shale-gas reserves will be hampered by geological barriers and technological shortcomings; the country will speed up in pursuit of a 2015 production target of 6.5bn cubic metres—though to just a fraction of American levels. Given its energy-supply shortfall, Chinese reactor-building will proceed: its first “third generation” AP1000 nuclear plant could clear safety checks by late 2015.

Controversially, Japan’s own reactors are also set to start returning to life.

To watch: Sea change. Shipping hasn’t attracted nearly the attention motor vehicles have from proponents of pollution abatement. No longer. From January 1st 2015, sulphur standards affecting ships along European and North American coastlines will tighten considerably. Maritime companies will demand less high-sulphur fuel oil and more gas oil. Eventually, vessels burning LNG could become popular.

ENTERTAINMENT

“Entertainment” the movie, released in 2015, will feature a washed-up comedian attempting to redeem his career on a tour of the desert regions of America’s south-west. The serious business of entertainment will chart an altogether surer course. As television’s golden age of creativity and money­ making rolls on, TV subscriptions and licence fees will exceed $250bn, according to PwC, an accounting firm.

The global box-office take from filmed

The fading popularity of DVDs and Blurays is hurting Hollywood, but studios will gain from digitisation. Digital film distribution will surge by 19% in 2015 to claim one-fifth of the market, spurred by “early windowing” (selling films digitally before releasing them on disc). Hollywood hopes streaming sites will allow it to make inroads in China (strict quotas limit showings of foreign films at thriving Chinese cinemas), but censorship of online films is tightening.

Piracy is another problem there, and elsewhere—one the music business, destined for barely 1% growth, knows Entertainment spending

Global consumer expenditure, $bn Television

Film

Video games

Music

42 42 59

72 91

83

218

2011

254

2015

well. Sales of physical recorded music (CDs, music videos and so forth) will drop by 9% globally, although musicstreaming revenues will swell by 18%.

To watch: Movies, reclining. In America, which accounts for roughly 30% of the global box office, cinema chains will follow the lead of AMC Entertainment, which is spending $600m refitting theatres with capacious, fully reclining sofa-seats.

Renovating cinemas boosts attendance, generating at least 33% more cash. Yet the trend brings an unhappy twist for punters: higher ticket prices.

FINANCIAL SERVICES

Regulation, debt and sluggish growth will be the three biggest headaches for financiers. Overwhelmingly, the assets of banks, insurers and money managers lie in slow-growing rich economies—in the case of banking, the biggest segment, they claim about three-quarters of the whole. Debt will be a constraint, especially in Europe. Regulators will tighten the screws, forcing most banks to shift back towards simple and safe

deposit-taking and lending. All this will hamper banks’ core business of lending: loans will reach roughly $65trn worldwide but hold steady as a share of assets, at 50%.

Under the supra-national Basel III regulations, from January 1st banks will be asked to report to the public their leverage ratios (the proportion of assets, such as loans, to base capital).

In America, the devilishly complex Volcker rule will come into full force on July 21st. This bars banks from “proprietary trading” (making bets with their own accounts), but leaves many grey areas and will be hard to enforce.

Capital is sure to flee emerging-market stocks, bonds and currencies as the US Federal Reserve winds down its bond-buying and, economic conditions permitting, raises interest rates in mid-2015. Still, a full-blown rout in emerging markets is unlikely (though not impossible): some of the re-pricing of risk has already happened amid periodic outflows from emerging markets.

Bank loans and deposits Worldwide, $trn Deposits Loans

68.2 65.0

2012

Some targets are better missed. Under its “Roadmap 2015”, International Business Machines (IBM), a pillar of the IT industry, stubbornly pursued a pledge to raise earnings per share (EPS) to $20 by 2015. Critics, however, blamed “Roadkill 2015” for perennial cost cuts, sell-offs and denuded expertise. After a recent fall in quarterly profits, Big Blue finally scrapped the target, which looked unlikely to be hit. Investors recoiled, but the move opens the way for a change of course (watch for a new EPS projection in January; JPMorgan forecasts $17.77). Though IBM has undoubted strengths, it must adapt to the rise of cheap cloud computing, which is eroding its hardware sales and upending its business model. Still, IBM’s own cloud revenue is growing by more than 50% a year, which needs to continue. Otherwise, IBM will itself become roadkill for cloud leaders like Amazon.

63.9 61.1

111

60.6 58.3

2011

2015 IN FOCUS

59.5 57.5

Brent, annual average $/barrel

entertainment will expand by 4%, to $40bn. On the production side, Hollywood will still dominate, but industries elsewhere are flourishing: Nigeria’s booming “Nollywood” films will compete for Oscars from 2015.

56.8 55.5

Oil price

THE WORLD IN 2015

Source: PwC

122

2011

2012

2013

2014

2015

For bankers, the biggest opportunity will come from carrying out traditional lending in these markets. Fast-rising incomes in Asia will also create demand for new savings products, helping asset managers, who will otherwise be assailed by post-crisis risk aversion and a preference for low-cost products like exchange-traded funds. Insurers— helped by rising interest rates, but hindered by low premium income—face a similar situation. Yet for many struggling Western financial giants success in developing markets will prove elusive, because of the weakness of banks themselves and favouritism towards local champions.

FOOD AND FARMING

A reassuringly dull year of mild weather and bumper harvests is in prospect.

Fears that crops in the 2014-15 season would be badly harmed by the recurring El Niño weather pattern (whereby rising Pacific Ocean temperatures change winds and rainfall) look overdone.

Grain markets will tell a similar story of high stocks and tumbling prices.

Wheat production will hit a record 709m tonnes thanks to a stellar crop in the EU, which will help it displace America as the top exporter. Having shipped 28% of all wheat exports in the late 1990s, America’s share will slip below 18% in 2014-15, largely owing to stiffer price competition. Global stocks will cover more than 100 days’ worth of consumption—though perhaps 30% of the surplus will be held in Chinese warehouses beyond the reach of world markets.

Maize (corn), at least, will supply a little suspense: US exporters, especially, will watch nervously to see whether China will drop a ban on a genetically modified strain. (Probably not.) China will thus buy 40% less maize, a short-lived stumble on China’s path to becoming the biggest maize-importer.

Big trends affecting farm markets— population growth, more biofuels and rising incomes in developing countries—ought to stoke inflation.

Yet as grain supply exceeds demand and stockpiles build up, prices will drop in 2015: the EIU index of agricultural commodities will slip by 6% in 2015.

To watch: Cocoa high. Stubbornly sweet teeth in the West and a craving for chocolate in Asia will feed demand for cocoa. Consumption is rising in China, but since the average Chinese eats only about 70g of cocoa a year, ample room exists for expansion, along with Chinese waistlines. This will keep prices high, pleasing most of all Ivory Coast, which produces 40% of the world’s cocoa.

THE WORLD IN 2015

HEALTH CARE

IT HARDWARE

Opposing forces will act on health-care spending in 2015. Stimulating it will be better treatments, improved services in emerging markets, and a global population that is both growing and ageing (average lifespans will reach 73 years).

But pressure on companies and care providers, exerted by frugal governments, will push costs down. Worldwide health spending therefore should grow by around 5%.

Differences between regions will be huge. Public and private care will spread rapidly in the Middle East and Africa; oil-rich states like the UAE and Saudi Arabia see health provision as a way to diversify their economies. In India the new government promises to introduce universal health insurance; spending will rise by 18%.

Consumer health-care spending % change

Middle East and Africa 11.1 Asia and Australasia 9.1 Eastern Europe and Russia 7.4 Latin America 7.1 North America 5.0 Western Europe 0.9

In America Barack Obama’s controversial health-care reforms are prompting high levels of enrolment in healthinsurance schemes. Large companies must offer coverage to at least 70% of full-time workers by 2015 (rising to 95% the next year), boosting outlays.

Patients in economically fragile countries like Portugal, Spain and Greece will suffer as health spending remains below 2008 levels. Conditions in northern Europe are more propitious— though cost-saving in the public sector will prod more patients to go private.

To watch: Millennial action. In 2000, the UN set eight Millennium Development Goals. Improving maternal health and cutting infantmortality rates were key aims. Happily, the incidence of childhood deaths has been sliced nearly in half since 1990.

Yet eight out of nine regions are on course to miss their targets for access to reproductive health care (East Asia is the exception). Much work is left to do: a summit in September will decide on a new batch of goals for 2030.

The rapid profusion of digital data would suggest galloping demand for places to put them. But hardware will attract less than two-fifths of the $2.3trn that will be spent on IT in 2015, according to Forrester Research, and the proportion is shrinking. A gathering tendency to pack away information in the “cloud” will crimp spending on things like servers and storage, partly because cloud-providers like Amazon and Google favour cheaper options.

Purchases of these devices will grow slightly slower than those of hardware as a whole, which will rise by 4%.

Gloom is not universal. Tablet-makers can look forward to shipping 15% more devices in 2015, according to IDC, a research firm, marking a milestone: tablet sales volumes will at last exceed those of personal computers.

Yet growth rates will be a far cry from yesteryear. Leading tablet-makers will fall victim to the sterling quality of their products, as many consumers decide their current models are good enough. Apple’s iPad faces mounting threats from tablets running on Google’s Android operating system and Microsoft Windows; tablets-cumlaptops will also win new fans. Apple may counter by releasing a nearly 13-inch tablet designed to appeal to businesses.

To watch: Wearable gadgets. The number of computerised smartglasses, fitness monitors and the like will swell by 60% in 2015, according to Cisco, a network-equipment maker. Leading smartphone-makers will also seek a piece of the pie: Apple’s long-awaited smartwatch will reach the wrists of consumers in 2015. But this technology is hardly mature: just 4% of such contraptions will embed cellular connections, and many will need to piggyback on sluggish 2G phones, via Bluetooth or WiFi.

IT SOFTWARE AND SERVICES

Internet penetration will reach around 50 users per 100 people in 2015.

Helped partly by the web’s remorseless advance, software will be the most exciting corner of the IT industry: according to Forrester, a research house, outlays on computer programs

The world in numbers Industries will shoot up by nearly 10%. India and China—which will account for half of the new mobile internet users—will lead the way. America will not only remain the pre-eminent technology market, but also a source of growth, with IT purchases rising by 7% in 2015.

Vitally for IT firms, America accounts for big chunks of the fastest-growing bits of the market, including mobile, cloud and big-data technologies—generating, for instance, nearly 60% of the market in analysing the vast propagation of data. By contrast, about 100 emerging markets make up just 6% of IT spending.

As mobile devices spread, Google’s Android operating system in 2015 will outdo the rest of the competition combined, according to Gartner, another research firm. The parallel rise of the mobile internet will give felons using malicious software a larger, hackable user-base. Organisations are smartening up, however, and spending on information security will grow by 8% in 2015, to reach $77bn, according to Gartner. That is good news for firms in the security business, and for cloudproviders: 10% of IT security will be supplied via the cloud by 2015.

To watch: Digital payments. In 2015, Apple’s bid to revolutionise the way we shop will gain momentum. Using the new Apple Pay service combined with “near-field communication” technology embedded in their iPhone 6 or (from 2015) the Apple Watch, shoppers will be able to swipe mobile devices instead of credit cards at checkouts.

After debuting in the US, virtual wallets will reach Europe in 2015. For bankers, “digital disintermediation” is yet another threat.

MEDIA

123

worries. Another area of growth will be “native advertising”—promotional content that often may be written by newspaper staff and is indistinguishable from news. Besides simple paywalls, newspapers will try imaginative ways to cajole people to pay for news online: crowd-funded journalism and pay-per-article models with moneyback guarantees.

The fortunes of newspapers in markets like China and India will improve faster than developed-world rags stumble.

Overall, the magazine and newspaper industries will register 0.1% growth in 2015: better than in recent years.

Global advertising spending % change

$bn

Internet

12.2

Television Outdoor Radio

182

4.6

39

2.8

Cinema 1.9 Magazines -0.6

149

4.7

0.8

Newspapers

36 68 50 81 Source: PwC

To watch: Bloomberg. First, it remade the financial-information business.

Today Bloomberg has over 320,000 terminal subscribers, each paying around $20,000 annually. Then it acquired everything from magazines to clean-tech research outfits. But Bloomberg has had its troubles, and banks want to find free alternatives to the messaging service on its terminals. Bloomberg will respond with big investments in digital, and in 2015 a new R&D centre in San Francisco will become fully operational. Experiments are also under way to connect oldfashioned-looking terminals to virtual-reality headsets.

METALS AND MINING

Television commercials are still admen’s best earner (they will bring in $182bn in 2015, forecasts PwC, up 5%), but internet ads are fast closing the gap ($149bn, up 12%). Digital advertising is growing as print-advertising revenue fades. Advertisers prefer the rising popularity and ready measurability offered by search engines, while Facebook now outshines even Google in advertisers’ affections. Newspapers are also wary of the threat posed by “programmatic” systems that buy and sell ads using algorithms: these are becoming the norm for many agencies.

Digital disruption will prompt innovation, hastened by desperation. To please advertisers, news sites will monitor readers more closely, while stepping delicately around privacy

Despite China’s slowdown, it is still the chief mover of commodities markets.

It consumes half of all copper and aluminium, major components of the EIU index of industrial materials. Scandals surrounding the (mis)use of metal as collateral at Qingdao port will frighten off foreign creditors, and stockbuilding and financial demand there will dwindle. But China’s real needs remain robust: in 2015 it will again be much the biggest source of new demand for both metals. The build-out of China’s power grid will suck in more copper, as will its secretive strategic reserve.

China’s consumption will swell by 7%,

Industries The world in numbers

2013

2014

2015

though its own production will rise by 9%; global copper prices will stabilise.

Urbanisation in China and a shift towards lightweight vehicles will spur aluminium demand and supply. But aluminium prices on the London Metal Exchange (LME) will surge by 16.5% in 2015, as availability is tight outside China. Importers of nickel ore are in hoarding mode, and stocks will run low in 2015: Indonesia’s new government will come under pressure to overturn its ban on exporting raw materials. Car manufacturers will want more of the metal in 2015, as will stainless-steel makers. LME nickel prices will spike.

To watch: Cut and dig. Owners of big mining firms will find reasons to celebrate, as their loud complaints prompt managers to stop expanding and refocus on digging stuff up more efficiently. The largest of the lot, BHP Billiton, will split up; Rio Tinto, the second-largest, will cut capital expenditure to $8bn in 2015, less than half its 2012 peak. But many of the best, easy-to-reach resources are already extracted; mining the rest will be expensive. Neither can miners simply shift production to high-margin alternatives. Iron ore and coal once fitted the bill, but prices are down.

RETAILING

Global retailers will have trouble both in the emerging markets they covet and back home in the West. The BRICs will still be important, but some of the

Retailers will look with new interest to other emerging markets: the MINTs (Mexico, Indonesia, Nigeria and Turkey), for instance, and other parts of subSaharan Africa (Carrefour will open for business in Ivory Coast in 2015). Leading chains will also seek succour back in the markets that bred them, where profit margins and spending per person are higher. But big-box retailers like Tesco of Britain have shed market share at home as they struggle to adapt to new trends.

Retail sales

% change, selected countries India

17.2

Indonesia

14.8

China

13.7

Russia

9.8

Nigeria

7.4

US

4.9

Brazil

4.8

UK 0.8

The world adds enough mobile subscriptions each quarter to set a country the size of Mexico (population: roughly 120m) talking loudly in lifts and bumping into walls. In 2015, mobile subscribers will exceed 7bn. As fancy phones proliferate at the expense of basic ones—smartphone subscriptions will surge by 20%, to 2.4bn—mobileinternet use will rival traditional cellular telephony. Mobile voice traffic will peak in 2015, according to Ericsson, a maker of network gear; data volumes will explode by 70%, reckons Cisco, a competitor.

“Third generation” (3G) mobile technologies will underpin growth, but 4G will gain ground. On average, using 4G generates almost 15 times as much data as other connections, and ultrafast connections allow downloads at speeds approaching 500 megabytes per second—or a TV programme a second.

Aiming for speeds ten times faster, firms will pour money into 5G systems: China’s ZTE expects to have a prototype ready by 2015.

The current revival in tourism revenue looks more like a return to the good life than a temporary bump in business. This optimistic outlook depends somewhat on geopolitical ructions, especially in the Middle East and Africa, abating. But more fundamental will be the rise of the Asian traveller.

Leisure tourism revenue in North-East Asia will climb by 10% in 2015, to $900bn, surpassing the EU and North America. China is at the heart of this: under its five-year plan to 2015, it will build over 50 new airports; more than 100m Chinese globe-trotters will spend nearly $200bn, far more than Americans and Germans. Benefits will flow to the developed world. London’s hoteliers can expect another strong year, and American forecasters predict 65% hotel-occupancy rates, a 20-year record.

Global travel spending Real % change Leisure Business

2012

2013

4.3 4.6

2012

*Weighted index of industrial raw materials

TELECOMS

4.2 4.6

2011

Nickel

TRAVEL AND TOURISM

3.2 2.9

Raw materials* 60 50 40 30 20 10 0 -10 -20 -30

begin early in the year on Dubai’s 750,000-square-metre “Mall of the World”. When finished, it will be the world’s biggest—the size of 100 football pitches. The country that gave the world indoor ski slopes will now deliver its largest indoor theme park.

3.7

$ prices, % change on a year earlier

sheen will come off. In China, retailers will sell 14% more stuff in 2015 (helping retail sales in Asia and Australasia pass those in North America and western Europe combined). But China’s investigations of foreign firms—including Walmart, the world’s biggest retail chain—ring alarm bells; a campaign against corruption is cutting into consumption, making luxury brands particularly cautious about China. Brazil’s retail sales have been a let-down, and will grow by only 5% in 2015.

3.0

Industrial raw materials

THE WORLD IN 2015

4.9 5.2

124

2014

2015

Digital disruption will not spare the disruptors. As smartphone ownership spreads in emerging markets—India, the zippiest, and China will account for 60% of the growth of new shipments— local firms like India’s Micromax Informatics will woo millions of compatriot customers; Xiaomi already leads in China. The overall share of the smartphone market held by the big two, Apple and Samsung, will shrink to around 14% and 25% respectively To watch: Mega-malls. Big-box stores— in 2015, says Fitch Ratings (versus very, very big boxes—are still in fashion 15% and 31% in 2013). Despite growth in the Middle East. The 400,000-square- in smartphone and data use, global metre Mall of Qatar will be finished telecoms revenues will grow by only

by September 2015. Construction will 2%, dragged down by price competition and voice’s declining contribution.

Airlines will also take flight. Traditional carriers will start to face increasing competition from budget airlines in long-haul markets. Norwegian Air, which plies the skies between Europe and America, aims to have eight Boeing 787 Dreamliners by 2015. A low-cost carrier due to be launched in 2015 by Germany’s Lufthansa aspires to join Norwegian in flying to Asia.

Malaysia’s AirAsia X will add flights between continental Asia and Australia in 2015.

To watch: Technical altruism.

Facebook, the social network, is working with telecoms carriers to provide those with just simple phones free access to certain internet sites— including, inevitably, Facebook (but not Twitter). Having kicked off in Zambia, the service will be rolled out elsewhere. Facebook will even deploy drones, satellites and lasers to tug the unconnected bits of humanity into its orbit.

To watch: Space tourism. No budget options here: seats on Virgin Galactic’s sub-orbital, eight-seater SpaceShipTwo will cost $250,000 (deposits are refundable). In late 2014, US-based XCOR plans to launch tests of its two-person Lynx spacecraft, which will run for up to 18 months. Regular flights between cities are the final, still-distant frontier for commercial space travel: imagine London-New York in 90 minutes.

Polarisation—whereby shoppers conserve cash for premium treats by hunting around for discounted staples—will hurt mid-market shops. E-commerce, increasingly conducted via mobile phones, supercharges the effect: even groceries will be bought more frequently online.

The world’s biggest market for digital sales is China, however, where e-commerce grew by over 40% in 2013. Overall, retail sales will rise by 6% in 2015.

2015 IN FOCUS While policymakers struggle for a climate-change deal, mankind is handily applying clean technologies. Saving money on energy bills is a spur. Wind and solar plants are among the beneficiaries of “green bonds”, which will be worth $100bn in 2015 v $3bn in 2012. Individual governments are making gains. In 2015, South Korea will start trading carbon credits; California will extend its scheme. China, the biggest carbon emitter, aims to increase energy efficiency by 16% in 2011-15. Worldwide, electricity generation from renewable sources (excluding hydropower) will surge by 9%. Yet as energy use grows CO2 emissions from burning fuel will stubbornly edge up.

2011

Source: World Travel & Tourism Council

THE WORLD IN 2015

127

Business Also in this section: Xiaomi goes global 128 Labour will cost more 129 Just possibly… 129 Virtual reality gets real 130

Peter Flint: Technology and property 132 Return of the nine-to-five 133 Hydrogen-powered cars rev up 134 Printed books fight back 135

Hollywood tightens its belt 135 The best place to do business 136 Mary Barra: It’s time for cars to talk 137

When smart becomes spooky Tom Standage

Phones turn into mind-readers

R

2015 IN BRIEF Ireland begins to close its notorious “Double Irish” corporatetax loophole, beginning with new companies setting up business there

s

obin, a project manager, was running late for his meeting; he took out his phone and it offered to e-mail the other attendees to say that he was on his way, with a single tap. Michael’s plane landed late, and he was worried he would miss his connection, but his phone immediately told him that his next flight had been delayed too. While he was abroad on holiday, Jon’s phone told him the local exchange rate and pointed out nearby tourist attractions. And the other day I was walking back to my car in an unfamiliar city, and my phone told me, unprompted, how long it would take to drive to my destination in current traffic conditions.

These are all real-world examples of a technology called “anticipatory computing” or “predictive intelligence”, which uses personal data in your smartphone to make timely suggestions. The best-known example is Google Now, launched in 2012. Stand at a bus stop and it will call up a timetable, unbidden. It can tell from your e-mail when you are expecting a package. It learns which team you support from your web searches, and shows you the latest scores. The idea is “to help get technology even more out of the way”, says Baris Gultekin, one of its co-creators, by saving you from having to ask for information. It just appears when you need it.

Apple and Microsoft have their own versions of this technology, which is also being pursued by a host of small firms. “You want your computing devices to pay attention to what you’re doing, so they can do a better job of anticipating what information you might need,” says Tim Tuttle, chief executive of Expect Labs, a startup.

When it works well, it’s as if your phone has read your mind. Some people find it a bit creepy, in fact. This tension between usefulness and creepiness will intensify in 2015 as anticipatory-computing systems extend their reach in three ways.

First, they will start drawThis technology ing on more sources of data, is going to be beyond the current analysis of browsing history, e-mail, everywhere calendar and location. Mr Gultekin says this might allow things like showing you the surf conditions on your favourite beach, or reminding you to sign up your daughter for summer camp.

Smart watches and fitness bands, and smart-home devices such as thermostats, will also add data to the mix, says Michael Yamnitsky of Forrester, a consultancy. Expect Labs uses voice input as the basis for anticipatory computing, quietly calling up information in response to a spoken conversation. So it can, for example, retrieve relevant documents automatically in call centres that

Tom Standage: digital editor, The Economist

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Mi too James Chambers HONG KONG

An attention-grabbing Chinese superbrand goes global

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THE WORLD IN 2015

This is partly because non-Chinese speakers struggle to pronounce “x” correctly.

Plus, xiao means “little” in Chinese, which is hardly appropriate any more. The company has considered an American launch in 2015, but has avoided making any firm commitments. Doubts surround the viability of its online sales-and-marketing model in developed markets. Yet the decision is to some extent out of its hands.

Such is the clamour for its products that it had to close an online store set up in Australia by unaffiliated enthusiasts.

Third-party vendors currently sell its latest smartphone, the Mi4, through Amazon’s marketplaces in Europe’s five largest economies, creating the type of grey market in the rich world that the iPhone had

t an investor pitch in Hong Kong, a Shanghai startup compares its technology to the Apple store’s handheld point-of-sale terminals, which liberate sales assistants from the traditional till.

It uses another reference, however, for its growth targets: “We want to be the Xiaomi of the retail-software world,” declares a co-founder. The ambition is grand. Beijing-based Xiaomi expects to sell 100m smartphones in 2015, four years after launching its first model— beating Apple to the milestone by a year.

Comparisons between these two technology companies will become more common as Xiaomi steps up its international expansion.

It already sells across SouthEast Asia and India. The next stops are Brazil, birthplace of Hugo Barra, the firm’s head of international expansion who was poached from Google in 2013, and Mexico, right on America’s doorstep.

Mr Barra is shaping Xiao­ ­mi for its Western debut, starting with rebranding it Mi (pronounced “me”). Meet Steve Jobs—sorry, Lei Jun s

2015 IN BRIEF Microsoft uses its new Windows 10 operating system to reinstate the much-missed start menu that disappeared with Windows 8

provide technical support or customer service.

That points to the second area of expansion, as anticipatory computing spreads, like other consumer technologies before it, into the workplace. “This technology is going to be everywhere,” says Mr Tuttle. It’s easy to see how it could be applied in legal and medical situations, or in general business use, highlighting relevant documents at the moment you need them. Advertisers are keen to add anticipatory features into their mobile apps (“I bet you could do with a coffee right now”). Benedict Evans, an analyst at Andreessen Horowitz, a venturecapital firm, suggests that it could also be used in personal finance and personal health—both areas where the value of suggestions is potentially very high, though privacy and regulation may be problematic.

Calibrating the creepiness Third, anticipatory computing will move beyond the smartphone to other devices. Android watches already support Google Now, says Mr Gultekin, and it is coming to dashboards as part of Android Auto, Google’s automotive software, which will let cars download apps, just as phones do already. Smart televisions and smart

in China before it officially went on sale. In Britain the unofficial price for the phone is around £350 ($560), almost twice the Chinese price.

Xiaomi is riding a growing trend for “good enough” phones at a reasonable price. Its innovaXiaomi tion—certainly not expects to lifted from Apple— is in branding this sell 100m as desirable to the smartphones young, tech-fanatic in 2015 consumers previously drawn into the Apple cult. But it won’t enjoy this first-mover advantage for long. OnePlus, founded in Shenzhen in 2013, started selling its first smartphone in 2014 by invitation only, creating a Xiaomi-like buzz.

Talk of Xiaomi going public will persist in 2015 despite denials made by the firm’s boss, Lei Jun. Xiao­mi has already secured an American-dollar credit facility, a typical pre-ipo step aimed at spreading familiarity among international investors. Besides, Apple went public in 1980, within four years of launching its first product. It surely won’t be long before everybody gets the chance to buy into the cult of Mi. n James Chambers: senior editor, Economist Intelligence Unit

homes are other obvious places to apply the technology.

It’s already available on pcs, provided you’re running Google’s Chrome browser and are signed in.

The better anticipatory computing becomes the spookier it seems. But the chances are that people will just get used to it. Auto-complete of e-mail addresses and search terms, or the automatic filling in of your address in web browsers, seemed spooky once. Now many find it annoying when they start to type something and it doesn’t auto-complete. And if your phone’s predictions are cleverer than you feel comfortable with, you can always turn the feature off or, where possible, withhold some information from it.

Companies will let users decide what to share “and try their best not to cross the digital creepiness line”, says Mr Yamnitsky. You might, for example, wish to exclude access to your browsing history or your children’s personal details. “But the issue is you risk being a secondclass citizen if you don’t have the tools other people have,” says Mr Tuttle. A really clever anticipatory-computing system would let you calibrate your preferred level of spookiness, so that it can tell if a particular suggestion will seem too spooky—and keep quiet. n

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Second, political concerns about inequality will lead to policies that force firms to pay their staff more. Barack Obama wants a higher minimum wage, as does Ed Miliband, the leader of the opposition Labour Party in Britain. In America the National Labour Relations Board, a regulatory body, plans to tighten the rules for contract workers who are the backbone of firms such as Federal Express and McDonald’s. Few private-sector workers are still members of unions, but those who are may feel emboldened, particularly if they control bottlenecks. In 2014 there were strikes at Los Angeles’s port, Canada’s mines and very nearly It will by stage hands at the New York Opera. squeeze Lastly, labour costs in the emerging world are rising. This is important, margins that the typical multinational and upset given now has 20-30% of its operations in investors the developing world, double the level in the mid-1990s. According to China’s current five-year plan, the average official minimum wage will rise by 13% a year. Partly as a result a slow shift in production is taking place away from China’s coastal regions, the workshop of the world. There is also a push to improve working conditions in poor countries after the collapse of a Bangladeshi fac­­tory in 2013 that killed

2015 IN BRIEF

THE WORLD IN 2015

Payback time Patrick Foulis NEW YORK

Multinationals will face rising labour costs

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Doing the splits: Hewlett-Packard separates its computer and printer businesses from its corporateservices and hardware businesses; eBay starts to run PayPal as a separate company

n 2015 the chief executives of big multinationals will worry a lot about pay: not their own, but that of their toiling staff. Rising labour costs will squeeze profit margins, which are at peak levels. Bosses will have to decide whether to resist or accommodate this pressure.

Plenty, in the end, will raise their workers’ pay.

At first glance this may seem far-fetched. Since the 1990s Western firms have managed to restrain wages at home and boost efficiency. The share of value added by American non-financial firms that is spent on pay is 58%, its lowest since records began in 1929. Production has also been shifted overseas. American multinationals now have a third of their staff abroad. Per dollar of sales they are paid 40% less than their American colleagues.

European firms are even more international.

Within big firms the struggle between capital and labour has turned into a rout. Relatively low pay costs have fuelled stockmarkets to all-time highs. Whereas bosses and investors in the 1970s obsessed about strikes and pay- No cause for complacency bargaining, their counterparts today US pay as % of value added* rarely view labour costs as a big 68 issue for firms or the stockmarket.

The annual regulatory filings of 66 Walmart, one of the world’s biggest employers, contain 31 pages detail- 64 ing the complex compensation of its executives, but do not mention how 62 much it pays its 2.2m staff.

Yet while it is often ignored by firms, pay has not disappeared as a 60 strategic issue. A 10% rise in wage costs would cut the typical multina- 58 tional’s profits by 8%. Plenty of the big global firms that publicly r­ eveal their labour costs saw them rise 1929 34 39 44 49 54 59 64 69 74 79 84 89 94 99 04 09 2014 faster than sales in 2013, including *Non-financial businesses Q2 2014 Source: Bureau of Economic Analysis Samsung, Unilever, Siemens, Nestlé more than 1,000 people. Those Western firms most exand bmw.

This squeeze will intensify for three reasons. First, posed to Asian labour costs are already feeling the pinch. as Western economies climb slowly out of the slump, In 2014 Hennes & Mauritz, the world’s second-biggest labour markets will tighten. The Federal Reserve thinks fashion chain, said its margins would fall because it was that unemployment will finally fall to normal levels by unable to raise prices as fast as wages.

2016. The Bank of England expects earnings to pick up strongly by 2015, and the European Central Bank ex- Salarymen of the world, unite Businesses faced with rising labour costs will have two pects them to pick up slightly by 2016. options. Those with large manufacturing operations can try to shift production to even cheaper countries. But Just possibly… finding places that have low wages, pliant workers and political stability is harder than it seems. Vietnam, supWith less than 1% of the smartphone market and falling posedly the new mecca of manufacturing, had a wave of revenues, BlackBerry fails to survive the year as an independent company and finds a buyer. strikes in 2011-12. India is keen to attract more foreign factories but still suffers from its notorious red tape and Google’s dominance of search suffers as multiple rivals corruption. Kenya, where some companies are scouting, grab slices of the market. has experienced terrorist attacks.

IndiGo, India’s largest airline, spreads its wings with new Foulis: Firms with less mobile labour forces will try to boost Patrick New York bureau chief, aircraft that allow it to expand into longer-haul routes. productivity growth in the rich world, which has lagged The Economist †

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THE WORLD IN 2015

Seeing and believing Martin Giles SAN FRANCISCO

Virtual reality will get closer to becoming a real business

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iant tentacles suddenly appear at the end of a corridor on the lower deck of a ship, enveloping the legs of an unsuspecting passenger and dragging him down a stairwell a few feet from where you are standing. Then a shipmate near you emits a blood-curdling scream after being skewered by a giant claw, which presumably belongs to the same beast.

Panicking, you swivel round searching for another exit. But where can you go?

The answer is: not very far, because this scene doesn’t play out on a real ship, but in a tiny room at Jaunt vr, a startup in the heart of Silicon Valley. The tentacular terror and its human prey are part of a short digital feature created by Jaunt and viewed through a virtual-reality headset.

Virtual reality (vr), which combines digital sounds and images to create a lifelike experience, is not ready yet for a mass market. But by the end of 2015 firms working on the technology will have overcome several hurdles still holding it back.

One of these is the quality of the immersive digital experience. Although vr has improved in leaps and bounds, images can still sometimes appear warped or heavily pixelated. There may also be a microscopic lag in the time it takes for a scene to shift when someone turns to look in a different direction. Such glitches can leave people feeling nauseous after even a short time with the goggles on.

These issues should be ironed out in 2015. Better optics and smarter software will create sharper and even more realistic virtual images. And improved systems for tracking head movements—and instantly adjusting images in response—will help tackle the problem of disorientation.

As vr experiences get better, headsets will also get cheaper. That will remove another hurdle to wider use. Just a couple of years ago, top-notch vr gear cost thousands

of dollars. In the months ahead, companies such as Oculus vr (which makes the ­Oculus Rift headset and was bought by Facebook in March 2014) and Sony will bring to market high-quality gear that costs a few hundred dollars. These new headsets will look and feel more like ski goggles: a huge improvement The ultimate compared with the current bulky progoal is to totypes, which make make users their wearers look feel that they like extras from a science-fiction movie. have been Smarter goggles teleported are not much use if somewhere there is not a lot to look at. So compaelse nies such as Oculus and GameFace Labs, another vr outfit, are promoting software kits that allow developers to create content for their headsets.

Most of the developers’ efforts in 2015 will

go into creating games, which is where vr has the best chance of catching on fast.

Film-makers will also experiment with the help of firms such as Jaunt, whose boss, Jens Christensen, sees an opportunity to create virtual concerts and sporting events too.

Even with all these advances, it will still be some years before vr becomes a commercial success. The ultimate goal, says Brendan Iribe, the chief executive of Oculus, is to make users feel that they have been teleported somewhere else and that they are really present there.

For that to happen, people will need to be able to interact seamlessly with their surroundings. “A big challenge will be coming up with the right interfaces that let people do things in a virtual world,” says Doug Bowman, a professor at Virginia Tech. Another task will be to turn vr into a social experience in which people can see and talk to friends and family members—and perhaps work together to thwart the odd marauding monster from beneath the waves. n Martin Giles: United States technology editor, The Economist

Really?

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in recent years. They will automate activities and use more robots: abb, a European engineering giant that has already sold a quarter of a million industrial robots, predicts a further “massive” boom in demand. Google and Amazon are testing delivery drones. Yet much of this technology is at an early stage. Some firms will increase their spending on training, to improve the skills of existing workers and the supply of new ones, but that will take time to have an impact, too. There will be more

effort to reduce turnover among employees.

Despite all these efforts, many bosses will have no choice but to pay their staff a modestly greater slice of the value their firms create. That will not herald a major reduction in inequality, but it will be enough to squeeze margins and upset investors. For bosses writing bigger cheques, there will be one fringe benefit. For the first time in a decade, in 2015 the attention will be on other people’s pay packets. n

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Property on the move

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t’s a truism in Silicon Valley that technological disruption creates business value.

Yet as many failed startups can attest, disruption does not automatically translate into success. Timing matters as much as disruption itself: many dotcom-bubble-era companies that went bankrupt, from grocery delivery to pet services, are today thriving businesses in different forms. Put simply, the right technology must combine with the right behaviour, sufficient scale and the right economics, at the right moment. In America’s property sector, that moment is now. As a ­result, in the coming year the industry will start assuming the shape it will take for the next decade, and a cascade of innovation should follow.

Property has value, but until recently the information that lets consumers understand and capture that value remained fragmented and opaque. With the surge in mobile technology, the increasing sophistication of big-data analytics and processing, and the beginnings of a new breed of property business, change is now happening. Millions of people are easily able to view information about homes, commutes and neighbourhoods, and over the past year most consumer engagement with the leading real-estate sites has started taking place on mobile platforms.

The property industry will have to respond to all this. Three big shifts are in prospect.

First, we’re going to see completely different participants in the market on both sides of the transaction. A new generation of buyers and renters is already influencing the way people search for properties. They are more connected to mobile technology than even the early adopters of the past ten years. With 92% of consumers using the internet as part of their property search, the pervasiveness of mobile technology, with its extra dimensions of location and immediacy, will create new and valuable experiences. Starting in 2015, a new generation of brokers and agents will join the industry as well. They too will be attuned to the fact that mobile technology is essential to running their business.

Second, we’re going to see faster, less anxious, more informed decision-making. After years of research and experience, we know that buying a home is not just the largest financial decision most people make. It is also one of their lengthiest and most doubtfilled financial transactions. The decision to make a piece of property a home will always be unique to every person. But over the next

decade more and more buyers and sellers will accept that they can quickly eliminate many of the adjacent uncertainties around that decision (regarding schools, crime, commutes, neighbourhoods, local services), thanks to the spread of online and mobile tools.

Eventually, this means that what we call the “messy middle”—the period between the waning of the buyer’s initial enthusiasm for a property and the moment they feel ready to buy it—will shrink. The average purchase cycle for a home is now 18-24 months. It will start to become shorter in 2015 and get closer to 12 months, or even less, over the next five years.

Third, as basic property information becomes ubiquitous, so service and branding will become essential differentiators for companies in the industry. You already see this in markets such as Britain and Australia.With home-buyers younger, tech-savvier, better informed and more decisive, real-estate professionals will get more creative in how they manage their relationships, provide insights and guide people through the process. The importance of personal attention and service remains paramount in property, so expect to see more agents investing time in building a comprehensive online presence, through increased use of social media and maintenance of detailed agent profiles, where they can demonstrate their experience and expertise to people everywhere, not just those they know in the neighbourhood. This emphasis on transparency should improve the level of service the industry offers.

Ripe for innovation I have always believed that property—more than any other sector dependent on technology—needs to be treated as a two-sided marketplace. Because of the size and complexity of the transactions, the best real-estate technology, rather than eliminating the intermediary, should actually strengthen the role of professionals working in the industry, as well as improving the consumer experience. But this assumes that the professionals understand they are now fully exposed to a demanding consumer marketplace. The time is ripe for that understanding to bear fruit.

Experts expect the housing market in 2015— both in the United States and globally—to see an increasing number of homes listed for sale and modestly growing demand. If so, the stable recovery is the perfect time for the industry to take risks in a connected marketplace that has finally achieved critical mass. n

Tech transformation will at last come to the property industry, argues Pete Flint, chief executive, Trulia

The average purchase cycle for a home is now 18-24 months. It will get closer to 12 months, or even less, over the next five years

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THE WORLD IN 2015

The return of nine-to-five Lucy Kellaway

Bye-bye to the long-hours culture

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he least fashionable thing for an executive to say in 2015 will be: “I’m snowed under.” After nearly 20 years of boasting about how busy they are, senior businesspeople will start to look for new ways to impress. The punishing ceo schedules that started at 4am with pre-dawn e-mails sent while running on a treadmill will start to look uncool, inefficient—and borderline insane.

In the coming year nearly everyone will begin to rethink the long-hours culture.

The pressure for change will come not only from lazy millennials averse to hard slog, but from older workers exhausted by the tyranny of technology. In 2014 a few visionary companies started fighting back: Google in Dublin confiscated employees’ devices when they left the office, and Daimler deleted messages that arrived in the inboxes of staff who were on holiday. In 2015 other companies will follow with similar schemes designed to make it easier for us to control technology—rather than vice versa.

The change to how we live and work will be profound. Holidays will be holidays. The out-of-office e-mail will no longer be followed by a reply from the ski-slopes.

A spare jacket will no longer be needed on the back of the office chair, as going home will be all the rage. To get your work done by a reasonable hour will not be a sign that you are a slacker, but that you are working efficiently. Addicts may still check e-mail before they get out of bed in the morning, but when challenged they will lie about it in just the same way they do about their weekly consumption of alcohol.

In the best companies Parkinson’s law will operate perfectly and work will contract to fit the time available. Office productivity, which has stubbornly refused to rise much despite advances in technology, will jump upwards.

Less will be more. For years companies have claimed to have simplicity as a “core value”, but in 2015 they will start to act as if they mean it. There will be fewer pointless

initiatives and meetings. Memos will be shorter. Performance reviews will be less unwieldy. For most things three bullet points will be enough.

Less-good companies will fail to make more out of less. They are not well enough managed to make things simple and so will hire more people, and more bureaucracy and inefficiency will result. Between companies and between people there will be a parting of the ways. The smart will become smarter, the bumbling will become more so.

Extreme exercise, which went hand in hand with extreme working, will also start to look distinctly unfashionable. The half marathon is already more popular than the full one, but in 2015 the fun run will enjoy new popularity, and even a stroll in the park will seem something that one can embark on, head held high.

The new way of working is going to

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cause a rebalancing between the United States and Britain. The latter, which more or less invented moderation, will find itself playing to its natural strengths, while America, which invented the 6am pre-breakfast meeting, will find it much harder to get used to the new regime.

The return of nine-to-five will be great news for families. Parents will be able to reacquaint themselves with their children, and spend more of their lives grilling fish fingers and reading bedtime stories. Three bullet Few people will need points will to quit their jobs to be enough spend more time with the family, as they will be doing plenty of that already.

Women in particular will benefit—fewer will leave or go part-time as they find coping with work and family runs them ragged, with the result that more women will trickle upwards to the top.

New strings to bosses’ bows

The end of macho working won’t necessarily mean the end of the macho leader: bosses will be macho in a different way, exerting power through charisma rather than stamina. This means more interesting times lie ahead in corporate boardrooms as the dull leader takes a step back and individuality stages a (modest) comeback.

What will executives boast about when they can no longer talk about packed schedules? Type a personalities (and most of them will remain that type) will start doing things in addition to the day job and some will brag about how they are training to become virtuoso violinists. Some will do aggressive volunteering and compete to change the world more successfully than the next guy. With less time spent working, executives will have more time to get out and about meeting people, which alas means name-dropping will be back with a vengeance. To brag about who you met at the Met/Glastonbury/ Wimbledon is going to be bigger than ever.

Failing that, the best boast of all for those who have heartily embraced the new shorter-hours culture will be one not heard in the executive suite for decades: “I slept like a log last night.” n Lucy Kellaway: columnist, Financial Times

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Foot on the gas Simon Wright

Hydrogen-powered cars hit the road

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ccording to energy-industry wags, there are several candidates for the accolade of “fuel of the future...and always will be”. But whereas advanced biofuels and nuclear fusion can still make a fair claim to the title, hydrogen fuel cells will become a fuel of the present in 2015. Carmakers have spent more money and

How far to the next gas station?

2015 IN BRIEF Tesla, an electriccar company, starts selling its second model, a crossover utility vehicle called the Model X

Simon Wright: industry editor, The Economist

effort to harness hydrogen power than anyone else as they try to meet increasingly stringent emissions regulations around the world. And the industry is about to rev up its efforts, as Toyota and Honda put the first massmarket fuel-cell cars on their dealers’ forecourts.

The idea of extracting energy from an element as abundant as hydrogen has been around for nearly two centuries. The technology is straightforward. Hydrogen gas, drawn through a permeable membrane coated with a thin layer of platinum, combines with oxygen from the air to create electricity to run a motor and water vapour that puffs Toyota says out of exhaust pipes. Yet adapting it to run a car has proved surprisingly its fuel-cell cars will go tricky.

General Motors (gm) built a 700km on prototype fuel-cell van in 1966, a tank of but its efforts with hydrogen subsehydrogen quently stalled. Toyota and Honda began leasing hydrogen cars in Japan 12 years ago. Small fleets are now used by companies and government agencies in Germany and America.

Some London buses and black cabs run on the fuel. gm is testing a fleet of hydrogen-powered Chevrolets in Hawaii. But so far fuel-cell cars have only been leased to selected customers as part of an expensive experiment.

In 2015 Toyota’s fcv and Honda’s fcx Clarity will at last be available for anyone prepared to stump up the

THE WORLD IN 2015

cash. Hydrogen cars will become more common because costs have tumbled. The fuel “stack” on early cars was reckoned to cost $1m a time, yet it had only come down to $350,000 by the launch of the Honda fcx in 2007, perhaps explaining why the firm has built just 200 test cars for public trials.

Drivers may still find the price off-putting. Toyota says its fcv will set them back around ¥7m ($65,300), which is remarkably cheap for a fuel-cell car, but three times the price of one of the firm’s similar, petrol-powered saloons. Honda’s vehicle is likely to cost about the same. Hyundai’s hydrogen-powered version of its ix35, a small suv that is also set to go on general sale in 2015, may be pricier still. But with more production models due in the next few years— Nissan, in partnership with Daimler and Ford, will launch one in 2017—prices should start to fall more quickly.

Yet as fuel cells are improving, so are other means of propelling cars down the road. Conventional internal-combustion engines are getting cleaner and more fuelefficient. Battery-powered electric vehicles such as the Nissan Leaf and Tesla Model s are selling in greater numbers as prices fall and battery capacity and the infrastructure for charging them improve.

Fuel cells do have some advantages.

Battery-powered cars take hours to recharge fully whereas filling up with hydrogen takes minutes. Most electric vehicles have a range below 100 miles on a single charge. Toyota says its fuel-cell car will go 700km (435 miles) on a tank of hydrogen. But the gas is still expensive, perhaps double the cost of petrol, since extracting it from water by electrolysis or from natural gas uses lots of energy. Electrolysis is preferable for the cars to establish their environmental credentials, as renewable energy, such as wind or solar, can provide the power.

A long journey still ahead The lack of refuelling infrastructure is another roadblock. But there is progress. California is a target market for fuel-cell vehicles—regulations require that by 2025 one in five cars sold must be electric, plug-in hybrid or fuel-cell. Seven other states, including New York and Connecticut, have adopted similar rules. Just ten hydrogen filling stations are currently open in California, but the state plans to spend $46m to build 28 more. Japan should have 100 by 2015, South Korea’s total is expected to hit 43 and Germany is aiming for 100 by 2017.

Not all carmakers are convinced by fuel cells. Volks­ wagen’s boss in Japan says that the cars will not catch on beyond that country, as nowhere else will match the hefty subsidy of ¥3m per vehicle that will make the new crop attractive, nor the commitment to build refuelling stations. Elon Musk, boss of Tesla, puts it more succinctly: “Fuel cell is so bullshit.”

The cars may not make an immediate impact.

Honda and Toyota each expect to build 1,000 vehicles in 2015 and slowly ramp up production to the “tens of thousands” in the early 2020s. But at least fuel cells are set to join the race to propel the car of the future. n

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Why will print books remain the dominant format in 2015 and beyond? One reason is the lesson of history: new sorts of books have always lived alongside the formats that preceded them. Scrolls were used long after the codex (the bound book) was invented, and manuscripts remained popular after the rise of the printing press. Today, books in physical form often carry sentimental value in a way that dvds and cds do not. Readers like to see print books adorn their shelves, and find them easier for reference. They remain popular gifts.

Children’s books do not sell well in electronic form, so new generations retain contact with print. Dedicated e-reading devices are losing out to general-purpose tablets. In 2015, 9.7m e-readers will be sold globally, down from a peak of 20m in 2011, according to Forrester, a research firm. Many of the heaviest readers have already made the New to e-reading. generations switch But in spite of print books’ retain endurance, e-books will alter the for readers and publishers. contact with plot Their rise has already enabled print more creative storytelling, thanks to audio and video supplements, and more interactivity. And they have empowered a new generation of self-published writers, who upload their works themselves and sell them in electronic and print form. In 2015 several of these authors will have a breakout success. Their work will be picked up by publishers and sell by the million—both electronically and in the old-fashioned format that many readers still prefer. n

2015 IN BRIEF

THE WORLD IN 2015

Adapter and verse Alexandra Suich SAN FRANCISCO

Print books will show their staying power

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t is hard to imagine a world without books. Ray Bradbury, a science-fiction writer, did so in “Fahrenheit 451” (1953), portraying a future where books are banned. More recently, futurists envisioned the death of print books at the hands of technology. Some predicted that electronic books would become the main medium for reading by 2015. They will be proved wrong: in 2015 consumers will demonstrate their enduring love affair with books, both printed and pixelated.

E-books expanded rapidly after Amazon, an online retailer, launched the Kindle in 2007, but their growth has slowed. In 2013 they made up around 20% of units and 13% of total book revenues in America, according to Nielsen, a market-research firm. E-books will remain most popular in categories that sold well as mass-market paperbacks, such as romance and thrillers. But print will still account for most books sold in 2015 and in the decades ahead.

Portable, battery-less print books, it turns out, are a resilient technology. E-books have certainly thrived, especially among frequent readers and those who prefer an enlarged font size, but they have not proved a perfect substitute for print. Only around 4% of book readers in America buy e-books exclusively.

Lights, camera, fraction!

Alexandra Suich NEW YORK

Hollywood stars tighten their belts before a film earned back its costs.

The squeeze will only tighten at studios arilyn Monroe once said that Holly- like Sony and Warner Bros, whose parent wood was a place “where they’ll pay companies staved off activist-shareholder you a thousand dollars for a kiss and pressure and corporate suitors in 2014. fifty cents for your soul.” Many film stars Studios will make fewer films in 2015, might feel similarly short-changed in 2015. which limits the earning potential of the The era of easy money in Hollywood has actors who are lucky enough to find work. toppled over, like a precariously stacked The rise of superhero films has shown pile of dvds. Actors can no longer count how stars are mere mortals. No one needs on studios’ largesse.

Several trends will drive down their earnings. Before people stopped buying their own copies of films to watch at home, deciding instead to stream them or watch them on-demand for a lesser fee, Hollywood studios could (sometimes) afford star actors’ inflated salaries. No longer. Executives are running their film studios with more discipline, at the insistence of their corporate owners, and have stopped dispensing “first-dollar gross”, which entitled actors to big payments even It’s getting harder to hold on to the money too

M

Netflix releases its first featurelength film, after striking a deal with the Weinstein Company

Alexandra Suich: media editor, The Economist

a superstar to play Superman. Audiences will show up for the character, regardless of who is cast in the role. Studios can use this to talk well-known actors down from high pay demands. In No one 2015 the consequences of this shift in Holneeds a lywood will become superstar clearer, as the ecosystem to play that depends on actors’ salar ies—including Superman agents, managers and lawyers—shows signs of deprivation.

To make ends meet the luckiest actors will star in television shows in 2015. Already some a-list actors have moved into tv, including Kevin Spacey. Long-running television programmes can be even more lucrative than film.

Other stars will turn to a onceunglamorous part of television: advertisements. In 2014 Matthew McConaughey, who won an Academy Award for his role in the low-budget “Dallas Buyers Club”, also starred in an hbo television show and a car commercial for Lincoln. Couch potatoes can look forward to more star-sightings like this. n

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Business

THE WORLD IN 2015

Happy birthday, Singapore Laza Kekic

The best—and worst—places to do business

U

Laza Kekic: creator, Economist Intelligence Unit business-environment rankings

ntil a few years ago it was widely expected that conditions for business around the world would keep getting better, reflecting the relentless forward march of globalisation. But now the trend of continually improving business environments—underpinned by robust growth, liberal economic reforms and investment in infrastructure—has stalled, and in some areas even gone into reverse. The future global business landscape will be characterised by lower cross-border capital flows, tighter regulation and less risk-taking.

Confidence in many countries has taken a battering and may recover only slowly. The economic environment will be affected by fiscal imbalances (mainly a result of weak growth). Doubts about the soundness of banks and poor access to finance cloud the outlook for financial systems. There is a rising risk of unrest in many countries. Increased international tensions also mar the outlook for political stability.

That is the broad picture that emerges from the business-environment rankings of the Economist Intelligence Unit, a sister company of The Economist. The forward-looking rankings measure likely trends across 82 countries up to 2019, and use quantitative data and assessments by the eiu’s country analysts to rate the attractiveness of each country’s business environment.

They reflect the main criteria businesses use to formulate strategy: politics, the economy, market opportunities, policy towards free enterprise, openness to foreign

On top of the world

investment, foreign-trade and exchange controls, taxes, financing, the labour market and infrastructure.

The result? Singapore comes top—something else to celebrate during the city-state’s 50th anniversary in 2015.

It is an efficient, open economy and works hard to maintain its competitiveness as a regional hub for global businesses. The euro-zone may be stagnating, but European countries do well. The bric economies, though attractive because of their size, are hard places to do business and score poorly in the ranking: China is in 50th place, Russia back in 64th. Venezuela and Libya bring up the rear. n

The good, the bad and the ugly Business-environment rankings*, 2015-19 Rank

Rank

Rank

Rank

Singapore

1

Japan

22

Lithuania

43

Russia

Switzerland

2

Spain

23

Italy

44

Kazakhstan

65

Australia

3

Qatar

24

Saudi Arabia

45

Argentina

66

Hong Kong

4

UAE

25

Turkey

46

Tunisia

67

Sweden

5

Israel

26

Brazil

47

Morocco

68

Canada

6

Estonia

27

India

48

Bangladesh

69

United States

7

South Korea

28

Peru

49

Egypt

70

Denmark

8

Czech Republic

China

50

Ukraine

2015 IN BRIEF

29

71

New Zealand

9

Poland

30

Bulgaria

51

Ecuador

72

HBO launches a paid online service, so those who watch “Game of Thrones” will no longer have to have a cable or satellite subscription

Finland

10

Mexico

31

South Africa

52

Azerbaijan

73

Germany

11

Slovakia

32

Croatia

53

Pakistan

74

Norway

12

Slovenia

33

Colombia

54

Algeria

75

Ireland

13

Thailand

34

Philippines

55

Nigeria

76

Taiwan

14

Cyprus

35

Indonesia

56

Kenya

77

Chile

15

Bahrain

36

Jordan

57

Cuba

78

Netherlands

16

Hungary

37

El Salvador

58

Iran

79

Belgium

17

Portugal

38

Vietnam

59

Angola

80

France

18

Latvia

39

Sri Lanka

60

Venezuela

81

Austria

19

Kuwait

40

Serbia

61

Libya

82

Malaysia

20

Costa Rica

41

Greece

62

Britain

21

Romania

42

Dominican Republic

63

64

*Rankings based on scores for 91 indicators across ten broad categories.

Source: Economist Intelligence Unit

Business

THE WORLD IN 2015

137

It’s time for cars to talk

H

arley Earl, the legendary General Motors design chief, once said, “My primary purpose has been to lengthen and lower the American automobile, at times in reality and always at least in appearance.” Earl succeeded on a grand scale in the 1940s and 1950s with a series of concept cars that often stretched close to 20 feet in length while rising to barely five feet in height.

But underneath the chrome and tail fins was some serious thinking about what customers would want and need in the decades ahead, and the technologies that might do the job.

One concept car from the era, the jet-inspired Firebird II, envisioned a driver’s dream: a world where cars drive themselves and congestion is tamed. It achieved this through a combination of “smart” roads, wireless connectivity and automation—technologies that were science fiction at the time but are fast becoming engineering realities.

When the global auto industry rallies behind today’s emerging technologies, we will achieve the next great advance in car safety, save people valuable time and become more energy-efficient, all at the same time.

Automated driving technologies, which are ­focused on assisting drivers, not replacing them, will play a huge part.

The past few years have seen a steadily increasing number of vehicles around the world equipped with crash-avoidance technologies that use radar, cameras and other sensors to help drivers maintain a safe following distance, “see” into blind spots and stay in their lanes. The need is clear. In Britain, for example, about 40% of crashes involve someone who “failed to look properly”. The same technologies also support automatic emergency braking; these can help avoid rear-impact crashes, which account for more than a quarter of all crashes in the United States.

Take the technology for a spin In about two years Cadillac will launch “Super Cruise”, which will allow drivers to travel safely on highways without touching the steering wheel or the pedals for extended per­ iods both in stop-and-go traffic and at speed.

For New Yorkers, this could mean the luxury of driving safely from the Midtown Tunnel to eastern Long Island with the car doing much of the work.

The next frontier is a wireless technology called v2x, which companies in America, Europe and Japan are developing. It encapsulates vehicle-to-vehicle and vehicle-to-infra-

structure communications. Essentially, special modems allow v2x-equipped cars to talk to each other and the world around them, and warn drivers when there is trouble ahead. For example, if an oncoming car is about to run a red light or one is coming around a blind corner, nearby drivers can be forewarned, giving them precious time to react. Similarly, if an accident, flooding or road works close a travel lane, v2x-equipped infrastructure can alert drivers almost instantaneously.

Testing has shown that v2x can perceive some threats sooner than sensors, cameras or radar can. That can make all the difference when you consider that a car travelling at 90kph (55mph) covers the length of an American-football pitch in less than five seconds.

Studies by the Department of Transportation suggest that v2x has the potential to help address up to 80% of vehicle crashes involving unimpaired drivers. On a global basis, the United Nations and the World Health Organisation have said that crashes cost countries a staggering 1-3% of gdp every year. This is why regulators in America and Europe are so bullish on v2x, and why interest is growing in China.

More still needs to be done by government and industry to enable broad deployment of v2x. This includes setting standards and oversight for security and ensuring interoperability. Everyone must do their part, starting now, and I have been urging the industry to accelerate its work. gm has announced plans to put its first v2x-equipped vehicle—the 2017 Cadi­llac cts—on the road in about two years. The state of Michigan has committed itself to building 120 miles of v2x-enabled infrastructure in and around Detroit, with support from gm and other carmakers. It will be the largest such deployment in the country.

I’m confident that this is just the start, since cities like Los Angeles, Shanghai and London have congestion problems much worse than Detroit’s. And every industrialised country has ambitious road-safety goals.

It’s fascinating to look back and see how prescient the designers of the Firebird II were about v2x. One thing is clear: they were good listeners. Now, as then, people are frustrated by congestion. They also tell us it would be great if their vehicles could do more of the work on some trips. And everyone wants safer roads and safer cars for their families.

Sixty years ago, no one had the hardware or software to make this an engineering reality.

In 2015, we do. Now we need to bring it all to market and do it quickly. n

Intelligent and connected technologies are about to transform driving, predicts Mary Barra, chief executive, General Motors

We will achieve the next great advance in automotive safety, save people valuable time and become more energyefficient, all at the same time

THE WORLD IN 2015

139

Finance Also in this section: The next financial flare-ups 140 Where rates will, and won’t, rise 141 Bankers and trust 142

Europe’s capital markets 143 Just possibly… 143 Smaller banks thrive 144 The impact of cheaper oil 144

Creative investing 145 Carl Icahn: Making boards more accountable 146

A stormier time ahead Philip Coggan

80

Weather change

60

Volatility index (Vix)

40

20

0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Chicago Board Options Exchange

Volatility returns to financial markets

T

2015 IN BRIEF Non-American fund managers must start withholding tax from the incomes of American clients

s

he consensus is often caught out. If 2013 was a year when the pace of the stockmarket rally caught investors by surprise, 2014 was a year in which bondmarket bears were dumbfounded. Yields fell, with those in Europe even becoming negative for bonds with twoyear maturities. People were willing to make a loss to lend money to the French and Irish governments.

So what will be the surprise of 2015? Out of a wide range of candidates, the most intriguing would be the return of volatility. The most popular measure of volatility is the Vix, which focuses on the stockmarket (it measures the cost of options: in effect, the price investors are willing to pay to insure against sharp Policy divergence market moves). As the may cause volatility chart above shows, the to show up in one 2008 economic crisis looks a bit like a sudden particular place: the storm sweeping across currency markets a pond; there were two smaller subsequent squalls but all eventually became calm again. By the end of September 2014, the Vix was very low by historical standards.

That was probably the result of monetary policy; there has been no interest-rate rise in the big rich economies for several years and central banks have done much to calm the markets via asset purchases and bank lending. But that may change in 2015. The Federal Reserve has already stopped its bond purchases and there will be a lot of debate over the timing of the next rate rise—and over whether the Fed or the Bank of England will be

the first to tighten policy. When markets see one rate increase, they tend to anticipate several more.

True, the European Central Bank and the Bank of Japan may keep their feet on the monetary accelerator for a while longer. But the policy divergence may cause volatility to show up in one particular place: the currency markets. After rising sharply in the midst of the crisis (Treasury bonds were seen as a safe asset) and then declining again, the dollar has been remarkably stable in the past two years. One of the most popular plays in the foreign-exchange markets is the “carry trade”, which involves buying the currency with the highest yield, selling (or borrowing) a currency with a low yield, and pocketing the difference. But in recent years, there has been precious little yield differential for traders to exploit. But there were signs in the autumn of 2014 that the dollar might be beginning a new bull run. The gap between ten-year bond yields in Germany and those in America was as wide as it has been since the introduction of the euro. There is now some “carry” to play with.

Another potential source of volatility is the stockmarket. There was a big wobble in October 2014 as investors worried about the lack of global growth and the potential for deflation. Bears have long predicted that the withdrawal of central-bank support will cause overvalued equities to slump, particularly on Wall Street; bulls say that a pick-up in global growth will allow the rally, which began back in 2009, to continue. They point to the strength of corporate profits, above all in America, and predict that they will rise even farther in 2015.

Conditions now seem reminiscent of the mid-1980s or the late 1990s, when investor enthusiasm for equities reached its height, resulting in a wave of merger activ-

Philip Coggan: Buttonwood columnist, The Economist

Finance

140

Crisis? What crisis?

Ryan Avent

Three places for possible panic

T

he low market volatility in 2014 may have been the calm before the storm.

In 2015 the Federal Reserve, China and (yet again) the euro zone are three potential sources of financial tempests.

The mere anticipation of a reduction in Fed asset purchases caused an emergingworld “taper tantrum” in 2013, including sharp depreciations in currencies against the dollar and rising borrowing costs. As the Fed inches toward its first interest-rate increase since 2006, capital may gravitate away from emerging economies, leading to weaker currencies and higher borrowing costs. Vulnerable countries with hefty debts and current-account deficits—such as Turkey and Indonesia—could struggle to pay their creditors. That, in turn, could place stress on banks with large emergingmarket exposures.

If the Fed does not touch off an emerging-markets crisis, China just might.

Growth in the Chinese economy has been slowing, despite a rapid expansion in credit. Total indebtedness in China, public and private, has risen from just over 100% of gdp in 2008 to 250% now. Though the overall level is modest relative to that in the debt-addled economies of the rich world, the pace of increase is worrying.

When China’s government has acted to restrict credit growth, the economy has wobbled and shabbily constructed financial products have gone belly up.

A Chinese crisis would not look like a normal panic, though, thanks to state control over the financial system and over the flow of capital in and out of the economy.

Instead, it would mean falling property prices and trouble for rickety institutions in China’s shadow-banking sector. A props

2015 IN BRIEF The Reserve Bank of India launches an annual list of domestic banks that are “too big to fail”

THE WORLD IN 2015

erty crash would leave banks saddled with bad loans and unable to extend new credit.

Growth would slow sharply. China has been the world’s most reliable economic engine over the past decade, and a rapid slowdown would cause commodity prices to tumble.

A sudden slowdown might reinforce a growing bearishness towards emerging markets, leading to a capital drought across the developing world. Emerging economies weathered the 2013 taper tantrum thanks to their maturing financial systems and the protection provided by big foreign-exchange reserves. But they were also buoyed by a generally positive growth outlook. No longer. Growth across all emerging economies, taken as a group, is expected to be slower over the next few years than it was over the past decade: roughly 5% a year as opposed to more than 7%. This will raise the number of

ity and new companies floating on the market. When this happens, the stockmarket can jump sharply as new money is sucked in, and then collapse even more quickly as the smart money takes profits. If a collapse does happen, central banks may face a tricky decision: do they rescue the markets and reinforce the perception that they exist to prop up asset values, or do they let the markets fall and risk contagion in the financial sector and the hit to consumer confidence that might ensue?

Bond markets are also a potential source of turmoil.

The ultra-low yields seen in Europe seem predicated on the continuance of Japanese-style conditions of sluggish growth and minimal inflation. Indeed, with the exception of Japan, buying bonds with yields this low

Italy’s debt is now at a level similar to that in Greece in 2009

investments that turn sour and lead to troubles for some emerging-market banks.

If skittish investors begin worrying that outright capital losses may follow a squeeze imposed by depreciating currencies, then a full-fledged panic could ensue.

All inroads lead to Rome

Yet even that threat pales next to the damage that could be wreaked in the euro zone. Conditions have calmed since Mario Draghi, the head of the European Central Bank (ecb), promised in 2012 to do “whatever it takes” to save the euro. But weak growth and falling prices are boosting the odds of a new panic. Italy looks the most likely place for it to start.

The euro-denominated value of Italy’s economy has hardly grown since 2007. Its debt burden has soared, from just over 100% of gdp to 134%. Its debt is now at a level similar to that in Greece in 2009 when the euro crisis began.

Italian bond yields remain low, thanks largely to a continued faith in the ecb.

But the less capable the Italian government seems at solving its budget woes, the less political room the ecb will have to buy Italian debt. Bond-market jitters could quickly return. The euro zone might find itself cobbling together a loan package for Italy with plenty of debt rescheduling—and a renewed German and ecb commitment to euro-zone stability. But if the bill for an Italian bail-out grows too large, Germans may decide that they’ve had enough. New existential doubts about the euro itself would make for a nasty 2015 indeed. n Ryan Avent: economics correspondent, The Economist

has historically been a bad deal. There is little sign of inflation emerging for now. But if the economic conditions to justify such yields persist, voters will become even less happy than before and that may undermine belief in the European project. This may be particularly the case in France and Italy, where growth has been very weak. Anti-eu parties did well in the European Parliament elections in 2014; mainstream politicians may find it hard to ignore these views if stagnation continues.

In America, ten-year Treasury-bond yields of around 2% sit oddly with the equity bulls’ view that the economy is forging ahead at 1990s-style growth rates.

One of the markets must surely be proved wrong. That tension could be the key financial issue of 2015. n

Finance

141

markets even more closely than growth and inflation.

In America, unemployment, which peaked at 10% in 2009, has dipped below 6%. With further falls on the horizon, joblessness will edge towards the 5.5% level at which the Federal Reserve reckons wage and price pressure will start to build. America’s central bank will lead the g7, lifting its rate first.

Many will expect the Bank of England to follow suit quickly (indeed, some expect it to move first, see chart).

But though 2014 has been good, with sustained growth and falling unemployment, the bank will proceed more slowly. In Britain rate rises are likely only when joblessness falls to 5% or so. That will require roughly 350,000 unemployed Britons to find work. Even if jobs keep being created at a fairly rapid pace, this may not happen until after the general election in May. A huge productivity gap also suggests that it will take longer in Britain for wage pressure to build up.

Developments overseas will help put a lid on British inflation. Across the European Union there are 25m unemployed. British policymakers will realise they need to take this pool of untapped labour—able and in many cases willing to move to Britain—into account.

2015 IN BRIEF

THE WORLD IN 2015

A limited lift-off Richard Davies

Where rates will rise, and where they won’t

T

here are two schools of thought when it comes to rich-world interest rates in 2015. Some reckon that, after such a long period stuck to the floor, rates must rise as growth returns and unemployment falls; others warn more pessimistically that economies can stagnate and get stuck in low-rate ruts. Both camps will be proved right. Central banks, starting with the Federal Reserve, will start to lift Those on the rates. Yet far from signalling a re- low road have turn to normality, this will herald far more to a new split within the rich-country g7 group, pointing to divergent worry about paths in 2015 and beyond.

Interest rates have never been so low, or held steady for so long. To see how unusual the past six years have been, take the two countries hit hardest by the first phase of the banking crisis. In Britain the 100 years before the crash of 2008 had 370 interest-rate changes, almost one every quarter. Yet since falling to 0.5% in 2009 the Bank of England’s rate has not budged. America’s Federal Reserve has held its rate for six years, unheard of outside the Depression era. Across the rich world the pattern is similar: rates have hit the floor, and stayed there.

Yet it would be wrong to conclude that whatever goes down must eventually come up. History offers an exception: Japan. There the stockmarket crash of 1989 led to a deep recession. Since 1996 the Bank of Japan’s interest rates have not been above 1%. Easy money has not led to runaway prices: inflation has averaged less than 0.5% a year since the crash, with house prices falling every year between 1991 and 2005. Growth pessimists, including Larry Summers of Harvard University, reckon a new phase of “secular stagnation” (low growth, low inflation, low interest rates), akin to Japan’s malaise, might infect the West at large.

To spot which view is right, and get an early hint of rate rises in 2015, savvy investors should study labour You take the high road

Central bank policy interest rates, % 6 5 4 3

2

Drifting apart The European Central Bank (ecb) will not raise rates in 2015. Among the euro-zone countries Italy will remain the most acute concern, with a risk that its government debt, which accounts for a quarter of the euro zone’s bonds, gets downgraded to “bbb-”, just a sliver away from junk status, by Standard & Poor’s, a ratings agency.

Worries about France will grow. Its economy will be tested by President François Hollande’s three-year plan to cut e50 billion ($63 billion) in government spending while offering e40 billion in tax reductions. It is a sensible long-run aim. But the combination of tighter credit conditions, as French banks charge more to households and firms, and tightening fiscal policy bodes ill for 2015.

For Japan 2015 will be a knife-edge year. Like the ecb the Bank of Japan will remain in loosening mode throughout the year. That should support growth, and inflation.

But a sales-tax rise baked in for October 2015 (from 8% to 10%) will create fear as the year progresses; the previous jump (from 5% to 8%) caused a sharp contraction of the country’s economy in 2014.

Overall, 2015 will be a twin-track year. Even on the high road taken by America and Britain, rates will not 2008 crash rise far. And there will be grumbles: in America about the vast swathes of workers that have given up, becoming “inactive”, and in Britain about low wages. But those on the low road have far more to worry about. There is a real risk that Japan will stall, with those in the euro zone starting to look at the Japanese example as a guide to their future. n

1 0 1999

2000

2001

2002

200 2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*Economist Intelligence Unit forecast

2014

2015*

Source: Thomson Reuters

The end of swipeand-sign credit cards is in sight as America rolls out 550m chip-and-pin cards

Richard Davies: economics editor, The Economist

142

Finance

THE WORLD IN 2015

Saints and sinners Lionel Barber

Top Western bankers seek to regain trust

A

t the height of public outrage over bankers and bonuses, Bob Diamond, then chief executive of Barclays, confidently declared that the time for remorse and apology should be over. In 2015, four years on, his wish will ring true. After stumping up more than $150 billion since 2009 to settle libor interest-rate rigging, the mis-selling of insurance and mortgages, as well as other sins, leading Western bankers will at last be able to focus on matters other than litigation.

The financial-services sector will turn its mind in 2015 to a post-crisis world of higher interest rates, thicker capital buffers—and nimble, tech-savvy competitors. Regulatory fire-fighting will make way for fire-proofing as banks consolidate efforts to make their institutions safer and more deserving of public trust.

Naturally, the watchdogs will remain on guard. New York’s “three amigos” (the attorney-general, Eric Schneiderman, the chief regulator, Benjamin Lawsky, and the lead prosecutor, Preet Bharara) will continue to police the banks, particularly foreign interlopers. In London, Martin Wheatley’s trigger-happy Financial Conduct Authority will have its hand on the holster. Class-action suits are a sure-fire bet and the fallout from the alleged foreign-exchange manipulation remains unfinished business.

But banks believe the worst is over: “We reached the peak in 2014, with the libor settlement,” says one senior European banker. “There are no more skeletons in the closet.”

Not every ceo will go as far to appease the regulators as Antony Jenkins, Mr Diamond’s low-key successor at Barclays. Mr Jenkins has managed a drastic shrinking of the investment bank and a crash course in ethics for thousands of staff, earning him the sobriquet St Antony. In 2015 the smart money is on St Antony keeping his job, despite criticism that he has reduced Barclays to an also-ran in the global banking stakes.

This will not unduly trouble Britain’s coalition government or the Bank of England. There is little appetite for an all-singing British investment bank in the City of London. The forced exit of Stephen Hester at overleveraged Royal Bank of Scotland and the last-minute blocking of Jes Staley, the former J.P. Morgan banker originally tapped for the ceo job at Barclays, showed as much. Among the non-American banks, only Deutsche Bank will offer a full-service investment bank as well as

Lionel Barber: editor, Financial Times

wealth and asset management.

In 2015 a parade of new chairmen (and a chairwoman?) will settle in at Barclays, rbs, Santander and possibly Standard Chartered, joining Norman Blackwell, the new boy at Lloyds. Their collective motto: steady-as-she-goes, Banks though Lloyds will celebrate an end to believe its forced stint as a ward of the state.

After the general election in May, the the worst Treasury plans to sell its last 25% equity is over holding in the bank, the remnant of the £20 billion ($32 billion) government bail-out in 2008.

London’s risk-off approach will be felt on Wall Street, but not with the same intensity. American banks have shut down their proprietary-trading systems in line with the Dodd-Frank Act, got out of peripheral businesses and, in the age of cheap money, reduced their reliance on fixed-income trading.

Making music with technology The banking landscape will be increasingly (and visibly) reshaped by technology. Banks have spent hundreds of millions of pounds on their back offices in order to integrate rivals after the industry-wide consolidation which took place after the “Great Crash” of 2008.

Now the accent will be on developing new products and services beyond pure commercial lending. Goldman Sachs, ever the edgy innovator, is planning to launch Symphony, its new inter-bank messaging system, in the first half of 2015, as a rival to Bloomberg.

As Lloyd Blankfein, Goldman’s boss, said pointedly in a Bloom­ berg tele­vision interview: “We are a technology firm.”

In Britain, technology is driving bank branch closures, but the more striking change will be fewer staff in banks and (maybe) a better service. Santander is planning a drastic reduction in the time it takes to open an account online.

All commercial banks will need to improve service as non-bank lending—not just through peerto-peer upstarts such as Lending Club but also from shadow-banking giants—makes further gains.

More important, banks are exploring whether they can use their own it platforms to host services beyond pure lending. These are early days, but the potential threat from data-rich companies such as Amazon, Face­book and Google has not been lost on banks. They dream of a day when they can escape not only vengeful regulators but also the nightmare of being a utility that is going nowhere fast.

For the clever few, then, technology offers a potential stairway to heaven, not just for one-time sinners but also for would-be saints. n

THE WORLD IN 2015

Bank rupture Paul Wallace

Europeans should use capital markets more

E

Finance

143

the euro area on banks is even higher: 85% according to Standard & Poor’s, a credit-rating agency. Britain falls inbetween, with banks responsible for 62% of corporatedebt finance.

One way to reduce the reliance on banks is to revive the securitisation market, which has been a shadow of its former self since the financial crisis, even though the cumulative default rate on European securitisations since 2007 was much lower than that on American ones.

Such a revival would open up new sources of funding for banks and could enable them to divest risk and conserve capital. The ecb will be doing its bit to help by buying

uropean states have made progress in constructing the foundations of a banking union since setting that objective in mid-2012, at the height of the euro crisis. But a lot of remaining building work will keep policymakers busy in 2015. At the same time the European Union is embarking on a new venture: the creation of a capital-markets union, a goal set by Jean-Claude Juncker, the European Commission’s new president.

The most important component of the banking union has been the creation of a single supervisor in the shape of the European Central Bank (ecb). For the ecb, 2015 will be the first full year in charge of eurozone banks, a job it formally took over in November 2014. An early priority will be to ensure that banks fill capital holes exposed in October 2014 through the findings of the asset-quality review and stress tests of 130 lenders that make up over 80% of banking assets; they have between six and nine months to do this.

The ecb will hope that the year-long probe it conducted into the health of banks before assuming its new responsibility will allay investors’ doubts about bad loans lurking on their balance-sheets. The replenishment of banks’ capital both before and after the assessment should also pave the way to The charm of the market a recovery in credit that will support the floundering euro-zone economy. That will be helped asset-backed securities (abs) under a programme that by further instalments in the ecb’s funding-for-lending started in late 2014. But insurers—a prime pool of inscheme, which is open until mid-2016 and provides vestors—may be discouraged from holding abs because banks with dirt-cheap funds. of new rules, which come into force in 2016. Though But the obstacles to less draconian than once feared, they may yet hamper The business such a recovery remain for- the development of the market. model of many midable. Europe has too many banks, says a study Not built in a day middle-sized experts for the Euro- A more fundamental reason to expect a slow evolution European banks by pean Systemic Risk Board, away from the banks towards the markets is the nature a watchdog set up after the of European capitalism. To a much greater extent than is unviable financial crisis. The total as- in America, smaller and medium-sized companies presets of euro-zone banks are worth around e30 trillion dominate, especially in southern Europe. Family owners ($37 trillion)—three times gdp. Their balance-sheets balk at taking their firms public and in the past have not started to diminish only from the middle of 2012, had to do so because of the readiness of banks to fund shrinking by a tenth over the ensuing two years. That their enterprises. Creating a genuine capital-markets contraction may continue even if lenders are better union may prove to be the work of a generation. n capitalised because the business model of many middlesized European banks is unviable.

Just possibly This makes it all the more important that the euro The price of cocoa soars as Ebola spreads to the Ivory Coast zone should use capital markets to a far greater extent to and Ghana, the largest producers, disrupting output. meet credit demand. Equity markets are underdeveloped Argentina starts negotiating with the hold-out hedge-fund and bond issuance by firms is stunted compared with creditors awaiting payment after the 2001 debt default. international standards. Banks provide 70% of the debt financing of non-financial businesses in the eu, accordNine become eight when another country loses its AAA ing to the Association for Financial Markets in Europe. credit rating.

That contrasts with 30% in America. The dependence in

2015 IN BRIEF Farewell to the litas, as Lithuania becomes the 19th country to adopt the euro

Paul Wallace: European economics editor, The Economist

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Finance

Perfectly formed Stanley Pignal

Small banks gain an edge over global titans

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rebalancing is under way in the world of banking. Big banks have been busy pleading with regulators and prosecutors. But for smaller ones, far removed from the tumult of Wall Street or the City, things are rosier. They are poised for growth.

In America, while the 25 biggest banks have been increasing loans at a rate of around 4% a year, their smaller peers have increased lending by nearly double that amount. Lending to business by tiddlers— America has nearly 7,000 banks, many of them single-branch operations—is up by double digits. And the smaller fry are widening their profit margins, unlike their bigger brethren.

In Britain, “challengers” are nibbling at the edges of a long-standing oligopoly. In 2015 Metro Bank, which claimed in 2010 to be the first high-street bank to launch in Britain in over a century, will probably turn profitable ahead of a planned stockmarket listing in 2016. Its model of keeping branches open seven days a week and late into the evening contrasts with the often humdrum service of the incumbents it is taking on. Another newcomer to Britain, the Swedish lender Handelsbanken, has made waves with a seemingly simple model: give local branch managers the authority to approve loans. In-

2015 IN BRIEF Happy birthday, big banks: it’s the 150th anniversary of HSBC, the 250th of Lloyds and the 325th of Barclays

Callum Williams: economics correspondent, The Economist

THE WORLD IN 2015

stead of dealing with a distant call centre, customers are given the local rep’s mobilephone number. Atom Bank, a much-anticipated online bank, will launch in the first half of 2015.

Small banks carry fewer of the legacy issues faced by larger rivals, many of which relate to the whizzier investmentbank side of finance that they seldom take part in. Having a trading floor dealing in foreign currencies, or complex derivatives, was once an advantage for larger banks.

Nowadays it is a lightning rod for fines, some of them big enough to wipe out years of profits.

Worse, the zeal with which authorities have pursued miscreant firms has instilled a fear of seizing opportunities in the industry’s titans. International banks now fret that the meagre rewards of doing business in marginal markets (think trade finance in Mali or credit cards in Pakistan) are not worth the risk of getting assailed by regulators. That leaves an opening for local lenders.

Parts of investment banking, the bit traditionally reserved for financial giants,

Tanking?

Callum Williams

The consequences of cheaper oil

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n 2008 the oil price hit $140 a barrel. But in 2014 it dipped below $85, thanks to healthy supply from America, a weak economy and a stronger dollar.

What if the price of black gold falls further in 2015?

Lower oil prices would pep up global growth.

Cheaper oil shifts income from oil producers to consumers, who spend more. Andrew Kenningham of Capital Economics, a research outfit, reckons that a $10 fall in the oil price boosts global demand by 0.2-0.3%.

Europe, a big importer of oil, would get a boost. But cheaper oil would come with a catch. Euro-zone inflation dropped from 3% in 2011 to 0.3% by September 2014. Mario Draghi, head of the European Central Bank, reckons that lower oil and food prices caused 80%

are also facing assault from small firms.

The advisory business, in which bankers steer companies through mergers and acquisitions, or help them raise money on the markets, used to be the preserve of blue-blooded firms such as Goldman Sachs or JPMorgan Chase. Now independent corporate-finance houses, often run by the former rainmakers at the supermajors, have around a third of the market. Boutique firms, some of them consisting of little more than a couple of staff and a Bloomberg terminal, advised on six out of the ten largest global m&a deals announced in the first nine months of 2014, according to Dealogic, a financial-data provider.

To be sure, big banks still have an enviable position. Some investment-banking operations, such as the trading of bonds, commodities and currencies, require ever more scale, making it hard for tiddlers to break through. And in some places big banks have more political power, which allows them to fend off unwelcome regulation in ways lesser banks cannot. In China, small banks that expanded their use of shadowy “off-balance-sheet” vehicles are being hemmed in; big banks, not so much.

Investors still reckon the largest banks will never be allowed to fail, given the havoc caused in 2008. That in itself is a huge advantage: behemoths have lower costs of funding as a result, allowing them to extend cheaper loans.

Even so, with a growing regulatory burden weighing down on the big banks, 2015 should be a very good year for the industry’s smaller outfits. n Stanley Pignal: banking editor, The Economist

of that fall. If oil prices plunge further, the euro zone could slip into deflation, prompting Europeans to rein in spending—exactly what Mr Draghi does not want.

Oil-exporters may suffer in 2015. According to researchers at Deutsche Bank, seven of the 12 members of opec, an oil cartel, fail to balance their budgets when the price is below $100. In September Venezuela, a particularly inefficient producer, saw its bonds downgraded.

Saudi Arabia, the largest opec producer, has plenty of cash in reserve but may consider cutting supply to prop up the oil price if it stays below $90.

Cheaper oil would have a big impact on Russia. Its economy is just about coping with Western sanctions on energy and finance. But grabbing territory is expensive: Kremlin subsidies to Crimea, the peninsula it annexed, are worth billions of dollars. Economic growth is already measly. Further oil-price drops could be devastating. Oil provides half of Russia’s exports and 40% of the federal budget. A cash-strapped President Vladimir Putin would have to worry about the home front. n

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on the mend. But current share prices seem to be taking that good news as read. Meanwhile, it will become more expensive for companies to borrow; those with heavy debts will find them harder to service. The investments furthest up the risk curve are the ones, naturally, whose prices are likely to fall most sharply.

So 2015 will also see a flowering of investments billed as “uncorrelated” with bond and share prices.

Typically, commodities are sold in this way—but their dire performance of late (and for most of human history) will prevent much of a revival. There will be no letup in demand for high-yield catastrophe bonds, which provide lower returns in the event of a natural disaster, and litigation finance, in which investors underwrite lawsuits that may lead to big settlements. But these are still tiny markets, unable to cater to a mass of investors.

2015 IN BRIEF

THE WORLD IN 2015

Yield of dreams Edward McBride

Investors must be at their most creative

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hat will the faddish investment of 2015 be? Both stocks and bonds, the lion’s share of most portfolios, look very expensive. Yields are already negative for some short-term government bonds, for instance, so it costs more to buy them than they will return in interest and principal. By the same token, the s&p 500 rose to new records several times in 2014. Prices are well above the long-run average relative to earnings.

All this leaves investors with few options. Their response hitherto has been to pile into the last few recesses of the stock and bond markets where it is still possible to earn more than the paltriest of returns, because the assets in question are so risky. In 2014 they hoovered up the government bonds of countries such as Ivory Coast and Greece, which had been in default only a couple of years before. They also snapped up “high-yield” corporate bonds, issued by firms with weaker finances, paying such lofty prices that the name no longer really applies.

This behaviour will not die out altogether. There will be something of a rehabilitation, for example, for the most disreputable form of debt: “structured credit”.

This category includes financial instruments famous for fomenting the financial crisis, such as asset-backed securities. They have been anathema to most investors since then. But central bankers are keen to revive them as a way for banks to sell on loans, and thus give them the financial leeway to make new ones. Indeed, the European Central Bank has promised to buy lots of them—a step that Almond will give the market a boost. orchards are a On the whole, however, invoguish new vestors’ long scramble up the “risk curve” will go into reverse. investment There has already been something of a sell-off in high-yield debt. Hybrid bonds will be another victim of the change in sentiment. These slightly disreputable cousins of corporate bonds have risen enormously in price in recent years as asset managers hunted desperately for higher yields. But the extra risks they carry (they either convert into equity or cease to pay interest when an issuer is struggling) will begin to seem like a poor trade-off.

In stockmarkets, the easiest way for investors to eke out gains will be to lower their costs. Very low returns have already accelerated the shift from expensive, actively managed funds towards the passive sort, which aim simply to keep pace with the market as a whole. The fad for “smart beta”, meaning investment strategies that aim to follow a broader market in a more sophisticated way, but without the swingeing fees charged by hedge funds, will grow stronger.

Unfortunately, these strategies will not provide much protection when interest rates start to rise, as they will in 2015 in America and Britain at least. Bond prices automatically fall as rates go up. In theory, higher rates could be seen as good news for equities, in that they indicate that the economies concerned are finally

European fund managers must start giving regulators details of their investment strategies and portfolios

Keep it real Instead, money will flow to other “real assets”, meaning things you can kick, rather than abstract financial instruments. Property is the most common real asset; the properties that will do the best are those that are insulated from short-term economic fluctuations, such as commercial buildings with long leases. By the same token, investors will pounce on infrastructure, farmland and timber plantations, all of which provide steady, inflation-proof income. Almond orchards, for instance, are a voguish investment.

Almond blossoms, and the markets go nuts

And then there are investments tied to volatility itself. It is possible to buy an assortment of derivatives and exchange-traded products that pay out when the most common measure of volatility, the Vix, rises. These have very high fees, however, largely because they typically involve the frequent roll-over of short-term futures.

That may sound dauntingly obscure to conservative investors. They may choose, instead, to take refuge in an asset that, though it often loses value (at least after accounting for inflation), seldom causes anyone to lose their shirt: cash. n

Edward McBride: finance editor, The Economist

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An activist manifesto

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n August 2013, I tweeted to my followers that we believed Apple was “extremely undervalued”. Since then Apple’s stock price has increased by over 50%. The Economist has asked me to write 850 words of advice on what the investor should do to profit in 2015. At the risk of being a bit facetious, I would say: become a Twitter follower and read my future tweets!

On a more serious note, in reply to The Economist’s question I believe that, even at today’s prices, Apple stock is greatly undervalued. Why? The answer is a pervasive misunderstanding among investors and Wall Street analysts: they think Apple is a hardware company when in reality it’s a company that sells an entire ecosystem of hardware, software and services. Once a consumer buys a single Apple device, thereby entering its ecosystem, they often increase their exposure to it through incremental Apple products. Then, when the time comes for them to replace their device, they tend to stay with Apple rather than switching to a competitor, which is the consumer behaviour suffered by simple hardware companies when what they sell is viewed as a commodity.

We have written a letter to Tim Cook, the ceo, expressing our views (it can be seen on our website: shareholderssquaretable.com).

If you had purchased stock of iep, our flagship company, at the start of 2000 you would have had an annualised return of 21.5% compared with the s&p500’s 3.8%; and if you had bought iep on April 1st 2009 you would have had 33.8% compared with the s&p500’s 20.4% (counting in each case up until September 30th 2014). Even more telling is the return of a person who invested in 23 companies whose boards our appointees joined between January 1st 2009 and June 30th 2014; if the person invested in each company on the date that the nominee joined the board and sold on the date that the nominee left, they would have obtained an annualised return of 27%.

The benefits of an active lifestyle The reason our record is so strong is that we are “activists” in the truest sense of the word. Over the past two decades we have got actively involved with ceos and boards, often in a friendly fashion. I have had literally hundreds of dinners with ceos and board members, at my apartment in New York.

Surprisingly I am still friendly with many of the ceos, even the ones who left possibly as a result of my urging.

Our success proves that our activist views enhance value. We have proved this at companies such as Motorola, where we were a major force in promulgating the split of Motorola Solutions and Mobility, and then the sale of Mobility to Google. Without this, Motorola may well have gone bankrupt. We have recently been actively involved in Apple, Chesapeake, Forest Labs, Hain and eBay, to name a few. Even at Apple, where we are solidly behind management, few would deny we were instrumental in increasing the buyback.

Unfortunately, America’s corporategovernance system is dysfunctional. Many rules have evolved over the years to protect incumbent boards and managements from becoming accountable. Even for iep it is very difficult to invade the fortress that protects even extremely poor incumbent managements. Recently, however, we have been able to get board representatives without having to start a proxy fight. As Sun Tzu’s “The Art of War” states, “The greatest victory is that which requires no battle”.

Perhaps more important, and more hopeful, a secular trend is starting. A number of large non-index pension funds now seem to be getting more interested in supporting me.

These funds are under pressure to compete with the s&p index funds. Mutual funds and hedge funds charge higher fees than index funds that simply replicate the s&p500. To justify their fees they must perform better than the index funds. They concentrate on investments in certain stocks they believe are “undervalued”. In most cases the reason these stocks are “undervalued” is mismanagement or failure of the board or ceo to do certain things that would greatly enhance value. (A recent example of this was the announcement that PayPal will be spun off from eBay, something I have been urging for a year.)

Over the decades, our activism has enhanced shareholder value for all shareholders by multi-billions of dollars. But perhaps more importantly, it has made our companies more productive and competitive. While there are many good boards of directors, sadly there are not enough. If we do not act in the near term to make boards and ceos more accountable to shareholders, the rightful owners of the companies they serve, then sadly America’s great economy will soon lose its pre-eminence.

I hope you will be following me on Twitter but if you invest, always remember there is a reason the word “risk” is in the risk/reward ratio that we study so assiduously at iep. n

The time has come to make boards more accountable to shareholders, argues Carl Icahn, chairman, Icahn Enterprises

I have had literally hundreds of dinners with CEOs and board members, at my apartment in New York. Surprisingly I am still friendly with many of the CEOs, even the ones who left possibly as a result of my urging Disclaimer: Mr Icahn holds about 53m shares of Apple common stock. His views and his holdings could change at any time. No one should rely on this article to buy or sell securities.

Mr Icahn’s full disclaimer is at: economist.com/IcahnDisclaimer

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Science and technology Also in this section: Getting rid of rats 148 A visit to Pluto 149

Gene sequencing’s multiplying uses 150 Just possibly… 150

Alastair Reynolds: From science fiction to science fact 151

Going for it Paul Markillie

The quest for air, land and water records

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Paul Markillie: innovation editor, The Economist, and editor of its Technology Quarterly

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odern times offer little scope for fresh adventure.

There are no new mountains to climb or uncharted oceans to cross, and few unprecedentedly daring things to do. But in 2015 a number of enterprising groups will push technology to its extremes as they seek to set new world records in the air, over land and on water.

First to get away will be a Swiss-based team who plan to fly around the world using only the power of the sun. Their craft (picabove) is called Solar Impulse Engineers tured 2. Despite its 72-metre (236-foot) encounter wingspan, it has room inside for problems only a single pilot. That job will be shared by the project’s leadnever seen ers, two veteran adventurers: Bertrand Piccard, before who in 1999 co-piloted Orbiter 3, the first balloon to circumnavigate the globe, and André Borschberg, a fighter pilot and engineer.

In March 2015 Solar Impulse 2 will take off from Abu Dhabi, head in an easterly direction over India and China, and then cross the Pacific, America, the Atlantic, southern Europe and north Africa. The aircraft will land along the way for displays. When crossing oceans it must stay aloft for five to six days at a time. That means climbing during the day to 8,500 metres as the 17,248 solar cells on the plane’s wings top up its lithium-ion batteries. At night the pilot will slowly descend to some 1,500 metres, eking out the power to four electric mo-

tors that turn the propellers. When the sun rises, it will climb again.

The team’s prototype, Solar Impulse 1, was used to develop some of the technology that will be needed. Last year it flew across the United States. Like most record attempts, the project has had to overcome misfortune. In 2012 the main wing spar of the second aircraft broke during structural tests. As the team are relying on highly advanced carbon-fibre construction techniques to save weight, some problems were expected. The lesson, says Mr Piccard, is to learn from mistakes and move on.

Sometimes that means reinventing the wheel—literally, in the case of Bloodhound ssc. This is a car being built to set a new world land-speed record by driving at 1,000mph (1,609kph). At that speed its four wheels will turn faster than any wheel has ever done; the danger is they might disintegrate from the massive g-forces being generated. The British team behind the project considered various ways to make the wheels before settling on a design that uses carefully forged high-grade aluminium. In June 2014 their wheel was successfully spun to the 174 revolutions a second it needs to withstand.

The test was carried out by Rolls-Royce at a fac­ility the aerospace company uses in Derby, England, to try out jet-engine fans. All three projects rely not just on corporate sponsorship but also on firms providing materials and services, and in some cases lending engineers.

For the sponsors, publicity is of course one motive. But the firms find it also stretches their engineers to encounter problems never seen before.

And there are plenty of unknowns with Bloodhound ssc. The car is powered by a jet engine from a Typhoon fighter aircraft and a hybrid rocket. It will be driven by Andy Green, a Royal Air Force pilot who holds the current land-speed record of 763mph. He set it in 1997

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THE WORLD IN 2015

Death in the far south Alun Anderson

South Georgia takes on its rats

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species found nowhere else. The island was once an undisturbed oasis but has been in trouble ever since Cook sent back reports of its abundant seals and whales.

The fur seals were wiped out within 50 years, with more than 100,000 killed in a single summer in the late 18th century.

Then in the early 20th century, whalers set up bases on the island and in 60 years har-

y the middle of 2015 the island of South Georgia should be reborn, free of the millions of rats that have ravaged its rare wildlife for the 240 years since Captain Cook landed there with some unwanted rodent passengers. “Team Rat”, an 18-strong group of scientists, pilots and engineers, intend to kill off every last rat on this 100-mile-long (160km) mountainous sub-Antarctic island using 50m pellets of poisonous bait dropped with great precision from three helicopters.

Other islands have been cleared of rats, but the biggest of them, Macquarie Island south-east of Tasmania, is just one-tenth the size of South Georgia. If eradication on this enormous scale can be achieved, it will inspire others in the many places around the world where invasive species have wreaked havoc on ecosystems. In 2013 and 2014 Team Rat baited two-thirds of South Georgia, so success lies close, with just onethird left to complete in 2015.

Surprisingly, the £7.5m ($12m) project is being carried out by a small non-governmental organisation, the Dundee-based South Georgia Heritage Trust, which has raised 90% of its funds from dona- Pest control the old way tions, with only a little help from pooned over 175,000 whales. While these the British government.

South Georgia is a British Overseas slaughters took place, escaped rats underTerritory, 850 miles east of the Falkland took another, eating their way through the Islands and inhabited only in summer by bird populations. Survivors were left only visiting researchers. It is a vital home for on the offshore islands that the rats could seabirds, including burrowing petrels and not reach.

Thanks to strict regulations governalbatrosses as well as two endangered bird

Google’s Lunar X prize offers $20m to the first team to land a robot on the Moon before the end of the year

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2015 IN BRIEF

driving Thrust ssc in Nevada. In the autumn of 2015 Bloodhound ssc will be taken to Hakskeen Pan in South Africa’s Northern Cape, where Wing-Commander Green will try to beat his own record by reaching 800mph. If all goes well, he will aim for 1,000mph in 2016.

Wheels are not something Nigel Macknight has to worry about. He leads a British team called Quicksilver, which aims to break the water-speed record of 317.6mph set in 1978 by Ken Warby in Australia. Mr Macknight and his team of volunteers are building a hydro­plane. It is designed to skim across the surface of the water powered by a Spey jet engine to set a new record of around 330mph.

The ultimate speed of the Quicksilver craft will be

ing hunting, the island’s fur seals are back in large numbers alongside enormous elephant seals. Whales are once again cruising the waters offshore. Now the hope is that the island’s birds can return.

Tony Martin, project leader and professor The island of animal conserva- was once an tion at the University of Dundee, makes undisturbed plain that success deoasis pends on the heroic men who fly the helicopters. They are all New Zealanders, with lots of experience clearing small islands off the coast of their home country, which were plagued with rats, rabbits and stoats introduced from England.

The pilots have to fly back and forth in straight lines, evenly dropping pellets of rat bait from giant hoppers swinging beneath their helicopters. No spot can be missed.

To ensure success, every helicopter carries a machine which tracks its second-by-second position. When the chopper lands the data are mapped, and if the pilot has veered off course he goes back to plug the gap. The bait is fatally attractive.

“Rats smell it from hundreds of metres away and go through thick and thin to get to it,” says Mr Martin. Once eaten, death is certain.

If all goes well in 2015 the island’s birds can begin to return.

Some, like the very rare South Georgia pipit, will probably spread to the main island from offshore refuges quickly. Others, like the many species of burrowing petrels, may take longer as they usually return to the places they were born. Full recovery may take centuries, but once it begins we will have a shining example of how past mistakes can be undone on a grand scale. n Alun Anderson: science journalist and author

partly limited by the size of Coniston Water in England’s Lake District, where the team hope to make the record attempt. It is where Donald Campbell died in 1967 trying to beat his own record of 276.3mph. His jet-powered Bluebird k7 reared up and disintegrated. It was a meeting with the designers of Campbell’s craft that inspired Mr Macknight to launch his project. The team hope their hydroplane will be in the water in 2015 and ready for a record attempt the following year.

Campbell’s fate is an ominous reminder of how dangerous record-breaking can be. Even with the latest technology and some of the best engineering brains, the desire to go faster and farther remains an adventure into the unknown. n

THE WORLD IN 2015

Year of the dwarf Oliver Morton

Scientists will see strange new worlds—but perhaps with some familiar features

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to each other. Thus the thrill of discovering, as scientists did in 2014, that icy Europa, a moon of Jupiter, has a form of plate tectonics remarkably similar to Earth’s.

Further interesting comparisons may be made between Pluto and Charon—not least because, like Earth’s moon, Charon is thought to be the result of an earlier catastrophic collision between its parent and a third body. Differences between Pluto and Charon could conceivably throw light on what generally happens in such collisions, and in so doing, perhaps, on the differences between the Earth and the Moon. But the most fascinating comparisons may be those between Pluto and Ceres, the largest body in the asteroid belt.

Ceres, discovered in 1801, was, like Pluto, originally accorded the status of a planet. When other bodies in similar orbits were discovered, though, it was demoted, becoming just another of the newly named “asteroids”.

Then, in 2006, the iau changed things again, saying Ceres’s size made it one of the new dwarf planets. This seemed a rather confusing bit of tidy-mindedness. Ceres was surely just an asteroid like any other, if bigger. But recent observations have shown Ceres to be surprisingly icy; it may be quite unlike the other asteroids so far visited. There is a plausible argument that Ceres started off much farther from the sun than it has ended up—perhaps, indeed, as Bill McKinnon of Washington University in St Louis has suggested, that it shares not just Pluto’s size, but also its origin and nature.

2015 IN BRIEF

rbital mechanics is one of the rare sciences that offers truly certain predictions. On July 14th 2015 America’s New Horizons space probe will fly past Pluto, a more distant object than any of its robot kind have visited before. At 50,000kph (31,000mph) it will skim within 10,000km of the icy surface, allowing its cameras to discern features the size of buildings—and to Triton probably examine Pluto’s anomalously began its life as large moon Charon, too. a dwarf much With only slightly less certainty one can predict that the like Pluto data thus scooped up, when transmitted more than 4 billion kilometres back to Earth, will prove remarkably interesting to scientists— not just for what they reveal about Pluto, but for the light they shed on various other celestial bodies, explored and unexplored alike.

The worlds in 2015 The workings of the solar On July 14th… system and the enthusiasm of scientists are constant, but the way the latter think about the Jupiter former is decidedly changeable.

You cannot be Ceres From its discovery in 1930 until This would have once seemed New Horizons blasted off in 2006, Earth a daft idea. Planets used to be Pluto was seen as the solar sysassumed just to trundle round tem’s ninth planet. A few months Ceres and round in the orbit they first later that changed. Some other Saturn thought of, keeping an almost bodies of similar size had been constant distance from the sun. discovered in the same neighbourhood. Rather than add them But in the past ten years it has all to the list of planets proper, become clear that in this, too, the International Astronomichange has been the rule. PlanOrbit of Uranus cal Union (iau) instead defined etary orbits seem to have shifted them as “dwarf planets”­—and, around a great deal in the early amid a bit of a kerfuffle, lumped solar system. Some think the Pluto in with the newcomers. biggest planet of them all, JupiNew Horizons’ encounter ter, first spiralled down towards with Pluto will be the first closethe sun and then, in concert up view of any of these dwarfs in with Saturn, executed a “grand Orbit of Neptune its normal state—but not necestack” which sent it back out to sarily of any such dwarf at all. its current orbit. Such a mighty In 1989 Voyager 2 flashed past progress would have scattered Pluto Triton, which is now the largest smaller bodies hither and yon; moon of Neptune, but probably things that started off close together could easily have ended began life as a dwarf much like Pluto before falling under the deep blue planet’s sway. It up as far apart as Ceres and Pluto today.

As it happens, a few months before New Horizons was revealed to be a strange, mottled world with, much flashes past Pluto, a much slower spacecraft called Dawn to everyone’s surprise, rather striking active geysers.

Much of the fun in interpreting pictures of Pluto will slip sedately into orbit around Ceres and begin a may thus come from comparing it with Triton, a sort- long programme of observations. Will it look like a of-sibling which has had its innards warmed by Nep- Pluto that has been too close to the sun? An asteroid tune’s tides. Such comparisons are an increasingly rich with a covering of frost? One of Jupiter’s icy moons? aspect of planetary science, illuminating both the dif- A hotch-potch of the above? Or something else comferences between bodies that started off similar, and the pletely? Orbits are predictable. Almost 60 years into the similarities between things that seem at first utterly alien space age the bodies that follow them can still surprise. n

A public competition organised by the International Astronomical Union provides names for 350 exoplanets

Oliver Morton: briefings editor, The Economist

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THE WORLD IN 2015

Cracking pace

Numbers of genomes sequenced

1,620,000 952,000 229,000

2014

2015 IN BRIEF Ground is broken for the world’s tallest solar updraft tower, which will generate enough energy to serve 150,000 homes, in Arizona

Natasha Loder: US health-care correspondent, The Economist

422,000

2015

2016

Genes, unzipped Natasha Loder CHICAGO

So much genetic data; so many uses

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n 2014 it became possible to sequence human genomes, at volume, for $1,000 a time—a development that will ensure a further surge in 2015 in the quantity of human genetic information that is generated. But 2015 will also be the year the world starts to work out what to do with all the data.

A new gene-sequencing machine developed by Illumina, a San Diego-based company, can mint a genome every 25 minutes. By comparison, mapping the first human genome took over a decade and cost $3 billion.

It is not only scientists who are excited by this; the applications of what is generically known as “next-generation sequencing” are broad. Cheaper, faster sequencing will revolutionise the practice of medicine, the fight against superbugs, food safety, forensics, wildlife crime and even agriculture.

In the coming year Britain will start producing whole-genome sequences for more than 100,000 patients within its National Health Service. Other governments around the world are thinking along the same lines. The British effort is notable for the extent to which it will be able to help patients such as Shelby Valint. She struggled against a mystery illness from her earliest months, and was fighting for her life by the age of eight.

It was only when her entire genome was sequenced that a genetic abnormality revealed the problem, allowing doctors to find a drug that transformed her life. Not all patients will be so lucky, but the analysis will end the agonising medical odyssey that parents of children with rare diseases go through. It will also give greater visibility to groups of patients with similar complaints.

Francis deSouza, president of Illumina, says that the number of whole genomes sequenced will double in 2015 (see chart). The earliest beneficiaries of cheap, fast sequencing will be pregnant women. Prenatal diagnosis is about to undergo a dramatic change, as sequencing can detect fetal abnormalities in maternal blood sam-

2017

Source: Illumina

ples. This does away with the need for invasive (and potentially harmful) tests for disorders such as Down’s syndrome. Mr deSouza says that in two to three years non-invasive tests will become the norm for pregnancies of average risk, and that within three to five years babies will be sequenced at birth. Within a similar time frame it will also become routine to sequence the genomes of tumours. Within a decade this will help make cancer a chronic disease, as opposed to an often fatal one.

Everything in sequence Many new groups will catch on to the potential of sequencing in 2015. Forensic examiners will realise it is possible to identify several people from a sample of mixed fluids taken from a crime scene. Customs officials, who find it hard to enforce wildlife laws, will be able to tell if an animal skin is legal or not by sequencing a small sample.

In 2015 field trials will begin The earliest in Africa for a hand-held sebeneficiaries quencing unit that will help fight malaria. q-poc takes 15 minutes will be to examine a drop of blood and pregnant identify the infecting parasite and what levels of drug resistance to women expect. It will also be tested in hospitals to show if patients have genetic variations that affect their response to warfarin, a blood-thinning drug.

Given the recent discovery that gut bacteria play a role in obesity and can be changed through diet, it seems only a matter of time before firms are offering to sequence them as part of weight-loss programmes. There will be no end of uses for the surge in sequencing. n

Just possibly…

Guinea worm disease becomes the second disease after smallpox to be eradicated.

The Nobel prize for physics is given to a woman for the first time in 52 years.

A malaria vaccine, long awaited, and one for Ebola, rushed breathless from the lab, are both rolled out in Africa.

Science and technology

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Small steps, big change

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common complaint about science fiction is that it promises more than our world’s humdrum reality ever delivers—a refrain summed up in the question: “Where’s my flying car?” But change happens in small, incremental ways, and it can catch us off-guard if we pay insufficient attention. Flying cars may still be some way off (although maybe not that far), but driverless cars are on the cusp of becoming a mainstream technology.

From 2015, they will be legal on certain roads in Britain. While these cars must contain a driver capable of taking over at any moment, they represent a significant step towards fully autonomous vehicles. Guided ­by on-board cameras, radar and gps, driverless cars stand to be both safer and more energy-efficient than present-day vehicles, and they should lower journey times. However, just because the technology is there doesn’t mean we’ll rush to embrace it—many of us will be in no hurry to surrender control of ­our vehicles.

Social attitudes to technology also shape our perception of robotics, another area in which advances have been made in a series of quiet steps, rather than headline-grabbing breakthroughs. Robots, autonomous and remotely controlled, are stealthily entering the public environment. The Knightscope k5, a sinister-looking security robot, will begin patrolling a Silicon Valley campus in 2015—a step its maker hopes will lead to wider adoption across urban troublespots. Although unarmed, the k5 carries a battery of monitoring systems, using software to perform real-time “behaviour analysis”, as well as being able to sniff out chemical, biological and radiation threats. Meanwhile, “Jibo”, a crowdfunded project (how very 2014), promises to be the first “family robot”—a social robot that doesn’t need to move itself, but which is small enough to sit on dining tables and join in social interactions, using facial-recognition and expression-matching technology.

Talking to a robot is one thing; being understood by another human being who speaks a totally different language is quite another.

Real-time voice translation is one of the great goals of artificial-intelligence research. After decades of false dawns, the tools are now within our grasp. Combining advances in speech recognition and “deep learning” neural networks, Skype Translator will be available in beta test versions in 2015. But this joint enterprise of Skype and Microsoft is only one of several competitors in an increasingly

lucrative sector of the telecoms market. Tellingly, one of the recent drivers for this push towards more seamless communication has been the wars in Afghanistan and Iraq: there aren’t enough human translators to go round.

Ironic indeed if it turned out to be war that helped us overcome one of the basic barriers to human understanding.

On the horizon Understanding ourselves is hard enough; what about the wider universe? To grasp our place in things requires looking at the smallest and the grandest of scales—from the sub­ atomic to deep space and beyond.

In 2015 the largest scientific instrument in history returns to active service after a major overhaul. Since the celebrated detection of the long-predicted Higgs boson in 2012, the Large Hadron Collider (lhc) has been out of service while being modified to operate at even higher detection energies than those needed to pin down the Higgs.

Expectation is high that the lhc will at last provide proof of “supersymmetry”, one of the leading candidates in a search to find a theory beyond the current Standard Model of particle physics. On the one hand, if the lhc does turn up evidence for supersymmetry, that will be another huge validation of the predictive power of physics. On the other hand, a failure to detect supersymmetry at the new operating energies—and some scientists think the lhc should already have seen some hint of it, during its earlier operating cycle—will be no less fascinating.

Looking a little farther out—to the very edge of the solar system—the last planet to be discovered around our sun will get a visit from a spacecraft. After a nine-year mission, New Horizons will streak past Pluto in July (see Oliver Morton’s story in this section).

Blink and you’ll miss it, though, because New Horizons will be travelling much too fast to stop and enjoy the scenery. Nonetheless, ­astronomers will relish this close-up glimpse of Pluto and its family of moons. Is it really a planet, though? Officially demoted to “dwarf planet” in 2006, Pluto still has champions among scientists and the public, and perhaps its status will eventually be reinstated. Spare a thought, too, for Clyde Tombaugh, the man who discovered Pluto. His ashes are aboard New Horizons, and come July no one will have a better view of this cold, lonely gatekeeper of the outer solar system, from which the rest of the universe is but a skip away. n

A science-fiction writer, Alastair Reynolds, considers what will soon be science fact

Real-time voice translation is one of the great goals of artificial-intelligence research. After decades of false dawns, the tools are now within our grasp

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Culture Also in this section: Fabulous fashion 154 Political cartoons 155

Just possibly… 155 “Alice in Wonderland”, 150 years young 156

David Blaine: The future of magic 157

The Louvre comes to the Gulf Fiammetta Rocco ABU DHABI

The start of a brand-new culture hub

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An oasis in the making

2015 IN BRIEF It’s a big year for James Bond.

Anthony Horowitz publishes a new, official novel set in the 1950s, the Ian Fleming novels become a series of comics and there’s a new Bond film

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he white domed roof of the magnificent Louvre Abu Dhabi is made of hunks of interlocking steel, each weighing as much as 70 tonnes. But to the visitor standing below it feels like a floating canopy— delicate, lacy and light. Jean Nouvel, a Pritzker prizewinning architect from France, is known for his ability to distil the essence of a country and give it physical shape. His design for the new The aim is to National Museum of Qatar is based on the ubiquitous local create the desert rose and he is modelfirst universal ling the forthcoming National Art Museum of China on the museum in the Chinese symbol for the number Arab world one. The roof of Louvre Abu Dhabi was inspired by the interlaced palm leaves traditionally used as roofing material in the Gulf; in the sunbleached atmosphere of the desert Mr Nouvel wanted his design to seem to be “raining light”.

Louvre Abu Dhabi will offer the first glimpse of the new purpose-built cultural district that the ruling alNahyan family of the United Arab Emirates (uae) has been planning for over a decade. A quarter of the size of Paris and one of two dozen similar zones being developed in cities around the world, Saadiyat Island Cultural District is being brought to life on a triangular sandbar off Abu Dhabi’s north-west coast. With its long beaches fronted by numerous villas, apartment buildings and a massive new golf course, the district will offer the crowded city an outlet for expansion. But the centre-

piece will be three new museums, of which Louvre Abu Dhabi, due to open at the end of 2015, is just the first.

The second, the Zayed National Museum, will tell the story of the uae through the life of its founder, Sheikh Zayed bin Sultan al-Nahyan. Designed by Norman Foster and developed with the help of the British Museum, the Zayed National Museum is supposed to open in 2016. The third will be the Guggenheim Abu Dhabi, designed by Frank Gehry, which aims to become a leading showcase for contemporary art in the Middle East and which is scheduled to be inaugurated the year after that. A further round of expansion, extending to 2020, will see the construction of a maritime museum on Saadiyat Island as well as a performing-arts centre designed by Zaha Hadid. These monuments are at the heart of a plan to reshape Abu Dhabi’s oil-dependent economy by 2030 and help turn the city into a new global culture hub.

Louvre Abu Dhabi took as its model the hugely successful Guggenheim Museum in Bilbao, in northern Spain, which opened in 1997—and extended its scope.

A government-to-government agreement signed on the French side by President Jacques Chirac in 2007 put the seal on a 30-year arrangement allowing the nascent Gulf institution to use the Louvre name; get advice from a new organisation, Agence France-Muséums, grouping together 12 French cultural entities; and organise exhibitions that would be filled with borrowed works of art and a new collection bought with the assistance of the Louvre in Paris and the oil money of the Gulf. For services rendered the French would charge Abu Dhabi just under e1 billion euros ($1.26 billion).

Fiammetta Rocco: books and arts editor, The Economist

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Dedicated followers of fashion Yvonne Ryan

Museums turn to the catwalk in an effort to bring in visitors

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useums were, for many years, temples of high art undisturbed by the brashness of popular culture. That changed, though, when they began to look to the catwalk in an effort to attract the crowds. Fashion exhibitions may offend some patrons, but they are huge money-spinners.

That is one reason why the Victoria and Albert Museum (v&a) in London will hold out high hopes for “Alexander McQueen: Savage Beauty”, which opens in March. The show was originally mounted by the Metropolitan Museum of Art in New York in 2011, where it became one of the most popular exhibitions in the museum’s history.

More than 660,000 visitors saw it in its four-month run.

The show has been redesigned and expanded to fit the v&a’s space and to highlight different elements of McQueen’s McQueen takes wing s

2015 IN BRIEF Laugh it up, fuzzballs: the Star Wars franchise resumes after a ten-year hiatus, Jurassic Park after 14 years

work. The London-born designer, who died at the age of 40 in 2010, was one of fashion’s most original, provocative and imaginative practitioners. “Savage Beauty” spans the breadth of his career, from his 1992 graduate collection to his last, unfinished ­Autumn/ Winter 2010 collection, and has been described as something of a homecoming.

Exhibitions like “Savage Beauty” are an important means of raising cash; they can also be effective tools for attracting a new audience.

More than 23,000 people became members of the Met during the show’s run, double the number for the comparable period in 2010. A retrospective of the work of Jean Paul Gaultier, a French designer, has been seen by about a million people around the world since it first opened in Montreal in 2011. With

The plan is nothing if not ambitious. Louvre Abu Dhabi will not be a branch of the French museum, nor even a semi-autonomous extension of its brand. The aim is to create the first universal museum in the Arab world. Spanning millennia and bringing together works from all manner of civilisations, “it will be a museum of and for the world,” says Rita Aoun-Abdo, who heads the culture section of the Abu Dhabi Tourism and Culture Authority (tca). And where better to build such an institution than on a crossroads between Europe and Asia?

Desert storm A taster exhibition in Paris in June 2014, “Louvre Abu Dhabi: Birth of a Museum”, displayed some of the acquisitions to date: a marble Roman orator, a dancing Shiva figure, a Bellini madonna and child, nine Cy Twombly panels, a 19th-century photograph of Paris and a collection of Indian miniatures acquired from James Ivory, a film producer. But it failed really to convey the vision of the plan; the works were too disparate and their connections were insufficiently explained. Worse still, a French left-wing newspaper, Libération, published a private let-

catalogue and gift-shop sales included, a successful show can reap several million dollars.

Fashion exhibitions are not without controversy, particularly when the line between advertising and art blurs and the subject of a show can also be a sponsor of an instutition. New York’s Guggenheim A successful Museum was widely show can criticised when an reap several Italian couturier, Giorgio Armani, million donated $15m to dollars the museum shortly before it held a retrospective of his work.

Potential sponsors are also getting meaner with their money, and some are investing in cultural palaces of their own. The Prada Foundation, for example, will open its new museum in Milan in the spring, hot on the high heels of the Louis Vuitton Foundation’s new Frank Gehry home in Paris.

Even so, fashion-lovers will be spoilt for choice in 2015. In May the Metropolitan Museum opens an exhibition created jointly by its costume institute and its Asian art department, which will combine Chinese costume, painting and sculpture.

And two v&a shows that have wowed Londoners will spend 2015 on tour. The Hollywood Costume exhibition goes to the Academy Museum of Motion Pictures in Los Angeles, and a retrospective of David Bowie’s work, including his Ziggy Stardust bodysuits, travels from Paris to Melbourne before ending what should be a golden year in the Netherlands. n Yvonne Ryan: managing editor, The World in 2015

ter of complaint from Sheikh Sultan bin Tahnoun alNahyan, chairman of the tca, to the then director of the Louvre, Henri Loyrette, which showed that all was not well in the relationship. The French were arrogant and failed to keep promises; Abu Dhabi was feeling slighted.

The French moved quickly to soothe tempers. Now, with the opening of the museum looming, they have been keen to put the bad blood behind them. A new director, Jean-Luc Martinez, has been appointed to the Louvre; he flies to the Gulf nearly once a month to make sure all is running smoothly. His managing director, Hervé Barbaret, is tipped to be named Louvre Abu Dhabi’s first director in 2015. Among the first batch of 300 paintings and other artworks to be sent from French museums, the Louvre has agreed to lend one of its most precious pieces (pictured, right) to the opening exhibition in Abu Dhabi: Leonardo da Vinci’s m ­ emento of regal philandering, the portrait of Ludovico Sforza’s mistress, Lucrezia Crivelli, better known as “La Belle Ferronnière”. n

Culture

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Paperless cartoons Kevin (“KAL”) Kallaugher BALTIMORE

Political satire will increasingly be pixelated

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n recent years cartoonists around the globe have faced special challenges. With newspapers downsizing in the West and religious sensitivities growing in the East, it is increasingly hard for a cartoonist to know where to draw the line.

For Sabir Nazar, Pakistan’s most prominent cartoonist, 2015 may, instead, mark the end of the line. Mr Nazar’s sharp, effective commentaries on his country’s unravelling politics (shown here on the right) in the Friday Times and Express Tribune have drawn a lot of attention. Such attention is not always welcome. Outraged by similar commentaries, extremists have attacked the Express Tribune seven times in the past few years.

In one assault, Mr Nazar’s editor was targeted and his driver killed.

With threats mounting, Mr Nazar thinks 2015 will be the year when he starts to draw primarily for an audience outside Pakistan. He wants to avoid the fate of Ali Farzat, a famous Syrian cartoonist who was brutally attacked and had his hands broken by pro-Bashar Assad

less trend. A left-leaning millennial, Mr Bors is widely regarded as one of the best in the field, but he has been unable to secure a job in the traditional home of cartoonists: a metropolitan daily newspaper. More than 60% of Websites cartoonists’ jobs at American are putting national dailies have been shed cartoonists on since 1980. Not surprisingly, job openings are scarce. their payroll But Mr Bors is riding a new wave in the cartoon world. He is an online staff cartoonist. Once notoriously stingy, websites are now putting cartoonists on their payroll.

An online news site in Washington, dc, Politico, started the trend by hiring a Pulitzer prize-winning cartoonist, Matt Wuerker, in 2007. Mr Bors has been hired by a website, Medium, to be its cartoonist and editor of its comics collection, The Nib. In addition to creating his own nationally syndicated work (see left), Mr Bors now curates a daily collection of commissioned cartoons by others. He is using The Nib to showcase a healthy mix of artists who, like himself, found it hard to get published in the world of traditional newspapers. In the year ahead he will be pro­­ viding a welcome source of income and a growing platform for the next generation of comic satirists.

thugs in 2011. (Mr Farzat escaped to Kuwait and was later honoured with the Sakharov prize for freedom of thought by the European Parliament.)

Mr Nazar plans to rely on social media and blogs as his delivery weapons. In 2015 he will join Mr Farzat and many other cartoonists around the world who have opted to go paperless. They are embracing the web as the primary platform on which to display their work to a rapidly expanding internet audience.

In the United States, Matt Bors is leading the paper-

Just possibly…

The first of a new series of J.D. Salinger novels and short stories is published.

“Boyhood” wins Richard Linklater an Oscar for best director.

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Kate Bush headlines the Glastonbury Festival.

Kevin (“KAL”) Kallaugher: editorial cartoonist, The Economist

Ooh, Canada For the current generation of cartoonists in Canada there will be much to draw upon in 2015. A national election will be the highlight of their calendar.

Canadian scribblers are some of the best on the planet, offering a toxic mix of British bite and Yankee yucks. Add to the brew a little Québécois quickwit and you have “ICI Laflaque” (see right), the brilliant animated

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Grins galore Emma Hogan

Alice has a big birthday party

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efore “Alice in Wonderland” was published in 1865 children’s books tended to be dull, worthy tomes intended to instruct rather than entertain. The first book by Lewis Carroll, the pseudonym of Charles Lutwidge Dodgson, an Oxford mathematician, changed all that. In 2015 its 150th-anniversary celebrations will show how far its influence can still be felt.

“Alice in Wonderland” tells the story of one girl’s travels in a dream world inhabited by a white rabbit with a pocket-watch, a mouse who lectures on British history and a caterpillar who smokes a hookah.

The book has been translated into around 100 languages; an aboriginal Australian version has a white kangaroo in place of a rabbit. Artists ranging from Salvador Dalí to Tove Jansson, the creator of the Moomins, have been inspired by it, and over two dozen film adaptations have been made.

Several exhibitions in 2015 will draw on these responses to Carroll’s creation.

From June to October the Morgan Library

In a quiet bar, unrecognised by other drinkers, Elvis Presley celebrates his 80th birthday

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2015 IN BRIEF

­satire show flowing since 2004 (when it was called “Et Dieu créa… Laflaque”, “And God created… Laflaque”) from the pen of a Montreal-based editorial cartoonist, Serge Chapleau.

In Laflaque Mr Chapleau has used animated 3d digital caricature puppets of politicians and other personalities to comment on current events in a weekly 30-minute programme on Radio-Canada television.

The high-tech show is topical, to the point and cleverly written (in French). It takes the successful concept of the great 1980s British puppet satire “Spitting Image” to a new level. Incorporating advanced motion-capture

in New York will mount a show including the original manuscript, on loan from the British Library; this will then transfer to the Rosenbach Museum in Philadelphia.

At New York University another show will focus on parodies and ephemera related to the book. “The Alice Look” examines the book’s influence on style at the Museum of Childhood in London from May. And music-lovers might seek out the operatic version of the story that is coming to the same city in March, or the ballet that will be performed in Washington, dc, in May. In the anniversary year much will be made of Carroll’s life and the tale behind his book. “The Story of Alice”, a two-part biography and literary history by Robert Douglas-Fairhurst, an Oxford don, will be published in April. Mr Douglas-Fairhurst will trace the life of Carroll along with that of Alice Liddell, the girl who inspired him.

His book will also explore the reception to Carroll’s work, which influenced writers such as James Joyce and T.S. Eliot. “The Looking-Glass House”, the first novel by Vanessa Tait, a great-granddaughter of Liddell, will follow in July. Ms Tait will draw on the friendship between Liddell and Carroll, of which much remains unknown and which can seem troubling to modern sensibilities. A bbc documentary will further explore Carroll’s life and the enduring appeal of his work.

Many fans, though, will choose to celebrate by returning to the book itself.

Pan Macmillan, its first publisher, will bring out new editions, as well as Carroll’s collected letters. A reproduction of a pocket-book edition of “Alice in Wonderland” from 1907 will be available, as will a gargantuan collection of Carroll’s work, including his non-fiction and archival material. And a picture book with key scenes will be published, ensuring that a new generation of readers can delight in Carroll’s most enduring legacy—his creation of Wonderland, and the characters within it. n Emma Hogan: Britain correspondent, The Economist

technology to help create complex cartoons on tight deadlines, Laflaque is a world leader in animated satire.

It will be worth watching how Mr Chapleau’s cheeky cartoon creations capture the Canadian campaign in the year ahead.

Until now, cartoonists have long aspired to see their work adorning the pages of the morning newspaper. Although the recent upheaval in the publishing world has crushed those hopes for some, 2015 may mark the start of an era when cartoonists are increasingly drawn not to paper but to pixel. n

Culture

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The future of magic

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There is no technology that will supersede humankind’s willingness to believe in magic, predicts David Blaine, magician and endurance artist

The secret is that magicians influence what you think by using your own preconceived ideas of the world around you to amaze you

o peer into the future of magic, it helps to start by looking at its past.

If I were to perform for you the first known card trick to have been written down, it would be very likely to fool you just as it fooled audiences in Italy in 1478.

The techniques behind it are still used today.

Magicians have a long and secret history of preserving our best methods. But great magic requires more than merely mastering the mechanics. It requires mastering the audience.

Take Harry Houdini. A century ago onlookers were gripped by the sight of a man in a straitjacket dangling from a skyscraper. Houdini’s escape act was brand new and thrilling, allowing his name to become synonymous with achieving the impossible. It was an innovative performance, but not the product of new technology. Instead, Houdini engaged his audience emotionally, by playing to their hopes and fears. That is why it worked so well.

Magic is a form of applied psychology. The psychological basis of performance magic has been used much as it is today for thousands of years.

Several years ago, in preparation for a television special, I travelled to the deepest part of the Venezuelan rain forest and visited the Yanomami tribe. These families lived more or less as they had 5,000 or 10,000 years ago.

Nothing had substantially changed for them.

I was amazed to witness their lead shaman performing what I could easily recognise as sleight-of-hand magic—but he was using it to make his audience believe that seemingly impossible difficulties could be overcome.

Magicians have also long exploited science to create entertaining spectacles, sometimes using technology well before the general public would become aware of it. One 17th-century German priest is thought to have been the first to publish the notion of the magic lantern. This new device could create spectres which looked like pure magic to the audience.

It was used as a secret device for centuries before descending down to the everyday world and being renamed the slide projector.

Another innovator was Jean Eugène Robert-Houdin (from whom Houdini would take his name). In 1856 he used the scarcely known phenomenon of electromagnetism to help stop a rebellion against colonial France in Algeria. He outdid local religious leaders by showing that, seemingly through will-power, he could make even the strongest man unable to lift a small iron box that a small child could pick up.

Today, of course, it is not so easy to have such a technological advantage over the audience. In the information age we have magicians concerned that YouTube exposures will kill their craft. It is true that most secrets can be Googled and discovered in moments with an iPhone. Just Google “How do you cut a woman in two?” and you come up with myriad links and even a Wikipedia article on the subject.

But will these illusion-destroying spoilers really matter? The challenge for magicians is to keep reinventing our art. That is actually what makes the future exciting.

This is not the first time that magicians have come under pressure. In 1872 an Englishman named Angelo Lewis, posing under the pseudonym “Professor Hoffmann”, began revealing secrets of magic for the public in a boys’ magazine and then a book, “Modern Magic”. Magicians feared for their future, as audience members would learn the secrets behind their tricks.

Not only did the book fail to kill magic, it became one of its most important boosters, by inspiring children to take an interest­­—and encouraging some to become magicians themselves. Magic went on to enjoy a golden period, becoming more popular than ever.

All in the mind One of the wonderful things about the art of magic is that it doesn’t really matter where the trap door is. This is not the secret. The secret is that magicians influence what you think by using your own preconceived ideas of the world around you to amaze you. We realise that you will think your own experience while watching magic is unique to you, but we know that, in general, everyone thinks in more or less the same way. Even as it gets harder to have a technological edge, applying this psychological edge offers us nearly limitless possibilities.

Much of the secret innovation behind magic will not appear on YouTube. It comes from endless hours of trial and error in an effort to understand our audience.

Details will change and methods will improve, but we know that the card tricks that would have amazed Leonardo da Vinci will still amaze you. In this respect the art of magic may carry a wider lesson for our technology-obsessed age. As in many professions in 2015 and beyond, it is the primitive skill of understanding people, perceptions and relationships that will increasingly matter. n

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Farewell to escapism Ann Wroe

Technology will track us down anywhere we go in 2015. And we will no longer care

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t was always an odd notion, when you think about it. Ordinary people should not want to escape. Man is a social being; the agora, the coffee house and the department store are his chosen, crowded places. The direction of all invention, from writing to the telephone and beyond, has been to weave human beings closer in a constant hum of conversation. To opt out, into solitude or silence, was a choice that often seemed bizarre and had to be explained.

For centuries, escape from the throng was seldom a choice at all. Sickness, demons or the authorities drove people out. Yet as cities grew and life became more complicated, escapism was born and flourished. Horace on his farm wanted only the song of the Bandusian spring; Virgil pined for a simple meal of bread, eggs and herbs in some cottage in the hills. The pious and religious, too, fled to a wilderness free of temptation. Simeon Stylites teetered happily on his pillar in the desert; medieval Irish hermits needed no more company than a white cat, the stars and leaves stirring. The beauty of such escapism was caught much later,

by Gerard Manley Hopkins in his “Heaven-Haven”: And I have asked to be Where no storms come, Where the green swell is in the havens dumb, And out of the swing of the sea.

Escapism in the 17th century became religio-political, driven by rebels and Bible-thumpers. It took the Pilgrims to wild and near-empty America, and to some degree underpinned the American experiment itself. That wish to avoid “entangling alliances”, to turn eyes and ears away from the old world, was escapism talking, as much as the determination to build things anew.

The fashion was almost general then, and often dramatic.

The early 19th-century escapist was a poet, packing his bags and setting out for the sublimities of the Alps in which he would find, in solitude, his soul; leaving behind a pile of debt and bastards, and hoping no one would pursue him. As the century ended he was a gypsy, squatting by his roadside fire, or a tramp, in rags and broken-down hat: anything counter to the nine-to-five routine and the neat suburban house. Such wanderers were happy not to see human company for days, to sleep in haystacks and to wash in streams; in Robert Louis Stevenson’s words, All I ask, the heaven above And the highway nigh me.

THE WORLD IN 2015

Occasionally, in a pub, they would swap news; but they usually preferred not to know how the bad world went.

By the 1960s escapism, with long flower-braided hair and dented camper-van, had become a familiar figure in fields and forests everywhere. This version demanded to be taken seriously for its message of love, peace and living rootless off the land, but it seldom was. For another sort of escapism had appeared which, in sheer numbers, soon eclipsed everything else.

This one wheeled a suitcase full of suntan cream, racy novels and clothes designed only for lounging on palm-shaded shores.

He was leaving home and work behind, and good riddance to them, for two whole weeks. The post could pile up on the mat, the bills could go unpaid; someone else could sort out that contract or that difficult customer, for no one would know the phone number of his hotel.

Yet once in his chosen haven, this escapist fretted. He would eagerly seek out newspapers from home and favourite television channels on the useless hotel set; try to find familiar food on foreign menus, and hearty compatriots on the beaches; and in general got away from nothing, if he could help it. Mobiles and iPads, when they appeared, simply made the fraud easier. It was but a tiny step, in fact, to modern families on holiday, oblivious to their surroundings and each hunching over some digital message from home.

Leaving our trails behind us

Long before 2015, then, escapism was in trouble. Its waning has been so gradual that it may seem impossible to pin down in time. The ending of mobile roaming charges in Europe in December 2015 (or there­ abouts) is merely one more shadow flickering across.

Escapism’s imminent death, though, seems indicated by two things. First, the spread of digital tracking is inexorable, because of the way we now behave. Internet shoppers and users of social media leave what the Germans call digitale Schleimspur, digital slime, behind them: a trail of preferences, habits and obsessions, down to the toothpaste they use and their credit standing at the bank. Besides, the ex-criminal’s sins are still to be found on Google, and the officepartygoer is forever shamed on Facebook—even if she flees to some Shetland bothy, or a penguin-pecked shack in Patagonia.

Second, each tightening and enmeshing of the links that bind us to our browsers and service-providers—from targeted advertising on Facebook to peeks through our windows on Google Street View—ignites a briefer storm, as if we have become resigned to the fact that we are all public property, even in our homes. If we are now permanently on call, observed, collated and connected, so be it; that is modern life. Much faster than we rebuff the trackers, we embrace them; and like Ulysses strapped to the mast as the Sirens wove their songs around him, it is clear that we no longer wish to escape at all. n Ann Wroe: obituaries editor, The Economist