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FROM PAPYRUS TO PIXELS: AN ESSAY ON THE FUTURE OF THE BOOK The weak world economy Change in North Korea?

Losing another war in Iraq Ebola’s grim advance OCTOBER 11TH– 17TH 2014

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Half the world has leapt forward...

...but too many countries are going backwards

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The Economist October 11th 2014 7

Contents 10 The world this week

13 14 14 15 18 On the cover Victories for gay rights in some parts of the world have provoked a backlash elsewhere: leader, page 13.

How tolerance has spread remarkably quickly in the United States, page 25.

Elsewhere, attacking gays is a useful distraction for political leaders under pressure, page 27 The Economist online Daily analysis and opinion from our 19 blogs, plus audio and video content, debates and a daily chart

Letters 20 On Ukraine, Scotland, South Korea, Hungary, Syria, Oliver Wendell Holmes, addresses Briefing 25 Marriage equality in America So far, so fast 27 Gay people’s rights Tainting love

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Audio edition: available online to download each Friday

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35 35 36

Volume 413 Number 8908 Published since September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress."

Editorial offices in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Lima, Los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, São Paulo, Singapore, Tokyo, Washington DC

Leaders Human rights The gay divide Free-trade agreements A better way to arbitrate The Middle East The will and the way The world economy Weaker than it looks Educational reform Viva la revolución

United States The race for the Senate Colorado: high, tolerant and Republican?

Republicans get out the vote Expanding the universe Michigan’s Senate race Of ballots and bail-outs Leon Panetta’s memoirs The stings of Leon Wedding insurance Prenuptial protection Religious liberty Beards behind bars Lexington The Ebola alarmists

Asia 43 The Koreas Till Kimdom come 44 Chinese Indians Kings no more 44 Vietnam and America Past as prologue 45 Mongolia’s economy The pits 46 Japan’s feeble opposition Not ready for prime time China 48 Hong Kong protests The waiting game 49 Shanghai’s Free Trade Zone Disappointments abound 50 Banyan Hong Kong’s spoiled brats of democracy

Kobane Aleppo

Mosul

Raqqa

Deir ez-Zor

SYRIA

IRAN

IRAQ

Damascus Falluja JORDAN Islamic State area of presence

Baghdad

ANBAR 200 km

Iraq and Syria The coalition may already be losing the fight against Islamic State: leader, page 14. Why post-colonial Arab states are breaking down, page 57. Lebanon keeps on going, page 58. Turkey’s reluctance to strike at IS may boomerang at home, page 58.

France worries about returning jihadists, page 62

Essay 51 The future of the book From papyrus to pixels Middle East and Africa 57 The Middle East fragments The rule of the gunman 58 The politics of Lebanon The state that didn’t fail 58 Turkey and Syria While Kobane burns 59 Jewish migration Next year in Berlin 59 Mozambique’s elections Growing pains 60 Charcoal and Somalia A charred harvest

61 62

The Americas 37 Brazil’s presidential race Another rollercoaster 38 Bolivia’s election Happily Evo after 40 Bello Peru’s local strongmen

TURKEY

62 63 64 64 65

Europe Italy and reform Renzi revisited Ebola in Spain Europe’s first victim French jihadists Self-service Ukraine at war Fight club Belgium’s government Separatism revised Bulgaria’s election Borisov is back Charlemagne France’s budget test

Ebola Stoking panic will not help America fight the disease: Lexington, page 36. The infection of a Spanish nurse causes consternation around Europe, page 62. A panicky response in the West may worsen conditions in west Africa, page 70

The Koreas A remarkable visit south by a powerful Northern trio raises questions, page 43

1 Contents continues overleaf

8 Contents

The Economist October 11th 2014

World GDP % increase on a year earlier 6 F’CAST 4 2

2010

11

12

13

14* 15*

0

Source: IMF

The world economy Growth is healthy in America and Britain. Elsewhere there is trouble: leader, page 15.

Is the dollar starting another long-term rally? Page 77.

Weakening productivity is casting doubt on the sustainability of China’s growth: Free exchange, page 84

Business schools For their graduates, investment banking is out, and consulting and the tech industry are in, page 71. Our ranking of the best MBA programmes, page 72

Britain 66 Education reform The new school rules 68 Bagehot Britain and Afghanistan International 69 Telemedicine Stuck in the waiting room 70 The spread of Ebola Bridges or walls 70 Education and religion Falling away Business 71 Business education Banks? No, thanks!

72 The world’s best business programmes Which MBA?, 2014 73 Oil companies Unsustainable energy 73 Oil firms in Kazakhstan Cash all gone 74 Technology firms Split today, merge tomorrow 74 Crony capitalism Friends in high places 75 Europe’s carmakers Polishing up 76 Schumpeter Bosses in the age of social media

77 78 78

80 81

Finance and economics Currencies Buck to the future Trade treaties The arbitration game Regulating big American insurers Questionable claims Buttonwood Ageing and pensions Luxembourg Administering instead of hiding

82 Sovereign defaults Empty vaults 82 The world’s biggest economies China’s back 83 Greece’s shadow economy The treasures of darkness 83 Failing banks Armageddon delayed 84 Free exchange China’s flagging productivity Science and technology 87 Global health A new challenge 88 Prosthetic limbs Once more, with feeling 89 The 2014 Nobel science prizes Blue’s brothers Books and arts 90 Fondation Louis Vuitton Winged victory 91 Tennessee Williams Making Tenn out of Tom 91 Jamaican fiction Seven killings 92 The marshmallow test Desire delayed 100 Economic and financial indicators Statistics on 42 economies, plus our monthly poll of forecasters Obituary 102 Baby Doc Duvalier Like father, like son

Essay: The future of the book The digital transformation of the way books are written, published and sold has only just begun, pages 51-56

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How to sack your boss In the social-media age, they are more vulnerable than ever: Schumpeter, page 76

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The Economist October 11th 2014

The world this week Politics

America’s Supreme Court refused to hear appeals against lower-court rulings legalising gay marriage in another five states. Supporters of marriage equality were elated, predicting that this would open the way for it to spread even faster.

More than half of Americans now live in states where samesex nuptials are allowed. Some expect the Supreme Court to raise that to 100% next year.

Spilling over America warned that air strikes alone cannot save the Syrian-Kurdish town of Kobane from falling to Islamic State. The jihadists stepped up their three-week assault on the strategic town which lies on the border with Turkey. As jihadists entered parts of Kobane, Turkey came under growing criticism for standing aside while the fighting raged within sight of its tanks. At least 21 people died in protests in Turkey when Kurds took to the streets. But the Turkish foreign minister said it was “unrealistic” to expect Turkey to intervene without a plan also to target the Assad regime.

Islamic State beheaded a fourth Western captive. Alan Henning, a British taxi driver, had volunteered to drive aid to Syrian refugees. Pleas from Muslim preachers in Britain to spare him fell on deaf ears.

Hizbullah, the Shia militiacum-party in Lebanon, claimed responsibility for a bomb blast that wounded two Israeli soldiers in a contested border region. The group said the attack, the first that it has admitted to since the two sides fought a war in 2006, was a

“message” that it stood ready to confront Israel even though its fighters have been in Syria defending the Assad regime.

parliamentary elections. But it got only 24 out of100 seats, just one ahead of the Unity party, led by the prime minister.

A bomb targeted Houthi protesters in Sana’a, Yemen’s capital, killing at least 20 people. Al-Qaeda’s regional offshoot was suspected. It has declared war on the Houthi movement, which controls parts of Sana’a and wants a bigger presence in government. The Houthis blamed America for the attack.

The European Commission approved Britain’s application to subsidise the Hinkley Point nuclear power plant, which is being built by EDF, a French energy company. But the cost of Europe’s biggest infrastructure project has ballooned to £24.5 billion ($39 billion).

Dilma on top

African Union and Somali troops took control of Barawe, the last big port controlled by the militant Shabab, whose fighters fled without a fight.

The Shabab still control large parts of Somalia’s hinterland.

Uhuru Kenyatta became the first sitting head of government to appear at the International Criminal Court in The Hague. He was summoned to respond to accusations that he has obstructed the court’s investigation into communal killings in Kenya after disputed elections in 2007. Mr Kenyatta denies that he helped instigate the violence. Most African leaders support him.

Out of Africa A medical worker in Madrid contracted the first case of Ebola outside west Africa after caring for two Spanish missionaries who had the disease.

Britain announced that it would send 750 military personnel, three helicopters and a ship to Sierra Leone to tackle the outbreak. America said it would take further measures to screen passengers arriving from Liberia, Sierra Leone and Guinea at five airports.

Bulgaria’s snap parliamentary election produced a highly fragmented parliament that will do little to address the many problems of the European Union’s poorest member.

The winner was the centreright GERB party.

In Latvia, Harmony, a centreleft party that draws most of its support from Russian-speakers, won the most votes in

Brazil’s election confounded the pundits. Dilma Rousseff, the president, came first with 42% of the vote, eight points ahead of Aécio Neves on the centre-right. Marina Silva, the centrist candidate who had surged in the opinion polls, ended up trailing behind in third place with 21%. Ms Rousseff and Mr Neves face a runoff on October 26th. Ms Rousseff’s Workers’ Party lost ground in Congress, though the governing coalition kept its controlling position.

President Enrique Peña Nieto of Mexico pledged to bring to justice those responsible for the fate of 43 students who disappeared after clashes with the police on September 26th.

He was speaking after 28 bodies were exhumed from clandestine graves near the city of Iguala where the standoff occurred; 22 officers are being held in connection with the incident.

The last military ruler of Argentina, Reynaldo Bignone, received a 23-year jail sentence on top of the life term he is serving already. The latest verdict on the 86-year-old, who was president from July 1982 to December1983, was for the torture of factory workers.

Chile’s Supreme Court called a halt to the development of a gold-and-copper mine owned by a Canadian firm, Goldcorp, pending consultation with the indigenous Diaguita people, who say the mine could pollute a local river.

Frazzled students Student protesters in Hong Kong agreed to hold talks with government officials. A few hundred demonstrators continued to sit on the city’s roads to press demands for free elections for the territory’s leader in 2017, but their numbers were much reduced. The government has offered no concessions in the face of continuous street protests since late September.

Afghanistan’s new president, Ashraf Ghani, refused to stay the execution of five men convicted of gang rape. Human-rights groups claimed that their confessions had been extracted by torture.

Indian and Pakistani troops skirmished over the border in Kashmir. Several days of fighting left 17 civilians dead and dozens wounded. Each side has blamed the other for the clashes.

The man widely regarded as North Korea’s second-mostpowerful figure, Hwang Pyong So, paid an extremely rare visit to South Korea, prompting a flurry of speculation that ties between the two countries are on the mend. He dismissed rumours that North Korea’s leader, Kim Jong Un, is suffering from a debilitating illness. Three days later South Korean and North Korean patrol boats exchanged warning shots off the western coast 1 of the peninsula.

The Economist October 11th 2014

Business Hewlett-Packard decided to hive off its PC-and-printer business and create a new company, Hewlett-Packard Enterprise, to focus on servers, cloud computing and big data.

It will be run by Meg Whitman, HP’s boss. When she became chief executive three years ago Ms Whitman jettisoned the idea of spinning off the PC business. But with the rise of tablets HP’s computer sales have suffered, falling 7% last year, according to Gartner, a consulting firm.

The world this week 11 So has the number of people using WhatsApp, to 600m monthly active users.

The European Commission expanded its probe into the tax arrangements afforded to some companies by formally opening an investigation into an alleged sweetheart deal given to Amazon by Luxembourg in 2003. Amazon says it was given “no special tax treatment”.

The slow-growth movement GDP, 2014 forecast % increase on a year earlier 0

Samsung’s announcement that profit in the third quarter had halved from the same period last year, its fourth consecutive quarterly drop, got some wondering how it would respond to the challenge of an increasingly saturated smartphone market. Squeezed between low-cost competitors and Apple, the South Korean company’s share of that market has fallen further this year.

Back down to earth Rocket Internet’s stock continued to slide. The German company, which backs e-commerce startups, made a disappointing stockmarket debut on October 2nd, with its share price closing13% down on the day after being priced at the top of the IPO’s range. Still, Rocket raised €1.4 billion ($1.8 billion) and said investors would be more interested in its long-term prospects.

Patrick Drahi, a telecoms entrepreneur who beat the odds by winning the takeover battle for SFR in France earlier this year, was rumoured to be interested in buying Portugal Telecom, which is in the process of being merged with Oi of Brazil.

Facebook completed its takeover of WhatsApp. The deal is now valued at $21.8 billion, almost $3 billion more than when it was announced in February, as the price of Facebook’s shares, which are being paid out to WhatsApp’s investors, has risen since then.

2

4

6

8

China Britain United States Germany Japan France Brazil Source: IMF

The IMF’s latest assessment of the world economy weighed heavily on stockmarkets.

Although the downward revision to overall world output for this year was small, estimates for Germany, Japan and Brazil were reduced considerably. The debt hangover and recession “still cast a shadow”, the IMF said, and investment after the recovery

has been weaker than expected. Underscoring this, new figures for August recorded the biggest drop in German exports and industrial production since January 2009.

The minutes from the latest Federal Reserve meeting showed that its officials were also perturbed by weak overseas growth in their deliberations on when to raise interest rates.

Russia’s central bank intervened in currency markets to prop up the rouble. As well as its banks and companies feeling the pinch of Western sanctions imposed over the conflict in Ukraine, Russia’s energy exports are also likely to feel the effect of the steep fall in oil prices since the summer. Brent crude is at a two-year low.

The Bank of England gave British banks less than three months to submit plans on how they will ring-fence their retail operations from riskier parts of their business, which the Vickers commission recommended in 2011. But the banks will have to present their proposals without knowing how much capital they will be expected to hold, details that the central bank will provide later next year.

Responding to speculation in the markets Rio Tinto confirmed that it had been approached by Glencore during the summer about a takeover, but had turned it down. A merger would create the world’s biggest mining group.

Ivan Glasenberg, Glencore’s chief executive, submitted the proposal personally to Rio Tinto; he is not known to be one for giving up so easily.

No magic kingdom The operator of Disneyland Paris was thrown a €1 billion ($1.3 billion) lifeline by Walt Disney Company, its biggest shareholder. The theme park, which opened in 1992, is burdened by debt and has not made a profit for years, as attendance and hotel-occupancy rates have tumbled after the financial crisis.

The Waldorf Astoria hotel in Manhattan was sold to a Chinese insurance company for $1.95 billion, or nearly $1.4m a room. The hotel, which opened its doors to visitors in 1931, is to undergo a big renovation to restore it to its former glory. Some of its 1,413 rooms could possibly be turned into apartments.

Other economic data and news can be found on pages 100-101

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The Economist October 11th 2014 13

Leaders

The gay divide Victories for gay rights in some parts of the world have provoked a backlash elsewhere

T

HERE was a teenager in Arizona in the 1970s who “could no more imagine longing to touch a woman than longing to touch a toaster”. But he convinced himself that he was not gay. Longing to be “normal”, he blamed his obsession with muscular men on envy of their good looks. It was not until he was 25 that he admitted the truth to himself—let alone other people. In 1996 he wrote a cover leader for The Economist in favour of same-sex marriage. He never thought it would happen during his lifetime. Yet now he is married to the man he loves and living in a Virginia suburb where few think this odd.

The change in attitudes to homosexuality in many countries—not just the West but also Latin America, China and other places—is one of the wonders of the world (see page 25). This week America’s Supreme Court gave gay marriage another big boost, by rejecting several challenges to it; most Americans already live in states where gays can wed. But five countries still execute gay people: Iran hangs them; Saudi Arabia stones them. Gay sex is illegal in 78 countries, and a few have recently passed laws that make gay life even grimmer. The gay divide is one of the world’s widest (see page 27). What caused it? And will tolerance eventually spread?

Two steps forward and one back The leap forward has been startlingly quick. In the 1950s gay sex was illegal nearly everywhere. In Britain, on the orders of a home secretary who vowed to “eradicate” it, undercover police were sent out to loiter in bars, entrap gay men and put them in jail. In China in the 1980s homosexuals were rounded up and sent to labour camps without trial. All around the world gay people lived furtively and in fear. Laws banning “sodomy” remained in some American states until 2003.

Today gay sex is legal in at least 113 countries. Gay marriages or civil unions are recognised in three dozen and parts of others. In most of the West it is no longer socially acceptable to be homophobic. Gay life in China is now both legal and, in cities, undisguised. Latin America is even more gay-friendly: 74% of Argentines and 60% of Brazilians believe that society should accept homosexuality. Thais are more relaxed about transgender people than Westerners are. South Africa’s constitution is remarkably pro-gay. The young have tended to lead the way: although only 16% of South Koreans over 50 think that homosexuality should be accepted, 71% of18-to 29-year-olds do.

Yet there are still parts of the world where it is not safe to be homosexual. Extra-judicial beatings and murders are depressingly common in much of Africa and in some Muslim countries. African gangs subject lesbians to “corrective rape”. In some countries persecution has intensified. Chad is poised to ban gay sex. Nigeria and Uganda have passed draconian antigay laws (though a court recently struck Uganda’s down). Russia and a few other countries have barred the “promotion” of homosexuality.

This is partly a reaction to the spread of gay rights in the

West. Thanks to globalisation, people who live in places where everyone agrees that homosexuality is an abomination can now see pictures of gay-pride parades in Sydney or men marrying men in Massachusetts. They find this shocking. Meanwhile some homophobic Western preachers have gone to fire up anti-gay audiences in Africa, and American conservatives offer advice to countries thinking of drafting anti-gay laws.

Revulsion against homosexuals is ancient, deep and, in its way, sincere, even if some of the politicians leading the backlash do so for cynical reasons. By taking up arms against an imaginary Western plot to spread perversion, Vladimir Putin and Nigeria’s GoodluckJonathan doubtless hope to distract attention from the corruption and incompetence of their own regimes. But they have picked their scapegoats shrewdly: 74% of Russians and 98% of Nigerians disapprove of homosexuality. In places like Indonesia, Senegal, Uganda and Malaysia the young are no more tolerant than the old—sometimes less so.

Nonetheless, there are reasons for optimism, at least in the long term. Urbanisation helps. It is easier to find a niche in a big, anonymous city than in a village where everyone knows your business. Gay life in the Indian countryside is still awful; in Mumbai or Delhi it is much easier, despite being illegal. In rural South Africa, to be openly gay is to court death; yet half of South Africans now say that their neighbourhood is a good place to be gay. As people move to cities, old traditions lose their grip; and by 2050 mankind is expected to be 66% urban, up from 54% today.

Emerging countries in Asia and Latin America have generally grown kinder to gay people as they have grown richer, more open and more democratic. The hope is that as Africa and the Arab world catch up, they will follow suit. Although religion is a barrier to tolerance—the more pious a society, by and large, the less enthusiastic it is about gay rights—it is not an insuperable one: plenty of devout nations, such as the Philippines and the United States, are friendly to gays these days.

Familiarity breeds tolerance What could help spread tolerance? If the past half-century is any guide, the prime movers will be gay people themselves.

The more visible they are, the more normal they will seem.

These days 75% of Americans say they have gay friends or colleagues, up from only 24% in 1985. But it is hard to be the first to come out in a country where that means prison or worse.

Some Westerners would like to use aid budgets as leverage.

That may have helped in Uganda, but attaching conditions to aid usually fails, and cutting it off may hurt the poor more than it helps gay people. It would be better to offer financial support to local gay-rights groups, to be generous when those persecuted for their sexual orientation seek asylum, to shame Western conservatives who encourage bigotry abroad and to buttress tolerance at home.

For those who cling to the notion of progress, it is hard to believe that tolerance will not spread. After all, gay people are not demanding special treatment, just the same freedoms that everyone else takes for granted: to love whom they please and to marry whom they love. 7

14 Leaders

The Economist October 11th 2014

Free-trade agreements

A better way to arbitrate Protections for foreign investors are not the horror critics claim, but they could be improved

G

OODBYE to the European Union’s environmental Known cases 60 protections. Goodbye to Britain’s National Health Service.

40 Goodbye, for that matter, to the 20 ability of voters in sovereign, 0 democratic states to determine 1987 95 2000 05 10 13 the sort of country they would like to live in. These things are all doomed, thanks to an obscure clause in the free-trade agreement that the EU is negotiating with America regarding “investor-state dispute settlement” (ISDS)—or so the agreement’s opponents claim.

These exaggerations contain a kernel of truth. ISDS, which is intended to protect foreign investors from expropriations or other unfair treatment, requires countries to give up some of their sovereignty. The logic is simple. When a government molests a foreign firm—the forcible acquisition of stakes in foreign oil and gas ventures in Russia, say, or Venezuela’s nationalisation of gold mines, cement factories and cattle ranches—it cannot be relied on to fix things. Investors should therefore have recourse to an independent arbiter who can oblige the government to change course. In theory, the only power governments are giving up is the right to behave badly. In return they will receive more foreign capital, boosting economic growth.

The idea is a good one—so good that the members of the EU alone have signed perhaps 1,400 treaties involving ISDS. America is party to 50 trade deals that include it.

Unfortunately, there are growing problems with implementation (see page 78). The clauses that define the scope of ISDS are often insufficiently precise. This has allowed Philip Morris to demand compensation for Australia’s decision to require cigarette-makers to put grisly pictures of lung-cancer victims on their packets. It enabled Vattenfall, a Swedish utility which owns several nuclear plants in Germany, to demand ISDS cases

compensation for the German government’s decision in 2011 to phase out nuclear power. And it provides the legal basis for the insistence of Lone Pine Resources, an American oil firm, that the Canadian province of Quebec must compensate it for its moratorium on fracking. Ever more firms see ISDS as a way of getting compensation for, or changes in, unwelcome policies. In 2012 a record 59 arbitrations were launched.

The manner in which complaints like these are typically resolved makes them all the more galling: the proceedings are not open to the public and the arbitrators making politically and fiscally important decisions are often moonlighting corporate lawyers. It is no surprise that many people believe ISDS stacks the rules of globalisation in favour of big firms.

Rein in the corporate lawyers Happily, governments are beginning to learn from these mistakes. The free-trade agreement the EU is negotiating with Canada, for example, takes care to define, and narrow, the scope of ISDS. It pointedly states that measures “to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations”. It also requires ISDS proceedings and findings to be made public.

That is a good start. But reform of ISDS could go further. The World Trade Organisation, which administers the rules of global trade agreements, provides a ready model. Its member governments have ultimate control over the system to settle trade disputes, including the choice of arbiters. Only states can bring complaints, so firms must first convince their governments that trade rules have been breached. The proceedings are like trials, open to public scrutiny and subject to appeal. All future bilateral and regional investment treaties should adopt this approach, and it should be introduced into existing ones as they come up for renewal. Firms need protection; but so does the right of governments to pursue reasonable policies. 7

Iraq, Syria and jihadism

The will and the way The coalition may already be losing the fight against Islamic State

T

HESE are early days, but the campaign that Barack Raqqa Aleppo Obama announced almost exactly a month ago to “degrade Deir ez-Zor IRAQ and ultimately destroy” Islamic SYRIA Damascus State is not going well. In both Baghdad ANBAR Syria and Iraq, IS is scoring victoIslamic State Falluja area of presence ries against the West and its Sunni Arab allies. The coalition’s strategy is beset by contradictions and self-imposed constraints, with two of the worst offenders being the two countries that could do the most to degrade IS: America and Turkey. The coalition must rise above these shortcomings, or IS will end up being validated in the 200 km

Kobane

TURKEY

Mosul

eyes of could-be jihadists—the very opposite of what the coalition’s leaders set out to achieve.

As The Economist went to press, the strategically important Kurdish town of Kobane, on the border with Turkey, had been entered by heavily armed IS fighters and surrounded on three sides. Coalition air strikes have delayed the town’s fall, but probably by only a few days. If Kobane succumbs there will be a chorus of demands for a redoubled coalition effort, offset by dire warnings of the dangers of mission creep.

IS poses a threat to the entire Middle East and is potentially a source of terrorism against the West. So more effort makes sense, but only if the campaign can resolve its contradictions.

That task starts with Turkey. Despite a vote in the parlia- 1

The Economist October 11th 2014 2 ment in Ankara on October 2nd, authorising the country’s

forces to operate in Syria, Turkey’s president, Recep Tayyip Erdogan, is engaged in an elaborate juggling act. He says, correctly, that air strikes alone cannot overcome IS and that every means must be used to defeat it. But although he has tanks parked along the border, he refuses to help the Kurds, whom he sees as his enemies. Indeed, even as he leaves Kobane to its fate, his riot police are killing Kurds protesting within Turkey.

Mr Erdogan seems wary of offering anything more than rhetorical Turkish support for the coalition, unless America enforces a buffer and no-fly zone on the Syrian side of the border.

He is also insisting that America should make removing the Assad regime a higher priority than tackling IS. America’s strategy is also beset with tensions. Although it wants to see Mr Assad go, it is reluctant to join that fight for now, partly because success in Iraq depends on persuading the government in Baghdad to become sufficiently inclusive to woo back the alienated Sunni tribes. And for that it needs the help of Iran, Mr Assad’s closest ally. Meanwhile, America’s collaboration with the Shia-led government has not made it any easier to win over suspicious Sunnis. While air strikes have helped the Kurds regain some ground from IS, security in Sunni-dominated Anbar province has continued to deteriorate.

After IS fighters overran some Iraqi army bases and seized control of Abu Ghraib, within shelling range of Baghdad’s international airport, America sent in Apache attack helicopters to hit IS targets along the road that runs west of Baghdad to the IS stronghold of Falluja. Calling up the Apaches—not boots on the ground, perhaps, but certainly boots in the air—is an admission that high-flying fast jets have their limitations.

The coalition is also up against the law of unintended consequences. After its first big attackin Syria, it has targeted the oil refineries which help finance IS’s activities and other bits of IS infrastructure. But military action has also driven the dwin-

Leaders 15

dling band of “moderate rebels”—the ones that America aims to train and arm—into the embrace of jihadist groups, such as the al-Qaeda affiliate Jabhat al-Nusra, which now portray the coalition as an anti-Sunni stooge of the Assad regime.

Kurds all the way John Allen, a former general and Mr Obama’s special envoy for the coalition against IS, flew to Ankara this week in an effort to find common ground with the Turks. Nobody would claim there are easy answers for either Mr Obama or Mr Erdogan, but both are guilty of willing an end while withholding the means to secure it. In Mr Erdogan’s case, it is nonsense to claim he backs the effort to destroy IS while he leaves Kobane’s Kurds to be slaughtered. If the town falls, both Turkey’s reputation and its security will suffer a grievous blow. Better to act as a full member of the coalition and use the goodwill this generates to influence it from the inside. Mr Erdogan should use his troops to save Kobane—and give America permission to fly from the giant NATO airbase at nearby Incirlik.

For his part, Mr Obama needs to face up to two things. First, most of the coalition wants to see the back of Mr Assad: his serial brutalities against his own people have appalled Sunnis everywhere. Russia and Iran have hinted that they would accept a more pragmatic military figure in his place if their interests were respected. Mr Obama should work on that. Second, the fight against IS cannot succeed without competent troops on the ground to guide coalition aircraft to their targets, pursue enemy leaders and take and hold territory. That calls for the use of special forces in greater numbers and on more missions.

Other troops need to be embedded in the better Iraqi units to train and mentor them. When Martin Dempsey, the chairman of the joint chiefs of staff, called for that, he was slapped down

by Mr Obama. With such actions the president means to look resolute, but the people he reassures most are the jihadists. 7

The world economy

Weaker than it looks Growth is healthy in America and Britain. But most of the world economy is in trouble

F

OR the American and British economies it has been a long % increase on a year earlier road out of the woods, but the 6 F’CAST journey is nearing its end. Amer4 ica’s unemployment rate fell be2 low 6% in September. Britain’s economy, where output was up 0 2010 11 12 13 14* 15* 3.2% in the year to June, is growing faster than any other big rich country’s. Central bankers are counting the days until they can raise interest rates.

Virtually everywhere else, however, the news is grim and getting grimmer. The euro zone, the world’s second-biggest economic area, seems to be falling from a feeble recovery back into outright recession as Germany hits the skids. Shockingly weak industrial production and export figures mean Germany’s GDP is likely to shrink for the second consecutive quarter—a popular definition of recession. Japan, the world’s thirdbiggest economy, may also be on the edge of a downturn, because April’s rise in the consumption tax is hurting spending more than expected. Russia’s and Brazil’s economies are stagWorld GDP

nant, at best. Even in China, still growing at a suspiciously smooth 7.5% a year, there are worries about a property bust, a credit bubble and a fall in productivity (see Free exchange).

Such a lopsided world economy is unlikely to be stable. Either the weakness outside the Anglo-Saxon world proves temporary, or it will spook financial markets and darken the outlook everywhere. The conventional view is that global growth will strengthen in 2015 as America’s surge buoys other places, and as the recent weakness elsewhere proves temporary. The IMF reckons global growth will rise to 3.8% next year. This newspaper, however, is more worried on two counts. First, today’s weakness, especially in the euro area, could last longer than investors expect; and second, the lopsided growth could itself fuel destabilising shifts, particularly in the dollar.

Fearing the wurst The euro area is in a far bigger mess than the headline figures suggest because its growth has long been flattered by Germany. Italy has been in recession for two years; France’s economy has been stagnant for months. Now that Germany is in 1

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18 Leaders

The Economist October 11th 2014

2 trouble, the chances of a Japan-style deflationary spiral have

risen sharply. German policymakers remain pigheadedly opposed to the stimulus the euro area needs. Even as their own economy has stalled, they are determined to balance the budget in 2015. They want to force France to cut its deficit, they show little interest in a euro-wide investment scheme, and their opposition explains why the ECB is going so slowly with a bond-buying scheme to address deflation. The quantitative easing that markets expect is months off, if it happens at all.

The euro zone’s prospects are grimmest, but other weaklings are also a long way off recovery. In Japan, for instance, the economy is due to get clobbered by another rise in the consumption tax in October 2015. And with commodity prices falling and China slowing, it is hard to see how other emerging economies will accelerate, even if America is growing.

Optimists see the stronger dollar as a simple means to export America’s recovery elsewhere; but that too is more complicated than it first looks. The greenback is certainly on the rise, fuelled by faster growth and the prospects of tighter monetary policy from the Fed. On a trade-weighted basis, it is up 6.3% since July, and is at a six-year high against the yen and twoyear high against the euro (see page 77). It looks likely to go

higher: dollar surges tend to stretch over several years.

This should be good news for the weaklings: their exporters will get more competitive, while pricier imports will ward off deflation. But it could also bring risks. Currencies have a tendency to overshoot. Firms and governments that have borrowed in dollars in recent years will have to pay more. Dollar borrowing by emerging-market firms has risen dramatically since 2008, to an estimated 70% of total bond issuance. And the temporary boost from a cheaper currency could provide the likes of France, Italy and Brazil (and increasingly Germany) yet another excuse to put off structural reform.

The prescription for the weaklings is simple: heal thyself.

Rather than waiting for America to solve their problems, the laggards should treat the recent spate of bad news as a wake-up call. The ECB should start bond-buying forthwith.

The Japanese government should delay the rise in the consumption tax until the economy recovers. Countries that can afford it, notably Germany, should invest in infrastructure.

And even America and Britain should be wary, especially over tightening monetary policy too quickly. There is a lot that can go wrong—and they don’t want to be dragged back into those woods again. 7

Educational reform

Viva la revolución The British government must continue to push ahead with its bold school reforms

E

VERYBODY knows how much schooling matters in the knowledge economy, but few governments have pounced on the idea of educational reform with much enthusiasm.

Charter schools in America have shown a lot ofpromise, but their adoption has been patchy. Parts of Germany have got rid of underperforming schools and reformed technical education. Formerly Soviet Estonia has embraced new technology and data-management with impressive results. But the country that has seen the most radical structural reform is Britain.

Michael Gove, education secretary until earlier this year, faced down left-wing teaching unions and rapidly expanded the academies programme, introduced by the Labour government in the early 2000s to make schools independent of localgovernment bureaucracies. So far, two-thirds of all England’s state-funded, non-selective comprehensive schools (Scotland, Wales and Northern Ireland have their own systems) have been set free. Some 4,000 secondary schools therefore now control their own staffing, curriculum and budgets.

New evidence on the performance of the first pupils to pass through academies (see page 66) suggests that the programme is working. Although the picture is mixed, academy pupils’ results have improved faster than those of pupils in mainstream schools; the longer schools have been academies, and the more autonomy they have gained, the better they do. Some of the improvements are startling: the ARK academy chain, for example, has turned around a school in a deprived part of Portsmouth which, in 2006, produced a 3% pass-rate in five key subjects at the national GCSE exams for 16-year-olds. This year the

pass-rate was up to 79%. Such performances have inspired interest in the model from a clutch of developing countries, including India and Kenya.

Mr Gove has been shunted aside for fear that his bluntness, and the intense loathing for him that many teachers feel, could be a liability at next May’s general election. There are fears that the academy programme may therefore lose momentum. It would be a great shame if it did, not just because it seems to be improving schools, but also because experience so far suggests how it can be improved further.

For-profit prophets The academies’ performance varies wildly. Although some are brilliant, others are dreadful. They therefore need to be rigorously monitored. Ofsted, England’s schools inspectorate, has recently won powers to examine English academy chains, which should help. A rising generation of head teachers, trained in the new breed ofschools, should be bolder in speeding up changes and squeezing out weaker staff.

Better-run chains need clearer incentives to take over failing ones, but successful chains should not be encouraged to expand too far or too fast. The biggest problems have appeared in the biggest chains. That limits the potential speed of change, but faster change carries risks.

Perhaps most important—and controversially—for-profit providers should be allowed into the mix, as they are in America and Sweden. Public-sector reforms generally work best when the widest possible number ofproviders can compete to show they can do things better. There is clearly still room for new entrants, especially outside the main cities.

The academies have brought new energy to England’s education system. They need refinement but not retreat. 7

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20

The Economist October 11th 2014

Letters Ukraine’s proxy war SIR – You compared the situation in eastern Ukraine to Somalia (“A Somalia scenario?”, September 27th). Somalia’s bandits are tribal militias or stateless terrorist groups.

The militias of eastern Ukraine are Russian proxies or actual Russian troops. So eastern Ukraine is better compared to Lebanon in the 1980s, when Iranian agents built Hizbullah, securing a strategic foothold north of Israel and manipulating Lebanese politics. This is troubling. Much like Hizbullah, the militias of Ukraine spout conspiracy theories about the hidden hand of America and other Western powers.

Indeed, the Russian Orthodox Army and Oplot may be Europe’s greatest security threat over the next decade.

Imagine a scenario where they start a campaign of assassination and terror against “antiRussian fascists” in Riga. Latvia invokes NATO’s Article 5 and claims it is under attack from Russia. Will the West risk war with Russia, or will it again embrace the convenient fiction that these proxy groups are not “officially” Russian?

ANDREW FINK Arlington, Virginia The Scottish question SIR – You suggested that when Scotland turned down independence it was bucking a trend (Free exchange, September 27th). Not so. It is true that the number of new sovereign states “soared” in the decades after1946, but this wave of independence has largely stalled. In the past 20 years, only four countries have secured independence: TimorLeste, Montenegro, Kosovo and South Sudan. Meanwhile, there are over100 sub-national jurisdictions (Scotland being one of them) that continue to enjoy ample degrees of selfdetermination without the status and responsibility of full sovereignty.

Some territories have set up independence commissions and often rejected independence by huge margins. In other cases, a majority vote in

favour of independence was secured, but not enough to overcome constitutional thresholds, such as in Nevis.

Scotland is not bucking a trend; it is following it.

GODFREY BALDACCHINO Professor of sociology University of Malta Msida, Malta SIR – The point usually missed when raising the West Lothian Question is that it is not only English MPs at Westminster who cannot vote on a large range of matters devolved to the Scottish Parliament in Edinburgh; neither can Scottish MPs at Westminister (“Now for the English question”, September 27th). The most appropriate level of devolution for England would be to build on the current, odd mix of big economic areas such as Greater Manchester, unitary authorities and the traditional counties for rural areas. English MPs with more power to legislate in respect of English regions would be the wrong answer.

DEREK BEAUMONT Stony Stratford, Buckinghamshire South Korea’s economy SIR – As you pointed out, corporate investment and household income in South Korea have not been growing at a satisfactory pace for years, whereas corporate cash reserves have been rapidly increasing (“A $2.5 trillion problem”, September 27th). To address this imbalance we are taking a number of measures, such as imposing taxes on companies that do not spend a certain portion of their profits on investment, dividends and wage increases. The effective tax rate of enterprises subject to the tax would be increased by up to 3%, which is the equivalent of corporate tax reductions in late 2008.

We are also introducing new tax incentives for firms to raise employees’ pay as well as lowering dividend taxes for investors, maintaining previous tax incentives and carrying out regulatory reforms to promote investment.

In addition, we disagree

with your comparison of Japanese and Korean regulations on company boards.

An external-director system became mandatory in South Korea in 1998. External or independent directors at Korean companies now account for 30% of all directors, significantly more than Japan’s 9%. Our successful independent-director system and recent tax plans are a concerted effort by the Korean government to get firms to invest their cash reserves in the Korean economy.

JAEHYUK CHOI Spokesperson Ministry of Strategy and Finance Sejong, South Korea An election in Budapest SIR – There is now a good chance of stopping Hungary’s prime minister—at the gates of Budapest in the city’s mayoral race (“Orban the Unstoppable”, September 27th). Ferenc Falus, the left-wing candidate, and Gyorgy Magyar, an independent one, have withdrawn and they are now supporting me, the candidate of a new centre-right conservativeliberal party, Movement for a Modern Hungary. This is a broad coalition of democratic opposition that rejects the populist-nationalist course of Viktor Orban.

As you say, the prime minister wants to establish an illiberal state with more monopolies, state-ownership, centralisation, government bullying and less freedom and competition. This undemocratic tendency destroys the rule of law and important checks and balances. It will be stopped on October12th in Hungary’s capital city.

LAJOS BOKROS Budapest Over there, again SIR – I profoundly disagree with your argument that America should have intervened in Syria earlier and that intervening now is a “test of America’s commitment to global security” (“Mission relaunched”, September 27th).

Arab and European countries have been waiting to hold our

coat while we step up to fight.

But what have they been doing to secure peace in the region?

Our NATO “allies” have been reducing military spending for years, expecting the United States to make up the shortfall.

Most American interventions in foreign conflicts after the second world war have only created more enemies for our country.

NANCY BONNER Charlottesville, Virginia Controversial Holmes SIR – Oliver Wendell Holmes’s quote about taxes paying for a civilised society introduced your leader highlighting the narrowing of the tax base (“Too reliant on the few”, September 20th). Justice Holmes wrote that in his dissenting opinion in a Supreme Court case in 1927. But is he an appropriate moral reference about what constitutes a civilised society? Although his quote on tax is widely known, he was also in favour of the forced sterilisation of women of below average intelligence.

In another case from 1927 he wrote: “It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind.”

STEVE BERNARD Geneva Wait a minute Mr Postman SIR – I was amused by your reference to Costa Rica’s old system of street addresses (“Getting from A to B”, September 20th.) The most unhelpful address I heard when I spent time in the country was “200 metres south of the tree where the president’s son died in a car crash”. I never did find it.

MIKE PETERSON Cambridge, Cambridgeshire 7 Letters are welcome and should be addressed to the Editor at The Economist, 25 St James’s Street, London sw1A 1hg E-mail: letters@economist.com More letters are available at: Economist.com/letters

Executive Focus

The Economist October 11th 2014

21

22

Executive Focus

VICE PRESIDENT, PEACE PROGRAMS Atlanta, GA Founded in 1982 by former U.S. President Jimmy Carter and his wife, Rosalynn, The Carter Center was created to advance peace and health worldwide. Based in Atlanta, Georgia, The Carter Center, in partnership with Emory University, is guided by a fundamental commitment to human rights and the alleviation of human suffering. The Center seeks to actively prevent and resolve conflicts, enhance freedom and democracy, and improve health. As a nongovernmental organization, the Center has helped to improve life for people in more than 80 countries by resolving conflicts; advancing democracy, human rights, and economic opportunity; preventing diseases and improving mental health care.

The Carter Center collaborates with other organizations, public or private, in carrying out its mission around the world.

For additional information regarding accomplishments, leadership, governance, and current programs, please go to www.cartercenter.org The Carter Center seeks a Vice President for Peace Programs. The Vice President (VP), Peace Programs is responsible for the overall direction, strategic planning, development, and implementation of initiatives aimed at advancing peace with justice in countries around the world, most commonly in economically poor and politically weak states. Current peace program activities are focused in the following areas: human rights, democracy, access to information, conflict prevention and resolution, cooperation in the Americas and U.S.-China relations. The VP, Peace Programs oversees the leadership and professional development of 35 staff members and the development and implemention of 30 program activities with annual budgets of nearly $25 million. He/she reports to the CEO of The Carter Center and works as part of the senior leadership team with three other Vice Presidents of Health Programs, Finance, and Operations and Development.

The VP, Peace Programs must have broad experience and a deep substantive knowledge of international affairs.

Candidates must have proven managerial and leadership skills, including the ability to oversee several complex international multi-disciplinary initiatives simultaneously. The successful candidate will be a team-builder with an inclusive and collegial approach. Extensive international experience in one or more of the following geographic areas is also required: Africa, Central America, South America, the Caribbean, the Middle East, or Asia. A terminal degree in a relevant field is strongly desired. The ideal candidate will also have a record of distinguished service as a practitioner, ideally in a variety of organizational settings (e.g. government, academe, NGOs, multilateral organizations and/or independent consulting). This is an Atlanta- based full time position with domestic and international travel as required.

To be considered for this position, you must apply online: http://www.hr.emory.edu/eu/careers/ JOB # 47671BR

Appointment of an economist member to the Regulatory Policy Committee The Regulatory Policy Committee (RPC) is an advisory non-departmental public body of the Department for Business, Innovation & Skills (BIS). The Committee is formed of eight independent experts from business, civil society and academia, supported by a secretariat of civil servants.

The RPC supports Ministers by independently scrutinising the quality of evidence and analysis supporting all regulatory changes affecting businesses and civil society. The RPC checks departmental estimates of the costs and savings to business, the evidence base to justify new regulation, and whether proposals minimise impacts on small businesses.

More information at http://gov.uk/rpc.

BIS wishes to appoint one economist member to serve on the RPC for a fouryear period from Spring 2015 onwards.

You will be a qualified, professional economist with a proven track-record in applied economics who can constructively assess the evidence base underpinning legislative proposals and policy evaluations. You should be able explain complex technical arguments in a way that non-economists can understand.

The Committee reviews around 500 regulatory proposals each year. You will lead on a proportion of these. Members are remunerated at a rate of £350 per day capped to £14,000 annually, plus reasonable travel and subsistence expenses. This will cover work to review impact assessments, contribute to other committee outputs, and attend the monthly committee meeting in London.

Please contact RPCAppointments@bis.gsi.gov.uk for the Economist Information and Application Pack.

Closing date: Wednesday 29th October 2014

The Economist October 11th 2014

Executive Focus

The Economist October 11th 2014

23

Briefing Gay people’s rights

So far, so fast

The Economist October 11th 2014 25

Also in this section 27 Creating enemies within

WASHINGTON, DC

This week America’s Supreme Court dealt supporters of gay marriage a great victory. In two articles we look first at the speed with which this victory has come, then at the backlash this progress has seemed to provoke elsewhere

I

N SEPTEMBER 1995 eBay was founded, the Unabomber’s manifesto was published, and a memo crossed the desk of the editor of The Economist asking him which of a handful of article ideas were worth pursuing. He circled “gay marriage”.

At the time his choice seemed idiosyncratic, to say the least. In Hawaii, on the far fringe of the United States, a court had caused a kerfuffle a few years before with a decision that some people thought might lead to same-sex weddings, but the topic still seemed utterly fanciful. At best, putting “Let Them Wed” on the paper’s cover in January 1996 felt like laying down a marker for some future generation. As if in confirmation, the image of two male figurines holding hands on a wedding cake generated more hostile correspondence than any cover had before, overshadowing even the paper’s call for the abolition of the British monarchy. Which seemed, at that time, equally likely to come to pass.

Less than 20 years on, the landscape is transformed. The Netherlands adopted same-sex marriage in 2001 and a number of other European countries have since fol-

lowed suit, with the issue often provoking only mild controversy. Same-sex weddings are now performed in 19 countries, and same-sex partners enjoy protections short of marriage in many other places. England and Wales approved same-sex marriage, by resounding margins, in 2013.

The icing on the cake On October 6th America’s Supreme Court decided not to hear a number of appeals against previous rulings in various lower courts, all of which had upheld the right of gay men and lesbians to marry in the face of state rules trying to stop them. The Supreme Court thus made the rulings of the lower courts permanent in five states and opened the way to similarly irrevocable marriage rights in other states—beginning, the next day, with Idaho and Nevada. Legal scholars expect several more to follow soon. In the light of this a successful challenge to gay marriage in any of the other 19 states which had already made it legal now looks next to impossible. Over half of America’s citizens now enjoy the right to marry as they choose.

The change since 2004, when Massachusetts pioneered the recognition of gay marriage, is remarkable. Massachusetts’ move ignited a national backlash as other states tumbled over one another to enact legal bans on gay marriage, often by constitutional decree, as quickly as they could.

Though it took two tries in Arizona, these prohibitions passed everywhere they were offered, reaching 30 states in all and handing the marriage-equality movement one of the most impressive losing streaks in American political history.

Marriage traditionalists crowed that the people would never accept a hare-brained idea foisted upon them by homosexual activists and their elitist friends. Rare and brave was the politician who supported gay marriage. Barack Obama opposed it in his 2008 presidential campaign, despite what he promised would be his “fierce advocacy” of gay and lesbian equality.

Yet today gay marriage enjoys solid majority support, a change in popular opinion unforeseen by equality supporters and opponents alike. In a country where public opinion on controversial social issues usu- 1

26 Briefing Gay people's rights changes slowly (not until the mid-1990s did more than half of Americans approve of interracial marriage, according to Gallup, a pollster), one is hard pressed to think of any precedent.

Public policy has swung just as sharply.

In 2012, after Mr Obama renounced his own opposition, gay marriage was approved by plebiscite in three states, and the one attempt to ban it failed. After the Supreme Court ordered the federal government to recognise these marriages in 2013, a series of lower-court decisions brought gay marriage to state after state like a string of firecrackers. No one doubts that, in due course, the entire country will join them.

Opponents, feeling what had seemed like the most stable ground fall away beneath them, are scrambling for ways to change the subject. For homosexual Americans, it is not just a new era. It is a new country.

What happened? Social change so marked and rapid can come only from a confluence of causes, but the most important was probably a change in moral judgment. Moral disapproval underlay not just opposition to same-sex marriage, but also support for the whole panoply of laws and customs that have historically discriminated against gay people. As it waned, support for same-sex marriage waxed. By 2013, nearly 60% had no moral problem with same-sex relations. Given that America, like most places, has viewed homosexuality as wicked since more or less the beginning of time, approval by a wide majority represents a watershed not just in contemporary politics but also in cultural history.

This reversal, even more than sentiment about marriage as such, was the seminal change in public opinion. No anti-gay policy is likely to withstand it.

But why, then, the change in public morality? One reason is demographic replacement: the deaths of anti-gay traditionalists and the emergence of a generation that grew up accepting homosexuality as a normal human variation. Their nonchalance is founded upon broadening acceptance of the proposition that homosexuality, like heterosexuality, is generally innate and not inherently harmful. Yet a third reason, underlying both of the others, is that sexual minorities have emerged from the shadows into full public view.

The fight for civil rights in the 1950s and 1960s broadened American views of social justice. So did the growth of feminism. It was against this background that gay activists started to fight for their rights in the 1970s, creating a climate where more and more gay men and lesbians felt able to take the brave step of coming out. Their unhidden presence was to prove crucial.

In 1985, fewer than 25% of Americans told Gallup they had any friends, relatives or colleagues who were gay (see chart). The proportion rose steadily, to nearly 60%, through most of the 2000s—then it leapt in

The Economist October 11th 2014

2 ally

Well and truly out Do you have any friends, relatives or co-workers who have told you, personally, that they are gay or lesbian? % of Americans replying 80 No

60 40

Yes

20 1985

90

95

2000

05

10 13

0

Source: Gallup

2013 to 75%. The world of 1985 had been turned upside down. Today, it is odd not to have a gay person in your life; and what you know, you are unlikely to hate or fear.

Given this, who would not want her friends and family members to enjoy the comfort and security of matrimony?

On those words, “comfort” and “security”, hangs another tale. In the country’s mind, gay marriage has crossed a line that separates the radical from the restorative.

Over the past several years, the heterosexual public has begun to see same-sex marriage more as gay couples see it, and as the country sees marriage itself: as an effort to protect rather than threaten children, to build rather than erode families, and to support rather than undermine the institution of marriage itself.

Horses and carriages To be sure, not all Americans see same-sex marriage as a pro-family proposition: three out of four white evangelical Protestants remain opposed. So do most conservatives and Republicans, which means some states have majorities against gay marriage. But opposition on the right is softening pretty quickly. Few Republicans run-

And now they have

ning for governor in states that have passed marriage equality laws are promising to overturn them. In America, the emergence of a conservative narrative supporting gay marriage and families is a game-changer. It domesticates, quite literally, what was once seen as a threat.

Precisely the fear of being domesticated led many gay activists, at the time of The Economist’s cover, to support the idea of marriage equality warily, if at all. The author found himself facing much of his most sceptical questioning from gay people of the Stonewall generation: those who experienced first-hand the gay-rights revolution of the 1970s. They were often keener on marriage equality than on marriage itself. “Yes”, they would say, “we should have the right to marry, but that doesn’t mean we should embrace the institution.

Our movement is supposed to be about liberation from stifling sexual and social norms. And why would gay people want to emulate straights for whom marriage is so often a failure or disappointment?”

But gay America, too, has undergone a transformation. Younger gay and lesbian people, if they are lucky enough to have grown up in contentedly married households, want the same for themselves and their children. Older gay men remember lacking the social and legal protections of marriage while caring for sick and dying partners during the AIDS plague, when it was common for caregivers to be excluded from the hospital rooms of those they had tended lovingly through years of suffering and decline. Gay people, ironically, have done exactly what religious conservatives long begged them to do: they have embraced “family values”.

And so same-sex marriage, not long ago the most divisive social topic in the country, is becoming a meeting-ground instead.

Indeed, even the gay-straight dichotomy, so long defined by antipodal identities and oppositional politics, is being blurred. Gay men and lesbians are becoming just another tile in the mosaic.

This is not to say that the culture war is over, or that same-sex marriage enjoys universal acclaim. Neither is true. Religious orthodoxies about homosexuality and marriage are slow to change (though most Catholics support same-sex marriage). The scales have tipped, however. Increasingly, equality’s opponents are the ones who seem antisocial and out of touch. None of this could have been remotely foreseen those short 18 years ago.

A bit longer ago, in the late 1960s, a young American boy came to a jarring realisation. “I am sitting at the piano daydreaming one afternoon, and it occurs to me that I will never get married,” he wrote in a later book. “So baldly clear is this realisation that I might as well be acknowledging that I will never have eight legs and spin a web.” This was a discovery at first 1

The Economist October 11th 2014 merely puzzling, but later, with adolescence and then into early adulthood, sickening. It pointed ahead to a life in which furtive sex and fleeting assignations might be attainable, but the enduring security and companionship of marriage would be forever out of reach. No wonder he fought desperately, for many years, to deny his knowledge that he might be gay.

Neither as a child in the 1960s nor as an Economist writer in 1996 did that boy ever expect that he would stand before a public magistrate in Washington, DC and marry the man he loved.

Briefing Gay people's rights 27 At the public celebration of his marriage, in the presence of his husband and family and friends, he recited two vows.

The first was the promise that newlyweds through the ages have made to each other: To have and to hold from this day forward.

The other was a promise that a band of men made long ago, pledging their lives, their fortunes and their sacred honour to a proposition: All men are created equal.

Though they could not have imagined same-sex marriage, its advent is a tribute to the revolutionary incrementalism of their liberal idea. 7

Gay people’s rights

Tainting love BRUSSELS, DELHI, HANOI, KAMPALA AND MOSCOW

In many places attacking the rights of gay people can still be politically useful and popular N THE argot of human rights, LGBT means lesbian, gay, bisexual, transgender—a catch-all term for sexual minorities.

But Yahya Jammeh, president of Gambia for 20 years, has a different reading. “As far as I am concerned,” he thundered during a televised speech in February, “LGBT can only stand for leprosy, gonorrhoea, bacteria and tuberculosis.” He compared gay people to vermin, and said his government would fight them as it does malaria-bearing mosquitoes, “if not more aggressively”.

Gay sex is illegal in Gambia, as it is in 37 of Africa’s 54 countries. Documented evidence of a criminal homosexual conspiracy to poison Gambian culture remains elusive. But politicians remain vigilant: in August the government brought in fresh anti-gay legislation. A few weeks later ministers in Chad approved a bill mandating prison sentences of 15 to 20 years for gay

I

sex. Across Africa, and elsewhere in the world, politicians have found gay people a useful scapegoat to distract from corruption or other domestic problems, to shore up conservative constituencies, or to steal a march on political rivals.

The best-known example is Uganda. In 2009 David Bahati, an MP, introduced a bill which would have imposed the death penalty in cases of “aggravated homosexuality”, a term that covers gay sex with people under 18 and people with disabilities or HIV. There was a furious response from international human-rights groups and some governments. The bill lost its harshest provisions, including the death penalty. In February, after some apparent hesitation, Yoweri Museveni, Uganda’s long-standing president, signed the bill into law. He accused Uganda’s critics ofacting like latter-day colonialists seeking to

impose their values on Africa.

Similar rhetoric had been heard two months earlier when Goodluck Jonathan, the president of Nigeria, signed a bill outlawing displays of same-sex affection, banning groups devoted to gay people’s rights and introducing 14-year prison sentences for anyone entering into a gay marriage or other contractual union. As in Uganda and Gambia, Nigeria already had a law on the books prohibiting gay sex. To the extent that Nigerian gay activists had a legislative agenda, it did not include gay marriage.

The UN human-rights chief said of the Nigerian bill that she had rarely seen a law that “in so few paragraphs directly violates so many basic, universal human rights.”

Russia has also been targeting gay people. In 2012 Vitaly Milonov, a legislator in St Petersburg, spearheaded the city’s adoption of a law banning homosexual “propaganda” to minors. In June 2013 the Duma passed its own version, making “propaganda” about “non-traditional sexual relationships” a crime. Russia’s president, Vladimir Putin, finds gay-bashing politically appealing. It runs together various favoured themes: that the West is a corrupting influence best rejected; that tolerance and liberalism are alien to traditional Russian values; that the Orthodox church should be given a more prominent role.

Politics also drove Mr Museveni’s decision to sign Uganda’s Anti-Homosexuality Act. Mr Museveni is a wily operator who has occupied the presidency since 1986; he had not previously found it necessary to tighten Uganda’s anti-gay provisions. But facing a re-election bid in 2016, he chose to ride the homophobic wave his allies in parliament had created for their own purposes. Mr Jonathan, meanwhile, is up for re-election next year and has encountered a crisis of confidence over his handling of the Islamists of Boko Haram and his poor domestic record; attacking gay people was a distraction, and one that Nigeria’s Muslims and Christians, often daggers drawn, would both support.

An enemy within can be handy for all sorts of leaders, and often more or less any old enemy will do. Some leaders’ anti-gay language has a conspiratorial tone that feels borrowed from the anti-Semitic diatribes of another time: gay people are portrayed as in thrall to alien values and particularly dangerous to children. Recent developments in the West also create exotic targets against which divisive leaders can define themselves without taking on any particularly powerful enemy at home.

Nigeria’s law would surely not have taken its current form had gay marriage not made such remarkable advances in Europe and America.

None of this would work if there were not deep wells of homophobia to draw on.

Over 95% of Ugandans and Nigerians disapprove of homosexuality. Four-fifths of1

28 Briefing Gay people's rights

The Economist October 11th 2014

2 Russians say that they have no gay ac-

quaintances (though many may be wrong to say so). Such numbers say little about the intensity of anti-gay feeling in each country. They are certainly not evidence of a clamour for legislative attacks on homosexuals; activists often point out that gay people in places like Nigeria were able to lead relatively untroubled, if intensely private, lives before they became political targets. But the feelings they represent offer an opportunity for politicians seeking a quick populist win.

Some argue that the colonial provenance of anti-gay laws, in Africa and elsewhere, shows that these feelings have little genuine cultural basis. Imperial British authorities were certainly not slow to impose such laws on the lands they occupied, and they were often imported directly from home; in several former British colonies such provisions are numbered 377 in the legal code, indicating their common source.

Attitudes in some former British colonies in the Caribbean are particularly distressing; in Jamaica vigilantes harass gay people as police look the other way. The prime minister, Portia Simpson-Miller, has defended gay people and pledged a parliamentary vote of conscience on the country’s 19th-century “buggery law”, although this has not taken place.

It’s a sin To see the colonial legacy as the root of the problem, though, is to go too far. It underrates the energy that post-colonial governments have put into keeping these laws on the books, or adding to them. Governments have not been shy about amending other colonial-era laws they see as no longer needed.

A more contemporary and pernicious Western influence is that of conservative American evangelists who export their anti-gay message to places where it may meet more receptive ears, along with money that makes it all the more attractive. In

Uganda’s case, they appear directly to have influenced the drafting of legislation.

Whether domestic or imported, religion matters. A survey of 39 countries by the Pew Research Centre last year found a strong correlation between a country’s tolerance for homosexuality and its religiosity. African and Middle Eastern nations are the least tolerant; in several Muslim countries homosexuality is a capital crime. Russia, a relatively godless place, is an exception to the rule.

So, increasingly, is America, though in the opposite direction; it is more tolerant than its levels of religious belief would predict. The greatest exception along those lines is Brazil, where attitudes are broadly tolerant and, as in Argentina and parts of Mexico, gay marriage is now legal. Homophobic violence, though, remains a problem.

None of the new laws seems to have been vigorously enforced. But the climate of hostility and fear their passage generates can make life unpleasant for gay men and women, and their mere existence presents opportunities for extortion and blackmail. In 2011 David Kato, a prominent Ugandan campaigner for gay people’s rights, was murdered after a tabloid newspaper published his picture, along with those of 99 other homosexuals, under the headline “Hang them!” Homophobic attacks rose tenfold in Uganda after the passage of the Anti-Homosexuality Act, according to a local group. Gay people in Nigeria have been set upon by mobs.

The simultaneous advance of gay rights in the developed world and its retreat in some other places throws up difficult dilemmas for the West. When gay people’s rights are respected at home it is hard to justify turning a blind eye to hideous abuses abroad, particularly in countries with budgets propped up by foreign aid. Yet shout too loudly and you become vulnerable to Mr Museveni’s charge of neo-colonialism—and you may jeopardise the safety of

Then and now

Homosexual acts, October 2014 Sources: Jingshu Zhu; ILGA; The Economist

Already legal in 1966 Banned in 1966, now legal

Banned in 1966, still banned Banned since 1966

the men and women you seek to help.

America has taken the most hawkish approach. In 2011 Barack Obama’s administration issued a memo formally integrating the promotion of gay people’s rights into its diplomacy, including in this the setting of foreign-aid policy. After the Ugandan law was passed America cancelled joint military drills, cut aid and applied travel bans. Some other Western countries followed suit, as did the World Bank. The hard line triggered harsh reactions in some African countries. The European Union has taken a softer approach, finding it more productive to work the phones, exert quiet influence and avoid celebrating victories.

Domino dancing Optimists think that, one way or another, outsiders can make a difference. On August 1st Uganda’s Constitutional Court overturned the Anti-Homosexuality Act, ruling that there was no quorum in the parliament when it passed the bill in December 2013. What drove the decision—an unusually quick one, by the court’s standards—remains unclear. Anti-gay campaigners accused Mr Museveni of leaning on the court to overturn the law, a few days before he was due to fly, along with dozens of other African leaders, to Washington for an America-Africa summit. If so, it might well be because he faced pressure. Even before the ruling Mr Museveni had begun to waver; in July his government pleaded that the law had been “misinterpreted” by outsiders.

The technical nature of the court’s ruling did not quell activists’ jubilation. Campaigners in court cheered and draped themselves in a huge rainbow flag. A few days later a few dozen campaigners held a celebration on the shores of Lake Victoria.

Remarkably, local police provided them with an element of security. Some MPs want to introduce a new anti-gay bill into parliament. Yet this week Mr Museveni appeared to warn against such a move. In a long, eccentric article in a Ugandan news weekly, he suggested that a new law could endanger Uganda’s trade relationships because “the homosexual lobby can intimidate potential buyers”.

If outside pressure had some effect on Mr Museveni—he says it did not—it does not mean it will work more widely. Long a “donor darling”, and more recently a military partner of the United States, Uganda has strong links with Western governments. European and American officials were in constant contact with Mr Museveni’s government behind the scenes after the law was passed; the public pressure brought to bear on Uganda was only half the story. Nigeria, a far larger economy with less dependence on aid, is a different case. And as for Russia, Western attacks only play into Mr Putin’s hands. Campaigners found it more useful to run a ce- 1

The Economist October 11th 2014

There is a market for this 2 lebrity-led pro-gay campaign around the

Sochi Winter Olympics earlier this year than to attack the country’s laws head-on.

Moreover, says Kevin Watkins, head of the Overseas Development Institute, a London-based think-tank, even in countries that do receive aid, “conditionality”— tying funds to particular policies—tends not to work. He and others point out that advancing gay people’s rights has always been a domestic civil-rights phenomenon.

Rather than withholding aid, they argue, better for Westerners to support grassroots organisations which agitate for change.

Left to their own devices Well-known international human-rights groups devote as much attention to the quiet cultivation of links with local activists as they do to public denunciations of laws they disagree with. The advance of democracy can help insofar as it creates space for civil-society groups and strengthens independent institutions like judiciaries; but democracy can also facilitate demagoguery. One observer points out that anti-gay bills have failed to get far in Ethiopia and Rwanda, two authoritarian states, while becoming law in the messy semi-democracies of Nigeria and Uganda.

Westerners can help in other ways, too.

Asylum courts have not always taken the most enlightened approach to applications from gay people. In recent years European and British judges have ruled that sexual orientation may be considered a ground for asylum if the applicant can demonstrate a convincing fear of persecution. This is not always easy in countries where suppressing one’s sexuality may be the only way to guarantee personal safety.

The other way in which people in the West might make a difference is available only to a few—gay celebrities who obscure this aspect of their lives. With popular culture ever more global, an increase in the

Briefing Gay people's rights 29 number of openly gay football heroes or Hollywood stars could have an effect. The dearth of such figures suggests that, for all the progress that has been made in respecting the rights of gay people in the rich world, there is still a worry that in some careers being openly gay will not work. The wells of homophobia on which populist politicians can draw in Africa and elsewhere seem not to have dried up quite as much as people might like to believe.

There are large parts of the world where the rights of gay people are not, at present, a political punchbag. China is not a particularly gay-friendly place; until 1997 homosexuality was illegal, and until 2001 it was officially considered a mental illness. Yet the issue has not been heavily politicised, and in cities gay life is far easier than it was.

A court recently heard a case brought by activists against a clinic that offered “gay-conversion” therapy. In Hunan province a 19year-old caused a stir when he challenged the provincial authority’s decision not to allow him to register an organisation devoted to gay people’s rights.

In India the past decade has brought considerable change. The first national magazine for gay people, Pink Pages, was launched in 2009. Gay-pride marches, if not necessarily very large ones, are a common sight in big cities. Bollywood has produced sympathetic films.

Yet even if it is becoming slightly easier among India’s elite to be openly gay, almost no one in public life dares declare it.

And the legal position for homosexuals is in flux. In July 2009 a high court ruled that the ban on “carnal intercourse against the order of nature” in the penal code violated India’s constitution, a ruling which in effect decriminalised gay sex. In December 2013 two Supreme Court judges overturned the ruling. They said that parliament could pass a law to legalise gay sex; at the moment, that looks unlikely. Other straws in the wind suggest that India’s laws could become less gay-friendly. Adoption by gay parents is not banned (adoption rules make no reference to sexuality), but on August 6th the national cabinet reportedly decided to block it, perhaps because of pressure from Hindu nationalist groups.

Across South-East Asia, meanwhile, tolerance varies markedly.

Religion is partly behind that: homosexuality is legal in Indonesia except for Aceh, a conservative Muslim state.

In Brunei, which has begun to implement a sharia-based penal code, “sodomy” is punishable by stoning to death. Malaysia and Singapore both retain colonial-era prohibitions on sex between men, though with vary-

ing degrees of punishment: fines, imprisonment for up to 20 years and whipping in Malaysia; imprisonment for up to two years in Singapore.

Though poor, conservative and the possessor of a shameful record on human rights more generally, Vietnam offers a counter-example. Hanoi, the capital, has hosted gay-pride parades since 2012. Bills to legalise same-sex marriage nearly passed this year in both Vietnam and Thailand, which has long been far more tolerant of transgender people than the West has. Singapore offers an example of another sort. Though gay men remain in a precarious legal position, the country’s gaypride event, Pink Dot, has grown in each of its six years of existence: this June it drew a record crowd of 26,000.

As the South-East Asian experience demonstrates, a country’s laws on homosexuality do not always predict the degree of freedom granted to gay men and women. Cameroon has passed no anti-gay legislation in recent years, and has thus largely escaped the opprobrium of Western governments and campaigners. But it prosecutes the laws on its books with particular vigour: arrests have been made on the basis of text messages and clothing choices.

Love comes quickly In most Western countries it was only after other social battles had been won that gay people began to be tolerated and their legal rights secured. And some Westerners have already forgotten how recently those changes came about. Less than 50 years ago gay sex, let alone marriage, was illegal over broad swathes of the now comparatively enlightened world (see map on previous page). It was only ten years ago that America’s Republicans made use of votes on gay marriage to help them win elections by rousing social conservatives (some Democrats now do the same thing in the opposite direction).

In the end gay people in the developing world will probably win their rights as they did in the West. Civilsociety organisations, enlightened political and judicial leadership, and the advance of the liberal idea that the state has no business regulating the harmless activities of adults will all play a role. Most powerful, though, is likely to be people’s discovery that they have perfectly decent gay friends, neighbours, even relatives. The most pernicious thing about institutionalised homophobia and legal repression is that they make this realisation so hard. Once the wall begins to crack, though, it can quickly come tumbling down. 7

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The Economist October 11th 2014 31

United States

Also in this section 32 Republicans get out the vote 34 Democrats fight back in Michigan 34 Leon Panetta’s scathing memoirs 35 The rise of wedding insurance 35 Beards in prison 36 Lexington: The Ebola alarmists

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

The race for the Senate: Colorado

High, tolerant and Republican?

DENVER

In a state that smiles on pot and same-sex marriage, Democrats are in trouble

R

ECREATIONAL pot is legal in Colorado.

So, from this week, is gay marriage. So you might think liberals would find it easy to win elections here. Yet Barack Obama is so unpopular in Colorado that when Mark Udall, a Democratic senator fighting for reelection, skipped one of his own fundraisers at the last minute, everyone assumed it was because Mr Obama was to headline it.

This is quite a turnaround. Like several Democrats in swing states, Mr Udall was first elected to the Senate on Mr Obama’s

Seats that might flip US senate Seat State held by Montana D West Virginia D South Dakota D Michigan D Louisiana D Alaska D New Hampshire D Arkansas D North Carolina D Iowa D Colorado D Kansas R Kentucky R Georgia R

Average poll lead, % points (to Oct 7th) R 20.5 R 17.0 R 13.0 D 7.8 R 5.6* R 4.7 D 4.6 R 3.7 D 3.7 R 1.3 R 0.6 I 5.0§ R 4.0 R 3.2

*In an expected run-off election §Independent Source: RealClearPolitics.com

Interactive: Explore our map & guide to the 2014 mid-terms senate races Economist.com/midterms14

coat-tails in 2008. Now, like practically every vulnerable Democrat, he is trying to distance himself from the president— something footage ofthe two men hugging might have made trickier.

The Republican Senate candidate in Colorado, a young, charismatic congressman with a Mona Lisa smile called Cory Gardner, calls Mr Udall a rubber stamp for Mr Obama. Mr Udall calls Mr Gardner “extreme” (and indeed, in 2012 he was named as one of the most conservative members of the House of Representatives). But Mr Gardner has run a strong campaign in a state that has moved leftward in recent years, as more young people and Latinos have moved in. With less than a month to go, the race is a dead heat. Ifit flips, so, probably, will the Senate (see chart).

The Rocky Mountain State wasn’t always swing territory. Before Mr Obama, no Democratic presidential candidate except Bill Clinton had carried it since 1964. But in recent years a Democratic state legislature has pushed through a series of liberal bills, for example to enforce background checks for gun-owners and allow in-state college tuition for illegal immigrants. Progressives in college towns such as Boulder applaud, but conservatives in other parts of Colorado are fed up.

“There’s no big issue in this race,” says Floyd Ciruli, an independent pollster. “It’s become entirely about accusing people of being extremists or puppets of Obama.”

Mr Udall has tried to rally female voters by

accusing Mr Gardner of being a footsoldier in the so-called Republican “war on women”. About half of Mr Udall’s TV spots have focused on abortion and contraception. A voice-over in one said Mr Gardner had sponsored a bill to “make abortion a felony, including in cases of rape and incest” and had “championed an eight-year crusade to outlaw birth control”.

The ad was referring to Mr Gardner’s support for a so-called “personhood” ballot measure, which would have endowed fetuses with the same rights as people from the moment of conception. No state has ever passed such a measure—Colorado rejected it by 71% to 29%. And were such a law to pass, it would quickly be struck down by the courts. But critics say that, if “personhood” became law, it might make contraceptives such as intra-uterine devices illegal, because they could prevent the implantation of a fertilised egg.

Inconstant Gardner In March Mr Gardner announced he had changed his mind; he said he hadn’t realised the “personhood” measure would restrict access to contraception, telling the Denver Post: “I don’t get everything right the first time.” Mr Gardner then announced in June that he favoured allowing birth-control pills to be sold without a prescription. Republicans in several states have aired the same proposal. They say it would make it easier for women to obtain contraception, and would lower the overall cost, since it would not involve a trip to a doctor. Democrats retort that since many insurance policies do not cover over-thecounter drugs, the cost borne by the women themselves would rise.

Mr Gardner’s political jujitsu seems to 1 Ward Award: Rosemarie Ward, our New York correspondent, has won a Front Page Award from the Newswomen’s Club of New York for her report on the riots in Ferguson, Missouri (“Overkill”, August 23rd).

32 United States 2 have made an impression on voters. He

scares moderate voters far less than Ken Buck, the Republican Senate candidate in 2010, who called homosexuality “a choice” and asked voters to back him because he didn’t wear “high heels”. Some voters, moreover, think Mr Udall focuses too single-mindedly on reproductive rights, and have cruelly dubbed him “Mark Uterus”.

Critics say Mr Udall’s negative campaign reflects his lack of accomplishments.

He comes from an old political family: his father ran for president in 1976, and his cousin is a US senator from New Mexico.

But “the problem is that Udall just hasn’t done a whole lot,” says Mr Ciruli, the pollster. This is not fair. He is the best golfer in Congress. He is also a reliable eco-warrior, voted against the Patriot Act because of his belief in privacy and battled with the NSA

The Economist October 11th 2014 over its spying on Americans. On the campaign trail he stresses his love of civil liberties and independence from Mr Obama.

Mr Udall is not the only Democrat in Colorado who is struggling to stay in office.

Governor John Hickenlooper finds himself in an equally tight race against Bob Beauprez, a former dairy farmer and congressman. In recent years Mr Hickenlooper, a former mayor of Denver, has struggled with a lefty legislature, working behind the scenes to temper some measures, but failing to veto much. He has alienated his base, who see him as too moderate, and upset moderates, who see him as too liberal, says Eric Sondermann, a political analyst. “There is a cumulative sense in Colorado that the Democrats pushed their agenda too far in the legislature. Now they are paying the price.” 7

The ground game

Expanding the universe ATLANTA AND STATESBORO

Republicans say their get-out-the-vote machine is catching up with the Democrats

B

ARACK OBAMA sits in the Oval Office because “a whole bunch of folks who never voted before showed up” in 2008 and 2012, Michelle Obama told Georgia Democrats in September. At mid-term elections, however, when the president is not on the ballot, many people who usually vote Democratic—single women, young people and non-whites—stay at home. Mrs Obama urged her audience in Atlanta to cajole relatives, neighbours and friends from church to turn out in November.

The First Lady was not in Georgia by chance. The state, which has seen an influx of middle-class blacks and Hispanic immigrants, is now only narrowly majoritywhite. With close races for senator and governor, it is becoming a swing state. So it is a good place to observe both parties’ getout-the-vote efforts.

The two parties claim to have opened many more field offices than usual, months earlier than usual. Both claim to be applying the latest data-wizardry to an oldschool task: sending real people to phone and knock on the doors of folks like themselves. Both are trying to narrow their focus still further, seeking out likely supporters who need a nudge to cast a ballot.

Go back a decade and Republicans were the technical whizzes, pioneering “micro-targeting”, or the precision wooing of sub-groups of voters. In 2008 and 2012 Team Obama took the lead, creating vast data-troves and the tools to mine them. In 2014 Republicans insist they have caught up again. An unannounced visit to one of

their 17 Georgia “Victory Centres”, or field offices, in the conservative town of Statesboro, is at first underwhelming. A single paid staffer, Natalie Jones, is at work in an office next to a tanning salon. But several volunteers are not far away, outside a nearby college football game. The Statesboro office opened in October 2013, and since about Easter has focused on identifying promising voters, recently “cranking out” about 5,000 phone calls a week. Other tasks include weekly voter-registration drives at the local university, Georgia Southern; pizza parties for students and

weekend door-knocking drives. In a state used to short, three-month campaigns, “We’re very much creating a culture shock down here,” says Ms Jones.

Republican canvassers first ask voters a filtering question: what do they think of Obamacare? “There are some Democrats who really don’t like Obamacare. That tells us they might be persuadable,” explains Ryan Mahoney, a spokesman for the Georgia Republican Party. Voters are then asked what they think of the main contests in the state, and whether they want an absentee ballot or plan to vote early. When canvassers are walking door-to-door, guided by a smartphone app, they can sync voters’ answers to a party database with one touch.

Georgia Republicans freely admit that they are copying Team Obama’s innovations. Until recently, they did not even know when registered Republicans moved in from out-of-state. The state party now has a full-time data director, charged with trawling publicly available records for such clues as which TV shows people watch, or whether they subscribe to gun magazines. Efforts used to centre on chivvying known supporters to the polls. Now the goal is tracking down new allies and “trying to expand the turnout universe”—a phrase that Obama folk have been using for years. Canvassers are told to record if the husband in a home is a “hard Republican” vote, needing less attention, but his wife is a “low-propensity” voter needing a nudge to pull the right lever.

Bosses at the Georgia Democratic Party’s campaign HQ in Atlanta are cagier about sharing their working methods. Nationally, much has been made of the Bannock Street Project, a $60m effort to register and mobilise voters in ten states where Democrats are trying to defend or win Senate seats. Tracey Lewis, the co-ordinated campaign director, will say only that her organisation is the “most robust” in Georgia history: more than 6,000 volunteers have taken part since January. Democrats are fielding three times as many paid staff as in 2010, she adds, though she will not share an actual headcount.

Georgia politics will be more durably marked by a struggle taking place outside the two state party machines. It concerns efforts to register some of an estimated 800,000 non-white citizens now missing from the Georgia electoral roll. Groups led by the New Georgia Project (NGP), a nonprofit outfit founded by Stacey Abrams, a rising star of state Democratic politics, have submitted nearly 90,000 new voter applications. Republican electoral officials flagged up about 50 suspect ones and vowed to weed out phoney voters. Tens of thousands of applications are currently awaiting validation. Republicans insist they have a legal duty to watch for fraud.

Many Democrats smell an attempt at voter suppression. 7

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34 United States

The Economist October 11th 2014

Michigan’s Senate race

Of ballots and bail-outs DEARBORN

Taxpayers save the car industry; voters thank Democrats

J

OE’S Top Dog Coney Island & Bar, a hotdog joint in Dearborn, is popular with workers at the nearby Ford plant. Each Friday Joe’s offers a 25% discount to Ford employees who present a work badge or business card. Joe Bojovic, its owner, says the only reason he is still open is because of the bail-out of two of Detroit’s big three carmakers in 2009. Although Ford did not receive any federal money, it benefited all the same. Steve Rattner, who led the White House’s auto task-force, argued that without it Ford would have closed. “It was a big deal,” remembers Mr Bojovic. At the time he thought “we would lose our employees, won’t be able to afford them. We won’t survive. Absolutely not.”

Michigan’s Senate seat ought to have been a chance for Republicans. The state already has a Republican governor, and the retirement of Carl Levin, a senator since 1979, deprives the Democrats of the advantages of incumbency. Yet the Republican candidate is eight points down in the polls and some in her party fret that money

The congressman from Chrysler....

...and the invisible candidate

spent backing her will be wasted.

Part of the explanation lies in the aftershocks of the bail-out which, five years on, is still an issue with plenty of mustard.

Gary Peters, a Democratic congressman representing a mostly black district in and around Detroit, is running for the state’s open Senate seat. Mr Peters was so enthusiastic about the bail-out that he was dubbed the congressman from Chrysler.

An affable, somewhat wonkish fellow, he is a former executive at Merrill Lynch

and sharpshooter in the navy reserves. He recently stopped in at Joe’s to speak to car workers. “I don’t know how you can be running for the US Senate and say you would not have supported the numberone industry in your state,” said Mr Peters, his shirtsleeves rolled up. This was a dig at his Republican opponent Terri Lynn Land, Michigan’s former secretary of state, who until recently suggested she would not have backed the bail-out. Ms Land has reversed this stance and now says she would have supported it.

It has been difficult for voters to get a read on Ms Land. According to John Truscott, a Republican political consultant, “She had a really good record as Michigan’s secretary of state, but is not running on it.” (She streamlined and digitised the offices that issue Michiganders with such things as car licences.) She has mostly avoided reporters and has a skimpy schedule of events: US News & World Report has called her “the invisible Senate candidate”.

Instead Ms Land is making her pitch through billboards—85 of which were recently unveiled in Flint, Grand Rapids and in and around Detroit—and TV advertising.

The message from both sides has been relentlessly negative. Conservative groups have attacked Mr Peters for supporting Obamacare (which is true) and outsourcing jobs (not true, but while he was lottery commissioner, he ordered some pencils from China). The Democratic Senatorial Campaign Committee accuses Ms Land of opposing equal pay for women (not true, but she did oppose a law that would encourage more equal-pay lawsuits). Outside groups have aired commercials linking Ms Land with the Koch brothers, a pair of industrialists whom those on the left blame for much of what is wrong with America.

A political advert runs on TV in Michigan every two minutes; for many locals, polling day cannot come soon enough. 7

Leon Panetta’s memoirs

The stings of Leon WASHINGTON, DC

A former defence chief tells all

B

ARACK OBAMA worries a lot about the unintended consequences of action by America, the last superpower.

Yet there is a flip-side to that doctrine, as a former top official makes clear in a new memoir: inaction can leave a vacuum.

In “Worthy Fights”, Leon Panetta, who served Mr Obama as CIA chief from 2009-11 and as defence secretary from 2011-13, describes a “supremely intelligent” president who nonetheless did real harm by vacillating and withholding his full support when it was needed.

Mr Panetta, who is 76, is not the first Obama hand to write a tough memoir.

But his account will sting. As a chief of staff to President Bill Clinton, he writes wistfully of his old boss’s willingness to endure political pain to do big deals.

Three failures stand out in Mr Panetta’s account. Controlling Obama aides left him “frustratingly alone” as he tried to defend the Pentagon’s budget from indiscriminate cuts imposed by a feckless Congress. Second, without Mr Obama’s

“active advocacy”, a deal to leave a troop presence in Iraq was allowed to “slip away”, though—Mr Panetta believes— American advisers could have helped Iraqi commanders fight the rise of the Islamic State. Finally, Mr Panetta echoes, from the inside, a criticism levelled by foreign powers: that Mr Obama harmed American credibility by failing to enforce a “red line” against the use of chemical weapons by the Assad regime in Syria.

The problem is not a lack of intellect, Mr Panetta concludes, but of “fire”. Mr Obama—perhaps because he has endured unprecedented attacks on his legitimacy, with opponents questioning his very birthplace—is “reticent” about engaging foes and rallying friends. He too often relies “on the logic of a law professor rather than the passion of a leader”.

Washington commentators have called Mr Panetta disloyal. That is missing the point. Mr Obama has two years in which to change. Mr Panetta is trying to tell him how to.

The Economist October 11th 2014

United States 35

Wedding insurance

Prenuptial protection

Religious liberty

With all my worldly goods I thee endow Average cost of a wedding*

$’000, adjusted for inflation

35 30

WASHINGTON, DC

Underwriters are becoming as much a part of the big day as cake and flowers

25

J

UST as each wedding creates potential business for divorce lawyers, so each engagement gives insurers a chance to drum up business. Future spouses, says Alan Tuvin of Travelers, an insurer, may wish to protect themselves against something going wrong on the wedding day. It is unlikely that your betrothed will scarper on horseback, as Julia Roberts did in “Runaway Bride”, and most insurers wouldn’t cover that anyway. But you never know what might happen. Mr Tuvin launched the firm’s wedding-insurance business; he and his wife were its first clients.

A typical American wedding costs $25,000 or so. This has fallen a bit over the past quarter-century but still seems lavish given how tight American belts are these days (see chart). Weddings are pricey because the rich are more likely to marry than the poor, and the average age of newlyweds has gone up, so couples are more prosperous when they eventually tie the knot. High prices, and the fact that many venues require couples to take out liability insurance, feed demand for wedding insurance. A fifth ofcouples buy it, says the Wedding Report, a trade publication. “If some fat lady slips on a canapé and breaks her hip, she doesn’t give a rat’s ass that this is her boyfriend’s cousin’s wedding,” hypothesises Robert Nuccio of Wedsure, an insurer. “She just wants to get paid.”

Wedding insurance began in Britain: Cornhill, an insurer, wrote its first policy in

Sorry, your policy doesn’t cover cold feet

20 1990

95

2000

Source: The Wedding Report

05

10

13

*Excludes honeymoon

1988. But there were few takers. The idea only took off once transplanted to America. In the early days, says Mr Nuccio, there were incidents of couples faking engagements to collect a payout. Since then, most policies have a clause that excludes “change of heart”. Wedsure does insure against cold feet, but its policy will pay out only if the wedding is cancelled more than 12 months before it is due to take place, thereby guarding against fiancés (or their parents) phoning the broker once the relationship is already on the rocks.

This does not mean policies are useless.

Common causes of payouts include the venue or caterers going bust after having taken a big deposit. Extreme weather, a spouse being deployed by the armed forces and an absent priest can all trigger payouts. Most policies will pay to re-stage the photos if the snapper fails to turn up or disappears with the pictures. “DJs are flaky.

Florists? Flaky. Cakemakers? Flaky. They are all flaky as hell,” warns Mr Nuccio.

For some, even a small risk of something going wrong on a day that has been planned for months is worth paying to avoid. Who says romance is dead? 7

Beards behind bars WASHINGTON, DC

A Muslim inmate demands follicular freedom

O

N OCTOBER 7th the Supreme Court heard its first religious-liberty case since recognising, in June, the right of some pious employers not to pay for some types of birth control for their staff. This time, in Holt v Hobbs, the aggrieved party is Gregory Holt, a Muslim inmate in Arkansas who says his faith requires him to wear a half-inch beard. Arkansas forbids this, arguing that a beard could be used to hide drugs, blades or telephone SIM cards.

Mr Holt, who was jailed for breaking into his ex-girlfriend’s house and slitting her throat, says he is in a “state of war” with the prison barber. He argues that the ban on beards violates his rights under a law that says prisons may only impinge on inmates’ religious lives if there is a “compelling governmental interest” at stake and they use the “least restrictive means” of pursuing it. He notes that Arkansas allows quarter-inch beards for inmates with skin conditions, and that 43 other states allow them for all prisoners.

At the oral argument, the justices groped for a legal principle that would save them from approaching “these cases half-inch by half-inch”, as Justice Antonin Scalia put it. Douglas Laycock of the University of Virginia, arguing for Mr Holt, proposed that prison rules deserve more deference if they are “well-considered”. The justices seemed unconvinced by those of Arkansas. “[W]hy can’t the prison just give the inmate a comb...If there’s a SIM card in there or...a tiny revolver”, Justice Samuel Alito hammed, “it’ll fall out.”

Back in 1999, when Mr Alito was a mere circuit judge, he ruled that Newark could not bar two Muslim police officers from growing pious beards. On Tuesday he was no friendlier to the Arkansas contention that shifting facial-hair patterns make inmates unrecognisable to prison officials.

When the state’s lawyer, David Curran, warned that a bearded inmate “could get into the barracks where he is not supposed to be” after working out in the fields, Mr Alito was merciless: “While he’s out there, he shaves, then he wants to come back and go into barracks B. And how’s he going to get into barracks B if he has an ID that says barracks A? Now you say he’s going to trade with another prisoner? Then he will have a different picture on the ID...they’re going to alter the IDs also while they’re out there in the fields?” Mr Curran replied: “Prisoners are capable ofdoing a lot of mischief.” A ruling is expected by June. 7

36 United States

The Economist October 11th 2014

Lexington The Ebola alarmists Stoking panic will not help America fight Ebola

I

N THE crowded field of Ebola alarmists, Rand Paul of Kentucky stands out. Before he was a Republican senator with presidential ambitions, he was an eye doctor. Apparently the Hippocratic oath does not cover panic-mongering: Dr Paul has popped up on talk-radio shows, alleging that when Barack Obama or his scientists say that Ebola is rather hard to catch, they are fibbing. Or, as he puts it, they are downplaying the risk that Ebola might spread across America for reasons of “political correctness”. Ebola is “incredibly transmissible”, Dr Paul has asserted, talking of doctors falling sick even after they suited up and took “every precaution”.

No one is denying that Ebola is a huge problem in Africa, nor that it would be a disaster were it to reach and spread through the slums of say, Mumbai. But rich nations have the resources to contain it if it reaches their shores. America has so far seen one case: a Liberian man who died on October 8th. Although a Texan hospital at first missed his symptoms, he was subsequently isolated and is not yet known to have infected anyone else.

Also on October 8th, the federal government announced that passengers from West Africa would be screened for Ebola at five American airports. Many politicians are demanding more drastic measures. Dr Paul is one of several to ask why flights from Ebolastricken African countries to America continue at all. Governor Bobby Jindal of Louisiana says planes must be grounded “to protect our people”. Senator Ted Cruz of Texas contrasts Mr Obama’s willingness to let airlines serve West Africa with July’s “highly suspicious” decision by the Federal Aviation Authority (FAA) to halt American flights into Israel after a rocket fell near that country’s main airport, just as the government was—Mr Cruz growls— pressing Israel to grant concessions to Hamas. Many candidates have urged Ebola travel bans. Few mention that most routes from Africa to America require transfers in Europe, making it hard to stop them without closing the Atlantic (see page 70).

Dr Paul is, to date, alone in suggesting that—in deploying troops to Africa to build field hospitals—Mr Obama may be sending them to a horror-movie death. We all know how diarrhoea spreads on cruise ships, he has said: “Can you imagine if a whole shipful of our soldiers catch Ebola?”

Government doctors are working to calm the public, notably Tom Frieden, head of the Centres for Disease Control and Preven-

tion, and Anthony Fauci, boss of the infectious diseases arm of the National Institutes of Health. The pair have spent hours on TV, enduring hosts shouting about “hot zones”, or enquiring whether terrorists might use Ebola. (It would be an “inefficient” bio-weapon, Dr Fauci mildly replied, adding that the virus’s evolution in nature is far scarier.) Repeatedly the pair have explained why quarantining West Africa would be unwise. It would weaken governments, hobble aid, trap Americans and spur travellers to move in roundabout ways that make them harder to track.

To be fair, Democrats have also played virus-politics. The first Ebola attack ad ran in August, as Senator Mark Pryor of Arkansas accused his Republican opponent, Tom Cotton, of voting against a pandemic-prevention bill (neglecting to mention that Mr Cotton later voted for a different version of the same bill). Democrats have linked the Ebola crisis to the sequester, across-the-board federal spending cuts which reduced public-health funds and overseas aid. True, Congress has spent years messing up science funding, but that is not why Ebola exploded in Africa. Indeed, America has poured billions of dollars into pandemic preparedness since the 2005 Asian outbreakofH5N1avian flu. The country is “dramatically better-prepared than it was”, says Michael Leavitt, George W. Bush’s health secretary during the bird flu scare.

A new poll by the Pew Research Centre shows how tribalism skews trust. With Mr Obama in the White House, Republicans are much more sceptical than Democrats about the government’s ability to prevent a big Ebola outbreak, Pew found. In contrast, in 2005 Republicans were far more confident than Democrats that Mr Bush could control bird flu.

Yet distrust has also mutated like a virus in recent years. America’s debate on Ebola is, or should be, an argument about the best use of the country’s formidable resources. Namely, is it safer to pursue hermetic isolation from the world; or (counter-intuitively) is it less risky for America to fight Ebola with a strategy of controlled openness, leading a global fight to beat the virus at its source, while trusting experts to prevent an American outbreak with painstaking health-checks at airports and hospitals?

That sort ofargument will always expose philosophical differences. Reasonable people will often disagree: some instinctively put their faith in security, others in openness. It is good to ask hard questions about official competence—agents ofstate authority often make mistakes. And there is nothing new about a crisis stoking partisan flames: in 2005 the far left accused Mr Bush of failing to respond properly to Hurricane Katrina because he supposedly did not care about black residents of New Orleans.

Conspiracy theories go viral But the arrival of a nasty virus from Africa has revealed something else. Ambitious politicians are no longer merely attacking the other party, or the president. The starting point for Ebola alarmists is an assumption that behind policy disagreements, conspiracies lurk, with technocrats in on the plot. Dr Paul appears to believe that officials are knowingly lying when they downplay the risk of a pandemic. Mr Cruz breezily suggests that the FAA helped to bully Israel. Louisiana’s governor complains that the government, in arguing that flight bans do more harm than good, wants Americans to heed what he sniffily calls “the experts”.

Some leaders are more responsible. The Republican governor of Texas, Rick Perry, has tried to keep people calm. Few countries are better equipped than America to keep the public safe, he has assured Texans. He is right. It should not need saying. 7

The Economist October 11th 2014 37

The Americas Brazil’s presidential race

Also in this section

Restarting the rollercoaster

38 Bolivia’s election 40 Bello: Divide and bribe For daily analysis and debate on the Americas, visit Economist.com/americas

São Miguel Paulista

The contest is Dilma Rousseff’s to lose, but she is no shoo-in

I

F A clever pundit had taken a bet on the first-round result in Brazil’s presidential contest three months ago, just as the campaign got cracking, the prediction would probably have been spot-on. In the ballot on October 5th the left-wing incumbent, Dilma Rousseff, got 42% of valid votes, eight points more than Aécio Neves of the Party of Brazilian Social Democracy (PSDB), the main centre-right opposition, but not enough to escape a run-off on October 26th. The candidate of the centrist Brazilian Socialist Party (PSB) came third, with a respectable 21%. Now, as then, Ms Rousseff is the favourite to win.

But the race went through amazing twists and turns to end up where it had begun (see chart on next page). Days before the election Mr Neves was polling third,

with the support of less than one in five voters. His status as the putative pretender had been usurped by Marina Silva, who catapulted to the top of the PSB ticket—and to stratospheric poll ratings—after the party’s original candidate, Eduardo Campos, died in an air crash in mid-August.

At the time Mr Neves dismissed Ms Silva’s surge as “a passing wave”. For weeks it kept rolling. Then she got caught between two breakwaters. Mr Neves, a successful former state governor, convinced some voters that she was unprepared to be president. He added that, as a member of the ruling Workers’ Party (PT) for 25 years before she left, Ms Silva was too much like Ms Rousseff to ensure real change. The PT, for its part, embarked on a shamelessly negative campaign. Most damagingly, it alleged,

First-round presidential election results

National result

By state, 2014, % of vote for leading candidate 50% or over Under 50%

Dilma Rousseff

%

Aécio Neves

Marina Silva

Neves 33.6

Rousseff 41.6

RORAIMA

Silva 21.3

Others 3.5

AMAPÁ

RIO GRANDE DO NORTE Fortaleza AMAZONAS

PARÁ

MARANHÃO

CEARÁ PARAÍBA

PIAUÍ

ACRE TOCANTINS

SERGIPE

RONDÔNIA

BAHIA

MATO GROSSO

ALAGOAS

DISTRITO FEDERAL

GOIÁS MATO GROSSO DO SUL

PERNAMBUCO

MINAS GERAIS SÃO PAULO

ESPÍRITO SANTO RIO DE JANEIRO

PARANÁ Dilma Rousseff

Aécio Neves

RIO GRANDE DO SUL

SANTA CATARINA

Source: Valor

falsely, that Ms Silva planned to cut social programmes. With its ample resources, the PT devoted money and airtime to stressing Ms Rousseff’s successes.

Government-approval ratings duly edged up while support for Ms Silva shrivelled. The PSB’s puny war-chest made it hard to fight back. Ms Silva’s rallies failed to draw big crowds. On the eve of the election she toured São Miguel Paulista, a workingclass suburb of São Paulo. A car with an armchair-sized loudspeaker strapped to the roof circled a town square, pepping up passers-by with PSB ditties. When Ms Silva arrived on the scene she was mobbed by two dozen reporters and perhaps 50 flagwaving supporters. Judging by their hipsterish garb, many were bused in from posher districts. The effort seemed largely lost on locals, who walked past unmoved.

Some apparent flip-flops damaged Ms Silva. First, she renounced a pledge to support gay marriage the day after it was published (by mistake, she claims) in her official manifesto. Then the PT dug up records to show that as a senator in the 1990s Ms Silva opposed a financial-transactions tax, which she claimed on the campaign trail to have supported.

Mr Neves soldiered on. Less wellknown than the others, he pressed flesh in 21 of Brazil’s 27 states, six more than Ms Silva (who entered the race late) and almost twice as many as Ms Rousseff. The PSDB redoubled its efforts in São Paulo and Minas Gerais, Brazil’s most populous states and the party’s strongholds, where its candidate had even so lagged behind his rivals.

In the closing days he visited more than a dozen cities there; Ms Silva visited half as many. In São Miguel Paulista Mr Neves’s leaflets littered the area where she spoke.

The effort paid off, as did a confident performance in a televised debate on October 2nd. Mr Neves trounced his rivals by nearly 20 points in São Paulo and cut Ms Rousseff’s lead in Minas from more than ten points to four.

Since direct elections were reintroduced in 1989, no first-round runner-up has ever carried the run-off. Then again, points out Cláudio Couto of Fundação Getúlio Vargas, a university, never has the frontrunner looked so vulnerable, with a combination of a record-low total tally and a narrow lead. Forecasters expect the first set of new polls to show Mr Neves and Ms 1 Rousseff neck-and-neck.

38 The Americas

The Economist October 11th 2014

Meanderings to mirror the Amazon Brazil’s presidential election candidates: probability of winning, 2014, %

Dilma Rousseff Marina Silva

60

20 Aécio Neves

25 1 8 15 22 September August Source: Pollingdata.com.br

2

80

40

Eduardo Campos

11

100

18

0

29 5 October

Apart from the attrition it saw in the presidential vote, the PT lost ground in congressional elections held on the same day.

Although the governing coalition kept a healthy majority, its own lower-house contingent dwindled from 88 seats to 70 (out of 513); the PSDB’s expanded from 44 to 54.

If he is to threaten Ms Rousseff, Mr Neves must consolidate his base in the south, and advance in Brazil’s poor north and north-east. Ms Silva’s backing would help greatly. With her humble origins, she has a credibility among poorer Brazilians that the PSDB lacks, because it is seen as the party of the rich. She won in Pernambuco, Mr Campos’s home state, by 48% to Ms Rousseff’s 44%; Mr Neves languished at 6%.

In 2010, when she also came third after winning roughly 20% of the vote, Ms Silva would not support anyone in the second round; the PT won. Many close to Ms Silva now thinkher aim is to boot out the PT. The PSB, historically the PT’s ally, felt betrayed by the way the party mauled Ms Silva. Mr Neves, by contrast, has eased his attacks on Ms Silva in recent weeks. On October 6th Ms Silva’s running mate, Beto Albuquerque, made it plain he would back the PSDB. Mr Campos’s brother and later his revered widow did likewise.

Then the PSB as a party voiced its backing for Mr Neves. But Ms Silva was slower to express her own view. Mr Neves already espouses some ideas dear to her, like fiveyear, non-renewable mandates for presidents, governors and mayors. Both want orthodox fiscal and monetary policy, more openness to trade and less government meddling in business. Rumour has it that Mr Neves wants Ms Silva, a famous environmentalist, to spearhead a new “green diplomacy” as foreign minister. She was due to announce her preference on October 9th, after The Economist went to press.

Even with Ms Silva’s backing, Mr Neves has his work cut out. It is unclear how many of her 22m voters will migrate to his camp—many of them lean left and find the PSDB unpalatably elitist. The last polls before the first round suggested that less than 60% would—and some of those presum-

ably did so in the October 5th vote. With a similar rate of abstentions, blank or null ballots as in the first round (29%), Mr Neves must close a gap of18m votes on top of the 35m he has racked up. He has either to cajole most of Ms Silva’s lot, a quarter of whom now prefer Ms Rousseff, or to peel off the president’s—probably a bit of both.

To do that, Mr Neves must convince some of the 27m families who get state handouts that these are at risk if the PT retains power—and not, as Ms Rousseff says, if the opposition wins. Some new data may help him: the IMF has cut its growth forecast for 2014 by a percentage point, to 0.3%; and inflation over the last 12 months was over 6.7%, the worst for three years.

But Mr Neves still has a steep road ahead. The PT initially aimed its broadsides at Ms Silva; now it is preparing to smear the “heartless” PSDB. The party had “never put the poor in the budget”, thundered Ms Rousseff in a victory speech, referring to the centre-right’s tenure from 1995 to 2002. But Mr Neves will have more of the money and media access needed to fend off brickbats than Ms Silva did—and he can lob a few of his own. Expect another white-knuckle ride. 7

Bolivia’s election

Happily Evo after La Paz

A third term for a “non-stick” leader

A

TRIP on the new cable car that links La Paz, the Bolivian capital, to El Alto, a satellite city perched 400 metres up the cliffs, takes eight scenic minutes. Zig-zagging up the mountains in a bus normally takes 40. The cable car wins plaudits for President Evo Morales. “Evo is actually investing in the country,” says Juan Diaz Crespin Quispe, who sells natural remedies concocted from plants and lizard parts in El Alto’s twice-weekly market. “He’s developing and redistributing, not just lining his own pockets like past governments.”

Such sentiment is common. That, and the smothering of the opposition, will help Mr Morales get a third term in presidential elections on October 12th. Bolivian presidents are technically limited to two consecutive terms, but after pushing through a new charter in 2009, Mr Morales persuaded pliant courts to ignore his first term, which was under the old dispensation.

Bolivians don’t seem worried by such chicanery. Mr Morales is expected to overwhelm his closest competitor, Samuel Doria Medina, a businessman. A September survey by Equipos Mori, a pollster, shows that 58% of Bolivians believe the country is

“moving in the right direction” and 75% approve of Mr Morales’s management.

Such consensus is unusual in Bolivia, a land of unstable politics. According to Martin Sivak, a biographer of Mr Morales, 36 of the 83 governments in Bolivia’s independent history lasted a year or less; coup has followed coup. Between 2001 and 2005, five presidents came and went at the residence known as the “Burned Palace”.

Three factors have allowed Mr Morales to break this pattern. First, many Bolivians identify with him. He was brought up by llama farmers and never went to university. Like most voters, he is of indigenous descent. He worked for years as the leader of a coca-growers’ union. His socialist beliefs strike a strong chord.

Second, and more important, Mr Morales’s tenure has coincided with an economic bonanza. If the end of the commodities boom augurs tougher times, Bolivians have yet to feel it. High prices and strong demand for Bolivia’s exports of gas, minerals and soyabeans have helped the economy to maintain an average growth rate of 5% since the president assumed office in 2006. Semi-nationalising the hydrocarbons industry enabled him to channel much of this windfall into state coffers. His spending has been far more disciplined than that of the late Hugo Chávez of Venezuela or Rafael Correa of Ecuador, the leaders to whom he is often compared, but not exactly austere. Public expenditure has risen from 8 billion bolivianos ($1 billion) in 2005 to 21 billion bolivianos in 2013, with much of it going on social programmes and bonuses. Abundance has stoked demand. The Torre Multicine, a new mall in La Paz, swarms with shoppers laden with clothes, perfumes and fast food. In the posh neighbourhood of Calacoto a restaurant set up by Claus Meyer, one of Europe’s better-known chefs, serves modern interpretations of Bolivian classics for prices 1

A safe enough ride

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40 The Americas 2 that would have been unimaginable a few

years ago.

Third, Mr Morales has neutered the opposition. The fact that he controls twothirds of Congress makes it easy to impose policies, and he dominates the media in a way that lessens any risk of unflattering coverage. He has prosecuted several political foes. Two former presidents, Carlos Mesa and Tuto Quiroga, complain that he is harassing them. But these autocratic tendencies do not seem to hurt his image. “He is often called the Teflon president,” says Carlos Hugo Molina, who runs the Centre for Participation and Sustainable Political

The Economist October 11th 2014 Development, an NGO. With a third term seemingly assured, what does Mr Morales plan for the next five years? Some fear a crushing victory may embolden him to go down the road of populist xenophobia, as happened in Venezuela. But to keep the gas dollars flowing, Bolivia needs foreign oil firms to increase their exploration. He will not want to alienate them with further nationalisation, particularly as the commodities boom fades and the biggest export markets, Argentina and Brazil, exploit more of their own resources.

All these pressures will probably keep

Mr Morales pragmatic, but few expect him to give up his anti-American, anti-capitalist rhetoric. “He waves with one hand and holds a rock in the other,” says João Neves of Eurasia Group, a consultancy. “Some would say that’s contradictory. Others say it’s a juggling act.” Given Mr Morales’s facility for saying one thing and doing another, some doubt his vow to retire after a third term. He told El Deber, a newspaper, that when he steps down he will open a restaurant and work as a waiter. Many people laughed. “Evo’s only real problem”, says Alfredo Grieco y Bavio, a journalist who specialises in Bolivia, “is his succession.” 7

Bello Divide and bribe Corruption and political fragmentation threaten Peru’s democracy

I

N A recent opinion poll almost half those asked said they believed that if Luis Castañeda was elected as Lima’s mayor he would “steal but would do public works”. In Peru’s regional and local elections on October 5th Mr Castañeda, who denies that he is corrupt, duly won the post. Many limeños remember that, in the job in 2003-10, he built municipal hospitals in poorer areas and concrete stairways in shantytowns.

Mr Castañeda’s election is testament to Peruvians’ cynicism about politicians, especially local ones. Of the 25 outgoing regional presidents, 22 are being investigated for embezzlement. Three are in prison awaiting trial; a fourth is a fugitive.

One of those in jail over alleged kickbacks, Gregorio Santos, a far-left campaigner against mining companies, was re-elected as president of the northern region of Cajamarca, where he is seen as a political martyr.

Widespread corruption in sub-national governments is in part a result of the flawed way Peru has decentralised power. The principle was sound: since the days of Spanish viceroys who ruled half of South America from Lima, Peru has been over-centralised. Decentralisation followed a trend in Latin America’s new and restored democracies. But in practice, argues Alberto Vergara, a political scientist, far from fixing the country’s problems, decentralisation has aggravated them because national leaders were able to wash their hands of them.

The government in 2002 opted to give regional status to 25 existing departments; in addition, there are 196 provinces and 1,846 municipalities—all for a country of just 31m people. Compared with Chile or Colombia, Peru has a lot of duplication, says Carlos Casas, a former deputy economy minister.

Plans to merge regions were defeated in referendums. Responsibilities and money were devolved without regard to the shortage of qualified managers in local governments and the lack of auditing and controls over their spending. In Colombia, by contrast, only bigger and better-performing municipalities have gained control over health and education, points out Alberto Rodríguez of the World Bank.

Some sub-national governments have made the most of their new powers. In the Andes mayors have built roads that transform their town’s economy by connecting it to national markets. Moquegua, on the south coast, now has the best schools in the country. But that bucks the trend.

Decentralisation happened to coincide with an economic boom. Local governments were deluged with money, especially the 13 regions that receive an earmarked 50% share of the income tax paid by mining and oil companies. The result is that two-thirds ofpublic investment is now carried out by sub-national governments.

Some underspend. But this uncontrolled bonanza has stimulated the capture of local governments by organised crime. In

Ancash, north of Lima, the jailed regional president is accused of murder, espionage and embezzlement on an industrial scale.

There is little effort to hold local governments to account. That is partly because they themselves collect just 1.5% of total tax revenues, compared with 6% in Colombia, according to Mr Rodríguez. All but a couple of the regions are run by independents representing ad hoc local movements rather than national parties.

With more than 100,000 candidates on October 5th, detailed scrutiny of their background and sources of finance was impossible, points out Carlos Basombrio, a political consultant.

Decentralisation is a symptom of the weakness of Peruvian democracy rather than its cause. National institutions have been tainted, too: the public prosecutor, Carlos Ramos, and his predecessor are both under investigation for links to the Ancash gang (which they deny), while dozens of legislators face corruption accusations. President Ollanta Humala’s government has the legal means to claw back power and money from dysfunctional regions, but has chosen not to.

Today’s decentralised graft is not on the scale of the 1990s, when the president, Alberto Fujimori, and his spy chief, Vladimiro Montesinos, placed national institutions at the service of a vast racketeering scheme. But it is especially worrying because the illegal economy has grown.

Peru is now the world’s biggest cocaine producer; extortion, and illegal mining and logging, have proliferated.

All this is testament to the weakness of the democratic state. Rapid economic growth may have numbed Peruvians. But the economy is now slowing. Austerity would ignite intolerance of corruption, and set the stage for an authoritarian populist—just like Mr Fujimori.

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The Economist October 11th 2014 43

Asia

Also in this section 44 Chinese Indians 44 Vietnam and the United States 45 Mongolia’s economy 46 Japan’s feeble opposition

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

The Koreas

Till Kimdom come SEOUL

An unusual visit to South Korea by a powerful Northern trio raises plenty of questions

T

HE surprise at the Asian games, in the South Korean city of Incheon, did not come on the track. Rather it was when three of North Korea’s most powerful men suddenly appeared on October 4th, the day of the games’ closing ceremony.

The seniority of the men visiting South Korea was unprecedented. Though it was at least the third trip south for Kim Yang Gon, North Korea’s point-man on relations with the South, it was the first for Choe Ryong Hae, thought to be the closest aide of the young dictator, Kim Jong Un—until watchers believed he had been purged in May. Most surprising, however, was Hwang Pyong So, head of the political bureau of the Korean People’s Army and probably the North’s second-in-command.

The trio dropped in with only a day’s notice and had, it appears, no particular message. Still, they were warmly welcomed by the South’s unification minister for lunch and tea; Mr Hwang in turn conveyed Mr Kim’s “heartfelt greetings” to President Park Geun-hye. They also met Ms Park’s national security adviser, Kim Kwan-jin, and the prime minister, Chung Hong-won. After months of refusals, the North agreed to a new round of talks soon.

On the face of things, it marks a transformation of the lousy North-South relations since Ms Park took office last year.

North Korea has fired a score of rockets into seas around the Korean peninsula this year. A relentless propaganda offensive has taken aim at Ms Park. Now, North Ko-

rea may want to patch up with the South as its relations with China sour. Remarkably, the Chinese media made no mention this week of the 65th anniversary of the two countries’ ties; North Korean mouthpieces returned the compliment. But money usually counts for much with the North. It may be keen to see South Korean trade sanctions eased and to restart hard-currency tours to Mount Kumgang, a resort shut off since 2008, when a soldier shot dead a South Korean tourist.

High-level officials from the North have not come south since the funeral of a former president, Kim Dae-jung, in 2009. Indeed, no one as senior as Mr Hwang has ever visited South Korea before, says Michael Madden, who runs “North Korea Leadership Watch”, a blog. Mr Hwang arrived in full military garb and on Mr Kim’s personal plane. Sending its heavyweights for snaps with foreign officials makes North Korea look “more like a sovereign state, less like a gangster fiefdom”, says Robert Kelly of Pusan National University.

North Korea is burnishing its image elsewhere, too. Last month its foreign minister attended the UN’s General Assembly, for the first time since 1999, and in Europe a senior diplomat even met the EU’s top human-rights official.

All this has rumbled on while the young Mr Kim has been out of view. He was last seen on September 3rd, attending a concert with his wife. Mr Kim’s late father, Kim Jong Il, would disappear for

months. But his son has been much more visible, and this is his longest absence yet.

He even skipped a set-piece meeting of the North’s parliament.

Mr Kim, who may be 31, is fat, drinks heavily and smokes even in front of the cameras. In July he was seen limping. Gout and an ankle injury are thought to be reasons for his “discomfort” announced by state media last month—possibly the firstever acknowledgment of problems with a North Korean leader’s health.

Now Mr Hwang’s sudden appearance in the South has some wondering who wields ultimate power in the North. Mr Hwang has been promoted five times this year, an “unprecedented, almost scary” rise, says Mr Madden. He gained his most senior title yet, that of vice-chairman of the National Defence Commission—the North’s top executive body, headed by Mr Kim—at the very gathering from which Mr Kim was absent.

Mr Hwang is also an official of the Organisation and Guidance Department (OGD), seen by some as a party within the party and established by Kim Jong Il to keep rivals and relatives in check. It has the power to appoint and dismiss all party members. Jang Jin-sung, a former propaganda official for Kim Jong Il who fled the North in 2004, thinks there has been a power grab. Mr Hwang arrived in Incheon flanked by two bodyguards: a move that Mr Jang sees as lèse-majesté, for hitherto only the supreme leader could ever be seen to be guarded. The trio looked in control, “not like anyone’s delegation”, says Aidan Foster-Carter, an analyst of North Korea at Leeds University. They also stinted in public on flattering the Young Leader; and rather than bridle at questions about his ill health, they denied any problem.

Few besides Mr Jang support the theory of a coup, however. Had the Kim family been overthrown, there would presum- 1

44 Asia 2 ably have been troop movements, particu-

larly in sensitive border areas. And, despite strained ties, the top brass would surely first turn to China for reassurance, says Hahm Chai-bong of the Asan Institute, a South Korean think-tank. Still, the tantalising possibility arises of Mr Kim being at the centre of a cult, but not the centre of power.

As soon as the trio had returned home, calls grew in South Korea for a response to their unusual gesture. For the first time, members of the ruling conservative party asked to lift trade sanctions introduced in 2010 after a South Korean corvette was torpedoed, killing 46. Yet just three days after the visit, North and South Korean ships exchanged fire when a Northern patrol boat crossed a disputed maritime boundary.

The North can surprise. But it can also be wearyingly predictable. 7

Chinese Indians

Kings no more KOLKATA

A last-ditch effort to save a dying community

S

TREET food in Kolkata, formerly Calcutta, does not usually include barbecuedpork dumplings. Yet the delicacy is on offer in Tiretti bazaar, a forlorn part ofold Chinatown. One stallholder, Yu-chai, tells how his parents, who were farmers, fled Guangdong province at the time of Japan’s invasion of China. An elderly lady nearby, Nam Yok Chang, says she has sold sticky rice, pork and shrimp wrapped in bamboo leaves for as long as she can remember.

Soon after dawn each day a dozen people of Chinese descent—dentists, a carpenter, restaurant-owners—settle on plastic chairs to eat and gossip. Their number is dwindling, they say, and the congee on sale

The Economist October 11th 2014 in the stalls is not what it used to be. More and more stalls are run by Bengalis. Younger Chinese meanwhile have emigrated, to Canada, Australia and America. Parents have followed.

Georgie Ling, a chef, says that when his father arrived in Calcutta in the early 20th century, Chinese “lived like kings”. Chinese migrants had begun coming to India in the late 1700s, setting up the first sugar refineries. Then the British, who pressed exports of Indian opium on China in order to pay for purchases of tea and to plug a huge outflow of silver to China, brought back carpenters and tea-plantation workers to Assam in India’s north-east. Most Chinese were Cantonese-speakers from Guangdong in the south. A century ago, they numbered about 100,000 in India. Calcutta’s Chinatown won fame for its red lanterns, exotic food and drug dens.

Things began to go downhill after independence in 1947. In 1962, during a vicious border war between India and China, Chinese Indians suffered the indignity of internment in miserable camps in Rajasthan.

Then city tanneries, many run by Chinese, were moved out of Calcutta. And West Bengal’s economy, misrun by Marxists and others for decades, only decayed.

By one estimate, barely 4,000 people of Chinese descent now remain in India, about half of them in Kolkata’s Chinatown. “Everyone wants to leave”, says Mr Ling. True, other Chinese expats are coming into India on the back of growing bilateral trade, worth $66 billion in 2013, while about 175,000 Chinese tourists visited India last year (the number almost certainly includes small traders). But India’s own Chinese population is close to vanishing.

A plan exists to salvage the remaining Chinese buildings in Kolkata, partly in the hope of persuading the last Chinese to stay.

Step over a dead dog to head down Chinatown’s side streets beyond the market, and a few gems appear: a temple with a neat courtyard and an intricately carved and

Raise the red dragon—but for how much longer?

lacquered representation of a heavenly dragon-boat; a mah-jong club; and a former opium den turned funeral parlour.

There is also the redbrick structure of India’s most famous Chinese restaurant, the Nanking, opened in 1924. China’s then prime minister, Zhou Enlai, reportedly ate there in the 1950s; today, vapours rise from a pile of rubbish by its entrance.

A conservation group, Intach, wants to clean up the area, inspired by the revival of Singapore’s Chinatown. Others, too, are keen. Chinese festivals and hygienic eateries could bring tourists and prosperity.

There is a proposal for a new Chinatown costing 2.5 billion rupees ($41m). But success almost certainly depends on a broader urban recovery. Kolkata is more ramshackle than most big Indian cities, and strapped for cash.

There are small success stories. The owners of one family-run factory, making sauces, say that Indian consumers have a strong liking for food from the East. Business was good enough for the family to return from Canada last year in order to expand. Recipes are saltier and spicier to suit the Indian palate, and “Bengali Chinese” has emerged as a distinct cuisine. If the Chinese minority is to carry on, it will be with an Indian touch. 7

Vietnam and the United States

Past as prologue DANANG AND HANOI

America partially lifts an arms embargo against a former foe

V

IETNAM’S armed forces have looked busy these past few months. High above Danang, a city half-way down the country’s long eastern coast that hosted American troops during the Vietnam war, military planes have been tearing about on training missions. Farther south, two brand-new submarines ply waters near the Cam Ranh Bay naval base once used by the Americans. The displays look like a rejoinder to China’s recent assertiveness in the South China Sea. The trouble started in May, when a Chinese state-owned energy company parked a large oil rig within Vietnam’s claimed exclusive economic zone, near the Paracel islands, which Vietnam and China contest.

Vietnam sent a fleet of fishing boats to confront the rig’s flotilla of Chinese patrol boats. Vessels were rammed, and it was remarkable no one was killed. But back on land in Vietnam, the stand-off led to antiChinese protests and factory riots in which at least four people were killed. In mid-July the rig was towed back to near China’s Hainan island, but many Vietnamese fear it 1

The Economist October 11th 2014 2 will return when the hurricane season is

over.

Since the rig’s departure, the leaders of the Communist Party of Vietnam have tried to repair bruised relations with their mighty neighbour to the north. But they are also seeking support from other powers. In August senior officials from India, Japan and America all visited Vietnam’s capital, Hanoi.

On October 2nd Vietnam’s foreign minister, Pham Binh Minh, called on John Kerry. The American secretary of state told Mr Minh that the United States would partially ease its long-standing ban on sales of weapons to Vietnam. The embargo, in place since 1984, has persisted even as ties have warmed—Vietnam’s record on human rights, after all, is dismal.

The partial easing of the embargo looks largely symbolic. Nine-tenths of Vietnam’s arms purchases are from Russia, according to IHS Jane’s, a consulting firm. But it may allow Vietnam to buy armed patrol boats, second-hand American spy planes and spare parts for ancient military helicopters, which were captured from the Americans during the war and which it wants to refurbish. The desire seems to be to improve surveillance at sea.

America’s easing of the embargo was not a complete surprise. It has gradually improved ties with Vietnam since the mid-1990s. The unlikely friends signed a bilateral trade deal in 2001. They are partners in the Trans-Pacific Partnership, a free-trade negotiation involving a dozen Pacific countries (though not China). And American energy firms are eager to supply equipment for a planned programme of civilian nuclear reactors.

An American diplomat says that Vietnam has made some progress in terms of its human-rights record, including the release this year of11prisoners of conscience.

But a full lifting of the lethal-arms embargo, the diplomat says, would depend on “additional progress”. That may be some way off. Yet Tuong Vu, a Vietnam expert at the University of Oregon, says the American shift is a “clear case” of strategic interests trumping human rights. Many dissidents remain behind bars, and the one-party state continues to arrest its critics under worryingly vague national-security laws.

Cu Huy Ha Vu, one of the political prisoners who was recently freed, is a Sorbonne-educated lawyer who was jailed in 2011 for, among other crimes, calling for multiparty government. After his release, Mr Ha Vu, the son of a revolutionary poet, flew directly to Washington, DC. He says he would one day like to see both a democratic Vietnam and a military alliance with America against Chinese expansionism.

But, he adds, selling spy planes today, amid continuing domestic repression, only prolongs the regime’s survival. 7

Asia 45 Mongolia

The pits ULAANBAATAR

Mongolia loses its shine—and some of its treasured autonomy

N

OT long ago Mongolia seemed a blessed land, with growth rates—over 17% in 2011 and around 12% in each of 2012 and 2013—that were the envy of the world.

Mining was the promise in a country with annual GDP per person of less than $2,000 just five years ago and $4,000 today. Some $3 trillion of get-at-able minerals are thought to lie under a country bigger than France, Germany and Spain combined, equivalent roughly to $1m for each of nearly 3m Mongolians. For many, the despoiling of a pristine landscape and a capital, Ulaanbaatar, with the second-worst air pollution in the world, seemed a price worth paying for a boom that made politicians rich and filled the streets with snazzy new cars and apartment towers.

But now the shine has come off. Mongolia faces a balance-of-payments crisis in which its hard-currency reserves have fallen by two-thirds; the currency, the togrog, is also sharply lower. At home, a credit crunch has brought Ulaanbaatar’s building frenzy to a near-halt. One factor is coal, Mongolia’s chief mineral export before a vast new copper mine, Oyu Tolgoi (OT) in the Gobi desert, comes properly onstream. Its price has fallen as demand from China has slumped. The second factor is a fight among the foreign investors who fuelled the boom; and for that, the Democratic Party government is squarely to blame.

The importance to Mongolia ofOT, controlled by Rio Tinto, a British-Australian giant, is hard to overstate. When it is fully up and running, sending ore across the border to China, it could account for onethird of GDP. The $6 billion spent to date accounts for most of the recent foreign direct investment.

Yet the project is stuck in bitter disputes between Rio and a meddling Mongolian government, which owns 34% of the project, over the scale of management fees, the kinds of cost overruns that are inevitable when developing such a large mine, and demands for tax. Mongolia’s raucous democracy has amplified the disputes.

Until they are resolved, Rio refuses to start spending the $5 billion or so needed for the second, and harder, phase of OT’s development, when the mine will start to dig deep. Mongolia’s finance minister, Ch. Ulaan, admits that it would have been better had the government not insisted on being a shareholder in OT but had merely pocketed the royalties. Too late. Other foreign miners have taken fright, further

A capital boom alarmed by the suspension ofover100 other licences pending a government review over corruption. Foreign direct investment has fallen by three-fifths this year. Thankfully, signs suggest the government and Rio are narrowing their differences. Rio says it has finished a feasibility study of the second phase at OT. The government seems to have backed down over huge tax demands.

That is welcome, but meanwhile the government also faces the consequences of ill-advised domestic measures implemented last year to counter a slump in growth. One was a “price-stabilisation programme” designed to reverse a fast rise in the prices of basic foodstuffs and construction materials. Another was to subsidise mortgages, bringing down the rates Mongolians paid from roughly 18% to 8%. Both measures involved huge central-bank injections of money into the banking system and the alarming growth of the government’s off-budget financing. The session of the State Khural (parliament) that opened this month is supposed to consider emergency measures to rein back spending, but cutting the mortgage subsidy, in particular, will prove politically tricky. Meanwhile, the level ofnon-performing loans at banks, currently under 5%, is certain to rise.

Even without progress on OT’s second phase, Mongolia should be able to avert a full-blown crisis, thanks largely to offers of help from its southern neighbour, China.

Hard-currency reserves inched up in August, due in part to a loan from China’s development bank. Moreover, China has offered a lifeline in terms of extensive swap arrangements to Mongolia’s central bank.

President Xi Jinping of China recently called on his Mongolian counterpart, 1 Tsakhiagiin Elbegdorj.

46 Asia 2

So too did Vladimir Putin of Russia, which was Mongolia’s overlord until a democratic revolution in 1990—led by a young Mr Elbegdorj. What Russia can now offer is unclear; one analyst in Ulanbaatar says that Mr Putin’s chief motive was to “bare his arse to the West”.

Mongolia has long been a staunch friend of the West as it has tried to keep from falling into either Russia’s or, expe-

The Economist October 11th 2014 cially, China’s orbit. Now, both want their pound of flesh. There is talk of Sino-Russian gas pipelines and railways crossing Mongolia. China’s state mining companies, which Mongolia has long sought to keep out, may muscle in. And that may be only the beginning of the Chinese influence. The price of the Democrats screwing up has been the loss of some of Mongolia’s treasured autonomy. 7

Japan’s feeble opposition

Not ready for prime time TOKYO

The opposition struggles to counter a dominant prime minister

A

RUN of dismal economic news has lessened the air of invincibility surrounding the government of Shinzo Abe, Japan’s prime minister. Outside the bustling metropolises such as Tokyo, Osaka and Fukuoka, ordinary people are growing more vocal in their complaints that Mr Abe’s schemes are doing little for them. A rise in the consumption (value-added) tax in April, meanwhile, seems to have knocked growth badly—GDP in the second quarter fell by an annualised 7.1%, for instance. All fertile ground, you would have thought, for an effective opposition. Yet if the shine is starting to come off Mr Abe’s popularity, the opposition to his Liberal Democratic Party (LDP) continues to be a crushing disappointment to voters.

Japan’s opposition parties have long been disunited and ill-disciplined. These flaws seem if anything to be deepening, whether inside the Democratic Party of Japan (DPJ), the biggest party, turfed out of government in an LDP landslide two years ago, or among a ragbag of smaller parties that surround the main two.

One outfit with early promise as a modernising force was Your Party, founded in 2009 by a defector from the LDP, Yoshimi Watanabe, son of a late LDP political heavyweight, and a rising star in the DPJ, Keiichiro Asao. Both chafed at the power of the bureaucracy and at the lack of market-minded attitudes in their respective parties; their new party appealed to younger professionals. Yet, in April, Mr Watanabe was forced to step down as party leader after he failed to account for how he spent a loan of ¥800m ($7.4m) from a friendly businessman. He is now calling for the resignation of Mr Asao, his successor as leader, for refusing to bring Your Party into alliance with Mr Abe, whose return to office in December 2012 Mr Watanabe supported. Weirdly, Mr Asao is putting up with the sniping.

Another troubled party boss is Banri

Kaieda, head of the DPJ. For months, the party’s senior figures have been in open revolt. Mr Kaieda appears not to appreciate the depth of the crisis in which the party has found itself since its election defeat.

Last month he managed to hang on to his position by reshuffling the party’s leadership to include some critics. But what many Japanese noticed in the new line-up of supposedly the most progressive mainstream party was a shortage of fresh talent and a complete absence of women. At least Mr Abe has five women in his cabinet, even if they are far from the most impressive women in politics.

While the DPJ struggles to propose alternative economic policies to Mr Abe’s, its leadership is split over his decision to reinterpret the constitution in order to give Japan the right to collective self-defence— coming to the aid of allies if attacked. The party has always had a large share of strict pacifists, but it also contains strategic realists who are strong supporters of the government’s move. Whether they will vote with the government when it tries to pass

legislation on collective self-defence next year will be a stern test of party discipline, says Koichi Nakano of Sophia University in Tokyo. The LDP, for its part, aims to divide and permanently hobble the DPJ over the issue.

Japan’s political parties have long been fissiparous; politicians swerve off to found their own parties, as often as not coming back into the mainstream fold with little penalty. This time, some divine a potential “third force” in a slew of splits and envisioned alliances among the smaller parties. Yet nothing can conceal the policy chasms among these groupings. The Japan Restoration Party, headed by a self-regarding mayor of Osaka, Toru Hashimoto, last month merged with the far smaller Unity Party, a group of economic reformers. Yet the two sides continue to disagree over the big themes, including nuclear power, taxation and collective self-defence.

As for the DPJ, it seems torn between the market-illiberal, pro-union camp and market-minded reformists. Its modernisers hope that in alliance with a few smaller parties, such as Your Party, it might eventually become a force to be reckoned with again. It has plenty of cash to launch a comeback (the next general election is due by the end of 2016). There are signs that the party may go on the offensive at last. It held back from attacking Mr Abe’s economic programme during the height of its popularity last year, but now it is clear that the programme’s easy money has not succeeded in raising wages. The DPJ’s electoral strategist, Yukio Edano, reckons Mr Abe himself is the government’s chief weakness. The prime minister’s over-confidence, he claims, could set him up for a fall.

Just now, it is hard to think of a time when Japan’s formal opposition was less potent against the LDP. In fact, stronger restraints on Mr Abe probably come from the junior party in the ruling coalition, Komeito. Indeed, as a party founded on pacifism, it likes to describe itself as the LDP’s opposition. Though Komeito’s leadership eventually backed Mr Abe’s reform to allow collective self-defence, it cannot entirely ignore its pacifist and welfare-loving supporters in Soka Gakkai, a millionsstrong lay Buddhist group.

And do not discount Mr Abe’s opposition within his own LDP. The party is still notable for the presence of powerful factions (though these are rarely formed along ideological lines). Moreover, many LDP members on its dovish wing expressed fury at Mr Abe’s visit last December to Tokyo’s Yasukuni shrine, which honours convicted war criminals alongside ordinary war dead. Relations with China, in particular, were damaged. In appointing Sadakazu Tanigaki, a pro-China liberal, as the LDP’s secretary-general, Mr Abe perhaps sought to head off his most threatening source of opposition. 7

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48

The Economist October 11th 2014

China

Also in this section 49 Shanghai’s Free Trade Zone 50 Banyan: Hong Kong’s spoiled brats

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

Hong Kong protests

The waiting game HONG KONG

Officials hope to wear protesters down, but time may be on the side of the students

T

HE pro-democracy protests that have gripped Hong Kong since late September have reached an impasse that appears to suit the territory’s government and its backers in Beijing. As The Economist went to press, the streets were no longer filled with tens of thousands of demonstrators.

Many had grown too tired, and some too dispirited, to carry on.

Student leaders are eager to consolidate the sympathy they gained on September 28th, when police used tear gas on demonstrators, and on October 3rd, when progovernment thugs began provoking scuffles with protesters. They have therefore agreed to talks with the government, even though officials have shown no sign of willingness to make any concessions.

Much-reduced numbers of demonstrators still block a few roads, but the government seems inclined to let them. The longer protesters do so, it apparently believes, the more they risk losing support among those whose lives are disrupted.

Some on the government’s side say the students’ scorn for the governments in Hong Kong and Beijing proves that truly competitive democracy would not work because it might produce a leader who does not get on with the central leadership.

Tsang Yok-sing, the president of the Legislative Council (Legco), says the protests “will only convince China that they have made a correct decision” to restrict political freedoms.

Even some allies of the students worry that the government may be making the right bet. “Your bargaining chip is public opinion. It’s not the road out there,” says Claudia Mo, a pro-democracy legislator, sitting inside her office at the Legco building which is still surrounded by a few hundred demonstrators. “This movement cannot afford to lose public support,” she says.

Yet the students may have more backing than was apparent during recent outbreaks of heckling of protesters by angry residents. Researchers at Hong Kong Polytechnic University found that 59% of 850 people surveyed since October 4th believed the territory should reject the national government’s plan for the election of Hong Kong’s chief executive in 2017. This arrangement, which was announced at the end of August, would limit candidates to those approved by a nominating committee of 1,200 people, most of whom would be Hong Kong-based supporters of the Communist Party. The protesters say anyone should be allowed to stand.

In the recent opinion poll 60% of respondents blamed the violence on one or the other of the police, thugs (some of whom were alleged by police to be members of triads, or criminal gangs) or Leung Chun-ying, the territory’s chief executive.

The largest proportion, nearly 29%, blamed Mr Leung, whose resignation the protesters have been demanding.

Support like this will be needed if, as

seems almost certain, the Chinese government refuses to revise its electoral arrangements and the student leaders respond, as they have threatened to do, by keeping up their campaign of disruptive civil disobedience. The announcement on October 7th that students and government officials would begin talks three days later was a relief to both sides. Twice in the preceding five days they had seemed close, at least in their rhetoric, to potentially bloody confrontation. The first time was on the evening of October 2nd, when hundreds of students threatened to break into Mr Leung’s offices and hundreds of police stood ready to resist (the students eventually thought better of it). The next time was on the morning of October 6th, when the government threatened to use force to clear the streets for the beginning of a regular working week after a week in which students had taken advantage of a two-day public holiday to draw out more supporters (the government instead decided that patience was a more potent weapon).

But the talks are likely to be little more than a respite. The government refuses to negotiate over how to elect the territory’s leader. That, it says, is up to the central authorities, who have said they will not budge. Officials in Beijing have condemned the protests as the handiwork of pro-Western, anti-China forces. Nor do many believe that any compromise, such as in the composition of the nominating committee, could satisfy the students.

The protesters have few illusions. One negotiator-to-be, Lester Shum, denounced the Hong Kong government as “insincere” even as he announced his willingness to talk. At a protest site near the main government complex, one of the students’ most charismatic and widely admired leaders, Joshua Wong, who is 17, told demonstrators to bring more bedding. Some students, 1

The Economist October 11th 2014 2 exhausted though they are, are deter-

mined to stay on the streets.

It is not just the protesters who are tired.

Days after a student boycott of classes unpredictably morphed into an “Umbrella revolution” (named after the protesters’ protection against rain, police pepperspray and tear gas), many residents are weary. Police have worked several days of 18-hour shifts. Taxi drivers and shop-owners are fed up with losing business.

But the students look as if they will remain a powerful force. They share grievances with many others in Hong Kong, including their worried parents, about inequality and about wealthy mainlanders buying up their property, filling prized spots in elite schools and taking the best jobs. Many fear the possible encroachment of the party’s authoritarian values on Hong Kong’s way of life, which is meant to be protected by a “one country, two sys-

China 49 tems” arrangement, promised by China when Britain handed back control of the territory in 1997. The pro-democracy camp has been riled by a report this week that Mr Leung had received large payments from an Australian engineering firm. Mr Leung has denied any wrongdoing.

Regina Ip, a former security chief in Hong Kong who is now a pro-establishment legislator, admits that Hong Kong’s return to China “didn’t get off to a very good smooth start”. That includes the time when she herself tried to help push through a security law more than a decade ago, provoking massive demonstrations.

On October 8th, wearing a dress and blazer combination that (seemingly as a tease) resembled an umbrella in the protest movement’s colours of black and yellow, she acknowledged the “inherent contradictions” of Hong Kong’s union with China. Ms Ip sees more battles ahead. 7

Shanghai’s Free Trade Zone

Li who will not be obeyed SHANGHAI

The Shanghai Free Trade Zone’s frustrating first year

L

I KEQIANG, China’s prime minister, often promises bold financial reforms. He once reportedly declared that his administration would slash bureaucracy with the zeal of a brave man cutting his own wrist.

His decision to make the Shanghai Free Trade Zone, a special economic area on the outskirts of the port city, a shining example of market reform is thus a test of his mettle.

So, a year after the zone’s launch, how is the bold experiment going? China Daily, an official newspaper, marked the anniversary by trumpeting that the zone had reached a “record-breaking milestone”. It declared that more than 12,000 firms had

Reforms don’t stack up

registered in the 29-square-kilometre (11square-mile) area, and that foreign firms were flooding in.

Officials stress the zone’s innovations.

As a step towards opening China’s gold market, it recently launched an international gold exchange. Trading in other commodities, such as crude oil, is also promised. Rather than requiring firms to get explicit permission to operate, businesses in the zone are free to set up shop as long as their industry is not included on a “negative list”. Vivian Jiang of Deloitte, a consultancy, says the zone has made small but helpful improvements in customs clear-

ance, logistics and in the bureaucracy of setting up new businesses. Some useful reforms have been made in the settling of disputes between companies.

Chen Bo of the Shanghai University of Finance and Economics, who advises the government on the zone, acknowledges that the pace of reform has been slow. But he argues that financial reforms that have proved too hard or risky on a national scale can nevertheless be pushed through more quickly in the zone.

So all’s well, then? Not quite. Some experts maintain that the project cannot work, even in principle. Mr Li has stressed the importance of financial liberalisation in the zone. But a noisy chorus, including influential figures at the central bank, believe it is unworkable to experiment with bold financial reforms in one area without seeing them spill over dangerously to the rest of the country. Others point out that by insisting that all reforms are replicable elsewhere in China, the government may have inadvertently biased the experiment towards caution.

The zone is widely seen by businesses as a disappointment. Some local firms are setting up there only because they have been strongly encouraged to do so by officials. Foreign firms going in are hoping for a first-mover advantage—but such an edge has yet to materialise, whispers one manager. (Only 5% of firms registered in the zone have headquarters outside greater China.) Steps taken thus far on financial liberalisation have fallen far short of the promised freeing of the currency and of interest rates. One manager at a foreign bank says nothing much is different at his branch in the zone.

Even Mr Li has let it be known that he is unhappy with the zone’s progress. When he paid a visit last month (see picture) he grumbled that reforms were moving too slowly. Perhaps for that reason, the local official ostensibly in charge of the area was pushed out of his job on the eve of Mr Li’s arrival. Mr Li echoed complaints that the negative list is much too long. Even after a trim in July, it still restricts activities in 139 industries.

It is hardly encouraging that Mr Li, the most senior economic figure in China’s most powerful central administration in decades, cannot get his own bureaucracy to implement promised reforms with gusto. Turf battles among powerful regulators, such as the central bank and the banking supervisor, are one drag. Another is the ongoing crackdown on official corruption, which has made administrators reluctant to pursue bold policies that may later attract unwanted scrutiny.

On his visit, a frustrated Mr Li thundered that “companies should not be allowed to lose at the starting line due to excessive government regulations.” Quite so, but can he persuade mandarins to act? 7

50 China

Banyan

The Economist October 11th 2014

The spoiled brats of democracy

Hong Kong’s students take their place in a long and noble Chinese line

T

HE young people leading Hong Kong’s pro-democracy protests are mostly clear about who they are: Hong Kong people first, Chinese second. For youngsters who have grown up since Hong Kong’s reversion to Chinese sovereignty in 1997, this seems odd. Ever closer links with China have actually sharpened Hong Kong’s sense of its own distinctness. But it has always been, in the phrase of a historian of the city, Frank Welch, “a Chinese colony”, albeit one run for one-and-a-half centuries by the British. And few things have displayed its Chineseness more powerfully than the role students have played in its anti-China protests, and the attitudes to them of both the public and the government.

Sprawled in little clusters across the ten-lane highway outside Hong Kong’s government offices, the students seem part of a unique subculture. They have made a name for themselves with their good manners, cleanliness, respect for public order (even “Keep off the Grass” signs), restraint and umbilical links to their smartphones. Some listen to speeches or attend informal lectures; a few play guitars and smooch; some combine civil disobedience with obedient study late into the night. But many, asked why they are there, have an answer involving one or both of the words “duty” and “responsibility”. This is a very Chinese interpretation of what it means to be a student.

John Delury, a historian of China, dates the first student-led demonstrations of the modern era to 1895, when a protest erupted in Beijing against the humiliating terms of the peace treaty that followed China’s defeat in a war with Japan. It was led by two pioneering intellectuals, Liang Qichao and Kang Youwei, who had travelled to Beijing to sit the imperial examinations that guaranteed a comfortable career as a mandarin, a system that had for centuries accorded scholarship a special kudos.

A similar patriotic anger animated protests in Beijing on May 4th 1919. These were provoked by the Versailles treaty, which awarded Germany’s concessions in China to Japan. The “May 4th Movement”, led by students and intellectuals, is still celebrated in China as the genesis of its emancipation from “semi-colonialism and semi-feudalism”, and thus of the Communist Party’s rise to power. Ever since, students have been seen as at the vanguard of progress and as a kind of national conscience. Mao Zedong exploited this: when he wanted to wage his “cultural revolution”

against his own party colleagues, he used students fired up with Maoist zealotry to do his dirty work for him.

But of all the student-led political movements in China’s modern history, it is the one that swept China in 1989, centred in Tiananmen Square, that means most to those taking part in Hong Kong’s unrest. There are two reasons for this. One is that the present protests in Hong Kong offer so many echoes of those in 1989.

The official Chinese press has treated both sets of protesters with similar disdain, as manipulated by evildoers and inspired by foreigners. Then, it thundered about “turmoil”; now, it laments the “chaos” in Hong Kong (both inappropriate words for what were then, and are now, peaceful if traffic-snarling initiatives).

In Tiananmen students dreamed of an ill-defined “democracy”, but the impetus was as much anger at the corruption and unfairness of the system. Now, two specific demands—for the resignation of Hong Kong’s unpopular chief executive, Leung Chun-ying, and for the free and fair election of his successor—give the Hong Kong protests a focus. But underlying them is the irritation of a generation of young people who think they will never be able to afford their own home, and resent an influx of mainland Chinese into an already crowded city.

In 1989 China’s prime minister, Li Peng, agreed to meet pyjama-clad hunger-striking students (just before he declared martial law in Beijing). In Hong Kong the government is to hold talks with the students on the electoral arrangements that provoked the protests (without any hint that a concession might be made).

Students have a seat at the table, just because of who they are. In Beijing, townspeople lost their lives trying to defend students from the advancing army; in Hong Kong, what was seen as excessive force by the police when they used tear gas likewise prompted a surge of popular support for the students.

A deeper reason for the potency ofthe memory ofTiananmen in Hong Kong is that the bloody denouement in 1989 was a defining moment in the territory’s own politics. The handover to China suddenly seemed much more frightening; democracy, as a way of guarding Hong Kong’s freedoms, that much more important. Hong Kong is the only place in China where the June 4th massacre is commemorated every year—at a vigil attended by tens of thousands of people.

The crackdown in 1989 also revived another role for Hong Kong: as what the party calls a base for “subversion”; or what less biased observers might call an oasis of relative freedom. From Sun Yat-sen, the first president of the republic that followed the fall of the Qing empire in 1911, to Han Dongfang, a labour activist who fled China after the suppression of the protests in 1989, Hong Kong has provided a home to exiled dissidents.

The disgruntlement of affluence That the ideas promoted in Hong Kong might catch on elsewhere in China is one obvious reason why China’s rulers are worried.

Another is that they know they are the target. By making sure the Hong Kong government has little electoral legitimacy, they make themselves the butt of the protesters’ anger. And that anger is profound, even though Hong Kong’s people are beneficiaries of a far better version of the deal the party offers all China’s citizens: you can be rich and even free, up to a point, if you do not challenge our rule. Hong Kong’s children, says Jimmy Lai, a media boss who is unique among Hong Kong’s tycoons in supporting democracy, are “the elite of the elite”, “spoiled kids”. But, he says, “I am sure the whole world will wish it had spoiled kids like these.” 7

The Economist October 11th 2014

E S S A Y T H E F U T U R E O F T H E B O O K 51

From papyrus to pixels The digital transformation of the way books are written, published and sold has only just begun

Chapter I In which something old and powerful is encountered in a vault

For versions of this essay that include various interactive and multimedia features, please go to Economist.com/book

FINGERS stroke vellum; the calfskin pages are smooth, like paper, but richer, almost oily. The blackprint is crisp, and every Latin sentence starts with a lush red letter. One of the book’s early owners has drawn a hand and index finger which points, like an arrow, to passages worth remembering.

In 44BC Cicero, the Roman Republic’s great orator, wrote a book for his son Marcus called de Officiis (“On Duties”). It told him how to live a moral life, how to balance virtue with self-interest, how to have an impact. Not all his words were new. De Officiis draws on the views of various Greek philosophers whose works Cicero could consult in his library, most of which have since been lost. Cicero’s, though, remain. De Officiis was read and studied throughout the rise of the Roman Empire and survived the subsequent fall.

It shaped the thought of Renaissance thinkers like Erasmus; centuries later still it inspired Voltaire. “No one will ever write anything more wise,” he said.

The book’s words have not changed; their vessel, though, has gone through relentless reincarnation and metamorphosis. Cicero probably dictated de Officiis to his freed slave, Tiro, who copied it down on a papyrus scroll from which other copies were made in turn. Within a few centuries some versions were transferred from scrolls into bound books, or codices. A thousand years later monks meticulously made copies by hand, averaging only a few pages a day. Then, in the 15th century, de Officiis was copied by a machine. The lush edition in your correspondent’s hands—delightfully, and surprisingly, no gloves are needed to handle it—is one of the very first such copies. It was printed in Mainz, Germany, on a printing press owned by Johann Fust, an early partner ofJohannes Gutenberg, the pioneer ofEuropean printing. It 1 is dated 1466.

52 E S S A Y T H E F U T U R E O F T H E B O O K 2

The Economist October 11th 2014

Some 500 years after it was printed, this beautiful volume sits in the Huntington Library in San Marino, California, its home since 1916. Few physical volumes survive five centuries. This one should last several more. The vault that holds it and tens of thousands of other volumes, built in 1951, was originally meant to double as a nuclear-bomb shelter.

Although this copy of de Officiis may be sequestered, the book itself is freer than ever. In its printed forms it has been a hardback and, more recently, a paperback, published in all sorts of editions—as a one off, a component ofuniform library editions, a classic pitched at an affordable price, a scholarly, annotated text that only universities buy. And now it is available in all sorts of nonprinted forms, too. You can read it free online or download it as an e-book in English, Latin and any number of other tongues.

Many are worried about what such technology means for books, with big bookshops closing, new devices spreading, novice authors flooding the market and an online behemoth known as Amazon growing ever more powerful. Their anxieties cannot simply be written off as predictable technophobia. The digital transition may well change the way books are written, sold and read more than any development in their history, and that will not be to everyone’s advantage. Veterans and revolutionaries alike may go bust; Gutenberg died almost penniless, having lost control of his press to Fust and other creditors.

But to see technology purely as a threat to books risks missing a key point. Books are not just “tree flakes encased in dead cow”, as a scholar once wryly put it. They are a technology in their own right, one developed and used for the refinement and advancement of thought. And this technology is a powerful, long-lived and adaptable one.

Books like de Officiis have not merely weathered history; they have helped shape it. The ability they offer to preserve, transmit and develop ideas was taken to another level by Gutenberg and his colleagues. Being able to study printed material at the same time as others studied it and to exchange ideas about it sparked the Reformation; it was central to the Enlightenment and the rise of science. No army has accomplished more than printed textbooks have; no prince or priest has mattered as much as “On the Origin of Species”; no coercion has changed the hearts and minds of men and women as much as the first folio of Shakespeare’s plays.

Books read in electronic form will boast the same power and some new ones to boot. The printed book is an excellent means of channelling information from writer to reader; the e-book can send information back as well. Teachers will be able to learn of a pupil’s progress and questions; publishers will be able to see which books are gulped down, which sipped slowly. Already readers can see what other readers have thought worthy of note, and seek out like-minded people for further discussion of what they have read. The private joys of the book will remain; new public pleasures are there to be added.

What is the future of the book? It is much brighter than people think.

Chapter II In which deaths foretold do not unfold ALMOST as constant as the appeal of the book has been the worry that that appeal is about to come to an end. The rise of digital technology—and especially Amazon, a bookshop unlike any seen before—underlined those fears. In the past decade people have been falling over themselves to predict the death of books, of publishers, of authors and of bookshops, even of reading itself. Of all those believed at risk, only the bookshops have actually suffered serious damage.

Historically books were a luxury item. Having become cheap enough for the masses in the 20th century, in the 21st century digital technology and global markets have made them more accessible still. In 2013 around 1.4m International Standard Book Numbers (ISBNs) were issued, according to Bowker, a research firm, up from around 8,100 in 1960. Those figures do not capture the many e-books that are being self-published without an ISBN. Many of those self-published books are ones in which traditional publishers would have had no interest, but which almostfree distribution makes worthwhile: do you feel like checking out some Amish fiction? The size of the text, as well as the size of the niche, becomes less of an issue, too; short stories and novellas are making a comeback. “Before there used to be too-big-to-carry and too-short-to-print,” says Michael Tamblyn, the boss of Kobo, an ereading company. “Now all those barriers are gone.”

Even the most gloomy predictors of the book’s demise have softened their forecasts. Nicholas Carr, whose book “The Shallows” predicted in 2011that the internet would leave its ever-moreeager users dumb and distracted, admits people have hung onto their books unexpectedly, because they crave immersive experiences. Books may face more competition for audiences’ time, rather as the radio had to rethink what it could do best when films and television came along; the habit of reading for pleasure has fallen slightly in the past few years. But it has not dropped off steeply, as many predicted. The length and ambition of a bestseller such as Donna Tartt’s “The Goldfinch”—864 pages in paperback—shows that people still tackle big books.

And they are willing to cart them around, too. The much ballyhooed decline of the physical book has been far from fatal. “I thought everything was going to change so much more quickly and so much more radically,” says Ellie Hirschhorn, chief digital officer at Simon & Schuster, a big publisher, who had predicted in 2010 that half of all book sales would be e-books by 2013. Instead, last year e-books accounted for around 30% of consumer book sales (not including professional and educational books) in America, the largest book market in the world and the country where ebooks took off most quickly. In Germany, the world’s third-largest, e-books were around 5% of consumer book sales last year, accord- 1

Taking off Consumer book sales, by country and format, $bn PRINT*

15.1

7.9 United

States

Japan 8.5

6.2

Germany 6.3

6.1

China 4.0

4.0

Italy 3.3

2.3

Britain 2.6

1.4

0.1

1.5

2009 2018†

0.4

eBOOK Source: PricewaterhouseCoopers

0.8

0.0‡ 0.8

0.0‡ 0.4

0.0‡ 0.4

1.9

8.7 *Includes audiobooks

†Forecast

‡Less than $10,000

The Economist October 11th 2014

E S S A Y T H E F U T U R E O F T H E B O O K 53

Hanging in Publishing companies’ profit margins, % 2010

2013 (or latest available) 0

3

6

Revenue, 2013 or latest, $bn

9

12

15

HarperCollins

1.4

Simon & Schuster

0.8

Random House*

3.3

Hachette

2.6

Georg von Holtzbrinck†

2.4

Penguin Books*

1.0

Sources: Bloomberg; The Bookseller; r Publishers Weekly

*Now merged

†Macmillian’s parent company

2 ing to PricewaterhouseCoopers, a consultancy. The growth rate of

e-books has recently slowed in many markets, including America and Britain. Publishers now expect most of their sales to remain in print books for decades to come—some say for ever.

There are a number of reasons. One is that, as Russell Grandinetti, who oversees Amazon’s Kindle business, puts it, the print book is “a really competitive technology”: it is portable, hard to break, has high-resolution pages and a “long battery life”. Technology companies that are used to consumers flocking to snazzy features and updates have found it surprisingly challenging to compete with a format of such simplicity, and consumers are uninterested in their attempts to do so. All most want is the ability to change font size, which is attractive to older eyes. Experiments with reinventing the presentation of books—by embedding sound and video inside e-books, for example—have fallen flat. Sales of ereaders, the most popular of which is the Kindle, are in decline. “In a few years’ time,” a recent report by Enders Analysis, a research firm, predicts, “we will look back at e-readers and remember them as one of the shortest-lived of all consumer media devices.”

You do not need a dedicated e-reader to read an electronic book. The multipurpose tablet devices which are replacing e-readers let you read books and—crucially—buy them whenever you like. Some forms of book benefit a lot. Heavy readers of genre fiction—romance, thrillers and science fiction—were early converts to the cheaper, more portable alternative. Other sorts of book have remained more stubbornly in print form, for various reasons. Physical books make better gifts; many people still want bookshelves in their homes. Parents who feel that their children are spending too much time with screens go for printed books as an alternative, which means a new generation is growing up in contact with print.

Perhaps more unexpected than the flourishing of the book is the health of some publishers. When the music and newspaper industries were ravaged by the internet over a decade ago people feared the same fate would befall publishing. “I thought I would say to people, ‘I’m what used to be called a book publisher’,” says Dominique Raccah, the boss of Sourcebooks, an independent publisher. But the volume of book sales has stayed steady, and publishers are still, for the most part, the people producing the books that sell. Revenues are down slightly because e-books are a significant part of the market and their prices are lower; but costs have fallen, and thus profits are still there to be made (see chart).

Publishers used to guess how many books to print and ship and then pay for unsold copies to be returned to them—sometimes as much as 40% of the print run. Print-on-demand systems— digital technology at the service of physical books—reduce risks by enabling publishers to print smaller batches and then fire off more copies quickly if a book sells well. This has proved especially

helpful for smaller publishers, such as university presses, says John Ingram of Ingram Content Group, a book distributor.

Analogies with the music and newspaper businesses have proved flawed. The music business collapsed in part because the bundle it was peddling fell apart: people wanted the right to buy one song, not the whole album. Books are not so easily picked apart. The music business also suffered because piracy was so easy: anyone who buys a CD can extract the music it contains in digital format in seconds, and can then share it online. Creating a digital file from a printed book by scanning each page, by contrast, is a nightmare. The fate of newspapers has been driven by the decline of advertising—a business publishers (which sell books to readers, not readers to advertisers) were never in.

Where the publishers do their selling, though, is changing a lot.

The biggest change of the past decade is the decline of physical bookshops, which is good neither for publishers nor the booksellers whose doors have closed. Borders, a chain of American book shops, and Weltbild, a German one, have gone under. The change affects which books have a chance of breaking out: bestsellers flourish, but midlist books that might have been discovered while browsing in a bookstore are worse off, because consumers cannot easily stumble upon them while shopping on the internet. To continue to bring in customers bookshops have changed their look, and increased the space they assign to nonbook products, like stationery, cards and other gifts. “A bookstore is defending a very specific lifestyle, where you want to take time out of your day and write or think or read,” says Sarah McNally, owner of a bustling independent bookshop in Manhattan.

There have been two casts of villain. First came the large chain stores in the 1980s that wounded independent booksellers and put many out of business. More recently Amazon, an online retailer that started with books in 1999 and now claims to sell “everything”, has ensured an ongoing wave of closures. Amazon is believed to control nearly half of total book sales and around two-thirds of e-book sales in America. In Britain its grip on the ebook market is even stronger. Booksellers and publishers see Amazon as similar to the enormous polar bear in the television show “Lost”, trampling through the tropical rainforest de“I loathe them. vouring victims at random.

I fear them.

Amazon is no devotee of literature. It sees books as a “gateway” And I use them commodity it can use to attract cusall the time” tomers. It has squeezed publishers and muscled out other booksellers —Anthony by discounting books and selling Horowitz some below cost. Recently Amazon has been waging a very public, months-long war with Hachette, a large publisher, in which it has in the eyes of many abused the power that its market dominance provides in an attempt to squeeze Hachette’s profits and drive prices even lower. Already the average amount American consumers say they paid for a book (averaging both print and e-books) has declined around 40% since 2009, from $15.45 in 2009 to $9.31 last year, according to Nielsen, a research firm.

The book industry rightly feels torn between resenting Amazon for its dominance and its mercenary attitude towards books, while relying on the company for business and appreciating that it has made books more accessible to buyers. “They really are evil bastards,” Anthony Horowitz, an English novelist, has said about Amazon. “I loathe them. I fear them. And I use them all the time because they’re wonderful.” And it is not just buyers who have benefited. Many would-be authors have, too. Amazon has opened the doors for a hurried rush towards self publishing.

54 E S S A Y T H E F U T U R E O F T H E B O O K

Chapter III In which new sorts of author meet new sorts of reader BEFORE the 19th century it was common for writers to publish themselves, a practice that carried no particular stigma, but imposed a significant burden of inconvenience on seller and buyer alike. One author in Paris had to direct buyers to his home on “Mazarine Street…above the Café de Montpellier, on the second floor using the staircase on the right, at the far end of the alley”. As publishing became a mass-market business in subsequent centuries, the self-published came to be seen as kooks or egotists, and treated as marginal in either case. Readers went to bookshops, bookshops bought from publishers and that was the way it was. Bookshops mostly refused to stock them.

Today self publishing has made a comeback. The internet enables people to sell their e-books and print books without the hassle of directing people to their homes or trying to get bookstores to display them. It also offers them success on a scale never before possible.

At last spring’s London Book Fair there was a booth rented by eight authors who said that, between them, they had sold a staggering16m books and spent weeks on the New York Times bestseller list—all without the help of a traditional publisher. They are used to having their claims dismissed; Bella Andre, a self-published romance writer with an economics degree from Stanford, got so irked when a publisher challenged her heady sales figures that she took a picture of a bank statement and sent it to him. “No one is counting our books in any survey that comes out in the media,” sighed Barbara Freethy, another romance writer. She says that, as of September, she has sold over 4.8m books.

To write a book costs nothing but time. To hire an editor, cover designer, formatter and publicist can, if you think them necessary, be done for $2,000 or less. Amazon will publish and sell the resultant e-book to any of its 250m customers who may be interested; smaller sites will do the same, and many offer print-on-demand sales, too. Authors who self publish an e-book through Amazon get up to 70% of net sales, as opposed to the 25% they might get on an e-book that went through a publisher.

Last year Amazon’s sales of self-published books were around $450m, according to one estimate; a former Amazon executive thinks the number is higher. In America about a quarter of the books that got an ISBN in 2012 were self-published, according to Bowker—almost 400,000 titles. In 2013 self-published books accounted for one out of every five e-books purchased in Britain, according to Nielsen.

“Wool” started off as a short story online about a subterranean city called the Silo. Reader enthusiasm and feedback encouraged its author, Hugh Howey, to extend it into a novel. More enthusiasm followed. Simon & Schuster, a big publisher, did an unusual deal to license rights to the print book, while Mr Howey continued to sell the e-book off his own bat. It became a bestseller and may become a film. The film of “Fifty Shades of Grey”, the poster-child for online fiction, hits cinemas next year. Like “Wool”, E.L. James’s “Fifty Shades...” started off online, and some of its e-book success has been attributed to the fact that reading erotica is more discreetly done on a tablet. But since being acquired by Random House it has done remarkably well in its printed form, too. All told, it and its two sequels have chalked up sales of over100m worldwide.

Like Ms James, most writers still sign with publishers when they have the chance, because print books remain such a sizeable chunk of the market. But the self-publishing boom is changing how those publishers work. Self-published authors attract readers by selling their books for just a few dollars and are aggressive about offering promotions to boost sales. This puts pressure on publishers’ prices—especially in genre fiction, where self publishing is most powerful. In the past five years the revenues of Harle-

The Economist October 11th 2014 quin, a publisher of romantic fiction, have dropped by around $100m; in May it was purchased by HarperCollins.

As well as changing what publishers can charge for some types of book, self publishing also changes how they go about finding them. Publishers hoping to spot the next hot thing have started to scour online writing sites, such as Wattpad, where people receive feedback on their work from other users. Any interest they show is normally warmly appreciated. In the past 12 months the average earnings for self-published authors have probably been around $1,180, reckons Mark Coker, the boss of Smashwords, a self-publishing platform, with most of them getting less than that. Such authors find themselves highly dependent on Amazon’s recommendation system and websites that offer promotions to boost their sales; most readers still gravitate to books that have been professionally written, edited and reviewed.

But the advantages ofbeing “properly published”—editors, promotion, and the like—should not be oversold. “We have to be careful not to compare the reality of self publishing with the ideal of legacy publishing,” says Barry Eisler, a thriller writer. In 2011 he walked away from a publisher’s advance of $500,000 in favour of the self-publishing route; he says the decision paid off well. Susan Orlean, an author and a staff writer at the New Yorker, considered something similar for a recent book. “In a million years I would have never thought of that before,” she says. She thinks the day will come when publishers may “No one is have to start unbundling their sercounting our vices. “The mere fact that publishers make hardcover books won’t be a books”—romance powerful enough argument. They author Barbara will have to reimagine their role.”

Publishers could start offering “light” Freethy, who has versions of their services, such as sold over 4.8m print-only distribution, or editing, and not taking a cut of the whole pie.

Publishers realise that they have to change. “Publishers will only be relevant if they can give authors evidence that they can connect their works to more readers than anybody else,” admits Markus Dohle, who runs Penguin Random House, the world’s largest consumer-book publisher.

Such connection is crucial, because the same technology that is making it easier for people to publish their own books is also making it easier for them to explore new ways of finding, sharing, discussing and indeed emulating the books of others. (Ms James’s “Fifty Shades of Grey” started off as fan-fiction based on the characters of Stephenie Meyer’s bestselling “Twilight” books.) From online reviews to the world’s numerous literary festivals to all sorts of social media, writers are ever more aware of and available to their audiences. Ms Orlean says she was used to “writing into the void”, but now posts regularly about what she is working on.

For her and others the contact seems like an opportunity. Others find it irksome. Most, probably, see it as a bit ofboth. But it is not going away. And it is not entirely new.

In Cicero’s day authors ready to launch their newest work would gather their friends at home or in a public hall for a spirited recitatio, or reading. Audiences would cry out when they liked a particular passage. Nervous authors enlisted their friends to lend support, and sometimes even filled seats with hired “clappers”.

They were keenly aware ofthe importance ofnetworking to get influential acquaintances to recommend their works to others. The creation of books started off as something both personal and social; the connection embodied in that dual nature is at the heart of what makes books so good at refining and advancing thought. It was just that the practicalities of publishing in the printing-press age made the personal connections a bit harder to see.

The Economist October 11th 2014

Chapter IV In which standards are always in steep decline, and life gets ever better THOSE whose tastes do not run to the dystopic “Wool” or the embondaged “Fifty Shades…”, who fear that nothing good can come of readers asking authors anything on Reddit and that Flaubert was well-served by his lack of Facebook friends, will find a kindred spirit in Niccoló Perotti. In 1471 the humanist scholar complained to a friend, “Now that anyone is free to print whatever they wish, they often disregard that which is best and instead write, merely for the sake of entertainment, what would be best forgotten, or better still, be erased from all books.” His worries were echoed for centuries. “If everyone writes, who will read?” asked Christoph Martin Wieland, an 18thcentury German writer.

As new means of production, new means of distribution and new audiences have grown up hand in hand throughout the modern history of the book, they have always been looked at askance by representatives of the old order. This may be why novelties have often been slow to take over. Scrolls continued to be used for hundreds of years after the codex was developed. Early printed books tried to diminish the shock of the new by looking like handwritten manuscripts, rather as e-books have, to date, aped print.

But as printers grew in ambition they experimented with ways to make new sorts of “book” that could do things the old ones could not. The ability to mass produce short pamphlets easily and cheaply led to the creation of Flugschriften, or “flying writings”, such as those penned by Martin Luther; these pamphlets were purchased by people who had never been able to afford a book.

Printers gradually pushed into other new genres with no history: almanacs that would forecast weather patterns, chapbooks containing folk tales.

In the 19th century stereotyping, which allowed for whole sheets to be set at once, gave publishers the opportunity to reach new populations of readers through magazines and newspapers and also to expand the world of book-buyers. Their “Yellowbacks” (in Britain) and dime novels (in America) started off as af-

Ancient, modern and everything in between

E S S A Y T H E F U T U R E O F T H E B O O K 55 fordable reprints of older books, not least because that meant not having to pay authors. But in time the publishers came to experiment with new types of content that reflected readers’ interests and demography, such as Westerns and guides to practical knowledge. A similar pattern arose with the introduction of affordable and portable paperbacks in the middle of the 20th century.

Experiments with form have been complemented by experiments with business models. Publishers in the 17th and 18th centuries often sold books by “subscription”, which meant that consumers would agree in advance to buy a book after seeing a prospectus. It acted as a market test. If not enough people were interested, the project could be dropped.

In the 18th century another new model arose in Britain, tailored to the needs of a literate class that wanted to read more than it wanted to buy: “circulating libraries” sold annual memberships that allowed readers to always have a book on the go. The most powerful of them, Mudie’s, was the Amazon of its day in terms of market power, says Leah Price, a professor of English at Harvard University. It would often buy up as much as half of a book’s print run for its network of borrowers; if Mr Mudie chose not to stock an author’s book, it could become an immediate dud. The circulating libraries’ business model encouraged publishers to put out books in three volumes, so three people could be reading one book at once; novelists would write to the form, fleshing out their prose to fill the “triple-decker” format. The development of magazine and newspaper serialisation further encouraged some novelists towards length, as well as setting up a distinctive rhythm of cliffhangers at the end of each instalment.

People tend to think of new genres as inferior to those that preceded them. Novels were particularly popular among circulating libraries’ patrons, much to the chagrin of the English poet Samuel Taylor Coleridge, who harrumphed that he “dare not compliment their pass-time, or rather kill-time, with the name of reading”. But history has been kinder to Walter Scott’s triple-deckers and the serialised doorstops of Alexandre Dumas, as it has to self-published oddities such as Walt Whitman’s “Leaves of Grass” or Marcel Proust’s “Swann’s Way”. Publishing technologies have replaced each other; business models have come and gone. But the various forms of book that have been encouraged along the way have almost all, like the texts of the greatest books themselves, persisted.

56 E S S A Y T H E F U T U R E O F T H E B O O K

Chapter V In which ideas from the past move on into the future OF THE various ways in which technology is expanding what a book can be, one of the most successful so far has been to add to books something that children have enjoyed for ever, and that most people required until the 20th century: another person to do the reading. The cost of recording audiobooks has fallen from around $25,000 in the late 1990s to around $2,000-3,000 today, says Donald Katz of Audible, an audiobook firm owned by Amazon. Books that lend themselves to performance or seek to inculcate self-improvement do particularly well as readings; commuting provides a perfect time for partaking of them. Audible, which is headquartered in New Jersey, says it is the largest employer of actors in the New York area. They do their spirited recordings from texts read off iPad screens—which they prop up on piles of books.

Information technology could provide new ways of getting words from the page to the brain, as well as old ones. Spritz is an application which beams words to a reader one at a time. Like a treadmill, readers can set their own speed and read more quickly, because their eyes can stay in one place instead of scanning a page. Its most immediate application is to allow longish texts to be read on smallish screens, such as those of watches. However Frank Waldman, Spritz’s boss, thinks people will consume whole books this way, as well as poetry, allowing poets to set their poem’s cadence for readers. (An online version of this essay allows you to read this chapter by way of Spritz, if you wish.)

The syncopated spritzing of sonnets and sestinas may or may not turn out to be a big hit; but new sorts of book that use the capabilities of technology for more than just recreating pages are, in time, a sure thing. And so is the decline, even possibly the demise, of some old sorts of book. Matt MacInnis of Inkling, an e-book company, says that the key question is “What are the things books used to do for us that software will now do for us?” Presenting people with procedural information they need in order to take on a simple task or fulfil a well-stated goal is one of those things. Books that simply tell people how to fix their Toyota, how to cook tarte tatin or how to find a place to stay in Tokyo would seem to have a limited future unless they can become objects that meet aspirational, not just informational, needs. On the other hand, books which actually teach, rather than simply inform, could have a very bright future, their pedagogy enriched by embedded media and software that adapts them to the user’s pace and needs.

And if publishers find that some sorts of book no longer make money, they will be able to do a better job selling the ones that do thanks to the far greater amounts of data that can be gathered when books are sold on the internet or read in electronic form.

HarperCollins, for example, has found that when it discounts backlist books, around 10% of consumers buy another title from that author. “That’s information we never had before in the print world,” says Brian Murray, the boss of HarperCollins. Another big publisher is experimenting with “dynamic pricing” on around half of its e-books.

Data can also help decide what sort of content to acquire, particularly in the fields of academic, business and science publishing. Safari Books Online, a sort of database for book content owned by O’Reilly Media, uses data about subscribers’ reading habits to improve its offerings in this way. And Amazon has a trove of data about how people read, including how much time they spend on each page and when they abandon books. As yet, publishers do not have much access to these data; Amazon keeps them to itself. If or when publishers gain more, and start to think about them more deeply, data may be one of the aspects of the electronic world that change their business most.

This may not be to the advantage of authors seeking to make a

The Economist October 11th 2014 living at their trade. One of the reasons dud books get published is that no one is quite sure what will sell. Publishers spread their bets on the basis of instinct, taste, friendship, hunches and stubbornness—for all of which a more data-rich world has less room. While there will be more books, there may be fewer people who can make a full living as writers and publishers, says Mike Shatzkin, an industry analyst.

This too could in part be seen as a return to previous eras, when people did not expect to earn a living by writing books, but used books as a means to advance their career or as a creative outlet. It is clear that most self-published authors are not doing it for the money they can reasonably expect to get—they are doing it to leave a mark, if only a digital one. Those who make a living too may increasingly be the ones who become marketable personalities online, on the festival circuit and elsewhere, rather than being just faded pictures on the inside back cover.

And writers who are not also performers may find that new opportunities arise. People with an idea for a book they cannot afford to take the time to write no longer have to go to a publisher. They can offer something like old-fashioned subscriptions to prospective readers, either on generalist crowdfunding sites, such as Indiegogo, or through specialist firms such as Pubslush and Unbound. Many will not get funded; some will succeed beyond their dreams. In February a young woman Most selfraised $380,000 through Kickstarter published for “Hello Ruby”, a children’s book that teaches programming skills. authors are not Some will go on to greatness. Undoing it for the bound, founded in 2011, has already helped produce a novel, Paul Kingsmoney they north’s “The Wake”, which was longexpect to get listed for the 2014 Man Booker prize in fiction.

Such funding is just another way in which the functions previously all wrapped up in publishing are being unbundled, and in which books are becoming more social. Those who use e-reading devices can see which passages were highlighted by other users, and there is talk of expanding offerings so people can discuss books in the margin at the same time. Bob Stein of the Institute for the Future of the Book predicts that some e-books will start to be sold with a “gloss” of commentary from their authors or other well-known critics, sort of like the director’s cut version of films.

There will be new experiments in storytelling, new genres born of the electronic age, and new authors who never would have been discovered in a print-only world. But there will also go on being lots of books in print—many of which may be more pleasant to hold, feel and own than ever before. In the face of the e-book there is “an imperative now to make the entire physical package itself special”, says Scott Moyers, an editor at Penguin Press. At the extreme is Arion Press, which sells sumptuous copies of classics that have been printed on letterpresses. Its two-volume Don Quixote with goatskin binding and lush illustrations sets readers back a bit more than $4,000.

Books will evolve online and off, and the definition of what counts as one will expand; the sense of the book as a fundamental channel of culture, flowing from past to future, will endure. People may no longer try to pass on wisdom to their sons and daughters through slave-written scrolls, as Cicero did in de Officiis, or even in print. It may even be that Voltaire was right, and that none of them will ever write anything more wise than what was set down 2,000 years ago. But it will not be for want of effort, or of opportunity, or of an audience of future readers ready to seek out wisdom in the books that they leave behind. 7

Middle East and Africa

The Economist October 11th 2014 57 Also in this section 58 Testing the resilience of Lebanon 58 Turkey’s blind eye in Kobane 59 Israeli emigration to Germany 59 Boom and ballot in Mozambique 60 Charcoal, Somalia’s black gold

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

The Middle East fragments

The rule of the gunman CAIRO

Why post-colonial Arab states are breaking down

T

HE residents of Derna, a sleepy port in eastern Libya, awoke to important news on October 5th: at a rally in the main square a powerful local militia, the Shura Council of Islamic Youth, pledged allegiance to Islamic State (IS), the jihadist group that controls swathes of distant Syria and Iraq, and to its self-proclaimed caliph, Abu Bakr al-Baghdadi. A parade of masked men in heavily armed vehicles honked through the streets to celebrate Derna’s new status as an “emirate” within Mr Baghdadi’s pan-Islamic caliphate.

Three years after the overthrow of Muammar Qaddafi, Libya is in the throes of full-scale disintegration. Yet the collapse of Libya’s state no longer seems an anomaly. Across the Middle East non-state actors increasingly set the agenda, challenging governments, overthrowing them or prompting them to retrench behind increasingly repressive controls.

In Yemen an insurgent group known as the Houthis last month captured the capital, Sana’a, and dictates policies to the rump government, which is also struggling against al-Qaeda; jihadists are blamed for bombings and executions that killed scores this week. Over the three years of Syria’s civil war, the “government” forces battling against myriad rebel groups have increasingly devolved from a formal army into an amalgam of loyalist village-defence units, mafia-like shabiha gangs, and

Shia militiamen imported from Iraq and Lebanon. Lebanon’s own army, long outgunned by the country’s Shia militia, Hizbullah, has itself often acted more like a militia than a formal military force: one unit recently burned down a Syrian refugee camp and beat up its residents after attacks on soldiers by Syrian rebels.

The three-week-long battle for Kobane, a Kurdish enclave along Syria’s border with Turkey, has captured the headlines as a test for the American-led coalition fighting IS (see story on next page). Yet the battle on the ground is one between militias, not armies. Similarly in Iraq, the counter-attack against IS’s shock advance towards the capital, Baghdad, has been led not by the Iraqi army but by local tribesmen, Shia party militias and Kurdish peshmerga.

And even these Kurdish fighters, despite the semblance of unified command by the autonomous Kurdistan Regional Government, are made up of two separate forces controlled by the rival parties that dominate different parts of Iraqi Kurdistan.

Back in Libya, there is not one but two rival governments: one in the capital, Tripoli, and the other in the eastern city of Tobruk. Each claims electoral legitimacy, and each is backed by a quarrelling coalition of militias. In Derna very few of the 80,000 residents felt much joy at learning they were now part of the Shura Council’s “emirate”. Another powerful militia in the

town, the Abu Salim Martyr’s Brigade, a local affiliate of al-Qaeda, angrily rejects the notion of seceding from Libya. Rivalry between the jihadist gangs has already led to tit-for-tat murders. The fear is that it may now escalate into open warfare.

Meanwhile, in an apparent effort to assert state control, warplanes have bombed Shura Council bases on the outskirts of the town. They are assumed to be loyal to the Tobruk “government”, but no one is quite sure who ordered the raids or where they were launched from. “Ending this conflict is difficult,” admits Bernardino Leon, the weary UN official tasked with nursing Libya, “because the protagonists are hundreds of militias without a hierarchical relationship between them.”

In explaining the sudden rise of nonstate forces in the region, many have faulted the supposed artificiality of Arab states, whose borders were in many cases defined by European colonial administrators.

IS boasts of effacing the so-called Sykes-Picot accord between Britain and France that created much of the modern Middle East.

Yet the disintegration has not been limited to peripheral areas: it is the internal form of states, rather than the external shape of their territories, that has provoked a backlash. All too often the region’s insecure, control-obsessed governments— sometimes dominated by minorities— have failed to integrate citizens within an inclusive sense of nationhood. The major political ideologies—Arab nationalism, political Islam and now perhaps violent jihadism—transcend national borders.

Instead Arab rulers have wielded the apparatus of state power to obstruct any potential challenge, centralising all decisions and fomenting and exploiting divisions wherever possible. Syria, for instance, denied formal citizenship to tens of1

58 Middle East and Africa 2 thousands of its Kurds for decades, and,

like Iraq under Saddam Hussein, attempted forcibly to Arabise Kurdish regions.

Arab governments also often failed to provide public services or institutions such as decent courts, schools or hospitals, prompting citizens to take matters into their own hands. Especially among the poor and disenfranchised, it was religious groups and charities, many of them financed by conservative Gulf countries, that picked up the slack. National curriculums emphasised historical grievances and inculcated obedience to the state.

Where such hyper-centralised but ineffective one-party (or one-family) states have collapsed, there have been few structures to rebuild social cohesion. What had been small fractures between sects or tribes or ethnicities grew rapidly into wider cracks that are often exploited by external actors eager to exercise influence. Even seemingly benign interventions have made divisions worse: in Syria, competition for aid funding made rivals out of groups ostensibly devoted to the same goal of overthrowing President Hafez Assad.

Depressingly, those Arab states that have weathered the Arab Spring seem to have drawn the wrong lessons. Instead of promoting political reform, many have instead opted to harden the organs of repression. “The police state is back in full force,” says an Egyptian activist. “They are patching every crack in their wall of fear.” 7

The politics of Lebanon

The state that didn’t fail—yet BEIRUT

But its surprising resilience is now under strain

A

S ONE of the Arab world’s earliest collapsed states, Lebanon has a lot going for it. The country may have been ruined by15 years ofcivil war, but it is far wealthier than its big neighbour, Syria; it enjoys a degree ofpolitical liberty; and, by the region’s standards, its society is tolerant.

Under a power-sharing deal that ended the war in 1990, the central government is weak—when, that is, it has one. Parliamentary elections have been delayed since 2013 for lack of an election law; and politicians have been squabbling over a new president since April. But the country’s wily businesses have found ways of working around these and other obstacles such as corruption or electricity blackouts. Where the state fails to provide services entrepreneurs fill the gap: although only 30% of children attend state-run schools, the Lebanese are highly educated.

Christians, Sunni and Shia, who each

The Economist October 11th 2014 make up roughly a third of the 4.4m population, have found a way of rubbing along despite their divisions at home and the turbulence around them. The Lebanese would be rich indeed if they had a pound every time their country had been described as “on the brink” of violent collapse. It has survived wars with Israel and meddling by Syria.

Lebanon is, like other Arab states, a sectarian patchwork. Its Sunnis share the fury of their Syrian co-religionists against the regime of President Bashar Assad; and its Shia share the fears of the minorities that support Syria’s government. Yet Lebanon did not fall into the abyss when Hizbullah, the Shia party-cum-militia, entered the war to prop up Mr Assad. It survived when Syria’s mainly Sunni rebels used northern Lebanon as a transit route for their arms. It has kept going despite the influx of more than 1m Syrian refugees, now a fifth of the total population.

Yet the picture is far from rosy. Lebanon has taken years to get around to exploiting its offshore gas; Israel is already exporting gas from the same area. Wars with Israel, including some started by Hizbullah, seem to break out every few years. The newest destabilising factor is the jihadists who call themselves Islamic State (IS). They have grown increasingly assertive on the Syrian-Lebanese border. In August militants from IS and Jabhat al-Nusra, al-Qaeda’s affiliate in Syria, snatched two dozen Lebanese soldiers from Arsal, a border town.

Their families have since set up roadblocks to protest against the government’s inability to rescue them; IS has beheaded at least two of the captives.

On October 4th-6th Hizbullah clashed on the border with Jabhat al-Nusra, which was fighting to carve out a supply route.

Syrian refugees suffer a growing and ugly backlash from their resentful hosts. Some 45 municipalities have imposed curfews on refugees, reckons Human Rights Watch, a lobby.

Particularly in the impoverished, Sunni-dominated north, anger simmers now that the Lebanese army, traditionally a neutral institution, is seen to be fighting the same Sunni enemies as Hizbullah. There is “a highly toxic cocktail” in northern Lebanon, says Raphaël Lefèvre of Carnegie Centre, a think-tank.

Until recently, most Sunnis in Tripoli, the main city in the north, supported the army and, next door, cheered on Syria’s moderate fighters and Jabhat al-Nusra. But among the poor and devout, some men now express admiration for IS’s victories against the Syrian regime and the Shia in Iraq. The talk is of Sunnis taking on the Shia within Lebanon. The unspoken pact underpinning the country’s mostly genteel anarchy—that the sects would refrain from behaviour that might bring back the civil war—could yet be tested. 7

Turkey and Syria

While Kobane burns ANKARA

The reluctance to strike IS may redound on Turkey’s president

T

HE contrast could not be starker. On one side of a barbed-wire fence, beneath plumes of smoke from air strikes and amid the rattle of gunfire, the bearded fighters ofthe self-proclaimed Islamic State (IS) closed their grip on Kobane, a Kurdish town on Syria’s northern border. On the other Turkey’s soldiers, with tanks and armoured personnel carriers, nonchalantly watch the show, stirring only to fire tear gas and beat back Kurdish protesters wanting to help their Syrian brethren.

The reluctance of Turkey’s president, Recep Tayyip Erdogan, to aid Kobane— even in the name of supporting his American allies as they give air support to the beleaguered defenders—is as obstinate as it is puzzling. It is also counter-productive, given that it drives a wedge between Turkey and America and heightens tension with Turkey’s own Kurdish minority. It may yet rekindle Turkish Kurds’ long but now dormant insurgency.

Mr Erdogan says any help to the Syrian Kurds depends on them abandoning their de facto alliance with the Syrian regime of President Bashar Assad, and joining the mainstream rebel alliance seeking to overthrow him. There were hopes in early October that this position would be softened after secret talks took place in Turkey between Syrian Kurds and assorted Turkish diplomats and spooks. The officials are said to have tentatively agreed to allow weapons from other Kurdish-run enclaves 1

Turkey in the shadow of IS’s flag

The Economist October 11th 2014 2 to transit Turkey and be delivered to the be-

sieged forces of the Syrian Kurdish People’s Protections Units (YPG). But Mr Erdogan, who seems to defer to the country’s more hawkish generals on Kurdish matters these days, is said to have quashed the idea. He also told America, which has been conducting air strikes in defence of Kobane, that they would not get Turkish help unless they agreed to target Mr Assad as well as IS., and set up a no-fly zone.

His inaction is stirring Kurdish accusations that Mr Erdogan is either co-operating with IS’s jihadists, or at least fears them less than he does the YPG, an offshoot of the Kurdistan Workers’ Party (PKK) that has waged a decades-long insurgency for selfrule in Turkey. Yet Abdullah Ocalan, the

Middle East and Africa 59 imprisoned PKK leader, has warned that peace talks with the Turkish government would end if the jihadists were allowed to prevail. On October 7th young Kurds went on a rampage, burning vehicles, looting shops, and hurling Molotov cocktails and rocks at police, who responded with tear gas and water cannons. More than 20 died.

Tanks and armoured vehicles were deployed to impose curfews in the predominantly Kurdish cities of Diyarbakir, Batman, Bingol, and Van, as well as other areas. Mr Erdogan’s calculation that the Kurds cannot afford to open a second front against Turkey while they are grappling with the jihadists is being tested. Mr Erdogan’s ruling Justice and Development party may be hurt by the turmoil, especial-

ly if it scares off foreign investors before parliamentary elections due to be held next summer.

A sinister dimension is the fact that most of those killed in street violence died in clashes between sympathisers of rival Kurdish groups—the PKK on one side and Huda-Par, a pro-Islamic group, on the other. Huda-Par has links to an armed Kurdish faction known as Hizbullah (unconnected to the militia in Lebanon); in the 1990s it fought a nasty war against the PKK that left thousands of Kurds dead. Turkey’s “deep state,” dominated by rogue generals, is widely believed to have egged on the Islamists against their nationalist brethren.

Mr Erdogan’s much-vaunted peace process with the Kurds is fast collapsing. 7

Jewish migration

Mozambique’s elections

Next year in Berlin

Boom and ballot

JERUSALEM

Some Israelis yearn for new lives in Germany

I

S BERLIN the new Jerusalem? A Facebook page launched in Hebrew this month on how to move to a city far from rockets and rocketing prices in Israel has gone viral, reaching 600,000 people in a week. It is called Olim Le-Berlin, “Let’s ascend to Berlin”, using the same rousing verb Jews reserve for emigrating, or “ascending”, to Israel. An Israeli band sings a similar tune, turning the lyrics of Israel’s favourite song, “Jerusalem of Gold”, into a yearning for a “Reichstag of Peace, euro, and light”. Even Professor Manuel Trajtenberg, a leading economist commissioned by the government to look at the high cost of living, which sparked mass protests in 2011, has piped in. “Berlin is more attractive than Tel Aviv,” he says.

The response from official Israel has been vitriolic. Yisrael Ha-Yom, seen as the mouthpiece of the prime minister, Binyamin Netanyahu, chided Berlin’s ascenders on its front page. The voice of the nationalist right decried them as an insult to all Holocaust survivors. “See you in the gas chambers,” commented one critic on the Facebook page. The finance minister, Yair Lapid, has promised to extend price controls to more food items.

Emigration rates hardly justify such uproar. The German Federal Statistics Office records an increase of just 400 Israeli immigrants per year. Overall, Israel reckons there were about 16,000 new émigrés (inevitably called “descenders”) in 2012, but they were more than offset by incoming Jews from Eastern Europe, America and France, who tend to be more religious and right-wing. Though the Israeli diaspora is growing in Berlin, London and Barcelona, the trend is hard-

ly new. Some 700,000 Israelis have abandoned the Promised Land since its creation, says Sergio DellaPergola, a demographer.

That said, the West’s multicultural cities are exercising a growing attraction, particularly on young, single, non-religious and increasingly female graduates—the type who made Tel Aviv cool.

Many Israelis temporarily fled the country during Israel’s summer war in Gaza, after wailing sirens emptied the beaches and kept people indoors. Over Sabbath meals, Israelis who are worried about growing intolerance discuss whether to put their children or their country first.

Fears of anti-Semitism, especially in Europe, deter many Israelis from making the move. But Mr Netanyahu’s apparent rejection of compromise with Palestinians, and wars every few years, is eroding hope. Arguments about economic priorities are growing as Israel’s generals demand resources; on October 8th, they secured cabinet approval for a 10% rise in military spending. On their Facebook page, the Berlin ascenders displayed a bill for groceries in Germany that would cost three times as much in Israel. “Even our forefather, Jacob, went down to Egypt to earn double the salary and pay a third of the rent,” sing the hip-hoppers.

Israelis with Ashkenazi, or East European, ancestry are queuing at German, Hungarian and Polish consulates for what was once regarded as a shameful act of seeking European passports. Their numbers will only swell if the Spanish parliament approves a plan to grant nationality to potentially millions of Sephardi Jews, descended from those it expelled in 1492.

MAPUTO

Political tension persists in a fast-growing economy

A

CROSS Maputo, in between the crumbling, colonial-era buildings, luxury apartments and hotel complexes race to the sky. These are visible reminders of Mozambique’s stellar economic growth—an average of almost 8% a year over the past 14 years. Yet the country is also riven by political and economic fissures that are unlikely to be resolved by a general election due on October 15th. More worryingly, a vote that has thus far been largely peaceful may yet turn violent once the polls have closed.

Underlying much of the recent tension in Mozambique is the uneven distribution of benefits from the country’s windfall of 1

Boom, then bust-up?

60 Middle East and Africa 2 oil and gas discoveries in the far north.

Newer finds in the Rovuma Basin, on the northern border with Tanzania, could make Mozambique the world’s third-largest exporter of liquefied natural gas.

Few of the benefits of this bounty, however, are felt beyond the reaches of the capital, where wealthy urbanites sip espressos. About a third of the national budget comes from foreign donors and most of the country remains rural and poor.

Tensions also persist between Frelimo, the ruling party since independence in 1975, and Renamo, its enemy in a bloody civil war that ended in 1992. Conflict broke out again 18 months ago when Renamo’s charismatic leader, Afonso Dhlakama, returned to the forested Gorongosa hills and waged a low-level insurgency.

Mr Dhlakama, who had accused the government of breaking the terms of the 1992 peace and complained of an unfair concentration of power in Frelimo’s hands, emerged from hiding only in September to sign a new peace accord. His face was soon plastered on lamp-posts.

The romance of the bush Unexpectedly, Mr Dhlakama may receive a boost at the polls from his time in the wilderness. Young voters, who never knew the brutal years of war, are curious about this old fighter and the mythology that surrounds him. “This, for young people, is very exciting. He is the Rambo,” said Eduardo Namburete, a Renamo leader who participated in peace talks.

Frelimo’s presidential candidate, Felipe Nyusi, a former defence minister, is little known in the country. That could be an asset ifit leaves him untarnished from association with today’s president, Armando Guebuza. Mr Guebuza is praised for standing down after reaching his two-term limit, but his popularity has waned as the wealth of those connected with Frelimo has increased under his watch.

The election has been largely peaceful so far, barring a few minor clashes between supporters of Frelimo and those of a third party, the Mozambique Democratic Movement (MDM), which did surprisingly well in last year’s municipal elections. But many people fear unrest after the polls close, warning ofdisputes ifFrelimo fails to dominate, as the party expects, or if Renamo feels slighted.

Carlos Nuno Castel-Branco, director of the Institute for Social and Economic Studies in Maputo, sees trouble ahead, regardless of the outcome. He describes all three parties’ campaigns as paying only lip service to crucial economic issues. Chief among them is a rise in public debt, which has doubled in four years and is approaching 50% of GDP. Future income from gas is being sold against debt. “We are now beyond the threshold of risk,” Mr CastelBranco says. “We are building a bubble.” 7

The Economist October 11th 2014 Charcoal and terrorism in Somalia

A charred harvest ABU DHABI

The unlikely link between Gulf shisha lounges and Somalia’s jihadists

T

HE cafés on Abu Dhabi’s seafront fill as soon as the sun sets and the heat abates. Men gather around water pipes, smoking tobacco flavoured with melon, berry or perhaps even cappuccino. A thin boy scurries from table to table with a bucket of hot coals. Those enjoying such evening idylls may not know it, but their love of smoking shisha is fuelling a bloody insurgency more than 3,000km (1,864 miles) to the south, in Somalia.

The production and export of charcoal is an unlikely but important source of revenue for the Shabab, a militant group that rules swathes ofSomalia and has been battling against troops from the African Union and the fragile Somali government. Charcoal made from Somali acacia trees is particularly prized in the Gulf, because it burns longer than alternatives from, say, Sudan or Nigeria. This quality comes at a price: Somali charcoal retails for about 15 dirham a kilogram ($1.85 per lb), compared with about 9 dirham for the inferior stuff.

In 2012 the UN banned exports of Somali charcoal, yet the prohibition seems to have been observed mostly in the breach.

Indeed, revenues earned by the Shabab have increased since the ban, say UN investigators. They reckon the Shabab took more than $25m offtrade worth as much as $384m in the year to May, through “taxes” imposed on the transport of charcoal and “shareholdings” in the smuggling busi-

Pile up the black gold

ness. Charcoal exports are one leg of a circular trade that pays for the imports of weapons from Yemen, a short hop by boat across the Gulf of Aden.

On October 5th African peacekeepers and Somali forces captured Barawe, the Shabab’s last major port, which lies between Kismayo and the capital, Mogadishu. But the victory may not much dent the Shabab’s charcoal revenues. Most of the trade had already been shifted south to Kismayo. One reason may be that, when it comes to sharing the profits from charcoal, bitter enemies can quickly turn into unacknowledged friends. The UN investigators claim, in a report presented to the UN Security Council, that profits from Kismayo’s exports are divided between rebels, the region’s government and members of the Kenyan army—which has guarded the port since its capture from the Shabab in 2012.

Ports are but one link in a long supply chain that is taxed by the Shabab and other middlemen, including the regional government. At one end are the groups of men, 10-20 strong, who are hired by charcoal traders to cut down acacia trees, some of which are 500 years old. One consequence is massive deforestation and desertification across Somalia, forcing nomadic herders off their lands.

The wood is then hauled by donkey cart to crude kilns dug into the earth, where it is partially burnt for up to ten days before being allowed to cool for another ten. The people doing this hard labour see few of the rewards.

Much of this charcoal is loaded onto small dhows, often owned by Indians, and larger merchant ships. It is then taken to various Gulf destinations, including the United Arab Emirates, Kuwait and Oman, often under false paperwork. Shipping charcoal from Somalia is not without its risks, given the prevalence of another sort of illegal activity—piracy. UN investigators found two instances in which ships carrying illegal cargoes of Somali charcoal were hijacked off the coast of Barawe.

The continued trade is prompting some countries to argue for the imposition of tougher measures. One idea is for international anti-piracy naval forces to stop and search vessels leaving Somali waters. Better, however, may be the proper enforcement of sanctions in the Gulf states where, for the time being at least, compliance with the UN ban is about as substantial as the smoke issuing from a shisha. 7

The Economist October 11th 2014 61

Europe

Also in this section 62 Ebola reaches Europe 62 French jihadists 63 Ukraine at war 64 Belgium’s new government 64 Bulgaria’s election 65 Charlemagne: France’s budget test

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

Italy and reform

Renzi revisited ROME

The Italian prime minister stakes his credibility on the passage of big reforms—but faces plenty of doubters

T

HE Sala Verde (green room) in the prime minister’s official residence, Palazzo Chigi, in Rome has in the past been the scene of three-way talks between the government, the unions and employers that lasted for days. It was to this chamber that Matteo Renzi, the present prime minister, invited representatives of both sides on October 7th to discuss a revamped employment bill crucial to his government’s credibility as a liberalising administration.

He gave them each 60 minutes, starting at 8am. “Only once before has [such] an absence of social dialogue been seen in Europe,” spluttered Susanna Camusso, leader of the biggest trade union federation. “With Thatcher.”

But in Italy, where “face” can be as important as it is in several East Asian countries, appearances are one thing and substance another. The employment bill, which passed its first test in the Senate a day later, is far from Thatcherite. It aims to give most new employees gradually increasing job security, potentially improving the lot of young Italians who now often work only on short-term contracts. But it leaves to enabling legislation the fate of Article 18, an emblematic provision in Italian labour law that makes it almost impossible for companies with more than 15 staff to dismiss workers on open-ended contracts (even if, in practice, most employees are willing to negotiate a settlement).

It is too early to assess the likely impact of the bill. It will be heavily conditioned by further legislation, some of it not due for approval until next year. But it is nevertheless Mr Renzi’s first big structural economic reform, and as such it is a much-needed prize for the euro zone’s austerity hawks.

With Italy mired yet again in recession and GDP in real terms below its level in 2000, never mind 2008 (see chart), Mr Renzi is desperate for the hawks to take a more flexible view of his budget deficit so as to sustain demand. “Either we promote growth, or the euro is finished,” he says.

This week the IMF reduced its forecast for Italian GDP growth this year to minus 0.2%, from plus 0.3% previously. Not even

Bottom of the scuola GDP, 2000=100 140 Greece

130 Spain

France

120 110

Germany 2000 02

04

06

100

Italy 08

10

Source: Economist Intelligence Unit

12

14*

90

*Forecast

Italy’s innately optimistic prime minister expects it to get above 1% in 2015. His country’s public debt, already 135% of GDP, continues to grow despite relatively tight fiscal policy.

One reason for the brevity of Mr Renzi’s talks with the unions and employers was that he wanted them out of the way before racing his employment bill into the Senate so as to coincide with a one-day European Union jobs summit that he was hosting in Milan on October 8th (Italy occupies the rotating EU presidency until the end of the year). To get the bill approved in the face of misgivings on the left of his Democratic Party (PD) and in other parties, Mr Renzi staked the fate of his government, turning the vote into one of confidence.

The result was a tumultuous session in the upper house. No fewer than 26 PD senators put their names to a document criticising the lack of detail in the bill. Beppe Grillo’s Five Star Movement (M5S) also objected to the government’s being given such wide powers to frame the enabling legislation. Some M5S senators threw coins at the government benches; their leader was expelled from the chamber. A lengthy break in the proceedings failed to calm the mood. At one point, a book was hurled at the speaker after he refused to postpone the vote. The bill eventually passed with 165 in favour and 111 against.

The passage of this and other reforms is vital if Mr Renzi is to convince Germany and other euro-zone austerians to cut him enough budgetary slack in order to boost growth. For the time being, and unlike France’s leaders, he says he is prepared to stick to the euro zone’s deficit ceiling of 3% of GDP: “An absolute must, for reasons of credibility,” he insists. Yet Italy was originally meant to get the deficit this year down to 2.6%. It stands to lose some EU co- 1

62 Europe 2 financing if its deficit rises above 3%.

Mr Renzi does nothing to disguise his approval of France’s decision to break the rules. “I prefer a France with 4.4% to Marine Le Pen as president next time,” he says.

The way that he now tells it, the employment bill passed by the Senate will be the first in a stream of structural reforms, all of them due to be approved by a new deadline: April 2nd 2015. After that, he is not giving any guarantees of what Angela Merkel, the German chancellor, and her fellowhawks would doubtless consider good behaviour. “Over the next six months we

The Economist October 11th 2014 want to conclude practically everything, and then we can start to speak frankly,” Mr Renzi explains.

In the meantime, the signs are growing that his government is drafting an expansionary 2015 budget, with the attendant possibility that Italy’s deficit could overshoot 3% long before next spring. A government document approved on September 30th suggested that spending cuts planned for next year had been whittled down from an initial €15 billion-16 billion ($19 billion-20 billion) to just €5 billion.

Mr Renzi (“I prefer arrogance to a lack of

Ebola in Spain

Europe’s first victim MADRID

A Spanish nurse who caught Ebola causes consternation across Europe

F

EAR spreads faster than disease. News on October 6th of a case of Ebola in Madrid, the first contracted outside west Africa, where the disease has killed 3,400 people since March, caused Spaniards to worry not only about its spread but also about the competence of their health authorities.

The victim is a 44-year-old hospital worker, Teresa Romero, who had volunteered to help when two Spanish missionaries were flown home from west Africa and later died of the disease.

Health workers in Africa are among Ebola’s most frequent victims. But in the developed world hospitals have elaborate protocols to minimise the danger of contagion. Ms Romero should have been wearing the right protective clothing, have known the safety protocols properly, and been quickly spotted as a danger to public health once she fell ill.

Yet after Ms Romero caught the virus, she spent ten days on holiday in Madrid,

Taking precautions, after the event

sat a public exam and visited a health centre and hospital with her early symptoms to seek help. Ms Romero wore protective clothing at work and claimed that she had followed the protocols. She even rang the hospital where she had worked to ask for advice on dealing with her symptoms, but her temperature was not deemed high enough to cause concern. Eventually she was taken by ambulance to her local hospital rather than to one that specialises in Ebola cases, requiring a further move some hours later.

Full isolation protocols were reportedly only applied some time after her arrival at the first hospital.

Ebola is not easy to contract. It usually requires contact with the bodily fluids of an infected person. Doctors say that Ms Romero recalled touching her face with a gloved hand after changing a nappy for one patient. They think the risks of further contagion are small, though six people, including her husband, were in isolation as The Economist went to press.

Some 50 health workers who had been in contact with her are being closely monitored. The couple’s dog was also put down.

Hospital staff complain that they had only between 15 minutes and half an hour of training on protocols and how to put on protective clothing before dealing with Ebola patients. In some cases duct tape was used to seal clothing. The authorities admit that Ms Romero should perhaps have been isolated earlier.

Medical staff point to cuts in Madrid’s health service, where spending has fallen by 2% over the past three years. The authorities deny that training was slack and accuse Ms Romero of failing to give doctors full information. Jaume Ribera at IESE, a business school, says Spain should have fewer but better-prepared people treating victims of Ebola.

ambition”) has never been short of selfconfidence. “My ambition [for Italy]”, he declares, “is not to do better than Greece but to do better than Germany.” Yet his room for manoeuvre is cramped by the legacy of his predecessors’ profligacy. Italy’s public debt amounts to almost €2.2 trillion. Only the undertaking of a compatriot, Mario Draghi, the president of the European Central Bank, to do “whatever it takes” to save the euro has succeeded in containing Italy’s borrowing costs. This week, its benchmark ten-year bonds were yielding a mere 2.34%, less than Britain’s and America’s.

At least two things could upset this delicate—indeed, somewhat improbable— balance. It remains to be seen how long investors will agree to accept such low interest rates on the debt of a country whose deficit is no longer shrinking. And Mr Renzi, in a rare admission of concern, admits to being worried by deflation,which is already discernible in the statistics for August. Deflation would automatically raise the burden of existing debt and also push up the real costs of borrowing. A recent study put the risks of deflation in the euro zone as a whole next year at around 12%, but in Italy alone at 35%*.

Not that the ebullient, boundlessly confident Mr Renzi stays concerned for long.

“If I don’t change the country,” he says with a shrug, “I change jobs.” 7

............................................................... * “Italy slips towards deflation, but better news elsewhere”. Oxford Economics

French jihadists

Self-service PARIS

France worries about its would-be jihadists, especially those who return

A

STUDIOUS 15-year-old pupil from the south of France, Adèle enjoyed biology and dreamed of saving lives. But she led a double life. In one Facebook identity she was just a teenaged girl. In the other she was Oum Hawwa, chosen by Allah to help “brothers and sisters” in Syria. Early this year Adèle failed to come home, flew out of Marseille and made it to Syria. Her family says she is now a hostage of jihadists.

Such stories have become more common as France, home to Europe’s biggest Muslim minority, struggles with the flow ofwould-be jihadists to Syria and Iraq. Bernard Cazeneuve, the interior minister, reckons 930 French citizens are either already there or trying to go. Another 36 have died fighting. Although on a per-head basis its jihadists are outnumbered by Belgian and Danish ones, France supplies the largest 1

The Economist October 11th 2014 2 single contingent. Almost a fifth are fe-

male. Some entire families have gone.

Most French jihadists are recruited through one of two routes, says Dounia Bouzar, author of “They Sought Paradise, They Found Hell”, a new book that traces the paths of those like Adèle. Young men, many of whom might have joined the police or the army and have “a tormented relationship with their virility” are, she says, seduced by the promise of a mission and a purpose free of Western lies. The appeal to young girls, by contrast, is often a humanitarian desire to help innocent children; many female recruits hoped to be nurses, doctors or social workers.

A striking feature of this new wave, says Mr Cazeneuve, is its “self-service” nature.

Individuals reach jihadist recruiters in a few internet clicks or on social media, and can be on a low-cost flight via Turkey in no time. Jihad also holds appeal for middleclass teenagers and non-Muslims. The government says almost half of French jihadists were previously unknown to the police, and 20% are converts. Of the 130 families who have contacted an earlywarning centre set up by Ms Bouzar, 70% are non-believers, few have much knowledge of the Koran or Arabic, and many come from middle-class families.

France has long been unapologetically tough on terrorism, and the police have sweeping rights to detain and charge suspects. But the French have felt disarmed in the face of the casual departure of youngsters on cheap flights to Turkey. The wake-up call was the arrest in Marseille of Mehdi Nemmouche, a Frenchman now in custody in Belgium, who is suspected of shooting dead four people at a Jewish museum in Brussels in May after fighting for Islamic State (IS) in Syria.

Mr Cazeneuve is now pushing a tough new counter-terrorism law through parliament. It turns individual terrorist intent into a criminal offence (the current law requires “association” with others) and makes it possible to stop suspects from leaving France if there is “serious reason” to believe their trip is linked to terrorist activity. Although this gives counter-terrorism authorities considerable preventive powers, and civil-liberties groups have criticised some provisions, the bill enjoys broad cross-party support.

The main reason for this political consensus is that the French are on high alert over the terrorist risk at home, thanks to the return of people like Mr Nemmouche.

France’s participation in air strikes against IS in Iraq has made it a target. In September Hervé Gourdel, a Frenchman, was beheaded in Algeria by a terrorist group linked to IS. Some 119 terrorist suspects have been arrested in France, 81 charged and 56 jailed.

When asked by a recent visitor what keeps him awake at night, Manuel Valls, the prime minister, replied: terrorism. 7

Europe 63 Ukraine at war

Fight club

100 km

SUMY

R U S S I A Kharkiv

POLTAVA

KHARKIV

LUHANSK

DONETSK

After the war that was not a war, the ceasefire that is not a ceasefire

W

HAT can you say to the families of the many people killed during Ukraine’s month-old “ceasefire”? At least 331 Ukrainian soldiers and civilians have died since September 5th, when the government and the rebels agreed to stop fighting.

Among the dead were a Donetsk teacher caught in shelling and Laurent DuPasquier, a Swiss worker with the International Committee of the Red Cross. The true toll may be even higher.

The worst of the latest violence is centred around the Ukrainian-held airport in Donetsk, once a sleek symbol of progress, now a wasteland of rubble. Another hotspot is the town of Debaltseve, farther east on the road from Donetsk to Luhansk.

These places are strategically important both for the rebels, who need supply routes, and for the government, loth to lose any more territory.

The so-called ceasefire was but one point of a 12-step peace plan hashed out in Minsk by Russia’s Vladimir Putin and Ukraine’s Petro Poroshenko. The broad contours seemed to satisfy all parties. But the devil is in the detail, and implementation has faltered. The Organisation for Security and Co-operation in Europe lacks the manpower and armoured vehicles to monitor the entire region. Serhiy Taruta, the Kievappointed governor of Donetsk, says the Minsk accords are just too vague.

Prisoner swaps, another part of the peace plan, confirm this. The official agreement prescribes an “all for all” exchange, but the rebels have far more Ukrainian cap-

Let’s stop shooting, shall we?

Rebel-held

U K R A I N E DNIPROPETROVSK Dnipropetrovsk

Sloviansk Debaltseve

Luhansk

DONBAS Donetsk

DONETSK ZAPORIZHIA Mariupol

tives, and it is not clear just which prisoners are covered. “The mechanism was not worked out,” said Oksana Bilozir, a hostage negotiator for the Kiev government, as she supervised a 30-for-30 exchange in late September just north of Donetsk. More fundamentally, Mr Taruta writes, “the parties do not have a mutual vision of the future of the Donbas region.”

For the rebels, that future goes far beyond the Minsk plan, which enjoys little support inside their statelet, where it is seen as a diversion. Officials from the Donetsk People’s Republic, announcing plans for local elections in early November, proposed polls in Slovianskand Mariupol, former rebel strongholds now under Ukrainian control. Igor Plotnitsky, head of the Luhansk People’s Republic and a signatory to the Minsk agreement, has told Russian media that “sooner or later, we will become a part of the Russian Federation.”

Schools in Luhansk have reportedly begun receiving Russian textbooks.

The rebels are using this period to get ready for further conflict. “We’re preparing, repairing equipment, digging trenches, training and resting,” says a senior rebel commander nicknamed “Dushman”.

Many of his men come from towns north of Donetsk that are under Ukrainian control. They still have property and belongings left behind during a hasty retreat in early July. Dushman’s fighters will not abandon their homes for good. Ukrainian troops are also fortifying their lines. At checkpoints west of Donetsk, tanks and troop carriers can be found amid excavators and tractors.

Mr Poroshenko has staked his political life on peace, proclaiming that “the main and most dangerous part of the war is behind us.” Mr Putin, beset by economic concerns, is willing to play along. But Ukraine’s general election on October 26th offers a new opportunity for chaos. Another Russian-backed offensive in the east would damage Mr Poroshenko’s credibility with voters and could swing support to nationalist parties, leading to a fractured parliament incapable of reform. 7

64 Europe

The Economist October 11th 2014

Belgium’s new government

Separatism revised BRUSSELS

The Flemish nationalists get a first taste of government, with uncertain results

J

UST five months after May’s election Belgium has a new government. Set against the 18 months that it took in 2010, that is fast work. Charles Michel, the 38-year-old leader of the French-speaking liberals, will lead a four-way coalition consisting of his party, the Flemish liberals, the Flemish Christian Democrats and—for the first time—the Flemish nationalist N-VA party.

As the largest party, the N-VA, led by its bullish leader, Bart De Wever, is now Belgium’s dominant political force. And that shreds nerves among those fearful of the country’s possible break-up.

Founded on a platform of separatism, the N-VA has long exploited the deep cultural and linguistic chasm in Belgium. The people of the two biggest regions, Flanders and Wallonia, tend to see themselves as Fleming or Walloon first and Belgian second, if at all. The divide is entrenched in a political system that splits into Dutch- and French-speaking parties.

A lattice of federal, regional and municipal governments binds Belgium together, but economic forces are pulling it apart.

Belgium’s public debt, at over100% of GDP, is among the European Union’s biggest, and the economy grew by a meagre 0.2% in 2013. Rich citizens in Flanders are tired of high tax rates, rising social-security costs and the subsidies that they pay to support their poorer neighbours in Wallonia.

Separatism took a back seat to the economy in the election as Mr De Wever painted the Francophone socialists, led by Elio Di Rupo, as a drain on prosperity. “Autonomy was no longer presented as a goal in itself, but instead as a means of implementing a right-wing economic policy that Flemish people actually voted for,” says Dave Sinardet of the Free University of Brussels. The party promised tax and benefit cuts and an end to automatic wage indexation. In the coalition talks Mr De Wever dropped demands for more devolution in favour of his economic agenda.

Joining a coalition with him is still a huge gamble for the French-speaking liberals. Francophone critics complain that the party has betrayed its previous commitment not to work with the nationalists.

They say Belgium’s stability is threatened by a coalition with the support of only a minority of French-speaking parties.

Moreover, Wallonia is now represented by different parties at the federal and regional level, a recipe for obstructive infighting.

The choice of the youthful Mr Michel,

Michel: like father, like son who looks strikingly similar to his father Louis, a former foreign minister and European commissioner, is meant to soothe Walloon anxieties. With an eye on France, the coalition promises to eliminate the budget deficit by 2018 rather than 2016, as previously planned. The main burden of fiscal consolidation will fall on spending.

The parties have agreed to cut taxes on labour, except for health insurance, and increase the retirement age from 65 to 67.

Mr De Wever has ambitions to entrench N-VA as a national movement, not just one seen as a regional force intent on Belgium’s destruction. Whether he succeeds in this will affect his commitment to the country as a whole. If Mr Michel’s liberals or the centre-left manage to block him, some nationalists will revert to what they have always believed: that in Belgium it is not right v left but Fleming v Walloon. 7

Bulgaria’s election

Borisov is back SOFIA

Bulgaria looks likely to get yet another unstable, fractious government

B

ULGARIANS are among the most miserable people in the world, according to the UN’s World Happiness report. In the 2013 survey, which looked at GDP, perceptions of corruption, health and other factors, Bulgaria ranked 144th out of 156—below Afghanistan, Iraq and Zimbabwe.

Sadly, the result of a snap general election on October 5th will do little to lift the gloom. It is likely to bring back to power Boyko Borisov, a former wrestler, bodyguard and police chief with a burly physique, who resigned in February 2013 amid protests about poverty. Mr Borisov’s cen-

tre-right GERB party won 33% of the vote, far ahead of the Socialists and the Turkish minority party, DPS, which each took 15%.

Yet GERB did not get an outright majority, so it will have to team up with one or two of the other seven parties in parliament to form a coalition. They offer an unappealing choice, ranging from an ultranationalist party, Ataka, and the Patriotic Front, a slightly less nationalist one, to Bulgaria without Censorship, a new populist party.

The result is likely to be another unstable, divided government, the fifth in 18 months. The Socialists’ leader, Mihail Mikov, has already said his party will not join.

The Reformist Bloc, a party on the right that took 9% of the vote and is GERB’s preferred partner, refuses to support a government led by Mr Borisov. Snubbed by these two large parties, GERB is now manoeuvring to form a minority government.

The election underscored the widespread disillusion of Bulgarians with their politicians. Mr Borisov’s appeal seemed to lie in his being the least bad of the candidates. (He once told voters: “I am stupid.

You are stupid. That’s why I understand you”.) Voter turnout, at about 50%, was the lowest in the quarter of a century since the country ditched communism.

During the campaign the candidates failed to deal with any of the country’s most urgent problems: the future of the fourth-largest bank, the Corporate Commercial Bank, which has been closed since June, leaving 200,000 depositors and companies stranded without access to their funds; high electricity prices; rampant corruption; and a faltering economy. Bulgaria remains the European Union’s poorest country. The average monthly salary is just over €400 ($500), and one-fifth of households live below the poverty line. This summer’s harvest was poor and some exporters have been hit hard by Russia’s import bans imposed in response to Western sanctions. On October 7th the IMF lowered its growth forecast for Bulgaria this year to just 1.4%.

Rosen Plevneliev, the president, has appealed to the parties to agree on a new government to avoid yet another election. “I am absolutely convinced that new elections are not a solution,” said Mr Plevneliev, who must convene a new government

by November 5th.

But even if the parties cobble together a new government in the next couple of weeks, Bulgarians have little confidence in what it can achieve. According to Nikolay Staykov, a member of last year’s protest movement, “the only option is a threeparty coalition that will find it hard to push unpopular decisions and will be very unstable.” This will only increase the political turmoil, says Mr Staykov. The coming winter may be even more tumultuous than the previous one, when unhappy Bulgarians took to the streets every day. 7

The Economist October 11th 2014

Europe 65

Charlemagne Bulldozing on France’s fiscal laxity is losing it friends in Brussels and elsewhere

T

HE nights are drawing in and there is a sharper bite to the wind, yet it is a time of renewal in Brussels. New leaders are taking office, brimming with fresh ideas and hoping to sweep away stale old debates.

With one exception. In what feels like the latest instalment ofa sagging film franchise, a row is looming over France’s budget. Under euro-zone rules, France is meant to reduce its budget deficit below 3% of GDP by next year, a deadline that has already been extended twice. But last month it announced that it would do no such thing. The deficit, said Michel Sapin, the finance minister, would rise to 4.4% this year and fall below 3% only by 2017. Italy, under the leadership of Matteo Renzi, also questions the rules.

This presents a nasty test for the European Commission, which oversees the budgets of euro members. It does not relish the prospect of a bust-up with the second- and third-largest countries in the euro zone. But after several painful years in which leaders carefully crafted binding rules to keep the wayward in line, it cannot afford to bend at the first sign of trouble. Indeed, a failure to enforce the rules could be challenged in court. To add to the fun, a new commission is due to start on November 1st, and the man partly charged with ensuring that governments keep to the rules is Pierre Moscovici, Mr Sapin’s predecessor. Viewed with intense suspicion by German austerians, he will have every reason to be tough on his mother country.

France’s economy is stagnant, and Italy’s is in recession. Manuel Valls, the French prime minister, has already announced spending cuts of €50 billion ($63 billion) over three years. He wants more flexibility so as to loosen labour laws and pursue reforms. Slashing more spending when demand is weak, he argues, is madness. France has repeatedly been given greater latitude over the pace ofdeficit-cutting, but Mr Valls would like to be given even more.

Its economic woes may explain France’s latest intransigence over the deficit. But the French have repeatedly wasted time and are now fast running out of friends. One senior commission official sighs that there is always an excuse not to reform: if there is no growth, you can’t do it; if there is growth, there’s no reason to.

Germany is especially frustrated by France’s call for a two- rather than one-year extension. But other countries are outraged, too:

those that have endured the pain of reforming while budget-cutting, by choice (the Balts), or because of rules in their bail-out programmes (Greece, Ireland, Portugal).

These countries have become increasingly vocal in meetings of euro-zone finance ministers and elsewhere. They fear a rerun of 2003, when a Franco-German alliance ignored the deficit rules and escaped censure, over the objections of both the commission and smaller countries. Little has changed, they say, except that Italy, another big country, has taken the place of Germany. Alexander Stubb, Finland’s prime minister, argues that the euro’s later troubles began with that rule breach in 2003. Mr Valls’s insistence that France’s fiscal decisions are a matter for it alone is especially grating. Many of his critics back the monetary activism of the European Central Bank and few are fiscal sadists. But, says one diplomat, it’s hard to see a big country assigned times tables when the smalls must tackle advanced calculus.

Mr Valls’s best hope lies in convincing his fellow leaders that France is ready to go beyond paying lip-service to reform. Belatedly, his government has embraced a series of pro-business policies. At home Mr Valls has tackled critics in his own party; abroad he has taken his argument to, among others, Berlin and London.

His ardour is genuine, and sceptics have been won round. But, seen from Brussels, the fiscal effort is still disappointing. Mr Valls’s claim that the French are victims of external forces cuts little ice. The structural deficit (stripping out the effects of the business cycle) was supposed to be trimmed by 0.8% this year; under Mr Sapin’s plans it will fall by a paltry 0.1%.

A row seems unavoidable. The French must formally submit their budget by October 15th. The commission is likely to find France in breach of its commitments and ask for revisions. If it is not satisfied, it can ask the European Council (ie, heads of government) to impose a fine of as much as 0.2% of GDP. But it is hard to envisage such a punitive measure against France. Bureaucrats are already thinking about possible compromises. Amid jaded sighs, a political deal will probably be done in the end.

Can we talk about something else?

The irony is that this argument looms when the EU wants to change the subject. Rather than squabbling over budget deficits, Eurocrats want to discuss ways to kickstart Europe’s ailing economy (the IMF has just issued a grim forecast for next year). JeanClaude Juncker, the incoming commission president, is talking of €300 billion of fresh investment across the EU, even if nobody knows where to find the money. The ECB, the IMF and others urge countries with fiscal space to do their bit to prime the pump; it is hard to find anyone other than Germans who does not want Germany to spend more on bridges. This week Valdis Dombrovskis, a Latvian charged by Mr Juncker with overseeing the rules, spoke of being “by and large done with fiscal consolidation”.

All this is music to French ears. But the melodious talk cannot conceal a dissonance at the heart of the euro zone. For Germany and its allies, fiscal prudence remains a precondition for sustained economic growth. For Mr Valls and Mr Renzi, it stands in recovery’s way. Nobody really wants this fight. If a combination of reforms in France and Italy and well-targeted investment across the EU can at last get the economy moving, it will be easier to disguise the divisions. But for now the stage seems set for the latest round in a wearyingly familiar fight. 7 Economist.com/blogs/charlemagne

66

The Economist October 11th 2014

Britain

Also in this section 68 Bagehot: Britain in Afghanistan

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

Education reform

The new school rules

The academies programme has transformed England’s educational landscape

T

HE King Solomon Academy, a squat modern building overshadowed by social-housing tower blocks in central London, feels like the kind of inner-city school that reformers dream of creating. The mood is attentive, the walls festooned with quotes enjoining pupils to aim high.

The school, set up in 2007, is run by ARK, one of the charities, regulated by the government, that are reshaping English education. King Solomon says it wants to be “transformational” and, so far, it has succeeded. Fully 93% of the school’s 16year-olds gained five good pass grades in core subjects in their GCSE exams this year, compared with 64% in the capital as a whole, even though three-fifths of its pupils come from homes with low incomes.

The Conservative-Liberal Democrat coalition came to power aiming to improve England’s dismal showing in global education rankings (it came 26th in the recent maths-centred round of PISA tests run by the OECD). It swiftly embarked on a mission to expand the conversion of state schools into so-called academies. The last Labour government began the project in 2002, creating non-selective schools financed from the public purse but outside the control of local authorities, which for decades had presided over a patchy system of state secondary schools, known as comprehensives.

It is uphill work. A country that funds education quite generously (13% of govern-

ment spending, in the top third of outlays on schools in the developed world) lags far behind Asian high-performers such as South Korea, Japan and Hong Kong as well as improvers closer to home, such as Germany, which in the past decade has reversed its poor performance.

Under Michael Gove, a reformist education secretary, the coalition sought to speed up reforms, boosting the number of academies to about 4,000, almost 20 times as many as in 2010. That means about twothirds of all English secondary schools now control their own staffing, curriculum and budgets. Mr Gove also created 250 free schools, with another 112 pending: usually new startups, set up by parents or community groups, with the same freedoms as academies but often smaller in scale. (Scotland and Wales have stayed aloof from the experiment, wary of the more fragmented educational landscape they fear it creates.)

The reforms have shown commendable vim, compared with the halting overhauls of other major public services such as health and welfare. An “unprecedented change in England’s schools” is under way, says Stephen Machin, an economics professor at University College London. But with a general election due in May 2015, nervousness about the impact of the upheaval is apparent. In July the prime minister abruptly replaced the combative Mr Gove (who called opponents of his reforms “the blob”). His replacement, Nicky

Morgan, has struck a more soothing tone.

She has gone out of her way to express commitment to raising standards across the entire spectrum of schools. It is, however, the success of academies that will determine how impressive the coalition’s reforms look to voters next May. The dash for more autonomy has quickly created two varieties ofacademy. In 2010 all 203 academies were sponsored by businesses, religious groups or charities, and mainly set up to replace under-performing schools. Most of the more recent converters, by contrast, have not benefited from the external guidance of sponsors, whether individuals, other schools or charitable foundations. Instead, they are trying to change directly from being council-run schools to academies—a harder task.

On the up The good news for the reformers is that, where academies are well-run, the results vindicate the argument for greater freedoms. Two new pieces of research, tracking pupils from schools which converted to academies before 2010, suggest that more freedoms for those who run schools can indeed raise results for both richer pupils and those from less well-off backgrounds (an important point, since many opponents on the left fret that academies attract middle-class parents and neglect the less privileged).

A report entitled “Chain Effect” for the Sutton Trust, which promotes social mobility, found that in the five leading academy chains, the proportion of poor pupils achieving five good GCSEs is at least 15 percentage points higher than the average for similar pupils in non-academy schools.

A separate study by Professor Machin and Andrew Eyles at the London School of Economics identified “beneficial effects” in schools becoming academies. Rates of 1

The Economist October 11th 2014 2 improvement were also faster for more au-

tonomous schools than for general secondary schools, and the biggest improvements were in schools converting from comprehensives, rather than from other types, such as church schools. “Autonomy”, the authors conclude, “effectively acts to facilitate school improvement.” Additional research shows that 43% of pupils entitled to free school meals in comprehensives that did not convert to the academy model gained five good GCSEs. That rose to 45% in those that did convert—a small increase, but achieved rapidly.

Half-full or half-empty?

Alas, this promising picture describes only about half of the schools set free from local authorities. There are strikingly large differences in the performances of academy chains. One, the E-ACT chain which ran over 30 schools, was ordered to hand ten back to central government control earlier this year. Sir David Bell, the most senior civil servant in charge of the school reforms in 2007-10, now vice-chancellor of Reading University, thinks larger chains can acquire some of the same problems that local authorities had, “being too big to have oversight over what happens in individual schools and too bureaucratic”.

Hopes that big providers might offer consistent quality at scale have faded, to be replaced by an acknowledgment that keeping chains small or medium-sized may prove more reliable.

Supporters of academies want to see the best chains expand, driving out bad ones. In practice this can be painfully slow, because the best chains tend to expand prudently rather than rush to create empires. Liam Nolan, who heads the Perry Beeches network of six academies and free schools around Birmingham, says he favours “close-knit families of schools” in geographically close areas, where staff can be swapped around or moved to more se-

No blobs here, Mr Gove

Britain 67 nior jobs within the group. Mr Nolan thinks success is achieved by “spreading an ethos as well as technical teaching tips”.

But this leaves post-Gove reformers wondering how to sustain a rapid pace of reform without compromising on quality.

This tension runs through school reforms in many countries. Germany, for example, is struggling to apply to other areas the changes it made to secondary education in Saxony, which closed poorly performing schools. A number of lessons from America’s best charter schools (a forerunner of academies) might help. A study of the most successful ones by Roland Fryer of Harvard University found that the quality of school heads was closely monitored and underperformers were quickly ousted. Longer school days improved literacy and numeracy, especially among the less able. Performance data— still erratically used in English schools— were deployed to track pupils’ progress.

The standard of inspectorates also matters. Sweden’s free-school movement, for instance, was let down by poor follow-up from inspectors. Sir Michael Wilshaw, head of Ofsted, the British government’s schools watchdog, has fought for more powers to examine academy chains—an overdue step.

Meanwhile the fate of the free-school programme looks less certain. The coalition’s reformers hoped they would boost innovation by allowing parents or community groups to start schools. Few doubt that the momentum driving the creation of new free schools will falter if Labour, which is cool about the experiment, is elected in May, so many potential founders are rushing in their applications now.

And even with the present government’s backing, free schools represent a mere 4% of the total number of schools in 2014, rising to around 6% by 2015.

One reason the government talks less enthusiastically about free schools than it

did is that they can cause headaches over accountability. In one dramatic example, the Muslim al-Madinah free school in the city of Derby closed this year after complaints of fundamentalist proselytising, intimidation of non-Muslim staff and poor teaching. The saga suggests that badly run schools can decline more quickly than national inspectors can monitor. Attempts to agree upon a middle tier of local accountability that does not involve handing power back to local authorities have been fraught.

The words of the non-profits But accountability is not the same as momentum, and some believe the best way to turbocharge the reforms would be to allow for-profit operators into the mix. Toby Young, a journalist who became one of the first free-school founders in London, argues that such a move would overcome regulatory and bureaucratic obstacles. Allowing for-profit chains to operate (as in America and Sweden) might well help expand the limited pool of people willing to start new schools. Allowing only non-profit groups to become new providers has encouraged the overexpansion of some chains, often with little competition. Ms Morgan says that she would like to revisit the argument, though she freely admits that “most people wouldn’t like it”.

One interim solution is to encourage other successful academic institutions to oversee academies. Birmingham University is launching an academy, which will also train new teachers. University College London has created a specialist science school. The private sector is also being encouraged to sponsor more academies; Wellington College, a leading private school, has added a primary school to the secondary school it already runs.

For all the gripes about academies, often from vested interests (notably teachers’ unions) who prefer the state to dominate the provision of education, England’s secondary-education system has adapted quickly to new freedoms. It needs to use more of them, driving out weaker heads and teachers and finding quicker ways of exposing and fixing failures. Yet a tour of the country’s new breed of schools is, on the whole, an uplifting experience. It shows a more diverse system, one more firmly focused on improvement.

One lesson stands out: the culture of achievement, especially in literacy, has to be instilled before children reach their stroppy, secondary-school years. So fixing education should start younger, with more academies, like King Solomon, taking pupils from the age of three up to 18. For all their flaws and failings, the new schools have injected something exciting into a once-moribund education landscape: the belief that regardless of wealth or background, schools can transform lives. 7

68 Britain

The Economist October 11th 2014

Bagehot The remnants of a foreign policy Britain’s campaign in Afghanistan has been a failure. Its withdrawal could be a disaster

I

N THE shade of the presidential palace in Kabul, in the furnace heat of Helmand, and on the flight from Oxfordshire, shouting above the roar of the Royal Air Force plane’s engines, the British pressmen who travelled to Afghanistan with David Cameron last week had really only one question: “Was it worth it?”

Was Britain’s 13-year military intervention in Afghanistan, whose imminent end the prime minister had come to mark on his 13th and probably last visit to the country, worth the £40 billion ($65 billion), 453 British lives and thousands of limbs it had cost? And if so, Bagehot privately wondered, why were they all wearing body armour, including blast-resistant underpants, as the plane came in to land? Why had Kabul suffered four suicidebomb attacks that week? Why was the Afghan capital considered so dangerous by the Foreign Office that it would not let your columnist leave Mr Cameron’s entourage to spend a few days seeing for himself the progress its diplomats describe?

Mr Cameron’s answer was typical of the muddle British politicians have made of Afghanistan. Yes, it was worth it, he said, because there had been no repeat of the 9/11 atrocities, which were planned in Afghanistan. But if that constitutes success, why are British troops leaving? Despite the recent progress of the Afghan security forces—over a hundred of whom are being killed by the Taliban every week—no one, including the country’s newly elected president, Ashraf Ghani, is confident they can withstand the onslaught. And why did Mr Cameron rule out, even in extremis, British troops returning to the fray? Moreover, why, in his address to British troops, did the prime minister suggest the withdrawal, which he had promised in 2010, was in itself a mark of success?

Haphazard, ill-conceived and waged—often with great heroism—on a shifting prospectus, Britain’s fourth Afghan war recalls the old gibe that its foreign policy is the same as America’s, only a bit less. Yet even that may be out of date, as Britain’s recent reluctance to fight against Islamic State suggests. If so, the Taliban will have won a great victory. They will have bled the last vestiges of Britain’s claim to global power status into Helmand’s sand.

To understand how this has happened, it is important to appreciate how unsuccessful much of the British effort has been. It is not really true, as Mr Cameron says, that it started in 2001, when Tony Blair made his moving pledge to Afghans: “This time, we

will not walk away.” For the next five years, Britain did little. It took the lead in an almost comically hapless effort to eradicate opium cultivation. An artistic British spy, and chum of Bagehot’s, was given the task of designing a propaganda poster, depicting an opium poppy, to be pasted around southern Afghanistan. By the time it came backfrom the printer’s, the poppy had unfortunately morphed into a rose. The poster was distributed anyway. In those years, Britain’s main military contribution consisted of a hundred Nepali Gurkhas, who were said to have a special way with Afghans, being Asian themselves.

Vast, remote, never-much-ruled southern Helmand was then overseen by a couple of hundred American special forces. They knew that, while Western policy was going nowhere, Afghanistan was changing: “They’re watching us, deciding which way to jump,” one of them told your columnist. By 2006, with the Taliban resurgent across the south, they had decided—whereupon 3,000 British troops were deployed to Helmand. With orders to end the warlordism on which Afghanistan’s problems had been blamed, they set about remaking the province’s government.

This sparked a firestorm, which would at one point see 32,000 British and American troops deployed to Helmand, and which, even now that most of the foreign troops have left, still burns.

What lessons can be drawn from this disaster? One is to remember those of history. Afghans never forgot that Helmand was the scene of one of Britain’s imperial calamities, the 1880 Battle of Maiwand—indeed, during the 1980s, British and American spies kept reminding them of it, to stiffen their resolve against the Soviet invader. Another lesson is that, when trying to win the support of suspicious foreigners, it is best to keep your promises.

Mr Blair, for whom history started with his own election to power, did not. The result was that, ifthere was a chance in 2001of preventing the insurgency, by 2006 there was none.

That suggests a third, more difficult lesson, which is to promise only what can be delivered. Mr Cameron’s decision to set the end of 2014 as a deadline for withdrawal was, in part, an acknowledgment of this. His generals protested, arguing that, with a bit more time, victory was still possible. He did not believe them, and little that has followed suggests he was wrong.

Talking a great game But that does not let Mr Cameron offthe hook. The bungling in Afghanistan demanded, at the least, a serious reconsideration of the nature and limits of Britain’s diminished, but still considerable, power. The prime minister shows no interest in that. In his foreign-policy pronouncements he sounds almost as Messianic as Mr Blair. In Helmand, where his enraptured Labour predecessor said the “future of world security” would be decided, Mr Cameron reiterated his belief that battling jihadism was the “struggle of our generation”. Yet he has committed few resources to it—just half a dozen planes over Iraq, none over Syria and, soon, only a few dozen army trainers in Afghanistan. It is an extraordinary mismatch, between too much talk and too little action, in which it is tempting to see a fatal decline in British resolve.

That is bad news for Afghans, who perhaps needed fewer British troops than they had, and may now need more than they can have. Because the honest answer to the question demanded of Mr Cameron in Kabul is that it is too soon to say. If Afghanistan’s feeble state, built at such a terrible cost, is still standing a decade from now, the Western campaign will be adjudged profligate, brutal at times, but a success. If not, it will have been a fiasco. 7

The Economist October 11th 2014 69

International

Also in this section 70 The spread of Ebola 70 Education and religion

Telemedicine

Stuck in the waiting room ROME

A long-touted health-care revolution may at last be about to arrive

T

HE idea of telemedicine—health care provided using telecommunications equipment—has a lengthy history. Radio News, an American magazine, devoted its cover to a patient at home consulting a doctor in his surgery via a television link as long ago as 1924. When NASA began monitoring astronauts in space in the 1960s, fantasy became reality. It has been touted as health care’s future ever since.

But even smartphones and tablets have failed to usher in the telemedicine revolution: most health care still happens face to face. Now, enthusiasts think the wait is nearly over. Governments have been slow to embrace an approach that could improve coverage and outcomes, as well as saving money. But they are under increasing pressure from ageing populations and a surge in chronic diseases, just as public budgets are being squeezed.

At an industry conference in Rome on October 7-8th, participants discussed the problems that must be solved if telemedicine’s day is to come. They include redesigning laws and payment systems set up for face-to-face care, and finding ways to keep patients’ data secure and private.

In America, the world’s largest healthcare market, states license doctors. Jurisdiction depends on the patient’s location, not the doctor’s—so doctors must be licensed in all states where they have patients, and meet care standards that René Quashie, a health-care lawyer, says are “complicated,

incoherent and sometimes contradictory”.

The situation in the European Union is simpler: countries may not pass laws that would stop doctors practising telemedicine, and doctors need only be licensed in one country to practise in all. But member states do not agree on whether to pay for care that is administered remotely; some, including Germany, rarely pay for it at all.

In America only 21 states mandate that telemedicine be compensated at the same rate as face-to-face care. At the federal level, the Veterans Administration has embraced telemedicine whereas Medicare, the public-health programme for the elderly, largely ignores it. But private employers and insurers are increasingly paying for telemedicine, encouraged by a shift to paying doctors for packages of care rather than per service. This has “opened the door” to remote care, says Jonathan Linkous of the American Telemedicine Association.

Telemedicine is more than a Skype chat between doctor and patient, says Michael Young, who works on remote care for the University of North Carolina. The technology can look similar but the need for security and privacy is greater. Earlier this year the FBI warned American health-care providers that their cyber-security systems were not up to snuff. Electronic versions of sensitive documents such as X-rays or doctors’ notes must be as secure as paper ones.

That is hard when they are flying through the ether. In August one of America’s big-

gest hospital groups said Chinese hackers had stolen data on 4.5m patients.

Some small countries are in the vanguard. Israel’s health-care system is fully digitised: all doctors use electronic medical records, and patients have access to their data. Doctors can write repeat prescriptions and refer patients to specialists over the internet. The health ministry noticed an uptickin telemedicine in 2010 and introduced relatively lax guidelines in 2012.

China is spending billions on healthcare reform, with a focus on telemedicine.

But keen interest is no guarantee of success in any country. “If you have a chaotic system and add technology, you get a chaotic system with technology,” says Peteris Zilgalvis, a health official at the European Commission. Telemedicine may even increase costs if it is added to old routines rather than replacing them. There is little evidence of its cost-effectiveness, says Marc Lange of the European Health Telematics Association, because studies simply lump it on top of standard care.

Lights, camera, interaction Some doctors have been reluctant to embrace telemedicine, says Nils Kolstrup, a Norwegian doctor, fearing it may lessen their authority by making it easier for patients to seek advice elsewhere. Patients, too, may feel they are being fobbed off with second-best, and governments worry that it could stimulate frivolous demand.

So countries where provision is currently limited or non-existent may be quickest to move. Rwanda, for example, is short of oncologists, so American specialists consult on difficult cases. Doctors at the Cleveland Clinic look at tumours from several African countries. But if telemedicine is to take off, big, rich countries must embrace it—not least because that is where the money is. 7

70 International

The Economist October 11th 2014

The spread of Ebola

Bridges or walls A panicky response in the West may worsen conditions in west Africa

T

HE death toll from Ebola in Guinea, Liberia and Sierra Leone, the three most affected countries in west Africa, now stands at around 3,900. Among cases diagnosed outside Africa, the total is one: Thomas Duncan, a Liberian national, who died in Texas on October 8th. Yet fear of Ebola in relatively unaffected countries risks making the tragedy in Africa worse.

On October 3rd Bobby Jindal, the Republican governor of Louisiana, called for flights from “Ebola-stricken” countries to America to be suspended. Other Republican politicians have done the same. Plenty of African countries have already introduced flight bans. Some Western airlines have also altered their schedules.

Public-health experts oppose shutting countries off. Humanitarian aid and medical staff struggle to get to afflicted areas, worsening the original outbreaks. Some would-be travellers find other routes that are harder to police. The economic consequences are grave. And it is a bit more complicated than the likes of Mr Jindal imply.

Dirk Brockmann, a specialist in complex networks at Humboldt University in

Airborne For every 100 infected passengers who board a flight* in Guinea, Liberia or Sierra Leone, number expected to disembark in: Highest-risk destination countries

0

3

6

9

12

15

Senegal Gambia Ghana Liberia Sierra Leone Morocco Ivory Coast Mauritania Britain Nigeria France Belgium Mali Guinea United States Togo

Africa

Spain

Europe

Italy Germany

North America

*Direct and connecting flights.

Before introduction of Source: Dirk Brockmann, flight restrictions Humboldt University, Berlin

Berlin, has used air-transport data to study how Ebola might spread across borders.

His research, which assumes that a normal flight schedule is in operation, calculates how probable it is that an infected person boarding a plane in the worst-affected countries—Guinea, Liberia and Sierra Leone, in particular—will disembark in each of dozens of other destinations (see chart).

Mr Brockmann’s work offers three big messages. First, the risks to Western countries remain relatively low, even with normal flight schedules. For every100 infected passengers embarking in Guinea, Liberia and Sierra Leone, 84 would normally disembark at another African airport. Three would arrive in Britain and France; only one in America. That infected people must get onto a plane in the first place further reduces the absolute risks. Well-prepared, well-funded health systems will be able to cope. (Low numbers of arrivals are less reassuring for densely populated emerging countries such as India.)

Second, if a country is truly intent on keeping Ebola out, it has to go further than banning flights from the worst-affected places. Global hubs are also likely to

spread the disease. America’s single Ebola fatality may have disembarked in Dallas but the first leg of his journey from Monrovia, Liberia’s capital, was to Brussels. Airports in London and Paris play a big part in linking Sierra Leone and Guinea to the rest of the world. Calls to cut off west Africa look, in Mr Brockmann’s phrase, like “19thcentury thinking”. Grandstanding might be more accurate.

There is a role for better screening of passengers from affected areas; on October 8th America said it planned to start. But to screen well, it helps to know how travellers are moving around the system. That is the third lesson of the model: many passengers will find less predictable routes to their destinations if they must. Stopping flights between Conakry in Guinea and Charles de Gaulle in Paris, for example, increases the likelihood that people will fly to Dubai or to Abidjan in Ivory Coast. Others will eschew airports altogether: border crossings into Kenya are reportedly crowded with west Africans who have travelled overland in packed buses instead of taking flights. Turning your back on Ebola is not the same as stopping it. 7

Education and religion

Falling away How education makes people less religious—and less superstitious, too

J

UST one extra year of schooling makes someone 10% less likely to attend a church, mosque or temple, pray alone or describe himself as religious, concludes a paper* published on October 6th that looks at the relationship between religiosity and the length of time spent in school. Its uses changes in the compulsory school-leaving age in 11 European countries between 1960 and 1985 to tease out the impact of time spent in school on belief and practice among respondents to the European Social Survey, a long-running research project.

By comparing people of similar backgrounds who were among the first to stay on longer, the authors could be reasonably certain that the extra schooling actually caused religiosity to fall, rather than merely being correlated with the decline. During those extra years mathematics and science classes typically become more rigorous, points out Naci Mocan, one of the authors—and increased exposure to analytical thinking may weaken the tendency to believe.

Another paper, published earlier this year, showed that after Turkey increased compulsory schooling from five years to eight in 1997, women’s propensity to identify themselves as religious, cover their heads or vote for an Islamic party

fell by 30-50%. (No effect was found, however, among Turkish men.) And a study published in 2011 that looked at the rise in the school-leaving age in Canadian provinces in the 1950s and 1960s found that each extra year of schooling led to a decline of four percentage points in the likelihood of identifying with a religious tradition. Longer schooling, it reckoned, explains most of the increase in non-affiliation to any religion in Canada between 1971 and 2001, from 4% of the population to 16%.

The most recent paper also showed that each extra year in the classroom led to a drop of11 percentage points in superstitious practices, though these remain common. Two-fifths of respondents said they consulted horoscopes, and a quarter thought that lucky charms could protect them. Other research has shown that religious beliefs and practices seem to make people happier, and in some circumstances healthier and wealthier, too. But to argue that such benefits more than offset the gains from extra education would require a leap of faith.

..............................................................

* “Compulsory schooling laws and formation of beliefs: education, religion and superstition”, by Naci Mocan and Luiza Pogorelova. National Bureau of Economic Research, October 2014

The Economist October 11th 2014 71

Business

Also in this section 72 Our new business-school ranking 73 Oil companies and tumbling prices 73 Kazakhstan’s huge, troubled oilfield 74 Why tech firms are breaking up 74 Counting crony capitalism’s costs 75 Europe’s carmakers go upmarket 76 Schumpeter: How bosses are more vulnerable in the social-media age

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

Business education

Banks? No, thanks!

For graduates of the world’s leading business schools, investment banking is out and consulting and technology firms are in

“A

N INVESTMENT banker was a breed apart, a member of a master race of dealmakers. He possessed vast, almost unimaginable talent and ambition.” So wrote Michael Lewis in his1989 book, “Liar’s Poker”. Mr Lewis charted the ascent into investment banking of the most talented graduates in the 1980s, a situation that still held true as the financial crisis struck in 2007. Then, 44% of Harvard’s MBAs landed a job in finance; 12% became investment bankers. Yet in the class of 2013 only 27% chose finance and a meagre 5% became members of Mr Lewis’s master race.

The trend is the same at other elite business schools. In 2007, 46% of London Business School’s MBA graduates got a job in financial services; in 2013 just 28% did, with investment banking taking a lower share even of that diminished figure. At the University of Chicago’s Booth School of Business, the percentage of students going for jobs in investment banking has fallen from 30% in 2007 to 16% this year.

Since the crisis, investment banks have culled the recruitment schemes through which they once hired swathes of associates straight from business schools. Instead, they rely more on recruiting the brightest undergraduates, in the belief that it is more productive—and better value—to develop cohorts of junior analysts inhouse, rather than those with fixed ideas honed on expensive MBA programmes.

It is not just that the supply of invest-

ment-banking jobs has diminished; so has MBAs’ enthusiasm for them. Once, they wanted nothing more than to climb a bank’s greasy pole, with the vast riches this promised. But regulation has stunted bankers’ bonuses and, perhaps as important, MBAs increasingly seek the flexibility to switch careers within a few years. Investment banks expect long-term loyalty, notes an MBA who did a spell in banking, whereas students see them as “a stepping stone into private equity or a hedge fund”.

This is one reason why there has been a revival in business-school graduates’ interest in working as consultants. Almost 30% of students at the elite business schools now typically find work at consulting firms. In 2007, 23% of London Business School’s MBAs joined such organisations, last year 29% did. At Chicago the number has risen from 24% to 31% over the same period. Indeed four big consultants— McKinsey, Bain, the Boston Consulting Group and A.T. Kearney—accounted for 19% of the 472 students hired from Chicago’s MBA programme last year.

This should not be surprising. Before investment banks were in vogue, consulting seemed the natural home for businessschool students’ talents. The general-management focus of most MBA programmes, and their use of the case-study method, make them ideally suited to the job. An old consulting joke tells of the newly minted MBA sitting at his desk, demanding: “Bring

in the first case!”

Whereas banks expect MBAs still to be with them in five years, consulting firms ask recruits: “Whom do you see hiring you in five years?” Encouraging them to think about life beyond the firm has several benefits, consultants believe. It attracts the strongest candidates and it gives the firms a high-powered network of alumni who may become future clients.

For MBAs, the exposure to different industries and the access to senior managers that a consulting job brings are a perfect base from which to launch a new career, says Julie Morton of Chicago Booth. That base salaries for those going into consulting are among the highest for any industry—a median of $135,000, compared with $100,000 for Chicagoans signing up with an investment bank—only makes the choice easier.

Not just in it for the money Even if investment banks were still able to offer the financial rewards they once could, students’ priorities seem to be changing.

Contrary to MBAs’ reputation as breadheads, in a survey by The Economist for our latest full-time MBA ranking (see box on next page), less than 5% said that higher pay was their most important consideration when deciding to enroll at business school, far behind factors such as “to open new career opportunities” (58%) or “personal development” (15%).

Sceptics might respond: they would say that, wouldn’t they? And MBAs’ ostensible disregard for the size of their pay packets must be put into context—a student from a top ten school in The Economist’s ranking will still earn an average basic salary of $118,000 immediately after graduation.

Nonetheless, it is somewhat surprising given that they are also likely to have accumulated huge debts. Harvard reckons its MBA 1

72 Business

The Economist October 11th 2014

2 can cost $250,000 for two years’ board and

study, and that is before forgone salary is taken into account.

Another big beneficiary of MBAs’ loss of interest in banking is the technology industry. Of the top eight recruiters at INSEAD, a business school with campuses in France and Singapore, half now fall into this category: Amazon, Microsoft, Samsung and Google. (The other half were consultants.) The proportion of Chicago MBAs landing jobs at technology firms has risen from 6% to 12% since 2007. At Stanford, in the heart of Silicon Valley, it is close to a third. “Many students want to be part of an entrepreneurial environment and make an impact, to feel they are building and shaping something,” says Ms Morton.

Tech firms and consultants both appeal to the growing number of students who want to gain the right experience to start their own business. A survey by the Graduate Management Admission Council, an association of business schools, found that although only 4% of MBAs have entrepreneurial experience when they enter their course, 26% say they want to start companies after they graduate.

Competition for the best students is also coming from the non-bank financialservices sector, notably hedge funds and private-equity (PE) firms. Five years ago it was rare for such places to recruit MBAs straight from campuses. Instead they would often poach talent from the banks.

The world’s best business programmes For the fourth time in five years, the University of Chicago’s Booth School of Business tops The Economist’s ranking of full-time MBA programmes. Even as banking jobs have become scarcer, Chicago, famed for its prowess in finance, has maintained a strong record of placing students in work. Last year 94% of graduates were employed within three months of leaving.

Fifteen of the top 20 schools are American. However, HEC Paris, the top European school, has climbed four places to fourth, mostly because of the impressive salaries its graduates get. The University of Queensland is the top-ranked school outside America and Europe.

This is the 12th time we have published the ranking. Each year we ask students why they decided to take an MBA. Our ranking weights data according to what they say is important. The four categories covered are: opening new career opportunities (35%); personal development/ educational experience (35%); increasing salary (20%); and the potential to network (10%). The figures we collate are a mixture of hard data and subjective marks given by the students.

Hire purpose Percentage of MBA graduates entering* 2007 2013 0

10

20

30

40

50

Finance Consulting Technology Investment banking† *Average data from Chicago Booth, Wharton, Harvard, London and INSEAD †Subset of Finance category

Source: The Economist

But now several big schools, including Harvard and Wharton, are building formal recruiting ties with such firms.

They are helped by the fact that many students have already had some finance experience before enrolling: 17% of Harvard’s latest MBA class came from a PE or venture-capital firm. Students from other backgrounds are also attracted by the dynamic atmosphere these outfits offer.

Michel, a recent graduate of Kellogg School of Management, for example, says PE appealed to him and his peers over banking because the firms are smaller and the work more entrepreneurial and hands-on.

If self-fulfillment is indeed the priority for millennial MBAs, then banks need to do some serious rebranding. “I have never

heard anything about the corporate culture of investment banks that sounds like it’s an environment I’d like to work in,” says a business-school graduate who chose consulting. Added to this, MBAs also seem to have discovered a sense of moral purpose. At London Business School the fastest-growing student society is something called the “Net Impact” club, says Lara Berkowitz, a senior career adviser at the school. This means thinking about how to build careers that have a positive impact on the world around them, such as running ethical-investment funds or corporate-social-responsibility programmes.

Attacked on so many fronts, banks are trying to fight back. Some are running campaigns urging graduates not to believe media stories portraying them as greedy or evil. Others are trying to lure recruits by persuading them they will help make the world a better place. Goldman Sachs’s job portal advertises opportunities to work on community projects alongside positions for analysts: “That’s why you come and work at Goldman Sachs, because you can make a difference in the world,” trills its recruitment video.

A few banks are trying to change their culture, taking a tougher line on sexual harassment of female staff and advocating a healthier work-life balance, perhaps even allowing the odd work-free Saturday. For the business schools’ brightest and best, though, all this may not be enough. 7

Which MBA? Our ranking of full-time MBA programmes Rank Business 2014 (2013) school

Mean Median Increase Graduates Mean work salary of on in jobs GMAT experience Total Duration of new pre-MBA within score of of students, tuition programme, Country graduates, $ salary, % 3 months, % students* years fee, $ months

1 (1) Chicago (Booth) US

116,302

80

94

726

5

123,040

21

2 (2) Dartmouth (Tuck) US

115,031

74

95

718

5

123,210

21

3 (4) Virginia (Darden) US

111,171

74

74

710

4

116,100

21

4 (8) HEC Paris

France

123,982

157

92

691

6

63,751

16

5 (5) IESE

Spain

122,618

124

96

683

5

98,150

19

6 (6) Harvard

US

120,700

61

93

725

4

117,750

21

7 (3) California at Berkeley

US

117,738

53

96

715

5

107,918

21 20

8 (7) New York (Stern) US

107,450

63

96

723

4

114,936

9 (9) Stanford

US

125,592

54

94

732

4

123,750

21

10 (10) Columbia

US

116,153

61

97

718

5

121,440

20

11 (15) Pennsylvania

US

123,175

25

96

730

5

136,420

20

12 (12) MIT (Sloan)

22

(Wharton)

US

119,639

53

92

713

5

127,500

13 (18) UCLA Anderson US

104,728

69

88

707

5

110,020

21

14 (23) Northwestern

119,394

61

94

715

5

118,170

22 15-21

(Kellogg)

US

15 (11) London

Britain

113,737

48

96

695

5

100,457

16 (14) Queensland

Australia

149,318

19

94

na

10

61,399

12

17 (19) Emory (Goizueta) US

104,334

82

98

681

5

96,200

22

18 (26) INSEAD

Fr./Sing.

115,018

65

95

702

6

83,009

10

19 (28) Yale

US

110,478

79

91

717

5

117,950

21

20 (25) Michigan (Ross) US

111,417

83

89

704

5

114,400

20

For full ranking and methodology go to Economist.com/whichmba

*De facto MBA entrance exam, out of a possible 800

The Economist October 11th 2014

Business 73

Oil companies

Unsustainable energy WASHINGTON, DC

The price of oil has been tumbling. The cost of finding it has not

T

HIS has been a nerve-racking summer for oil companies. Since June the price of a barrel of Brent crude oil—the global benchmark—has slumped from $115 to $92, a decline of 20% and the lowest for more than two years. That drop is partly thanks to economic weakness. Growth is slowing, particularly in China and the euro zone, reducing oil consumption with it. The International Energy Agency (IEA), US Energy Information Administration and OPEC have all recently lowered their forecasts for global oil demand.

But there is also a growing glut of supply. America’s output of shale oil has risen by around 4m barrels a day since 2008, cutting American imports from OPEC almost by half. The club of oil exporters itself is in disarray. On October 1st Saudi Arabia, the cartel’s dominant producer, unilaterally and unexpectedly cut its official prices to shore up its global market share. The kingdom had already trimmed them earlier in the northern summer, as had Kuwait and Iraq. Most Middle Eastern OPEC members are now engaged in a price war in Asia.

All this is dire news for companies in the exploration and production (or “upstream”) part of the industry, many of whose strategies have been built around far higher oil prices. After plunging below $35 during the 2008-09 recession, the price of Brent had recovered to $128 a barrel by spring 2012. The oil firms responded by pouring cash into all sorts of projects, from American shale to deepwater fields in the tropics. Analysts at EY, a consulting firm, estimate that the world’s energy companies are currently bankrolling163 upstream “megaprojects”—those costing more than $1 billion apiece—worth a combined $1.1 trillion dollars. The majority, EY found, are over budget and behind schedule. Most big projects have been planned around the assumption that oil would stay above $100—a notion that in recent years has become an article of faith in the industry.

Falling prices are not the industry’s only headache. Locked out of many of the lowest-cost fields by “resource nationalism” in the countries that own the reserves, the oil firms have been pushed into more technically difficult prospects. So capital spending has soared—even as production has slowed for many publicly listed oil majors.

Douglas-Westwood, another consulting firm, calculates that the productivity of upstream capital spending has fallen by a factor of five since 2000, and that it continues

Oil firms in Kazakhstan

Cash all gone ASTANA

One of the world’s biggest oil projects has become a fiasco

W

the seabed along with the oil, has eaten through pipes bringing it onshore. It may cost another $5 billion to fix the problem.

But insiders say privately that with so many companies involved, the project has lacked clear leadership and suffered from government meddling.

Investors of all kinds worry about “the declining predictability of Kazakhstan’s regulatory and legal environment”, says Mariyam Zhumadil of Halyk Finance, an investment bank in the commercial capital, Almaty. In 2010 the government filed a $1.2 billion tax claim against the consortium that operates another field, Karachaganak, while making noises about breaches of environmental rules, not long after expressing an interest in buying a stake in the field.

Later the consortium gave it 10% in return for it agreeing to expand the field.

Likewise, at Kashagan, environmental officials have fined the field’s operators $737m for burning off the poisonous gas, which the consortium argues was an emergency measure. Ms Zhumadil reckons the fine is a “tool for future negotiations, perhaps to strengthen the national oil company’s presence in the project.”

This may not be the best way to encourage foreign firms to pump in the tens of billions of dollars more that are still needed to develop Kazakhstan’s oilfields.

to decline by almost 5% a year.

Demand for oilfield equipment and services has outstripped supply, which has also increased development costs. Even before the latest swoon in oil prices, overall costs had been outstripping revenues by 2-3% a year. The result is that nearly half of the projects the industry has under development will need oil prices greater than $120 a barrel to achieve positive cashflow.

Although the published profits of many of the world’s biggest oil majors have remained relatively buoyant this year, they do not reflect the recent fall in the price of crude. Nor do they reflect the industry’s current panic. Carlyle International Energy Partners, an investment firm, estimates that the biggest oil firms are currently trying to sell $300 billion-worth of assets.

Shell and BP between them are divesting 1

HEN it was discovered in 2000, the Kashagan oilfield in Kazakhstan’s waters in the northern Caspian Sea was the world’s biggest oil find in three decades. By now it was supposed to be pumping out 1.2m barrels a day (mbd), enough to meet Spain’s entire consumption. But the project, whose name sounds unfortunately like “cash all gone”, went spectacularly awry. A year ago, when the first trickle of crude briefly flowed, it was already eight years behind schedule.

Having cost $43 billion, it was $30 billion over budget. And production lasted only a few weeks before leaks of poisonous gas forced its suspension. Earlier this month a government minister admitted it would not restart until at least 2016.

Undeterred by the Kashagan fiasco, this week the government said it would approve a plan to expand the onshore Tengiz oilfield, another huge budgetbuster. Tengiz was first expected to cost $23 billion but the government said this week that the bill had risen to $40 billion.

Each of the two oilfields is owned by a different consortium of foreign firms and the state oil company, KazMunaiGaz. In Kashagan’s case they include Exxon, Shell, Total and ENI. In part the project’s setbacks are due to unexpected technical problems. Corrosive and poisonous hydrogen sulphide gas, pumped up from

74 Business

The Economist October 11th 2014 Technology firms

Slippery slope Brent crude oil price, $ per barrel 115

Split today, merge tomorrow

110 105 100 95 90 2013

2014

Source: Bloomberg

2 $60 billion-worth.

The industry is cutting back on some megaprojects, particularly those in the Arctic region, deepwater prospects and others that present technical challenges. Shell recently said it would again delay its Alaska exploration project, thanks to a combination of regulatory hurdles and technological challenges. The $10 billion Rosebank project in Britain’s North Sea, a joint venture between Chevron of the United States and OMV of Austria, is on hold and set to stay that way unless prices recover. And BP says it is “reviewing” its plans for Mad Dog Phase 2, a deepwater exploration project in the Gulf of Mexico.

Statoil’s vast Johan Castberg project in the Barents Sea is in limbo as the Norwegian firm and its partners try to rein in spiralling costs; Statoil is expected to cut up to 1,500 jobs this year. And then there is Kazakhstan’s giant Kashagan project, which thanks to huge cost overruns, lengthy delays and weak oil prices may not be viable for years (see box on previous page).

It is not only the megaprojects that are being hit. Many big oil companies are trimming their spending across the board. Even before the latest fall in oil prices, Shell said its capital spending would be about 20% lower this year than last; Hess will spend about15% less; and Exxon Mobil and Chevron are making cuts of 5-6%. Since oil started slipping in June, the industry has been hastily reworking its sums—notably BP, which had previously said its spending would remain flat this year and next. It is now widely expected to cut back in 2015.

The oil industry’s herd mentality is well known: several of the companies announcing lower spending have qualified it with the cheery pronouncement that they were doing so “to focus on shale” (gas as well as oil). That may not work. David Vaucher, an analyst at IHS, a research firm, says that to achieve a realistic internal rate of return on investment of 10%, a typical new shale-oil project in America requires an oil price of $57 a barrel. But that is an average: some require $110. If the oil price keeps falling, not even America’s shale miracle will be immune. 7

SAN FRANCISCO

HP breaks itself up to dodge the “conglomerate” tag

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HEN Hewlett-Packard said this week that it would split into two firms, one selling personal computers and printers and another selling servers and other business equipment and services, there was a touch of déjà vu. Three years ago HP’s then boss, Léo Apotheker, said he would sell the PC division (though not printers) to focus on higher-margin software and services.

But Mr Apotheker was sacked before he could execute his plan, and the one big move of his brief tenure—the $11.7 billion purchase of Autonomy, a software firm— turned into a disaster when accounting irregularities surfaced.

His successor, Meg Whitman, abandoned the break-up plan, arguing that HP would be stronger as a single entity, using its size to extract better terms from suppliers and to spread overheads. Now Ms Whitman is arguing that the company is

better prepared for a split. Its balance-sheet is stronger, which means HP’s offspring can be endowed with the means to flourish on their own. And the printer and PC divisions have been merged, into an entity to be known as HP Inc. However, the timing of the split may have been determined by market conditions. In 2011, amid uncertainty about America’s recovery and fears about the euro zone, investors valued the safety provided by sheer size; now they prize the agility needed to fend off nimble startups.

Moreover, HP’s various assets appeal to different types of investor: those who want dividends now may prefer the mature printers and PC side, whereas those ready to trade safety for growth potential may prefer the enterprise business. HP’s shares rose 5% when the split was announced.

Unlike many similar spin-offs, the racier half of HP, which will be called HewlettPackard Enterprise and maintain Ms Whitman at the helm, is unlikely to deliver strong growth immediately on being unshackled. Revenues at those businesses have shrunk by 4% in the past year, and competition to sell servers, data storage, software and services to businesses is fierce. Lenovo of China, which last year overtook HP as the world’s leading PC sell- 1

Crony capitalism

Friends in high places How cronyism undermines growth, jobs and competition

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HE Arab Spring has not delivered all that was hoped for it, but it did call time on two egregious examples of crony capitalism. After the revolution in Tunisia in 2011, 214 businesses, and assets worth $13 billion, including 550 properties and 48 boats and yachts, were confiscated from Zine el-Abidine Ben Ali, the deposed president, and his relatives and associates. In Egypt at least 469 businesses were linked to Hosni Mubarak, ousted as its president soon after Mr Ben Ali, some of which were seized.

Using data that have only come to light since the Arab Spring, World Bank economists have conducted a uniquely detailed study of the damage that crony capitalism does to an economy. In 2010 politically connected firms in Egypt made 60% of all business profits in the country. Yet their share of the economy was far smaller and they provided only 11% of private-sector employment.

Politically connected firms seemed remarkably lucky in having non-tariff trade barriers to protect them. Some 71% of politically connected firms operated in markets protected by at least three such import barriers; only 4% of unconnected

firms were as well cushioned. Generous energy subsidies were a favourite way for the government to help its friends: 45% of politically connected firms operated in energy-intensive industries, compared with only 8% of firms as a whole.

In Tunisia the Ben Ali empire dominated the telecoms and air-transport industries, to which entry was highly regulated. They accounted for 21% of total profits in Tunisia in 2010 but only 3% of private-sector output and 1% of jobs. They had far higher profits and market share than non-crony firms in industries in which operating rights and foreign direct investment were heavily regulated. But in lightly regulated sectors they were far less profitable than non-crony rivals.

Although Messrs Mubarak and Ben Ali were swept away along with many of their cronies, the study warns that there is a risk of old habits returning. Egypt’s powerful army, in particular, has cronyish tendencies. Moreover, many of the policies that were conduits of favours to firms with powerful friends, such as energy subsidies and heavy, discretionary regulation of competition and foreign direct investment, remain in place.

The Economist October 11th 2014 2 er, recently bought a low-end server busi-

ness from IBM. And in enterprise software, despite the purchase of Autonomy, HP is still far behind competitors like Oracle.

What is more, some of the contract manufacturers HP uses to build its equipment are cutting it out ofthe loop and offering unbranded products directly to HP’s corporate customers. The shift to cloud computing is accelerating this: smaller firms, which hitherto might have preferred a trusted brand of server, are increasingly renting capacity from giant server farms, which are happy with unbranded ones.

A broader shift illustrated by HP’s break-up is that diversification is something only the brightest tech stars can get away with. Investors have given Silicon Valley’s reigning royalty carte blanche this year to buy tangentially related firms—witness Apple’s purchase of Beats, a headphones maker, Facebook’s deal for a messaging service, WhatsApp, and Google’s acquisition of Nest Labs, which sells thermostats and smoke detectors. But as tech firms age (HP is 75) and their growth tails off, they begin to have the dreaded word “conglomerate” applied to them, with its negative implications for the share price.

To escape that fate, as in other industries, diversified tech firms have to break themselves up, and concentrate on being first or second in their core businesses. In Ms Whitman’s old job running eBay, she bought Skype, an internet-telephony provider, and PayPal, a payment processor.

Skype has since been sold, and a spin-off of PayPal was announced on September 30th, giving eBay’s shares a 7.5% boost.

Among the other long-established technology firms which have investors wondering whether the whole may be worth less than the sum of the parts are Microsoft, whose products range from operating software to applications to mobile devices, and Yahoo, whose main assets are its stakes in Alibaba of China and Yahoo Japan. Another is Symantec, which this week was reported to be contemplating a separation of its two main businesses, internet security and data storage.

The markets’ preference for focus, however, does not mean they are averse to scale. In fact, the slimline Hewlett-Packard Enterprise will probably need to grow quickly by acquisition to survive on its own—particularly in software, which accounts for just 7% of the new firm’s revenues. HP says it cannot talk about potential purchases because it possesses “material non-public information”, suggesting it has something brewing. One oftrumoured target is VMware, a cloud-computing specialist, or indeed its parent, EMC, a data-storage firm. Now that Ms Whitman no longer has to fret about the stagnant PC business, she can dedicate her full attention to plotting the enterprise company’s next big move. 7

Business 75 Europe’s carmakers

Polishing up PARIS

Cheap cars are not selling, so their makers are betting on expensive ones

A

N ARMY of buffers attends to the cars at motor shows, continually polishing them to a level of otherworldly gleam. The sparkle they are putting on models from Europe’s mass-market carmakers at the Paris show, which opened to the public on October 4th, is at odds with the lacklustre state of the automotive market. But it reflects growing, if misguided, optimism among the manufacturers that they can sell more cars for more money.

The carmakers’ cheer is explained by a beliefthat the worst is over. Sales in Europe tumbled in the 2008 financial crisis, and have fallen every year since. Only 12.4m cars were sold in 2013, nearly 4m fewer than in 2007. But early this year a rebound began, and sales so far this year are up 6%.

Unfortunately, it already seems to be fading. Gloomier analysts predict that after an increase of just 2% for this year as a whole, there may be no growth in 2015.

Even if the recovery is stronger, IHS, a research firm, expects that demand will remain well below pre-crisis levels in 2020.

This is grim for the firms which lean most heavily on Europe. PSA Peugeot-Citroën of France relies on the continent for almost three-quarters of revenues, though it hopes a recent tie-up with Dongfeng of China will boost sales there. Fiat’s merger with Chrysler has provided insulation, but as with Ford and General Motors, Europe is still an open wound. All the mass-market firms lost money in the region last year, with the exception of VW. Its expensive Audi and Porsche brands keep its profits rolling in. And like BMW and Daimler, it has done well in China, whose rich regard fancy German cars a status symbol.

It’s shiny, but who will buy it?

Other parts of the world that had helped keep some carmakers going have hit trouble. Recession in Brazil has been bad for Fiat and Renault. Ford’s European factories are among those suffering as sales in the big and hitherto profitable Russian market are falling because of Western sanctions over Ukraine. Russian car sales may fall by a third this year, to 2m.

Even after six years of falling sales, carmakers have not done enough to cut their excess capacity in western Europe. Haroon Hassan of Mitsubishi UFJ, a bank, reckons that together, their assembly lines are turning out just 65% of the 21m cars a year they could make at full tilt. Analysts reckon they need to run at 70-80% just to break even.

GM and Ford have restructured the most, closing a couple of plants each. But governments and unions have prevented the scale of job cuts that might make a difference. PSA’s closure of a car-assembly plant at Aulnay in 2013 was the first in France for 20 years. Workers at PSA and Renault have agreed to be more flexible, but only in return for a promise that no more factories will shut.

Instead of making more cuts, the massmarket carmakers are aspiring to boost their volumes and margins with new, premium-priced models. At the Paris show, PSA unveiled the latest designs for its upmarket DS range (pictured). Fiat wants its underused Italian plants to turn out Jeeps, Alfa Romeos and Maseratis. Ford’s Vignale and Renault’s Initiale Paris brands offer high-specification versions of lowlier cars.

They are pushing into a market that is already crowded. The upmarket German brands, and Jaguar Land Rover of Britain, have broadened their ranges to include more petite but pricey models. The big Japanese carmakers are relaunching their luxury marques. Moving upmarket is a long and expensive business for companies that do not have time or money to spare.

And motorists do not value the mass-market companies’ own brands enough to want to pay for more than basic models, no matter much polish is applied. 7

76 Business

The Economist October 11th 2014

Schumpeter Beware the angry birds In the social-media age, bosses’ careers are more vulnerable than ever

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HE New Yorker magazine ran a cartoon last year of three monkeys in a row: one with a microphone (labelled “hear all evil”), one with a television camera (“see all evil”) and one with a laptop (“post all evil”). Today’s bosses still need to worry about the unwise monkeys of the press. But as big a threat to their careers these days is the risk of being pecked by Twitter’s swarm of angry birds. Thanks to the digital revolution, chief executives now live in glass houses. An ill-judged remarkcan be broadcast to the world in an instant. An unwise “reply all” can provide sensitive information to a competitor. An exasperated complaint in the midst of a crisis can seal your doom. Tony Hayward, who was boss of BP during the oil spill in the Gulf of Mexico, never recovered from his plea that “I want my life back”.

The digital revolution has dramatically shifted the balance of power from companies to their critics. Although big firms deploy armies of PR flacks, anyone with a smartphone and a socialmedia account now has the same power to reach a global audience. Whistleblowers once had to photocopy documents and smuggle them out in their underpants. Now they can be shared with the world in a trice, by e-mail or instant messaging.

Anti-corporate campaigners have taken to the digital world like ducks to water. NGOs are good at finding bad news about companies and telling the world about it on social media. Opportunists have also joined the ducks in the water: there is money to be made by “shorting” a stock (that is, betting that its price will go down) and then unleashing a value-destroying digital storm.

By contrast, companies have failed to adapt. The biggest of businesses with the slickest of publicity operations, from McDonald’s to JPMorgan Chase, British Gas to Qantas, have found that when they tried engaging with tweeters on their home turf, they were drowned in a sea of sarcasm. British Gas’s attempt at an online discussion about its price rises was met with a barrage of tweets mentioning “death” and “greed”. Presumably they will get better eventually. But in “Glass Jaw: A Manifesto for Defending Fragile Reputations in an Age of Instant Scandal”, Eric Dezenhall, an American crisis-management consultant, points to two big reasons why companies are condemned to play catch-up.

The first is the nature of the internet. It is a beast that feeds on scandal and particularly delights in the flesh of the powerful and

privileged. The media world used to be policed by editors who demanded proof in the form of two sources. Now amateurs can post anything they want online (though they may eventually face prosecution) and editors are subject to the tyranny of the click: the more the stories they publish are clicked on by readers, the longer they are likely to survive in their jobs. Jonah Berger and Katherine Milkman of the University of Pennsylvania’s Wharton business school conducted a systematic study of 7,000 articles published in the New York Times over three months. They discovered that “highly arousing” content—such as stories that evoke anger or anxiety—was more likely to make the “most e-mailed” list. Stories about evil CEOs make perfect click-bait.

The second is the nature of companies. They are designed to stay in business rather than to be good at defending their bosses from scandal. No matter what PR resources they throw at killing a story, NGOs and prosecutors will always have more stamina. In America no sensible firm will risk gambling on a jury trial when a negative verdict could bar them from doing business with the government. (Eliot Spitzer, a former New York attorney-general, exploited this logic to extract billions from corporate giants such as Samsung, Goldman Sachs and JPMorgan before being consumed by scandal himself.) No sensible company will go to the mat to protect an embattled boss when there are plenty of replacements waiting in the wings. Look at how BP let go of an earlier boss, John Browne, in 2007, and Hewlett-Packard said goodbye to Mark Hurd in 2010. Both were seen as competent managers of their firms, but they were cast adrift essentially because of fears about the dirty linen of their private lives being aired in public.

Business leaders are waking up to the threat. A 2013 survey of 300 executives about the risks facing their companies by Deloitte, a consulting firm, put reputational ones at the top. “Reputations built up over decades can be challenged in an instant,” said Jennifer Evans of ANZ bank, a participant. The stockmarket is more sensitive to reputational disasters than ever before. In the two weeks after the 1989 Exxon Valdez oil spill in Prince William Sound, in Alaska, Exxon’s shares dropped 3.9% but quickly rebounded. In the two months after the Gulf of Mexico spill in 2010 BP’s shares fell by half (and have still to recover fully). But business leaders are much less sure about what to do about it.

Walls have ears, smartphones have eyes Mr Dezenhall has lots of practical advice. He tells CEOs to restrict the view into their glass houses: to cover the cameras on their phones and computers with masking tape; avoid the “reply all” function on their e-mail; think twice before sending any strongly worded message. He dismisses the idea that corporate social responsibility (CSR) bestows on firms the PR equivalent of a stock of political capital: digital vigilantes will always assume businesses are guilty and can add the charge of hypocrisy to CSR-obsessed ones, as they did to BP after its spill. He warns against onesize-fits-all approaches to crises: the common prescription to come clean quickly and fully sometimes stokes the fire, he notes.

Mr Dezenhall argues that the best defence in this age of instant global scandal is to be brilliant at your job. He notes that, a couple of years after the crisis that almost destroyed his career, Tiger Woods was chosen for a Nike advertising campaign with the slogan, “Winning takes care of everything”. Unfortunately, for CEOs it may not: if you are an ace golfer mired in personal scandal you can redeem yourself on the greens. But a boss brought down by a baying social-media mob does not always get a second chance. 7

The Economist October 11th 2014 77

Finance and economics

Also in this section 78 Investor-state dispute settlement 78 Regulating big American insurers 80 Buttonwood: Work and ageing 81 Luxembourg as a financial centre 82 The next sovereign default 82 The world’s biggest economies 83 Greece’s shadow economy 83 Winding down failing banks 84 Free exchange: China’s flagging productivity

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

Currencies

Buck to the future

Is the dollar starting another long-term rally?

S

UDDENLY the dollar is the currency of the moment. The greenback has risen 6.3% on a trade-weighted basis over the past three months. It recently hit a six-year high against the yen and a two-year high against the euro.

The trend reflects confidence in the prospects for the American economy, combined with worries about the health of the rest of the world. On October 7th the IMF lowered its forecast for global growth in 2014 to 3.3% from the 3.7% it foresaw in April. Some of the biggest reductions were in Europe: it now expects France to grow just 0.4% this year, half a percentage point less than in July. To confirm the fund’s pessimism, German industrial production fell 4% in August while factory orders dropped by almost 6%; both were the biggest declines in more than five years. In contrast, the latest American data showed a 248,000 jump in jobs in September and a fall in the unemployment rate to 5.9%.

This relatively strong economic performance has reinforced expectations that the Federal Reserve will start to push up interest rates next year while the European Central Bank and the Bank of Japan will keep them low. Higher rates will attract investors to the dollar, particularly those who follow a strategy dubbed the “carry trade”, in which they borrow money in a country with low rates and invest it in a country with higher ones.

The carry trade has been difficult in re-

cent years because nearly all countries in the rich world have held rates close to zero.

But there is now a significant carry in the bond markets, where ten-year Treasury bonds yield one-and-a-half percentage points more than German bonds of the same maturity—a very wide gap by historical standards.

A stronger economy also makes American companies more appealing to international investors. America’s stockmarkets have outperformed their rivals in Europe and Japan this year, even before the strength of the dollar is taken into account.

Foreign firms have bid a combined $325 billion for American firms this year. That increases the demand for dollars.

The big question, however, is how long

From a low base US dollar trade-weighted exchange rate* March 1973=100

150 125 100 75

1973

80 85 90 95 2000 05 10 14

Source: Federal Reserve

50

*Against seven Western currencies

this trend will last. As the chart shows, the latest rebound is small by the standards of the huge rallies in the early 1980s and the late 1990s. A strengthening dollar has its advantages for Americans. Foreign investors will be keener to hold Treasury bonds, making it easier for the government to fund its deficit. American tourists will find their money goes further on foreign trips.

Imports will fall in price, keeping inflation down despite the healthy economy.

But there are downsides too. American companies will find that their overseas profits are worth less in dollar terms; around a third of the revenues of S&P 500 companies come from abroad, according to Factset, a data firm. America’s exports will be less competitive, at a time when the country still has a current-account deficit of 2.3% of GDP, despite the boom in shale oil. As a result, a big appreciation of the dollar cuts GDP growth by around half a point over the following year, according to the Fed’s models. (This may mean the Fed is slower to tighten policy than the markets expect, a factor that may eventually limit the dollar’s rise.)

A stronger dollar will have the opposite effect on the European and Japanese economies, making their exports cheaper and pushing up import prices. Policymakers in both areas may welcome that, since they are struggling to generate growth and avoid deflation. As David Bloom, head of foreign-exchange strategy at HSBC, a bank, says, “The dollar on its own may not be able to save the world but it will certainly buy these economies time.”

For emerging markets, the effect is probably less positive. Back in 2010 Guido Mantega, Brazil’s finance minister, warned that loose monetary policy in America and elsewhere was leading to “currency wars” in which rich countries were trying to improve the competitiveness of their exports 1

78 Finance and economics

The Economist October 11th 2014

2 by devaluing their currencies. Investors

were also pouring money into emerging markets, enticed by their better growth prospects, leading some countries (including Brazil) to impose capital controls. A stronger dollar may now prompt capital to flow out of such countries just as fast. That will be a particular problem in places where governments or firms have borrowed significantly in dollars, since their revenues are denominated in local currency but their liabilities in dollars.

A prolonged dollar rally may also have political ramifications. A paper* by Douglas Campbell of the University of California, Davis, found that the previous two big dollar surges led to a decline in manufacturing jobs. That provoked complaints from American politicians that first Japan and then China were unfairly suppressing their currencies to take American jobs. It is easy to imagine the same arguments resurfacing this time, with the obvious target being Germany. It already has a current-account surplus of 7.2% of GDP; the euro’s recent weakness is likely to boost it further.

Governments resisted calls for protectionism in the past, but their economies were stronger then. It may be harder to ward off in future, given that voters have already been angered by years of austerity and declines in inflation-adjusted wages. 7

............................................................... * “Relative Prices, Hysteresis and the Decline of American Manufacturing”

Investor-state dispute settlement

The arbitration game NEW YORK

Governments are souring on treaties to protect foreign investors

I

F YOU wanted to convince the public that international trade agreements are a way to let multinational companies get rich at the expense of ordinary people, this is what you would do: give foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever a government passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe. Yet that is precisely what thousands of trade and investment treaties over the past half century have done, through a process known as “investor-state dispute settlement”, or ISDS. ISDS first appeared in a bilateral trade agreement between Germany and Pakistan in 1959. The intention was to encourage foreign investment by protecting investors from discrimination or expropriation.

But the implementation of this laudable idea has been disastrous. It has become so

Unsettling Investor-state dispute settlement cases 60 50 40 30 20 10 1987 90

95

2000

05

10 13

0

Source: UNCTAD

controversial that it threatens to scupper trade deals the European Union is negotiating with both America and Canada.

Multinationals have exploited woolly definitions of expropriation to claim compensation for changes in government policy that happen to have harmed their business. Following the Fukushima disaster in Japan in 2011, for instance, the German government decided to shut down its nuclear power industry. Soon after, Vattenfall, a Swedish utility that operates two nuclear plants in Germany, demanded compensation of €3.7 billion ($4.7 billion), under the ISDS clause of a treaty on energy investments.

This claim is still in arbitration. And it is just one of a growing number of such cases (see chart). In 2012 a record 59 were started; last year 56 were. The highest award so far is some $2.3 billion to Occidental, an oil company, against the government of Ecuador, over its (apparently lawful) termination of an oil-concession contract.

There are several reasons for the sharp rise in contentious arbitrations, says Lori Wallach of Public Citizen, a watchdog group. Companies have learnt how to exploit ISDS clauses, even going as far as buying firms in jurisdictions where they apply simply to gain access to them. Arbitrators are paid $600-700 an hour, giving them little incentive to dismiss cases out of hand; the secretive nature of the arbitration process and the lack of any requirement to consider precedent allows plenty of scope for creative adjudications.

At the same time, academics have begun to question whether ISDS delivers the benefits it is supposed to, in the form of increased foreign investment. Foreign investors can protect themselves against egregious governmental abuse by purchasing political-risk insurance, points out Terra Lawson-Remer, an economist at the Brookings Institution. Brazil continues to receive lots of foreign investment, despite its longstanding refusal to sign any treaty with an ISDS mechanism.

Other countries are beginning to follow Brazil’s lead: South Africa says it will withdraw from treaties with ISDS clauses and

India is considering doing the same. Indonesia plans to let such treaties lapse when they come up for renewal. Australia briefly forswore ISDS in the wake of a complaint

by Philip Morris about its requirements for health warnings on cigarette packets. But its new government says it will consider allowing such mechanisms in future treaties.

Disgruntled investors in these places will have to take their chances in local courts. But there are other, less radical routes to reform. Recent treaties have used far more precise definitions of expropriation. Other possible improvements include requiring firms to exhaust domestic legal remedies before an arbitration can begin and making arbitration more transparent, with greater reliance on precedent.

So far, the country showing least interest in moving away from the current practice is America. Jeffrey Schott of the Peterson Institute, a think-tank, reckons that America’s insistence on an arbitration clause in its deal with the EU does not stem from any concern about the strength of property rights in Europe. Rather, it is a marker for future negotiations for a bilateral trade deal with China. “America wants to set a precedent for China by creating a world-class template for trade agreements,” he says. Even so, given Barack Obama’s reputation for bashing business, his administration’s steadfast support for a special privilege that many multinationals have abused is odd. 7

Regulating big American insurers

Questionable claims NEW YORK

Controversy erupts over regulators’ growing role in the insurance industry

A

S HAPPENS with many fractious American relationships, the shotgun marriage of insurers and the federal government is headed for the courts. A former head of AIG, America’s biggest insurer before the financial crisis, is challenging the company’s nationalisation in 2008. Meanwhile MetLife, America’s biggest life insurer, is fighting regulators’ attempts to subject it to expensive and complicated new rules.

The AIG case has drawn the most attention because of the firm’s pivotal role in the crisis, and because witnesses include two former Treasury secretaries (Hank Paulson and Tim Geithner) and the previous chairman of the Federal Reserve, Ben Bernanke.

It was filed by Hank Greenberg on behalf of Starr International, a company once affiliated with AIG that he continues to run.

He argues that the Treasury exceeded its powers when it seized control of the firm.

Why should AIG’s owners have seen their 1

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80 Finance and economics 2 shareholdings wiped out, the argument

runs, when other institutions with lousy risk controls (such as the ones that bought insurance from AIG) got bailed out?

It is regulations intended to avoid such bail-outs in future that MetLife is contesting. It had requested a hearing to dispute the decision by the Financial Stability Oversight Council (FSOC), a conglomeration of America’s main financial regulators, to declare it a “systemically important financial institution” (SIFI). On October 6th the FSOC granted its request.

Making MetLife a SIFI would mean that it was officially “too big to fail” and thus

The Economist October 11th 2014 had the implicit backing of the federal government. But the government wants to get out of the bail-out business, so SIFI status involves more burdensome regulation, including higher, but as yet undetermined, capital requirements.

AIG has already been given a similar designation, but the company was enthusiastic about the move since the increased regulatory scrutiny helped to restore trust in a brand that had been utterly debased.

MetLife, conversely, came through the crisis in good shape and does not need a thorough vetting by regulators to burnish its reputation.

The hearing is likely to take place this month, with a decision to follow within 60 days. It would be shocking if MetLife prevailed. Prudential Insurance also tried to challenge its SIFI status last year, without success.

Prudential decided not to pursue the matter in court, presumably for fear of angering regulators. But MetLife seems more feisty. The FSOC has delineated three broad reasons to label a firm a SIFI: the exposure it has to others in the sector (AIG, for example, had lots); the responsibility it holds for important bits of the financial system; and, finally, the impact a run on the 1

Buttonwood Work until you drop Ageing societies create many employment challenges

T

HE developed world is heading into what Shakespeare described as “second childishness and mere oblivion, sans eyes, sans teeth, sans taste, sans everything”. The share of the population aged over 65 in rich countries will rise from 15% in 2010 to 27% by 2050, while those aged over 80 will increase from 4% to 9%.

While this trend is well known, countries are only just starting to grapple with the implications. The issue was the subject of a conference held at the London School of Economics last month.

There are two main ageing-related problems. The first is how to achieve economic growth (and afford social benefits) in the face of a shrinking workforce. The second issue, given that shrinking workforce, is how to look after the very elderly, many of whom will need round-theclock nursing.

In terms of growth, one obvious answer is to get people to work longer. Since 1970, the life expectancy of the average 65year-old in the OECD, a club mostly of rich countries, has risen by four or five years, virtually all of which has been spent in retirement. The age at which governments start paying pensions is at last starting to edge higher, from 65 to 67 or 68.

However, it may well be that changes in private-sector pensions are more important in determining how long the elderly work. Generous final-salary pensions are dying out; they have been replaced with defined-contribution schemes, whereby the employee accumulates a pot to see him through his dotage. These pots may be too small to generate a decent income, as many people are discovering; they will need to keep working, whatever the official retirement age may be.

In Britain the proportion of men aged over 65 in employment has risen from

less than 8% at the turn of the century to more than 13% today (for women, the increase has been from just over 3% to more than 7%). In addition, fewer people are taking early retirement, whether voluntary or involuntary. At the turn of the century, 54% of British women aged 50-64 were in work; now it is nearly 66% (for men, the rise has been from 72% to 78% over the same period). Since the recession, the biggest single gain in employment has been among women aged 60-64.

Similar trends have been seen in America. Since 2000, employment of those aged 65 and over has risen by 51%, while that of those aged 25-64 has fallen 3.5%.

An interesting question is whether this shift explains two big trends in the labour market: the weakness of wages and poor productivity. The growing ranks of older workers (particularly those working parttime) may be putting pressure on wages.

Could they also be less productive? It is hard to be certain. Whether, and how fast, workers’ productivity declines with age must depend on what they do; what is true for manual labour may not be true for consultancy. Economists assume that wages

move in tandem with productivity, as employers reward workers for the value of their output (minus a profit margin). In practice, however, wages are set by a more complex process that is partly a matter of custom. Most workers are not paid “piece rates” for every item they produce, even in those industries where such things can be measured; few workers ever suffer a pay cut in the same job, unless they opt to go part-time. Many companies have pay scales that reward seniority.

One field in which the growing number of elderly workers may soon be needed is in looking after those who are even older and frailer. One paper, based on a survey of five countries, estimated that the number of people needing formal care could rise by 35% by 2025. In all five countries the demand for formal care is likely to outstrip the supply of care workers by a substantial margin.

In general, jobs in nursing are poorly paid and not very glamorous. Nor is this an area where productivity is likely to increase much: someone always needs to be on hand to help the incapacitated if they fall out of bed at night or if they need changing in the morning. At the moment around 80% of all employees in residential care and social work are women; around 16% are aged over 55.

Higher wages for those in nursing might help, but the cost of residential care is already high. In Britain, the average annual cost, where nursing is required, is £37,500 ($60,300). The answer may be to recruit workers from abroad (indeed, many old peoples’ homes already do so).

Those elderly voters who are tempted to vote for anti-immigrant parties may want to pause; some day soon they may be dependent on the kindness of strangers.

Economist.com/blogs/buttonwood

The Economist October 11th 2014 2 institution might have.

MetLife has responded to each of these concerns. The company says that, even in the case of entangling products like derivatives, which helped to topple AIG, no other financial institution has an exposure to MetLife equivalent to even 1% of its equity.

Unlike banks, it has no involvement in payment systems or other vital bits of plumbing. It does have a portfolio of securities worth more than $900 billion, but its products—term and whole life insurance—do not tend to suffer from runs and are resilient to upheaval in other parts of the financial system.

Finance and economics 81 To prevail in court, MetLife would need to cross a high hurdle, by proving that the FSOC’s decision was “arbitrary and capricious”. But even if it cannot shake off its new label, the hearings themselves may still do its cause some good. The term SIFI and the burdens that come with it are a product of the Dodd Frank financial reforms, which Congress passed (largely unread) in the wake of the crisis. As sections of the law have gone into effect, they have belatedly begun to draw scrutiny and attack. By pursuing its case, MetLife may help to put America’s new system of financial regulation on trial as well. 7

Luxembourg as a financial centre

Administering instead of hiding LUXEMBOURG CITY

A little country with more to its repertoire than tax breaks

L

UXEMBOURG’S financial elite gathered recently for the grand opening of its free port, which will soon house troves of fine art, vintage wine, precious metals and other valuables, beyond the reach of any taxman. The facility is one of the three finest of its kind, along with those in Singapore and Geneva. Local moneymen hope it will add to Luxembourg’s allure as a wealthmanagement centre.

Aside from its multilingualism and its location at the heart of Europe, Luxembourg’s main attraction as a financial centre has been its forgiving approach to taxation, for both individuals and businesses.

Yet that selling-point is under threat. Global moves towards more systematic exchange of tax information have dealt a blow to the bank secrecy that made Luxembourg a Swiss-style haven within the

European Union. The country is also one of the main targets of an international push, led by the OECD and the European Commission, to close loopholes that allow multinationals to massage down their tax bills. Brussels is investigating the Grand Duchy’s arrangements with Amazon and Fiat, suspecting that they constitute illegal state aid. With the holding companies or finance and treasury operations of thousands of other firms located in Luxembourg for tax reasons, more probes are likely to follow.

All is not lost, however. Luxembourg could lose some of the firms that have located there solely because of its tax-friendliness. But others are likely to beef up their presence to head off accusations that their local subsidiaries are mere brass plates.

“We’re seeing companies ask how much

substance they need to stay here and keep below the radar,” says a lawyer.

Moreover, the erosion of financial secrecy has had a less wrenching impact than predicted. After dipping in 2008, the assets of Luxembourg’s private banks have climbed back to their level before the financial crisis and the accompanying assault on tax havens. As the proverbial Belgian dentists fled, the banks plugged the gap by picking up a smaller number of bigger, tax-compliant clients—typically entrepreneurs looking for expertise in financing and inheritance planning.

Luxembourg has carved out a niche serving clients that need to navigate the EU’s many national tax, legal and financial systems which, for all the harmonisation to date, remain different in many respects.

It has become the EU’s main hub for several large Chinese banks, including Bank of China and ICBC. Swiss banks, too, increasingly use the duchy to serve EU clients.

Even German banks send customers with complex, pan-European affairs to their Luxembourg offices.

The Chinese have another reason to beef up in Luxembourg: it has established itself as the largest centre for yuan lending, deposit-taking, investment funds and securities-settlement in the euro zone. Luxembourg’s role will be boosted further by the Chinese central bank’s recent decision to allow the yuan to be traded directly against the euro in the interbank foreignexchange market. It is also, on some measures, the third-largest centre for Islamic funds, after Saudi Arabia and Malaysia. To show its commitment in this area, Luxembourg’s government recently issued the first euro-denominated sovereign sukuk, the Muslim version of a bond.

Luxembourg has another string to its bow, as a giant centre for the administration (but not management) of investment funds. It handles the back-office functions and distribution for nearly 4,000 funds with combined assets of €2.9 trillion ($3.7 trillion). It has benefited especially from the rise of the “UCITS” fund, a European product that is popular with retail investors in Asia. It sees new European rules on products that appeal to institutional investors, such as private equity and hedge funds, as an opportunity to offer similar services to a new set of clients. Pensionfund managers in Asia and Latin America are increasingly using Luxembourg-registered funds to make investments in the EU. Officials like to say that funds have become Luxembourg’s “flagship” financial business. The industry is largely insulated from adverse developments on the tax front. Its growth may explain why Luxembourg and Gibraltar were the only places in Europe to make it into the top ten of a recent ranking of global financial centres, measured by whether they were likely to grow in importance. 7

82 Finance and economics

The Economist October 11th 2014

Sovereign defaults

Empty vaults

Double trouble Five-year CDS* spreads, percentage points 2.0 Venezuela 1.5

Will the next country to stiff bondholders be Ukraine or Venezuela?

1.0 Ukraine

A

CENTRAL bank that takes a visiting economist down to its vaults to prove that it does indeed have the reserves it claims must be very worried about market sentiment. And so Venezuela’s should be: the price of insuring the country’s bonds against default has risen by 80% over the past two months—suggesting they are the world’s riskiest (see chart). Bond yields over 16% also imply that markets are bracing for a crash. Last month Standard & Poor’s, a ratings agency, downgraded Venezuela, saying there was a one-in-two chance of default within two years.

Venezuela’s main rival for the title of riskiest sovereign debtor is Ukraine, rated worst in class by all big credit-rating agencies. An ongoing conflict on the eastern border with Russia is playing havoc with its economy and public finances. Ukraine’s economy is expected to shrink by a stunning 8% this year, and the price of insuring its debt against default has nearly doubled since June.

Venezuela’s difficulties were precipitated by a spending spree around elections in 2012, when it borrowed heavily from foreigners at short maturities. Those bonds are now beginning to come due. Servicing this external debt will cost $7 billion this year and at least another $10 billion a year for the next three years. Against these obligations Venezuela has thinning reserves of just over $20 billion (including the gold in the central bank’s vaults), down by about half since 2008. Less than $2 billion of that is in foreign cash.

In theory, Venezuela’s oil exports could generate the income to pay its foreign creditors. Last year they brought in an estimated $86 billion. But the oil price is falling, and the fiscal deficit has ballooned to 17% of GDP. The government has resorted to rationing and price controls amid a scramble for foreign exchange. Inflation is over 60%.

New forecasts from the International Monetary Fund (IMF) project that Venezuela’s economy will shrink 3% this year and a further1% in 2015.

Painless policy responses are as scarce as dollars. An aggressive devaluation might help close Venezuela’s current-account gap, but at the cost of fanning inflation. It is also an unpopular solution, which will not appeal to politicians; elections to the legislature loom next year. Default looks more attractive, especially since the publication of a fiery argument in favour by Ricardo Hausmann and Miguel

2012

13

0.5 0

14

Source: Markit

*Credit-default swaps

Angel Santos, both of Harvard University.

The markets seem to think that Nicolás Maduro, Venezuela’s president, may well plump for the populist option, despite his insistence that international creditors will be paid “to the last dollar”.

If stiffing “foreign devils” is the expedient choice in Venezuela, it may be simple necessity in Ukraine, which remains in dire straits despite striking a $17 billion, two-year financing deal with the IMF in April. War has battered an economy that was already limping. Ukraine’s current-account deficit has grown from wide to yawning, causing the hryvnia to plunge by a third against the dollar since the start of the year. In January public debt looked just about sustainable at 40% of GDP; it is now considerably less bearable at an estimated 60% of GDP and may rise to 80% next year.

The IMF based its bail-out on much rosier forecasts.

International aid has done little more than buy Ukraine time. It must pay external creditors $9 billion by the end of next year (including $3 billion to Russia), plus an additional $5 billion in 2016 and $8 billion

in 2017. There is also domestic debt coming due and billions of dollars in overdue bills for gas from Russia. Foreign-exchange reserves are drying up fast, having fallen from $37 billion in 2011 to $16 billion now.

Last month the IMF admitted Ukraine might need another $19 billion if the fighting did not end. Most analysts believe that a top-up is needed regardless.

Ukraine has little room to manoeuvre.

The coming months will bring falling temperatures—not to mention parliamentary elections, an IMF check-up and the possibility that Russia may exercise a clause in its loan agreement allowing it to demand early repayment when debts rise above 60% of GDP. A Russian threat last month to call in Ukraine’s debts early pushed yields on Ukrainian bonds to their highest levels in months.

The good news is that Ukraine still has time to pull off an orderly restructuring.

Kenneth Rogoff and Carmen Reinhart, two Harvard economists, argued in “This Time is Different” that defaults need not be catastrophic, so long as haircuts are administered speedily and fairly. Ukraine’s government may be best advised to pre-empt jittery markets and start haggling with bondholders, rather than wait until default is imminent.

Yet Ukraine is more likely to cling to faint hopes, not least to avoid the humiliation ofhaving to negotiate with Russia. The IMF may oblige by increasing its bail-out by just enough to get Ukraine through this winter. The country might even limp through to the next one. But with no oil to pump or other treasures to sell, it is hard to see how Ukraine’s shrinking economy can service its current debts, let alone the new ones the IMF is providing. The longer it delays, the greater the pain will be when its credit finally does run out. 7

The world’s biggest economies This week the International Monetary Fund updated its data on the world economy. For the first time it ranks China’s economy as the world’s biggest in purchasing-powerparity terms. Historians, though, point out that China is merely regaining a title that it has held for much of recorded history. In 1820 it probably produced one-third of global economic output. The brief interlude in which America overshadowed it is now over.

World’s biggest three economies, GDP at PPP* as % of world total Historical output within the boundaries of modern countries

India

China

Italy

Turkey

France

Britain

US

USSR

Japan

70 60 50 40 30 20 10 1

1000

1500

Sources: Angus Maddison; IMF; The Economist

1600

1700

1820

70

1900

50

2000 14

0

*Purchasing-power parity

The Economist October 11th 2014 Greece’s shadow economy

The treasures of darkness

Finance and economics 83 Winding down failing banks

Armageddon delayed Throwing sand into the gears of the financial doomsday machine

Getting Greeks to pay more tax is not just hard, but risky

T

WO out of three Greek workers either understate their earnings or fail to disclose them to the taxman altogether, according to Stephen Hall, an adviser to the Bank of Greece. Last year an estimated 24% of all economic activity in Greece went undeclared to evade tax and regulation, well above the European average of19%.

The IMF, which was in Athens this week to check up on Greece’s public accounts, would like to bring more of this activity into the sunlight, to boost government revenues. After a calamitous recession in which the economy shrank by 30%, government debt now stands at 174% of GDP; the budget deficit last year was almost 13% of GDP. But there is a risk that an overly aggressive tax-raising drive will compound the problem.

Greeks, even more than their counterparts elsewhere, feel that their taxes are wasted. One study, using data from the 1990s, put Greece’s “tax morale” fourthlowest of 26 countries. Greece’s public sector is more corrupt than that of any other EU state, according to Transparency International, a pressure group. Satisfaction with public services is extremely low. No wonder, then, that many Greeks have few qualms about not paying their share.

Greece also has high self-employment, which tends to lead to bigger underground economies. It is relatively easy for those working for themselves to evade income tax and social-security contributions.

Greeks have plenty of incentive to do so: government levies account for 43% of labour costs, compared with the rich-country average of 26%.

A big shadow economy, naturally, crimps government revenue. Each percentage-point increase in the underground economy’s share of GDP lifts the debt-toGDP ratio by 0.4 percentage points, according to a recent study of 11 European countries. Before Greece joined the euro, it was able to reduce its debts through high inflation. With monetary policy now in the hands of the European Central Bank, that option is no longer available: inflation has been negative for more than a year.

Lots of shady activity may also be bad for growth. Shadowy firms find it hard to borrow, which limits their productivity. According to Francesco Pappada of the Einaudi Institute of Economics and Finance many small firms in Greece deliberately avoid taking out loans because it involves being more transparent. Unproductive

“W

E WILL not kick you when you are down, at least not for a couple of days”: that is the gist of a putative deal struck by 18 global banks this week, which agreed not to pull abruptly out of contracts with each other if one of them hits the buffers. As modest as that may sound, regulators see it as the foundation of a firewall to halt the spread of future financial crises.

The agreement concerns derivatives, contracts whose value “derives” from the performance of an underlying asset such as a share, currency or bond. Banks use them to hedge themselves or speculate, to the chagrin of regulators who dislike how hard they are to value and how easily they can entangle financial institutions in a web of interdependency.

If a bank will benefit from invoking its right to demand early settlement of such contracts when a counterparty runs into trouble, it tends to do so, naturally enough. Lehman Brothers discovered

this in 2008; bankruptcy lawyers are still untangling the mess. If everyone cuts and runs at once, however, the stricken party has to hand over cash when it can least afford it, deepening the crisis.

By contrast, a brief stay might give regulators time to right a listing bank, by forcing it to sell off still-healthy units, say.

America and Europe have instituted such moratoriums since the crisis, but these do not apply to cross-border deals. Global rules which extend the principle to asset managers and others are in the pipeline.

Banks hope their voluntary fix will assuage regulators’ concerns that many of them are still “too big to fail”. Officials are increasingly anxious to find a way to close ailing financial firms without sparking a global panic. American regulators recently sent back for revision all 11 “living wills” they have received from banks, which explain how they might be wound down in a crisis. But at least one element of such a resolution is now clearer.

firms pay low wages.

The IMF wants Greece to learn from Peru, which in the 1990s tackled tax evasion by creating a small, well-trained task force. Eliminating the many exemptions and loopholes in its labyrinthine tax system will help, by making it possible to lower rates, thereby reducing the incentive to cheat. On October 6th the government unveiled a budget that included tax cuts.

Greece may also refine its definition of tax fraud in an attempt to catch more evaders.

But the taxmen must tread with care.

Over 25% of Greeks are officially unemployed; the shadow economy is a lifeline to many of them, notes Friedrich Schneider of Johannes Kepler University.

Two-thirds of shadow earnings are spent almost immediately at businesses that do pay tax. Too severe a crackdown on tax evasion might put all that in jeopardy. Take a law passed in 2011 but yet to be implemented, which mandates that certain workers use time clocks to monitor their working hours. It may simply discourage bosses from hiring, thus bringing in little revenue while lowering incomes.

Greece should instead try to coax shadowy businesses into the open. Mr Schneider wants to see short-term tax exemptions for those who work a second job at night. Mr Pappada wants Greece to offer tax breaks to small businesses that take out loans. Both schemes would encourage workers and firms to register with the government, making it easier to shrink the shadow economy over time.

The best cure, though, would be a sustained economic expansion. According to the European Commission, Greece will grow by 0.6% this year and 2.9% next. Unemployment in the second quarter of 2014 was 3.6% lower than a year before. As unemployment falls and wages rise, the urge to go underground will wane. At any rate, that is what happened from 1993 to 2003, when growth averaged 2.5% a year and the shadow economy shrank by a third. 7

Does that include VAT?

84 Finance and economics

The Economist October 11th 2014

Free exchange Unproductive production Weakening productivity is casting doubt on the sustainability of China’s growth

T

HE growth of China’s economy is staggering: it produced $9.5 trillion-worth of goods and services in 2013, nearly three times more than in 2007. But has that growth come simply from deploying more labour and capital? Or did total factor productivity (TFP)—the efficiency with which those two inputs are used—also increase? China’s future growth hinges on the answer.

A period of high growth does not necessarily involve a rise in productivity. The more people there are in employment, and the more factories and roads there are for them to use, the bigger an economy will be. But those workers and roads may not be put to good use. As long as the amount by which labour and capital grow outpaces any fall in productivity, GDP will still increase.

Growth of this sort, however, can last only so long. Neither labour nor capital are infinite. In the long run, improving the productivity with which they are used is the magic ingredient for any economy, the only path to sustainable growth. Hence the concerns about China. A series of estimates published this year have all suggested that productivity is flagging.

At the pessimistic end of the range is Harry Wu, an economist who has devoted much research to the shortcomings of China’s official economic data. He finds that since 2007 TFP has actually been a drag on the economy, denting growth by about 0.9 percentage points a year. At the more optimistic end, researchers at the World Bank think TFP added nearly three percentage points a year to growth from 2000 to 2010—but even they reckon that is 40% lower than in the 1990s. In between these two estimates are Jianhua Zhang, Chunxia Jiang and Peng Wang, two of whom are with the People’s Bank of China. They conclude that productivity increased just 1.5% a year between 1997 and 2012.

As these diverging estimates suggest, overall productivity growth, despite being central to economics, is frustratingly difficult to pin down. It cannot, after all, be seen. When comparing two workers with the same job in the same company, it is easy to determine which one produces more. For economies, such appleto-apple comparisons are not possible. Instead, economists get at TFP by subtracting the change in capital and labour deployed from the change in overall output. The difference (known as the Solow residual, after Robert Solow, the economist who pioneered this method) reflects the contribution of productivity to

growth. In this way, the unseen becomes visible.

But the process requires several accounting somersaults. Assumptions are needed about, among other things, the size of the capital stock, the rate of capital depreciation and the level of workers’ education. Mr Wu does not trust official GDP figures and so constructs his own. Because his estimate of average annual growth for 2008-12 (6.5%) is dramatically lower than the official figure (9.3%), his calculations yield a negative Solow residual. Productivity, in other words, appears to have gone into reverse.

This conclusion looks too gloomy. For one thing, there are problems with Mr Wu’s own numbers. He relies on a selective sampling of official data and applies far-reaching yet apparently arbitrary adjustments to them, assuming, for instance, that reforms in the 1990s added only 1% to services growth. Many other economists see problems with Chinese data—lumpy growth figures are often smoothed, for instance—but not enough to justify such extensive revision, especially during the past decade when there has been a proliferation of data from China’s trading partners that can be used to verify the Chinese numbers.

But even the more sanguine estimates from the World Bank and the researchers at the central bank reveal a worrying trend in terms of TFP. It may still be positive but it has slowed, and quickly at that. All agree that a massive accumulation of capital, rather than any improvement in the efficiency with which it is used, has become the dominant engine driving China’s GDP. In search of lost growth How worrying is this? Some slowdown in productivity is only natural after three decades of rapid growth. The World Bank calculates that the reallocation of both labour and capital from farms to factories and from state-owned firms to private enterprise accounted for nine-tenths of TFP’s contribution to growth in 2000-10. But as the private sector grows and ever more workers flood to the cities, the returns from this are bound to diminish.

There is another, more worrying factor behind the deceleration in productivity, however: bad lending and investment decisions. Financial development, handled well, should promote growth by improving the allocation of resources. But the researchers from the central bank find a strongly negative correlation in China between growth in lending and in TFP. That is an indication that state-owned banks, which still dominate China’s financial sector, are not disbursing enough credit to the country’s most deserving companies. And the economy is consuming more and more capital. China’s incremental capital-output ratio (ICOR), a measure of how much investment it takes to achieve each percentage point of growth, rose to 5.4 in 2012 from 3.6 over the preceding two decades, according to the World Bank. Japan, South Korea and Taiwan were far more efficient during their highgrowth phases, with ICORs of 2.7-3.2.

Perhaps this should not be surprising. The Chinese government has warned about overcapacity in scores of industries from steel to textiles. Heavy capital spending gins up growth when factories are built, but it also shows up in the data as weak productivity if the factories are only partly used. Nevertheless, it is still alarming. The Communist Party has long pledged to make China’s economy more efficient. The data on TFP show that it is struggling to do that. Accumulating productive capacity is easier than putting it to productive use. 7 Economist.com/blogs/freeexchange

Property

The Economist October 11th 2014

85

86

Property

The Economist October 11th 2014

Science and technology

The Economist October 11th 2014 87 Also in this section 88 Improving prosthetic limbs 89 The 2014 Nobel science prizes

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

Global health

A new challenge Seat tle

The Gates Foundation’s Grand Challenges in Global Health programme is a decade old. How has it done, and what should it do in the future?

T

EN years ago the Bill & Melinda Gates Foundation began divvying up the money for what it hoped would be a novel approach to the task of solving the world’s health problems. The new programme’s organisers, led by Mr and Mrs Gates themselves, had identified 14 “grand challenges” in the field—from “preparing vaccines that do not require refrigeration” to “developing a genetic strategy to deplete or incapacitate a disease-transmitting insect population”—and had invited suggestions from the world’s scientists for specific projects of a sort that might not otherwise get funded, which might meet these goals. Not surprisingly, since the foundation had announced a year earlier that it was making $200m available to pay for all this, hundreds of research groups lined up to dip their bread in the gravy.

A bold idea then, perhaps bordering on the naive. And that word was used more than once by Mr Gates, in a tenth-anniversary review meeting of the Grand Challenges in Global Health programme, as it is known, which was held this week in Seattle. He and his fellow board members had hoped their philanthropic version of venture capitalism would lead to breakthroughs in the search for vaccines and other treatments for widespread and destructive diseases such as malaria. A decade—and $1 billion—later, neither the original project nor its offspring, Grand Challenges Explorations (which gives seed

money to young researchers rather than relying, as the original did, on established names) has thrown up any of the blockbusters that real venture capitalism requires to counterbalance the numerous, inevitable failures. Undaunted, though, Mr and Mrs Gates used this week’s meeting to announce a new set of challenges, this time spreading the net wider than the strictly science-based suggestions the programme has encouraged until now.

The story so far Though not as spectacular as its organisers had hoped at the outset, Grand Challenges in Global Health has enjoyed at least modest success. Of the 44 original projects, a fifth are moving towards fruition and another fifth have worked in part. Scott O’Neill of Monash University, in Melbourne, for example, was one of the original challengers. He plans to attack dengue fever not by killing the mosquitoes which transmit it, but by making those insects immune to the virus that causes it. Conveniently, such immunity is conferred by a bacterium called Wolbachia. More conveniently still, this bacterium is sexually transmitted in a way that encourages it to become ubiquitous (it passes from mother to egg, and if an uninfected female mates with an infected male, her eggs will not develop—so the number of infected mosquitoes increases with each generation).

That might wipe dengue out, at least lo-

cally. Grand Challenges has therefore invested $44m in Dr O’Neill’s project, and the Wellcome Trust, the Tahija Foundation and the Gillespie Family Foundation, three other charities, have added more. Dr O’Neill and his team have begun field trials in Australia, Brazil, Indonesia and Vietnam, releasing Wolbachia-infected mosquitoes to see if these can establish themselves as theory predicts they should.

Another promising project, led by James Collins of Boston University, is attempting to create a drink laced with bacteria that kill other, cholera-causing bacteria after they have become established in someone’s intestines. Dr Collins’s genetically engineered bugs will produce anticholera drugs, and then disintegrate when their work is done. He has started a company, called Synlogic, to develop this idea and to investigate whether it can be extended to other diseases.

Tinkering with gut microbes to treat disease is all the rage now, so Dr Collins could be on to a good thing. But other grand-challenge ideas are more speculative. The “explorations” part of the project is, for instance, backing an astrophysicist who proposes to use lasers to herd malarial mosquitoes away from people, and a car mechanic who is trying to help the health of newborns by adapting a common carrepair tool to assist with difficult births.

One grand-challenges investment in neonatal health that is already paying off is a machine designed to stop the lungs of premature babies collapsing. Such machines have been around in rich countries for a long time but, at $6,000 a pop, the poor cannot afford them. Rebecca Richards-Kortum, a bioengineer at Rice University, in Houston, Texas, has developed a version that costs $400. These have been installed in 17 hospitals in Malawi, the country that has the world’s highest rate of1

88 Science and technology 2 pre-term births. The survival rate for pre-

mature infants born in these hospitals has, as a consequence, risen from 24% to 65%.

All of this is good, of course, and may end up justifying the original investment.

But it is not quite the stuff of grands projets.

The Gateses had been hoping for something more spectacular when the programme started. Hence, perhaps, this week’s change of course.

The new grand challenges are rather different from the existing ones. “All children thriving”, “putting women and girls at the centre of development” and “creating new interventions for global health” sound more like aspirations than proposals for action. Indeed, the third of them embraces 11 of the original grand challenges under a single heading. And this time the foundation is not going it alone. All sorts of partners, from America’s foreign-aid agency to the governments of Brazil, Canada, India and South Africa, are being recruited.

The new challenges are, in part, a response to criticism that the original ones were too technocratic. The Victorians, for example, got rid of cholera not by treating people who developed it, but by developing the political will to build sewers. More generally, public health depends on educating people and persuading them to change their behaviour, as well as on having the right medicines, as the example of HIV and AIDS eloquently shows. That sort of approach requires social change as well as appropriate technology.

Hot fuzz?

Ideas like “all children thriving” and “putting women and girls at the centre of development” do indeed ooze of social sensibility. Children will not thrive by the invention of a new vaccine if mothers are not convinced of that vaccine’s value—and those mothers are less likely to be convinced if they are poorly educated, which is why they need to be at the centre of development. The grand challenges’ change of direction thus makes sense.

And yet, what made the Gates’s original challenges such a refreshing approach was precisely their specificity. The whole bureaucratic apparatus of global health and development, from foreign-aid agencies to charities to the World Health Organisation is signed up to the idea of children thriving and of women and girls being at the centre of development. No right-thinking person believes these to be bad ideas.

But they are often fuzzy ideas. If the Gates Foundation can bring to them specific proposals to improve matters, as it has tried to do with disease, then its change of tack may blossom. But if the Grand Challenges programme loses that specificity, and gets buried in the groupthink which pervades the field of international do-goodery, then a valuable alternative approach will, from a scientific viewpoint, have been lost. 7

The Economist October 11th 2014 Prosthetic limbs

Once more, with feeling Artificial limbs that feel like the real thing are getting closer

P

ROSTHETIC body parts are nothing new. In 2000 researchers published in the Lancet an account of a 3,000 year old Egyptian mummy with a wooden big toe grafted to her right foot. It had been expertly carved, and painted to match her skin tone. Making limbs that look natural, though, is one thing. Making them feel real is much harder, because a real limb is constantly talking to the brain that controls it.

That lack of feedback, and the discomfort it causes, is one reason why between a quarter and a half of people fitted with an artificial limb end up abandoning it. But two papers just published in Science Translational Medicine report progress towards dealing with the problem of feedback.

Daniel Tan and his colleagues at the Louis Stokes Veterans Affairs Medical Centre, in Cleveland, Ohio, created signals that appeared to come from the prosthetic arms of two volunteers by implanting electrodes around nerves in the amputees’ stumps (see below). When they connected these electrodes to a machine that generated electrical signals, both volunteers reported sensations which seemed, to them, to be coming from their hands.

The nature of the sensations depended on what sort of current Dr Tan applied. The simplest stimulation—a repetitive squarewave—produced an unnatural, vaguely electrical feeling. Using more elaborate patterns, though, the researchers could recreate everything from simple sensations such as pressure, vibration and tapping to more complicated feelings, as of a pen brushing lightly against the skin or of the hand rubbing across a texture.

Restoring sensation has practical uses.

Modern prostheses are able, by reading

electrical signals from muscles using electrodes attached to the skin of the missing limb’s stump, to perform tasks such as picking things up. Delicate tasks, however, can be tricky, since the user must rely on a combination of sight and experience to work out how much pressure to apply. For example, when Dr Tan blindfolded his volunteers and asked them to pluck the stalks from cherries without crushing the fruit, they succeeded only 43% of the time. But when he connected pressure sensors attached to the protheses’s fingers to the signal-generating machine, and gave them appropriate feedback, the success rate jumped to 92%.

Intriguingly, one unexpected benefit was that the device’s feedback banished the phenomenon of phantom limbs, in which an amputee perceives that his missing appendage is still present. Without the computer-generated sensations, both volunteers reported that their prosthetic hands felt like external tools (one described it as like an artificial hand that he was holding with his phantom hand).

Switching the sensations on made the hand feel like an integral part of the body.

The main drawback of Dr Tan’s approach is that the wires to the implanted electrodes must penetrate a patient’s skin.

Besides being ugly and clumsy, that opens a route to infection. As they describe in their paper, Max Ortiz-Catalan of Chalmers University of Technology in Sweden and his colleagues hope to rectify this by combining implanted electrodes with a state-of-the-art prosthetic-limb-mounting system.

Standard prostheses are held in place by a compression socket, which squeezes the artificial limb onto the stump of the natural one. That can be uncomfortable, and the socket is a constant infection risk.

So Dr Ortiz-Catalan turned to a procedure called osseointegration, in which an implant is fixed directly into the patient’s bones, leaving a small, protruding metal “abutment” onto which the limb can be attached. He has managed to combine a set of implanted electrodes with a custom- 1

The Economist October 11th 2014

Science and technology 89 tween the geography of the outside world and the geography of an animal’s brain.

In 2005 the Drs Moser, working on a brain region connected to the hippocampus, the entorhinal cortex, found a more complex system of location cells, now known as grid cells. These, as their name indicates, are arranged in a hexagonal grid (place cells seem distributed haphazardly).

Unfortunately for neurologists, these grids do not seem to be physical maps of the outside world. The brain is not so simple.

Work on disentangling exactly how they represent geography continues.

2 built osseointegrated socket.

One advantage of such a socket is that it allows implanted electrodes to control the prosthesis, instead of relying on secondhand signals detected through the skin.

That improves performance. Previously, for example, Dr Ortiz-Catalan’s patient had been unable to lift his artificial arm by more than about 80°: any further and the control mechanism got confused by electrical noise from the shoulder muscles.

And Dr Ortiz-Catalan has also been able, by running current into the electrodes instead of just reading from them, to induce in his patient sensations that appear to be coming from the artificial hand.

Combining these two approaches, then, should produce a big advance in the efficacy of artificial limbs. And the subjective benefits could be just as important as the practical ones. Part of the problem of phantom limbs is that they often hurt. By abolishing the phantoms, Dr Tan’s technique also abolishes the pain. Asked about the comparison between a limb with feedback and one without, the participants were unequivocal. As one put it, “I’d rather have it in a heartbeat.” 7

The 2014 Nobel science prizes

Blue’s brothers Prizes for work on light-emitting diodes, animal navigation and microscopy

T

HE Nobel prizes were originally intended to reward people or organisations who, as the founder’s will put it, “have conferred the greatest benefit on mankind”. Often, in the field of physics, that benefit is a measure of understanding of the very small or the very distant: a light shone into the vast darkness of ignorance about how the universe works. This year, by contrast, the physics prize has been awarded for an actual light that has already conferred great benefit on mankind, and promises yet more. Isamu Akasaki of Meijo University, Hiroshi Amano of Nagoya University and Shuji Nakamura of the University of California, Santa Barbara, shared in cracking the problem of making diodes that give off blue light.

The light of candles and lamps gave way to the incandescent bulb in the 19th century, but such bulbs still squander a great deal of electrical energy as heat. A light-emitting diode (LED) uses semiconductors to convert electricity into light with almost perfect efficiency.

LEDs, though, make light in narrow bands of colour dictated by the properties of the semiconductor. Red LEDs came first, in the early 1960s. Green ones took until

Nobel’s prize was eternal fame the end of that decade. But blue, the third primary colour needed to be able to generate white light, was elusive. That took until the early 1990s, when Drs Akasaki, Amano and Nakamura worked out how to do it, using a substance called gallium nitride.

LED-based lighting, armed with all three primaries, is now displacing not only incandescent bulbs, but also fluorescent ones. But blue light has made its own way as well. Blue diodes lie at the heart of DVD players and their aptly named Blu-ray successors. Communications and computing are heading towards a future that makes more use of light’s properties, and blue’s short wavelength is best for ever-smaller technologies. As the members of Sweden’s Royal Academy of Science, who award the physics prize, put it during their press conference, this year’s winner is more an “invention” prize than a “discovery” prize. But it is an invention, they said, that would have made Alfred Nobel happy.

On the grid The prize for physiology or medicine was, by contrast, most definitely a discovery prize. It went to three scientists who have helped work out how mammals navigate.

Between them John O’Keefe of University College, London, and May-Britt Moser and Edvard Moser of the Norwegian University of Science and Technology, in Trondheim, identified two sets of cells, in two neighbouring parts of the brain, which tell that brain where it is.

Dr O’Keefe published his prize-winning work in 1971. He had been studying rats’ brains by recording the electrical activity of individual nerve cells in an area called the hippocampus. He found that some cells, now known as place cells, were quiet most of the time, but burst into life whenever the rat in question was in a particular part of its range—different cells being active in different places. This was the first indication that there is a specific relationship be-

Flashes of inspiration The chemistry prize went to Eric Betzig, Stefan Hell and William Moerner, for inventing ways to make microscopes better, by circumventing what is known as Abbe’s resolution limit. This is the fact, noted in 1873 by Ernst Abbe, that a microscope cannot properly see any object smaller than half the wavelength of the light it uses.

Dr Hell, of the Max Planck Institute for Biophysical Chemistry, in Germany, relied on lasers to circumvent the resolution limit. By delivering precisely calibrated pulses, a laser can be used to make certain molecules fluoresce. His system employs two beams, one to induce fluorescence and another to suppress it in all but a tiny area of the sample being studied. By sweeping the combined beam across a sample, and measuring the light emitted by the glowing molecules, features much smaller than the Abbe limit can be resolved.

Dr Betzig, of the Howard Hughes Medical Institute, and Dr Moerner, of Stanford University, also rely on fluorescence. In their technique, a biological sample is tagged with a special protein that glows when exposed to light. Weak light of the appropriate wavelength is shone on the sample, which persuades a small fraction of the special protein molecules to light up.

An image is taken, the light is switched off, and the procedure is repeated. Provided the glowing molecules are farther apart than the Abbe limit, their relative positions can be discerned. Repeat the procedure and a different set of molecules will glow.

Repeat it often enough, and combining the images it generates allows a detailed picture that includes features smaller than the Abbe limit to be built up.

The advantage of both techniques is that they can be used to study cellular processes as they happen. Electron microscopy is able to resolve much smaller details than optical microscopy can manage, but because it must take place in a vacuum it cannot be used to study living samples.

The techniques pioneered by Drs Hell, Betzig and Moerner allow researchers to see proteins being shuttled around a cell, or observe individual neurons creating and pruning connections to other neurons—in other words, to watch life as it unfolds. 7

90

The Economist October 11th 2014

Books and arts

Also in this section 91 Tennessee Williams, a life 91 Marlon James’s gangland fiction 92 The marshmallow test

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

Fondation Louis Vuitton

Winged victory PARIS

A new private museum marks a change for France

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OU can just see its glass wingtips flashing above the treetops of the Bois de Boulogne. Close up, the new museum designed by Frank Gehry looks like a futuristic ship with sheer slanting sails. As befits its patron, Bernard Arnault, chairman and CEO of LVMH, the world’s largest luxurygoods conglomerate, the Fondation Louis Vuitton is meant to make a statement.

The museum opens on October 27th. It has taken six years and, sources close to the project say, cost a third more than its €100m ($125m) budget. The museum was funded by LVMH and bears the name (and logo) of its flagship brand, Louis Vuitton.

But the building is a personal triumph for Mr Arnault, who had wanted Mr Gehry on board as soon as he saw his Guggenheim Museum in Bilbao, Spain, in 2001.

The Frenchman is one of several rich patrons opening private museums around the world. Earlier this year two huge new showcases for contemporary art opened in Shanghai: the Long Museum, commissioned by two collectors, Liu Yiqian and Wang Wei, and the Yuz Museum, built by an Indonesian Chinese businessman, Budi Tek. Next year, Eli Broad is set to open his museum in Los Angeles.

American cultural institutions are often privately built, but France has long viewed culture as the preserve of the state and incompatible with commerce. Corporate art patronage is understated, even at the 30year-old Fondation Cartier which is fund-

ed by the jeweller. Yet with state spending on the arts being squeezed, even in France, companies and private individuals are stepping in with bold spaces that enjoy the backing of its political leaders. The Fondation Vuitton is a milestone. When a group of private residents and environmentalists managed to have its building permit annulled by a court in 2011, the French parliament passed legislation declaring the project to be in the public interest, overriding that and any related rulings.

The lawmakers knew that, under the agreement for the one-hectare plot signed between the Fondation Vuitton and the city of Paris, the building would become city property after 55 years. The mayor of Paris, Anne Hidalgo, one of Fondation Vuitton’s early champions, says it is “a gift for Paris” with “nothing but benefits”.

How much can change in a decade. As recently as 2005 another art-loving French billionaire, François Pinault, founder of a rival luxury group now called Kering, gave up his dream to build a private museum in Paris. Five years before he had announced plans for a €150m art foundation on the site of the old Renault factory on Ile Seguin in the suburb of Boulogne-Billancourt, and he commissioned a Japanese architect, Tadao Ando, to design it. In the end, frustrated by bureaucratic delays and the lack of surrounding infrastructure, he decamped to Venice. Jean-Pierre Fourcade, the then mayor of Boulogne-Billancourt, admits to

delays, but says Mr Pinault’s family and advisers also found the project too costly.

Mr Pinault, who owns Christie’s and has a considerable collection of contemporary art, took over Palazzo Grassi, the exhibition venue formerly run by Fiat in Venice, and turned the city’s old customs building, Punta della Dogana, into a private showcase. So far he has spent €60m there, according to an adviser, Jean-Jacques Aillagon, a former French culture minister.

Over at the Fondation Vuitton, Mr Gehry has been careful to create uneccentric, museum-style interiors: 11 galleries, a bookshop, a restaurant, a 350-seat auditorium and a large foyer. The inaugural exhibition will focus on maquettes, sketches and videos of his architecture, coinciding with a Gehry show at the Pompidou Centre.

The launch will also feature new commissions by such artists as Olafur Eliasson and Ellsworth Kelly. Later, the Fondation will hold a solo Eliasson show and an historic exhibition including works loaned by other museums in a programme curated by its artistic director, Suzanne Pagé, formerly head of the Musée d’Art Moderne de la Ville de Paris. Highlights of the LVMH collection, which includes works by JeanMichel Basquiat, Gilbert & George and Jeff Koons, will also regularly be displayed, along with occasional loans from Mr Arnault’s personal art trove.

Mr Pinault, meanwhile, is quietly rebuilding his profile in France. In late 2013 he inaugurated a show of his collection at the Conciergerie in Paris, and he has since announced that he is opening an artists’ residence next to the new Louvre offshoot in Lens, in northern France. His adviser, Mr Aillagon, says a permanent Pinault space in France is not off the cards, and that he and Mr Pinault have visited a number of sites and buildings. The private museum in France may be set for a shinier future. 7

The Economist October 11th 2014

Books and arts 91 Fiction: Jamaica gangs

Gang stories A Brief History of Seven Killings. By Marlon James. Riverhead; 688 pages; $28.95. Oneworld; £18.99

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Tennessee Williams

Making Tenn out of Tom Tennessee Williams: Mad Pilgrimage of the Flesh. By John Lahr. W.W. Norton; 765 pages; $39.95. Bloomsbury; £30

W

HEN Thomas Lanier Williams III decided, in his early 20s, to become a playwright, he had, by his own admission, “not seen more than two or three professional productions: touring companies that passed through the South and Middle West”. Of his first professionally produced play he wrote, “Probably no man has ever written for the theatre with less foreknowledge of it.” But he had one thing going for him: he was raised in a supremely dysfunctional family anchored by two parents who loathed each other.

His father, Cornelius Coffin “CC” Williams, was a taciturn and loveless travelling salesman prone to fits of drunken rage (he hailed from one of the first families of Tennessee—whence his son’s pen-name).

Edwina, Williams’s mother, was judgmental, frigid and pious, but also as loquacious as her husband was laconic. Williams’s sister Rose lived mostly in mental institutions, and underwent one of the first lobotomies performed in America (she was also the principal beneficiary of Williams’s considerable trust fund after his death).

This motley crew, explains his biographer John Lahr, “was never far from his mind. In a sort of séance with the ghosts of his past, their narratives and their voices were perpetually reworked into his cast of characters.” The neurotic, chatty belles of his plays (Amanda Wingfield in “The Glass Menagerie”, Blanche DuBois in “A Streetcar Named Desire”) trace back to his neurotic, chatty mother, just as the hard-drinking, dominating father-figures such as Big

EIGHING in at nearly 700 pages and spanning three decades, there is nothing “brief” about Marlon James’s third novel, “A Brief History of Seven Killings”. What’s more, before readers get to the start, they have to wade through a four-page cast list which would be forbidding were it not so useful. But Mr James’s chronicle of late 20th-century Jamaican politics and gang wars manages consistently to shock and mesmerise at the same time.

The story is told through various points of view. Bam-Bam, Demus and Weeper are gang members under the tutelage of Papa-Lo, “the don of the dons”. They all safeguard their turf and, as Jamaica’s tense national election looms in 1976, “remind people how to vote”. Barry Diflorio¸the local CIA station chief, is given the task of monitoring the spread of communism on the island after “that Bay of Pigs flop show”. Alex Pierce, a reporter on assignment for Rolling Stone magazine, smells a bigger story and sets out to discover “what’s ticking in this country, right about to boom”. Nina Burgess, an unemployed receptionist, disappears after a clash with her family, only to reappear in later chapters in a series of different guises. And the ghost of Sir Arthur George Jennings, who dies after being pushed off a balcony, reappears after each significant killing, offering meditations on death like some benign reaper.

Daddy Pollitt in “Cat on a Hot Tin Roof” stem from CC. For good reason Mr Lahr calls Williams “the most autobiographical of American playwrights”.

This is neither the first biography of Williams nor the first critical analysis of his work, but it is the first to weave both strands together so well. Mr Lahr, an accomplished American theatre critic, proves both an astute and careful reader of Williams’s words and a dogged researcher; to his credit he avoids the biographer’s cardinal sin of letting the minutiae of his subject’s life overwhelm the broader story.

That story has two aspects, both stemming from Williams’s unshakable commitment to his art. One is the success that commitment brought: two Pulitzer prizes, at least six plays that reside permanently in the American theatrical canon, lasting

The author ventures into the hardscrabble streets, jails and ghettos of1970s Kingston and the crack houses of1980s New York before revisiting a dramatically reborn Jamaica in the 1990s. His fictional recreation of the attempted assassination of Bob Marley results in bloody clampdowns, savage reprisals and the rise of a psychopathic enforcer, Josey Wales. As the narrative unfolds, it reveals a network of murky alliances.

Mr James’s “Brief History” is a brutal one. Robberies, rapes and beatings are constant. The bodies pile up as cokeaddled, god-fearing, bullet-scarred gangsters turn their adversaries “from is to was”. Only a scattering of sympathetic characters and the book’s ironic title provide anything resembling light relief.

And yet once you grow accustomed to the dark, you adapt to the rhythm of Mr James’s muscular prose and the visceral close-ups of Kingston’s ghettos, where people are “so poor that they can’t even afford shame”. Best of all is the dialogue.

Mr James’s Jamaican patois occasionally borders on impenetrable (“Then hi, a wah dis deh ‘pon we’?”), but with careful reading you get it, especially when its musicality is tinged with menace: “We be top ranking bad man.”

“A Brief History of Seven Killings” could have done with more of the redemptive shading that tempered the horror of slavery in his earlier work, “The Book of Night Women” (2009), a finalist for National Book Critics Circle Award.

For the most part, though, this tale of a country and its people ravaged and transformed by tragedy packs quite a punch. fame and vast wealth. The other recounts the toll it took on Williams and everyone around him. Nearly all his personal and professional relationships shattered on the shoals of his titanic ego, and his need to be cared for and shown love while giving none away.

He came to treat his longest-lasting lover, Frank Merlo, as something between a housewife and a social secretary. Mr Lahr keenly notes that in the plays written during that relationship’s turbulent late period, “the idea of the couple was continuously subverted, dramatised as a travesty (“Baby Doll”), a tragedy (“Orpheus Descending”) or an impossibility (“Cat on a Hot Tin Roof”). Williams had a gift for using people up; as he explained in an interview, “I’m gregarious and like to be around people, but almost anybody will 1

92 Books and arts 2 do…I prefer people who can help me in

some way or another, and most of my friendships are accidental.” Williams himself, of course, was not immune from this destructive streak. He drank heavily, and eventually died alone on a hotel-room floor, next to an empty vial of pills and a couple of wine-bottle corks.

Contemporary, particularly young, theatregoers accustomed to both open acceptance of homosexuality and frank depictions of sex in all its permutations on stage and screen, may find Williams’s treatment of desire overwrought or archaic. But for his time he was radical. He moved the social realism ofEugene O’Neill and Anton Chekhov inward, to the human heart (and loins). If by the end of his life his work seemed rather old-fashioned, it was he who had made the fashion. 7

A memoir of gratification

Desire delayed The Marshmallow Test: Mastering Self-Control. By Walter Mischel. Little, Brown & Company; 326 pages; $29. Bantam; £20

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N THE 1960s Walter Mischel, then an up-and-coming researcher in psychology, devised a simple but ingenious experiment to study delayed gratification.

It is now famously known as the marshmallow test. In a sparsely furnished room Mr Mischel presented a group of children aged four and five from Stanford University’s Bing Nursery School with a difficult challenge. They were left alone with a treat of their choosing, such as a marshmallow or a biscuit. They could help themselves at once, or receive a larger reward (two marshmallows or biscuits) if they managed to wait for up to 20 minutes.

Mr Mischel, now of Columbia University, reveals in his first non-academic book, “The Marshmallow Test”, that the purpose of the study was to look at the methods children use to delay gratification—not to measure how well they did it. He admits now that he did not expect that the time they managed to wait “would predict anything worth knowing about their later years”. But after his daughters, who had attended the Bing Nursery, told him years later about how their friends from preschool were doing, Mr Mischel noticed that those who did well socially and academically tended to be those who had waited longest in the test.

He went on to survey many of the 550or-so children who were tested between 1968 and 1974. To his surprise, the longer the five-year-olds had waited for their marshmallows, the higher they scored on

The Economist October 11th 2014 standardised tests for college admissions a decade later. The patient children had a lower body-mass index when they grew up, greater psychological well-being, and were less likely to misuse drugs than those who had quickly gobbled up the treat.

Mr Mischel has published more than 200 academic papers, and at the age of 84 is still an active researcher. His book is best read as a memoir of gratification and as a tribute to the many researchers who have explored the field of delayed gratification that he once pioneered. His aim in his new book is to tell the reader about the latest “in the marshmallow work”.

The key to understanding the test lies in looking at what Mr Mischel calls two systems in the brain: a “hot” system that is simple, reflexive and emotional and a “cool” one that is rational, reflective and strategic. (Those familiar with Daniel Kahneman’s “Thinking Fast and Slow” will quickly get the distinction between the two systems; one of Mr Mischel’s chapters is even entitled “Thinking Hot and Cool”.)

Using the cool system helps children to wait for the extra marshmallow, and brain scans show that this system is more likely to be activated when people think about the distant future. Shifting from thinking about the “now” to pondering about the “later” can improve self-control. The author even tried out the experiment on himself; he overcame his own smoking addiction in part by focusing on the longterm consequences and by reminding himself of the cancer risks.

Mr Mischel goes to some lengths to put an end to the notion that willpower is an innate trait that you either have or don’t have. Citing recent research, he writes that “the genome can be as malleable as we once believed only environments could be.” He uses the recorded upward trend in IQ scores in developed countries as an example. There have been big increases in

scores on intelligence tests from one generation to the next, which is too fast a progression to be caused by evolution or genetic changes. Self-control, like smartness, may be affected by genes. But nature sets only the direction—not the destiny.

The marshmallow test is often thought of simply as a measure of a child’s selfcontrol. But the author shows that there is much more to it. One of Mr Mischel’s early studies in Trinidad suggests that a preference for delayed rewards also can be a matter of trust. Children who grow up with absent parents, Mr Mischel surmised, may be less likely to believe that they will actually get the promised delayed reward from the stranger who is carrying out the experiment. Indeed, he found that children with absent fathers, in particular, were prone to opt for immediate rewards. He believes the test also shows how the ability to postpone rewards is closely related to vigorously pursuing goals and to holding positive expectations. These traits, in turn, help explain why waiting for marshmallows at the age of five has such a strong relationship to outcomes in adult life.

Mr Mischel is so keen on his test that he may occasionally see too much in it. His claim that postponing rewards may be causally related to better close relationships, for example, may seem a little farfetched. On the whole, though, “The Marshmallow Test” is a fascinating read.

By making good use of a 50-year-old study that still has plenty of life in it, the author manages to avoid the trap of repeating past work that is no longer relevant while also making his readers interested in the future.

In crisp, clear English he explains the latest research and helps readers understand better the surprising results of one the most well-known psychological experiments of all time. That alone is a considerable achievement—and makes the book well worth the wait. 7

Stuffing your face means more than you’d think

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Economic and financial indicators Economic data % change on year ago Gross domestic product latest qtr* 2014† United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Hungary Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Venezuela Egypt Israel Saudi Arabia South Africa

+2.6 Q2 +7.5 Q2 -0.1 Q2 +3.2 Q2 +2.5 Q2 +0.7 Q2 +0.6 Q2 +1.0 Q2 +0.1 Q2 +1.3 Q2 -0.3 Q2 -0.2 Q2 +1.1 Q2 +1.2 Q2 +2.5 Q2 +0.3 Q2 +3.9 Q2 -0.3 Q2 +3.3 Q2 +0.8 Q2 +2.6 Q2 +1.4 Q2 +2.1 Q2 +3.1 Q2 +1.8 Q2 +5.7 Q2 +5.1 Q2 +6.4 Q2 +5.4 2014** +2.4 Q2 +3.5 Q2 +3.7 Q2 +0.3 Q2 nil Q2 -0.9 Q2 +1.9 Q2 +4.3 Q2 +1.6 Q2 +1.0 Q4 +2.5 Q1 +1.0 Q2 +4.0 2013 +1.0 Q2

+4.6 +8.2 -7.1 +3.7 +3.1 +0.1 nil +0.3 -0.1 -0.6 na -0.7 +2.8 +2.3 +1.4 +0.8 +3.1 +3.7 na na +2.9 +0.8 na +2.0 -0.6 +3.1 na na na +0.1 +2.0 +3.9 +3.5 +3.6 -2.4 +0.6 -0.6 +4.2 +3.6 na +1.5 na +0.6

+2.2 +7.3 +1.0 +3.1 +2.3 +0.8 +1.0 +1.0 +0.4 +1.5 +0.4 -0.2 +0.6 +1.2 +2.5 +0.9 +3.0 +2.2 +2.7 +0.4 +2.1 +1.5 +3.0 +3.0 +2.4 +6.0 +5.2 +6.0 +5.4 +3.5 +3.6 +3.7 +1.9 -1.4 +0.4 +2.2 +5.0 +2.3 -2.5 +1.8 +2.4 +4.0 +2.0

Industrial production latest

Current-account balance Consumer prices Unemployment latest 12 % of GDP latest 2014† rate, % months, $bn 2014†

+4.1 Aug +1.7 Aug +6.9 Aug +2.0 Aug -2.9 Aug +3.3 Aug +2.5 Aug +1.5 Aug +4.7 Jul +2.1 Aug +2.2 Jul +0.3 Sep -1.2 Jul +1.7 Aug -1.2 Jul -0.1 Sep +0.1 Jul +0.4 Aug -3.0 Aug +0.8 Sep -2.1 Jul -0.3 Aug -1.8 Jul -0.1 Sep +0.7 Jul +1.0 Aug -1.8 Aug -0.2 Sep -5.2 Aug +0.6 Aug -6.5 Jul +0.5 Aug +5.1 Aug +0.2 Aug -0.7 Aug +2.1 Aug -1.9 Aug -0.3 Aug +0.1 Aug +8.1 Sep -2.4 Aug -0.2 Aug +3.1 Q2 -0.1 Sep -4.6 Jul +8.9 Sep +4.6 Q2 +3.0 Q2 +2.2 Q2 +3.9 Aug +0.5 Jul +7.8 Aug +1.4 Jul +4.5 Sep +0.5 Jul +3.3 Aug +1.2 Jul +7.7 Sep +4.2 Aug +0.9 Aug -2.8 Aug +1.2 Sep +7.0 Aug +0.7 Sep -2.7 Aug +1.8 Sep -2.9 Aug — *** -5.4 Aug +6.7 Sep -1.8 Aug +4.9 Sep +1.8 Jul +2.9 Sep +2.1 Jul +4.1 Aug +0.8 Sep +63.4 Aug +20.0 Jul +11.5 Aug -2.2 Jul nil Aug na +2.8 Aug -8.0 Jul +6.4 Aug

+1.8 +2.1 +2.8 +1.7 +1.9 +0.6 +1.7 +0.7 +0.7 +1.0 -1.2 +0.3 +0.8 nil +0.6 +0.7 +0.3 +2.0 +0.3 +7.5 +0.1 +0.1 +8.9 +2.6 +3.7 +8.0 +5.6 +3.1 +8.3 +1.5 +1.5 +1.5 +2.4 — +6.3 +4.1 +2.9 +3.8 +64.4 +9.5 +0.7 +2.9 +5.9

5.9 Sep 4.1 Q2§ 3.5 Aug 6.2 Jun†† 7.0 Aug 11.5 Aug 4.7 Aug 8.5 Aug 10.5 Aug 6.7 Sep 27.0 Jun 12.3 Aug 8.0 Aug 24.4 Aug 7.3 Sep§ 5.0 Aug 7.6 Aug§†† 3.4 Jul‡‡ 11.7 Aug§ 4.8 Aug§ 7.4 Aug§ 3.2 Sep 9.1 Jun§ 6.1 Sep 3.3 Aug‡‡ 8.8 2013 5.7 Q1§ 2.8 Jul§ 6.2 2013 2.0 Q2 3.3 Aug§ 3.9 Aug 0.7 Aug§ 7.5 Q2§ 5.0 Aug§ 6.7 Aug§‡‡ 8.9 Aug§ 4.9 Aug 6.7 Jul§ 13.3 Q2§ 6.4 Aug 5.6 2013 25.5 Q2§

-389.2 Q2 +164.8 Q2 -5.5 Aug -147.5 Q2 -50.4 Q2 +318.2 Jul +6.4 Q2 -4.2 Jun -50.1 Jul‡ +278.7 Jul +2.0 Jul +31.7 Jul +86.3 Q1 -1.6 Jun -0.8 Q2 +23.7 Jul +5.9 Q2 +57.9 Q2 -6.1 Jul +48.2 Q2 +36.6 Q2 +78.4 Q2 -48.5 Jul -42.8 Q2 +4.4 Q2 -18.4 Q2 -26.3 Q2 +18.7 Q2 -2.6 Q2 +56.5 Q2 +87.8 Aug +64.0 Q2 +12.5 Q2 -6.2 Q2 -78.4 Aug -6.5 Q2 -14.9 Q2 -24.5 Q2 +6.9 Q3 -2.4 Q2 +8.5 Q2 +132.9 Q1 -18.8 Q2

-2.5 +2.0 +0.2 -4.2 -2.6 +2.3 +2.7 -0.7 -1.4 +6.8 +0.6 +1.2 +9.7 +0.4 +0.2 +6.8 +2.0 +11.1 -1.2 +3.3 +6.0 +11.8 -5.8 -2.5 +0.5 -2.0 -3.5 +6.0 -2.1 +20.2 +5.3 +11.8 +2.6 -0.9 -3.6 -1.9 -3.7 -1.7 +1.5 -2.5 +2.0 +14.4 -5.4

Budget Interest balance rates, % % of GDP 10-year gov't 2014† bonds, latest -2.8 -2.9 -7.9 -4.5 -2.6 -2.6 -3.0 -2.5 -4.0 +0.4 -3.6 -3.3 -2.7 -5.7 -1.8 -1.4 -2.9 +12.2 -3.5 +0.4 -2.1 +0.3 -2.6 -1.5 +0.7 -4.9 -2.2 -3.5 -7.0 +0.5 +0.6 -1.3 -2.1 -2.7 -3.9 -1.1 -1.5 -3.6 -12.2 -12.2 -3.1 +2.5 -4.4

2.34 3.93§§ 0.51 2.36 2.01 0.91 1.11 1.22 1.27 0.91 6.73 2.34 1.07 2.11 1.11 1.16 4.41 2.32 2.84 9.69 1.42 0.53 9.72 3.37 1.91 8.41 na 3.88 13.35††† 2.32 2.85 1.70 3.02 na 11.51 4.90 6.79 7.75 15.72 na 2.26 na 8.01

Currency units, per $ Oct 8th year ago 6.14 108 0.62 1.12 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 21.7 5.87 242 6.47 3.30 40.1 7.21 0.96 2.29 1.13 7.76 61.4 12,240 3.27 102 1.28 1,074 30.4 32.6 8.47 2.42 595 2,037 13.5 12.0 7.15 3.72 3.75 11.2

6.12 97.0 0.62 1.03 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 18.8 5.49 217 5.95 3.08 32.2 6.41 0.90 1.98 1.06 7.75 61.9 11,516 3.20 106 1.25 1,074 29.4 31.4 5.82 2.20 499 1,892 13.1 6.29 6.89 3.56 3.75 9.94

Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, Aug 38.49%; year ago 20.05%. †††Dollar-denominated bonds.

The Economist October 11th 2014

Markets Index Oct 8th United States (DJIA) 16,994.2 China (SSEA) 2,494.5 Japan (Nikkei 225) 15,596.0 Britain (FTSE 100) 6,482.2 Canada (S&P TSX) 14,666.5 Euro area (FTSE Euro 100) 997.8 Euro area (EURO STOXX 50) 3,053.3 Austria (ATX) 2,123.2 Belgium (Bel 20) 3,100.0 France (CAC 40) 4,168.1 Germany (DAX)* 8,995.3 Greece (Athex Comp) 1,007.9 Italy (FTSE/MIB) 19,645.5 Netherlands (AEX) 403.5 Spain (Madrid SE) 1,055.1 Czech Republic (PX) 960.1 Denmark (OMXCB) 654.3 Hungary (BUX) 17,710.8 Norway (OSEAX) 634.3 Poland (WIG) 53,173.2 Russia (RTS, $ terms) 1,082.6 Sweden (OMXS30) 1,331.8 Switzerland (SMI) 8,517.3 Turkey (BIST) 72,943.5 Australia (All Ord.) 5,241.6 Hong Kong (Hang Seng) 23,263.3 India (BSE) 26,246.8 Indonesia (JSX) 4,958.5 Malaysia (KLSE) 1,824.3 Pakistan (KSE) 30,103.2 Singapore (STI) 3,226.7 South Korea (KOSPI) 1,965.3 Taiwan (TWI) 8,955.2 Thailand (SET) 1,543.4 Argentina (MERV) 10,773.6 Brazil (BVSP) 57,058.5 Chile (IGPA) 19,137.5 Colombia (IGBC) 13,314.6 Mexico (IPC) 44,488.0 Venezuela (IBC) 2,808.1 Egypt (Case 30) 9,587.8 Israel (TA-100) 1,311.1 Saudi Arabia (Tadawul) 10,851.5 South Africa (JSE AS) 48,033.6

% change on Dec 31st 2013 one in local in $ week currency terms +1.1 +2.5 +2.5 +0.8 +12.6 +11.1 -3.0 -4.3 -7.1 -1.1 -4.0 -6.8 -0.9 +7.7 +2.2 -4.1 -2.2 -9.9 -4.4 -1.8 -9.6 -3.1 -16.6 -23.2 -3.1 +6.0 -2.4 -4.5 -3.0 -10.7 -4.1 -5.8 -13.3 -4.8 -13.3 -20.2 -5.1 +3.6 -4.6 -3.2 +0.4 -7.5 -3.9 +4.3 -4.0 -2.9 -2.9 -11.0 -5.4 +15.6 +6.7 -1.4 -4.6 -15.0 -5.3 +5.2 -1.3 -1.7 +3.7 -5.3 -2.8 -8.4 -25.0 -3.6 -0.1 -11.0 -3.1 +3.8 -3.4 -1.6 +7.6 +1.1 -1.7 -2.1 -2.9 +1.4 -0.2 -0.2 -1.2 +24.0 +24.9 -3.5 +16.0 +15.4 -1.1 -2.3 -2.2 +0.4 +19.2 +22.3 -1.1 +1.9 +0.7 -1.3 -2.3 -4.0 -0.4 +4.0 +1.9 -2.8 +18.8 +19.8 -6.4 +99.8 +53.8 +7.9 +10.8 +8.0 +0.7 +5.0 -7.2 -0.8 +1.9 -3.4 +0.3 +4.1 +1.2 -3.4 +2.6 na -1.6 +41.4 +37.4 +1.0 +8.6 +1.2 nil +27.1 +27.1 -1.7 +3.8 -2.7

Economic and financial indicators 101

The Economist poll of forecasters, October averages (previous month’s, if changed) Real GDP, % change Low/high range average 2014 2015 2014 2015 Australia 2.6 / 3.2 2.3 / 3.3 3.0 2.8 Belgium 0.7 / 1.4 0.7 / 2.0 1.0 (1.2) 1.3 (1.4) Britain 2.9 / 3.4 2.3 / 3.5 3.1 (3.2) 2.7 (2.8) Canada 2.1 / 2.6 2.3 / 3.1 2.3 2.5 France 0.3 / 0.5 0.5 / 1.5 0.4 (0.5) 1.0 Germany 1.3 / 1.8 1.2 / 2.1 1.5 (1.7) 1.7 (1.8) Italy -0.4 / nil 0.3 / 1.2 -0.2 (nil) 0.6 (0.8) Japan 0.5 / 1.6 0.5 / 2.0 1.0 (1.3) 1.2 Netherlands -0.1 / 0.9 0.9 / 1.7 0.6 (0.5) 1.3 (1.4) Spain 1.1 / 1.4 1.0 / 2.3 1.2 (1.1) 1.7 (1.6) Sweden 1.5 / 2.5 1.9 / 3.5 2.1 (2.3) 2.6 (2.8) Switzerland 1.1 / 2.3 1.3 / 2.8 1.5 (1.9) 1.9 (2.2) United States 2.0 / 2.3 2.6 / 3.4 2.2 (2.0) 3.0 Euro area 0.7 / 1.2 0.8 / 1.8 0.8 (0.9) 1.3

Consumer prices % change 2014 2015 2.6 (2.8) 2.5 (2.6) 0.7 (0.9) 1.2 (1.4) 1.7 1.9 1.9 2.0 0.7 (0.8) 1.0 (1.1) 1.0 1.5 (1.7) 0.3 (0.4) 0.7 2.8 1.8 0.8 (0.7) 1.3 (1.2) nil (0.1) 0.6 (0.7) 0.1 1.3 0.1 0.6 (0.7) 1.8 (1.9) 2.0 (2.2) 0.6 1.1 (1.0)

Current account % of GDP 2014 2015 -2.5 (-2.2) -2.5 (-2.0) -0.7 (-0.6) -0.7 (-0.5) -4.2 (-3.9) -3.7 -2.6 (-2.8) -2.3 (-2.4) -1.4 (-1.2) -1.4 (-1.1) 6.8 (7.2) 6.4 (6.8) 1.2 (1.3) 1.3 (1.5) 0.2 (0.3) 0.6 (0.7) 9.7 (10.0) 9.5 (9.9) 0.4 (0.7) 0.6 (0.9) 6.0 (6.3) 6.1 (6.2) 11.8 (12.3) 11.6 (12.4) -2.5 (-2.4) -2.5 (-2.4) 2.3 2.2 (2.4)

Sources: Bank of America, BNP Paribas, Citigroup, Commerzbank, Decision Economics, Deutsche Bank, Economist Intelligence Unit, Goldman Sachs, HSBC Securities, ING, JPMorgan Chase, KBC Bank, Morgan Stanley, RBC, RBS, Schroders, Scotia Capital, Société Générale, Standard Chartered, UBS

The Economist commodity-price index

Other markets

United States (S&P 500) United States (NAScomp) China (SSEB, $ terms) Japan (Topix) Europe (FTSEurofirst 300) World, dev'd (MSCI) Emerging markets (MSCI) World, all (MSCI) World bonds (Citigroup) EMBI+ (JPMorgan) Hedge funds (HFRX) Volatility, US (VIX) CDSs, Eur (iTRAXX)† CDSs, N Am (CDX)† Carbon trading (EU ETS) €

Index Oct 8th 1,968.9 4,468.6 268.1 1,274.9 1,319.1 1,673.5 998.8 411.1 923.9 701.7 1,228.2§ 15.1 67.5 67.0 6.1

% change on Dec 31st 2013 one in local in $ week currency terms +1.2 +6.5 +6.5 +1.1 +7.0 +7.0 nil +7.2 +5.7 -3.3 -2.1 -5.0 -3.5 +0.2 -7.7 -0.3 +0.7 +0.7 +0.2 -0.4 -0.4 -0.3 +0.6 +0.6 +0.7 +1.9 +1.9 +0.3 +7.7 +7.7 -0.9 +0.2 +0.2 +16.7 +13.7 (levels) +7.3 -10.4 -17.5 +3.7 +3.5 +3.5 +4.0 +20.3 +10.7

Sources: Markit; Thomson Reuters. *Total return index. † Credit-default-swap spreads, basis points. §Oct 7th.

Indicators for more countries and additional series, go to: Economist.com/indicators

2005=100

Sep 30th Dollar Index All Items 152.6 Food 165.6 Industrials All 139.1 Nfa† 128.4 Metals 143.6 Sterling Index All items 171.2 Euro Index All items 150.2 Gold $ per oz 1,212.8 West Texas Intermediate $ per barrel 91.3

Oct 7th*

% change on one one month year

154.9 170.6

-4.5 -4.3

-6.6 -7.2

138.5 129.1 142.6

-4.7 -2.8 -5.5

-5.9 -17.8 -0.3

175.1

-4.4

-6.5

152.5

-2.4

+0.5

1,210.5

-3.6

-8.8

88.8

-4.3

-14.2

Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional †Non-food agriculturals.

102

Obituary Baby Doc Duvalier

The Economist October 11th 2014 Michèle accelerated the plundering of government departments, to the tune of $16m in the first three months of 1981 alone. The cash went on furs, jewels, shopping trips to Paris, Givenchy gowns, champagne parties and gold-and-lapis lazuli fittings for the palace bathrooms. Few Haitians at the time enjoyed sewerage, or a paved road.

The more miserable they were, though, the more foreign aid came in, to be smartly diverted into Duvalier pockets. There was simply no incentive for the playboy dictator to improve things. In fact, the reverse.

Like father, like son

Jean-Claude (Baby Doc) Duvalier, ruler of Haiti, died on October 4th, aged 63

W

HEN the job of dictator of Haiti fell to his lot in 1971, Jean-Claude Duvalier did not want it. “What about MarieDenise?” he asked. His bossy elder sister would make an ideal tyrant for this dilapidated, sun-scorched, miserable western end of the island of Hispaniola. And she was desperate to do it, too. Or what about Simone, his mother, already First Lady in the gleaming white National Palace in Portau-Prince? Even his father, the much-feared Papa Doc, had been heard to say that his fat, gormless son was “not the best option”.

But when the time came, Papa Doc’s successor had to be a man; and so the grim paternal hand, small and wiry as a claw, descended on Jean-Claude’s ample shoulder.

“I’ve chosen him”, the posters said.

The people of Haiti had not had that pleasure. They endorsed the choice, though, in a referendum that passed by 2,391,916 to one. The machinery of terror set up by Papa Doc, reinforced by tontons macoutes (“bogeymen”) armed with sugarhacking machetes, obviously held good.

And Jean-Claude’s life of indolence, which consisted of snoozing through any instruction, rampant all-night sex romps and platefuls of grilled spiced pork washed down with 7-Up, was jolted up a bit.

He was19, and had no idea what a rulerfor-life was supposed to do. His father, con-

sumed by the revolution he was visiting on Haiti, never had time to train him. His childhood was that of most spoiled rich boys, punctuated by bursts of close gunfire—once during a Mardi Gras parade and once, killing the chauffeur of his limousine and two of his bodyguards, as he walked into school. He did not seem either bothered, or alerted. It became apparent only later that he had ingested many of his father’s ideas: of Haiti’s ruler as a version of God, or in his case God the Son; of its people as flawed, confused and barely rational, needing the slap of firm rule; of Haiti as a fief, and its paltry revenues as his own bank account; of marauding macoutes as his back-up plan of choice; and of his own ideology, Jeanclaudisme, as something to make “hearts beat and chests swell”.

Early on, he was happy to let himself be led by the forceful women round him. The habit took hold. At first it was his mother who dragged him to cabinet meetings (through which he slept) and fired ministers right and left. Then, after he had fallen in 1980 for the wildly sexy Michèle Bennett, a woman he saluted as “really dangerous!”, she did the firing. She also sent his mother packing, after months of screaming arguments all round the palace.

Jean-Claude already had a taste for stylish dressing and nice cars; but marriage to

Dancing with the devil Some Haitians thought Michèle had put an evil spell on him: not least because she was a rich pale-skinned mulatto, whereas Papa Doc had preached and practised noirisme, favouring the poorer blacks. Whatever she had done, voodoo haunted the palace. His mother danced frenziedly at night ceremonies, and his father was said to have made a pact with the devil to keep the Duvaliers in power. Jean-Claude had little time for that. He would rather swim, dance, play cards, shoot doves, or zoom bulkily on his Harley-Davidson round the lawns. Perhaps it was this disrespect for the spirits, as well as wholesale kleptomania, that led by 1980 to the collapse of the Haitian economy, the flight of thousands of boat people to Florida and, eventually, to food riots that forced Jean-Claude and Michèle out in 1986, their Louis Vuitton bags stuffed with so much art, silverware and cash from the central bank that there was no room for his clothes.

They left on an American plane. He was not a friend America wanted, yet he was useful: a source of dirt-cheap non-unionised labour for American businesses, which swarmed into Haiti in the 1970s, and a warmish anti-Communist in Cuba’s back yard. Whenever outside pressure was applied he would reform a little, relax curbs on the press, set the macoutes to treeplanting and appoint more liberal ministers, only to fire them, and have opponents killed, as soon as backs were turned. Stupid he might appear, but he played the United States as carefully as, in the opulent salons of the palace, he played his viola.

He returned to Haiti in 2011, surprising everyone. Exile, he said, had broken him.

Certainly it had broken the bank; Michèle had divorced him in 1993 and taken all the money, Haiti’s money, and he was living in two borrowed rooms in Paris. He came in the wake of a most terrible earthquake in which 300,000 Haitians had died and the palace, with much of the city, had collapsed, claiming that he wished to help. He did nothing useful, but stayed to dine out and drive fast cars round the hills north of Port-au-Prince. A Haitian judge found all charges against him voided by the expiry of the statute of limitations. 7

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